TABLE OF CONTENTS
<TABLE>
<S> <C>
Franklin California Growth Fund... 3
Franklin Global Utilities Fund.... 9
Franklin Small Cap Growth Fund.... 14
Franklin Global Health Care Fund.. 19
Franklin Strategic Income Fund..... 24
Franklin Institutional
Midcap Growth Fund................ 30
</TABLE>
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT FDIC INSURED
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY FINANCIAL
INSTITUTION;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
June 15, 1995
Dear Shareholder:
It's a pleasure to bring you the fourth annual report for the Franklin
Strategic Series, which covers the period ended April 30, 1995.
The fiscal year covered by this report was a reminder that volatility is a
fundamental market condition. In 1994, stocks delivered below-average returns,
and bonds had one of their worst years in history. 1995, to date, has been a
different story. Stock prices, as measured by the Dow Jones Industrial
Average(R), rose 12.58%, from 3838.48 on January 3, 1995 to 4321.27 on April
28, 1995, and long-term bond prices, as measured by 30-year Treasuries, rose
5.84% during the same period.(*)
Of course there can be no guarantee that these markets will continue to rise in
the months to come. As you know, markets experience both ups and downs, and
volatility is a normal part of investing. That's why we have always encouraged
you to focus on your long-term investment goals. As the charts on the following
page demonstrate, if you concentrate on the long term, you need not be unduly
concerned about how the market rises and falls in the short term.
* Source: Dow Jones Industrial Average; Merrill Lynch Long-Term Bond Index.
Indices are unmanaged.
<PAGE>
One way to help minimize the impact of market fluctuations is to diversify your
investments. The Franklin Strategic Series is composed of six different mutual
funds, offering individual investors a level of diversification that would be
almost impossible for them to achieve on their own. While the funds have
different strategies and objectives, their management teams all pursue
long-term investment goals, following the fundamental principles of careful
selection and constant professional supervision.
For specific information about each fund in the Series, including the effects
of market conditions and management strategies upon its performance, please
refer to the pages listed in the table of contents.
As always, we appreciate your support, welcome your questions and look forward
to serving you in the years to come.
Sincerely,
Rupert H. Johnson, Jr.
President
Franklin Strategic Series
GRAPHIC MATERIAL (1) & (2) OMITTED - SEE APPENDIX
2
<PAGE>
FRANKLIN CALIFORNIA GROWTH FUND
YOUR FUND'S OBJECTIVE
The Franklin California Growth Fund seeks capital appreciation through a
policy of investing at least 65% of its assets in the securities of
companies either headquartered or conducting a majority of their operations
in the state of California.
This report of the Franklin California Growth Fund covers the fiscal year ended
April 30, 1995. We are pleased to report that your fund provided a total return
of +29.09% over the twelve-month period, as shown in the Performance Summary on
page 8. These results compare quite favorably with the performance of the
Standard & Poor's 500 Stock Index(R), and Franklin California Growth Index(R),
which posted total returns of +17.42% and +24.54%, respectively, during the
same period. We are also pleased that Lipper Analytical Services, Inc., ranked
the Franklin California Growth Fund #1 out of 504 funds in the Lipper growth
stock category.(*)
The past year presented a challenging environment for financial markets. In
1994, returns on U.S. stocks, as measured by various indices, were essentially
flat because of the market's reaction to rising interest rates, the devaluation
of the Mexican peso, weakness of the dollar versus the Japanese yen and German
mark, and the bankruptcy of Orange County, CA. However, during the first four
months of 1995, U.S. equities made substantial upward progress due to a better
interest rate environment and strong corporate earnings. In fact, earnings have
impressed analysts for the past several calendar quarters and, in aggregate,
have exceeded the consensus estimates of brokerage analysts this year, a rather
rare circumstance.
Despite all this turmoil in these inter-connected financial markets, your fund
has been successful due to its adherence to a sound investment strategy. This
strategy is not based on any pre-
* The fund was ranked #1 for the one-year period ended April 30, 1995. Lipper
Analytical Services, Inc. is a nationally recognized mutual fund research
organization. Lipper rankings do not include sales charges; past and present
expense limitations increased the fund's total returns. Rankings may have been
different if such charges had been considered. Past performance is not
predictive of future results.
3
<PAGE>
determined proportion of "growth" to "value" stocks, nor do we seek to maintain
any particular ratio of "medium capitalization" to "small capitalization"
stocks. Rather, our investments are driven by fundamental business analysis
supported by solid research. We are most eager to identify, and invest in, the
few existing truly outstanding businesses. Such businesses share certain
characteristics: high, or even dominant, market share within a large and
clearly identifiable market niche; very high returns on the capital deployed in
the business; a captive customer base; reasonably predictable earnings; above
average growth potential; evidence of managerial excellence; and, critically,
the ability to reinvest in the business at high rates of return. Any investor
should be willing to pay a fair price for part ownership of such companies. We
believe that they are the surest path to long-term investment success. Our
holdings of such companies as Adobe Systems, Cisco Systems and Intel fit these
criteria well.
Our second highest priority in evaluating possible investments is in companies
that are leaders, but lack either the strong franchises or unusually favorable
fundamental economic characteristics that are enjoyed by the very few truly
great companies. We prefer companies that have a clearly identifiable niche in
their market giving them some control over their own destiny. Generally, we
attempt to make investments in these companies at favorable points in their
life-cycles, or when their stocks are trading below what we consider to be fair
value. Investments in 3Com, Fritz Companies, Mentor Corporation, Oracle,
Rockwell, Superior Industries, Vallicorp Holdings, Verifone, Western Atlas and
Xilinx are representative of this approach.
Making up the balance of our equity investments are stocks in companies that we
believe are either severely undervalued or are in their emerging growth stages.
We have found that price changes in stocks of such companies are usually more
exaggerated than those of our other stocks, and, in these cases, volatility of
individual securities can be very useful to us. Read-Rite Corp. and Western
Digital are two examples of such holdings in the electronic technology sector.
Selective participation in the new issue market this past year has also
benefited your fund. We purchased shares in newly public, emerging
4
<PAGE>
growth companies such as Ascend Communications, C-Cube Microsystems and NetCom
On-Line, and then sold them after they reached our analysts' targets. However,
we will keep an eye on their progress in case their share prices fall to
bargain levels.
As you can see in the chart to the right, many companies meeting our investment
priorities are participants in the technology sector. In fact, the three
largest sectors, Electronic Technology, Semiconductors, and Technology
Services, combined, make up 37.1% of the fund's total net assets. This reflects
our belief that technology will become increasingly important as the world's
economy moves from industrial-based to service- and information-based.
GRAPHIC MATERIAL (3) OMITTED - SEE APPENDIX
We also believe that in the years ahead, California companies will help produce
powerful innovations in the health care, general commerce, education, media,
and consumer markets. Our investments in premier biotechnology companies such
as Amgen, Chiron and Genentech, plus holdings in several HMOs, should give the
fund excellent exposure to opportunities in the health sector, in the area of
consumer media services, we have accumulated shares of Disney Co., which we
feel is a truly outstanding company with a solid customer base.
5
<PAGE>
Finally, we have purchased shares in California companies with international
economic exposure and prominence, such as Atlantic Richfield and Chevron. The
risks of investing in a non-diversified fund concentrating its investments in a
single state, such as increased susceptibility to adverse economic or
regulatory developments, are described in the prospectus.
Looking forward, we believe that California, which is ranked among the ten
largest economies in the world, is fertile soil for investment opportunity. Its
more than 800,000 companies produce more than $800 billion in goods and
services, which is equal to about 13% of the U.S. Gross Domestic Product
(GDP).(*) We do not foresee any shortage of potential investments in such an
environment, and we feel confident of our ability to take advantage of this
economic activity.
Thank you for your participation in the Franklin California Growth Fund. We
welcome any comments or suggestions you may have and look forward to serving
you in the years to come.
* Sources: California Trade and Commerce Agency, November, 1994; Economic Report
of the Governor, June, 1992.
- -------------------------------------------------
FRANKLIN CALIFORNIA GROWTH FUND
Top 10 Holdings on April 30, 1995
Based on Total Net Assets
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- -------------------------------------------------
<S> <C>
Intel Corp. 2.59%
Semiconductors
- -------------------------------------------------
Western Digital Corp. 2.31%
Electronic Technology
- -------------------------------------------------
Atlantic Richfield 2.07%
Energy Minerals
- -------------------------------------------------
Read-Rite Corp. 2.04%
Electronic Technology
- -------------------------------------------------
Catellus Development, pfd. 2.03%
Real Estate
- -------------------------------------------------
Vons Companies 1.92%
Retail
- -------------------------------------------------
Adobe Systems 1.81%
Technology Services
- -------------------------------------------------
Applied Materials 1.78%
Electronic Technology
- -------------------------------------------------
Altera Corp. 1.75%
Semiconductors
- -------------------------------------------------
Cisco Systems 1.73%
Electronic Technology
- -------------------------------------------------
</TABLE>
FOR A DETAILED LISTING OF PORTFOLIO HOLDINGS, PLEASE SEE PAGE 36 OF THIS
REPORT.
6
<PAGE>
PERFORMANCE SUMMARY
The Franklin California Growth Fund reported a total return of +29.09% for the
fiscal year ended April 30, 1995. Total return measures the change in value of
an investment, assuming reinvestment of dividends and capital gains at net
asset value, and does not include the maximum initial sales charge.
The fund's share price, as measured by net asset value, increased $1.98 per
share, from $12.05 on April 30, 1994 to $14.03 on April 30, 1995. During the
period, shareholders received distributions of 12.4 cents ($0.124) per share in
income dividends, 68.59 cents ($0.6859) per share in short-term capital gains
and 41.31 cents ($0.4131) per share in long-term capital gains. Of course, past
performance is not predictive of future results, and distributions will vary,
depending on the fund's income, as well as any capital gains realized from the
sale of securities in the portfolio.
The graph on page 8 shows how an investment made in the fund at its inception
on October 30, 1991, has outperformed the unmanaged Standard & Poor's 500 Stock
Index(R) (S&P 500(R)) and the unmanaged Franklin California Growth Index(R) as
of April 30, 1995. The S&P 500 is a broad market index, whereas the Franklin
California Growth Index is an equally-weighted index representing 250 of the
largest corporations headquartered in California. It is important to note that
an index does not contain cash (the fund generally carries a certain percentage
of cash at any given time), nor does an index include sales charges or
management fees. Of course, one cannot invest directly in an index, and past
performance is not predictive of future results.
7
<PAGE>
GRAPHIC MATERIAL (4) OMITTED - SEE APPENDIX
1. Includes all sales charges and represents the change in value of an
investment during the period shown. Total return assumes reinvestment of
dividends and capital gains at net asset value. Past performance is not
predictive of future results.
2. Includes reinvested dividends.
FRANKLIN CALIFORNIA GROWTH FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (10/30/91)
- ------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative
Total Return 3,4 29.09% 69.72% 69.13%
Average Annual
Total Return 5 23.26% 17.45% 14.66%
- ------------------------------------------------------------------
</TABLE>
3. The Franklin California Growth Fund changed its investment objective, policy
and name in July 1993. Cumulative total return from the date of the change
through April 30, 1995 was 51.03%.
4. Cumulative total return represents the change in value of an investment over
the specified periods and does not include the maximum 4.5% initial sales
charge.
5. Average annual total return represents the average annual increase in value
of an investment over the specified periods and includes the maximum 4.5%
initial sales charge.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares. Past performance can not guarantee future results.
The fund's manager has agreed in advance to waive a portion of the management
fees, which reduces operating expenses and increases total return to
shareholders. Without these reductions, the fund's total return would have been
lower. The waiver may be discontinued at any time.
8
<PAGE>
FRANKLIN GLOBAL UTILITIES FUND
FUND OBJECTIVE:
Seeks to provide total return by investing in securities of utility
companies located in the United States and around the world.
The investment environment for utility stocks varied greatly during the fund's
fiscal year. Market volatility during the first six months of the period
resulted from rising long-term interest rates. In the U.S., the 30-year
Treasury bond's yield increased almost 70 basis points to 7.97% on October 31,
from 7.31% on April 30, 1994. This market environment caused investors to turn
away from interest-rate sensitive utilities, and the stock prices fell.
Reflecting the market, the Franklin Global Utilities Fund's share price as
measured by net asset value (NAV) also declined during this time, from $12.60
on April 30, 1994, to $12.33 on October 31, 1994. By the end of December, the
fund had declined further to $11.43 per share.
Rising rates affected many foreign markets as well, particularly those closely
linked to the U.S. dollar, such as Argentina, Mexico and Hong Kong. For this
reason, the fund maintained a fairly defensive position, holding almost 15% of
its total net assets in cash during the first six months of the reporting
period.
GRAPHIC MATERIAL (5) OMITTED - SEE APPENDIX
During the second half, the U.S. economy slowed and further interest-rate hikes
seemed less likely. As a result, U.S. utility stocks became more attractive. As
the U.S. utilities market improved in early 1995, the fund's NAV also increased
steadily and ended the fiscal year at $12.23 per share.
9
<PAGE>
The price weaknesses in many utility sectors created excellent buying
opportunities. We purchased stocks of several companies with strong underlying
fundamentals that we believed were not fully reflected in their prices. By
April 30, we had reduced the fund's cash to 3.4% of total net assets, becoming
fully invested.
UNITED STATES
In the U.S., we increased our electric utility holdings dramatically after
interest rates peaked in mid-September and utility stock prices hit their
trough. During this time, we targeted electric utilities in particular because
they appeared to be very oversold.
This repositioning helped us considerably in the last six months of the
reporting period, as prospects for a slower growth economy and more stable
interest rates favored the traditionally defensive U.S. utility sector.
As always, we sought to purchase companies with strong growth prospects, good
competitive positioning and entrepreneurial management, such as Southern
Company, DPL Inc., Public Service of Colorado, Enron, and AT&T.
EUROPE
Investment opportunities in the European utility markets were mixed. The
diverse nature of German utility companies, coupled with the country's strong
currency, placed some of these companies, including VEBA, one of our largest
holdings, among Europe's best performing utility stocks.
Spain endured considerable weakness over the period, as political
uncertainties, fears of higher interest rates, and a weak currency had a
negative impact on our holdings there. However, weakness overshadowed the
strong fundamentals of Spanish utility companies and created many bargain
priced stocks. Thus, we increased our Spanish holdings over the last two months
of the period. Spain has since seen a strong recovery as political fears have
lessened.
The fund had very little exposure in the U.K. after we sold securities in the
first six months of the fiscal year. Utility companies there underperformed as
attention was focused on a changing political and regulatory environment. We
also made purchases there on weakness. During the period, some of the European
securities we accumulated for the fund in the European region
10
<PAGE>
include Empresa Nacional de Electricidad, Cable and Wireless, Telewest,
Scottish Power, ESPOON, and BritishTelecom.
LATIN AMERICA
Latin American utility stocks, in general, experienced increased volatility as
the Mexican currency crisis affected many surrounding countries. At the time,
the fund was underweighted in Latin America, and we sold half of our Telmex
holding (our only position in Mexico) before the crisis. The weakness in these
markets negatively affected the fund, particularly in January and February.
However, we were able to purchase two securities we considered both undervalued
and of high quality: Telefonica de Argentina and Grupo Iusacell.
ASIA
Asia is another region where we have been relatively underweighted. During the
fiscal year we sold several Asian company securities after strong price
performance made valuations appear expensive. While prospects for many of these
countries continue to improve, recent weakness in some of these markets has
made this region appear more attractively priced.
We expect to continue searching for high quality, growth utility companies in
Latin America and Asia, where, compared with the U.S., companies tend to have
much higher growth rates in earnings per share and dividends. These developing
nations have higher economic growth rates and strong, pent-up public demand for
basic necessities including telephones, electricity, and water.
Looking forward, we remain optimistic about the prospects for global utility
stocks. In the U.S., we will continue to evaluate the many attractive buying
opportunities resulting from last year's market declines. With the developing
competitive market, we will continue to pursue our strategy of selecting
utilities based on their competitive positions. Of course, no one knows how
soon true competition will arrive, but high-quality companies with aggressive,
more entrepreneurial management are already seeing price gains.
Elsewhere, the ongoing privatization of utilities in many emerging nations will
likely continue to present additional investment opportunities with potential
for high growth. There are, of course, special risks involved with investing
globally in a non-diversified fund concentrating its investments in a single
industry. These risks, which include currency fluctuations and increased
susceptibility to adverse economic, political, social, and regulatory
developments, are further discussed in the fund's prospectus.
11
<PAGE>
PERFORMANCE SUMMARY
The Franklin Global Utilities Fund reported a total return of +3.17% for the
one-year period ended April 30, 1995. Total return measures the change in value
of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the initial sales charge.
The fund's share price, as measured by net asset value, decreased from $12.60
on April 30, 1994, to $12.23 on April 30, 1995. During the reporting period,
shareholders received distributions of 36.5 cents ($0.365) per share in
dividend income and 35.8 cents ($0.358) per share in capital gains, of which
25.14 cents ($0.2514) represented short-term gains and 10.66 cents ($0.1066)
represented long-term gains. Of course, past performance is not indicative of
future results, and distributions will vary depending on income earned by the
fund, as well as any profits realized from the sale of securities in the
portfolio.
The chart on page 13 compares the total return performance of the fund with
that of the Standard & Poor's 500 Stock Index(R) (S&P 500(R)) since the fund's
inception on July 2, 1993. The S&P 500 is a broad market index consisting of
companies of various sizes. It is important to note that the index, unlike the
fund, is unmanaged, does not contain cash (the fund generally carries a certain
percentage of cash at any given time), and does not include sales charges or
management fees. Of course one cannot invest directly in an index.
12
<PAGE>
GRAPHIC MATERIAL (6) OMITTED - SEE APPENDIX
* Includes all sales charges and represents the change in value of an investment
over the period shown. Total return assumes the reinvestment of dividends and
capital gains at net asset value. Past performance is not predictive of future
results.
FRANKLIN GLOBAL UTILITIES FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (07/02/92)
- -----------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return 1 3.17% 35.32%
Average Annual Total Return 2 -1.45% 9.49%
- -----------------------------------------------------------------
</TABLE>
1. Cumulative total return shows the change in value of an investment over the
specified periods and does not include the maximum 4.5% initial sales charge.
See note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the maximum 4.5% initial
sales charge. See note below.
Note: The historical total return figures shown above pertain only to the
fund's Class I shares. Class II shares, which the fund began offering on May 1,
1995 are subject to different fees and expenses, which will affect their
performance. Total return figures for Class II shares are not yet available.
Please see the prospectus for more details regarding Class I and Class II
shares. All total return calculations assume reinvestment of dividends and
capital gains at net asset value. Investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you sell
your shares. Past performance cannot guarantee future results.
The fund's manager has agreed in advance to waive a portion of the management
fees, which reduces operating expenses and increases total return to
shareholders. Without this waiver, the fund's total return would have been
lower. The waiver may be discontinued at any time.
13
<PAGE>
FRANKLIN SMALL CAP GROWTH FUND
YOUR FUND'S OBJECTIVE
The Franklin Small Cap Growth Fund seeks long-term capital growth by
investing in equity securities of small-capitalization companies -- those
with a market capitalization of less than $1 billion at the time of
investment.
The Federal Reserve Board reacted to strong economic growth in 1994 by raising
short-term interest rates on several occasions. These actions compressed stock
valuations and exerted downward pressure on market prices. They appear to have
been successful because, in the first quarter of 1995, the economy slowed
significantly, interest rates stabilized, and the stock market responded by
reaching record-high levels.
Within this volatile environment, the fund performed extremely well. As you can
see in the Performance Summary on page 18, the fund delivered an impressive
one-year total return of +27.05%. This was significantly higher than the
+17.42% one-year total return reported by the Standard & Poor's 500 Stock
Index(R) (S&P 500(R)), and earned the fund a number 7 ranking out of 255 small
company growth funds, as measured by Lipper Analytical Services, Inc., a
nationally recognized mutual fund research organization.(1) It also helped
increase assets under management, from $24 million on April 30, 1994, to more
than $63 million on April 30, 1995.
In seeking to achieve the fund's objective of long-term capital growth, we
focus on stocks of small capitalization companies that we believe are well
positioned for rapid growth in revenues, earnings, or cash flow. By following
this strategy, we attempt to identify industries with significant growth
potential and invest in companies that are
1. Lipper rankings do not include sales charges; past expense limitations
increased the fund's total returns. Rankings may have been different if these
factors had been considered. Past performance cannot guarantee future results.
14
<PAGE>
leading this growth. We also try to find companies in the midst of their growth
phases because of special products or marketing niches, regardless of the
outlook for their overall industries. There are, of course, risks involved in
seeking capital appreciation from newly emerging companies, such as relatively
small revenues, limited product lines and small market share.(2)
By the end of the reporting period, the fund's investments were diversified
over a broad range of industries, including electronic technology,
semiconductors, technology services, financial services, communications, and
health services. The majority of our investments remained in the technology
sector due to the ongoing acceptance of, and demand for, new technological
products, which we believe will lead to significant growth well into the next
century.
GRAPHIC MATERIAL (7) OMITTED - SEE APPENDIX
We recognized gains during the fiscal year on some technology stocks that we
believed were fundamentally overvalued, such as Cascade Communications and
Applied Digital Access. We added positions in stocks with lower price to
earnings ratios, including Western Digital Corp., a major manufacturer of disk
drives for personal
2. These risks are further discussed in the fund's prospectus.
15
<PAGE>
computers, and Read-Rite Corp., a leading producer of thin-film heads for
magnetic disk drives. Our approach also uncovered investments in other sectors
that we feel have excellent growth opportunities. For example, we initiated a
position in the PMI Group, one of the nation's largest private mortgage
insurers, and purchased additional shares of Tommy Hilfiger Corp., a leading
manufacturer of casual apparel.
Looking forward, small capitalization companies should continue to provide an
opportunity to invest in tomorrow's industry leaders while they are still in
their emerging growth phases. Although it is impossible to predict the
long-term outlook for the economy, we feel that the current environment is
ideal for promoting the growth and development of smaller companies, and remain
confident that our value-oriented approach to growth stock investing should
position the fund to perform well under a variety of market conditions.
We thank you for your participation in the Franklin Small Cap Growth Fund and
look forward to serving your investment needs in the years to come.
- -------------------------------------------------------
FRANKLIN SMALL CAP GROWTH FUND
Top 10 Holdings on April 30, 1995
Based on Total Net Assets
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- -------------------------------------------------------
<S> <C>
Western Digital Corp. 2.29%
Computer Hardware
- -------------------------------------------------------
The PMI Group, Inc. 2.07%
Financial Services
- -------------------------------------------------------
Read-Rite Corp. 2.02%
Computer Hardware
- -------------------------------------------------------
Colonial Data Technologies Corp. 1.85%
Telecommunications
- -------------------------------------------------------
Magma Copper Co. 1.73%
Metals
- -------------------------------------------------------
Advocat, Inc. 1.71%
Health Services
- -------------------------------------------------------
Nokia Corp., pfd., ADR 1.69%
Electronics/Electrical Equipment
- -------------------------------------------------------
Tommy Hilfiger Corp. 1.67%
Textiles/Apparel
- -------------------------------------------------------
Verifone, Inc. 1.65%
Electronics/Electrical Equipment
- -------------------------------------------------------
Transaction Systems Architecture, Inc. 1.64%
Computer Software
- -------------------------------------------------------
</TABLE>
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE PAGE 48 OF THIS REPORT.
16
<PAGE>
PERFORMANCE SUMMARY
The Franklin Small Cap Growth Fund reported a total return of +27.05% for the
fiscal year ended April 30, 1995. Total return measures the change in value of
an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the initial sales charge.
The fund's share price, as measured by net asset value, increased from $12.75
on April 30, 1994, to $14.90 on April 30, 1995. During the reporting period,
shareholders received distributions of 2.1 cents ($0.021) per share in dividend
income and 99.7 cents ($0.997) per share in capital gains, of which 79.75 cents
($0.7975) represented short-term gains and 19.95 cents ($0.1995) represented
long-term gains. Of course, past performance is not indicative of future
results, and distributions will vary depending on income earned by the fund, as
well as any profits realized from the sale of securities in the portfolio.
As you can see from the chart on the following page, the fund outperformed both
the Standard & Poor's 500 Stock Index(R) (S&P 500(R)) and the Russell 2500
Index(R) for the one-year period ended April 30, 1995. The S&P 500 is a broad
market index consisting of companies of various sizes, whereas the Russell 2500
is an index of 2,500 companies with small market capitalizations. It is
important to note that both indices are unmanaged, do not contain cash (the
fund generally carries a certain percentage of cash at any given time), and do
not include sales charges or management fees. Of course, one cannot invest
directly in an index.
17
<PAGE>
GRAPHIC MATERIAL (8) OMITTED - SEE APPENDIX
* Includes all sales charges and represents the change in value of an
investment over the period shown. Total return assumes reinvestment of
dividends and capital gains. Past performance is not predictive of future
results.
** Indices are unmanaged and include reinvested dividends.
FRANKLIN SMALL CAP GROWTH FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (2/14/92)
- ---------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return 1 27.05% 69.37%
Average Annual Total Return 2 21.34% 16.16%
- ---------------------------------------------------------------
</TABLE>
1. Cumulative total return shows the change in value of an investment over the
specified periods and does not include the maximum 4.5% initial sales charge.
2. Average annual total return represents the average annual increase in value
of an investment over the specified periods and includes the maximum 4.5%
initial sales charge.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Investment return and principal value will fluctuate
with market conditions and you may have a gain or loss when you sell your
shares. Past performance cannot guarantee future results.
The fund's manager has agreed in advance to waive a portion of the management
fees, which reduces operating expenses and increases total return to
shareholders. Without this waiver, the fund's total return would have been
lower. The waiver may be discontinued at any time.
18
<PAGE>
FRANKLIN GLOBAL HEALTH CARE FUND
YOUR FUND'S OBJECTIVE
The Franklin Global Health Care Fund seeks capital appreciation by
investing primarily in the equity securities of health care companies
located throughout the world
The health care sector performed remarkably well over the past fiscal year
after it became apparent that the proposed National Health Care Reform Act of
1994 would not pass Congress. Health care stocks had underperformed the overall
stock market since the November 1992 presidential election because of
uncertainty surrounding the impact of health care reform on the fundamentals of
publicly traded health care companies. The shelving of the proposal, however,
abated much of this concern, and health care stocks began an upward climb. We
are pleased to report that the fund benefited from this improved investment
environment and provided an impressive one-year total return of +16.33%, as
shown in the Performance Summary on page 23.
At the end of the fiscal year, 88.5% of the fund's total net assets were
invested in equities, with the remaining 11.5% in cash. Our investment
portfolio continued to be allocated globally across several health care
sectors. The fund's largest sector was pharmaceuticals, which accounted for
18.9% of total net assets at the end of the reporting period. We increased the
fund's exposure
GRAPHIC MATERIAL (9) OMITTED - SEE APPENDIX
19
<PAGE>
to this sector by initiating a position in Roche Holding, a major Swiss
manufacturer of pharmaceutical and chemical products. On April 30, this company
was the fund's largest holding at 4.66% of total net assets. We remained
relatively underweighted in stocks of large U.S. pharmaceutical companies
because we believe they will continue to feel pricing and margin pressures due
to current reforms in the managed care sector.
Our second largest sector was specialty pharmaceuticals, which represented
17.6% of total net assets on April 30, 1995. We believe these stocks have
characteristics that should allow them to perform well for the remainder of
1995. While many companies in this sector are introducing new products and have
improved earnings prospects, their stocks have been out of favor with investors
and are, we believe, relatively undervalued.
We maintained a large weighting in the medical technology and supplies sector
because growth prospects for many of these companies have improved and rapid
consolidation is occurring within the industry. Increasing our exposure to this
sector slightly, we added a position in Mentor Corp., a leading manufacturer of
urological and cosmetic surgery devices.
Biotechnology stocks represented a relatively small weighting in the fund
because they have been underperforming other health care stocks due to
financial and product-related difficulties. We decreased our exposure to this
sector over the course of the fiscal year, from 7.3% on April 30, 1994 to 4.8%
on April 30, 1995.
Although we continue to like the managed care sector, many stocks in this group
performed poorly at the end of the period as a result of rising expenses within
certain prepaid plans. In reaction, we sold the fund's shares of U.S.
HealthCare, Inc., which has recently been subjected to increased costs and
initiated a position in Foundation Health Corporation, a leading provider of
HMO plans in California and the Southwest, whose costs are declining. We intend
to monitor this industry's competitive climate carefully and take appropriate
action when necessary.
Looking forward, we are optimistic about the prospects for the health care
industry and believe
20
<PAGE>
the upcoming fiscal year should offer investment opportunities similar to those
of the past year. We do not anticipate another broad-scope health care reform
bill arising in the U.S., nor do we envision major legislation impacting
foreign markets in the near future. While individual U.S. states may enact
their own reform bills to cope with rising medical costs, such legislation
would most likely favor companies in the areas of managed care and home health
care. Our goal, as always, is to provide our shareholders with exposure to
today's fastest growing health care companies by discovering global health care
investment opportunities in a timely and disciplined fashion. There are, of
course, special risks involved with investing globally in a non-diversified
fund concentrating its investments in a single industry. These risks, which
include currency fluctuations and increased susceptibility to adverse economic,
political, social and regulatory developments, are further discussed in the
fund's prospectus.
We appreciate your participation in the Franklin Global Health Care Fund and
look forward to serving your investment needs in the years to come.
- --------------------------------------------------
FRANKLIN GLOBAL HEALTH CARE FUND
Top 10 Holdings on April 30, 1995
Based on Total Net Assets
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------
<S> <C>
Roche Holding 4.66%
Pharmaceuticals
- --------------------------------------------------
Pfizer, Inc. 3.36%
Pharmaceuticals
- --------------------------------------------------
Pyxis Corp. 3.08%
Software/Information Systems
- --------------------------------------------------
Matrix Pharmaceuticals, Inc. 2.86%
Specialty Pharmaceuticals
- --------------------------------------------------
Noven Pharmaceuticals, Inc. 2.77%
Specialty Pharmaceuticals
- --------------------------------------------------
Sierra Health Services, Inc. 2.73%
Health Maintenance Organizations
- --------------------------------------------------
Penederm, Inc. 2.58%
Specialty Pharmaceuticals
- --------------------------------------------------
Humana, Inc. 2.57%
Health Maintenance Organizations
- --------------------------------------------------
Medeva PLC, ADR 2.52%
Pharmaceuticals
- --------------------------------------------------
MediSense, Inc. 2.50%
Medical Technology & Supplies
- --------------------------------------------------
</TABLE>
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE PAGE 53 OF THIS REPORT.
21
<PAGE>
PERFORMANCE SUMMARY
The Franklin Global Health Care Fund provided a total return of +16.33% for the
fiscal year ended April 30, 1995. Total return measures the change in value of
an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the initial sales charge.
The fund's share price, as measured by net asset value, increased from $10.43
on April 30, 1994 to $11.45 on April 30, 1995. During the reporting period,
shareholders received distributions of 6.1 cents ($0.061) per share in dividend
income and 55.9 cents ($0.559) per share in short-term capital gains. Past
performance is not indicative of future results, and distributions will vary
depending on income earned by the fund and any profits realized from the sale
of securities in the fund's portfolio.
The graph on the following page compares the fund's performance since inception
with the performance of the broad-based Standard & Poor's 500 Stock Index(R)
(S&P 500(R)). The fund and the index, however, are inherently different. The
index includes a variety of securities issued by companies not associated with
the health care industry. Furthermore, it does not contain cash (the fund
generally carries a certain percentage of cash at any given time) and does not
include sales charges or management expenses. Of course, one cannot invest
directly in an index.
22
<PAGE>
GRAPHIC MATERIAL (10) OMITTED - SEE APPENDIX
* Includes all sales charges and represents the change in value of an
investment over the period shown. Total return assumes reinvestment of
dividends and capital gains. Past performance is not predictive of future
results.
** Index is unmanaged and includes reinvested dividends.
FRANKLIN GLOBAL HEALTH CARE FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (2/14/92)
- ------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return 1 16.33% 27.16%
Average Annual Total Return 2 11.11% 6.24%
- ------------------------------------------------------------------
</TABLE>
1. Cumulative total return shows the change in value of an investment over the
specified periods and does not include the maximum 4.5% initial sales charge.
2. Average annual total return represents the average annual increase in value
of an investment over the specified periods and includes the maximum 4.5%
initial sales charge.
All total return calculations assume reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate with market
conditions and you may have a gain or loss when you sell your shares. Past
performance cannot guarantee future results.
The fund's manager has agreed in advance to waive a portion of the management
fees, which reduces operating expenses and increases total return to
shareholders. Without this waiver, the fund's total return would have been
lower. The waiver may be discontinued at any time.
23
<PAGE>
FRANKLIN STRATEGIC INCOME FUND
YOUR FUND'S OBJECTIVE:
The Franklin Strategic Series Income Fund seeks a high level of current
income, with capital appreciation over the long term as a secondary
objective. The fund uses an active asset allocation process and invests in
securities of foreign governments, U.S. and foreign high yield fixed-income
securities, asset-backed securities, and preferred stock, common stocks
that pay dividends, and income producing securities convertible into common
stocks of such companies.
The Franklin Strategic Income Fund commenced operations on June 1, 1994. Using
active asset allocation, the fund's managers seek to capitalize on worldwide
investment opportunities. They are free to allocate assets among a wide variety
of worldwide market sectors including foreign government and corporate
securities, high yield corporate bonds, convertible securities, mortgage-backed
securities, emerging market debt securities, and U.S. government bonds.(1)
The Franklin Templeton Group offers other funds focusing on each of these
sectors, and we are able to take advantage of the research undertaken for those
funds. Furthermore, the fund's current size makes it fairly nimble, making it
easier for us to react to changing market conditions as they occur.
The fund's first fiscal year proved to be a successful one. Because it did not
begin operations until June 1, 1994, the fiscal period was actually 11 months,
rather than the usual 12. Despite this abbreviated period, the fund reported an
impressive cumulative total return of +8.94% for the eleven-month fiscal
period. In comparison, the average return of the 19 funds in Lipper's flexible
income category was +5.84% for the 12 months ended April 30, 1995.(2)
1. The fund may invest up to 100% of its assets in foreign securities, which
may involve political uncertainty and currency risks. Investing in developing
markets involves special considerations, which may include risks related to
market and currency volatility, adverse social and political developments, and
the relatively small size and lesser liquidity of these markets. High yields
reflect the higher credit risk associated with certain lower rated securities
in the fund's portfolio and, in some cases, the lower market prices for these
instruments.
2. Source: Lipper Analytical Services, Inc., 4/30/95. Lipper rankings do not
include sales charges; past and present expense reductions by the fund's
manager increased the fund's total returns. Rankings may have been different if
these factors had been considered. Because the fund is less than one-year-old,
it is not ranked by Lipper. Total return measures the change in value of an
investment over the specified period and assumes reinvestment of dividends and
capital gains at net asset value. Past performance cannot guarantee future
results.
24
<PAGE>
During the fiscal year, our primary objective was to capitalize on domestic and
international economic growth. With U.S. interest rates rising so dramatically
throughout most of 1994, we were relatively underweighted in sectors that are
traditionally sensitive to interest rates, such as utilities, U.S. government
bonds, and mortgage-backed securities.
Since the fund's semi-annual report in October, however, long-term interest
rates have actually begun to decline. Thirty-year Treasuries, which yielded
7.97% on October 31, 1994, have fallen over 50 basis points to 7.34% on April
30, 1995.(3) Declining interest rates and more stable economic growth have
fueled the recent rally of the bond markets, causing their prices to rise.
In anticipation of continued strength in the corporate bond market, we
increased the fund's holdings in this area to 31.8% of total net assets on
April 30, 1995, from 24.0% on October 31, 1994.
Since a significant portion of the value of a convertible security comes from
its value as a fixed-income investment, recent declines in interest rates also
benefited this sector. We added to the fund's convertible stock and bond
holdings, bringing convertible securities to 14.2% of total net assets on April
30, 1995 -- nearly double the 7.6% this sector represented on October 31, 1994.
GRAPHIC MATERIAL (11) OMITTED - SEE APPENDIX
* Total market value is the value of the fund's investments and does not
include certain liabilities and other assets. Please see page 40 of this report
for a complete listing of the fund's assets.
3. Source: Micropal
25
<PAGE>
The fund reduced its international exposure during the last six months of the
reporting period. Foreign corporate and government agency bonds were reduced to
20.4% of total net assets on April 30, 1995, from 25.2% on October 31, 1994.
This underweighting, particularly in emerging markets (the worst-performing
fixed-income sector in 1994), helped buoy the fund's relative performance
during the fiscal period.
There were several specific industry allocations that aided the fund's
performance. The paper industry, which includes forest and paper products as
well as containers and packaging, experienced near-record price increases
during the fiscal period. Improving worldwide economies increased demand for
all sorts of paper and packaging materials, while more stringent environmental
regulations and an overall production shortage limited the available supply. As
a result, paper prices soared during the past year. The fund's holdings of
Stone Container, a maker of corrugated boxes, and S.D. Warren Co., a producer
of high-quality coated paper, both performed well over the fiscal period.
Looking forward, we do not expect paper supply to increase significantly, which
should continue to support prices.
During the past year, the healthcare industry has benefited from a trend toward
consolidation. Many companies merged for greater economies of scale, in hopes
of competing with the large HMOs that have emerged in recent years. In the
first half of the fiscal year we established a position in Ornda Healthcare,
Inc., an operator of acute care hospitals, which has recently acquired a number
of other hospital facilities. During the second half of the year, we initiated
a position in National Medical Enterprises, another acute care hospital
operator. National Medical Enterprises recently acquired American Medical
Holdings, one of its largest competitors, and changed its
26
<PAGE>
name to Tenet Healthcare. At the end of the fiscal period, healthcare
represented 4.2% of total net assets, up from 2.7% at the end of October.
The gaming and hotels sector also helped the fund's performance. After being
out of favor with investors, this sector rebounded in late 1994. Aztar Corp.
and Showboat, Inc., two casino operators, were both strong performers for the
fund within this sector.
The fund's allocation included other solidly performing industries as well. The
fund's cable television holdings, particularly Bell Cablemedia, a cable and
telephone provider in the United Kingdom, benefited from improving global
economies.
Within the convertible universe, we established a significant position in the
financial services industry (3.7% of total net assets at fiscal year-end),
initiating holdings in Roosevelt Financial Group, a savings and loan, and
Allstate Corp., a private mortgage insurer. Lower interest rates should benefit
these companies, and we were able to purchase both at inexpensive prices
relative to their peers.
Looking forward, with inflation seemingly under control and economies
(particularly the U.S.) showing signs of slowing, the outlook for fixed-income
markets appears favorable. Given this environment, we may seek to exchange
credit risk (inherent in high yield bonds and convertible securities) for
interest rate risk (government bonds, mortgage-backed securities).
Internationally, emerging markets have exhibited some signs of stability, so we
may look for long-term opportunities in this sector. Fortunately, we have the
benefit of Franklin Templeton's vast research network throughout the world, and
will seek to maneuver the fund to take advantage of changing market conditions
as they occur.
27
<PAGE>
PERFORMANCE SUMMARY
The Franklin Strategic Income Fund's share price, as measured by net asset
value, increased to $10.18 on April 30, 1995, from $10.00 at the fund's
inception on June 1, 1994.
For the fiscal year ended April 30, 1995, your fund paid monthly income
distributions totaling 67.4 cents ($0.674) per share. This figure includes the
special year-end distribution of 20.5 cents ($0.205). Dividends will vary based
on the earnings of the fund's portfolio, and past distributions are not
necessarily predictive of future trends.
Based on an annualization of the monthly dividend of 6.7 cents ($0.067) per
share and the maximum offering price of $10.63 on April 30, 1995, your fund's
distribution rate was 7.56%.
From its inception on June 1, 1994, through April 30, 1995, the fund posted a
total return of +8.94%. Cumulative total return measures the change in value of
an investment during the period indicated, assuming reinvestment of dividends
and capital gains, if any. This calculation does not include the maximum sales
charge, and past performance is not predictive of future results.
The graph on page 29 compares the Strategic Income Fund to the Lehman Brothers
Aggregate Index from June 1, 1994, through April 30, 1995. Unlike the Franklin
Strategic Income Fund, the index includes only fixed-rate debt issues rated
investment grade or higher by Moody's, Standard & Poor's, and Fitch, and does
not include sales charges or management fees. Thus, its performance will not
always reflect that of the fund. Despite these differences, the fund followed
the index closely during the fiscal period. Please remember that an index is
simply a measure of performance, and cannot be invested in directly.
We manage this fund from a long-term perspective and encourage shareholders to
view their investment in a similar manner. While the fund is bound to encounter
volatility from time to time, short-term fluctuations should not unduly concern
long-term investors.
28
<PAGE>
GRAPHIC MATERIAL (12) OMITTED - SEE APPENDIX
* This performance graph assumes an initial $10,000 investment and includes the
maximum 4.25% initial sales charge, all fund expenses and account fees. It also
assumes that your dividends and capital gains were reinvested at net asset
value. The Lehman Brothers Aggregate Index includes price appreciation or
depreciation and income as a percentage of the original investment. Past
performance is not predictive of future results.
FRANKLIN STRATEGIC INCOME FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
(06/01/94)
- -------------------------------------------------------------------
<S> <C>
Standardized Cumulative Total Return 1 4.35%
Non-Standardized
Cumulative Total Return 2 8.94%
30-Day Standardized Yield 3 8.30%
Distribution Rate 4 7.56%
- -------------------------------------------------------------------
</TABLE>
1. Standardized cumulative total return measures the change in value of an
investment over the periods indicated and includes the maximum 4.25% initial
sales charge.
2. Non-standardized cumulative total return represents the change in value of
an investment over the stated periods and does not include the maximum 4.25%
initial sales charge.
3. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 1995.
4. Distribution rate is based on an annualization of the fund's current 6.7
cents per share monthly dividend and the maximum offering price of $10.63 on
April 30, 1995.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares. Past performance is not indicative of future results.
The fund's manager has agreed to waive a portion of its management
fees and to assume responsibility for certain other expenses, which reduces
operating expenses and increases distribution rate, yield and total return to
shareholders. If the manager had not taken this action, the fund's distribution
rate and total return would have been lower and yield for the period would have
been 6.37%. The fee waiver may be discontinued at any time.
29
<PAGE>
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
FUND OBJECTIVE:
The Franklin Institutional MidCap Growth Fund seeks total return (capital
growth plus income) exceeding the total return of the aggregate U.S.
medium-capitalization stocks, as measured by the Standard & Poor's MidCap
400 Index(R). The fund invests in the common stocks of companies selected
by a structured quantitative investment strategy. Shares of the fund are
available only to institutional accounts.
Dear Shareholder: May 16, 1995
We are pleased to bring you the annual report of the Franklin Institutional
MidCap Growth Fund for the period ended April 30, 1995.
Despite fears of inflation, interest rate hikes by the Federal Reserve, mixed
responses to Washington's economic policy towards Mexico and the dollar's
weakening position against the Japanese yen and German mark, the U.S. equity
market finished the fiscal year with a strong rebound. Amidst the
uncertainties, U.S. corporate earnings showed no signs of slowing, benefiting
primarily from greater corporate efficiency and continuing product demand. In
addition, after the generally disappointing performance from international
markets (especially emerging markets) in 1994 and the stabilization of domestic
interest rates, investors shifted their focus back to U.S. stocks.
Many large capitalization stocks benefited, as numerous investors shifted
assets into these, relatively "safe" stocks, and the weakening dollar helped
large, export-oriented U.S. companies. Large capitalization companies, in
general, successfully defended their profit margins and showed strong earnings
growth by becoming more competitive and efficient. This group, as measured by
the Standard & Poor's 500 Index(R) (S&P 500(R)), produced a total return of
more than 17% for the year ended April 30, 1995. In comparison, the medium
capitalization segment, as measured by the Standard & Poor's MidCap 400
Index(R) (S&P MidCap 400(R)), posted
30
<PAGE>
a total return of approximately 10% during the same period.(1)
During the past fiscal year, we continued to select securities for the fund
based on a proprietary stock selection model that compares the attractiveness
of a company's growth factors relative to its value factors. In addition, our
selection process incorporates risk management technology, which analyzes each
stock's contribution to the portfolio's overall risk and reward attributes.
In seeking greater opportunity for capital growth, we gradually increased
positions in favorably ranked, medium capitalization companies not included in
the S&P MidCap 400, and scaled back several larger positions in the portfolio.
As of April 30, 1995, the fund was invested in 187 companies, with 28% of its
total net assets invested in stocks not included in the S&P MidCap 400,
compared with 76 companies and 12% of total net assets a year ago. A breakdown
of the fund's portfolio by industry is shown to the right.
GRAPHIC MATERIAL (13) OMITTED - SEE APPENDIX
The fund's top 10 holdings provide further illustration of the portfolio's
diversification, as the table on page 32 indicates. The top ten positions on
April 30, 1995, make up less than 14% of the fund's assets, compared with 28% a
year ago.
FOR A COMPLETE LIST OF HOLDINGS, PLEASE REFER TO PAGE 56 OF THIS REPORT.
1. The Franklin Institutional MidCap Growth Fund is not sponsored, endorsed,
sold, or promoted by Standard & Poor's. Total return shows the change in value
of an investment over the period indicated, assuming reinvestment of dividends.
Indices are unmanaged, and one cannot invest directly in an index.
31
<PAGE>
Our continued emphasis on stock selection and diversification helped reduce the
fund's return volatility, yet outperform its benchmark, the unmanaged S&P
MidCap 400. As indicated in the graph on page 33, the fund's risk/return
profile moved closer to that of its benchmark, during the fiscal year ended
April 30, 1995. This has been consistent with our goal of outperforming the S&P
MidCap 400 on a total return basis, while accepting a level of volatility
similar to that of the Index.
Our long-term outlook for medium capitalization stocks continues to remain
positive. We view investing in these companies as recruiting potential
corporate giants. Typically younger than large capitalization companies, they
tend to be leaders in highly specialized industries. Many of these companies
can grow with great efficiency because of their use of recent technology. Also,
their relatively smaller size may enable them to make changes more effectively
than many corporate giants, who must struggle to update and modify larger
corporate infrastructures.
- ----------------------------------------------
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
Top 10 Holdings on April 30, 1995
Based on Total Net Assets
<TABLE>
<CAPTION>
% OF TOTAL
COMPANY NET ASSETS
- ----------------------------------------------
<S> <C>
AFLAC, Inc. 1.77%
- ----------------------------------------------
Office Depot, Inc. 1.51%
- ----------------------------------------------
Dell Computer Corp. 1.47%
- ----------------------------------------------
Mirage Resorts, Inc. 1.40%
- ----------------------------------------------
Mylan Labs, Inc. 1.37%
- ----------------------------------------------
Cardinal Health, Inc. 1.32%
- ----------------------------------------------
Pinnacle West Cap Corp. 1.31%
- ----------------------------------------------
Bowater, Inc. 1.30%
- ----------------------------------------------
IBP, Inc. 1.26%
- ----------------------------------------------
Murphy Oil Corp. 1.25%
- ----------------------------------------------
TOTAL 13.96%
- ----------------------------------------------
</TABLE>
FOR A COMPLETE LIST OF HOLDINGS, PLEASE REFER TO PAGE 56 OF THIS REPORT.
32
<PAGE>
If they perform well and become large enough, they may eventually be included
in the S&P 500. These are the kinds of stocks which we seek to weight heavily
in the portfolio.
At the end of the reporting period, the medium capitalization segment continued
to offer attractive earnings growth potential of about 13%, at reasonable
valuations of about 15 times earnings, compared with 11% for large
capitalization stocks at the same valuation level.(2)
We appreciate your participation in the Franklin Institutional MidCap Growth
Fund and look forward to serving your investment needs in the months and years
to come.
2. Source: Templeton Quantitative Advisors, Inc., using Institutional Brokers
Estimate System (I/B/E/S) Data.
GRAPHIC MATERIAL (14) OMITTED - SEE APPENDIX
3. Total return represents the change in value of an investment over the period
shown. The fund's total return assumes initial purchase and the reinvestment of
dividends and capital gains at net asset value. The index's total return assumes
the reinvestment of dividends. Indices are unmanaged, and one cannot invest
directly in an index. Past performance cannot guarantee future results.
4. Risk is measured by the annualized standard deviation of monthly returns.
Standard deviation is a statistical measure of the volatility of a fund's or
index's total returns. In general, the higher the standard deviation, the
greater the volatility or risk.
33
<PAGE>
PERFORMANCE SUMMARY
The Franklin Institutional MidCap Growth Fund posted a total return of +10.06%
for the fiscal year ended April 30, 1995. Total return reflects a 76 cents
($0.76) per share increase in the fund's net asset value from $10.05 on April
30, 1994, to $10.81 on April 30, 1995, and assumes reinvestment of dividends
and capital gains at net asset value. During the reporting period, shareholders
received distributions totaling 20.4 cents ($0.204) per share in income
dividends and 1.5 cents ($0.015) per share in short-term capital gains.
Distributions will vary depending on income earned by the fund, as well as any
capital gains realized from the sale of individual holdings in the portfolio.
Past performance is not indicative of future results.
The graph on page 35 compares the fund's performance since its inception on
August 31, 1993, with the performance of the unmanaged S&P MidCap 400 Index and
unmanaged S&P 500 Index for the same period. As you can see, the Franklin
Institutional MidCap Growth Fund has consistently outperformed the benchmark
S&P MidCap 400 over the periods shown. Please remember that an index does not
contain cash (the fund generally carries a certain percentage of cash at any
given time) and includes no management expenses. Of course, one cannot invest
directly in an index.
GRAPHIC MATERIAL (15) OMITTED - SEE APPENDIX
34
<PAGE>
Note: Future index comparisons will include only the S&P MidCap 400(R) Stock
Index. While the S&P 500(R) was used to represent the broader domestic equity
market, this index generally represents larger capitalization stocks, which
make up a distinctly different segment of the domestic equity market. The S&P
MidCap 400 provides a more appropriate comparison for the fund, given the
fund's emphasis on middle capitalization stocks, and will continue to be used
going forward.
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
Performance Results
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (8/31/93)
- -------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return 5 10.06% 11.85%
Average Annual Total Return 6 10.06% 6.95%
- -------------------------------------------------------------
</TABLE>
5. Cumulative total returns show the change in value of an investment over the
periods indicated, assuming initial purchase and reinvestment of dividends and
capital gains at net asset value. See note below.
6. Average annual total returns represent the average annual change in value of
an investment over the periods indicated, assuming initial purchase and the
reinvestment of dividends and capital gains at net asset value. See note below.
Note: Investment return and principal value fluctuate so that your shares, when
redeemed, may be worth more or less than their original cost. Past performance
cannot guarantee future results.
The fund's manager has agreed in advance to waive its management fees and made
payments for other expenses, which reduces operating expenses and increases
total return to shareholders. Without these reductions, the fund's total return
would have been lower. The fee waiver may be discontinued at any time, upon
notice to the fund's Board of Trustees.
35
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN CALIFORNIA GROWTH FUND (NOTE 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 80.3%
AUTOMOBILE .7%
3,500 Ford Motor Co. ........................................ $ 94,500
-----------
CONSUMER SERVICES 3.9%
3,000 Disney (Walt) Co. ..................................... 166,125
8,500 McClatchy Newspapers, Inc., Series A .................. 188,063
3,000 United Television, Inc. ............................... 189,375
-----------
543,563
-----------
ELECTRONIC TECHNOLOGY 18.7%
1,800 a 3Com Corp. ............................................ 100,800
4,000 a Applied Materials, Inc. ............................... 246,500
6,000 a Cisco Systems, Inc. ................................... 239,250
1,500 a Computer Sciences Corp. ............................... 74,063
5,612 ECI Telecommunications, Ltd. .......................... 94,702
6,000 Logicon, Inc. ......................................... 222,000
15,000 a Megatest Corp. ........................................ 157,500
7,500 a Network Peripherals, Inc. ............................. 143,437
13,300 a Read-Rite Corp. ....................................... 282,625
5,000 Rockwell International Corp. .......................... 218,125
1,000 a Silicon Graphics, Inc. ................................ 37,500
6,000 a Sun Microsystems, Inc. ................................ 239,250
8,500 a VeriFone, Inc. ........................................ 200,813
20,000 a Western Digital Corp. ................................. 320,000
-----------
2,576,565
-----------
ENERGY/MINERALS 6.0%
2,500 Atlantic Richfield Co. (ARCO) ......................... 286,250
4,000 Chevron Corp. ......................................... 189,500
5,000 Ultramar Corp. ........................................ 130,625
5,000 a Western Atlas, Inc. ................................... 225,000
-----------
831,375
-----------
FINANCIALS 3.1%
4,000 Mercury General Corp. ................................. 123,000
4,500 a Silicon Valley Bancshares ............................. 69,750
4,500 a The PMI Group, Inc. ................................... 167,625
5,000 ValliCorp Holdings, Inc. .............................. 75,000
-----------
435,375
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN CALIFORNIA GROWTH FUND (NOTE 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
HEALTH SERVICES 4.3%
6,000 a Foundation Health Corp. ............................... $ 166,500
2,000 a Homedco Group, Inc. ................................... 114,500
3,000 a PacifiCare Health Systems, Class A .................... 184,500
5,000 U.S. Healthcare, Inc. ................................. 133,750
-----------
599,250
-----------
HEALTH TECHNOLOGY 4.7%
2,500 a Amgen, Inc. ........................................... 181,719
1,235 a Chiron Corp. .......................................... 68,234
1,500 a Genentech, Inc. ....................................... 75,562
9,000 Mentor Corp. .......................................... 212,625
10,000 a Penederm, Inc. ........................................ 47,500
3,000 a Sola International, Inc. .............................. 65,625
-----------
651,265
-----------
OTHER
198 a,b Lynx Therapeutics, Inc. ............................... --
-----------
PRODUCER/MANUFACTURING 3.3%
4,000 Clorox Co. ............................................ 235,000
8,500 Superior Industries International, Inc. ............... 225,250
-----------
460,250
-----------
REAL ESTATE 2.9%
10,000 Bay Apartment Communities, Inc. ....................... 180,000
3,000 LTC Properties, Inc. .................................. 39,000
5,000 Nationwide Health Property, Inc. ...................... 180,625
-----------
399,625
-----------
RETAIL TRADE 5.4%
25,000 a Broadway Stores, Inc. ................................. 168,750
4,000 Dreyer's Grand Ice Cream, Inc. ........................ 119,000
4,343 a Price/Costco, Inc. .................................... 63,516
15,000 a Strouds, Inc. ......................................... 127,500
13,000 a Vons Companies, Inc. .................................. 266,500
-----------
745,266
-----------
SEMICONDUCTORS 9.0%
12,500 a Actel Corp. ........................................... 145,313
3,000 a Altera Corp. .......................................... 242,625
3,500 Intel Corp. ........................................... 358,313
800 Linear Technology Corp. ............................... 47,800
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN CALIFORNIA GROWTH FUND (NOTE 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
SEMICONDUCTORS (CONT.)
10,000 a National Semiconductor Corp. .......................... $ 228,750
2,500 a Solectron Corp. ....................................... 73,437
2,000 a Xilinx, Inc. .......................................... 153,500
-----------
1,249,738
-----------
TECHNOLOGY SERVICES 8.6%
4,300 Adobe Systems, Inc. ................................... 250,475
7,000 a Microtec Research, Inc. ............................... 110,250
4,500 a Oracle Systems Corp. .................................. 137,250
8,000 a Spectrum Holobyte, Inc. ............................... 122,000
3,000 a Sybase, Inc. .......................................... 72,750
8,000 a Transaction Systems Architects, Inc., Class A ......... 165,000
7,500 a Wavefront Technologies, Inc. .......................... 130,312
8,000 Wyle Laboratories ..................................... 196,000
-----------
1,184,037
-----------
TRANSPORTATION 5.2%
8,250 Air Express International Corp. ....................... 193,875
5,600 Expeditors International of Washington, Inc. .......... 128,800
2,000 a Fritz Companies, Inc. ................................. 120,500
2,500 Harper Group, Inc. .................................... 48,125
10,000 a Mesa Airlines, Inc. ................................... 61,250
10,000 a Southern Pacific Rail Corp. ........................... 173,750
-----------
726,300
-----------
UTILITIES 4.5%
8,000 a AirTouch Communications, Inc. ......................... 215,000
7,500 San Diego Gas & Electric Co. .......................... 158,437
10,000 SCEcorp ............................................... 167,500
5,000 Southern California Water ............................. 85,625
-----------
626,562
-----------
TOTAL COMMON STOCKS (COST $9,530,085) ........... 11,123,671
-----------
PREFERRED STOCKS 2.0%
OTHER
288 a,b Lynx Therapeutics, Inc., pfd., Series A ............... 288
-----------
REAL ESTATE 2.0%
6,800 c Catellus Development Corp., $3.625 cvt. pfd., Series B 280,500
-----------
TOTAL PREFERRED STOCKS (COST $256,988) .......... 280,788
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN CALIFORNIA GROWTH FUND (NOTE 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS .8%
ELECTRONIC TECHNOLOGY
$ 100,000 c 3COM Corp., cvt. sub. notes, 10.25%, 11/01/01
(COST $115,500)....................................... $ 115,500
-----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS
(COST $9,902,573)............................... 11,519,959
-----------
d RECEIVABLES FROM REPURCHASE AGREEMENTS 17.0%
1,351,239 e Joint Repurchase Agreement, 5.975%, 05/01/95 (Maturity
Value $1,339,952)
Collateral: U.S. Treasury Notes, 4.75% - 9.00%,
07/15/96 - 1/31/00 .................................. 1,339,285
997,000 Nikko Government Securities Co., Inc., 5.90%,
05/01/95 (Maturity Value $1,000,492)
Collateral: U.S. Treasury Notes, 6.75%, 05/31/99 ..... 1,000,000
-----------
TOTAL RECEIVABLES FROM REPURCHASE AGREEMENTS
(COST $2,339,285) 2,339,285
-----------
TOTAL INVESTMENTS (COST $12,241,858) 100.1% .... 13,859,244
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS, NET (.1)% (14,977)
-----------
NET ASSETS 100.0% .............................. $13,844,267
===========
At April 30, 1995, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $12,244,100 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost ...................................... $ 2,002,365
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value ......................................... (387,221)
-----------
Net unrealized appreciation ........................... $ 1,615,144
===========
</TABLE>
a Non-income producing.
b See Note 7 regarding restricted securities.
c See Note 8 regarding Rule 144A securities.
d Face amount for repurchase agreements is for the underlying collateral.
e See Note 1(g) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
<TABLE>
<CAPTION>
VALUE
COUNTRY* SHARES FRANKLIN STRATEGIC INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS 3.1%
FINANCIAL SERVICES 1.6%
US 1,000 First Nationwide Bank, 11.50% pfd. ............. $ 105,000
----------
MEDIA & BROADCASTING 1.5%
US 100 PanAmSat Corp., L.P., 12.75% pfd., PIK ......... 101,250
----------
TOTAL PREFERRED STOCKS (COST $200,000) ... 206,250
----------
CONVERTIBLE PREFERRED STOCKS 7.2%
ENERGY .8%
US 2,525 Snyder Oil Corp., $1.50 cvt. exch. pfd. ........ 54,918
----------
FINANCIAL SERVICES 3.7%
US 2,200 Allstate Corp., 6.75% cvt. pfd. ................ 79,475
US 1,500 Integon Corp., $3.875 cvt. pfd. ................ 76,125
US 1,500 Roosevelt Financial Group, 6.50% cvt. pfd. ..... 94,500
----------
250,100
----------
INFORMATION/TECHNOLOGY 1.2%
US 950 National Semiconductor Corp. $3.25 cvt. pfd. ... 78,850
----------
METALS & MINING .5%
US 500 Magma Copper Co., 5.625% cvt. pfd., Series D ... 30,375
----------
REAL ESTATE INVESTMENT TRUST 1.0%
US 3,000 Property Trust of America, $1.75 cvt. pfd.,
Series A ...................................... 67,500
----------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $469,126) ......................... 481,743
----------
<CAPTION>
FACE
AMOUNT
---------
<S> <C> <C> <C>
CORPORATE BONDS 31.8%
CABLE TELEVISION 2.9%
US 150,000 g Bell Cablemedia, Plc., senior disc. notes,
zero coupon to 07/15/99, (original accretion
rate 11.95%), 11.95% thereafter, 07/15/04 ..... 96,000
US 100,000 Rogers Cablesystems, Inc., guaranteed notes,
9.625%, 08/01/02 .............................. 100,375
----------
196,375
----------
CONSUMER GOODS 2.9%
US 100,000 Playtex Family Products Corp., senior sub.
deb., 9.00%, 12/15/03 ......................... 94,750
US 100,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 99,500
----------
194,250
----------
CONTAINERS & PACKAGING 3.1%
US 100,000 Owens Illinois, Inc., senior sub. deb., 10.50%,
06/15/02....................................... 103,125
US 100,000 Stone Container, senior notes, 11.50%, 10/01/04 107,000
----------
210,125
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT FRANKLIN STRATEGIC INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONT.)
ENERGY 1.4%
US 100,000 Gulf Canada Resources, Ltd., senior sub. deb.,
9.25%, 01/15/04 ............................... $ 95,029
----------
FOOD/BEVERAGES 1.6%
US 100,000 Curtice-Burns Foods, Inc., senior sub. notes,
12.25%, 02/01/05 .............................. 106,500
----------
FOOD RETAILING 1.5%
US 100,000 c Dominick's Finer Foods, senior sub. deb.,
10.875%, 05/01/05 ............................. 100,750
----------
FOREST & PAPER PRODUCTS 3.1%
US 100,000 Repap New Brunswick, senior notes, second
priority, 10.625%, 04/15/05 ................... 102,000
US 100,000 c S.D. Waren Co., senior sub. notes, 12.00%,
12/15/04 ...................................... 109,000
----------
211,000
----------
GAMING & HOTELS 4.7%
US 100,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 111,000
US 100,000 c Players International, Inc., senior notes,
10.875%, 04/15/05 ............................. 100,750
US 100,000 Showboat, Inc., senior sub. notes, 13.00%,
08/01/09 ...................................... 105,000
----------
316,750
----------
HEALTH CARE 3.2%
US 100,000 National Medical Enterprises, senior sub. notes,
10.125%, 03/01/05 ............................. 104,750
US 100,000 OrNda Healthcorp., guaranteed, senior sub.
notes, 11.375%, 08/15/04 ...................... 108,250
----------
213,000
----------
INDUSTRIAL 1.6%
US 150,000 g American Standard, Inc., senior sub. deb., zero
coupon to 06/01/98, (original accretion rate
10.50%), 10.50% thereafter, 06/01/05 .......... 111,000
----------
MEDIA & BROADCASTING 1.6%
US 100,000 American Media Operation, senior sub. notes,
11.625%, 11/15/04 ............................. 107,000
----------
METALS & MINING 2.8%
US 100,000 g Acme Metals, Inc., guaranteed senior secured
disc. notes, zero coupon to 08/01/97,
(original accretion rate 13.50%), 13.50%
thereafter, 08/01/04 .......................... 77,500
US 100,000 c Ucar Global Enterprises, Inc., senior sub.
notes, 12.00%, 01/15/05 ....................... 108,750
----------
186,250
----------
TEXTILE 1.4%
US 100,000 WestPoint Stevens, Inc., senior notes, 8.75%,
12/15/01 ...................................... 97,125
----------
TOTAL CORPORATE BONDS (COST $2,042,936) .. 2,145,154
----------
CONVERTIBLE BONDS 7.0%
CELLULAR TELEPHONE .7%
US 150,000 g Rogers Communications, Inc., cvt. sub. notes,
LYONs, (original accretion rate 5.50%),
0.00%, 05/20/13 ............................... 49,313
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT FRANKLIN STRATEGIC INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE BONDS (CONT.)
FOOD/BEVERAGES .8%
US 65,000 Chock Full O'Nuts Corp., cvt. deb., 7.00%,
04/01/12 ...................................... $ 57,200
----------
HEALTH CARE 1.0%
US 70,000 Maxxim Medical, Inc., cvt. sub. deb., 6.75%,
03/01/03 ...................................... 65,450
----------
HOME BUILDING 1.1%
US 100,000 U.S. Home Corp., cvt. sub. notes, 4.875%,
11/01/05 ...................................... 70,750
----------
INDUSTRIAL 1.1%
US 60,000 Raymond Corp., cvt. sub. deb., 6.50%, 12/15/03 . 72,300
----------
REAL ESTATE INVESTMENT TRUST 1.0%
US 70,000 Liberty Property Trust, cvt. sub. deb., 8.00%,
07/01/01 ...................................... 67,200
----------
TELECOMMUNICATION 1.3%
US 25,000 c All American Communications, cvt. sub. deb.,
6.50%, 10/01/03 ............................... 21,719
US 60,000 c Aspect Telecommunication, cvt. sub. deb., 5.00%,
10/15/03 ...................................... 69,525
----------
91,244
----------
TOTAL CONVERTIBLE BONDS (COST $457,192) .. 473,457
----------
FOREIGN CORPORATE BONDS 3.7%
US 45,000 Compania de Telefonos de Chile, cvt. sub.,
4.50%, 01/15/03 ............................... 44,213
US 100,000 c Essar Guajarat, Ltd., floating rate deb., 9.40%,
07/15/99 ...................................... 100,250
US 100,000 Tjiwi Kimia International, 13.25%, 08/01/01 .... 101,500
----------
TOTAL FOREIGN CORPORATE BONDS
(COST $238,236) ......................... 245,963
----------
FOREIGN GOVERNMENT AGENCIES 16.7%
DD 140,000 Bundesobligation, 5.375%, 02/22/99 ............. 98,687
DD 68,000 Bundesobligation, 6.625%, 01/20/98 ............. 50,092
DD 60,000 Bundesschatzanweisungen, 6.875%, 12/02/98 ...... 44,364
DD 40,000 Deutsche Bundespost, 7.75%, 10/01/04 ........... 29,827
JP 6,000,000 European Investment Bank, 5.875%, 11/26/99 ..... 81,395
DD 42,000 German Unity Fund, 8.00%, 01/21/02 ............. 32,139
CA 100,000 Government of Canada, 10.25%, 12/01/98 ......... 78,989
CA 100,000 Government of Canada, 10.50%, 10/01/04 ......... 83,741
JP 6,000,000 International Bank of Reconstruction and
Development, 6.75%, 05/15/00 .................. 84,251
DD 20,000 International Bank of Reconstruction and
Development, 7.125%, 04/12/05 ................. 14,422
DK 167,000 Kingdom of Denmark, 8.00%, 05/15/03 ............ 29,637
AU 225,000 Queensland Treasury Corp., 8.875%, 11/08/96 .... 164,276
US 250,000 Republic of Argentina, BOCON PRE4, floating
rate notes, 6.125%, 09/01/02 .................. 128,750
GB 85,000 United Kingdom Treasury, 12.25%, 03/26/99 ...... 154,208
GB 30,000 United Kingdom Treasury, 9.50%, 04/18/05 ....... 51,454
----------
TOTAL FOREIGN GOVERNMENT AGENCIES
(COST $1,161,125) ....................... 1,126,232
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
COUNTRY* AMOUNT FRANKLIN STRATEGIC INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT 3.7%
US $ 250,000 U.S. Treasury Notes, 6.75%, 05/31/97
(COST $248,668) ............................... $ 250,624
----------
U.S. GOVERNMENT AGENCIES/MORTGAGES 6.4%
US 50,374 FHLMC, 7.00%, 04/01/24 ......................... 47,966
US 49,046 FHLMC, 7.50%, 04/01/24 ......................... 47,897
US 50,365 FHLMC, 8.50%, 12/01/24 ......................... 51,184
US 50,315 FNMA, 8.00%, 01/01/25 .......................... 50,205
US 47,506 FNMA, 7.50%, 10/01/07 .......................... 47,314
US 49,195 GNMA, SF, 7.50%, 09/15/23 ...................... 47,950
US 99,389 GNMA, SF, 6.50%, 03/15/24 ...................... 90,879
US 50,187 GNMA, SF, 8.00%, 06/15/24 ...................... 50,156
----------
TOTAL U.S. GOVERNMENT AGENCIES/MORTGAGES
(COST $424,272) ......................... 433,551
----------
TOTAL LONG TERM INVESTMENTS
(COST $5,241,555) ....................... 5,362,974
----------
i SHORT TERM INVESTMENTS
COMMERCIAL PAPER 1.5%
US 105,000 Goldman Sachs Group, L.P., 14.00%, 06/15/95
(COST $105,000) ............................... 101,724
----------
FOREIGN CORPORATE AGENCIES 3.0%
TH 5,000,000 Thailand Military Bank Notes, 6.875%, 06/01/95
(COST $199,172) ............................... 202,072
----------
FOREIGN GOVERNMENT AGENCIES .6%
NZ 60,000 New Zealand Treasury Bills, 06/21/95
(COST $37,403) ................................ 39,806
----------
TOTAL INVESTMENTS BEFORE REPURCHASE
AGREEMENTS (COST $5,583,130) ............ 5,706,576
----------
d,e RECEIVABLES FROM REPURCHASE AGREEMENTS 12.4%
US 841,375 Joint Repurchase Agreement, 5.975%, 05/01/95
(Maturity Value $833,733) (COST $833,318)
Collateral: U.S. Treasury Notes, 4.75% -
9.00%, 07/15/96 - 01/31/00 ................... 833,318
----------
TOTAL INVESTMENTS (COST $6,416,448)
97.1% ................................. 6,539,894
OTHER ASSETS AND LIABILITIES, NET 2.9% 195,812
----------
NET ASSETS 100.0% ..................... $6,735,706
==========
At April 30, 1995, the net unrealized
appreciation based on the cost of investments
for income tax purposes of $6,416,448 was as
follows:
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost ...................... $ 201,751
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value ...................... (78,305)
----------
Net unrealized appreciation .................. $ 123,446
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
FRANKLIN STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS:
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
L.P. - Limited Parnership
LYONs - Liquid Yield Option Notes
PIK - Payment-in-Kind
SF - Single Family
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
DK - Denmark
GB - United Kingdom
JP - Japan
NZ - New Zealand
TH - Thailand
US - United States of America
* Securities traded in currency of county indicated.
c See Note 8 regarding Rule 144A securities.
d Face amount for repurchase agreements is for the underlying collateral.
e See Note 1(g) regarding Joint Repurchase Agreement.
g Zero coupon/step-up bonds. The current effective yield may vary. The original
accretion rate will remain constant.
i Certain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN GLOBAL UTILITIES FUND (NOTE 1)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS 96.6%
ELECTRIC & GAS UTILITIES 71.6%
US 140,000 AES Corp. ...................................... $ 2,415,000
US 57,200 American Electric Power Co., Inc. .............. 1,873,300
US 49,500 Central & South West Corp. ..................... 1,218,938
HK 302,400 China Light & Power, Ltd. ...................... 1,425,862
US 175,000 CINergy Corp. .................................. 4,396,875
US 99,700 Dominion Resources, Inc. ....................... 3,639,050
US 22,300 DPL, Inc. ...................................... 465,513
US 60,950 Duke Power Co. ................................. 2,407,525
US 85,900 Empresa Nacional de Electricidad, ADR .......... 4,037,300
US 129,000 Enron Corp. .................................... 4,386,000
US 110,000 Entergy Corp. .................................. 2,392,500
FI 195,000 c Espoon Sahko Oy................................. 2,355,191
US 39,000 FPL Group, Inc. ................................ 1,433,250
US 49,600 General Public Utilities Corp. ................. 1,413,600
US 29,700 Hawaiian Electric Industries, Inc. ............. 1,028,363
HK 1,753,920 Hong Kong and China Gas Co., Ltd. .............. 2,548,973
HK 121,800 a Hong Kong and China Gas Co., Ltd., warrants .... 13,846
HK 1,180,000 Hong Kong Electric Holdings, Ltd. .............. 3,620,333
US 62,000 a Huaneng Power International, Inc., ADR ......... 899,000
ES 285,000 Iberdrola, SA .................................. 1,875,305
US 109,000 National Fuel Gas Co. .......................... 3,147,375
US 1,300 New England Electric System .................... 39,163
US 29,100 NIPSCO Industries, Inc. ........................ 938,475
US 40,400 Pacific Gas & Electric Co. ..................... 1,085,750
US 176,700 PacifiCorp ..................................... 3,357,300
US 141,000 Panhandle Eastern Corp. ........................ 3,384,000
US 117,500 Pinnacle West Capital Corp. .................... 2,526,250
US 50,000 Public Service Co. of Colorado ................. 1,506,250
US 33,800 SCEcorp ........................................ 566,150
GB 167,300 Scottish Power, Plc. ........................... 910,132
US 208,000 Southern Co. ................................... 4,290,000
US 41,200 Southern Indiana Gas & Electric Co. ............ 1,246,300
US 183,900 TECO Energy, Inc. .............................. 3,907,875
US 115,700 Texas Utilities Co. ............................ 3,774,713
US 255,000 Transportadora Gas Sur, ADR .................... 2,518,125
DD 10,700 Veba, Ag ....................................... 3,987,410
US 131,518 Williams Cos., Inc. ............................ 4,323,654
------------
85,354,646
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN GLOBAL UTILITIES FUND (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS (CONT.)
TELECOMMUNICATIONS SERVICES 25.0%
US 20,150 a AirTouch Communications, Inc. .................. $ 541,531
US 59,300 AT&T Corp. ..................................... 3,009,475
US 47,300 British Telecommunications, Plc., ADR .......... 2,956,250
GB 300,000 Cable & Wireless, Plc. ......................... 1,938,646
CA 88,900 a,c Call-Net Enterprises, Inc., Class B ............ 514,941
CA 321,000 a Call-Net Enterprises, Inc., Class B ............ 1,859,347
US 19,700 a Comcast UK Cable Partners, Ltd. ................ 275,800
US 16,700 Compania de Telefonos de Chile, ADR ............ 1,152,300
MX 44,400 a Grupo Iusacell, SA, Series D ................... 56,298
US 100,560 a Grupo Iusacell, SA, Series L, ADR .............. 1,458,120
US 55,300 GTE Corp. ...................................... 1,887,113
US 25,100 a International Cabletel, Inc. ................... 740,450
US 20,150 Pacific Telesis Group, Inc. .................... 622,131
IT 550,000 STET-Societa Finanziaria Telefonica ............ 1,567,843
US 74,750 Telecom de Argentina, SA, ADR .................. 3,270,312
US 85,000 Tele Danmark, A/S, ADS ......................... 2,231,250
US 20,400 Telefonica de Argentina, ADR ................... 479,400
US 65,950 Telefonica de Espana, ADR ...................... 2,423,662
US 45,700 Telefonos de Mexico, ADR ....................... 1,382,424
GB 57,500 a Telewest Communications, Plc. .................. 1,423,124
------------
29,790,417
------------
TOTAL COMMON STOCKS & WARRANTS
(COST $120,557,322) ..................... 115,145,063
------------
d,e RECEIVABLES FROM REPURCHASE AGREEMENTS 3.7%
US $4,497,075 Joint Repurchase Agreement, 5.975%, 05/01/95
(Maturity Value $4,458,289) (COST $4,456,070)
Collateral: U.S. Treasury Notes, 4.75% - 9.00%,
07/15/96 - 01/31/00 .......................... 4,456,070
------------
TOTAL INVESTMENTS (COST $125,013,392)
100.3% ................................ 119,601,133
------------
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET (.3)% ............................ (350,651)
------------
NET ASSETS 100.0% ..................... $119,250,482
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION> VALUE
FRANKLIN GLOBAL UTILITIES FUND (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C>
At April 30, 1995, the net unrealized
depreciation based on the cost of investments
for income tax purposes of $125,016,195 was as
follows:
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost ...................... $ 4,837,237
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value ...................... (10,252,299)
------------
Net unrealized depreciation .................. $ (5,415,062)
============
</TABLE>
COUNTRY LEGEND:
CA - Canada
DD - Germany
ES - Spain
FI - Finland
GB - United Kingdom
HK - Hong Kong
IT - Italy
MX - Mexico
US - United States of America
* Securities traded in currency of country indicated.
a Non-income producing.
c See Note 8 regarding Rule 144A securities.
d Face amount for repurchase agreements is for the underlying collateral.
e See Note 1(g) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN SMALL CAP GROWTH FUND (NOTE 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 89.0%
AEROSPACE .4%
20,000 a Tracor, Inc. .......................................... $ 260,000
-----------
BROADCASTING 2.6%
25,000 a Bell Cablemedia, Plc. ................................. 415,625
54,000 a Comcast UK Cable Partners, Ltd. ....................... 756,000
20,000 a Telewest Communications, Plc., ADR .................... 495,000
-----------
1,666,625
-----------
COMPONENT SUPPLIERS 3.2%
29,100 a Atchison Casting Corp. ................................ 436,500
50,000 a Easco, Inc. ........................................... 775,000
30,000 Roper Industries, Inc. ................................ 810,000
-----------
2,021,500
-----------
COMPUTER HARDWARE 4.3%
60,000 a Read-Rite Corp. ....................................... 1,275,000
90,000 a Western Digital Corp. ................................. 1,440,000
-----------
2,715,000
-----------
COMPUTER SOFTWARE 8.1%
9,500 a Integrated Systems, Inc. .............................. 199,500
15,000 a Lotus Development Corp. ............................... 472,500
49,000 a Microtec Research, Inc. ............................... 771,750
60,000 a Spectrum Holobyte, Inc. ............................... 915,000
25,000 a Sterling Software, Inc. ............................... 850,000
17,200 a Sybase, Inc. .......................................... 417,100
50,000 a Transaction Systems Architects, Inc. .................. 1,031,250
25,000 a Waverfront Technologies, Inc. ......................... 434,375
-----------
5,091,475
-----------
CONSUMER SERVICES .4%
10,000 The Loewen Group, Inc. ................................ 282,031
-----------
ELECTRONICS/ELECTRICAL EQUIPMENT 4.1%
10,000 Logicon, Inc. ......................................... 370,000
40,000 a Mentor Graphics Corp. ................................. 675,000
44,000 a Verifone, Inc. ........................................ 1,039,500
33,400 a Videonics, Inc. ....................................... 484,300
-----------
2,568,800
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN SMALL CAP GROWTH FUND (NOTE 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 6.7%
30,000 ACE, Ltd. ............................................. $ 795,000
75,000 a ACMAT Corp., Class A .................................. 890,625
8,200 Leucadia National Corp. ............................... 366,950
15,000 Mercury General Corp. ................................. 461,250
25,500 a Silicon Valley Bancshares ............................. 395,250
35,000 a The PMI Group, Inc. ................................... 1,303,750
-----------
4,212,825
-----------
GAMING 1.2%
79,600 a Aztar Corp. ........................................... 736,300
-----------
HEALTH SERVICES 5.2%
90,500 a Advocat, Inc. ......................................... 1,074,688
16,000 a Homedco Group, Inc. ................................... 916,000
31,000 a Humana, Inc. .......................................... 604,500
25,000 a Sierra Health Services, Inc. .......................... 678,125
-----------
3,273,313
-----------
HEALTH TECHNOLOGY 1.0%
73,000 a Penederm, Inc. ........................................ 346,750
12,000 a Sola International, Inc. .............................. 262,500
-----------
609,250
-----------
HOMEBUILDERS 2.1%
45,000 a Beazer Homes USA, Inc. ................................ 641,250
45,000 Continental Homes Holding Corp. ....................... 517,500
29,200 a NVR, Inc. ............................................. 197,100
-----------
1,355,850
-----------
IRON/STEEL PRODUCTS 1.9%
25,000 a AK Steel Holding Corp. ................................ 671,875
42,000 a National Steel Corp., Class B ......................... 535,500
-----------
1,207,375
-----------
MACHINE - DIVERSIFIED .7%
30,000 a Bridgeport Machines, Inc. ............................. 438,750
-----------
METALS - DIVERSIFIED 1.7%
65,000 a Magma Copper Co. ...................................... 1,088,750
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN SMALL CAP GROWTH FUND (NOTE 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
NETWORKING 4.0%
25,000 a Cisco Systems, Inc. ................................... $ 996,875
25,000 a Silicon Graphics, Inc. ................................ 937,500
11,000 a 3Com Corp. ............................................ 616,000
-----------
2,550,375
-----------
OFFICE/BUSINESS EQUIPMENT 1.2%
6,000 Xerox Corp. ........................................... 738,750
-----------
OIL & GAS 3.3%
35,000 a Barrett Resources Corp. ............................... 822,500
30,000 Parker & Parsley Petroleum Co. ........................ 641,250
50,000 Total Petroleum (North America), Ltd. ................. 625,000
-----------
2,088,750
-----------
PHARMACEUTICAL 2.6%
60,000 a KV Pharmaceutical Co., Class B ........................ 382,500
50,000 a Matrix Pharmaceutical, Inc. ........................... 737,500
60,100 a Noven Pharmaceuticals, Inc. ........................... 510,850
-----------
1,630,850
-----------
REAL ESTATE 3.4%
66,000 Equity Inns, Inc. ..................................... 759,000
50,000 a Gillett Holdings, Inc. ................................ 1,000,000
8,400 Omega Healthcare Investors, Inc. ...................... 200,550
20,000 Winston Hotels, Inc. .................................. 200,000
-----------
2,159,550
-----------
RETAIL 2.4%
100,000 a Broadway Stores, Inc. ................................. 675,000
50,000 a Ernst Home Center, Inc. ............................... 506,250
35,800 a Strouds, Inc. ......................................... 304,300
-----------
1,485,550
-----------
SEMICONDUCTORS EQUIPMENT/SERVICES 12.1%
10,000 a ACT Manufacturing, Inc. ............................... 140,000
60,000 a Actel Corp. ........................................... 697,500
10,000 a Altera Corp. .......................................... 808,750
25,000 a ASM Lithography Holding ............................... 684,375
25,000 a Electro Scientific Industries, Inc. ................... 665,625
19,000 a Integrated Device Technology, Inc. .................... 724,375
13,000 a LSI Logic Corp. ....................................... 866,125
20,000 a Microchip Technology, Inc. ............................ 565,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN SMALL CAP GROWTH FUND (NOTE 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
SEMICONDUCTORS EQUIPMENT/SERVICES (CONT.)
25,000 a SGS-Thomson Microelectronics, Inc., ADR ............... $ 931,250
10,000 a Silicon Valley Group, Inc. ............................ 290,000
31,000 Wyle Electronics ...................................... 759,500
6,500 a Xilinx, Inc. .......................................... 498,875
-----------
7,631,375
-----------
TELECOMMUNICATIONS 8.4%
18,000 a Aspect Telecommunications Corp. ....................... 751,500
11,100 a,c Call-Net Enterprises, Inc., Class B ................... 64,295
75,600 a Call-Net Enterprises, Inc., Class B ................... 437,902
11,000 a Cellular Communications, Inc. ......................... 512,875
59,000 a Colonial Data Technologies Corp. ...................... 1,165,250
25,000 a Comnet Cellular, Inc. ................................. 650,000
7,600 a International Cabletel ................................ 224,200
28,000 a Spectrian Corp. ....................................... 815,500
10,000 a Tellabs, Inc. ......................................... 690,000
-----------
5,311,522
-----------
TEXTILES/APPAREL 1.7%
45,700 a Tommy Hilfiger Corp. .................................. 1,051,100
-----------
TRANSPORTATION 3.3%
33,000 Air Express International Corp. ....................... 775,500
247,500 a Atlantic Coast Airlines, Inc. ......................... 866,250
7,000 a Fritz Companies, Inc. ................................. 421,750
-----------
2,063,500
-----------
TRUCKING & LEASING 1.6%
20,000 a Landstar System, Inc. ................................. 580,000
40,000 a US Xpress Enterprises, Inc., Class A .................. 375,000
-----------
955,000
-----------
UTILITIES 1.4%
50,000 AES Corp. ............................................. 862,500
-----------
TOTAL COMMON STOCKS (COST $49,524,821) .......... 56,056,666
-----------
PREFERRED STOCKS 1.7%
ELECTRONICS/ELECTRICAL EQUIPMENT
26,000 Nokia Corp., pfd., ADR (COST $826,030) ................ 1,066,000
-----------
TOTAL COMMON STOCKS AND PREFERRED STOCKS (COST
$50,350,851) ................................... 57,122,666
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT FRANKLIN SMALL CAP GROWTH FUND (NOTE 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
d RECEIVABLES FROM REPURCHASE AGREEMENTS 11.5%
$6,122,390 e Joint Repurchase Agreement, 5.975%, 05/01/95 (Maturity
Value $6,069,417)
Collateral: U.S. Treasury Notes, 4.75% - 9.00%,
07/15/96 - 01/31/00 ................................ $ 6,066,396
1,190,000 Lehman Government Securities, Inc., 5.99%, 05/01/95
(Maturity Value $1,180,589)
Collateral: U.S. Treasury Notes, 7.125%, 09/30/99 ... 1,180,000
-----------
TOTAL RECEIVABLES FROM REPURCHASE AGREEMENTS
(COST $7,246,396) .............................. 7,246,396
-----------
TOTAL INVESTMENTS (COST $57,597,247) 102.2% .... 64,369,062
LIABILITIES IN EXCESS OF OTHER ASSETS, NET
(2.2)% ......................................... (1,359,427)
-----------
NET ASSETS 100.0%............................... $63,009,635
===========
At April 30, 1995, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $57,608,047 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost ...................................... $ 9,224,198
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value ......................................... (2,463,183)
-----------
Net unrealized appreciation ......................... $ 6,761,015
===========
</TABLE>
a Non-income producing.
c See Note 8 regarding Rule 144A securities.
d Face amount for repurchase agreements is for the underlying collateral.
e See Note 1(g) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN GLOBAL HEALTH CARE FUND (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS 88.5%
BIOTECHNOLOGY 4.8%
US 4,000 a Biogen, Inc. ................................... $ 157,000
GB 20,000 a British Bio-Technology Group ................... 159,019
GB 3,750 a British Bio-Technology Group, warrants ......... 2,535
US 20,000 a CytoTherapeutics, Inc. ......................... 130,000
US 25,000 a Univax Biologics, Inc. ......................... 165,625
-----------
614,179
-----------
HEALTH MAINTENANCE ORGANIZATIONS 12.7%
US 10,000 a Foundation Health Corp. ........................ 277,500
US 17,000 a Humana, Inc. ................................... 331,500
US 4,500 a PacifiCare Health Systems, Inc., Class B ....... 279,000
US 10,000 a Physician Corporation of America ............... 178,750
US 13,000 a Sierra Health Services, Inc. ................... 352,625
US 6,000 United Healthcare Corp. ........................ 217,500
-----------
1,636,875
-----------
HOMECARE/ALTERNATE SITE 5.6%
US 5,000 a Homedco Group, Inc. ............................ 286,250
US 17,000 a Professional Sports Care Management, Inc. ...... 193,375
US 15,000 a Quantum Health Resources, Inc. ................. 243,750
-----------
723,375
-----------
HOSPITALS 4.2%
US 6,300 Columbia/HCA Healthcare Corp. .................. 264,600
US 5,000 a Quorum Health Group, Inc. ...................... 103,125
US 10,000 a Tenet Healthcare Corp. ......................... 170,000
-----------
537,725
-----------
MEDICAL TECHNOLOGY & SUPPLIES 16.7%
US 40,000 a Abaxis, Inc. ................................... 235,000
US 35,000 a Angeion Corp. .................................. 144,375
US 35,000 a Angeion Corp., warrants ........................ 12,031
US 6,000 Bard (C.R.), Inc. .............................. 174,750
US 10,666 a Healthdyne Technologies, Inc. .................. 128,659
US 7,000 a Heart Technology, Inc. ......................... 124,250
US 10,000 a MedCath, Inc. .................................. 130,000
US 20,000 a MediSense, Inc. ................................ 322,500
US 3,000 Medtronic, Inc. ................................ 223,125
US 8,000 Mentor Corp. ................................... 189,000
US 15,000 a Ostex International, Inc. ...................... 133,125
</TABLE>
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN GLOBAL HEALTH CARE FUND (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS (CONT.)
MEDICAL TECHNOLOGY & SUPPLIES (CONT.)
US 3,000 Stryker Corp. .................................. $ 135,375
US 914 a Thermolase Corp. ............................... 20,793
US 9,000 a Thermotrex Corp. ............................... 178,875
-----------
2,151,858
-----------
NURSING HOMES/SUBACUTE 2.4%
US 15,000 a Advocat, Inc. .................................. 178,125
US 9,000 a Mariner Health Group, Inc. ..................... 131,625
-----------
309,750
-----------
PHARMACEUTICAL DISTRIBUTORS 1.7%
US 14,000 Grupo Casa Autrey, SA de C.V., ADR ............. 215,250
-----------
PHARMACEUTICALS 18.9%
SE 10,000 a Astra AB, Series B ............................. 284,947
CH 200 Ciba-Geiby, AG ................................. 136,883
US 10,000 Laboratorio Chile SA, ADR ...................... 191,250
US 20,000 Medeva, Plc., ADR .............................. 325,000
US 5,000 Pfizer, Inc. ................................... 433,125
CH 100 Roche Holding .................................. 601,048
CH 200 Sandoz, AG-R ................................... 130,773
FR 3,000 Sanofi, SA ..................................... 165,328
US 2,200 Schering-Plough Corp. .......................... 165,825
-----------
2,434,179
-----------
PHYSICIAN PRACTICE MANAGEMENT .8%
US 7,000 a Coastal Healthcare Group, Inc. ................. 109,375
-----------
SPECIALTY PHARMACEUTICALS 17.6%
US 10,000 a Alza Corp. ..................................... 195,000
US 7,000 Allergan, Inc. ................................. 189,875
CH 100 a Ares Serono, Inc., Series B .................... 55,434
US 10,000 a Circa Pharmaceuticals, Inc. .................... 243,750
US 7,000 a Elan Corp., Plc., ADR .......................... 247,625
US 25,000 a Gensia, Inc. ................................... 67,188
US 36,000 a KV Pharmaceutical Co., Class B ................. 229,500
US 25,000 a Matrix Pharmaceutical, Inc. .................... 368,750
US 42,000 a Noven Pharmaceuticals, Inc. .................... 357,000
US 70,000 a Penederm, Inc. ................................. 332,500
-----------
2,286,622
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN GLOBAL HEALTH CARE FUND (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS (CONT.)
SOFTWARE/INFORMATION SYSTEMS 3.1%
US 20,000 a Pyxis Corp. .................................... $ 397,500
-----------
TOTAL COMMON STOCKS & WARRANTS (COST
$10,824,706) ............................ 11,416,688
-----------
FACE
AMOUNT
----------
d,e RECEIVABLES FROM REPURCHASE AGREEMENTS 13.5%
US $1,757,315 Joint Repurchase Agreement, 5.975%, 05/01/95
(Maturity Value $1,742,067) (Cost $1,741,200)
Collateral: U.S. Treasury Notes, 4.75% -
9.00%, 07/15/96 - 01/31/00 .................. 1,741,200
-----------
TOTAL INVESTMENTS (COST $12,565,906)
102.0% .................................. 13,157,888
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET (2.0)% .............................. (251,959)
-----------
NET ASSETS 100.0% ........................ $12,905,929
===========
At April 30, 1995, the net unrealized
appreciation based on the cost of investments
for income tax purposes of $12,571,287 was
as follows:
Aggregate gross unrealized appreciation for
all investments in which there was an
excess of value over tax cost ............... $ 1,508,912
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value ........................ (922,311)
-----------
Net unrealized appreciation .................... $ 586,601
===========
</TABLE>
COUNTRY LEGEND:
CH - Switzerland
FR - France
GB - United Kingdom
SE - Sweden
US - United States of America
* Securities traded in currency of country indicated.
a Non-income producing.
d Face amount for repurchase agreements is for the underlying collateral.
e See Note 1(g) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- ---------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 98.3%
ADVERTISING .4%
400 Omnicom Group, Inc. ................................... $ 22,250
----------
AEROSPACE/DEFENSE .1%
700 GenCorp, Inc. ......................................... 8,838
----------
CHEMICAL & MATERIALS 5.3%
200 a Applied Materials, Inc. ............................... 12,325
800 ARCO Chemical Co. ..................................... 37,200
400 Cabot Corp. ........................................... 15,700
2,300 Granite Construction, Inc. ............................ 46,000
1,200 IMC Global, Inc. ...................................... 58,950
200 Lubrizol Corp. ........................................ 6,975
100 a National Gypsum Co. ................................... 4,925
300 National Presto Industries, Inc. ...................... 13,875
800 a Southdown, Inc. ....................................... 15,200
1,300 a Sterling Chemicals, Inc. .............................. 16,250
1,000 The Geon Co. .......................................... 27,000
1,500 Wellman, Inc. ......................................... 40,500
----------
294,900
----------
COMMERCIAL SERVICES 2.1%
1,700 CPI Corp. ............................................. 28,475
500 Equifax, Inc. ......................................... 16,187
700 Kelly Services, Inc., Class A ......................... 23,625
1,000 Manpower, Inc. ........................................ 33,375
400 PHH Corp. ............................................. 16,100
----------
117,762
----------
COMMUNICATIONS EQUIPMENT 2.2%
200 a 3Com Corp. ............................................ 11,200
400 a ALC Communications Corp. .............................. 15,250
1,000 a Bay Networks, Inc. .................................... 36,375
1,100 a Cabletron Systems, Inc. ............................... 52,250
100 a Tellabs, Inc. ......................................... 6,900
----------
121,975
----------
COMPUTER HARDWARE 2.3%
1,500 a Dell Computer Corp. ................................... 82,125
700 a Exabyte Corp. ......................................... 8,837
300 a Seagate Technology, Inc. .............................. 9,563
700 a Silicon Graphics, Inc. ................................ 26,250
----------
126,775
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- ---------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
COMPUTER SOFTWARE 3.1%
900 Adobe Systems, Inc. ................................... $ 52,425
100 a BMC Software, Inc. .................................... 6,225
1,800 a Cadence Design Systems, Inc. .......................... 58,050
900 a Informix Corp. ........................................ 35,437
500 a Parametric Technology Corp. ........................... 23,750
----------
175,887
----------
CONTAINERS & PACKAGING 1.0%
1,000 Chesapeake Corp. ...................................... 31,000
700 Riverwood International Corp. ......................... 16,100
400 Sonoco Products Co. ................................... 9,950
----------
57,050
----------
ELECTRONIC COMPONENTS/TECHNOLOGY 10.7%
600 a Altera Corp. .......................................... 48,525
800 a Amphenol Corp., Class A ............................... 22,400
100 a Analog Devices, Inc. .................................. 2,687
1,000 Arrow Electronics, Inc. ............................... 46,500
2,300 Comdisco, Inc. ........................................ 64,687
1,000 Cypress Semiconductor Corp. ........................... 30,250
500 a KLA Instruments Corp. ................................. 31,000
400 a Lam Research Corp. .................................... 20,200
300 Linear Technology Corp. ............................... 17,925
1,500 a Litton Industries, Inc. ............................... 51,938
700 Micron Technology, Inc. ............................... 57,575
100 Molex, Inc. ........................................... 3,775
800 a Solectron Corp. ....................................... 23,500
900 a Symbol Technologies, Inc. ............................. 29,813
1,300 a Teradyne, Inc. ........................................ 65,812
600 Varian Associates, Inc. ............................... 27,600
400 a Vishay Intertechnology, Inc. .......................... 23,650
400 a Xilinx, Inc. .......................................... 30,700
----------
598,537
----------
ENVIRONMENTAL CONTROL .7%
300 a Air & Water Technologies Corp., Class A ............... 1,369
4,600 a American Waste Services, Inc., Class A ................ 6,325
12,600 a International Technology Corp. ........................ 33,075
----------
40,769
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- ---------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
FINANCE 7.9%
200 ADVANTA Corp. Class A ................................. $ 6,950
2,000 AT&T Capital Corp. .................................... 53,500
600 BanPonce Corp. ........................................ 19,387
1,600 Bank of New York Co., Inc. ............................ 52,600
800 BayBanks, Inc. ........................................ 50,000
100 Comerica, Inc. ........................................ 2,875
400 Edwards (AG), Inc. .................................... 9,150
1,400 First Bank System, Inc. ............................... 56,700
200 First USA, Inc. ....................................... 8,500
1,000 Green Tree Financial Corp. ............................ 40,875
1,000 Midlantic Corp., Inc. ................................. 36,500
300 Student Loan Marketing Association .................... 12,150
800 SunAmerica, Inc. ...................................... 39,200
700 Union Bank of San Francisco ........................... 27,125
1,000 West One Bancorp ...................................... 27,625
----------
443,137
----------
FOOD/BEVERAGES 3.2%
1,200 Coca-Cola Enterprises, Inc. .......................... 26,850
500 Flowers Industries, Inc. ............................. 8,688
800 Hormel Foods Corp. ................................... 21,900
1,900 IBP, Inc. ............................................ 70,300
1,500 International Multifoods Corp. ....................... 30,750
1,300 Michael Foods, Inc. .................................. 16,331
200 Tyson Foods, Inc., Class A ........................... 4,750
----------
179,569
----------
HEALTHCARE PRODUCTS 6.2%
500 a Acuson Corp. ......................................... 5,750
500 a Advanced Technology Laboratories, Inc. ............... 7,875
1,600 Cardinal Health, Inc. ................................ 73,800
600 a Cordis Corp. ......................................... 43,050
300 a Diagnostek, Inc. ..................................... 5,550
1,100 a Marquette Electronics, Inc., Class A ................. 20,900
1,500 McKesson Corp. ....................................... 59,437
2,500 Mylan Laboratories Corp. ............................. 76,875
600 a Nellcor, Inc. ........................................ 24,900
600 Stryker Corp. ........................................ 27,075
----------
345,212
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- ---------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
HEALTHCARE SERVICES 3.9%
900 a Coram Healthcare Corp. ................................ $ 18,450
1,400 a FHP International Corp. ............................... 33,250
200 a HealthCare COMPARE Corp. .............................. 6,013
3,200 a HEALTHSOUTH Rehabilitation Corp. ...................... 63,200
1,300 a Health Systems International, Inc., Class A ........... 33,150
400 a Mid-Atlantic Medical Services, Inc. ................... 6,900
1,000 a OrNda Healthcorp ...................................... 17,500
200 a Oxford Health Plans, Inc. ............................. 8,325
500 a PacifiCare Health Systems, Inc., Class B .............. 31,000
100 Surgical Care Affiliates, Inc. ........................ 2,325
----------
220,113
----------
INSURANCE 8.3%
500 20th Century Industries ............................... 6,063
2,400 AFLAC, Inc. ........................................... 99,000
1,500 Allmerica Property & Casualty Cos., Inc. .............. 28,500
900 Aon Corp. ............................................. 33,187
600 Bankers Life Holdings Corp. ........................... 12,600
100 Conseco, Inc. ......................................... 4,337
600 Equitable Cos., Inc. .................................. 14,250
600 Equitable of Iowa Cos. ................................ 21,975
1,500 Horace Mann Educators Corp. ........................... 30,938
1,000 a Humana, Inc. .......................................... 19,500
1,000 John Alden Financial Corp. ............................ 18,125
1,100 MGIC Investment Corp. ................................. 46,613
100 a Policy Management Systems Corp. ....................... 5,038
700 Progressive Corp. ..................................... 26,425
1,500 Reliastar Financial Corp. ............................. 53,812
700 Transatlantic Holdings, Inc. .......................... 44,450
----------
464,813
----------
LEISURE 2.7%
1,100 a Boyd Gaming Corp. ..................................... 14,987
3,600 Callaway Golf Co. ..................................... 44,550
1,800 CML Group, Inc. ....................................... 13,050
2,600 a Mirage Resorts, Inc. .................................. 78,000
----------
150,587
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
59
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- ---------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
MANUFACTURING - DIVERSIFIED .8%
600 Danaher Corp. .......................................... $ 17,850
600 Pentair, Inc. .......................................... 27,450
----------
45,300
----------
MANUFACTURING - SPECIALIZED INDUSTRIAL 2.2%
1,200 Breed Technologies, Inc. ............................... 24,150
900 Lancaster Colony Corp. ................................. 31,275
400 a Lear Seating Corp. ..................................... 7,700
200 Leggett & Platt, Inc. .................................. 7,700
1,500 Modine Manufacturing Co. ............................... 50,813
----------
121,638
----------
METALS & MINING 1.4%
1,500 a Alumax, Inc. ........................................... 42,375
200 Carpenter Technology Corp. ............................. 12,075
1,400 a Magma Copper Co. ....................................... 23,450
----------
77,900
----------
OFFICE SUPPLIES 1.5%
3,700 a Office Depot ........................................... 84,175
----------
OIL & GAS 5.1%
1,100 Apache Corp. ........................................... 29,700
800 a BJ Services Co. ........................................ 18,300
1,500 El Paso Natural Gas Co. ................................ 43,875
600 Equitable Resources, Inc. .............................. 17,175
200 FINA, Inc., Class A .................................... 17,800
1,600 Murphy Oil Corp. ....................................... 70,000
400 Questar Corp. .......................................... 11,850
3,700 Ranger Oil, Ltd. ....................................... 27,287
600 a Seagull Energy Corp. ................................... 10,650
1,400 Valero Energy Corp. .................................... 30,275
500 Western Gas Resources, Inc. ............................ 10,250
----------
287,162
----------
PAPER & FOREST PRODUCTS 2.7%
1,900 Bowater, Inc. .......................................... 72,675
800 Consolidated Papers, Inc. .............................. 39,200
1,400 Longview Fibre Co. ..................................... 23,275
300 Willamette Industries, Inc. ............................ 15,375
----------
150,525
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS,
APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- ----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
RESTAURANTS .5%
300 a International Dairy Queen, Inc., Class A ................ $ 5,700
3,000 a NPC International, Inc., Class A ........................ 17,438
100 a Outback Steakhouse, Inc. ................................ 2,525
--------
25,663
--------
RETAIL 6.0%
700 a Bed Bath & Beyond, Inc. ................................. 14,613
2,500 Dollar General Corp. .................................... 58,125
100 Duty Free International, Inc. ........................... 750
2,000 Family Dollar Stores, Inc. .............................. 23,750
1,200 Fingerhut Cos., Inc. .................................... 13,950
200 a General Nutrition Cos., Inc. ............................ 4,975
3,600 Hancock Fabrics, Inc. ................................... 36,000
3,400 a MacFrugals Bargains Closeouts, Inc. ..................... 50,150
700 a Michael Stores, Inc. .................................... 19,950
1,400 a Safeway, Inc. ........................................... 52,500
300 a Stop & Shop Cos., Inc. .................................. 7,987
3,100 a Waban, Inc. ............................................. 51,537
--------
334,287
--------
TELECOMMUNICATIONS 2.7%
2,300 Cincinnati Bell, Inc. ................................... 55,200
2,000 Frontier Corp. .......................................... 40,250
2,200 a LDDS Communications, Inc. ............................... 52,800
--------
148,250
--------
TEXTILES 2.1%
4,500 a Burlington Industries, Inc. ............................. 49,500
1,900 a Jones Apparel Group, Inc. ............................... 49,875
1,100 Phillips-Van Heusen Corp. ............................... 16,913
--------
116,288
--------
TRANSPORTATION 2.0%
100 Airborne Freight Corp. .................................. 1,950
500 American President Cos., Ltd. ........................... 11,625
300 GATX Corp. .............................................. 13,500
700 Illinois Central Corp. .................................. 24,587
1,800 a Northwest Airlines Corp., Class A ....................... 53,550
400 a Southern Pacific Rail Corp. ............................. 6,950
--------
112,162
</TABLE> --------
The accompanying notes are an integral part of these financial statements.
61
<PAGE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS,
APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- ------ ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES 11.2%
600 Atlantic Energy, Inc. ................................... $ 10,875
1,000 Centerior Energy Corp. .................................. 8,875
5,000 Central Maine Power Co. ................................. 55,625
2,000 Delmarva Power & Lighting Co. ........................... 39,000
1,400 General Public Utilities Corp. .......................... 39,900
1,600 Illinova Corp. .......................................... 37,200
3,100 Long Island Light Co. ................................... 46,113
1,200 New York State Electric & Gas Corp. ..................... 26,250
2,000 NIPSCO Industries, Inc. ................................. 64,500
1,500 Northeast Utilities ..................................... 32,813
3,000 Portland General Corp. .................................. 62,250
3,400 Pinnacle West Capital Corp. ............................. 73,100
4,100 a Public Service Co. of Mexico ............................ 52,275
1,500 Rochester Gas & Electric Corp. .......................... 30,937
1,100 Scana Corp. ............................................. 47,163
----------
626,876
----------
Total Common Stocks (Cost $5,042,149) ............. 5,498,400
----------
FACE
AMOUNT
- ------
d,e RECEIVABLES FROM REPURCHASE AGREEMENTS 2.1%
$118,901 JOINT REPURCHASE AGREEMENT, 5.975%, 05/01/95 (Maturity
Value $118,356) (Cost $118,297)
Collateral: U.S. Treasury Notes, 4.75% - 9.00%,
07/15/96 - 01/31/00 .................................... 118,297
----------
Total Investments (Cost $5,160,446) 100.4% ... 5,616,697
Liabilities in Excess of Other Assets, Net
(.4)% ........................................ (25,555)
----------
Net Assets 100.0% ............................ $5,591,142
==========
At April 30, 1995, the net unrealized appreciation based
on the cost of investments for income tax purposes of
$5,167,931 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost ....................................... $ 617,750
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value .......................................... (168,984)
----------
Net unrealized appreciation .......................... $ 448,766
==========
</TABLE>
a Non-income producing.
d Face amount for repurchase agreements is for the underlying collateral.
e See Note 1(g) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1995
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
CALIFORNIA STRATEGIC GLOBAL
GROWTH FUND INCOME FUND UTILITIES FUND
------------ ----------- --------------
<S> <C> <C> <C>
Assets:
Investments in securities:
At identified cost ................................................................ $ 9,902,573 $5,583,130 $120,557,322
=========== ========== ============
At value .......................................................................... 11,519,959 5,706,576 115,145,063
Receivables from repurchase agreements, at value and cost .......................... 2,339,285 833,318 4,456,070
Cash ............................................................................... 369,687 7,563 65,434
Receivables:
Dividends and interest ............................................................ 15,649 130,420 601,230
Investment securities sold ........................................................ 189,420 748,357 29,609
Capital shares sold ............................................................... 79,989 -- 22,894
From affiliates ................................................................... -- 15,997 --
Unamortized organization costs (Note 2) ............................................. 9,981 -- 6,868
----------- ---------- ------------
Total assets ........................................................................ 14,523,970 7,442,231 120,327,168
----------- ---------- ------------
Liabilities:
Payables:
Investment securities purchased ................................................... 655,475 700,084 770,177
Capital shares repurchased ........................................................ -- -- 123,564
Payable upon return of securities loaned (Note 9) ................................. -- -- --
Management fees ................................................................... -- -- 59,798
Shareholder servicing cost ........................................................ 26 70 7,172
Distribution fees ................................................................. 6,901 438 68,031
Payables to Manager for organization costs ........................................ 9,981 -- --
Accrued expenses and other liabilities ............................................. 7,320 4,257 47,944
Unrealized loss on forward foreign currency contracts (Note 1) ..................... -- 1,676 --
----------- ---------- ------------
Total liabilities ............................................................. 679,703 706,525 1,076,686
----------- ---------- ------------
Net assets, at value ................................................................ $13,844,267 $6,735,706 $119,250,482
=========== ========== ============
Net assets consist of:
Undistributed net investment income ............................................... 71,512 16,544 1,475,101
Unrealized appreciation (depreciation) on investments and translation of assets
and liabilities denominated in foreign currencies................................ 1,617,386 121,865 (5,410,988)
Net realized gain (loss) from investments and foreign currency transactions ....... 530,562 (15,782) 1,316,428
Capital shares .................................................................... 9,865 6,617 97,528
Additional paid-in capital ........................................................ 11,614,942 6,606,462 121,772,413
----------- ---------- ------------
Net assets, at value ................................................................ $13,844,267 $6,735,706 $119,250,482
=========== ========== ============
Shares outstanding .................................................................. 986,512 661,744 9,752,780
=========== ========== ============
Net asset value per share ........................................................... $14.03 $10.18 $12.23
=========== ========== ============
Representative computation (Franklin California Growth Fund) of net asset value and
offering price per share:
Net asset value per share* ($13,844,267/986,512) .................................. $14.03
===========
Maximum offering price (100/95.5 of $14.03+) ...................................... $14.69
===========
</TABLE>
*Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
+The maximum offering price for the Franklin Strategic Income Fund is
calculated as follows: 100/95.75 of $10.18.
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
APRIL 30, 1995
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN INSTITUTIONAL
SMALL CAP GLOBAL HEALTH MIDCAP
GROWTH FUND CARE FUND GROWTH FUND
----------- ------------- -------------
<S> <C> <C> <C>
Assets:
Investments in securities:
At identified cost .............................. $50,350,851 $10,824,706 $5,042,149
=========== =========== ==========
At value ........................................ 57,122,666 11,416,688 5,498,400
Receivables from repurchase agreements, at
value and cost................................... 7,246,396 1,741,200 118,297
Cash .............................................. 203,876 12,311 --
Receivables:
Dividends and interest .......................... 20,549 2,517 7,890
Investment securities sold ...................... 1,165,725 -- 178,390
Capital shares sold ............................. 504,026 14,167 --
From affiliates ................................. -- 5,171 --
Unamortized organization costs (Note 2) ............ 6,726 6,395 --
----------- ----------- ----------
Total assets ....................................... 66,269,964 13,198,449 5,802,977
----------- ----------- ----------
Liabilities:
Payables:
Investment securities purchased ................. 2,005,526 259,305 211,835
Capital shares repurchased ...................... 5,800 13,365 --
Payable upon return of securities loaned (Note 9) 1,185,594 -- --
Management fees ................................. 13,126 -- --
Shareholder servicing cost ...................... 3,908 27 --
Distribution fees ............................... 26,884 6,523 --
Payables to Manager for organization costs ...... 6,726 6,395 --
Accrued expenses and other liabilities .......... 12,765 6,905 --
Unrealized loss on forward foreign currency
contracts (Note 1).............................. -- -- --
----------- ----------- ----------
Total liabilities .......................... 3,260,329 292,520 211,835
----------- ----------- ----------
Net assets, at value ............................... $63,009,635 $12,905,929 $5,591,142
=========== =========== ==========
Net assets consist of:
Undistributed net investment income ............. 49,242 31,883 41,792
Unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities denominated in foreign currencies.. 6,771,815 591,982 456,251
Net realized gain (loss) from investments and
foreign currency transactions.................. 2,211,296 556,003 (75,289)
Capital shares .................................. 42,283 11,272 5,174
Additional paid-in capital ...................... 53,934,999 11,714,789 5,163,214
----------- ----------- ----------
Net assets, at value .............................. $63,009,635 $12,905,929 $5,591,142
=========== =========== ==========
Shares outstanding ................................ 4,228,290 1,127,155 517,359
=========== =========== ==========
Net asset value per share ......................... $14.90 $11.45 $10.81
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1995, EXCEPT AS NOTED BELOW
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN INSTITUTIONAL
CALIFORNIA STRATEGIC GLOBAL SMALL CAP GLOBAL HEALTH MIDCAP
GROWTH FUND INCOME FUND* UTILITIES FUND GROWTH FUND CARE FUND GROWTH FUND
----------- ------------ -------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends .......................... $ 72,258 $ 14,548 $5,040,695 $ 148,408 $ 28,932 $102,397
Interest ........................... 70,208 404,716 568,742 194,774 68,858 6,613
---------- --------- ---------- ----------- ---------- --------
Total income .................. 142,466 419,264 5,609,437 343,182 97,790 109,010
---------- --------- ---------- ----------- ---------- --------
Expenses:
Management fees, net (Note 6) ...... -- -- 737,090 56,120 -- --
Distribution fees (Note 6) ......... 9,924 939 283,696 72,963 17,787 --
Shareholder servicing costs (Note 6) 176 353 93,279 36,958 327 --
Reports to shareholders ............ 10,227 16,950 107,276 42,193 18,115 1,359
Custodian fees ..................... 732 1,853 36,552 4,318 1,822 431
Professional fees .................. 2,210 11,902 22,269 8,687 3,653 2,142
Registration and filing fees ....... 10,889 5,095 74,837 24,371 12,345 11,165
Amortization of organization costs
(Note 2) .......................... 6,653 -- 3,168 3,756 3,240 --
Other .............................. 537 1,347 8,029 2,084 1,888 1,892
Payments from Manager (Note 6) ..... (22,410) (25,618) -- -- (36,061) (16,989)
---------- --------- ---------- ----------- ---------- --------
Total expenses ................ 18,938 12,821 1,366,196 251,450 23,116 --
---------- --------- ---------- ----------- ---------- --------
Net investment income ......... 123,528 406,443 4,243,241 91,732 74,674 109,010
---------- --------- ---------- ----------- ---------- --------
Realized and unrealized gain (loss)
from investments and foreign currency:
Net realized gain (loss) on:
Investments ...................... 836,699 29,147 1,599,082 3,403,883 910,382 (75,022)
Foreign currency transactions .... -- (44,929) 3,766 1,192 33,123 --
Net unrealized appreciation
(depreciation) on:
Investments ...................... 1,235,649 121,770 (2,363,440) 6,619,781 189,307 478,214
Translation of assets and
liabilities denominated in
foreign currencies .............. -- 95 (1,289) -- -- --
---------- --------- ---------- ----------- ---------- --------
Net realized and unrealized gain
(loss) on investments and foreign
currency ........................... 2,072,348 106,083 (761,881) 10,024,856 1,132,812 403,192
---------- --------- ---------- ----------- ---------- --------
Net increase in net assets
resulting from operations ........ $2,195,876 $ 512,526 $3,481,360 $10,116,588 $1,207,486 $512,202
========== ========= ========== =========== ========== ========
</TABLE>
*For the period May 24, 1994 (effective date) to April 30, 1995.
The accompanying notes are an integral part of these financial statements.
65
<PAGE>
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended April 30, 1995 and 1994, except as noted below
<TABLE>
<CAPTION>
Franklin California Franklin Strategic Franklin Global
Growth Fund Income Fund* Utilities Fund
------------------------ ------------------ ---------------------------
1995 1994 1995 1995 1994
----------- ---------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income............................ $ 123,528 $ 47,698 $ 406,443 $ 4,243,241 $ 1,873,880
Net realized gain (loss) on investments and
foreign currency transactions................... 836,699 533,611 (15,782) 1,602,848 3,574,739
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign
currencies...................................... 1,235,649 276,756 121,865 (2,364,729) (4,000,978)
----------- ---------- ---------- ------------ ------------
Net increase in net assets
resulting from operations.................. 2,195,876 858,065 512,526 3,481,360 1,447,641
Distributions to shareholders from:
Undistributed net investment income............... (64,537) (48,522) (389,899) (3,707,193) (1,053,413)
Net realized capital gains........................ (549,224) (195,872) -- (3,611,890) (249,283)
Increase (decrease) in net assets from
capital share transactions (Note 4)............... 7,616,445 620,455 6,613,079 (1,099,874) 109,816,315
----------- ---------- ---------- ------------ ------------
Net increase (decrease) in net assets....... 9,198,560 1,234,126 6,735,706 (4,937,597) 109,961,260
Net assets:
Beginning of year................................. 4,645,707 3,411,581 -- 124,188,079 14,226,819
----------- ---------- ---------- ------------ ------------
End of year....................................... $13,844,267 $4,645,707 $6,735,706 $119,250,482 $124,188,079
=========== ========== ========== ============ ============
Undistributed net investment income included
in net assets:
Beginning of year................................ $ 12,521 $ 13,345 $ -- $ 939,053 $ 118,586
=========== ========== ========== ============ ============
End of year...................................... $ 71,512 $ 12,521 $ 16,544 $ 1,475,101 $ 939,053
=========== ========== ========== ============ ============
</TABLE>
*For the period May 24, 1994 (effective date) to April 30, 1995.
The accompanying notes are an integral part of these financial statements.
66
<PAGE>
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED APRIL 30, 1995 AND 1994, EXCEPT AS NOTED BELOW
<TABLE>
<CAPTION>
FRANKLIN SMALL CAP FRANKLIN GLOBAL FRANKLIN INSTITUTIONAL
GROWTH FUND HEALTH CARE FUND MIDCAP GROWTH FUND
---------------------- --------------------- ----------------------
1995 1994 1995 1994 1995 1994*
---------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................. $ 91,732 $ 32,254 $ 74,674 $ 31,543 $ 109,010 $ 75,987
Net realized gain (loss) on investments
and foreign currency transactions .... 3,405,075 1,627,612 943,505 361,025 (75,022) 24,817
Net unrealized appreciation (depreci-
ation) on investments and translation
of assets and liabilities denominated
in foreign currencies................. 6,619,781 156,594 189,307 438,510 478,214 (21,963)
---------- --------- --------- ---------- ---------- ----------
Net increase in net assets
resulting from operations..... 10,116,588 1,816,460 1,207,486 831,078 512,202 78,841
Distributions to shareholders from:
Undistibuted net investment income...... (50,170) (35,477) (49,631) (33,141) (103,704) (39,501)
Net realized capital gains.............. (2,378,735) (427,302) (469,438) (137,028) (7,584) (17,500)
Increase in net assets from capital
share transactions (Note 4)............. 31,406,861 16,535,237 6,422,416 1,711,689 111,288 5,057,100
----------- ----------- ---------- ---------- ---------- ----------
Net increase in net assets...... 39,094,544 17,888,918 7,110,833 2,372,598 512,202 5,078,940
Net assets:
Beginning of year....................... 23,915,091 6,026,173 5,795,096 3,422,498 5,078,940 --
----------- ----------- ----------- ---------- ---------- ----------
End of year............................. $63,009,635 $23,915,091 $12,905,929 $5,795,096 $5,591,142 $5,078,940
=========== =========== =========== ========== ========== ==========
Undistributed net investment income
included in net assets:
Beginning of year..................... $ 7,680 $ 10,903 $ 6,840 $ 8,438 $ 36,486 $ --
=========== =========== =========== ========== ========== ==========
End of year........................... $ 49,242 $ 7,680 $ 31,883 $ 6,840 $ 41,792 $ 36,486
=========== =========== =========== ========== ========== ==========
</TABLE>
*For the period August 17, 1993 (effective date) to April 30, 1994.
The accompanying notes are an integral part of these financial statements.
67
<PAGE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Strategic Series (the Series) is an open-end, management investment
company (mutual fund), registered under the Investment Company Act of 1940, as
amended. The Series currently consists of six separate funds (the Funds). There
are two separate diversified funds Franklin Small Cap Growth Fund (the Small
Cap Fund) and Franklin Institutional MidCap Growth Fund (the Institutional
MidCap Growth Fund); and four separate non-diversified funds: Franklin
California Growth Fund (the California Growth Fund), Franklin Strategic Income
Fund (the Strategic Income Fund), Franklin Global Health Care Fund (the Global
Health Fund) and Franklin Global Utilities Fund (the Global Utilities Fund).
Prior to June 21, 1994, the Institutional MidCap Growth Fund was known as the
FISCO MidCap Growth Fund. Each of the Funds issues a separate series of shares
and maintains a totally separate investment portfolio.
On January 13, 1993, the Board of Trustees approved the addition of Franklin
MidCap Growth Fund to the Series. The new fund is an open-end, diversified
management investment company registered under the Investment Company Act of
1940, as amended, and will invest all of its assets in the MidCap Growth
Portfolio, an open-end diversified management investment company. The Franklin
MidCap Growth Fund has been effective since June 15, 1993, but has not
commenced operations.
On February 16, 1995, the Board of Trustees approved the addition of a new fund
to the series. A registration statement relating to the new fund has been filed
with the Securities and Exchange Commission, but has not become effective as of
April 30, 1995.
The Global Utilities Fund will be offering an additional class of shares
effective May 1, 1995.
The following is a summary of significant accounting policies consistently
followed by the Series in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
A. SECURITIES VALUATIONS:
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and ask prices. Other securities
for which market quotations are readily available, are valued at current market
values obtained from pricing services, which are based on a variety of factors,
including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related
to specific securities. Portfolio securities which are traded both in the
over-the-counter market and on a securities exchange are valued according to
the broadest and most representative market as determined by the Manager. Other
securities for which market quotations are not available, if any, are valued in
accordance with procedures established by the Board of Trustees.
The value of a foreign security is determined as of the close of trading on the
foreign exchange on which it is traded or as of the close of trading on the New
York Stock Exchange, if that is earlier, and that value is then converted into
its U.S. dollar equivalent at the foreign exchange rate in effect at noon, New
York time, on the day the value of the foreign security is determined. If no
sale is reported at that time, the mean between the current bid and asked price
is used. Occasionally, events which affect the values of foreign securities and
foreign exchange rates may occur between the times at which they are determined
and the close of the exchange and will, therefore, not be reflected in the
computation of the Fund's net asset value. If events materially affect the
value of these foreign securities occur during such period, then these
securities will be valued at fair value as determined by management and
approved in good faith by the Board of Directors.
The fair values of securities restricted as to resale, if any, are determined
following procedures established by the Board of Trustees -- see Note 7.
68
<PAGE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. INCOME TAXES:
The Funds intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to their shareholders which will be sufficient to
relieve them from income and excise taxes. Therefore, no income tax provision
is required. Each Fund is treated as a separate entity in the determination of
compliance with the Internal Revenue Code.
C. SECURITY TRANSACTIONS:
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Realized gains and losses on security
transactions are determined on the basis of specific identification for both
financial statement and income tax purposes.
D. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
Bond discount is amortized as required by the Internal Revenue Code.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to differing treatment of wash sale transactions.
E. EXPENSE ALLOCATION:
Common expenses incurred by the Series are allocated among the Funds based on
the ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.
F. FOREIGN CURRENCY TRANSLATION:
The accounting records of the Series are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of such currencies against U.S. dollars on the
date of valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are recognized when reported by the custodian
bank.
The Series does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized between the trade date and settlement dates on
securities transactions and the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Series books and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
appreciation (depreciation) on translation of assets and liabilities
denominated in foreign currencies arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in exchange rates.
G. REPURCHASE AGREEMENTS:
The Series may enter into a Joint Repurchase Agreement whereby each fund's
uninvested cash balance is deposited into a joint cash account to be used to
invest in one or more repurchase agreements with government securities dealers
recognized by the Federal Reserve Board and/or member banks of the Federal
Reserve System. The value and face amount of the Joint Repurchase Agreement are
allocated to the Funds based on their pro-rata interest.
69
<PAGE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
G. REPURCHASE AGREEMENTS (CONT):
In a repurchase agreement, the Fund purchases a U.S. government security from a
dealer or bank subject to an agreement to resell it at a mutually agreed upon
price and date. Such a transaction is accounted for as a loan by the Fund to
the seller, collateralized by the underlying security. The transaction requires
the initial collateralization of the seller's obligation by U.S. government
securities with market value, including accrued interest, of at least 102% of
the dollar amount invested by the Fund, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. The
collateral is delivered to the Fund's custodian and held until resold to the
dealer or bank. At April 30, 1995, all outstanding repurchase agreements held
by the Funds had been entered into on April 28, 1995.
H. CHANGE IN ACCOUNTING POLICY FOR FOREIGN CURRENCY PRESENTATION:
Effective April 30, 1995, the Series adopted AICPA Statement of Position (SOP)
93-4: Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies. The adoption of SOP 93-4 had no effect on net assets at
April 30, 1995, but foreign currency transactions from assets and liabilities
other than investments in securities, have been reclassified for the year then
ended on the Statement of Operations.
I. FORWARD FOREIGN CURRENCY CONTRACTS:
A forward currency contract, which is individually negotiated and privately
traded by currency traders and their customers, is a commitment to purchase or
sell a specific currency for an agreed-upon price at a future date.
The Strategic Income Fund may enter into forward contracts with the objective
of minimizing the risk to the Fund from adverse changes in the relationship
between currencies or to enhance income. The Fund may also enter into a forward
contract in relation to a security denominated in a foreign currency or when it
anticipates receipt in a foreign currency of dividends or interest payments in
order to "lock in" the U.S. dollar price of a security or the U.S. dollar
equivalent of such dividend or interest payments.
Any gain or loss realized from a forward currency contract is recorded as a
realized gain or loss from investments. See the accompanying Statement of
Operations for the fund's total realized gains or losses from investments
during the year.
The Fund segregates in its custodian bank sufficient cash, cash equivalents or
readily marketable debt securities as collateral for commitments created by
open forward contracts. The Fund could be exposed to risk if counterparties to
the contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
As of April 30, 1995, the Strategic Income Fund had the following forward
foreign currency contracts outstanding:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO SELL IN EXCHANGE FOR SETTLEMENT DATE GAIN (LOSS)
- ------------------------------------------------- --------------- --------------- ------------
<S> <C> <C> <C>
215,000 Canadian Dollars...................... U.S. $156,460 05/01/95 U.S. $(1,656)
215,000 Canadian Dollars...................... U.S. $158,019 05/15/95 11
------------- ------------
U.S. $314,479 (1,645)
------------- ------------
CONTRACTS TO BUY
- -------------------------------------------------
215,000 Canadian Dollars...................... U.S. $158,146 05/01/95 (31)
------------- ------------
Net unrealized depreciation.......................................................... U.S. $(1,676)
============
</TABLE>
70
<PAGE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONT.)
2. UNAMORTIZED ORGANIZATION COSTS
The organization costs of the Series are amortized on a straight-line basis
over a period of five years from the effective date of registration under the
Securities Act of 1933. In the event that Franklin Resources, Inc. (which was
the sole shareholder prior to the effective date of registration) redeems its
shares within the five-year period, the pro rata share of the then-unamortized
deferred organization costs will be deducted from the redemption price paid to
Franklin Resources, Inc. New investors purchasing shares of the Series
subsequent to that date bear such costs during the amortization period only as
such charges are accrued daily against investment income. The Series' Manager
advanced all of the organization costs of the Funds, except for the Global
Utilities Fund, which amounted to $33,267, $18,775 and $16,816 for the
California Growth Fund, the Small Cap Fund, and the Global Health Fund,
respectively; and paid $5,612 of the $15,648 organization cost of the Global
Utilities Fund. In an effort to reduce the Funds' expenses, the manager has
agreed in advance to waive repayment of the current period's amortization of
$6,653, $3,756 and $3,240 for the California Growth Fund, the Small Cap Fund,
and the Global Health Fund, respectively.
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At April 30, 1995, for tax purposes, the Funds have accumulated undistributed
net realized capital gains or capital loss carryovers as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
CALIFORNIA GLOBAL SMALL CAP GLOBAL HEALTH
GROWTH FUND UTILITIES FUND GROWTH FUND CARE FUND
----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Accumulated net realized gains.......... $532,804 $1,315,465 $2,220,904 $528,260
======== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN
INSTITUTIONAL
MIDCAP
GROWTH FUND
-------------
<S> <C>
Capital loss carryovers
Expiring in: 2003..................... $67,804
=======
</TABLE>
The Strategic Income Fund has a deferred foreign currency loss of $15,782
deemed to be incurred on the first day of the following fiscal year for federal
income tax purposes.
For tax purposes, the aggregate cost of securities is higher (and unrealized
appreciation is lower or unrealized depreciation is higher) than for financial
reporting purposes at April 30, 1995 by $2,242 in the California Growth Fund,
$2,803 in the Global Utilities Fund, $10,800 in the Small Cap Growth Fund,
$5,381 in the Global Health Fund, and $7,485 in the Institutional MidCap Growth
Fund.
71
<PAGE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONT.)
4. TRUST SHARES
At April 30, 1995, there were an unlimited number of $.01 par value shares
authorized. Transactions in each of the Fund's shares for the years ended April
30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
FRANKLIN CALIFORNIA FRANKLIN STRATEGIC FRANKLIN GLOBAL
GROWTH FUND INCOME FUND* UTILITIES FUND
--------------------- --------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1995
Shares sold.................... 177,789 $ 2,286,030 591,961 $5,923,336 1,300,280 $ 15,677,001
Shares issued in reinvestment
of distributions............ 49,674 577,174 37,975 374,342 525,655 6,120,700
Shares redeemed............... (51,488) (652,107) (4,853) (49,419) (1,571,981) (18,781,605)
Changes from exercise of
exchange privilege:
Shares sold............... 517,956 6,624,501 51,246 509,787 1,108,116 13,411,365
Shares redeemed........... (92,961) (1,219,153) (14,585) (144,967) (1,468,342) (17,527,335)
-------- ----------- ------- ---------- ---------- ------------
Net increase (decrease)...... 600,970 $ 7,616,445 661,744 $6,613,029 (106,272) $ (1,099,874)
======== =========== ======= ========== ========== ============
</TABLE>
*For the period May 24, 1994 (effective date) to April 30, 1995.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1994
Shares sold.................... 50,123 $ 596,456 -- -- 4,597,333 $ 58,206,365
Shares issued in reinvestment
of distributions........... 20,366 232,835 -- -- 83,094 1,057,033
Shares redeemed.............. (32,139) (374,204) -- -- (531,949) (6,782,713)
Changes from exercise of
exchange privilege:
Shares sold............... 54,080 648,657 -- -- 5,765,127 73,837,870
Shares redeemed.......... (40,915) (483,289) -- -- (1,307,264) (16,502,240)
-------- ----------- ------- ---------- ---------- ------------
Net increase................. 51,515 $ 620,455 -- -- 8,606,341 $109,816,315
======== =========== ======= ========== ========== ============
</TABLE>
72
<PAGE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONT.)
4. TRUST SHARES (cont.)
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN SMALL CAP FRANKLIN GLOBAL INSTITUTIONAL MIDCAP
GROWTH FUND HEALTH CARE FUND GROWTH FUND*
------------------------- ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1995
Shares sold ........................ 1,050,774 $ 14,073,399 295,333 $ 3,331,812 -- $ --
Shares issued in reinvestment of
distributions ..................... 165,206 1,980,868 43,569 460,121 11,755 111,288
Shares redeemed .................... (377,504) (4,925,437) (99,454) (1,111,831) -- --
Changes from exercise of
exchange privilege:
Shares sold ...................... 3,300,526 43,456,084 737,966 8,349,736 -- --
Shares redeemed .................. (1,785,818) (23,178,053) (405,973) (4,607,422) -- --
---------- ------------ -------- ----------- ------- ---------
Net increase ....................... 2,353,184 $ 31,406,861 571,441 $ 6,422,416 11,755 $ 111,288
========== ============ ======== =========== ======= ==========
1994
Shares sold ........................ 527,823 $ 6,523,254 174,501 $ 1,732,415 500,010 $5,000,099
Shares issued in reinvestment of
distributions ..................... 33,180 410,352 16,250 160,950 5,594 57,001
Shares redeemed .................... (111,639) (1,417,140) (66,382) (692,594) -- --
Changes from exercise of
exchange privilege:
Shares sold ...................... 1,634,135 21,097,953 329,826 3,285,773 -- --
Shares redeemed .................. (798,157) (10,079,182) (283,890) (2,774,855) -- --
---------- ------------ -------- ----------- ------- ----------
Net increase ....................... 1,285,342 $ 16,535,237 170,305 $ 1,711,689 505,604 $5,057,100
========== ============ ======== =========== ======= ==========
</TABLE>
*For the year ended April 30, 1995 and the period August 17, 1993 (effective
date) to April 30, 1994.
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the year ended April 30, 1995 were as follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN INSTITUTIONAL
CALIFORNIA STRATEGIC GLOBAL SMALL CAP GLOBAL HEALTH MIDCAP
GROWTH FUND INCOME FUND UTILITIES FUND GROWTH FUND CARE FUND GROWTH FUND
------------ ----------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Purchases ................... $10,540,970 $8,371,563 $28,525,250 $62,825,014 $12,425,994 $8,535,183
=========== ========== =========== =========== =========== ==========
Sales ....................... $ 5,239,514 $2,901,462 $18,471,832 $35,871,234 $ 7,671,107 $8,233,744
=========== ========== =========== =========== =========== ==========
</TABLE>
73
<PAGE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONT.)
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement, provides
investment advice, administrative services, office space and facilities to each
Fund, except for the Institutional MidCap Growth Fund and Strategic Income
Fund, and receives fees computed monthly based on the net assets of each Fund,
at an annual rate of .625 of 1% of the average daily net assets up to and
including $100 million; .50 of 1% of the average daily net assets over $100
million, up to and including $250 million; .45 of 1% of the average daily net
assets over $250 million, up to and including $10 billion; .44 of 1% of the
average daily net assets over $10 billion, up to and including $12.5 billion;
.42 of 1% of the average daily net assets over $12.5 billion, up to and
including $15 billion; and .40 of 1% of the average daily net assets over $15
billion. For the Strategic Income Fund, Franklin Advisers, Inc. receives fees
computed monthly based on the net assets of this fund, at an annual rate of
.625 of 1 % of the average daily net assets up to and including $100 million;
.50 of 1% of the average daily net assets over $100 million, up to and
including $250 million; .45 of 1% of the average daily net assets over $250
million. Franklin Institutional Services Corporation (FISCO) serves as the
investment adviser for the Institutional MidCap Growth Fund, and receives fees
computed monthly at the annual rate of .65 of 1% the Fund's average daily net
assets.
The terms of the management agreements provide that aggregate annual expenses
of the Series' be limited to the extent necessary to comply with the
limitations set forth in the laws, regulations and administrative
interpretations of the states in which the Series' shares are registered. The
Series' expenses did not exceed these limitations; however, for the year ended
April 30, 1995, Franklin Advisers, Inc. and FISCO agreed in advance to waive
the management fees, as indicated below, in an effort to minimize the Series'
expenses. Additionally, Franklin Advisers, Inc. made payments, including waiver
of repayment of organization cost advances, of $22,410, $25,618, $36,061 and
$16,989 for other expenses as shown in the Statement of Operations for the
California Growth Fund, the Strategic Income Fund, the Global Health Fund and
the Institutional MidCap Growth Fund, respectively.
<TABLE>
<CAPTION>
FISCO
Franklin Advisers, Inc. -------------
-------------------------------------------------------------------------- Franklin
Franklin Franklin Franklin Franklin Franklin Institutional
California Strategic Global Small Cap Global Health MidCap
Growth Fund Income Fund Utilities Fund Growth Fund Care Fund Growth Fund
----------- ----------- -------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Management fees earned ........ $47,494 $32,160 $737,090 $228,800 $58,346 $33,417
Less reduction of fees ........ 47,494 32,160 -- 172,680 58,346 33,417
------- ------- -------- -------- ------- -------
Management fees paid .......... $ -- $ -- $737,090 $ 56,120 $ -- $ --
======= ======= ======== ======== ======= =======
</TABLE>
Pursuant to a shareholder service agreement with Franklin/Templeton Investor
Services, Inc., the Series pays costs on a per shareholder account basis.
Shareholder servicing costs of $146,572 were incurred for the year ended April
30, 1995, of which $136,784 was for services provided by Franklin/Templeton
Investor Services, Inc. In an effort to minimize such costs, Franklin/Templeton
Investor Services, Inc. agreed in advance to waive shareholder servicing costs
of $5,012 in the California Growth Fund, $9,924 in the Global Health Fund, and
$6 in the Institutional MidCap Growth Fund for the year ended April 30, 1995.
74
<PAGE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONT.)
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
Under the terms of a Distribution Plan pursuant to Rule 12b-1 of the Investment
Company Act of 1940, the Funds, except for the Institutional MidCap Growth
Fund, will reimburse Franklin/Templeton Distributors, Inc. in an amount up to
.25% per annum of the Series' average daily net assets for costs incurred in
the promotion, offering and marketing of the Funds' shares. Costs incurred by
the Series under the agreement aggregated $385,309 for the year ended April 30,
1995.
In its capacity as underwriter for the shares of the Funds, except for the
Institutional MidCap Growth Fund, Franklin/Templeton Distributors, Inc.
received commissions on sales of the Funds' shares. Commissions received by
Franklin/Templeton Distributors, Inc., and the amounts which were subsequently
paid to other dealers for the year ended April 30, 1995 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
CALIFORNIA STRATEGIC GLOBAL SMALL CAP GLOBAL HEALTH
GROWTH FUND INCOME FUND UTILITIES FUND GROWTH FUND CARE FUND
----------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Total commissions received.... $89,678 $35,219 $664,553 $464,478 $134,715
======= ======= ======== ======== ========
Paid to other dealers......... $79,600 $34,232 $587,953 $411,761 $119,467
======= ======= ======== ======== ========
</TABLE>
Commissions are deducted from the gross proceeds received from the sales of the
Fund's shares, and as such are not expenses of the Funds.
Certain officers and trustees of the Series are also officers and/or directors
of Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc., Franklin
Institutional Services Corporation, and Franklin/Templeton Investors Services,
Inc. all wholly-owned subsidiaries of Franklin Resources, Inc.
At April 30, 1995, Franklin Resources owned 24% of the California Growth Fund,
81% of the Strategic Income Fund, 10% of the Global Health Fund, and 100% of
the Institutional MidCap Growth Fund.
7. RESTRICTED SECURITIES
A restricted security is a security which has not been registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933. The
Series may purchase restricted securities through a private offering and they
cannot be sold without prior registration under the Securities Act of 1933
unless such sale is pursuant to an exemption therefrom. Subsequent costs of
registration of such securities are borne by the issuer. A secondary market
exists for certain privately placed securities. The Series values these
restricted securities as disclosed in Note 1. At April 30, 1995, the California
Growth Fund held restricted securities with a value aggregating $288,
representing less than one percent of the Fund's net assets. Such securities
are:
<TABLE>
<CAPTION>
ACQUISITION
SHARES SECURITY DATE COST VALUE
- ------ -------- ----------- ---- -----
<S> <C> <C> <C> <C>
198 Lynx Therapeutics, Inc.............................. 10/19/92 $ 40 $ --
288 Lynx Therapeutics, Inc., pfd., Series A............. 10/19/92 $288 $288
</TABLE>
75
<PAGE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONT.)
8. RULE 144A SECURITIES
Rule 144A provides a non-exclusive safe harbor exemption from the registration
requirements of the Securities Act of 1933 for specified resale of restricted
securities to qualified institutional investors. The Series values these
securities as disclosed in Note 1. At April 30, 1995, 144A securities were held
as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
CALIFORNIA STRATEGIC GLOBAL SMALL CAP
GROWTH FUND INCOME FUND UTILITIES FUND GROWTH FUND
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Value................................ $396,000 $610,744 $2,870,132 $64,295
======== ======== ========== =======
Ratio of value to net assets......... 2.86% 9.07% 2.41% 0.10%
======== ======== ========== =======
</TABLE>
See the accompanying Statement of Investments in Securities and Net Assets for
specific information on such securities.
9. LOANS OF PORTFOLIO SECURITIES
During the year ended April 30, 1995, the Small Cap Growth Fund loaned
securities to certain brokers for which it received cash collateral against the
loaned securities in an amount equal to at least 102% of the market value of
the loaned securities. The cash collateral received is invested by the Fund in
short-term instruments and any interest income in excess of a predetermined
rebate to the brokers is kept by the fund as interest income. Interest income
from this source amounted to $4,368 for the year ended April 30, 1995.
At April 30, 1995, the value of the loaned securities amounted to $1,165,250 in
the Small Cap Growth Fund. The Fund has received sufficient cash collateral to
meet these commitments.
10. SUBSEQUENT EVENTS
On May 16, 1995, the Board of Trustees declared distributions as follows:
<TABLE>
<CAPTION>
FROM NET FROM NET
INVESTMENT REALIZED
RECORD DATE PAYMENT DATE INCOME CAPITAl GAINS
----------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Franklin California Growth Fund....... 6/14/95 6/30/95 $.115 $.538
Franklin Strategic Income Fund........ 5/31/95 6/15/95 .067 --
Franklin Global Utilities Fund:
Class I.............................. 6/14/95 6/30/95 .182 .135
Class II............................. 6/14/95 6/30/95 .174 .135
Franklin Small Cap Growth Fund........ 6/14/95 6/30/95 .014 .523
Franklin Global Health Care Fund...... 6/14/95 6/30/95 .082 --
Franklin Institutional MidCap
Growth Fund.......................... 6/14/95 6/30/95 .110 --
</TABLE>
76
<PAGE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONT.)
11. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout each
year, by Fund, are as follows:
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------
NET
REALIZED & NET
NET ASSET NET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET
YEAR VALUE AT INVEST- GAIN (LOSS) TOTAL FROM FROM NET FROM VALUE
ENDED BEGINNING MENT ON INVESTMENT INVESTMENT CAPITAL TOTAL AT END TOTAL
APRIL 30 OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN
- -------- --------- ------- ----------- ---------- ------------- ------------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN CALIFORNIA GROWTH FUND
1992 1 $10.04 $0.07 $(0.168) $(0.098) $(0.072) -- -- $ 9.87 (1.77)%**
1993 9.87 0.12 0.340 0.460 (0.120) -- -- 10.21 4.72
1994 10.21 0.14 2.425 2.565 (0.145) (0.580) (0.725) 12.05 25.55
1995 12.05 0.16 3.043 3.203 (0.124) (1.099) (1.223) 14.03 29.09
FRANKLIN STRATEGIC INCOME FUND
1995 5 10.00 0.70 0.154 0.854 (0.674) -- (0.674) 10.18 8.94
FRANKLIN GLOBAL UTILITIES FUND
1993 2 10.00 0.22 1.270 1.490 (0.130) -- -- 11.36 18.08**
1994 11.36 0.30 1.280 1.580 (0.299) (0.042) (0.341) 12.60 14.04
1995 12.60 0.42 (0.067) 0.353 (0.365) (0.358) (0.723) 12.23 3.17
FRANKLIN SMALL CAP GROWTH FUND
1992 3 10.00 0.04 (0.460) (0.420) -- -- -- 9.58 (19.96)**
1993 9.58 0.07 0.657 0.727 (0.087) -- -- 10.22 7.66
1994 10.22 0.03 2.944 2.974 (0.043) (0.401) (0.444) 12.75 29.26
1995 12.75 0.03 3.138 3.168 (0.021) (0.997) (1.018) 14.90 27.05
FRANKLIN GLOBAL HEALTH CARE FUND
1992 3 10.00 0.02 (1.180) (1.160) -- -- -- 8.84 (55.14)**
1993 8.84 0.09 0.037 0.127 (0.087) -- -- 8.88 1.41
1994 8.88 0.07 1.856 1.926 (0.078) (0.298) (0.376) 10.43 21.93
1995 10.43 0.08 1.560 1.640 (0.061) (0.559) (0.620) 11.45 16.33
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
1994 4 10.00 0.15 0.014 0.164 (0.079) (0.035) (0.114) 10.05 1.62
1995 10.05 0.21 0.769 0.979 (0.204) (0.015) (0.219) 10.81 10.06
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS EXPENSES INCOME TO
YEAR AT END TO AVERAGE AVERAGE PORTFOLIO
ENDED OF YEARS NET NET ASSETS TURNOVER
APRIL 30 (IN 000'S) ASSETS*** (SEE NOTE 6) RATE
- --------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
FRANKLIN CALIFORNIA GROWTH FUND
1992 1 $ 3,091 --% 1.27%** 13.73%
1993 3,412 -- 1.23 38.28
1994 4,646 0.09 1.16 135.12
1995 13,844 0.25 1.63 79.52
FRANKLIN STRATEGIC INCOME FUND
1995 5 6,736 0.25 7.93 68.43
FRANKLIN GLOBAL UTILITIES FUND
1993 2 14,227 -- 3.89** --
1994 124,188 0.84 2.95 16.28
1995 119,250 1.12 3.47 16.65
FRANKLIN SMALL CAP GROWTH FUND
1992 3 1,268 -- 2.45** 2.41
1993 6,026 -- 0.84 63.15
1994 23,915 0.30 0.24 89.60
1995 63,010 0.69 0.25 104.84
FRANKLIN GLOBAL HEALTH CARE FUND
1992 3 1,368 -- 1.68** 41.01
1993 3,422 -- 1.13 62.74
1994 5,795 0.10 0.68 110.82
1995 12,906 0.25 0.80 93.79
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
1994 4 5,079 -- 2.21** 70.53
1995 5,591 -- 2.12 163.54
</TABLE>
1 For the period October 18, 1991 (effective date) to April 30, 1992.
2 For the period July 2, 1992 (effective date) to April 30, 1993.
3 For the period February 14, 1992 (effective date) to April 30, 1992.
4 For the period August 17, 1993 (effective date) to April 30, 1994.
5 For the period May 24,1994 (effective date) to April 30, 1995.
* Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum initial
sales charge and assumes reinvestment of dividends and capital gains, if any,
at net asset value.
** Annualized
*** During the periods indicated, Franklin Advisers, Inc. and FISCO agreed to
waive in advance a portion of their management fees and made payments of other
expenses incurred by the Funds in the Series. Had such action not been taken,
the ratios of operating expenses to average net assets would have been as
follows:
77
<PAGE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONT.)
11. FINANCIAL HIGHLIGHTS (CONT.)
<TABLE>
<CAPTION>
RATIO OF EXPENSES
TO AVERAGE NET ASSETS
---------------------
<S> <C>
FRANKLIN CALIFORNIA GROWTH FUND
1992(1).................................... 1.61%**
1993....................................... 1.99
1994....................................... 1.89
1995....................................... 1.27
FRANKLIN STRATEGIC INCOME FUND
1995....................................... 1.38**
FRANKLIN GLOBAL UTILITIES FUND
1993(2) ................................... 1.51%**
1994....................................... 1.28
</TABLE>
**Annualized
<TABLE>
<CAPTION>
RATIO OF EXPENSES
TO AVERAGE NET ASSETS
---------------------
<S> <C>
FRANKLIN SMALL CAP GROWTH FUND
1992(3).................................... 1.74%**
1993....................................... 1.95
1994....................................... 1.58
1995....................................... 1.16
FRANKLIN GLOBAL HEALTH CARE FUND
1992(3).................................... 1.62%**
1993....................................... 2.16
1994....................................... 1.74
1995....................................... 1.37
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
1994(4).................................... 0.91%**
1995....................................... 0.98
</TABLE>
- -----------------------------------------------------------------------------
Of the income distributions paid by the Funds during the year ended April 30,
1995 the following estimated amounts qualify for the 70% dividends-received
deduction for corporations:*
<TABLE>
<S> <C>
Franklin California Growth Fund.......... 52.66%
Franklin Small Cap Growth Fund........... 83.34
Franklin Global Health Care Fund......... 20.12
Franklin Global Utilities Fund........... 70.15
Franklin Institutional MidCap Growth Fund 92.65
Franklin Strategic Income Fund........... 3.69
</TABLE>
The amounts reported above are estimated percentages and should be used for
information purposes only. Information on the final percentages that qualify
for this deduction for calendar year 1995 will be available shortly after the
end of this calendar year.
*The Funds hereby designate the amounts above as qualifying for the
dividends-received deduction for corporations for the year ended April 30,
1995.
- -----------------------------------------------------------------------------
78
<PAGE>
FRANKLIN STRATEGIC SERIES
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
of Franklin Strategic Series
We have audited the accompanying statements of assets and liabilities of the
funds comprising the Franklin Strategic Series, including each Fund's
statements of investments in securities and net assets, as of April 30, 1995
and the related statements of operations, the statements of changes in net
assets, and the financial highlights for each of the periods indicated thereon.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
April 30, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
funds comprising the Franklin Strategic Series as of April 30, 1995, and the
results of their operations, the changes in their net assets, and their
financial highlights for the periods indicated thereon, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
June 2, 1995
79
<PAGE>
Franklin Strategic Series
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) of REGULATION S-T)
GRAPHIC MATERIAL (1)
This bar chart shows the volatility of Standard & Poor's
Stock Index monthly total returns from 5/1/55 to 4/30/95.
<TABLE>
<CAPTION>
4/30/95 S&P
<S> <C>
5/1/55
5/31/55 -0.13%
6/30/55 9.33%
7/31/55 6.07%
8/31/55 -0.78%
9/30/55 2.01%
10/31/55 -3.05%
11/30/55 7.49%
12/31/55 1.12%
1/31/56 -3.65%
2/29/56 3.47%
3/31/56 7.79%
4/30/56 -0.21%
5/31/56 -6.57%
6/30/56 5.00%
7/31/56 5.15%
8/31/56 -3.81%
9/30/56 -3.67%
10/31/56 0.51%
11/30/56 -1.10%
12/31/56 4.50%
1/31/57 -4.18%
2/28/57 -3.26%
3/31/57 2.84%
4/30/57 3.70%
5/31/57 3.69%
6/30/57 0.91%
7/31/57 1.14%
8/31/57 -5.62%
9/30/57 -5.20%
10/31/57 -3.21%
11/30/57 1.61%
12/31/57 -3.02%
1/31/58 4.27%
2/28/58 -2.06%
3/31/58 3.96%
4/30/58 3.18%
5/31/58 1.50%
6/30/58 3.63%
7/31/58 4.31%
8/31/58 1.19%
9/30/58 5.78%
10/31/58 2.54%
11/30/58 2.24%
12/31/58 6.14%
1/31/59 0.38%
2/28/59 -0.02%
3/31/59 0.74%
4/30/59 3.88%
5/31/59 1.89%
6/30/59 0.44%
7/31/59 3.49%
8/31/59 -1.50%
9/30/59 -3.77%
10/31/59 1.12%
11/30/59 1.32%
12/31/59 3.64%
1/31/60 -7.15%
2/29/60 0.92%
3/31/60 -0.52%
4/30/60 -1.76%
5/31/60 2.69%
6/30/60 2.81%
7/31/60 -2.48%
8/31/60 2.61%
9/30/60 -5.22%
10/31/60 -0.24%
11/30/60 4.02%
12/31/60 5.55%
1/31/61 6.31%
2/28/61 2.69%
3/31/61 3.31%
4/30/61 0.38%
5/31/61 1.92%
6/30/61 -2.16%
7/31/61 3.28%
8/31/61 1.96%
9/30/61 -1.25%
10/31/61 2.83%
11/30/61 3.93%
12/31/61 1.12%
1/31/62 -3.79%
2/28/62 1.63%
3/31/62 0.13%
4/30/62 -6.19%
5/31/62 -8.60%
6/30/62 -7.34%
7/31/62 6.36%
8/31/62 1.53%
9/30/62 -3.96%
10/31/62 0.44%
11/30/62 10.16%
12/31/62 2.34%
1/31/63 4.91%
2/28/63 -2.88%
3/31/63 4.35%
4/30/63 4.85%
5/31/63 1.43%
6/30/63 -1.24%
7/31/63 -0.35%
8/31/63 4.88%
9/30/63 -0.39%
10/31/63 3.22%
11/30/63 -1.06%
12/31/63 3.39%
1/31/64 2.69%
2/29/64 0.98%
3/31/64 2.25%
4/30/64 0.61%
5/31/64 1.15%
6/30/64 2.39%
7/31/64 1.82%
8/31/64 -1.62%
9/30/64 3.58%
10/31/64 0.81%
11/30/64 -0.52%
12/31/64 1.28%
1/31/65 3.31%
2/28/65 -0.15%
3/31/65 -0.74%
4/30/65 3.42%
5/31/65 -0.77%
6/30/65 -4.12%
7/31/65 1.34%
8/31/65 2.25%
9/30/65 3.92%
10/31/65 2.74%
11/30/65 -0.88%
12/31/65 1.78%
1/31/66 0.49%
2/28/66 -1.79%
3/31/66 -1.44%
4/30/66 2.05%
5/31/66 -5.41%
6/30/66 -0.79%
7/31/66 -1.35%
8/31/66 -7.77%
9/30/66 0.19%
10/31/66 4.75%
11/30/66 0.31%
12/31/66 0.83%
1/31/67 7.82%
2/28/67 0.20%
3/31/67 4.76%
4/30/67 4.22%
5/31/67 -5.24%
6/30/67 2.55%
7/31/67 4.53%
8/31/67 -1.17%
9/30/67 4.04%
10/31/67 -2.91%
11/30/67 0.11%
12/31/67 3.47%
1/31/68 -4.39%
2/29/68 -3.12%
3/31/68 1.77%
4/30/68 8.19%
5/31/68 1.12%
6/30/68 1.67%
7/31/68 -1.85%
8/31/68 1.15%
9/30/68 4.61%
10/31/68 0.72%
11/30/68 4.80%
12/31/68 -3.40%
1/31/69 -0.82%
2/28/69 -4.74%
3/31/69 4.23%
4/30/69 2.15%
5/31/69 -0.22%
6/30/69 -4.80%
7/31/69 -6.02%
8/31/69 4.01%
9/30/69 -1.70%
10/31/69 4.42%
11/30/69 -3.53%
12/31/69 -0.97%
1/31/70 -7.65%
2/28/70 5.27%
3/31/70 1.02%
4/30/70 -9.05%
5/31/70 -6.09%
6/30/70 -3.97%
7/31/70 7.33%
8/31/70 4.45%
9/30/70 4.26%
10/31/70 -1.14%
11/30/70 4.74%
12/31/70 6.58%
1/31/71 4.05%
2/28/71 0.91%
3/31/71 4.45%
4/30/71 3.63%
5/31/71 -4.15%
6/30/71 0.85%
7/31/71 -4.13%
8/31/71 3.61%
9/30/71 0.08%
10/31/71 -4.18%
11/30/71 -0.26%
12/31/71 9.44%
1/31/72 1.81%
2/29/72 2.53%
3/31/72 1.29%
4/30/72 0.44%
5/31/72 1.73%
6/30/72 -1.47%
7/31/72 0.23%
8/31/72 3.45%
9/30/72 0.22%
10/31/72 0.93%
11/30/72 4.56%
12/31/72 1.90%
1/31/73 -1.71%
2/28/73 -3.75%
3/31/73 0.55%
4/30/73 -4.08%
5/31/73 -1.89%
6/30/73 0.13%
7/31/73 3.80%
8/31/73 -3.67%
9/30/73 4.81%
10/31/73 -0.13%
11/30/73 -11.39%
12/31/73 2.65%
1/31/74 -1.01%
2/28/74 -0.36%
3/31/74 -1.47%
4/30/74 -3.90%
5/31/74 -3.36%
6/30/74 -0.45%
7/31/74 -7.78%
8/31/74 -9.03%
9/30/74 -10.66%
10/31/74 16.31%
11/30/74 -5.32%
12/31/74 -0.64%
1/31/75 12.28%
2/28/75 5.99%
3/31/75 3.27%
4/30/75 4.73%
5/31/75 4.41%
6/30/75 5.45%
7/31/75 -6.77%
8/31/75 -2.11%
9/30/75 -2.41%
10/31/75 6.16%
11/30/75 2.47%
12/31/75 -0.13%
1/31/76 11.83%
2/29/76 -1.14%
3/31/76 3.98%
4/30/76 -1.10%
5/31/76 -1.44%
6/30/76 5.09%
7/31/76 -0.81%
8/31/76 -0.51%
9/30/76 3.25%
10/31/76 -2.22%
11/30/76 -0.78%
12/31/76 6.36%
1/31/77 -5.05%
2/28/77 -2.17%
3/31/77 -0.35%
4/30/77 0.02%
5/31/77 -2.36%
6/30/77 5.75%
7/31/77 -1.62%
8/31/77 -2.11%
9/30/77 0.94%
10/31/77 -4.34%
11/30/77 2.70%
12/31/77 1.66%
1/31/78 -6.15%
2/28/78 -2.48%
3/31/78 3.85%
4/30/78 8.54%
5/31/78 0.42%
6/30/78 -0.44%
7/31/78 5.39%
8/31/78 2.59%
9/30/78 0.49%
10/31/78 -9.16%
11/30/78 1.66%
12/31/78 2.91%
1/31/79 3.98%
2/28/79 -3.65%
3/31/79 6.88%
4/30/79 0.17%
5/31/79 -2.63%
6/30/79 5.30%
7/31/79 0.87%
8/31/79 5.31%
9/30/79 1.31%
10/31/79 -6.86%
11/30/79 4.26%
12/31/79 3.08%
1/31/80 5.76%
2/29/80 -0.44%
3/31/80 -8.89%
4/30/80 4.11%
5/31/80 4.66%
6/30/80 4.10%
7/31/80 6.50%
8/31/80 0.58%
9/30/80 3.79%
10/31/80 1.60%
11/30/80 10.24%
12/31/80 -2.26%
1/31/81 -4.57%
2/28/81 1.33%
3/31/81 4.81%
4/30/81 -2.35%
5/31/81 -0.17%
6/30/81 0.22%
7/31/81 -0.22%
8/31/81 -6.21%
9/30/81 -4.01%
10/31/81 4.91%
11/30/81 3.66%
12/31/81 -1.67%
1/31/82 -1.75%
2/28/82 -6.06%
3/31/82 0.46%
4/30/82 4.00%
5/31/82 -3.92%
6/30/82 -0.46%
7/31/82 -2.30%
8/31/82 11.60%
9/30/82 2.21%
10/31/82 11.04%
11/30/82 3.61%
12/31/82 2.75%
1/31/83 3.31%
2/28/83 1.90%
3/31/83 4.46%
4/30/83 7.49%
5/31/83 -1.23%
6/30/83 4.62%
7/31/83 -3.30%
8/31/83 1.13%
9/30/83 2.10%
10/31/83 -1.52%
11/30/83 1.74%
12/31/83 0.20%
1/31/84 -0.92%
2/29/84 -3.89%
3/31/84 2.50%
4/30/84 0.55%
5/31/84 -5.94%
6/30/84 3.02%
7/31/84 -1.65%
8/31/84 10.63%
9/30/84 0.77%
10/31/84 -0.01%
11/30/84 -1.51%
12/31/84 3.43%
1/31/85 7.41%
2/28/85 0.86%
3/31/85 0.78%
4/30/85 -0.46%
5/31/85 5.41%
6/30/85 2.27%
7/31/85 -0.48%
8/31/85 -1.20%
9/30/85 -2.43%
10/31/85 4.25%
11/30/85 6.51%
12/31/85 5.50%
1/31/86 0.24%
2/28/86 7.15%
3/31/86 6.18%
4/30/86 -1.41%
5/31/86 5.02%
6/30/86 2.25%
7/31/86 -5.87%
8/31/86 7.12%
9/30/86 -7.72%
10/31/86 5.47%
11/30/86 2.15%
12/31/86 -2.00%
1/31/87 13.18%
2/28/87 3.69%
3/31/87 3.38%
4/30/87 -1.14%
5/31/87 0.60%
6/30/87 5.57%
7/31/87 4.82%
8/31/87 3.50%
9/30/87 -1.74%
10/31/87 -21.76%
11/30/87 -8.53%
12/31/87 8.25%
1/31/88 4.04%
2/29/88 4.18%
3/31/88 -2.49%
4/30/88 0.94%
5/31/88 0.32%
6/30/88 5.29%
7/31/88 -0.54%
8/31/88 -3.86%
9/30/88 4.91%
10/31/88 2.60%
11/30/88 -1.89%
12/31/88 2.37%
1/31/89 7.11%
2/28/89 -2.89%
3/31/89 2.95%
4/30/89 5.01%
5/31/89 3.51%
6/30/89 0.10%
7/31/89 8.84%
8/31/89 1.55%
9/30/89 0.15%
10/31/89 -2.52%
11/30/89 1.65%
12/31/89 2.97%
1/31/90 -6.88%
2/28/90 0.85%
3/31/90 3.26%
4/30/90 -2.69%
5/31/90 9.20%
6/30/90 0.00%
7/31/90 -0.52%
8/31/90 -9.43%
9/30/90 -4.19%
10/31/90 -0.67%
11/30/90 5.99%
12/31/90 3.45%
1/31/91 4.15%
2/28/91 6.73%
3/31/91 2.98%
4/30/91 0.03%
5/31/91 3.86%
6/30/91 -3.96%
7/31/91 4.49%
8/31/91 1.96%
9/30/91 -1.12%
10/31/91 1.19%
11/30/91 -4.39%
12/31/91 11.97%
1/31/92 -1.99%
2/29/92 0.96%
3/31/92 -1.48%
4/30/92 2.79%
5/31/92 0.10%
6/30/92 -0.96%
7/31/92 3.94%
8/31/92 -2.40%
9/30/92 1.68%
10/31/92 0.21%
11/30/92 3.03%
12/31/92 1.71%
1/31/93 0.70%
2/28/93 1.05%
3/31/93 2.55%
4/30/93 -2.54%
5/31/93 2.27%
6/30/93 0.80%
7/31/93 -0.53%
8/31/93 3.44%
9/30/93 -0.31%
10/31/93 1.94%
11/30/93 -1.29%
12/31/93 1.68%
1/31/94 3.25%
2/28/94 -3.00%
3/31/94 -3.90%
4/30/94 1.15%
5/31/94 1.24%
6/30/94 -1.93%
7/31/94 3.15%
8/31/94 3.76%
9/30/94 -2.00%
10/31/94 2.09%
11/30/94 -3.95%
12/31/94 1.96%
1/31/95 2.43%
2/28/95 3.60%
3/31/95 3.39%
4/30/95 2.80%
</TABLE>
GRAPHIC MATERIAL (2)
This bar chart shows the volatility of Standard & Poor's
Stock Index in terms of 2-Year rolling total returns from
5/1/55 to 4/30/95.
<TABLE>
<CAPTION>
S&P 4/30/95
<C> <S>
30.04% 5/55-4/57
- -2.87% 5/56-4/58
35.79% 5/57-4/59
33.98% 5/58-4/60
21.23% 5/59-4/61
27.80% 5/60-4/62
14.11% 5/61-4/63
30.25% 5/62-4/64
35.78% 5/63-4/65
21.84% 5/64-4/66
12.70% 5/65-4/67
14.53% 5/66-4/68
17.32% 5/67-4/69
- -10.93% 5/68-4/70
7.51% 5/69-4/71
41.10% 5/70-4/72
9.09% 5/71-4/73
- -10.73% 5/72-4/74
- -11.30% 5/73-4/75
23.02% 5/74-4/76
22.14% 5/75-4/77
4.27% 5/76-4/78
14.52% 5/77-4/79
22.15% 5/78-4/80
44.77% 5/79-4/81
21.63% 5/80-4/82
38.06% 5/81-4/83
51.42% 5/82-4/84
19.58% 5/83-4/85
60.19% 5/84-4/86
72.33% 5/85-4/87
18.39% 5/86-4/88
14.87% 5/87-4/89
35.60% 5/88-4/90
29.84% 5/89-4/91
34.09% 5/90-4/92
24.56% 5/91-4/93
15.03% 5/92-4/94
23.67% 5/93-4/95
</TABLE>
GRAPHIC MATERIAL (3)
This chart shows in pie chart format the fund's securities
breakdown by industry as a percentage of the fund's total
net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on 4/30/95
<S> <C>
Automobile 0.7
Consumer Services 3.9
Electronic Technology 19.5
Energy Minerals 6
Finance 3.1
Health Services 4.3
Health Technology 4.7
Producer Manufacturing 3.3
Real Estate 4.9
Retail Trade 5.4
Semiconductors 9
Technology Services 8.6
Transportation 5.2
Utilities 4.5
Cash & Equivalents 16.9
</TABLE>
GRAPHIC MATERIAL(4)
The following line graph hypothetically compares the
performance of the Franklin California Growth Fund to that
of the Franklin California 250 Growth Index and the S&P 500
Stock Index, based on a $10,000 investment from 10/30/91 to
4/30/95.
<TABLE>
<CAPTION>
4/30/95 California Growth Fund CA Growth Index S&P
Index
<S> <C> <C> <C>
10/30/91 $9,550 $10,000
$10,000
10/31/91 $9,636 $10,000
$10,000
11/30/91 $8,861 $9,185
$9,597
12/31/91 $9,845 $10,285
$10,695
1/31/92 $10,548 $11,084 $10,496
2/29/92 $10,683 $11,253 $10,631
3/31/92 $9,960 $10,511 $10,424
4/30/92 $9,517 $10,078 $10,729
5/31/92 $9,546 $10,139 $10,782
6/30/92 $8,953 $9,563 $10,621
7/31/92 $9,215 $9,883 $11,056
8/31/92 $8,808 $9,455 $10,829
9/30/92 $8,914 $9,539 $10,956
10/31/92 $9,341 $10,068
$10,993
11/30/92 $10,176 $11,000
$11,367
12/31/92 $10,386 $11,285
$11,507
1/31/93 $10,718 $11,701 $11,603
2/28/93 $10,279 $11,220 $11,761
3/31/93 $10,396 $11,331 $12,009
4/30/93 $9,966 $10,906 $11,719
5/31/93 $10,689 $11,728 $12,032
6/30/93 $10,665 $11,693 $12,066
7/31/93 $10,419 $11,725 $12,018
8/31/93 $11,117 $12,300 $12,474
9/30/93 $11,578 $12,587 $12,378
10/31/93 $11,735 $12,769
$12,634
11/30/93 $11,706 $12,610
$12,514
12/31/93 $12,211 $12,991
$12,665
1/31/94 $12,751 $13,432 $13,096
2/28/94 $12,917 $13,321 $12,741
3/31/94 $12,627 $12,557 $12,185
4/30/94 $12,513 $12,506 $12,341
5/31/94 $12,585 $12,458 $12,544
6/30/94 $12,218 $11,905 $12,237
7/31/94 $12,658 $12,299 $12,638
8/31/94 $13,493 $13,458 $13,156
9/30/94 $13,592 $13,402 $12,835
10/31/94 $14,053 $13,669
$13,124
11/30/94 $14,097 $13,268
$12,646
12/31/94 $14,230 $13,454
$12,833
1/31/95 $14,218 $13,781 $13,166
2/28/95 $15,208 $14,477 $13,679
3/31/95 $15,784 $15,087 $14,083
4/31/95 $16,152 $15,576 $14,497
</TABLE>
GRAPHIC MATERIAL (5)
This chart shows in pie chart format the fund's securities
breakdown by geographic location as a percentage of the
fund's total net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on 4/30/95
<S> <C>
United States 56.3
Continental Europe 15.5
Asia 7.1
Latin America 8.7
United Kingdom 6.9
Other 2.1
Cash & Equivalents 3.4
</TABLE>
GRAPHIC MATERIAL(6)
The following line graph hypothetically compares the
performance of the Franklin Global Utilities Fund to that of
the S&P 500 Stock Index, based on a $10,000 investment from
7/2/92 to 4/30/95.
<TABLE>
<CAPTION>
7/2/92 Global Utlities Fund S&P Index
<S> <C> <C>
2-Jul-92 $9,551 $10,000
Jul-92 $9,637 $10,409
Aug-92 $9,618 $10,196
Sep-92 $9,580 $10,315
Oct-92 $9,656 $10,350
Nov-92 $9,809 $10,702
Dec-92 $10,076 $10,834
Jan-93 $10,260 $10,925
Feb-93 $10,646 $11,073
Mar-93 $10,908 $11,307
Apr-93 $10,985 $11,033
May-93 $11,111 $11,328
Jun-93 $11,283 $11,361
Jul-93 $11,509 $11,315
Aug-93 $12,245 $11,744
Sep-93 $12,372 $11,654
Oct-93 $12,951 $11,895
Nov-93 $12,461 $11,782
Dec-93 $13,243 $11,924
Jan-94 $13,462 $12,330
Feb-94 $12,756 $11,996
Mar-94 $12,358 $11,473
Apr-94 $12,527 $11,619
May-94 $12,527 $11,810
Jun-94 $12,040 $11,521
Jul-94 $12,579 $11,899
Aug-94 $12,870 $12,386
Sep-94 $12,683 $12,084
Oct-94 $12,787 $12,356
Nov-94 $12,299 $11,906
Dec-94 $12,079 $12,082
Jan-95 $12,343 $12,395
Feb-95 $12,449 $12,879
Mar-95 $12,586 $13,259
Apr-95 $12,924 $13,649
</TABLE>
GRAPHIC MATERIAL (7)
This chart shows in pie chart format the fund's securities
breakdown by industry as a percentage of the fund's total
net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on 4/30/95
<S> <C>
Consumer Durables 3.6
Consumer Services 3.2
Transportation 4.8
Financials 6.7
Producer Manufacturing 5.1
Electronic Technology 19.3
Semiconductors 10.9
Energy Minerals 3.3
Non-Energy Minerals 3.7
Health Technology 3.6
Health Services 5.2
Technology Services 7.9
Communications 5.7
Cash & Equivalents 9.8
Other 7.2
</TABLE>
GRAPHIC MATERIAL(8)
The following line graph hypothetically compares the
performance of the Franklin Small Cap Growth Fund to that of
the S&P 500 Stock Index and the Russell 2500 Index, based on
a $10,000 investment from 2/14/92 to 4/30/95.
<TABLE>
<CAPTION>
2/14/92 Small Cap Growth Fund S&P Index Russell
Stock Index
<S> <C> <C> <C>
2/14/92 $9,551 $ 10,000
$10,000
2/29/92 9,694 $ 10,065
$10,132
3/31/92 9,417 $ 9,869
$9,808
4/30/92 9,150 $ 10,158
$9,613
5/31/92 9,112 $ 10,208
$9,700
6/30/92 8,889 $ 10,056
$9,363
7/31/92 9,043 $ 10,467
$9,713
8/31/92 8,908 $ 10,252
$9,457
9/30/92 8,927 $ 10,372
$9,618
10/31/92 9,379 $ 10,407
$9,907
11/30/92 10,148 $ 10,761
$10,558
12/31/92 10,612 $ 10,894
$10,928
1/31/93 10,901 $ 10,985
$11,190
2/28/93 9,937 $ 11,135
$11,034
3/31/93 10,410 $ 11,370
$11,446
4/30/93 9,851 $ 11,094
$11,120
5/31/93 10,776 $ 11,391
$11,566
6/30/93 10,733 $ 11,424
$11,686
7/31/93 10,733 $ 11,378
$11,761
8/31/93 11,641 $ 11,809
$12,282
9/30/93 12,076 $ 11,718
$12,513
10/31/93 12,298 $ 11,961
$12,663
11/30/93 12,356 $ 11,847
$12,257
12/31/93 12,922 $ 11,991
$12,736
1/31/94 13,432 $ 12,398
$13,138
2/28/94 13,571 $ 12,062
$13,091
3/31/94 12,902 $ 11,536
$12,455
4/30/94 12,733 $ 11,684
$12,527
5/31/94 12,503 $ 11,876
$12,398
6/30/94 12,067 $ 11,585
$12,014
7/31/94 12,519 $ 11,965
$12,339
8/31/94 13,495 $ 12,455
$13,005
9/30/94 13,662 $ 12,151
$12,874
10/31/94 14,313 $ 12,425
$12,895
11/30/94 13,988 $ 11,972
$12,335
12/31/94 14,114 $ 12,150
$12,602
1/31/95 13,853 $ 12,464
$12,576
2/28/95 15,113 $ 12,950
$13,209
3/31/95 15,884 $ 13,332
$13,533
4/30/95 16,177 $ 13,724
$13,773
</TABLE>
GRAPHIC MATERIAL (9)
This chart shows in pie chart format the fund's securities
breakdown by industry as a percentage of the fund's total
net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on 4/30/95
<S> <C>
Pharmaceuticals 18.9
Specialty Pharmaceuticals 17.6
Biotechnology 4.8
Medical Technology & Supplies 16.7
Health Maintenance Organizations 12.7
Hospitals 4.2
Long-Term Care 2.4
Other Medical Services 11.2
Cash & Equivalents 11.5
</TABLE>
GRAPHIC MATERIAL(10)
The following line graph hypothetically compares the
performance of the Franklin Global Health Care Fund to that
of the S&P 500 Stock Index, based on a $10,000 investment
from 2/14/92 to 4/30/95.
<TABLE>
<CAPTION>
2/14/92 Global Health Care Fund S&P Index
<S> <C> <C>
28-Feb-92 $ $ 10,065
9,790
31-Mar-92 $ $ 9,869
9,083
30-Apr-92 $
8,443 $ 10,158
31-May-92 $
8,663 $ 10,208
30-Jun-92 $
8,339 $ 10,056
31-Jul-92 $
8,896 $ 10,467
31-Aug-92 $
8,598 $ 10,252
30-Sep-92 $
8,407 $ 10,372
31-Oct-92 $
8,810 $ 10,407
30-Nov-92 $
9,453 $ 10,761
31-Dec-92 $
9,603 $ 10,894
31-Jan-93 $
9,603 $ 10,985
28-Feb-93 $
8,321 $ 11,135
31-Mar-93 $
8,417 $ 11,370
30-Apr-93 $
8,562 $ 11,094
31-May-93 $
8,996 $ 11,391
30-Jun-93 $
9,294 $ 11,424
31-Jul-93 $
8,801 $ 11,378
31-Aug-93 $
8,955 $ 11,809
30-Sep-93 $
9,178 $ 11,718
31-Oct-93 $
9,749 $ 11,961
30-Nov-93 $
10,049 $ 11,847
31-Dec-93 $
10,200 $ 11,991
31-Jan-94 $
11,211 $ 12,398
28-Feb-94 $
11,121 $ 12,062
31-Mar-94 $
10,550 $ 11,536
30-Apr-94 $
10,440 $ 11,684
31-May-94 $
10,560 $ 11,876
30-Jun-94 $
10,098 $ 11,585
31-Jul-94 $
10,546 $ 11,965
31-Aug-94 $
11,584 $ 12,455
30-Sep-94 $
11,777 $ 12,151
31-Oct-94 $
12,052 $ 12,425
30-Nov-94 $
11,940 $ 11,972
31-Dec-94 $
11,657 $ 12,150
31-Jan-95 $
11,721 $ 12,464
28-Feb-95 $
12,188 $ 12,950
31-Mar-95 $
12,729 $ 13,332
30-Apr-95 $
12,145 $ 13,724
</TABLE>
GRAPHIC MATERIAL (11)
This chart shows in pie chart format the fund's securities
breakdown by security type as a percentage of the fund's
total net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on 4/30/95
<S> <C>
U. S. Gov't Bonds 3.7
Mortgage Bonds 6.4
Convertible Securities 14.8
Preferred Stock(Non-convertible) 3.1
High Yield Corporate Bonds 33.4
Emerging Markets Bonds 7.9
International Bonds 15.4
Cash & Other 15..3
</TABLE>
GRAPHIC MATERIAL(12)
The following line graph hypothetically compares the
performance of the Franklin Strategic Income Fund to that of
the Lehman Brothers Aggregate Index, based on a $10,000
investment from 6/1/94 to 4/30/95.
<TABLE>
<CAPTION>
6/1/94 Strategic Income Fund Lehman Brothers
Aggregate Index
<S> <C> <C>
6/1/94 $ 9,579 $
10,000
6/94 $ 9,492 $
9,978
7/94 $ 9,617 $
10,177
8/94 $ 9,761 $
10,189
9/94 $ 9,808 $
10,039
10/94 $ 9,825 $
10,030
11/94 $ 9,793 $
10,008
12/94 $ 9,746 $
10,077
1/95 $ 9,753 $
10,276
2/95 $ 10,023 $
10,521
3/95 $ 10,182 $
10,585
4/95 $ 10,435 $
10,733
</TABLE>
