Table of Contents
President's Letter.............................. 1
Fund Reports
Franklin California Growth Fund ............... 3
Franklin Global Utilities Fund ................ 12
Franklin Small Cap Growth Fund ................ 21
Franklin Natural Resources Fund ............... 31
Franklin Blue Chip Fund ....................... 38
Franklin MidCap Growth Fund.................... 43
Franklin Global Health Care Fund............... 50
Franklin Strategic Income Fund................. 59
Statement of Investments ....................... 66
Financial Statements ........................... 112
Report of Independent Auditor................... 135
-- Celebrating 50 Years --
This year marks 50 years of business for Franklin Templeton. Over these
years, the mutual fund industry has experienced profound changes in
technology, regulations and customer expectations. As one of the largest
mutual fund families, we're proud to be an innovative industry leader,
providing people like you with an opportunity to invest around the globe. We
thank you for your past support and look forward to serving your investment
needs in the years ahead.
April 30, 1997
Dear Shareholder:
We are pleased to bring you the sixth annual report for the Franklin
Strategic Series, which covers the fiscal year ended April 30, 1997.
At the beginning of the reporting period, the Dow Jones(R) Industrial Average
stood at 5569.08. On April 30, 1997, it closed 25.86% higher at 7008.99.
Along the way, it see-sawed, sometimes quite violently, as shown in the chart
on page 2. For example, on April 11, 1997, it plummeted 148 points following
a report that a key measure of wholesale prices had risen 0.4 percent in
March. Then on April 22, fueled by strong corporate earnings reports, it
jumped 173.88 points. Throughout the period, the questions on nearly
everyone's mind were, "How high can the market go before it experiences a
correction -- and how severe will that correction be?"
The answer, of course, is, "No one knows." What we do know is that no bull
(or bear) market has lasted forever, stocks and bonds have delivered
impressive results over the long term, and volatility is a normal part of
investing.
This may be a good time to remind you of several strategies that may help you
deal with the ups and downs of financial markets. First, develop a long-term
investment plan based on reasonable financial goals. Second, stay focused on
it and periodically consult with your investment professional to make sure
you are invested in funds that match these goals. If you concentrate on the
long term, you need not be unduly concerned about short-term market
volatility.
Next, consider using an investment technique called Dollar Cost Averaging. By
investing a fixed dollar amount at regular intervals, you automatically buy
more shares when prices are low and fewer when prices are high. As a result,
you may significantly reduce your average cost per share. Although no
investment technique can assure a profit or completely protect against loss,
Dollar Cost Averaging does provide a simple investment strategy that may
minimize the effects of market volatility and help you make the most of your
investment dollars.*
*When using this strategy, you should consider your financial ability to
continue purchases through periods of low price levels or changing economic
conditions. For more information on Dollar Cost Averaging, contact your
investment representative, or call Franklin Templeton Fund Information, toll
free, at 1-800/ DIAL BEN (1-800/342-5236).
Finally, diversify your investments. As you know, mutual funds offer a level
of diversification that would be almost impossible for individual investors
to achieve on their own. On the pages that follow, you will find detailed
discussions of the eight funds that compose the Franklin Strategic Series.
While the funds have different objectives and strategies, their management
teams all pursue long-term investment goals and follow the fundamental
principles of careful selection and constant professional supervision.
We welcome your questions, thank you for your support, and look forward to
serving you in the years to come.
Sincerely,
Rupert H. Johnson, Jr.
President
Franklin Strategic Series
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
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.
During the fiscal year ended April 30, 1997, California experienced strong
economic growth. In 1996, the number of jobs in the state increased by more
than 330,000 (2.7% more than in 1995), and an additional 100,000 jobs were
created in the first three months of 1997. These jobs, many in the high-wage
semiconductor, software, computer, biotechnology, and multimedia
entertainment industries, contributed to a robust 6.9% growth in the wages
and salaries of the state's workers in 1996. After allowing for an
approximately 2% increase in the California consumer price index, real income
in the state grew by a solid 5%.1
1. Source for economic data: California Department of Finance.
Within this environment, the Franklin California Growth Fund's Class I shares
provided a one-year total return of +8.88%, as shown in the Performance
Summary on page 7, outperforming the Franklin California 250 Growth Index(R),
and the Russell 2000(R) Index2, which posted total returns of +6.38% and
+0.05%, respectively, during the same period. Although the Standard & Poor's
500(R) Stock Index (S&P 500(R)) provided a total return of +25.11% for this
reporting period, it is important to note that the S&P 500 is composed
entirely of large-capitalization stocks, while the fund invests a significant
portion of its assets in small- and mid-cap companies with market
capitalizations more typical of companies included in the Russell 2000. It is
also important to remember that the fund provided an average annual total
return of +18.92% since inception on October 30, 1991, outperforming the S&P
500, which provided an average annual total return of +16.92% for the same
period.
2. The Russell 2000 Index measures the performance of the U.S. companies
ranked from 1,001 to 3,000 based on total market capitalization, and is
reconstituted each year. As of the latest reconstitution, the approximate
market capitalization for these companies ranged from $162 million to $1
billion. The fund's performance differs from that of the index because, among
other things, the index is not managed according to any investment strategy,
includes no sales charges or management expenses and does not contain cash
(the fund generally carries a certain percentage of cash at any given time).
Of course, one cannot invest directly in an index, and the index is not
representative of the fund's portfolio.
On April 30, 1997, our exposure to the various technology sectors, including
services, electronics, and semiconductors, comprised 28.9% of total net
assets, slightly below the 29.9% figure of the previous year. During the year
under review, the average stock price of 240 technology companies, which we
believed were representative of the industry, declined by 6.6%. Although this
adversely affected the fund's performance, we believe that the long-term
fundamentals remain solid for many companies across all technology sectors.
Throughout the period, we attempted to take advantage of market fluctuations
in semiconductor stocks. At the beginning of the fiscal year, the sector
represented 7.6% of total net assets. After increasing our exposure during
the market's downturn last July, we reduced our holdings of these stocks, and
on April 30, 1997, they represented only 4.0% of total net assets. However,
we continued to maintain positions in stocks of market-leading companies with
proprietary products, such as Intel Corp., Adaptec, Inc., Linear Technology
Corp., and Xilinx, Inc.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Among non-technology stocks, we increased our holdings of real estate
companies and by April 30, 1997, this was the fourth largest sector in the
fund. Several of these firms benefited from a recovering real estate market,
and prices for many of our positions rose quite dramatically. New additions
to the portfolio in this area included Kilroy Realty Corp. and Arden Realty
Group, Inc., real estate investment trusts that focus on office properties we
believed to possess favorable supply/demand characteristics.
Other investments included companies throughout the small-cap stock universe
(below $1 billion in market capitalization). We initiated a position in the
temporary staffing service company RemedyTemp, Inc., and purchased additional
shares of surgical products company Mentor Corp. and sporting goods
manufacturer K2, Inc. Among mid-cap stocks (between $1 billion and $2.5
billion market cap), we increased our holdings of real estate developer
Catellus Development Corp. and computer equipment supplier Komag, Inc., while
we made initial purchases of stock in two leading software companies,
Autodesk, Inc. and Electronic Arts, Inc. The different industries represented
by these companies illustrate the diversity of the fund's holdings.
Looking forward, we remain positive about the outlook for California's
economy. It represents approximately 13% of our nation's gross domestic
product, and during 1997, the total value of the goods and services produced
there could pass the $1 trillion mark for the first time. There are now over
1,200 publicly traded companies headquartered in the state. The combined
market capitalization of those companies makes California the fourth largest
"stock market" in the world, and our analysts are constantly scouring this
universe for potentially good investments. As reported by the California
Department of Finance: "Only California has the unique mix of industrial
skills, imaginative talents, risk-taking entrepreneurship, and venture
capitalists necessary to produce the products and services which define this
new information age."3
3. California Economic Indicators, January-February 1997 edition, California
Department of Finance.
It should be remembered, of course, that there are risks involved with
investing in a non-diversified fund concentrating in securities associated
with a single state, such as increased susceptibility to adverse economic or
regulatory developments. The fund also invests a portion of its assets in
small or relatively new or unseasoned companies, which involves the
additional risks related to relatively small revenues, limited product lines
and small market share. These and other risks are described in the prospectus.
This discussion reflects the strategies we employed for the fund during the
12 months under review, and includes our opinions as of the close of the
period. Since economic and market conditions are constantly changing, our
strategies, and our evaluations, conclusions and decisions regarding
portfolio holdings, may change as new circumstances arise. Although past
performance of a specific investment or sector cannot guarantee future
performance, such information can be useful in analyzing securities we
purchase or sell for the fund.
Thank you for your participation in the Franklin California Growth Fund. We
welcome any comments or suggestions you may have.
Franklin California Growth Fund
Top 10 Holdings on April 30, 1997
Based on Total Net Assets
Company % of Total
Industry Net Assets
Atlantic Richfield Co. (ARCO) 2.0%
Energy/Minerals
Logicon, Inc. 1.8%
Electronic Technology
Autodesk, Inc. 1.7%
Technology Services
Synopsys, Inc. 1.7%
Technology Services
PacifiCare
Health Systems, Inc. 1.7%
Health Services
Chevron Corp. 1.7%
Energy/Minerals
Rockwell International Corp. 1.6%
Electronic Technology
Costco Cos., Inc. 1.6%
Retail
Hilton Hotels Corp. 1.6%
Consumer Services
Ultramar Diamond
Shamrock Corp. 1.6%
Energy/Minerals
For a detailed listing of portfolio holdings, please see
page 73 of this report.
Performance Summary
Class I
Franklin California Growth Fund's Class I shares provided a cumulative total
return of +8.88% for the fiscal year ended April 30, 1997. Cumulative total
return measures the change in value of an investment, assuming reinvestment
of dividends and capital gains, and does not include the initial sales charge.
We always maintain a long-term perspective when managing the fund, and
encourage shareholders to view their investments in a similar manner. As you
can see from the table on page 9, the fund delivered a cumulative total
return of more than +171%, and an average annual total return of almost +19%,
since inception on October 30, 1991.
During the reporting period, shareholders received distributions totaling
12.2 cents ($0.122) per share in income dividends, 37.36 cents ($0.3736) in
short-term capital gains, and 5.44 cents ($0.0544) in long-term capital
gains. As measured by net asset value, the price of the fund's shares
increased by $1.08, from $18.27 on April 30, 1996, to $19.35 on April 30,
1997. Of course, past performance cannot guarantee 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 graph on page 8 shows how an investment in the fund's Class I shares at
inception on October 30, 1991, has outperformed the Standard & Poor's 500
(S&P 500) Stock Index and the Franklin California 250 Growth Index as of
April 30, 1997. The S&P 500 is a broad market index, whereas the Franklin
California 250 Growth Index is equally-weighted, representing 250 of the
largest corporations headquartered in California.
Of course, such unmanaged market indices have inherent performance
differentials over any fund. They do not pay management fees to cover
salaries of securities analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. Unlike unmanaged indices, mutual
funds are never fully invested because of the need to have cash on hand to
redeem shares or pay for upcoming investments. In addition, the performance
shown for the fund includes the maximum initial sales charge, all fund
expenses and account fees. If the fund's costs had been applied to the index,
its performance would have been lower. Please remember that an index is
simply a measure of performance and cannot be invested in directly. Past
performance is not predictive of future results.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin California Growth Fund
Class I
Periods ended April 30, 1997
Since
Inception
One-Year Five-Year (10/30/91)
Cumulative Total Return1 8.88% 172.57% 171.62%
Average Annual Total Return2 3.99% 21.08% 18.92%
Value of $10,000 Investment3 $10,399 $26,018 $25,940
4/30/93 4/30/94 4/30/95 4/30/96 4/30/97
One-Year Return4 4.72% 25.55% 29.09% 47.50% 8.88%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the maximum 4.5%
initial sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include the sales charge.
4. One-year total return represents the change in value of an investment over
the periods ended on the specified dates and does not include the sales
charge.
All 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 predictive of future results.
Past expense reductions by the fund's manager increased the fund's total
return to shareholders. Without this waiver, the fund's total return would
have been lower.
Performance Summary
Class II
Franklin California Growth Fund's Class II shares provided a cumulative total
return of +9.14% for the eight-month period since inception on September 3,
1996, through April 30, 1997. Cumulative total return measures the change in
value of an investment, assuming reinvestment of dividends and capital gains,
and does not include sales charges.
During the reporting period, shareholders received distributions totaling
4.83 cents ($0.0483) per share in income dividends, 37.36 cents ($0.3736) in
short-term capital gains, and 5.44 cents ($0.0544) in long-term capital
gains. As measured by net asset value, the price of the fund's shares
increased by $1.19, from $18.08 at inception on September 3, 1996, to $19.27
on April 30, 1997. Of course, past performance cannot guarantee 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.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The graph above shows how an investment in the fund's Class II shares
performed relative to the Standard & Poor's 500 (S&P 500) Stock Index and the
Franklin California 250 Growth Index since inception through April 30, 1997.
The S&P 500 is a broad market index, whereas the Franklin California Growth
Index is equally-weighted, representing 250 of the largest corporations
headquartered in California.
Of course, such unmanaged market indices have inherent performance
differentials over any fund. They do not pay management fees to cover
salaries of securities analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. Unlike unmanaged indices, mutual
funds are never fully invested because of the need to have cash on hand to
redeem shares or pay for upcoming investments. In addition, the performance
shown for the fund includes the maximum initial sales charge, all fund
expenses and account fees. If the fund's costs had been applied to the index,
its performance would have been lower. Please remember that an index is
simply a measure of performance and cannot be invested in directly. Past
performance is not predictive of future results.
Franklin California Growth Fund
Class II
Period ended April 30, 1997
Since
Inception
(9/3/96)
Cumulative Total Return1 9.14%
Aggregate Total Return2 7.07%
Value of $10,000 Investment3 $10,707
1. Cumulative total return represents the change in value of an investment
over the period indicated and does not include sales charges.
2. Aggregate total return represents the change in value of an investment
over the period indicated and includes the 1.00% initial sales charge and
1.00% contingent deferred sales charge applicable to shares redeemed within
the first 18 months of purchase. Since Class II shares have been in existence
for less than one year, average annual total returns are not provided.
3. This figure represents the value of a hypothetical $10,000 investment in
the fund over the period indicated and includes sales charges.
All 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 predictive of future results.
FRANKLIN GLOBAL UTILITIES FUND
Your Fund's Objective:
The Franklin Global Utilities Fund seeks to provide total return by investing
in the equity and debt securities of utility companies located in the United
States and around the world.
Although U.S. utility markets were generally weak during the twelve months
under review, Latin American, European and Asian utility stocks performed
relatively well. Within this environment, the Franklin Global Utilities Fund
Class I shares posted a one-year total return of +12.94%, as discussed in the
performance summary on page 17, significantly outperforming the average
utility fund return of 9.19% for the same period, as measured by Lipper
Analytical Services.*
*Source: Lipper Analytical Services, Inc. There are 91 funds in the Lipper
Utility Funds Category. Lipper calculations do not include sales charges. If
they had been considered, the fund's performance relative to the category may
have been different. Past performance does not guarantee future results.
United States
The U.S. electric power and telecommunications industries experienced
significant regulatory changes during the year under review. California passed
landmark legislation governing the transformation of the state's electric
utility industry from monopoly status to competitive business by 2001.
Additionally, the Federal Communications Commission (FCC) decided on specific
rules to administer the deregulation of regional Bell telephone companies. Due
largely to investor concerns about this trend toward deregulation, the average
U.S. electric utility stock price, as measured by the S&P(R) Electric Utility
Index fell about 5%, from $74.61 on April 30, 1996, to $70.82 on April 30, 1997.
Generally, when a sector or region experiences a market price drop, we search
for stocks that trade at, what we consider to be, temporarily undervalued
prices. As the U.S. utility market weakened, we increased our holdings in
domestic utilities, taking advantage of investment opportunities. During the
reporting period, our exposure to this sector increased from 43.1% to 54.7%
of total net assets. We did, however, sell selected securities that had
performed well and met our price objectives.
Europe
Most European electric, gas and telecommunication utility stocks performed
well during the year under review, and we sold several stock positions that
reached our target prices. Consequently, our total European and U.K.
investment weightings declined from 26.9% of total net assets on April 30,
1996, to 14.9% on April 30, 1997.
In Europe's developed markets, the infiltration of essential utility services
has begun to peak. Utility companies in these areas have enjoyed stable and
predictable demand, allowing them to improve earnings through cost
containment programs, foreign investments, share repurchase programs and
lower interest expense. We anticipate this should enhance the earnings of
several European holdings, including EVN (Austria), Viag AG (Germany), Espoon
Sahko Oy (Finland), TeleDanmark (Denmark) and Telecom Italia (Italy).
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Within the developing European markets, our holdings of Telefonica de Espana
(Spain) and Hellenic Telecommunications (Greece) are good examples of
companies we believe may experience extensive growth for several years to
come. In our opinion, both of these companies should benefit from a large
pent-up demand for telecommunications services in developing markets.
Franklin Global Utilities Fund
Top 10 Holdings on April 30, 1997
Based on Total Net Assets
Company % of Total
Industry, Country Net Assets
Telecom de Argentina, SA, ADR 3.8%
Telecommunications Services, Argentina
Enron Global Power & Pipelines, L.L.C. 3.0%
Electric & Gas Utilities, Argentina
Enron Corp. 2.6%
Electric & Gas Utilities, United States
Espoon Sahko Oy 2.5%
Electric & Gas Utilities, Finland
TNP Enterprises, Inc. 2.5%
Electric & Gas Utilities, United States
SBC Communications, Inc. 2.5%
Telecommunications Services,
United States
National Fuel Gas Co. 2.5%
Electric & Gas Utilities, United States
Empresa Nacional Electricidad,
SA, ADR 2.4%
Electric & Gas Utilities, Chile
AES Corp. 2.4%
Electric & Gas Utilities, United States
PanEnergy Corp. 2.3%
Electric & Gas Utilities, Philippines
For a complete list of portfolio holdings, please see
page 82.
Latin America
Latin American utility stocks produced strong revenue and earnings over the
year as companies in this region responded to heavy demand for their
services. We, therefore, increased our holdings in Telecom de Argentina, one
of that country's two telecommunications monopolies. Despite the current
challenges facing the Argentine economy, we believe the long-term growth
potential of its telecommunications industry remains strong. We also
initiated a position in Chile's largest electric generation company, Empresa
Nacional Electricidad (Endesa), over the reporting period. It produces
low-cost electricity in Chile and we believe it should benefit from Chile's
economic growth, increased electricity demand, and the company's investment
in projects in other Latin American countries with rapidly growing demand for
electricity.
Asia
We usually maintain a relatively low weighting in Asia because of high stock
valuations there. However, during the reporting period, we took advantage of
weakness in selected markets and purchased shares of Total Access
Communication Public Co., Ltd. (Thailand), Beijing Datang Power Generation
Co. (China), and Korea Mobile Telecom (Korea). Consequently, our portfolio
weighting of Asian stocks on April 30, 1997, was 11.7% of total net assets --
up 1.4% from April 30, 1996. Even though we expect Asian electric and
telecommunication companies to benefit from increased demand, generally high
stock valuations in this region compel us to carefully scrutinize any
possible investments there.
Looking forward, we believe that the global utility market offers very
attractive equity investment opportunities. In the U.S., high-quality utility
companies with aggressive, entrepreneurial management have been generating
strong earnings growth, and we view the California and federal attempts at
deregulation positively. The California legislation resolves much of the
major uncertainty which has hovered over electric utility stocks in the past,
and it will likely be the model for several other states currently
considering utility deregulation. And the FCC rules discussed earlier should
help ensure an orderly transition to a competitive business environment
during the next five years.
Outside the U.S., the ongoing privatization and deregulation of the utility
industry continues to represent, we feel, high quality investment
opportunities with the potential for strong growth rates and excellent total
returns. Despite the run-up in valuations for many European utilities, we
believe this region still has a number of undervalued securities.
As always, we remain committed to our long-term objective of maximizing total
return through investing in a portfolio of utility stocks from around the
world. Utilities provide services that are an essential part of peoples'
lives, and we believe that the stocks of these companies play an important
role in a well-diversified investment portfolio. 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.
This discussion reflects the strategies we employed for the fund during the
year under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
evaluations, conclusions and decisions regarding portfolio holdings may
change as new circumstances arise. Although past performance of a specific
investment or sector cannot guarantee future performance, such information
can be useful in analyzing securities we purchase or sell for the fund.
Performance Summary
Class I
The Franklin Global Utilities Fund's Class I share price, as measured by net
asset value, increased 18 cents, from $14.28 on April 30, 1996, to $14.46 on
April 30, 1997.
For the one-year period, your fund paid distributions totaling 38.3 cents
($0.383) per share in income dividends and $1.208 in capital gains, of which
37 cents ($0.37) represented short-term gains and 83.8 cents ($0.838)
represented long-term gains. Of course, past performance is not predictive 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 portfolio.
The fund posted a total return of +12.94% for the one-year period ended
April 30, 1997. Cumulative total return measures the change in value of an
investment during the period indicated, assuming reinvestment of dividends
and capital gains, and does not include the initial sales charge. Past
performance is not predictive of future results.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The graph above compares the fund's Class I shares performance with that of
the S&P 500(R) Stock Index (S&P 500(R)). The S&P 500 is a domestic broad
market index consisting of companies of various sizes. Of course, such
unmanaged
market indices have inherent performance differentials over any fund. They do
not pay management fees to cover salaries of securities analysts or portfolio
managers, or pay commissions or market spreads to buy and sell securities.
Unlike unmanaged indices, mutual funds are never fully invested because of
the need to have cash on hand to redeem shares or pay for upcoming
investments. In addition, the performance shown for the fund includes the
maximum initial sales charge, all fund expenses and account fees. If the
fund's costs had been applied to the index, its performance would have been
lower. Please remember that an index is simply a measure of performance and
cannot be invested in directly.
Franklin Global Utilities Fund -- Class I
Periods ended April 30, 1997
Since
Inception
1-Year 3-Year (7/2/92)
Cumulative Total Return1 12.94% 43.64% 88.40%
Average Annual Total Return2 7.88% 11.12% 12.94%
Value of a $10,000 Investment3 $10,788 $13,721 $17,994
4/30/93 4/30/94 4/30/95 4/30/96 4/30/97
One-Year Total Return4 18.08% 14.04% 3.17% 23.27% 12.94%
1. Cumulative total return measures the change in value of an investment the
periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the maximum 4.50%
initial sales charge.
3. The value of a $10,000 investment is based on a hypothetical $10,000
investment in the fund over the specified periods and includes the initial
sales charge.
4. One-year total returns represent the change in value of an investment over
the periods ended on the specified dates and do not include the 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 is not predictive of future results.
Past expense reductions by the fund's manager increased the fund's total
returns.
Class II
The Franklin Global Utilities Fund's Class II share price, as measured by net
asset value, increased 13 cents, from $14.24 on April 30, 1996, to $14.37 on
April 30, 1997.
For the one-year period, your fund paid distributions totaling 31.04 cents
($0.3104) per share in income dividends and $1.208 in capital gains, of which
37 cents ($0.37) represented short-term gains and 83.8 cents ($0.838)
represented long-term gains. Of course, past performance is not predictive 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 portfolio.
The fund posted a total return of +12.04% for the one-year period ended
April 30, 1997. Cumulative total return measures the change in value of an
investment during the period indicated, assuming reinvestment of dividends
and capital gains, and does not include sales charges. Past performance is
not predictive of future results.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The graph above compares the fund's Class II shares performance with that of
the S&P 500(R) Stock Index (S&P 500(R)). The S&P 500 is a broad market index
consisting of companies of various sizes. Of course, such unmanaged market
indices have inherent performance differentials over any fund. They do not
pay management fees to cover salaries of securities analysts or portfolio
managers, or pay commissions or market spreads to buy and sell securities.
Unlike unmanaged indices, mutual funds are never fully invested because of
the need to have cash on hand to redeem shares or pay for upcoming
investments. In addition, the performance shown for the fund includes the
maximum initial sales charge, all fund expenses and account fees. If the
fund's costs had been applied to the index, its performance would have been
lower. Please remember that an index is simply a measure of performance and
cannot be invested in directly.
Franklin Global Utilities Fund -- Class II
Periods ended April 30, 1997
Since
Inception
1-Year (5/1/95)
Cumulative
Total Return1 12.04% 37.95%
Average Annual
Total Return2 9.96% 16.89%
Value of a $10,000
Investment3 $10,996 $13,661
1. Cumulative total return measures the change in value of an investment the
periods indicated and does not includes sales charges.
2. Average annual total return represents the change in value of an
investment over the specified period and includes the maximum 1.0% initial
sales charge and the 1.0% Contingent Deferred Sales Charge (CDSC), applicable
to shares redeemed within the first 18 months of investment.
3. The value of a $10,000 investment is based on a hypothetical $10,000
investment in the fund over the specified periods and includes sales charges.
All 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 predictive of future results.
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.
Despite positive gains overall, the 12 months ended April 30, 1997 were a
volatile time for domestic equity markets. Small capitalization (small cap)
stocks were particularly volatile because of investors' concerns about
inflation, rising interest rates, and the ability of smaller companies to
deliver consistent earnings growth. These anxieties led to significant
profit-taking in small cap stocks, especially in July 1996 and March 1997.
Within this environment, the fund's Class I shares delivered a one-year
cumulative total return of +0.09%, as discussed in the Performance Summary on
page 25. As you know, we have always believed that shareholders should
maintain a long-term perspective regarding their investments, and you can see
in the Performance Summary that the fund's Class I shares have provided a
cumulative total return of +154.92% over the past five years. The fund was
ranked #176 out of 395 small cap funds for the one-year period, and #3 out of
111 for the five-year period ended April 30, 1997, as measured by Lipper
Analytical Services, Inc.*
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
*Lipper Analytical Services, Inc. is a nationally recognized mutual fund
research organization. Lipper rankings do not include sales charges, and past
expense reductions by the fund's manager increased the fund's total returns.
Rankings may have been different if these factors had been considered. Past
performance cannot guarantee future results.
During the reporting period, we reduced our weighting in technology stocks,
selling several holdings whose price, in our opinion, had surpassed the
companies' growth potential, including Shiva Corp., a producer of
telecommunication hardware and software. However, we took advantage of market
volatility by initiating positions in Coherent, Inc., a developer of laser
systems for use in a variety of applications, and First USA Paymentech Inc.,
a leader in electronic transaction processing. We also added to our holdings
in companies we believed to have significant competitive advantages, such as
Lattice Semiconductor Corp., a manufacturer specializing in high speed,
programmable logic devices.
Franklin Small Cap Growth Fund
Top 10 Holdings on April 30, 1997
Based on Total Net Assets
Company % of Total
Industry Net Assets
Atwood Oceanics Inc. 1.5%
Energy Minerals
Varco International Inc. 1.5%
Energy Minerals
Barrett Resources Corp. 1.4%
Energy Minerals
CapStar Hotel Co. 1.4%
Consumer Services
Millicom International Cellular, SA 1.4%
Utilities and Communication
Adaptec Inc. 1.4%
Semiconductors and Equipment
Prime Hospitality Corp. 1.4%
Consumer Services
Linear Technology Corp. 1.3%
Semiconductors and Equipment
UCAR International Inc. 1.3%
Process Industries
Gibraltar Steel Corp. 1.3%
Non-Energy Minerals
For a complete list of portfolio holdings, please see
page 97 of this report.
Our research also led us to invest in several industries that are
traditionally not considered growth sectors. We found opportunities in the
energy sector, and increased our exposure to oil service companies because we
felt they would benefit from increased capital spending by large oil
producers. During the year, we initiated a position in Atwood Oceanics Inc.,
an operator of deep-water oil and gas drilling rigs, and added to our
holdings in Varco International Inc., a manufacturer of equipment for oil and
gas drillers.
We found additional investment opportunities in lodging-related stocks, as
companies in this industry benefited from a strong economy and an undersupply
of rooms which made significant increases in room prices possible. We
initiated a position in CapStar Hotel Co., which owns and operates
full-service hotels under brand names such as Hilton, Sheraton, Westin, and
Marriott, and added to our holdings of Prime Hospitality Corp., an owner and
operator of full-service and all-suite hotels. We also participated in this
sector through our investments in real estate investment trust (REIT)
positions, but realized profits by selling our stake in Equity Inns Inc., a
REIT we felt had become overvalued.
The fact that large capitalization stocks outperformed their smaller
counterparts during the year has not dampened our optimism regarding
prospects for small cap stocks. Despite concerns about inflation, the U.S.
economy has provided healthy development opportunities for smaller companies.
We believe that the favorable environment for the lodging industry should
continue for several years, and that new developments in technology could
lead to significant growth for market leaders in this sector well into the
next century. In our opinion, the fund's diversity and our value approach to
growth investing should help us to perform well in a variety of market
conditions. Of course, there are risks involved in investing in a fund
seeking long-term capital growth from small or relatively new or unseasoned
companies, such as relatively small revenues, limited production lines, and
small market share. These and other risks are further discussed in the fund's
prospectus.
This discussion reflects the strategies we employed for the fund during the
12 months under review, and includes our opinions as of the close of the
period. Since economic and market conditions are constantly changing, our
strategies, and our evaluations, conclusions, and decisions regarding
portfolio holdings may change as new circumstances arise. Although past
performance of a specific investment or sector cannot guarantee future
performance, such information can be useful in analyzing securities we
purchase or sell for the fund.
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.
Performance Summary
Class I
The Franklin Small Cap Growth Fund's Class I shares provided a cumulative
total return of +0.09% for the one-year period ended April 30, 1997.
Cumulative total return measures the change in value of an investment,
assuming reinvestment of dividends and capital gains, and does not include
the initial sales charge. However, we have always maintained a long-term
perspective when managing the fund, and as you can see in the chart on page
27, the fund provided a cumulative total return of +144.21% since its
inception on February 14, 1992.
The price of the fund's Class I shares, as measured by net asset value,
decreased $0.80, from $19.75 on April 30, 1996, to $18.95 on April 30, 1997.
During the reporting period, shareholders received distributions totaling
6.74 cents ($0.0674) per share in dividend income and 79.71 cents per share
in capital gains, of which 66.20 cents ($0.6620) represented short-term gains
and 13.51 cents ($0.1351) represented long-term gains. Of course, past
performance is not predictive of future results. Distributions will vary
depending on income earned by the fund, and any profits realized from the
sale of securities in the portfolio, as well as the level of the fund's
operating expenses.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
As you can see from the graph on page 25, the fund's Class I shares, since
inception, have outperformed both the Standard & Poor's(R) 500 Stock Index (S&P
500(R)) and the Russell 2500 Index.(R) The S&P 500 is an index of widely held
common stocks covering a variety of industries, whereas the Russell 2500 is
an index of 2,500 companies with small market capitalizations. Both indices
are unmanaged.
Of course, such unmanaged market indices have inherent performance
differentials in comparison with any fund. Indices do not pay management fees
to cover salaries of security analysts or portfolio managers, nor do they pay
commissions or market spreads to buy and sell stocks. Unlike indices, mutual
funds are never 100% invested since they need to keep some cash on hand to
redeem shares. The fund's performance figures shown on the graph include the
sales charge, all fund expenses and account fees. If operating expenses such
as the fund's had been applied to the indices, their performance would have
been lower. Please remember that an index is simply a measure of performance,
and one cannot invest directly in an index. Past performance is not
predictive of future results.
Franklin Small Cap Growth Fund
Class I
Periods ended April 30, 1997
Since
Inception
One-Year Three-Year Five-Year (2/14/92)
Cumulative Total Return1 0.09% 83.19% 154.92% 144.21%
Average Annual Total Return2 -4.41% 20.50% 19.48% 17.66%
Value of $10,000 Investment3 $9,559 $17,496 $24,348 $23,325
4/30/93 4/30/94 4/30/95 4/30/96 4/30/97
One-Year Return4 7.66% 29.26% 27.05% 44.06% 0.09%
1. Cumulative total return represents the change in value of an investment
over the indicated periods and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the indicated periods and includes the maximum 4.5%
initial sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the indicated periods and include the sales charge.
4. One-year total return represents the change in value of an investment over
the periods ended on the specified dates and does not include the sales
charge.
All calculations assume reinvestment of dividends and capital gains at net
asset value. Investment return and principal value will fluctuate with market
conditions, currencies and the economic, social, and political climates of
countries where investments are made. Thus, your shares, when redeemed, may
be worth more or less than their original cost. Past performance is not
predictive of future results.
Past expense reductions by the fund's manager increased the fund's total
return to shareholders. Without this waiver, the fund's total return would
have been lower.
Performance Summary
Class II
The Franklin Small Cap Growth Fund's Class II shares provided a cumulative
total return of -0.70% for the one-year period ended April 30, 1997.
Cumulative total return measures the change in value of an investment,
assuming reinvestment of dividends and capital gains, and does not include
sales charges.
The price of the fund's Class II shares, as measured by net asset value,
decreased $0.89, from $19.66 on April 30, 1996, to $18.77 on April 30, 1997.
During the reporting period, shareholders received no dividend income
distributions but did receive 79.71 cents per share in capital gains, of
which 66.20 cents ($0.6620) represented short-term gains and 13.51 cents
($0.1351) represented long-term gains. Of course, past performance is not
predictive of future results. Distributions will vary depending on income
earned by the fund, and any profits realized from the sale of securities in
the portfolio, as well as the level of the fund's operating expenses.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
As you can see from the graph above, the fund's Class II shares, since
inception, have underperformed both the Standard & Poor's(R) 500 Stock Index
(S&P 500(R)) and the Russell 2500 Index.(R) The S&P 500 is an index of widely
held common stocks covering a variety of industries, whereas the Russell 2500
is an index of 2,500 companies with small market capitalizations. Both
indices are unmanaged.
Of course, such unmanaged market indices have inherent performance
differentials in comparison with any fund. Indices do not pay management fees
to cover salaries of security analysts or portfolio managers, nor do they pay
commissions or market spreads to buy and sell stocks. Unlike unmanaged
indices, mutual funds are never 100% invested since they need to keep some
cash on hand to redeem shares. The fund's performance figures shown on the
graph include the sales charges, all fund expenses and account fees. If
operating expenses such as the fund's had been applied to the index, its
performance would have been lower. Please remember that an index is simply a
measure of performance, and one cannot invest directly in an index. Past
performance is not predictive of future results.
Franklin Small Cap Growth Fund
Class II
Periods ended April 30, 1997
Since
Inception
One-Year (10/2/95)
Cumulative
Total Return1 -0.70% 16.79%
Average Annual
Total Return2 -2.65% 9.64%
Value of a $10,000
Investment3 $9,735 $11,562
1. Cumulative total return represents the change in value of an investment
over the indicated periods and does not include the sales charges.
2. Average annual total return measures the average annual change in value of
an investment over the periods indicated, and includes the 1.00% initial
sales charge and 1.00% contingent deferred sales charge, applicable to shares
redeemed within the first 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the indicated periods and include all sales charges.
All calculations assume reinvestment of dividends and capital gains at net
asset value. Investment return and principal value will fluctuate with market
conditions, currencies and the economic, social, and political climates of
countries where investments are made. Thus, your shares, when redeemed, may
be worth more or less than their original cost. Past performance is not
predictive of future results.
Performance Summary
Advisor Class
The Franklin Small Cap Growth Fund Advisor Class shares provided an aggregate
total return of -7.37% from inception on January 1, 1997 through April 30,
1997. The price of the fund's shares, as measured by net asset value,
decreased $1.51, from $20.48 on January 2, 1997 (day of commencement of
sales), to $18.97 on April 30, 1997. Of course, past performance is not
predictive of future results.
Franklin Small Cap Growth Fund
Advisor Class
Period ended April 30, 1997
Since
Inception
(1/1/97)
Aggregate Total Return* -7.37%
*Aggregate total return represents the change in value of an investment over
the indicated period. Since Advisor Class shares have been in existence for
less than one year, average annual total returns are not provided.
Note: Investment return and principal value will fluctuate with market
conditions, currencies and the economic and political climates where
investments are made. Thus, your shares, when redeemed, may be worth more or
less than their original cost. Past performance is not predictive of future
results.
FRANKLIN NATURAL RESOURCES FUND
Your Fund's Objective:
The Franklin Natural Resources Fund seeks long-term capital appreciation by
investing at least 65% of its total assets in securities of companies that
own, produce, refine, process or market natural resources, as well as those
that provide support services for natural resources companies.
We are pleased to bring you the second annual report of the Franklin Natural
Resources Fund, which covers the 12 months ended April 30, 1997. During this
period, volatility in domestic technology and health care stocks led to a
shift of capital toward securities of natural resources companies. At the
same time, moderate economic growth worldwide caused a gradual tightening in
the supply of some major commodities, creating higher demand for steel,
chemicals, and several base metals. Although this contributed to the
profitability of some companies in these industries, oil and gold prices
declined during the fiscal year. Within this environment, the fund's Class I
shares delivered a cumulative total return of +10.23%, as shown in the
Performance Summary on page 35, outperforming the Lipper Natural Resources
Sector average, which produced a total return of +6.35% for the period.*
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
*Lipper Analytical Services, Inc. is a nationally recognized mutual fund
research organization. Lipper calculations do not include sales charges. If
such changes had been considered, the fund's performance relative to the
average may have differed. Past performance cannot guarantee future results.
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Throughout the reporting period, we invested
in what we believed were rapidly growing, well managed companies with highly
efficient, technologically advanced operations in the sectors shown in the
chart on page 31. Because we found the most investment opportunities in the
energy sector, it was our largest exposure on April 30, 1997, representing
49.2% of the fund's total net assets.
Our holdings of Abacan Resources Corp., Varco International Inc., and YPF SA,
whose share prices rose significantly during the year under review,
contributed to the fund's performance. Abacan, an exploration and production
company, performed well as a result of its successful exploration efforts and
its low-cost, rapid production growth. Varco, an oilfield services company,
profited from high demand for its drilling hardware that makes oil and gas
drilling rigs safer and more productive. And YPF SA, an integrated oil
producer, capitalized on growing energy consumption in Latin America.
Franklin Natural Resources Fund
Top 10 Holdings on April 30, 1997
Based on Total Net Assets
Company % of Total
Industry Net Assets
Hugoton Energy Corp. 2.6%
Energy, U.S.
Devon Energy Corp. 2.5%
Energy, U.S.
Gibraltar Steel Corp. 2.4%
Steel, U.S.
Dayton Mining Corp. 2.1%
Precious Metals, Canada
Cairn Energy USA Inc. 2.1%
Energy, U.S.
Abacan Resources Corp. 2.0%
Energy, Canada
Oryx Energy Co. 2.0%
Energy, U.S.
Barrett Resources Corp. 1.9%
Energy, U.S.
Pinnacle Resources Ltd. 1.8%
Energy Sources, Canada
UCAR International Inc. 1.6%
Steel, U.S.
For a complete list of portfolio holdings, please see
page 91 of this report.
Several other sectors contributed positively to the fund's performance. Steel
production grew during the reporting period, causing our shares of UCAR
International Inc., a leading manufacturer of graphite electrodes, to rise in
value. Aluminum prices appreciated significantly throughout the fiscal year,
benefiting many companies producing this commodity, and we took profits in
Aluminum Co. of America (ALCOA), Kaiser Aluminum Corp., and Century Aluminum
Co. The chemical sector (especially fertilizer producers) strengthened due to
demand for higher crop yields, and our holdings of IMC Global Inc., a leading
fertilizer company, increased in value. In our opinion, demand for fertilizer
will increase and we remain optimistic about this sector's future.
As in all reporting periods, some positions hindered the fund's performance.
Our investments in the precious metals sector were adversely affected by the
low price of gold bullion, and our investments in the titanium metals sector
performed poorly as market sentiment reversed in early 1997 due to inventory
surpluses in the golf club market.
Looking forward, we are optimistic about prospects for natural resources
companies. We anticipate a sustained level of high profitability for
commodity-related industries if commodity prices remain steady. Of course, we
do not purchase stocks based solely on the assumption that commodity prices
will rise. We shall continue to invest in companies we believe have the best
potential for growth in any price environment due to factors such as lower
costs, rapid production growth, and asset or technological edge.
It is important to remember that the rewards the fund may offer also involve
the special risks of investing in a non-diversified, sector fund, as well as
the currency volatility and political, economic or regulatory uncertainty
associated with foreign, and especially developing market, investing.
This discussion reflects the strategies we employed for the fund during the
12 months under review, and includes our opinions as of the close of the
period. Since economic and market conditions are constantly changing, our
strategies, and our evaluations, conclusions and decisions regarding
portfolio holdings, may change as new circumstances arise. Although past
performance of a specific investment or sector cannot guarantee future
performance, such information can be useful in analyzing securities we
purchase or sell for the fund.
Thank you for investing in the Franklin Natural Resources Fund. We welcome
your comments and suggestions.
Performance Summary
Class I
The Franklin Natural Resources Fund Class I shares provided a cumulative
total return of +10.23% for the one-year period ended April 30, 1997.
Cumulative total return measures the change in value of an investment,
assuming reinvestment of dividends and capital gains, and does not include
the initial sales charge. We always maintain a long-term perspective when
managing the fund, and encourage shareholders to view their investments in a
similar manner.
The price of the fund's shares, as measured by net asset value, increased
$0.93, from $13.14 on April 30, 1996, to $14.07 on April 30, 1997. During
this reporting period, shareholders received distributions totaling 9.2 cents
($0.092) per share in dividend income and 32.2 cents ($0.322) per share in
capital gains, of which 31.74 cents ($0.3174) represented short-term gains
and 0.46 cents ($0.0046) represented long-term gains.
Of course, past performance is not predictive of future results.
Distributions will vary, depending on income earned by the fund, and any
profits realized from the sale of securities in the portfolio, as well as the
level of the fund's operating expenses.
The graph on the following page compares the performance of the fund's
Class I shares since inception with the unmanaged Standard & Poor's 500 Stock
Index(R) (S&P 500(R)). The S&P 500 is a broad market index consisting of 500
widely held common stocks within four sectors (industrials, utilities,
financial, and transportation).
Of course, such unmanaged market indices have inherent performance
differentials in comparison with any fund. Indices do not pay management fees
to cover salaries of security analysts or portfolio managers, nor do they pay
commissions or market spreads to buy and sell stocks. Unlike unmanaged
indices, mutual funds are never 100% invested since they need to keep some
cash on hand to redeem shares. The fund's performance figures shown on the
graph include the maximum initial sales charge, all fund expenses and account
fees. If operating expenses such as the fund's had been applied to the index,
its performance would have been lower. Please remember that an index is
simply a measure of performance, and one cannot invest directly in an index.
Past performance is not predictive of future results.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Natural Resources Fund
Class I
Periods ended April 30, 1997
Since
Inception
One-Year (6/5/95)
Cumulative
Total Return1 10.23% 47.00%
Average Annual
Total Return2 5.27% 19.52%
Value of $10,000
Investment3 $10,527 $14,040
1. Cumulative total return represents the change in value of an investment
over the indicated periods and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the indicated periods and includes the maximum 4.5%
initial sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the indicated periods and include the sales charge.
All calculations assume reinvestment of dividends and capital gains at net
asset value. Investment return and principal value will fluctuate with market
conditions, currencies and the economic, social, and political climates of
countries where investments are made. Thus, your shares, when redeemed, may
be worth more or less than their original cost. Past performance is not
predictive of future results.
The fund's manager has agreed in advance to waive a portion of its 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, upon notice to the fund's
Board of Trustees.
Performance Summary
Advisor Class
The Franklin Natural Resources Fund Advisor Class shares provided an
aggregate total return of -4.02% from inception on January 1, 1997, through
April 30, 1997. The price of the fund's shares, as measured by net asset
value, decreased $0.59, from $14.66 on January 2, 1997 (day of commencement
of sales), to $14.07 on April 30, 1997. Of course, past performance is not
predictive of future results.
Franklin Natural Resources Fund
Advisor Class
Period ended April 30, 1997
Since
Inception
(1/1/97)
Aggregate Total Return* -4.02%
*Aggregate total return represents the change in value of an investment over
the indicated period. Since Advisor Class shares have been in existence for
less than one year, average annual total returns are not provided.
Investment return and principal value will fluctuate with market conditions,
currencies and the economic, social, and political climates where
investments are made. Thus, your shares, when redeemed, may be worth more or
less than their initial cost. Past performance is not predictive of future
results.
The fund's manager has agreed in advance to waive a portion of its 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, upon notice to the fund's
Board of Trustees.
FRANKLIN BLUE CHIP FUND
Your Fund's Objective:
The Franklin Blue Chip Fund seeks long-term capital appreciation by investing
primarily in high quality, blue chip companies with market capitalizations of
$1 billion or more, that the managers believe are leaders in their industries
and are positioned for stable, long-term growth potential.
We are pleased to bring you the first annual report of the Franklin Blue Chip
Fund, which covers the period from the fund's inception on June 3, 1996,
through April 30, 1997. During this time, global securities markets produced
mixed results. U.S. and most Latin American equity markets appreciated
significantly, and a number of European stock markets also rose. However,
Asian equity markets were generally weak due to slowing economies and poor
corporate earnings. Within this environment, the Franklin Blue Chip Fund
delivered a 11-month cumulative total return of +9.14%, as shown in the
Performance Summary on page 41.
In our search for companies that offer management excellence, stable
long-term earnings growth potential, and a conservative balance sheet, we
focused on market leaders demonstrating sustainable competitive advantages.
On April 30, 1997, our largest exposure was the financial services sector. It
strengthened in the U.S. during the reporting period, and our holdings of
American International Group Inc., a large commercial and industrial
insurance company, increased in value. The sector was also strong in Hong
Kong and Europe, as reflected by the rising share price of HSBC Holding Plc.
However, Japan's financial services sector experienced weakness during the
fiscal year, as its banking system faced significant bad-debt problems.
Despite this, we believe that the Bank of Tokyo-Mitsubishi, one of the fund's
holdings, and Japan's largest international bank, may emerge from this
difficult period stronger than before. In our opinion, leading financial
services companies with a strong global presence should continue to profit by
capturing market share, as emerging market economies grow and financial
markets become more sophisticated and interlinked globally.
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
During the fiscal year, the consumer staples sector also performed well, and
our holdings of Procter & Gamble Co. and The Coca-Cola Co. appreciated, as
these companies profited from the development, marketing, and distribution of
their strongly branded products. Since economic growth and rising personal
income may continue to fuel consumer demand worldwide, our outlook for this
sector remains positive.
The technology sector experienced severe volatility throughout the reporting
period. Although our holdings of Microsoft Corp. and Intel Corp. reached
all-time highs, the value of our Cisco Systems Inc. shares fell sharply.
Seeking to take advantage of these price declines, we added to our position
in this firm because we believed its stock was undervalued.
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Looking forward, we are optimistic about prospects for the fund. In our
opinion, the U.S. economy should grow slowly, creating an environment
conducive to the prosperity of many domestic blue-chip companies. Industry
deregulation and restructuring in Europe and Japan could present long-term
investment opportunities, and Latin American and Asian economies may continue
to experience expansion. However, it is important to remember that investing
in the fund involves the special risks of global, especially emerging market,
investing related to market and currency volatility and adverse social and
political developments.
This discussion reflects the strategies we employed for the fund during the
period under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
and our evaluations, conclusions and decisions regarding portfolio holdings
may change as new circumstances arise. Although past performance of a
specific investment or sector cannot guarantee future performance, such
information can be useful in analyzing securities we purchase or sell for the
fund.
We thank you for your participation in the Franklin Blue Chip Fund and look
forward to serving your investment needs in the years to come.
Franklin Blue Chip Fund
Top 10 Holdings on April 30, 1997
Based on Total Net Assets
Company % of Total
Industry, Country Net Assets
Intel Corp. 1.5%
Technology, U.S.
Microsoft Corp. 1.3%
Technology, U.S.
Royal Dutch Petroleum Co., NY Shares 1.3%
Energy, U.S.
HSBC Holding Plc. 1.3%
Financial Services, United Kingdom
Exxon Corp. 1.2%
Energy, U.S.
Smithkline Beecham Plc. 1.2%
Healthcare, United Kingdom
The Coca-Cola Co. 1.1%
Consumer Staples, U.S.
Procter & Gamble Co. 1.1%
Consumer Staples, U.S.
Johnson & Johnson 1.1%
Healthcare, U.S.
General Electric Co. 1.1%
Consumer Durables, U.S.
For a complete list of portfolio holdings, please see
page 66 of this report.
Performance Summary
The Franklin Blue Chip Fund produced a cumulative total return of +9.14% for
the period from its inception on June 3, 1996, through April 30, 1997.
Cumulative total return measures the change in value of an investment,
assuming reinvestment of dividends and capital gains, and does not include
the initial sales charge. We always maintain a long-term perspective when
managing the fund, and encourage shareholders to view their investments in a
similar manner.
The price of the fund's shares, as measured by net asset value, increased
$0.85, from $10.00 on June 3, 1996, to $10.85 on April 30, 1997. During this
reporting period, shareholders received distributions totaling 6.1 cents
($0.061) per share in dividend income. There were no capital gains
distributions during this period. Of course, past performance is not
predictive of future results. Distributions will vary depending on income
earned by the fund, and any profits realized from the sale of securities in
the portfolio, as well as the level of the fund's operating expenses.
The graph on the following page compares the fund's performance since
inception with the unmanaged Morgan Stanley Capital International(R) (MSCI)
World Index, which includes approximately 1,500 companies representing the
stock markets of 22 countries, including the U.S., Canada, the United
Kingdom, and Japan. Of course, such a market index has inherent performance
differentials in comparison with any fund. The index does not pay management
fees to cover salaries of security analysts or portfolio managers, nor does
it pay commissions or market spreads to buy and sell stocks. Unlike the
index, mutual funds are never 100% invested since they need to keep some cash
on hand to redeem shares. The fund's performance figures shown on the graph
include the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as the fund's had been applied to the index, its
performance would have been lower. Please remember that an index is simply a
measure of performance, and one cannot invest directly in an index. Past
performance is not predictive of future results.
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Blue Chip Fund
Period ended April 30, 1997
Since
Inception
(6/3/96)
Cumulative Total Return1 9.14%
Aggregate Total Return2 4.24%
Value of $10,000 Investment3 $10,424
1. Cumulative total return represents the change in value of an investment
over the indicated periods and does not include the sales charge.
2. Aggregate total return represents the change in value of an investment
over the indicated period and includes the maximum 4.5% initial sales charge.
Since the fund has been in existence for less than one year, average annual
total returns are not provided.
3. This figure represents the value of a hypothetical $10,000 investment in
the fund over the indicated period and includes the sales charge.
All calculations assume reinvestment of dividends and capital gains at net
asset value. Investment return and principal value will fluctuate with market
conditions, currencies, and the economic, social, and political climates of
countries where investments are made. Thus, your shares, when redeemed, may
be worth more or less than their original cost. Past performance is not
predictive of future results.
The fund's manager has agreed in advance to waive a portion of its 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, upon notice to the fund's
Board of Trustees.
FRANKLIN MIDCAP GROWTH FUND
Your Fund's Objective:
The Franklin MidCap Growth Fund seeks long-term capital growth by investing
primarily in equity securities of medium-capitalization companies -- those
with a market capitalization between $200 million and $5 billion.
We are pleased to present the annual report of the Franklin MidCap Growth
Fund. Formerly called the Franklin Institutional MidCap Growth Fund, it
changed its investment objective, strategy and investment adviser prior to
becoming available to retail investors for the first time on June 1, 1996.
This report includes performance figures for both the 11-month and one-year
periods ending April 30, 1997.
During the period under review, the U.S. economy continued to exhibit
broad-based strength, reflecting increased consumer spending and industrial
production. As the economy expanded in June and July 1996, many investors
concerned about higher inflation and the possibility of rising interest rates
sold their midcap stocks. Although these stocks began to recover by autumn,
fears of strong economic growth resurfaced in early 1997, and the Federal
Reserve Board raised the federal funds rate from 5.25% to 5.50% on March 25,
1997. Consequently, profit-taking recurred in midcap stocks. Within this
environment, the fund delivered a 11-month cumulative total return of +5.00%
and a one-year cumulative total return of +6.47%, as shown in the Performance
Summary on page 47.
Seeking to identify midcap companies that we believed were well-positioned
for rapid growth in revenues, earnings, or cash flow, we focused on leaders
in growing industries with diversified product lines and sustainable
competitive advantages. In our search for these companies, we were equally
attentive to finding reasonable stock valuations. On April 30, 1997, we were
invested in firms we believed to have solid business fundamentals and strong
earnings potential.
GRAPHIC MATERIAL 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The oil and gas sector represented a substantial portion of the fund's total
net assets. During the fiscal year, we initiated positions in Barrett
Resources Corp., a leading independent oil and gas exploration and production
company, purchased shares of Diamond Offshore Drilling Inc., a contract
driller with strong growth potential, and realized gains in Global Marine
Inc., a firm whose stock we believed to be fully valued. Although we reduced
our weightings in the technology segment, we initiated a position in Computer
Sciences Corp., a technology consulting firm which we believe has strong
growth potential.
We also discovered attractive investment opportunities in consumer-related
segments, specifically the retail sector. For example, we purchased shares of
Cost Plus Inc. and Stage Stores Inc., both of which we believe are solid
retail operators with positive growth prospects. We made additional
investments within the education sector,
initiating positions in DeVry Inc., and Apollo Group Inc., two companies that
provide higher-education programs. This segment is usually characterized by
revenue predictability, favorable demographics, strong cash flow, and high
capital return.
Searching for bargain stocks outside of traditional growth sectors, we
purchased shares of Expeditors International of Washington Inc., a leader in
the freight forwarding industry, and Mark IV Industries Inc., a manufacturer
of audio equipment and automotive components. Both companies have solid
earnings records and, in our opinion, offer significant growth potential.
Looking forward, we remain optimistic about growth opportunities for midcap
growth companies. In our opinion, they offer the best features of small- and
large-capitalization stocks. Medium-capitalization companies tend to be more
established and more stable than smaller companies, but unlike
large-capitalization companies, which can offer greater stability, they
generally are still growing rapidly. Despite volatility in the technology
sector, we remain confident that new products and services should continue to
generate significant growth within this area. And we continue to be
optimistic about the ability of significant capital spending by major oil
companies to buoy the industrial services sector's growth prospects. However,
given the stock market's extraordinary appreciation in the last two years, we
are increasingly conscious of maintaining our valuation criteria and
discipline in choosing investments.
Franklin MidCap Growth Fund
Top 10 Holdings on April 30, 1997
Based on Total Net Assets
Company % of Total
Industry Net Assets
CUC International Inc. 1.9%
Commercial Services
AES Corp. 1.8%
Utilities
Adaptec Inc. 1.7%
Electronic Components/Technology
CapStar Hotel Co. 1.7%
Gaming & Lodging
Expeditors International of
Washington Inc. 1.5%
Transportation
Barrett Resources Inc. 1.5%
Oil & Gas
Linear Technology Corp. 1.5%
Electronic Components/Technology
Cognex Corp. 1.4%
Technology Services
Robert Half International Inc. 1.4%
Temporary Staffing
Analog Devices Inc. 1.4%
Electronic Components/Technology
For a complete list of portfolio holdings, please see
page 86 of this report.
This discussion reflects the strategies we employed for the fund during the
period under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
and our evaluations, conclusions and decisions regarding portfolio holdings
may change as new circumstances arise. Although past performance of a
specific investment or sector cannot guarantee future performance, such
information can be useful in analyzing securities we purchase or sell for the
fund.
Of course, there are risks associated with investing in a fund seeking
long-term capital growth from small- to medium-size companies that have less
certain growth prospects and greater sensitivity to changing economic
conditions. These and other risks are further discussed in the prospectus.
We thank you for your participation in the Franklin MidCap Growth Fund and
look forward to serving your investment needs in the years to come.
Performance Summary
The Franklin MidCap Growth Fund provided a cumulative total return of +5.00%
for the 11-month period beginning June 1, 1996, the date the fund became
available to retail investors, through April 30, 1997. Cumulative total
return measures the change in value of an investment, assuming reinvestment
of dividends and capital gains, and does not include the initial sales
charge. We always maintain a long-term perspective when managing the fund,
and encourage shareholders to view their investments in a similar manner.
The price of the fund's shares, as measured by net asset value, decreased
$1.08, from $14.44 on June 1, 1996, to $13.36 on April 30, 1997. During this
period, shareholders received distributions totaling 5 cents ($0.05) per
share in dividend income and $1.763 per share in capital gains, of which
60.49 cents ($0.6049) represented short-term gains and $1.1581 represented
long-term gains. Of course, past performance is not predictive of future
results. Distributions will vary, depending on income earned by the fund, and
any profits realized from the sale of securities in the portfolio, as well as
the level of the fund's operating expenses.
The first graph on the following page compares the fund's performance since
June 1, 1996, with the unmanaged Standard & Poor's(R) MidCap 400 Index (S&P(R)
MidCap 400). The second graph on the same page compares the fund's
performance since August 17, 1993 (inception), with the S&P MidCap 400. The
S&P MidCap 400 is a market-value weighted index consisting of 400 domestic
stocks chosen for market size, liquidity, and industry group representation.
Of course, such a market index has inherent performance differentials in
comparison with any fund. The index does not pay management fees to cover
salaries of security analysts or portfolio managers, not does it pay
commissions or market spreads to buy and sell stocks. Unlike the index,
mutual funds are never 100% invested since they need to keep some cash on
hand to redeem shares. The fund's performance figures shown on the graph
include the maximum initial sales charge, all fund expenses and account fees.
If operating expenses such as the fund's had been applied to the index, its
performance would have been lower. Please remember that an index is simply a
measure of performance, and one cannot invest directly in an index. Past
performance is not predictive of future results.
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin MidCap Growth Fund
Periods ended April 30, 1997
Since
Inception
11-Month 1-Year5 3-Year5 (8/17/93)5
Cumulative Total Return1 5.00% 6.47% 58.67% 61.25%
Average Annual Total Return2 0.27% 1.69% 14.87%
12.37%
Value of $10,000 Investment3 $10,027 $10,169 $15,158 $15,401
4/30/95 4/30/96 4/30/97
One-Year Total Return4,5 10.06% 35.40% 6.47%
1. Cumulative total return represents the change in value of an investment
over the indicated periods and does not include the sales charge.
2. Effective June 1, 1996, the fund became available to retail investors, and
adopted a plan of distribution under Rule 12b-1, which affects subsequent
performance. Prior to June 1, the fund was offered only to institutional
investors and without a sales charge. Average annual total returns have been
restated to reflect the current maximum initial sales charge: 4.5%. The
institutional fund's expenses were relatively lower than they will probably
be for the retail fund.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the indicated periods and include the sales charge.
4. One-year total return represents the change in value of an investment over
the periods ended on the specified dates and does not include the initial
sales charge.
5. On January 2, 1996, the fund changed its investment objective, strategy,
and investment adviser.
All 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
expense reductions by the fund's manager increased the fund's total return to
shareholders. Without this waiver, the fund's total returns would have been
lower. This reduction may be discontinued at any time, upon notice to the
fund's Board of Trustees. Past performance is not predictive of future
results.
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.
During the year ended April 30, 1997, large capitalization companies
outperformed their small cap counterparts in the health care sector, as in
the broader markets. Although a handful of drug stocks significantly
surpassed the indices, health care services, biotechnology, and medical
technology stocks underperformed them, despite rapid growth and strong
fundamental valuations. Within this environment, the Franklin Global Health
Care Fund's Class I shares provided a disappointing one-year cumulative total
return of -14.67% for the period ended April 30, 1997, as discussed in the
Performance Summary on page 54. However, securities in the health care sector
are characteristically volatile and we have always maintained a long-term
perspective on investments, as we encourage our shareholders to do. As the
Performance Summary also shows, the fund provided a cumulative total return
of +124.23% over the past five years, outperforming the Standard & Poor's
500(R) Stock Index which provided a total return of +119.90% over the same time
period.
We attribute the fund's disappointing performance during the reporting period
to its investments in emerging small capitalization companies. These stocks
have been out of favor with investors since early 1996, but we did find value
in the small cap market and have increased our exposure to that asset class.
On April 30, 1997, our portfolio was allocated globally across several health
care sectors. As you can see in the chart on page 51, our largest exposure
was the medical technology and supplies sector. For most of the period, the
fund's largest position was Boston Scientific Corp., a leading provider of
cardiovascular products whose stock rose over 80% in the six months following
our purchase in mid-1996*. We sold most of this position in early 1997, prior
to the dramatic selloff of its stock in the spring.
*Source: Bloomberg.
Many demographic trends indicate an expanding population of wealthy,
middle-aged people who can take advantage of advancements in the cosmetic
enhancement market. Therefore, we initiated a position in ESC Medical Systems
Ltd., which has developed an ultra-high frequency light source that quickly
and painlessly removes unwanted hair, varicose veins, and other skin
imperfections. We also purchased shares of Mentor Corp. whose most promising
new technology is ultrasonic liposuction, which is easier to use, leaves less
scarring, and has fewer potential complications than traditional liposuction.
During the year under review, the fund benefited from its holdings in
Innotech Inc. and MediSense Inc. Innotech was purchased by Johnson & Johnson,
and MediSense was bought by Abbott Laboratories, both at substantial premiums
to the market prices for these stocks.
In early 1997, we increased our exposure to biotechnology stocks, initiating
a position in Inhale Therapeutic Systems, a company focused on delivering
drugs, such as insulin, in the form of an inhaled powder. We also bought
stock in Neurogen Corp., a company that discovers, develops, and manufactures
products for the treatment of psychiatric and neurological disorders.
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Last summer, we capitalized on the general sell off in health maintenance
organization (HMO) stocks by adding to holdings in this sector. However, as
Medicare rate increases were announced in September and the HMO group met
earnings estimates in the second half of 1996, these stocks rebounded to
their prior levels. Since then, we decreased our holdings in HMOs, believing
their profit margins would remain strained due to continued pricing pressure
from large employer groups and by members utilizing more drugs than
anticipated.
GRAPHIC MATERIAL 21 OMITTED - SEE APPENDIX AT END OF DOCUMENT
For most of the reporting period, we had little or no exposure to home health
care or nursing home stocks because of general uncertainty about Medicare
reform. However, we purchased shares of companies we believed were trading at
attractive valuations, such as Apria Healthcare Group Inc., a leading home
health care services provider; Multicare Companies Inc., a northeastern
nursing home company; and Integrated Health Services Inc., a diversified
nursing home and home health care services provider.
Since demand for health care services and products generally is not affected
by the ups and downs of the business cycle, we are optimistic about prospects
for this industry and the Franklin Global Health Care Fund. In our opinion,
an aging population will require greater health care expenditures, while
advances in technology should widen the range of treatable conditions and
increase life expectancy. We expect continued consolidation in these product
and services areas, and believe that the fund may benefit from additional
merger and acquisition activity. Our goal, as always, is to seize upon
investment opportunities in a timely and disciplined fashion, attempting to
provide our shareholders unique opportunities to invest in some of today's
newest and fastest-growing health care companies.
Franklin Global Health Care Fund
Top 10 Holdings on April 30, 1997
Based on Total Net Assets
Company % of Total
Industry, Country Net Assets
Access Health Inc. 3.5%
Software and Information Systems, U.S.
Serologicals Corp. 3.2%
Biotechnology, U.S.
Medic Computer Systems Inc. 3.0%
Software and Information Systems, U.S.
Penederm Inc. 2.7%
Specialty Pharmaceuticals, U.S.
ESC Medical Systems Ltd. 2.5%
Medical Technology and Supplies, U.S.
PacifiCare Health Systems Inc.,
Class B 2.5%
Managed Care and HMOs, U.S.
Inhale Therapeutic Systems 2.5%
Biotechnology, U.S.
Molecular Devices Corp. 2.4%
Medical Technology and Supplies, U.S.
Algos Pharmaceuticals 2.4%
Specialty Pharmaceuticals, U.S.
Novartis AG 2.4%
Pharmaceuticals, Switzerland
For a complete list of portfolio holdings, please see
page 78 of this report.
This discussion reflects the strategies we employed during the 12 months
under review, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies, and
our evaluations, conclusions, and decisions regarding portfolio holdings may
change as new circumstances arise. Although past performance of a specific
investment or sector cannot guarantee future performance, such information
can be useful in analyzing securities we purchase or sell for the fund.
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 future.
Performance Summary
Class I
The Franklin Global Health Care Fund's Class I shares provided a cumulative
total return of -14.67% for the one-year period ended April 30, 1997.
Cumulative total return measures the change in value of an investment,
assuming reinvestment of dividends and capital gains, and does not include
the sales charge. We always maintain a long-term perspective when managing
the fund, and encourage shareholders to view their investments in a similar
manner. As you can see from the table on page 56, the fund delivered a
cumulative total return of more than 98% since inception on February 14, 1992.
The price of the fund's Class I shares, as measured by net asset value,
decreased $3.22, from $19.33 on April 30, 1996, to $16.11 on April 30, 1997.
During the reporting period, shareholders received distributions totaling
3.74 cents ($0.0374) per share in dividend income and 38 cents ($0.38) per
share in capital gains, of which 23.6 cents ($0.236) represented short-term
gains and 14.4 cents ($0.144) represented long-term gains. Of course, past
performance is not predictive of future results. Distributions will vary
depending on income earned by the fund, and any profits realized from the
sale of securities in the portfolio, as well as the level of the fund's
operating expenses.
GRAPHIC MATERIAL 22 OMITTED - SEE APPENDIX AT END OF DOCUMENT
As you can see in the graph on page 54, the fund's Class I shares
underperformed the broad-based Standard & Poor's(R) 500 Stock Index (S&P 500(R))
since the fund's inception. The index includes a variety of securities issued
by companies not associated with the health care industry.
Of course, such unmanaged market indices have inherent performance differentials
in comparison with any fund. Indices do not pay management fees to cover
salaries of security analysts or portfolio managers, nor do they pay commissions
or market spreads to buy and sell stocks. Unlike indices, mutual funds are never
100% invested since they need to keep some cash on hand to redeem shares. The
fund's performance figures shown on the graph include the sales charge, all fund
expenses and account fees. If operating expenses such as the fund's had been
applied to the index, its performance would have been lower. Please remember
that an index is simply a measure of performance, and one cannot invest directly
in an index. Past performance is not predictive of future results.
Franklin Global Health Care Fund
Class I
Periods ended April 30, 1997
Since
Inception
One-Year Three-Year Five-Year (2/14/92)
Cumulative Total Return1 -14.67% 81.34% 124.23% 98.22%
Average Annual Total Return2 -18.51% 20.09% 16.44% 13.04%
Value of $10,000 Investment3 $8,149 $17,320 $21,406 $18,932
4/30/93 4/30/94 4/30/95 4/30/96 4/30/97
One-Year Total Return4 1.41% 21.93% 16.33% 82.68% -14.67%
1. Cumulative total return represents the change in value of an investment
over the indicated periods and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the indicated periods and includes the maximum 4.5%
initial sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the indicated periods and include the sales charge.
4. One-year total return represents the change in value of an investment over
the periods ended on the specified dates and does not include the sales
charge.
All calculations assume reinvestment of dividends and capital gains at net
asset value. Investment return and principal value will fluctuate with market
conditions, currencies and the economic, social, and political climates of
countries where investments are made. Thus, your shares, when redeemed, may
be worth more or less than their original cost. Past performance is not
predictive of future results.
Past expense reductions by the fund's manager increased the fund's total
return to shareholders. Without this waiver, the fund's total return would
have been lower.
Performance Summary
Class II
The Franklin Global Health Care Fund's Class II shares provided a cumulative
total return of -5.25% for the period from its inception on September 3,
1996, through April 30, 1997. Cumulative total return measures the change in
value of an investment, assuming reinvestment of dividends and capital gains,
and does not include sales charges. We always maintain a long-term
perspective when managing the fund, and encourage shareholders to view their
investments in a similar manner.
The price of the fund's Class II shares, as measured by net asset value,
decreased $1.26, from $17.33 on September 3, 1996, to $16.07 on April 30,
1997. During the reporting period, shareholders did not receive dividend
income distributions, but received 38 cents ($0.38) per share in capital
gains, of which 23.6 cents ($0.236) represented short-term gains and 14.4
cents ($0.144) represented long-term gains. Of course, past performance is
not predictive of future results. Distributions will vary depending on income
earned by the fund, and any profits realized from the sale of securities in
the portfolio, as well as the level of the fund's operating expenses.
GRAPHIC MATERIAL 23 OMITTED - SEE APPENDIX AT END OF DOCUMENT
As you can see in the graph on the previous page, the fund's Class II shares
underperformed the broad-based Standard & Poor's(R) 500 Stock Index (S&P 500(R))
since the fund's inception. The index includes a variety of securities issued
by companies not associated with the health care industry.
Of course, such unmanaged market indices have inherent performance
differentials in comparison with any fund. Indices do not pay management fees
to cover salaries of security analysts or portfolio managers, nor do they pay
commissions or market spreads to buy and sell stocks. Unlike indices, mutual
funds are never 100% invested since they need to keep some cash on hand to
redeem shares. The fund's performance figures shown on the graph include the
sales charges, all fund expenses and account fees. If operating expenses such
as the fund's had been applied to the index, its performance would have been
lower. Please remember that an index is simply a measure of performance, and
one cannot invest directly in an index. Past performance is not predictive of
future results.
Franklin Global Health Care Fund
Class II
Periods ended April 30, 1997
Since
Inception
(9/3/96)
Cumulative Total Return1 -5.25%
Aggregate Total Return2 -7.14%
Value of $10,000 Investment3 $9,286
1. Cumulative total return represents the change in value of an investment
over the specified periods and does not include sales charges.
2. Aggregate annual total return represents the change in value of an
investment over the periods indicated, and includes the 1.00% initial sales
charge and 1.00% contingent deferred sales charge, applicable to shares
redeemed within the first 18 months of investment. Since these shares have
been in existence for less than one year, average annual total returns are
not provided.
3. This figure represents the value of a hypothetical $10,000 investment in
the fund over the indicated period and includes all sales charges.
All calculations assume reinvestment of dividends and capital gains at net
asset value. Investment return and principal value will fluctuate with market
conditions, currencies and the economic, social, and political climates of
countries where investments are made. Thus, your shares, when redeemed, may
be worth more or less than their original cost. Past performance is not
predictive of future results.
FRANKLIN STRATEGIC INCOME FUND
Your Fund's Objective:
The Franklin Strategic 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, preferred stock, common stock that pays dividends,
and income-producing securities convertible into common stock of such
companies.
Steady economic growth coupled with continued low inflation provided the
positive market fundamentals necessary for high returns during the twelve
months under review. By diversifying across six distinct asset classes, the
Franklin Strategic Income Fund capitalized on investment opportunities,
moving among and maximizing the strengths of certain sectors, while -- at the
same time -- reducing volatility. Over the reporting period, we focused on the
U.S. high-yield and convertible bond sectors, and also maintained our strong
weightings in emerging market and international positions as these markets
exhibited a powerful recovery. As a result, we achieved an attractive
one-year total return of +12.64%, as discussed in the Performance Summary on
page 63.
High Yield Corporate Bonds
High yield corporate bonds benefited from the low inflation environment of
the twelve-month reporting period -- especially during late summer 1996 and
early 1997. Our holdings in these securities covered the telecommunications,
wireless, media/broadcasting and automotive sectors.
Telecommunications and media/broadcasting strengthened on the back of two
major industry trends: consolidation and deregulation. We positioned the
portfolio to take advantage of these positive global trends. Our holdings in
Milicom International Cellular, a globally diversified cellular telephone
operator, performed especially well. Additionally, our participation in the
UK cable sector through holdings in Bell Cablemedia benefited from a major
consolidation.
GRAPHIC MATERIAL 24 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Our positions in Collins & Aikman and Aetna Industries, Inc. performed well
in an environment of continued outsourcing and company consolidation in the
automotive sector. Collins & Aikman, for example, recently sold its
floor-covering business, allowing it to concentrate on the automotive
interior trim market and to reduce its debt.
Convertible Securities
During this past fiscal year, the equity market experienced increased
volatility -- particularly in the technology sector. Market and technology
stock declines during July 1996 allowed us to buy high quality companies at
low price/earnings ratios and discounts to par (or face) value. We had a
strong return (roughly 18%) from our Xilinx, Inc. holdings over the year, and
- -- during the July slump -- we added to our position in Dovatron International
Inc. Group at favorable prices. We also generated an attractive return from
our investment in Banco de Galicia. This Argentine banking institution
benefited from increased lending activity as the Argentine economy gathered
momentum.
Emerging Markets
Our large weighting in emerging markets securities significantly contributed
to the fund's strong return as these markets continued to rally during the
reporting period, outperforming most other markets for the year ended
April 30, 1997. The J.P. Morgan Emerging Markets Bond Index Plus, which
tracks the performance of bond markets in 14 developing nations, produced a
total return of +31.84%, while the Salomon Brothers World Government Bond
Index, representative of government bonds in 15 developed countries, reported
a total return of 0.75%.* With the majority of our emerging markets
investments in Latin America, we benefited from the region's ongoing economic
recovery, low inflation, and strong export growth.
*Source: Total return, calculated by Wilshire Associates, Inc., includes
reinvested dividends. Indices are unmanaged and include price appreciation
and reinvested interest or dividends.
International
As the U.S. dollar strengthened, the foreign currency component of most
international bond markets suffered during the year under review.
Fortunately, we offset a good deal of this weakness by decreasing our
exposure to foreign currency-denominated bonds. Additionally, we reallocated
our assets within Europe, moving to the higher yielding markets of Italy,
Spain and Sweden. This created significant capital appreciation and benefited
the fund as these markets offered better performance relative to the core
European markets.
U.S. Treasury Securities
We remained underweighted in this sector, and actually decreased our holdings
from 5.0% of total net assets on April 30, 1996, to 1.9% on April 30, 1997.
We did this in anticipation of increased interest rate risk, based largely on
the strength of the overall economy.
U.S. Mortgage Securities
Our agency mortgage positions performed well over the fund's fiscal year as
the yield spreads of mortgage securities narrowed relative to U.S.
treasuries. Even so, our weighting in this area remained small (4.7% of total
net assets) due to interest rate sensitivity.
Looking Forward
The fund should continue to perform well, as we anticipate low inflation,
ongoing slow to moderate economic growth, and a relatively stable interest
rate environment in the U.S. Additionally, as international and emerging
market economies improve, we should benefit from our exposure to these
sectors.
This discussion reflects the strategies we employed for the fund during the
year under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
evaluations, conclusions and decisions regarding portfolio holdings may
change as new circumstances arise. Although past performance of a specific
investment or sector cannot guarantee future performance, such information
can be useful in analyzing securities we purchase or sell for the fund.
Performance Summary
The Franklin Strategic Income Fund's share price, as measured by net asset
value, increased 9 cents, from $10.77 on April 30, 1996, to $10.86 on April
30, 1997.
For the one-year period, your fund paid distributions totaling 95.6 cents
($0.956) per share in income dividends and 26.9 cents in capital gains, of
which 25.28 cents ($0.2528) represented short-term gains and 1.62 cents
($0.0162) represented long-term gains. Based on an annualization of April's
dividend of 7.5 cents ($0.075) per share and the maximum offering price of
$11.34 on April 30, 1997, your fund's distribution rate was 7.94%. Of course,
past performance is not predictive 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 portfolio.
GRAPHIC MATERIAL 25 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The fund posted a total return of +12.64% for the one-year period ended
April 30, 1997. Cumulative total return measures the change in value of an
investment during the period indicated, assuming reinvestment of dividends
and capital gains, and does not include the initial sales charge. Past
performance is not predictive of future results.
The graph on page 63 compares the fund's performance to a number of indices,
including the Salomon Brothers Non-U.S. World Government Bond Index, Salomon
Brothers High Yield Bond Index, and a composite index. Of course, such
unmanaged market indices have inherent performance differentials over any
fund. They do not pay management fees to cover salaries of securities
analysts or portfolio managers, or pay commissions or market spreads to buy
and sell securities. Unlike unmanaged indices, mutual funds are never fully
invested because of the need to have cash on hand to redeem shares or pay for
upcoming investments. In addition, the performance shown for the fund
includes the maximum initial sales charge, all fund expenses and account
fees. If the fund's costs had been applied to the indices, their performance
would have been lower. Please remember that an index is simply a measure of
performance and cannot be invested in directly.
Franklin Strategic Income Fund
Periods ended April 30, 1997
Since
Inception
1-Year (6/1/94)
Total Return1 12.64% 41.85%
Average Annual Total Return2 7.84% 11.10%
Value of a $10,000 Investment3 $10,784 $13,587
Distribution Rate4 7.94%
30-Day Standardized Yield5 7.19%
1. Cumulative total return measures the change in value of an investment the
periods indicated and does not include
sales charges.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the maximum 4.25%
initial sales charge.
3. The value of a $10,000 investment is based on a hypothetical $10,000
investment in the fund over the specified periods and includes the maximum
4.25% initial sales charge.
4. Distribution rate is based on an annualization of the fund's current 7.5
cent per share monthly dividend and the maximum offering price of $11.34 on
April 30, 1997.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended
April 30, 1997.
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 predictive of future results.
The fund's manager agreed in advance to waive a portion of management fees
and to assume responsibility for certain other costs, 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 would have been lower, and yield for the period would have
been 6.48%. The fee waiver may be discontinued at any time upon notification
to the fund's Board of Trustees.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, April 30, 1997
<TABLE>
<CAPTION>
Value
Country* Shares Franklin Blue Chip Fund (Note 1)
Common Stocks 87.6%
<S> <C> <C> <C>
Consumer Durables 5.8%
SE 2,000 ABB AB, B Shares ......................................................... $ 24,215
BE 62 Barco Industries ......................................................... 10,562
US 300 Ericsson (L.M.) Telecommunications, ADR .................................. 10,088
US 550 General Electric Co. ..................................................... 60,981
US 200 Matsushita Electric Industrial Co., Ltd., ADR ............................ 32,375
US 200 Oy Nokia Corp., ADR ...................................................... 12,925
DD 900 Siemens, AG .............................................................. 48,781
JP 700 Sony Corp. ............................................................... 50,961
US 1,400 Tata Engineering and Locomotive Co., Ltd., GDR ........................... 17,010
JP 2,000 Toyota Motor Corp. ....................................................... 57,989
----------
325,887
----------
Consumer Staples 11.7%
DD 400 Adidas, AG ............................................................... 41,467
GB 1,200 Antofagasta Holdings, Plc. ............................................... 7,487
US 600 Estee Lauder Cos., Class A ............................................... 27,450
US 700 Gillette Co. ............................................................. 59,500
JP 4,000 Kao Corp. ................................................................ 46,644
US 200 Kirin Brewery Co., Ltd., ADR ............................................. 17,400
FR 120 LVMH (Moet Hennessy Louis Vuitton) ....................................... 29,291
US 900 Mattel, Inc. ............................................................. 25,088
SF 40 Nestle, SA, Registered Shares ............................................ 48,618
US 300 Nike, Inc., Class B ...................................................... 16,875
US 200 Panamerican Beverages, Inc., A Shares .................................... 5,800
IT 9,200 Parmalat Finanziaria, SpA ................................................ 13,343
US 1,100 PepsiCo, Inc. ............................................................ 38,363
US 1,500 Philip Morris Cos., Inc. ................................................. 59,063
US 500 Procter & Gamble Co. ..................................................... 62,875
IR 5,000 PT Hanjaya Mandala Sampoerna ............................................. 20,113
CA 500 Seagram Co., Ltd. ........................................................ 19,167
SA 500 South African Breweries, Ltd. ............................................ 14,731
US 1,000 The Coca-Cola Co. ........................................................ 63,625
US 200 Unilever, NV, New York Shares ............................................ 39,250
-----------
656,150
-----------
Energy 6.7%
US 300 British Petroleum Co., Plc., ADR ......................................... 41,288
US 1,000 Broken Hill Proprietary Co., Ltd., ADR ................................... 28,375
IT 2,600 ENI, SpA ................................................................. 13,226
US 1,200 Exxon Corp. .............................................................. 67,950
CA 1,400 aRenaissance Energy, Ltd. ................................................ $ 38,784
US 1,000 Repsol, SA, ADR .......................................................... 41,875
US 400 Royal Dutch Petroleum Co., New York Shares .............................. 72,100
US 700 Total, SA, ADR ........................................................... 29,138
US 500 Williams Cos., Inc. ...................................................... 21,938
US 700 YPF, SA, ADR ............................................................. 19,338
-----------
374,012
-----------
Financial Services 17.1%
US 450 American International Group, Inc. ....................................... 57,825
IT 420 Assicurazioni Generali ................................................... 7,048
FR 285 AXA-UAP .................................................................. 17,531
PP 27,500 Ayala Land, Inc., B Shares ............................................... 19,814
US 215 Banco Frances del Rio de la Plata, SA, ADR ............................... 6,531
TB 3,100 Bangkok Bank Public Co., Ltd. ............................................ 28,719
CA 1,000 Bank of Montreal ........................................................ 36,293
US 2,100 Bank of Tokyo-Mitsubishi, ADR ............................................ 34,125
US 400 Charles Schwab Corp. ..................................................... 14,650
HK 3,000 Cheung Kong Holdings, Ltd. ............................................... 26,334
US 500 Citicorp ................................................................. 56,313
SD 2,000 City Developments, Ltd. .................................................. 16,171
BE 100 Credit Communal Holding Dexia ............................................ 9,930
JP 2,000 Dai-Ichi Kangyo Bank, Ltd. ............................................... 21,904
DK 100 Den Danske Bank .......................................................... 8,649
DD 900 Deutsche Bank, AG ........................................................ 47,508
US 600 Federal National Mortgage Association .................................... 24,675
BE 29 Generale de Banque, SA ................................................... 12,026
HK 2,000 Hang Seng Bank, Ltd. ..................................................... 22,526
GB 2,700 HSBC Holding, Plc. ....................................................... 70,881
HK 5,000 Hutchinson Whampoa, Ltd. ................................................. 37,114
US 300 J.P. Morgan & Co., Inc. .................................................. 30,563
TB 1,700 Land and House Public Co., Ltd. .......................................... 4,848
AU 1,300 Lend Lease Corp., Ltd. ................................................... 24,879
SA 300 Liberty Life Association of Africa, Ltd. ................................. 8,383
MR 3,000 Malayan Banking Berhad ................................................... 29,875
US 200 Merrill Lynch & Co., Inc. ................................................ 19,050
PP 737 Metropolitan Bank & Trust Co. ............................................ 15,092
JP 2,000 Mitsui Trust & Banking ................................................... 11,409
US 500 National Australia Bank, Ltd., ADR ....................................... 34,438
SA 707 Nedcor, Ltd. ............................................................. 14,390
JP 4,000 Nomura Securities Co., Ltd. .............................................. $ 44,753
JP 2,000 Sanwa Bank ............................................................... 21,431
HK 3,000 Sun Hung Kai Properties, Ltd. ............................................ 32,531
SF 20 Swiss Reinsurance Co. .................................................... 23,168
US 200 Tokio Marine & Fire Insurance Co., ADR ................................... 9,850
SD 3,000 United Overseas Bank, Ltd. ............................................... 28,196
US 100 Wells Fargo & Co. ........................................................ 26,675
-----------
956,098
-----------
Healthcare 6.5%
US 400 aAmgen, Inc. ............................................................. 23,550
SE 100 Astra AB, B Shares ....................................................... 3,970
US 600 Baxter International, Inc. ............................................... 28,725
US 600 aBoston Scientific Corp. ................................................. 28,950
US 500 Eli Lilly & Co. .......................................................... 43,938
US 400 HBO & Co. ................................................................ 21,400
US 1,000 Johnson & Johnson ........................................................ 61,250
FR 80 L'OREAL .................................................................. 28,380
SF 7 Roche Holding, AG ........................................................ 59,177
GB 4,100 Smithkline Beecham, Plc. ................................................. 65,876
-----------
365,216
-----------
Industrial Cyclicals 7.9%
US 600 Avery Dennison Corp. ..................................................... 22,050
DD 1,200 Bayer, AG ................................................................ 47,737
AT 210 Boehler-Uddeholm, AG ..................................................... 15,147
JP 2,000 Bridgestone Corp. ........................................................ 42,546
US 900 Cemex, SA de CV, ADR, B Shares ........................................... 6,616
US 800 Cia Vale Do Rio Doce, ADR ................................................ 20,386
SF 20 aCiba Specialty Chemicals, AG............................................. 1,725
US 400 De Beers Consolidated Mines, AG, ADR ..................................... 14,394
JP 3,000 Komatsu, Ltd. ............................................................ 21,935
JP 3,000 Mitsubishi Heavy Industries, Ltd. ........................................ 19,808
US 900 Monsanto Co. ............................................................. 38,475
SF 25 Novartis, AG ............................................................. 32,967
US 700 Perez Co., SA, ADR ....................................................... 11,356
US 200 Pohang Iron & Steel Co., Ltd., ADR ....................................... 4,825
US 500 Praxair, Inc. ............................................................ 25,813
IR 2,000 PT Semen Gresik .......................................................... 4,877
US 600 RTZ Corp., Plc., ADR ..................................................... 38,700
SE 800 Sandvik AB, B Shares...................................................... $ 19,678
JP 2,000 Shin-Etsu Chemical Co. ................................................... 40,340
TB 500 Siam Cement Public Co., Ltd. ............................................. 13,398
-----------
442,773
-----------
Retail 3.2%
FR 50 Carrefour Supermarche..................................................... 31,150
US 200 Ito-Yokado Co., Ltd., ADR ................................................ 38,450
IT 1,200 La Rinacente, SpA ........................................................ 6,394
US 361 Lucent Technologies, Inc. ................................................ 21,344
GB 4,100 Marks & Spencer, Plc. .................................................... 32,556
US 1,700 Wal-Mart Stores, Inc. .................................................... 48,025
-----------
177,919
-----------
Services 9.4%
US 400 Canon, Inc., ADR ......................................................... 47,500
US 200 Disney (Walt) Co. ........................................................ 16,400
MR 2,000 Genting Berhad ........................................................... 10,675
US 200 aHFS, Inc. ............................................................... 11,850
CA 400 Loewen Group, Inc. ....................................................... 11,554
US 500 McDonald's Corp. ......................................................... 26,813
US 900 News Corp., Ltd., ADR .................................................... 16,650
JP 5,000 Nippon Express Co., Ltd. ................................................. 34,471
GB 4,500 Reuters Holdings, Plc. ................................................... 46,270
US 400 aSABRE Group Holdings, Inc. .............................................. 10,250
DD 300 SAP, AG .................................................................. 54,664
JP 1,000 Secom .................................................................... 59,486
MR 10,000 Sime Darby Berhad ........................................................ 30,870
SD 2,000 Singapore Airlines, Ltd. ................................................. 17,692
FR 52 Sodexho Alliance, SA ..................................................... 23,871
US 300 aStarbucks Corp. ........................................................ 8,963
US 2,150 aTele-Communications, Inc. ............................................... 40,447
NG 500 Wolters Kluwer, NV........................................................ 59,267
-----------
527,693
-----------
Technology 8.6%
US 400 Applied Materials, Inc. .................................................. 21,950
US 800 aCisco Systems, Inc. ..................................................... 41,400
US 200 aCompaq Computer Corp. ................................................... 17,075
US 700 First Data Corp. ......................................................... 24,150
US 700 Hewlett-Packard Co. ...................................................... 36,750
US 300 Hitachi, Ltd., ADR ....................................................... $ 27,525
US 550 Intel Corp. .............................................................. 84,219
US 600 aMicrosoft Corp. ......................................................... 72,900
US 100 Motorola, Inc. ........................................................... 5,725
US 400 NEC Corp., ADR............................................................ 24,400
US 600 aNewbridge Networks Corp. ................................................ 19,050
US 800 aOracle Corp. ............................................................ 31,800
KR 200 Samsung Electronics Co. .................................................. 16,611
JP 4,000 Toshiba Corp. ............................................................ 22,439
US 400 a3Com Corp. .............................................................. 11,600
US 500 aXilinx, Inc. ............................................................ 24,500
-----------
482,094
-----------
Utilities and Telecommunication 10.7%
US 300 aAES Corp. ............................................................... 19,575
US 1,600 aAirTouch Communications, Inc. .......................................... 40,800
US 1,100 AT&T Corp. .............................................................. 36,850
US 800 Bellsouth Corp. .......................................................... 35,600
US 200 British Telecommunications, Plc., ADR .................................... 14,725
US 400 Duke Power Co. ........................................................... 17,550
US 1,000 Empresa Nacional Electricidad, SA, ADR .................................. 19,250
US 1,400 Enersis, SA, ADR ........................................................ 44,100
US 600 Enron Corp. .............................................................. 22,575
US 1,017 Hong Kong Telecommunications, Ltd., ADR.................................. 17,416
IT 1,200 Italmobiliare, SpA....................................................... 17,930
US 300 Korea Electric Power Corp., ADR .......................................... 5,100
US 1,100 Nippon Telegraph & Telephone, ADR ....................................... 42,625
JP 11,000 Osaka Gas Co. ........................................................... 26,347
US 100 Philippine Long Distance Telephone Co., ADR .............................. 5,575
IR 14,000 PT Telekomunikasi Indonesia ............................................. 20,309
SD 10,000 Singapore Telecommunications, Ltd. ...................................... 16,862
US 2,512 SK Telecom Co., Ltd., ADR ............................................... 23,864
US 400 Tele Danmark, A/S, ADR ................................................... 9,950
US 300 Telecom de Argentina, SA, ADR ............................................ 15,000
NZ 1,800 Telecom Corp. of New Zealand, Ltd. ...................................... 8,074
US 100 Telecomunicacoes Brasileiras, SA, ADR .................................... 11,475
US 400 Telefonica de Espana, ADR ................................................ 30,800
US 500 Telefonos de Mexico, SA, ADR ............................................. 20,625
MR 4,000 Telekom Malaysia Berhad.................................................. 28,042
US 2,000 Total Access Communication Public Co., Ltd. ............................. $ 10,300
DD 700 VEBA, AG ................................................................. 36,324
-----------
597,643
-----------
Total Common Stocks (Cost $4,621,542) .................................... 4,905,485
-----------
Preferred Stocks 0.3%
BR 33,000 Banco Itau, SA (Cost $14,734) ............................................ 17,843
-----------
Total Long Term Investments (Cost $4,636,276) ............................ 4,923,328
-----------
Face
Amount
dReceivables from Repurchase Agreements 11.7%
US $661,394 Joint Repurchase Agreements, 5.529%, 05/01/97 (Maturity Value $653,721)
(Cost $653,624)
Aubrey G. Lanston & Co., Inc., (Maturity Value $73,787)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $63,428)
Collateral: U.S. Treasury Notes, 6.25% - 6.375%, 07/31/98 - 04/30/99
Bear, Stearns & Co., Inc., (Maturity Value $73,787)
Collateral: U.S. Treasury Notes, 5.75% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $36,892)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $36,892)
Collateral: U.S. Treasury Notes, 5.25% - 8.50%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $73,787)
Collateral: U.S. Treasury Notes, 5.25% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $73,787)
Collateral: U.S. Treasury Notes, 4.75% - 7.75%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $73,787)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $73,787)
Collateral: U.S. Treasury Notes, 5.375% - 9.125%, 05/31/98 - 12/31/01
UBS Securities L.L.C., (Maturity Value $73,787)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 07/15/98 - 08/15/99....... 653,624
-----------
Total Investments (Cost $5,289,900)99.6%.................................. 5,576,952
Other Assets and Liabilities, Net0.4% .................................... 22,992
-----------
Net Assets 100.0% ........................................................ $5,599,944
===========
At April 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $5,289,900 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost............................... $ 490,316
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value............................... (203,264)
-----------
Net unrealized appreciation............................................... $ 287,052
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
COUNTRY LEGEND:
AT - Austria
AU - Australia
BE - Belgium
BR - Brazil
CA - Canada
DD - Germany
DK - Denmark
FR - France
GB - United Kingdom
HK - Hong Kong
IR - Indonesia
IT - Italy
JP - Japan
KR - South Korea
MR - Malaysia
NG - Netherlands
NZ - New Zealand
PP - Philippines
SA - South Africa
SD - Singapore
SE - Sweden
SF - Switzerland
TB - Thailand
US - United States
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
dFace amount for repurchase agreements is for the underlying collateral.
See Note 1(i) regarding joint repurchase agreements.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, April 30, 1997
<TABLE>
<CAPTION>
Value
Shares Franklin California Growth Fund (Note 1)
Common Stocks 82.2%
<S> <C> <C>
aCommercial Services 1.6%
175,000 RemedyTemp, Inc., Class A .................................................... $ 2,668,750
60,000 Robert Half International, Inc. .............................................. 2,355,000
-----------
5,023,750
-----------
Consumer Durables 2.6%
160,000 K2, Inc. ..................................................................... 4,180,000
140,000 Mattel, Inc. ................................................................. 3,902,500
-----------
8,082,500
-----------
Consumer Non-Durables 0.8%
20,000 Clorox Co. ................................................................... 2,547,500
-----------
Consumer Services 4.1%
180,000 Hilton Hotels Corp. .......................................................... 4,860,000
100,000 aHSN, Inc. ................................................................... 2,350,000
110,000 McClatchy Newspapers, Inc., Series A ......................................... 2,763,750
50,000 aPanavision, Inc. ............................................................ 843,750
20,000 United Television, Inc. ...................................................... 1,782,500
-----------
12,600,000
-----------
Electronic Technology 12.5%
25,000 aAscend Communications, Inc. ................................................. 1,143,750
8,500 aATL Products, Inc., Class A ................................................. 64,813
45,000 aCisco Systems, Inc. ......................................................... 2,328,750
170,000 aCognex Corp. ................................................................ 4,186,250
100,000 aCoherent, Inc. .............................................................. 4,150,000
70,000 aComputer Sciences Corp. ..................................................... 4,375,000
156,100 aFORE Systems, Inc. .......................................................... 2,380,525
55,000 Hewlett-Packard Co. .......................................................... 2,887,500
100,000 aKomag, Inc. ................................................................. 2,825,000
135,000 Logicon, Inc. ................................................................ 5,366,250
30,200 aNeoMagic Corp. .............................................................. 352,963
75,000 Rockwell International Corp. ................................................. 4,987,500
80,000 aUniphase Corp. .............................................................. 3,180,000
-----------
38,228,301
-----------
Energy/Minerals 8.3%
45,000 Atlantic Richfield Co. (ARCO)................................................. 6,125,625
75,000 Chevron Corp. ................................................................ 5,137,500
75,000 Monterey Resources, Inc. ..................................................... 1,143,750
200,000 Occidental Petroleum Corp. ................................................... 4,425,000
100,000 Unocal Corp. ................................................................. $ 3,812,500
150,000 Ultramar Diamond Shamrock Corp. .............................................. 4,818,750
-----------
25,463,125
-----------
Finance 3.7%
35,000 BankAmerica Corp. ............................................................ 4,090,625
110,000 Countrywide Credit Industries, Inc. .......................................... 2,983,750
90,000 aSilicon Valley Bancshares ................................................... 3,150,000
22,000 The PMI Group, Inc. .......................................................... 1,124,750
-----------
11,349,125
-----------
aHealth Services 2.4%
147,200 Access Health, Inc. .......................................................... 2,097,600
65,000 PacifiCare Health Systems, Inc., Class B...................................... 5,216,250
-----------
7,313,850
-----------
Health Technology 4.6%
60,000 aAmgen, Inc. ................................................................. 3,532,500
80,000 aHeartport, Inc. ............................................................. 2,050,000
200,000 Mentor Corp. ................................................................. 4,625,000
100,000 aMolecular Devices Corp. ..................................................... 1,412,500
244,300 aPenederm, Inc. .............................................................. 2,626,225
-----------
14,246,225
-----------
Industrial Services 2.5%
140,000 Granite Construction, Inc. ................................................... 2,782,500
25,000 aUS Filter Corp. ............................................................. 759,375
65,000 aWestern Atlas, Inc. ......................................................... 4,030,000
7,571,875
Other
48 a,bLynx Therapeutics, Inc. ................................................... --
-----------
Process Industries 0.9%
75,000 Avery Dennison Corp. ......................................................... 2,756,250
-----------
Real Estate 6.4%
110,000 Arden Realty Group, Inc. .................................................... 2,736,250
90,000 Bay Apartment Communities, Inc. .............................................. 3,015,000
145,800 Burnham Pacific Properties, Inc. ............................................. 1,822,500
200,361 aCatellus Development Corp. .................................................. 2,955,324
110,000 Irvine Apartment Communities, Inc. ........................................... 2,942,500
100,000 Kilroy Realty Corp. .......................................................... 2,350,000
50,000 Nationwide Health Property, Inc. ............................................. $ 1,000,000
243,333 b,fPacific Retail Trust ...................................................... 2,919,996
-----------
19,741,570
-----------
aRetail 5.3%
240,000 Cost Plus, Inc. .............................................................. 3,960,000
170,000 Costco Cos., Inc. ............................................................ 4,908,750
120,000 Federated Department Stores, Inc. ............................................ 4,080,000
82,500 Guitar Center, Inc. .......................................................... 1,165,313
50,000 Safeway, Inc. ................................................................ 2,231,250
-----------
16,345,313
-----------
Semiconductors/Semiconductor Equipment 4.0%
85,000 aAdaptec, Inc. ............................................................... 3,145,000
30,000 aEtec Systems, Inc. .......................................................... 873,750
25,000 Intel Corp. .................................................................. 3,828,125
40,000 Linear Technology Corp. ...................................................... 2,010,000
50,000 aXilinx, Inc. ................................................................ 2,450,000
-----------
12,306,875
-----------
Technology Services 12.4%
80,000 Adobe Systems, Inc. .......................................................... 3,130,000
70,000 aArbor Software Corp. ........................................................ 1,741,250
150,000 Autodesk, Inc. ............................................................... 5,325,000
160,000 aElectronic Arts, Inc. ....................................................... 3,860,000
75,000 Electronic Data Systems Corp. ................................................ 2,503,125
105,000 aInfinity Financial Technology, Inc. ......................................... 1,325,625
240,000 aIntegrated Systems, Inc. .................................................... 2,310,000
200,000 aMercury Interactive Corp. ................................................... 2,450,000
135,000 aPhoenix Technologies, Ltd. .................................................. 1,535,625
100,000 aRemedy Corp. ................................................................ 3,237,500
110,000 aSABRE Group Holdings, Inc. .................................................. 2,818,750
100,000 aSterling Commerce, Inc. ..................................................... 2,587,500
165,000 aSynopsys, Inc. .............................................................. 5,259,375
-----------
38,083,750
-----------
Transportation 3.8%
125,000 Air Express International Corp. .............................................. 4,281,250
135,000 Expeditors International of Washington, Inc. ................................. 3,375,000
170,000 Harper Group, Inc. ........................................................... 3,995,000
-----------
11,651,250
-----------
Utilities 6.3%
130,000 aAirTouch Communications, Inc. ............................................... $ 3,315,000
80,000 California Water Service Co. ................................................. 3,460,000
195,000 Edison International.......................................................... 4,095,000
185,000 Enova Corp. .................................................................. 4,093,125
48,000 Pacific Enterprises........................................................... 1,470,000
130,000 Southern California Water Co. ................................................ 2,811,250
-----------
19,244,375
-----------
Total Common Stocks (Cost $243,869,340) ...................................... 252,555,634
-----------
Convertible Preferred Stocks 0.4%
15,229 cCatellus Development Corp., $3.625 cvt. pfd., Series B (Cost $741,716) ...... 1,153,596
-----------
Face
Amount
Convertible Bonds 2.4%
$ 2,500,000 Heartport, Inc., cvt. deb., 7.25%, 05/01/04................................... 2,625,000
2,000,000 Hexcel Corp., cvt. sub. notes, 7.00%, 08/01/03................................ 2,620,000
2,200,000 US Filter Corp., cvt. sub. notes, 4.50%, 12/15/01............................. 2,180,750
-----------
Total Convertible Bonds (Cost $6,938,935) .................................... 7,425,750
-----------
Total Long Term Investments (Cost $251,549,991) .............................. 261,134,980
-----------
dReceivables from Repurchase Agreements 16.5%
51,475,850 Joint Repurchase Agreements, 5.335%, 05/01/97 (Maturity Value $50,895,422)
(Cost $50,887,880)
Aubrey G. Lanston & Co., Inc., (Maturity Value $5,744,651)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $4,938,211)
Collateral: U.S. Treasury Notes, 6.25% - 6.375%, 07/31/98 - 04/30/99
Bear, Stearns & Co., Inc., (Maturity Value $5,744,651)
Collateral: U.S. Treasury Notes, 5.75% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $2,872,327)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $2,872,327)
Collateral: U.S. Treasury Notes, 5.25% - 8.50%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $5,744,651)
Collateral: U.S. Treasury Notes, 5.25% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $5,744,651)
Collateral: U.S. Treasury Notes, 4.75% - 7.75%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $5,744,651)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $5,744,651)
Collateral: U.S. Treasury Notes, 5.375 % - 9.125%, 05/31/98 - 12/31/01
UBS Securities L.L.C., (Maturity Value $5,744,651)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 07/15/98 - 08/15/99 .......... $ 50,887,880
-----------
Total Investments (Cost $302,437,871)101.5% .................................. 312,022,860
Liabilities in Excess of Other Assets(1.5%)................................... (4,568,354)
-----------
Net Assets 100.0% ............................................................ $307,454,506
===========
At April 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $303,113,182 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost ............................................ $ 25,175,251
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value............................................. (16,265,573)
-----------
Net unrealized appreciation................................................... $ 8,909,678
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
aNon-income producing.
bSee Note 7 regarding restricted securities.
cPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dFace amount for repurchase agreements is for the underlying collateral.
See Note 1(i) regarding joint repurchase agreements.
fSee Note 1(f) regarding securities purchased on a when-issued or delayed
delivery basis.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, April 30, 1997
<TABLE>
<CAPTION>
Shares/ Value
Country* Warrants Franklin Global Health Care Fund (Note 1)
Common Stocks and Warrants 88.6%
<S> <C> <C> <C>
aBiotechnology 10.7%
US 185,000 Autoimmune, Inc. ................................................... $ 670,625
GB 200,000 British Biotech, Plc. .............................................. 782,706
US 215,000 Inhale Therapeutic Systems ......................................... 3,977,500
US 150,000 Nabi, Inc. ......................................................... 900,000
US 120,000 Neurogen Corp. ..................................................... 1,710,000
US 65,000 Pharmacopeia, Inc. ................................................. 910,000
US 314,100 Serologicals Corp. ................................................. 5,064,863
US 100,000 Vertex Pharmaceuticals, Inc. ....................................... 3,175,000
-----------
17,190,694
-----------
Drug Distributors 2.6%
US 45,000 Cardinal Health, Inc. .............................................. 2,396,250
US 100,000 Grupo Casa Autrey, SA de CV, ADR ................................... 1,737,500
-----------
4,133,750
-----------
Hospitals 3.0%
SD 550,000 Parkway Holdings, Ltd. ............................................. 2,242,571
US 100,000 aTenet Healthcare Corp. ............................................ 2,600,000
-----------
4,842,571
-----------
Managed Care and HMOs 3.4%
US 50,000 aPacifiCare Health Systems, Inc., Class B .......................... 4,012,500
US 30,000 United Healthcare Corp. ............................................ 1,458,750
-----------
5,471,250
-----------
Medical Technology and Supplies 17.8%
US 70,000 Bard (C.R.), Inc. .................................................. 2,222,500
US 40,000 aBoston Scientific Corp. ........................................... 1,930,000
US 100,000 aCardioGenesis Corp. ............................................... 1,187,500
US 100,000 aCardioThoracic Systems, Inc. ...................................... 1,587,500
AU 225,000 Cochlear, Ltd. ..................................................... 666,771
US 150,000 aESC Medical Systems, Ltd. ......................................... 4,031,248
US 23,300 aHeartport, Inc. ................................................... 597,063
US 150,000 Kinetic Concepts, Inc. ............................................. 2,231,250
US 145,000 Mentor Corp. ....................................................... 3,353,125
US 275,000 aMolecular Devices Corp. ........................................... 3,884,375
US 500,000 aOrthoLogic Corp. .................................................. 2,875,000
US 125,000 aPhysiometrix, Inc. ................................................ 421,875
US 200,000 aTechnical Chemicals & Products, Inc. .............................. 1,975,000
US 100,000 aVentritex, Inc. ................................................... 1,612,500
-----------
28,575,707
-----------
Nursing Homes and Subacute Care 4.0%
US 36,000 aGenesis Health Ventures, Inc. ..................................... $ 1,075,500
US 85,000 Integrated Health Services, Inc. ................................... 2,730,625
US 140,000 aMulticare Companies, Inc. ......................................... 2,607,500
-----------
6,413,625
-----------
aMiscellaneous 4.0%
US 300,000 Capstone Pharmacy Services, Inc. ................................... 2,531,250
SF 2,900 Ciba Specialty Chemicals, AG ....................................... 250,085
US 65,000 Covance, Inc. ...................................................... 958,750
US 100,000 CNS, Inc. .......................................................... 837,500
US 132,000 HealthCare Financial Partners, Inc. ................................ 1,584,000
US 35,000 Youth Services International, Inc. ................................. 345,625
-----------
6,507,210
-----------
Pharmaceuticals 7.4%
SE 70,000 Astra AB, B Shares.................................................. 2,779,035
SF 2,900 Novartis, AG ....................................................... 3,824,133
SF 300 Roche Holding, AG .................................................. 2,536,158
SF 100 aRoche Holding, warrants ........................................... 5,975
FR 28,810 Sanofi, SA ......................................................... 2,689,526
-----------
11,834,827
-----------
aPhysician Practice Management 3.7%
US 100,000 Pediatrix Medical Group, Inc. ...................................... 3,300,000
US 100,000 PhyCor, Inc. ....................................................... 2,662,500
-----------
5,962,500
-----------
aPost-Acute Providers 6.2%
US 160,000 Apria Healthcare Group, Inc. ....................................... 2,700,000
US 100,000 Renal Care Group, Inc. ............................................. 3,000,000
US 50,000 Total Renal Care Holdings, Inc. .................................... 1,606,250
US 100,000 Vivra, Inc. ........................................................ 2,587,500
-----------
9,893,750
-----------
Software and Information Systems 11.7%
US 395,000 aAccess Health, Inc. ............................................... 5,628,750
US 110,000 aApache Medical Systems, Inc. ...................................... 550,000
US 50,000 HBO & Co. .......................................................... 2,675,000
US 65,000 aHCIA, Inc. ........................................................ 1,340,625
US 25,500 aHealth Systems Design Corp. ....................................... 172,125
US 305,400 aMedic Computer Systems, Inc. ...................................... 4,771,875
US 310,000 aTransition Systems, Inc. .......................................... 3,720,000
-----------
18,858,375
-----------
Specialty Pharmaceuticals 14.1%
US 250,000 aAlgos Pharmaceutical Corp. ........................................ $ 3,843,750
US 225,000 aAnesta Corp. ...................................................... 3,150,000
US 575,000 a,gCIMA Labs, Inc. ................................................. 2,875,000
US 180,000 aCollagenex Pharmaceuticals, Inc. .................................. 2,070,000
US 100,000 aEthical Holdings, Plc., ADR ....................................... 512,500
US 35,000 aIntercardia, Inc. ................................................. 647,500
US 75,000 aKos Pharmaceuticals, Inc. ......................................... 1,687,500
US 156,200 aMatrix Pharmaceutical, Inc. ....................................... 898,150
US 128,700 aNoven Pharmaceutical, Inc. ........................................ 965,250
US 410,000 a,gPenederm, Inc. .................................................. 4,407,500
IR 1,700,000 PT Kalbe Farma ..................................................... 1,679,012
-----------
22,736,162
-----------
Total Long term Investments (Cost $158,208,945) .................... 142,420,421
-----------
Face
Amount
dReceivables from Repurchase Agreements 12.8%
US $20,761,334 Joint Repurchase Agreements, 5.335%, 05/01/97
(Maturity Value $20,526,431) (Cost $20,523,389)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,316,853)
Collateral: U.S. Treasury Notes, 5.000% - 7.500%, 3/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $1,991,608)
Collateral: U.S. Treasury Notes, 6.250% - 6.375%, 07/31/98 - 04/30/99
Bear Stearns & Co., Inc., (Maturity Value $2,316,853)
Collateral: U.S. Treasury Notes, 5.750% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $1,158,426)
Collateral: U.S. Treasury Notes, 5.250%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $1,158,426)
Collateral: U.S. Treasury Notes, 5.250% - 8.500%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $2,316,853)
Collateral: U.S. Treasury Notes, 5.250% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,316,853)
Collateral: U.S. Treasury Notes, 4.750% - 7.750%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $2,316,853)
Collateral: U.S. Treasury Notes, 5.875%, 12/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $2,316,853)
Collateral: U.S. Treasury Notes, 5.375% - 9.125%, 05/31/98 - 12/31/01
UBS Securities L.L.C., (Maturity Value $2,316,853)
Collateral: U.S. Treasury Notes, 6.000% - 8.25%, 07/15/98 - 08/15/99 $ 20,523,389
-----------
Total Investments (Cost $178,732,334)101.4% ........................ 162,943,810
Liabilities in Excess of Other Assets(1.4%)......................... (2,191,738)
-----------
Net Assets 100.0%................................................... $160,752,072
===========
At April 30, 1997, the net unrealized depreciation based on the cost of
investments for income tax purposes of $178,879,554 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ........................ $ 8,468,970
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ........................ (24,404,714)
-----------
Net unrealized depreciation......................................... $(15,935,744)
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
COUNTRY LEGEND:
AU - Australia
FR - France
GB - United Kingdom
IR - Indonesia
SD - Singapore
SE - Sweden
SF - Switzerland
US - United States
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
dFace amount for repurchase agreements is for the underlying collateral.
See Note 1(i) regarding joint repurchase agreements.
gSee Note 8 regarding holdings of 5% voting securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, April 30, 1997
<TABLE>
<CAPTION>
Value
Country* Shares Franklin Global Utilities Fund (Note 1)
Common Stocks 92.9%
<S> <C> <C> <C>
Electric & Gas Utilities 55.1%
US 160,000 aAES China Generating Co., Ltd., Class A .............................. $ 2,960,000
US 66,000 aAES Corp. ............................................................ 4,306,500
CN 509,000 aBeijing Datang Power Generation Co., Ltd. ............................ 264,471
US 21,400 cBSES, Ltd. ........................................................... 502,900
US 11,250 cCentral Costanera, SA, ADR ........................................... 399,375
US 67,000 CINergy Corp. ......................................................... 2,227,750
US 44,700 Dominion Resources, Inc. .............................................. 1,536,563
US 78,050 Duke Power Co. ........................................................ 3,424,444
BR 7,500,000 aElectricidade Sao Paulo .............................................. 1,505,713
US 230,000 Empresa Nacional Electricidad, SA, ADR ................................ 4,427,500
US 127,000 Enron Corp. ........................................................... 4,778,375
US 185,700 Enron Global Power & Pipelines, L.L.C. ................................ 5,478,150
US 77,000 Entergy Corp. ......................................................... 1,799,875
US 195,000 cEspoon Sahko Oy....................................................... 4,650,438
AT 3,360 EVN Energie-Versorgung Niederoesterreich, AG........................... 415,502
US 39,000 FPL Group, Inc. ....................................................... 1,740,375
HK 1,375,000 Hong Kong Electric Holdings, Ltd. ..................................... 4,863,487
US 62,000 aHuaneng Power International, Inc., ADR ............................... 1,503,500
KR 69,000 Korea Electric Power Corp. ............................................ 2,057,623
US 43,600 MidAmerican Energy Holdings Co. ....................................... 730,300
US 109,000 National Fuel Gas Co. ................................................. 4,537,125
GB 97,500 National Power, Plc. .................................................. 842,928
US 125,400 New Jersey Resources Corp. ............................................ 3,620,925
US 60,000 Northwestern Public Service Co. ....................................... 2,212,500
US 32,700 OGE Energy Corp. ...................................................... 1,357,050
US 126,000 Pacific Enterprises ................................................... 3,858,750
US 100,000 Pacific Gas & Electric Co. ............................................ 2,400,000
US 93,500 PanEnergy Corp ........................................................ 4,137,375
US 60,300 PECO Energy Co. ....................................................... 1,190,925
US 60,000 Pinnacle West Capital Corp. ........................................... 1,710,000
GB 102,000 PowerGen, Plc. ........................................................ 1,069,439
US 50,000 Public Service Co. of Colorado ........................................ 1,937,500
GB 180,000 Scottish Power, Plc. .................................................. 1,088,010
US 45,600 Shandong Huaneng Power Co., Ltd., ADR ................................. 530,100
US 61,800 SIG Corp., Inc. ....................................................... 1,490,925
US 146,500 Southern Co. .......................................................... 2,984,938
GB 95,446 Southern Electric, Plc. ............................................... 676,686
US 126,900 TECO Energy, Inc. ..................................................... 3,029,738
US 86,400 Texas Utilities Co. ................................................... 2,916,000
US 220,000 TNP Enterprises, Inc. ................................................. 4,620,000
Electric & Gas Utilities (cont.)
US 179,000 Transportadora de Gas del Sur, ADR..................................... $ 2,237,500
US 47,700 Unicom Corp. .......................................................... 1,037,475
DD 3,415 Viag, AG .............................................................. 1,437,886
HK 340,000 Wing Shan International, Ltd. ......................................... 55,741
-----------
100,552,357
-----------
Telecommunications Services 37.8%
US 135,150 aAirTouch Communications, Inc. ........................................ 3,446,325
FR 5,000 Alcatel Alsthom........................................................ 555,841
US 10,000 Ameritech Corp. ....................................................... 611,250
US 70,00 AT&T Corp. ............................................................ 2,345,000
US 50,000 Bellsouth Corp. ....................................................... 2,225,000
US 100,000 aBrooks Fiber Properties, Inc. ........................................ 2,175,000
US 173,700 aEsprit Telecom Group, Plc., ADR....................................... 998,775
MX 44,400 aGrupo Iusacell, SA, Series D ......................................... 39,795
US 73,000 aGrupo Iusacell, SA, Series L, ADR .................................... 830,375
US 42,300 GTE Corp. ............................................................. 1,940,513
GR 250,000 Hellenic Telecommunications Organization, SA .......................... 5,676,034
US 320,000 aICG Communications, Inc. ............................................. 3,360,000
IT 3,750 Italmobiliare SpA ..................................................... 56,031
IT 500 Italmobiliare SpA-RNC ................................................. 3,734
US 104,500 aItron, Inc. .......................................................... 2,194,500
BR 2,750,000 Light Servicos de Eletricidade, SA .................................... 1,142,978
US 200,000 aLightbridge, Inc. .................................................... 1,400,000
US 19,445 Lucent Technologies, Inc. ............................................. 1,149,686
US 4,375 aNCR Corp. ............................................................ 126,875
NO 122,400 a,cNetcom, ASA ........................................................ 1,126,209
JP 300 Nippon Telegraph & Telephone Corp. .................................... 2,115,506
US 3,127 aPakistan Telecommunications Corp. .................................... 195,438
US 121,500 aPrimus Telecommunications Group, Inc. ................................ 1,123,875
IR 750,000 PT Indosat ............................................................ 2,067,901
US 21,200 PT Indosat, ADR ....................................................... 583,000
US 95,700 aRural Cellular Corp., Class A ........................................ 909,150
US 82,900 SBC Communications, Inc. .............................................. 4,600,950
KR 1,107 SK Telecom Co., Ltd. .................................................. 900,505
US 133,540 Tele Danmark, A/S, ADR ................................................ 3,321,808
DK 7,830 Tele Danmark, A/S, Class B ............................................ 376,608
US 139,750 Telecom de Argentina, SA, ADR ......................................... 6,987,500
IT 765,000 Telecom Italia, SpA ................................................... 1,654,706
US 20,400 Telefonica de Argentina, ADS........................................... 678,300
Telecommunications Services (cont.)
US 49,650 Telefonica de Espana, ADR ............................................. $ 3,823,050
US 700,000 Total Access Communication Public Co., Ltd. ........................... 3,605,000
US 53,500 US West Communications Group........................................... 1,879,183
US 140,000 a,cVidesh Sanchar Nigam, Ltd., GDR..................................... 2,744,000
-----------
68,970,401
-----------
Total Common Stocks (Cost $154,468,961) ............................... 169,522,758
-----------
Convertible Preferred Stocks 0.4%
Telecommunications
US 6,900 cCompania Inversiones Telecommunications, 7.00%, cvt. pfd. ............ 446,775
US 9,400 cPhilippine Long Distance Telephone, 5.75%, cvt. pfd., Series II ...... 312,550
-----------
Total Convertible Preferred Stock (Cost $734,800) ..................... 759,325
-----------
Total Long Term Investments (Cost $155,203,756) ....................... 170,282,083
-----------
Face
Amount
dReceivables from Repurchase Agreements 5.5%
US $10,076,856 Joint Repurchase Agreements, 5.335%, 05/01/97,
(Maturity Value $9,962,649) (Cost $9,961,173)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,124,501)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $966,642)
Collateral: U.S. Treasury Notes, 6.25% - 6.375%, 07/31/98 - 04/30/99
Bear, Stearns & Co., Inc., (Maturity Value $1,124,501)
Collateral: U.S. Treasury Notes, 5.75% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $562,250)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $562,250)
Collateral: U.S. Treasury Notes, 5.25% - 8.50%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $1,124,501)
Collateral: U.S. Treasury Notes, 5.25% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,124,501)
Collateral: U.S. Treasury Notes, 4.75% - 7.75%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $1,124,501)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $1,124,501)
Collateral: U.S. Treasury Notes, 5.375% - 9.125%, 05/31/98 - 12/31/01
UBS Securities L.L.C., (Maturity Value $1,124,501)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 07/15/98 - 08/15/99.... $ 9,961,173
-----------
Total Investments (Cost $165,164,929) 98.8% ........................... 180,243,256
Other Assets and Liabilities, Net1.2% ................................ 2,246,929
-----------
Net Assets 100.0% ..................................................... $182,490,185
===========
At April 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $165,166,747 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ........................... $ 27,619,005
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ........................... (12,542,496)
-----------
Net unrealized appreciation............................................ $ 15,076,509
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
COUNTRY LEGEND:
AT - Austria
BR - Brazil
CN - China
DD - Germany
DK - Denmark
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
IR - Indonesia
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NO - Norway
US - United States
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
cPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dFace amount for repurchase agreements is for the underlying collateral.
See Note 1(i) regarding joint repurchase agreements.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, April 30, 1997
<TABLE>
<CAPTION>
Value
Shares Franklin MidCap Growth Fund (Note 1)
Common Stocks 83.8%
<S> <C> <C>
Chemical & Materials 1.5%
2,000 IMC Global, Inc. ................................................................. $ 73,750
3,300 aSouthdown, Inc. ................................................................. 119,213
-----------
192,963
-----------
aCommercial Services 4.8%
4,500 Affiliated Computer Services, Inc. ............................................... 117,000
11,500 CUC International, Inc. .......................................................... 242,938
4,600 First USA Paymentech, Inc. ....................................................... 110,975
5,800 SABRE Group Holdings, Inc. ....................................................... 148,625
-----------
619,538
-----------
aCommunications Equipment 2.0%
5,900 FORE Systems, Inc. ............................................................... 89,975
5,100 Newbridge Networks Corp. ......................................................... 161,925
-----------
251,900
-----------
Computer Hardware 1.0%
4,400 aKomag, Inc. ..................................................................... 124,300
-----------
Computer Services 1.0%
2,000 aComputer Sciences Corp. ......................................................... 125,000
-----------
Consumer Products 1.1%
8,400 aGaloob Toys, Inc. ............................................................... 141,750
-----------
Cosmetics 1.0%
2,800 Estee Lauder Cos., Class A ....................................................... 128,100
-----------
aEducation 1.9%
2,600 Apollo Group, Inc. ............................................................... 69,875
2,100 DeVry, Inc. ...................................................................... 46,200
5,500 Education Management Corp. ....................................................... 121,000
-----------
237,075
-----------
Electronic Components/Technology 6.9%
6,000 aAdaptec, Inc. ................................................................... 222,000
3,100 aAltera Corp. .................................................................... 153,644
6,666 aAnalog Devices, Inc. ............................................................ 178,316
3,700 Linear Technology Corp. .......................................................... 185,925
3,100 aXilinx, Inc. .................................................................... 151,900
-----------
891,785
-----------
Engineering & Construction 2.1%
10,875 Clayton Homes, Inc. .............................................................. $ 152,250
5,850 Granite Construction, Inc. ....................................................... 116,269
-----------
268,519
-----------
Finance 6.6%
1,900 BankBoston Corp. ................................................................. 138,225
5,500 Countrywide Credit Industries, Inc. .............................................. 149,188
5,000 EVEREN Capital Corp. ............................................................. 118,125
10,100 aHomeSide, Inc. .................................................................. 161,600
1,500 Republic New York Corp. .......................................................... 137,438
3,800 eScor (France).................................................................... 148,407
-----------
852,983
-----------
aGaming & Lodging 6.1%
7,700 CapStar Hotel Co. ................................................................ 218,488
3,000 Circus Circus Enterprises, Inc. .................................................. 72,375
9,500 Host Marriott Corp. .............................................................. 165,063
8,400 Mirage Resorts, Inc. ............................................................. 169,050
9,300 Prime Hospitality Corp. .......................................................... 154,613
-----------
779,589
-----------
aHealthcare Services 2.9%
5,600 HEALTHSOUTH Rehabilitation Corp. ................................................. 110,600
6,000 Medic Computer Systems, Inc. ..................................................... 93,750
2,100 PacifiCare Health Systems, Inc., Class B ......................................... 168,525
-----------
372,875
-----------
Leisure 3.3%
4,500 Callaway Golf Co. ................................................................ 134,438
7,400 aCannondale Corp. ................................................................ 144,300
5,700 K2, Inc. ......................................................................... 148,913
-----------
427,651
-----------
Manufacturing - Diversified 2.6%
1,000 Butler Manufacturing Co. ......................................................... 33,250
7,500 aGentex Corp. .................................................................... 135,000
7,350 Mark IV Industries, Inc. ......................................................... 170,888
-----------
339,138
-----------
Medical Technology Supplies 1.2%
6,800 Mentor Corp. ..................................................................... 157,250
-----------
Oil & Gas 8.2%
5,700 aBarrett Resources Corp. ......................................................... $ 186,675
10,900 aCairn Energy USA, Inc. .......................................................... 121,263
4,000 Devon Energy Corp. ............................................................... 132,000
1,950 aDiamond Offshore Drilling, Inc. ................................................. 125,531
7,000 aMarine Drilling Cos., Inc. ...................................................... 110,250
2,100 Transocean Offshore, Inc. ........................................................ 127,313
7,000 aVarco International, Inc. ....................................................... 161,000
3,000 aWeatherford Enterra, Inc. ....................................................... 95,250
-----------
1,059,282
-----------
Paper & Forest Products 1.1%
3,200 Bowater, Inc. .................................................................... 138,400
-----------
aRetail 4.3%
2,900 AnnTaylor Stores Corp. ........................................................... 70,325
10,000 Cost Plus, Inc. .................................................................. 165,000
1,800 Guitar Center, Inc. .............................................................. 25,425
3,000 Safeway, Inc. .................................................................... 133,875
7,500 Stage Stores, Inc. ............................................................... 155,625
-----------
550,250
-----------
Restaurants 1.3%
5,500 aStarbucks Corp. ................................................................. 164,313
-----------
Technology Services 6.2%
3,850 Adobe Systems, Inc. .............................................................. 150,631
3,000 aBMC Software, Inc. .............................................................. 129,750
7,400 aCognex Corp. .................................................................... 182,225
2,000 aParametric Technology Corp. ..................................................... 90,500
4,711 aSterling Commerce, Inc. ......................................................... 121,897
4,000 aSynopsys, Inc. .................................................................. 127,500
-----------
802,503
-----------
aTelecommunications 3.1%
5,482 Cable & Wireless Communications, Plc., ADR ....................................... 131,561
10,800 ICG Communications, Inc. ......................................................... 113,400
3,750 Tellabs, Inc. .................................................................... 149,531
-----------
394,492
-----------
Temporary Staffing 2.7%
6,200 Norrell Corp. .................................................................... 163,525
4,600 aRobert Half International, Inc. ................................................. 180,550
-----------
344,075
-----------
aTextiles & Apparel 2.9%
4,200 Designer Holdings, Ltd. .......................................................... $ 34,125
3,000 Donna Karan International, Inc. .................................................. 30,375
3,400 Jones Apparel Group, Inc. ........................................................ 141,950
4,100 Tommy Hilfiger Corp. ............................................................. 162,975
-----------
369,425
-----------
Tobacco 0.9%
5,000 aConsolidated Cigar Holdings, Inc. ............................................... 115,000
-----------
Transportation 4.0%
7,800 Expeditors International of Washington, Inc. ..................................... 195,000
5,000 Illinois Central Corp. ........................................................... 166,250
6,800 Pittston Burlington Group......................................................... 154,700
-----------
515,950
-----------
Utilities 1.8%
3,600 aAES Corp. ....................................................................... 234,900
-----------
Water Treatment 1.3%
5,500 aUS Filter Corp. ................................................................. 167,056
-----------
Total Long Term Investments (Cost $9,571,641) .................................... 10,766,062
-----------
Face
Amount
dReceivables from Repurchase Agreements 15.9%
$ 2,072,011 Joint Repurchase Agreements, 5.335%, 05/01/97 (Maturity Value $2,048,998)
(Cost $2,048,694)
Aubrey G. Lanston & Co., Inc., (Maturity Value $231,274)
Collateral: U.S. Treasury Notes, 5.000% - 7.500%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $198,806)
Collateral: U.S. Treasury Notes, 6.250% - 6.375%, 07/31/98 - 04/30/99
Bear Stearns & Co., Inc., (Maturity Value $231,274)
Collateral: U.S. Treasury Notes, 5.750% - 6.375%, 09/30/97 - 05/15/99
Chase Securties, Inc., (Maturity Value $115,637)
Collateral: U.S. Treasury Notes, 5.250%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $115,637)
Collateral: U.S. Treasury Notes, 5.250% - 8.500%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $231,274)
Collateral: U.S. Treasury Notes, 5.250% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $231,274)
Collateral: U.S. Treasury Notes, 4.750% - 7.750%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $231,274)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $231,274)
Collateral: U.S. Treasury Notes, 5.375% - 9.125%, 05/31/98 - 12/31/01
UBS Securities L.L.C., (Maturity Value $231,274)
Collateral: U.S. Treasury Notes, 6.000% - 8.250%, 07/15/98 - 08/15/99 ............ $ 2,048,694
-----------
Total Investments (Cost $11,620,335)99.7% ........................................ 12,814,756
Other Assets and Liabilities, Net 0.3% ........................................... 37,863
-----------
Net Assets 100.0% ................................................................ $12,852,619
===========
At April 30, 1997 the net unrealized appreciation based on the cost of investments
for income tax purposes of $11,631,938 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost ................................................ $ 1,766,824
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value ................................................ (584,006)
-----------
Net unrealized appreciation ...................................................... $ 1,182,818
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
aNon-income producing.
dFace amount for repurchase agreements is for the underlying collateral.
See Note 1(i) regarding joint repurchase agreements.
eSecurities traded in foreign currency and valued in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, April 30, 1997
<TABLE>
<CAPTION>
Shares/
Warrants Value
Country* & Rights Franklin Natural Resources Fund (Note 1)
Common Stocks, Warrants & Rights 91.7%
Chemicals 7.9%
<S> <C> <C> <C>
US 2,400 Avery Dennison Corp. ................................................. $ 88,200
US 16,000 Cabot Corp. .......................................................... 352,000
US 2,000 DuPont (EI) De Nemours & Co. ......................................... 212,250
US 17,000 Hanna (M.A.) Co. ..................................................... 354,875
US 15,500 IMC Global, Inc. ..................................................... 571,563
US 19,364 aMillennium Chemicals, Inc. .......................................... 343,711
US 16,000 Monsanto Co. ......................................................... 684,000
CA 6,885 Potash Corp. of Saskatchewan, Inc. ................................... 529,284
US 10,500 Praxair, Inc. ........................................................ 542,063
-----------
3,677,946
-----------
Engineering & Construction/Basic Materials 2.2%
US 17,400 aDONCASTERS, Plc., ADR ............................................... 391,500
US 6,400 Lone Star Industries, Inc. ........................................... 252,800
US 9,500 Roper Industries, Inc. ............................................... 388,313
-----------
1,032,613
-----------
Forest Products and Paper 3.0%
US 50,800 aAsia Pulp & Paper Co., Ltd., ADR .................................... 679,450
US 5,600 Bowater, Inc. ........................................................ 242,200
US 5,400 Champion International Corp. ......................................... 251,100
US 3,500 Willamette Industries, Inc. .......................................... 223,125
-----------
1,395,875
-----------
Iron/Steel 7.2%
US 12,200 Carpenter Technology Corp. ........................................... 495,625
US 45,500 aGibraltar Steel Corp. ............................................... 1,114,750
US 19,000 J&L Specialty Steel, Inc. ............................................ 237,500
US 2,100 Nucor Corp. .......................................................... 104,475
US 12,300 Pohang Iron & Steel Co., Ltd., ADR ................................... 296,738
US 17,600 aUCAR International, Inc. ............................................ 739,200
US 18,000 Worthington Industries, Inc. ......................................... 339,750
-----------
3,328,038
-----------
Metal - Diversified 8.0%
US 1,800 Aluminum Co. of America (ALCOA)....................................... 125,775
ES 35,000 Asturiana De Zinc, SA ................................................ 538,627
AU 1,313,000 bAustral Coal Holdings ............................................... 460,774
US 11,700 Freeport-McMoran Copper & Gold, Inc., Class A......................... 327,600
US 8,000 Freeport-McMoran Copper & Gold, Inc., Class B......................... 233,000
US 25,700 Oregon Metallurgical Corp. ........................................... 591,100
AU 50,000 Orogen Minerals, Inc. ................................................ 115,262
Metal - Diversified (cont.)
US 3,800 cOrogen Minerals, Ltd., GDR .......................................... $ 87,599
AU 140,000 Pasminco, Ltd. ....................................................... 266,396
US 13,500 a,cRMI Titanium Co. .................................................. 288,563
CA 30,000 Tenke Mining Corp. ................................................... 103,082
CA 4,500 Tenke Mining Corp., warrants.......................................... --
US 22,800 a,cTitanium Metals Corp. ............................................. 589,950
-----------
3,727,728
-----------
Mining - Precious Metals 12.4%
AU 125,000 aAcacia Resources, Ltd. .............................................. 186,189
US 13,400 cAshanti Goldfields Co., Ltd., GDR ................................... 159,125
CA 80,000 Asquith Resources, Inc. .............................................. 62,994
CA 305,800 cAsquith Resources, warrants ......................................... 240,796
CA 7,300 aBRE-X Minerals, Ltd. ................................................ 18,185
CA 19,000 aCampbell Resources, Inc., warrants .................................. 4,157
US 31,500 aCanyon Resources Corp. .............................................. 80,719
US 14,000 Canyon Resources Corp., units ........................................ 35,875
US 8,500 Compania de Minas Buenaventura, SA, ADR .............................. 184,875
PE 3,699 Compania de Minas Buenaventure, SA, Class A .......................... 34,769
PE 1,235 aompania de Minas Buenaventure, SA, rights ........................... 13,393
CA 45,700 Dayton Mining Corp. .................................................. 189,742
US 7,200 De Beers Consolidated Mines, AG, ADR ................................. 259,088
AU 700,000 Equinox Resources, NL................................................. 256,570
CA 5,400 cEuro-Nevada Mining................................................... 155,009
CA 1,200 cFranco-Nevada Mining Corp. .......................................... 55,836
CA 184,100 aGeomaque Explorations, Ltd. ......................................... 421,719
US 17,200 Getchell Gold Corp. .................................................. 660,050
AU 59,800 Great Central Mines, NL .............................................. 114,815
CA 22,300 aGreenstone Resources, Ltd. .......................................... 210,716
AU 153,000 Helix Resources, NL .................................................. 176,589
AU 366,310 aLeo Shield Exploration .............................................. 199,966
CA 124,300 Minefinders Corp. .................................................... 444,898
US 8,200 Newmont Mining Corp. ................................................. 283,925
CA 45,700 Pangea Goldfields, Inc. .............................................. 163,571
CA 600 Placer Dome, Inc. .................................................... 9,825
CA 103,000 cRio Narcea Gold Mines, Ltd. ......................................... 398,153
US 24,500 Santa Fe Pacific Gold Corp. .......................................... 361,375
AU 35,000 Sons of Gwalia, Ltd. ................................................. 154,215
CA 100,000 a,cWilliam Resources, Inc. ........................................... 74,806
Mining - Precious Metals (cont.)
CA 173,000 Williams Resources, Inc., warrants ................................... $ 157,278
CA 9,300 aWilliams Resources, Inc., legend shares ............................. 8,455
-----------
5,777,678
-----------
Oil/Gas Distribution 3.2%
US 8,100 aAES Corp. ........................................................... 528,525
US 2,000 aAES China Generating Co., Ltd., Class A ............................. 37,000
US 12,800 Enron Global Power & Pipelines, L.L.C. ............................... 377,600
US 11,400 New Jersey Resources Corp. ........................................... 329,175
US 6,600 Pacific Enterprises .................................................. 202,125
-----------
1,474,425
-----------
Oil/Gas - Domestic 4.0%
US 4,000 Atlantic Richfield Co. (ARCO)......................................... 544,500
US 7,600 Occidental Petroleum Corp. ........................................... 168,150
US 18,300 Total Petroleum of North America, Ltd. ............................... 183,000
US 15,200 Ultramar Diamond Shamrock Corp. ...................................... 488,300
US 12,400 Unocal Corp. ......................................................... 472,750
-----------
1,856,700
-----------
Oil/Gas - Equipment & Services 15.8%
US 2,500 aAtwood Oceanics, Inc. ............................................... 153,125
US 12,000 aCoflexip, SA, ADR ................................................... 324,000
CA 10,000 Computalog, Ltd. ..................................................... 104,692
US 9,900 aDiamond Offshore Drilling, Inc. ..................................... 637,313
CA 17,500 aDreco Energy Services, Ltd. ......................................... 555,625
US 9,400 aENSCO International, Inc. ........................................... 446,500
US 5,900 aFalcon Drilling Cos., Inc. .......................................... 225,675
US 21,500 Noble Drilling Corp. ................................................. 373,563
US 50,000 Parker Drilling Co. .................................................. 387,500
US 20,000 Rowan Cos., Inc. ..................................................... 360,000
CA 35,000 Ryan Energy Technologies, Inc. ....................................... 139,053
US 10,700 aSmith International, Inc. ........................................... 506,913
GB 12,300 Stolt Comex Seaway, SA ............................................... 226,013
CA 27,000 Tesco Corp. .......................................................... 326,640
US 10,500 Tidewater, Inc. ...................................................... 421,313
US 10,000 Transocean Offshore, Inc. ............................................ 606,250
US 26,600 aTuboscope Vetco International Corp. ................................. 372,400
US 31,600 aVarco International, Inc. ........................................... 726,800
Oil/Gas - Equipment & Services (cont.)
US 6,500 aWeatherford Enterra, Inc. ........................................... $ 206,375
US 4,000 aWestern Atlas, Inc. ................................................. 248,000
-----------
7,347,750
-----------
Oil/Gas - Exploration 22.8%
CA 146,500 aAbacan Resources Corp. .............................................. 949,086
US 27,600 aBarrett Resources Corp. ............................................. 903,900
US 86,100 aCairn Energy USA, Inc. .............................................. 957,863
US 5,000 aDenbury Resources, Inc. ............................................. 67,500
US 35,000 Devon Energy Corp. ................................................... 1,155,000
US 19,800 Enron Oil & Gas Co. .................................................. 368,775
US 40,000 aHouston Exploration Co. ............................................. 500,000
US 111,000 Hugoton Engery Corp. ................................................. 1,207,125
US 5,000 Nuevo Energy Co. ..................................................... 171,875
US 46,000 Oryx Energy Co. ...................................................... 920,000
US 29,500 Petsec Energy, Ltd., ADR ............................................. 634,250
CA 53,000 aPinnacle Resources, Ltd. ............................................ 813,809
CA 114,800 Summit Resources, Ltd. ............................................... 534,164
US 96,600 Titan Exploration, Inc. .............................................. 724,500
US 24,600 United Meridian Corp. ................................................ 698,025
-----------
10,605,872
-----------
Oil/Gas - International 3.4%
US 10,700 Repsol, SA, ADR....................................................... 448,063
US 2,100 Royal Dutch Petroleum Co., New York Shares............................ 378,525
US 8,640 Total, SA, ADR........................................................ 359,640
US 13,500 YPF, SA, ADR.......................................................... 372,931
-----------
1,559,159
-----------
Real Estate Investment Trusts 1.8%
US 7,000 FelCor Suite Hotels, Inc. ............................................ 251,125
US 4,400 Kilroy Realty Corp. .................................................. 103,400
US 3,400 OMEGA Healthcare Investors, Inc. ..................................... 104,125
US 9,000 Storage Trust Realty.................................................. 216,000
US 12,200 Winston Hotels, Inc. ................................................. 155,550
-----------
830,200
-----------
Total Common Stocks (Cost $40,959,006)................................ 42,613,984
-----------
Convertible Preferred Stocks 1.1%
US 4,600 Timet Capital Trust $46.50 cvt., pfd. ................................ $ 213,900
US 14,000 USX Corp., $21.00 cvt., pfd. ......................................... 294,000
-----------
Total Convertible Preferred Stocks (Cost $526,650).................... 507,900
-----------
Face
Amount
Convertible Bonds 1.7%
US $ 800,000 cDayton Mining Corp., cvt. sub. deb., 7.00%, 04/01/02 (Cost $800,000) 788,000
-----------
Total Long Term Investments (Cost $42,285,656) ................. 43,909,884
-----------
dReceivables from Repurchase Agreements 5.7%
US $2,704,727 Joint Repurchase Agreements, 5.335%, 05/01/97
(Maturity Value $2,674,669) (Cost $2,674,273)
Aubrey G. Lanston & Co., Inc., (Maturity Value $301,894)
Collateral: U.S. Treasury Notes, 5.000% - 7.500%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $259,517)
Collateral: U.S. Treasury Notes, 6.250% - 6.375%, 07/31/98 - 04/30/99
Bear Stearns & Co., Inc., (Maturity Value $301,894)
Collateral: U.S. Treasury Notes, 5.750% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $150,947)
Collateral: U.S. Treasury Notes, 5.250%, 01/31/01
Citicorp Securities, Inc., (Maturity $150,947)
Collateral: U.S. Treasury Notes, 5.250% - 8.500%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $301,894)
Collateral: U.S. Treasury Notes, 5.250% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $301,894)
Collateral: U.S. Treasury Notes, 4.750% - 7.750%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $301,894)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $301,894)
Collateral: U.S. Treasury Notes, 5.375% - 9.125%, 05/31/98 - 12/31/01
UBS Securities L.L.C., (Maturity Value $301,894)
Collateral: U.S. Treasury Notes, 6.000% - 8.250%, 07/15/98 - 08/15/99. 2,674,273
-----------
Total Investments (Cost $44,959,929)100.2% ........................... 46,584,157
Liabilities in Excess of Other Assets(0.2%)........................... (74,952)
-----------
Net Assets 100.0% .................................................... $46,509,205
===========
At April 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $45,075,306 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost........................... $ 4,332,493
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value........................... (2,823,642)
-----------
Net unrealized appreciation........................................... $ 1,508,851
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
COUNTRY LEGEND:
AU - Australia
CA - Canada
ES - Spain
GB - United Kingdom
PE - Peru
US - United States
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-Income producing.
bSee Note 7 regarding restricted securities.
cPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dFace amount for repurchase agreements is for the underlying collateral.
See Note 1(i) regarding joint repurchase agreements.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, April 30, 1997
<TABLE>
<CAPTION>
Value
Shares Franklin Small Cap Growth Fund (Note 1)
Common Stocks 89.1%
<S> <C> <C>
Commercial Services 1.5%
432,250 aLabor Ready, Inc. ........................................................ $ 3,836,219
560,600 Norrell Corp. ............................................................. 14,785,825
-----------
18,622,044
-----------
Consumer Durables 5.1%
333,400 aBelmont Homes, Inc. ...................................................... 2,500,500
509,300 a,gCannondale Corp. ....................................................... 9,931,350
712,500 Clayton Homes, Inc. ....................................................... 9,975,000
665,100 aGaloob Toys, Inc. ........................................................ 11,223,563
405,000 K2, Inc. .................................................................. 10,580,625
250,000 Oakwood Homes ............................................................. 5,062,500
435,500 aRockShox, Inc. ........................................................... 6,559,719
659,500 aSouthern Energy Homes, Inc. .............................................. 6,842,313
-----------
62,675,570
-----------
aConsumer Non-Durables 3.1%
574,000 gConsolidated Cigar Holdings, Inc. ........................................ 13,202,000
1,033,300 Designer Holdings, Ltd. ................................................... 8,395,563
442,200 Donna Karan International, Inc. ........................................... 4,477,275
312,900 Tommy Hilfiger Corp. ...................................................... 12,437,775
-----------
38,512,613
-----------
aConsumer Services 5.1%
200,000 Apollo Group, Inc. ........................................................ 5,375,000
614,900 CapStar Hotel Co. ......................................................... 17,447,788
174,300 DeVry, Inc. ............................................................... 3,834,600
1,004,300 Prime Hospitality Corp. ................................................... 16,696,488
345,600 Starbucks Corp. ........................................................... 10,324,800
489,400 Vail Resorts, Inc. ........................................................ 9,971,525
-----------
63,650,201
-----------
Electronic Technology 8.0%
35,500 aATL Products, Inc., Class A .............................................. 270,688
450,000 aCognex Corp. ............................................................. 11,081,250
360,000 aCoherent, Inc. ........................................................... 14,940,000
301,000 aKomag, Inc. .............................................................. 8,503,250
407,100 Logicon, Inc. ............................................................. 16,182,225
346,600 aNatural Microsystems Corp. ............................................... 7,278,600
403,400 aNewbridge Networks Corp. ................................................. 12,807,950
57,200 aOverland Data, Inc. ...................................................... 307,450
1,050,000 a,gSpectralink Corp. ...................................................... 3,675,000
Electronic Technology (cont.)
481,800 aTekelec................................................................... $ 11,081,400
480,000 aTracor, Inc. ............................................................. 10,440,000
650,000 aVisioneer, Inc. .......................................................... 2,275,000
-----------
98,842,813
-----------
Energy Minerals 9.2%
915,000 a,eAbacan Resource Corp. (Canada) ......................................... 5,927,735
30,000 aAbacan Resource Corp. .................................................... 193,125
309,500 aAtwood Oceanics, Inc. .................................................... 18,956,875
540,000 aBarrett Resources Corp. .................................................. 17,685,000
776,700 aCairn Energy USA, Inc. ................................................... 8,640,788
245,000 aCliffs Drilling Co. ...................................................... 14,945,000
264,500 Devon Energy Corp. ........................................................ 8,728,500
336,000 aInput/Output, Inc. ....................................................... 4,704,000
643,000 aMarine Drilling Cos., Inc. ............................................... 10,127,250
886,900 aTitan Exploration, Inc. .................................................. 6,651,750
780,000 aVarco International, Inc. ................................................ 17,940,000
-----------
114,500,023
-----------
Finance 6.2%
255,400 Chartwell Re Corp. ........................................................ 6,512,700
350,000 EVEREN Capital Corp. ...................................................... 8,268,750
100,000 Executive Risk, Inc. ...................................................... 4,525,000
941,100 aHomeSide, Inc. ........................................................... 15,057,600
400,000 IPC Holdings, Ltd. ........................................................ 9,200,000
571,900 aRisk Capital Holdings, Inc. .............................................. 10,866,100
311,000 eScor (France)............................................................. 12,145,940
274,200 aSilicon Valley Bancshares ................................................ 9,597,000
-----------
76,173,090
-----------
aHealth Services 4.9%
509,950 Access Health, Inc. ....................................................... 7,266,788
485,000 gAmisys Managed Care Systems............................................... 9,093,750
807,500 Capstone Pharmacy Services, Inc. .......................................... 6,813,281
84,000 Enterprise Systems, Inc. .................................................. 1,953,000
655,100 Medic Computer Systems, Inc. .............................................. 10,235,938
346,800 Renal Care Group, Inc. .................................................... 10,404,000
105,000 Total Renal Care Holdings, Inc. ........................................... 3,373,125
975,000 gTransition Systems, Inc. ................................................. 11,700,000
-----------
60,839,882
-----------
Health Technology 6.0%
537,800 aDepoTech Corp. ........................................................... $ 7,865,325
399,200 aInhale Therapeutic Systems ............................................... 7,385,200
700,000 Mentor Corp. .............................................................. 16,187,500
475,000 aNeurogen Corp. ........................................................... 6,768,750
347,400 aNoven Pharmaceutical, Inc. ............................................... 2,605,500
1,250,000 a,gOrthoLogic Corp. ....................................................... 7,187,500
531,200 a,gPenederm, Inc. ......................................................... 5,710,400
176,700 aPharmacopeia, Inc. ....................................................... 2,473,800
738,900 a,gSerologicals Corp. ..................................................... 11,914,763
189,200 aVertex Pharmaceuticals, Inc. ............................................. 6,007,100
-----------
74,105,838
-----------
Industrial Services 0.4%
83,400 Butler Manufacturing Co. .................................................. 2,773,050
74,800 aWaters Corp. ............................................................. 2,215,950
-----------
4,989,000
-----------
Non-Energy Minerals 2.1%
209,100 Carpenter Technology Corp. ................................................ 8,494,688
663,800 a,gGibraltar Steel Corp. .................................................. 16,263,100
54,100 aSteel Dynamics, Inc. ..................................................... 1,054,950
-----------
25,812,738
-----------
Process Industries 2.1%
400,000 ChemFirst, Inc. ........................................................... 9,250,000
389,100 aUCAR International, Inc. ................................................. 16,342,200
-----------
25,592,200
-----------
Producer and Manufacturing 2.9%
26,500 aDONCASTERS, Plc., ADR .................................................... 596,250
378,200 Easco, Inc. ............................................................... 2,978,325
637,300 aGentex Corp. ............................................................. 11,471,400
678,600 JLG Industries, Inc. ...................................................... 8,482,500
304,300 Roper Industries, Inc. .................................................... 12,438,254
-----------
35,966,729
-----------
Real Estate Investment Trust 2.3%
282,900 Arden Realty Group, Inc. .................................................. 7,037,138
275,000 FelCor Suite Hotels, Inc. ................................................. 9,865,625
55,400 Kilroy Realty Corp. ....................................................... 1,301,900
150,000 OMEGA Healthcare Investors, Inc. .......................................... 4,593,750
490,500 Winston Hotels, Inc. ...................................................... 6,253,875
-----------
29,052,288
-----------
aRetail 0.9%
220,000 AnnTaylor Stores Corp. .................................................... $ 5,335,000
442,100 Guitar Center, Inc. ....................................................... 6,244,663
-----------
11,579,663
-----------
Semiconductors and Equipment 8.7%
459,400 aAdaptec, Inc. ............................................................ 16,997,800
265,000 aAltera Corp. ............................................................. 13,134,063
100,000 aC-Cube Microsystems, Inc. ................................................ 2,462,500
419,700 aEtec Systems, Inc. ....................................................... 12,223,763
288,900 aLattice Semiconductor Corp. .............................................. 16,142,288
330,000 Linear Technology Corp. ................................................... 16,582,500
121,300 aNeoMagic Corp. ........................................................... 1,417,694
802,000 aSierra Semiconductor Corp. ............................................... 13,533,750
370,000 aUniphase Corp. ........................................................... 14,707,500
-----------
107,201,858
-----------
aTechnology Services 10.4%
430,600 Affiliated Computer Services, Inc. ........................................ 11,195,600
240,000 Arbor Software Corp. ...................................................... 5,970,000
235,000 Broderbund Software, Inc. ................................................. 4,406,250
478,100 Business Objects, SA, ADR ................................................. 4,302,900
112,600 Electronic Arts, Inc. ..................................................... 2,716,475
501,200 First USA Paymentech, Inc. ................................................ 12,091,450
527,900 FORE Systems, Inc. ........................................................ 8,050,475
217,700 Forrester Research, Inc. .................................................. 3,973,025
417,100 HNC Software, Inc. ........................................................ 11,053,150
611,300 Integrated Systems, Inc. .................................................. 5,883,763
110,000 International Network Services ............................................ 2,255,000
640,000 Phoenix Technologies, Ltd. ................................................ 7,280,000
320,000 Remedy Corp. .............................................................. 10,360,000
347,000 Sapient Corp. ............................................................. 12,448,625
100,000 Software Artistry, Inc. ................................................... 762,500
196,849 Sterling Commerce, Inc. ................................................... 5,093,468
450,000 Synopsys, Inc. ............................................................ 14,343,750
173,500 Transaction Systems Architects, Inc. ...................................... 5,205,000
75,000 XcelleNet, Inc. ........................................................... 890,625
-----------
128,282,056
-----------
Transportation 3.8%
474,000 Air Express International Corp. ........................................... 16,234,500
280,500 aAtlantic Coast Airlines, Inc. ............................................ 3,436,125
Transportation (cont.)
620,000 Expeditors International of Washington, Inc. .............................. $ 15,500,000
485,500 Harper Group, Inc. ........................................................ 11,409,250
-----------
46,579,875
-----------
aUtilities and Communication 6.4%
525,900 Cable & Wireless Communications, Plc., ADR................................. 8,757,988
525,800 Comnet Cellular, Inc. ..................................................... 13,539,350
402,500 HSN, Inc. ................................................................. 9,458,750
860,000 ICG Communications, Inc. .................................................. 9,030,000
377,200 Millicom International Cellular, SA ....................................... 17,162,600
513,300 Primus Telecommunications Group, Inc. ..................................... 4,748,025
528,000 gRural Cellular Corp., Class A............................................. 5,016,000
1,094,800 gWestern Wireless Corp., Class A .......................................... 11,221,700
-----------
78,934,413
-----------
Total Long Term Investments (Cost $1,116,787,829) ......................... 1,101,912,894
-----------
Face
Amount
dReceivables from Repurchase Agreement 12.0%
$ 150,235,132 Joint Repurchase Agreements, 5.335%, 05/01/97 (Maturity Value $148,540,665)
(Cost $148,518,655)
Aubrey G. Lanston & Co., Inc., (Maturity Value $16,766,033)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $14,412,400)
Collateral: U.S. Treasury Notes, 6.25% - 6.375%, 07/31/98 - 04/30/99
Bear, Stearns & Co., Inc., (Maturity Value $16,766,033)
Collateral: U.S. Treasury Notes, 5.75% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $8,383,017)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $8,383,017)
Collateral: U.S. Treasury Notes, 5.25% - 8.50%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $16,766,033)
Collateral: U.S. Treasury Notes, 5.25% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $16,766,033)
Collateral: U.S. Treasury Notes, 4.75% - 7.75%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $16,766,033)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $16,766,033)
Collateral: U.S. Treasury Notes, 5.375 % - 9.125%, 05/31/98 - 12/31/01
UBS Securities L.L.C., (Maturity Value $16,766,033)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 07/15/98 - 08/15/99........ $ 148,518,655
-----------
Total Investments (Cost $1,265,306,484)101.1% ............................. 1,250,431,549
Liabilities in Excess of Other Assets(1.1%)................................ (14,137,803)
-----------
Net Assets 100%............................................................ $1,236,293,746
===========
At April 30, 1997, the net unrealized depreciation based on the cost of
investments for income tax purposes of $1,265,831,628 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ............................... $ 101,858,923
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ............................... (117,259,002)
-----------
Net unrealized depreciation ............................................... $ (15,400,079)
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
aNon-income producing.
dFace amount for repurchase agreements is for the underlying collateral.
See Note 1(i) regarding joint repurchase agreements.
eSecurities traded in foreign currency and valued in U.S. dollars.
gSee Note 8 regarding holdings of 5% voting securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, April 30, 1997
<TABLE>
<CAPTION>
Shares Value
Country* & Warrants Franklin Strategic Income Fund (Note 1)
Common Stocks and Warrants 0.1%
<S> <C> <C> <C>
Media and Broadcasting
US 1,600 aSullivan Broadcast Holdings ....................................... $ 15,400
-----------
Metals and Mining
US 200 aGulf States Steel, warrants ....................................... 950
-----------
Wireless Communications
US 400 aWireless One, Inc., warrants ...................................... 4
-----------
Total Common Stocks and Warrants (Cost $17,004)..................... 16,354
-----------
Preferred Stocks 3.7%
Cable Television 0.3%
US 1,129 Cablevision Systems, 11.125%, pfd., PIK ............................ 104,150
-----------
Financial Services 1.2%
US 1,000 California Federal Bank, 11.50%, pfd. .............................. 113,750
US 3,000 a,cSinclair Capital, 11.625%, pfd. ................................. 300,000
-----------
413,750
-----------
Forest and Paper 0.8%
US 300,000 cAsia Pulp & Paper Fin. II Mauritius, Ltd., 12.00%, pfd. ........... 283,500
-----------
Health Care 0.3%
US 100 aFresenius Medical Care, pfd. ...................................... 99,000
-----------
Media and Broadcasting 1.1%
US 126 PanAmSat Corp., L.P., 12.75%, pfd., PIK ............................ 151,014
US 219 Time Warner, Inc., 10.25%, pfd. .................................... 237,049
-----------
388,063
-----------
Total Preferred Stocks (Cost $1,250,551) ........................... 1,288,463
-----------
Convertible Preferred Stocks 2.5%
Media and Broadcasting 0.4%
US 20,000 Triathlon Broadcasting, 9.00%, cvt., pfd. .......................... 162,500
-----------
Telecommunications 2.1%
US 7,200 Nortel Inversora, cvt., pfd. ....................................... 342,000
US 6,700 Salomon, Inc., 6.25%, cvt., pfd. ................................... 375,200
-----------
717,200
-----------
Total Convertible Preferred Stocks (Cost $931,123) ................. 879,700
-----------
Face
Amount
High Yield Corporate Bonds 26.9%
Automotive 2.5%
US $ 200,000 Aetna Industries, Inc., senior notes, 11.875%, 10/01/06............. 210,000
US 100,000 Collins & Aikman Products, senior sub. notes, 11.50%, 04/15/06...... 110,000
Automotive (cont.)
US $ 300,000 iHarvard Industries, Inc., senior notes, 11.125%, 08/01/05 ......... $ 139,500
US 100,000 cKey Plastics, Inc., senior sub. notes, 10.25%, 03/15/07............ 102,000
US 200,000 cLDM Technologies, Inc., senior sub. notes, 10.75%, 01/15/07........ 207,000
US 100,000 cSafelite Glass Corp., senior sub. notes, 9.875%, 12/15/06 ......... 101,500
-----------
870,000
-----------
Broadcasting 0.6%
US 100,000 Jacor Communications Co., senior sub. notes, 9.75%, 12/15/06........ 102,250
US 100,000 Sullivan Broadcast Holdings, senior deb., 13.25%, 12/15/06.......... 118,000
-----------
220,250
-----------
Cable Television 1.6%
US 150,000 Bell Cablemedia, Plc., senior disc. notes, zero coupon to 07/15/99,
(original accretion rate 11.95%), 11.95% thereafter, 07/15/04...... 133,125
US 150,000 cDiamond Cable Communications, senior notes, zero coupon to 12/15/00,
(original accretion rate 11.75%), 11.75% thereafter, 12/15/05...... 104,250
US 150,000 cDiamond Cable Communications, senior notes, zero coupon to 02/15/02,
(original accretion rate 10.75%), 10.75% thereafter, 02/15/07...... 88,500
US 100,000 Rogers Cablesystems, Inc., guaranteed notes, 9.625%, 08/01/02 ...... 103,000
US 400,000 Wireless One, Inc., senior disc. notes, zero coupon to 08/01/01,
(original accretion rate 13.50%), 13.50% thereafter, 08/01/06...... 114,000
-----------
542,875
-----------
Consumer Products 0.9%
US 100,000 E&S Holdings Corp., senior sub. notes, 10.375%, 10/01/06 ........... 103,000
US 100,000 Herff Jones, Inc., senior sub. notes, 11.00%, 08/15/05 ............. 105,500
US 100,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 .................... 102,750
-----------
311,250
-----------
Containers and Packaging 1.8%
US 300,000 cAnchor Glass, 11.25%, 04/01/05 .................................... 309,000
US 100,000 Owens-Illinois, Inc., senior sub. deb., 10.50%, 06/15/02 ........... 105,875
US 100,000 Riverwood International, senior notes, 10.25%, 04/01/06 ............ 94,250
US 100,000 U.S. Can Corp., senior sub. notes, Series B, 10.125%, 10/15/06 ..... 104,500
-----------
613,625
-----------
Energy 1.8%
US 200,000 Abraxas Petroleum Corp., senior notes, Series B, 11.50%, 11/01/04... 212,000
US 100,000 AES China Generating Co., Ltd., 10.125%, 12/15/06 .................. 104,000
US 100,000 Dawson Production Services, senior notes, 9.375%, 02/01/07.......... 99,000
Energy (cont.)
US $ 100,000 Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 ............... $ 100,750
US 100,000 Gulf Canada Resources, Ltd., senior sub. deb., 9.25%, 01/15/04 ..... 103,250
-----------
619,000
-----------
Financial 1.1%
US 200,000 First Nationwide Escrow Corp., senior sub. notes, 10.625%, 10/01/03 212,000
US 150,000 Homeside Finance, Inc., senior notes, 11.25%, 05/15/03 ............. 170,250
-----------
382,250
-----------
Food and Beverages 1.2%
US 100,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ..... 108,500
US 100,000 cDelta Beverage Group, senior notes, 9.75%, 12/15/03 ............... 102,000
US 100,000 Doane Products Co., senior notes, 10.625%, 03/01/06 ................ 103,750
US 100,000 International Home Foods, senior sub. notes, 10.375%, 11/01/06 ..... 102,250
-----------
416,500
-----------
Food Retailing 0.9%
US 100,000 Dominick's Finer Foods, senior sub. notes, 10.875%, 05/01/05 ....... 109,750
US 200,000 Smiths Food & Drug, senior sub. notes, 11.25%, 05/15/07............. 224,000
-----------
333,750
-----------
Forest and Paper Products 1.5%
US 200,000 Four M Corp., senior notes, Series B, 12.00%, 06/01/06 ............. 198,000
US 100,000 Rapp International Finance, 13.25%, 12/15/05........................ 102,500
US 100,000 S.D. Warren Co., senior sub. notes, 12.00%, 12/15/04 ............... 110,500
US 100,000 Tjiwi Kimia International, 13.25%, 08/01/01 ........................ 111,500
-----------
522,500
-----------
Gaming and Hotels 1.3%
US 200,000 AMF Group, Inc., senior disc. notes, zero coupon to 03/15/00,
(original accretion rate 12.25%), 12.25% thereafter, 03/15/06...... 135,000
US 100,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ................... 113,500
US 100,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ....... 104,250
US 100,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 ................ 114,000
-----------
466,750
-----------
Health Care 0.9%
US 200,000 Tenet Healthcare Corp., senior sub. notes, 8.625%, 01/15/07......... 197,500
US 100,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ....... 109,250
-----------
306,750
-----------
Industrial 2.0%
US $ 100,000 cAllied Waste North America, senior sub notes, 10.25%, 12/01/06..... $ 104,500
US 150,000 American Standard, Inc., senior sub. deb., zero coupon to 06/01/98,
(original accretion rate 10.50%), 10.50% thereafter, 06/01/05...... 145,500
US 150,000 cDerlan Manufacturing, Inc., senior notes, 10.00%, 01/15/07......... 146,250
US 100,000 cIntertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06 ....... 103,000
US 100,000 L3 Communications Corp., senior sub. notes, 10.375%, 05/01/07....... 103,000
US 100,000 Newport News Shipbuilding, senior sub. notes, 9.25%, 12/01/06 ..... 102,750
-----------
705,000
-----------
Information Systems and Technology 0.3%
US 100,000 cCelestica International, Inc., senior sub. notes, 10.50%, 12/31/06 105,500
-----------
Lodging 0.9%
US 300,000 cPrime Hospitality Corp., senior sub. notes, 9.75%, 04/01/07........ 306,000
-----------
Media 0.6%
US 100,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ..... 107,500
US 100,000 Hollinger International Publishing, senior sub. notes, 9.25%, 02/01/06 98,750
-----------
206,250
-----------
Metals and Mining 1.6%
US 100,000 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........................................ 106,750
US 100,000 AK Steel Holding Corp., senior notes, 9.125%, 12/15/06 ............. 99,625
US 200,000 Gulf States Steel, first mortgage, 13.50%, 04/15/03 ................ 189,000
US 100,000 cNeenah Corp., senior sub. notes, 11.125%, 05/01/07................. 103,000
US 50,000 Ucar Global Enterprises, Inc., senior sub. notes, 12.00%, 01/15/05 . 56,250
-----------
554,625
-----------
Telecommunications 0.6%
US 300,000 Teleport Communications Group, Inc., senior disc. notes,
zero coupon to 07/01/01, original accretion rate 11.125%),
11.125% thereafter, 07/01/07....................................... 207,750
-----------
Textiles and Apparel 0.3%
US 100,000 cCollins & Aikman Floor Coverings, senior sub. notes, 10.00%, 01/15/07 99,000
-----------
Transportation 0.6%
US 100,000 Howmet Corp., senior sub. notes, 10.00%, 12/01/03 .................. 108,750
US 100,000 cLoomis Fargo & Co., senior sub. notes, 10.00%, 01/15/04 ........... 101,750
-----------
210,500
-----------
Utilities - Electric 0.3%
US 100,000 El Paso Electric Co., first mortgage, Series E, 9.40%, 05/01/11..... 106,500
-----------
Wireless Communications 3.6%
US $ 300,000 Arch Communications Group, senior discount notes,
zero coupon to 03/15/01, (original accretion rate 10.875%),
10.875% thereafter, 03/15/08....................................... $ 138,000
LU 300,000 Millicom International Cellular, SA, senior disc. notes,
zero coupon to 06/01/01, (original accretion rate 13.50%),
13.50% thereafter, 06/01/06........................................ 209,250
US 300,000 Orion Network Systems, Inc., SA, senior disc. notes, zero coupon to
01/15/02, (original accretion rate 12.50%), 12.50% thereafter, 01/15/07 153,000
US 400,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07.......... 362,000
US 300,000 Sprint Spectrum, L.P., senior disc. notes, zero coupon to 8/01/01,
(original accretion rate 12.50%), 12.50% thereafter, 08/15/06...... 208,500
US 200,000 Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06............... 204,000
-----------
1,274,750
-----------
Total High Yield Corporate Bonds (Cost $9,107,845) ................. 9,381,375
-----------
Convertible Bonds 6.4%
Consumer Products 0.8%
US 300,000 cRent Way, Inc., cvt. sub notes, 7.00%, 02/01/07.................... 270,000
-----------
Financial Services 0.8%
US 250,000 Banco De Galicia, cvt., 7.00%, 08/01/02 ............................ 286,875
-----------
Health Care 1.1%
US 400,000 cUS Diagnostic Labs, Inc., cvt., sub. deb., 9.00%, 03/31/03 ........ 388,000
-----------
cInformation Technology 1.8%
US 90,000 Adaptec, Inc., cvt. sub notes, 4.75%, 02/01/04 ..................... 89,550
US 300,000 Dovatron International, Inc., cvt., sub. notes, 6.00%, 10/15/02 .... 312,000
US 250,000 HMT Technology Corp., cvt., sub. notes, 5.75%, 01/15/04 ............ 203,125
US 25,000 SCI Systems, Inc., cvt., sub. notes, 5.00%, 05/01/06 ............... 35,278
-----------
639,953
-----------
Metals and Mining 1.1%
US 400,000 cDayton Mining Corp., cvt., sub. deb., 7.00%, 04/01/02 ............. 394,000
-----------
Retail 0.8%
US 300,000 Michaels Stores, Inc., cvt., sub. notes, 6.75%, 01/15/03 ........... 262,875
-----------
Total Convertible Bonds (Cost $2,370,546) .......................... 2,241,703
-----------
Emerging Market Bonds 11.7%
US 30,000 Bancomer, SA, 8.00%, 07/07/98 ...................................... 30,150
US 100,000 Bridas Corp., senior notes, 12.50%, 11/15/99 ....................... 110,000
US 100,000 cCemex, SA, 10.75%, 07/15/00 ....................................... 105,375
US $ 120,000 Centrais Eletricas Brasileiras, SA, 10.00%, 10/30/98 ............... $ 123,750
US 100,000 cIndustrias Metalurgicas Pescarm, senior notes, 11.75%, 03/27/98 ... 102,875
US 130,000 Philippine Long Distance Telephone Co., 9.25%, 06/30/06 ............ 135,688
US 200,000 cPoland Communications, Inc., senior notes, 9.875%, 11/01/03 ....... 196,000
US 43,000 Polysindo International Finance, guaranteed, 11.375%, 06/15/06 ..... 45,634
US 275,000 Republic of Argentina, 9.25%, 02/23/01.............................. 284,281
US 50,000 Republic of Argentina, 11.00%, 10/09/06 ............................ 53,875
US 350,000 Republic of Argentina, Global, 11.375%, 01/30/17.................... 371,875
US 345,000 Republic of Brazil, 8.875%, 11/05/01................................ 351,038
US 360,000 Republic of Brazil, 6.9375%, 04/15/12 .............................. 287,550
US 130,000 Republic of Brazil, 6.50%, 04/15/24 ................................ 104,813
US 150,000 Republic of Bulgaria, Series A, 6.5625%, 07/28/24 .................. 96,750
US 225,000 Republic of Bulgaria, Series PDI, 6.5625%, 07/28/11................. 141,328
US 75,000 Republic of Ecuador, 6.4375%, 02/28/25 ............................. 50,156
US 50,000 Republic of Poland, 6.50%, 10/27/24 ................................ 48,563
US 250,000 Republic of Venezuela, 6.50%, 12/18/07.............................. 221,250
US 250,000 Republic of Venezuela, 6.75%, 03/31/20 ............................. 181,875
US 125,000 SEI Holdings IX, Inc., senior notes, 11.00%, 11/30/00 .............. 132,500
US 240,000 United Mexican States, 9.75%, 02/06/01.............................. 250,800
US 100,000 United Mexican States, 9.875%, 01/15/07............................. 104,375
US 375,000 United Mexican States, 11.375%, 09/15/16 ........................... 395,625
US 150,000 United Mexican States, 11.50%, 05/15/26 ............................ 159,188
-----------
Total Emerging Market Bonds (Cost $3,963,278) ...................... 4,085,314
-----------
hForeign Government Bonds 21.3%
AU 543,000 Australian Government, Series 101, 8.75%, 01/15/01.................. 447,328
DD 255,000 Bundesobligation, Series 110, 5.375%, 02/22/99...................... 151,837
DD 515,000 Bundesobligation, Series 118, 5.25%, 02/21/01....................... 306,799
IT 355,000 Buoni Poliennali del Tesoro, 10.50%, 04/15/98 ...................... 213,433
IT 260,000 Buoni Poliennali del Tesoro, 12.00%, 01/17/99 ...................... 163,586
IT 105,000 Buoni Poliennali del Tesoro, 8.50%, 08/01/99 ....................... 63,131
IT 625,000 Buoni Poliennali del Tesoro, 10.50%, 07/15/00 ...................... 400,312
DD 630,000 German Unity Fund, 8.75%, 08/20/01.................................. 421,589
CA 935,000 Government of Canada, 10.50%, 07/01/00 ............................. 763,187
CA 935,000 Government of Canada, 10.50%, 03/01/01.............................. 775,319
JP 40,000,000 IBRD - Global Bond, 5.25%, 03/20/02 ................................ 368,539
JP 38,000,000 Japan Development Bank, 6.50%, 09/20/01............................. 361,714
NG 155,000 Netherlands Government, 7.00%, 03/15/99 ............................ 84,186
ES 59,040 Spanish Government, 12.25%, 03/25/00 ............................... 473,475
ES 67,300 Spanish Government, 10.10%, 02/28/01................................ 526,552
SE 400,000 Swedish Government, 13.00%, 06/15/01................................ 63,730
SE $ 300,000 Swedish Government, 10.25%, 05/05/03 ............................... $ 45,079
DD 915,000 Treuhandanstalt, 7.75%, 10/02/02 ................................... 596,349
GB 320,000 United Kingdom Treasury, 10.00%, 02/26/01........................... 565,234
GB 385,000 fUnited Kingdom Treasury, 7.00%, 11/06/01........................... 620,972
-----------
Total Foreign Government Bonds (Cost $7,604,378) ................... 7,412,351
-----------
U.S. Government Securities 1.9%
US 400,000 U.S. Treasury Bonds, 7.125%, 02/15/23 .............................. 402,750
US 250,000 U.S. Treasury Notes, 6.75%, 05/31/97 ............................... 250,313
-----------
Total U.S. Government Securities (Cost $657,069) ................... 653,063
-----------
U.S. Government Agencies/Mortgages 4.7%
US 22,961 FHLMC, 7.00%, 01/01/09 ............................................. 22,874
US 23,725 FHLMC, 6.00%, 04/01/09 ............................................. 22,793
US 23,300 FHLMC, 6.00%, 01/01/11.............................................. 22,262
US 37,713 FHLMC, 6.50%, 04/01/11.............................................. 36,728
US 48,466 FHLMC, 7.00%, 09/01/11.............................................. 48,095
US 48,843 FHLMC, 7.00%, 04/01/24 ............................................. 47,760
US 41,475 FHLMC, 7.50%, 04/01/24 ............................................. 41,478
US 28,437 FHLMC, 8.50%, 12/01/24 ............................................. 29,620
US 18,647 FHLMC, 9.00%, 12/01/24 ............................................. 19,665
US 27,761 FHLMC, 7.00%, 11/01/25.............................................. 27,056
US 27,640 FHLMC, 8.00%, 11/01/25.............................................. 28,148
US 38,397 FHLMC, 6.50%, 12/01/25.............................................. 36,412
US 35,810 FHLMC, 7.50%, 01/01/26.............................................. 35,733
US 25,228 FHLMC, 8.00%, 01/01/26.............................................. 25,692
US 49,580 FHLMC, 6.50%, 03/01/26.............................................. 46,974
US 30,092 FHLMC, 7.00%,09/01/26............................................... 29,287
US 75,542 FHLMC, 7.50%, 01/01/27.............................................. 75,293
US 36,191 FNMA, 7.50%, 10/01/07 .............................................. 36,603
US 30,742 FNMA, 6.50%, 02/01/09 .............................................. 30,070
US 23,994 FNMA, 6.50%, 04/01/11 .............................................. 23,343
US 37,146 FNMA, 6.50%, 01/01/24 .............................................. 35,345
US 23,004 FNMA, 7.00%, 05/01/24 .............................................. 22,447
US 36,035 FNMA, 8.00%, 01/01/25 .............................................. 36,707
US 20,693 FNMA, 9.00%, 03/01/25 .............................................. 21,714
US 17,428 FNMA, 9.00%, 05/01/25 .............................................. 18,288
US 23,742 FNMA, 8.50%, 07/01/25 .............................................. 24,633
US 48,315 FNMA, 7.00%, 01/01/26 .............................................. 47,032
US 57,767 FNMA, 7.00%, 03/01/26 ............................................. 56,102
US 39,587 FNMA, 7.50%, 03/01/26 .............................................. 39,407
US $ 24,524 FNMA, 8.00%, 05/01/26 .............................................. $ 24,923
US 23,667 FNMA, 8.00%, 06/01/26 .............................................. 24,052
US 39,580 FNMA, 7.50%, 08/01/26 .............................................. 39,401
US 24,880 FNMA, 7.50%, 10/01/26 .............................................. 24,767
US 65,388 FNMA, 8.00%, 01/01/27 .............................................. 66,396
US 20,548 GNMA, SF, 7.50%, 09/15/23 .......................................... 20,518
US 48,564 GNMA, SF, 6.50%, 03/15/24 .......................................... 46,040
US 44,383 GNMA, SF, 8.00%, 06/15/24 .......................................... 45,179
US 18,396 GNMA, SF, 8.50%, 08/15/24 .......................................... 19,107
US 4,963 GNMA, SF, 9.00%, 01/15/25 .......................................... 5,225
US 22,531 GNMA, SF, 8.00%, 02/15/25 .......................................... 22,902
US 17,821 GNMA, SF, 9.50%, 06/15/25 .......................................... 19,208
US 23,924 GNMA, SF, 7.50%, 01/15/26 .......................................... 23,778
US 24,235 GNMA, SF, 7.50%, 01/15/26 .......................................... 24,087
US 23,973 GNMA, SF, 7.50%, 02/15/26 .......................................... 23,826
US 25,067 GNMA, SF, 7.00%, 03/15/26........................................... 24,303
US 75,603 GNMA, SF, 8.00%, 06/15/26........................................... 76,833
US 40,059 GNMA, SF, 9.00%, 03/15/26 .......................................... 42,130
US 24,873 GNMA, SF, 8.50%, 07/15/26 .......................................... 25,766
US 56,290 GNMA 2, 7.00%, 09/20/25............................................. 54,406
-----------
Total U.S. Government Agencies/Mortgages (Cost $1,632,100).......... 1,640,408
-----------
Total Long Term Investments (Cost $27,533,894) ..................... 27,598,731
-----------
dReceivables from Repurchase Agreements 18.7%
US 6,596,021 Joint Repurchase Agreements, 5.335%, 05/01/97
(Maturity Value $6,521,683) (Cost $6,520,716)
Aubrey G. Lanston & Co., Inc., (Maturity Value $736,113)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 03/31/98 - 10/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $632,778)
Collateral: U.S. Treasury Notes, 6.25% - 6.375%, 07/31/98 - 04/30/99
Bear, Stearns & Co,. Inc., (Maturity Value $736,113)
Collateral: U.S. Treasury Notes, 5.75% - 6.375%, 09/30/97 - 05/15/99
Chase Securities, Inc., (Maturity Value $368,057)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01
Citicorp Securities, Inc., (Maturity Value $368,057)
Collateral: U.S. Treasury Notes, 5.25% - 8.50%, 12/31/97 - 01/31/02
Daiwa Securities America, Inc., (Maturity Value $736,113)
Collateral: U.S. Treasury Notes, 5.25% - 7.875%, 10/31/97 - 12/31/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $736,113)
Collateral: U.S. Treasury Notes, 4.75% - 7.75%, 08/31/98 - 05/31/01
Fuji Securities, Inc., (Maturity Value $736,113)
Collateral: U.S. Treasury Notes, 5.875%, 02/15/00
Sanwa Securities (USA) Co., L.P., (Maturity Value $736,113)
Collateral: U.S. Treasury Notes, 5.375% - 9.125%, 05/31/98 - 12/31/01
UBS Securities L.L.C., (Maturity Value $736,113)
Collateral: U.S. Treasury Notes, 6.00% - 8.25%, 07/15/98 - 08/15/99
$ 6,520,716
-----------
Total Investments (Cost $34,054,610) 97.9% ......................... 34,119,447
Other Assets and Liabilities, Net 2.1% ............................ 744,452
-----------
Net Assets 100.0% .................................................. $34,863,899
===========
At April 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $34,098,914 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ........................ $ 729,311
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ........................ (708,778)
-----------
Net unrealized appreciation ........................................ $ 20,533
===========
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
PIK - Payment-in-Kind
SF - Single Family
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
ES - Spain
GB - United Kingdom
IT - Italy
JP - Japan
LU - Luxembourg
NG - Netherlands
SE - Sweden
US - United States
*Securities are traded in currency of country indicated and valued in U.S.
dollars.
aNon-income producing.
cPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dFace amount for repurchase agreements is for the underlying collateral.
See Note 1(i) regarding joint repurchase agreements.
fSee Note 1(f) regarding securities purchased on a when-issued or delayed
delivery basis.
hFace amount is stated in foreign currency.
iSee Note 10 regarding defaulted securities.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements
Statements of Assets and Liabilities
April 30, 1997
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin
Blue California Global Health Global
Chip Fund Growth Fund Care Fund Utilities Fund
-------- --------- ---------- ----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
At cost - unaffiliated issuers...................... $4,636,276 $251,549,991 $148,773,830 $155,203,756
At cost - affiliated issuers........................ -- -- 9,435,115 --
======== ========= ========== ==========
At value - unaffiliated issuers..................... 4,923,328 261,134,980 135,137,921 170,282,083
At value - affiliated issuers....................... -- -- 7,282,500 --
Receivables from repurchase agreements,
at value and cost.................................. 653,624 50,887,880 20,523,389 9,961,173
Cash............................................... 5,049 1,636,352 32,501 1,135,174
Foreign currencies (Cost $1,950 and $153,
respectively)...................................... 1,940 -- -- 138
Receivables:
Dividends and interest.............................. 9,370 244,873 42,233 708,868
Investment securities sold.......................... 11,052 -- 1,908,061 585,829
Capital shares sold................................. 16,253 1,393,892 342,753 245,724
From affiliates................................... 13,629 -- -- --
-------- --------- ---------- ----------
Total assets........................................ 5,634,245 315,297,977 165,269,358 182,918,989
-------- --------- ---------- ----------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery................................... 18,934 5,979,910 3,903,540 --
When-issued basis (Note 1)......................... -- 1,215,996 -- --
Capital shares repurchased.......................... -- 147,196 219,580 77,883
Management fees..................................... -- 127,330 77,488 83,822
Distribution fees................................... 2,037 174,570 110,585 116,582
Shareholder servicing costs......................... 928 42,660 34,986 22,600
Other payables to shareholders...................... 8,119 144,559 152,940 109,352
Accrued expenses and other liabilities............. 4,283 11,250 18,167 18,565
-------- --------- ---------- ----------
Total liabilities................................... 34,301 7,843,471 4,517,286 428,804
-------- --------- ---------- ----------
Net assets, at value................................ $5,599,944 $307,454,506 $160,752,072 $182,490,185
======== ========= ========== ==========
Franklin Franklin Franklin Franklin
Blue California Global Health Global
Chip Fund Growth Fund Care Fund Utilities Fund
-------- --------- ---------- ----------
Net assets consist of:
Undistributed net investment income................ $ 12,294 $ 667,621 $-- $ 1,924,489
Unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities denominated in foreign currencies ..... 287,020 9,584,989 (15,789,350) 15,078,002
Undistributed net realized gain from investments .. 15,519 2,511,305 7,087,677 10,947,934
Class I capital shares............................. 5,285,111 269,193,505 158,247,644 146,197,521
Class II capital shares............................ -- 25,497,086 11,206,101 8,342,239
-------- --------- ---------- ----------
Net assets, at value................................ $5,599,944 $307,454,506 $160,752,072 $182,490,185
======== ========= ========== ==========
Class I shares:
Net assets, at value............................... $5,599,944 $282,898,484 $150,652,678 $174,023,386
======== ========= ========== ==========
Shares outstanding................................. 516,168 14,617,798 9,348,985 12,036,730
======== ========= ========== ==========
Net asset value per share*......................... $10.85 $19.35 $16.11 $14.46
======== ========= ========== ==========
Maximum offering price per share (100/95.5
of net asset value per share)...................... $11.36 $20.26 $16.87 $15.14
======== ========= ========== ==========
Class II shares:
Net assets, at value............................... -- $ 24,556,022 $ 10,099,394 $ 8,466,799
======== ========= ========== ==========
Shares outstanding................................. -- 1,274,090 628,581 589,033
======== ========= ========== ==========
Net asset value per share*......................... -- $19.27 $16.07 $14.37
======== ========= ========== ==========
Maximum offering price per share (100/99 of
net asset value per share)......................... -- $19.46 $16.23 $14.52
======== ========= ========== ==========
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (cont.)
Statements of Assets and Liabilities (cont.)
April 30, 1997
Franklin
Franklin Natural Franklin Franklin
MidCap Resources Small Cap Strategic
Growth Fund Fund Growth Fund Income Fund
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
At cost - unaffiliated issuers..................... $ 9,571,641 $42,285,656 $ 994,879,197 $27,533,894
At cost - affiliated issuers....................... -- -- 121,908,632 --
========= ========= ============ =========
At value - unaffiliated issuers.................... 10,766,062 43,909,884 996,997,331 27,598,731
At value - affiliated issuers...................... -- -- 104,915,563 --
Receivables from repurchase agreements,
at value and cost ................................ 2,048,694 2,674,273 148,518,655 6,520,716
Cash.............................................. 7,499 -- 1,828,738 787,056
Foreign currencies (Cost $617,368)................ -- -- -- 615,695
Receivables:
Dividends and interest............................. 500 38,109 363,910 551,589
Investment securities sold......................... 386,951 13,092 4,802,965 178,944
Capital shares sold................................ 1,217 65,700 8,086,045 224,219
From affiliates.................................. -- 42,120 -- 39,154
Unrealized gain on forward foreign currency
contracts (Note 1)................................ -- -- -- 71,128
--------- --------- ------------ ---------
Total assets....................................... 13,210,923 46,743,178 1,265,513,207 36,587,232
--------- --------- ------------ ---------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery.................................. 329,589 16,180 25,960,249 997,831
When-issued basis (Note 1)........................ -- -- -- 615,380
Capital shares repurchased....................... 13,838 56,572 470,862 12,113
Management fees.................................... 6,659 -- 461,035 --
Distribution fees.................................. 4,689 29,573 876,971 10,434
Shareholder servicing costs........................ 1,000 7,500 138,675 2,100
Other payables to shareholders..................... 236 37,296 1,212,441 80,693
Accrued expenses and other liabilities............ 2,293 86,852 99,228 4,782
--------- --------- ------------ ---------
Total liabilities.................................. 358,304 233,973 29,219,461 1,723,333
--------- --------- ------------ ---------
Net assets, at value............................... $12,852,619 $46,509,205 $1,236,293,746 $34,863,899
========= ========= ============ =========
Franklin
Franklin Natural Franklin Franklin
MidCap Resources Small Cap Strategic
Growth Fund Fund Growth Fund Income Fund
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Net assets consist of:
Undistributed net investment income............... $-- $ 227,995 $-- $ 141,184
Unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities denominated in foreign currencies..... 1,194,421 1,624,210 (14,874,935) 130,296
Undistributed net realized gain (loss) from
investments....................................... 186,002 (601,447) 23,016,155 164,134
Class I capital shares............................ 11,472,196 44,109,472 1,055,635,688 34,428,285
Class II capital shares........................... -- -- 152,555,759 --
Advisor class capital shares...................... -- 1,148,975 19,961,079 --
--------- --------- ------------ ---------
Net assets, at value............................... $12,852,619 $46,509,205 $1,236,293,746 $34,863,899
========= ========= ============ =========
Class I shares:
Net assets, at value.............................. $12,852,619 $45,386,565 $1,071,352,260 $34,863,899
========= ========= ============ =========
Shares outstanding................................ 963,185 3,226,036 56,510,250 3,210,392
========= ========= ============ =========
Net asset value per share*........................ $13.34 $14.07 $18.96 $10.86
========= ========= ============ =========
Maximum offering price per share (100/95.5,
100/95.5, 100/95.5 and 100/95.75 of net asset
value per share, respectively).................... $13.97 $14.73 $19.85 $11.34
========= ========= ============ =========
Class II shares:
Net assets, at value.............................. -- -- $ 146,164,291 --
========= ========= ============ =========
Shares outstanding................................ -- -- 7,784,393 --
========= ========= ============ =========
Net asset value per share*........................ -- -- $18.78 --
========= ========= ============ =========
Maximum offering price per share (100/99 of
net asset value per share)........................ -- -- $18.97 --
========= ========= ============ =========
Advisor class shares:
Net assets, at value.............................. -- $ 1,122,640 $ 18,777,195 --
========= ========= ============ =========
Shares outstanding................................ -- 79,796 989,630 --
========= ========= ============ =========
Net asset value and offering price per share...... -- $14.07 $18.97 --
========= ========= ============ =========
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (cont.)
Statements of Operations
for the year ended April 30, 1997
Franklin Franklin Franklin Franklin
Blue California Global Health Global
Chip Fund* Growth Fund Care Fund Utilities Fund
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Investment income:
Dividends+............................................. $ 36,106 $1,741,798 $ 300,791 $ 6,273,880
Interest .............................................. 41,262 1,447,110 806,990 452,855
-------- -------- ---------- ----------
Total Income............................................ 77,368 3,188,908 1,107,781 6,726,735
-------- -------- ---------- ----------
Expenses:
Management fees (Note 6)............................... 25,008 953,389 873,754 1,007,080
Distribution fees - Class I (Note 6)................... 5,516 354,725 320,225 384,356
Distribution fees - Class II (Note 6).................. -- 62,273 33,941 57,529
Shareholder servicing costs (Note 6)................... 4,569 261,873 259,269 155,049
Registration and filing fees .......................... 17,417 68,464 90,701 33,823
Pricing service fees .................................. 11,690 362 1,600 2,665
Reports to shareholders ............................... 4,825 95,218 108,882 100,385
Professional fees ..................................... 2,579 8,855 7,739 9,366
Custodian fees......................................... 925 1,851 14,458 30,986
Trustees' fees and expenses ........................... 19 3,519 3,691 4,502
Other.................................................. 1,596 31,256 8,613 21,294
Management fees waived by manager (Note 6)............. (25,008) -- -- --
Other expenses assumed by manager (Note 6)............. (7,383) -- -- --
-------- -------- ---------- ----------
Total expenses.......................................... 41,753 1,841,785 1,722,873 1,807,035
-------- -------- ---------- ----------
Net investment income (loss) .......................... 35,615 1,347,123 (615,092) 4,919,700
-------- -------- ---------- ----------
Realized and unrealized gain (loss) from investments
and foreign currencies:
Net realized gain (loss) on:
Investments............................................ 15,519 5,419,170 9,012,901 20,165,041
Foreign currency transactions.......................... (501) -- (10,576) (60,507)
Net unrealized appreciation (depreciation) on:
Investments............................................ 287,052 (1,845,799) (33,435,746) (3,840,353)
Translation of assets and liabilities denominated
in foreign currencies.................................. (32) -- (826) 31,546
-------- -------- ---------- ----------
Net realized and unrealized gain (loss) from investments
and foreign currencies ................................ 302,038 3,573,371 (24,434,247) 16,295,727
-------- -------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations........................................ $337,653 $4,920,494 $(25,049,339) $21,215,427
======== ======== ========== ==========
*For the periodJune 3, 1996 (effective date) to April 30, 1997.
+Net of foreign taxes and fees withheld of $3,619, $35,653, and $355,980 for the
Blue Chip Fund, the Global Health Care Fund, and the Global Utilities Fund,
respectively.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (cont.)
Statements of Operations (cont.)
for the year ended April 30, 1997
Franklin
Franklin Natural Franklin Franklin
MidCap Resources Small Cap Strategic
Growth Fund Fund Growth Fund Income Fund
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
Investment income:
Dividends+............................................... $ 33,488 $265,233 $ 3,507,667 $ 124,616
Interest ................................................ 55,445 209,971 4,606,507 1,706,081
--------- ------- --------- ---------
Total Income.............................................. 88,933 475,204 8,114,174 1,830,697
--------- ------- --------- ---------
Expenses:
Management fees (Note 6)................................. 68,022 175,237 3,859,067 129,938
Distribution fees - Class I (Note 6)..................... 14,535 80,769 1,643,133 30,166
Distribution fees - Class II (Note 6).................... -- -- 772,587 --
Shareholder servicing costs (Note 6)..................... 5,212 42,588 962,139 13,496
Registration and filing fees ............................ 12,360 40,134 145,761 16,208
Pricing service fees .................................... 260 1,792 487 1,282
Reports to shareholders.................................. 3,051 15,111 341,913 15,717
Professional fees........................................ 6,704 2,111 39,697 1,964
Custodian fees........................................... 218 2,833 17,725 3,771
Trustees' fees and expenses.............................. 267 603 17,945 458
Other.................................................... 892 3,790 137,064 4,494
Management fees waived by manager (Note 6)............... -- (91,717) -- (129,938)
Other expenses assumed by manager (Note 6)............... -- -- -- (39,451)
--------- ------- --------- ---------
Total expenses............................................ 111,521 273,251 7,937,518 48,105
--------- ------- --------- ---------
Net investment income (loss) ............................ (22,588) 201,953 176,656 1,782,592
--------- ------- --------- ---------
Realized and unrealized gain (loss) from investments
and foreign currencies:
Net realized gain (loss) on:
Investments ............................................. 545,584 55,715 40,588,653 672,645
Foreign currency transactions ........................... (452) (2,761) (31,670) (40,164)
Net unrealized appreciation (depreciation) on:
Investments ............................................. (3,730) 442,269 (72,391,160) (323,790)
Translation of assets and liabilities denominated
in foreign currencies ................................... -- (20) -- (5,669)
--------- ------- --------- ---------
Net realized and unrealized gain (loss) from investments
and foreign currencies................................... 541,402 495,203 (31,834,177) 303,022
--------- ------- --------- ---------
Net increase (decrease) in net assets resulting
from operations ......................................... $518,814 $697,156 $(31,657,521) $2,085,614
========= ======= ========= =========
+Net of foreign taxes and fees withheld of $12,628 and $1,462 for the Natural
Resources Fund and the Small Cap Growth Fund, respectively.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended April 30, 1997 and 1996
Franklin Franklin California Franklin Global
Blue Chip Fund Growth Fund Health Care Fund
---------- -------------------- ---------------------
1997* 1997 1996 1997 1996
---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss).......... $ 35,615 $ 1,347,123 $ 564,403 $ (615,092) $ 166,958
Net realized gain from investments
and foreign currency transactions .... 15,018 5,419,170 4,257,109 9,002,325 3,447,321
Net unrealized appreciation (depreciation)
on investments and translation of
assets and liabilities denominated
in foreign currencies................. 287,020 (1,845,799) 9,813,402 (33,436,572) 17,055,240
---------- --------- --------- --------- ----------
Net increase (decrease) in net
assets resulting from operations ..... 337,653 4,920,494 14,634,914 (25,049,339) 20,669,519
Distributions to shareholders from:
Undistributed net investment income
(Note 12):
Class I ............................ (22,820) (856,516) (443,477) (288,917) (164,339)
Class II ........................... -- (15,424) -- -- --
Net realized capital gains:
Class I ............................ -- (3,662,883) (3,902,081) (3,142,405) (1,815,988)
Class II ........................... -- (130,572) -- (90,072) --
Increase in net assets from capital
share transactions (Note 4)........... 5,285,111 226,024,641 57,041,143 80,408,415 77,319,269
---------- --------- --------- --------- ----------
Net increase in net assets............. 5,599,944 226,279,740 67,330,499 51,837,682 96,008,461
Net assets:
Beginning of year.................... -- 81,174,766 13,844,267 108,914,390 12,905,929
---------- --------- --------- --------- ----------
End of year.......................... $5,599,944 $307,454,506 $81,174,766 $160,752,072 $108,914,390
========== ========= ========= ========= ==========
Undistributed net investment income
included in net assets:
Beginning of year.................... -- $ 192,438 $ 71,512 $ 67,625 $ 31,883
========== ========= ========= ========= ==========
End of year.......................... $ 12,294 $ 667,621 $ 192,438 -- $ 67,625
========== ========= ========= ========= ==========
*For the period June 3, 1996 (effective date) to April 30, 1997.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
for the years ended April 30, 1997 and 1996
Franklin Franklin MidCap Franklin Natural
Global Utilities Fund Growth Fund Resources Fund
--------------------- ------------------- ------------------
1997 1996 1997 1996 1997 1996*
---------- ---------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss). $ 4,919,700 $ 3,660,182 $ (22,588) $ 93,289 $ 201,953 $ 38,684
Net realized gain from
investments and foreign
currency transactions........ 20,104,534 6,558,769 545,132 1,148,280 52,954 220,235
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies .......... (3,808,807) 16,490,515 (3,730) 741,900 442,249 1,181,961
---------- ---------- --------- -------- --------- --------
Net increase in net
assets resulting
from operations ............. 21,215,427 26,709,466 518,814 1,983,469 697,156 1,440,880
Distributions to shareholders from:
Undistributed net investment
income (Note 12):
Class I ................... (4,357,887) (3,644,055) (26,689) (108,102) (151,754) (22,636)
Class II .................. (103,773) (21,854) -- -- -- --
Net realized capital gains:
Class I ................... (13,464,544) (3,009,080) (1,366,521) (66,342) (678,900) (33,775)
Class II .................. (541,655) (22,015) -- -- -- --
Increase in net assets from capital
share transactions (Note 4).. 9,791,110 30,688,563 6,152,403 174,445 36,733,835 8,524,399
---------- ---------- --------- -------- --------- --------
Net increase in
net assets................... 12,538,678 50,701,025 5,278,007 1,983,470 36,600,337 9,908,868
Net assets:
Beginning of year........... 169,951,507 119,250,482 7,574,612 5,591,142 9,908,868 --
---------- ---------- --------- -------- --------- --------
End of year................. $182,490,185 $169,951,507 $12,852,619 $7,574,612 $46,509,205 $9,908,868
========== ========== ========= ======== ========= ========
Undistributed net investment
income included in net assets:
Beginning of year........... $ 1,473,140 $ 1,475,101 $ 26,979 $ 41,792 $ 16,048 --
========== ========== ========= ======== ========= ========
End of year................. $ 1,924,489 $ 1,473,140 -- $ 26,979 $ 227,995 $ 16,048
========== ========== ========= ======== ========= ========
*For the period June 5, 1995 (effective date) to April 30, 1996.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
for the years ended April 30, 1997 and 1996
Franklin Small Cap Franklin Strategic
Growth Fund Income Fund
----------------------- --------------------
1997 1996 1997 1996
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income.............................. $ 176,656 $ 149,453 $ 1,782,592 $ 791,602
Net realized gain from investments and
foreign currency transactions...................... 40,556,983 28,802,833 632,481 184,113
Net unrealized appreciation (depreciation) on
investments and translation of assets and liabilities
denominated in foreign currencies.................. (72,391,160) 50,744,410 (329,459) 337,890
----------- ---------- --------- ---------
Net increase (decrease) in net assets resulting
from operations.................................... (31,657,521) 79,696,696 2,085,614 1,313,605
Distributions to shareholders from:
Undistributed net investment income (Note 12):
Class I........................................... (2,394,320) (75,813) (1,770,285) (703,892)
Net realized capital gains:
Class I........................................... (28,319,877) (14,723,317) (519,339) (93,313)
Class II.......................................... (3,174,405) (189,559) -- --
Increase in net assets from capital share transactions
(Note 4)........................................... 832,825,911 341,296,317 22,046,373 5,769,430
----------- ---------- --------- ---------
Net increase in net assets.......................... 767,279,787 406,004,324 21,842,363 6,285,830
Net assets:
Beginning of year.................................. 469,013,959 63,009,635 13,021,536 6,735,706
----------- ---------- --------- ---------
End of year........................................ $1,236,293,746 $469,013,959 $34,863,899 $13,021,536
=========== ========== ========= =========
Undistributed net investment income included in net assets:
Beginning of year.................................. $ 124,074 $ 49,242 $ 59,325 $ 16,544
=========== ========== ========= =========
End of year........................................ -- $ 124,074 $ 141,184 $ 59,325
=========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Strategic Series (the Trust) is an open-end, management investment
company (mutual fund) registered under the Investment Company Act of 1940, as
amended. The Trust currently consists of nine separate funds (the Funds). There
are four separate diversified funds: Franklin Small Cap Growth Fund (the Small
Cap Growth Fund), Franklin MidCap Growth Fund (the MidCap Growth Fund), Franklin
Blue Chip Fund (the Blue Chip Fund), and Franklin MidCap Securities Fund (the
MidCap Securities Fund); and five 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 Care Fund), Franklin Global Utilities Fund (the Global Utilities Fund),
and Franklin Natural Resources Fund (the Natural Resources Fund). Each of the
Funds issues a separate series of Trust's shares and maintains a totally
separate investment portfolio. The investment objectives of the Funds are as
follows:
Capital Growth Growth and Income Total Return
- ----------------- ---------------- ----------------
Blue Chip Fund Strategic Income Fund Global Utilities Fund
California Growth Fund Natural Resources Fund
Global Health Care Fund
MidCap Growth Fund
MidCap Securities Fund
Small Cap Growth Fund
On April 18, 1996, the Board of Trustees (the Board) approved the conversion of
the MidCap Growth Fund to a retail fund effective June 1, 1996, and changed its
name from the Institutional MidCap Growth Fund. The Board also approved the name
change of the former MidCap Growth Fund, which has not commenced operations
since the effective date of June 15, 1993, to the MidCap Securities Fund. No
financial information is provided for the MidCap Securities Fund as there were
no public shareholders as of April 30, 1997.
The Trust offers three classes of shares, Class I, Class II, and Advisor Class.
The class of shares offered within each of the Funds are as follows:
<TABLE>
<CAPTION>
Class I Class I & Class II Class I & Advisor Class Class I, Class II, & Advisor Class
----------------- ----------------- ----------------- --------------------
<S> <C> <C> <C>
Blue Chip Fund California Growth Fund Natural Resources Fund Small Cap Growth Fund
MidCap Growth Fund Global Health Care Fund
MidCap Securities Fund Global Utilities Fund
Strategic Income Fund
</TABLE>
Class I shares are sold with a higher front-end sales charge than Class II
shares. Each class of shares may be subject to a contingent deferred sales
charge and has the same rights, except with respect to the effect of the
respective sales charges, the distribution fees borne by each class, voting
rights on matters affecting a single class and the exchange privilege of each
class.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
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. The Trust may utilize a
pricing service, bank or broker/dealer experienced in such matters to perform
any of the pricing
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
a. Security Valuation: (cont.)
functions, under procedures approved by the Board. Securities for which market
quotations are not available, and securities restricted as to resale, are valued
in accordance with procedures established by the Board.
The value of a foreign security is determined as of the earlier of the close of
trading on the foreign exchange on which it is traded or the close of trading on
the New York Stock Exchange. 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 prices 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, unless material. If events which materially
affect the value of these foreign securities occur during such period, these
securities will be valued in accordance with procedures established by the
Board.
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 shareholders which will be sufficient to relieve the
Funds from income and excise taxes. 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.
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.
Original issue discount is amortized as required by the Internal Revenue Code.
Realized and unrealized gains or losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
A portion of the distributions received from investments in Real Estate
Investment Trust (REIT) securities may be characterized as tax basis return of
capital (ROC) distributions, which are not recorded as dividend income, but
reduce the cost basis of the REIT securities. ROC distributions exceeding the
cost basis of the REIT security are recognized by the Funds as capital gain.
Net investment income differs for financial statement and tax purposes due to
differing treatments of wash sale and foreign currency transactions and tax
basis mark to market of unrealized gains with respect to passive foreign
investment company (PFIC) shares.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to differing treatments of wash sale and foreign currency
transactions.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
f. Securities Purchased on a When-Issued Basis or Delayed Delivery Basis:
The Funds may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Funds will
generally purchase these securities with the intention of holding the
securities, they may sell the securities before the settlement date. These
securities are identified on the accompanying Statement of Investments in
Securities and Net Assets. The Funds have set aside sufficient investment
securities as collateral for these purchase commitments.
g. Expense Allocation:
Common expenses incurred by the Trust 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.
h. Foreign Currency Translation:
The accounting records of the Funds 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 the currencies against U.S. dollars on the
valuation date. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the day that the transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.
The Funds do 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.
Realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, gains or losses realized
between the trade and settlement dates on security transactions, and the
difference between the amounts of dividends, interest, and foreign withholding
taxes recorded on the Funds' books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized appreciation or depreciation on
translation of assets and liabilities denominated in foreign currencies arises
from changes in the value of assets and liabilities other than investments in
securities at the end of the reporting period, resulting from changes in
exchange rates.
i. Joint Repurchase Agreements:
The Funds may enter into a joint repurchase agreement whereby their uninvested
cash balances are 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. A repurchase agreement is accounted for
as a loan by the Funds to the seller, collateralized by underlying U.S.
government securities, which are delivered to the Funds' custodian. The market
value, including accrued interest, of the initial collateralization is required
to be at least 102% of the dollar amount invested by the Funds, with the value
of the underlying securities marked to market daily to maintain coverage of at
least 100%. At April 30, 1997, all outstanding repurchase agreements held by the
Funds, had been entered into on that date.
2. 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.
2. FORWARD FOREIGN CURRENCY CONTRACTS (cont.)
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 fund value. 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.
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, 1997, the Strategic Income Fund had the following forward
foreign currency contracts outstanding:
<TABLE>
<CAPTION>
Contracts to Buy In Exchange for Settlement Date Gain (Loss)
- ---------------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
660,000 German Deutschemarks............................. U.S. $ 383,814 7/07/97 U.S. $ (730)
550,000 German Deutschemarks............................. 330,172 7/08/97 (10,913)
1,507,000 German Deutschemarks............................. 884,079 7/14/97 (8,933)
100,000 German Deutschemarks............................. 58,408 7/21/97 (307)
650,000 German Deutschemarks............................. 381,254 7/22/97 (3,569)
----------- ----------
U.S. $2,037,727 U.S. $(24,452)
----------- ----------
Contracts to Sell
- ----------------------------------------------
207,000 Australian Dollars............................... U.S. $ 162,715 7/21/97 U.S. $ 1,364
570,000 Canadian Dollars................................. 410,589 7/21/97 302
660,000 German Deutschemarks............................. 395,170 7/07/97 12,086
550,000 German Deutschemarks............................. 330,887 7/08/97 11,628
2,916,000 German Deutschemarks............................. 1,741,571 7/14/97 48,189
100,000 German Deutschemarks............................. 58,653 7/21/97 552
700,000 German Deutschemarks............................. 414,510 7/22/97 7,773
570,000 German Deutschemarks............................. 332,804 7/22/97 1,603
1,950,000 German Deutschemarks............................. 1,139,002 7/24/97 5,786
225,000 German Deutschemarks............................. 130,405 8/04/97 (458)
225,000 German Deutschemarks............................. 131,218 8/05/97 345
95,697,000 Japanese Yen..................................... 769,454 7/18/97 6,410
----------- ----------
U.S. $6,016,978 $95,580
----------- ----------
Net unrealized appreciation..................................................................... U.S. $71,128
==========
3. DISTRIBUTIONS
At April 30, 1997, for tax purposes, the Funds had accumulated net realized
gains as follows:
Franklin Franklin California Franklin Global Franklin Global
Blue Chip Fund Growth Fund Health Care Fund Utilities Fund
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Accumulated net realized gains ............ $15,519 $3,186,616 $7,234,897 $10,949,752
---------- ------------ ------------ -----------
Franklin
Franklin MidCap Franklin Natural Franklin Small Cap Strategic
Growth Fund Resources Fund Growth Fund Income Fund
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Accumulated net realized gains ............ $197,605 $41,043 $23,497,094 $198,334
---------- ------------ ------------ -----------
</TABLE>
For tax purposes, the aggregate cost of securities is higher (and unrealized
appreciation is lower) than for financial reporting purposes at April 30, 1997
by $675,311 in the California Growth Fund, $147,220 in the Global Health Care
Fund, $1,818 in the Global Utilities Fund, $11,603 in the MidCap Growth Fund,
$115,377 in the Natural Resources Fund, $525,144 in the Small Cap Growth Fund,
and $44,304 in the Strategic Income Fund.
From November 1, 1996 through April 30, 1997, the Natural Resources Fund
incurred $394,033 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
having arisen in the year ending April 30, 1998.
4. TRUST SHARES
At April 30, 1997, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Funds' shares for
the years ended April 30, 1997 and April 30, 1996 were as follows:
<TABLE>
<CAPTION>
Franklin Franklin California Franklin Global
Blue Chip Fund Growth Fund Health Care Fund
---------------- -------------------- --------------------
Shares Amount Shares Amount Shares Amount
------ --------- -------- ---------- -------- ----------
Class I Shares:
19971
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................... 612,646 $6,294,403 13,366,627 $262,790,549 9,894,341 $179,514,277
Shares issued in reinvestment
of distributions .............. 2,160 22,245 210,190 4,152,217 173,822 3,042,776
Shares redeemed ............... (98,638) (1,031,537) (3,404,453) (66,415,211) (6,350,088) (113,354,739)
------ --------- -------- ---------- -------- ----------
Net increase .................. 516,168 $5,285,111 10,172,364 $200,527,555 3,718,075 $ 69,202,314
====== ========= ======== ========== ======== ==========
1996
Shares sold.................... 4,272,379 $70,851,741 5,717,773 $ 97,079,874
Shares issued in reinvestment
of distributions............... 252,332 3,941,173 122,615 1,774,376
Shares redeemed................ (1,065,789) (17,751,771) (1,336,633) (21,534,981)
-------- ---------- -------- ----------
Net increase .................. 3,458,922 $57,041,143 4,503,755 $ 77,319,269
======== ========== ======== ==========
4. TRUST SHARES (cont.)
Franklin California Franklin Global
Growth Fund Health Care Fund
------------------ ------------------
Shares Amount Shares Amount
-------- --------- ------ ---------
Class II Shares:
19972
<S> <C> <C> <C> <C>
Shares sold...................... 1,316,359 $26,332,041 642,015 $11,438,930
Shares issued in reinvestment
of distributions ................ 6,813 135,235 4,570 79,609
Shares redeemed.................. (49,082) (970,190) (18,004) (312,438)
-------- --------- ------ ---------
Net increase .................... 1,274,090 $25,497,086 628,581 $11,206,101
======== ========= ====== =========
Franklin Global Franklin MidCap Franklin Natural
Utilities Fund Growth Fund Resources Fund
-------------------- ----------------- -------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- ------- -------- -------- ----------
Class I Shares:
1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ..................... 2,133,940 $31,224,215 436,500 $6,261,329 4,011,712 $57,583,589
Shares issued in reinvestment
of distributions ................ 1,052,925 14,710,262 99,179 1,337,419 53,467 756,742
Shares redeemed ................. (2,859,257) (41,909,958) (104,275) (1,446,345) (1,593,404) (22,755,471)
-------- ---------- ------- -------- -------- ----------
Net increase..................... 327,608 $ 4,024,519 431,404 $6,152,403 2,471,775 $35,584,860
======== ========== ======= ======== ======== ==========
19963
Shares sold...................... 2,718,701 $35,864,485 -- -- 1,022,068 $11,561,802
Shares issued in connection
with merger (Note 9) ............ 3,060,799 43,004,229 -- -- -- --
Shares issued in reinvestment
of distributions................. 441,472 5,734,067 14,422 174,445 4,873 51,414
Shares redeemed.................. (4,264,622) (56,489,807) -- -- (272,680) (3,088,817)
-------- ---------- ------- -------- -------- ----------
Net increase .................... 1,956,350 $28,112,974 14,422 $ 174,445 754,261 $ 8,524,399
======== ========== ======= ======== ======== ==========
Class II Shares:
1997
Shares sold ..................... 476,121 $ 6,947,138
Shares issued in reinvestment
of distributions................ 38,768 539,298
Shares redeemed.................. (117,318) (1,719,845)
-------- ----------
Net increase..................... 397,571 $ 5,766,591
======== ==========
1996
Shares sold...................... 213,747 $ 2,887,409
Shares issued in reinvestment
of distributions................. 2,918 39,000
Shares redeemed.................. (25,211) (350,820)
-------- ----------
Net increase .................... 191,454 $ 2,575,589
======== ==========
4. TRUST SHARES (cont.)
Franklin Natural
Resources Fund
-----------------
Shares Amount
------ --------
Advisor Class Shares:
19975
Shares sold ..................... 147,426 $2,125,208
Shares redeemed.................. (67,630) (976,233)
------ --------
Net increase..................... 79,796 $1,148,975
====== ========
Franklin Small Cap Franklin Strategic
Growth Fund Income Fund
----------------------- -------------------
Shares Amount Shares Amount
--------- ------------ -------- ----------
Class I Shares:
1997
<S> <C> <C> <C> <C>
Shares sold .......................................... 53,625,870 $1,076,021,349 2,512,297 $27,651,501
Shares issued in reinvestment of distributions ....... 1,361,841 27,277,285 157,746 1,730,372
Shares redeemed ...................................... (21,003,120) (421,360,818) (668,531) (7,335,500)
--------- ------------ -------- ----------
Net increase ......................................... 33,984,591 $ 681,937,816 2,001,512 $22,046,373
========= ============ ======== ==========
1996
Shares sold........................................... 24,446,021 $ 427,099,162 570,808 $ 6,028,449
Shares issued in reinvestment of distributions........ 777,839 12,787,321 69,168 724,303
Shares redeemed....................................... (6,926,491) (120,212,018) (92,840) (983,322)
--------- ------------ -------- ----------
Net increase.......................................... 18,297,369 $ 319,674,465 547,136 $ 5,769,430
========= ============ ======== ==========
Class II Shares:
1997
Shares sold .......................................... 7,092,087 $ 141,500,263
Shares issued in reinvestment of distributions........ 141,513 2,814,592
Shares redeemed ...................................... (674,976) (13,387,839)
--------- ------------
Net increase ......................................... 6,558,624 $ 130,927,016
========= ============
19964
Shares sold........................................... 1,260,870 $ 22,241,934
Shares issued in reinvestment of distributions........ 9,174 151,637
Shares redeemed....................................... (44,275) (771,719)
--------- ------------
Net increase.......................................... 1,225,769 $ 21,621,852
========= ============
Advisor Class Shares:
19975
Shares sold .......................................... 1,065,131 $ 22,124,188
Shares issued in reinvestment of distributions........ -- --
Shares redeemed....................................... (75,501) (2,163,109)
--------- ------------
Net increase.......................................... 989,630 $ 19,961,079
========= ============
</TABLE>
1For the Blue Chip Fund, for the period June 3, 1996 (effective date) to
April 30, 1997.
2For the California Growth Fund and the Global Health Care Fund, for
the period September 3, 1996 (effective date) to April 30, 1997.
3For the Natural Resources Fund, for the period June 5, 1995 (effective date)
to April 30, 1996.
4For the Small Cap Growth Fund, for the period October 1, 1995 (effective date)
to April 30, 1996.
5For the Natural Resources Fund and the Small Cap Growth Fund, for the period
January 2, 1997 (effective date) to April 30, 1997.
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, 1997 were as follows:
<TABLE>
<CAPTION>
Franklin Franklin California Franklin Global Franklin Global
Blue Chip Fund* Growth Fund Health Care Fund Utilities Fund
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Purchases............................... $4,961,310 $256,631,809 $173,705,479 $79,803,217
Sales................................... $ 340,553 $ 65,076,899 $ 97,374,416 $87,565,509
Franklin MidCap Franklin Natural Franklin Small Cap Franklin Strategic
Growth Fund Resources Fund Growth Fund Income Fund
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Purchases............................... $10,433,410 $46,354,623 $1,125,841,286 $36,119,427
Sales................................... $ 7,203,907 $11,480,880 $ 402,189,958 $21,281,052
</TABLE>
*For the period June 3, 1996 (effective date) to April 30, 1997.
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
provides investment advice, administrative services, office space and facilities
to each Fund, and receives fees computed daily based on the average net assets
of each fund, except the Blue Chip Fund and the MidCap Growth Fund, as follows:
Annualized Fee Rate Average Daily Net Assets
------------- ----------------------------------
0.625% First $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
Fees are further reduced on net assets over $10 billion.
Under the terms of a separate management agreement with the Blue Chip Fund,
Advisers receives fees computed daily based on the average net assets as
follows:
Annualized Fee Rate Average Daily Net Assets
- ------------- --------------------------------
0.750% First $500 million
0.625% Over $500 million, up to and including $1 billion
0.500% Over $1 billion
Under the terms of a separate management agreement with the MidCap Growth Fund,
Advisers receives fees computed daily at the annual rate of 0.650% of the Fund's
average net assets.
Under a subadvisory agreement with Advisers, Templeton Investment Council, Inc.
(TICI or the Subadvisor) provides services to the Strategic Income Fund, and
receives from Advisers fees computed daily based on the average net assets
as follows:
Annualized Fee Rate Average Daily Net Assets
- ------------- ----------------------------------
0.3125% First $100 million
0.2500% Over $100 million, up to and including $250 billion
0.2250% Over $250 million, up to and including $10 billion
Fees are further reduced on net assets over $10 billion.
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
a. Management Agreement: (cont.)
Advisers agreed in advance to waive management fees and assume payments of other
expenses for the Blue Chip Fund, the Natural Resources Fund, and the Strategic
Income Fund as noted in the Statements of Operations for the year ended April
30, 1997.
Under an agreement with Advisers, Franklin Templeton Services, Inc. (FT
Services) provides administrative services and facilities for the Funds. The fee
is paid by Advisers and computed monthly based on average daily net assets. It
is not a separate expense of the Funds.
b. Shareholder Services Agreement:
Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Funds pay costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Funds for
the year ended April 30, 1997, aggregated $1,704,195 all of which was paid to
Investor Services.
c. Distribution Plans and Underwriting Agreement:
Under the terms of distribution plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plans), the California Growth Fund, the Global Health
Care Fund, the Global Utilities Fund, the Small Cap Growth Fund, and the
Strategic Income Fund, reimburse Franklin/Templeton Distributors, Inc.
(Distributors) in an amount up to 0.25% per annum for Class I and 1.0% per annum
for Class II, if applicable, of the Fund's average daily net assets, while the
Blue Chip Fund, the MidCap Growth Fund, and the Natural Resources Fund reimburse
Distributors up to 0.35% per annum of the Fund's average daily net assets, for
costs incurred in the promotion, offering and marketing of the Fund's shares.
The Plans do not permit nor require payments of excess costs after termination.
Fees incurred by the Funds under the Plans aggregated $3,759,755 for the year
ended April 30, 1997.
In its capacity as underwriter for the shares of the Funds, Distributors
receives commissions on sales of the Funds' shares of beneficial interest.
Commissions are deducted from the gross proceeds received from the sale of the
shares of the Funds, and as such are not expenses of the Funds. Distributors may
also make payments, out of its own resources, to the dealers for certain sales
of the Funds' shares. Commissions received by Distributors and the amounts paid
to other dealers and any applicable contingent deferred sales charges (CDSC) for
the year ended April 30, 1997 were as follows:
<TABLE>
<CAPTION>
Franklin Franklin California Franklin Global Franklin Global
Blue Chip Fund Growth Fund Health Care Fund Utilities Fund
---------- ----------- ----------- ----------
Total commissions received
<S> <C> <C> <C> <C>
including CDSC........................ $76,980 $4,836,624 $3,331,378 $456,380
Paid to other dealers.................. $68,224 $4,739,869 $3,108,918 $495,919
CDSC................................... -- $ 1,701 -- $ 4,607
Franklin MidCap Franklin Natural Franklin Small CapFranklin Strategic
Growth Fund Resources Fund Growth Fund Income Fund
---------- ----------- ------------ ------------
Total commissions received
<S> <C> <C> <C> <C>
including CDSC........................ $140,519 $742,239 $11,056,311 $330,506
Paid to other dealers.................. $127,457 $673,860 $12,389,480 $319,485
CDSC................................... -- -- $ 33,425 --
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
d. Other Affiliates and Related Party and Transactions:
Certain officers and trustees of the Trust are also officers and/or directors of
Distributors, Advisers, FT Services, and Investor Services, all wholly-owned
subsidiaries of Franklin Resources, Inc. (Resources).
At April 30, 1997, Resources owned 39% of the Blue Chip Fund, 63% of the MidCap
Growth Fund, and 20% of the Strategic Income 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
Funds 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 Funds value these restricted
securities as disclosed in Note 1(a). At April 30, 1997, the Funds held
restricted securities as follows:
<TABLE>
<CAPTION>
Acquisition
Fund Shares Security Date Cost Value
- ---------------- ------- ---------------------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
California Growth Fund 48 Lynx Therapeutics, Inc. .............. 10/19/92 $ 326 --
California Growth Fund 243,333 Pacific Retail Trust ................. 08/30/96 $2,773,192 $2,919,996
Natural Resources Fund 1,313,000 Austral Coal Holdings................. 02/04/97 $ 450,907 $ 460,774
</TABLE>
8. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO ISSUERS
Investments in portfolio issuers, 5% or more of whose outstanding voting
securities are held by any of the Funds, are defined in the Investment Company
Act of 1940 as affiliated issuers. The Global Health Care Fund and the Small Cap
Growth Fund had investments in such affiliated issuers at April 30, 1997 as
follows:
<TABLE>
<CAPTION>
Balance of Gross Gross Balance of Dividend Income
Shares Held Purchases Sales and Shares Held Value May 1, 1996 -
Name of Issuer: April 30, 1996and AdditionsReductionsApril 30, 1997April 30, 1997April 30, 1997
- -------------------------- -------- --------- ------- -------- ---------- ----------
Franklin Global Health Care Fund:
<S> <C> <C> <C> <C> <C> <C>
CIMA Labs, Inc. ................. -- 575,000 -- 575,000 $ 2,875,000 --
Penederm, Inc. .................. 175,000 235,000 -- 410,000 4,407,500 --
---------- ----------
Total Affiliated Issuers $ 7,282,500 --
========== ==========
Franklin Small Cap Growth Fund:
Amisys Managed Care Systems...... -- 485,000 -- 485,000 $ 9,093,750 --
Cannondale Corp. ................ -- 509,300 -- 509,300 9,931,350 --
Consolidated Cigar Holdings, Inc. -- 599,100 25,100 574,000 13,202,000 --
Gibraltar Steel Corp. ........... -- 663,800 -- 663,800 16,263,100 --
OrthoLogic Corp. ................ -- 1,250,000 -- 1,250,000 7,187,500 --
Penederm, Inc. .................. 76,000 455,200 -- 531,200 5,710,400 --
Rural Cellular Corp., Class A ... 105,200 422,800 -- 528,000 5,016,000 --
Serologicals Corp. .............. -- 738,900 -- 738,900 11,914,763 --
Spectralink Corp. ............... 340,000 710,000 -- 1,050,000 3,675,000 --
Transitions Systems, Inc. ....... 275,000 700,000 -- 975,000 11,700,000 --
Western Wireless Corp., Class A . -- 1,094,800 -- 1,094,800 11,221,700 --
---------- ----------
Total Affiliated Issuers $104,915,563 --
========== ==========
</TABLE>
9. ACQUISITION OF TEMPLETON GLOBAL UTILITIES, INC.
On March 29, 1996, the Franklin Global Utilities Fund acquired all of the net
assets of Templeton Global Utilities, Inc. pursuant to a plan of reorganization
approved by the shareholders of the Templeton Global Utilities, Inc. on February
20, 1996. The acquisition was accomplished by a tax-free exchange of the
Franklin Global Utilities Fund Class I shares for all the net assets of
Templeton Global Utilities, Inc. which is accounted for as a
pooling-of-interests without restatement for financial reporting purposes.
The selected financial information and shares outstanding for the funds,
immediately before and after the acquisition were as follows:
<TABLE>
<CAPTION>
Net Asset
Value Shares Exchange
Net Assets Per Share Outstanding Ratio
---------- ------- -------- --------
<S> <C> <C> <C> <C>
Templeton Global Utilities, Inc. ......................... $ 43,004,229 $13.64 3,153,664 0.97055337
Franklin Global Utilities Fund Class I ................... $127,733,178 $14.05 9,091,186
Combined.................................................. $170,737,407 $14.05 12,151,985
</TABLE>
The undistributed net investment income, accumulated net realized gain and the
unrealized appreciation on investments for Franklin Global Utilities Fund before
the acquisition were $888,768, $4,214,505 and $9,595,151, respectively. The
unrealized appreciation on investments for Templeton Global Utilities Fund
before acquisition was $7,807,292.
10. CREDIT RISK AND DEFAULTED SECURITIES
There are certain credit risks, foreign currency exchange risk, or event risk
due to the manner in which certain Funds are invested, which may subject the
Funds more significantly to economic changes occurring in certain industries or
sectors.
At April 30, 1997, the Franklin Strategic Income Fund held one defaulted
security with a value of $139,500 representing 0.40% of the Fund's net assets.
For more information as to the specific security, see the accompanying Statement
of Investments in Securities and Net Assets.
For financial reporting purposes, it is the Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds for the current reporting period.
11. SUBSEQUENT EVENTS
On May 13, 1997, the Board declared distributions per share as follows:
From Net
Investment
Record Date Payment Date Income
-------- --------- -------
Franklin California Growth Fund
Class I ............................ 6/12/97 6/30/97 .074
Class II ........................... 6/12/97 6/30/97 .0291
Franklin Global Utilities Fund
Class I ............................ 6/12/97 6/30/97 .229
Class II ........................... 6/12/97 6/30/97 .1806
Franklin Natural Resources Fund
Class I ............................ 6/12/97 6/30/97 .076
Advisor Class ...................... 6/12/97 6/30/97 .0985
Franklin Strategic Income Fund
Class I ............................ 5/30/97 6/13/97 .075
12. FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period by Fund are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
----------------------------------------------- -----------------------------
Net Net Total Distri- Distri- Ratio of Net
Asset Net Realized & From butions butions Net Net Ratio of Investment
Value at Invest-Unrealized Invest-From Net From Asset Assets Expenses Income Average
Year Begin- ment Gain ment Invest- Realized Total Value at at End to Aver- (Loss) to Portfolio Com-
Ended ning of Income (Loss)on Oper- ment Capital Distri- End of Total of Period age Net Average Turnover mission
Apr 30, Period (Loss)Securities ations Income Gains butions Period Return*(in 000's)Assets++ Net Assets Rate Rate+
Franklin Blue Chip Fund:
Class I Shares:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19975 $10.00 $.09 $ .821 $ .911 $(.061) $-- $(.061) $10.85 9.14% $ 5,600 1.25%** 1.07%** 11.14% 0.0525
Franklin California Growth Fund:
Class I Shares:
1993 9.87 .12 .340 .460 (.120) -- (.120) 10.21 4.72 3,412 -- 1.23 38.28 --
1994 10.21 .14 2.425 2.565 (.145) (.580) (.725) 12.05 25.55 4,646 .09 1.16 135.12 --
1995 12.05 .16 3.043 3.203 (.124)(1.099) (1.223) 14.03 29.09 13,844 .25 1.63 79.52 --
1996 14.03 .20 6.032 6.232 (.227)(1.775) (2.002) 18.26***47.42 81,175 .71 1.42 61.82 .0536
1997 18.26 .13 1.510 1.640 (.122) (.428) (.550) 19.35 8.94 282,898 1.08 .84 44.81 .0544
Class II Shares:
19977 18.05 .05 1.646 1.696 (.048) (.428) (.476) 19.27 9.32 24,556 1.86** .05** 44.81 .0544
Franklin Global Health Care Fund:
Class I Shares:
1993 8.84 .09 .037 .127 (.087)-- (.087) 8.88 1.41 3,422 -- 1.13 62.74 --
1994 8.88 .07 1.856 1.926 (.078) (.298) (.376) 10.43 21.93 5,795 .10 .68 110.82 --
1995 10.43 .08 1.560 1.640 (.061) (.559) (.620) 11.45 16.33 12,906 .25 .80 93.79 --
1996 11.45 .11 8.955 9.065 (.124)(1.051) (1.175) 19.34***82.78 108,914 .73 .50 54.78 .0709
1997 19.34 (.06) (2.753) (2.813) (.037) (.380) (.417) 16.11 (14.71) 150,653 1.14 (.39) 73.17 .0368
Class II Shares:
19977 17.37 (.07) (.850) (.920) -- (.380) (.380) 16.07 (5.47) 10,099 1.92** (1.29)** 73.17 .0368
Franklin Global Utilities Fund:
Class I Shares:
19931 10.00 .22 1.270 1.490 (.130)-- (.130) 11.36 18.08 14,227 -- 3.89** -- --
1994 11.36 .30 1.280 1.580 (.299) (.042) (.341) 12.60 14.04 124,188 .84 2.95 16.28 --
1995 12.60 .42 (.067) .353 (.365) (.358) (.723) 12.23 3.17 119,250 1.12 3.47 16.65 --
1996 12.23 .37 2.395 2.765 (.391) (.324) (.715) 14.28 23.27 167,225 1.04 2.85 50.51 .0313
1997 14.28 .42 1.351 1.771 (.383)(1.208) (1.591) 14.46 12.94 174,023 1.00 2.82 47.55 .0150
Class II Shares:
1996 12.23 .37 2.322 2.692 (.358) (.324) (.682) 14.24 22.63 2,727 1.81 2.10 50.51 .0313
1997 14.24 .32 1.328 1.648 (.310)(1.208) (1.518) 14.37 12.04 8,467 1.77 1.98 47.55 .0150
Franklin MidCap Growth Fund:
Class I Shares:
19946 10.00 .15 .014 .164 (.079) (.035) (.114) 10.05 1.62 5,079 -- 2.21** 70.53 --
1995 10.05 .21 .769 .979 (.204) (.015) (.219) 10.81 10.06 5,591 -- 2.12 163.54 --
1996 10.81 .18 3.585 3.765 (.208) (.127) (.335) 14.24 35.40 7,575 .16 1.42 102.65 .0467
1997 14.24 (.02) .933 .913 (.050)(1.763) (1.813) 13.34*** 6.31 12,853 1.07 (.22) 76.35 .0550
Franklin Natural Resources Fund:
Class I Shares:
19963 10.00 .08 3.217 3.297 (.063) (.094) (.157) 13.14 33.36 9,909 .99** 1.16** 59.04 .0517
1997 13.14 .09 1.254 1.344 (.092) (.322) (.414) 14.07 10.23 45,386 .98 .72 46.31 .0331
Advisor Class Shares:
19978 14.66 -- (.59) (.59) -- -- -- 14.07 (4.02) 1,123 .64** 1.03** 46.31 .0331
12. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
----------------------------------------------- -----------------------------
Net Net Total Distri- Distri- Ratio of Net
Asset Net Realized & From butions butions Net Net Ratio of Investment
Value at Invest-Unrealized Invest-From Net From Asset Assets Expenses Income Average
Year Begin- ment Gain ment Invest- Realized Total Value at at End to Aver- (Loss) to Portfolio Com-
Ended ning of Income (Loss)on Oper- ment Capital Distri- End of Total of Period age Net Average Turnover mission
Apr 30, Period (Loss)Securities ations Income Gains butions Period Return*(in 000's)Assets++ Net Assets Rate Rate+
Class I Shares:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 $ 9.58 $.07 $ .657 $ .727 $(.087) $--$ (.087) $10.22 7.66% $ 6,026 --% .84% 63.15% --
1994 10.22 .03 2.944 2.974 (.043) (.401) (.444) 12.75 29.26 23,915 .30 .24 89.60 --
1995 12.75 .03 3.138 3.168 (.021) (.997) (1.018) 14.90 27.05 63,010 .69 .25 104.84 --
1996 14.90 .01 6.230 6.240 (.014)(1.376) (1.390) 19.75 44.06 444,912 .97 .09 87.92 .0505
1997 19.75 .03 .044 .074 (.067) (.797) (.864) 18.96*** .141,071,352 .92 .10 55.27 .0499
Class II Shares:
19964 17.94 (.03) 2.714 2.684 -- (.964) (.964) 19.66 15.98 24,102 1.76** (.69)** 87.92 .0505
1997 19.66 (.05) (.033) (.083) -- (.797) (.797) 18.78*** (.65) 146,164 1.69 (.70) 55.27 .0499
Advisor Class Shares:
19978 20.48 .01 (1.52) (1.51) -- -- -- 18.97 (7.37) 18,777 .69** .30** 55.27 .0499
Franklin Strategic Income Fund:
Class I Shares:
19952 10.00 .70 .154 .854 (.674) -- (.674) 10.18 8.94 6,736 .25** 7.93** 68.43 ---
1996 10.18 .85 .670 1.520 (.823) (.107) (.930) 10.77 15.59 13,022 .25 8.53 73.95 .0514
1997 10.77 .93 .385 1.315 (.956) (.269) (1.225) 10.86 12.64 34,864 .23 8.60 114.26 .0500
</TABLE>
1For the period July 2, 1992 (effective date) to April 30, 1993.
2For the period May 24, 1994 (effective date) to April 30, 1995.
3For the period June 5, 1995 (effective date) to April 30, 1996.
4For the period October 1, 1995 (effective date) to April 30, 1996.
5For the period June 3, 1996 (effective date) to April 30, 1997.
6For the period August 17, 1993 (effective date) to April 30, 1994.
7For the period September 3, 1996 (effective date) to April 30, 1997.
8For the period January 2, 1997 (effective date) to April 30, 1997.
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or the contingent deferred sales charge, and assumes reinvestment of
dividends and capital gains at net asset value. Prior to May 1, 1994 dividends
were reinvested at the maximum offering price, and capital gains at net asset
value. Effective May 1, 1994, with the implementation of Rule 12b-1 distribution
plans for Class I shares, the sales charge on reinvested dividends was
eliminated. The total return may differ from that reported in the Manager's
Discussion due to differences between the net asset values quoted and the net
asset values calculated for financial reporting purposes.
**Annualized.
***The net asset value differs from the net asset value used to process
shareholder activity as of the reporting date, which does not include market
adjustment for portfolio trades made on that date. These adjustments are
generally accounted for on the day following the trade date.
+Represents the average broker commission rate per share paid by the Fund in
connection with the execution of the Fund's portfolio transactions in equity
securities.
++During the periods indicated, Advisers agreed in advance to waive a portion or
all of their management fees and made payments of other expenses incurred by the
Funds. Had such action not been taken, the ratios of operating expenses to
average net assets would have been as follows:
Ratio of expenses
to average net assets
Franklin Blue Chip Fund
Class I Shares
19975................................ 2.22%**
Franklin California Growth Fund
Class I Shares
1993................................. 1.99%
1994................................. 1.89
1995................................. 1.27
1996................................. 1.09
Franklin Global Health Care Fund
Class I Shares
1993................................. 2.16%
1994................................. 1.74
1995................................. 1.37
1996................................. 1.16
Franklin Global Utilities Fund
Class I Shares
19931................................ 1.51%**
1994................................. 1.28
Franklin MidCap Growth Fund
Class I Shares
1994................................. .91%**
1995................................. .98
1996................................. .96
Ratio of expenses
to average net assets
Franklin Natural Resources Fund
Class I Shares
1996................................. 1.77%
1997................................. 1.31
Franklin Natural Resources Fund
Advisor Class Shares
19978................................ .86%**
Franklin Small Cap Growth Fund
Class I Shares
1993................................. 1.95%
1994................................. 1.58
1995................................. 1.16
1996................................. 1.00
Franklin Strategic Income Fund
Class I Shares
19952................................ 1.38%**
1996................................. 1.08
1997................................. 1.05
Under Section 854(b)(2) of the Internal Revenue Code, the Funds hereby designate
the following percentage of ordinary income dividends paid (including short-term
capital gain distributions, if any) as income qualifying for the dividends
received deduction for the fiscal year ended April 30, 1997.
Franklin Blue Chip Fund ....................................... 59.51%
Franklin California Growth Fund ............................... 30.26%
Franklin Global Health Care Fund .............................. 6.43%
Franklin Global Utilities Fund ................................ 41.38%
Franklin MidCap Growth Fund ................................... 6.74%
Franklin Natural Resources Fund ............................... 14.25%
Franklin Small Cap Growth Fund ................................ 5.55%
Franklin Strategic Income Fund ................................ 4.63%
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 each of
the eight funds comprising the Franklin Strategic Series, including each Fund's
statement of investments in securities and net assets, as of April 30, 1997, and
the related statements of operations for the year then ended, statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. 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 include confirmation of securities owned as of April
30, 1997, by correspondence with the custodian. 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 each
of the eight funds comprising the Franklin Strategic Series as of April 30,
1997, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and their
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
June 10, 1997
Franklin Strategic Series Annual Report April 30, 1997.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304 (a)OF REGULATION S-T)
GRAPHIC MATERIAL (1)
The following line graph demonstrates the daily fluctuations of the Dow Jones
Industrial Average from 4/30/96 to 4/30/97.
PERIOD ENDING DJIA
4/30/96 5569.080
5/01/96 5575.220
5/02/96 5498.270
5/03/96 5478.030
5/06/96 5464.310
5/07/96 5420.950
5/08/96 5474.060
5/09/96 5475.140
5/10/96 5518.140
5/13/96 5582.600
5/14/96 5624.710
5/15/96 5625.440
5/16/96 5635.050
5/17/96 5687.500
5/20/96 5748.820
5/21/96 5736.260
5/22/96 5778.000
5/23/96 5762.120
5/24/96 5762.860
5/28/96 5709.670
5/29/96 5673.830
5/30/96 5693.410
5/31/96 5643.180
6/03/96 5624.710
6/04/96 5665.710
6/05/96 5697.480
6/06/96 5667.190
6/07/96 5697.110
6/10/96 5687.870
6/11/96 5668.660
6/12/96 5668.290
6/13/96 5657.950
6/14/96 5649.450
6/17/96 5652.780
6/18/96 5628.030
6/19/96 5648.350
6/20/96 5659.430
6/21/96 5705.230
6/24/96 5717.790
6/25/96 5719.270
6/26/96 5682.700
6/27/96 5677.530
6/28/96 5654.630
7/01/96 5729.980
7/02/96 5720.380
7/03/96 5703.020
7/05/96 5588.140
7/08/96 5550.830
7/09/96 5581.860
7/10/96 5603.650
7/11/96 5520.500
7/12/96 5510.560
7/15/96 5349.510
7/16/96 5358.760
7/17/96 5376.880
7/18/96 5464.180
7/19/96 5426.820
7/22/96 5390.940
7/23/96 5346.550
7/24/96 5354.690
7/25/96 5422.010
7/26/96 5473.060
7/29/96 5434.590
7/30/96 5481.930
7/31/96 5528.910
8/01/96 5594.750
8/02/96 5679.830
8/05/96 5674.280
8/06/96 5696.110
8/07/96 5718.670
8/08/96 5713.490
8/09/96 5681.310
8/12/96 5704.980
8/13/96 5647.280
8/14/96 5666.880
8/15/96 5665.780
8/16/96 5689.450
8/19/96 5699.440
8/20/96 5721.260
8/21/96 5689.820
8/22/96 5733.470
8/23/96 5722.740
8/26/96 5693.890
8/27/96 5711.270
8/28/96 5712.380
8/29/96 5647.650
8/30/96 5616.210
9/03/96 5648.390
9/04/96 5656.900
9/05/96 5606.960
9/06/96 5659.860
9/09/96 5733.840
9/10/96 5727.180
9/11/96 5754.920
9/12/96 5771.940
9/13/96 5838.520
9/16/96 5889.200
9/17/96 5888.830
9/18/96 5877.360
9/19/96 5867.740
9/20/96 5888.460
9/23/96 5894.740
9/24/96 5874.030
9/25/96 5877.360
9/26/96 5868.850
9/27/96 5872.920
9/30/96 5882.170
10/01/96 5904.900
10/02/96 5933.970
10/03/96 5932.850
10/04/96 5992.860
10/07/96 5979.810
10/08/96 5966.770
10/09/96 5930.620
10/10/96 5921.670
10/11/96 5969.380
10/14/96 6010.000
10/15/96 6004.780
10/16/96 6020.810
10/17/96 6059.200
10/18/96 6094.230
10/21/96 6090.870
10/22/96 6061.800
10/23/96 6036.460
10/24/96 5992.480
10/25/96 6007.020
10/28/96 5972.730
10/29/96 6007.020
10/30/96 5993.230
10/31/96 6029.380
11/01/96 6021.930
11/04/96 6041.680
11/05/96 6081.180
11/06/96 6177.710
11/07/96 6206.040
11/08/96 6219.820
11/11/96 6255.600
11/12/96 6266.040
11/13/96 6274.240
11/14/96 6313.000
11/15/96 6348.030
11/18/96 6346.910
11/19/96 6397.600
11/20/96 6430.020
11/21/96 6418.470
11/22/96 6471.760
11/25/96 6547.790
11/26/96 6528.410
11/27/96 6499.340
11/29/96 6521.700
12/02/96 6521.700
12/03/96 6442.690
12/04/96 6422.940
12/05/96 6437.100
12/06/96 6381.940
12/09/96 6463.940
12/10/96 6473.250
12/11/96 6402.520
12/12/96 6303.710
12/13/96 6304.870
12/16/96 6268.350
12/17/96 6308.330
12/18/96 6346.770
12/19/96 6473.640
12/20/96 6484.400
12/23/96 6489.020
12/24/96 6522.850
12/26/96 6546.680
12/27/96 6560.910
12/30/96 6549.370
12/31/96 6448.270
1/02/97 6442.490
1/03/97 6544.090
1/06/97 6567.180
1/07/97 6600.660
1/08/97 6549.480
1/09/97 6625.670
1/10/97 6703.790
1/13/97 6709.180
1/14/97 6762.290
1/15/97 6726.880
1/16/97 6765.370
1/17/97 6833.100
1/20/97 6843.870
1/21/97 6883.900
1/22/97 6850.030
1/23/97 6755.750
1/24/97 6696.480
1/27/97 6660.690
1/28/97 6656.080
1/29/97 6740.740
1/30/97 6823.860
1/31/97 6813.090
2/03/97 6806.160
2/04/97 6833.480
2/05/97 6746.900
2/06/97 6773.060
2/07/97 6855.800
2/10/97 6806.540
2/11/97 6858.110
2/12/97 6961.630
2/13/97 7022.440
2/14/97 6988.960
2/18/97 7067.460
2/19/97 7020.130
2/20/97 6927.380
2/21/97 6931.620
2/24/97 7008.200
2/25/97 7038.210
2/26/97 6983.180
2/27/97 6925.070
2/28/97 6877.740
3/03/97 6918.920
3/04/97 6852.720
3/05/97 6945.850
3/06/97 6944.700
3/07/97 7000.890
3/10/97 7079.390
3/11/97 7085.160
3/12/97 7039.370
3/13/97 6878.890
3/14/97 6935.460
3/17/97 6955.480
3/18/97 6896.560
3/19/97 6877.680
3/20/97 6820.280
3/21/97 6804.790
3/24/97 6905.250
3/25/97 6876.170
3/26/97 6880.700
3/27/97 6740.590
3/31/97 6583.480
4/01/97 6611.050
4/02/97 6517.010
4/03/97 6477.350
4/04/97 6526.070
4/07/97 6555.910
4/08/97 6609.160
4/09/97 6563.840
4/10/97 6540.050
4/11/97 6391.690
4/14/97 6451.900
4/15/97 6587.160
4/16/97 6679.870
4/17/97 6658.600
4/18/97 6703.550
4/21/97 6660.210
4/22/97 6833.590
4/23/97 6812.720
4/24/97 6792.250
4/25/97 6738.870
4/28/97 6783.020
4/29/97 6962.030
4/30/97 7008.990
GRAPHIC MATERIAL (2)
This chart shows in pie format the portfolio breakdown of the fund's
securities on April 30, 1997, based on total net assets.
Portfolio Breakdown on April 30, 1997
Electronic Technology 12.5%
Technology Services 12.4%
Energy/Minerals 8.3%
Real Estate 6.4%
Utilities 6.3%
Retail 5.3%
Health Technology 4.6%
Consumer Services 4.1%
Semiconductors 4.0%
Industrial Services 2.5%
Other 18.6%
Cash & Equivalents 15.0%
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the
Franklin California Growth Fund Class I shares to that of the S&P 500 Stock
Index and the Franklin California 250 Growth Index, based on a $10,000
investment from 10/30/91 to 4/30/97.
Period Ending Fund S&P500 Cal 250
FRANKLIN CALIFORNIA S&P 500 STOCK FRANKLIN CA 250
DATE GROWTH FUND - CLASS I INDEX GROWTH INDEX
---- --------------------- ----- ------------
10/30/91 $9,550 $10,000 $10,000
10/31/91 $9,550 $10,004 $10,000
11/30/91 $8,861 $9,601 $9,185
12/31/91 $9,845 $10,699 $10,285
1/31/92 $10,548 $10,500 $11,084
2/28/92 $10,683 $10,636 $11,254
3/31/92 $9,960 $10,428 $10,511
4/30/92 $9,517 $10,735 $10,078
5/31/92 $9,546 $10,787 $10,140
6/30/92 $8,953 $10,627 $9,563
7/31/92 $9,215 $11,061 $9,883
8/31/92 $8,808 $10,835 $9,455
9/30/92 $8,914 $10,961 $9,539
10/31/92 $9,341 $10,999 $10,068
11/30/92 $10,176 $11,373 $11,000
12/31/92 $10,386 $11,512 $11,285
1/31/93 $10,718 $11,609 $11,701
2/28/93 $10,279 $11,767 $11,220
3/31/93 $10,396 $12,015 $11,332
4/30/93 $9,966 $11,725 $10,906
5/31/93 $10,689 $12,038 $11,728
6/30/93 $10,665 $12,072 $11,693
7/31/93 $10,419 $12,024 $11,725
8/31/93 $11,117 $12,480 $12,301
9/30/93 $11,578 $12,384 $12,587
10/31/93 $11,735 $12,640 $12,769
11/30/93 $11,706 $12,520 $12,610
12/31/93 $12,211 $12,672 $12,991
1/31/94 $12,751 $13,102 $13,432
2/28/94 $12,917 $12,747 $13,321
3/31/94 $12,627 $12,192 $12,557
4/30/94 $12,513 $12,348 $12,506
5/31/94 $12,585 $12,550 $12,459
6/30/94 $12,218 $12,243 $11,905
7/31/94 $12,658 $12,644 $12,299
8/31/94 $13,493 $13,163 $13,458
9/30/94 $13,592 $12,841 $13,402
10/31/94 $14,053 $13,130 $13,669
11/30/94 $14,097 $12,652 $13,269
12/31/94 $14,230 $12,840 $13,455
1/31/95 $14,218 $13,172 $13,782
2/28/95 $15,208 $13,686 $14,477
3/31/95 $15,784 $14,090 $15,087
4/30/95 $16,152 $14,504 $15,576
5/31/95 $16,797 $15,084 $16,039
6/30/95 $17,927 $15,434 $17,203
7/31/95 $19,454 $15,946 $18,645
8/31/95 $19,895 $15,986 $19,036
9/30/95 $20,384 $16,661 $19,425
10/31/95 $20,420 $16,601 $18,991
11/30/95 $21,064 $17,330 $19,750
12/31/95 $21,008 $17,664 $19,511
1/31/96 $21,255 $18,265 $19,684
2/29/96 $21,973 $18,435 $20,405
3/31/96 $22,155 $18,612 $20,106
4/30/96 $23,824 $18,885 $22,130
5/31/96 $24,359 $19,372 $22,815
6/30/96 $23,627 $19,446 $21,267
7/31/96 $22,227 $18,587 $19,536
8/31/96 $23,614 $18,979 $21,098
9/30/96 $25,132 $20,047 $22,732
10/31/96 $25,446 $20,600 $22,715
11/30/96 $27,290 $22,158 $24,246
12/31/96 $27,401 $21,719 $24,539
1/31/97 $27,844 $23,077 $25,858
2/28/97 $27,066 $23,257 $24,747
3/31/97 $25,498 $22,301 $23,462
4/30/97 $25,940 $23,632 $23,541
GRAPHIC MATERIAL (4)
The following line graph hypothetically compares the performance of the
Franklin California Growth Fund Class II shares to that of the S&P 500 Stock
Index and the Franklin California 250 Growth Index, based on a $10,000
investment from 9/3/96 to 4/30/97.
Period Ending Fund S&P500 Cal 250
FRANKLIN FRANKLIN CA
CALIFORNIA GROWTH S&P 500 STOCK 250 GROWTH
DATE FUND - CLASS II INDEX INDEX
9/3/96 $9,901 $10,000 $10,000
9/30/96 $10,520 $10,563 $10,774
10/31/96 $10,641 $10,855 $10,766
11/30/96 $11,407 $11,675 $11,492
12/31/96 $11,446 $11,444 $11,631
1/31/97 $11,619 $12,159 $12,256
2/28/97 $11,289 $12,254 $11,729
3/31/97 $10,627 $11,750 $11,120
4/30/97 $10,707 $12,452 $11,158
GRAPHIC MATERIAL (5)
This chart shows in pie format the geographic distribution of the fund's
securities on April 30, 1997, based on total net assets.
Geographic Distribution on April 30, 1997
United States 52.1%
Asia 16.3%
Europe 12.3%
Latin America 10.0%
United Kingdom 2.6%
Cash & Equivalents 6.7%
GRAPHIC MATERIAL (6)
The following line graph hypothetically compares the performance of the
Franklin Global Utilities Fund Class I shares to that of the S&P 500 Stock
Index, based on a $10,000 investment from 7/2/92 to 4/30/97.
Period Ending Global Utilities S&P500
7/2/92 $9,551 $10,000
7/31/92 $9,637 $10,409
8/31/92 $9,618 $10,196
9/30/92 $9,580 $10,315
10/30/92 $9,656 $10,350
11/30/92 $9,809 $10,702
12/31/92 $10,076 $10,834
1/29/93 $10,260 $10,925
2/26/93 $10,646 $11,073
3/31/93 $10,908 $11,307
4/30/93 $10,985 $11,033
5/31/93 $11,111 $11,328
6/30/93 $11,283 $11,361
7/30/93 $11,509 $11,315
8/31/93 $12,245 $11,744
9/30/93 $12,372 $11,654
10/29/93 $12,951 $11,895
11/30/93 $12,461 $11,782
12/31/93 $13,243 $11,924
1/31/94 $13,462 $12,330
2/28/94 $12,756 $11,996
3/31/94 $12,358 $11,473
4/29/94 $12,527 $11,619
5/31/94 $12,527 $11,810
6/30/94 $12,040 $11,521
7/29/94 $12,579 $11,899
8/31/94 $12,870 $12,386
9/30/94 $12,683 $12,084
10/31/94 $12,787 $12,356
11/30/94 $12,299 $11,906
12/30/94 $12,079 $12,082
1/31/95 $12,343 $12,395
2/28/95 $12,449 $12,879
3/31/95 $12,586 $13,259
4/28/95 $12,924 $13,649
5/31/95 $13,653 $14,195
6/30/95 $13,588 $14,524
7/31/95 $13,859 $15,006
8/31/95 $13,686 $15,044
9/29/95 $14,336 $15,678
10/31/95 $14,358 $15,622
11/30/95 $14,835 $16,308
12/29/95 $15,396 $16,622
1/31/96 $15,687 $17,188
2/29/96 $15,709 $17,347
3/29/96 $15,675 $17,514
4/30/96 $15,932 $17,771
5/31/96 $16,244 $18,230
6/28/96 $16,524 $18,299
7/31/96 $15,855 $17,490
8/30/96 $16,331 $17,859
9/30/96 $16,546 $18,865
10/31/96 $16,965 $19,386
11/29/96 $17,611 $20,851
12/31/96 $17,708 $20,438
1/31/97 $18,616 $21,716
2/28/97 $18,529 $21,885
3/31/97 $17,857 $20,986
4/30/97 $17,994 $22,238
GRAPHIC MATERIAL (7)
The following line graph hypothetically compares the performance of the
Franklin Global Utilities Fund Class II shares to that of the S&P 500 Stock
Index, based on a $10,000 investment from 5/1/95 to 4/30/97.
Period Ending Global Utilities S&P500
5/1/95 $9,902 $10,000
5/31/95 $10,504 $10,400
6/30/95 $10,449 $10,641
7/31/95 $10,641 $10,995
8/31/95 $10,507 $11,022
9/29/95 $10,991 $11,487
10/31/95 $11,008 $11,446
11/30/95 $11,358 $11,948
12/29/95 $11,825 $12,179
1/31/96 $12,030 $12,593
2/29/96 $12,039 $12,710
3/29/96 $12,004 $12,832
4/30/96 $12,193 $13,021
5/31/96 $12,424 $13,357
6/28/96 $12,628 $13,407
7/31/96 $12,116 $12,815
8/30/96 $12,472 $13,085
9/30/96 $12,619 $13,822
10/31/96 $12,932 $14,203
11/29/96 $13,409 $15,277
12/31/96 $13,480 $14,975
1/31/97 $14,155 $15,911
2/28/97 $14,089 $16,035
3/31/97 $13,566 $15,376
4/30/97 $13,661 $16,294
GRAPHIC MATERIAL (8)
This chart shows in pie format the portfolio breakdown of the fund's
securities on April 30, 1997, based on total net assets.
Portfolio Breakdown on April 30, 1997
Technology Services 10.4%
Energy 9.3%
Semiconductors 8.7%
Electronic Technology 8.0%
Utilities & Communication 6.4%
Financials 6.2%
Health Technology 6.0%
Consumer Services 5.1%
Consumer Durables 5.1%
Health Services 4.9%
Other 19.1%
Cash & Equivalents 10.8%
GRAPHIC MATERIAL (9)
The following line graph hypothetically compares the performance of the
Franklin Small Cap Growth Fund Class I shares 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 4/30/97.
Period Ending Fund S&P500 Russell 2500
FRANKLIN SMALL
CAP GROWTH RUSSELL
DATE FUND - CLASS I S&P 500 INDEX 2500 INDEX
---- -------------- ----- -----
2/14/92 $9,551 $10,000 $10,000
2/29/92 $9,694 $10,067 $10,137
3/31/92 $9,417 $9,871 $9,813
4/30/92 $9,150 $10,161 $9,617
5/31/92 $9,112 $10,211 $9,705
6/30/92 $8,889 $10,059 $9,367
7/31/92 $9,043 $10,470 $9,717
8/31/92 $8,908 $10,255 $9,462
9/30/92 $8,927 $10,375 $9,623
10/31/92 $9,379 $10,411 $9,911
11/30/92 $10,148 $10,765 $10,564
12/31/92 $10,612 $10,897 $10,933
1/31/93 $10,901 $10,988 $11,196
2/28/93 $9,937 $11,138 $11,039
3/31/93 $10,410 $11,373 $11,452
4/30/93 $9,851 $11,098 $11,125
5/31/93 $10,776 $11,394 $11,572
6/30/93 $10,733 $11,427 $11,692
7/31/93 $10,733 $11,381 $11,767
8/31/93 $11,641 $11,813 $12,288
9/30/93 $12,076 $11,722 $12,519
10/31/93 $12,298 $11,964 $12,669
11/30/93 $12,356 $11,851 $12,263
12/31/93 $12,922 $11,994 $12,742
1/31/94 $13,432 $12,402 $13,145
2/28/94 $13,571 $12,066 $13,097
3/31/94 $12,902 $11,540 $12,461
4/30/94 $12,733 $11,687 $12,533
5/31/94 $12,503 $11,879 $12,404
6/30/94 $12,067 $11,588 $12,020
7/31/94 $12,519 $11,968 $12,345
8/31/94 $13,495 $12,459 $13,012
9/30/94 $13,662 $12,155 $12,880
10/31/94 $14,313 $12,428 $12,901
11/30/94 $13,988 $11,976 $12,341
12/31/94 $14,114 $12,153 $12,608
1/31/95 $13,853 $12,468 $12,583
2/28/95 $15,113 $12,954 $13,215
3/31/95 $15,884 $13,336 $13,539
4/30/95 $16,177 $13,728 $13,780
5/31/95 $16,546 $14,278 $14,071
6/30/95 $17,886 $14,609 $14,746
7/31/95 $19,391 $15,094 $15,616
8/31/95 $19,859 $15,132 $15,866
9/30/95 $20,004 $15,770 $16,163
10/31/95 $19,224 $15,713 $15,657
11/30/95 $19,848 $16,403 $16,326
12/31/95 $20,071 $16,720 $16,605
1/31/96 $19,894 $17,288 $16,723
2/29/96 $20,991 $17,449 $17,226
3/31/96 $21,498 $17,617 $17,577
4/30/96 $23,304 $17,875 $18,390
5/31/96 $24,401 $18,337 $18,888
6/30/96 $23,268 $18,406 $18,308
7/31/96 $21,180 $17,593 $16,968
8/31/96 $23,186 $17,964 $17,944
9/30/96 $24,448 $18,975 $18,720
10/31/96 $24,000 $19,499 $18,597
11/30/96 $25,121 $20,973 $19,495
12/31/96 $25,503 $20,558 $19,762
1/31/97 $26,020 $21,843 $20,308
2/28/97 $24,925 $22,013 $20,005
3/31/97 $23,177 $21,108 $19,099
4/30/97 $23,325 $22,369 $19,340
GRAPHIC MATERIAL (10)
The following line graph hypothetically compares the performance of the
Franklin Small Cap Growth Fund Class II shares to that of the S&P 500 Stock
Index and the Russell 2500 Index, based on a $10,000 investment from 10/2/95
to 4/30/97.
Period Ending Fund S&P500 Russell 2500
FRANKLIN SMALL
CAP GROWTH S&P 500 RUSSELL 2500
DATE FUND - CLASS II INDEX INDEX
---- --------------- ----- -----
10/2/95 $9,899 $10,000 $10,000
10/31/95 $9,636 $9,964 $9,687
11/30/95 $9,938 $10,401 $10,101
12/31/95 $10,050 $10,602 $10,273
1/31/96 $9,961 $10,963 $10,346
2/29/96 $10,500 $11,065 $10,658
3/31/96 $10,749 $11,171 $10,875
4/30/96 $11,643 $11,335 $11,378
5/31/96 $12,188 $11,627 $11,686
6/30/96 $11,614 $11,672 $11,327
7/31/96 $10,565 $11,156 $10,498
8/31/96 $11,554 $11,391 $11,102
9/30/96 $12,182 $12,032 $11,582
10/31/96 $11,945 $12,365 $11,506
11/30/96 $12,490 $13,299 $12,062
12/31/96 $12,670 $13,036 $12,227
1/31/97 $12,923 $13,851 $12,564
2/28/97 $12,369 $13,959 $12,377
3/31/97 $11,494 $13,385 $11,816
4/30/97 $11,562 $14,184 $11,965
GRAPHIC MATERIAL (11)
This chart shows in pie format the Portfolio Breakdown of the fund's
securities on April 30, 1997, based on total net assets.
Portfolio Breakdown on April 30, 1997
Energy 49.2%
Gold & Precious Metals 12.4%
Base Metals 8.0%
Chemicals 7.9%
Iron/Steel 7.2%
Forest Products & Paper 5.2%
Service/Related Industries 2.8%
REITs 1.8%
Cash & Equivalents 5.5%
GRAPHIC MATERIAL (12)
This chart shows in pie format the Geographic Distribution of the fund's
securities on April 30, 1997, based on total net assets.
Geographic Distribution on April 30, 1997
United States 62.6%
Canada 16.1%
Europe 5.7%
Australia 5.7%
Asia 2.2%
South America 1.3%
Africa 0.9%
Cash & Equivalents 5.5%
GRAPHIC MATERIAL (13)
The following line graph hypothetically compares the performance of the
Franklin Natural Resources Fund Class I shares to that of the S&P 500 Stock
Index, based on a $10,000 investment from 6/5/95 to 4/30/97.
Period Ending Fund S&P500
FRANKLIN NATURAL
DATE RESOURCES FUND - CLASS S&P 500 INDEX
---- ------------- -----
I
6/5/95 $9,551 $10,000
6/30/95 $9,666 $10,193
7/31/95 $9,857 $10,531
8/31/95 $9,895 $10,558
9/30/95 $9,828 $11,003
10/31/95 $9,446 $10,964
11/30/95 $9,914 $11,445
12/31/95 $10,575 $11,666
1/31/96 $11,089 $12,062
2/29/96 $11,196 $12,175
3/31/96 $11,894 $12,292
4/30/96 $12,737 $12,472
5/31/96 $12,970 $12,794
6/30/96 $12,967 $12,843
7/31/96 $12,111 $12,275
8/31/96 $12,889 $12,534
9/30/96 $13,346 $13,240
10/31/96 $13,861 $13,605
11/30/96 $14,687 $14,634
12/31/96 $14,769 $14,344
1/31/97 $15,168 $15,240
2/28/97 $14,609 $15,359
3/31/97 $13,980 $14,728
4/30/97 $14,040 $15,607
GRAPHIC MATERIAL (14)
This chart shows in pie format the Portfolio Breakdown of the fund's
securities on April 30, 1997, based on total net assets.
Portfolio Breakdown on April 30, 1997
Financial Services 17.4%
Consumer Staples 11.7%
Utilities & Telecommunications 10.7%
Services 9.4%
Technology 8.6%
Industrial Cyclicals 7.9%
Energy 6.7%
Healthcare 6.5%
Consumer Durables 5.8%
Retail 3.2%
Cash & Equivalents 12.1%
GRAPHIC MATERIAL (15)
This chart shows in pie format the Geographic Distribution of the fund's
securities on April 30, 1997, based on total net assets.
Geographic Distribution on April 30, 1997
United States 31.4%
Europe 24.3%
Japan 14.2%
Pacific Rim (excluding Japan) 11.4%
Latin America 3.7%
Other 2.9%
Cash & Equivalents 12.1%
GRAPHIC MATERIAL (16)
The following line graph hypothetically compares the performance of the
Franklin Blue Chip Fund shares to that of the MSCI World Index, based on a
$10,000 investment from 6/3/96 to 4/30/97.
Period Ending Fund MSCI World Index
DATE FRANKLIN BLUE CHIP FUND MSCI WORLD INDEX
6/3/96 $9,551 $10,000
6/30/96 $9,675 $10,052
7/31/96 $9,398 $9,698
8/31/96 $9,484 $9,812
9/30/96 $9,780 $10,197
10/31/96 $9,780 $10,271
11/30/96 $10,162 $10,848
12/31/96 $10,088 $10,676
1/31/97 $10,261 $10,807
2/28/97 $10,319 $10,933
3/31/97 $10,155 $10,719
4/30/97 $10,424 $11,072
GRAPHIC MATERIAL (17)
This chart shows in pie format the Portfolio Breakdown of the fund's
securities on April 30, 1997, based on total net assets.
Portfolio Breakdown on April 30, 1997
Oil & Gas 8.2%
Electronic Components/Technology 6.9%
Finance 6.6%
Technology Services 6.2%
Gaming & Lodging 6.1%
Commercial Services 4.8%
Retail 4.3%
Transportation 4.0%
Leisure 3.3%
Telecommunications 3.1%
Cash & Equivalents 16.2%
Other Industries 30.3%
GRAPHIC MATERIAL (18)
The following line graph hypothetically compares the performance of the
Franklin MidCap Growth Fund shares to that of the S&P MidCap 400 Index, based
on a $10,000 investment from 6/1/96 to 4/30/97.
Period Ending Fund S&P MidCap 400
FRANKLIN MIDCAP
DATE GROWTH FUND - CLASS I S&P MIDCAP 400 INDEX
6/1/96 $9,550 $10,000
6/30/96 $9,312 $9,850
7/31/96 $8,635 $9,184
8/31/96 $9,312 $9,714
9/30/96 $9,936 $10,138
10/31/96 $9,803 $10,167
11/30/96 $10,579 $10,739
12/31/96 $10,403 $10,751
1/31/97 $10,823 $11,154
2/28/97 $10,380 $11,063
3/31/97 $9,810 $10,592
4/30/97 $10,027 $10,866
GRAPHIC MATERIAL (19)
The following line graph hypothetically compares the performance of the
Franklin MidCap Growth Fund shares to that of the S&P MidCap 400 Index, based
on a $10,000 investment from 8/17/93 to 4/30/97.
Period Ending Fund S&P MidCap 400
FRANKLIN MIDCAP GROWTH
DATE FUND - CLASS I S&P MIDCAP 400 INDEX
---- -------------- ---------
8/17/93 $9,551 $10,000
8/31/93 $9,551 $10,187
9/30/93 $9,914 $10,295
10/31/93 $9,828 $10,329
11/30/93 $9,542 $10,101
12/31/93 $10,015 $10,569
1/31/94 $10,237 $10,816
2/28/94 $10,025 $10,662
3/31/94 $9,581 $10,168
4/30/94 $9,706 $10,244
5/31/94 $9,571 $10,146
6/30/94 $9,232 $9,797
7/31/94 $9,507 $10,129
8/31/94 $10,076 $10,660
9/30/94 $9,821 $10,461
10/31/94 $9,978 $10,575
11/30/94 $9,585 $10,098
12/31/94 $9,724 $10,191
1/31/95 $9,784 $10,297
2/28/95 $10,258 $10,836
3/31/95 $10,466 $11,025
4/30/95 $10,683 $11,247
5/31/95 $10,960 $11,518
6/30/95 $11,545 $11,986
7/31/95 $12,233 $12,612
8/31/95 $12,503 $12,845
9/30/95 $12,792 $13,156
10/31/95 $12,653 $12,818
11/30/95 $13,052 $13,378
12/31/95 $12,941 $13,345
1/31/96 $13,155 $13,538
2/29/96 $13,368 $13,999
3/31/96 $13,480 $14,167
4/30/96 $14,465 $14,599
5/31/96 $14,760 $14,796
6/30/96 $14,302 $14,574
7/31/96 $13,262 $13,589
8/31/96 $14,302 $14,373
9/30/96 $15,260 $14,999
10/31/96 $15,056 $15,043
11/30/96 $16,249 $15,890
12/31/96 $15,977 $15,907
1/31/97 $16,623 $16,504
2/28/97 $15,943 $16,368
3/31/97 $15,067 $15,671
4/30/97 $15,401 $16,077
GRAPHIC MATERIAL (20)
This chart shows in pie format the Geographic Distribution of the fund's
securities on April 30, 1997, based on total net assets.
Geographic Distribution on April 30, 1997
United States 73.9%
Switzerland 4.1%
Israel 2.5%
Sweden 1.7%
France 1.7%
Singapore 1.4%
Mexico 1.1%
Other Countries 2.2%
Cash & Equivalents 11.4%
GRAPHIC MATERIAL (21)
This chart shows in pie format the Portfolio Breakdown of the fund's
securities on April 30, 1997, based on total net assets.
Portfolio Breakdown on April 30, 1997
Medical Technology & Supplies 17.8%
Specialty Pharmaceuticals 14.1%
Software & Information Systems 11.7%
Biotechnology 10.7%
Pharmaceuticals 7.4%
Post-Acute Providers 6.2%
Miscellaneous 4.0%
Nursing Homes 4.0%
Physician Practice Management 3.7%
Managed Care 3.4%
Hospital 3.0%
Drug Distributors 2.6%
Cash & Equivalents 11.4%
GRAPHIC MATERIAL (22)
The following line graph hypothetically compares the performance of the
Franklin Global Health Care Fund Class I shares to that of the S&P 500 Stock
Index, based on a $10,000 investment from 2/14/92 to 4/30/97.
Period Ending Fund S&P500
FRANKLIN GLOBAL
HEALTH CARE FUND - S&P 500
DATE CLASS I INDEX
2/14/92 $9,551 $10,000
2/28/92 $9,790 $10,065
3/31/92 $9,083 $9,868
4/30/92 $8,443 $10,158
5/29/92 $8,663 $10,208
6/30/92 $8,339 $10,056
7/31/92 $8,896 $10,467
8/31/92 $8,598 $10,253
9/30/92 $8,407 $10,373
10/30/92 $8,810 $10,408
11/30/92 $9,453 $10,762
12/31/92 $9,603 $10,894
1/29/93 $9,603 $10,986
2/26/93 $8,321 $11,135
3/31/93 $8,417 $11,370
4/30/93 $8,562 $11,095
5/30/93 $8,996 $11,391
6/30/93 $9,294 $11,424
7/30/93 $8,801 $11,379
8/31/93 $8,955 $11,810
9/30/93 $9,178 $11,719
10/29/93 $9,749 $11,961
11/30/93 $10,049 $11,848
12/31/93 $10,200 $11,991
1/31/94 $11,211 $12,399
2/28/94 $11,121 $12,063
3/31/94 $10,550 $11,537
4/29/94 $10,440 $11,685
5/31/94 $10,560 $11,876
6/30/94 $10,098 $11,585
7/29/94 $10,546 $11,965
8/31/94 $11,584 $12,456
9/30/94 $11,777 $12,152
10/31/94 $12,052 $12,425
11/30/94 $11,940 $11,973
12/30/94 $11,657 $12,150
1/31/95 $11,721 $12,465
2/28/95 $12,188 $12,951
3/31/95 $12,729 $13,333
4/28/95 $12,145 $13,725
5/31/95 $12,506 $14,274
6/30/95 $12,911 $14,605
7/31/95 $14,107 $15,090
8/31/95 $14,897 $15,128
9/29/95 $15,773 $15,766
10/31/95 $15,688 $15,709
11/30/95 $16,467 $16,399
12/29/95 $18,021 $16,716
1/31/96 $19,352 $17,284
2/29/96 $20,305 $17,445
3/29/96 $21,051 $17,612
4/30/96 $22,187 $17,871
5/31/96 $22,543 $18,332
6/28/96 $21,453 $18,402
7/31/96 $18,511 $17,588
8/30/96 $19,959 $17,960
9/30/96 $21,556 $18,971
10/31/96 $19,775 $19,494
11/29/96 $20,235 $20,968
12/31/96 $20,989 $20,553
1/31/97 $21,670 $21,837
2/28/97 $21,670 $22,008
3/31/97 $19,802 $21,103
4/30/97 $18,932 $22,363
GRAPHIC MATERIAL (23)
The following line graph hypothetically compares the performance of the
Franklin Global Health Care Fund Class II shares to that of the S&P 500 Stock
Index, based on a $10,000 investment from 9/3/96 to 4/30/97.
Period Ending Fund S&P500
FRANKLIN GLOBAL
HEALTH CARE FUND - S&P 500
DATE CLASS II INDEX
9/3/96 $9,897 $10,000
9/30/96 $10,720 $10,563
10/31/96 $9,823 $10,855
11/29/96 $10,040 $11,675
12/31/96 $10,417 $11,444
1/31/97 $10,743 $12,159
2/28/97 $10,738 $12,254
3/31/97 $9,810 $11,750
4/30/97 $9,286 $12,452
GRAPHIC MATERIAL (24)
This chart shows in pie format the portfolio breakdown of the fund's
securities on April 30, 1997, based on total net assets.
Portfolio Breakdown on April 30, 1997
High Yield Corporate Bonds 26.9%
International Bonds 21.3%
Emerging Markets Bonds 11.7%
Convertible Securities 6.4%
Mortgage Securities 4.7%
Preferred Stock (Non-Convertible) 3.7%
Convertible Preferred Stock 2.5%
U.S. Government Bonds 1.9%
Cash & Equivalents 20.9%
GRAPHIC MATERIAL (25)
The following line graph hypothetically compares the performance of the
Franklin Strategic Income Fund to that of the Salomon Brothers Non-U.S. World
Government Bond Index, the Salomon Brothers High Yield Index, and the
Composite Index, based on a $10,000 investment from 6/1/94 to 4/30/97.
Period Ending Fund SB Non-US SB High Comp Index
6/1/94 $9,579 $10,000 $10,000 $10,000
6/30/94 $9,492 $10,242 $10,011 $9,908
7/31/94 $9,617 $10,269 $10,109 $10,072
8/31/94 $9,761 $10,209 $10,166 $10,278
9/30/94 $9,808 $10,411 $10,139 $10,264
10/31/94 $9,825 $10,680 $10,141 $10,251
11/30/94 $9,793 $10,465 $10,030 $10,140
12/31/94 $9,746 $10,470 $10,142 $10,067
1/31/95 $9,753 $10,699 $10,288 $10,199
2/28/95 $10,023 $11,001 $10,631 $10,328
3/31/95 $10,182 $11,982 $10,741 $10,515
4/30/95 $10,435 $12,238 $10,994 $10,866
5/31/95 $10,731 $12,505 $11,321 $11,293
6/30/95 $10,780 $12,567 $11,402 $11,446
7/31/95 $11,007 $12,634 $11,539 $11,542
8/31/95 $11,035 $11,911 $11,610 $11,542
9/30/95 $11,180 $12,263 $11,745 $11,761
10/31/95 $11,273 $12,302 $11,843 $11,768
11/30/95 $11,366 $12,409 $11,951 $11,993
12/31/95 $11,566 $12,517 $12,141 $12,253
1/31/96 $11,771 $12,240 $12,320 $12,505
2/29/96 $11,779 $12,276 $12,396 $12,373
3/31/96 $11,864 $12,306 $12,334 $12,419
4/30/96 $12,062 $12,282 $12,330 $12,508
5/31/96 $12,228 $12,288 $12,399 $12,583
6/30/96 $12,281 $12,357 $12,495 $12,706
7/31/96 $12,289 $12,698 $12,576 $12,733
8/31/96 $12,526 $12,783 $12,707 $12,906
9/30/96 $12,938 $12,759 $13,004 $13,226
10/31/96 $13,063 $12,974 $13,154 $13,381
11/30/96 $13,419 $13,123 $13,406 $13,713
12/31/96 $13,538 $13,030 $13,512 $13,684
1/31/97 $13,679 $12,501 $13,614 $13,759
2/28/97 $13,759 $12,356 $13,845 $13,819
3/31/97 $13,443 $12,277 $13,702 $13,629
4/30/97 $13,587 $12,028 $13,800 $13,779
