Table of Contents
President's Letter 1
Fund Reports
Franklin California Growth Fund 3
Franklin Global Utilities Fund 9
Franklin Small Cap Growth Fund 16
Franklin Global Health Care Fund 21
Franklin Strategic Income Fund 27
Franklin Natural Resources Fund 31
Franklin Blue Chip Fund 36
Franklin MidCap Growth Fund 41
Statement of Investments 45
Financial Statements 91
December 15, 1996
Dear Shareholder:
It is a pleasure to bring you this semi-annual report for the Franklin Strategic
Series which covers the period ended October 31, 1996.
On April 30, 1996, the Dow Jones Industrial Average(R) (the Dow) stood at
5569.08. It advanced to a new high of 5778.00 by May 22nd, slid to 5346.55 by
July 23rd, and ended the period at 6029.38, 8.27% higher than it had been six
months earlier. During the period, long-term bond prices (as measured by 30-year
Treasuries) rose 2.43%, from 115.75 to 118.57 while yields fell 3.30% from 6.88%
to 6.66%.*
*Sources: Dow Jones Industrial Average total return calculated by Wilshire
Associates, Inc. Merrill Lynch Long-Term Bond Index.
Indices are unmanaged and include reinvested dividends or interest. One cannot
invest directly in an index.
While such volatility can be unsettling, it is important to remember that
securities markets always have been -- and always will be -- subject to
fluctuation. No one can predict exactly how they will perform in the short term.
However, history has shown that over the long term, stocks and bonds have
delivered impressive results when left to compound. For this reason, we urge you
to exercise patience, review your investment program with your investment
representative, and focus not on short-term market movements, but on long-term
investment goals.
One way to help minimize the impact of market fluctuations is to diversify your
investments. Each of the eight funds included in this report offer individual
investors a level of diversification that would be almost impossible for them to
achieve on their own. Although each fund has a distinct investment objective,
all of our managers and research staff are dedicated to providing shareholders
with careful selection of securities, broad diversification and constant
professional supervision. For specific information about each fund, including
the effects of market conditions and management strategies upon its performance,
please refer to the fund reports following this letter.
As always, we appreciate your support, welcome your questions and look forward
to serving you in years to come.
Sincerely,
Rupert H. Johnson, Jr.
President
Franklin Strategic Series
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 six months ended October 31, 1996, California's economy continued its
impressive recovery. Although the state's unemployment rate remained higher than
the national average, many of the jobs lost in aerospace and defense
manufacturing were regained in the high technology, entertainment and
trade-related industries. Within this environment, the Franklin California
Growth Fund's Class I shares provided a six-month total return of +6.80%, as
discussed in the Performance Summary on page 7, outperforming the Franklin
California 250 Growth Index, which posted a total return of +2.64%, for the same
period.1
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
1. The Franklin California 250 Growth Index is an equally-weighted index
representing 250 of the largest corporations headquartered in California. Please
remember that 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.
Although the fund continued to focus primarily on companies that sell products
or services which are not especially sensitive to fluctuations of the California
economy, we made a conscious effort to invest a portion of the fund's assets in
companies we believed would benefit from the state's economic recovery. Granite
Construction, Inc., one of the country's largest heavy civil engineering and
construction companies, is an example of such a holding. An increase in the
number of public and private construction projects has helped the growth of the
firm's inventory of projects as well as improve its operating margins.
We also continued to accumulate positions in out-of-favor asset classes such as
real property and oil. During the reporting period, we held positions in two
real estate investment trusts (REITs) which benefited from the increase in job
growth in their respective regions. Bay Apartment Communities, Inc., an
apartment management REIT in the northern California market with several
properties in Silicon Valley, experienced occupancy rates of more than 95% on
many of their properties. And Irvine Apartment Communities, Inc. was able to
raise its rental rates due to higher occupancies in Orange County. Because
supply/demand characteristics of the commercial real estate market were also
favorable, we purchased shares of Arden Realty Group, Inc., a REIT focusing on
office properties in Los Angeles County. New service jobs there have been
steadily increasing since 1990 while office construction has been declining over
the same period.
Franklin California Growth Fund
Top 10 Holdings on October 31, 1996
Based on Total Net Assets
Company % of Total
Industry Net Assets
Computer Sciences Corp. 2.0%
Electronic Technology
Electronic Data Systems Corp. 1.8%
Technology Services
3Com Corp. 1.6%
Electronic Technology
BankAmerica Corp. 1.6%
Finance
Netscape Communications Corp. 1.5%
Technology Services
U.S. Robotics Corp. 1.5%
Electronic Technology
Intel Corp. 1.5%
Semiconductors/Equipment
Cisco Systems, Inc. 1.5%
Electronic Technology
Mattel, Inc. 1.5%
Consumer Durables
Bay Apartment Communities, Inc. 1.5%
Real Estate Investment Trust
For a complete list of portfolio holdings, please see page 53 of this report.
Although energy stocks were out of favor with many investors during the six
months under review, we were impressed with the industry's ability to generate
profits and substantial cash flows. We therefore maintained our holdings in
Atlantic Richfield Co., Chevron Corp. and Western Atlas, Inc. In our opinion,
these stocks were attractively valued and possessed the potential for further
price appreciation.
The technology sector was another area in which we maintained a significant
position. Although the average technology stock (as calculated by our methods)
fell more than 50% from its all-time high during July's stock market correction,
many technology companies were debt-free and growing at a rate exceeding gross
domestic product, often without the need for outside capital. We took advantage
of this sector's price decline, and purchased shares of companies such as Ascend
Communications, Inc., 3Com Corp., FORE Systems, Inc., Netscape Communications
Corp. and U.S. Robotics Corp., which have leading products in local area, wide
area, and public networks. Believing that worldwide semiconductor sales have the
potential to quadruple over the next ten years (despite eight months of
declining orders in the U.S.), we remained invested in companies such as Intel
Corp., Linear Technology Corp., Adaptec, Inc., and Xilinx, Inc., which we felt
had high market share and proprietary products.
We increased our weighting in the financial sector because interest rates
remained relatively stable during the reporting period, and inflation, as
measured by the Consumer Price Index (CPI), was subdued. Since many economists
believe that CPI figures overstate the true inflation rate by as much as one
percentage point, it appears that real after-inflation returns on both cash and
longer-term, fixed income securities are quite high by historical standards. We
therefore initiated a position in BankAmerica Corp., a company which has
substantially improved its internal operations, and which we believe can benefit
from this type of environment as well as from California's economic recovery.
Looking forward, we are optimistic about long-term opportunities for the
Franklin California Growth Fund. After Japan, California is the largest economy
of the Pacific Rim. As of October 31, 1996, there were over 1,300 publicly
traded companies headquartered in the state, and California's public equity
securities, if aggregated, would rank as the fourth largest "stock market" in
the world. Typically, California companies represent 18%-25% of the "best" or
"fastest-growing" companies in America, as determined by independent magazine
studies conducted by Forbes and Fortune. As we scan the investment horizon, we
find there are many potential opportunities for the Franklin California Growth
Fund and feel confident of our ability to take advantage of them.
This discussion reflects the strategies we employed for the fund during the six
months 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.
It should be remembered, that there are risks involved with investing in a
non-diversified fund concentrated 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.
We thank you for your participation in the Franklin California Growth Fund,
welcome any comments or suggestions you may have, and look forward to serving
you in the years to come.
Performance Summary
The Franklin California Growth Fund's Class I shares produced a total return of
+6.80% for the six-month period ended October 31, 1996. Total return measures
the change in value of an investment, assuming reinvestment of dividends and
capital gains distributions, and does not include the initial sales charge.
Since Class II shares were offered beginning on September 3, 1996, performance
figures are not available.
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 8, the fund's Class I shares delivered a cumulative total
return of more than 166% since inception on October 30, 1991.
The fund's Class I share price, as measured by net asset value, increased $1.18
per share, from $18.27 on April 30, 1996 to $19.45 on October 31, 1996. The
fund's Class II share price, as measured by net asset value, increased $1.35
from $18.08 on September 3, 1996 to $19.43 on October 31, 1996. During the
reporting period, Class I shareholders received distributions totaling 5.9 cents
($0.059) per share in dividend income. Class II shares did not pay distributions
from inception on September 3, 1996 through the end of the period. Of course,
past performance is not predictive of future results, and distributions will
vary depending on income earned by the fund, as well as any profits realized
from the sale of securities in the portfolio.
Franklin California Growth Fund - Class I
Periods ended October 31, 1996
Since
Inception
1-Year 3-Year (10/30/91)
Cumulative Total Return1 24.61% 116.83% 166.44%
Average Annual Total Return2 18.98% 27.47% 20.52%
Value of $10,000 Investment3 $11,898 $20,712 $25,446
10/31/92 10/31/93 10/31/94 10/31/95 10/31/96
One-Year Total Return4 -2.19% 25.63% 19.75% 45.31% 24.61%
1. Cumulative total return represents the change in value of an investment over
the indicated periods and does not include the maximum 4.5% initial sales
charge.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods and includes the 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 initial sales charge.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include the
initial sales charge.
All total return calculations assume reinvestment of dividends and capital gains
distributions 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.
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.
During the six months ended October 31, 1996, the U.S. utilities market was
generally weak because of investor uncertainty regarding regulatory reforms
within the industry. However, many European and Asian utility stocks performed
well as a result of improved economic fundamentals and increased demand for
telephone services and electricity in these regions. And Latin American
utilities markets experienced volatility due to concerns about economic and
political stability in the area. Within this environment, the Franklin Global
Utilities Fund Class I shares produced a six-month total return of +6.49%, as
discussed in the Performance Summary on page 14, significantly outperforming the
FT-Actuaries Utilities Index's total return of +0.86% for the same period.*
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
*The FT-Actuaries Utilities Index was created in 1986 by Goldman Sachs in
conjunction with the Financial Times Limited and NatWest Securities Limited. The
index measures the total returns of global equity securities in the electric
utilities and water works supply, natural gas utilities, and telephone
industries. Securities included in the index are weighted according to their
market capitalization. One cannot invest directly in an index. Past performance
is not predictive of future results.
Seeking to take advantage of declining U.S. utilities' stock prices, we
increased our U.S. exposure from 43.1% of total net assets on April 30, 1996, to
57.0% at the end of the reporting period. At the same time, we reduced our
European holdings from 20.6% to 16.5%, and our Asian exposure from 10.3% to 7.9%
by selling holdings that we believed had become fully valued.
United States
During the reporting period, state and federal authorities continued to
deregulate the electric and telephone utility industries. For example,
California passed legislation seeking to transform its electric utility industry
from a monopoly into a competitive business by the year 2001. In our opinion,
this legislation could become the model for several other states now considering
deregulation. In the telecommunications sector, the Federal Communications
Commission (FCC) approved rules regarding the deregulation of regional Bell
telephone companies, which should ensure an orderly transition to a competitive
business environment over the next five years. Believing that the California law
and new FCC rules will increase growth opportunities for certain companies, we
initiated a position in ICG Communications, Inc., a major provider of
competitive local telephone services. We also added to our holdings of AT&T
Corp. and Pacific Gas & Electric Co.
Europe
As you know, Europe contains both developing and developed markets. The fund
benefited from investments in both markets during the period.
Portugal Telecom SA and Hellenic Telecommunications Organization, SA are
examples of holdings that could continue to perform well because of high demand
for telecommunications services typical in developing markets.
In the developed European markets, where demand for utility services is
maturing, many companies focused on containing costs, repurchasing their own
shares, taking advantage of foreign investment opportunities, and lowering
interest expenses through debt repayment. This enhanced the share prices of
several of the fund's holdings including Telefonica de Espana (Spain), Espoon
Sahko Oy (Finland), and Tele Danmark (Denmark).
During the reporting period, many European countries reduced their government
spending and large debt burdens in an attempt to meet requirements for
membership in the European Monetary Union. As a result, many electric and
telecommunication utility stocks appreciated in value, prompting us to take
profits in some of our holdings.
Franklin Global Utilities Fund
Top 10 Holdings on October 31, 1996
Based on Total Net Assets
Company % of Total
Industry, Country Net Assets
Enron Corp 3.4%
Electric & Gas Utilities, United States
Hellenic Telecommunications
Organization, SA 3.0%
Telecommunications Services, Greece
Telecom de Argentina, SA, ADR 3.0%
Telecommunications Services, Argentina
Enron Global Power & Pipelines, L.L.C. 3.0%
Electric & Gas Utilities, Argentina
Texas Utilities Co. 2.8%
Electric & Gas Utilities, United States
Espoon Sahko Oy 2.6%
Electric & Gas Utilities, Finland
Hong Kong Electric Holdings, Ltd. 2.5%
Electric & Gas Utilities, Hong Kong
Empresa Nacional Electricidad SA, ADR 2.4%
Electric & Gas Utilities, Chile
ICG Communications, Inc. 2.4%
Telecommunications Services,
United States
Telefonica de Espana, ADR 2.4%
Telecommunications Services, Spain
For a complete list of portfolio holdings, please see page 62 of this report.
Latin America
The decline in share prices of many Latin American utilities created what we
believed to be excellent buying opportunities. Therefore, we purchased stocks of
several companies with strong underlying fundamentals that, in our opinion, were
not fully reflected in their prices. For example, we initiated a position in
Telefonica del Peru, one of the largest Latin American companies ever
privatized, and increased our holdings of Telecom de Argentina, SA, a leading
provider of telephone services in Argentina.
Asia
Although Asia's utility companies continued to experience high demand for
electricity and tele-communications services, we maintained a low exposure to
this region because we felt that most utility stock valuations were too high.
However, believing that certain stocks offered attractive risk/reward
characteristics, we added to our holdings of Korea Mobile Telecom, and
maintained our positions in Korea Electric Power Corp., AES China Generating
Co., Ltd., and Nippon Telegraph & Telephone Corp.
Looking forward, the fund remains committed to its long-term objective of
maximizing total return through investing in a portfolio of utility stocks from
around the world. Global utilities still 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. In our opinion,
the February 1996 Telecommunications Bill should increase opportunities for U.S.
telecommunications firms, as telephone companies are allowed to offer new kinds
of services they were previously prohibited from offering.
Outside the U.S., Europe has the potential to be an attractive market due to
relatively low stock valuations and an improving economic and regulatory
outlook. And we think that many Latin American countries will continue
implementing market-friendly reforms that benefit the utility sector. There are,
of course, special risks involved with investing globally in a non-diversified
fund concentrating 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 six
months 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.
We thank you for your participation in the Franklin Global Utilities Fund and
look forward to serving your investment needs in the years to come.
Performance Summary
Class I
The Franklin Global Utilities Fund Class I shares provided a total return of
+6.49% for the six-month period ended October 31, 1996. 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.
Of course, we maintain a long-term perspective when managing the fund, and we
encourage shareholders to view their investments in a similar manner. As you can
see from the table to the right, the fund delivered a cumulative total return of
more than 77% since its inception on July 2, 1992.
As measured by net asset value, the fund's share price increased 70 cents
($0.70), from $14.28 on April 30, 1996, to $14.98 on October 31, 1996. During
this time, shareholders received distributions of 21.5 cents ($0.215) per share
in dividend income. Of course, past performance is not predictive of future
results, and distributions will vary depending on income earned by the fund, as
well as any profits realized from the sale of securities in the portfolio.
Franklin Global Utilities Fund
Class I
Periods ended October 31, 1996
Since
Inception
1-Year 3-Year (7/2/92)
Cumulative
Total Return1 18.16% 30.99% 77.63%
Average Annual
Total Return2 12.87% 7.76% 12.98%
Value of $10,000
Investment3 $11,287 $12,512 $16,965
10/31/93 10/31/94 10/31/95 10/31/96
One-Year
Total
Return4 34.12% -1.27% 12.29% 18.16%
1. Cumulative total return represents the change in value of an investment over
the indicated periods and does not include the maximum 4.5% initial sales
charge.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods and includes the initial sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the initial sales charge.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include the
initial 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 and political climates where investments
are made, 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.
Performance Summary
Class II
The Franklin Global Utilities Fund Class II shares provided a total return of
+6.06% for the six-month period ended October 31, 1996. 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.
As measured by net asset value, the fund's share price increased 67 cents
($0.67), from $14.24 on April 30, 1996, to $14.91 on October 31, 1996. During
this time, shareholders received distributions of 18.38 cents ($0.1838) per
share in dividend income. Of course, past performance is not predictive of
future results, and distributions will vary depending on income earned by the
fund, as well as any profits realized from the sale of securities in the
portfolio.
Franklin Global Utilities Fund
Class II
Periods ended October 31, 1996
Since
Inception
1-Year (5/1/95)
Cumulative Total Return1 17.48% 30.59%
Average Annual
Total Return2 15.34% 18.05%
Value of $10,000
Investment3 $11,534 $12,833
1. Cumulative total return represents the change in value of an investment over
the indicated periods and does not include the 1.0% initial sales charge and the
1.0% contingent deferred sales charge, applicable to shares redeemed within the
first 18 months of investment.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods and includes all sales charges.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified 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 and political climates where investments
are made, 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.
FRANKLIN SMALL CAP GROWTH FUND
Your Fund's Objective:
The Franklin Small Cap Growth Fund seeks long-term capital growth by investing
in equity securities of small-capitalization companies -- those with a market
capitalization of less than $1 billion at the time of investment.
The six months ended October 31, 1996, were a volatile period for U.S. equity
markets in general, and small cap stocks in particular. As the economy
strengthened, many investors became concerned about inflation and the
possibility of rising interest rates, and took profits in small cap stocks.
Between June 5, 1996 and July 24, 1996, the NASDAQ Composite Index, a
commonly-used barometer for small cap equities, plunged 16.55%.* While large cap
equities also suffered during this period, their decline was not as significant.
Although small cap stocks began to recover from their depressed levels towards
the end of the reporting period, they fell slightly in October. Within this
environment, the fund's Class I shares delivered a six-month total return of
+2.99% and a one-year cumulative total return of +24.85%, as shown in the
Performance Summary on page 19.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
*The National Association of Securities Dealers Automated Quotations (NASDAQ)
Composite Index is a market-weighted index of all common stocks traded over the
counter that are included in the NASDAQ quotations system. It excludes those
listed on an exchange and those with only one market maker. It is an index of
predominately smaller capitalization companies. This is a total return index
with dividends reinvested, as calculated by Wilshire Associates, Inc.
In our search for small capitalization companies that were well positioned for
rapid growth of revenues, earnings, or cash flow, we focused on businesses with
a competitive advantage such as a proprietary product or unique marketing niche.
We found attractive investments in a broad range of sectors, and on October 31,
1996, the fund held significant weightings in industries such as technology,
health services, finance, and energy and minerals.
Seeking to take advantage of the market's weakness in June and July, we
purchased shares in high-quality growth companies, particularly in technology
firms whose shares fell in sympathy with the rest of the market. For example, we
initiated positions in C-Cube Microsystems, Inc., a leading provider of digital
video compression technology, and Broderbund Software, Inc., a top developer of
personal computer software for the home, school and small business markets.
Franklin Small Cap Growth Fund
Top 10 Holdings on October 31, 1996
Based on Total Net Assets
Company % of Total
Industry Net Assets
Devon Energy Corp. 1.7%
Energy and Minerals
Quantum Corp. 1.5%
Electronic Technology
Logicon, Inc. 1.5%
Electronic Technology
Barrett Resources Corp. 1.5%
Energy and Minerals
Tommy Hilfiger Corp. 1.4%
Consumer Non-Durables
Scor, SA (France) 1.4%
Finance
Varco International, Inc. 1.4%
Energy and Minerals
Scholastic Corp. 1.4%
Consumer Non-Durables
Tracor, Inc. 1.4%
Electronic Technology
Linear Technology Corp. 1.3%
Semiconductors and Equipment
For a complete list of portfolio holdings, please see page 77 of this report.
During the period, we continued to search outside of traditional growth sectors
to find reasonably priced growth companies. Strong performance by our energy
stocks, including Barrett Resources Corp. and Abacan Resources Corp., which
profited from rising crude oil prices, contributed to the fund's total return.
We also realized profits on the sales of several holdings including DuPont
Photomasks, Inc., Castech Aluminum Group, Inc., and Shiva Corp.
We participated selectively in the initial public offering market, investing in
what we believed to be strong, emerging growth companies. Purchases included
Abercrombie & Fitch Co., a leading apparel retailer, and Cymer, Inc., a provider
of cutting-edge technology used in the manufacturing of next-generation
semiconductors.
Looking forward, we remain optimistic about prospects for the fund. In our
opinion, small cap stocks are attractively valued relative to the overall
market, and the growing economy and apparent lack of inflationary pressure
should create an environment conducive to the prosperity of smaller
capitalization companies. Of course, there are risks involved in investing in a
fund seeking long-term growth from small or relatively new or unseasoned
companies. These risks, which include relatively small revenues, limited product
lines and small market share, are further discussed in the fund's prospectus.
This discussion reflects the strategies we employed for the fund during the six
months under review, and includes our opinions at 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.
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 Class I shares provided a total return of
+2.99% for the six-month period ended October 31, 1996. 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 have always maintained a long-term perspective when managing the fund, and we
encourage shareholders to view their investments in a similar manner. As you can
see from the table to the right, the fund delivered a cumulative total return of
more than 151% since the fund's inception on February 14, 1992.
As measured by net asset value, the fund's share price increased 59 cents
($0.59), from $19.75 on April 30, 1996, to $20.34 on October 31, 1996. During
this time, shareholders received no distributions. Past performance is not
predictive of future results, and distributions will vary depending on income
earned by the fund, as well as any profits realized from the sale of securities
in the portfolio.
Franklin Small Cap Growth Fund
Class I
Periods ended October 31, 1996
Since
Inception
1-Year 3-Year (2/14/92)
Cumulative
Total Return1 24.85% 95.15% 151.28%
Average Annual
Total Return2 19.24% 23.06% 20.42%
Value of $10,000
Investment3 $11,924 $18,637 $24,000
10/31/93 10/31/94 10/31/95 10/31/96
One-Year
Total
Return4 31.12% 16.38% 34.31% 24.85%
1. Cumulative total return represents the change in value of an investment over
the indicated periods and does not include the maximum 4.5% initial sales
charge.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods and includes the initial sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the initial sales charge.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include the
initial 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
returns.
Performance Summary
Class II
The Franklin Small Cap Growth Fund Class II shares reported a total return of
+2.59% for the six-month period ended October 31, 1996. Total return measures
the change in value of an investment, assuming reinvestment of dividends and
capital gains distributions, and does not include sales charges.
As measured by net asset value, the fund's share price increased 51 cents
($0.51), from $19.66 on April 30, 1996, to $20.17 on October 31, 1996. During
this time, shareholders received no distributions. Past performance is not
predictive of future results, and distributions will vary depending on income
earned by the fund, as well as any profits realized from the sale of securities
in the portfolio.
Franklin Small Cap Growth Fund
Class II
Periods ended October 31, 1996
Since
Inception
1-Year (10/2/95)
Cumulative
Total Return1 23.96% 20.67%
Average Annual
Total Return2 21.76% 16.96%
Value of $10,000
Investment3 $12,176 $11,846
1. Cumulative total return represents the change in value of an investment over
the indicated periods and does not include the 1.0% initial sales charge and the
1.0% contingent deferred sales charge, applicable to shares redeemed within the
first 18 months of investment.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods and includes all sales charges.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified 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, 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.
FRANKLIN GLOBAL HEALTH CARE FUND
Your Fund's Objective:
The Franklin Global Health Care Fund seeks capital appreciation by investing
primarily in the equity securities of health care companies located throughout
the world.
The six-month period under review was an extremely volatile one for
health care investors. Following a long period of outperforming the market,
health care stocks declined from May through July. This decline was triggered by
a broad equity market correction and exacerbated by profit taking. Although the
industry rebounded in August and September, recovering most of the losses
incurred earlier in the summer, it fell again in October. Within this
environment, the fund produced a six-month total return of -10.87%, as shown in
the Performance Summary on page 25. Of course, we have always encouraged our
shareholders to maintain a long-term investment perspective and as you can see
in the Performance Summary, the fund's Class I shares produced a one-year total
return of +26.06% and a three-year cumulative total return of +102.84%.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
On October 31, 1996, the fund's portfolio was allocated globally across several
health care sectors. Medical technology represented our heaviest exposure
because many of these businesses are developing innovative products with the
potential for strong earnings growth. Two of our largest holdings in this sector
were Mentor Corp. and ESC Medical Systems Ltd. Mentor Corp. manufactures
products for plastic and reconstructive surgery. ESC Medical, also a cosmetic
device manufacturer, produces an instrument that emits ultrahigh frequency light
pulses that remove spider veins, skin blemishes and tattoos.
In July, the managed care/HMO sector was negatively impacted when United
Healthcare Corp. and HealthSource, Inc. reported disappointing earnings. We took
advantage of this decline and purchased stocks that we considered to be
attractively valued. In our opinion, HMOs could post enrollment gains at the
expense of traditional insurers as employers continue to seek lower-cost health
care options for their employees. Privatization of Medicare and Medicaid may
also add to HMO enrollment growth.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
During the period, we increased our exposure to companies which design
information systems that help health care providers reduce costs and improve the
quality of their care. We believe this is likely to become more important as
patients demand higher quality service from their plans, and HMOs place pressure
on hospitals and doctors to lower expenses. We also added to our holdings in HBO
& Co., Medic Computer Systems, Inc., Transition Systems, Inc., and Access
Health, Inc., and initiated positions in Amisys Managed Care Systems and Apache
Medical Systems, Inc.
Looking forward, we are optimistic about prospects for the health care industry.
In our opinion, an aging population will drive health care expenditures, and
rapidly changing technology should widen the range of treatable conditions and
increase life expectancy. We believe these trends represent opportunities for
Medicare HMOs, nursing homes and home care organizations, as well as potential
long-term increases in drug consumption and hospitalization.
Furthermore, demand for health care services and products generally is not
affected by the cyclical swings in the business cycle. Of course, now that the
elections are over, politicians may again focus on proposing reforms in Medicare
and Medicaid programs, but we believe there is little risk of these programs
being enacted before next summer. Our goal, as always, is to seize upon
investment opportunities that present themselves in the health care sector in a
timely and disciplined fashion, providing our shareholders unique opportunities
to invest in today's newest and fastest-growing companies.
This discussion reflects the strategies we employed for the fund during the six
months under review, and includes our opinions at 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.
Franklin Global Health Care Fund
Top 10 Holdings on October 31, 1996
Based on Total Net Assets
Company % of Total
Industry, Country Net Assets
Boston Scientific Corp. 3.7%
Medical Technology & Supplies,
United States
PacifiCare Health Systems, Inc., Class B 3.1%
Managed Care and HMOs, United States
Serologicals Corp. 3.1%
Biotechnology, United States
Ventritex, Inc. 2.6%
Medical Technology & Supplies,
United States
Molecular Devices Corp. 2.5%
Medical Technology & Supplies,
United States
Sierra Health Services, Inc. 2.5%
Managed Care and HMOs, United States
Medic Computer Systems, Inc. 2.4%
Software/Information Systems,
United States
Capstone Pharmacy Services, Inc. 2.4%
Miscellaneous, United States
Oxford Health Plans, Inc. 2.3%
Managed Care and HMOs, United States
Renal Care Group, Inc. 2.2%
Post-Acute Providers, United States
For a complete list of portfolio holdings, please see page 58 of this report.
There are, of course, special risks involved with investing globally in a
non-diversified fund concentrating its investments in a single industry. These
risks, which include currency fluctuations and increased susceptibility to
adverse economic, political, social and regulatory developments, are further
discussed in the fund's prospectus.
We appreciate your participation in the Franklin Global Health Care Fund and
look forward to serving your investment needs in the years to come.
Performance Summary
The Franklin Global Health Care Fund's Class I shares produced a total return of
- -10.87% for the six-month period ended October 31, 1996. Total return measures
the change in value of an investment, assuming reinvestment of dividends and
capital gains distributions, and does not include the initial sales charge.
Since Class II shares were offered beginning on September 3, 1996, performance
figures are not available.
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 26, the fund's Class I shares delivered a cumulative total
return of more than 107% since inception on February 14, 1992.
The fund's Class I share price, as measured by net asset value, decreased $2.12
per share, from $19.33 on April 30, 1996 to $17.21 on October 31, 1996. The
fund's Class II share price, as measured by net asset value, decreased 13 cents
($0.13) from $17.33 on September 3, 1996 to $17.20 on October 31, 1996. During
the reporting period, Class I shareholders received distributions totaling 2.1
cents ($0.021) per share in dividend income. Class II shares did not pay
distributions from inception on September 3, 1996 through the end of the period.
Of course, past performance is not predictive of future results, and
distributions will vary depending on income earned by the fund, as well as any
profits realized from the sale of securities in the portfolio.
Franklin Global Health Care Fund - Class I
Periods ended October 31, 1996
Since
Inception
1-Year 3-Year (2/14/92)
Cumulative Total Return1 26.06% 102.84% 107.05%
Average Annual Total Return2 20.40% 24.67% 15.57%
Value of $10,000 Investment3 $12,040 $19,379 $19,775
10/31/93 10/31/94 10/31/95 10/31/96
One-Year Total Return4 10.67% 23.62% 30.17% 26.06%
1. Cumulative total return represents the change in value of an investment over
the indicated periods and does not include the maximum 4.5% initial sales
charge.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods and includes the 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 initial sales charge.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include the
initial sales charge.
All total return calculations assume reinvestment of dividends and capital gains
distributions 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.
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.
Moderate economic growth coupled with continued low inflation provided the
market fundamentals necessary for a positive performance during the six months
ended October 31, 1996. As you know, we have the ability to diversify
investments and allocate assets across a variety of market sectors -- in
particular, foreign government bonds, emerging market debt securities, high
yield corporate bonds, U.S. government bonds, convertible securities, and
mortgage-backed securities. We exercised this investment freedom to capitalize
on opportunities presented to us in the marketplace, moving between and
maximizing the strengths of certain sectors. In the end, we achieved an
attractive six-month total return of +8.30%, as discussed in the Performance
Summary on page 30.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
High Yield Corporate Bonds
In general, high yield corporate bonds benefited from the low inflation
environment of the last six months, with August and September as particularly
good months for price appreciation. Our holdings in telecommunication and
media/broadcasting bonds strengthened as a result of two major industry trends:
consolidation and deregulation. We positioned the fund to take advantage of
recent positive global trends in the telecommunications industry with our
holding of Millicom International Cellular, a company with diversified
operations in several developing markets.
Within the metals sector, our focus on undervalued companies, such as Gulf
States Steel, proved beneficial to the fund by way of price appreciation. Also,
continued job out-sourcing in the automotive sector helped the solid performance
of our auto-supplier holdings of Aetna Industries Inc. and Collins & Aikman
Products.
Convertible Securities
A strong equity market and falling interest rates contributed to a solid
performance in our con-vertible securities sector. We sold our position in Youth
Services International during the period after its price had appreciated to a
point that offered little downside protection. Another strong convertible
performer was U.S. Diagnostic, a consolidator of imaging centers. Its common
stock sells at a discount to the market and, based on this, we feel that this
convertible security continues to offer significant growth potential.
A security that has yet to meet our standards is Xilinx Inc., a maker of field
programmable gate arrays. We feel that the company's prospects are bright, and
we anticipate good performance from this holding as well as from another
position we hold in this group -- Altera Corp.
Emerging Markets
Emerging markets continued to rally during the reporting period, and our large
weighting in this sector (13.5% of total net assets) contributed significantly
to the fund's strong total return. With the majority of our emerging markets
holdings in Latin America, we benefited from the region's ongoing economic
recovery, low inflation, and strong export growth.
International
Over the six-month period, we decreased our exposure to foreign
currency-denominated bonds as we believed most of these securities were likely
to decline in value relative to the U.S. dollar. We also reallocated our assets
within Europe, moving away from core countries such as Germany to take advantage
of the superior performance offered by the higher-yielding markets of Italy,
Spain, Sweden and the United Kingdom.
U.S. Treasury Securities
Strong economic growth in the second quarter of 1996 renewed inflation fears and
pushed U.S. Treasury yields higher on speculation that the Federal Reserve Board
(the Fed) might raise the federal funds rate. The Fed did not raise rates, and
by the end of the third quarter 1996, economic growth had eased to an annualized
rate of 2.2%, quelling investor concerns. The yield of the 10-year U.S. Treasury
note oscillated between 6.66% and 7.06% during the six-month period before
settling at 6.37% on October 31, 1996.
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. and abroad.
This discussion reflects the strategies we employed for the fund and includes
our opinions as of the close of the reporting period. Since economic and market
conditions are constantly changing, our strategies, evaluations, conclusions and
decisions regarding portfolio holdings may change in light of new circumstances.
Although past performance of a specific investment or sector cannot guarantee
future performance, such information can be useful in analyzing the 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 47 cents, from $10.77 on April 30, 1996, to $11.24 on October
31, 1996.
For the six-month period, your fund paid monthly income distributions totaling
40.2 cents ($0.402) per share. Based on an annualization of October's dividend
of 6.7 cents ($0.067) per share and the maximum offering price of $11.74 on
October 31, 1996, your fund's distribution rate was 6.85%.
The Franklin Strategic Income Fund posted a total return of +8.30% for the six
months ended October 31, 1996. Cumulative total return measures the change in
value of an investment over the periods indicated, assuming reinvestment of
dividends and capital gains, and does not include the initial sales charge. Past
performance is not predictive of future results.
Franklin Strategic Income Fund
Periods ended October 31, 1996
Since
Inception
1-Year (6/1/94)
Cumulative Total Return1 15.88% 36.37%
Average Annual
Total Return2 10.95% 11.69%
Value of a $10,000
Investment3 $11,588 $13,637
Distribution Rate4 6.85%
30-Day Standardized Yield5 7.69%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges. See Note below.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the maximum 4.25% initial
sales charge. See Note below.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the maximum 4.25% initial sales
charge.
4. Distribution rate is based on an annualization of the fund's 6.7 cent per
share monthly dividend and the maximum offering price of $11.74 on October 31,
1996.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended October 31, 1996.
Note: 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 the distribution rate, yield and total return to
shareholders. If the manager had not taken this action, the fund's distribution
rate and total return would have been lower, and yield for the period would have
been 6.86%. The fee waiver may be discontinued at any time upon notification to
the fund's Board of Trustees.
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.
During the six months ended October 31, 1996, U.S. and foreign economies enjoyed
moderate growth, causing a gradual tightening in the supply of some major
commodities. As a result, oil and natural gas prices increased, which
contributed to the profitability of energy companies. At the same time,
volatility in the U.S. equity markets led to a gradual shift of capital toward
securities of companies with reserves of tangible assets, benefiting many
sectors in which the fund invests. Within this environment, the fund produced a
total return of +8.83% for the six-month period, as discussed in the Performance
Summary on page 35.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Throughout the reporting period, the fund continued to invest in what we
believed were well-managed companies with rapidly growing, highly efficient,
technologically advanced operations in the oil and gas, precious and base
metals, forest products and paper, chemical, steel, and real estate sectors.
Since 56% of our assets were dedicated to the energy sector as of October 31,
1996, the fund benefited from the increase in energy prices which occurred
during the period.
Two companies that contributed significantly to the fund's performance were
Barrett Resources Corp. and Varco International, Inc. Barrett, an independent
oil and gas exploration and production company, performed well due to its
successful exploration efforts and its low-cost, rapid production growth. And
Varco International, an oilfield service company, benefited from high demand for
its drilling equipment that helps make oil and gas drilling rigs safer and more
productive. Although Cairn Energy USA, Inc. turned in a string of unsuccessful
oil and gas drilling results in the Gulf of Mexico, we added to this holding at
what we believed were bargain prices. One of the lowest cost producers in the
country, it has grown rapidly and in our opinion, has good potential for future
growth.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The specialty chemical sector, particularly fertilizer producers, also
contributed to the fund's strong performance. Low grain inventories led to
worldwide demand for higher crop yields, which translated into increasing
profitability for companies such as Arcadian Corp., IMC Global, Inc., and Potash
Corp. Mergers and acquisitions also impacted the sector as Potash acquired
Arcadian, prompting us to take profits on a portion of these holdings. Although
we reduced our weighting in this sector after its strong appreciation, we view
industry consolidation and an increasing demand for fertilizer as positive
trends and remain optimistic about this sector's future.
During the reporting period, we increased the fund's exposure to precious metals
companies. Believing that they have significant reserve and production
potential, we added several gold producers such as Geomaque Explorations, Ltd.,
William Resources, Inc. and Pangea Goldfields, Inc. However, we decreased our
exposure to forest products and specific base metals such as copper because we
are uncertain whether demand for these products will be strong enough to absorb
an expected increase in their supply.
Franklin Natural Resources Fund
Top 10 Holdings on October 31, 1996
Based on Total Net Assets
Company % of Total
Industry, Country Net Assets
Devon Energy Corp. 4.7%
Energy, United States
Enron Oil & Gas Co. 4.6%
Energy, United States
Abacan Resource Corp. 4.3%
Energy, Canada
Cairn Energy USA, Inc. 3.5%
Energy, United States
Petroleum Securities Australia, Ltd., ADR 2.9%
Energy, Australia
Houston Exploration Co. 2.6%
Energy, United States
Pinnacle Resources, Ltd. 2.4%
Energy, Canada
Total, SA, ADR 2.1%
Energy, France
Barrett Resources Corp. 1.9%
Energy, United States
IMC Global, Inc. 1.8%
Chemicals, United States
For a complete list of portfolio holdings, please see page 72 of this report.
Looking forward, we are optimistic about the prospects for natural resources
companies. If the current benign price environment for commodities continues, it
could lead to a sustained level of high profitability for commodity-related
industries. 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 rapid production growth, asset or technological edge and lower
costs.
It should be remembered, however, 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 investing. Developing markets are
represented in the fund's portfolio, and involve heightened risks related to the
same factors, in addition to risks associated with the relatively small size and
lesser liquidity of these markets. These and other risk considerations are
discussed in the prospectus.
This discussion reflects the strategies we employed for the fund during the six
months 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.
We appreciate your participation in the Franklin Natural Resources Fund and look
forward to serving your investment needs in the years to come.
Performance Summary
The Franklin Natural Resources Fund produced a total return of +8.83% for the
six-month period ended October 31, 1996. Total return measures the change in
value of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the initial sales charge.
The fund's share price, as measured by net asset value, increased $1.12 per
share, from $13.14 on April 30, 1996 to $14.26 on October 31, 1996. During the
reporting period, shareholders received distributions totaling 3.6 cents
($0.036) per share in dividend income. Of course, past performance is not
predictive of future results, and distributions will vary depending on income
earned by the fund, as well as any profits realized from the sale of securities
in the portfolio.
Franklin Natural Resources Fund
Periods ended October 31, 1996
Since
Inception
1-Year (6/5/95)
Cumulative Total Return1 46.74% 45.13%
Average Annual
Total Return2 40.08% 26.11%
Value of $10,000
Investment3 $14,008 $13,861
1. Cumulative total return represents the change in value of an investment over
the indicated periods and does not include the maximum 4.5% initial sales
charge.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods and includes the 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 initial sales charge.
All total return calculations assume reinvestment of dividends and capital gains
distributions 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 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 semi-annual report for the Franklin Blue
Chip Fund, which covers the period from the fund's inception on June 3, 1996,
through October 31, 1996.
The period under review has been a volatile one for global equity markets. U.S.
equities, as measured by the Standard & Poor's 500 Index (S&P 500(R))1, declined
through July, but rebounded in August and ended the reporting period at new
highs. Foreign markets, as measured by the Morgan Stanley Capital International
All Country World Index1, also experienced a decline in July, but lagged the
U.S. market in their subsequent recovery.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
1. Please remember that 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.
Led by the United Kingdom, Sweden, Germany and Switzerland, European stock
markets outperformed other foreign markets throughout the period. In Latin
America, Brazil's equity market performed well while Argentina's lagged. And in
Asia, the smaller "Asian Tiger" countries experienced decelerated growth, as
markets in Thailand and Korea fell more than 15%. While the fund's broad
geographic diversification diluted the positive effects of Europe's strong
performance upon our portfolio, it also mitigated the impact of the severe
declines in Asia. Within this environment, the fund delivered a total return of
+2.40% for the first five months since its inception, as discussed in the
Performance Summary on page 40.
On October 31, 1996, U.S. securities represented 27.8% of the fund's total net
assets, foreign securities accounted for 49.6% and the remaining 22.6% was in
cash and cash equivalents. We are being patient in our search for profitable,
well-established, attractively valued, blue chip companies and it is our policy
not to purchase a security if it is trading above our assessment of its true
value.
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
As you can see from the chart on page 37, our holdings on October 31 included 10
industry sectors. The fund benefited from its exposure to companies in the
technology, health care, and consumer staples sectors.
Intel Corp., the dominant semiconductor manufacturer and one of our top ten
holdings, appreciated 42.5% since the fund's inception. Boston Scientific Corp.,
a worldwide leader in the manufacturing and development of medical devices, was
one of our best performing holdings. Its shares rose 26.8% in value in the
period under review. And Loewen Group, Inc., the North American leader in
managing funeral homes and cemeteries, rose 36.1% since the fund's inception.
Meanwhile, share prices of several utilities declined in value, giving us an
opportunity to add to our positions in Italmobiliare, the largest provider of
cellular telephone service in Italy, and Hong Kong Telecom, the main provider of
long-distance phone service in Hong Kong.
Franklin Blue Chip Fund
Top 10 Holdings on October 31, 1996
Based on Total Net Assets
Company % of Total
Industry, Country Net Assets
Roche Holding AG 1.4%
Pharmaceuticals, Switzerland
Procter & Gamble Co. 1.2%
Consumer Products, United States
Intel Corp. 1.2%
Computer Hardware, United States
VEBA AG 1.1%
Utilities, Germany
Mobil Corp. 1.1%
Oil and Gas, United States
General Electric Co. 1.0%
Electronics, United States
HSBC Holding Plc 1.0%
Banking, United Kingdom
Deutsche Bank AG 1.0%
Banking, Germany
Royal Dutch Petroleum Co. 1.0%
Oil & Gas, Netherlands
The Coca-Cola Co. 0.9%
Food and Beverages, United States
For a complete list of portfolio holdings, please see page 45 of this report.
Looking ahead, we are optimistic about investment opportunities for the fund. We
will continue to search for industry leaders that we believe have quality
management and superior products which should enable them to maintain their
leadership positions over the long term. Since many of today's top companies
have global business strategies and international assets, the fund's global
diversification should help us achieve this goal. However, investing in the fund
involves the special risks of global investing related to market and currency
volatility, adverse social and political developments, and the relatively small
size and lesser liquidity of these markets. These and other risk considerations
are discussed in the prospectus.
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,
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 Blue Chip Fund. We appreciate your
support and will update you about our progress in the fund's first annual report
that you will receive in six months.
Performance Summary
The Franklin Blue Chip Fund produced a total return of +2.40% for the period
from its inception on June 3, 1996, through October 31, 1996. Total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gain distributions, and does not include the fund's
initial sales charge.
The fund's share price, as measured by net asset value, increased 24 cents
($0.24) per share, from $10.00 on June 3, 1996 to $10.24 on October 31, 1996.
During the reporting period, shareholders did not receive any dividends or
capital gain distributions. Of course, past performance is not predictive of
future results, and distributions will vary depending on income earned by the
fund, as well as any profits realized from the sale of securities in the
portfolio.
Franklin Blue Chip Fund
Period ended October 31, 1996
Since
Inception
(6/3/96)
Cumulative Total Return1 2.40%
Aggregate Total Return2 -2.20%
1. Cumulative total return represents the change in value of an investment over
the indicated period and does not include the maximum 4.5% initial sales charge.
2. Aggregate total return represents the change in value of an investment over
the indicated period and includes the initial sales charge. Since the fund has
been in existence for less than one year, average annual total returns are not
provided.
All total return calculations assume reinvestment of dividends and capital gains
distributions 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 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 first semi-annual report of the Franklin MidCap
Growth Fund which covers the five months ended October 31, 1996. Formerly called
the Franklin Institutional MidCap Growth Fund, the fund changed its investment
objective, strategy and investment adviser prior to becoming available to retail
investors for the first time on June 1, 1996.
During the period under review, the U.S. equity market performed well. Retail
sales, employment and industrial production rose, but the economy did not appear
to be overheating. And although concerns about inflation surfaced occasionally,
interest rates remained fairly stable. Within this environment, the fund
provided a five-month total return of +2.64%, as shown in the Performance
Summary on page 44.
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Seeking to identify companies with a market capitalization between $200 million
and $5 billion that we believed were well-positioned for rapid growth in
revenues, earnings, or cash flow, we focused on leaders in growing industries
providing differentiated products or services that are not easily replicated and
provide a sustainable competitive advantage. As of October 31, 1996, the fund
was 89.3% invested in a diversified stock portfolio covering a broad range of
industries, with the remaining 10.7% held in short-term assets.
The largest portion of the fund's portfolio was invested in electronic
technology stocks. New products and services being developed in this field
continually revolutionize the way we work and play, and provide an ongoing
stream of exciting potential investment opportunities. During the period, we
initiated a position in Ascend Communications, which provides networking
products used for telecommuting and internet access, two of the fastest growing
and most profitable niche markets in computing technology. We also initiated a
position in 3Com Corp., a leading networking equipment vendor.
Franklin MidCap Growth Fund
Top 10 Holdings on October 31, 1996
As a Percentage of Total Net Assets
Company % of Total
Industry Net Assets
CUC International, Inc. 1.7%
Consumer Services
Adaptec, Inc. 1.7%
Electronic Technology
Devon Energy Corp. 1.6%
Industrial Services
Education Management Corp. 1.5%
Consumer Services
AES Corp. 1.5%
Industrial Services
Varco International, Inc. 1.5%
Industrial Services
Quantum Corp. 1.4%
Electronic Technology
Scor, SA (France) 1.4%
Finance
Norrell Corp. 1.3%
Electronic Technology
Expeditors International
of Washington, Inc. 1.3%
Transportation
For a complete list of portfolio holdings, please see page 66 of this report.
Our focus on companies with rapid growth prospects led us to invest in Barrett
Resources, a leader in oil and gas exploration with the potential for
significant increases in production. We also initiated positions in reasonably
valued, high-quality consumer service companies such as Starbucks, a premier
specialty coffee retailer, which has perhaps one of the most recognized brand
names in its industry.
Looking forward, we are optimistic about the fund's long-term investment
potential. In our opinion, medium-capitalization stocks offer the best features
of both small- and large-capitalization stocks. Medium-capitalization companies
are more established and tend to be more stable than the smaller companies, but
unlike large-capitalization companies which can offer greater stability, they
generally are still growing rapidly.
This discussion reflects the strategies we employed for the fund during the five
months ended October 31, 1996, 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 the securities we purchase or sell for the fund.
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 reported a total return of +2.64% for the
five-month period beginning June 1, 1996, the date the fund became available to
retail investors, through October 31, 1996. Total return measures the change in
value of an investment, does not include the maximum initial sales charge, and
assumes reinvestment of dividends and capital gains.
During the reporting period, shareholders received income distributions totaling
5.0 cents ($0.05) per share. As measured by net asset value, the price of the
fund's shares increased by $0.33, from $14.44 on June 1, 1996, to $14.77 on
October 31, 1996. 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.
Franklin MidCap Growth Fund
Periods ended October 31, 1996
Since
5-Month Objective Since
Reporting Change Inception
Period (1/2/96)5 1-Year5 (8/17/93)5
Cumulative Total Return1 2.64% 0.35% 19.00% 57.64%
Average Annual Total Return2 -1.97% -4.16% 13.62% 13.61%
Value of $10,000 Investment3 $9,803 $9,584 $11,362 $15,056
10/31/94 10/31/95 10/31/96
One-Year Total Return4 1.52% 26.81% 19.00%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.5% initial sales
charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 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 initial sales charge.
4. One-year total return represents the change in value of an investment over
the one-year 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 total return calculations assume reinvestment of dividends and capital gains
distributions 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 returns, and past performance is not predictive of future results.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, October 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Value
Country* Shares Franklin Blue Chip Fund (Note 1)
Common Stocks 77.3%
<S> <C> <C> <C>
Automotive and Transportation 3.3%
JP 1,000 Bridgestone Corp. ........................................................ $ 16,875
US 800a Fritz Companies, Inc. .................................................... 12,800
US 700 Mark IV Industries, Inc. ................................................. 15,138
JP 2,000 Nippon Express Co., Ltd. ................................................. 16,259
SD 2,000 Singapore Airlines, Ltd. ................................................. 17,604
US 500 Tata Engineering and Locomotive Co., Ltd., GDR............................ 6,188
JP 1,000 Toyota Motor Corp. ....................................................... 23,642
-------------
108,506
-------------
Banking 8.7%
US 100 Banco Frances del Rio de la Plata, SA, ADR................................ 2,625
TB 1,600 Bangkok Bank Public Co., Ltd. ............................................ 17,070
CA 700 Bank of Montreal.......................................................... 21,171
US 1,400 Bank of Tokyo-Mitsubishi, ADR............................................. 28,875
US 300 Citicorp.................................................................. 29,700
JP 1,000 Dai-Ichi Kangyo Bank, Ltd. ............................................... 16,259
DK 100 Den Danske Bank........................................................... 7,174
DD 700 Deutsche Bank, AG ........................................................ 32,533
BE 23 Generale De Banque, SA.................................................... 8,038
HK 1,000 Hang Seng Bank, Ltd. ..................................................... 11,866
GB 1,600 HSBC Holding, Plc. ....................................................... 33,596
US 200 J.P. Morgan & Co., Inc. .................................................. 17,275
MR 1,000 Malayan Banking Berhad.................................................... 9,895
PP 237 Metropolitan Bank & Trust Co. ............................................ 5,242
JP 1,000 Mitsui Trust & Banking.................................................... 9,668
US 300 National Australia Bank, Ltd., ADR........................................ 16,463
SA 400 Nedcor, Ltd. ............................................................. 5,837
JP 1,000 Sanwa Bank................................................................ 17,050
-------------
290,337
-------------
Chemicals 2.4%
DD 500 Bayer, AG................................................................. 18,880
US 100 E.I. du Pont de Nemours and Co. .......................................... 9,275
US 500 Monsanto Co. ............................................................. 19,813
US 300 Praxair, Inc. ............................................................ 13,275
JP 1,000 Shin-Etsu Chemical Co. ................................................... 17,138
-------------
78,381
-------------
Computer Hardware1.8%
US 100a Compaq Computer Corp. .................................................... $ 6,963
US 400 Hewlett-Packard Co. ...................................................... 17,650
US 350 Intel Corp. .............................................................. 38,456
-------------
63,069
-------------
Computer Software 3.9%
US 200a 3Com Corp. ............................................................... 13,525
US 200a Cisco Systems, Inc. ...................................................... 12,375
US 100 First Data Corp. ......................................................... 7,975
US 200a Microsoft Corp. .......................................................... 27,450
US 400a Newbridge Networks Corp. ................................................. 12,650
US 300a Oracle Systems Corp. ..................................................... 12,694
DD 200 SAP, AG................................................................... 26,888
US 500a Xilinx, Inc. ............................................................. 16,375
-------------
129,932
-------------
Consumer Products 5.1%
DD 300 Adidas, AG................................................................ 25,269
US 200 Estee Lauder Companies, Class A........................................... 8,600
US 200 Gillette Co. ............................................................. 14,950
JP 2,000 Kao Corp. ................................................................ 23,554
FR 43 L'OREAL................................................................... 14,866
US 500 Mattel, Inc. ............................................................. 14,438
US 400 Procter & Gamble Co. ..................................................... 39,600
IR 1,000 PT Hanjaya Mandala Sampoerna ............................................. 9,295
US 200a TAG Heuer International, SA, ADR ......................................... 3,200
US 100 Unilever, New York Shares ................................................ 15,288
-------------
169,060
-------------
Electronics 6.0%
US 100 AMP, Inc. ................................................................ 3,388
BE 44 Barco Industries ......................................................... 7,237
US 300 Canon, Inc., ADR.......................................................... 28,913
US 100 Ericsson (L.M.) Telecommunications, ADR................................... 2,763
US 350 General Electric Co. ..................................................... 33,863
US 100 Hitachi, Ltd., ADR ....................................................... 8,938
US 100 Matsushita Electric Industrial Co., Ltd., ADR ............................ 16,163
US 100 Motorola, Inc. ........................................................... 4,600
US 300 NEC Corp., ADR ........................................................... 16,425
US 200 Oy Nokia Corp., ADR ...................................................... 9,275
DD 400 Siemens, AG .............................................................. 20,694
Electronics (cont.)
JP 500 Sony Corp. ............................................................... $ 30,014
JP 3,000 Toshiba Corp. ............................................................ 18,773
-------------
201,046
-------------
Financial Services 4.0%
US 250 American International Group, Inc. ....................................... 27,156
IT 320 Assicurazioni Generali ................................................... 6,177
FR 161 AXA, SA................................................................... 10,057
US 200 Charles Schwab Corp. ..................................................... 5,000
US 400 Federal National Mortgage Association..................................... 15,650
US 100 General Re Corp. ......................................................... 14,725
AU 400 Lend Lease Corp., Ltd. ................................................... 6,780
SA 200 Liberty Life Association of Africa, Ltd. ................................. 5,464
US 100 Merrill Lynch & Co., Inc. ................................................ 7,025
JP 1,000 Nomura Securites Co., Ltd. ............................................... 16,523
SF 8 Swiss Reinsurance Co., Zurich ............................................ 8,591
US 200 Tokio Marine & Fire Insurance Co., ADR ................................... 11,050
-------------
134,198
-------------
Food and Beverages 4.5%
US 600 The Coca-Cola Co. ........................................................ 30,300
US 100 CPC International, Inc. .................................................. 7,888
US 100 Kirin Brewery Co., Ltd., ADR ............................................. 10,450
FR 57 LVMH ..................................................................... 13,058
SF 21 Nestle, SA ............................................................... 22,834
US 100 Panamerican Beverages, Inc., A Shares..................................... 4,363
IT 3,800 Parmalat Finanziaria, S.p.A. ............................................. 5,435
US 800 PepsiCo, Inc. ............................................................ 23,700
US 200 Phillip Morris Companies, Inc. ........................................... 18,525
CA 200 Seagram Co., Ltd. ........................................................ 7,533
SA 200 South African Breweries, Ltd. ............................................ 5,198
-------------
149,284
-------------
Gaming and Leisure1.2%
US 100 Disney (Walt) Co. ........................................................ 6,588
MR 1,000 Genting Berhad............................................................ 7,481
US 100a HFS, Inc. ................................................................ 7,325
US 100 Marriott International, Inc. ............................................. 5,688
US 400a Sabre Group Holdings, Inc. ............................................... 12,200
-------------
39,282
-------------
Health Care 1.3%
US 200 Baxter International, Inc. ............................................... $ 8,325
US 200a Boston Scientific Corp. .................................................. 10,875
US 300 Columbia/HCA Healthcare Corp. ............................................ 10,725
US 200 HBO & Co. ................................................................ 12,025
-------------
41,950
-------------
Media and Broadcasting 1.7%
US 600 News Corp., Ltd., ADR..................................................... 13,575
GB 1,500 Reuters Holdings, Plc. ................................................... 18,666
NG 200 Wolters Kluwer ........................................................... 25,711
-------------
57,952
-------------
Metals, Mining, and Construction 4.2%
SK 100 ABB AB, B Shares.......................................................... 11,155
GB 700 Antofagasta Holdings, Plc. ............................................... 4,045
AS 110 Boehler-Uddeholm, AG...................................................... 8,232
US 800 Broken Hill Proprietary Co., Ltd., ADR.................................... 21,500
US 500 Cemex, SA de CV, ADR, B Shares ........................................... 3,593
US 400 Cia Vale Do Rio Doce, ADR................................................. 8,293
US 200 DeBeers Consolidated Mines, Ltd., ADR..................................... 5,900
JP 2,000 Komatsu, Ltd. ............................................................ 16,382
JP 2,000 Mitsubishi Heavy Industries, Ltd. ........................................ 15,381
JP 4,000 Nippon Steel Co. ......................................................... 11,672
US 200 Pohang Iron & Steel Co., Ltd., ADR........................................ 4,150
US 200 RTZ Corp., Plc. .......................................................... 12,950
SK 400 Sandvik AB, B Shares ..................................................... 9,435
TB 200 Siam Cement Public Co., Ltd. ............................................. 6,841
-------------
139,529
-------------
Miscellaneous1.4%
HK 2,000 Hutchinson Whampoa, Ltd. ................................................. 13,968
CA 200 Loewen Group, Inc. ....................................................... 7,906
MR 3,000 Sime Darby Berhad......................................................... 10,627
US 100 United Technologies Corp. ................................................ 12,875
-------------
45,376
-------------
Oil and Gas6.4%
US 100 British Petroleum Co., Plc., ADR.......................................... 12,863
IT 1,000 ENI, S.p.A. .............................................................. 4,785
US 300 Enron Corp. .............................................................. 13,950
Oil and Gas (cont.)
US 300 Exxon Corp. .............................................................. $ 26,588
US 300 Mobil Corp. .............................................................. 35,025
US 500 Perez Co., SA, ADR........................................................ 6,351
CA 800a Renaissance Energy, Ltd. ................................................. 25,359
US 300 Repsol, SA, ADR........................................................... 9,788
US 200 Royal Dutch Petroleum Co., New York Shares................................ 33,075
US 600 Total, SA, ADR............................................................ 23,400
US 200 Williams Companies, Inc. ................................................. 10,450
US 500 YPF Sociedad Anonima, ADR................................................. 11,375
-------------
213,009
-------------
Pharmaceuticals 4.5%
US 200a Amgen, Inc. .............................................................. 12,263
SK 100 Astra AB, B Shares........................................................ 4,566
US 200 Eli Lilly & Co. .......................................................... 14,100
US 400 Johnson & Johnson......................................................... 19,700
SF 6 Roche Holding ............................................................ 45,426
SF 20 Sandoz, AG ............................................................... 23,141
GB 2,400 Smithkline Beecham, Plc. ................................................. 29,631
-------------
148,827
-------------
Real Estate 2.0%
PP 6,000 Ayala Land, Inc., B Shares ............................................... 6,393
HK 2,000 Cheung Kong Holdings, Ltd. ............................................... 16,037
SD 1,000 City Developments, Ltd. .................................................. 7,879
TB 500 Land and House Public Co., Ltd. .......................................... 4,158
JP 2,000 Sekisui House, Ltd. ...................................................... 21,093
HK 1,000 Sun Hung Kai Properties, Ltd. ............................................ 11,381
-------------
66,941
-------------
Restaurants and Food Service1.0%
US 300 McDonald's Corp. ......................................................... 13,313
FR 33 Sodexho, SA............................................................... 15,952
US 100a Starbucks Corp. .......................................................... 3,250
-------------
32,515
-------------
Retail3.4%
FR 31 Carrefour Supermarche..................................................... 17,205
US 400 Home Depot, Inc. ......................................................... 21,900
US 100 Ito-Yokado Co., Ltd., ADR................................................. 20,000
GB 2,800 Marks & Spencer, Plc. .................................................... 23,494
Retail (cont.)
US 100 May Department Stores Co. ................................................ $ 4,738
IT 1,000 La Rinacente, S.p.A. ..................................................... 5,923
US 700 Wal-Mart Stores, Inc. .................................................... 18,638
-------------
111,898
-------------
Telecommunications7.3%
US 500a Airtouch Communications, Inc. ............................................ 13,063
US 500 AT & T Corp. ............................................................. 17,438
US 500 BellSouth Corp. .......................................................... 20,375
US 200 British Telecommunications, Plc., ADR..................................... 11,525
US 600 Hong Kong Telecommunications, Ltd., ADR................................... 10,575
IT 1,200 Italmobiliare............................................................. 14,482
US 300a Korea Mobile Telecommunications, ADR...................................... 3,750
US 162 Lucent Technologies, Inc. ................................................ 7,616
US 700 Nippon Telegraph & Telephone, ADR......................................... 25,375
US 40 Philippine Long Distance Telephone Co., ADR............................... 2,395
IR 6,000 PT Telekomunikasi Indonesia............................................... 8,951
SD 4,000 Singapore Telecommunications, Ltd. ....................................... 9,313
US 700a Tele-Communications, Inc. ................................................ 18,025
US 300 Tele Danmark, A/S, ADR.................................................... 7,500
US 200 Telecom Argentina, SA, ADR................................................ 7,550
NZ 1,800 Telecom Corp. of New Zealand, Ltd. ....................................... 9,360
US 100 Telecomunicacoes Brasileiras, SA, ADR..................................... 7,450
US 200 Telefonica de Espana, ADR................................................. 12,050
US 400 Telefonos de Mexico, SA, ADR.............................................. 12,200
MR 2,000 Telekom Malaysia Berhad................................................... 17,653
US 1,000 Total Access Communication Public Co., Ltd. .............................. 6,900
-------------
243,546
-------------
Utilities3.2%
US 300 CEMIG, ADR................................................................ 9,548
US 200 Duke Power Co. ........................................................... 9,775
US 600 Endesa, ADR............................................................... 11,025
US 300 Enersis, SA, ADR.......................................................... 8,813
US 300 Korea Electric Power Corp., ADR........................................... 5,400
JP 4,000 Osaka Gas Co. ............................................................ 12,375
US 600 Southern Co. ............................................................. 13,275
DD 700 VEBA, AG.................................................................. 37,379
-------------
107,590
-------------
Total Common Stocks (Cost $2,511,535)..................................... 2,572,228
-------------
Preferred Stocks0.1%......................................................
BR 10,000 Banco Itau, SA (Cost $4,126).............................................. $ 4,331
-------------
Total Long Term Investments (Cost $2,515,661)............................. 2,576,559
-------------
Face
Amount
dReceivable from Repurchase Agreements22.9%
US 760,079 Joint Repurchase Agreements, 5.529%, 11/01/96 (Maturity Value $764,183)
(Cost $764,066)
B.A. Securities, Inc., (Maturity Value $90,491)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.25% - 8.75%, 12/31/96 - 05/31/98
Bear, Stearns & Co., Inc., (Maturity Value $90,491)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $67,869)
Collateral: U.S. Treasury Notes, 5.875% , 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $67,869)
Collateral: U.S. Treasury Notes, 4.75% - 5.625%, 10/31/97 - 09/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $90,491)
Collateral: U.S. Treasury Notes, 4.75% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $79,180)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $90,491)
Collateral: U.S. Treasury Notes, 5.625% - 8.00%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $6,319)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $90,491)
Collateral: U.S. Treasury Notes, 4.75% - 8.75%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $90,491)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 04/30/98 - 09/30/00...... 764,066
-------------
Total Investments (Cost $3,279,727)100.3%................................. 3,340,625
Liabilities in Excess of Other Assets(0.3)%............................... (9,101)
-------------
Net Assets100.0%.......................................................... $3,331,524
=============
At October 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $3,279,727 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost..................................... $ 160,830
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value..................................... (99,932)
-------------
Net unrealized appreciation............................................... $ 60,898
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
COUNTRY LEGEND:
AU - Australia
AS - Austria
BE - Belgium
BR - Brazil
CA - Canada
DD - Germany
DK - Denmark
FR - France
GB - United Kingdom
HK - Hong Kong
IR - Indonesia
IT - Italy
JP - Japan
MR - Malaysia
NG - Netherlands
NZ - New Zealand
PP - Philippines
SA - South Africa
SD - Singapore
SF - Switzerland
SK - Sweden
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 agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, October 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Value
Shares Franklin California Growth Fund (Note 1)
Common Stocks 84.7%
<S> <C> <C>
Commercial Services 2.0%
75,000 aRemedyTemp, Inc., Class A ..................................................... $ 1,500,000
33,000 aRobert Half International, Inc. ............................................... 1,328,250
-------------
2,828,250
-------------
Consumer Durables 2.9%
90,000 K2, Inc. ....................................................................... 2,070,000
75,000 Mattel, Inc. ................................................................... 2,165,625
-------------
4,235,625
-------------
Consumer Non-Durables 1.1%
15,000 Clorox Co. ..................................................................... 1,636,875
-------------
Consumer Services 3.7%
5,000 Disney (Walt) Co. .............................................................. 329,375
75,000 McClatchy Newspapers, Inc., Series A ........................................... 2,090,625
60,000a Silver King Communications, Inc. ............................................... 1,335,000
18,000 United Television, Inc. ........................................................ 1,584,000
-------------
5,339,000
-------------
Electronic Technology13.0%
30,000a Ascend Communications, Inc. .................................................... 1,961,250
35,000a Cisco Systems, Inc. ............................................................ 2,165,625
45,000a Cognex Corp. ................................................................... 579,375
39,000a Computer Sciences Corp. ........................................................ 2,895,750
40,000a FORE Systems, Inc. ............................................................. 1,590,000
16,000 Hewlett-Packard Co. ............................................................ 706,000
50,000 Logicon, Inc. .................................................................. 2,068,750
34,000a Newbridge Networks Corp. ....................................................... 1,075,250
70,000a Tekelec......................................................................... 1,032,500
35,000a 3Com Corp. ..................................................................... 2,366,875
35,000a U.S. Robotics Corp. ............................................................ 2,200,625
-------------
18,642,000
-------------
Energy/Minerals 6.3%
15,000 Atlantic Richfield Co. (ARCO)................................................... 1,987,500
27,000 Chevron Corp. .................................................................. 1,775,250
70,000 Occidental Petroleum Corp. ..................................................... 1,715,000
55,000 Ultramar Corp. ................................................................. 1,574,375
55,000 Unocal Corp. ................................................................... 2,014,375
-------------
9,066,500
-------------
Finance5.1%
25,000 Associates First Capital Corp. ................................................. $ 1,084,375
25,000 BankAmerica Corp. .............................................................. 2,287,500
55,000 Countrywide Credit Industries, Inc. ............................................ 1,567,500
44,600a Silicon Valley Bancshares....................................................... 1,165,175
22,000 The PMI Group, Inc. ............................................................ 1,256,750
-------------
7,361,300
-------------
Health Services1.9%
20,000a Access Health, Inc. ............................................................ 660,000
5,000a PacifiCare Health Systems, Inc., Class A ....................................... 336,250
25,000a PacifiCare Health Systems, Inc., Class B........................................ 1,756,250
-------------
2,752,500
-------------
Health Technology5.6%
33,000a Amgen, Inc. .................................................................... 2,023,313
20,000a Genentech, Inc. ................................................................ 1,077,500
14,300a Heartport, Inc. ................................................................ 377,163
90,000 Mentor Corp. ................................................................... 1,991,250
85,000a Molecular Devices Corp. ........................................................ 1,221,875
150,000a Penederm, Inc. ................................................................. 1,312,500
-------------
8,003,601
-------------
Industrial Services2.4%
105,000 Granite Construction, Inc. ..................................................... 2,021,250
20,000a Western Atlas, Inc. ............................................................ 1,387,500
-------------
3,408,750
-------------
Other
48b Lynx Therapeutics, Inc. ........................................................ --
-------------
Process Industries1.4%
30,000 Avery Dennison Corp. ........................................................... 1,976,250
-------------
Real Estate6.0%
80,000a Arden Realty Group, Inc. ....................................................... 1,810,000
70,000 Bay Apartment Communities, Inc. ................................................ 2,100,000
88,000 Irvine Apartment Communities, Inc. ............................................. 2,024,000
50,000 Nationwide Health Property, Inc. ............................................... 1,125,000
142,000a,b Pacific Retail Trust............................................................ 1,562,000
-------------
8,621,000
-------------
Retail4.2%
95,000a Cost Plus, Inc. ................................................................ $ 1,686,250
46,000 aFederated Department Stores, Inc. ............................................. 1,518,000
80,000 aPrice/Costco, Inc. ............................................................ 1,590,000
42,500 aStrouds, Inc. ................................................................. 191,250
20,000 aVons Companies, Inc. .......................................................... 1,107,500
-------------
6,093,000
-------------
emiconductors/Semiconductor Equipment7.3%
27,000 aAdaptec, Inc. ................................................................. 1,643,625
6,400 aCymer, Inc. ................................................................... 150,400
30,000 aEtec Systems, Inc. ............................................................ 810,000
100,000 aExar Corp. .................................................................... 1,375,000
20,000 Intel Corp. .................................................................... 2,197,500
35,000 Linear Technology Corp. ........................................................ 1,172,520
15,000 aMaxim Integrated Products, Inc. ............................................... 525,000
34,000 aUniphase Corp. ................................................................ 1,640,500
30,000 aXilinx, Inc. .................................................................. 982,500
-------------
10,497,045
-------------
Technology Services12.3%
26,000 Adobe Systems, Inc. ............................................................ 900,250
1,400 aAurum Software, Inc. .......................................................... 44,450
32,000 aBaan Company NV................................................................ 1,184,000
57,000 Electronic Data Systems Corp. .................................................. 2,565,000
2,700 aInfinity Financial Technology, Inc. ........................................... 44,213
1,000 aIntuit, Inc. .................................................................. 27,000
80,000 aMercury Interactive Corp. ..................................................... 1,020,000
50,000 aNetscape Communications Corp. ................................................. 2,212,500
30,000 aOracle Systems Corp. .......................................................... 1,269,375
115,000 aPhoenix Technologies, Ltd. .................................................... 1,983,750
22,000 aRemedy Corp. .................................................................. 1,072,500
16,900 aSabre Group Holdings, Inc. .................................................... 515,450
20,000 aScopus Technology, Inc. ....................................................... 770,000
40,000 aSterling Commerce, Inc. ....................................................... 1,125,000
40,000 aSterling Software, Inc. ....................................................... 1,300,000
85,000 aSymantec Corp. ................................................................ 924,375
15,000 aSynopsys, Inc. ................................................................ 675,000
400 aXionics Document Technologies, Inc. ........................................... 5,100
-------------
17,637,963
-------------
Transportation 3.7%
65,000 Air Express International Corp. ................................................ 1,966,250
33,000 Expeditors International of Washington, Inc. ................................... 1,381,875
85,000 Harper Group, Inc. ............................................................. 2,040,000
-------------
5,388,125
-------------
Utilities5.8%
75,000 aAirTouch Communications, Inc. ................................................. $ 1,959,375
30,000 California Water Service Co. ................................................... 1,121,250
75,000 Edison International............................................................ 1,481,250
55,000 Enova Corp. .................................................................... 1,237,500
48,000 Pacific Enterprises............................................................. 1,476,000
50,000 Southern California Water Co. .................................................. 1,087,500
-------------
8,362,875
-------------
Total Common Stocks (Cost $106,292,329) ........................................ 121,850,659
-------------
Convertible Preferred Stocks1.1%
cCatellus Development Corp., $3.625 cvt. pfd., Series B (Cost $1,461,125)....... 1,582,500
-------------
Face
Amount
Convertible Bonds2.5%
$ 200,000 cAltera Corp., cvt. sub. notes, 5.75%, 06/15/02................................. 270,500
1,300,000 Hexcel Corp., cvt. sub. notes, 7.00%, 08/01/03.................................. 1,722,500
500,000 Mercury Air Group, Inc., cvt. sub. deb., 7.75%, 02/01/06........................ 511,875
1,000,000 cQuantum Corp., cvt. sub. notes, 5.00%, 03/01/03................................ 1,103,750
-------------
Total Convertible Bonds (Cost $3,028,474) ...................................... 3,608,625
-------------
Total Long Term Investments (Cost $110,781,928) ................................ 127,041,784
-------------
dReceivables from Repurchase Agreements10.3%
14,703,832 Joint Repurchase Agreements, 5.529%, 11/01/96, (Maturity Value $14,769,846)
(Cost $14,767,578)
B. A. Securities, Inc., (Maturity Value $1,748,983)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.250% - 8.750%, 12/31/96 - 05/31/98
Bear Stearns & Co., Inc., (Maturity Value $1,748,983)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $1,311,737)
Collateral: U.S. Treasury Notes, 5.875%, 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $1,311,737)
Collateral: U.S. Treasury Notes, 4.750% - 5.625%, 10/31/97 - 09/30/98
dReceivables from Repurchase Agreements (cont.)
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,748,983)
Collateral: U.S. Treasury Notes, 4.750% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $1,530,360)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $1,748,983)
Collateral: U.S. Treasury Notes, 5.625% - 8.000%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $122,114)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $1,748,983)
Collateral: U.S. Treasury Notes, 4.750% - 8.750%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $1,748,983)
Collateral: U.S. Treasury Notes, 5.875% - 7.750%, 04/30/98 - 09/30/00........... $ 14,767,578
-------------
Total Investments (Cost $125,549,506)98.6% ..................................... 141,809,362
Other Assets and Liabilities, Net1.4% .......................................... 1,951,184
-------------
Net Assets100.0%................................................................ $143,760,546
=============
At October 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $125,618,037
was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost............................................... $ 19,455,931
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value............................................... (3,264,606)
-------------
Net unrealized appreciation..................................................... $ 16,191,325
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
aNon-income producing.
bSee Note 6 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 agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, October 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Shares/ Value
Country* Warrants Franklin Global Health Care Fund (Note 1)
Common Stocks and Warrants 94.3%
Biotechnology 7.9%
<S> <C> <C> <C>
US 50,000 aAmgen, Inc. ....................................................... $ 3,065,625
GB 200,000 aBritish Bio-Technology Group....................................... 737,353
US 50,000 aCytoTherapeutics, Inc. ............................................ 443,750
US 150,000 aNabi, Inc. ........................................................ 1,387,500
US 65,000 aPharmacopeia, Inc. ................................................ 1,235,000
US 149,400 aSerologicals Corp. ................................................ 4,556,700
-------------
11,425,928
-------------
Hospitals 3.8%
US 52,500 Columbia/HCA Healthcare Corp. ...................................... 1,876,875
US 100,000 aOwen Healthcare, Inc. ............................................. 1,487,500
US 30,000 aParacelsus Healthcare Corp. ....................................... 131,250
SD 550,000 Parkway Holdings, Ltd. ............................................. 2,049,617
-------------
5,545,242
-------------
Managed Care and HMOs 12.0%
US 127,100 aHealth Systems International, Inc., Class A........................ 3,034,513
US 75,000 aOxford Health Plans, Inc. ......................................... 3,412,500
US 65,000 aPacifiCare Health Systems, Inc., Class B .......................... 4,566,250
US 125,000 aSierra Health Services, Inc. ...................................... 3,578,125
US 75,000 United Healthcare Corp. ............................................ 2,840,625
-------------
17,432,013
-------------
Medical Technology and Supplies 23.2%
US 70,000 Bard (C.R.), Inc. .................................................. 1,977,500
US 100,000 aBoston Scientific Corp. ........................................... 5,437,500
US 100,000 aCardioGenesis Corp. ............................................... 1,225,000
US 100,000 aCardioThoracic Systems, Inc. ...................................... 1,900,000
AU 225,000 Cochlear, Ltd. ..................................................... 588,390
US 100,000 aESC Medical Systems, Ltd. ......................................... 2,762,500
US 23,300 aHeartport, Inc. ................................................... 614,538
US 230,000 aInnotech, Inc. .................................................... 1,955,000
US 30,000 aIsolyser Co., Inc. ................................................ 213,750
US 150,000 Kinetic Concepts, Inc. ............................................. 1,968,750
US 120,000 Mentor Corp. ....................................................... 2,655,000
US 250,000 aMolecular Devices Corp. ........................................... 3,593,750
US 400,000 aOrthoLogic Corp. .................................................. 2,625,000
US 125,000 aPhysiometrix, Inc. ................................................ 660,163
Medical Technology and Supplies (cont.)
US 200,000 aTechnical Chemicals & Products, Inc. .............................. $ 1,875,000
US 165,000 aVentritex, Inc. ................................................... 3,764,063
-------------
33,815,904
-------------
Miscellaneous8.1%
US 300,000 aCapstone Pharmacy Services, Inc. .................................. 3,506,250
US 150,000 aCNS, Inc. ......................................................... 2,550,000
US 100,000 Grupo Casa Autrey, SA de C.V., ADR ................................. 1,887,500
US 125,000 aIMPATH, Inc. ...................................................... 1,625,000
US 140,000 aYouth Services International, Inc. ................................ 2,170,000
-------------
11,738,750
-------------
Pharmaceuticals10.9%
SE 70,000 Astra AB, Series B ................................................. 3,195,861
CH 1,500 Ciba-Geigy, AG ..................................................... 1,849,608
US 30,000 Pfizer, Inc. ....................................................... 2,482,500
CH 300 Roche Holding....................................................... 2,271,323
CH 100 aRoche Holding, warrants............................................ 2,653
CH 1,300 Sandoz, AG ......................................................... 1,504,158
FR 28,810 Sanofi, SA ......................................................... 2,610,048
US 30,000 Schering-Plough Corp. .............................................. 1,920,000
-------------
15,836,151
-------------
Physician Practice Management1.2%
US 21,000 aPediatrix Medical Group, Inc. ..................................... 826,875
US 30,000 aPhyCor, Inc. ...................................................... 930,000
-------------
1,756,875
-------------
Post-Acute Providers4.4%
US 87,500 aRenal Care Group, Inc. ............................................ 3,237,500
US 100,000 aVivra, Inc. ....................................................... 3,187,500
-------------
6,425,000
-------------
Software and Information Systems11.7%
US 60,000 aAccess Health, Inc. ............................................... 1,980,000
US 154,000 aAmisys Managed Care Systems........................................ 2,348,500
US 110,000 aApache Medical Systems, Inc. ...................................... 1,196,250
US 50,000 HBO & Co. .......................................................... 3,006,250
US 75,000 aHealth Systems Design Corp. ....................................... 900,000
US 100,000 aIDX Systems Corp. ................................................. 2,950,000
Software and Information Systems (cont.)
US 125,000 aMedic Computer Systems, Inc. ...................................... $ 3,531,250
US 125,000 aTransition Systems, Inc. .......................................... 1,187,500
-------------
17,099,750
-------------
Specialty Pharmaceuticals11.1%
US 30,000 Allergan, Inc. ..................................................... 915,000
US 225,000 aAnesta Corp. ...................................................... 3,093,750
US 400,000 aCIMA Labs, Inc. ................................................... 3,000,000
US 100,000 aCollagenex Pharmaceuticals, Inc. .................................. 1,025,000
US 100,000 aEthical Holdings, Plc., ADR ....................................... 562,500
US 40,000 aIntercardia, Inc. ................................................. 920,000
US 100,000 aKV Pharmaceutical Co., Class B .................................... 1,162,500
US 131,200 aMatrix Pharmaceutical, Inc. ....................................... 992,200
US 140,000 aNoven Pharmaceuticals, Inc. ....................................... 1,907,500
US 200,000 aPenederm, Inc. .................................................... 1,750,000
IR 700,000 PT Kalbe Farma...................................................... 826,429
-------------
16,154,879
-------------
Total Long term Investments (Cost $137,906,470) .................... 137,230,492
-------------
Face
Amount
dReceivables from Repurchase Agreements5.2%
US 7,513,349 Joint Repurchase Agreements, 5.529%, 11/01/96 (Maturity Value $7,547,354)
(Cost $7,546,195)
B.A. Securities, Inc., (Maturity Value $893,726)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.25% - 8.75%, 12/31/96 - 05/31/98
Bear Stearns & Co., Inc., (Maturity Value $893,726)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $670,295)
Collateral: U.S. Treasury Notes, 5.875%, 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $670,295)
Collateral: U.S. Treasury Notes, 4.75% - 5.625%, 10/31/97 - 09/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $893,726)
Collateral: U.S. Treasury Notes, 4.75% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $782,010)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $893,726)
Collateral: U.S. Treasury Notes, 5.625% - 8.00%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $62,398)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $893,726)
Collateral: U.S. Treasury Notes, 4.75% - 8.75%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $893,726)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 04/30/98 - 09/30/00 $ 7,546,195
-------------
Total Investments (Cost $145,452,665)99.5% ......................... 144,776,687
Other Assets and Liabilites, Net0.5% ............................... 792,991
-------------
Net Assets100.0%.................................................... $145,569,678
=============
At October 31, 1996, the net unrealized depreciation
based on the cost of investments for income tax
purposes of $145,455,846 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost................ $ 12,766,497
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value................ (13,445,656)
-------------
Net unrealized depreciation......................................... $ (679,159)
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
COUNTRY LEGEND:
AU - Australia
CH - Switzerland
FR - France
GB - United Kingdom
IR - Indonesia
SD - Singapore
SE - Sweden
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 agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, October 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Value
Country* Shares Franklin Global Utilities Fund (Note 1)
Common Stocks 96.3%
Electric & Gas Utilities58.4%
<S> <C> <C> <C>
US 160,000 aAES China Generating Co., Ltd., Class A............................... $ 2,140,000
US 66,000 aAES Corp. ............................................................ 2,895,750
GB 470,000 British Gas, Plc. ..................................................... 1,465,021
US 21,400 cBSES, Ltd. ........................................................... 406,600
US 20,000 CEMIG, SA, Sponsored ADR............................................... 636,558
US 11,250 cCentral Costanera, Sponsored ADR...................................... 352,969
US 67,000 CINergy Corp. ......................................................... 2,219,375
US 18,000 Coastal Corp. ......................................................... 774,000
US 2,500 Compania Boliviana de Energia Electrica................................ 105,625
ES 158,700 Compania Sevillana de Electricidad..................................... 1,517,411
HK 385,500 Consolidated Electric Power Asia, Ltd. ................................ 897,416
US 49,700 Dominion Resources, Inc. .............................................. 1,876,175
US 38,050 Duke Power Co. ........................................................ 1,859,694
US 226,300 Empresa Nacional Electricidad, SA, ADR................................. 4,158,263
US 127,000 Enron Corp. ........................................................... 5,905,500
US 185,700 Enron Global Power & Pipelines, L.L.C. ................................ 5,222,813
US 91,000 Entergy Corp. ......................................................... 2,548,000
US 195,000 cEspoon Sahko Oy....................................................... 4,516,181
AT 3,360 EVN Energie-Versorgung Niederoesterreich, Ag........................... 455,909
US 39,000 FPL Group, Inc. ....................................................... 1,794,000
HK 1,375,000 Hong Kong Electric Holdings, Ltd. ..................................... 4,401,238
US 62,000 aHuaneng Power International, Inc., ADR................................ 945,500
US 40,500 Illinova Corp. ........................................................ 1,103,625
KR 33,700 Korea Electric Power Corp. ............................................ 1,007,222
US 109,000 National Fuel Gas Co. ................................................. 4,060,250
US 95,400 New Jersey Resources Corp. ............................................ 2,635,425
US 16,800 NIPSCO Industries, Inc. ............................................... 636,300
US 60,000 Northwestern Public Service Co. ....................................... 2,002,500
US 126,000 Pacific Enterprises.................................................... 3,874,500
US 100,000 Pacific Gas & Electric Co. ............................................ 2,350,000
US 176,700 PacifiCorp............................................................. 3,732,788
US 93,500 PanEnergy Corp......................................................... 3,599,750
US 60,300 PECO Energy Co. ....................................................... 1,522,575
US 60,000 Pinnacle West Capital Corp. ........................................... 1,852,500
GB 102,000 PowerGen, Plc. ........................................................ 846,735
US 50,000 Public Service Co. of Colorado......................................... 1,850,000
GB 360,000 Scottish Power, Plc. .................................................. 1,842,893
US 45,600 Shandong Huaneng Power Co., Ltd., ADR.................................. 416,100
US 41,200 SIG Corp., Inc. ....................................................... 1,400,800
US 146,500 Southern Co. .......................................................... 3,241,313
Electric & Gas Utilities (cont.)
GB 51,700 Southern Electric, Plc. ............................................... $ 541,522
US 126,900 TECO Energy, Inc. ..................................................... 3,124,913
US 121,100 Texas Utilities Co. ................................................... 4,904,550
US 139,300 TNP Enterprises, Inc. ................................................. 3,604,388
US 146,000 TransCanada Pipelines, Ltd. ........................................... 2,463,750
US 179,000 Transportadora Gas Sur, ADR............................................ 2,080,875
HK 340,000 Wing Shan International, Ltd. ......................................... 41,773
-------------
101,831,045
-------------
Telecommunications Services37.9%
US 135,150 aAirTouch Communications, Inc. ........................................ 3,530,794
FR 5,000 Alcatel Alsthom........................................................ 426,468
US 10,000 Ameritech Corp. ....................................................... 547,500
US 60,000 AT&T Corp. ............................................................ 2,092,500
US 50,000 Bellsouth Corp. ....................................................... 2,037,500
GB 400,000 British Telecommunications, Plc. ...................................... 2,314,604
MX 44,400 aGrupo Iusacell, SA, Series D ......................................... 28,582
US 73,000 aGrupo Iusacell, SA, Series L, ADR .................................... 556,625
US 55,300 GTE Corp. ............................................................. 2,329,513
GR 300,000 Hellenic Telecommunications Organization, SA........................... 5,303,540
US 220,000 ICG Communications, Inc. .............................................. 4,125,000
US 104,500 Itron, Inc. ........................................................... 1,737,313
KR 255 Korea Mobile Telecommunications Corp. ................................. 248,868
US 19,445 Lucent Technologies, Inc. ............................................. 913,915
US 58,500 MCI Communications Corp. .............................................. 1,469,813
US 30,000 Motorola, Inc. ........................................................ 1,380,000
NO 122,400 aNetcom, ASA .......................................................... 1,103,377
JP 300 Nippon Telegraph & Telephone Corp. .................................... 2,096,150
US 3,127 aPakistan Telecommunications Corp. .................................... 240,779
US 100,000 Portugal Telecom, SA, ADR.............................................. 2,587,500
US 21,200 P.T. Indosat, ADR...................................................... 638,650
US 95,700 aRural Cellular Corp., Class A......................................... 957,000
US 82,900 SBC Communications, Inc. .............................................. 4,031,013
IT 550,000 STET-Societa Finanziaria Telefonica.................................... 1,907,426
IT 160,000 STET-Societa Finanziaria Telefonica, Class D .......................... 427,113
US 28,900 aTekelec............................................................... 426,275
NZ 105,000 Telecom Corp. of New Zealand, Ltd. .................................... 545,974
US 139,750 Telecom de Argentina, SA, ADR.......................................... 5,275,563
IT 1,365,000 Telecom Italia, S.p.A. ................................................ 2,585,229
US 32,600 Telecomunicacoes Brasileiras, SA (Telebras), ADR....................... 2,428,700
Telecommunications Services (cont.)
US 133,540 Tele Danmark, A/S, ADS ................................................ $ 3,338,500
DK 7,830 Tele Danmark, A/S, Class B............................................. 394,699
US 20,400 Telefonica de Argentina, ADS........................................... 474,300
US 68,450 Telefonica de Espana, ADR ............................................. 4,124,113
US 10,200 Telefonica del Peru, ADR............................................... 210,375
US 103,500 US West Communications Group........................................... 3,143,806
-------------
65,979,077
-------------
Total Common Stocks (Cost $149,957,815) ............................... 167,810,122
-------------
Convertible Preferred Stocks0.4%
Telecommunications
US 9,400 cPhilippine Long Distance Telephone, 5.75%, cvt. pfd., Series II ...... 325,475
US 6,900 Compania Inversiones Telecommunications................................ 338,100
-------------
Total Convertible Preferred Stock (Cost $734,800)...................... 663,575
-------------
Total Long Term Investments (Cost $150,692,615)........................ 168,473,697
-------------
Face
Amount
dReceivables from Repurchase Agreements3.8%
US 6,610,334 Joint Repurchase Agreements, 5.5291%, 11/01/96, (Maturity Value $6,640,639)
(Cost $6,639,619)
B.A. Securities, Inc., (Maturity Value $786,357)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.25% - 8.75%, 12/31/96 - 05/31/98
Bear, Stearns & Co., Inc., (Maturity Value $786,357)
Collateral: U.S. Treasury Notes, 5.625% - 8.75%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $589,767)
Collateral: U.S. Treasury Notes, 5.875%, 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $589,767)
Collateral: U.S. Treasury Notes, 4.75% - 5.625%, 10/31/97 - 09/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $786,357)
Collateral: U.S. Treasury Notes, 4.75% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $688,062)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $786,357)
Collateral: U.S. Treasury Notes, 5.625% - 8.00%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $54,901)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $786,357)
Collateral: U.S. Treasury Notes, 4.75% - 8.75%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $786,357)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 04/30/98 - 09/30/00... $ 6,639,619
-------------
Total Investments (Cost $157,332,234)100.5% ........................... 175,113,316
Liabilities in Excess of Other Assets(.5)%............................. (878,579)
-------------
Net Assets100.0%....................................................... $174,234,737
=============
At October 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $157,334,052 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost............................ $ 25,130,751
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value............................ (7,351,487)
-------------
Net unrealized appreciation............................................ $ 17,779,264
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
COUNTRY LEGEND:
AT - Austria
DK - Denmark
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NO - Norway
NZ - New Zealand
ES - Spain
US - United States
*Securities traded in currency of country indicated and value is 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 repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Statement of Investments in Securities and Net Assets, October 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Value
Shares Franklin MidCap Growth Fund (Note 1)
Common Stocks 89.3%
Advertising 0.3%
<S> <C> <C>
600 Omnicom Group, Inc. .............................................................. $ 29,850
-------------
Chemical & Materials1.6%
2,000 IMC Global, Inc. ................................................................. 75,000
3,300 aSouthdown, Inc. ................................................................. 90,338
-------------
165,338
-------------
Commercial Services2.6%
1,000 aAffiliated Computer Services, Inc., Class A...................................... 55,000
7,500 aCUC International, Inc. ......................................................... 183,750
1,300 aSabre Group Holdings, Inc. ...................................................... 39,650
-------------
278,400
-------------
Communications Equipment4.1%
2,000 a3Com Corp. ...................................................................... 135,250
2,000 aCabletron Systems, Inc. ......................................................... 124,750
1,500 aFORE Systems, Inc. .............................................................. 59,625
3,600 aNewbridge Networks Corp. (Canada)................................................ 113,850
-------------
433,475
-------------
Computer Hardware3.8%
2,200 aKomag, Inc. ..................................................................... 60,775
7,500 aQuantum Corp. ................................................................... 151,875
1,188 aSeagate Technology, Inc. ........................................................ 79,299
1,750 aU.S. Robotics Corp. ............................................................. 110,031
-------------
401,980
-------------
Consumer Products1.5%
8,000 aOakley, Inc. .................................................................... 119,000
2,700 aTAG Heuer International, SA...................................................... 43,200
-------------
162,200
-------------
Cosmetics0.8%
2,200 aRevlon, Inc., Class A............................................................ 80,300
-------------
Education1.5%
10,000 aEducation Management Corp. ...................................................... 163,750
-------------
Electronic Components/Technology6.7%
3,000 aAdaptec, Inc. ................................................................... 182,625
2,200 aAltera Corp. .................................................................... 136,400
3,000 aAnalog Devices, Inc. ............................................................ 78,000
2,500 aAtmel Corp. ..................................................................... 63,438
Electronic Components/Technology (cont.)
3,700 Linear Technology Corp. .......................................................... $ 123,950
4,000 aXilinx, Inc. .................................................................... 131,000
-------------
715,413
-------------
Engineering & Construction2.2%
7,200 Clayton Homes, Inc. .............................................................. 121,500
5,850 Granite Construction, Inc. ....................................................... 112,613
-------------
234,113
-------------
Finance6.0%
1,320 Bank of Boston Corp. ............................................................. 84,480
4,500 Countrywide Credit Industries, Inc. .............................................. 128,250
5,000 aEVEREN Capital Corp. ............................................................ 98,750
2,700 Green Tree Financial Corp. ....................................................... 106,988
1,000 Republic New York Corp. .......................................................... 76,250
3,800 eScor, SA (France)................................................................ 146,069
-------------
640,787
-------------
Gaming & Lodging2.4%
1,600 aCircus Circus Enterprises, Inc. ................................................. 55,200
9,000 aHost Marriott Corp. ............................................................. 138,375
2,600 aMirage Resorts, Inc. ............................................................ 57,200
-------------
250,775
-------------
Healthcare Services5.2%
2,800 aHEALTHSOUTH Rehabilitation Corp. ................................................ 105,000
2,500 aHealth Systems International, Inc., Class A ..................................... 59,688
4,000 aIDX Systems Corp. ............................................................... 118,000
3,000 aMedic Computer Systems, Inc. .................................................... 84,750
1,500 aOxford Health Plans, Inc. ....................................................... 68,250
1,600 aPacifiCare Health Systems, Inc., Class B ........................................ 112,400
-------------
548,088
-------------
Insurance1.5%
2,500 SunAmerica, Inc. ................................................................. 93,750
900 Transatlantic Holdings, Inc. ..................................................... 64,800
-------------
158,550
-------------
Leisure2.9%
3,500 Callaway Golf Co. ................................................................ $ 107,188
5,000 aCannondale Corp. ................................................................ 96,250
4,500 K2, Inc. ......................................................................... 103,500
-------------
306,938
-------------
Lodging2.2%
6,800 aCapstar Hotel Co. ............................................................... 122,400
7,300 aPrime Hospitality Corp. ......................................................... 111,325
-------------
233,725
-------------
Manufacturing - Diversified1.8%
2,300 Butler Manufacturing Company...................................................... 72,450
5,400 Mark IV Industries, Inc. ......................................................... 116,775
-------------
189,225
-------------
Medical Technology Supplies1.4%
3,800 Mentor Corp. ..................................................................... 84,075
10,000 aOrthoLogic Corp. ................................................................ 65,625
-------------
149,700
-------------
Metals & Mining0.3%
1,000 aAlumax, Inc. .................................................................... 32,125
-------------
Oil & Gas8.3%
3,000 aBarrett Resources Corp. ......................................................... 115,125
10,900 aCairn Energy USA, Inc. .......................................................... 115,813
5,000 Devon Energy Corp. ............................................................... 174,375
6,000 aGlobal Marine, Inc. ............................................................. 110,250
7,500 aHouston Exploration Co. ......................................................... 128,438
7,800 aVarco International, Inc. ....................................................... 154,050
3,000 aWeatherford Enterra, Inc. ....................................................... 87,000
-------------
885,051
-------------
Paper & Forest Products0.6%
1,700 Bowater, Inc. .................................................................... 60,138
-------------
Publishing/Printing0.9%
9,000 aK-111 Communications Corp. ...................................................... 96,750
-------------
Retail4.7%
200 aAbercrombie & Fitch Co. ......................................................... 4,400
6,500 aAnnTaylor Stores Corp. .......................................................... 117,813
4,000 aBorders Group, Inc. ............................................................. 126,000
3,700 aOffice Depot..................................................................... 72,613
Retail (cont.)
2,000 aSafeway, Inc. ................................................................... $ 85,750
5,000 aStage Stores, Inc. .............................................................. 91,250
-------------
497,826
-------------
Restaurants2.9%
5,000 aOutback Steakhouse, Inc. ........................................................ 115,938
2,200 aStarbucks Corp. ................................................................. 71,500
5,600 Wendy's International, Inc. ...................................................... 115,500
-------------
302,938
-------------
Specialty Pharmaceuticals1.3%
7,000 aNoven Pharmaceuticals, Inc. ..................................................... 95,375
5,000 aPenederm, Inc. .................................................................. 43,750
-------------
139,125
-------------
Technology Services7.0%
2,850 Adobe Systems, Inc. .............................................................. 98,681
1,500 aBMC Software, Inc. .............................................................. 124,500
3,700 aCognex Corp. .................................................................... 47,638
2,500 aNetscape Communications Corp. ................................................... 110,625
2,000 aParametric Technology Corp. ..................................................... 97,750
1,911 aSterling Commerce, Inc. ......................................................... 53,750
3,600 aSterling Software, Inc. ......................................................... 117,000
2,000 aSynopys, Inc. ................................................................... 90,000
-------------
739,944
-------------
Telecommunications4.2%
2,000 aAscend Communications, Inc. ..................................................... 130,750
3,400 aBell Cablemedia.................................................................. 55,250
1,000 aCascade Communications Corp. .................................................... 72,625
1,600 Cincinnati Bell, Inc. ............................................................ 79,000
5,500 aICG Communications, Inc. ........................................................ 103,125
-------------
440,750
-------------
Temporary Staffing2.2%
5,700 Norrell Corp ..................................................................... 142,500
2,400 aRobert Half International, Inc. ................................................. 96,600
-------------
239,100
-------------
Textiles & Apparel3.6%
4,200 aDesigner Holdings, Ltd. ......................................................... 80,325
4,000 aDonna Karan International, Inc. ................................................. 74,000
Textiles & Apparel (cont.)
3,400 aJones Apparel Group, Inc. ....................................................... $ 106,250
2,400 aTommy Hilfiger Corp. ............................................................ 124,800
-------------
385,375
-------------
Transportation3.3%
3,400 Expeditors International of Washington, Inc. ..................................... 142,375
1,050 Illinois Central Corp. ........................................................... 33,994
3,000 Pittston Brink's Group............................................................ 85,500
4,500 Pittston Burlington Group......................................................... 83,813
-------------
345,682
-------------
Utilities1.5%
3,600 aAES Corp. ....................................................................... 157,950
-------------
Total Long Term Investments (Cost $8,271,493)..................................... 9,465,361
-------------
Face
Amount
$ 1,143,482 dReceivables from Repurchase Agreements10.8%
Joint Repurchase Agreements, 5.529%, 11/01/96 (Maturity Value $1,149,021)
Cost $1,148,845)
B.A. Securities, Inc., (Maturity Value $136,062)
Collateral: U.S. Treasury Bills, 03/06/97 - 03/06/97
S. Treasury Notes, 5.250% - 8.750%, 12/31/96 - 05/31/98
Bear Stearns & Co., Inc., (Maturity Value $136,062)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $102,047)
Collateral: U.S. Treasury Notes, 5.875% - 5.875%, 10/31/98 -
10/31/98 CIBC Wood Gundy Securities Corp., (Maturity Value
$102,047)
Collateral: U.S. Treasury Notes, 4.750% - 5.625%, 10/31/97 -
09/30/98 Donaldson, Lufkin & Jenrette Securities Corp.,
(Maturity Value $136,062)
Collateral: U.S. Treasury Notes, 4.750% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $119,054)
Collateral: U.S. Treasury Bills, 02/06/97 - 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $136,062)
Collateral: U.S. Treasury Notes, 5.625% - 8.000%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $9,500)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $136,062)
Collateral: U.S. Treasury Notes, 4.750% - 8.750%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $136,063)
Collateral: U.S. Treasury Notes, 5.875% - 7.750%, 04/30/98 - 09/30/00............. $ 1,148,845
-------------
Total Investments (Cost $9,420,338)100.1%......................................... 10,614,206
Liabilities in Excess of Other Assets(0.1%)....................................... (8,814)
-------------
Net Assets100.0%.................................................................. $10,605,392
=============
At October 31,1996, the net unrealized appreciation based on the
cost of investments for income tax purposes of $9,420,431 was as
follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost................................................. $ 1,625,391
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value................................................. (431,616)
-------------
Net unrealized appreciation....................................................... $ 1,193,775
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
aNon-income producing.
dFace amount for repurchase agreements is for the underlying collateral. See
Note 1(i) regarding joint repurchase agreement.
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, October 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Shares,
Warrants Value
& Rights Franklin Natural Resources Fund (Note 1)
Common Stocks, Warrants & Rights 87.2%
<S> <C> <C>
Chemicals 5.1%
5,000 Arcadian Corp. ................................................................... $ 123,125
1,200 Avery-Dennison Corp. ............................................................. 79,050
5,000 Hanna (M.A.) Co. ................................................................ 106,250
12,500 IMC Global, Inc. ................................................................. 468,750
364 Millennium Chemicals, Inc. ....................................................... 7,377
5,000 ePotash Corp. of Saskatchewan, Inc. (Canada)...................................... 354,375
4,100 Praxair, Inc. .................................................................... 181,425
-------------
1,320,352
-------------
Environmental Control/Construction 1.7%
6,000 aAmerican Buildings Co. .......................................................... 125,813
1,100 Armstrong World Industries, Inc. ................................................. 73,425
3,700 Browning-Ferris Industries, Inc. ................................................. 97,125
3,300 Butler Manufacturing Co. ......................................................... 103,950
5,100 Hanson, Plc., ADR................................................................. 32,513
-------------
432,826
-------------
Forest Products and Paper 2.4%
29,800 aAsia Pulp & Paper Co., Ltd., ADR................................................. 294,275
3,600 Bowater, Inc. .................................................................... 127,350
2,800 Champion International Corp. ..................................................... 121,800
1,300 Willamette Industries, Inc. ...................................................... 87,750
-------------
631,175
-------------
Iron/Steel 2.2%
7,400 aGibraltar Steel Corp. ........................................................... 179,450
2,000 J&L Specialty Steel, Inc. ........................................................ 23,500
1,300 Nucor Corp. ...................................................................... 61,588
1,400 Pohang Iron & Steel Co., Ltd., ADR ............................................... 29,050
4,000 aUCAR International, Inc. ........................................................ 156,500
5,700 Worthington Industries, Inc. ..................................................... 118,275
-------------
568,363
-------------
Metal - Diversified 5.1%
5,500 eAlcan Aluminum, Ltd. (Canada)................................................... 180,813
6,300 Aluminum Co. of America (ALCOA) .................................................. 369,338
2,000 aCentury Aluminum Co. ............................................................ 27,000
1,800 Commonwealth Aluminum Corp. ...................................................... 28,350
30,000 eCons Eurocan Ventures, Ltd. (Canada)............................................ 89,502
2,700 Freeport-McMoran Copper & Gold, Inc., Class A..................................... 78,300
5,000 Kaiser Aluminum Corp. ............................................................ 55,625
Metal - Diversified (cont.)
300 Phelps Dodge Corp. ............................................................... $ 18,863
2,000 a,cPT Tambang Timah, GDR ......................................................... 30,550
3,200 Reynolds Metals Co. .............................................................. 180,000
5,000 aRMI Titanium Co. ................................................................ 120,625
5,000 aTitanium Metals Corp. ........................................................... 153,750
-------------
1,332,716
-------------
Mining - Precious Metals 11.2%
89,000 a,eAcacia Resources, Ltd. (Australia)............................................ 167,857
8,400 Ashanti Goldfields Co., Ltd., GDR ................................................ 137,550
20,000 aBema Gold Corp. ................................................................. 120,082
10,000 bBema Gold Corp, Legend Shares.................................................... 60,041
14,000 aBRE-X Minerals, Ltd. ............................................................ 233,899
1,400 aBRO-X Minerals, Ltd. ............................................................ 4,072
19,000 a,eCampbell Resources, Inc., warrants (Canada).................................... 7,720
1,500 aCanyon Resources Corp. .......................................................... 3,844
14,000 Canyon Resources Corp., units..................................................... 35,875
8,500 Compania de Minas Buenaventura, SA ............................................... 142,375
3,699 eCompania de Minas Buenaventure, SA, Class A (Peru)............................... 28,690
1,235 a,eCompania de Minas Buenaventure, SA, rights (Peru).............................. 10,473
7,200 De Beers Cons Mines, ADR.......................................................... 212,400
2,900 Driefontein Consolidated, Ltd., ADR .............................................. 38,244
85,300 aGeomaque Explorations, Ltd. ..................................................... 213,131
15,300 Golden Knight Resources, Inc. .................................................... 92,433
11,300 Golden Knight Resources, Inc., warrants........................................... 68,268
59,800 Great Central Mines N. L. ........................................................ 181,498
14,100 a,eGreenstone Resources, Ltd. (Canada)............................................ 178,781
8,200 a,eGreenstone Resources, Ltd., warrants (Canada).................................. 103,972
60,030 aLeo Shield Exploration........................................................... 35,678
3,200 Newmont Mining Corp. ............................................................. 148,000
3,800 Orogen Minerals, Inc. ............................................................ 60,181
24,700 Pangea Goldfields, Inc. .......................................................... 128,037
8,300 Santa Fe Pacific Gold Corp. ...................................................... 98,563
28,500 eSons of Gwalia, Ltd., (Australia)............................................... 184,066
1,000 a,cStillwater Mining Co. ......................................................... 16,250
142,800 aWilliam Resources, Inc. ......................................................... 172,542
24,600 Williams Resources, Inc., warrants ............................................... 29,724
-------------
2,914,246
-------------
Oil/Gas Distribution 2.6%
6,500 aAES Corp. ....................................................................... $ 285,188
9,800 Enron Global Power & Pipelines ................................................... 275,625
1,400 New Jersey Resources Corp. ....................................................... 38,675
2,600 Pacific Enterprises............................................................... 79,950
-------------
679,438
-------------
Oil/Gas - Domestic 4.0%
7,600 Occidental Petroleum Corp. ....................................................... 186,200
1,700 Phillips Petroleum Co. ........................................................... 69,700
18,300 Total Petroleum (North America), Ltd. ............................................ 176,138
8,800 Ultramar Corp. ................................................................... 251,900
10,000 Unocal Corp. ..................................................................... 366,250
-------------
1,050,188
-------------
Oil/Gas - Equipment & Services 15.8%
12,000 aCoflexip, SA, ADR............................................................... 270,000
2,900 aDiamond Offshore Drilling, Inc. ................................................. 176,538
200 Dover Corp. ...................................................................... 10,275
17,500 aDreco Energy Services, Ltd. ..................................................... 459,375
9,400 aENSCO International, Inc. ....................................................... 406,550
5,900 aFalcon Drilling Co., Inc. ....................................................... 208,713
22,000 aGeoscience Corp. ................................................................ 236,500
142,200 aGrant Geophysical, Inc. ......................................................... 199,976
1,400 aNational-Oilwell, Inc. .......................................................... 32,550
21,500 Noble Drilling Corp. ............................................................. 400,438
10,700 aSmith International, Inc. ...................................................... 406,600
10,500 Tidewater, Inc. .................................................................. 459,375
16,600 aTuboscope Vetco International Corp. ............................................. 253,150
21,600 aVarco International, Inc. ....................................................... 426,600
6,500 aWeatherford Enterra, Inc. ....................................................... 188,500
-------------
4,135,140
-------------
Oil/Gas - Exploration 28.4%
146,500 a,eAbacan Resource Corp. (Canada)................................................ 1,109,062
12,500 aBarrett Resources Corp. ......................................................... 479,688
86,100 aCairn Energy USA, Inc. .......................................................... 914,813
15,000 eCanadian Oil Sands Trusts (Canada)............................................... 227,671
5,000 aDenbury Resources, Inc. ......................................................... 65,300
35,000 Devon Energy Corporation.......................................................... 1,220,625
45,800 Enron Oil & Gas Co. .............................................................. 1,179,350
40,000 aHouston Exploration Co. ......................................................... 685,000
Oil/Gas - Exploration (cont.)
400 Noble Affiliates, Inc. ........................................................... $ 17,400
37,000 aPetroleum Securities Australia, Ltd., ADR........................................ 753,875
40,000 aPinnacle Resources, Ltd. ........................................................ 622,040
5,000 aSwift Energy Co. ................................................................ 122,500
-------------
7,397,324
-------------
Oil/Gas - International 5.2%
15,400 Repsol, SA, ADR................................................................... 502,425
700 a,eRoyal Dutch Petroleum Co., New York Shares (Netherlands)....................... 115,763
13,940 Total, SA, ADR ................................................................... 543,660
8,500 YPF, SA, ADR ..................................................................... 193,375
-------------
1,355,223
-------------
Producer/Manufacturing 0.1%
1,275 Imperial Tobacco Group, Plc., ADR................................................. 14,880
-------------
Real Estate Investment Trusts 3.4%
6,400 aArden Realty, Inc. .............................................................. 144,800
3,800 Bay Apartment Communities, Inc. .................................................. 114,000
5,400 Felcor Suite Hotels, Inc. ........................................................ 176,850
3,400 OMEGA Healthcare Investors, Inc. ................................................. 103,275
7,700 Storage Trust Realty.............................................................. 178,063
14,200 Winston Hotels, Inc. ............................................................. 177,500
-------------
894,488
-------------
Total Long Term Investments (Cost $20,390,374).................................... 22,726,359
-------------
Face
Amount
dReceivables from Repurchase Agreements12.8%
$3,324,505 Joint Repurchase Agreements, 5.529%, 11/01/96 (Maturity Value $3,340,007)
(Cost $3,339,494)
B.A. Securities, Inc., (Maturity Value $395,510)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.25% - 8.75%, 12/31/96 - 05/31/98
Bear, Stearns & Co., Inc., (Maturity Value $395,510)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $296,632)
Collateral: U.S. Treasury Notes, 5.875% , 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $296,632)
Collateral: U.S. Treasury Notes, 4.75% - 5.625%, 10/31/97 - 09/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $395,510)
Collateral: U.S. Treasury Notes, 4.75% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $346,071)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $395,510)
Collateral: U.S. Treasury Notes, 5.625% - 8.00%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $27,612)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $395,510)
Collateral: U.S. Treasury Notes, 4.75% - 8.75%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $395,510)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 04/30/98 - 09/30/00
$ 3,339,494
-------------
Total Investments (Cost $23,729,868)100%.......................................... 26,065,853
Other Assets and Liabilities, Net ................................................ 219
-------------
Net Assets100.0%.................................................................. $26,066,072
=============
At October 31, 1996, the net unrealized appreciation based on the
cost of investments for income tax purposes of $23,800,355 was
as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost.................................................... $ 3,088,701
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value.................................................... (823,203)
-------------
Net unrealized appreciation....................................................... $ 2,265,498
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
aNon-income producing.
bSee Note 6 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 agreement.
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, October 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Value
Shares Franklin Small Cap Growth Fund (Note 1)
Common Stocks 92.3%
<S> <C> <C>
Commercial Services2.5%
173,450 aLabor Ready, Inc. ............................................................ $ 2,493,344
380,000 Norrell Corp. ................................................................. 9,500,000
172,400 aRobert Half International, Inc. .............................................. 6,939,100
-------------
18,932,444
-------------
Consumer Durables4.3%
216,000 aBelmont Homes, Inc. .......................................................... 5,292,000
365,000 aCannondale Corp. ............................................................. 7,026,250
410,000 Clayton Homes, Inc. ........................................................... 6,918,750
325,000 aK2, Inc. ..................................................................... 7,475,000
59,100 aRockShox, Inc. ............................................................... 753,525
310,800 aSouthern Energy Homes, Inc. .................................................. 4,623,150
-------------
32,088,675
-------------
Consumer Non-Durables4.4%
16,900 aConsolidated Cigar Holdings, Inc. ............................................ 460,525
269,300 aDesigner Holdings, Ltd. ...................................................... 5,150,363
352,200 aDonna Karan International, Inc. .............................................. 6,515,700
140,000 aScholastic Corp. ............................................................. 10,255,000
207,900 aTommy Hilfiger Corp. ......................................................... 10,810,800
-------------
33,192,188
-------------
Consumer Services4.6%
500,000 aCapStar Hotel Co. ............................................................ 9,000,000
189,000 aFine Host Corp. .............................................................. 2,740,500
50,000 aGillett Holdings, Inc. ....................................................... 1,900,000
535,000 aPrime Hospitality Corp. ...................................................... 8,158,750
190,000 aRed Lion Hotels, Inc. ........................................................ 5,700,000
215,000 aStarbucks Corp. .............................................................. 6,987,500
-------------
34,486,750
-------------
Electronic Technology9.9%
151,000 aKomag, Inc. .................................................................. 4,171,375
150,000 aLexmark International Group, Inc. ............................................ 3,543,750
30,200 aLightbridge, Inc. ............................................................ 290,675
265,000 Logicon, Inc. ................................................................. 10,964,375
149,800 aNatural Microsystems Corp. ................................................... 7,976,850
220,000 aNewbridge Networks Corp. ..................................................... 6,957,500
560,000 aQuantum Corp. ................................................................ 11,340,000
873,400 aSpectralink Corp. ............................................................ 3,821,125
431,800 aTekelec....................................................................... 6,369,050
Electronic Technology (cont.)
450,000 aTracor, Inc. ................................................................. $ 10,237,500
124,600 aVerilink Corp. ............................................................... 4,485,600
650,000 aVisioneer, Inc. .............................................................. 3,900,000
-------------
74,057,800
-------------
Energy and Minerals6.8%
915,000 a,eAbacan Resource Corp. (Canada).............................................. 6,926,907
285,000 aBarrett Resources Corp. ...................................................... 10,936,875
802,000 aCairn Energy USA, Inc. ....................................................... 8,521,250
374,500 Devon Energy Corp. ............................................................ 13,060,688
40,700 a,fNational-Oilwell, Inc. ..................................................... 946,275
530,000 aVarco International, Inc. .................................................... 10,467,500
-------------
50,859,495
-------------
Finance7.1%
200,000 a,gACMAT Corp., Class A ....................................................... 2,750,000
250,000 aAmeriCredit Corp. ............................................................ 4,750,000
255,400 aChartwell Re Corp. ........................................................... 6,480,775
350,000 aEveren Capital Corp. ......................................................... 6,912,500
100,000 Executive Risk, Inc. .......................................................... 4,125,000
400,000 aIPC Holdings, Ltd. ........................................................... 8,600,000
316,900 aRisk Capital Holdings, Inc. .................................................. 5,704,200
281,000 eScor, SA (France)............................................................. 10,801,878
115,800 aSilicon Valley Bancshares..................................................... 3,025,275
-------------
53,149,628
-------------
Health Services8.0%
192,350 aAccess Health, Inc. .......................................................... 6,347,550
318,000 aAmisys Managed Care Systems................................................... 4,849,500
690,800 aCapstone Pharmacy Services, Inc. ............................................. 8,073,725
126,900 aHealth Systems International, Inc., Class A................................... 3,029,738
500,000 aHealthsource, Inc. ........................................................... 6,125,000
96,000 aIDX Systems Corp. ............................................................ 2,832,000
220,900 aMedic Computer Systems, Inc. ................................................. 6,240,425
325,000 aSierra Health Services, Inc. ................................................. 9,303,125
825,000 aTransition Systems, Inc. ..................................................... 7,837,500
450,000 aUS Diagnostic Labs, Inc. ..................................................... 5,400,000
-------------
60,038,563
-------------
Health Technology4.6%
75,000 aDepoTech Corp. ............................................................... $ 1,171,870
340,000 Mentor Corp. .................................................................. 7,522,500
378,200 aNoven Pharmaceutical, Inc. ................................................... 5,152,975
1,250,000 a,gOrthoLogic Corp. ........................................................... 8,203,125
247,800 aPenederm, Inc. ............................................................... 2,168,250
176,700 aPharmacopeia, Inc. ........................................................... 3,357,300
222,700 aSerologicals Corp. ........................................................... 6,792,350
-------------
34,368,370
-------------
Industrial Services2.4%
212,000 aAES Corp. .................................................................... 9,301,500
106,000 aAmerican Buildings Co. ....................................................... 2,222,693
129,100 Butler Manufacturing Co. ...................................................... 4,066,650
74,800 aWaters Corp. ................................................................. 2,318,800
-------------
17,909,643
-------------
Non-Energy and Minerals0.6%
308,700 Century Aluminum Co. .......................................................... 4,167,450
-------------
Producer and Manufacturing4.0%
378,200 Easco, Inc. ................................................................... 2,269,200
305,000 aGentex Corp. ................................................................. 7,243,750
200,000 Pittston Brink's Group ........................................................ 5,700,000
179,300 Roper Industries, Inc. ........................................................ 7,575,425
172,600 aUCAR International, Inc. ..................................................... 6,752,975
-------------
29,541,350
-------------
Real Estate Investment Trust4.7%
282,900 aArden Realty Group, Inc. ..................................................... 6,400,613
250,000 Bay Apartment Communities, Inc. ............................................... 7,500,000
345,000 Equity Inns, Inc. ............................................................. 4,010,625
205,000 FelCor Suite Hotels, Inc. ..................................................... 6,713,750
150,000 Omega Healthcare Investors, Inc. .............................................. 4,556,250
490,500 Winston Hotels, Inc. .......................................................... 6,131,250
-------------
35,312,488
-------------
Retail1.8%
16,600 aAbercrombie & Fitch Co. ...................................................... 365,200
484,700 aAnnTaylor Stores Corp. ....................................................... 8,785,188
125,000 aBorders Group, Inc. .......................................................... 3,937,500
-------------
13,087,888
-------------
Semiconductors and Equipment11.1%
130,000 aAdaptec, Inc. ................................................................ $ 7,913,750
145,000 aAltera Corp. ................................................................. 8,990,000
215,000 aC-Cube Microsystems, Inc. .................................................... 8,331,250
36,700 aCymer, Inc. .................................................................. 862,450
229,500 aEtec Systems, Inc. ........................................................... 6,196,500
288,400 aExar Corp. ................................................................... 3,965,500
288,900 aLattice Semiconductor Corp. .................................................. 9,894,825
300,000 Linear Technology Corp. ....................................................... 10,050,000
456,400 aMicro Linear Corp. ........................................................... 3,080,700
550,000 aSierra Semiconductor Corp. ................................................... 7,184,375
199,000 aUniphase Corp. ............................................................... 9,601,750
215,000 aXilinx, Inc. ................................................................. 7,041,250
-------------
83,112,350
-------------
Technology Services7.8%
141,000 aAffiliated Computer Services, Inc. ........................................... 7,755,000
7,200 aAurum Software, Inc. ......................................................... 228,600
235,000 aBroderbund Software, Inc. .................................................... 6,609,375
78,100 aBusiness Objects, SA, ADR..................................................... 1,161,738
203,200 aFractal Design Corp. ......................................................... 2,336,800
14,400 aInfinity Financial Technology, Inc. .......................................... 235,800
108,000 aIntegrated Systems, Inc. ..................................................... 2,916,000
45,000 aMcAfee Associates, Inc. ...................................................... 2,047,500
200,000 aMercury Interactive Corp. .................................................... 2,550,000
440,000 aPhoenix Technologies, Ltd. ................................................... 7,590,000
100,000 aRainbow Technologies, Inc. ................................................... 1,787,500
58,300 aSecure Computing Corp. ....................................................... 677,738
55,000 aSS&C Technologies, Inc. ...................................................... 412,500
183,149 aSterling Commerce, Inc. ...................................................... 5,151,066
240,000 aSterling Software, Inc. ...................................................... 7,800,000
280,000 aSymantec Corp. ............................................................... 3,045,000
125,000 aSynopsys, Inc. ............................................................... 5,625,000
62,600 aWhite Pine Software, Inc. .................................................... 563,400
1,700 aXionics Document Technologies, Inc. .......................................... 21,675
-------------
58,514,692
-------------
Transportation 3.8%
274,000 Air Express International Corp. ............................................... 8,288,500
200,000 Expeditors International of Washington, Inc. .................................. 8,375,000
Transportation (cont.)
300,000 Harper Group, Inc. ............................................................ $ 7,200,000
191,000 aLandstar System, Inc. ........................................................ 4,512,375
-------------
28,375,875
-------------
Utilities and Communication3.9%
375,900 aBell Cablemedia, Plc. ........................................................ 6,108,375
225,000 aComnet Cellular, Inc. ........................................................ 6,243,750
485,000 aICG Communications, Inc. ..................................................... 9,093,750
428,000 a,gRural Cellular Corp. ....................................................... 4,280,000
152,700 aSilver King Communications, Inc. ............................................. 3,397,575
-------------
29,123,450
-------------
Total Common Stocks (Cost $632,132,925) ....................................... 690,319,299
-------------
Face
Amount
Convertible Bonds0.9%
Industrial
$ 1,400,000 Mercury Air Group, Inc., sub. deb., 7.75%, 02/01/06............................ 1,433,250
3,400,000 cUS Diagnostic Labs, Inc., sub. deb., 9.00%, 03/31/03.......................... 5,117,000
-------------
Total Convertible Bonds (Cost $4,800,000) ..................................... 6,550,250
-------------
Total Long Term Investments (Cost $636,932,925) ............................... 696,869,549
-------------
dReceivables from Repurchase Agreements6.8%
50,684,834 Joint Repurchase Agreements, 5.529%, 11/01/96 (Maturity Value $50,914,867)
(Cost $50,907,048)
B.A. Securities, Inc., (Maturity Value $6,029,125)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.25% - 8.75%, 12/31/96 - 05/31/98
Bear, Stearns & Co., Inc., (Maturity Value $6,029,125)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $4,521,844)
Collateral: U.S. Treasury Notes, 5.875% 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $4,521,844)
Collateral: U.S. Treasury Notes, 4.75% - 5.625%, 10/31/97 - 09/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $6,029,125)
Collateral: U.S. Treasury Notes, 4.75% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $5,275,488)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $6,029,125)
Collateral: U.S. Treasury Notes, 5.625% - 8.00%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $420,941)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $6,029,125)
Collateral: U.S. Treasury Notes, 4.75% - 8.75%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $6,029,125)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 04/30/98 - 09/30/00........... $ 50,907,048
-------------
Total Investments (Cost $687,839,973)100% ..................................... 747,776,597
Liabilities in Excess of Other Assets.......................................... (81,946)
-------------
Net Assets100%................................................................. $747,694,651
=============
At October 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$688,859,754 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost.......................................... $105,517,582
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value.......................................... (46,600,739)
-------------
Net unrealized appreciation.................................................... $ 58,916,843
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
aNon-income producing.
cPurchased in a private placement transaction; resale may only be qualified to
institutional buyers.
dFace amount for repurchase agreements is for the underlying collateral.
See Note 1(i) regarding joint repurchase agreement.
eSecurities traded in foreign currency and valued in U.S. dollars.
fSee Note 1(f) regarding securities purchased on a when-issued or delayed
delivery basis.
gSee Note 7 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, October 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Value
Country* Shares Franklin Strategic Income Fund (Note 1)
<S> <C> <C> <C>
Common Stocks 0.1%
Media and Broadcasting0.1%
US 1,600 Sullivan Broadcast Holdings ............................................ $ 16,000
-------------
Metals and Mining
US 200 aGulf States Steel...................................................... 1,000
-------------
Total Common Stocks (Cost $16,591)...................................... 17,000
-------------
Preferred Stocks 3.0%
Cable Television0.5%
US 1,070 Cablevision Systems, 11.125% pfd., PIK.................................. 98,396
-------------
Financial Services0.6%
US 1,000 First Nationwide Bank, 11.50% pfd. ..................................... 114,750
-------------
Media and Broadcasting1.9%
US 118 PanAmSat Corp., L.P., 12.75% pfd., PIK ................................. 148,622
US 209 Time Warner, Inc., 10.25% pfd. ......................................... 222,324
-------------
370,946
-------------
Total Preferred Stocks (Cost $533,970) ................................. 584,092
-------------
Convertible Preferred Stocks2.8%
Consumer Products0.6%
US 20,000 RJR Nabisco Holdings Corp., $0.6012 cvt. pfd., Series C................. 112,500
-------------
Media and Broadcasting1.0%
US 19,000 Triathlon Broadcasting, 9.00% cvt. pfd. ................................ 190,000
-------------
Telecommunications1.2%
US 5,000 cCoIntel, 7.00% cvt. pfd. .............................................. 245,000
-------------
Total Convertible Preferred Stocks (Cost $567,850) ..................... 547,500
-------------
Face
Amount
High Yield Corporate Bonds 32.2%
Automotive 1.6%
US 200,000 cAetna Industries Inc., senior notes, 11.875%, 10/01/06................. 206,000
US 100,000 Collins & Aikman Products, senior sub. notes, 11.50%, 04/15/06.......... 104,625
-------------
310,625
-------------
Cable Television1.7%
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 ......... 124,125
US 150,000 Diamond Cable Communications, senior notes, zero coupon to 12/15/00,
(original accretion rate 11.75%), 11.75% thereafter, 12/15/05.......... 99,000
US 100,000 Rogers Cablesystems, Inc., guaranteed notes, 9.625%, 08/01/02 .......... 102,250
-------------
325,375
-------------
Consumer Products1.1%
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 ........................ 99,500
-------------
205,000
-------------
Containers and Packaging1.6%
US 100,000 Owens-Illinois, Inc., senior sub. deb., 10.50%, 06/15/02 ............... 105,500
US 100,000 Riverwood International, senior notes, 10.25%, 04/01/06................. 97,125
US 100,000 cU.S. Can Corp., senior sub. notes, 10.125%, 10/15/06................... 103,000
-------------
305,625
-------------
Energy1.0%
US 100,000 fForcenergy, Inc., senior sub. notes, 9.50%, 11/01/06................... 100,000
US 100,000 Gulf Canada Resources, Ltd., senior sub. deb., 9.25%, 01/15/04 ......... 104,250
-------------
204,250
-------------
Financial Services2.2%
US 200,000 cFirst Nationwide Escrow Corp., senior sub. notes, 10.625%, 10/01/03.... 211,500
US 200,000 cHomeside Finance, Inc., senior notes, 11.25%, 05/15/03................. 219,000
-------------
430,500
-------------
Food and Beverages1.0%
US 100,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ......... 99,500
US 100,000 Doane Products Co., senior notes, 10.625%, 03/01/06..................... 104,500
-------------
204,000
-------------
Food Retailing2.2%
US 100,000 Dominick's Finer Foods, senior sub. notes, 10.875%, 05/01/05 ........... 110,750
US 100,000 cInternational Home Foods, senior sub. notes, 10.375%, 11/01/06......... 101,250
US 200,000 Smiths Food & Drug, senior sub. notes, 11.25%, 05/15/07................. 217,250
-------------
429,250
-------------
Forest and Paper Products1.7%
US 100,000 Rapp International Finance, 13.25%, 12/15/05............................ 109,500
US 100,000 S.D. Warren Co., senior sub. notes, 12.00%, 12/15/04 ................... 107,750
US 100,000 Tjiwi Kimia International, 13.25%, 08/01/01 ............................ 113,000
-------------
330,250
-------------
Gaming and Hotels3.9%
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.......... 123,000
US 100,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ....................... 109,500
US 100,000 Grand Casinos, Inc., first mortgage, 10.125%, 12/01/03.................. 98,375
US 200,000 Harvey Casinos Resorts, senior sub notes, 10.625%, 06/01/06............. 209,000
Gaming and Hotels (cont.)
US 100,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ........... $ 99,500
US 100,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 .................... 112,500
-------------
751,875
-------------
Health Care1.2%
US 100,000 OrNda Healthcorp., guaranteed, senior sub. notes, 11.375%, 08/15/04 .... 113,500
US 100,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ........... 110,250
-------------
223,750
-------------
Industrial2.8%
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 .......... 139,500
US 100,000c E&S Holdings Corp., senior sub. notes, 10.375%, 10/01/06................ 103,000
US 200,000 Harvard Industries, Inc., senior notes, 12.00%, 07/15/04................ 194,000
US 100,000c,f Intertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06............. 100,000
-------------
536,500
-------------
Media and Broadcasting1.6%
US 100,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ......... 105,125
US 100,000 Hollinger International Publishing, senior sub. notes, 9.25%, 02/01/06.. 96,500
US 100,000 Sullivan Broadcast Holdings, senior deb., 13.25%, 12/15/06.............. 104,000
-------------
305,625
-------------
Metals and Mining1.8%
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 98,500
US 200,000 Gulf States Steel, first mortgage, 13.50%, 04/15/03..................... 189,250
US 50,000 Ucar Global Enterprises, Inc., senior sub. notes, 12.00%, 01/15/05 ..... 57,750
-------------
345,500
-------------
Transportation0.6%
US 100,000 Howmet Corp., senior sub. notes, 10.00%, 12/01/03....................... 108,000
-------------
Utilities - Electric0.5%
US 100,000 El Paso Electric Co., first mortgage, 9.40%, 05/01/11................... 104,000
-------------
Wireless Communications5.7%
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........ 166,500
LU 300,000 Millicom International Celluar, SA, senior disc. notes, zero coupon to 06/01/01,
(original accretion rate 13.50%), 13.50% thereafter, 06/01/06.......... 170,625
US 200,000 cPaging Network, Inc., senior sub. notes, 10.00%, 10/15/08.............. 198,750
Wireless Communications (cont.)
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.......... $ 173,625
US 200,000 Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06................... 201,000
US 300,000 Teleport Communications Group, Inc., senior disc. notes, zero coupon to
07/01/01, (original accretion rate 11.125%), 11.125% thereafter, 07/01/07 194,250
-------------
1,104,750
-------------
Total High Yield Corporate Bonds (Cost $5,925,547) ..................... 6,224,875
-------------
Convertible Bonds8.5%
Health Care1.0%
US 125,000 cUS Diagnostic Labs, Inc., cvt. sub. deb., 9.00%, 03/31/03.............. 188,125
-------------
Industrial0.8%
US 150,000 Robbins & Meyers., cvt. sub notes, 6.50%, 09/01/03...................... 155,250
-------------
Information Technology3.2%
US 75,000 cAltera Corp., cvt. sub. notes, 5.75%, 06/15/02......................... 101,438
US 300,000 cDovatron International, Inc., cvt. sub. notes, 6.00%, 10/15/02......... 275,625
US 250,000 Xilinx, Inc., cvt. sub. notes, 5.25%, 11/01/02.......................... 237,500
-------------
614,563
-------------
Media and Broadcasting0.6%
US 110,000c All American Communications, cvt. sub. deb., 6.50%, 10/01/03 ........... 114,950
-------------
Retail2.9%
US 150,000 Men's Wearhouse, Inc., cvt. sub. notes, 5.25%, 03/01/03................. 134,250
US 300,000 Michaels Stores, Inc., cvt. sub. notes, 6.75%, 01/15/03................. 210,000
US 250,000 U.S. Office Products Co., cvt. sub. notes, 5.50%, 05/15/03.............. 222,813
-------------
567,063
-------------
Total Convertible Bonds (Cost $1,593,496) .............................. 1,639,951
-------------
Emerging Market Bonds13.5%
US 30,000 Bancomer, SA, 8.00%, 07/07/98........................................... 29,888
US 100,000 Bridas Corp., senior notes, 12.50%, 11/15/99............................ 105,875
US 100,000c Cemex, SA, 10.75%, 07/15/00............................................. 102,000
US 120,000 Centrais Eletricas Brasileiras, SA, 10.00%, 10/30/98.................... 124,800
US 100,000 Industrias Metalurgicas Pescarm, senior notes, 11.75%, 03/27/98......... 102,000
US 130,000 Philippine Long Distance Telephone Co., 9.25%, 06/30/06................. 136,825
US 200,000c Poland Communications, Inc., senior notes, 9.875%, 11/01/03............. 199,000
US 43,000 Polysindo International Finance, guaranteed, 11.375%, 06/15/06.......... 45,849
US 100,000 Republic of Argentina, 6.438%, 03/31/23................................. 72,250
US 150,000 Republic of Argentina, PAR, 5.25%, 03/31/23............................. 89,438
US 78,400 Republic of Argentina, FRB, 6.313%, 03/31/05 ........................... $ 64,435
US 99,000 Republic of Argentina, registered, FRB, 6.313%, 03/31/05 ............... 81,366
US 200,000 Republic of Argentina, 11.00%, 10/09/06................................. 196,500
US 200,000 Republic of Brazil, 6.563%, 04/15/09 ................................... 158,375
US 260,000 Republic of Brazil, 6.50%, 04/15/24..................................... 191,913
US 100,000 Republic of Bulgaria, 6.688%, 07/28/24.................................. 50,875
US 250,000 Republic of Ecuador, 6.50%, 02/28/25.................................... 164,688
US 250,000 Republic of Venezuela, 6.75%, 03/31/20.................................. 177,969
US 125,000 SEI Holdings IX, Inc., senior notes, 11.00%, 11/30/00 .................. 134,375
US 165,000 United Mexican States, 9.75%, 02/06/01.................................. 168,505
US 250,000 United Mexican States, 6.25%, 12/31/19.................................. 175,625
US 40,000 United Mexican States, 11.50%, 05/15/26................................. 39,950
-------------
Total Emerging Market Bonds (Cost $2,578,495) .......................... 2,612,501
-------------
Foreign Government Bonds20.4%
AU 390,000 Australian Government, 12.00%, 11/15/01................................. 373,110
DD 120,000 Bundesschatzanweisungen, 6.875%, 12/02/98............................... 84,136
IT 105,000 Buoni Poliennali del Tesoro, 7.438%, 08/01/99 .......................... 71,434
IT 260,000 Buoni Poliennali del Tesoro, 9.188%, 07/15/00 .......................... 188,517
IT 55,000 Buoni Poliennali del Tesoro, 10.50%, 11/01/00 .......................... 40,087
IT 375,000 Buoni Poliennali del Tesoro, 9.188%, 09/01/05 .......................... 282,595
DD 75,000 Deutschland Bundesrepublik, 8.375%, 05/21/01 ........................... 56,454
DD 70,000 Deutschland Bundesrepublik, 8.25%, 09/20/01 ............................ 52,598
DD 30,000 German Unity Fund, 8.00%, 01/21/02 ..................................... 22,376
CA 100,000 Government of Canada, 10.25%, 12/01/98 ................................. 83,159
CA 245,000 Government of Canada, 5.75%, 03/01/99................................... 187,731
CA 265,000 Government of Canada, 10.50%, 03/01/01.................................. 236,509
CA 53,000 Government of Canada, 6.50%, 06/01/04 .................................. 40,382
CA 100,000 Government of Canada, 10.50%, 10/01/04 ................................. 94,548
CA 20,000 Government of Canada, 9.00%, 12/01/04 .................................. 17,567
CA 70,000 Government of Canada, 8.75%, 12/01/05................................... 60,879
IE 35,000 Irish Government, 6.25%, 10/18/04....................................... 55,366
DK 1,445,000 Kingdom of Denmark, 9.00%, 11/15/00 .................................... 280,920
DK 501,000 Kingdom of Denmark, 8.00%, 11/15/01..................................... 94,382
DK 167,000 Kingdom of Denmark, 8.00%, 05/15/03 .................................... 31,331
NL 155,000 Netherlands Government, 7.00%, 03/15/99................................. 97,483
NZ 300,000 New Zealand Government, 10.00%, 03/15/02 ............................... 237,340
NZ 139,000 New Zealand, T-Bills, 0.00%, 12/18/96................................... 97,337
ES 22,720 Spanish Government, 12.25%, 03/25/00.................................... 206,286
ES 15,320 Spanish Government, 11.30%, 01/15/02.................................... 140,719
ES 7,230 Spanish Government, 10.15%, 01/31/06.................................... 65,645
SE 400,000 Swedish Government, 13.00%, 06/15/01.................................... $ 76,026
SE 500,000 Swedish Government, 10.25%, 05/05/03.................................... 89,368
SE 400,000 Swedish Government, 6.00%, 02/09/05..................................... 56,065
GB 175,000 United Kingdom Treasury, 12.00%, 11/20/98............................... 312,533
GB 55,000 United Kingdom Treasury, 10.25%, 11/22/99............................... 97,441
GB 60,000 United Kingdom Treasury, 10.00%, 09/08/03............................... 111,122
-------------
Total Foreign Government Bonds (Cost $3,764,428) ....................... 3,941,446
-------------
U.S. Government Securities3.5%
US 400,000 U.S. Treasury Bonds, 7.125%, 02/15/23................................... 418,250
US 250,000 U.S. Treasury Notes, 6.75%, 05/31/97.................................... 251,797
-------------
Total U.S. Government Securities (Cost $656,736)........................ 670,047
-------------
U.S. Government Agencies/Mortgages7.7%
US 24,694 FHLMC, 7.00%, 01/01/09 ................................................. 24,764
US 24,558 FHLMC, 6.00%, 04/01/09 ................................................. 23,714
US 24,163 FHLMC, 6.00%, 01/01/11.................................................. 23,333
US 38,995 FHLMC, 6.50%, 04/01/11.................................................. 38,434
US 50,346 FHLMC, 7.00%, 09/01/11.................................................. 50,520
US 49,210 FHLMC, 7.00%, 04/01/24 ................................................. 48,426
US 44,158 FHLMC, 7.50%, 04/01/24 ................................................. 44,365
US 28,610 FHLMC, 8.50%, 12/01/24 ................................................. 29,684
US 20,834 FHLMC, 9.00%, 12/01/24 ................................................. 21,981
US 29,738 FHLMC, 7.00%, 11/01/25.................................................. 29,264
US 29,559 FHLMC, 8.00%, 11/01/25.................................................. 30,243
US 39,162 FHLMC, 6.50%, 12/01/25.................................................. 37,559
US 37,204 FHLMC, 7.50%, 01/01/26.................................................. 37,379
US 26,531 FHLMC, 8.00%, 01/01/26.................................................. 27,146
US 49,896 FHLMC, 6.50%, 03/01/26.................................................. 47,854
US 30,278 FHLMC, 7.00%,09/01/26................................................... 29,796
US 38,706 FNMA, 7.50%, 10/01/07 .................................................. 39,360
US 31,847 FNMA, 6.50%, 02/01/09 .................................................. 31,340
US 25,154 FNMA, 6.50%, 04/01/11................................................... 24,754
US 40,214 FNMA, 6.50%, 01/01/24 .................................................. 38,505
US 23,284 FNMA, 7.00%, 05/01/24 .................................................. 22,862
US 37,757 FNMA, 8.00%, 01/01/25 .................................................. 38,560
US 25,147 FNMA, 9.00%, 03/01/25 .................................................. 26,467
US 17,489 FNMA, 9.00%, 05/01/25 .................................................. 18,408
US 24,345 FNMA, 8.50%, 07/01/25 .................................................. 25,213
US 50,409 FNMA, 7.00%, 01/01/26................................................... 49,496
US 58,815 FNMA, 7.00%, 03/01/26 .................................................. 57,750
US 40,111 FNMA, 7.50%, 03/01/26................................................... $ 40,237
US 25,110 FNMA, 8.00%, 05/01/26................................................... 25,644
US 24,750 FNMA, 8.00%, 06/01/26................................................... 25,276
US 40,135 FNMA, 7.50%, 08/01/26................................................... 40,260
US 25,000 FNMA, 7.50%, 10/01/26................................................... 25,078
US 21,541 GNMA, SF, 7.50%, 09/15/23 .............................................. 21,636
US 48,964 GNMA, SF, 6.50%, 03/15/24 .............................................. 46,837
US 47,187 GNMA, SF, 8.00%, 06/15/24 .............................................. 48,309
US 20,050 GNMA, SF, 8.50%, 08/15/24 .............................................. 20,847
US 5,916 GNMA, SF, 9.00%, 01/15/25 .............................................. 6,261
US 23,616 GNMA, SF, 8.00%, 02/15/25 .............................................. 24,178
US 25,105 GNMA, SF, 9.50%, 06/15/25 .............................................. 27,106
US 57,715 GNMA, SF, 7.00%, 09/20/25 .............................................. 56,219
US 24,667 GNMA, SF, 7.50%, 01/15/26 .............................................. 24,775
US 24,683 GNMA, SF, 7.50%, 01/15/26 .............................................. 24,791
US 24,129 GNMA, SF, 7.50%, 02/15/26 .............................................. 24,235
US 25,199 GNMA, SF, 7.00%, 03/15/26............................................... 24,735
US 40,215 GNMA, SF, 9.00%, 03/15/26 .............................................. 42,553
US 24,958 GNMA, SF, 8.50%, 07/15/26 .............................................. 25,949
-------------
Total U.S. Government Agencies/Mortgages (Cost $1,471,690) ............. 1,492,103
-------------
Total Long Term Investments (Cost $17,108,803) ......................... 17,729,515
-------------
d Receivables from Repurchase Agreements5.9%
US 1,142,741 Joint Repurchase Agreements, 5.529%, 11/01/96 (Maturity Value $1,147,928)
(Cost $1,147,751)
B.A. Securities, Inc., (Maturity Value $135,933)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.25% - 8.75%, 12/31/96 - 05/31/98
Bear, Stearns & Co., Inc., (Maturity Value $135,933)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $101,950)
Collateral: U.S. Treasury Notes, 5.875%, 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $101,950)
Collateral: U.S. Treasury Notes, 4.75% - 5.625%, 10/31/97 - 9/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $135,933)
Collateral: U.S. Treasury Notes, 4.75% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $118,939)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $135,933)
Collateral: U.S. Treasury Notes, 5.625% - 8.00%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $9,491)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $135,933)
Collateral: U.S. Treasury Notes, 4.75% - 8.75%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $135,933)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 04/30/98 - 09/30/00
$ 1,147,751
-------------
Total Investments (Cost $18,256,554)97.6% .............................. 18,877,266
Other Assets and Liabilities, Net2.4%................................... 457,623
-------------
Net Assets100.0%........................................................ $19,334,889
=============
At October 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $18,256,554 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost............................. $ 764,340
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value............................. (143,628)
-------------
Net unrealized appreciation............................................. $ 620,712
=============
</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
DK - Denmark
ES - Spain
GB - United Kingdom
IE - Ireland
IT - Italy
LU - Luxembourg
NL - Netherlands
NZ - New Zealand
SE - Sweden
US - United States
The accompanying notes are an integral part of these financial statements.
*Securities are traded in the currency of country indicated. Face amount of
the bonds is stated in the currency of the country indicated. Value is stated
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 agreement.
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
Financial Statements
Statements of Assets and Liabilities
October 31, 1996 (unaudited)
<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 identified cost........................................... $2,515,661 $110,781,928 $137,906,470 $150,692,615
======= ======== ========= =========
At value..................................................... 2,576,559 127,041,784 137,230,492 168,473,697
Receivables from repurchase agreements, at value and cost... 764,066 14,767,578 7,546,195 6,639,619
Cash........................................................ -- 637,947 140,260 --
Foreign currencies (Cost $5,515 and $190, respectively)..... 5,536 -- -- 190
Receivables:
Dividends and interest....................................... 2,687 130,952 35,112 531,360
Capital shares sold.......................................... 7,973 1,887,363 814,327 341,947
Other assets................................................ -- 3,979 1,631 2,029
Prepaid expenses............................................ 11,654 -- 21,658 --
------- -------- --------- ---------
Total assets................................................. 3,368,475 144,469,603 145,789,675 175,988,842
------- -------- --------- ---------
Liabilities:
Payables:
Investment securities purchased.............................. 34,608 534,145 -- 1,043,089
Capital shares repurchased................................... -- 33,965 35,538 460,520
Management fees.............................................. 1,534 67,826 74,004 82,678
Distribution fees............................................ 510 60,157 87,646 108,165
Shareholder servicing costs.................................. 299 12,964 8,309 36,188
Accrued expenses and other liabilities...................... -- -- 14,500 23,465
------- -------- --------- ---------
Total liabilities............................................ 36,951 709,057 219,997 1,754,105
------- -------- --------- ---------
Net assets, at value......................................... $3,331,524 $143,760,546 $145,569,678 $174,234,737
======= ======== ========= =========
Net assets consist of:
Undistributed net investment income......................... $ 12,997 $ 345,332 $-- $ 1,552,297
Accumulated distributions in excess of net investment income -- -- (51,139) --
Unrealized appreciation (depreciation) on investments and translation
of assets and liabilities denominated in foreign currencies 60,891 16,259,856 (675,984) 17,783,102
Undistributed net realized gain from investments and
foreign currency transactions............................... 1,403 3,731,254 3,672,499 14,148,835
Class I capital shares...................................... 3,256,233 120,871,267 140,413,221 135,101,472
Class II capital shares..................................... -- 2,552,837 2,211,081 5,649,031
------- -------- --------- ---------
Net assets, at value......................................... $3,331,524 $143,760,546 $145,569,678 $174,234,737
======= ======== ========= =========
Class I shares:
Net assets, at value........................................ $3,331,524 $141,197,049 $143,458,135 $168,213,770
======= ======== ========= =========
Shares outstanding.......................................... 325,226 7,260,372 8,341,470 11,226,649
======= ======== ========= =========
Net asset value per share*.................................. $10.24 $19.45 $17.20 $14.98
======= ======== ========= =========
Class II shares:
Net assets, at value........................................ -- $ 2,563,497 $ 2,111,543 $ 6,020,967
======= ======== ========= =========
Shares outstanding.......................................... -- 131,923 122,789 403,699
======= ======== ========= =========
Net asset value per share*.................................. -- $19.43 $17.20 $14.91
======= ======== ========= =========
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (cont.)
Statements of Assets and Liabilities (cont.)
October 31, 1996 (unaudited)
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin
MidCap Natural Small Cap Strategic
Growth Fund Resources Fund Growth Fund Income Fund
-------- ---------- --------- --------
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
At identified cost.........................................$ 8,271,493 $20,390,374 $636,932,925 $17,108,803
======== ========== ========= ========
At value................................................... 9,465,361 22,726,359 696,869,549 17,729,515
Receivables from repurchase agreements, at value and cost. 1,148,845 3,339,494 50,907,048 1,147,751
Cash...................................................... -- 73,160 5,149,036 200,540
Foreign currencies (Cost $31,943 and $285, respectively).. -- 31,986 -- 288
Receivables:
Dividends and interest..................................... 1,296 16,174 161,475 384,974
Investment securities sold................................. 24,508 -- 1,207,100 154,913
Capital shares sold........................................ 129,909 284,032 3,114,626 80,792
Other assets.............................................. -- -- 2,644 18,129
Prepaid expenses.......................................... -- -- 65,163 --
-------- ---------- --------- --------
Total assets............................................... 10,769,919 26,471,205 757,476,641 19,716,902
-------- ---------- --------- --------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery........................................ 150,000 365,714 8,200,013 158,016
When-issued basis (Note 1).............................. -- -- 691,900 200,000
Capital shares repurchased................................. -- -- 71,504 --
Management fees............................................ 5,715 -- 203,660 --
Distribution fees.......................................... 3,888 11,414 526,925 6,818
Shareholder servicing costs................................ 467 3,961 2,191 11
Accrued expenses and other liabilities.................... 4,457 24,044 85,797 --
Unrealized loss on forward foreign currency contracts (Note 1) -- -- -- 17,168
-------- ---------- --------- --------
Total liabilities.......................................... 164,527 405,133 9,781,990 382,013
-------- ---------- --------- --------
Net assets, at value.......................................$10,605,392 $26,066,072 $747,694,651 $19,334,889
======== ========== ========= ========
Net assets consist of:
Undistributed net investment income....................... $-- $ 45,473 $ 690,673 $ 204,547
Accumulated distributions in excess of net investment income (3,852)
Unrealized appreciation on investments and translation
of assets and liabilities denominated in foreign currencies1,193,868 2,336,008 59,936,624 604,888
Undistributed net realized gain from investments and
foreign currency transactions............................. 1,391,911 606,985 32,844,344 534,554
Class I capital shares.................................... 8,023,465 23,077,606 588,573,193 17,990,900
Class II capital shares................................... -- -- 65,649,817 --
-------- ---------- --------- --------
Net assets, at value.......................................$10,605,392 $26,066,072 $747,694,651 $19,334,889
======== ========== ========= ========
Class I shares:
Net assets, at value......................................$10,605,392 $26,066,072 $678,175,247 $19,334,889
======== ========== ========= ========
Shares outstanding........................................ 717,966 1,828,349 33,362,998 1,720,012
======== ========== ========= ========
Net asset value per share*................................ $14.77 $14.26 $20.33 $11.24
======== ========== ========= ========
Class II shares:
Net assets, at value...................................... -- -- $ 69,519,404 --
======== ========== ========= ========
Shares outstanding........................................ -- -- 3,447,987 --
======== ========== ========= ========
Net asset value per share*................................ -- -- $20.16 --
======== ========== ========= ========
</TABLE>
*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 six months ended October 31, 1996 (unaudited)
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin
Blue California Global Health Global
Chip Fund* Growth Fund Care Fund Utilities Fund
------- -------- ---------- ----------
Investment income:
<S> <C> <C> <C> <C>
Dividends............................................... $ 8,845 $ 578,831 $ 175,820 $ 3,289,159
Interest................................................ 18,026 517,482 465,879 163,903
------- -------- ---------- ----------
Total Income............................................. 26,871 1,096,313 641,699 3,453,062
------- -------- ---------- ----------
Expenses:
Management fees (Note 5)................................ 8,255 327,896 403,536 490,430
Distribution fees - Class I (Note 5).................... 1,610 118,200 152,465 181,824
Distribution fees - Class II (Note 5)................... -- 1,675 1,240 20,608
Shareholder servicing costs (Note 5).................... 698 69,177 92,236 32,289
Reports to shareholders................................. 3,301 34,615 29,816 53,645
Registration and filing fees............................ 2,952 41,347 40,077 26,657
Custodian fees.......................................... 2,600 1,962 4,642 5,889
Trustees' fees and expenses............................. 369 2,027 2,213 2,760
Professional fees....................................... 305 2,773 5,766 10,949
Other................................................... -- 26,451 31,112 34,386
Management fees waived by manager (Note 5).............. (6,216) -- -- --
------- -------- ---------- ----------
Total expenses........................................... 13,874 626,123 763,103 859,437
------- -------- ---------- ----------
Net investment income (loss)........................... 12,997 470,190 (121,404) 2,593,625
------- -------- ---------- ----------
Realized and unrealized gain (loss) from investments and foreign currency:
Net realized gain (loss) from:
Investments............................................. (459) 2,845,664 1,684,053 9,364,640
Foreign currency transactions........................... 1,862 -- (9,899) (42,696)
Net unrealized appreciation (depreciation) on:
Investments............................................. 60,891 4,829,068 (18,323,206) (1,075,397)
Translation of assets and liabilities denominated
in foreign currencies................................... -- -- -- (28,310)
------- -------- ---------- ----------
Net realized and unrealized gain (loss) from
investments and foreign currencies...................... 62,294 7,674,732 (16,649,052) 8,218,237
------- -------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations............................... $75,291 $8,144,922 $(16,770,456) $10,811,862
======= ======== ========== ==========
</TABLE>
*For the period June 1, 1996 (effective date) to October 31, 1996.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (cont.)
Statements of Operations (cont.)
for the six months ended October 31, 1996 (unaudited)
<TABLE>
<CAPTION>
Franklin Franklin Franklin Franklin
MidCap Natural Small Cap Strategic
Growth Fund Resources Fund Growth Fund Income Fund
--------- ---------- --------- ---------
Investment income:
<S> <C> <C> <C> <C>
Dividends............................................. $ 16,376 $ 93,488 $ 1,552,050 $ 49,398
Interest.............................................. 24,808 45,640 1,939,630 653,569
--------- ---------- --------- ---------
Total Income........................................... 41,184 139,128 3,491,680 702,967
--------- ---------- --------- ---------
Expenses:
Management fees (Note 5).............................. 28,139 49,909 1,504,694 48,413
Distribution fees - Class I (Note 5).................. 4,745 17,997 678,844 11,347
Distribution fees - Class II (Note 5)................. -- -- 238,256 --
Shareholder servicing costs (Note 5).................. 6 5,994 290,365 2,759
Reports to shareholders............................... 601 10,790 77,689 17,010
Registration and filing fees.......................... 5,401 6,731 37,715 6,671
Custodian fees........................................ 52 44 9,062 509
Trustees' fees and expenses........................... 149 226 7,353 284
Professional fees..................................... 3,241 4,539 19,457 962
Other................................................. 2,726 29,154 66,326 3,997
Management fees waived by manager (Note 5)............ -- (49,909) -- (48,413)
Other expenses assumed by manager (Note 5)............ -- -- -- (24,172)
--------- ---------- --------- ---------
Total expenses......................................... 45,060 75,475 2,929,761 19,367
--------- ---------- --------- ---------
Net investment income (loss)........................... (3,876) 63,653 561,919 683,600
--------- ---------- --------- ---------
Realized and unrealized gain (loss) from investments and foreign currency:
Net realized gain (loss) from:
Investments........................................... 385,447 422,108 16,782,701 447,888
Foreign currency transactions......................... (452) (2,123) (33,738) (13,232)
Net unrealized appreciation (depreciation) on:
Investments........................................... (4,283) 1,154,027 2,420,399 143,789
Translation of assets and liabilities denominated
in foreign currencies................................. -- 20 -- 1,344
--------- ---------- --------- ---------
Net realized and unrealized gain from investments
and foreign currencies................................ 380,712 1,574,032 19,169,362 579,789
--------- ---------- --------- ---------
Net increase in net assets resulting from operations... $376,836 $1,637,685 $19,731,281 $1,263,389
========= ========== ========= =========
</TABLE>
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 six months ended October 31, 1996
(unaudited) and the year ended April 30, 1996
<TABLE>
<CAPTION>
Franklin Franklin California Franklin Global
Blue Chip Fund Growth Fund Health Care Fund
---------- -------------------- --------------------
For the period Six months Year ended Six months Year ended
ended 10/31/96*ended 10/31/96 4/30/96 ended 10/31/96 4/30/96
---------- --------- --------- --------- ----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C>
Net investment income (loss)........... $ 12,997 $ 470,190 $ 564,403 $ (121,404) $ 166,958
Net realized gain from investments and
foreign currency transactions.......... 1,403 2,845,664 4,257,109 1,674,154 3,447,321
Net unrealized appreciation (depreciation)
on investments and translation of
assets and liabilities denominated in
foreign currencies..................... 60,891 4,829,068 9,813,402 (18,323,206) 17,055,240
---------- --------- --------- --------- ----------
Net increase (decrease) in net assets
resulting from operations.............. 75,291 8,144,922 14,634,914 (16,770,456) 20,669,519
Distributions to shareholders from:
Undistributed net investment income:
Class I................................. -- (317,296) (443,477) -- (164,339)
In excess of net investment income
Class I............................... -- -- -- (153,228) --
Net realized capital gains:
Class I................................. -- -- (3,902,081) -- (1,815,988)
Increase in net assets from capital share
transactions (Note 3).................. 3,256,233 54,758,154 57,041,143 53,578,972 77,319,269
---------- --------- --------- --------- ----------
Net increase in net assets.............. 3,331,524 62,585,780 67,330,499 36,655,288 96,008,461
Net assets:
Beginning of period.................... -- 81,174,766 13,844,267 108,914,390 12,905,929
---------- --------- --------- --------- ----------
End of period.......................... $3,331,524 $143,760,546 $81,174,766 $145,569,678 $108,914,390
========== ========= ========= ========= ==========
Undistributed net investment income
(accumulated distributions in excess of net
investment income) included in net assets:
Beginning of period.................... $-- $ 192,438 $ 71,512 $ 67,625 $ 31,883
========== ========= ========= ========= ==========
End of period.......................... $ 12,997 $ 345,332 $ 192,438 $ (51,139) $ 67,625
========== ========= ========= ========= ==========
</TABLE>
*For the period June 1, 1996 (effective date) to October 31, 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 six months ended October 31, 1996 (unaudited)
and the year ended April 30, 1996
<TABLE>
<CAPTION>
Franklin Franklin MidCap Franklin Natural
Global Utilities Fund Growth Fund Resources Fund
--------------------- ------------------- -------------------
Six months Year ended Six months Year ended Six months Year ended
ended 10/31/96 4/30/96 ended 10/31/96 4/30/96 ended 10/31/96 4/30/96**
---------- ---------- ---------- -------- --------- --------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 2,593,625 $ 3,660,182 $ (3,876) $ 93,289 $ 63,653 $ 38,684
Net realized gain from
investments and foreign
currency transactions...... 9,321,944 6,558,769 384,995 1,148,280 419,985 220,235
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies......... (1,103,707) 16,490,515 (4,283) 741,900 1,154,047 1,181,961
---------- ---------- ---------- -------- --------- --------
Net increase in net
assets resulting
from operations............ 10,811,862 26,709,466 376,836 1,983,469 1,637,685 1,440,880
Distributions to shareholders from:
Undistributed net investment
income:
Class I................... (2,485,700) (3,644,055) (23,101) (108,102) (33,688) (22,636)
Class II.................. (44,785) (21,854) -- -- -- --
In excess of net investment income
Class I.................... -- -- (3,585) -- -- --
Net realized capital gains:
Class I................... -- (3,009,080) -- (66,342) -- (33,775)
Class II.................. -- (22,015) -- -- -- --
Increase (decrease) in net
assets from capital share
transactions (Note 3)...... (3,998,147) 30,688,563 2,680,631 174,445 14,553,207 8,524,399
---------- ---------- ---------- -------- --------- --------
Net increase in
net assets................ 4,283,230 50,701,025 3,030,781 1,983,470 16,157,204 9,908,868
Net assets:
Beginning of period........ 169,951,507 119,250,482 7,574,611 5,591,141 9,908,868 --
---------- ---------- ---------- -------- --------- --------
End of period.............. $174,234,737 $169,951,507 $10,605,392 $7,574,611 $26,066,072 $9,908,868
========== ========== ========== ======== ========= ========
Undistributed net investment
income (accumulated distributions
in excess of net investment income)
included in net assets:
Beginning of period........ $ 1,473,140 $ 1,475,101 $ 26,977 $ 41,792 $ 16,048 $--
========== ========== ========== ======== ========= ========
End of period.............. $ 1,552,297 $ 1,473,140 $ (3,852) $ 26,977 $ 45,473 $ 16,048
========== ========== ========== ======== ========= ========
**For the period June 5, 1995 (effective date) to April 30, 1996.
</TABLE>
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 six months ended October 31, 1996 (unaudited)
and the year ended April 30, 1996
<TABLE>
<CAPTION>
Franklin Small Cap Franklin Strategic
Growth Fund Income Fund
---------------------- --------------------
Six months Year ended Six months Year ended
ended 10/31/96 4/30/96 ended 10/31/96 4/30/96
--------- ---------- --------- ---------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income.............................. $ 561,919 $ 149,453 $ 683,600 $ 791,602
Net realized gain from investments and
foreign currency transactions...................... 16,748,963 28,802,833 434,656 184,113
Net unrealized appreciation on investments
translation of assets and liabilities
and denominated in foreign currencies.............. 2,420,399 50,744,410 145,133 337,890
--------- ---------- --------- ---------
Net increase in net assets
resulting from operations.......................... 19,731,281 79,696,696 1,263,389 1,313,605
Distributions to shareholders from:
Undistributed net investment income:
Class I........................................... -- (75,813) (558,982) (703,892)
Net realized capital gains:
Class I........................................... -- (14,723,317) -- (93,313)
Class II.......................................... -- (189,559) -- --
Increase in net assets from capital share
transactions (Note 3).............................. 258,949,411 341,296,317 5,608,946 5,769,430
--------- ---------- --------- ---------
Net increase in net assets.......................... 278,680,692 406,004,324 6,313,353 6,285,830
Net assets:
Beginning of period................................ 469,013,959 63,009,635 13,021,536 6,735,706
--------- ---------- --------- ---------
End of period...................................... $747,694,651 $469,013,959 $19,334,889 $13,021,536
========= ========== ========= =========
Undistributed net investment income included in net assets:
Beginning of period................................ $ 124,074 $ 49,242 $ 59,325 $ 16,544
========= ========== ========= =========
End of period...................................... $ 690,673 $ 124,074 $ 204,547 $ 59,325
========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (unaudited)
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 series (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 shares and maintains a totally separate
investment portfolio. The investment objectives of each Fund 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 effective date on June 15, 1993, to the MidCap Securities Fund. No
financial information is provided for the MidCap Securities Fund as there were
no public sharedholders as of October 31, 1996. The Blue Chip Fund became
effective on June 1, 1996.
The California Growth Fund, the Global Health Care Fund, the Global Utilities
Fund, the Small Cap Growth Fund offer two classes of shares, Class I and Class
II. 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 offering of Class II shares began September 1, 1996 for the Global
Health Care Fund and the California Growth Fund, at which time all previously
outstanding shares became Class I shares.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its 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 functions, under procedures approved by the Board. Securities
for which market quotations are not available, are valued in accordance with
procedures established by the Board.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
a. Security Valuation: (cont.)
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.
The fair value of securities restricted as to resale are determined following
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 by the Funds 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 for the REIT security are recognized by the Funds as
capital gain.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
Net realized capital gains and losses differ for financial statement and tax
purposes due to differing treatments of wash sales and foreign currency
transactions.
e. Accounting Estimates:
The preparation of the 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 or Delayed Delivery Basis:
The Funds may purchase 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, 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. 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 October 31, 1996, all outstanding repurchase agreements held by
the Funds had been entered into on that date.
j. 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.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
j. 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 October 31, 1996, the Strategic Income Fund had the following forward
foreign currency contracts outstanding:
<TABLE>
<CAPTION>
Unrealized
Contracts to Buy In Exchange for Settlement Date Gain (Loss)
- ---------------------------------------------- ----------- ---------- ----------
<C> <C> <C> <C>
155,000 New Zealand Dollars................................. U.S. $108,516 11/20/96 U.S. $663
----------- ----------
Contracts to Sell
- ----------------------------------------------
634,000 German Deutschemarks................................ U.S. $ 415,915 11/12/96 U.S. $ (3,516)
320,000 German Deutschemarks................................ 208,367 11/18/96 (3,496)
345,000 German Deutschemarks................................ 224,946 11/22/96 (3,585)
467,000 German Deutschemarks................................ 306,449 11/25/96 (3,017)
300,000 German Deutschemarks................................ 197,778 11/29/96 (1,124)
326,000 New Zealand Dollars................................ 226,533 11/20/96 (3,093)
----------- ----------
U.S. $1,579,988 11/20/96 $(17,831)
----------- ----------
Net unrealized depreciation.............................................................. U.S. $(17,168)
==========
2. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At April 30, 1996, for tax purposes, the Funds had accumulated net realized
gains as follows:
Franklin
Franklin Franklin Franklin Natural Franklin Franklin
California Global Health Global Resources Small Cap Strategic
Growth Fund Care Fund Utilities Fund Fund Growth Fund Income Fund
-------- -------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accumulated net realized gains... $885,590 $2,190,094 $4,828,709 $191,903 $16,409,369 $107,564
-------- -------- -------- ------- --------- ---------
</TABLE>
For tax purposes, the aggregate cost of securities is higher (and unrealized
appreciation is lower) than for financial reporting purposes at October 31, 1996
by $68,531 in the California Growth Fund, $3,181 in the Global Health Care Fund,
$1,818 in the Global Utilities Fund, $93 in the MidCap Growth Fund, $70,487 in
the Natural Resources Fund, and $1,019,781 in the Small Cap Growth Fund.
3. TRUST SHARES
At October 31, 1996, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Funds' shares for
the six months ended October 31, 1996 and for the year ended April 30, 1996 were
as follows:
3. TRUST SHARES (cont.)
<TABLE>
<CAPTION>
Franklin Franklin California Franklin Global
Blue Chip Fund* Growth Fund Health Care Fund
----------------- ------------------- --------------------
Shares Amount Shares Amount Shares Amount
------ --------- -------- ---------- -------- ----------
Class I Shares:
Six months ended October 31,1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold ..................... 346,522 $ 3,470,480 4,037,806 $74,791,000 5,541,536 $102,314,626
Shares issued in reinvestment
of distributions ................ -- -- 15,310 278,021 6,693 129,708
Shares redeemed ................. (21,296) (214,247) (1,238,178) (22,863,704) (2,837,669) (51,076,443)
------ --------- -------- ---------- -------- ----------
Net increase ..................... 325,226 $ 3,256,233 2,814,938 $52,205,317 2,710,560 $ 51,367,891
====== ========= ======== ========== ======== ==========
Year ended April 30, 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
======== ========== ======== ==========
Class II Shares:
Six months ended October 31, 1996+
Shares sold...................... 131,923 $ 2,552,837 123,337 $ 2,220,736
Shares redeemed.................. -- -- (548) (9,655)
-------- ---------- -------- ----------
Net increase ..................... 131,923 $ 2,552,837 122,789 $ 2,211,081
======== ========== ======== ==========
*For the period June 1, 1996 (effective date) to October 31, 1996.
+For the period September 1, 1996 (effective date) to October 31, 1996.
Franklin Global Franklin MidCap Franklin Natural
Utilities Fund Growth Fund Resources Fund
-------------------- ---------------- ------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- ------ -------- -------- ---------
Class I Shares:
Six months ended October 31,1996**
<S> <C> <C> <C> <C> <C> <C>
Shares sold ....................... 732,285 $10,596,359 195,292 $2,801,374 1,429,217 $19,287,800
Shares issued in reinvestment
of distributions .................. 138,750 1,975,809 1,871 26,682 2,360 30,514
Shares redeemed .................... (1,353,508) (19,643,698) (10,978) (147,425) (357,489) (4,765,107)
-------- ---------- ------ -------- -------- ---------
Net increase (decrease) ............ (482,473) $ (7,071,530) 186,185 $2,680,631 1,074,088 $14,553,207
======== ========== ====== ======== ======== =========
Year ended April 30, 1996**
Shares sold........................ 2,718,701 $35,864,485 -- -- 1,022,068 $11,561,802
Shares issued in connection
with merger (Note 7) .............. 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
======== ========== ====== ======== ======== =========
</TABLE>
**For Natural Resources Fund, for the period June 5, 1995 (effective date) to
April 30, 1996.
3. TRUST SHARES (cont.)
Franklin Global
Utilities Fund
--------------------
Shares Amount
-------- ----------
Class II Shares:
Six months ended October 31, 1996
Shares sold........................ 251,766 $ 3,648,857
Shares issued in reinvestment
of distributions................... 2,543 36,136
Shares redeemed.................... (42,072) (611,610)
-------- ----------
Net increase ....................... 212,237 $ 3,073,383
======== ==========
Year ended April 30, 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
======== ==========
<TABLE>
<CAPTION>
Franklin Small Cap Franklin Strategic
Growth Fund Income Fund
---------------------- ------------------
Shares Amount Shares Amount
-------- ----------- ------- ---------
Class I Shares:
Six months ended October 31, 1996
<S> <C> <C> <C> <C>
Shares sold .......................................... 20,299,762 $402,389,996 679,837 $7,459,424
Shares issued in reinvestment of distributions ....... -- -- 41,111 445,899
Shares redeemed ...................................... (9,462,423) (187,468,550) (209,816) (2,296,377)
-------- ----------- ------- ---------
Net increase .......................................... 10,837,339 $214,921,446 511,132 $5,608,946
======== =========== ======= =========
Year ended April 30, 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:
Six months ended October 31, 1996
Shares sold .......................................... 2,370,643 $ 46,968,256
Shares redeemed ...................................... (148,425) (2,940,291)
-------- -----------
Net increase .......................................... 2,222,218 $ 44,027,965
======== ===========
Year ended April 30, 1996
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
======== ===========
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the six months ended October 31, 1996, were as follows:
Franklin Franklin California Franklin Global Franklin Global
Blue Chip Fund* Growth Fund Health Care Fund Utilities Fund
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Purchases............................... $2,530,672 $76,333,134 $101,237,458 $41,435,823
Sales................................... $ 14,553 $23,028,531 $ 37,884,351 $42,908,855
Franklin MidCap Franklin Natural Franklin Small Cap Franklin Strategic
Growth Fund Resources Fund Growth Fund Income Fund
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Purchases............................... $5,102,830 $17,271,300 $420,775,835 $11,364,761
Sales................................... $3,013,336 $ 5,034,143 $153,639,765 $ 6,789,965
*For the period June 1, 1996 (effective date) to October 31, 1996.
</TABLE>
5. 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 monthly based on the average daily 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
0.50% Over $100 million, up to and including $250 million
0.45% 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 monthly based on the average daily 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, Advisers receives fees from
the MidCap Growth Fund computed monthly at the annual rate of 0.65% of the
Fund's average daily net assets.
Under a subadvisory agreement with Advisers, Templeton Investment Council, Inc.
(TICI or the Subadviser) provides services to the Strategic Income Fund, and
receives from Advisers fees computed monthly based on the average daily net
assets as follows:
Annualized Fee Rate Average Daily Net Assets
- ------------- ----------------------------------
0.3125% First $100 million
0.25% Over $100 million, up to and including $250 million
0.225% Over $250 million, up to and including $10 billion
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
a. Management Agreement: (cont.)
The terms of the management agreement provide that aggregate annual expenses of
each Fund be limited to the extent necessary to comply with the limitations set
forth in the laws, regulations, and administrative interpretations of the states
in which each Fund's shares are registered. For the six months ended October 31,
1996, the Funds' expenses did not exceed these limitations. However, Advisers
agreed in advance to waive management fees and assume payment of other expenses
for the Blue Chip Fund, the Natural Resources Fund, and the Strategic Income
Fund as noted in the Statement of Operations.
b. Shareholder Services Agreement:
Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc., (Investor Services), the Trust pays costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Funds for
the six months ended October 31, 1996, aggregated $493,524 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 1.00% 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
Funds' shares. The Plans do not permit nor require payments of excess costs
after termination.
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 Fund's shares. Commissions received by Distributors, the amounts paid to
other dealers, and any applicable contingent deferred sales charges for the six
months ended October 31, 1996, were as follows:
<TABLE>
<CAPTION>
Franklin Franklin California Franklin Global Franklin Global
Blue Chip Fund Growth Fund Health Care Fund Utilities Fund
---------- ------------ ----------- ----------
Class I
<S> <C> <C> <C> <C>
Total commissions received.................. $28,451 $1,326,970 $1,961,782 $200,412
Paid to other dealers....................... $25,263 $1,294,095 $1,741,435 $181,956
Class II
Total commissions received.................. -- $ 25,321 $ 21,600 $ 35,340
Paid to other dealers....................... -- $ 51,030 $ 43,456 $ 70,349
Contingent deferred sales charges .......... -- -- -- $ 1,266
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
c. Distribution Plans and Underwriting Agreement: (cont.)
Franklin MidCap Franklin Natural Franklin Small CapFranklin Strategic
Growth Fund Resources Fund Growth Fund Income Fund
---------- ----------- ------------ ------------
Class I
<S> <C> <C> <C> <C>
Total commissions received............... $76,252 $208,551 $3,509,364 $80,906
Paid to other dealers.................... $69,503 $198,036 $3,324,340 $91,574
Class II
Total commissions received............... -- -- $445,614 --
Paid to other dealers.................... -- -- $888,156 --
Contingent deferred sales charges........ -- -- $ 7,293 --
</TABLE>
d. Other Affiliated Parties and Transactions:
Certain officers and trustees of the Funds are also officers and/or directors of
Distributors, Advisers and Investors Services, all wholly-owned subsidiaries of
Franklin Resources, Inc. (Resources).
At October 31, 1996, Resources owned 61% of the Blue Chip Fund, 74% of the
MidCap Growth Fund, 6% of the Natural Resources Fund, and 35% of the Strategic
Income Fund.
6. 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 October 31, 1996, the Funds held
restricted securities as follows:
<TABLE>
<CAPTION>
Acquisition
Fund Shares Security Date Cost Value
- ---------------- ------ ------------------------------ -------- -------- --------
<S> <C> <C> <C> <C>
California Growth Fund 48 Lynx Therapeutics, Inc. ................. 10/19/92 $ 326 $ --
California Growth Fund 142,000 Pacific Retail Trust..................... 08/30/96 1,562,000 1,562,000
Natural Resources Fund 10,000 Bema Gold Corp., Legend Shares........... 08/16/96 80,067 60,041
</TABLE>
7. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments in portfolio companies, 5% or more of whose outstanding voting
securities are held by the Small Cap Growth Fund, are defined in the Investment
Company Act of 1940 as affiliated companies. The Fund had investments in such
affiliated companies at October 31, 1996, with a value in the amount of
$15,233,125. For more information as to specific securities, see the
accompanying Statement of Investments in Securities and Net Assets.
8. 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.
8. ACQUISITION OF TEMPLETON GLOBAL UTILITIES, INC. (cont.)
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 Assets
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.
9. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
period by Fund are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
----------------------------------------------- -----------------------------
Net Net Total Distri- Distri- Ratio of Ratio
Asset Realized & From butions butions Net Net Expenses of Net
Value at Net Unrealized Invest- From Net From Asset Assets to Aver- Investment Average
Begin- Invest- Gain ment Invest- Realized Total Value at at End age Net Income toPortfolio Com-
Year ning of ment (Loss) on Oper- ment Capital Distri- End of Total of PeriodAssets*** Average Turnover mission
Ended PeriodIncome Securities ations Income Gains butions Period Return* (in 000's)(See Note 5)Net AssetsRate Rate++
Franklin Blue Chip Fund:
Class I Shares:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19967 $10.00 $.04 $ .200 $ .240 $-- $-- $-- $10.24 2.40% $3,332 1.25%** 1.17%** .70% .0603
Franklin California Growth Fund:
Class I Shares:
19921 10.04 .07 (.168) (.098) (.072) -- (.072) 9.87 (1.77)** 3,091 -- 1.27** 13.73 --
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
19969 18.26 .06 1.189 1.249 (.059) -- (.059) 19.45 6.80 141,197 1.17** .88** 25.06 .0532
Class II Shares:
19968 18.05 -- 1.380 1.380 -- -- -- 19.43 7.65 2,563 1.85** (.16)** 25.06 .0532
Franklin Global Health Care Fund:
Class I Shares:
19923 10.00 .02 (1.180) (1.160) -- -- -- 8.84 (55.14)** 1,368 -- 1.68** 41.01 --
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
19969 19.34 (.02) (2.099) (2.119) (.021)10-- (.021) 17.20 (10.87) 143,458 1.12** (.18)** 31.93 .0360
Class II Shares:
19968 17.37 (.01) (.160) (.170) -- -- -- 17.20 (.98) 2,112 1.74** (.90)** 31.93 .0360
9. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
----------------------------------------------- -----------------------------
Net Net Total Distri- Distri- Ratio of Ratio
Asset Realized & From butions butions Net Net Expenses of Net
Value at Net Unrealized Invest- From Net From Asset Assets to Aver- Investment Average
Begin- Invest- Gain ment Invest- Realized Total Value at at End age Net Income toPortfolio Com-
Year ning of ment (Loss) on Oper- ment Capital Distri- End of Total of PeriodAssets*** Average Turnover mission
Ended PeriodIncome Securities ations Income Gains butions Period Return* (in 000's)(See Note 5)Net AssetsRate Rate++
Franklin Global Utilities Fund:
Class I Shares:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19932 $10.00 $.22 $1.270 $1.490 $(.130) $-- $(.130) $11.36 18.08%**$ 14,227 --% 3.89%** --% --
1994 11.36 .30 1.281 1.581 (.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
19969 14.28 .23 .685 .915 (.215) -- (.215) 14.98 6.49 168,214 .99** 3.05** 25.08 .0217
Franklin Global Utilities Fund (cont.):
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
19969 14.24 .18 .674 .854 (.184) -- (.184) 14.91 6.06 6,021 1.76** 2.27** 25.08 .0217
Franklin MidCap Growth Fund:
Class I Shares:
1994+ 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
19969 14.24 (.01) .590 .580 (.050)11-- (.050) 14.77 4.09 10,605 1.05** (.09)** 38.55 .0543
Franklin Natural Resources Fund:
Class I Shares:
19965 10.00 .08 3.217 3.297 (.063) (.094) (.157) 13.14 33.36 9,909 .99** 1.16** 59.04 .0517
19969 13.14 .04 1.116 1.156 (.036) -- (.036) 14.26 8.83 26,066 .94** .80** 34.68 .0375
Franklin Small Cap Growth Fund:
Class I Shares:
19923 10.00 .04 (.460) (.420) -- -- -- 9.58 (19.96)** 1,268 -- 2.45** 2.41 --
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
19969 19.75 .02 .560 .580 -- -- -- 20.33 2.99 678,175 .90** .24** 27.80 .0501
Class II Shares:
19966 17.94 (.03) 2.714 2.684 -- (.964) (.964) 19.66 15.98 24,102 1.76** (.69)** 87.92 .0505
19969 19.66 (.02) .520 .500 -- -- -- 20.16 2.59 69,519 1.65** (.52)** 27.80 .0501
Franklin Strategic Income Fund:
Class I Shares:
19954 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
19969 10.77 .46 .412 .872 (.402) -- (.402) 11.24 8.30 19,335 .25** 8.82** 46.53 .0500
</TABLE>
1For the period October 18, 1991 (effective date) to April 30, 1992.
2For the period July 2, 1992 (effective date) to April 30, 1993.
3For the period February 14, 1992 (effective date) to April 30, 1992.
4For the period May 24, 1994 (effective date) to April 30, 1995.
5For the period June 5, 1995 (effective date) to April 30, 1996.
6For the period October 1, 1995 to April 30, 1996.
7For the period June 1, 1996 (effective date) to October 31, 1996.
8For the period September 1, 1996 (effective date) to October 31, 1996.
9For the six months ended October 31, 1996.
10Includes distributions in excess of net investment income in the amount of
$.021.
11Includes distributions in excess of net investment income in the amount of
$.005.
*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 maximun 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.
+For the period August 17, 1993 (effective date) to April 30, 1994.
++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 to waive in advance 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
19967................................ 1.81%**
Franklin California Growth Fund
Class I Shares
19921................................ 1.61%**
1993................................. 1.99
1994................................. 1.89
1995................................. 1.27
1996................................. 1.09
Franklin Global Health Care Fund
Class I Shares
19923................................ 1.62%**
1993................................. 2.16
1994................................. 1.74
1995................................. 1.37
1996................................. 1.16
Franklin Global Utilities Fund
Class I Shares
19932................................ 1.51%**
1994................................. 1.28
Ratio of expenses
to average net assets
Franklin MidCap Growth Fund
Class I Shares
1994+................................ 0.91%**
1995................................. 0.98
1996................................. 0.96
Franklin Natural Resources Fund
Class I Shares
19965................................ 1.77%**
19969................................ 1.23**
Franklin Small Cap Growth Fund
Class I Shares
19923................................ 1.74%**
1993................................. 1.95
1994................................. 1.58
1995................................. 1.16
1996................................. 1.00
Franklin Strategic Income Fund
Class I Shares
19954................................ 1.38%**
1996................................. 1.08
19969................................ 1.19**
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls may be
determined by the presence of a regular beeping tone.
Franklin Strategic Series Semi-Annual Report October 31, 1996.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the breakdown of the fund's securities on October
31, 1996, based on total net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on October 31, 1996
<S> <C>
Electronic Technology 13.0%
Technology Services 12.3%
Semiconductors/Equipment 7.3%
Energy/Minerals 6.3%
Real Estate 6.0%
Utilities 5.8%
Health Technology 5.6%
Finance 5.1%
Retail 4.2%
Transportation 3.7%
Consumer Services 3.7%
Consumer Durables 2.9%
Industrial Services 2.4%
Other 10.0%
Cash & Equivalents 11.7%
</TABLE>
GRAPHIC MATERIAL (2)
This chart shows in pie format the geographic breakdown of the fund's securities
on April 30, 1996, based on total net assets.
<TABLE>
<CAPTION>
April 30, 1996
<S> <C>
United States 43.1%
Europe 20.6%
Latin America 13.4%
Asia 10.3%
United Kingdom 6.3%
Other 1.2%
Cash & Equivalents 5.1%
</TABLE>
GRAPHIC MATERIAL (3)
This chart shows in pie format the geographic breakdown of the fund's securities
on October 31, 1996, based on total net assets.
<TABLE>
<CAPTION>
October 31, 1996
<S> <C>
United States 57.0%
Europe 16.5%
Latin America 9.6%
Asia 7.9%
United Kingdom 4.0%
Other 1.7%
Cash & Equivalents 3.3%
</TABLE>
GRAPHIC MATERIAL (4)
This chart shows in pie format the breakdown of the fund's securities on October
31, 1996, based on total net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on October 31, 1996
<S> <C>
Semiconductors & Equipment 11.1%
Electronic Technology 9.9%
Health Services 8.0%
Technology Services 7.8%
Finance 7.1%
Energy & Minerals 6.8%
Real Estate Investment Trust 4.7%
Health Technology 4.6%
Consumer Services 4.6%
Consumer Non-Durables 4.4%
Other Industries 24.2%
Cash & Equivalents 6.8%
</TABLE>
GRAPHIC MATERIAL (5)
This chart shows in pie format the geographic breakdown of the fund's securities
on October 31, 1996, based on total net assets.
<TABLE>
<CAPTION>
Geographic Distribution on October 31, 1996
<S> <C>
United States 81.7%
Switzerland 3.9%
Sweden 2.2%
France 1.8%
Singapore 1.4%
Mexico 1.3%
United Kingdom 0.9%
Indonesia 0.6%
Australia 0.4%
Cash & Equivalents 5.8%
</TABLE>
GRAPHIC MATERIAL (6)
This chart shows in pie format the breakdown of the fund's securities on October
31, 1996, based on total net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on October 31, 1996
<S> <C>
Medical Technology & Supplies 23.2%
Managed Care & HMOs 12.0%
Software/Information Systems 11.7%
Specialty Pharmaceuticals 11.1%
Pharmaceuticals 10.9%
Other Medical Services 8.1%
Biotechnology 7.8%
Post-Acute Providers 4.4%
Hospitals 3.8%
Physician Practice Management 1.2%
Cash & Equivalents 5.8%
</TABLE>
GRAPHIC MATERIAL (7)
This chart shows in pie format the breakdown of the fund's securities on October
31, 1996, based on total net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on October 31, 1996
<S> <C>
High Yield Corporate Bonds 32.2%
International Bonds 20.4%
Emerging Markets Bonds 13.5%
Convertible Securities 11.3%
Mortgage Securities 7.7%
Preferred Stock (Non-Convertible) 5.5%
U.S. Government Bonds 3.5%
Cash & Equivalents 5.9%
</TABLE>
GRAPHIC MATERIAL (8)
This chart shows in pie format the breakdown of the fund's securities on October
31, 1996, based on total net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on October 31, 1996
<S> <C>
Energy 56.0%
Gold & Precious Metals 11.2%
Chemicals 5.1%
Base Metals 5.1%
REITs 3.4%
Forest Products & Paper 2.4%
Iron/Steel 2.2%
Service/Related Industries 1.8%
Cash & Equivalents 12.8%
</TABLE>
GRAPHIC MATERIAL (9)
This chart shows in pie format the geographic breakdown of the fund's securities
on October 31, 1996, based on total net assets.
<TABLE>
<CAPTION>
Geographic Distribution on October 31, 1996
<S> <C>
United States 55.3%
Canada 16.6%
Europe 5.7%
Australia 5.3%
Africa 1.5%
South America 1.4%
Asia 1.4%
Cash & Equivalents 12.8%
</TABLE>
GRAPHIC MATERIAL (10)
This chart shows in pie format the geographic breakdown of the fund's securities
on October 31, 1996, based on total net assets.
<TABLE>
<CAPTION>
Geographic Distribution on October 31, 1996
<S> <C>
United States 27.8%
Europe 21.4%
Japan 13.2%
Pacific Rim (excluding Japan) 8.9%
Latin America 3.2%
Other 2.9%
Cash & Equivalents 22.6%
</TABLE>
GRAPHIC MATERIAL (11)
This chart shows in pie format the breakdown of the fund's securities on October
31, 1996, based on total net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on October 31, 1996
<S> <C>
Finance 15.2%
Utilities 10.5%
Consumer Staples 9.6%
Technology 7.7%
Industrial Cyclicals 6.6%
Energy 6.4%
Consumer Durables 6.3%
Services 5.9%
Health Care 5.8%
Retail 3.4%
Cash & Equivalents 22.6%
</TABLE>
GRAPHIC MATERIAL (12)
This chart shows in pie format the breakdown of the fund's securities on October
31, 1996, based on total net assets.
<TABLE>
<CAPTION>
Portfolio Breakdown on October 31, 1996
<S> <C>
Electronic Technology 13.6%
Consumer Services 11.6%
Oil & Gas 8.3%
Manufacturing - Diversified 7.7%
Finance 7.5%
Technology Services 7.0%
Healthcare Services 5.2%
Retail 4.7%
Telecommunications 4.2%
Transportation 3.3%
Other 16.2%
Short-Term Obligations & 10.7%
Other Net Assets
</TABLE>
