SHAREHOLDER LETTER
Dear Shareholder:
This annual report for the Franklin Strategic Series covers the 12 months ended
April 30, 2000.
A RED HOT ECONOMY
During the year under review, the U.S. economy continued to advance at a
blistering pace. Gross domestic product (GDP) grew at a rate of 4.4%, corporate
profits were robust, unemployment sank to its lowest rate in 30 years, and
inflation seemed to pose no problem to most investors. Not included in this
group was Alan Greenspan, chairman of the U.S. Federal Reserve Board (the Fed).
Attempting to cool down a super-heated economy, and prevent future inflation,
the Fed raised the federal funds target rate five times between June 1999 and
the close of the reporting period.
WALL STREET WHIPLASH
The U.S. stock market rose and fell so frequently during the reporting period
that describing it as volatile would be an understatement. On April 30, 1999,
the Dow Jones(R) Industrial Average (the Dow) stood at 10789.04. A year later,
it was 10733.91. The National Association of Securities Dealers Automated
Quotation System (Nasdaq(R)) started the fiscal year at 2542.85 and ended it at
3860.66.(1) But opening and closing numbers don't begin to tell the story. What
happened in between was enough to make investors bullish, bearish or merely
bewildered.
CONTENTS
Shareholder Letter .................................................... 1
Fund Reports
Franklin Aggressive
Growth Fund .......................................................... 4
Franklin California
Growth Fund .......................................................... 12
Franklin Large Cap
Growth Fund .......................................................... 22
Franklin Small Cap
Growth Fund .......................................................... 30
Financial Highlights &
Statements of Investments ............................................. 40
Financial Statements .................................................. 76
Notes to
Financial Statements .................................................. 81
Independent
Auditors' Report ...................................................... 91
Tax Designation ....................................................... 92
1. The Nasdaq Composite Index measures all Nasdaq domestic and U.S.-based common
stocks listed on the Nasdaq Market. The Index is market-weighted and includes
over 5,000 companies (as of 4/30/00).
[pyramid graphic]
NATIONAL ASSOCIATION OF SECURITIES DEALERS
AUTOMATED QUOTATION SYSTEM (NASDAQ)
AND DOW JONES INDUSTRIAL AVERAGE (DJIA)
Daily Prices
(4/30/99 - 4/30/00)
Date NASDAQ DJIA
4/30/99 2542.85 10789.04
5/3/99 2535.58 11014.69
5/4/99 2485.12 10886.11
5/5/99 2534.45 10955.41
5/6/99 2472.28 10946.82
5/7/99 2503.62 11031.59
5/10/99 2526.39 11007.25
5/11/99 2566.68 11026.15
5/12/99 2606.54 11000.37
5/13/99 2582.00 11107.19
5/14/99 2527.86 10913.32
5/17/99 2561.84 10853.47
5/18/99 2558.36 10836.95
5/19/99 2577.40 10887.39
5/20/99 2542.23 10866.74
5/21/99 2520.14 10829.28
5/24/99 2453.66 10654.67
5/25/99 2380.90 10531.09
5/26/99 2427.18 10702.16
5/27/99 2419.15 10466.93
5/28/99 2470.52 10559.74
6/1/99 2412.03 10596.26
6/2/99 2432.41 10577.89
6/3/99 2403.32 10663.69
6/4/99 2478.34 10799.84
6/7/99 2524.21 10909.38
6/8/99 2474.56 10765.64
6/9/99 2519.35 10690.29
6/10/99 2484.62 10621.27
6/11/99 2447.88 10490.51
6/14/99 2398.31 10563.33
6/15/99 2414.67 10594.99
6/16/99 2517.83 10784.95
6/17/99 2544.15 10841.63
6/18/99 2563.44 10855.56
6/21/99 2630.28 10815.98
6/22/99 2580.26 10721.63
6/23/99 2598.12 10666.86
6/24/99 2553.99 10534.83
6/25/99 2552.65 10552.56
6/28/99 2602.44 10655.15
6/29/99 2642.11 10815.35
6/30/99 2686.12 10970.80
7/1/99 2706.18 11066.42
7/2/99 2741.02 11139.24
7/6/99 2736.78 11135.12
7/7/99 2743.04 11187.36
7/8/99 2771.86 11126.89
7/9/99 2793.07 11193.70
7/12/99 2790.44 11200.98
7/13/99 2778.23 11175.02
7/14/99 2818.13 11148.10
7/15/99 2839.37 11186.41
7/16/99 2864.48 11209.84
7/19/99 2830.29 11187.68
7/20/99 2732.18 10996.13
7/21/99 2761.77 11002.78
7/22/99 2684.44 10969.22
7/23/99 2692.40 10910.96
7/26/99 2619.19 10863.16
7/27/99 2679.33 10979.04
7/28/99 2705.84 10972.07
7/29/99 2640.01 10791.29
7/30/99 2638.49 10655.15
8/2/99 2623.63 10645.96
8/3/99 2587.99 10677.31
8/4/99 2540.00 10674.77
8/5/99 2565.83 10793.82
8/6/99 2547.97 10714.03
8/9/99 2518.98 10707.70
8/10/99 2490.11 10655.15
8/11/99 2564.98 10787.80
8/12/99 2549.49 10789.39
8/13/99 2637.81 10973.65
8/16/99 2645.28 11046.79
8/17/99 2671.22 11117.08
8/18/99 2657.73 10991.38
8/19/99 2621.43 10963.84
8/20/99 2648.33 11100.61
8/23/99 2719.57 11299.76
8/24/99 2752.37 11283.30
8/25/99 2805.60 11326.04
8/26/99 2774.62 11198.45
8/27/99 2758.90 11090.17
8/30/99 2712.69 10914.13
8/31/99 2739.35 10829.28
9/1/99 2750.80 10937.88
9/2/99 2734.24 10843.21
9/3/99 2843.11 11078.45
9/7/99 2837.26 11034.13
9/8/99 2808.74 11036.34
9/9/99 2852.02 11079.40
9/10/99 2887.06 11028.43
9/13/99 2844.77 11030.33
9/14/99 2868.29 10910.33
9/15/99 2814.17 10801.42
9/16/99 2806.72 10737.46
9/17/99 2869.62 10803.63
9/20/99 2886.15 10823.90
9/21/99 2821.10 10598.47
9/22/99 2858.16 10524.07
9/23/99 2749.83 10318.59
9/24/99 2740.41 10279.33
9/27/99 2761.75 10303.39
9/28/99 2756.25 10275.53
9/29/99 2730.27 10213.48
9/30/99 2746.16 10336.95
10/1/99 2736.85 10273.00
10/4/99 2795.97 10401.23
10/5/99 2799.67 10400.59
10/6/99 2857.21 10588.34
10/7/99 2860.70 10537.05
10/8/99 2886.57 10649.76
10/11/99 2915.95 10648.18
10/12/99 2872.43 10417.06
10/13/99 2801.27 10232.16
10/14/99 2806.84 10286.61
10/15/99 2731.83 10019.71
10/18/99 2689.15 10116.28
10/19/99 2688.18 10204.93
10/20/99 2788.13 10392.36
10/21/99 2801.95 10297.69
10/22/99 2816.52 10470.25
10/25/99 2815.95 10349.93
10/26/99 2811.47 10302.13
10/27/99 2802.52 10394.89
10/28/99 2875.22 10622.53
10/29/99 2966.43 10729.86
11/1/99 2967.65 10648.51
11/2/99 2981.63 10581.84
11/3/99 3028.51 10609.06
11/4/99 3055.95 10639.64
11/5/99 3102.29 10704.48
11/8/99 3143.97 10718.85
11/9/99 3125.04 10617.32
11/10/99 3155.96 10597.74
11/11/99 3197.29 10595.30
11/12/99 3221.15 10769.32
11/15/99 3219.54 10760.75
11/16/99 3293.05 10932.33
11/17/99 3269.39 10883.09
11/18/99 3347.11 11035.70
11/19/99 3369.25 11003.89
11/22/99 3392.56 11089.52
11/23/99 3342.87 10995.63
11/24/99 3420.50 11008.17
11/26/99 3447.81 10988.91
11/29/99 3421.37 10947.92
11/30/99 3336.16 10877.81
12/1/99 3353.71 10998.39
12/2/99 3452.78 11039.06
12/3/99 3520.63 11286.18
12/6/99 3546.01 11225.01
12/7/99 3586.92 11106.65
12/8/99 3586.08 11068.12
12/9/99 3594.17 11134.79
12/10/99 3620.23 11224.70
12/13/99 3658.15 11192.59
12/14/99 3571.66 11160.17
12/15/99 3621.95 11225.32
12/16/99 3715.06 11244.89
12/17/99 3753.06 11257.43
12/20/99 3783.87 11144.27
12/21/99 3911.15 11200.54
12/22/99 3937.30 11203.60
12/23/99 3969.44 11405.76
12/27/99 3975.38 11391.08
12/28/99 3972.11 11476.71
12/29/99 4041.46 11484.66
12/30/99 4036.87 11452.86
12/31/99 4069.31 11497.12
1/3/00 4131.15 11357.51
1/4/00 3901.69 10997.93
1/5/00 3877.54 11122.65
1/6/00 3727.13 11253.26
1/7/00 3882.62 11522.56
1/10/00 4049.67 11572.20
1/11/00 3921.19 11511.08
1/12/00 3850.02 11551.10
1/13/00 3957.21 11582.43
1/14/00 4064.27 11722.98
1/18/00 4130.81 11560.72
1/19/00 4151.29 11489.36
1/20/00 4189.51 11351.30
1/21/00 4235.40 11251.71
1/24/00 4096.08 11008.17
1/25/00 4167.41 11029.89
1/26/00 4069.91 11032.99
1/27/00 4039.56 11028.02
1/28/00 3887.07 10738.87
1/31/00 3940.35 10940.53
2/1/00 4051.98 11041.05
2/2/00 4073.96 11003.20
2/3/00 4210.98 11013.44
2/4/00 4244.14 10963.80
2/7/00 4321.77 10905.79
2/8/00 4427.54 10957.60
2/9/00 4363.24 10699.16
2/10/00 4485.63 10643.63
2/11/00 4395.45 10425.21
2/14/00 4418.55 10519.84
2/15/00 4420.77 10718.09
2/16/00 4427.65 10561.41
2/17/00 4548.92 10514.57
2/18/00 4411.74 10219.52
2/22/00 4382.12 10304.84
2/23/00 4550.33 10225.73
2/24/00 4617.65 10092.63
2/25/00 4590.50 9862.12
2/28/00 4577.85 10038.65
2/29/00 4696.69 10128.31
3/1/00 4784.08 10137.93
3/2/00 4754.51 10164.92
3/3/00 4914.79 10367.20
3/6/00 4904.85 10170.50
3/7/00 4847.84 9796.03
3/8/00 4897.17 9856.53
3/9/00 5046.86 10010.73
3/10/00 5048.62 9928.82
3/13/00 4907.24 9947.13
3/14/00 4706.63 9811.24
3/15/00 4582.62 10131.41
3/16/00 4717.39 10630.60
3/17/00 4798.13 10595.23
3/20/00 4610.00 10680.24
3/21/00 4711.68 10907.34
3/22/00 4864.75 10866.70
3/23/00 4940.61 11119.86
3/24/00 4963.03 11112.72
3/27/00 4958.56 11025.85
3/28/00 4833.89 10936.11
3/29/00 4644.67 11018.72
3/30/00 4457.89 10980.25
3/31/00 4572.83 10921.92
4/3/00 4223.68 11221.93
4/4/00 4148.89 11164.84
4/5/00 4169.22 11033.92
4/6/00 4267.56 11114.27
4/7/00 4446.45 11111.48
4/10/00 4188.20 11186.56
4/11/00 4055.90 11287.08
4/12/00 3769.63 11125.13
4/13/00 3676.78 10923.55
4/14/00 3321.29 10305.77
4/17/00 3539.16 10582.51
4/18/00 3793.57 10767.42
4/19/00 3706.41 10674.96
4/20/00 3643.88 10844.05
4/24/00 3482.48 10906.10
4/25/00 3711.23 11124.82
4/26/00 3630.09 10945.50
4/27/00 3774.03 10888.10
4/28/00 3860.66 10733.91
The Nasdaq measures all Nasdaq domestic and U.S.-based common stocks listed on
the Nasdaq Market. The Index is market-weighted and includes over 5,000
companies (as of 4/30/00). The DJIA is a price-weighted index based on the
average market price of 30 blue chip stocks. Indexes are unmanaged.
The graph is intended to show the stock market's volatility as reflected in the
Nasdaq and DJIA, and does not illustrate the past or future performance of any
fund in the Franklin Strategic Series.
For example, during the week ended October 15, the Dow fell 630 points, its
biggest weekly percentage drop in over a decade. Then, shrugging off worries
about inflation and rising interest rates, it proceeded to gain 710 points by
October 29. The Nasdaq had its share of ups and downs too. Starting the fiscal
year with a bang, it closed 1999 at 4069.31. But after welcoming the new
millennium with virtually no Y2K problems, it fell 2.8% on March 11, then
appeared to recover somewhat in the following weeks, only to drop another 355
points on April 14. And as you can see from the graph above, whenever the Nasdaq
rose during the latter part of the period, the Dow seemed to decline, and vice
versa.
HOW TO HANDLE THE TURBULENCE
While seesawing such as this can be unsettling, it is important to remember that
securities markets always have been -- and always will be -- subject to
volatility. No one can predict exactly how they will perform. However, over the
long term, stocks and bonds have provided impressive results. For that reason,
we urge you to consult with your investment representative, focus on your
long-term goals rather than short-term market cycles, and diversify your
investments. As you know, mutual funds offer a level of diversification almost
impossible for individual investors to achieve on their own.
We also encourage you to consider using an investment technique called
dollar-cost averaging. By investing a fixed dollar amount at regular intervals,
you buy more shares when prices are low and fewer when prices are high, which
can reduce your average cost per share. A note of caution: no investment
technique can assure a profit or completely protect against loss, and before
using this strategy, you should consider your ability to continue purchases
through periods of changing economic conditions.(2)
Regardless of the market's future direction, Franklin Templeton's management
teams will continue to follow the fundamental principles of careful selection
and constant professional supervision. As always, we welcome your comments and
questions, and look forward to continuing to serve your investment needs.
Sincerely,
/s/ Rupert H. Johnson, Jr.
--------------------------
Rupert H. Johnson, Jr.
President
Franklin Strategic Series
2. For more information on dollar-cost averaging, contact your investment
representative, or call Franklin Templeton at 1-800/DIAL BEN(R)
(1-800/342-5236).
FRANKLIN AGGRESSIVE GROWTH FUND
Your Fund's Goal: Franklin Aggressive Growth Fund seeks capital appreciation by
investing primarily in the equity securities of companies demonstrating
accelerating growth, increasing profitability, or above-average growth or growth
potential, when compared to the overall economy.
This inaugural annual report of Franklin Aggressive Growth Fund covers the
period since the fund's inception on June 23, 1999, through April 30, 2000.
During this time the U.S. economy grew at a remarkably rapid pace, unemployment
decreased and corporate profits rose. Although inflation increased only
modestly, the U.S. Federal Reserve Board (the Fed), in an attempt to cool down
the economy and prevent future inflation, raised interest rates five different
times. The Fed's action did not affect equity markets much for most of the
period, and they ended 1999 on an extremely positive note. Technology and
Internet-related stocks in particular, performed exceptionally well. However, in
March and April, the tide changed and many of these stocks, which had been
advancing at a staggering rate, suffered significant declines.
Global technology spending, fueled in large part by electronic commerce and
communications infrastructure expansion, remained solid and valuation
considerations, rather than any change in the sector's underlying fundamentals,
seemed to account for this weakness. Despite the March/April sell-off, the
technology sector rose in value for the period as a whole and Franklin
Aggressive Growth Fund - Class A shares posted a +158.14% cumulative total
return for the reporting period, as shown in the performance Summary on page 8.
The fund's benchmarks, the Russell 3000(R) Growth Index and the S&P(R) 500 Index
rose 25.09% and 10.13%, respectively, during that time.(1)
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the funds portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 44.
The fund's strong performance was due largely to its exposure to the technology
sector. However, not all areas of this sector performed equally well during the
months under review. Hardware stocks, particularly semiconductors, delivered
strong returns, while software and services stocks yielded inconsistent
performance. Believing that the semiconductor stocks would benefit from the
Internet infrastructure build-out, we maintained an overweight position in that
sector. At period's end, some of our larger holdings included Applied Micro
Circuits, PMC Sierra and Broadcom.
Although the performance of technology services stocks was mixed, we maintained
our positions in Viant, Scient and Sapient, anticipating growth as companies
seek to implement e-commerce initiatives. Biotechnology stocks were yet another
sector whose strong performance enhanced the portfolio's returns. Because many
of the market's fastest growing companies are in the technology and
biotechnology sectors, we would expect their stocks to continue to make up a
significant portion of the fund's portfolio.
PORTFOLIO BREAKDOWN
Franklin Aggressive Growth Fund
Based on Total Net Assets
4/30/00
[BAR GRAPH]
Electronic Technology 41.8%
Technology Services 32.5%
Telecommunications 7.4%
Health Technology 7.0%
Commercial Services 3.2%
Retail Trade 1.7%
Transportation 1.5%
Health Services 0.2%
Short-Term Investments
& Other Net Assets 4.7%
1. Source: Standard & Poor's Micropal. The Russell 3000 Growth Index measures
the performance of those Russell 3000 Index companies with higher price-to-book
ratios and lower forecasted growth values. The stocks in this index are also
members of either the Russell 1000 Value or the Russell 2000 Value indexes. The
S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and
industry group representation. It is also a market-value weighted index (stock
price times number of shares outstanding), with each stock's weight in the index
proportionate to its market value. It is one of the most widely used benchmarks
of U.S. equity performance.
TOP 10 HOLDINGS
Franklin Aggressive Growth Fund
4/30/00
COMPANY % OF TOTAL
SECTOR NET ASSETS
-------------------------------------------------------------------------------
Cisco Systems Inc. 3.3%
Electronic Technology
Applied Micro Circuits Corp. 2.8%
Electronic Technology
Dell Computer Corp. 2.3%
Electronic Technology
Teradyne Inc. 2.0%
Electronic Technology
Scient Corp. 1.9%
Technology Services
VERITAS Software Corp. 1.9%
Technology Services
Juniper Networks Inc. 1.9%
Electronic Technology
Affiliated Computer
Services Inc., A 1.9%
Technology Services
PMC-Sierra Inc. (Canada) 1.8%
Electronic Technology
Predictive Systems Inc. 1.8%
Technology Services
As might be expected, no sector came close to matching the technology sector's
contribution to the fund's performance. Because retail stocks delivered
disappointing results, due to the slow growth experienced by many of the
country's leading retailers, we sold several of our holdings in that sector.
Although we eliminated our positions in Tommy Hilfiger, Abercrombie and Fitch
and Children's Place, we retained a substantial position in The Gap. In our
opinion, The Gap has sustainable competitive advantages and remains well
positioned for growth.
A substantial portion of the fund's total return for the period was attributable
to initial public offerings (IPOs). However, the "hot" IPO market we experienced
during the period under review, which can produce extremely high profits over a
short period of time, may not continue. In addition, as the size of a fund
increases, the percentage IPOs will be able to contribute to the fund's total
return will decrease.
Looking forward, we are encouraged by the U.S. economy's continued strength. The
technology sector's recent downturn brought many of our favorite stocks back to
what we perceived to be very reasonable price levels. While we believe concerns
about rising interest rates and inflation will lead to volatile markets, we
expect solid growth for many companies, particularly those in the technology
sectors. We, therefore, will try to take advantage of any volatility to buy
stocks of well-positioned growth companies at what we believe to be attractive
valuations.
That having been said, we think it is wise to maintain a healthy respect for the
past history of the American economy's business cycles, and traditional methods
of security valuations. By any of these traditional measures, many technology
companies are selling at unprecedented valuations. The volatility in the market
that we have seen in March and April may be a precursor of a return to
traditional price/earnings and book value analysis -- or it may be a temporary
bump in the road. However, one thing is clear. We cannot rely on the valuations
and performance of these stocks to continue in this manner indefinitely. We will
try our hardest to deliver positive performance every year -- but no one should
expect that to be the case for this, or any mutual fund.
/s/ Michael McCarthy
--------------------
Michael McCarthy
/s/ John P. Scandalios
----------------------
John P. Scandalios
Portfolio Management Team
Franklin Aggressive Growth Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
FRANKLIN AGGRESSIVE
GROWTH FUND
CLASS A: Subject to the current, maximum 5.75% initial sales charge.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to 1% initial sales charge and 1% CDSC for shares redeemed
within 18 months of investment. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees and are available to a
limited class of investors.
PERFORMANCE SUMMARY AS OF 4/30/00
Aggregate total return does not include sales charges. Distributions will vary
based on earnings of the fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
Aggregate Total Return +158.14%
Net Asset Value (NAV) $25.22 (4/30/00) $10.00 (6/23/99)
Change in NAV +$15.22
Distributions (6/23/99-4/30/00) Dividend Income $0.0184
Short-Term Capital Gain $0.4738
-------------------------------------
Total $0.4922
CLASS B
Aggregate Total Return +157.55%
Net Asset Value (NAV) $25.18 (4/30/00) $10.00 (6/23/99)
Change in NAV +$15.18
Distributions (6/23/99-4/30/00) Dividend Income $0.0030
Short-Term Capital Gain $0.4738
-------------------------------------
Total $0.4768
CLASS C
Aggregate Total Return +156.90%
Net Asset Value (NAV) $25.12 (4/30/00) $10.00 (6/23/99)
Change in NAV +$15.12
Distributions (6/23/99-4/30/00) Short-Term Capital Gain $0.4738
ADVISOR CLASS
Aggregate Total Return +159.18%
Net Asset Value (NAV) $25.31 (4/30/00) $10.00 (6/23/99)
Change in NAV +$15.31
Distributions (6/23/99-4/30/00) Dividend Income $0.0288
Short-Term Capital Gain $0.4738
-------------------------------------
Total $0.5026
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 4/30/00
INCEPTION
CLASS A (6/23/99)
-------------------------------------------------------------------------------
Cumulative Total Return(1) +158.14%
Aggregate Total Return(2) +143.30%
Value of $10,000 Investment(3) $24,330
INCEPTION
CLASS B (6/23/99)
-------------------------------------------------------------------------------
Cumulative Total Return(1) +157.55%
Aggregate Total Return(2) +153.55%
Value of $10,000 Investment(3) $25,355
INCEPTION
CLASS C (6/23/99)
-------------------------------------------------------------------------------
Cumulative Total Return(1) +156.90%
Aggregate Total Return(2) +153.37%
Value of $10,000 Investment(3) $25,337
INCEPTION
ADVISOR CLASS (6/23/99)
-------------------------------------------------------------------------------
Cumulative Total Return(1) +159.18%
Aggregate Total Return(2) +159.18%
Value of $10,000 Investment(3) $25,918
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Since the fund has existed for less than a year, the figures represent
aggregate total return since inception, including the maximum sales charge(s)
for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN AGGRESSIVE
GROWTH FUND
AGGREGATE ANNUAL
TOTAL RETURN
4/30/00
CLASS A
-------------------------------------------------------------------------------
Since Inception (6/23/99) +143.30%
AGGREGATE ANNUAL
TOTAL RETURN
4/30/00
CLASS B
-------------------------------------------------------------------------------
Since Inception (6/23/99) +153.55%
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the fund in composition, do not pay management fees or expenses and
include reinvested dividends. One cannot invest directly in an index.
CLASS A (6/23/99 - 4/30/00)
Date Franklin S&P 500 Russell
Aggressive Index 3000
Growth Fund Growth
- Class A Index
06/23/1999 $ 9,425 $10,000 $10,000
06/30/1999 $10,160 $10,129 $10,160
07/31/1999 $11,235 $ 9,813 $ 9,838
08/31/1999 $12,385 $ 9,764 $ 9,960
09/30/1999 $13,195 $ 9,496 $ 9,778
10/31/1999 $15,438 $10,097 $10,482
11/30/1999 $18,596 $10,302 $11,083
12/31/1999 $23,095 $10,909 $12,290
01/31/2000 $22,603 $10,362 $11,747
02/29/2000 $30,639 $10,166 $12,481
03/31/2000 $28,536 $11,160 $13,188
04/30/2000 $24,330 $10,824 $12,510
CLASS B (6/23/99 - 4/30/00)
Date Franklin S&P 500 Russell
Aggressive Index 3000
Growth Fund Growth
- Class B Index
06/23/1999 $10,000 $10,000 $10,000
06/30/1999 $10,780 $10,129 $10,160
07/31/1999 $11,920 $ 9,813 $ 9,838
08/31/1999 $13,140 $ 9,764 $ 9,960
09/30/1999 $13,970 $ 9,496 $ 9,778
10/31/1999 $16,380 $10,097 $10,482
11/30/1999 $19,720 $10,302 $11,083
12/31/1999 $24,486 $10,909 $12,290
01/31/2000 $23,975 $10,362 $11,747
02/29/2000 $32,485 $10,166 $12,481
03/31/2000 $30,245 $11,160 $13,188
04/30/2000 $25,355 $10,824 $12,510
Past performance does not guarantee future results.
CLASS C (6/23/99 - 4/30/00)
Date Franklin S&P 500 Russell
Aggressive Index 3000
Growth Fund Growth
- Class C Index
06/23/1999 $ 9,901 $10,000 $10,000
06/30/1999 $10,673 $10,129 $10,160
07/31/1999 $11,802 $ 9,813 $ 9,838
08/31/1999 $13,020 $ 9,764 $ 9,960
09/30/1999 $13,842 $ 9,496 $ 9,778
10/31/1999 $16,208 $10,097 $10,482
11/30/1999 $19,515 $10,302 $11,083
12/31/1999 $24,201 $10,909 $12,290
01/31/2000 $23,684 $10,362 $11,747
02/29/2000 $32,068 $10,166 $12,481
03/31/2000 $29,851 $11,160 $13,188
04/30/2000 $25,337 $10,824 $12,510
ADVISOR CLASS (6/23/99 - 4/30/00)
Date Franklin S&P 500 Russell
Aggressive Index 3000
Growth Fund Growth
Advisor Class Index
06/23/1999 $10,000 $10,000 $10,000
06/30/1999 $10,780 $10,129 $10,160
07/31/1999 $11,920 $ 9,813 $ 9,838
08/31/1999 $13,150 $ 9,764 $ 9,960
09/30/1999 $14,000 $ 9,496 $ 9,778
10/31/1999 $16,410 $10,097 $10,482
11/30/1999 $19,770 $10,302 $11,083
12/31/1999 $24,566 $10,909 $12,290
01/31/2000 $24,064 $10,362 $11,747
02/29/2000 $32,615 $10,166 $12,481
03/31/2000 $30,393 $11,160 $13,188
04/30/2000 $25,918 $10,824 $12,510
AGGREGATE ANNUAL
TOTAL RETURN
4/30/00
CLASS C
-------------------------------------------------------------------------------
Since Inception (6/23/99) +153.37%
AGGREGATE ANNUAL
TOTAL RETURN
4/30/00
ADVISOR CLASS
-------------------------------------------------------------------------------
Since Inception (6/23/99) +159.18%
* Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN CALIFORNIA GROWTH FUND
Your Fund's Goal: 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. The fund also may invest in foreign securities.
This annual report of Franklin California Growth Fund covers the fiscal year
ended April 30, 2000. During the reporting period, California's broad-based and
diverse economy, the world's eighth largest, expanded for the sixth year in a
row. Driven by strong exports of high-tech goods to North American Free Trade
Agreement (NAFTA) partners and recovering economies in Asia, California's
economic growth has exceeded the national average for five consecutive years.
During most of the fiscal year, the U.S. stock market performed well, especially
technology stocks, which surged to all-time highs. But technology stocks
corrected in March and April, and prices of many stocks in this sector declined
significantly, as leadership wrestled back and forth between "old economy" blue
chip stocks comprising the Dow Jones Industrial Average and "new economy"
technology and Internet-related stocks listed on the Nasdaq(R).(1)
Within this environment, Franklin California Growth Fund - Class A posted a
+94.90% one-year cumulative total return as shown in the Performance Summary
beginning on page 18. The Standard & Poor's(R) 500 Index, the Franklin
California 250 Growth Index(R) and the Bloomberg California Index(R) posted
returns of 10.13%, 72.18% and 95.54%, respectively, for the same period.(2),
(3), (4)
1. The Nasdaq Composite Index measures all Nasdaq domestic and U.S.-based common
stocks listed on the Nasdaq Market. The Index is market-weighted and includes
over 5,000 companies (as of 4/30/00).
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the funds portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 50.
Despite the decline in price of many technology stocks at the end of the
reporting period, the fund's technology holdings were primarily responsible for
its strong performance during the year as a whole. For example, three of the
fund's largest positions, Cisco Systems, JDS Uniphase and Applied Micro
Circuits, posted astounding triple-digit gains of 143.12%, 583.42% and 866.94%,
respectively for the 12 months under review.
On April 30, 2000, technology stocks represented 57% of the fund's portfolio
versus 66% for the Franklin California 250 Growth Index. Within the technology
sector, some of our stronger performing holdings included semiconductors and
telecommunications equipment stocks. Internet infrastructure investments were
also an important component of the fund. In addition to maintaining our core
holdings in Cisco Systems, JDS Uniphase and VERITAS Software, we initiated a
position in Agilent, a spin-off of Hewlett-Packard that supplies communications
testing equipment.
PORTFOLIO BREAKDOWN
Franklin California Growth Fund
Based on Total Net Assets
4/30/00
[BAR GRAPH]
Electronic Technology 37.6%
Technology Services 19.5%
Health Technology 7.3%
Finance 4.3%
Consumer Services 4.1%
Real Estate 4.0%
Retail Trade 3.4%
Commercial Services 2.5%
Industrial Services 1.3%
Energy Minerals 1.0%
Telecommunications 0.9%
Other Sectors 3.3%
Short-Term Investment & Other Net Assets 10.8%
2. Source: Standard & Poor's Micropal. The Standard & Poor's 500 Index consists
of 500 stocks chosen for market size, liquidity and industry group
representation. It is a market-value weighted index (stock price times number of
shares outstanding), with each stock's weight in the index proportionate to its
market value. It is one of the most widely used benchmarks of U.S. equity
performance.
3. Source: CDA/Wiesenberger. The Franklin California 250 Growth Index consists
of equal weightings of California's top 250 companies, based on market
capitalization, and is rebalanced quarterly.
4. Source: Bloomberg(R). The Bloomberg California Index is price weighted and
measures the performance of over 700 California-based companies.
Indexes are unmanaged and include reinvested dividends. One cannot invest
directly in an index, nor is an index representative of the fund's portfolio.
We also increased our holdings in enterprise software companies, purchasing
shares in Brio Technology, a developer of online analytical processing software
for corporations. And we initiated posiof television and computer technology.
Because many investors have shifted their Internet focus from
business-to-consumer (e-tail) to business-to-business (B2B) stocks, we
eliminated our exposure to companies such as online retailer eToys and increased
our position in companies developing B2B software such as Oracle. Although we
participated in a number of infrastructure and e-tailing initial public
offerings (IPOs) in small amounts during the period, we sold them fairly quickly
after their stock prices jumped to very high levels.
Throughout the period, we remained broadly diversified across numerous
industries other than technology. For example, we initiated holdings in Gap
Stores and purchased additional shares of Clorox, Fox Entertainment and Safeway.
In our opinion, these leading consumer-related companies were attractively
valued and offered good growth prospects. We also initiated a position in Wells
Fargo because we believed that reduced uncertainty over interest-rate increases
would eventually benefit financial stocks.
In the health care sector, we added to our weighting in biotechnology by
acquiring additional shares of Genentech and initiating a position in Abgenix, a
company that develops antibody therapeutic products. We also purchased shares in
Tenet Healthcare, the second-largest public hospital in the country. And we
maintained our position in Spieker Properties, a California real estate company.
Real Estate Investment Trusts (REITs) produced strong growth rates during the
period and with the recently passed REIT Modernization Act, they should be able
to derive revenues from sources other than just fee income.
Looking forward, we expect the remainder of 2000 to be more of a challenge for
investors than 1999. Key economic reports released the last week of April
indicated that the U.S. economy is still growing at accelerated rates and that
inflation could be on the rise. Escalating interest rates have already begun to
exert downward pressure on stock valuations and, in our opinion, the Federal
Reserve Board will raise interest rates several more times this year. Despite
market volatility, we remain optimistic about prospects for California's economy
and Franklin California Growth Fund. Driven in part by new technology, the state
continues to be an economic powerhouse, representing almost 13% of U.S. gross
domestic product, and generating over $1 trillion of goods and services.5 And
with almost 1,400 publicly traded companies across a wide array of industries in
Franklin Templeton's own "backyard," we have many investment opportunities from
which to choose. Using our unique investment management approach and the
expertise of our research analysts, we shall continue to search for leading
companies with the long-term growth potential to provide strong returns for the
fund's shareholders.
TOP 10 HOLDINGS
Franklin California Growth Fund
4/30/00
COMPANY % OF TOTAL
SECTOR NET ASSETS
-------------------------------------------------------------------------------
JDS Uniphase Corp. 4.5%
Electronic Technology
Cisco Systems Inc. 3.3%
Electronic Technology
VERITAS Software Co. 3.2%
Technology Services
Applied Micro Circuits Corp. 2.9%
Electronic Technology
Oracle Corp. 2.5%
Technology Services
Siebel Systems Inc. 2.2%
Technology Services
Robert Half International Inc. 2.1%
Commercial Services
Sun Microsystems Inc. 1.8%
Electronic Technology
Xilinx Inc. 1.5%
Electronic Technology
Genentech Inc. 1.4%
Health Technology
5. Source: "California, An Economic Profile." California Trade and Commerce
Agency, Office of Economic Research, January 2000.
That having been said, we think it is wise to maintain a healthy respect for the
past history of the American economy's business cycles, and traditional methods
of security valuations. By any of these traditional measures, many technology
companies are selling at unprecedented valuations. The volatility in the market
that we have seen in March and April may be a precursor of a return to
traditional price/earnings and book value analysis -- or it may be a temporary
bump in the road. However, one thing is clear. We cannot rely on the valuations
and performance of these stocks to continue in this manner indefinitely. We will
try our hardest to deliver last year's performance every year -- but no one
should expect that to be the case for this, or any mutual fund.
It is also important to remember that there are certain risks involved with
investing in a non-diversified fund concentrating in securities associated with
a single state, such as increased susceptibility to adverse economic or
regulatory developments. The fund also invests a portion of its assets in small
or relatively new or unseasoned companies, which involves the additional risks
related to relatively small revenues, limited product lines and small market
share. These and other risks are described in the prospectus.
Thank you for your participation in Franklin California Growth Fund. We welcome
any comments or suggestions you may have, and look forward to serving your
investment needs in the years to come.
/s/ Conrad B. Herrmann
----------------------
Conrad B. Herrmann
Portfolio Manager
Franklin California Growth Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
FRANKLIN CALIFORNIA
GROWTH FUND
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
August 3, 1998, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Past expense reductions by the fund's manager
increased the fund's total returns.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to 1% initial sales charge and 1% CDSC for shares redeemed
within 18 months of investment. These shares have higher annual fees and
expenses than Class A shares.
ONE-YEAR PERFORMANCE SUMMARY
AS OF 4/30/00
One-year total return does not include sales charges. Distributions will vary
based on earnings of the fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
CLASS A
One-Year Total Return +94.90%
Net Asset Value (NAV) $50.15 (4/30/00) $25.82 (4/30/99)
Change in NAV +$24.33
Distributions (5/1/99-4/30/00) Dividend Income $0.0788
CLASS B
One-Year Total Return +93.35%
Net Asset Value (NAV) $49.64 (4/30/00) $25.75 (4/30/99)
Change in NAV +$23.89
Distributions (5/1/99-4/30/00) Dividend Income $0.0663
CLASS C
One-Year Total Return +93.46%
Net Asset Value (NAV) $49.55 (4/30/00) $25.63 (4/30/99)
Change in NAV +$23.92
Distributions (5/1/99-4/30/00) Dividend Income $0.0175
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 4/30/00
INCEPTION
CLASS A 1-YEAR 5-YEAR (10/30/91)
-------------------------------------------------------------------------------
Cumulative Total Return(1) +94.90% +349.69% +660.56%
Average Annual Total Return(2) +83.73% +33.48% +26.07%
Value of $10,000 Investment(3) $18,373 $42,372 $71,675
INCEPTION
CLASS B 1-YEAR (1/1/99)
-------------------------------------------------------------------------------
Cumulative Total Return(1) +93.35% +104.73%
Average Annual Total Return(2) +89.35% +68.94%
Value of $10,000 Investment(3) $18,935 $20,073
INCEPTION
CLASS C 1-YEAR 3-YEAR (9/3/96)
-------------------------------------------------------------------------------
Cumulative Total Return(1) +93.46% +174.10% +199.18%
Average Annual Total Return(2) +90.53% +39.49% +34.60%
Value of $10,000 Investment(3) $19,053 $27,142 $29,623
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN CALIFORNIA
GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS A
-------------------------------------------------------------------------------
1-Year +83.73%
5-Year +33.48%
Since Inception (10/30/91) +26.07%
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the fund in composition, do not pay management fees or expenses and
include reinvested dividends. One cannot invest directly in an index.
CLASS A (10/30/91 - 4/30/00)
Date Franklin S&P Franklin
Calif. 500 CA 250
Growth Index Index
Fund -
Class A
10/30/1991 $9,424 $10,000 $10,000
10/31/1991 $9,509 $10,004 $10,015
11/30/1991 $8,744 $9,601 $9,199
12/31/1991 $9,714 $10,699 $10,301
01/31/1992 $10,409 $10,500 $11,101
02/28/1992 $10,542 $10,636 $11,271
03/31/1992 $9,829 $10,428 $10,527
04/30/1992 $9,391 $10,735 $10,093
05/31/1992 $9,419 $10,787 $10,155
06/30/1992 $8,835 $10,627 $9,578
07/31/1992 $9,093 $11,061 $9,898
08/31/1992 $8,691 $10,835 $9,469
09/30/1992 $8,797 $10,961 $9,554
10/31/1992 $9,218 $10,999 $10,083
11/30/1992 $10,041 $11,373 $11,017
12/31/1992 $10,249 $11,512 $11,302
01/31/1993 $10,576 $11,609 $11,719
02/28/1993 $10,143 $11,767 $11,237
03/31/1993 $10,258 $12,015 $11,349
04/30/1993 $9,835 $11,725 $10,922
05/31/1993 $10,547 $12,038 $11,744
06/30/1993 $10,524 $12,072 $11,710
07/31/1993 $10,282 $12,024 $11,742
08/31/1993 $10,970 $12,480 $12,319
09/30/1993 $11,425 $12,384 $12,606
10/31/1993 $11,580 $12,640 $12,788
11/30/1993 $11,551 $12,520 $12,628
12/31/1993 $12,050 $12,672 $13,010
01/31/1994 $12,583 $13,102 $13,452
02/28/1994 $12,747 $12,747 $13,341
03/31/1994 $12,460 $12,192 $12,575
04/30/1994 $12,347 $12,348 $12,523
05/31/1994 $12,419 $12,550 $12,476
06/30/1994 $12,057 $12,243 $11,922
07/31/1994 $12,490 $12,644 $12,316
08/31/1994 $13,314 $13,163 $13,478
09/30/1994 $13,412 $12,841 $13,421
10/31/1994 $13,867 $13,130 $13,688
11/30/1994 $13,911 $12,652 $13,287
12/31/1994 $14,041 $12,840 $13,473
01/31/1995 $14,030 $13,172 $13,801
02/28/1995 $15,007 $13,686 $14,498
03/31/1995 $15,575 $14,090 $15,109
04/30/1995 $15,939 $14,504 $15,599
05/31/1995 $16,575 $15,084 $16,062
06/30/1995 $17,690 $15,434 $17,227
07/31/1995 $19,197 $15,946 $18,672
08/31/1995 $19,632 $15,986 $19,064
09/30/1995 $20,115 $16,661 $19,453
10/31/1995 $20,150 $16,601 $19,019
11/30/1995 $20,785 $17,330 $19,778
12/31/1995 $20,730 $17,664 $19,539
01/31/1996 $20,974 $18,265 $19,713
02/29/1996 $21,682 $18,435 $20,434
03/31/1996 $21,862 $18,612 $20,136
04/30/1996 $23,509 $18,885 $22,161
05/31/1996 $24,037 $19,372 $22,848
06/30/1996 $23,315 $19,446 $21,297
07/31/1996 $21,933 $18,587 $19,563
08/31/1996 $23,302 $18,979 $21,129
09/30/1996 $24,799 $20,047 $22,764
10/31/1996 $25,109 $20,600 $22,746
11/30/1996 $26,929 $22,158 $24,279
12/31/1996 $27,039 $21,719 $24,570
01/31/1997 $27,475 $23,077 $25,892
02/28/1997 $26,708 $23,257 $24,781
03/31/1997 $25,160 $22,301 $23,495
04/30/1997 $25,597 $23,632 $23,575
05/31/1997 $28,058 $25,071 $26,215
06/30/1997 $28,115 $26,195 $27,146
07/31/1997 $30,558 $28,280 $29,975
08/31/1997 $30,372 $26,696 $30,667
09/30/1997 $32,629 $28,159 $32,605
10/31/1997 $31,461 $27,218 $30,476
11/30/1997 $31,792 $28,479 $30,177
12/31/1997 $31,285 $28,968 $28,813
01/31/1998 $30,829 $29,290 $30,770
02/28/1998 $33,264 $31,402 $33,468
03/31/1998 $33,956 $33,010 $34,034
04/30/1998 $34,565 $33,343 $35,069
05/31/1998 $32,738 $32,769 $32,705
06/30/1998 $33,507 $34,100 $33,532
07/31/1998 $31,913 $33,735 $32,134
08/31/1998 $26,631 $28,857 $25,646
09/30/1998 $28,392 $30,707 $28,357
10/30/1998 $29,972 $33,203 $30,614
11/30/1998 $32,162 $35,215 $33,464
12/31/1998 $34,638 $37,244 $36,881
01/31/1999 $36,861 $38,800 $39,739
02/28/1999 $33,954 $37,594 $36,481
03/31/1999 $35,963 $39,097 $37,984
04/30/1999 $36,775 $40,611 $39,495
05/31/1999 $36,661 $39,652 $39,563
06/30/1999 $40,375 $41,853 $44,081
07/31/1999 $40,761 $40,547 $43,993
08/31/1999 $42,391 $40,344 $44,789
09/30/1999 $43,234 $39,239 $45,855
10/31/1999 $48,579 $41,723 $50,206
11/30/1999 $55,554 $42,570 $56,362
12/31/1999 $67,602 $45,077 $64,607
01/31/2000 $67,659 $42,814 $57,126
02/29/2000 $85,196 $42,005 $71,185
03/31/2000 $80,494 $46,113 $69,085
04/30/2000 $71,675 $44,725 $68,021
CLASS A (1/1/95 - 4/30/00)***
Date Franklin S&P Franklin Bloomberg
Calif. 500 CA 250 Calif.
Growth Index Index Index
Fund -
Class A
09/30/1997 $21,908 $21,931 $24,201 $20,969
10/31/1997 $21,124 $21,199 $22,621 $19,748
11/30/1997 $21,346 $22,180 $22,400 $19,466
12/31/1997 $21,006 $22,562 $21,388 $19,075
01/31/1998 $20,699 $22,812 $22,840 $18,905
02/28/1998 $22,335 $24,457 $24,843 $20,438
03/31/1998 $22,799 $25,709 $25,264 $20,963
04/30/1998 $23,208 $25,969 $26,033 $21,666
05/31/1998 $21,982 $25,522 $24,279 $20,567
06/30/1998 $22,498 $26,558 $24,893 $20,765
07/31/1998 $21,427 $26,274 $23,856 $19,442
08/31/1998 $17,881 $22,475 $19,039 $15,602
09/30/1998 $19,063 $23,915 $21,052 $17,025
10/30/1998 $20,124 $25,860 $22,729 $17,912
11/30/1998 $21,595 $27,427 $24,845 $19,694
12/31/1998 $23,257 $29,007 $27,381 $21,150
01/31/1999 $24,749 $30,219 $29,504 $22,304
02/28/1999 $22,798 $29,279 $27,085 $20,830
03/31/1999 $24,147 $30,451 $28,101 $21,436
04/30/1999 $24,692 $31,629 $29,324 $22,725
05/31/1999 $24,615 $30,883 $29,375 $23,261
06/30/1999 $27,109 $32,596 $32,731 $25,408
07/31/1999 $27,369 $31,579 $32,664 $25,568
08/31/1999 $28,462 $31,422 $33,256 $26,205
09/30/1999 $29,029 $30,561 $34,047 $26,608
10/31/1999 $32,618 $32,495 $37,278 $28,569
11/30/1999 $37,301 $33,155 $41,848 $32,066
12/31/1999 $45,390 $35,108 $47,970 $38,582
01/31/2000 $45,429 $33,345 $42,413 $39,515
02/29/2000 $57,203 $32,715 $52,849 $50,603
03/31/2000 $54,046 $35,914 $51,289 $47,420
04/30/2000 $48,123 $34,833 $50,499 $44,428
Past performance does not guarantee future results.
CLASS B (1/1/99 - 4/30/00)
Date Franklin S&P Franklin Bloomberg
Calif. 500 CA 250 Calif.
Growth Index Index Index
Fund -
Class B
01/01/1999 $10,000 $10,000 $10,000 $10,000
01/31/1999 $10,633 $10,418 $10,775 $10,546
02/29/1999 $9,786 $10,094 $9,892 $9,849
03/31/1999 $10,362 $10,498 $10,299 $10,136
04/30/1999 $10,588 $10,904 $10,710 $10,745
05/31/1999 $10,551 $10,647 $10,728 $10,998
06/30/1999 $11,610 $11,238 $11,954 $12,013
07/31/1999 $11,709 $10,887 $11,929 $12,089
08/31/1999 $12,175 $10,833 $12,146 $12,390
09/30/1999 $12,406 $10,536 $12,434 $12,581
10/31/1999 $13,932 $11,203 $13,614 $13,508
11/30/1999 $15,919 $11,430 $15,284 $15,161
12/31/1999 $19,359 $12,103 $17,519 $18,242
01/31/2000 $19,359 $11,496 $15,490 $18,684
02/29/2000 $24,362 $11,278 $19,301 $23,926
03/31/2000 $23,001 $12,381 $18,732 $22,421
04/30/2000 $20,073 $12,009 $18,444 $21,007
CLASS C (9/3/96 - 4/30/00)
Date Franklin S&P Franklin Bloomberg
Calif. 500 CA 250 Calif.
Growth Index Index Index
Fund -
Class C
09/03/1996 $9,901 $10,000 $10,000 $10,000
09/30/1996 $10,520 $10,563 $10,774 $10,659
10/31/1996 $10,641 $10,855 $10,766 $10,517
11/30/1996 $11,407 $11,675 $11,492 $11,012
12/31/1996 $11,446 $11,444 $11,631 $11,096
01/31/1997 $11,619 $12,159 $12,256 $11,605
02/28/1997 $11,289 $12,254 $11,729 $11,205
03/31/1997 $10,627 $11,750 $11,120 $10,567
04/30/1997 $10,806 $12,452 $11,158 $10,410
05/31/1997 $11,833 $13,210 $12,408 $11,692
06/30/1997 $11,854 $13,802 $12,849 $12,246
07/31/1997 $12,876 $14,901 $14,188 $13,218
08/31/1997 $12,787 $14,066 $14,515 $13,467
09/30/1997 $13,730 $14,837 $15,433 $14,552
10/31/1997 $13,230 $14,342 $14,426 $13,705
11/30/1997 $13,359 $15,006 $14,285 $13,509
12/31/1997 $13,140 $15,264 $13,639 $13,238
01/31/1998 $12,947 $15,433 $14,565 $13,120
02/28/1998 $13,963 $16,546 $15,843 $14,184
03/31/1998 $14,237 $17,393 $16,111 $14,548
04/30/1998 $14,488 $17,569 $16,602 $15,036
05/31/1998 $13,718 $17,266 $15,483 $14,274
06/30/1998 $14,027 $17,967 $15,875 $14,411
07/31/1998 $13,350 $17,775 $15,213 $13,493
08/31/1998 $11,138 $15,205 $12,141 $10,828
09/30/1998 $11,867 $16,180 $13,425 $11,815
10/30/1998 $12,521 $17,495 $14,494 $12,431
11/30/1998 $13,420 $18,555 $15,844 $13,668
12/31/1998 $14,450 $19,624 $17,461 $14,678
01/31/1999 $15,370 $20,444 $18,815 $15,479
02/28/1999 $14,152 $19,808 $17,273 $14,456
03/31/1999 $14,976 $20,601 $17,920 $14,877
04/30/1999 $15,311 $21,398 $18,700 $15,771
05/31/1999 $15,251 $20,893 $18,732 $16,143
06/30/1999 $16,786 $22,053 $20,872 $17,633
07/31/1999 $16,935 $21,364 $20,830 $17,744
08/31/1999 $17,605 $21,258 $21,208 $18,186
09/30/1999 $17,939 $20,675 $21,712 $18,466
10/31/1999 $20,151 $21,984 $23,772 $19,827
11/30/1999 $23,026 $22,430 $26,687 $22,254
12/31/1999 $28,006 $23,751 $30,591 $26,776
01/31/2000 $28,012 $22,559 $27,047 $27,424
02/29/2000 $35,251 $22,133 $33,702 $35,119
03/31/2000 $33,284 $24,297 $32,707 $32,910
04/30/2000 $29,623 $23,566 $32,203 $30,833
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS B
-------------------------------------------------------------------------------
1-Year +89.35%
Since Inception (1/1/99) +68.94%
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS C
-------------------------------------------------------------------------------
1-Year +90.53%
3-Year +39.49%
Since Inception (9/3/96) +34.60%
* Source: CDA/Wiesenberger.
** Source: Standard and Poor's Micropal.
*** The Bloomberg California Index was not established until December 30, 1994,
and therefore, the fund's Class A returns have been shown for the period since
then, in addition to the period since the fund's inception.
**** Source: Bloomberg. Reinvested dividends are reflected in the Bloomberg
California Index from October 1995 onward. Prior to that, the index represents
simple price appreciation excluding dividends.
Past performance does not guarantee future results.
FRANKLIN LARGE CAP GROWTH FUND
Your Fund's Goal: Franklin Large Cap Growth Fund seeks long-term capital
appreciation by investing primarily in companies with market capitalizations of
$8.5 billion or more.
This initial annual report for Franklin Large Cap Growth Fund covers the period
from the fund's inception on June 7, 1999, until April 30, 2000. During the
period under review, the rapidly growing U.S. economy provided a strong backdrop
for equity markets, as consumer confidence and productivity remained high and
inflation benign. However, toward the end of the period, the equity markets
became increasingly volatile, indicating investor concerns about stock
valuations, possible future inflation and rising interest rates.
During the 11 months under review, consistently improving earnings contributed
to rising prices for large cap growth stocks, which significantly outperformed
their value counterparts. Within this environment, Franklin Large Cap Growth
Fund - Class A shares performed well on both an absolute and a relative basis,
delivering a +48.59% cumulative total return for the reporting period. The
fund's benchmark, the Standard and Poor's(R) 500 Index (S&P 500(R)), rose 10.13%
for the same period.(1)
On April 30, 2000, the fund held 90.2% of total net assets in equities and 9.8%
in short-term investments and other net assets.
1. Source: Standard and Poor's. The index is unmanaged and includes reinvested
dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the funds portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 59.
More than 99% of the portfolio's holdings were shares of companies with more
than $8.5 billion in market capitalization. Most of the portfolio was
concentrated in higher growth industries such as electronic technology, health
technology, technology services and telecommunications.
The fund's strong performance was due largely to the substantial rise in value
of our technology and technology services holdings. In the computer networking
area, the fund's investments in Cisco and Juniper Networks provided outstanding
returns. Semiconductor holdings were also standouts as the strong cyclical
upturn in the sector led to powerful outperformance in holdings such as Intel,
Texas Instruments, Applied Materials and Xilinx.
Attempting to take advantage of the strength of the trend from electronics to
fiber optics, we also invested heavily in the optical industry, and the fund's
performance benefited appreciably from our holdings of JDS Uniphase, SDL and
CIENA. Because the storage hardware and software industries were experiencing
strong demand for their products due to increasing traffic on the Internet, we
maintained our positions in EMC and VERITAS Software, which also contributed to
the fund's strong performance.
Although the market's volatility was unsettling on a day-to-day basis, it
provided us with some excellent opportunities to invest in some of the largest
and most exciting companies in the world at bargain prices. For example, we
boosted our exposure to leading companies in the wireless industry, which are
benefiting from the trend toward using wireless appliances for everything from
phone calls to Internet access. Fund holdings Nokia, Sprint PCS and VoiceStream
Wireless contributed to the fund's positive performance during the past year,
and in our opinion, are poised to benefit from this trend in the long term,
although perhaps not at its recent astounding pace.
Seeking to benefit from the increasing medical needs of a rapidly aging world
population, we maintained large positions in the health care sector, primarily
in major pharmaceutical, medical technology and biotechnology companies. The
outstanding rise in value of our shares of Warner Lambert, Medtronic and
MedImmune contributed significantly to the fund's performance.
PORTFOLIO BREAKDOWN
Franklin Large Cap Growth Fund
Based on Total Net Assets
4/30/00
[BAR GRAPH]
Electronic Technology 36.1%
Technology Services 13.5%
Health Technology 10.8%
Telecommunications 8.9%
Retail Trade 5.7%
Finance 3.3%
Process Industries 2.9%
Consumer Services 2.7%
Producer Manufacturing 2.5%
Industrial Services 1.8%
Utilities 1.7%
Consumer Non-Durables 3.0%
Short-Term Investments &
Other Net Assets 9.8%
TOP 10 HOLDINGS
Franklin Large Cap Growth Fund
4/30/00
COMPANY % OF TOTAL
SECTOR NET ASSETS
-------------------------------------------------------------------------------
Cisco Systems Inc. 3.5%
Electronic Technology
General Electric Co. 2.9%
Process Industries
SDL Inc. 2.8%
Electronic Technology
Qwest Communications
International Inc. 2.3%
Telecommunications
CIENA Corp. 2.3%
Electronic Technology
Nortel Networks Corp. 2.2%
Electronic Technology
Nokia Corp., ADR 2.2%
Electronic Technology
Oracle Corp. 2.2%
Technology Services
EMC Corp. 2.2%
Electronic Technology
Citigroup Inc. 2.1%
Finance
During the reporting period, we held only small positions in financial sector
stocks, because we were concerned that possible interest-rate hikes could
potentially compress profit margins and hurt company earnings. This strategy
worked well as many of these stocks lost ground during the period.
On the sell side, adhering to our strict discipline of selling those companies
experiencing deteriorating fundamentals, eroding competitive advantages or
unattractive stock price valuations, we substantially reduced our position in
Microsoft. While we still feel strongly about the long-term prospects for this
leading software provider, we thought it would be wise not to be too heavily
invested in the company until the outcome of its legal problems becomes more
apparent.
Looking forward, we are optimistic about the prospects for most dynamic well-run
companies due to our outlook for outstanding corporate profit growth, ongoing
productivity gains, an enduring U.S. budget surplus and sustained overall
demand for equities. Many of these businesses are generating terrific profit
margins in industries with high barriers to entry for competitors and have
sustainable, solid revenue growth driven by their market leadership or market
share gains. Consequently, we expect large cap growth companies' stocks to
continue to generate strong earnings and stock price appreciation well into the
future.
That having been said, we think it is wise to maintain a healthy respect for the
past history of the American economy's business cycles, and traditional methods
of security valuations. By any of these traditional measures, many technology
companies are selling at unprecedented valuations. The volatility in the market
that we have seen in March and April may be a precursor of a return to
traditional price/earnings and book value analysis -- or it may be a temporary
bump in the road. However, one thing is clear. We cannot rely on the valuations
and performance of these stocks to continue in this manner indefinitely. We will
try our hardest to deliver last year's performance every year -- but no one
should expect that to be the case for this, or any mutual fund.
We thank you for your participation in Franklin Large Cap Growth Fund and look
forward to serving your investment needs in the years ahead.
/s/ Theresa Spath
-----------------------
Theresa Spath
/s/ Edward B. Jamieson
----------------------
Edward B. Jamieson
/s/ Jason R. Nunn
----------------------
Jason R. Nunn
Portfolio Management Team
Franklin Large Cap Growth Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance does not
guarantee future results, these insights may help you understand our investment
and management philosophy.
FRANKLIN LARGE CAP
GROWTH FUND
CLASS A: Subject to the maximum 5.75% initial sales charge.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to 1% initial sales charge and 1% CDSC for shares redeemed
within 18 months of investment. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees and are available to a
limited class of investors.
PERFORMANCE SUMMARY AS OF 4/30/00
Aggregate total return does not include sales charges. Distributions will vary
based on earnings of the fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
CLASS A
Aggregate Total Return +48.59%
Net Asset Value (NAV) $14.85 (4/30/00) $10.00 (6/7/99)
Change in NAV +$4.85
Distributions (6/7/99-4/30/00) Dividend Income $0.0076
CLASS B
Aggregate Total Return +47.70%
Net Asset Value (NAV) $14.77 (4/30/00) $10.00 (6/7/99)
Change in NAV +$4.77
CLASS C
Aggregate Total Return +47.70%
Net Asset Value (NAV) $14.77 (4/30/00) $10.00 (6/7/99)
Change in NAV +$4.77
ADVISOR CLASS
Aggregate Total Return +49.01%
Net Asset Value (NAV) $14.88 (4/30/00) $10.00 (6/7/99)
Change in NAV +$4.88
Distributions (6/7/99-4/30/00) Dividend Income $0.0176
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 4/30/00
INCEPTION
CLASS A (6/7/99)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +48.59%
Aggregate Total Return(2) +40.05%
Value of $10,000 Investment(3) $14,005
INCEPTION
CLASS B (6/7/99)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +47.70%
Aggregate Total Return(2) +43.70%
Value of $10,000 Investment(3) $14,370
INCEPTION
CLASS C (6/7/99)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +47.70%
Aggregate Total Return(2) +45.25%
Value of $10,000 Investment(3) $14,525
INCEPTION
ADVISOR CLASS (6/7/99)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +49.01%
Aggregate Total Return(2) +49.01%
Value of $10,000 Investment(3) $14,901
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Since the fund has existed for less than one year, the figures represent
aggregate total return since inception, including the maximum sales charge(s)
for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the applicable, maximum sales
charge(s) for that class.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN LARGE CAP
GROWTH FUND
AGGREGATE TOTAL RETURN
4/30/00
CLASS A
--------------------------------------------------------------------------------
Since Inception (6/7/99) +40.05%
AGGREGATE TOTAL RETURN
4/30/00
CLASS B
--------------------------------------------------------------------------------
Since Inception (6/7/99) +43.70%
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the applicable, maximum sales charge(s), fund expenses,
account fees and reinvested distributions. The unmanaged index differs from the
fund in composition, does not pay management fees or expenses and includes
reinvested dividends. One cannot invest directly in an index.
CLASS A (6/7/99 - 4/30/00)
Date Franklin S&P 500 Russell
Large Cap Index 1000 Growth
Growth Fund Index
- Class A
06/07/1999 $9,425 $10,000 $10,000
06/30/1999 $9,981 $10,426 $10,537
07/31/1999 $9,774 $10,101 $10,202
08/31/1999 $9,708 $10,050 $10,368
09/30/1999 $9,670 $9,775 $10,150
10/31/1999 $10,584 $10,394 $10,917
11/30/1999 $11,282 $10,605 $11,506
12/31/1999 $13,146 $11,229 $12,703
01/31/2000 $12,826 $10,665 $12,107
02/29/2000 $15,023 $10,464 $12,699
03/31/2000 $15,127 $11,487 $13,609
04/30/2000 $14,005 $11,141 $12,961
*Source: Standard and Poor's Micropal.
CLASS B (6/7/99 - 4/30/99)
Date Franklin S&P 500 Russell
Large Cap Index 1000 Growth
Growth Fund Index
- Class B
06/07/1999 $10,000 $10,000 $10,000
06/30/1999 $10,580 $10,426 $10,537
07/31/1999 $10,360 $10,101 $10,202
08/31/1999 $10,280 $10,050 $10,368
09/30/1999 $10,240 $9,775 $10,150
10/31/1999 $11,190 $10,394 $10,917
11/30/1999 $11,930 $10,605 $11,506
12/31/1999 $13,890 $11,229 $12,703
01/31/2000 $13,540 $10,665 $12,107
02/29/2000 $15,850 $10,464 $12,699
03/31/2000 $15,950 $11,487 $13,609
04/30/2000 $14,370 $11,141 $12,961
*Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
CLASS C (6/7/99 - 4/30/00)
Date Franklin S&P 500 Russell
Large Cap Index 1000 Growth
Growth Fund Index
- Class C
06/07/1999 $9,901 $10,000 $10,000
06/30/1999 $10,475 $10,426 $10,537
07/31/1999 $10,248 $10,101 $10,202
08/31/1999 $10,168 $10,050 $10,368
09/30/1999 $10,129 $9,775 $10,150
10/31/1999 $11,079 $10,394 $10,917
11/30/1999 $11,802 $10,605 $11,506
12/31/1999 $13,752 $11,229 $12,703
01/31/2000 $13,406 $10,665 $12,107
02/29/2000 $15,693 $10,464 $12,699
03/31/2000 $15,792 $11,487 $13,609
04/30/2000 $14,525 $11,141 $12,961
*Source: Standard and Poor's Micropal.
ADVISOR CLASS (6/7/99 - 4/30/00)
Date Franklin S&P 500 Russell
Large Cap Index 1000 Growth
Growth Fund Index
- Advisor
Class
06/07/1999 $10,000 $10,000 $10,000
06/30/1999 $10,590 $10,426 $10,537
07/31/1999 $10,370 $10,101 $10,202
08/31/1999 $10,300 $10,050 $10,368
09/30/1999 $10,270 $9,775 $10,150
10/31/1999 $11,240 $10,394 $10,917
11/30/1999 $11,980 $10,605 $11,506
12/31/1999 $13,969 $11,229 $12,703
01/31/2000 $13,629 $10,665 $12,107
02/29/2000 $15,972 $10,464 $12,699
03/31/2000 $16,082 $11,487 $13,609
04/30/2000 $14,901 $11,141 $12,961
*Source: Standard and Poor's Micropal.
AGGREGATE TOTAL RETURN
4/30/00
CLASS C
--------------------------------------------------------------------------------
Since Inception (6/7/99) +45.25%
AGGREGATE TOTAL RETURN
4/30/00
Advisor Class
--------------------------------------------------------------------------------
Since Inception (6/7/99) +49.01%
*Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN SMALL CAP GROWTH FUND
--------------------------------------------------------------------------------
Your Fund's Goal: 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 $1.5 billion at the time of
investment.
--------------------------------------------------------------------------------
This annual report of Franklin Small Cap Growth Fund covers the 12 months ended
April 30, 2000. Despite rising oil prices and five interest rate increases by
the Federal Reserve Board (the Fed), U.S. gross domestic product grew at a
blistering pace during the fiscal year. This rapid growth was fueled primarily
by strong global demand, solid consumer confidence and increased manufacturing
productivity. Dominated by a select group of technology- and energy-related
stocks, the U.S. equity market climbed to record highs by the end of 1999.
Energy stocks performed well as Asian energy demand improved and the
Organization of the Petroleum Exporting Countries (OPEC) demonstrated some
production solidarity. And investors purchased technology stocks in order to
participate in the massive communications infrastructure upgrade made necessary
by the appetite of the Internet for increased bandwidth. Non-technology stocks
foundered as the Internet threatened to dislocate whole swathes of traditional
companies, and many investors and fund managers, believing that there were
opportunity costs to not owning technology stocks, bought them at ever-rising
prices.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the funds portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 65
With too many investors buying too few stocks, the pre-eminent investment style
became momentum investing. Put simply, momentum investors identify and buy
shares in companies with the highest increases in product sales and/or share
price. Often disregarding traditional financial valuation techniques, such as
price/earnings ratios, they buy at any price. In such a market, a narrow group
of stocks often significantly outperforms the rest of the market, which is what
happened during most of the period under review. Technology stock valuations
rose to unreasonable heights as most other sectors languished. Companies,
compelled by the lessons of a momentum-driven market, put aside profitability to
focus on sales growth above all. But investors who hewed to traditional
financial valuation methodologies could find little to buy in technology.
However, the tide seemed to change on March 10, 2000, when prices of technology
stocks fell precipitously. Throughout the rest of the reporting period, both
technology and non-technology stocks experienced extreme volatility. At period's
end, both groups of stocks were trading significantly below the highs they had
achieved a few months earlier. Which one of these forces will win out in the
next year is unknown, but we believe it is wise for investors to understand that
it is not realistic to expect uninterrupted, high growth rates to continue
indefinitely.
PORTFOLIO BREAKDOWN
Franklin Small Cap growth Fund
Based on Total Net Assets
4/30/00
[BAR GRAPH]
Electronic Technology 28.0%
Technology Services 23.5%
Telecommunications 5.4%
Finance 4.4%
Industrial Services 3.1%
Health Technology 2.9%
Real Estate 2.5%
Consumer Services 2.2%
Energy Minerals 2.2%
Transportation 1.7%
Producer Manufacturing 1.4%
Commercial Services 1.2%
Other 2.2%
Short-Term Investments
& Other Net Assets 19.2%
TOP 10 HOLDINGS
Franklin Small Cap Growth Fund
4/30/00
COMPANY % OF TOTAL
SECTOR NET ASSETS
---------------------------------------------
JDS Uniphase Corp 5.3%
Electronic Technology
PMC-Sierra Inc. (Canada) 5.0%
Electronic Technology
i2 Technologies Inc. 3.1%
Technology Services
BEA Systems Inc. 2.6%
Technology Services
VERITAS Software Corp. 2.0%
Technology Services
BroadVision Inc. 1.5%
Technology Services
VoiceStream Wireless Corp. 1.4%
Telecommunications
Wind River Systems Inc. 1.1%
Technology Services
Micromuse Inc. 1.1%
Technology Services
Flextronics International 1.0%
Ltd. (Singapore)
Electronic Technology
Within this environment, Franklin Small Cap Growth Fund - Class A provided a
+85.97% one-year cumulative total return as shown in the Performance Summary on
page 36. The Russell 2000 Growth Index, the fund's benchmark, rose 51.24% during
the same period.(1)
The fund's strong performance for the period as a whole was due largely to its
holdings of technology stocks. Of course, the technology shares that fueled the
fund's strong performance until March 10 also contributed to its volatility and
poor performance from that date until the end of the period. Although our
investment strategy did not change during the reporting period, our flexibility
was limited by the unreasonably high prices of many stocks. Consequently, we
held on to our core technology holdings and were selective about adding
meaningful new positions, even though the fund received strong cash inflows
during the period. When prices of technology stocks dropped in March and April,
we were pleased that we had not chased them in the fall and winter. However, the
fund was not impervious to the downdraft because the portfolio included
many of the technology stocks that the momentum investors had bid up previously.
We intend to hold onto such shares for the foreseeable future.
1. Source: Standard & Poor's Micropal. The unmanaged Russell 2500 Growth Index
measures the performance of those Russell 2500 companies with higher
price-to-book ratios and higher forecasted growth values. One cannot invest
directly in an index.
Looking forward, we are concerned about inflation and the possibility that a
weak dollar brought on by equity market turbulence could exacerbate existing
inflationary pressures. However, as of April 30, the U.S. and most global
economies were strong. And it seems that, after severe market turbulence, we are
seeing signs that the small cap market may be regaining some of the sanity it
lost in the 12 months under review. That having been said, we think it is wise
to maintain a healthy respect for the past history of the American economy's
business cycles, and traditional methods of security valuations. By any of these
traditional measures, many technology companies are selling at unusually high
valuations. The volatility the market experienced in March and April may be a
precursor of a return to traditional price/earnings and book value analysis --
or it may be a temporary bump in the road. One thing is clear, however, none of
us can realistically rely on these valuations and the performance which results
to continue indefinitely. We will try our hardest to deliver last year's
performance every year -- but no one should expect that to be the case for this,
or any mutual fund.
We expect that the fund will remain overweighted in technology shares, but we
are increasingly confident about the portfolio's non-technology stocks, which at
long last are beginning to be recognized as undervalued growth stocks. Most
hearteningly, many investors are beginning to demonstrate a greater appreciation
of fundamental analysis and reasonable valuations, which makes us confident
about long-term prospects for the fund.
It is important to remember that there are special risks involved with investing
in a fund seeking long-term growth from small or relatively new or unseasoned
companies, as well as from foreign securities. These risks, which include
relatively small revenues, limited product lines and small market share, along
with currency fluctuations and the political uncertainty associated with foreign
investing, are further discussed in the fund's prospectus.
We thank you for investing with us, and we looking forward to serving you in the
future. Please feel free to contact us with your questions or comments.
/s/ Edward B. Jamieson
Edward B. Jamieson
Portfolio Manager
Franklin Small Cap Growth Fund
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance does not
guarantee future results, these insights may help you understand our investment
and management philosophy.
--------------------------------------------------------------------------------
FRANKLIN SMALL CAP
GROWTH FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
August 3, 1998, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Past expense reductions by the fund's manager
increased the fund's total return to shareholders.
CLASS C: Subject to 1% initial sales charge and 1% contingent deferred sales
charge for shares redeemed within 18 months of investment. These shares have
higher annual fees and expenses than Class A shares.
ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees and are available to a
limited class of investors. Past expense reductions by the fund's manager
increased the fund's total return to shareholders.
--------------------------------------------------------------------------------
ONE-YEAR PERFORMANCE SUMMARY
AS OF 4/30/00
One-year total return does not include sales charges. Distributions will vary
based on earnings of the fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
CLASS A
One-Year Total Return +85.97%
Net Asset Value (NAV) $45.48 (4/30/00) $24.65 (4/30/99)
Change in NAV +$20.83
Distributions (5/1/99-4/30/00) Dividend Income $0.0428
Long-Term Capital Gain $0.2601
-----------------------------------
Total $0.3029
CLASS C
One-Year Total Return +84.58%
Net Asset Value (NAV) $44.58 (4/30/00) $24.32 (4/30/99)
Change in NAV +$20.26
Distributions (5/1/99-4/30/00) Long-Term Capital Gain $0.2601
ADVISOR CLASS
One-Year Total Return +86.43%
Net Asset Value (NAV) $45.74 (4/30/00) $24.73 (4/30/99)
Change in NAV +$21.01
Distributions (5/1/99-4/30/00) Dividend Income $0.0597
Long-Term Capital Gain $0.2601
-----------------------------------
Total $0.3198
Franklin Small Cap Growth Fund paid distributions derived from long-term capital
gains of 26.01 cents ($0.2601) per share in December 1999. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 4/30/00
INCEPTION
CLASS A 1-YEAR 5-YEAR (2/14/92)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +85.97% +270.68% +527.82%
Average Annual Total Return(2) +75.30% +28.43% +24.18%
Value of $10,000 Investment(3) $17,530 $34,934 $59,173
INCEPTION
CLASS C 1-YEAR 3-YEAR (10/2/95)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +84.58% +151.54% +193.78%
Average Annual Total Return(2) +81.71% +35.54% +26.23%
Value of $10,000 Investment(3) $18,171 $24,902 $29,082
INCEPTION
ADVISOR CLASS(4) 1-YEAR 5-YEAR (2/14/92)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +86.43% +278.80% +541.58%
Average Annual Total Return(2) +86.43% +30.52% +25.41%
Value of $10,000 Investment(3) $18,643 $37,880 $64,158
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
4. On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Since January 2, 1997 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were +140.27% and +30.13%, respectively.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
--------------------------------------------------------------------------------
Since markets can go down as well as up, 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 does not guarantee future results.
FRANKLIN SMALL CAP
GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS A
--------------------------------------------------------------------------------
1-Year +75.30%
5-Year +28.43%
Since Inception (2/14/92) +24.18%
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. Going forward, we will
replace the Russell 2500 Index with the Russell 2500 Growth Index. The Russell
2500 Growth Index measures the performance of those Russell 2500 companies with
higher price-to-book ratios and higher forecasted growth values. The unmanaged
indexes differ from the fund in composition, do not pay management fees or
expenses and include reinvested dividends. One cannot invest directly in an
index.
CLASS A (2/14/92 - 4/30/00)
Date Franklin S&P 500 Russell Russell
Small Cap Index 2500 2500
Growth Fund Index Growth
- Class A Index
02/14/1992 $9,425 $10,000 $10,000 $10,000
02/29/1992 $9,566 $10,067 $10,137 $10,051
03/31/1992 $9,293 $9,871 $9,811 $9,478
04/30/1992 $9,029 $10,161 $9,615 $8,984
05/31/1992 $8,992 $10,211 $9,703 $9,000
06/30/1992 $8,772 $10,059 $9,364 $8,511
07/31/1992 $8,923 $10,470 $9,713 $8,842
08/31/1992 $8,791 $10,255 $9,457 $8,581
09/30/1992 $8,810 $10,375 $9,616 $8,712
10/31/1992 $9,255 $10,411 $9,904 $9,083
11/30/1992 $10,014 $10,765 $10,556 $9,814
12/31/1992 $10,472 $10,897 $10,924 $10,103
01/31/1993 $10,757 $10,988 $11,186 $10,174
02/28/1993 $9,806 $11,138 $11,029 $9,663
03/31/1993 $10,272 $11,373 $11,441 $9,976
04/30/1993 $9,721 $11,098 $11,116 $9,604
05/31/1993 $10,634 $11,394 $11,562 $10,196
06/30/1993 $10,591 $11,427 $11,683 $10,220
07/31/1993 $10,591 $11,381 $11,757 $10,229
08/31/1993 $11,487 $11,813 $12,278 $10,768
09/30/1993 $11,916 $11,722 $12,510 $11,044
10/31/1993 $12,136 $11,964 $12,661 $11,262
11/30/1993 $12,193 $11,851 $12,253 $10,853
12/31/1993 $12,752 $11,994 $12,733 $11,331
01/31/1994 $13,254 $12,402 $13,136 $11,657
02/28/1994 $13,392 $12,066 $13,088 $11,677
03/31/1994 $12,732 $11,540 $12,450 $10,997
04/30/1994 $12,565 $11,687 $12,522 $10,985
05/31/1994 $12,338 $11,879 $12,393 $10,764
06/30/1994 $11,908 $11,588 $12,007 $10,286
07/31/1994 $12,353 $11,968 $12,333 $10,510
08/31/1994 $13,316 $12,459 $13,000 $11,282
09/30/1994 $13,482 $12,155 $12,867 $11,276
10/31/1994 $14,124 $12,428 $12,889 $11,470
11/30/1994 $13,803 $11,976 $12,331 $10,962
12/31/1994 $13,928 $12,153 $12,599 $11,185
01/31/1995 $13,671 $12,468 $12,574 $11,075
02/28/1995 $14,913 $12,954 $13,205 $11,678
03/31/1995 $15,674 $13,336 $13,528 $12,131
04/30/1995 $15,963 $13,728 $13,769 $12,268
05/31/1995 $16,328 $14,278 $14,061 $12,455
06/30/1995 $17,650 $14,609 $14,736 $13,211
07/31/1995 $19,135 $15,094 $15,605 $14,253
08/31/1995 $19,597 $15,132 $15,855 $14,371
09/30/1995 $19,740 $15,770 $16,151 $14,678
10/31/1995 $18,970 $15,713 $15,646 $14,160
11/30/1995 $19,586 $16,403 $16,314 $14,739
12/31/1995 $19,806 $16,720 $16,593 $14,935
01/31/1996 $19,631 $17,288 $16,711 $14,982
02/29/1996 $20,714 $17,449 $17,214 $15,641
03/31/1996 $21,215 $17,617 $17,565 $15,980
04/30/1996 $22,996 $17,875 $18,376 $17,075
05/31/1996 $24,079 $18,337 $18,874 $17,685
06/30/1996 $22,961 $18,406 $18,295 $16,799
07/31/1996 $20,900 $17,593 $16,956 $15,129
08/31/1996 $22,880 $17,964 $17,931 $16,171
09/30/1996 $24,126 $18,975 $18,707 $17,030
10/31/1996 $23,683 $19,499 $18,584 $16,500
11/30/1996 $24,789 $20,973 $19,481 $17,106
12/31/1996 $25,167 $20,558 $19,748 $17,190
01/31/1997 $25,677 $21,843 $20,293 $17,704
02/28/1997 $24,596 $22,013 $19,991 $16,928
03/31/1997 $22,871 $21,108 $19,085 $15,814
04/30/1997 $23,017 $22,369 $19,328 $15,885
05/31/1997 $26,260 $23,731 $21,108 $17,790
06/30/1997 $27,147 $24,794 $21,971 $18,386
07/31/1997 $28,786 $26,768 $23,259 $19,554
08/31/1997 $29,017 $25,269 $23,582 $20,031
09/30/1997 $31,714 $26,653 $25,124 $21,445
10/31/1997 $30,232 $25,763 $23,996 $20,107
11/30/1997 $29,491 $26,956 $24,104 $19,799
12/31/1997 $29,139 $27,420 $24,560 $19,728
01/31/1998 $28,923 $27,724 $24,184 $19,469
02/28/1998 $31,223 $29,723 $25,940 $21,140
03/31/1998 $32,393 $31,245 $27,078 $21,924
04/30/1998 $32,952 $31,560 $27,181 $22,124
05/31/1998 $30,753 $31,017 $25,920 $20,703
06/30/1998 $30,906 $32,277 $25,951 $20,854
07/31/1998 $27,919 $31,931 $24,168 $19,301
08/31/1998 $21,654 $27,314 $19,610 $14,916
09/30/1998 $23,624 $29,065 $21,002 $16,224
10/31/1998 $25,111 $31,428 $22,151 $17,319
11/30/1998 $27,068 $33,332 $23,248 $18,550
12/31/1998 $29,133 $35,252 $24,657 $20,337
01/31/1999 $30,747 $36,726 $24,615 $20,924
02/28/1999 $28,023 $35,584 $22,997 $19,227
03/31/1999 $29,662 $37,007 $23,490 $20,123
04/30/1999 $31,818 $38,439 $25,592 $21,729
05/31/1999 $31,689 $37,532 $25,989 $21,953
06/30/1999 $34,335 $39,615 $27,340 $23,505
07/31/1999 $34,154 $38,379 $26,801 $23,026
08/31/1999 $34,671 $38,187 $25,962 $22,528
09/30/1999 $35,936 $37,141 $25,576 $22,690
10/31/1999 $40,144 $39,492 $26,136 $23,795
11/30/1999 $46,133 $40,294 $27,612 $26,606
12/31/1999 $57,417 $42,667 $30,608 $31,623
01/31/2000 $56,545 $40,525 $29,904 $31,446
02/29/2000 $71,312 $39,759 $34,223 $39,512
03/31/2000 $65,288 $43,648 $33,699 $36,411
04/30/2000 $59,173 $42,334 $31,886 $32,864
Past performance does not guarantee future results.
CLASS C (10/2/95 - 4/30/00)
Date Franklin S&P 500 Russell Russell
Small Cap Index 2500 2500
Growth Fund Index Growth
- Class C Index
10/02/1995 $9,899 $10,000 $10,000 $10,000
10/31/1995 $9,636 $9,964 $9,687 $9,647
11/30/1995 $9,938 $10,401 $10,101 $10,042
12/31/1995 $10,050 $10,602 $10,273 $10,175
01/31/1996 $9,961 $10,963 $10,346 $10,207
02/29/1996 $10,500 $11,065 $10,658 $10,656
03/31/1996 $10,749 $11,171 $10,875 $10,887
04/30/1996 $11,643 $11,335 $11,378 $11,633
05/31/1996 $12,188 $11,627 $11,686 $12,048
06/30/1996 $11,614 $11,672 $11,327 $11,444
07/31/1996 $10,565 $11,156 $10,498 $10,307
08/31/1996 $11,554 $11,391 $11,102 $11,017
09/30/1996 $12,182 $12,032 $11,582 $11,602
10/31/1996 $11,945 $12,365 $11,506 $11,241
11/30/1996 $12,490 $13,299 $12,062 $11,654
12/31/1996 $12,670 $13,036 $12,227 $11,711
01/31/1997 $12,923 $13,851 $12,564 $12,061
02/28/1997 $12,369 $13,959 $12,377 $11,533
03/31/1997 $11,494 $13,385 $11,816 $10,774
04/30/1997 $11,562 $14,184 $11,967 $10,822
05/31/1997 $13,182 $15,048 $13,069 $12,120
06/30/1997 $13,613 $15,722 $13,603 $12,526
07/31/1997 $14,432 $16,974 $14,400 $13,321
08/31/1997 $14,537 $16,023 $14,600 $13,646
09/30/1997 $15,880 $16,901 $15,555 $14,610
10/31/1997 $15,128 $16,337 $14,857 $13,698
11/30/1997 $14,752 $17,093 $14,924 $13,489
12/31/1997 $14,558 $17,387 $15,206 $13,440
01/31/1998 $14,449 $17,580 $14,973 $13,264
02/28/1998 $15,585 $18,848 $16,060 $14,402
03/31/1998 $16,163 $19,813 $16,765 $14,936
04/30/1998 $16,426 $20,013 $16,829 $15,072
05/31/1998 $15,322 $19,668 $16,048 $14,105
06/30/1998 $15,386 $20,467 $16,067 $14,208
07/31/1998 $13,890 $20,248 $14,964 $13,149
08/31/1998 $10,769 $17,320 $12,141 $10,162
09/30/1998 $11,745 $18,430 $13,003 $11,053
10/31/1998 $12,477 $19,929 $13,715 $11,799
11/30/1998 $13,434 $21,136 $14,394 $12,638
12/31/1998 $14,460 $22,354 $15,266 $13,855
01/31/1999 $15,244 $23,288 $15,240 $14,255
02/28/1999 $13,890 $22,564 $14,239 $13,099
03/31/1999 $14,700 $23,467 $14,543 $13,710
04/30/1999 $15,756 $24,375 $15,845 $14,804
05/31/1999 $15,685 $23,799 $16,091 $14,956
06/30/1999 $16,980 $25,120 $16,927 $16,013
07/31/1999 $16,883 $24,337 $16,594 $15,687
08/31/1999 $17,123 $24,215 $16,074 $15,348
09/30/1999 $17,738 $23,551 $15,835 $15,458
10/31/1999 $19,805 $25,042 $16,182 $16,211
11/30/1999 $22,746 $25,551 $17,096 $18,126
12/31/1999 $28,286 $27,056 $18,951 $21,544
01/31/2000 $27,843 $25,697 $18,515 $21,424
02/29/2000 $35,097 $25,212 $21,189 $26,919
03/31/2000 $32,109 $27,677 $20,864 $24,806
04/30/2000 $29,082 $26,844 $19,742 $22,390
ADVISOR CLASS** (2/14/92 - 4/30/00)
Date Franklin S&P 500 Russell Russell
Small Cap Index 2500 2500
Growth Fund Index Growth
- Advisor Index
Class
02/14/1992 $10,000 $10,000 $10,000 $10,000
02/29/1992 $10,150 $10,067 $10,137 $10,051
03/31/1992 $9,860 $9,871 $9,811 $9,478
04/30/1992 $9,580 $10,161 $9,615 $8,984
05/31/1992 $9,539 $10,211 $9,703 $9,000
06/30/1992 $9,307 $10,059 $9,364 $8,511
07/31/1992 $9,468 $10,470 $9,713 $8,842
08/31/1992 $9,327 $10,255 $9,457 $8,581
09/30/1992 $9,347 $10,375 $9,616 $8,712
10/31/1992 $9,820 $10,411 $9,904 $9,083
11/30/1992 $10,625 $10,765 $10,556 $9,814
12/31/1992 $11,111 $10,897 $10,924 $10,103
01/31/1993 $11,413 $10,988 $11,186 $10,174
02/28/1993 $10,404 $11,138 $11,029 $9,663
03/31/1993 $10,898 $11,373 $11,441 $9,976
04/30/1993 $10,313 $11,098 $11,116 $9,604
05/31/1993 $11,282 $11,394 $11,562 $10,196
06/30/1993 $11,236 $11,427 $11,683 $10,220
07/31/1993 $11,236 $11,381 $11,757 $10,229
08/31/1993 $12,187 $11,813 $12,278 $10,768
09/30/1993 $12,642 $11,722 $12,510 $11,044
10/31/1993 $12,874 $11,964 $12,661 $11,262
11/30/1993 $12,935 $11,851 $12,253 $10,853
12/31/1993 $13,527 $11,994 $12,733 $11,331
01/31/1994 $14,060 $12,402 $13,136 $11,657
02/28/1994 $14,206 $12,066 $13,088 $11,677
03/31/1994 $13,506 $11,540 $12,450 $10,997
04/30/1994 $13,328 $11,687 $12,522 $10,985
05/31/1994 $13,088 $11,879 $12,393 $10,764
06/30/1994 $12,632 $11,588 $12,007 $10,286
07/31/1994 $13,105 $11,968 $12,333 $10,510
08/31/1994 $14,127 $12,459 $13,000 $11,282
09/30/1994 $14,302 $12,155 $12,867 $11,276
10/31/1994 $14,983 $12,428 $12,889 $11,470
11/30/1994 $14,643 $11,976 $12,331 $10,962
12/31/1994 $14,775 $12,153 $12,599 $11,185
01/31/1995 $14,501 $12,468 $12,574 $11,075
02/28/1995 $15,819 $12,954 $13,205 $11,678
03/31/1995 $16,626 $13,336 $13,528 $12,131
04/30/1995 $16,934 $13,728 $13,769 $12,268
05/31/1995 $17,320 $14,278 $14,061 $12,455
06/30/1995 $18,723 $14,609 $14,736 $13,211
07/31/1995 $20,299 $15,094 $15,605 $14,253
08/31/1995 $20,791 $15,132 $15,855 $14,371
09/30/1995 $20,942 $15,770 $16,151 $14,678
10/31/1995 $20,126 $15,713 $15,646 $14,160
11/30/1995 $20,780 $16,403 $16,314 $14,739
12/31/1995 $21,012 $16,720 $16,593 $14,935
01/31/1996 $20,827 $17,288 $16,711 $14,982
02/29/1996 $21,977 $17,449 $17,214 $15,641
03/31/1996 $22,509 $17,617 $17,565 $15,980
04/30/1996 $24,400 $17,875 $18,376 $17,075
05/31/1996 $25,549 $18,337 $18,874 $17,685
06/30/1996 $24,364 $18,406 $18,295 $16,799
07/31/1996 $22,176 $17,593 $16,956 $15,129
08/31/1996 $24,276 $17,964 $17,931 $16,171
09/30/1996 $25,599 $18,975 $18,707 $17,030
10/31/1996 $25,130 $19,499 $18,584 $16,500
11/30/1996 $26,304 $20,973 $19,481 $17,106
12/31/1996 $26,704 $20,558 $19,748 $17,190
01/31/1997 $27,564 $21,843 $20,293 $17,704
02/28/1997 $26,417 $22,013 $19,991 $16,928
03/31/1997 $24,565 $21,108 $19,085 $15,814
04/30/1997 $24,735 $22,369 $19,328 $15,885
05/31/1997 $28,230 $23,731 $21,108 $17,790
06/30/1997 $29,181 $24,794 $21,971 $18,386
07/31/1997 $30,955 $26,768 $23,259 $19,554
08/31/1997 $31,203 $25,269 $23,582 $20,031
09/30/1997 $34,111 $26,653 $25,124 $21,445
10/31/1997 $32,521 $25,763 $23,996 $20,107
11/30/1997 $31,738 $26,956 $24,104 $19,799
12/31/1997 $31,357 $27,420 $24,560 $19,728
01/31/1998 $31,153 $27,724 $24,184 $19,469
02/28/1998 $33,626 $29,723 $25,940 $21,140
03/31/1998 $34,884 $31,245 $27,078 $21,924
04/30/1998 $35,526 $31,560 $27,181 $22,124
05/31/1998 $33,163 $31,017 $25,920 $20,703
06/30/1998 $33,343 $32,277 $25,951 $20,854
07/31/1998 $30,132 $31,931 $24,168 $19,301
08/31/1998 $23,367 $27,314 $19,610 $14,916
09/30/1998 $25,498 $29,065 $21,002 $16,224
10/31/1998 $27,125 $31,428 $22,151 $17,319
11/30/1998 $29,230 $33,332 $23,248 $18,550
12/31/1998 $31,472 $35,252 $24,657 $20,337
01/31/1999 $33,225 $36,726 $24,615 $20,924
02/28/1999 $30,288 $35,584 $22,997 $19,227
03/31/1999 $32,096 $37,007 $23,490 $20,123
04/30/1999 $34,420 $38,439 $25,592 $21,729
05/31/1999 $34,282 $37,532 $25,989 $21,953
06/30/1999 $37,148 $39,615 $27,340 $23,505
07/31/1999 $36,966 $38,379 $26,801 $23,026
08/31/1999 $37,524 $38,187 $25,962 $22,528
09/30/1999 $38,901 $37,141 $25,576 $22,690
10/31/1999 $43,480 $39,492 $26,136 $23,795
11/30/1999 $49,993 $40,294 $27,612 $26,606
12/31/1999 $62,211 $42,667 $30,608 $31,623
01/31/2000 $61,284 $40,525 $29,904 $31,446
02/29/2000 $77,292 $39,759 $34,223 $39,512
03/31/2000 $70,784 $43,648 $33,699 $36,411
04/30/2000 $64,158 $42,334 $31,886 $32,864
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS C
--------------------------------------------------------------------------------
1-Year +81.71%
3-Year +35.54%
Since Inception (10/2/95) +26.23%
AVERAGE ANNUAL TOTAL RETURN
4/30/00
ADVISOR CLASS**
--------------------------------------------------------------------------------
1-Year +86.43%
5-Year +30.52%
Since Inception (2/14/92) +25.41%
*Source: Standard and Poor's Micropal.
**On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Past performance does not guarantee future results.
FRANKLIN STRATEGIC SERIES
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN AGGRESSIVE GROWTH FUND
CLASS A
-----------------
APRIL 30, 2000(d)
-----------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
<S> <C>
Net asset value, beginning of period .......................................................... $10.00
-----------------
Income from investment operations:
Net investment loss(a)........................................................................ (.15)
Net realized and unrealized gains ............................................................ 15.86
-----------------
Total from investment operations .............................................................. 15.71
-----------------
Less distributions from:
Net investment income ........................................................................ (.02)
Net realized gains ........................................................................... (.47)
-----------------
Total distributions ........................................................................... (.49)
-----------------
Net asset value, end of period ................................................................ $25.22
=================
Total return(b) ............................................................................... 158.14%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................................. $171,976
Ratios to average net assets:
Expenses ..................................................................................... 1.24%(c)
Expenses excluding waiver and payments by affiliate .......................................... 1.28%(c)
Net investment loss .......................................................................... (.68)%(c)
Portfolio turnover rate ....................................................................... 148.67%
</TABLE>
(a)Based on average shares outstanding.
(b)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c)Annualized
(d)For the period June 23, 1999 (effective date) to April 30, 2000.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN AGGRESSIVE GROWTH FUND (CONT.)
<TABLE>
<CAPTION>
CLASS B
-----------------
APRIL 30, 2000(d)
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ....................... $ 10.00
-----------------
Income from investment operations:
Net investment loss(a) .................................... (.30)
Net realized and unrealized gains ......................... 15.95
-----------------
Total from investment operations ........................... 15.65
-----------------
Less distributions from net realized gains ................. (.47)(e)
-----------------
Net asset value, end of period ............................. $ 25.18
=================
Total return(b) ............................................ 157.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .......................... $ 33,613
Ratios to average net assets:
Expenses .................................................. 1.86%(c)
Expenses excluding waiver and payments by affiliate ....... 1.90%(c)
Net investment loss ....................................... (1.31)%(c)
Portfolio turnover rate .................................... 148.67%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect contingent deferred sales charge, and is not
annualized for periods less than one year.
(c) Annualized
(d) For the period June 23, 1999 (effective date) to April 30, 2000.
(e) Includes distribution of net investment income in the amount of $.003.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN AGGRESSIVE GROWTH FUND (CONT.)
CLASS C
-----------------
APRIL 30, 2000(d)
-----------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ....................... $ 10.00
-----------------
Income from investment operations:
Net investment loss(a) .................................... (.30)
Net realized and unrealized gains ......................... 15.89
-----------------
Total from investment operations ........................... 15.59
-----------------
Less distributions from net realized gains ................. (.47)
-----------------
Net asset value, end of period ............................. $ 25.12
=================
Total return(b) ............................................ 156.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .......................... $ 80,473
Ratios to average net assets:
Expenses .................................................. 1.88%(c)
Expenses excluding waiver and payments by affiliate ....... 1.92%(c)
Net investment loss ....................................... (1.34)%(c)
Portfolio turnover rate .................................... 148.67%
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period June 23, 1999 (effective date) to April 30, 2000.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN AGGRESSIVE GROWTH FUND (CONT.)
ADVISOR CLASS
-----------------
APRIL 30, 2000(d)
-----------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ....................... $ 10.00
-----------------
Income from investment operations:
Net investment loss(a) .................................... (.05)
Net realized and unrealized gains ......................... 15.86
-----------------
Total from investment operations ........................... 15.81
-----------------
Less distributions from:
Net investment income ..................................... (.03)
Net realized gains ........................................ (.47)
-----------------
Total distributions ........................................ (.50)
-----------------
Net asset value, end of period ............................. $ 25.31
=================
Total return(b) ............................................ 159.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .......................... $ 46,726
Ratios to average net assets:
Expenses .................................................. .90%(c)
Expenses excluding waiver and payments by affiliate ....... .94%(c)
Net investment loss ....................................... (.25)%(c)
Portfolio turnover rate .................................... 148.67%
(a) Based on average shares outstanding.
(b) Total return is not annualized for periods less than one year.
(c) Annualized
(d) For the period June 23, 1999 (effective date) to April 30, 2000.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN AGGRESSIVE GROWTH FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 95.3%
(a) COMMERCIAL SERVICES 3.2%
Concord EFS Inc. ........................................................... 240,000 $ 5,370,000
Corillian Corp. ............................................................ 64,800 810,000
Saba Software Inc. ......................................................... 49,800 1,416,188
ST Assembly Test Services Ltd., ADR (Singapore) ............................ 70,000 2,918,125
-----------
10,514,313
-----------
ELECTRONIC TECHNOLOGY 41.8%
(a) Apple Computer Inc. ........................................................ 32,000 3,970,000
(a) Applied Micro Circuits Corp. ............................................... 72,000 9,279,000
(a) Broadcom Corp., A .......................................................... 25,000 4,309,375
(a) Cisco Systems Inc. ......................................................... 160,000 11,092,500
(a) Comverse Technology Inc. ................................................... 60,000 5,351,250
(a) Copper Mountain Networks Inc. .............................................. 60,000 5,002,500
(a) Dell Computer Corp. ........................................................ 150,000 7,518,750
(a),(e) eMachines Inc. ......................................................... 31,328 241,421
(a) EMC Corp. .................................................................. 30,000 4,168,125
(a) Flextronics International Ltd. (Singapore) ................................. 80,000 5,620,000
(a) Integrated Silicon Solution Inc. ........................................... 101,900 3,114,319
Intel Corp. ................................................................ 30,000 3,804,375
(a) Intersil Holding Corp. ..................................................... 110,000 3,850,000
(a) JDS Uniphase Corp. ......................................................... 40,000 4,147,500
(a) Juniper Networks Inc. ...................................................... 30,000 6,380,625
(a) Lam Research Corp. ......................................................... 100,000 4,587,500
(a) MCK Communications Inc. .................................................... 100,000 3,125,000
(a) Network Appliance Inc. ..................................................... 75,000 5,545,313
Nortel Networks Corp. (Canada) ............................................. 35,000 3,963,750
(a) PMC-Sierra Inc. (Canada) ................................................... 32,000 6,140,000
(a) Polycom Inc. ............................................................... 50,000 3,956,250
(a) Redback Networks Inc. ...................................................... 55,000 4,365,625
(a) RF Micro Devices Inc. ...................................................... 55,000 5,723,438
(a) SDL Inc. ................................................................... 25,000 4,875,000
(a) Sun Microsystems Inc. ...................................................... 35,000 3,217,813
(a) Teradyne Inc. .............................................................. 60,000 6,600,000
(a) Waters Corp. ............................................................... 35,000 3,316,250
(a) Xilinx Inc. ................................................................ 80,000 5,860,000
-----------
139,125,679
-----------
(a) HEALTH SERVICES .2%
Xcare.net Inc. ............................................................. 130,000 763,750
-----------
(a) HEALTH TECHNOLOGY 7.0%
Abgenix Inc. ............................................................... 50,000 4,478,125
COR Therapeutics Inc. ...................................................... 60,000 4,571,250
Cubist Pharmaceuticals Inc. ................................................ 65,000 2,088,125
Inhale Therapeutic Systems Inc. ............................................ 55,000 3,403,125
MedImmune Inc. ............................................................. 20,000 3,198,750
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN AGGRESSIVE GROWTH FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
(a) HEALTH TECHNOLOGY (CONT.)
Minimed Inc. ............................................................... 25,000 $ 3,073,438
United Therapeutics Corp. .................................................. 45,000 2,542,500
------------
23,355,313
------------
RETAIL TRADE 1.7%
GAP Inc. ................................................................... 150,000 5,512,500
------------
(a) TECHNOLOGY SERVICES 32.5%
Affiliated Computer Services Inc., A ....................................... 190,000 6,293,750
BEA Systems Inc. ........................................................... 120,000 5,790,000
Brio Technology Inc. ....................................................... 180,000 4,455,000
Citrix Systems Inc. ........................................................ 55,000 3,358,438
Exodus Communications Inc. ................................................. 45,000 3,979,688
HNC Software Inc. .......................................................... 85,000 4,207,500
i2 Technologies Inc. ....................................................... 40,000 5,170,000
Inforte Corp. .............................................................. 70,000 2,747,500
Kana Communications Inc. ................................................... 60,000 2,553,750
Microsoft Corp. ............................................................ 60,000 4,185,000
Netsolve Inc. .............................................................. 120,000 3,540,000
Oracle Corp. ............................................................... 70,000 5,595,625
Peregrine Systems Inc. ..................................................... 100,000 2,406,250
Predictive Systems Inc. .................................................... 124,500 5,867,063
Rare Medium Group Inc. ..................................................... 135,000 2,775,938
Razorfish Inc. ............................................................. 210,000 3,976,875
Sapient Corp. .............................................................. 65,000 5,147,188
Scient Corp. ............................................................... 120,000 6,480,000
Siebel Systems Inc. ........................................................ 45,000 5,529,375
TenFold Corp. .............................................................. 115,000 2,939,688
VERITAS Software Corp. ..................................................... 60,000 6,435,938
Viant Corp. ................................................................ 240,000 5,520,000
Vignette Corp. ............................................................. 95,000 4,577,813
Yahoo! Inc. ................................................................ 35,000 4,558,750
------------
108,091,129
------------
(a) TELECOMMUNICATIONS 7.4%
Allegiance Telecom Inc. .................................................... 60,000 4,245,000
MCI WorldCom Inc. .......................................................... 100,750 4,577,821
Nextel Partners Inc., A .................................................... 110,000 2,413,125
NEXTLINK Communications Inc., A ............................................ 45,000 3,794,063
Qwest Communications International Inc. .................................... 130,000 5,638,750
VoiceStream Wireless Corp. ................................................. 40,000 3,960,000
------------
24,628,759
------------
TRANSPORTATION 1.5%
Expeditors International of Washington Inc. ................................ 120,000 5,130,000
------------
TOTAL LONG TERM INVESTMENTS (COST $295,512,148) ............................ 317,121,443
------------
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN AGGRESSIVE GROWTH FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(d) SHORT TERM INVESTMENTS 5.3%
Franklin Institutional Fiduciary Trust
Money Market Portfolio (Cost $17,565,244) ........................... 17,565,244 $ 17,565,244
-------------
TOTAL INVESTMENTS (COST $313,077,392) 100.6% .............................. 334,686,687
OTHER ASSETS, LESS LIABILITIES (.6%) ...................................... (1,898,805)
-------------
NET ASSETS 100.0% ......................................................... $ 332,787,882
=============
</TABLE>
(a) Non-income producing.
(d) See Note 3 regarding investment in the "Sweep Money Fund".
(e) See Note 6 regarding restricted securities.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
FRANKLIN CALIFORNIA GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED APRIL 30,
----------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 25.82 $ 24.97 $ 19.35 $ 18.26 $ 14.03
---------------------------------------------------------
Income from investment operations:
Net investment income(a) ............................ .05 .10 .14 .13 .20
Net realized and unrealized gains ................... 24.36 1.42 6.48 1.51 6.03
---------------------------------------------------------
Total from investment operations ..................... 24.41 1.52 6.62 1.64 6.23
---------------------------------------------------------
Less distributions from:
Net investment income ............................... (.08) (.14) (.14) (.12) (.23)
Net realized gains .................................. -- (.53) (.86) (.43) (1.77)
---------------------------------------------------------
Total distributions .................................. (.08) (.67) (1.00) (.55) (2.00)
---------------------------------------------------------
Net asset value, end of year ......................... $ 50.15 $ 25.82 $ 24.97 $ 19.35 $ 18.26
=========================================================
Total return(b) ...................................... 94.90% 6.39% 34.98% 8.94% 47.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $2,025,864 $780,598 $721,254 $282,898 $81,175
Ratios to average net assets:
Expenses ............................................ .88% 1.00% .99% 1.08% .71%
Expenses excluding waiver and payments by affiliate.. .88% 1.00% .99% 1.08% 1.09%
Net investment income ............................... .11% .41% .67% .84% 1.42%
Portfolio turnover rate .............................. 61.04% 52.76% 48.52% 44.81% 61.82%
</TABLE>
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CALIFORNIA GROWTH FUND (CONT.)
CLASS B
-----------------------
YEAR ENDED APRIL 30,
----------------------
2000 1999(d)
----------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 25.75 $24.31
--------------------
Income from investment operations:
Net investment loss(a) ......................... (.28) (.01)
Net realized and unrealized gains .............. 24.24 1.45
--------------------
Total from investment operations ................ 23.96 1.44
--------------------
Less distributions from net investment income ... (.07) --
--------------------
Net asset value, end of year .................... $ 49.64 $25.75
====================
Total return(b) ................................. 93.35% 5.88%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $63,960 $2,657
Ratios to average net assets:
Expenses ....................................... 1.63% 1.75%(c)
Net investment loss ............................ (.61)% (.33)%(c)
Portfolio turnover rate ......................... 61.04% 52.76%
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return does not reflect contingent deferred sales charge, and is not
annualized for periods less than one year.
(c) Annualized
(d) For the period January 1, 1999 (effective date) to April 30, 1999.
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CALIFORNIA GROWTH FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------
YEAR ENDED APRIL 30,
--------------------------------------------------
2000 1999 1998 1997(d)
--------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $25.63 $24.81 $19.27 $18.05
--------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) ........................ (.25) (.07) -- .05
Net realized and unrealized gains ...................... 24.19 1.42 6.43 1.65
--------------------------------------------------
Total from investment operations ........................ 23.94 1.35 6.43 1.70
--------------------------------------------------
Less distributions from:
Net investment income .................................. (.02) -- (.03) (.05)
Net realized gains ..................................... -- (.53) (.86) (.43)
--------------------------------------------------
Total distributions ..................................... (.02) (.53) (.89) (.48)
--------------------------------------------------
Net asset value, end of year ............................ $49.55 $25.63 $24.81 $19.27
==================================================
Total return(b) ......................................... 93.46% 5.67% 34.02% 9.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $428,192 $159,310 $122,701 $24,556
Ratios to average net assets:
Expenses ............................................... 1.63% 1.75% 1.74% 1.86%(c)
Net investment income (loss) ........................... (.64)% (.33)% (.10)% .05%(c)
Portfolio turnover rate ................................. 61.04% 52.76% 48.52% 44.81%
</TABLE>
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period September 3, 1996 (effective date) to April 30,
1997.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN CALIFORNIA GROWTH FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 87.8%
(a) COMMERCIAL SERVICES 2.5%
(f) RemedyTemp Inc., A ....................................................... 400,000 $ 7,925,000
Robert Half International Inc. ........................................... 850,000 51,956,250
Wink Communications Inc. ................................................. 100,000 1,975,000
-----------
61,856,250
-----------
CONSUMER DURABLES .5%
(a) Electronic Arts Inc. ..................................................... 175,000 10,587,500
Mattel Inc. .............................................................. 100,000 1,225,000
-----------
11,812,500
-----------
CONSUMER NON-DURABLES .7%
Clorox Co. ............................................................... 500,000 18,375,000
-----------
CONSUMER SERVICES 4.1%
(a) eBay Inc. ................................................................ 125,000 19,898,438
(a) Fox Entertainment Group Inc., A .......................................... 850,000 21,887,500
(a) Jack in the Box Inc. ..................................................... 400,000 9,800,000
McClatchy Co., A ......................................................... 175,000 5,545,313
(a) Quokka Sports Inc. ....................................................... 109,500 629,625
United Television Inc. ................................................... 50,000 6,743,750
(a) Univision Communications Inc., A ......................................... 300,000 32,775,000
Walt Disney Co. .......................................................... 150,000 6,496,875
-----------
103,776,501
-----------
ELECTRONIC TECHNOLOGY 37.0%
(a) Agilent Technologies Inc. ................................................ 125,000 11,078,125
(a) Alteon Websystems Inc. ................................................... 100,000 6,800,000
(a) Altera Corp. ............................................................. 300,000 30,675,000
(a) Apple Computer Inc. ...................................................... 125,000 15,507,813
(a) Applied Materials Inc. ................................................... 300,000 30,543,750
(a) Applied Micro Circuits Corp. ............................................. 575,000 74,103,125
(a) Aspeon Inc. .............................................................. 250,000 2,359,375
(a) Atmel Corp. .............................................................. 500,000 24,468,750
(a) Broadcom Corp., A ........................................................ 100,000 17,237,500
(a) Cisco Systems Inc. ....................................................... 1,200,000 83,193,750
(a) Coherent Inc. ............................................................ 150,000 8,671,875
(a) Copper Mountain Networks Inc. ............................................ 150,000 12,506,250
(a) Cypress Semiconductor Corp. .............................................. 350,000 18,178,125
(a) Ditech Communications Corp. .............................................. 175,000 15,006,250
(a),(e) eMachines Inc. ....................................................... 783,208 6,035,597
(a) eMachines Inc. ........................................................... 163,800 1,402,538
(a) Flextronics International Ltd. (Singapore) ............................... 350,000 24,587,500
(a) Gemstar International Group Ltd. ......................................... 150,000 6,937,500
Hewlett-Packard Co. ...................................................... 100,000 13,500,000
Intel Corp. .............................................................. 150,000 19,021,875
(a) JDS Uniphase Corp. ....................................................... 1,100,000 114,056,250
(a) Juniper Networks Inc. .................................................... 100,000 21,268,750
(a) KLA-Tencor Corp. ......................................................... 275,000 20,590,625
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (cont.)
<TABLE>
<CAPTION>
FRANKLIN CALIFORNIA GROWTH FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (cont.)
ELECTRONIC TECHNOLOGY (cont.)
(a) Lam Research Corp. ................................................... 350,000 $ 16,056,250
Linear Technology Corp. .............................................. 550,000 31,418,750
(a) LSI Logic Corp. ...................................................... 150,000 9,375,000
(a) Macrovision Corp. .................................................... 250,000 12,218,750
(a) Maxim Integrated Products Inc. ....................................... 450,000 29,165,625
(a) Network Appliance Inc. ............................................... 225,000 16,635,938
(a) Novellus Systems Inc. ................................................ 225,000 15,004,688
(a) Numerical Technologies Inc. .......................................... 17,500 730,625
(a) Pinnacle Systems Inc. ................................................ 200,000 4,800,000
(a) Proxim Inc. .......................................................... 75,000 5,770,313
(a) QLogic Corp. ......................................................... 75,000 7,523,438
(a) QUALCOMM Inc. ........................................................ 125,000 13,554,688
(a) Sanmina Corp. ........................................................ 250,000 15,015,625
(a) SDL Inc. ............................................................. 175,000 34,125,000
(a) Solectron Corp. ...................................................... 300,000 14,043,750
(a) Sun Microsystems Inc. ................................................ 500,000 45,968,750
(a) Synopsys Inc. ........................................................ 300,000 12,600,000
(a) UTStarcom Inc. ....................................................... 24,400 1,159,000
(a) Varian Inc. .......................................................... 475,000 17,278,125
(a) Vitesse Semiconductor Corp. .......................................... 225,000 15,314,063
(a) Xilinx Inc. .......................................................... 500,000 36,625,000
------------
932,113,701
------------
ENERGY MINERALS 1.0%
Chevron Corp. .......................................................... 300,000 25,537,500
------------
FINANCE 4.3%
Charles Schwab Corp. ................................................... 500,000 22,250,000
Countrywide Credit Industries Inc. ..................................... 200,000 5,525,000
(a) Golden State Bancorp Inc. ............................................ 500,000 7,687,500
Istar Financial Inc. ................................................... 230,000 4,039,375
The PMI Group Inc. ..................................................... 225,000 10,898,438
(a) Silicon Valley Bancshares ............................................ 475,000 29,331,250
Wells Fargo & Co. ...................................................... 700,000 28,743,750
------------
108,475,313
------------
(a) HEALTH SERVICES .5%
Tenet Healthcare Corp. ................................................. 525,000 13,387,500
------------
HEALTH TECHNOLOGY 7.3%
(a) Abgenix Inc. ......................................................... 200,000 17,912,500
(a) Aclara Biosciences Inc. .............................................. 79,500 3,030,938
(a) Affymetrix Inc. ...................................................... 100,000 13,506,250
Allergan Inc. .......................................................... 150,000 8,831,250
(a) Amgen Inc. ........................................................... 325,000 18,200,000
(a) Cerus Corp. .......................................................... 75,000 2,775,000
(a) Chiron Corp. ......................................................... 300,000 13,575,000
(a) Collateral Therapeutics Inc. ......................................... 200,000 4,900,000
(a) Exelixis Inc. ........................................................ 125,200 2,386,625
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN CALIFORNIA GROWTH FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
HEALTH TECHNOLOGY (CONT.)
(a) Genentech Inc. ......................................................... 300,000 $ 35,100,000
(a) Gilead Sciences Inc. ................................................... 50,000 2,709,375
(a) INAMED Corp. ........................................................... 78,200 3,235,525
(a) Inhale Therapeutic Systems Inc. ........................................ 412,455 25,520,653
(a) Minimed Inc. ........................................................... 25,000 3,073,438
(a) Molecular Devices Corp. ................................................ 275,000 11,820,703
(a) Nanogen Inc. ........................................................... 125,000 3,054,688
(a) ORATEC Interventions Inc. .............................................. 57,100 1,944,969
PE Corp.-PE Biosystems Group ........................................... 100,000 6,000,000
(a) Thoratec Laboratories Corp. ............................................ 500,000 5,312,500
(a) Vical Inc. ............................................................. 100,000 1,800,000
------------
184,689,414
------------
INDUSTRIAL SERVICES 1.3%
(a) Calpine Corp. .......................................................... 150,000 13,725,000
(a) Catalytica Inc. ........................................................ 375,000 4,171,875
Granite Construction Inc. .............................................. 250,000 5,937,500
(a) Tetra Tech Inc. ........................................................ 375,000 8,835,938
------------
32,670,313
------------
(a) PROCESS INDUSTRIES
ECO Soil Systems Inc. .................................................. 250,000 500,000
------------
PRODUCER MANUFACTURING .7%
Avery Dennison Corp. ................................................... 200,000 13,125,000
(a) Simpson Manufacturing Co. Inc. ......................................... 75,000 3,393,750
------------
16,518,750
------------
REAL ESTATE 4.0%
Alexandria Real Estate Equities Inc. ................................... 225,000 7,200,000
AMB Property Corp. ..................................................... 450,000 9,928,125
Arden Realty Inc. ...................................................... 550,000 12,237,500
(a) Catellus Development Corp. ............................................. 525,000 6,825,000
Essex Property Trust Inc. .............................................. 475,000 18,346,875
Health Care Property Investors Inc. .................................... 600,000 16,725,000
Spieker Properties Inc. ................................................ 650,000 28,803,125
------------
100,065,625
------------
RETAIL TRADE 3.4%
(a) Cost Plus Inc. ......................................................... 187,500 5,730,469
(a) Costco Wholesale Corp. ................................................. 250,000 13,515,625
GAP Inc. ............................................................... 900,000 33,075,000
(a) Safeway Inc. ........................................................... 750,000 33,093,750
------------
85,414,844
------------
(a) TECHNOLOGY SERVICES 18.7%
Actuate Corp. .......................................................... 150,000 4,490,625
Agile Software Corp. ................................................... 175,000 6,485,938
Ariba Inc. ............................................................. 75,000 5,564,063
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN CALIFORNIA GROWTH FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
(a) TECHNOLOGY SERVICES (CONT.)
Brio Technology Inc. ..................................................... 300,000 $ 7,425,000
BroadVision Inc. ......................................................... 650,000 28,559,375
Commerce One Inc. ........................................................ 100,000 6,106,250
Computer Sciences Corp. .................................................. 250,000 20,390,625
CyberSource Corp. ........................................................ 200,000 3,025,000
eGain Communications Corp. ............................................... 125,000 2,078,125
Embarcadero Technologies Inc. ............................................ 38,200 573,000
Exodus Communications Inc. ............................................... 225,000 19,898,438
HNC Software Inc. ........................................................ 275,000 13,612,500
Infonet Services Corp., B ................................................ 350,000 5,906,250
Intuit Inc. .............................................................. 375,000 13,476,563
Kana Communications Inc. ................................................. 75,000 3,192,188
Legato Systems Inc. ...................................................... 150,000 1,940,625
Liberate Technologies Inc. ............................................... 300,000 11,737,500
Mercury Interactive Corp. ................................................ 125,000 11,250,000
Micromuse Inc. ........................................................... 280,000 27,475,000
OnDisplay Inc. ........................................................... 5,600 316,400
Oracle Corp. ............................................................. 800,000 63,950,000
Peregrine Systems Inc. ................................................... 300,000 7,218,750
Selectica Inc. ........................................................... 4,800 182,400
Siebel Systems Inc. ...................................................... 450,000 55,293,750
SonicWALL Inc. ........................................................... 84,400 5,106,200
TIBCO Software Inc. ...................................................... 75,000 6,679,677
Tumbleweed Communications Corp. .......................................... 50,000 1,525,000
VeriSign Inc. ............................................................ 125,000 17,421,875
VERITAS Software Corp. ................................................... 750,000 80,449,219
Versata Inc. ............................................................. 25,000 759,375
Vitria Technology Inc. ................................................... 150,000 5,540,625
Websense Inc. ............................................................ 6,600 214,500
Yahoo! Inc. .............................................................. 250,000 32,562,500
-------------
470,407,336
-------------
TELECOMMUNICATIONS .9%
(a) Covad Communications Group Inc. .......................................... 225,000 6,243,750
(a) Efficient Networks Inc. .................................................. 143,700 9,448,275
Vodafone AirTouch PLC, ADR (United Kingdom) .............................. 175,000 8,225,000
-------------
23,917,025
-------------
TRANSPORTATION .5%
Expeditors International of Washington Inc. .............................. 300,000 12,825,000
-------------
UTILITIES .4%
American States Water Co. ................................................ 165,000 4,970,625
California Water Service Group ........................................... 180,000 4,196,250
-------------
9,166,825
-------------
TOTAL COMMON STOCKS (COST $1,277,552,541) ................................ 2,211,509,447
-------------
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN CALIFORNIA GROWTH FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a),(e) CONVERTIBLE PREFERRED STOCKS .2%
Electronic Technology .2%
Anda Networks Inc., cvt. pfd. D .................................................. 145,772 $2,000,006
Kestrel Solutions Inc., cvt. pfd. D .............................................. 124,712 1,624,997
----------
3,625,003
----------
PROCESS INDUSTRIES
(e) Encommerce, cvt. pfd ............................................................. 105,708 999,998
----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $4,624,996) ............................. 4,625,001
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------
<S> <C> <C>
CONVERTIBLE BONDS 1.2%
ELECTRONIC TECHNOLOGY .4%
Redback Networks Inc., cvt., 144A, 5.00%, 4/01/07 ............................ $ 14,500,000 10,276,875
-------------
TECHNOLOGY SERVICES .8%
BEA Systems Inc., cvt., 144A, 4.00%, 12/15/06 ................................ 13,000,000 20,020,000
-------------
TOTAL CONVERTIBLE BONDS (COST $27,485,285) ................................... 30,296,875
-------------
TOTAL LONG TERM INVESTMENTS (COST $1,309,662,822) ............................ 2,246,431,323
-------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
-----------
<S> <C> <C>
SHORT TERM INVESTMENTS 10.5%
(d) Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $263,858,274) ........ 263,858,274 263,858,274
--------------
TOTAL INVESTMENTS (COST $1,573,521,096) 99.7% .............................................. 2,510,289,597
OTHER ASSETS, LESS LIABILITIES .3% ......................................................... 7,726,658
--------------
NET ASSETS 100.0% .......................................................................... $2,518,016,255
==============
</TABLE>
(a) Non-income producing.
(d) See Note 3 regarding investment in the "Sweep Money Fund."
(e) See Note 6 regarding restricted securities.
(f) See Note 7 regarding holdings of 5% voting securities.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
FRANKLIN LARGE CAP GROWTH FUND
CLASS A
-----------------
APRIL 30, 2000(d)
-----------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ....................... $ 10.00
----------
Income from investment operations:
Net investment loss(a) .................................... (.06)
Net realized and unrealized gains ......................... 4.91
----------
Total from investment operations ........................... 4.85
----------
Less distributions from net investment income .............. --(e)
----------
Net asset value, end of period ............................. $ 14.85
==========
Total return(b) ............................................ 48.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .......................... $ 39,402
Ratios to average net assets:
Expenses .................................................. 1.23%(c)
Expenses excluding waiver and payments by affiliate ....... 1.39%(c)
Net investment loss ....................................... (.46)%(c)
Portfolio turnover rate .................................... 93.95%
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period June 7, 1999 (effective date) to April 30, 2000.
(e) Includes distributions of net investment income in the amount of $.008.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN LARGE CAP GROWTH FUND (CONT.)
<TABLE>
<CAPTION>
CLASS B
---------------
APRIL 30, 2000(d)
---------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................... $ 10.00
---------
Income from investment operations:
Net investment loss(a) ....................................... (.13)
Net realized and unrealized gains ............................ 4.90
---------
Total from investment operations .............................. 4.77
---------
Net asset value, end of period ................................ $ 14.77
=========
Total return(b) ............................................... 47.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................. $ 4,502
Ratios to average net assets:
Expenses ..................................................... 1.84%(c)
Expenses excluding waiver and payments by affiliate .......... 2.00%(c)
Net investment loss .......................................... (1.06)%(c)
Portfolio turnover rate ....................................... 93.95%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect contingent deferred sales charge, and is not
annualized for periods less than one year.
(c) Annualized
(d) For the period June 7, 1999 (effective date) to April 30, 2000.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN LARGE CAP GROWTH FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
---------------
APRIL 30, 2000(d)
---------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................... $ 10.00
---------
Income from investment operations:
Net investment loss(a) ...................................... (.14)
Net realized and unrealized gains ........................... 4.91
---------
Total from investment operations ............................. 4.77
---------
Net asset value, end of period ............................... $ 14.77
=========
Total return(b) .............................................. 47.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................ $ 35,345
Ratios to average net assets:
Expenses .................................................... 1.90%(c)
Expenses excluding waiver and payments by affiliate ......... 2.06%(c)
Net investment loss ......................................... (1.13)%(c)
Portfolio turnover rate ...................................... 93.95%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period June 7, 1999 (effective date) to April 30, 2000.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN LARGE CAP GROWTH FUND (CONT.)
<TABLE>
<CAPTION>
ADVISOR CLASS
-----------------
APRIL 30, 2000(d)
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................... $ 10.00
----------
Income from investment operations:
Net investment loss(a) ...................................... (.01)
Net realized and unrealized gains ........................... 4.91
----------
Total from investment operations ............................. 4.90
----------
Less distributions from net investment income ................ (.02)
----------
Net asset value, end of period ............................... $ 14.88
==========
Total return(b) .............................................. 49.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................ $ 19,902
Ratios to average net assets:
Expenses .................................................... .90%(c)
Expenses excluding waiver and payments by affiliate ......... 1.06%(c)
Net investment loss ......................................... (.06)%(c)
Portfolio turnover rate ...................................... 93.95%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return is not annualized for periods less than one year.
(c) Annualized
(d) For the period June 7, 1999 (effective date) to April 30, 2000.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP GROWTH FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 90.2%
CONSUMER NON-DURABLES .3%
Estee Lauder Cos. Inc., A ................................................ 6,400 $ 282,400
-----------
CONSUMER SERVICES 2.7%
(a) Clear Channel Communications Inc. ........................................ 10,500 756,000
(a) Comcast Corp., A ......................................................... 16,700 669,044
(a) eBay Inc. ................................................................ 2,400 382,050
Time Warner Inc. ......................................................... 7,500 674,531
(a) Viacom Inc., B ........................................................... 4,100 222,938
-----------
2,704,563
-----------
ELECTRONIC TECHNOLOGY 36.1%
(a) Apple Computer Inc. ...................................................... 4,100 508,656
(a) Applied Materials Inc. ................................................... 12,600 1,282,838
(a) Applied Micro Circuits Corp. ............................................. 6,000 773,250
(a) CIENA Corp. .............................................................. 18,300 2,262,338
(a) Cisco Systems Inc. ....................................................... 49,700 3,445,608
(a) Comverse Technology Inc. ................................................. 20,000 1,783,750
Corning Inc. ............................................................. 7,700 1,520,750
(a) EMC Corp. ................................................................ 15,500 2,153,531
(a) Infineon Technologies AG, ADR (Germany) .................................. 11,700 794,138
Intel Corp. .............................................................. 13,100 1,661,244
International Business Machines Corp. .................................... 12,700 1,417,638
(a) JDS Uniphase Corp. ....................................................... 18,600 1,928,588
(a) Juniper Networks Inc. .................................................... 9,400 1,999,263
Motorola Inc. ............................................................ 4,272 508,635
(a) Network Appliance Inc. ................................................... 7,400 547,138
Nokia Corp., ADR (Finland) ............................................... 38,400 2,184,000
Nortel Networks Corp. (Canada) ........................................... 19,500 2,208,375
(a) PMC-Sierra Inc. (Canada) ................................................. 8,200 1,573,375
(a) QUALCOMM Inc. ............................................................ 1,400 151,813
(a) SDL Inc. ................................................................. 14,300 2,788,500
(a) Sun Microsystems Inc. .................................................... 22,800 2,096,175
Texas Instruments Inc. ................................................... 5,400 879,525
(a) Xilinx Inc. .............................................................. 17,400 1,274,550
-----------
35,743,678
-----------
FINANCE 3.3%
Capital One Financial Corp. .............................................. 6,400 280,000
Charles Schwab Corp. ..................................................... 20,000 890,000
Citigroup Inc. ........................................................... 35,400 2,104,088
-----------
3,274,088
-----------
HEALTH TECHNOLOGY 10.8%
(a) Amgen Inc. ............................................................... 19,100 1,069,600
Baxter International Inc. ................................................ 25,700 1,673,713
Bristol-Myers Squibb Co. ................................................. 30,800 1,615,075
(a) Genentech Inc. ........................................................... 6,900 807,300
(a) MedImmune Inc. ........................................................... 5,000 799,688
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP GROWTH FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
HEALTH TECHNOLOGY (CONT.)
Medtronic Inc. ........................................................... 13,000 $ 675,188
PE Corp.-PE Biosystems Group ............................................. 10,800 648,000
Schering-Plough Corp. .................................................... 38,100 1,535,906
Warner-Lambert Co. ....................................................... 16,200 1,843,763
-----------
10,668,233
-----------
INDUSTRIAL SERVICES 1.8%
(a) AES Corp. ................................................................ 14,400 1,295,100
Transocean Sedco Forex Inc. .............................................. 10,000 470,000
-----------
1,765,100
-----------
PROCESS INDUSTRIES 2.9%
General Electric Co. ..................................................... 18,400 2,893,400
-----------
Producer Manufacturing 2.5%
Honeywell International Inc. ............................................. 21,400 1,198,400
Tyco International Ltd. (Bermuda) ........................................ 28,700 1,318,406
-----------
2,516,806
-----------
RETAIL TRADE 5.7%
(a) Costco Wholesale Corp. ................................................... 24,100 1,302,906
Home Depot Inc. .......................................................... 25,750 1,443,609
(a) Kohl's Corp. ............................................................. 12,400 595,200
Target Corp. ............................................................. 13,400 891,938
Wal-Mart Stores Inc. ..................................................... 25,000 1,384,375
-----------
5,618,028
-----------
(a) TECHNOLOGY SERVICES 13.5%
Ariba Inc. ............................................................... 6,800 504,475
BEA Systems Inc. ......................................................... 12,000 579,000
BroadVision Inc. ......................................................... 16,500 724,969
Commerce One Inc. ........................................................ 3,400 207,613
Equant NV, N.Y. shs. (Netherlands) ....................................... 6,200 483,600
Exodus Communications Inc. ............................................... 11,000 972,813
InfoSpace Inc. ........................................................... 13,400 962,288
Inktomi Corp. ............................................................ 6,300 969,806
Microsoft Corp. .......................................................... 15,300 1,067,175
Oracle Corp. ............................................................. 27,200 2,174,300
Siebel Systems Inc. ...................................................... 15,000 1,843,125
VeriSign Inc. ............................................................ 1,800 250,875
VERITAS Software Corp. ................................................... 17,575 1,885,193
Yahoo! Inc. .............................................................. 6,000 781,500
-----------
13,406,732
-----------
TELECOMMUNICATIONS 8.9%
(b) AT&T Corp. ............................................................... 25,200 1,176,525
(a) Global Crossing Ltd. (Bermuda) ........................................... 21,930 690,795
(a) MCI WorldCom Inc. ........................................................ 27,500 1,249,531
(a) Qwest Communications International Inc. .................................. 53,600 2,324,900
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP GROWTH FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
SBC Communications Inc. .................................................................... 31,700 $ 1,388,856
Sprint Corp. (Fon Group) ................................................................... 8,100 498,150
(a) Sprint Corp. (PCS Group) ................................................................... 8,800 484,000
(a) Time Warner Telecom Inc., A ................................................................ 6,900 377,775
(a) VoiceStream Wireless Corp. ................................................................. 7,100 702,900
-----------
8,893,432
-----------
UTILITIES 1.7%
Enron Corp. ................................................................................ 24,500 1,707,337
-----------
TOTAL COMMON STOCKS (COST $77,053,726) ..................................................... 89,473,797
-----------
SHORT TERM INVESTMENTS 8.6%
(d) Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $8,520,092) ............ 8,520,092 8,520,092
-----------
TOTAL INVESTMENTS (COST $85,573,818) 98.8% ................................................. 97,993,889
OTHER ASSETS, LESS LIABILITIES 1.2% ........................................................ 1,155,962
-----------
NET ASSETS 100.0% ............................................................................. $99,149,851
===========
</TABLE>
(a) Non-income producing.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
(d) See Note 3 regarding investment in the "Sweep Money Fund."
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Highlights
FRANKLIN SMALL CAP GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------
YEAR ENDED APRIL 30,
-----------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 24.65 $ 25.93 $ 18.96 $ 19.75 $ 14.90
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .......................... .09 .06 .07 .03 .01
Net realized and unrealized gains (losses) ........ 21.04 (1.02) 7.92 .04 6.23
-----------------------------------------------------------------------------
Total from investment operations ................... 21.13 (.96) 7.99 .07 6.24
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.04) (.14) (.09) (.06) (.01)
Net realized gains ................................ (.26) (.18) (.93) (.80) (1.38)
-----------------------------------------------------------------------------
Total distributions ................................ (.30) (.32) (1.02) (.86) (1.39)
-----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 45.48 $ 24.65 $ 25.93 $ 18.96 $ 19.75
=============================================================================
Total return(b) .................................... 85.97% (3.44)% 43.09% .14% 44.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 11,199,559 $ 4,251,284 $ 3,957,972 $ 1,071,352 $ 444,912
Ratios to average net assets:
Expenses .......................................... .85% .94% .89% .92% .97%
Expenses excluding waiver and payments by affiliate .85% .94% .89% .92% 1.00%
Net investment income ............................. .24% .30% .32% .10% .09%
Portfolio turnover rate ............................ 24.67% 46.73% 42.97% 55.27% 87.92%
</TABLE>
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN SMALL CAP GROWTH FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996(d)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 24.32 $ 25.59 $ 18.78 $ 19.66 $ 17.94
--------------------------------------------------------------------------------
Income from investment operations:
Net investment loss(a) ......................... (.19) (.09) (.02) (.05) (.03)
Net realized and unrealized gains (losses) ..... 20.71 (1.00) 7.76 (.03) 2.71
--------------------------------------------------------------------------------
Total from investment operations ................ 20.52 (1.09) 7.74 (.08) 2.68
--------------------------------------------------------------------------------
Less distributions from net realized gains ...... (.26) (.18) (.93) (.80) (.96)
--------------------------------------------------------------------------------
Net asset value, end of year .................... $ 44.58 $ 24.32 $ 25.59 $ 18.78 $ 19.66
================================================================================
Total return(b) ................................. 84.58% (4.08)% 42.06% (.65)% 15.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 1,667,870 $ 764,715 $ 731,707 $ 146,164 $ 24,102
Ratios to average net assets:
Expenses ....................................... 1.60% 1.69% 1.64% 1.69% 1.76%(c)
Net investment loss ............................ (.52)% (.44)% (.42)% (.70)% (.69)%(c)
Portfolio turnover rate ......................... 24.67% 46.73% 42.97% 55.27% 87.92%
</TABLE>
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period October 1, 1995 (effective date) to April 30, 1996.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN SMALL CAP GROWTH FUND (CONT.)
<TABLE>
<CAPTION>
ADVISOR CLASS
-----------------------------------------------------------------------
YEAR ENDED APRIL 30,
-----------------------------------------------------------------------
2000 1999 1998 1997(d)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 24.73 $ 26.01 $ 18.97 $ 20.48
-----------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ............................. .18 .10 .09 .01
Net realized and unrealized gains (losses) ........... 21.15 (1.00) 8.01 (1.52)
-----------------------------------------------------------------------
Total from investment operations ...................... 21.33 (.90) 8.10 (1.51)
-----------------------------------------------------------------------
Less distributions from:
Net investment income ................................ (.06) (.20) (.13) --
Net realized gains ................................... (.26) (.18) (.93) --
-----------------------------------------------------------------------
Total distributions ................................... (.32) (.38) (1.06) --
-----------------------------------------------------------------------
Net asset value, end of year .......................... $ 45.74 $ 24.73 $ 26.01 $ 18.97
=======================================================================
Total return(b) ....................................... 86.43% (3.12)% 43.68% (7.37)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 436,864 $ 168,055 $ 118,683 $ 18,777
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................. .60% .69% .64% .69%c
Net investment income ................................ .49% .56% .58% .30%c
Portfolio turnover rate ............................... 24.67% 46.73% 42.97% 55.27%
</TABLE>
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return is not annualized for periods less than one year.
(c) Annualized
(d) For the period January 2, 1997 (effective date) to April 30, 1997.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP GROWTH FUND RIGHTS VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS 80.1%
(a) COMMERCIAL SERVICES 1.2%
Aether Systems Inc. ................................................ 85,000 $ 14,151,172
AnswerThink Consulting Group Inc. .................................. 661,600 12,735,800
Avenue A Inc. ...................................................... 19,300 612,775
Careerbuilder Inc. ................................................. 689,200 1,981,450
Corporate Executive Board Co. ...................................... 229,900 13,506,625
DigitalThink Inc. .................................................. 377,600 7,599,200
Exchange Applications Inc. ......................................... 200,000 2,437,500
GetThere.com Inc. .................................................. 84,900 854,306
Hotjobs.com Ltd. ................................................... 697,900 8,113,088
(f) Interep National Radio Sales Inc. .................................. 489,100 2,812,325
Internet Pictures Corp. ............................................ 187,553 2,953,960
Management Network Group Inc. ...................................... 35,200 624,800
Metamor Worldwide Inc. ............................................. 273,600 5,301,000
Netcentives Inc. ................................................... 90,600 922,988
NetRatings Inc. .................................................... 17,500 463,750
NOVA Corp. ......................................................... 888,800 28,108,300
Probusiness Services Inc. .......................................... 592,200 15,619,275
RemedyTemp Inc., A ................................................. 319,300 6,326,131
(f) SOS Staffing Services Inc. ......................................... 693,900 2,168,438
Stamps.com Inc. .................................................... 653,500 10,456,000
Sylvan Learning Systems Inc. ....................................... 641,100 9,656,569
Ventro Corp. ....................................................... 178,200 4,900,500
Wink Communications Inc. ........................................... 41,300 815,675
------------
153,121,627
------------
CONSUMER DURABLES .4%
Callaway Golf Co. .................................................. 1,000,000 16,625,000
Centex Corp. ....................................................... 1,185,200 28,592,950
D.R. Horton Inc. ................................................... 350,900 4,539,769
(a) Intranet Solutions Inc. ............................................ 167,600 3,729,100
------------
53,486,819
------------
CONSUMER NON-DURABLES .3%
(a) Sola International Inc. ............................................ 261,700 1,177,650
(a) Tommy Hilfiger Corp. ............................................... 2,997,800 26,418,113
Wolverine World Wide Inc. .......................................... 1,575,500 18,906,000
------------
46,501,763
------------
CONSUMER SERVICES 2.2%
(a) Acme Communications Inc. ........................................... 524,800 12,070,400
(a) Artistdirect Inc. .................................................. 379,200 1,801,200
(a),(f) Classic Communications Inc., A ..................................... 590,900 7,164,663
(a) Cumulus Media Inc., A .............................................. 1,181,800 15,511,125
(a) DeVry Inc. ......................................................... 1,064,800 25,355,550
(a) E-Stamp Corp. ...................................................... 95,400 417,375
(a) Homestore.com Inc. ................................................. 11,000 200,750
(a),(f) Insight Communications Co. Inc., A ................................. 4,090,800 83,350,050
(a) Jack in the Box Inc. ............................................... 1,299,700 31,842,650
</TABLE>
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STATEMENT OF INVESTMENTS, APRIL 30, 2000 (cont.)
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COMMON STOCKS AND RIGHTS (cont.)
CONSUMER SERVICES (cont.)
(a) Lastminute.com PLC, ADR (United Kingdom) ................................. 14,500 $ 239,250
(a) Martha Stewart Living Omnimedia Inc., A .................................. 66,400 946,200
(a) Mediacom Communications Corp., A ......................................... 94,300 1,166,963
(a) MeriStar Hotels & Resorts Inc. ........................................... 1,330,000 3,823,750
(a) NDS Group PLC, ADR (United Kingdom) ...................................... 45,100 2,548,150
(a) Quokka Sports Inc. ....................................................... 443,600 2,550,700
(a) Quotesmith.com Inc. ...................................................... 591,700 2,033,969
(a) Radio One Inc. ........................................................... 281,200 16,309,600
(a) SFX Entertainment Inc. ................................................... 1,021,350 42,513,694
Sotheby's Holdings Inc., A ............................................... 375,000 6,210,938
(a) Spanish Broadcasting Systems Inc. ........................................ 358,300 6,695,731
(a) TiVo Inc. ................................................................ 273,200 4,883,450
(a) Vail Resorts Inc. ........................................................ 276,000 4,450,500
(a) XM Satellite Radio Holdings Inc. ......................................... 455,900 13,135,619
------------
285,222,277
------------
ELECTRONIC TECHNOLOGY 27.9%
(a) Advanced Energy Industries Inc. .......................................... 876,600 60,485,400
(a) Aeroflex Inc. ............................................................ 283,300 10,552,925
(a) Airnet Communications Corp. .............................................. 39,200 695,800
(a) Alpha Industries Inc. .................................................... 584,200 30,378,400
(a) Alteon Websystems Inc. ................................................... 28,100 1,910,800
(a) Altigen Communications Inc. .............................................. 136,600 1,203,788
(a) Anaren Microwave Inc. .................................................... 155,600 16,182,400
(a) ANTEC Corp. .............................................................. 94,200 5,063,250
(a) Apex Inc. ................................................................ 488,800 14,450,150
(a) Applied Materials Inc. ................................................... 848,892 86,427,817
(a) Applied Science & Technology Inc. ........................................ 378,300 10,285,031
(a) ArrowPoint Communications Inc. ........................................... 9,200 901,600
ASM Pacific Technology Ltd. (Hong Kong) .................................. 500,000 1,771,684
(a) Audiovox Corp., A ........................................................ 406,800 13,958,325
(a) AVT Corp. ................................................................ 1,256,200 13,896,713
(a) BreezeCom Ltd. (Israel) .................................................. 48,500 1,333,750
(a) Brocade Communications Systems Inc. ...................................... 98,800 12,251,200
(a) Carrier Access Corp. ..................................................... 375,700 16,389,913
(a),(f) Catapult Communications Corp. ............................................ 656,800 5,459,650
(a) C-COR.net Corp. .......................................................... 443,400 17,348,025
(a) Celeritek Inc. ........................................................... 305,900 18,201,050
(a),(f) Coherent Inc. ............................................................ 1,763,400 101,946,563
(a) Com21 Inc. ............................................................... 557,600 15,612,800
(a) Copper Mountain Networks Inc. ............................................ 35,600 2,968,150
CTS Corp. ................................................................ 341,700 21,548,456
(a) CVC Inc. ................................................................. 248,100 6,528,131
(a) Cymer Inc. ............................................................... 200,000 7,812,500
(a) DDi Corp. ................................................................ 1,322,200 19,833,000
(a) Digital Microwave Corp. .................................................. 959,000 35,423,063
(a) Ditech Communications Corp. .............................................. 493,000 42,274,750
(a) Electro Scientific Industries Inc. ....................................... 1,038,800 65,509,325
</TABLE>
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STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
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COMMON STOCKS AND RIGHTS (CONT.)
ELECTRONIC TECHNOLOGY (CONT.)
(a),(e) eMachines Inc. ............................................................... 1,378,446 $ 10,622,649
(a) eMachines Inc. ............................................................... 885,500 7,582,094
(a) EMCORE Corp. ................................................................. 516,800 44,832,400
(a) Exar Corp. ................................................................... 108,450 8,694,640
(a) Fargo Electronics Inc. ....................................................... 159,100 1,610,888
(a) Flextronics International Ltd. (Singapore) ................................... 1,927,815 135,429,004
(a),(f) FLIR Systems Inc. ............................................................ 1,028,600 7,585,925
(a) Foundry Networks Inc. ........................................................ 81,200 7,389,200
(a) FVC.COM Inc. ................................................................. 400,000 2,400,000
(a) Gemstar International Group Ltd. ............................................. 2,258,400 104,451,000
(a) Harmonic Inc. ................................................................ 463,400 34,204,713
(a) Immersion Corp. .............................................................. 57,900 2,084,400
(a) Integral Systems Inc. ........................................................ 360,000 7,020,000
(a) Integrated Silicon Solution Inc. ............................................. 386,200 11,803,238
(a) Interlink Electronics Inc. ................................................... 150,000 4,500,000
(a) Interspeed Inc. .............................................................. 35,300 450,075
(a) InterWAVE Communications International Ltd. (Bermuda) ........................ 244,500 3,254,906
(a),(f) Itron Inc. ................................................................... 1,118,300 6,430,225
(a) Jabil Circuit Inc. ........................................................... 1,400,000 57,312,500
(a) JDS Uniphase Corp. ........................................................... 6,804,824 705,575,189
(a) Juniper Networks Inc. ........................................................ 23,700 5,040,694
(a),(f) Komag Inc. ................................................................... 3,606,900 10,595,269
(a) Kopin Corp. .................................................................. 90,600 7,015,838
(a) Latitude Communications Inc. ................................................. 181,700 2,634,650
(a) Lattice Semiconductor Corp. .................................................. 442,000 29,779,750
(a) MCK Communications Inc. ...................................................... 244,600 7,643,750
(a),(f) Mettler-Toledo International Inc. ............................................ 2,758,500 95,168,250
(a) Micrel Inc. .................................................................. 364,200 31,503,300
(a) Mirapoint Inc., 144A ......................................................... 682,128 4,999,998
(a) MMC Networks Inc. ............................................................ 622,600 16,498,900
(a) Nanometrics Inc. ............................................................. 392,100 15,046,838
(a) Natural MicroSystems Corp. ................................................... 364,200 23,718,525
(a) Netopia Inc. ................................................................. 256,100 10,692,175
(a) Netro Corp. .................................................................. 162,400 7,003,500
(f) Newport Corp. ................................................................ 512,500 62,172,656
(a) NICE Systems Ltd., ADR (Israel) .............................................. 180,400 11,804,925
(a) Novellus Systems Inc. ........................................................ 918,300 61,239,131
(a) Numerical Technologies Inc. .................................................. 451,800 18,862,650
(a) Paradyne Networks Inc. ....................................................... 395,500 11,148,156
(a) P-Com Inc. ................................................................... 188,800 2,041,400
(a) PC-Tel Inc. .................................................................. 411,100 13,771,850
(a),(f) Perceptron Inc. .............................................................. 722,000 3,249,000
Perkinelmer Inc. ............................................................. 400,000 21,900,000
(a) Photronics Inc. .............................................................. 587,500 19,571,094
(a) Pinnacle Systems Inc. ........................................................ 454,200 10,900,800
(a) PLX Technology Inc. .......................................................... 200,000 6,587,500
(a) PMC-Sierra Inc. (Canada) ..................................................... 3,461,200 664,117,750
(a) Polycom Inc. ................................................................. 631,700 49,983,263
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STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
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COMMON STOCKS AND RIGHTS (CONT.)
ELECTRONIC TECHNOLOGY (CONT.)
(a) Power Integrations Inc. .............................................. 1,300,000 $ 29,575,000
(a) Powerwave Technologies Inc. .......................................... 200,000 41,612,500
(a) Proxim Inc. .......................................................... 136,800 10,525,050
(a) PSI Technologies Holdings Inc., ADR (Philippines) .................... 235,400 3,884,100
(a) Quantum Effect Devices Inc. .......................................... 23,800 1,386,350
(a) QuickLogic Corp. ..................................................... 395,600 11,620,750
(a) Radiant Systems Inc. ................................................. 282,600 5,263,425
(a) Radvision Ltd. (Israel) .............................................. 43,200 1,652,400
(a),(f) RSA Security Inc. .................................................... 2,220,000 130,286,250
(a) Sanmina Corp. ........................................................ 646,400 38,824,400
(a) Semtech Corp. ........................................................ 195,600 13,337,475
(a) Silicon Laboratories Inc. ............................................ 37,000 3,219,000
(a) Synopsys Inc. ........................................................ 1,325,000 55,650,000
(a) Tekelec .............................................................. 1,823,300 63,815,500
(a) Telaxis Communications Corp. ......................................... 12,200 319,488
(a) Therma-Wave Inc. ..................................................... 77,100 2,120,250
(a) Triquint Semiconductor Inc. .......................................... 171,400 17,622,063
(a) Varian Inc. .......................................................... 1,094,400 39,808,800
(a) Varian Semiconductor Equipment Associates Inc. ....................... 50,000 3,362,500
(a) Veeco Instruments Inc. ............................................... 314,900 19,563,163
(a) Visual Networks Inc. ................................................. 286,600 11,177,400
(a) Waters Corp. ......................................................... 1,239,600 117,452,100
(a) Westell Technologies Inc., A ......................................... 695,260 19,771,456
(a) Western Digital Corp. ................................................ 1,987,822 13,790,515
(a) Xircom Inc. .......................................................... 283,500 11,180,531
--------------
3,713,349,533
--------------
ENERGY MINERALS 2.2%
(a),(f) Barrett Resources Corp. .............................................. 1,860,900 59,083,575
(a),(f) Basin Exploration Inc. ............................................... 1,425,200 19,952,800
(a) Chesapeake Energy Corp. .............................................. 2,076,900 7,788,375
(a) Denbury Resources Inc. ............................................... 1,553,000 6,017,875
(a) Forest Oil Corp. ..................................................... 798,800 8,936,575
(a),(f) Newfield Exploration Co. ............................................. 2,138,600 86,880,625
(a),(f) Nuevo Energy Co. ..................................................... 1,075,500 18,821,250
(a),(f) Pennaco Energy Inc. .................................................. 1,704,500 25,460,969
(f) Range Resources Corp. ................................................ 2,896,900 4,345,350
(a) Santa Fe Snyder Corp. ................................................ 1,000,400 9,191,175
(a) Titan Exploration Inc. ............................................... 1,553,700 7,768,500
(a),(f) Tom Brown Inc. ....................................................... 1,944,800 36,951,200
--------------
291,198,269
--------------
FINANCE 4.3%
(a) Affiliated Managers Group Inc. ....................................... 903,400 36,248,925
Allied Capital Corp. ................................................. 1,678,300 31,363,231
(a) AmeriCredit Corp. .................................................... 275,000 5,139,063
Bank United Corp., A ................................................. 1,000,000 33,187,500
Commerce Bancorp Inc. ................................................ 365,400 14,501,813
</TABLE>
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STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
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FINANCE (CONT.)
(a) eSPEED Inc., A ........................................................... 158,800 $ 7,503,300
Federated Investors Inc., B .............................................. 2,255,600 63,720,700
Financial Security Assurance Holdings Ltd. ............................... 1,069,300 78,927,706
(a) Golden State Bancorp Inc. ................................................ 2,000,000 30,750,000
Greater Bay Bancorp Inc., 144A ........................................... 201,200 7,912,583
HCC Insurance Holdings Inc. .............................................. 724,300 8,510,525
(a) Knight/Trimark Group Inc., A ............................................. 415,900 15,674,231
(a) Labranche & Co. Inc. ..................................................... 1,347,600 16,086,975
Metris Cos. Inc. ......................................................... 439,700 16,488,750
(a) Mortgage.com Inc. ........................................................ 463,900 898,806
Mutual Risk Management Ltd. (Bermuda) .................................... 950,200 14,906,263(
(a) National Discount Brokers Group Inc. ..................................... 297,300 8,677,444
Protective Life Corp. .................................................... 253,300 6,031,706
Radian Group Inc. ........................................................ 578,897 29,487,566
Reinsurance Group of America Inc. ........................................ 1,681,600 41,829,800
(a) Risk Capital Holdings Inc. ............................................... 410,500 6,317,852
(a),(f) Silicon Valley Bancshares ............................................ 1,351,100 83,430,425
Tucker Anthony Sutro Corp. ............................................... 396,800 6,646,400
Westamerica Bancorp ...................................................... 179,200 4,491,200
------------
568,732,764
------------
(a) HEALTH SERVICES .6%
American Dental Partners Inc. ............................................ 266,200 2,029,775
Beverly Enterprises Inc. ................................................. 2,131,800 7,194,825
eBenX Inc. ............................................................... 53,400 876,928
Neoforma.com Inc. ........................................................ 38,300 258,525
Oxford Health Plans Inc. ................................................. 500,000 9,500,000
PAREXEL International Corp. .............................................. 1,000,000 9,000,000
(f) Pharmaceutical Product Development Inc. .................................. 1,300,000 21,856,250
Renal Care Group Inc. .................................................... 1,303,800 29,091,038
SciQuest.com Inc. ........................................................ 83,200 1,081,600
Total Renal Care Holdings Inc. ........................................... 44,500 127,938
------------
81,016,879
------------
(a) HEALTH TECHNOLOGY 2.9%
Abgenix Inc. ............................................................. 400,000 35,825,000
Alexion Pharmaceuticals Inc. ............................................. 349,800 15,609,825
Cima Laboratories Inc., 144A ............................................. 600,000 7,980,000
Collateral Therapeutics Inc. ............................................. 312,000 7,644,000
Epoch Pharmaceuticals Inc. ............................................... 678,800 5,769,800
Heska Corp. .............................................................. 575,300 1,582,075
ImClone Systems Inc. ..................................................... 112,600 10,246,600
INAMED Corp. ............................................................. 361,400 14,952,925
(f) Inhale Therapeutic Systems Inc. .......................................... 1,875,866 116,069,147
Intermune Pharmaceuticals Inc. ........................................... 111,800 1,928,550
Luminex Corp. ............................................................ 299,400 5,576,325
Packard BioScience Co. ................................................... 2,052,900 24,506,494
(f) Serologicals Corp. ....................................................... 2,022,700 7,332,288
</TABLE>
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STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
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COMMON STOCKS AND RIGHTS (CONT.)
(a) HEALTH TECHNOLOGY (CONT.)
SkyePharma PLC, ADR (United Kingdom) ................................... 281,695 $ 4,507,123
SonoSite Inc. .......................................................... 17,800 586,288
Summit Technology Inc. ................................................. 1,246,000 11,058,250
Texas Biotechnology Corp. .............................................. 944,600 11,571,350
Thoratec Laboratories Corp. ............................................ 471,900 5,013,938
Varian Medical Systems Inc. ............................................ 751,600 30,064,000
Ventana Medical ........................................................ 300,000 8,456,250
(f) Visible Genetics Inc. (Canada) ......................................... 943,700 34,621,994
Wesley Jessen Visioncare Inc. .......................................... 651,600 25,656,750
Zoll Medical Corp. ..................................................... 94,300 4,166,881
Zonagen Inc. ........................................................... 249,600 1,201,200
------------
391,927,053
------------
(a) INDUSTRIAL SERVICES 3.1%
(f) Atwood Oceanics Inc. ................................................... 1,216,600 73,756,375
(f) Catalytica Inc. ........................................................ 1,965,733 21,868,780
(f) Core Laboratories NV (Netherlands) ..................................... 1,632,400 46,319,350
Dycom Industries Inc. .................................................. 436,200 22,682,400
(f) Grey Wolf Inc. ......................................................... 11,329,800 46,027,313
Marine Drilling Cos. Inc. .............................................. 1,697,700 44,140,200
Pride International Inc. ............................................... 1,049,700 23,749,463
Rowan Cos. Inc. ........................................................ 1,000,000 27,937,500
Tuboscope Inc. ......................................................... 2,000,000 34,750,000
(f) US Liquids Inc. ........................................................ 1,003,400 5,769,550
(f) Varco International Inc. ............................................... 5,162,500 64,531,250
------------
411,532,181
------------
PROCESS INDUSTRIES .5%
(a) Cabot Microelectronics Corp. ........................................... 183,800 5,973,500
Cambrex Corp. .......................................................... 350,000 14,350,000
ChemFirst Inc. ......................................................... 764,900 14,819,938
(a) CUNO Inc. .............................................................. 581,900 15,784,038
(a) Packaging Corp. of America ............................................. 817,100 9,703,063
(a) Symyx Technologies Inc. ................................................ 77,100 2,558,756
------------
63,189,295
------------
PRODUCER MANUFACTURING 1.4%
(a) American Superconductor Corp. .......................................... 145,500 5,556,281
(a) Bolder Technologies Corp. .............................................. 420,000 2,940,000
(a) Cable Design Technologies Corp. ........................................ 300,000 10,275,000
(a) Gentex Corp. ........................................................... 2,076,700 66,973,575
(f) Gibraltar Steel Corp. .................................................. 1,012,800 17,470,800
(a) Power-One Inc. ......................................................... 196,900 13,438,425
Reliance Steel & Aluminum Co. .......................................... 1,345,000 30,935,000
Roper Industries Inc. .................................................. 1,033,800 32,564,700
(a) Tower Automotive Inc. .................................................. 681,200 10,643,750
------------
190,797,531
------------
</TABLE>
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STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
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COMMON STOCKS AND RIGHTS (CONT.)
REAL ESTATE 2.6%
Alexandria Real Estate Equities Inc. ................................... 345,500 $ 11,056,000
Arden Realty Inc. ...................................................... 1,512,600 33,655,350
Brandywine Realty Trust ................................................ 585,600 10,174,800
Camden Property Trust .................................................. 1,200,000 34,050,000
(a) Catellus Development Corp. ............................................. 549,100 7,138,300
CBL & Associates Properties Inc. ....................................... 229,900 5,388,281
Colonial Properties Trust .............................................. 273,400 6,817,913
Developers Diversified Realty Corp. .................................... 977,200 14,841,225
FelCor Lodging Trust Inc. .............................................. 687,300 13,488,263
General Growth Properties Inc. ......................................... 1,356,400 44,591,650
Glenborough Realty Trust Inc. .......................................... 818,900 12,078,775
Health Care Property Investors Inc. .................................... 881,100 24,560,663
Healthcare Realty Trust Inc. ........................................... 285,600 5,140,800
(f) Innkeepers USA Trust ................................................... 2,102,800 18,925,200
Liberty Property Trust ................................................. 319,500 7,907,625
MeriStar Hospitality Corp. ............................................. 2,330,000 46,017,500
Reckson Associates Realty Corp. ........................................ 1,462,300 29,337,394
SL Green Realty Corp. .................................................. 816,800 20,981,550
(a) Urban Shopping Centers Inc. ............................................ 141,300 4,556,925
------------
350,708,214
------------
(a) RETAIL TRADE .2%
Drugstore.com Inc. ..................................................... 850,000 6,640,625
HomeGrocer.com ......................................................... 3,683,500 18,417,500
MotherNature.com Inc. .................................................. 8,900 23,363
PlanetRx.com Inc. ...................................................... 78,400 245,000
VarsityBooks.com Inc. .................................................. 295,900 748,997
------------
26,075,485
------------
(a) TECHNOLOGY SERVICES 23.1%
About.com Inc. ......................................................... 307,800 10,561,388
Accrue Software Inc. ................................................... 399,000 9,501,188
Active Software Inc. ................................................... 468,200 18,874,313
Actuate Corp. .......................................................... 600,000 17,962,500
Affiliated Computer Services Inc., A ................................... 1,862,300 61,688,688
AGENCY.COM Inc. ........................................................ 22,100 465,481
Akamai Technologies Inc. ............................................... 119,140 11,779,968
Allaire Corp. .......................................................... 252,600 13,908,788
Appnet Inc. ............................................................ 600,300 14,407,200
Art Technology Group Inc. .............................................. 260,000 15,795,000
Aspect Communications Corp. ............................................ 1,065,000 37,807,500
Backweb Technologies Ltd. .............................................. 20,000 468,750
BEA Systems Inc. ....................................................... 7,292,800 351,877,600
Bindview Development Corp. ............................................. 1,630,000 13,141,875
Blaze Software Inc. .................................................... 40,200 520,088
Brightpoint Inc. ....................................................... 555,700 6,564,206
Brio Technology Inc. ................................................... 670,800 16,602,300
BroadVision Inc. ....................................................... 4,422,600 194,317,988
</TABLE>
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STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
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COMMON STOCKS AND RIGHTS (CONT.)
(a) TECHNOLOGY SERVICES (CONT.)
Caminus Corp. .............................................................. 49,400 $ 737,913
Check Point Software Technologies Ltd. (Israel) ............................ 583,000 100,859,000
Citrix Systems Inc. ........................................................ 800,000 48,850,000
(f) Clarus Corp. ............................................................... 974,000 39,142,625
Commerce One Inc. .......................................................... 246,000 15,021,375
Complete Business Solutions Inc. ........................................... 1,490,900 34,104,338
Concord Communications Inc. ................................................ 450,000 12,600,000
CyberSource Corp. .......................................................... 976,500 14,769,563
Cysive Inc. ................................................................ 410,800 22,362,925
Data Return Corp. .......................................................... 44,800 1,100,400
Deltek Systems Inc. ........................................................ 160,500 1,956,094
Digex Inc. ................................................................. 91,900 7,168,200
Digimarc Corp. ............................................................. 11,600 267,525
Digital Insight Corp. ...................................................... 38,400 1,502,400
Digital Island Inc. ........................................................ 276,800 9,653,400
Digitas Inc. ............................................................... 345,800 5,338,288
Documentum Inc. ............................................................ 500,000 29,500,000
eGain Communications Corp. ................................................. 74,800 1,243,550
Embarcadero Technologies Inc. .............................................. 198,600 2,979,000
Entrust Technologies Inc. .................................................. 1,307,200 64,216,200
Eprise Corp. ............................................................... 40,200 399,488
Etinuum Inc. ............................................................... 9,400 54,638
Exodus Communications Inc. ................................................. 332,000 29,361,250
F5 Networks Inc. ........................................................... 139,600 6,517,575
FairMarket Inc. ............................................................ 55,600 382,250
Firstworld Communications Inc., B .......................................... 149,800 1,788,238
H.T.E. Inc. ................................................................ 609,100 1,180,131
H.T.E. Inc., rts., 5/01/00 ................................................. 609,100 --
HearMe ..................................................................... 98,500 718,742
High Speed Access Corp. .................................................... 175,600 1,404,800
(f) HNC Software Inc. .......................................................... 1,736,200 85,941,900
i2 Technologies Inc. ....................................................... 3,207,800 414,608,150
Inet Technologies Inc. ..................................................... 271,700 11,717,063
Informatica Corp. .......................................................... 44,000 1,845,250
InfoSpace Inc. ............................................................. 100,000 7,181,250
Internap Network Services Corp. ............................................ 105,200 4,050,200
Intertrust Technologies Corp. .............................................. 73,000 1,679,000
Interwoven Inc ............................................................. 31,800 2,202,150
Intuit Inc. ................................................................ 1,366,200 49,097,813
ISS Group Inc. ............................................................. 200,400 18,123,675
ITXC Corp. ................................................................. 172,900 4,635,881
Keane Inc. ................................................................. 525,300 15,168,038
Keynote Systems Inc. ....................................................... 101,600 4,559,300
Legato Systems Inc. ........................................................ 1,032,000 13,351,500
Liberate Technologies Inc. ................................................. 712,000 27,857,000
Lightspan Inc. ............................................................. 424,000 3,524,500
Liquid Audio Inc. .......................................................... 948,900 15,123,094
Loudeye Technologies Inc. .................................................. 23,100 407,138
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP GROWTH FUND RIGHTS VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
(a) TECHNOLOGY SERVICES (CONT.)
Marchfirst Inc. ........................................................ 1,041,500 $ 22,196,969
Matrixone Inc. ......................................................... 10,700 353,100
McAfee.com Corp. ....................................................... 54,100 939,988
Metasolv Software Inc. ................................................. 23,800 812,175
Metron Technology NV ................................................... 56,700 1,183,613
Micromuse Inc. ......................................................... 1,500,400 147,226,750
Mission Critical Software Inc. ......................................... 314,400 11,318,400
N2H2 Inc. .............................................................. 478,000 2,509,500
National Information Consortium Inc. ................................... 272,300 3,369,713
National Instruments Corp. ............................................. 14,200 692,250
(f) Navidec Inc. ........................................................... 666,200 5,621,063
Navisite Inc. .......................................................... 179,600 8,340,175
NBC Internet Inc., A ................................................... 549,100 12,697,938
Netiq Corp. ............................................................ 297,200 10,922,100
NetScout Systems Inc. .................................................. 140,000 2,100,000
Netsolve Inc. .......................................................... 279,500 8,245,250
New Era of Networks Inc. ............................................... 190,600 5,980,075
Nuance Communications Inc. ............................................. 39,400 1,189,388
OnDisplay Inc. ......................................................... 30,900 1,745,850
OpenTV Corp., A ........................................................ 33,100 2,710,063
Predictive Systems Inc. ................................................ 1,010,600 47,624,525
Proxicom Inc. .......................................................... 401,600 13,729,700
Quest Software Inc. .................................................... 40,600 1,530,113
Quintus Corp. .......................................................... 24,100 236,481
Radware Ltd. (Israel) .................................................. 68,800 1,857,600
Rare Medium Group Inc. ................................................. 729,800 15,006,513
Register.com Inc. ...................................................... 57,100 2,912,100
Retek Inc. ............................................................. 96,600 2,076,900
Sapient Corp. .......................................................... 1,036,100 82,046,169
Selectica Inc. ......................................................... 27,200 1,033,600
Serena Software Inc. ................................................... 565,200 12,363,750
Software.com Inc. ...................................................... 167,100 13,514,213
Sonic Foundry Inc. ..................................................... 189,400 8,475,650
SonicWALL Inc. ......................................................... 26,400 1,597,200
StarMedia Network Inc. ................................................. 426,400 9,327,500
Sykes Enterprises Inc. ................................................. 234,900 4,698,000
TenFold Corp. .......................................................... 107,500 2,747,969
Tumbleweed Communications Corp. ........................................ 454,700 13,868,350
U.S. Interactive Inc. .................................................. 342,300 5,690,738
Universal Access Inc. .................................................. 31,700 649,850
Verio Inc. ............................................................. 1,873,200 70,362,075
VERITAS Software Corp. ................................................. 2,482,650 266,303,004
(f) Verity Inc. ............................................................ 1,572,200 50,998,238
Versata Inc. ........................................................... 134,300 4,079,363
Viant Corp. ............................................................ 851,100 19,575,300
Vicinity Corp. ......................................................... 395,200 4,693,000
Vignette Corp. ......................................................... 1,489,200 71,760,825
Vitria Technology Inc. ................................................. 212,400 7,845,525
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP GROWTH FUND RIGHTS VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
(a) TECHNOLOGY SERVICES (CONT.)
Webmethods Inc. ............................................................ 10,200 $ 918,000
Websense Inc. .............................................................. 35,700 1,160,250
(f) Wind River Systems Inc. .................................................... 3,532,524 150,794,618
Xpedior Inc. ............................................................... 158,600 2,577,250
Ziff-Davis Inc. - ZDNet .................................................... 333,500 4,147,906
--------------
3,078,854,266
--------------
(a) TELECOMMUNICATIONS 5.4%
Airgate PCS Inc. ........................................................... 45,500 3,901,625
Alamosa PCS Holdings Inc. .................................................. 80,800 2,302,800
(f) Alaska Communications Systems Holdings Inc. ................................ 2,198,700 26,384,400
AT&T Canada Inc., B (Canada) ............................................... 227,600 9,701,450
Choice One Communications Inc. ............................................. 65,600 2,099,200
Clearnet Communications Inc., A (Canada) ................................... 521,500 22,359,313
DSL.net Inc. ............................................................... 653,600 6,536,000
GRIC Communications Inc. ................................................... 70,900 1,103,381
Ibasis Inc. ................................................................ 99,450 2,250,056
ICG Communications Inc. .................................................... 1,599,100 47,573,225
Illuminet Holdings Inc. .................................................... 21,900 986,869
Intermedia Communications Inc. ............................................. 680,000 27,710,000
ITC Deltacom Inc. .......................................................... 328,700 10,806,013
MGC Communications Inc. .................................................... 452,800 22,187,200
Millicom International Cellular SA (Luxembourg) ............................ 878,500 46,999,750
Net2000 Communications Inc. ................................................ 21,800 321,550
Pacific Gateway Exchange Inc. .............................................. 515,100 3,251,569
Pinnacle Holdings Inc. ..................................................... 1,547,400 86,944,538
(f) Primus Telecommunications Group Inc., 144A ................................. 1,813,100 59,492,344
Rhythms NetConnections Inc. ................................................ 50,900 1,052,994
(f) Rural Cellular Corp., A .................................................... 765,700 56,613,906
Time Warner Telecom Inc., A ................................................ 194,400 10,643,400
Triton PCS Holdings Inc., A ................................................ 31,500 1,323,000
VoiceStream Wireless Corp. ................................................. 1,869,200 185,050,800
Western Wireless Corp., A .................................................. 1,619,200 80,454,000
--------------
718,049,383
--------------
TRANSPORTATION 1.7%
(a) Alaska Air Group Inc. ...................................................... 175,000 5,031,250
(a),(f) Atlantic Coast Airlines Holdings Inc. .................................. 1,400,000 41,825,000
C.H. Robinson Worldwide Inc. ............................................... 1,046,200 52,310,000
(f) Expeditors International of Washington Inc. ................................ 2,562,200 109,534,050
(a) Hub Group Inc., A .......................................................... 300,000 3,600,000
(a) Mesa Air Group Inc. ........................................................ 1,467,200 9,536,800
Tidewater Inc. ............................................................. 26,700 794,325
--------------
222,631,425
--------------
UTILITIES .1%
Northwestern Corp. ......................................................... 800,000 18,400,000
--------------
TOTAL COMMON STOCKS AND RIGHTS (COST $5,682,413,663) ....................... 10,664,794,764
--------------
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN SMALL CAP GROWTH FUND RIGHTS VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS .2%
(a),(e) ELECTRONIC TECHNOLOGY .1%
Anda Networks Inc., cvt. pfd., D ....................................... 364,431 $ 5,000,030
Kestrel Solutions Inc., cvt. pfd., D ................................... 239,831 3,124,998
----------
8,125,028
----------
FINANCE .1%
Bank United Corp., 8.00%, cvt. pfd ..................................... 300,000 13,350,000
----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $23,124,998) .................. 21,475,028
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
CONVERTIBLE BONDS .5%
CONSUMER SERVICES
AMF Bowling Inc., cvt., zero cpn., A, 144A, 5/12/18 ............................... $ 6,190,000 255,338
----------
TECHNOLOGY SERVICES .4%
Citrix Systems Inc., cvt. sub. deb., 144A, zero cpn., 3/22/19 ..................... 30,000,000 26,250,000
Citrix Systems Inc., cvt., zero cpn., 3/22/19 ..................................... 27,200,000 24,140,000
----------
50,390,000
----------
UTILITIES .1%
Primus Telecommunications Group Inc., cvt., 144A, 5.75%, 2/15/07 .................. 19,750,000 16,886,250
----------
Total Convertible Bonds (Cost $54,189,953) ........................................ 67,531,588
----------
Total Long Term Investments (Cost $5,759,728,614) ................................. 10,753,801,380
----------
(c) REPURCHASE Agreement 19.3%
Joint Repurchase Agreement, 5.706%, 5/01/00, (Maturity Value $2,563,998,083)
(Cost $2,562,779,481) ........................................................... 2,562,779,481 2,562,779,481
Banc of America Securities LLC (Maturity Value $320,345,922)
Barclays Capital Inc. (Maturity Value $215,145,079)
Bear Stearns & Co. Inc. (Maturity Value $92,201,371)
Chase Securities Inc. (Maturity Value $215,145,079)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $215,145,079)
Dresdner Kleinwort Benson, North America, LLC (Maturity Value $215,145,079)
Lehman Government Securities (Maturity Value $215,145,079)
Nesbitt Burns Securities Inc. (Maturity Value $215,145,079)
Paine Webber Inc. (Maturity Value $215,145,079)
Paribas Corp. (Maturity Value $215,145,079)
Societe Generale (Maturity Value $215,145,079)
Warburg Dillon Read LLC (Maturity Value $215,145,079)
Collateralized by U.S. Treasury Bills & Notes
--------------
TOTAL INVESTMENTS (COST $8,322,508,095) 100.1% .................................... 13,316,580,861
OTHER ASSETS, LESS LIABILITIES (.1%) .............................................. (12,287,349)
--------------
NET ASSETS 100.0% ................................................................. $13,304,293,512
===============
</TABLE>
(a) Non-income producing.
(c) See Note 1(c) regarding joint repurchase agreement.
(e) See Note 6 regarding restricted securities.
(f) See Note 7 regarding holdings of 5% voting securities.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
AGGRESSIVE CALIFORNIA LARGE CAP SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost - Unaffiliated issuers .................... $313,077,392 $1,566,176,889 $85,573,818 $4,267,339,446
Cost - Non-controlled affiliated issuers ....... -- 7,344,207 -- 1,492,389,168
============ ============== =========== ==============
Value - Unaffiliated issuers ................... 334,686,687 2,502,364,597 97,993,889 8,799,589,481
Value - Non-controlled affiliated issuers ...... -- 7,925,000 -- 1,954,211,899
Repurchase agreements, at value and cost ........ -- -- -- 2,562,779,481
Receivables:
Investment securities sold ..................... 7,535,886 4,064,047 970,691 7,232,470
Capital shares sold ............................ 1,905,703 11,272,265 716,319 58,051,191
Dividends and interest ......................... 8,645 449,669 32,085 486,535
Offering costs .................................. 12,745 -- 13,003 --
------------ -------------- ----------- ---------------
Total assets ................................. 344,149,666 2,526,075,578 99,725,987 13,382,351,057
------------ -------------- ----------- ---------------
Liabilities:
Payables:
Investment securities purchased ................ 10,725,316 1,298,435 265,500 31,323,660
Capital shares redeemed ........................ 143,235 3,685,067 169,488 34,560,273
Affiliates ..................................... 444,921 2,203,558 123,363 10,911,743
Shareholders ................................... 40,180 814,140 11,866 1,014,840
Other liabilities ............................... 8,132 58,123 5,919 247,029
------------ -------------- ----------- ---------------
Total liabilities ............................ 11,361,784 8,059,323 576,136 78,057,545
------------ -------------- ----------- ---------------
Net assets, at value ....................... $332,787,882 $2,518,016,255 $99,149,851 $13,304,293,512
============ ============== =========== ==============
Net assets consist of:
Undistributed net investment income ............. $ -- $ -- $ -- $12,646,044
Net unrealized appreciation ..................... 21,609,295 936,768,501 12,420,071 4,994,072,766
Accumulated net realized gain (loss) ............ (1,586,962) 148,562,411 (281,457) 108,567,000
Capital shares .................................. 312,765,549 1,432,685,343 87,011,237 8,189,007,702
------------ -------------- ----------- ---------------
Net assets, at value ....................... $332,787,882 $2,518,016,255 $99,149,851 $13,304,293,512
============ ============== =========== ==============
</TABLE>
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements
(continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
AGGRESSIVE CALIFORNIA LARGE CAP SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A:
Net assets, at value .......................... $171,975,595 $2,025,864,461 $39,401,695 $11,199,559,346
===========================================================================
Shares outstanding ............................ 6,819,312 40,392,821 2,653,956 246,255,740
===========================================================================
Net asset value per share* .................... $25.22 $50.15 $14.85 $45.48
===========================================================================
Maximum offering price per share
(net asset value per share / 94.25%) .......... $26.76 $53.21 $15.76 $48.25
===========================================================================
CLASS B:
Net assets, at value .......................... $33,613,304 $63,959,905 $4,501,716 --
===========================================================================
Shares outstanding ............................ 1,334,686 1,288,530 304,852 --
===========================================================================
Net asset value and maximum
offering price per share* ..................... $25.18 $49.64 $14.77 --
===========================================================================
CLASS C:
Net assets, at value .......................... $80,472,932 $428,191,889 $35,344,603 $1,667,870,056
===========================================================================
Shares outstanding ............................ 3,203,199 8,641,341 2,393,296 37,414,737
===========================================================================
Net asset value per share* .................... $25.12 $49.55 $14.77 $44.58
===========================================================================
Maximum offering price per share
(net asset value per share / 99.00%) .......... $25.37 $50.05 $14.92 $45.03
===========================================================================
ADVISOR CLASS:
Net assets, at value .......................... $46,726,051 -- $19,901,837$ 436,864,110
===========================================================================
Shares outstanding ............................ 1,845,995 -- 1,337,772 9,551,175
===========================================================================
Net asset value and maximum
offering price per share ...................... $25.31 -- $14.88 $45.74
===========================================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
AGGRESSIVE CALIFORNIA LARGE CAP SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends* (Note 3)
Unaffiliated issuers ............................... $ 608,795 $ 14,001,071 $ 285,584 $ 29,450,333
Non-controlled affiliated issuers (Note 7) ......... -- -- -- 2,772,936
Interest ............................................. 14,816 1,889,262 5,907 63,245,356
------------------------------------------------------------------------
Total investment income .......................... 623,611 15,890,333 291,491 95,468,625
------------------------------------------------------------------------
Expenses:
Management fees (Note 3) ............................. 510,967 7,117,085 173,892 39,226,727
Administrative fees (Note 3) ......................... 219,264 -- 73,682 --
Distribution fees (Note 3)
Class A ............................................ 171,464 3,297,033 39,892 18,102,529
Class B ............................................ 88,211 204,506 15,090 --
Class C ............................................ 225,097 2,715,639 115,883 11,880,525
Transfer agent fees (Note 3) ......................... 138,454 2,333,235 29,115 11,152,208
Custodian fees ....................................... 1,095 16,275 381 92,688
Reports to shareholders .............................. 13,374 322,685 4,564 1,035,857
Registration and filing fees ......................... 42,048 146,339 12,202 644,518
Professional fees .................................... 8,981 53,493 6,064 203,240
Trustees' fees and expenses .......................... 821 20,166 319 106,322
Amortization of offering costs (Note 1) .............. 90,964 -- 91,023 --
Other ................................................ 914 33,439 560 149,501
------------------------------------------------------------------------
Total expenses ................................... 1,511,654 16,259,895 562,667 82,594,115
Expenses waived/paid by affiliate (Note 3) ....... (47,853) -- (60,626) --
------------------------------------------------------------------------
Net expenses ................................... 1,463,801 16,259,895 502,041 82,594,115
------------------------------------------------------------------------
Net investment income (loss) ................. (840,190) (369,562) (210,550) 12,874,510
------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments in unaffiliated issuers ................ 1,406,586 209,962,858 (143,706) 343,480,730
Investments in non-controlled affiliated issuers
(Note 7) ......................................... -- -- -- (61,051,569)
Foreign currency transactions ...................... (3,396) -- -- (228,311)
------------------------------------------------------------------------
Net realized gain (loss) ....................... 1,403,190 209,962,858 (143,706) 282,200,850
Net unrealized appreciation on investments: ........ 21,609,295 707,495,834 12,420,071 4,340,182,573
------------------------------------------------------------------------
Net realized and unrealized gain ....................... 23,012,485 917,458,692 12,276,365 4,622,383,423
------------------------------------------------------------------------
Net increase in net assets resulting from operations ... $ 22,172,295 $ 917,089,130 $ 12,065,815 $ 4,635,257,933
========================================================================
</TABLE>
* Net of foreign taxes and fees of $207, $2,024, $1,878, and $49,308 for the
Franklin Aggressive Growth Fund, Franklin California Growth Fund, Franklin
Large Cap Growth Fund and Franklin Small Cap Growth Fund, respectively.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED APRIL 30, 2000 AND 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
AGGRESSIVE CALIFORNIA
GROWTH FUND GROWTH FUND
-----------------------------------------------------
2000(a) 2000 1999
-----------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .................................... $ (840,190) $ (369,562) $ 2,495,653
Net realized gain (loss) from investments and foreign
currency transactions ......................................... 1,403,190 209,962,858 (60,726,763)
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies ...... 21,609,295 707,495,834 115,471,275
-----------------------------------------------------
Net increase in net assets resulting from operations ...... 22,172,295 917,089,130 57,240,165
Distributions to shareholders from:
Net investment income:
Class A ....................................................... (35,724) (2,379,497) (4,374,577)
Class B ....................................................... (931) (9,812) --
Class C ....................................................... -- (107,868) (606)
Advisor Class ................................................. (44,448) -- --
Net realized gains:
Class A ....................................................... (919,936) -- (15,717,424)
Class B ....................................................... (147,024) -- --
Class C ....................................................... (367,784) -- (3,127,611)
Advisor Class ................................................. (731,226) -- --
-----------------------------------------------------
Total distributions to shareholders ............................. (2,247,073) (2,497,177) (23,220,218)
Capital share transactions: (Note 2)
Class A ....................................................... 171,716,009 488,036,697 32,435,619
Class B ....................................................... 33,589,716 55,673,390 2,564,716
Class C ....................................................... 81,820,441 117,149,571 29,589,278
Advisor Class ................................................. 25,736,494 -- --
-----------------------------------------------------
Total capital share transactions ................................ 312,862,660 660,859,658 64,589,613
Net increase in net assets ................................ 332,787,882 1,575,451,611 98,609,560
Net assets:
Beginning of year ............................................... -- 942,564,644 843,955,084
-----------------------------------------------------
End of year ..................................................... $ 332,787,882 $ 2,518,016,255 $ 942,564,644
=====================================================
Undistributed net investment income included in net assets:
End of year ..................................................... $ -- $ -- $ 2,370,910
=====================================================
</TABLE>
(a) For the period June 23, 1999 (effective date) to April 30, 2000.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED APRIL 30, 2000 AND 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
LARGE CAP SMALL CAP
GROWTH FUND GROWTH FUND
--------------------------------------------------------
2000(a) 2000 1999
--------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .................................... $ (210,550) $ 12,874,510 $ 8,864,522
Net realized gain (loss) from investments and foreign
currency transactions ......................................... (143,706) 282,200,850 (109,863,505)
Net unrealized appreciation on investments and translation
of assets and liabilities denominated in foreign currencies ... 12,420,071 4,340,182,573 7,888,123
--------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............................... 12,065,815 4,635,257,933 (93,110,860)
Distributions to shareholders from:
Net investment income:
Class A ....................................................... (6,366) (8,352,984) (24,920,845)
Advisor Class ................................................. (17,052) (475,439) (1,373,343)
Net realized gains:
Class A ....................................................... -- (50,760,225) (31,374,289)
Class C ....................................................... -- (8,644,938) (6,067,928)
Advisor Class ................................................. -- (2,071,882) (1,280,976)
--------------------------------------------------------
Total distributions to shareholders ............................. (23,418) (70,305,468) (65,017,381)
Capital share transactions: (Note 2)
Class A ....................................................... 36,180,213 3,193,018,064 418,158,255
Class B ....................................................... 3,951,744 -- --
Class C ....................................................... 31,603,097 251,757,129 64,646,406
Advisor Class ................................................. 15,372,400 110,511,362 51,015,284
--------------------------------------------------------
Total capital share transactions ................................ 87,107,454 3,555,286,555 533,819,945
Net increase in net assets ................................ 99,149,851 8,120,239,020 375,691,704
Net assets:
Beginning of year ............................................... -- 5,184,054,492 4,808,362,788
--------------------------------------------------------
End of year ..................................................... $ 99,149,851 $ 13,304,293,512 $ 5,184,054,492
========================================================
Undistributed net investment income included in net assets:
End of year ..................................................... $ -- $ 12,646,044 $ 8,828,268
========================================================
</TABLE>
(a) For the period June 7, 1999 (effective date) to April 30, 2000.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Strategic Series (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twelve separate
series. All funds included in this report (the Funds) are diversified except the
Franklin California Growth Fund. The Funds' investment objective is capital
growth.
Effective May 1, 2000, the Franklin Small Cap Growth Fund was renamed the
Franklin Small Cap Growth Fund I and the Franklin Strategic Series began
offering shares of the Franklin Small Cap Growth Fund II.
On February 15, 2000, the Board of Trustees for the Franklin Strategic Series
approved a proposal to merge Franklin MidCap Growth Fund into Franklin
California Growth Fund, subject to shareholder approval.
The following summarizes the Funds' significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Restricted securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. JOINT REPURCHASE AGREEMENT:
The Funds may enter into a joint repurchase agreement whereby its uninvested
cash balance is deposited into a joint cash account to be used to invest in one
or more repurchase agreements. The value and face amount of the joint repurchase
agreement are allocated to the Fund based on its pro-rata interest. A repurchase
agreement is accounted for as a loan by the Fund to the seller, collateralized
by the securities which are delivered to the Fund's 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 Fund, with the value of the
underlying securities marked to market daily to maintain coverage of at least
100%. At April 30, 2000, all repurchase agreements had been entered into on
April 28, 2000.
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. INCOME TAXES:
No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
e. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
Distributions received by the Trust from securities may be a return of capital
(ROC). Such distributions reduce the cost basis of the securities, and any
distributions in excess of the cost basis are recognized as capital gains.
Realized and unrealized gains and losses and net investment income (loss), other
than class specific expenses, are allocated daily to each class of shares based
upon the relative proportion of net assets of each class.
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. Other expenses are
charged to each fund on a specific identification basis.
f. OFFERING COSTS:
Offering costs are amortized on a straight line basis over twelve months.
g. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
The classes of shares offered within each of the Funds are indicated below.
Effective January 1, 1999, Class I and Class II were renamed Class A and Class
C, respectively, and the Franklin California Growth Fund began offering a new
class of shares, Class B. Each class of shares differs by its initial sales
load, distribution fees, voting rights on matters affecting a single class and
its exchange privilege.
<TABLE>
<CAPTION>
CLASS A, CLASS C, & ADVISOR CLASS CLASS A, CLASS B, & CLASS C CLASS A, CLASS B, CLASS C, & ADVISOR CLASS
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Small Cap Growth Fund Franklin California Growth Fund Franklin Aggressive Growth Fund
Franklin Large Cap Growth Fund
</TABLE>
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
At April 30, 2000, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
AGGRESSIVE GROWTH FUND(a) CALIFORNIA GROWTH FUND
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Year ended April 30, 2000
Shares sold ...................................... 9,199,950 $ 228,039,109 40,682,193 $ 1,739,833,942
Shares issued in reinvestment of distributions ... 41,575 868,510 87,505 2,238,602
Shares redeemed .................................. (2,422,213) (57,191,610) (30,612,722) (1,254,035,847)
-------------------------------------------------------------------
Net increase ..................................... 6,819,312 $ 171,716,009 10,156,976 $ 488,036,697
===================================================================
Year ended April 30, 1999
Shares sold ...................................... 16,494,382 $ 386,947,861
Shares issued in reinvestment of distributions ... 825,009 18,676,674
Shares redeemed .................................. (15,966,155) (373,188,916)
------------------------------
Net increase ..................................... 1,353,236 $ 32,435,619
==============================
CLASS B SHARES:
Year ended April 30, 2000
Shares sold ...................................... 1,415,432 $ 35,839,371 1,224,381 $ 57,540,240
Shares issued in reinvestment of distributions ... 5,883 122,903 366 9,348
Shares redeemed .................................. (86,629) (2,372,558) (39,396) (1,876,198)
-------------------------------------------------------------------
Net increase ..................................... 1,334,686 $ 33,589,716 1,185,351 $ 55,673,390
===================================================================
Year ended April 30, 1999(b)
Shares sold ...................................... 103,431 $ 2,570,873
Shares redeemed .................................. (252) (6,157)
------------------------------
Net increase ..................................... 103,179 $ 2,564,716
==============================
CLASS C SHARES:
Year ended April 30, 2000
Shares sold ...................................... 3,542,640 $ 90,778,820 3,758,694 $ 167,987,977
Shares issued in reinvestment of distributions ... 16,200 338,092 3,833 97,626
Shares redeemed .................................. (355,641) (9,296,471) (1,336,546) (50,936,032)
-------------------------------------------------------------------
Net increase ..................................... 3,203,199 $ 81,820,441 2,425,981 $ 117,149,571
===================================================================
Year ended April 30, 1999
Shares sold ...................................... 3,010,549 $ 70,453,473
Shares issued in reinvestment of distributions ... 128,580 2,895,577
Shares redeemed .................................. (1,868,591) (43,759,772)
------------------------------
Net increase ..................................... 1,270,538 $ 29,589,278
==============================
</TABLE>
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN
AGGRESSIVE GROWTH FUND(a)
-------------------------
SHARES AMOUNT
-------------------------
<S> <C> <C>
ADVISOR CLASS SHARES:
Year ended April 30, 2000
Shares sold ....................................... 2,545,707 $ 41,383,189
Shares issued in reinvestment of distributions .... 35,243 737,625
Shares redeemed ................................... (734,955) (16,384,320)
-------------------------
Net increase ...................................... 1,845,995 $ 25,736,494
=========================
</TABLE>
(a) For the period June 23, 1999 (effective date) to April 30, 2000.
(b) For the Franklin California Growth Fund, for the period January 1, 1999
(effective date) to April 30, 1999.
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
LARGE CAP GROWTH FUND(c) SMALL CAP GROWTH FUND
---------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Year ended April 30, 2000
Shares sold ...................................... 2,924,412 $ 39,983,795 288,032,174 $ 11,002,537,784
Shares issued in reinvestment of distributions ... 425 5,394 1,370,984 52,139,031
Shares redeemed .................................. (270,881) (3,808,976) (215,619,217) (7,861,658,751)
---------------------------------------------------------------------
Net increase ..................................... 2,653,956 $ 36,180,213 73,783,941 $ 3,193,018,064
=====================================================================
Year ended April 30, 1999
Shares sold ...................................... 161,810,259 $ 3,545,958,486
Shares issued in reinvestment of distributions ... 2,486,084 51,561,607
Shares redeemed .................................. (144,463,351) (3,179,361,838)
--------------------------------
Net increase ..................................... 19,832,992 $ 418,158,255
================================
CLASS B SHARES:
Year ended April 30, 2000
Shares sold ...................................... 312,870 $ 4,073,874
Shares redeemed .................................. (8,018) (122,130)
-----------------------------
Net increase ..................................... 304,852 $ 3,951,744
=============================
CLASS C SHARES:
Year ended April 30, 2000
Shares sold ...................................... 2,641,224 $ 35,011,789 11,524,782 $ 447,983,335
Shares issued in reinvestment of distributions ... -- -- 202,348 7,563,366
Shares redeemed .................................. (247,928) (3,408,692) (5,758,041) (203,789,572)
---------------------------------------------------------------------
Net increase ..................................... 2,393,296 $ 31,603,097 5,969,089 $ 251,757,129
=====================================================================
Year ended April 30, 1999
Shares sold ...................................... 13,842,560 $ 300,359,397
Shares issued in reinvestment of distributions ... 260,342 5,339,598
Shares redeemed .................................. (11,256,132) (241,052,589)
--------------------------------
Net increase ..................................... 2,846,770 $ 64,646,406
================================
</TABLE>
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
LARGE CAP GROWTH FUND(c) SMALL CAP GROWTH FUND
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------
ADVISOR CLASS SHARES:
Year ended April 30, 2000
<S> <C> <C> <C> <C>
Shares sold 1,572,648 $ 18,058,940 6,861,496 $ 262,240,429
Shares issued in reinvestment of distributions 1,229 15,598 52,137 1,992,113
Shares redeemed (236,105) (2,702,138) (4,156,748) (153,721,180)
--------------------------------------------------------------------
Net increase 1,337,772 $ 15,372,400 2,756,885 $ 110,511,362
====================================================================
Year ended April 30, 1999
Shares sold 6,726,880 $ 148,222,012
Shares issued in reinvestment of distributions 95,743 1,989,524
Shares redeemed (4,591,816) (99,196,252)
------------------------------
Net increase 2,230,807 $ 51,015,284
==============================
</TABLE>
(c) For the period June 7, 1999 (effective date) to April 30, 2000.
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), Franklin/ Templeton Distributors, Inc.
(Distributors), Franklin Templeton Services, Inc. (FT Services), and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Funds'
investment manager, principal underwriter, administrative manager and transfer
agent, respectively.
Certain funds in the Trust may invest in the Franklin Institutional Fiduciary
Trust Money Market Portfolio (the Sweep Money Fund) which is managed by
Advisers.
The Funds earned dividend income from the investment in the Sweep Money Fund as
follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
AGGRESSIVE CALIFORNIA LARGE CAP SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend Income $599,786 $6,106,375 $166,883 $1,822,138
</TABLE>
The Franklin California Growth Fund and the Franklin Small Cap Growth Fund pay
an investment management fee to Advisers based on the average net assets of the
Funds as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
----------------------------------------------------------------
<S> <C>
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% Over $250 million, up to and including $10 billion
.440% Over $10 billion, up to and including $12.5 billion
.420% Over 12.5 billion, up to and including $15 billion
</TABLE>
Fees are further reduced on net assets over $15 billion.
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Franklin Aggressive Growth Fund and the Franklin Large Cap Growth Fund pay
an investment management fee to Advisers based on the average net assets of the
Funds as follows:
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-------------------------------------
.500% First $500 million
.400% Over $500 million, up to and including $1 billion
.350% Over $1 billion, up to and including $1.5 billion
Fees are further reduced on net assets over $1.5 billion.
The Franklin Aggressive Growth Fund and the Franklin Large Cap Growth Fund pay
an administrative fee to FT Services of .20% per year of the funds' average
daily net assets.
Under an agreement with Advisers, FT Services provides administrative services
to the Funds, except the Franklin Aggressive Growth Fund and the Franklin Large
Cap Growth Fund. The fee is paid by Advisers based on the average daily net
assets, and is not an additional expense of the funds.
Advisers agreed in advance to waive administrative and management fees for the
Franklin Aggressive Growth Fund and the Franklin Large Cap Growth Fund, as noted
in the Statements of Operations.
Management fees were reduced on assets invested in the Sweep Money Fund.
The Funds reimburse Distributors for costs incurred in marketing the Funds'
shares up to a certain percentage per year of their average daily net assets of
each class as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
AGGRESSIVE CALIFORNIA LARGE CAP SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A .35% .25% .35% .25%
Class B 1.00% 1.00% 1.00% --
Class C 1.00% 1.00% 1.00% 1.00%
</TABLE>
Distributors paid net commissions on sales of the Funds' shares, and received
contingent deferred sales charges for the year as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
AGGRESSIVE CALIFORNIA LARGE CAP SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net commissions paid $1,550,322 $3,158,810 $222,310 $8,418,109
Contingent deferred sales charges $ 71,011 $ 122,929 $ 5,889 $ 319,296
</TABLE>
The Funds paid transfer agent fees of $13,653,012 of which $8,181,404 was paid
to Investor Services.
At April 30, 2000, Advisers and/or investment companies managed by Advisers
owned 12.70% and 20.27% of the Franklin Aggressive Growth Fund and the Franklin
Large Cap Growth Fund, respectively.
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
Included in professional fees are legal fees of $57,009 that were paid to a law
firm in which a partner of the law firm is an officer of the Fund.
4. INCOME TAXES
At April 30, 2000, the Franklin Small Cap Growth Fund had deferred capital
losses and currency losses occurring subsequent to October 31, 1999 of
$23,645,230 and $4,112, respectively. For tax purposes, such losses will be
reflected in the year ending April 30, 2001.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions and offering costs.
Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.
At April 30, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
AGGRESSIVE CALIFORNIA LARGE CAP SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost $314,775,662 $1,582,351,394 $86,164,967 $8,322,839,386
==============================================================
Unrealized appreciation $ 64,222,090 $1,073,600,596 $17,054,186 $5,871,186,319
Unrealized depreciation (44,311,065) (145,662,393) (5,225,264) (877,444,844)
--------------------------------------------------------------
Net unrealized appreciation $ 19,911,025 $ 927,938,203 $11,828,922 $4,993,741,475
==============================================================
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended April 30, 2000 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
AGGRESSIVE CALIFORNIA LARGE CAP SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
----------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases $467,111,258 $1,371,819,723 $113,326,845 $3,325,436,052
Sales $172,977,940 $ 912,853,296 $ 36,117,714 $1,884,540,948
</TABLE>
6. RESTRICTED SECURITIES
The Funds may purchase securities through a private offering that generally
cannot be resold to the public without prior registration under the Securities
Act of 1933. The cost of registering such securities are paid by the issuer.
Restricted securities held at April 30, 2000 are as follows:
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
6. RESTRICTED SECURITIES (CONT.)
<TABLE>
<CAPTION>
ACQUISITION
SHARES ISSUER DATE COST VALUE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FRANKLIN AGGRESSIVE GROWTH FUND
31,328 eMachines Inc. (.07% of net assets) 8/16/99 $ 199,998 $ 241,421
===========
FRANKLIN CALIFORNIA GROWTH FUND
145,772 Anda Networks Inc., cvt. pfd., D 3/24/00 $2,000,000 $ 2,000,006
783,208 eMachines Inc. 8/16/99 5,000,000 6,035,597
105,708 Encommerce, cvt. pfd. 2/2/00 999,998 999,998
124,712 Kestrel Solutions Inc., cvt. pfd., D 1/20/00 1,624,997 1,624,997
-----------
TOTAL RESTRICTED SECURITIES (.42% of net assets) $10,660,598
===========
FRANKLIN SMALL CAP GROWTH FUND
364,431 Anda Networks Inc., cvt. pfd., D 3/24/00 $5,000,000 $ 5,000,030
1,378,446 eMachines Inc. 8/16/99 8,799,999 10,622,649
239,831 Kestrel Solutions Inc., cvt. pfd., D 1/20/00 3,124,998 3,124,998
-----------
TOTAL RESTRICTED SECURITIES (.14% of net assets) $18,747,677
===========
</TABLE>
7. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as investments
in portfolio companies in which the funds own 5% or more of the outstanding
voting securities. Investments in "affiliated companies" including dividends,
interest income, and net realized capital gains (losses), at April 30, 2000 were
as shown below.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
HELD AT GROSS GROSS HELD AT VALUE AT DIVIDEND NET REALIZED
NAME OF ISSUER BEGINNING OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR INCOME GAIN/LOSS
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN CALIFORNIA GROWTH FUND:
Remedy Temp Inc. 400,000 -- -- 400,000 $ 7,925,000 -- --
-----------------------------------
TOTAL NON-CONTROLLED
AFFILIATED ISSUERS $ 7,925,000 $-- $ --
===================================
FRANKLIN SMALL CAP GROWTH FUND:
Activision Inc. 1,294,400 -- 1,294,400 -- -- -- (7,499,259)
Alaska Communications Systems
Holding Inc. -- 2,198,700 -- 2,198,700 26,384,400 -- --
Applied Graphics
Technologies Inc. 1,319,000 -- 1,319,000 -- -- -- (54,086,350)
Aspeon Inc. (formally known as
Javelin Systems Inc.) 499,100 251,800 750,900 -- -- -- 3,256,482
Atlantic Coast Airlines
Holdings Inc. 1,400,000 -- -- 1,400,000 41,825,000 -- --
Atwood Oceanics Inc. 1,216,600 -- -- 1,216,600 73,756,375 -- --
AVT Corp.(a) 1,674,800 -- 418,600 1,256,200 * -- (1,013,322)
Barrett Resources Corp. 1,790,900 200,000 130,000 1,860,900 59,083,575 -- 1,777,418
Basin Exploration Inc. -- 1,425,200 -- 1,425,200 19,952,800 -- --
Catalytica Inc. 1,965,733 -- -- 1,965,733 21,868,780 -- --
Catapult Communications Corp. 627,000 53,900 24,100 656,800 5,459,650 -- 388,049
</TABLE>
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
7. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES (CONT.)
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
HELD AT GROSS GROSS HELD AT VALUE AT DIVIDEND NET REALIZED
NAME OF ISSUER BEGINNING OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR INCOME GAIN/LOSS
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN SMALL CAP GROWTH FUND:
(CONT.)
Clarus Corp. -- 974,000 -- 974,000 $ 39,142,625 $ -- $ --
Classic Communications Inc., A -- 590,900 -- 590,900 7,164,663 -- --
Coherent Inc. 1,763,400 -- -- 1,763,400 101,946,563 -- --
Com21 Inc. 1,294,000 -- 736,400 557,600 * -- (2,729,399)
Core Laboratories NV
(Netherlands) 1,632,400 -- -- 1,632,400 46,319,350 -- --
Cumulus Media Inc., A 785,000 578,500 181,700 1,181,800 * -- 1,174,510
Expeditors International of
Washington Inc.(b) 2,562,200 -- -- 2,562,200 109,534,050 256,220 --
FLIR Systems Inc. 1,028,600 -- -- 1,028,600 7,585,925 -- --
Gibraltar Steel Corp. 1,012,800 -- -- 1,012,800 17,470,800 101,280 --
Grey Wolf Inc. -- 11,329,800 -- 11,329,800 46,027,313 -- --
HNC Software Inc. 1,348,200 388,000 -- 1,736,200 85,941,900 -- --
H.T.E. Inc. 1,227,100 -- 618,000 609,100 * -- (3,175,484)
Inhale Therapeutic Systems
Inc.(c) 1,592,066 283,800 -- 1,875,866 116,069,147 -- --
Innkeepers USA Trust 2,102,800 -- -- 2,102,800 18,925,200 2,355,136 --
Insight Communications
Co. Inc., A -- 4,090,800 -- 4,090,800 83,350,050 -- --
Integrated Systems Inc.(d) 1,857,200 -- 1,857,200 -- -- -- (1,056,045)
Interep National Radio
Sales Inc. -- 489,100 -- 489,100 2,812,325 -- --
Itron Inc. 1,159,800 -- 41,500 1,118,300 6,430,225 -- (716,076)
Komag Inc. 4,207,100 -- 600,200 3,606,900 10,595,269 -- (13,314,267)
Ladish Co. Inc. 971,600 -- 971,600 -- -- -- (6,841,588)
MeriStar Hotels & Resorts Inc. 1,330,000 -- -- 1,330,000 * -- --
Mesa Air Group Inc. 1,467,200 -- -- 1,467,200 * -- --
Mettler-Toledo International
Inc 1,886,600 871,900 -- 2,758,500 95,168,250 -- --
Micromuse Inc.(e) 1,920,000 -- 419,600 1,500,400 * -- 15,532,671
MicroStrategy Inc., A(f) 647,100 -- 647,100 -- -- -- 43,410,573
Natural MicroSystems Corp. 646,600 -- 282,400 364,200 * -- (902,309)
Navidec Inc. -- 748,200 82,000 666,200 5,621,063 -- 154,165
Newfield Exploration Co. 2,338,600 -- 200,000 2,138,600 86,880,625 -- 865,890
Newport Corp. 512,500 -- -- 512,500 62,172,656 20,500 --
Nuevo Energy Co. 1,075,500 -- -- 1,075,500 18,821,250 -- --
Pacific Gateway Exchange Inc. 1,015,700 -- 500,600 515,100 -- -- (13,503,988)
Pennaco Energy Inc. -- 1,704,500 -- 1,704,500 25,460,969 -- --
Perceptron Inc. 793,500 -- 71,500 722,000 3,249,000 -- (1,844,730)
Pharmaceutical Product
Development Inc. 1,300,000 -- -- 1,300,000 21,856,250 -- --
Prime Hospitality Corp. 3,020,500 -- 3,020,500 -- -- -- (18,659,561)
Primus Telecommunications
Group Inc., 144A 1,406,100 726,100 319,100 1,813,100 59,492,344 -- 3,193,359
</TABLE>
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
7. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES (CONT.)
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
HELD AT GROSS GROSS HELD AT VALUE AT DIVIDEND NET REALIZED
NAME OF ISSUER BEGINNING OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR INCOME GAIN/LOSS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN SMALL CAP GROWTH
FUND: (CONT.)
Range Resources Corp. 1,990,000 906,900 -- 2,896,900 $ 4,345,350 $ 39,800 $--
RSA Security Inc. (formally
known as Security Dynamics) 2,445,000 -- 225,000 2,220,000 130,286,250 -- (53,903)
Rural Cellular Corp., A 690,800 119,000 44,100 765,700 56,613,906 -- 1,047,873
Serologicals Corp. 2,022,700 -- -- 2,022,700 7,332,288 -- --
Silicon Valley Bancshares 1,293,600 57,500 -- 1,351,100 83,430,425 -- --
SOS Staffing Services Inc. 872,400 -- 178,500 693,900 2,168,438 -- (3,938,295)
Spectra-Physics Lasers Inc. 1,016,300 -- 1,016,300 -- -- -- 4,541,795
Tom Brown Inc. 2,095,800 -- 151,000 1,944,800 36,951,200 -- (1,404,891)
Tropical Sportswear
International Corp. 400,500 -- 400,500 -- -- -- 1,735,669
US Liquids Inc. 1,500,800 -- 497,400 1,003,400 5,769,550 -- (7,390,556)
Varco International Inc. 5,162,500 -- -- 5,162,500 64,531,250 -- --
Verity Inc.(g) -- 1,572,200 -- 1,572,200 50,998,238 -- --
Visible Genetics, Inc.
(Canada) -- 943,700 -- 943,700 34,621,994 -- --
Wind River Systems Inc.
(formally known as
Integated Systems Inc.) 1,966,500 1,566,024 -- 3,532,524 150,794,618 -- --
------------------------------------------
TOTAL NON-CONTROLLED
AFFILIATED ISSUERS $1,954,211,899 $ 2,772,936 $(61,051,569)
==========================================
</TABLE>
* As of April 30, 2000, no longer an affiliate.
(a) Reflects a 2:1 stock split during the current period. Balance as of 4/30/99
was 837,400.
(b) Reflects a 2:1 stock split during the current period. Balance as of 4/30/99
was 1,281,100.
(c) Includes bond to stock conversion.
(d) Integrated Systems Inc. merged with Wind River Systems Inc. in February
2000. For every 1 share of Integrated Systems Inc. held (1,702,200) the
fund received .92 shares of Wind River Systems Inc.
(e) Reflects a 2:1 stock split which occurred after the sales of 209,800
shares. Shares received from stock split were 750,200.
(f) Reflects a 2:1 stock split which occurred after the sales of 205,100
shares. Shares received from stock split were 221,000.
(g) Reflects a 2:1 stock split which occurred after the initial purchase of
786,100 shares.
8. LENDING OF PORTFOLIO SECURITIES
The Franklin Small Cap Growth Fund loans securities to certain brokers for which
it receives cash collateral against the loaned securities in an amount equal to
at least 102% of the market value of the loaned securities. Net interest income
from the investment of the cash collateral received was $2,292,067 for the
period ended April 30, 2000. At April 30, 2000, there were no securities on
loan.
FRANKLIN STRATEGIC SERIES
Independent Auditors' Report
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
FRANKLIN STRATEGIC SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds included in this
report constituting part of the Franklin Strategic Series (hereafter referred to
as the "Funds") at April 30, 2000, the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at April 30, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
June 7, 2000
FRANKLIN STRATEGIC SERIES
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Funds hereby
designate the following amounts as capital gain dividends for the fiscal year
ended April 30, 2000.
CAPITAL GAINS
20% RATE GAIN
-------------
Franklin California Growth Fund $114,139,612
Franklin Small Cap Growth Fund 99,444,249
Under Section 854(b)(2) of the Internal Revenue Code, the Funds hereby designate
the following percentage amounts of the ordinary income dividends as income
qualifying for the dividends received deduction for the fiscal year ended April
30, 2000.
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
AGGRESSIVE CALIFORNIA LARGE CAP SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
-------------------------------------------------------
.34% 100% 100% 100%
SHAREHOLDER LETTER
Dear Shareholder:
This annual report for the Franklin Strategic Series covers the 12 months ended
April 30, 2000.
A RED HOT ECONOMY
During the year under review, the U.S. economy continued to advance at a
blistering pace. Gross domestic product (GDP) grew at a rate of 4.4%, corporate
profits were robust, unemployment sank to its lowest rate in 30 years, and
inflation seemed to pose no problem to most investors. Not included in this
group was Alan Greenspan, chairman of the U.S. Federal Reserve Board (the Fed).
Attempting to cool down a super-heated economy, and prevent future inflation,
the Fed raised the federal funds target rate five times between June 1999 and
the close of the reporting period.
WALL STREET WHIPLASH The U.S. stock market rose and fell so frequently during
the reporting period that describing it as volatile would be an understatement.
On April 30, 1999, the Dow Jones(R) Industrial Average (the Dow) stood at
10789.04. A year later, it was 10733.91. The National Association of Securities
Dealers Automated Quotation System (Nasdaq(R)) started the fiscal year at
2542.85 and ended it at 3860.66.(1) But opening and closing numbers don't begin
to tell the story. What happened in between was enough to make investors
bullish, bearish or merely bewildered.
CONTENTS
Shareholder Letter .............................. 1
Fund Reports
Franklin Biotechnology Discovery Fund .......... 5
Franklin Global Communications Fund ............ 11
Franklin Global Health Care Fund ............... 20
Franklin Natural Resources Fund ................ 30
Financial Highlights & Statement of Investments.. 39
Financial Statements ............................ 58
Notes to Financial Statements ................... 63
Independent Auditors' Report .................... 70
Tax Designation ................................. 71
For example, during the week ended October 15, the Dow fell 630 points, its
biggest weekly percentage drop in over a decade. Then, shrugging off worries
about inflation and rising interest rates, it proceeded to gain 710 points by
October 29. The Nasdaq had its share of ups and downs, too. Starting the fiscal
year with a bang, it closed 1999 at 4069.31. But after welcoming the new
millennium with virtually no Y2K problems, it fell 2.8% on March 11, then
appeared to recover somewhat in the following weeks, only to drop another 355
points on April 14. And, as you can see from the graph on page 3, whenever the
Nasdaq rose during the latter part of the period, the Dow seemed to decline, and
vice versa.
HOW TO HANDLE THE TURBULENCE While seesawing such as this can be unsettling, it
is important to remember that securities markets always have been -- and always
will be -- subject to volatility. No one can predict exactly how they will
perform. However, over the long term, stocks and bonds have provided impressive
results. For that reason, we urge you to consult with your investment
representative, focus on your long-term goals rather than short-term market
cycles, and diversify your investments. As you know, mutual funds offer a level
of diversification almost impossible for individual investors to achieve on
their own.
1. The Nasdaq Composite Index measures all Nasdaq domestic and U.S.-based common
stocks listed on the Nasdaq Market. The Index is market-weighted and includes
over 5,000 companies (as of 4/30/00).
NATIONAL ASSOCIATION OF SECURITIES DEALERS
AUTOMATED QUOTATION SYSTEM (NASDAQ)
AND DOW JONES INDUSTRIAL AVERAGE (DJIA)
Daily Prices
(4/30/99-4/30/00)
Date NASDAQ DJIA
4/30/99 2542.85 10789.04
5/3/99 2535.58 11014.69
5/4/99 2485.12 10886.11
5/5/99 2534.45 10955.41
5/6/99 2472.28 10946.82
5/7/99 2503.62 11031.59
5/10/99 2526.39 11007.25
5/11/99 2566.68 11026.15
5/12/99 2606.54 11000.37
5/13/99 2582.00 11107.19
5/14/99 2527.86 10913.32
5/17/99 2561.84 10853.47
5/18/99 2558.36 10836.95
5/19/99 2577.40 10887.39
5/20/99 2542.23 10866.74
5/21/99 2520.14 10829.28
5/24/99 2453.66 10654.67
5/25/99 2380.90 10531.09
5/26/99 2427.18 10702.16
5/27/99 2419.15 10466.93
5/28/99 2470.52 10559.74
6/1/99 2412.03 10596.26
6/2/99 2432.41 10577.89
6/3/99 2403.32 10663.69
6/4/99 2478.34 10799.84
6/7/99 2524.21 10909.38
6/8/99 2474.56 10765.64
6/9/99 2519.35 10690.29
6/10/99 2484.62 10621.27
6/11/99 2447.88 10490.51
6/14/99 2398.31 10563.33
6/15/99 2414.67 10594.99
6/16/99 2517.83 10784.95
6/17/99 2544.15 10841.63
6/18/99 2563.44 10855.56
6/21/99 2630.28 10815.98
6/22/99 2580.26 10721.63
6/23/99 2598.12 10666.86
6/24/99 2553.99 10534.83
6/25/99 2552.65 10552.56
6/28/99 2602.44 10655.15
6/29/99 2642.11 10815.35
6/30/99 2686.12 10970.80
7/1/99 2706.18 11066.42
7/2/99 2741.02 11139.24
7/6/99 2736.78 11135.12
7/7/99 2743.04 11187.36
7/8/99 2771.86 11126.89
7/9/99 2793.07 11193.70
7/12/99 2790.44 11200.98
7/13/99 2778.23 11175.02
7/14/99 2818.13 11148.10
7/15/99 2839.37 11186.41
7/16/99 2864.48 11209.84
7/19/99 2830.29 11187.68
7/20/99 2732.18 10996.13
7/21/99 2761.77 11002.78
7/22/99 2684.44 10969.22
7/23/99 2692.40 10910.96
7/26/99 2619.19 10863.16
7/27/99 2679.33 10979.04
7/28/99 2705.84 10972.07
7/29/99 2640.01 10791.29
7/30/99 2638.49 10655.15
8/2/99 2623.63 10645.96
8/3/99 2587.99 10677.31
8/4/99 2540.00 10674.77
8/5/99 2565.83 10793.82
8/6/99 2547.97 10714.03
8/9/99 2518.98 10707.70
8/10/99 2490.11 10655.15
8/11/99 2564.98 10787.80
8/12/99 2549.49 10789.39
8/13/99 2637.81 10973.65
8/16/99 2645.28 11046.79
8/17/99 2671.22 11117.08
8/18/99 2657.73 10991.38
8/19/99 2621.43 10963.84
8/20/99 2648.33 11100.61
8/23/99 2719.57 11299.76
8/24/99 2752.37 11283.30
8/25/99 2805.60 11326.04
8/26/99 2774.62 11198.45
8/27/99 2758.90 11090.17
8/30/99 2712.69 10914.13
8/31/99 2739.35 10829.28
9/1/99 2750.80 10937.88
9/2/99 2734.24 10843.21
9/3/99 2843.11 11078.45
9/7/99 2837.26 11034.13
9/8/99 2808.74 11036.34
9/9/99 2852.02 11079.40
9/10/99 2887.06 11028.43
9/13/99 2844.77 11030.33
9/14/99 2868.29 10910.33
9/15/99 2814.17 10801.42
9/16/99 2806.72 10737.46
9/17/99 2869.62 10803.63
9/20/99 2886.15 10823.90
9/21/99 2821.10 10598.47
9/22/99 2858.16 10524.07
9/23/99 2749.83 10318.59
9/24/99 2740.41 10279.33
9/27/99 2761.75 10303.39
9/28/99 2756.25 10275.53
9/29/99 2730.27 10213.48
9/30/99 2746.16 10336.95
10/1/99 2736.85 10273.00
10/4/99 2795.97 10401.23
10/5/99 2799.67 10400.59
10/6/99 2857.21 10588.34
10/7/99 2860.70 10537.05
10/8/99 2886.57 10649.76
10/11/99 2915.95 10648.18
10/12/99 2872.43 10417.06
10/13/99 2801.27 10232.16
10/14/99 2806.84 10286.61
10/15/99 2731.83 10019.71
10/18/99 2689.15 10116.28
10/19/99 2688.18 10204.93
10/20/99 2788.13 10392.36
10/21/99 2801.95 10297.69
10/22/99 2816.52 10470.25
10/25/99 2815.95 10349.93
10/26/99 2811.47 10302.13
10/27/99 2802.52 10394.89
10/28/99 2875.22 10622.53
10/29/99 2966.43 10729.86
11/1/99 2967.65 10648.51
11/2/99 2981.63 10581.84
11/3/99 3028.51 10609.06
11/4/99 3055.95 10639.64
11/5/99 3102.29 10704.48
11/8/99 3143.97 10718.85
11/9/99 3125.04 10617.32
11/10/99 3155.96 10597.74
11/11/99 3197.29 10595.30
11/12/99 3221.15 10769.32
11/15/99 3219.54 10760.75
11/16/99 3293.05 10932.33
11/17/99 3269.39 10883.09
11/18/99 3347.11 11035.70
11/19/99 3369.25 11003.89
11/22/99 3392.56 11089.52
11/23/99 3342.87 10995.63
11/24/99 3420.50 11008.17
11/26/99 3447.81 10988.91
11/29/99 3421.37 10947.92
11/30/99 3336.16 10877.81
12/1/99 3353.71 10998.39
12/2/99 3452.78 11039.06
12/3/99 3520.63 11286.18
12/6/99 3546.01 11225.01
12/7/99 3586.92 11106.65
12/8/99 3586.08 11068.12
12/9/99 3594.17 11134.79
12/10/99 3620.23 11224.70
12/13/99 3658.15 11192.59
12/14/99 3571.66 11160.17
12/15/99 3621.95 11225.32
12/16/99 3715.06 11244.89
12/17/99 3753.06 11257.43
12/20/99 3783.87 11144.27
12/21/99 3911.15 11200.54
12/22/99 3937.30 11203.60
12/23/99 3969.44 11405.76
12/27/99 3975.38 11391.08
12/28/99 3972.11 11476.71
12/29/99 4041.46 11484.66
12/30/99 4036.87 11452.86
12/31/99 4069.31 11497.12
1/3/00 4131.15 11357.51
1/4/00 3901.69 10997.93
1/5/00 3877.54 11122.65
1/6/00 3727.13 11253.26
1/7/00 3882.62 11522.56
1/10/00 4049.67 11572.20
1/11/00 3921.19 11511.08
1/12/00 3850.02 11551.10
1/13/00 3957.21 11582.43
1/14/00 4064.27 11722.98
1/18/00 4130.81 11560.72
1/19/00 4151.29 11489.36
1/20/00 4189.51 11351.30
1/21/00 4235.40 11251.71
1/24/00 4096.08 11008.17
1/25/00 4167.41 11029.89
1/26/00 4069.91 11032.99
1/27/00 4039.56 11028.02
1/28/00 3887.07 10738.87
1/31/00 3940.35 10940.53
2/1/00 4051.98 11041.05
2/2/00 4073.96 11003.20
2/3/00 4210.98 11013.44
2/4/00 4244.14 10963.80
2/7/00 4321.77 10905.79
2/8/00 4427.54 10957.60
2/9/00 4363.24 10699.16
2/10/00 4485.63 10643.63
2/11/00 4395.45 10425.21
2/14/00 4418.55 10519.84
2/15/00 4420.77 10718.09
2/16/00 4427.65 10561.41
2/17/00 4548.92 10514.57
2/18/00 4411.74 10219.52
2/22/00 4382.12 10304.84
2/23/00 4550.33 10225.73
2/24/00 4617.65 10092.63
2/25/00 4590.50 9862.12
2/28/00 4577.85 10038.65
2/29/00 4696.69 10128.31
3/1/00 4784.08 10137.93
3/2/00 4754.51 10164.92
3/3/00 4914.79 10367.20
3/6/00 4904.85 10170.50
3/7/00 4847.84 9796.03
3/8/00 4897.17 9856.53
3/9/00 5046.86 10010.73
3/10/00 5048.62 9928.82
3/13/00 4907.24 9947.13
3/14/00 4706.63 9811.24
3/15/00 4582.62 10131.41
3/16/00 4717.39 10630.60
3/17/00 4798.13 10595.23
3/20/00 4610.00 10680.24
3/21/00 4711.68 10907.34
3/22/00 4864.75 10866.70
3/23/00 4940.61 11119.86
3/24/00 4963.03 11112.72
3/27/00 4958.56 11025.85
3/28/00 4833.89 10936.11
3/29/00 4644.67 11018.72
3/30/00 4457.89 10980.25
3/31/00 4572.83 10921.92
4/3/00 4223.68 11221.93
4/4/00 4148.89 11164.84
4/5/00 4169.22 11033.92
4/6/00 4267.56 11114.27
4/7/00 4446.45 11111.48
4/10/00 4188.20 11186.56
4/11/00 4055.90 11287.08
4/12/00 3769.63 11125.13
4/13/00 3676.78 10923.55
4/14/00 3321.29 10305.77
4/17/00 3539.16 10582.51
4/18/00 3793.57 10767.42
4/19/00 3706.41 10674.96
4/20/00 3643.88 10844.05
4/24/00 3482.48 10906.10
4/25/00 3711.23 11124.82
4/26/00 3630.09 10945.50
4/27/00 3774.03 10888.10
4/28/00 3860.66 10733.91
The Nasdaq measures all Nasdaq domestic and U.S.-based common stocks listed on
the Nasdaq Market. The Index is market-weighted and includes over 5,000
companies (as of 4/30/00). The DJIA is a price-weighted index based on the
average market price of 30 blue chip stocks. Indexes are unmanaged.
The graph is intended to show the stock markets volatility, as reflected in the
Nasdaq and DJIA, and does illustrate the past or future performance of any fund
in the Franklin Strategic Series.
We also encourage you to consider using an investment technique called
dollar-cost averaging. By investing a fixed dollar amount at regular intervals,
you buy more shares when prices are low and fewer when prices are high, which
can reduce your average cost per share. A note of caution: no investment
technique can assure a profit or completely protect against loss, and before
using this strategy, you should consider your ability to continue purchases
through periods of changing economic conditions.(2)
2. For more information on dollar-cost averaging, contact your investment
representative, or call Franklin Templeton at 1-800/DIAL BEN(R)
(1-800/342-5236).
Regardless of the market's future direction, Franklin Templeton's management
teams will continue to follow the fundamental principles of careful selection
and constant professional supervision. As always, we welcome your comments and
questions, and look forward to continuing to serve your investment needs.
Sincerely,
/s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
President
Franklin Strategic Series
FRANKLIN BIOTECHNOLOGY
DISCOVERY FUND
[PYRAMID GRAPHIC OMITTED]
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin Biotechnology Discovery Fund seeks capital
appreciation by investing primarily in equity securities of biotechnology
companies and discovery research firms located in the U.S. and other countries.
--------------------------------------------------------------------------------
This annual report of Franklin Biotechnology Discovery Fund covers the fiscal
year ended April 30, 2000, a period of extreme turbulence for the U.S. stock
market. During the 12 months under review, the rush of many investors to
participate in the "new economy" led to previously unheard of valuations for
some high technology companies. As investors were lured to the stocks of these
firms, some of which offered no earnings growth whatsoever, many established
"old economy" stocks performed poorly. While the general area of health care
fell under the old economy label, biotechnology companies were generally viewed
as new economy, and the sector experienced its strongest performance yet since
its last great rally in 1991. Despite participating in the technology sell-off
in mid-March and April 2000, biotechnology stocks retained much of their
fiscal-year gains at period's end.
Within this environment, Franklin Biotechnology Discovery Fund - Class A
provided a +158.78% one-year cumulative total return as shown in the Performance
Summary on page 9, compared to the Amex Biotechnology Index and the Nasdaq
Biotechnology Index(R) returns of 154.96% and 109.62%, respectively. The broader
market, as measured by Standard & Poor's 500(R) (S&P 500(R)) Composite Index,
returned only 10.13% during the same period.(1)
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 40.
PORTFOLIO BREAKDOWN
Franklin Biotechnology Discovery Fund
Based on Total Net Assets
4/30/00
Biotechnology 63.7%
Medical Specialties 13.7%
Other Pharmaceuticals 9.4%
Precision Instruments 3.5%
Short Term Investments &
Other Net Assets 9.7%
A variety of factors contributed to the superior performance of biotechnology
stocks. Most notably was the successful development and launch of new products
by companies such as MedImmune. One of the fund's top holdings, it recently
launched the drug Synagis(TM) for the prevention of respiratory syncytial virus
(RSV), the leading cause of pneumonia and bronchiolitis in infants and children.
Other biotechnology companies such as Amgen and Genentech reported strong sales
of their products, lending credibility to the technology of the entire sector
and boosting the prices of biotechnology stocks in general. We expect this trend
to continue, as more and more companies turn profitable after years of losses
spent researching and developing new products.
Another factor contributing to the strength of the biotechnology sector was the
progress made on the government-sponsored Human Genome Project. Aimed at
identifying and deciphering all the genes in the human genetic blueprint, the
project has spawned the area of study known as genomics. We believe the
technology stemming from the project will ultimately transform genetic
information into disease-preventing therapeutics. Several private sector
companies are also involved in research in this area, including PE-Celera. One
of our newer holdings, it recently announced that its Celera Genomics unit had
sequenced the entire genome ahead of the government-sponsored Human Genome
Project. While the ultimate ownership of product rights and profits in this area
remains unclear, it seems likely this research will contribute to a new wave of
biotechnology products which may eventually cure or prevent a variety of
diseases.
1. Indexes are unmanaged and include reinvested dividends. One cannot invest
directly in an index, nor is an index representative of the fund's portfolio.
Consolidation also affected the performance of biotechnology stocks as large
pharmaceutical companies acquired biotechnology companies in order to add
products and technology to their own research pipelines. The most significant of
these was Roche's acquisition and subsequent re-IPO of Genentech, one of the
oldest and most respected biotechnology companies in the world. Roche paid
$82.50 per share for Genentech and then re-issued a 16% stake to the public at
$97 per share. The shares soared as high as $132 on the first day of trading
before closing at $127, and finished the reporting period at $117 per share.
Also during the period, Johnson & Johnson acquired Centocor, a fund holding
which we later sold at a profit. This acquisition was made at a substantial
premium to its market price, driving up not only the acquisition candidate, but
the sector as a whole because nearly all biotechnology companies are acquisition
candidates.
Looking forward, we remain optimistic about the long-term fundamentals of the
biotechnology sector. In our opinion, new product introductions, as well as the
presentation of favorable clinical data at upcoming scientific meetings, should
fuel further investment into the sector. We believe biotechnology is poised to
benefit from the increasing number of novel therapeutics coming out of the
pipeline as well as the aging population that will require disproportionate
utilization of such products.
Having said this, we believe it is important to sound a note of caution. It is
unlikely that the new economy will escape all of the rules of business cycles
and considerations of price/earnings ratios that generally govern share prices.
Thus, investors should not have unrealistic expectations that the ongoing
performance of this, or any fund, will deliver returns like those of this past
year. Many biotechnology companies are a long way from earnings that would
sustain current share prices, and we may see some corrections. In addition, some
companies that appear promising today may be eclipsed by even newer, more
cutting-edge competitors. We are very proud of the fund's performance during the
past year. Although we'd love to bring you the same news next year, we cannot
promise that this will be possible.
TOP 10 HOLDINGS
Franklin Biotechnology
Discovery Fund
4/30/00
% OF TOTAL
COMPANY NET ASSETS
--------------------------------------------
COR Therapeutics Inc. 5.4%
Amgen Inc. 4.6%
Abgenix Inc. 4.1%
Inhale Therapeutic Systems Inc. 4.0%
Sepracor Inc. 3.5%
MedImmune 3.5%
Chiron Corp. 3.4%
Genentech 3.2%
PE Corp. - PE Biosystems Group 2.8%
Immunex Corp. 2.5%
We appreciate your investment in Franklin Biotechnology Discovery Fund and look
forward to servicing your investment needs in the years to come. Our goal, as
always, is to provide superior returns to our shareholders. Consistent with that
goal, we have closed the fund to new investors (except retirement funds) in
order to preserve the fund's liquidity and to focus on long-term investments.
Going forward, we will continue to pursue investment in promising companies with
new technologies that we feel are attractively valued in the market.
Sincerely,
/s/ Kurt von Emster
Kurt von Emster
Portfolio Manager
Franklin Biotechnology Discovery Fund
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy. There are, of course, special risks
involved with investing in a non-diversified fund concentrating its investments
in a single industry. These risks, which include increased susceptibility to
adverse economic, political, social and regulatory developments, are further
outlined in the fund's prospectus.
--------------------------------------------------------------------------------
ONE-YEAR PERFORMANCE SUMMARY AS OF 4/30/00
One-year total return does not include sales charges. Distributions will vary
based on earnings of the fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of the fund's operating
expenses. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
CLASS A
One-Year Total Return +158.78%
Net Asset Value (NAV) $60.43 (4/30/00) $23.39 (4/30/99)
Change in NAV +$37.04
Distributions (5/1/99 - 4/30/00) Short-Term Capital Gain $0.0637
ADDITIONAL PERFORMANCE
AS OF 4/30/00
INCEPTION
CLASS A 1-YEAR (9/15/97)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +158.78% +146.94%
Average Annual Total Return(2) +143.87% + 38.01%
Value of $10,000 Investment(3) $24,387 $23,270
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
August 3, 1998, fund shares were offered at a lower initial sales charge; thus,
actual total returns may differ.
Past expense reductions by the fund's manager increased the fund's total return.
Without this reduction, the fund's total return would have been lower.
--------------------------------------------------------------------------------
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge.
--------------------------------------------------------------------------------
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
--------------------------------------------------------------------------------
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS A
1-Year +143.87%
Since Inception (9/15/97) + 38.01%
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge, fund expenses,
account fees and reinvested distributions. The unmanaged indexes differ from the
fund in composition, do not pay management fees or expenses and include
reinvested dividends. One cannot invest directly in an index.
CLASS A (9/15/97 - 4/30/00)
<TABLE>
<CAPTION>
Date Franklin Biotechnology S&P 500 Index AMEX Biotechnology Index 500 Composite BTK
Discovery Fund - Class A $T
<S> <C> <C> <C> <C> <C>
09/15/1997 $9,423 $10,000 $10,000
09/30/1997 $10,019 $10,274 $10,781 2.74% 7.81%
10/31/1997 $9,668 $9,931 $10,340 -3.34% -4.09%
11/30/1997 $9,514 $10,391 $10,106 4.63% -2.27%
12/31/1997 $8,774 $10,569 $9,919 1.72% -1.84%
01/31/1998 $9,121 $10,687 $9,615 1.11% -3.07%
02/28/1998 $9,665 $11,457 $9,814 7.21% 2.07%
03/31/1998 $9,514 $12,044 $10,661 5.12% 8.62%
04/30/1998 $10,156 $12,165 $10,697 1.01% 0.34%
05/31/1998 $9,843 $11,956 $9,849 -1.72% -7.93%
06/30/1998 $8,932 $12,442 $8,968 4.06% -8.95%
07/31/1998 $8,592 $12,308 $8,427 -1.07% -6.03%
08/31/1998 $6,678 $10,529 $6,383 -14.46% -24.26%
09/30/1998 $7,988 $11,204 $8,513 6.41% 33.37%
10/31/1998 $8,660 $12,114 $10,022 8.13% 17.73%
11/30/1998 $9,189 $12,849 $9,993 6.06% -0.29%
12/31/1998 $9,715 $13,589 $11,306 5.76% 13.14%
01/31/1999 $10,195 $14,157 $11,999 4.18% 6.13%
02/28/1999 $9,365 $13,716 $10,798 -3.11% -10.01%
03/31/1999 $9,200 $14,265 $11,417 4.00% 5.73%
04/30/1999 $8,992 $14,817 $11,673 3.87% 2.24%
05/31/1999 $9,061 $14,467 $12,282 -2.36% 5.22%
06/30/1999 $9,957 $15,270 $13,090 5.55% 6.58%
07/31/1999 $11,053 $14,794 $15,298 -3.12% 16.87%
08/31/1999 $12,064 $14,720 $16,416 -0.50% 7.31%
09/30/1999 $11,918 $14,317 $15,435 -2.74% -5.97%
10/31/1999 $12,148 $15,223 $16,047 6.33% 3.96%
11/30/1999 $13,728 $15,532 $17,594 2.03% 9.64%
12/31/1999 $19,227 $16,447 $23,906 5.89% 35.87%
01/31/2000 $23,031 $15,621 $26,469 -5.02% 10.72%
02/29/2000 $35,831 $15,326 $42,840 -1.89% 61.85%
03/31/2000 $27,186 $16,825 $30,530 9.78% -28.73%
04/30/2000 $23,270 $16,318 $29,761 -3.01% -2.52%
</TABLE>
*Source: Standard & Poor's Micropal.
**Source: American Stock Exchange.
Past performance does not guarantee future results.
FRANKLIN GLOBAL COMMUNICATIONS FUND
[PYRAMID GRAPHIC OMITTED]
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin Global Communications Fund seeks current income and
capital appreciation by investing in equity securities of companies that are
primarily engaged in providing communications services and communications
equipment.
--------------------------------------------------------------------------------
This annual report for Franklin Global Communications Fund covers the fiscal
year ended April 30, 2000. We are pleased to report that during this time, the
fund's Class A shares produced a +38.93% one-year cumulative total return as
shown in the Performance Summary on page 16. The fund's benchmark, the Standard
and Poor's(R) 500 Index (S&P 500(R)), rose 10.13% over the same period.(1)
Several factors drove the fund's strong performance. Most importantly, the
growth in Internet traffic and demand for wireless services surpassed
expectations of many investors, contributing to rapidly increasing revenue,
earnings and stock prices of some of our telecommunications holdings. Our
performance also benefited as privatization reduced government ownership of some
telecommunications companies, and many smaller, newer companies took advantage
of favorable regulations to win market share from their more established
counterparts.
1. Source: Standard and Poor's Micropal. The index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 46.
PORTFOLIO BREAKDOWN
Franklin Global Communications Fund
Based on Total Net Assets
4/30/00
<TABLE>
<S> <C>
Telecom Services................ 78.3%
Telecom Equipment............... 11.8%
Short-Term Investments
& Other Net Assets............ 9.9%
</TABLE>
On November 15, 1999, Franklin Global Utilities Fund officially changed its name
to Franklin Global Communications Fund. This change of name and investment
strategy was primarily a result of management's belief that communications
stocks offer superior growth prospects and reasonable valuations relative to
other sectors with comparable growth rates. Of course, investors should consider
carefully the substantial risks involved in a portfolio that concentrates on a
single industry sector, rather than diversifying across many different sectors.
We generally evaluate potential investments based on the fundamentals of each
individual company and the regulatory and economic environment in which it
operates. While we want to own industry leaders, we also strive to maintain
broad diversification by investing in smaller and emerging companies with new
products and technologies. In addition to research on individual companies, we
consider investment themes, which we feel have the possibility of positively
impacting the industry and individual companies. We believe this second layer of
analysis helps us position the fund for strong growth potential. During the
reporting period, we focused on the themes of wireless communications and the
Internet.
As noted above, wireless communications grew rapidly on a global basis during
the year under review. We focused on the U.S. market due to its relatively low
percentage of cellular phone users and strong growth prospects. Sprint PCS, one
of our holdings, is an example of this trend. It consistently added record
numbers of new subscribers during the twelve months under review. Outside the
U.S., wireless growth was also strong in western Europe, where in several
countries more than 50% of the population have cellular phones. In some cases,
this is higher than their wireline penetration, clearly signaling strong
acceptance of the technology. Asia has also experienced impressive growth in
wireless services. As of April 30, 2000, one of our holdings, NTT DoCoMo, had a
dominant market share of voice communications in Japan in addition to being the
world's leading provider of wireless data applications.
During the reporting period, increasing Internet usage was responsible for much
of the traffic growth on data networks. We believe this trend will continue as
corporations strive to increase productivity by giving employees Internet
access, including remote access to companies' communications networks. As the
number of users and the complexity of the information they send and retrieve
increases, both network service providers and network equipment providers should
benefit. Global Crossing, one of our holdings, is an example of a company that
is poised to benefit from these trends. It is presently building a
state-of-the-art global telecommunications network that, in our opinion, should
serve as a complete solution to its customers' telecommunications needs.
TOP 10 HOLDINGS
Franklin Global Communications Fund
4/30/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
----------------------------------------
<S> <C>
SBC Communications Inc. 3.3%
Telecom Services
GTE Corp. 3.3%
Telecom Services
MCI WorldCom Inc. 3.2%
Telecom Services
VoiceStream Wireless Corp. 3.2%
Telecom Services
Global Crossing LTD 3.1%
Telecom Services
BellSouth Corp. 3.0%
Telecom Services
US West Inc. 2.5%
Telecom Services
Corning Inc. 2.5%
Telecom Equipment
Vodafone AirTouch PLC, ADR 2.4%
Telecom Services
Allegiance Telecom Inc. 2.3%
Telecom Services
</TABLE>
Another company we feel strongly about is NEXTLINK Telecommunications, which is
benefiting from the surging demand for wireline communications. It is presently
constructing local networks in many U.S. cities that will be tied together with
a national network that is under construction. In many cases, NEXTLINK is
providing the first competition to the incumbent provider in the cities in which
it operates.
Looking forward, we are optimistic about the potential of global communications
companies to deliver strong shareholder returns over the long term. These
companies are selling services to a rapidly expanding segment of the economy in
both developed and emerging nations. New Internet applications must be
accompanied by improvements in telecommunications infrastructure that will allow
content to reach end users, and we believe wireless telecommunications growth
will continue to drive the need for network construction, new handsets and
additional functionality. Because the fund has exposure to all of these areas,
we feel it is well positioned to benefit from the changes occurring in global
communications.
That having been said, we think it is wise to maintain a healthy respect for the
past history of the American economy's business cycles, and traditional methods
of security valuations. By any of these traditional measures, many technology
companies are selling at unprecedented valuations. The volatility in the market
that we have seen in March and April may be a precursor of a return to
traditional price/earnings and book value analysis -- or it may be a temporary
bump in the road. However, one thing is clear. We cannot rely on the valuations
and performance of these stocks to continue in this manner indefinitely. We will
try our hardest to deliver last year's performance every year -- but no one
should expect that to be the case for this or any mutual fund.
/s/ Alex M. Peters
Alex M. Peters
Portfolio Manager
Franklin Global Communications Fund
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any industry, security, country or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance does not
guarantee future results, these insights may help you understand our investment
and management philosophy.
--------------------------------------------------------------------------------
FRANKLIN GLOBAL COMMUNICATIONS FUND
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
August 3, 1998, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Past expense reductions by the fund's manager
increased the fund's total returns.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to 1% initial sales charge and 1% CDSC for shares redeemed
within 18 months of investment. These shares have higher annual fees and
expenses than Class A shares.
ONE-YEAR PERFORMANCE SUMMARY AS OF 4/30/00
One-year total return does not include sales charges. Distributions will vary
based on earnings of the fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
CLASS A
One-Year Total Return +38.93%
Net Asset Value (NAV) $19.98 (4/30/00) $16.97 (4/30/99)
Change in NAV +$3.01
Distributions (5/1/99 - 4/30/00) Dividend Income $0.3500
Short-Term Capital Gain $1.2515
Long-Term Capital Gain $1.7138
---------------------------------
Total $3.3153
CLASS B
One-Year Total Return +37.98%
Net Asset Value (NAV) $19.79 (4/30/00) $16.92 (4/30/99)
Change in NAV +$2.87
Distributions (5/1/99 - 4/30/00) Dividend Income $0.3226
Short-Term Capital Gain $1.2515
Long-Term Capital Gain $1.7138
---------------------------------
Total $3.2879
CLASS C
One-Year Total Return +37.93%
Net Asset Value (NAV) $19.79 (4/30/00) $16.84 (4/30/99)
Change in NAV +$2.95
Distributions (5/1/99 - 4/30/00) Dividend Income $0.2216
Short-Term Capital Gain $1.2515
Long-Term Capital Gain $1.7138
---------------------------------
Total $3.1869
Franklin Global Communications Fund paid distributions derived from long-term
capital gains of $1.7138 per share in December 1999. The fund hereby designates
such distributions as capital gain dividends per Internal Revenue Code Section
852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 4/30/00
INCEPTION
CLASS A 1-YEAR 5-YEAR (7/2/92)
------------------------------------------------------------------------------
Cumulative Total Return(1) +38.93% +175.68% +273.04%
Average Annual Total Return(2) +30.91% +21.03% +17.42%
Value of $10,000 Investment(3) $13,091 $25,975 $35,159
INCEPTION
CLASS B 1-YEAR (1/1/99)
------------------------------------------------------------------------------
Cumulative Total Return(1) +37.98% +47.39%
Average Annual Total Return(2) +33.98% +31.16%
Value of $10,000 Investment(3) $13,398 $14,339
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
------------------------------------------------------------------------------
Cumulative Total Return(1) +37.93% +167.44% +167.44%
Average Annual Total Return(2) +35.56% +21.50% +21.50%
Value of $10,000 Investment(3) $13,556 $26,483 $26,483
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
--------------------------------------------------------------------------------
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
--------------------------------------------------------------------------------
FRANKLIN GLOBAL COMMUNICATIONS FUND
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS A
----------------------------------
1-Year +30.91%
5-Year +21.03%
Since Inception (7/2/92) +17.42%
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS B
----------------------------------
1-Year +33.98%
Since Inception (1/1/99) +31.16%
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged index differs
from the fund in composition, does not pay management fees or expenses and
includes reinvested dividends. One cannot invest directly in an index.
CLASS A (7/2/92 -- 4/30/00)
Period End Franklin Global S&P 500
Communications- Composite Index*
Class A
7/2/92 $9,425 $10,000
Jul-92 $9,510 $10,383
Aug-92 $9,491 $10,170
Sep-92 $9,453 $10,289
Oct-92 $9,529 $10,324
Nov-92 $9,680 $10,675
Dec-92 $9,943 $10,806
Jan-93 $10,124 $10,897
Feb-93 $10,506 $11,045
Mar-93 $10,764 $11,278
Apr-93 $10,840 $11,006
May-93 $10,964 $11,299
Jun-93 $11,134 $11,332
Jul-93 $11,357 $11,287
Aug-93 $12,083 $11,715
Sep-93 $12,209 $11,624
Oct-93 $12,780 $11,865
Nov-93 $12,296 $11,752
Dec-93 $13,068 $11,895
Jan-94 $13,284 $12,299
Feb-94 $12,588 $11,966
Mar-94 $12,195 $11,444
Apr-94 $12,362 $11,590
May-94 $12,362 $11,780
Jun-94 $11,881 $11,492
Jul-94 $12,413 $11,869
Aug-94 $12,700 $12,355
Sep-94 $12,516 $12,054
Oct-94 $12,618 $12,325
Nov-94 $12,137 $11,877
Dec-94 $11,919 $12,052
Jan-95 $12,180 $12,364
Feb-95 $12,284 $12,847
Mar-95 $12,420 $13,226
Apr-95 $12,754 $13,614
May-95 $13,473 $14,159
Jun-95 $13,409 $14,488
Jul-95 $13,676 $14,969
Aug-95 $13,505 $15,006
Sep-95 $14,147 $15,639
Oct-95 $14,169 $15,583
Nov-95 $14,639 $16,267
Dec-95 $15,193 $16,581
Jan-96 $15,480 $17,145
Feb-96 $15,502 $17,304
Mar-96 $15,469 $17,470
Apr-96 $15,722 $17,727
May-96 $16,030 $18,184
Jun-96 $16,306 $18,254
Jul-96 $15,646 $17,447
Aug-96 $16,116 $17,815
Sep-96 $16,328 $18,818
Oct-96 $16,741 $19,337
Nov-96 $17,378 $20,799
Dec-96 $17,474 $20,387
Jan-97 $18,371 $21,661
Feb-97 $18,285 $21,830
Mar-97 $17,622 $20,933
Apr-97 $17,757 $22,183
May-97 $19,083 $23,534
Jun-97 $19,782 $24,588
Jul-97 $20,380 $26,545
Aug-97 $19,445 $25,059
Sep-97 $20,778 $26,432
Oct-97 $19,919 $25,549
Nov-97 $20,915 $26,732
Dec-97 $22,185 $27,192
Jan-98 $21,933 $27,494
Feb-98 $23,068 $29,476
Mar-98 $24,764 $30,985
Apr-98 $24,330 $31,298
May-98 $23,377 $30,760
Jun-98 $24,105 $32,009
Jul-98 $23,709 $31,666
Aug-98 $20,139 $27,087
Sep-98 $20,986 $28,824
Oct-98 $21,748 $31,167
Nov-98 $22,312 $33,056
Dec-98 $23,622 $34,960
Jan-99 $23,622 $36,421
Feb-99 $22,713 $35,288
Mar-99 $23,399 $36,700
Apr-99 $25,307 $38,120
May-99 $25,591 $37,221
Jun-99 $26,936 $39,286
Jul-99 $26,951 $38,061
Aug-99 $26,557 $37,870
Sep-99 $26,648 $36,833
Oct-99 $29,177 $39,164
Nov-99 $31,584 $39,959
Dec-99 $35,810 $42,313
Jan-00 $35,898 $40,189
Feb-00 $39,682 $39,429
Mar-00 $39,752 $43,285
Apr-00 $35,159 $41,982
*Source: Standard and Poor's Micropal.
CLASS B (1/1/99 -- 4/30/00)
Period End Franklin Global S&P 500 Composite
Communications-Class B Index*
1/1/99 $10,000 $10,000
Jan-99 $9,994 $10,418
Feb-99 $9,602 $10,094
Mar-99 $9,886 $10,498
Apr-99 $10,682 $10,904
May-99 $10,802 $10,647
Jun-99 $11,355 $11,238
Jul-99 $11,355 $10,887
Aug-99 $11,182 $10,833
Sep-99 $11,214 $10,536
Oct-99 $12,271 $11,203
Nov-99 $13,277 $11,430
Dec-99 $15,044 $12,103
Jan-00 $15,074 $11,496
Feb-00 $16,646 $11,278
Mar-00 $16,668 $12,381
Apr-00 $14,339 $12,009
*Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
CLASS C (5/1/95 - 4/30/00)
Period End Franklin Global S&P 500 Composite
Communications- Index*
Class C
5/1/95 $9,902 $10,000
May-95 $10,504 $10,400
Jun-95 $10,449 $10,641
Jul-95 $10,641 $10,995
Aug-95 $10,507 $11,022
Sep-95 $10,991 $11,487
Oct-95 $11,008 $11,446
Nov-95 $11,358 $11,948
Dec-95 $11,825 $12,179
Jan-96 $12,030 $12,593
Feb-96 $12,039 $12,710
Mar-96 $12,004 $12,832
Apr-96 $12,193 $13,021
May-96 $12,424 $13,357
Jun-96 $12,628 $13,407
Jul-96 $12,116 $12,815
Aug-96 $12,472 $13,085
Sep-96 $12,619 $13,822
Oct-96 $12,932 $14,203
Nov-96 $13,409 $15,277
Dec-96 $13,480 $14,975
Jan-97 $14,155 $15,911
Feb-97 $14,089 $16,035
Mar-97 $13,566 $15,376
Apr-97 $13,661 $16,294
May-97 $14,678 $17,286
Jun-97 $15,221 $18,060
Jul-97 $15,663 $19,498
Aug-97 $14,942 $18,406
Sep-97 $15,951 $19,415
Oct-97 $15,278 $18,766
Nov-97 $16,038 $19,635
Dec-97 $17,000 $19,973
Jan-98 $16,806 $20,195
Feb-98 $17,658 $21,651
Mar-98 $18,952 $22,759
Apr-98 $18,607 $22,989
May-98 $17,863 $22,594
Jun-98 $18,403 $23,511
Jul-98 $18,089 $23,259
Aug-98 $15,358 $19,896
Sep-98 $15,997 $21,171
Oct-98 $16,561 $22,893
Nov-98 $16,983 $24,280
Dec-98 $17,980 $25,678
Jan-99 $17,957 $26,752
Feb-99 $17,250 $25,920
Mar-99 $17,764 $26,956
Apr-99 $19,200 $28,000
May-99 $19,417 $27,339
Jun-99 $20,406 $28,856
Jul-99 $20,406 $27,956
Aug-99 $20,106 $27,816
Sep-99 $20,152 $27,054
Oct-99 $22,058 $28,766
Nov-99 $23,871 $29,350
Dec-99 $27,045 $31,079
Jan-00 $27,098 $29,519
Feb-00 $29,922 $28,961
Mar-00 $29,962 $31,794
Apr-00 $26,483 $30,837
*Source: Standard and Poor's Micropal.
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS C
----------------------------------
1-Year +35.56%
5-Year +21.50%
Since Inception (5/1/95) +21.50%
*Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
[Pyramid Graph Omitted]
FRANKLIN GLOBAL HEALTH CARE FUND
Your Fund's Goal: Franklin Global Health Care Fund seeks capital appreciation by
investing primarily in equity securities of health care companies, including
small capitalization companies, located throughout the world.
This annual report of Franklin Global Health Care Fund covers the fiscal year
ended April 30, 2000 -- one of the most volatile periods ever experienced by the
U.S. equity markets. A rush to participate in the "new economy" caused many
investors to ignore traditional valuation standards such as price/earnings
considerations, opting instead to reinvent how stocks are valued. Many companies
that were older, household names saw their stocks languish while shares in
computer, high technology and Internet-related companies with little revenues
and massive losses soared to astronomical levels. However, in March and April
2000, the trend was reversed and, for a while, "old economy" stocks roared back
to life, serving as a haven for investors fleeing the sharp decline of the new
economy high flyers. By the end of the reporting period, after much jockeying
back and forth, both old and new economy stocks had fallen appreciably from
their fiscal year highs.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 52.
Within this environment, Franklin Global Health Care Fund - Class A posted a
+46.18% one-year cumulative total return, as shown in the Performance Summary on
page 26. The fund's benchmark, the Standard & Poor's 500 (S&P 500) Composite
Index, rose just 10.13% during the same period.(1)
The health care sector was no exception to the old economy/new economy scenario
described above. For most of the period, large-cap pharmaceutical stocks
suffered due to their old economy status and uncertainties about potential
government legislation that would give prescription drug benefits to Medicare
recipients. Meanwhile, aggressive growth-seeking investors flocked to
biotechnology stocks, sparking the first rally in this sub-sector since 1991.
In keeping with its objective, the fund invested substantially in rapidly
growing, small capitalization health care stocks. While this investment strategy
had contributed to poor performance in some prior periods, it proved to be the
sweet spot of health care during the period under review, and the fund generally
benefited from its exposure to the biotechnology, medical device and health care
service sectors.
1. Source: Standard and Poor's Micropal. The S&P 500 Index is unmanaged and
includes reinvested dividends. One cannot invest directly in an index, nor is an
index representative of the fund's portfolio.
GEOGRAPHIC DISTRIBUTION
Franklin Global Health Care Fund
Based on Total Net Assets
4/30/00
United States 83.8%
United Kingdom 4.6%
Switzerland 0.9%
Australia 0.6%
Short-Term Investments
& Other Net Assets 10.1%
PORTFOLIO BREAKDOWN
Franklin Global Health Care Fund
Based on Total Net Assets
4/30/00
Percentage
Major Pharmaceuticals 28.2%
Medical Specialties 23.0%
Biotechnology 15.4%
Hospital/Nursing Management 6.0%
Generic Drugs 4.5%
Services to the Health Industry 3.1%
Multi-Line Insurance 2.9%
Other Pharmaceuticals 2.1%
Managed Health Care 2.0%
Other Sectors 2.8%
Short-Term Investments
& Other Net Assets 10.0%
During the reporting period, improving fundamentals of many biotechnology
companies provided a basis for an unprecedented rally that spanned nearly every
company within the sector. While we were early on the fundamentals and
maintained a 10%-15% biotech weighting for all of 1999, we recognized the shift
in investor perception and doubled our weighting in December to approximately
20% of total net assets. As the biotechnology rally accelerated after Y2K
computer bug concerns passed, we added a few more positions and allowed our
holdings to appreciate until they represented over 35% of the fund by early
March. Of course, nothing lasts forever, and by the end of April, money was
flowing out of the sector and we took some profits, reducing our biotechnology
weighting to less than 16% of total net assets at period's end.
Three of our top-performing biotechnology stocks were Inhale Therapeutic
Systems, Abgenix and COR Therapeutics. Longtime shareholders of Inhale
Therapeutic Systems, we have patiently waited for their product pipeline to pay
off. Their lead compound is an inhaled insulin product for diabetes that
promises to reduce, and possibly eliminate, the need for insulin injections. It
is currently in final, phase III trials and preliminary results have been
excellent. Abgenix, whose shares we purchased in the fall of 1999, has developed
a mouse that has been genetically engineered with a human immune system. Called
Xenomouse(TM), it allows researchers to study the body's immune response and
create drugs that are active in humans. In our opinion, Abgenix possesses one of
the best product pipelines in the sector. In the fourth quarter of 1999, we
initiated a position in COR Therapeutics, a more established biotechnology
company that is currently marketing Integrillin(TM), an injectable anti-clotting
drug. We believe Integrillin is on the verge of growth acceleration and is
poised to take a share of the market from its competitors.
In addition to our biotechnology holdings, we maintained a core investment in
major, large-cap pharmaceutical stocks that meet our investment criteria (at
just over 28% of total net assets on April 30, 2000). Although the near-term
outlook for some of these companies is clouded by the potential impact of
forthcoming government legislation that may give prescription drug benefits to
Medicare recipients, most of them have established brand franchises, large sales
forces, excellent management and strong financial fundamentals -- all of which
make them extremely attractive long-term investments. One of our largest
holdings, Warner-Lambert, recently agreed to merge with Pfizer. We expect the
new Pfizer to be the largest and fastest-growing pharmaceutical company in the
world. During the period, we also initiated positions in Abbott and Johnson &
Johnson because we believed their stocks had declined to very attractive
valuations.
TOP 10 HOLDINGS
Franklin Global Health Care Fund
4/30/00
COMPANY % OF TOTAL
SECTOR, COUNTRY NET ASSETS
--------------- ----------
Baxter International Inc., 5.4%
Medical Specialties,
United States
Schering-Plough Corp., 5.3%
Major Pharmaceuticals,
United States
Pharmacia Corp., 5.0%
Major Pharmaceuticals,
United States
Bristol-Myers Squibb Co., 4.8%
Major Pharmaceuticals,
United States
Warner-Lambert Co., 4.5%
Major Pharmaceuticals,
United States
Inhale Therapeutic 3.3%
Systems Inc.,
Medical Specialties,
United States
CIGNA Corp., 2.9%
Multi-Line Insurance,
United States
COR Therapeutics Inc., 2.7%
Biotechnology,
United States
Universal Health 2.6%
Services Inc., B,
Hospital/Nursing Management,
United States
Eli Lilly & Co., 2.4%
Major Pharmaceuticals,
United States
Looking forward, we are optimistic about prospects for the health care sector.
Demand for health care services and products is not necessarily affected by
cyclical swings in the business cycle. Driven by rapidly changing technology,
increased life expectancy and an aging population, health care companies should,
in our opinion, prove to be good investments. Having said this, we believe it is
important to sound a note of caution. Investors should not have unrealistic
expectations that the ongoing performance of this, or any fund, will deliver
returns like those of this past year. In any given year, we may see some
corrections. In addition, health care and biotechnology companies that appear
promising today may be eclipsed by even newer, more cutting-edge competitors.
We are very proud of the fund's performance during the past year. Although we
would like to bring you similar news next year, we cannot promise that this will
be possible.
We appreciate your participation in Franklin Global Health Care Fund and look
forward to servicing your investment needs in the years to come. Our goal, as
always, is to seize upon the investment opportunities which 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 health care companies.
Sincerely,
/s/ Kurt von Emster
Kurt von Emster
Portfolio Manager
Franklin Global Health Care Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy. 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.
FRANKLIN GLOBAL
HEALTH CARE FUND
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
August 3, 1998, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Past expense reductions by the fund's manager
increased the fund's total returns. Without this reduction, total returns would
have been lower.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to 1% initial sales charge and 1% CDSC for shares redeemed
within 18 months of investment. These shares have higher annual fees and
expenses than Class A shares.
ONE-YEAR PERFORMANCE SUMMARY
AS OF 4/30/00
One-year total return does not include sales charges. Distributions will vary
based on earnings of the fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of the operating expenses
for each class. Past distributions are not indicative of future trends. All
total returns include reinvested distributions at net asset value.
CLASS A
One-Year Total Return +46.18%
Net Asset Value (NAV) $20.29 (4/30/00) $13.88 (4/30/99)
Change in NAV +$6.41
CLASS B
One-Year Total Return +45.16%
Net Asset Value (NAV) $20.09 (4/30/00) $13.84 (4/30/99)
Change in NAV +$6.25
CLASS C
One-Year Total Return +45.08%
Net Asset Value (NAV) $19.89 (4/30/00) $13.71 (4/30/99)
Change in NAV +$6.18
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 4/30/00
INCEPTION
CLASS A 1-YEAR 5-YEAR (2/14/92)
------- ------ ------ ---------
Cumulative Total Return(1) +46.18% +110.53% +167.71%
Average Annual Total Return(2) +37.75% +14.69% +11.94%
Value of $10,000 Investment(3) $13,775 $19,840 $25,232
INCEPTION
CLASS B 1-YEAR (1/1/99)
------- ------ ---------
Cumulative Total Return(1) +45.16% +18.39%
Average Annual Total Return(2) +41.16% +10.64%
Value of $10,000 Investment(3) $14,116 $11,439
INCEPTION
CLASS C 1-YEAR 3-YEAR (9/3/96)
------- ------ ------ ---------
Cumulative Total Return(1) +45.08% +32.11% +25.18%
Average Annual Total Return(2) +42.62% +9.37% +6.04%
Value of $10,000 Investment(3) $14,262 $13,081 $12,389
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Since markets can go down as well as up, 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 does not guarantee future results.
FRANKLIN GLOBAL
HEALTH CARE FUND
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charges, fund
expenses, account fees and reinvested distributions. The unmanaged index differs
from the fund in composition, does not pay management fees or expenses and
includes reinvested dividends. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS A
-------
1-Year +37.75%
5-Year +14.69%
Since Inception (2/14/92) +11.94%
CLASS A (2/14/92 - 4/30/00)
Franklin Global Health Care S&P 500 Index
Fund - Class A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
2/14/92 $9,425 $10,000 S&P 500 $T
2/92 $9,661 $10,067 0.67%
3/92 $8,963 $9,870 -1.95%
4/92 $8,332 $10,161 2.94%
5/92 $8,549 $10,210 0.49%
6/92 $8,229 $10,058 -1.49%
7/92 $8,779 $10,470 4.09%
8/92 $8,485 $10,255 -2.05%
9/92 $8,296 $10,375 1.17%
10/92 $8,693 $10,410 0.34%
11/92 $9,328 $10,764 3.40%
12/92 $9,477 $10,897 1.23%
1/93 $9,477 $10,988 0.84%
2/93 $8,211 $11,138 1.36%
3/93 $8,306 $11,373 2.11%
4/93 $8,449 $11,097 -2.42%
5/93 $8,877 $11,394 2.67%
6/93 $9,172 $11,427 0.29%
7/93 $8,684 $11,381 -0.40%
8/93 $8,837 $11,812 3.79%
9/93 $9,057 $11,721 -0.77%
10/93 $9,621 $11,964 2.07%
11/93 $9,917 $11,850 -0.95%
12/93 $10,065 $11,994 1.21%
1/94 $11,063 $12,402 3.40%
2/94 $10,974 $12,065 -2.71%
3/94 $10,411 $11,539 -4.36%
4/94 $10,302 $11,687 1.28%
5/94 $10,421 $11,879 1.64%
6/94 $9,964 $11,588 -2.45%
7/94 $10,406 $11,968 3.28%
8/94 $11,431 $12,459 4.10%
9/94 $11,622 $12,155 -2.44%
10/94 $11,893 $12,428 2.25%
11/94 $11,783 $11,976 -3.64%
12/94 $11,503 $12,153 1.48%
1/95 $11,566 $12,468 2.59%
2/95 $12,027 $12,954 3.90%
3/95 $12,561 $13,336 2.95%
4/95 $11,985 $13,728 2.94%
5/95 $12,341 $14,277 4.00%
6/95 $12,741 $14,608 2.32%
7/95 $13,921 $15,093 3.32%
8/95 $14,701 $15,131 0.25%
9/95 $15,565 $15,770 4.22%
10/95 $15,481 $15,713 -0.36%
11/95 $16,250 $16,403 4.39%
12/95 $17,783 $16,719 1.93%
1/96 $19,097 $17,288 3.40%
2/96 $20,037 $17,449 0.93%
3/96 $20,773 $17,616 0.96%
4/96 $21,894 $17,875 1.47%
5/96 $22,246 $18,336 2.58%
6/96 $21,170 $18,406 0.38%
7/96 $18,267 $17,592 -4.42%
8/96 $19,696 $17,964 2.11%
9/96 $21,272 $18,975 5.63%
10/96 $19,514 $19,499 2.76%
11/96 $19,968 $20,973 7.56%
12/96 $20,712 $20,557 -1.98%
1/97 $21,385 $21,842 6.25%
2/97 $21,385 $22,013 0.78%
3/97 $19,541 $21,108 -4.11%
4/97 $18,682 $22,368 5.97%
5/97 $20,897 $23,730 6.09%
6/97 $22,683 $24,793 4.48%
7/97 $23,333 $26,767 7.96%
8/97 $23,136 $25,268 -5.60%
9/97 $25,664 $26,653 5.48%
10/97 $24,145 $25,762 -3.34%
11/97 $23,240 $26,955 4.63%
12/97 $22,825 $27,419 1.72%
1/98 $22,800 $27,723 1.11%
2/98 $23,347 $29,722 7.21%
3/98 $24,117 $31,244 5.12%
4/98 $23,955 $31,559 1.01%
5/98 $22,502 $31,017 -1.72%
6/98 $22,079 $32,276 4.06%
7/98 $20,712 $31,931 -1.07%
8/98 $16,065 $27,313 -14.46%
9/98 $18,165 $29,064 6.41%
10/98 $18,799 $31,427 8.13%
11/98 $19,967 $33,332 6.06%
12/98 $21,103 $35,251 5.76%
1/99 $21,265 $36,725 4.18%
2/99 $18,840 $35,583 -3.11%
3/99 $18,504 $37,006 4.00%
4/99 $17,261 $38,438 3.87%
5/99 $17,261 $37,531 -2.36%
6/99 $18,206 $39,614 5.55%
7/99 $18,430 $38,378 -3.12%
8/99 $18,156 $38,186 -0.50%
9/99 $17,422 $37,140 -2.74%
10/99 $17,758 $39,491 6.33%
11/99 $19,089 $40,293 2.03%
12/99 $20,942 $42,666 5.89%
1/00 $22,571 $40,524 -5.02%
2/00 $27,968 $39,758 -1.89%
3/00 $25,605 $43,646 9.78%
4/00 $25,232 $42,333 -3.01%
*Source: Standard & Poor's Micropal.
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS B
-------
1-Year +41.16%
Since Inception (1/1/99) +10.64%
</TABLE>
<TABLE>
<CAPTION>
CLASS B (1/1/99 - 4/30/00)
Franklin Global Health Care Fund S&P 500 Index S&P 500 $T
- Class B
<S> <C> <C> <C>
1/1/99 $10,000 10,000
1/99 $10,059 10,418 4.18%
2/99 $8,910 10,094 -3.11%
3/99 $8,745 10,498 4.00%
4/99 $8,156 10,904 3.87%
5/99 $8,150 10,647 -2.36%
6/99 $8,592 11,238 5.55%
7/99 $8,692 10,887 -3.12%
8/99 $8,556 10,833 -0.50%
9/99 $8,209 10,536 -2.74%
10/99 $8,362 11,203 6.33%
11/99 $8,975 11,430 2.03%
12/99 $9,847 12,103 5.89%
1/00 $10,607 11,496 -5.02%
2/00 $13,129 11,278 -1.89%
3/00 $12,021 12,381 9.78%
4/00 $11,439 12,009 -3.01%
</TABLE>
*Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
CLASS C (9/3/96 - 4/30/00)
<TABLE>
<CAPTION>
Franklin Global S&P 500 Index S&P 500 $T
Health Care Fund -
Class C
<S> <C> <C> <C> <C>
9/3/96 $9,897 $10,000
9/96 $10,720 $10,563 5.63%
10/96 $9,823 $10,855 2.76%
11/96 $10,040 $11,675 7.56%
12/96 $10,417 $11,444 -1.98%
1/97 $10,743 $12,159 6.25%
2/97 $10,738 $12,254 0.78%
3/97 $9,810 $11,750 -4.11%
4/97 $9,378 $12,452 5.97%
5/97 $10,475 $13,210 6.09%
6/97 $11,368 $13,802 4.48%
7/97 $11,683 $14,901 7.96%
8/97 $11,578 $14,066 -5.60%
9/97 $12,838 $14,837 5.48%
10/97 $12,062 $14,342 -3.34%
11/97 $11,601 $15,006 4.63%
12/97 $11,389 $15,264 1.72%
1/98 $11,370 $15,433 1.11%
2/98 $11,632 $16,546 7.21%
3/98 $12,011 $17,393 5.12%
4/98 $11,931 $17,569 1.01%
5/98 $11,196 $17,266 -1.72%
6/98 $10,985 $17,967 4.06%
7/98 $10,300 $17,775 -1.07%
8/98 $7,979 $15,205 -14.46%
9/98 $9,018 $16,180 6.41%
10/98 $9,323 $17,495 8.13%
11/98 $9,895 $18,555 6.06%
12/98 $10,458 $19,624 5.76%
1/99 $10,533 $20,444 4.18%
2/99 $9,325 $19,808 -3.11%
3/99 $9,157 $20,601 4.00%
4/99 $8,540 $21,398 3.87%
5/99 $8,534 $20,893 -2.36%
6/99 $9,001 $22,053 5.55%
7/99 $9,107 $21,364 -3.12%
8/99 $8,957 $21,258 -0.50%
9/99 $8,596 $20,675 -2.74%
10/99 $8,752 $21,984 6.33%
11/99 $9,399 $22,430 2.03%
12/99 $10,309 $23,751 5.89%
1/00 $11,106 $22,559 -5.02%
2/00 $13,747 $22,133 -1.89%
3/00 $12,582 $24,297 9.78%
4/00 $12,389 $23,566 -3.01%
</TABLE>
*Source: Standard * Poor's Micropal.
AVERAGE ANNUAL TOTAL
RETURN
4/30/00
CLASS C
-------
1-Year +42.62%
3-Year +9.37%
Since Inception (9/3/96) +6.04%
*Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
[Pyramid Graph Omitted]
FRANKLIN NATURAL RESOURCES FUND
Your Fund's Goal: Franklin Natural Resources Fund seeks high total return by
investing at least 65% of its total assets in securities of companies that own,
produce, refine, process or market natural resources, as well as those that
provide support services for natural resources companies.
We are pleased to bring you this annual report of Franklin Natural Resources
Fund, which covers the fiscal year ended April 30, 2000. During this period,
economic recovery in Asia and a growing global demand for natural resources
contributed to rising prices for many commodities. Within this environment,
Franklin Natural Resources - Class A delivered a +19.47% one-year cumulative
total return as shown in the Performance Summary on page 36. The Financial
Times/Standard & Poor's (Fin. Times/S&P) AW Energy and Basic Industries Index
and the Standard and Poor's(R) 500 Index (S&P 500(R)), the fund's benchmarks,
delivered -4.49% and +10.13%, respectively, over the same period.(1)
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 56.
During the reporting period, the fund's performance benefited significantly from
its overweight position in the energy sector relative to the Fin. Times/S&P
Index. Within this sector, our portfolio was largely weighted towards natural
gas, which exhibited more predictable supply and demand fundamentals than crude
oil. Due to the Organization of Petroleum Exporting Countries' (OPEC) decision
to cut oil production, crude oil prices surged to a post-Gulf War high of more
than $34 a barrel by March 7, 2000. However, prices of oil stocks fell in value
because many investors believed that high crude oil prices were not sustainable.
And in fact, oil prices weakened after OPEC announced in late March that it
would boost quotas by 1.7 million barrels a day.
Our holdings of oil and gas exploration and development companies Newfield
Exploration, EOG Resources (formerly Enron Oil & Gas) and Apache performed well
and contributed significantly to the fund's performance. Newfield and EOG have
75% and 85% of their production and reserves in natural gas while Apache has 50%
of its production and reserves in crude oil and 50% in natural gas.
1. Source: Standard and Poor's Micropal. The Fin. Times/S&P AW Energy and Basic
Industries Index is a composite of 50% Fin. Times/S&P AW Energy Index and 50%
Fin. Times/S&P AW Basic Industries Index. It includes various natural resources
industries dealing with: construction and building materials, chemicals, mining,
metals, minerals, precious metals and minerals, forestry and paper products, and
fabricated metal products as well as with oil internationals, crude producers,
petroleum products and refineries, non-oil energy sources, and energy equipment
and services. The S&P 500 Composite Index measures the performance of 500
domestic stocks. The indexes are unmanaged and include reinvested dividends. One
cannot invest directly in an index, nor is an index representative of the fund's
portfolio.
PORTFOLIO BREAKDOWN
Franklin Natural Resources Fund
Based on Total Net Assets
4/30/00
Energy Minerals 34.0%
Industrial Services 21.8%
Process Industries 13.0%
Non-Energy Minerals 12.8%
Utilities 6.4%
Finance 2.3%
Transportation 1.4%
Short-Term Investments &
Other Net Assets 8.3%
GEOGRAPHIC DISTRIBUTION
Franklin Natural Resources Fund
Based on Total Net Assets
4/30/00
United States 77.3%
Canada 6.9%
Asia 3.2%
Europe 3.1%
Africa 1.2%
Short-Term Investments &
Other Net Assets 8.3%
Within the industrial services sector, we reduced our positions in domestic oil
field services companies and purchased shares of those with more deep-water
operations and international exposure. For example, we sold our holdings in BJ
Services, ENSCO International and Nabors Industries and purchased more shares in
Baker Hughes and Diamond Offshore Drilling. Baker Hughes is the world's
third-largest oil field service company while Diamond Offshore is a leading
deepwater drilling contractor that owns and operates one of the world's largest
fleets of offshore drilling units. In our opinion, these stocks offered
attractive valuations and risk/reward characteristics.
The fund's performance was negatively impacted by its holdings of gold, precious
metals and base metals companies, which underperformed other natural resource
companies. It was also hindered by our relatively large position in paper and
forest products. However, believing that the sector will improve due to supply
constraints and increased global demand, we increased our weighting in pulp,
paper and newsprint stocks during the period.
Looking forward, we believe that demand for natural resources will continue to
expand as global gross domestic product grows. Although we expect commodity
prices to trend higher in the near future, we do not purchase securities based
solely on that assumption. We combine top-down industry research with bottom-up
stock analysis to identify companies that are likely to outperform the broader
market. Consequently, investments in the fund's portfolio typically have strong
market positions, superior management, healthy balance sheets and visible
earnings growth. In our opinion, the fund is well positioned to benefit from
these holdings over the longer term, and we are optimistic about its ability to
provide attractive returns for our shareholders.
It is important to remember, however, that investing in the fund involves the
special risks of a non-diversified, sector fund, as well as the currency
volatility and social, political, economic or regulatory uncertainty associated
with foreign, and especially developing market, investing.
TOP 10 HOLDINGS
Franklin Natural Resources Fund
4/30/00
COMPANY % OF TOTAL
SECTOR, COUNTRY NET ASSETS
--------------- ----------
Weatherford 3.2%
International Inc.
Industrial Services, U.S.
Conoco Inc., B 3.1%
Energy Minerals, U.S.
Baker Hughes Inc. 2.9%
Industrial Services, U.S.
Newfield Exploration Co. 2.6%
Energy Minerals, U.S.
Barrett Resources Corp. 2.5%
Energy Minerals, U.S.
Bowater Inc. 2.5%
Process Industries, U.S.
Diamond Offshore 2.4%
Drilling Inc.
Industrial Services, U.S.
Transocean Sedco Forex Inc. 2.4%
Industrial Services, U.S.
EOG Resources Inc. 2.3%
Energy Minerals, U.S.
IMC Global/Merrill Lynch, 2.3%
6.25%, cvt. pfd., IGL
Finance, U.S.
We thank you for your participation in Franklin Natural Resources Fund and look
forward to serving your investment needs in the future. Please feel free to
contact us with your comments or questions.
/s/ Michael R. Ward
Michael R. Ward
/s/ Stephen M. Land
Stephen M. Land
Portfolio Managers
Franklin Natural Resources Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
MICHAEL R. WARD
Michael R. Ward is a portfolio manager of Franklin Natural Resources Fund and
Franklin Valuemark Natural Resources Fund.
Mr. Ward joined Franklin Templeton in 1992 and worked as an equity analyst for
Templeton Global Investors, Inc. for three years. He received a Bachelor of
Science degree in Engineering from Kansas State University. He is a Chartered
Financial Analyst (CFA) level III candidate.
STEPHEN M. LAND
Stephen M. Land is a research analyst for Franklin Advisers, Inc. and portfolio
manager of Franklin Natural Resources Fund, Franklin Gold and Precious Metals
Fund and Franklin Valuemark Natural Resources Fund.
Mr. Land joined Franklin Templeton's Management Training Program in 1997. He
spent his first two years as a research analyst specializing in gold and
precious metals. He received a Bachelor of Science degree in Managerial
Economics from the University of California at Davis.
FRANKLIN NATURAL
RESOURCES FUND
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
August 3, 1998, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ.*
ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees and are available to a
limited class of investors.*
*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, total returns would have been lower. The
waiver may be discontinued at any time upon notice to the fund's Board of
Directors.
ONE-YEAR PERFORMANCE SUMMARY
AS OF 4/30/00
One-year total return does not include sales charges. Distributions will vary
based on earnings of the fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of the operating expenses
for each class. Past distributions are not indicative of future trends. All
total returns include reinvested distributions at net asset value.
CLASS A
One-Year Total Return +19.47%
Net Asset Value (NAV) $15.74 (4/30/00) $13.25 (4/30/99)
Change in NAV +$2.49
Distributions (5/1/99 - 4/30/00) Dividend Income $0.0767
ADVISOR CLASS
One-Year Total Return +19.91%
Net Asset Value (NAV) $16.24 (4/30/00) $13.63 (4/30/99)
Change in NAV +$2.61
Distributions (5/1/99 - 4/30/00) Dividend Income $0.0885
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
As of 4/30/00
INCEPTION
CLASS A 1-YEAR 3-YEAR (6/5/95)
------- ------ ------ --------
Cumulative Total Return(1) +19.47% +21.61% +78.76%
Average Annual Total Return(2) +12.59% +4.65% +11.22%
Value of $10,000 Investment(3) $11,259 $11,460 $16,849
INCEPTION
ADVISOR CLASS 4 1-YEAR 3-YEAR (6/5/95)
-------------- ------ ------ --------
Cumulative Total Return(1) +19.91% +26.79% +88.16%
Average Annual Total Return(2) +19.91% +8.23% +13.76%
Value of $10,000 Investment(3) $11,991 $12,679 $18,816
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
4. On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Since January 2, 1997 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were +21.69% and +6.07%, respectively.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN NATURAL
RESOURCES FUND
AVERAGE ANNUAL TOTAL RETURN
4/30/00
CLASS A
-------
1-Year +12.59%
3-Year +4.65%
Since Inception (6/5/95) +11.22%
CLASS A (6/5/95 - 4/30/00)
Date Franklin S&P Fin. Times/
Natural 500 S&P Energy
Resources Index & Basic
Fund - Industries
Class A Index
06/05/1995 $9,425 $10,000 $10,000
06/30/1995 $9,538 $10,193 $9,824
07/31/1995 $9,727 $10,531 $10,302
08/31/1995 $9,764 $10,558 $9,997
09/30/1995 $9,698 $11,003 $10,107
10/31/1995 $9,321 $10,964 $9,896
11/30/1995 $9,783 $11,445 $10,242
12/31/1995 $10,436 $11,666 $10,624
01/31/1996 $10,943 $12,062 $10,821
02/29/1996 $11,048 $12,175 $10,895
03/31/1996 $11,737 $12,292 $11,348
04/30/1996 $12,569 $12,472 $11,653
05/31/1996 $12,798 $12,794 $11,604
06/30/1996 $12,796 $12,843 $11,571
07/31/1996 $11,952 $12,275 $11,184
08/31/1996 $12,719 $12,534 $11,394
09/30/1996 $13,170 $13,240 $11,745
10/31/1996 $13,678 $13,605 $11,994
11/30/1996 $14,493 $14,634 $12,421
12/31/1996 $14,574 $14,344 $12,359
01/31/1997 $14,968 $15,240 $12,424
02/28/1997 $14,416 $15,359 $12,328
03/31/1997 $13,796 $14,728 $12,501
04/30/1997 $13,855 $15,607 $12,502
05/31/1997 $15,076 $16,558 $13,226
06/30/1997 $15,231 $17,299 $13,691
07/31/1997 $15,716 $18,677 $14,183
08/31/1997 $16,290 $17,631 $13,526
09/30/1997 $17,497 $18,597 $14,097
10/31/1997 $16,904 $17,976 $13,255
11/30/1997 $15,182 $18,808 $12,777
12/31/1997 $15,108 $19,131 $12,538
01/31/1998 $14,192 $19,344 $12,521
02/28/1998 $14,950 $20,738 $13,235
03/31/1998 $15,688 $21,800 $13,794
04/30/1998 $16,289 $22,020 $14,165
05/31/1998 $14,993 $21,642 $13,864
06/30/1998 $14,073 $22,520 $13,480
07/31/1998 $12,484 $22,279 $12,686
08/31/1998 $9,527 $19,058 $10,957
09/30/1998 $11,318 $20,279 $11,842
10/31/1998 $12,102 $21,928 $12,449
11/30/1998 $11,201 $23,257 $12,637
12/31/1998 $11,176 $24,597 $12,519
01/31/1999 $10,633 $25,625 $11,900
02/28/1999 $10,313 $24,828 $11,928
03/31/1999 $11,878 $25,821 $13,240
04/30/1999 $14,103 $26,820 $15,144
05/31/1999 $13,432 $26,187 $14,299
06/30/1999 $14,387 $27,641 $14,818
07/31/1999 $14,761 $26,778 $15,331
08/31/1999 $14,986 $26,644 $15,305
09/30/1999 $14,633 $25,914 $14,982
10/31/1999 $13,969 $27,555 $14,940
11/30/1999 $14,055 $28,114 $14,988
12/31/1999 $14,922 $29,770 $15,638
01/31/2000 $14,536 $28,275 $14,555
02/29/2000 $14,408 $27,741 $13,502
03/31/2000 $16,966 $30,454 $14,911
04/30/2000 $16,849 $29,537 $14,463
*Source: Standard & Poor's Micropal.
AVERAGE ANNUAL TOTAL RETURN
4/30/00
ADVISOR CLASS**
---------------
1-Year +19.91%
3-Year +8.23%
Since Inception (6/5/95) +13.76%
ADVISOR CLASS** (6/5/95 - 4/30/00)
Date Franklin S&P Fin. Times/
Natural 500 S&P Energy
Resources Index & Basic
Fund - Industries
Advisor Index
Class
06/05/1995 $10,000 $10,000 $10,000
06/30/1995 $10,120 $10,193 $9,824
07/31/1995 $10,320 $10,531 $10,302
08/31/1995 $10,360 $10,558 $9,997
09/30/1995 $10,290 $11,003 $10,107
10/31/1995 $9,890 $10,964 $9,896
11/30/1995 $10,380 $11,445 $10,242
12/31/1995 $11,072 $11,666 $10,624
01/31/1996 $11,610 $12,062 $10,821
02/29/1996 $11,722 $12,175 $10,895
03/31/1996 $12,453 $12,292 $11,348
04/30/1996 $13,336 $12,472 $11,653
05/31/1996 $13,579 $12,794 $11,604
06/30/1996 $13,576 $12,843 $11,571
07/31/1996 $12,681 $12,275 $11,184
08/31/1996 $13,495 $12,534 $11,394
09/30/1996 $13,973 $13,240 $11,745
10/31/1996 $14,513 $13,605 $11,994
11/30/1996 $15,378 $14,634 $12,421
12/31/1996 $15,463 $14,344 $12,359
01/31/1997 $15,870 $15,240 $12,424
02/28/1997 $15,285 $15,359 $12,328
03/31/1997 $14,637 $14,728 $12,501
04/30/1997 $14,700 $15,607 $12,502
05/31/1997 $16,006 $16,558 $13,226
06/30/1997 $16,163 $17,299 $13,691
07/31/1997 $16,689 $18,677 $14,183
08/31/1997 $17,320 $17,631 $13,526
09/30/1997 $18,592 $18,597 $14,097
10/31/1997 $17,972 $17,976 $13,255
11/30/1997 $16,153 $18,808 $12,777
12/31/1997 $16,061 $19,131 $12,538
01/31/1998 $15,096 $19,344 $12,521
02/28/1998 $15,915 $20,738 $13,235
03/31/1998 $16,722 $21,800 $13,794
04/30/1998 $17,362 $22,020 $14,165
05/31/1998 $15,982 $21,642 $13,864
06/30/1998 $15,014 $22,520 $13,480
07/31/1998 $13,327 $22,279 $12,686
08/31/1998 $10,179 $19,058 $10,957
09/30/1998 $12,081 $20,279 $11,842
10/31/1998 $12,931 $21,928 $12,449
11/30/1998 $11,980 $23,257 $12,637
12/31/1998 $11,951 $24,597 $12,519
01/31/1999 $11,369 $25,625 $11,900
02/28/1999 $11,039 $24,828 $11,928
03/31/1999 $12,726 $25,821 $13,240
04/30/1999 $15,543 $26,820 $15,144
05/31/1999 $14,813 $26,187 $14,299
06/30/1999 $15,872 $27,641 $14,818
07/31/1999 $16,285 $26,778 $15,331
08/31/1999 $16,549 $26,644 $15,305
09/30/1999 $16,159 $25,914 $14,982
10/31/1999 $15,436 $27,555 $14,940
11/30/1999 $15,528 $28,114 $14,988
12/31/1999 $16,492 $29,770 $15,638
01/31/2000 $16,079 $28,275 $14,555
02/29/2000 $15,930 $27,741 $13,502
03/31/2000 $18,764 $30,454 $14,911
04/30/2000 $18,816 $29,537 $14,463
*Source: Standard & Poor's Micropal.
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the fund in composition, do not pay management fees or expenses and
include reinvested dividends. One cannot invest directly in an index.
*Source: Standard and Poor's Micropal.
**On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to that class.
Past performance does not guarantee future results.
FRANKLIN STRATEGIC SERIES
Financial Highlights
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------------------
2000 1999 1998(b)
----------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $ 23.41 $ 26.89 $ 25.00
--------- -------- --------
Income from investment operations:
Net investment loss(d) (.23) (.10) (.05)
Net realized and unrealized gains (losses) 37.32 (2.96) 1.99
--------- -------- --------
Total from investment operations 37.09 (3.06) 1.94
--------- -------- --------
Less distributions from net realized gains (.06) (.42) (.05)
--------- -------- --------
Net asset value, end of year $ 60.44 $ 23.41 $ 26.89
--------- -------- --------
Total return(a) 158.78% (11.46%) 7.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 918,473 $ 69,450 $ 73,546
Ratios to average net assets:
Expenses 1.13% 1.52% 1.50%(c)
Expenses excluding waiver and payments by affiliate 1.13% 1.52% 1.61%(c)
Net investment loss (.40%) (.40%) (.44%)(c)
Portfolio turnover rate 40.87% 97.62% 75.50%
</TABLE>
(a) Total return does not reflect sales commissions or contingent deferred sales
charge, and is not annualized for periods less than one year.
(b) For the period September 15, 1997 (effective date) to April 30, 1998.
(c) Annualized
(d) Based on average shares outstanding effective year ended April 30, 2000.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND SHARES VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 90.3%
(a) BIOTECHNOLOGY 63.7%
Abgenix Inc. ........................................................... 420,000 $37,616,250
Aclara Biosciences Inc. ................................................ 32,200 1,227,625
Affymetrix Inc. ........................................................ 125,000 16,882,813
Alexion Pharmaceuticals Inc. ........................................... 400,000 17,850,000
Amgen Inc. ............................................................. 749,800 41,988,800
Axys Pharmaceuticals Inc. .............................................. 950,000 5,700,000
Biogen Inc. ............................................................ 92,500 5,440,156
Celera Genomics ........................................................ 175,000 14,437,500
Cell Genesys Inc. ...................................................... 255,200 4,769,050
Chiron Corp. ........................................................... 700,000 31,675,000
COR Therapeutics Inc. .................................................. 650,000 49,521,875
Cubist Pharmaceuticals Inc. ............................................ 455,000 14,616,875
Diversa Corp. .......................................................... 119,600 3,229,200
Emisphere Technologies Inc. ............................................ 232,500 9,543,398
Epoch Pharmaceuticals Inc. ............................................. 100,000 850,000
Exelixis Inc. .......................................................... 51,400 979,813
Genentech Inc. ......................................................... 250,000 29,250,000
Genzyme Corp. .......................................................... 450,000 21,965,625
Gilead Sciences Inc. ................................................... 350,000 18,965,625
IDEC Pharmaceuticals Corp. ............................................. 300,000 19,200,000
ILEX Oncology Inc. ..................................................... 358,019 8,592,456
(d) ILEX Oncology Inc., PIPES .............................................. 116,481 2,599,856
ImClone Systems Inc. ................................................... 249,900 22,740,900
Immunex Corp. .......................................................... 585,000 23,034,375
Immunomedics Inc. ...................................................... 175,000 2,537,500
Immunomedics Inc., 144A ................................................ 300,000 3,177,000
Intermune Pharmaceuticals Inc. ......................................... 7,600 131,100
(d) Kosan Biosciences Inc., C, PIPES ....................................... 387,097 12,000,007
LifeCell Corp. ......................................................... 232,200 1,349,663
Luminex Corp. .......................................................... 46,600 867,925
Maxim Pharmaceuticals Inc. ............................................. 142,800 5,533,500
Medarex Inc. ........................................................... 125,000 6,625,000
MedImmune Inc. ......................................................... 200,000 31,987,500
MGI Pharma Inc. ........................................................ 650,300 15,038,188
NPS Pharmaceuticals Inc. ............................................... 331,000 4,303,000
Progenics Pharmaceuticals Inc. ......................................... 180,000 8,280,000
QLT PhotoTherapeutics Inc. (Canada) .................................... 300,000 16,668,750
Sangstat Medical Corp. ................................................. 325,000 9,343,750
Sequenom Inc. .......................................................... 59,400 1,440,450
SuperGen Inc. .......................................................... 300,000 9,937,500
Tanox Inc. ............................................................. 50,000 1,462,500
Targeted Genetics Corp. ................................................ 928,571 7,718,746
Texas Biotechnology Corp. .............................................. 457,300 5,601,925
Titan Pharmaceuticals Inc. ............................................. 20,000 640,000
(d) Titan Pharmaceuticals Inc., PIPES ...................................... 380,000 11,065,600
Transgene SA, ADR (France) ............................................. 102,100 1,990,950
Trimeris Inc. .......................................................... 89,300 3,075,268
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND SHARES VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
(a) BIOTECHNOLOGY (CONT.)
Vertex Pharmaceuticals Inc. ................................................... 269,200 $ 14,065,700
Vical Inc. .................................................................... 442,000 7,956,000
------------
585,474,714
------------
(a) Diversified Commercial Services
Ventro Corp. .................................................................. 10,200 280,500
------------
MEDICAL SPECIALTIES 13.7%
(a) Biopure Corp. ................................................................. 50,000 1,068,750
(a) Biosite Diagnostics Inc. ...................................................... 282,100 6,523,563
(a),(c) BioSource International Inc. ................................................. 505,000 4,955,313
(a) CIMA Laboratories Inc., 144A .................................................. 300,000 3,990,000
(a) Cygnus Inc. ................................................................... 400,000 5,000,000
(a) Fusion Medical Technologies Inc. .............................................. 350,000 6,125,000
(a) Inhale Therapeutic Systems Inc. ............................................... 590,900 36,561,938
(a) Invitrogen Corp. .............................................................. 200,000 12,475,000
(a) Molecular Devices Corp. ....................................................... 152,600 6,559,416
(a) Oxford GlycoSciences PLC (United Kingdom) ..................................... 575,000 14,508,160
(a) Packard BioScience Co. ........................................................ 145,900 1,741,681
PE Corp.-PE Biosystems Group .................................................. 425,000 25,500,000
(a) Serologicals Corp. ............................................................ 151,600 549,550
------------
125,558,371
------------
(a) OTHER PHARMACEUTICALS 9.4%
Angiotech Pharmaceuticals Inc. (Canada) ....................................... 155,000 4,824,375
Aviron ........................................................................ 300,600 7,233,187
Collateral Therapeutics Inc. .................................................. 278,000 6,811,000
Medicis Pharmaceutical Corp., A ............................................... 180,700 7,905,625
Noven Pharmaceuticals Inc. .................................................... 500,000 5,875,000
Sepracor Inc. ................................................................. 350,000 32,200,000
SkyePharma PLC, ADR (United Kingdom) .......................................... 14,506 232,104
United Therapeutics Corp. ..................................................... 378,500 21,385,250
------------
86,466,541
------------
(a) PRECISION INSTRUMENTS 3.5%
Agilent Technologies Inc. ..................................................... 166,300 14,738,337
Waters Corp. .................................................................. 180,600 17,111,850
------------
31,850,187
------------
TOTAL COMMON STOCKS (COST $852,215,119) ....................................... 829,630,313
------------
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C>
CONVERTIBLE BONDS .4%
Curagen Corp., cvt., 144A, 6.00%, 2/02/07 (Cost $6,000,000) ................... $ 6,000,000 3,487,500
------------
TOTAL LONG TERM INVESTMENTS (COST $858,215,119) ............................... 833,117,813
------------
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND SHARES VALUE
-----------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS 12.2%
<S> <C> <C>
(b) Franklin Institutional Fiduciary Trust Money Market Portfolio (Cost $111,840,387) ...... 111,840,387 $ 111,840,387
------------
Total Investments (Cost $970,055,506) 102.9% ........................................... 944,958,200
Other Assets, less Liabilities (2.9%) .................................................. (26,484,931)
------------
Net Assets 100.0% ...................................................................... $ 918,473,269
=============
</TABLE>
(a) Non-income producing
(b) See Note 3 regarding investments in the "Sweep Money Fund."
(c) The Investment Company Act of 1940 defines affiliated companies as
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities.
(d) See Note 6 regarding restricted securities.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
FRANKLIN GLOBAL COMMUNICATIONS FUND
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 16.97 $ 17.36 $ 14.46 $ 14.28 $ 12.23
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income(b).................... .13 .27 .33 .42 .37
Net realized and unrealized gains .......... 6.20 .31 4.69 1.35 2.39
---------------------------------------------------------------------------------
Total from investment operations ............ 6.33 .58 5.02 1.77 2.76
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.35) (.19) (.37) (.38) (.39)
Net realized gains ......................... (2.97) (.78) (1.75) (1.21) (.32)
---------------------------------------------------------------------------------
Total distributions ......................... (3.32) (.97) (2.12) (1.59) (.71)
---------------------------------------------------------------------------------
Net asset value, end of year ................ $ 19.98 $ 16.97 $ 17.36 $ 14.46 $ 14.28
=================================================================================
Total return(a).............................. 38.93% 4.02% 37.02% 12.94% 23.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 291,103 $ 199,824 $ 226,594 $ 174,023 $ 167,225
Ratios to average net assets:
Expenses ................................... .99% 1.05% 1.03% 1.00% 1.04%
Net investment income ...................... .64% 1.55% 2.02% 2.82% 2.85%
Portfolio turnover rate ..................... 132.25% 68.50% 45.51% 47.55% 50.51%
</TABLE>
(a) Total return does not reflect sales commissions or contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Based on average shares outstanding effective year ended April 30, 2000.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN GLOBAL COMMUNICATIONS FUND (CONT.)
<TABLE>
<CAPTION>
CLASS B
-----------------------------------
YEAR ENDED APRIL 30,
-----------------------------------
2000 1999(b)
-----------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................................... $ 16.92 $ 15.84
-----------------------------------
Income from investment operations:
Net investment income (loss)(d)............................................ (.08) .02
Net realized and unrealized gains ......................................... 6.25 1.06
-----------------------------------
Total from investment operations ........................................... 6.17 1.08
-----------------------------------
Less distributions from:
Net investment income ..................................................... (.32) --
Net realized gains ........................................................ (2.97) --
-----------------------------------
Total distributions ........................................................ (3.29) --
-----------------------------------
Net asset value, end of year ............................................... $ 19.80 $ 16.92
===================================
Total return(a) ............................................................ 37.98% 6.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................ $ 4,338 $ 79
Ratios to average net assets:
Expenses .................................................................. 1.74% 1.80%(c)
Net investment income (loss) .............................................. (.38%) .83%(c)
Portfolio turnover rate .................................................... 132.25% 68.50%
</TABLE>
(a) Total return does not reflect contingent deferred sales charge, and is not
annualized for periods less than one year.
(b) For the period January 1, 1999 (effective date) to April 30, 1999.
(c) Annualized
(d) Based on average shares outstanding effective year ended April 30, 2000.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN GLOBAL COMMUNICATIONS FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 16.85 $ 17.25 $ 14.37 $ 14.24 $ 12.23
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(b) ............ (.03) .14 .24 .32 .37
Net realized and unrealized gains .......... 6.16 .32 4.66 1.33 2.32
--------------------------------------------------------------------------------
Total from investment operations ............ 6.13 .46 4.90 1.65 2.69
--------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.22) (.08) (.27) (.31) (.36)
Net realized gains ......................... (2.97) (.78) (1.75) (1.21) (.32)
--------------------------------------------------------------------------------
Total distributions ......................... (3.19) (.86) (2.02) (1.52) (.68)
--------------------------------------------------------------------------------
Net asset value, end of year ................ $ 19.79 $ 16.85 $ 17.25 $ 14.37 $ 14.24
================================================================================
Total return(a) ............................. 37.93% 3.19% 36.21% 12.04% 22.63%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 33,216 $ 16,807 $ 16,324 $ 8,467 $ 2,727
Ratios to average net assets:
Expenses ................................... 1.74% 1.80% 1.78% 1.77% 1.81%
Net investment income (loss) ............... (.14%) .81% 1.29% 1.98% 2.10%
Portfolio turnover rate ..................... 132.25% 68.50% 45.51% 47.55% 50.51%
</TABLE>
(a) Total return does not reflect sales commissions or contingent deferred sales
charge, and is not annualized for periods less than one year.
(b) Based on average shares outstanding effective year ended April 30, 2000.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN GLOBAL COMMUNICATIONS FUND COUNTRY SHARES VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 89.3%
CELLULAR TELEPHONE 13.0%
(a) Dobson Communications Corp., A ........................... United States 146,400 $ 3,751,500
(a) Nextel Communications Inc., A ............................ United States 30,000 3,283,125
(a) Nextel Partners Inc., A .................................. United States 86,400 1,895,400
NTT DoCoMo Inc. .......................................... Japan 110 3,674,300
(a) Sprint Corp. (PCS Group) ................................. United States 110,000 6,050,000
(a) U.S. Cellular Corp. ...................................... United States 25,000 1,501,563
Vodafone AirTouch PLC, ADR ............................... United Kingdom 165,000 7,755,000
(a) VoiceStream Wireless Corp. ............................... United States 105,000 10,395,000
(a) Western Wireless Corp., A ................................ United States 90,000 4,471,875
------------
42,777,763
------------
ELECTRICAL PRODUCTS .5%
Furukawa Electric Co. Ltd. ............................... Japan 120,000 1,664,400
------------
(a) ELECTRONIC PRODUCTION EQUIPMENT .6%
Celestica Inc. ........................................... Canada 39,500 2,155,219
------------
(a) INTERNET SERVICES 1.9%
PSINet Inc. .............................................. United States 270,000 6,260,625
------------
MAJOR U.S. TELECOMMUNICATIONS 20.9%
AT&T Corp. ............................................... United States 150,000 7,003,125
Bell Atlantic Corp. ...................................... United States 65,000 3,851,250
BellSouth Corp. .......................................... United States 200,000 9,737,500
GTE Corp. ................................................ United States 160,000 10,840,000
(a) MCI WorldCom Inc. ........................................ United States 230,000 10,450,623
SBC Communications Inc. .................................. United States 250,000 10,953,125
Sprint Corp. (FON Group) ................................. United States 120,000 7,380,000
U.S. West Inc. ........................................... United States 117,000 8,328,938
------------
68,544,561
------------
OTHER TELECOMMUNICATIONS 36.4%
(a) Adelphia Business Solutions Inc. ......................... United States 25,000 875,000
(a) Alaska Communications Systems Holdings Inc. .............. United States 51,400 616,800
(a) Allegiance Telecom Inc. .................................. United States 107,500 7,605,625
British Telecommunications PLC, ADR ...................... United Kingdom 16,200 2,964,600
(a) Broadwing Inc. ........................................... United States 110,000 3,114,375
(a) Citizens Utilities Co., B ................................ United States 266,000 4,272,625
(a) Clearnet Communications Inc., A .......................... Canada 124,800 5,350,800
(a) Efficient Networks Inc. .................................. United States 18,400 1,209,800
(a) Equant NV, N.Y. shs ...................................... Netherlands 25,000 1,950,000
(a) FirstCom Corp. ........................................... United States 28,400 589,300
(a) General Motors Corp., H .................................. United States 50,000 4,815,625
(a) Global Crossing Ltd. ..................................... Bermuda 325,000 10,237,500
(a) GT Group Telecom Inc. .................................... Canada 28,600 370,013
Hellenic Telecommunications Organization SA .............. Greece 8,200 185,021
(a) ICG Communications Inc. .................................. United States 192,000 5,712,000
(a) Infonet Services Corp., B ................................ United States 68,900 1,162,688
(a) Intermedia Communications Inc. ........................... United States 48,700 1,984,525
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN GLOBAL COMMUNICATIONS FUND COUNTRY SHARES VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
OTHER TELECOMMUNICATIONS (CONT.)
Koninklijke KPN NV ....................................... Netherlands 32,700 $ 3,303,106
Korea Telecom Corp. ...................................... South Korea 38,210 2,609,883
(a) KPNQwest NV .............................................. Netherlands 30,000 1,207,500
(a) Level 3 Communications Inc. .............................. United States 16,900 1,504,100
(a) McLeodUSA Inc. ........................................... United States 210,000 5,250,000
(a) MGC Communications Inc. .................................. United States 35,600 1,744,400
(a) NEXTLINK Communications Inc., A .......................... United States 62,000 5,227,375
Nippon Telegraph & Telephone Corp. ....................... Japan 220 2,727,735
Portugal Telecom SA ...................................... Portugal 325,000 3,633,849
(a) Primus Telecommunications Group Inc. ..................... United States 105,000 3,445,313
(a) Qwest Communications International Inc. .................. United States 135,000 5,855,625
(a) RSL Communication Ltd., A ................................ Bermuda 310,000 4,320,625
Telecom Italia Mobile SpA ................................ Italy 225,000 2,153,861
Telecom Italia SpA ....................................... Italy 960,000 6,023,018
(a) Telecomunicacoes Brasileiras SA, ADR ..................... Brazil 9,500 148
Telefonica SA, ADR ....................................... Spain 70,000 4,637,500
(a) Thus PLC ................................................. United Kingdom 460,000 2,691,995
(a) Time Warner Telecom Inc., A .............................. United States 118,700 6,498,825
(a) Williams Communications Group Inc. ....................... United States 100,000 3,700,000
------------
119,551,155
------------
TELECOMMUNICATIONS EQUIPMENT 16.0%
(a) ADC Telecommunications Inc. .............................. United States 53,600 3,256,200
(a) ArrowPoint Communications Inc. ........................... United States 200 19,600
(a) CIENA Corp. .............................................. United States 35,000 4,326,875
(a) Cisco Systems Inc. ....................................... United States 74,000 5,130,281
(a) Comverse Technology Inc. ................................. United States 20,000 1,783,750
Corning Inc. ............................................. United States 42,000 8,295,000
(a) Infineon Technologies AG, ADR ............................ Germany 29,900 2,029,463
(a) Juniper Networks Inc. .................................... United States 23,000 4,891,813
Lucent Technologies Inc. ................................. United States 33,165 2,062,448
(a) Network Appliance Inc. ................................... United States 40,000 2,957,500
(a) NICE Systems Ltd., ADR ................................... Israel 16,900 1,105,894
Nokia Corp., ADR ......................................... Finland 68,000 3,867,500
(a) Redback Networks Inc. .................................... United States 55,800 4,429,125
(a) SDL Inc. ................................................. United States 10,000 1,950,000
(a) ST Assembly Test Services Ltd., ADR ...................... Singapore 2,700 112,556
Telefonaktiebolaget LM Ericsson AB, ADR, B ............... Sweden 20,000 1,768,750
Tyco International Ltd. .................................. Bermuda 100,000 4,593,750
------------
52,580,505
------------
TOTAL COMMON STOCKS (COST $225,634,518) .................. 293,534,228
============
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN GLOBAL COMMUNICATIONS FUND COUNTRY SHARES VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE PREFERRED STOCKS .8%
CMS Energy Trust I, 7.75%, cvt. pfd. ..................... United States 35,000 $ 1,225,000
(a),(c)Kestrel Solutions Inc., cvt. pfd., D .................... United States 95,932 1,249,994
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $2,999,994) ..... 2,474,994
------------
TOTAL LONG TERM INVESTMENTS (COST $228,634,512) .......... 296,009,222
------------
SHORT TERM INVESTMENTS 9.7%
(b) Franklin Institutional Fiduciary Trust Money
Market Portfolio (COST $32,057,084) ...................... United States 32,057,084 32,057,084
------------
TOTAL INVESTMENTS (COST $260,691,596) 99.8% .............. 328,066,306
OTHER ASSETS, LESS LIABILITIES .2% ....................... 589,820
------------
NET ASSETS 100.0% ........................................ $328,656,126
============
</TABLE>
(a) Non-income producing
(b) See Note 3 regarding investments in the "Sweep Money Fund."
(c) See Note 6 regarding restricted securities.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
FRANKLIN GLOBAL HEALTH CARE FUND
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------
YEAR ENDED APRIL 30,
-----------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 13.88 $ 19.28 $ 16.11 $ 19.34 $ 11.45
-----------------------------------------------------------
Income from investment operations:
Net investment income (loss)(b) ................... (.12) (.16) (.14) (.06) .11
Net realized and unrealized gains (losses) ........ 6.53 (5.23) 4.58 (2.75) 8.96
-----------------------------------------------------------
Total from investment operations ................... 6.41 (5.39) 4.44 (2.81) 9.07
-----------------------------------------------------------
Less distributions from:
Net investment income ............................. -- -- (.09) (.04) (.13)
Net realized gains ................................ -- (.01) (1.18) (.38) (1.05)
-----------------------------------------------------------
Total distributions ................................ -- (.01) (1.27) (.42) (1.18)
-----------------------------------------------------------
Net asset value, end of year ....................... $ 20.29 $ 13.88 $ 19.28 $ 16.11 $ 19.34
===========================================================
Total return(a) .................................... 46.18% (27.95%) 28.22% (14.71%) 82.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $90,563 $74,252 $176,545 $150,653 $108,914
Ratios to average net assets:
Expenses .......................................... 1.52% 1.34% 1.15% 1.14% .73%
Expenses excluding waiver and payments by affiliate 1.52% 1.34% 1.15% 1.14% 1.16%
Net investment income (loss) ...................... (.70%) (.72%) (.67%) (.39%) .50%
Portfolio turnover rate ............................ 123.48% 66.54% 66.84% 73.17% 54.78%
</TABLE>
(a) Total return does not reflect sales commissions or contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Based on average shares outstanding effective year ended April 30, 2000.
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GLOBAL HEALTH CARE FUND (CONT.)
<TABLE>
<CAPTION>
CLASS B
----------------------------------
YEAR ENDED APRIL 30,
----------------------------------
2000 1999(b)
----------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................................... $ 13.84 $ 16.97
----------------------------------
Income from investment operations:
Net investment loss(d) .................................................... (.26) (.03)
Net realized and unrealized gains (losses) ................................ 6.51 (3.10)
----------------------------------
Total from investment operations ........................................... 6.25 (3.13)
----------------------------------
Net asset value, end of year ............................................... $ 20.09 $ 13.84
==================================
Total return(a) ............................................................ 45.16% (18.44%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................ $ 3,037 $ 208
Ratios to average net assets:
Expenses .................................................................. 2.27% 1.84%(c)
Net investment loss ....................................................... (1.44%) (1.22%)(c)
Portfolio turnover rate .................................................... 123.48% 66.54%
</TABLE>
(a) Total return does not reflect contingent deferred sales charge, and is not
annualized for periods less than one year.
(b) For the period January 1, 1999 (effective date) to April 30, 1999.
(c) Annualized
(d) Based on average shares outstanding effective year ended April 30, 2000.
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GLOBAL HEALTH CARE FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------
YEAR ENDED APRIL 30,
--------------------------------------------------------------------
2000 1999 1998 1997(b)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 13.71 $ 19.17 $ 16.07 $ 17.37
--------------------------------------------------------------------
Income from investment operations:
Net investment loss(d) .............................. (.23) (.29) (.20) (.07)
Net realized and unrealized gains (losses) .......... 6.41 (5.16) 4.48 (.85)
--------------------------------------------------------------------
Total from investment operations ..................... 6.18 (5.45) 4.28 (.92)
--------------------------------------------------------------------
Less distributions from net realized gains ........... -- (.01) (1.18) (.38)
--------------------------------------------------------------------
Net asset value, end of year ......................... $ 19.89 $ 13.71 $ 19.17 $ 16.07
====================================================================
Total return(a) ...................................... 45.08% (28.42%) 27.22% (5.47%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $ 20,398 $ 13,747 $ 25,321 $ 10,099
Ratios to average net assets:
Expenses ............................................ 2.27% 2.07% 1.90% 1.92%(c)
Net investment loss ................................. (1.44%) (1.45%) (1.44%) (1.29%)(c)
Portfolio turnover rate .............................. 123.48% 66.54% 66.84% 73.17%
</TABLE>
(a) Total return does not reflect sales commissions or contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) For the period September 3, 1996 (effective date) to April 30, 1997.
(c) Annualized
(d) Based on average shares outstanding effective year ended April 30, 2000.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000
<TABLE>
<CAPTION>
SHARES/
FRANKLIN GLOBAL HEALTH CARE FUND COUNTRY WARRANTS VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS 90.0%
(a) BIOTECHNOLOGY 15.4%
<S> <C> <C> <C>
Abgenix Inc. ..................................................... United States 20,000 $ 1,791,250
Amgen Inc. ....................................................... United States 47,500 2,660,000
Cell Genesys Inc. ................................................ United States 72,000 1,345,500
COR Therapeutics Inc. ............................................ United States 40,000 3,047,500
Cubist Pharmaceuticals Inc. ...................................... United States 50,000 1,606,250
Diversa Corp. .................................................... United States 17,600 475,200
Exelixis Inc. .................................................... United States 5,800 110,563
Genentech Inc. ................................................... United States 16,800 1,965,600
Gilead Sciences Inc. ............................................. United States 17,500 948,281
Intermune Pharmaceuticals Inc. ................................... United States 800 13,800
Luminex Corp. .................................................... United States 2,400 44,700
MGI Pharma Inc. .................................................. United States 41,500 959,688
Vertex Pharmaceuticals Inc. ...................................... United States 50,000 2,612,500
-----------
17,580,832
-----------
(a) DIVERSIFIED COMMERCIAL SERVICES 1.1%
Dendrite International Inc. ...................................... United States 54,600 1,248,975
-----------
GENERIC DRUGS 4.5%
Alpharma Inc., A ................................................. United States 30,000 1,158,750
Mylan Laboratories Inc. .......................................... United States 52,000 1,475,500
(a) Watson Pharmaceuticals Inc. ...................................... United States 55,000 2,471,563
-----------
5,105,813
-----------
HOSPITAL/NURSING MANAGEMENT 6.0%
(a) Beverly Enterprises Inc. ......................................... United States 105,000 354,375
Columbia/HCA Healthcare Corp. .................................... United States 81,000 2,303,438
(a) Paracelsus Healthcare Corp. ...................................... United States 37,255 6,403
Tenet Healthcare Corp. ........................................... United States 45,000 1,147,500
(a) Universal Health Services Inc., B ................................ United States 55,000 3,011,250
-----------
6,822,966
-----------
MAJOR PHARMACEUTICALS 28.2%
Abbott Laboratories .............................................. United States 15,000 576,563
American Home Products Corp. ..................................... United States 45,000 2,528,438
Bristol-Myers Squibb Co. ......................................... United States 104,000 5,453,500
Eli Lilly & Co. .................................................. United States 35,000 2,705,938
Glaxo Wellcome PLC, ADR .......................................... United Kingdom 34,200 2,148,188
Johnson & Johnson ................................................ United States 10,000 825,000
(a) Pharmacia Corp. .................................................. United States 113,050 5,645,434
(a) Roche Holding AG ................................................. Switzerland 100 1,046,789
Schering-Plough Corp. ............................................ United States 150,000 6,046,875
Warner-Lambert Co. ............................................... United States 45,000 5,121,563
-----------
32,098,288
-----------
Managed Health Care 2.0%
UnitedHealth Group Inc. .......................................... United States 35,000 2,334,063
-----------
Medical Specialties 23.0%
Baxter International Inc. ........................................ United States 95,000 6,186,869
(a) Biosite Diagnostics Inc. ......................................... United States 56,000 1,295,000
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN GLOBAL HEALTH CARE FUND COUNTRY WARRANTS VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
MEDICAL SPECIALTIES (CONT.)
(a) CIMA Labs Inc. ....................................... United States 193,000 $ 2,702,000
Cooper Cos. Inc. ..................................... United States 30,000 1,008,750
(a) Cytyc Corp. .......................................... United States 25,300 1,132,175
(a) INAMED Corp. ......................................... United States 50,000 2,068,750
(a) Inhale Therapeutic Systems Inc. ...................... United States 60,000 3,712,500
(a) InnerDyne Inc. ....................................... United States 150,000 653,906
(a) Molecular Devices Corp. .............................. United States 19,300 829,598
(a) Nycomed Amersham PLC ................................. United Kingdom 350,000 2,669,854
(a) ORATEC Interventions Inc. ............................ United States 2,400 81,750
(a) Packard BioScience Co. ............................... United States 18,200 217,263
(a) Physiometrix Inc. .................................... United States 28,000 441,000
(a) Serologicals Corp. ................................... United States 273,650 991,981
(a) SonoSite Inc. ........................................ United States 2,200 72,463
(a) Stryker Corp. ........................................ United States 30,000 2,156,250
------------
26,220,109
------------
(a) MEDICAL/DENTAL DISTRIBUTORS .3%
SciQuest.com Inc. .................................... United States 26,200 340,600
------------
(a) MEDICAL/NURSING SERVICES 1.4%
Renal Care Group Inc. ................................ United States 70,000 1,561,875
------------
MULTI-LINE INSURANCE 2.9%
CIGNA Corp. .......................................... United States 41,000 3,269,750
------------
(a) OTHER PHARMACEUTICALS 2.1%
FH Faulding & Co. Ltd. ............................... Australia 172,615 689,936
Noven Pharmaceuticals Inc. ........................... United States 100,000 1,175,000
OraPharma Inc. ....................................... United States 13,200 134,475
SkyePharma PLC, ADR .................................. United Kingdom 27,414 438,617
------------
2,438,028
------------
SERVICES TO THE HEALTH INDUSTRY 3.1%
(a) CareInsite Inc. ...................................... United States 15,000 375,938
(a) Landacorp Inc. ....................................... United States 17,600 69,300
Omnicare Inc. ........................................ United States 75,000 1,139,063
(a) Per-Se Technologies Inc., wts., 7/08/03 .............. United States 1,719 --
(a) Pharmaceutical Product Development Inc. .............. United States 80,000 1,345,000
(a) XCare.net Inc. ....................................... United States 100,000 587,500
------------
3,516,801
------------
TOTAL LONG TERM INVESTMENTS (COST $87,659,042) ....... 102,538,100
------------
SHORT TERM INVESTMENTS 5.1%
(b) Franklin Institutional Fiduciary Trust Money
Market Portfolio (COST $5,847,604) ................... United States 5,847,604 5,847,604
------------
TOTAL INVESTMENTS (COST $93,506,646) 95.1% ........... 108,385,704
OTHER ASSETS, LESS LIABILITIES 4.9% .................. 5,613,122
------------
NET ASSETS 100.0% .................................... $113,998,826
============
</TABLE>
(a) Non-income producing
(b) See Note 3 regarding investments in the "Sweep Money Fund."
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Highlights
FRANKLIN NATURAL RESOURCES FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
YEAR ENDED APRIL 30,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996(b)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 13.25 $ 15.46 $ 14.07 $ 13.14 $ 10.00
----------------------------------------------------------------------------
Income from investment operations:
Net investment income(d)........................... .05 .12 .10 .09 .08
Net realized and unrealized gains (losses) ........ 2.52 (2.21) 2.26 1.25 3.22
----------------------------------------------------------------------------
Total from investment operations ................... 2.57 (2.09) 2.36 1.34 3.30
----------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.08) (.12) (.09) (.09) (.06)
Net realized gains ................................ -- -- (.88) (.32) (.10)
----------------------------------------------------------------------------
Total distributions ................................ (.08) (.12) (.97) (.41) (.16)
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 15.74 $ 13.25 $ 15.46 $ 14.07 $ 13.14
============================================================================
Total return(a) .................................... 19.47% (13.42%) 17.57% 10.23% 33.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 41,106 $ 44,014 $ 62,274 $ 45,386 $ 9,909
Ratios to average net assets:
Expenses .......................................... .98% .97% .96% .98% .99%(c)
Expenses excluding waiver and payments by affiliate 1.43% 1.47% 1.31% 1.31% 1.77%(c)
Net investment income ............................. .39% .97% .67% .72% 1.16%(c)
Portfolio turnover rate ............................ 81.52% 74.03% 72.93% 46.31% 59.04%
</TABLE>
(a) Total return does not reflect sales commissions or contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) For the period June 5, 1995 (effective date) to April 30, 1996.
(c) Annualized
(d) Based on average shares outstanding effective year ended April 30, 2000.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN NATURAL RESOURCES FUND (CONT.)
<TABLE>
<CAPTION>
ADVISOR CLASS
-------------------------------------------------------------
YEAR ENDED APRIL 30,
-------------------------------------------------------------
2000 1999 1998 1997(b)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 13.63 $ 15.48 $ 14.07 $ 14.66
-------------------------------------------------------------
Income from investment operations:
Net investment income(d)........................... .07 .19 .23 --
Net realized and unrealized gains (losses) ........ 2.63 (1.85) 2.20 (.59)
-------------------------------------------------------------
Total from investment operations ................... 2.70 (1.66) 2.43 (.59)
-------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.09) (.19) (.14) --
Net realized gains ................................ -- -- (.88) --
-------------------------------------------------------------
Total distributions ................................ (.09) (.19) (1.02) --
-------------------------------------------------------------
Net asset value, end of year ....................... $ 16.24 $ 13.63 $ 15.48 $ 14.07
=============================================================
Total return(a) .................................... 19.91% (10.48%) 18.11% (4.02%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 8,791 $ 319 $ 892 $ 1,123
Ratios to average net assets:
Expenses .......................................... .65% .65% .64% .64%(c)
Expenses excluding waiver and payments by affiliate 1.10% 1.15% 1.03% .86%(c)
Net investment income ............................. .49% 1.29% 1.02% 1.03%(c)
Portfolio turnover rate ............................ 81.52% 74.03% 72.93% 46.31%
</TABLE>
(a) Total return is not annualized for periods less than one year.
(b) For the period January 2, 1997 (effective date) to April 30, 1997.
(c) Annualized
(d) Based on average shares outstanding effective year ended April 30, 2000.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000
<TABLE>
<CAPTION>
SHARES/
FRANKLIN NATURAL RESOURCES FUND COUNTRY WARRANTS VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 88.6%
ENERGY MINERALS 34.0%
Apache Corp. ............................................... United States 8,700 $ 421,406
Ashland Inc. ............................................... United States 17,800 607,425
(a) Barrett Resources Corp. .................................... United States 39,400 1,250,950
(a) Basin Exploration Inc. ..................................... United States 50,900 712,600
(a) Callon Petroleum Co. ....................................... United States 17,000 230,563
(a) Chesapeake Energy Corp. .................................... United States 238,300 893,625
Conoco Inc., B ............................................. United States 62,097 1,544,659
Devon Energy Corp. ......................................... United States 12,050 580,659
EOG Resources Inc. ......................................... United States 46,900 1,166,638
Exxon Mobil Corp. .......................................... United States 508 39,465
(a) Gulf Indonesia Resources Ltd. .............................. Indonesia 40,000 280,000
(a) Houston Exploration Co. .................................... United States 23,000 415,438
(a) Newfield Exploration Co. ................................... United States 31,600 1,283,750
(a) Pennaco Energy Inc. ........................................ United States 68,000 1,015,750
(a) Santa Fe Snyder Corp. ...................................... United States 62,100 570,544
Shell Transport & Trading Co. PLC, N.Y. shs. ............... United Kingdom 11,000 530,750
(a) Tesoro Petroleum Corp. ..................................... United States 70,000 822,500
Texaco Inc. ................................................ United States 16,500 816,750
Tosco Corp. ................................................ United States 31,100 997,144
Union Pacific Resources Group Inc. ......................... United States 30,000 575,625
Unocal Corp. ............................................... United States 22,700 733,494
USX-Marathon Group Inc. .................................... United States 30,700 715,694
Valero Energy Corp. ........................................ United States 26,300 762,700
-----------
16,968,129
-----------
INDUSTRIAL SERVICES 21.8%
(a) AES Corp. .................................................. United States 4,160 374,140
Baker Hughes Inc. .......................................... United States 45,500 1,447,469
(a) Cal Dive International Inc. ................................ United States 14,100 701,475
(a) Casella Waste Systems Inc., A .............................. United States 24,700 183,706
Diamond Offshore Drilling Inc. ............................. United States 30,000 1,209,375
(a) Global Marine Inc. ......................................... United States 30,500 732,000
(a) Grey Wolf Inc. ............................................. United States 245,000 995,313
(a) Gulf Island Fabrication Inc. ............................... United States 37,000 559,625
Halliburton Co. ............................................ United States 4,800 212,100
(a) Natco Group Inc., A ........................................ United States 36,100 327,156
(a) Parker Drilling Co. ........................................ United States 160,000 690,000
Transocean Sedco Forex Inc. ................................ United States 25,500 1,198,500
(a) Tuboscope Inc. ............................................. United States 19,300 335,338
(a) Varco International Inc. ................................... United States 25,200 315,000
(a) Weatherford International Inc. ............................. United States 39,200 1,592,500
-----------
10,873,697
-----------
NON-ENERGY MINERALS 12.8%
Aluminum Co. of America .................................... United States 9,000 583,875
Barrick Gold Corp. ......................................... Canada 30,100 506,056
De Beers Consolidated Mines AG, ADR ........................ South Africa 29,400 584,325
Franco-Nevada Mining Corp. Ltd. ............................ Canada 36,000 417,898
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN NATURAL RESOURCES FUND COUNTRY WARRANTS VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
NON-ENERGY MINERALS (CONT.)
(a) Freeport-McMoRan Copper & Gold Inc., A ....................... United States 11,700 $ 108,225
Georgia-Pacific Corp. ........................................ United States 23,000 845,250
Ispat International NV, A, N.Y. shs. ......................... Netherlands 61,700 721,119
Newmont Mining Corp. ......................................... United States 11,135 260,977
Pohang Iron & Steel Co. Ltd., ADR ............................ South Korea 42,600 894,600
Rayonier Inc. ................................................ United States 15,000 704,063
Rio Tinto PLC ................................................ United Kingdom 18,600 290,316
(a) Stillwater Mining Co. ........................................ United States 16,200 453,600
------------
6,370,304
------------
PROCESS INDUSTRIES 13.0%
Abitibi-Consolidated Inc. .................................... Canada 82,000 891,750
(a) Asia Pulp & Paper Co. Ltd., ADR .............................. Indonesia 69,300 437,456
(a) Asia Pulp & Paper Co. Ltd., wts., 7/27/00 .................... Indonesia 11,160 1,918
Bowater Inc. ................................................. United States 22,600 1,243,000
Eastman Chemical Co. ......................................... United States 11,000 575,438
Nova Chemicals Corp. ......................................... Canada 33,000 754,875
(a) Packaging Corp. of America ................................... United States 40,100 476,188
Potash Corp. of Saskatchewan Inc. ............................ Canada 8,285 445,837
Praxair Inc. ................................................. United States 12,000 533,250
(a) Smurfit-Stone Container Corp. ................................ United States 27,500 419,375
Union Carbide Corp. .......................................... United States 11,800 696,200
------------
6,475,287
------------
TRANSPORTATION 1.4%
Tidewater Inc. ............................................... United States 23,300 693,175
------------
UTILITIES 5.6%
Dynegy Inc. .................................................. United States 8,600 562,763
Enron Corp. .................................................. United States 15,900 1,108,031
(a) Westport Innovations Inc. .................................... Canada 51,000 430,249
Williams Cos. Inc. ........................................... United States 18,500 690,281
------------
2,791,324
------------
TOTAL COMMON STOCKS AND WARRANTS (COST $39,477,134) .......... 44,171,916
------------
CONVERTIBLE PREFERRED STOCKS 3.1%
IMC Global/Merrill Lynch, 6.25%, cvt. pfd., IGL .............. United States 67,000 1,139,000
Enron Corp., 7.00%, cvt. pfd. ................................ United States 17,500 411,250
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,336,986) ......... 1,550,250
------------
TOTAL LONG TERM INVESTMENTS (COST $40,814,120) ............... 45,722,166
------------
SHORT TERM INVESTMENTS 9.0%
(b) Franklin Institutional Fiduciary Trust Money
Market Portfolio (Cost $4,514,462) ........................... United States 4,514,462 4,514,462
------------
TOTAL INVESTMENTS (COST $45,328,582) 100.7% .................. 50,236,628
OTHER ASSETS, LESS LIABILITIES (.7%) ......................... (339,672)
------------
NET ASSETS 100.0% ............................................ $ 49,896,956
============
</TABLE>
(a) Non-income producing
(b) See Note 3 regarding investments in the "Sweep Money Fund."
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN
BIOTECHNOLOGY COMMUNICATIONS HEALTH CARE NATURAL RESOURCES
DISCOVERY FUND FUND FUND FUND
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ............................................ $970,055,506 $260,691,596 $ 93,506,646 $45,328,582
======================================================================
Value ........................................... 944,958,200 328,066,306 108,385,704 50,236,628
Receivables:
Investment securities sold ...................... 5,655,336 2,094,445 5,607,892 --
Capital shares sold ............................. 5,369,732 782,484 329,190 89,376
Dividends and interest .......................... 89,000 401,109 92,500 39,586
Deposits with brokers (Note 1) ................... 4,164,694 -- -- --
----------------------------------------------------------------------
Total assets .................................. 960,236,962 331,344,344 114,415,286 50,365,590
----------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ................. 36,043,947 1,926,350 -- --
Capital shares redeemed ......................... 4,676,564 342,555 183,675 397,257
Affiliates ...................................... 970,460 288,866 152,758 44,075
Shareholders .................................... 59,098 102,202 64,808 19,117
Other liabilities ................................ 13,624 28,245 15,219 8,185
----------------------------------------------------------------------
Total liabilities ............................. 41,763,693 2,688,218 416,460 468,634
----------------------------------------------------------------------
Net assets, at value .......................... $918,473,269 $328,656,126 $113,998,826 $49,896,956
======================================================================
Net assets consist of:
Undistributed net investment income ............. $ -- $ 156,014 $ -- $ 175,143
Accumulated net operating loss .................. (1,189) -- -- --
Net unrealized appreciation (depreciation) ...... (25,097,306) 67,369,587 14,879,058 4,908,046
Accumulated net realized gain (loss) ............ (1,005,257) 28,262,902 (5,410,603) (3,245,489)
Capital shares .................................. 944,577,021 232,867,623 104,530,371 48,059,256
----------------------------------------------------------------------
Net assets, at value .............................. $918,473,269 $328,656,126 $113,998,826 $49,896,956
======================================================================
</TABLE>
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN
BIOTECHNOLOGY COMMUNICATIONS HEALTH CARE NATURAL RESOURCES
DISCOVERY FUND FUND FUND FUND
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A:
Net assets, at value ..................................... $918,473,269 $291,102,574 $90,562,972 $41,105,889
----------------------------------------------------------------------
Shares outstanding ....................................... 15,197,000 14,567,973 4,463,144 2,612,371
----------------------------------------------------------------------
Net asset value per share* ............................... $60.44 $19.98 $20.29 $15.74
----------------------------------------------------------------------
Maximum offering price per share
(net asset value per share / 94.25%) ..................... $64.13 $21.20 $21.53 $16.70
----------------------------------------------------------------------
CLASS B:
Net assets, at value ..................................... -- $ 4,337,644 $ 3,037,479 --
----------------------------------------------------------------------
Shares outstanding ....................................... -- 219,035 151,208 --
----------------------------------------------------------------------
Net asset value and maximum offering price per share* .... -- $19.80 $20.09 --
----------------------------------------------------------------------
CLASS C:
Net assets, at value ..................................... -- $ 33,215,908 $20,398,375 --
----------------------------------------------------------------------
Shares outstanding ....................................... -- 1,678,112 1,025,403 --
----------------------------------------------------------------------
Net asset value per share* ............................... -- $19.79 $19.89 --
----------------------------------------------------------------------
Maximum offering price per share
(net asset value per share / 99%) ........................ -- $19.99 $20.09 --
----------------------------------------------------------------------
ADVISOR CLASS:
Net assets, at value ..................................... -- -- -- $ 8,791,067
----------------------------------------------------------------------
Shares outstanding ....................................... -- -- -- 541,396
----------------------------------------------------------------------
Net asset value and maximum offering price per share ..... -- -- -- $16.24
----------------------------------------------------------------------
</TABLE>
* Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN GLOBAL FRANKLIN GLOBAL FRANKLIN
BIOTECHNOLOGY COMMUNICATIONS HEALTH CARE NATURAL RESOURCES
DISCOVERY FUND FUND FUND FUND
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:*
Dividends (Note 3) ..................................... $ 2,304,813 $ 4,239,547 $ 675,951 $ 563,298
Interest ............................................... 256,292 69,728 79,506 15,566
--------------------------------------------------------------------
Total investment income ............................. 2,561,105 4,309,275 755,457 578,864
--------------------------------------------------------------------
Expenses:
Management fees (Note 3) ............................... 1,623,755 1,373,485 559,398 260,019
Administrative fees (Note 3) ........................... 459,752 -- -- --
Distribution fees (Note 3)
Class A ............................................... 1,082,698 602,122 189,262 139,258
Class B ............................................... -- 10,762 9,280 --
Class C ............................................... -- 223,712 148,097 --
Transfer agent fees (Note 3) ........................... 582,826 393,053 474,219 149,339
Custodian fees ......................................... 3,978 37,136 2,217 1,218
Reports to shareholders ................................ 57,498 61,784 72,132 19,959
Registration and filing fees ........................... 103,270 51,707 42,750 24,746
Professional fees ...................................... 25,378 15,143 10,047 7,131
Trustees' fees and expenses ............................ 2,634 3,678 1,333 667
Other .................................................. 3,445 19,605 4,983 2,213
--------------------------------------------------------------------
Total expenses ...................................... 3,945,234 2,792,187 1,513,718 604,550
Expenses waived/paid by affiliate (Note 3) .......... -- -- -- (190,280)
--------------------------------------------------------------------
Net expenses ...................................... 3,945,234 2,792,187 1,513,718 414,270
--------------------------------------------------------------------
Net investment income (loss) ..................... (1,384,129) 1,517,088 (758,261) 164,594
--------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................... 2,457,523 46,206,254 9,261,499 3,461,344
Foreign currency transactions ......................... (1,189) (49,271) 24,717 10,724
Securities sold short ................................. 2,327,714 -- -- --
--------------------------------------------------------------------
Net realized gain ................................... 4,784,048 46,156,983 9,286,216 3,472,068
Net unrealized appreciation (depreciation) on:
Investments ........................................... (21,785,672) 28,531,223 23,890,150 3,095,818
Translation of assets and liabilities denominated in
foreign currencies ................................... -- (4,600) -- (36)
--------------------------------------------------------------------
Net unrealized appreciation (depreciation) ........ (21,785,672) 28,526,623 23,890,150 3,095,782
--------------------------------------------------------------------
Net realized and unrealized gain (loss) ................ (17,001,624) 74,683,606 33,176,366 6,567,850
--------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ....................................... $(18,385,753) $ 76,200,694 $ 32,418,105 $ 6,732,444
====================================================================
</TABLE>
* Net of foreign taxes and fees of $148,448, $7,512 and $10,336 for the
Franklin Global Communications Fund, Franklin Global Health Care Fund and
Franklin Natural Resources Fund, respectively.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED APRIL 30, 2000 AND 1999
<TABLE>
<CAPTION>
FRANKLIN BIOTECHNOLOGY FRANKLIN
DISCOVERY FUND GLOBAL COMMUNICATIONS FUND
--------------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ................. $ (1,384,129) $ (285,652) $ 1,517,088 $ 3,289,731
Net realized gain (loss) from investments and
foreign currency transactions ............... 4,784,048 (2,905,988) 46,156,983 18,511,777
Net unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities denominated in foreign currencies (21,785,672) (5,962,288) 28,526,623 (15,631,278)
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............... (18,385,753) (9,153,928) 76,200,694 6,170,230
Distributions to shareholders from:
Net investment income:
Class A ..................................... -- -- (4,009,477) (2,419,109)
Class B ..................................... -- -- (6,176) --
Class C ..................................... -- -- (215,000) (75,113)
Net realized gains:
Class A ..................................... (223,281) (1,272,491) (33,553,640) (9,673,260)
Class B ..................................... -- -- (110,158) --
Class C ..................................... -- -- (3,053,817) (818,825)
--------------------------------------------------------------------------
Total distributions to shareholders ........... (223,281) (1,272,491) (40,948,268) (12,986,307)
Capital share transactions: (Note 2)
Class A ...................................... 867,632,458 6,330,107 57,951,832 (20,312,303)
Class B ...................................... -- -- 4,489,511 72,761
Class C ...................................... -- -- 14,252,127 847,862
--------------------------------------------------------------------------
Total capital share transactions .............. 867,632,458 6,330,107 76,693,470 (19,391,680)
Net increase (decrease) in net assets .... 849,023,424 (4,096,312) 111,945,896 (26,207,757)
Net assets:
Beginning of year ............................. 69,449,845 73,546,157 216,710,230 242,917,987
--------------------------------------------------------------------------
End of year ................................... $ 918,473,269 $ 69,449,845 $ 328,656,126 $ 216,710,230
==========================================================================
Undistributed net investment income (accumulated
net operating loss) included in net assets:
End of year .................................. $ (1,189) $ (7,680) $ 156,014 $ 2,918,850
==========================================================================
</TABLE>
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED APRIL 30, 2000 AND 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
GLOBAL HEALTH CARE FUND NATURAL RESOURCES FUND
2000 1999 2000 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ........................... $ (758,261) $ (1,149,843) $ 164,594 $ 398,867
Net realized gain (loss) from investments and
foreign currency transactions ......................... 9,286,216 (14,678,519) 3,472,068 (6,100,355)
Net unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities denominated in foreign currencies ......... 23,890,150 (32,520,914) 3,095,782 (4,510,191)
---------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ......................... 32,418,105 (48,349,276) 6,732,444 (10,211,679)
Distributions to shareholders from:
Net investment income:
Class A ............................................... -- -- (250,190) (424,272)
Advisor Class ......................................... -- -- (2,323) (10,798)
Net realized gains:
Class A ............................................... -- (98,214) -- --
Class C ............................................... -- (16,744) -- --
---------------------------------------------------------------------
Total distributions to shareholders ..................... -- (114,958) (252,513) (435,070)
Capital share transactions: (Note 2)
Class A ................................................ (10,806,942) (60,533,341) (9,142,232) (7,774,548)
Class B ................................................ 2,675,497 222,435 -- --
Class C ................................................ 1,505,360 (4,883,689) -- --
Advisor Class .......................................... -- -- 8,226,100 (411,581)
---------------------------------------------------------------------
Total capital share transactions ........................ (6,626,085) (65,194,595) (916,132) (8,186,129)
Net increase (decrease) in net assets ............... 25,792,020 (113,658,829) 5,563,799 (18,832,878)
Net assets:
Beginning of year ....................................... 88,206,806 201,865,635 44,333,157 63,166,035
---------------------------------------------------------------------
End of year ............................................. $ 113,998,826 $ 88,206,806 $ 49,896,956 $ 44,333,157
=====================================================================
Undistributed net investment income included
in net assets:
End of year ........................................... $ -- $ -- $ 175,143 $ 252,338
=====================================================================
</TABLE>
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Strategic Series (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twelve separate
series. All funds included in this report (the Funds) are non-diversified. The
investment objectives of the Funds are:
<TABLE>
<CAPTION>
CAPITAL GROWTH TOTAL RETURN
------------------------------------------------------------------------------
<S> <C>
Franklin Biotechnology Discovery Fund Franklin Global Communications Fund
Franklin Global Health Care Fund Franklin Natural Resources Fund
</TABLE>
Effective May 1, 2000, the Franklin Strategic Series began offering shares of
the Franklin Technology Fund.
The following summarizes the Funds' significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Restricted securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. SECURITIES SOLD SHORT:
The Franklin Biotechnology Discovery Fund is engaged in selling securities
short, which obligates the fund to replace a borrowed security with the same
security at current market value. The fund would incur a loss if the price of
the security increases between the date of the short sale and the date on which
the fund replaces the borrowed security. The fund would realize a gain if the
price of the security declines between those dates.
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
c. SECURITIES SOLD SHORT: (CONT.)
The fund is required to establish a margin account with the broker lending the
security sold short. While the short sale is outstanding, the broker retains the
proceeds of the short sale and the fund must maintain a deposit for the broker
consisting of cash and securities having a value equal to a specified percentage
of the value of the securities sold short. At April 30, 2000, the Franklin
Biotechnology Discovery Fund had no open short sales.
d. INCOME TAXES:
No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
e. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
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. Other expenses are
charged to each fund on a specific identification basis.
Realized and unrealized gains and losses and net investment income (loss), other
than class specific expenses, are allocated daily to each class of shares based
upon the relative proportion of net assets of each class.
f. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
The classes of shares offered within each of the Funds are indicated below.
Effective January 1, 1999, Class I and Class II were renamed Class A and Class
C, respectively, and the Franklin Global Heath Care Fund and the Franklin Global
Communications Fund began offering a new class of shares, Class B. Each class of
shares differ by its initial sales load, distribution fees, voting rights on
matters affecting a single class and its exchange privilege.
<TABLE>
<CAPTION>
CLASS A CLASS A & ADVISOR CLASS CLASS A, CLASS B & CLASS C
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Biotechnology Discovery Fund Franklin Natural Resources Fund Franklin Global
Communications Fund
Franklin Global Health Care Fund
</TABLE>
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
At April 30, 2000, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN BIOTECHNOLOGY FRANKLIN FRANKLIN
DISCOVERY FUND GLOBAL COMMUNICATIONS FUND GLOBAL HEALTH CARE FUND
-----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Year ended April 30, 2000
Shares sold .................... 17,971,248 $1,271,076,030 6,271,281 $ 129,648,724 7,355,772 $ 125,127,747
Shares issued in reinvestment
of distributions .............. 4,597 178,540 1,754,362 32,769,923 -- --
Shares redeemed ................ (5,745,246) (403,622,112) (5,232,137) (104,466,815) (8,241,799) (135,934,689)
----------------------------------------------------------------------------------------------
Net increase (decrease) ........ 12,230,599 $ 867,632,458 2,793,506 $ 57,951,832 (886,027) $ (10,806,942)
==============================================================================================
Year ended April 30,1999
Shares sold .................... 1,483,341 $ 35,796,702 2,575,785 $ 41,641,164 9,005,885 $ 143,541,952
Shares issued in reinvestment
of distributions ............... 41,475 975,481 688,144 10,403,432 5,766 90,654
Shares redeemed ................ (1,293,474) (30,442,076) (4,540,259) (72,356,899) (12,818,888) (204,165,947)
----------------------------------------------------------------------------------------------
Net increase (decrease) ........ 231,342 $ 6,330,107 (1,276,330) $ (20,312,303) (3,807,237) $ (60,533,341)
===============================================================================================
CLASS B SHARES:
Year ended April 30, 2000
Shares sold .................... 211,587 $ 4,444,191 140,895 $ 2,768,142
Shares issued in reinvestment of
distributions ................ 5,728 106,660 -- --
Shares redeemed ................ (2,948) (61,340) (4,723) (92,645)
------------------------------------------------------------
Net increase ................... 214,367 $ 4,489,511 136,172 $ 2,675,497
============================================================
Year ended April 30, 1999(a)
Shares sold .................... 4,668 $ 72,761 15,040 $ 222,495
Shares redeemed ................ -- -- (4) (60)
------------------------------------------------------------
Net increase ................... 4,668 $ 72,761 15,036 $ 222,435
============================================================
CLASS C SHARES:
Year ended April 30, 2000
Shares sold .................... 759,183 $ 15,751,309 486,834 $ 8,924,197
Shares issued in reinvestment of
distributions ................ 154,008 2,861,777 -- --
Shares redeemed ................ (232,780) (4,360,959) (464,033) (7,418,837)
------------------------------------------------------------
Net increase ................... 680,411 $ 14,252,127 22,801 $ 1,505,360
============================================================
Year ended April 30, 1999
Shares sold .................... 348,707 $ 5,558,866 375,736 $ 6,135,515
Shares issued in reinvestment of
distributions ................ 51,063 765,827 1,001 15,481
Shares redeemed ................ (348,295) (5,476,831) (695,236) (11,034,685)
------------------------------------------------------------
Net increase (decrease) ........ 51,475 $ 847,862 (318,499) $ (4,883,689)
============================================================
</TABLE>
(a) For the period January 1, 1999 (effective date) to April 30, 1999.
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN
NATURAL RESOURCES FUND
------------------------------------------
SHARES AMOUNT
------------------------------------------
<S> <C> <C>
CLASS A SHARES:
Year ended April 30, 2000
Shares sold ........................................................... 2,824,749 $ 39,331,408
Shares issued in reinvestment of distributions ........................ 17,350 232,665
Shares redeemed ....................................................... (3,551,679) (48,706,305)
------------------------------------------
Net decrease .......................................................... (709,580) $ (9,142,232)
==========================================
Year ended April 30, 1999
Shares sold ........................................................... 3,435,836 $ 39,238,044
Shares issued in reinvestment of distributions ........................ 33,594 390,527
Shares redeemed ....................................................... (4,175,956) (47,403,119)
------------------------------------------
Net decrease .......................................................... (706,526) $ (7,774,548)
==========================================
ADVISOR CLASS SHARES:
Year ended April 30, 2000
Shares sold ........................................................... 532,473 $ 8,436,067
Shares issued in reinvestment of distributions ........................ 166 2,297
Shares redeemed ....................................................... (14,648) (212,264)
------------------------------------------
Net increase .......................................................... 517,991 $ 8,226,100
==========================================
Year ended April 30, 1999
Shares sold ........................................................... 117,744 $ 1,462,201
Shares issued in reinvestment of distributions ........................ 897 10,797
Shares redeemed ....................................................... (152,874) (1,884,579)
------------------------------------------
Net decrease .......................................................... (34,233) $ (411,581)
==========================================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc.
(Distributors), Franklin Templeton Services, Inc. (FT Services), and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Funds'
investment manager, principal underwriter, administrative manager and transfer
agent, respectively.
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund) which is managed by Advisers.
All Funds pay an investment management fee to Advisers based on the average net
assets of the Funds as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE DAILY NET ASSETS
---------------------------------------------------------------------
<S> <C>
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% Over $250 million, up to and including $10 billion
</TABLE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
Fees are further reduced on net assets over $10 billion.
Advisers agreed in advance to waive management fees for the Franklin Natural
Resources Fund as noted in the Statements of Operations.
Management fees were reduced on assets invested in the Sweep Money Fund.
The Franklin Biotechnology Discovery Fund pays an administrative fee to FT
Services based on the fund's average net assets as follows:
ANNUALIZED
FEE RATE DAILY NET ASSETS
-------------------------------------------------------------------
.150% First $200 million
.135% Over $200 million, up to and including $700 million
.100% Over $700 million, up to and including $1.2 billion
.075% Over $1.2 billion
Under an agreement with Advisers, FT Services provides administrative services
to the Funds, except the Franklin Biotechnology Discovery Fund. The fee is paid
by Advisers based on the average daily net assets, and is not an additional
expense of the Funds.
The Franklin Biotechnology Discovery Fund and the Franklin Natural Resources
Fund reimburse Distributors up to .35% per year of the funds' average daily net
assets of Class A; the Franklin Global Health Care Fund and the Franklin Global
Communications Fund reimburse Distributors up to .25%, 1.00%, and 1.00% per year
of the funds' average daily net assets of Class A, Class B, and Class C,
respectively, for costs incurred in marketing the Funds' shares.
Distributors received (paid) net commissions on sales of the Funds' shares, and
received contingent deferred sales charges for the year as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BIOTECHNOLOGY GLOBAL GLOBAL HEALTH FRANKLIN NATURAL
DISCOVERY FUND COMMUNICATIONS FUND CARE FUND RESOURCES FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net commissions received (paid) ................. $4,329,157 $154,503 $(137,048) $12,532
Contingent deferred sales charges ............... $ 106,821 $ 6,796 $ 14,969 $ 642
</TABLE>
The Funds paid transfer agent fees of $1,599,437, of which $1,421,260 was paid
to Investor Services.
The Funds earned dividend income from investment in the Sweep Money Fund as
follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BIOTECHNOLOGY GLOBAL GLOBAL HEALTH FRANKLIN NATURAL
DISCOVERY FUND COMMUNICATIONS FUND CARE FUND RESOURCES FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend Income ................................. $2,283,988 $995,359 $154,612 $74,902
</TABLE>
Included in professional fees are legal fees of $23,377 that were paid to a law
firm in which a partner is an officer of the Funds.
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
At April 30, 2000, the Funds had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:
FRANKLIN GLOBAL FRANKLIN NATURAL
HEALTH CARE FUND RESOURCES FUND
----------------------------------------
Capital loss carryovers
expiring in:
2007 $3,510,661 $3,167,296
2008 1,450,448 --
----------------------------------------
$4,961,109 $3,167,296
----------------------------------------
At April 30, 2000, the Franklin Biotechnology Discovery Fund had deferred
capital losses occurring subsequent to October 31, 1999 of $84,321. For tax
purposes, such losses will be reflected in the year ending April 30, 2001.
At April 30, 2000, the Franklin Biotechnology Discovery Fund and the Franklin
Global Communications Fund had deferred currency losses occurring subsequent to
October 31, 1999 of $1,189 and $40,776, respectively. For tax purposes, such
losses will be reflected in the year ending April 30, 2001.
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions and
passive foreign investment company shares.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatments of wash sales, foreign currency
transactions, and passive foreign investment company shares.
At April 30, 2000, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BIOTECHNOLOGY GLOBAL GLOBAL HEALTH FRANKLIN NATURAL
DISCOVERY FUND COMMUNICATIONS FUND CARE FUND RESOURCES FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost ..................... $ 970,976,442 $260,691,596 $93,956,140 $45,406,775
=====================================================================
Unrealized appreciation ................. $ 148,770,564 $ 74,977,344 $24,453,407 $ 7,943,129
Unrealized depreciation ................. (174,788,806) (7,602,634) (10,023,843) (3,113,276)
----------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ (26,018,242) $ 67,374,710 $14,429,564 $ 4,829,853
=====================================================================
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended April 30, 2000 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BIOTECHNOLOGY GLOBAL GLOBAL HEALTH FRANKLIN NATURAL
DISCOVERY FUND COMMUNICATIONS FUND CARE FUND RESOURCES FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases ............................... $922,336,874 $339,203,702 $107,112,159 $33,322,523
Sales ................................... $133,560,163 $324,016,324 $120,855,006 $35,094,728
</TABLE>
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RESTRICTED SECURITIES
The funds may purchase securities through a private offering that generally
cannot be resold to the public without prior registration under the Securities
Act of 1933. The costs of registering such securities are paid by the issuer.
Restricted securities held at April 30, 2000 are as follows:
<TABLE>
<CAPTION>
ACQUISITION
SHARES ISSUER DATE COST VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
116,481 ILEX Oncology Inc. PIPES 3/03/00 $ 5,241,645 $ 2,599,856
387,097 Kosan Biosciences Inc., C, PIPES 3/24/00 12,000,007 12,000,007
380,000 Titan Pharmaceuticals Inc., PIPES 2/24/00 13,110,000 11,065,600
-----------
TOTAL RESTRICTED SECURITIES (2.79% of net assets) $25,665,463
===========
FRANKLIN GLOBAL COMMUNICATIONS FUND
95,932 Kestrel Solutions, Inc., cvt. pfd., D (.38% of net assets) 1/20/00 $ 1,249,994 $ 1,249,994
===========
</TABLE>
FRANKLIN STRATEGIC SERIES
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FRANKLIN STRATEGIC SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds included in this
report constituting part of the Franklin Strategic Series (hereafter referred to
as the "Funds") at April 30, 2000, the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at April 30, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
June 7, 2000
FRANKLIN STRATEGIC SERIES
TAX DESIGNATION
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Trust hereby
designates the following amounts as capital gain dividends for the fiscal year
ended April 30, 2000:
CAPITAL GAINS
20% RATE GAIN
----------------------------------------------------------
Franklin Global Communications Fund ... $19,994,795
Under Section 854(b)(2) of the Internal Revenue Code, the Trust hereby
designates the following percentage amounts of the ordinary income dividends as
income qualifying for the dividends received deduction for the fiscal year ended
April 30, 2000:
FRANKLIN GLOBAL FRANKLIN
COMMUNICATIONS FUND NATURAL RESOURCES FUND
--------------------------------------------------
10.29% 100%
This page intentionally left blank.
SHAREHOLDER LETTER
Dear Shareholder:
This annual report for the Franklin Strategic Series covers the 12 months ended
April 30, 2000.
A RED HOT ECONOMY
During the year under review, the U.S. economy continued to advance at a
blistering pace. Gross domestic product (GDP) grew at a rate of 4.4%, corporate
profits were generally robust, unemployment sank to its lowest rate in 30 years,
and inflation seemed to pose no problem to most investors. Not included in this
group was Alan Greenspan, chairman of the U.S. Federal Reserve Board (the Fed).
Attempting to cool down a super-heated economy, and prevent future inflation,
the Fed raised the federal funds target rate five times between June 1999 and
the close of the reporting period.
WALL STREET WHIPLASH
The U.S. stock market rose and fell to such a degree during the reporting period
that describing it as volatile would be an understatement. On April 30, 1999,
the Dow Jones(R) Industrial Average (the Dow) stood at 10789.04. A year later,
it was 10733.91. The National Association of Securities Dealers Automated
Quotation System (Nasdaq(R))(1) started the fiscal year at 2542.85 and ended it
at 3860.66. But opening and closing numbers don't begin to tell the story. What
happened in between was enough to make investors bullish, bearish or merely
bewildered.
(1.) The Nasdaq Composite Index measures all Nasdaq domestic and U.S.-based
common stocks listed on the Nasdaq Market. The Index is market-weighted and
includes over 5,000 companies (as of 4/30/00).
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter .................................................... 1
Fund Reports
Franklin Blue Chip Fund ............................................... 4
Franklin MidCap
Growth Fund ........................................................... 11
Financial Highlights &
Statements of Investments ............................................. 16
Financial Statements .................................................. 26
Notes to
Financial Statements .................................................. 30
Independent
Auditors' Report ...................................................... 35
Tax Designation ....................................................... 36
</TABLE>
[Fund Category Pyramid Graphic]
For example, during the week ended October 15, the Dow fell 630 points, its
biggest weekly percentage drop in over a decade. Then, shrugging off worries
about inflation and rising interest rates, it proceeded to gain 710 points by
October 29. The Nasdaq had its share of ups and downs, too. Starting the fiscal
year with a bang, it closed 1999 at 4069.31. But after welcoming the new
millennium with virtually no Y2K problems, it fell 2.8% on March 11, then
appeared to recover somewhat in the following weeks, only to drop another 355
points on April 14. And as you can see from the graph on page 3, whenever the
Nasdaq rose during the latter part of the period, the Dow seemed to decline, and
vice versa.
HOW TO HANDLE THE TURBULENCE
While seesawing such as this can be unsettling, it is important to remember that
securities markets always have been -- and always will be -- subject to
volatility. No one can predict exactly how they will perform. However, over the
long term, stocks and bonds have provided impressive results. For that reason,
we urge you to consult with your investment representative, focus on your
long-term goals rather than short-term market cycles, and diversify your
investments. As you know, mutual funds offer a level of diversification almost
impossible for individual investors to achieve on their own.
We also encourage you to consider using an investment technique called
dollar-cost averaging. By investing a fixed dollar amount at regular intervals,
you buy more shares when prices are low and fewer when prices are high, which
can reduce your average cost per share. A note of caution: no investment
technique can assure a profit or completely protect against loss, and before
using this strategy, you should consider your ability to continue purchases
through periods of changing economic conditions.(2)
NATIONAL ASSOCIATION OF SECURITIES DEALERS
AUTOMATED QUOTATION SYSTEM (NASDAQ)
AND DOW JONES INDUSTRIAL AVERAGE (DJIA)
Daily Prices
(4/30/99-4/30/00)
This chart shows the volatility of the National Association of Securities
Dealers Automated Quotation System (Nasdaq) and Dow Jones Industrial Average
(DJIA), based on their daily prices from 4/30/99 to 4/30/00.
DAILY PRICES
(4/30/99 4/30/00)
<TABLE>
<CAPTION>
DATE NASDAQ DJIA
---- ------ ----
<S> <C> <C>
4/30/99 2542.85 10789.04
5/3/99 2535.58 11014.69
5/4/99 2485.12 10886.11
5/5/99 2534.45 10955.41
5/6/99 2472.28 10946.82
5/7/99 2503.62 11031.59
5/10/99 2526.39 11007.25
5/11/99 2566.68 11026.15
5/12/99 2606.54 11000.37
5/13/99 2582.00 11107.19
5/14/99 2527.86 10913.32
5/17/99 2561.84 10853.47
5/18/99 2558.36 10836.95
5/19/99 2577.40 10887.39
5/20/99 2542.23 10866.74
5/21/99 2520.14 10829.28
5/24/99 2453.66 10654.67
5/25/99 2380.90 10531.09
5/26/99 2427.18 10702.16
5/27/99 2419.15 10466.93
5/28/99 2470.52 10559.74
6/1/99 2412.03 10596.26
6/2/99 2432.41 10577.89
6/3/99 2403.32 10663.69
6/4/99 2478.34 10799.84
6/7/99 2524.21 10909.38
6/8/99 2474.56 10765.64
6/9/99 2519.35 10690.29
6/10/99 2484.62 10621.27
6/11/99 2447.88 10490.51
6/14/99 2398.31 10563.33
6/15/99 2414.67 10594.99
6/16/99 2517.83 10784.95
6/17/99 2544.15 10841.63
6/18/99 2563.44 10855.56
6/21/99 2630.28 10815.98
6/22/99 2580.26 10721.63
6/23/99 2598.12 10666.86
6/24/99 2553.99 10534.83
6/25/99 2552.65 10552.56
6/28/99 2602.44 10655.15
6/29/99 2642.11 10815.35
6/30/99 2686.12 10970.80
7/1/99 2706.18 11066.42
7/2/99 2741.02 11139.24
7/6/99 2736.78 11135.12
7/7/99 2743.04 11187.36
7/8/99 2771.86 11126.89
7/9/99 2793.07 11193.70
7/12/99 2790.44 11200.98
7/13/99 2778.23 11175.02
7/14/99 2818.13 11148.10
7/15/99 2839.37 11186.41
7/16/99 2864.48 11209.84
7/19/99 2830.29 11187.68
7/20/99 2732.18 10996.13
7/21/99 2761.77 11002.78
7/22/99 2684.44 10969.22
7/23/99 2692.40 10910.96
7/26/99 2619.19 10863.16
7/27/99 2679.33 10979.04
7/28/99 2705.84 10972.07
7/29/99 2640.01 10791.29
7/30/99 2638.49 10655.15
8/2/99 2623.63 10645.96
8/3/99 2587.99 10677.31
8/4/99 2540.00 10674.77
8/5/99 2565.83 10793.82
8/6/99 2547.97 10714.03
8/9/99 2518.98 10707.70
8/10/99 2490.11 10655.15
8/11/99 2564.98 10787.80
8/12/99 2549.49 10789.39
8/13/99 2637.81 10973.65
8/16/99 2645.28 11046.79
8/17/99 2671.22 11117.08
8/18/99 2657.73 10991.38
8/19/99 2621.43 10963.84
8/20/99 2648.33 11100.61
8/23/99 2719.57 11299.76
8/24/99 2752.37 11283.30
8/25/99 2805.60 11326.04
8/26/99 2774.62 11198.45
8/27/99 2758.90 11090.17
8/30/99 2712.69 10914.13
8/31/99 2739.35 10829.28
9/1/99 2750.80 10937.88
9/2/99 2734.24 10843.21
9/3/99 2843.11 11078.45
9/7/99 2837.26 11034.13
9/8/99 2808.74 11036.34
9/9/99 2852.02 11079.40
9/10/99 2887.06 11028.43
9/13/99 2844.77 11030.33
9/14/99 2868.29 10910.33
9/15/99 2814.17 10801.42
9/16/99 2806.72 10737.46
9/17/99 2869.62 10803.63
9/20/99 2886.15 10823.90
9/21/99 2821.10 10598.47
9/22/99 2858.16 10524.07
9/23/99 2749.83 10318.59
9/24/99 2740.41 10279.33
9/27/99 2761.75 10303.39
9/28/99 2756.25 10275.53
9/29/99 2730.27 10213.48
9/30/99 2746.16 10336.95
10/1/99 2736.85 10273.00
10/4/99 2795.97 10401.23
10/5/99 2799.67 10400.59
10/6/99 2857.21 10588.34
10/7/99 2860.70 10537.05
10/8/99 2886.57 10649.76
10/11/99 2915.95 10648.18
10/12/99 2872.43 10417.06
10/13/99 2801.27 10232.16
10/14/99 2806.84 10286.61
10/15/99 2731.83 10019.71
10/18/99 2689.15 10116.28
10/19/99 2688.18 10204.93
10/20/99 2788.13 10392.36
10/21/99 2801.95 10297.69
10/22/99 2816.52 10470.25
10/25/99 2815.95 10349.93
10/26/99 2811.47 10302.13
10/27/99 2802.52 10394.89
10/28/99 2875.22 10622.53
10/29/99 2966.43 10729.86
11/1/99 2967.65 10648.51
11/2/99 2981.63 10581.84
11/3/99 3028.51 10609.06
11/4/99 3055.95 10639.64
11/5/99 3102.29 10704.48
11/8/99 3143.97 10718.85
11/9/99 3125.04 10617.32
11/10/99 3155.96 10597.74
11/11/99 3197.29 10595.30
11/12/99 3221.15 10769.32
11/15/99 3219.54 10760.75
11/16/99 3293.05 10932.33
11/17/99 3269.39 10883.09
11/18/99 3347.11 11035.70
11/19/99 3369.25 11003.89
11/22/99 3392.56 11089.52
11/23/99 3342.87 10995.63
11/24/99 3420.50 11008.17
11/26/99 3447.81 10988.91
11/29/99 3421.37 10947.92
11/30/99 3336.16 10877.81
12/1/99 3353.71 10998.39
12/2/99 3452.78 11039.06
12/3/99 3520.63 11286.18
12/6/99 3546.01 11225.01
12/7/99 3586.92 11106.65
12/8/99 3586.08 11068.12
12/9/99 3594.17 11134.79
12/10/99 3620.23 11224.70
12/13/99 3658.15 11192.59
12/14/99 3571.66 11160.17
12/15/99 3621.95 11225.32
12/16/99 3715.06 11244.89
12/17/99 3753.06 11257.43
12/20/99 3783.87 11144.27
12/21/99 3911.15 11200.54
12/22/99 3937.30 11203.60
12/23/99 3969.44 11405.76
12/27/99 3975.38 11391.08
12/28/99 3972.11 11476.71
12/29/99 4041.46 11484.66
12/30/99 4036.87 11452.86
12/31/99 4069.31 11497.12
1/3/00 4131.15 11357.51
1/4/00 3901.69 10997.93
1/5/00 3877.54 11122.65
1/6/00 3727.13 11253.26
1/7/00 3882.62 11522.56
1/10/00 4049.67 11572.20
1/11/00 3921.19 11511.08
1/12/00 3850.02 11551.10
1/13/00 3957.21 11582.43
1/14/00 4064.27 11722.98
1/18/00 4130.81 11560.72
1/19/00 4151.29 11489.36
1/20/00 4189.51 11351.30
1/21/00 4235.40 11251.71
1/24/00 4096.08 11008.17
1/25/00 4167.41 11029.89
1/26/00 4069.91 11032.99
1/27/00 4039.56 11028.02
1/28/00 3887.07 10738.87
1/31/00 3940.35 10940.53
2/1/00 4051.98 11041.05
2/2/00 4073.96 11003.20
2/3/00 4210.98 11013.44
2/4/00 4244.14 10963.80
2/7/00 4321.77 10905.79
2/8/00 4427.54 10957.60
2/9/00 4363.24 10699.16
2/10/00 4485.63 10643.63
2/11/00 4395.45 10425.21
2/14/00 4418.55 10519.84
2/15/00 4420.77 10718.09
2/16/00 4427.65 10561.41
2/17/00 4548.92 10514.57
2/18/00 4411.74 10219.52
2/22/00 4382.12 10304.84
2/23/00 4550.33 10225.73
2/24/00 4617.65 10092.63
2/25/00 4590.50 9862.12
2/28/00 4577.85 10038.65
2/29/00 4696.69 10128.31
3/1/00 4784.08 10137.93
3/2/00 4754.51 10164.92
3/3/00 4914.79 10367.20
3/6/00 4904.85 10170.50
3/7/00 4847.84 9796.03
3/8/00 4897.17 9856.53
3/9/00 5046.86 10010.73
3/10/00 5048.62 9928.82
3/13/00 4907.24 9947.13
3/14/00 4706.63 9811.24
3/15/00 4582.62 10131.41
3/16/00 4717.39 10630.60
3/17/00 4798.13 10595.23
3/20/00 4610.00 10680.24
3/21/00 4711.68 10907.34
3/22/00 4864.75 10866.70
3/23/00 4940.61 11119.86
3/24/00 4963.03 11112.72
3/27/00 4958.56 11025.85
3/28/00 4833.89 10936.11
3/29/00 4644.67 11018.72
3/30/00 4457.89 10980.25
3/31/00 4572.83 10921.92
4/3/00 4223.68 11221.93
4/4/00 4148.89 11164.84
4/5/00 4169.22 11033.92
4/6/00 4267.56 11114.27
4/7/00 4446.45 11111.48
4/10/00 4188.20 11186.56
4/11/00 4055.90 11287.08
4/12/00 3769.63 11125.13
4/13/00 3676.78 10923.55
4/14/00 3321.29 10305.77
4/17/00 3539.16 10582.51
4/18/00 3793.57 10767.42
4/19/00 3706.41 10674.96
4/20/00 3643.88 10844.05
4/24/00 3482.48 10906.10
4/25/00 3711.23 11124.82
4/26/00 3630.09 10945.50
4/27/00 3774.03 10888.10
4/28/00 3860.66 10733.91
</TABLE>
Regardless of the market's future direction, Franklin Templeton's management
teams will continue to follow the fundamental principles of careful selection
and constant professional supervision. As always, we welcome your comments and
questions, and look forward to continuing to serve your investment needs.
Sincerely,
/s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
President
Franklin Strategic Series
2. For more information on dollar-cost averaging, contact your investment
representative, or call Franklin Templeton at 1-800/DIAL BEN(R)
(1-800/342-5236).
FRANKLIN BLUE CHIP FUND
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin Blue Chip Fund seeks long-term capital appreciation
by investing primarily in blue chip companies with market capitalization of $1
billion or more, which the managers believe have quality management and superior
products or services.
--------------------------------------------------------------------------------
This report covers the fiscal year ended April 30, 2000. During this period,
Franklin Blue Chip Fund - Class A posted a +27.96% one-year cumulative total
return, as shown in the Performance Summary on page 8, significantly
outperforming its benchmark, the Standard & Poor's 500(R) (S&P 500(R)), which
returned 10.11%.
Global economies grew rapidly during the 12 months under review. Global gross
domestic product (GDP) growth averaged 2.8% for 1999, and analyst forecasts call
for global GDP at about 4.2% for 2000. However, despite an upswing in global
industrial production and a strengthening in commodity prices, global inflation
generally remained benign due to competition stemming from deregulation, excess
capacity and the large number of companies doing business on the Internet. In
the U.S., where earnings for companies in the S&P 500 grew an impressive 14% in
1999, the Federal Reserve Board (the Fed), attempting to head off possible
future inflation, raised interest rates five times during the period. It should
be noted, however, that although the S&P 500 rose 10.13%, prices of nearly
one-quarter of the stocks in that index fell during the year under review.
Sectors of the S&P 500 performing best were those with the strongest relative
earnings growth and the least sensitivity to interest rates. For example, the
technology sector (approximately one-third of the index) and the capital goods
sector (about 8% of the index) far outperformed other sectors. Because the fund
was overweight in these sectors during most of the period, it outperformed the
S&P 500, as noted above.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 19.
During the reporting period, we tried to change the portfolio's mix without
adding unduly to the fund's turnover by putting new money to work in sectors
where we found what we believed to be attractively priced stocks. Although we
expected technology and capital goods earnings to be strong, we allowed the
fund's overall exposure to these sectors to drop in January because of
exceedingly high valuations, increased market volatility, and relatively
attractive opportunities in other sectors. In March and April, the technology
sector and many "new economy" stocks experienced unusual market volatility.
During this time, the fund outperformed the S&P 500 because of the portfolio's
broad industry diversification and focus on leading, high-quality companies.
However, we believe many technology and capital goods companies have attractive
fundamentals, and we intend to invest in these areas as valuations become more
reasonable. Within the technology sector, we will continue to invest in
companies we think will provide "best of breed" technologies for the next
generation's core networks.
When rising interest rates weakened the financial sector, we increased our
exposure to it, initiating a position in Wells Fargo, a bank with strong growth
prospects trading at what we believed were depressed levels. One of the fastest
growing, major regional banks, Wells Fargo is the Internet bank leader in the
U.S., with over 1.4 million customers. Although its earnings growth prospects
for 2000 are 15% (higher than the average expected for S&P 500 companies), its
stock was trading at about 60% of the S&P 500's price-to-earnings ratio. In our
opinion, once investors believe we are nearing the end of the Fed's tightening
cycle, they may begin to focus more strongly on the financial services sector.
PORTFOLIO BREAKDOWN
Franklin Blue Chip Fund
Based on Total Net Assets
4/30/00
<TABLE>
<S> <C>
Electronic Technology 20.7
Finance 12.1%
Technology Services 10.9%
Utilities 10.4%
Health Technology 9.2%
Consumer Non-Durables 6.6%
Retail Trade 5.5%
Process Industries 4.6%
Energy Minerals 3.3%
Producer Manufacturing 3.0%
Other 7.4%
Short-Term Investments
& Other Net Assets 6.3%
</TABLE>
TOP 10 HOLDINGS
Franklin Blue Chip Fund
4/30/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
SECTOR, COUNTRY NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Cisco Systems Inc. 3.3%
Electronic Technology, U.S.
General Electric Co. 3.2%
Process Industries, U.S.
Intel Corp. 3.1%
Electronic Technology, U.S.
Exxon Mobil Corp. 2.5%
Energy Minerals, U.S.
Oracle Corp. 2.3%
Technology Services, U.S.
International Business
Machines Corp. 2.1%
Electronic Technology, U.S.
Nokia Corp. 1.8%
Electronic Technology,
Finland
Best Buy Co. 1.8%
Retail Trade, U.S.
Duke Energy Corp. 1.7%
Utilities, U.S.
The Walt Disney Co. 1.7%
Consumer Services, U.S.
</TABLE>
Looking forward, we are confident that the fund's investment philosophy
emphasizing high-quality stocks of proven market leaders will provide
satisfactory results for our shareholders. Global growth seems to be broadening
the positive earnings outlook to include sectors such as basic materials,
energy, health care and communications, in addition to technology and capital
goods. Because we prefer to be comfortable with the fund's holdings regardless
of market volatility, we shall continue to search for companies offering market
dominance and management excellence. Companies in which we invest must also
possess one of the following strong revenue growth, strong cash flow (EBITDA or
earnings before interest, taxes, depreciation and amortization) or strong
earnings growth. This rigorous analysis should eliminate all but the highest
quality companies, while our long-term orientation should lead to relatively low
portfolio turnover and associated costs.
During the year under review, the fund's strong performance was due in large
part to its significant exposure to technology. That having been said, we think
it is wise to maintain a healthy respect for the past history of the American
economy's business cycles, and traditional methods of security valuations. By
any of these traditional measures, many technology companies are selling at
unusually high valuations. The volatility the market experienced in March and
April may be a precursor of a return to traditional price/earnings and book
value analysis -- or it may be a temporary bump in the road. One thing is clear,
however, none of us can realistically rely on these valuations and the
performance that results to continue indefinitely. We will try our hardest to
deliver last year's performance every year -- but no one should expect that to
be the case for this or any mutual fund.
/s/ Sally Edwards Haff
Sally Edwards Haff
Portfolio Manager
Franklin Blue Chip Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
FRANKLIN BLUE CHIP FUND
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
August 3, 1998, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ.*
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.*
CLASS C: Subject to 1% initial sales charge and 1% CDSC for shares redeemed
within 18 months of investment. These shares have higher annual fees and
expenses than Class A shares.*
*The fund's manager has agreed in advance to waive a portion of its management
fees, which reduces expenses and increases total return to shareholders. If the
manager had not taken this action, the fund's total return would have been
lower. The fee waiver may be discontinued at any time, upon notice to the fund's
Board of Directors.
ONE-YEAR PERFORMANCE SUMMARY AS OF 4/30/00
One-year and aggregate total return do not include sales charges. Distributions
will vary based on earnings of the fund's portfolio and any profits realized
from the sale of the portfolio's securities, as well as the level of operating
expenses for each class. Past distributions are not indicative of future trends.
All total returns include reinvested distributions at net asset value.
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS A
One-Year Total Return +27.96%
Net Asset Value (NAV) $17.90 (4/30/00) $14.41 (4/30/99)
Change in NAV +$3.49
Distributions (5/1/99-4/30/00) Dividend Income $0.0141
Short-Term Capital Gain $0.0741
Long-Term Capital Gain $0.3980
---------------------- -------
Total $0.4862
CLASS B
Aggregate Total Return +8.63%
Net Asset Value (NAV) $17.87 (4/30/00) $16.45 (2/1/00)
Change in NAV +$1.42
CLASS C
Aggregate Total Return +8.88%
Net Asset Value (NAV) $17.91 (4/30/00) $16.45 (2/1/00)
Change in NAV +$1.46
</TABLE>
Franklin Blue Chip Fund paid distributions derived from long-term capital gains
of 39.8 cents ($0.3980) per share in December 1999. The fund hereby designates
such distributions as capital gain dividends per Internal Revenue Code Section
852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE AS OF 4/30/00
INCEPTION
CLASS A 1-YEAR 3-YEAR (6/3/96)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +27.96% +73.05% +88.87%
Average Annual Total Return(2) +20.59% +17.72% +15.87%
Value of $10,000 Investment(3) $12,059 $16,313 $17,801
INCEPTION
CLASS B (2/1/00)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +8.63%
Aggregate Total Return(2) +6.77%
Value of $10,000 Investment(3) $10,463
INCEPTION
CLASS C (2/1/00)
--------------------------------------------------------------------------------
Cumulative Total Return(1) +8.88%
Aggregate Total Return(2) +6.77%
Value of $10,000 Investment(3) $10,677
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class. Since Class B and C shares have existed
for less than one year, the figures represent aggregate total return since
inception, including the respective class's applicable, maximum sales charge(s).
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
Since markets can go down as well as up, 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 does not guarantee future results.
FRANKLIN BLUE CHIP FUND
AVERAGE ANNUAL TOTAL RETURN 4/30/00
CLASS A
-------------------------------------------------------------------------------
1-Year +20.59%
3-Year +17.72%
Since Inception (6/3/96) +15.87%
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged index differs
from the fund in composition, does not pay management fees or expenses and
includes reinvested dividends. One cannot invest directly in an index.
CLASS A (6/3/96 - 4/30/00)
The following line graph compares the performance of Franklin Blue Chip Fund's
Class A shares to that of the Standard & Poor's 500 Index*, based on a $10,000
investment from 6/3/96 to 4/30/00.
FRANKLIN BLUE CHIP
DATE FUND - CLASS A S&P 500 INDEX
---- -------------- -------------
06/03/1996 $9,425 $10,000
06/30/1996 $9,548 $10,038
07/31/1996 $9,274 $9,594
08/31/1996 $9,359 $9,797
09/30/1996 $9,651 $10,348
10/31/1996 $9,651 $10,634
11/30/1996 $10,028 $11,438
12/31/1996 $9,955 $11,211
01/31/1997 $10,126 $11,912
02/28/1997 $10,182 $12,005
03/31/1997 $10,021 $11,512
04/30/1997 $10,287 $12,199
05/31/1997 $10,969 $12,942
06/30/1997 $11,358 $13,522
07/31/1997 $11,823 $14,598
08/31/1997 $10,884 $13,780
09/30/1997 $11,358 $14,536
10/31/1997 $10,438 $14,050
11/30/1997 $10,543 $14,701
12/31/1997 $10,696 $14,953
01/31/1998 $10,802 $15,119
02/28/1998 $11,446 $16,210
03/31/1998 $11,763 $17,039
04/30/1998 $11,974 $17,212
05/31/1998 $11,696 $16,916
06/30/1998 $11,955 $17,602
07/31/1998 $11,946 $17,414
08/31/1998 $10,235 $14,896
09/30/1998 $10,658 $15,851
10/31/1998 $11,648 $17,139
11/30/1998 $12,272 $18,178
12/31/1998 $12,647 $19,225
01/31/1999 $13,053 $20,029
02/28/1999 $12,917 $19,406
03/31/1999 $13,487 $20,182
04/30/1999 $13,912 $20,963
05/31/1999 $13,506 $20,468
06/30/1999 $14,298 $21,604
07/31/1999 $14,163 $20,930
08/31/1999 $14,327 $20,826
09/30/1999 $14,114 $20,255
10/31/1999 $14,954 $21,537
11/30/1999 $15,582 $21,974
12/31/1999 $17,026 $23,269
01/31/2000 $16,359 $22,101
02/29/2000 $16,707 $21,683
03/31/2000 $18,219 $23,803
04/30/2000 $17,801 $23,087
*Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN MIDCAP GROWTH FUND
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin MidCap Growth Fund seeks long-term capital growth by
investing primarily in equity securities of medium-capitalization growth
companies -- those with a market capitalization between $1 billion and $8
billion.(1)
--------------------------------------------------------------------------------
During the 12-month period ended April 30, 2000, U.S. equity markets experienced
significant volatility, as investors were concerned about the impact rising
inflation data might have on interest rates and high stock valuations.
Confirming investor suspicions, the Federal Reserve Board (the Fed) raised
short-term interest rates five times during the period, increasing the fed funds
rate from 4.75% at the beginning of the period to 6.00% at the end. In addition,
lofty stock valuations of a few popular companies, illustrated by historically
high price-to-earnings ratios, captured investor attention as much as or more
than the possibility of further Fed tightening. These factors resulted in many
indexes experiencing an extended phase of choppy trading. During the latter part
of the reporting period, technology stocks, inspired in large part by optimistic
earnings expectations, led the market to ever-dizzying heights. Within this
environment, Franklin MidCap Growth Fund - Class A delivered a solid +62.94%
one-year cumulative total return, as shown in the Performance Summary on page
14. The Standard & Poor's(R) MidCap 400 Index (S&P(R) 400), the fund's
benchmark, provided a return of 23.49% for the same period.(2)
1. There are special risks associated with investing in a fund seeking long-term
capital growth from small- to medium-size companies that have less certain
growth prospects than large-cap companies and greater sensitivity to changing
economic conditions. These and other risks are discussed in the fund's
prospectus.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 23.
PORTFOLIO BREAKDOWN
Franklin MidCap Growth Fund
Based on Total Net assets 4/30/00
[BAR CHART PLOTPOINTS]
Electronic Technology 34.8%
Technology Services 17.5%
Telecommunications 4.8%
Consumer Services 3.3%
Commercial Services 2.7%
Finance 2.0%
Industrial Services 2.0%
Transportation 1.8%
Process Industries 1.6%
Utilities 1.4%
Other 5.3%
Short-Term Investments
& Other Net Assets 22.8%
TOP 10 HOLDINGS
Franklin MidCap Growth Fund
4/30/00
COMPANY % OF TOTAL
SECTOR NET ASSETS
--------------------------------------------------------------------------------
VERITAS Software Corp. 3.3%
Technology Services
JDS Uniphase Corp. 3.2%
Electronic Technology
Siebel Systems Inc. 3.1%
Technology Services
LSI Logic Corp. 2.8%
Electronic Technology
PMC-Sierra Inc. 2.6%
Electronic Technology
Linear Technology Corp. 2.4%
Electronic Technology
Xilinx Inc. 2.0%
Electronic Technology
Vitesse Semiconductor Corp. 1.9%
Electronic Technology
Novellus Systems Inc. 1.8%
Electronic Technology
Expeditors International
of Washington Inc. 1.8%
Transportation
The fund's strong performance was due largely to its overweight allocation to
the technology sector. Specific contributors included VERITAS Software, a data
storage software manufacturer, JDS Uniphase, a provider of fiber optic
components, and LSI Logic Corp., a maker of high-performance integrated
circuits. Meanwhile, some of our "old economy" holdings, such as U.S.
Foodservice, one of the nation's largest food distributors, also appreciated
during the period.
During the year under review, we reduced our exposure to the finance sector as
rising interest rates generated uncertainty about financial stocks' near-term
prospects. In our opinion, higher rates could increase these companies'
operating costs and decrease their lending activity. We also reduced our
weighting in process industries and retail trade and raised our cash weighting
in order to take advantage of any opportunities that arise amid any further
market volatility.
Looking forward, we are optimistic about long-term prospects for mid-cap growth
companies and remain committed to our portfolio strategy of maintaining
diversification across industries, minimizing company-specific risk and
concentrating holdings in leading companies in attractive growth sectors. Our
long-term strategy rewarded shareholders during the fiscal year, and we are
optimistic that through our active management, we will continue to provide
attractive, long-term results.
That having been said, we think it is wise to maintain a healthy respect for the
past history of the American economy's business cycles, and traditional methods
of security valuations. By any of these traditional measures, many technology
companies are selling at unprecedented valuations. The volatility the market
experienced in March and April may be a precursor of a return to traditional
price/earnings and book value analysis -- or it may be a temporary bump in the
road. However, one thing is clear. We cannot rely on the valuations and
performance of these stocks to continue in this manner indefinitely. We will try
our hardest to deliver last year's performance every year -- but no one should
expect that to be the case for this or any mutual fund.
2. Source: Standard & Poor's Micropal.
We thank you for your participation in Franklin MidCap Growth Fund and look
forward to serving your investment needs in the years to come. Please feel free
to contact us with your questions or comments.
/s/ Edward B. Jamieson
Edward B. Jamieson
Portfolio Manager
Franklin MidCap Growth Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance does not
guarantee future results, these insights may help you understand our investment
and management philosophy.
Shareholders of record on May 12, 2000, have received a package of information
regarding a Special Shareholders Meeting to consider a Plan of Reorganization,
which if approved would result in the exchange of shares of the fund for shares
of Franklin California Growth Fund, in a tax-free transaction. We hope that you
will attend the Meeting on July 19, 2000. If you do not plan to attend and you
have not already voted your shares, we urge you to do so now in order to save
money on the cost of additional mailings and proxy solicitations. If you have
lost or misplaced your proxy card, please call 1-800/342-5236 to get another
one. Many shareholders may also be eligible to vote by telephone or over the
Internet -- if you no longer have your proxy materials, please call
1-800/342-5236 for more information.
FRANKLIN MIDCAP GROWTH FUND
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
August 3, 1998, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Effective June 1, 1996, the fund implemented a
Rule 12b-1 plan, which affects subsequent performance.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, maximum sales
charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, maximum sales charge.
4. On January 2, 1996, the fund changed its investment objective, strategy, and
investment adviser.
On June 1, 1996, the fund became available to retail investors. Prior to that
date, it was only offered to institutional investors (without a sales charge or
12b-1 fees).
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
ONE-YEAR PERFORMANCE SUMMARY AS OF 4/30/00
One-year total return does not include sales charges. Distributions will vary
based on earnings of the fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of the fund's operating
expenses. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
CLASS A
One-Year Total Return +62.94%
Net Asset Value (NAV) $26.25(4/30/00) $16.15 (4/30/99)
Change in NAV +$10.10
Distributions (5/1/99-4/30/00) Dividend Income $0.0396
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (8/17/93)(4)
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +62.94% +197.68% +232.96%
Average Annual Total Return(2) +53.53% +22.91% +18.61%
Value of $10,000 Investment(3) $15,353 $28,056 $31,382
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged index differs
from the fund in composition, does not pay management fees or expenses and
includes reinvested dividends. One cannot invest directly in an index.
The following line graph compares the performance of Franklin MidCap Growth
Fund's Class A shares to that of the Standard & Poor's MidCap 400 Index*, based
on a $10,000 investment from 8/17/93 to 4/30/00.
DATE FRANKLIN MIDCAP GROWTH S&P MIDCAP 400
FUND- CLASS A INDEX
---------------------------------------------------------------
08/17/1993 $9,425 $10,000
08/31/1993 $9,425 $10,187
09/30/1993 $9,783 $10,295
10/31/1993 $9,698 $10,329
11/30/1993 $9,416 $10,101
12/31/1993 $9,883 $10,569
01/31/1994 $10,102 $10,816
02/28/1994 $9,893 $10,662
03/31/1994 $9,454 $10,168
04/30/1994 $9,578 $10,244
05/31/1994 $9,445 $10,146
06/30/1994 $9,110 $9,797
07/31/1994 $9,381 $10,129
08/31/1994 $9,943 $10,660
09/30/1994 $9,691 $10,461
10/31/1994 $9,846 $10,575
11/30/1994 $9,459 $10,098
12/31/1994 $9,596 $10,191
01/31/1995 $9,655 $10,298
02/28/1995 $10,123 $10,837
03/31/1995 $10,327 $11,026
04/30/1995 $10,542 $11,248
05/31/1995 $10,815 $11,519
06/30/1995 $11,393 $11,988
07/31/1995 $12,072 $12,613
08/31/1995 $12,338 $12,847
09/30/1995 $12,623 $13,158
10/31/1995 $12,486 $12,819
11/30/1995 $12,879 $13,380
12/31/1995 $12,771 $13,346
01/31/1996 $12,981 $13,540
02/29/1996 $13,192 $14,000
03/31/1996 $13,302 $14,168
04/30/1996 $14,274 $14,600
05/31/1996 $14,565 $14,797
06/30/1996 $14,113 $14,575
07/31/1996 $13,087 $13,590
08/31/1996 $14,113 $14,374
09/30/1996 $15,058 $15,001
10/31/1996 $14,857 $15,044
11/30/1996 $16,034 $15,891
12/31/1996 $15,767 $15,909
01/31/1997 $16,404 $16,505
02/28/1997 $15,733 $16,370
03/31/1997 $14,868 $15,673
04/30/1997 $15,198 $16,079
05/31/1997 $16,574 $17,484
06/30/1997 $16,961 $17,975
07/31/1997 $18,190 $19,755
08/31/1997 $18,212 $19,731
09/30/1997 $19,748 $20,866
10/31/1997 $18,838 $19,958
11/30/1997 $18,599 $20,253
12/31/1997 $18,515 $21,039
01/31/1998 $17,973 $20,639
02/28/1998 $19,671 $22,348
03/31/1998 $20,331 $23,356
04/30/1998 $20,567 $23,784
05/31/1998 $19,694 $22,713
06/30/1998 $20,142 $22,856
07/31/1998 $19,022 $21,970
08/31/1998 $15,154 $17,881
09/30/1998 $15,472 $19,551
10/31/1998 $16,180 $21,299
11/30/1998 $16,899 $22,362
12/31/1998 $18,175 $25,063
01/31/1999 $18,306 $24,088
02/28/1999 $17,471 $22,826
03/31/1999 $18,282 $23,463
04/30/1999 $19,260 $25,314
05/31/1999 $19,248 $25,423
06/30/1999 $19,821 $26,786
07/31/1999 $19,570 $26,215
08/31/1999 $18,996 $25,316
09/30/1999 $19,200 $24,534
10/31/1999 $21,842 $25,785
11/30/1999 $23,587 $27,139
12/31/1999 $28,046 $28,751
01/31/2000 $28,070 $27,940
02/29/2000 $33,414 $29,896
03/31/2000 $33,032 $32,398
04/30/2000 $31,382 $31,267
FRANKLIN MIDCAP GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN 4/30/00
CLASS A
--------------------------------------------------------------------------------
1-Year +53.53%
5-Year +22.91%
Since Inception (8/17/93) +18.61%
*Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN STRATEGIC SERIES
Financial Highlights
FRANKLIN BLUE CHIP FUND
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
YEAR ENDED APRIL 30,
-----------------------------------------------------------------------
2000 1999 1998 1997(d)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $14.41 $12.46 $10.85 $10.00
Income from investment operations:
Net investment income(a) ........................... -- .04 .09 .09
Net realized and unrealized gains .................. 3.97 1.97 1.67 .82
Total from investment operations .................... 3.97 2.01 1.76 .91
Less distributions from:
Net investment income .............................. (.01) (.06) (.06) (.06)
Net realized gains ................................. (.47) -- (.09) --
Total distributions ................................. (.48) (.06) (.15) (.06)
Net asset value, end of year ........................ $17.90 $14.41 $12.46 $10.85
Total return(b) ..................................... 27.96% 16.18% 16.41% 9.14%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $140,685 $54,880 $16,836 $5,600
Ratios to average net assets:
Expenses ........................................... 1.23% 1.25% 1.25% 1.25%(c)
Expenses excluding waiver and payments by
affiliate ........................................ 1.39% 1.51% 1.95% 2.22%(c)
Net investment income .............................. -- .55% 1.04% 1.07%(c)
Portfolio turnover rate ............................. 63.04% 35.74% 57.67% 11.14%
</TABLE>
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period June 3, 1996 (effective date) to April 30, 1997.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN BLUE CHIP FUND (CONT.)
CLASS B
-----------------
YEAR ENDED
APRIL 30, 2000(D)
-----------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................... $16.45
---- ------
Income from investment operations:
Net investment loss(a) .................................. (.03)
Net realized and unrealized gains ....................... 1.45
---- ------
Total from investment operations ......................... 1.42
---- ------
Net asset value, end of period ........................... $17.87
---- ------
Total return(b) .......................................... 8.63%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $2,026
Ratios to average net assets:
Expenses ................................................ 1.82%(c)
Expenses excluding waiver and payments by affiliate ..... 2.06%(c)
Net investment loss ..................................... (7.15%)(c)
Portfolio turnover rate .................................. 63.04%
(a) Based on average shares outstanding.
(b) Total return does not reflect contingent deferred sales charge, and is not
annualized for periods less than one year.
(c) Annualized
(d) For the period February 1, 2000 (effective date) to April 30, 2000.
FRANKLIN STRATEGIC SERIES
Financial Highlights (continued)
FRANKLIN BLUE CHIP FUND (CONT.)
CLASS C
-----------------
YEAR ENDED
APRIL 30, 2000(D)
-----------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................... $16.45
------
Income from investment operations:
Net investment loss(a) .................................. (.03)
Net realized and unrealized gains ....................... 1.49
------
Total from investment operations ......................... 1.46
------
Net asset value, end of period ........................... $17.91
------
Total return(b) ............................................ 8.88%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $3,608
Ratios to average net assets:
Expenses ................................................ 1.82%(c)
Expenses excluding waiver and payments by affiliate ..... 2.06%(c)
Net investment loss ..................................... (6.88%)(c)
Portfolio turnover rate .................................. 63.04%
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period February 1, 2000 (effective date) to April 30, 2000.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000
FRANKLIN BLUE CHIP FUND SHARES VALUE
--------------------------------------------------------------------------------
COMMON STOCKS 93.7%
COMMERCIAL SERVICES 1.3%
(a) Robert Half International Inc. ......... 32,000 $1,956,000
----------
CONSUMER DURABLES .5%
Sony Corp. (Japan) ..................... 6,000 688,966
----------
CONSUMER NON-DURABLES 6.6%
Clorox Co. ............................. 4,000 147,000
Coca-Cola Co. .......................... 27,000 1,270,688
Gillette Co. ........................... 35,000 1,295,000
Jones Apparel Group Inc. ............... 26,000 771,875
Nestle SA (Switzerland) ................ 1,000 1,766,928
PepsiCo Inc. ........................... 41,000 1,504,188
Philip Morris Cos. Inc. ................ 39,000 853,125
Wm. Wrigley Jr. Co. .................... 28,000 2,026,500
9,635,304
CONSUMER SERVICES 2.2%
McDonald's Corp. ....................... 21,000 800,625
The Walt Disney Co. .................... 56,000 2,425,500
----------
3,226,125
----------
ELECTRONIC TECHNOLOGY 20.7%
(a) Applied Materials Inc. ................. 16,000 1,629,000
(a) Cisco Systems Inc. ..................... 69,000 4,783,641
(a) Comverse Technology Inc. ............... 15,500 1,382,406
Corning Inc. ........................... 7,000 1,382,500
(a) Dell Computer Corp. .................... 40,000 2,005,000
(a) EMC Corp. .............................. 8,000 1,111,500
Hewlett-Packard Co. .................... 13,000 1,755,000
(a) Infineon Technologies AG, ADR (Germany) 9,500 644,813
Intel Corp. ............................ 36,000 4,565,250
International Business Machines Corp. .. 27,000 3,013,875
(a) JDS Uniphase Corp. ..................... 20,000 2,073,750
Nokia Corp., ADR, A (Finland) .......... 47,000 2,673,125
(a) Sun Microsystems Inc. .................. 21,000 1,930,688
(a) Waters Corp. ........................... 14,000 1,326,500
----------
30,277,048
----------
ENERGY MINERALS 3.3%
Conoco Inc., B ......................... 47,000 1,169,125
Exxon Mobil Corp. ...................... 47,000 3,651,313
----------
4,820,438
----------
FINANCE 12.1%
AFLAC Inc. ............................. 19,000 927,438
American International Group Inc. ...... 14,000 1,535,625
Capital One Financial Corp. ............ 41,100 1,798,125
Charles Schwab Corp. ................... 24,000 1,068,000
Chase Manhattan Corp. .................. 29,900 2,154,669
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
FRANKLIN BLUE CHIP FUND SHARES VALUE
--------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
FINANCE (CONT.)
Citigroup Inc. ......................... 37,000 $2,199,188
Countrywide Credit Industries Inc. ..... 63,000 1,740,375
Equity Office Properties Trust ......... 60,000 1,631,250
Fannie Mae ............................. 13,000 784,063
Marsh & McLennan Cos. Inc. ............. 18,800 1,852,975
Wells Fargo & Co. ...................... 51,000 2,094,188
----------
17,785,896
----------
HEALTH TECHNOLOGY 9.2%
Abbott Laboratories .................... 33,000 1,268,438
Bristol-Myers Squibb Co. ............... 31,000 1,625,563
(a) Genentech Inc. ......................... 8,000 936,000
Johnson & Johnson ...................... 12,000 990,000
Medtronic Inc. ......................... 37,000 1,921,688
Mylan Laboratories Inc. ................ 50,000 1,418,750
Pfizer Inc. ............................ 34,000 1,432,250
Schering-Plough Corp. .................. 41,000 1,652,813
Warner-Lambert Co. ..................... 20,000 2,276,250
----------
13,521,752
----------
INDUSTRIAL SERVICES 2.1%
Schlumberger Ltd. ...................... 26,000 1,990,625
Transocean Sedco Forex Inc. ............ 25,000 1,175,000
----------
3,165,625
----------
NON-ENERGY MINERALS .9%
Weyerhaeuser Co. ....................... 24,000 1,282,500
PROCESS INDUSTRIES 4.6%
Bowater Inc. ........................... 20,000 1,100,000
Ecolab Inc. ............................ 23,000 898,438
General Electric Co. ................... 30,000 4,717,500
----------
6,715,938
----------
PRODUCER MANUFACTURING 3.0%
Avery Dennison Corp. ................... 19,500 1,279,688
Honeywell International Inc. ........... 27,000 1,512,000
Minnesota Mining & Manufacturing Co. ... 18,000 1,557,000
----------
4,348,688
----------
RETAIL TRADE 5.5%
(a) Best Buy Co. Inc. ...................... 32,000 2,584,000
Home Depot Inc. ........................ 28,000 1,569,750
Target Corp. ........................... 22,000 1,464,375
Wal-Mart Stores Inc. ................... 43,000 2,381,125
----------
7,999,250
----------
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN BLUE CHIP FUND SHARES VALUE
-------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
TECHNOLOGY SERVICES 10.9%
<S> <C> <C>
(a) America Online Inc. ......................................... 17,000 $1,016,813
Automatic Data Processing Inc. .............................. 38,000 2,044,875
(a) Business Objects SA, ADR (France) ........................... 18,000 1,761,750
Check Point Software Technologies Ltd. (Israel) ............. 10,000 1,730,000
Electronic Data Systems Corp. ............................... 20,000 1,375,000
First Data Corp. ............................................ 17,000 827,688
(a) Microsoft Corp. ............................................. 28,000 1,953,000
(a) Oracle Corp. ................................................ 43,000 3,437,313
(a) Siebel Systems Inc. ......................................... 6,000 737,250
(a) VERITAS Software Corp. ...................................... 5,000 536,328
(a) Yahoo! Inc. ................................................. 3,800 494,950
------------
15,914,967
------------
TRANSPORTATION .4%
United Parcel Service Inc., B ............................... 9,500 631,750
------------
UTILITIES 10.4%
AT&T Corp. .................................................. 40,000 1,867,500
Duke Energy Corp. ........................................... 43,000 2,472,500
Enron Corp. ................................................. 20,000 1,393,750
GTE Corp. ................................................... 35,000 2,371,250
(a) Qwest Communications International Inc. ..................... 24,000 1,041,000
SBC Communications Inc. ..................................... 46,000 2,015,375
(a) Sprint Corp. (PCS Group) .................................... 29,000 1,595,000
Vodafone AirTouch PLC, ADR (United Kingdom) ................. 20,000 940,000
(a) Worldcom Inc. ............................................... 33,000 1,499,429
------------
15,195,804
------------
TOTAL COMMON STOCKS (COST $114,521,776) ..................... 137,166,051
------------
SHORT TERM INVESTMENTS 5.5%
(b) Franklin Institutional Fiduciary Trust Money Market Portfolio
(COST $7,971,348) ......................................... 7,971,348 7,971,348
------------
TOTAL INVESTMENTS (COST $122,493,124) 99.2% ................. 145,137,399
OTHER ASSETS, LESS LIABILITIES .8% .......................... 1,181,598
------------
NET ASSETS 100.0% ........................................... $146,318,997
============
</TABLE>
(a) Non-income producing
(b) The Franklin Institutional Fiduciary Trust Money Market Portfolio is managed
by Franklin Advisers Inc.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Highlights
FRANKLIN MIDCAP GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $ 16.15 $ 17.44 $ 13.34 $ 14.24 $ 10.81
-------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (.01) .04 -- (.02) .18
Net realized and unrealized gains (losses) 10.15 (1.17) 4.66 .93 3.59
-------------------------------------------------------------
Total from investment operations 10.14 (1.13) 4.66 .91 3.77
-------------------------------------------------------------
Less distributions from:
Net investment income (.04) -- -- (.05) (.21)
Net realized gains -- (.16) (.56) (1.76) (.13)
--------------------------------------------------------------
Total distributions (.04) (.16) (.56) (1.81) (.34)
--------------------------------------------------------------
Net asset value, end of year $ 26.25 $ 16.15 $ 17.44 $ 13.34 $ 14.24
==============================================================
Total return (b) 62.94% (6.36)% 35.53% 6.31% 35.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 72,448 $ 33,901 $ 29,864 $ 12,853 $ 7,575
Ratios to average net assets:
Expenses 1.17% 1.24% 1.17% 1.07% .16%
Expenses excluding waiver and payments by affiliate 1.17% 1.24% 1.17% 1.07% .96%
Net investment income (loss) (.04%) .30% (.03%) (.22%) 1.42%
Portfolio turnover rate 73.13% 59.97% 50.16% 76.35% 102.65%
</TABLE>
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN MIDCAP GROWTH FUND SHARES VALUE
--------------------------- ------ -----
<S> <C> <C>
COMMON STOCKS 77.2%
(a) COMMERCIAL SERVICES 2.7%
Concord EFS Inc. 31,300 $ 700,338
Robert Half International Inc. 20,000 1,222,500
ST Assembly Test Services Ltd., ADR (Singapore) 1,100 45,856
---------
1,968,694
---------
(a) CONSUMER SERVICES 3.3%
AMFM Inc. 9,000 597,375
Apollo Group Inc., A 18,000 522,000
DeVry Inc. 21,200 504,825
Knight-Ridder Inc. 9,300 456,281
McClatchy Co., A 9,800 310,538
---------
2,391,019
---------
ELECTRONIC TECHNOLOGY 34.8%
(a) Altera Corp. 8,000 818,000
(a) Atmel Corp. 17,500 856,406
(a) Comverse Technology Inc. 14,000 1,248,625
(a) Flextronics International Ltd. (Singapore) 15,000 1,053,750
(a) Harmonic Inc. 2,000 147,625
(a) Integrated Device Technology Inc. 15,000 720,938
(a) JDS Uniphase Corp. 22,400 2,322,600
(a) Lam Research Corp. 20,000 917,500
Linear Technology Corp. 30,000 1,713,750
(a) LSI Logic Corp. 33,000 2,062,500
(a) Mettler-Toledo International Inc. 21,000 724,500
(a) Micrel Inc. 8,000 692,000
(a) Novellus Systems Inc. 20,000 1,333,750
(a) PMC-Sierra Inc. (Canada) 10,000 1,918,750
(a) QLogic Corp. 8,000 802,500
(a) Sanmina Corp. 20,000 1,201,250
(a) SDL Inc. 6,000 1,170,000
(a) Seagate Technology Inc. 11,500 584,344
(a) Synopsys Inc. 8,000 336,000
(a) Tellabs Inc. 8,000 438,500
(a) Teradyne Inc. 6,000 660,000
(a) Vitesse Semiconductor Corp. 20,000 1,361,250
(a) Waters Corp. 7,000 663,250
(a) Xilinx Inc. 20,000 1,465,000
----------
25,212,788
----------
(a) ENERGY MINERALS .5%
Barrett Resources Corp. 11,500 365,125
----------
FINANCE 2.0%
(a) eSPEED Inc. 15,000 708,750
Federated Investors Inc., B 19,000 536,750
National Commerce Bancorp 14,000 230,125
---------
1,475,625
---------
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN MIDCAP GROWTH FUND SHARES VALUE
--------------------------- ------ -----
<S> <C> <C>
COMMON STOCKS (CONT.)
(a) HEALTH TECHNOLOGY 1.1%
Chiron Corp. 11,000 $ 497,750
Genzyme Corp. 5,700 278,231
---------
775,981
---------
(a) INDUSTRIAL SERVICES 2.0%
AES Corp. 7,500 674,531
Weatherford International Inc. 19,000 771,875
---------
1,446,406
---------
PROCESS INDUSTRIES 1.6%
Bowater Inc. 10,000 550,000
Ecolab Inc. 16,000 625,000
---------
1,175,000
---------
(a) PRODUCER MANUFACTURING 1.3%
Gentex Corp. 29,000 935,250
---------
REAL ESTATE 1.3%
Equity Office Properties Trust 12,400 337,125
Financial Security Assurance Holdings Ltd. 7,600 560,975
---------
898,100
---------
RETAIL TRADE 1.1%
Family Dollar Stores Inc. 24,000 457,500
(a) Williams-Sonoma Inc. 10,000 346,250
---------
803,750
---------
(a) TECHNOLOGY SERVICES 17.5%
Affiliated Computer Services Inc., A 8,500 281,563
Art Technology Group Inc. 13,000 789,750
Aspect Communications Corp. 20,000 710,000
BEA Systems Inc. 21,600 1,042,200
BroadVision Inc. 15,000 659,063
Computer Sciences Corp. 4,000 326,250
CSG Systems International Inc. 12,000 553,500
CyberSource Corp. 5,500 83,188
Exodus Communications Inc. 5,000 442,188
HNC Software Inc. 6,000 297,000
InfoSpace Inc. 16,000 1,149,000
Intuit Inc. 5,700 204,844
Rational Software Corp. 9,200 783,150
Siebel Systems Inc. 18,000 2,211,750
VERITAS Software Corp. 22,500 2,413,477
Vignette Corp. 15,000 722,813
----------
12,669,736
----------
(a) TELECOMMUNICATIONS 4.8%
Broadwing Inc. 25,000 707,813
Efficient Networks Inc. 7,000 460,250
</TABLE>
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN MIDCAP GROWTH FUND SHARES VALUE
--------------------------- ------ -----
<S> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
Pinnacle Holdings Inc. 7,700 $ 432,644
VoiceStream Wireless Corp. 12,500 1,237,500
Western Wireless Corp., A 12,500 621,089
----------
3,459,296
----------
TRANSPORTATION 1.8%
Expeditors International of Washington Inc. 30,000 1,282,500
----------
UTILITIES 1.4%
Dynegy Inc. 15,870 1,038,493
----------
TOTAL LONG TERM INVESTMENTS (COST $31,038,489) 55,897,763
----------
SHORT TERM INVESTMENTS 23.0%
(b) Franklin Institutional Fiduciary Trust
Money Market Portfolio (COST $16,681,873) 16,681,873 16,681,873
----------
TOTAL INVESTMENTS (COST $47,720,362) 100.2% 72,579,636
OTHER ASSETS, LESS LIABILITIES (.2%) (131,732)
----------
NET ASSETS 100.0% $72,447,904
----------
</TABLE>
(a) Non-income producing
(b) The Franklin Institutional Fiduciary Trust Money Market Portfolio is managed
by Franklin Advisers Inc.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 2000
FRANKLIN FRANKLIN
BLUE CHIP MIDCAP
FUND GROWTH FUND
---- -----------
Assets:
Investments in securities:
Cost $122,493,124 $ 47,720,362
------------ ------------
Value 145,137,399 72,579,636
Receivables:
Investment securities sold 332,989 --
Capital shares sold 1,187,851 35,520
Dividends 85,170 900
------------ ------------
Total assets 146,743,409 72,616,056
------------ ------------
Liabilities:
Payables:
Capital shares redeemed 194,409 64,918
Affiliates 156,030 83,689
Shareholders 68,885 11,947
Other liabilities 5,088 7,598
------------ ------------
Total liabilities 424,412 168,152
------------ ------------
Net assets, at value $146,318,997 $ 72,447,904
------------ ------------
Net assets consist of:
Net unrealized appreciation $ 22,644,267 $ 24,859,274
Accumulated net realized gain 4,407,027 3,595,790
Capital shares 119,267,703 43,992,840
------------ ------------
Net assets, at value $146,318,997 $ 72,447,904
------------ ------------
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
BLUE CHIP MIDCAP
FUND GROWTH FUND
---- -----------
<S> <C> <C>
CLASS A:
Net assets, at value..................................................... $140,685,049 $ 72,447,904
------------ --------------
Shares outstanding....................................................... 7,859,788 2,759,482
------------ --------------
Net asset value per share*............................................... $ 17.90 $ 26.25
------------ --------------
Maximum offering price per share (net asset value per divided by
share 94.25%)......................................................... $ 18.99 $ 27.85
------------ --------------
CLASS B:
Net assets, at value..................................................... $ 2,025,839 --
------------ --------------
Shares outstanding....................................................... 113,390 --
------------ --------------
Net asset value and maximum offering price per share*.................... $ 17.87 --
------------ --------------
CLASS C:
Net assets, at value..................................................... $ 3,608,109 --
------------ --------------
Shares outstanding....................................................... 201,491 --
------------ --------------
Net asset value per share*............................................... $ 17.91 --
------------ --------------
Maximum offering price per share (net asset value per share
divided by 99.00%)..................................................... $ 18.09 --
------------ --------------
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
BLUE CHIP MIDCAP
FUND GROWTH FUND
------------ ------------
<S> <C> <C>
Investment income:
Dividends................................................................ $ 1,031,239 $ 526,985
Interest................................................................. 23,516 22,087
------------ ------------
Total investment income............................................. 1,054,755 549,072
------------ ------------
Expenses:
Management fees (Note 3)................................................. 629,288 294,033
Distribution fees (Note 3)
Class A................................................................. 279,040 143,218
Class B................................................................. 2,302 --
Class C................................................................. 4,737 --
Transfer agent fees (Note 3)............................................. 189,765 96,670
Custodian fees........................................................... 2,519 479
Reports to shareholders.................................................. 22,940 12,457
Registration and filing fees............................................. 50,118 13,977
Professional fees........................................................ 10,743 6,336
Trustees' fees and expenses.............................................. 1,112 628
Other.................................................................... 1,731 1,295
------------ ------------
Total expenses...................................................... 1,194,295 569,093
Expenses waived/paid by affiliate (Note 3).......................... (130,948) --
------------ ------------
Net expenses....................................................... 1,063,347 569,093
------------ ------------
Net operating loss................................................ (8,592) (20,021)
------------ ------------
Realized and unrealized gains (losses):
Net realized gain from:
Investments............................................................. 5,773,187 5,187,260
Foreign currency transactions........................................... 7,915 --
------------ ------------
Net realized gain................................................... 5,781,102 5,187,260
Net unrealized appreciation (depreciation) on:
Investments............................................................. 16,365,253 18,797,422
Translation of assets and liabilities denominated in foreign currencies. (3,957) --
------------ ------------
Net unrealized appreciation......................................... 16,361,296 18,797,422
------------ ------------
Net realized and unrealized gain.......................................... 22,142,398 23,984,682
------------ ------------
Net increase in net assets resulting from operations...................... $ 22,133,806 $ 23,964,661
------------ ------------
</TABLE>
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED APRIL 30, 2000 AND 1999
<TABLE>
<CAPTION>
FRANKLIN BLUE CHIP FUND FRANKLIN MIDCAP GROWTH FUND
-------------------------- -----------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) $ (8,592) $ 150,036 $ (20,021) $ 92,018
Net realized gain (loss) from investments and foreign
currency transactions 5,781,102 1,499,458 5,187,260 (1,550,328)
Net unrealized appreciation on investments and
translation of assets and liabilities denominated in
foreign currencies 16,361,296 3,974,888 18,797,422 72,048
------------ ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations 22,133,806 5,624,382 23,964,661 (1,386,262)
Distributions to shareholders from:
Net investment income:
Class A (72,881) (126,476) (85,104) --
Net realized gains:
Class A (2,438,788) -- -- (347,614)
------------ ----------- ----------- -----------
Total distributions to shareholders (2,511,669) (126,476) (85,104) (347,614)
Capital share transactions: (Note 2)
Class A 66,352,802 32,546,439 14,667,414 5,771,147
Class B 1,974,823 -- -- --
Class C 3,488,770 -- -- --
------------ ----------- ----------- -----------
Total capital share transactions 71,816,395 32,546,439 14,667,414 5,771,147
Net increase in net assets 91,438,532 38,044,345 38,546,971 4,037,271
Net assets:
Beginning of year 54,880,465 16,836,120 33,900,933 29,863,662
------------ ----------- ----------- -----------
End of year $146,318,997 $54,880,465 $72,447,904 $33,900,933
------------ ----------- ----------- -----------
Undistributed net investment income included in net assets:
End of year $ -- $ 70,790 $ -- $ 91,060
------------ ----------- ----------- -----------
</TABLE>
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Strategic Series (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twelve separate
series (the Funds). All funds included in this report are diversified. The
Funds' investment objective is capital growth.
On February 15, 2000, the Board of Trustees for the Franklin Strategic Series
approved a proposal to merge Franklin MidCap Growth Fund into Franklin
California Growth Fund, subject to shareholder approval.
The following summarizes the Funds' significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Distributions received by the Trust from securities may be a return of capital
(ROC). Such distributions reduce the cost basis of the securities, and any
distributions in excess of the cost basis are recognized as capital gains.
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: (CONT.)
Realized and unrealized gains and losses and net investment income(loss), other
than class specific expenses, are allocated daily to each class of shares based
upon the relative proportion of net assets of each class.
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. Other expenses are
charged to each fund on a specific identification basis.
e. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
The classes of shares offered within each of the funds are indicated below.
Effective February 1, 2000, the Franklin Blue Chip Fund began offering two new
classes of shares, Class B and Class C. Each class of shares differ by its
initial sales load, distribution fees, voting rights on matters affecting a
single class and its exchange privilege.
CLASS A CLASS A, CLASS B & CLASS C
Franklin MidCap Growth Fund Franklin Blue Chip Fund
At April 30, 2000, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN BLUE CHIP FUND FRANKLIN MIDCAP GROWTH FUND
----------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Year ended April 30, 2000
Shares sold 7,203,769 $ 118,228,802 2,487,799 $ 51,442,587
Shares issued in reinvestment of distributions 139,795 2,257,678 3,548 57,027
Shares redeemed (3,292,887) (54,133,678) (1,830,739) (36,832,200)
---------- ----------- ---------- -----------
Net increase 4,050,677 $ 66,352,802 660,608 $ 14,667,414
---------- ----------- ---------- -----------
Year ended April 30, 1999
Shares sold 3,618,266 $ 47,414,962 1,510,866 $ 22,694,848
Shares issued in reinvestment of distributions 8,472 105,717 16,973 236,773
Shares redeemed (1,168,867) (14,974,240) (1,140,923) (17,160,474)
---------- ----------- ---------- -----------
Net increase 2,457,871 $ 32,546,439 386,916 $ 5,771,147
---------- ----------- ---------- -----------
</TABLE>
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
FRANKLIN BLUE CHIP FUND
-----------------------
SHARES AMOUNT
------ ------
CLASS B SHARES:
Year ended April 30, 2000 (a)
Shares sold 115,371 $2,009,719
Shares redeemed (1,981) (34,896)
------- ----------
Net increase 113,390 $1,974,823
------- ----------
CLASS C SHARES:
Year ended April 30, 2000 (a)
Shares sold 206,454 $3,577,185
Shares redeemed (4,963) (88,415)
------- ----------
Net increase 201,491 $3,488,770
------- ----------
(a) For the period February 1, 2000 (effective date) to April 30, 2000.
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc.
(Distributors), Franklin Templeton Services, Inc. (FT Services), and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Funds'
investment manager, principal underwriter, administrative manager and transfer
agent, respectively.
The Franklin Blue Chip Fund pays an investment management fee to Advisers based
on the average net assets of the fund as follows:
ANNUALIZED
FEE RATE DAILY NET ASSETS
-------- ----------------
.750% First $500 million
.625% Over $500 million, up to and including $1 billion
.500% Over $1 billion
The Franklin MidCap Growth Fund pays an investment management fee to Advisers of
.65% per year of the average daily net assets of the fund.
Management fees were reduced on assets invested in the Franklin Institutional
Fiduciary Trust Money Market Portfolio.
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on the average daily net assets,
and is not an additional expense of the Funds.
Advisers agreed in advance to waive management fees for the Franklin Blue Chip
Fund, as noted in the Statements of Operations.
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Franklin MidCap Growth Fund reimburses Distributors up to .35% per year of
its average daily net assets, and the Franklin Blue Chip Fund reimburses
Distributors up to .35%, 1.00%, and 1.00% per year of the average daily net
assets of Class A, Class B, and Class C, respectively, for costs incurred in
marketing the Funds' shares.
Distributors received net commissions on sales of the Funds' shares, and
received contingent deferred sales charges for the year as follows:
FRANKLIN FRANKLIN
BLUE CHIP MIDCAP
FUND GROWTH FUND
---- -----------
Net commissions received $17,975 $44,882
Contingent deferred sales charges $ 341 $ --
The funds paid transfer agent fees of $286,435 of which $253,413 was paid to
Investor Services.
At April 30, 2000, Advisers owned 22.67%, of the net assets of the Franklin
MidCap Growth Fund.
Included in professional fees are legal fees of $4,581 that were paid to a law
firm in which a partner of that firm is an officer of the Funds.
4. INCOME TAXES
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.
At April 30, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
FRANKLIN FRANKLIN
BLUE CHIP MIDCAP
FUND GROWTH FUND
---- -----------
Investments at cost $122,602,941 $47,753,617
------------ -----------
Unrealized appreciation $ 28,067,331 $26,319,459
Unrealized depreciation (5,532,873) (1,493,440)
------------ -----------
Net unrealized appreciation $ 22,534,458 $24,826,019
------------ -----------
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended April 30, 2000 were as follows:
FRANKLIN FRANKLIN
BLUE CHIP MIDCAP
FUND GROWTH FUND
---- -----------
Purchases $116,985,050 $31,270,699
Sales $ 52,144,195 $30,427,673
FRANKLIN STRATEGIC SERIES
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FRANKLIN STRATEGIC SERIES
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds included in this
report constituting part of the Franklin Strategic Series (hereafter referred to
as the "Funds") at April 30, 2000, the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at April 30, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
June 7, 2000
FRANKLIN STRATEGIC SERIES
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Trust hereby
designates the following amount as a capital gain dividends for the fiscal year
ended April 30, 2000:
Franklin Blue Chip Fund $3,106,849
Franklin MidCap Growth Fund $2,110,677
Under Section 854(b)(2) of the Internal Revenue Code, the Funds hereby
designates the following percentage amounts of the ordinary income dividends as
income qualifying for the dividends received deduction for the fiscal year ended
April 30, 2000:
Franklin Blue Chip Fund 100%
Franklin MidCap Growth Fund 100%
SHAREHOLDER LETTER
Your Fund's Goal: 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
U.S. and 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.
Dear Shareholder:
This annual report for Franklin Strategic Income Fund covers the period ended
April 30, 2000. Over this time, the fixed-income markets reported mixed results.
On the domestic inflation front, rising energy prices and the economy's overall
strength caused price levels to begin to move upward near the end of the
reporting period. In an effort to combat potential inflationary pressures, the
Federal Reserve Board increased its federal funds target rate by 125 basis
points (1.25%) over the past 12 months. However, although 10-year Treasury
yields rose from 5.3% to 6.2% during the period, announced government buybacks
of long-maturity
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 21.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ........................................................ 1
Performance Summary ....................................................... 12
Financial Highlights &
Statement of Investments .................................................. 17
Financial Statements ...................................................... 30
Notes to
Financial Statements ...................................................... 33
Independent
Auditors' Report .......................................................... 38
Tax Designation ........................................................... 39
</TABLE>
[pyramid graph omitted]
Treasury bonds, combined with investors' "flight to quality," helped increase
demand for these securities, which limited the upward move in long-term Treasury
interest yields. Finally, a correction in domestic stock markets near the
period's close increased volatility in the fund's equity-sensitive sectors.
Within this dynamic environment, Franklin Strategic Income Fund attempted to
take advantage of relative value opportunities within the fixed-income universe,
given the fund's flexibility to invest across six primary asset classes -- high
yield corporate bonds, foreign government bonds, emerging market debt
securities, U.S. government bonds, convertible securities, and mortgage-and
asset-backed securities.
During the year under review, we increased the fund's exposure to the high yield
corporate bond market, seeking to take advantage of a largely technically driven
sell-off in that sector, which had made such securities significantly more
attractive. We reduced our weighting in the developed country international bond
sector, as relatively low nominal yields and continued strength in the U.S.
dollar appeared to limit that market's dollar-based returns. This reallocation
proved timely, as this sector provided some of the weakest total returns in
fixed-income markets over the past year, in large part as a result of the
stronger U.S. dollar. However, rising global interest rates and a volatile
equity market negatively impacted the fund's performance, and the fund's Class A
shares posted a -1.81% cumulative total return for the fiscal year ended April
30, 2000. Cumulative total return measures the change in value of an investment,
and does not include the sales charge.
Looking forward, we believe our portfolio composition, which favors more
growth-oriented fixed-income sectors, such as high yield corporate bonds and
emerging market debt securities, is appropriate given valuations at the end of
the period. In our opinion, such a mix of securities could lead to superior
returns for our shareholders over the longer term, which is our daily focus as
we manage the fund.
SECTOR DISCUSSIONS
HIGH YIELD CORPORATE
During the fund's fiscal year, the high yield corporate bond market felt the
negative effects of generally rising interest rates, volatile equity markets and
unfavorable technical trading factors. In particular, substantial asset outflows
from dedicated high yield mutual funds helped push this sector's yield spread
over Treasury securities to levels not seen since the fall of 1998. However, the
continued near-term outlook for a healthy domestic economy may lead to improving
credit profiles for many of this sector's corporate issuers. Although default
rates did edge up in 1999, the pace of defaults began to recede during the first
quarter of 2000. Given a generally healthy fundamental outlook, combined with
this sector's relatively wide yield spread over Treasuries, we increased our
exposure to high yield corporate bonds during the period. At period-end, high
yield corporate securities remained the fund's largest sector, as the table on
page 7 indicates.
"... the continued near-term outlook for a healthy domestic economy may lead to
improving credit profiles for many of this sector's corporate issuers."
Within the high yield sector, we continued to overweight companies operating in
the communications industries, given their favorable long-term growth prospects,
improving credit profiles, less cyclical nature, and that industry's ongoing
trend toward consolidation. During the period, we added to our position in
Spectrasite, an owner and operator of wireless communications towers. We believe
this company could benefit from increasing demand for transmission towers fueled
by rapid wireless communications growth in the U.S. We initiated a holding in
Omnipoint, a provider of wireless personal communications services. In February
2000, Omnipoint merged with VoiceStream Wireless to create a wireless provider
with a nearly national presence. Largely as a result of this merger and the
bullish outlook for wireless communications growth, our position in these bonds
has appreciated since purchase.
Also during the period, the rise in global commodity prices supported our energy
sector holdings. In particular, our position in Conproca, a Mexican refinery
operated by Petroleos Mexicanos (PEMEX), benefited from this trend as well as
the upgrade of Mexico's sovereign debt. We also were proactive in managing our
existing high yield portfolio holdings, selling those positions that appeared
overvalued or whose outlooks had deteriorated fundamentally. For example, we
sold our position in La Petite Academy, an operator of center-based preschool
education and child-care services, as the company's operating results were below
expectations and the company carried a relatively high debt burden.
EMERGING MARKETS
A robust fundamental outlook in many developing countries drove the emerging
market bond sector higher during the period, providing one of the strongest
total return performances across the fixed-income asset classes. We sought to
take advantage of this sector's significant gains to reduce our exposure
moderately over the course of the fund's fiscal year. However, emerging market
sovereign bonds represented the fund's second-largest sector weighting at
period-end (20.4% of total net assets), reflecting the improving fiscal and
monetary outlooks for many developing countries and this market's still
attractive yield spreads over Treasuries.
Throughout the period, Latin America was our top region within this sector's
holdings. Our largest position at the beginning of the fund's fiscal year,
Mexico, was the direct beneficiary of Moody's upgrade of that country's
sovereign debt to an investment-grade rating (Baa3). We sought to take advantage
of resulting appreciation in Mexican bonds by moderately reducing our exposure
there, while also increasing our weighting in other core Latin American
countries, including Brazil and Argentina. During the period, the fund sold its
holdings in South Korean sovereign debt, as its debt became fully valued
following that country's ratings upgrade to investment grade in 1999. The fund
also initiated a position in the Philippines and increased its weighting in
Panama, both of which offered attractive yields based on their positive
fundamental outlooks.
"A robust fundamental outlook in many developing countries drove the emerging
market bond sector higher. ..."
INTERNATIONAL
The combination of a stronger U.S. dollar, particularly versus the euro, and
rising global interest rates pressured pricing in the international developed
country bond sector. We reduced our exposure to this sector during the year
under review, as the relatively low nominal yields being offered limited total
return potential, absent favorable currency moves. At period-end, our positions
in the international developed sector were generally unhedged, reflecting a more
sanguine outlook for certain currencies, which depreciated versus the U.S.
dollar over the past year.
During the period, the fund kept its two largest international developed country
holdings in European benchmark countries Germany and the United Kingdom.
Australia remained our largest dollar-bloc (Australia, New Zealand, Canada)
holding, while we significantly increased our weighting in France and pared our
holdings in Belgium, based on our analysis of prevailing relative value.
CONVERTIBLE SECURITIES
After moving generally higher during the fund's fiscal year, the domestic equity
markets experienced somewhat of a correction toward the end of the reporting
period, with the technology-oriented Nasdaq Composite(R) Index leading the
market down. We maintained an underweighted exposure to the convertible
securities market during the period, as a result of what we considered high
valuations for many companies. However, given expectations for a healthy
domestic economy in 2000 and positive earnings growth for the corporate sector,
we may look at future dips in the equity markets to add attractive names to our
convertible holdings at more reasonable prices.
PORTFOLIO BREAKDOWN
Based on Total Net Assets
<TABLE>
<CAPTION>
4/30/00 4/30/99
--------------------------------------------------------------------------------
<S> <C> <C>
High Yield Corporate Bonds and Preferred Stock 37.2% 30.5%
Emerging Market Bonds 20.4% 23.4%
Mortgage Securities 11.9% 11.3%
International Bonds 9.1% 11.7%
Convertible Securities 8.9% 8.6%
U.S. Government Bonds 7.2% 7.9%
Short-Term Investments & Other Net Assets 5.3% 6.6%
</TABLE>
We initiated a position in AES, a global provider of electrical power
generation, during the reporting period. Equity markets responded favorably to
the company's successful, acquisition-fueled growth, which drove this position
to a meaningful gain since we purchased it in October 1999. We recently
purchased convertible bonds of Amkor, an independent provider of semiconductor
packaging and testing services.
DIVIDEND DISTRIBUTIONS
5/1/99 - 4/30/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
--------------------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS*
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
May 6.8 cents 6.43 cents 6.42 cents --
June 6.8 cents 6.47 cents 6.44 cents --
July 6.8 cents 6.47 cents 6.44 cents --
August 6.8 cents 6.47 cents 6.44 cents --
September 6.8 cents 6.49 cents 6.47 cents 7.00 cents
October 6.8 cents 6.49 cents 6.47 cents 7.01 cents
November 6.8 cents 6.49 cents 6.47 cents 7.01 cents
December 6.8 cents 6.51 cents 6.47 cents 7.01 cents
January 6.4 cents 6.11 cents 6.07 cents 6.62 cents
February 6.4 cents 6.11 cents 6.07 cents 6.61 cents
March 6.4 cents 6.03 cents 6.06 cents 6.60 cents
April 6.4 cents 6.03 cents 6.06 cents 6.62 cents
--------------------------------------------------------------------------------
TOTAL 80.0 CENTS 76.10 CENTS 75.88 CENTS 54.48 CENTS
</TABLE>
*Effective September 1, 1999, the fund began offering Advisor Class shares to
investors. See the prospectus for details.
Given choppy market conditions for the company's stock, the convertibles were
priced with relatively attractive terms and by period-end had provided
double-digit total returns since their issuance in March 2000. Longer term, the
company's growth outlook continues to underpin its valuation. Finally, at the
beginning of the period, we sold our position in Union Pacific, one of the
country's largest railroad operators, for a gain, based on valuation concerns.
Subsequently, the stock price fell significantly, and we reinitiated a position
in Union Pacific's convertible preferred stock at a more attractive valuation.
U.S. GOVERNMENT SECURITIES
The fund maintained a generally underweighted exposure to the U.S. government
bond sector throughout the reporting period. Although government yields rose
during the period, in our opinion the total return expectations from this group
remained rather limited, given the still relatively low nominal yields this
sector offered. Moreover, recent moves by the Treasury to retire longer-maturity
Treasury bonds put some upward pricing pressure on the longer end of the
Treasury curve, making such Treasury issues fundamentally less attractive.
Instead, we favored U.S. agency issues, as concerns over the potential loss of
these agencies' quasi-government status caused yield spread levels over
Treasuries to rise toward historically wide levels.
U.S. MORTGAGE- AND OTHER ASSET-BACKED SECURITIES
Within the more interest-rate sensitive sectors, we maintained heavier exposure
to the mortgage- and other asset-backed securities market, given the relatively
attractive yield spreads being offered compared to Treasuries. Although this
sector's yield spreads began to contract during 1999, the group did not keep
pace with the Treasury rally that occurred in early 2000. Consequently, given a
generally favorable outlook for the fundamentals underlying many of this
sector's issuers, the fund was moderately overweight in this sector compared to
U.S. government holdings at the end of the year under review.
LOOKING FORWARD
Although domestic economic growth is anticipated to slow from fourth quarter
1999's rather torrid 7.3% annualized rate, the economy is still expected to post
moderate gains throughout calendar year 2000, following the 5.4% annualized
growth rate set in the first quarter of 2000. Jumps in retail (Consumer Price
Index) and wholesale (Producer Price Index) price levels raised some inflation
concerns, although much of the upward pricing pressure was the result of rising
energy prices. Overall, we expect healthy economic growth and manageable
inflationary pressure through the remainder of 2000.
Internationally, we believe the euro's adoption, combined with deregulatory
trends, may sustain Europe's economic growth, while much of the developing world
could continue to benefit from stabilizing financial markets and improving
fiscal accounts. Against this backdrop, the fund ended the period with an
underweighted exposure to its more interest-rate sensitive sectors, considering
the relatively low nominal yields available in these markets and the more
limited intermediate-term total return potential. The fund was most heavily
weighted in the fixed-income market's more growth-oriented sectors, namely high
yield corporate bonds and emerging market debt securities. This bias reflected
these sectors' attractive yields, as well as the generally favorable,
fundamental credit outlook for these markets' issuers. As always, we will
continue to search for opportunities to enhance the fund's long-term returns,
while reducing overall volatility by actively managing its sector and security
allocations.
Sincerely,
/s/ Christopher J. Molumphy
Christopher J. Molumphy
Portfolio Manager
Franklin Strategic Income Fund
This discussion reflects our views, opinions and portfolio holdings as of April
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance does not
guarantee future results, these insights may help you understand our investment
and management philosophy.
CLASS A: Subject to the maximum 4.25% initial sales charge.*
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.*
CLASS C: Subject to 1% initial sales charge and 1% CDSC for shares redeemed
within 18 months of investment. These shares have higher annual fees and
expenses than Class A shares.*
ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees and are available to a
limited class of investors.*
* The fund's manager has agreed in advance to waive a portion of its management
fees, which reduces expenses and increases distribution rate, yield and total
return to shareholders (see Additional Performance). 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 8.24%, 8.20%, 8.11% and 8.87% for
Classes A, B, C and Advisor, respectively. The fee waiver may be discontinued at
any time, upon notice to the fund's Board of Directors.
ONE-YEAR PERFORMANCE SUMMARY
AS OF 4/30/00
One-year and aggregate total returns do not include sales charges. Distributions
will vary based on earnings of the fund's portfolio and any profits realized
from the sale of the portfolio's securities. Past distributions are not
indicative of future trends. All total returns include reinvested distributions
at net asset value.
CLASS A
One-Year Total Return -1.81%
Net Asset Value (NAV) $9.84 (4/30/00) $10.84 (4/30/99)
Change in NAV -$1.00
Distributions (5/1/99-4/30/00) Dividend Income $0.8000
CLASS B
One-Year Total Return -2.18%
Net Asset Value (NAV) $9.86 (4/30/00) $10.86 (4/30/99)
Change in NAV -$1.00
Distributions (5/1/99-4/30/00) Dividend Income $0.7610
CLASS C
One-Year Total Return -2.20%
Net Asset Value (NAV) $9.84 (4/30/00) $10.84 (4/30/99)
Change in NAV -$1.00
Distributions (5/1/99-4/30/00) Dividend Income $0.7588
ADVISOR CLASS
Aggregate Total Return** +2.76%
Net Asset Value (NAV) $9.84 (4/30/00) $10.11 (8/12/99)
Change in NAV -$0.27
Distributions (9/1/99-4/30/00) Dividend Income $0.5448
**Since Advisor Class Shares have existed for less than one year, aggregate
total return represents the change in value of an investment since inception.
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 4/30/00
INCEPTION
CLASS A 1-YEAR 5-YEAR (5/24/94)
--------------------------------------------------------------------------------
Cumulative Total Return(1) -1.81% +50.72% +64.20%
Average Annual Total Return(2) -5.97% +7.62% +7.93%
INCEPTION
CLASS B 1-YEAR (1/1/99)
--------------------------------------------------------------------------------
Cumulative Total Return(1) -2.18% +1.14%
Average Annual Total Return(2) -5.81% -1.90%
INCEPTION
CLASS C 1-YEAR (5/1/98)
--------------------------------------------------------------------------------
Cumulative Total Return(1) -2.20% +1.31%
Average Annual Total Return(2) -4.08% +0.16%
INCEPTION
ADVISOR CLASS(3) 1-YEAR 5-YEAR (5/24/94)
--------------------------------------------------------------------------------
Cumulative Total Return(1) -1.64% +50.97% +64.47%
Average Annual Total Return(2) -1.64% +8.59% +8.75%
SHARE CLASS A B C ADVISOR
--------------------------------------------------------------------------------
Distribution Rate(4) 7.47% 7.34% 7.32% 8.07%
30-Day Standardized Yield(5) 8.49% 8.46% 8.37% 9.13%
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class.
3. On September 1, 1999, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to August 12, 1999, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after August 11, 1999, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Since September 1, 1999 (commencement of sales), the cumulative total return of
Advisor Class shares was +2.15%.
4. Distribution rate is based on an annualization of the respective class's
April dividend and the maximum offering price (net asset value for Class B and
Advisor Class) per share on April 30, 2000.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended April 30, 2000.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions,
currency volatility and the social, economic and political climates of countries
where investments are made. Emerging markets involve heightened risks related to
the same factors, in addition to those associated with their relatively small
size and lesser liquidity. High yield corporate securities entail greater risk
than higher-rated securities. You may have a gain or loss when you sell your
shares.
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The Lehman Brothers U.S.
Aggregate Index is a broad measure of U.S. bond performance, representing the
U.S. investment-grade fixed-rate bond market including government, corporate,
mortgage pass-through and asset-backed securities. The composite index includes
an even weighting among the following indexes: Goldman Sachs Convertible Bond
Index, Salomon Brothers High Yield Index, Salomon Brothers U.S. Mortgage Index,
Salomon Brothers U.S. Treasury Index, Salomon Brady Bond Index, and Salomon
Brothers Non-U.S. World Government Bond Index. The unmanaged indexes differ from
the fund in composition, do not pay management fees or expenses and include
reinvested interest. One cannot invest directly in an index.
Past performance does not guarantee future results.
CLASS A (5/25/94 - 4/30/00)
<TABLE>
<CAPTION>
FRANKLIN STRATEGIC LEHMAN BROTHERS U.S. COMPOSITE
INCOME FUND - CLASS A AGGREGATE INDEX INDEX*
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/24/1994 $9,579 $10,000 $10,000
05/31/1994 $9,579 0.00% $10,000 0.19% $10,019
06/30/1994 $9,492 -0.22% $9,978 -0.95% $9,924
07/31/1994 $9,617 1.99% $10,176 1.67% $10,090
08/31/1994 $9,761 0.12% $10,189 2.04% $10,296
09/30/1994 $9,808 -1.47% $10,039 -0.13% $10,282
10/31/1994 $9,825 -0.09% $10,030 -0.12% $10,270
11/30/1994 $9,793 -0.22% $10,008 -1.09% $10,158
12/31/1994 $9,746 0.69% $10,077 -0.72% $10,085
01/31/1995 $9,753 1.98% $10,276 1.33% $10,219
02/28/1995 $10,023 2.38% $10,521 1.26% $10,348
03/31/1995 $10,182 0.61% $10,585 1.80% $10,534
04/30/1995 $10,435 1.40% $10,733 3.34% $10,886
05/31/1995 $10,731 3.87% $11,149 3.93% $11,314
06/30/1995 $10,780 0.73% $11,230 1.35% $11,466
07/31/1995 $11,007 -0.22% $11,205 0.84% $11,563
08/31/1995 $11,035 1.21% $11,341 -0.01% $11,561
09/30/1995 $11,180 0.97% $11,451 1.90% $11,781
10/31/1995 $11,273 1.30% $11,600 -0.23% $11,754
11/30/1995 $11,366 1.50% $11,774 2.21% $12,014
12/31/1995 $11,566 1.40% $11,939 2.17% $12,274
01/31/1996 $11,771 0.66% $12,017 2.05% $12,526
02/29/1996 $11,779 -1.74% $11,808 -1.06% $12,393
03/31/1996 $11,864 -0.70% $11,726 0.37% $12,439
04/30/1996 $12,062 -0.56% $11,660 0.72% $12,529
05/31/1996 $12,228 -0.20% $11,637 0.60% $12,604
06/30/1996 $12,281 1.34% $11,792 0.98% $12,727
07/31/1996 $12,289 0.27% $11,824 0.21% $12,754
08/31/1996 $12,526 -0.17% $11,804 1.36% $12,928
09/30/1996 $12,938 1.74% $12,010 2.48% $13,248
10/31/1996 $13,063 2.22% $12,276 1.17% $13,403
11/30/1996 $13,419 1.71% $12,486 2.48% $13,736
12/31/1996 $13,538 -0.93% $12,370 -0.21% $13,707
01/31/1997 $13,679 0.31% $12,408 0.55% $13,782
02/28/1997 $13,759 0.25% $12,439 0.43% $13,841
03/31/1997 $13,443 -1.11% $12,301 -1.37% $13,652
04/30/1997 $13,587 1.50% $12,486 1.10% $13,802
05/31/1997 $13,883 0.95% $12,604 2.70% $14,175
06/30/1997 $14,117 1.19% $12,754 1.74% $14,421
07/31/1997 $14,430 2.70% $13,099 2.48% $14,779
08/31/1997 $14,437 -0.85% $12,987 -0.36% $14,726
09/30/1997 $14,728 1.47% $13,178 2.52% $15,097
10/31/1997 $14,500 1.45% $13,369 -0.99% $14,947
11/30/1997 $14,690 0.46% $13,431 0.52% $15,025
12/31/1997 $14,895 1.01% $13,567 0.95% $15,168
01/31/1998 $15,063 1.28% $13,740 0.98% $15,316
02/28/1998 $15,177 -0.08% $13,729 1.55% $15,554
03/31/1998 $15,306 0.34% $13,776 1.05% $15,717
04/30/1998 $15,368 0.52% $13,848 0.78% $15,840
05/31/1998 $15,278 0.95% $13,979 -0.55% $15,753
06/30/1998 $15,230 0.85% $14,098 0.03% $15,757
07/31/1998 $15,338 0.21% $14,128 0.15% $15,781
08/31/1998 $13,904 1.63% $14,358 -5.76% $14,872
09/30/1998 $14,593 2.34% $14,694 3.63% $15,412
10/31/1998 $14,889 -0.53% $14,616 1.96% $15,714
11/30/1998 $15,487 0.57% $14,699 2.48% $16,104
12/31/1998 $15,498 0.30% $14,743 0.79% $16,231
01/31/1999 $15,567 0.71% $14,848 -0.01% $16,229
02/28/1999 $15,360 -1.75% $14,588 -1.37% $16,007
03/31/1999 $15,592 0.55% $14,668 1.99% $16,325
04/30/1999 $16,017 0.32% $14,715 2.27% $16,696
05/31/1999 $15,642 -0.88% $14,586 -1.75% $16,404
06/30/1999 $15,670 -0.32% $14,539 0.14% $16,427
07/31/1999 $15,561 -0.43% $14,477 0.02% $16,430
08/31/1999 $15,422 -0.05% $14,469 -0.25% $16,389
09/30/1999 $15,434 1.16% $14,637 0.99% $16,551
10/31/1999 $15,508 0.37% $14,691 1.16% $16,743
11/30/1999 $15,644 -0.01% $14,690 0.91% $16,896
12/31/1999 $15,859 -0.48% $14,620 1.86% $17,210
01/31/2000 $15,600 -0.33% $14,571 -0.91% $17,053
02/29/2000 $15,795 1.21% $14,748 1.53% $17,314
03/31/2000 $15,833 1.32% $14,942 1.58% $17,588
04/30/2000 $15,728 -0.29% $14,899 -1.40% $17,342
</TABLE>
CLASS B (1/1/99 - 4/30/00)
<TABLE>
<CAPTION>
FRANKLIN STRATEGIC LEHMAN BROTHERS U.S. COMPOSITE
INCOME FUND - CLASS B AGGREGATE INDEX INDEX*
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01/01/1999 $10,000 $10,000 $10,000
01/31/1999 $10,054 0.71% $10,071 -0.01% $9,999
02/28/1999 $9,914 -1.75% $9,895 -1.37% $9,862
03/31/1999 $10,069 0.55% $9,949 1.99% $10,058
04/30/1999 $10,340 0.32% $9,981 2.27% $10,287
05/31/1999 $10,104 -0.88% $9,893 -1.75% $10,107
06/30/1999 $10,119 -0.32% $9,862 0.14% $10,121
07/31/1999 $10,036 -0.43% $9,819 0.02% $10,123
08/31/1999 $9,943 -0.05% $9,814 -0.25% $10,097
09/30/1999 $9,958 1.16% $9,928 0.99% $10,197
10/31/1999 $9,993 0.37% $9,965 1.16% $10,316
11/30/1999 $10,077 -0.01% $9,964 0.91% $10,410
12/31/1999 $10,213 -0.48% $9,916 1.86% $10,603
01/31/2000 $10,053 -0.33% $9,883 -0.91% $10,507
02/29/2000 $10,165 1.21% $10,003 1.53% $10,667
03/31/2000 $10,186 1.32% $10,135 1.58% $10,836
04/30/2000 $9,748 -0.29% $10,105 -1.40% $10,684
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
4/30/00
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------
<S> <C>
1-Year -5.97%
5-Year +7.62%
Since Inception (5/24/94) +7.93%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
4/30/00
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------
<S> <C>
1-Year -5.81%
Since Inception (1/1/99) -1.90%
</TABLE>
*Source for Salomon Brothers U.S. Treasury Index: Salomon Brothers. Source for
other indexes: Standard & Poor's Micropal.
Past performance does not guarantee future results.
AVERAGE ANNUAL TOTAL RETURN
4/30/00
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------
<S> <C>
1-Year -4.08%
Since Inception (5/1/98) +0.16%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
4/30/00
<TABLE>
<CAPTION>
ADVISOR CLASS**
--------------------------------------------------------------------------------
<S> <C>
1-Year -1.64%
5-Year +8.59%
Since Inception (5/24/94) +8.75%
</TABLE>
CLASS C (5/1/98 - 4/30/00)
<TABLE>
<CAPTION>
FRANKLIN STRATEGIC LEHMAN BROTHERS U.S. COMPOSITE
INCOME FUND - CLASS C AGGREGATE INDEX INDEX*
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/01/1998 $9,903 $10,000 $10,000
05/31/1998 $9,823 0.95% $10,095 -0.55% $9,945
06/30/1998 $9,789 0.85% $10,181 0.03% $9,948
07/31/1998 $9,855 0.21% $10,202 0.15% $9,963
08/31/1998 $8,940 1.63% $10,368 -5.76% $9,389
09/30/1998 $9,369 2.34% $10,611 3.63% $9,730
10/31/1998 $9,556 -0.53% $10,555 1.96% $9,921
11/30/1998 $9,936 0.57% $10,615 2.48% $10,167
12/31/1998 $9,940 0.30% $10,647 0.79% $10,247
01/31/1999 $9,980 0.71% $10,722 -0.01% $10,246
02/28/1999 $9,844 -1.75% $10,535 -1.37% $10,106
03/31/1999 $9,989 0.55% $10,593 1.99% $10,307
04/30/1999 $10,258 0.32% $10,627 2.27% $10,541
05/31/1999 $10,014 -0.88% $10,533 -1.75% $10,356
06/30/1999 $10,028 -0.32% $10,499 0.14% $10,371
07/31/1999 $9,955 -0.43% $10,454 0.02% $10,373
08/31/1999 $9,853 -0.05% $10,449 -0.25% $10,347
09/30/1999 $9,868 1.16% $10,570 0.99% $10,449
10/31/1999 $9,912 0.37% $10,609 1.16% $10,570
11/30/1999 $9,995 -0.01% $10,608 0.91% $10,667
12/31/1999 $10,129 -0.48% $10,557 1.86% $10,865
01/31/2000 $9,960 -0.33% $10,523 -0.91% $10,766
02/29/2000 $10,082 1.21% $10,650 1.53% $10,931
03/31/2000 $10,103 1.32% $10,790 1.58% $11,104
04/30/2000 $10,032 -0.29% $10,759 -1.40% $10,948
</TABLE>
ADVISOR CLASS (5/24/94 - 4/30/00)
<TABLE>
<CAPTION>
FRANKLIN STRATEGIC LEHMAN BROTHERS U.S. COMPOSITE
INCOME FUND - ADVISOR AGGREGATE INDEX INDEX*
CLASS
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/24/1994 $10,000 $10,000 $10,000
05/31/1994 $10,000 0.00% $10,000 0.19% $10,019
06/30/1994 $9,910 -0.22% $9,978 -0.95% $9,924
07/31/1994 $10,040 1.99% $10,176 1.67% $10,090
08/31/1994 $10,190 0.12% $10,189 2.04% $10,296
09/30/1994 $10,240 -1.47% $10,039 -0.13% $10,282
10/31/1994 $10,257 -0.09% $10,030 -0.12% $10,270
11/30/1994 $10,224 -0.22% $10,008 -1.09% $10,158
12/31/1994 $10,174 0.69% $10,077 -0.72% $10,085
01/31/1995 $10,182 1.98% $10,276 1.33% $10,219
02/28/1995 $10,464 2.38% $10,521 1.26% $10,348
03/31/1995 $10,630 0.61% $10,585 1.80% $10,534
04/30/1995 $10,894 1.40% $10,733 3.34% $10,886
05/31/1995 $11,204 3.87% $11,149 3.93% $11,314
06/30/1995 $11,255 0.73% $11,230 1.35% $11,466
07/31/1995 $11,491 -0.22% $11,205 0.84% $11,563
08/31/1995 $11,521 1.21% $11,341 -0.01% $11,561
09/30/1995 $11,672 0.97% $11,451 1.90% $11,781
10/31/1995 $11,769 1.30% $11,600 -0.23% $11,754
11/30/1995 $11,866 1.50% $11,774 2.21% $12,014
12/31/1995 $12,075 1.40% $11,939 2.17% $12,274
01/31/1996 $12,289 0.66% $12,017 2.05% $12,526
02/29/1996 $12,297 -1.74% $11,808 -1.06% $12,393
03/31/1996 $12,386 -0.70% $11,726 0.37% $12,439
04/30/1996 $12,593 -0.56% $11,660 0.72% $12,529
05/31/1996 $12,766 -0.20% $11,637 0.60% $12,604
06/30/1996 $12,821 1.34% $11,792 0.98% $12,727
07/31/1996 $12,830 0.27% $11,824 0.21% $12,754
08/31/1996 $13,077 -0.17% $11,804 1.36% $12,928
09/30/1996 $13,508 1.74% $12,010 2.48% $13,248
10/31/1996 $13,637 2.22% $12,276 1.17% $13,403
11/30/1996 $14,010 1.71% $12,486 2.48% $13,736
12/31/1996 $14,134 -0.93% $12,370 -0.21% $13,707
01/31/1997 $14,281 0.31% $12,408 0.55% $13,782
02/28/1997 $14,365 0.25% $12,439 0.43% $13,841
03/31/1997 $14,034 -1.11% $12,301 -1.37% $13,652
04/30/1997 $14,185 1.50% $12,486 1.10% $13,802
05/31/1997 $14,494 0.95% $12,604 2.70% $14,175
06/30/1997 $14,739 1.19% $12,754 1.74% $14,421
07/31/1997 $15,065 2.70% $13,099 2.48% $14,779
08/31/1997 $15,072 -0.85% $12,987 -0.36% $14,726
09/30/1997 $15,376 1.47% $13,178 2.52% $15,097
10/31/1997 $15,138 1.45% $13,369 -0.99% $14,947
11/30/1997 $15,336 0.46% $13,431 0.52% $15,025
12/31/1997 $15,551 1.01% $13,567 0.95% $15,168
01/31/1998 $15,726 1.28% $13,740 0.98% $15,316
02/28/1998 $15,845 -0.08% $13,729 1.55% $15,554
03/31/1998 $15,980 0.34% $13,776 1.05% $15,717
04/30/1998 $16,044 0.52% $13,848 0.78% $15,840
05/31/1998 $15,950 0.95% $13,979 -0.55% $15,753
06/30/1998 $15,900 0.85% $14,098 0.03% $15,757
07/31/1998 $16,013 0.21% $14,128 0.15% $15,781
08/31/1998 $14,516 1.63% $14,358 -5.76% $14,872
09/30/1998 $15,235 2.34% $14,694 3.63% $15,412
10/31/1998 $15,544 -0.53% $14,616 1.96% $15,714
11/30/1998 $16,168 0.57% $14,699 2.48% $16,104
12/31/1998 $16,180 0.30% $14,743 0.79% $16,231
01/31/1999 $16,252 0.71% $14,848 -0.01% $16,229
02/28/1999 $16,036 -1.75% $14,588 -1.37% $16,007
03/31/1999 $16,278 0.55% $14,668 1.99% $16,325
04/30/1999 $16,722 0.32% $14,715 2.27% $16,696
05/31/1999 $16,331 -0.88% $14,586 -1.75% $16,404
06/30/1999 $16,359 -0.32% $14,539 0.14% $16,427
07/31/1999 $16,246 -0.43% $14,477 0.02% $16,430
08/31/1999 -0.90% $16,100 -0.05% $14,469 -0.25% $16,389
09/30/1999 0.20% $16,132 1.16% $14,637 0.99% $16,551
10/31/1999 0.40% $16,197 0.37% $14,691 1.16% $16,743
11/30/1999 0.90% $16,342 -0.01% $14,690 0.91% $16,896
12/31/1999 1.40% $16,571 -0.48% $14,620 1.86% $17,210
01/31/2000 -1.52% $16,319 -0.33% $14,571 -0.91% $17,053
02/29/2000 1.17% $16,510 1.21% $14,748 1.53% $17,314
03/31/2000 0.26% $16,553 1.32% $14,942 1.58% $17,588
04/30/2000 -0.64% $16,447 -0.29% $14,899 -1.40% $17,342
</TABLE>
** On September 1, 1999, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to August 12, 1999, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after August 11, 1999, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Past performance does not guarantee future results.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED APRIL 30,
----------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................. $10.84 $11.24 $10.86 $10.77 $10.18
----------------------------------------------------------
Income from investment operations:
Net investment income(a) ...................................... .82 .86 .87 .93 .85
Net realized and unrealized gains (losses) .................... (1.02) (.43) .50 .39 .67
----------------------------------------------------------
Total from investment operations ............................... (.20) .43 1.37 1.32 1.52
----------------------------------------------------------
Less distributions from:
Net investment income ......................................... (.80) (.83) (.90) (.96) (.82)
Net realized gains ............................................ -- -- (.09) (.27) (.11)
----------------------------------------------------------
Total distributions ............................................ (.80) (.83) (.99) (1.23) (.93)
----------------------------------------------------------
Net asset value, end of year ................................... $ 9.84 $10.84 $11.24 $10.86 $10.77
==========================================================
Total return(b) ................................................ (1.81)% 4.23% 13.10% 12.64% 15.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $254,419 $247,574 $166,633 $34,864 $13,022
Ratios to average net assets:
Expenses ...................................................... .75% .58% .25% .23% .25%
Expenses excluding waiver and payments by affiliate ........... .99% .99% 1.05% 1.05% 1.08%
Net investment income ......................................... 8.10% 7.99% 7.65% 8.60% 8.53%
Portfolio turnover rate ........................................ 43.71% 48.68% 47.47% 114.26% 73.95%
</TABLE>
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
------------------------
YEAR ENDED APRIL 30,
------------------------
2000 1999(d)
------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................................... $10.86 $10.76
------------------------
Income from investment operations:
Net investment income(a) ................................................. .79 .29
Net realized and unrealized gains (losses) ............................. (1.03) .07
------------------------
Total from investment operations ........................................ (.24) .36
------------------------
Less distributions from net investment income ........................... (.76) (.26)
------------------------
Net asset value, end of year ............................................ $ 9.86 $10.86
========================
Total return(b) ......................................................... (2.18)% 3.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................................... $13,641 $4,281
Ratios to average net assets:
Expenses ............................................................... 1.15% .98%(c)
Expenses excluding waiver and payments by affiliate .................... 1.39% 1.39%(c)
Net investment income .................................................. 7.78% 7.59%(c)
Portfolio turnover rate ................................................. 43.71% 48.68%
</TABLE>
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) Annualized
(d) For the period January 1, 1999 (effective date) to April 30, 1999.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
------------------------
YEAR ENDED APRIL 30,
------------------------
2000 1999
------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................................... $10.84 $11.19
------------------------
Income from investment operations:
Net investment income(a) .................................................. .78 .76
Net realized and unrealized losses ........................................ (1.02) (.40)
------------------------
Total from investment operations ........................................... (.24) .36
------------------------
Less distributions from net investment income .............................. (.76) (.71)
------------------------
Net asset value, end of year ............................................... $ 9.84 $10.84
========================
Total return(b) ............................................................ (2.20)% 3.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................ $39,713 $36,245
Ratios to average net assets:
Expenses .................................................................. 1.15% .98%
Expenses excluding waiver and payments by affiliate ....................... 1.39% 1.39%
Net investment income ..................................................... 7.72% 7.59%
Portfolio turnover rate .................................................... 43.71% 48.68%
</TABLE>
(a) Based on average shares outstanding effective year ended April 30, 2000.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
-----------------
PERIOD ENDED
APRIL 30, 2000(d)
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................................... $10.11
-----------------
Income from investment operations:
Net investment income(a) ................................................ .61
Net realized and unrealized losses ...................................... (.33)
-----------------
Total from investment operations ......................................... .28
-----------------
Less distributions from net investment income ............................ (.55)
-----------------
Net asset value, end of period ........................................... $ 9.84
=================
Total return(b) .......................................................... (1.64)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................................ $21,809
Ratios to average net assets:
Expenses ................................................................ .50%(c)
Expenses excluding waiver and payments by affiliate ..................... .74%(c)
Net investment income ................................................... 8.53%(c)
Portfolio turnover rate .................................................. 43.71%
</TABLE>
(a) Based on average shares outstanding effective period ended April 30, 2000.
(b) Total return is not annualized for periods less than one year.
(c) Annualized
(d) For the period August 12, 1999 (effective date) to April 30, 2000.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2000
<TABLE>
<CAPTION>
SHARES/
WARRANTS
COUNTRY & RIGHTS VALUE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a) COMMON STOCKS, WARRANTS AND RIGHTS .1%
Abraxas Petroleum Corp. ............................................... United States 52,464 $ 88,533
Abraxas Petroleum Corp., rts., 11/01/04 ............................... United States 52,464 26,232
Harvard Industries Inc. ............................................... United States 8,240 42,230
Loral Space & Communications Ltd., wts., 1/15/07 ...................... United States 300 1,396
R&B Falcon Corp., 144A, wts., 5/01/09 ................................. United States 750 262,500
Republic of Venezeula, Oil Value Recovery, wts., 4/15/20 .............. Venezuela 3,035 --
-----------
TOTAL COMMON STOCKS, WARRANTS AND RIGHTS (COST $283,715) .............. 420,891
-----------
PREFERRED STOCKS .9%
Fresenius Medical Care Capital Trust I, 9.00%, pfd. ................... Germany 100 94,500
Fresenius Medical Care Capital Trust II, 7.875%, pfd. ................. Germany 2,000 1,760,000
R&B Falcon Corp., 144A 13.875%, pfd., PIK ............................. United States 834 891,909
Sinclair Capital, 11.625%, pfd. ....................................... United States 3,000 278,250
-----------
TOTAL PREFERRED STOCKS (COST $3,138,679) .............................. 3,024,659
-----------
CONVERTIBLE PREFERRED STOCKS 4.7%
CONSUMER SERVICES .8%
MediaOne Group Inc., 7.00%, cvt. pfd. ................................. United States 55,600 2,578,450
-----------
ENERGY MINERALS 1.0%
Kerr-McGee Corp., 5.50%, cvt. pfd. .................................... United States 72,500 3,248,906
-----------
FINANCE 1.1%
Apartment Investment & Management Co., 8.00%, K, cvt. pfd. ............ United States 80,000 1,980,000
Protective Life Capital Trust II, 6.50%, cvt. pfd. .................... United States 40,000 1,660,000
-----------
3,640,000
-----------
TRANSPORTATION .6%
Union Pacific Capital Trust, 6.25%, cvt. pfd. ......................... United States 47,500 2,018,750
-----------
UTILITIES 1.2%
AES Trust III, 6.75%, cvt. pfd. ....................................... United States 32,500 2,317,656
Texas Utilities Co., 9.25%, cvt. pfd. ................................. United States 40,000 1,725,000
-----------
4,042,656
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $14,778,869) ................. 15,528,762
-----------
PRINCIPAL
AMOUNT*
---------
BONDS 39.0%
COMMERCIAL SERVICES .1%
(a),(c) AmeriServe Food Distribution Inc., senior note, 8.875%, 10/15/06 ...... United States $ 700,000 24,500
(a),(c) AmeriServe Food Distribution Inc., senior sub. note, 10.125%, 7/15/07 . United States 700,000 7,000
Fleming Cos. Inc., senior sub. note, B, 10.50%, 12/01/04 .............. United States 400,000 354,000
-----------
385,500
-----------
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
CONSUMER DURABLES .4%
Pillowtex Corp., senior sub. note, B, 9.00%, 12/15/07 ........................ United States $ 2,000,000 $ 810,000
Sealy Mattress Co., senior disc. note, B, zero cpn. to 12/15/02, 10.875%
thereafter, 12/15/07 ........................................................ United States 300,000 211,500
Sealy Mattress Co., senior sub. note, B, 9.875%, 12/15/07 .................... United States 200,000 191,000
-----------
1,212,500
-----------
CONSUMER NON-DURABLES .3%
Revlon Consumer Products Corp., senior note, 9.00%, 11/01/06 ................. United States 500,000 362,500
Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ............ United States 1,500,000 750,000
-----------
1,112,500
-----------
CONSUMER SERVICES 8.4%
AMF Bowling Worldwide Inc., senior disc. note, B, zero cpn. to 3/15/01, 12.25%
thereafter, 3/15/06 ......................................................... United States 1,118,000 273,910
AMFM Inc., senior note, 8.00%, 11/01/08 ...................................... United States 1,000,000 997,500
AMFM Inc., senior sub. note, 9.00%, 10/01/08 ................................. United States 2,000,000 2,035,000
Century Communications Corp., B, senior disc. note, 1/15/08 .................. United States 5,000,000 2,112,500
Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04,
9.92% thereafter, 4/01/11 ................................................... United States 4,250,000 2,348,125
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 ......................... United States 1,750,000 1,802,500
Diamond Holdings PLC, senior note, 9.125%, 2/01/08 ........................... United Kingdom 1,000,000 950,000
Fox/Liberty Networks LLC, senior disc. note, zero cpn. to 8/15/02, 9.75%
thereafter, 8/15/07 ..................................................... United States 2,000,000 1,595,000
Harrah's Operating Co. Inc., senior sub. note, 7.875%, 12/15/05 .............. United States 1,750,000 1,631,875
Park Place Entertainment, 144A, senior sub. note, 9.375%, 2/15/07 ............ United States 3,000,000 2,996,250
Prime Hospitality Corp., senior sub. note, B, 9.75%, 4/01/07 ................. United States 2,000,000 1,945,000
Regal Cinemas Inc., senior sub. note, 9.50%, 6/01/08 ......................... United States 1,500,000 622,500
Sinclair Broadcast Group Inc., senior sub. note, 8.75%, 12/15/07 ............. United States 1,700,000 1,498,125
Six Flags Entertainment Corp., senior note, 8.875%, 4/01/06 .................. United States 2,500,000 2,350,000
Telewest Communications PLC, senior disc. note, zero cpn. to 4/15/04, 9.25%
thereafter, 4/15/09 ......................................................... United Kingdom 500,000 282,500
Telewest Communications PLC, 144A, senior disc. note, zero cpn. to 2/01/05,
11.375% thereafter, 2/01/10 ................................................. United Kingdom 3,500,000 1,960,000
United Pan-Europe Communications NV, B, zero cpn. to 8/01/04, 12.50%
thereafter, 8/01/09 ......................................................... Netherlands 4,250,000 2,125,000
-----------
27,525,785
-----------
ENERGY MINERALS 3.3%
Abraxas Petroleum Corp., second lien note, A, 11.50%, 11/01/04 ............... United States 616,000 526,680
Chesapeake Energy Corp., senior note, B, 9.625%, 5/01/05 ..................... United States 2,500,000 2,375,000
Clark R&M Inc., senior sub. note, 8.875%, 11/15/07 ........................... United States 1,000,000 605,000
Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10 ................ Mexico 1,800,000 1,912,500
P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08 ................ United States 2,500,000 2,237,500
Pioneer Natural Resources Co., senior note, 9.625%, 4/01/10 .................. United States 3,000,000 3,067,500
-----------
10,724,180
-----------
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
FINANCE 2.1%
Sears Roebuck Acceptance, MTN1, 6.13%, 11/15/05 ........................... United States $ 775,000 $ 772,237
Sears Roebuck Acceptance, MTN1, 6.15%, 11/15/05 ........................... United States 725,000 723,828
Southtrust Bank of Birmingham, 5.58%, 2/06/06 ............................. United States 2,500,000 2,466,953
Sovereign Bancorp Inc., senior note, 10.50%, 11/15/06 ..................... United States 3,000,000 2,955,000
------------
6,918,018
------------
HEALTH SERVICES 1.2%
Express Scripts Inc., senior note, 9.625%, 6/15/09 ........................ United States 2,000,000 1,910,000
Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ........... United States 2,000,000 1,330,000
Pharmerica Inc., senior sub. note, 8.375%, 4/01/08 ........................ United States 350,000 194,250
(a),(c) Vencor Operating Inc., senior sub. note, 9.875%, 5/01/05 .................. United States 1,500,000 270,000
------------
3,704,250
------------
INDUSTRIAL SERVICES 1.4%
Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 .......... United States 2,500,000 1,862,500
Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03,
9.875% thereafter, 2/15/08 ................................................ United States 1,250,000 781,250
WMX Technologies, 6.65%, 5/15/05 .......................................... United States 2,000,000 1,997,600
------------
4,641,350
------------
NON-ENERGY MINERALS .1%
LTV Corp., senior note, 8.20%, 9/15/07 ..................................... United States 450,000 387,000
------------
PROCESS INDUSTRIES 4.2%
Anchor Glass, first mortgage, 11.25%, 4/01/05 .............................. United States 2,000,000 1,410,000
Anchor Glass Container, senior note, 9.875%, 3/15/08 ....................... United States 700,000 434,000
Consolidated Container Co., senior sub. note, 10.125%, 7/15/09 ............. United States 2,000,000 1,960,000
Georgia Gulf Corp., senior sub. note, 144A, 10.375%, 11/01/07 .............. United States 1,000,000 1,030,000
Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 .................. United States 200,000 172,000
Graham Packaging Co., senior disc. note, B, zero cpn. to 1/15/03, 10.75%
thereafter, 1/15/09 ....................................................... United States 1,700,000 960,500
Lyondell Chemical Co., senior secured note, B, 9.875%, 5/01/07 ............. United States 2,500,000 2,462,500
Packaging Corp. of America, senior sub. note, 9.625%, 4/01/09 .............. United States 2,250,000 2,272,500
Pindo Deli Finance Mauritius Ltd., senior note, 10.25%, 10/01/02 ........... Indonesia 2,500,000 2,018,750
(a),(c) Purina Mills Inc., senior sub. note, 9.00%, 3/15/10 ........................ United States 2,000,000 590,000
Repap New Brunswick, senior note, 9.00%, 6/01/04 ........................... Canada 700,000 687,750
------------
13,998,000
------------
PRODUCER MANUFACTURING 1.9%
American Axle & Manufacturing Inc., senior sub. note, 9.75%, 3/01/09 ....... United States 1,500,000 1,428,750
Cambridge Industries Inc., senior sub. note, B, 10.25%, 7/15/07 ............ United States 500,000 92,500
Dura Operating Corp., senior sub. note, B, 9.00%, 5/01/09 .................. United States 1,000,000 895,000
Nortek Inc., senior note, 8.875%, 8/01/08 .................................. United States 2,000,000 1,815,000
Nortek Inc., senior note, B, 9.125%, 9/01/07 ............................... United States 300,000 279,000
Talon Automotive Group Inc., senior sub. note, B, 9.625%, 5/01/08 .......... United States 800,000 348,000
Terex Corp., senior sub. note, 8.875%, 4/01/08 ............................. United States 1,500,000 1,335,000
------------
6,193,250
------------
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
RETAIL TRADE .4%
J.C. Penney Co. Inc., 6.90%, 8/15/26 ......................................... United States $ 1,500,000 $ 1,284,731
------------
TECHNOLOGY SERVICES .8%
PSINet Inc., senior note, 10.50%, 12/01/06 ................................... United States 700,000 617,750
PSINet Inc., senior note, 11.00%, 8/01/09 .................................... United States 2,250,000 2,036,250
------------
2,654,000
------------
TELECOMMUNICATIONS 12.7%
Allegiance Telecom Inc., senior disc. note, B, zero cpn. to 2/15/03,
11.75%, thereafter, 2/15/08 ................................................. United States 2,000,000 1,380,000
BellSouth Telecommunications Inc., 5.85%, 11/15/45 ........................... United States 2,000,000 1,988,294
Call-Net Enterprises Inc., senior note, 9.375%, 5/15/09 ...................... Canada 2,750,000 1,925,000
Clearnet Communications Inc., senior disc. note, zero cpn. to 5/01/04,
10.125% thereafter, 5/01/09 ................................................. Canada 3,250,000 1,885,000
Dobson/Sygnet Communications Co., senior note, 12.25%, 12/15/08 .............. United States 2,000,000 2,085,000
Global Crossing Holdings Ltd., senior sub. note, 144A, 9.50%, 11/15/09 ....... Bermuda 3,000,000 2,910,000
IntelCom Group Inc., senior secured disc. note, zero cpn. to 5/01/01,
12.50% thereafter, 5/01/06 .................................................. United States 2,250,000 1,822,500
Intermedia Communications Inc., senior disc. note, B, zero cpn. to
7/15/02, 11.25% thereafter, 7/15/07 ......................................... United States 2,000,000 1,550,000
Level 3 Communications Inc., senior disc. note, zero cpn. to 12/01/03,
10.50% thereafter, 12/01/08 ................................................. United States 4,000,000 2,270,000
Loral Space and Communications Ltd., senior disc. note, zero cpn. to
1/15/02, 12.50% thereafter, 1/15/07 ......................................... United States 300,000 121,500
McLeodUSA Inc., senior note, 8.125%, 2/15/09 ................................. United States 2,500,000 2,225,000
Metrocall Inc., senior sub. note, 9.75%, 11/01/07 ............................ United States 1,000,000 725,000
Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ............................ United States 1,000,000 770,000
Microcell Telecommunications Inc., senior disc. note, B, zero cpn. to
12/01/01, 14.00% thereafter, 6/01/06 ........................................ Canada 450,000 402,750
Millicom International Cellular SA, senior disc. note, zero cpn. to
6/01/01, 13.50% thereafter, 6/01/06 ......................................... Luxembourg 300,000 255,000
Nextel Communications Inc., senior disc. note, zero cpn. to 10/31/02,
9.75% thereafter, 10/31/07 .................................................. United States 500,000 360,000
Nextel Communications Inc., senior disc. note, zero cpn. to 2/15/03,
9.95% thereafter, 2/15/08 ................................................... United States 3,500,000 2,476,250
Nextel Partners Inc., 144A, senior sub. note, 11.00%, 3/15/10 ................ United States 2,500,000 2,456,250
NEXTLINK Communications Inc., senior disc. note, zero cpn. to 4/15/03,
9.45% thereafter, 4/15/08 ................................................... United States 650,000 391,625
NEXTLINK Communications Inc., senior disc. note, zero cpn. to 6/01/04,
12.25% thereafter, 6/01/09 .................................................. United States 2,000,000 1,175,000
NEXTLINK Communications Inc., senior note, 9.625%, 10/01/07 .................. United States 250,000 233,750
NEXTLINK Communications Inc., senior note, 9.00%, 3/15/08 .................... United States 750,000 688,125
Omnipoint Corp., senior note, 144A, 11.50%, 9/15/09 .......................... United States 2,000,000 2,147,500
RSL Communications PLC, senior disc. note, zero cpn. to 3/01/03,
10.125% thereafter, 3/01/08 ................................................. United Kingdom 1,000,000 517,500
RSL Communications PLC, senior note, 12.00%, 11/01/08 ........................ United Kingdom 750,000 671,250
RSL Communications PLC, senior note, 144A, 12.875%, 3/01/10 .................. United Kingdom 1,250,000 1,178,125
Spectrasite Holdings Inc., senior disc. note, zero cpn. to 4/15/04,
11.25% thereafter, 4/15/09 .................................................. United States 4,000,000 2,200,000
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
TELECOMMUNICATIONS (CONT.)
Triton PCS Inc., sub. disc. note, zero cpn. to 5/01/03, 11.00% thereafter,
5/01/08 ..................................................................... United States $ 1,750,000 $ 1,253,438
VoiceStream Wireless Corp., senior disc. note, 144A, zero cpn. to
11/15/04, 11.875% thereafter, 11/15/09 ...................................... United States 1,500,000 896,250
Williams Communications Group Inc., senior note, 10.875%, 10/01/09 ........... United States 3,000,000 3,037,500
------------
41,997,607
------------
TRANSPORTATION .5%
American Commercial Lines LLC, senior note, 10.25%, 6/30/08 .................. United States 1,000,000 840,000
Ultrapetrol Ltd., first mortgage, 10.50%, 4/01/08 ............................ Bahamas 1,000,000 885,000
------------
1,725,000
------------
UTILITIES 1.2%
AES China Generating Co., senior note, 10.125%, 12/15/06 ..................... China 100,000 67,500
AES Corp., senior note, 9.50%, 6/01/09 ....................................... United States 2,500,000 2,450,000
CMS Energy Corp., senior note, 7.50%, 1/15/09 ................................ United States 1,650,000 1,452,000
------------
3,969,500
------------
TOTAL BONDS (COST $147,462,781) .............................................. 128,433,171
------------
CONVERTIBLE BONDS 4.2%
CONSUMER SERVICES .4%
Clear Channel Communications Inc., cvt., senior note, 2.625%, 4/01/03 ........ United States 1,000,000 1,270,630
------------
ELECTRONIC TECHNOLOGY 2.0%
Amkor Technology Inc., cvt., 144A, sub. note, 5.00%, 3/15/07 ................. United States 2,000,000 2,460,000
ASM Lithography Holding NV, cvt., 144A, sub. note, 4.25%, 11/30/04 ........... Netherlands 1,500,000 1,846,875
SCI Systems Inc., cvt., sub. note, 3.00%, 3/15/07 ............................ United States 2,000,000 2,337,500
------------
6,644,375
------------
HEALTH SERVICES .7%
Omnicare Inc., cvt. sub. deb., 5.00%, 12/01/07 ............................... United States 3,000,000 2,366,250
------------
TECHNOLOGY SERVICES .7%
Affiliated Computer Services, cvt., sub. note, 4.00%, 3/15/05 ................ United States 2,500,000 2,418,750
------------
TELECOMMUNICATIONS .4%
Global Telesystems Group Inc., cvt., senior sub. debenture, 5.75%, 7/01/10 ... United States 1,950,000 1,294,313
------------
TOTAL CONVERTIBLE BONDS (COST $14,666,606) ................................... 13,994,318
------------
OTHER MORTGAGES/OTHER ASSET BACKED SECURITIES 3.4%
Champion Home Equity Loan Trust, Series 1996-2 A4, 8.00%, 9/25/28 ............ United States 1,000,000 997,385
Conseco Inc., Series 1999-6, Class M2, 8.74%, 6/01/30 ........................ United States 2,000,000 1,864,062
Delta Home Equity, Series 1998-2, Class A6F, 6.37%, 7/15/28 .................. United States 2,000,000 1,870,990
Green Tree Financial Corp., Series 1992-2, Class A6, 6.92 %, 12/01/30 ........ United States 1,000,000 835,469
Green Tree Financial Corp., Series 1996-2, Class A4, 7.20%, 4/15/27 .......... United States 1,200,000 1,172,406
Green Tree Financial Corp., Series 1998-7, Class B1, 7.68%, 7/01/30 .......... United States 1,000,000 917,405
JP Morgan Commercial Mortgage Finance, 8.119%, 10/15/32 ...................... United States 2,200,000 2,222,433
Merrill Lynch Mortgage Investors Inc., Series 1995-C3, Class A3, 7.069%,
12/26/25 .................................................................... United States 500,000 485,098
Residential Asset Securities Corp., Series 1999-KS1, Class A18, 6.32%,
4/25/30 ..................................................................... United States 750,000 697,856
------------
TOTAL OTHER MORTGAGES/OTHER ASSET BACKED SECURITIES (COST $11,473,645) 11,063,104
------------
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 15.7%
U.S. GOVERNMENT AGENCIES/MORTGAGES 8.5%
FHLMC, 7.00%, 1/01/09 ........................................................ United States $ 11,328 $ 11,136
FHLMC, 6.50%, 4/01/11 ........................................................ United States 20,978 20,218
FHLMC, 7.00%, 9/01/11 ........................................................ United States 22,925 22,437
FHLMC, 7.50%, 10/01/14 ....................................................... United States 469,093 466,815
FHLMC, 7.00%, 4/01/24 ........................................................ United States 28,989 27,880
FHLMC, 7.50%, 4/01/24 ........................................................ United States 24,256 23,871
FHLMC, 8.50%, 12/01/24 ....................................................... United States 13,047 13,296
FHLMC, 9.00%, 12/01/24 ....................................................... United States 5,286 5,445
FHLMC, 7.00%, 11/01/25 ....................................................... United States 15,162 14,569
FHLMC, 8.00%, 11/01/25 ....................................................... United States 12,265 12,292
FHLMC, 6.50%, 12/01/25 ....................................................... United States 26,432 24,777
FHLMC, 7.50%, 1/01/26 ........................................................ United States 15,829 15,558
FHLMC, 8.00%, 1/01/26 ........................................................ United States 8,480 8,499
FHLMC, 6.50%, 3/01/26 ........................................................ United States 39,953 37,387
FHLMC, 7.00%, 9/01/26 ........................................................ United States 21,762 20,872
FHLMC, 7.50%, 1/01/27 ........................................................ United States 27,970 27,485
FHLMC, 7.00%, 4/01/28 ........................................................ United States 278,365 266,863
FHLMC, 7.00%, 5/01/28 ........................................................ United States 418,753 401,121
FHLMC, 6.50%, 6/01/29 ........................................................ United States 488,179 456,429
FNMA, 7.50%, 10/01/07 ........................................................ United States 17,781 17,788
FNMA, 6.50%, 2/01/09 ......................................................... United States 17,148 16,556
FNMA, 6.50%, 4/01/11 ......................................................... United States 14,720 14,179
FNMA, 6.00%, 4/01/13 ......................................................... United States 867,395 813,390
FNMA, 6.50%, 6/01/13 ......................................................... United States 770,300 738,533
FNMA, 5.50%, 3/01/14 ......................................................... United States 920,418 844,220
FNMA, 5.50%, 6/01/14 ......................................................... United States 973,572 892,974
FNMA, 6.50%, 1/01/24 ......................................................... United States 23,789 22,351
FNMA, 7.00%, 5/01/24 ......................................................... United States 8,720 8,379
FNMA, 8.00%, 1/01/25 ......................................................... United States 10,397 10,413
FNMA, 9.00%, 3/01/25 ......................................................... United States 3,364 3,465
FNMA, 9.00%, 5/01/25 ......................................................... United States 2,457 2,531
FNMA, 8.50%, 7/01/25 ......................................................... United States 8,113 8,243
FNMA, 8.00%, 12/01/25 ........................................................ United States 364,858 365,409
FNMA, 7.00%, 1/01/26 ......................................................... United States 26,753 25,692
FNMA, 7.00%, 3/01/26 ......................................................... United States 34,784 33,371
FNMA, 8.00%, 5/01/26 ......................................................... United States 9,529 9,536
FNMA, 8.00%, 6/01/26 ......................................................... United States 5,970 5,974
FNMA, 7.50%, 10/01/26 ........................................................ United States 5,659 5,556
FNMA, 8.00%, 1/01/27 ......................................................... United States 10,757 10,760
FNMA, 7.00%, 4/01/27 ......................................................... United States 544,883 521,877
FNMA, 6.50%, 3/01/28 ......................................................... United States 2,455,784 2,295,002
FNMA, 7.00%, 6/01/28 ......................................................... United States 1,177,438 1,127,173
FNMA, 6.00%, 9/01/28 ......................................................... United States 910,003 825,382
FNMA, 6.00%, 10/01/28 ........................................................ United States 899,508 815,863
FNMA, 6.50%, 12/01/28 ........................................................ United States 892,383 833,957
FNMA, 7.50%, 12/01/28 ........................................................ United States 37,393 36,654
FNMA, 6.00%, 1/01/29 ......................................................... United States 1,913,011 1,735,120
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES (CONT.)
U.S. GOVERNMENT AGENCIES/MORTGAGES (CONT.)
(d) FNMA, 6.00%, 5/01/29 ......................................................... United States $ 900,000 $ 815,625
FNMA, 7.00%, 5/01/29 ......................................................... United States 895,381 857,020
FNMA, 6.50%, 8/01/29 ......................................................... United States 984,536 919,484
FNMA, 6.50%, 9/01/29 ......................................................... United States 993,469 927,827
FNMA, 7.50%, 10/01/29 ........................................................ United States 2,555,839 2,503,787
GNMA, 7.00%, 7/15/08 ......................................................... United States 760,381 752,789
GNMA, SF, 7.50%, 9/15/23 ..................................................... United States 10,914 10,773
GNMA, SF, 6.50%, 3/15/24 ..................................................... United States 39,444 37,147
GNMA, SF, 8.00%, 6/15/24 ..................................................... United States 24,269 24,430
GNMA, SF, 8.50%, 8/15/24 ..................................................... United States 5,059 5,173
GNMA, SF, 9.00%, 1/15/25 ..................................................... United States 4,401 4,562
GNMA, SF, 8.00%, 2/15/25 ..................................................... United States 9,275 9,334
GNMA, SF, 9.50%, 6/15/25 ..................................................... United States 6,386 6,705
GNMA, SF, 7.50%, 1/15/26 ..................................................... United States 25,164 24,785
GNMA, SF, 7.50%, 2/15/26 ..................................................... United States 16,694 16,442
GNMA, SF, 9.00%, 3/15/26 ..................................................... United States 23,726 24,587
GNMA, SF, 8.00%, 6/15/26 ..................................................... United States 22,341 22,468
GNMA, SF, 8.00%, 7/15/26 ..................................................... United States 34,496 34,692
GNMA, SF, 8.50%, 7/15/26 ..................................................... United States 9,921 10,130
GNMA, SF, 8.00%, 9/15/26 ..................................................... United States 644,267 647,928
GNMA, SF, 8.00%, 12/15/26 .................................................... United States 419,649 422,035
GNMA, SF, 7.50%, 9/15/27 ..................................................... United States 443,957 437,047
GNMA, SF, 8.00%, 9/15/27 ..................................................... United States 307,019 308,371
GNMA, SF, 7.00%, 5/15/28 ..................................................... United States 40,452 38,950
GNMA, SF, 6.50%, 12/15/28 .................................................... United States 451,449 423,652
GNMA, SF, 6.50%, 1/15/29 ..................................................... United States 996,148 934,286
GNMA, SF, 6.50%, 2/15/29 ..................................................... United States 1,913,545 1,794,710
GNMA I, 7.50%, 5/15/27 ....................................................... United States 721,861 710,625
GNMA I, 7.00%, 11/15/27 ...................................................... United States 855,829 824,320
GNMA I, 8.00%, 4/15/28 ....................................................... United States 466,841 468,832
------------
27,935,814
------------
U.S. GOVERNMENT SECURITIES 2.1%
U.S. Treasury Note, 6.00%, 8/15/00 ........................................... United States 2,000,000 2,000,000
U.S. Treasury Note, 5.125%, 8/31/00 .......................................... United States 3,000,000 2,989,689
U.S. Treasury Note, 5.375%, 2/15/01 .......................................... United States 2,000,000 1,983,750
------------
6,973,439
------------
OTHER U.S. GOVERNMENT AND AGENCY SECURITIES 5.1%
FHLB, 5.477%, 1/28/09 ........................................................ United States 6,000,000 5,245,812
FHLMC, 6.60%, 4/20/09 ........................................................ United States 4,300,000 4,002,410
FHLMC, 7.625%, 9/09/09 ....................................................... United States 1,000,000 976,131
FNMA, 5.75%, 4/15/03 ......................................................... United States 1,000,000 961,465
FNMA, 5.75%, 6/15/05 ......................................................... United States 6,000,000 5,622,072
------------
16,807,890
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $54,062,354) ............... 51,717,143
------------
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN GOVERNMENT AND AGENCY SECURITIES (CONT.)
Republic of Argentina, 11.75%, 4/07/09 ................................ Argentina $ 270,000 $ 265,478
Republic of Argentina, 11.375%, 3/15/10 ............................... Argentina 1,050,000 1,009,313
Republic of Argentina, 11.375%, 1/30/17 ............................... Argentina 2,000,000 1,908,128
Republic of Argentina, 9.75%, 9/19/27 ................................. Argentina 730,000 612,288
Republic of Argentina, Bonos Del Tesoro, 8.75%, 5/09/02 ............... Argentina 5,700,000 5,527,575
New South Wales Treasury Corp., 7.00%, 4/01/04 ........................ Australia 3,000,000 AUD 1,765,717
Queensland Treasury Corp., 6.50%, 6/14/05 ............................. Australia 1,180,000 AUD 681,822
Kingdom of Belgium, 7.75%, 10/15/04 ................................... Belgium 1,793,000 EUR 1,796,774
Republic of Brazil, 11.625%, 4/15/04 .................................. Brazil 1,500,000 1,486,875
Republic of Brazil, 9.375%, 4/07/08 ................................... Brazil 4,000,000 3,340,000
Republic of Brazil, 14.50%, 10/15/09 .................................. Brazil 7,025,000 7,414,888
Republic of Brazil - DCB, L, FRN, 7.00%, 4/15/12 ...................... Brazil 300,000 216,657
Republic of Bulgaria, FRN, 6.50%, 7/28/11 ............................. Bulgaria 110,000 83,325
Republic of Bulgaria, FRN, 7.063%, 7/28/11 ............................ Bulgaria 6,220,000 4,711,650
Republic of Bulgaria, A, FRN, 6.687%, 7/28/24 ......................... Bulgaria 1,340,000 1,027,619
Government of Canada, 8.75%, 12/01/05 ................................. Canada 303,000 CAD 227,797
Government of Canada, 7.00%, 12/01/06 ................................. Canada 359,000 CAD 251,794
Republic of Colombia, 9.75%, 4/23/09 .................................. Colombia 3,300,000 2,607,000
Kingdom of Denmark, 7.00%, 12/15/04 ................................... Denmark 15,160,000 DKK 1,961,359
(a),(c) Republic of Ecuador, 144A, 11.25%, 4/25/02 .......................... Ecuador 480,000 172,800
(a),(c) Republic of Ecuador, Reg S, 11.25%, 4/25/02 ......................... Ecuador 1,220,000 439,200
French Treasury Note, 3.50%, 7/12/04 .................................. France 3,220,000 EUR 2,771,825
Federal Republic of Germany, 3.25%, 2/17/04 ........................... Germany 1,180,000 EUR 1,014,525
Federal Republic of Germany, 7.375%, 1/03/05 .......................... Germany 1,000,000 EUR 994,542
Federal Republic of Germany, 6.00%, 1/05/06 ........................... Germany 600,768 EUR 568,529
Federal Republic of Germany, 4.50%, 7/04/09 ........................... Germany 4,674,000 EUR 4,010,886
Buoni Poliennali Del Tes, 7.75%, 11/01/06 ............................. Italy 1,319,000 EUR 1,353,628
Italy Government, 6.75%, 2/01/07 ...................................... Italy 1,513,216 EUR 1,481,653
Government of Jamaica, Reg S, 9.625%, 7/02/02 ......................... Jamaica 1,750,000 1,701,875
United Mexican States, 9.75%, 4/06/05 ................................. Mexico 2,000,000 2,064,500
United Mexican States, 8.625%, 3/12/08 ................................ Mexico 7,470,000 7,156,260
United Mexican States, 11.375%, 9/15/16 ............................... Mexico 1,500,000 1,698,000
Netherlands Government, 8.50%, 6/01/06 ................................ Netherlands 1,619,707 EUR 1,714,183
Government of New Zealand, 7.00%, 7/15/09 ............................. New Zealand 2,000,000 NZD 970,300
Republic of Panama, 8.875%, 9/30/27 ................................... Panama 1,500,000 1,271,250
Republic of Panama, 9.375%, 4/01/29 ................................... Panama 3,530,000 3,349,088
Peru - Pdi., FRN, 4.50%, 3/07/17 ...................................... Peru 5,100,000 3,426,588
Republic of Philippines, 9.875%, 3/16/10 .............................. Philippines 1,500,000 1,426,800
Russia Ministry of Finance, Reg S, 10.00%, 6/26/07 .................... Russia 4,000,000 2,870,000
Bonos Y Oblig Del Estado, 3.25%, 1/31/05 .............................. Spain 2,578,000 EUR 2,161,743
Swedish Government, 10.25%, 5/05/03 ................................... Sweden 7,000,000 SEK 889,344
SEI Holdings IX Inc., 144A, 11.00%, 11/30/00 .......................... Trinidad and Tobago 125,000 125,000
Republic of Turkey, 12.375%, 6/15/09 .................................. Turkey 1,720,000 1,867,060
Republic of Turkey, 144A, 9.875%, 2/23/05 ............................. Turkey 850,000 837,250
Republic of Turkey, 144A, 10.00%, 9/19/07 ............................. Turkey 875,000 861,875
Republic of Turkey, Reg S, 10.00%, 9/19/07 ............................ Turkey 1,315,000 1,295,275
United Kingdom, 6.50%, 12/07/03 ....................................... United Kingdom 995,000 GBP 1,603,719
United Kingdom, 7.50%, 12/07/06 ....................................... United Kingdom 2,081,000 GBP 3,630,259
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS, APRIL 30, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN GOVERNMENT AND AGENCY SECURITIES (CONT.)
Republic of Venezuela, 9.25%, 9/15/27 ........................................ Venezuela $ 7,493,000 $ 4,790,837
Republic of Venezuela, 144A, 9.125%, 6/18/07 ................................. Venezuela 100,000 78,500
Republic of Venezuela, FRN, 7.00%, 3/31/20 ................................... Venezuela 250,000 194,688
Republic of Venezuela, Reg S, 9.125%, 6/18/07 ................................ Venezuela 1,200,000 942,000
Republic of Venezuela - DCB, FRN, 7.00%, 12/18/07 ............................ Venezuela 761,905 597,617
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $102,679,361) ........... 97,227,658
------------
TOTAL LONG TERM INVESTMENTS (COST $348,546,010) .............................. 321,409,706
------------
SHARES
----------
SHORT TERM INVESTMENTS .7%
(b) Franklin Institutional Fiduciary Trust Money Market Portfolio
(COST $2,218,045) ........................................................... United States 2,218,045 2 ,218,045
------------
TOTAL INVESTMENTS (COST $350,764,055) 98.2% .................................. 323,627,751
OTHER ASSETS, LESS LIABILITIES 1.8% .......................................... 5,954,210
------------
NET ASSETS 100.0% ............................................................ $329,581,961
============
</TABLE>
CURRENCY ABBREVIATIONS:
AUD - Australian Dollar
CAD - Canadian Dollar
DKK - Danish Krone
EUR - European Union Euro
GBP - British Pound
NZD - New Zealand Dollar
SEK - Swedish Krona
* The principal amount is stated in U.S. dollars unless otherwise indicated.
(a) Non-income producing
(b) The Franklin Institutional Fiduciary Trust Money Market Portfolio is managed
by Franklin Advisers, Inc.
(c) See Note 6 regarding defaulted securities.
(d) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000
<TABLE>
<S> <C>
Assets:
Investments in securities:
Cost ............................................................................. $350,764,055
============
Value ............................................................................ 323,627,751
Receivables:
Investment securities sold ....................................................... 1,586,048
Capital shares sold .............................................................. 908,166
Dividends and interest ........................................................... 5,894,974
Affiliates ....................................................................... 72,204
------------
Total assets ................................................................. 332,089,143
------------
Liabilities:
Payables:
Investment securities purchased .................................................. 827,006
Capital shares redeemed .......................................................... 1,227,860
Affiliates ....................................................................... 219,846
Shareholders ..................................................................... 190,241
Other liabilities ................................................................. 42,229
------------
Total liabilities ............................................................ 2,507,182
------------
Net assets, at value ........................................................ $329,581,961
============
Net assets consist of:
Undistributed net investment income ............................................... $ 647,502
Net unrealized depreciation ....................................................... (27,214,950)
Accumulated net realized loss ..................................................... (5,762,129)
Capital shares .................................................................... 361,911,538
============
Net assets, at value ........................................................ $329,581,961
============
CLASS A:
Net asset value per share* ($254,419,171 / 25,854,866 shares outstanding) .......... $ 9.84
============
Maximum offering price per share ($9.84 / 95.75%) .................................. $10.28
============
CLASS B:
Net asset value and maximum offering price per share* ($13,640,757 / 1,383,094
shares outstanding) ................................................................ $ 9.86
============
CLASS C:
Net asset value per share* ($39,713,141 / 4,035,771 shares outstanding) ............ $ 9.84
============
Maximum offering price per share ($9.84 / 99.00%) .................................. $ 9.94
============
ADVISOR CLASS:
Net asset value and maximum offering price per share ($21,808,892 / 2,215,389
shares outstanding) ................................................................ $ 9.84
============
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 2000
<TABLE>
<S> <C>
Investment income:
Dividends ......................................................................... $ 1,701,679
Interest .......................................................................... 26,923,586
------------
Total investment income ...................................................... 28,625,265
------------
Expenses:
Management fees (Note 3) .......................................................... 1,677,419
Distribution fees (Note 3)
Class A .......................................................................... 659,629
Class B .......................................................................... 63,918
Class C .......................................................................... 256,687
Transfer agent fees (Note 3) ...................................................... 358,216
Custodian fees .................................................................... 65,144
Reports to shareholders ........................................................... 73,509
Registration and filing fees ...................................................... 131,168
Professional fees ................................................................. 32,490
Trustees' fees and expenses ....................................................... 4,750
Other ............................................................................. 62,594
------------
Total expenses ............................................................... 3,385,524
Expenses waived/paid by affiliate (Note 3) ................................... (781,041)
------------
Net expenses ................................................................ 2,604,483
------------
Net investment income ...................................................... 26,020,782
------------
Realized and unrealized losses:
Net realized loss from:
Investments ...................................................................... (5,006,618)
Foreign currency transactions .................................................... (75,971)
------------
Net realized loss ............................................................ (5,082,589)
Net unrealized depreciation on:
Investments ...................................................................... (24,877,986)
Translation of assets and liabilities denominated in foreign currencies .......... (40,917)
------------
Net unrealized depreciation .................................................. (24,918,903)
------------
Net realized and unrealized loss ................................................... (30,001,492)
------------
Net decrease in net assets resulting from operations ............................... $ (3,980,710)
============
</TABLE>
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED APRIL 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ......................................................... $ 26,020,782 $ 18,857,067
Net realized loss from investments and foreign currency transactions .......... (5,082,589) (2,094,444)
Net unrealized depreciation on investments and translation of assets
and liabilities denominated in foreign currencies ............................ (24,918,903) (3,978,010)
----------------------------
Net increase (decrease) in net assets resulting from operations ........... (3,980,710) 12,784,613
Distributions to shareholders from:
Net investment income:
Class A ...................................................................... (20,681,821) (16,526,206)
Class B ...................................................................... (701,635) (34,549)
Class C ...................................................................... (2,919,234) (1,362,771)
Advisor Class ................................................................ (598,051) ---
----------------------------
Total distributions to shareholders ............................................ (24,900,741) (17,923,526)
Capital share transactions: (Note 2)
Class A ....................................................................... 30,781,237 86,606,278
Class B ....................................................................... 10,141,223 4,206,050
Class C ....................................................................... 7,137,926 35,792,706
Advisor Class ................................................................. 22,303,507 ---
----------------------------
Total capital share transactions ............................................... 70,363,893 126,605,034
Net increase in net assets ................................................ 41,482,442 121,466,121
Net assets
Beginning of year .............................................................. 288,099,519 166,633,398
----------------------------
End of year .................................................................... $329,581,961 $288,099,519
============================
Undistributed net investment income included in net assets:
End of year .................................................................... $ 647,502 $ 761,552
============================
</TABLE>
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Strategic Series (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twelve separate
series (the Funds). Franklin Strategic Income Fund (the Fund) included in this
report is non-diversified. The Fund's investment objective is to obtain a high
level of current income while seeking capital appreciation.
The following summarizes the Fund's significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. FORWARD EXCHANGE CONTRACTS:
The Fund may enter into forward exchange contracts to hedge against foreign
exchange risks. These contracts are valued daily and the Fund's equity therein
is included in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.
d. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
e. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: (CONT.)
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. Other expenses are
charged to each fund on a specific identification basis.
Realized and unrealized gains and 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.
f. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
The Fund offers four classes of shares: Class A, Class B, Class C, and Advisor
Class. Effective August 12, 1999, the Fund began offering a new class of shares,
Advisor Class. Each class of shares differs by its initial sales load,
distribution fees, voting rights on matters affecting a single class and its
exchange privilege.
At April 30, 2000, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------------------------------------
2000 1999
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold ..................................... 10,107,775 $ 102,601,479 14,954,299 $ 160,265,362
Shares issued in merger (Note 7) ................ 3,713,540 37,543,893 -- --
Shares issued in reinvestment of distributions... 1,275,159 12,919,144 955,604 10,163,162
Shares redeemed ................................. (12,086,386) (122,283,279) (7,896,393) (83,822,246)
---------------------------------------------------------------
Net increase .................................... 3,010,088 $ 30,781,237 8,013,510 $ 86,606,278
===============================================================
CLASS B SHARES:(1)
Shares sold ..................................... 1,082,310 $ 11,077,406 392,984 $ 4,193,206
Shares issued in reinvestment of distributions... 46,222 466,896 2,081 21,959
Shares redeemed ................................. (139,651) (1,403,079) (852) (9,115)
---------------------------------------------------------------
Net increase .................................... 988,881 $ 10,141,223 394,213 $ 4,206,050
===============================================================
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------------------------------
2000 1999
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold ........................................ 1,966,177 $ 20,041,073 3,660,567 $ 39,127,644
Shares issued in reinvestment of distributions ..... 167,498 1,699,352 81,594 860,843
Shares redeemed .................................... (1,442,427) (14,602,499) (397,638) (4,195,781)
---------------------------------------------------------
Net increase ....................................... 691,248 $ 7,137,926 3,344,523 $ 35,792,706
=========================================================
ADVISOR CLASS SHARES:(2)
Shares sold ........................................ 2,161,209 $ 21,764,041
Shares issued in merger (Note 7) ................... 8,554 86,480
Shares issued in reinvestment of distributions ..... 59,883 597,001
Shares redeemed .................................... (14,257) (144,015)
-------------------------
Net increase ....................................... 2,215,389 $ 22,303,507
=========================
</TABLE>
(1) For the period January 1, 1999 (effective date) to April 30, 1999.
(2) For the period August 12, 1999 (effective date) to April 30, 2000.
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
<TABLE>
ENTITY AFFILIATION
---------------------------------------------------------------------------------------------
<S> <C>
Franklin Templeton Services, Inc. (FT Services) Administration manager
Franklin Advisers, Inc. (Advisers) Investment manager
Templeton Investment Counsel, Inc. (TICI) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal Underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer Agent
</TABLE>
The Fund pays an investment management fee to Advisers based on the average net
assets of the Fund as follows:
ANNUALIZED
FEE RATE DAILY NET ASSETS
---------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
Management fees were reduced on assets invested in the Franklin Institutional
Fiduciary Trust Money Market Portfolio.
Advisers agreed in advance to waive management fees, as noted in the Statements
of Operations.
Under a subadvisory agreement, Templeton Investment Counsel, Inc. (TICI)
provides subadvisory services to the Fund and receives from Advisers fees based
on the average daily net assets of the Fund.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
The Fund reimburses Distributors up to .25%, .65%, and .65% per year of the
average net assets of Class A, Class B, and Class C, respectively, for costs
incurred in marketing the Fund's shares.
Distributors paid net commissions on sales of the Fund's shares, and received
contingent deferred sales charges for the year of $515,323 and $65,961,
respectively.
The Fund paid transfer agent fees of $358,216, of which $280,210 was paid to
Investors Services.
Included in professional fees are legal fees of $28,534 that were paid to a law
firm in which a partner is an officer of the Fund.
4. INCOME TAXES
At April 30, 2000, the Fund had deferred capital losses and deferred currency
losses occurring subsequent to October 31, 1999 of $482,968 and $33,534,
respectively. For tax purposes, such losses will be reflected in the year ending
April 30, 2001.
At April 30, 2000, the Fund had tax basis capital losses of $5,336,148 which may
be carried over to offset future capital gains. Such losses expire as follows:
Capital loss carryovers expiring in :
2007 ................................. $ 777,147
2008 ................................. 4,559,001
----------
$5,336,148
==========
At August 12, 1999, the Fund acquired tax basis capital losses of $625,746 from
the merged Franklin Investment Grade Income Fund, which may be carried over to
offset future capital gains (see Note 7). Such losses expire as follows:
Capital loss carryovers expiring in:
2003 ................................. $254,062
2004 ................................. 368,716
2007 ................................. 2,968
--------
$625,746
========
At April 30, 2000, the net unrealized depreciation based on the cost of
investments for income tax purposes of $350,707,068 was as follows:
Unrealized appreciation ............... $ 8,737,940
Unrealized depreciation ............... (35,817,257)
=============
Net unrealized depreciation ........... $(27,079,317)
=============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, non-deductible
merger expenses, and defaulted bonds.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
Net realized capital losses differ for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions and
mortgage dollar roll transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended April 30, 2000 aggregated $212,223,114 and $134,077,355, respectively.
6. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 62.5% of its portfolio invested in lower rated and comparable
quality unrated high yield securities, which tend to be more sensitive to
economic conditions than higher rated securities. The risk of loss due to
default by the issuer may be significantly greater for the holders of high
yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. At April 30, 2000, the Fund
held defaulted securities with a value aggregating $1,503,500, representing .5%
of the Fund's net assets.
For information as to specific securities, see the accompanying Statement of
Investments. For financial reporting purposes, the Fund discontinues accruing
income on defaulted bonds and provides estimates for losses on interest
receivable.
The Fund has investments in excess of 10% of its total net assets in Foreign
Government and Agency Securities and Telecommunications. Such concentration may
subject the Fund more significantly to economic changes occurring within those
sectors.
7. MERGER
On August 12, 1999, the Fund acquired the net assets of the Franklin Investment
Grade Income Fund pursuant to a plan of reorganization approved by Franklin
Investment Grade Income Fund's shareholders. The merger was accomplished by a
tax-free exchange of 3,713,540 Class A shares and 8,554 Advisor Class shares of
the Fund (valued at $10.11) for the net assets of the Franklin Investment Grade
Income Fund which aggregated $37,630,373, including $570,512 of unrealized
depreciation. The merger was accounted for as a pooling-of-interests without
restatement for financial reporting purposes. The combined net assets of the
Fund immediately after the merger were $327,110,380.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FRANKLIN STRATEGIC SERIES
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Franklin Strategic Income Fund
(the "Fund") (one of the funds constituting the Franklin Strategic Series) at
April 30, 2000, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods presented, in conformity with
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at April
30, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
June 7, 2000
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Tax Designation
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
4.03% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended April 30, 2000.
This page intentionally left blank.
FRANKLIN STRATEGIC SERIES
Franklin U.S. Long Short Fund
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FRANKLIN U.S. LONG SHORT FUND
Year Ended April 30,
-----------------------
2000 1999 A
-----------------------
<S> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year $ 10.28 $ 10.00
-----------------------
Income from investment operations:
Net investment incomeb .42 .05
Net realized and unrealized gains 6.80 .23
-----------------------
Total from investment operations 7.22 .28
-----------------------
Less distributions from:
Net investment income (.25) -
Net realized gains (.13) -
-----------------------
Total distributions (.38) -
-----------------------
Net asset value, end of year $ 17.12 $ 10.28
-----------------------
Total returnc 71.60% 2.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 1,712 $ 1,028
Ratios to average net assets:
Expenses - -
Expenses excluding waiver and payments by affiliated 4.63% e -
Net investment income 3.33% 4.22% d
Portfolio turnover rate 234.43% 13.47%
a For the period March 15 (inception date) to April 30, 1999.
b Based on average shares outstanding effective year ended April 30, 2000.
c Total return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
d Annualized
e For the period May 28, 1999 (effective date) to April 30, 2000.
See notes to financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS, APRIL 30, 2000
FRANKLIN U.S. LONG SHORT FUND SHARES VALUE
COMMON STOCKS 56.1%
a, e COMMERCIAL SERVICES 3.6%
Robert Half International Inc. 1,000 $ 61,125
a, e CONSUMER DURABLES 1.9%
SPX Corp. 300 32,963
a CONSUMER SERVICES 4.2%
ACTV Inc. 700 12,688
e AT&T Corp. - Liberty Media Group, A 600 29,963
e MediaOne Group Inc. 400 30,250
72,901
ELECTRONIC TECHNOLOGY 8.9%
a, e 3Com Corp. 250 9,859
a Copper Mountain Networks Inc. 400 33,350
e General Motors Corp., H 300 28,894
e Methode Electronics Inc., A 800 33,338
a Proxim Inc. 600 46,163
151,604
ENERGY MINERALS 10.5%
e Ashland Inc. 1,000 34,125
a Chesapeake Energy Corp. 8,000 30,000
e Conoco Inc., B 1,000 24,875
e Devon Energy Corp. 800 38,550
e USX-Marathon Group 1,000 23,313
e Valero Energy Corp. 1,000 29,000
179,863
e FINANCE 4.3%
A.G. Edwards Inc. 1,000 37,625
a LaBranche & Co. Inc. 3,000 35,813
73,438
a, e HEALTH SERVICES 1.0%
Triad Hospitals Inc. 1,000 17,188
INDUSTRIAL SERVICES 4.7%
a Global Marine Inc. 1,300 31,200
a, e Gulf Island Fabrication Inc. 2,000 30,250
e Transocean Sedco Forex Inc. 400 18,800
80,250
PROCESS INDUSTRIES 4.4%
e Abitibi-Consolidated Inc. (Canada) 2,000 21,750
a Packaging Corp. of America 3,000 35,625
e Union Carbide Corp. 300 17,700
75,075
a, e RETAIL TRADE 1.3%
Abercrombie & Fitch Co., A 2,100 23,100
a, e TECHNOLOGY SERVICES 1.3%
Cadence Design Systems Inc. 1,300 21,855
TELECOMMUNICATIONS 8.4%
AT&T Corp. 600 28,012
a, e Centennial Communications Corp., A 2,100 41,474
a, e Leap Wireless International Inc. 500 25,688
a, e Price Communications Corp. 1,000 20,249
e U.S. WEST Inc. 400 28,475
143,898
COMMON STOCKS (CONT.)
UTILITIES 1.6%
e GTE Corp. 400 $ 27,100
TOTAL LONG TERM INVESTMENTS (COST $859,482) 960,360
SHORT TERM INVESTMENTS 25.3%
b Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $432,710) 432,710 432,710
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $1,292,192) 1,393,070
PRINCIPAL
AMOUNT
c REPURCHASE AGREEMENT 3.4%
Joint Repurchase Agreement 5.7059%, 05/01/00 (Maturity Value $58,826) (COST $58,798) $ 58,798 58,798
Banc of America Securities LLC
Barclays Capital Inc.
Bear Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Lehman Brothers Inc.
Nesbitt Burns Securities Inc.
Paine Webber Inc.
Paribas Corp.
Societe Generale
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
TOTAL INVESTMENTS (COST $1,350,990) 84.8% 1,451,868
SECURITIES SOLD SHORT (49.4%) (845,213)
OTHER ASSETS, LESS LIABILITIES 64.6% 1,104,967
NET ASSETS 100.0% $ 1,711,622
d SECURITIES SOLD SHORT
ISSUER SHARES VALUE
COMMERCIAL SERVICES 5.4%
FreeMarkets Inc. 200 $ 14,438
iXL Enterprises Inc. 200 4,450
Lifeminders.com Inc. 700 31,063
Ogden Corp. 1,000 9,813
Profit Recovery Group International Inc. 1,700 29,856
Wink Communications Inc. 150 2,963
92,583
CONSUMER DURABLES 2.2%
Tupperware Corp. 2,000 37,750
CONSUMER SERVICES 4.5%
Hearst-Argyle Television Inc. 2,000 42,625
P.F. Chang's China Bistro Inc. 1,000 35,000
77,625
ELECTRONIC TECHNOLOGY 2.7%
Rockwell International Corp. 800 31,500
Zomax Inc. 300 14,194
45,694
FINANCE 1.1%
Friedman, Billings, Ramsey Group Inc., A 2,500 19,531
HEALTH TECHNOLOGY 1.4%
Abiomed, Inc. 400 14,850
Transkaryotic Therapies Inc. 300 8,981
23,831
SECURITIES SOLD SHORT (CONT.)
PRODUCER MANUFACTURING .3%
TurboChef Technologies Inc. 1,000 $ 4,313
RETAIL TRADE .9%
Tweeter Home Entertainment Group Inc. 400 14,750
TECHNOLOGY SERVICES 26.6%
Akamai Technologies Inc. 200 19,775
Baltimore Technologies PLC, ADR (United Kingdom) 300 31,800
Commerce One Inc. 1,000 61,063
GoTo.com Inc. 1,000 34,125
InfoSpace Inc. 500 35,906
Internet Capital Group Inc. 300 12,713
Interwoven Inc 300 20,775
Intraware Inc. 400 6,400
Kana Communications Inc. 750 31,922
PurchasePro.com Inc. 250 7,500
Red Hat Inc. 650 16,291
Terra Networks SA, ADR (Spain) 800 50,000
Vignette Corp. 1,500 72,280
Vsource Inc. 1,200 32,025
webMethods Inc. 250 22,500
455,075
TELECOMMUNICATIONS 3.1%
Globalstar Telecommunications Ltd. 2,500 29,373
NorthPoint Communications Group Inc. 1,500 24,188
53,561
TRANSPORTATION 1.2%
Celadon Group Inc. 1,000 20,500
TOTAL SECURITIES SOLD SHORT (PROCEEDS $1,096,153) $ 845,213
a Non-income producing.
b See Note 3 regarding investments in the "Sweep Money Fund."
c Investment is through participation in a joint account with other funds managed by the investment advisor.
At April 30, 2000, all repurchase agreements held by the Fund had been entered into on April 28, 2000.
d See Note 1(c) regarding securities sold short.
e See Note 1(c) regarding securities segregated with broker for securities sold short.
See notes to financial statements.
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN U.S. LONG SHORT FUND
<TABLE>
<CAPTION>
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000
<S> <C>
Assets:
Investments in securities:
Cost $1,350,990
Value 1,451,868
Receivables:
Investment securities sold 132,714
Dividends 280
Affiliates 1,877
Deposits with brokers for securities sold short 1,031,909
Total assets 2,618,648
Liabilities:
Payables:
Investment securities purchased 61,813
Securities sold short, at value (proceeds $1,096,153) 845,213
Total liabilities 907,026
Net assets, at value $1,711,622
Net assets consist of:
Undistributed net investment income $ 22,109
Net unrealized appreciation 351,818
Accumulated net realized gain 337,695
Capital shares 1,000,000
Net assets, at value $1,711,622
CLASS A:
Net assets, at value $1,711,622
Shares outstanding 100,000
Net asset value per share* $ 17.12
Maximum offering price per share (net asset value per share -:- 94.25%) $ 18.16
* Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN U.S. LONG SHORT FUND
<TABLE>
<CAPTION>
Financial Statements (CONTINUED)
<S> <C>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 2000
Investment income:
Dividends $ 21,026
Interest 21,397
Total investment income 42,423
Expenses:
Management fees (Note 3) 11,099
Administrative fees (Note 3) 2,399
Reports to shareholders 1,765
Registration and filing fees 18,495
Professional fees (Note 3) 20,049
Dividends on securities sold short 1,607
Other 117
Total expenses 55,531
Expenses waived/paid by affiliate (Note 3) (55,531)
Net investment income 42,423
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 378,503
Foreign currency transactions 3
Securities sold short (32,756)
Net realized gain 345,750
Net unrealized appreciation on investments 334,069
Net realized and unrealized gain 679,819
Net increase in net assets resulting from operations $722,242
See notes to financial statements.
</TABLE>
FRANKLIN STRATEGIC SERIES
FRANKLIN U.S. LONG SHORT FUND
Financial Statements (CONTINUED)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED APRIL 30, 2000 AND 1999
<S> <C> <C>
2000 1999*
Increase in net assets:
Operations:
Net investment income $ 42,423 $ 5,263
Net realized gain from investments and foreign currency transactions 345,750 5,208
Net unrealized appreciation on investments and translation of assets and
liabilities denominated in foreign currencies 334,069 17,749
Net increase in net assets resulting from operations 722,242 28,220
Distributions to shareholders from:
Net investment income (25,580) -
Net realized gains (13,260) -
Total distributions to shareholders (38,840) -
Capital share transactions (Note 2 ) - 1,000,000
Net increase in net assets 683,402 1,028,220
Net assets
Beginning of year 1,028,220 -
End of year $ 1,711,622 $ 1,028,220
Undistributed net investment income included in net assets:
End of year $ 22,109 $ 5,263
*For the period March 15, 1999 (inception date) to April 30, 1999.
See notes to financial statements.
</TABLE>
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin U.S. Long Short Fund (the Fund) is a separate, diversified series of
the Franklin Strategic Series (the Trust), which is an open-end investment
company registered under the Investment Company Act of 1940. The Fund seeks
to provide long-term capital appreciation.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range
of the latest quoted bid and asked prices. Securities for which market
quotations are not readily available are valued at fair value as determined
by management in accordance with procedures established by the Board of
Trustees.
B. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities and income items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the
transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
recorded amounts of dividends, interest, and foreign withholding taxes and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in foreign
exchange rates on foreign denominated assets and liabilities other than
investments in securities held at the end of the reporting period.
C. SECURITIES SOLD SHORT:
The Fund is engaged in selling securities short, which obligates the Fund to
replace a borrowed security with the same security at the current market
value. The Fund would incur a loss if the price of the security increases
between the date of the short sale and the date on which the Fund replaces
the borrowed security. The Fund would realize a gain if the price of the
security declines between those dates.
The Fund is required to establish a margin account with the broker lending
the security sold short. While the short sale is outstanding, the broker
retains the proceeds of the short sale and the Fund must maintain a deposit
for the broker consisting of cash and securities having a value equal to a
specified percentage of the value of the securities sold short.
D. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
to distribute substantially all of its taxable income.
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and
losses on security transactions are determined on a specific identification
basis. Interest income and estimated expenses are accrued daily. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
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. Other
expenses are charged to each Fund on a specific identification basis.
F. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the
reporting period. Actual results could differ from those estimates.
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At April 30, 2000, there were an unlimited number of shares authorized ($.01
par value). There were no transactions in the Fund's shares for the year
ended April 30, 2000.
FRANKLIN
U.S. LONG SHORT
FUND
-------------------
Shares Amount
-------------------
CLASS A SHARES:
Year ended April
30,1999*
Shares sold 100,000 $ 1,000,000
-------------------
Net increase 100,000 $ 1,000,000
-------------------
* For the period March 15, 1999 (inception date) to April 30, 1999.
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors
of Franklin Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc.
(Distributors), Franklin Templeton Services, Inc. (FT Services), and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Fund's
investment manager, principal underwriter, administrative manager and
transfer agent, respectively.
The Fund may invest in the Franklin Institutional Fiduciary Trust Money
Market Portfolio (the Sweep Money Fund) which is managed by Advisers.
The Fund pays an investment management fee to Advisers of 1.00% per year of
the average daily net assets of the Fund.
The Fund pays an administrative fee to FT Services of .20% per year of the
Fund's average daily net assets.
Advisers agreed in advance to waive administrative and management fees and to
assume payment of other expenses, as noted in the Statement of Operations.
The Fund earned $13,928 of dividend income from its investment in the Sweep
Money Fund.
At April 30, 2000, Franklin Resources Inc. owned 100% of the Fund.
Included in professional fees are legal fees of $8,038 that were paid to a
law firm in which a partner is an officer of the Fund.
4. INCOME TAXES
At April 30, 2000, the net unrealized appreciation based on the cost of
investments and short sales for income tax purposes of $272,625 was as
follows:
Unrealized
appreciation $ 491,533
Unrealized
depreciation (157,503)
--------
Net unrealized $334,030
appreciation --------
Net investment income differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions.
Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities and
securities sold short) for the year ended April 30, 2000, aggregated
$1,977,653 and $1,795,567, respectively.
FRANKLIN STRATEGIC SERIES
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FRANKLIN STRATEGIC SERIES
In our opinion, the accompanying statement of assets and liabilities,
including the statement of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Franklin U.S.
Long Short Fund (the "Fund") (one of the funds constituting the Franklin
Strategic Series) at April 30, 2000, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted
in the United States, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit, which included confirmation of securities at April
30, 2000 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
June 7, 2000
FRANKLIN STRATEGIC SERIES
Tax Designation
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby
designates 14.60% of the ordinary income dividends as income qualifying for
the dividends received deduction for the fiscal year ended April 30, 2000.
