fssncsrs.htm - Generated by SEC Publisher for SEC Filing

Semiannual Report

Economic and Market Overview

The U.S. economy expanded modestly despite geopolitical and inflationary pressures during the six-month period ended October 31, 2011. Although the manufacturing sector powered the U.S. economy out of the recession, its growth rate slowed from the pace earlier in 2011. European and Asian manufacturing activity also slumped in the period’s second half. Third quarter U.S. gross domestic product growth registered an estimated annualized 2.0% rate, following a 1.3% annualized rate in 2011’s second quarter.¹

The U.S. financial system continued to heal, but the country still faced persistent unemployment, housing market weakness and massive debt. The U.S. Federal Reserve Board (Fed) cut its growth forecast for the world’s largest economy as manufacturing growth slowed globally. Some observers attributed the slow growth to the effects of Japan’s earthquake and its aftermath, high commodity prices and a fading inventory restocking cycle. Monetary policy tightening in most parts of the world also inhibited growth and cooled the commodities rally. Inflation rose across much of the world but stayed relatively contained in the U.S. The Fed sought to boost economic growth by maintaining its accommodative monetary policy and undertook a second round of quantitative easing that ended on June 30. Subsequently, the Fed continued to purchase Treasuries with proceeds from maturing debt to support economic growth.

Corporate profit strength and favorable economic prospects in some regions of the world supported equities, but investors weathered oil supply disruptions due to revolutions and civil unrest in the Middle East and North Africa that began in late 2010, as well as the multiple crises triggered by Japan’s earthquake and tsunami in early 2011. Also weighing on investor sentiment were sovereign debt worries and credit downgrades in Europe, the political stalemate in raising the U.S. debt ceiling and Standard & Poor’s downgrade of the long-term U.S. credit rating to AA+ from AAA. U.S. stocks declined for the six-month reporting period as measured by the Standard & Poor’s^®500 Index.²

1. Source: Bureau of Economic Analysis.

2. STANDARD & POOR’S^®, S&P^®and S&P 500^®are registered trademarks of Standard & Poor’s Financial Services LLC.

Standard & Poor’s does not sponsor, endorse, sell or promote any S&P index-based product.

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In late September, the Fed announced plans designed to boost the economy by driving down long-term interest rates. The Fed intends to sell $400 billion in short-term securities over the next year and purchase an equal amount of long-term securities. The Fed also anticipated it would keep short-term rates near zero through mid-2013. In this environment, investors sought the perceived safety of U.S. Treasuries, which drove their prices higher and yields lower for the period under review.

The foregoing information reflects our analysis and opinions as of October 31, 2011. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

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Franklin Flex Cap Growth Fund

Your Fund’s Goal and Main Investments: Franklin Flex Cap Growth Fund seeks capital appreciation. The Fund normally invests predominantly in equity securities of companies that the manager believes have the potential for capital appreciation. The Fund has flexibility to invest in companies located, headquartered or operating inside and outside the U.S., across the entire market capitalization spectrum from small, emerging growth companies to well-established, large cap companies.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. Please visit franklintempleton.com or call (800) 342-5236 for most recent month-end performance.

This semiannual report for Franklin Flex Cap Growth Fund covers the period ended October 31, 2011.

Performance Overview

For the six months under review, Franklin Flex Cap Growth Fund – Class A had a cumulative total return of -8.36%. Compared with its narrow benchmarks, the Fund underperformed the -6.67% total return of the Russell 3000^®Growth Index, which measures performance of Russell 3000^®Index companies with higher price-to-book ratios and higher forecasted growth values, and the -6.02% total return of the Russell 1000^®Growth Index, which tracks performance of Russell 1000^®Index companies with higher price-to-book ratios and higher forecasted growth values.¹Additionally, the Fund underperformed the -7.11% total return of its broad benchmark, the Standard & Poor’s 500 Index, which tracks the broad U.S. stock market.¹You can find the Fund’s long-term performance data in the Performance Summary beginning on page 8.

Investment Strategy

1. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. RUSSELL^®is a trademark of the Frank Russell Company. The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 50.

Semiannual Report | 5

and cash flow growth, evaluating the long-term market opportunity and competitive structure of an industry to target leaders and emerging leaders. We define quality companies as those with strong and improving competitive positions in attractive markets. We also believe important attributes of quality are experienced and talented management teams as well as financial strength reflected in the capital structure, gross and operating margins, free cash flow generation and returns on capital employed. Our valuation analysis includes a range of potential outcomes based on an assessment of multiple scenarios. In assessing value, we consider whether security prices fully reflect the balance of the sustainable growth opportunities relative to business and financial risks.

Manager’s Discussion

During the six months under review, nearly all stock sectors lost value as investor risk aversion generally rose in an uncertain economic environment. Some of the major detractors from the Fund’s performance relative to the Russell 3000^®Growth Index came from the information technology (IT), financials and health care sectors.²In the IT sector, our position in weak-performing network solutions provider Acme Packet and underweighted allocation to strong-performing web giant Google³hurt relative performance. Despite its strong balance sheet and earnings results, financial advisory and asset management firm Lazard declined in value along with most companies in the financials sector due to investor anxiety about the eurozone sovereign debt crisis.³In the health care sector, the share price of life sciences tools and services company Illumina fell due to weakening global demand, lower academic spending and uncertainty about government funding levels.³Although the Fund’s investments in the industrials sector generally aided relative results, our position in Joy Global hurt performance as the mining machinery manufacturer’s share price declined along with many mining stocks due to the global commodity price correction during the six-month period.^{3, 4}

Despite generally weak stock performance, several Fund holdings produced positive results. Some of the key contributors to the Fund’s relative performance during the reporting period came from the energy and consumer discretionary sectors.⁵In the energy sector, our position in oil and gas company Petrohawk

2. The IT sector comprises semiconductors and semiconductor equipment, software and services, and technology hardware and equipment in the SOI. The financials sector comprises banks, diversified financials and insurance in the SOI. The health care sector comprises health care equipment and services; and pharmaceuticals, biotechnology and life sciences in the SOI.

3. No longer held at period-end.

4. The industrials sector comprises capital goods, commercial and professional services, and transportation in the SOI.

5. The consumer discretionary sector comprises automobiles and components, consumer durables and apparel, consumer services, media and retailing in the SOI.

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Energy aided relative results as its share price surged following the announcement of BHP Billiton’s acquisition offer.³The stock price of clothing designer and manufacturer Ralph Lauren in the consumer discretionary sector rose as the company generated strong sales in its own stores and in international markets due to global demand for men’s, women’s and children’s clothing and accessories. Although our IT sector holdings generally detracted from relative results, our positions in worldwide voice and language solutions provider Nuance Communications and the two largest global payment companies, MasterCard and Visa, helped relative performance. Nuance Communications benefited from growth in its mobile, imaging and health care businesses, as well as better trends in its enterprise business. Despite investor concerns that continued economic uncertainties would hurt consumers, MasterCard’s and Visa’s stocks delivered double-digit returns resulting from higher debit and credit purchase volume and transaction growth.

Thank you for your continued participation in Franklin Flex Cap Growth Fund. We look forward to serving your future investment needs.

Conrad B. Herrmann, CFA
Portfolio Manager
Franklin Flex Cap Growth Fund

CFA^®is a trademark owned by CFA Institute.

The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2011, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

Semiannual Report | 7

Performance Summary as of 10/31/11

Franklin Flex Cap Growth Fund

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.

8 | Semiannual Report

Performance Summary (continued)

Performance

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include maximum sales charges. Class A: 5.75% maximum initial sales charge; Class B: contingent deferred sales charge (CDSC) declining from 4% to 1% over six years, and eliminated thereafter; Class C: 1% CDSC in first year only;

Class R/Advisor Class: no sales charges.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Semiannual Report | 9

Performance Summary (continued)

Endnotes

Investors should be comfortable with fluctuations in the value of their investments, as small and midsized company stocks can be volatile, especially over the short term. Smaller, midsized and relatively new or unseasoned companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. The Fund includes investments in technology securities, which can be highly volatile and involves special risks. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.


Class B: Class C:	These shares have higher annual fees and expenses than Class A shares. Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares.
Class R:	Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares.
Advisor Class:	Shares are available to certain eligible investors as described in the prospectus.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.

3. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.

4. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.

5. Figures are as stated in the Fund’s prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

6. Effective 8/2/04, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 8/2/04, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 8/2/04, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 8/2/04 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +49.19% and +5.68%.

10 | Semiannual Report

Your Fund’s Expenses

Franklin Flex Cap Growth Fund

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The first line (Actual) for each share class listed in the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of Fund expenses.

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1.	Divide your account value by $1,000.
	If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2.	Multiply the result by the number under the heading “Expenses Paid During Period.”
	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical “Ending Account Value” is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Expenses Paid During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds.

Semiannual Report | 11

Your Fund’s Expenses (continued)

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transaction costs, such as sales charges. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 0.98%; B: 1.73%; C: 1.73%; R: 1.23%; and Advisor: 0.73%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period.

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Franklin Focused Core Equity Fund

Your Fund’s Goal and Main Investments: Franklin Focused Core Equity Fund seeks capital appreciation by normally investing at least 80% of its net assets in equity securities. The Fund will invest primarily to predominantly in equity securities of large capitalization companies, which are similar in size to those in the Standard & Poor’s 500 Index (S&P 500^®).

This semiannual report for Franklin Focused Core Equity Fund covers the period ended October 31, 2011.

Performance Overview

For the six months under review, Franklin Focused Core Equity Fund – Class A had a -10.05% cumulative total return. The Fund underperformed the -7.11% total return of its benchmark, the S&P 500, which tracks the broad U.S. stock market.¹You can find more of the Fund’s performance data in the Performance Summary beginning on page 16.

Investment Strategy

We are research-driven, bottom-up, fundamental investors. Our investment approach is opportunistic and contrarian, and we seek to identify mispriced companies using fundamental analysis. We seek to take advantage of price dislocations that result from the market’s short-term focus. Our analysis includes the investigation of the valuation for each investment based upon the view that the price paid for the security is a critical factor determining long-term success. We rely on a team of analysts to help provide in-depth industry expertise and use both qualitative and quantitative analysis to evaluate companies. Our analysts identify each company’s market opportunity, competitive position, management and financial strength, business and financial risks, and valuation. We choose to invest in those companies that, in our opinion, offer the best trade-off between growth opportunity, business and financial risk, and valuation.

1. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The index is unmanaged and includes reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 58.

Semiannual Report | 13

Manager’s Discussion

During the six months under review, the broad stock market declined as investors became more risk averse amid global economic uncertainties. The Fund’s energy, information technology (IT), financials and telecommunication services holdings generally were key detractors from absolute performance. In the energy sector, Europe’s largest independent petroleum refiner and wholesaler Petroplus Holdings declined in value due to lower European refining margins resulting from higher crude oil prices and eurozone sovereign debt crisis concerns. In the IT sector, wireless devices and software manufacturer Research in Motion’s share price fell due to lower-than-expected earnings, delayed launch of the PlayBook tablet’s new version and a widespread outage of its BlackBerry devices. Leading global specialty glass and ceramics manufacturer Corning, also in the IT sector, was negatively affected by global economic concerns and short-term cutbacks in display orders despite continued strong retail demand for LCD (liquid crystal display) products. In the telecommunication services sector, NII Holdings, a U.S.-based company that provides wireless communication in Latin America, improved its subscriber growth but was adversely affected by lower local currency rates in relation to the U.S. dollar as the company incurred higher operating expenses related to its 3G network deployment. Although diversified financial services company JPMorgan Chase & Co. in the financials sector continued to deliver stronger-than-expected earnings, its share price declined along with most financials stocks due to the U.S. long-term credit rating downgrade and the prolonged eurozone sovereign debt crisis.

As global stocks rallied in October due to better-than-expected U.S. economic growth and hopes for a resolution to the eurozone sovereign debt crisis, several Fund holdings delivered positive results. Major contributors to the Fund’s absolute performance for the reporting period came largely from investments in the consumer discretionary and health care sectors. In the consumer discretionary sector, for-profit education company Apollo Group and multi-line retailer Target, which we mentioned in the previous reporting period as detractors from performance, were among the largest contributors for the six months under review. Apollo Group, the first among its peers to enhance its business model, continued to deliver better-than-expected earnings. Target generated strong sales results and financial performance despite a challenging economic environment on the strength of its PFresh grocery concept and 5% rewards program. The stock price of life sciences tools and services company Pharmaceutical Product Development in the health care sector rose after the announcement of a private equity leveraged buyout that would take the company private in the fourth quarter of 2011. Research-based biopharmaceutical

14 | Semiannual Report

company Gilead Sciences in the health care sector benefited from the U.S. Federal Drug Administration’s approval of its new HIV treatment regimen and stronger product sales. Although the Fund’s holdings in the IT sector generally detracted from performance, communications networking leader Cisco Systems, which benefited from completing the majority of its restructuring while generating solid revenue growth, aided the Fund’s overall returns.

Thank you for your continued participation in Franklin Focused Core Equity Fund. We look forward to serving your future investment needs.

Semiannual Report | 15

Performance Summary as of 10/31/11

Franklin Focused Core Equity Fund

16 | Semiannual Report

Performance Summary (continued)

Performance¹

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include maximum sales charges. Class A: 5.75% maximum initial sales charge; Class C: 1% contingent deferred sales charge in first year only; Class R/Advisor Class: no sales charges.

The investment manager and administrator have contractually agreed to waive or assume certain expenses so that common expenses (excluding the Rule 12b-1 fees and acquired fund fees and expenses) for each class of the Fund do not exceed 0.89% (other than certain nonroutine expenses) until 8/31/12.

Semiannual Report | 17

Performance Summary (continued)

Endnotes

While stocks have historically outperformed other asset classes over the long term, they tend to fluctuate more dramatically over the short term. Since the Fund invests in a relatively small number of companies, the Fund is subject to the risk that poor performance by several companies could adversely affect Fund performance more so than a more broadly diversified fund. Special risks are involved with significant exposure to a particular sector, including increased susceptibility related to economic, business or other developments affecting that sector, which may result in increased volatility. The Fund also has the potential to invest in foreign company stocks, which involve exposure to currency volatility and political uncertainty. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

Class C:

Class R:

These shares have higher annual fees and expenses than Class A shares.

Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares.

Advisor Class:

Shares are available to certain eligible investors as described in the prospectus.

1. If the manager and administrator had not waived fees, the Fund’s total returns would have been lower. 2. Cumulative total return represents the change in value of an investment over the periods indicated.

3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.

4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.

5. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.

6. Figures are as stated in the Fund’s prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

18 | Semiannual Report

Your Fund’s Expenses

Franklin Focused Core Equity Fund

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

Actual Fund Expenses

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1.	Divide your account value by $1,000.
	If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2.	Multiply the result by the number under the heading “Expenses Paid During Period.”
	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Semiannual Report | 19

Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, net of expense waivers, annualized for each class (A: 1.19%; C: 1.89%; R: 1.39%; and Advisor: 0.89%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period.

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Franklin Growth Opportunities Fund

Your Fund’s Goal and Main Investments: Franklin Growth Opportunities Fund

seeks capital appreciation by investing substantially in equity securities of companies demonstrating accelerating growth, increasing profitability, or above-average growth or growth potential, when compared with the overall economy.

This semiannual report for Franklin Growth Opportunities Fund covers the period ended October 31, 2011.

Performance Overview

For the six months under review, Franklin Growth Opportunities Fund –Class A had a cumulative total return of -8.44%. The Fund underperformed the -6.67% total return of its narrow benchmark, the Russell 3000^®Growth Index, which measures performance of Russell 3000^®Index companies with higher price-to-book ratios and higher forecasted growth values.¹The Fund also underperformed the -7.11% total return of its broad benchmark, the Standard & Poor’s 500 Index, which tracks the broad U.S. stock market.¹You can find the Fund’s long-term performance data in the Performance Summary beginning on page 24.

Investment Strategy

We use fundamental, bottom-up research to seek companies meeting our criteria of growth potential, quality and valuation. In seeking sustainable growth characteristics, we look for companies we believe can produce sustainable earnings and cash flow growth, evaluating the long-term market opportunity and competitive structure of an industry to target leaders and emerging leaders. We define quality companies as those with strong and improving competitive positions in attractive markets. We also believe important attributes of quality are experienced and talented management teams as well as financial strength reflected in the capital structure, gross and operating margins, free cash flow

1. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 65.

Semiannual Report | 21

generation and returns on capital employed. Our valuation analysis includes a range of potential outcomes based on an assessment of multiple scenarios. In assessing value, we consider whether security prices fully reflect the balance of the sustainable growth opportunities relative to business and financial risks.

Manager’s Discussion

During the six months under review, the broad stock market lost value as investor risk aversion generally rose in an uncertain economic environment. Some of the major detractors from the Fund’s absolute performance came from the energy, information technology (IT) and industrials sectors. In the energy sector, a key detractor was steam and metallurgical coal company Alpha Natural Resources, which we sold during the period. Multinational oilfield service company Weatherford International, also in the energy sector, benefited from increased oil production activity in North America, but was adversely affected by the deconsolidation of three joint ventures in the Middle East, North Africa and Asia, as well as a stronger U.S. dollar, which reduced profits denominated in non-U.S. currencies. In the IT sector, communications solutions and optical products provider JDS Uniphase, which we added during the period, weighed on performance as the company’s share price declined due to short-term inventory corrections by some of its optical communications clients and manufacturing disruptions caused by flooding in Thailand. Within the industrials sector, major detractors included diversified global manufacturer Terex, which we sold during the period, and Rockwell Automation, a global provider of industrial automation power, control and information solutions. Although Rockwell Automation continued to deliver better-than-expected earnings results, with its full fiscal-year 2011 setting record highs for sales and earnings per share from continuing operations and return on investment capital, the company’s share price declined as global stocks corrected in August and September.

As global stock markets strengthened in October due to better-than-expected U.S. economic reports and hopes for a resolution to the eurozone sovereign debt crisis, several Fund holdings produced positive results. For the reporting period, the Fund’s consumer staples holdings were notable contributors to the Fund’s absolute performance, led by Hansen Natural. The beverage company benefited from the energy drink category’s solid growth, with its Monster Energy^®brand outpacing the category’s growth, allowing the company to continue the brand’s expansion into new international markets. The Fund’s consumer discretionary holdings generally helped absolute performance, with clothing designer and manufacturer Ralph Lauren outperforming the sector as it generated strong sales in its own stores and in international markets due to global demand for men’s, women’s and children’s clothing and accessories.

22 | Semiannual Report

Although the Fund’s energy and IT holdings generally detracted from performance, these sectors also included some major contributors. In the energy sector, oil and gas company Petrohawk Energy’s share price surged following the announcement of BHP Billiton’s acquisition offer.²Computer and mobile devices leader Apple and global payment solutions MasterCard in the IT sector also boosted the Fund’s absolute returns. Apple benefited from strong iPhone and iPad sales growth, higher gross margins and solid cash flow generation. MasterCard’s debit and credit purchase volume and transactions continued to grow as consumers proved resilient in the face of economic uncertainties.

Thank you for your continued participation in Franklin Growth Opportunities Fund. We look forward to serving your future investment needs.

Grant Bowers
Portfolio Manager
Franklin Growth Opportunities Fund

2. No longer held at period-end.

Top 10 Holdings

Franklin Growth Opportunities Fund 10/31/11

Semiannual Report | 23

Performance Summary as of 10/31/11

Franklin Growth Opportunities Fund

24 | Semiannual Report

Performance Summary (continued)

Performance

Class R/Advisor Class: no sales charges.

Semiannual Report | 25

Performance Summary (continued)

Endnotes

The Fund may be more volatile than a more conservative equity fund and may be best suited for long-term investors. The Fund’s investments in smaller and midsized company stocks involve special risks such as relatively smaller revenues, limited product lines and smaller market share. Smaller and midsized company stocks historically have exhibited greater price volatility than larger company stocks, particularly over the short term. The Fund’s portfolio includes technology stocks, a sector which has been one of the most volatile and involves special risks. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.


Class B: Class C:	These shares have higher annual fees and expenses than Class A shares. Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares.
Class R:	Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares.
Advisor Class:	Shares are available to certain eligible investors as described in the prospectus.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.

3. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.

4. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.

26 | Semiannual Report

Your Fund’s Expenses

Franklin Growth Opportunities Fund

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

Actual Fund Expenses

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1.	Divide your account value by $1,000.
	If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2.	Multiply the result by the number under the heading “Expenses Paid During Period.”
	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Semiannual Report | 27

Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 1.27%; B: 1.98%; C: 1.99%; R: 1.49%; and Advisor: 0.99%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period.

28 | Semiannual Report

Franklin Small Cap Growth Fund

Your Fund’s Goal and Main Investments: Franklin Small Cap Growth Fund seeks

long-term capital growth by normally investing at least 80% of its net assets in equity securities of small-capitalization companies, which for this Fund are those with market capitalizations not exceeding that of the highest market capitalization in the Russell 2000^®Index or $1.5 billion, whichever is greater, at the time of purchase.¹

This semiannual report for Franklin Small Cap Growth Fund covers the period ended October 31, 2011.

Performance Overview

For the six months under review, Franklin Small Cap Growth Fund – Class A had a cumulative total return of -11.83%. The Fund performed better than the -13.56% total return of its narrow benchmark, the Russell 2000^®Growth Index, which measures performance of small companies with higher price-to-book ratios and higher forecasted growth values.²The Fund underperformed the -7.11% total return of its broad benchmark, the Standard & Poor’s 500 Index, which tracks the broad U.S. stock market.²You can find the Fund’s long-term performance data in the Performance Summary beginning on page 32.

Investment Strategy

1. The Russell 2000^®Index is market capitalization weighted and measures performance of the 2,000 smallest companies in the Russell 3000^®Index, which represent a small amount of the total market capitalization of the Russell 3000^®Index.

2. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 73.

Semiannual Report | 29

experienced and talented management teams as well as financial strength reflected in the capital structure, gross and operating margins, free cash flow generation and returns on capital employed. Our valuation analysis includes a range of potential outcomes based on an assessment of multiple scenarios. In assessing value, we consider whether security prices fully reflect the balance of the sustainable growth opportunities relative to business and financial risks.

Manager’s Discussion

During the six months under review, the broad stock market declined as investor risk aversion generally rose amid global economic concerns. Although most sectors represented in the Fund’s portfolio generally contributed to performance relative to the Russell 2000^®Growth Index, underweighting and stock selection in the energy sector, as well as stock selection in the health care sector, detracted from relative results. In the energy sector, key detractors included our position in coal miner and processor James River Coal and an off-benchmark allocation to independent oil and gas explorer and producer Comstock Resources. James River Coal’s share price was pressured by weaker-than-expected earnings in recent quarters due largely to higher input costs and acquisition-related expenses as the company expanded its presence in the high-margin metallurgical coal segment. Although Comstock Resources delivered better-than-expected earnings for three consecutive quarters as its revenue increased, its share price declined along with most companies in the energy sector due to a global commodity price correction. Medical-device maker DexCom in the health care sector generated strong product sales growth and higher margins, but increased research and development expenses pressured its stock price. Although our information technology (IT) holdings generally enhanced relative performance, our positions in wireless LAN (local area network) solution provider Meru Networks and electronics equipment and instruments manufacturer Fabrinet hurt relative results. Meru Networks’ share price declined due to weaker-than-expected earnings. Fabrinet continued to deliver strong earnings, but its share price was adversely affected by manufacturing disruptions caused by flooding in Thailand.

As global stock markets staged a rally in October due to better-than-expected U.S. economic growth and hopes that a resolution to the eurozone sovereign debt crisis was on the horizon, several of the Fund’s holdings delivered positive returns. The Fund’s stock selection in the consumer discretionary, IT and industrials sectors generally benefited relative performance. Our position in Peet’s Coffee & Tea in the consumer discretionary sector aided relative results as the specialty coffee company weathered higher coffee costs and generated strong sales growth across all channels. In the IT sector, consolidation in the semiconductor industry benefited the Fund’s performance. Off-benchmark holding

30 | Semiannual Report

Varian Semiconductor Equipment Associates’ share price surged following an acquisition offer by Applied Materials, and NetLogic Microsystems’ stock price rose after an acquisition offer by Broadcom.³In the industrials sector, key contributors to relative results included our positions in airline company Allegiant Travel and technology and payment solutions firm Higher One Holdings. Allegiant Travel, which was a key detractor from relative performance in the previous reporting period, contributed to relative returns as it generated better-than-expected earnings for three consecutive quarters largely due to higher passenger numbers and its ability to increase fares to compensate for higher fuel costs. Higher One’s stock price rose as the company increased its number of OneAccounts and contracts with higher education institutions.

Thank you for your continued participation in Franklin Small Cap Growth Fund. We look forward to serving your future investment needs.

3. No longer held by period-end.

Semiannual Report | 31

Performance Summary as of 10/31/11

Franklin Small Cap Growth Fund

32 | Semiannual Report

Performance Summary (continued)

Performance

Class R/Advisor Class: no sales charges.

Semiannual Report | 33

Performance Summary (continued)

Endnotes

Smaller and newer companies can be particularly sensitive to changing economic conditions. Their growth prospects are less certain than those of larger, more established companies, and they can be volatile. The Fund is intended for long-term investors who are comfortable with short-term fluctuations in share price. There are special risks involved with significant exposure to a particular sector, including increased susceptibility related to economic, business, or other developments affecting that sector. The Fund includes investments in the technology sector, which has been highly volatile and involves special risks. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.


Class B: Class C:	These shares have higher annual fees and expenses than Class A shares. Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares.
Class R:	Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares.
Advisor Class:	Shares are available to certain eligible investors as described in the prospectus.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.

3. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.

4. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.

34 | Semiannual Report

Your Fund’s Expenses

Franklin Small Cap Growth Fund

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

Actual Fund Expenses

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1.	Divide your account value by $1,000.
	If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2.	Multiply the result by the number under the heading “Expenses Paid During Period.”
	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Semiannual Report | 35

Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 1.35%; B: 2.05%; C: 2.05%; R: 1.55%; and Advisor: 1.05%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period.

36 | Semiannual Report

Franklin Small-Mid Cap Growth Fund

Your Fund’s Goal and Main Investments: Franklin Small-Mid Cap Growth Fund seeks long-term capital growth by normally investing at least 80% of its net assets in equity securities of small-cap and mid-cap companies. The Fund defines small-cap companies as those within the market capitalization range of companies in the Russell 2500™ Index at the time of purchase, and mid-cap companies as those within the market capitalization range of the Russell Midcap^®Index at the time of purchase.¹

This semiannual report for Franklin Small-Mid Cap Growth Fund covers the period ended October 31, 2011.

Performance Overview

For the six months under review, Franklin Small-Mid Cap Growth Fund –Class A had a -12.01% cumulative total return. The Fund underperformed the -10.22% total return of its narrow benchmark, the Russell Midcap^®Growth Index, which measures performance of companies in the Russell Midcap^®Index with higher price-to-book ratios and higher forecasted growth values.²The Fund also underperformed the -7.11% total return of its broad benchmark, the Standard & Poor’s 500 Index, which tracks the broad U.S. stock market.²You can find the Fund’s long-term performance data in the Performance Summary beginning on page 40.

Investment Strategy

1. The Russell 2500™ Index is market capitalization weighted and measures performance of the 2,500 smallest companies in the Russell 3000^®Index, which represent a modest amount of the Russell 3000^®Index’s total market capitalization. The Russell Midcap^®Index is market capitalization weighted and measures performance of the smallest companies in the Russell 1000^®Index, which represent a modest amount of the Russell 1000^®Index’s total market capitalization.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 81.

Semiannual Report | 37

define quality companies as those with strong and improving competitive positions in attractive markets. We also believe important attributes of quality are experienced and talented management teams as well as financial strength reflected in the capital structure, gross and operating margins, free cash flow generation and returns on capital employed. Our valuation analysis includes a range of potential outcomes based on an assessment of multiple scenarios. In assessing value, we consider whether security prices fully reflect the balance of the sustainable growth opportunities relative to business and financial risks.

Manager’s Discussion

During the six months under review, the broad stock market declined as investor risk aversion generally rose amid global economic concerns. Stock selection in the health care and financials sectors, overweighting and stock selection in the industrials sector, and underweighting in the energy sector detracted from the Fund’s performance relative to the Russell Midcap^®Growth Index. In the health care sector, our position in Community Health Systems hurt relative results as the hospital operator’s share price declined largely due to investor concerns about Medicaid cutbacks by state governments because of reduced federal reimbursements. These cutbacks have resulted in consolidation within the hospital industry, with major operator Community Health Systems acquiring numerous hospitals to expand its business. Our positions in financial advisory and management firm Lazard in the financials sector and steam and metallurgical coal company Alpha Natural Resources in the energy sector, as well as an off-benchmark allocation to diversified global manufacturer Terex, also hurt relative performance as their share prices declined during the six months under review.³Although the Fund’s information technology (IT) holdings generally benefited relative returns, the Fund’s off-benchmark position in NXP Semiconductors hurt relative performance as the company’s share price declined due to weak end-market demand (with the exception of cellular infrastructure), inventory reduction by distributors and supply-chain disruptions caused by flooding in Thailand. Despite short-term drawbacks, the company managed to increase its gross profit margins through its redesign program and improve its balance sheet and cash generation.

As global stock markets rose in October due to stronger-than-expected U.S. economic growth and hopes that a resolution to the eurozone sovereign debt crisis was on the horizon, several of the Fund’s holdings delivered positive returns. Stock selection in the IT and consumer discretionary sectors aided relative performance. In the IT sector, our position in worldwide voice and

3. No longer held by period-end.

38 | Semiannual Report

language solutions provider Nuance Communications and an off-benchmark allocation to semiconductor company NetLogic Microsystems³helped relative results. Nuance Communications benefited from growth in its mobile, imaging and health care businesses, as well as better trends in its enterprise business. NetLogic Microsystems’ stock price rose after an acquisition offer by Broadcom. Our position in discount retailer Dollar General and an off-benchmark investment in specialty coffee company Peet’s Coffee & Tea in the consumer discretionary sector supported relative performance. Dollar General produced higher profits in recent quarters by opening new stores, selling well-known brands and offering deep discounts to more conservative consumers. Peet’s Coffee & Tea weathered higher coffee costs and generated strong sales growth across all channels. Although the Fund’s energy holdings generally hurt relative performance, our position in SM Energy aided relative results. The oil and natural gas company benefited from the sale of its non-core assets as it focused on increasing production in its higher value core assets such as those in the Eagle Ford shale area in Texas and the Rocky Mountains.

Thank you for your continued participation in Franklin Small-Mid Cap Growth Fund. We look forward to serving your future investment needs.

Semiannual Report | 39

Performance Summary as of 10/31/11

Franklin Small-Mid Cap Growth Fund

40 | Semiannual Report

Performance Summary (continued)

Performance

Class R/Advisor Class: no sales charges.

Semiannual Report | 41

Performance Summary (continued)

Endnotes

Investors should be comfortable with fluctuations in the value of their investment, as small and midsized company stocks can be volatile, especially over the short term. Smaller or relatively new or unseasoned companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. The Fund includes investments in the technology sector, which has been highly volatile and involves special risks. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.


Class B: Class C:	These shares have higher annual fees and expenses than Class A shares. Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares.
Class R:	Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares.
Advisor Class:	Shares are available to certain eligible investors as described in the prospectus.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.

3. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.

4. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.

42 | Semiannual Report

Your Fund’s Expenses

Franklin Small-Mid Cap Growth Fund

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

Actual Fund Expenses

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1.	Divide your account value by $1,000.
	If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2.	Multiply the result by the number under the heading “Expenses Paid During Period.”
	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Semiannual Report | 43

Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 1.00%; B: 1.75%; C: 1.75%; R: 1.25%; and Advisor: 0.75%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period.

44 | Semiannual Report

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of
the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.
^bBased on average daily shares outstanding.
^cEffective September 1, 2008, the redemption fee was eliminated.
^dAmount rounds to less than $0.01 per share.
^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gBenefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 45

46 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

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48 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

^aFor the period December 13, 2007 (commencement of operations) to April 30, 2008.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of
the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dAmount rounds to less than $0.01 per share.
^eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gBenefit of expense reduction rounds to less than 0.01%.

54 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

56 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

^aFor the period December 13, 2007 (commencement of operations) to April 30, 2008.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of
the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dAmount rounds to less than $0.01 per share.
^eTotal return is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gBenefit of expense reduction rounds to less than 0.01%.

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 57

60 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

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62 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

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68 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

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70 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

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76 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

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78 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

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Franklin Strategic Series

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Strategic Series (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of eight separate funds, five of which are included in this report (Funds). The financial statements of the remaining funds in the Trust are presented separately. The classes of shares offered within each of the Funds are indicated below. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Funds’ significant accounting policies.

a. Financial Instrument Valuation

The Funds’ investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Funds may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the security is determined. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds and non-registered money market funds are valued at the closing net asset value.

94 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
a.	Financial Instrument Valuation (continued)

relevant information for the investment to determine the fair value of the investment. The Funds may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the fund. As a result, differences may arise between the value of the Funds’ portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Funds. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

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. The Funds may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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 on the Statements of Operations.

Semiannual Report | 95

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
b.	Foreign Currency Translation (continued)

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 Lending

Certain funds participate in an agency based security lending program. The fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the fund on the next business day. The collateral is invested in money funds managed by the fund’s custodian on the fund’s behalf. The fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the fund. The securities lending agent has agreed to indemnify the fund in the event of default by a third party borrower.

d. Income Taxes

It is each fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. Each fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required. Each fund files U.S. income tax returns as well as tax returns in certain other jurisdictions. Each fund records a provision for taxes in its financial statements including penalties and interest, if any, for a tax position taken on a tax return (or expected to be taken) when it fails to meet the more likely than not (a greater than 50% probability) threshold and based on the technical merits, the tax position may not be sustained upon examination by the tax authorities. As of October 31, 2011, and for all open tax years, each fund has determined that no provision for income tax is required in each fund’s financial statements. Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

96 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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 is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Funds are notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

f. Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

g. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

Semiannual Report | 97

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

3.	TRANSACTIONS WITH AFFILIATES (continued)
a.	Management Fees

The Franklin Flex Cap Growth Fund and the Franklin Small-Mid Cap Growth Fund pay an investment management fee to Advisers based on the average daily net assets of each of the funds as follows:

The Franklin Focused Core Equity Fund pays an investment management fee to Advisers based on the average daily net assets of the fund as follows:

The Franklin Growth Opportunities Fund pays an investment management fee to Advisers based on the average daily net assets of the fund as follows:

102 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

3.	TRANSACTIONS WITH AFFILIATES (continued)
a.	Management Fees (continued)

The Franklin Small Cap Growth Fund pays an investment management fee to Advisers based on the average daily net assets of the fund as follows:

b. Administrative Fees

The Franklin Focused Core Equity Fund, the Franklin Growth Opportunities Fund, and the Franklin Small Cap Growth Fund pay an administrative fee to FT Services of 0.20% per year of the average daily net assets of each of the funds.

Under an agreement with Advisers, FT Services provides administrative services to the Franklin Flex Cap Growth Fund and the Franklin Small-Mid Cap Growth Fund. The fee is paid by Advisers based on average daily net assets, and is not an additional expense of the funds.

c. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds’ Class A reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods.

In addition, under the Funds’ Class B, C and R compensation distribution plans, the Funds pay Distributors for costs incurred in connection with the servicing, sale and distribution of each fund’s shares up to the maximum annual plan rate for each class.

Semiannual Report | 103

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES (continued) c. Distribution Fees (continued)

The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:

The Board of Trustees has set the current rate at 0.30% per year for Class A shares for the Franklin Focused Core Equity Fund, the Franklin Growth Opportunities Fund, and the Franklin Small Cap Growth Fund until further notice and approval by the Board.

d. Sales Charges/Underwriting Agreements

Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Funds. These charges are deducted from the proceeds of sales of fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds’ shares for the period:

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

3.	TRANSACTIONS WITH AFFILIATES (continued)
e.	Transfer Agent Fees

For the period ended October 31, 2011, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:

For the Franklin Focused Core Equity Fund, Advisers and FT Services have contractually agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the fund so that the common expenses (i.e. a combination of management fees, administrative fees, and other expenses, but excluding distribution fees, and acquired fund fees and expenses) for each class of the Fund do not exceed 0.89% (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until August 31, 2012.

g. Other Affiliated Transactions

At October 31, 2011, Advisers owned 23.88% of the Franklin Focused Core Equity Fund’s outstanding shares.

4. EXPENSE OFFSET ARRANGEMENT

The Funds have entered into an arrangement with their custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Funds’ custodian expenses. During the period ended October 31, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. At April 30, 2011, the capital loss carryforwards were as follows:

Semiannual Report | 105

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

5. INCOME TAXES (continued)

Under the Regulated Investment Company Modernization Act of 2010, the Funds will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous law. Any post-enactment capital losses generated will be required to be utilized prior to the losses incurred in pre-enactment tax years.

At October 31, 2011, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions, passive foreign investment company shares, pass-through entity income, regulatory settlements, and wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the period ended October 31, 2011, were as follows:

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Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Funds invest in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Management fees paid by the Funds are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund.

8. RESTRICTED SECURITIES

Certain funds invest in securities that are restricted under the Securities Act of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed upon restrictions on resale. Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The funds may have registration rights for restricted securities. The issuer generally incurs all registration costs.

At October 31, 2011, the funds held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:

9. SPECIAL SERVICING AGREEMENT

The Franklin Flex Cap Growth Fund, the Franklin Growth Opportunities Fund, the Franklin Small Cap Growth Fund, and the Franklin Small-Mid Cap Growth Fund, which are eligible underlying investments of one or more of the Franklin Templeton Fund Allocator Series Funds (Allocator Funds), participate in a Special Servicing Agreement (SSA) with the Allocator Funds and certain service providers of the funds and the Allocator Funds. Under the SSA, the funds may pay a portion of the Allocator Funds’ expenses (other than any asset allocation, administrative and distribution fees), to the extent such payments are less than the amount of the benefits realized or expected to be realized by the funds (e.g., due to reduced costs associated with servicing accounts) from the investment in the funds by the Allocator Funds. The Allocator Funds are either managed by Advisers or administered by FT Services. For the period ended October 31, 2011,

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Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

9. SPECIAL SERVICING AGREEMENT (continued)

the Franklin Flex Cap Growth Fund and the Franklin Growth Opportunities Fund were held by one or more of the Allocator Funds and the amount of expenses borne by the funds is noted in the Statements of Operations. At October 31, 2011, 18.92% of the Franklin Flex Cap Growth Fund and 23.38% of the Franklin Growth Opportunities Fund outstanding shares were held by one or more of the Allocator Funds.

10. CREDIT FACILITY

The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matures on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.

Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay their share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statements of Operations. During the period ended October 31, 2011, the Funds did not use the Global Credit Facility.

11. FAIR VALUE MEASUREMENTS

The Trust follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Trust’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds’ investments and are summarized in the following fair value hierarchy:

Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Funds have adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

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Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

11. FAIR VALUE MEASUREMENTS (continued)

At October 31, 2011, the reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining the fund’s fair value, is as follows:

12. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Funds are currently evaluating the impact, if any, of applying this provision.

13. SUBSEQUENT EVENTS

The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.

ABBREVIATIONS

Selected Portfolio

ADR - American Depository Receipt

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Franklin Strategic Series

Shareholder Information

Proxy Voting Policies and Procedures

The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Trust’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.

Semiannual Report | 111

Semiannual Report

Economic and Market Overview

1. Source: Bureau of Economic Analysis.

2. STANDARD & POOR’S^®, S&P^®and S&P 500^®are registered trademarks of Standard & Poor’s Financial Services LLC.

Standard & Poor’s does not sponsor, endorse, sell or promote any S&P index-based product.

Semiannual Report | 3

4 | Semiannual Report

Franklin Biotechnology Discovery Fund

Your Fund’s Goal and Main Investments: Franklin Biotechnology Discovery Fund seeks capital appreciation by investing at least 80% of its net assets in securities of biotechnology companies and discovery research firms located in the U.S. and other countries.

This semiannual report for Franklin Biotechnology Discovery Fund covers the period ended October 31, 2011.

Performance Overview

Franklin Biotechnology Discovery Fund – Class A had a -7.65% cumulative total return for the six months under review. The Fund performed better than the -8.64% total return of its narrow benchmark, the NASDAQ Biotechnology Index, which tracks U.S. and international-based biotechnology stocks, but underperformed the -7.11% total return of its broad benchmark, the Standard & Poor’s 500 Index (S&P 500^®), which is a broad measure of the U.S. stock market.¹For comparison, domestic and international-based stocks as measured by the NASDAQ Composite Index had a -6.13% total return.¹You can find the Fund’s long-term performance data in the Performance Summary beginning on page 9.

Investment Strategy

The Fund is managed using a bottom-up approach to individual stock selection, with a focus on fundamental analysis and primary research. We look for biotechnology, biopharmaceutical and platform technology companies that possess products with favorable competitive profiles, large market opportunities and strong intellectual property, supported by thoughtful clinical and market development strategies. Our assessment of these products is based on extensive primary research and due diligence and includes, but is not limited to, a thorough review of medical literature, consultation of community and academic physicians, and attendance at scientific meetings and symposia. Additionally, we favor companies with excellent management, strong financial characteristics and attractive valuations.

1. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 25.

Semiannual Report | 5

Manager’s Discussion

During a six-month period characterized by general investor risk aversion, high equity market volatility and broad-based declines across the globe, the Fund’s large allocation to biotechnology stocks hindered results. A top detractor from the group was Dendreon, a developer of therapeutic vaccines that help the body’s immune system fight cancer by targeting dendritic cells, which initiate an immune response to disease-causing antigens. Dendreon experienced losses following the disappointing launch of a prostate cancer therapy (Provenge, its sole commercial product) that resulted in the preliminary release of lower-than-expected third-quarter revenues as well as the withdrawal of previously announced full-year earnings expectations. Dendreon said it could not deliver on promised sales of the high-priced drug because doctors were not confident enough about getting reimbursed, an announcement that shocked its biggest backers on Wall Street. As a result, shareholders cast doubt on the company’s business model and filed a class action lawsuit against the firm.

Four other notable biotechnology detractors were United Therapeutics, InterMune, Auxilium and Nektar Therapeutics. The share price of United Therapeutics, a U.S.-based maker of drugs for cardiovascular disease — particularly those focusing on the lung disease pulmonary arterial hypertension —fell sharply as an oral version of the company’s lung drug (Treprostinal, a.k.a. Remodulin) performed below expectations in a key study. Shares of pulmonology and hepatology drug developer InterMune declined in value as the company reported wider losses through the third quarter of 2011 than during the same quarter a year earlier, due to higher operating expenses. Among the factors pressuring InterMune were concerns that reimbursements for its European Union launch of Esbriet, indicated for the treatment of idiopathic pulmonary fibrosis, might be poor through the first half of 2012 due to increasingly prevalent budget shortfalls and the austerity measures they have triggered across the region, specifically in France, Spain and Italy. Industry analysts also lowered their earnings estimates for the company to more conservative levels in light of what had occurred at Dendreon (discussed above), which led to share price volatility. Auxilium, a biopharmaceutical company that develops and markets products focusing on urology and sexual health, underperformed our expectations due to several factors surrounding Xiaflex, its treatment for adults with Depuytren’s Contracture. These included a slow launch, low patient awareness and a limited number of rheumatologists embracing the drug. Lastly, the Fund was hindered by its position in Nektar Therapeutics, a clinical-stage biopharmaceutical company developing a pipeline of drug candidates that utilize its PEGylation and polymer conjugate technology platforms, which are designed to improve the benefits of drugs

6 | Semiannual Report

for patients. Its product pipeline consists of drug candidates across a number of therapeutic areas, including oncology, pain, anti-infectives, antiviral and immunology. In general, industry analysts viewed Nektar’s failure to find a partner for its ovarian cancer drug as a lack of validation for the program. Consequently, the company’s research and development expenses were likely to rise because it may have to run the drug’s phase-three trials on its own.

Also hindering the Fund’s performance were some of its positions in the life sciences tools and services industry, particularly Life Technologies and QIAGEN. Found in more than 90% of research labs, Life Technologies’ systems manufacture molecular diagnostic and research use-only products to advance the fields of discovery and translational research, molecular medicine, stem cell-based therapies, food safety and animal health, as well as 21st century forensics. Despite signs that its latest sequencing instrument, Torrent, was gaining acceptance in the research community, Life Technologies underperformed our expectations due to larger concerns about academic budgets, and in particular the National Institute of Health (NIH) budget, as Congress was seeking major budget cuts that may impact NIH funding in 2012 and beyond. Share-price depreciation for QIAGEN, which offers a portfolio of instruments and diagnostic consumables in the health care sector, had a more straightforward underlying cause as weakness in OB/GYN office visits reduced demand for HPV (human papillomavirus) tests, one of QIAGEN’s key products. We continued to hold Life Technologies and QIAGEN in the Fund’s portfolio at period-end, as these short-term setbacks have not changed our positive longer-term views for both companies.

Several Fund holdings increased in value during the reporting period, mitigating the Fund’s overall losses. Within the biotechnology industry, key contributors included Alexion Pharmaceuticals, which produces drugs that inhibit immune system dysfunctions that cause autoimmune and neurological disorders; and Pharmasset, a clinical-stage pharmaceutical company whose hepatitis C drug trial received fast-track designation from the U.S. Food and Drug Administration during the period. Pharmacyclics, a clinical-stage biopharmaceutical company that specializes in cancer treatments, also aided the Fund. The company’s shares rose in value following news of its research and development agreement with the National Cancer Institute to develop a blood-cancer treatment. Also performing well were Biogen Idec, a company focused on developing treatments in the areas of oncology, immunology and neurology; and Celgene, a drug development company focused primarily on cancer treatments, whose lead product is Revlimid, approved in the U.S. and Europe as a treatment for multiple myeloma (bone marrow cancer).

Semiannual Report | 7

Additional key contributors existed among the Fund’s pharmaceuticals holdings, where Questcor Pharmaceuticals and Jazz Pharmaceuticals were standouts. Shares of Questcor gained in reaction to preliminary third-quarter results that included a notable increase in the sales of its multiple sclerosis treatment. Jazz advanced after news of its acquisition of an Ireland-based specialty pharmaceutical company.

Thank you for your continued participation in Franklin Biotechnology Discovery Fund. We look forward to serving your future investment needs.

Evan McCulloch, CFA Portfolio Manager

Franklin Biotechnology Discovery Fund

CFA^®is a trademark owned by CFA Institute.

8 | Semiannual Report

Performance Summary as of 10/31/11

Franklin Biotechnology Discovery Fund

Performance

Semiannual Report | 9

Performance Summary (continued)

Endnotes

The Fund is a nondiversified fund that concentrates in a single sector, which involves risks such as patent considerations, product liability, government regulatory requirements, and regulatory approval for new drugs and medical products. Biotechnology companies often are small and/or relatively new. Smaller companies can be particularly sensitive to changes in economic conditions and have less certain growth prospects than larger, more established companies and can be volatile, especially over the short term. The Fund may also invest in foreign companies, which involve special risks, including currency fluctuations and political uncertainty. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

Advisor Class: Shares are available to certain eligible investors as described in the prospectus.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.

3. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.

4. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.

6. Effective 9/1/09, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 9/1/09, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 9/1/09, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 9/1/09 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +26.77% and +11.58%.

10 | Semiannual Report

Your Fund’s Expenses

Franklin Biotechnology Discovery Fund

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

Actual Fund Expenses

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1.	Divide your account value by $1,000.
	If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2.	Multiply the result by the number under the heading “Expenses Paid During Period.”
	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Semiannual Report | 11

Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 1.28% and Advisor: 0.99%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period.

12 | Semiannual Report

Franklin Natural Resources Fund

Your Fund’s Goal and Main Investments: Franklin Natural Resources Fund seeks high total return (total return consists of capital appreciation and current dividend and interest income) by investing at least 80% of its net assets in equity and debt securities of companies that own, produce, refine, process, transport or market natural resources, as well as those that provide related services for natural resources companies.

This semiannual report for Franklin Natural Resources Fund covers the period ended October 31, 2011.

Performance Overview

Franklin Natural Resources Fund – Class A had a cumulative total return of -18.01% for the six months under review. The Fund underperformed the -15.58% total return of its narrow benchmark, the Standard & Poor’s (S&P^®) North American Natural Resources Index, which tracks companies involved in extractive industries (mining), energy, timber and forestry services, and the production of pulp and paper.¹It also underperformed the -7.11% total return of its broad benchmark, the S&P 500 Index (S&P 500), which is a broad measure of the U.S. stock market.¹You can find the Fund’s long-term performance data in the Performance Summary beginning on page 19.

Investment Strategy

We use a fundamental, research-driven approach to identify industries in the natural resources sector that we believe offer the strongest underlying attributes including, but not limited to, favorable supply and demand characteristics, barriers to entry, and pricing power. Within those industries, we seek to identify individual companies that have identifiable growth drivers and that present, in our opinion, the best trade-off between growth, business and financial risk, and valuation. The Fund’s holdings are typically concentrated in the energy sector but also can include investments in the metals and mining, chemicals, paper and forest products, and other related sectors.

1. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 31.

Semiannual Report | 13

Sector Overview

Commodities were buffeted by the opposing forces of continued (albeit slowing) consumption growth in emerging economies and the rising risk of a developed-world recession, particularly in Europe, throughout the six-month reporting period. A host of data indicated decelerating economic output in the developed world, prompting commodities traders to price in risks to future physical demand. Although resilient Asian economies continued to drive demand for natural resources of all kinds, concerns surfaced that China and other developing countries’ rapid rates of growth in recent years might decelerate, as they sought to dampen inflation with various policy maneuvers. These concerns were further stoked by a belief that slowing growth or recession in Europe could spill over into the growth of developing economies and result in additional demand weakness.

As investors exited risky assets such as commodities and turned to Treasury debt and other perceived safe havens, a steep correction ensued across much of the commodities complex from May through September, until a brief but powerful October rally partially offset losses from the previous five months. Commodities largely tracked the volatile movements of global equities and were further hindered, in part, by U.S. dollar appreciation. Among major commodities, gold, sugar, orange juice and lean hogs rose in price, while silver, wheat, nickel, coffee and natural gas had some of the biggest declines. Most commodity-linked stocks also declined in value despite continued signs of generally robust consumer and industrial/producer demand for raw materials.

Economically sensitive fuels and industrial metals were deeply and negatively impacted by the darkening economic outlook, counterbalanced by resiliency in the price of gold and several agricultural products. On a percentage basis, U.S. natural gas prices fell the most as near-record production, particularly in North America where plentiful supplies were increasingly evident, overwhelmed industrial and residential demand. Overall, the wholesale spot prices of one British thermal unit (Btu) of natural gas declined from $4.50 to $3.66 during the six months under review.²For crude oil, lower global oil consumption surfaced in some parts of the world amid continued concerns about the fragility of the global economy, even as declining inventories, a tightening of spare capacity, and steadily growing annual demand from energy-intensive emerging economies served to maintain oil prices at historically high levels. Despite tight supplies and a one-month price surge of nearly 18% in October, spot prices for benchmark West Texas Intermediate (WTI) crude fell from $114 per barrel on

2. Source: U.S. Department of Energy/Energy Information Administration.

14 | Semiannual Report

April 30, 2011, to $93 by period-end (-18.2% overall).³Crude oil hit a period low of $76 per barrel on October 4 as global demand growth forecasts for 2011 and 2012 waned.³Although WTI crude oil experienced a large decline, the U.S.-centric benchmark only tells part of the story as U.K.-based Brent crude oil prices, considered by most to be a better global benchmark, only declined 11.8%, leading to the creation of a historically wide price spread between WTI and Brent.³This divergence was confusing to investors and was somewhat influenced by a loss of Libyan production during and after the country’s civil war, but the higher prices for Brent and other crude oil grades provided some confidence that the global supply and demand outlook was more positive than largely perceived.

Unlike many commodities that had reached all-time highs in early 2011 before moderating through period-end — namely metals such as copper and silver as well as several agricultural products — gold prices continued to climb as investors sought to protect their wealth against financial market turmoil, repeatedly breaking records until its spot price reached a new nominal all-time high of $1,900 per troy ounce on September 5.³Even though gold spot prices eventually ebbed to $1,705 per ounce by October 31, 2011, they still posted a gain of almost 10% during the period as safe-haven, central bank and physical demand (for industrial and jewelry applications) remained robust, particularly across Asia.³The speculative frenzy that at one point lifted the silver market to a 31-year high collapsed, causing its spot price to plummet more than 28%, or from roughly $48 to $34 per troy ounce.³Industrially linked platinum and palladium also fared poorly, losing about 15% and 19% of their value during the six months under review.³Similar to precious metals, the base metals market also heeded the dominant concerns of economic uncertainty and political risk combined with a slowdown in physical factory demand. Within the base metals complex, industrial benchmark copper futures rebounded sharply in October but overall fell more than 14% during the six-month period despite signs of shortages, and to just under $8,000 per metric ton at period-end.⁴At one point in September, copper futures had slid to a 14-month low of just above $7,000 per ton.⁴

Although global economic events and the downturn in the commodities market are worrisome, we believe these types of events are to be expected from time to time, and we typically view periods of increased market volatility as an opportunity to purchase high-quality companies whose shares have suffered from indiscriminate selling and speculation. In fact, during late September and early October we increased the Fund’s holdings in several positions at what we considered to be attractive valuations.

3. Source: Bloomberg LP.
4. Source: London Metal Exchange.

Semiannual Report | 15

Manager’s Discussion

The six months under review represented a challenging period, characterized by the mixed messages of political uncertainty and global economic headwinds offset by indicators of mostly resilient commodity supply and demand fundamentals. The first five months of the reporting period were plagued by an onslaught of negative economic data points and media coverage. Although the Fund’s net asset value declined, a strong recovery in October helped mitigate losses. The upturn was prompted largely by the sudden appearance of more upbeat economic data, particularly out of the U.S., and around the same time European policymakers appeared closer to finding ways to manage their debt crisis. Meanwhile, commodity fundamentals remained fairly resilient during the entire period and many analysts saw little to no signs of faltering consumer demand by region, except in Europe, the heart of the sovereign debt crisis. In general, developed countries have historically been much less important for commodity demand growth than emerging economies, given the maturity of the developed nations’ consumption patterns.

During the semiannual period, most of the Fund’s holdings were subject to the difficult environment affecting commodities generally. Typically, the Fund holds a much larger percentage of investments in higher growth companies and less in defensive integrated oil stocks when compared with the benchmark index, and therefore it is not unusual for the Fund to trail the index during periods of market weakness. Additionally, our strategy to pursue opportunities as markets decline can have a temporarily negative impact on performance, as we saw in the latter half of 2008.

Portfolio weakness was evident in the following industries, which performed poorly in the uncertain environment: oil and gas equipment and services, oil and gas exploration and production (E&P), coal and consumable fuels, integrated oil and gas, and diversified metals and mining. Our biggest detractors within the oil and gas equipment and services industry included Halliburton, Weatherford International, Schlumberger and Baker Hughes. As the four largest diversified oilfield services companies in the world, these companies were viewed as susceptible to a decline in commodity prices and lower spending on global resource exploration and development. However, production from oil and natural gas fields declines rapidly as they mature, creating the necessity to spend on new resource development or the further exploitation of existing fields. In addition, the industry has been experiencing a secular trend of rising costs as reservoirs become more complex and costly to develop, which could benefit the oilfield services companies, in our assessment. We believe this trend is likely to continue. Notable declining stocks in oil and gas E&P included Devon Energy, Denbury Resources (sold by period-end), Apache and Comstock Resources. Our holdings of American coal miners and producers such as

16 | Semiannual Report

Alpha Natural Resources, Peabody Energy and James River Coal (sold by period-end) suffered double-digit share price declines and values were negatively impacted by rising operating costs and concerns related to slowing demand for U.S. metallurgical coal from Asia. Even the typically more defensive integrated oil and gas companies held by the Fund were not immune, as evidenced by the share price declines in Murphy Oil (sold by period-end), Hess and Marathon Oil, although these companies do have more exposure to the price of oil than the super-majors such as Chevron and Exxon, which performed relatively well.

Despite signs of tight supplies amid dwindling stockpiles for several precious and industrial metals, most diversified metals and mining companies suffered through the broad-based sell-off across the commodities complex. Beyond the impacts of speculative trading and economic concerns, regulatory issues and/or workers strikes at key mining operations across the globe also held the share prices of certain mining conglomerates in check. Against this backdrop, the Fund’s major detractors among miners during the six-month period included large, globally integrated mining companies such as Xstrata, Rio Tinto and BHP Billiton.

Several Fund holdings appreciated in value, helping to mitigate its overall declines. One standout performer from within the otherwise beleaguered oil and gas equipment and services industry was Hornbeck Offshore Services. A small-capitalization U.S. company, Hornbeck provides marine transportation of oilfield equipment, supplies and petroleum products, primarily in the U.S. Gulf of Mexico. The pace of drilling in the region picked up as the U.S. bureau responsible for issuing permits provided greater certainty in the drilling permit application and approval process. This was a direct benefit to Hornbeck, which services many of the deepwater rigs in the Gulf, a highly productive region that continued to be one of the world’s most active in terms of exploration and development activity. Other holdings with exposure to deepwater activity also performed relatively well during the period, particularly those that supply subsea services equipment and infrastructure such as Cameron International, FMC Technologies, National Oilwell Varco and Oceaneering International.

Although the oil and gas E&P industry hurt Fund performance overall, our investments in Petrohawk Energy and Brigham Exploration were beneficiaries of acquisition offers. Petrohawk had concentrated its efforts on developing key North American natural gas shale plays, including the Haynesville Shale and the Eagle Ford Shale, which hold what are believed to be large, untapped reserves. In a move to boost its U.S. shale assets, Australia’s BHP Billiton acquired Petrohawk Energy during the period. Similarly, Brigham, a small independent E&P firm focused in North Dakota’s Bakken oil shale formation, received an all-cash acquisition offer from Statoil, the Norwegian state oil company.

Semiannual Report | 17

Randgold Resources was another key contributor. Randgold, together with its subsidiaries, engages in gold exploration and mining across west and central Africa. The company’s chief asset is its stake in the Morila Limited gold mine located in Mali, a joint venture it shares with AngloGold Ashanti, another Fund holding. Randgold shares recovered from weakness induced by political unrest in Ivory Coast, another country where Randgold operates and which experienced calmer conditions and less uncertainty after its newly elected president was able to gain control of the country.

Finally, the Fund’s cash position fell from 5.9% of total net assets to 3.8% by period-end, as we found opportunities to invest as share prices declined. Due to the correction in the commodities market, this cash position also slightly cushioned the Fund from steeper losses throughout the period. As always, we will seek to deploy the Fund’s cash on a selective and opportunistic basis.

Thank you for your continued participation in Franklin Natural Resources Fund. We look forward to serving your future investment needs.

18 | Semiannual Report

Performance Summary as of 10/31/11

Franklin Natural Resources Fund

Performance

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include maximum sales charges. Class A: 5.75% maximum initial sales charge; Class C: 1% contingent deferred sales charge in first year only; Advisor Class: no sales charges.

Semiannual Report | 19

Performance Summary (continued)

Endnotes

Investing in a fund concentrating in the natural resources sector involves special risks, including increased susceptibility to adverse economic and regulatory developments affecting the sector. The Fund may also invest in foreign stocks, which involve exposure to currency volatility and political and economic uncertainty. The Fund’s holdings in smaller companies involve special risks associated with smaller revenues and market share, and more limited product lines. The prices of such securities can be volatile, particularly over the short term. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.


Class C: Advisor Class:	These shares have higher annual fees and expenses than Class A shares. Shares are available to certain eligible investors as described in the prospectus.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.

3. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.

4. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.

20 | Semiannual Report

Your Fund’s Expenses

Franklin Natural Resources Fund

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

Actual Fund Expenses

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1.	Divide your account value by $1,000.
	If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2.	Multiply the result by the number under the heading “Expenses Paid During Period.”
	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Semiannual Report | 21

Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 0.99%; C: 1.69%; and Advisor: 0.69%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period.

22 | Semiannual Report

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 23

28 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 29

Franklin Strategic Series

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Strategic Series (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of eight separate funds, two of which are included in this report (Funds). The financial statements of the remaining funds in the Trust are presented separately. The classes of shares offered within each of the Funds are indicated below. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege.

Class A & Advisor Class

Franklin Biotechnology Discovery Fund

Class A, Class C & Advisor Class

Franklin Natural Resources Fund

The following summarizes the Funds’ significant accounting policies.

a. Financial Instrument Valuation

The Funds have procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Funds primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Funds may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the

Semiannual Report | 39

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
a.	Financial Instrument Valuation (continued)

nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

b. Foreign Currency Translation

40 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
b.	Foreign Currency Translation (continued)
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 Lending

The Funds participate in an agency based security lending program. The fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the market value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the market value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the fund on the next business day. The collateral is invested in a non-registered money fund managed by the fund’s custodian on the fund’s behalf. The fund receives income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. The fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the fund. The securities lending agent has agreed to indemnify the fund in the event of default by a third party borrower. At October 31, 2011, the Franklin Natural Resources Fund had no securities on loan.

d. Income Taxes

The Funds may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Funds invest. When a capital gain tax is determined to apply the Funds record an estimated deferred tax liability for unrealized gains on these securities in an amount that would be payable if the securities were disposed of on the valuation date.

Semiannual Report | 41

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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 Estimated expenses are accrued daily. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Funds are notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

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 of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.

f. Accounting Estimates

g. Guarantees and Indemnifications

42 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:

a. Management Fees

The Funds pay an investment management fee to Advisers based on the daily net assets of each of the Funds as follows:

b. Administrative Fees

The Franklin Biotechnology Discovery Fund pays an administrative fee to FT Services based on the fund’s average daily net assets as follows:

Under an agreement with Advisers, FT Services provides administrative services to the Franklin Natural Resources Fund. The fee is paid by Advisers based on average daily net assets, and is not an additional expense of the Fund.

c. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds’ Class A reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each fund’s shares up to the maximum annual plan rate for each class. Under the Class A reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods.

44 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

3.	TRANSACTIONS WITH AFFILIATES (continued)
c.	Distribution Fees (continued)

In addition, under the Franklin Natural Resources Fund’s Class C compensation distribution plan, the fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the fund’s shares up to the maximum annual plan rate.

The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:

The Board of Trustees has set the current rate at 0.30% per year for Class A shares until further notice and approval by the Board.

d. Sales Charges/Underwriting Agreements

e. Transfer Agent Fees

For the period ended October 31, 2011, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:

Semiannual Report | 45

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

4. EXPENSE OFFSET ARRANGEMENT

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. At April 30, 2011, the capital loss carryforwards were as follows:

At October 31, 2011, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:

46 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

6. INVESTMENT TRANSACTIONS

Purchases and sales (excluding short term securities) for the period ended October 31, 2011, were as follows:

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

8. RESTRICTED SECURITIES

The Funds invest in securities that are restricted under the Securities Act of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed upon restrictions on resale. Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Funds may have registration rights for restricted securities. The issuer generally incurs all registration costs.

At October 31, 2011, the Funds held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:

*In U.S. dollars unless otherwise indicated.

Semiannual Report | 47

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

9. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES

The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. Investments in “affiliated companies” for the Franklin Biotechnology Discovery Fund for the period ended October 31, 2011, were as shown below.

10. SPECIAL SERVICING AGREEMENT

The Franklin Natural Resources Fund, which is an eligible underlying investment of one or more of the Franklin Templeton Fund Allocator Series Funds (Allocator Funds), participates in a Special Servicing Agreement (SSA) with the Allocator Funds and certain service providers of the fund and the Allocator Funds. Under the SSA, the fund may pay a portion of the Allocator Funds’ expenses (other than any asset allocation, administrative and distribution fees), to the extent such payments are less than the amount of the benefits realized or expected to be realized by the fund (e.g., due to reduced costs associated with servicing accounts) from the investment in the fund by the Allocator Funds. The Allocator Funds are either managed by Advisers or administered by FT Services. For the period ended October 31, 2011, the fund was held by one or more of the Allocator Funds and the amount of expenses borne by the fund is noted in the Statements of Operations. At October 31, 2011, 9.00% of the fund’s outstanding shares were held by one or more of the Allocator Funds.

11. CREDIT FACILITY

48 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

11. CREDIT FACILITY (continued)

12. FAIR VALUE MEASUREMENTS

The Funds follow a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Funds’ own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds’ investments and are summarized in the following fair value hierarchy:

Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Funds have adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of October 31, 2011, in valuing the Funds’ assets and liabilities carried at fair value:

Semiannual Report | 49

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

13. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Funds are currently reviewing the requirements and believe the adoption of this ASU will not have a material impact on the financial statements.

14. SUBSEQUENT EVENTS

The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.


ABBREVIATIONS
Currency	Selected Portfolio
CAD -CanadianDollar	ADR - American Depository Receipt

Semiannual Report | 51

Franklin Strategic Series

Shareholder Information

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

52 | Semiannual Report

Semiannual Report

Franklin Strategic Income Fund

Your Fund’s Goals and Main Investments: 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 under normal market conditions invests at least 65% of its assets in U.S. and foreign debt securities, including those in emerging markets. The Fund invests in all varieties of fixed and floating rate income securities, including bonds, bank loans (and loan participations), mortgage securities and other asset-backed securities, and convertible securities.

This semiannual report for Franklin Strategic Income Fund covers the period ended October 31, 2011.

Performance Overview

Franklin Strategic Income Fund – Class A had a -0.56% cumulative total return for the six months under review. The Fund underperformed the +4.98% total return of its benchmark, the Barclays Capital (BC) U.S. Aggregate Index, which represents the U.S. investment-grade fixed rate taxable bond market.¹The Fund generally performed in line with the -0.50% total return of its peers as measured by the Lipper Multi-Sector Income Funds Classification Average, which consists of funds chosen by Lipper that seek current income by allocating assets among different fixed income securities sectors, with a significant portion rated below investment grade.²You can find the Fund’s long-term performance data in the Performance Summary beginning on page 10.

1. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The index is unmanaged and includes reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

2. Source: Lipper Inc. For the six-month period ended 10/31/11, this category consisted of 192 funds. Lipper calculations do not include sales charges or expense subsidization by a fund’s manager. Fund performance relative to the average may have differed if these or other factors had been considered. The Lipper average includes reinvestment of any income or distributions. One cannot invest directly in a Lipper average, and the average is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 20.

Semiannual Report | 3

Economic and Market Overview

During the six months under review, Federal Reserve Board (Fed) policymakers maintained historically low interest rates while adopting a more restrained view of the economy largely because of developments in Europe and signs the U.S. economic expansion lacked momentum. To promote a stronger recovery and help maintain inflation levels the Fed believed consistent with its dual mandate to foster maximum employment and price stability, the Fed undertook a second round of quantitative easing consisting of a $600 billion purchase of longer term U.S. Treasuries, which ended on June 30. Subsequently, the Fed continued to purchase U.S. Treasuries with proceeds from maturing debt in an effort to support economic growth.

Despite the Fed’s actions, the economy grew more slowly than expected, and unemployment remained high. The foreclosure rate increased, but lawmakers made efforts to strengthen the weak real estate market by making it easier for homeowners to refinance. Manufacturing activity weakened during the reporting period partly because of global supply-chain disruptions following Japan’s natural disasters. Geopolitical instability in some oil-producing regions and investor concerns over weak economic data contributed to volatility in crude oil prices. After prices reached a period high of $114 per barrel on May 2, they fell to $93 by period-end. Storms and droughts in several states reduced crop yields, pushing up grain prices. As oil and food prices rose, the pace of inflation accelerated during the period.

Generally favorable economic improvements and positive corporate earnings reports somewhat eased investor concerns about the turmoil in North Africa and the Middle East, multiple crises triggered by Japan’s earthquake, widening debt problems and political instability in the eurozone, as well as headwinds facing the U.S. economy. During the six months under review, fixed income markets, as measured by the BC U.S. Aggregate Index, posted solid returns, and U.S. stocks, as measured by the Standard & Poor’s^®500 Index (S&P 500^®), declined.³Heightened volatility, however, roiled global financial markets amid U.S. lawmakers’ protracted debate and eventual compromise on the debt limit, independent credit rating agency Standard & Poor’s downgrade of the long-term U.S. credit rating to AA+ from AAA, and fears of a sovereign debt crisis contagion in Europe. In September, the Fed announced plans designed to boost the economy by driving down long-term interest rates. The Fed intends

3. STANDARD & POOR’S^®, S&P^®and S&P 500^®are registered trademarks of Standard & Poor’s Financial Services LLC.

Standard & Poor’s does not sponsor, endorse, sell or promote any S&P index-based product.

4 | Semiannual Report

*All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.

**Includes 2.50 cents primarily from net foreign currency gains, although one cannot expect the same result in future periods.

to sell $400 billion in short-term securities over the next year and purchase an equal amount of long-term securities. The Fed also anticipated it would keep short-term rates near zero through mid-2013. In this environment, investors sought the perceived safety of U.S. Treasuries, which drove their prices higher and yields lower for the period under review. For the six months under review, the U.S. dollar rose 3.41% versus its major trading partners.⁴

Investment Strategy

The Fund uses an active asset allocation strategy, investing across the fixed income market in sectors including high yield and investment grade corporate bonds, international developed and emerging market bonds, U.S. government and agency securities, mortgage- and other asset-backed securities, corporate bank loans, convertible securities and preferred stocks, and municipal securities. In addition to our bottom-up fundamental analysis of market sectors, industries and issuers, we evaluate country risk, business cycles, yield curves, and values between and within markets as part of our portfolio construction process. We may also enter into various transactions involving certain currency-, interest rate- or credit-related derivative instruments for hedging purposes, to enhance returns or to obtain exposure to various market sectors.

4. Source: Federal Reserve H10 Report.

Semiannual Report | 5

What is duration?

Duration is a measure of a bond’s price sensitivity to interest rate changes. In general, a portfolio of securities with a lower duration can be expected to be less sensitive to interest rate changes than a portfolio with a higher duration.

Manager’s Discussion

During the six months ended October 31, 2011, financial market headlines focused on the eurozone debt crisis, the protracted debt ceiling debate in Washington, DC, and the subsequent decision of independent credit rating agency Standard & Poor’s to downgrade the U.S. long-term credit rating. Market pessimism peaked toward the end of the third calendar quarter, and despite a moderate rebound in October, stocks generally ended the reporting period down as the S&P 500 fell 7.11%.⁵Conversely, U.S. Treasuries, historically viewed as safe-haven assets, gained as the yield on the 10-year Treasury note fell from 3.32% to 2.17% during the period. Prices and yields of fixed income instruments generally move inversely. Longer term rates in certain other developed markets, such as Germany and Canada, also declined. Not surprisingly, spread sectors (such as corporate credit-related securities) tended to underperform, given their greater sensitivity to perceptions of elevated financial market risk. Similarly, certain foreign currencies, particularly in various emerging markets, weakened against the U.S. dollar.

In this environment, Franklin Strategic Income Fund had a slightly negative total return, underperforming the benchmark BC U.S. Aggregate Index. The Fund generally performed in line with its median peers in the Lipper MultiSector Income Funds Classification Average, even though the Fund’s higher exposure to non-U.S. dollar-denominated securities constrained returns during the period. The Fund’s underweighting of longer duration U.S. interest rate-sensitive fixed income sectors (i.e., U.S. Treasuries and agency bonds) negatively impacted performance relative to the BC U.S. Aggregate Index, while its higher exposure to below investment-grade constrained returns relative to the Lipper peer average.

The significant decline in longer term U.S. Treasury yields drove healthy returns for the more interest rate-sensitive sectors of the domestic fixed income market. Bonds with the longest maturities generally delivered the highest total returns during the period. Agency mortgage-backed securities, which have shorter effective maturities and are subject to potential prepayment risk, underperformed longer maturity Treasuries but still posted positive total returns during the period. Furthermore, although we believe continued U.S. economic weakness

5. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The index is unmanaged and includes reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

6 | Semiannual Report

may ease longer term inflationary pressures, fixed income U.S. government securities did not present significant value at period-end yields, in our opinion. Consequently, the Fund remained underweighted in these sectors, although among these sectors we preferred the relatively higher yields of agency mortgage-backed securities.

As risk aversion increased during the period, the commercial mortgage-backed securities (CMBS) sector experienced some downward price pressure as the sector’s fundamentals remained challenged and considering the strong performance CMBS delivered in 2009 and 2010. Although many observers thought the commercial real estate market recently bottomed and the sector’s fundamentals remained weak, asset valuations supported price recoveries for many CMBS securities. Municipal bonds rebounded during the period as investors began to realize that fears of widespread defaults that made headlines in late 2010 were generally overplayed and that actual default rates would be much more modest than some had predicted. As many of the Fund’s municipal bond holdings had relatively long durations, these securities also benefited from the aforementioned decline in longer term interest rates. The Fund began to reduce its municipal bond exposure during the period given the sector’s recent strong performance.

Semiannual Report | 7

What is a forward currency exchange contract?

A foreign currency exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date.

Corporate credit fundamentals remained strong during the period and companies generally reported second and third quarter earnings above expectations. The balance sheets of non-financial companies with debt rated investment grade remained solid with high levels of liquidity and relatively low interest burdens. Default rates of below investment-grade issuers hovered near cycle lows. Amid significant market volatility, many company management teams kept a fairly defensive posture toward spending, further supporting the outlook for credit fundamentals. Nonetheless, concerns about the eurozone crisis and deficit issues in the U.S. led corporate credit sectors to generally under-perform the Treasury market. Declining stock indexes and fears that access to debt capital markets could be impaired contributed to widening yield spreads across the investment grade, high yield and floating rate bank loan sectors. The Fund sought to take advantage of this volatility by adding high yield exposure, as valuations cheapened in late summer while the fundamental backdrop remained supportive, in our opinion. (The Fund’s exposure to bank loans and high yield corporate securities included positions in certain derivative index instruments.)

Similarly, the flight to quality across financial markets led many currencies, particularly in certain developing markets, to depreciate relative to the U.S. dollar. This weakness negatively impacted the Fund’s holdings in foreign currency government bonds and other non-U.S. dollar-denominated securities. In particular, the Fund’s non-U.S. dollar holdings in Poland, Brazil, Mexico, India and Hungary experienced the effects of currency weakness, as did certain of the Fund’s Asian bond holdings. The Fund’s short position in the Japanese yen, through the use of forward currency exchange contracts, also detracted from performance, given the yen’s perceived safe-haven status during periods of economic weakness. Nonetheless, we believe the relatively stronger economic outlook for the countries and currencies we hold in the Fund may support longer term performance for those currencies relative to the U.S. dollar, the euro and the yen. The Fund maintained only a modest weighting in U.S. dollar-denominated, emerging market sovereign bonds as valuations remained somewhat rich compared to longer term averages.

8 | Semiannual Report

Thank you for your continued participation in Franklin Strategic Income Fund. We look forward to serving your future investment needs.

CFA^®is a trademark owned by CFA Institute.

Semiannual Report | 9

Performance Summary (continued)

Performance

Cumulative total return excludes sales charges. Average annual total returns include maximum sales charges. Class A: 4.25% maximum initial sales charge; Class B: contingent deferred sales charge (CDSC) declining from 4% to 1% over six years, and eliminated thereafter; Class C: 1% CDSC in first year only; Class R/Advisor Class: no sales charges.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Semiannual Report | 11

Performance Summary (continued)

Endnotes

Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. High yields reflect the higher credit risks associated with certain lower rated securities held in the portfolio. Floating rate loans and high yield corporate bonds are rated below investment grade and are subject to greater risk of default, which could result in loss of principal — a risk that may be heightened in a slowing economy. The risks of foreign securities include currency fluctuations and political uncertainty. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. Investing in derivative securities and the use of foreign currency techniques involve special risks as such techniques may not achieve the anticipated benefits and/or may result in losses to the Fund. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.


Class B: Class C:	These shares have higher annual fees and expenses than Class A shares. Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares.
Class R:	Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares.
Advisor Class:	Shares are available to certain eligible investors as described in the prospectus.

1. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized.

3. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.

4. Distribution rate is based on the sum of the respective class’s past 12 months dividend distributions and the maximum offering price (NAV for Classes B, C, R and Advisor) per share on 10/31/11.

5. The 30-day standardized yield for the 30 days ended 10/31/11 reflects an estimated yield to maturity (assuming all portfolio securities are held to maturity). It should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate (which reflects the Fund’s past dividends paid to shareholders) or the income reported in the Fund’s financial statements.

12 | Semiannual Report

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs:

Transaction costs, including sales charges (loads) on Fund purchases; and
Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

Actual Fund Expenses

You can estimate the expenses you paid during the period by following these steps. Of course, your account value and expenses will differ from those in this illustration:

1.	Divide your account value by $1,000.
	If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2.	Multiply the result by the number under the heading “Expenses Paid During Period.”
	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

In this illustration, the estimated expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Semiannual Report | 13

Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 0.88%; B: 1.28%; C: 1.28%; R: 1.13%; and Advisor: 0.63%), multiplied by the average account value over the period, multiplied by 184/366 to reflect the one-half year period.

14 | Semiannual Report

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 15

16 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 17

18 | The accompanying notes are an integral part of these financial statements. | Semiannual Report

^aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of
the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.
^bBased on average daily shares outstanding.
^cEffective September 1, 2008, the redemption fee was eliminated.
^dAmount rounds to less than $0.01 per share.
^eTotal return is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^gBenefit of expense reduction rounds to less than 0.01%.
^hSee Note 1(f) regarding mortgage dollar rolls.

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 19

Franklin Strategic Series

Notes to Financial Statements (unaudited)

Franklin Strategic Income Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Strategic Series (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of eight separate funds. The Franklin Strategic Income Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. The Fund offers five classes of shares: Class A, Class B, Class C, Class R, and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Over-the-counter securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds are valued at the closing net asset value.

Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined.

50 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
a.	Financial Instrument Valuation (continued)

Certain derivative financial instruments (derivatives) trade in the over-the-counter market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair market value of the contract, is included in net assets.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.

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. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.

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 on the Statement of Operations.

Semiannual Report | 51

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
b.	Foreign Currency Translation (continued)

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 Purchased on a When-Issued and Delayed Delivery Basis

The Fund purchases securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.

d. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counter-party to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

The Fund entered into forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date. Pursuant to the terms of the forward exchange contracts, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.

The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. The underlying referenced debt obligation may

52 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
d.	Derivative Financial Instruments (continued)

be a single issuer of corporate or sovereign debt, a credit index, or a tranche of a credit index. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Payments received or paid to initiate a credit default swap contract are reflected on the Statement of Assets and Liabilities and represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments are amortized over the term of the contract as a realized gain or loss on the Statement of Operations. Pursuant to the terms of the credit default swap contract, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.

See Note 11 regarding other derivative information.

e. FT Holdings Corporation II

The Fund invests in certain securities through its investment in FT Holdings Corporation II, a Delaware Corporation and a wholly-owned subsidiary (Subsidiary) of the Fund. The Subsidiary has the ability to invest in securities consistent with the investment objective of the Fund. At October 31, 2011, all Subsidiary investments as well as any other assets and liabilities are reflected in the Fund’s Statement of Investments and Statement of Assets and Liabilities. All income and expenses of the Subsidiary during the period ended October 31, 2011 have been included in the Fund’s Statement of Operations.

f. Mortgage Dollar Rolls

The Fund enters into mortgage dollar rolls, typically on a to-be-announced (TBA) basis. Mortgage dollar rolls are agreements between the Fund and a financial institution to simultaneously sell and repurchase mortgage-backed securities at a future date. Gains or losses are realized on the initial sale, and the difference between the repurchase price and the sale price is recorded as an unrealized gain or loss to the fund upon entering into the mortgage dollar roll. In addition, the Fund may invest the cash proceeds that are received from the initial sale. During the period between the sale and repurchase, the Fund is not entitled to principal and interest paid on the mortgage backed securities. The risks of mortgage dollar roll transactions include the potential inability of the counterparty to fulfill its obligations.

Semiannual Report | 53

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
g.	Senior Floating Rate Interests

The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity.

Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale.

h. Income Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required. The Fund files U.S. income tax returns as well as tax returns in certain other jurisdictions. The Fund records a provision for taxes in its financial statements including penalties and interest, if any, for a tax position taken on a tax return (or expected to be taken) when it fails to meet the more likely than not (a greater than 50% probability) threshold and based on the technical merits, the tax position may not be sustained upon examination by the tax authorities. As of October 31, 2011, and for all open tax years, the Fund has determined that no provision for income tax is required in the Fund’s financial statements. Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply the Fund records an estimated deferred tax liability for unrealized gains on these securities in an amount that would be payable if the securities were disposed of on the valuation date.

i. 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. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income is recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax

54 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
i.	Security Transactions, Investment Income, Expenses and Distributions (continued)

basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

Inflation-indexed bonds are adjusted for inflation through periodic increases or decreases in the security’s interest accruals, face amount, or principal redemption value, by amounts corresponding to the rate of inflation as measured by an index. Any increase or decrease in the face amount or principal redemption value will be included as interest income on the Statement of Operations.

j. Accounting Estimates

k. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.

Semiannual Report | 55

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

3. TRANSACTIONS WITH AFFILIATES

a. Management Fees

The Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:

b. Administrative Fees

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.

c. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s Class A reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods.

Semiannual Report | 57

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

3. TRANSACTIONS WITH AFFILIATES (continued) c. Distribution Fees (continued)

In addition, under the Fund’s Class B, C, and R compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate for each class.

The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:

d. Sales Charges/Underwriting Agreements

Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the period:

e. Transfer Agent Fees

For the period ended October 31, 2011, the Fund paid transfer agent fees of $3,873,653, of which $1,956,233 was retained by Investor Services.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended October 31, 2011, the custodian fees were reduced as noted in the Statement of Operations.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. At April 30, 2011, the Fund had capital loss carryforwards of $14,864,776 expiring in 2018.

Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010

58 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

5. INCOME TAXES (continued)

for an unlimited period. Post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous law. Any post-enactment capital losses generated will be required to be utilized prior to the losses incurred in pre-enactment tax years.

For tax purposes, realized currency losses occurring subsequent to October 31 may be deferred and treated as occurring on the first day of the following fiscal year. At April 30, 2011, the Fund deferred realized currency losses of $3,854,426.

At October 31, 2011, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of defaulted securities, foreign currency transactions, mortgage dollar rolls, paydown losses, payments-in-kind, bond discounts and premiums, swaps, tax straddles, corporate actions, offering costs, inflation related adjustments on foreign securities, and wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the period ended October 31, 2011, aggregated $1,365,264,322 and $993,027,589, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund invests in the Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund.

8. CREDIT RISK AND DEFAULTED SECURITIES

At October 31, 2011, the Fund had 50.01% of its portfolio invested in high yield, senior secured floating rate notes, or other securities rated below investment grade. These securities may be more

Semiannual Report | 59

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

8. CREDIT RISK AND DEFAULTED SECURITIES (continued)

sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

The Fund held defaulted securities and/or other securities for which the income has been deemed uncollectible. At October 31, 2011, the aggregate value of these securities was $10,545,000, representing 0.18% of the Fund’s net assets. The Fund discontinues accruing income on securities for which income has been deemed uncollectible and provides an estimate for losses on interest receivable. The securities have been identified on the accompanying Statement of Investments.

9. RESTRICTED SECURITIES

The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed upon restrictions on resale. Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Fund may have registration rights for restricted securities. The issuer generally incurs all registration costs.

At October 31, 2011, the Fund held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:

10. UNFUNDED LOAN COMMITMENTS

The Fund enters into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrowers’ discretion. Funded portions of credit agreements are presented on the Statement of Investments.

At October 31, 2011, unfunded commitments were as follows:

Unfunded loan commitments and funded portions of credit agreements are marked to market daily and any unrealized appreciation or depreciation is included in the Statement of Assets and Liabilities and Statement of Operations.

60 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

11. OTHER DERIVATIVE INFORMATION

At October 31, 2011, the Fund has invested in derivative contracts which are reflected on the Statement of Assets and Liabilities as follows:

For the period ended October 31, 2011, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

For the period ended October 31, 2011, the average month end market value of derivatives represented 0.86% of average month end net assets. The average month end number of open derivative contracts for the period was 189.

See Note 1(d) regarding derivative financial instruments.

12. SPECIAL SERVICING AGREEMENT

The Fund, which is an eligible underlying investment of one or more of the Franklin Templeton Fund Allocator Series Funds (Allocator Funds), participates in a Special Servicing Agreement (SSA) with the Allocator Funds and certain service providers of the Fund and the Allocator Funds. Under the SSA, the Fund may pay a portion of the Allocator Funds’ expenses (other than

Semiannual Report | 61

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

12. SPECIAL SERVICING AGREEMENT (continued)

any asset allocation, administrative, and distribution fees) to the extent such payments are less than the amount of the benefits realized or expected to be realized by the Fund (e.g., due to reduced costs associated with servicing accounts) from the investment in the Fund by the Allocator Funds. The Allocator Funds are either managed by Advisers or administered by FT Services. For the period ended October 31, 2011, the Fund was held by one or more of the Allocator Funds and the amount of expenses borne by the Fund is noted in the Statement of Operations. At October 31, 2011, 2.00% of the Fund’s outstanding shares was held by one or more of the Allocator Funds.

13. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matures on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the period ended October 31, 2011, the Fund did not use the Global Credit Facility.

14. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy:

Level 1 – quoted prices in active markets for identical securities
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

62 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

14. FAIR VALUE MEASUREMENTS (continued)

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of October 31, 2011, in valuing the Fund’s assets and liabilities carried at fair value:

Semiannual Report | 63

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

14. FAIR VALUE MEASUREMENTS (continued)

At October 31, 2011, the reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value, is as follows:

^aMay include accretion, amortization, partnership adjustments, and/or other cost basis adjustments. ^bIncludes common and preferred stocks. ^cIncludes securities determined to have no value.

15. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund is currently reviewing the requirements and believe the adoption of this ASU will not have a material impact on the financial statements.

64 | Semiannual Report

Franklin Strategic Series

Shareholder Information

Franklin Strategic Income Fund

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

66 | Semiannual Report

Item 2. Code of Ethics.

(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.

(c)	N/A
(d)	N/A
(f)	Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.

Item 3. Audit Committee Financial Expert.

(a)(1) The Registrant has an audit committee financial expert serving on its audit committee.

(2) The audit committee financial expert is John B. Wilson and he is "independent" as defined under the relevant Securities and Exchange Commission Rules and Releases.

Item 4. Principal Accountant Fees and Services. N/A

Item 5. Audit Committee of Listed Registrants. N/A

Item 6. Schedule of Investments. N/A

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. N/A

Item 8. Portfolio Managers of Closed-End Management Investment Companies. N/A

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. N/A

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein.

Item 11. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.

(b) Changes in Internal Controls. There have been no significant changes in the Registrant’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR.

Item 12. Exhibits.

(a)	(1) Code of Ethics
(a)	(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

U.	S. Government and Agency Securities 1.7%
U.	S. Treasury Bond,