fssarpt0412.htm - Generated by SEC Publisher for SEC Filing

The U.S. economy, as measured by gross domestic product growth, notably improved during the 12-month period ended April 30, 2012. The national unemployment rate for April 2012 stood at 8.1%, compared with 9.0% at the start of the period.¹Jobless claims touched a four-year low in February, and job creation was fairly robust. Consistent with employment trends, industrial production and manufacturing activity increased toward the end of the period. Automobile sales rose to their highest levels since February 2008, and consumer confidence climbed to pre-recession levels. Outside of the U.S., Greece secured bailout financing as bondholders agreed to concessions and the country enacted austerity measures. Although the long-term resolution of the European debt situation remained unclear, the European Central Bank’s plan to increase liquidity through loans was well received and seemed to improve investor sentiment.

At the end of the reporting period, however, significant challenges to the economy remained, including uncertainty surrounding deeply indebted European countries, soaring gas prices amid political turmoil in the Middle East, indications of reduced economic stimulus from the federal government, and continued malaise in the U.S. housing market. Signs of China’s economic growth slowdown contributed to pessimism as, despite a higher overall level of U.S. exports, the U.S. trade deficit widened following decreases in exports to China and the eurozone.

Amid improved economic reports, U.S. stock markets generally responded well and reached multi-year highs in late March and early April 2012. The Dow Jones Industrial Average exceeded the 13,000 level for the first time since 2008, and the NASDAQ Composite Index hit an 11-year high. Overall, growth stocks outperformed value, and leading market sectors included information technology, consumer discretionary and utilities. Sector performance varied widely, with energy, materials and financials lagging the broader market and posting the largest declines.

The foregoing information reflects our analysis and opinions as of April 30, 2012. 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.

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 annual report for Franklin Flex Cap Growth Fund covers the fiscal year ended April 30, 2012.

For the 12 months under review, Franklin Flex Cap Growth Fund – Class A posted a +1.86% cumulative total return. Compared with its narrow benchmarks, the Fund underperformed the +6.26% 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 +7.26% total return of the Russell 1000^®Growth Index, which tracks performance of the largest companies in the Russell 3000^®Index with higher price-to-book ratios and higher forecasted growth values.¹Additionally, the Fund underperformed the +4.76% total return of its broad benchmark, the Standard & Poor’s^®500 Index (S&P 500^®), 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 7.

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 59.

Conversely, key detractors from the Fund’s relative performance included stock selection in the IT, health care and financials sectors.⁷In the IT sector, our position in leading session delivery network solutions provider Acme Packet hurt relative results as the company’s earnings were pressured by weak North American demand. In April, Acme Packet acquired privately held, Germany-based IPTEGO, a rapidly growing, real-time software solutions provider, in an effort to extend its network management capabilities and strengthen future market share growth. Life sciences tools and services company Illumina in the health care sector was negatively affected by weakening global demand, lower academic spending and uncertainty about government funding levels, and we sold it during the period. Supplemental health and life insurance provider Aflac’s share price fell along with those of many financials stocks in the first five months of the period. The company’s share price rallied during the second half of the period, helping to offset some of the earlier losses, as it continued to reduce sovereign and bank debt holdings from Europe’s financially stressed regions and generate record sales in its largest revenue stream, its Japanese operations. Other key detractors to relative performance included Johnson Controls, the world’s biggest car battery producer, and a new, off-benchmark materials position in Canada-based Goldcorp, one of the world’s leading gold producers.⁸

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 April 30, 2012, 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.

7. The health care sector comprises health care equipment and services and pharmaceuticals, biotechnology and life sciences in the SOI. The financials sector comprises banks, diversified financials, insurance and real estate in the SOI.

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

6 | Annual 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.

8 | Annual Report

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.

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:

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.

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 annual report for Franklin Focused Core Equity Fund covers the fiscal year ended April 30, 2012.

For the 12 months under review, Franklin Focused Core Equity Fund – Class A had a -2.17% cumulative total return. The Fund underperformed the +4.76% 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 17.

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 tradeoff between growth opportunity, business and financial risk, and valuation.

1. Source: © 2012 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 67.

Manager’s Discussion

During the fiscal year under review, the Fund’s investments in the health care, materials, financials, consumer staples and industrials sectors contributed to absolute performance. Within health care, pharmaceuticals stocks were particularly strong, and top contributors included Watson Pharmaceuticals, Merck & Co. and Roche Holding. In April, Express Scripts Holdings completed its acquisition of pharmacy benefit management company Medco Health Solutions (MHS), leading our MHS position to support performance. In materials, chemical companies LyondellBasell Industries and Celanese were among the top performers. Within financials, U.S. Bancorp performed well, while CVS Caremark in consumer staples and European discount airline Ryanair Holdings in industrials also boosted the Fund’s absolute performance.

In contrast, holdings in the energy, telecommunication services, information technology (IT), and consumer discretionary sectors detracted from absolute performance. Falling European refining margins resulting from high crude oil prices and eurozone sovereign debt crisis concerns dragged Petroplus Holdings,²once Europe’s largest independent oil refiner, into insolvency, hurting absolute performance. Profits at wireless telecommunication service provider NII Holdings declined due to unfavorable exchange rate movements, higher operating costs and competition from low-cost service plans. 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 lower volumes and prices in its display business. Among our consumer discretionary sector holdings, multiline retailer Target performed well, but not enough to offset weakness at for-profit education company DeVry and gaming machine manufacturer International Game Technology. Although our financials holdings overall aided Fund performance, Legg Mason²and JPMorgan Chase & Co. were notable detractors.

2. Sold by period-end.

Annual Report | 15

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

Steven Kornfeld, CFA
Portfolio Manager
Franklin Focused Core Equity Fund

16 | Annual 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.

18 | Annual Report

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. 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.

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. 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.

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:

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 annual report for Franklin Growth Opportunities Fund covers the fiscal year ended April 30, 2012.

Performance Overview

For the 12 months under review, Franklin Growth Opportunities Fund –Class A posted a +1.90% cumulative total return. The Fund underperformed the +6.26% 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 +4.76% total return of its broad benchmark, the Standard & Poor’s 500 Index (S&P 500), 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 27.

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 generation and returns on capital employed. Our valuation analysis includes a range of potential outcomes based on an assessment of multiple scenarios. In assessing

1. Source: © 2012 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 74.

24 | Annual Report

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 12 months under review, most sectors represented in the Fund’s portfolio contributed to absolute returns as the broad stock market rallied in the second half of the reporting period. Stock selection in the consumer staples and materials sectors contributed notably to performance relative to the Russell 3000^®Growth Index. In the consumer staples sector, Monster Beverage (formerly known as Hansen Natural) boosted relative returns. 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. Our limited exposure to the materials sector, which declined due to a global commodity price correction, proved beneficial to relative results, particularly our underweighted position in Freeport-McMoran Copper & Gold.²Wireless communications tower operator SBA Communications in the telecommunication services sector generated higher revenues from its site leasing segment. In the past few years, the company has expanded its revenue base through organic growth in tower leases, acquisitions and new tower construction in the U.S. and international markets as it fulfilled strong demand from the four nationwide U.S. wireless carriers, as well as international wireless carriers. Other key contributors included global payment solutions company MasterCard, which generated higher debit and credit purchase volume and transaction growth, and specialty retail store operator Ulta Salon Cosmetics & Fragrance, which continued to demonstrate a strong sales trend.

In contrast, overweighting and stock selection in the energy sector and stock selection in the information technology (IT) and consumer discretionary sectors detracted from relative performance. In the energy sector, key detractors included steam and metallurgical coal company Alpha Natural Resources.²Multinational oilfield services company Weatherford International, also in the energy sector, benefited from robust revenue growth in its North American operations, which accounted for most of its revenues, but its earnings were pressured by charges and weakness in its international operations. A number of unfavorable contracts Weatherford signed a few years ago in an extremely weak commodity price environment are due to expire in the second half of 2012. The company’s management expects to sign new contracts with better terms and pricing that could improve profit margins from its international

2. Sold by period-end.

Annual Report | 25

operations. In the IT sector, the stock of communications solutions and optical products provider JDS Uniphase fell in value.²Apparel retailer Abercrombie & Fitch²and apparel designer and manufacturer Guess? in the consumer discretionary sector also weighed on relative performance. The share price of Guess? was pressured by weaker-than-expected profits largely due to weak sales growth in Europe, as many European consumers trimmed their discretionary spending. In an effort to offset weakness in Europe, Guess? expanded its operations in North America and Asia.

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

26 | Annual Report

Performance Summary (continued)

Performance

Class R/Advisor Class: no sales charges.

28 | Annual Report

All investments involve risks, including possible loss of principal. 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.

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.

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. Source: © 2012 Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total U.S. equity market performance. The Russell 3000^®Growth Index is market capitalization weighted and measures performance of those Russell 3000^®Index companies with higher price-to-book ratios and higher forecasted growth values.

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:

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 annual report for Franklin Small Cap Growth Fund covers the fiscal year ended April 30, 2012.

Performance Overview

For the 12 months under review, Franklin Small Cap Growth Fund – Class A had a -1.38% cumulative total return. The Fund performed better than the -4.42% 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.²However, the Fund underperformed the +4.76% total return of its broad benchmark, the Standard & Poor’s 500 Index, which tracks the broad U.S. equity stock market.²You can find the Fund’s long-term performance data in the Performance Summary beginning on page 37.

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: © 2012 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 82.

34 | Annual Report

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 year under review, stock selection in the information technology (IT), industrials, consumer staples and consumer discretionary sector was a major contributor to Fund performance relative to the Russell 2000^®Growth Index. In the IT sector, off-benchmark holding Varian Semiconductor Equipment Associates³surged following the announcement of an acquisition offer by Applied Materials. FARO Technologies reported record results in 2011 as demand for its 3D measurement and imaging solutions, particularly its Focus Laser Scanner, continued to grow. Among industrials, our airlines and machinery holdings performed strongly, including airline company Allegiant Travel and Colfax, which produces equipment for oil and gas, marine, power generation and general industrial applications. In consumer staples, natural and organic food, beverage, and personal care company Hain Celestial Group and brewer Boston Beer were top performers. One of the key contributors to relative performance was Peet’s Coffee & Tea in the consumer discretionary sector, as the specialty coffee company weathered higher coffee costs and generated strong sales growth across all channels. Other notable holdings in this sector were media firm Lionsgate Entertainment,³automated retail service company Coinstar and casual dining and sports bar chain Buffalo Wild Wings.

In contrast, stock selection in the health care, energy and financials sectors weighed on relative Fund performance. In health care, Dexcom and ZELTIQ Aesthetics³each detracted from relative performance. Dexcom manufactures glucose monitoring systems, while ZELTIQ develops and markets proprietary fat reduction procedures. Pharmaceuticals maker InterMune’s share price dropped as the company posted losses amid scrutiny regarding the efficacy of its lung drug in Germany, leading our overweighted position to detract from relative performance. In the energy sector, James River Coal,³Comstock Resources³and Pioneer Drilling were significant detractors. James River Coal’s share price was pressured by falling coal prices. Although Comstock Resources delivered strong earnings for three consecutive quarters as its revenue increased, its share price declined along with those of most companies in the energy sector

3. Sold by period-end.

Annual Report | 35

due to a global commodity price correction. Among financials, Netspend Holdings, a leading provider of prepaid debit cards, and investment banking firm Evercore Partners were detractors. Furthermore, our underweighted allocation and stock selection in real estate investment trusts also hurt relative performance.

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

Michael P. McCarthy, CFA
Portfolio Manager
Franklin Small Cap Growth Fund

36 | Annual Report

Performance Summary (continued)

Performance

Class R/Advisor Class: no sales charges.

38 | Annual Report

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:

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 annual report for Franklin Small-Mid Cap Growth Fund covers the fiscal year ended April 30, 2012.

Performance Overview

For the 12 months under review, Franklin Small-Mid Cap Growth Fund –Class A had a -2.54% cumulative total return. The Fund underperformed the +0.78% 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 +4.76% total return of its broad benchmark, the Standard & Poor’s 500 Index (S&P 500), 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 47.

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 90.

44 | Annual Report

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 12 months under review, key contributors to the Fund’s performance relative to the Russell Midcap^®Growth Index included stock selection in the information technology (IT), consumer staples and materials sectors. In the IT sector, our position in worldwide voice and 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. Monster Beverage (formerly known as Hansen Natural) boosted relative returns in the consumer staples sector. The beverage company benefited from the energy drink category’s solid growth, with its Monster Energy^®brand outpacing the category’s growth, allowing it to continue the brand’s expansion into new international markets. The global commodity price correction presented us with an opportunity to purchase shares of metallurgical coal producer and exporter Walter Energy at what we considered to be an attractive price. This new position contributed to relative results in the materials sector as Walter Energy benefited from strong demand for its metallurgical coal, as well as its acquisition of Western Coal last year. Other key contributors included 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. 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.

In contrast, key detractors from relative performance included slight overweighting and stock selection in the health care and industrials sectors, as well as slight underweighting and stock selection in the energy sector. In the health care sector, biopharmaceutical company Human Genome Sciences’ stock fell

3. Sold by period-end.

Annual Report | 45

in value largely due to weaker-than-expected sales of its new product.³Diversified global manufacturer Terex was a major detractor in the industrials sector.³In the energy sector, steam and metallurgical coal company Alpha Natural Resources³and natural gas and oil explorer and producer QEP Resources weighed on relative results. QEP Resources’ stock price fell during the 12-month period largely due to historically weak natural gas prices. However, the company managed to drive revenue growth through its higher-margin oil and liquids-rich gas businesses, as well as its midstream business. Financial advisory and asset management firm Lazard also detracted from relative results as its stock fell in value during the first half of the reporting period along with many financials stocks, largely due to investor anxiety about the eurozone sovereign debt and banking crises. In the second half of the period, as investors became more confident in European leaders’ and the European Central Bank’s efforts to solve the region’s financial crisis, Lazard’s stock price rallied along with the broad market, partially recovering earlier losses. In this recent favorable global financial environment, the firm’s strategic-advisory business improved, driven by stronger demand for its deal-making advice, particularly in mergers and acquisitions.

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

Edward B. Jamieson
Portfolio Manager
Franklin Small-Mid Cap Growth Fund

46 | Annual Report

Performance Summary (continued)

Performance

Class R/Advisor Class: no sales charges.

48 | Annual Report

Total return represents the change in value of an investment over the periods shown. It includes any current, applicable, maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.

All investments involve risks, including possible loss of principal. 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.

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.

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. Source: © 2012 Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total U.S. equity market performance. The Russell Midcap^®Growth Index is market capitalization weighted and measures performance of those Russell Midcap^®Index companies with higher price-to-book ratios and higher forecasted growth values.

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:

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: 0.99%; B: 1.74%; C: 1.74%; R: 1.24%; and Advisor: 0.74%), multiplied by the average account value over the period, multiplied by 182/366 to reflect the one-half year period.


Franklin Strategic Series

Statement of Investments, April 30, 2012


Franklin Focused Core Equity Fund	Country	Shares		Value
Common Stocks 88.5%
Consumer Discretionary 15.7%
^aApollo Group Inc., A	United States	39,800	$	1,401,756
DeVry Inc.	United States	33,510		1,077,346
Guess? Inc.	United States	28,820		843,850
International Game Technology	United States	84,100		1,310,278
Target Corp.	United States	8,640		500,602
				5,133,832
Consumer Staples 4.2%
Bunge Ltd.	United States	2,400		154,800
CVS Caremark Corp.	United States	27,380		1,221,696
				1,376,496
Energy 6.3%
Marathon Oil Corp.	United States	45,040		1,321,473
Marathon Petroleum Corp.	United States	17,885		744,195
				2,065,668
Financials 15.9%
BlackRock Inc.	United States	6,627		1,269,601
Capital One Financial Corp.	United States	9,480		525,950
JPMorgan Chase & Co.	United States	27,613		1,186,807
Northern Trust Corp.	United States	19,740		939,427
State Street Corp.	United States	3,000		138,660
U.S. Bancorp	United States	35,380		1,138,174
				5,198,619
Health Care 14.9%
Aetna Inc.	United States	6,670		293,747
Merck & Co. Inc.	United States	42,304		1,660,009
Roche Holding AG	Switzerland	5,970		1,090,717
Teva Pharmaceutical Industries Ltd., ADR	Israel	19,260		880,952
^aWatson Pharmaceuticals Inc.	United States	12,360		931,450
^aZELTIQ Aesthetics Inc.	United States	1,500		9,330
				4,866,205
Industrials 4.7%
3M Co.	United States	4,220		377,099
FedEx Corp.	United States	6,970		615,033
^aRyanair Holdings PLC, ADR	Ireland	16,326		549,696
				1,541,828
Information Technology 10.8%
^aApple Inc.	United States	200		116,848
Cisco Systems Inc.	United States	31,700		638,755
Corning Inc.	United States	112,340		1,612,079
Maxim Integrated Products Inc.	United States	17,280		511,142
^aResearch In Motion Ltd.	Canada	46,510		665,093
				3,543,917

Franklin Strategic Series

Notes to Financial Statements

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 Board), the Fund’s administrator, investment manager and other affiliates have formed the Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Funds’ valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Funds to 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.

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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. An income-based valuation approach may also be used 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. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

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 VLOC 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.

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 Board.

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.

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.

Certain funds participate in an agency based securities 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 as indicated on the Statements of Investments. 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.

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.

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 in an amount that would be payable if the securities were disposed of on the valuation date.

Each fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of April 30, 2012, and for all open tax years, each fund has determined that no liability for unrecognized tax benefits is required in each fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

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.

Distributions received by the Trust from certain securities may be a return of capital (ROC). Such distributions reduce the cost basis of the securities, and any distributions in excess of the cost basis are recognized as capital gains.

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.

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.

Franklin Strategic Series

Notes to Financial Statements (continued)

3.	TRANSACTIONS WITH AFFILIATES (continued)
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 Board 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.

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

The Board 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

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Franklin Strategic Series

Notes to Financial Statements (continued)

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 year ended April 30, 2012, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, capital losses incurred by the Fund in taxable years beginning after December 22, 2010 are not subject to expiration and such losses retain their character as either short-term or long-term, rather than being considered short-term as under previous law. Post-enactment capital losses must be fully utilized prior to utilizing any losses incurred in pre-enactment tax years.

At April 30, 2012, the Franklin Small Cap Growth Fund had capital loss carryforwards of $3,940,393 expiring in 2018. During the year ended April 30, 2012, the Franklin Small Cap Growth Fund utilized $33,131,966 of capital loss carryforwards.

For tax purposes, the Funds may elect to defer any portion of a post-October capital loss to the first day of the following fiscal year. At April 30, 2012, the Franklin Focused Core Equity Fund deferred post-October capital losses of $294,763.

The Franklin Growth Opportunities Fund has foregone capital loss carryovers of $18,583,907 as a result of a timing difference between excise tax and income tax requirements relating to the expiration of capital loss carryovers.

The tax character of distributions paid during the years ended April 30, 2012 and 2011, was as follows:

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(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 year ended April 30, 2012, 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 April 30, 2012, 17.94% of the Franklin Flex Cap Growth Fund and 19.70% of the Franklin Growth Opportunities Fund outstanding shares were held by one or more of the Allocator Funds.

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 $1.5 billion (Global Credit Facility) which matures on January 18, 2013. 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 year ended April 30, 2012, the Funds did not use the Global Credit Facility.

During the year ended April 30, 2011, the Franklin Flex Cap Growth Fund and the Franklin Small-Mid Cap Growth Fund received $353,377 and $3,533,869, respectively, resulting from a settlement between the U.S. Securities and Exchange Commission and Advisers relating to market-timing activities, as previously reported in the fund’s financial statements during the years ended April 30, 2004 through April 30, 2007. This payment is included in capital shares transactions on the Statements of Changes in Net Assets.

Franklin Strategic Series

Notes to Financial Statements (continued)

13. 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.

A summary of inputs used as of April 30, 2012, in valuing the Funds’ assets and liabilities carried at fair value, is as follows:

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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 believe the adoption of this ASU will not have a material impact on their financial statements.

In December 2011, FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in the ASU enhance disclosures about offsetting of financial assets and liabilities to enable investors to understand the effect of these arrangements on a fund’s financial position. The ASU is effective for interim and annual reporting periods beginning on or after January 1, 2013. The Funds believe the adoption of this ASU will not have a material impact on their financial statements.

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

In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Flex Cap Growth Fund, Franklin Focused Core Equity Fund, Franklin Growth Opportunities Fund, Franklin Small Cap Growth Fund, and Franklin Small-Mid Cap Growth Fund (separate portfolios of Franklin Strategic Series, hereafter referred to as the “Funds”) at April 30, 2012, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.

We believe that our audits, which included confirmation of securities at April 30, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

At a meeting held April 17, 2012, the Board of Trustees (Board), including a majority of non-interested or independent Trustees, approved renewal of the investment management agreements for each of the separate funds within the Trust (Fund(s)). In reaching this decision, the Board took into account information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the annual renewal review process. Information furnished and discussed throughout the year included investment performance reports and related financial information for each Fund, as well as periodic reports on expenses, shareholder services, legal and compliance matters, pricing, brokerage commissions and execution and other services provided by the Investment Manager (Manager) and its affiliates. Information furnished specifically in connection with the renewal process included a report for each Fund prepared by Lipper, Inc. (Lipper), an independent organization, as well as additional material, including a Fund profitability analysis prepared by management. The Lipper reports compared each Fund’s investment performance and expenses with those of other mutual funds deemed comparable to the Fund as selected by Lipper. The Fund profitability analysis discussed the profitability to Franklin Templeton Investments from its overall U.S. fund operations, as well as on an individual fund-by-fund basis. Additional material accompanying such profitability analysis included information on a fund-by-fund basis listing portfolio managers and other accounts they manage, as well as information on management fees charged by the Manager and its affiliates to U.S. mutual funds and other accounts, including management’s explanation of differences where relevant. Such material also included a memorandum prepared by management describing project initiatives and capital investments relating to the services provided to the Funds by the Franklin Templeton Investments organization, as well as a memorandum relating to economies of scale and an analysis concerning transfer agent fees charged by an affiliate of the Manager.

In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel. While the investment management agreements for all Funds were considered at the same Board meeting, the Board dealt with each Fund separately. In approving continuance of the investment management agreement for each Fund, the Board, including a majority of independent Trustees, determined that the existing management fee structure was fair and reasonable and that continuance of the investment management agreement was in the best interests of each Fund and its shareholders. While attention was given to all information furnished, the following discusses some primary factors relevant to the Board’s decision.

NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature and quality of the overall services provided by the Manager and its affiliates to the Funds and their shareholders. In addition to investment performance and expenses discussed later, the Board’s opinion was based, in part, upon periodic reports furnished it showing that the investment policies and restrictions for each Fund were consistently complied with as well as other reports periodically furnished the Board covering matters such as the compliance of portfolio managers and other management personnel with the code of ethics adopted throughout the Franklin Templeton fund

complex, the adherence to fair value pricing procedures established by the Board, and the accuracy of net asset value calculations. The Board also noted the extent of benefits provided Fund shareholders from being part of the Franklin Templeton family of funds, including the right to exchange investments between the same class of funds without a sales charge, the ability to reinvest Fund dividends into other funds and the right to combine holdings in other funds to obtain a reduced sales charge. Favorable consideration was given to management’s continuous efforts and expenditures in establishing back-up systems and recovery procedures to function in the event of a natural disaster, it being noted that such systems and procedures had functioned smoothly during the Florida hurricanes and blackouts experienced in previous years. Among other factors taken into account by the Board were the Manager’s best execution trading policies, including a favorable report by an independent portfolio trading analytical firm, which also covered FOREX transactions. Consideration was also given to the experience of each Fund’s portfolio management team, the number of accounts managed and general method of compensation. In this latter respect, the Board noted that a primary factor in management’s determination of a portfolio manager’s bonus compensation was the relative investment performance of the funds he or she managed and that a portion of such bonus was required to be invested in a predesignated list of funds within such person’s fund management area so as to be aligned with the interests of shareholders. The Board also took into account the quality of transfer agent and shareholder services provided Fund shareholders by an affiliate of the Manager, and the continuous enhancements to the Franklin Templeton website. Particular attention was given to management’s conservative approach and diligent risk management procedures, including continuous monitoring of counterparty credit risk and attention given to derivatives and other complex instruments, including expanded collateralization requirements. The Board also took into account, among other things, management’s efforts in establishing a global credit facility for the benefit of the Funds and other accounts managed by Franklin Templeton Investments to provide a source of cash for temporary and emergency purposes or to meet unusual redemption requests as well as the strong financial position of the Manager’s parent company and its commitment to the mutual fund business as evidenced by its subsidization of money market funds.

INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Funds in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular attention in assessing performance was given to the Lipper reports furnished for the agreement renewals. The Lipper reports prepared for each such individual Fund showed the investment performance of its Class A shares in comparison to a performance universe selected by Lipper. Comparative performance for each Fund was shown for the one-year period ended January 31, 2012, and previous periods ended that date of up to 10 years depending on when a particular Fund commenced operations. The following summarizes the performance results for each of these Funds and the Board’s view of such performance.

Franklin Flex Cap Growth Fund – The performance universe for this Fund consisted of the Fund and all retail and institutional multi-cap growth funds as selected by Lipper. The Lipper report showed the Fund’s total return to be in the middle quintile of such performance universe for the one-year period, and on an annualized basis to be in the second-lowest quintile of the performance universe during the previous three-year period but the second-highest quintile of such universe during each of the previous five- and 10-year periods. The Board found the Fund’s overall comparative performance to be acceptable, noting that the Fund’s total return for the annualized three-year period as set forth in the Lipper report exceeded 19%.

Franklin Focused Core Equity Fund – The performance universe for this Fund consisted of all retail and institutional multi-cap core funds as selected by Lipper. The Fund has been in operation for only four full years, and the Lipper report showed its total return for the one-year period to be in the second-lowest quintile of such performance universe, but on an annualized basis to be in the second-highest quintile of such performance universe for the four-year period of its operation. The Board discussed with management the reasons for the Fund’s underperformance for the one-year period but did not believe the Fund’s overall performance to be particularly meaningful in view of its brief period of operation.

Franklin Growth Opportunities Fund – The performance universe for this Fund consisted of the Fund and all retail and institutional multi-cap growth funds as selected by Lipper. The Lipper report showed the Fund’s total return for the one-year period to be in the upper half of its performance universe, and on an annualized basis to be in either the highest performing or second-highest performing quintile of such universe during each of the previous three-, five- and 10-year periods. The Board was satisfied with the Fund’s comparative investment performance as set forth in the Lipper report.

Franklin Small Cap Growth Fund – The performance universe for this Fund consisted of the Fund and all retail and institutional small cap growth funds as selected by Lipper. The Lipper report showed the Fund’s total return to be in the second-highest quintile of such performance universe during the one-year period, and on an annualized basis to also be in the highest quintile of such universe for the previous three-year period, the second-highest quintile of such universe for the previous five-year period, and the upper half of such universe for the previous 10-year period. The Board was satisfied with the Fund’s comparative investment performance as set forth in the Lipper report.

Franklin Small-Mid Cap Growth Fund – The performance universe for this Fund consisted of all retail and institutional mid-cap growth funds as selected by Lipper. The Lipper report comparison for the Fund showed its total return during the one-year period to be in the middle quintile of such performance universe, and on an annualized basis to also be in the middle quintile of such universe during each of the previous three- and five-year periods, and the second-lowest quintile of such universe during the previous 10-year period. The Board found the Fund’s overall comparative investment performance as set forth in the Lipper report to be acceptable, noting that its annualized 10-year return was less than a half percent below the performance universe average.

COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the management fees and total expense ratios of each Fund compared with those of a group of other funds selected by Lipper as its appropriate Lipper expense group. Lipper expense data is based upon information taken from each fund’s most recent annual report, which reflects historical asset levels that may be quite different from those currently existing, particularly in a period of market volatility. While recognizing such inherent limitation and the fact that expense ratios generally increase as assets decline and decrease as assets grow, the Board believed the independent analysis conducted by Lipper to be an appropriate measure of comparative expenses. In reviewing comparative costs, Lipper provides information on each Fund’s contractual investment management fee in comparison with the investment management fee that would have been charged by other funds within its Lipper expense group assuming they were similar in size to the Fund, as well as the actual total expense ratio of the Fund in comparison with those of its Lipper expense group. The Lipper contractual investment management fee analysis includes administrative charges as being part of the investment management fee, and actual total expenses, for comparative consistency, are shown by Lipper for Fund Class A shares. The results of such expense comparisons showed the contractual investment management fee rates and actual total expense ratios for each of Franklin Flex Cap Growth Fund and Franklin Small-Mid Cap Growth Fund to be in the least expensive quintiles of their respective Lipper expense groups. The contractual investment management fee rates for each of Franklin Small Cap Growth Fund and Franklin Growth Opportunities Fund were in the least expensive quintiles of their respective Lipper expense groups and their actual total expense ratios were below the medians of such groups. The Board was satisfied with the contractual management fees and total expense ratios of each of these Funds in comparison to their expense groups as shown in the Lipper reports. The contractual investment management fee rate for Franklin Focused Core Equity Fund was in the second most expensive quintile of its Lipper expense group, but its actual total expense ratio was in the second least expensive quintile of such expense group. The Board was satisfied with the expenses of this Fund as shown in its Lipper report, noting they were subsidized by management.

discussing such analysis, management discussed with the Board its belief that costs incurred in establishing the infrastructure necessary for the type of mutual fund operations conducted by the Manager and its affiliates may not be fully reflected in the expenses allocated to each Fund in determining its profitability, as well as the fact that the level of profits, to a certain extent, reflected operational cost savings and efficiencies initiated by management. The Board also took into account management’s expenditures in improving shareholder services provided the Funds, as well as the need to implement systems and meet additional regulatory and compliance requirements resulting from statutes such as the Sarbanes-Oxley and Dodd-Frank Acts and recent SEC and other regulatory requirements. In addition, the Board considered a third-party study comparing the profitability of the Manager’s parent on an overall basis to other publicly held managers broken down to show profitability from management operations exclusive of distribution expenses, as well as profitability including distribution expenses. The Board also considered the extent to which the Manager and its affiliates might derive ancillary benefits from fund operations, including revenues generated from transfer agent services and potential benefits resulting from allocation of fund brokerage and the use of commission dollars to pay for research. Based upon its consideration of all these factors, the Board determined that the level of profits realized by the Manager and its affiliates from providing services to each Fund was not excessive in view of the nature, quality and extent of services provided.

ECONOMIES OF SCALE. The Board also considered whether economies of scale are realized by the Manager as the Funds grow larger and the extent to which this is reflected in the level of management fees charged. While recognizing that any precise determination is inherently subjective, the Board noted that based upon the Fund profitability analysis, it appears that as some funds get larger, at some point economies of scale do result in the Manager realizing a larger profit margin on management services provided such a fund. The Board noted that economies of scale were shared with each Fund and its shareholders through management fee breakpoints so that as a Fund grows in size, its effective management fee rate declines. The fee structure under the investment management agreements for all of the Funds contains breakpoints that continued to asset levels that exceeded their asset sizes at December 31, 2011. The assets of Franklin Focused Core Equity Fund amounted to approximately $20 million at December 31, 2011, and the Board did not believe such size afforded any economies of scale, noting expenses were subsidized by management. In view of such fee structure and the favorable expense comparisons of each of the Funds within their respective expense groups, the Board believed that to the extent economies of scale may be realized by the manager of these Funds and its affiliates, that there was a sharing of benefits with each Fund and its shareholders.

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.

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.

You will receive each Fund’s financial reports every six months as well as an annual updated summary prospectus (prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.

Annual Report

Economic and Market Overview

Amid improved economic reports, U.S. stock markets responded well and reached multi-year highs in late March and early April 2012. The Dow Jones Industrial Average exceeded the 13,000 level for the first time since 2008, and the NASDAQ Composite Index hit an 11-year high. Overall, growth stocks outperformed value, and leading market sectors included information technology, consumer discretionary and utilities. Sector performance varied widely, with energy, materials and financials lagging the broader market and posting the largest declines.

1. Source: Bureau of Labor Statistics.

Annual Report | 3

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 annual report for Franklin Biotechnology Discovery Fund covers the fiscal year ended April 30, 2012.

Performance Overview

Franklin Biotechnology Discovery Fund – Class A posted a +13.18% cumulative total return for the 12 months under review. The Fund underperformed the +16.54% total return of its narrow benchmark, the NASDAQ Biotechnology Index, which tracks U.S. and international-based biotechnology stocks, but outperformed the +4.76% total return of its broad benchmark, the Standard & Poor’s^®500 Index (S&P 500^®), which is a broad based measure of the U.S. stock market.¹For comparison, domestic and international-based stocks as measured by the NASDAQ Composite Index generated a +7.12% total return.¹You can find the Fund’s long-term performance data in the Performance Summary beginning on page 8.

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 bio-technology, 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: © 2012 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. STANDARD & POOR’S^®, S&P^®and S&P 500^®are registered trademarks of Standard & Poor’s Financial Services LLC. 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 28.

4 | Annual Report

Manager’s Discussion

The 12-month reporting period included a precipitous decline for biotechnology stocks in August 2011, with a subsequent rally for the industry continuing through April 2012. Wide disparity among performance for certain positions occurred in this volatile environment. The Fund’s performance was driven by triple-digit gains for several holdings, combined with solid returns for some of the larger Fund positions. Conversely, some positions posted declines that exceeded 75%, illustrating the degree of performance dispersion. Please keep in mind volatility is not uncommon in the biotechnology sector, and the Fund seeks to take advantage of short-term volatility by initiating or adding to what we believe to be undervalued securities.

Among the Fund’s leading contributors to absolute performance were Pharmasset, Inhibitex and Alexion Pharmaceuticals. Specializing in antiviral drugs for HIV and hepatitis B and C, drug developer Pharmasset was acquired at a healthy premium to its then share price by Gilead Sciences, also a Fund position and another top performer. Gilead Sciences, which completed the acquisition of Pharmasset in January 2012, reported positive test results from a 12-week study of its hepatitis C treatment GS-7977. The firm also reported higher total revenues for the first quarter of 2012 amid increased sales of antiviral drugs Atripla and Truvada and new product Complera/Eviplera. Sales for Complera/Eviplera more than doubled between the fourth quarter of 2011 and the first quarter of 2012. The U.S. Food and Drug Administration (FDA) approved Gilead’s Viread drug for use in the treatment of specific HIV-1 infections, and accepted Gilead’s new drug application for Truvada for reducing the risk of HIV-1 infection among uninfected adults.

Inhibitex, a new position established during the 12-month period, represented another biotechnology company acquired by a larger health care firm. The clinical-stage developer of drugs for treating or preventing bacterial and viral infections, including hepatitis C, was purchased at a healthy premium to its then share price by global drugmaker Bristol-Myers Squibb.

Shares of drug developer Alexion Pharmaceuticals also rose in value, benefiting the Fund. Robust sales were reported for the firm’s drug Soliris, which inhibits immune system dysfunctions that cause autoimmune and neurological disorders. In addition, the FDA approved Soliris for use in a rare ailment that causes kidney disease and high blood pressure, mainly in children. Although the medicine is approved for use in Europe and Japan, availability in North America had been hampered by factors such as marketing restrictions.

Conversely, Dendreon, InterMune and Human Genome Sciences detracted from Fund performance. Focused on developing and marketing treatments for cancer patients, Dendreon generated higher fourth-quarter sales for its

Annual Report | 5

sole commercial product, Provenge, and solid revenues from royalties from a Merck hepatitis C drug. However, the company’s stock decline weighed on performance as it announced it expected more modest sales of Provenge in the first quarter of 2012. Earlier in the period, Dendreon reported physicians were concerned about reimbursement for Provenge, a revelation that eventually resulted in a class action lawsuit against the company.

InterMune develops treatments for pulmonology and orphan fibrotic diseases, including lung disease idiopathic pulmonary fibrosis (IPF). The company’s shares lost value and detracted from returns during the period, largely due to higher operating expenses and concerns over reimbursements for its new IPF drug, Esbriet. With austerity measures enacted in Europe and more proposed, the impact of potential government budget shortfalls on sales of and reimbursements for Esbriet weighed on InterMune’s share price.

Although Human Genome Sciences’ (HGS) performance also hindered returns, at the end of the period the firm received an unsolicited takeover bid from GlaxoSmithKline at a notable premium to its then share price. Overhead costs and collaboration expenses have weighed on HGS, and the firm reported a loss in the first quarter of 2012. However, the loss narrowed compared to prior periods as sales of lupus treatment Benlysta rebounded from disappointing levels, and research and development expenses were reduced. Although HGS says the unsolicited bid underestimates the firm’s value and represents a notable discount to its share price from a year ago, the extensive collaborative efforts between GlaxoSmithKline and HGS may deter other firms from making a rival bid. We sold our holding by period-end.

6 | Annual Report

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

CFA^®is a trademark owned by CFA Institute.

Annual Report | 7

Performance Summary as of 4/30/12

Franklin Biotechnology Discovery 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 and graphs do 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.

Performance

8 | Annual Report

Performance Summary (continued)

Endnotes

All investments involve risks, including possible loss of principal. 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.
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 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 per-
formance, 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 +55.62% and +18.08%.
7. Source: © 2012 Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total U.S. equity market
performance. The NASDAQ Biotechnology Index is a capitalization-weighted index designed to measure performance of all NASDAQ stocks in the
biotechnology sector.

10 | Annual 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

Annual Report | 11

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 annual report for Franklin Natural Resources Fund covers the fiscal year ended April 30, 2012.

Performance Overview

Franklin Natural Resources Fund – Class A had a -19.36% cumulative total return for the 12 months under review. The Fund underperformed the -16.22% 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 +4.76% 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 20.

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: © 2012 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 34.

Annual Report | 13

Sector Overview

Commodities faced 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 12-month reporting period. In the first half of the period, reports indicated weakening 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, investors became concerned that China’s and other emerging market countries’ rapid growth in recent years would decelerate as they sought to control inflation through various policies. Investor concerns intensified due to a belief that slowing growth or recession in Europe could negatively affect emerging market economies and result in further commodity demand weakness.

As many investors switched from assets perceived as risky, such as commodities and commodity-related stocks, to U.S. Treasuries and other perceived safe havens, a steep correction ensued across much of the commodities complex from May through September, until a rally generally lasting from October through February (one month shorter than the broad stock market rally, which lasted through March) partially offset earlier losses. Commodities largely tracked the volatile movements of global stocks and were further hindered, in part, by U.S. dollar appreciation. Among major commodities, gold and soybeans rose in price during the 12-month period, while natural gas, silver, platinum and wheat had some of the biggest declines. Most commodity-linked stocks also declined in value amid concerns of weaker consumer and industrial/producer demand for raw materials.

Economically sensitive fuels and industrial metals were negatively affected by slowing global economic growth concerns, while gold and several agricultural commodities remained resilient. On a percentage basis, U.S. natural gas prices fell the most (53.1%) as record production, particularly in North America where plentiful supplies were increasingly evident, overwhelmed industrial and residential demand.²For crude oil, lower consumption in some parts of the world amid concerns about the fragility of the global economy brought spot prices for benchmark West Texas Intermediate (WTI) crude from $114 per barrel on April 30, 2011, to a period low of $76 on October 4.²Subsequently, optimism about the U.S. economy and European leaders’ handling of the region’s financial crisis, subsiding fears of an economic hard landing in China, and concerns about oil supply disruption from Iran drove the WTI spot price

2. Source: Bloomberg LP.

14 | Annual Report

to $105 at period-end, resulting in a 12-month decline of 8.0%.²Meanwhile, U.K.-based Brent crude oil prices, considered by many to be a better global benchmark, declined less for the same period, maintaining a historically wide price spread between WTI and Brent. The higher prices for Brent and other crude oil grades provided some confidence that the global supply and demand outlook was more positive than generally perceived.

Unlike many commodities that had reached all-time highs in early 2011 before moderating through period-end, such as copper and several agricultural products, gold prices continued to climb as investors sought to protect their wealth against financial market turmoil. Gold repeatedly broke records until its spot price reached a new nominal all-time high of $1,900 per troy ounce on September 5.²Even though gold spot prices eventually ebbed to $1,665 per ounce at period-end, they still posted a 12-month gain of 6.5% during the period as safe-haven, central bank and physical demand (for industrial and jewelry applications) remained relatively robust, particularly across Asia.²Conversely, the speculative frenzy that at one point lifted the silver market to a 31-year high collapsed, causing its spot price to plummet more than 35%, or from $48 to $31 per troy ounce.²Industrially linked platinum and palladium also fared poorly, losing about 16% and 14% of their value during the 12 months under review.²Similar to some 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 the second half of the period but not enough to offset earlier declines, resulting in a 10% drop during the 12-month period despite signs of shortages.³

Amid the crosscurrents of the recent environment, it is important to take a long-term investment perspective and remember that natural resources investments are directly related to world consumption and resource supply limitation trends, which continue to appear supportive of production, revenue and earnings growth for commodity-producing companies and therefore, equity values. Periods of disruption and slowing are to be expected, and when viewed in a long-term light, can and often do present opportunities to invest in strong companies at attractive valuations. For these reasons, we employ an opportunistic approach as we are staunch believers in global, long-term consumption trends and invest with an understanding that volatility in stock markets often presents compelling values. We believe that, in many cases, this has occurred in the recent market environment, and we are actively seeking such opportunities.

3. Source: London Metal Exchange.

Annual Report | 15

Manager’s Discussion

The 12 months under review proved challenging for the commodities market, especially the summer and late fall of 2011 when investor anxiety about the eurozone sovereign debt and banking crises, the downgrade of the long-term U.S. credit rating to AA+ from AAA, and a possible economic hard landing in China led to heightened volatility in global financial markets. In this environment, the Fund’s net asset value declined to a period low in early October. A rally in commodities and commodity-related stocks ensued in early October and lasted through February, largely due to better-than-expected U.S. economic reports, as well as investor optimism about improvements of the eurozone’s financial situation and the likelihood of an economic soft landing in China, which helped the Fund erase some of the earlier losses. The commodity price correction resumed in March, however, due to renewed concerns of slowing global economic growth, particularly in the eurozone and in large emerging market countries such as China, India and Brazil.

Most of the Fund’s holdings were impacted by the same difficult environment that affected commodities. The Fund has historically held a much larger percentage of investments in higher growth companies and less in defensive integrated oil and gas companies when compared with its benchmark, the S&P North American Natural Resources Index. As a result, the Fund tends to outperform the index in a generally strong market environment. Although it is not unusual for the Fund to underperform the index during periods of market weakness, we expect the Fund’s positioning to benefit long-term returns. For the 12-month reporting period, significant detractors from the Fund’s relative performance included an underweighted allocation to the oil and gas storage and transportation industry (sold by period-end) and integrated oil and gas industry, which performed relatively well in this period’s uncertain economic environment, as many investors favored stocks of large, dividend-paying companies such as Exxon and Chevron, which are perceived to be more defensive investments. Although the Fund held both companies’ stocks, our much smaller positions compared to those in the benchmark negatively impacted the Fund’s returns relative to the index.

Investments in the coal industry also detracted from Fund performance as many utilities and other power producers switched from thermal coal to bargain-priced natural gas, which hurt returns of the Fund’s coal holdings, notably coal producers Alpha Natural Resources and Peabody Energy. In addition to facing lower thermal coal demand, Alpha Natural Resources also experienced reduced metallurgical coal demand from Asia as demand for steel products subsided during parts of the period, prompting the company to cut production in both coal types as prices dropped. Following its acquisition of Massey Energy last year, Alpha Natural Resources became the third-largest global producer of

16 | Annual Report

metallurgical coal, which we expect to experience better supply and demand trends than thermal coal. Meanwhile, Peabody Energy strengthened its presence in Australia, the world’s largest coal-exporting nation, by acquiring Australia-based coal-mining company Macarthur Coal, increasing its exposure to the growing Asian market.

As natural gas prices fell to historical lows during the period, share prices of many natural gas-related companies declined, including Comstock Resources (sold by period-end), Devon Energy and Bill Barrett, which were some of the largest individual detractors from the Fund’s absolute and relative results. However, the Fund’s underweighting in natural gas producers, particularly its lack of exposure to several companies whose share prices declined significantly, contributed to relative outperformance within the oil and gas exploration and production (E&P) industry.

Other key detractors from absolute and relative performance included the Fund’s relatively minor off-benchmark investment in First Solar (sold by period-end), which suffered from overcapacity and pricing pressure in the solar manufacturing sector, as well as an overweighted position in oil and gas equipment and services company Halliburton. In addition, our positions in Australia-based miners Rio Tinto (diversified) and Newcrest Mining (gold) and Switzerland-based miner Xstrata (diversified) hindered relative returns as their shares lost value.

Despite a generally weak commodity environment, the Fund had some contributors to absolute and relative performance, including our positions in industrial machinery, fertilizers and agricultural chemicals, and specialty chemicals. Additionally, though our E&P holdings generally detracted from absolute results, several holdings performed well, and our stock selection contributed to strong performance relative to the benchmark index. Petrohawk Energy and Brigham Exploration were leading contributors to Fund returns as both companies 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 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. Cobalt International Energy also generated strong share-price appreciation late in the period as investors learned of a positive production flow test for the company’s oil discovery off the coast of Angola. Industry experts concluded this Angolan deepwater find, along with a similar recent discovery made by Maersk in the same area, may herald the opening of an important new oil basin in the region. Although Petrohawk, Brigham and Cobalt differ greatly in some respects, they highlight our efforts

Annual Report | 17

to make investments in companies that we believe can provide rapid growth and strong upside exploration potential.

Stock selection offset the negative effect of overweighting in the diversified metals and mining industry on relative performance. Our off-benchmark position in Canada-based precious and base metals miner Imperial Metals generated double-digit returns, which helped absolute and relative results. Our underweighting in Freeport-McMoran Copper & Gold, the world’s largest publicly traded copper company, and Canada-based natural resources explorer and producer Teck Resources, whose shares suffered double-digit declines, also aided relative performance.

Stock selection in the oil and gas equipment and services industry also helped the Fund’s relative results, largely due to off-benchmark and overweighted positions in stocks that benefited from accelerating deepwater activities worldwide. For example, the Fund’s position in Hornbeck Offshore Services was a strong performer among several solidly advancing companies in this industry. Hornbeck, which specializes in providing marine transportation vessels and services, benefited from the continued recovery in permit issuance and activity in the Gulf of Mexico, particularly in deepwater exploration and development. As a result, Hornbeck experienced higher demand for its fleet of contract vessels, leading to higher capacity utilization and day rates. Other holdings with exposure to deepwater activity also performed well during the period, particularly those that supply subsea services and equipment, such as Oceaneering International and FMC Technologies. Many of the Fund’s investments are focused on companies with exposure to deepwater exploration and development, which we expect to benefit from potential long-term secular growth opportunities.

Other key contributors included U.K.-based Randgold Resources, which, along with its subsidiaries, engages in gold exploration and mining across west and central Africa. Randgold shares recovered from weakness resulting from political unrest in Ivory Coast, which experienced calmer conditions and less uncertainty after its newly elected president gained control of the country.

It is important to recognize the effect of currency movements on the Fund’s performance. In general, if the value of the U.S. dollar goes up compared with a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. This can have a negative effect on Fund performance. Conversely, when the U.S. dollar weakens in relation to a foreign currency, an investment traded in that foreign currency will increase in value, which can contribute to Fund performance. For the 12 months ended April 30, 2012, the U.S. dollar rose in value relative to most

18 | Annual Report

currencies. As a result, the Fund’s performance was negatively affected by the portfolio’s portion of investment in securities with non-U.S. currency exposure.

Finally, the Fund’s cash position fell from 5.9% of total net assets to 2.1% by period-end, as we found opportunities to invest in what we considered to be fundamentally attractive companies as their 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.

Annual Report | 19

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

24 | Annual Report

Franklin Strategic Series

Notes to Financial Statements

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.

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 Board), the Funds’ administrator, investment manager and other affiliates have formed the Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Funds’ valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Funds to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

The Funds have procedures to determine the fair value of securities and other financial instruments for which market prices are not reliable or readily available. Under these procedures, the VLOC convenes on a regular basis to review such securities and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VLOC 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

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Notes to Financial Statements (continued)

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

to determine the fair value of the investment. An income-based valuation approach may also be used 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. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

b. Foreign Currency Translation

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Franklin Strategic Series

Notes to Financial Statements (continued)

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

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 as indicated on the Statements of Investments. 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

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Franklin Strategic Series

Notes to Financial Statements (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.

f. Accounting Estimates

g. Guarantees and Indemnifications

Annual Report | 45

Franklin Strategic Series

Notes to Financial Statements (continued)

4. EXPENSE OFFSET ARRANGEMENT

5. INCOME TAXES

At April 30, 2012, the Franklin Natural Resources Fund had capital loss carryforwards of $18,794,550 expiring in 2018. During the year ended April 30, 2012, the Franklin Natural Resources Fund utilized $14,444,847 of capital loss carryforwards.

The Franklin Biotechnology Discovery Fund has foregone capital loss carryovers of $146,278,060 as a result of a timing difference between excise tax and income tax requirements relating to the expiration of capital loss carryovers.

Under the Regulated Investment Company Modernization Act of 2010, for tax purposes, the Funds may elect to defer any portion of a post-October capital loss or late-year ordinary loss to the first day of the following fiscal year. At April 30, 2012, the Franklin Biotechnology Discovery Fund and Franklin Natural Resources Fund deferred post-October capital losses of $3,761,173 and $975,416, respectively, and the Franklin Natural Resources Fund deferred late-year ordinary losses of $238,999.

The tax character of distributions paid during the years ended April 30, 2012 and 2011, was as follows:

Annual Report | 49

Franklin Strategic Series

Notes to Financial Statements (continued)

5. INCOME TAXES (continued)

At April 30, 2012, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:

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

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.

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Franklin Strategic Series

Notes to Financial Statements (continued)

10. SPECIAL SERVICING AGREEMENT (continued)

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 year ended April 30, 2012, 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 April 30, 2012, 8.01% of the Franklin Natural Resources Fund’s outstanding shares were held by one or more of the Allocator Funds.

11. CREDIT FACILITY

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)

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Franklin Strategic Series

Notes to Financial Statements (continued)

12. FAIR VALUE MEASUREMENTS (continued)

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 investments at the end of the period. At April 30, 2012, the reconciliations of assets, is as follows:

13. NEW ACCOUNTING PRONOUNCEMENTS

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Franklin Strategic Series

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of The Franklin Strategic Series

In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Biotechnology Discovery Fund and Franklin Natural Resources Fund (separate portfolios of Franklin Strategic Series, hereafter referred to as the “Funds”) at April 30, 2012, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.

We believe that our audits, which included confirmation of securities at April 30, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
June 15, 2012

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Franklin Strategic Series

Tax Information (unaudited)

Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Franklin Biotechnology Discovery Fund hereby reports the maximum amount allowable but no less than $47,297,307 as a long term capital gain dividend for the fiscal year ended April 30, 2012.

Under Section 871(k)(2)(C) of the Code, the Franklin Biotechnology Discovery Fund hereby reports the maximum amount allowable but no less than $139,089 as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended April 30, 2012.

Under Section 854(b)(1)(A) of the Code, the Franklin Natural Resources Fund hereby reports 96.80% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended April 30, 2012.

Under Section 854(b)(1)(B) of the Code, the Funds hereby report the maximum amount allowable but no less than the following amounts as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended April 30, 2012:

Distributions, including qualified dividend income, paid during calendar year 2012 will be reported to shareholders on Form 1099-DIV by mid-February 2013. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.

Annual Report | 57

Franklin Strategic Series

Shareholder Information

Board Review of Investment Management Agreement

Annual Report | 63

Franklin Strategic Series

Shareholder Information (continued)

Board Review of Investment Management Agreement (continued)

management personnel with the code of ethics adopted throughout the Franklin Templeton fund complex, the adherence to fair value pricing procedures established by the Board, and the accuracy of net asset value calculations. The Board also noted the extent of benefits provided Fund shareholders from being part of the Franklin Templeton family of funds, including the right to exchange investments between the same class of funds without a sales charge, the ability to reinvest Fund dividends into other funds and the right to combine holdings in other funds to obtain a reduced sales charge. Favorable consideration was given to management’s continuous efforts and expenditures in establishing back-up systems and recovery procedures to function in the event of a natural disaster, it being noted that such systems and procedures had functioned smoothly during the Florida hurricanes and blackouts experienced in previous years. Among other factors taken into account by the Board were the Manager’s best execution trading policies, including a favorable report by an independent portfolio trading analytical firm, which also covered FOREX transactions. Consideration was also given to the experience of each Fund’s portfolio management team, the number of accounts managed and general method of compensation. In this latter respect, the Board noted that a primary factor in management’s determination of a portfolio manager’s bonus compensation was the relative investment performance of the funds he or she managed and that a portion of such bonus was required to be invested in a predesignated list of funds within such person’s fund management area so as to be aligned with the interests of shareholders. The Board also took into account the quality of transfer agent and shareholder services provided Fund shareholders by an affiliate of the Manager, and the continuous enhancements to the Franklin Templeton website. Particular attention was given to management’s conservative approach and diligent risk management procedures, including continuous monitoring of counterparty credit risk and attention given to derivatives and other complex instruments, including expanded collateralization requirements. The Board also took into account, among other things, management’s efforts in establishing a global credit facility for the benefit of the Funds and other accounts managed by Franklin Templeton Investments to provide a source of cash for temporary and emergency purposes or to meet unusual redemption requests as well as the strong financial position of the Manager’s parent company and its commitment to the mutual fund business as evidenced by its subsidization of money market funds.

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Franklin Strategic Series

Shareholder Information (continued)

Board Review of Investment Management Agreement (continued)

Franklin Biotechnology Discovery Fund – The performance universe for this Fund consisted of the Fund and all retail and institutional health/biotechnology funds as selected by Lipper. The Lipper report showed the Fund’s total return for the one-year period to be in the highest or best performing quintile of its performance universe, and on an annualized basis, to be in the second-lowest quintile of such universe for the previous three-year period, the second-highest quintile of such universe for the previous five-year period, and the middle quintile of such universe for the previous 10-year period. The Board was satisfied with the Fund’s comparative investment performance for the one-year period as set forth in the Lipper report and believed its overall performance in prior periods to be acceptable.

Franklin Natural Resources Fund – The performance universe for this Fund consisted of the Fund and all retail and institutional global natural resources funds as selected by Lipper. The Lipper report comparison for the Fund showed its total return for the one-year period to be in the second-highest quintile of its performance universe, and on an annualized basis to be in the highest quintile of the performance universe for each of the previous three- and five-year periods, and the second-lowest quintile of such universe for the previous 10-year period. The Board was satisfied with the Fund’s performance as set forth in the Lipper report, noting that the Lipper report showed the Fund’s annualized return for the 10-year period to be nearly 13 percent.

COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the management fees and total expense ratios of each Fund compared with those of a group of other funds selected by Lipper as its appropriate Lipper expense group. Lipper expense data is based upon information taken from each fund’s most recent annual report, which reflects historical asset levels that may be quite different from those currently existing, particularly in a period of market volatility. While recognizing such inherent limitation and the fact that expense ratios generally increase as assets decline and decrease as assets grow, the Board believed the independent analysis conducted by Lipper to be an appropriate measure of comparative expenses. In reviewing comparative costs, Lipper provides information on each Fund’s contractual investment management fee in comparison with the investment management fee that would have been charged by other funds within its Lipper expense group assuming they were similar in size to the Fund, as well as the actual total expense ratio of the Fund in comparison with those of its Lipper expense group. The Lipper contractual investment management fee analysis includes administrative charges as being part of the investment management fee, and actual total expenses, for comparative consistency, are shown by Lipper for Fund Class A shares. The results of such expense comparisons showed the contractual investment management fee rates and actual total expense ratio for Franklin Natural Resources Fund to be in the least expensive quintile of its Lipper expense group. The contractual investment management fee rate for Franklin Biotechnology Discovery Fund was in the least expensive quintile of its Lipper expense group and its actual total expense ratio was below the median of such group. The Board was satisfied with the contractual management fees and total expense ratios of each of these Funds in comparison to their expense groups as shown in the Lipper reports.

Annual Report | 65

Franklin Strategic Series

Shareholder Information (continued)

Board Review of Investment Management Agreement (continued)

MANAGEMENT PROFITABILITY. The Board also considered the level of profits realized by the Manager and its affiliates in connection with the operation of each Fund. In this respect, the Board reviewed the Fund profitability analysis that addresses the overall profitability of Franklin Templeton’s U.S. fund business, as well as its profits in providing management and other services to each of the individual funds during the 12-month period ended September 30, 2011, being the most recent fiscal year-end for Franklin Resources, Inc., the Manager’s parent. In reviewing the analysis, attention was given to the methodology followed in allocating costs to each Fund, it being recognized that allocation methodologies are inherently subjective and various allocation methodologies may each be reasonable while producing different results. In this respect, the Board noted that, while being continuously refined and reflecting changes in the Manager’s own cost accounting, the allocation methodology was consistent with that followed in profitability report presentations for the Funds made in prior years and that the Funds’ independent registered public accounting firm had been engaged by the Manager to review the reasonableness of the allocation methodologies solely for use by the Funds’ Board in reference to the profitability analysis. In reviewing and discussing such analysis, management discussed with the Board its belief that costs incurred in establishing the infrastructure necessary for the type of mutual fund operations conducted by the Manager and its affiliates may not be fully reflected in the expenses allocated to each Fund in determining its profitability, as well as the fact that the level of profits, to a certain extent, reflected operational cost savings and efficiencies initiated by management. The Board also took into account management’s expenditures in improving shareholder services provided the Funds, as well as the need to implement systems and meet additional regulatory and compliance requirements resulting from statutes such as the Sarbanes-Oxley and Dodd-Frank Acts and recent SEC and other regulatory requirements. In addition, the Board considered a third-party study comparing the profitability of the Manager’s parent on an overall basis to other publicly held managers broken down to show profitability from management operations exclusive of distribution expenses, as well as profitability including distribution expenses. The Board also considered the extent to which the Manager and its affiliates might derive ancillary benefits from fund operations, including revenues generated from transfer agent services and potential benefits resulting from allocation of fund brokerage and the use of commission dollars to pay for research. Based upon its consideration of all these factors, the Board determined that the level of profits realized by the Manager and its affiliates from providing services to each Fund was not excessive in view of the nature, quality and extent of services provided.

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Franklin Strategic Series

Shareholder Information (continued)

Board Review of Investment Management Agreement (continued)

with each Fund and its shareholders through management fee breakpoints so that as a Fund grows in size, its effective management fee rate declines. The fee structure under the investment management agreements for the Funds contains breakpoints that continued to asset levels that exceeded their asset sizes at December 31, 2011. In view of such fee structure and the favorable expense comparisons of each of the Funds within their respective expense groups, the Board believed that to the extent economies of scale may be realized by the manager of these Funds and its affiliates, that there was a sharing of benefits with each Fund and its shareholders.

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

Householding of Reports and Prospectuses

Annual Report | 67

Annual 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 may invest 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 annual report for Franklin Strategic Income Fund covers the fiscal year ended April 30, 2012.

Performance Overview

Franklin Strategic Income Fund – Class A posted a +3.97% cumulative total return for the 12 months under review. The Fund underperformed the +7.54% 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 also underperformed the +4.32% 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.

2. Source: Lipper Inc. For the 12-month period ended 4/30/12, this category consisted of 181 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 indexes are unmanaged and include reinvestment of any income or distributions. 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 23.

Annual Report | 3

Economic and Market Overview

During the 12 months under review, Federal Reserve Board (Fed) policymakers maintained historically low interest rates while adopting a more restrained view of the economy primarily because of the European sovereign debt crisis and signs the U.S. economic expansion needed further support. In October, the Fed implemented its program (dubbed Operation Twist by commentators) designed to boost the economy by driving down long-term interest rates, which involved the sale of $400 billion in short-term securities and the purchase of an equal amount of long-term securities. At its April 2012 meeting, the Fed also anticipated it would keep the federal funds target rate at 0% to 0.25% at least through late 2014.

The global economy recovered unevenly. The eurozone debt and banking crises hampered Europe’s economic growth, and the region’s lower import demand affected manufacturing outputs of many export-driven emerging market economies. Strong domestic demand in many emerging market countries, however, largely compensated for weak external demand. Positive economic reports in China helped dampen fears of a severe global economic slowdown. Globally, central bankers pursued divergent policies. Interest rates remained at historically low levels in the U.S. and Japan, while the European Central Bank (ECB) reduced its key interest rate. In non-Japan Asia, policymakers reduced interest rates in Australia, the Philippines and Indonesia, while policymakers in India and Sri Lanka increased rates. In addition to rate adjustments, central bankers employed a variety of tools. The ECB’s Long-Term Refinancing Operation helped reduce fears of a disorderly sovereign credit event and its potential fallout. The Bank of England and Bank of Japan expanded their respective asset purchase programs. Similarly, Chinese officials signaled a desire to pursue “fine tuning,” which included two reductions in the commercial bank cash reserve requirement ratio. In this environment, commodities declined, and the U.S. dollar rose relative to most currencies.

The U.S. economy grew moderately during the period. Although the real estate market initially showed signs of improvement, home foreclosures remained historically high. To help support mortgage market conditions, the Fed decided to reinvest principal received from agency debt and agency mortgage-backed securities (MBS) in agency MBS. Additionally, federal lawmakers made efforts to strengthen the real estate market by removing some eligibility restrictions and charges associated with refinancing. Personal consumption expenditures, private inventory investment and residential fixed investment supported the pace of economic expansion in the fourth quarter of 2011 and first quarter of 2012. Driven by private sector job creation and a four-year low in applications for

4 | Annual Report

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

**Distributions are higher than in other months primarily due to the inclusion of net foreign currency gains to meet excise tax requirements.

jobless claims, the unemployment rate fell to a multi-year low of 8.1% in April.³Geopolitical instability in some oil-producing regions and investor concerns about weak global economic growth contributed to volatility in crude oil prices. After declining in the first half, prices rose by period-end and added to global inflation pressures.

Generally favorable economic improvements and positive corporate earnings reports somewhat improved investor sentiment. During the 12 months under review, investment-grade fixed income markets, as measured by the BC U.S. Aggregate Index, and high yield corporate bonds, as measured by the Credit Suisse High Yield Index, posted solid returns. U.S. stocks, as measured by the Standard & Poor’s^®500 Index (S&P 500^®), rose strongly in January and February and ended the period with moderate gains.⁴Global financial markets became volatile following the downgrade of the U.S. long-term credit rating to AA+ from AAA in early August 2011 and ongoing concerns over Europe’s sovereign debt crisis. Markets rebounded later in the period as investors grew generally more optimistic about the European Union and ECB leaders’ progress

3. Source: Bureau of Labor Statistics.

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

Annual Report | 5

in solving the region’s sovereign debt and banking crises. Overall for the period, however, investors sought the perceived safety of U.S. Treasuries, which drove their prices higher and yields lower for the period under review. The two-year Treasury bill yield fell from 0.61% on April 30, 2011, to 0.27% on April 30, 2012, while the 10-year Treasury note yield fell from 3.32% to 1.95%.

Investment Strategy

The Fund uses an active asset allocation strategy, investing across the fixed income market in sectors that may include 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.

Manager’s Discussion

Economic and political headlines drove financial market volatility during the 12-month period ended April 30, 2012. As Japan continued to recover from its March 2011 earthquake and tsunami, in the early summer of 2012 concerns regarding the U.S. debt ceiling and the credit rating downgrade of long-term U.S. government securities took center stage. Subsequently, debt and deficit worries regarding the eurozone drove global stock markets down sharply. However, financial markets rallied during the second half of the reporting period amid encouraging U.S. economic data and eurozone liquidity backstop measures that appeared to reduce fears regarding the European banking system. By period-end, the investor risk aversion that had weighed on financial markets in the second half of 2011 had largely dissipated, allowing stock markets to rise, as indicated by the S&P 500’s +4.76% total return for the Fund’s fiscal year.¹Relatively controlled inflation levels allowed longer term U.S. interest rates to decline significantly over the 12-month period and most fixed income sectors delivered positive total returns. However, certain fixed income spread sectors did not keep pace with the rate decline and lagged returns of the U.S. Treasury market. Similarly, with the U.S. dollar appreciating in value, certain international fixed income currency markets trailed the U.S. government bond market’s performance.

6 | Annual Report

*Includes net unrealized appreciation/depreciation on certain credit and foreign currency derivatives.

The Fund posted a positive total return in this environment, although lagging the performance of the BC U.S. Aggregate Index and the Lipper Multi-Sector Income Funds Classification Average. The Fund’s lower weighting in longer duration U.S. interest rate-sensitive fixed income sectors such as U.S. Treasuries and agency bonds negatively impacted performance compared to the BC U.S. Aggregate Index. Compared to the Lipper average, the Fund’s higher exposure to below-investment-grade sectors and to non-U.S. dollar holdings constrained returns.

Although financial market volatility contributed to spread widening in corporate credit sectors during the second half of 2011, from our perspective overall corporate credit fundamentals remained fairly supportive during the 12-month reporting period. Many companies have built up significant liquidity over the past few years, enabling them to extend debt maturities given the relative openness of new-issue debt markets. Major banks, particularly in the U.S., have raised their capital ratios materially since 2008. Although the pace of gains slowed as operating margins reached historical highs, improvements in corporate earnings further drove credit improvement. Nonetheless, we viewed the slowdown in eurozone economic growth as a potential headwind for certain corporate issuers as 2012 progresses, and global default rates have started edging higher. With general expectations for positive U.S. economic growth and a soft landing in China, and considering spread valuations in line with to somewhat cheap compared to historical averages, the Fund’s largest

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.

Annual Report | 7

What is a currency forward contract?

A currency forward 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.

sector weighting remained in corporate bonds. Although Fund weightings between the high yield leveraged loan and investment-grade sectors shifted during the fiscal year, toward period-end the Fund incrementally added to its leveraged bank loan exposure while maintaining its largest weighting in high yield corporate bonds. Within investment grade bonds, the Fund primarily focused on financials, which offered a yield spread premium relative to the overall sector. At various points during the year, the Fund’s exposure to high yield bonds and bank loans included positions in credit derivative index securities.

Investor risk aversion and concerns regarding a global economic slowdown during the second half of 2011 negatively impacted the non-U.S. dollar international fixed income markets. This weakness weighed on the Fund’s holdings in foreign currency government bonds and other non-U.S. dollar-denominated securities. Although many currencies experienced a significant rebound during the first four months of 2012, over the fiscal year the Fund’s non-U.S. dollar holdings in Poland, India, Brazil, Mexico and Hungary weighed on performance. On the other hand, with weakness in the Japanese yen, particularly between January and March 2012, the Fund’s short position in the yen, achieved via currency forward contracts, benefited Fund performance toward fiscal year-end. We maintained only a modest weighting in hard currency-denominated (i.e., U.S. dollar and euro) emerging market sovereign bonds, given valuations that we believed remained somewhat rich compared to longer term averages, but initiated positions in Irish government bonds during the period.

The significant drop in longer term U.S. Treasury yields over the fiscal year drove returns for the more interest rate-sensitive sectors of the domestic fixed income market, with the longest maturity bonds generally delivering the largest total returns. Given their shorter effective maturities and potential prepayment risk, agency MBS returned less than longer dated U.S. Treasuries but still posted positive performance. Although slack in the U.S. economy is, in our view, likely to keep longer term inflationary pressures subdued, with five-to 10-year Treasury yields lower than current rates of inflation, we did not find significant value in fixed income U.S. government securities at these yield levels. Consequently, we maintained a relatively low weighting in these sectors, while favoring the higher current yield of agency MBS relative to Treasuries. The commercial mortgage-backed securities (CMBS) sector experienced downward pricing pressure during the latter half of 2011 but rebounded in early 2012 as demand for higher rated CMBS securities remained robust. Toward period-end, the Fund added exposure to the CMBS sector, although overall exposure remained fairly modest. Given the longer maturity profile for the Fund’s municipal bond holdings, the decline in long-term U.S. rates and a

8 | Annual Report

narrowing in the spread for certain municipal bond issues relative to U.S. Treasuries, the Fund’s municipal bond holdings provided one of the most notable sector returns during the period. Following this robust performance, the Fund reduced its exposure to municipal bonds during the period.

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.

Annual Report | 9

Performance Summary (continued)

Endnotes

All investments involve risks, including possible loss of principal. 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 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.

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 monthly dividend distributions and the maximum offering price (NAV for Classes B, C, R and Advisor) per share on 4/30/12.

5. The 30-day standardized yield for the 30 days ended 4/30/12 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.

7. Source: © 2012 Morningstar. The BC U.S. Aggregate Index is a market capitalization-weighted index representing the U.S. investment-grade, fixed-rate, taxable bond market with index components for government and corporate, mortgage pass through and asset-backed securities. All issues included are SEC-registered, taxable, dollar denominated, and nonconvertible, must have at least one year to final maturity, and must be rated investment grade (Baa3/BBB-/BBB- or above) using the middle rating of Moody’s, Standard & Poor’s and Fitch, respectively.

8. Source: Lipper Inc. The Lipper Multi-Sector Income Funds Classification Average is calculated by averaging the total returns of all funds within the Lipper Multi-Sector Income Funds classification in the Lipper Open-End underlying funds universe. Lipper Multi-Sector Income Funds are defined as funds that seek current income by allocating assets among different fixed income securities sectors (not primarily in one sector except for defensive purposes), including U.S. and foreign governments, with a significant portion rated below investment grade. For the 12-month period ended 4/30/12, there were 181 funds in this category. Lipper calculations do not include sales charges, but include reinvestment of any income or distributions. Fund performance relative to the average may have differed if these and other factors had been considered.

Annual Report | 15

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

16 | Annual Report

Franklin Strategic Series

Notes to Financial Statements

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 Board), the Fund’s administrator, investment manager and other affiliates have formed the Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to 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, credit spreads, estimated default rates, anticipated market interest rate volatility, 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

Annual Report | 55

Franklin Strategic Series

Notes to Financial Statements (continued)

Franklin Strategic Income Fund

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

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.

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 reliable or readily available. Under these procedures, the VLOC convenes on a regular basis to review such securities and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VLOC 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. An income-based valuation approach may also be used 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. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

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 Board.

56 | Annual Report

Franklin Strategic Series

Notes to Financial Statements (continued)

Franklin Strategic Income Fund

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

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.

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.

Annual Report | 57

Franklin Strategic Series

Notes to Financial Statements (continued)

Franklin Strategic Income Fund

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

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 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.

At April 30, 2012, the Fund holds $5,759,381 in U.S. treasury bills, bonds, and notes and $320,000 in unrestricted cash as collateral for derivatives.

See Note 11 regarding other derivative information.

e. Restricted Cash

At April 30, 2012, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian/ counterparty broker and is reflected in the Statement of Assets and Liabilities.

f. 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 April 30, 2012, 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 April 30, 2012 have been included in the Fund’s Statement of Operations.

58 | Annual Report

Franklin Strategic Series

Notes to Financial Statements (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 and Deferred 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 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 in an amount that would be payable if the securities were disposed of on the valuation date.

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of April 30, 2012, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

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

Annual Report | 59

Franklin Strategic Series

Notes to Financial Statements (continued)

Franklin Strategic Income Fund

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

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.

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.

60 | Annual Report

Franklin Strategic Series

Notes to Financial Statements (continued)

Franklin Strategic Income Fund

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:


Subsidiary		Affiliation
Franklin Advisers, Inc. (Advisers)		Investment manager
Franklin Templeton Services, LLC (FT Services)		Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)		Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)		Transfer agent

a. Management Fees

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

Annualized Fee Rate 0.625% 0.500% 0.450% 0.440% 0.430% 0.420% 0.400% 0.380% 0.360% 0.355% 0.350%	Net Assets Up to and including $100 million Over $100 million, up to and including $250 million Over $250 million, up to and including $7.5 billion Over $7.5 billion, up to and including $10 billion Over $10 billion, up to and including $12.5 billion Over $12.5 billion, up to and including $15 billion Over $15 billion, up to and including $17.5 billion Over $17.5 billion, up to and including $20 billion Over $20 billion, up to and including $35 billion Over $35 billion, up to and including $50 billion In excess of $50 billion

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 Board 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.

62 | Annual Report

Franklin Strategic Series

Notes to Financial Statements (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:

e. Transfer Agent Fees

For the year ended April 30, 2012, the Fund paid transfer agent fees of $8,399,849, of which $4,048,162 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 year ended April 30, 2012, the custodian fees were reduced as noted in the Statement of Operations.

5. INCOME TAXES

During the year ended April 30, 2012, the Fund utilized $15,304,690 of capital loss carryforwards.

Annual Report | 63

Franklin Strategic Series

Notes to Financial Statements (continued)

Franklin Strategic Income Fund

5. INCOME TAXES (continued)

The tax character of distributions paid during the years ended April 30, 2012 and 2011, was as follows:

At April 30, 2012, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains 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, paydown losses, and bond discounts and premiums.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended April 30, 2012, aggregated $2,879,132,742 and $1,883,047,475, 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 April 30, 2012, the Fund had 51.38% of its portfolio invested in high yield, senior secured floating rate notes, or other securities rated below investment grade. These securities may be

64 | Annual Report

Franklin Strategic Series

Notes to Financial Statements (continued)

Franklin Strategic Income Fund

8. CREDIT RISK AND DEFAULTED SECURITIES (continued)

more 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 April 30, 2012, the aggregate value of these securities was $31,904,040, representing 0.51% 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 April 30, 2012, 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 April 30, 2012, unfunded commitments were as follows:

Annual Report | 65

Franklin Strategic Series

Notes to Financial Statements (continued)

Franklin Strategic Income Fund

10. UNFUNDED LOAN COMMITMENTS (continued)

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.

11. OTHER DERIVATIVE INFORMATION

At April 30, 2012, the Fund has invested in derivative contracts which are reflected on the Statement of Assets and Liabilities as follows:

For the year ended April 30, 2012, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:

66 | Annual Report

Franklin Strategic Series

Notes to Financial Statements (continued)

Franklin Strategic Income Fund

11. OTHER DERIVATIVE INFORMATION (continued)

For the year ended April 30, 2012, the average month end market value of derivatives represented 0.84% of average month end net assets. The average month end number of open derivative contracts for the year was 204.

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 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 year ended April 30, 2012, 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 April 30, 2012, the Fund was no longer held by any 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 $1.5 billion (Global Credit Facility) which matures on January 18, 2013. 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 year ended April 30, 2012, the Fund did not use the Global Credit Facility.

Annual Report | 67

Franklin Strategic Series

Notes to Financial Statements (continued)

Franklin Strategic Income Fund

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 securi- ties, 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)

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.

A summary of inputs used as of April 30, 2012, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:

68 | Annual Report

^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 believes the adoption of this ASU will not have a material impact on its financial statements.

Annual Report | 69

Franklin Strategic Series

Notes to Financial Statements (continued)

Franklin Strategic Income Fund

15. NEW ACCOUNTING PRONOUNCEMENTS (continued)

In December 2011, FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in the ASU enhance disclosures about offsetting of financial assets and liabilities to enable investors to understand the effect of these arrangements on a fund’s financial position. The ASU is effective for interim and annual reporting periods beginning on or after January 1, 2013. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.

16. SUBSEQUENT EVENTS

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

70 | Annual Report

Franklin Strategic Series

Report of Independent Registered Public Accounting Firm

Franklin Strategic Income Fund

To the Board of Trustees of Franklin Strategic Series and Shareholders of The Franklin Strategic Income Fund

In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Franklin Strategic Income Fund (one of the funds constituting the Franklin Strategic Series, hereafter referred to as the “Fund”) at April 30, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at April 30, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
June 15, 2012

Annual Report | 71

Franklin Strategic Series

Shareholder Information

Franklin Strategic Income Fund

Board Review of Investment Management Agreement

At a meeting held April 17, 2012, the Board of Trustees (Board), including a majority of non-interested or independent Trustees, approved renewal of the investment management agreements for each of the separate funds within the Trust, including Franklin Strategic Income Fund (Fund(s)). In reaching this decision, the Board took into account information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the annual renewal review process. Information furnished and discussed throughout the year included investment performance reports and related financial information for each Fund, as well as periodic reports on expenses, shareholder services, legal and compliance matters, pricing, brokerage commissions and execution and other services provided by the Investment Manager (Manager) and its affiliates. Information furnished specifically in connection with the renewal process included a report for each Fund prepared by Lipper, Inc. (Lipper), an independent organization, as well as additional material, including a Fund profitability analysis prepared by management. The Lipper reports compared each Fund’s investment performance and expenses with those of other mutual funds deemed comparable to the Fund as selected by Lipper. The Fund profitability analysis discussed the profitability to Franklin Templeton Investments from its overall U.S. fund operations, as well as on an individual fund-by-fund basis. Additional material accompanying such profitability analysis included information on a fund-by-fund basis listing portfolio managers and other accounts they manage, as well as information on management fees charged by the Manager and its affiliates to U.S. mutual funds and other accounts, including management’s explanation of differences where relevant. Such material also included a memorandum prepared by management describing project initiatives and capital investments relating to the services provided to the Funds by the Franklin Templeton Investments organization, as well as a memorandum relating to economies of scale and an analysis concerning transfer agent fees charged by an affiliate of the Manager.

NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature and quality of the overall services provided by the Manager and its affiliates to the Fund and its shareholders. In addition to investment performance and expenses discussed later, the Board’s opinion was based, in part, upon periodic reports furnished it showing that the investment policies and restrictions for the Fund were consistently complied with as well as other reports

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Franklin Strategic Series

Shareholder Information (continued)

Franklin Strategic Income Fund

Board Review of Investment Management Agreement (continued)

periodically furnished the Board covering matters such as the compliance of portfolio managers and other management personnel with the code of ethics adopted throughout the Franklin Templeton fund complex, the adherence to fair value pricing procedures established by the Board, and the accuracy of net asset value calculations. The Board also noted the extent of benefits provided Fund shareholders from being part of the Franklin Templeton family of funds, including the right to exchange investments between the same class of funds without a sales charge, the ability to reinvest Fund dividends into other funds and the right to combine holdings in other funds to obtain a reduced sales charge. Favorable consideration was given to management’s continuous efforts and expenditures in establishing back-up systems and recovery procedures to function in the event of a natural disaster, it being noted that such systems and procedures had functioned smoothly during the Florida hurricanes and blackouts experienced in previous years. Among other factors taken into account by the Board were the Manager’s best execution trading policies, including a favorable report by an independent portfolio trading analytical firm, which also covered FOREX transactions. Consideration was also given to the experience of the Fund’s portfolio management team, the number of accounts managed and general method of compensation. In this latter respect, the Board noted that a primary factor in management’s determination of a portfolio manager’s bonus compensation was the relative investment performance of the funds he or she managed and that a portion of such bonus was required to be invested in a predesignated list of funds within such person’s fund management area so as to be aligned with the interests of shareholders. The Board also took into account the quality of transfer agent and shareholder services provided Fund shareholders by an affiliate of the Manager, and the continuous enhancements to the Franklin Templeton website. Particular attention was given to management’s conservative approach and diligent risk management procedures, including continuous monitoring of counterparty credit risk and attention given to derivatives and other complex instruments, including expanded collateralization requirements. The Board also took into account, among other things, management’s efforts in establishing a global credit facility for the benefit of the Fund and other accounts managed by Franklin Templeton Investments to provide a source of cash for temporary and emergency purposes or to meet unusual redemption requests as well as the strong financial position of the Manager’s parent company and its commitment to the mutual fund business as evidenced by its subsidization of money market funds.

INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Fund in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular attention in assessing performance was given to the Lipper reports furnished for the agreement renewal. The Lipper reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a performance universe selected by Lipper. Comparative performance for the Fund was shown for the one-year period ended January 31, 2012, and the previous 10 ended that date. The performance universe for the Fund consisted of the Fund and all

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Franklin Strategic Series

Shareholder Information (continued)

Franklin Strategic Income Fund

Board Review of Investment Management Agreement (continued)

retail and institutional multi-sector income funds as selected by Lipper. The Lipper report comparison showed the Fund’s income return for the one-year period to be in the second-highest quintile of its performance universe, and on an annualized basis to be in the upper half of such universe during the previous three-year period and the highest performing and second-highest performing quintiles of such universe during the previous five- and 10-year periods, respectively. The Lipper report showed the Fund’s total return for the one-year period to be in the upper half of its performance universe, and on an annualized basis to be in the second-lowest quintile of such universe for the previous three-year period, but the second-highest quintile of such universe for each of the previous five- and 10-year periods. The Board was satisfied with the Fund’s investment performance as set forth in the Lipper report.

COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the management fees and total expense ratio of the Fund compared with those of a group of other funds selected by Lipper as its appropriate Lipper expense group. Lipper expense data is based upon information taken from each fund’s most recent annual report, which reflects historical asset levels that may be quite different from those currently existing, particularly in a period of market volatility. While recognizing such inherent limitation and the fact that expense ratios generally increase as assets decline and decrease as assets grow, the Board believed the independent analysis conducted by Lipper to be an appropriate measure of comparative expenses. In reviewing comparative costs, Lipper provides information on the Fund’s contractual investment management fee in comparison with the investment management fee that would have been charged by other funds within its Lipper expense group assuming they were similar in size to the Fund, as well as the actual total expense ratio of the Fund in comparison with those of its Lipper expense group. The Lipper contractual investment management fee analysis includes administrative charges as being part of the investment management fee, and actual total expenses, for comparative consistency, are shown by Lipper for Fund Class A shares. The contractual investment management fee rate for the Fund was in the second least expensive quintile of its Lipper expense group, but its actual total expense ratio was in the least expensive quintile of such expense group. The Board was satisfied with the contractual management fees and total expense ratio of the Fund in comparison to its expense group as shown in the Lipper reports.

MANAGEMENT PROFITABILITY. The Board also considered the level of profits realized by the Manager and its affiliates in connection with the operation of the Fund. In this respect, the Board reviewed the Fund profitability analysis that addresses the overall profitability of Franklin Templeton’s U.S. fund business, as well as its profits in providing management and other services to each of the individual funds during the 12-month period ended September 30, 2011, being the most recent fiscal year-end for Franklin Resources, Inc., the Manager’s parent. In reviewing the analysis, attention was given to the methodology followed in allocating costs to the Fund, it being recognized that allocation methodologies are inherently subjective and various allocation

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Franklin Strategic Series

Shareholder Information (continued)

Franklin Strategic Income Fund

Board Review of Investment Management Agreement (continued)

methodologies may each be reasonable while producing different results. In this respect, the Board noted that, while being continuously refined and reflecting changes in the Manager’s own cost accounting, the allocation methodology was consistent with that followed in profitability report presentations for the Fund made in prior years and that the Fund’s independent registered public accounting firm had been engaged by the Manager to review the reasonableness of the allocation methodologies solely for use by the Fund’s Board in reference to the profitability analysis. In reviewing and discussing such analysis, management discussed with the Board its belief that costs incurred in establishing the infrastructure necessary for the type of mutual fund operations conducted by the Manager and its affiliates may not be fully reflected in the expenses allocated to the Fund in determining its profitability, as well as the fact that the level of profits, to a certain extent, reflected operational cost savings and efficiencies initiated by management. The Board also took into account management’s expenditures in improving shareholder services provided the Fund, as well as the need to implement systems and meet additional regulatory and compliance requirements resulting from statutes such as the Sarbanes-Oxley and Dodd-Frank Acts and recent SEC and other regulatory requirements. In addition, the Board considered a third-party study comparing the profitability of the Manager’s parent on an overall basis to other publicly held managers broken down to show profitability from management operations exclusive of distribution expenses, as well as profitability including distribution expenses. The Board also considered the extent to which the Manager and its affiliates might derive ancillary benefits from fund operations, including revenues generated from transfer agent services and potential benefits resulting from allocation of fund brokerage and the use of commission dollars to pay for research. Based upon its consideration of all these factors, the Board determined that the level of profits realized by the Manager and its affiliates from providing services to the Fund was not excessive in view of the nature, quality and extent of services provided.

ECONOMIES OF SCALE. The Board also considered whether economies of scale are realized by the Manager as the Fund grows larger and the extent to which this is reflected in the level of management fees charged. While recognizing that any precise determination is inherently subjective, the Board noted that based upon the Fund profitability analysis, it appears that as some funds get larger, at some point economies of scale do result in the Manager realizing a larger profit margin on management services provided such a fund. The Board noted that economies of scale were shared with the Fund and its shareholders through management fee breakpoints so that as the Fund grows in size, its effective management fee rate declines. The fee structure under the investment management agreement for the Fund contains breakpoints that continued to asset levels that exceeded its asset size at December 31, 2011. In view of such fee structure and the favorable expense comparison of the Fund within its expense group, the Board believed that to the extent economies of scale may be realized by the manager of the Fund and its affiliates, that there was a sharing of benefits with the Fund and its shareholders.

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Franklin Strategic Series

Shareholder Information (continued)

Franklin Strategic Income Fund

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

Householding of Reports and Prospectuses

You will receive the Fund’s financial reports every six months as well as an annual updated summary prospectus (prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and summary prospectuses. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.

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

(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.

The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $330,752 for the fiscal year ended April 30, 2012 and $299,220 for the fiscal year ended April 30, 2011.

There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of Item 4.

There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements.

The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning were $10,000 the fiscal year ended April 30, 2012 and $0 for the fiscal year ended April 30, 2011.

The services for which these fees were paid included tax consulting and preparation of tax returns.

The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning were $50,000 for the fiscal year ended April 30, 2012 and $85,000 for the fiscal year ended April 30, 2011. The services for which these fees were paid included technical tax consultation for capital gain tax reporting to foreign governments, application of local country tax laws to investments and licensing securities with local country offices.

The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended April 30, 2012 and $5,057 for the fiscal year ended April 30, 2011. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process.

The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant other than services reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended April 30, 2012 and $139,743 for the fiscal year ended April 30, 2011. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process.

(e) (1) The registrant’s audit committee is directly responsible for approving the services to be provided by the auditors, including:

(iii) pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant’s investment adviser or to any entity that controls, is controlled by or is under common control with the registrant’s investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and

(iv) establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the

committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules.

(e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.

(h) The registrant’s audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

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

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.

(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.

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

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.

By /s/LAURA F. FERGERSON
Laura F. Fergerson
Chief Executive Officer –
Finance and Administration
Date June 26, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By /s/LAURA F. FERGERSON
Laura F. Fergerson
Chief Executive Officer –
Finance and Administration
Date June 26, 2012

By /s/GASTON GARDEY
Gaston Gardey
Chief Financial Officer and
Chief Accounting Officer
Date June 26, 2012


		Beginning Account		Ending Account		Expenses Paid During
Class A		Value 11/1/11		Value 4/30/12		*Period 11/1/11–4/30/12**
Actual	$	1,000	$	1,107.60	$	5.19
Hypothetical (5% return before expenses)	$	1,000	$	1,019.94	$	4.97
Class B
Actual	$	1,000	$	1,103.40	$	9.10
Hypothetical (5% return before expenses)	$	1,000	$	1,016.21	$	8.72
Class C
Actual	$	1,000	$	1,103.40	$	9.10
Hypothetical (5% return before expenses)	$	1,000	$	1,016.21	$	8.72
Class R
Actual	$	1,000	$	1,106.20	$	6.49
Hypothetical (5% return before expenses)	$	1,000	$	1,018.70	$	6.22
Advisor Class
Actual	$	1,000	$	1,108.90	$	3.88
Hypothetical (5% return before expenses)	$	1,000	$	1,021.18	$	3.72

Item 5. Audit Committee of Listed Registrants.	N/A
Item 6. Schedule of Investments.	N/A

U.	S. Government and Agency Securities 2.2%
U.	S. Treasury Bond,

(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.

(i)	pre-approval of all audit and audit related services;
(ii)	pre-approval of all non-audit related services to be provided to the Fund by the auditors;

(a)	(1) Code of Ethics
(a)	(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley