n-csrsfsspe103113.htm - Generated by SEC Publisher for SEC Filing

Semiannual Report

Economic and Market Overview

The U.S. economy grew moderately during the six-month period ended
October 31, 2013, supported by business investment, consumer spending,
inventory gains, exports, and state and local government spending. Solid
new and existing home sales accompanied historically low mortgage rates,
rising but affordable housing prices, low inventories and multi-year lows
in new foreclosures. Manufacturing, a mainstay of economic productivity,
expanded for most of the period, and the unemployment rate declined to
7.3% in October from 7.5% in April.¹

Federal Reserve Board (Fed) Chairman Ben Bernanke indicated in May that
the Fed might reduce monthly purchases of mortgage-backed securities and
Treasuries, assuming ongoing U.S. recovery. However, in September, he
announced that any tapering of Fed purchases would be postponed until U.S.
economic growth strengthened. Because of partisan disagreement about a new
health care law, Congress did not authorize some routine federal funding,
resulting in a temporary shutdown of non-essential U.S. government services
beginning on October 1. On October 17, the partial shutdown ended after
Congress agreed to fund the government until January 15, 2014, and raise
the debt limit through February 7. Near period-end, the Fed left its monetary
policy unchanged as it awaited more evidence of a sustainable economic
expansion. The Fed noted that although the government’s fiscal policy may
have restrained growth, the economy maintained its underlying strength.

Rising corporate profits and generally favorable economic data bolstered
investor confidence, helping markets overcome brief periods of sell-offs in
reaction to Fed statements and to Washington’s fiscal negotiations. U.S.
stocks generated strong six-month returns as the Standard & Poor’s 500
Index (S&P 500^®) and Dow Jones Industrial Average (DJIA) reached all-
time highs during the period. Additionally, small- and mid-capitalization
stocks, as measured by the Russell 2000^®Index and the Russell Midcap^®
Index, reached record highs during the six-month period and outperformed
the S&P 500 and DJIA.²

The foregoing information reflects our analysis and opinions as of October 31, 2013. 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.

1. Source: Bureau of Labor Statistics.
2. RUSSELL^®is a trademark of the Frank Russell Company.

Semiannual Report | 3

Your Fund’s Expenses

Franklin Flex Cap Growth Fund

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

• Transaction costs, including sales charges (loads) on Fund purchases; and

• Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other
Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

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

Actual Fund Expenses

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

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

1. Divide your account value by $1,000.
If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”
If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

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

Hypothetical Example for Comparison with Other Funds

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

10 | Semiannual Report

Your Fund’s Expenses

Franklin Focused Core Equity Fund

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

• Transaction costs, including sales charges (loads) on Fund purchases; and

• Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other
Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

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

Actual Fund Expenses

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

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

1. Divide your account value by $1,000.
If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”
If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

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

Hypothetical Example for Comparison with Other Funds

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

18 | Semiannual Report

Your Fund’s Expenses

Franklin Growth Opportunities Fund

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

• Transaction costs, including sales charges (loads) on Fund purchases; and

• Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other
Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

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

Actual Fund Expenses

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

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

1. Divide your account value by $1,000.
If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”
If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

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

Hypothetical Example for Comparison with Other Funds

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

26 | Semiannual Report

Your Fund’s Expenses

Franklin Small Cap Growth Fund

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

• Transaction costs, including sales charges (loads) on Fund purchases; and

• Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other
Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

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

Actual Fund Expenses

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

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

1. Divide your account value by $1,000.
If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”
If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

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

Hypothetical Example for Comparison with Other Funds

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

Semiannual Report | 35

Your Fund’s Expenses

Franklin Small-Mid Cap Growth Fund

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

• Transaction costs, including sales charges (loads) on Fund purchases; and

• Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other
Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating
expenses.

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

Actual Fund Expenses

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

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

1. Divide your account value by $1,000.
If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”
If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

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

Hypothetical Example for Comparison with Other Funds

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

44 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Strategic Series (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of nine 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 Funds offer five classes of shares: Class A, Class C, Class R, Class R6, and Advisor Class. Effective May 1, 2013, the Funds began offering a new class of shares, Class R6. Each class of shares differs by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees primarily due to differing arrangements for distribution and transfer agent fees.

The following summarizes the Funds’ significant accounting policies.

a. Financial Instrument Valuation

The Funds’ investments in 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.

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 (OTC) 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.

The Funds have procedures to determine the fair value of 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 financial instruments 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,

Semiannual Report | 97

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

recent transactions, market multiples, book values, and other relevant information for the invest-
ment 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 OTC 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, differ-
ences 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.

In addition, certain foreign markets may be open on days that the NYSE is closed, which could
result in differences between the value of the Funds’ portfolio securities on the last business day
and the last calendar day of the reporting period. Any significant security valuation changes due to
an open foreign market are adjusted and reflected by the Funds for financial reporting purposes.

b. Foreign Currency Translation

Portfolio securities and other assets and liabilities denominated in foreign currencies are trans-
lated 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.

98 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

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

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.

c. Securities Lending

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.

d. Income Taxes

It is each fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. Each fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.

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 October 31, 2013, and for all open tax years, each fund has determined that no liability for unrecognized tax benefits is required in each fund’s financial

Semiannual Report | 99

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Income Taxes (continued)

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.

e. Security Transactions, Investment Income, Expenses and Distributions

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

Common expenses incurred by the Trust are allocated among the Funds based on the ratio
of net assets of each fund to the combined net assets of the Trust. Fund specific expenses are
charged directly to the fund that incurred the expense.

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 differ-
ences in class specific expenses.

f. Accounting Estimates

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

g. Guarantees and Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust
against certain liabilities arising out of the performance of their duties to the Trust. Additionally,
in the normal course of business, the Trust, on behalf of the Funds, enters into contracts with serv-
ice 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.

100 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

10. CREDIT FACILITY (continued)

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 0.07% based upon the unused portion
of the Global Credit Facility. These fees are reflected in other expenses on the Statements of
Operations. During the period ended October 31, 2013, the Funds did not use the Global
Credit Facility.

11. FAIR VALUE MEASUREMENTS

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

• Level 1 – quoted prices in active markets for identical financial instruments

• Level 2 – other significant observable inputs (including quoted prices for similar financial
instruments, interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Funds’ own assumptions in
determining the fair value of financial instruments)

The input levels are not necessarily an indication of the risk or liquidity associated with financial
instruments at that level.

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

114 | Semiannual Report

Franklin Strategic Series

Shareholder Information

Proxy Voting Policies and Procedures

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

Quarterly Statement of Investments

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

Semiannual Report | 117

Semiannual Report

Economic and Market Overview

The U.S. economy grew moderately during the six-month period ended
October 31, 2013, supported by business investment, consumer spending,
inventory gains, exports, and state and local government spending. Solid
new and existing home sales accompanied historically low mortgage rates,
rising but affordable housing prices, low inventories and multi-year lows in
new foreclosures. Manufacturing, a mainstay of economic productivity,
expanded for most of the period, and the unemployment rate declined to
7.3% in October from 7.5% in April.¹

Federal Reserve Board (Fed) Chairman Ben Bernanke indicated in May that
the Fed might reduce monthly purchases of mortgage-backed securities and
Treasuries, assuming ongoing U.S. recovery. However, in September, he
announced that any tapering of Fed purchases would be postponed until U.S.
economic growth strengthened. Because of partisan disagreement about a new
health care law, Congress did not authorize some routine federal funding,
resulting in a temporary shutdown of non-essential U.S. government services
beginning on October 1. On October 17, the partial shutdown ended after
Congress agreed to fund the government until January 15, 2014, and raise
the debt limit through February 7. Near period-end, the Fed left its monetary
policy unchanged as it awaited more evidence of a sustainable economic
expansion. The Fed noted that although the government’s fiscal policy may
have restrained growth, the economy maintained its underlying strength.

Rising corporate profits and generally favorable economic data bolstered
investor confidence, helping markets overcome brief periods of sell-offs in
reaction to Fed statements and to Washington’s fiscal negotiations. U.S. stocks
generated strong six-month returns as the Standard & Poor’s 500 Index and
Dow Jones Industrial Average reached all-time highs during the period.

The foregoing information reflects our analysis and opinions as of October 31, 2013. 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.

1. Source: Bureau of Labor Statistics.

Semiannual Report | 3

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.

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

Actual Fund Expenses

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

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

1. Divide your account value by $1,000.
If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”
If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

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

Hypothetical Example for Comparison with Other Funds

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

Semiannual Report | 9

Your Fund’s Expenses (continued)

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

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 1.10%; R6: 0.63%; and Advisor: 0.80%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

10 | Semiannual Report

related to onshore development activity, such as Halliburton. Halliburton’s share price also benefited from the company’s aggressive share buyback program and dividend increase.

Offshore equipment and service providers also performed well during the period, including Fund position RigNet, which provides communication services to the offshore and onshore E&P markets. The company reported record earnings in the third quarter as increased bandwidth use as well as growth in the number of sites and revenue per site drove results. Similarly, subsea equipment manufacturer Dril-Quip and offshore transportation providers PHI⁴and Hornbeck Offshore Services⁴also were among the Fund’s top performing oilfield services firms as the companies benefited from increased offshore drilling and development activity. Although we reduced some industry positions following price gains, the Fund continued to hold a meaningful industry weighting.

Certain oilfield services industry positions declined, however, including Cameron International, FMC Technologies and Superior Energy Services. Cameron and FMC struggled to meet delivery schedules for subsea equipment following several quarters of robust orders and backlog growth, which negatively impacted profit margins and earnings. Although these issues were expected to persist in the near term, the companies reported another strong quarter of contract awards, which helped provide optimism for future results. Superior Energy continued to struggle with an oversupplied U.S. onshore market, although the company was well positioned, in our view, to benefit from potential activity increases in 2014 and also reported solid results from its offshore and international operations.

Many U.S. oil and gas E&P stocks benefited from multi-year high oil prices and rapid production growth. E&P companies also reported increased drilling efficiency, including reductions in drilling time and cost per well. Triangle Petroleum was one of the Fund’s E&P positions posting strong quarterly results with notable production growth and a quadrupling in revenues year-over-year. Whiting Petroleum and SM Energy also contributed to the Fund’s performance as those companies also delivered strong production growth. A few exploration holdings experienced challenges, however, and overall E&P holdings dampened relative performance. For example, Cobalt International Energy’s stock price declined as the company reported an unsuccessful well in the deepwater Gulf of Mexico. Lower natural gas prices also weighed on EnCana, which pledged to sell non-core assets in an effort to refocus the company’s operations.

4. This holding is not an index component.

14 | Semiannual Report

Your Fund’s Expenses

Franklin Natural Resources Fund

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

• Transaction costs, including sales charges (loads) on Fund purchases; and

• Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other
Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

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

Actual Fund Expenses

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

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

1. Divide your account value by $1,000.
If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”
If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

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

Hypothetical Example for Comparison with Other Funds

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

20 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

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
fair value.

The Funds have procedures to determine the fair value of 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 financial instruments 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 invest-
ment 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 OTC 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, differ-
ences 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.

In addition, certain foreign markets may be open on days that the NYSE is closed, which could
result in differences between the value of the Funds’ portfolio securities on the last business day
and the last calendar day of the reporting period. Any significant security valuation changes due
to an open foreign market are adjusted and reflected by the Funds for financial reporting purposes.

Semiannual Report | 41

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Income Taxes (continued)

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 October 31, 2013, 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.

e. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security trans-
actions 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 divi-
dends 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 reclassifi-
cations 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 differ-
ences in class specific expenses.

f. Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions

Semiannual Report | 43

Franklin Strategic Series

Shareholder Information

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

Semiannual Report | 53

Your Fund’s Expenses

Franklin Global Government Bond Fund

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

• Transaction costs, including sales charges (loads) on Fund purchases; and

• Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other
Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.

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

Actual Fund Expenses

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

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

1. Divide your account value by $1,000.
If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.

2. Multiply the result by the number under the heading “Expenses Paid During Period.”
If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50.

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

Hypothetical Example for Comparison with Other Funds

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

Semiannual Report | 11

Franklin Strategic Series

Notes to Financial Statements (unaudited)

Franklin Global Government Bond 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 nine separate funds.
The Franklin Global Government Bond Fund (Fund) is included in this report. The financial
statements of the remaining funds in the Trust are presented separately. Effective September 6,
2013, the Fund commenced operations offering five classes of shares: Class A, Class C, Class R,
Class R6, and Advisor Class. Each class of shares differs by its initial sales load, contingent
deferred sales charges, voting rights on matters affecting a single class, its exchange privilege
and fees primarily due to differing arrangements for distribution and transfer agent fees.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in 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 transac-
tion 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.

Debt securities generally trade in the over-the-counter (OTC) 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 pro-
prietary 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 secu-
rity features in order to estimate the relevant cash flows, which are then discounted to calculate
the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar
equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the
values of the foreign debt securities are determined. Investments in open-end mutual funds are
valued at the closing net asset value.

The Fund has procedures to determine the fair value of 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 financial instruments and considers a number of factors, including

24 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Global Government Bond Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

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 invest-
ment 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 OTC 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, differ-
ences may arise between the value of the Fund’s 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 Fund. If such an event occurs, the securities
may be valued using fair value procedures, which may include the use of independent pricing
services.

b. Foreign Currency Translation

Portfolio securities and other assets and liabilities denominated in foreign currencies are trans-
lated 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.

Semiannual Report | 25

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Global Government Bond 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.

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 differ-
ence between the recorded amounts of dividends, interest, and foreign withholding taxes and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange
gains and losses arise from changes in foreign exchange rates on foreign denominated assets and
liabilities other than investments in securities held at the end of the reporting period.

c. Income Taxes

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 October 31, 2013, the Fund has determined that no liability for
unrecognized tax benefits is required in the Fund’s financial statements.

d. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security trans-
actions 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. Distributions to shareholders are recorded on the ex-dividend date
and are determined according to income tax regulations (tax basis). Distributable earnings deter-
mined 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 tem-
porary. Permanent differences are reclassified among capital accounts to reflect their tax character.

26 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Global Government Bond Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Security Transactions, Investment Income, Expenses and Distributions (continued)

These reclassifications have no impact on net assets or the results of operations. Temporary differ-
ences 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 differ-
ences in class specific expenses.

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 corre-
sponding 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.

e. Offering Costs

Offering costs are amortized on a straight line basis over twelve months.

f. Accounting Estimates

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

g. Guarantees and Indemnifications

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

Semiannual Report | 27

Franklin Strategic Series

Shareholder Information

Franklin Global Government Bond Fund

Proxy Voting Policies and Procedures

The Fund’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund’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 Fund’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

The Fund 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.

34 | Semiannual Report

Item 2. Code of Ethics.

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

(c) N/A

(d) N/A

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

Item 3. Audit Committee Financial Expert.

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

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

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

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

Item 6. Schedule of Investments. N/A

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

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

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

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

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

Item 11. Controls and Procedures.

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

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

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

Item 12. Exhibits.

(a) (1) Code of Ethics

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

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

SIGNATURES

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