UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06243
Franklin Strategic Series
(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) (Zip code)
Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
(Name and address of agent for service)
Registrant’s telephone number, including area code: 650 312-2000
Date of fiscal year end: 4/30
Date of reporting period: 10/31/19
| Item 1. | Reports to Stockholders. |
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Franklin Growth Opportunities Fund |
|
Franklin Small Cap Growth Fund | |||
| Franklin Select U.S. Equity Fund |
Franklin Small-Mid Cap Growth Fund | |||||
Sign up for electronic delivery at franklintempleton.com/edelivery
Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.
You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.
SHAREHOLDER LETTER
| CFA® is a trademark owned by CFA Institute. | ||||
|
Not FDIC Insured | May Lose Value | No Bank Guarantee
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| franklintempleton.com | Not part of the semiannual report | 1 | ||
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1. Source: Bureau of Labor Statistics.
2. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
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Franklin Growth Opportunities Fund
1. Source: Morningstar.
Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
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 33.
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FRANKLIN GROWTH OPPORTUNITIES FUND
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FRANKLIN GROWTH OPPORTUNITIES FUND
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FRANKLIN GROWTH OPPORTUNITIES FUND
Performance Summary as of October 31, 2019
The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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.
Performance as of 10/31/191
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| Share Class
|
Cumulative Total Return2
|
Average Annual Total Return3
| ||
| A4 | ||||
| 6-Month | +0.73% | -4.80% | ||
| 1-Year |
+15.65% | +9.28% | ||
| 5-Year |
+65.55% | +9.37% | ||
| 10-Year |
+257.88% | +12.96% | ||
| Advisor |
||||
|
6-Month |
+0.86% | +0.86% | ||
| 1-Year |
+15.90% | +15.90% | ||
| 5-Year |
+67.69% | +10.89% | ||
| 10-Year |
+267.74% | +13.91% | ||
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.
See page 8 for Performance Summary footnotes.
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FRANKLIN GROWTH OPPORTUNITIES FUND
PERFORMANCE SUMMARY
Total Annual Operating Expenses5
| Share Class
|
With Fee Waiver
|
Without Fee Waiver
| ||
|
A |
0.95% |
0.95% | ||
| Advisor |
0.70% | 0.70% | ||
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Growth stock prices reflect projections of future earnings or revenues, and can, therefore, fall dramatically if the company fails to meet those projections. To the extent the Fund focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a fund that invests in a wider variety of countries, regions, industries, sectors or investments. Smaller, midsized and relatively new or unseasoned companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. Historically, these securities have experienced more price volatility than larger-company stocks, especially over the short term. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 8/31/20. Fund investment results reflect the fee waiver; without this waiver, the results 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. Return for less than one year, if any, has not been annualized.
4. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 5.50%.
5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
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FRANKLIN GROWTH OPPORTUNITIES FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| Actual | Hypothetical | |||||||||||||||||
| (actual return after expenses) | (5% annual return before expenses) | |||||||||||||||||
| Share Class |
Beginning Account Value 5/1/19 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Net Annualized Expense Ratio2 | ||||||||||||
| A | $1,000 | $1,007.30 | $4.79 | $1,020.36 | $4.82 | 0.95% | ||||||||||||
| C | $1,000 | $1,003.70 | $8.56 | $1,016.59 | $8.62 | 1.70% | ||||||||||||
| R | $1,000 | $1,006.10 | $6.05 | $1,019.10 | $6.09 | 1.20% | ||||||||||||
| R6 | $1,000 | $1,009.40 | $2.98 | $1,022.17 | $3.00 | 0.59% | ||||||||||||
| Advisor | $1,000 | $1,008.60 | $3.53 | $1,021.62 | $3.56 | 0.70% | ||||||||||||
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin Select U.S. Equity Fund
1. Source: Morningstar.
The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
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 42.
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FRANKLIN SELECT U.S. EQUITY FUND
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FRANKLIN SELECT U.S. EQUITY FUND
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FRANKLIN SELECT U.S. EQUITY FUND
Performance Summary as of October 31, 2019
The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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.
Performance as of 10/31/191
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| Share Class
|
Cumulative Total Return2
|
Average Annual Total Return3
| ||
| A4 | ||||
| 6-Month |
+2.77% | -2.86% | ||
| 1-Year |
+13.72% | +7.47% | ||
| 5-Year |
+34.95% | +4.99% | ||
| 10-Year |
+177.49% | +10.12% | ||
| Advisor |
||||
| 6-Month |
+2.90% | +2.90% | ||
| 1-Year |
+14.08% | +14.08% | ||
| 5-Year |
+36.73% | +6.46% | ||
| 10-Year |
+185.09% | +11.04% | ||
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.
See page 14 for Performance Summary footnotes.
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FRANKLIN SELECT U.S. EQUITY FUND
PERFORMANCE SUMMARY
Total Annual Operating Expenses5
| Share Class | With Fee Waiver |
Without Fee Waiver | ||
| A |
1.27% | 1.54% | ||
| Advisor |
1.02% | 1.29% | ||
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. To the extent the Fund focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a fund that invests in a wider variety of countries, regions, industries, sectors or investments. The Fund may have investments in both growth and value stocks, or in stocks with characteristics of both. Growth stock prices reflect projections of future earnings or revenues, and can, therefore, fall dramatically if the company fails to meet those projections. A value stock may not increase in price as anticipated by the investment manager if other investors fail to recognize the company’s value and bid up the price, the markets favor faster-growing companies, or the factors that the investment manager believes will increase the price of the security do not occur. Foreign securities involve special risks, including currency fluctuations and economic and political uncertainties. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 8/31/20. Fund investment results reflect the expense reduction and fee waiver; without these reductions, the results 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. Return for less than one year, if any, has not been annualized.
4. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 5.50%.
5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
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FRANKLIN SELECT U.S. EQUITY FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| Actual | Hypothetical | |||||||||||||||||
| (actual return after expenses) | (5% annual return before expenses) | |||||||||||||||||
| Share Class |
Beginning Account Value 5/1/19 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Net Annualized Expense Ratio2 | ||||||||||||
| A | $1,000 | $1,027.70 | $ 6.22 | $1,019.00 | $6.19 | 1.22% | ||||||||||||
| C | $1,000 | $1,023.60 | $10.02 | $1,015.23 | $9.98 | 1.97% | ||||||||||||
| R | $1,000 | $1,026.30 | $ 7.49 | $1,017.75 | $7.46 | 1.47% | ||||||||||||
| R6 | $1,000 | $1,029.50 | $ 4.39 | $1,020.81 | $4.37 | 0.86% | ||||||||||||
| Advisor | $1,000 | $1,029.00 | $ 4.95 | $1,020.26 | $4.93 | 0.97% | ||||||||||||
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin Small Cap Growth Fund
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: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
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 49.
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FRANKLIN SMALL CAP GROWTH FUND
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FRANKLIN SMALL CAP GROWTH FUND
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FRANKLIN SMALL CAP GROWTH FUND
Performance Summary as of October 31, 2019
The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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.
Performance as of 10/31/191
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| Share Class
|
Cumulative Total Return2
|
Average Annual Total Return3
| ||
|
A4 |
||||
| 6-Month |
+0.05% | -5.46% | ||
| 1-Year |
+12.64% | +6.45% | ||
| 5-Year |
+56.52% | +8.15% | ||
| 10-Year |
+304.16% | +14.34% | ||
| Advisor |
||||
| 6-Month |
+0.17% | +0.17% | ||
| 1-Year |
+12.87% | +12.87% | ||
| 5-Year |
+58.45% | +9.64% | ||
| 10-Year |
+315.66% | +15.31% | ||
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.
See page 20 for Performance Summary footnotes.
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FRANKLIN SMALL CAP GROWTH FUND
PERFORMANCE SUMMARY
Total Annual Operating Expenses5
| Share Class | With Fee Waiver |
Without Fee Waiver | ||
| A |
1.07% | 1.08% | ||
| Advisor |
0.82% | 0.83% | ||
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Smaller, midsized and relatively new or unseasoned companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. Historically, these securities have experienced more price volatility than larger-company stocks, especially over the short term. Growth stock prices reflect projections of future earnings or revenues, and can, therefore, fall dramatically if the company fails to meet those projections. To the extent the Fund focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a fund that invests in a wider variety of countries, regions, industries, sectors or investments. From time to time, the trading market for a particular security or type of security in which the Fund invests may become less liquid or even illiquid. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 8/31/20. Fund investment results reflect the fee waiver; without this waiver, the results 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. Return for less than one year, if any, has not been annualized.
4. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 5.50%.
5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
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FRANKLIN SMALL CAP GROWTH FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| Actual | Hypothetical | |||||||||||||||||
| (actual return after expenses) | (5% annual return before expenses) | |||||||||||||||||
| Share Class |
Beginning Account Value 5/1/19 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Net Annualized Expense Ratio2 | ||||||||||||
| A | $1,000 | $1,000.50 | $5.33 | $1,019.81 | $5.38 | 1.06% | ||||||||||||
| C | $1,000 | $ 997.10 | $9.09 | $1,016.04 | $9.17 | 1.81% | ||||||||||||
| R | $1,000 | $ 999.50 | $6.58 | $1,018.55 | $6.65 | 1.31% | ||||||||||||
| R6 | $1,000 | $1,002.50 | $3.22 | $1,021.92 | $3.25 | 0.64% | ||||||||||||
| Advisor | $1,000 | $1,001.70 | $4.08 | $1,021.06 | $4.12 | 0.81% | ||||||||||||
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin Small-Mid Cap Growth Fund
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.
2. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 58.
| 22 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN SMALL-MID CAP GROWTH FUND
| franklintempleton.com | Semiannual Report | 23 | ||
FRANKLIN SMALL-MID CAP GROWTH FUND
| 24 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN SMALL-MID CAP GROWTH FUND
Performance Summary as of October 31, 2019
The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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.
Performance as of 10/31/191
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| Share Class
|
Cumulative Total Return2
|
Average Annual Total Return3 | ||||
|
A4 |
||||||
| 6-Month |
-1.48% | -6.89% | ||||
| 1-Year |
+15.47% | +9.13% | ||||
| 5-Year |
+49.31% | +7.13% | ||||
| 10-Year |
+227.02% | +11.94% | ||||
| Advisor |
||||||
| 6-Month |
-1.36% | -1.36% | ||||
| 1-Year |
+15.69% | +15.69% | ||||
| 5-Year |
+51.12% | +8.61% | ||||
| 10-Year |
+235.27% | +12.86% | ||||
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.
See page 26 for Performance Summary footnotes.
| franklintempleton.com | Semiannual Report | 25 | ||
FRANKLIN SMALL-MID CAP GROWTH FUND
PERFORMANCE SUMMARY
Total Annual Operating Expenses5
| Share Class | With Fee Waiver |
Without Fee Waiver | ||
| A |
0.91% | 0.92% | ||
| Advisor |
0.66% | 0.67% | ||
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Growth stock prices reflect projections of future earnings or revenues, and can, therefore, fall dramatically if the company fails to meet those projections. Smaller, midsized and relatively new or unseasoned companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. Historically, these securities have experienced more price volatility than larger-company stocks, especially over the short term. To the extent the Fund focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a fund that invests in a wider variety of countries, regions, industries, sectors or investments. From time to time, the trading market for a particular security or type of security in which the Fund invests may become less liquid or even illiquid. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 8/31/20. Fund investment results reflect the expense reduction and fee waiver; without these reductions, the results 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. Return for less than one year, if any, has not been annualized.
4. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 5.50%.
5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
| 26 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN SMALL-MID CAP GROWTH FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| Actual | Hypothetical | |||||||||||||||||
| (actual return after expenses) | (5% annual return before expenses) | |||||||||||||||||
| Share Class |
Beginning Account Value 5/1/19 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Net Annualized Expense Ratio2 | ||||||||||||
| A | $1,000 | $985.20 | $4.39 | $1,020.71 | $4.47 | 0.88% | ||||||||||||
| C | $1,000 | $981.60 | $8.12 | $1,016.94 | $8.26 | 1.63% | ||||||||||||
| R | $1,000 | $984.00 | $5.59 | $1,019.51 | $5.69 | 1.12% | ||||||||||||
| R6 | $1,000 | $987.10 | $2.40 | $1,022.72 | $2.44 | 0.48% | ||||||||||||
| Advisor | $1,000 | $986.40 | $3.15 | $1,021.97 | $3.20 | 0.63% | ||||||||||||
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
| franklintempleton.com | Semiannual Report | 27 | ||
FRANKLIN STRATEGIC SERIES
Franklin Growth Opportunities Fund
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class A |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$39.57 | $38.58 | $34.81 | $30.40 | $33.13 | $28.48 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.07 | ) | (0.13 | ) | (0.10 | ) | (0.09 | ) | (0.19 | ) | (0.19 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
0.36 | 5.29 | 7.03 | 5.14 | (1.88 | ) | 5.50 | |||||||||||||||||
| Total from investment operations |
0.29 | 5.16 | 6.93 | 5.05 | (2.07 | ) | 5.31 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.17 | ) | (3.16 | ) | (0.64 | ) | (0.66 | ) | (0.66 | ) | |||||||||||||
| Net asset value, end of period |
$39.86 | $39.57 | $38.58 | $34.81 | $30.40 | $33.13 | ||||||||||||||||||
| Total returnc |
0.73% | 15.91% | 20.43% | 16.88% | (6.36)% | 18.87% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.95% | 0.94% | 1.02% | 1.05% | 1.11% | 1.18% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.95% | e,f | 0.94% | e,f | 0.99% | e | 0.97% | e | 1.10% | 1.18% | f | |||||||||||||
| Net investment income (loss) |
(0.33)% | (0.32)% | (0.27)% | (0.30)% | (0.58)% | (0.59)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$2,789,241 | $2,819,007 | $2,428,175 | $2,272,831 | $548,871 | $457,619 | ||||||||||||||||||
| Portfolio turnover rate |
10.75% | 24.21% | 22.68% | 47.75% | 25.56% | 40.64% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| 28 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Growth Opportunities Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class C |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$32.47 | $32.67 | $30.12 | $26.59 | $29.27 | $25.41 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.18 | ) | (0.35 | ) | (0.33 | ) | (0.29 | ) | (0.37 | ) | (0.36 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
0.30 | 4.32 | 6.04 | 4.46 | (1.65 | ) | 4.88 | |||||||||||||||||
| Total from investment operations |
0.12 | 3.97 | 5.71 | 4.17 | (2.02 | ) | 4.52 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.17 | ) | (3.16 | ) | (0.64 | ) | (0.66 | ) | (0.66 | ) | |||||||||||||
| Net asset value, end of period |
$32.59 | $32.47 | $32.67 | $30.12 | $26.59 | $29.27 | ||||||||||||||||||
| Total returnc |
0.37% | 15.10% | 19.53% | 15.98% | (7.03)% | 18.04% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.70% | 1.69% | 1.77% | 1.80% | 1.85% | 1.88% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.70% | e,f | 1.69% | e,f | 1.74% | e | 1.72% | e | 1.84% | 1.88% | f | |||||||||||||
| Net investment income (loss) |
(1.08)% | (1.07)% | (1.02)% | (1.05)% | (1.32)% | (1.29)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$216,250 | $244,574 | $400,295 | $390,123 | $137,882 | $110,513 | ||||||||||||||||||
| Portfolio turnover rate |
10.75% | 24.21% | 22.68% | 47.75% | 25.56% | 40.64% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 29 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Growth Opportunities Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, |
|||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$37.57 | $36.93 | $33.52 | $29.37 | $32.10 | $27.67 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.11 | ) | (0.21 | ) | (0.18 | ) | (0.17 | ) | (0.26 | ) | (0.24 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
0.34 | 5.02 | 6.75 | 4.96 | (1.81 | ) | 5.33 | |||||||||||||||||
| Total from investment operations |
0.23 | 4.81 | 6.57 | 4.79 | (2.07 | ) | 5.09 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.17 | ) | (3.16 | ) | (0.64 | ) | (0.66 | ) | (0.66 | ) | |||||||||||||
| Net asset value, end of period |
$37.80 | $37.57 | $36.93 | $33.52 | $29.37 | $32.10 | ||||||||||||||||||
| Total returnc |
0.61% | 15.66% | 20.14% | 16.62% | (6.60)% | 18.63% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.20% | 1.19% | 1.27% | 1.30% | 1.35% | 1.38% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.20% | e,f | 1.19% | e,f | 1.24% | e | 1.22% | e | 1.34% | 1.38% | f | |||||||||||||
| Net investment income (loss) |
(0.58)% | (0.57)% | (0.52)% | (0.55)% | (0.82)% | (0.79)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$33,409 | $37,105 | $36,582 | $50,429 | $39,786 | $48,266 | ||||||||||||||||||
| Portfolio turnover rate |
10.75% | 24.21 | % | 22.68% | 47.75% | 25.56% | 40.64% | |||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| 30 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Growth Opportunities Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R6 |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$43.42 | $41.78 | $37.30 | $32.39 | $35.09 | $29.98 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
0.01 | 0.01 | 0.07 | 0.05 | (0.05 | ) | (0.03 | ) | ||||||||||||||||
| Net realized and unrealized gains (losses) |
0.40 | 5.80 | 7.57 | 5.50 | (1.99 | ) | 5.80 | |||||||||||||||||
| Total from investment operations |
0.41 | 5.81 | 7.64 | 5.55 | (2.04 | ) | 5.77 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.17 | ) | (3.16 | ) | (0.64 | ) | (0.66 | ) | (0.66 | ) | |||||||||||||
| Net asset value, end of period |
$43.83 | $43.42 | $41.78 | $37.30 | $32.39 | $35.09 | ||||||||||||||||||
| Total returnc |
0.94% | 16.26% | 20.98% | 17.42% | (5.94)% | 19.47% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.59% | 0.59% | 0.58% | 0.59% | 0.67% | 0.68% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.59% | e,f | 0.58% | e | 0.55% | e | 0.51% | e | 0.66% | 0.68% | f | |||||||||||||
| Net investment income (loss) |
0.03% | 0.04% | 0.17% | 0.16% | (0.14)% | (0.09)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$384,159 | $418,174 | $369,688 | $291,825 | $235,620 | $246,911 | ||||||||||||||||||
| Portfolio turnover rate |
10.75% | 24.21% | 22.68% | 47.75% | 25.56% | 40.64% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 31 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Growth Opportunities Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Advisor Class |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$42.87 | $41.34 | $37.02 | $32.20 | $34.96 | $29.93 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.02 | ) | (0.03 | ) | (0.01 | ) | (0.02 | ) | (0.11 | ) | (0.10 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
0.39 | 5.73 | 7.49 | 5.48 | (1.99 | ) | 5.79 | |||||||||||||||||
| Total from investment operations |
0.37 | 5.70 | 7.48 | 5.46 | (2.10 | ) | 5.69 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.17 | ) | (3.16 | ) | (0.64 | ) | (0.66 | ) | (0.66 | ) | |||||||||||||
| Net asset value, end of period |
$43.24 | $42.87 | $41.34 | $37.02 | $32.20 | $34.96 | ||||||||||||||||||
| Total returnc |
0.86% | 16.16% | 20.71% | 17.21% | (6.11)% | 19.23% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.70% | 0.69% | 0.77% | 0.80% | 0.85% | 0.88% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.70% | e,f | 0.69% | e,f | 0.74% | e | 0.72% | e | 0.84% | 0.88% | f | |||||||||||||
| Net investment income (loss) |
(0.08)% | (0.07)% | (0.02)% | (0.05)% | (0.32)% | (0.29)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$488,064 | $506,964 | $583,509 | $537,193 | $256,377 | $269,887 | ||||||||||||||||||
| Portfolio turnover rate |
10.75% | 24.21% | 22.68% | 47.75% | 25.56% | 40.64% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| 32 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Statement of Investments, October 31, 2019 (unaudited)
Franklin Growth Opportunities Fund
| Country | Shares | Value | ||||||||||
| Common Stocks 96.4% |
||||||||||||
| Communication Services 6.7% |
||||||||||||
| a Alphabet Inc., C |
United States | 100,358 | $ | 126,462,119 | ||||||||
| a Facebook Inc., A |
United States | 151,743 | 29,081,546 | |||||||||
| a Liberty Broadband Corp., C |
United States | 356,818 | 42,129,501 | |||||||||
| a Netflix Inc. |
United States | 90,227 | 25,932,142 | |||||||||
| a Pinterest Inc., A |
United States | 252,500 | 6,347,850 | |||||||||
| The Walt Disney Co. |
United States | 254,576 | 33,074,514 | |||||||||
|
|
|
|||||||||||
| 263,027,672 | ||||||||||||
|
|
|
|||||||||||
| Consumer Discretionary 10.1% |
||||||||||||
| a Amazon.com Inc. |
United States | 159,953 | 284,182,097 | |||||||||
| Aptiv PLC |
United States | 295,903 | 26,498,114 | |||||||||
| a Chipotle Mexican Grill Inc. |
United States | 18,164 | 14,134,498 | |||||||||
| Levi Strauss & Co., A |
United States | 833,386 | 14,850,939 | |||||||||
| NIKE Inc., B |
United States | 199,306 | 17,847,852 | |||||||||
| a,b Peloton Interactive Inc. A |
United States | 663,400 | 15,835,358 | |||||||||
| a Under Armour Inc., A |
United States | 975,314 | 20,140,234 | |||||||||
|
|
|
|||||||||||
| 393,489,092 | ||||||||||||
|
|
|
|||||||||||
| Consumer Staples 3.0% |
||||||||||||
| Constellation Brands Inc., A |
United States | 189,271 | 36,023,949 | |||||||||
| Lamb Weston Holdings Inc. |
United States | 558,234 | 43,564,581 | |||||||||
| a Monster Beverage Corp. |
United States | 352,068 | 19,761,577 | |||||||||
| a Nomad Foods Ltd. |
United Kingdom | 959,344 | 18,716,802 | |||||||||
|
|
|
|||||||||||
| 118,066,909 | ||||||||||||
|
|
|
|||||||||||
| Energy 0.6% |
||||||||||||
| Diamondback Energy Inc. |
United States | 274,301 | 23,524,054 | |||||||||
|
|
|
|||||||||||
| Financials 6.3% |
||||||||||||
| The Charles Schwab Corp. |
United States | 714,275 | 29,078,135 | |||||||||
| Intercontinental Exchange Inc. |
United States | 573,935 | 54,133,549 | |||||||||
| MarketAxess Holdings Inc. |
United States | 110,073 | 40,571,807 | |||||||||
| MSCI Inc. |
United States | 279,833 | 65,637,629 | |||||||||
| S&P Global Inc. |
United States | 227,424 | 58,673,118 | |||||||||
|
|
|
|||||||||||
| 248,094,238 | ||||||||||||
|
|
|
|||||||||||
| Health Care 16.7% |
||||||||||||
| AstraZeneca PLC, ADR |
United Kingdom | 310,659 | 15,231,611 | |||||||||
| a Edwards Lifesciences Corp. |
United States | 288,115 | 68,680,854 | |||||||||
| a Elanco Animal Health Inc. |
United States | 373,022 | 10,079,054 | |||||||||
| a Guardant Health Inc. |
United States | 259,017 | 18,001,682 | |||||||||
| a GW Pharmaceuticals PLC, ADR |
United Kingdom | 298,788 | 39,983,810 | |||||||||
| a Heron Therapeutics Inc. |
United States | 2,669,546 | 56,727,853 | |||||||||
| a IDEXX Laboratories Inc. |
United States | 120,554 | 34,359,096 | |||||||||
| a Illumina Inc. |
United States | 111,581 | 32,974,417 | |||||||||
| a Intuitive Surgical Inc. |
United States | 69,742 | 38,563,839 | |||||||||
| a Nevro Corp. |
United States | 492,387 | 42,443,759 | |||||||||
| a PTC Therapeutics Inc. |
United States | 582,961 | 23,837,275 | |||||||||
| a Reata Pharmaceuticals Inc. |
United States | 198,956 | 41,000,852 | |||||||||
| a Sage Therapeutics Inc. |
United States | 189,601 | 25,719,376 | |||||||||
| franklintempleton.com | Semiannual Report | 33 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Growth Opportunities Fund (continued)
| Country | Shares | Value | ||||||||||
| Common Stocks (continued) |
||||||||||||
| Health Care (continued) |
||||||||||||
| a,b SmileDirectClub Inc., A |
United States | 947,498 | $ | 11,080,989 | ||||||||
| UnitedHealth Group Inc. |
United States | 309,579 | 78,230,613 | |||||||||
| a Veeva Systems Inc. |
United States | 396,044 | 56,170,921 | |||||||||
| West Pharmaceutical Services Inc. |
United States | 419,011 | 60,270,542 | |||||||||
|
|
|
|||||||||||
| 653,356,543 | ||||||||||||
|
|
|
|||||||||||
| Industrials 11.0% |
||||||||||||
| The Boeing Co. |
United States | 98,253 | 33,397,177 | |||||||||
| a CoStar Group Inc. |
United States | 173,822 | 95,518,665 | |||||||||
| Honeywell International Inc. |
United States | 220,100 | 38,017,873 | |||||||||
| a IHS Markit Ltd. |
United States | 636,224 | 44,548,405 | |||||||||
| Raytheon Co. |
United States | 284,676 | 60,411,094 | |||||||||
| Roper Technologies Inc. |
United States | 128,568 | 43,322,273 | |||||||||
| Stanley Black & Decker Inc. |
United States | 170,015 | 25,728,370 | |||||||||
| a Univar Solutions Inc. |
United States | 950,507 | 20,397,880 | |||||||||
| Verisk Analytics Inc. |
United States | 475,500 | 68,804,850 | |||||||||
|
|
|
|||||||||||
| 430,146,587 | ||||||||||||
|
|
|
|||||||||||
| Information Technology 37.6% |
||||||||||||
| a Adobe Inc. |
United States | 289,002 | 80,322,326 | |||||||||
| Analog Devices Inc. |
United States | 288,071 | 30,717,011 | |||||||||
| Apple Inc. |
United States | 441,508 | 109,829,530 | |||||||||
| a Autodesk Inc. |
United States | 150,687 | 22,205,236 | |||||||||
| a Black Knight Inc. |
United States | 328,967 | 21,119,681 | |||||||||
| a CloudFlare Inc., A |
United States | 538,600 | 9,070,024 | |||||||||
| a Fiserv Inc. |
United States | 326,248 | 34,627,963 | |||||||||
| a Guidewire Software Inc. |
United States | 202,085 | 22,783,063 | |||||||||
| a InterXion Holding NV |
Netherlands | 563,175 | 49,683,299 | |||||||||
| Intuit Inc. |
United States | 73,846 | 19,015,345 | |||||||||
| a,c,d LegalZoom.com Inc. |
United States | 1,673,284 | 19,343,163 | |||||||||
| Mastercard Inc., A |
United States | 770,242 | 213,210,688 | |||||||||
| Microsoft Corp. |
United States | 1,566,958 | 224,654,768 | |||||||||
| Monolithic Power Systems |
United States | 238,216 | 35,713,343 | |||||||||
| NVIDIA Corp. |
United States | 172,870 | 34,750,327 | |||||||||
| a PayPal Holdings Inc. |
United States | 439,183 | 45,718,950 | |||||||||
| a Pluralsight Inc., A |
United States | 462,013 | 8,353,195 | |||||||||
| a PTC Inc. |
United States | 295,541 | 19,774,648 | |||||||||
| a salesforce.com Inc. |
United States | 258,798 | 40,499,299 | |||||||||
| a ServiceNow Inc. |
United States | 411,296 | 101,697,049 | |||||||||
| a Twilio Inc., A |
United States | 385,850 | 37,257,676 | |||||||||
| a Tyler Technologies Inc. |
United States | 97,251 | 26,113,839 | |||||||||
| Visa Inc., A |
United States | 970,899 | 173,654,995 | |||||||||
| a Workday Inc., A |
United States | 137,191 | 22,246,893 | |||||||||
| Xilinx Inc. |
United States | 327,669 | 29,732,685 | |||||||||
| a Zendesk Inc. |
United States | 522,791 | 36,935,184 | |||||||||
|
|
|
|||||||||||
| 1,469,030,180 | ||||||||||||
|
|
|
|||||||||||
| Materials 0.5% |
||||||||||||
| a Ingevity Corp. |
United States | 230,041 | 19,371,753 | |||||||||
|
|
|
|||||||||||
| 34 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Growth Opportunities Fund (continued)
| Country | Shares | Value | ||||||||||
| Common Stocks (continued) |
||||||||||||
| Real Estate 3.9% |
||||||||||||
| American Tower Corp. |
United States | 173,495 | $ | 37,835,790 | ||||||||
| SBA Communications Corp., A |
United States | 472,242 | 113,645,037 | |||||||||
|
|
|
|||||||||||
| 151,480,827 | ||||||||||||
|
|
|
|||||||||||
| Total Common Stocks (Cost $1,892,593,642) |
3,769,587,855 | |||||||||||
|
|
|
|||||||||||
| Preferred Stocks 3.6% |
||||||||||||
| Communication Services 0.1% |
||||||||||||
| a,c,d Tanium Inc., pfd., G |
United States | 805,800 | 5,565,263 | |||||||||
|
|
|
|||||||||||
| Consumer Discretionary 1.9% |
||||||||||||
| a,c,d ClearMotion Inc., pfd., C |
United States | 2,610,594 | 9,016,731 | |||||||||
| a,c,d ClearMotion Inc., pfd., D |
United States | 3,698,772 | 13,425,684 | |||||||||
| a,c,d Proterra Inc., pfd., 5, 144A |
United States | 2,362,202 | 20,249,183 | |||||||||
| a,c,d Proterra Inc., pfd., 6, 144A |
United States | 596,775 | 5,115,653 | |||||||||
| a,c,d Proterra Inc., pfd., 7 |
United States | 780,667 | 6,692,005 | |||||||||
| a,c,d Proterra Inc., pfd., 8 |
United States | 289,016 | 2,477,493 | |||||||||
| a,c,d Sweetgreen Inc., pfd., H |
United States | 928,488 | 14,450,552 | |||||||||
| a,c,d Sweetgreen Inc., pfd., I |
United States | 100,835 | 1,753,299 | |||||||||
|
|
|
|||||||||||
| 73,180,600 | ||||||||||||
|
|
|
|||||||||||
| Financials 0.4% |
||||||||||||
| a,c,d Bill.com, pfd., H |
United States | 1,624,999 | 15,820,859 | |||||||||
|
|
|
|||||||||||
| Health Care 0.3% |
||||||||||||
| a,c,d Tempus Labs Inc., pfd., F |
United States | 504,854 | 12,499,983 | |||||||||
|
|
|
|||||||||||
| Industrials 0.8% |
||||||||||||
| a,c,d Optoro Inc., pfd., E |
United States | 509,182 | 12,614,393 | |||||||||
| a,c,d Wheels Up Partners LLC, pfd., D |
United States | 5,028,735 | 17,297,043 | |||||||||
|
|
|
|||||||||||
| 29,911,436 | ||||||||||||
|
|
|
|||||||||||
| Information Technology 0.1% |
||||||||||||
| a,c,d GitLab Inc., pfd., E |
United States | 201,294 | 3,749,986 | |||||||||
|
|
|
|||||||||||
| Total Preferred Stocks (Cost $112,896,675) |
140,728,127 | |||||||||||
|
|
|
|||||||||||
| Total Investments before Short Term Investments |
3,910,315,982 | |||||||||||
|
|
|
|||||||||||
| Short Term Investments 0.6% |
||||||||||||
| Money Market Funds (Cost $8,229,451) 0.2% |
||||||||||||
| e,f Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
United States | 8,229,451 | 8,229,451 | |||||||||
|
|
|
|||||||||||
| franklintempleton.com | Semiannual Report | 35 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Growth Opportunities Fund (continued)
| Country | Shares | Value | ||||||||||
| Short Term Investments (continued) |
||||||||||||
| g Investments from Cash Collateral Received
for Loaned Securities |
||||||||||||
| Money Market Funds 0.4% |
||||||||||||
| e,f Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
United States | 15,554,345 | $ | 15,554,345 | ||||||||
|
|
|
|||||||||||
| Total Investments (Cost $2,029,274,113) 100.6% |
3,934,099,778 | |||||||||||
| Other Assets, less Liabilities (0.6)% |
(22,976,318 | ) | ||||||||||
|
|
|
|||||||||||
| Net Assets 100.0% |
$ | 3,911,123,460 | ||||||||||
|
|
|
|||||||||||
See Abbreviations on page 87.
aNon-income producing.
bA portion or all of the security is on loan at October 31, 2019. See Note 1(c).
cFair valued using significant unobservable inputs. See Note 11 regarding fair value measurements.
dSee Note 7 regarding restricted securities.
eSee Note 3(f) regarding investments in affiliated management investment companies.
fThe rate shown is the annualized seven-day effective yield at period end.
gSee Note 1(c) regarding securities on loan.
| 36 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Financial Highlights
Franklin Select U.S. Equity Fund
| Six Months Ended (unaudited) |
Year Ended April 30, |
|||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class A |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$15.51 | $16.32 | $15.20 | $13.12 | $15.29 | $13.38 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.02 | ) | (0.04 | ) | (0.04 | ) | (0.01 | ) | 0.07 | c | (0.01 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
0.45 | 1.41 | 1.16 | 2.09 | (1.83 | ) | 2.23 | |||||||||||||||||
| Total from investment operations |
0.43 | 1.37 | 1.12 | 2.08 | (1.76 | ) | 2.22 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | — | — | — | (0.06 | ) | — | |||||||||||||||||
| Net realized gains |
— | (2.18 | ) | — | — | (0.35 | ) | (0.31 | ) | |||||||||||||||
| Total distributions |
— | (2.18 | ) | — | — | (0.41 | ) | (0.31 | ) | |||||||||||||||
| Net asset value, end of period |
$15.94 | $15.51 | $16.32 | $15.20 | $13.12 | $15.29 | ||||||||||||||||||
| Total returnd |
2.77% | 10.72% | 7.37% | 15.85% | (11.70)% | 16.84% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.52% | 1.51% | 1.54% | 1.47% | 1.46% | 1.54% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.22% | f | 1.23% | f | 1.25% | f | 1.24% | f | 1.25% | 1.28% | ||||||||||||||
| Net investment income (loss) |
(0.22)% | (0.22)% | (0.25)% | (0.04)% | 0.48% | c | (0.07)% | |||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$73,558 | $77,230 | $65,565 | $77,733 | $100,483 | $92,612 | ||||||||||||||||||
| Portfolio turnover rate |
—% | 4.79% | 93.43% | 17.45% | 35.56% | 25.55% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.06 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 0.02%.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 37 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Select U.S. Equity Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, |
|||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class C |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$14.40 | $15.42 | $14.46 | $12.58 | $14.73 | $12.98 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.07 | ) | (0.15 | ) | (0.15 | ) | (0.10 | ) | (0.04 | )c | (0.11 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
0.41 | 1.31 | 1.11 | 1.98 | (1.76 | ) | 2.17 | |||||||||||||||||
| Total from investment operations |
0.34 | 1.16 | 0.96 | 1.88 | (1.80 | ) | 2.06 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (2.18 | ) | — | — | (0.35 | ) | (0.31 | ) | |||||||||||||||
| Net asset value, end of period |
$14.74 | $14.40 | $15.42 | $14.46 | $12.58 | $14.73 | ||||||||||||||||||
| Total returnd |
2.36% | 9.95% | 6.64% | 14.94% | (12.31)% | 16.12% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
2.27% | 2.26% | 2.29% | 2.21% | 2.20% | 2.24% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.97% | f | 1.98% | f | 2.00% | f | 1.98% | f | 1.99% | 1.98% | ||||||||||||||
| Net investment income (loss) |
(0.97)% | (0.97)% | (1.00)% | (0.78)% | (0.26)% | c | (0.77)% | |||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$13,465 | $15,702 | $18,103 | $20,341 | $25,119 | $18,758 | ||||||||||||||||||
| Portfolio turnover rate |
—% | 4.79% | 93.43% | 17.45% | 35.56% | 25.55% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.06 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been (0.72)%.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
| 38 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Select U.S. Equity Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, |
|||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$15.21 | $16.08 | $15.01 | $12.98 | $15.15 | $13.28 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.04 | ) | (0.08 | ) | (0.06 | ) | (0.03 | ) | 0.03 | c | (0.04 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
0.44 | 1.39 | 1.13 | 2.06 | (1.81 | ) | 2.22 | |||||||||||||||||
| Total from investment operations |
0.40 | 1.31 | 1.07 | 2.03 | (1.78 | ) | 2.18 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | — | — | — | (0.04 | ) | — | |||||||||||||||||
| Net realized gains |
— | (2.18 | ) | — | — | (0.35 | ) | (0.31 | ) | |||||||||||||||
| Total distributions |
— | (2.18 | ) | — | — | (0.39 | ) | (0.31 | ) | |||||||||||||||
| Net asset value, end of period |
$15.61 | $15.21 | $16.08 | $15.01 | $12.98 | $15.15 | ||||||||||||||||||
| Total returnd |
2.63% | 10.50% | 7.13% | 15.64% | (11.91)% | 16.66% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.77% | 1.78% | 1.70% | 1.64% | 1.69% | 1.74% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.47% | f | 1.50% | f | 1.41%f | 1.41% | f | 1.48% | 1.48% | |||||||||||||||
| Net investment income (loss) |
(0.47)% | (0.49)% | (0.41)% | (0.21)% | 0.25% | c | (0.27)% | |||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$149 | $144 | $137 | $166 | $273 | $169 | ||||||||||||||||||
| Portfolio turnover rate |
—% | 4.79% | 93.43% | 17.45% | 35.56% | 25.55% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.06 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been (0.21)%.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 39 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Select U.S. Equity Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, |
|||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R6 |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$15.93 | $16.64 | $15.44 | $13.27 | $15.46 | $13.49 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment incomeb |
0.01 | 0.02 | 0.11 | 0.05 | 0.12 | c | 0.05 | |||||||||||||||||
| Net realized and unrealized gains (losses) |
0.46 | 1.45 | 1.09 | 2.12 | (1.85 | ) | 2.27 | |||||||||||||||||
| Total from investment operations |
0.47 | 1.47 | 1.20 | 2.17 | (1.73 | ) | 2.32 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | — | — | — | (0.11 | ) | (0.04 | ) | ||||||||||||||||
| Net realized gains |
— | (2.18 | ) | — | — | (0.35 | ) | (0.31 | ) | |||||||||||||||
| Total distributions |
— | (2.18 | ) | — | — | (0.46 | ) | (0.35 | ) | |||||||||||||||
| Net asset value, end of period |
$16.40 | $15.93 | $16.64 | $15.44 | $13.27 | $15.46 | ||||||||||||||||||
| Total returnd |
2.95% | 11.13% | 7.77% | 16.35% | (11.32)% | 17.45% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.21% | 1.22% | 1.12% | 1.06% | 1.04% | 1.09% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.86% | f | 0.87% | f | 0.84% | f | 0.84% | f | 0.85% | 0.83% | ||||||||||||||
| Net investment income |
0.14% | 0.14% | 0.16% | 0.36% | 0.88% | c | 0.38% | |||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$871 | $971 | $939 | $20,401 | $33,640 | $25,739 | ||||||||||||||||||
| Portfolio turnover rate |
—% | 4.79% | 93.43% | 17.45% | 35.56% | 25.55% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.06 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 0.42%.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
| 40 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Select U.S. Equity Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, |
|||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Advisor Class |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$15.84 | $16.57 | $15.39 | $13.25 | $15.44 | $13.48 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment incomeb |
— | c | 0.01 | — | c | 0.03 | 0.10 | d | 0.04 | |||||||||||||||
| Net realized and unrealized gains (losses) |
0.46 | 1.44 | 1.18 | 2.11 | (1.85 | ) | 2.25 | |||||||||||||||||
| Total from investment operations |
0.46 | 1.45 | 1.18 | 2.14 | (1.75 | ) | 2.29 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | — | — | — | (0.09 | ) | (0.02 | ) | ||||||||||||||||
| Net realized gains |
— | (2.18 | ) | — | — | (0.35 | ) | (0.31 | ) | |||||||||||||||
| Total distributions |
— | (2.18 | ) | — | — | (0.44 | ) | (0.33 | ) | |||||||||||||||
| Net asset value, end of period |
$16.30 | $15.84 | $16.57 | $15.39 | $13.25 | $15.44 | ||||||||||||||||||
| Total returne |
2.90% | 11.06% | 7.67% | 16.15% | (11.45)% | 17.25% | ||||||||||||||||||
| Ratios to average net assetsf |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.27% | 1.26% | 1.29% | 1.22% | 1.20% | 1.24% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.97% | g | 0.98% | g | 1.00% | g | 0.99% | g | 0.99% | 0.98% | ||||||||||||||
| Net investment income |
0.03% | 0.03% | —% | h | 0.21% | 0.74% | d | 0.23% | ||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$13,085 | $28,668 | $10,450 | $13,077 | $10,736 | $9,914 | ||||||||||||||||||
| Portfolio turnover rate |
—% | 4.79% | 93.43% | 17.45% | 35.56% | 25.55% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cAmount rounds to less than $0.01 per share.
dNet investment income per share includes approximately $0.06 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 0.28%.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
gBenefit of expense reduction rounds to less than 0.01%.
hRounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 41 | ||
FRANKLIN STRATEGIC SERIES
Statement of Investments, October 31, 2019 (unaudited)
Franklin Select U.S. Equity Fund
| Country | Shares | Value | ||||||||||
| Common Stocks 98.8% |
||||||||||||
| Communication Services 5.8% |
||||||||||||
| a Alphabet Inc., A |
United States | 2,720 | $ | 3,423,936 | ||||||||
| The Walt Disney Co. |
United States | 18,570 | 2,412,614 | |||||||||
|
|
|
|||||||||||
| 5,836,550 | ||||||||||||
|
|
|
|||||||||||
| Consumer Discretionary 10.3% |
||||||||||||
| a Alibaba Group Holding Ltd., ADR |
China | 13,610 | 2,404,479 | |||||||||
| a Amazon.com Inc. |
United States | 2,390 | 4,246,217 | |||||||||
| Aptiv PLC |
United States | 15,560 | 1,393,398 | |||||||||
| NIKE Inc., B |
United States | 26,420 | 2,365,911 | |||||||||
|
|
|
|||||||||||
| 10,410,005 | ||||||||||||
|
|
|
|||||||||||
| Consumer Staples 6.4% |
||||||||||||
| Constellation Brands Inc., A |
United States | 8,000 | 1,522,640 | |||||||||
| Estee Lauder Cos. Inc., A |
United States | 9,220 | 1,717,410 | |||||||||
| Lamb Weston Holdings Inc. |
United States | 23,780 | 1,855,791 | |||||||||
| a Monster Beverage Corp. |
United States | 25,100 | 1,408,863 | |||||||||
|
|
|
|||||||||||
| 6,504,704 | ||||||||||||
|
|
|
|||||||||||
| Energy 1.7% |
||||||||||||
| Cabot Oil & Gas Corp., A |
United States | 59,770 | 1,114,113 | |||||||||
| Concho Resources Inc. |
United States | 9,400 | 634,688 | |||||||||
|
|
|
|||||||||||
| 1,748,801 | ||||||||||||
|
|
|
|||||||||||
| Financials 9.4% |
||||||||||||
| BlackRock Inc. |
United States | 5,270 | 2,433,159 | |||||||||
| The Charles Schwab Corp. |
United States | 51,960 | 2,115,292 | |||||||||
| Intercontinental Exchange Inc. |
United States | 26,160 | 2,467,411 | |||||||||
| S&P Global Inc. |
United States | 9,480 | 2,445,745 | |||||||||
|
|
|
|||||||||||
| 9,461,607 | ||||||||||||
|
|
|
|||||||||||
| Health Care 15.9% |
||||||||||||
| a ABIOMED Inc. |
United States | 4,310 | 894,670 | |||||||||
| AstraZeneca PLC, ADR |
United Kingdom | 53,230 | 2,609,867 | |||||||||
| a Illumina Inc. |
United States | 5,460 | 1,613,539 | |||||||||
| a Mettler-Toledo International Inc. |
United States | 3,220 | 2,269,907 | |||||||||
| Stryker Corp. |
United States | 10,890 | 2,355,180 | |||||||||
| Teleflex Inc. |
United States | 6,950 | 2,414,500 | |||||||||
| UnitedHealth Group Inc. |
United States | 9,400 | 2,375,380 | |||||||||
| a Waters Corp. |
United States | 7,310 | 1,546,942 | |||||||||
|
|
|
|||||||||||
| 16,079,985 | ||||||||||||
|
|
|
|||||||||||
| Industrials 11.2% |
||||||||||||
| BWX Technologies Inc. |
United States | 22,710 | 1,319,451 | |||||||||
| FedEx Corp. |
United States | 7,390 | 1,128,157 | |||||||||
| Fortive Corp. |
United States | 29,430 | 2,030,670 | |||||||||
| Raytheon Co. |
United States | 11,590 | 2,459,514 | |||||||||
| Republic Services Inc. |
United States | 21,200 | 1,855,212 | |||||||||
| Verisk Analytics Inc. |
United States | 17,790 | 2,574,213 | |||||||||
|
|
|
|||||||||||
| 11,367,217 | ||||||||||||
|
|
|
|||||||||||
| 42 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Select U.S. Equity Fund (continued)
| Country | Shares | Value | ||||||||||
| Common Stocks (continued) |
||||||||||||
| Information Technology 30.0% |
||||||||||||
| a Adyen NV |
Netherlands | 376 | $ | 263,941 | ||||||||
| Amphenol Corp., A |
United States | 16,340 | 1,639,392 | |||||||||
| Analog Devices Inc. |
United States | 27,400 | 2,921,662 | |||||||||
| Apple Inc. |
United States | 10,370 | 2,579,641 | |||||||||
| Applied Materials Inc. |
United States | 47,430 | 2,573,552 | |||||||||
| Cognex Corp. |
United States | 28,430 | 1,463,861 | |||||||||
| a InterXion Holding NV |
Netherlands | 30,740 | 2,711,883 | |||||||||
| Mastercard Inc., A |
United States | 11,860 | 3,282,966 | |||||||||
| Microsoft Corp. |
United States | 31,130 | 4,463,108 | |||||||||
| NVIDIA Corp. |
United States | 9,440 | 1,897,629 | |||||||||
| a salesforce.com Inc. |
United States | 14,280 | 2,234,677 | |||||||||
| a ServiceNow Inc. |
United States | 10,280 | 2,541,833 | |||||||||
| a Tyler Technologies Inc. |
United States | 6,420 | 1,723,898 | |||||||||
|
|
|
|||||||||||
| 30,298,043 | ||||||||||||
|
|
|
|||||||||||
| Materials 2.4% |
||||||||||||
| Ecolab Inc. |
United States | 12,660 | 2,431,606 | |||||||||
|
|
|
|||||||||||
| Real Estate 2.5% |
||||||||||||
| SBA Communications Corp., A |
United States | 10,630 | 2,558,110 | |||||||||
|
|
|
|||||||||||
| Utilities 3.2% |
||||||||||||
| NextEra Energy Inc. |
United States | 13,710 | 3,267,641 | |||||||||
|
|
|
|||||||||||
| Total Common Stocks (Cost $77,788,084) |
99,964,269 | |||||||||||
|
|
|
|||||||||||
| Short Term Investments (Cost $556,102) 0.6% |
||||||||||||
| Money Market Funds 0.6% |
||||||||||||
| b,c Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
United States | 556,102 | 556,102 | |||||||||
|
|
|
|||||||||||
| Total Investments (Cost $78,344,186) 99.4% |
100,520,371 | |||||||||||
| Other Assets, less Liabilities 0.6% |
607,072 | |||||||||||
|
|
|
|||||||||||
| Net Assets 100.0% |
$ | 101,127,443 | ||||||||||
|
|
|
|||||||||||
See Abbreviations on page 87.
aNon-income producing.
bSee Note 3(f) regarding investments in affiliated management investment companies.
cThe rate shown is the annualized seven-day effective yield at period end.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 43 | ||
FRANKLIN STRATEGIC SERIES
Financial Highlights
Franklin Small Cap Growth Fund
|
Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class A |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$21.46 | $23.01 | $19.60 | $16.37 | $18.83 | $18.20 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.05 | ) | (0.15 | ) | (0.13 | ) | (0.11 | ) | (0.08 | ) | (0.12 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
0.06 | 2.86 | 3.96 | 3.34 | (2.03 | ) | 1.57 | |||||||||||||||||
| Total from investment operations |
0.01 | 2.71 | 3.83 | 3.23 | (2.11 | ) | 1.45 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.26 | ) | (0.42 | ) | — | (0.35 | ) | (0.82 | ) | ||||||||||||||
| Net asset value, end of period |
$21.47 | $21.46 | $23.01 | $19.60 | $16.37 | $18.83 | ||||||||||||||||||
| Total returnc |
0.05% | 16.06% | 19.71% | 19.73% | (11.28)% | 8.34% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.07% | 1.07% | 1.11% | 1.10% | 1.13% | 1.16% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.06% | e | 1.06% | e | 1.10% | e | 1.08% | e | 1.11% | e | 1.16% | f | ||||||||||||
| Net investment income (loss) |
(0.51)% | (0.68)% | (0.61)% | (0.61)% | (0.44)% | (0.66)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$722,016 | $713,442 | $665,251 | $719,752 | $792,072 | $1,164,218 | ||||||||||||||||||
| Portfolio turnover rate |
14.53% | 42.10% | 29.82% | 29.93% | 43.99% | 30.15% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates and expense reduction rounds to less than 0.01%.
| 44 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Small Cap Growth Fund (continued)
|
Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class C |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$17.15 | $19.41 | $16.71 | $14.07 | $16.36 | $16.03 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.11 | ) | (0.28 | ) | (0.25 | ) | (0.21 | ) | (0.18 | ) | (0.22 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
0.06 | 2.28 | 3.37 | 2.85 | (1.76 | ) | 1.37 | |||||||||||||||||
| Total from investment operations |
(0.05 | ) | 2.00 | 3.12 | 2.64 | (1.94 | ) | 1.15 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.26 | ) | (0.42 | ) | — | (0.35 | ) | (0.82 | ) | ||||||||||||||
| Net asset value, end of period |
$17.10 | $17.15 | $19.41 | $16.71 | $14.07 | $16.36 | ||||||||||||||||||
| Total returnc |
(0.29)% | 15.31% | 18.79% | 18.76% | (11.95)% | 7.58% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.82% | 1.82% | 1.86% | 1.85% | 1.88% | 1.87% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.81% | e | 1.81% | e | 1.85% | e | 1.83% | e | 1.86% | e | 1.87% | f | ||||||||||||
| Net investment income (loss) |
(1.26)% | (1.43)% | (1.36)% | (1.36)% | (1.19)% | (1.37)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$80,254 | $90,513 | $132,116 | $142,539 | $157,175 | $225,105 | ||||||||||||||||||
| Portfolio turnover rate |
14.53% | 42.10% | 29.82% | 29.93% | 43.99% | 30.15% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates and expense reduction rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 45 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Small Cap Growth Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$20.15 | $21.93 | $18.74 | $15.70 | $18.11 | $17.57 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.08 | ) | (0.20 | ) | (0.17 | ) | (0.15 | ) | (0.12 | ) | (0.16 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
0.07 | 2.68 | 3.78 | 3.19 | (1.94 | ) | 1.52 | |||||||||||||||||
| Total from investment operations |
(0.01 | ) | 2.48 | 3.61 | 3.04 | (2.06 | ) | 1.36 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.26 | ) | (0.42 | ) | — | (0.35 | ) | (0.82 | ) | ||||||||||||||
| Net asset value, end of period |
$20.14 | $20.15 | $21.93 | $18.74 | $15.70 | $18.11 | ||||||||||||||||||
| Total returnc |
(0.05)% | 15.78% | 19.37% | 19.36% | (11.46)% | 8.12% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.32% | 1.32% | 1.36% | 1.35% | 1.38% | 1.37% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.31% | e | 1.31% | e | 1.35% | e | 1.33% | e | 1.36% | e | 1.37% | f | ||||||||||||
| Net investment income (loss) |
(0.76)% | (0.93)% | (0.86)% | (0.86)% | (0.69)% | (0.87)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$64,848 | $74,634 | $71,398 | $79,995 | $79,929 | $92,455 | ||||||||||||||||||
| Portfolio turnover rate |
14.53% | 42.10% | 29.82% | 29.93% | 43.99% | 30.15% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates and expense reduction rounds to less than 0.01%.
| 46 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Small Cap Growth Fund (continued)
|
Six Months Ended (unaudited) |
Year Ended April 30, |
|||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R6 |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$23.73 | $24.88 | $21.06 | $17.52 | $20.02 | $19.21 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.01 | ) | (0.07 | ) | (0.03 | ) | (0.03 | ) | 0.01 | (0.03 | ) | |||||||||||||
| Net realized and unrealized gains (losses) |
0.07 | 3.18 | 4.27 | 3.57 | (2.16 | ) | 1.66 | |||||||||||||||||
| Total from investment operations |
0.06 | 3.11 | 4.24 | 3.54 | (2.15 | ) | 1.63 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.26 | ) | (0.42 | ) | — | (0.35 | ) | (0.82 | ) | ||||||||||||||
| Net asset value, end of period |
$23.79 | $23.73 | $24.88 | $21.06 | $17.52 | $20.02 | ||||||||||||||||||
| Total returnc |
0.25% | 16.50% | 20.23% | 20.21% | (10.81)% | 8.91% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.67% | 0.67% | 0.65% | 0.63% | 0.63% | 0.66% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.64% | e | 0.64% | e | 0.63% | e | 0.61% | e | 0.61% | e | 0.66% | f | ||||||||||||
| Net investment income (loss) |
(0.09)% | (0.26)% | (0.14)% | (0.14)% | 0.06% | (0.16)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$1,080,672 | $1,084,442 | $935,509 | $858,972 | $846,724 | $844,293 | ||||||||||||||||||
| Portfolio turnover rate |
14.53% | 42.10% | 29.82% | 29.93% | 43.99% | 30.15% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates and expense reduction rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 47 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Small Cap Growth Fund (continued)
|
Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Advisor Class |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$23.37 | $24.61 | $20.88 | $17.41 | $19.94 | $19.17 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.03 | ) | (0.10 | ) | (0.08 | ) | (0.07 | ) | (0.04 | ) | (0.07 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
0.07 | 3.12 | 4.23 | 3.54 | (2.14 | ) | 1.66 | |||||||||||||||||
| Total from investment operations |
0.04 | 3.02 | 4.15 | 3.47 | (2.18 | ) | 1.59 | |||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.26 | ) | (0.42 | ) | — | (0.35 | ) | (0.82 | ) | ||||||||||||||
| Net asset value, end of period |
$23.41 | $23.37 | $24.61 | $20.88 | $17.41 | $19.94 | ||||||||||||||||||
| Total returnc |
0.17% | 16.30% | 19.97% | 19.93% | (11.06)% | 8.65% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.82% | 0.82% | 0.86% | 0.85% | 0.88% | 0.87% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.81% | e | 0.81% | e | 0.85% | e | 0.83% | e | 0.86% | e | 0.87% | f | ||||||||||||
| Net investment income (loss) |
(0.26)% | (0.43)% | (0.36)% | (0.36)% | (0.19)% | (0.37)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$662,924 | $725,622 | $713,135 | $805,661 | $850,975 | $1,077,822 | ||||||||||||||||||
| Portfolio turnover rate |
14.53% | 42.10% | 29.82% | 29.93% | 43.99% | 30.15% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates and expense reduction rounds to less than 0.01%.
| 48 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Statement of Investments, October 31, 2019 (unaudited)
Franklin Small Cap Growth Fund
| Country | Shares | Value | ||||||||||
| Common Stocks 92.4% |
||||||||||||
| Communication Services 1.6% |
||||||||||||
| a IMAX Corp. |
United States | 680,200 | $ | 14,522,270 | ||||||||
| a Yelp Inc. |
United States | 764,700 | 26,389,797 | |||||||||
|
|
|
|||||||||||
| 40,912,067 | ||||||||||||
|
|
|
|||||||||||
| Consumer Discretionary 13.1% |
||||||||||||
| a Boot Barn Holdings Inc. |
United States | 521,503 | 18,278,680 | |||||||||
| Dave & Buster’s Entertainment Inc. |
United States | 536,500 | 21,341,970 | |||||||||
| a,b,c DraftKings Inc. |
United States | 9,905,685 | 28,392,041 | |||||||||
| a Five Below Inc. |
United States | 175,500 | 21,956,805 | |||||||||
| a Grand Canyon Education Inc. |
United States | 212,900 | 19,578,284 | |||||||||
| Lithia Motors Inc. |
United States | 156,800 | 24,692,864 | |||||||||
| a M/I Homes Inc. |
United States | 949,376 | 41,943,432 | |||||||||
| a,b Peloton Interactive Inc., B |
United States | 1,038,769 | 23,577,076 | |||||||||
| a,d The RealReal Inc. |
United States | 488,600 | 11,291,546 | |||||||||
| a,d Revolve Group Inc. |
United States | 360,600 | 7,486,056 | |||||||||
| a RH |
United States | 140,200 | 25,474,340 | |||||||||
| a,e Sportsman’s Warehouse Holdings Inc. |
United States | 2,919,500 | 19,881,795 | |||||||||
| Steven Madden Ltd. |
United States | 902,450 | 37,162,891 | |||||||||
| a TRI Pointe Group Inc. |
United States | 590,700 | 9,297,618 | |||||||||
| Wingstop Inc. |
United States | 392,729 | 32,765,380 | |||||||||
|
|
|
|||||||||||
| 343,120,778 | ||||||||||||
|
|
|
|||||||||||
| Consumer Staples 2.9% |
||||||||||||
| a BellRing Brands Inc., A |
United States | 290,500 | 5,075,035 | |||||||||
| a Grocery Outlet Holding Corp. |
United States | 621,300 | 19,819,470 | |||||||||
| a Hostess Brands Inc., A |
United States | 1,007,600 | 12,877,128 | |||||||||
| a Nomad Foods Ltd. |
United Kingdom | 937,100 | 18,282,821 | |||||||||
| a The Simply Good Foods Co. |
United States | 804,800 | 19,749,792 | |||||||||
|
|
|
|||||||||||
| 75,804,246 | ||||||||||||
|
|
|
|||||||||||
| Energy 1.1% |
||||||||||||
| a Callon Petroleum Co. |
United States | 3,498,500 | 13,294,300 | |||||||||
| d Liberty Oilfield Services Inc., A |
United States | 1,620,100 | 14,921,121 | |||||||||
|
|
|
|||||||||||
| 28,215,421 | ||||||||||||
|
|
|
|||||||||||
| Financials 7.3% |
||||||||||||
| Evercore Inc. |
United States | 180,800 | 13,314,112 | |||||||||
| FGL Holdings., A |
United States | 1,464,200 | 13,221,726 | |||||||||
| Houlihan Lokey Inc. |
United States | 566,400 | 26,768,064 | |||||||||
| LegacyTexas Financial Group Inc. |
United States | 377,460 | 16,057,149 | |||||||||
| a Metropolitan Bank Holding Corp. |
United States | 318,661 | 13,683,303 | |||||||||
| Pinnacle Financial Partners Inc. |
United States | 586,304 | 34,486,401 | |||||||||
| a PRA Group Inc. |
United States | 506,500 | 17,185,545 | |||||||||
| TCF Financial Corp. |
United States | 653,223 | 25,861,099 | |||||||||
| Western Alliance Bancorp |
United States | 623,400 | 30,752,322 | |||||||||
|
|
|
|||||||||||
| 191,329,721 | ||||||||||||
|
|
|
|||||||||||
| franklintempleton.com | Semiannual Report | 49 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Small Cap Growth Fund (continued)
| Country | Shares | Value | ||||||||||
| Common Stocks (continued) |
||||||||||||
| Health Care 23.3% |
||||||||||||
| a Allogene Therapeutics Inc. |
United States | 161,782 | $ | 4,659,322 | ||||||||
| a Argenx SE, ADR |
Netherlands | 90,400 | 11,070,384 | |||||||||
| a Ascendis Pharma AS, ADR |
Denmark | 178,900 | 19,782,762 | |||||||||
| a Collegium Pharmaceutical Inc. |
United States | 698,800 | 8,385,600 | |||||||||
| a Deciphera Pharmaceuticals Inc. |
United States | 431,500 | 19,132,710 | |||||||||
| a Emergent BioSolutions Inc. |
United States | 382,600 | 21,869,416 | |||||||||
| a Global Blood Therapeutics Inc. |
United States | 376,900 | 18,072,355 | |||||||||
| a GW Pharmaceuticals PLC, ADR |
United Kingdom | 230,700 | 30,872,274 | |||||||||
| a HealthEquity Inc. |
United States | 341,116 | 19,371,978 | |||||||||
| a Heron Therapeutics Inc. |
United States | 1,366,308 | 29,034,045 | |||||||||
| a Inspire Medical Systems Inc. |
United States | 323,744 | 19,741,909 | |||||||||
| a Integer Holdings Corp. |
United States | 369,000 | 28,575,360 | |||||||||
| a Iovance Biotherapeutics Inc. |
United States | 1,379,333 | 29,145,306 | |||||||||
| a iRhythm Technologies Inc. |
United States | 391,097 | 26,133,101 | |||||||||
| a,d Livongo Health Inc. |
United States | 697,500 | 15,059,025 | |||||||||
| a Neogen Corp. |
United States | 267,266 | 17,388,326 | |||||||||
| a NeoGenomics Inc. |
United States | 1,323,000 | 30,336,390 | |||||||||
| a Neuronetics Inc. |
United States | 380,300 | 3,388,473 | |||||||||
| a Nevro Corp. |
United States | 281,100 | 24,230,820 | |||||||||
| a Odonate Therapeutics Inc. |
United States | 383,200 | 12,170,432 | |||||||||
| a Penumbra Inc. |
United States | 162,100 | 25,282,737 | |||||||||
| a Pfenex Inc. |
United States | 1,364,631 | 12,581,898 | |||||||||
| a Phreesia Inc. |
United States | 463,300 | 13,727,579 | |||||||||
| a Precision BioSciences Inc. |
United States | 262,000 | 1,700,380 | |||||||||
| a PTC Therapeutics Inc. |
United States | 864,500 | 35,349,405 | |||||||||
| a Reata Pharmaceuticals Inc. |
United States | 249,974 | 51,514,642 | |||||||||
| a Revance Therapeutics Inc. |
United States | 1,053,592 | 16,499,251 | |||||||||
| a Sage Therapeutics Inc. |
United States | 153,100 | 20,768,015 | |||||||||
| a SmileDirectClub Inc., A |
United States | 903,100 | 10,561,754 | |||||||||
| a,d TherapeuticsMD Inc. |
United States | 1,783,100 | 4,743,046 | |||||||||
| a Tivity Health Inc. |
United States | 1,617,678 | 26,222,560 | |||||||||
|
|
|
|||||||||||
| 607,371,255 | ||||||||||||
|
|
|
|||||||||||
| Industrials 18.3% |
||||||||||||
| Allegiant Travel Co. |
United States | 266,248 | 44,551,278 | |||||||||
| Altra Industrial Motion Corp. |
United States | 238,000 | 7,330,400 | |||||||||
| a Axon Enterprise Inc. |
United States | 351,300 | 17,961,969 | |||||||||
| a Beacon Roofing Supply Inc. |
United States | 870,866 | 27,031,681 | |||||||||
| BWX Technologies Inc. |
United States | 724,400 | 42,087,640 | |||||||||
| Cubic Corp. |
United States | 639,200 | 47,134,608 | |||||||||
| Granite Construction Inc. |
United States | 1,049,543 | 24,706,242 | |||||||||
| Healthcare Services Group Inc. |
United States | 673,600 | 16,408,896 | |||||||||
| Kennametal Inc. |
United States | 1,203,400 | 37,245,230 | |||||||||
| Lindsay Corp. |
United States | 139,421 | 13,162,737 | |||||||||
| a Mercury Systems Inc. |
United States | 502,216 | 36,993,230 | |||||||||
| Mobile Mini Inc. |
United States | 265,800 | 9,999,396 | |||||||||
| a SAIA Inc. |
United States | 249,924 | 22,293,221 | |||||||||
| a Spirit Airlines Inc. |
United States | 770,300 | 28,932,468 | |||||||||
| 50 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Small Cap Growth Fund (continued)
| Country | Shares | Value | ||||||||||
| Common Stocks (continued) |
||||||||||||
| Industrials (continued) |
||||||||||||
| a Univar Solutions Inc. |
United States | 1,731,332 | $ | 37,154,385 | ||||||||
| a Upwork Inc. |
United States | 2,106,200 | 31,677,248 | |||||||||
| US Ecology Inc. |
United States | 540,576 | 33,640,044 | |||||||||
|
|
|
|||||||||||
| 478,310,673 | ||||||||||||
|
|
|
|||||||||||
| Information Technology 22.3% |
||||||||||||
| a Alteryx Inc. |
United States | 312,400 | 28,584,600 | |||||||||
| a CloudFlare Inc., A |
United States | 1,160,515 | 19,543,072 | |||||||||
| a Envestnet Inc. |
United States | 405,722 | 25,353,568 | |||||||||
| a Guidewire Software Inc. |
United States | 116,400 | 13,122,936 | |||||||||
| a Hubspot Inc. |
United States | 165,229 | 25,627,018 | |||||||||
| a InterXion Holding NV |
Netherlands | 390,795 | 34,475,935 | |||||||||
| a Lattice Semiconductor Corp. |
United States | 1,864,800 | 36,531,432 | |||||||||
| a,b,c LegalZoom.com Inc. |
United States | 1,431,280 | 16,545,597 | |||||||||
| ManTech International Corp., A |
United States | 515,000 | 40,777,700 | |||||||||
| Monolithic Power Systems |
United States | 179,700 | 26,940,624 | |||||||||
| a Onto Innovation Inc. |
United States | 887,800 | 28,587,160 | |||||||||
| a Paylocity Holding Corp. |
United States | 288,032 | 29,552,083 | |||||||||
| a Pluralsight Inc., A |
United States | 1,134,200 | 20,506,336 | |||||||||
| a Pure Storage Inc., A |
United States | 1,357,400 | 26,415,004 | |||||||||
| a Q2 Holdings Inc. |
United States | 247,000 | 17,658,030 | |||||||||
| a Semtech Corp. |
United States | 253,700 | 12,801,702 | |||||||||
| a Silicon Laboratories Inc. |
United States | 311,100 | 33,051,264 | |||||||||
| a Twilio Inc., A |
United States | 48,202 | 4,654,385 | |||||||||
| a USA Technologies Inc. |
United States | 851,300 | 5,516,424 | |||||||||
| a ViaSat Inc. |
United States | 421,283 | 29,001,122 | |||||||||
| a Viavi Solutions Inc. |
United States | 1,920,800 | 30,655,968 | |||||||||
| a Wix.com Ltd. |
Israel | 215,500 | 26,306,085 | |||||||||
| a Zendesk Inc. |
United States | 350,914 | 24,792,074 | |||||||||
| a Zscaler Inc. |
United States | 559,800 | 24,620,004 | |||||||||
|
|
|
|||||||||||
| 581,620,123 | ||||||||||||
|
|
|
|||||||||||
| Materials 1.4% |
||||||||||||
| a Ingevity Corp. |
United States | 429,329 | 36,153,795 | |||||||||
|
|
|
|||||||||||
| Real Estate 1.1% |
||||||||||||
| Coresite Realty Corp. |
United States | 244,600 | 28,740,500 | |||||||||
|
|
|
|||||||||||
| Total Common Stocks (Cost $1,785,991,136) |
2,411,578,579 | |||||||||||
|
|
|
|||||||||||
| Preferred Stocks 4.3% |
||||||||||||
| Consumer Discretionary 2.8% |
||||||||||||
| a,b,c ClearMotion Inc., pfd., D |
United States | 3,698,772 | 13,425,684 | |||||||||
| a,b,c Proterra Inc., pfd., 5, 144A |
United States | 1,787,047 | 15,318,860 | |||||||||
| a,b,c Proterra Inc., pfd., 6, 144A |
United States | 1,310,834 | 11,236,684 | |||||||||
| a,b,c Proterra Inc., pfd., 7 |
United States | 536,367 | 4,597,826 | |||||||||
| a,b,c Rent the Runway Inc., pfd |
United States | 596,471 | 13,788,135 | |||||||||
| a,b,c Sweetgreen Inc., pfd., H |
United States | 383,435 | 5,967,603 | |||||||||
| a,b,c Sweetgreen Inc., pfd., I |
United States | 41,641 | 724,046 | |||||||||
| a,b,c Tula eTechnology Inc. |
United States | 361,111 | — | |||||||||
| franklintempleton.com | Semiannual Report | 51 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Small Cap Growth Fund (continued)
| Country | Shares | Value | ||||||||||
| Preferred Stocks (continued) |
||||||||||||
| Consumer Discretionary (continued) |
||||||||||||
| a,b,c Tula Technology Inc., E |
United States | 3,611,111 | $ | 7,432,818 | ||||||||
|
|
|
|||||||||||
| 72,491,656 | ||||||||||||
|
|
|
|||||||||||
| Industrials 1.0% |
||||||||||||
| a,b,c Optoro Inc., pfd., E |
United States | 508,130 | 12,588,330 | |||||||||
| a,b,c Wheels Up Partners LLC, pfd., D |
United States | 4,310,344 | 14,826,036 | |||||||||
|
|
|
|||||||||||
| 27,414,366 | ||||||||||||
|
|
|
|||||||||||
| Information Technology 0.5% |
||||||||||||
| a,b,c Smule Inc., pfd., G, 144A |
United States | 1,542,673 | 10,748,960 | |||||||||
| a,b,c Smule Inc., pfd., H, 144A |
United States | 352,675 | 2,790,260 | |||||||||
|
|
|
|||||||||||
| 13,539,220 | ||||||||||||
|
|
|
|||||||||||
| Total Preferred Stocks (Cost $94,407,763) |
113,445,242 | |||||||||||
|
|
|
|||||||||||
| Total Investments before Short Term Investments |
2,525,023,821 | |||||||||||
|
|
|
|||||||||||
| Short Term Investments 5.1% |
||||||||||||
| Money Market Funds (Cost $98,533,343) 3.8% |
||||||||||||
| f,g Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
United States | 98,533,343 | 98,533,343 | |||||||||
|
|
|
|||||||||||
| h Investments from Cash Collateral Received for Loaned Securities (Cost $35,405,075) 1.3% |
||||||||||||
| Money Market Funds 1.3% |
||||||||||||
| f,g Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
United States | 35,405,075 | 35,405,075 | |||||||||
|
|
|
|||||||||||
| Total Investments (Cost $2,014,337,317) 101.8% |
2,658,962,239 | |||||||||||
| Other Assets, less Liabilities (1.8)% |
(48,246,691 | ) | ||||||||||
|
|
|
|||||||||||
| Net Assets 100.0% |
$ | 2,610,715,548 | ||||||||||
|
|
|
|||||||||||
See Abbreviations on page 87.
aNon-income producing.
bFair valued using significant unobservable inputs. See Note 11 regarding fair value measurements.
cSee Note 7 regarding restricted securities.
dA portion or all of the security is on loan at October 31, 2019. See Note 1(c).
eSee Note 8 regarding holdings of 5% voting securities.
fSee Note 3(f) regarding investments in affiliated management investment companies.
gThe rate shown is the annualized seven-day effective yield at period end.
hSee Note 1(c) regarding securities on loan.
| 52 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Financial Highlights
Franklin Small-Mid Cap Growth Fund
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class A |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$37.17 | $36.07 | $34.35 | $31.84 | $38.38 | $40.42 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.04 | ) | (0.09 | ) | (0.15 | ) | (0.11 | ) | (0.03 | )c | (0.14 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
(0.51 | ) | 5.33 | 4.97 | 4.73 | (3.37 | ) | 5.71 | ||||||||||||||||
| Total from investment operations |
(0.55 | ) | 5.24 | 4.82 | 4.62 | (3.40 | ) | 5.57 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.14 | ) | (3.10 | ) | (2.11 | ) | (3.14 | ) | (7.61 | ) | |||||||||||||
| Net asset value, end of period |
$36.62 | $37.17 | $36.07 | $34.35 | $31.84 | $38.38 | ||||||||||||||||||
| Total returnd |
(1.48)% | 17.43% | 14.28% | 15.01% | (9.02)% | 15.78% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.90% | 0.88% | 1.02% | 0.95% | 0.96% | 0.94% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.88% | f | 0.87% | f | 1.00% | f | 0.94% | f | 0.95% | f | 0.94% | g | ||||||||||||
| Net investment income (loss) |
(0.23)% | (0.25)% | (0.41)% | (0.34)% | (0.08)% | c | (0.35)% | |||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$2,578,741 | $2,684,131 | $2,262,471 | $2,303,113 | $2,231,822 | $2,535,853 | ||||||||||||||||||
| Portfolio turnover rate |
31.13% | 54.28% | 38.35% | 35.46% | 38.72% | 47.98% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.11 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been (0.38)%.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 53 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Small-Mid Cap Growth Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class C |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$24.98 | $25.84 | $25.59 | $24.40 | $30.43 | $33.78 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.12 | ) | (0.26 | ) | (0.31 | ) | (0.27 | ) | (0.23 | )c | (0.36 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
(0.34 | ) | 3.54 | 3.66 | 3.57 | (2.66 | ) | 4.62 | ||||||||||||||||
| Total from investment operations |
(0.46 | ) | 3.28 | 3.35 | 3.30 | (2.89 | ) | 4.26 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.14 | ) | (3.10 | ) | (2.11 | ) | (3.14 | ) | (7.61 | ) | |||||||||||||
| Net asset value, end of period |
$24.52 | $24.98 | $25.84 | $25.59 | $24.40 | $30.43 | ||||||||||||||||||
| Total returnd |
(1.84)% | 16.68% | 13.39% | 14.15% | (9.72)% | 14.96% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.65% | 1.63% | 1.77% | 1.70% | 1.71% | 1.69% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.63% | f | 1.62% | f | 1.75% | f | 1.69% | f | 1.70% | f | 1.69% | g | ||||||||||||
| Net investment income (loss) |
(0.98)% | (1.00)% | (1.16)% | (1.09)% | (0.83)% | c | (1.10)% | |||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$149,570 | $173,334 | $334,769 | $371,262 | $377,024 | $448,722 | ||||||||||||||||||
| Portfolio turnover rate |
31.13% | 54.28% | 38.35% | 35.46% | 38.72% | 47.98% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.11 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been (1.13)%.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| 54 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Small-Mid Cap Growth Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, |
|||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$33.66 | $33.15 | $31.87 | $29.75 | $36.18 | $38.61 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.08 | ) | (0.16 | ) | (0.22 | ) | (0.18 | ) | (0.11 | )c | (0.23 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
(0.46 | ) | 4.81 | 4.60 | 4.41 | (3.18 | ) | 5.41 | ||||||||||||||||
| Total from investment operations |
(0.54 | ) | 4.65 | 4.38 | 4.23 | (3.29 | ) | 5.18 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.14 | ) | (3.10 | ) | (2.11 | ) | (3.14 | ) | (7.61 | ) | |||||||||||||
| Net asset value, end of period |
$33.12 | $33.66 | $33.15 | $31.87 | $29.75 | $36.18 | ||||||||||||||||||
| Total returnd |
(1.60)% | 17.17% | 14.00% | 14.70% | (9.24)% | 15.52% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.14% | 1.12% | 1.26% | 1.19% | 1.21% | 1.19% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.12% | f | 1.11% | f | 1.24% | f | 1.18% | f | 1.20% | f | 1.19% | g | ||||||||||||
| Net investment income (loss) |
(0.47)% | (0.49)% | (0.65)% | (0.58)% | (0.33)%c | (0.60)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$46,914 | $50,721 | $70,692 | $81,864 | $86,989 | $96,593 | ||||||||||||||||||
| Portfolio turnover rate |
31.13% | 54.28% | 38.35% | 35.46% | 38.72% | 47.98% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.11 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been (0.63)%.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 55 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Small-Mid Cap Growth Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R6 |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$41.83 | $39.91 | $37.51 | $34.43 | $41.04 | $42.53 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment incomeb |
0.04 | 0.05 | 0.05 | 0.05 | 0.15 | c | 0.05 | |||||||||||||||||
| Net realized and unrealized gains (losses) |
(0.58 | ) | 6.01 | 5.45 | 5.14 | (3.62 | ) | 6.07 | ||||||||||||||||
| Total from investment operations |
(0.54 | ) | 6.06 | 5.50 | 5.19 | (3.47 | ) | 6.12 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.14 | ) | (3.10 | ) | (2.11 | ) | (3.14 | ) | (7.61 | ) | |||||||||||||
| Net asset value, end of period |
$41.29 | $41.83 | $39.91 | $37.51 | $34.43 | $41.04 | ||||||||||||||||||
| Total returnd |
(1.29)% | 17.82% | 14.90% | 15.51% | (8.54)% | 16.32% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.52% | 0.52% | 0.50% | 0.48% | 0.48% | 0.48% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.48% | f | 0.49% | f | 0.47% | f | 0.47% | f | 0.47% | f | 0.48% | g | ||||||||||||
| Net investment income |
0.17% | 0.13% | 0.12% | 0.13% | 0.40% | c | 0.11% | |||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$246,719 | $259,053 | $275,835 | $222,577 | $242,237 | $206,548 | ||||||||||||||||||
| Portfolio turnover rate |
31.13% | 54.28% | 38.35% | 35.46% | 38.72% | 47.98% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.11 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 0.10%.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| 56 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Small-Mid Cap Growth Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Advisor Class |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$41.09 | $39.33 | $37.11 | $34.15 | $40.83 | $42.44 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
0.01 | 0.01 | (0.06 | ) | (0.03 | ) | 0.06 | c | (0.04 | ) | ||||||||||||||
| Net realized and unrealized gains (losses) |
(0.57 | ) | 5.89 | 5.38 | 5.10 | (3.60 | ) | 6.04 | ||||||||||||||||
| Total from investment operations |
(0.56 | ) | 5.90 | 5.32 | 5.07 | (3.54 | ) | 6.00 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net realized gains |
— | (4.14 | ) | (3.10 | ) | (2.11 | ) | (3.14 | ) | (7.61 | ) | |||||||||||||
| Net asset value, end of period |
$40.53 | $41.09 | $39.33 | $37.11 | $34.15 | $40.83 | ||||||||||||||||||
| Total returnd |
(1.36)% | 17.67% | 14.57% | 15.28% | (8.79)% | 16.09% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.65% | 0.63% | 0.77% | 0.70% | 0.71% | 0.69% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.63% | f | 0.62% | f | 0.75% | f | 0.69% | f | 0.70% | f | 0.69% | g | ||||||||||||
| Net investment income (loss) |
0.02% | —% | h | (0.16)% | (0.09)% | 0.17% | c | (0.10)% | ||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$311,023 | $355,141 | $520,842 | $584,840 | $551,176 | $708,617 | ||||||||||||||||||
| Portfolio turnover rate |
31.13% | 54.28% | 38.35% | 35.46% | 38.72% | 47.98% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.11 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been (0.13)%.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
hRounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 57 | ||
FRANKLIN STRATEGIC SERIES
Statement of Investments, October 31, 2019 (unaudited)
Franklin Small-Mid Cap Growth Fund
| Shares
|
Value
|
|||||||
| Common Stocks 96.6% |
||||||||
| Communication Services 2.8% |
||||||||
| a IAC/InterActiveCorp. |
226,000 | $ | 51,358,500 | |||||
| a Pinterest Inc., A |
842,000 | 21,167,880 | ||||||
| a Spotify Technology SA |
159,500 | 23,015,850 | ||||||
|
|
|
|||||||
| 95,542,230 | ||||||||
|
|
|
|||||||
| Consumer Discretionary 17.8% |
||||||||
| Aptiv PLC |
190,000 | 17,014,500 | ||||||
| a Burlington Stores Inc. |
218,000 | 41,893,060 | ||||||
| a Chipotle Mexican Grill Inc. |
34,300 | 26,690,888 | ||||||
| Dollar General Corp. |
245,500 | 39,363,470 | ||||||
| a Dollar Tree Inc. |
215,000 | 23,736,000 | ||||||
| Domino’s Pizza Inc. |
114,000 | 30,964,680 | ||||||
| a,b,c DraftKings Inc. |
7,974,537 | 22,856,913 | ||||||
| Expedia Group Inc. |
346,000 | 47,284,360 | ||||||
| a Five Below Inc. |
200,000 | 25,022,000 | ||||||
| a Grand Canyon Education Inc. |
243,000 | 22,346,280 | ||||||
| Levi Strauss & Co., A |
1,200,000 | 21,384,000 | ||||||
| MGM Resorts International |
1,073,000 | 30,580,500 | ||||||
| a NVR Inc. |
9,100 | 33,092,969 | ||||||
| a O’Reilly Automotive Inc. |
89,000 | 38,760,390 | ||||||
| a,d Peloton Interactive Inc. A |
625,000 | 14,918,750 | ||||||
| a,d Revolve Group Inc. |
360,000 | 7,473,600 | ||||||
| Tractor Supply Co. |
438,500 | 41,666,270 | ||||||
| a Ulta Beauty Inc. |
136,500 | 31,824,975 | ||||||
| a Under Armour Inc., A |
575,500 | 11,884,075 | ||||||
| Vail Resorts Inc. |
185,000 | 42,988,450 | ||||||
| Wingstop Inc. |
254,000 | 21,191,220 | ||||||
|
|
|
|||||||
| 592,937,350 | ||||||||
|
|
|
|||||||
| Consumer Staples 2.6% |
||||||||
| a BellRing Brands Inc., A |
379,800 | 6,635,106 | ||||||
| Church & Dwight Co. Inc. |
365,000 | 25,528,100 | ||||||
| Lamb Weston Holdings Inc. |
410,000 | 31,996,400 | ||||||
| McCormick & Co. Inc. |
140,000 | 22,496,600 | ||||||
|
|
|
|||||||
| 86,656,206 | ||||||||
|
|
|
|||||||
| Energy 0.5% |
||||||||
| Diamondback Energy Inc. |
200,000 | 17,152,000 | ||||||
|
|
|
|||||||
| Financials 8.1% |
||||||||
| Ares Management Corp., A |
689,000 | 20,373,730 | ||||||
| CBOE Global Markets Inc. |
331,000 | 38,114,650 | ||||||
| MarketAxess Holdings Inc. |
148,500 | 54,735,615 | ||||||
| MSCI Inc. |
237,500 | 55,708,000 | ||||||
| SEI Investments Co. |
488,000 | 29,240,960 | ||||||
| TCF Financial Corp. |
446,000 | 17,657,140 | ||||||
| Tradeweb Markets Inc. |
685,500 | 28,619,625 | ||||||
| Western Alliance Bancorp |
500,000 | 24,665,000 | ||||||
|
|
|
|||||||
| 269,114,720 | ||||||||
|
|
|
|||||||
| 58 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Small-Mid Cap Growth Fund (continued)
| Shares
|
Value
|
|||||||
| Common Stocks (continued) |
||||||||
| Health Care 14.0% |
||||||||
| a Argenx SE, ADR (Netherlands) |
73,000 | $ | 8,939,580 | |||||
| a Avantor Inc. |
1,414,380 | 20,098,340 | ||||||
| a DexCom Inc. |
230,414 | 35,539,055 | ||||||
| a Elanco Animal Health Inc. |
660,000 | 17,833,200 | ||||||
| a GW Pharmaceuticals PLC, ADR (United Kingdom) |
144,700 | 19,363,754 | ||||||
| a HealthEquity Inc. |
406,000 | 23,056,740 | ||||||
| a Heron Therapeutics Inc. |
1,374,000 | 29,197,500 | ||||||
| a IDEXX Laboratories Inc. |
198,500 | 56,574,485 | ||||||
| a iRhythm Technologies Inc. |
199,450 | 13,327,249 | ||||||
| a,d Livongo Health Inc. |
583,000 | 12,586,970 | ||||||
| a Masimo Corp. |
102,500 | 14,943,475 | ||||||
| a Mettler-Toledo International Inc. |
66,000 | 46,526,040 | ||||||
| a Neurocrine Biosciences Inc. |
190,042 | 18,907,278 | ||||||
| a Penumbra Inc. |
181,247 | 28,269,095 | ||||||
| a PTC Therapeutics Inc. |
320,000 | 13,084,800 | ||||||
| a Reata Pharmaceuticals Inc. |
230,500 | 47,501,440 | ||||||
| a Revance Therapeutics Inc. |
575,000 | 9,004,500 | ||||||
| a Sage Therapeutics Inc. |
64,100 | 8,695,165 | ||||||
| a SmileDirectClub Inc., A |
1,067,000 | 12,478,565 | ||||||
| a Veeva Systems Inc. |
216,000 | 30,635,280 | ||||||
|
|
|
|||||||
| 466,562,511 | ||||||||
|
|
|
|||||||
| Industrials 17.5% |
||||||||
| BWX Technologies Inc. |
674,000 | 39,159,400 | ||||||
| a CoStar Group Inc. |
120,800 | 66,382,016 | ||||||
| Fortive Corp. |
579,500 | 39,985,500 | ||||||
| IDEX Corp. |
333,500 | 51,869,255 | ||||||
| a IHS Markit Ltd. |
251,915 | 17,639,088 | ||||||
| L3Harris Technologies Inc. |
164,500 | 33,937,995 | ||||||
| a Lyft Inc., A |
417,500 | 17,301,200 | ||||||
| a Mercury Systems Inc. |
255,000 | 18,783,300 | ||||||
| Old Dominion Freight Line Inc. |
103,455 | 18,837,086 | ||||||
| Republic Services Inc. |
400,000 | 35,004,000 | ||||||
| Rockwell Automation Inc. |
248,000 | 42,653,520 | ||||||
| Roper Technologies Inc. |
124,630 | 41,995,325 | ||||||
| Stanley Black & Decker Inc. |
202,500 | 30,644,325 | ||||||
| TransUnion |
442,000 | 36,518,040 | ||||||
| a Univar Solutions Inc. |
543,795 | 11,669,841 | ||||||
| a Upwork Inc. |
1,288,000 | 19,371,520 | ||||||
| Verisk Analytics Inc. |
434,000 | 62,799,800 | ||||||
|
|
|
|||||||
| 584,551,211 | ||||||||
|
|
|
|||||||
| Information Technology 28.8% |
||||||||
| a Advanced Micro Devices Inc. |
460,000 | 15,607,800 | ||||||
| a Adyen NV (Netherlands) |
23,000 | 16,145,306 | ||||||
| a Alteryx Inc. |
192,000 | 17,568,000 | ||||||
| Amphenol Corp., A |
410,000 | 41,135,300 | ||||||
| a ANSYS Inc. |
151,000 | 33,242,650 | ||||||
| franklintempleton.com | Semiannual Report | 59 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Small-Mid Cap Growth Fund (continued)
| Shares
|
Value
|
|||||||
| Common Stocks (continued) |
||||||||
| Information Technology (continued) |
||||||||
| a Atlassian Corp. PLC |
315,000 | $ | 38,048,850 | |||||
| a Black Knight Inc. |
748,000 | 48,021,600 | ||||||
| a CloudFlare Inc., A |
784,400 | 13,209,296 | ||||||
| a DocuSign Inc. |
707,000 | 46,796,330 | ||||||
| a EPAM Systems Inc. |
163,000 | 28,681,480 | ||||||
| a Fiserv Inc. |
440,000 | 46,701,600 | ||||||
| Global Payments Inc. |
328,500 | 55,575,630 | ||||||
| a GoDaddy Inc., A |
776,800 | 50,515,304 | ||||||
| a Guidewire Software Inc. |
321,000 | 36,189,540 | ||||||
| KLA Corp. |
205,000 | 34,653,200 | ||||||
| Lam Research Corp. |
71,000 | 19,243,840 | ||||||
| a Lattice Semiconductor Corp. |
848,335 | 16,618,883 | ||||||
| Microchip Technology Inc. |
259,100 | 24,430,539 | ||||||
| Monolithic Power Systems |
267,500 | 40,103,600 | ||||||
| NXP Semiconductors NV (Netherlands) |
77,000 | 8,753,360 | ||||||
| a Okta Inc., A |
23,000 | 2,508,610 | ||||||
| a Paylocity Holding Corp. |
258,000 | 26,470,800 | ||||||
| a Pluralsight Inc., A |
865,000 | 15,639,200 | ||||||
| a Q2 Holdings Inc. |
298,000 | 21,304,020 | ||||||
| a Semtech Corp. |
75,963 | 3,833,093 | ||||||
| a Shopify Inc., A (Canada) |
44,000 | 13,797,080 | ||||||
| a Silicon Laboratories Inc. |
98,000 | 10,411,520 | ||||||
| a Square Inc., A |
297,000 | 18,244,710 | ||||||
| a Synopsys Inc. |
323,000 | 43,847,250 | ||||||
| a Trimble Inc. |
523,000 | 20,836,320 | ||||||
| a Twilio Inc., A |
375,000 | 36,210,000 | ||||||
| a ViaSat Inc. |
346,050 | 23,822,082 | ||||||
| a WEX Inc. |
139,500 | 26,390,610 | ||||||
| a Wix.com Ltd. (Israel) |
123,000 | 15,014,610 | ||||||
| Xilinx Inc. |
296,500 | 26,904,410 | ||||||
| a Zendesk Inc. |
317,000 | 22,396,050 | ||||||
|
|
|
|||||||
| 958,872,473 | ||||||||
|
|
|
|||||||
| Materials 2.6% |
||||||||
| Ball Corp. |
330,000 | 23,090,100 | ||||||
| a Ingevity Corp. |
356,780 | 30,044,444 | ||||||
| Martin Marietta Materials Inc. |
124,500 | 32,607,795 | ||||||
|
|
|
|||||||
| 85,742,339 | ||||||||
|
|
|
|||||||
| Real Estate 1.9% |
||||||||
| SBA Communications Corp., A |
261,000 | 62,809,650 | ||||||
|
|
|
|||||||
| Total Common Stocks (Cost $2,452,216,254) |
3,219,940,690 | |||||||
|
|
|
|||||||
| Preferred Stocks 0.9% |
||||||||
| Consumer Discretionary 0.4% |
||||||||
| a,b,c Proterra Inc., pfd., 5, 144A |
1,416,913 | 12,146,011 | ||||||
|
|
|
|||||||
| 60 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Small-Mid Cap Growth Fund (continued)
| Shares
|
Value
|
|||||||
| Preferred Stocks (continued) |
||||||||
| Financials 0.5% |
||||||||
| a,b,c Bill.com, pfd., H |
866,666 | $ | 8,437,790 | |||||
| a,b,c Phononic Inc., pfd., F |
2,970,061 | 7,499,998 | ||||||
|
|
|
|||||||
| 15,937,788 | ||||||||
|
|
|
|||||||
| Total Preferred Stocks (Cost $21,835,913) |
28,083,799 | |||||||
|
|
|
|||||||
| Total Investments before Short Term Investments (Cost $2,474,052,167) |
3,248,024,489 | |||||||
|
|
|
|||||||
| Short Term Investments 3.4% |
||||||||
| Money Market Funds (Cost $81,736,824) 2.4% |
||||||||
| e,f Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
81,736,824 | 81,736,824 | ||||||
|
|
|
|||||||
| g Investments from Cash Collateral Received for Loaned Securities 1.0% |
||||||||
| Money Market Funds (Cost $32,128,260) 1.0% |
||||||||
| e,f Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
32,128,260 | 32,128,260 | ||||||
|
|
|
|||||||
| Total Investments (Cost $2,587,917,251) 100.9% |
3,361,889,573 | |||||||
| Other Assets, less Liabilities (0.9)% |
(28,921,672 | ) | ||||||
|
|
|
|||||||
| Net Assets 100.0% |
$ | 3,332,967,901 | ||||||
|
|
|
|||||||
See Abbreviations on page 87.
aNon-income producing.
bFair valued using significant unobservable inputs. See Note 11 regarding fair value measurements.
cSee Note 7 regarding restricted securities.
dA portion or all of the security is on loan at October 31, 2019. See Note 1(c).
eSee Note 3(f) regarding investments in affiliated management investment companies.
fThe rate shown is the annualized seven-day effective yield at period end.
gSee Note 1(c) regarding securities on loan.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 61 | ||
FRANKLIN STRATEGIC SERIES
Statements of Assets and Liabilities
October 31, 2019 (unaudited)
| Franklin Growth Opportunities Fund |
Franklin Select U.S. Equity Fund |
Franklin Small Cap Growth Fund |
Franklin Small-Mid Cap Growth Fund |
|||||||||||||
| Assets: |
||||||||||||||||
| Investments in securities: |
||||||||||||||||
| Cost - Unaffiliated issuers |
$2,005,490,317 | $ 77,788,084 | $1,860,200,804 | $2,474,052,167 | ||||||||||||
| Cost - Non-controlled affiliates (Note 3f and 8) |
23,783,796 | 556,102 | 154,136,513 | 113,865,084 | ||||||||||||
| Value - Unaffiliated issuers+ |
$3,910,315,982 | $ 99,964,269 | $2,505,142,026 | $3,248,024,489 | ||||||||||||
| Value - Non-controlled affiliates (Note 3f and 8) |
23,783,796 | 556,102 | 153,820,213 | 113,865,084 | ||||||||||||
| Receivables: |
||||||||||||||||
| Investment securities sold |
— | 873,114 | 19,829,191 | 24,039,059 | ||||||||||||
| Capital shares sold |
1,232,496 | 4,915 | 10,440,950 | 1,879,651 | ||||||||||||
| Dividends |
761,926 | 19,712 | 553,941 | 268,164 | ||||||||||||
| Other assets |
1,180 | 33 | 781 | 1,069 | ||||||||||||
| Total assets |
3,936,095,380 | 101,418,145 | 2,689,787,102 | 3,388,077,516 | ||||||||||||
| Liabilities: |
||||||||||||||||
| Payables: |
||||||||||||||||
| Investment securities purchased |
— | — | 28,146,728 | 16,322,693 | ||||||||||||
| Capital shares redeemed |
6,064,989 | 147,516 | 13,273,796 | 3,393,644 | ||||||||||||
| Management fees |
1,758,268 | 53,184 | 1,286,732 | 1,235,982 | ||||||||||||
| Distribution fees |
780,488 | 27,141 | 243,103 | 691,340 | ||||||||||||
| Transfer agent fees |
622,652 | 14,678 | 608,825 | 1,088,479 | ||||||||||||
| Trustees’ fees and expenses |
5,167 | 86 | 3,836 | 5,006 | ||||||||||||
| Professional fees |
15,616 | 23,800 | 6,901 | 20,323 | ||||||||||||
| Payable upon return of securities loaned |
15,554,345 | — | 35,405,075 | 32,128,260 | ||||||||||||
| Accrued expenses and other liabilities |
170,395 | 24,297 | 96,558 | 223,888 | ||||||||||||
| Total liabilities |
24,971,920 | 290,702 | 79,071,554 | 55,109,615 | ||||||||||||
| Net assets, at value |
$3,911,123,460 | $101,127,443 | $2,610,715,548 | $3,332,967,901 | ||||||||||||
| Net assets consist of: |
||||||||||||||||
| Paid-in capital |
$1,687,572,178 | $ 79,790,825 | $1,793,755,128 | $2,007,761,082 | ||||||||||||
| Total distributable earnings (loss) |
2,223,551,282 | 21,336,618 | 816,960,420 | 1,325,206,819 | ||||||||||||
| Net assets, at value |
$3,911,123,460 | $101,127,443 | $2,610,715,548 | $3,332,967,901 | ||||||||||||
| +Includes securities loaned |
$ 15,302,503 | $ — | $ 34,191,901 | $ 31,423,386 | ||||||||||||
| 62 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statements of Assets and Liabilities (continued)
October 31, 2019 (unaudited)
| Franklin Growth Opportunities Fund |
Franklin Select U.S. Equity Fund |
Franklin Small Cap Growth Fund |
Franklin Small-Mid Cap Growth Fund |
|||||||||||||
| Class A: |
||||||||||||||||
| Net assets, at value |
$2,789,241,004 | $73,557,590 | $ 722,016,392 | $2,578,740,944 | ||||||||||||
| Shares outstanding |
69,979,006 | 4,614,075 | 33,630,088 | 70,419,771 | ||||||||||||
| Net asset value per sharea |
$39.86 | $15.94 | $21.47 | $36.62 | ||||||||||||
| Maximum offering price per share (net asset value per share ÷ 94.50%) |
$42.18 | $16.87 | $22.72 | $38.75 | ||||||||||||
| Class C: |
||||||||||||||||
| Net assets, at value |
$ 216,250,250 | $13,464,759 | $ 80,254,117 | $ 149,569,723 | ||||||||||||
| Shares outstanding |
6,636,085 | 913,379 | 4,693,894 | 6,099,402 | ||||||||||||
| Net asset value and maximum offering price per sharea |
$32.59 | $14.74 | $17.10 | $24.52 | ||||||||||||
| Class R: |
||||||||||||||||
| Net assets, at value |
$ 33,409,183 | $ 149,495 | $ 64,848,351 | $ 46,914,370 | ||||||||||||
| Shares outstanding |
883,935 | 9,577 | 3,220,520 | 1,416,536 | ||||||||||||
| Net asset value and maximum offering price per share |
$37.80 | $15.61 | $20.14 | $33.12 | ||||||||||||
| Class R6: |
||||||||||||||||
| Net assets, at value |
$ 384,159,012 | $ 870,705 | $1,080,672,325 | $ 246,719,463 | ||||||||||||
| Shares outstanding |
8,765,396 | 53,085 | 45,424,713 | 5,974,927 | ||||||||||||
| Net asset value and maximum offering price per share |
$43.83 | $16.40 | $23.79 | $41.29 | ||||||||||||
| Advisor Class: |
||||||||||||||||
| Net assets, at value |
$ 488,064,011 | $13,084,894 | $ 662,924,363 | $ 311,023,401 | ||||||||||||
| Shares outstanding |
11,286,535 | 802,933 | 28,314,648 | 7,672,994 | ||||||||||||
| Net asset value and maximum offering price per share |
$43.24 | $16.30 | $23.41 | $40.53 | ||||||||||||
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 63 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statements of Operations
for the six months ended October 31, 2019 (unaudited)
| Franklin Growth Opportunities Fund |
Franklin Select U.S. |
Franklin Small Cap |
Franklin Small-Mid Cap Growth Fund |
|||||||||||||
| Investment income: |
||||||||||||||||
| Dividends: (net of foreign taxes)* |
||||||||||||||||
| Unaffiliated issuers |
$ 10,350,472 | $ 506,975 | $ 5,764,735 | $ 9,430,972 | ||||||||||||
| Non-controlled affiliates (Note 3f and 8) |
343,805 | 17,721 | 654,945 | 1,064,574 | ||||||||||||
| Income from securities loaned: |
||||||||||||||||
| Unaffiliated issuers (net of fees and rebates) |
1,433,117 | — | 557,207 | 573,653 | ||||||||||||
| Non-controlled affiliates (Note 3f) |
109,633 | — | 252,375 | 231,172 | ||||||||||||
|
|
|
|||||||||||||||
| Total investment income |
12,237,027 | 524,696 | 7,229,262 | 11,300,371 | ||||||||||||
|
|
|
|||||||||||||||
| Expenses: |
||||||||||||||||
| Management fees (Note 3a) |
10,794,057 | 499,378 | 8,083,077 | 7,876,363 | ||||||||||||
| Distribution fees: (Note 3c) |
||||||||||||||||
| Class A |
3,508,271 | 93,105 | 885,546 | 3,318,746 | ||||||||||||
| Class C |
1,152,194 | 72,321 | 424,220 | 813,617 | ||||||||||||
| Class R |
87,764 | 365 | 174,707 | 122,503 | ||||||||||||
| Transfer agent fees: (Note 3e) |
||||||||||||||||
| Class A |
1,948,730 | 52,039 | 656,039 | 2,203,177 | ||||||||||||
| Class C |
159,993 | 10,105 | 78,572 | 135,009 | ||||||||||||
| Class R |
24,481 | 102 | 64,721 | 41,224 | ||||||||||||
| Class R6 |
51,318 | 380 | 197,445 | 53,536 | ||||||||||||
| Advisor Class |
344,250 | 10,633 | 640,856 | 275,903 | ||||||||||||
| Custodian fees (Note 4) |
17,907 | 662 | 17,014 | 14,061 | ||||||||||||
| Reports to shareholders |
151,408 | 11,337 | 77,283 | 164,203 | ||||||||||||
| Registration and filing fees |
83,587 | 43,054 | 58,458 | 91,992 | ||||||||||||
| Professional fees |
35,807 | 23,685 | 32,133 | 33,155 | ||||||||||||
| Trustees’ fees and expenses |
28,710 | 756 | 19,576 | 26,078 | ||||||||||||
| Other |
35,729 | 25,183 | 25,978 | 32,170 | ||||||||||||
|
|
|
|||||||||||||||
| Total expenses |
18,424,206 | 843,105 | 11,435,625 | 15,201,737 | ||||||||||||
| Expense reductions (Note 4) |
(903 | ) | (5 | ) | (94 | ) | (201 | ) | ||||||||
| Expenses waived/paid by affiliates (Note 3f and 3g) |
(87,919 | ) | (156,228 | ) | (259,552 | ) | (267,409 | ) | ||||||||
|
|
|
|||||||||||||||
| Net expenses |
18,335,384 | 686,872 | 11,175,979 | 14,934,127 | ||||||||||||
|
|
|
|||||||||||||||
| Net investment income (loss) |
(6,098,357 | ) | (162,176 | ) | (3,946,717 | ) | (3,633,756 | ) | ||||||||
|
|
|
|||||||||||||||
| Realized and unrealized gains (losses): |
||||||||||||||||
| Net realized gain (loss) from: |
||||||||||||||||
| Investments: |
||||||||||||||||
| Unaffiliated issuers |
105,097,678 | (680,222 | ) | 52,396,134 | 146,751,603 | |||||||||||
| Non-controlled affiliates (Note 3f and 8) |
— | — | 5,793,115 | — | ||||||||||||
| Foreign currency transactions |
— | (13 | ) | 1,570 | (4,178 | ) | ||||||||||
|
|
|
|||||||||||||||
| Net realized gain (loss) |
105,097,678 | (680,235 | ) | 58,190,819 | 146,747,425 | |||||||||||
|
|
|
|||||||||||||||
| Net change in unrealized appreciation (depreciation) on: |
||||||||||||||||
| Investments: |
||||||||||||||||
| Unaffiliated issuers |
(69,811,783 | ) | 3,158,071 | (53,261,189 | ) | (193,512,962 | ) | |||||||||
| Non-controlled affiliates (Note 3f and 8) |
— | — | 2,066,112 | — | ||||||||||||
|
|
|
|||||||||||||||
| 64 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statements of Operations (continued)
for the six months ended October 31, 2019 (unaudited)
| Franklin Growth Opportunities Fund |
Franklin Select U.S. Equity Fund |
Franklin Small Cap |
Franklin Small-Mid Cap Growth Fund |
|||||||||||||
| Net change in unrealized appreciation (depreciation) |
$ (69,811,783 | ) | $ 3,158,071 | $(51,195,077 | ) | $(193,512,962 | ) | |||||||||
| Net realized and unrealized gain (loss) |
35,285,895 | 2,477,836 | 6,995,742 | (46,765,537 | ) | |||||||||||
| Net increase (decrease) in net assets resulting from operations |
$ 29,187,538 | $ 2,315,660 | $ 3,049,025 | $ (50,399,293 | ) | |||||||||||
| *Foreign taxes withheld on dividends |
$ 139 | $ 544 | $ — | $ 204 | ||||||||||||
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 65 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
| Franklin Growth Opportunities Fund |
Franklin Select U.S. Equity Fund |
|||||||||||||||
| Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, 2019 |
Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, 2019 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ (6,098,357 | ) | $ (12,309,279 | ) | $ (162,176 | ) | $ (311,623 | ) | ||||||||
| Net realized gain (loss) |
105,097,678 | 459,863,571 | (680,235 | ) | 515,616 | |||||||||||
| Net change in unrealized appreciation (depreciation) |
(69,811,783 | ) | 124,321,685 | 3,158,071 | 11,651,347 | |||||||||||
|
|
|
|||||||||||||||
| Net increase (decrease) in net assets resulting from operations |
29,187,538 | 571,875,977 | 2,315,660 | 11,855,340 | ||||||||||||
|
|
|
|||||||||||||||
| Distributions to shareholders: |
||||||||||||||||
| Class A |
— | (270,776,543 | ) | — | (9,068,158 | ) | ||||||||||
| Class C |
— | (29,467,299 | ) | — | (2,096,439 | ) | ||||||||||
| Class R |
— | (3,826,333 | ) | — | (17,405 | ) | ||||||||||
| Class R6 |
— | (36,746,123 | ) | — | (112,384 | ) | ||||||||||
| Advisor Class |
— | (56,405,582 | ) | — | (1,714,775 | ) | ||||||||||
|
|
|
|||||||||||||||
| Total distributions to shareholders |
— | (397,221,880 | ) | — | (13,009,161 | ) | ||||||||||
|
|
|
|||||||||||||||
| Capital share transactions: (Note 2) |
||||||||||||||||
| Class A |
(50,453,322 | ) | 274,938,208 | (5,591,029 | ) | 13,281,422 | ||||||||||
| Class C |
(29,356,603 | ) | (164,852,400 | ) | (2,572,295 | ) | (1,890,912 | ) | ||||||||
| Class R |
(3,860,303 | ) | (765,911 | ) | 1,270 | 11,435 | ||||||||||
| Class R6 |
(37,186,352 | ) | 25,388,596 | (124,921 | ) | 44,676 | ||||||||||
| Advisor Class |
(23,030,893 | ) | (101,787,858 | ) | (15,616,499 | ) | 17,229,063 | |||||||||
|
|
|
|||||||||||||||
| Total capital share transactions |
(143,887,473 | ) | 32,920,635 | (23,903,474 | ) | 28,675,684 | ||||||||||
|
|
|
|||||||||||||||
| Net increase (decrease) in net assets |
(114,699,935 | ) | 207,574,732 | (21,587,814 | ) | 27,521,863 | ||||||||||
| Net assets: |
||||||||||||||||
| Beginning of period |
4,025,823,395 | 3,818,248,663 | 122,715,257 | 95,193,394 | ||||||||||||
|
|
|
|||||||||||||||
| End of period |
$3,911,123,460 | $4,025,823,395 | $101,127,443 | $122,715,257 | ||||||||||||
|
|
|
|||||||||||||||
| 66 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statements of Changes in Net Assets (continued)
| Franklin Small Cap Growth Fund |
Franklin Small-Mid Cap Growth Fund |
|||||||||||||||
| Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, 2019 |
Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, 2019 |
|||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ (3,946,717 | ) | $ (12,755,804 | ) | $ (3,633,756 | ) | $ (8,359,866 | ) | ||||||||
| Net realized gain (loss) |
58,190,819 | 359,902,029 | 146,747,425 | 651,025,562 | ||||||||||||
| Net change in unrealized appreciation (depreciation) |
(51,195,077 | ) | 33,288,454 | (193,512,962 | ) | (99,480,161 | ) | |||||||||
|
|
|
|||||||||||||||
| Net increase (decrease) in net assets resulting from operations |
3,049,025 | 380,434,679 | (50,399,293 | ) | 543,185,535 | |||||||||||
|
|
|
|||||||||||||||
| Distributions to shareholders: |
||||||||||||||||
| Class A |
— | (119,248,780 | ) | — | (273,591,265 | ) | ||||||||||
| Class C |
— | (19,107,819 | ) | — | (25,744,621 | ) | ||||||||||
| Class R |
— | (13,109,783 | ) | — | (8,327,251 | ) | ||||||||||
| Class R6 |
— | (158,804,029 | ) | — | (27,160,456 | ) | ||||||||||
| Advisor Class |
— | (120,036,837 | ) | — | (54,511,212 | ) | ||||||||||
|
|
|
|||||||||||||||
| Total distributions to shareholders |
— | (430,307,248 | ) | — | (389,334,805 | ) | ||||||||||
|
|
|
|||||||||||||||
| Capital share transactions: (Note 2) |
||||||||||||||||
| Class A |
7,981,838 | 66,793,851 | (65,055,581 | ) | 299,393,170 | |||||||||||
| Class C |
(9,846,989 | ) | (37,156,667 | ) | (20,925,731 | ) | (163,688,617 | ) | ||||||||
| Class R |
(9,385,704 | ) | 5,850,633 | (2,991,546 | ) | (20,982,789 | ) | |||||||||
| Class R6 |
(6,163,957 | ) | 156,516,510 | (8,872,230 | ) | (34,742,726 | ) | |||||||||
| Advisor Class |
(63,570,954 | ) | 29,111,361 | (41,167,310 | ) | (176,059,390 | ) | |||||||||
|
|
|
|||||||||||||||
| Total capital share transactions |
(80,985,766 | ) | 221,115,688 | (139,012,398 | ) | (96,080,352 | ) | |||||||||
|
|
|
|||||||||||||||
| Net increase (decrease) in net assets |
(77,936,741 | ) | 171,243,119 | (189,411,691 | ) | 57,770,378 | ||||||||||
| Net assets: |
||||||||||||||||
| Beginning of period |
2,688,652,289 | 2,517,409,170 | 3,522,379,592 | 3,464,609,214 | ||||||||||||
|
|
|
|||||||||||||||
| End of period |
$2,610,715,548 | $2,688,652,289 | $3,332,967,901 | $3,522,379,592 | ||||||||||||
|
|
|
|||||||||||||||
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 67 | ||
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (unaudited)
| 68 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| franklintempleton.com | Semiannual Report | 69 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| 70 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
2. Shares of Beneficial Interest
At October 31, 2019, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:
| Franklin Growth | Franklin Select U.S. | |||||||||||||||
| Opportunities Fund | Equity Fund | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Class A Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares solda |
4,478,771 | $ | 177,356,470 | 249,217 | $ | 3,848,909 | ||||||||||
| Shares redeemed |
(5,749,177 | ) | (227,809,792 | ) | (613,604 | ) | (9,439,938 | ) | ||||||||
| Net increase (decrease) |
(1,270,406 | ) | $ | (50,453,322 | ) | (364,387 | ) | $ | (5,591,029 | ) | ||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares solda |
11,527,502 | $ | 446,798,931 | 1,406,734 | $ | 21,698,694 | ||||||||||
| Shares issued in reinvestment of distributions |
7,925,459 | 253,773,429 | 686,186 | 9,057,652 | ||||||||||||
| Shares redeemed |
(11,143,246 | ) | (425,634,152 | ) | (1,132,089 | ) | (17,474,924 | ) | ||||||||
| Net increase (decrease) |
8,309,715 | $ | 274,938,208 | 960,831 | $ | 13,281,422 | ||||||||||
| Class C Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares sold |
543,149 | $ | 17,667,935 | 71,337 | $ | 1,009,490 | ||||||||||
| Shares redeemeda |
(1,439,508 | ) | (47,024,538 | ) | (248,397 | ) | (3,581,785 | ) | ||||||||
| Net increase (decrease) |
(896,359 | ) | $ | (29,356,603 | ) | (177,060 | ) | $ | (2,572,295 | ) | ||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares sold |
1,419,843 | $ | 46,769,565 | 246,596 | $ | 3,641,767 | ||||||||||
| Shares issued in reinvestment of distributions |
1,096,405 | 28,890,280 | 169,618 | 2,082,903 | ||||||||||||
| Shares redeemeda |
(7,237,389 | ) | (240,512,245 | ) | (499,994 | ) | (7,615,582 | ) | ||||||||
| Net increase (decrease) |
(4,721,141 | ) | $ | (164,852,400 | ) | (83,780 | ) | $ | (1,890,912 | ) | ||||||
| Class R Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares sold |
66,124 | $ | 2,476,833 | 88 | $ | 1,329 | ||||||||||
| Shares redeemed |
(169,936 | ) | (6,337,136 | ) | (4 | ) | (59 | ) | ||||||||
| Net increase (decrease) |
(103,812 | ) | $ | (3,860,303 | ) | 84 | $ | 1,270 | ||||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares sold |
181,946 | $ | 6,761,234 | 435 | $ | 6,572 | ||||||||||
| Shares issued in reinvestment of distributions |
123,799 | 3,767,199 | 1,344 | 17,405 | ||||||||||||
| Shares redeemed |
(308,476 | ) | (11,294,344 | ) | (776 | ) | (12,542 | ) | ||||||||
| Net increase (decrease) |
(2,731 | ) | $ | (765,911 | ) | 1,003 | $ | 11,435 | ||||||||
| franklintempleton.com | Semiannual Report | 71 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
2. Shares of Beneficial Interest (continued)
| Franklin Growth | Franklin Select U.S. | |||||||||||||||
| Opportunities Fund | Equity Fund | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Class R6 Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares sold |
488,440 | $ | 21,202,933 | 1,972 | $ | 31,751 | ||||||||||
| Shares redeemed |
(1,352,978 | ) | (58,389,285 | ) | (9,832 | ) | (156,672 | ) | ||||||||
| Net increase (decrease) |
(864,538 | ) | $ | (37,186,352 | ) | (7,860 | ) | $ | (124,921 | ) | ||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares sold |
1,593,233 | $ | 65,447,277 | 14,436 | $ | 230,801 | ||||||||||
| Shares issued in reinvestment of distributions |
798,910 | 28,041,731 | 8,300 | 112,384 | ||||||||||||
| Shares redeemed |
(1,611,469 | ) | (68,100,412 | ) | (18,245 | ) | (298,509 | ) | ||||||||
| Net increase (decrease) |
780,674 | $ | 25,388,596 | 4,491 | $ | 44,676 | ||||||||||
| Advisor Class Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares sold |
596,913 | $ | 25,555,047 | 103,100 | $ | 1,616,019 | ||||||||||
| Shares redeemed |
(1,135,649 | ) | (48,585,940 | ) | (1,110,371 | ) | (17,232,518 | ) | ||||||||
| Net increase (decrease) |
(538,736 | ) | $ | (23,030,893 | ) | (1,007,271 | ) | $ | (15,616,499 | ) | ||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares sold |
4,826,217 | $ | 192,490,364 | 1,588,134 | $ | 23,675,471 | ||||||||||
| Shares issued in reinvestment of distributions |
1,596,331 | 55,344,783 | 111,006 | 1,494,146 | ||||||||||||
| Shares redeemed |
(8,711,497 | ) | (349,623,005 | ) | (519,636 | ) | (7,940,554 | ) | ||||||||
| Net increase (decrease) |
(2,288,949 | ) | $ | (101,787,858 | ) | 1,179,504 | $ | 17,229,063 | ||||||||
| Franklin | ||||||||||||||||
| Franklin Small Cap | Small-Mid Cap | |||||||||||||||
| Growth Fund | Growth Fund | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Class A Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares solda |
3,790,132 | $ | 79,722,081 | 4,478,136 | $ | 164,909,514 | ||||||||||
| Shares redeemed |
(3,406,646 | ) | (71,740,243 | ) | (6,277,331 | ) | (229,965,095 | ) | ||||||||
| Net increase (decrease) |
383,486 | $ | 7,981,838 | (1,799,195 | ) | $ | (65,055,581 | ) | ||||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares solda |
7,109,392 | $ | 159,713,318 | 14,858,754 | $ | 536,401,847 | ||||||||||
| Shares issued in reinvestment of distributions |
6,425,425 | 111,866,657 | 8,741,011 | 259,433,312 | ||||||||||||
| Shares redeemed |
(9,200,387 | ) | (204,786,124 | ) | (14,104,259 | ) | (496,441,989 | ) | ||||||||
| Net increase (decrease) |
4,334,430 | $ | 66,793,851 | 9,495,506 | $ | 299,393,170 | ||||||||||
| 72 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| Franklin | ||||||||||||||||
| Franklin Small Cap | Small-Mid Cap | |||||||||||||||
| Growth Fund | Growth Fund | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Class C Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares sold |
234,700 | $ | 3,955,261 | 372,826 | $ | 9,227,449 | ||||||||||
| Shares redeemeda |
(817,272 | ) | (13,802,250 | ) | (1,211,466 | ) | (30,153,180 | ) | ||||||||
| Net increase (decrease) |
(582,572 | ) | $ | (9,846,989 | ) | (838,640 | ) | $ | (20,925,731 | ) | ||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares sold |
616,858 | $ | 10,919,327 | 1,512,688 | $ | 38,650,988 | ||||||||||
| Shares issued in reinvestment of distributions |
1,309,694 | 18,270,229 | 1,265,311 | 25,318,892 | ||||||||||||
| Shares redeemeda |
(3,457,014 | ) | (66,346,223 | ) | (8,796,878 | ) | (227,658,497 | ) | ||||||||
| Net increase (decrease) |
(1,530,462 | ) | $ | (37,156,667 | ) | (6,018,879 | ) | $ | (163,688,617 | ) | ||||||
| Class R Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares sold |
262,002 | $ | 5,179,252 | 124,681 | $ | 4,178,940 | ||||||||||
| Shares redeemed |
(745,014 | ) | (14,564,956 | ) | (215,218 | ) | (7,170,486 | ) | ||||||||
| Net increase (decrease) |
(483,012 | ) | $ | (9,385,704 | ) | (90,537 | ) | $ | (2,991,546 | ) | ||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares sold |
1,090,360 | $ | 23,643,908 | 402,799 | $ | 13,332,859 | ||||||||||
| Shares issued in reinvestment of distributions |
792,641 | 12,967,603 | 300,662 | 8,087,803 | ||||||||||||
| Shares redeemed |
(1,435,500 | ) | (30,760,878 | ) | (1,329,075 | ) | (42,403,451 | ) | ||||||||
| Net increase (decrease) |
447,501 | $ | 5,850,633 | (625,614 | ) | $ | (20,982,789 | ) | ||||||||
| Class R6 Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares sold |
5,141,698 | $ | 120,182,466 | 797,951 | $ | 33,141,813 | ||||||||||
| Shares redeemed |
(5,417,408 | ) | (126,346,423 | ) | (1,016,664 | ) | (42,014,043 | ) | ||||||||
| Net increase (decrease) |
(275,710 | ) | $ | (6,163,957 | ) | (218,713 | ) | $ | (8,872,230 | ) | ||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares sold |
14,008,871 | $ | 340,717,317 | 2,051,263 | $ | 81,360,684 | ||||||||||
| Shares issued in reinvestment of distributions |
7,029,042 | 135,098,188 | 733,010 | 24,453,238 | ||||||||||||
| Shares redeemed |
(12,935,223 | ) | (319,298,995 | ) | (3,502,497 | ) | (140,556,648 | ) | ||||||||
| Net increase (decrease) |
8,102,690 | $ | 156,516,510 | (718,224 | ) | $ | (34,742,726 | ) | ||||||||
| franklintempleton.com | Semiannual Report | 73 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
2. Shares of Beneficial Interest (continued)
| Franklin | ||||||||||||||||
| Franklin Small Cap | Small-Mid Cap | |||||||||||||||
| Growth Fund | Growth Fund | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Advisor Class Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares sold |
1,885,752 | $ | 43,189,165 | 654,547 | $ | 26,636,485 | ||||||||||
| Shares redeemed |
(4,617,492 | ) | (106,760,119 | ) | (1,624,785 | ) | (67,803,795 | ) | ||||||||
| Net increase (decrease) |
(2,731,740 | ) | $ | (63,570,954 | ) | (970,238 | ) | $ | (41,167,310 | ) | ||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares sold |
6,621,879 | $ | 160,225,038 | 3,117,800 | $ | 123,344,447 | ||||||||||
| Shares issued in reinvestment of distributions |
5,738,085 | 108,679,322 | 1,592,925 | 52,232,005 | ||||||||||||
| Shares redeemed |
(10,287,992 | ) | (239,792,999 | ) | (9,309,703 | ) | (351,635,842 | ) | ||||||||
| Net increase (decrease) |
2,071,972 | $ | 29,111,361 | (4,598,978 | ) | $ | (176,059,390 | ) | ||||||||
aMay include a portion of Class C shares that were automatically converted to Class A.
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. 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
Franklin Growth Opportunities Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:
| Annualized Fee Rate | Net Assets | |
| 0.700% |
Up to and including $500 million | |
| 0.600% |
Over $500 million, up to and including $1 billion | |
| 0.550% |
Over $1 billion, up to and including $1.5 billion | |
| 0.500% |
Over $1.5 billion, up to and including $6.5 billion | |
| 0.475% |
Over $6.5 billion, up to and including $11.5 billion | |
| 0.450% |
Over $11.5 billion, up to and including $16.5 billion | |
| 0.440% |
Over $16.5 billion, up to and including $19 billion | |
| 0.430% |
Over $19 billion, up to and including $21.5 billion | |
| 0.420% |
In excess of $21.5 billion | |
| 74 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Select U.S. Equity Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:
| Annualized Fee Rate | Net Assets | |
| 0.950% |
Up to and including $500 million | |
| 0.850% |
Over $500 million, up to and including $1 billion | |
| 0.800% |
Over $1 billion, up to and including $1.5 billion | |
| 0.750% |
Over $1.5 billion, up to and including $6.5 billion | |
| 0.725% |
Over $6.5 billion, up to and including $11.5 billion | |
| 0.700% |
Over $11.5 billion, up to and including $16.5 billion | |
| 0.690% |
Over $16.5 billion, up to and including $19 billion | |
| 0.680% |
Over $19 billion, up to and including $21.5 billion | |
| 0.670% |
In excess of $21.5 billion | |
Franklin Small Cap Growth Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:
| Annualized Fee Rate | Net Assets | |
| 0.750% |
Up to and including $500 million | |
| 0.650% |
Over $500 million, up to and including $1 billion | |
| 0.600% |
Over $1 billion, up to and including $1.5 billion | |
| 0.550% |
Over $1.5 billion, up to and including $6.5 billion | |
| 0.525% |
Over $6.5 billion, up to and including $11.5 billion | |
| 0.500% |
Over $11.5 billion, up to and including $16.5 billion | |
| 0.490% |
Over $16.5 billion, up to and including $19 billion | |
| 0.480% |
Over $19 billion, up to and including $21.5 billion | |
| 0.470% |
In excess of $21.5 billion | |
Franklin Small-Mid Cap Growth Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:
| Annualized Fee Rate | Net Assets | |
| 0.625% |
Up to and including $100 million | |
| 0.500% |
Over $100 million, up to and including $250 million | |
| 0.450% |
Over $250 million, up to and including $7.5 billion | |
| 0.440% |
Over $7.5 billion, up to and including $10 billion | |
| 0.430% |
Over $10 billion, up to and including $12.5 billion | |
| 0.420% |
Over $12.5 billion, up to and including $15 billion | |
| 0.400% |
In excess of $15 billion | |
| franklintempleton.com | Semiannual Report | 75 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. Transactions with Affiliates (continued)
a. Management Fees (continued)
For the period ended October 31, 2019, each Fund’s annualized gross effective investment management fee rate based on average daily net assets was as follows:
| Franklin Growth Opportunities Fund |
Franklin Select U.S. Equity Fund |
Franklin Small Cap Growth Fund |
Franklin Small-Mid Cap Growth Fund |
|||||||||||
| 0.544% | 0.950% | 0.617% | 0.457% | |||||||||||
b. Administrative Fees
Under an agreement with Advisers, FT Services provides administrative services to the Funds. The fee is paid by Advisers based on each of the Funds’ 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 Class R6 and 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 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 plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 for each Fund.
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| Franklin Growth Opportunities Fund |
Franklin Select U.S. Equity Fund |
Franklin Small Cap Growth Fund |
Franklin Small-Mid Cap Growth Fund |
|||||||||||||
| Reimbursement Plans: |
||||||||||||||||
| Class A |
0.35% | 0.35% | 0.35% | 0.25% | ||||||||||||
| Compensation Plans: |
||||||||||||||||
| Class C |
1.00% | 1.00% | 1.00% | 1.00% | ||||||||||||
| Class R |
0.50% | 0.50% | 0.50% | 0.50% | ||||||||||||
For Franklin Growth Opportunities Fund, Franklin Select U.S. Equity Fund and Franklin Small Cap Growth Fund, the Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.
| 76 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Funds. These charges are deducted from the proceeds of sales of fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds’ shares for the period:
| Franklin Growth Opportunities Fund |
Franklin Select U.S. Equity Fund |
Franklin Small Cap Growth Fund |
Franklin Small-Mid Cap Growth Fund |
|||||||||||||
| Sales charges retained net of commissions paid to unaffiliated brokers/dealers |
$159,651 | $3,774 | $78,194 | $183,746 | ||||||||||||
| CDSC retained |
$ 9,758 | $2,437 | $ 760 | $ 8,707 | ||||||||||||
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the period ended October 31, 2019, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
| Franklin Growth Opportunities Fund |
Franklin Select U.S. Equity Fund |
Franklin Small Cap Growth Fund |
Franklin Small-Mid Cap Growth Fund |
|||||||||||||
| Transfer agent fees |
$1,110,063 | $34,677 | $692,494 | $939,166 | ||||||||||||
f. Investments in Affiliated Management Investment Companies
Certain or all Funds invest in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Funds are waived on assets invested in the affiliated management investment companies, as noted in the Statements of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the period ended October 31, 2019, investments in affiliated management investment companies were as follows:
| Value at Beginning of Period |
Purchases | Sales | Realized Gain (Loss) |
Net Change in Unrealized Appreciation (Depreciation) |
Value at End of Period |
Number of Shares Held at End of Period |
Investment Income |
|||||||||||||||||||||||||
| Franklin Growth Opportunities Fund |
|
|||||||||||||||||||||||||||||||
| Non-Controlled Affiliates |
||||||||||||||||||||||||||||||||
| Dividends | ||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
$ 69,126,928 | $291,995,555 | $(352,893,032 | ) | $ — | $ — | $ 8,229,451 | 8,229,451 | $ 343,805 | |||||||||||||||||||||||
| franklintempleton.com | Semiannual Report | 77 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. Transactions with Affiliates (continued)
f. Investments in Affiliated Management Investment Companies (continued)
| Value at Beginning of Period |
Purchases | Sales | Realized Gain (Loss) |
Net Change in Unrealized Appreciation (Depreciation) |
Value at End of Period |
Number of Shares Held at End of Period |
Investment Income |
|||||||||||||||||||||||||
| Franklin Growth Opportunities Fund (continued) |
|
|||||||||||||||||||||||||||||||
| Non-Controlled Affiliates (continued) |
|
|||||||||||||||||||||||||||||||
| Income from securities loaned |
||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
$ | — | $ | 141,018,020 | $ | (125,463,675 | ) | $ — | $ — | $ | 15,554,345 | 15,554,345 | $ | 109,633 | ||||||||||||||||||
| Total Affiliated Securities |
$ | 69,126,928 | $ | 433,013,575 | $ | (478,356,707 | ) | $ — | $ — | $ | 23,783,796 | $ | 453,438 | |||||||||||||||||||
| Franklin Select U.S. Equity Fund |
|
|||||||||||||||||||||||||||||||
| Non-Controlled Affiliates |
|
|||||||||||||||||||||||||||||||
| Dividends | ||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
$ | 7,161,073 | $ | 12,805,724 | $ | (19,410,695 | ) | $ — | $ — | $ | 556,102 | 556,102 | $ | 17,721 | ||||||||||||||||||
| Franklin Small Cap Growth Fund |
|
|||||||||||||||||||||||||||||||
| Non-Controlled Affiliates |
|
|||||||||||||||||||||||||||||||
| Dividends | ||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
$ | 70,752,806 | $ | 243,732,332 | $ | (215,951,795 | ) | $ — | $ — | $ | 98,533,343 | 98,533,343 | $ | 654,945 | ||||||||||||||||||
| Income from securities loaned |
||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
18,262,684 | 209,249,557 | (192,107,166 | ) | — | — | 35,405,075 | 35,405,075 | 252,375 | |||||||||||||||||||||||
| Total Affiliated Securities |
$ | 89,015,490 | $ | 452,981,889 | $ | (408,058,961 | ) | $ — | $ — | $ | 133,938,418 | $ | 907,320 | |||||||||||||||||||
| Franklin Small-Mid Cap Growth Fund |
|
|||||||||||||||||||||||||||||||
| Non-Controlled Affiliates |
|
|||||||||||||||||||||||||||||||
| Dividends | ||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
$ | 124,157,073 | $ | 391,378,543 | $ | (433,798,792 | ) | $ — | $ — | $ | 81,736,824 | 81,736,824 | $ | 1,064,574 | ||||||||||||||||||
| Income from securities loaned |
||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
6,811,635 | 219,602,264 | (194,285,639 | ) | — | — | 32,128,260 | 32,128,260 | 231,172 | |||||||||||||||||||||||
| Total Affiliated Securities |
$ | 130,968,708 | $ | 610,980,807 | $ | (628,084,431 | ) | $ — | $ — | $ | 113,865,084 | $ | 1,295,746 | |||||||||||||||||||
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FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
g. Waiver and Expense Reimbursements
Advisers and Investor Services have contractually agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by Franklin Select U.S. Equity Fund so that the expenses (excluding distribution fees and acquired fund fees and expenses) for Class A, Class C, Class R and Advisor Class of the Fund does not exceed 1.00%, and Class R6 does not exceed 0.89% based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until August 31, 2020. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.
Prior to September 1, 2019, expenses (excluding certain fees and expenses as previously disclosed) for Franklin Select U.S. Equity Fund for Class R6 were limited to 0.88% based on the average net assets of the class.
For Franklin Growth Opportunities Fund, Franklin Small Cap Growth Fund and Franklin Small-Mid Cap Growth Fund, Investor Services has contractually agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.03%, 0.02% and 0.02%, respectively based on the average net assets of the class until August 31, 2020.
Prior to September 1, 2019, for Franklin Growth Opportunities Fund, Investor Services had voluntarily agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.02% based on the average net assets of the class.
h. Interfund Transactions
Franklin Small-Mid Cap Growth Fund engaged in purchases and sales of investments with funds or other accounts that have common investment managers (or affiliated investment managers), directors, trustees or officers. During the period ended October 31, 2019, these purchase and sale transactions aggregated $0 and $2,323,880, respectively.
4. Expense Offset Arrangement
The Funds have entered into an arrangement with their custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Funds’ custodian expenses. During the period ended October 31, 2019, the custodian fees were reduced as noted in the Statements of Operations.
5. Income Taxes
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, 2019, the deferred losses were as follows:
| Franklin Growth Opportunities Fund |
Franklin Select U.S. Equity Fund |
Franklin Small Cap Growth Fund |
Franklin Small-Mid Cap Growth Fund |
|||||||||||||
| Late-year ordinary losses |
$5,667,880 | $119,809 | $ — | $3,964,521 | ||||||||||||
| franklintempleton.com | Semiannual Report | 79 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
5. Income Taxes (continued)
At October 31, 2019, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
| Franklin Growth Opportunities Fund |
Franklin Select U.S. |
Franklin Small Cap |
Franklin Small-Mid Cap Growth Fund |
|||||||||||||
| Cost of investments |
$2,031,161,200 | $ | 78,345,384 | $ | 2,017,935,784 | $ | 2,589,710,556 | |||||||||
|
|
|
|||||||||||||||
| Unrealized appreciation |
$1,972,066,696 | $ | 24,952,200 | $ | 796,507,273 | $ | 834,426,673 | |||||||||
| Unrealized depreciation |
(69,128,118 | ) | (2,777,213 | ) | (155,480,818 | ) | (62,247,656) | |||||||||
|
|
|
|||||||||||||||
| Net unrealized appreciation (depreciation) |
$1,902,938,578 | $ | 22,174,987 | $ | 641,026,455 | $ | 772,179,017 | |||||||||
|
|
|
|||||||||||||||
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of wash sales
6. Investment Transactions
Purchases and sales of investments (excluding short term securities) for the period ended October 31, 2019, were as follows:
| Franklin Growth Opportunities Fund |
Franklin Select U.S. |
Franklin Small Cap |
Franklin Small-Mid Cap Growth Fund |
|||||||||||||
| Purchases |
$419,866,733 | $ | — | $ | 368,992,206 | $ | 1,033,951,040 | |||||||||
| Sales |
$506,618,341 | $ | 17,878,764 | $ | 471,052,109 | $ | 1,152,600,396 | |||||||||
At October 31, 2019, in connection with securities lending transactions, certain or all Funds loaned investments and received cash collateral as follows:
| Franklin Growth Opportunities Fund |
Franklin Small Cap Growth Fund |
Franklin Small-Mid Cap Growth Fund |
||||||||||
| Securities lending transactionsa: |
||||||||||||
| Equity investmentsb |
$15,554,345 | $35,405,075 | $32,128,260 | |||||||||
aThe agreements can be terminated at any time.
bThe gross amount of recognized liability for such transactions is included in payable upon return of securities loaned in the Statements of Assets and Liabilities.
7. Restricted Securities
Certain or all Funds invest in securities that are restricted under the Securities Act of 1933 (1933 Act). 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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Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
At October 31, 2019, investments in restricted securities, excluding securities exempt from registration under the 1933 Act, were as follows:
| Shares | Issuer | Acquisition Date |
Cost | Value | ||||||||||||
| Franklin Growth Opportunities Fund |
||||||||||||||||
| 1,624,999 | Bill.com, pfd., H | 12/21/18 | $ | 13,500,004 | $ | 15,820,859 | ||||||||||
| 2,610,594 | ClearMotion Inc., pfd., C | 11/06/17 | 5,500,000 | 9,016,731 | ||||||||||||
| 3,698,772 | ClearMotion Inc., pfd., D | 12/21/18 | 10,000,000 | 13,425,684 | ||||||||||||
| 201,294 | GitLab Inc., pfd., E | 9/11/19 | 3,749,986 | 3,749,986 | ||||||||||||
| 1,673,284 | LegalZoom.com Inc. | 7/20/18 | 16,479,337 | 19,343,163 | ||||||||||||
| 509,182 | Optoro Inc., pfd., E | 7/24/18 | 10,020,702 | 12,614,393 | ||||||||||||
| 2,362,202 | Proterra Inc., pfd., 5, 144A | 9/21/16 - 1/13/17 | 11,896,616 | 20,249,183 | ||||||||||||
| 596,775 | Proterra Inc., pfd., 6, 144A | 6/07/17 | 3,306,052 | 5,115,653 | ||||||||||||
| 780,667 | Proterra Inc., pfd., 7 | 5/21/18 - 9/18/18 | 5,094,960 | 6,692,005 | ||||||||||||
| 289,016 | Proterra Inc., pfd., 8 | 8/02/19 | 1,996,378 | 2,477,493 | ||||||||||||
| 928,488 | Sweetgreen Inc., pfd., H | 11/09/18 | 12,107,484 | 14,450,552 | ||||||||||||
| 100,835 | Sweetgreen Inc., pfd., I | 9/16/19 | 1,724,279 | 1,753,299 | ||||||||||||
| 805,800 | Tanium Inc., pfd., G | 9/14/15 | 4,000,233 | 5,565,263 | ||||||||||||
| 504,854 | Tempus Labs Inc., pfd., F | 5/29/19 | 12,499,983 | 12,499,983 | ||||||||||||
| 5,028,735 | Wheels Up Partners LLC, pfd., D | 5/16/19 - 8/02/19 | 17,499,998 | 17,297,043 | ||||||||||||
|
|
|
|||||||||||||||
| Total Restricted Securities (Value is 4.1% of Net Assets) | $ | 129,376,012 | $ | 160,071,290 | ||||||||||||
|
|
|
|||||||||||||||
| Franklin Small Cap Growth Fund |
||||||||||||||||
| 3,698,772 | ClearMotion Inc., pfd., D | 12/21/18 | $ | 10,000,000 | $ | 13,425,684 | ||||||||||
| 9,905,685 | DraftKings Inc. | 8/07/15 - 3/02/17 | 26,627,302 | 28,392,041 | ||||||||||||
| 1,431,280 | LegalZoom.com Inc. | 7/20/18 | 14,095,961 | 16,545,597 | ||||||||||||
| 508,130 | Optoro Inc., pfd., E | 7/24/18 | 9,999,999 | 12,588,330 | ||||||||||||
| 1,787,047 | Proterra Inc., pfd., 5, 144A | 9/21/16 - 1/13/17 | 8,999,998 | 15,318,860 | ||||||||||||
| 1,310,834 | Proterra Inc., pfd., 6, 144A | 6/07/17 - 1/02/18 | 7,261,842 | 11,236,684 | ||||||||||||
| 536,367 | Proterra Inc., pfd., 7 | 5/21/18 | 3,500,556 | 4,597,826 | ||||||||||||
| 596,471 | Rent the Runway Inc., pfd | 3/21/19 | 13,333,328 | 13,788,135 | ||||||||||||
| 1,542,673 | Smule Inc., pfd., G, 144A | 5/31/16 | 11,099,995 | 10,748,960 | ||||||||||||
| 352,675 | Smule Inc., pfd., H, 144A | 4/27/17 | 2,999,995 | 2,790,260 | ||||||||||||
| 383,435 | Sweetgreen Inc., pfd., H | 11/09/18 | 4,999,992 | 5,967,603 | ||||||||||||
| 41,641 | Sweetgreen Inc., pfd., I | 9/16/19 | 712,061 | 724,046 | ||||||||||||
| 361,111 | Tula eTechnology Inc. | 11/01/18 | — | — | ||||||||||||
| 3,611,111 | Tula Technology Inc., E | 9/08/17 | 6,500,000 | 7,432,818 | ||||||||||||
| 4,310,344 | Wheels Up Partners LLC, pfd., D | 5/16/19 - 8/02/19 | 14,999,997 | 14,826,036 | ||||||||||||
|
|
|
|||||||||||||||
| Total Restricted Securities (Value is 6.1% of Net Assets) | $ | 135,131,026 | $ | 158,382,880 | ||||||||||||
|
|
|
|||||||||||||||
| Franklin Small-Mid Cap Growth Fund |
||||||||||||||||
| 866,666 | Bill.com, pfd., H | 12/21/18 | $ | 7,200,001 | $ | 8,437,790 | ||||||||||
| 7,974,537 | DraftKings Inc. | 8/07/15 - 3/02/17 | 21,380,303 | 22,856,913 | ||||||||||||
| 2,970,061 | Phononic Inc., pfd., F | 6/06/19 | 7,499,998 | 7,499,998 | ||||||||||||
| 1,416,913 | Proterra Inc., pfd., 5, 144A | 9/21/16 | 7,135,914 | 12,146,011 | ||||||||||||
|
|
|
|||||||||||||||
| Total Restricted Securities (Value is 1.5% of Net Assets) | $ | 43,216,216 | $ | 50,940,712 | ||||||||||||
|
|
|
|||||||||||||||
| franklintempleton.com | Semiannual Report | 81 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
8. Holdings of 5% Voting Securities of Portfolio Companies
The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. During the period ended October 31, 2019, investments in “affiliated companies” were as follows:
| Name of Issuer | Value at Beginning of Period |
Purchases | Sales | Realized Gain (Loss) |
Net Change in Unrealized Appreciation (Depreciation) |
Value at End of Period |
Number of Shares Held at End of Period |
Dividend Income |
||||||||||||||||||||||||
| Franklin Small Cap Growth Fund |
||||||||||||||||||||||||||||||||
| Non-Controlled Affiliates |
||||||||||||||||||||||||||||||||
| The KeyW Holding Corp. |
$ | 33,592,278 | $ — | $ | (33,325,672 | ) | $ | 7,901,967 | $(8,168,573) | $ | — | a | — | $ — | ||||||||||||||||||
| Sportsman’s Warehouse Holdings Inc. |
16,003,372 | — | (4,247,410 | ) | (2,108,852 | ) | 10,234,685 | $ | 19,881,795 | 2,919,500 | — | |||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total Affiliated Securities (Value is 0.8% of Net Assets) |
$ | 49,595,650 | $ — | $ | (37,573,082 | ) | $ | 5,793,115 | $ 2,066,112 | $ | 19,881,795 | $ — | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||
aAs of October 31, 2019, no longer held by the fund.
9. Upcoming Acquisitions/Reorganizations
On July 17, 2019, the Board approved a proposal to reorganize Franklin Select U.S. Equity Fund with and into the Franklin Growth Fund, a series of Franklin Custodian Funds, subject to approval by the shareholders of Franklin Select U.S. Equity Fund.
10. Credit Facility
The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 7, 2020. 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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the period ended October 31, 2019, the Funds did not use the Global Credit Facility.
11. 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’ 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.) |
| 82 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| • | 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.
A summary of inputs used as of October 31, 2019, in valuing the Funds’ assets carried at fair value, is as follows:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Franklin Growth Opportunities Fund |
||||||||||||||||
| Assets: |
||||||||||||||||
| Investments in Securities:a |
||||||||||||||||
| Equity Investments:b |
||||||||||||||||
| Communication Services |
$ | 263,027,672 | $ | — | $ | 5,565,263 | $ | 268,592,935 | ||||||||
| Consumer Discretionary |
393,489,092 | — | 73,180,600 | 466,669,692 | ||||||||||||
| Financials |
248,094,238 | — | 15,820,859 | 263,915,097 | ||||||||||||
| Health Care |
653,356,543 | — | 12,499,983 | 665,856,526 | ||||||||||||
| Industrials |
430,146,587 | — | 29,911,436 | 460,058,023 | ||||||||||||
| Information Technology |
1,449,687,017 | — | 23,093,149 | 1,472,780,166 | ||||||||||||
| All Other Equity Investments |
312,443,543 | — | — | 312,443,543 | ||||||||||||
| Short Term Investments |
23,783,796 | — | — | 23,783,796 | ||||||||||||
| Total Investments in Securities |
$ | 3,774,028,488 | $ | — | $ | 160,071,290 | $ | 3,934,099,778 | ||||||||
| Franklin Select U.S. Equity Fund |
||||||||||||||||
| Assets: |
||||||||||||||||
| Investments in Securities:a |
||||||||||||||||
| Equity Investments |
$ | 99,964,269 | $ | — | $ | — | $ | 99,964,269 | ||||||||
| Short Term Investments |
556,102 | — | — | 556,102 | ||||||||||||
| Total Investments in Securities |
$ | 100,520,371 | $ | — | $ | — | $ | 100,520,371 | ||||||||
| Franklin Small Cap Growth Fund |
||||||||||||||||
| Assets: |
||||||||||||||||
| Investments in Securities:a |
||||||||||||||||
| Equity Investments:b |
||||||||||||||||
| Consumer Discretionary |
$ | 291,151,661 | $ | — | $ | 124,460,773 | c | $ | 415,612,434 | |||||||
| Industrials |
478,310,673 | — | 27,414,366 | 505,725,039 | ||||||||||||
| Information Technology |
565,074,526 | — | 30,084,817 | 595,159,343 | ||||||||||||
| All Other Equity Investments |
1,008,527,005 | — | — | 1,008,527,005 | ||||||||||||
| Short Term Investments |
133,938,418 | — | — | 133,938,418 | ||||||||||||
| Total Investments in Securities |
$ | 2,477,002,283 | $ | — | $ | 181,959,956 | $ | 2,658,962,239 | ||||||||
| Franklin Small-Mid Cap Growth Fund |
||||||||||||||||
| Assets: |
||||||||||||||||
| Investments in Securities:a |
||||||||||||||||
| Equity Investments:b |
||||||||||||||||
| Consumer Discretionary |
$ | 570,080,437 | $ | — | $ | 35,002,924 | $ | 605,083,361 | ||||||||
| Financials |
269,114,720 | — | 15,937,788 | 285,052,508 | ||||||||||||
| All Other Equity Investments |
2,357,888,620 | — | — | 2,357,888,620 | ||||||||||||
| Short Term Investments |
113,865,084 | — | — | 113,865,084 | ||||||||||||
| Total Investments in Securities |
$ | 3,310,948,861 | $ | — | $ | 50,940,712 | $ | 3,361,889,573 | ||||||||
aFor detailed categories, see the accompanying Statement of Investments.
bIncludes common and preferred stocks.
cIncludes securities determined to have no value at October 31, 2019.
| franklintempleton.com | Semiannual Report | 83 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
11. 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 financial instruments at the beginning and/or end of the period. At October 31, 2019, the reconciliation of assets are as follows:
| Balance at Beginning of Period |
Purchases | Sales | Transfer Into(Out of) Level 3 |
Cost Basis Adjustments |
Net Realized Gain (Loss) |
Net Unrealized Appreciation (Depreciation) |
Balance at End of Period |
Net Change in Period End |
||||||||||||||||||||||||||||
| Franklin Growth Opportunities Fund |
||||||||||||||||||||||||||||||||||||
| Assets: |
||||||||||||||||||||||||||||||||||||
| Investments in Securities: |
||||||||||||||||||||||||||||||||||||
| Equity Investments:a |
||||||||||||||||||||||||||||||||||||
| Communication Services |
$ | 4,893,610 | $ | — | $— | $— | $— | $— | $ 671,653 | $ | 5,565,263 | $ 671,653 | ||||||||||||||||||||||||
| Consumer Discretionary |
65,366,728 | 3,720,657 | — | — | — | — | 4,093,215 | 73,180,600 | 4,093,215 | |||||||||||||||||||||||||||
| Financials |
14,395,754 | — | — | — | — | — | 1,425,105 | 15,820,859 | 1,425,105 | |||||||||||||||||||||||||||
| Health Care |
— | 12,499,983 | — | — | — | — | — | 12,499,983 | — | |||||||||||||||||||||||||||
| Industrials |
12,168,487 | 17,499,998 | — | — | — | — | 242,951 | 29,911,436 | 242,951 | |||||||||||||||||||||||||||
| Information Technology |
20,473,416 | 3,749,986 | — | — | — | — | (1,130,253 | ) | 23,093,149 | (1,130,253 | ) | |||||||||||||||||||||||||
| Total Investments in Securities |
$ | 117,297,995 | $ | 37,470,624 | $— | $— | $— | $— | $ 5,302,671 | $ | 160,071,290 | $ 5,302,671 | ||||||||||||||||||||||||
| Franklin Small Cap Growth Fund |
||||||||||||||||||||||||||||||||||||
| Assets: |
||||||||||||||||||||||||||||||||||||
| Investments in Securities: |
||||||||||||||||||||||||||||||||||||
| Equity Investments:a |
||||||||||||||||||||||||||||||||||||
| Consumer Discretionary |
$ | 119,996,881 | b | $ | 712,061 | $— | $— | $— | $— | $ 3,751,831 | $ | 124,460,773 | b | $ 3,751,831 | ||||||||||||||||||||||
| Industrials |
12,143,346 | 14,999,997 | — | — | — | — | 271,023 | 27,414,366 | 271,023 | |||||||||||||||||||||||||||
| Information Technology |
31,063,930 | — | — | — | — | — | (979,113 | ) | 30,084,817 | (979,113 | ) | |||||||||||||||||||||||||
| Total Investments in Securities |
$ | 163,204,157 | $ | 15,712,058 | $— | $— | $— | $— | $ 3,043,741 | $ | 181,959,956 | $ 3,043,741 | ||||||||||||||||||||||||
|
Franklin Small-Mid Cap Growth Fund |
||||||||||||||||||||||||||||||||||||
| Assets: |
||||||||||||||||||||||||||||||||||||
| Investments in Securities: |
||||||||||||||||||||||||||||||||||||
| Equity Investments:a |
||||||||||||||||||||||||||||||||||||
| Consumer Discretionary |
$ | 33,865,637 | $ | — | $— | $— | $— | $— | $ 1,137,287 | $ | 35,002,924 | $ 1,137,287 | ||||||||||||||||||||||||
| Financials |
7,677,734 | 7,499,998 | — | — | — | — | 760,056 | 15,937,788 | 760,056 | |||||||||||||||||||||||||||
| Total Investments in Securities |
$ | 41,543,371 | $ | 7,499,998 | $— | $— | $— | $— | $ 1,897,343 | $ | 50,940,712 | $ 1,897,343 | ||||||||||||||||||||||||
aIncludes common and preferred stocks.
bIncludes securities determined to have no value.
| 84 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Significant unobservable valuation inputs for material Level 3 financial instruments and impact to fair value as a result of changes in unobservable valuation inputs as of October 31, 2019, are as follows:
| Description | Fair Value at End of Period |
Valuation Technique |
Unobservable Inputs |
Amount/ Range (Weighted |
Impact to Fair Value if Input Increasesb |
|||||||||||||
| Franklin Growth Opportunities Fund |
||||||||||||||||||
| Assets: |
||||||||||||||||||
| Investments in Securities: |
||||||||||||||||||
| Equity Investments:c |
||||||||||||||||||
| Communication Services |
$5,565,263 | Discounted cash flow | NOPAT multiple | 19.4x | Increase | d | ||||||||||||
| Discount rate | 9.2% | Decrease | e | |||||||||||||||
| Discount for lack of marketability | 10.7% | Decrease | d | |||||||||||||||
| Consumer Discretionary |
70,703,107 | Discounted cash flow | Forward EBITDA growth rate | 4.0% | Increase | e | ||||||||||||
| Free cash flow growth rate | 2.0% | Increase | d | |||||||||||||||
| Discount rate | |
10.3% - 14.3% (11.4%) |
|
Decrease | e | |||||||||||||
| Discount for lack of marketability | |
3.3% - 19.0% (10.3%) |
|
Decrease | d | |||||||||||||
| Terminal multiple | 32.5x | Increase | ||||||||||||||||
| Financials |
15,820,859 | Market comparables | EV / revenue multiple | 10.9x | Increase | e | ||||||||||||
| Discount for lack of marketability | 7.3% | Decrease | d | |||||||||||||||
| Industrials |
29,911,436 | Discounted cash flow | Discount rate | |
11.5% - 21.4% (15.7%) |
|
Decrease | d | ||||||||||
| Long term growth rate | |
3.0% - 5.0% (3.8%) |
|
Increase | d | |||||||||||||
| Discount for lack of marketability | |
10.9% - 17.0% (14.4%) |
|
Decrease | d | |||||||||||||
| Information Technology |
19,343,163 | Discounted cash flow | Discount rate | 10.6% | Decrease | e | ||||||||||||
| Long term growth rate | 4.0% | Increase | e | |||||||||||||||
| Discount for lack of marketability | 10.7% | Decrease | d | |||||||||||||||
| All Other Investmentsf |
18,727,462 | |||||||||||||||||
| Total |
$160,071,290 | |||||||||||||||||
| Franklin Small Cap Growth Fund |
||||||||||||||||||
| Assets: |
||||||||||||||||||
| Investments in Securities: |
||||||||||||||||||
| Equity Investments:c |
||||||||||||||||||
| Consumer Discretionary |
$124,460,773 | Discounted cash flow | Forward EBITDA growth rate | 4.0% | Increase | e | ||||||||||||
| Free cash flow growth rate | 2.0% | Increase | ||||||||||||||||
| 10.3% - 15.3% | ||||||||||||||||||
| Discount rate | (11.9%) | Decrease | e | |||||||||||||||
| Discount for lack of marketability | |
3.3% - 19.0% (9.1%) |
|
Decrease | d | |||||||||||||
| Terminal multiple | 32.5x | Increase | ||||||||||||||||
| franklintempleton.com | Semiannual Report | 85 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
11. Fair Value Measurements (continued)
| Description | Fair Value at End of Period |
Valuation Technique |
Unobservable Inputs |
Amount/ Range (Weighted |
Impact to Fair Value if Input Increasesb |
|||||||||||
| Market comparables | EV / EBITDA multiple | 14.9x - 22.2x | Increase | |||||||||||||
| EV / revenue multiple | 12.3x | Increase | d | |||||||||||||
| Discount for lack of marketability | |
4.9% - 12.5% (9.0%) |
|
Decrease | d | |||||||||||
| Industrials |
27,414,366 | Discounted cash flow | Discount rate | |
11.5% - 21.4% (16.0%) |
|
Decrease | e | ||||||||
| Long term growth rate | |
3.0% - 5.0% (3.9%) |
|
Increase | d | |||||||||||
| Discount for lack of marketability | |
10.9% - 17.0% (14.2%) |
|
Decrease | d | |||||||||||
| Information Technology |
30,084,817 | Market comparables | EV / revenue multiple | 3.9x | Increase | d | ||||||||||
| Discount for lack of marketability | 7.3% | Decrease | d | |||||||||||||
| Discounted cash flow | Discount rate | 10.6% | Decrease | e | ||||||||||||
| Long term growth rate | 4.0% | Increase | e | |||||||||||||
| Discount for lack of marketability | 10.7% | Decrease | d | |||||||||||||
| All Other Investmentsf |
— g | |||||||||||||||
| Total |
$181,959,956 | |||||||||||||||
| Franklin Small-Mid Cap Growth Fund |
||||||||||||||||
| Assets: |
||||||||||||||||
| Investments in Securities: |
||||||||||||||||
| Equity Investments:c |
||||||||||||||||
| Consumer Discretionary |
$35,002,924 | Discounted cash flow | Forward EBITDA growth rate | 4.0% | Increase | e | ||||||||||
| Discount rate | 10.3% | Decrease | e | |||||||||||||
| Discount for lack of marketability | 3.3% | Decrease | d | |||||||||||||
| Market comparables | Discount for lack of marketability | 11.4% | Decrease | d | ||||||||||||
| Financials |
8,437,790 | Market comparables | EV / revenue multiple | 10.9x | Increase | e | ||||||||||
| Discount for lack of marketability | 7.3% | Decrease | d | |||||||||||||
| All Other Investmentsf |
7,499,998 | |||||||||||||||
| Total |
$50,940,712 | |||||||||||||||
aWeighted based on the relative fair value of the financial instruments.
bRepresents the directional change in the fair value of the Level 3 financial instruments that would result from a significant and reasonable increase in the corresponding input. A significant and reasonable decrease in the input would have the opposite effect. Significant impacts, if any, to fair value and/or net assets have been indicated.
cIncludes common and preferred stocks.
dRepresents a significant impact to fair value but not net assets.
eRepresents a significant impact to fair value and net assets.
fIncludes financial instruments with values derived using private transaction prices or non-public third party pricing information which is unobservable. May also include fair value of immaterial financial instruments developed using various valuation techniques and unobservable inputs.
gIncludes securities determined to have no value at October 31, 2019.
| 86 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| Abbreviations | ||
| EBITDA |
Earnings before interest, taxes, depreciation and amortization | |
| EV |
Enterprise value | |
| NOPAT |
Net operating profit after tax | |
12. Subsequent Events
The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.
| Abbreviations | ||
| Selected Portfolio | ||
| ADR American Depositary Receipt |
| franklintempleton.com | Semiannual Report | 87 | ||
FRANKLIN STRATEGIC SERIES
| 88 |
Semiannual Report | franklintempleton.com | ||
Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
|
Semiannual Report and Shareholder Letter Franklin Strategic Series | |||||
| Investment Manager | Distributor | Shareholder Services | ||||
| Franklin Advisers, Inc. | Franklin Templeton Distributors, Inc. | (800) 632-2301 | ||||
| (800) DIAL BEN® / 342-5236 | ||||||
| franklintempleton.com | ||||||
| © 2019 Franklin Templeton Investments. All rights reserved. | FSS1 S 12/19 |
|
|
Franklin Biotechnology Discovery Fund |
|
Franklin Natural Resources Fund |
Sign up for electronic delivery at franklintempleton.com/edelivery
Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.
You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.
SHAREHOLDER LETTER
| CFA® is a trademark owned by CFA Institute. | ||||
|
Not FDIC Insured | May Lose Value | No Bank Guarantee
|
| franklintempleton.com | Not part of the semiannual report | 1 | ||
| 2 |
Semiannual Report | franklintempleton.com | ||
SEMIANNUAL REPORT
1. Bureau of Labor Statistics.
2. Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
| franklintempleton.com | Semiannual Report | 3 | ||
Franklin Biotechnology Discovery Fund
1. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
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 21.
| 4 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
| franklintempleton.com | Semiannual Report | 5 | ||
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
| 6 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
Performance Summary as of October 31, 2019
The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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.
Performance as of 10/31/191
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| Share Class
|
Cumulative Total Return2
|
Average Annual Total Return3
| ||
| A4 | ||||
|
6-Month |
+4.18% | -1.55% | ||
|
1-Year |
+7.75% | +1.82% | ||
|
5-Year |
+6.44% | +0.12% | ||
|
10-Year |
+314.51% | +14.63% | ||
| Advisor |
||||
|
6-Month |
+4.31% | +4.31% | ||
| 1-Year |
+8.01% | +8.01% | ||
| 5-Year |
+7.75% | +1.50% | ||
| 10-Year |
+325.77% | +15.59% | ||
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.
See page 8 for Performance Summary footnotes.
| franklintempleton.com | Semiannual Report | 7 | ||
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
PERFORMANCE SUMMARY
Total Annual Operating Expenses5
| Share Class
|
With Fee Waiver
|
Without Fee Waiver
| ||
| A |
1.02% | 1.04% | ||
| Advisor |
0.77% | 0.79% | ||
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
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’s prospectus also includes a description of the main investment risks.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 8/31/20. Fund investment results reflect the fee waiver; without this waiver, the results 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. Return for less than one year, if any, has not been annualized.
4. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 5.50%.
5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
| 8 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| Actual | Hypothetical | |||||||||||||||||
| (actual return after expenses) | (5% annual return before expenses) | |||||||||||||||||
| Share Class |
Beginning Value 5/1/19 |
Ending Value 10/31/19 |
Expenses 5/1/19–10/31/191, 2 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Net Annualized Expense Ratio2 | ||||||||||||
| A | $1,000 | $1,041.80 | $5.18 | $1,020.06 | $5.13 | 1.01% | ||||||||||||
| C | $1,000 | $1,037.80 | $9.02 | $1,016.29 | $8.92 | 1.76% | ||||||||||||
| R6 | $1,000 | $1,043.70 | $3.29 | $1,021.92 | $3.25 | 0.64% | ||||||||||||
| Advisor | $1,000 | $1,043.10 | $3.90 | $1,021.32 | $3.86 | 0.76% | ||||||||||||
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
| franklintempleton.com | Semiannual Report | 9 | ||
Franklin Natural Resources Fund
1. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information.
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.
| 10 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN NATURAL RESOURCES FUND
| franklintempleton.com | Semiannual Report | 11 | ||
FRANKLIN NATURAL RESOURCES FUND
| 12 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN NATURAL RESOURCES FUND
| franklintempleton.com | Semiannual Report | 13 | ||
FRANKLIN NATURAL RESOURCES FUND
Performance Summary as of October 31, 2019
The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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.
Performance as of 10/31/191
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| Share Class | Cumulative Total Return2 |
Average Annual Total Return3 |
||||||
| A4 |
||||||||
| 6-Month |
-17.26% | -21.80% | ||||||
| 1-Year |
-17.62% | -22.15% | ||||||
| 5-Year |
-37.44% | -9.98% | ||||||
| 10-Year |
-25.84% | -3.49% | ||||||
| Advisor |
||||||||
| 6-Month |
-17.14% | -17.14% | ||||||
| 1-Year |
-17.44% | -17.44% | ||||||
| 5-Year |
-36.62% | -8.72% | ||||||
| 10-Year |
-23.75% | -2.67% | ||||||
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.
See page 15 for Performance Summary footnotes.
| 14 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN NATURAL RESOURCES FUND
PERFORMANCE SUMMARY
Total Annual Operating Expenses5
| Share Class
|
With Fee Waiver
|
Without Fee Waiver
| ||
| A
|
1.04%
|
1.04%
| ||
| Advisor
|
0.79%
|
0.79%
| ||
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Investing in a fund concentrating in the natural resources sector involves special risks, including increased susceptibility to adverse economic and regulatory developments affecting the sector. Growth stock prices may fall dramatically if the company fails to meet projections of earnings or revenue; their prices may be more volatile than other securities, particularly over the short term. 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’s prospectus also includes a description of the main investment risks.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 8/31/20. Fund investment results reflect the fee waiver; without this waiver, the results 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. Return for less than one year, if any, has not been annualized.
4. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 5.50%.
5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
| franklintempleton.com | Semiannual Report | 15 | ||
FRANKLIN NATURAL RESOURCES FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| Actual (actual return after expenses) |
Hypothetical (5% annual return before expenses) |
|||||||||||
| Share Class |
Beginning Account Value 5/1/19 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Ending Account |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Net Annualized Expense Ratio2 | ||||||
|
|
|
|
| |||||||||
| A | $1,000 | $827.40 | $5.10 | $1,019.56 | $5.63 | 1.11% | ||||||
| C | $1,000 | $824.70 | $8.53 | $1,015.79 | $9.42 | 1.86% | ||||||
| R6 | $1,000 | $829.50 | $2.94 | $1,021.92 | $3.25 | 0.64% | ||||||
| Advisor | $1,000 | $828.60 | $3.95 | $1,020.81 | $4.37 | 0.86% | ||||||
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
| 16 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Franklin Biotechnology Discovery Fund
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class A |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$138.85 | $146.14 | $147.22 | $128.19 | $182.30 | $129.27 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.34 | ) | (0.99 | ) | (0.80 | ) | (0.79 | ) | (0.94 | ) | (1.09 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
6.14 | (1.75 | ) | 3.32 | 25.75 | (39.39 | ) | 60.79 | ||||||||||||||||
| Total from investment operations |
5.80 | (2.74 | ) | 2.52 | 24.96 | (40.33 | ) | 59.70 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | — | — | (1.73 | ) | — | — | |||||||||||||||||
| Net realized gains |
— | (4.55 | ) | (3.60 | ) | (4.20 | ) | (13.78 | ) | (6.67 | ) | |||||||||||||
| Total distributions |
— | (4.55 | ) | (3.60 | ) | (5.93 | ) | (13.78 | ) | (6.67 | ) | |||||||||||||
| Net asset value, end of period |
$144.65 | $138.85 | $146.14 | $147.22 | $128.19 | $182.30 | ||||||||||||||||||
| Total returnc |
4.18% | (1.60)% | 1.69% | 20.02% | (23.55)% | 46.81% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.03% | 1.02% | 1.05% | 1.04% | 0.99% | 1.00% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliatese |
1.01% | 1.00% | 1.03% | 1.02% | 0.98% | 1.00% | f | |||||||||||||||||
| Net investment income (loss) |
(0.48)% | (0.67)% | (0.53)% | (0.58)% | (0.56)% | (0.67)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$886,021 | $924,611 | $1,081,883 | $1,176,687 | $1,074,903 | $1,601,906 | ||||||||||||||||||
| Portfolio turnover rate |
18.29% | 28.62% | 26.95% | 34.12% | 22.13% | 41.43% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 17 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Biotechnology Discovery Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class C |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$133.51 | $141.75 | $143.98 | $125.99 | $180.67 | $129.11 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.83 | ) | (2.03 | ) | (1.90 | ) | (1.81 | ) | (2.11 | ) | (2.38 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
5.88 | (1.66 | ) | 3.27 | 25.29 | (38.79 | ) | 60.61 | ||||||||||||||||
| Total from investment operations |
5.05 | (3.69 | ) | 1.37 | 23.48 | (40.90 | ) | 58.23 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | — | — | (1.29 | ) | — | — | |||||||||||||||||
| Net realized gains |
— | (4.55 | ) | (3.60 | ) | (4.20 | ) | (13.78 | ) | (6.67 | ) | |||||||||||||
| Total distributions |
— | (4.55 | ) | (3.60 | ) | (5.49 | ) | (13.78 | ) | (6.67 | ) | |||||||||||||
| Net asset value, end of period |
$138.56 | $133.51 | $141.75 | $143.98 | $125.99 | $180.67 | ||||||||||||||||||
| Total returnc |
3.78% | (2.33)% | 0.93% | 19.14% | (24.09)% | 45.76% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.78% | 1.77% | 1.80% | 1.79% | 1.71% | 1.75% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliatese |
1.76% | 1.75% | 1.78% | 1.77% | 1.70% | 1.75% | f | |||||||||||||||||
| Net investment income (loss) |
(1.23)% | (1.42)% | (1.28)% | (1.33)% | (1.28)% | (1.42)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$43,847 | $46,508 | $58,433 | $53,935 | $17,562 | $23,051 | ||||||||||||||||||
| Portfolio turnover rate |
18.29% | 28.62% | 26.95% | 34.12% | 22.13% | 41.43% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| 18 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Biotechnology Discovery Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R6 |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$143.83 | $150.65 | $151.03 | $131.37 | $185.75 | $131.09 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.08 | ) | (0.46 | ) | (0.17 | ) | (0.25 | ) | (0.32 | ) | (0.45 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
6.36 | (1.81 | ) | 3.39 | 26.41 | (40.28 | ) | 61.78 | ||||||||||||||||
| Total from investment operations |
6.28 | (2.27 | ) | 3.22 | 26.16 | (40.60 | ) | 61.33 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | — | — | (2.30 | ) | — | — | |||||||||||||||||
| Net realized gains |
— | (4.55 | ) | (3.60 | ) | (4.20 | ) | (13.78 | ) | (6.67 | ) | |||||||||||||
| Total distributions |
— | (4.55 | ) | (3.60 | ) | (6.50 | ) | (13.78 | ) | (6.67 | ) | |||||||||||||
| Net asset value, end of period |
$150.11 | $143.83 | $150.65 | $151.03 | $131.37 | $185.75 | ||||||||||||||||||
| Total returnc |
4.37% | (1.24)% | 2.11% | 20.50% | (23.24)% | 47.40% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.73% | 0.70% | 0.65% | 0.63% | 0.60% | 0.60% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliatese |
0.64% | 0.63% | 0.61% | 0.61% | 0.59% | 0.60% | f | |||||||||||||||||
| Net investment income (loss) |
(0.11)% | (0.30)% | (0.11)% | (0.17)% | (0.17)% | (0.27)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$5,313 | $6,164 | $8,307 | $8,891 | $5,568 | $76,436 | ||||||||||||||||||
| Portfolio turnover rate |
18.29% | 28.62% | 26.95% | 34.12% | 22.13% | 41.43% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 19 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Biotechnology Discovery Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Advisor Class |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$142.56 | $149.54 | $150.20 | $130.67 | $185.12 | $130.86 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
(0.17 | ) | (0.63 | ) | (0.45 | ) | (0.46 | ) | (0.55 | ) | (0.70 | ) | ||||||||||||
| Net realized and unrealized gains (losses) |
6.31 | (1.80 | ) | 3.39 | 26.27 | (40.12 | ) | 61.63 | ||||||||||||||||
| Total from investment operations |
6.14 | (2.43 | ) | 2.94 | 25.81 | (40.67 | ) | 60.93 | ||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | — | — | (2.08 | ) | — | — | |||||||||||||||||
| Net realized gains |
— | (4.55 | ) | (3.60 | ) | (4.20 | ) | (13.78 | ) | (6.67 | ) | |||||||||||||
| Total distributions |
— | (4.55 | ) | (3.60 | ) | (6.28 | ) | (13.78 | ) | (6.67 | ) | |||||||||||||
| Net asset value, end of period |
$148.70 | $142.56 | $149.54 | $150.20 | $130.67 | $185.12 | ||||||||||||||||||
| Total returnc |
4.31% | (1.36)% | 1.94% | 20.32% | (23.36)% | 47.17% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.78% | 0.77% | 0.80% | 0.79% | 0.75% | 0.75% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliatese |
0.76% | 0.75% | 0.78% | 0.77% | 0.74% | 0.75% | f | |||||||||||||||||
| Net investment income (loss) |
(0.23)% | (0.42)% | (0.28)% | (0.33)% | (0.32)% | (0.42)% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$148,308 | $153,874 | $180,219 | $159,894 | $93,263 | $167,035 | ||||||||||||||||||
| Portfolio turnover rate |
18.29% | 28.62% | 26.95% | 34.12% | 22.13% | 41.43% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| 20 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Statement of Investments, October 31, 2019 (unaudited)
Franklin Biotechnology Discovery Fund
| Country | Shares/ Warrants |
Value | ||||||||||
| Common Stocks and Other Equity Interests 97.9% |
||||||||||||
| Biotechnology 79.2% |
||||||||||||
| a Acadia Pharmaceuticals Inc. |
United States | 294,600 | $ | 12,493,986 | ||||||||
| a Acceleron Pharma Inc. |
United States | 131,500 | 5,900,405 | |||||||||
| a Alector Inc. |
United States | 218,400 | 3,677,856 | |||||||||
| a Alexion Pharmaceuticals Inc. |
United States | 340,800 | 35,920,320 | |||||||||
| a,b Allogene Therapeutics Inc., 144A |
United States | 326,797 | 9,411,754 | |||||||||
| a Alnylam Pharmaceuticals Inc. |
United States | 77,200 | 6,696,328 | |||||||||
| a Amarin Corp. PLC, ADR |
Ireland | 162,300 | 2,664,966 | |||||||||
| Amgen Inc. |
United States | 411,800 | 87,816,350 | |||||||||
| a Amicus Therapeutics Inc. |
United States | 776,900 | 6,549,267 | |||||||||
| a Argenx SE, ADR |
Netherlands | 186,125 | 22,792,867 | |||||||||
| a Ascendis Pharma AS, ADR |
Denmark | 257,700 | 28,496,466 | |||||||||
| a Assembly Biosciences Inc. |
United States | 186,900 | 3,085,719 | |||||||||
| a Audentes Therapeutics Inc. |
United States | 87,500 | 2,353,750 | |||||||||
| a,c Aurinia Pharmaceuticals Inc. |
Canada | 536,900 | 2,609,334 | |||||||||
| a Biogen Inc. |
United States | 189,261 | 56,534,153 | |||||||||
| a BioMarin Pharmaceutical Inc. |
United States | 341,156 | 24,976,031 | |||||||||
| a Bluebird Bio Inc. |
United States | 57,800 | 4,681,800 | |||||||||
| a,c Bridgebio Pharma Inc. |
United States | 136,000 | 3,074,960 | |||||||||
| a,c CRISPR Therapeutics AG |
Switzerland | 166,314 | 8,377,236 | |||||||||
| a Deciphera Pharmaceuticals Inc. |
United States | 428,991 | 19,021,461 | |||||||||
| a Fate Therapeutics Inc. |
United States | 912,346 | 13,639,573 | |||||||||
| a G1 Therapeutics Inc. |
United States | 398,426 | 8,454,600 | |||||||||
| Gilead Sciences Inc. |
United States | 1,042,000 | 66,385,820 | |||||||||
| a Global Blood Therapeutics Inc. |
United States | 434,500 | 20,834,275 | |||||||||
| a Gossamer Bio Inc. |
United States | 242,900 | 4,997,667 | |||||||||
| a Heron Therapeutics Inc. |
United States | 1,657,077 | 35,212,886 | |||||||||
| a Homology Medicines Inc. |
United States | 138,400 | 1,817,192 | |||||||||
| a Immunomedics Inc. |
United States | 348,700 | 5,579,200 | |||||||||
| a Insmed Inc. |
United States | 260,200 | 4,837,118 | |||||||||
| a,d,e Intarcia Therapeutics Inc., DD |
United States | 80,195 | 634,441 | |||||||||
| a Ionis Pharmaceuticals Inc. |
United States | 102,400 | 5,705,728 | |||||||||
| a Iovance Biotherapeutics Inc. |
United States | 1,990,500 | 42,059,265 | |||||||||
| a KalVista Pharmaceuticals Inc. |
United States | 105,900 | 1,122,540 | |||||||||
| a Kezar Life Sciences Inc. |
United States | 128,850 | 418,763 | |||||||||
| a,c LogicBio Therapeutics Inc. |
United States | 280,700 | 2,792,965 | |||||||||
| a Minerva Neurosciences Inc. |
United States | 492,400 | 2,333,976 | |||||||||
| a Mirati Therapeutics Inc. |
United States | 123,851 | 11,664,287 | |||||||||
| a MorphoSys AG, ADR |
Germany | 275,700 | 7,504,554 | |||||||||
| a Neurocrine Biosciences Inc. |
United States | 326,800 | 32,513,332 | |||||||||
| a Pfenex Inc. |
United States | 870,884 | 8,029,550 | |||||||||
| a Portola Pharmaceuticals Inc. |
United States | 558,200 | 16,137,562 | |||||||||
| a Precision BioSciences Inc. |
United States | 125,040 | 811,510 | |||||||||
| a,b Precision BioSciences Inc., 144A |
United States | 425,322 | 2,760,340 | |||||||||
| a Principia Biopharma Inc. |
United States | 92,600 | 3,269,706 | |||||||||
| a PTC Therapeutics Inc. |
United States | 704,200 | 28,794,738 | |||||||||
| a Regeneron Pharmaceuticals Inc. |
United States | 143,409 | 43,923,309 | |||||||||
| a REGENXBIO Inc. |
United States | 123,076 | 4,392,582 | |||||||||
| franklintempleton.com | Semiannual Report | 21 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Biotechnology Discovery Fund (continued)
| Country | Shares/ Warrants |
Value | ||||||||||
| Common Stocks and Other Equity Interests (continued) |
||||||||||||
| Biotechnology (continued) |
||||||||||||
| a Rocket Pharmaceuticals Inc. |
United States | 178,571 | $ | 2,596,422 | ||||||||
| a Sage Therapeutics Inc. |
United States | 144,470 | 19,597,355 | |||||||||
| a Sarepta Therapeutics Inc. |
United States | 65,400 | 5,432,124 | |||||||||
| a SpringWorks Therapeutics Inc. |
United States | 76,800 | 1,466,880 | |||||||||
| a Ultragenyx Pharmaceutical Inc. |
United States | 66,100 | 2,653,254 | |||||||||
| a uniQure NV |
Netherlands | 206,000 | 10,308,240 | |||||||||
| a Vertex Pharmaceuticals Inc. |
United States | 377,000 | 73,695,960 | |||||||||
| a,c Viela Bio Inc. |
United States | 151,600 | 3,297,300 | |||||||||
| a Xencor Inc. |
United States | 178,132 | 6,093,896 | |||||||||
| a,c Zymeworks Inc. |
Canada | 259,120 | 8,947,414 | |||||||||
|
|
|
|||||||||||
| 857,851,333 | ||||||||||||
|
|
|
|||||||||||
| Life Sciences Tools & Services 4.8% |
||||||||||||
| a Illumina Inc. |
United States | 176,000 | 52,011,520 | |||||||||
|
|
|
|||||||||||
| Pharmaceuticals 13.9% |
||||||||||||
| a Aerie Pharmaceuticals Inc. |
United States | 401,600 | 8,911,504 | |||||||||
| a,c Cara Therapeutics Inc. |
United States | 227,000 | 4,712,520 | |||||||||
| a Collegium Pharmaceutical Inc. |
United States | 403,450 | 4,841,400 | |||||||||
| a Cymabay Therapeutics Inc. |
United States | 438,356 | 1,968,218 | |||||||||
| a Dermira Inc. |
United States | 538,268 | 3,601,013 | |||||||||
| a GW Pharmaceuticals PLC, ADR |
United Kingdom | 344,200 | 46,060,844 | |||||||||
| a,c Iterum Therapeutics PLC |
United States | 33,648 | 90,850 | |||||||||
| a Marinus Pharmaceuticals Inc. |
United States | 201,856 | 236,172 | |||||||||
| a Odonate Therapeutics Inc. |
United States | 322,082 | 10,229,324 | |||||||||
| a,c Optinose Inc. |
United States | 230,300 | 1,800,946 | |||||||||
| a Reata Pharmaceuticals Inc. |
United States | 242,600 | 49,995,008 | |||||||||
| a Revance Therapeutics Inc. |
United States | 647,300 | 10,136,718 | |||||||||
| a,c TherapeuticsMD Inc. |
United States | 2,847,040 | 7,573,126 | |||||||||
| a Trevi Therapeutics Inc. |
United States | 223,709 | 659,942 | |||||||||
|
|
|
|||||||||||
| 150,817,585 | ||||||||||||
|
|
|
|||||||||||
| Total Common Stocks and Other Equity Interests |
1,060,680,438 | |||||||||||
|
|
|
|||||||||||
| Preferred Stocks (Cost $2,821,056) 0.1% |
||||||||||||
| Biotechnology 0.1% |
||||||||||||
| a,d,e Metacrine Inc., pfd., C |
United States | 1,330,687 | 1,840,276 | |||||||||
|
|
|
|||||||||||
| Escrows and Litigation Trusts (Cost $2,090,611) 0.1% |
||||||||||||
| a,d True North Therapeutics Inc., Escrow Account |
United States | 759,880 | 934,769 | |||||||||
|
|
|
|||||||||||
| Total Investments before Short Term Investments |
1,063,455,483 | |||||||||||
|
|
|
|||||||||||
| 22 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Biotechnology Discovery Fund (continued)
| Country | Shares | Value | ||||||||||
| Short Term Investments 3.6% |
||||||||||||
| Money Market Funds (Cost $23,312,168) 2.2% |
||||||||||||
| f,g Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
United States | 23,312,168 | $ | 23,312,168 | ||||||||
|
|
|
|||||||||||
| h Investments from Cash Collateral Received for Loaned Securities 1.4% |
||||||||||||
| Money Market Funds (Cost $15,396,633) 1.4% |
||||||||||||
| f,g Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
United States | 15,396,633 | 15,396,633 | |||||||||
|
|
|
|||||||||||
| Total Investments (Cost $690,500,177) 101.7% |
1,102,164,284 | |||||||||||
| Other Assets, less Liabilities (1.7)% |
(18,675,497 | ) | ||||||||||
|
|
|
|||||||||||
| Net Assets 100.0% |
$ | 1,083,488,787 | ||||||||||
|
|
|
|||||||||||
See Abbreviations on page 45.
aNon-income producing.
bSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. At October 31, 2019, the aggregate value of these securities was $12,172,094, representing 1.1% of net assets.
cA portion or all of the security is on loan at October 31, 2019. See Note 1(c).
dFair valued using significant unobservable inputs. See Note 10 regarding fair value measurements.
eSee Note 8 regarding restricted securities.
fSee Note 3(f) regarding investments in affiliated management investment companies.
gThe rate shown is the annualized seven-day effective yield at period end.
hSee Note 1(c) regarding securities on loan.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 23 | ||
FRANKLIN STRATEGIC SERIES
Financial Highlights
Franklin Natural Resources Fund
| Six Months Ended (unaudited) |
Year Ended April 30, |
|||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class A |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$23.58 | $27.96 | $25.11 | $25.02 | $31.46 | $39.79 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment incomeb |
0.17 | 0.31 | 0.39 | c | 0.20 | 0.29 | 0.23 | |||||||||||||||||
| Net realized and unrealized gains (losses) |
(4.24 | ) | (4.20 | ) | 2.77 | 0.17 | (6.55 | ) | (8.27 | ) | ||||||||||||||
| Total from investment operations |
(4.07 | ) | (3.89 | ) | 3.16 | 0.37 | (6.26 | ) | (8.04 | ) | ||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | (0.49 | ) | (0.31 | ) | (0.28 | ) | (0.18 | ) | (0.29 | ) | |||||||||||||
| Net asset value, end of period |
$19.51 | $23.58 | $27.96 | $25.11 | $25.02 | $31.46 | ||||||||||||||||||
| Total returnd |
(17.26)% | (13.69)% | 12.74% | 1.37% | (19.80)% | (20.07)% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.11% | 1.03% | 1.13% | 1.06% | 1.14% | 1.08% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.11% | f,g | 1.03% | f,g | 1.13% | f,g | 1.05% | f | 1.13% | 1.08% | f,g | |||||||||||||
| Net investment income |
1.61% | 1.21% | 1.56% | c | 0.79% | 1.22% | 0.67% | |||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$180,285 | $247,362 | $344,695 | $398,703 | $461,596 | $572,518 | ||||||||||||||||||
| Portfolio turnover rate |
9.97% | 29.83% | 29.98% | 29.74% | 35.77% | 30.05% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.16 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 0.91%.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| 24 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Natural Resources Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, |
|||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class C |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$22.82 | $27.17 | $24.28 | $24.25 | $30.46 | $38.39 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment income (loss)b |
0.09 | 0.11 | 0.20 | c | 0.01 | 0.11 | (0.01 | ) | ||||||||||||||||
| Net realized and unrealized gains (losses) |
(4.09 | ) | (4.07 | ) | 2.69 | 0.15 | (6.31 | ) | (7.91 | ) | ||||||||||||||
| Total from investment operations |
(4.00 | ) | (3.96 | ) | 2.89 | 0.16 | (6.20 | ) | (7.92 | ) | ||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | (0.39 | ) | — | (0.13 | ) | (0.01 | ) | (0.01 | ) | ||||||||||||||
| Net asset value, end of period |
$18.82 | $22.82 | $27.17 | $24.28 | $24.25 | $30.46 | ||||||||||||||||||
| Total returnd |
(17.53)% | (14.37)% | 11.90% | 0.63% | (20.37)% | (20.63)% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.86% | 1.78% | 1.88% | 1.81% | 1.87% | 1.78% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
1.86% | f,g | 1.78% | f,g | 1.88% | f,g | 1.80% | f | 1.86% | 1.78% | f,g | |||||||||||||
| Net investment income (loss) |
0.86% | 0.46% | 0.81% | c | 0.04% | 0.49% | (0.03)% | |||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$34,729 | $49,620 | $83,814 | $96,835 | $107,724 | $123,735 | ||||||||||||||||||
| Portfolio turnover rate |
9.97% | 29.83% | 29.98% | 29.74% | 35.77% | 30.05% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.16 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 0.16%.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 25 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Natural Resources Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R6 |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$25.22 | $29.79 | $26.87 | $26.73 | $33.62 | $42.58 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment incomeb |
0.28 | 0.45 | 0.57 | c | 0.47 | 0.51 | 0.46 | |||||||||||||||||
| Net realized and unrealized gains (losses) |
(4.58 | ) | (4.49 | ) | 2.95 | 0.04 | (7.06 | ) | (8.92 | ) | ||||||||||||||
| Total from investment operations |
(4.30 | ) | (4.04 | ) | 3.52 | 0.51 | (6.55 | ) | (8.46 | ) | ||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | (0.53 | ) | (0.60 | ) | (0.37 | ) | (0.34 | ) | (0.50 | ) | |||||||||||||
| Net asset value, end of period |
$20.92 | $25.22 | $29.79 | $26.87 | $26.73 | $33.62 | ||||||||||||||||||
| Total returnd |
(17.05)% | (13.31)% | 13.37% | 1.89% | (19.31)% | (19.61)% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.69% | 0.62% | 0.64% | 0.83% | 0.60% | 0.55% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.64% | f | 0.59% | f | 0.57% | f | 0.54% | f | 0.55% | 0.54% | f | |||||||||||||
| Net investment income |
2.08% | 1.65% | 2.12% | c | 1.30% | 1.80% | 1.21% | |||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$851 | $15,627 | $15,866 | $218 | $15 | $439 | ||||||||||||||||||
| Portfolio turnover rate |
9.97% | 29.83% | 29.98% | 29.74% | 35.77% | 30.05% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.16 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.47%.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
| 26 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Natural Resources Fund (continued)
| Six Months Ended (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Advisor Class |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$25.20 | $29.80 | $26.81 | $26.71 | $33.63 | $42.52 | ||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment incomeb |
0.21 | 0.40 | 0.49 | c | 0.29 | 0.36 | 0.35 | |||||||||||||||||
| Net realized and unrealized gains (losses) |
(4.53 | ) | (4.49 | ) | 2.95 | 0.17 | (7.00 | ) | (8.85 | ) | ||||||||||||||
| Total from investment operations |
(4.32 | ) | (4.09 | ) | 3.44 | 0.46 | (6.64 | ) | (8.50 | ) | ||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income |
— | (0.51 | ) | (0.45 | ) | (0.36 | ) | (0.28 | ) | (0.39 | ) | |||||||||||||
| Net asset value, end of period |
$20.88 | $25.20 | $29.80 | $26.81 | $26.71 | $33.63 | ||||||||||||||||||
| Total returnd |
(17.14)% | (13.50)% | 13.04% | 1.64% | (19.60)% | (19.81)% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.86% | 0.78% | 0.88% | 0.81% | 0.87% | 0.78% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliates |
0.86% | f,g | 0.78% | f,g | 0.88% | f,g | 0.80% | f | 0.86% | 0.78% | f,g | |||||||||||||
| Net investment income |
1.86% | 1.46% | 1.81%c | 1.04% | 1.49% | 0.97% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$40,909 | $62,639 | $78,443 | $94,070 | $90,185 | $79,307 | ||||||||||||||||||
| Portfolio turnover rate |
9.97% | 29.83% | 29.98% | 29.74% | 35.77% | 30.05% | ||||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cNet investment income per share includes approximately $0.16 per share related to income received in the form of special dividends in connection with certain Fund holdings. Excluding this amount, the ratio of net investment income to average net assets would have been 1.16%.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 27 | ||
FRANKLIN STRATEGIC SERIES
Statement of Investments, October 31, 2019 (unaudited)
Franklin Natural Resources Fund
| Country | Shares | Value | ||||||||||
| Common Stocks 99.6% |
||||||||||||
| Aluminum 0.3% |
||||||||||||
| a Alcoa Corp. |
United States | 43,200 | $ | 898,128 | ||||||||
|
|
|
|||||||||||
| Commodity Chemicals 0.3% |
||||||||||||
| Dow Inc. |
United States | 16,000 | 807,840 | |||||||||
|
|
|
|||||||||||
| Copper 4.8% |
||||||||||||
| Antofagasta PLC |
United Kingdom | 354,400 | 3,981,380 | |||||||||
| First Quantum Minerals Ltd. |
Zambia | 190,000 | 1,606,305 | |||||||||
| Freeport-McMoRan Inc. |
United States | 314,500 | 3,088,390 | |||||||||
| a Imperial Metals Corp. |
Canada | 364,500 | 503,904 | |||||||||
| Lundin Mining Corp. |
Chile | 400,300 | 2,022,024 | |||||||||
| Sandfire Resources NL |
Australia | 250,267 | 1,002,496 | |||||||||
|
|
|
|||||||||||
| 12,204,499 | ||||||||||||
|
|
|
|||||||||||
| Diversified Chemicals 1.0% |
||||||||||||
| BASF SE |
Germany | 32,500 | 2,473,150 | |||||||||
|
|
|
|||||||||||
| Diversified Metals & Mining 8.3% |
||||||||||||
| Anglo American PLC |
United Kingdom | 107,500 | 2,759,594 | |||||||||
| BHP Group PLC, ADR |
United Kingdom | 119,100 | 5,052,222 | |||||||||
| Glencore PLC |
Switzerland | 1,394,100 | 4,201,629 | |||||||||
| Hudbay Minerals Inc. |
Canada | 181,400 | 658,634 | |||||||||
| a,b Nautilus Minerals Inc. |
Canada | 3,895,831 | — | |||||||||
| Nexa Resources SA |
Peru | 100,000 | 1,069,000 | |||||||||
| Rio Tinto PLC, ADR |
Australia | 56,100 | 2,917,761 | |||||||||
| South32 Ltd. |
Australia | 829,300 | 1,457,990 | |||||||||
| Teck Resources Ltd., B |
Canada | 207,200 | 3,279,976 | |||||||||
|
|
|
|||||||||||
| 21,396,806 | ||||||||||||
|
|
|
|||||||||||
| Fertilizers & Agricultural Chemicals 1.1% |
||||||||||||
| Corteva Inc. |
United States | 38,800 | 1,023,544 | |||||||||
| Nutrien Ltd. |
Canada | 38,600 | 1,844,694 | |||||||||
|
|
|
|||||||||||
| 2,868,238 | ||||||||||||
|
|
|
|||||||||||
| Gold 5.4% |
||||||||||||
| Agnico Eagle Mines Ltd. |
Canada | 35,300 | 2,170,555 | |||||||||
| Alamos Gold Inc., A |
Canada | 337,000 | 1,835,389 | |||||||||
| a B2Gold Corp. |
Canada | 568,900 | 2,000,765 | |||||||||
| Barrick Gold Corp. |
Canada | 156,691 | 2,720,156 | |||||||||
| a Guyana Goldfields Inc. |
Canada | 1,122,300 | 451,818 | |||||||||
| Newcrest Mining Ltd. |
Australia | 84,000 | 1,812,702 | |||||||||
| Newmont Goldcorp Corp. |
United States | 51,215 | 2,034,772 | |||||||||
| OceanaGold Corp. |
Australia | 329,810 | 791,644 | |||||||||
|
|
|
|||||||||||
| 13,817,801 | ||||||||||||
|
|
|
|||||||||||
| Integrated Oil & Gas 13.4% |
||||||||||||
| Chevron Corp. |
United States | 58,100 | 6,747,734 | |||||||||
| Exxon Mobil Corp. |
United States | 56,600 | 3,824,462 | |||||||||
| Occidental Petroleum Corp. |
United States | 186,900 | 7,569,450 | |||||||||
| Royal Dutch Shell PLC, A, ADR |
United Kingdom | 111,021 | 6,435,887 | |||||||||
| Suncor Energy Inc. |
Canada | 236,300 | 7,028,871 | |||||||||
| 28 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Natural Resources Fund (continued)
| Country | Shares | Value | ||||||||||
| Common Stocks (continued) |
||||||||||||
| Integrated Oil & Gas (continued) |
||||||||||||
| Total SA, B, ADR |
France | 51,810 | $ | 2,726,760 | ||||||||
|
|
|
|||||||||||
| 34,333,164 | ||||||||||||
|
|
|
|||||||||||
| Oil & Gas Drilling 1.1% |
||||||||||||
| Patterson-UTI Energy Inc. |
United States | 324,500 | 2,699,840 | |||||||||
|
|
|
|||||||||||
| Oil & Gas Equipment & Services 17.9% |
||||||||||||
| a Apergy Corp. |
United States | 38,100 | 958,977 | |||||||||
| Baker Hughes Co., A |
United States | 292,100 | 6,250,940 | |||||||||
| a Cactus Inc. |
United States | 46,500 | 1,381,980 | |||||||||
| a Dril-Quip Inc. |
United States | 27,100 | 1,111,642 | |||||||||
| Halliburton Co. |
United States | 389,235 | 7,492,774 | |||||||||
| Hunting PLC |
United Kingdom | 116,500 | 593,115 | |||||||||
| Liberty Oilfield Services Inc., A |
United States | 211,500 | 1,947,915 | |||||||||
| a NexTier Oilfield Solutions Inc. |
United States | 130,160 | 562,291 | |||||||||
| a Nine Energy Service Inc. |
United States | 102,650 | 579,973 | |||||||||
| a Oceaneering International Inc. |
United States | 120,300 | 1,703,448 | |||||||||
| a Oil States International Inc. |
United States | 253,166 | 3,612,679 | |||||||||
| a ProPetro Holding Corp. |
United States | 47,500 | 368,125 | |||||||||
| a Ranger Energy Services Inc. |
United States | 154,157 | 847,864 | |||||||||
| Schlumberger Ltd. |
United States | 297,047 | 9,710,466 | |||||||||
| Schoeller-Bleckmann Oilfield Equipment AG |
Austria | 22,600 | 1,290,536 | |||||||||
| a Select Energy Services Inc. |
United States | 242,100 | 1,839,960 | |||||||||
| a Superior Energy Services Inc. |
United States | 786,100 | 314,440 | |||||||||
| TechnipFMC PLC |
United Kingdom | 272,300 | 5,372,479 | |||||||||
|
|
|
|||||||||||
| 45,939,604 | ||||||||||||
|
|
|
|||||||||||
| Oil & Gas Exploration & Production 30.1% |
||||||||||||
| Cabot Oil & Gas Corp., A |
United States | 379,800 | 7,079,472 | |||||||||
| a Cairn Energy PLC |
United Kingdom | 1,259,500 | 2,901,019 | |||||||||
| a Callon Petroleum Co. |
United States | 1,078,400 | 4,097,920 | |||||||||
| Canadian Natural Resources Ltd. |
Canada | 244,000 | 6,155,139 | |||||||||
| Concho Resources Inc. |
United States | 136,100 | 9,189,472 | |||||||||
| ConocoPhillips |
United States | 141,500 | 7,810,800 | |||||||||
| Diamondback Energy Inc. |
United States | 107,600 | 9,227,776 | |||||||||
| EOG Resources Inc. |
United States | 118,200 | 8,192,442 | |||||||||
| Hess Corp. |
United States | 56,200 | 3,695,150 | |||||||||
| a Jagged Peak Energy Inc. |
United States | 340,516 | 2,414,258 | |||||||||
| Noble Energy Inc. |
United States | 352,300 | 6,785,298 | |||||||||
| Pioneer Natural Resources Co. |
United States | 58,700 | 7,221,274 | |||||||||
| a WPX Energy Inc. |
United States | 250,000 | 2,495,000 | |||||||||
|
|
|
|||||||||||
| 77,265,020 | ||||||||||||
|
|
|
|||||||||||
| Oil & Gas Refining & Marketing 6.2% |
||||||||||||
| HollyFrontier Corp. |
United States | 20,100 | 1,104,294 | |||||||||
| Marathon Petroleum Corp. |
United States | 89,000 | 5,691,550 | |||||||||
| Phillips 66 |
United States | 40,400 | 4,719,528 | |||||||||
| Valero Energy Corp. |
United States | 44,400 | 4,305,912 | |||||||||
|
|
|
|||||||||||
| 15,821,284 | ||||||||||||
|
|
|
|||||||||||
| franklintempleton.com | Semiannual Report | 29 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Natural Resources Fund (continued)
| Country | Shares | Value | ||||||||||
| Common Stocks (continued) |
||||||||||||
| Oil & Gas Storage & Transportation 6.9% |
||||||||||||
| Enbridge Inc. |
Canada | 55,447 | $ | 2,018,825 | ||||||||
| Kinder Morgan Inc. |
United States | 117,100 | 2,339,658 | |||||||||
| ONEOK Inc. |
United States | 34,500 | 2,409,135 | |||||||||
| Targa Resources Corp. |
United States | 124,500 | 4,840,560 | |||||||||
| TC Energy Corp. |
Canada | 50,600 | 2,546,698 | |||||||||
| The Williams Cos. Inc. |
United States | 162,300 | 3,620,913 | |||||||||
|
|
|
|||||||||||
| 17,775,789 | ||||||||||||
|
|
|
|||||||||||
| Paper Packaging 0.7% |
||||||||||||
| Packaging Corp. of America |
United States | 16,900 | 1,849,874 | |||||||||
|
|
|
|||||||||||
| Pharmaceuticals 0.2% |
||||||||||||
| a Elanco Animal Health Inc. |
United States | 17,600 | 475,552 | |||||||||
|
|
|
|||||||||||
| Specialty Chemicals 1.4% |
||||||||||||
| Albemarle Corp. |
United States | 41,700 | 2,532,859 | |||||||||
| DuPont de Nemours Inc. |
United States | 16,700 | 1,100,697 | |||||||||
|
|
|
|||||||||||
| 3,633,556 | ||||||||||||
|
|
|
|||||||||||
| Trading Companies & Distributors 0.5% |
||||||||||||
| a Univar Solutions Inc. |
United States | 65,000 | 1,394,900 | |||||||||
|
|
|
|||||||||||
| Total Common Stocks (Cost $263,632,325) |
255,655,045 | |||||||||||
|
|
|
|||||||||||
| Short Term Investments (Cost $1,613,452) 0.6% |
||||||||||||
| Money Market Funds 0.6% |
||||||||||||
| c,d Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
United States | 1,613,452 | 1,613,452 | |||||||||
|
|
|
|||||||||||
| Total Investments (Cost $265,245,777) 100.2% |
257,268,497 | |||||||||||
| Other Assets, less Liabilities (0.2)% |
(493,848 | ) | ||||||||||
|
|
|
|||||||||||
| Net Assets 100.0% |
$ | 256,774,649 | ||||||||||
|
|
|
|||||||||||
See Abbreviations on page 45.
aNon-income producing.
bFair valued using significant unobservable inputs. See Note 10 regarding fair value measurements.
cSee Note 3(f) regarding investments in affiliated management investment companies.
dThe rate shown is the annualized seven-day effective yield at period end.
| 30 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Statements of Assets and Liabilities
October 31, 2019 (unaudited)
| Franklin Biotechnology Discovery Fund |
Franklin Natural Resources Fund |
|||||||
|
|
||||||||
| Assets: |
||||||||
| Investments in securities: |
||||||||
| Cost - Unaffiliated issuers |
$ 651,791,376 | $ 263,632,325 | ||||||
| Cost - Non-controlled affiliates (Note 3f) |
38,708,801 | 1,613,452 | ||||||
|
|
|
|||||||
| Value - Unaffiliated issuers+ |
$1,063,455,483 | $ 255,655,045 | ||||||
| Value - Non-controlled affiliates (Note 3f) |
38,708,801 | 1,613,452 | ||||||
| Receivables: |
||||||||
| Investment securities sold ** |
133,396 | — | ||||||
| Capital shares sold |
481,971 | 58,720 | ||||||
| Dividends and interest |
161,715 | 301,832 | ||||||
| Due from custodian |
105,000 | — | ||||||
| Other assets |
372 | 120 | ||||||
|
|
|
|||||||
| Total assets |
1,103,046,738 | 257,629,169 | ||||||
|
|
|
|||||||
| Liabilities: |
||||||||
| Payables: |
||||||||
| Investment securities purchased |
1,524,785 | 93,896 | ||||||
| Capital shares redeemed |
1,430,880 | 349,894 | ||||||
| Management fees |
498,833 | 120,800 | ||||||
| Distribution fees |
213,210 | 69,896 | ||||||
| Transfer agent fees |
284,092 | 111,562 | ||||||
| Trustees’ fees and expenses |
2,613 | 1,151 | ||||||
| Reports to shareholders |
77,029 | 48,208 | ||||||
| Funds advanced by custodian |
— | 40,532 | ||||||
| Payable upon return of securities loaned |
15,501,633 | — | ||||||
| Accrued expenses and other liabilities |
24,876 | 18,581 | ||||||
|
|
|
|||||||
| Total liabilities |
19,557,951 | 854,520 | ||||||
|
|
|
|||||||
| Net assets, at value |
$1,083,488,787 | $ 256,774,649 | ||||||
|
|
|
|||||||
| Net assets consist of: |
||||||||
| Paid-in capital |
$ 573,389,729 | $ 432,727,681 | ||||||
| Total distributable earnings (loss) |
510,099,058 | (175,953,032 | ) | |||||
|
|
|
|||||||
| Net assets, at value |
$1,083,488,787 | $ 256,774,649 | ||||||
|
|
|
|||||||
| +Includes securities loaned |
$ 15,292,708 | $ — | ||||||
| **Includes securities loaned |
$ 50,537 | $ — | ||||||
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 31 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statements of Assets and Liabilities (continued)
October 31, 2019 (unaudited)
| Franklin Biotechnology Discovery Fund |
Franklin Natural Resources Fund |
|||||||
|
|
||||||||
| Class A: |
||||||||
| Net assets, at value |
$886,020,902 | $180,285,130 | ||||||
|
|
|
|||||||
| Shares outstanding |
6,125,289 | 9,238,828 | ||||||
|
|
|
|||||||
| Net asset value per sharea |
$144.65 | $19.51 | ||||||
|
|
|
|||||||
| Maximum offering price per share (net asset value per share ÷ 94.50%) |
$153.07 | $20.65 | ||||||
|
|
|
|||||||
| Class C: |
||||||||
| Net assets, at value |
$ 43,847,125 | $ 34,729,444 | ||||||
|
|
|
|||||||
| Shares outstanding |
316,450 | 1,845,555 | ||||||
|
|
|
|||||||
| Net asset value and maximum offering price per sharea |
$138.56 | $18.82 | ||||||
|
|
|
|||||||
| Class R6: |
||||||||
| Net assets, at value |
$ 5,313,127 | $ 851,168 | ||||||
|
|
|
|||||||
| Shares outstanding |
35,394 | 40,687 | ||||||
|
|
|
|||||||
| Net asset value and maximum offering price per share |
$150.11 | $20.92 | ||||||
|
|
|
|||||||
| Advisor Class: |
||||||||
| Net assets, at value |
$148,307,633 | $ 40,908,907 | ||||||
|
|
|
|||||||
| Shares outstanding |
997,332 | 1,958,902 | ||||||
|
|
|
|||||||
| Net asset value and maximum offering price per share |
$148.70 | $ 20.88 | ||||||
|
|
|
|||||||
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
| 32 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statements of Operations
for the six months ended October 31, 2019 (unaudited)
| Franklin Biotechnology Discovery Fund |
Franklin Natural Resources Fund |
|||||||
|
|
||||||||
| Investment income: |
||||||||
| Dividends: (net of foreign taxes)* |
||||||||
| Unaffiliated issuers |
$ 1,845,134 | $ 4,073,139 | ||||||
| Non-controlled affiliates (Note 3f) |
453,625 | 21,829 | ||||||
| Income from securities loaned: |
||||||||
| Unaffiliated issuers (net of fees and rebates) |
420,625 | 133,906 | ||||||
| Non-controlled affiliates (Note 3f) |
213,728 | 2,928 | ||||||
|
|
|
|||||||
| Total investment income |
2,933,112 | 4,231,802 | ||||||
|
|
|
|||||||
| Expenses: |
||||||||
| Management fees (Note 3a) |
3,314,035 | 826,289 | ||||||
| Distribution fees: (Note 3c) |
||||||||
| Class A |
1,135,412 | 261,425 | ||||||
| Class C |
227,277 | 205,187 | ||||||
| Transfer agent fees: (Note 3e) |
||||||||
| Class A |
672,942 | 261,712 | ||||||
| Class C |
33,667 | 51,342 | ||||||
| Class R6 |
2,814 | 4,015 | ||||||
| Advisor Class |
112,284 | 63,430 | ||||||
| Custodian fees (Note 4) |
4,359 | 4,203 | ||||||
| Reports to shareholders |
79,151 | 48,221 | ||||||
| Registration and filing fees |
45,498 | 44,847 | ||||||
| Professional fees |
28,884 | 24,230 | ||||||
| Trustees’ fees and expenses |
9,658 | 3,291 | ||||||
| Other |
15,013 | 8,737 | ||||||
|
|
|
|||||||
| Total expenses |
5,680,994 | 1,806,929 | ||||||
| Expense reductions (Note 4) |
(195 | ) | (212 | ) | ||||
| Expenses waived/paid by affiliates (Note 3f and 3g) |
(125,121 | ) | (6,821 | ) | ||||
|
|
|
|||||||
| Net expenses |
5,555,678 | 1,799,896 | ||||||
|
|
|
|||||||
| Net investment income (loss) |
(2,622,566 | ) | 2,431,906 | |||||
|
|
|
|||||||
| Realized and unrealized gains (losses): |
||||||||
| Net realized gain (loss) from: |
||||||||
| Investments: |
||||||||
| Unaffiliated issuers |
48,706,556 | (15,299,839 | ) | |||||
| Foreign currency transactions |
— | 4,013 | ||||||
|
|
|
|||||||
| Net realized gain (loss) |
48,706,556 | (15,295,826 | ) | |||||
|
|
|
|||||||
| Net change in unrealized appreciation (depreciation) on: |
||||||||
| Investments: |
||||||||
| Unaffiliated issuers |
(1,673,793 | ) | (48,486,687 | ) | ||||
| Translation of other assets and liabilities denominated in foreign currencies |
— | (2,434 | ) | |||||
|
|
|
|||||||
| Net change in unrealized appreciation (depreciation) |
(1,673,793 | ) | (48,489,121 | ) | ||||
|
|
|
|||||||
| Net realized and unrealized gain (loss) |
47,032,763 | (63,784,947 | ) | |||||
|
|
|
|||||||
| Net increase (decrease) in net assets resulting from operations |
$44,410,197 | $(61,353,041 | ) | |||||
|
|
|
|||||||
| *Foreign taxes withheld on dividends |
$ — | $ 169,490 | ||||||
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 33 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
| Franklin Biotechnology Discovery Fund |
Franklin Natural Resources Fund |
|||||||||||||||
|
|
|
|||||||||||||||
| Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, 2019 |
Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, 2019 |
|||||||||||||
|
|
||||||||||||||||
| Increase (decrease) in net assets: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ (2,622,566 | ) | $ (8,485,404 | ) | $ 2,431,906 | $ 5,068,646 | ||||||||||
| Net realized gain (loss) |
48,706,556 | 59,100,885 | (15,295,826 | ) | 3,219,567 | |||||||||||
| Net change in unrealized appreciation (depreciation) |
(1,673,793 | ) | (69,695,618 | ) | (48,489,121 | ) | (76,614,204 | ) | ||||||||
|
|
|
|||||||||||||||
| Net increase (decrease) in net assets resulting from operations |
44,410,197 | (19,080,137 | ) | (61,353,041 | ) | (68,325,991 | ) | |||||||||
|
|
|
|||||||||||||||
| Distributions to shareholders: |
||||||||||||||||
| Class A |
— | (31,140,117 | ) | — | (5,445,964 | ) | ||||||||||
| Class C |
— | (1,654,793 | ) | — | (929,534 | ) | ||||||||||
| Class R6 |
— | (198,908 | ) | — | (313,292 | ) | ||||||||||
| Advisor Class |
— | (5,381,467 | ) | — | (1,289,908 | ) | ||||||||||
|
|
|
|||||||||||||||
| Total distributions to shareholders |
— | (38,375,285 | ) | — | (7,978,698 | ) | ||||||||||
|
|
|
|||||||||||||||
| Capital share transactions: (Note 2) |
||||||||||||||||
| Class A |
(74,882,066 | ) | (112,026,697 | ) | (25,884,710 | ) | (46,670,690 | ) | ||||||||
| Class C |
(4,320,457 | ) | (9,069,507 | ) | (6,627,100 | ) | (22,834,504 | ) | ||||||||
| Class R6 |
(1,120,568 | ) | (1,820,119 | ) | (12,985,407 | ) | 2,159,944 | |||||||||
| Advisor Class |
(11,755,689 | ) | (17,313,109 | ) | (11,623,601 | ) | (3,919,165 | ) | ||||||||
|
|
|
|||||||||||||||
| Total capital share transactions |
(92,078,780 | ) | (140,229,432 | ) | (57,120,818 | ) | (71,264,415 | ) | ||||||||
|
|
|
|||||||||||||||
| Net increase (decrease) in net assets |
(47,668,583 | ) | (197,684,854 | ) | (118,473,859 | ) | (147,569,104 | ) | ||||||||
| Net assets: |
||||||||||||||||
| Beginning of period |
1,131,157,370 | 1,328,842,224 | 375,248,508 | 522,817,612 | ||||||||||||
|
|
|
|||||||||||||||
| End of period |
$1,083,488,787 | $1,131,157,370 | $ 256,774,649 | $ 375,248,508 | ||||||||||||
|
|
|
|||||||||||||||
| 34 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (unaudited)
| franklintempleton.com | Semiannual Report | 35 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| 36 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| franklintempleton.com | Semiannual Report | 37 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
2. Shares of Beneficial Interest
At October 31, 2019, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:
| Franklin Biotechnology | Franklin Natural | |||||||||||||||
| Discovery Fund | Resources Fund | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Class A Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares solda |
252,206 | $ | 35,453,133 | 407,740 | $ | 8,550,578 | ||||||||||
| Shares redeemed |
(786,082 | ) | (110,335,199 | ) | (1,660,730 | ) | (34,435,288 | ) | ||||||||
| Net increase (decrease) |
(533,876 | ) | $ | (74,882,066 | ) | (1,252,990 | ) | $ | (25,884,710 | ) | ||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares solda |
721,089 | $ | 106,972,540 | 1,281,103 | $ | 32,532,375 | ||||||||||
| Shares issued in reinvestment of distributions |
232,391 | 29,692,637 | 256,254 | 5,342,901 | ||||||||||||
| Shares redeemed |
(1,697,525 | ) | (248,691,874 | ) | (3,371,926 | ) | (84,545,966 | ) | ||||||||
| Net increase (decrease) |
(744,045 | ) | $ | (112,026,697 | ) | (1,834,569 | ) | $ | (46,670,690 | ) | ||||||
| Class C Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares sold |
20,544 | $ | 2,774,311 | 62,788 | $ | 1,261,837 | ||||||||||
| Shares redeemeda |
(52,451 | ) | (7,094,768 | ) | (391,388 | ) | (7,888,937 | ) | ||||||||
| Net increase (decrease) |
(31,907 | ) | $ | (4,320,457 | ) | (328,600 | ) | $ | (6,627,100 | ) | ||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares sold |
72,561 | $ | 10,442,091 | 324,962 | $ | 7,969,298 | ||||||||||
| Shares issued in reinvestment of distributions |
13,364 | 1,646,340 | 45,232 | 915,493 | ||||||||||||
| Shares redeemeda |
(149,801 | ) | (21,157,938 | ) | (1,280,715 | ) | (31,719,295 | ) | ||||||||
| Net increase (decrease) |
(63,876 | ) | $ | (9,069,507 | ) | (910,521 | ) | $ | (22,834,504 | ) | ||||||
| Class R6 Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares sold |
4,160 | $ | 619,233 | 65,340 | $ | 1,507,489 | ||||||||||
| Shares redeemed |
(11,626 | ) | (1,739,801 | ) | (644,389 | ) | (14,492,896 | ) | ||||||||
| Net increase (decrease) |
(7,466 | ) | $ | (1,120,568 | ) | (579,049 | ) | $ | (12,985,407 | ) | ||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares sold |
14,632 | $ | 2,320,850 | 331,245 | $ | 8,552,092 | ||||||||||
| Shares issued in reinvestment of distributions |
1,505 | 198,908 | 14,066 | 313,109 | ||||||||||||
| Shares redeemed |
(28,420 | ) | (4,339,877 | ) | (258,140 | ) | (6,705,257 | ) | ||||||||
| Net increase (decrease) |
(12,283 | ) | $ | (1,820,119 | ) | 87,171 | $ | 2,159,944 | ||||||||
| 38 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| Franklin Biotechnology | Franklin Natural | |||||||||||||||
| Discovery Fund | Resources Fund | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Advisor Class Shares: |
||||||||||||||||
| Six Months ended October 31, 2019 |
||||||||||||||||
| Shares sold |
89,153 | $ | 12,897,996 | 160,346 | $ | 3,587,475 | ||||||||||
| Shares redeemed |
(171,181 | ) | (24,653,685 | ) | (687,138 | ) | (15,211,076) | |||||||||
|
|
|
|||||||||||||||
| Net increase (decrease) |
(82,028 | ) | $ | (11,755,689 | ) | (526,792 | ) | $ | (11,623,601) | |||||||
|
|
|
|||||||||||||||
| Year ended April 30, 2019 |
||||||||||||||||
| Shares sold |
338,870 | $ | 52,338,943 | 757,766 | $ | 19,842,560 | ||||||||||
| Shares issued in reinvestment of distributions |
36,842 | 4,828,793 | 57,021 | 1,269,854 | ||||||||||||
| Shares redeemed |
(501,477 | ) | (74,480,845 | ) | (961,445 | ) | (25,031,579) | |||||||||
|
|
|
|||||||||||||||
| Net increase (decrease) |
(125,765 | ) | $ | (17,313,109 | ) | (146,658 | ) | $ | (3,919,165) | |||||||
|
|
|
|||||||||||||||
aMay include a portion of Class C shares that were automatically converted to Class A.
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. 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
Franklin Biotechnology Discovery Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:
| Annualized Fee Rate | Net Assets | |
| 0.775% |
Up to and including $100 million | |
| 0.650% |
Over $100 million, up to and including $200 million | |
| 0.635% |
Over $200 million, up to and including $250 million | |
| 0.585% |
Over $250 million, up to and including $700 million | |
| 0.550% |
Over $700 million, up to and including $1.2 billion | |
| 0.525% |
Over $1.2 billion, up to and including $7.5 billion | |
| 0.515% |
Over $7.5 billion, up to and including $10 billion | |
| 0.505% |
Over $10 billion, up to and including $12.5 billion | |
| 0.495% |
Over $12.5 billion, up to and including $15 billion | |
| 0.475% |
In excess of $15 billion | |
| franklintempleton.com | Semiannual Report | 39 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. Transactions with Affiliates (continued)
a. Management Fees (continued)
Franklin Natural Resources Fund pays an investment management fee to Advisers based on the average daily net assets of the Fund as follows:
| Annualized Fee Rate | Net Assets | |
| 0.625% |
Up to and including $100 million | |
| 0.500% |
Over $100 million, up to and including $250 million | |
| 0.450% |
Over $250 million, up to and including $7.5 billion | |
| 0.440% |
Over $7.5 billion, up to and including $10 billion | |
| 0.430% |
Over $10 billion, up to and including $12.5 billion | |
| 0.420% |
Over $12.5 billion, up to and including $15 billion | |
| 0.400% |
In excess of $15 billion | |
For the period ended October 31, 2019, each Fund’s annualized gross effective investment management fee rate based on average daily net assets was as follows:
| Franklin Biotechnology Discovery Fund |
Franklin Natural Resources Fund |
|||
| 0.598% |
0.532% | |||
b. Administrative Fees
Under an agreement with Advisers, FT Services provides administrative services to the Funds. The fee is paid by Advisers based on Funds’ 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 Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds’ Class A reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund’s shares up to the maximum annual plan rate for each class. Under the Class A reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Funds’ Class C 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 plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 for each Fund.
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| Franklin Biotechnology Discovery Fund |
Franklin Natural Resources Fund |
|||||||
| Reimbursement Plans: |
||||||||
| Class A |
0.35% | 0.35% | ||||||
| Class C |
1.00% | 1.00% | ||||||
The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.
| 40 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Funds. These charges are deducted from the proceeds of sales of fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds’ shares for the period:
| Franklin Biotechnology Discovery Fund |
Franklin Natural Resources Fund |
|||||||
| Sales charges retained net of commissions paid to unaffiliated brokers/dealers |
$56,428 | $9,548 | ||||||
| CDSC retained |
$ 6,205 | $1,417 | ||||||
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the period ended October 31, 2019, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
| Franklin Biotechnology Discovery Fund |
Franklin Natural Resources Fund |
|||||||
| Transfer agent fees |
$288,028 | $142,839 | ||||||
f. Investments in Affiliated Management Investment Companies
Certain or all Funds invest in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Funds are waived on assets invested in the affiliated management investment companies, as noted in the Statements of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the period ended October 31, 2019, investments in affiliated management investment companies were as follows:
| Value at Beginning of Period |
Purchases | Sales | Realized Gain (Loss) |
Net Change in Unrealized Appreciation (Depreciation) |
Value at End of Period |
Number of Shares Held at End of Period |
Investment Income |
|||||||||||||||||||||||||
| Franklin Biotechnology Discovery Fund |
|
|||||||||||||||||||||||||||||||
| Non-Controlled Affiliates |
||||||||||||||||||||||||||||||||
| Dividends | ||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
$27,393,876 | $190,860,151 | $(194,941,859 | ) | $ — | $ — | $23,312,168 | 23,312,168 | $ 453,625 | |||||||||||||||||||||||
| franklintempleton.com | Semiannual Report | 41 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
3. Transactions with Affiliates (continued)
f. Investments in Affiliated Management Investment Companies (continued)
| Value at Beginning of Period |
Purchases | Sales | Realized Gain (Loss) |
Net Change in Unrealized Appreciation (Depreciation) |
Value at End of Period |
Number of Shares Held at End of Period |
Investment Income |
|||||||||||||||||||||||||
| Franklin Biotechnology Discovery Fund (continued) |
| |||||||||||||||||||||||||||||||
| Non-Controlled Affiliates (continued) |
|
|||||||||||||||||||||||||||||||
| Income from securities loaned |
||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
$27,827,675 | $ 75,478,978 | $ (87,910,020 | ) | $ — | $ — | $15,396,633 | 15,396,633 | $ 213,728 | |||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total Affiliated Securities |
$55,221,551 | $266,339,129 | $(282,851,879 | ) | $ — | $ — | $38,708,801 | $ 667,353 | ||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||
| Franklin Natural Resources Fund |
|
|||||||||||||||||||||||||||||||
| Non-Controlled Affiliates |
||||||||||||||||||||||||||||||||
| Dividends | ||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
$ 788,220 | $ 37,414,334 | $ (36,589,102 | ) | $ — | $ — | $ 1,613,452 | 1,613,452 | $ 21,829 | |||||||||||||||||||||||
| Income from securities loaned |
||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
— | 3,665,379 | (3,665,379 | ) | — | — | — | — | 2,928 | |||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||
| Total Affiliated Securities |
$ 788,220 | $ 41,079,713 | $ (40,254,481 | ) | $ — | $ — | $ 1,613,452 | $ 24,757 | ||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||
g. Waiver and Expense Reimbursements
Investor Services has contractually agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.03% based on the average net assets of the class until August 31, 2020.
h. Interfund Transactions
Franklin Biotechnology Discovery Fund engaged in purchases and sales of investments with funds or other accounts that have common investment managers (or affiliated investment managers), directors, trustees or officers. During the period ended October 31, 2019, these purchase and sale transactions aggregated $1,025,328 and $0, respectively.
4. Expense Offset Arrangement
The Funds have entered into an arrangement with their custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Funds’ custodian expenses. During the period ended October 31, 2019, the custodian fees were reduced as noted in the Statements of Operations.
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains.
| 42 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
At April 30, 2019, the capital loss carryforwards were as follows:
| Franklin Natural Resources Fund |
||||
| Capital loss carryforwards not subject to expiration: |
| |||
| Short term |
$ 10,086,801 | |||
| Long term |
135,396,222 | |||
| Total capital loss carryforwards |
$145,483,023 | |||
For tax purposes, the Fund 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, 2019, Franklin Biotechnology Discovery Fund deferred late-year ordinary losses of $2,803,664.
At October 31, 2019, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
| Franklin Biotechnology Discovery Fund |
Franklin Natural Resources Fund |
|||||||
| Cost of investments |
$692,569,955 | $278,996,957 | ||||||
| Unrealized appreciation |
$453,212,759 | $ 39,688,733 | ||||||
| Unrealized depreciation |
(43,618,430 | ) | (61,417,193 | ) | ||||
| Net unrealized appreciation (depreciation) |
$409,594,329 | $(21,728,460 | ) | |||||
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of passive foreign investment company shares and wash sales.
6. Investment Transactions
Purchases and sales of investments (excluding short term securities) for the period ended October 31, 2019, were as follows:
| Franklin Biotechnology Discovery Fund |
Franklin Natural Resources Fund |
|||||||
| Purchases |
$193,039,203 | $30,804,398 | ||||||
| Sales |
$281,553,059 | $82,304,481 | ||||||
At October 31, 2019, in connection with securities lending transactions, certain or all Funds loaned investments and received cash collateral as follows:
| Franklin Biotechnology Discovery Fund |
||||
| Securities lending transactionsa: |
||||
| Equity Investmentsb |
$15,501,633 | |||
aThe agreements can be terminated at any time.
bThe gross amount of recognized liability for such transactions is included in payable upon return of securities loaned in the Statements of Assets and Liabilities.
| franklintempleton.com | Semiannual Report | 43 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
7. Concentration of Risk
Investing in foreign securities may include certain risks and considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local, regional and global economic, political and social conditions, which may result in greater market volatility. Current political and financial uncertainty surrounding the European Union may increase market volatility and the economic risk of investing in securities in Europe. In addition, certain foreign securities may not be as liquid as U.S. securities.
8. Restricted Securities
Certain or all Funds invest in securities that are restricted under the Securities Act of 1933 (1933 Act). Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Funds may have registration rights for restricted securities. The issuer generally incurs all registration costs.
At October 31, 2019, investments in restricted securities, excluding securities exempt from registration under the 1933 Act were as follows:
| Shares | Issuer | Acquisition Date |
Cost | Value | ||||||||||||
| Franklin Biotechnology Discovery Fund |
||||||||||||||||
| 80,195 | Intarcia Therapeutics Inc., DD | 3/26/14 | $2,597,516 | $ 634,441 | ||||||||||||
| 1,330,687 | Metacrine Inc., pfd., C | 6/04/18 | 2,821,056 | 1,840,276 | ||||||||||||
| Total Restricted Securities (Value is 0.2% of Net Assets) | $5,418,572 | $2,474,717 | ||||||||||||||
9. Credit Facility
The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 7, 2020. 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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the period ended October 31, 2019, the Funds did not use the Global Credit Facility.
10. 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’ financial instruments and are summarized in the following fair value hierarchy:
| • | Level 1 – quoted prices in active markets for identical financial instruments |
| 44 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
| • | 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.
A summary of inputs used as of October 31, 2019, in valuing the Funds’ assets carried at fair value, is as follows:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Franklin Biotechnology Discovery Fund |
||||||||||||||||
| Assets: |
||||||||||||||||
| Investments in Securities:a |
||||||||||||||||
| Equity Investments:b |
||||||||||||||||
| Biotechnology |
$ | 857,216,892 | $ | — | $ | 2,474,717 | $ | 859,691,609 | ||||||||
| All Other Equity Investments |
202,829,105 | — | — | 202,829,105 | ||||||||||||
| Escrows and Litigation Trusts |
— | — | 934,769 | 934,769 | ||||||||||||
| Short Term Investments |
38,708,801 | — | — | 38,708,801 | ||||||||||||
| Total Investments in Securities |
$ | 1,098,754,798 | $ | — | $ | 3,409,486 | $ | 1,102,164,284 | ||||||||
| Franklin Natural Resources Fund |
||||||||||||||||
| Assets: |
||||||||||||||||
| Investments in Securities:a |
||||||||||||||||
| Equity Investments |
$ | 255,655,045 | $ | — | $ | — | c | $ | 255,655,045 | |||||||
| Short Term Investments |
1,613,452 | — | — | 1,613,452 | ||||||||||||
| Total Investments in Securities |
$ | 257,268,497 | $ | — | $ | — | $ | 257,268,497 | ||||||||
aFor detailed categories, see the accompanying Statement of Investments.
bIncludes common and preferred stocks as well as other equity interests.
cIncludes securities determined to have no value at October 31, 2019.
A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the beginning and/or end of the period.
11. Subsequent Events
The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.
Abbreviations
Selected Portfolio
| ADR | American Depositary Receipt | |
| franklintempleton.com | Semiannual Report | 45 | ||
FRANKLIN STRATEGIC SERIES
| 46 |
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Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
|
|
Semiannual Report and Shareholder Letter | |||||
| Franklin Strategic Series | ||||||
|
Investment Manager |
Distributor | Shareholder Services | ||||
| Franklin Advisers, Inc. | Franklin Templeton Distributors, Inc. | (800) 632-2301 | ||||
| (800) DIAL BEN® / 342-5236 | ||||||
| franklintempleton.com | ||||||
| © 2019 Franklin Templeton Investments. All rights reserved. | FSS2 S 12/19 |
Sign up for electronic delivery at franklintempleton.com/edelivery
Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.
You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.
SHAREHOLDER LETTER
| franklintempleton.com | Not part of the semiannual report | 1 | ||
| 2 |
Semiannual Report | franklintempleton.com | ||
SEMIANNUAL REPORT
Franklin Flexible Alpha Bond Fund
1. Source: Bloomberg LP.
The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. 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 15.
| franklintempleton.com | Semiannual Report | 3 | ||
FRANKLIN FLEXIBLE ALPHA BOND FUND
2. Source: Bureau of Labor Statistics.
See www.franklintempletondatasources.com for additional data provider information.
| 4 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN FLEXIBLE ALPHA BOND FUND
| franklintempleton.com | Semiannual Report | 5 | ||
FRANKLIN FLEXIBLE ALPHA BOND FUND
CFA® is a trademark owned by CFA Institute.
| 6 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN FLEXIBLE ALPHA BOND FUND
Performance Summary as of October 31, 2019
The performance tables 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. 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.
Performance as of 10/31/191
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 3.75% and the minimum is 0%. Class A: 3.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| Share Class | |
Cumulative Total Return |
2 |
|
Average Annual Total Return |
3 | ||
| A4 |
||||||||
| 6-Month |
+0.52% | -3.26% | ||||||
| 1-Year |
+1.71% | -2.10% | ||||||
| 3-Year |
+4.54% | +0.20% | ||||||
| Since Inception (8/3/15) |
+5.38% | +0.33% | ||||||
| Advisor |
||||||||
| 6-Month |
+0.76% | +0.76% | ||||||
| 1-Year |
+2.06% | +2.06% | ||||||
| 3-Year |
+5.15% | +1.69% | ||||||
| Since Inception (8/3/15) |
+6.03% | +1.39% | ||||||
| Distribution | 30-Day Standardized Yield6 | |||||||||||
| Share Class | Rate | 5 | (with fee waiver) | (without fee waiver) | ||||||||
| A |
2.70% | 2.31% | 2.23% | |||||||||
| Advisor |
3.06% | 2.69% | 2.60% | |||||||||
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.
See page 8 for Performance Summary footnotes.
| franklintempleton.com | Semiannual Report | 7 | ||
FRANKLIN FLEXIBLE ALPHA BOND FUND
PERFORMANCE SUMMARY
Distributions (5/1/19–10/31/19)
| Share Class | Net Investment Income |
|||
| A |
$0.130758 | |||
| C |
$0.114243 | |||
| R |
$0.121006 | |||
| R6 |
$0.163992 | |||
| Advisor |
$0.143254 | |||
Total Annual Operating Expenses7
| Share Class | With Fee Waiver |
Without Fee Waiver |
||||||
| A |
1.17% | 1.26% | ||||||
| Advisor |
0.92% | 1.01% | ||||||
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. Interest rate movements and mortgage prepayments will affect the Fund’s share price and yield. During periods of declining interest rates, principal prepayments tend to increase as borrowers refinance their mortgages at lower rates; therefore the Fund may be forced to reinvest returned principal at lower interest rates, reducing income. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. The Fund may be affected by issuers that fail to make interest payments and repay principal when due. The risks associated with higher-yielding, lower-rated securities (commonly called junk bonds) include higher risk of default and loss of principal. Derivatives, including currency management strategies, involve costs and can create economic leverage in the portfolio, which may result in significant volatility and cause the Fund to participate in losses (as well as enable gains) in an amount that exceeds the Fund’s initial investment. The Fund may not achieve the anticipated benefits, and may realize losses when a counterparty fails to perform as intended. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 8/31/20. Fund investment results reflect the expense reduction and fee waiver; without these reductions, the results 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. Return for less than one year, if any, has not been annualized.
4. Prior to 3/1/19, these shares were offered at a higher initial sales charge of 4.25%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 3.75%.
5. Distribution rate is based on an annualization of the sum of the respective class’s past 30 days’ daily distributions and the maximum offering price (NAV for Advisor Class) per share on 10/31/19.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
| 8 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN FLEXIBLE ALPHA BOND FUND
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| Actual | Hypothetical | |||||||||||||||||
| (actual return after expenses) | (5% annual return before expenses) | |||||||||||||||||
| Expenses | Expenses | Net | ||||||||||||||||
| Beginning | Ending | Paid During | Ending | Paid During | Annualized | |||||||||||||
| Share | Account | Account | Period | Account | Period | Expense | ||||||||||||
| Class | Value 5/1/19 | Value 10/31/19 | 5/1/19–10/31/191, 2 | Value 10/31/19 | 5/1/19–10/31/191, 2 | Ratio2 | ||||||||||||
| A |
$1,000 | $1,005.20 | $5.54 | $1,019.61 | $5.58 | 1.10% | ||||||||||||
| C |
$1,000 | $1,004.60 | $7.56 | $1,017.60 | $7.61 | 1.50% | ||||||||||||
| R |
$1,000 | $1,005.30 | $6.80 | $1,018.35 | $6.85 | 1.35% | ||||||||||||
| R6 |
$1,000 | $1,009.70 | $3.03 | $1,022.12 | $3.05 | 0.60% | ||||||||||||
| Advisor |
$1,000 | $1,007.60 | $4.29 | $1,020.86 | $4.32 | 0.85% | ||||||||||||
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
| franklintempleton.com | Semiannual Report | 9 | ||
FRANKLIN STRATEGIC SERIES
Franklin Flexible Alpha Bond Fund
| Six Months Ended | ||||||||||||||||||||
| October 31, 2019 | Year Ended April 30, | |||||||||||||||||||
| (unaudited) | 2019 | 2018 | 2017 | 2016a | ||||||||||||||||
| Class A | ||||||||||||||||||||
| Per share operating performance |
||||||||||||||||||||
| (for a share outstanding throughout the period) |
||||||||||||||||||||
| Net asset value, beginning of period |
$ 9.70 | $ | 9.79 | $ | 9.86 | $ | 9.88 | $ | 10.00 | |||||||||||
|
|
|
| ||||||||||||||||||
| Income from investment operationsb: |
||||||||||||||||||||
| Net investment income |
0.130 | 0.249 | c | 0.166 | c | 0.180 | 0.099 | |||||||||||||
| Net realized and unrealized gains (losses) |
(0.059 | ) | (0.080 | ) | (0.066 | ) | 0.017 | (0.123 | ) | |||||||||||
|
|
|
| ||||||||||||||||||
| Total from investment operations |
0.071 | 0.169 | 0.100 | 0.197 | (0.024 | ) | ||||||||||||||
|
|
|
| ||||||||||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.131 | ) | (0.246 | ) | (0.160 | ) | (0.217 | ) | (0.096 | ) | ||||||||||
| Net realized gains |
— | (0.013 | ) | (0.010 | ) | — | — | |||||||||||||
|
|
|
| ||||||||||||||||||
| Total distributions |
(0.131 | ) | (0.259 | ) | (0.170 | ) | (0.217 | ) | (0.096 | ) | ||||||||||
|
|
|
| ||||||||||||||||||
| Net asset value, end of period |
$ 9.64 | $ | 9.70 | $ | 9.79 | $ | 9.86 | $ | 9.88 | |||||||||||
|
|
|
| ||||||||||||||||||
| Total returnd |
0.52% | 1.76% | 1.02% | 2.22% | (0.34)% | |||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.15% | 1.19% | 0.97% | 3.17% | 3.47% | |||||||||||||||
| Expenses net of waiver and payments by affiliatesf |
1.10% | 1.04% | 0.79% | 0.67% | 0.84% | |||||||||||||||
| Net investment income |
2.84% | 2.60% | 1.80% | 1.83% | 1.37% | |||||||||||||||
| Supplemental data |
||||||||||||||||||||
| Net assets, end of period (000’s) |
$1,817 | $1,458 | $1,132 | $10,443 | $10,200 | |||||||||||||||
| Portfolio turnover rate |
45.40% | 24.74% | 48.04% | 90.37% | 40.12% | |||||||||||||||
| Portfolio turnover rate excluding mortgage dollar rollsg |
39.25% | 24.00% | 19.40% | 57.79% | 30.05% | |||||||||||||||
aFor the period August 3, 2015 (commencement of operations) to April 30, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
gSee Note 1(f) regarding mortgage dollar rolls.
| 10 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Flexible Alpha Bond Fund (continued)
| Six Months Ended | ||||||||||||||||||||
| October 31, 2019 | Year Ended April 30, | |||||||||||||||||||
| (unaudited) | 2019 | 2018 | 2017 | 2016a | ||||||||||||||||
| Class C | ||||||||||||||||||||
| Per share operating performance |
||||||||||||||||||||
| (for a share outstanding throughout the period) |
||||||||||||||||||||
| Net asset value, beginning of period |
$ 9.64 | $ | 9.73 | $ | 9.80 | $ | 9.86 | $ | 10.00 | |||||||||||
|
|
|
| ||||||||||||||||||
| Income from investment operationsb: |
||||||||||||||||||||
| Net investment income |
0.119 | 0.212 | c | 0.120 | 0.130 | 0.072 | ||||||||||||||
| Net realized and unrealized gains (losses) |
(0.065 | ) | (0.071 | ) | (0.062 | ) | (0.006 | ) | (0.131 | ) | ||||||||||
|
|
|
| ||||||||||||||||||
| Total from investment operations |
0.054 | 0.141 | 0.058 | 0.124 | (0.059 | ) | ||||||||||||||
|
|
|
| ||||||||||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.114 | ) | (0.218 | ) | (0.118 | ) | (0.184 | ) | (0.081 | ) | ||||||||||
| Net realized gains |
— | (0.013 | ) | (0.010 | ) | — | — | |||||||||||||
|
|
|
| ||||||||||||||||||
| Total distributions |
(0.114 | ) | (0.231 | ) | (0.128 | ) | (0.184 | ) | (0.081 | ) | ||||||||||
|
|
|
| ||||||||||||||||||
| Net asset value, end of period |
$ 9.58 | $ | 9.64 | $ | 9.73 | $ | 9.80 | $ | 9.86 | |||||||||||
|
|
|
| ||||||||||||||||||
| Total returnd |
0.46% | 1.58% | 0.49% | 1.47% | (0.69)% | |||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.55% | 1.55% | 1.58% | 3.88% | 3.98% | |||||||||||||||
| Expenses net of waiver and payments by affiliatesf |
1.50% | 1.40% | 1.40% | 1.38% | 1.34% | |||||||||||||||
| Net investment income |
2.44% | 2.24% | 1.19% | 1.12% | 0.87% | |||||||||||||||
| Supplemental data |
||||||||||||||||||||
| Net assets, end of period (000’s) |
$379 | $368 | $279 | $245 | $204 | |||||||||||||||
| Portfolio turnover rate |
45.40% | 24.74% | 48.04% | 90.37% | 40.12% | |||||||||||||||
| Portfolio turnover rate excluding mortgage dollar rollsg |
39.25% | 24.00% | 19.40% | 57.79% | 30.05% | |||||||||||||||
aFor the period August 3, 2015 (commencement of operations) to April 30, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
gSee Note 1(f) regarding mortgage dollar rolls.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 11 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Flexible Alpha Bond Fund (continued)
| Six Months Ended | ||||||||||||||||||||
| October 31, 2019 | Year Ended April 30, | |||||||||||||||||||
| (unaudited) | 2019 | 2018 | 2017 | 2016a | ||||||||||||||||
| Class R | ||||||||||||||||||||
| Per share operating performance |
||||||||||||||||||||
| (for a share outstanding throughout the period) |
||||||||||||||||||||
| Net asset value, beginning of period |
$ 9.69 | $ | 9.78 | $ | 9.86 | $ | 9.86 | $ | 10.00 | |||||||||||
|
|
|
| ||||||||||||||||||
| Income from investment operationsb: |
||||||||||||||||||||
| Net investment income |
0.126 | 0.230 | c | 0.112 | 0.112 | 0.072 | ||||||||||||||
| Net realized and unrealized gains (losses) |
(0.065 | ) | (0.076 | ) | (0.058 | ) | 0.095 | (0.127 | ) | |||||||||||
|
|
|
| ||||||||||||||||||
| Total from investment operations |
0.061 | 0.154 | 0.054 | 0.207 | (0.055 | ) | ||||||||||||||
|
|
|
| ||||||||||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.121 | ) | (0.231 | ) | (0.124 | ) | (0.207 | ) | (0.085 | ) | ||||||||||
| Net realized gains |
— | (0.013 | ) | (0.010 | ) | — | — | |||||||||||||
|
|
|
| ||||||||||||||||||
| Total distributions |
(0.121 | ) | (0.244 | ) | (0.134 | ) | (0.207 | ) | (0.085 | ) | ||||||||||
|
|
|
| ||||||||||||||||||
| Net asset value, end of period |
$ 9.63 | $ | 9.69 | $ | 9.78 | $ | 9.86 | $ | 9.86 | |||||||||||
|
|
|
| ||||||||||||||||||
| Total returnd |
0.53% | 1.71% | 0.54% | 2.21% | (0.65)% | |||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.40% | 1.41% | 1.47% | 3.36% | 3.84% | |||||||||||||||
| Expenses net of waiver and payments by affiliatesf |
1.35% | 1.26% | 1.29% | 0.86% | 1.22% | |||||||||||||||
| Net investment income |
2.59% | 2.38% | 1.30% | 1.64% | 0.99% | |||||||||||||||
| Supplemental data |
||||||||||||||||||||
| Net assets, end of period (000’s) |
$84 | $83 | $51 | $60 | $10 | |||||||||||||||
| Portfolio turnover rate |
45.40% | 24.74% | 48.04% | 90.37% | 40.12% | |||||||||||||||
| Portfolio turnover rate excluding mortgage dollar rollsg |
39.25% | 24.00% | 19.40% | 57.79% | 30.05% | |||||||||||||||
aFor the period August 3, 2015 (commencement of operations) to April 30, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
gSee Note 1(f) regarding mortgage dollar rolls.
| 12 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Flexible Alpha Bond Fund (continued)
| Six Months Ended | ||||||||||||||||||||
| October 31, 2019 | Year Ended April 30, | |||||||||||||||||||
| (unaudited) | 2019 | 2018 | 2017 | 2016a | ||||||||||||||||
| Class R6 | ||||||||||||||||||||
| Per share operating performance |
||||||||||||||||||||
| (for a share outstanding throughout the period) |
||||||||||||||||||||
| Net asset value, beginning of period |
$ 9.71 | $ | 9.79 | $ | 9.86 | $ | 9.88 | $ | 10.00 | |||||||||||
|
|
|
| ||||||||||||||||||
| Income from investment operationsb: |
||||||||||||||||||||
| Net investment income |
0.171 | 0.296 | c | 0.204 | 0.177 | 0.108 | ||||||||||||||
| Net realized and unrealized gains (losses) |
(0.077 | ) | (0.086 | ) | (0.088 | ) | 0.022 | (0.124 | ) | |||||||||||
|
|
|
| ||||||||||||||||||
| Total from investment operations |
0.094 | 0.210 | 0.116 | 0.199 | (0.016 | ) | ||||||||||||||
|
|
|
| ||||||||||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.164 | ) | (0.277 | ) | (0.176 | ) | (0.219 | ) | (0.104 | ) | ||||||||||
| Net realized gains |
— | (0.013 | ) | (0.010 | ) | — | — | |||||||||||||
|
|
|
| ||||||||||||||||||
| Total distributions |
(0.164 | ) | (0.290 | ) | (0.186 | ) | (0.219 | ) | (0.104 | ) | ||||||||||
|
|
|
| ||||||||||||||||||
| Net asset value, end of period |
$ 9.64 | $ | 9.71 | $ | 9.79 | $ | 9.86 | $ | 9.88 | |||||||||||
|
|
|
| ||||||||||||||||||
| Total returnd |
0.97% | 2.30% | 1.18% | 2.03% | (0.15)% | |||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.65% | 0.65% | 0.86% | 5.23% | 3.72% | |||||||||||||||
| Expenses net of waiver and payments by affiliatesf |
0.60% | 0.59% | 0.71% | 0.71% | 0.71% | |||||||||||||||
| Net investment income |
3.34% | 3.05% | 1.88% | 1.79% | 1.50% | |||||||||||||||
| Supplemental data |
||||||||||||||||||||
| Net assets, end of period (000’s) |
$403,212 | $504,875 | $210,808 | $10 | $10 | |||||||||||||||
| Portfolio turnover rate |
45.40% | 24.74% | 48.04% | 90.37% | 40.12% | |||||||||||||||
| Portfolio turnover rate excluding mortgage dollar rollsg |
39.25% | 24.00% | 19.40% | 57.79% | 30.05% | |||||||||||||||
aFor the period August 3, 2015 (commencement of operations) to April 30, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
gSee Note 1(f) regarding mortgage dollar rolls.
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 13 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS
Franklin Flexible Alpha Bond Fund (continued)
| Six Months Ended | ||||||||||||||||||||
| October 31, 2019 | Year Ended April 30, | |||||||||||||||||||
| (unaudited) | 2019 | 2018 | 2017 | 2016a | ||||||||||||||||
| Advisor Class | ||||||||||||||||||||
| Per share operating performance |
||||||||||||||||||||
| (for a share outstanding throughout the period) |
||||||||||||||||||||
| Net asset value, beginning of period |
$ 9.70 | $ | 9.79 | $ | 9.85 | $ | 9.88 | $ | 10.00 | |||||||||||
|
|
|
| ||||||||||||||||||
| Income from investment operationsb: |
||||||||||||||||||||
| Net investment income |
0.150 | 0.275 | c | 0.194 | 0.166 | 0.107 | ||||||||||||||
| Net realized and unrealized gains (losses) |
(0.067 | ) | (0.074 | ) | (0.072 | ) | 0.023 | (0.129 | ) | |||||||||||
|
|
|
| ||||||||||||||||||
| Total from investment operations |
0.083 | 0.201 | 0.122 | 0.189 | (0.022 | ) | ||||||||||||||
|
|
|
| ||||||||||||||||||
| Less distributions from: |
||||||||||||||||||||
| Net investment income |
(0.143 | ) | (0.278 | ) | (0.172 | ) | (0.219 | ) | (0.098 | ) | ||||||||||
| Net realized gains |
— | (0.013 | ) | (0.010 | ) | — | — | |||||||||||||
|
|
|
| ||||||||||||||||||
| Total distributions |
(0.143 | ) | (0.291 | ) | (0.182 | ) | (0.219 | ) | (0.098 | ) | ||||||||||
|
|
|
| ||||||||||||||||||
| Net asset value, end of period |
$ 9.64 | $ | 9.70 | $ | 9.79 | $ | 9.85 | $ | 9.88 | |||||||||||
|
|
|
| ||||||||||||||||||
| Total returnd |
0.76% | 2.20% | 1.14% | 2.13% | (0.31)% | |||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.90% | 0.90% | 0.93% | 3.22% | 3.34% | |||||||||||||||
| Expenses net of waiver and payments by affiliatesf |
0.85% | 0.75% | 0.75% | 0.72% | 0.71% | |||||||||||||||
| Net investment income |
3.09% | 2.89% | 1.84% | 1.78% | 1.50% | |||||||||||||||
| Supplemental data |
||||||||||||||||||||
| Net assets, end of period (000’s) |
$436 | $433 | $425 | $232 | $344 | |||||||||||||||
| Portfolio turnover rate |
45.40% | 24.74% | 48.04% | 90.37% | 40.12% | |||||||||||||||
| Portfolio turnover rate excluding mortgage dollar rollsg |
39.25% | 24.00% | 19.40% | 57.79% | 30.05% | |||||||||||||||
aFor the period August 3, 2015 (commencement of operations) to April 30, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
gSee Note 1(f) regarding mortgage dollar rolls.
| 14 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Statement of Investments, October 31, 2019 (unaudited)
Franklin Flexible Alpha Bond Fund
| Country | |
Principal Amount |
* |
Value | ||||||||||||
| Corporate Bonds 22.5% |
||||||||||||||||
| Automobiles & Components 0.2% |
||||||||||||||||
| Aptiv Corp., senior bond, 4.15%, 3/15/24 |
United States | 900,000 | $ | 958,278 | ||||||||||||
|
|
|
|||||||||||||||
| Banks 6.6% |
||||||||||||||||
| a Banca Monte dei Paschi di Siena SpA, |
||||||||||||||||
| secured note, Reg S, 2.875%, 7/16/62 |
Italy | 1,500,000 | EUR | 1,846,151 | ||||||||||||
| secured note, Reg S, 2.125%, 11/26/63 |
Italy | 2,000,000 | EUR | 2,418,417 | ||||||||||||
| a Banca Popolare di Milano Scarl, |
||||||||||||||||
| secured note, Reg S, 0.875%, 9/14/23 |
Italy | 900,000 | EUR | 1,025,326 | ||||||||||||
| secured note, Reg S, 0.625%, 6/08/24 |
Italy | 2,800,000 | EUR | 3,164,874 | ||||||||||||
| a Banco BPM SpA, secured note, Reg S, 0.75%, 3/31/23 |
Italy | 1,700,000 | EUR | 1,926,564 | ||||||||||||
| Bank of America Corp., |
||||||||||||||||
| senior bond, 5.50%, 12/04/19 |
United States | 75,000 | GBP | 97,523 | ||||||||||||
| senior note, 3.55% to 3/05/23, FRN thereafter, 3/05/24 |
United States | 1,400,000 | 1,459,801 | |||||||||||||
| a Bank of China Ltd., senior note, Reg S, 2.875%, 4/20/22 |
China | 1,000,000 | 1,010,080 | |||||||||||||
| Bank of Nova Scotia, secured note, 1.875%, 4/26/22 |
Canada | 100,000 | 100,002 | |||||||||||||
| a China Construction Bank Corp., senior note, Reg S, 2.75%, 12/04/20 |
China | 1,000,000 | 1,003,955 | |||||||||||||
| Citigroup Inc., senior note, 2.65%, 10/26/20 |
United States | 1,050,000 | 1,057,470 | |||||||||||||
| HSBC Holdings PLC, |
||||||||||||||||
| senior note, 4.30%, 3/08/26 |
United Kingdom | 800,000 | 872,488 | |||||||||||||
| senior note, 3.262% to 3/13/22, FRN thereafter, 3/13/23 |
United Kingdom | 1,400,000 | 1,431,444 | |||||||||||||
| Industrial & Commercial Bank of China Ltd., senior note, 2.452%, 10/20/21 |
China | 1,900,000 | 1,901,396 | |||||||||||||
| b Kookmin Bank, secured note, 144A, 2.25%, 2/03/22 |
South Korea | 1,800,000 | 1,798,663 | |||||||||||||
| Realkredit Danmark A/S, secured bond, 1.00%, 4/01/27 |
Denmark | 6,780,000 | DKK | 1,090,511 | ||||||||||||
| Royal Bank of Canada, secured note, 2.10%, 10/14/21 |
Canada | 100,000 | 100,271 | |||||||||||||
| b The Toronto-Dominion Bank, secured note, 144A, 2.25%, 3/15/22 |
Canada | 200,000 | 201,238 | |||||||||||||
| a Turkiye Vakiflar Bankasi TAO, secured note, Reg S, 2.375%, 11/04/22 |
Turkey | 3,800,000 | EUR | 4,278,784 | ||||||||||||
|
|
|
|||||||||||||||
| 26,784,958 | ||||||||||||||||
|
|
|
|||||||||||||||
| Consumer Durables & Apparel 0.0%† |
||||||||||||||||
| KB Home, senior note, 8.00%, 3/15/20 |
United States | 100,000 | 102,280 | |||||||||||||
|
|
|
|||||||||||||||
| Consumer Services 0.1% |
||||||||||||||||
| b Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., senior bond, 144A, 5.50%, 3/01/25 |
United States | 525,000 | 559,125 | |||||||||||||
|
|
|
|||||||||||||||
| Diversified Financials 2.6% |
||||||||||||||||
| Capital One Financial Corp., senior note, 3.05%, 3/09/22 |
United States | 200,000 | 203,956 | |||||||||||||
| c Deutsche Bank AG, senior note, FRN, 3.446%, (3-month USD LIBOR + 1.31%), 8/20/20 |
Germany | 100,000 | 100,244 | |||||||||||||
| b Dexia Credit Local SA, senior note, 144A, 2.375%, 9/20/22 |
France | 250,000 | 253,711 | |||||||||||||
| The Goldman Sachs Group Inc., |
||||||||||||||||
| senior note, 3.75%, 5/22/25 |
United States | 1,000,000 | 1,061,584 | |||||||||||||
| c senior note, FRN, 3.319%, (3-month USD LIBOR + 1.20%), 9/15/20 |
United States | 500,000 | 504,166 | |||||||||||||
| b ICBCIL Finance Co. Ltd., senior note, 144A, 2.50%, 9/29/21 |
China | 500,000 | 497,350 | |||||||||||||
| Jyske Realkredit A/S, secured note, 1.00%, 4/01/26 |
Denmark | 11,290,000 | DKK | 1,808,950 | ||||||||||||
| Morgan Stanley, senior note, 3.70%, 10/23/24 |
United States | 1,400,000 | 1,489,576 | |||||||||||||
| Navient Corp., senior bond, 8.00%, 3/25/20 |
United States | 4,660,000 | 4,770,675 | |||||||||||||
|
|
|
|||||||||||||||
| 10,690,212 | ||||||||||||||||
|
|
|
|||||||||||||||
| franklintempleton.com | Semiannual Report | 15 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| Country | Principal Amount* |
Value | ||||||||||
| Corporate Bonds (continued) |
||||||||||||
| Energy 2.4% |
||||||||||||
| CNOOC Finance 2015 USA LLC, senior note, 3.50%, 5/05/25 |
China | 1,700,000 | $ | 1,780,792 | ||||||||
| b CNPC General Capital Ltd., senior note, 144A, 3.40%, 4/16/23 |
China | 2,100,000 | 2,164,291 | |||||||||
| Energy Transfer Operating LP, senior note, 7.50%, 10/15/20 |
United States | 750,000 | 787,117 | |||||||||
| Enterprise Products Operating LLC, senior note, 3.35%, 3/15/23 |
United States | 850,000 | 880,963 | |||||||||
| b Harvest Operations Corp., senior note, 144A, 4.20%, 6/01/23 |
South Korea | 1,000,000 | 1,068,926 | |||||||||
| Oceaneering International Inc., senior note, 4.65%, 11/15/24 |
United States | 50,000 | 46,750 | |||||||||
| b Sinopec Group Overseas Development 2015 Ltd., |
||||||||||||
| senior note, 144A, 2.50%, 4/28/20 |
China | 1,800,000 | 1,802,331 | |||||||||
| senior note, 144A, 3.25%, 4/28/25 |
China | 1,000,000 | 1,035,225 | |||||||||
|
|
|
|||||||||||
| 9,566,395 | ||||||||||||
|
|
|
|||||||||||
| Food, Beverage & Tobacco 0.5% |
||||||||||||
| b Imperial Brands Finance PLC, senior note, 144A, 4.25%, 7/21/25 |
United Kingdom | 1,695,000 | 1,771,328 | |||||||||
| Reynolds American Inc., senior note, 4.45%, 6/12/25 |
United Kingdom | 100,000 | 107,410 | |||||||||
|
|
|
|||||||||||
| 1,878,738 | ||||||||||||
|
|
|
|||||||||||
| Health Care Equipment & Services 0.7% |
||||||||||||
| Anthem Inc., senior note, 2.95%, 12/01/22 |
United States | 100,000 | 102,425 | |||||||||
| Edwards Lifesciences Corp., senior note, 4.30%, 6/15/28 |
United States | 300,000 | 338,853 | |||||||||
| HCA Inc., senior note, 7.50%, 2/15/22 |
United States | 2,050,000 | 2,279,600 | |||||||||
|
|
|
|||||||||||
| 2,720,878 | ||||||||||||
|
|
|
|||||||||||
| Insurance 0.3% |
||||||||||||
| b Athene Global Funding, secured note, 144A, 2.75%, 6/25/24 |
United States | 1,100,000 | 1,112,870 | |||||||||
| b Jackson National Life Global Funding, |
||||||||||||
| secured note, 144A, 2.25%, 4/29/21 |
United States | 50,000 | 50,279 | |||||||||
| secured note, 144A, 2.10%, 10/25/21 |
United States | 25,000 | 25,074 | |||||||||
|
|
|
|||||||||||
| 1,188,223 | ||||||||||||
|
|
|
|||||||||||
| Materials 0.4% |
||||||||||||
| b SABIC Capital II BV, senior note, 144A, 4.50%, 10/10/28 |
Saudi Arabia | 400,000 | 444,474 | |||||||||
| b Sealed Air Corp., senior bond, 144A, 5.25%, 4/01/23 |
United States | 950,000 | 1,018,875 | |||||||||
|
|
|
|||||||||||
| 1,463,349 | ||||||||||||
|
|
|
|||||||||||
| Media & Entertainment 0.4% |
||||||||||||
| Baidu Inc., senior note, 4.375%, 5/14/24 |
China | 500,000 | 534,520 | |||||||||
| b Tencent Holdings Ltd., senior note, 144A, 2.985%, 1/19/23 |
China | 1,200,000 | 1,220,586 | |||||||||
|
|
|
|||||||||||
| 1,755,106 | ||||||||||||
|
|
|
|||||||||||
| Pharmaceuticals, Biotechnology & Life Sciences 0.3% |
||||||||||||
| Allergan Funding SCS, senior bond, 3.80%, 3/15/25 |
United States | 600,000 | 630,028 | |||||||||
| b Bayer U.S. Finance II LLC, senior note, 144A, 3.875%, 12/15/23 |
Germany | 400,000 | 419,258 | |||||||||
|
|
|
|||||||||||
| 1,049,286 | ||||||||||||
|
|
|
|||||||||||
| Real Estate 0.8% |
||||||||||||
| American Tower Corp., senior bond, 3.375%, 10/15/26 |
United States | 700,000 | 728,957 | |||||||||
| a China Overseas Finance Cayman VII Ltd., senior note, Reg S, 4.25%, 4/26/23 |
China | 2,500,000 | 2,626,875 | |||||||||
|
|
|
|||||||||||
| 3,355,832 | ||||||||||||
|
|
|
|||||||||||
| 16 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| Country | Principal Amount* |
Value | ||||||||||||||
| Corporate Bonds (continued) |
||||||||||||||||
| Retailing 0.3% |
||||||||||||||||
| Alibaba Group Holding Ltd., senior note, 2.80%, 6/06/23 |
China | 1,100,000 | $ | 1,115,136 | ||||||||||||
|
|
|
|||||||||||||||
| Semiconductors & Semiconductor Equipment 0.2% |
||||||||||||||||
| Maxim Integrated Products Inc., senior note, 3.45%, 6/15/27 |
United States | 800,000 | 823,786 | |||||||||||||
|
|
|
|||||||||||||||
| Telecommunication Services 1.2% |
||||||||||||||||
| CenturyLink Inc., senior note, Series S, 6.45%, 6/15/21 |
United States | 4,700,000 | 4,958,500 | |||||||||||||
|
|
|
|||||||||||||||
| Transportation 0.9% |
||||||||||||||||
| American Airlines Pass Through Trust, first lien, 2016-2, AA, 3.20%, 12/15/29 |
United States | 43,850 | 45,455 | |||||||||||||
| FedEx Corp., senior bond, 3.20%, 2/01/25 |
United States | 850,000 | 883,627 | |||||||||||||
| b Kazakhstan Temir Zholy Finance BV, senior bond, 144A, 6.95%, 7/10/42 |
Kazakhstan | 1,000,000 | 1,353,300 | |||||||||||||
| b Mexico City Airport Trust, senior secured bond, first lien, 144A, 5.50%, 7/31/47 |
Mexico | 400,000 | 402,770 | |||||||||||||
| a,d RZD Capital PLC, (Russian Railways), loan participation, senior bond, Reg S, 5.70%, 4/05/22 |
Russia | 1,100,000 | 1,180,459 | |||||||||||||
|
|
|
|||||||||||||||
| 3,865,611 | ||||||||||||||||
|
|
|
|||||||||||||||
| Utilities 4.6% |
||||||||||||||||
| AES Corp., senior note, 4.00%, 3/15/21 |
United States | 2,750,000 | 2,801,562 | |||||||||||||
| a CGNPC International Ltd., senior note, Reg S, 3.75%, 12/11/27 |
China | 2,100,000 | 2,229,612 | |||||||||||||
| Dominion Energy Inc., senior bond, 2.85%, 8/15/26 |
United States | 1,300,000 | 1,324,105 | |||||||||||||
| Duke Energy Indiana Inc., senior secured bond, 3.75%, 7/15/20 |
United States | 100,000 | 101,376 | |||||||||||||
| b,e EDF SA, junior sub. bond, 144A, 5.625% to 1/22/24, FRN thereafter, Perpetual |
France | 2,200,000 | 2,312,541 | |||||||||||||
| b Israel Electric Corp. Ltd., secured bond, 144A, 4.25%, 8/14/28 |
Israel | 1,400,000 | 1,527,379 | |||||||||||||
| b Korea East-West Power Co. Ltd., senior note, 144A, 3.875%, 7/19/23 |
South Korea | 1,500,000 | 1,588,380 | |||||||||||||
| The Southern Co., senior bond, 3.25%, 7/01/26 |
United States | 850,000 | 887,477 | |||||||||||||
| b State Grid Overseas Investment 2016 Ltd., senior note, 144A, 3.50%, 5/04/27 |
China | 3,500,000 | 3,702,195 | |||||||||||||
| b Three Gorges Finance I Cayman Islands Ltd., senior note, 144A, 3.70%, 6/10/25 |
China | 2,100,000 | 2,228,100 | |||||||||||||
|
|
|
|||||||||||||||
| 18,702,727 | ||||||||||||||||
|
|
|
|||||||||||||||
| Total Corporate Bonds (Cost $88,970,745) |
91,538,420 | |||||||||||||||
|
|
|
|||||||||||||||
| Foreign Government and Agency Securities 7.3% |
||||||||||||||||
| b Angolan Government International Bond, senior note, 144A, 8.25%, 5/09/28 |
Angola | 1,500,000 | 1,573,110 | |||||||||||||
| a Banque Centrale de Tunisie International Bond, senior note, Reg S, 5.625%, 2/17/24 |
Tunisia | 1,400,000 | EUR | 1,530,449 | ||||||||||||
| b Dominican Republic, senior note, 144A, 8.90%, 2/15/23 |
Dominican Republic | 8,000,000 | DOP | 151,819 | ||||||||||||
| b The Export-Import Bank of China, senior note, 144A, 3.625%, 7/31/24 |
China | 2,100,000 | 2,217,726 | |||||||||||||
| b The Export-Import Bank of India, senior note, 144A, 3.875%, 2/01/28 |
India | 3,400,000 | 3,623,623 | |||||||||||||
| The Export-Import Bank of Korea, senior note, 2.875%, 1/21/25 |
South Korea | 2,000,000 | 2,076,130 | |||||||||||||
| b Government of Belarus International Bond, senior note, 144A, 7.625%, 6/29/27 |
Belarus | 200,000 | 230,250 | |||||||||||||
| Government of Colombia, |
||||||||||||||||
| senior bond, 9.85%, 6/28/27 |
Colombia | 1,935,000,000 | COP | 719,777 | ||||||||||||
| senior bond, 5.00%, 6/15/45 |
Colombia | 1,200,000 | 1,400,712 | |||||||||||||
| franklintempleton.com | Semiannual Report | 17 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| Country | Principal Amount* |
Value | ||||||||||||||
| Foreign Government and Agency Securities (continued) |
||||||||||||||||
| b Government of Gabon, 144A, 6.375%, 12/12/24 |
Gabon | 1,600,000 | $ | 1,597,464 | ||||||||||||
| b Government of Indonesia, senior bond, 144A, 4.35%, 1/08/27 |
Indonesia | 300,000 | 327,637 | |||||||||||||
| b Government of Iraq, 144A, 5.80%, 1/15/28 |
Iraq | 1,600,000 | 1,539,144 | |||||||||||||
| b Government of Kazakhstan, senior bond, 144A, 4.875%, 10/14/44 |
Kazakhstan | 1,100,000 | 1,341,373 | |||||||||||||
| Government of Mexico, senior note, 4.15%, 3/28/27 |
Mexico | 1,600,000 | 1,715,040 | |||||||||||||
| Government of Peru, senior bond, 6.55%, 3/14/37 |
Peru | 400,000 | 585,104 | |||||||||||||
| b Government of Russia, senior note, 144A, 4.875%, 9/16/23 |
Russia | 1,000,000 | 1,094,835 | |||||||||||||
| Government of South Africa, senior bond, 7.00%, 2/28/31 |
South Africa | 11,100,000 | ZAR | 612,882 | ||||||||||||
| a,b Government of Spain, |
||||||||||||||||
| senior bond, 144A, Reg S, 1.45%, 4/30/29 |
Spain | 1,800,000 | EUR | 2,241,509 | ||||||||||||
| senior bond, 144A, Reg S, 2.70%, 10/31/48 |
Spain | 1,850,000 | EUR | 2,869,088 | ||||||||||||
| b Government of Ukraine, senior bond, 144A, 7.375%, 9/25/32 |
Ukraine | 800,000 | 838,012 | |||||||||||||
| f Government of Uruguay, senior bond, Index Linked, 3.70%, 6/26/37 |
Uruguay | 22,279,354 | UYU | 594,577 | ||||||||||||
| The Korea Development Bank, senior note, 3.375%, 3/12/23 |
South Korea | 600,000 | 624,753 | |||||||||||||
|
|
|
|||||||||||||||
| Total Foreign Government and Agency Securities |
29,505,014 | |||||||||||||||
|
|
|
|||||||||||||||
| U.S. Government and Agency Securities 3.2% |
||||||||||||||||
| f U.S. Treasury Note, |
||||||||||||||||
| Index Linked, 0.25%, 1/15/25 |
United States | 1,451,478 | 1,456,608 | |||||||||||||
| Index Linked, 0.375%, 7/15/25 |
United States | 1,298,243 | 1,318,081 | |||||||||||||
| Index Linked, 0.625%, 1/15/26 |
United States | 3,131,246 | 3,214,222 | |||||||||||||
| Index Linked, 0.125%, 7/15/26 |
United States | 2,996,911 | 2,995,662 | |||||||||||||
| Index Linked, 0.375%, 7/15/27 |
United States | 4,027,434 | 4,098,045 | |||||||||||||
|
|
|
|||||||||||||||
| Total U.S. Government and Agency Securities |
13,082,618 | |||||||||||||||
|
|
|
|||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed |
||||||||||||||||
| Banks 2.2% |
||||||||||||||||
| b,g BX Commercial Mortgage Trust, |
||||||||||||||||
| 2018-IND, A, 144A, FRN, 2.515%, 11/15/35 |
United States | 800,984 | 800,991 | |||||||||||||
| 2019-XL, A, 144A, FRN, 2.92%, 10/15/36 |
United States | 3,850,000 | 3,859,788 | |||||||||||||
| b BXP Trust, 2017-GM, A, 144A, 3.379%, 6/13/39 |
United States | 2,000,000 | 2,144,676 | |||||||||||||
| b,h DBCG Mortgage Trust, 2017-BBG, A, 144A, FRN, 2.614%, (1-month USD LIBOR + 0.70%), 6/15/34 |
United States | 1,500,000 | 1,498,919 | |||||||||||||
| b,g FREMF Mortgage Trust, 2018-K72, B, 144A, FRN, 3.992%, 12/25/50 |
United States | 450,000 | 485,396 | |||||||||||||
|
|
|
|||||||||||||||
| 8,789,770 | ||||||||||||||||
|
|
|
|||||||||||||||
| Diversified Financials 58.0% |
||||||||||||||||
| b,g,i Adagio CLO VIII DAC, VIII-A, B1, 144A, FRN, 1.65%, 4/15/32 |
Ireland | 500,000 | EUR | 557,650 | ||||||||||||
| b,h Alinea CLO Ltd., 2018-1A, B, 144A, FRN, 3.616%, (3-month USD LIBOR + 1.65%), 7/20/31 |
United States | 2,300,000 | 2,255,495 | |||||||||||||
| b,h AMMC CLO 21 Ltd., 2017-21A, C, 144A, FRN, 4.002%, (3-month USD LIBOR + 2.10%), 11/02/30 |
United States | 400,000 | 382,676 | |||||||||||||
| b,h Antares CLO Ltd., 2018-1A, B, 144A, FRN, 3.616%, (3-month USD LIBOR + 1.65%), 4/20/31 |
United States | 600,000 | 584,748 | |||||||||||||
| 18 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| Country | Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) |
||||||||||||||||
| Diversified Financials (continued) |
||||||||||||||||
| b,g Ares European CLO VIII BV, |
||||||||||||||||
| 8A, AR, 144A, FRN, 0.92%, 4/17/32 |
Netherlands | 2,600,000 | EUR | $ | 2,899,780 | |||||||||||
| 8A, BR, 144A, FRN, 1.60%, 4/17/32 |
Netherlands | 700,000 | EUR | 780,710 | ||||||||||||
| b,g ARES LII CLO Ltd., 2019-52A, D, 144A, FRN, 5.903%, 4/22/31 |
United States | 851,852 | 840,139 | |||||||||||||
| b,g,i Armada Euro CLO IV DAC, 4A, B, 144A, FRN, 1.70%, 7/15/33 |
United Kingdom | 1,700,000 | EUR | 1,896,010 | ||||||||||||
| b,g Atrium XII, 2012A, CR, 144A, FRN, 2.783%, 4/22/27 |
United States | 7,000,000 | 6,982,710 | |||||||||||||
| b,h Atrium XIII, |
||||||||||||||||
| 2013A, B, 144A, FRN, 3.434%, (3-month USD LIBOR + 1.50%), 11/21/30 |
United States | 2,000,000 | 1,977,000 | |||||||||||||
| 2013A, C, 144A, FRN, 3.734%, (3-month USD LIBOR + 1.80%), 11/21/30 |
United States | 600,000 | 572,400 | |||||||||||||
| b,g Avoca CLO XVII Designated Activity Co., 17A, B1R, 144A, FRN, 1.70%, 10/15/32 |
Ireland | 1,200,000 | EUR | 1,337,445 | ||||||||||||
| b BAMLL Commercial Mortgage Securities Trust, |
||||||||||||||||
| 2012-PARK, A, 144A, 2.959%, 12/10/30 |
United States | 100,000 | 102,924 | |||||||||||||
| 2015-200P, A, 144A, 3.218%, 4/14/33 |
United States | 600,000 | 632,208 | |||||||||||||
| Banc of America Commercial Mortgage Trust, 2015-UBS7, A4, 3.705%, 9/15/48 |
United States | 100,000 | 107,509 | |||||||||||||
| b,h Bellemeade Re Ltd., 2018-1A, M1B, 144A, FRN, 3.423%, (1-month USD LIBOR + 1.60%), 4/25/28 |
United States | 1,171,183 | 1,172,908 | |||||||||||||
| b,g,i Blackrock European CLO IX DAC, |
||||||||||||||||
| 9A, A, 144A, FRN, 0.90%, 12/15/32 |
Ireland | 3,300,000 | EUR | 3,680,490 | ||||||||||||
| 9A, B, 144A, FRN, 1.55%, 12/15/32 |
Ireland | 1,100,000 | EUR | 1,226,830 | ||||||||||||
| b,g BlueMountain CLO Ltd., |
||||||||||||||||
| 2012-2A, BR2, 144A, FRN, 3.586%, 11/20/28 |
United States | 918,083 | 913,713 | |||||||||||||
| 2012-2A, DR2, 144A, FRN, 5.036%, 11/20/28 |
United States | 2,000,000 | 1,885,500 | |||||||||||||
| b,g BlueMountain CLO XXIV Ltd., |
||||||||||||||||
| 2019-24A, A2, 144A, FRN, 3.566%, 4/20/31 |
United States | 1,562,500 | 1,558,078 | |||||||||||||
| 2019-24A, D, 144A, FRN, 5.866%, 4/20/31 |
United States | 1,000,000 | 989,720 | |||||||||||||
| b,g,i BlueMountain EUR CLO, |
||||||||||||||||
| 5A, A, 144A, FRN, 0.91%, 1/15/33 |
Ireland | 700,000 | EUR | 780,710 | ||||||||||||
| 5A, B, 144A, FRN, 1.55%, 1/15/33 |
Ireland | 250,000 | EUR | 278,825 | ||||||||||||
| b,h BlueMountain Fuji U.S. CLO II Ltd., 2017-2A, A1A, 144A, FRN, 3.166%, (3-month USD LIBOR + 1.20%), 10/20/30 |
United States | 250,000 | 250,160 | |||||||||||||
| b BRAVO Residential Funding Trust, 2019-1, A1C, 144A, 3.50%, 3/25/58 |
United States | 1,143,519 | 1,164,986 | |||||||||||||
| b,g Burnham Park CLO Ltd., |
||||||||||||||||
| 2016-1A, BR, 144A, FRN, 3.466%, 10/20/29 |
United States | 3,000,000 | 2,968,830 | |||||||||||||
| 2016-1A, CR, 144A, FRN, 4.116%, 10/20/29 |
United States | 2,000,000 | 1,942,360 | |||||||||||||
| 2016-1A, DR, 144A, FRN, 4.816%, 10/20/29 |
United States | 2,000,000 | 1,913,160 | |||||||||||||
| franklintempleton.com | Semiannual Report | 19 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| Country | Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) |
||||||||||||||||
| Diversified Financials (continued) |
||||||||||||||||
| b,g Carlyle Euro CLO DAC, 2019-2A, A2A, 144A, FRN, 1.80%, 8/15/32 |
Ireland | 2,700,000 | EUR | $ | 3,023,809 | |||||||||||
| b,g Carlyle GMS Finance MM CLO LLC, 2015-1A, A2R, 144A, FRN, 4.201%, 10/15/31 |
United States | 800,000 | 793,560 | |||||||||||||
| b,h Carlyle U.S. CLO Ltd., |
||||||||||||||||
| 2017-2A, B, 144A, FRN, 4.366%, (3-month USD LIBOR + 2.40%), 7/20/31 |
United States | 60,000 | 58,557 | |||||||||||||
| 2017-4A, B, 144A, FRN, 3.851%, (3-month USD LIBOR + 1.85%), 1/15/30 |
United States | 1,107,000 | 1,050,167 | |||||||||||||
| 2017-4A, C, 144A, FRN, 4.801%, (3-month USD LIBOR + 2.80%), 1/15/30 |
United States | 400,000 | 366,000 | |||||||||||||
| b,g CGRBS Commercial Mortgage Trust, 2013-VN05, C, 144A, FRN, 3.584%, 3/13/35 |
United States | 450,000 | 476,517 | |||||||||||||
| b,g CIM Trust, |
||||||||||||||||
| 2018-INV1, A4, 144A, FRN, 4.00%, 8/25/48 |
United States | 1,033,200 | 1,081,212 | |||||||||||||
| 2019-INV1, A1, 144A, FRN, 4.00%, 2/25/49 |
United States | 1,499,483 | 1,538,394 | |||||||||||||
| b,g Cole Park CLO Ltd., 2015-1A, BR, 144A, FRN, 3.566%, 10/20/28 |
United States | 857,143 | 851,640 | |||||||||||||
| b,g Columbia Cent CLO 27 Ltd., 2018-27A, A2A, 144A, FRN, 3.54%, 10/25/28 |
United States | 769,231 | 762,908 | |||||||||||||
| b COMM Mortgage Trust, |
||||||||||||||||
| g 2014-277P, A, 144A, FRN, 3.732%, 8/10/49 |
United States | 900,000 | 961,609 | |||||||||||||
| 2015-3BP, A, 144A, 3.178%, 2/10/35 |
United States | 600,000 | 630,326 | |||||||||||||
| g Conseco Finance Securitizations Corp., 2002-2, M1, FRN, 7.424%, 3/01/33 |
United States | 53,253 | 57,830 | |||||||||||||
| Discover Card Execution Note Trust, 2019-A3, A, 1.89%, 10/15/24 |
United States | 1,520,000 | 1,523,077 | |||||||||||||
| b,h Dorchester Park CLO Ltd., 2015-1A, CR, 144A, FRN, 3.716%, (3-month USD LIBOR + 1.75%), 4/20/28 |
United States | 1,350,000 | 1,323,513 | |||||||||||||
| b,g Dryden 38 Senior Loan Fund, 2015-38A, CR, 144A, FRN, 4.001%, 7/15/30 |
United States | 2,500,000 | 2,398,175 | |||||||||||||
| b,g Dryden 45 Senior Loan Fund, 2016-45A, CR, 144A, FRN, 4.201%, 10/15/30 |
United States | 1,250,000 | 1,230,237 | |||||||||||||
| b,h Dryden 49 Senior Loan Fund, 2017-49A, C, 144A, FRN, 4.353%, (3-month USD LIBOR + 2.35%), 7/18/30 |
United States | 60,000 | 58,529 | |||||||||||||
| b,h Dryden 64 CLO Ltd., 2018-64A, C, 144A, FRN, 3.753%, (3-month USD LIBOR + 1.75%), 4/18/31 |
United States | 750,000 | 708,803 | |||||||||||||
| b,g Dunedin Park CLO DAC, |
||||||||||||||||
| 1A, A1, 144A, FRN, 1.07%, 10/22/32 |
Ireland | 1,600,000 | EUR | 1,771,524 | ||||||||||||
| 1A, A2A, 144A, FRN, 1.75%, 10/22/32 |
Ireland | 800,000 | EUR | 884,561 | ||||||||||||
| b,g Eleven Madison Trust 2015-11MD Mortgage Trust, 2015-11MD, A, 144A, FRN, 3.673%, 9/10/35 |
United States | 2,005,000 | 2,146,360 | |||||||||||||
| b,h Ellington CLO III Ltd., 2018-3A, A1, 144A, FRN, 3.616%, (3-month USD LIBOR + 1.65%), 7/20/30 |
United States | 500,000 | 497,625 | |||||||||||||
| b,g Euro-Galaxy III CLO BV, 2013-3A, B2ER, 144A, FRN, 1.50%, 1/17/31 |
Netherlands | 250,000 | EUR | 278,335 | ||||||||||||
| b,g Euro-Galaxy V CLO BV, 2016-5A, BR, 144A, FRN, 1.60%, 11/10/30 |
Netherlands | 1,400,000 | EUR | 1,561,420 | ||||||||||||
| 20 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| Country | Principal Amount* |
Value | ||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) |
||||||||||||
| Diversified Financials (continued) |
||||||||||||
| FHLMC Structured Agency Credit Risk Debt Notes, |
||||||||||||
| h 2013-DN2, M2, FRN, 6.073%, (1-month USD LIBOR + 4.25%), 11/25/23 |
United States | 2,225,437 | $ | 2,401,973 | ||||||||
| h 2014-DN1, M2, FRN, 4.023%, (1-month USD LIBOR + 2.20%), 2/25/24 |
United States | 291,103 | 294,465 | |||||||||
| h 2014-DN2, M3, FRN, 5.423%, (1-month USD LIBOR + 3.60%), 4/25/24 |
United States | 2,645,000 | 2,794,554 | |||||||||
| h 2014-DN3, M3, FRN, 5.823%, (1-month USD LIBOR + 4.00%), 8/25/24 |
United States | 1,874,075 | 1,978,292 | |||||||||
| h 2014-DN4, M3, FRN, 6.373%, (1-month USD LIBOR + 4.55%), 10/25/24 |
United States | 1,414,597 | 1,517,402 | |||||||||
| h 2014-HQ1, M3, FRN, 5.923%, (1-month USD LIBOR + 4.10%), 8/25/24 |
United States | 839,911 | 887,810 | |||||||||
| h 2014-HQ2, M2, FRN, 4.023%, (1-month USD LIBOR + 2.20%), 9/25/24 |
United States | 282,829 | 286,460 | |||||||||
| h 2014-HQ2, M3, FRN, 5.573%, (1-month USD LIBOR + 3.75%), 9/25/24 |
United States | 2,500,000 | 2,702,093 | |||||||||
| h 2014-HQ3, M3, FRN, 6.573%, (1-month USD LIBOR + 4.75%), 10/25/24 |
United States | 215,044 | 227,831 | |||||||||
| h 2015-DN1, M3, FRN, 5.973%, (1-month USD LIBOR + 4.15%), 1/25/25 |
United States | 508,294 | 526,446 | |||||||||
| h 2015-DNA1, M2, FRN, 3.673%, (1-month USD LIBOR + 1.85%), 10/25/27 |
United States | 131,419 | 132,447 | |||||||||
| h 2015-DNA1, M3, FRN, 5.123%, (1-month USD LIBOR + 3.30%), 10/25/27 |
United States | 2,000,000 | 2,127,844 | |||||||||
| h 2015-DNA2, M2, FRN, 4.423%, (1-month USD LIBOR + 2.60%), 12/25/27 |
United States | 46,357 | 46,549 | |||||||||
| h 2015-DNA3, M2, FRN, 4.673%, (1-month USD LIBOR + 2.85%), 4/25/28 |
United States | 256,761 | 259,601 | |||||||||
| h 2015-DNA3, M3, FRN, 6.523%, (1-month USD LIBOR + 4.70%), 4/25/28 |
United States | 2,500,000 | 2,759,254 | |||||||||
| h 2015-HQ1, M3, FRN, 5.623%, (1-month USD LIBOR + 3.80%), 3/25/25 |
United States | 415,630 | 427,137 | |||||||||
| h 2015-HQ2, M3, FRN, 5.073%, (1-month USD LIBOR + 3.25%), 5/25/25 |
United States | 1,500,000 | 1,568,548 | |||||||||
| h 2015-HQA2, M2, FRN, 4.623%, (1-month USD LIBOR + 2.80%), 5/25/28 |
United States | 128,978 | 129,736 | |||||||||
| h 2015-HQA2, M3, FRN, 6.623%, (1-month USD LIBOR + 4.80%), 5/25/28 |
United States | 2,000,000 | 2,140,135 | |||||||||
| h 2016-DNA1, M3, FRN, 7.373%, (1-month USD LIBOR + 5.55%), 7/25/28 |
United States | 1,550,000 | 1,710,575 | |||||||||
| h 2016-DNA2, M3, FRN, 6.473%, (1-month USD LIBOR + 4.65%), 10/25/28 |
United States | 3,552,363 | 3,810,686 | |||||||||
| h 2016-DNA3, M2, FRN, 3.823%, (1-month USD LIBOR + 2.00%), 12/25/28 |
United States | 105,012 | 105,312 | |||||||||
| h 2016-HQA2, M2, FRN, 4.073%, (1-month USD LIBOR + 2.25%), 11/25/28 |
United States | 213,857 | 214,956 | |||||||||
| h 2016-HQA2, M3, FRN, 6.973%, (1-month USD LIBOR + 5.15%), 11/25/28 |
United States | 2,000,000 | 2,195,025 | |||||||||
| franklintempleton.com | Semiannual Report | 21 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| Country | Principal Amount* |
Value | ||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) |
||||||||||||
| Diversified Financials (continued) |
||||||||||||
| FHLMC Structured Agency Credit Risk Debt Notes, (continued) |
||||||||||||
| h 2016-HQA3, M2, FRN, 3.173%, (1-month USD LIBOR + 1.35%), 3/25/29 |
United States | 1,670,561 | $ | 1,673,977 | ||||||||
| h 2016-HQA4, M2, FRN, 3.123%, (1-month USD LIBOR + 1.30%), 4/25/29 |
United States | 513,413 | 515,217 | |||||||||
| g 2017-DNA1, M2, FRN, 5.073%, 7/25/29 |
United States | 2,900,000 | 3,043,170 | |||||||||
| g 2017-DNA2, M2, FRN, 5.273%, 10/25/29 |
United States | 3,000,000 | 3,188,891 | |||||||||
| h 2017-DNA3, M2, FRN, 4.323%, (1-month USD LIBOR + 2.50%), 3/25/30 |
United States | 2,000,000 | 2,042,274 | |||||||||
| g 2017-HQA1, M2, FRN, 5.373%, 8/25/29 |
United States | 2,350,000 | 2,463,930 | |||||||||
| g 2017-HQA3, M2, FRN, 4.173%, 4/25/30 |
United States | 250,000 | 253,534 | |||||||||
| b,h Flagship CLO VIII Ltd., 2014-8A, CRR, 144A, FRN, 3.801%, (3-month USD LIBOR + 1.80%), 1/16/26 |
United States | 1,400,000 | 1,375,654 | |||||||||
| b,g Flagstar Mortgage Trust, 2018-6RR, 1A3, 144A, FRN, 4.00%, 10/25/48 |
United States | 1,011,232 | 1,037,845 | |||||||||
| FNMA Connecticut Avenue Securities, |
||||||||||||
| h 2013-C01, M2, FRN, 7.073%, (1-month USD LIBOR + 5.25%), 10/25/23 |
United States | 2,643,970 | 2,914,803 | |||||||||
| h 2014-C01, M2, FRN, 6.223%, (1-month USD LIBOR + 4.40%), 1/25/24 |
United States | 3,231,873 | 3,508,175 | |||||||||
| h 2014-C02, 1M2, FRN, 4.423%, (1-month USD LIBOR + 2.60%), 5/25/24 |
United States | 1,724,540 | 1,794,222 | |||||||||
| h 2014-C02, 2M2, FRN, 4.423%, (1-month USD LIBOR + 2.60%), 5/25/24 |
United States | 2,360,033 | 2,441,784 | |||||||||
| h 2014-C03, 1M2, FRN, 4.823%, (1-month USD LIBOR + 3.00%), 7/25/24 |
United States | 1,148,765 | 1,207,175 | |||||||||
| h 2014-C03, 2M2, FRN, 4.723%, (1-month USD LIBOR + 2.90%), 7/25/24 |
United States | 2,193,739 | 2,281,536 | |||||||||
| h 2014-C04, 1M1, FRN, 6.723%, (1-month USD LIBOR + 4.90%), 11/25/24 |
United States | 2,696,277 | 2,939,353 | |||||||||
| h 2014-C04, 2M2, FRN, 6.823%, (1-month USD LIBOR + 5.00%), 11/25/24 |
United States | 401,846 | 428,680 | |||||||||
| h 2015-C01, 1M2, FRN, 6.123%, (1-month USD LIBOR + 4.30%), 2/25/25 |
United States | 26,868 | 28,462 | |||||||||
| h 2015-C01, 2M2, FRN, 6.373%, (1-month USD LIBOR + 4.55%), 2/25/25 |
United States | 97,184 | 100,524 | |||||||||
| h 2015-C02, 1M2, FRN, 5.823%, (1-month USD LIBOR + 4.00%), 5/25/25 |
United States | 395,328 | 417,207 | |||||||||
| h 2015-C02, 2M2, FRN, 5.823%, (1-month USD LIBOR + 4.00%), 5/25/25 |
United States | 112,564 | 117,121 | |||||||||
| h 2015-C03, 1M2, FRN, 6.823%, (1-month USD LIBOR + 5.00%), 7/25/25 |
United States | 2,336,814 | 2,524,556 | |||||||||
| h 2015-C03, 2M2, FRN, 6.823%, (1-month USD LIBOR + 5.00%), 7/25/25 |
United States | 565,444 | 601,503 | |||||||||
| h 2016-C01, 1M2, FRN, 8.573%, (1-month USD LIBOR + 6.75%), 8/25/28 |
United States | 2,285,044 | 2,529,857 | |||||||||
| g 2016-C02, 1M2, FRN, 7.823%, 9/25/28 |
United States | 216,868 | 236,716 | |||||||||
| g 2016-C04, 1M2, FRN, 6.073%, 1/25/29 |
United States | 2,000,000 | 2,113,697 | |||||||||
| g 2016-C05, 2M2, FRN, 6.273%, 1/25/29 |
United States | 1,647,106 | 1,735,033 | |||||||||
| g 2016-C06, 1M2, FRN, 6.073%, 4/25/29 |
United States | 460,000 | 489,562 | |||||||||
| 22 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| Country | Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed |
||||||||||||||||
| Diversified Financials (continued) |
||||||||||||||||
| FNMA Connecticut Avenue Securities, (continued) |
||||||||||||||||
| g 2016-C07, 2M2, FRN, 6.173%, 5/25/29 |
United States | 1,081,288 | $ | 1,136,317 | ||||||||||||
| h 2017-C01, 1B1, FRN, 7.573%, (1-month USD LIBOR + 5.75%), 7/25/29 |
United States | 33,000 | 38,824 | |||||||||||||
| h 2017-C01, 1M2, FRN, 5.373%, (1-month USD LIBOR + 3.55%), 7/25/29 |
United States | 890,000 | 932,664 | |||||||||||||
| g 2017-C02, 2M2, FRN, 5.473%, 9/25/29 |
United States | 3,060,000 | 3,211,871 | |||||||||||||
| g 2017-C03, 1M2, FRN, 4.823%, 10/25/29 |
United States | 2,780,000 | 2,895,937 | |||||||||||||
| g 2017-C03, 2M2, FRN, 4.673%, 11/25/29 |
United States | 570,000 | 586,809 | |||||||||||||
| g 2017-C06, 1M2, FRN, 4.473%, 2/25/30 |
United States | 390,000 | 398,605 | |||||||||||||
| g 2017-C07, 1M1, FRN, 2.473%, 5/25/30 |
United States | 949,454 | 950,000 | |||||||||||||
| h 2018-C04, 2M1, FRN, 2.573%, (1-month USD LIBOR + 0.75%), 12/25/30 |
United States | 335,226 | 335,396 | |||||||||||||
| b,h Gilbert Park CLO Ltd., 2017-1A, B, 144A, FRN, 3.601%, (3-month USD LIBOR + 1.60%), 10/15/30 |
United States | 3,000,000 | 2,976,630 | |||||||||||||
| GS Mortgage Securities Trust, |
||||||||||||||||
| 2016-GS3, A4, 2.85%, 10/10/49 |
United States | 600,000 | 620,051 | |||||||||||||
| 2017-GS6, A3, 3.433%, 5/10/50 |
United States | 2,000,000 | 2,145,313 | |||||||||||||
| b,g J.P. Morgan Chase Commercial Mortgage Securities Trust, 2016-NINE, A, 144A, FRN, 2.949%, 9/06/38 |
United States | 600,000 | 619,746 | |||||||||||||
| JPMBB Commercial Mortgage Securities Trust, |
||||||||||||||||
| 2015-C30, A5, 3.822%, 7/15/48 |
United States | 1,500,000 | 1,626,467 | |||||||||||||
| g 2015-C30, AS, FRN, 4.226%, 7/15/48 |
United States | 450,000 | 489,307 | |||||||||||||
| 2016-C1, A5, 3.576%, 3/15/49 |
United States | 1,500,000 | 1,611,777 | |||||||||||||
| g,j JPMDB Commercial Mortgage Securities Trust, 2017-C5, XA, IO, FRN, 0.94%, 3/15/50 |
United States | 188,645 | 10,550 | |||||||||||||
| b,g LCM XXII Ltd., 22A, A2R, 144A, FRN, 3.416%, 10/20/28 |
United States | 3,500,000 | 3,431,190 | |||||||||||||
| b,h Long Point Park CLO Ltd., |
||||||||||||||||
| 2017-1A, A2, 144A, FRN, 3.377%, (3-month USD LIBOR + 1.375%), 1/17/30 |
United States | 1,000,000 | 975,300 | |||||||||||||
| 2017-1A, B, 144A, FRN, 3.702%, (3-month USD LIBOR + 1.70%), 1/17/30 |
United States | 1,000,000 | 954,350 | |||||||||||||
| b,g Madison Park Euro Funding XIV DAC, 2014A, A1N, 144A, FRN, 1.12%, 7/15/32 |
Ireland | 3,800,000 | EUR | 4,256,483 | ||||||||||||
| b,g Madison Park Funding XIV Ltd., |
||||||||||||||||
| 2014-14A, BRR, 144A, FRN, 3.653%, 10/22/30 |
United States | 1,500,000 | 1,489,485 | |||||||||||||
| 2014-14A, CRR, 144A, FRN, 4.153%, 10/22/30 |
United States | 562,500 | 552,735 | |||||||||||||
| b,g Madison Park Funding XXIX Ltd., 2018-29A, A2, 144A, FRN, 3.453%, 10/18/30 |
United States | 1,468,182 | 1,452,311 | |||||||||||||
| b,h Madison Park Funding XXVI Ltd., 2017-26A, AR, 144A, FRN, 3.128%, (3-month USD LIBOR + 1.20%), 7/29/30 |
United States | 2,500,000 | 2,495,525 | |||||||||||||
| b,g Madison Park Funding XXXI Ltd., |
||||||||||||||||
| 2018-31A, A2A, 144A, FRN, 3.434%, 1/23/31 |
United States | 750,000 | 744,900 | |||||||||||||
| 2018-31A, B, 144A, FRN, 3.634%, 1/23/31 |
United States | 3,000,000 | 2,979,660 | |||||||||||||
| 2018-31A, C, 144A, FRN, 4.084%, 1/23/31 |
United States | 1,950,000 | 1,908,601 | |||||||||||||
| franklintempleton.com | Semiannual Report | 23 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| Country | Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed |
||||||||||||||||
| Diversified Financials (continued) |
||||||||||||||||
| b,g Mill City Mortgage Loan Trust, |
||||||||||||||||
| 2017-1, A1, 144A, FRN, 2.75%, 11/25/58 |
United States | 989,496 | $ | 998,069 | ||||||||||||
| 2018-1, A1, 144A, FRN, 3.25%, 5/25/62 |
United States | 2,584,677 | 2,652,087 | |||||||||||||
| 2018-4, A1B, 144A, FRN, 3.50%, 4/25/66 |
United States | 1,660,000 | 1,713,352 | |||||||||||||
| b Morgan Stanley Capital I Trust, 2014-150E, A, 144A, 3.912%, 9/09/32 |
United States | 450,000 | 481,781 | |||||||||||||
| b Neuberger Berman Loan Advisers CLO Ltd., |
||||||||||||||||
| h 2017-26A, B, 144A, FRN, 3.503%, (3-month USD LIBOR + 1.50%), 10/18/30 |
United States | 539,475 | 529,096 | |||||||||||||
| g 2019-32A, B, 144A, FRN, 3.816%, 1/19/32 |
United States | 2,800,000 | 2,792,972 | |||||||||||||
| b,h Octagon Investment Partners 33 Ltd., |
||||||||||||||||
| 2017-1A, A2, 144A, FRN, 3.466%, (3-month USD LIBOR + 1.50%), 1/20/31 |
United States | 2,000,000 | 1,963,980 | |||||||||||||
| 2017-1A, B, 144A, FRN, 3.816%, (3-month USD LIBOR + 1.85%), 1/20/31 |
United States | 500,000 | 477,280 | |||||||||||||
| 2017-1A, C, 144A, FRN, 4.716%, (3-month USD LIBOR + 2.75%), 1/20/31 |
United States | 250,000 | 230,863 | |||||||||||||
| b,h Octagon Investment Partners XXIII Ltd., |
||||||||||||||||
| 2015-1A, BR, 144A, FRN, 3.201%, (3-month USD LIBOR + 1.20%), 7/15/27 |
United States | 1,200,000 | 1,179,936 | |||||||||||||
| 2015-1A, CR, 144A, FRN, 3.851%, (3-month USD LIBOR + 1.85%), 7/15/27 |
United States | 2,000,000 | 1,970,580 | |||||||||||||
| 2015-1A, DR, 144A, FRN, 4.551%, (3-month USD LIBOR + 2.55%), 7/15/27 |
United States | 300,000 | 292,137 | |||||||||||||
| b Progress Residential Trust, 2018-SFR2, A, 144A, 3.712%, 8/17/35 |
United States | 290,000 | 296,536 | |||||||||||||
| b,h Radnor RE Ltd., 2018-1, M1, 144A, FRN, 3.223%, (1-month USD LIBOR + 1.40%), 3/25/28 |
United States | 395,198 | 395,286 | |||||||||||||
| b,g Sequoia Mortgage Trust, 2016-2, A4, 144A, FRN, 3.50%, 8/25/46 |
United States | 1,683,240 | 1,720,829 | |||||||||||||
| b,g Sound Point Euro CLO II Funding DAC, |
||||||||||||||||
| 2A, A, 144A, FRN, 1.11%, 10/26/32 |
Ireland | 1,600,000 | EUR | 1,788,842 | ||||||||||||
| 2A, B1, 144A, FRN, 1.85%, 10/26/32 |
Ireland | 850,000 | EUR | 946,512 | ||||||||||||
| b TCI-Flatiron CLO Ltd., |
||||||||||||||||
| g 2017-1A, A, 144A, FRN, 3.324%, 11/18/30 |
United States | 2,000,000 | 1,995,860 | |||||||||||||
| h 2017-1A, B, 144A, FRN, 3.684%, (3-month USD LIBOR + 1.56%), 11/18/30 |
United States | 2,000,000 | 1,953,120 | |||||||||||||
| h 2017-1A, C, 144A, FRN, 3.974%, (3-month USD LIBOR + 1.85%), 11/18/30 |
United States | 1,200,000 | 1,133,880 | |||||||||||||
| g Thornburg Mortgage Securities Trust, 2005-1, A3, FRN, 4.578%, 4/25/45 |
United States | 17,416 | 17,594 | |||||||||||||
| b Towd Point Mortgage Trust, |
||||||||||||||||
| 2015-1, AE, 144A, 3.00%, 10/25/53 |
United States | 406,715 | 409,624 | |||||||||||||
| g 2015-2, 2A1, 144A, FRN, 3.75%, 11/25/57 |
United States | 220,329 | 222,715 | |||||||||||||
| g 2016-3, A1, 144A, FRN, 2.25%, 4/25/56 |
United States | 1,425,715 | 1,426,164 | |||||||||||||
| g 2016-4, A1, 144A, FRN, 2.25%, 7/25/56 |
United States | 930,848 | 931,595 | |||||||||||||
| g 2016-5, A1, 144A, FRN, 2.50%, 10/25/56 |
United States | 363,745 | 366,099 | |||||||||||||
| g 2017-1, A1, 144A, FRN, 2.75%, 10/25/56 |
United States | 1,144,229 | 1,161,063 | |||||||||||||
| g 2017-2, A1, 144A, FRN, 2.75%, 4/25/57 |
United States | 1,094,503 | 1,106,016 | |||||||||||||
| g 2017-4, A1, 144A, FRN, 2.75%, 6/25/57 |
United States | 1,986,734 | 2,015,812 | |||||||||||||
| h 2017-5, A1, 144A, FRN, 2.423%, (1-month USD LIBOR + 0.60%), 2/25/57 |
United States | 109,906 | 109,925 | |||||||||||||
| 24 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| Country | Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed |
||||||||||||||||
| Diversified Financials (continued) |
||||||||||||||||
| b Towd Point Mortgage Trust, (continued) g 2018-1, A1, 144A, FRN, 3.00%, 1/25/58 |
United States | 508,383 | $ | 517,450 | ||||||||||||
| g 2018-2, A1, 144A, FRN, 3.25%, 3/25/58 |
United States | 250,557 | 257,147 | |||||||||||||
| g 2018-4, A1, 144A, FRN, 3.00%, 6/25/58 |
United States | 1,759,249 | 1,817,897 | |||||||||||||
| g 2018-5, A1A, 144A, FRN, 3.25%, 7/25/58 |
United States | 549,286 | 565,501 | |||||||||||||
| g 2019-1, A1, 144A, FRN, 3.75%, 3/25/58 |
United States | 2,302,716 | 2,434,142 | |||||||||||||
| b,h Voya CLO Ltd., |
||||||||||||||||
| 2013-2A, A1R, 144A, FRN, 2.91%, (3-month USD LIBOR + 0.97%), 4/25/31 |
United States | 7,300,000 | 7,227,876 | |||||||||||||
| 2014-1A, BR2, 144A, FRN, 3.903%, (3-month USD LIBOR + 1.90%), 4/18/31 |
United States | 2,750,000 | 2,653,805 | |||||||||||||
| b,g Wells Fargo Mortgage Backed Securities, 2018-1, A3, 144A, FRN, 3.50%, 7/25/47 |
United States | 781,909 | 796,665 | |||||||||||||
| b,h West CLO Ltd., 2014-1A, A2R, 144A, FRN, 3.353%, (3-month USD LIBOR + 1.35%), 7/18/26 |
United States | 170,000 | 169,638 | |||||||||||||
|
|
|
|||||||||||||||
| 235,466,481 | ||||||||||||||||
|
|
|
|||||||||||||||
| Real Estate 0.2% |
||||||||||||||||
| b American Homes 4 Rent, 2014-SFR3, A, 144A, 3.678%, 12/17/36 |
United States | 740,115 | 779,827 | |||||||||||||
|
|
|
|||||||||||||||
| Total Asset-Backed Securities and Commercial Mortgage-Backed Securities (Cost $247,624,963) |
245,036,078 | |||||||||||||||
|
|
|
|||||||||||||||
| Mortgage-Backed Securities 8.1% |
||||||||||||||||
| Federal Home Loan Mortgage Corp. (FHLMC) Fixed Rate 4.1% |
||||||||||||||||
| k FHLMC 15 Year, 2.50%, 10/01/34 |
United States | 8,130,000 | 8,218,287 | |||||||||||||
| k FHLMC 30 Year, 3.00%, 11/01/49 |
United States | 8,100,000 | 8,231,625 | |||||||||||||
|
|
|
|||||||||||||||
| 16,449,912 | ||||||||||||||||
|
|
|
|||||||||||||||
| Government National Mortgage Association (GNMA) Fixed Rate 4.0% |
||||||||||||||||
| k GNMA II SF 30 Year, 3.50%, 10/01/49 |
United States | 15,680,000 | 16,271,675 | |||||||||||||
|
|
|
|||||||||||||||
| Total Mortgage-Backed Securities (Cost $32,706,582) |
32,721,587 | |||||||||||||||
|
|
|
|||||||||||||||
| Municipal Bonds 0.2% |
||||||||||||||||
| Cincinnati GO, Various Purpose, Improvement and Refunding, Series A, 5.00%, 12/01/25 |
United States | 100,000 | 119,949 | |||||||||||||
| Citizens Property Insurance Corp. Revenue, Coastal Account, senior secured, Series A-1, 5.00%, 6/01/22 |
United States | 125,000 | 134,655 | |||||||||||||
| Colorado State Board of Governors University Enterprise System |
||||||||||||||||
| Revenue, Green Bonds, Series E-2, 5.00%, 3/01/25 |
United States | 100,000 | 119,225 | |||||||||||||
| Orlando Health Obligated Group, 3.777%, 10/01/28 |
United States | 105,000 | 113,662 | |||||||||||||
| Providence St. Joseph Health Obligated Group, 2.746%, 10/01/26 |
United States | 15,000 | 15,367 | |||||||||||||
| San Jose RDA Successor Agency Tax Allocation, Senior, Refunding, Series A-T, 3.226%, 8/01/27 |
United States | 190,000 | 203,302 | |||||||||||||
| Teays Valley Local School District GO, Pickaway Fairfield and Franklin Counties, Refunding, 4.00%, 12/01/26 |
United States | 100,000 | 109,759 | |||||||||||||
| Texas State GO, Transportation Commission Highway Improvement, Series A, 5.00%, 4/01/21 |
United States | 5,000 | 5,272 | |||||||||||||
|
|
|
|||||||||||||||
| Total Municipal Bonds (Cost $774,687) |
821,191 | |||||||||||||||
|
|
|
|||||||||||||||
| franklintempleton.com | Semiannual Report | 25 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| Number of Contracts |
Notional Amount* |
Value | ||||||||||
| Options Purchased 0.0%† |
||||||||||||
| Puts - Over-the-Counter |
||||||||||||
| Credit Default Swaptions 0.0%† |
||||||||||||
| Buy Protection on CDX.NA.HY.32, Counterparty GSCO, Premium Rate 5.00%, December Strike Price $106.00, Expires 12/18/19 |
1 | 3,712,500 | $ | 14,590 | ||||||||
| Buy Protection on CDX.NA.IG.32, Counterparty BZWS, Premium Rate 1.00%, November Strike Price $60.00, Expires 11/20/19 |
1 | 11,250,000 | 1,733 | |||||||||
|
|
|
|||||||||||
| Total Options Purchased (Cost $64,305) |
16,323 | |||||||||||
|
|
|
|||||||||||
| Total Investments before Short Term Investments |
412,721,231 | |||||||||||
|
|
|
|||||||||||
| Country | Shares | |||||||||||
| Short Term Investments (Cost $24,386,858) 6.0% |
||||||||||||
| Money Market Funds 6.0% |
||||||||||||
| l,m Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
United States | 24,386,858 | 24,386,858 | |||||||||
|
|
|
|||||||||||
| Total Investments (Cost $436,048,783) 107.7% |
437,108,089 | |||||||||||
| Options Written (0.0)%† |
(3,465 | ) | ||||||||||
| Other Assets, less Liabilities (7.7)% |
(31,177,874 | ) | ||||||||||
|
|
|
|||||||||||
| Net Assets 100.0% |
$ | 405,926,750 | ||||||||||
|
|
|
|||||||||||
| Number of Contracts |
Notional Amount* |
|||||||||||
| n Options Written (0.0)%† |
||||||||||||
| Puts - Over-the-Counter |
||||||||||||
| Credit Default Swaptions (0.0)%† |
||||||||||||
| Buy Protection on CDX.NA.HY.32, Counterparty GSCO, Premium Rate 5.00%, December Strike Price $102.50, Expires 12/18/19 |
1 | 3,712,500 | (3,364) | |||||||||
| Buy Protection on CDX.NA.IG.32, Counterparty BZWS, Premium Rate 1.00%, November Strike Price $80.00, Expires 11/20/19 |
1 | 11,250,000 | (101) | |||||||||
|
|
|
|||||||||||
| Total Options Written (Premiums received $22,815) |
$ | (3,465) | ||||||||||
|
|
|
|||||||||||
| 26 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
†Rounds to less than 0.1% of net assets.
*The principal/notional amount is stated in U.S. dollars unless otherwise indicated.
aSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. At October 31, 2019, the aggregate value of these securities was $29,352,143, representing 7.2% of net assets.
bSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. At October 31, 2019, the aggregate value of these securities was $201,707,949, representing 49.7% of net assets.
cThe coupon rate shown represents the rate at period end.
dSee Note 1(e) regarding loan participation notes.
ePerpetual security with no stated maturity date.
fPrincipal amount of security is adjusted for inflation. See Note 1(h).
gAdjustable rate security with an interest rate that is not based on a published reference index and spread. The rate is based on the structure of the agreement and current market conditions. The coupon rate shown represents the rate at period end.
hThe coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
iSecurity purchased on a when-issued basis. See Note 1(c).
jInvestment in an interest-only security entitles holders to receive only the interest payment on the underlying instruments. The principal amount shown is the notional amount of the underlying instruments.
kSecurity purchased on a to-be-announced (TBA) basis. See Note 1(c).
lSee Note 3(f) regarding investments in affiliated management investment companies.
mThe rate shown is the annualized seven-day effective yield at period end.
nSee Note 1(d) regarding written options.
At October 31, 2019, the Fund had the following futures contracts outstanding. See Note 1(d).
Futures Contracts
| Description | Type | Number of Contracts |
Notional Amount* |
Expiration Date |
Value/ Unrealized Appreciation (Depreciation) |
|||||||||||||||
| Interest Rate Contracts |
||||||||||||||||||||
| Australian 3 Yr. Bond |
Long | 368 | $ | 29,270,834 | 12/16/19 | $ 44,518 | ||||||||||||||
| Australian 10 Yr. Bond |
Long | 125 | 12,565,999 | 12/16/19 | (152 | ) | ||||||||||||||
| Canadian 10 Yr. Bond |
Long | 185 | 19,960,046 | 12/18/19 | (499,303 | ) | ||||||||||||||
| CME Ultra Long Term U.S. Treasury Bond |
Short | 4 | 759,000 | 12/19/19 | (21,131 | ) | ||||||||||||||
| Euro-BOBL |
Short | 40 | 6,005,668 | 12/06/19 | 68,669 | |||||||||||||||
| Euro-Bund |
Short | 5 | 957,820 | 12/06/19 | 15,052 | |||||||||||||||
| U.S. Treasury 2 Yr. Note |
Short | 64 | 13,798,500 | 12/31/19 | 43,922 | |||||||||||||||
| U.S. Treasury 5 Yr. Note |
Short | 302 | 35,999,344 | 12/31/19 | 275,023 | |||||||||||||||
| U.S. Treasury 10 Yr. Note |
Short | 122 | 15,896,219 | 12/19/19 | 182,333 | |||||||||||||||
| U.S. Treasury 30 Yr. Bond |
Short | 45 | 7,261,875 | 12/19/19 | 196,811 | |||||||||||||||
| Ultra 10 Yr. U.S. Treasury Note |
Short | 103 | 14,637,265 | 12/19/19 | 211,034 | |||||||||||||||
|
|
|
|||||||||||||||||||
| Total Futures Contracts |
$ 516,776 | |||||||||||||||||||
|
|
|
|||||||||||||||||||
*As of period end.
| franklintempleton.com | Semiannual Report | 27 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
At October 31, 2019, the Fund had the following forward exchange contracts outstanding. See Note 1(d).
Forward Exchange Contracts
| Currency | Counterpartya | Type | Quantity | Contract Amount |
Settlement Date |
Unrealized Appreciation |
Unrealized Depreciation |
|||||||||||||||||||||
| OTC Forward Exchange Contracts |
|
|||||||||||||||||||||||||||
| Euro |
JPHQ | Sell | 300,000 | $ | 338,631 | 11/12/19 | $ | 3,782 | $ | — | ||||||||||||||||||
| British Pound |
JPHQ | Sell | 86,300 | 104,535 | 11/13/19 | — | (7,307 | ) | ||||||||||||||||||||
| Indonesian Rupiah |
JPHQ | Buy | 16,736,500,000 | 1,156,235 | 11/21/19 | 30,724 | — | |||||||||||||||||||||
| South Korean Won |
JPHQ | Sell | 1,000,000,000 | 825,941 | 11/21/19 | — | (29,070 | ) | ||||||||||||||||||||
| Euro |
DBAB | Buy | 100,000 | 117,270 | 12/13/19 | — | (5,397 | ) | ||||||||||||||||||||
| Euro |
DBAB | Sell | 800,000 | 934,000 | 12/13/19 | 39,015 | — | |||||||||||||||||||||
| Australian Dollar |
JPHQ | Sell | 6,400,000 | 4,318,624 | 1/09/20 | — | (102,003 | ) | ||||||||||||||||||||
| Australian Dollar |
JPHQ | Sell | 1,500,000 | 1,022,625 | 1/28/20 | — | (13,853 | ) | ||||||||||||||||||||
| Japanese Yen |
JPHQ | Buy | 670,700,000 | 6,348,436 | 1/29/20 | — | (99,037 | ) | ||||||||||||||||||||
| Canadian Dollar |
JPHQ | Sell | 1,600,000 | 1,205,573 | 1/30/20 | — | (10,327 | ) | ||||||||||||||||||||
| Danish Krone |
JPHQ | Sell | 20,016,977 | 3,017,092 | 1/30/20 | 7,359 | — | |||||||||||||||||||||
| Euro |
JPHQ | Sell | 8,242,501 | 9,304,525 | 1/30/20 | 52,586 | — | |||||||||||||||||||||
| Mexican Peso |
JPHQ | Buy | 25,008,000 | 1,237,928 | 1/30/20 | 43,834 | — | |||||||||||||||||||||
| Mexican Peso |
JPHQ | Sell | 25,008,000 | 1,288,176 | 1/30/20 | 6,414 | — | |||||||||||||||||||||
| Norwegian Krone |
JPHQ | Buy | 18,300,000 | 2,029,784 | 1/30/20 | — | (38,863 | ) | ||||||||||||||||||||
| Chinese Yuan Renminbi |
JPHQ | Sell | 27,800,000 | 3,906,069 | 2/24/20 | — | (26,014 | ) | ||||||||||||||||||||
| Japanese Yen |
JPHQ | Buy | 48,000,000 | 445,162 | 3/13/20 | 3,247 | — | |||||||||||||||||||||
| Japanese Yen |
JPHQ | Buy | 108,500,000 | 1,020,855 | 3/13/20 | — | (7,264 | ) | ||||||||||||||||||||
| Canadian Dollar |
JPHQ | Sell | 3,770,000 | 2,851,265 | 3/16/20 | — | (13,664 | ) | ||||||||||||||||||||
| Euro |
DBAB | Sell | 120,000 | 134,526 | 3/16/20 | — | (541 | ) | ||||||||||||||||||||
| Euro |
JPHQ | Sell | 8,820,429 | 9,863,623 | 3/16/20 | — | (64,297 | ) | ||||||||||||||||||||
| Norwegian Krone |
JPHQ | Buy | 26,600,000 | 2,970,407 | 3/16/20 | — | (76,834 | ) | ||||||||||||||||||||
| Swedish Krona |
JPHQ | Buy | 19,350,000 | 1,974,198 | 3/16/20 | 44,166 | — | |||||||||||||||||||||
| Swedish Krona |
JPHQ | Sell | 19,350,000 | 2,034,401 | 3/16/20 | 16,037 | — | |||||||||||||||||||||
| Turkish Lira |
JPHQ | Buy | 2,600,000 | 412,273 | 4/15/20 | 23,056 | — | |||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Total Forward Exchange Contracts |
$ | 270,220 | $ | (494,471 | ) | |||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Net unrealized appreciation (depreciation) |
|
$ | (224,251 | ) | ||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
At October 31, 2019, the Fund had the following credit default swap contracts outstanding. See Note 1(d).
Credit Default Swap Contracts
| Description | Periodic Payment Rate Received (Paid) |
Payment Frequency |
Counter- party |
Maturity Date |
Notional Amounta |
Value | Unamortized Upfront Payments (Receipts) |
Unrealized Appreciation (Depreciation) |
Ratingb | |||||||||||||||||||||||||||
| OTC Swap Contracts |
||||||||||||||||||||||||||||||||||||
| Contracts to Buy Protectionc |
||||||||||||||||||||||||||||||||||||
| Single Name |
||||||||||||||||||||||||||||||||||||
| The AES Corp. |
(5.00)% | Quarterly | CITI | 3/20/21 | $ | 2,750,000 | $ | (199,068 | ) | $ | (163,219 | ) | $ | (35,849 | ) | |||||||||||||||||||||
| Ally Financial Inc. |
(5.00)% | Quarterly | JPHQ | 12/20/24 | 2,600,000 | (534,960 | ) | (499,474 | ) | (35,486 | ) | |||||||||||||||||||||||||
| American Airlines Group Inc. |
(5.00)% | Quarterly | BZWS | 12/20/19 | 400,000 | (4,916 | ) | (2,283 | ) | (2,633 | ) | |||||||||||||||||||||||||
| American Airlines Group Inc. |
(5.00)% | Quarterly | CITI | 12/20/19 | 130,000 | (1,598 | ) | (733 | ) | (865 | ) | |||||||||||||||||||||||||
| 28 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
Credit Default Swap Contracts (continued)
| Description | Periodic Payment Rate Received (Paid) |
Payment Frequency |
Counter- party |
Maturity Date |
Notional Amounta |
Value | Unamortized Upfront Payments (Receipts) |
Unrealized Appreciation (Depreciation) |
Ratingb | |||||||||||||||||||||||||||
| OTC Swap Contracts (continued) |
||||||||||||||||||||||||||||||||||||
| Contracts to Buy Protectionc (continued) |
|
|||||||||||||||||||||||||||||||||||
| Single Name (continued) |
||||||||||||||||||||||||||||||||||||
| Boyd Gaming Corp. |
(5.00)% | Quarterly | BZWS | 6/20/22 | $ | 525,000 | $ | (67,519 | ) | $ | (52,231 | ) | $ | (15,288 | ) | |||||||||||||||||||||
| Centurylink Inc. |
(5.00)% | Quarterly | BZWS | 6/20/21 | 4,700,000 | (361,614 | ) | (182,308 | ) | (179,306 | ) | |||||||||||||||||||||||||
| Energy Transfer LP |
(5.00)% | Quarterly | MSCO | 12/20/20 | 750,000 | (45,652 | ) | (35,954 | ) | (9,698 | ) | |||||||||||||||||||||||||
| Government of Italy |
(1.00)% | Quarterly | BZWS | 6/20/23 | 700,000 | (10,810 | ) | 5,546 | (16,356 | ) | ||||||||||||||||||||||||||
| Government of Turkey |
(1.00)% | Quarterly | BZWS | 12/20/19 | 166,667 | (288 | ) | 1,066 | (1,354 | ) | ||||||||||||||||||||||||||
| HCA Inc. |
(5.00)% | Quarterly | FBCO | 3/20/22 | 2,050,000 | (243,938 | ) | (179,121 | ) | (64,817 | ) | |||||||||||||||||||||||||
| KB Home |
(5.00)% | Quarterly | JPHQ | 3/20/20 | 100,000 | (2,472 | ) | (1,374 | ) | (1,098 | ) | |||||||||||||||||||||||||
| Nabors Industries Inc. |
(1.00)% | Quarterly | CITI | 12/20/21 | 1,050,000 | 125,743 | 32,672 | 93,071 | ||||||||||||||||||||||||||||
| Navient Corp. |
(5.00)% | Quarterly | GSCO | 3/20/20 | 1,800,000 | (43,218 | ) | (27,294 | ) | (15,924 | ) | |||||||||||||||||||||||||
| Navient Corp. |
(5.00)% | Quarterly | JPHQ | 3/20/20 | 2,860,000 | (68,668 | ) | (43,393 | ) | (25,275 | ) | |||||||||||||||||||||||||
| Contracts to Sell Protectionc,d |
||||||||||||||||||||||||||||||||||||
| Single Name |
||||||||||||||||||||||||||||||||||||
| American Tower Corp. |
1.00% | Quarterly | GSCO | 3/20/21 | 100,000 | 314 | (519 | ) | 833 | BBB- | ||||||||||||||||||||||||||
| The Goldman Sachs Group Inc. |
1.00% | Quarterly | JPHQ | 12/20/24 | 2,600,000 | 52,113 | 46,031 | 6,082 | BBB+ | |||||||||||||||||||||||||||
| Government of Argentina |
5.00% | Quarterly | CITI | 12/20/21 | 960,000 | (570,224 | ) | (551,942 | ) | (18,282 | ) | CCC- | ||||||||||||||||||||||||
| Government of Indonesia |
1.00% | Quarterly | CITI | 12/20/24 | 1,025,000 | 12,926 | 6,895 | 6,031 | NR | |||||||||||||||||||||||||||
| Government of Italy |
1.00% | Quarterly | BZWS | 6/20/23 | 700,000 | 3,553 | (24,319 | ) | 27,872 | NR | ||||||||||||||||||||||||||
| Government of Russia |
1.00% | Quarterly | CITI | 12/20/24 | 620,000 | 7,921 | 6,318 | 1,603 | BBB- | |||||||||||||||||||||||||||
| Government of Spain |
1.00% | Quarterly | CITI | 12/20/24 | 1,100,000 | 36,163 | 32,176 | 3,987 | NR | |||||||||||||||||||||||||||
| Morgan Stanley |
1.00% | Quarterly | JPHQ | 12/20/24 | 2,600,000 | 56,512 | 50,521 | 5,991 | BBB+ | |||||||||||||||||||||||||||
| Nabors Industries Inc. |
1.00% | Quarterly | CITI | 12/20/23 | 1,050,000 | (264,176 | ) | (130,022 | ) | (134,154 | ) | BB- | ||||||||||||||||||||||||
| Sprint Communications Inc. |
5.00% | Quarterly | JPHQ | 9/20/20 | 12,000 | 551 | — | 551 | B | |||||||||||||||||||||||||||
| Traded Index |
||||||||||||||||||||||||||||||||||||
| eBNP Paribas Bespoke Bordeaux Index, Mezzanine Tranche 7-10% |
2.10% | Quarterly | BNDP | 6/20/20 | 300,000 | 3,570 | — | 3,570 | |
Non- Invest- ment Grade |
| |||||||||||||||||||||||||
| eBNP Paribas Bespoke Rodez Index, Mezzanine Tranche 5-7% |
2.00% | Quarterly | BNDP | 12/20/20 | 500,000 | 4,148 | — | 4,148 | |
Non- Invest- ment Grade |
| |||||||||||||||||||||||||
| eBNP Paribas Bespoke Rodez2 Index, Mezzanine Tranche 5-7% |
3.20% | Quarterly | BNDP | 12/20/20 | 340,000 | 8,202 | — | 8,202 | |
Non- Invest- ment Grade |
| |||||||||||||||||||||||||
| franklintempleton.com | Semiannual Report | 29 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
Credit Default Swap Contracts (continued)
| Description | Periodic Payment Rate Received (Paid) |
Payment Frequency |
Counter- party |
Maturity Date |
Notional Amounta |
Value | Unamortized Upfront Payments (Receipts) |
Unrealized Appreciation (Depreciation) |
Ratingb | |||||||||||||||||||||||||||
| OTC Swap Contracts (continued) |
|
|||||||||||||||||||||||||||||||||||
| Contracts to Sell Protectionc,d (continued) |
|
|||||||||||||||||||||||||||||||||||
| Traded Index (continued) |
||||||||||||||||||||||||||||||||||||
| eCitibank Bespoke Bogota Index, |
||||||||||||||||||||||||||||||||||||
| Mezzanine Tranche 7-10% |
1.35% | Quarterly | CITI | 6/20/20 | $ | 1,650,000 | $ | 8,162 | $ | — | $ | 8,162 | |
Non- Invest- ment Grade |
| |||||||||||||||||||||
| eCitibank Bespoke Boulder Index, |
||||||||||||||||||||||||||||||||||||
| Mezzanine Tranche 5-10% |
1.18% | Quarterly | CITI | 12/20/19 | 3,000,000 | 4,528 | — | 4,528 | |
Non- Invest- ment Grade |
| |||||||||||||||||||||||||
| eCitibank Bespoke Boulder Index, |
||||||||||||||||||||||||||||||||||||
| Mezzanine Tranche 5-15% |
1.24% | Quarterly | CITI | 12/20/19 | 1,600,000 | 3,934 | — | 3,934 | |
Non- Invest- ment Grade |
| |||||||||||||||||||||||||
| eCitibank Bespoke Cambridge Index, |
||||||||||||||||||||||||||||||||||||
| Equity Tranche 0-3% |
0.00% | Quarterly | CITI | 12/20/19 | 407,500 | (36,391 | ) | (4,569 | ) | (31,822 | ) | |
Non- Invest- ment Grade |
| ||||||||||||||||||||||
| eCitibank Bespoke Lima Index, |
||||||||||||||||||||||||||||||||||||
| Mezzanine Tranche 5-7% |
2.13% | Quarterly | CITI | 12/20/19 | 650,000 | 15 | — | 15 | |
Non- Invest- ment Grade |
| |||||||||||||||||||||||||
| eCitibank Bespoke Palma Index, |
||||||||||||||||||||||||||||||||||||
| Mezzanine Tranche 5-7% |
2.30% | Quarterly | CITI | 6/20/21 | 710,000 | 10,077 | — | 10,077 | |
Non- Invest- ment Grade |
| |||||||||||||||||||||||||
| eCitibank Bespoke Phoenix Index, |
||||||||||||||||||||||||||||||||||||
| Mezzanine Tranche 5-7% |
2.90% | Quarterly | CITI | 12/20/21 | 700,000 | 19,129 | — | 19,129 | |
Non- Invest- ment Grade |
| |||||||||||||||||||||||||
| eCitibank Bespoke Singapore Index, |
||||||||||||||||||||||||||||||||||||
| Equity Tranche 0-3% |
0.00% | Quarterly | CITI | 6/20/20 | 770,000 | (81,561 | ) | (68,586 | ) | (12,975 | ) | |
Non- Invest- ment Grade |
| ||||||||||||||||||||||
| eCitibank Bespoke Verona Index, |
||||||||||||||||||||||||||||||||||||
| Equity Tranche 0-3% |
0.00% | Quarterly | CITI | 12/20/19 | 12,225 | (169 | ) | (168 | ) | (1 | ) | |
Non- Invest- ment Grade |
| ||||||||||||||||||||||
| 30 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
Credit Default Swap Contracts (continued)
| Description | Periodic Payment Rate Received (Paid) |
Payment Frequency |
Counter- party |
Maturity Date |
Notional Amounta |
Value | Unamortized Upfront Payments (Receipts) |
Unrealized Appreciation (Depreciation) |
Ratingb | |||||||||||||||||||||||||||
| OTC Swap Contracts (continued) |
|
|||||||||||||||||||||||||||||||||||
| Contracts to Sell Protectionc,d (continued) |
|
|||||||||||||||||||||||||||||||||||
| Traded Index (continued) |
||||||||||||||||||||||||||||||||||||
| eCitibank Bespoke Verona Index, |
||||||||||||||||||||||||||||||||||||
| Mezzanine Tranche 7-15% |
0.40 | % | Quarterly | CITI | 12/20/19 | $ | 280,000 | $ 199 | $ | — | $ 199 | |
Non- Invest- ment Grade |
| ||||||||||||||||||||||
| MCDX.NA.30 |
1.00 | % | Quarterly | CITI | 6/20/28 | 2,000,000 | 48,421 | 17,428 | 30,993 | |
Invest- ment Grade |
| ||||||||||||||||||||||||
| MCDX.NA.31 |
1.00 | % | Quarterly | CITI | 12/20/23 | 12,200,000 | 216,373 | 104,112 | 112,261 | |
Invest- ment Grade |
| ||||||||||||||||||||||||
| eMorgan Stanley Bespoke Pecan |
||||||||||||||||||||||||||||||||||||
| 5-10% |
3.98 | % | Quarterly | MSCO | 12/20/21 | 800,000 | 20,136 | — | 20,136 | |
Non- Invest- ment Grade |
| ||||||||||||||||||||||||
| eMorgan Stanley Bespoke Pecan |
||||||||||||||||||||||||||||||||||||
| 5-10% |
4.10 | % | Quarterly | MSCO | 12/20/21 | 800,000 | 23,786 | — | 23,786 | |
Non- Invest- ment Grade |
| ||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||
| Total Credit Default Swap Contracts |
|
$(1,870,766) | $ | (1,664,744 | ) | $ (206,022) | ||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||
aIn U.S. dollars unless otherwise indicated. For contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse provisions have been entered into in association with the contracts.
bBased on Standard and Poor’s (S&P) Rating for single name swaps and internal ratings for index swaps. Internal ratings based on mapping into equivalent ratings from external vendors.
cPerformance triggers for settlement of contract include default, bankruptcy or restructuring for single name swaps, and failure to pay or bankruptcy of the underlying securities for traded index swaps.
dThe Fund enters contracts to sell protection to create a long credit position.
eRepresents a custom index comprised of a basket of underlying instruments.
At October 31, 2019, the Fund had the following cross-currency swap contracts outstanding. See Note 1(d).
Cross-Currency Swap Contracts
| Description | Payment Frequency |
Coun- terparty |
Maturity Date |
Notional Amount |
Value/ Unrealized Appreciation (Depreciation) |
|||||||||||||||||||
| OTC Swap Contracts |
||||||||||||||||||||||||
| Receive Floating 3-month USD LIBOR + 1.894% |
Quarterly | 2,460,000 | USD | |||||||||||||||||||||
| Pay Fixed 1.50% |
Annual | CITI | 5/04/21 | 2,000,000 | EUR | $239,207 | ||||||||||||||||||
| Receive Floating 3-month USD LIBOR + 1.85% |
Quarterly | 617,500 | USD | |||||||||||||||||||||
| Pay Fixed 1.50% |
Annual | CITI | 5/04/21 | 500,000 | EUR | 61,927 | ||||||||||||||||||
| franklintempleton.com | Semiannual Report | 31 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
Cross-Currency Swap Contracts (continued)
| Description | Payment Frequency |
Coun- terparty |
Maturity Date |
Notional Amount |
Value/ Unrealized Appreciation (Depreciation) |
|||||||||||||||||||
| OTC Swap Contracts (continued) |
||||||||||||||||||||||||
| Receive Floating 3-month USD LIBOR + 2.87% |
Quarterly | 232,400 | USD | |||||||||||||||||||||
| Pay Fixed 2.50% |
Annual | CITI | 5/04/21 | 200,000 | EUR | $ 9,107 | ||||||||||||||||||
| Receive Floating 3-month USD LIBOR + 1.303% |
Quarterly | 496,000 | USD | |||||||||||||||||||||
| Pay Fixed 1.00% |
Annual | JPHQ | 5/04/21 | 400,000 | EUR | 51,388 | ||||||||||||||||||
| Receive Floating 3-month USD LIBOR + 1.334% |
Quarterly | 4,256,000 | USD | |||||||||||||||||||||
| Pay Floating 3-month EUR LIBOR + 1.12% |
Quarterly | CITI | 7/10/21 | 3,800,000 | EUR | 26,330 | ||||||||||||||||||
| Receive Floating 3-month USD LIBOR + 1.81% |
Quarterly | 1,568,000 | USD | |||||||||||||||||||||
| Pay Floating 3-month EUR LIBOR + 1.60% |
Quarterly | CITI | 8/12/21 | 1,400,000 | EUR | 18,292 | ||||||||||||||||||
| Receive Floating 3-month USD LIBOR + 1.305% |
Quarterly | 2,988,900 | USD | |||||||||||||||||||||
| Pay Floating 3-month EUR LIBOR + 1.11% |
Quarterly | JPHQ | 8/20/21 | 2,700,000 | EUR | (6,248 | ) | |||||||||||||||||
| Receive Floating 3-month USD LIBOR + 1.31% |
Quarterly | 2,719,500 | USD | |||||||||||||||||||||
| Pay Floating 3-month EUR LIBOR + 1.11% |
Quarterly | CITI | 8/30/21 | 2,450,000 | EUR | 511 | ||||||||||||||||||
| Receive Floating 3-month USD LIBOR + 1.23% |
Quarterly | 2,941,500 | USD | |||||||||||||||||||||
| Pay Floating 3-month EUR LIBOR + 1.07% |
Quarterly | CITI | 9/17/21 | 2,650,000 | EUR | (4,916 | ) | |||||||||||||||||
| Receive Floating 3-month USD LIBOR + 1.25% |
Quarterly | 5,550,000 | USD | |||||||||||||||||||||
| Pay Floating 3-month EUR LIBOR + 1.10% |
Quarterly | CITI | 10/30/21 | 5,000,000 | EUR | (26,824 | ) | |||||||||||||||||
| Receive Floating 3-month USD LIBOR + 0.849% |
Quarterly | 3,472,000 | USD | |||||||||||||||||||||
| Pay Fixed 0.75% |
Annual | DBAB | 9/14/22 | 2,800,000 | EUR | 328,921 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total Cross Currency Swap Contracts |
$697,695 | |||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
At October 31, 2019, the Fund had the following interest rate swap contracts outstanding. See Note 1(d).
Interest Rate Swap Contracts
| Description | Payment Frequency |
Maturity Date |
Notional Amount* |
Value | Unamortized (Receipts) |
Unrealized Appreciation (Depreciation) |
||||||||||||||||||||||
| Centrally Cleared Swap Contracts |
||||||||||||||||||||||||||||
| Receive Floating 3-month USD LIBOR |
Quarterly | |||||||||||||||||||||||||||
| Pay Fixed 2.788% |
Semi-Annual | 3/26/23 | 7,900,000 | $ | (343,646 | ) | $ | — | $ | (343,646 | ) | |||||||||||||||||
| Receive Floating 3-month USD LIBOR |
Quarterly | |||||||||||||||||||||||||||
| Pay Fixed 2.79% |
Semi-Annual | 3/28/23 | 7,900,000 | (344,481 | ) | — | (344,481 | ) | ||||||||||||||||||||
| Receive Floating 3-month USD LIBOR |
Quarterly | |||||||||||||||||||||||||||
| Pay Fixed 2.713% |
Semi-Annual | 3/29/23 | 4,700,000 | (190,817 | ) | — | (190,817 | ) | ||||||||||||||||||||
| Receive Floating 3-month USD LIBOR |
Quarterly | |||||||||||||||||||||||||||
| Pay Fixed 2.806% |
Semi-Annual | 4/17/23 | 5,800,000 | (258,638 | ) | — | (258,638 | ) | ||||||||||||||||||||
| Receive Fixed 2.773% |
Quarterly | |||||||||||||||||||||||||||
| Pay Floating 3-month CNY CNRR |
Quarterly | 8/23/24 | 17,000,000 | CNY | (36,253 | ) | — | (36,253 | ) | |||||||||||||||||||
| Receive Fixed 2.765% |
Quarterly | |||||||||||||||||||||||||||
| Pay Floating 3-month CNY CNRR |
Quarterly | 8/26/24 | 13,700,000 | CNY | (29,920 | ) | — | (29,920 | ) | |||||||||||||||||||
| Receive Fixed 2.79%. |
Quarterly | |||||||||||||||||||||||||||
| Pay Floating 3-month CNY CNRR |
Quarterly | 8/30/24 | 21,500,000 | CNY | (44,421 | ) | — | (44,421 | ) | |||||||||||||||||||
| Receive Floating 3-month USD LIBOR |
Quarterly | |||||||||||||||||||||||||||
| Pay Fixed 2.00% |
Semi-Annual | 6/20/25 | 11,100,000 | (356,799 | ) | 507,813 | (864,612 | ) | ||||||||||||||||||||
| Receive Floating 3-month USD LIBOR |
Quarterly | |||||||||||||||||||||||||||
| Pay Fixed 3.082% |
Semi-Annual | 9/28/25 | 8,000,000 | (725,310 | ) | — | (725,310 | ) | ||||||||||||||||||||
| Receive Floating 3-month USD LIBOR |
Quarterly | |||||||||||||||||||||||||||
| 32 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
Interest Rate Swap Contracts (continued)
| Description | Payment Frequency |
Maturity Date |
Notional Amount* |
Value | Unamortized (Receipts) |
Unrealized Appreciation (Depreciation) |
||||||||||||||||||||||
| Centrally Cleared Swap Contracts (continued) |
||||||||||||||||||||||||||||
| Pay Fixed 3.225% |
Semi-Annual | 11/13/25 | 5,500,000 | $ (605,983 | ) | $ — | $ (605,983 | ) | ||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Total Interest Rate Swap Contracts |
$(2,936,268 | ) | $507,813 | $(3,444,081 | ) | |||||||||||||||||||||||
*In U.S. dollars unless otherwise indicated.
At October 31, 2019, the Fund had the following inflation index swap contracts outstanding. See Note 1(d).
Inflation Index Swap Contracts
| Description | Payment Frequency |
Maturity Date |
Notional Amount |
Value/ Unrealized Appreciation (Depreciation) |
||||||||||||
| Centrally Cleared Swap Contracts |
||||||||||||||||
| Receive variable change in USA-CPI-U |
At maturity | |||||||||||||||
| Pay Fixed 2.079% |
At maturity | 9/18/24 | $ | 1,770,000 | $ (36,003 | ) | ||||||||||
| Receive variable change in USA-CPI-U |
At maturity | |||||||||||||||
| Pay Fixed 1.719% |
At maturity | 8/14/26 | 2,050,000 | (10,074 | ) | |||||||||||
| Receive variable change in USA-CPI-U |
At maturity | |||||||||||||||
| Pay Fixed 2.35% |
At maturity | 9/20/26 | 5,200,000 | (299,978 | ) | |||||||||||
| Receive variable change in USA-CPI-U |
At maturity | |||||||||||||||
| Pay Fixed 2.313% |
At maturity | 6/01/28 | 1,400,000 | (85,792 | ) | |||||||||||
|
|
|
|||||||||||||||
| Total Inflation Index Swap Contracts |
$ (431,847 | ) | ||||||||||||||
|
|
|
|||||||||||||||
| franklintempleton.com | Semiannual Report | 33 | ||
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
At October 31, 2019, the Fund had the following total return swap contracts outstanding. See Note 1(d).
Total Return Swap Contracts
| Underlying Instruments | Financing Rate | Payment Frequency |
Counter- party |
Maturity Date |
Notional Value* |
Value/ Unrealized Appreciation (Depreciation) |
||||||||||||||||||||||
| OTC Swap Contracts |
||||||||||||||||||||||||||||
| Longa |
||||||||||||||||||||||||||||
| Euribor 3 Month |
3-month EUR LIBOR | Quarterly | BNDP | 12/20/19 | 3,650,000 | EUR | $ (6,717 | ) | ||||||||||||||||||||
| Euribor 3 Month |
3-month EUR LIBOR | Quarterly | CITI | 12/20/19 | 4,900,000 | EUR | (18,846 | ) | ||||||||||||||||||||
| Markit iBoxx USD Liquid Leveraged Loan Index |
3-month USD LIBOR | Quarterly | JPHQ | 12/20/19 | 3,330,000 | 27,055 | ||||||||||||||||||||||
| Markit iBoxx USD Liquid Leveraged Loan Index |
3-month USD LIBOR | Quarterly | MSCO | 12/20/19 | 900,000 | 12,810 | ||||||||||||||||||||||
| Markit iBoxx USD Liquid Leveraged Loan Index |
3-month USD LIBOR | Quarterly | FBCO | 3/20/20 | 4,050,000 | 49,778 | ||||||||||||||||||||||
| Markit iBoxx USD Liquid Leveraged Loan Index |
3-month USD LIBOR | Quarterly | GSCO | 3/20/20 | 6,600,000 | 108,727 | ||||||||||||||||||||||
| Shortb |
||||||||||||||||||||||||||||
| iBoxx USD Liquid Investment Grade Index |
3-month USD LIBOR | Quarterly | BNDP | 12/20/19 | 1,700,000 | (734 | ) | |||||||||||||||||||||
| iBoxx USD Liquid Investment Grade Index |
3-month USD LIBOR | Quarterly | GSCO | 12/20/19 | 1,400,000 | 2,007 | ||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Total Total Return Swap Contracts |
$174,080 | |||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
*In U.S. dollars unless otherwise indicated.
aThe Fund receives the total return on the underlying instrument and pays a variable financing rate.
bThe Fund receives the variable financing rate and pays the total return on the underlying instrument.
See Note 8 regarding other derivative information.
See Abbreviations on page 54.
| 34 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Statement of Assets and Liabilities
October 31, 2019 (unaudited)
Franklin Flexible Alpha Bond Fund
| Assets: |
||||
| Investments in securities: |
||||
| Cost - Unaffiliated issuers |
$411,661,925 | |||
| Cost - Non-controlled affiliates (Note 3f) |
24,386,858 | |||
|
|
|
|||
| Value - Unaffiliated issuers |
$412,721,231 | |||
| Value - Non-controlled affiliates (Note 3f) |
24,386,858 | |||
| Foreign currency, at value (cost $2,154,280) |
2,155,826 | |||
| Receivables: |
||||
| Investment securities sold |
5,097,604 | |||
| Interest |
1,683,136 | |||
| Deposits with brokers for: |
||||
| OTC derivative contracts |
1,560,000 | |||
| Futures contracts |
1,531,713 | |||
| Centrally cleared swap contracts |
1,179,397 | |||
| OTC swap contracts (upfront payments $302,489) |
302,765 | |||
| Unrealized appreciation on OTC forward exchange contracts |
270,220 | |||
| Unrealized appreciation on OTC swap contracts |
1,331,221 | |||
| Other assets |
2,740 | |||
|
|
|
|||
| Total assets |
452,222,711 | |||
|
|
|
|||
| Liabilities: |
||||
| Payables: |
||||
| Investment securities purchased |
41,173,760 | |||
| Capital shares redeemed |
463 | |||
| Management fees |
160,943 | |||
| Distribution fees |
641 | |||
| Transfer agent fees |
7,442 | |||
| Trustees’ fees and expenses |
173 | |||
| Distributions to shareholders |
1,134,718 | |||
| Variation margin on futures contracts |
455,381 | |||
| Variation margin on centrally cleared swap contracts |
191,861 | |||
| OTC swap contracts (upfront receipts $2,728,000) |
1,967,509 | |||
| Options written, at value (premiums received $22,815) |
3,465 | |||
| Unrealized depreciation on OTC forward exchange contracts |
494,471 | |||
| Unrealized depreciation on OTC swap contracts |
665,468 | |||
| Deferred tax |
201 | |||
| Accrued expenses and other liabilities |
39,465 | |||
|
|
|
|||
| Total liabilities |
46,295,961 | |||
|
|
|
|||
| Net assets, at value |
$405,926,750 | |||
|
|
|
|||
| Net assets consist of: |
||||
| Paid-in capital |
$412,216,402 | |||
| Total distributable earnings (loss) |
(6,289,652 | ) | ||
|
|
|
|||
| Net assets, at value |
$405,926,750 | |||
|
|
|
|||
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 35 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (continued)
October 31, 2019 (unaudited)
Franklin Flexible Alpha Bond Fund
| Class A: |
||||
| Net assets, at value |
$ 1,816,689 | |||
|
|
|
|||
| Shares outstanding |
188,414 | |||
|
|
|
|||
| Net asset value per sharea |
$9.64 | |||
|
|
|
|||
| Maximum offering price per share (net asset value per share ÷ 96.25%) |
$10.02 | |||
|
|
|
|||
| Class C: |
||||
| Net assets, at value |
$ 378,693 | |||
|
|
|
|||
| Shares outstanding |
39,550 | |||
|
|
|
|||
| Net asset value and maximum offering price per sharea |
$9.58 | |||
|
|
|
|||
| Class R: |
||||
| Net assets, at value |
$ 84,036 | |||
|
|
|
|||
| Shares outstanding |
8,728 | |||
|
|
|
|||
| Net asset value and maximum offering price per share |
$9.63 | |||
|
|
|
|||
| Class R6: |
||||
| Net assets, at value |
$403,211,593 | |||
|
|
|
|||
| Shares outstanding |
41,816,072 | |||
|
|
|
|||
| Net asset value and maximum offering price per share |
$9.64 | |||
|
|
|
|||
| Advisor Class: |
||||
| Net assets, at value |
$ 435,739 | |||
|
|
|
|||
| Shares outstanding |
45,212 | |||
|
|
|
|||
| Net asset value and maximum offering price per share |
$9.64 | |||
|
|
|
|||
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
| 36 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statement of Operations
for the six months ended October 31, 2019 (unaudited)
Franklin Flexible Alpha Bond Fund
| Investment income: |
||||
| Dividends: |
||||
| Unaffiliated issuers |
$ 226,552 | |||
| Non-controlled affiliates (Note 3f) |
311,907 | |||
| Interest: (net of foreign taxes)~ |
||||
| Unaffiliated issuers |
7,825,060 | |||
|
|
|
|||
| Total investment income |
8,363,519 | |||
|
|
|
|||
| Expenses: |
||||
| Management fees (Note 3a) |
1,169,095 | |||
| Distribution fees: (Note 3c) |
||||
| Class A |
2,113 | |||
| Class C |
1,325 | |||
| Class R |
211 | |||
| Transfer agent fees: (Note 3e) |
||||
| Class A |
2,285 | |||
| Class C |
552 | |||
| Class R |
114 | |||
| Class R6 |
42,266 | |||
| Advisor Class |
593 | |||
| Custodian fees (Note 4) |
4,305 | |||
| Reports to shareholders |
2,607 | |||
| Registration and filing fees |
61,686 | |||
| Professional fees |
15,975 | |||
| Trustees’ fees and expenses |
2,986 | |||
| Other |
88,813 | |||
|
|
|
|||
| Total expenses |
1,394,926 | |||
| Expense reductions (Note 4) |
(2,867 | ) | ||
| Expenses waived/paid by affiliates (Note 3f and 3g) |
(110,008 | ) | ||
|
|
|
|||
| Net expenses |
1,282,051 | |||
|
|
|
|||
| Net investment income |
7,081,468 | |||
|
|
|
|||
| Realized and unrealized gains (losses): |
||||
| Net realized gain (loss) from: |
||||
| Investments: |
||||
| Unaffiliated issuers |
(1,406,747 | ) | ||
| Written options |
61,560 | |||
| Foreign currency transactions |
95,211 | |||
| Forward exchange contracts |
765,573 | |||
| Futures contracts |
(3,066,248 | ) | ||
| Swap contracts |
331,171 | |||
|
|
|
|||
| Net realized gain (loss) |
(3,219,480 | ) | ||
|
|
|
|||
| Net change in unrealized appreciation (depreciation) on: |
||||
| Investments: |
||||
| Unaffiliated issuers |
3,043,916 | |||
| Translation of other assets and liabilities denominated in foreign currencies |
(89,507 | ) | ||
| Forward exchange contracts |
(413,852 | ) | ||
| Written options |
(8,005 | ) | ||
| Futures contracts |
888,077 | |||
| Swap contracts |
(2,951,625 | ) | ||
| Change in deferred taxes on unrealized appreciation |
(201 | ) | ||
|
|
|
|||
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 37 | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statement of Operations (continued)
for the six months ended October 31, 2019 (unaudited)
Franklin Flexible Alpha Bond Fund
| Net change in unrealized appreciation (depreciation) |
468,803 | |||
|
|
|
|||
| Net realized and unrealized gain (loss) |
(2,750,677 | ) | ||
|
|
|
|||
| Net increase (decrease) in net assets resulting from operations |
$ 4,330,791 | |||
|
|
|
|||
| ~Foreign taxes withheld on interest |
$ | 82 |
| 38 |
Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
Franklin Flexible Alpha Bond Fund
| Six Months Ended October 31, 2019 |
Year Ended April 30, 2019 |
|||||||
|
|
||||||||
| Increase (decrease) in net assets: |
||||||||
| Operations: |
||||||||
| Net investment income |
$ 7,081,468 | $ 11,868,025 | ||||||
| Net realized gain (loss) |
(3,219,480 | ) | (943,499 | ) | ||||
| Net change in unrealized appreciation (depreciation) |
468,803 | (1,089,579 | ) | |||||
|
|
|
|||||||
| Net increase (decrease) in net assets resulting from operations |
4,330,791 | 9,834,947 | ||||||
|
|
|
|||||||
| Distributions to shareholders: |
||||||||
| Class A |
(22,712 | ) | (41,958 | ) | ||||
| Class C |
(4,799 | ) | (7,107 | ) | ||||
| Class R |
(1,047 | ) | (1,752 | ) | ||||
| Class R6 |
(7,093,897 | ) | (12,371,974 | ) | ||||
| Advisor Class |
(6,427 | ) | (11,924 | ) | ||||
|
|
|
|||||||
| Total distributions to shareholders |
(7,128,882 | ) | (12,434,715 | ) | ||||
|
|
|
|||||||
| Capital share transactions: (Note 2) |
||||||||
| Class A |
369,214 | 351,865 | ||||||
| Class C |
13,213 | 91,704 | ||||||
| Class R |
1,377 | 33,323 | ||||||
| Class R6 |
(98,880,977 | ) | 296,632,582 | |||||
| Advisor Class |
5,229 | 11,647 | ||||||
|
|
|
|||||||
| Total capital share transactions |
(98,491,944 | ) | 297,121,121 | |||||
|
|
|
|||||||
| Net increase (decrease) in net assets |
(101,290,035 | ) | 294,521,353 | |||||
| Net assets: |
||||||||
| Beginning of period |
507,216,785 | 212,695,432 | ||||||
|
|
|
|||||||
| End of period |
$405,926,750 | $507,216,785 | ||||||
|
|
|
|||||||
| franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 39 | ||
FRANKLIN STRATEGIC SERIES
Notes to Financial Statements (unaudited)
Franklin Flexible Alpha Bond Fund
| 40 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| franklintempleton.com | Semiannual Report | 41 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| 42 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| franklintempleton.com | Semiannual Report | 43 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
| 44 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
2. Shares of Beneficial Interest
At October 31, 2019, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
| Six Months Ended | Year Ended | |||||||||||||||
| October 31, 2019 | April 30, 2019 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Class A Shares: |
||||||||||||||||
| Shares solda |
54,553 | $ | 527,949 | 146,054 | $ | 1,426,571 | ||||||||||
| Shares issued in reinvestment of distributions |
2,332 | 22,574 | 4,309 | 41,654 | ||||||||||||
| Shares redeemed |
(18,720 | ) | (181,309 | ) | (115,764 | ) | (1,116,360 | ) | ||||||||
| Net increase (decrease) |
38,165 | $ | 369,214 | 34,599 | $ | 351,865 | ||||||||||
| Class C Shares: |
||||||||||||||||
| Shares sold |
9,247 | $ | 89,057 | 21,517 | $ | 208,316 | ||||||||||
| Shares issued in reinvestment of distributions |
498 | 4,783 | 735 | 7,066 | ||||||||||||
| Shares redeemeda |
(8,390 | ) | (80,627 | ) | (12,740 | ) | (123,678 | ) | ||||||||
| Net increase (decrease) |
1,355 | $ | 13,213 | 9,512 | $ | 91,704 | ||||||||||
| Class R Shares: |
||||||||||||||||
| Shares sold |
34 | $ | 330 | 3,238 | $ | 31,606 | ||||||||||
| Shares issued in reinvestment of distributions |
108 | 1,047 | 181 | 1,752 | ||||||||||||
| Shares redeemed |
— | — | (3 | ) | (35 | ) | ||||||||||
| Net increase (decrease) |
142 | $ | 1,377 | 3,416 | $ | 33,323 | ||||||||||
| Class R6 Shares: |
||||||||||||||||
| Shares sold |
— | $ | — | 31,582,771 | $ | 307,592,000 | ||||||||||
| Shares issued in reinvestment of distributions |
24,324 | 236,429 | 29,382 | 284,707 | ||||||||||||
| Shares redeemed |
(10,197,264 | ) | (99,117,406 | ) | (1,157,235 | ) | (11,244,125 | ) | ||||||||
| Net increase (decrease) |
(10,172,940 | ) | $ | (98,880,977 | ) | 30,454,918 | $ | 296,632,582 | ||||||||
| Advisor Class Shares: |
||||||||||||||||
| Shares sold |
6,939 | $ | 67,450 | 4,301 | $ | 41,736 | ||||||||||
| Shares issued in reinvestment of distributions |
664 | 6,427 | 1,232 | 11,923 | ||||||||||||
| Shares redeemed |
(7,063 | ) | (68,648 | ) | (4,298 | ) | (42,012 | ) | ||||||||
| Net increase (decrease) |
540 | $ | 5,229 | 1,235 | $ | 11,647 | ||||||||||
aMay include a portion of Class C shares that were automatically converted to Class A.
| franklintempleton.com | Semiannual Report | 45 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. 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 Institutional, LLC (FT Institutional) | 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 | Net Assets | |||
| 0.550% | Up to and including $1 billion | |||
| 0.500% | Over $1 billion, up to and including $5 billion | |||
| 0.450% | Over $5 billion, up to and including $10 billion | |||
| 0.445% | Over $10 billion, up to and including $15 billion | |||
| 0.440% | Over $15 billion, up to and including $20 billion | |||
| 0.435% | In excess of $20 billion | |||
Under a subadvisory agreement, FT Instituitional, an affiliate of Advisers, provides subadvisory services to the Fund. The subadvisory fee is paid by Advisers based on the Fund’s average daily net assets, and is not an additional expense of the Fund.
b. Administrative Fees
Under an agreement with Advisers, FT Services provides administrative services to the Fund. The fee is paid by Advisers based on the Fund’s 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 Class R6 and 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. In addition, under the Fund’s Class 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 plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31.
| 46 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| Class A |
0.25 | % | ||
| Class C |
0.65 | % | ||
| Class R |
0.50 | % |
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the period:
| Sales charges retained net of commissions paid to unaffiliated brokers/dealers |
$ | 12 | ||
| CDSC retained |
$ | 6 |
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the period ended October 31, 2019, the Fund paid transfer agent fees of $45,810, of which $44,931 was retained by Investor Services.
f. Investments in Affiliated Management Investment Companies
The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the period ended October 31, 2019, the Fund held investments in affiliated management investment companies as follows:
| Value at Beginning of Period |
Purchases | Sales | Realized Gain (Loss) |
Net Change in Unrealized Appreciation (Depreciation) |
Value at End of Period |
Number of Shares Held at End of Period |
Dividend Income |
|||||||||||||||||||||||||
| Non-Controlled Affiliates |
||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
$ | 77,861,898 | $ | 75,078,294 | $ | (128,553,334 | ) | $ — | $ — | $ | 24,386,858 | 24,386,858 | $ | 311,907 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||
g. Waiver and Expense Reimbursements
Advisers and Investor Services have contractually agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses and certain non-routine expenses or costs, including those relating to litigation, indemnification,
| franklintempleton.com | Semiannual Report | 47 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
3. Transactions with Affiliates (continued)
g. Waiver and Expense Reimbursements (continued)
reorganizations, and liquidations) for Class A, Class C, Class R and Advisor Class of the Fund do not exceed 0.85% and for Class R6 do not exceed 0.56%, based on the average net assets of each class until August 31, 2020. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.
Prior to September 1, 2019, expenses (excluding certain fees and expenses as previously disclosed) for Class R6 were limited to 0.81% based on the average net assets of the class.
h. Other Affiliated Transactions
At October 31, 2019, Franklin Resources, Inc owned 99.3% of the Fund’s outstanding shares. Investment activities of this shareholder could have a material impact on the Fund.
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended October 31, 2019, the custodian fees were reduced as noted in the Statement of Operations.
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains.
At April 30, 2019, the capital loss carryforwards were as follows:
| Capital loss carryforwards not subject to expiration: |
||||
| Short term |
$ | 1,069,279 | ||
| Long term |
2,264,409 | |||
| Total capital loss carryforwards |
$ | 3,333,688 | ||
At October 31, 2019, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
| Cost of investments |
$ | 436,048,166 | ||
| Unrealized appreciation |
$ | 10,564,527 | ||
| Unrealized depreciation |
(13,518,683 | ) | ||
| Net unrealized appreciation (depreciation) |
$ | (2,954,156 | ) | |
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of paydown losses, swaps and financial futures transactions.
6. Investment Transactions
Purchases and sales of investments (excluding short term securities) for the period ended October 31, 2019, aggregated $181,133,424 and $206,625,532, respectively.
| 48 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
7. Credit Risk
At October 31, 2019, the Fund had 13.0% of its portfolio invested in high yield or other securities rated below investment grade and unrated securities, if any. These securities may be 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.
8. Other Derivative Information
At October 31, 2019, investments in derivative contracts are reflected in the Statement of Assets and Liabilities as follows:
| Asset Derivatives | Liability Derivatives | |||||||||||||||
| Derivative Contracts Not Accounted for as Hedging Instruments |
Statement of Assets and Liabilities Location |
Fair Value | Statement of Assets and Liabilities Location |
Fair Value | ||||||||||||
| Interest rate contracts |
Variation margin on futures contracts | $ | 1,037,362 | a | Variation margin on futures contracts | $ | 520,586 | a | ||||||||
| Variation margin on centrally cleared swap contracts |
— | Variation margin on centrally cleared swap contracts |
3,444,081 | a | ||||||||||||
| Unrealized appreciation on OTC swap contracts |
936,060 | Unrealized depreciation on OTC swap contracts |
64,285 | |||||||||||||
| Foreign exchange contracts |
Unrealized appreciation on OTC forward exchange contracts |
270,220 | Unrealized depreciation on OTC forward exchange contracts |
494,471 | ||||||||||||
| Credit contracts |
Investments in securities, at value |
16,323 | b | Options written, at value |
3,465 | |||||||||||
| OTC swap contracts (upfront payments) |
302,765 | OTC swap contracts (upfront receipts) |
1,967,509 | |||||||||||||
| Unrealized appreciation on OTC swap contracts |
395,161 | Unrealized depreciation on OTC swap contracts |
601,183 | |||||||||||||
| Inflation contracts |
Variation margin on centrally cleared swap contracts |
— | Variation margin on centrally cleared swap contracts |
431,847 | a | |||||||||||
|
|
|
|
|
|||||||||||||
| Totals |
$ | 2,957,891 | $ | 7,527,427 | ||||||||||||
|
|
|
|
|
|||||||||||||
aThis amount reflects the cumulative appreciation (depreciation) of futures contracts and centrally cleared swap contracts as reported in the Statement of Investments. Only the variation margin receivable/payable at period end is separately reported within the Statement of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.
bPurchased option contracts are included in investments in securities, at value in the Statement of Assets and Liabilities.
For the period ended October 31, 2019, the effect of derivative contracts in the Statement of Operations was as follows:
| Derivative Contracts Not Accounted for as Hedging Instruments |
Statement of Operations Location |
Net Realized Gain (Loss) for the Period |
Statement of Operations Location |
Net Change in Unrealized Appreciation (Depreciation) for the Period |
||||||||
| Net realized gain (loss) from: | Net change in unrealized | |||||||||||
| appreciation (depreciation) on: | ||||||||||||
| Interest rate contracts |
Investments | $ | (14,431 | )a | Investments | $ | 92,440 | a | ||||
| Futures contracts | (3,066,248 | ) | Futures contracts | 888,077 | ||||||||
| Swap contracts | 734,194 | Swap contracts | (2,760,433 | ) | ||||||||
| Foreign exchange contracts |
Forward exchange contracts | 765,573 | Forward exchange contracts | (413,852 | ) | |||||||
| franklintempleton.com | Semiannual Report | 49 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
8. Other Derivative Information (continued)
| Derivative Contracts Not Accounted for as Hedging Instruments |
Statement of Operations Location |
Net Realized Gain (Loss) for the Period |
Statement of Operations Location |
Net Change in Unrealized Appreciation (Depreciation) for the Period |
||||||||
| Net realized gain (loss) from: | Net change in unrealized | |||||||||||
| appreciation (depreciation) on: | ||||||||||||
| Credit contracts |
Investments | $ (381,854)a | Investments | $ | 57,743 | a | ||||||
| Written options | 61,560 | Written options | (8,005) | |||||||||
| Swap contracts | (402,992) | Swap contracts | 72,321 | |||||||||
| Inflation contracts |
Swap contracts | (31) | Swap contracts | (263,513) | ||||||||
|
|
|
|
|
|||||||||
| Totals |
$(2,304,229) | $ | (2,335,222) | |||||||||
|
|
|
|
|
|||||||||
aPurchased option contracts are included in net realized gain (loss) from investments and net change in unrealized appreciation (depreciation) on investments in the Statement of Operations.
For the period ended October 31, 2019, the average month end notional amount of futures contracts, options and swap contracts and the average month end contract value for forward exchange contracts were as follows:
| Futures contracts |
$ | 164,814,825 | ||
| Options |
87,687,143 | |||
| Swap contracts |
172,263,489 | |||
| Forward exchange contracts |
46,682,805 |
At October 31, 2019, OTC derivative assets and liabilities are as follows:
| Gross Amounts of Assets and Liabilities Presented |
||||||||
| Assetsa | Liabilitiesa | |||||||
| Derivatives |
||||||||
| Forward exchange contracts |
$ 270,220 | $ 494,471 | ||||||
| Options purchased |
16,323 | — | ||||||
| Options written |
— | 3,465 | ||||||
| Swap contracts |
1,633,986 | 2,632,977 | ||||||
| Total |
$1,920,529 | $3,130,913 | ||||||
aAbsent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.
| 50 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
At October 31, 2019, OTC derivative assets, which may be offset against OTC derivative liabilities and collateral received from the counterparty, are as follows:
| Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||||
| Gross Amounts of |
Financial Instruments Available for Offset |
Financial Instruments Collateral Receiveda,b |
Cash Collateral Received |
Net Amount (Not less than zero) |
||||||||||||||||
| Counterparty |
||||||||||||||||||||
| BNDP |
$ 15,920 | $ (7,451 | ) | $ — | $ — | $ 8,469 | ||||||||||||||
| BZWS |
36,217 | (36,217 | ) | — | — | — | ||||||||||||||
| CITI |
848,965 | (848,965 | ) | — | — | — | ||||||||||||||
| DBAB |
367,936 | (5,938 | ) | (361,998 | ) | — | — | |||||||||||||
| FBCO |
49,778 | (49,778 | ) | — | — | — | ||||||||||||||
| GSCO |
126,157 | (47,101 | ) | — | — | 79,056 | ||||||||||||||
| JPHQ |
418,824 | (418,824 | ) | — | — | — | ||||||||||||||
| MSCO |
56,732 | (45,652 | ) | — | — | 11,080 | ||||||||||||||
|
|
|
|||||||||||||||||||
| Total |
$1,920,529 | $(1,459,926 | ) | $(361,998 | ) | $ — | $98,605 | |||||||||||||
|
|
|
|||||||||||||||||||
At October 31, 2019, OTC derivative liabilities, which may be offset against OTC derivative assets and collateral pledged to the counterparty, are as follows:
| Amounts Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||||||
| Gross Amounts of |
Financial Instruments Available for Offset |
Financial Instruments Collateral Pledged |
Cash Collateral Pledgedb |
Net Amount (Not less than zero) |
||||||||||||||||
| Counterparty |
||||||||||||||||||||
| BNDP |
$ 7,451 | $ (7,451 | ) | $ — | $ — | $ — | ||||||||||||||
| BZWS |
476,179 | (36,217 | ) | — | (439,962 | ) | — | |||||||||||||
| CITI |
1,203,773 | (848,965 | ) | — | (290,000 | ) | 64,808 | |||||||||||||
| DBAB |
5,938 | (5,938 | ) | — | — | — | ||||||||||||||
| FBCO |
243,938 | (49,778 | ) | — | (194,160 | ) | — | |||||||||||||
| GSCO |
47,101 | (47,101 | ) | — | — | — | ||||||||||||||
| JPHQ |
1,100,881 | (418,824 | ) | — | (590,000 | ) | 92,057 | |||||||||||||
| MSCO |
45,652 | (45,652 | ) | — | — | — | ||||||||||||||
|
|
|
|||||||||||||||||||
| Total |
$3,130,913 | $(1,459,926 | ) | $ — | $(1,514,122 | ) | $156,865 | |||||||||||||
|
|
|
|||||||||||||||||||
aAt October 31, 2019, the Fund received U.S. Treasury Bonds and Notes as collateral for derivatives.
bIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit the collateral amounts to avoid the effect of overcollateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.
See Note 1(d) regarding derivative financial instruments.
See Abbreviations on page 54.
| franklintempleton.com | Semiannual Report | 51 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
9. Credit Facility
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 7, 2020. 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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statement of Operations. During the period ended October 31, 2019, the Fund did not use the Global Credit Facility.
10. 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 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 Fund’s 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.
| 52 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
A summary of inputs used as of October 31, 2019, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: |
||||||||||||||||
| Investments in Securities:a |
||||||||||||||||
| Corporate Bonds |
$ | — | $ | 91,538,420 | $ | — | $ | 91,538,420 | ||||||||
| Foreign Government and Agency Securities |
— | 29,505,014 | — | 29,505,014 | ||||||||||||
| U.S. Government and Agency Securities |
— | 13,082,618 | — | 13,082,618 | ||||||||||||
| Asset-Backed Securities and Commercial |
||||||||||||||||
| Mortgage-Backed Securities |
— | 245,036,078 | — | 245,036,078 | ||||||||||||
| Mortgage-Backed Securities |
— | 32,721,587 | — | 32,721,587 | ||||||||||||
| Municipal Bonds |
— | 821,191 | — | 821,191 | ||||||||||||
| Options Purchased |
— | 16,323 | — | 16,323 | ||||||||||||
| Short Term Investments |
24,386,858 | — | — | 24,386,858 | ||||||||||||
| Total Investments in Securities |
$ | 24,386,858 | $ | 412,721,231 | $ | — | $ | 437,108,089 | ||||||||
| Other Financial Instruments: |
||||||||||||||||
| Futures Contracts |
$ | 1,037,362 | $ | — | $ | — | $ | 1,037,362 | ||||||||
| Forward Exchange Contracts |
— | 270,220 | — | 270,220 | ||||||||||||
| Swap Contracts |
— | 1,331,221 | — | 1,331,221 | ||||||||||||
| Total Other Financial Instruments |
$ | 1,037,362 | $ | 1,601,441 | $ | — | $ | 2,638,803 | ||||||||
| Liabilities: |
||||||||||||||||
| Other Financial Instruments: |
||||||||||||||||
| Options Written |
$ | — | $ | 3,465 | $ | — | $ | 3,465 | ||||||||
| Futures Contracts |
520,586 | — | — | 520,586 | ||||||||||||
| Forward Exchange Contracts |
— | 494,471 | — | 494,471 | ||||||||||||
| Swap Contracts |
— | 4,541,396 | — | 4,541,396 | ||||||||||||
| Total Other Financial Instruments |
$ | 520,586 | $ | 5,039,332 | $ | — | $ | 5,559,918 | ||||||||
aFor detailed categories, see the accompanying Statement of Investments.
11. Subsequent Events
The Fund has evaluated subsequent events through the issuance of the financial statements and determined that in addition to those events previously disclosed, the following subsequent event requires disclosure:
On December 6, 2019, Franklin Low Duration Total Return Fund (Surviving Fund), pursuant to a plan of reorganization approved on October 18, 2019, by shareholders of Franklin Flexible Alpha Bond Fund (Acquired Fund), a series of Franklin Strategic Series acquired 100% of the Acquired Fund’s net assets, primarily made up of investment securities, through a tax-free exchange of shares of the Surviving Fund for the net assets of the Acquired Fund. Capital losses obtained by the Surviving Fund may be carried over to offset future capital gains, subject to certain limitations.
| franklintempleton.com | Semiannual Report | 53 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin Flexible Alpha Bond Fund (continued)
Abbreviations
| Counterparty/Exchange | Currency | Selected Portfolio | ||||||||
| BNDP | BNP Paribas | COP | Colombian Peso | CLO | Collateralized Loan Obligation | |||||
| BZWS | Barclays Bank PLC | CNY | Chinese Renminbi | CNRR | China Reverse Repo Rate | |||||
| CITI | Citigroup, Inc. | DKK | Danish Krone | CPI | Consumer Price Index | |||||
| DBAB | Deutsche Bank AG | DOP | Dominican Peso | FNMA | Federal National Mortgage Association | |||||
| FBCO | Credit Suisse International | EUR | Euro | FRN | Floating Rate Note | |||||
| GSCO | The Goldman Sachs Group, Inc. | GBP | British Pound | GO | General Obligation | |||||
| JPHQ | JP Morgan Chase & Co. | USD | United States Dollar | IO | Interest Only | |||||
| MSCO | Morgan Stanley | UYU | Uruguayan Peso | LIBOR | London InterBank Offered Rate | |||||
| ZAR | South African Rand | RDA | Redevelopment Agency/Authority | |||||||
| SFR | Single Family Revenue | |||||||||
| Index | ||||
| CDX.NA.HY.Series number | CDX North America High Yield Index | |||
| CDX.NA.IG.Series number | CDX North America Investment Grade Index | |||
| MCDX.NA.Series number | MCDX North America Index | |||
| 54 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
FRANKLIN FLEXIBLE ALPHA BOND FUND
| franklintempleton.com | Semiannual Report | 55 | ||
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|
Semiannual Report and Shareholder Letter | |||||||
| Franklin Flexible Alpha Bond Fund
|
||||||||
| Investment Manager | Subadvisor | Distributor | Shareholder Services | |||||
| Franklin Advisers, Inc. | Franklin Templeton Institutional, LLC |
Franklin Templeton Distributors, Inc. (800) DIAL BEN® / 342-5236 franklintempleton.com |
(800) 632-2301 | |||||
| © 2019 Franklin Templeton Investments. All rights reserved. | 953 S 12/19 |
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Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.
You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.
SHAREHOLDER LETTER
| CFA® is a trademark owned by CFA Institute. | ||||
|
Not FDIC Insured | May Lose Value | No Bank Guarantee
|
| franklintempleton.com | Not part of the semiannual report | 1 | ||
| 2 |
Semiannual Report | franklintempleton.com | ||
SEMIANNUAL REPORT
Franklin Strategic Income Fund
1. Source: Morningstar.
2. Source: Lipper, a Thomson Reuters Company. For the six-month period ended 10/31/19, this category consisted of 331 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. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
3. Source: Bureau of Labor Statistics.
See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of Investments (SOI). The Consolidated SOI begins on page 15.
| franklintempleton.com | Semiannual Report | 3 | ||
FRANKLIN STRATEGIC INCOME FUND
| 4 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC INCOME FUND
| franklintempleton.com | Semiannual Report | 5 | ||
FRANKLIN STRATEGIC INCOME FUND
| 6 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC INCOME FUND
Performance Summary as of October 31, 2019
The performance tables 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. 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.
Performance as of 10/31/191
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 3.75% and the minimum is 0%. Class A: 3.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| Share Class
|
Cumulative Total Return2
|
Average Annual Total Return3
| ||
| A4 | ||||
| 6-Month |
+1.74% | -2.04% | ||
| 1-Year |
+5.90% | +1.90% | ||
| 5-Year |
+11.39% | +1.40% | ||
| 10-Year |
+55.49% | +4.12% | ||
| Advisor |
||||
| 6-Month |
+1.86% | +1.86% | ||
| 1-Year |
+6.15% | +6.15% | ||
| 5-Year |
+12.77% | +2.43% | ||
| 10-Year |
+59.35% | +4.77% | ||
| Distribution | 30-Day Standardized Yield6 | |||||||||||
| Share Class
|
Rate5
|
(with fee waiver)
|
(without fee waiver)
|
|||||||||
| A |
4.20% | 3.94% | 3.91% | |||||||||
| Advisor |
4.60% | 4.37% | 4.34% | |||||||||
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.
See page 8 for Performance Summary footnotes.
| franklintempleton.com | Semiannual Report | 7 | ||
FRANKLIN STRATEGIC INCOME FUND
PERFORMANCE SUMMARY
Distributions (5/1/19–10/31/19)
| Share Class
|
Net Investment Income
|
|||
| A |
$0.2064 | |||
| C |
$0.1864 | |||
| R |
$0.1941 | |||
| R6 |
$0.2253 | |||
| Advisor |
$0.2185 | |||
Total Annual Operating Expenses7
| Share Class
|
With Fee Waiver
|
Without Fee Waiver
| ||
| A |
0.89% | 0.94% | ||
| Advisor |
0.64% | 0.69% | ||
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
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. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. 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. 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. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 8/31/20. Fund investment results reflect the fee waiver; without this waiver, the results 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. Return for less than one year, if any, has not been annualized.
4. Prior to 3/1/19, these shares were offered at a higher initial sales charge of 4.25%, thus actual returns (with sales charges) would have differed. Average annual total returns with sales charges have been restated to reflect the current maximum initial sales charge of 3.75%.
5. Distribution rate is based on the sum of the respective class’s dividend distributions over the past six months and the maximum offering price (NAV for Advisor Class) per share on 10/31/19.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Consolidated Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
| 8 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC INCOME FUND
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) 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 table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| Actual |
Hypothetical | |||||||||||||||||
| (actual return after expenses) | (5% annual return before expenses) | |||||||||||||||||
| Share Class |
Beginning Account Value 5/1/19 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Ending Account Value 10/31/19 |
Expenses Paid During Period 5/1/19–10/31/191, 2 |
Net Annualized Expense Ratio2 | ||||||||||||
| A | $1,000 | $1,017.40 | $4.36 | $1,020.81 | $4.37 | 0.86% | ||||||||||||
| C | $1,000 | $1,015.30 | $6.38 | $1,018.80 | $6.39 | 1.26% | ||||||||||||
| R | $1,000 | $1,016.10 | $5.63 | $1,019.56 | $5.63 | 1.11% | ||||||||||||
| R6 | $1,000 | $1,019.30 | $2.39 | $1,022.77 | $2.39 | 0.47% | ||||||||||||
| Advisor | $1,000 | $1,018.60 | $3.10 | $1,022.07 | $3.10 | 0.61% | ||||||||||||
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
| franklintempleton.com | Semiannual Report | 9 | ||
FRANKLIN STRATEGIC SERIES
Consolidated Financial Highlights
Franklin Strategic Income Fund
| Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class A |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$ 9.61 | $ 9.61 | $ 9.84 | $ 9.32 | $10.04 | $10.57 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment incomeb |
0.21 | 0.42 | 0.39 | 0.39 | 0.42 | 0.42 | ||||||||||||||||||
| Net realized and unrealized gains (losses) |
(0.04 | ) | — | c | (0.32 | ) | 0.30 | (0.74 | ) | (0.30) | ||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total from investment operations |
0.17 | 0.42 | 0.07 | 0.69 | (0.32 | ) | 0.12 | |||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income and net foreign currency gains |
(0.21 | ) | (0.42 | ) | (0.30 | ) | (0.17 | ) | (0.40 | ) | (0.55) | |||||||||||||
| Net realized gains |
— | — | — | — | — | (0.10) | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total distributions |
(0.21 | ) | (0.42 | ) | (0.30 | ) | (0.17 | ) | (0.40 | ) | (0.65) | |||||||||||||
|
|
|
|||||||||||||||||||||||
| Net asset value, end of period |
$ 9.57 | $ 9.61 | $ 9.61 | $ 9.84 | $ 9.32 | $10.04 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total returnd |
1.74% | 4.52% | 0.64% | 7.50% | (3.14)% | 1.16% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.89% | 0.89% | 0.90% | 0.88% | 0.88% | 0.86% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliatesf |
0.86% | 0.84% | 0.85% | 0.82% | 0.84% | 0.85% | ||||||||||||||||||
| Net investment income |
4.28% | 4.39% | 3.93% | 4.08% | 4.44% | 4.03% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$3,058,166 | $3,131,799 | $3,291,002 | $3,833,786 | $4,500,752 | $5,242,844 | ||||||||||||||||||
| Portfolio turnover rate |
52.97% | 116.21% | g | 115.94% | 140.83% | 88.04% | 72.51% | |||||||||||||||||
| Portfolio turnover rate excluding mortgage dollar rollsh |
43.95% | 39.01% | g | 47.40% | 87.33% | 48.33% | 49.36% | |||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cAmount rounds to less than $0.01 per share.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gExcludes the value of portfolio activity as a result of in-kind transactions.
hSee Note 1(i) regarding mortgage dollar rolls.
| 10 |
Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Strategic Income Fund (continued)
| Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class C |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$ 9.61 | $ 9.60 | $ 9.84 | $ 9.31 | $10.04 | $10.57 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment incomeb |
0.19 | 0.38 | 0.35 | 0.35 | 0.38 | 0.38 | ||||||||||||||||||
| Net realized and unrealized gains (losses) |
(0.04 | ) | 0.01 | (0.33 | ) | 0.31 | (0.75 | ) | (0.30) | |||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total from investment operations |
0.15 | 0.39 | 0.02 | 0.66 | (0.37 | ) | 0.08 | |||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income and net foreign currency gains |
(0.19 | ) | (0.38 | ) | (0.26 | ) | (0.13 | ) | (0.36 | ) | (0.51) | |||||||||||||
| Net realized gains |
— | — | — | — | — | (0.10) | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total distributions |
(0.19 | ) | (0.38 | ) | (0.26 | ) | (0.13 | ) | (0.36 | ) | (0.61) | |||||||||||||
|
|
|
|||||||||||||||||||||||
| Net asset value, end of period |
$ 9.57 | $ 9.61 | $ 9.60 | $ 9.84 | $ 9.31 | $10.04 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total returnc |
1.53% | 4.19% | 0.14% | 7.19% | (3.64)% | 0.76% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.29% | 1.29% | 1.30% | 1.28% | 1.28% | 1.26% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliatese |
1.26% | 1.24% | 1.25% | 1.22% | 1.24% | 1.25% | ||||||||||||||||||
| Net investment income |
3.88% | 3.99% | 3.53% | 3.68% | 4.04% | 3.63% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$636,853 | $716,327 | $1,078,890 | $1,385,981 | $1,645,852 | $2,070,739 | ||||||||||||||||||
| Portfolio turnover rate |
52.97% | 116.21% | f | 115.94% | 140.83% | 88.04% | 72.51% | |||||||||||||||||
| Portfolio turnover rate excluding mortgage dollar rollsg |
43.95% | 39.01% | f | 47.40% | 87.33% | 48.33% | 49.36% | |||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fExcludes the value of portfolio activity as a result of in-kind transactions.
gSee Note 1(i) regarding mortgage dollar rolls.
| franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 11 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Strategic Income Fund (continued)
| Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$ 9.57 | $ 9.57 | $ 9.81 | $ 9.28 | $10.01 | $10.54 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment incomeb |
0.19 | 0.39 | 0.36 | 0.37 | 0.39 | 0.39 | ||||||||||||||||||
| Net realized and unrealized gains (losses) |
(0.04 | ) | 0.01 | (0.33 | ) | 0.31 | (0.74 | ) | (0.29) | |||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total from investment operations |
0.15 | 0.40 | 0.03 | 0.68 | (0.35 | ) | 0.10 | |||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income and net foreign currency gains |
(0.19 | ) | (0.40 | ) | (0.27 | ) | (0.15 | ) | (0.38 | ) | (0.53) | |||||||||||||
| Net realized gains |
— | — | — | — | — | (0.10) | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total distributions |
(0.19 | ) | (0.40 | ) | (0.27 | ) | (0.15 | ) | (0.38 | ) | (0.63) | |||||||||||||
|
|
|
|||||||||||||||||||||||
| Net asset value, end of period |
$ 9.53 | $ 9.57 | $ 9.57 | $ 9.81 | $ 9.28 | $10.01 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total returnc |
1.61% | 4.28% | 0.29% | 7.38% | (3.50)% | 0.91% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
1.14% | 1.14% | 1.15% | 1.13% | 1.13% | 1.11% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliatese |
1.11% | 1.09% | 1.10% | 1.07% | 1.09% | 1.10% | ||||||||||||||||||
| Net investment income |
4.03% | 4.14% | 3.68% | 3.83% | 4.19% | 3.78% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$77,290 | $85,458 | $105,692 | $146,552 | $181,671 | $223,758 | ||||||||||||||||||
| Portfolio turnover rate |
52.97% | 116.21% | f | 115.94% | 140.83% | 88.04% | 72.51% | |||||||||||||||||
| Portfolio turnover rate excluding mortgage dollar rollsg |
43.95% | 39.01% | f | 47.40% | 87.33% | 48.33% | 49.36% | |||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fExcludes the value of portfolio activity as a result of in-kind transactions.
gSee Note 1(i) regarding mortgage dollar rolls.
| 12 |
Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Strategic Income Fund (continued)
| Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Class R6 |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$ 9.63 | $ 9.62 | $ 9.86 | $ 9.33 | $10.05 | $10.58 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment incomeb |
0.23 | 0.45 | 0.43 | 0.43 | 0.46 | 0.46 | ||||||||||||||||||
| Net realized and unrealized gains (losses) |
(0.05 | ) | 0.02 | (0.34 | ) | 0.31 | (0.74 | ) | (0.30) | |||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total from investment operations |
0.18 | 0.47 | 0.09 | 0.74 | (0.28 | ) | 0.16 | |||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income and net foreign currency gains |
(0.23 | ) | (0.46 | ) | (0.33 | ) | (0.21 | ) | (0.44 | ) | (0.59) | |||||||||||||
| Net realized gains |
— | — | — | — | — | (0.10) | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total distributions |
(0.23 | ) | (0.46 | ) | (0.33 | ) | (0.21 | ) | (0.44 | ) | (0.69) | |||||||||||||
|
|
|
|||||||||||||||||||||||
| Net asset value, end of period |
$ 9.58 | $ 9.63 | $ 9.62 | $ 9.86 | $ 9.33 | $10.05 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total returnc |
1.93% | 5.03% | 0.95% | 8.03% | (2.76)% | 1.54% | ||||||||||||||||||
| Ratios to average net assetsd |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.51% | 0.51% | 0.50% | 0.48% | 0.49% | 0.48% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliatese |
0.47% | 0.45% | 0.45% | 0.42% | 0.45% | 0.47% | ||||||||||||||||||
| Net investment income |
4.67% | 4.78% | 4.33% | 4.48% | 4.83% | 4.41% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$150,506 | $307,287 | $433,068 | $369,106 | $286,503 | $253,929 | ||||||||||||||||||
| Portfolio turnover rate |
52.97% | 116.21% | f | 115.94% | 140.83% | 88.04% | 72.51% | |||||||||||||||||
| Portfolio turnover rate excluding mortgage dollar rollsg |
43.95% | 39.01% | f | 47.40% | 87.33% | 48.33% | 49.36% | |||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eBenefit of expense reduction rounds to less than 0.01%.
fExcludes the value of portfolio activity as a result of in-kind transactions.
gSee Note 1(i) regarding mortgage dollar rolls.
| franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 13 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Strategic Income Fund (continued)
| Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||
| Advisor Class |
||||||||||||||||||||||||
| Per share operating performance (for a share outstanding throughout the period) |
||||||||||||||||||||||||
| Net asset value, beginning of period |
$ 9.62 | $ 9.62 | $ 9.85 | $ 9.33 | $10.05 | $10.58 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Income from investment operationsa: |
||||||||||||||||||||||||
| Net investment incomeb |
0.22 | 0.44 | 0.41 | 0.42 | 0.44 | 0.44 | ||||||||||||||||||
| Net realized and unrealized gains (losses) |
(0.04 | ) | — | c | (0.32 | ) | 0.30 | (0.74 | ) | (0.29) | ||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total from investment operations |
0.18 | 0.44 | 0.09 | 0.72 | (0.30 | ) | 0.15 | |||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Less distributions from: |
||||||||||||||||||||||||
| Net investment income and net foreign currency gains |
(0.22 | ) | (0.44 | ) | (0.32 | ) | (0.20 | ) | (0.42 | ) | (0.58) | |||||||||||||
| Net realized gains |
— | — | — | — | — | (0.10) | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total distributions |
(0.22 | ) | (0.44 | ) | (0.32 | ) | (0.20 | ) | (0.42 | ) | (0.68) | |||||||||||||
|
|
|
|||||||||||||||||||||||
| Net asset value, end of period |
$ 9.58 | $ 9.62 | $ 9.62 | $ 9.85 | $ 9.33 | $10.05 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total returnd |
1.86% | 4.88% | 0.79% | 7.76% | (2.89)% | 1.41% | ||||||||||||||||||
| Ratios to average net assetse |
||||||||||||||||||||||||
| Expenses before waiver and payments by affiliates |
0.64% | 0.64% | 0.65% | 0.63% | 0.63% | 0.61% | ||||||||||||||||||
| Expenses net of waiver and payments by affiliatesf |
0.61% | 0.59% | 0.60% | 0.57% | 0.59% | 0.60% | ||||||||||||||||||
| Net investment income |
4.53% | 4.64% | 4.18% | 4.33% | 4.69% | 4.28% | ||||||||||||||||||
| Supplemental data |
||||||||||||||||||||||||
| Net assets, end of period (000’s) |
$593,969 | $608,317 | $933,747 | $1,070,103 | $904,899 | $1,130,796 | ||||||||||||||||||
| Portfolio turnover rate |
52.97% | 116.21% | g | 115.94% | 140.83% | 88.04% | 72.51% | |||||||||||||||||
| Portfolio turnover rate excluding mortgage dollar rollsh |
43.95% | 39.01% | g | 47.40% | 87.33% | 48.33% | 49.36% | |||||||||||||||||
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cAmount rounds to less than $0.01 per share.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
gExcludes the value of portfolio activity as a result of in-kind transactions.
hSee Note 1(i) regarding mortgage dollar rolls.
| 14 |
Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Consolidated Statement of Investments, October 31, 2019 (unaudited)
Franklin Strategic Income Fund
| Country/ Organization |
Shares/ Warrants |
Value | ||||||||||||||
| Common Stocks and Other Equity Interests 0.3% |
||||||||||||||||
| Commercial & Professional Services 0.0%† |
||||||||||||||||
| a,aa,b Remington Outdoor Co. Inc. |
United States | 1,322,439 | $ | 1,322,439 | ||||||||||||
|
|
|
|||||||||||||||
| Consumer Services 0.0%† |
||||||||||||||||
| a,b,c Turtle Bay Resort |
United States | 5,579,939 | 122,759 | |||||||||||||
|
|
|
|||||||||||||||
| Energy 0.1% |
||||||||||||||||
| Amplify Energy Corp. |
United States | 5,288 | 38,338 | |||||||||||||
| a,b Amplify Energy Corp., wts., 4/21/20 |
United States | 50,712 | — | |||||||||||||
| a Birch Permian Holdings Inc. |
United States | 46,176 | 427,128 | |||||||||||||
| a Birch Permian Holdings Inc. |
United States | 359,948 | 3,284,525 | |||||||||||||
| a Chaparral Energy Inc., A |
United States | 94,305 | 88,392 | |||||||||||||
| a,d Chaparral Energy Inc., A, 144A |
United States | 3,418 | 3,204 | |||||||||||||
| a,b Halcon Resources Corp. |
United States | 2,215 | 44,015 | |||||||||||||
| a,b Halcon Resources Corp., wts., 9/09/20 |
United States | 75,770 | — | |||||||||||||
| a,b Halcon Resources Corp., wts., A, 10/08/20 |
United States | 10,639 | — | |||||||||||||
| a,b Halcon Resources Corp., wts., B, 10/08/22 |
United States | 13,300 | — | |||||||||||||
| a,b Halcon Resources Corp., wts., C, 10/08/22 |
United States | 17,100 | — | |||||||||||||
| a Riviera Resources Inc. |
United States | 84,462 | 1,101,384 | |||||||||||||
| a Roan Resources Inc. |
United States | 88,309 | 132,464 | |||||||||||||
|
|
|
|||||||||||||||
| 5,119,450 | ||||||||||||||||
|
|
|
|||||||||||||||
| Materials 0.1% |
||||||||||||||||
| a,b,e Appvion Operations Inc. |
United States | 331,326 | 4,417,403 | |||||||||||||
| a Verso Corp., A |
United States | 38,905 | 569,569 | |||||||||||||
| a Verso Corp., wts., 7/25/23 |
United States | 4,095 | 7,166 | |||||||||||||
|
|
|
|||||||||||||||
| 4,994,138 | ||||||||||||||||
|
|
|
|||||||||||||||
| Media & Entertainment 0.1% |
||||||||||||||||
| a Clear Channel Outdoor Holdings Inc. |
United States | 285,564 | 665,364 | |||||||||||||
| a iHeartMedia Inc., A |
United States | 115,084 | 1,650,305 | |||||||||||||
| a,b iHeartMedia Inc., B |
United States | 1,941 | 23,659 | |||||||||||||
| a iHeartMedia Inc., wts., A, 5/01/39 |
United States | 1 | 14 | |||||||||||||
|
|
|
|||||||||||||||
| 2,339,342 | ||||||||||||||||
|
|
|
|||||||||||||||
| Retailing 0.0%† |
||||||||||||||||
| a,b,e K2016470219 South Africa Ltd., A |
South Africa | 125,940,079 | 83,322 | |||||||||||||
| a,b,e K2016470219 South Africa Ltd., B |
South Africa | 12,532,821 | 8,292 | |||||||||||||
|
|
|
|||||||||||||||
| 91,614 | ||||||||||||||||
|
|
|
|||||||||||||||
| Software & Services 0.0%† |
||||||||||||||||
| a,b WorkCapital BSD SARL, wts., 2/13/26 |
Brazil | 6,000,000 | 750,000 | |||||||||||||
|
|
|
|||||||||||||||
| Total Common Stocks and Other Equity Interests (Cost $65,238,205) |
14,739,742 | |||||||||||||||
|
|
|
|||||||||||||||
| Management Investment Companies (Cost $152,217,419) 2.8% |
||||||||||||||||
| Diversified Financials 2.8% |
||||||||||||||||
| f Franklin Floating Rate Income Fund |
United States | 15,243,687 | 126,065,295 | |||||||||||||
|
|
|
|||||||||||||||
| franklintempleton.com | Semiannual Report | 15 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Corporate Bonds 30.6% |
||||||||||||||||
| Banks 1.9% |
||||||||||||||||
| d Akbank T.A.S., senior note, 144A, 5.125%, 3/31/25 |
Turkey | 12,400,000 | $ | 11,867,296 | ||||||||||||
| Bank of America Corp., |
||||||||||||||||
| senior bond, 3.248%, 10/21/27 |
United States | 5,000,000 | 5,208,183 | |||||||||||||
| senior note, 3.50%, 4/19/26 |
United States | 29,800,000 | 31,732,215 | |||||||||||||
| Citigroup Inc., sub. bond, 5.50%, 9/13/25 |
United States | 10,000,000 | 11,455,689 | |||||||||||||
| Industrial & Commercial Bank of China Ltd., senior note, 3.538%, 11/08/27 |
China | 8,500,000 | 8,883,477 | |||||||||||||
| d Intesa Sanpaolo SpA, senior note, 144A, 6.50%, 2/24/21 |
Italy | 1,400,000 | 1,469,433 | |||||||||||||
| JPMorgan Chase & Co., sub. note, 3.875%, 9/10/24 |
United States | 10,000,000 | 10,693,758 | |||||||||||||
| g Turkiye Vakiflar Bankasi TAO, secured note, Reg S, 2.375%, 11/04/22 |
Turkey | 3,900,000 | EUR | 4,391,384 | ||||||||||||
|
|
|
|||||||||||||||
| 85,701,435 | ||||||||||||||||
|
|
|
|||||||||||||||
| Capital Goods 1.2% |
||||||||||||||||
| d Beacon Roofing Supply Inc., senior note, 144A, 4.875%, 11/01/25 |
United States | 12,000,000 | 11,835,600 | |||||||||||||
| CNH Industrial NV, senior bond, 3.85%, 11/15/27 |
United Kingdom | 6,600,000 | 6,888,915 | |||||||||||||
| d Herc Holdings Inc., senior note, 144A, 5.50%, 7/15/27 |
United States | 5,300,000 | 5,512,000 | |||||||||||||
| Legrand France SA, senior bond, 8.50%, 2/15/25 |
France | 200,000 | 260,435 | |||||||||||||
| h Onsite Rental Group Operations Pty. Ltd., secured note, PIK, 6.10%, 10/26/23 |
Australia | 4,655,176 | 4,306,038 | |||||||||||||
| d Terex Corp., senior note, 144A, 5.625%, 2/01/25 |
United States | 14,300,000 | 14,425,125 | |||||||||||||
| d Vertiv Group Corp., senior note, 144A, 9.25%, 10/15/24 |
United States | 14,000,000 | 13,238,750 | |||||||||||||
|
|
|
|||||||||||||||
| 56,466,863 | ||||||||||||||||
|
|
|
|||||||||||||||
| Commercial & Professional Services 0.7% |
||||||||||||||||
| United Rentals North America Inc., senior bond, 5.875%, 9/15/26 |
United States | 16,000,000 | 17,040,000 | |||||||||||||
| d West Corp., senior note, 144A, 8.50%, 10/15/25 |
United States | 17,300,000 | 13,148,000 | |||||||||||||
|
|
|
|||||||||||||||
| 30,188,000 | ||||||||||||||||
|
|
|
|||||||||||||||
| Consumer Durables & Apparel 0.7% |
||||||||||||||||
| d Hanesbrands Inc., senior bond, 144A, 4.875%, 5/15/26 |
United States | 15,000,000 | 15,937,500 | |||||||||||||
| KB Home, |
||||||||||||||||
| senior bond, 7.50%, 9/15/22 |
United States | 5,000,000 | 5,662,500 | |||||||||||||
| senior note, 7.00%, 12/15/21 |
United States | 8,000,000 | 8,630,000 | |||||||||||||
|
|
|
|||||||||||||||
| 30,230,000 | ||||||||||||||||
|
|
|
|||||||||||||||
| Consumer Services 1.3% |
||||||||||||||||
| d 1011778 BC ULC/New Red Finance Inc., |
||||||||||||||||
| secured note, second lien, 144A, 5.00%, 10/15/25 |
Canada | 11,500,000 | 11,873,750 | |||||||||||||
| senior secured note, first lien, 144A, 4.25%, 5/15/24 |
Canada | 2,000,000 | 2,056,330 | |||||||||||||
| d Golden Nugget Inc., senior note, 144A, 6.75%, 10/15/24 |
United States | 13,200,000 | 13,630,320 | |||||||||||||
| d KFC Holding Co./Pizza Hut Holdings LLC/Taco Bell of America LLC, |
||||||||||||||||
| senior note, 144A, 5.00%, 6/01/24 |
United States | 6,000,000 | 6,240,000 | |||||||||||||
| senior note, 144A, 5.25%, 6/01/26 |
United States | 9,100,000 | 9,646,000 | |||||||||||||
| d Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., senior bond, 144A, 5.50%, 3/01/25 |
United States | 13,700,000 | 14,590,500 | |||||||||||||
|
|
|
|||||||||||||||
| 58,036,900 | ||||||||||||||||
|
|
|
|||||||||||||||
| 16 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Corporate Bonds (continued) |
||||||||||||||||
| Diversified Financials 2.3% |
||||||||||||||||
| Capital One Financial Corp., senior note, 3.20%, 2/05/25 |
United States | 11,900,000 | $ | 12,330,983 | ||||||||||||
| i Cia Securitizadora de Creditos Financeiros Vert-Fintech, senior secured note, FRN, 5.96%, (BZDIOVRA + 5.75%), 2/14/24 |
Brazil | 5,306 | j | BRL | 1,366,622 | |||||||||||
| The Goldman Sachs Group Inc., |
||||||||||||||||
| senior note, 3.50%, 1/23/25 |
United States | 23,000,000 | 24,057,872 | |||||||||||||
| senior note, 3.75%, 2/25/26 |
United States | 15,000,000 | 15,969,780 | |||||||||||||
| Morgan Stanley, |
||||||||||||||||
| senior bond, 3.591% to 7/22/27, FRN thereafter, 7/22/28 |
United States | 10,000,000 | 10,578,159 | |||||||||||||
| senior note, 3.875%, 1/27/26 |
United States | 32,300,000 | 34,891,660 | |||||||||||||
| Springleaf Finance Corp., senior note, 6.625%, 1/15/28 |
United States | 5,700,000 | 6,327,000 | |||||||||||||
|
|
|
|||||||||||||||
| 105,522,076 | ||||||||||||||||
|
|
|
|||||||||||||||
| Energy 3.5% |
||||||||||||||||
| d Aker BP ASA, senior note, 144A, 4.75%, 6/15/24 |
Norway | 5,900,000 | 6,136,000 | |||||||||||||
| d California Resources Corp., secured note, second lien, 144A, 8.00%, 12/15/22 |
United States | 7,852,000 | 2,316,340 | |||||||||||||
| Cheniere Corpus Christi Holdings LLC, |
||||||||||||||||
| senior secured note, first lien, 7.00%, 6/30/24 |
United States | 8,800,000 | 10,142,704 | |||||||||||||
| senior secured note, first lien, 5.875%, 3/31/25 |
United States | 8,200,000 | 9,112,988 | |||||||||||||
| Cheniere Energy Partners LP, senior secured note, first lien, 5.25%, 10/01/25 |
United States | 11,900,000 | 12,361,125 | |||||||||||||
| CONSOL Energy Inc., senior note, 5.875%, 4/15/22 |
United States | 11,076,000 | 10,868,325 | |||||||||||||
| Ecopetrol SA, senior bond, 4.125%, 1/16/25 |
Colombia | 8,200,000 | 8,626,400 | |||||||||||||
| Energy Transfer Operating LP, |
||||||||||||||||
| senior bond, 4.05%, 3/15/25 |
United States | 1,300,000 | 1,364,926 | |||||||||||||
| senior note, 7.50%, 10/15/20 |
United States | 11,000,000 | 11,544,376 | |||||||||||||
| d,h EnQuest PLC, senior note, 144A, PIK, 7.00%, 4/15/22 |
United Kingdom | 9,955,122 | 7,998,592 | |||||||||||||
| Exxon Mobil Corp., senior note, 2.222%, 3/01/21 |
United States | 3,000,000 | 3,019,250 | |||||||||||||
| d,k Gaz Capital SA, (OJSC Gazprom), loan participation, senior note, 144A, 3.85%, 2/06/20 |
Russia | 20,000,000 | 20,084,100 | |||||||||||||
| Kinder Morgan Inc., |
||||||||||||||||
| senior bond, 4.30%, 6/01/25 |
United States | 9,000,000 | 9,743,174 | |||||||||||||
| senior note, 3.15%, 1/15/23 |
United States | 9,000,000 | 9,227,569 | |||||||||||||
| Martin Midstream Partners LP/Martin Midstream Finance Corp., senior note, 7.25%, 2/15/21 |
United States | 19,000,000 | 17,166,500 | |||||||||||||
| Oceaneering International Inc., senior note, 4.65%, 11/15/24 |
United States | 2,100,000 | 1,963,500 | |||||||||||||
| l Sanchez Energy Corp., senior note, 6.125%, 1/15/23 |
United States | 6,000,000 | 300,000 | |||||||||||||
| Sunoco LP/Sunoco Finance Corp., senior note, 4.875%, 1/15/23 |
United States | 5,900,000 | 6,069,625 | |||||||||||||
| l Weatherford International Ltd., |
||||||||||||||||
| senior note, 7.75%, 6/15/21 |
United States | 9,000,000 | 2,880,000 | |||||||||||||
| senior note, 8.25%, 6/15/23 |
United States | 7,000,000 | 2,170,000 | |||||||||||||
| d Woodside Finance Ltd., senior note, 144A, 3.70%, 9/15/26 |
Australia | 5,400,000 | 5,622,899 | |||||||||||||
|
|
|
|||||||||||||||
| 158,718,393 | ||||||||||||||||
|
|
|
|||||||||||||||
| Food & Staples Retailing 0.5% |
||||||||||||||||
| Walgreens Boots Alliance Inc., senior note, 3.80%, 11/18/24 |
United States | 21,900,000 | 23,229,803 | |||||||||||||
|
|
|
|||||||||||||||
| franklintempleton.com | Semiannual Report | 17 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Corporate Bonds (continued) |
||||||||||||||||
| Food, Beverage & Tobacco 0.6% |
||||||||||||||||
| Bunge Ltd. Finance Corp., senior note, 3.25%, 8/15/26 |
United States | 2,000,000 | $ | 2,005,690 | ||||||||||||
| d Imperial Brands Finance PLC, senior note, 144A, 3.50%, 2/11/23 |
United Kingdom | 20,400,000 | 20,861,825 | |||||||||||||
| Reynolds American Inc., senior note, 4.45%, 6/12/25 |
United Kingdom | 1,900,000 | 2,040,794 | |||||||||||||
|
|
|
|||||||||||||||
| 24,908,309 | ||||||||||||||||
|
|
|
|||||||||||||||
| Health Care Equipment & Services 1.1% |
||||||||||||||||
| Centene Corp., |
||||||||||||||||
| senior note, 4.75%, 5/15/22 |
United States | 2,000,000 | 2,050,000 | |||||||||||||
| d senior note, 144A, 5.375%, 6/01/26 |
United States | 7,600,000 | 8,063,600 | |||||||||||||
| CHS/Community Health Systems Inc., |
||||||||||||||||
| senior note, 6.875%, 2/01/22 |
United States | 7,223,000 | 5,615,882 | |||||||||||||
| senior secured note, first lien, 6.25%, 3/31/23 |
United States | 3,900,000 | 3,814,687 | |||||||||||||
| CVS Health Corp., senior bond, 4.30%, 3/25/28 |
United States | 5,800,000 | 6,301,243 | |||||||||||||
| DaVita Inc., |
||||||||||||||||
| senior bond, 5.125%, 7/15/24 |
United States | 8,000,000 | 8,186,160 | |||||||||||||
| senior bond, 5.00%, 5/01/25 |
United States | 6,000,000 | 6,097,500 | |||||||||||||
| Edwards Lifesciences Corp., senior note, 4.30%, 6/15/28 |
United States | 1,957,000 | 2,210,448 | |||||||||||||
| HCA Inc., senior bond, 5.875%, 2/15/26 |
United States | 3,000,000 | 3,382,500 | |||||||||||||
| d MEDNAX Inc., senior note, 144A, 6.25%, 1/15/27 |
United States | 6,300,000 | 6,248,970 | |||||||||||||
|
|
|
|||||||||||||||
| 51,970,990 | ||||||||||||||||
|
|
|
|||||||||||||||
| Materials 4.3% |
||||||||||||||||
| h ARD Finance SA, secured note, PIK, 7.125%, 9/15/23 |
Luxembourg | 1,300,000 | 1,353,625 | |||||||||||||
| d Ardagh Packaging Finance PLC/Ardagh MP Holdings USA Inc., senior note, 144A, 6.00%, 2/15/25 |
Luxembourg | 11,500,000 | 12,103,750 | |||||||||||||
| d Cemex SAB de CV, |
||||||||||||||||
| senior secured bond, first lien, 144A, 5.70%, 1/11/25 |
Mexico | 13,000,000 | 13,369,525 | |||||||||||||
| senior secured bond, first lien, 144A, 6.125%, 5/05/25 |
Mexico | 2,000,000 | 2,075,070 | |||||||||||||
| g CNAC HK Finbridge Co. Ltd., senior note, Reg S, 4.875%, 3/14/25 |
China | 7,800,000 | 8,465,964 | |||||||||||||
| Crown Americas LLC/Crown Americas Capital Corp. VI, senior note, 4.75%, 2/01/26 |
United States | 7,100,000 | 7,472,750 | |||||||||||||
| d First Quantum Minerals Ltd., |
||||||||||||||||
| senior note, 144A, 7.00%, 2/15/21 |
Zambia | 2,144,000 | 2,158,740 | |||||||||||||
| senior note, 144A, 7.25%, 4/01/23 |
Zambia | 7,200,000 | 7,258,500 | |||||||||||||
| d FMG Resources (August 2006) Pty. Ltd., |
||||||||||||||||
| senior note, 144A, 5.125%, 3/15/23 |
Australia | 3,600,000 | 3,757,500 | |||||||||||||
| senior note, 144A, 5.125%, 5/15/24 |
Australia | 7,700,000 | 8,085,000 | |||||||||||||
| Freeport-McMoRan Inc., senior note, 4.55%, 11/14/24 |
United States | 13,000,000 | 13,552,500 | |||||||||||||
| d Glencore Funding LLC, |
||||||||||||||||
| senior note, 144A, 4.125%, 5/30/23 |
Switzerland | 5,000,000 | 5,238,364 | |||||||||||||
| senior note, 144A, 4.625%, 4/29/24 |
Switzerland | 2,500,000 | 2,674,590 | |||||||||||||
| d Mauser Packaging Solutions Holding Co., senior note, 144A, 7.25%, 4/15/25 |
United States | 15,000,000 | 14,400,000 | |||||||||||||
| d New Gold Inc., senior note, 144A, 6.375%, 5/15/25 |
Canada | 6,900,000 | 6,589,500 | |||||||||||||
| d Northwest Acquisitions ULC/Dominion Finco Inc., secured note, second lien, 144A, 7.125%, 11/01/22 |
Canada | 3,800,000 | 1,909,500 | |||||||||||||
| d Novelis Corp., senior bond, 144A, 5.875%, 9/30/26 |
United States | 14,000,000 | 14,736,400 | |||||||||||||
| 18 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Corporate Bonds (continued) |
||||||||||||||||
| Materials (continued) |
||||||||||||||||
| d Owens-Brockway Glass Container Inc., |
||||||||||||||||
| senior note, 144A, 5.00%, 1/15/22 |
United States | 6,000,000 | $ | 6,217,500 | ||||||||||||
| senior note, 144A, 5.875%, 8/15/23 |
United States | 10,000,000 | 10,600,000 | |||||||||||||
| Reynolds Group Issuer Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer Luxembourg SA, |
||||||||||||||||
| senior secured note, first lien, 5.75%, 10/15/20 |
United States | 5,427,003 | 5,452,510 | |||||||||||||
| d senior secured note, first lien, 144A, 5.125%, 7/15/23 |
United States | 5,900,000 | 6,067,855 | |||||||||||||
| d,i senior secured note, first lien, 144A, FRN, 5.501%, (3-month USD LIBOR + 3.50%), 7/15/21 |
United States | 6,500,000 | 6,532,500 | |||||||||||||
| d SABIC Capital II BV, senior note, 144A, 4.50%, 10/10/28 |
Saudi Arabia | 5,500,000 | 6,111,517 | |||||||||||||
| d Sealed Air Corp., |
||||||||||||||||
| senior bond, 144A, 5.125%, 12/01/24 |
United States | 11,300,000 | 12,232,250 | |||||||||||||
| senior note, 144A, 4.875%, 12/01/22 |
United States | 4,000,000 | 4,250,000 | |||||||||||||
| e Sociedad Quimica y Minera de Chile SA, senior note, 144A, 3.625%, 4/03/23 |
Chile | 1,500,000 | 1,539,750 | |||||||||||||
| d SunCoke Energy Partners LP/SunCoke Energy Partners Finance Corp., senior note, 144A, 7.50%, 6/15/25 |
United States | 12,000,000 | 10,260,000 | |||||||||||||
|
|
|
|||||||||||||||
| 194,465,160 | ||||||||||||||||
|
|
|
|||||||||||||||
| Media & Entertainment 2.7% |
||||||||||||||||
| d Altice Financing SA, secured bond, 144A, 7.50%, 5/15/26 |
Luxembourg | 3,000,000 | 3,191,250 | |||||||||||||
| CCO Holdings LLC/CCO Holdings Capital Corp., |
||||||||||||||||
| senior bond, 5.25%, 9/30/22 |
United States | 6,500,000 | 6,601,562 | |||||||||||||
| d senior bond, 144A, 5.375%, 5/01/25 |
United States | 13,000,000 | 13,520,000 | |||||||||||||
| d Clear Channel Worldwide Holdings Inc., |
||||||||||||||||
| first lien, senior secured note, 144A, 5.125%, 8/15/27 |
United States | 6,400,000 | 6,677,952 | |||||||||||||
| senior sub. note, 144A, 9.25%, 2/15/24 |
United States | 1,362,000 | 1,500,754 | |||||||||||||
| d CSC Holdings LLC, senior secured note, first lien, 144A, 5.50%, 5/15/26 |
United States | 16,000,000 | 16,900,000 | |||||||||||||
| d Diamond Sports Group LLC/Diamond Sports Finance Co., |
||||||||||||||||
| first lien, 144A, 5.375%, 8/15/26 |
United States | 4,300,000 | 4,498,875 | |||||||||||||
| senior note, 144A, 6.625%, 8/15/27 |
United States | 4,500,000 | 4,646,250 | |||||||||||||
| DISH DBS Corp., |
||||||||||||||||
| senior bond, 5.00%, 3/15/23 |
United States | 6,000,000 | 6,067,500 | |||||||||||||
| senior note, 5.875%, 11/15/24 |
United States | 8,000,000 | 8,050,000 | |||||||||||||
| iHeartCommunications Inc., |
||||||||||||||||
| secured note, 6.375%, 5/01/26 |
United States | 661,721 | 715,486 | |||||||||||||
| senior note, 8.375%, 5/01/27 |
United States | 1,199,371 | 1,292,322 | |||||||||||||
| d Live Nation Entertainment Inc., senior note, 144A, 4.75%, 10/15/27 |
United States | 4,400,000 | 4,598,440 | |||||||||||||
| Netflix Inc., senior bond, 4.375%, 11/15/26 |
United States | 11,800,000 | 12,039,540 | |||||||||||||
| d Nexstar Broadcasting Inc., senior note, 144A, 5.625%, 8/01/24 |
United States | 15,000,000 | 15,688,200 | |||||||||||||
| d Univision Communications Inc., senior secured note, first lien, 144A, 5.125%, 2/15/25 |
United States | 16,000,000 | 15,680,000 | |||||||||||||
|
|
|
|||||||||||||||
| 121,668,131 | ||||||||||||||||
|
|
|
|||||||||||||||
| franklintempleton.com | Semiannual Report | 19 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Corporate Bonds (continued) |
||||||||||||||||
| Pharmaceuticals, Biotechnology & Life Sciences 1.6% |
||||||||||||||||
| Allergan Funding SCS, senior bond, 3.80%, 3/15/25 |
United States | 25,000,000 | $ | 26,251,150 | ||||||||||||
| d Bausch Health Cos. Inc., |
||||||||||||||||
| senior bond, 144A, 6.125%, 4/15/25 |
United States | 3,100,000 | 3,225,938 | |||||||||||||
| senior note, 144A, 8.50%, 1/31/27 |
United States | 5,000,000 | 5,637,500 | |||||||||||||
| senior note, first lien, 144A, 7.00%, 3/15/24 |
United States | 2,100,000 | 2,202,218 | |||||||||||||
| d Bayer U.S. Finance II LLC, senior bond, 144A, 4.375%, 12/15/28 |
Germany | 11,700,000 | 12,702,005 | |||||||||||||
| d,h Eagle Holdings Co. II LLC, senior note, 144A, PIK, 7.625%, 5/15/22 |
United States | 3,300,000 | 3,337,125 | |||||||||||||
| d Endo DAC/Endo Finance LLC/Endo Finco Inc., |
||||||||||||||||
| senior bond, 144A, 6.00%, 2/01/25 |
United States | 11,000,000 | 7,067,500 | |||||||||||||
| senior note, 144A, 6.00%, 7/15/23 |
United States | 1,637,000 | 1,090,651 | |||||||||||||
| d Jaguar Holding Co. II/Pharmaceutical Product Development LLC, senior note, 144A, 6.375%, 8/01/23 |
United States | 10,000,000 | 10,375,000 | |||||||||||||
|
|
|
|||||||||||||||
| 71,889,087 | ||||||||||||||||
|
|
|
|||||||||||||||
| Real Estate 0.8% |
||||||||||||||||
| American Tower Corp., senior bond, 3.375%, 10/15/26 |
United States | 15,500,000 | 16,141,201 | |||||||||||||
| g China Overseas Finance Cayman VI Ltd., senior note, Reg S, 5.95%, 5/08/24 |
China | 7,500,000 | 8,501,700 | |||||||||||||
| MPT Operating Partnership LP/MPT Finance Corp., |
||||||||||||||||
| senior bond, 5.25%, 8/01/26 |
United States | 4,200,000 | 4,425,750 | |||||||||||||
| senior bond, 5.00%, 10/15/27 |
United States | 5,700,000 | 6,027,750 | |||||||||||||
|
|
|
|||||||||||||||
| 35,096,401 | ||||||||||||||||
|
|
|
|||||||||||||||
| Retailing 0.1% |
||||||||||||||||
| b,d,h K2016470219 South Africa Ltd., senior secured note, 144A, PIK, 3.00%, 12/31/22 |
South Africa | 9,981,540 | 12,353 | |||||||||||||
| b,d,h K2016470260 South Africa Ltd., senior secured note, 144A, PIK, 25.00%, 12/31/22 |
South Africa | 2,371,531 | 10,946 | |||||||||||||
| d Party City Holdings Inc., senior note, 144A, 6.625%, 8/01/26 |
United States | 5,300,000 | 5,141,000 | |||||||||||||
|
|
|
|||||||||||||||
| 5,164,299 | ||||||||||||||||
|
|
|
|||||||||||||||
| Semiconductors & Semiconductor Equipment 0.1% |
||||||||||||||||
| Maxim Integrated Products Inc., senior note, 3.375%, 3/15/23 |
United States | 1,800,000 | 1,853,167 | |||||||||||||
| Qorvo Inc., senior note, 5.50%, 7/15/26 |
United States | 2,600,000 | 2,781,948 | |||||||||||||
|
|
|
|||||||||||||||
| 4,635,115 | ||||||||||||||||
|
|
|
|||||||||||||||
| Software & Services 0.2% |
||||||||||||||||
| d Symantec Corp., senior note, 144A, 5.00%, 4/15/25 |
United States | 9,500,000 | 9,743,079 | |||||||||||||
|
|
|
|||||||||||||||
| Technology Hardware & Equipment 0.5% |
||||||||||||||||
| d CommScope Technologies LLC, senior bond, 144A, 6.00%, 6/15/25 |
United States | 14,600,000 | 13,140,000 | |||||||||||||
| d Dell International LLC/EMC Corp., senior note, 144A, 7.125%, 6/15/24 |
United States | 7,000,000 | 7,430,500 | |||||||||||||
|
|
|
|||||||||||||||
| 20,570,500 | ||||||||||||||||
|
|
|
|||||||||||||||
| 20 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Corporate Bonds (continued) |
||||||||||||||||
| Telecommunication Services 1.4% |
||||||||||||||||
| AT&T Inc., senior note, 2.95%, 7/15/26 |
United States | 14,800,000 | $ | 15,079,687 | ||||||||||||
| d Digicel Group Two Ltd., |
||||||||||||||||
| senior note, 144A, 8.25%, 9/30/22 |
Bermuda | 2,427,000 | 627,938 | |||||||||||||
| h senior note, 144A, PIK, 9.125%, 4/01/24 |
Bermuda | 3,042,961 | 562,948 | |||||||||||||
| d Digicel Ltd., senior note, 144A, 6.00%, 4/15/21 |
Bermuda | 10,000,000 | 7,562,500 | |||||||||||||
| Sprint Communications Inc., |
||||||||||||||||
| senior note, 6.00%, 11/15/22 |
United States | 10,000,000 | 10,600,000 | |||||||||||||
| d senior note, 144A, 7.00%, 3/01/20 |
United States | 5,000,000 | 5,075,000 | |||||||||||||
| T-Mobile USA Inc., |
||||||||||||||||
| senior bond, 6.50%, 1/15/24 |
United States | 3,000,000 | 3,123,750 | |||||||||||||
| senior bond, 6.375%, 3/01/25 |
United States | 13,000,000 | 13,522,730 | |||||||||||||
| senior note, 5.125%, 4/15/25 |
United States | 6,000,000 | 6,256,800 | |||||||||||||
|
|
|
|||||||||||||||
| 62,411,353 | ||||||||||||||||
|
|
|
|||||||||||||||
| Transportation 1.6% |
||||||||||||||||
| d DAE Funding LLC, |
||||||||||||||||
| senior note, 144A, 4.50%, 8/01/22 |
United Arab Emirates | 2,000,000 | 2,040,000 | |||||||||||||
| senior note, 144A, 5.00%, 8/01/24 |
United Arab Emirates | 14,000,000 | 14,682,500 | |||||||||||||
| d Kazakhstan Temir Zholy Finance BV, senior bond, 144A, 6.95%, 7/10/42 |
Kazakhstan | 18,100,000 | 24,494,730 | |||||||||||||
| d Mexico City Airport Trust, senior secured bond, first lien, 144A, 5.50%, 7/31/47 |
Mexico | 12,718,000 | 12,806,072 | |||||||||||||
| g,k RZD Capital PLC, (Russian Railways), loan participation, senior bond, Reg S, 5.70%, 4/05/22 |
Russia | 17,600,000 | 18,887,352 | |||||||||||||
|
|
|
|||||||||||||||
| 72,910,654 | ||||||||||||||||
|
|
|
|||||||||||||||
| Utilities 3.5% |
||||||||||||||||
| Calpine Corp., |
||||||||||||||||
| senior bond, 5.75%, 1/15/25 |
United States | 9,000,000 | 9,258,750 | |||||||||||||
| senior note, 5.375%, 1/15/23 |
United States | 4,000,000 | 4,074,800 | |||||||||||||
| Clearway Energy Operating LLC, senior note, 5.75%, 10/15/25 |
United States | 12,800,000 | 13,184,000 | |||||||||||||
| Dominion Energy Inc., senior bond, 2.85%, 8/15/26 |
United States | 11,400,000 | 11,611,381 | |||||||||||||
| d,m EDF SA, |
||||||||||||||||
| junior sub. bond, 144A, 5.625% to 1/22/24, FRN thereafter, Perpetual |
France | 5,000,000 | 5,255,775 | |||||||||||||
| junior sub. note, 144A, 5.25% to 1/29/23, FRN thereafter, Perpetual |
France | 25,000,000 | 25,914,000 | |||||||||||||
| Exelon Corp., senior bond, 3.95%, 6/15/25 |
United States | 8,500,000 | 9,215,223 | |||||||||||||
| d InterGen NV, secured bond, 144A, 7.00%, 6/30/23 |
Netherlands | 4,800,000 | 4,586,400 | |||||||||||||
| d Israel Electric Corp. Ltd., secured bond, 144A, 4.25%, 8/14/28 |
Israel | 9,200,000 | 10,037,062 | |||||||||||||
| The Southern Co., senior bond, 3.25%, 7/01/26 |
United States | 24,200,000 | 25,266,991 | |||||||||||||
| d State Grid Overseas Investment 2016 Ltd., senior note, 144A, 3.50%, 5/04/27 |
China | 12,800,000 | 13,539,456 | |||||||||||||
| d Talen Energy Supply LLC, |
||||||||||||||||
| senior note, 144A, 10.50%, 1/15/26 |
United States | 3,000,000 | 2,587,500 | |||||||||||||
| senior secured note, 144A, 7.25%, 5/15/27 |
United States | 10,800,000 | 10,827,000 | |||||||||||||
| franklintempleton.com | Semiannual Report | 21 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Corporate Bonds (continued) |
||||||||||||||||
| Utilities (continued) |
||||||||||||||||
| d Three Gorges Finance I Cayman Islands Ltd., senior note, 144A, 3.15%, 6/02/26 |
China | 12,800,000 | $ | 13,225,728 | ||||||||||||
| Virginia Electric & Power Co., senior bond, 6.35%, 11/30/37 |
United States | 820,000 | 1,157,504 | |||||||||||||
|
|
|
|||||||||||||||
| 159,741,570 | ||||||||||||||||
|
|
|
|||||||||||||||
| Total Corporate Bonds (Cost $1,392,458,413) |
1,383,268,118 | |||||||||||||||
|
|
|
|||||||||||||||
|
i,n Senior Floating Rate Interests 5.8% |
||||||||||||||||
| Automobiles & Components 0.0%† |
||||||||||||||||
| Adient US LLC, |
||||||||||||||||
| Initial Term Loans, 6.459%, (3-month USD LIBOR + 4.25%), 5/06/24 |
United States | 180,000 | 176,175 | |||||||||||||
| Initial Term Loans, 6.889%, (6-month USD LIBOR + 4.25%), 5/06/24 |
United States | 538,200 | 526,763 | |||||||||||||
| Thor Industries Inc., Initial USD Term Loans, 5.813%, (1-month USD LIBOR + 3.75%), 2/01/26 |
United States | 1,884,415 | 1,840,838 | |||||||||||||
|
|
|
|||||||||||||||
| 2,543,776 | ||||||||||||||||
|
|
|
|||||||||||||||
| Capital Goods 0.2% |
||||||||||||||||
| Altra Industrial Motion Corp., Term Loan, 3.786%, (3-month USD LIBOR + 2.00%), 10/01/25 |
United States | 692,214 | 691,128 | |||||||||||||
| Doncasters U.S. Finance LLC, Second-Lien Term Loans, 10.354%, (3-month USD LIBOR + 8.25%), 10/09/20 |
United States | 12,543,188 | 3,386,661 | |||||||||||||
| Harsco Corp., Term Loan B-2, 4.063%, (1-month USD LIBOR + 2.25%), 12/10/24 |
United States | 2,040,990 | 2,047,368 | |||||||||||||
| Onsite Rental Group Operations Pty. Ltd., Term Loan, 6.323%, (1-month USD LIBOR + 4.50%), 10/25/22 |
Australia | 3,404,855 | 3,362,294 | |||||||||||||
|
|
|
|||||||||||||||
| 9,487,451 | ||||||||||||||||
|
|
|
|||||||||||||||
| Commercial & Professional Services 0.0%† |
||||||||||||||||
| United Rentals North America Inc., Initial Term Loans, 3.536%, (1-month USD LIBOR + 1.75%), 10/31/25 |
United States | 997,481 | 1,002,885 | |||||||||||||
| Ventia Pty Ltd., Term B Loans, 5.604%, (3-month USD LIBOR + 3.50%), 5/21/26 |
Australia | 829,952 | 832,027 | |||||||||||||
|
|
|
|||||||||||||||
| 1,834,912 | ||||||||||||||||
|
|
|
|||||||||||||||
| Consumer Services 0.1% |
||||||||||||||||
| Aristocrat Technologies Inc., Term B-3 Loans, 3.716%, (3-month USD LIBOR + 1.75%), 10/19/24 |
United States | 1,408,412 | 1,413,474 | |||||||||||||
| Avis Budget Car Rental LLC, Tranche B Term Loans, 3.79%, (1-month USD LIBOR + 2.00%), 2/13/25 |
United States | 1,994,924 | 1,999,073 | |||||||||||||
| Eldorado Resorts Inc., Initial Term Loan, 4.125% - 4.313%, (1-month USD LIBOR + 2.25%), 4/17/24 |
United States | 3,215,110 | 3,214,412 | |||||||||||||
|
|
|
|||||||||||||||
| 6,626,959 | ||||||||||||||||
|
|
|
|||||||||||||||
| Diversified Financials 0.0%† |
||||||||||||||||
| Russell Investments U.S. Institutional Holdco Inc., Initial Term Loan, 5.036%, (1-month USD LIBOR + 3.25%), 6/01/23 |
United States | 708,606 | 689,415 | |||||||||||||
|
|
|
|||||||||||||||
| 22 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| i,n Senior Floating Rate Interests (continued) |
||||||||||||||||
| Energy 2.2% |
||||||||||||||||
| Fieldwood Energy LLC, Closing Date Loans, 7.177%, (3-month USD LIBOR + 5.25%), 4/11/22 |
United States | 64,439,645 | $ | 52,131,673 | ||||||||||||
| Utex Industries Inc., |
||||||||||||||||
| First Lien Initial Term Loan, 5.786%, (1-month USD LIBOR + 4.00%), 5/21/21 |
United States | 9,168,440 | 7,059,699 | |||||||||||||
| Second Lien Initial Term Loan, 9.036%, (1-month USD LIBOR + 7.25%), 5/20/22 |
United States | 955,410 | 506,367 | |||||||||||||
| Wolverine Fuels Holding LLC, |
||||||||||||||||
| First Lien Initial Term Loan, 7.874%, (3-month USD LIBOR + 5.75%), 8/14/20 |
United States | 17,686,722 | 17,303,504 | |||||||||||||
| Second Lien Initial Term Loan, 12.874%, (3-month USD LIBOR + 10.75%), 2/16/21 |
United States | 22,488,412 | 21,270,282 | |||||||||||||
|
|
|
|||||||||||||||
| 98,271,525 | ||||||||||||||||
|
|
|
|||||||||||||||
| Food, Beverage & Tobacco 0.4% |
||||||||||||||||
| CSM Bakery Supplies LLC, Second Lien Term Loan, 9.78%, (3-month USD LIBOR + 7.75%), 7/03/21 |
United States | 16,940,234 | 15,161,509 | |||||||||||||
| JBS USA Lux SA, New Term Loans, 4.286%, (1-month USD LIBOR + 2.50%), 5/01/26 |
United States | 997,494 | 1,002,244 | |||||||||||||
|
|
|
|||||||||||||||
| 16,163,753 | ||||||||||||||||
|
|
|
|||||||||||||||
| Household & Personal Products 1.0% |
||||||||||||||||
| b FGI Operating Co. LLC (Freedom Group), |
||||||||||||||||
| h Term Loan, PIK, 12.10%, (3-month USD LIBOR + 10.00%), 5/15/22 |
United States | 15,064,735 | 14,699,084 | |||||||||||||
| Term Loan FILO, 9.624% - 9.658%, (3-month USD LIBOR + 7.50%), 5/15/21 |
United States | 28,662,305 | 28,606,339 | |||||||||||||
|
|
|
|||||||||||||||
| 43,305,423 | ||||||||||||||||
|
|
|
|||||||||||||||
| Materials 0.4% |
||||||||||||||||
| Appvion Operations, Inc., |
||||||||||||||||
| Term Loan, 8.10%, (3-month USD LIBOR + 6.00%), 6/15/26 |
United States | 442,850 | 447,279 | |||||||||||||
| Term Loan, 8.22%, (6-month USD LIBOR + 6.00%), 6/15/26 |
United States | 7,044,096 | 7,114,537 | |||||||||||||
| Axalta Coating Systems U.S. Holdings Inc., Term B-3 Dollar Loan, 3.854%, (3-month USD LIBOR + 1.75%), 6/01/24 |
United States | 2,183,006 | 2,183,290 | |||||||||||||
| Chemours Co., Tranche B-2 US$ Term Loan, 3.54%, (1-month USD LIBOR + 1.75%), 4/03/25 |
United States | 4,104,239 | 3,897,315 | |||||||||||||
| Crown Americas LLC, Dollar Term B Loan, 3.997%, (1-month USD LIBOR + 2.00%), 4/03/25 |
United States | 530,377 | 534,354 | |||||||||||||
| Oxbow Carbon LLC, Tranche A Term Loan, 4.286%, (1-month USD LIBOR + 2.50%), 1/04/22 |
United States | 3,172,129 | 3,156,269 | |||||||||||||
|
|
|
|||||||||||||||
| 17,333,044 | ||||||||||||||||
|
|
|
|||||||||||||||
| Media & Entertainment 0.3% |
||||||||||||||||
| Charter Communications Operating LLC, Term A-2 Loan, 3.55%, (1-month USD LIBOR + 1.50%), 3/31/23 |
United States | 2,959,459 | 2,955,760 | |||||||||||||
| CSC Holdings LLC, March 2017 Incremental Term Loans, 4.171%, (1-month USD LIBOR + 2.25%), 7/17/25 |
United States | 997,442 | 994,013 | |||||||||||||
| Diamond Sports Group LLC, Term Loan, 5.08%, (1-month USD LIBOR + 3.25%), 8/24/26 |
United States | 3,000,000 | 3,018,375 | |||||||||||||
| Gray Television Inc., Term C Loan, 4.511%, (1-month USD LIBOR + 2.50%), 1/02/26 |
United States | 396,805 | 398,386 | |||||||||||||
| franklintempleton.com | Semiannual Report | 23 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| i,n Senior Floating Rate Interests (continued) |
||||||||||||||||
| Media & Entertainment (continued) |
||||||||||||||||
| iHeartCommunications Inc., Term Loan, 6.032%, (1-month USD LIBOR + 4.00%), 5/04/26 |
United States | 2,282,583 | $ | 2,293,277 | ||||||||||||
| Lions Gate Capital Holdings LLC, Term A Loan, 3.536%, (1-month USD LIBOR + 1.75%), 3/22/23 |
Canada | 2,478,119 | 2,419,263 | |||||||||||||
| Nexstar Broadcasting Inc., Term B-4 Loan, 4.554%, (1-month USD LIBOR + 2.75%), 9/19/26 |
United States | 997,625 | 1,003,112 | |||||||||||||
|
|
|
|||||||||||||||
| 13,082,186 | ||||||||||||||||
|
|
|
|||||||||||||||
| Pharmaceuticals, Biotechnology & Life Sciences 0.2% |
||||||||||||||||
| Grifols Worldwide Operations USA Inc., Tranche B Term Loan, 4.086%, (1-week USD LIBOR + 2.25%), 1/31/25 |
United States | 6,741,681 | 6,759,587 | |||||||||||||
| Syneos Health Inc., Initial Term B Loans, 3.786%, (1-month USD LIBOR + 2.00%), 8/01/24 |
United States | 1,466,008 | 1,470,589 | |||||||||||||
|
|
|
|||||||||||||||
| 8,230,176 | ||||||||||||||||
|
|
|
|||||||||||||||
| Retailing 0.1% |
||||||||||||||||
| h 99 Cents Only Stores, |
||||||||||||||||
| First Lien Term Loan, PIK, 8.604%, (3-month USD LIBOR + 6.50%), 1/13/22 |
United States | 2,642,070 | 2,173,103 | |||||||||||||
| First Lien Term Loan, PIK, 8.535%, (6-month USD LIBOR + 6.50%), 1/13/22 |
United States | 1,983,114 | 1,631,111 | |||||||||||||
|
|
|
|||||||||||||||
| 3,804,214 | ||||||||||||||||
|
|
|
|||||||||||||||
| Semiconductors & Semiconductor Equipment 0.1% |
||||||||||||||||
| MKS Instruments Inc., Tranche B-6 Term Loan, 3.536%, (1-month USD LIBOR + 1.75%), 2/02/26 |
United States | 3,549,320 | 3,563,738 | |||||||||||||
| ON Semiconductor Corp., 2019 Replacement Term B-4 Loans, 3.786%, (1-month USD LIBOR + 2.00%), 9/18/26 |
United States | 2,000,000 | 2,011,522 | |||||||||||||
|
|
|
|||||||||||||||
| 5,575,260 | ||||||||||||||||
|
|
|
|||||||||||||||
| Software & Services 0.5% |
||||||||||||||||
| WEX Inc., Term B-3 Loan, 4.036%, (1-month USD LIBOR + 2.25%), 5/17/26 |
United States | 1,844,081 | 1,853,302 | |||||||||||||
| b WorkCapital BSD SARL, Loan, 18.176%, (3-month USD LIBOR + 16.00%), 2/11/22 |
Luxembourg | 20,000,000 | 20,023,463 | |||||||||||||
|
|
|
|||||||||||||||
| 21,876,765 | ||||||||||||||||
|
|
|
|||||||||||||||
| Telecommunication Services 0.2% |
||||||||||||||||
| Global Tel*Link Corp., |
||||||||||||||||
| First Lien Term Loan, 6.036%, (1-month USD LIBOR + 4.25%), 11/29/25 |
United States | 997,488 | 873,799 | |||||||||||||
| Second Lien Term Loan, 10.036%, (1-month USD LIBOR + 8.25%), 11/29/26 |
United States | 545,755 | 521,196 | |||||||||||||
| Securus Technologies Holdings Inc., |
||||||||||||||||
| Initial Term Loan, 6.286%, (1-month USD LIBOR + 4.50%), 11/01/24 |
United States | 2,487,342 | 1,975,658 | |||||||||||||
| Second Lien Initial Loan, 10.036%, (1-month USD LIBOR + 8.25%), 11/01/25 |
United States | 10,588,688 | 5,823,779 | |||||||||||||
|
|
|
|||||||||||||||
| 9,194,432 | ||||||||||||||||
|
|
|
|||||||||||||||
| 24 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| i,n Senior Floating Rate Interests (continued) |
||||||||||||||||
| Transportation 0.1% |
||||||||||||||||
| Air Canada, Term Loan, 3.805%, (1-month USD LIBOR + 2.00%), 10/06/23 |
Canada | 407,413 | $ | 409,451 | ||||||||||||
| Allegiant Travel Co., Class B Term Loans, 6.709%, (3-month USD LIBOR + 4.50%), 2/05/24 |
United States | 2,901,565 | 2,912,446 | |||||||||||||
| Hertz Corp., Tranche B-1 Term Loan, 4.54%, (1-month USD LIBOR + 2.75%), 6/30/23 |
United States | 994,751 | 996,201 | |||||||||||||
|
|
|
|||||||||||||||
| 4,318,098 | ||||||||||||||||
|
|
|
|||||||||||||||
| Utilities 0.0%† |
||||||||||||||||
| EFS Cogen Holdings I LLC (Linden), |
||||||||||||||||
| Term B Advance, 5.04%, (1-month USD LIBOR + 3.25%), 6/28/23 |
United States | 282,435 | 281,994 | |||||||||||||
| Term B Advance, 5.36%, (3-month USD LIBOR + 3.25%), 6/28/23 |
United States | 697,512 | 696,422 | |||||||||||||
|
|
|
|||||||||||||||
| 978,416 | ||||||||||||||||
|
|
|
|||||||||||||||
| Total Senior Floating Rate Interests (Cost $289,272,277) |
263,315,805 | |||||||||||||||
|
|
|
|||||||||||||||
| Foreign Government and Agency Securities 12.2% |
||||||||||||||||
| d The African Export-Import Bank, senior bond, 144A, 3.994%, 9/21/29 |
Supranationalo | 8,600,000 | 8,724,571 | |||||||||||||
| d Angolan Government International Bond, senior note, 144A, 8.25%, 5/09/28 |
Angola | 26,800,000 | 28,106,232 | |||||||||||||
| g Banque Centrale de Tunisie International Bond, senior note, Reg S, 5.625%, 2/17/24 |
Tunisia | 25,700,000 | EUR | 28,094,677 | ||||||||||||
| p Brazil Notas do Tesouro Nacional, Index Linked, 6.00%, 5/15/23 |
Brazil | 19,500 | j | BRL | 18,073,278 | |||||||||||
| d Dominican Republic, senior note, 144A, 8.90%, 2/15/23 |
Dominican Republic | 838,300,000 | DOP | 15,908,746 | ||||||||||||
| d The Export-Import Bank of India, senior note, 144A, 3.875%, 2/01/28 |
India | 16,000,000 | 17,052,344 | |||||||||||||
| d Government of Belarus International Bond, |
||||||||||||||||
| senior bond, 144A, 6.20%, 2/28/30 |
Belarus | 3,500,000 | 3,747,132 | |||||||||||||
| senior note, 144A, 7.625%, 6/29/27 |
Belarus | 7,500,000 | 8,634,375 | |||||||||||||
| Government of China, 3.29%, 5/23/29 |
China | 270,300,000 | CNY | 38,353,264 | ||||||||||||
| Government of Colombia, |
||||||||||||||||
| senior bond, 9.85%, 6/28/27 |
Colombia | 55,750,000,000 | COP | 20,737,762 | ||||||||||||
| senior bond, 5.00%, 6/15/45 |
Colombia | 20,700,000 | 24,162,282 | |||||||||||||
| d Government of Gabon, 144A, 6.375%, 12/12/24 |
Gabon | 29,000,000 | 28,954,035 | |||||||||||||
| Government of Indonesia, |
||||||||||||||||
| senior bond, FR34, 12.80%, 6/15/21 |
Indonesia | 129,210,000,000 | IDR | 10,184,371 | ||||||||||||
| senior bond, FR39, 11.75%, 8/15/23 |
Indonesia | 29,150,000,000 | IDR | 2,449,518 | ||||||||||||
| senior bond, FR44, 10.00%, 9/15/24 |
Indonesia | 8,340,000,000 | IDR | 679,760 | ||||||||||||
| senior bond, FR56, 8.375%, 9/15/26 |
Indonesia | 363,988,000,000 | IDR | 28,355,138 | ||||||||||||
| d Government of Iraq, 144A, 5.80%, 1/15/28 |
Iraq | 29,000,000 | 27,896,985 | |||||||||||||
| d Government of Kazakhstan, senior bond, 144A, 4.875%, 10/14/44 |
Kazakhstan | 19,300,000 | 23,534,999 | |||||||||||||
| Government of Mexico, senior note, 4.15%, 3/28/27 |
Mexico | 13,900,000 | 14,899,410 | |||||||||||||
| Government of Peru, senior bond, 6.55%, 3/14/37 |
Peru | 11,400,000 | 16,675,464 | |||||||||||||
| franklintempleton.com | Semiannual Report | 25 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Foreign Government and Agency Securities (continued) |
||||||||||||||||
| d Government of Russia, senior note, 144A, 4.875%, 9/16/23 |
Russia | 8,600,000 | $ | 9,415,581 | ||||||||||||
| Government of South Africa, senior bond, 7.00%, 2/28/31 |
South Africa | 365,000,000 | ZAR | 20,153,319 | ||||||||||||
| d,g Government of Spain, |
||||||||||||||||
| senior bond, 144A, Reg S, 1.45%, 4/30/29 |
Spain | 17,300,000 | EUR | 21,543,391 | ||||||||||||
| senior bond, 144A, Reg S, 2.70%, 10/31/48 |
Spain | 35,600,000 | EUR | 55,210,551 | ||||||||||||
| d Government of Ukraine, |
||||||||||||||||
| 144A, 7.75%, 9/01/22 |
Ukraine | 2,200,000 | 2,344,320 | |||||||||||||
| 144A, 7.75%, 9/01/23 |
Ukraine | 4,355,000 | 4,665,947 | |||||||||||||
| 144A, 7.75%, 9/01/24 |
Ukraine | 4,355,000 | 4,676,181 | |||||||||||||
| a,q 144A, VRI, GDP Linked Security, 5/31/40 |
Ukraine | 9,990,000 | 9,411,080 | |||||||||||||
| senior bond, 144A, 7.375%, 9/25/32 |
Ukraine | 6,000,000 | 6,285,090 | |||||||||||||
| Government of Uruguay, |
||||||||||||||||
| senior bond, 4.375%, 1/23/31 |
Uruguay | 8,000,000 | 8,942,080 | |||||||||||||
| r senior bond, Index Linked, 3.70%, 6/26/37 |
Uruguay | 835,347,737 | UYU | 22,293,211 | ||||||||||||
| Nota do Tesouro Nacional, 10.00%, 1/01/23 |
Brazil | 34,402 | j | BRL | 9,675,969 | |||||||||||
| d Panama Notas del Tesoro, senior note, 144A, 3.75%, 4/17/26 |
Panama | 8,200,000 | 8,511,600 | |||||||||||||
|
|
|
|||||||||||||||
| Total Foreign Government and Agency Securities |
548,352,663 | |||||||||||||||
|
|
|
|||||||||||||||
| U.S. Government and Agency Securities 6.2% |
||||||||||||||||
| U.S. Treasury Bond, |
||||||||||||||||
| 7.125%, 2/15/23 |
United States | 3,000,000 | 3,538,067 | |||||||||||||
| 6.25%, 8/15/23 |
United States | 4,000,000 | 4,694,375 | |||||||||||||
| 6.875%, 8/15/25 |
United States | 1,000,000 | 1,293,652 | |||||||||||||
| 5.25%, 2/15/29 |
United States | 1,750,000 | 2,288,775 | |||||||||||||
| U.S. Treasury Note, |
||||||||||||||||
| 3.125%, 11/15/28 |
United States | 81,000,000 | 90,852,890 | |||||||||||||
| r Index Linked, 0.625%, 1/15/24 |
United States | 25,234,651 | 25,656,744 | |||||||||||||
| r Index Linked, 0.125%, 7/15/24 |
United States | 97,827,737 | 97,925,262 | |||||||||||||
| r Index Linked, 0.375%, 7/15/25 |
United States | 34,295,255 | 34,819,321 | |||||||||||||
| r Index Linked, 0.375%, 7/15/27 |
United States | 18,784,202 | 19,113,536 | |||||||||||||
|
|
|
|||||||||||||||
| Total U.S. Government and Agency Securities |
280,182,622 | |||||||||||||||
|
|
|
|||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities 30.1% |
||||||||||||||||
| Banks 0.4% |
||||||||||||||||
| s Commercial Mortgage Trust, 2006-GG7, AJ, FRN, 5.637%, 7/10/38 |
United States | 5,333,000 | 4,941,858 | |||||||||||||
| CSAIL Commercial Mortgage Trust, 2015-C1, A4, 3.505%, 4/15/50 |
United States | 10,050,000 | 10,657,941 | |||||||||||||
| s CWABS Asset-Backed Certificates Trust, 2005-11, AF4, FRN, 5.21%, 3/25/34 |
United States | 1,629,592 | 1,648,209 | |||||||||||||
| t Merrill Lynch Mortgage Investors Trust, 2005-A6, 2A3, FRN, 2.203%, (1-month USD LIBOR + 0.38%), 8/25/35 |
United States | 831,420 | 838,721 | |||||||||||||
|
|
|
|||||||||||||||
| 18,086,729 | ||||||||||||||||
|
|
|
|||||||||||||||
| 26 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) |
||||||||||||||||
| Diversified Financials 29.7% |
||||||||||||||||
| t American Express Credit Account Master Trust, 2017-2, A, FRN, 2.364%, (1-month USD LIBOR + 0.45%), 9/16/24 |
United States | 9,170,000 | $ | 9,215,936 | ||||||||||||
| d,t AMMC CLO XI Ltd., |
||||||||||||||||
| 2012-11A, BR2, 144A, FRN, 3.536%, (3-month USD LIBOR + 1.60%), 4/30/31 |
United States | 3,000,000 | 2,932,530 | |||||||||||||
| 2012-11A, CR2, 144A, FRN, 3.836%, (3-month USD LIBOR + 1.90%), 4/30/31 |
United States | 1,000,000 | 941,690 | |||||||||||||
| 2012-11A, DR2, 144A, FRN, 4.786%, (3-month USD LIBOR + 2.85%), 4/30/31 |
United States | 1,450,000 | 1,298,243 | |||||||||||||
| d,t Antares CLO Ltd., 2018-1A, B, 144A, FRN, 3.616%, (3-month USD LIBOR + 1.65%), 4/20/31 |
United States | 17,500,000 | 17,055,150 | |||||||||||||
| d,t Ares CLO Ltd., 2018-48A, D, 144A, FRN, 4.666%, (3-month USD LIBOR + 2.70%), 7/20/30 |
United States | 3,550,000 | 3,274,875 | |||||||||||||
| d,s ARES L CLO Ltd., 2018-50A, B, 144A, FRN, 3.701%, 1/15/32 |
United States | 15,700,000 | 15,475,333 | |||||||||||||
| d,s ARES LII CLO Ltd., |
||||||||||||||||
| 2019-52A, A2, 144A, FRN, 3.603%, 4/22/31 |
United States | 2,522,358 | 2,516,077 | |||||||||||||
| 2019-52A, B, 144A, FRN, 3.803%, 4/22/31 |
United States | 3,500,000 | 3,503,500 | |||||||||||||
| 2019-52A, C, 144A, FRN, 4.633%, 4/22/31 |
United States | 1,000,000 | 995,020 | |||||||||||||
| 2019-52A, D, 144A, FRN, 5.903%, 4/22/31 |
United States | 1,703,704 | 1,680,278 | |||||||||||||
| d,t Ares XLIII CLO Ltd., 2017-43A, A, 144A, FRN, 3.221%, (3-month USD LIBOR + 1.22%), 10/15/29 |
United States | 3,870,000 | 3,875,495 | |||||||||||||
| d,s Atrium XIV LLC, 14A, D, 144A, FRN, 4.951%, 8/23/30 |
United States | 3,750,000 | 3,587,550 | |||||||||||||
| Banc of America Commercial Mortgage Trust, |
||||||||||||||||
| 2015-UBS7, A3, 3.441%, 9/15/48 |
United States | 10,920,000 | 11,575,335 | |||||||||||||
| 2015-UBS7, A4, 3.705%, 9/15/48 |
United States | 12,450,000 | 13,384,853 | |||||||||||||
| s 2015-UBS7, B, FRN, 4.361%, 9/15/48 |
United States | 6,740,000 | 7,316,574 | |||||||||||||
| d,s BCAP LLC Trust, 2009-RR1, 2A2, 144A, FRN, 4.94%, 5/26/35 |
United States | 5,223,207 | 5,095,359 | |||||||||||||
| d,s BCC Middle Market CLO LLC, 2018-1A, A2, 144A, FRN, 4.116%, 10/20/30 |
United States | 6,300,000 | 6,253,695 | |||||||||||||
| d Betony CLO 2 Ltd., |
||||||||||||||||
| s 2018-1A, A1, 144A, FRN, 3.016%, 4/30/31 |
United States | 15,300,000 | 15,169,338 | |||||||||||||
| t 2018-1A, C, 144A, FRN, 4.836%, (3-month USD LIBOR + 2.90%), 4/30/31 |
United States | 4,000,000 | 3,623,720 | |||||||||||||
| d,s BlueMountain CLO Ltd., |
||||||||||||||||
| 2012-2A, BR2, 144A, FRN, 3.586%, 11/20/28 |
United States | 6,710,000 | 6,678,060 | |||||||||||||
| 2012-2A, CR2, 144A, FRN, 4.136%, 11/20/28 |
United States | 2,730,000 | 2,666,910 | |||||||||||||
| 2014-2A, CR2, 144A, FRN, 4.166%, 10/20/30 |
United States | 3,800,000 | 3,625,048 | |||||||||||||
| 2018-1A, D, 144A, FRN, 4.986%, 7/30/30 |
United States | 5,000,000 | 4,589,250 | |||||||||||||
| d,s,u BlueMountain EUR CLO, |
||||||||||||||||
| 5A, A, 144A, FRN, 0.91%, 1/15/33 |
Ireland | 20,900,000 | EUR | 23,309,771 | ||||||||||||
| 5A, B, 144A, FRN, 1.55%, 1/15/33 |
Ireland | 6,200,000 | EUR | 6,914,860 | ||||||||||||
| d,t BlueMountain Fuji U.S. CLO II Ltd., 2017-2A, A1A, 144A, FRN, 3.166%, (3-month USD LIBOR + 1.20%), 10/20/30 |
United States | 4,200,000 | 4,202,688 | |||||||||||||
| d,t BlueMountain Fuji U.S. CLO III Ltd., |
||||||||||||||||
| 2017-3A, A2, 144A, FRN, 3.151%, (3-month USD LIBOR + 1.15%), 1/15/30 |
United States | 4,600,000 | 4,496,500 | |||||||||||||
| 2017-3A, C, 144A, FRN, 3.701%, (3-month USD LIBOR + 1.70%), 1/15/30 |
United States | 600,000 | 567,732 | |||||||||||||
| franklintempleton.com | Semiannual Report | 27 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed |
||||||||||||||||
| Diversified Financials (continued) |
||||||||||||||||
| d BRAVO Residential Funding Trust, 2019-1, A1C, 144A, 3.50%, 3/25/58 |
United States | 10,804,901 | $ | 11,007,743 | ||||||||||||
| d,s Burnham Park CLO Ltd., |
||||||||||||||||
| 2016-1A, BR, 144A, FRN, 3.466%, 10/20/29 |
United States | 3,500,000 | 3,463,635 | |||||||||||||
| 2016-1A, CR, 144A, FRN, 4.116%, 10/20/29 |
United States | 4,000,000 | 3,884,720 | |||||||||||||
| d,s Buttermilk Park CLO Ltd., 2018-1A, C, 144A, FRN, 4.101%, 10/15/31 |
United States | 9,730,950 | 9,410,704 | |||||||||||||
| t Capital One Multi-Asset Execution Trust, |
||||||||||||||||
| 2016-A2, A2, FRN, 2.551%, (1-month USD LIBOR + 0.63%), 2/15/24 |
United States | 44,033,000 | 44,302,887 | |||||||||||||
| 2016-A7, A7, FRN, 2.431%, (1-month USD LIBOR + 0.51%), 9/16/24 |
United States | 4,400,000 | 4,427,740 | |||||||||||||
| d,t Carlyle Global Market Strategies CLO Ltd., 2014-4RA, C, 144A, FRN, 4.901%, (3-month USD LIBOR + 2.90%), 7/15/30 |
United States | 3,000,000 | 2,690,670 | |||||||||||||
| d,s Carlyle GMS Finance MM CLO LLC, 2015-1A, A2R, 144A, FRN, 4.201%, 10/15/31 |
United States | 12,000,000 | 11,903,400 | |||||||||||||
| d,t Carlyle U.S. CLO Ltd., 2017-2A, A1B, 144A, FRN, 3.186%, (3-month USD LIBOR + 1.22%), 7/20/31 |
United States | 8,500,000 | 8,500,255 | |||||||||||||
| d,t Catamaran CLO Ltd., 2014-2A, BR, 144A, FRN, 4.953%, (3-month USD LIBOR + 2.95%), 10/18/26 |
United States | 11,770,000 | 11,775,414 | |||||||||||||
| d,s CGRBS Commercial Mortgage Trust, 2013-VN05, C, 144A, FRN, 3.584%, 3/13/35 |
United States | 7,700,000 | 8,153,741 | |||||||||||||
| d,s CIM Trust, |
||||||||||||||||
| 2019-INV1, A1, 144A, FRN, 4.00%, 2/25/49 |
United States | 14,067,317 | 14,432,353 | |||||||||||||
| 2019-INV2, A3, 144A, FRN, 4.00%, 5/25/49 |
United States | 17,857,951 | 18,673,020 | |||||||||||||
| s Citibank Credit Card Issuance Trust, |
||||||||||||||||
| 2016-A3, A3, FRN, 2.48%, 12/07/23 |
United States | 4,800,000 | 4,826,269 | |||||||||||||
| 2017-A7, A7, FRN, 2.348%, 8/08/24 |
United States | 36,060,000 | 36,112,319 | |||||||||||||
| d,s Cole Park CLO Ltd., 2015-1A, BR, 144A, FRN, 3.566%, 10/20/28 |
United States | 3,530,000 | 3,507,337 | |||||||||||||
| d,s Consumer Loan Underlying Bond CLUB Certificate Issuer Trust I, |
||||||||||||||||
| 2018-14, PT, 144A, FRN, 9.459%, 9/16/41 |
United States | 5,315,974 | 5,218,437 | |||||||||||||
| 2018-29, PT, 144A, FRN, 25.917%, 12/15/43 |
United States | 2,385,591 | 1,973,324 | |||||||||||||
| 2019-26, PT, 144A, FRN, 20.442%, 8/15/44 |
United States | 8,066,325 | 7,592,886 | |||||||||||||
| 2019-31, PT, 144A, FRN, 21.412%, 9/15/44 |
United States | 7,284,495 | 6,808,026 | |||||||||||||
| 2019-37, PT, 144A, FRN, 20.088%, 10/17/44 |
United States | 7,257,122 | 6,973,307 | |||||||||||||
| 2019-42, PT, 144A, FRN, 24.207%, 11/15/44 |
United States | 7,577,604 | 7,286,316 | |||||||||||||
| 2019-S1, PT, 144A, FRN, 14.902%, 4/15/44 |
United States | 7,203,375 | 6,325,383 | |||||||||||||
| 2019-S2, PT, 144A, FRN, 14.389%, 5/16/44 |
United States | 5,130,082 | 4,689,474 | |||||||||||||
| 2019-S3, PT, 144A, FRN, 14.539%, 6/15/44 |
United States | 5,931,262 | 5,534,463 | |||||||||||||
| 2019-S4, PT, 144A, FRN, 13.454%, 8/15/44 |
United States | 6,712,272 | 6,265,039 | |||||||||||||
| 2019-S5, PT, 144A, FRN, 13.279%, 9/15/44 |
United States | 6,211,248 | 5,695,440 | |||||||||||||
| 2019-S6, PT, 144A, FRN, 12.793%, 10/17/44 |
United States | 5,787,144 | 5,403,167 | |||||||||||||
| s Discover Card Execution Note Trust, 2017-A7, A7, FRN, 2.281%, 4/15/25 |
United States | 5,360,000 | 5,356,204 | |||||||||||||
| d,s Dryden 38 Senior Loan Fund, 2015-38A, CR, 144A, FRN, 4.001%, 7/15/30 |
United States | 7,186,000 | 6,893,314 | |||||||||||||
| 2015-38A, DR, 144A, FRN, 5.001%, 7/15/30 |
United States | 4,556,000 | 4,211,976 | |||||||||||||
| 28 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) |
||||||||||||||||
| Diversified Financials (continued) |
||||||||||||||||
| d,t Dryden 41 Senior Loan Fund, 2015-41A, AR, 144A, FRN, 2.956%, (3-month USD LIBOR + 0.97%), 4/15/31 |
United States | 9,850,000 | $ | 9,742,734 | ||||||||||||
| d,t Dryden 42 Senior Loan Fund, 2016-42A, DR, 144A, FRN, 4.931%, (3-month USD LIBOR + 2.93%), 7/15/30 |
United States | 8,400,000 | 7,649,628 | |||||||||||||
| d,t Dryden 55 CLO Ltd., |
||||||||||||||||
| 2018-55A, A1, 144A, FRN, 3.021%, (3-month USD LIBOR + 1.02%), 4/15/31 |
United States | 11,500,000 | 11,393,970 | |||||||||||||
| 2018-55A, D, 144A, FRN, 4.851%, (3-month USD LIBOR + 2.85%), 4/15/31 |
United States | 3,000,000 | 2,724,090 | |||||||||||||
| d,t Dryden 64 CLO Ltd., |
||||||||||||||||
| 2018-64A, A, 144A, FRN, 2.973%, (3-month USD LIBOR + 0.97%), 4/18/31 |
United States | 5,070,000 | 5,010,580 | |||||||||||||
| 2018-64A, D, 144A, FRN, 4.653%, (3-month USD LIBOR + 2.65%), 4/18/31 |
United States | 2,200,000 | 2,007,720 | |||||||||||||
| d,s Eaton Vance CLO Ltd., |
||||||||||||||||
| 2014-1RA, C, 144A, FRN, 4.101%, 7/15/30 |
United States | 1,972,575 | 1,907,776 | |||||||||||||
| 2014-1RA, D, 144A, FRN, 5.051%, 7/15/30 |
United States | 3,653,850 | 3,491,473 | |||||||||||||
| d,s Eleven Madison Trust 2015-11MD Mortgage Trust, 2015-11MD, A, 144A, FRN, 3.673%, 9/10/35 |
United States | 14,920,000 | 15,971,918 | |||||||||||||
| FHLMC Structured Agency Credit Risk Debt Notes, |
||||||||||||||||
| t 2013-DN2, M2, FRN, 6.073%, (1-month USD LIBOR + 4.25%), 11/25/23 |
United States | 12,101,524 | 13,061,494 | |||||||||||||
| t 2014-DN1, M2, FRN, 4.023%, (1-month USD LIBOR + 2.20%), 2/25/24 |
United States | 5,822,052 | 5,889,301 | |||||||||||||
| t 2014-DN2, M3, FRN, 5.423%, (1-month USD LIBOR + 3.60%), 4/25/24 |
United States | 21,379,000 | 22,587,816 | |||||||||||||
| t 2014-DN3, M3, FRN, 5.823%, (1-month USD LIBOR + 4.00%), 8/25/24 |
United States | 1,057,862 | 1,116,690 | |||||||||||||
| t 2014-DN4, M3, FRN, 6.373%, (1-month USD LIBOR + 4.55%), 10/25/24 |
United States | 13,753,024 | 14,752,523 | |||||||||||||
| t 2014-HQ1, M3, FRN, 5.923%, (1-month USD LIBOR + 4.10%), 8/25/24 |
United States | 3,074,073 | 3,249,385 | |||||||||||||
| t 2014-HQ2, M2, FRN, 4.023%, (1-month USD LIBOR + 2.20%), 9/25/24 |
United States | 6,882,177 | 6,970,515 | |||||||||||||
| t 2014-HQ3, M3, FRN, 6.573%, (1-month USD LIBOR + 4.75%), 10/25/24 |
United States | 6,088,430 | 6,450,475 | |||||||||||||
| t 2015-DNA1, M3, FRN, 5.123%, (1-month USD LIBOR + 3.30%), 10/25/27 |
United States | 2,830,000 | 3,010,899 | |||||||||||||
| t 2015-DNA3, M3, FRN, 6.523%, (1-month USD LIBOR + 4.70%), 4/25/28 |
United States | 18,411,581 | 20,320,895 | |||||||||||||
| t 2015-HQ1, M3, FRN, 5.623%, (1-month USD LIBOR + 3.80%), 3/25/25 |
United States | 7,239,514 | 7,439,946 | |||||||||||||
| t 2015-HQA1, M3, FRN, 6.523%, (1-month USD LIBOR + 4.70%), 3/25/28 |
United States | 18,830,000 | 19,950,969 | |||||||||||||
| t 2016-DNA2, M3, FRN, 6.473%, (1-month USD LIBOR + 4.65%), 10/25/28 |
United States | 17,584,196 | 18,862,898 | |||||||||||||
| s 2017-DNA1, M2, FRN, 5.073%, 7/25/29 |
United States | 7,300,000 | 7,660,394 | |||||||||||||
| s 2017-DNA2, M2, FRN, 5.273%, 10/25/29 |
United States | 5,868,312 | 6,237,802 | |||||||||||||
| franklintempleton.com | Semiannual Report | 29 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) |
||||||||||||||||
| Diversified Financials (continued) |
||||||||||||||||
| FHLMC Structured Agency Credit Risk Debt Notes, (continued) |
||||||||||||||||
| t 2017-DNA3, M2, FRN, 4.323%, (1-month USD LIBOR + 2.50%), 3/25/30 |
United States | 26,312,269 | $ | 26,868,426 | ||||||||||||
| s 2017-HQA1, M2, FRN, 5.373%, 8/25/29 |
United States | 28,226,000 | 29,594,425 | |||||||||||||
| d,t Flagship CLO VIII Ltd., |
||||||||||||||||
| 2014-8A, ARR, 144A, FRN, 2.851%, (3-month USD LIBOR + 0.85%), 1/16/26 |
United States | 4,838,441 | 4,838,296 | |||||||||||||
| 2014-8A, DR, 144A, FRN, 5.051%, (3-month USD LIBOR + 3.05%), 1/16/26 |
United States | 3,000,000 | 2,879,580 | |||||||||||||
| FNMA Connecticut Avenue Securities, |
||||||||||||||||
| t 2013-C01, M2, FRN, 7.073%, (1-month USD LIBOR + 5.25%), 10/25/23 |
United States | 14,863,521 | 16,386,049 | |||||||||||||
| t 2014-C01, M2, FRN, 6.223%, (1-month USD LIBOR + 4.40%), 1/25/24 |
United States | 17,060,372 | 18,518,914 | |||||||||||||
| t 2014-C02, 1M2, FRN, 4.423%, (1-month USD LIBOR + 2.60%), 5/25/24 |
United States | 13,807,687 | 14,365,603 | |||||||||||||
| t 2014-C03, 1M2, FRN, 4.823%, (1-month USD LIBOR + 3.00%), 7/25/24 |
United States | 30,489,149 | 32,039,401 | |||||||||||||
| t 2014-C03, 2M2, FRN, 4.723%, (1-month USD LIBOR + 2.90%), 7/25/24 |
United States | 3,903,526 | 4,059,751 | |||||||||||||
| t 2015-C01, 1M2, FRN, 6.123%, (1-month USD LIBOR + 4.30%), 2/25/25 |
United States | 7,887,349 | 8,355,339 | |||||||||||||
| t 2015-C01, 2M2, FRN, 6.373%, (1-month USD LIBOR + 4.55%), 2/25/25 |
United States | 9,726,017 | 10,060,237 | |||||||||||||
| t 2015-C02, 1M2, FRN, 5.823%, (1-month USD LIBOR + 4.00%), 5/25/25 |
United States | 22,732,334 | 23,990,401 | |||||||||||||
| t 2015-C02, 2M2, FRN, 5.823%, (1-month USD LIBOR + 4.00%), 5/25/25 |
United States | 11,163,113 | 11,615,056 | |||||||||||||
| t 2015-C03, 1M2, FRN, 6.823%, (1-month USD LIBOR + 5.00%), 7/25/25 |
United States | 27,347,322 | 29,544,433 | |||||||||||||
| t 2015-C03, 2M2, FRN, 6.823%, (1-month USD LIBOR + 5.00%), 7/25/25 |
United States | 13,868,546 | 14,752,951 | |||||||||||||
| s 2016-C02, 1M2, FRN, 7.823%, 9/25/28 |
United States | 9,945,586 | 10,855,818 | |||||||||||||
| s 2016-C04, 1M2, FRN, 6.073%, 1/25/29 |
United States | 9,910,000 | 10,473,370 | |||||||||||||
| s 2016-C05, 2M2, FRN, 6.273%, 1/25/29 |
United States | 6,570,520 | 6,921,274 | |||||||||||||
| s 2016-C06, 1M2, FRN, 6.073%, 4/25/29 |
United States | 2,220,000 | 2,362,670 | |||||||||||||
| s 2016-C07, 2M2, FRN, 6.173%, 5/25/29 |
United States | 4,099,885 | 4,308,537 | |||||||||||||
| t 2017-C01, 1M2, FRN, 5.373%, (1-month USD LIBOR + 3.55%), 7/25/29 |
United States | 22,910,000 | 24,008,237 | |||||||||||||
| s 2017-C03, 1M2, FRN, 4.823%, 10/25/29 |
United States | 24,932,535 | 25,972,316 | |||||||||||||
| s 2017-C03, 2M2, FRN, 4.673%, 11/25/29 |
United States | 5,225,499 | 5,379,594 | |||||||||||||
| s 2017-C05, 1M2, FRN, 4.023%, 1/25/30 |
United States | 12,555,148 | 12,713,427 | |||||||||||||
| d Galaxy XVIII CLO Ltd., |
||||||||||||||||
| s 2018-28A, A2, 144A, FRN, 3.071%, 7/15/31 |
United States | 9,500,000 | 9,488,315 | |||||||||||||
| t 2018-28A, C, 144A, FRN, 3.951%, (3-month USD LIBOR + 1.95%), 7/15/31 |
United States | 3,070,000 | 2,931,850 | |||||||||||||
| 30 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) |
||||||||||||||||
| Diversified Financials (continued) |
||||||||||||||||
| d,s Galaxy XXV CLO Ltd., 2018-25A, D, 144A, FRN, 5.04%, 10/25/31 |
United States | 4,734,850 | $ | 4,439,774 | ||||||||||||
| d,s Galaxy XXVI CLO Ltd., 2018-26A, A, 144A, FRN, 3.35%, 11/22/31 |
United States | 7,600,000 | 7,585,712 | |||||||||||||
| d,t Galaxy XXVII CLO Ltd., |
||||||||||||||||
| 2018-27A, C, 144A, FRN, 3.968%, (3-month USD LIBOR + 1.80%), 5/16/31 |
United States | 3,600,000 | 3,393,864 | |||||||||||||
| 2018-27A, C, 144A, FRN, 4.918%, (3-month USD LIBOR + 2.75%), 5/16/31 |
United States | 5,750,000 | 5,143,145 | |||||||||||||
| GS Mortgage Securities Trust, |
||||||||||||||||
| s 2016-GS3, B, FRN, 3.395%, 10/10/49 |
United States | 8,037,000 | 8,356,726 | |||||||||||||
| 2017-GS6, B, 3.869%, 5/10/50 |
United States | 7,700,000 | 8,245,891 | |||||||||||||
| d,s HPS Loan Management Ltd., 2013A-18, C, 144A, FRN, 4.151%, 10/15/30 |
United States | 4,950,000 | 4,767,197 | |||||||||||||
| d,s LCM XVI LP, |
||||||||||||||||
| 2016A, A2R, 144A, FRN, 3.181%, 10/15/31 |
United States | 7,655,557 | 7,634,121 | |||||||||||||
| 2016A, BR2, 144A, FRN, 3.751%, 10/15/31 |
United States | 13,525,832 | 13,490,259 | |||||||||||||
| d,s LCM XVII LP, |
||||||||||||||||
| 2017A, BRR, 144A, FRN, 3.601%, 10/15/31 |
United States | 4,590,000 | 4,479,886 | |||||||||||||
| 2017A, CRR, 144A, FRN, 4.101%, 10/15/31 |
United States | 4,240,000 | 4,048,903 | |||||||||||||
| d,t LCM XVIII LP, 2018A, DR, 144A, FRN, 4.766%, (3-month USD LIBOR + 2.80%), 4/20/31 |
United States | 6,860,000 | 6,151,568 | |||||||||||||
| d,t LCM XXIV Ltd., 24A, A, 144A, FRN, 3.276%, (3-month USD LIBOR + 1.31%), 3/20/30 |
United States | 4,300,000 | 4,299,054 | |||||||||||||
| d,s Madison Park Euro Funding XIV DAC, 2014A, A1N, 144A, FRN, 1.12%, 7/15/32 |
Ireland | 9,800,000 | EUR | 10,977,246 | ||||||||||||
| d,t Madison Park Funding XXIII Ltd., |
||||||||||||||||
| 2017-23A, B, 144A, FRN, 3.636%, (3-month USD LIBOR + 1.70%), 7/27/30 |
United States | 2,400,000 | 2,385,144 | |||||||||||||
| 2017-23A, C, 144A, FRN, 4.286%, (3-month USD LIBOR + 2.35%), 7/27/30 |
United States | 5,000,000 | 4,917,650 | |||||||||||||
| d,s Magnetite Ltd., 2015-14RA, A1, 144A, FRN, 3.123%, 10/18/31 |
United States | 2,000,000 | 1,994,660 | |||||||||||||
| d,s Mill City Mortgage Loan Trust, 2018-4, A1B, 144A, FRN, 3.50%, 4/25/66 |
United States | 16,720,000 | 17,257,378 | |||||||||||||
| t MortgageIT Trust, |
||||||||||||||||
| 2004-1, A2, FRN, 2.723%, (1-month USD LIBOR + 0.90%), 11/25/34 |
United States | 1,618,376 | 1,640,612 | |||||||||||||
| 2005-5, A1, FRN, 2.343%, (1-month USD LIBOR + 0.26%), 12/25/35 |
United States | 1,472,177 | 1,475,873 | |||||||||||||
| d,s Mountain View Funding CLO XIV Ltd., |
||||||||||||||||
| 2019-1A, A1, 144A, FRN, 3.441%, 4/15/29 |
United States | 5,000,000 | 5,001,050 | |||||||||||||
| 2019-1A, C, 144A, FRN, 4.901%, 4/15/29 |
United States | 4,500,000 | 4,505,490 | |||||||||||||
| franklintempleton.com | Semiannual Report | 31 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) |
||||||||||||||||
| Diversified Financials (continued) |
||||||||||||||||
| d,s Neuberger Berman CLO XVIII Ltd., 2014-18A, CR2, 144A, FRN, 4.966%, 10/21/30 |
United States | 500,000 | $ | 451,250 | ||||||||||||
| d,s Neuberger Berman CLO XXII Ltd., 2016-22A, CR, 144A, FRN, 4.202%, 10/17/30 |
United States | 2,129,630 | 2,071,065 | |||||||||||||
| d,t NZCG Funding Ltd., 2015-1A, A2R, 144A, FRN, 3.682%, (3-month USD LIBOR + 1.55%), 2/26/31 |
United States | 15,500,000 | 15,195,580 | |||||||||||||
| d,s Octagon Investment Partners 24 Ltd., 2015-1A, BS, 144A, FRN, 3.866%, 4/21/31 |
United States | 4,485,000 | 4,482,444 | |||||||||||||
| d,s Octagon Investment Partners 28 Ltd., |
||||||||||||||||
| 2016-1A, A2R, 144A, FRN, 3.386%, 10/24/30 |
United States | 10,000,000 | 10,012,100 | |||||||||||||
| 2016-1A, BR, 144A, FRN, 3.736%, 10/24/30 |
United States | 3,914,730 | 3,912,185 | |||||||||||||
| d,t Octagon Investment Partners 30 Ltd., 144A, FRN, 3.286%, (3-month USD LIBOR + 1.32%), 3/17/30 |
United States | 4,300,000 | 4,308,901 | |||||||||||||
| d,t Octagon Investment Partners 36 Ltd., 2018-1A, A1, 144A, FRN, 2.971%, (3-month USD LIBOR + 0.97%), 4/15/31 |
United States | 7,475,000 | 7,419,536 | |||||||||||||
| d,t Octagon Investment Partners 37 Ltd., 2018-2A, C, 144A, FRN, 4.79%, (3-month USD LIBOR + 2.85%), 7/25/30 |
United States | 4,000,000 | 3,624,160 | |||||||||||||
| d,s Octagon Investment Partners 38 Ltd., 2018-1A, C, 144A, FRN, 4.916%, 7/20/30 |
United States | 5,000,000 | 4,576,750 | |||||||||||||
| d,t Octagon Investment Partners XVI Ltd., 2013-1A, DR, 144A, FRN, 5.002%, (3-month USD LIBOR + 3.00%), 7/17/30 |
United States | 6,000,000 | 5,485,380 | |||||||||||||
| d,t Octagon Investment Partners XXIII Ltd., |
||||||||||||||||
| 2015-1A, BR, 144A, FRN, 3.201%, (3-month USD LIBOR + 1.20%), 7/15/27 |
United States | 4,590,000 | 4,513,255 | |||||||||||||
| 2015-1A, DR, 144A, FRN, 4.551%, (3-month USD LIBOR + 2.55%), 7/15/27 |
United States | 6,400,000 | 6,232,256 | |||||||||||||
| t Opteum Mortgage Acceptance Corp. Trust, 2005-4, 1APT, FRN, 2.133%, (1-month USD LIBOR + 0.31%), 11/25/35 |
United States | 1,680,613 | 1,693,821 | |||||||||||||
| d,t Race Point IX CLO Ltd., 2015-9A, A1AR, 144A, FRN, 3.211%, (3-month USD LIBOR + 1.21%), 10/15/30 |
United States | 3,600,000 | 3,591,072 | |||||||||||||
| d,s Strata CLO I Ltd., 2018-1A, B, 144A, FRN, 4.201%, 1/15/31 |
United States | 14,100,000 | 13,917,405 | |||||||||||||
| t Structured Asset Securities Corp., 2005-2XS, 2A2, FRN, 3.532%, (1-month USD LIBOR + 1.50%), 2/25/35 |
United States | 1,804,816 | 1,836,013 | |||||||||||||
| s Thornburg Mortgage Securities Trust, 2005-1, A3, FRN, 4.578%, 4/25/45 |
United States | 2,184,401 | 2,206,692 | |||||||||||||
| d,s Upgrade Master Pass-Thru Trust, 2019-PT1, A, 144A, FRN, 11.128%, 6/15/25 |
United States | 3,606,486 | 3,605,047 | |||||||||||||
| d Voya CLO Ltd., |
||||||||||||||||
| s 2013-2A, A2AR, 144A, FRN, 3.34%, 4/25/31 |
United States | 2,200,000 | 2,142,734 | |||||||||||||
| t 2013-2A, BR, 144A, FRN, 3.79%, (3-month USD LIBOR + 1.85%), 4/25/31 |
United States | 5,770,000 | 5,433,955 | |||||||||||||
| t 2014-1A, CR2, 144A, FRN, 4.803%, (3-month USD LIBOR + 2.80%), 4/18/31 |
United States | 8,000,000 | 7,239,440 | |||||||||||||
| s 2015-2A, BR, 144A, FRN, 3.434%, 7/23/27 |
United States | 9,290,000 | 9,223,948 | |||||||||||||
| s 2016-3A, A1R, 144A, FRN, 3.193%, 10/18/31 |
United States | 10,000,000 | 9,986,100 | |||||||||||||
| t 2017-2A, B, 144A, FRN, 4.351%, (3-month USD LIBOR + 2.35%), 6/07/30 |
United States | 19,200,000 | 18,764,544 | |||||||||||||
| s 2018-2A, A1, 144A, FRN, 3.001%, 7/15/31 |
United States | 5,000,000 | 4,947,600 | |||||||||||||
| 32 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) |
||||||||||||||||
| Diversified Financials (continued) |
||||||||||||||||
| d Voya CLO Ltd., (continued) |
||||||||||||||||
| t 2018-2A, D, 144A, FRN, 4.751%, (3-month USD LIBOR + 2.75%), 7/15/31 |
United States | 2,900,000 | $ | 2,660,141 | ||||||||||||
| s Wells Fargo Mortgage Backed Securities Trust, 2004-W, A9, FRN, 4.597%, 11/25/34 |
United States | 850,582 | 891,982 | |||||||||||||
|
|
|
|||||||||||||||
| 1,342,483,053 | ||||||||||||||||
|
|
|
|||||||||||||||
| Total Asset-Backed Securities and Commercial Mortgage-Backed Securities |
1,360,569,782 | |||||||||||||||
|
|
|
|||||||||||||||
| Mortgage-Backed Securities 9.4% |
||||||||||||||||
| v Federal Home Loan Mortgage Corp. (FHLMC) Adjustable Rate 0.0%† |
||||||||||||||||
| FHLMC, 4.93%, (US 1 Year CMT T-Note +/- MBS Margin), 1/01/33 |
United States | 16,943 | 17,519 | |||||||||||||
|
|
|
|||||||||||||||
| Federal Home Loan Mortgage Corp. (FHLMC) Fixed Rate 6.6% |
||||||||||||||||
| w FHLMC 30 Year, 2.50%, 11/01/49 |
United States | 13,500,000 | 13,425,644 | |||||||||||||
| w FHLMC 30 Year, 3.00%, 11/01/49 |
United States | 51,300,000 | 52,133,625 | |||||||||||||
| w FHLMC 30 Year, 3.50%, 11/01/49 |
United States | 42,500,000 | 43,642,188 | |||||||||||||
| w FHLMC 30 Year, 4.00%, 11/01/49 |
United States | 58,450,000 | 60,651,750 | |||||||||||||
| w FHLMC 30 Year, 4.50%, 11/01/49 |
United States | 54,700,000 | 57,534,436 | |||||||||||||
| FHLMC Gold 15 Year, 5.00%, 7/01/22 |
United States | 33,447 | 34,587 | |||||||||||||
| FHLMC Gold 30 Year, 3.50%, 12/01/47 |
United States | 12,811,039 | 13,313,216 | |||||||||||||
| FHLMC Gold 30 Year, 3.50%, 5/01/49 |
United States | 53,806,224 | 55,328,846 | |||||||||||||
| FHLMC Gold 30 Year, 4.50%, 10/01/40 |
United States | 138,665 | 150,444 | |||||||||||||
| FHLMC Gold 30 Year, 5.00%, 5/01/27 - 2/01/38 |
United States | 1,057,131 | 1,154,542 | |||||||||||||
| FHLMC Gold 30 Year, 5.50%, 6/01/33 - 6/01/36 |
United States | 747,394 | 829,252 | |||||||||||||
| FHLMC Gold 30 Year, 6.00%, 6/01/33 - 6/01/37 |
United States | 263,282 | 296,515 | |||||||||||||
| FHLMC Gold 30 Year, 6.50%, 10/01/21 - 6/01/36 |
United States | 107,761 | 121,083 | |||||||||||||
| FHLMC Gold 30 Year, 7.00%, 9/01/21 - 8/01/32 |
United States | 20,282 | 21,208 | |||||||||||||
| FHLMC Gold 30 Year, 7.50%, 1/01/26 - 1/01/31 |
United States | 4,907 | 5,766 | |||||||||||||
| FHLMC Gold 30 Year, 8.00%, 11/01/25 - 1/01/26 |
United States | 67 | 67 | |||||||||||||
| FHLMC Gold 30 Year, 9.00%, 12/01/24 |
United States | 51 | 55 | |||||||||||||
|
|
|
|||||||||||||||
| 298,643,224 | ||||||||||||||||
|
|
|
|||||||||||||||
| v Federal National Mortgage Association (FNMA) Adjustable Rate 0.0%† |
||||||||||||||||
| FNMA, 4.493%, (US 1 Year CMT T-Note +/- MBS Margin), 12/01/34 |
United States | 116,366 | 122,864 | |||||||||||||
|
|
|
|||||||||||||||
| Federal National Mortgage Association (FNMA) Fixed Rate 2.7% |
||||||||||||||||
| FNMA 15 Year, 2.50%, 7/01/27 |
United States | 234,579 | 237,704 | |||||||||||||
| FNMA 15 Year, 4.50%, 3/01/20 |
United States | 1,449 | 1,494 | |||||||||||||
| FNMA 15 Year, 5.50%, 3/01/21 - 4/01/22 |
United States | 20,800 | 20,970 | |||||||||||||
| FNMA 30 Year, 3.00%, 9/01/48 |
United States | 38,798,845 | 39,838,358 | |||||||||||||
| FNMA 30 Year, 3.50%, 11/01/47 |
United States | 13,325,469 | 13,828,671 | |||||||||||||
| franklintempleton.com | Semiannual Report | 33 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||||
| Mortgage-Backed Securities (continued) |
||||||||||||||||
| Federal National Mortgage Association (FNMA) Fixed Rate (continued) |
||||||||||||||||
| FNMA 30 Year, 3.50%, 6/01/49 |
United States | 59,253,921 | $ | 60,809,165 | ||||||||||||
| FNMA 30 Year, 4.50%, 3/01/28 - 2/01/41 |
United States | 409,397 | 441,693 | |||||||||||||
| FNMA 30 Year, 5.00%, 9/01/23 - 10/01/35 |
United States | 1,074,842 | 1,173,561 | |||||||||||||
| FNMA 30 Year, 5.50%, 9/01/33 - 12/01/35 |
United States | 985,461 | 1,098,627 | |||||||||||||
| FNMA 30 Year, 6.00%, 6/01/34 - 5/01/38 |
United States | 2,133,354 | 2,417,441 | |||||||||||||
| FNMA 30 Year, 6.50%, 3/01/28 - 10/01/37 |
United States | 284,816 | 325,716 | |||||||||||||
| FNMA 30 Year, 7.50%, 10/01/29. |
United States | 4,811 | 5,627 | |||||||||||||
| FNMA 30 Year, 8.00%, 1/01/25 - 5/01/26 |
United States | 2,406 | 2,682 | |||||||||||||
|
|
|
|||||||||||||||
| 120,201,709 | ||||||||||||||||
|
|
|
|||||||||||||||
| Government National Mortgage Association (GNMA) Fixed Rate 0.1% |
||||||||||||||||
| GNMA I SF 30 Year, 5.00%, 6/15/34 - 7/15/34 |
United States | 126,686 | 139,357 | |||||||||||||
| GNMA I SF 30 Year, 5.50%, 2/15/33 - 6/15/36 |
United States | 340,546 | 374,992 | |||||||||||||
| GNMA I SF 30 Year, 6.00%, 8/15/36 |
United States | 20,998 | 24,106 | |||||||||||||
| GNMA I SF 30 Year, 6.50%, 2/15/29 - 3/15/32 |
United States | 38,030 | 42,123 | |||||||||||||
| GNMA I SF 30 Year, 7.00%, 11/15/27 - 5/15/28 |
United States | 9,411 | 9,657 | |||||||||||||
| GNMA I SF 30 Year, 7.50%, 9/15/23 - 5/15/27 |
United States | 631 | 652 | |||||||||||||
| GNMA I SF 30 Year, 8.00%, 2/15/25 - 9/15/27 |
United States | 3,422 | 3,703 | |||||||||||||
| GNMA I SF 30 Year, 8.50%, 8/15/24 |
United States | 44 | 45 | |||||||||||||
| GNMA I SF 30 Year, 9.00%, 1/15/25 |
United States | 183 | 183 | |||||||||||||
| GNMA I SF 30 Year, 9.50%, 6/15/25 |
United States | 367 | 368 | |||||||||||||
| GNMA II SF 30 Year, 4.50%, 5/20/49 |
United States | 4,186,986 | 4,391,491 | |||||||||||||
| GNMA II SF 30 Year, 5.00%, 9/20/33 - 11/20/33 |
United States | 185,081 | 205,115 | |||||||||||||
| GNMA II SF 30 Year, 5.50%, 6/20/34 |
United States | 95,758 | 107,932 | |||||||||||||
| GNMA II SF 30 Year, 6.00%, 11/20/34 |
United States | 92,635 | 107,425 | |||||||||||||
| GNMA II SF 30 Year, 6.50%, 7/20/28 - 12/20/31 |
United States | 52,048 | 59,372 | |||||||||||||
| GNMA II SF 30 Year, 7.50%, 4/20/32 |
United States | 15,794 | 17,819 | |||||||||||||
|
|
|
|||||||||||||||
| 5,484,340 | ||||||||||||||||
|
|
|
|||||||||||||||
| Total Mortgage-Backed Securities |
424,469,656 | |||||||||||||||
|
|
|
|||||||||||||||
| Municipal Bonds 1.9% |
||||||||||||||||
| City of Austin Electric Utility System Revenue, Travis and Williamson Counties, Refunding, 6.262%, 11/15/32 |
United States | 5,955,000 | 7,483,589 | |||||||||||||
| u Greenville City School District GO, County of Darke, School Improvement, Refunding, 3.541%, 1/01/51 |
United States | 7,335,000 | 7,335,953 | |||||||||||||
| u Honolulu City and County Wastewater System Revenue, Second Bond Resolution, Refunding, Junior, 2.585%, 7/01/28 |
United States | 1,180,000 | 1,192,001 | |||||||||||||
| Kaiser Foundation Hospitals, 3.266%, 11/01/49 |
|
United States |
|
9,825,000 | 10,031,339 | |||||||||||
| New York State GO, Refunding, Series B, 3.20%, 2/15/39 |
|
United States |
|
11,740,000 | 11,897,668 | |||||||||||
| New York State Urban Development Corp. Sales Tax Revenue, Bidding Group 2, Series B, 2.97%, 3/15/34 |
|
United States |
|
19,210,000 | 19,321,610 | |||||||||||
| u Ohio State Hospital Facility Revenue, Cleveland Clinic Health System Obligated Group, Refunding, Series G, 3.276%, 1/01/42 |
United States | 1,975,000 | 2,029,569 | |||||||||||||
| Orlando Health Obligated Group, 3.777%, 10/01/28 |
United States | 3,870,000 | 4,189,238 | |||||||||||||
| 34 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||
| Municipal Bonds (continued) |
||||||||||||||
| u Pennsylvania State Turnpike Commission Turnpike Revenue, Motor License Fund-Enhanced, Subordinate, Refunding, First Series, 3.579%, 12/01/43 |
United States | 9,825,000 | $ | 9,930,226 | ||||||||||
| RWJ Barnabas Health Inc., 3.477%, 7/01/49 |
United States | 2,650,000 | 2,707,553 | |||||||||||
| San Jose RDA Successor Agency Tax Allocation, Senior, Refunding, Series A-T, 3.25%, 8/01/29 |
United States | 5,675,000 | 6,005,342 | |||||||||||
| u Texas State University System Financing Revenue, |
||||||||||||||
| Refunding, Serise B, 2.938%, 3/15/33 |
United States | 2,315,000 | 2,356,739 | |||||||||||
| Refunding, Serise B, 3.289%, 3/15/40 |
United States | 1,965,000 | 1,982,213 | |||||||||||
|
|
|
|||||||||||||
| Total Municipal Bonds (Cost $84,864,411) |
86,463,040 | |||||||||||||
|
|
|
|||||||||||||
| Shares/ Units |
||||||||||||||
| Escrows and Litigation Trusts 0.0%† |
||||||||||||||
| a,b Clear Channel Communications Inc., Escrow Account |
United States | 8,000,000 | — | |||||||||||
| a,b iHeartCommunications Inc., Escrow Account |
United States | 3,100,000 | — | |||||||||||
| a,b NewPage Corp., Litigation Trust |
United States | 14,000,000 | — | |||||||||||
| a,aa,b,e Remington Outdoor Co. Inc., Litigation Units |
United States | 124,500 | — | |||||||||||
| a,b T-Mobile USA Inc., Escrow Account |
United States | 29,900,000 | — | |||||||||||
| a Vistra Energy Corp., Escrow Account |
United States | 30,000,000 | 135,000 | |||||||||||
|
|
|
|||||||||||||
| Total Escrows and Litigation Trusts |
135,000 | |||||||||||||
|
|
|
|||||||||||||
| Total Investments before Short Term Investments |
4,487,561,723 | |||||||||||||
|
|
|
|||||||||||||
| Shares | ||||||||||||||
| Short Term Investments 3.7% |
||||||||||||||
| Money Market Funds (Cost $58,779,273) 1.3% |
||||||||||||||
| f,x Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
United States | 58,779,273 | 58,779,273 | |||||||||||
|
|
|
|||||||||||||
| franklintempleton.com | Semiannual Report | 35 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Country/ Organization |
Principal Amount* |
Value | ||||||||||||
| Short Term Investments (continued) |
||||||||||||||
| Repurchase Agreements (Cost $108,109,163) 2.4% |
||||||||||||||
| y Joint Repurchase Agreement, 1.722%, 11/01/19 (Maturity Value $108,114,333) |
||||||||||||||
| BNP Paribas Securities Corp. (Maturity Value $76,530,893) |
||||||||||||||
| Deutsche Bank Securities Inc. (Maturity Value $18,828,111) |
||||||||||||||
| HSBC Securities (USA) Inc. (Maturity Value $12,755,329) |
||||||||||||||
| Collateralized by U.S. Government Agency Securities, |
United States | 108,109,163 | $ | 108,109,163 | ||||||||||
|
|
|
|||||||||||||
| Total Investments (Cost $4,784,137,153) 103.0% |
4,654,450,159 | |||||||||||||
| Other Assets, less Liabilities (3.0)% |
(137,666,194 | ) | ||||||||||||
|
|
|
|||||||||||||
| Net Assets 100.0% |
$ | 4,516,783,965 | ||||||||||||
|
|
|
|||||||||||||
†Rounds to less than 0.1% of net assets.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
aNon-income producing.
aaSee Note 10 regarding holdings of 5% voting securities.
bFair valued using significant unobservable inputs. See Note 12 regarding fair value measurements.
cThe security is owned by FT Holdings Corporation ll, a wholly-owned subsidiary of the Fund. See Note 1(h).
dSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. At October 31, 2019, the aggregate value of these securities was $1,664,808,595, representing 36.9% of net assets.
eSee Note 8 regarding restricted securities.
fSee Note 3(f) regarding investments in affiliated management investment companies.
gSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. At October 31, 2019, the aggregate value of these securities was $145,095,019, representing 3.2% of net assets.
hIncome may be received in additional securities and/or cash.
iThe coupon rate shown represents the rate at period end.
jPrincipal amount is stated in 1,000 Brazilian Real Units.
kSee Note 1(g) regarding loan participation notes.
lSee Note 7 regarding defaulted securities.
mPerpetual security with no stated maturity date.
nSee Note 1(j) regarding senior floating rate interests.
oA supranational organization is an entity formed by two or more central governments through international treaties.
pRedemption price at maturity and coupon payment are adjusted for inflation. See Note 1(l).
qThe principal represents the notional amount. See Note 1(e) regarding value recovery instruments.
rPrincipal amount of security is adjusted for inflation. See Note 1(l).
sAdjustable rate security with an interest rate that is not based on a published reference index and spread. The rate is based on the structure of the agreement and current market conditions. The coupon rate shown represents the rate at period end.
tThe coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
uSecurity purchased on a when-issued basis. See Note 1(d).
vAdjustable Rate Mortgage-Backed Security (ARM); the rate shown is the effective rate at period end. ARM rates are not based on a published reference rate and spread, but instead pass-through weighted average interest income inclusive of any caps or floors, if applicable, from the underlying mortgage loans in which the majority of mortgages pay interest based on the index shown at their designated reset dates plus a spread, less the applicable servicing and guaranty fee (MBS margin).
wSecurity purchased on a to-be-announced (TBA) basis. See Note 1(d).
xThe rate shown is the annualized seven-day effective yield at period end.
ySee Note 1(c) regarding joint repurchase agreement.
zThe security was issued on a discount basis with no stated coupon rate.
| 36 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
At October 31, 2019, the Fund had the following futures contracts outstanding. See Note 1(e).
Futures Contracts
| Description | Type | |
Number of Contracts |
|
|
Notional Amount |
* |
|
Expiration Date |
|
|
Value/ Unrealized Appreciation (Depreciation) |
| |||||||
| Interest Rate Contracts |
||||||||||||||||||||
| Australian 10 Yr. Bond |
Long | 110 | $ 11,058,079 | 12/16/19 | $ (53,865 | ) | ||||||||||||||
| Canadian 10 Yr. Bond |
Long | 155 | 16,723,281 | 12/18/19 | (19,764 | ) | ||||||||||||||
| CME Ultra Long Term U.S. Treasury Bond |
Short | 73 | 13,851,750 | 12/19/19 | (203,278 | ) | ||||||||||||||
| CME Ultra Long Term U.S. Treasury Bond |
Long | 320 | 60,720,000 | 12/19/19 | 431,962 | |||||||||||||||
| U.S. Treasury 5 Yr. Note |
Long | 1,374 | 163,785,094 | 12/31/19 | (40,742 | ) | ||||||||||||||
| U.S. Treasury 10 Yr. Note |
Long | 820 | 106,843,438 | 12/19/19 | (385,217 | ) | ||||||||||||||
| U.S. Treasury 30 Yr. Bond |
Long | 59 | 9,521,125 | 12/19/19 | (216,264 | ) | ||||||||||||||
| Ultra 10 Yr. U.S. Treasury Note |
Long | 436 | 61,959,688 | 12/19/19 | (882,816 | ) | ||||||||||||||
|
|
|
|||||||||||||||||||
| Total Futures Contracts |
$(1,369,984 | ) | ||||||||||||||||||
|
|
|
|||||||||||||||||||
*As of period end.
At October 31, 2019, the Fund had the following forward exchange contracts outstanding. See Note 1(e).
Forward Exchange Contracts
| Currency | Counterparty | a | Type | Quantity | |
Contract Amount |
|
|
Settlement Date |
|
|
Unrealized Appreciation |
|
|
Unrealized Depreciation |
| ||||||||||||
| OTC Forward Exchange Contracts |
|
|||||||||||||||||||||||||||
| Australian Dollar |
JPHQ | Sell | 12,600,000 | $ 8,822,205 | 11/26/19 | $ 128,912 | $ — | |||||||||||||||||||||
| Brazilian Real |
JPHQ | Buy | 106,200,000 | 26,415,939 | 12/09/19 | — | (13,430 | ) | ||||||||||||||||||||
| Brazilian Real |
JPHQ | Sell | 111,260,000 | 27,296,430 | 12/09/19 | — | (364,051 | ) | ||||||||||||||||||||
| Brazilian Real |
JPHQ | Sell | 1,475,000 | 361,254 | 12/11/19 | — | (5,413 | ) | ||||||||||||||||||||
| Brazilian Real |
JPHQ | Sell | 22,200,000 | 5,437,277 | 12/13/19 | — | (80,859 | ) | ||||||||||||||||||||
| Brazilian Real |
JPHQ | Sell | 33,000,000 | 8,417,938 | 12/13/19 | 215,305 | — | |||||||||||||||||||||
| Indonesian Rupiah |
JPHQ | Buy | 46,000,000,000 | 3,255,946 | 12/13/19 | — | (4,809 | ) | ||||||||||||||||||||
| Indonesian Rupiah |
JPHQ | Sell | 230,000,000,000 | 15,691,090 | 12/13/19 | — | (564,590 | ) | ||||||||||||||||||||
| South Korean Won |
JPHQ | Sell | 18,600,000,000 | 15,898,115 | 12/16/19 | — | (15,497 | ) | ||||||||||||||||||||
| Australian Dollar |
JPHQ | Sell | 68,000,000 | 45,885,380 | 1/09/20 | — | (1,083,780 | ) | ||||||||||||||||||||
| Canadian Dollar |
JPHQ | Sell | 15,200,000 | 11,645,903 | 1/21/20 | 95,035 | — | |||||||||||||||||||||
| Australian Dollar |
DBAB | Sell | 3,000,000 | 2,109,900 | 1/28/20 | 36,944 | — | |||||||||||||||||||||
| Australian Dollar |
JPHQ | Sell | 26,100,000 | 17,756,770 | 1/28/20 | — | (277,944 | ) | ||||||||||||||||||||
| Japanese Yen |
JPHQ | Buy | 16,230,000,000 | 153,795,486 | 1/29/20 | — | (2,568,762 | ) | ||||||||||||||||||||
| Canadian Dollar |
JPHQ | Sell | 25,000,000 | 18,837,074 | 1/30/20 | — | (161,354 | ) | ||||||||||||||||||||
| Euro |
JPHQ | Sell | 102,596,949 | 115,676,091 | 1/30/20 | 514,348 | — | |||||||||||||||||||||
| Mexican Peso |
JPHQ | Buy | 323,700,000 | 16,710,202 | 1/30/20 | — | (119,258 | ) | ||||||||||||||||||||
| Mexican Peso |
JPHQ | Sell | 26,000,000 | 1,339,274 | 1/30/20 | 6,668 | — | |||||||||||||||||||||
| Norwegian Krone |
JPHQ | Buy | 257,400,000 | 28,611,233 | 1/30/20 | — | (607,779 | ) | ||||||||||||||||||||
| Chinese Yuan Renminbi |
JPHQ | Sell | 636,100,000 | 89,112,406 | 2/24/20 | — | (858,739 | ) | ||||||||||||||||||||
| Japanese Yen |
JPHQ | Buy | 750,000,000 | 6,955,651 | 3/13/20 | 50,735 | — | |||||||||||||||||||||
| Japanese Yen |
JPHQ | Buy | 3,700,000,000 | 34,812,553 | 3/13/20 | — | (247,714 | ) | ||||||||||||||||||||
| Canadian Dollar |
JPHQ | Sell | 3,000,000 | 2,293,999 | 3/16/20 | 14,214 | — | |||||||||||||||||||||
| Canadian Dollar |
JPHQ | Sell | 37,400,000 | 28,285,762 | 3/16/20 | — | (135,556 | ) | ||||||||||||||||||||
| franklintempleton.com | Semiannual Report | 37 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
Forward Exchange Contracts (continued)
| Currency | Counterpartya | Type | Quantity | Contract Amount |
Settlement Date |
Unrealized Appreciation |
Unrealized Depreciation |
|||||||||||||||||||||
| OTC Forward Exchange Contracts (continued) |
|
|||||||||||||||||||||||||||
| Euro |
JPHQ | Sell | 78,606,321 | $87,816,069 | 3/16/20 | $ — | $ (660,052 | ) | ||||||||||||||||||||
| Norwegian Krone |
JPHQ | Buy | 417,400,000 | 46,610,832 | 3/16/20 | — | (1,205,660 | ) | ||||||||||||||||||||
| Swedish Krona |
JPHQ | Buy | 294,000,000 | 29,995,562 | 3/16/20 | 671,051 | — | |||||||||||||||||||||
| Swedish Krona |
JPHQ | Sell | 294,000,000 | 30,910,276 | 3/16/20 | 243,664 | — | |||||||||||||||||||||
| Turkish Lira |
JPHQ | Buy | 62,000,000 | 9,831,127 | 4/15/20 | 549,790 | — | |||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Total Forward Exchange Contracts |
$ 2,526,666 | $ (8,975,247 | ) | |||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Net unrealized appreciation (depreciation) |
|
$ (6,448,581 | ) | |||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
At October 31, 2019, the Fund had the following credit default swap contracts outstanding. See Note 1(e).
Credit Default Swap Contracts
| Description | Periodic (Paid) |
Payment Frequency |
Counter- party |
Maturity Date |
Notional Amounta |
Value | Unamortized Upfront Payments (Receipts) |
Unrealized Appreciation (Depreciation) |
Ratingb | |||||||||||||||||||||||||||
| Centrally Cleared Swap Contracts |
|
|||||||||||||||||||||||||||||||||||
| Contracts to Sell Protectionc,d |
|
|||||||||||||||||||||||||||||||||||
| Traded Index |
||||||||||||||||||||||||||||||||||||
| CDX.EM.31 |
1.00% | Quarterly | 6/20/24 | $48,700,000 | $ (1,908,845 | ) | $ (1,187,473 | ) | $ (721,372 | ) | |
Investment Grade |
| |||||||||||||||||||||||
| OTC Swap Contracts |
|
|||||||||||||||||||||||||||||||||||
| Contracts to Buy Protectionc |
|
|||||||||||||||||||||||||||||||||||
| Single Name |
||||||||||||||||||||||||||||||||||||
| Ally Financial Inc. |
(5.00 | )% | Quarterly | JPHQ | 12/20/24 | $19,800,000 | $ (4,073,924 | ) | $ (3,803,688 | ) | $ (270,236 | ) | ||||||||||||||||||||||||
| Government of Italy |
(1.00 | )% | Quarterly | BZWS | 6/20/23 | 14,200,000 | (219,289 | ) | 112,498 | (331,787 | ) | |||||||||||||||||||||||||
| Government of Turkey |
(1.00 | )% | Quarterly | BZWS | 12/20/19 | 9,100,000 | (15,698 | ) | 58,218 | (73,916 | ) | |||||||||||||||||||||||||
| Contracts to Sell Protectionc,d |
|
|||||||||||||||||||||||||||||||||||
| Single Name |
||||||||||||||||||||||||||||||||||||
| Government of Argentina |
5.00% | Quarterly | CITI | 12/20/21 | 48,600,000 | (28,867,642 | ) | (27,304,500 | ) | (1,563,142 | ) | CCC- | ||||||||||||||||||||||||
| Government of Indonesia |
1.00% | Quarterly | CITI | 12/20/24 | 24,700,000 | 311,476 | 166,141 | 145,335 | NR | |||||||||||||||||||||||||||
| Government of Italy |
1.00% | Quarterly | BZWS | 6/20/23 | 14,200,000 | 72,083 | (493,320 | ) | 565,403 | NR | ||||||||||||||||||||||||||
| Government of Russia |
1.00% | Quarterly | CITI | 12/20/24 | 13,500,000 | 172,465 | 137,557 | 34,908 | BBB- | |||||||||||||||||||||||||||
| Traded Index |
||||||||||||||||||||||||||||||||||||
| eBNP Paribas Bespoke Bordeaux Index, Mezzanine Tranche 7-10% |
2.10% | Quarterly | BNDP | 6/20/20 | 6,850,000 | 81,517 | — | 81,517 | |
Non- Investment Grade |
| |||||||||||||||||||||||||
| 38 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
Credit Default Swap Contracts (continued)
| Description | |
Periodic Payment Rate Received (Paid) |
|
|
Payment Frequency |
|
|
Counter- party |
|
|
Maturity Date |
|
|
Notional Amount |
a |
Value | |
Unamortized Upfront Payments (Receipts) |
|
|
Unrealized Appreciation (Depreciation) |
|
Ratingb | |||||||||||||
| OTC Swap Contracts (continued) |
|
|||||||||||||||||||||||||||||||||||
| Contracts to Sell Protectionc,d (continued) |
|
|||||||||||||||||||||||||||||||||||
| Traded Index (continued) |
|
|||||||||||||||||||||||||||||||||||
| eBNP Paribas Bespoke Rodez2 Index, Mezzanine Tranche 5-7% |
3.20% | Quarterly | BNDP | 12/20/20 | $ 3,300,000 | $ 79,605 | $ — | $79,605 | Non- | |||||||||||||||||||||||||||
| |
Investment Grade |
| ||||||||||||||||||||||||||||||||||
| eCitibank Bespoke Bogota Index, Mezzanine Tranche 7-10% |
1.35% | Quarterly | CITI | 6/20/20 | 7,000,000 | 34,628 | — | 34,628 | Non- | |||||||||||||||||||||||||||
| |
Investment Grade |
| ||||||||||||||||||||||||||||||||||
| eCitibank Bespoke Cambridge Index, Equity Tranche 0-3% |
0.00% | Quarterly | CITI | 12/20/19 | 22,249,500 | (1,986,973 | ) | (249,483 | ) | (1,737,490 | ) | Non- | ||||||||||||||||||||||||
| |
Investment Grade |
| ||||||||||||||||||||||||||||||||||
| eCitibank Bespoke Palma Index, Mezzanine Tranche 5-7% |
2.30% | Quarterly | CITI | 6/20/21 | 6,700,000 | 95,093 | — | 95,093 | Non- | |||||||||||||||||||||||||||
| |
Investment Grade |
| ||||||||||||||||||||||||||||||||||
| eCitibank Bespoke Phoenix Index, Mezzanine Tranche 5-7% |
2.90% | Quarterly | CITI | 12/20/21 | 8,500,000 | 232,283 | — | 232,283 | Non- | |||||||||||||||||||||||||||
| |
Investment Grade |
| ||||||||||||||||||||||||||||||||||
| eCitibank Bespoke Singapore Index, Equity Tranche 0-3% |
0.00% | Quarterly | CITI | 6/20/20 | 7,000,000 | (741,459 | ) | (623,504 | ) | (117,955 | ) | Non- | ||||||||||||||||||||||||
| |
Investment Grade |
| ||||||||||||||||||||||||||||||||||
| eCitibank Bespoke Sydney Index, Equity Tranche 0-3% |
0.00% | Quarterly | CITI | 6/20/20 | 4,394,022 | (559,928 | ) | (446,816 | ) | (113,112 | ) | Non- | ||||||||||||||||||||||||
| |
Investment Grade |
| ||||||||||||||||||||||||||||||||||
| eCitibank Bespoke Verona Index, Equity Tranche 0-3% |
0.00% | Quarterly | CITI | 12/20/19 | 8,883,500 | (122,845 | ) | (122,273 | ) | (572 | ) | Non- | ||||||||||||||||||||||||
| |
Investment Grade |
| ||||||||||||||||||||||||||||||||||
| eCitibank Bespoke Verona Index, Mezzanine Tranche 7-15% |
0.40% | Quarterly | CITI | 12/20/19 | 31,000,000 | 22,032 | — | 22,032 | Non- | |||||||||||||||||||||||||||
| |
Investment Grade |
| ||||||||||||||||||||||||||||||||||
| franklintempleton.com | Semiannual Report | 39 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
Credit Default Swap Contracts (continued)
| Description | |
Periodic Payment Rate Received (Paid) |
|
|
Payment Frequency |
|
|
Counter- party |
|
|
Maturity Date |
|
|
Notional Amount |
a |
Value | |
Unamortized Upfront Payments (Receipts) |
|
|
Unrealized Appreciation (Depreciation) |
|
Ratingb | |||||||||||||
| OTC Swap Contracts (continued) |
|
|||||||||||||||||||||||||||||||||||
| Contracts to Sell Protectionc,d (continued) |
|
|||||||||||||||||||||||||||||||||||
| Traded Index (continued) |
|
|||||||||||||||||||||||||||||||||||
| MCDX.NA.31 |
1.00% | Quarterly | CITI | 12/20/23 | $23,060,000 | $ 408,980 | $ 193,265 | $215,715 | Investment | |||||||||||||||||||||||||||
| Grade | ||||||||||||||||||||||||||||||||||||
| eMorgan Stanley Bespoke Pecan Index, Mezzanine Tranche 5-10% |
3.98% | Quarterly | MSCO | 12/20/21 | 9,000,000 | 226,534 | — | 226,534 | Non- | |||||||||||||||||||||||||||
| |
Investment Grade |
| ||||||||||||||||||||||||||||||||||
| eMorgan Stanley Bespoke Pecan Index, Mezzanine Tranche 5-10% |
4.10% | Quarterly | MSCO | 12/20/21 | 9,000,000 | 267,594 | — | 267,594 | Non- | |||||||||||||||||||||||||||
| |
Investment Grade |
| ||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||
| Total OTC Swap Contracts |
|
$(34,583,468 | ) | $ (32,375,905 | ) | $(2,207,563 | ) | |||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||
| Total Credit Default Swap Contracts |
|
$(36,492,313 | ) | $ (33,563,378 | ) | $(2,928,935 | ) | |||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||
aFor contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse provisions have been entered into in association with the contracts.
bBased on Standard and Poor’s (S&P) Rating for single name swaps and internal ratings for index swaps. Internal ratings based on mapping into equivalent ratings from external vendors.
cPerformance triggers for settlement of contract include default, bankruptcy or restructuring for single name swaps and failure to pay or bankruptcy of the underlying securities for traded index swaps.
dThe Fund enters contracts to sell protection to create a long credit position.
eRepresents a custom index comprised of a basket of underlying issuers.
At October 31, 2019, the Fund had the following cross-currency swap contracts outstanding. See Note 1(e).
Cross-Currency Swap Contracts
| Description | Payment Frequency |
Counterparty | Maturity Date |
Notional Amount |
Value/ Unrealized Appreciation (Depreciation) |
|||||||||||||||||||
| OTC Swap Contracts |
||||||||||||||||||||||||
| Receive Floating 3-month USD LIBOR + 2.87% |
Quarterly | 3,834,600 | USD | |||||||||||||||||||||
| Pay Fixed 2.50% |
Annual | CITI | 5/04/21 | 3,300,000 | EUR | $150,513 | ||||||||||||||||||
| Receive Floating 3-month USD LIBOR + 1.334% |
Quarterly | 10,976,000 | USD | |||||||||||||||||||||
| Pay Floating 3-month EUR LIBOR + 1.12% |
Quarterly | CITI | 7/10/21 | 9,800,000 | EUR | 67,904 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total Cross Currency Swap Contracts |
$218,417 | |||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| 40 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
At October 31, 2019, the Fund had the following interest rate swap contracts outstanding. See Note 1(e).
Interest Rate Swap Contracts
| Description | Payment Frequency |
Maturity Date |
Notional Amount* |
Value/ Unrealized Appreciation (Depreciation) |
||||||||||||||||
| Centrally Cleared Swap Contracts |
||||||||||||||||||||
| Receive Fixed 2.773% |
Quarterly | |||||||||||||||||||
| Pay Floating 3-month CNY CNRR |
Quarterly | 8/23/24 | 196,750,000 | CNY | $ (417,535 | ) | ||||||||||||||
| Receive Fixed 2.765% |
Quarterly | |||||||||||||||||||
| Pay Floating 3-month CNY CNRR |
Quarterly | 8/26/24 | 158,000,000 | CNY | (343,035 | ) | ||||||||||||||
| Receive Fixed 2.79% |
Quarterly | |||||||||||||||||||
| Pay Floating 3-month CNY CNRR |
Quarterly | 8/30/24 | 236,250,000 | CNY | (486,188 | ) | ||||||||||||||
| Receive Fixed 1.956% |
Semi-Annual | |||||||||||||||||||
| Pay Floating 3-month CAD CABA |
Semi-Annual | 7/17/29 | 55,000,000 | CAD | 483,118 | |||||||||||||||
| Receive Fixed 1.232% |
Semi-Annual | |||||||||||||||||||
| Pay Floating 3-month AUD BBSW |
Semi-Annual | 9/06/29 | 55,000,000 | AUD | (136,758 | ) | ||||||||||||||
|
|
|
|||||||||||||||||||
| Total Interest Rate Swap Contracts |
$ (900,398 | ) | ||||||||||||||||||
|
|
|
|||||||||||||||||||
*In U.S. dollars unless otherwise indicated.
At October 31, 2019, the Fund had the following total return swap contracts outstanding. See Note 1(e).
Total Return Swap Contracts
| Underlying Instruments | Financing Rate | Payment Frequency |
Counter- party |
Maturity Date |
Notional Value |
Value/ Unrealized Appreciation (Depreciation) |
||||||||||||||||||
| OTC Swap Contracts |
||||||||||||||||||||||||
| Longa |
||||||||||||||||||||||||
| Markit iBoxx USD Liquid Leveraged Loan Index |
3-month USD LIBOR | Quarterly | MSCO | 12/20/19 | $ | 23,600,000 | $ | 335,902 | ||||||||||||||||
| Markit iBoxx USD Liquid Leveraged Loan Index |
3-month USD LIBOR | Quarterly | GSCO | 3/20/20 | 61,400,000 | 1,011,494 | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total Total Return Swap Contracts |
$ | 1,347,396 | ||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
aThe Fund receives the total return on the underlying instrument and pays a variable financing rate.
See Note 9 regarding other derivative information.
See Abbreviations on page 65.
| franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 41 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Assets and Liabilities
October 31, 2019 (unaudited)
Franklin Strategic Income Fund
| Assets: |
||||
| Investments in securities: |
||||
| Cost - Unaffiliated issuers |
$4,463,345,189 | |||
| Cost - Controlled affiliates (Note 3f and 10) |
152,217,419 | |||
| Cost - Non-controlled affiliates (Note 3f and 10) |
60,465,382 | |||
| Cost - Unaffiliated repurchase agreements |
108,109,163 | |||
|
|
|
|||
| Value - Unaffiliated issuers |
$4,360,173,989 | |||
| Value - Controlled affiliates (Note 3f and 10) |
126,065,295 | |||
| Value - Non-controlled affiliates (Note 3f and 10) |
60,101,712 | |||
| Value - Unaffiliated repurchase agreements |
108,109,163 | |||
| Cash |
24,337,230 | |||
| Restricted cash for OTC derivative contracts (Note 1f) |
1,340,000 | |||
| Receivables: |
||||
| Investment securities sold |
79,264,872 | |||
| Capital shares sold |
3,206,777 | |||
| Dividends and interest |
36,166,034 | |||
| Deposits with brokers for: |
||||
| OTC derivative contracts |
41,930,000 | |||
| TBA transactions |
900,000 | |||
| Futures contracts |
4,745,144 | |||
| Centrally cleared swap contracts |
10,707,747 | |||
| Variation margin on futures contracts |
3,123,799 | |||
| Variation margin on centrally cleared swap contracts |
829,083 | |||
| OTC swap contracts (upfront payments $1,259,100) |
667,679 | |||
| Unrealized appreciation on OTC forward exchange contracts |
2,526,666 | |||
| Unrealized appreciation on OTC swap contracts |
3,566,460 | |||
| FT Subsidiary deferred tax benefit (Note 1h) |
402,876 | |||
| Other assets |
2,555 | |||
|
|
|
|||
| Total assets |
4,868,167,081 | |||
|
|
|
|||
| Liabilities: |
||||
| Payables: |
||||
| Investment securities purchased |
290,711,101 | |||
| Capital shares redeemed |
7,600,072 | |||
| Management fees |
1,677,025 | |||
| Distribution fees |
1,060,058 | |||
| Transfer agent fees |
1,273,956 | |||
| Trustees’ fees and expenses |
9,728 | |||
| Distributions to shareholders |
891,449 | |||
| Deposits from brokers for: |
||||
| OTC derivative contracts |
1,340,000 | |||
| OTC swap contracts (upfront receipts $40,626,762) |
33,043,584 | |||
| Unrealized depreciation on OTC forward exchange contracts |
8,975,247 | |||
| Unrealized depreciation on OTC swap contracts |
4,208,210 | |||
| Deferred tax |
176,786 | |||
| Accrued expenses and other liabilities |
415,900 | |||
|
|
|
|||
| Total liabilities |
351,383,116 | |||
|
|
|
|||
| Net assets, at value |
$4,516,783,965 | |||
|
|
|
|||
| Net assets consist of: |
||||
| Paid-in capital |
$5,149,453,749 | |||
| Total distributable earnings (loss) |
(632,669,784 | ) | ||
|
|
|
|||
| Net assets, at value |
$4,516,783,965 | |||
|
|
|
|||
| 42 |
Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Assets and Liabilities (continued)
October 31, 2019 (unaudited)
Franklin Strategic Income Fund
| Class A: |
||||
| Net assets, at value |
$3,058,165,860 | |||
|
|
|
|||
| Shares outstanding |
319,591,711 | |||
|
|
|
|||
| Net asset value per sharea |
$9.57 | |||
|
|
|
|||
| Maximum offering price per share (net asset value per share ÷ 96.25%) |
$9.94 | |||
|
|
|
|||
| Class C: |
||||
| Net assets, at value |
$ 636,853,216 | |||
|
|
|
|||
| Shares outstanding |
66,556,353 | |||
|
|
|
|||
| Net asset value and maximum offering price per sharea |
$9.57 | |||
|
|
|
|||
| Class R: |
||||
| Net assets, at value |
$ 77,289,870 | |||
|
|
|
|||
| Shares outstanding |
8,109,810 | |||
|
|
|
|||
| Net asset value and maximum offering price per share |
$9.53 | |||
|
|
|
|||
| Class R6: |
||||
| Net assets, at value |
$ 150,506,116 | |||
|
|
|
|||
| Shares outstanding |
15,704,043 | |||
|
|
|
|||
| Net asset value and maximum offering price per share |
$9.58 | |||
|
|
|
|||
| Advisor Class: |
||||
| Net assets, at value |
$ 593,968,903 | |||
|
|
|
|||
| Shares outstanding |
61,996,730 | |||
|
|
|
|||
| Net asset value and maximum offering price per share |
$9.58 | |||
|
|
|
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
| franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 43 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations
for the six months ended October 31, 2019 (unaudited)
Franklin Strategic Income Fund
| Investment income: |
||||
| Dividends: (net of foreign taxes)* |
||||
| Unaffiliated issuers |
$ | 1,022 | ||
| Controlled affiliates (Note 3f and 10) |
6,785,399 | |||
| Non-controlled affiliates (Note 3f and 10) |
591,135 | |||
| Interest: (net of foreign taxes)~ |
||||
| Unaffiliated issuers |
116,482,770 | |||
|
|
|
|||
| Total investment income |
123,860,326 | |||
|
|
|
|||
| Expenses: |
||||
| Management fees (Note 3a) |
10,989,820 | |||
| Distribution fees: (Note 3c) |
||||
| Class A |
3,961,962 | |||
| Class C |
2,231,125 | |||
| Class R |
205,568 | |||
| Transfer agent fees: (Note 3e) |
||||
| Class A |
2,495,147 | |||
| Class C |
540,380 | |||
| Class R |
64,732 | |||
| Class R6 |
47,045 | |||
| Advisor Class |
479,478 | |||
| Custodian fees (Note 4) |
56,963 | |||
| Reports to shareholders |
246,436 | |||
| Registration and filing fees |
89,437 | |||
| Professional fees |
44,013 | |||
| Trustees’ fees and expenses |
39,635 | |||
| Other |
61,431 | |||
|
|
|
|||
| Total expenses |
21,553,172 | |||
| Expense reductions (Note 4) |
(109,444 | ) | ||
| Expenses waived/paid by affiliates (Note 3f and 3g) |
(663,262 | ) | ||
|
|
|
|||
| Net expenses |
20,780,466 | |||
|
|
|
|||
| Net investment income |
103,079,860 | |||
|
|
|
|||
| Realized and unrealized gains (losses): |
||||
| Net realized gain (loss) from: |
||||
| Investments: |
||||
| Unaffiliated issuers |
(1,921,083 | ) | ||
| Controlled affiliates (Note 3f and 10) |
(10,939,400 | ) | ||
| Foreign currency transactions |
(185,479 | ) | ||
| Forward exchange contracts |
8,502,886 | |||
| Futures contracts |
32,221,068 | |||
| Swap contracts |
(26,029,749 | ) | ||
|
|
|
|||
| Net realized gain (loss) |
1,648,243 | |||
|
|
|
|||
| Net change in unrealized appreciation (depreciation) on: |
||||
| Investments: |
||||
| Unaffiliated issuers |
(6,729,993 | ) | ||
| Controlled affiliates (Note 3f and 10) |
(2,136,187 | ) | ||
| Non-controlled affiliates (Note 3f and 10) |
(1,586,927 | ) | ||
| Translation of other assets and liabilities denominated in foreign currencies |
(106,030 | ) | ||
| Forward exchange contracts |
(9,767,148 | ) | ||
| Futures contracts |
(5,215,544 | ) | ||
| Swap contracts |
3,108,805 | |||
| 44 |
Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations (continued)
for the six months ended October 31, 2019 (unaudited)
Franklin Strategic Income Fund
| Change in FT Subsidiary deferred tax benefit (Note 1h) |
(129,138 | ) | ||
| Change in deferred taxes on unrealized appreciation |
(96,421 | ) | ||
|
|
|
|||
| Net change in unrealized appreciation (depreciation) |
(22,658,583 | ) | ||
|
|
|
|||
| Net realized and unrealized gain (loss) |
(21,010,340 | ) | ||
|
|
|
|||
| Net increase (decrease) in net assets resulting from operations |
$ | 82,069,520 | ||
|
|
|
|||
| ~Foreign taxes withheld on interest |
$ | 211,623 | ||
| franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 45 | ||
FRANKLIN STRATEGIC SERIES
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Net Assets
Franklin Strategic Income Fund
| Six Months Ended October 31, 2019 (unaudited) |
Year Ended April 30, 2019 |
|||||||
| Increase (decrease) in net assets: |
||||||||
| Operations: |
||||||||
| Net investment income |
$ | 103,079,860 | $ | 235,418,024 | ||||
| Net realized gain (loss) |
1,648,243 | (61,378,232 | ) | |||||
| Net change in unrealized appreciation (depreciation) |
(22,658,583 | ) | 53,626,529 | |||||
|
|
|
|||||||
| Net increase (decrease) in net assets resulting from operations |
82,069,520 | 227,666,321 | ||||||
|
|
|
|||||||
| Distributions to shareholders: |
||||||||
| Class A |
(67,065,671 | ) | (138,743,800 | ) | ||||
| Class C |
(13,030,561 | ) | (34,243,715 | ) | ||||
| Class R |
(1,639,078 | ) | (3,918,092 | ) | ||||
| Class R6 |
(6,324,753 | ) | (18,669,569 | ) | ||||
| Advisor Class |
(13,620,484 | ) | (38,939,889 | ) | ||||
|
|
|
|||||||
| Total distributions to shareholders |
(101,680,547 | ) | (234,515,065 | ) | ||||
|
|
|
|||||||
| Capital share transactions: (Note 2) |
||||||||
| Class A |
(59,388,478 | ) | (160,333,285 | ) | ||||
| Class C |
(76,854,488 | ) | (360,085,250 | ) | ||||
| Class R |
(7,835,095 | ) | (19,998,642 | ) | ||||
| Class R6 |
(156,912,811 | ) | (123,669,688 | ) | ||||
| Advisor Class |
(11,802,929 | ) | (322,273,887 | ) | ||||
|
|
|
|||||||
| Total capital share transactions |
(312,793,801 | ) | (986,360,752 | ) | ||||
|
|
|
|||||||
| Net increase (decrease) in net assets |
(332,404,828 | ) | (993,209,496 | ) | ||||
| Net assets: |
||||||||
| Beginning of period |
4,849,188,793 | 5,842,398,289 | ||||||
|
|
|
|||||||
| End of period |
$ | 4,516,783,965 | $ | 4,849,188,793 | ||||
|
|
|
|||||||
| 46 |
Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
Notes to Consolidated Financial Statements (unaudited)
Franklin Strategic Income Fund
| franklintempleton.com | Semiannual Report | 47 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| 48 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| franklintempleton.com | Semiannual Report | 49 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| 50 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| franklintempleton.com | Semiannual Report | 51 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| 52 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
2. Shares of Beneficial Interest
At October 31, 2019, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
| Six Months Ended | Year Ended | |||||||||||||||
| October 31, 2019 | April 30, 2019 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Class A Shares: |
||||||||||||||||
| Shares solda |
27,232,491 | $ | 262,936,069 | 50,096,209 | $ | 476,428,245 | ||||||||||
| Shares issued in reinvestment of distributions |
6,448,330 | 62,161,494 | 13,459,738 | 127,947,689 | ||||||||||||
| Shares redeemed |
(39,889,454 | ) | (384,486,041 | ) | (80,356,291 | ) | (764,709,219 | ) | ||||||||
| Net increase (decrease) |
(6,208,633 | ) | $ | (59,388,478 | ) | (16,800,344 | ) | $ | (160,333,285 | ) | ||||||
| Class C Shares: |
||||||||||||||||
| Shares sold |
3,491,163 | $ | 33,707,242 | 4,597,179 | $ | 43,711,512 | ||||||||||
| Shares issued in reinvestment of distributions |
1,246,108 | 12,011,110 | 3,342,536 | 31,796,374 | ||||||||||||
| Shares redeemeda |
(12,706,695 | ) | (122,572,840 | ) | (45,752,627 | ) | (435,593,136 | ) | ||||||||
| Net increase (decrease) |
(7,969,424 | ) | $ | (76,854,488 | ) | (37,812,912 | ) | $ | (360,085,250 | ) | ||||||
| Class R Shares: |
||||||||||||||||
| Shares sold |
553,936 | $ | 5,327,740 | 1,437,455 | $ | 13,630,121 | ||||||||||
| Shares issued in reinvestment of distributions |
168,887 | 1,621,363 | 405,340 | 3,838,586 | ||||||||||||
| Shares redeemed |
(1,538,695 | ) | (14,784,198 | ) | (3,962,132 | ) | (37,467,349 | ) | ||||||||
| Net increase (decrease) |
(815,872 | ) | $ | (7,835,095 | ) | (2,119,337 | ) | $ | (19,998,642 | ) | ||||||
| franklintempleton.com | Semiannual Report | 53 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
2. Shares of Beneficial Interest (continued)
| Six Months Ended | Year Ended | |||||||||||||||
| October 31, 2019 | April 30, 2019 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Class R6 Shares: |
||||||||||||||||
| Shares sold |
3,030,290 | $ | 29,302,033 | 10,323,576 | $ | 98,464,071 | ||||||||||
| Shares issued in reinvestment of distributions |
612,574 | 5,919,604 | 1,882,797 | 17,913,831 | ||||||||||||
| Shares redeemed |
(19,861,754 | ) | (192,134,448 | ) | (25,303,121 | ) | (240,047,590 | ) | ||||||||
| Net increase (decrease) |
(16,218,890 | ) | $ | (156,912,811 | ) | (13,096,748 | ) | $ | (123,669,688 | ) | ||||||
| Advisor Class Shares: |
||||||||||||||||
| Shares sold |
6,170,061 | $ | 59,613,722 | 18,952,628 | $ | 180,567,542 | ||||||||||
| Shares issued in reinvestment of distributions |
1,331,661 | 12,850,411 | 3,899,671 | 37,096,165 | ||||||||||||
| Shares redeemed |
(8,713,443 | ) | (84,267,062 | ) | (56,752,457 | ) | (539,937,594 | ) | ||||||||
| Net increase (decrease) |
(1,211,721 | ) | $ | (11,802,929 | ) | (33,900,158 | ) | $ | (322,273,887 | ) | ||||||
aMay include a portion of Class C shares that were automatically converted to Class A.
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. 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 | Net Assets | |
| 0.625% |
Up to and including $100 million | |
| 0.500% |
Over $100 million, up to and including $250 million | |
| 0.450% |
Over $250 million, up to and including $7.5 billion | |
| 0.440% |
Over $7.5 billion, up to and including $10 billion | |
| 0.430% |
Over $10 billion, up to and including $12.5 billion | |
| 0.420% |
Over $12.5 billion, up to and including $15 billion | |
| 0.400% |
Over $15 billion, up to and including $17.5 billion | |
| 0.380% |
Over $17.5 billion, up to and including $20 billion | |
| 0.360% |
Over $20 billion, up to and including $35 billion | |
| 0.355% |
Over $35 billion, up to and including $50 billion | |
| 0.350% |
In excess of $50 billion | |
| 54 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
For the period ended October 31, 2019, the annualized gross effective investment management fee rate was 0.455% of the Fund’s average daily net assets.
b. Administrative Fees
Under an agreement with Advisers, FT Services provides administrative services to the Fund. The fee is paid by Advisers based on the Fund’s 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 Class R6 and 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. In addition, under the Fund’s Class 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 plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31.
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| Class A |
0.25 | % | ||
| Class C |
0.65 | % | ||
| Class R |
0.50 | % |
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the period:
| Sales charges retained net of commissions paid to unaffiliated brokers/dealers |
$ | 68,187 | ||
| CDSC retained |
$ | 14,020 |
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the period ended October 31, 2019, the Fund paid transfer agent fees of $3,626,782, of which $1,445,182 was retained by Investor Services.
| franklintempleton.com | Semiannual Report | 55 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
3. Transactions with Affiliates (continued)
f. Investments in Affiliated Management Investment Companies
The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Consolidated Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the period ended October 31, 2019, the Fund held investments in affiliated management investment companies as follows:
| Value at Beginning of Period |
Purchases | Sales | Realized Gain (Loss) |
Net Change in Unrealized Appreciation (Depreciation) |
Value at End of Period |
Number of Shares Held at End of Period |
Dividend Income |
|||||||||||||||||||||||||
| Controlled Affiliates |
||||||||||||||||||||||||||||||||
| Franklin Floating Rate Income Funda |
$ | 194,101,482 | $ | — | $ | (54,960,600 | ) | $ | (10,939,400 | ) | $ | (2,136,187 | ) | $ | 126,065,295 | 15,243,687 | $ | 6,785,399 | ||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||
| Non-Controlled Affiliates |
||||||||||||||||||||||||||||||||
| Institutional Fiduciary Trust Money Market Portfolio, 1.56% |
63,183,777 | 51,479,267 | (55,883,771 | ) | — | — | 58,779,273 | 58,779,273 | 591,135 | |||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total Affiliated Securities |
$ | 257,285,259 | $ | 51,479,267 | $ | (110,844,371 | ) | $ | (10,939,400 | ) | $ | (2,136,187 | ) | $ | 184,844,568 | $ | 7,376,534 | |||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||
aEffective May 31, 2019, Franklin Middle Tier Floating Rate Fund was renamed Franklin Floating Rate Income Fund.
g. Waiver and Expense Reimbursements
Investor Services has contractually agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.03% based on the average net assets of the class until August 31, 2020.
Prior to September 1, 2019, the Class R6 transfer agent fees were limited to 0.02% based on the average net assets of the class.
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended October 31, 2019, the custodian fees were reduced as noted in the Consolidated Statement of Operations.
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains.
At April 30, 2019, the capital loss carryforwards were as follows:
| Capital loss carryforwards not subject to expiration: |
||||
| Short term |
$ | 33,032,070 | ||
| Long term |
441,662,444 | |||
|
|
|
|||
| Total capital loss carryforwards |
$ | 474,694,514 | ||
|
|
|
|||
| 56 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
At October 31, 2019, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
| Cost of investments |
$ | 4,781,112,776 | ||
|
|
|
|||
| Unrealized appreciation |
$ | 96,524,884 | ||
| Unrealized depreciation |
(266,813,547) | |||
|
|
|
|||
| Net unrealized appreciation (depreciation) |
$ | (170,288,663) | ||
|
|
|
|||
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of paydown losses, bond discounts and premiums, swaps and financial futures transactions.
6. Investment Transactions
Purchases and sales of investments (excluding short term securities) for the period ended October 31, 2019, aggregated $2,575,195,636 and $2,983,127,411, respectively.
7. Credit Risk and Defaulted Securities
At October 31, 2019, the Fund had 33.6% of its portfolio invested in high yield, senior secured floating rate loans, or other securities rated below investment grade and unrated securities, if any. These securities may be 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 October 31, 2019, the aggregate value of these securities was $5,350,000, representing 0.1% 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 in the accompanying Statement of Investments.
8. Restricted Securities
The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Fund may have registration rights for restricted securities. The issuer generally incurs all registration costs.
At October 31, 2019, investments in restricted securities, excluding securities exempt from registration under the 1933 Act were as follows:
| Principal Amount/ Shares/ Units |
Issuer | Acquisition Date |
Cost | Value | ||||||||||||
| 331,326 | a Appvion Operations Inc. | 4/12/19 | $ | 4,481,262 | $ | 4,417,403 | ||||||||||
| 125,940,079 | b K2016470219 South Africa Ltd., A | 2/08/13 - 2/01/17 | 977,122 | 83,322 | ||||||||||||
| 12,532,821 | b K2016470219 South Africa Ltd., B | 2/01/17 | 9,305 | 8,292 | ||||||||||||
| 124,500 | c Remington Outdoor Co. Inc., Litigation Units | 4/12/19 | — | — | ||||||||||||
| franklintempleton.com | Semiannual Report | 57 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
8. Restricted Securities (continued)
| Principal Amount/ Shares/ Units |
Issuer | Acquisition Date |
Cost | Value | ||||||||||||
| 1,500,000 | Sociedad Quimica y Minera de Chile SA, senior note, 144A, 3.625%, 4/03/23 | 8/28/17 | $ | 1,507,138 | $ | 1,539,750 | ||||||||||
|
|
|
|||||||||||||||
| Total Restricted Securities (Value is 0.1% of Net Assets) | $ | 6,974,827 | $ | 6,048,767 | ||||||||||||
|
|
|
|||||||||||||||
aThe Fund also invests in unrestricted securities or other investments in the issuer, valued at $7,561,816 as of October 31, 2019.
bThe Fund also invests in unrestricted securities or other investments in the issuer, valued at $23,299 as of October 31, 2019.
cThe Fund also invests in unrestricted securities or other investments in the issuer, valued at $1,322,439 as of October 31, 2019
9. Other Derivative Information
At October 31, 2019, investments in derivative contracts are reflected in the Consolidated Statement of Assets and Liabilities as follows:
| Asset Derivatives |
Liability Derivatives |
|||||||||||
| Derivative Contracts Not Accounted for as Hedging Instruments |
Consolidated Statement of Assets and Liabilities Location |
Fair Value | Consolidated Statement of Assets and Liabilities Location |
Fair Value | ||||||||
|
|
||||||||||||
| Interest rate contracts |
Variation margin on futures contracts |
$ | 431,962 | a | Variation margin on futures contracts |
$ | 1,801,946 | a | ||||
| Variation margin on centrally cleared swap contracts |
483,118 | a | Variation margin on centrally cleared swap contracts |
1,383,516 | a | |||||||
| Unrealized appreciation on OTC swap contracts |
1,565,813 | Unrealized depreciation on OTC swap contracts |
— | |||||||||
| Foreign exchange contracts |
Unrealized appreciation on OTC forward exchange contracts |
2,526,666 | Unrealized depreciation on OTC forward exchange contracts |
8,975,247 | ||||||||
| Credit contracts |
Variation margin on centrally cleared swap contracts |
— | Variation margin on centrally cleared swap contracts |
721,372 | a | |||||||
| OTC swap contracts (upfront payments) |
667,679 | OTC swap contracts (upfront receipts) |
33,043,584 | |||||||||
| Unrealized appreciation on OTC swap contracts |
2,000,647 | Unrealized depreciation on OTC swap contracts |
4,208,210 | |||||||||
| Value recovery instruments |
Investments in securities, at value |
9,411,080 | b | |||||||||
|
|
|
|
|
|||||||||
| Totals |
$ | 17,086,965 | $ | 50,133,875 | ||||||||
|
|
|
|
|
|||||||||
aThis amount reflects the cumulative appreciation (depreciation) of futures contracts and centrally cleared swap contracts as reported in the Consolidated Statement of Investments. Only the variation margin receivable/payable at period end is separately reported within the Consolidated Statement of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.
bVRI are included in investments in securities, at value in the Consolidated Statement of Assets and Liabilities.
| 58 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
For the period ended October 31, 2019, the effect of derivative contracts in the Consolidated Statement of Operations was as follows:
| Derivative Contracts Not Accounted for as Hedging Instruments |
Consolidated Statement of Operations Location |
Net Realized Gain (Loss) for the Period |
Consolidated Statement of Operations Location |
Net Change in Unrealized Appreciation (Depreciation) for the Period | ||||||||
|
|
||||||||||||
| Net realized gain (loss) from: |
Net change in unrealized appreciation (depreciation) on: | |||||||||||
| Interest rate contracts |
Futures contracts |
$ | 32,221,068 | Futures contracts | $ | (5,215,544 | ) | |||||
| Swap contracts |
8,458,265 | Swap contracts | (9,756,943 | ) | ||||||||
| Foreign exchange contracts |
Forward exchange contracts |
8,502,886 | Forward exchange contracts | (9,767,148 | ) | |||||||
| Credit contracts |
Swap contracts |
(34,488,014 | ) | Swap contracts | 12,865,748 | |||||||
| Value recovery instruments |
Investments |
— | Investments | 3,005,042 | a | |||||||
|
|
|
|
|
|
| |||||||
| Totals |
$ | 14,694,205 | $ | (8,868,845 | ) | |||||||
|
|
|
|
|
|
| |||||||
aVRI are included in net change in unrealized appreciation (depreciation) on investments in the Consolidated Statement of Operations.
For the period ended October 31, 2019, the average month end notional amount of futures contracts and swap contracts, the average month end contract value for forward exchange contracts and average month end fair value of VRI, were as follows:
| Futures contracts |
$ | 1,002,417,414 | ||
| Swap contracts |
573,922,210 | |||
| Forward exchange contracts |
641,327,870 | |||
| VRI |
7,994,712 |
At October 31, 2019, the Fund’s OTC derivative assets and liabilities are as follows:
| Gross Amounts of Assets and Liabilities Presented |
||||||||
| Assetsa | Liabilitiesa | |||||||
| Derivatives |
||||||||
| Forward exchange contracts |
$2,526,666 | $ 8,975,247 | ||||||
| Swap contracts |
4,234,139 | 37,251,794 | ||||||
| Total |
$6,760,805 | $46,227,041 | ||||||
aAbsent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and Liabilities.
| franklintempleton.com | Semiannual Report | 59 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
9. Other Derivative Information (continued)
At October 31, 2019, OTC derivative assets, which may be offset against OTC derivative liabilities and collateral received from the counterparty, are as follows:
| Amounts Not Offset in the Consolidated Statement of Assets and Liabilities |
||||||||||||||||||||
| Gross Amounts of Assets Presented in the Consolidated Statement of |
Financial Instruments Available for Offset |
Financial Instruments Collateral Receiveda,b |
Cash Collateral Received |
Net Amount (Not less than zero) |
||||||||||||||||
| Counterparty |
||||||||||||||||||||
| BNDP |
$ 161,122 | $ — | $(161,122 | ) | $ — | $ — | ||||||||||||||
| BZWS |
736,119 | (736,119 | ) | — | — | — | ||||||||||||||
| CITI |
1,495,374 | (1,495,374 | ) | — | — | — | ||||||||||||||
| DBAB |
36,944 | — | (36,944 | ) | — | — | ||||||||||||||
| GSCO |
1,011,494 | — | — | (920,000 | ) | 91,494 | ||||||||||||||
| JPHQ |
2,489,722 | (2,489,722 | ) | — | — | — | ||||||||||||||
| MSCO |
830,030 | — | — | (420,000 | ) | 410,030 | ||||||||||||||
| Total |
$6,760,805 | $(4,721,215 | ) | $(198,066 | ) | $(1,340,000 | ) | $501,524 | ||||||||||||
|
At October 31, 2019, OTC derivative liabilities, which may be offset against OTC derivative assets and collateral pledged to the counterparty, are as follows:
|
| |||||||||||||||||||
| Amounts Not Offset in the Consolidated Statement of Assets and Liabilities |
||||||||||||||||||||
| Gross Amounts of Liabilities Presented in the Consolidated Statement of |
Financial Instruments Available for Offset |
Financial Instruments Collateral Pledged |
Cash Collateral Pledgedb |
Net Amount (Not less than zero) |
||||||||||||||||
| Counterparty |
||||||||||||||||||||
| BNDP |
$ — | $ — | $ — | $ — | $ — | |||||||||||||||
| BZWS |
899,023 | (736,119 | ) | — | (162,904 | ) | — | |||||||||||||
| CITI |
32,278,847 | (1,495,374 | ) | — | (30,210,000 | ) | 573,473 | |||||||||||||
| DBAB |
— | — | — | — | — | |||||||||||||||
| GSCO |
— | — | — | — | — | |||||||||||||||
| JPHQ |
13,049,171 | (2,489,722 | ) | — | (10,559,449 | ) | — | |||||||||||||
| MSCO |
— | — | — | — | — | |||||||||||||||
| Total |
$46,227,041 | $(4,721,215 | ) | $ — | $(40,932,353 | ) | $573,473 | |||||||||||||
aAt October 31, 2019, the Fund received U.S. Treasury Bonds and Notes as collateral for derivatives.
bIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit collateral amounts to avoid the effect of overcollateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.
See Note 1(e) regarding derivative financial instruments.
See Abbreviations on page 65.
| 60 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
10. Holdings of 5% Voting Securities of Portfolio Companies
The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. During the period ended October 31, 2019, investments in “affiliated companies” were as follows:
| Name of Issuer | Value at Beginning of Period |
Purchases | Sales | Realized Gain (Loss) |
Net Change in Unrealized Appreciation (Depreciation) |
Value at End of |
Number of of Period |
Dividend Income |
||||||||||||||||||||||||
| Non-Controlled Affiliates |
||||||||||||||||||||||||||||||||
| Remington Outdoor Co. Inc. |
$2,909,366 | $ — | $ — | $ — | $(1,586,927 | ) | $1,322,439 | 1,322,439 | $ — | |||||||||||||||||||||||
| Remington Outdoor Co. Inc., Litigation Units |
— | — | — | — | — | — | 124,500 | — | ||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total Affiliated Securities(Value is —%† of Net Assets) |
$2,909,366 | $ — | $ — | $ — | $(1,586,927 | ) | $1,322,439 | $ — | ||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||
†Rounds to less than 0.1% of net assets.
11. Credit Facility
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 7, 2020. 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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Consolidated Statement of Operations. During the period ended October 31, 2019, the Fund did not use the Global Credit Facility.
12. 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 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 Fund’s 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.
| franklintempleton.com | Semiannual Report | 61 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
12. Fair Value Measurements (continued)
A summary of inputs used as of October 31, 2019, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: |
||||||||||||||||
| Investments in Securities:a |
||||||||||||||||
| Equity Investments:b |
||||||||||||||||
| Commercial & Professional Services |
$ | — | $ | — | $ | 1,322,439 | $ | 1,322,439 | ||||||||
| Consumer Services |
— | — | 122,759 | 122,759 | ||||||||||||
| Energy |
1,363,782 | 3,711,653 | 44,015 | c | 5,119,450 | |||||||||||
| Materials |
576,735 | — | 4,417,403 | 4,994,138 | ||||||||||||
| Media & Entertainment |
2,315,683 | — | 23,659 | 2,339,342 | ||||||||||||
| Retailing |
— | — | 91,614 | 91,614 | ||||||||||||
| Software & Services |
— | — | 750,000 | 750,000 | ||||||||||||
| All Other Equity Investments |
126,065,295 | — | — | 126,065,295 | ||||||||||||
| Corporate Bonds: |
||||||||||||||||
| Retailing |
— | 5,141,000 | 23,299 | 5,164,299 | ||||||||||||
| All Other Corporate Bonds |
— | 1,378,103,819 | — | 1,378,103,819 | ||||||||||||
| Senior Floating Rate Interests: |
||||||||||||||||
| Household & Personal Products |
— | — | 43,305,423 | 43,305,423 | ||||||||||||
| Software & Services |
— | 1,853,302 | 20,023,463 | 21,876,765 | ||||||||||||
| All Other Senior Floating Rate Interests |
— | 198,133,617 | — | 198,133,617 | ||||||||||||
| Foreign Government and Agency Securities |
— | 548,352,663 | — | 548,352,663 | ||||||||||||
| U.S. Government and Agency Securities |
— | 280,182,622 | — | 280,182,622 | ||||||||||||
| Asset-Backed Securities and Commercial Mortgage-Backed Securities |
— | 1,360,569,782 | — | 1,360,569,782 | ||||||||||||
| Mortgage-Backed Securities |
— | 424,469,656 | — | 424,469,656 | ||||||||||||
| Municipal Bonds |
— | 86,463,040 | — | 86,463,040 | ||||||||||||
| Escrows and Litigation Trusts |
— | 135,000 | — | c | 135,000 | |||||||||||
| Short Term Investments |
58,779,273 | 108,109,163 | — | 166,888,436 | ||||||||||||
| Total Investments in Securities |
$ | 189,100,768 | $ | 4,395,225,317 | $ | 70,124,074 | $ | 4,654,450,159 | ||||||||
| Other Financial Instruments: |
||||||||||||||||
| Futures Contracts |
$ | 431,962 | $ | — | $ | — | $ | 431,962 | ||||||||
| Forward Exchange Contracts |
— | 2,526,666 | — | 2,526,666 | ||||||||||||
| Swap Contracts |
— | 4,049,578 | — | 4,049,578 | ||||||||||||
| Total Other Financial Instruments |
$ | 431,962 | $ | 6,576,244 | $ | — | $ | 7,008,206 | ||||||||
| 62 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: |
||||||||||||||||
| Investments in Securities:a |
||||||||||||||||
| Other Financial Instruments: |
||||||||||||||||
| Futures Contracts |
$ | 1,801,946 | $ | — | $ | — | $ | 1,801,946 | ||||||||
| Forward Exchange Contracts |
— | 8,975,247 | — | 8,975,247 | ||||||||||||
| Swap Contracts |
— | 6,313,098 | — | 6,313,098 | ||||||||||||
| Total Other Financial Instruments |
$ | 1,801,946 | $ | 15,288,345 | $ | — | $ | 17,090,291 | ||||||||
aFor detailed categories, see the accompanying Consolidated Statement of Investments.
bIncludes common stocks and management investment companies as well as other equity investments.
cIncludes securities determined to have no value at October 31, 2019.
A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the beginning and/or end of the period. At October 31, 2019, the reconciliation of assets is as follows:
| Balance at Beginning of Period |
Purchases (Sales) |
Transfer Level 3a |
Transfer Out of Level 3b |
Cost Basis Adjustmentsc |
Net Realized Gain (Loss) |
Net Unrealized Appreciation (Depreciation) |
Balance at End of Period |
Net Change in Unrealized Appreciation (Depreciation) on Assets Held at Period End |
||||||||||||||||||||||||||||
| Assets: |
||||||||||||||||||||||||||||||||||||
| Investments in Securities: |
||||||||||||||||||||||||||||||||||||
| Equity Investments:d |
||||||||||||||||||||||||||||||||||||
| Commercial & Professional Services |
$ — | $ — | $1,322,439 | $— | $ — | $— | $ — | $ 1,322,439 | $ — | |||||||||||||||||||||||||||
| Consumer Services |
122,759 | — | — | — | — | — | — | 122,759 | — | |||||||||||||||||||||||||||
| Energy |
2 | — | 138,516 | e | — | — | — | (94,503 | ) | 44,015 | e | (94,503 | ) | |||||||||||||||||||||||
| Materials |
4,615,489 | — | — | — | — | — | (198,086 | ) | 4,417,403 | (198,086 | ) | |||||||||||||||||||||||||
| Media & Entertainment |
— | 24,605 | — | — | — | — | (946 | ) | 23,659 | (946 | ) | |||||||||||||||||||||||||
| Retailing |
96,878 | — | — | — | — | — | (5,264 | ) | 91,614 | (5,264 | ) | |||||||||||||||||||||||||
| Software & Services |
750,000 | — | — | — | — | — | — | 750,000 | — | |||||||||||||||||||||||||||
| Corporate Bonds: |
||||||||||||||||||||||||||||||||||||
| Retailing |
90,006 | — | — | — | 8,097 | — | (74,804 | ) | 23,299 | (74,804 | ) | |||||||||||||||||||||||||
| Senior Floating Rate Interests: |
||||||||||||||||||||||||||||||||||||
| Household & Personal Products |
42,108,964 | — | — | — | 1,079,090 | — | 117,369 | 43,305,423 | 117,369 | |||||||||||||||||||||||||||
| Software & Services |
19,883,394 | — | — | — | — | — | 140,069 | 20,023,463 | 140,069 | |||||||||||||||||||||||||||
| Escrows and Litigation Trusts |
— | e | — | — | — | — | — | — | — | e | — | |||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||
| Total Investments in Securities |
$67,667,492 | $24,605 | $1,460,955 | $— | $1,087,187 | $— | $(116,165 | ) | $70,124,074 | $(116,165 | ) | |||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||
aThe investments were transferred into Level 3 as a result of the unavailability of a quoted market price in an active market for identical securities and other significant observable valuation inputs. May include amounts related to a corporate action.
bThe investment was transferred out of Level 3 as a result of the availability of a quoted price in an active market for identical securities and other significant observable valuation inputs. May include amounts related to a corporate action.
cMay include accretion, amortization, partnership adjustments, and/or other cost basis adjustments.
dIncludes common stocks as well as other equity investments.
eIncludes securities determined to have no value.
| franklintempleton.com | Semiannual Report | 63 | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
12. Fair Value Measurements (continued)
Significant unobservable valuation inputs for material Level 3 financial instruments and impact to fair value as a result of changes in unobservable valuation inputs as of October 31, 2019, are as follows:
| Description | Fair Value at End of Period |
Valuation Technique |
Unobservable Inputs | Amount/ Range (Weighted Averagea) |
Impact to Fair Value if Input Increasesb |
|||||||||
| Assets: |
||||||||||||||
| Investments in Securities: |
||||||||||||||
| Senior Floating Rate Interests: |
||||||||||||||
| Household & Personal Products |
$ | 43,305,423 | Discounted cash flow | Free cash flow | $20.0 - $33.9 mil ($29.2) mil | Increase | c | |||||||
| Discount rate | 10.8% - 13.3% (11.7%) | Decrease | d | |||||||||||
| Software & Services |
$ | 20,023,463 | Discounted cash flow | Free cash flow | $26.6 mil | Increase | c | |||||||
| Discount rate | 19.0% | Increase | d | |||||||||||
| All Other Investmentsf |
6,795,188 | f | ||||||||||||
| Total |
$ | 70,124,074 | f | |||||||||||
aWeighted based on the relative fair value of the financial instruments.
bRepresents the directional change in the fair value of the Level 3 financial instruments that would result from a significant and reasonable increase in the corresponding input. A significant and reasonable decrease in the input would have the opposite effect. Significant impacts, if any, to fair value and/or net assets have been indicated.
cRepresents a significant impact to fair value and net assets.
dRepresents a significant impact to fair value but not net assets.
eIncludes fair value of immaterial financial instruments developed using various valuation techniques and unobservable inputs. May also include financial instruments with values derived using private transaction prices or non-public third party pricing information which is unobservable.
fIncludes securities determined to have no value at October 31, 2019.
13. 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.
| 64 |
Semiannual Report | franklintempleton.com | ||
FRANKLIN STRATEGIC SERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Strategic Income Fund (continued)
| Abbreviations
|
||||||||||
| Counterparty | Currency | Selected Portfolio | ||||||||
| BNDP | BNP Paribas | BRL | Brazilian Real | ARM | Adjustable Rate Mortgage | |||||
| BZWS | Barclays Bank PLC | CAD | Canadian Dollar | BBSW | Bank Bill Swap Rate | |||||
| CITI | Citigroup, Inc. | CNY | Chinese Yuan | BZDIOVRA | Brazil Cetip DI Interbank Deposit Rate | |||||
| DBAB | Deutsche Bank AG | COP | Colombian Peso | CABA | Canada Banker’s Acceptance | |||||
| GSCO | The Goldman Sachs Group, Inc. | DOP | Dominican Peso | CLO | Collateralized Loan Obligation | |||||
| JPHQ | JP Morgan Chase & Co. | EUR | Euro | CME | Chicago Mercantile Exchange | |||||
| MSCO | Morgan Stanley | IDR | Indonesian Rupiah | CMT | Constant Maturity Treasury Index | |||||
| USD | United States Dollar | CNRR | China Reverse Repo Rate | |||||||
| UYU | Uruguayan Peso | FRN | Floating Rate Note | |||||||
| ZAR | South African Rand | GDP | Gross Domestic Product | |||||||
| GO | General Obligation | |||||||||
| LIBOR | London InterBank Offered Rate | |||||||||
| MBS | Mortgage-Backed Security | |||||||||
| PIK | Payment-In-Kind | |||||||||
| RDA | Redevelopment Agency/Authority | |||||||||
| SF | Single Family | |||||||||
| T-Note | Treasury Note | |||||||||
| VRI | Value Recovery Instruments | |||||||||
| Index | ||
| CDX.EM.30 | CDX Emerging Markets Index | |
| MCDX.NA.31 | MCDX North America Index | |
| franklintempleton.com | Semiannual Report | 65 | ||
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
| 66 |
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Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
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|
Semiannual Report and Shareholder Letter | |||||
| Franklin Strategic Income Fund | ||||||
| Investment Manager | Distributor | Shareholder Services | ||||
| Franklin Advisers, Inc. | Franklin Templeton Distributors, Inc. | (800) 632-2301 | ||||
| (800) DIAL BEN® / 342-5236 | ||||||
| franklintempleton.com | ||||||
| © 2019 Franklin Templeton Investments. All rights reserved. | 194 S 12/19 |
| 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 13(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 Mary C. Choksi and she 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 provide reasonable assurance that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934, as amended, 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 control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect the internal control over financial reporting.
| Item 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Company. N/A |
| Item 13. | Exhibits. |
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, 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 Matthew T. Hinkle, 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.
FRANKLIN STRATEGIC SERIES
| By | S\MATTHEW T. HINKLE | |
| Matthew T. Hinkle | ||
| Chief Executive Officer – Finance and Administration | ||
| Date December 31, 2019 |
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\MATTHEW T. HINKLE | |
| Matthew T. Hinkle | ||
| Chief Executive Officer – Finance and Administration | ||
| Date December 31, 2019 |
| By | S\GASTON GARDEY | |
| Gaston Gardey | ||
| Chief Financial Officer and Chief Accounting Officer | ||
| Date December 31, 2019 |