N-CSRS 1 n-csrsfsspe103115_sec.htm FSS N-CSRS PE:10-31-15 n-csrsfsspe103115_sec.htm - Generated by SEC Publisher for SEC Filing

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: 10/31/15

 

Item 1. Reports to Stockholders.


 



 


 

Contents  
Semiannual Report  
Economic and Market Overview 3
Franklin Flex Cap Growth Fund 4
Franklin Focused Core Equity Fund 12
Franklin Growth Opportunities Fund 20
Franklin Small Cap Growth Fund 28
Franklin Small-Mid Cap Growth Fund 36
Financial Highlights and Statements of Investments 44
Financial Statements 85
Notes to Financial Statements 94
Shareholder Information 110

 

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

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Semiannual Report

Economic and Market Overview

The U.S. economy improved during the six months under review. Growth strengthened in the second quarter but moderated in the third quarter despite healthy consumer spending. Businesses cut back on inventories, exports slowed, and state and local governments reduced their spending. In contrast, non-manufacturing activities strengthened. The unemployment rate declined to 5.0% at period-end, the lowest level in more than seven years.1 Housing market data were mixed as existing home sales and prices rose, while new home sales slowed and mortgage rates edged higher. Retail sales grew modestly, driven by automobile and auto component sales. After two consecutive declines, monthly inflation, as measured by the Consumer Price Index, rose in October as prices for energy and other goods increased.

During the six-month period, the Federal Reserve (Fed) kept its target interest rate at 0%–0.25% while considering when an increase might be appropriate. Although global financial markets anticipated an increase, in September and October the Fed kept interest rates unchanged and said it expected moderate economic expansion, but it would continue to monitor developments domestically and abroad.

Although U.S. stock markets experienced sell-offs at times during the period, investor confidence generally grew as corporate profits remained healthy, the Fed kept its target interest rate low, the eurozone economy improved, China implemented more stimulus measures and Greece reached an agreement with its creditors. Toward period-end, U.S. stocks rallied amid easing concerns about China’s economy and increased optimism that certain central banks might introduce additional stimulus measures. In this environment, the broad U.S. stock market, as measured by the Standard & Poor’s 500 Index, generated a small, positive total return. Large capitalization growth stocks, as measured by the Russell 1000® Growth Index, made a gain, while small capitalization growth stocks, as measured by the Russell 2000® Growth Index, registered a loss.

The foregoing information reflects our analysis and opinions as of October 31, 2015. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

1. Source: Bureau of Labor Statistics.
Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell
Investment Group.

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Franklin Flex Cap Growth Fund

This semiannual report for Franklin Flex Cap Growth Fund covers the period ended October 31, 2015.

Your Fund’s Goal and Main Investments

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

Performance Overview

For the six months under review, the Fund’s Class A shares delivered a +0.78% cumulative total return. In comparison, the Fund’s narrow benchmark, the Russell 3000® Growth Index, which measures performance of Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values, generated a +1.99% total return.1 Also in comparison, the Russell 1000® Growth Index, which tracks performance of the largest companies in the Russell 3000® Index with higher price-to-book ratios and higher forecasted growth values, produced a +2.48% total return.1 Additionally, the Fund’s broad benchmark, the Standard & Poor’s 500 Index, which tracks the broad U.S. stock market, posted a +0.77% total return.1 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 7.

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

Investment Strategy

We use fundamental, bottom-up research to seek companies meeting our criteria of growth potential, quality and valuation. In seeking sustainable growth characteristics, we look for companies we believe can produce sustainable earnings and cash flow growth, evaluating the long-term market opportunity and competitive structure of an industry to target leaders and emerging leaders. We define quality companies as those with


strong and improving competitive positions in attractive markets. We also believe important attributes of quality are experienced and talented management teams as well as financial strength reflected in the capital structure, gross and operating margins, free cash flow generation and returns on capital employed. Our valuation analysis includes a range of

1. Source: Morningstar.
The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 49.

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FRANKLIN FLEX CAP GROWTH FUND

Top 10 Holdings    
10/31/15    
Company % of Total  
Sector/Industry Net Assets  
Apple Inc. 3.7 %
Technology Hardware & Equipment    
Alphabet Inc., C 3.6 %
Software & Services    
Facebook Inc., A 3.6 %
Software & Services    
MasterCard Inc., A 3.5 %
Software & Services    
Allergan PLC 3.2 %
Pharmaceuticals, Biotechnology & Life Sciences    
Amazon.com Inc. 3.2 %
Retailing    
Celgene Corp. 3.0 %
Pharmaceuticals, Biotechnology & Life Sciences    
NXP Semiconductors NV (Netherlands) 2.7 %
Semiconductors & Semiconductor Equipment    
Visa Inc., A 2.7 %
Software & Services    
NIKE Inc., B 2.6 %
Consumer Durables & Apparel    

 

potential outcomes based on an assessment of multiple scenarios. In assessing value, we consider whether security prices fully reflect the balance of the sustainable growth opportunities relative to business and financial risks.

Manager’s Discussion

During the six months under review, relative to the Russell 3000® Growth Index, major contributors to performance included stock selection in the consumer discretionary sector and stock selection and an underweighting in the materials sector.2

In consumer discretionary, top performers included footwear, apparel and equipment manufacturer NIKE, aftermarket parts and accessories retailer Advance Auto Parts and online retail shopping service provider Amazon.com. We feel that NIKE is exposed to the best secular growth area in the apparel industry and is a leader in the growing athletic category. In our view, it has a proven category strategy driven by innovation and marketing that has worked tremendously in the U.S. and is now being replicated across the globe. Advance Auto Parts reported solid second-quarter results and positive long-term earnings projections, which could indicate strong earnings acceleration in the coming years, in our opinion. Amazon reported strong, sustained revenue growth in core domestic retail, including Amazon Prime customers, and better-than-expected profits for its new Amazon Web Services cloud computing business. Additionally, the company improved its fixed and variable costs through lower shipping expenses, better utilization of fulfillment centers and growing use of third-party sellers.

Within materials, our holding in specialty materials and chemicals company Cytec Industries contributed to relative returns.3,4 Cytec shares performed well due to an announced acquisition by Belgium-based Solvay at a premium to Cytec’s share price.

Outside these sectors, another notable contributor was global specialty pharmaceutical firm Allergan PLC. Actavis acquired Allergan Inc. and quickly integrated the new company, renamed Allergan, announced a divestiture of its generic business to Teva Pharmaceutical Industries at a favorable price and became an acquisition target for Pfizer.

In contrast, stock selection and an overweighting in the health care sector, and stock selection in the industrials sector, detracted from the Fund’s relative performance.5

In health care, our positions in multinational specialty pharmaceutical company Valeant Pharmaceuticals International3,4 and health care service provider Envision Healthcare Holdings hurt relative performance. Valeant’s aggressive business model has been challenged due to a high debt load from mergers and acquisitions, aggressive price increases and the use of alternative pharmacy distribution programs. Envision’s stock fell when the company missed its third-quarter earnings estimate resulting from underperforming contracts that led to lower revenue and higher labor costs, which pressured margins. We believed these were short-term, transient operational issues that can be fixed and the stock’s sharp decline was unwarranted.

In the industrials sector, Spirit Airlines hampered the Fund when the company’s fares came under pressure as American Airlines and Southwest Airlines added capacity in some of their core markets. In our analysis, this pressure could continue into 2016, but over the long term we expect Spirit’s low-cost advantage could lead to profitable growth for several years.

2. The consumer discretionary sector comprises automobiles and components, consumer durables and apparel, consumer services, media and retailing in the SOI.
3. Not part of the index.
4. No longer held at period-end.
5. The health care sector comprises health care equipment and services; and pharmaceuticals, biotechnology and life sciences in the SOI. The industrials sector comprises
capital goods, commercial and professional services, and transportation in the SOI.
See www.franklintempletondatasources.com for additional data provider information.

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FRANKLIN FLEX CAP GROWTH FUND

Other key individual detractors included our positions in mixed-signal and standard semiconductor manufacturer NXP Semiconductors3 and asset management company Affiliated Managers Group (AMG). NXP shares declined as the company reported disappointing revenue and earnings guidance for the fourth quarter. Additionally, most semiconductor stocks came under pressure during the period as investors grew increasingly concerned about weakening end-market demand. NXP is expected to close its merger with Freescale Semiconductor before the end of 2015, and we believe the combined entity should have superior growth, profitability and shareholder return prospects over the longer term. AMG shares fell due to a drop in assets under management driven by lower global equity markets, slightly weaker quarterly flows, less optimism for performance fee accruals, and sector-wide price-earnings multiple compression (when stock prices move down despite higher earnings).

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

The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2015, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.


CFA® is a trademark owned by CFA Institute.

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FRANKLIN FLEX CAP GROWTH FUND

Performance Summary as of October 31, 2015

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

Net Asset Value          
Share Class (Symbol)   10/31/15   4/30/15 Change
A (FKCGX) $ 51.96 $ 51.56 +$0.40
C (FCIIX) $ 43.27 $ 43.10 +$0.17
R (FRCGX) $ 49.54 $ 49.22 +$0.32
R6 (FFCRX) $ 54.21 $ 53.67 +$0.54
Advisor (FKCAX) $ 53.87 $ 53.38 +$0.49

 

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FRANKLIN FLEX CAP GROWTH FUND
PERFORMANCE SUMMARY

Performance as of 10/31/151

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include maximum sales charges. Class A: 5.75% maximum initial sales charge; Class C: 1% contingent deferred sales charge in first year only;

Class R/R6/Advisor Class: no sales charges.

  Cumulative   Average Annual     Value of Average Annual   Total Annual  
Share Class Total Return2   Total Return3   $ 10,000 Investment4 Total Return (9/30/15)5   Operating Expenses6  
A                 0.94 %
6-Month +0.78 % -5.03 % $ 9,497        
1-Year +5.84 % -0.25 % $ 9,975 -3.16 %    
5-Year +72.70 % +10.23 % $ 16,277 +9.60 %    
10-Year +107.96 % +6.96 % $ 19,602 +6.18 %    
C                 1.69 %
6-Month +0.39 % -0.61 % $ 9,939        
1-Year +5.06 % +4.20 % $ 10,420 +1.18 %    
5-Year +66.41 % +10.72 % $ 16,641 +10.08 %    
10-Year +93.01 % +6.80 % $ 19,301 +6.02 %    
R                 1.19 %
6-Month +0.65 % +0.65 % $ 10,065        
1-Year +5.56 % +5.56 % $ 10,556 +2.49 %    
5-Year +70.59 % +11.27 % $ 17,059 +10.63 %    
10-Year +102.85 % +7.33 % $ 20,285 +6.55 %    
R6                 0.48 %
6-Month +1.01 % +1.01 % $ 10,101        
1-Year +6.30 % +6.30 % $ 10,630 +3.22 %    
Since Inception (5/1/13) +43.30 % +15.47 % $ 14,330 +13.32 %    
Advisor                 0.69 %
6-Month +0.92 % +0.92 % $ 10,092        
1-Year +6.09 % +6.09 % $ 10,609 +2.99 %    
5-Year +74.94 % +11.83 % $ 17,494 +11.19 %    
10-Year +113.28 % +7.87 % $ 21,328 +7.08 %    

 

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.

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FRANKLIN FLEX CAP GROWTH FUND
PERFORMANCE SUMMARY

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. Foreign securities involve special risks, including currency fluctuations and economic and political uncertainties. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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

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

Class R6: Shares are available to certain eligible investors as described in the prospectus.

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

1. The Fund has a fee waiver associated with any investment in a Franklin Templeton money fund, contractually guaranteed through at least its current fiscal year-end.
Fund investment results reflect the fee waiver, to the extent applicable; without this reduction, 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. Six-month return has not been annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
5. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.
6. Figures are as stated in the Fund’s current prospectus. 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 FLEX CAP GROWTH FUND

Your Fund’s Expenses

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

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

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

Actual Fund Expenses

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

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

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

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

Hypothetical Example for Comparison with Other Funds

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

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

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FRANKLIN FLEX CAP GROWTH FUND
YOUR FUND’S EXPENSES

    Beginning Account   Ending Account   Expenses Paid During
Share Class   Value 5/1/15   Value 10/31/15   Period* 5/1/15–10/31/15
A            
Actual $ 1,000 $ 1,007.80 $ 4.74
Hypothetical (5% return before expenses) $ 1,000 $ 1,020.41 $ 4.77
C            
Actual $ 1,000 $ 1,003.90 $ 8.51
Hypothetical (5% return before expenses) $ 1,000 $ 1,016.64 $ 8.57
R            
Actual $ 1,000 $ 1,006.50 $ 6.00
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.15 $ 6.04
R6            
Actual $ 1,000 $ 1,010.10 $ 2.43
Hypothetical (5% return before expenses) $ 1,000 $ 1,022.72 $ 2.44
Advisor            
Actual $ 1,000 $ 1,009.20 $ 3.48
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.67 $ 3.51

 

*Expenses are calculated using the most recent six-month expense ratio, net of expense waivers, annualized for each class (A: 0.94%;
C: 1.69%; R: 1.19%; R6: 0.48%; and Advisor: 0.69%), multiplied by the average account value over the period, multiplied by 184/366 to
reflect the one-half year period.

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Franklin Focused Core Equity Fund

This semiannual report for Franklin Focused Core Equity Fund covers the period ended October 31, 2015.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation by normally investing at least 80% of its net assets in equity securities. The Fund normally invests primarily to predominantly in equity securities of large capitalization companies, which are similar in size to those in the Standard & Poor’s 500 Index (S&P 500®).

Performance Overview

For the six months under review, the Fund’s Class A shares had a -4.64% cumulative total return. In comparison, the S&P 500, which tracks the broad U.S. stock market, posted a +0.77% total return.1 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 15.

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

Investment Strategy

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


Manager’s Discussion

During the six months under review, contributors to the Fund’s absolute performance included holdings in the information technology (IT) and financials sectors.

In the IT sector, top performers included Alphabet (formerly, Google) and Microsoft. Alphabet generated robust third-quarter revenue growth, driven by YouTube and mobile search. Additionally, the company announced a share buyback in each of the last three quarterly reports and delivered, or agreed to deliver, on three key factors that concerned investors: expense management, transparency and capital returns. Thus far, we have seen lower expense growth and stable profit margins. In October, the company completed the previously announced restructuring of what was formerly Google into Alphabet, a holding company for smaller companies, including Google, which would remain focused on Internet products. Alphabet

1. Source: Morningstar.
The index is unmanaged and includes reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
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 57.

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FRANKLIN FOCUSED CORE EQUITY FUND

Top 10 Holdings    
10/31/15    
Company % of Total  
Sector/Industry Net Assets  
 
Allergan PLC 7.2 %
Health Care    
Microsoft Corp. 4.5 %
Information Technology    
QUALCOMM Inc. 4.5 %
Information Technology    
The Hartford Financial Services Group Inc. 4.2 %
Financials    
Genesee & Wyoming Inc. 3.4 %
Industrials    
Adobe Systems Inc. 3.4 %
Information Technology    
Towers Watson & Co. 3.3 %
Industrials    
The Charles Schwab Corp. 3.3 %
Financials    
Equinix Inc. 3.2 %
Financials    
Sanofi, ADR 3.2 %
Health Care    

 

also committed to giving investors visibility into the profitability and capital spending of the core advertising businesses as a whole, as well as the investment and capital spending related to earlier stage businesses and longer term research and development products. Microsoft is the world’s largest provider of document productivity software and value-oriented data-center software, as well as a dominant provider of personal computer (PC) software. Over the past six months, investors became increasingly enthusiastic about Microsoft’s shift to the cloud. We believe that Microsoft’s Office and data-center software franchises became more valuable as a result of the cloud transition the company began executing, and we were impressed with the company’s strategy to reignite growth in the mature PC market.

The financials sector’s performance was driven largely by Equinix and The Hartford Financial Services Group. Equinix is a global data-center company that offers colocation and interconnection services to network providers, cloud service providers and enterprises. The company’s growth accelerated as customers took advantage of different cloud infrastructures. As the data-center industry continued to consolidate, new supply buildout became more disciplined, resulting in pricing stability. Equinix’s large global footprint created significant barriers to entry, which we believe allowed the company to benefit from attractive industry trends. The Hartford’s share price appreciated due to increased market speculation about mergers and acquisitions in the property-casualty insurance industry, following the July announcement of a definitive agreement wherein ACE would acquire Chubb. Additionally, many investors seemed to see the strategic value in Hartford’s platform, which is a combination of small-market and middle-market insurance products for businesses and for individuals.

Another key contributor was global specialty pharmaceutical firm Allergan PLC. Actavis acquired Allergan Inc. and quickly integrated the new company, renamed Allergan, announced a divestiture of its generic business to Teva Pharmaceutical Industries at a favorable price and became an acquisition target for Pfizer.

In contrast, key detractors from the Fund’s absolute performance included holdings in the health care, materials and energy sectors.

In health care, the share price decline of multinational specialty pharmaceutical company Valeant Pharmaceuticals International more than offset the solid performance of other holdings. Valeant’s aggressive business model has been challenged due to a high debt load from mergers and acquisitions, aggressive price increases and the use of alternative pharmacy distribution programs.

In the materials sector, chemicals and building products manufacturer Axiall’s share price fell amid continued price weakness in caustic soda, one of the company’s key product lines. North America’s and South America’s caustic soda demand weakened because of excess supply. In addition, the global energy price decline allowed non-U.S.-based producers to become more cost-competitive, further pressuring prices. As a result, caustic soda prices experienced a double-digit percentage annual decline, contributing to Axiall’s negative earnings estimate revisions.

In the energy sector, shares of oil and gas explorer and producer Anadarko Petroleum fell during the period as crude oil prices plunged to multi-year lows after a second-quarter rebound. This decline led to market expectations for lower crude oil prices for a longer period and impacted many investors’ time horizon for a price recovery. Furthermore, weak crude oil prices negatively

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FRANKLIN FOCUSED CORE EQUITY FUND

affected liquid natural gas (LNG) prices and the value of Anadarko’s Mozambique LNG project, which is still several years away from production. Further hurting Anadarko’s shares was a sell-off in midstream master limited partnership stocks, including the company’s subsidiary, Western Gas Equity Partners, LP (WGP), resulting from investors’ perception of a lack of capital funding options and fears that interest rate increases would hinder yield-oriented investments. Anadarko had sold some of its interest in WGP and planned to do so again. In our view, Anadarko remains a resource-rich company with strong onshore U.S. shale exposure and reserve, as well as international offshore assets. The company has reduced spending to within its cash flow and has a sizable amount of cash on its balance sheet.

Other key individual detractors included Netherlands-based multinational cable and telecommunications company Altice and global freight railroad operator Genesee & Wyoming. Altice’s announced deal to acquire U.S.-based Cablevision was not well received by investors, who expressed concerns about the purchase price and the deal synergies that Altice used in its financing assumptions. Furthermore, the high yield market’s weakness in the late summer and early fall contributed to share price declines of highly leveraged companies such as Altice. Investors seemed to question the sustainability of Altice’s rollup strategy, which is dependent on debt to fund the transactions. Low natural gas and iron ore prices affected Genesee & Wyoming’s shipment volume. In our analysis, the company’s strategy to reduce resources dedicated to transporting these commodities and redeploying them into business areas that are experiencing better demand could lead to better corporate results in 2016.

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


The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2015, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

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Performance Summary as of October 31, 2015

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

Net Asset Value            
Share Class (Symbol)   10/31/15   4/30/15   Change
A (FCEQX) $ 14.58 $ 15.29 -$ 0.71
C (FCEDX) $ 14.00 $ 14.73 -$ 0.73
R (FCERX) $ 14.43 $ 15.15 -$ 0.72
R6 (FEFCX) $ 14.77 $ 15.46 -$ 0.69
Advisor (FCEZX) $ 14.75 $ 15.44 -$ 0.69

 

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PERFORMANCE SUMMARY

Performance as of 10/31/151

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include maximum sales charges. Class A: 5.75% maximum initial sales charge; Class C: 1% contingent deferred sales charge in first year only;

Class R/R6/Advisor Class: no sales charges.

            Value of Average Annual   Total Annual  
  Cumulative   Average Annual   $ 10,000 Total Return   Operating Expenses6  
Share Class Total Return2   Total Return3     Investment4 (9/30/15 )5 (with waiver)   (without waiver)  
A                 1.25 % 1.50 %
6-Month -4.64 % -10.11 % $ 8,989            
1-Year +2.81 % -3.08 % $ 9,692 -6.49 %        
5-Year +82.18 % +11.41 % $ 17,166 +10.72 %        
Since Inception (12/13/07) +67.46 % +5.96 % $ 15,783 +5.30 %        
C                 2.00 % 2.25 %
6-Month -4.96 % -5.91 % $ 9,409            
1-Year +2.18 % +1.18 % $ 10,118 -2.43 %        
5-Year +76.30 % +12.01 % $ 17,630 +11.30 %        
Since Inception (12/13/07) +58.52 % +6.02 % $ 15,852 +5.36 %        
R                 1.50 % 1.75 %
6-Month -4.75 % -4.75 % $ 9,525            
1-Year +2.62 % +2.62 % $ 10,262 -1.00 %        
5-Year +80.52 % +12.54 % $ 18,052 +11.83 %        
Since Inception (12/13/07) +64.47 % +6.51 % $ 16,447 +5.85 %        
R6                 0.85 % 1.10 %
6-Month -4.46 % -4.46 % $ 9,554            
1-Year +3.25 % +3.25 % $ 10,325 -0.37 %        
Since Inception (5/1/13) +46.26 % +16.42 % $ 14,626 +14.44 %        
Advisor                 1.00 % 1.25 %
6-Month -4.47 % -4.47 % $ 9,553            
1-Year +3.13 % +3.13 % $ 10,313 -0.49 %        
5-Year +84.91 % +13.08 % $ 18,491 +12.39 %        
Since Inception (12/13/07) +71.23 % +7.06 % $ 17,123 +6.39 %        

 

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.

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PERFORMANCE SUMMARY

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 is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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

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

Class R6: Shares are available to certain eligible investors as described in the prospectus.

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

1. The Fund has an expense reduction contractually guaranteed through at least 8/31/16 and a fee waiver associated with any investment in a Franklin Templeton money
fund, contractually guaranteed through at least its current fiscal year-end. Fund investment results reflect the expense reduction and fee waiver, to the extent applicable;
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. Six-month return has not been annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
5. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.
6. Figures are as stated in the Fund’s current prospectus. 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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Your Fund’s Expenses

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

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

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

Actual Fund Expenses

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

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

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

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

Hypothetical Example for Comparison with Other Funds

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

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

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YOUR FUND’S EXPENSES

    Beginning Account   Ending Account   Expenses Paid During
Share Class   Value 5/1/15   Value 10/31/15   Period* 5/1/15–10/31/15
A            
Actual $ 1,000 $ 953.60 $ 6.09
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.90 $ 6.29
C            
Actual $ 1,000 $ 950.40 $ 9.66
Hypothetical (5% return before expenses) $ 1,000 $ 1,015.23 $ 9.98
R            
Actual $ 1,000 $ 952.50 $ 7.21
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.75 $ 7.46
R6            
Actual $ 1,000 $ 955.40 $ 4.13
Hypothetical (5% return before expenses) $ 1,000 $ 1,020.91 $ 4.27
Advisor            
Actual $ 1,000 $ 955.30 $ 4.77
Hypothetical (5% return before expenses) $ 1,000 $ 1,020.26 $ 4.93

 

*Expenses are calculated using the most recent six-month expense ratio, net of expense waivers, annualized for each class (A: 1.24%;
C: 1.97%; R: 1.47%; R6: 0.84%; and Advisor: 0.97%), multiplied by the average account value over the period, multiplied by 184/366 to
reflect the one-half year period.

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Semiannual Report 19


 

Franklin Growth Opportunities Fund

This semiannual report for Franklin Growth Opportunities Fund covers the period ended October 31, 2015.

Your Fund’s Goal and Main Investments

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

Performance Overview

For the six months under review, the Fund’s Class A shares delivered a +0.45% cumulative total return. In comparison, the Fund’s narrow benchmark, the Russell 3000® Growth Index, which measures performance of Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values, generated a +1.99% total return.1 The Fund’s broad benchmark, the Standard & Poor’s 500 Index, which tracks the broad U.S. stock market, produced a +0.77% total return.1 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 23.

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

Investment Strategy

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


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

Manager’s Discussion

During the six months under review, key contributors to the Fund’s performance relative to the Russell 3000® Growth Index included stock selection in the information technology (IT) and consumer discretionary sectors. In IT, our position in Facebook helped relative results. The social networking service and website company continued to surpass analyst expectations as it reported strong second-quarter local currency advertising revenue growth with a solid high profit margin. We believe the company’s rollout of advertisements on Instagram and video on

1. Source: Morningstar.
The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 64.

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FRANKLIN GROWTH OPPORTUNITIES FUND

its core platform could drive incremental growth. Facebook continued to have a strong and engaged user base, especially on mobile devices, its largest advertisement revenue source. Advertising dollars, especially those related to brand advertising, are shifting from television to Facebook as advertisers follow their audience and are achieving positive measurable returns on the platform.

In the consumer discretionary sector, our positions in online retail shopping service provider Amazon.com, coffee and tea manufacturer and retailer Starbucks, and apparel and footwear manufacturer Under Armour supported the Fund’s relative performance. Amazon reported strong, sustained revenue growth in core domestic retail, including Amazon Prime customers, and better-than-expected profits for its new Amazon Web Services cloud computing business. Additionally, the company improved its fixed and variable costs through lower shipping expenses, better utilization of fulfillment centers and growing use of third-party sellers. Starbucks outperformed the index and the overall restaurant industry as the company reported strong sales growth and modest margin expansion for its fiscal year ended September 27, 2015. The company generated robust sales growth in all regions, particularly in the U.S., where comparative store sales were driven by newly introduced beverages and increased tea and food sales. Starbucks continued to open new stores domestically and internationally, with more than 1,600 net new stores in fiscal year 2015. Under Armour continued to generate strong sales momentum around the world with recent innovations that were well received by consumers. The company gained market share as it drove category growth, while showing improved profitability in international markets. In our view, Under Armour continued to have potential for long-term growth.

Another key individual contributor was our position in Celgene, which discovers, develops and sells therapies for treating cancer and immunological diseases. Its acquisition of Receptos provided Celgene with a new, strong pipeline product, Ozanimod, which is being developed for the treatment of inflammatory bowel disease and multiple sclerosis. An enhanced inflammation and immunology portfolio led Celgene to raise its long-term revenue and earnings guidance.

Top 10 Holdings    
10/31/15    
Company % of Total  
Sector/Industry Net Assets  
 
Alphabet Inc., A & C 4.5 %
Information Technology    
Allergan PLC 4.1 %
Health Care    
Amazon.com Inc. 3.9 %
Consumer Discretionary    
Celgene Corp. 3.8 %
Health Care    
MasterCard Inc., A 3.8 %
Information Technology    
Apple Inc. 3.1 %
Information Technology    
Facebook Inc., A 3.1 %
Information Technology    
SBA Communications Corp. 3.0 %
Telecommunication Services    
Visa Inc., A 2.9 %
Information Technology    
Gilead Sciences Inc. 2.6 %
Health Care    

 

In contrast, key detractors from the Fund’s relative performance included stock selection in the health care and industrials sectors. In health care, our positions in multinational specialty pharmaceutical company Valeant Pharmaceuticals International2,3 and health care services provider Envision Healthcare Holdings hurt relative results. Valeant’s aggressive business model has been challenged due to a high debt load from mergers and acquisitions, aggressive price increases and the use of alternative pharmacy distribution programs. Envision’s stock fell when the company missed its third-quarter earnings estimate resulting from underperforming contracts that led to lower revenue and higher labor costs, which pressured margins. We believed these were short-term, transient operational issues that can be fixed and the stock’s sharp decline was unwarranted.

In the industrials sector, our position in geospatial information product and service provider DigitalGlobe hindered performance.3 The commercial side of DigitalGlobe’s business has been struggling recently, while the defense side has been

2. No longer held at period-end.
3. Not part of the index.
See www.franklintempletondatasources.com for additional data provider information.

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FRANKLIN GROWTH OPPORTUNITIES FUND

experiencing stable growth. The commercial side has been trying to expand into the most troubled markets and sectors, such as Russia, energy and agriculture. We remained confident that the company’s new, higher resolution capabilities can drive acceleration in growth later next year.

Other key individual detractors included our positions in Netherlands-based mixed-signal and standard semiconductor manufacturer NXP Semiconductors3 and oil and gas explorer and producer Anadarko Petroleum. NXP shares declined as the company reported disappointing revenue and earnings guidance for the fourth quarter. Additionally, most semiconductor stocks came under pressure during the period as investors grew increasingly concerned about weakening end-market demand. NXP is expected to close its merger with Freescale Semiconductor before the end of 2015, and we believe the combined entity should have superior growth, profitability and shareholder return prospects over the longer term. Anadarko’s shares fell as crude oil prices plunged to multi-year lows after a second-quarter rebound. This decline led to market expectations for lower crude oil prices for a longer period and impacted many investors’ time horizon for a price recovery. Furthermore, weak crude oil prices negatively affected liquid natural gas (LNG) prices and the value of Anadarko’s Mozambique LNG project, which is still several years away from production. Further hurting Anadarko’s shares was a sell-off in midstream master limited partnership stocks, including the company’s subsidiary, Western Gas Equity Partners, LP (WGP), resulting from investors’ perception of a lack of capital funding options and fears that interest rate increases would hinder yield-oriented investments. Anadarko had sold some of its interest in WGP and planned to do so again. In our view, Anadarko remains a resource-rich company with strong onshore U.S. shale exposure and reserve, as well as international offshore assets. The company has reduced spending to within its cash flow and has sizable cash on its balance sheet.

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


The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2015, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

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FRANKLIN GROWTH OPPORTUNITIES FUND

Performance Summary as of October 31, 2015

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

Net Asset Value          
Share Class (Symbol)   10/31/15   4/30/15 Change
A (FGRAX) $ 33.28 $ 33.13 +$0.15
C (FKACX) $ 29.30 $ 29.27 +$0.03
R (FKARX) $ 32.22 $ 32.10 +$0.12
R6 (FOPPX) $ 35.34 $ 35.09 +$0.25
Advisor (FRAAX) $ 35.17 $ 34.96 +$0.21

 

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PERFORMANCE SUMMARY

Performance as of 10/31/151

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include maximum sales charges. Class A: 5.75% maximum initial sales charge; Class C: 1% contingent deferred sales charge in first year only;

Class R/R6/Advisor Class: no sales charges.

  Cumulative   Average Annual     Value of Average Annual   Total Annual  
Share Class Total Return2   Total Return3   $ 10,000 Investment4 Total Return (9/30/15)5   Operating Expenses6  
A                 1.13 %
6-Month +0.45 % -5.32 % $ 9,468        
1-Year +8.07 % +1.85 % $ 10,185 -1.90 %    
5-Year +88.70 % +12.21 % $ 17,788 +11.36 %    
10-Year +149.35 % +8.92 % $ 23,503 +8.22 %    
C                 1.88 %
6-Month +0.10 % -0.90 % $ 9,910        
1-Year +7.31 % +6.31 % $ 10,631 +2.37 %    
5-Year +82.15 % +12.74 % $ 18,215 +11.90 %    
10-Year +132.20 % +8.79 % $ 23,220 +8.09 %    
R                 1.38 %
6-Month +0.37 % +0.37 % $ 10,037        
1-Year +7.85 % +7.85 % $ 10,785 +3.87 %    
5-Year +86.68 % +13.30 % $ 18,668 +12.45 %    
10-Year +144.12 % +9.34 % $ 24,412 +8.64 %    
R6                 0.68 %
6-Month +0.71 % +0.71 % $ 10,071        
1-Year +8.59 % +8.59 % $ 10,859 +4.57 %    
Since Inception (5/1/13) +47.83 % +16.91 % $ 14,783 +14.41 %    
Advisor                 0.88 %
6-Month +0.60 % +0.60 % $ 10,060        
1-Year +8.39 % +8.39 % $ 10,839 +4.39 %    
5-Year +91.43 % +13.87 % $ 19,143 +13.02 %    
10-Year +156.74 % +9.89 % $ 25,674 +9.18 %    

 

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.

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PERFORMANCE SUMMARY

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. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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

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

Class R6: Shares are available to certain eligible investors as described in the prospectus.

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

1. The Fund has a fee waiver associated with any investment in a Franklin Templeton money fund, contractually guaranteed through at least its current fiscal year-end.
Fund investment results reflect the fee waiver, to the extent applicable; without this reduction, 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. Six-month return has not been annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
5. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.
6. Figures are as stated in the Fund’s current prospectus. 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:

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

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

Actual Fund Expenses

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

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

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

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

Hypothetical Example for Comparison with Other Funds

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

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

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YOUR FUND’S EXPENSES

    Beginning Account   Ending Account   Expenses Paid During
Share Class   Value 5/1/15   Value 10/31/15   Period* 5/1/15–10/31/15
A            
Actual $ 1,000 $ 1,004.50 $ 5.49
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.66 $ 5.53
C            
Actual $ 1,000 $ 1,001.00 $ 9.15
Hypothetical (5% return before expenses) $ 1,000 $ 1,015.99 $ 9.22
R            
Actual $ 1,000 $ 1,003.70 $ 6.65
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.50 $ 6.70
R6            
Actual $ 1,000 $ 1,007.10 $ 3.28
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.87 $ 3.30
Advisor            
Actual $ 1,000 $ 1,006.00 $ 4.13
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.01 $ 4.17

 

*Expenses are calculated using the most recent six-month expense ratio, net of expense waivers, annualized for each class (A: 1.09%;
C: 1.82%; R: 1.32%; R6: 0.65%; and Advisor: 0.82%), multiplied by the average account value over the period, multiplied by 184/366 to
reflect the one-half year period.

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Franklin Small Cap Growth Fund

This semiannual report for Franklin Small Cap Growth Fund covers the period ended October 31, 2015. At the market close on February 12, 2015, the Fund closed to new investors with limited exceptions. Existing shareholders may add to their accounts. We believe this closure can help us effectively manage our current level of assets.

Your Fund’s Goal and Main Investments

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

Performance Overview

For the six months under review, the Fund’s Class A shares had a cumulative total return of -8.71%. In comparison, the Russell 2000® Growth Index, which measures performance of small cap companies with higher price-to-book ratios and higher forecasted growth values, had a -3.47% total return.2 The Standard & Poor’s 500 Index, which tracks the broad U.S. stock market, produced a +0.77% total return.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 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. Please visit franklintempleton.com or call (800) 342-5236 for most recent month-end performance.

Investment Strategy

We use fundamental, bottom-up research to seek companies meeting our criteria of growth potential, quality and valuation. In seeking sustainable growth characteristics, we look for companies we believe can produce sustainable earnings and cash flow growth, evaluating the long-term market opportunity and competitive structure of an industry to target leaders and emerging leaders. We define quality companies as those with


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

Manager’s Discussion

During the six months under review, most sectors represented in the Fund’s portfolio detracted from absolute performance. Relative to the Russell 2000® Growth Index, stock selection and an overweighting in the information technology sector contributed to performance. In this sector, our position in cloud

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 reinvested dividends. 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 72.

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FRANKLIN SMALL CAP GROWTH FUND

Top 10 Holdings    
10/31/15    
Company % of Total  
Sector/Industry Net Assets  
Grand Canyon Education Inc. 1.7 %
Consumer Discretionary    
Demandware Inc. 1.7 %
Information Technology    
ViaSat Inc. 1.6 %
Information Technology    
Callidus Software Inc. 1.6 %
Information Technology    
2U Inc. 1.6 %
Consumer Discretionary    
The Advisory Board Co. 1.5 %
Industrials    
HomeAway Inc. 1.5 %
Information Technology    
Revance Therapeutics Inc. 1.5 %
Health Care    
Bottomline Technologies Inc. 1.5 %
Information Technology    
Intersil Corp., A 1.5 %
Information Technology    

 

software provider Callidus Software was a major contributor. Callidus experienced accelerating growth of Software as a Service (SaaS) revenues and profitability due to an efficient salesforce. The company’s “Lead to Money” as a suite approach seemed to gain traction against single-product “best of breed” vendors.

Other key individual contributors included health care holdings such as specialty biopharmaceutical company Revance Therapeutics and polymer pharmaceutical technology firm Heron Therapeutics. Revance announced positive phase II data comparing its injectable botulinum toxin to a placebo and Allergan’s Botox, giving investors a reason to believe its product will have regulatory and commercial success. Heron’s share price made a triple-digit percentage gain as investors perceived a strong potential for future earnings growth, sparked by the company’s innovation in drug delivery technology.

In contrast, several sectors hampered the Fund’s relative performance. Significant detractors included stock selection in health care as well as stock selection and an overweighting in consumer discretionary.

Within health care, medical device manufacturer Spectranetics and biological research equipment provider Fluidigm hurt relative results. Shares of Spectranetics declined as the company faced increased competition from Medtronic and Boston Scientific in the U.S. peripheral artery disease market. Still, we expect Spectranetics to launch a competitive product within 18 months that could lead to sales growth and a stock recovery. Although Fluidigm shares rose in October after the company reported positive third-quarter earnings results, the stock declined for the period due to a large net loss in revenues during the second quarter. We believed key personnel changes and a reorganized sales force should stabilize Fluidigm’s near-term performance and position it for growth in 2016 and beyond.

In consumer discretionary, educational technology company 2U detracted after a short-selling firm published a negative note on the company that adversely impacted its stock. However, third-quarter revenue growth, margins and strategic updates as well as initial 2016 guidance were all positive. In our analysis, 2U is a best-in-class, SaaS-like company with an attractive revenue growth profile compared with its peers.

Another key individual detractor was our position in geospatial information product and service provider DigitalGlobe (not an index component). The commercial side of DigitalGlobe’s business has been struggling recently, while the defense side has been experiencing stable growth. The commercial side has been trying to expand into the most troubled markets and sectors, such as Russia, energy and agriculture. We remained confident that the company’s new, higher resolution capabilities can drive acceleration in growth later next year.

franklintempleton.com

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FRANKLIN SMALL CAP GROWTH FUND

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


The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2015, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

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FRANKLIN SMALL CAP GROWTH FUND

Performance Summary as of October 31, 2015

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

Net Asset Value            
Share Class (Symbol)   10/31/15   4/30/15   Change
A (FSGRX) $ 17.19 $ 18.83 -$ 1.64
C (FCSGX) $ 14.88 $ 16.36 -$ 1.48
R (FSSRX) $ 16.52 $ 18.11 -$ 1.59
R6 (FSMLX) $ 18.32 $ 20.02 -$ 1.70
Advisor (FSSAX) $ 18.23 $ 19.94 -$ 1.71

 

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FRANKLIN SMALL CAP GROWTH FUND
PERFORMANCE SUMMARY

Performance as of 10/31/151

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include maximum sales charges. Class A: 5.75% maximum initial sales charge; Class C: 1% contingent deferred sales charge in first year only;

Class R/R6/Advisor Class: no sales charges.

  Cumulative   Average Annual     Value of Average Annual   Total Annual  
Share Class Total Return2   Total Return3   $ 10,000 Investment4 Total Return (9/30/15)5   Operating Expenses6  
A                 1.12 %
6-Month -8.71 % -13.96 % $ 8,604        
1-Year -3.17 % -8.72 % $ 9,128 -8.41 %    
5-Year +83.11 % +11.53 % $ 17,259 +12.02 %    
10-Year +127.06 % +7.91 % $ 21,401 +6.98 %    
C                 1.87 %
6-Month -9.05 % -9.96 % $ 9,004        
1-Year -3.83 % -4.74 % $ 9,526 -4.47 %    
5-Year +76.70 % +12.06 % $ 17,670 +12.54 %    
10-Year +111.32 % +7.77 % $ 21,132 +6.84 %    
R                 1.37 %
6-Month -8.78 % -8.78 % $ 9,122        
1-Year -3.35 % -3.35 % $ 9,665 -3.04 %    
5-Year +81.33 % +12.64 % $ 18,133 +13.11 %    
10-Year +122.34 % +8.32 % $ 22,234 +7.38 %    
R6                 0.66 %
6-Month -8.49 % -8.49 % $ 9,151        
1-Year -2.67 % -2.67 % $ 9,733 -2.32 %    
Since Inception (5/1/13) +35.34 % +12.86 % $ 13,534 +11.50 %    
Advisor                 0.87 %
6-Month -8.58 % -8.58 % $ 9,142        
1-Year -2.89 % -2.89 % $ 9,711 -2.60 %    
5-Year +85.86 % +13.20 % $ 18,586 +13.67 %    
10-Year +133.59 % +8.85 % $ 23,359 +7.91 %    

 

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.

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FRANKLIN SMALL CAP GROWTH FUND
PERFORMANCE SUMMARY

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 is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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

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

Class R6: Shares are available to certain eligible investors as described in the prospectus.

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

1. The Fund has a fee waiver associated with any investment in a Franklin Templeton money fund, contractually guaranteed through at least its current fiscal year-end.
Fund investment results reflect the fee waiver, to the extent applicable; without this reduction, 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. Six-month return has not been annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
5. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.
6. Figures are as stated in the Fund’s current prospectus. 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:

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

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

Actual Fund Expenses

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

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

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

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

Hypothetical Example for Comparison with Other Funds

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

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

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FRANKLIN SMALL CAP GROWTH FUND
YOUR FUND’S EXPENSES

    Beginning Account   Ending Account   Expenses Paid During
Share Class   Value 5/1/15   Value 10/31/15   Period* 5/1/15–10/31/15
A            
Actual $ 1,000 $ 912.90 $ 5.19
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.71 $ 5.48
C            
Actual $ 1,000 $ 909.50 $ 8.74
Hypothetical (5% return before expenses) $ 1,000 $ 1,015.99 $ 9.22
R            
Actual $ 1,000 $ 912.20 $ 6.34
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.50 $ 6.70
R6            
Actual $ 1,000 $ 915.10 $ 2.98
Hypothetical (5% return before expenses) $ 1,000 $ 1,022.02 $ 3.15
Advisor            
Actual $ 1,000 $ 914.20 $ 3.95
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.01 $ 4.17

 

*Expenses are calculated using the most recent six-month expense ratio, net of expense waivers, annualized for each class (A: 1.08%;
C: 1.82%; R: 1.32%; R6: 0.62%; and Advisor: 0.82%), multiplied by the average account value over the period, multiplied by 184/366 to
reflect the one-half year period.

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Franklin Small-Mid Cap Growth Fund

This semiannual report for Franklin Small-Mid Cap Growth Fund covers the period ended October 31, 2015.

Your Fund’s Goal and Main Investments

The Fund seeks long-term capital growth by normally investing at least 80% of its net assets in equity securities of small-cap and mid-cap companies. The Fund defines small-cap companies as those within the market capitalization range of companies in the Russell 2500™ Index at the time of purchase, and mid-cap companies as those within the market capitalization range of the Russell Midcap® Index at the time of purchase.1

Performance Overview

For the six months under review, the Fund’s Class A shares had a -5.19% cumulative total return. In comparison, the Russell Midcap® Growth Index, which measures performance of companies in the Russell Midcap® Index with higher price-to-book ratios and higher forecasted growth values, had a -2.63% total return.2 Also in comparison, the Standard & Poor’s 500 Index, which tracks the broad U.S. stock market, produced a +0.77% total return.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 39.

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

Investment Strategy

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


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

Manager’s Discussion

During the six months under review, key contributors to the Fund’s performance relative to the Russell Midcap® Index included stock selection in the materials sector and an overweighting in the information technology (IT) sector. In materials, specialty materials and chemicals company Cytec Industries supported relative results.3 Cytec shares performed well due to an announced acquisition by Belgium-based Solvay at a premium to Cytec’s share price.

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 reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
3. No longer held at period-end.

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

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FRANKLIN SMALL-MID CAP GROWTH FUND

Top 10 Holdings    
10/31/15    
Company % of Total  
Sector/Industry Net Assets  
 
Roper Technologies Inc. 1.8 %
Industrials    
Electronic Arts Inc. 1.8 %
Information Technology    
Constellation Brands Inc., A 1.6 %
Consumer Staples    
AMETEK Inc. 1.6 %
Industrials    
Towers Watson & Co. 1.5 %
Industrials    
Concho Resources Inc. 1.5 %
Energy    
Intercontinental Exchange Inc. 1.5 %
Financials    
L Brands Inc. 1.5 %
Consumer Discretionary    
NXP Semiconductors NV (Netherlands) 1.5 %
Information Technology    
Monster Beverage Corp. 1.4 %
Consumer Staples    

 

In the IT sector, Solera Holdings3 and Electronic Arts contributed to relative performance. Solera, in our view, had significant strategic value as an increasingly important data services provider to the global auto insurance, maintenance and repair markets. The company announced in August that it was exploring a variety of strategic alternatives and had formed a special committee as part of the process. Subsequently, the company announced in September that it had reached an agreement to be acquired by Vista Equity Partners for a 53% premium over its closing share price on August 3. Under new management, video game company Electronic Arts experienced improved game quality and expanded margins. The company also benefited from excitement about an upcoming Star Wars game and a new movie.

Other key individual contributors to the Fund’s relative performance included HCA Holdings,3 a medical facilities operator, and Revance Therapeutics,4 a specialty biopharmaceutical company. We sold our HCA position in the summer when HCA shares were relatively strong, after the U.S. Supreme Court’s favorable ruling on the Affordable Care Act. We were concerned about slowdowns in revenue and earnings growth going into 2016 because of declining annual health care benefits resulting from the Affordable Care Act. Our concerns materialized and HCA’s share price subsequently declined, leading to outperformance for the Fund relative to its benchmark. Revance announced positive phase II data comparing its injectable botulinum toxin to a placebo and Allergan’s Botox, giving investors a reason to believe its product will have regulatory and commercial success.

In contrast, key detractors from the Fund’s relative performance included stock selection in the industrials, health care and consumer discretionary sectors. In the industrials sector, Spirit Airlines3 and geospatial information product and service provider DigitalGlobe4 hindered performance. Spirit Airlines shares declined when the company’s fares came under pressure as American Airlines and Southwest Airlines added capacity in some of their core markets. The commercial side of DigitalGlobe’s business has been struggling recently, while the defense side has been experiencing stable growth. The commercial side has been trying to expand into the most troubled markets and sectors, such as Russia, energy and agriculture. We remained confident that the company’s new, higher resolution capabilities can drive acceleration in growth later next year.

In the health care sector, investor concerns about the specialty pharmaceutical industry affected shares of many companies, including Impax Laboratories.4 Its share price declined although the company resolved its manufacturing issues, successfully launched its new Parkinson’s disease drug Rytarry and quickly integrated a recent acquisition.

In consumer discretionary, educational technology company 2U detracted after a short-selling firm published a negative note on the company that negatively impacted its stock.4 However, third-quarter revenue growth, margins and strategic updates as well as initial 2016 guidance were all positive. In our analysis, 2U is a best-in-class, Software as a Service-like company with an attractive revenue growth profile compared with its peers.

Another key individual detractor was fresh and refrigerated pet food manufacturer and distributor Freshpet.4 Management’s underappreciation for the lack of visibility in company-owned refrigerator growth has derailed our original thesis regarding a sustainable long-term growth rate of more than 30%, and management’s consistent inability to manage expectations raised questions about leadership quality. Although forecasting the company’s correct growth rate and profitability path remained challenging, we continued to see strong growth prospects as

4. Not part of the index.
See www.franklintempletondatasources.com for additional data provider information.

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FRANKLIN SMALL-MID CAP GROWTH FUND

Freshpet’s unique product concept positions the company to potentially benefit from the upward trends in pet humanization and health and wellness.

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


The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2015, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

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FRANKLIN SMALL-MID CAP GROWTH FUND

Performance Summary as of October 31, 2015

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

Net Asset Value            
Share Class (Symbol)   10/31/15   4/30/15   Change
A (FRSGX) $ 36.39 $ 38.38 -$ 1.99
C (FRSIX) $ 28.75 $ 30.43 -$ 1.68
R (FSMRX) $ 34.26 $ 36.18 -$ 1.92
R6 (FMGGX) $ 39.00 $ 41.04 -$ 2.04
Advisor (FSGAX) $ 38.76 $ 40.83 -$ 2.07

 

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FRANKLIN SMALL-MID CAP GROWTH FUND
PERFORMANCE SUMMARY

Performance as of 10/31/151

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include maximum sales charges. Class A: 5.75% maximum initial sales charge; Class C: 1% contingent deferred sales charge in first year only;

Class R/R6/Advisor Class: no sales charges.

  Cumulative   Average Annual     Value of Average Annual   Total Annual  
Share Class Total Return2   Total Return3   $ 10,000 Investment4 Total Return (9/30/15)5   Operating Expenses6  
A                 0.94 %
6-Month -5.19 % -10.63 % $ 8,937        
1-Year +2.33 % -3.56 % $ 9,644 -4.01 %    
5-Year +75.97 % +10.65 % $ 16,587 +10.55 %    
10-Year +111.71 % +7.15 % $ 19,955 +6.51 %    
C                 1.69 %
6-Month -5.52 % -6.47 % $ 9,353        
1-Year +1.61 % +0.81 % $ 10,081 +0.31 %    
5-Year +69.48 % +11.13 % $ 16,948 +11.04 %    
10-Year +96.49 % +6.99 % $ 19,649 +6.34 %    
R                 1.19 %
6-Month -5.31 % -5.31 % $ 9,469        
1-Year +2.09 % +2.09 % $ 10,209 +1.62 %    
5-Year +73.74 % +11.68 % $ 17,374 +11.59 %    
10-Year +106.46 % +7.52 % $ 20,646 +6.88 %    
R6                 0.48 %
6-Month -4.97 % -4.97 % $ 9,503        
1-Year +2.81 % +2.81 % $ 10,281 +2.30 %    
Since Inception (5/1/13) +37.58 % +13.60 % $ 13,758 +12.36 %    
Advisor                 0.69 %
6-Month -5.07 % -5.07 % $ 9,493        
1-Year +2.59 % +2.59 % $ 10,259 +2.08 %    
5-Year +78.18 % +12.25 % $ 17,818 +12.16 %    
10-Year +117.17 % +8.06 % $ 21,717 +7.41 %    

 

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.

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FRANKLIN SMALL-MID CAP GROWTH FUND
YOUR FUND’S EXPENSES

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 is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

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

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

Class R6: Shares are available to certain eligible investors as described in the prospectus.

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

1. The Fund has a fee waiver associated with any investment in a Franklin Templeton money fund, contractually guaranteed through at least its current fiscal year-end.
Fund investment results reflect the fee waiver, to the extent applicable; without this reduction, 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. Six-month return has not been annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
5. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.
6. Figures are as stated in the Fund’s current prospectus. 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-MID CAP GROWTH FUND

Your Fund’s Expenses

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

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

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

Actual Fund Expenses

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

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

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

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

Hypothetical Example for Comparison with Other Funds

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

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

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42 Semiannual Report

franklintempleton.com


 

FRANKLIN SMALL-MID CAP GROWTH FUND

YOUR FUND’S EXPENSES

    Beginning Account   Ending Account   Expenses Paid During
Share Class   Value 5/1/15   Value 10/31/15   Period* 5/1/15–10/31/15
A            
Actual $ 1,000 $ 948.10 $ 4.60
Hypothetical (5% return before expenses) $ 1,000 $ 1,020.41 $ 4.77
C            
Actual $ 1,000 $ 944.80 $ 8.26
Hypothetical (5% return before expenses) $ 1,000 $ 1,016.64 $ 8.57
R            
Actual $ 1,000 $ 946.90 $ 5.82
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.15 $ 6.04
R6            
Actual $ 1,000 $ 950.30 $ 2.35
Hypothetical (5% return before expenses) $ 1,000 $ 1,022.72 $ 2.44
Advisor            
Actual $ 1,000 $ 949.30 $ 3.38
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.67 $ 3.51

 

*Expenses are calculated using the most recent six-month expense ratio, net of expense waivers, annualized for each class (A: 0.94%;
C: 1.69%; R: 1.19%; R6: 0.48%; and Advisor: 0.69%), multiplied by the average account value over the period, multiplied by 184/366 to
reflect the one-half year period.

franklintempleton.com

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Semiannual Report 43


 

FRANKLIN STRATEGIC SERIES                                    
 
 
Financial Highlights                                    
Franklin Flex Cap Growth Fund                                    
    Six Months Ended                                
    October 31, 2015           Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Class A                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 51.56   $ 53.93   $ 51.21   $ 51.12   $ 52.42   $ 43.55  
Income from investment operationsa:                                    
Net investment income (loss)b   (0.13 )   (0.21 )   (0.16 )   0.04 c   (0.05 )   (0.11 )
Net realized and unrealized gains (losses)   0.53     6.87     11.51     1.69     0.67     8.98  
Total from investment operations   0.40     6.66     11.35     1.73     0.62     8.87  
Less distributions from:                                    
Net investment income               (0.01 )        
Net realized gains       (9.03 )   (8.63 )   (1.63 )   (1.92 )    
Total distributions       (9.03 )   (8.63 )   (1.64 )   (1.92 )    
Net asset value, end of period $ 51.96   $ 51.56   $ 53.93   $ 51.21   $ 51.12   $ 52.42  
 
Total returnd   0.78 %   13.59 %   22.31 %   3.70 %   1.86 %   20.37 %
 
Ratios to average net assetse                                    
Expenses   0.94 %f   0.94 %f,g   0.97 %f,g   0.99 %   0.98 %   0.98 %
Net investment income (loss)   (0.49 )%   (0.38 )%   (0.27 )%   0.09 %c   (0.10 )%   (0.23 )%
 
Supplemental data                                    
Net assets, end of period (000’s) $ 2,213,861   $ 2,245,756   $ 2,171,053   $ 2,080,349   $ 2,094,119   $ 2,233,642  
Portfolio turnover rate   36.35 %   74.72 %   41.08 %   63.09 %   49.59 %   51.32 %

 

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 $0.07 per share received in the form of special dividends. Excluding these amounts, the ratio of net investment
income to average net assets would have been (0.06)%.
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 waiver and payments by affiliates rounds to less than 0.01%.
gBenefit of expense reduction rounds to less than 0.01%.

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44 Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com


 

FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS

Franklin Flex Cap Growth Fund (continued)                                
    Six Months Ended                                
    October 31, 2015           Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Class C                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 43.10   $ 46.79   $ 45.70   $ 46.14   $ 47.88   $ 40.08  
Income from investment operationsa:                                    
   Net investment income (loss)b   (0.27 )   (0.53 )   (0.52 )   (0.29 )c   (0.37 )   (0.41 )
Net realized and unrealized gains (losses)   0.44     5.87     10.24     1.48     0.55     8.21  
Total from investment operations   0.17     5.34     9.72     1.19     0.18     7.80  
Less distributions from net realized gains       (9.03 )   (8.63 )   (1.63 )   (1.92 )    
Net asset value, end of period $ 43.27   $ 43.10   $ 46.79   $ 45.70   $ 46.14   $ 47.88  
 
Total returnd   0.39 %   12.76 %   21.38 %   2.92 %   1.10 %   19.46 %
 
Ratios to average net assetse                                    
Expenses   1.69 %f   1.69 %f,g   1.72 %f,g   1.74 %   1.73 %   1.73 %
Net investment income (loss)   (1.24 )%   (1.13 )%   (1.02 )%   (0.66 )%c   (0.85 )%   (0.98 )%
 
Supplemental data                                    
Net assets, end of period (000’s) $ 363,655   $ 363,532   $ 348,040   $ 298,253   $ 323,249   $ 352,282  
Portfolio turnover rate   36.35 %   74.72 %   41.08 %   63.09 %   49.59 %   51.32 %

 

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 $0.07 per share received in the form of special dividends. Excluding these amounts, the ratio of net investment
income to average net assets would have been (0.81)%.
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 waiver and payments by affiliates rounds to less than 0.01%.
gBenefit of expense reduction rounds to less than 0.01%.

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


 

FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS

Franklin Flex Cap Growth Fund (continued)                                
    Six Months Ended                                
    October 31, 2015           Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Class R                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 49.22   $ 51.99   $ 49.74   $ 49.82   $ 51.27   $ 42.70  
Income from investment operationsa:                                    
  Net investment income (loss)b   (0.19 )   (0.32 )   (0.28 )   (0.08 )c   (0.16 )   (0.21 )
Net realized and unrealized gains (losses)   0.51     6.58     11.16     1.63     0.63     8.78  
Total from investment operations   0.32     6.26     10.88     1.55     0.47     8.57  
Less distributions from net realized gains       (9.03 )   (8.63 )   (1.63 )   (1.92 )    
Net asset value, end of period $ 49.54   $ 49.22   $ 51.99   $ 49.74   $ 49.82   $ 51.27  
 
Total returnd   0.65 %   13.31 %   22.01 %   3.43 %   1.60 %   20.07 %
 
Ratios to average net assetse                                    
Expenses   1.19 %f   1.19 %f,g   1.22 %f,g   1.24 %   1.23 %   1.23 %
Net investment income (loss)   (0.74 )%   (0.63 )%   (0.52 )%   (0.16 )%c   (0.35 )%   (0.48 )%
 
Supplemental data                                    
Net assets, end of period (000’s) $ 37,426   $ 45,269   $ 56,274   $ 63,134   $ 76,340   $ 72,532  
Portfolio turnover rate   36.35 %   74.72 %   41.08 %   63.09 %   49.59 %   51.32 %

 

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 $0.07 per share received in the form of special dividends. Excluding these amounts, the ratio of net investment
income to average net assets would have been (0.31)%.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
gBenefit of expense reduction rounds to less than 0.01%.

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


 

    FRANKLIN STRATEGIC SERIES  
    FINANCIAL HIGHLIGHTS  
 
 
 
Franklin Flex Cap Growth Fund (continued)                  
    Six Months Ended              
    October 31, 2015     Year Ended April 30,  
    (unaudited)     2015     2014 a
Class R6                  
Per share operating performance                  
(for a share outstanding throughout the period)                  
Net asset value, beginning of period $ 53.67   $ 55.54   $ 51.70  
Income from investment operationsb:                  
   Net investment income (loss)c   (0.01 )   0.06     0.11  
Net realized and unrealized gains (losses)   0.55     7.10     12.36  
Total from investment operations   0.54     7.16     12.47  
Less distributions from net realized gains       (9.03 )   (8.63 )
Net asset value, end of period $ 54.21   $ 53.67   $ 55.54  
 
Total returnd   1.01 %   14.12 %   24.32 %
 
Ratios to average net assetse                  
Expensesf   0.48 %   0.48 %g   0.48 %g
Net investment income (loss)   (0.03 )%   0.08 %   0.22 %
 
Supplemental data                  
Net assets, end of period (000’s) $ 200,083   $ 295,822   $ 376,607  
Portfolio turnover rate   36.35 %   74.72 %   41.08 %

 

aFor the period May 1, 2013 (effective date) to April 30, 2014.
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.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
gBenefit of expense reduction rounds to less than 0.01%.

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franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report 47


 

FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS

Franklin Flex Cap Growth Fund (continued)                                
    Six Months Ended                                
    October 31, 2015           Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Advisor Class                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 53.38   $ 55.40   $ 52.29   $ 52.12   $ 53.26   $ 44.14  
Income from investment operationsa:                                    
Net investment income (loss)b   (0.07 )   (0.08 )   0.03     0.18 c   0.07     0.01  
Net realized and unrealized gains (losses)   0.56     7.09     11.71     1.71     0.71     9.11  
Total from investment operations   0.49     7.01     11.74     1.89     0.78     9.12  
Less distributions from:                                    
Net investment income               (0.09 )        
Net realized gains       (9.03 )   (8.63 )   (1.63 )   (1.92 )    
Total distributions       (9.03 )   (8.63 )   (1.72 )   (1.92 )    
Net asset value, end of period $ 53.87   $ 53.38   $ 55.40   $ 52.29   $ 52.12   $ 53.26  
 
Total returnd   0.92 %   13.88 %   22.63 %   3.94 %   2.13 %   20.66 %
 
Ratios to average net assetse                                    
Expenses   0.69 %f   0.69 %f,g   0.72 %f,g   0.74 %   0.73 %   0.73 %
Net investment income (loss)   (0.24 )%   (0.13 )%   (0.02 )%h   0.34 %c   0.15 %   0.02 %
 
Supplemental data                                    
Net assets, end of period (000’s) $ 367,234   $ 393,961   $ 329,671   $ 836,225   $ 1,162,624   $ 1,233,168  
Portfolio turnover rate   36.35 %   74.72 %   41.08 %   63.09 %   49.59 %   51.32 %

 

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 $0.07 per share received in the form of special dividends. Excluding these amounts, the ratio of net investment
income to average net assets would have been 0.19%.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
gBenefit of expense reduction rounds to less than 0.01%.
hRatio is calculated based on the Fund level net investment income, as reflected in the Statement of Operations, and adjusted for class specific expenses. The amount may
not correlate with the per share amount due to the timing of income earned and/or fluctuating fair value of the investments of the Fund in relation to the timing of sales and
repurchases of Fund shares.

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


 

  FRANKLIN STRATEGIC SERIES
 
 
 
 
Statement of Investments, October 31, 2015 (unaudited)      
 
Franklin Flex Cap Growth Fund      
  Shares   Value
Common Stocks 97.5%      
Automobiles & Components 0.7%      
  a,bFerrari NV (Italy) 111,800 $ 5,638,074
aTesla Motors Inc. 80,000   16,554,400
      22,192,474
Banks 3.4%      
aSignature Bank 460,000   68,503,200
aSVB Financial Group 325,000   39,672,750
      108,175,950
Capital Goods 5.5%      
Fortune Brands Home & Security Inc. 909,102   47,573,308
aHD Supply Holdings Inc. 2,000,000   59,580,000
Honeywell International Inc. 315,000   32,533,200
Roper Technologies Inc. 185,000   34,474,750
      174,161,258
Commercial & Professional Services 2.2%      
aIHS Inc., A 325,000   38,850,500
aStericycle Inc. 265,000   32,163,050
      71,013,550
Consumer Durables & Apparel 5.5%      
NIKE Inc., B 625,000   81,893,750
aTRI Pointe Group Inc. 4,750,000   61,655,000
aUnder Armour Inc., A 335,000   31,851,800
      175,400,550
Consumer Services 1.2%      
Starbucks Corp. 625,000   39,106,250
Diversified Financials 3.0%      
aAffiliated Managers Group Inc. 300,000   54,078,000
Intercontinental Exchange Inc. 115,000   29,026,000
aPRA Group Inc. 200,000   10,960,000
      94,064,000
Energy 0.9%      
Cabot Oil & Gas Corp., A 675,000   14,654,250
aRigNet Inc. 450,000   13,500,000
      28,154,250
Food, Beverage & Tobacco 2.9%      
Constellation Brands Inc., A 400,000   53,920,000
aMonster Beverage Corp. 275,000   37,488,000
      91,408,000
Health Care Equipment & Services 8.2%      
aCerner Corp. 1,000,000   66,290,000
   a,bConforMIS Inc. 249,700   4,886,629
aDexCom Inc. 200,000   16,664,000
aEdwards Lifesciences Corp. 165,000   25,929,750
aEnvision Healthcare Holdings Inc. 2,050,000   57,810,000
McKesson Corp. 370,000   66,156,000
Medtronic PLC 335,000   24,763,200
      262,499,579
 
 
franklintempleton.com Semiannual Report | 49

 


 

FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)

Franklin Flex Cap Growth Fund (continued)      
  Shares   Value
Common Stocks (continued)      
Materials 1.8%      
Ecolab Inc. 470,000 $ 56,564,500
Media 3.8%      
a,bCharter Communications Inc., A 210,000   40,097,400
aIMAX Corp. 500,000   19,195,000
The Walt Disney Co. 550,000   62,557,000
      121,849,400
Pharmaceuticals, Biotechnology & Life Sciences 13.0%      
aAllergan PLC 335,000   103,337,450
aBiogen Inc. 260,000   75,532,600
Bristol-Myers Squibb Co. 900,000   59,355,000
aCelgene Corp. 775,000   95,100,250
aCelldex Therapeutics Inc. 975,000   11,758,500
aIllumina Inc. 120,000   17,193,600
  a,bNantKwest Inc. 257,800   3,067,820
a,b,cNantKwest Inc. 92,200   987,462
aRegeneron Pharmaceuticals Inc. 52,500   29,262,975
aRevance Therapeutics Inc. 475,000   18,605,750
      414,201,407
Real Estate 0.9%      
Equinix Inc. 100,000   29,668,000
Retailing 8.2%      
Advance Auto Parts Inc. 280,000   55,560,400
aAmazon.com Inc. 162,500   101,708,750
aThe Priceline Group Inc. 54,500   79,256,080
Tractor Supply Co. 250,000   23,097,500
      259,622,730
Semiconductors & Semiconductor Equipment 5.1%      
aCavium Inc. 675,000   47,891,250
aNanometrics Inc. 500,000   7,640,000
aNXP Semiconductors NV (Netherlands) 1,100,000   86,185,000
Skyworks Solutions Inc. 275,000   21,241,000
      162,957,250
Software & Services 25.3%      
aAlphabet Inc., C 162,500   115,506,625
aCoStar Group Inc. 172,500   35,029,575
aElectronic Arts Inc. 350,000   25,224,500
aEllie Mae Inc. 250,000   18,245,000
aFacebook Inc., A 1,125,000   114,716,250
aFleetCor Technologies Inc. 415,000   60,116,900
aLinkedIn Corp., A 160,000   38,539,200
MasterCard Inc., A 1,125,000   111,363,750
  a,bMobileye NV 440,000   20,028,800
aPaylocity Holding Corp. 656,647   22,043,640
aSalesforce.com Inc. 730,000   56,728,300
aServiceNow Inc. 875,000   71,443,750
aTyler Technologies Inc. 185,000   31,516,600
Visa Inc., A 1,100,000   85,338,000
      805,840,890
 
 
50 | Semiannual Report franklintempleton.com

 


 

FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)

Franklin Flex Cap Growth Fund (continued)        
  Shares   Value  
Common Stocks (continued)        
Technology Hardware & Equipment 5.6%        
Apple Inc. 975,000 $ 116,512,499  
aPalo Alto Networks Inc. 320,000   51,520,000  
a,bPure Storage Inc., A 504,700   8,897,861  
      176,930,360  
Transportation 0.3%        
aSpirit Airlines Inc. 261,595   9,710,406  
Total Common Stocks (Cost $2,071,310,987)     3,103,520,804  
Short Term Investments 6.9%        
Money Market Funds (Cost $140,301,263) 4.4%        
  a,dInstitutional Fiduciary Trust Money Market Portfolio 140,301,263   140,301,263  
eInvestments from Cash Collateral Received for Loaned Securities 2.5%        
Money Market Funds (Cost $79,743,700) 2.5%        
 a,dInstitutional Fiduciary Trust Money Market Portfolio 79,743,700   79,743,700  
Total Investments (Cost $2,291,355,950) 104.4%     3,323,565,767  
Other Assets, less Liabilities (4.4)%     (141,307,316 )
Net Assets 100.0%   $ 3,182,258,451  

 

aNon-income producing.
bA portion or all of the security is on loan at October 31, 2015. See Note 1(c).
cSecurity has been deemed illiquid because it may not be able to be sold within seven days. At October 31, 2015, the value of this security was $987,462, representing
0.03% of net assets.
dSee Note 3(f) regarding investments in affiliated management investment companies.
eSee Note 1(c) regarding securities on loan.

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franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report 51


 

FRANKLIN STRATEGIC SERIES                                    
 
 
Financial Highlights                                    
Franklin Focused Core Equity Fund                                    
    Six Months Ended                                
    October 31, 2015                 Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Class A                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 15.29   $ 13.38   $ 10.63   $ 9.47   $ 10.35   $ 9.03  
Income from investment operationsa:                                    
Net investment income (loss)b   0.02     (0.01 )   0.03     0.07     0.02     0.06  
Net realized and unrealized gains (losses)   (0.73 )   2.23     2.92     1.16     (0.31 )   1.29  
Total from investment operations   (0.71 )   2.22     2.95     1.23     (0.29 )   1.35  
Less distributions from:                                    
Net investment income           (0.07 )       (0.11 )   (0.03 )
Net realized gains       (0.31 )   (0.13 )   (0.07 )   (0.48 )    
Total distributions       (0.31 )   (0.20 )   (0.07 )   (0.59 )   (0.03 )
Net asset value, end of period $ 14.58   $ 15.29   $ 13.38   $ 10.63   $ 9.47   $ 10.35  
 
Total returnc   (4.64 )%   16.84 %   28.00 %   13.08 %   (2.17 )%   14.92 %
 
Ratios to average net assetsd                                    
Expenses before waiver and payments                                    
by affiliates   1.43 %   1.54 %   1.73 %   1.89 %   1.81 %   1.87 %
Expenses net of waiver and payments                                    
by affiliates   1.24 %   1.28 %   1.22 %   1.19 %   1.21 %   1.10 %
Net investment income (loss)   0.25 %   (0.07 )%   0.23 %   0.76 %   0.25 %   0.61 %
 
Supplemental data                                    
Net assets, end of period (000’s) $ 130,120   $ 92,612   $ 40,372   $ 19,029   $ 26,253   $ 14,481  
Portfolio turnover rate   9.09 %   25.55 %   43.30 %   74.50 %   51.85 %   63.80 %

 

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.

|
52 Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com


 

FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS

Franklin Focused Core Equity Fund (continued)                                
    Six Months Ended                                
    October 31, 2015                 Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Class C                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 14.73   $ 12.98   $ 10.36   $ 9.29   $ 10.14   $ 8.90  
Income from investment operationsa:                                    
Net investment income (loss)b   (0.04 )   (0.11 )   (0.06 )   0.01     (0.04 )   (0.01 )
Net realized and unrealized gains (losses)   (0.69 )   2.17     2.84     1.13     (0.29 )   1.25  
Total from investment operations   (0.73 )   2.06     2.78     1.14     (0.33 )   1.24  
Less distributions from:                                    
Net investment income           (0.03 )       (0.04 )    
Net realized gains       (0.31 )   (0.13 )   (0.07 )   (0.48 )    
Total distributions       (0.31 )   (0.16 )   (0.07 )   (0.52 )    
Net asset value, end of period $ 14.00   $ 14.73   $ 12.98   $ 10.36   $ 9.29   $ 10.14  
 
Total returnc   (4.96 )%   16.12 %   26.99 %   12.36 %   (2.66 )%   13.93 %
 
Ratios to average net assetsd                                    
Expenses before waiver and payments                                    
by affiliates   2.16 %   2.24 %   2.43 %   2.59 %   2.50 %   2.66 %
Expenses net of waiver and payments                                    
by affiliates   1.97 %   1.98 %   1.92 %   1.89 %   1.90 %   1.89 %
Net investment income (loss)   (0.48 )%   (0.77 )%   (0.47 )%   0.06 %   (0.44 )%   (0.18 )%
 
Supplemental data                                    
Net assets, end of period (000’s) $ 30,109   $ 18,758   $ 6,666   $ 2,502   $ 3,265   $ 2,095  
Portfolio turnover rate   9.09 %   25.55 %   43.30 %   74.50 %   51.85 %   63.80 %

 

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.

|
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report 53


 

FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS

Franklin Focused Core Equity Fund (continued)                                
    Six Months Ended                                
    October 31, 2015                 Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Class R                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 15.15   $ 13.28   $ 10.56   $ 9.43   $ 10.30   $ 9.00  
Income from investment operationsa:                                    
Net investment income (loss)b   (—)c     (0.04 )   0.01     0.05     0.02     0.03  
Net realized and unrealized gains (losses)   (0.72 )   2.22     2.90     1.15     (0.32 )   1.28  
Total from investment operations   (0.72 )   2.18     2.91     1.20     (0.30 )   1.31  
Less distributions from:                                    
Net investment income           (0.06 )       (0.09 )   (0.01 )
Net realized gains       (0.31 )   (0.13 )   (0.07 )   (0.48 )    
Total distributions       (0.31 )   (0.19 )   (0.07 )   (0.57 )   (0.01 )
Net asset value, end of period $ 14.43   $ 15.15   $ 13.28   $ 10.56   $ 9.43   $ 10.30  
 
Total returnd   (4.75 )%   16.66 %   27.70 %   12.81 %   (2.22 )%   14.51 %
 
Ratios to average net assetse                                    
Expenses before waiver and payments                                    
by affiliates   1.66 %   1.74 %   1.93 %   2.09 %   1.99 %   2.16 %
Expenses net of waiver and payments                                    
by affiliates   1.47 %   1.48 %   1.42 %   1.39 %   1.39 %   1.39 %
Net investment income (loss)   0.02 %f   (0.27 )%   0.03 %   0.56 %   0.07 %   0.32 %
 
Supplemental data                                    
Net assets, end of period (000’s) $ 355   $ 169   $ 124   $ 76   $ 41   $ 27  
Portfolio turnover rate   9.09 %   25.55 %   43.30 %   74.50 %   51.85 %   63.80 %

 

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.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fRatio is calculated based on the Fund level net investment income, as reflected in the Statement of Operations, and adjusted for class specific expenses. The amount may
not correlate with the per share amount due to the timing of income earned and/or fluctuating fair value of the investments of the Fund in relation to the timing of sales and
repurchases of Fund shares.

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


 

    FRANKLIN STRATEGIC SERIES  
    FINANCIAL HIGHLIGHTS  
 
 
 
Franklin Focused Core Equity Fund (continued)                  
    Six Months Ended              
    October 31, 2015     Year Ended April 30,  
    (unaudited)     2015     2014 a
Class R6                  
Per share operating performance                  
(for a share outstanding throughout the period)                  
Net asset value, beginning of period $ 15.46   $ 13.49   $ 10.54  
Income from investment operationsb:                  
Net investment incomec   0.05     0.05     0.07  
Net realized and unrealized gains (losses)   (0.74 )   2.27     3.11  
Total from investment operations   (0.69 )   2.32     3.18  
Less distributions from:                  
Net investment income       (0.04 )   (0.10 )
Net realized gains       (0.31 )   (0.13 )
Total distributions       (0.35 )   (0.23 )
Net asset value, end of period $ 14.77   $ 15.46   $ 13.49  
 
Total returnd   (4.46 )%   17.45 %   30.43 %
 
Ratios to average net assetse                  
Expenses before waiver and payments by affiliates   1.03 %   1.09 %   2.28 %
Expenses net of waiver and payments by affiliates   0.84 %   0.83 %   0.77 %
Net investment income   0.65 %   0.38 %   0.68 %
 
Supplemental data                  
Net assets, end of period (000’s) $ 39,139   $ 25,739   $ 14  
Portfolio turnover rate   9.09 %   25.55 %   43.30 %

 

aFor the year May 1, 2013 (effective date) to April 30, 2014.
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.

|
franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report 55


 

FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS

Franklin Focused Core Equity Fund (continued)                                
    Six Months Ended                                
    October 31, 2015                 Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Advisor Class                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 15.44   $ 13.48   $ 10.70   $ 9.50   $ 10.37   $ 9.06  
Income from investment operationsa:                                    
Net investment incomeb   0.04     0.04     0.07     0.10     0.06     0.08  
Net realized and unrealized gains (losses)   (0.73 )   2.25     2.93     1.17     (0.32 )   1.28  
Total from investment operations   (0.69 )   2.29     3.00     1.27     (0.26 )   1.36  
Less distributions from:                                    
Net investment income       (0.02 )   (0.09 )       (0.13 )   (0.05 )
Net realized gains       (0.31 )   (0.13 )   (0.07 )   (0.48 )    
Total distributions       (0.33 )   (0.22 )   (0.07 )   (0.61 )   (0.05 )
Net asset value, end of period $ 14.75   $ 15.44   $ 13.48   $ 10.70   $ 9.50   $ 10.37  
 
Total returnc   (4.47 )%   17.25 %   28.27 %   13.46 %   (1.80 )%   15.08 %
 
Ratios to average net assetsd                                    
Expenses before waiver and payments                                    
by affiliates   1.16 %   1.24 %   1.43 %   1.59 %   1.49 %   1.66 %
Expenses net of waiver and payments                                    
by affiliates   0.97 %   0.98 %   0.92 %   0.89 %   0.89 %   0.89 %
Net investment income   0.52 %   0.23 %   0.53 %   1.06 %   0.57 %   0.82 %
 
Supplemental data                                    
Net assets, end of period (000’s) $ 12,870   $ 9,914   $ 6,990   $ 4,347   $ 3,188   $ 1,966  
Portfolio turnover rate   9.09 %   25.55 %   43.30 %   74.50 %   51.85 %   63.80 %

 

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.

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


 

FRANKLIN STRATEGIC SERIES

Statement of Investments, October 31, 2015 (unaudited)        
 
Franklin Focused Core Equity Fund        
  Country Shares   Value
Common Stocks 95.0%        
Consumer Discretionary 9.1%        
aAltice NV, A Netherlands 257,990 $ 4,466,426
BorgWarner Inc. United States 89,650   3,838,813
Twenty-First Century Fox Inc., B United States 212,310   6,556,133
The Walt Disney Co. United States 39,110   4,448,371
        19,309,743
Consumer Staples 2.2%        
CVS Health Corp. United States 47,470   4,689,087
Energy 7.6%        
Anadarko Petroleum Corp. United States 75,390   5,042,083
Pioneer Natural Resources Co. United States 44,180   6,058,846
Schlumberger Ltd. United States 64,970   5,078,055
        16,178,984
Financials 25.5%        
BlackRock Inc. United States 14,617   5,144,746
aCBRE Group Inc. United States 158,950   5,925,656
The Charles Schwab Corp. United States 228,880   6,985,418
Citigroup Inc. United States 97,820   5,201,089
Discover Financial Services United States 72,360   4,068,079
Equinix Inc. United States 23,100   6,853,308
The Hartford Financial Services Group Inc. United States 195,090   9,024,863
JPMorgan Chase & Co. United States 82,323   5,289,253
LPL Financial Holdings Inc. United States 133,070   5,668,782
        54,161,194
Health Care 15.0%        
Aetna Inc. United States 49,370   5,666,689
aAllergan PLC United States 49,314   15,211,889
Sanofi, ADR France 134,754   6,783,516
aValeant Pharmaceuticals International Inc. United States 44,480   4,170,890
        31,832,984
Industrials 11.1%        
The ADT Corp. United States 158,420   5,234,197
FedEx Corp. United States 12,340   1,925,657
aGenesee & Wyoming Inc. United States 106,380   7,138,098
Precision Castparts Corp. United States 10,230   2,361,186
Towers Watson & Co. United States 56,810   7,019,444
        23,678,582
Information Technology 21.6%        
aAdobe Systems Inc. United States 80,460   7,133,584
aAlphabet Inc., A United States 4,560   3,362,498
aAlphabet Inc., C United States 4,770   3,390,564
aFirst Data Corp., A United States 31,580   500,227
MasterCard Inc., A United States 58,960   5,836,450
Microsoft Corp. United States 182,890   9,627,329
Motorola Solutions Inc. United States 93,540   6,544,994
QUALCOMM Inc. United States 160,690   9,548,200
        45,943,846

 

franklintempleton.com

|
Semiannual Report 57


 

FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)

Franklin Focused Core Equity Fund (continued)        
  Country Shares   Value
Common Stocks (continued)        
Materials 2.9%        
Agrium Inc. Canada 35,040 $ 3,261,173
Axiall Corp. United States 140,678   2,848,729
        6,109,902
Total Common Stocks (Cost $191,399,811)       201,904,322
Short Term Investments (Cost $9,960,278) 4.7%        
Money Market Funds 4.7%        
a,bInstitutional Fiduciary Trust Money Market Portfolio United States 9,960,278   9,960,278
Total Investments (Cost $201,360,089) 99.7%       211,864,600
Other Assets, less Liabilities 0.3%       728,628
Net Assets 100.0%     $ 212,593,228

 

See Abbreviations on page 109.

aNon-income producing.
bSee Note 3(f) regarding investments in affiliated management investment companies.

|
58 Semiannual Report | The accompanying notes are an integral part of these financial statements. franklintempleton.com


 

                      FRANKLIN STRATEGIC SERIES  
 
 
Financial Highlights                                    
Franklin Growth Opportunities Fund                                    
    Six Months Ended                                
    October 31, 2015           Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Class A                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 33.13   $ 28.48   $ 24.29   $ 23.02   $ 24.28   $ 19.59  
Income from investment operationsa:                                    
  Net investment income (loss)b   (0.11 )   (0.19 )   (0.19 )   (0.12 )   (0.16 )   (0.15 )
Net realized and unrealized gains (losses)   0.26     5.50     5.11     1.95     0.40     4.84  
Total from investment operations   0.15     5.31     4.92     1.83     0.24     4.69  
Less distributions from net realized gains       (0.66 )   (0.73 )   (0.56 )   (1.50 )    
Net asset value, end of period $ 33.28   $ 33.13   $ 28.48   $ 24.29   $ 23.02   $ 24.28  
 
Total returnc   0.45 %   18.87 %   20.26 %   8.29 %   1.90 %   23.94 %
 
Ratios to average net assetsd                                    
Expenses   1.09 %e   1.18 %e   1.17 %e,f   1.25 %   1.28 %   1.28 %
Net investment income (loss)   (0.63 )%   (0.59 )%   (0.70 )%   (0.56 )%   (0.71 )%   (0.73 )%
 
Supplemental data                                    
Net assets, end of period (000’s) $ 562,166   $ 457,619   $ 349,343   $ 213,639   $ 209,382   $ 211,435  
Portfolio turnover rate   11.25 %   40.64 %   36.64 %   58.76 %   63.57 %   69.74 %

 

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 waiver and payments by affiliates rounds to less than 0.01%.
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 59


 

FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS

Franklin Growth Opportunities Fund (continued)                                
    Six Months Ended                                
    October 31, 2015           Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Class C                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 29.27   $ 25.41   $ 21.89   $ 20.95   $ 22.40   $ 18.20  
Income from investment operationsa:                                    
   Net investment income (loss)b   (0.20 )   (0.36 )   (0.35 )   (0.26 )   (0.29 )   (0.27 )
Net realized and unrealized gains (losses)   0.23     4.88     4.60     1.76     0.34     4.47  
Total from investment operations   0.03     4.52     4.25     1.50     0.05     4.20  
Less distributions from net realized gains       (0.66 )   (0.73 )   (0.56 )   (1.50 )    
Net asset value, end of period $ 29.30   $ 29.27   $ 25.41   $ 21.89   $ 20.95   $ 22.40  
 
Total returnc   0.10 %   18.04 %   19.42 %   7.47 %   1.24 %   23.08 %
 
Ratios to average net assetsd                                    
Expenses   1.82 %e   1.88 %e   1.87 %e,f   1.97 %   1.99 %   1.98 %
Net investment income (loss)   (1.36 )%   (1.29 )%   (1.40 )%   (1.28 )%   (1.42 )%   (1.43 )%
 
Supplemental data                                    
Net assets, end of period (000’s) $ 145,432   $ 110,513   $ 85,883   $ 51,719   $ 50,453   $ 56,658  
Portfolio turnover rate   11.25 %   40.64 %   36.64 %   58.76 %   63.57 %   69.74 %

 

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 waiver and payments by affiliates rounds to less than 0.01%.
fBenefit of expense reduction rounds to less than 0.01%.

|
60 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                                
    October 31, 2015           Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Class R                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 32.10   $ 27.67   $ 23.67   $ 22.49   $ 23.81   $ 19.25  
Income from investment operationsa:                                    
   Net investment income (loss)b   (0.14 )   (0.24 )   (0.24 )   (0.17 )   (0.20 )   (0.19 )
Net realized and unrealized gains (losses)   0.26     5.33     4.97     1.91     0.38     4.75  
Total from investment operations   0.12     5.09     4.73     1.74     0.18     4.56  
Less distributions from net realized gains       (0.66 )   (0.73 )   (0.56 )   (1.50 )    
Net asset value, end of period $ 32.22   $ 32.10   $ 27.67   $ 23.67   $ 22.49   $ 23.81  
 
Total returnc   0.37 %   18.63 %   19.99 %   8.03 %   1.73 %   23.69 %
 
Ratios to average net assetsd                                    
Expenses   1.32 %e   1.38 %e   1.37 %e,f   1.47 %   1.49 %   1.48 %
Net investment income (loss)   (0.86 )%   (0.79 )%   (0.90 )%   (0.78 )%   (0.92 )%   (0.93 )%
 
Supplemental data                                    
Net assets, end of period (000’s) $ 45,222   $ 48,266   $ 42,953   $ 34,399   $ 33,783   $ 29,053  
Portfolio turnover rate   11.25 %   40.64 %   36.64 %   58.76 %   63.57 %   69.74 %

 

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 waiver and payments by affiliates rounds to less than 0.01%.
fBenefit of expense reduction rounds to less than 0.01%.

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franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report 61


 

FRANKLIN STRATEGIC SERIES
FINANCIAL HIGHLIGHTS

Franklin Growth Opportunities Fund (continued)                  
    Six Months Ended              
    October 31, 2015     Year Ended April 30,  
    (unaudited)     2015     2014 a
Class R6                  
Per share operating performance                  
(for a share outstanding throughout the period)                  
Net asset value, beginning of period $ 35.09   $ 29.98   $ 24.99  
Income from investment operationsb:                  
  Net investment income (loss)c   (0.03 )   (0.03 )   (0.07 )
Net realized and unrealized gains (losses)   0.28     5.80     5.79  
Total from investment operations   0.25     5.77     5.72  
Less distributions from net realized gains       (0.66 )   (0.73 )
Net asset value, end of period $ 35.34   $ 35.09   $ 29.98  
 
Total returnd   0.71 %   19.47 %   22.90 %
 
Ratios to average net assetse                  
Expensesf   0.65 %   0.68 %   0.71 %g
Net investment income (loss)   (0.19 )%   (0.09 )%   (0.24 )%
 
Supplemental data                  
Net assets, end of period (000’s) $ 244,584   $ 246,911   $ 180,843  
Portfolio turnover rate   11.25 %   40.64 %   36.64 %

 

aFor the year May 1, 2013 (effective date) to April 30, 2014.
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.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
gBenefit of expense reduction rounds to less than 0.01%.

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62 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                                
    October 31, 2015           Year Ended April 30,        
    (unaudited)     2015     2014     2013     2012     2011  
Advisor Class                                    
Per share operating performance                                    
(for a share outstanding throughout the period)                                    
Net asset value, beginning of period $ 34.96   $ 29.93   $ 25.43   $ 23.99   $ 25.16   $ 20.24  
Income from investment operationsa:                                    
   Net investment income (loss)b   (0.06 )   (0.10 )   (0.13 )   (0.06 )   (0.10 )   (0.09 )
Net realized and unrealized gains (losses)   0.27     5.79     5.36     2.06     0.43     5.01  
Total from investment operations   0.21     5.69     5.23     2.00     0.33     4.92  
Less distributions from net realized gains       (0.66 )   (0.73 )   (0.56 )   (1.50 )    
Net asset value, end of period $ 35.17   $ 34.96   $ 29.93   $ 25.43   $ 23.99   $ 25.16  
 
Total returnc   0.60 %   19.23 %   20.58 %   8.62 %   2.20 %   24.31 %
 
Ratios to average net assetsd                                    
Expenses   0.82 %e   0.88 %e   0.87 %e,f   0.97 %   0.99 %   0.98 %
Net investment income (loss)   (0.36 )%   (0.29 )%   (0.40 )%   (0.28 )%   (0.42 )%   (0.43 )%
 
Supplemental data                                    
Net assets, end of period (000’s) $ 280,006   $ 269,887   $ 224,469   $ 182,954   $ 154,708   $ 172,528  
Portfolio turnover rate   11.25 %   40.64 %   36.64 %   58.76 %   63.57 %   69.74 %

 

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 waiver and payments by affiliates rounds to less than 0.01%.
fBenefit of expense reduction rounds to less than 0.01%.

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franklintempleton.com The accompanying notes are an integral part of these financial statements. | Semiannual Report 63


 

FRANKLIN STRATEGIC SERIES        
 
 
 
 
Statement of Investments, October 31, 2015 (unaudited)        
 
Franklin Growth Opportunities Fund        
  Country Shares   Value
Common Stocks 96.5%        
Consumer Discretionary 18.4%        
a Amazon.com Inc. United States 79,391 $ 49,690,827
a Buffalo Wild Wings Inc. United States 38,101   5,877,841
a Chipotle Mexican Grill Inc. United States 13,687   8,762,828
a DISH Network Corp., A United States 121,665   7,661,245
Hanesbrands Inc. United States 406,342   12,978,564
Harman International Industries Inc. United States 100,612   11,063,296
Lowe’s Cos. Inc. United States 171,869   12,689,088
NIKE Inc., B United States 153,784   20,150,318
a The Priceline Group Inc. United States 16,155   23,493,247
Starbucks Corp. United States 503,104   31,479,217
a Under Armour Inc., A United States 223,446   21,245,246
The Walt Disney Co. United States 262,983   29,911,686
        235,003,403
Consumer Staples 4.8%        
Constellation Brands Inc., A United States 157,316   21,206,197
Mead Johnson Nutrition Co., A United States 111,431   9,137,342
a Monster Beverage Corp. United States 162,610   22,166,995
a WhiteWave Foods Co., A United States 220,185   9,023,181
        61,533,715
Energy 2.6%        
Anadarko Petroleum Corp. United States 286,802   19,181,318
a Diamondback Energy Inc. United States 191,058   14,107,722
        33,289,040
Financials 7.2%        
a Affiliated Managers Group Inc. United States 77,057   13,890,295
American Tower Corp. United States 128,649   13,151,787
BlackRock Inc. United States 28,312   9,964,975
a CBRE Group Inc. United States 461,163   17,192,157
The Charles Schwab Corp. United States 693,493   21,165,406
a Signature Bank United States 107,774   16,049,704
        91,414,324
Health Care 19.7%        
a Allergan PLC United States 169,892   52,406,585
a Alnylam Pharmaceuticals Inc. United States 43,715   3,757,304
a Anacor Pharmaceuticals Inc. United States 63,234   7,108,134
a Biogen Inc. United States 65,576   19,050,484
a Celgene Corp. United States 399,132   48,977,488
a Celldex Therapeutics Inc. United States 265,002   3,195,924
a Edwards Lifesciences Corp. United States 71,936   11,304,742
a Envision Healthcare Holdings Inc. United States 339,423   9,571,729
Gilead Sciences Inc. United States 312,431   33,783,164
a Illumina Inc. United States 83,265   11,930,209
a Impax Laboratories Inc. United States 136,306   4,720,277
a Incyte Corp. United States 99,062   11,642,757
a Jazz Pharmaceuticals PLC United States 64,914   8,911,394
a Karyopharm Therapeutics Inc. United States 223,481   2,983,471
  a,b NantKwest Inc. United States 33,800   402,220
a,b,c NantKwest Inc. United States 33,800   361,998

 

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64 Semiannual Report

franklintempleton.com


 

FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS (UNAUDITED)

Franklin Growth Opportunities Fund (continued)        
  Country Shares   Value
Common Stocks (continued)        
Health Care (continued)        
Perrigo Co. PLC United States 76,398 $ 12,051,021
a Sagent Pharmaceuticals Inc. United States 206,195   3,466,138
a VWR Corp. United States