Franklin Strategic Series NCSRS Certified semi-annual shareholder report (management investment company)

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Semiannual Report

Economic and Market Overview

The U.S. economy, as measured by gross domestic product (GDP), grew at a modest rate during the six-month period ended October 31, 2012. Unemployment declined from 8.1% to 7.9%, and data at period-end revealed a healthy increase in U.S. industrial production and durable goods orders for September.¹Consumer spending and personal income levels also climbed, and inflation was generally mild with the exception of energy and food prices. Consumer sentiment rose to its highest level in five years. The federal budget deficit for fiscal year 2012 fell to its lowest level since 2008. U.S. home prices increased in most regions, as mortgage rates near record lows, affordable housing prices and low new-home inventories contributed to the improvement. The U.S. home foreclosure level dropped to a five-year low, further enhancing confidence in the housing market.

For the six-month period, U.S. stocks, as measured by the Standard & Poor’s^®500 Index (S&P 500^®), fluctuated as investors apparently reacted to news headlines and shifted between risk taking and risk aversion.²Toward period-end uncertainty surrounding the closely contested U.S. presidential election, the European fiscal crisis, slowing growth in China and the potential U.S. tax hikes and spending cuts known as the “fiscal cliff” weighed on stock market returns. In addition, U.S. companies generally reported modest third-quarter revenues, suggesting a drop in global demand. The International Monetary Fund announced that fiscal consolidation efforts had weighed on global growth, including the U.S., and described the risk of a steep global slowdown as “alarmingly high.” Reduced third-quarter profit levels and lowered revenue guidance for some companies also overshadowed optimism earlier in the period surrounding new stimulus measures and improvements in certain economic reports. In its October meeting, the Federal Open Market Committee reaffirmed its decision to keep interest rates low until at least mid-2015. Superstorm Sandy’s devastating impact on the east coast at the end of the six-month period also contributed to uncertainty. Despite these factors, the S&P 500 generated a modest six-month gain. Not all investors favored stocks, however, and many sought perceived safe havens such as gold bullion, the Japanese yen, the U.S. dollar and U.S. Treasuries. By period-end, the nominal yield on the 10-year U.S. Treasury note declined to 1.72%.

The foregoing information reflects our analysis and opinions as of October 31, 2012. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

1. Source: Bureau of Labor Statistics.

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

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Franklin Flex Cap Growth Fund

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

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

This semiannual report for Franklin Flex Cap Growth Fund covers the period ended October 31, 2012.

Performance Overview

For the six months under review, Franklin Flex Cap Growth Fund – Class A had a -6.65% cumulative total return. Compared with its narrow benchmarks, the Fund underperformed the -0.96% total return of the Russell 3000^®Growth Index, which measures performance of Russell 3000^®Index companies with higher price-to-book ratios and higher forecasted growth values, and the -0.98% total return of the Russell 1000^®Growth Index, which tracks performance of the largest companies in the Russell 3000^®Index with higher price-to-book ratios and higher forecasted growth values.¹Additionally, the Fund underperformed the +2.16% total return of its broad benchmark, the Standard & Poor’s 500 Index, which tracks the broad U.S. stock market.¹You can find the Fund’s long-term performance data in the Performance Summary beginning on page 7.

Investment Strategy

1. Source: © 2012 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. RUSSELL^®is a trademark of the Frank Russell Company. The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

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

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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

Although the Fund trailed its benchmark for the six-month period, Fund holdings in the financials sector contributed to performance relative to the Russell 3000^®Growth Index.²Life insurer Aflac represented one of the Fund’s top performers as it reported double-digit revenue growth and raised its per-share operating earnings estimate for the year.³The firm’s Japan operations, representing Aflac’s largest revenue source, provided higher sales. The company also raised its quarterly dividend payment during the period and reported investment gains. Cell-tower real estate investment trust American Tower also enjoyed double-digit revenue growth amid robust demand for broadband service, attributable mostly to growing smartphone and tablet use. American Tower’s stock price was also aided by a foreign currency gain and by Sprint Nextel’s deal to sell a majority stake to a rival, which was viewed as positive for wireless tower companies.

During the reporting period, stock selection in the information technology (IT), energy and consumer staples sectors detracted from the Fund’s performance relative to the benchmark.⁴In the IT sector, the Fund’s position in data integration software and services firm Informatica weighed on relative performance as the company reported lower revenues and higher operating expenses.⁵The firm’s chief executive conceded Informatica did not adapt in a timely fashion to the changing macroeconomic environment, but he pledged to bolster growth efforts. Acme Packet, a communications equipment holding, also hurt relative results as the company lowered its outlook for its fiscal year, citing a spending slowdown by North American service providers. In our assessment, the phone and data network equipment maker is well positioned for future growth with

2. The financials sector comprises banks, diversified financials, insurance and real estate in the SOI. 3. This holding is not an index component.

4. The IT sector comprises semiconductors and semiconductor equipment; software and services; and technology hardware and equipment in the SOI. The consumer staples sector comprises food and staples retailing; and food, beverage and tobacco in the SOI.

5. Sold by period-end.

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products that improve voice quality and optimize networks. In the energy sector, despite Whiting Petroleum’s production and revenue growth amid higher oil prices, the company could not offset unrealized derivative losses. The share price for beverage maker Monster Beverage also declined as the U.S. Food and Drug Administration confirmed it was examining the potential for adverse reactions to the company’s beverage products. In the consumer staples sector, baby formula manufacturer Mead Johnson Nutrition reduced its earnings forecast for the year because of fewer births in the U.S. and lower product sales.

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

CFA^®is a trademark owned by CFA Institute.

The foregoing information reflects our analysis, opinions and portfolio holdings as of October 31, 2012, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

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Performance Summary as of 10/31/12

Franklin Flex Cap Growth Fund

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

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Performance Summary (continued)

Performance

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

Class R/Advisor Class: no sales charges.

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

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Performance Summary (continued)

Endnotes

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


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

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

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

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

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

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

6. Effective 8/2/04, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 8/2/04, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 8/2/04, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 8/2/04 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +55.17% and +5.47%.

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Your Fund’s Expenses

Franklin Flex Cap Growth Fund

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

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

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

Actual Fund Expenses

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

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

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

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

Hypothetical Example for Comparison with Other Funds

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

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Your Fund’s Expenses (continued)

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

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 0.98%; B: 1.72%; C: 1.73%; R: 1.23%; and Advisor: 0.73%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

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Franklin Focused Core Equity Fund

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

This semiannual report for Franklin Focused Core Equity Fund covers the period ended October 31, 2012.

Performance Overview

For the six months under review, Franklin Focused Core Equity Fund – Class A had a -4.12% cumulative total return. The Fund underperformed the +2.16% total return of its benchmark, the S&P 500, which tracks the broad U.S. stock market.¹You can find more of the Fund’s performance data in the Performance Summary beginning on page 15.

Investment Strategy

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

1. Source: © 2012 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The index is unmanaged and includes reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 57.

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Manager’s Discussion

During the six months under review, most sectors represented in the Fund’s portfolio benefited absolute performance. Key contributors included our investments in the health care, energy and materials sectors. Within health care, pharmaceuticals were particularly strong, and top contributors included Merck & Co., Watson Pharmaceuticals and Roche Holding. Merck & Co.’s share price reached a multi-year high in October as the company continued to deliver better-than-expected earnings results. In the third quarter, the company reported strong profits as a lower tax rate and robust sales of its diabetes treatments helped offset losses from the patent expiration of its asthma treatment Singulair. Watson Pharmaceuticals’ share price reached an all-time high near period-end as the generic drug company continued to generate better-than-expected earnings and made significant progress in its global expansion strategy. On October 31, Watson Pharmaceuticals completed its acquisition of Swiss competitor Actavis Group, making it the world’s third-largest generic pharmaceutical company, and announced it will change its name to Actavis in 2013 and initiate a multi-year global rebranding campaign. Swiss pharmaceutical giant Roche delivered strong first-half 2012 earnings and confirmed its full-year 2012 outlook for high single-digit core earnings per share growth, driven by the solid performance of its existing portfolio and newly launched products. Low U.S. natural gas prices helped the profit margins of plastics and chemicals company LyondellBasell Industries in the materials sector. Despite lower volumes, the company managed to improve margins in its European division as it continued to cut costs. In energy, a significant contributor was refiner Marathon Petroleum, which became an independent company in 2011 through the spin-off from oil and gas explorer and producer Marathon Oil, also a Fund holding. Marathon Petroleum’s share price rallied after the company announced that it signed an agreement to purchase a Texas City refinery and infrastructure assets from BP. Marathon Petroleum expected the acquisition to close in early 2013 and contribute to earnings in the first year of operation.

In contrast, key detractors from absolute performance included our investments in the consumer discretionary, information technology (IT) and telecommunication services sectors. In consumer discretionary, for-profit education company Apollo Group, which we sold during the period, and International Game Technology (IGT) hurt relative results. IGT’s share price fell in late July after the electronic gaming company reported weaker-than-expected fiscal third-quarter earnings largely as a result of higher expenses in its interactive business. In August, IGT launched a partnership program with land-based casinos to feature its DoubleDown Casino application on their websites. In IT, wireless

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devices and software manufacturer Research in Motion, which we sold during the period, and leading specialty glass and ceramics manufacturer Corning hurt relative results. Corning delivered better-than-expected third-quarter earnings, but its share price fell largely after the company announced a cautious outlook for 2013. Wireless telecommunication service provider NII Holdings, which we sold during the period, hampered relative returns in the telecommunication services sector. Although our overall materials holdings contributed strongly to relative results, a notable detractor was Celanese. The technology and specialty materials company’s third-quarter revenue was negatively affected by lower pricing in some of its business segments and the generally strong U.S. dollar. Expecting economic uncertainties to persist in 2013, Celanese continued to focus on cost control and innovative technology, such as turning natural gas and coal to ethanol, in an effort to maintain long-term growth.

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

Effective November 1, 2012, Brent Loder assumed portfolio manager responsibilities for the Fund. He is a member of the business and financial services team of Franklin Equity Group. Prior to joining Franklin Templeton Investments in 2006, Mr. Loder worked as an associate at Blum Capital Partners where he helped evaluate, execute and monitor investments in public and private companies. Previously, Mr. Loder worked at Morgan Stanley as an analyst in corporate finance and mergers and acquisitions.

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Performance Summary as of 10/31/12

Franklin Focused Core Equity Fund

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Performance Summary (continued)

Performance¹

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

The investment manager and administrator have contractually agreed to waive or assume certain expenses so that common expenses (excluding the Rule 12b-1 fees and acquired fund fees and expenses) for each class of the Fund do not exceed 0.89% (other than certain non-routine expenses) until 8/31/13.

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Performance Summary (continued)

Endnotes

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Since the Fund invests in a relatively small number of companies, the Fund is subject to the risk that poor performance by several companies could adversely affect Fund performance more so than a more broadly diversified fund. Special risks are involved with significant exposure to a particular sector, including increased susceptibility related to economic, business or other developments affecting that sector, which may result in increased volatility. The Fund also has the potential to invest in foreign company stocks, which involve exposure to currency volatility and political uncertainty. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

Class C:

Class R:

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

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

Advisor Class:

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

1. Fund investment results reflect the expense reduction, without which 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 prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly,
causing total annual Fund operating expenses to become higher than the figures shown.

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Your Fund’s Expenses

Franklin Focused Core Equity Fund

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

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

Actual Fund Expenses

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

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

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

Hypothetical Example for Comparison with Other Funds

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Your Fund’s Expenses (continued)

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Franklin Growth Opportunities Fund

Your Fund’s Goal and Main Investments: Franklin Growth Opportunities Fund seeks capital appreciation by investing substantially in equity securities of companies demonstrating accelerat ing growth, increasing profitability, or above-average growth or growth potential, when compared with the overall economy.

This semiannual report for Franklin Growth Opportunities Fund covers the period ended October 31, 2012.

Performance Overview

For the six months under review, Franklin Growth Opportunities Fund –Class A had a -7.47% cumulative total return. The Fund underperformed the -0.96% total return of its narrow benchmark, the Russell 3000^®Growth Index, which measures performance of Russell 3000^®Index companies with higher price-to-book ratios and higher forecasted growth values.¹The Fund also underperformed the +2.16% total return of its broad benchmark, the Standard & Poor’s 500 Index (S&P 500), which tracks the broad U.S. stock market.¹You can find the Fund’s long-term performance data in the Performance Summary beginning on page 23.

Investment Strategy

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

1. Source: © 2012 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The index is unmanaged and includes reinvested interest. 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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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

Although the Fund trailed its benchmark, the Russell 3000^®Growth Index, for the period, the Fund’s stock selection in the health care and telecommunication services sectors contributed to relative performance. Onyx Pharmaceuticals led gains in the health care sector as the global biopharmaceutical firm, whose products treat cancer, announced the Food and Drug Administration (FDA) granted accelerated approval of its drug Kyprolis. Gilead Sciences, another holding in the biotechnology industry, reported strong adjusted income and revenue totals and raised its sales forecast. Sales rose for the firm’s HIV drug Atripla. Wireless communications infrastructure firm SBA Communications’ stock price rose as it completed its TowerCo II Holdings acquisition, which includes more than 3,000 tower sites across the U.S. and Puerto Rico. SBA Communications’ share price also benefited from the increased usage of mobile phones for voice and data in the U.S., as this should help raise demand for their services.

During the reporting period, stock selection detracted from the Fund’s performance relative to the benchmark, particularly in the information technology (IT), consumer discretionary, consumer staples and energy sectors. In the IT sector, the Fund’s position in computing network optimizing products manufacturer F5 Networks weighed on relative performance as the firm’s fourth-quarter earnings per share fell short of expectations. Another communications equipment holding also hurt relative results as Acme Packet lowered its outlook for its fiscal year, citing a spending slowdown by North American service providers. In our assessment, the phone and data network equipment maker is well positioned for future growth with products that improve voice quality and optimize networks. Revenue also fell short of expectations for Chipotle Mexican Grill as the casual restaurant chain reported reduced customer traffic growth. In addition, the company experienced higher costs associated with food and labor. In the consumer staples sector, baby formula manufacturer Mead Johnson Nutrition reduced its earnings forecast for the year due to slowing sales growth in emerging markets, particularly China. The share price for beverage maker Monster Beverage also declined as the FDA confirmed it was examining the potential for adverse reactions to the company’s beverage products.

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

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Performance Summary as of 10/31/12

Franklin Growth Opportunities Fund

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Performance Summary (continued)

Performance

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Performance Summary (continued)

Endnotes

All investments involve risks, including possible loss of principal. The Fund may be more volatile than a more conservative equity fund and may be best suited for long-term investors. The Fund’s investments in smaller and midsized company stocks involve special risks such as relatively smaller revenues, limited product lines and smaller market share. Smaller and midsized company stocks historically have exhibited greater price volatility than larger company stocks, particularly over the short term. The Fund may focus on particular sectors of the market from time to time, which can carry greater risks of adverse developments in such sectors. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.


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

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

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

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

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

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Your Fund’s Expenses

Franklin Growth Opportunities Fund

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

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

Actual Fund Expenses

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

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

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

Hypothetical Example for Comparison with Other Funds

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Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 1.27%; B: 1.97%; C: 1.98%; R: 1.49%; and Advisor: 0.99%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

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Franklin Small Cap Growth Fund

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

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

This semiannual report for Franklin Small Cap Growth Fund covers the period ended October 31, 2012.

Performance Overview

For the six months under review, Franklin Small Cap Growth Fund – Class A had a -3.82% cumulative total return. The Fund underperformed the -0.80% total return of its narrow benchmark, the Russell 2000^®Growth Index, which measures performance of small companies with higher price-to-book ratios and higher forecasted growth values.²The Fund also underperformed the +2.16% total return of its broad benchmark, the Standard & Poor’s 500 Index, which tracks the broad U.S. stock market.²You can find the Fund’s long-term performance data in the Performance Summary beginning on page 31.

Investment Strategy

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

2. Source: © 2012 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The index is unmanaged and includes reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 72.

28 | Semiannual Report

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, stock selection in the financials and consumer discretionary sectors was a key contributor to the Fund’s performance relative to the Russell 2000^®Growth Index. Nonbank mortgage servicer Nationstar Mortgage Holdings, which had its initial public offering in March, was a top performer in the financials sector as its share price more than doubled during the period. Nationstar has been a beneficiary of many financial institutions’ efforts to reduce their residential mortgage exposure and overall servicing portfolio. In consumer discretionary, postsecondary education services company Grand Canyon Education generated better-than-expected earnings in recent quarters due to solid enrollment growth. Although underweighting and stock selection in the industrials sector generally hurt relative performance, Allegiant Travel was a key contributor. The airline company reported record third-quarter earnings driven by increased passenger capacities, lower costs per passenger as it used more fuel-efficient planes, new Hawaii routes, and higher ancillary revenue and third-party sales. In the health care sector, continuous glucose monitor (CGM) systems provider DexCom and clinical-stage biopharmaceutical company Pharmacyclics were notable contributors, despite the sector’s detractive underweighting. DexCom recently received regulatory approvals in key markets for its new CGM system, which is in the early stages of adoption in the large market of insulin users. Pharmacyclics continued to make progress in its development of therapeutics for the treatment of cancer and immune-related diseases.

In contrast, stock selection and overweighting in the information technology (IT) sector was a major detractor from the Fund’s relative performance, largely resulting from our positions in Volterra Semiconductor, Acme Packet (not an index component) and FARO Technologies. Shares of Volterra, a provider of high-performance analog and mixed-signal power management semiconductors, declined in value largely because of investor concerns about the notebook market segment and the company’s lower-than-expected fourth-quarter revenue and earnings forecast. Communications equipment company Acme Packet was negatively affected by tepid worldwide enterprise sales and soft capital expenditures in North America. FARO Technologies, a 3D measurement and imaging solutions manufacturer, reported weaker-than-expected earnings as economic uncertainties, particularly in Europe, led customers to delay purchase decisions. Stock selection in the industrials sector also hindered

Semiannual Report | 29

relative results, particularly patent risk management solutions provider RPX. In the energy sector, onshore rig-based well servicing contractor Key Energy Services lost value as declining activity in the natural gas markets and pricing pressure in the oil markets hurt demand for the company’s services.

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

30 | Semiannual Report

Performance Summary as of 10/31/12

Franklin Small Cap Growth Fund

Semiannual Report | 31

Performance Summary (continued)

32 | Semiannual Report

Performance Summary (continued)

Endnotes

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


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

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

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

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

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

Semiannual Report | 33

Your Fund’s Expenses

Franklin Small Cap Growth Fund

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

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

Actual Fund Expenses

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

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

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

Hypothetical Example for Comparison with Other Funds

34 | Semiannual Report

Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 1.36%; B: 2.06%; C: 2.06%; R: 1.56%; and Advisor: 1.06%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

Semiannual Report | 35

Franklin Small-Mid Cap Growth Fund

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

This semiannual report for Franklin Small-Mid Cap Growth Fund covers the period ended October 31, 2012.

Performance Overview

For the six months under review, Franklin Small-Mid Cap Growth Fund –Class A had a -6.05% cumulative total return. The Fund underperformed the -2.82% total return of its narrow benchmark, the Russell Midcap^®Growth Index, which measures performance of companies in the Russell Midcap^®Index with higher price-to-book ratios and higher forecasted growth values.²The Fund also underperformed the +2.16% total return of its broad benchmark, the Standard & Poor’s 500 Index, which tracks the broad U.S. stock market.²You can find the Fund’s long-term performance data in the Performance Summary beginning on page 39.

Investment Strategy

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

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 80.

36 | Semiannual Report

Manager’s Discussion

During the six months under review, key contributors to the Fund’s performance relative to the Russell Midcap^®Growth Index included stock selection in the industrials and telecommunication services sectors. In the industrials sector, Allegiant Travel’s share price rose as the airline company reported record third-quarter earnings driven by increased passenger capacities, lower costs per passenger as it used more fuel-efficient planes, new Hawaii routes, and higher ancillary revenue and third-party sales. In the telecommunication services sector, SBA Communications’ share price rose to an all-time high as the wireless communications tower owner and operator benefited from strong leasing demand domestically and internationally, especially from the four biggest U.S. wireless carriers. Although our positions in the consumer discretionary and health care sectors generally detracted from relative results, there were some notable contributors. In the consumer discretionary sector, top performers included global diversified consumer products company Jarden and lifestyle specialty retailer Urban Outfitters. Jarden reported strong earnings in recent quarters as the company experienced solid demand for its household products. Urban Outfitters had strong sales growth and better gross margins largely driven by the company’s fashion improvement initiatives, reduction in merchandise markdowns and better marketing efforts. In the health care sector, kidney dialysis services provider DaVita rose in value after an initial dip following the company’s announcement in late May to acquire privately held HealthCare Partners, one of the nation’s largest operators of medical groups and physician networks.

In contrast, key detractors from the Fund’s relative performance included stock selection in the materials and energy sectors, as well as overweighting and stock selection in the information technology (IT) sector. In the materials sector, metallurgical coal producer and exporter Walter Energy was negatively affected by lower coal prices resulting largely from Asia’s slower economic growth. Whiting Petroleum, in the energy sector, declined in value as the oil and gas company’s share price suffered from falling crude oil prices during the period. In the IT sector, communications equipment manufacturer F5 Networks and electronic payment solutions provider VeriFone Systems were

Semiannual Report | 37

among the weakest performers. F5 Networks’ share price fell as the company reported weaker-than-expected third-quarter earnings and issued a downbeat forecast for the remainder of 2012. Although the company’s European revenue had robust growth, its overall revenue suffered as major U.S. customers reduced their most expensive orders largely because of challenging economic conditions and political uncertainty surrounding the November election. VeriFone reported strong fiscal third-quarter income growth, but weaker-than-expected fourth-quarter revenue guidance drove its share price lower. In the consumer staples sector, Monster Beverage detracted from performance as the leading energy drink manufacturer’s share price corrected sharply after it reached an all-time high in June. Further contributing to the price correction were a U.S. Food and Drug Administration examination into the potential adverse reactions to the company’s beverage products and investor concerns about the company’s ability to maintain the stellar growth it had demonstrated in recent years.

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

38 | Semiannual Report

Performance Summary as of 10/31/12

Franklin Small-Mid Cap Growth Fund

Semiannual Report | 39

Performance Summary (continued)

40 | Semiannual Report

Performance Summary (continued)

Endnotes

All investments involve risks, including possible loss of principal. Investors should be comfortable with fluctuations in the value of their investment, as small and midsized company stocks can be volatile, especially over the short term. Smaller or relatively new or unseasoned companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. The Fund may focus on particular sectors of the market from time to time, which can carry greater risks of adverse developments in such sectors. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.


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

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

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

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

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

Semiannual Report | 41

Your Fund’s Expenses

Franklin Small-Mid Cap Growth Fund

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

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

Actual Fund Expenses

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

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

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

Hypothetical Example for Comparison with Other Funds

42 | Semiannual Report

Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 1.01%; B: 1.74%; C: 1.76%; R: 1.26%; and Advisor: 0.76%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

Semiannual Report | 43

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

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

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

Semiannual Report | 49

50 | Semiannual Report

Semiannual Report | 51

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

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

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

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

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

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 59

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

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

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

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

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited)

64 | Semiannual Report

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

Semiannual Report | 65

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 67

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 69

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 71

72 | Semiannual Report

Semiannual Report | 73

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 75

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 77

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 79

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited)

80 | Semiannual Report

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

Semiannual Report | 81

82 | Semiannual Report

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 83

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

Franklin Strategic Series

Financial Statements (continued)

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 85

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 87

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 89

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 91

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

Franklin Strategic Series

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

*Effective March 1, 2005, the funds no longer offered Class B shares for purchase. As disclosed in the applicable fund prospectus Class B shares convert to Class A shares after eight years of investment, therefore all Class B shares will convert to Class A by March 2013.

The following summarizes the Funds’ significant accounting policies.

a. Financial Instrument Valuation

The Funds’ investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees (the Board), the Funds’ administrator, investment manager and other affiliates have formed the Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Funds’ valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Funds to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

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

Semiannual Report | 93

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

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

The Funds have procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VLOC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VLOC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

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

b. Foreign Currency Translation

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

94 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

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

The Funds do not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments on the Statements of Operations.

Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.

c. Securities Lending

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

d. Income Taxes

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

Each fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of October 31, 2012, and for all open tax years, each fund has determined that no liability for unrecognized tax benefits is required in each fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

Semiannual Report | 95

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

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

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

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

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

f. Accounting Estimates

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

g. Guarantees and Indemnifications

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

96 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

2. SHARES OF BENEFICIAL INTEREST

At October 31, 2012, there were an unlimited number of shares authorized (without par value).

Transactions in the Funds’ shares were as follows:

Semiannual Report | 97

98 | Semiannual Report

Semiannual Report | 99

100 | Semiannual Report

Semiannual Report | 101

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

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

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

102 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

3.	TRANSACTIONS WITH AFFILIATES (continued)
b.	Administrative Fees

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

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

c. Distribution Fees

The Board has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are not charged on shares held by affiliates. Under the Funds’ Class A reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Funds’ Class B, C and R compensation distribution plans, the Funds pay Distributors for costs incurred in connection with the servicing, sale and distribution of each fund’s shares up to the maximum annual plan rate for each class.

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

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

Semiannual Report | 103

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

3.	TRANSACTIONS WITH AFFILIATES (continued)
d.	Sales Charges/Underwriting Agreements

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

For the Franklin Focused Core Equity Fund, Advisers and FT Services have contractually agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that the common expenses (i.e. a combination of management fees, administrative fees, and other expenses, but excluding distribution fees, and acquired fund fees and expenses) for each class of the Fund do not exceed 0.89% (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until August 31, 2013.

g. Other Affiliated Transactions

At October 31, 2012, Advisers owned 6.43% of the Franklin Focused Core Equity Fund’s outstanding shares.

104 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

4. EXPENSE OFFSET ARRANGEMENT

The Funds have entered into an arrangement with their custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Funds’ custodian expenses. During the period ended October 31, 2012, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. Capital loss carryforwards with no expiration, if any, must be fully utilized before those losses with expiration dates.

At April 30, 2012, the Franklin Small Cap Growth Fund had capital loss carryforwards of $3,940,393 expiring in 2018.

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

At October 31, 2012, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of passive foreign investment company shares and wash sales.

Semiannual Report | 105

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the period ended October 31, 2012, were as follows:

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

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

8. RESTRICTED SECURITIES

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

At October 31, 2012, the following funds held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:

106 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

9. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES

The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. Investments in “affiliated companies” for the Franklin Small-Mid Cap Growth Fund for the period ended October 31, 2012, were as shown below.

10. SPECIAL SERVICING AGREEMENT

The Funds, except the Franklin Focused Core Equity Fund, which are eligible underlying investments of one or more of the Franklin Templeton Fund Allocator Series Funds (Allocator Funds), participate in a Special Servicing Agreement (SSA) with the Allocator Funds and certain service providers of the funds and the Allocator Funds. Under the SSA, the funds may pay a portion of the Allocator Funds’ expenses (other than any asset allocation, administrative and distribution fees), to the extent such payments are less than the amount of the benefits realized or expected to be realized by the funds (e.g., due to reduced costs associated with servicing accounts) from the investment in the funds by the Allocator Funds. The Allocator Funds are either managed by Advisers or administered by FT Services. For the period ended October 31, 2012, the Franklin Flex Cap Growth Fund and the Franklin Growth Opportunities Fund were held by one or more of the Allocator Funds and the amount of expenses borne by the funds is noted in the Statements of Operations. At October 31, 2012, 17.63% of the Franklin Flex Cap Growth Fund and 20.11% of the Franklin Growth Opportunities Fund outstanding shares were held by one or more of the Allocator Funds.

Semiannual Report | 107

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

11. CREDIT FACILITY

The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $1.5 billion (Global Credit Facility) which matures on January 18, 2013. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.

Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay their share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statements of Operations. During the period ended October 31, 2012, the Funds did not use the Global Credit Facility.

12. FAIR VALUE MEASUREMENTS

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

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

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

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

108 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

12.	FAIR VALUE MEASUREMENTS (continued)
A	summary of inputs used as of October 31, 2012, in valuing the Funds’ assets carried at fair

value, is as follows:

Semiannual Report | 109

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

13. NEW ACCOUNTING PRONOUNCEMENTS

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

14. SUBSEQUENT EVENTS

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

ABBREVIATIONS

Selected Portfolio

ADR - American Depositary Receipt

110 | Semiannual Report

Franklin Strategic Series

Shareholder Information

Proxy Voting Policies and Procedures

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

Quarterly Statement of Investments

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

Semiannual Report | 111

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Semiannual Report

Economic and Market Overview

For the six-month period, U.S. stocks, as measured by the Standard & Poor’s^®500 (S&P 500^®), fluctuated as investors apparently reacted to news headlines and shifted between risk taking and risk aversion.²Toward period-end uncertainty surrounding the closely contested U.S. presidential election, the European fiscal crisis, slowing growth in China and the potential U.S. tax hikes and spending cuts known as the “fiscal cliff” weighed on stock market returns. In addition, U.S. companies generally reported modest third-quarter revenues, suggesting a drop in global demand. The International Monetary Fund announced that fiscal consolidation efforts had weighed on global growth, including the U.S., and described the risk of a steep global slowdown as “alarmingly high.” Reduced third-quarter profit levels and lowered revenue guidance for some companies also overshadowed optimism earlier in the period surrounding new stimulus measures and improvements in certain economic reports. In its October meeting, the Federal Open Market Committee reaffirmed its decision to keep interest rates low until at least mid-2015. Superstorm Sandy’s devastating impact on the east coast at the end of the six-month period also contributed to uncertainty. Despite these factors, the S&P 500 generated a modest six-month gain. Not all investors favored stocks, however, and many sought perceived safe havens such as gold bullion, the Japanese yen, the U.S. dollar and U.S. Treasuries. By period-end, the nominal yield on the 10-year U.S. Treasury note declined to 1.72%.

1. Source: Bureau of Economic Analysis.

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

Semiannual Report | 3

Franklin Biotechnology Discovery Fund

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

4 | Semiannual Report

as measured by the NASDAQ Composite Index had a -1.31% total return.¹You can find the Fund’s long-term performance data in the Performance Summary beginning on page 8.

Investment Strategy

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

Manager’s Discussion

During the six months under review, the Fund’s overweighted allocation to stocks in the rallying biotechnology industry and underweighted allocation to lagging pharmaceuticals drove performance relative to the narrow benchmark. The performance of individual stocks in the Fund’s portfolio varied greatly, with several holdings rising more than 50% while some other positions posted declines that exceeded 50%. Please keep in mind volatility is not uncommon in the biotechnology sector, and the Fund seeks to take advantage of short-term volatility by initiating or adding to securities we believe to be undervalued.

Leading contributors to the Fund’s absolute performance included Pharmacyclics, Gilead Sciences and Amgen. In June, biopharmaceutical company Pharmacyclics reported encouraging results in international clinical trials of its experimental lymphoma drug ibrutinib. As a result of meeting a trial milestone, the company received a $50 million payment from Johnson & Johnson’s Janssen Biotech subsidiary, and the company stands to receive up to $775 million in additional payments should the drug reach further trial milestones and receive regulatory approval.

Another key contributor was Gilead Sciences, which at period-end represented the Fund’s largest holding. Gilead develops and commercializes therapeutics and is the world’s largest maker of branded treatments for human immuno-deficiency virus (HIV). With its recent acquisition of clinical-stage pharmaceutical company Pharmasset, Gilead has expanded its efforts in the development of

Semiannual Report | 5

hepatitis drugs. During the period, the Food and Drug Administration (FDA) approved Truvada for HIV prevention in unaffected adults, and Stribild, a once-daily single tablet regimen for HIV-1 infection in adults who have not previously undergone treatment. The company reported strong third-quarter results, led by increased sales of its antiviral drugs Complera/Eviplera, Atripla and Truvada, and the launch of Stribild. Increased sales of cardiopulmonary drugs and higher royalty revenues also contributed to profit growth.

Amgen shares rose steadily during the period as management twice raised its 2012 revenue and earnings guidance and reported higher-than-expected third-quarter earnings. Sales of the company’s autoimmune drug Enbrel, bone drugs Xgeva and Prolia and chemotherapy drug Neulasta each increased through the first half of 2012. Several acquisitions, such as that of KAI Pharmaceuticals in July, enhanced the company’s product pipeline, which includes AMG 145, a promising cholesterol drug that completed Phase 2 trials during the period. Demonstrating its commitment to shareholder-friendly policies, Amgen maintained its quarterly dividend and continued to buy back shares under the terms of its 2011 plan.

As noted earlier, several holdings declined in value during the period, detracting from Fund performance. Major detractors included Questcor Pharmaceuticals, ArQule²and Incyte. Questcor derives substantially all its revenue from sales of its sole product, H.P. Acthar Gel (Acthar), which is FDA-indicated for exacerbations of multiple sclerosis and infantile spasms and the treatment of several other disorders. Despite strong sales growth for the drug, negative headlines during the period pressured shares. In September, health insurer Aetna limited reimbursement for Acthar to a small fraction of its users. Although Aetna accounts for only about 5% of Acthar prescriptions, investors feared the precedent such a decision might set, and Questcor shares plunged 48% in a single day. The following week, the company disclosed that the federal government was investigating its marketing practices, leading shares to fall further.

ArQule shares fell sharply in early October following the company’s announcement that it would discontinue Phase 3 clinical trials for its lead product candidate, experimental cancer drug tivantinib, citing a lack of statistical significance for its efficacy in the treatment of lung cancer. Despite this setback, the drug’s strong safety record allowed ArQule to promptly reach a Special Protocol Assessment with the FDA, paving the way for Phase 3 clinical trials to test tivantinib in patients with hepatocellular carcinoma, the most common type of liver cancer.

2. Sold by period-end.

6 | Semiannual Report

Incyte specializes in the discovery and development of small molecule drugs for cancer treatment and inflammation. Despite the approval and launch of its bone marrow disease drug, the company’s shares followed a volatile path, climbing through July before losing more than 20% on August 2, when the company announced a change in accounting policy that called into question management’s optimistic sales forecasts for the drug.

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

CFA^®is a trademark owned by CFA Institute.

Semiannual Report | 7

Performance Summary as of 10/31/12

Franklin Biotechnology Discovery Fund

Performance

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include maximum sales charges. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges.

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

8 | Semiannual Report

Performance Summary (continued)

Endnotes

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

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

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

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

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

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

6. Effective 9/1/09, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 9/1/09, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 9/1/09, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 9/1/09 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +68.26% and +17.87%.

Semiannual Report | 9

Your Fund’s Expenses

Franklin Biotechnology Discovery Fund

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

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

Actual Fund Expenses

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

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

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

Hypothetical Example for Comparison with Other Funds

10 | Semiannual Report

Your Fund’s Expenses (continued)

Semiannual Report | 11

Franklin Natural Resources Fund

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

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

This semiannual report for Franklin Natural Resources Fund covers the six months ended October 31, 2012.

Performance Overview

For the six months under review, Franklin Natural Resources Fund – Class A had a cumulative total return of -8.04%. The Fund underperformed the +0.82% total return of its narrow benchmark, the Standard & Poor’s (S&P) North American Natural Resources Index, which tracks companies involved in extractive industries (mining), energy, timber and forestry services, and the production of pulp and paper.¹It also underperformed the +2.16% total return of its broad benchmark, the S&P 500 Index, which is a broad measure of the U.S. stock market.¹The Fund’s six-month performance disparity compared to the broad market and the natural resources sector index largely reflected what we viewed as investors’ narrow focus on yield and short-term safety. For instance, the index has a large weighting in income-oriented equities such as the integrated oil companies, which have a smaller weighting in the Fund given what we believe to be the companies’ limited opportunities for growth. You can find the Fund’s long-term performance data in the Performance Summary beginning on page 17.

Investment Strategy

We use a fundamental, research-driven approach to identify industries in the natural resources sector that we believe offer the strongest underlying attributes including, but not limited to, favorable supply and demand characteristics, barriers to entry, and pricing power. Within those industries, we seek to identify individual companies that have identifiable growth drivers and that present, in

1. Source: © 2012 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The index is unmanaged and includes reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 29.

12 | Semiannual Report

our opinion, the best trade-off between growth potential, business and financial risk, and valuation. The Fund’s holdings are typically concentrated in the energy sector but also can include investments in the metals and mining, chemicals, paper and forest products, and other related sectors.

Sector Overview

Global commodity prices fell to a 2012 low in June as markets focused on recessionary forces in Europe and China’s apparent slowing demand for raw materials. In July and August, expectations for stimulus from the U.S. Federal Reserve Board (Fed) and other central banks contributed to healthy gains for most commodities in the Reuters/Jeffries CRB Index (CRB) of 19 key materials. However, supply-and-demand imbalances and expectations for further demand pressure in 2013 led to a pullback in commodity prices beginning in September, and were further exacerbated when the International Monetary Fund (IMF) lowered its global growth forecast for 2013. Overall, commodities, as measured by the CRB, were relatively flat for the six-month reporting period.

Inflation was generally mild with the exception of natural gas and food prices. Early in the period, oil prices rose amid monetary easing in many countries and a decline in the U.S. dollar, both of which were perceived to augment global demand. Crude oil prices touched three-month lows in October, however, amid rising oil production and lackluster demand. U.S. oil production was bolstered by shale-oil production and a rebound in crude oil supply from the Gulf of Mexico. As a result, U.S. oil production for the year 2012 was expected to reach its highest level since 1987. Lowered expectations for global economic growth, including the Chinese economy, also weighed on oil prices despite continued unrest and risks to supplies in the Middle East. Conversely, natural gas prices rose during the six-month period and reached a 10-month high at period-end in anticipation of winter demand and the potential for diminished supplies following a significant drop in drilling activity.

Precious metals finished the period with mixed returns following a broad October decline. Gold, whose appeal is often linked to its perceived benefit as an inflation hedge, climbed in value during the six-month period amid continued economic uncertainty, as did silver. Uncertainty surrounding the closely contested U.S. presidential election, the European fiscal crisis, slowing growth in China and potential U.S. tax hikes and spending cuts known as the “fiscal cliff” contributed to gold’s advance. The Fed’s latest round of quantitative easing also benefited gold prices.

Metals commonly used in industrial applications, however, tended to decline as softening demand and weak economic forecasts dampened investor sentiment. Near period-end, producers of aluminum, zinc, lead and other metals contemplated production cuts following weak U.S. demand, softening manufacturing

Semiannual Report | 13

indicators and slowing gross domestic product growth. Although China’s slowing growth weighed on commodities in general, positive economic developments in other Asian countries lifted metal prices at the end of October.

Manager’s Discussion

The six months under review represented a difficult period for the Fund, as commodity prices shifted, beginning the period near peak prices followed by weakness amid a deterioration in supply-and-demand balances. The combination of rising supply with a softening in China’s appetite for raw materials and the IMF’s lowered global growth forecast led to a challenging investment environment further exacerbated by global macroeconomic and geopolitical uncertainty. This environment was unfavorable for our strategy, which focuses on companies with healthy long-term prospects for growth. Conversely, we are typically underweighted in dividend-paying stocks relative to the index, which are often viewed as more conservative investments and have recently been favored by investors in an uncertain environment.

Spurred by renewed interest in the Fed’s bond buying program and a mild recovery in gold prices, gold equities contributed to Fund performance, notably the Fund’s position in exploration and mining company Randgold Resources, which benefited from operational advances in Mali. Oil refinery stocks also climbed as refinery outages negatively impacted supplies, including a fire at Chevron’s Richmond, California, refinery. Phillips 66 was a contributor, as it benefited from greater interest in Gulf Coast refiners and from growing U.S. oil production, which lowered feedstock costs.

Integrated oil stocks performed relatively well during the period, as their defensive characteristics and high dividend yields appealed to investors. Furthermore, the Fund’s position in oilfield equipment company Robbins & Meyers contributed to performance as it agreed to be acquired by National Oilwell Varco, another Fund holding.

The Fund’s exploration and production (E&P) companies were notable detractors from performance as oil prices fell during the six-month period. Uncertainty surrounding the global economy contributed to a risk-averse environment that also hampered returns for this industry as investors tended to shun oil-focused, higher growth E&P companies, and foreign-based E&Ps, in particular. As a result of these and other factors, the Fund’s positions in U.S.-based independent oil and gas companies SM Energy and Whiting Petroleum weighed on performance. Although declines were largely widespread, some E&P companies experienced more pronounced declines resulting from stock-specific issues. For example, Brazil-based OGX Petroleo e Gas Participacoes notably reduced

14 | Semiannual Report

production estimates, and Chariot Oil and Gas announced two unsuccessful exploration wells in Namibia, though both were relatively small positions, which limited their impact on Fund performance. Partially offsetting these detractors, certain U.S. natural gas-focused producers performed well as natural gas prices rebounded during the period. Contributors included Southwestern Energy, McMoRan Exploration²and Cabot Oil and Gas.

Commodity price weakness and global economic uncertainty also played a part in the oil and gas equipment and services industry’s weak performance as companies reduced capital spending, resulting in a decline in U.S. rig counts and lower activity levels. Unsurprisingly, earnings expectations for the next several quarters were reduced, sometimes significantly, for oilfield services companies. Smaller sized oilfield services companies focused on the U.S. onshore market were especially punished, including Superior Energy and Key Energy. Both companies cut earnings forecasts for 2012, citing lower natural gas and crude oil prices and declines in drilling and completion related activity. We remained invested in companies with exposure to onshore exploration and development trends in the U.S. as we believe they are likely to benefit as companies seek to develop the country’s vast natural gas and oil resources. Conversely, the Fund’s capital equipment positions benefited performance as investors recognized companies with exposure to offshore exploration and development, such as PHI, Dril-Quip and Cameron International. Commercial helicopter operator PHI reported increased revenues as higher deepwater drilling activity increased demand for its services while Cameron and Dril-Quip were viewed as offering exposure to growth trends in subsea development.

With China’s slower growth a central concern during the period and weakening economic indicators for other consuming nations, most metals and coal prices fell during the period, leading to declines for coal and mining stocks. Performance was particularly adverse for small mining companies and coal companies with metallurgical exposure, which is tied to steel manufacturing, and those with higher financial leverage.

Amid the crosscurrents of the recent environment, it is important to take a long-term investment perspective and remember that natural resources investments are directly related to world consumption and resource supply limitation trends, which continue to appear supportive of production, revenue and earnings growth for commodity-producing companies and therefore, equity values, longer term. Periods of disruption and slowing are to be expected, and when viewed in a long-term light, can and often do present opportunities to invest in strong companies at attractive valuations. For these reasons, we employ

2. Sold by period-end.

Semiannual Report | 15

an opportunistic approach as we are staunch believers in global, long-term consumption trends and invest with an understanding that stock markets often present compelling values on a short-term basis. We believe that, in many cases, this has occurred in the recent market environment, and we are actively seeking such opportunities.

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

16 | Semiannual Report

Performance Summary as of 10/31/12

Franklin Natural Resources Fund

Performance

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

Semiannual Report | 17

Performance Summary (continued)

Endnotes

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

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

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

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

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

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

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

18 | Semiannual Report

Your Fund’s Expenses

Franklin Natural Resources Fund

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

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

Actual Fund Expenses

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

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

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

Hypothetical Example for Comparison with Other Funds

Semiannual Report | 19

Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 1.09%; C: 1.80%; and Advisor: 0.80%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

20 | Semiannual Report

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 21

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

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited)

Semiannual Report | 23

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

24 | Semiannual Report

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 25

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 27

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

Semiannual Report | 29

30 | Semiannual Report

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 33

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

Semiannual Report | The accompanying notes are an integral part of these financial statements. | 35

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

Franklin Strategic Series

Notes to Financial Statements (unaudited)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The following summarizes the Funds’ significant accounting policies.

a. Financial Instrument Valuation

Debt securities generally trade in the OTC market rather than on a securities exchange. The Funds’ pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves,

Semiannual Report | 37

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

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

credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value.

b. Foreign Currency Translation

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Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

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

rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Board.

c. Securities Lending

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

d. Income Taxes

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Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
d.	Income Taxes (continued)

related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns).Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

e. Security Transactions, Investment Income, Expenses and Distributions

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

f. Accounting Estimates

g. Guarantees and Indemnifications

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Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

2. SHARES OF BENEFICIAL INTEREST

At October 31, 2012, there were an unlimited number of shares authorized (without par value).

Transactions in the Funds’ shares were as follows:

Semiannual Report | 41

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

3. TRANSACTIONS WITH AFFILIATES

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

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

c. Distribution Fees

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Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

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

reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Franklin Natural Resources Fund’s Class C compensation distribution plan, the fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the fund’s shares up to the maximum annual plan rate.

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

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Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

4. EXPENSE OFFSET ARRANGEMENT

5. INCOME TAXES

At April 30, 2012, the Franklin Natural Resources Fund had capital loss carryforwards of $20,161,920 expiring in 2018. During the year ended April 30, 2012, the Franklin Natural Resources Fund utilized $13,077,477 of capital loss carryforwards.

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

At October 31, 2012, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:

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

44 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the period ended October 31, 2012, were as follows:

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

8. RESTRICTED SECURITIES

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

At October 31, 2012, the Funds held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:

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Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

9. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES

The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. Investments in “affiliated companies” for the Franklin Biotechnology Discovery Fund for the period ended October 31, 2012, were as shown below.

10. SPECIAL SERVICING AGREEMENT

The Franklin Natural Resources Fund, which is an eligible underlying investment of one or more of the Franklin Templeton Fund Allocator Series Funds (Allocator Funds), participates in a Special Servicing Agreement (SSA) with the Allocator Funds and certain service providers of the fund and the Allocator Funds. Under the SSA, the fund may pay a portion of the Allocator Funds’ expenses (other than any asset allocation, administrative and distribution fees), to the extent such payments are less than the amount of the benefits realized or expected to be realized by the fund (e.g., due to reduced costs associated with servicing accounts) from the investment in the fund by the Allocator Funds. The Allocator Funds are either managed by Franklin Advisers, Inc. or administered by FT Services. For the period ended October 31, 2012, the fund was held by one or more of the Allocator Funds and the amount of expenses borne by the fund is noted in the Statements of Operations. At October 31, 2012, the fund was no longer held by any of the Allocator Funds.

11. CREDIT FACILITY

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Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

11. CREDIT FACILITY (continued)

12. FAIR VALUE MEASUREMENTS

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

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

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

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

A summary of inputs used as of October 31, 2012, in valuing the Funds’ assets carried at fair value, is as follows:

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^aIncludes common, preferred and convertible preferred stocks as well as other equity investments. ^bFor detailed categories, see the accompanying Statement of Investments. ^cIncludes securities determined to have no value at October 31, 2012.

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 investments at the end of the period. At October 31, 2012, the reconciliations of assets, is as follows:

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Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

12. FAIR VALUE MEASUREMENTS (continued)

The significant unobservable inputs used in the fair value measurement of the fund’s investment in a biotechnology company are free cash flow and the cost of equity capital. A significant and reasonable increase (decrease) of free cash flow would result in a significant higher (lower) fair value measurement. A significant and reasonable increase (decrease) in the cost of equity capital would result in a significant lower (higher) fair value measurement. The differences in fair value measurements caused by significant and reasonable changes in any of these inputs is expected to materially impact the net assets of the fund.

13. NEW ACCOUNTING PRONOUNCEMENTS

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

14. SUBSEQUENT EVENTS

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


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

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Franklin Strategic Series

Shareholder Information

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

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Semiannual Report

Franklin Strategic Income Fund

Your Fund’s Goals and Main Investments: Franklin Strategic Income Fund seeks a high level of current income, with capital appreciation over the long term as a secondary objective. The Fund uses an active asset allocation strategy and under normal market conditions invests at least 65% of its assets in U.S. and foreign debt securities, including those in emerging markets. The Fund may invest in all varieties of fixed and floating rate income securities, including bonds, corporate loans (and loan participations), mortgage securities and other asset-backed securities, and convertible securities.

We are pleased to bring you Franklin Strategic Income Fund’s semiannual report for the period ended October 31, 2012.

Performance Overview

Franklin Strategic Income Fund – Class A posted a +4.56% cumulative total return for the six months under review. The Fund outperformed the +2.75% total return of its benchmark, the Barclays U.S. Aggregate Index, which represents the U.S. investment-grade fixed rate taxable bond market.¹The Fund underperformed the +4.81% total return of its peers as measured by the Lipper Multi-Sector Income Funds Classification Average, which consists of funds chosen by Lipper that seek current income by allocating assets among different fixed income securities sectors, with a significant portion rated below investment grade.²You can find the Fund’s long-term performance data in the Performance Summary beginning on page 9.

2. Source: Lipper Inc. For the six-month period ended 10/31/12, this category consisted of 241 funds. Lipper calculations do not include sales charges or expense subsidization by a fund’s manager. Fund performance relative to the average may have differed if these or other factors had been considered.

The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 19.

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Economic and Market Overview

During the six months under review, U.S. economic data remained mixed. Oil prices declined and the housing sector remained resilient with new and existing home sales as well as prices pointing toward a gradual strengthening trend, albeit from a low base. Consumer spending generally increased and consumer confidence reached its highest level during the period in October. However, manufacturing indicators weakened and gross domestic product growth slowed during the period.

Economists, business leaders and market watchers were concerned about the U.S. “fiscal cliff” at the beginning of 2013 when, unless Congress acts, automatic income tax increases and federal budget cuts will take place. They fear these events could cause another U.S. recession. Not knowing whether Congress and the President would avert these measures after the U.S. election, many businesses delayed major investment and hiring decisions. Seeking to support a stronger economic recovery, the Federal Reserve Board (Fed) acknowledged the need for further policy accommodation and in September announced a third round of quantitative easing (QE3). QE3 consists of $40 billion monthly purchases of mortgage-backed securities until the labor market improves. The Fed also continued buying long-term Treasuries and selling short-term Treasuries in an effort to put downward pressure on long-term interest rates. Although inflation picked up somewhat late in the period, the Fed in October reiterated its position that medium and longer-term inflation expectations remained stable and maintained historically low interest rates.

Globally, emerging markets continued to lead the recovery as several emerging economies returned to or exceeded their pre-crisis activity levels. Growth in the G-3 (U.S., eurozone and Japan) was slow by the standards of previous recoveries. Nonetheless, economic reports from the largest economies proved inconsistent with some dire predictions of a severe global economic slowdown.

Fears of European sovereign debt default and China’s potential “hard landing” dominated financial headlines early in the period, contributing to heightened market volatility. Some central bankers continued to pursue historically accommodative monetary policies, while many other policymakers paused their tightening cycles or reduced rates in response to the risks to domestic activity from a potential deterioration in the global outlook. In addition to rate adjustments, central bankers employed a variety of policy tools, which included various asset purchase programs. The European Central Bank (ECB) took its most ambitious step yet as part of its efforts to preserve the monetary union with a plan to make unlimited purchases of government debt through a new program designed to ease eurozone borrowing pressures. Importantly, potential future ECB purchases are conditional upon government participation in

4 | Semiannual Report

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

**No distributions were paid in October. The distribution scheduled to be paid in October was paid in November due to the market’s closure following Hurricane Sandy.

European Financial Stability Facility and European Stability Mechanism programs. Such programs are designed to ensure that participating governments meet stated reform targets.

The announcement of QE3 as well as ongoing investor concerns about eurozone uncertainty drove the 10-year U.S. Treasury yield from 1.95% on April 30, 2012, to 1.72% on October 31, 2012. During the six months under review, investment-grade fixed income markets, as measured by the Barclays U.S. Aggregate Index, posted moderate returns but underperformed below-investment-grade corporate bonds, as measured by the Credit Suisse High Yield Index.

Investment Strategy

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

Semiannual Report | 5

What is duration?

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

6 | Semiannual Report

Manager’s Discussion

During the six-month period ended October 31, 2012, global economic and political news continued to influence financial markets. Weaker economic data during the second calendar quarter of 2012, along with renewed concerns regarding the eurozone, pressured financial markets. However, typical of rallies and retreats of the past two years, stock markets strengthened during the third quarter, and the Standard & Poor’s^®500 Index delivered a +6.35% three-month total return.³Renewed investor optimism stemmed from indications of further monetary easing from G-3 central banks as well as improvement in economic indicators in the U.S. and China toward period-end. In this environment, long-term U.S. rates fluctuated but ended the reporting period at lower levels. The combination of lower rates and a more supportive credit market environment by period-end helped fixed income sectors generate positive total returns. Given increased optimism in the financial markets, many of the fixed income market’s spread sectors outperformed the U.S. Treasury market. Similarly, a rebound in certain foreign currencies compared to the U.S. dollar contributed to positive returns for some international fixed income currency during the period.

In this environment, Franklin Strategic Income Fund posted a positive total return, outpacing the performance of the Barclays U.S. Aggregate Index. The Fund’s larger exposure to non-investment grade corporate credit sectors and to certain non-U.S. dollar holdings positively enhanced performance compared to the Barclays index. Relative to the Lipper Multi-Sector Income peer average, the Fund’s lower exposure to high yield corporate bonds and to equity-linked securities compared to certain peer funds hindered relative returns.

Corporate credit fundamentals remained broadly supportive during the period, with ample corporate liquidity and a default rate well below the historical average. Although many companies began to focus more on shareholder-friendly activities, such as stock buybacks and increased dividends, in general they remained cautious in regard to balance sheet liquidity, accessing the public debt markets to refinance existing debt at lower interest rates. Similarly, although banks’ reluctance to lend curbed corporate spending initiatives, increases in global capital ratios and liquidity buffers for major global banks over the past two years have strengthened the perceived credit safety for these institutions. Consequently, corporate spread sectors delivered positive performance amid spread tightening during the reporting period. For the Fund’s corporate bond holdings, the high yield corporate bond allocation decreased, while corporate loan exposure rose slightly, including the Fund’s holding in a credit derivatives instrument tied to a basket of corporate loans. Investment grade corporate bond exposure also increased slightly, with a continued focus on financials.

Poor’s Financial Services LLC.

The global financial market rally also drove positive performance for many of the underlying currencies held in the Fund’s global bond positions. In particular, certain Asian currency positions, some of which included currency forward contracts, including in South Korea, Singapore and the Philippines, performed well versus the U.S. dollar. The Fund’s holdings in Polish and Hungarian bonds also generated positive returns relative to the euro, against which we positioned those currencies. In Latin America, the Fund’s exposure to the Chilean peso benefited returns, given the currency’s strength. In most global positions, the Fund maintained a relatively short duration position, focusing on the yield available for shorter term maturity instruments, and seeking to capture potential currency appreciation. Finally, we maintained only a modest weighting in hard currency (i.e., U.S. dollar and euro) emerging market sovereign bonds, given valuations that remained rich compared to longer term averages.

With the slight decline in U.S. longer term rates, the more rate-sensitive U.S. fixed income sectors such as Treasuries, agency, mortgage-backed securities (MBS) and other MBS generally delivered positive returns for the period, although lagging the returns of the fixed income market spread sectors. The Fund maintained lower exposure to these sectors, considering historically low U.S. rates, preferring higher income opportunities in the corporate, global and securitized markets. Within the U.S., the Fund continued to favor agency MBS, given their somewhat higher current yields and considering the Fed’s continued agency MBS purchases through quantitative easing programs, as delinquencies in that sector began to stabilize. Finally, within the Fund’s municipal bond holdings, the Fund realized gains by selling certain longer maturity municipal bonds, while gaining more diversified floating rate exposure to a basket of municipal bond issuers via a derivatives municipal bond index instrument.

What is a currency forward contract?

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

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

8 | Semiannual Report

Performance Summary as of 10/31/12

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Performance Summary (continued)

Performance

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

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

10 | Semiannual Report

Performance Summary (continued)

Endnotes

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


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

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

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

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

4. Distribution rate is based on the sum of the respective class’s dividend distributions over the past 12 months and the maximum offering price (NAV for Classes B, C, R and Advisor) per share on 10/31/12. The reported distribution rate did not include a dividend scheduled for October. The dividend was moved to November due to the New York Stock Exchange’s closure following Hurricane Sandy. Had the October distribution taken place as scheduled, the Fund’s distribution rate would have been higher.

5. The 30-day standardized yield for the 30 days ended 10/31/12 reflects an estimated yield to maturity (assuming all portfolio securities are held to maturity). It should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate (which reflects the Fund’s past dividends paid to shareholders) or the income reported in the Fund’s financial statements.

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

Semiannual Report | 11

Your Fund’s Expenses

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

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

Actual Fund Expenses

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

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

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

Hypothetical Example for Comparison with Other Funds

12 | Semiannual Report

Your Fund’s Expenses (continued)

*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 0.86%; B: 1.25%; C: 1.26%; R: 1.11%; and Advisor: 0.61%), multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period.

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

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

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

Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited)

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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U.	S. Government and Agency Securities 2.0%
U.	S. Treasury Bond,

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

Franklin Strategic Income Fund

At October 31, 2012, the Fund had the following forward exchange contracts outstanding. See Note 1(d).

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Franklin Strategic Series

Statement of Investments, October 31, 2012 (unaudited) (continued)

Franklin Strategic Income Fund

^bIn U.S. dollars unless otherwise indicated. For contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse provisions have been entered into in association with the contracts. ^cBased on Standard and Poor’s (S&P) Rating for single name swaps and internal ratings for index swaps. Internal ratings based on mapping into equivalent ratings from external vendors. ^dThe fund enters contracts to sell protection to create a long credit position. Performance triggers include failure to pay or bankruptcy of the underlying securities for traded index swaps.

See Abbreviations on page 67.

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

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

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

Franklin Strategic Series

Notes to Financial Statements (unaudited)

Franklin Strategic Income Fund

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Strategic Series (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as an open-end investment company, consisting of eight separate funds. The Franklin Strategic Income Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. The Fund offers five classes of shares: Class A, Class B, Class C, Class R, and Adviser Class. Effective March 1, 2005, the Fund no longer offered Class B shares for purchase. As disclosed in the applicable fund prospectus Class B shares convert to Class A shares after eight years of investment, therefore all Class B shares will convert to Class A by March 2013. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees (the Board), the Fund’s administrator, investment manager and other affiliates have formed the Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

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

Debt securities generally trade in the OTC market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates,

Semiannual Report | 53

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

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

anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined.

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

The Fund has procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VLOC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VLOC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

b. Foreign Currency Translation

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

54 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

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

The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments on the Statement of Operations.

c. Securities Purchased on a When-Issued, Delayed Delivery, and TBA Basis

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

d. Derivative Financial Instruments

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

The Fund’s investments in OTC derivatives are subject to the terms of International Swaps and Derivatives Association Master Agreements and other related agreements between the Fund and certain derivative counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, requirements for the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. Should the Fund fail to meet any of these provisions, the derivative counterparty has the right to terminate

Semiannual Report | 55

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

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

the derivative contract and require immediate payment by the Fund for those OTC derivatives with that particular counterparty that are in a net liability position.

At October 31, 2012, the Fund had OTC derivatives in a net liability position of $2,301,019 and the aggregate value of collateral pledged for such contracts was $1,005,000.

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

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

At October 31, 2012, the Fund held $1,669,974 in U.S treasury bonds and notes as collateral for derivatives.

See Note 9 regarding other derivative information.

56 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
e.	Restricted Cash

At October 31, 2012, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian and is reflected in the Statement of Assets and Liabilities.

f. FT Holdings Corporation II (FT Subsidiary)

The Fund invests in certain securities through its investment in FT Subsidiary, a Delaware Corporation and a wholly-owned subsidiary of the Fund. The FT Subsidiary has the ability to invest in securities consistent with the investment objective of the Fund. At October 31, 2012, all FT Subsidiary investments as well as any other assets and liabilities are reflected in the Fund’s Statement of Investments and Statement of Assets and Liabilities. All income and expenses of the FT Subsidiary during the period ended October 31, 2012 have been included in the Fund’s Statement of Operations.

g. Mortgage Dollar Rolls

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

h. Senior Floating Rate Interests

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

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

Semiannual Report | 57

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
i.	Income and Deferred Taxes

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

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

The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of October 31, 2012, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

j. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income is recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.

58 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

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

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

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

k. Accounting Estimates

l. Guarantees and Indemnifications

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

Semiannual Report | 59

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

2. SHARES OF BENEFICIAL INTEREST

At October 31, 2012, there were an unlimited number of shares authorized (without par value).

Transactions in the Fund’s shares were as follows:

60 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

3. TRANSACTIONS WITH AFFILIATES

a. Management Fees

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

b. Administrative Fees

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

c. Distribution Fees

Semiannual Report | 61

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

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

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

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

d. Sales Charges/Underwriting Agreements

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

e. Transfer Agent Fees

For the period ended October 31, 2012, the Fund paid transfer agent fees of $4,454,727, of which $2,215,561 was retained by Investor Services.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended October 31, 2012, there were no credits earned.

62 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

5. INCOME TAXES

At October 31, 2012, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions, paydown losses, and bond discounts and premiums.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the period ended October 31, 2012, aggregated $1,862,729,246 and $1,651,756,506, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

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

8. CREDIT RISK AND DEFAULTED SECURITIES

At October 31, 2012, the Fund had 47.37% of its portfolio invested in high yield, senior secured floating rate notes, or other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

The Fund held a defaulted security and/or other securities for which the income has been deemed uncollectible. At October 31, 2012, the value of this security was $6,790,000, representing 0.09% of the Fund’s net assets. The Fund discontinues accruing income on securities for which income has been deemed uncollectible and provides an estimate for losses on interest receivable. The security has been identified on the accompanying Statement of Investments.

Semiannual Report | 63

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

9. OTHER DERIVATIVE INFORMATION

At October 31, 2012, the Fund has invested in derivative contracts which are reflected on the Statement of Assets and Liabilities as follows:

For the period ended October 31, 2012, the average month end market value of derivatives represented 0.81% of average month end net assets. The average month end number of open derivative contracts for the period was 236.

See Note 1(d) regarding derivative financial instruments.

64 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

10. CREDIT FACILITY

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $1.5 billion (Global Credit Facility) which matures on January 18, 2013. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the period ended October 31, 2012, the Fund did not use the Global Credit Facility.

11. FAIR VALUE MEASUREMENTS

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

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

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

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

Semiannual Report | 65

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

11.	FAIR VALUE MEASUREMENTS (continued)
A	summary of inputs used as of October 31, 2012, in valuing the Fund’s assets and liabilities

carried at fair value, is as follows:

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 investments at the end of the period.

66 | Semiannual Report

Franklin Strategic Series

Notes to Financial Statements (unaudited) (continued)

Franklin Strategic Income Fund

12. NEW ACCOUNTING PRONOUNCEMENTS

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

13. SUBSEQUENT EVENTS

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

Semiannual Report | 67

Franklin Strategic Series

Shareholder Information

Franklin Strategic Income Fund

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

68 | Semiannual Report

Item 2. Code of Ethics.

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

(d) N/A

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

Item 3. Audit Committee Financial Expert.

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

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

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

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

Item 6. Schedule of Investments. N/A

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

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

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

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

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

Item 11. Controls and Procedures.

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

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

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

Item 12. Exhibits.

(a) (1) Code of Ethics

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

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

SIGNATURES

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

FRANKLIN STRATEGIC SERIES

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

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

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

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

Franklin Strategic Series N-CSRSCertified semi-annual shareholder report (management investment company)