Franklin Strategic Series Annual Report - Mutual Funds | ETFs...most people benefit from professional advice and that advice is invaluable as ... total return of its peers in the Lipper

Franklin Strategic Series

APRIL 30, 2011

ANNUAL REPORTAND SHAREHOLDER LETTER

Franklin Flex Cap Growth Fund

Franklin Focused Core Equity Fund

Franklin Growth Opportunities Fund

Franklin Small Cap Growth Fund

Franklin Small-Mid Cap Growth Fund

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Franklin Templeton InvestmentsGain From Our Perspective®

Franklin Templeton’s distinct multi-manager structure combines thespecialized expertise of three world-class investment management groups—Franklin, Templeton and Mutual Series.

Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success.

Franklin. Founded in 1947, Franklin is a recognized leader in fixed income investingand also brings expertise in growth- and value-style U.S. equity investing.

Templeton. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry’s oldest global fund. Today, withoffices in over 25 countries, Templeton offers investors a truly global perspective.

Mutual Series. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among what it believes are undervalued stocks, as well as arbitrage situations and distressed securities.

Because our management groups work independently and adhere to differentinvestment approaches, Franklin, Templeton and Mutual Series funds typicallyhave distinct portfolios. That’s why our funds can be used to build trulydiversified allocation plans covering every major asset class.

At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable,accurate and personal service that has helped us become one of the most trustednames in financial services.

TRUE DIVERSIFICATION

RELIABILITY YOU CAN TRUST

SPECIALIZED EXPERTISE

MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS

Not part of the annual report

Not part of the annual report | 1

Shareholder LetterDear Shareholder:

During the 12 months ended April 30, 2011, we welcomed steady, increasinglyconvincing signs of economic improvement both in the U.S. and abroad.Companies generally reported strong profit growth, and momentum picked up for productivity, manufacturing, foreign trade and consumer spending. As credit conditions improved, banks increased lending to businesses. Thestrength of the U.S. economic recovery, however, remained uncertain in lightof high unemployment, continued housing market losses, and rising budgetdeficits at the federal, state and local levels. To promote the pace of recovery,the Federal Reserve Board kept interest rates at a historically low level during the 12-month period and implemented another monetary stimulus plan.Encouraged by the favorable developments, many investors reentered thestock markets, which posted solid gains for the period under review.

Franklin Strategic Series’ annual report goes into greater detail about prevailingconditions during the period under review. In addition, you will find Fund performance data, financial information and discussions from the portfoliomanagers. Please remember all securities markets fluctuate, as do mutual fundshare prices.

If you would like more frequent updates, franklintempleton.com provides dailyprices, monthly performance figures, portfolio holdings and other information.You can also access your account, buy and sell shares, and find helpful finan-cial planning tools. We hope you will take advantage of these online services.

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE

ContentsAnnual Report

Economic and Market Overview . . . . . . . . . . 3

Franklin Flex Cap Growth Fund . . . . . . . . . . . . . 4

Franklin Focused Core Equity Fund . . . . . . . . . . . . . . . 14

Franklin Growth Opportunities Fund . . . . . . . . 24

Franklin Small Cap Growth Fund . . . . . . . . . . . . . 34

Franklin Small-Mid Cap Growth Fund . . . . . . . . . . . . . 44

Financial Highlights and Statements of Investments . . . 54

Financial Statements . . . . . . . 95

Notes to Financial Statements 104

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . 122

Tax Designation . . . . . . . . . . . 123

Board Members and Officers . . 124

Shareholder Information . . . . 129

Shareholder Letter . . . . . . . 1

In a constantly changing market environment, we adhere to our disciplinedapproach as we manage the Funds, keeping in mind the trust you have placedin us. As always, we recommend investors consult their financial advisors andreview their portfolios to design a long-term strategy and portfolio allocationthat meet their individual needs, goals and risk tolerance. We firmly believemost people benefit from professional advice and that advice is invaluable asinvestors navigate current market conditions.

We thank you for investing with Franklin Templeton, welcome your questionsand comments, and look forward to serving your investment needs in theyears ahead.

Sincerely,

Edward B. JamiesonPresident and Chief Executive Officer – Investment ManagementFranklin Strategic Series

This letter reflects our analysis and opinions as of April 30, 2011. 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.

2 | Not part of the annual report

Annual Report | 3

The U.S. economy expanded despite geopolitical and inflationary pressures fromaround the globe during the 12-month period ended April 30, 2011. Businessactivity increased and consumer spending recovered to pre-recession levels.The U.S. has been a key engine in an ongoing global manufacturing rebound,which accelerated in the first quarter of 2011 and helped spur U.S. economicoutput. Worldwide demand for capital goods aided U.S. manufacturing profitsand increased employment in the industry.

Unemployment and underemployment eased as job creation began to gain sometraction and the U.S. jobless rate declined from 9.7% to 9.0% during the year.1

Consumer spending rose for the tenth consecutive month in April, but risinggasoline and food prices eventually led to a sharp drop in consumer confidence.The banking sector appeared closer to a full recovery although the U.S. stillfaced challenges dealing with massive debt at period-end.

Inflation at the consumer, producer and trade levels rose across much of theworld, but in the U.S. it remained relatively contained. The Federal Open MarketCommittee kept monetary policy unchanged while continuing its second roundof quantitative easing, scheduled to terminate in June.

Investor confidence shifted with each release of encouraging or discouragingeconomic, regulatory and geopolitical news, causing equity market volatility to increase globally. U.S. investors weathered international events that includeda massive oil spill in the Gulf of Mexico, revolutions and ongoing civil unrestacross the Middle East and North Africa, sovereign debt worries and creditdowngrades in Europe, and the multiple crises triggered by Japan’s earthquakeand tsunami. Ultimately, U.S. and global stock indexes delivered strong gainsduring the year under review as equity markets rose amid generally improvingeconomic signs and rising consumer spending.

The foregoing information reflects our analysis and opinions as of April 30, 2011. 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.

Annual Report

Economic and Market Overview

4 | Annual Report

This annual report for Franklin Flex Cap Growth Fund covers the fiscal yearended April 30, 2011.

Performance Overview

For the 12 months under review, Franklin Flex Cap Growth Fund – Class Adelivered a +20.37% cumulative total return. Compared with its narrowbenchmarks, the Fund underperformed the +21.62% total return of theRussell 3000® Growth Index, which measures performance of Russell 3000Index companies with higher price-to-book ratios and higher forecastedgrowth values, and performed comparably to the +20.87% total return ofRussell 1000® Growth Index, which tracks the performance of Russell 1000Index companies with higher price-to-book ratios and higher forecastedgrowth values.1 The Fund outperformed the +17.22% total return of its broadbenchmark, the Standard & Poor’s 500 Index (S&P 500), which tracks thebroad U.S. stock market.1 In addition, the Fund underperformed the +21.94%total return of its peers in the Lipper Multi-Cap Growth Funds ClassificationAverage, which consists of funds chosen by Lipper that invest in companies ofany size with earnings expected to grow significantly faster than the earningsof stocks in major unmanaged stock indexes.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 7.


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.

1. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstarand/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete ortimely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use ofthis information. STANDARD & POOR’S®, S&P® and S&P 500® are registered trademarks of Standard & Poor’sFinancial Services LLC. Standard & Poor’s does not sponsor, endorse, sell or promote any S&P index-based product.

2. Source: Lipper Inc. For the 12-month period ended 4/30/11, this category consisted of 463 funds. Lipper calculationsdo not include sales charges or subsidization by a Fund’s manager. The Fund’s performance relative to the average mayhave differed if these or other factors had been considered.

The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, and an index isnot 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’sStatement of Investments (SOI). The SOI begins on page 59.

Performance data represent

past performance, which does

not guarantee future results.

Investment return and principal

value will fluctuate, and you may

have a gain or loss when you sell

your shares. Current performance

may differ from figures shown.

Please visit franklintempleton.comor call (800) 342-5236 for most

recent month-end performance.

Annual Report | 5

Investment Strategy

We use fundamental, bottom-up research to seek companies meeting our criteriaof growth potential, quality and valuation. In seeking sustainable growth char-acteristics, we look for companies we believe can produce sustainable earningsand 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 competitivepositions in attractive markets. We also believe important attributes of qualityare experienced and talented management teams as well as financial strengthreflected in the capital structure, gross and operating margins, free cash flowgeneration and returns on capital employed. Our valuation analysis includes arange of potential outcomes based on an assessment of multiple scenarios. Inassessing value, we consider whether security prices fully reflect the balance ofthe sustainable growth opportunities relative to business and financial risks.

Manager’s Discussion

During the 12 months under review, all sectors represented in the Fund’s port-folio delivered positive returns as the broad market rallied. Stock selection inthe information technology sector, which benefited from increased businessand consumer spending, supported Fund performance relative to the Russell3000 Growth Index.3 Major contributors from the sector included Sybase,4 anenterprise and mobile phone software company acquired by software makerSAP; Citrix Systems,4 a leading provider of desktop virtualization solutions;NetApp, a storage and data management company; and EMC, a data storagedevices and software manufacturer. Stock selection in the industrials sector alsoenhanced relative performance as waste management company Stericycle anddiesel and natural gas engine manufacturer Cummins delivered stellar returns.5

Additionally, stock selection in the energy sector, which benefited from crudeoil and natural gas price increases, also helped relative performance, particu-larly our holdings in Concho Resources, an acquirer, explorer and developerof oil and natural gas properties in southeastern New Mexico and west Texas;and Cameron International, a manufacturer of oil and gas pressure controlequipment. Industrial chemical producer Celanese, in the materials sector, alsocontributed meaningfully to relative performance. Although holdings in the con-sumer discretionary sector generally hurt relative performance, overweighting

3. The information technology sector comprises semiconductors and semiconductor equipment, software and services,and technology hardware and equipment in the SOI.

4. No longer held by period-end.

5. The industrials sector comprises capital goods, commercial and professional services, and transportation in the SOI.

Portfolio BreakdownFranklin Flex Cap Growth FundBased on Total Net Assets as of 4/30/11

Software & Services*

Technology Hardware & Equipment*

Capital Goods

Energy

Health Care Equipment & Services

Semiconductors & Semiconductor Equipment*

Materials

Diversified Financials

Transportation

Pharmaceuticals, Biotechnology & Life Sciences

Media

Automobiles & Components

Consumer Durables & Apparel

Food, Beverage & Tobacco

3.6%

3.1%

2.9%

2.8%

2.6%

Other

Short-Term Investments & Other Net Assets

8.1%

6.0%

13.7%

16.5%

9.9%

6.9%

6.3%

5.2%

4.6%

4.0%

3.8%

*Significant exposure to a single sector may result in greater volatility for the Fund than a more broadlydiversified portfolio. There are specific risks to invest-ing in technology company stocks, which can be subjectto abrupt or erratic price movements and have beenvolatile, especially over the short term.

6 | Annual Report

of online travel company Priceline.com, which delivered triple-digit returnsduring the reporting period, boosted the Fund’s performance.6

In contrast, the Fund had some detractors from relative performance. Stockselection in the consumer discretionary sector hindered returns, as for-profiteducation company Apollo Group4 and hotel operator and franchisorMarriott International fell in value. Overweighting and stock selection in thehealth care sector7 hurt relative performance, and key detractors includedbiotechnology company Celgene, medical equipment manufacturer IntuitiveSurgical, pet health care provider VCA Antech4 and pharmaceutical companyMerck & Co. Among our consumer staples sector8 holdings, major detractorsfrom relative performance included household products manufacturer Procter& Gamble and integrated pharmacy health care provider CVS Caremark.4

Although our holdings in the information technology sector generally helpedthe Fund’s absolute and relative performance, there were some notable detrac-tors, including light-emitting diodes (LED) products manufacturer Cree,4

integrated circuit maker Silicon Laboratories and global payments technologycompany Visa.

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

Conrad B. Herrmann, CFAPortfolio ManagerFranklin Flex Cap Growth Fund

CFA® is a trademark owned by CFA Institute.

The foregoing information reflects our analysis, opinions and portfolio holdings as of April 30, 2011, the end of thereporting period. The way we implement our main investment strategies and the resulting portfolio holdings maychange depending on factors such as market and economic conditions. These opinions may not be relied upon asinvestment advice or an offer for a particular security. The information is not a complete analysis of every aspectof 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. Althoughhistorical performance is no guarantee of future results, these insights may help you understand our investmentmanagement philosophy.

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

7. The health care sector comprises health care equipment and services; and pharmaceuticals, biotechnology and life sciences in the SOI.

8. The consumer staples sector comprises food and staples retailing; food, beverage and tobacco; and household andpersonal products in the SOI.

Top 10 HoldingsFranklin Flex Cap Growth Fund4/30/11

Company % of TotalSector/Industry Net Assets

Apple Inc. 4.3%Technology Hardware & Equipment

EMC Corp. 2.1%Technology Hardware & Equipment

Oracle Corp. 1.8%Software & Services

Johnson Controls Inc. 1.8%Automobiles & Components

Praxair Inc. 1.8%Materials

Citrix Systems 1.8%Software & Services

Cummins Inc. 1.7%Capital Goods

Celanese Corp. 1.7%Materials

Aflac Inc. 1.6%Insurance

Microchip Technology Inc. 1.6%Semiconductors & Semiconductor Equipment

Annual Report | 7

Performance Summary as of 4/30/11Franklin Flex Cap Growth Fund

Price Information

Class A (Symbol: FKCGX) Change 4/30/11 4/30/10

Net Asset Value (NAV) +$8.87 $52.42 $43.55

Class B (Symbol: FKCBX) Change 4/30/11 4/30/10


Class C (Symbol: FCIIX) Change 4/30/11 4/30/10


Class R (Symbol: FRCGX) Change 4/30/11 4/30/10


Advisor Class (Symbol: FKCAX) Change 4/30/11 4/30/10


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

8 | Annual Report

Performance Summary (continued)

Performance

Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment includemaximum 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.

Class A 1-Year 5-Year 10-Year

Cumulative Total Return1 +20.37% +25.61% +56.60%

Average Annual Total Return2 +13.44% +3.43% +3.97%

Value of $10,000 Investment3 $11,344 $11,839 $14,758

Avg. Ann. Total Return (3/31/11)4 +11.12% +2.71% +4.76%

Total Annual Operating Expenses5 1.03%

Class B 1-Year 5-Year 10-Year






Class C 1-Year 5-Year 10-Year






Class R 1-Year 5-Year Inception(1/1/02)






Advisor Class6 1-Year 5-Year 10-Year






Performance data represent past performance, which does not guarantee future results. Investment return and principalvalue 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.


Annual Report | 9

Class A (5/1/01–4/30/11)

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/035/01

$12,319$12,649$13,211$14,758


Russell 1000 Growth Index7


S&P 5007

Total Return Index Comparison for a Hypothetical $10,000 Investment

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

Class B (5/1/01–4/30/11)

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/035/01

$12,319$12,649$13,211$14,750




S&P 5007

Average Annual Total Return

Class A 4/30/11

1-Year +13.44%

5-Year +3.43%

10-Year +3.97%


Class B 4/30/11

1-Year +15.45%

5-Year +3.54%

10-Year +3.96%


10 | Annual Report

Class C (5/1/01–4/30/11)

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/035/01

$12,319$12,649$13,211$14,527




S&P 5007

Class R (1/1/02–4/30/11)

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/031/02

$13,794$14,090$14,242$16,368




S&P 5007


Class C 4/30/11

1-Year +18.46%

5-Year +3.89%

10-Year +3.80%


Class R 4/30/11

1-Year +20.07%

5-Year +4.41%

Since Inception (1/1/02) +5.43%


Endnotes

Investors should be comfortable with fluctuations in the value of their investments, as small and midsizedcompany stocks can be volatile, especially over the short term. Smaller, midsized and relatively new orunseasoned 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 investmentsin technology securities, which can be highly volatile and involve special risks. The manager applies varioustechniques and analyses in making investment decisions for the Fund, but there can be no guarantee that thesedecisions will produce the desired results. The Fund’s prospectus also includes a description of the maininvestment risks.

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

Class C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returnswould 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 havehigher 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 periodsindicated.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 figuresshown.6. Effective 8/2/04, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to8/2/04, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’smaximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after8/1/04, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since8/2/04 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were+62.56% and +7.47%.7. Source: © 2011 Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed tomeasure total U.S. equity market performance. The Russell 3000 Growth Index is market capitalization weightedand measures performance of those Russell 3000 Index companies with higher price-to-book ratios and higher fore-casted growth values. The Russell 1000 Growth Index is market capitalization weighted and measures performanceof those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values.

Advisor Class (5/1/01–4/30/11)6

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/035/01

$12,319$12,649$13,211

$15,922




S&P 5007


Advisor Class6 4/30/11

1-Year +20.66%

5-Year +4.93%

10-Year +4.76%

Annual Report | 11

12 | Annual Report

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 otherFund 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 understandthese costs and compare them with those of other mutual funds. The table assumes a $1,000investment 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 andexpenses. The “Ending Account Value” is derived from the Fund’s actual return, which includesthe 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 compareongoing 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 andan assumed 5% annual rate of return before expenses, which does not represent the Fund’s actualreturn. The figure under the heading “Expenses Paid During Period” shows the hypotheticalexpenses your account would have incurred under this scenario. You can compare this figure withthe 5% hypothetical examples that appear in shareholder reports of other funds.

Your Fund’s ExpensesFranklin Flex Cap Growth Fund

Your Fund’s Expenses (continued)

Annual Report | 13

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflectany transaction costs, such as sales charges. Therefore, the second line for each class is useful incomparing 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 referto the Fund prospectus for additional information on operating expenses.

Beginning Account Ending Account Expenses Paid DuringClass A Value 11/1/10 Value 4/30/11 Period* 11/1/10–4/30/11

Actual $1,000 $1,167.70 $5.16

Hypothetical (5% return before expenses) $1,000 $1,020.03 $4.81

Class B

Actual $1,000 $1,163.40 $9.12


Class C

Actual $1,000 $1,163.50 $9.17


Class R

Actual $1,000 $1,166.60 $6.50


Advisor Class

Actual $1,000 $1,169.30 $3.82


*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 0.96%; B: 1.70%; C: 1.71%; R: 1.21%; andAdvisor: 0.71%), multiplied by the average account value over the period, multiplied by 181/365 to reflect the one-half year period.

14 | Annual Report

This annual report for Franklin Focused Core Equity Fund covers the fiscalyear ended April 30, 2011.


For the 12 months under review, Franklin Focused Core Equity Fund – Class Aposted a +14.92% cumulative total return. The Fund underperformed the+17.22% total return of its benchmark, the S&P 500, which tracks the broadU.S. stock market.2 You can find more of the Fund’s performance data in thePerformance Summary beginning on page 17.

Investment Strategy

We are research-driven, bottom-up, fundamental investors. Our investmentapproach is opportunistic and contrarian, and we seek to identify mispricedcompanies using fundamental analysis. We seek to take advantage of price dis-locations that result from the market’s short-term focus. Our analysis includesthe investigation of the valuation for each investment based upon the view thatthe 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 anduse both qualitative and quantitative analysis to evaluate companies. Our


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

normally invests primarily to predominantly in equity securities of large capitalization companies, which

are similar in size to those in the Standard & Poor’s 500 Index (S&P 500).1











1. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total U.S. equity marketperformance.

2. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstarand/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete ortimely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use ofthis 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.


Annual Report | 15

2. Sold by period-end.

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 besttrade-off between growth opportunity, business and financial risk, and valuation.


During the fiscal year under review, the Fund’s investments in the materials,information technology, health care, financials, energy and industrials sectorscontributed significantly to absolute returns. Within the materials sector, chemi-cal companies Celanese, Monsanto2 and Westlake Chemical2 provided stronggains. Most of the Fund’s information technology holdings supported absolutereturns, led by integrated circuits manufacturer Maxim Integrated Products,personal computer and mobile devices leader Apple, and global paymentsolutions company MasterCard. Within the health care sector, diversifiedhealth care benefits company Aetna and pharmaceutical companies RocheHolding and Merck & Co. aided the Fund’s performance. Key contributorsfrom the financials sector included Legg Mason, JPMorgan Chase and a newposition in BlackRock. Marathon Oil in the energy sector and European dis-count airline Ryanair Holdings in the industrials sector also boosted the Fund’sabsolute performance.

In contrast, the consumer discretionary sector detracted from absolute returns,as shares of for-profit education company Apollo Group and multiline retailcompany Target lost value; however, household durables company HarmanInternational Industries2 performed well and supported Fund performance.Although most sectors were positive for the Fund, certain individual holdingsdetracted from results. Among these were independent oil refiner PetroplusHoldings, international financial services company Northern Trust and mobilecommunications company Research in Motion, a new holding this fiscal year.

Portfolio BreakdownFranklin Focused Core Equity FundBased on Total Net Assets as of 4/30/11

Health Care

Information Technology

Financials

Consumer Discretionary

17.7%

18.0%

16.2%

11.9%

8.2%Industrials

Materials

Energy

Consumer Staples

Telecommunication Services


7.0%

6.3%

4.6%

7.1%

3.0%

16 | Annual Report

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

Steven Kornfeld, CFAPortfolio ManagerFranklin Focused Core Equity Fund


Top 10 Equity HoldingsFranklin Focused Core Equity Fund4/30/11


Roche Holding AG (Switzerland) 6.8%Health Care

Corning Inc. 5.0%Information Technology

Merck & Co. Inc. 4.9%Health Care

JPMorgan Chase & Co. 4.7%Financials

CVS Caremark Corp. 4.6%Consumer Staples

BlackRock Inc. 4.6%Financials

Apollo Group Inc. 4.1%Consumer Discretionary


Marathon Oil Corp 3.9%Energy

Target Corp. 3.8%Consumer Discretionary

Annual Report | 17

Performance Summary as of 4/30/11Franklin Focused Core Equity Fund


Price and Distribution Information

Class A (Symbol: FCEQX) Change 4/30/11 4/30/10


Distributions (5/1/10–4/30/11)

Dividend Income $0.0253

Class C (Symbol: n/a) Change 4/30/11 4/30/10


Class R (Symbol: n/a) Change 4/30/11 4/30/10




Advisor Class (Symbol: n/a) Change 4/30/11 4/30/10




18 | Annual Report


Performance1

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

Class A 1-Year 3-Year Inception (12/13/07)




Avg. Ann. Total Return (3/31/11)5 +5.84% +6.24% -0.79%

Total Annual Operating Expenses6

Without Waiver 2.07%

With Waiver 1.11%

Class C 1-Year 3-Year Inception (12/13/07)







With Waiver 1.91%

Class R 1-Year 3-Year Inception (12/13/07)







With Waiver 1.41%

Advisor Class 1-Year 3-Year Inception (12/13/07)







With Waiver 0.91%


The investment manager and administrator have contractually agreed to waive or assume certain expenses so that commonexpenses (excluding the Rule 12b-1 fees and acquired fund fees and expenses) for each class of the Fund do not exceed0.89% (other than certain nonroutine expenses) until 8/31/11.


Annual Report | 19

Class A (12/13/07–4/30/11)

4/114/104/094/0812/07$0

$5,000

$10,000

$15,000

$9,958$10,012

Franklin Focused Core Equity Fund S&P 5007

Total Return Index Comparison for a Hypothetical $10,000 Investment1

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

Class C (12/13/07–4/30/11)

4/114/104/094/0812/07$0

$5,000

$10,000

$15,000

$9,958$10,349



Class A 4/30/11

1-Year +8.33%

3-Year +4.87%



Class C 4/30/11

1-Year +12.93%

3-Year +6.08%



20 | Annual Report

Class R (12/13/07–4/30/11)

4/114/104/094/0812/07$0

$5,000

$10,000

$15,000

$9,958$10,515


Advisor Class (12/13/07–4/30/11)

4/114/104/094/0812/07$0

$5,000

$10,000

$15,000

$9,958$10,703



Class R 4/30/11

1-Year +14.51%

3-Year +6.60%



Advisor Class 4/30/11

1-Year +15.08%

3-Year +7.15%



Annual Report | 21

Endnotes

While stocks have historically outperformed other asset classes over the long term, they tend to fluctuate more dramatically over the shortterm. Special risks are involved with significant exposure to a particular sector, including increased susceptibility related to economic, busi-ness or other developments affecting that sector, which may result in increased volatility. The Fund also has the potential to invest in foreigncompany stocks, which involve exposure to currency volatility and political uncertainty. The manager applies various techniques and analysesin making investment decisions for the Fund, but there can be no guarantee that these decisions will produce the desired results. The Fund’sprospectus also includes a description of the main investment risks.

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

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


1. If the manager and administrator had not waived fees, the Fund’s total returns would have been lower.

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

3. Average annual total return represents the average annual change in value of an investment over the periods indicated.

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

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

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

7. Source: © 2011 Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total U.S. equity marketperformance.

22 | Annual Report













Your Fund’s ExpensesFranklin Focused Core Equity Fund


Annual Report | 23



Actual $1,000 $1,155.60 $ 5.88

Hypothetical (5% return before expenses) $1,000 $1,019.34 $ 5.51

Class C

Actual $1,000 $1,151.00 $10.08


Class R

Actual $1,000 $1,154.10 $ 7.42


Advisor Class

Actual $1,000 $1,155.90 $ 4.76


*Expenses are calculated using the most recent six-month expense ratio, net of expense waivers, annualized for each class (A: 1.10%; C: 1.89%; R: 1.39%; and Advisor: 0.89%), multiplied by the average account value over the period, multiplied by 181/365 to reflect the one-half year period.

24 | Annual Report

We are pleased to bring you Franklin Growth Opportunities Fund’s annualreport for the fiscal year ended April 30, 2011.


For the 12 months under review, Franklin Growth Opportunities Fund – Class A delivered a +23.94% cumulative total return. The Fund outperformedthe +21.62% total return of its narrow benchmark, the Russell 3000 GrowthIndex, which measures performance of Russell 3000 Index companies withhigher price-to-book ratios and higher forecasted growth values.1 The Fund alsooutperformed the +17.22% total return of its broad benchmark, the Standard& Poor’s 500 Index (S&P 500), which tracks the broad U.S. stock market.1

You can find the Fund’s long-term performance data in the PerformanceSummary beginning on page 27.

Investment Strategy

We use fundamental, bottom-up research to seek companies meeting our criteriaof growth potential, quality and valuation. In seeking sustainable growth char-acteristics, we look for companies we believe can produce sustainable earningsand cash flow growth, evaluating the long-term market opportunity and com-petitive structure of an industry to target leaders and emerging leaders. Wedefine quality companies as those with strong and improving competitive posi-tions in attractive markets. We also believe important attributes of quality are


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

capital appreciation by normally investing substantially in equity securities of companies demonstrating

accelerating growth, increasing profitability, or above-average growth or growth potential, when com-

pared with the overall economy.

1. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstarand/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete ortimely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use ofthis information. The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index,and an index is not representative of the Fund’s portfolio.












Annual Report | 25

experienced and talented management teams as well as financial strengthreflected in the capital structure, gross and operating margins, free cash flowgeneration and returns on capital employed. Our valuation analysis includes arange of potential outcomes based on an assessment of multiple scenarios. Inassessing value, we consider whether security prices fully reflect the balance ofthe sustainable growth opportunities relative to business and financial risks.


Most sectors the Fund invested in rose in value and contributed to absoluteperformance during the 12 months under review as the broad market rallied.Information technology (IT), energy and industrials sector holdings notablybenefited the Fund. The Fund’s IT sector holdings produced stellar gains forthe period, driven largely by an improving global economic recovery and itscoinciding wave of pent-up, post-recession demand for technology, at both the consumer and business levels. Virtualization technology developer CitrixSystems and sales and customer service software maker Salesforce.com wereamong the leading software industry contributors. Shares of computer hard-ware and software giant Apple in the computers and peripherals industryadvanced due to the roll-out of its second generation iPad tablet computer and brisk sales of its iPhone smartphone. In the semiconductors and semi-conductor equipment industry, the stock price of processor designer ARMHoldings benefited from increased adoption of smartphones and tablet per-sonal computers using the company’s fast, low-cost and power-efficient chips.The Fund’s energy sector holdings, including oil and natural gas companiesConcho Resources and Anadarko Petroleum and oil and gas equipment andservices provider FMC Technologies, benefited from a surge in oil pricessparked by worries about global supply. Among the Fund’s industrials sectorholdings, diesel and natural gas engine manufacturer Cummins, shipping spacereseller Expeditors International of Washington, and power and automationtechnology developer ABB were notable contributors to Fund results.

In contrast, the Fund’s sole detractor from a sector perspective was financials.The Fund’s investment in Bank of America was particularly detrimental. Thediversified financial services company faced a number of investigations andlawsuits related to its mortgage business during the reporting period. Someother individual securities also detracted from performance. In the health caresector, robotically aided surgical systems developer Intuitive Surgical and bio-technology firm Celgene weighed on results. We sold Intuitive Surgical during

Portfolio BreakdownFranklin Growth Opportunities FundBased on Total Investments as of 4/30/11

Information Technology*

Industrials

Energy


Health Care

Financials

Materials


Consumer Staples

Short-Term Investments

13.4%

32.6%

12.7%

12.0%

9.7%

5.4%

4.9%

3.1%

3.0%

3.2%

*Significant exposure to a single sector may result in greater volatility for the Fund than a more broadlydiversified portfolio. There are specific risks to invest-ing in technology company stocks, which can besubject to abrupt or erratic price movements and havebeen volatile, especially over the short term.

26 | Annual Report

the period. Among consumer discretionary holdings, nontraditional universitysystem Strayer Education and gaming machine manufacturer WMS Industriesdeclined in value as they felt the effects of cautious consumer spending.Although the IT sector overall aided Fund performance, several holdings lostvalue and negatively affected results, including Internet communicationsprovider Cisco Systems, global payments technology company Visa, IT servicecompany Alliance Data Systems and light-emitting diodes (LED) productsmanufacturer Cree. We eliminated these IT and consumer discretionary hold-ings by period-end.

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

Grant BowersPortfolio ManagerFranklin Growth Opportunities Fund


Top 10 HoldingsFranklin Growth Opportunities Fund4/30/11


Apple Inc. 4.1%Information Technology

BlackRock Inc. 3.0%Financials

MasterCard Inc. 2.8%Information Technology

Citrix Systems Inc. 2.7%Information Technology

QUALCOMM Inc. 2.4%Information Technology


SBA Communications Corp. 2.3%Telecommunication Services

Precision Castparts Corp. 1.9%Industrials

Rockwell Automation Inc. 1.8%Industrials

Trimble Navigation Ltd. 1.8%Information Technology

Annual Report | 27

Price Information

Class A (Symbol: FGRAX) Change 4/30/11 4/30/10


Class B (Symbol: FKABX) Change 4/30/11 4/30/10


Class C (Symbol: FKACX) Change 4/30/11 4/30/10


Class R (Symbol: FKARX) Change 4/30/11 4/30/10


Advisor Class (Symbol: FRAAX) Change 4/30/11 4/30/10



Performance Summary as of 4/30/11Franklin Growth Opportunities Fund


28 | Annual Report

Performance


























Advisor Class 1-Year 5-Year 10-Year








Annual Report | 29


Class A 4/30/11

1-Year +16.79%

5-Year +4.57%

10-Year +4.11%


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


Class B 4/30/11

1-Year +19.07%

5-Year +4.75%

10-Year +4.15%

Class A (5/1/01–4/30/11)

$0

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/035/01

$12,649$13,211$14,960


Russell 3000Growth Index6

S&P 5006

Class B (5/1/01–4/30/11)

$0

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/035/01

$12,649$13,211$15,014



S&P 5006


30 | Annual Report


Class C (5/1/01–4/30/11)

$0

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/035/01

$12,649$13,211$14,795



S&P 5006

Class R (1/1/02–4/30/11)

4/114/094/074/054/031/02$0

$5,000

$10,000

$15,000

$20,000

$14,090$14,242

$17,316



S&P 5006


Class C 4/30/11

1-Year +22.08%

5-Year +5.07%

10-Year +3.99%


Class R 4/30/11

1-Year +23.69%

5-Year +5.61%


Performance Summary (continued)Performance Summary (continued)Performance Summary (continued)

Endnotes

The Fund may be more volatile than a more conservative equity fund and may be best suited for long-terminvestors. 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 companystocks historically have exhibited greater price volatility than larger company stocks, particularly over theshort term. The Fund’s portfolio includes technology stocks, a sector which has been one of the most volatileand involves special risks. The manager applies various techniques and analyses in making investment deci-sions for the Fund, but there can be no guarantee that these decisions will produce the desired results. TheFund’s prospectus also includes a description of the main investment risks.



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.



2. Average annual total return represents the average annual change in value of an investment over the periodsindicated.



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

6. Source: © 2011 Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed tomeasure total U.S. equity market performance. The Russell 3000 Growth Index is market capitalization weightedand measures performance of those Russell 3000 Index companies with higher price-to-book ratios and higherforecasted growth values.



1-Year +24.31%

5-Year +6.15%

10-Year +5.04%

Advisor Class (5/1/01–4/30/11)

$0

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/035/01

$12,649$13,211

$16,344



S&P 5006

Annual Report | 31

Your Fund’s ExpensesFranklin

32 | Annual Report













Your Fund’s ExpensesFranklin Growth Opportunities Fund


Annual Report | 33




Actual $1,000 $1,190.80 $ 6.84


Class B

Actual $1,000 $1,186.50 $10.52


Class C

Actual $1,000 $1,186.40 $10.63


Class R

Actual $1,000 $1,189.30 $ 7.93


Advisor Class

Actual $1,000 $1,191.90 $ 5.22



34 | Annual Report

We are pleased to bring you Franklin Small Cap Growth Fund’s annual reportfor the fiscal year ended April 30, 2011.


For the 12 months under review, Franklin Small Cap Growth Fund – Class Adelivered a +29.94% cumulative total return. The Fund performed compara-bly to the +30.29% total return of its narrow benchmark, the Russell 2000Growth Index, which measures performance of small companies with higherprice-to-book ratios and higher forecasted growth values.2 The Fund out-performed the +17.22% total return of its broad benchmark, the Standard &Poor’s 500 Index (S&P 500), which tracks the broad U.S. stock market.2 Youcan find the Fund’s long-term performance data in the Performance Summarybeginning on page 37.

Investment Strategy

We use fundamental, bottom-up research to seek companies meeting our criteriaof growth potential, quality and valuation. In seeking sustainable growth char-acteristics, we look for companies we believe can produce sustainable earningsand cash flow growth, evaluating the long-term market opportunity and com-petitive structure of an industry to target leaders and emerging leaders. We definequality companies as those with strong and improving competitive positions in


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

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













Annual Report | 35

attractive markets. We also believe important attributes of quality are experi-enced and talented management teams as well as financial strength reflected in the capital structure, gross and operating margins, free cash flow generationand returns on capital employed. Our valuation analysis includes a range ofpotential outcomes based on an assessment of multiple scenarios. In assessingvalue, we consider whether security prices fully reflect the balance of the sus-tainable growth opportunities relative to business and financial risks.


During the year under review, stock selection in the consumer discretionary,health care and consumer staples sectors contributed to Fund performance relative to the Russell 2000 Growth Index. Consumer discretionary holdingUnder Armour, an athletic undergarment and apparel company, was especiallybeneficial. In health care, American Medical Systems Holdings, a company thattreats numerous pelvic disorders, performed particularly well, and our rela-tively large position enhanced relative results. In the consumer staples sector,Hain Celestial Group, an organic food and personal care products company,supported the Fund’s performance. In the information technology (IT) sector,several stocks produced stellar returns, including data warehouse appliances pro-vider Netezza, network performance analysis systems maker Ixia, e-commercesoftware and related IT services company Art Technology Group, and finan-cial resources management software company Bottomline Technologies. Wesold Netezza and Art Technology Group by period-end.

In contrast, stock selection in the financials, industrials and materials sectorsweighed on relative Fund performance. NetSpend Holdings, a leading providerof prepaid debit cards in the financials sector, and airline company AllegiantTravel in the industrials sector were major detractors from Fund performance.In the materials sector, STR Holdings, a manufacturer of films for solar panels,also hurt relative results. Our underweighting in the materials sector hamperedperformance during a period of rapidly rising commodity prices. In other sec-tors, several individual holdings that are not part of the index also hurt relativeresults. These included integrated circuit maker Silicon Laboratories, Internetcatalog firm Gaiam, health care provider Community Health Systems and lead-ing pet health care services provider VCA Antech.

Portfolio BreakdownFranklin Small Cap Growth FundBased on Total Net Assets as of 4/30/11

Information Technology*

Health Care


Industrials

Financials

Energy

Consumer Staples


Materials


3.4%

28.3%

17.4%

13.6%

16.5%

8.3%

6.3%

4.1%

1.1%

1.0%

*Significant exposure to a single sector may result in greater volatility for the Fund than a more broadlydiversified portfolio. There are specific risks to invest-ing in technology company stocks, which can besubject to abrupt or erratic price movements and havebeen volatile, especially over the short term.

36 | Annual Report

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

Michael P. McCarthy, CFAPortfolio ManagerFranklin Small Cap Growth Fund


Top 10 HoldingsFranklin Small Cap Growth Fund4/30/11


Bottomline Technologies Inc. 2.4%Information Technology

FARO Technologies Inc. 1.9%Information Technology

American Medical Systems Holdings Inc. 1.7%Health Care

Coinstar Inc. 1.7%Consumer Discretionary

DexCom Inc. 1.6%Health Care

Netlogic Microsystems Inc. 1.5%Information Technology

Superior Energy Services Inc. 1.5%Energy

Mobile Mini Inc. 1.5%Industrials

National Instruments Corp. 1.5%Information Technology

TreeHouse Foods Inc. 1.5%Consumer Staples

Annual Report | 37

Price Information

Class A (Symbol: FSGRX) Change 4/30/11 4/30/10


Class B (Symbol: FBSGX) Change 4/30/11 4/30/10


Class C (Symbol: FCSGX) Change 4/30/11 4/30/10


Class R (Symbol: FSSRX) Change 4/30/11 4/30/10


Advisor Class (Symbol: FSSAX) Change 4/30/11 4/30/10



Performance Summary as of 4/30/11Franklin Small Cap Growth Fund

38 | Annual Report


Performance


































Annual Report | 39

Class A (5/1/01–4/30/11)

4/114/094/074/054/035/01

$5,000

$10,000

$15,000

$20,000



S&P 5006

$13,211

$17,231$16,420



Class B (5/1/01–4/30/11)

4/114/094/074/054/035/01

$5,000

$10,000

$15,000

$20,000



S&P 5006

$13,211

$17,231$16,453


Class A 4/30/11

1-Year +22.48%

5-Year +3.94%

10-Year +5.08%


Class B 4/30/11

1-Year +25.13%

5-Year +4.12%

10-Year +5.11%


40 | Annual Report


Class C (5/1/01–4/30/11)

4/114/094/074/054/035/01

$5,000

$10,000

$15,000

$20,000



S&P 5006

$13,211

$17,231$16,207

Class R (1/1/02–4/30/10)

4/114/094/074/054/031/02$5,000

$10,000

$15,000

$20,000

$14,242

$18,067$17,722



S&P 5006


Class C 4/30/11

1-Year +27.96%

5-Year +4.42%

10-Year +4.95%


Class R 4/30/11

1-Year +29.68%

5-Year +4.95%


Performance Summary (continued)Performance Summary (continued)Performance Summary (continued)

Endnotes

Smaller and newer companies can be particularly sensitive to changing economic conditions. Their growthprospects are less certain than those of larger, more established companies, and they can be volatile. TheFund 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 sus-ceptibility related to economic, business, or other developments affecting that sector. The Fund includesinvestments in the technology sector, which has been highly volatile and involves special risks. The managerapplies various techniques and analyses in making investment decisions for the Fund, but there can be noguarantee that these decisions will produce the desired results. The Fund’s prospectus also includes adescription of the main investment risks.









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 figuresshown.

6. Source: © 2011 Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed tomeasure total U.S. equity market performance. The Russell 2000 Growth Index is market capitalization weightedand measures performance of those Russell 2000 Index companies with higher price-to-book ratios and higherforecasted growth values.


4/114/094/074/054/035/01

$5,000

$10,000

$15,000

$20,000



S&P 5006

$13,211

$17,231$17,926



1-Year +30.41%

5-Year +5.49%

10-Year +6.01%

Annual Report | 41

42 | Annual Report













Your Fund’s ExpensesFranklin Small Cap Growth Fund


Annual Report | 43



Actual $1,000 $1,240.00 $ 7.39


Class B

Actual $1,000 $1,235.80 $11.20


Class C

Actual $1,000 $1,234.30 $11.25


Class R

Actual $1,000 $1,238.50 $ 8.49


Advisor Class

Actual $1,000 $1,242.00 $ 5.73



44 | Annual Report

We are pleased to bring you Franklin Small-Mid Cap Growth Fund’s annualreport for the fiscal year ended April 30, 2011.


For the 12 months under review, Franklin Small-Mid Cap Growth Fund –Class A delivered a +28.43% cumulative total return. The Fund performedcomparably to the +27.40% total return of its narrow benchmark, the RussellMidcap Growth Index, which measures performance of companies in theRussell Midcap Index with higher price-to-book ratios and higher forecastedgrowth values.2 The Fund outperformed the +17.22% total return of its broadbenchmark, the Standard & Poor’s 500 Index (S&P 500), which tracks thebroad U.S. stock market.2 You can find the Fund’s long-term performancedata in the Performance Summary beginning on page 47.

Investment Strategy

We use fundamental, bottom-up research to seek companies meeting our criteriaof growth potential, quality and valuation. In seeking sustainable growth char-acteristics, we look for companies we believe can produce sustainable earnings

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


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













Annual Report | 45

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 qualityare experienced and talented management teams as well as financial strengthreflected in the capital structure, gross and operating margins, free cash flowgeneration and returns on capital employed. Our valuation analysis includes arange of potential outcomes based on an assessment of multiple scenarios. Inassessing value, we consider whether security prices fully reflect the balance ofthe sustainable growth opportunities relative to business and financial risks.


During the fiscal year under review, as the broad market rallied, all sectorsrepresented in the Fund’s portfolio contributed to absolute returns. The energy,information technology (IT) and consumer discretionary sectors contributedsignificantly to the Fund’s performance relative to the Russell Midcap GrowthIndex primarily due to stock selection. Stellar performers within the energysector included Concho Resources3 and SM Energy, which acquire, exploreand develop oil and natural gas. These companies benefited from rising oilprices during the year. Top IT contributors included NXP Semiconductors,networking technology developer Atheros Communications3 and softwarecompanies Sybase3 (acquired by SAP) and Citrix Systems. Key contributors in theconsumer discretionary sector included sports apparel company Under Armour,4

specialty retail store Gymboree3, 4 (acquired by Bain Capital), restaurant chainChipotle Mexican Grill, and auto component manufacturer BorgWarner.Industrial chemicals producer Celanese, a materials sector holding, also aidedthe Fund’s relative performance. Although the industrials sector overall hurtrelative returns, our positions in mining equipment manufacturer Joy Global,diesel and natural gas engine manufacturer Cummins, and industrial conglom-erate AMETEK performed well and boosted the Fund’s relative performance.

In contrast, stock selection in the financials, industrials and health care sectorshindered relative results. Within the financials sector, real estate investment trustiStar Financial,3, 4 and capital markets companies Charles Schwab3, 4 and NorthernTrust4 weighed on relative returns. Among industrials sector holdings, over-weighted positions in aerospace and defense company Rockwell Collins andairline company Allegiant Travel hurt relative performance. Community Health

Portfolio BreakdownFranklin Small-Mid Cap Growth FundBased on Total Net Assets as of 4/30/11

Information Technology


Industrials

Health Care

Energy

Financials

Materials

Consumer Staples


Utilities


24.6%

18.4%

14.8%

17.2%

6.3%

5.9%

3.1%

2.3%

1.2%

0.6%

5.6%

3. No longer held by period-end.

4. This holding is not an index component.

46 | Annual Report

Systems, a hospital operator, was a major detractor in the health care sector.Finally, despite outperformance for IT stocks as a group, our investments inintegrated circuit maker Silicon Laboratories, solar panel manufacturer FirstSolar and global payment solutions company MasterCard3, 4 declined in valueand detracted from relative results.

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

Edward B. JamiesonPortfolio ManagerFranklin Small-Mid Cap Growth Fund


Top 10 HoldingsFranklin Small-Mid Cap Growth Fund4/30/11


SM Energy Co. 2.2%Energy


Mettler-Toledo International Inc. 1.7%Health Care

AMETEK Inc. 1.6%Industrials

NXP Semiconductors NV (Netherlands) 1.5%Information Technology

Nuance Communications Inc. 1.5%Information Technology

BorgWarner Inc. 1.4%Consumer Discretionary

Trimble Navigation Ltd. 1.4%Information Technology

Cummins Inc. 1.4%Industrials

Waters Corp. 1.4%Health Care

Annual Report | 47

Price Information

Class A (Symbol: FRSGX) Change 4/30/11 4/30/10


Class B (Symbol: FBSMX) Change 4/30/11 4/30/10


Class C (Symbol: FRSIX) Change 4/30/11 4/30/10


Class R (Symbol: FSMRX) Change 4/30/11 4/30/10


Advisor Class (Symbol: FSGAX) Change 4/30/11 4/30/10



Performance Summary as of 4/30/11Franklin Small-Mid Cap Growth Fund

48 | Annual Report


Performance








Class B 1-Year 5-Year Inception (7/1/02)

























Annual Report | 49


Class A (5/1/01–4/30/11)

$0

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/035/01

$17,379

$13,211$14,745

Franklin Small-MidCap Growth Fund

Russell MidcapGrowth Index6

S&P 5006



Class B (7/1/02–4/30/11)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

4/114/094/074/054/037/02

$16,400

$23,690

$20,612



S&P 5006


Class A 4/30/11

1-Year +21.05%

5-Year +4.41%

10-Year +3.96%


Class B 4/30/11

1-Year +23.47%

5-Year +4.54%



50 | Annual Report

Class C (5/1/01–4/30/11)

$0

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/035/01

$17,379

$13,211$14,525



S&P 5006

Class R (1/1/02–4/30/11)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

4/114/094/074/054/031/02

$14,242

$19,023$16,694



S&P 5006


Class C 4/30/11

1-Year +26.49%

5-Year +4.88%

10-Year +3.80%


Class R 4/30/11

1-Year +28.10%

5-Year +5.39%



Annual Report | 51


Endnotes

Investors should be comfortable with fluctuations in the value of their investment, as small and midsizedcompany stocks can be volatile, especially over the short term. Smaller or relatively new or unseasoned com-panies can be particularly sensitive to changing economic conditions, and their prospects for growth are lesscertain than those of larger, more established companies. The Fund includes investments in the technologysector, which has been highly volatile and involves special risks. The manager applies various techniques andanalyses in making investment decisions for the Fund, but there can be no guarantee that these decisions willproduce the desired results. The Fund’s prospectus also includes a description of the main investment risks.









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

6. Source: © 2011 Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed tomeasure total U.S. equity market performance. The Russell Midcap Growth Index is market capitalization weightedand measures performance of those Russell Midcap Index companies with higher price-to-book ratios and higherforecasted growth values.


$0

$5,000

$10,000

$15,000

$20,000

4/114/094/074/054/035/01

$17,379

$13,211

$16,038



S&P 5006



1-Year +28.74%

5-Year +5.93%

10-Year +4.84%

52 | Annual Report













Your Fund’s ExpensesFranklin Small-Mid Cap Growth Fund

Annual Report | 53




Actual $1,000 $1,237.50 $5.27


Class B

Actual $1,000 $1,233.00 $9.41


Class C

Actual $1,000 $1,233.00 $9.41


Class R

Actual $1,000 $1,235.80 $6.65


Advisor Class

Actual $1,000 $1,238.90 $3.89



Franklin Strategic SeriesFinancial Highlights

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


Year Ended April 30,Class A 2011 2010 2009 2008 2007

Per share operating performance(for a share outstanding throughout the year)

Net asset value, beginning of year . . . . . . . . . . . . . . . . . . $43.55 $32.46 $45.77 $45.15 $42.45

Income from investment operationsa:

Net investment income (loss)b . . . . . . . . . . . . . . . . . . . . (0.11) (0.06) (0.03) (0.05) 0.06

Net realized and unrealized gains (losses) . . . . . . . . . . . . 8.98 11.15 (13.28) 1.43 2.70

Total from investment operations . . . . . . . . . . . . . . . . . . . 8.87 11.09 (13.31) 1.38 2.76

Less distributions from:

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . — — — (0.02) (0.06)

Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (0.74) —

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (0.76) (0.06)

Redemption feesc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —d —d —d

Net asset value, end of year . . . . . . . . . . . . . . . . . . . . . . $52.42 $43.55 $32.46 $45.77 $45.15

Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.37% 34.17% (29.08)% 2.98% 6.50%

Ratios to average net assets

Expenses before waiver and payments by affiliates . . . . . . 0.98% 1.01% 1.00% 0.94% 0.96%

Expenses net of waiver and payments by affiliates . . . . . . . 0.98% 0.99%f 1.00%f 0.93%f 0.96%f

Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (0.23)% (0.16)% (0.08)% (0.10)% 0.15%

Supplemental data

Net assets, end of year (000’s) . . . . . . . . . . . . . . . . . . . . $2,233,642 $1,899,703 $1,370,025 $2,011,348 $1,977,605

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.32% 47.70% 35.95% 36.70% 62.54%

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases ofthe Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.bBased on average daily shares outstanding.cEffective September 1, 2008, the redemption fee was eliminated.dAmount rounds to less than $0.01 per share.eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.fBenefit of expense reduction rounds to less than 0.01%.

Franklin Strategic SeriesFinancial Highlights (continued)

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


Year Ended April 30,Class B 2011 2010 2009 2008 2007


Net asset value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . $40.00 $30.04 $42.66 $42.43 $40.14


Net investment income (loss)b . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.39) (0.31) (0.29) (0.37) (0.23)

Net realized and unrealized gains (losses) . . . . . . . . . . . . . . . . . . . 8.17 10.27 (12.33) 1.34 2.52

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . 7.78 9.96 (12.62) 0.97 2.29

Less distributions from net realized gains . . . . . . . . . . . . . . . . . . . . — — — (0.74) —

Redemption feesc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —d —d —d

Net asset value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $47.78 $40.00 $30.04 $42.66 $42.43

Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.45% 33.16% (29.58)% 2.19% 5.71%


Expenses before waiver and payments by affiliates . . . . . . . . . . . . . . 1.73% 1.75% 1.75% 1.69% 1.71%

Expenses net of waiver and payments by affiliates . . . . . . . . . . . . . . 1.73% 1.73%f 1.75%f 1.68%f 1.71%f

Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.98)% (0.90)% (0.83)% (0.85)% (0.60)%

Supplemental data

Net assets, end of year (000’s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,217 $36,922 $42,485 $95,600 $118,806

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.32% 47.70% 35.95% 36.70% 62.54%





Year Ended April 30,Class C 2011 2010 2009 2008 2007







Less distributions from net realized gains . . . . . . . . . . . . . . . . . . . . — — — (0.74) —



Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.46% 33.16% (29.61)% 2.21% 5.72%





Supplemental data







Year Ended April 30,Class R 2011 2010 2009 2008 2007








Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (0.02) (0.02)

Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (0.74) —

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (0.76) (0.02)



Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.07% 33.81% (29.25)% 2.73% 6.25%





Supplemental data







Year Ended April 30,Advisor Class 2011 2010 2009 2008 2007


Net asset value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . $44.14 $32.82 $46.15 $45.41 $42.63


Net investment incomeb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.01 0.04 0.07 0.07 0.16

Net realized and unrealized gains (losses) . . . . . . . . . . . . . . . . . . 9.11 11.28 (13.40) 1.43 2.71

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . 9.12 11.32 (13.33) 1.50 2.87


Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (0.02) (0.09)

Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (0.74) —

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (0.76) (0.09)

Redemption feesc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —d —d —d

Net asset value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53.26 $44.14 $32.82 $46.15 $45.41

Total return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.66% 34.49% (28.88)% 3.23% 6.77%


Expenses before waiver and payments by affiliates . . . . . . . . . . . . 0.73% 0.76% 0.75% 0.69% 0.71%

Expenses net of waiver and payments by affiliates . . . . . . . . . . . . . 0.73% 0.74%e 0.75%e 0.68%e 0.71%e

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.02% 0.09% 0.17% 0.15% 0.40%

Supplemental data

Net assets, end of year (000’s) . . . . . . . . . . . . . . . . . . . . . . . . . . $1,233,168 $856,298 $364,798 $348,245 $297,856

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.32% 47.70% 35.95% 36.70% 62.54%

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases ofthe Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.bBased on average daily shares outstanding.cEffective September 1, 2008, the redemption fee was eliminated.dAmount rounds to less than $0.01 per share.eBenefit of expense reduction rounds to less than 0.01%.

Franklin Strategic SeriesStatement of Investments, April 30, 2011

Franklin Flex Cap Growth Fund Shares Value

Common Stocks 93.8%

Annual Report | 59

Automobiles & Components 2.9%aBorgWarner Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525,000 $ 40,551,000Johnson Controls Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750,000 71,750,000

112,301,000

Banks 0.6%Wells Fargo & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 23,288,000

Capital Goods 9.9%Cummins Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569,400 68,430,492Danaher Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 788,600 43,562,264Emerson Electric Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,000 39,494,000Flowserve Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221,800 28,084,316General Electric Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,375,000 28,118,750Joy Global Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 50,475,000Precision Castparts Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,100 28,910,692Rockwell Automation Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665,000 57,941,450United Technologies Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 40,311,000

385,327,964

Commercial & Professional Services 1.5%aStericycle Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,000 59,332,000

Consumer Durables & Apparel 2.8%NIKE Inc., B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 616,100 50,717,352Polo Ralph Lauren Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 58,846,500

109,563,852

Consumer Services 1.2%aArcos Dorados Holdings Inc. (Argentina) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284,800 6,274,144Marriott International Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550,000 19,415,000Wynn Resorts Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 22,072,500

47,761,644

Diversified Financials 4.0%BlackRock Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,000 45,066,200JPMorgan Chase & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 36,504,000Lazard Ltd., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887,200 36,375,200T. Rowe Price Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 566,800 36,416,900

154,362,300

Energy 6.9%a,bAlpha Natural Resources Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825,000 47,990,250

aCameron International Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000 39,540,000aConcho Resources Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550,000 58,767,500aFMC Technologies Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384,200 17,857,616aPetrohawk Energy Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,478,700 39,939,687Schlumberger Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,300 18,335,925SM Energy Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641,885 48,693,396

271,124,374


Common Stocks (continued)

60 | Annual Report

Franklin Strategic SeriesStatement of Investments, April 30, 2011 (continued)

Food, Beverage & Tobacco 2.6%aHansen Natural Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,000 $ 22,821,750Mead Johnson Nutrition Co., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723,500 48,387,680PepsiCo Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 31,000,500

102,209,930

Health Care Equipment & Services 6.3%aAllscripts Healthcare Solutions Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,358,200 29,255,628aCerner Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475,000 57,085,500aDaVita Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000 21,141,600aEdwards Lifesciences Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,200 27,390,220aExpress Scripts Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850,000 48,229,000a Intuitive Surgical Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,100 22,415,770Universal Health Services Inc., B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 21,912,000

aVarian Medical Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271,100 19,031,220

246,460,938

Household & Personal Products 0.5%The Procter & Gamble Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 19,470,000

Insurance 1.6%Aflac Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,125,000 63,213,750

Materials 4.6%Celanese Corp., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,350,000 67,392,000Ecolab Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 42,208,000Praxair Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665,400 70,811,868

180,411,868

Media 3.1%aDIRECTV, A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825,000 40,086,750aDiscovery Communications Inc., C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,250,000 49,325,000The Walt Disney Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690,000 29,739,000

119,150,750

Pharmaceuticals, Biotechnology & Life Sciences 3.4%aCelgene Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525,000 30,912,000aGilead Sciences Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640,800 24,888,672aHuman Genome Sciences Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739,300 21,787,171Merck & Co. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 21,570,000

aWaters Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354,100 34,701,800

133,859,643

Retailing 1.7%aAmazon.com Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 21,615,000aPriceline.com Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000 46,495,850

68,110,850

Semiconductors & Semiconductor Equipment 5.2%a,bFirst Solar Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 27,914,000

Intel Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 788,600 18,287,634aLam Research Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690,000 33,333,900



Annual Report | 61


Semiconductors & Semiconductor Equipment (continued)Microchip Technology Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 $ 61,560,000

aSilicon Laboratories Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,000 9,805,500Xilinx Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,454,000 50,686,440

201,587,474

Software & Services 16.5%aBottomline Technologies Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000 25,002,000aCitrix Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 813,300 68,593,722aCognizant Technology Solutions Corp., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000 31,087,500aConcur Technologies Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363,700 21,047,319FactSet Research Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364,900 39,923,709

aGoogle Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,500 41,623,650a Informatica Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 950,000 53,209,500International Business Machines Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,000 58,850,100MasterCard Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207,000 57,109,230

aNuance Communications Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 31,050,000Oracle Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 72,100,000

aRed Hat Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,158,300 54,984,501aSalesforce.com Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,000 37,422,000aTaleo Corp., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613,900 22,266,153Visa Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394,300 30,802,716

645,072,100

Technology Hardware & Equipment 13.7%aAcme Packet Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,000 21,891,650aApple Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478,100 166,488,763Cisco Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 17,560,000

aEMC Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,932,900 83,118,386FLIR Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887,200 31,247,184

aJuniper Networks Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850,000 32,580,500National Instruments Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,182,900 35,889,186

aNetApp Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000 38,985,000QUALCOMM Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887,200 50,428,448

aTrimble Navigation Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,252,695 58,676,234

536,865,351

Telecommunication Services 1.0%aAmerican Tower Corp., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000 39,232,500

a,cAnda Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,443 —

39,232,500

Transportation 3.8%C.H. Robinson Worldwide Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271,100 21,736,798Expeditors International of Washington Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665,400 36,111,258FedEx Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,000 31,092,750

aKansas City Southern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,000 61,015,500

149,956,306

Total Common Stocks (Cost $2,347,173,543) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,668,662,594



Preferred Stocks (Cost $9,999,998) 0.2%


Pharmaceuticals, Biotechnology & Life Sciences 0.2%a,cFibroGen Inc., pfd., E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,227,171 $ 9,510,020

Total Investments before Short Term Investments (Cost $2,357,173,541) . . . . . 3,678,172,614

Short Term Investments 6.5%Money Market Funds (Cost $211,588,837) 5.4%

a,dInstitutional Fiduciary Trust Money Market Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,588,837 211,588,837

e Investments from Cash Collateral Received for Loaned Securities 1.1%Money Market Funds (Cost $44,373,600) 1.1%

fBNY Mellon Overnight Government Fund, 0.07% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,373,600 44,373,600

Total Investments (Cost $2,613,135,978) 100.5% . . . . . . . . . . . . . . . . . . . . . . . . . 3,934,135,051

Other Assets, less Liabilities (0.5)% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,293,051)

Net Assets 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,914,842,000

aNon-income producing.bA portion or all of the security is on loan at April 30, 2011. See Note 1(d).cSee Note 8 regarding restricted securities.dSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.eSee Note 1(d) regarding securities on loan.fThe rate shown is the annualized seven-day yield at period end.




Year Ended April 30,Class A 2011 2010 2009 2008a


Net asset value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.03 $6.27 $8.69 $10.00

Income from investment operationsb:

Net investment incomec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.06 0.02 0.06 0.03

Net realized and unrealized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.29 2.74 (2.36) (1.34)

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.35 2.76 (2.30) (1.31)


Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.03) —d (0.10) —

Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (0.02) —

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.03) —d (0.12) —

Net asset value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.35 $9.03 $6.27 $ 8.69

Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.92% 44.05% (26.07)% (13.10)%

Ratios to average net assetsf

Expenses before waiver and payments by affiliates . . . . . . . . . . . . . . . . . . . . . . . . 1.87% 2.04% 3.99% 5.48%

Expenses net of waiver and payments by affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 1.10% 1.09%g 1.17%g 1.22%

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.61% 0.21% 0.91% 0.91%

Supplemental data

Net assets, end of year (000’s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,481 $10,974 $4,889 $4,652

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63.80% 42.73% 83.29% 35.64%

aFor the period December 13, 2007 (commencement of operations) to April 30, 2008.bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases ofthe Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.cBased on average daily shares outstanding.dAmount rounds to less than $0.01 per share.eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.fRatios are annualized for periods less than one year.gBenefit of expense reduction rounds to less than 0.01%.




Year Ended April 30,Class C 2011 2010 2009 2008a




Net investment income (loss)c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.01) (0.05) —d 0.01




Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —d (0.08) —


Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —d (0.10) —


Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.93% 42.65% (26.56)% (13.30)%




Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.18)% (0.59)% 0.23% 0.28%

Supplemental data

Net assets, end of year (000’s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,095 $1,853 $106 $41


aFor the period December 13, 2007 (commencement of operations) to April 30, 2008.bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases ofthe Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.cBased on average daily shares outstanding.dAmount rounds to less than $0.01 per share.eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.fRatios are annualized for periods less than one year.gBenefit of expense reduction rounds to less than 0.01%.




Year Ended April 30,Class R 2011 2010 2009 2008a




Net investment income (loss)c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.03 (0.01) 0.05 0.03




Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.01) — (0.08) —


Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.01) — (0.10) —


Total returnd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.51% 43.54% (26.30)% (13.20)%

Ratios to average net assetse


Expenses net of waiver and payments by affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 1.39% 1.39%f 1.39%f 1.39%

Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.32% (0.09)% 0.69% 0.74%

Supplemental data

Net assets, end of year (000’s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27 $21 $6 $9


aFor the period December 13, 2007 (commencement of operations) to April 30, 2008.bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases ofthe Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.cBased on average daily shares outstanding.dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.eRatios are annualized for periods less than one year.fBenefit of expense reduction rounds to less than 0.01%.




Year Ended April 30,Advisor Class 2011 2010 2009 2008a




Net investment incomec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.08 0.04 0.08 0.04




Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.05) —d (0.11) —


Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.05) —d (0.13) —


Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.08% 44.34% (25.93)% (13.00)%




Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.82% 0.41% 1.19% 1.24%

Supplemental data

Net assets, end of year (000’s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,966 $1,182 $167 $171


aFor the period December 13, 2007 (commencement of operations) to April 30, 2008.bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases ofthe Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.cBased on average daily shares outstanding.dAmount rounds to less than $0.01 per share.eTotal return is not annualized for periods less than one year.fRatios are annualized for periods less than one year.gBenefit of expense reduction rounds to less than 0.01%.

Annual Report | 67


Franklin Focused Core Equity Fund Country Shares Value

Common Stocks 92.9%Consumer Discretionary 11.9%

aApollo Group Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 18,800 $ 752,564aDeVry Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 6,600 349,140International Game Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 22,280 394,133Target Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 14,530 713,423

2,209,260

Consumer Staples 4.6%CVS Caremark Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 23,780 861,787

Energy 6.3%Marathon Oil Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 13,510 730,081Petroplus Holdings AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Switzerland 29,463 440,915

1,170,996

Financials 17.7%BlackRock Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 4,397 861,548JPMorgan Chase & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 19,100 871,533Legg Mason Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 10,270 381,531Northern Trust Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 11,400 569,886U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 23,140 597,475

3,281,973

Health Care 18.0%Aetna Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 16,060 664,563

aGilead Sciences Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 12,670 492,103Merck & Co. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 25,204 906,083Roche Holding AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Switzerland 7,760 1,258,136

aSagent Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 1,500 30,615

3,351,500

Industrials 8.2%3M Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 2,420 235,248FedEx Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 6,100 583,587Ryanair Holdings PLC, ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ireland 22,946 699,394

1,518,229

Information Technology 16.2%aApple Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 240 83,575Cisco Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 28,760 505,026Corning Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 44,580 933,505MasterCard Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 1,020 281,408Maxim Integrated Products Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 23,980 655,613

aResearch In Motion Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canada 11,520 560,448

3,019,575

Materials 7.0%Celanese Corp., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 15,040 750,797Lubrizol Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 4,030 542,115

1,292,912

Franklin Focused Core Equity Fund Country Shares Value




Telecommunication Services 3.0%aNII Holdings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 13,310 $ 553,430

Total Common Stocks (Cost $14,623,761) . . . . . . . . . . . . . . . . . . . . . . . . 17,259,662

Short Term Investments (Cost $1,114,061) 6.0%Money Market Funds 6.0%

a,bInstitutional Fiduciary Trust Money Market Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . United States 1,114,061 1,114,061

Total Investments (Cost $15,737,822) 98.9% . . . . . . . . . . . . . . . . . . . . . 18,373,723

Other Assets, less Liabilities 1.1% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,509

Net Assets 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,569,232

See Abbreviations on page 121.

aNon-income producing.bSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.













Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.94% 41.14% (30.81)% 8.20% 1.31%





Supplemental data
















Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.07% 40.17% (31.29)% 7.43% 0.63%





Supplemental data
















Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.08% 40.11% (31.31)% 7.38% 0.69%





Supplemental data















Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.69% 40.82% (30.96)% 8.02% 1.16%





Supplemental data

















Total return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.31% 41.54% (30.58)% 8.48% 1.66%



Expenses net of waiver and payments by affiliates . . . . . . . . . . . . . . 0.98% 0.95%e 1.04%e 0.99%e 1.09%e


Supplemental data




74 | Annual Report


Franklin Growth Opportunities Fund Country Shares Value

Common Stocks 100.4%Consumer Discretionary 12.4%

aAmazon.com Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 22,300 $ 4,381,951aArcos Dorados Holdings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Argentina 23,200 511,096aBorgWarner Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 63,700 4,920,188aChipotle Mexican Grill Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 16,900 4,508,751Guess? Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 134,100 5,764,959Johnson Controls Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 155,600 6,379,600NIKE Inc., B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 63,700 5,243,784

aPeet’s Coffee & Tea Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 57,700 2,681,896Polo Ralph Lauren Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 48,900 6,394,653

aPriceline.com Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 12,000 6,564,120Starwood Hotels & Resorts Worldwide Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . United States 75,400 4,491,578

aUlta Salon Cosmetics & Fragrance Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 60,800 3,233,952aUrban Outfitters Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 118,600 3,731,156

58,807,684

Consumer Staples 3.2%aHansen Natural Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 76,200 5,040,630Mead Johnson Nutrition Co., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 78,600 5,256,768

aTreeHouse Foods Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 77,000 4,671,590

14,968,988

Energy 13.1%a,bAlpha Natural Resources Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 116,900 6,800,073

Anadarko Petroleum Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 94,800 7,483,512aCameron International Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 123,400 6,505,648aConcho Resources Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 68,000 7,265,800aFMC Technologies Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 119,960 5,575,741aKey Energy Services Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 260,400 4,739,280aPetrohawk Energy Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 163,900 4,426,939Schlumberger Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 58,880 5,284,480SM Energy Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 108,300 8,215,638

aWeatherford International Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 272,800 5,887,024

62,184,135

Financials 5.6%Bank of America Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 341,400 4,192,392BlackRock Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 71,580 14,025,385

a,bGreen Dot Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 17,900 772,564aSignature Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 61,300 3,568,273Wells Fargo & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 137,300 3,996,803

26,555,417

Health Care 10.1%Allergan Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 74,600 5,935,176

aCelgene Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 60,400 3,556,352aEdwards Lifesciences Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 75,200 6,493,520aExpress Scripts Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 58,500 3,319,290aGilead Sciences Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 86,260 3,350,338

Annual Report | 75



Common Stocks (continued)Health Care (continued)

aHeartWare International Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 31,500 $ 2,350,215aHuman Genome Sciences Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 116,500 3,433,255aLife Technologies Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 70,100 3,869,520Perrigo Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 51,566 4,659,504Pharmaceutical Product Development Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . United States 173,100 5,340,135

aSalix Pharmaceuticals Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 134,400 5,280,576

47,587,881

Industrials 13.9%aABB Ltd., ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Switzerland 160,400 4,409,396aAir Lease Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 37,900 1,046,040Cummins Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 65,000 7,811,700Emerson Electric Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 11,100 674,436Expeditors International of Washington Inc. . . . . . . . . . . . . . . . . . . . . . . . . . United States 121,700 6,604,659FedEx Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 53,900 5,156,613Flowserve Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 34,500 4,368,390

bHeico Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 72,688 3,500,630Joy Global Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 47,400 4,785,030Precision Castparts Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 57,530 8,889,536Rockwell Automation Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 98,200 8,556,166

aTerex Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 157,400 5,474,372Textron Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 166,000 4,332,600

65,609,568

Information Technology 33.8%aAcme Packet Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 28,900 2,387,429aANSYS Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 51,200 2,830,848aApple Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 56,000 19,500,880ARM Holdings PLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United Kingdom 705,900 7,319,264

aBaidu Inc. , ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China 42,100 6,252,692aBottomline Technologies Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 92,200 2,561,316aCitrix Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 149,400 12,600,396aEMC Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 263,300 7,461,922aFabrinet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 119,700 2,759,085aFirst Solar Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 34,300 4,787,251FLIR Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 90,100 3,173,322

aFortinet Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 113,400 5,522,580aGoogle Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 8,290 4,510,589a Informatica Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 128,319 7,187,147aJuniper Networks Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 142,100 5,446,693MasterCard Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 48,100 13,270,309

aNetlogic Microsystems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 161,600 6,969,808aNXP Semiconductors NV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Netherlands 130,300 4,352,020QUALCOMM Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 200,380 11,389,599

aRed Hat Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 99,600 4,728,012aResearch In Motion Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canada 40,800 1,984,920aRovi Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 6,100 296,216




Common Stocks (continued)Information Technology (continued)

aSalesforce.com Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 45,600 $ 6,320,160aSilicon Laboratories Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 51,600 2,248,728aTrimble Navigation Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 179,840 8,423,706aViaSat Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 145,800 5,820,336

160,105,228

Materials 5.1%Celanese Corp., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 226,600 11,311,872Freeport-McMoRan Copper & Gold Inc., B . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 103,872 5,716,076Praxair Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 67,100 7,140,782

24,168,730

Telecommunication Services 3.2%aNII Holdings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 104,080 4,327,646aSBA Communications Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States 276,660 10,687,376

15,015,022

Total Common Stocks (Cost $353,341,279) . . . . . . . . . . . . . . . . . . 475,002,653


a,c Institutional Fiduciary Trust Money Market Portfolio . . . . . . . . . . . . . . . . . . . . United States 5,822,266 5,822,266

d Investments from Cash Collateral Received for Loaned Securities 2.1%Money Market Funds (Cost $9,872,002) 2.1%

eBNY Mellon Overnight Government Fund, 0.07% . . . . . . . . . . . . . . . . . . . . . . United States 9,872,002 9,872,002

Total Investments (Cost $369,035,547) 103.7% . . . . . . . . . . . . . . 490,696,921

Other Assets, less Liabilities (3.7)% . . . . . . . . . . . . . . . . . . . . . . . . . (17,630,450)

Net Assets 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $473,066,471


aNon-income producing.bA portion or all of the security is on loan at April 30, 2011. See Note 1(d).cSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.dSee Note 1(d) regarding securities on loan.eThe rate shown is the annualized seven-day yield at period end.






Net asset value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . $10.02 $ 6.41 $9.09 $13.05 $13.90



Net realized and unrealized gains (losses) . . . . . . . . . . . . . . . . . . . 3.10 3.70 (2.53) (1.59) 0.58

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00 3.61 (2.61) (1.68) 0.48

Less distributions from net realized gains . . . . . . . . . . . . . . . . . . . . — — (0.07) (2.28) (1.33)


Net asset value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.02 $10.02 $6.41 $ 9.09 $13.05

Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.94% 56.32% (28.54)% (14.73)% 4.02%



Expenses net of waiver and payments by affiliates . . . . . . . . . . . . . . 1.37% 1.35% 1.34%f 1.17%f 1.20%f


Supplemental data









Net asset value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.13 $5.89 $8.43 $12.35 $13.32








Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.13% 55.01% (29.11)% (15.27)% 3.27%





Supplemental data

















Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.96% 55.35% (29.11)% (15.35)% 3.27%





Supplemental data

















Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.68% 56.07% (28.78)% (14.87)% 3.77%





Supplemental data









Net asset value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . $10.39 $ 6.63 $9.37 $13.34 $14.15








Total return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.41% 56.71% (28.32)% (14.46)% 4.24%



Expenses net of waiver and payments by affiliates . . . . . . . . . . . . . . 1.07% 1.08% 1.04%e 0.92%e 0.96%e


Supplemental data




Franklin Small Cap Growth Fund Shares Value

Common Stocks 96.6%

82 | Annual Report


Consumer Discretionary 16.5%a,bBlue Nile Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,800 $ 4,149,600

aBuffalo Wild Wings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,100 5,382,910aCiti Trends Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,200 2,831,472

a,bCoinstar Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,800 6,790,684Drew Industries Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,500 2,924,505Gaiam Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,003 1,874,268Guess? Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,000 3,353,220

a Iconix Brand Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,500 5,718,415aJack in the Box Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,700 3,793,405aLions Gate Entertainment Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445,200 2,822,568aPanera Bread Co., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,700 1,901,427aPeet’s Coffee & Tea Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 5,577,600aShuffle Master Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357,900 3,911,847aTenneco Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,000 3,373,330Tractor Supply Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,500 2,320,125

aUnder Armour Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,600 2,300,256aVitamin Shoppe Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,600 2,169,512Wolverine World Wide Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,200 5,245,696

66,440,840

Consumer Staples 4.1%Casey’s General Stores Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,500 3,571,245

aHain Celestial Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,700 3,560,847aHansen Natural Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,200 3,651,480aTreeHouse Foods Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,400 5,909,258

16,692,830

Energy 6.3%aBill Barrett Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,600 4,239,768aComstock Resources Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,700 5,568,822aDril-Quip Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,100 1,462,296aJames River Coal Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,600 3,278,792aKey Energy Services Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263,900 4,802,980aSuperior Energy Services Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000 6,147,200

25,499,858

Financials 8.3%aAffiliated Managers Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,700 4,330,476Chatham Lodging Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,300 1,426,045Evercore Partners Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,300 4,127,487

aFelCor Lodging Trust Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,100 1,380,756Hancock Holding Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,300 3,014,518MB Financial Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,100 3,891,789

aNetspend Holdings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394,300 4,577,823Northwest Bancshares Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257,800 3,245,702

aSignature Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,300 4,033,953aStifel Financial Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,700 3,412,296

33,440,845



Annual Report | 83


Health Care 17.4%aAegerion Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,510 $ 227,092aAmarin Corp. PLC., ADR (United Kingdom) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,600 2,121,600aAmerican Medical Systems Holdings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235,800 6,956,100aArdea Biosciences Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,700 1,153,845aArQule Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,400 1,436,004aAuxilium Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,200 2,781,912

a,bCadence Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,400 1,792,672aChelsea Therapeutics International Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,100 1,225,071aCommunity Health Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,300 2,098,859aDexCom Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392,400 6,533,460aHeartWare International Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,100 2,469,591aHMS Holdings Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,300 3,250,723a Impax Laboratories Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,200 4,605,316a Inhibitex Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,000 764,400Masimo Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,400 1,822,996

aMWI Veterinary Supply Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,700 3,385,019aPAREXEL International Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,700 5,238,312Quality Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,500 4,171,980

aQuestcor Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,600 1,877,800aSagent Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,000 1,265,420aSalix Pharmaceuticals Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,800 3,724,692aSavient Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,400 1,340,948aThoratec Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,500 3,668,650aTranscept Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,700 1,313,535aVCA Antech Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,400 2,765,040aVolcano Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,500 2,279,430

70,270,467

Industrials 13.6%Allegiant Travel Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,400 4,011,378

aClean Harbors Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,900 3,831,650aColfax Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,400 3,854,340aEsterline Technologies Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,500 4,272,100bHeico Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,219 5,741,575aHexcel Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,600 2,467,338aHigher One Holdings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,500 3,740,895aHub Group Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,300 3,355,324aHuron Consulting Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,900 3,885,120Kaydon Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,200 3,181,140

aThe Keyw Holding Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267,113 2,988,995Knight Transportation Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,000 2,611,450Marten Transport Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,900 4,782,804

aMobile Mini Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,600 6,117,896

54,842,005

Information Technology 28.3%aBottomline Technologies Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344,504 9,570,321Cognex Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,900 2,874,632



84 | Annual Report


Information Technology (continued)aCymer Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,600 $ 3,492,786aDTS Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,400 2,132,504

a,bEcho Global Logistics Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232,400 3,232,684aEnvestnet Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294,000 3,895,500aFabrinet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,700 4,441,735aFARO Technologies Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,800 7,718,796a Ixia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,600 2,754,924

a,bMeru Networks Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,777 2,555,387National Instruments Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,600 5,934,504

aNetlogic Microsystems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,400 6,314,232aNuance Communications Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,600 2,289,420Power Integrations Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,700 3,941,218

aProgress Software Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,863 3,969,038aQuinstreet Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,700 2,941,616

a,bRealD Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,400 3,268,592aResponsys Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,300 260,474aSapient Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413,720 5,223,215aSemtech Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,200 2,110,864aServiceSource International Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,300 1,541,250aShoretel Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373,200 3,899,940aSilicon Laboratories Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,300 3,586,634aStratasys Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,900 4,356,465aTaleo Corp., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,000 2,393,820aTHQ Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504,400 2,037,776aTrimble Navigation Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,300 3,573,892aVarian Semiconductor Equipment Associates Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,975 4,737,042aViaSat Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,600 4,814,352aVolterra Semiconductor Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,500 4,587,605

114,451,218

Materials 1.0%a,bSTR Holdings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251,800 4,147,146

Telecommunication Services 1.1%aSBA Communications Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,400 4,303,382

Total Common Stocks (Cost $267,328,637) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390,088,591


a,c Institutional Fiduciary Trust Money Market Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,139,403 14,139,403

d Investments from Cash Collateral Received for Loaned Securities 6.6%Money Market Funds (Cost $26,855,498) 6.6%

eBNY Mellon Overnight Government Fund, 0.07% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,855,498 26,855,498

Total Investments (Cost $308,323,538) 106.7% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431,083,492

Other Assets, less Liabilities (6.7)% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,041,487)

Net Assets 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $404,042,005





aNon-income producing.bA portion or all of the security is on loan at April 30, 2011. See Note 1(d).cSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.dSee Note 1(d) regarding securities on loan.eThe rate shown is the annualized seven-day yield at period end.






Net asset value, beginning of year . . . . . . . . . . . . . . . . . . $32.29 $22.34 $32.70 $41.54 $40.42


Net investment income (loss)b . . . . . . . . . . . . . . . . . . . . (0.11) (0.13) (0.11) (0.19) (0.13)

Net realized and unrealized gains (losses) . . . . . . . . . . . . 9.29 10.08 (10.19) (1.93) 4.09

Total from investment operations . . . . . . . . . . . . . . . . . . . 9.18 9.95 (10.30) (2.12) 3.96

Less distributions from net realized gains . . . . . . . . . . . . . — — (0.06) (6.72) (2.84)

Redemption feesc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —d —d —d

Net asset value, end of year . . . . . . . . . . . . . . . . . . . . . . $41.47 $32.29 $22.34 $32.70 $41.54

Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.43% 44.54% (31.46)% (6.24)% 10.38%


Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.99% 1.04%f 1.08%f 1.02%f 0.98%f

Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (0.31)% (0.48)% (0.45)% (0.50)% (0.33)%

Supplemental data

Net assets, end of year (000’s) . . . . . . . . . . . . . . . . . . . . $2,939,925 $2,585,515 $2,195,975 $4,331,657 $5,619,694

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.42% 55.44% 54.86% 55.09% 52.76%















Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.47% 43.46% (31.99)% (6.92)% 9.53%


Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.74% 1.78%f 1.83%f 1.77%f 1.73%f


Supplemental data

















Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.49% 43.42% (31.94)% (6.94)% 9.56%


Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.74% 1.79%f 1.83%f 1.77%f 1.72%f


Supplemental data

















Total returne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.10% 44.16% (31.62)% (6.48)% 10.11%


Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.24% 1.29%f 1.33%f 1.27%f 1.23%f


Supplemental data

















Total return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.74% 44.93% (31.28)% (6.00)% 10.65%


Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.74% 0.79%e 0.83%e 0.77%e 0.73%e


Supplemental data





Franklin Small-Mid Cap Growth Fund Shares Value

Common Stocks 94.4%

Annual Report | 91

Consumer Discretionary 18.4%aArcos Dorados Holdings Inc. (Argentina) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651,792 $ 14,358,977

a,bBlue Nile Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 17,100,000aBorgWarner Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 61,792,000aBuffalo Wild Wings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565,000 34,521,500aChipotle Mexican Grill Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,000 38,684,550aCtrip.com International Ltd., ADR (China) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 14,616,000aDick’s Sporting Goods Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850,000 34,790,500aDiscovery Communications Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 26,556,000aDiscovery Communications Inc., C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 9,865,000aDollar General Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,350,000 43,996,500aDreamWorks Animation SKG Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 13,245,000Guess? Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 950,000 40,840,500

a Iconix Brand Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,400 1,895,526Jarden Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,280,000 46,579,200Limited Brands Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825,000 33,957,000Nordstrom Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000 33,285,000

aPeet’s Coffee & Tea Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 566,100 26,312,328Polo Ralph Lauren Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,000 35,961,750

aPriceline.com Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 54,701,000Starwood Hotels & Resorts Worldwide Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000 22,338,750

aTenneco Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 838,900 38,765,569aUlta Salon Cosmetics & Fragrance Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 21,276,000aUnder Armour Inc., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 27,384,000aUrban Outfitters Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,250,000 39,325,000Wolverine World Wide Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,340,004 53,171,359Wynn Resorts Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,008 16,040,527

801,359,536

Consumer Staples 2.3%aHansen Natural Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550,000 36,382,500Mead Johnson Nutrition Co., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465,000 31,099,200

aTreeHouse Foods Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550,000 33,368,500

100,850,200

Energy 6.3%a,bAlpha Natural Resources Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 46,536,000

aCameron International Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 975,000 51,402,000aFMC Technologies Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 46,480,000aPetrohawk Energy Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,240,000 33,492,400SM Energy Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,250,000 94,825,000

272,735,400

Financials 5.9%aAffiliated Managers Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365,000 39,814,200First Niagara Financial Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 28,800,000Hancock Holding Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625,500 20,428,830

a IntercontinentalExchange Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000 21,061,250Lazard Ltd., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145,056 46,947,296Northern Trust Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420,000 20,995,800



92 | Annual Report


Financials (continued)aSignature Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 $ 29,105,000T. Rowe Price Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 755,100 48,515,175

255,667,551

Health Care 14.8%aAgilent Technologies Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,000 32,441,500aAllscripts Healthcare Solutions Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,140,000 24,555,600aArQule Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,493,900 10,546,934aAuxilium Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 12,180,000C. R. Bard Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440,000 46,970,000

aCerner Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 36,054,000aCommunity Health Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000 43,022,000aCoventry Health Care Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675,400 21,795,158aDaVita Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496,800 43,763,112aDendreon Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575,000 24,972,250aEdwards Lifesciences Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 51,810,000aHeartWare International Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,307 10,468,305aHuman Genome Sciences Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000 26,523,000a Intuitive Surgical Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 17,485,000aMettler-Toledo International Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392,000 73,460,800Pharmaceutical Product Development Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,020,000 31,467,000

aSalix Pharmaceuticals Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525,000 20,627,250aSavient Pharmaceuticals Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680,000 7,901,600aStereotaxis Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,650,000 10,308,500aThoratec Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 9,210,000aVarian Medical Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000 28,782,000aWaters Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 58,800,000

643,144,009

Industrials 17.2%Allegiant Travel Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000 15,704,500AMETEK Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 69,060,000C.H. Robinson Worldwide Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 20,045,000Cooper Industries PLC, A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 32,975,000Cummins Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 60,090,000

aEsterline Technologies Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000 26,925,000Expeditors International of Washington Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353,600 19,189,872Fastenal Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 26,836,000Flowserve Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,000 35,453,600Fluor Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000 24,479,000Gardner Denver Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 51,846,000J.B. Hunt Transport Services Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509,600 24,297,728Joy Global Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550,000 55,522,500

aKansas City Southern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 14,527,500Knight Transportation Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,331 4,778,611Marten Transport Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425,000 9,503,000Robert Half International Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 939,800 28,504,134Rockwell Automation Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 52,278,000Rockwell Collins Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418,100 26,382,110



Annual Report | 93


Industrials (continued)Roper Industries Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 $ 21,622,500

aSensata Technologies Holding NV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,525,000 53,542,750aTerex Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,350,000 46,953,000Textron Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 26,100,000

746,615,805

Information Technology 24.6%aAlliance Data Systems Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,000 30,875,000Analog Devices Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825,000 33,255,750

aANSYS Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000 41,467,500aAruba Networks Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000 26,947,500Avago Technologies Ltd. (Singapore) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000 30,114,000

aBottomline Technologies Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,675 8,352,752aCitrix Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 42,170,000FactSet Research Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 54,705,000

a,bFirst Solar Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,000 39,079,600FLIR Systems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100,000 38,742,000

aFortinet Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 12,175,000Global Payments Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 635,400 33,828,696

aHittite Microwave Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644,300 41,486,477a Informatica Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 14,002,500aJuniper Networks Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 30,664,000aLam Research Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 19,324,000aNetApp Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 51,980,000aNetlogic Microsystems Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 43,130,000aNuance Communications Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,100,000 64,170,000aNXP Semiconductors NV (Netherlands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 66,800,000aProgress Software Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351,500 10,421,975aRealD Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,700 11,943,156aRed Hat Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,000 49,843,500aSilicon Laboratories Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 43,580,000aSMART Technologies Inc., A (Canada) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 19,920,000aTaleo Corp., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359,549 13,040,842aTeradata Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625,000 34,950,000aTrimble Navigation Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,000 60,892,000aVarian Semiconductor Equipment Associates Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 20,965,000aViaSat Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675,000 26,946,000Western Union Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000 15,937,500Xilinx Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,075,000 37,474,500

1,069,184,248

Materials 3.1%Celanese Corp., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 74,880,000Ecolab Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 21,104,000The Scotts Miracle-Gro Co., A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575,000 32,470,250

a,bSTR Holdings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 8,235,000

136,689,250




Common Stocks (continued)Telecommunication Services 1.2%

a,cAnda Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,107 $ —aSBA Communications Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,000 50,219,000

50,219,000

Utilities 0.6%aCalpine Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 25,125,000

Total Common Stocks (Cost $2,593,562,343) . . . . . . . . . . . . . . . . . . . . . . . . . . 4,101,589,999


a,dInstitutional Fiduciary Trust Money Market Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,556,709 216,556,709

Principal Amount

Repurchase Agreements (Cost $41,663,729) 1.0%e Joint Repurchase Agreement, 0.018%, 5/02/11 (Maturity Value $41,663,792) . . . . . . . . . . $ 41,663,729 41,663,729

Barclays Capital Inc. (Maturity Value $5,498,370)BNP Paribas Securities Corp. (Maturity Value $7,199,503)Credit Suisse Securities (USA) LLC (Maturity Value $3,927,229)Deutsche Bank Securities Inc. (Maturity Value $5,403,794)HSBC Securities (USA) Inc. (Maturity Value $5,235,889)Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $5,235,889)Morgan Stanley & Co. Inc. (Maturity Value $5,235,889)UBS Securities LLC (Maturity Value $3,927,229)Collateralized by U.S. Government Agency Securities, 0.00% - 6.27%, 5/19/11 - 4/27/21; fU.S. Government Agency Discount Notes, 5/12/11 - 10/07/11;

fU.S. Treasury Bills, 10/20/11; and U.S. Treasury Notes, 0.50% - 4.25%, 10/31/11 - 3/31/16 (valued at $42,563,747)

Shares

g Investments from Cash Collateral Received for Loaned Securities 1.2%Money Market Funds 1.2%

aBNY Institutional Cash Reserve Fund, Series B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 836,763 669,411hBNY Mellon Overnight Government Fund, 0.07% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,723,528 53,723,528

Total Investments from Cash Collateral Received for Loaned Securities (Cost $54,560,291) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,392,939

Total Investments (Cost $2,906,343,072) 101.6% . . . . . . . . . . . . . . . . . . . . . . 4,414,203,376

Other Assets, less Liabilities (1.6)% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (69,133,089)

Net Assets 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,345,070,287


aNon-income producing.bA portion or all of the security is on loan at April 30, 2011. See Note 1(d).cSee Note 8 regarding restricted securities.dSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.eSee Note 1(c) regarding joint repurchase agreement.fThe security is traded on a discount basis with no stated coupon rate.gSee Note 1(d) regarding securities on loan.hThe rate shown is the annualized seven-day yield at period end.


Franklin Strategic SeriesFinancial Statements

Statements of Assets and LiabilitiesApril 30, 2011

FranklinFranklin Franklin GrowthFlex Cap Focused Core Opportunities

Growth Fund Equity Fund FundAssets:

Investments in securities:Cost - Unaffiliated issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,401,547,141 $14,623,761 $363,213,281Cost - Sweep Money Fund (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,588,837 1,114,061 5,822,266

Total cost of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,613,135,978 $15,737,822 $369,035,547

Value - Unaffiliated issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,722,546,214 $17,259,662 $484,874,655Value - Sweep Money Fund (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,588,837 1,114,061 5,822,266

Total value of investmentsa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,934,135,051 18,373,723 490,696,921Receivables:

Investment securities sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,988,265 204,433 3,797,264Capital shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,250,016 57,001 1,156,245Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676,800 24,520 70,444

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,987 2,426 41,859

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,982,279,119 18,662,103 495,762,733

Liabilities:Payables:

Investment securities purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,504,945 64,506 10,266,553Capital shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,077,156 18,493 2,045,318Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,526,691 6,581 413,504Allocator Funds (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,994 — 13,793

Payable upon return of securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,373,600 — 9,872,002Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 851,733 3,291 85,092

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,437,119 92,871 22,696,262

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,914,842,000 $18,569,232 $473,066,471

Net assets consist of:Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,559,878,131 $15,360,939 $358,647,517Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,902 51,719 —Net unrealized appreciation (depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,320,999,073 2,637,469 121,661,652Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,853,894 519,105 (7,242,698)

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,914,842,000 $18,569,232 $473,066,471

aIncludes securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,982,424 $ — $ 9,779,190


Franklin Strategic SeriesFinancial Statements (continued)

Statements of Assets and Liabilities (continued)April 30, 2011


Growth Fund Equity Fund FundClass A:

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,233,642,482 $14,481,282 $211,434,987

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,614,301 1,399,817 8,709,870

Net asset value per sharea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $52.42 $10.35 $24.28

Maximum offering price per share (net asset value per share ÷ 94.25%) . . . . . $55.62 $10.98 $25.76

Class B:Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,217,177 — $ 3,392,560

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485,899 — 151,022

Net asset value and maximum offering price per sharea . . . . . . . . . . . . . . . . . $47.78 — $22.46

Class C:Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 352,282,311 $ 2,094,996 $ 56,657,666

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,357,601 206,543 2,529,193

Net asset value and maximum offering price per sharea . . . . . . . . . . . . . . . . . $47.88 $10.14 $22.40

Class R:Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,531,678 $ 26,749 $ 29,053,350


Net asset value and maximum offering price per share . . . . . . . . . . . . . . . . . . $51.27 $10.30 $23.81

Advisor Class:Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,233,168,352 $ 1,966,205 $172,527,908


Net asset value and maximum offering price per share . . . . . . . . . . . . . . . . . . $53.26 $10.37 $25.16

aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.




Franklin FranklinSmall Cap Small-Mid Cap

Growth Fund Growth FundAssets:

Investments in securities:Cost - Unaffiliated issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $294,184,135 $2,648,122,634Cost - Sweep Money Fund (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,139,403 216,556,709Cost - Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 41,663,729

Total cost of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $308,323,538 $2,906,343,072

Value - Unaffiliated issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $416,944,089 $4,155,982,938Value - Sweep Money Fund (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,139,403 216,556,709Value - Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 41,663,729

Total value of investmentsa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431,083,492 4,414,203,376Receivables:

Investment securities sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 927,422 14,074,266Capital shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,261,852 4,620,700Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,859 539,939

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 779,963

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433,301,741 4,434,218,244

Liabilities:Payables:

Investment securities purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 933,281 25,483,819Capital shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 913,499 4,432,151Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412,148 2,987,656

Payable upon return of securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,855,498 54,560,291Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,310 1,684,040

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,259,736 89,147,957

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $404,042,005 $4,345,070,287

Net assets consist of:Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $323,566,004 $2,712,560,628Undistributed net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (678,064) 143,132Net unrealized appreciation (depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,759,954 1,507,860,304Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,605,889) 124,506,223

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $404,042,005 $4,345,070,287

aIncludes securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,764,216 $ 53,703,258




Growth Fund Growth FundClass A:

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $270,270,765 $2,939,924,675

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,760,094 70,885,863

Net asset value per sharea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.02 $41.47

Maximum offering price per share (net asset value per share ÷ 94.25%) . . . . . . . . . . . . . . . . . . $13.81 $44.00

Class B:Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,895,476 $ 13,557,213

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,674 352,865

Net asset value and maximum offering price per sharea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.79 $38.42

Class C:Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,393,619 $ 426,526,181


Net asset value and maximum offering price per sharea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.80 $37.10

Class R:Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,992,715 $ 86,813,873

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 709,541 2,151,310

Net asset value and maximum offering price per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.67 $40.35

Advisor Class:Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,489,430 $ 878,248,345


Net asset value and maximum offering price per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.55 $42.73

aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.




Statements of Operationsfor the year ended April 30, 2011


Growth Fund Equity Fund FundInvestment income:

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,631,910 $ 253,420 $ 2,219,107Income from securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,750 — 37,458

Total investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,682,660 253,420 2,256,565

Expenses:Management fees (Note 3a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,065,166 109,650 2,030,315Administrative fees (Note 3b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 29,612 814,999Distribution fees: (Note 3c)

Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,765,835 24,491 526,389Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288,226 — 40,663Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,100,689 17,248 471,463Class R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309,987 119 106,236

Transfer agent fees (Note 3e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,139,969 20,148 753,490Special servicing agreement fees (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,183,308 — 192,018Custodian fees (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,685 1,096 9,561Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,414 8,226 60,863Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,537 43,638 80,375Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,584 25,701 32,812Trustees’ fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,072 — 6,003Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,985 7,939 18,141

Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,587,457 287,868 5,143,328Expenses waived/paid by affiliates (Note 3f) . . . . . . . . . . . . . . . . . . . . . . . . — (114,562) —

Net expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,587,457 173,306 5,143,328

Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,904,797) 80,114 (2,886,763)

Realized and unrealized gains (losses):Net realized gain (loss) from:

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,853,568 1,425,640 80,404,605Foreign currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 455 25,290

Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,853,568 1,426,095 80,429,895

Net change in unrealized appreciation (depreciation) on:Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520,643,522 599,339 2,359,743Translation of other assets and liabilities denominated in foreign currencies . . . . . — 1,452 189

Net change in unrealized appreciation (depreciation) . . . . . . . . . . . . . . . 520,643,522 600,791 2,359,932

Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663,497,090 2,026,886 82,789,827

Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . $655,592,293 $2,107,000 $79,903,064


Statements of Operations (continued)for the year ended April 30, 2011


Growth Fund Growth FundInvestment income:

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,103,485 $ 24,682,616Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 35,909Income from securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,764 868,557

Total investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,364,249 25,587,082

Expenses:Management fees (Note 3a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,753,150 17,165,812Administrative fees (Note 3b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644,448 —Distribution fees: (Note 3c)

Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645,637 6,387,188Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,086 141,177Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584,554 3,664,959Class R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,624 359,420

Transfer agent fees (Note 3e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 821,455 10,096,967Special servicing agreement fees (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,010 —Custodian fees (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,679 53,672Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,089 325,303Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,259 156,361Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,798 60,843Trustees’ fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,577 53,256Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,378 78,526

Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,726,744 38,543,484

Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,362,495) (12,956,402)

Realized and unrealized gains (losses):Net realized gain (loss) from:

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,271,620 459,268,980Foreign currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 109,924

Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,271,620 459,378,904

Net change in unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . . . . . . . . 34,799,740 532,119,795

Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,071,360 991,498,699

Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . $82,708,865 $978,542,297




Statements of Changes in Net Assets

Franklin Flex Cap Franklin Focused CoreGrowth Fund Equity Fund

Year Ended April 30, Year Ended April 30,2011 2010 2011 2010

Increase (decrease) in net assets:Operations:

Net investment income (loss) . . . . . . . . . . . . . . . . $ (7,904,797) $ (5,225,344) $ 80,114 $ 13,482Net realized gain (loss) from investments and

foreign currency transactions . . . . . . . . . . . . . . . 142,853,568 (11,841,335) 1,426,095 (221,049)Net change in unrealized appreciation

(depreciation) on investments and translation of other assets and liabilities denominated in foreign currencies . . . . . . . . . . . . . . . . . . . . . . . 520,643,522 808,395,319 600,791 3,392,290

Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . 655,592,293 791,328,640 2,107,000 3,184,723

Distributions to shareholders from:Net investment income:

Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (30,965) (1,639)Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (192)Class R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (18) —Advisor Class . . . . . . . . . . . . . . . . . . . . . . . . . . — — (9,148) (378)

Total distributions to shareholders . . . . . . . . . . . . . — — (40,131) (2,209)

Capital share transactions: (Note 2)Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,906,745) 45,426,202 1,957,248 3,349,764Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,989,092) (17,460,453) — —Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,280,087) (9,054,553) 16,221 1,484,137Class R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (283,184) 1,887,097 1,544 11,844Advisor Class . . . . . . . . . . . . . . . . . . . . . . . . . . 159,869,733 292,155,935 497,151 834,265

Total capital share transactions . . . . . . . . . . . . . . . 90,410,625 312,954,228 2,472,164 5,680,010

Net increase (decrease) in net assets . . . . . . . . . . . 746,002,918 1,104,282,868 4,539,033 8,862,524Net assets:

Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . 3,168,839,082 2,064,556,214 14,030,199 5,167,675

End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,914,842,000 $3,168,839,082 $18,569,232 $14,030,199

Undistributed net investment income included in net assets:

End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 110,902 $ — $ 51,719 $ 12,287


Statements of Changes in Net Assets (continued)

Franklin Growth Franklin Small CapOpportunities Fund Growth Fund

Year Ended April 30, Year Ended April 30,2011 2010 2011 2010


Net investment income (loss) . . . . . . . . . . . . . . . . . $ (2,886,763) $ (2,960,735) $ (3,362,495) $ (3,443,284)Net realized gain (loss) from investments and foreign

currency transactions . . . . . . . . . . . . . . . . . . . . . 80,429,895 50,115,772 51,271,620 28,709,259Net change in unrealized appreciation (depreciation)

on investments and translation of other assets and liabilities denominated in foreign currencies . . . . . 2,359,932 84,861,593 34,799,740 109,445,157

Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . 79,903,064 132,016,630 82,708,865 134,711,132

Capital share transactions: (Note 2)Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,695,487 20,308,188 13,332,812 4,744,844Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,624,514) (1,795,717) (3,779,259) (13,888,589)Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,411 6,103,602 (259,896) (4,066,668)Class R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,733,280 5,699,353 2,954,002 1,052,204Advisor Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . (98,485,875) 39,200,509 (70,195,124) 18,482,711

Total capital share transactions . . . . . . . . . . . . . . . . (89,281,211) 69,515,935 (57,947,465) 6,324,502

Net increase (decrease) in net assets . . . . . . . (9,378,147) 201,532,565 24,761,400 141,035,634Net assets:

Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . 482,444,618 280,912,053 379,280,605 238,244,971

End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 473,066,471 $482,444,618 $404,042,005 $379,280,605

Undistributed net investment income (loss) included in net assets:

End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ (678,064) $ —




Statements of Changes in Net Assets (continued)

Franklin Small-Mid CapGrowth Fund

Year Ended April 30,2011 2010


Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (12,956,402) $ (17,348,594)Net realized gain (loss) from investments and foreign currency transactions . . . . . . . . . . . . . 459,378,904 341,584,154Net change in unrealized appreciation (depreciation) on investments and translation of

other assets and liabilities denominated in foreign currencies . . . . . . . . . . . . . . . . . . . . . . 532,119,795 925,354,304

Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . 978,542,297 1,249,589,864

Capital share transactions: (Note 2)Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (303,225,846) (479,002,852)Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,906,267) (2,515,953)Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,470,982) (36,545,907)Class R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,338,889) (8,968,574)Advisor Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (112,005,876) 50,561,439

Total capital share transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (453,947,860) (476,471,847)

Net increase (decrease) in net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524,594,437 773,118,017Net assets:

Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,820,475,850 3,047,357,833

End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,345,070,287 $3,820,475,850

Undistributed net investment income included in net assets:End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 143,132 $ —

Franklin Strategic SeriesNotes to Financial Statements

104 | Annual Report

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Strategic Series (Trust) is registered under the Investment Company Act of 1940, asamended, (1940 Act) as an open-end investment company, consisting of eight separate funds,five of which are included in this report (Funds). The financial statements of the remainingfunds in the Trust are presented separately. The classes of shares offered within each of theFunds are indicated below. Each class of shares differs by its initial sales load, contingentdeferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege.

Class A, Class C, Class R & Advisor Class Class A, Class B, Class C, Class R & Advisor Class

Franklin Focused Core Equity Fund Franklin Flex Cap Growth FundFranklin Growth Opportunities FundFranklin Small Cap Growth FundFranklin Small-Mid Cap Growth Fund

The following summarizes the Funds’ significant accounting policies.

a. Financial Instrument Valuation

The Funds’ investments in securities and other financial instruments are carried at fair valuedaily. 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 pro-cedures approved by the Trust’s Board of Trustees, the Funds may utilize independent pricingservices, quotations from securities and financial instrument dealers, and other market sourcesto determine fair value.

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

The Funds have procedures to determine the fair value of securities and other financial instrumentsfor which market prices are not readily available or which may not be reliably priced. Underthese procedures, the Funds primarily employ a market-based approach which may use relatedor comparable assets or liabilities, recent transactions, market multiples, book values, and other

Franklin Strategic SeriesNotes to Financial Statements (continued)

Annual Report | 105

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

relevant information for the investment to determine the fair value of the investment. The Fundsmay also use an income-based valuation approach in which the anticipated future cash flows ofthe investment are discounted to calculate fair value. Discounts may also be applied due to thenature or duration of any restrictions on the disposition of the investments. Due to the inherentuncertainty of valuations of such investments, the fair values may differ significantly from thevalues that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may becompleted before the daily close of business on the NYSE. Occasionally, events occur betweenthe time at which trading in a foreign security is completed and the close of the NYSE that mightcall 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 theforeign market close and the latest indications of value at the close of the NYSE. In order tominimize the potential for these differences, the investment manager monitors price movementsfollowing the close of trading in foreign stock markets through a series of country specific marketproxies (such as baskets of American Depository Receipts, futures contracts and exchange tradedfunds). These price movements are measured against established trigger thresholds for each spe-cific market proxy to assist in determining if an event has occurred that may call into questionthe reliability of the values of the foreign securities held by the Funds. If such an event occurs, thesecurities may be valued using fair value procedures, which may include the use of independentpricing services.

b. Foreign Currency Translation

Portfolio securities and other assets and liabilities denominated in foreign currencies are trans-lated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on thedate of valuation. The Funds may enter into foreign currency exchange contracts to facilitatetransactions denominated in a foreign currency. Purchases and sales of securities, income andexpense items denominated in foreign currencies are translated into U.S. dollars at the exchangerate in effect on the transaction date. Portfolio securities and assets and liabilities denominatedin 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 ratesused to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchangerate will be valued at fair value using procedures established and approved by the Funds’ Boardof Trustees.

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


106 | Annual Report


b. Foreign Currency Translation (continued)

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

c. Joint Repurchase Agreement

The Franklin Small-Mid Cap Growth Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed bythe investment manager or an affiliate of the investment manager and is used to invest in one ormore repurchase agreements. The value and face amount of the joint repurchase agreement areallocated to the funds based on their pro-rata interest. A repurchase agreement is accounted foras a loan by the fund to the seller, collateralized by securities which are delivered to the fund’scustodian. The market value, including accrued interest, of the initial collateralization is requiredto be at least 102% of the dollar amount invested by the funds, with the value of the underlyingsecurities marked to market daily to maintain coverage of at least 100%. The joint repurchaseagreement held by the fund at year end had been entered into on April 29, 2011.

d. Securities Lending

Certain funds participate in an agency based security lending program. The fund receives cashcollateral against the loaned securities in an amount equal to at least 102% of the market valueof the loaned securities. Collateral is maintained over the life of the loan in an amount not lessthan 100% of the market value of loaned securities, as determined at the close of fund businesseach day; any additional collateral required due to changes in security values is delivered to thefund on the next business day. The collateral is invested in money funds managed by the fund’scustodian on the fund’s behalf. 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 withrespect to the collateral investment, securities loaned, and the risk that the agent may default onits obligations to the fund. The securities lending agent has agreed to indemnify the fund in theevent of default by a third party borrower.

e. Income Taxes

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


Annual Report | 107


e. Income Taxes (continued)

in certain other jurisdictions. Each fund records a provision for taxes in its financial statementsincluding penalties and interest, if any, for a tax position taken on a tax return (or expected tobe taken) when it fails to meet the more likely than not (a greater than 50% probability) thresh-old and based on the technical merits, the tax position may not be sustained upon examination bythe tax authorities. As of April 30, 2011, and for all open tax years, each fund has determined thatno provision for income tax is required in the each fund’s financial statements. Open tax yearsare those that remain subject to examination and are based on each tax jurisdiction statute oflimitation.

f. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security trans-actions are determined on a specific identification basis. Interest income and estimated expensesare accrued daily. Dividend income is recorded on the ex-dividend date except that certain divi-dends from foreign securities are recognized as soon as the Funds are notified of the ex-dividenddate. Distributions to shareholders are recorded on the ex-dividend date and are determinedaccording to income tax regulations (tax basis). Distributable earnings determined on a tax basismay differ from earnings recorded in accordance with accounting principles generally acceptedin the United States of America. These differences may be permanent or temporary. Permanentdifferences are reclassified among capital accounts to reflect their tax character. These reclassifi-cations have no impact on net assets or the results of operations. Temporary differences are notreclassified, as they may reverse in subsequent periods.

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

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

g. Accounting Estimates

The preparation of financial statements in accordance with accounting principles generallyaccepted in the United States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities at the date of the financial statements andthe amounts of income and expenses during the reporting period. Actual results could differ fromthose estimates.


108 | Annual Report


h. Guarantees and Indemnifications

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

2. SHARES OF BENEFICIAL INTEREST

At April 30, 2011, there were an unlimited number of shares authorized (without par value).Transactions in the Funds’ shares were as follows:

Franklin Franklin FocusedFlex Cap Growth Fund Core Equity Fund

Shares Amount Shares AmountClass A Shares:Year ended April 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . . . . 8,029,447 $ 373,670,062 741,960 $ 6,860,624Shares issued in reinvestment of

distributions . . . . . . . . . . . . . . . . . . . . — — 1,901 18,003Shares redeemed . . . . . . . . . . . . . . . . . (9,038,117) (405,576,807) (559,285) (4,921,379)

Net increase (decrease) . . . . . . . . . . . . . (1,008,670) $ (31,906,745) 184,576 $ 1,957,248

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . . . 10,142,978 $ 382,850,039 582,595 $ 4,511,387Shares issued in reinvestment of

distributions . . . . . . . . . . . . . . . . . . . . — — 107 885Shares redeemed . . . . . . . . . . . . . . . . . (8,721,078) (337,423,837) (146,719) (1,162,508)

Net increase (decrease) . . . . . . . . . . . . . 1,421,900 $ 45,426,202 435,983 $ 3,349,764

Class B Shares:Year ended April 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . . . . 22,825 $ 941,519Shares redeemed . . . . . . . . . . . . . . . . . (460,061) (18,930,611)

Net increase (decrease) . . . . . . . . . . . . . (437,236) $ (17,989,092)

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . . . 64,640 $ 2,258,253Shares redeemed . . . . . . . . . . . . . . . . . (555,826) (19,718,706)

Net increase (decrease) . . . . . . . . . . . . . (491,186) $ (17,460,453)


Annual Report | 109

2. SHARES OF BENEFICIAL INTEREST (continued)

Franklin Franklin FocusedFlex Cap Growth Fund Core Equity Fund

Shares Amount Shares AmountClass C Shares:Year ended April 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . . . . 1,013,626 $ 43,056,231 83,990 $ 762,580Shares redeemed . . . . . . . . . . . . . . . . . (1,515,917) (62,336,318) (85,552) (746,359)

Net increase (decrease) . . . . . . . . . . . . . (502,291) $ (19,280,087) (1,562) $ 16,221

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . . . 1,310,372 $ 45,962,795 245,975 $ 1,917,768Shares issued in reinvestment of

distributions . . . . . . . . . . . . . . . . . . . . — — 23 186Shares redeemed . . . . . . . . . . . . . . . . . (1,533,211) (55,017,348) (54,816) (433,817)

Net increase (decrease) . . . . . . . . . . . . . (222,839) $ (9,054,553) 191,182 $ 1,484,137

Class R Shares:Year ended April 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . . . . 380,532 $ 16,868,527 1,215 $ 11,006Shares issued in reinvestment of

distributions . . . . . . . . . . . . . . . . . . . . — — 1 13Shares redeemed . . . . . . . . . . . . . . . . . (392,016) (17,151,711) (1,004) (9,475)

Net increase (decrease) . . . . . . . . . . . . . (11,484) $ (283,184) 212 $ 1,544

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . . . 473,944 $ 17,880,463 1,421 $ 12,129Shares redeemed . . . . . . . . . . . . . . . . . (424,588) (15,993,366) (35) (285)

Net increase (decrease) . . . . . . . . . . . . . 49,356 $ 1,887,097 1,386 $ 11,844

Advisor Class Shares:Year ended April 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . . . . 6,927,872 $ 306,304,533 75,624 $ 635,296Shares issued in reinvestment of

distributions . . . . . . . . . . . . . . . . . . . . — — 962 9,120Shares redeemed . . . . . . . . . . . . . . . . . (3,174,315) (146,434,800) (17,465) (147,265)

Net increase (decrease) . . . . . . . . . . . . . 3,753,557 $ 159,869,733 59,121 $ 497,151

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . . . 9,273,966 $ 331,643,691 109,322 $ 876,605Shares issued in reinvestment of

distributions . . . . . . . . . . . . . . . . . . . . — — 45 377Shares redeemed . . . . . . . . . . . . . . . . . (988,678) (39,487,756) (5,472) (42,717)

Net increase (decrease) . . . . . . . . . . . . . 8,285,288 $ 292,155,935 103,895 $ 834,265


110 | Annual Report


Franklin Growth FranklinOpportunities Fund Small Cap Growth Fund

Shares Amount Shares AmountClass A Shares:Year ended April 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . . 2,676,798 $ 57,153,257 8,367,719 $ 92,360,322Shares redeemed . . . . . . . . . . . . . . . . (2,554,412) (52,457,770) (7,315,341) (79,027,510)

Net increase (decrease) . . . . . . . . . . . 122,386 $ 4,695,487 1,052,378 $ 13,332,812

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . 4,138,485 $ 67,504,795 5,574,297 $ 45,740,122Shares redeemed . . . . . . . . . . . . . . . . (2,751,361) (47,196,607) (5,065,052) (40,995,278)

Net increase (decrease) . . . . . . . . . . . 1,387,124 $ 20,308,188 509,245 $ 4,744,844


Shares sold . . . . . . . . . . . . . . . . . . . . 17,520 $ 335,780 32,004 $ 331,066Shares redeemed . . . . . . . . . . . . . . . . (155,593) (2,960,294) (445,366) (4,110,325)

Net increase (decrease) . . . . . . . . . . . (138,073) $ (2,624,514) (413,362) $ (3,779,259)

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . 84,999 $ 1,252,667 87,469 $ 620,135Shares redeemed . . . . . . . . . . . . . . . . (189,435) (3,048,384) (2,003,577) (14,508,724)

Net increase (decrease) . . . . . . . . . . . (104,436) $ (1,795,717) (1,916,108) $(13,888,589)

Class C Shares:Year ended April 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . . 686,584 $ 13,565,498 1,517,359 $ 15,503,699Shares redeemed . . . . . . . . . . . . . . . . (697,082) (13,165,087) (1,647,331) (15,763,595)

Net increase (decrease) . . . . . . . . . . . (10,498) $ 400,411 (129,972) $ (259,896)

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . 1,064,354 $ 16,329,773 929,306 $ 7,067,940Shares redeemed . . . . . . . . . . . . . . . . (643,275) (10,226,171) (1,483,260) (11,134,608)

Net increase (decrease) . . . . . . . . . . . 421,079 $ 6,103,602 (553,954) $ (4,066,668)

Class R Shares:Year ended April 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . . 730,372 $ 14,596,539 481,450 $ 5,234,920Shares redeemed . . . . . . . . . . . . . . . . (393,736) (7,863,259) (210,911) (2,280,918)

Net increase (decrease) . . . . . . . . . . . 336,636 $ 6,733,280 270,539 $ 2,954,002

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . 696,058 $ 11,548,428 250,130 $ 1,984,960Shares redeemed . . . . . . . . . . . . . . . . (347,824) (5,849,075) (116,303) (932,756)

Net increase (decrease) . . . . . . . . . . . 348,234 $ 5,699,353 133,827 $ 1,052,204


Annual Report | 111


Franklin Growth FranklinOpportunities Fund Small Cap Growth Fund

Shares Amount Shares AmountAdvisor Class Shares:Year ended April 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . . 569,212 $ 12,226,433 1,968,462 $ 23,211,386Shares redeemed . . . . . . . . . . . . . . . . (5,854,071) (110,712,308) (9,305,707) (93,406,510)

Net increase (decrease) . . . . . . . . . . . (5,284,859) $ (98,485,875) (7,337,245) $(70,195,124)

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . 2,570,954 $ 44,298,688 2,846,129 $ 23,616,929Shares redeemed . . . . . . . . . . . . . . . . (289,033) (5,098,179) (599,506) (5,134,218)

Net increase (decrease) . . . . . . . . . . . 2,281,921 $ 39,200,509 2,246,623 $ 18,482,711


Shares AmountClass A Shares:Year ended April 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,680,160 $ 378,510,776Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,868,113) (681,736,622)

Net increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,187,953) $(303,225,846)

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,760,716 $ 312,302,780Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,977,041) (791,305,632)



Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,907 $ 987,069Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (214,684) (6,893,336)

Net increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (185,777) $ (5,906,267)

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,241 $ 1,634,862Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (164,348) (4,150,815)


Class C Shares:Year ended April 30, 2011


Net increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,089,933) $ (31,470,982)

Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 933,047 $ 22,913,644Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,424,305) (59,459,551)

Net increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,491,258) $ (36,545,907)


112 | Annual Report



Shares AmountClass R Shares:Year ended April 30, 2011

Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720,515 $ 24,536,455Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (773,149) (25,875,344)


Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 868,517 $ 22,163,383Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,144,546) (31,131,957)


Advisor Class Shares:Year ended April 30, 2011



Year ended April 30, 2010Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,267,101 $ 177,335,667Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,423,320) (126,774,228)

Net increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,843,781 $ 50,561,439

3. TRANSACTIONS WITH AFFILIATES

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

Subsidiary AffiliationFranklin Advisers, Inc. (Advisers) Investment managerFranklin Templeton Services, LLC (FT Services) Administrative managerFranklin Templeton Distributors, Inc. (Distributors) Principal underwriterFranklin Templeton Investor Services, LLC (Investor Services) Transfer agent

a. Management Fees

The Franklin Flex Cap Growth Fund and the Franklin Small-Mid Cap Growth Fund pay aninvestment management fee to Advisers based on the average daily net assets of each of thefunds as follows:

Annualized Fee Rate Net Assets

0.625% Up to and including $100 million0.500% Over $100 million, up to and including $250 million0.450% Over $250 million, up to and including $7.5 billion0.440% Over $7.5 billion, up to and including $10 billion0.430% Over $10 billion, up to and including $12.5 billion0.420% Over $12.5 billion, up to and including $15 billion0.400% In excess of $15 billion


Annual Report | 113

3. TRANSACTIONS WITH AFFILIATES (continued)

a. Management Fees (continued)

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


0.750% Up to and including $500 million0.650% Over $500 million, up to and including $1 billion0.600% Over $1 billion, up to and including $1.5 billion0.550% Over $1.5 billion, up to and including $6.5 billion0.525% Over $6.5 billion, up to and including $11.5 billion0.500% Over $11.5 billion, up to and including $16.5 billion0.490% Over $16.5 billion, up to and including $19 billion0.480% Over $19 billion, up to and including $21.5 billion0.470% In excess of $21.5 billion

The Franklin Growth Opportunities Fund pays an investment management fee to Advisersbased on the average daily net assets of the fund as follows:



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




114 | Annual Report


b. Administrative Fees

The Franklin Focused Core Equity Fund, the Franklin Growth Opportunities Fund, and theFranklin 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 fund.

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

c. Distribution Fees

The Trust’s Board of Trustees has adopted distribution plans for each share class, with the excep-tion of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds’ Class Areimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connec-tion with the servicing, sale and distribution of each fund’s shares up to the maximum annualplan rate. Under the Class A reimbursement distribution plans, costs exceeding the maximum forthe current plan year cannot be reimbursed in subsequent periods.

In addition, under the Funds’ Class B, C and R compensation distribution plans, the Funds payDistributors for costs incurred in connection with the servicing, sale and distribution of eachfund’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:

FranklinFranklin Franklin Growth Franklin FranklinFlex Cap Focused Core Opportunities Small Cap Small-Mid Cap

Growth Fund Equity Fund Fund Growth Fund Growth Fund

Reimbursement Plans:Class A . . . . . . . . . . . . . . 0.25% 0.35% 0.35% 0.35% 0.25%

Compensation Plans:Class B . . . . . . . . . . . . . . 1.00% — 1.00% 1.00% 1.00%Class C . . . . . . . . . . . . . . 1.00% 1.00% 1.00% 1.00% 1.00%Class R . . . . . . . . . . . . . . 0.50% 0.50% 0.50% 0.50% 0.50%

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


Annual Report | 115


d. Sales Charges/Underwriting Agreements

Distributors has advised the Funds of the following commission transactions related to the salesand redemptions of the Funds’ shares for the year:

FranklinFranklin Franklin Growth FranklinFlex Cap Focused Core Opportunities Small Cap

Growth Fund Equity Fund Fund Growth Fund

Sales charges retained net of commissions paid to unaffiliated broker/dealers . . . . . . . . $796,589 $10,998 $88,627 $114,059

Contingent deferred sales charges retained . . . $ 39,311 $ 133 $ 7,028 $ 10,866

FranklinSmall-Mid CapGrowth Fund

Sales charges retained net of commissions paid to unaffiliated broker/dealers . . . . . . . . $284,315

Contingent deferred sales charges retained . . . $ 18,175

e. Transfer Agent Fees

For the year ended April 30, 2011, the Funds paid transfer agent fees as noted in the Statementsof Operations of which the following amounts were retained by Investor Services:



Transfer agent fees . . . . . . $4,249,819 $14,629 $491,382 $448,381 $5,231,664

f. Waiver and Expense Reimbursements

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 certainexpenses otherwise payable by the fund so that the common expenses (i.e. a combination ofmanagement fees, administrative fees, and other expenses, but excluding distribution fees, andacquired fund fees and expenses) for each class of the fund do not exceed 0.89% (other thancertain non-routine expenses or costs, including those relating to litigation, indemnification,reorganizations, and liquidations) until August 31, 2011.

g. Other Affiliated Transactions

At April 30, 2011, Advisers owned 27.63% of the Franklin Focused Core Equity Fund’s out-standing shares.


116 | Annual Report

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’ custodianexpenses. During the year ended April 30, 2011, there were no credits earned.

5. INCOME TAXES

For tax purposes, capital losses may be carried over to offset future capital gains, if any. At April 30, 2011, the capital loss carryforwards were as follows:

FranklinGrowth Franklin

Opportunities Small CapFund Growth Fund

Capital loss carryforwards expiring in:2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,731,404 $ —2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . — 37,074,157

$4,731,404 $37,074,157

During the year end April 30, 2011, the Funds utilized capital loss carryforwards as follows:

Franklin Franklin Franklin Growth Franklin FranklinFlex Cap Focused Core Opportunities Small Cap Small-Mid Cap


$108,486,154 $827,923 $76,125,053 $48,982,838 $333,195,504

The tax character of distributions paid during the years ended April 30, 2011 and 2010, was as follows:

FranklinFocused CoreEquity Fund

2011 2010

Distributions paid from ordinary income . . . . . . . . . . $40,131 $2,209


Annual Report | 117

5. INCOME TAXES (continued)

At April 30, 2011, the cost of investments, net unrealized appreciation (depreciation), undistrib-uted ordinary income and undistributed long term capital gains for income tax purposes were as follows:


Growth Fund Equity Fund Fund

Cost of investments . . . . . . . . . . . . . . . . . . . . . . $2,613,718,674 $ 15,899,788 $371,546,842

Unrealized appreciation . . . . . . . . . . . . . . . . . . . $1,324,221,537 $ 3,016,841 $123,075,235Unrealized depreciation . . . . . . . . . . . . . . . . . . . (3,805,160) (542,906) (3,925,156)

Net unrealized appreciation (depreciation) . . . . . . $1,320,416,377 $ 2,473,935 $119,150,079

Undistributed ordinary income . . . . . . . . . . . . . . . $ — $ 51,720 $ —Undistributed long term capital gains . . . . . . . . . . 34,547,490 681,069 —

Distributable earnings . . . . . . . . . . . . . . . . . . . . . $ 34,547,490 $ 732,789 $ —


Growth Fund Growth Fund

Cost of investments . . . . . . . . . . . . . . . . . . . . . . $ 313,533,336 $2,908,468,796

Unrealized appreciation . . . . . . . . . . . . . . . . . . . $ 124,346,076 $1,525,290,761Unrealized depreciation . . . . . . . . . . . . . . . . . . . (6,795,920) (19,556,181)

Net unrealized appreciation (depreciation) . . . . . . $ 117,550,156 $1,505,734,580

Distributable earnings – undistributed long term capital gains . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 126,775,088

Net investment income (loss) differs for financial statement and tax purposes primarily due todiffering treatments of foreign currency transactions, passive foreign investment company shares,pass-through entity income, and regulatory settlements.

Net realized gains (losses) differ for financial statement and tax purposes primarily due to differ-ing treatments of wash sales, foreign currency transactions, and pass-through entity income.

6. INVESTMENT TRANSACTIONS

Purchases and sales (excluding short term securities) for the year ended April 30, 2011, were as follows:



Purchases . . . . $1,666,125,108 $10,900,369 $284,963,075 $198,954,066 $1,643,336,200 Sales . . . . . . . $1,725,218,785 $ 9,043,392 $378,176,649 $252,953,710 $2,224,243,942


118 | Annual Report

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Funds invest in the Institutional Fiduciary Trust Money Market Portfolio (Sweep MoneyFund), an open-end investment company managed by Advisers. Management fees paid by theFunds are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed themanagement 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. Restrictedsecurities are often purchased in private placement transactions, and cannot be sold withoutprior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal ofthese securities may require greater effort and expense, and prompt sale at an acceptable pricemay be difficult. The funds may have registration rights for restricted securities. The issuer gen-erally incurs all registration costs.

At April 30, 2011, the funds held investments in restricted securities, excluding certain securitiesexempt from registration under the 1933 Act deemed to be liquid, as follows:

AcquisitionShares Issuer Date Cost Value

Franklin Flex Cap Growth Fund36,443 Anda Networks . . . . . . . . . . . . . . . . . . . . . . . . . . 3/24/00 $2,000,000 $ —

2,227,171 FibroGen Inc., pfd., E . . . . . . . . . . . . . . . . . . . . . 5/19/00 9,999,998 9,510,020

Total Restricted Securities (0.24% of Net Assets) . . . . . . . . . . . . . . . . . . . $9,510,020

Franklin Small-Mid Cap Growth Fund91,107 Anda Networks (0.00% of Net Assets) . . . . . . . . . 3/24/00 $5,000,000 $ —

9. SPECIAL SERVICING AGREEMENT

The Franklin Flex Cap Growth Fund, the Franklin Growth Opportunities Fund, the FranklinSmall Cap Growth Fund, and the Franklin Small-Mid Cap Growth Fund, which are eligibleunderlying investments of one or more of the Franklin Templeton Fund Allocator Series Funds(Allocator Funds), participates in a Special Servicing Agreement (SSA) with the Allocator Fundsand certain service providers of the funds and the Allocator Funds. Under the SSA, the funds maypay a portion of the Allocator Funds’ expenses (other than any asset allocation, administrativeand distribution fees), to the extent such payments are less than the amount of the benefits real-ized or expected to be realized by the funds (e.g., due to reduced costs associated with servicingaccounts) from the investment in the funds by the Allocator Funds. The Allocator Funds areeither managed by Franklin Advisers, Inc. or administered by FT Services, affiliates of the funds.For the year ended April 30, 2011, the Franklin Flex Cap Growth Fund, the Franklin Growth


Annual Report | 119

9. SPECIAL SERVICING AGREEMENT (continued)

Opportunities Fund, and the Franklin Small Cap Growth Fund were held by one or more of theAllocator Funds and the amount of expenses borne by the funds is noted in the Statements ofOperations. At April 30, 2011, 19.16% of the Franklin Flex Cap Growth Fund and 22.91% ofthe Franklin Growth Opportunities Fund outstanding shares were held by one or more of theAllocator Funds. At April 30, 2011, the Franklin Small Cap Growth Fund was no longer heldby any of the Allocator Funds.

10. 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 syndicatedsenior unsecured credit facility totaling $750 million (Global Credit Facility) which matures onJanuary 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers fortemporary and emergency purposes, including the ability to meet future unanticipated or unusu-ally 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 theGlobal Credit Facility, based upon their relative share of the aggregate net assets of all of theBorrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statements of Operations.During the year ended April 30, 2011, the Funds did not use the Global Credit Facility.

11. REGULATORY AND LITIGATION MATTERS

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

12. FAIR VALUE MEASUREMENTS

The Trust follows a fair value hierarchy that distinguishes between market data obtained fromindependent sources (observable inputs) and the Trust’s own market assumptions (unobservable


120 | Annual Report

12. FAIR VALUE MEASUREMENTS (continued)

inputs). These inputs are used in determining the value of the Funds’ investments and are sum-marized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

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

• Level 3 – significant unobservable inputs (including the fund’s own assumptions in deter-mining the fair value of investments)

The inputs or methodology used for valuing securities are not an indication of the risk associatedwith investing in those securities.

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

The following is a summary of the inputs used as of April 30, 2011, in valuing the Funds’ assetsand liabilities carried at fair value:

Level 1 Level 2 Level 3 Total

Franklin Flex Cap Growth FundAssets:

Investments in Securities:Equity Investments:a

Pharmaceuticals, Biotechnology & Life Sciences . . . . . . . . . . . . . . $ 133,859,643 $ — $9,510,020 $ 143,369,663

Other Equity Investmentsb. . . . . . . . 3,534,802,951 — —c 3,534,802,951Short Term Investments . . . . . . . . . . 211,588,837 44,373,600 — 255,962,437

Total Investments in Securities . . . $3,880,251,431 $44,373,600 $9,510,020 $3,934,135,051

Franklin Focused Core Equity FundAssets:

Investments in Securities:Equity Investmentsb . . . . . . . . . . . . . $ 17,259,662 $ — $ — $ 17,259,662 Short Term Investments . . . . . . . . . . 1,114,061 — — 1,114,061

Total Investments in Securities . . . $ 18,373,723 $ — $ — $ 18,373,723

Franklin Growth Opportunities FundAssets:

Investments in Securities:Equity Investmentsb . . . . . . . . . . . . . $ 475,002,653 — $ — $ 475,002,653 Short Term Investments . . . . . . . . . . 5,822,266 9,872,002 — 15,694,268

Total Investments in Securities . . . $ 480,824,919 $ 9,872,002 $ — $ 490,696,921


Annual Report | 121

12. FAIR VALUE MEASUREMENTS (continued)

Level 1 Level 2 Level 3 Total

Franklin Small Cap Growth FundAssets:

Investments in Securities:Equity Investmentsb . . . . . . . . . . . . . $ 390,088,591 $ — $ — $ 390,088,591 Short Term Investments . . . . . . . . . . 14,139,403 26,855,498 — 40,994,901

Total Investments in Securities . . . $ 404,227,994 $26,855,498 $ — $ 431,083,492

Franklin Small-Mid Cap Growth FundAssets:

Investments in Securities:Equity Investmentsb . . . . . . . . . . . . . $4,101,589,999 $ — $ —c $4,101,589,999Short Term Investments . . . . . . . . . . 216,556,709 96,056,668 — 312,613,377

Total Investments in Securities . . . $4,318,146,708 $96,056,668 $ — $4,414,203,376

alncludes common and preferred stocks as well as other equity investments.bFor detailed industry descriptions, see the accompanying Statements of Investments.cIncludes a security determined to have no value at April 30, 2011.

At April 30, 2011, the reconciliation of assets in which significant unobservable inputs (Level 3)were used in determining the fund’s fair value, was as follows:

Net Changein Unrealized

Balance Net Net Balance Appreciationat Transfers Transfers Realized Unrealized at (Depreciation)

Beginning into Out of Cost Basis Gain Gain End of on Assets Heldof Year Purchases Sales Level 3 Level 3 Adjustments (Loss) (Loss) Year at Year End

Franklin Flex Cap Growth FundAssetsEquity Investments:a

Pharmaceuticals, Biotechnology & Life Sciences . . . . . . . . . . . . . . . $10,022,270 $ — $ — $ — $ — $ — $ — $(512,250) $9,510,020 $(512,250)

Telecommunication Services . . . . . 26,603 — — — — — — (26,603) —b (26,603)

Total . . . . . . . . . . . . . . . . . . . . . $10,048,873 $ — $ — $ — $ — $ — $ — $(538,853) $9,510,020 $(538,853)

alncludes common and preferred stocks as well as other equity investments.blncludes securities determined to have no value.

13. SUBSEQUENT EVENTS

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

ABBREVIATIONS

Selected Portfolio

ADR - American Depository Receipt

122 | Annual Report

Franklin Strategic SeriesReport of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of Franklin Strategic Series

In our opinion, the accompanying statements of assets and liabilities, including the statements ofinvestments, and the related statements of operations and of changes in net assets and the finan-cial highlights present fairly, in all material respects, the financial position of the Franklin FlexCap Growth Fund, Franklin Focused Core Equity Fund, Franklin Growth Opportunities Fund,Franklin Small Cap Growth Fund and Franklin Small-Mid Cap Growth Fund (separate portfoliosof Franklin Strategic Series, hereafter referred to as the “Funds”) at April 30, 2011, the resultsof each of their operations for the year then ended, the changes in each of their net assets for eachof the two years in the period then ended and the financial highlights for each of the periods pre-sented, in conformity with accounting principles generally accepted in the United States ofAmerica. These financial statements and financial highlights (hereafter referred to as “financialstatements”) are the responsibility of the Funds’ management. Our responsibility is to express anopinion on these financial statements based on our audits. We conducted our audits of these finan-cial statements in accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used and significant estimates madeby management, and evaluating the overall financial statement presentation. We believe that ouraudits, which included confirmation of securities at April 30, 2011 by correspondence with thecustodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, CaliforniaJune 16, 2011

Annual Report | 123

Franklin Strategic SeriesTax Designation (unaudited)

Under Section 854(b)(2) of the Internal Revenue Code (Code), the Franklin Focused CoreEquity Fund designates 100% of the ordinary income dividends as income qualifying for thedividends received deduction for the fiscal year ended April 30, 2011.

Under Section 854(b)(2) of the Code, the Funds designate the maximum amount allowable butno less than the following amounts as qualified dividends for purposes of the maximum rateunder Section 1(h)(11) of the Code for the fiscal year ended April 30, 2011:

Franklin Franklin Franklin Growth Franklin FranklinFlex Cap Focused Core Opportunities Small Cap Small-Mid Cap


$23,063,065 $262,455 $2,208,962 $1,045,432 $24,241,738

Distributions, including qualified dividend income, paid during calendar year 2011 will bereported to shareholders on Form 1099-DIV in January 2012. Shareholders are advised to checkwith their tax advisors for information on the treatment of these amounts on their individualincome tax returns.

The name, year of birth and address of the officers and board members, as well as their affiliations, positions held withthe Trust, principal occupations during the past five years and number of portfolios overseen in the Franklin TempletonInvestments fund complex are shown below. Generally, each board member serves until that person’s successor is electedand qualified.

Independent Board Members

124 | Annual Report

Franklin Strategic SeriesBoard Members and Officers

Number of Portfolios inName, Year of Birth Length of Fund Complex Overseenand Address Position Time Served by Board Member* Other Directorships Held

Bar-S Foods (meat packing company)(1981-2010).

Harris J. Ashton (1932)One Franklin ParkwaySan Mateo, CA 94403-1906

Trustee Since 1991 130

Principal Occupation During Past 5 Years:Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, ChiefExecutive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).

ICO Global Communications(Holdings) Limited (satellite company).

Sam Ginn (1937)One Franklin ParkwaySan Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Private investor; and formerly, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and ChiefExecutive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Group (telephone holding company)(1988-1994).

Hess Corporation (exploration andrefining of oil and gas), H.J. HeinzCompany (processed foods and alliedproducts), RTI International Metals,Inc. (manufacture and distribution oftitanium), Canadian National Railway(railroad) and White MountainsInsurance Group, Ltd. (holding company).

Edith E. Holiday (1952)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of theCabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and AssistantSecretary, Public Affairs and Public Liaison – United States Treasury Department (1988-1989).

Boeing Capital Corporation (aircraftfinancing).

J. Michael Luttig (1954)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Executive Vice President, General Counsel and member of Executive Council, The Boeing Company; and formerly, Federal Appeals CourtJudge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).

Annual Report | 125


Cbeyond, Inc. (business communi-cations provider) and The SouthernCompany (energy company).

Larry D. Thompson (1945)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Senior Vice President – Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and formerly, Director,Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of The BrookingsInstitution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department ofJustice (2001-2003).

NoneJohn B. Wilson (1959)One Franklin Parkway San Mateo, CA 94403-1906

LeadIndependentTrustee

Trustee since2006 and LeadIndependentTrustee since 2008

106

Principal Occupation During Past 5 Years:President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit boards; and formerly, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive VicePresident – Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior Vice President – Corporate Planning, Northwest Airlines,Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990).

Hess Corporation (exploration andrefining of oil and gas).

Frank A. Olson (1932)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer (1977-1999)); and formerly, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).

None**Charles B. Johnson (1933)One Franklin Parkway San Mateo, CA 94403-1906

Trustee andChairman ofthe Board

Trustee since1991 andChairman of theBoard since 1993

130

Principal Occupation During Past 5 Years:Chairman of the Board, Member – Office of the Chairman and Director, Franklin Resources, Inc.; and officer and/or director or trustee, asthe case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41 of the investment companies in Franklin TempletonInvestments.


Interested Board Members and Officers

126 | Annual Report


Not ApplicableJames M. Davis (1952)One Franklin Parkway San Mateo, CA 94403-1906

ChiefComplianceOfficer andVice President– AMLCompliance

Chief ComplianceOfficer since 2004and Vice President – AML Compliancesince 2006

Not Applicable

Principal Occupation During Past 5 Years: Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of theinvestment companies in Franklin Templeton Investments; and formerly, Director of Compliance, Franklin Resources, Inc. (1994-2001).

None**Rupert H. Johnson, Jr. (1940)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Vice Chairman, Member – Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior VicePresident, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries ofFranklin Resources, Inc. and of 25 of the investment companies in Franklin Templeton Investments.

Not ApplicableLaura F. Fergerson (1962)One Franklin ParkwaySan Mateo, CA 94403-1906

ChiefExecutiveOfficer –Finance andAdministration

Since 2009 Not Applicable

Principal Occupation During Past 5 Years:Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; andformerly, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of theinvestment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003).

Not ApplicableGaston Gardey (1967)One Franklin ParkwaySan Mateo, CA 94403-1906

Treasurer,Chief FinancialOfficer andChiefAccountingOfficer


Principal Occupation During Past 5 Years:Director, Fund Accounting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton Investments.

Not ApplicableAliya S. Gordon (1973)One Franklin ParkwaySan Mateo, CA 94403-1906

Vice President Since 2009 Not Applicable

Principal Occupation During Past 5 Years:Senior Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin TempletonInvestments; and formerly, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).

Not ApplicableDavid P. Goss (1947)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Senior Associate General Counsel, Franklin Templeton Investments; and officer and/or director, as the case may be, of some of the othersubsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.

Annual Report | 127


Not ApplicableEdward B. Jamieson (1948)One Franklin Parkway San Mateo, CA 94403-1906

President and ChiefExecutiveOfficer –InvestmentManagement


Principal Occupation During Past 5 Years:President, Chief Investment Officer and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and officer and/or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 10 of the investment companies in Franklin Templeton Investments.

Not ApplicableSteven J. Gray (1955)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and officer of 45 ofthe investment companies in Franklin Templeton Investments.

Not ApplicableChristopher J. Molumphy (1962)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Director and Executive Vice President, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and officer ofsome of the other subsidiaries of Franklin Resources, Inc. and of 22 of the investment companies in Franklin Templeton Investments.

Not ApplicableRobert C. Rosselot (1960)500 East Broward Blvd. Suite 2100Fort Lauderdale, FL 33394-3091


Principal Occupation During Past 5 Years:Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President andSecretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the South; andofficer of 45 of the investment companies in Franklin Templeton Investments.

Not ApplicableKaren L. Skidmore (1952)One Franklin Parkway San Mateo, CA 94403-1906

Vice Presidentand Secretary


Principal Occupation During Past 5 Years:Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin TempletonInvestments.

128 | Annual Report


Not ApplicableCraig S. Tyle (1960)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc.and of 45 of the investment companies in Franklin Templeton Investments; and formerly, Partner, Shearman & Sterling, LLP (2004-2005);and General Counsel, Investment Company Institute (ICI) (1997-2004).

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolioshave a common investment manager or affiliated investment managers.

**Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be interested persons of the Trust under the federal securities laws due to their positions as officers and directorsand major shareholders of Franklin Resources, Inc., which is the parent company of the Fund's investment manager and distributor.

Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.

Note 3: Prior to April 30, 2011, Frank W.T. LaHaye ceased to be a trustee of the Fund.

The Sarbanes-Oxley Act of 2002 and Rules adopted by the Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includesat least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one suchfinancial expert on the Audit Committee and has designated John B. Wilson as its audit committee financial expert. The Board believes that Mr. Wilson qualifies as such anexpert in view of his extensive business background and experience, including service as chief financial officer of Staples, Inc. from 1992 to 1996. Mr. Wilson has been aMember and Chairman of the Fund’s Audit Committee since 2006. As a result of such background and experience, the Board believes that Mr. Wilson has acquired an under-standing of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates,accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to thoseof the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Mr. Wilson is anindependent Board member as that term is defined under the relevant Securities and Exchange Commission Rules and Releases.

The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request. Shareholders maycall (800) DIAL BEN/342-5236 to request the SAI.

Franklin Strategic SeriesShareholder Information

Annual Report | 129

Board Review of Investment Management Agreement

At a meeting held April 19, 2011, the Board of Trustees (Board), including a majority of non-interested or independent Trustees, approved renewal of the investment management agreementfor each of the separate funds within the Trust (Fund(s)). In reaching this decision, the Board tookinto account information furnished throughout the year at regular Board meetings, as well as infor-mation prepared specifically in connection with the annual renewal review process. Informationfurnished and discussed throughout the year included investment performance reports and relatedfinancial information for each Fund, as well as periodic reports on expenses, shareholder services,legal, compliance, pricing, brokerage commissions and execution and other services provided by theInvestment Manager (Manager) and its affiliates. Information furnished specifically in connectionwith the renewal process included a report for each Fund prepared by Lipper, Inc. (Lipper), anindependent organization, as well as additional material, including a Fund profitability analysisprepared by management. The Lipper reports compared each Fund’s investment performance andexpenses with those of other mutual funds deemed comparable to the Fund as selected by Lipper.The Fund profitability analysis discussed the profitability to Franklin Templeton Investments fromits overall U.S. fund operations, as well as on an individual fund-by-fund basis. Additional materialaccompanying such profitability analysis included information on a fund-by-fund basis listing port-folio managers and other accounts they manage, as well as information on management fees chargedby the Manager and its affiliates to U.S. mutual funds and other accounts, including management’sexplanation of differences where relevant. Such material also included a memorandum prepared bymanagement describing project initiatives and capital investments relating to the services provided tothe Funds by the Franklin Templeton Investments organization, as well as a memorandum relatingto economies of scale and a comparative analysis concerning transfer agent fees charged each Fund.

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

NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the natureand quality of the overall services provided by the Manager and its affiliates to the Funds and theirshareholders. In addition to investment performance and expenses discussed later, the Board’s opin-ion was based, in part, upon periodic reports furnished it showing that the investment policies andrestrictions for each Fund were consistently complied with as well as other reports periodically furnished the Board covering matters such as the compliance of portfolio managers and other

Franklin Strategic SeriesShareholder Information (continued)

Board Review of Investment Management Agreement (continued)

management personnel with the code of ethics adopted throughout the Franklin Templeton fundcomplex, the adherence to fair value pricing procedures established by the Board, and the accuracyof net asset value calculations. The Board also noted the extent of benefits provided Fund share-holders from being part of the Franklin Templeton family of funds, including the right to exchangeinvestments between the same class of funds without a sales charge, the ability to reinvest Funddividends into other funds and the right to combine holdings in other funds to obtain a reducedsales charge. Favorable consideration was given to management’s continuous efforts and expendi-tures in establishing back-up systems and recovery procedures to function in the event of a naturaldisaster, it being noted that such systems and procedures had functioned smoothly during theFlorida hurricanes and blackouts experienced in previous years. Among other factors taken intoaccount by the Board were the Manager’s best execution trading policies, including a favorablereport by an independent portfolio trading analytical firm. Consideration was also given to theexperience of each Fund’s portfolio management team, the number of accounts managed and general method of compensation. In this latter respect, the Board noted that a primary factor inmanagement’s determination of a portfolio manager’s bonus compensation was the relative invest-ment performance of the funds he or she managed and that a portion of such bonus was requiredto be invested in a predesignated list of funds within such person’s fund management area so as to be aligned with the interests of shareholders. The Board also took into account the quality oftransfer agent and shareholder services provided Fund shareholders by an affiliate of the Manager,and the continuous enhancements to the Franklin Templeton website. Particular attention wasgiven to management’s conservative approach and diligent risk management procedures, includingcontinuous monitoring of counterparty credit risk and attention given to derivatives and other com-plex instruments. The Board also took into account, among other things, management’s efforts inestablishing a global credit facility for the benefit of the Funds and other accounts managed byFranklin Templeton Investments to provide a source of cash for temporary and emergency purposesor to meet unusual redemption requests as well as the strong financial position of the Manager’sparent company and its commitment to the mutual fund business as evidenced by its subsidizationof money market funds.

INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment performance of the Funds in view of its importance to shareholders. While consideration was givento performance reports and discussions with portfolio managers at Board meetings throughout theyear, particular attention in assessing performance was given to the Lipper reports furnished for theagreement renewals. The Lipper reports prepared for each individual Fund showed the investmentperformance of its Class A shares in comparison to a performance universe selected by Lipper.Comparative performance for each Fund was shown for the one-year period ended January 31,2011, and previous periods ended that date of up to 10 years depending on when a particular Fundcommenced operations. The following summarizes the performance results for each of these Fundsand the Board’s view of such performance.

130 | Annual Report



Franklin Flex Cap Growth Fund – The performance universe for this Fund consisted of the Fundand all retail and institutional multi-cap growth funds as selected by Lipper. The Lipper reportshowed the Fund’s total return to be in the second-lowest quintile of such performance universe forthe one-year period, but on an annualized basis to be in the second-highest quintile of the perform-ance universe during the previous three-year period and in the upper half of such universe duringeach of the previous five- and 10-year periods. The Board discussed with management the reasonsfor the one-year performance, which was primarily attributable to sector positioning and certainstock selections, but believed the Fund’s overall performance was satisfactory, noting that the Fund’stotal return for the one-year period as set forth in the Lipper report exceeded 23%.

Franklin Focused Core Equity Fund – The performance universe for this Fund consisted of allretail and institutional multi-cap core funds as selected by Lipper. The Fund has been in operationfor only three full years and the Lipper report showed its total return for the one-year period to be in the second-lowest quintile of such performance universe, but on an annualized basis to be inthe highest quintile of such performance universe for the three-year period of operation. The Boarddid not believe such performance to be particularly meaningful in view of the Fund’s brief periodof operation.

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

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

Franklin Small-Mid Cap Growth Fund – The performance universe for this Fund consisted of allretail and institutional mid-cap growth funds as selected by Lipper. The Lipper report comparisonfor the Fund showed its total return during the one-year period to be in the second-highest quintileof such performance universe, and on an annualized basis to also be in the second-highest quintileof such universe during the previous three-year period, the upper half of such universe for the pre-vious five-year period, and the second-lowest quintile of such universe during the previous 10-year

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period. The Board was satisfied with the Fund’s overall comparative investment performance as setforth in the Lipper report.

COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the manage-ment fees and total expense ratios of each Fund compared with those of a group of other fundsselected by Lipper as its appropriate Lipper expense group. Lipper expense data is based upon infor-mation taken from each fund’s most recent annual report, which reflects historical asset levels thatmay be quite different from those currently existing, particularly in a period of market volatility.While recognizing such inherent limitation and the fact that expense ratios generally increase asassets decline and decrease as assets grow, the Board believed the independent analysis conductedby Lipper to be an appropriate measure of comparative expenses. In reviewing comparative costs,Lipper provides information on each Fund’s contractual investment management fee in compari-son with the investment management fee that would have been charged by other funds within itsLipper expense group assuming they were similar in size to the Fund, as well as the actual totalexpense ratio of the Fund in comparison with those of its Lipper expense group. The Lipper con-tractual investment management fee analysis includes administrative charges as being part of theinvestment management fee, and actual total expenses, for comparative consistency, are shown byLipper for Fund Class A shares. The results of such expense comparisons showed the contractualinvestment management fee rates and actual total expense ratios for each of Franklin Flex CapGrowth Fund and Franklin Small-Mid Cap Growth Fund to be in the least expensive quintile oftheir respective Lipper expense groups. The contractual investment management fee rate forFranklin Small Cap Growth Fund was in the least expensive quintile of its Lipper expense groupand its actual total expense ratio was below the median of such expense group. The contractualinvestment management fee rate for Franklin Growth Opportunities Fund was in the least expen-sive quintile of its Lipper expense group and its actual total expense ratio was in the second leastexpensive quintile of such group. The Board was satisfied with the contractual management feesand total expense ratios of this Fund in comparison to its expense group as shown in the Lipperreports. The contractual investment management fee rate for Franklin Focused Core Equity Fundwas in the second most expensive quintile of its Lipper expense group, but its actual total expenseratio was in the least expensive quintile of such expense group. The Board was satisfied with theexpenses of this Fund as shown in its Lipper report, noting they were subsidized by management.

MANAGEMENT PROFITABILITY. The Board also considered the level of profits realized bythe Manager and its affiliates in connection with the operation of each Fund. In this respect, theBoard reviewed the Fund profitability analysis that addresses the overall profitability of FranklinTempleton’s U.S. fund business, as well as its profits in providing management and other servicesto each of the individual funds during the 12-month period ended September 30, 2010, being themost recent fiscal year-end for Franklin Resources, Inc., the Manager’s parent. In reviewing theanalysis, attention was given to the methodology followed in allocating costs to each Fund, it being

132 | Annual Report



recognized that allocation methodologies are inherently subjective and various allocation method-ologies may each be reasonable while producing different results. In this respect, the Board notedthat, while being continuously refined and reflecting changes in the Manager’s own cost accounting,the allocation methodology was consistent with that followed in profitability report presentationsfor the Funds made in prior years and that the Funds’ independent registered public accounting firmhad been engaged by the Manager to review the reasonableness of the allocation methodologiessolely for use by the Funds’ Board in reference to the profitability analysis. In reviewing and dis-cussing such analysis, management discussed with the Board its belief that costs incurred inestablishing the infrastructure necessary for the type of mutual fund operations conducted by theManager and its affiliates may not be fully reflected in the expenses allocated to each Fund indetermining its profitability, as well as the fact that the level of profits, to a certain extent, reflectedoperational cost savings and efficiencies initiated by management. The Board also took into accountmanagement’s expenditures in improving shareholder services provided the Funds, as well as theneed to meet additional regulatory and compliance requirements resulting from the Sarbanes-OxleyAct and recent SEC and other regulatory requirements. In addition, the Board considered a third-party study comparing the profitability of the Manager’s parent on an overall basis to other publiclyheld managers broken down to show profitability from management operations exclusive of distri-bution expenses, as well as profitability including distribution expenses. The Board also consideredthe extent to which the Manager and its affiliates might derive ancillary benefits from fund opera-tions, including revenues generated from transfer agent services and potential benefits resulting fromallocation of fund brokerage and the use of commission dollars to pay for research. Based upon itsconsideration of all these factors, the Board determined that the level of profits realized by theManager and its affiliates from providing services to each Fund was not excessive in view of thenature, quality and extent of services provided.

ECONOMIES OF SCALE. The Board also considered whether economies of scale are realized bythe Manager as the Funds grow larger and the extent to which this is reflected in the level of man-agement fees charged. While recognizing that any precise determination is inherently subjective,the Board noted that based upon the Fund profitability analysis, it appears that as some funds getlarger, at some point economies of scale do result in the Manager realizing a larger profit margin onmanagement services provided such a fund. The Board noted that economies of scale were sharedwith each Fund and its shareholders through management fee breakpoints so that as a Fund growsin size, its effective management fee rate declines. The fee structures under the investment manage-ment agreements for all of the Funds contain breakpoints that continued to asset levels that exceededtheir asset sizes at December 31, 2010. The assets of Franklin Focused Core Equity Fund amountedto approximately $15 million at December 31, 2010, and the Board did not believe such size affordedany economies of scale, noting expenses were subsidized by management. In view of such fee struc-ture and the favorable expense comparisons of each of the Funds within their respective expensegroups, the Board believed that to the extent economies of scale may be realized by the manager ofthese Funds and its affiliates, that there was a sharing of benefits with each Fund and its shareholders.

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Proxy Voting Policies and Procedures

The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) thatthe Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders mayview the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders mayrequest copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678or 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 arealso made available online at franklintempleton.com and posted on the U.S. Securities and ExchangeCommission’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 Commissionfor the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filedForm N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed andcopied at the Commission’s Public Reference Room in Washington, DC. Information regarding theoperations of the Public Reference Room may be obtained by calling (800) SEC-0330.

Householding of Reports and Prospectuses

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

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Franklin Templeton FundsLiterature Request. To receive a summary prospectus and/or prospectus, please call us at (800) DIAL BEN/342-5236 or

visit franklintempleton.com. Investors should carefully consider a fund’s investment goals, risks, charges and expenses

before investing. The prospectus contains this and other information. Please carefully read a prospectus before investing.

To ensure the highest quality of service, we may monitor, record and access telephone calls to or from our service

departments. These calls can be identified by the presence of a regular beeping tone.

VALUEFranklin All Cap Value FundFranklin Balance Sheet Investment FundFranklin Large Cap Value FundFranklin MicroCap Value Fund1

Franklin MidCap Value FundFranklin Small Cap Value FundMutual Beacon FundMutual Quest FundMutual Recovery Fund2

Mutual Shares Fund

BLENDFranklin Focused Core Equity FundFranklin Large Cap Equity FundFranklin Rising Dividends Fund

GROWTHFranklin DynaTech FundFranklin Flex Cap Growth FundFranklin Growth FundFranklin Growth Opportunities FundFranklin Small Cap Growth FundFranklin Small-Mid Cap Growth Fund

SECTORFranklin Biotechnology Discovery FundFranklin Global Real Estate FundFranklin Gold & Precious Metals FundFranklin Natural Resources FundFranklin Real Estate Securities FundFranklin Utilities FundMutual Financial Services Fund

GLOBALFranklin World Perspectives FundMutual Global Discovery FundTempleton Global Opportunities TrustTempleton Global Smaller Companies FundTempleton Growth FundTempleton World Fund

1. The fund is closed to new investors. Existing shareholders and select retirement plans cancontinue adding to their accounts.2. The fund is a continuously offered, closed-end fund. Shares may be purchased daily; thereis no daily redemption. However, each quarter, pending board approval, the fund will authorizethe repurchase of 5%–25% of the outstanding number of shares. Investors may tender all ora portion of their shares during the tender period.3. Effective 5/1/10, the Franklin Templeton Target Funds changed their name to the FranklinTempleton Allocation Funds. The funds’ investment goals and principal investment strategiesremained unchanged.

4. An investment in the fund is neither insured nor guaranteed by the U.S. government or byany other entity or institution.5. For investors subject to the alternative minimum tax, a small portion of fund dividends maybe taxable. Distributions of capital gains are generally taxable.6. The fund invests primarily in insured municipal securities.7. The funds of the Franklin Templeton Variable Insurance Products Trust are generally availableonly through insurance company variable contracts.

AlabamaArizonaCalifornia (4 funds)ColoradoConnecticutFloridaGeorgiaKentuckyLouisianaMarylandMassachusettsMichigan

MinnesotaMissouriNew JerseyNew York (2 funds)North CarolinaOhioOregonPennsylvaniaTennesseeVirginia

INSURANCE FUNDSFranklin Templeton Variable Insurance Products Trust7

01/11 Not part of the annual report

INTERNATIONALFranklin India Growth FundFranklin International Growth FundFranklin International Small Cap Growth FundMutual European FundMutual International FundTempleton Asian Growth FundTempleton BRIC FundTempleton China World FundTempleton Developing Markets TrustTempleton Emerging Markets Small Cap FundTempleton Foreign FundTempleton Foreign Smaller Companies FundTempleton Frontier Markets Fund

HYBRIDFranklin Balanced FundFranklin Convertible Securities FundFranklin Equity Income FundFranklin Income FundTempleton Income Fund

ASSET ALLOCATIONFranklin Templeton Corefolio® Allocation FundFranklin Templeton Founding Funds Allocation FundFranklin Templeton Conservative Allocation Fund3

Franklin Templeton Growth Allocation Fund3

Franklin Templeton Moderate Allocation Fund3

Franklin Templeton 2015 Retirement Target FundFranklin Templeton 2025 Retirement Target FundFranklin Templeton 2035 Retirement Target FundFranklin Templeton 2045 Retirement Target Fund

FIXED INCOMEFranklin Adjustable U.S. Government Securities Fund4

Franklin Floating Rate Daily Access FundFranklin High Income FundFranklin Limited Maturity U.S. GovernmentSecurities Fund4

Franklin Low Duration Total Return FundFranklin Real Return FundFranklin Strategic Income FundFranklin Strategic Mortgage PortfolioFranklin Templeton Hard Currency FundFranklin Total Return FundFranklin U.S. Government Securities Fund4

Templeton Global Bond FundTempleton Global Total Return FundTempleton International Bond Fund

TAX-FREE INCOME5

NationalDouble Tax-Free Income FundFederal Tax-Free Income FundHigh Yield Tax-Free Income FundInsured Tax-Free Income Fund6

Limited-/ Intermediate-TermCalifornia Intermediate-Term Tax-Free Income FundFederal Intermediate-Term Tax-Free Income FundFederal Limited-Term Tax-Free Income FundNew York Intermediate-Term Tax-Free Income Fund

State-Specific

< GAIN FROM OUR PERSPECTIVE® >

VALUE BLEND GROWTH SECTOR GLOBAL INTERNAT IONAL HYBRID ASSET ALLOCAT ION F IXED INCOME TAX-FREE INCOME

© 2011 Franklin Templeton Investments. All rights reserved. FSS1 A 06/11

Annual Report and Shareholder Letter

Franklin Strategic Series

Investment ManagerFranklin Advisers, Inc.

DistributorFranklin Templeton Distributors, Inc.(800) DIAL BEN®/342-5236franklintempleton.com

Shareholder Services(800) 632-2301

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus.Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded andaccessed. These calls can be identified by the presence of a regular beeping tone.

Documents

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