UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06243
Franklin Strategic Series
(Exact name of registrant as specified in charter)
_One Franklin Parkway, San Mateo, Ca 94403-1906
(Address of principal executive offices) (Zip code)
(Address of principal executive offices) (Zip code)
_Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
(Name and address of agent for service)
(Name and address of agent for service)
Registrant's telephone number, including area code: 650 312-2000
Date of fiscal year end: 8/31
Date of reporting period: 8/31/20
Item 1. Reports to Stockholders.
Annual
Report
Franklin
Strategic
Series
August
31,
2020
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Franklin
Templeton
SMACS:
Series
CH
Franklin
Templeton
SMACS:
Series
E
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Templeton
SMACS:
Series
H
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Templeton
SMACS:
Series
I
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franklintempleton.com
Annual
report
1
Contents
Annual
Report
Franklin
Templeton
SMACS:
Series
CH
..............
2
Franklin
Templeton
SMACS:
Series
E
...............
9
Franklin
Templeton
SMACS:
Series
H
...............
15
Franklin
Templeton
SMACS:
Series
I
................
21
Financial
Highlights
and
Statements
of
Investments
...
27
Financial
Statements
.............................
39
Notes
to
Financial
Statements
.....................
43
Report
of
Independent
Registered
Public
Accounting
Firm
............................
55
Tax
Information
..................................
56
Board
Members
and
Officers
.......................
57
Shareholder
Information
..........................
62
2
franklintempleton.com
Annual
Report
ANNUAL
REPORT
Franklin
Templeton
SMACS:
Series
CH
This
annual
report
for
Franklin
Templeton
SMACS:
Series
CH
(Fund)
covers
the
fiscal
year
ended
August
31,
2020
.
Your
Fund’s
Goal
and
Main
Investments
The
Fund
seeks
to
provide
investors
with
a
high
level
of
income
exempt
from
federal
and
California
personal
income
taxes,
with
capital
appreciation
as
a
secondary
goal.
1
Under
normal
market
conditions,
the
Fund
invests
substantially
all
of
its
net
assets
in
municipal
securities
in
any
rating
category,
including
below-investment
grade
securities
and
defaulted
securities,
whose
interest
is
free
from
regular
federal
income
taxes
and
from
California
personal
income
taxes.
1
Performance
Overview
The
Fund’s
share
price,
as
measured
by
net
asset
value
(NAV),
decreased
from
$10.26
on
August
31,
2019,
to
$9.82
on
August
31,
2020.
The
Fund
paid
dividends
totaling
45.8705
cents
per
share
for
the
reporting
period.
2
The
Performance
Summary
beginning
on
page
5
shows
that
at
the
end
of
this
reporting
period
the
Fund’s
distribution
rate
was
3.67%
based
on
an
annualization
of
August’s
3.0361
cent
per
share
dividend
and
the
NAV
of
$9.82
on
August
31,
2020.
An
investor
in
the
2020
maximum
combined
effective
federal
and
California
personal
income
tax
bracket
of
53.10%
(including
3.80%
Medicare
tax)
would
need
to
earn
a
distribution
rate
of
7.82%
from
a
taxable
investment
to
match
the
Fund’s
tax-free
distribution
rate.
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.
Municipal
Bond
Market
Overview
In
the
last
quarter
of
2019
and
into
2020,
global
gross
domestic
product
showed
signs
of
continued
expansion,
albeit
at
a
slower
pace
than
the
previous
year.
Several
issues
that
were
causing
increased
uncertainty
in
markets
and
diminished
business
sentiment
showed
signs
of
resolution
during
the
latter
months
of
2019,
including
reduced
trade
tensions
between
the
U.S.
and
China
and
a
resolution
to
Brexit.
In
fixed
income
markets,
all
sectors,
including
U.S.
Treasuries
(USTs),
investment-grade
corporates
and
municipal
bonds,
had
strong
12-month
performance
through
the
end
of
February
2020.
Beginning
in
March,
the
global
spread
of
the
novel
coronavirus
(COVID-19)
and
the
drastic
measures
individual
countries
implemented
to
limit
infections
shocked
both
equity
and
fixed
income
markets.
Investors
sought
perceived
safe
havens,
driving
U.S.
Treasury
(UST)
yields
lower
and
causing
a
surge
in
volatility.
In
the
municipal
bond
market,
sellers
significantly
outnumbered
buyers,
resulting
in
market
dislocations.
March
2020
saw
outflows
of
$42
billion
from
municipal
bond
funds,
reversing
half
of
the
inflows
seen
throughout
2019.
Ratios
of
municipal
bond
yields
versus
duration-matched
USTs
cheapened
across
all
maturity
buckets,
surpassing
levels
reached
during
the
global
financial
crisis.
Municipal
bond
issues
closely
related
to
the
impact
of
the
virus,
including
states
like
New
York
and
New
Jersey
and
sectors
like
transportation,
retreated
more
than
other
parts
of
the
market.
In
March,
the
U.S.
Federal
Reserve
announced
it
would
begin
purchasing
municipal
Credit
Quality
Composition
*
8/31/20
Ratings
%
of
Total
Investments
A
6.83%
BBB
9.77%
Below
Investment
Grade
19.24%
Not
Rated
64.16%
*
Securities,
except
for
those
labeled
Not
Rated,
are
assigned
ratings
by
one
or
more
Nationally
Recognized
Statistical
Credit
Rating
Organizations
(NRSROs),
such
as
Standard
&
Poor’s,
Moody’s
and
Fitch,
that
can
be
considered
by
the
investment
manager
as
part
of
its
independent
securities
analysis.
When
ratings
from
multiple
agencies
are
available,
the
highest
is
used,
consistent
with
the
portfolio
investment
process.
Ratings
reflect
an
NRSRO’s
opinion
of
an
issuer’s
creditworthiness
and
typically
range
from
AAA
(highest)
to
D
(lowest).
The
Below
Investment
Grade
category
consists
of
bonds
rated
below
BBB-.
The
Refunded
category
generally
consists
of
refunded
bonds
secured
by
U.S.
government
or
other
high-quality
securities
and
not
rerated
by
an
NRSRO.
The
Not
Rated
category
consists
of
ratable
securities
that
have
not
been
rated
by
an
NRSRO.
Cash
and
equivalents
are
excluded
from
this
composition.
1.
For
investors
subject
to
alternative
minimum
tax,
a
small
portion
of
Fund
dividends
may
be
taxable.
Distributions
of
capital
gains
are
generally
taxable.
To
avoid
imposition
of
28%
backup
withholding
on
all
Fund
distributions
and
redemption
proceeds,
U.S.
investors
must
be
properly
certified
on
Form
W-9
and
non-U.S.
investors
on
Form
W-8BEN.
2.
The
distribution
amount
is
the
sum
of
all
net
investment
income
distributions
for
the
period
shown.
Assumes
shares
were
purchased
and
held
for
the
entire
accrual
period.
Since
dividends
accrue
daily,
your
actual
distributions
will
vary
depending
on
the
date
you
purchased
your
shares
and
any
account
activity.
All
Fund
distributions
will
vary
depending
upon
current
market
conditions,
and
past
distributions
are
not
indicative
of
future
trends.
The
dollar
value,
number
of
shares
or
principal
amount,
and
names
of
all
portfolio
holdings
are
listed
in
the
Fund’s
Statement
of
Investments
(SOI).
The
SOI
begins
on
page
28
.
Franklin
Templeton
SMACS:
Series
CH
3
franklintempleton.com
Annual
Report
bonds
as
needed
to
support
market
stability;
however,
there
were
still
significant
dislocations
within
the
secondary
bond
market
at
month-end,
and
new
issuance
had
all
but
stopped.
Moving
into
April
and
continuing
through
August,
municipal
bond
market
technical
conditions
improved
as
funds
flowed
into
the
market
and
were
met
with
negative
net
supply
of
tax-exempt
bonds.
Ratios
of
municipal
bonds
versus
USTs
tightened
but
remained
significantly
wider
than
at
the
beginning
of
2020.
Throughout
the
sector,
municipal
issuers
projected
large
deficits
reaching
into
2021
as
revenues
from
tax
receipts
and
usage
fees
fall
while
costs
of
services
increase.
The
Investment
Company
Institute
(ICI)
reported
net
inflows
of
approximately
$11
billion
into
municipal
bond
mutual
funds
in
August
2020.
Since
March,
over
half
of
the
record
outflows
in
March,
$42
billion,
had
returned
to
the
sector.
For
the
12-month
period,
municipal
bond
mutual
funds
had
approximately
$42
billion
of
net
inflows,
according
to
the
ICI.
For
the
12-month
period,
investment-grade
municipal
bonds,
as
measured
by
the
Bloomberg
Barclays
Municipal
Bond
Index,
posted
a
+3.24%
total
return,
while
USTs,
as
measured
by
the
Bloomberg
Barclays
U.S.
Treasury
Index,
posted
a
+6.98%
total
return,
and
investment-grade
corporate
bonds,
as
measured
by
the
Bloomberg
Barclays
U.S.
Corporate
Bond
Index,
posted
a
+7.50%
total
return.
3
All
three
of
these
fixed
income
sectors
underperformed
U.S.
stocks,
as
measured
by
the
Standard
&
Poor’s
®
500
Index,
which
posted
a
+21.94%
total
return
for
the
period.
3
State
Update
California’s
large,
diverse
economy
expanded
the
first
half
of
the
12-month
period.
In
March
2020,
the
state
implemented
stay-at-home
measures
to
control
the
spread
of
COVID-19,
which
caused
a
recession.
California’s
unemployment
rate
of
3.9%
in
August
2019
decreased
during
the
period
before
jumping
to
a
record
high
of
16.4%
in
April
and
May
2020.
4
At
period-end,
the
state’s
unemployment
rate
was
11.4%,
which
was
higher
than
the
8.4%
national
rate.
4
The
state
enacted
a
balanced
fiscal-year
2021
budget
by
using
various
solutions,
such
as
borrowing
from
various
internal
funds,
spending
cuts
and
relying
on
cash
reserves.
California’s
net
tax-supported
debt
was
$2,147
per
capita
and
3.2%
of
personal
income,
compared
with
the
$1,071
and
2.0%
national
medians,
respectively.
5
Independent
credit
rating
agency
Standard
&
Poor’s
(S&P)
affirmed
California’s
general
obligation
bonds
rating
of
AA-
with
a
stable
outlook.
6
The
rating
reflected
S&P’s
view
of
the
state’s
strong
economy,
substantial
reserves
and
strong
overall
liquidity
as
it
entered
into
the
recession,
as
well
as
moderately
high,
but
stable,
debt
ratios.
However,
S&P
noted
challenges,
including
projected
multiyear
tax
revenue
decline
due
to
the
recession,
high
housing
cost,
difficult-to-forecast
revenues
and
minimal
prefunding
of
retiree
health
care
benefits.
Investment
Strategy
We
select
securities
we
believe
will
provide
the
best
balance
between
risk
and
return
within
the
Fund’s
range
of
allowable
investments
and
typically
use
a
buy-and-hold
strategy.
This
means
we
generally
hold
securities
in
the
Fund’s
portfolio
for
income
purposes,
rather
than
trading
securities
for
capital
gains,
although
we
may
sell
a
security
at
any
time
if
we
believe
doing
so
could
help
the
Fund
meet
its
goal.
We
may
consider
existing
market
conditions,
the
availability
of
lower-rated
securities,
and
whether
the
difference
in
yields
between
higher-
and
lower-rated
securities
justifies
the
higher
risk
of
lower-rated
securities.
Thus,
there
may
be
times
when
the
Fund
has
a
majority
of
its
investments
in
securities
that
are
considered
investment
grade.
Manager’s
Discussion
Consistent
with
our
high-yield
investment
strategy,
we
sought
to
invest
in
bonds
that
have
an
average
weighted
maturity
of
15
to
30
years
with
good
call
features.
Based
on
the
combination
of
our
value-oriented
philosophy
of
investing
Portfolio
Composition
8/31/20
%
of
Total
Investments
*
Tax-Supported
49.36%
Housing
22.94%
Transportation
8.94%
Other
Revenue
6.52%
Hospital
&
Health
Care
6.27%
Higher
Education
5.97%
*
Does
not
include
cash
and
cash
equivalents.
3.
Source:
Morningstar.
Treasuries,
if
held
to
maturity,
offer
a
fixed
rate
of
return
and
a
fixed
principal
value;
their
interest
payments
and
principal
are
guaranteed.
4.
Source:
Bureau
of
Labor
Statistics.
5.
Source:
Moody’s
Investors
Service,
State
government
–
US:
Medians
–
State
debt
declined
in
2019,
but
likely
to
grow
in
coming
years,
5/12/20.
6.
This
does
not
indicate
S&P’s
rating
of
the
Fund.
See
www.franklintempletondatasources.com
for
additional
data
provider
information.
Franklin
Templeton
SMACS:
Series
CH
4
franklintempleton.com
Annual
Report
primarily
for
income
and
a
positively
sloping
municipal
yield
curve,
in
which
interest
rates
for
longer-term
bonds
are
higher
than
those
for
shorter-term
bonds,
we
favored
the
use
of
longer-term
bonds.
The
Fund
does
not
use
leverage
or
credit
derivatives
to
boost
short-term
returns.
We
believe
our
conservative,
buy-and-hold
investment
strategy
can
help
us
achieve
high,
current,
tax-free
income
for
shareholders.
Thank
you
for
your
participation
in
Franklin
Templeton
SMACS:
Series
CH.
We
look
forward
to
serving
your
future
investment
needs.
The
foregoing
information
reflects
our
analysis,
opinions
and
portfolio
holdings
as
of
August
31,
2020,
the
end
of
the
reporting
period.
The
way
we
implement
our
main
investment
strategies
and
the
resulting
portfolio
holdings
may
change
depending
on
factors
such
as
market
and
economic
conditions.
These
opinions
may
not
be
relied
upon
as
investment
advice
or
an
offer
for
a
particular
security.
The
information
is
not
a
complete
analysis
of
every
aspect
of
any
market,
state,
industry,
security
or
the
Fund.
Statements
of
fact
are
from
sources
considered
reliable,
but
the
investment
manager
makes
no
representation
or
warranty
as
to
their
completeness
or
accuracy.
Although
historical
performance
is
no
guarantee
of
future
results,
these
insights
may
help
you
understand
our
investment
management
philosophy.
Performance
Summary
as
of
August
31,
2020
Franklin
Templeton
SMACS:
Series
CH
5
franklintempleton.com
Annual
Report
The
performance
tables
and
graph
do
not
reflect
any
taxes
that
a
shareholder
would
pay
on
Fund
dividends,
capital
gain
distributions,
if
any,
or
any
realized
gains
on
the
sale
of
Fund
shares.
Total
return
reflects
reinvestment
of
the
Fund’s
dividends
and
capital
gain
distributions,
if
any,
and
any
unrealized
gains
or
losses.
Your
dividend
income
will
vary
depending
on
dividends
or
interest
paid
by
securities
in
the
Fund’s
portfolio,
adjusted
for
operating
expenses.
Capital
gain
distributions
are
net
profits
realized
from
the
sale
of
portfolio
securities.
Performance
as
of
8/31/20
1
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.
Cumulative
Total
Return
2
Average
Annual
Total
Return
3
–
1-Year
+0.25%
+0.25%
Since
Inception
(6/3/19)
+3.32%
+2.66%
30-Day
Standardized
Yield
6
Taxable
Equivalent
30-Day
Standardized
Yield
5
Distribution
Rate
4
Taxable
Equivalent
Distribution
Rate
5
(with
fee
waiver)
(without
fee
waiver)
(with
fee
waiver)
(without
fee
waiver)
3.67%
7.82%
3.56%
0.25%
7.59%
0.53%
See
page
7
for
Performance
Summary
footnotes.
Franklin
Templeton
SMACS:
Series
CH
Performance
Summary
6
franklintempleton.com
Annual
Report
See
page
7
for
Performance
Summary
footnotes.
Total
Return
Index
Comparison
for
a
Hypothetical
$10,000
Investment
1
Total
return
represents
the
change
in
value
of
an
investment
over
the
periods
shown.
It
includes
any
applicable
maximum
sales
charge,
Fund
expenses,
account
fees
and
reinvested
distributions.
The
unmanaged
index
includes
reinvestment
of
any
income
or
distributions.
It
differs
from
the
Fund
in
composition
and
does
not
pay
management
fees
or
expenses.
One
cannot
invest
directly
in
an
index.
6/3/19-8/31/20
Franklin
Templeton
SMACS:
Series
CH
Performance
Summary
7
franklintempleton.com
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Report
All
investments
involve
risks,
including
possible
loss
of
principal.
Because
municipal
bonds
are
sensitive
to
interest-rate
movements,
the
Fund’s
yield
and
share
price
will
fluctuate
with
market
conditions.
Bond
prices
generally
move
in
the
opposite
direction
of
interest
rates.
Thus,
as
prices
of
bonds
in
the
Fund
adjust
to
a
rise
in
interest
rates,
the
Fund’s
share
price
may
decline.
Because
the
Fund
invests
principally
in
a
single
state,
it
is
subject
to
greater
risk
of
adverse
economic
and
regulatory
changes
in
that
state
than
a
geographically
diversified
fund.
Investments
in
lower-rated
bonds
include
higher
risk
of
default
and
loss
of
principal.
Changes
in
the
credit
rating
of
a
bond,
or
in
the
credit
rating
or
financial
strength
of
a
bond’s
issuer,
insurer
or
guarantor,
may
affect
the
bond’s
value.
The
Fund
may
invest
a
significant
part
of
its
assets
in
municipal
securities
that
finance
similar
types
of
projects,
such
as
utilities,
hospitals,
higher
education
and
trans-
portation.
A
change
that
affects
one
project
would
likely
affect
all
similar
projects,
thereby
increasing
market
risk.
Unexpected
events
and
their
aftermaths,
such
as
the
spread
of
deadly
diseases;
natural,
environmental
or
man-made
disasters;
financial,
political
or
social
disruptions;
terrorism
and
war;
and
other
tragedies
or
catastrophes,
can
cause
investor
fear
and
panic,
which
can
adversely
affect
the
economies
of
many
companies,
sectors,
nations,
regions
and
the
market
in
general,
in
ways
that
cannot
necessarily
be
foreseen.
The
Fund’s
prospectus
also
includes
a
description
of
the
main
investment
risks.
1.
The
Fund
has
an
expense
reduction
(including
acquired
fund
fees
and
expenses)
contractually
guaranteed
through
12/31/20.
Fund
investment
results
reflect
the
expense
reduction;
without
this
reduction,
the
results
would
have
been
lower.
2.
Cumulative
total
return
represents
the
change
in
value
of
an
investment
over
the
periods
indicated.
3.
Average
annual
total
return
represents
the
average
annual
change
in
value
of
an
investment
over
the
periods
indicated.
Return
for
less
than
one
year,
if
any,
has
not
been
annualized.
4.
Distribution
rate
is
based
on
an
annualization
of
the
Fund’s
August
dividend
and
the
NAV
per
share
on
8/31/20.
5.
Taxable
equivalent
distribution
rate
and
yield
assume
the
published
rates
as
of
6/18/20
for
the
maximum
combined
effective
federal
and
California
state
personal
income
tax
rate
of
53.10%,
based
on
the
federal
income
tax
rate
of
37.00%
plus
3.80%
Medicare
tax.
6.
The
Fund’s
30-day
standardized
yield
is
calculated
over
a
trailing
30-day
period
using
the
yield
to
maturity
on
bonds
and/or
the
dividends
accrued
on
stocks.
It
may
not
equal
the
Fund’s
actual
income
distribution
rate,
which
reflects
the
Fund’s
past
dividends
paid
to
shareholders.
7.
Source:
Morningstar.
The
Bloomberg
Barclays
Municipal
Bond
Index
is
a
market
value-weighted
index
engineered
for
the
long-term
tax-exempt
bond
market.
To
be
included
in
the
index,
bonds
must
be
fixed
rate,
have
at
least
one
year
to
final
maturity
and
be
rated
investment
grade
(Baa3/BBB-
or
higher)
by
at
least
two
of
the
following
agencies:
Moody’s,
S&P
and
Fitch.
8.
Figures
are
as
stated
in
the
Fund’s
current
prospectus,
including
the
effect
of
acquired
fund
fees
and
expenses,
and
may
differ
from
the
expense
ratios
disclosed
in
the
Your
Fund’s
Expenses
and
Financial
Highlights
sections
in
this
report.
In
periods
of
market
volatility,
assets
may
decline
significantly,
causing
total
annual
Fund
operating
expenses
to
become
higher
than
the
figures
shown.
See
www.franklintempletondatasources.com
for
additional
data
provider
information.
Distributions
(9/1/19–8/31/20)
Net
Investment
Income
Short-Term
Capital
Gain
Total
$0.332805
$0.125900
$0.458705
Total
Annual
Operating
Expenses
8
With
Fee
Waiver
Without
Fee
Waiver
0.00%
3.74%
Your
Fund’s
Expenses
Franklin
Templeton
SMACS:
Series
CH
8
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Shareholders
of
mutual
funds
incur
ongoing
costs,
such
as
management
fees
(if
any),
custodian
fees
and
other
Fund
expenses,
which
are
sometimes
referred
to
as
operating
expenses.
The
table
below
shows
the
ongoing
costs
of
investing
in
the
Fund
and
can
help
you
understand
these
costs
and
compare
them
with
those
of
other
mutual
funds.
The
table
assumes
a
$1,000
investment
held
for
the
six
months
indicated.
Please
note
that
the
expenses
shown
in
the
table
are
meant
to
highlight
your
ongoing
Fund
costs
only
and
do
not
reflect
any
program
fees
that
you
may
pay.
Therefore,
the
table
is
useful
in
comparing
ongoing
costs
of
investing
in
the
Fund
only,
and
will
not
help
you
determine
the
relative
total
costs
of
participating
in
any
one
investment
program.
Actual
Fund
Expenses
The
table
below
provides
information
about
actual
account
values
and
actual
expenses
in
the
columns
under
the
heading
“Actual.”
In
these
columns
the
Fund’s
actual
return,
which
includes
the
effect
of
Fund
expenses,
is
used
to
calculate
the
“Ending
Account
Value.”
You
can
estimate
the
expenses
you
paid
during
the
period
by
following
these
steps
(
of
course,
your
account
value
and
expenses
will
differ
from
those
in
this
illustration
):
Divide
your
account
value
by
$1,000
(
if
your
account
had
an
$8,600
value,
then
$8,600
÷
$1,000
=
8.6
).
Then
multiply
the
result
by
the
number
in
the
row
for
your
class
of
shares
under
the
headings
“Actual”
and
“Expenses
Paid
During
Period”
(
if
Actual
Expenses
Paid
During
Period
were
$7.50,
then
8.6
x
$7.50
=
$64.50
).
In
this
illustration,
the
actual
expenses
paid
this
period
are
$64.50.
Hypothetical
Example
for
Comparison
with
Other
Funds
Under
the
heading
“Hypothetical”
in
the
table,
information
is
provided
about
hypothetical
account
values
and
hypothetical
expenses
based
on
the
Fund’s
actual
expense
ratio
and
an
assumed
rate
of
return
of
5%
per
year
before
expenses,
which
is
not
the
Fund’s
actual
return.
This
information
may
not
be
used
to
estimate
the
actual
ending
account
balance
or
expenses
you
paid
for
the
period,
but
it
can
help
you
compare
ongoing
costs
of
investing
in
the
Fund
with
those
of
other
funds.
To
do
so,
compare
this
5%
hypothetical
example
for
the
class
of
shares
you
hold
with
the
5%
hypothetical
examples
that
appear
in
the
shareholder
reports
of
other
funds.
Please
note
that
expenses
shown
in
the
table
are
meant
to
highlight
ongoing
costs
and
do
not
reflect
any
transactional
costs.
Therefore,
information
under
the
heading
“Hypothetical”
is
useful
in
comparing
ongoing
costs
only,
and
will
not
help
you
compare
total
costs
of
owning
different
funds.
In
addition,
if
transactional
costs
were
included,
your
total
costs
would
have
been
higher.
1.
Expenses
are
equal
to
the
annualized
expense
ratio
for
the
six-month
period
as
indicated
above—in
the
far
right
column—multiplied
by
the
simple
average
account
value
over
the
period
indicated,
and
then
multiplied
by
184/366
to
reflect
the
one-half
year
period.
2.
Reflects
expenses
after
fee
waivers
and
expense
reimbursements.
Actual
(actual
return
after
expenses)
Hypothetical
(5%
annual
return
before
expenses)
Beginning
Account
Value
3/1/20
Ending
Account
Value
8/31/20
Expenses
Paid
During
Period
3/1/20–8/31/20
1,2
Ending
Account
Value
8/31/20
Expenses
Paid
During
Period
3/1/20–8/31/20
1,2
a
Net
Annualized
Expense
Ratio
2
$1,000
$952.00
$0.00
$1,025.14
$0.00
0.00%
9
franklintempleton.com
Annual
Report
Franklin
Templeton
SMACS:
Series
E
This
annual
report
for
Franklin
Templeton
SMACS:
Series
E
(Fund)
covers
the
fiscal
year
ended
August
31,
2020
.
Your
Fund’s
Goal
and
Main
Investments
The
Fund
seeks
to
maximize
income,
while
maintaining
prospects
for
capital
appreciation
by
investing,
under
normal
market
conditions,
predominantly
in
equity
securities
from
any
capitalization
range,
primarily
large-cap
securities.
Performance
Overview
The
Fund
posted
a
+1.77%
cumulative
total
return
for
the
12
months
ended
August
31,
2020.
In
comparison,
the
Fund’s
benchmark,
the
MSCI
USA
High
Dividend
Yield
Index,
which
measures
performance
of
U.S.
stocks
(excluding
real
estate
investment
trusts)
with
higher
dividend
income
and
quality
characteristics
than
average
dividend
yields,
posted
a
+3.36%
total
return
for
the
same
period.
1
You
can
find
more
of
the
Fund’s
performance
data
in
the
Performance
Summary
beginning
on
page
11
.
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.
Economic
and
Market
Overview
U.S.
equities,
as
measured
by
the
Standard
&
Poor’s
®
500
Index,
posted
strong
gains
during
the
12-month
period.
Equities
advanced
at
the
end
of
2019,
aided
by
steady
economic
growth,
easing
trade
tensions
and
the
U.S.
Federal
Reserve’s
(Fed’s)
supportive
monetary
policy.
However,
a
sharp
selloff
began
in
late
February
2020
amid
investor
fears
of
a
global
economic
slowdown
due
to
the
novel
coronavirus
(COVID-19)
pandemic,
which
drove
many
investors
to
sell
equity
holdings
in
favor
of
investments
perceived
as
safe,
such
as
government
bonds
and
cash.
Government-issued
restrictions
for
mitigating
the
pandemic
severely
curtailed
economic
activity
beginning
in
March
2020.
As
a
result,
the
unemployment
rate
surged
to
14.7%
in
April
as
many
businesses
announced
mass
layoffs.
2
The
longest
U.S.
economic
expansion
in
history
ended
in
February,
according
to
the
National
Bureau
of
Economic
Research,
and
the
country
slipped
into
a
deep
recession
with
second-quarter
2020
gross
domestic
product
declining
at
a
record
pace.
The
Fed
supported
the
U.S.
economy
both
before
and
during
the
pandemic,
lowering
the
federal
funds
target
rate
twice
in
late
2019
to
a
range
of
1.50%–1.75%
and
implementing
two
emergency
rate
cuts
in
March
2020,
decreasing
the
rate
to
a
range
of
0.00%–0.25%.
Additionally,
the
Fed
enacted
sweeping
quantitative
easing
measures
aimed
at
ensuring
credit
flows
to
borrowers
and
supporting
credit
markets
with
unlimited
amounts
of
bond
purchasing.
At
the
end
of
the
period,
the
Fed
announced
a
shift
in
inflation
policy
that
could
mean
interest
rates
will
potentially
remain
low,
even
amid
low
unemployment
and
rising
inflation.
Portfolio
Composition
8/31/20
%
of
Total
Net
Assets
Pharmaceuticals
13.1%
Semiconductors
&
Semiconductor
Equipment
10.2%
Multiline
Retail
9.2%
Electric
Utilities
8.1%
Oil,
Gas
&
Consumable
Fuels
5.4%
Health
Care
Providers
&
Services
5.3%
Beverages
4.9%
Specialty
Retail
4.4%
Multi-Utilities
3.9%
Banks
3.6%
Capital
Markets
3.1%
Interactive
Media
&
Services
3.0%
Metals
&
Mining
2.9%
IT
Services
2.7%
Aerospace
&
Defense
2.3%
Communications
Equipment
2.2%
Insurance
2.0%
Automobiles
2.0%
Diversified
Telecommunication
Services
2.0%
Tobacco
1.7%
Internet
&
Direct
Marketing
Retail
1.5%
Media
1.5%
Other
0.9%
Short-Term
Investments
&
Other
Net
Assets
4.1%
1.
Source:
Morningstar.
The
index
is
unmanaged
and
includes
reinvestment
of
any
income
or
distributions.
It
does
not
reflect
any
fees,
expenses
or
sale
charges.
One
cannot
invest
directly
in
an
index,
and
an
index
is
not
representative
of
the
Fund’s
portfolio.
2.
Source:
Bureau
of
Labor
Statistics.
See
www.franklintempletondatasources.com
for
additional
data
provider
information.
The
dollar
value,
number
of
shares
or
principal
amount,
and
names
of
all
portfolio
holdings
are
listed
in
the
Fund’s
Statement
of
Investments
(SOI).
The
SOI
begins
on
page
30
.
Franklin
Templeton
SMACS:
Series
E
10
franklintempleton.com
Annual
Report
Benefiting
from
the
Fed’s
measures,
equities
began
to
rebound
at
the
end
of
March
2020.
As
states
gradually
reopened,
economic
activity
resumed,
leading
to
declining
jobless
claims,
a
decreasing
unemployment
rate,
and
record-high
increases
in
job
additions
and
existing
home
sales.
Optimism
about
potential
COVID-19
vaccines
and
rising
retail
sales
further
supported
equities.
Despite
surging
summer
infection
rates,
markets
reversed
earlier
losses
and
reached
new
highs,
reflecting
resilient
consumer
spending
in
July
and
investor
optimism
about
an
economic
rebound.
However,
the
market’s
gains
were
concentrated
in
only
a
few
sectors,
including
consumer
staples,
health
care
and
information
technology
(IT).
Investment
Strategy
We
employ
a
bottom-up,
value-oriented,
long-term
approach,
focusing
on
the
market
price
of
a
company’s
securities
relative
to
our
evaluation
of
the
company’s
long-term
earnings,
asset
value
and
cash
flow
potential.
We
also
consider
a
company’s
price/earnings
ratio,
profit
margins
and
liquidation
value.
We
regularly
use
a
variety
of
equity-related
derivatives
and
complex
equity
securities,
which
may
include
purchasing
or
selling
call
and
put
options
on
equity
securities
and
equity
security
indexes,
futures
on
equity
securities
and
equity
indexes,
options
on
equity
index
futures
and
equity-
linked
notes,
for
various
purposes
including
enhancing
Fund
returns,
increasing
liquidity,
gaining
exposure
to
particular
instruments
in
more
efficient
or
less
expensive
ways
and/or
hedging
risks
relating
to
changes
in
certain
equity
markets.
The
use
of
such
derivative
transactions
may
allow
the
Fund
to
obtain
net
long
(that
is,
the
Fund
would
benefit
if
the
price
of
the
investment
increases)
or
net
short
exposures
(that
is,
the
Fund
would
benefit
if
the
price
of
the
investment
decreases)
to
selected
markets
or
countries.
Manager’s
Discussion
During
the
12
months
under
review,
notable
sector
contributors
to
the
Fund’s
performance
relative
to
the
MSCI
USA
High
Dividend
Yield
Index
included
communication
services,
consumer
discretionary,
IT
and
materials.
In
contrast,
key
sector
detractors
from
relative
performance
included
energy,
health
care,
financials
and
consumer
staples.
Top
individual
contributors
to
absolute
performance
include
general
merchandise
store
operator
Target,
home
improvement
retailer
The
Home
Depot,
semiconductor
firm
Intel
(not
held
at
period-end)
and
Australian
mining
company
Rio
Tinto.
In
contrast,
key
absolute
detractors
included
oil
and
natural
gas
explorer
and
producer
Occidental
Petroleum,
energy
equipment
and
services
company
Schlumberger,
energy
infrastructure
firm
The
Williams
Cos.
and
U.K.-listed
oil
and
natural
gas
producer
Royal
Dutch
Shell,
which
were
no
longer
held
at
period-end.
The
Fund
had
limited
usage
of
derivatives
during
the
period,
and
they
did
not
have
a
meaningful
effect
on
performance.
The
Fund
is
not
intended
to
be
owned
as
a
stand-alone
investment
vehicle,
but
as
part
of
the
Franklin
Income
separately
managed
account
product.
Thank
you
for
your
participation
in
Franklin
Templeton
SMACS:
Series
E.
We
look
forward
to
serving
your
future
investment
needs.
Edward
Perks,
CFA
Brendan
Circle,
CFA
Todd
Brighton,
CFA
Portfolio
Management
Team
The
foregoing
information
reflects
our
analysis,
opinions
and
portfolio
holdings
as
of
August
31,
2020,
the
end
of
the
reporting
period.
The
way
we
implement
our
main
investment
strategies
and
the
resulting
portfolio
holdings
may
change
depending
on
factors
such
as
market
and
economic
conditions.
These
opinions
may
not
be
relied
upon
as
investment
advice
or
an
offer
for
a
particular
security.
The
information
is
not
a
complete
analysis
of
every
aspect
of
any
market,
country,
industry,
security
or
the
Fund.
Statements
of
fact
are
from
sources
considered
reliable,
but
the
investment
manager
makes
no
representation
or
warranty
as
to
their
completeness
or
accuracy.
Although
historical
performance
is
no
guarantee
of
future
results,
these
insights
may
help
you
understand
our
investment
management
philosophy.
Top
Five
Equity
Holdings
8/31/20
Company
Industry
,
Country
%
of
Total
Net
Assets
a
a
CVS
Health
Corp.
5.3%
Health
Care
Providers
&
Services
,
United
States
Target
Corp.
5.1%
Multiline
Retail
,
United
States
Bristol-Myers
Squibb
Co.
5.0%
Pharmaceuticals
,
United
States
Texas
Instruments,
Inc.
5.0%
Semiconductors
&
Semiconductor
Equipment
,
United
States
PepsiCo,
Inc.
4.9%
Beverages
,
United
States
CFA
®
is
a
trademark
owned
by
CFA
Institute.
Performance
Summary
as
of
August
31,
2020
Franklin
Templeton
SMACS:
Series
E
11
franklintempleton.com
Annual
Report
The
performance
tables
and
graph
do
not
reflect
any
taxes
that
a
shareholder
would
pay
on
Fund
dividends,
capital
gain
distributions,
if
any,
or
any
realized
gains
on
the
sale
of
Fund
shares.
Total
return
reflects
reinvestment
of
the
Fund’s
dividends
and
capital
gain
distributions,
if
any,
and
any
unrealized
gains
or
losses.
Your
dividend
income
will
vary
depending
on
dividends
or
interest
paid
by
securities
in
the
Fund’s
portfolio,
adjusted
for
operating
expenses.
Capital
gain
distributions
are
net
profits
realized
from
the
sale
of
portfolio
securities.
Performance
as
of
8/31/20
1
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.
Cumulative
Total
Return
2
Average
Annual
Total
Return
3
–
1-Year
+1.77%
+1.77%
Since
Inception
(6/3/19)
+9.21%
+7.34%
30-Day
Standardized
Yield
5
Distribution
Rate
4
(with
fee
waiver)
(without
fee
waiver)
2.98%
2.60%
-1.20%
See
page
13
for
Performance
Summary
footnotes.
Franklin
Templeton
SMACS:
Series
E
Performance
Summary
12
franklintempleton.com
Annual
Report
See
page
13
for
Performance
Summary
footnotes.
Total
Return
Index
Comparison
for
a
Hypothetical
$10,000
Investment
1
Total
return
represents
the
change
in
value
of
an
investment
over
the
periods
shown.
It
includes
any
applicable
maximum
sales
charge,
Fund
expenses,
account
fees
and
reinvested
distributions.
The
unmanaged
index
includes
reinvestment
of
any
income
or
distributions.
It
differs
from
the
Fund
in
composition
and
does
not
pay
management
fees
or
expenses.
One
cannot
invest
directly
in
an
index.
6/3/19-8/31/20
Franklin
Templeton
SMACS:
Series
E
Performance
Summary
13
franklintempleton.com
Annual
Report
All
investments
involve
risks,
including
possible
loss
of
principal.
Stock
prices
fluctuate,
sometimes
rapidly
and
dramatically,
due
to
factors
affecting
individual
companies,
particular
industries
or
sectors,
or
general
market
conditions.
The
Fund’s
distributions
to
shareholders
may
decline
when
prevailing
interest
rates
fall
or
when
dividend
income
from
investments
in
stocks
decline.
Foreign
investing
involves
additional
risks
such
as
currency
and
market
volatility,
as
well
as
political
and
social
instability.
Derivatives,
including
currency
management
strategies,
involve
costs
and
can
create
economic
leverage
in
the
portfolio
which
may
result
in
significant
volatility
and
cause
the
Fund
to
participate
in
losses
(as
well
as
enable
gains)
on
an
amount
that
exceeds
the
Fund’s
initial
investment.
The
Fund
may
not
achieve
the
anticipated
benefits,
and
may
realize
losses
when
a
counterparty
fails
to
perform
as
promised.
Unexpected
events
and
their
after-
maths,
such
as
the
spread
of
deadly
diseases;
natural,
environmental
or
man-made
disasters;
financial,
political
or
social
disruptions;
terrorism
and
war;
and
other
tragedies
or
catastrophes,
can
cause
investor
fear
and
panic,
which
can
adversely
affect
the
economies
of
many
companies,
sectors,
nations,
regions
and
the
market
in
general,
in
ways
that
cannot
necessarily
be
foreseen.
The
Fund’s
prospectus
also
includes
a
description
of
the
main
investment
risks.
1.
The
Fund
has
an
expense
reduction
(including
acquired
fund
fees
and
expenses)
contractually
guaranteed
through
12/31/20.
Fund
investment
results
reflect
the
expense
reduction;
without
this
reduction,
the
results
would
have
been
lower.
2.
Cumulative
total
return
represents
the
change
in
value
of
an
investment
over
the
periods
indicated.
3.
Average
annual
total
return
represents
the
average
annual
change
in
value
of
an
investment
over
the
periods
indicated.
Return
for
less
than
one
year,
if
any,
has
not
been
annualized.
4.
Distribution
rate
is
based
on
an
annualization
of
the
Fund’s
August
dividend
and
the
NAV
per
share
on
8/31/20.
5.
The
Fund’s
30-day
standardized
yield
is
calculated
over
a
trailing
30-day
period
using
the
yield
to
maturity
on
bonds
and/or
the
dividends
accrued
on
stocks.
It
may
not
equal
the
Fund’s
actual
income
distribution
rate,
which
reflects
the
Fund’s
past
dividends
paid
to
shareholders.
6.
Source:
Morningstar.
The
MSCI
USA
High
Dividend
Yield
Index
is
based
on
the
MSCI
USA
Index,
its
parent
index,
and
includes
large-
and
mid-capitalization
stocks.
The
index
is
designed
to
reflect
the
performance
of
equities
in
the
parent
index
(excluding
real
estate
investment
trusts)
with
higher
dividend
income
and
quality
characteristics
than
average
dividend
yields
that
are
both
sustainable
and
persistent.
7.
Figures
are
as
stated
in
the
Fund’s
current
prospectus,
including
the
effect
of
acquired
fund
fees
and
expenses,
and
may
differ
from
the
expense
ratios
disclosed
in
the
Your
Fund’s
Expenses
and
Financial
Highlights
sections
in
this
report.
In
periods
of
market
volatility,
assets
may
decline
significantly,
causing
total
annual
Fund
operating
expenses
to
become
higher
than
the
figures
shown.
See
www.franklintempletondatasources.com
for
additional
data
provider
information.
Distributions
(9/1/19–8/31/20)
Net
Investment
Income
Short-Term
Capital
Gain
Total
$0.490100
$0.223500
$0.713600
Total
Annual
Operating
Expenses
7
With
Fee
Waiver
Without
Fee
Waiver
0.00%
4.82%
Your
Fund’s
Expenses
Franklin
Templeton
SMACS:
Series
E
14
franklintempleton.com
Annual
Report
Shareholders
of
mutual
funds
incur
ongoing
costs,
such
as
management
fees
(if
any),
custodian
fees
and
other
Fund
expenses,
which
are
sometimes
referred
to
as
operating
expenses.
The
table
below
shows
the
ongoing
costs
of
investing
in
the
Fund
and
can
help
you
understand
these
costs
and
compare
them
with
those
of
other
mutual
funds.
The
table
assumes
a
$1,000
investment
held
for
the
six
months
indicated.
Please
note
that
the
expenses
shown
in
the
table
are
meant
to
highlight
your
ongoing
Fund
costs
only
and
do
not
reflect
any
program
fees
that
you
may
pay.
Therefore,
the
table
is
useful
in
comparing
ongoing
costs
of
investing
in
the
Fund
only,
and
will
not
help
you
determine
the
relative
total
costs
of
participating
in
any
one
investment
program.
Actual
Fund
Expenses
The
table
below
provides
information
about
actual
account
values
and
actual
expenses
in
the
columns
under
the
heading
“Actual.”
In
these
columns
the
Fund’s
actual
return,
which
includes
the
effect
of
Fund
expenses,
is
used
to
calculate
the
“Ending
Account
Value.”
You
can
estimate
the
expenses
you
paid
during
the
period
by
following
these
steps
(
of
course,
your
account
value
and
expenses
will
differ
from
those
in
this
illustration
):
Divide
your
account
value
by
$1,000
(
if
your
account
had
an
$8,600
value,
then
$8,600
÷
$1,000
=
8.6
).
Then
multiply
the
result
by
the
number
in
the
row
for
your
class
of
shares
under
the
headings
“Actual”
and
“Expenses
Paid
During
Period”
(
if
Actual
Expenses
Paid
During
Period
were
$7.50,
then
8.6
x
$7.50
=
$64.50
).
In
this
illustration,
the
actual
expenses
paid
this
period
are
$64.50.
Hypothetical
Example
for
Comparison
with
Other
Funds
Under
the
heading
“Hypothetical”
in
the
table,
information
is
provided
about
hypothetical
account
values
and
hypothetical
expenses
based
on
the
Fund’s
actual
expense
ratio
and
an
assumed
rate
of
return
of
5%
per
year
before
expenses,
which
is
not
the
Fund’s
actual
return.
This
information
may
not
be
used
to
estimate
the
actual
ending
account
balance
or
expenses
you
paid
for
the
period,
but
it
can
help
you
compare
ongoing
costs
of
investing
in
the
Fund
with
those
of
other
funds.
To
do
so,
compare
this
5%
hypothetical
example
for
the
class
of
shares
you
hold
with
the
5%
hypothetical
examples
that
appear
in
the
shareholder
reports
of
other
funds.
Please
note
that
expenses
shown
in
the
table
are
meant
to
highlight
ongoing
costs
and
do
not
reflect
any
transactional
costs.
Therefore,
information
under
the
heading
“Hypothetical”
is
useful
in
comparing
ongoing
costs
only,
and
will
not
help
you
compare
total
costs
of
owning
different
funds.
In
addition,
if
transactional
costs
were
included,
your
total
costs
would
have
been
higher.
1.
Expenses
are
equal
to
the
annualized
expense
ratio
for
the
six-month
period
as
indicated
above—in
the
far
right
column—multiplied
by
the
simple
average
account
value
over
the
period
indicated,
and
then
multiplied
by
184/366
to
reflect
the
one-half
year
period.
2.
Reflects
expenses
after
fee
waivers
and
expense
reimbursements.
Does
not
include
acquired
fund
fees
and
expenses.
Actual
(actual
return
after
expenses)
Hypothetical
(5%
annual
return
before
expenses)
Beginning
Account
Value
3/1/20
Ending
Account
Value
8/31/20
Expenses
Paid
During
Period
3/1/20–8/31/20
1,2
Ending
Account
Value
8/31/20
Expenses
Paid
During
Period
3/1/20–8/31/20
1,2
a
Net
Annualized
Expense
Ratio
2
$1,000
$1,063.70
$0.00
$1,025.14
$0.00
0.00%
15
franklintempleton.com
Annual
Report
Franklin
Templeton
SMACS:
Series
H
This
annual
report
for
Franklin
Templeton
SMACS:
Series
H
(Fund)
covers
the
fiscal
year
ended
August
31,
2020
.
Your
Fund’s
Goal
and
Main
Investments
The
Fund
seeks
to
provide
investors
with
a
high
level
of
income
exempt
from
federal
income
taxes.
1
Its
secondary
goal
is
capital
appreciation
to
the
extent
possible
and
consistent
with
the
Fund’s
principal
investment
goal.
Under
normal
market
conditions,
the
Fund
invests
substantially
all
of
its
net
assets
in
securities
in
any
rating
category,
including
below-investment
grade
securities
and
defaulted
securities,
whose
interest
is
free
from
federal
income
taxes,
including
the
federal
alternative
minimum
tax.
1
Although
the
Fund
attempts
to
invest
all
of
its
assets
in
tax-free
securities,
it
is
possible
that
a
portion
of
the
Fund’s
net
assets
may
be
invested
in
securities
that
pay
interest
that
may
be
subject
to
the
federal
alternative
minimum
tax
and,
although
not
anticipated,
in
securities
that
pay
interest
subject
to
other
federal
or
state
income
taxes.
1
Performance
Overview
The
Fund’s
share
price,
as
measured
by
net
asset
value
(NAV),
decreased
from
$10.09
on
August
31,
2019,
to
$9.75
on
August
31,
2020.
The
Fund
paid
dividends
totaling
30.2551
cents
per
share
for
the
reporting
period.
2
The
Performance
Summary
beginning
on
page
17
shows
that
at
the
end
of
this
reporting
period
the
Fund’s
distribution
rate
was
3.38%
based
on
an
annualization
of
August’s
2.7295
cent
per
share
dividend
and
the
NAV
of
$9.75
on
August
31,
2020.
An
investor
in
the
2020
maximum
federal
income
tax
bracket
of
40.80%
(including
3.80%
Medicare
tax)
would
need
to
earn
a
distribution
rate
of
5.72%
from
a
taxable
investment
to
match
the
Fund’s
tax-free
distribution
rate.
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.
Municipal
Bond
Market
Overview
In
the
last
quarter
of
2019
and
into
2020,
global
gross
domestic
product
showed
signs
of
continued
expansion,
albeit
at
a
slower
pace
than
the
previous
year.
Several
issues
that
were
causing
increased
uncertainty
in
markets
and
diminished
business
sentiment
showed
signs
of
resolution
during
the
latter
months
of
2019,
including
reduced
trade
tensions
between
the
U.S.
and
China
and
a
resolution
to
Brexit.
In
fixed
income
markets,
all
sectors,
including
U.S.
Treasuries
(USTs),
investment-grade
corporates
and
municipal
bonds,
had
strong
12-month
performance
through
the
end
of
February
2020.
Beginning
in
March,
the
global
spread
of
the
novel
coronavirus
(COVID-19)
and
the
drastic
measures
individual
countries
implemented
to
limit
infections
shocked
both
equity
and
fixed
income
markets.
Investors
sought
perceived
safe
havens,
driving
U.S.
Treasury
(UST)
yields
lower
and
causing
a
surge
in
volatility.
In
the
municipal
bond
market,
sellers
significantly
outnumbered
buyers,
resulting
in
market
dislocations.
March
2020
saw
outflows
of
$42
billion
from
municipal
bond
funds,
reversing
half
of
the
inflows
seen
throughout
2019.
Ratios
of
municipal
bond
yields
versus
duration-matched
USTs
cheapened
across
all
maturity
buckets,
surpassing
levels
reached
during
the
global
Credit
Quality
Composition
*
8/31/20
Ratings
%
of
Total
Investments
BBB
27.36%
Below
Investment
Grade
18.65%
Not
Rated**
53.99%
*
Securities,
except
for
those
labeled
Not
Rated,
are
assigned
ratings
by
one
or
more
Nationally
Recognized
Statistical
Credit
Rating
Organizations
(NRSROs),
such
as
Standard
&
Poor’s,
Moody’s
and
Fitch,
that
can
be
considered
by
the
investment
manager
as
part
of
its
independent
securities
analysis.
When
ratings
from
multiple
agencies
are
available,
the
highest
is
used,
consistent
with
the
portfolio
investment
process.
Ratings
reflect
an
NRSRO’s
opinion
of
an
issuer’s
creditworthiness
and
typically
range
from
AAA
(highest)
to
D
(lowest).
The
Below
Investment
Grade
category
consists
of
bonds
rated
below
BBB-.
The
Refunded
category
generally
consists
of
refunded
bonds
secured
by
U.S.
government
or
other
high-quality
securities
and
not
rerated
by
an
NRSRO.
The
Not
Rated
category
consists
of
ratable
securities
that
have
not
been
rated
by
an
NRSRO.
Cash
and
equivalents
are
excluded
from
this
composition.
**Includes
exchange-traded
funds.
1.
For
investors
subject
to
alternative
minimum
tax,
a
small
portion
of
Fund
dividends
may
be
taxable.
Distributions
of
capital
gains
are
generally
taxable.
To
avoid
imposition
of
28%
backup
withholding
on
all
Fund
distributions
and
redemption
proceeds,
U.S.
investors
must
be
properly
certified
on
Form
W-9
and
non-U.S.
investors
on
Form
W-8BEN.
2.
The
distribution
amount
is
the
sum
of
all
net
investment
income
distributions
for
the
period
shown.
Assumes
shares
were
purchased
and
held
for
the
entire
accrual
period.
Since
dividends
accrue
daily,
your
actual
distributions
will
vary
depending
on
the
date
you
purchased
your
shares
and
any
account
activity.
All
Fund
distributions
will
vary
depending
upon
current
market
conditions,
and
past
distributions
are
not
indicative
of
future
trends.
The
dollar
value,
number
of
shares
or
principal
amount,
and
names
of
all
portfolio
holdings
are
listed
in
the
Fund’s
Statement
of
Investments
(SOI).
The
SOI
begins
on
page
34
.
Franklin
Templeton
SMACS:
Series
H
16
franklintempleton.com
Annual
Report
financial
crisis.
Municipal
bond
issues
closely
related
to
the
impact
of
the
virus,
including
states
like
New
York
and
New
Jersey
and
sectors
like
transportation,
retreated
more
than
other
parts
of
the
market.
In
March,
the
U.S.
Federal
Reserve
announced
it
would
begin
purchasing
municipal
bonds
as
needed
to
support
market
stability;
however,
there
were
still
significant
dislocations
within
the
secondary
bond
market
at
month-end,
and
new
issuance
had
all
but
stopped.
Moving
into
April
and
continuing
through
August,
municipal
bond
market
technical
conditions
improved
as
funds
flowed
into
the
market
and
were
met
with
negative
net
supply
of
tax-exempt
bonds.
Ratios
of
municipal
bonds
versus
USTs
tightened
but
remained
significantly
wider
than
at
the
beginning
of
2020.
Throughout
the
sector,
municipal
issuers
projected
large
deficits
reaching
into
2021
as
revenues
from
tax
receipts
and
usage
fees
fall
while
costs
of
services
increase.
The
Investment
Company
Institute
(ICI)
reported
net
inflows
of
approximately
$11
billion
into
municipal
bond
mutual
funds
in
August
2020.
Since
March,
over
half
of
the
record
outflows
in
March,
$42
billion,
had
returned
to
the
sector.
For
the
12-month
period,
municipal
bond
mutual
funds
had
approximately
$42
billion
of
net
inflows,
according
to
the
ICI.
For
the
12-month
period,
investment-grade
municipal
bonds,
as
measured
by
the
Bloomberg
Barclays
Municipal
Bond
Index,
posted
a
+3.24%
total
return,
while
USTs,
as
measured
by
the
Bloomberg
Barclays
U.S.
Treasury
Index,
posted
a
+6.98%
total
return,
and
investment-grade
corporate
bonds,
as
measured
by
the
Bloomberg
Barclays
U.S.
Corporate
Bond
Index,
posted
a
+7.50%
total
return.
3
All
three
of
these
fixed
income
sectors
underperformed
U.S.
stocks,
as
measured
by
the
Standard
&
Poor’s
®
500
Index,
which
posted
a
+21.94%
total
return
for
the
period.
3
Investment
Strategy
We
select
securities
we
believe
will
provide
the
best
balance
between
risk
and
return
within
the
Fund’s
range
of
allowable
investments
and
typically
use
a
buy-and-hold
strategy.
This
means
we
generally
hold
securities
in
the
Fund’s
portfolio
for
income
purposes,
rather
than
trading
securities
for
capital
gains,
although
we
may
sell
a
security
at
any
time
if
we
believe
it
could
help
the
Fund
meet
its
goal.
We
also
consider
existing
market
conditions,
the
availability
of
lower-rated
securities,
and
whether
the
difference
in
yields
between
higher-
and
lower-rated
securities
justifies
the
higher
risk
of
lower-rated
securities.
Thus,
there
may
be
times
when
the
Fund
has
a
majority
of
its
investments
in
securities
that
are
considered
investment
grade.
Manager’s
Discussion
We
manage
the
Fund
around
our
core
principles
of
credit
selection,
value
identification
and
risk
management,
consistent
with
the
primary
goal
of
providing
shareholders
with
a
high
level
of
tax-exempt
income
by
taking
advantage
of
credit-driven
opportunities
in
all
rating
categories.
We
rely
on
a
deep
and
experienced
investment
team,
featuring
a
group
of
15
research
analysts
that
covers
every
sector
of
the
municipal
bond
market.
The
breadth
and
depth
of
our
research
team
allow
us
to
evaluate
any
investment
opportunity.
The
Fund
does
not
use
leverage
or
credit
derivatives
to
boost
short-term
returns,
and
we
are
careful
to
not
overexpose
the
portfolio
to
any
one
credit
or
sector.
We
believe
our
conservative,
buy-and-hold
investment
strategy
can
help
us
achieve
high,
current,
tax-free
income
for
shareholders.
Thank
you
for
participation
in
Franklin
Templeton
SMACS:
Series
H.
We
look
forward
to
serving
your
future
investment
needs.
The
foregoing
information
reflects
our
analysis,
opinions
and
portfolio
holdings
as
of
August
31,
2020,
the
end
of
the
reporting
period.
The
way
we
implement
our
main
investment
strategies
and
the
resulting
portfolio
holdings
may
change
depending
on
factors
such
as
market
and
economic
conditions.
These
opinions
may
not
be
relied
upon
as
investment
advice
or
an
offer
for
a
particular
security.
The
information
is
not
a
complete
analysis
of
every
aspect
of
any
market,
state,
industry,
security
or
the
Fund.
Statements
of
fact
are
from
sources
considered
reliable,
but
the
investment
manager
makes
no
representation
or
warranty
as
to
their
completeness
or
accuracy.
Although
historical
performance
is
no
guarantee
of
future
results,
these
insights
may
help
you
understand
our
investment
management
philosophy.
Portfolio
Composition
8/31/20
%
of
Total
Investments
*
Other
Revenue
45.68%
Hospital
&
Health
Care
30.49%
Tax-Supported
23.83%
*
Does
not
include
cash
and
cash
equivalents.
3.
Source:
Morningstar.
Treasuries,
if
held
to
maturity,
offer
a
fixed
rate
of
return
and
a
fixed
principal
value;
their
interest
payments
and
principal
are
guaranteed.
See
www.franklintempletondatasources.com
for
additional
data
provider
information.
Performance
Summary
as
of
August
31,
2020
Franklin
Templeton
SMACS:
Series
H
17
franklintempleton.com
Annual
Report
The
performance
tables
and
graph
do
not
reflect
any
taxes
that
a
shareholder
would
pay
on
Fund
dividends,
capital
gain
distributions,
if
any,
or
any
realized
gains
on
the
sale
of
Fund
shares.
Total
return
reflects
reinvestment
of
the
Fund’s
dividends
and
capital
gain
distributions,
if
any,
and
any
unrealized
gains
or
losses.
Your
dividend
income
will
vary
depending
on
dividends
or
interest
paid
by
securities
in
the
Fund’s
portfolio,
adjusted
for
operating
expenses.
Capital
gain
distributions
are
net
profits
realized
from
the
sale
of
portfolio
securities.
Performance
as
of
8/31/20
1
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.
Cumulative
Total
Return
2
Average
Annual
Total
Return
3
–
1-Year
-0.28%
-0.28%
Since
Inception
(6/3/19)
+1.02%
+0.82%
30-Day
Standardized
Yield
6
Taxable
Equivalent
30-Day
Standardized
Yield
5
Distribution
Rate
4
Taxable
Equivalent
Distribution
Rate
5
(with
fee
waiver)
(without
fee
waiver)
(with
fee
waiver)
(without
fee
waiver)
3.38%
5.72%
3.25%
-1.78%
5.49%
-3.01%
See
page
19
for
Performance
Summary
footnotes.
Franklin
Templeton
SMACS:
Series
H
Performance
Summary
18
franklintempleton.com
Annual
Report
See
page
for
19
Performance
Summary
footnotes.
Total
Return
Index
Comparison
for
a
Hypothetical
$10,000
Investment
1
Total
return
represents
the
change
in
value
of
an
investment
over
the
periods
shown.
It
includes
any
applicable
maximum
sales
charge,
Fund
expenses,
account
fees
and
reinvested
distributions.
The
unmanaged
index
includes
reinvestment
of
any
income
or
distributions.
It
differs
from
the
Fund
in
composition
and
does
not
pay
management
fees
or
expenses.
One
cannot
invest
directly
in
an
index.
6/3/19-8/31/20
Franklin
Templeton
SMACS:
Series
H
Performance
Summary
19
franklintempleton.com
Annual
Report
All
investments
involve
risks,
including
possible
loss
of
principal.
Because
municipal
bonds
are
sensitive
to
interest-rate
movements,
the
Fund’s
yield
and
share
price
will
fluctuate
with
market
conditions.
Bond
prices
generally
move
in
the
opposite
direction
of
interest
rates.
Thus,
as
prices
of
bonds
in
the
Fund
adjust
to
a
rise
in
interest
rates,
the
Fund’s
share
price
may
decline.
Investments
in
lower-rated
bonds
include
higher
risk
of
default
and
loss
of
principal.
Changes
in
the
credit
rating
of
a
bond,
or
in
the
credit
rating
or
financial
strength
of
a
bond’s
issuer,
insurer
or
guarantor,
may
affect
the
bond’s
value.
The
Fund
may
invest
a
significant
part
of
its
assets
in
municipal
securities
that
finance
similar
types
of
projects,
such
as
utilities,
hospitals,
higher
education
and
transportation.
A
change
that
affects
one
project
would
likely
affect
all
similar
projects,
thereby
increasing
market
risk.
Unexpected
events
and
their
aftermaths,
such
as
the
spread
of
deadly
diseases;
natural,
environmental
or
man-made
disasters;
financial,
political
or
social
disruptions;
terrorism
and
war;
and
other
tragedies
or
catastrophes,
can
cause
investor
fear
and
panic,
which
can
adversely
affect
the
economies
of
many
companies,
sectors,
nations,
regions
and
the
market
in
general,
in
ways
that
cannot
necessarily
be
foreseen.
The
Fund’s
prospectus
also
includes
a
description
of
the
main
investment
risks.
1.
The
Fund
has
an
expense
reduction
(including
acquired
fund
fees
and
expenses)
contractually
guaranteed
through
12/31/20.
Fund
investment
results
reflect
the
expense
reduction;
without
this
reduction,
the
results
would
have
been
lower.
2.
Cumulative
total
return
represents
the
change
in
value
of
an
investment
over
the
periods
indicated.
3.
Average
annual
total
return
represents
the
average
annual
change
in
value
of
an
investment
over
the
periods
indicated.
Return
for
less
than
one
year,
if
any,
has
not
been
annualized.
4.
Distribution
rate
is
based
on
an
annualization
of
the
Fund’s
August
dividend
and
the
NAV
per
share
on
8/31/20.
5.
Taxable
equivalent
distribution
rate
and
yield
assume
the
2020
maximum
federal
income
tax
rate
of
37.00%
plus
3.80%
Medicare
tax.
6.
The
Fund’s
30-day
standardized
yield
is
calculated
over
a
trailing
30-day
period
using
the
yield
to
maturity
on
bonds
and/or
the
dividends
accrued
on
stocks.
It
may
not
equal
the
Fund’s
actual
income
distribution
rate,
which
reflects
the
Fund’s
past
dividends
paid
to
shareholders.
7.
Source:
Morningstar.
The
Bloomberg
Barclays
Municipal
Bond
Index
is
a
market
value-weighted
index
engineered
for
the
long-term
tax-exempt
bond
market.
To
be
included
in
the
index,
bonds
must
be
fixed
rate,
have
at
least
one
year
to
final
maturity
and
be
rated
investment
grade
(Baa3/BBB-
or
higher)
by
at
least
two
of
the
following
agencies:
Moody’s,
S&P
and
Fitch.
8.
Figures
are
as
stated
in
the
Fund’s
current
prospectus,
including
the
effect
of
acquired
fund
fees
and
expenses,
and
may
differ
from
the
expense
ratios
disclosed
in
the
Your
Fund’s
Expenses
and
Financial
Highlights
sections
in
this
report.
In
periods
of
market
volatility,
assets
may
decline
significantly,
causing
total
annual
Fund
operating
expenses
to
become
higher
than
the
figures
shown.
See
www.franklintempletondatasources.com
for
additional
data
provider
information.
Distributions
(9/1/19–8/31/20)
Net
Investment
Income
$0.302551
Total
Annual
Operating
Expenses
8
With
Fee
Waiver
Without
Fee
Waiver
0.00%
3.90%
Your
Fund’s
Expenses
Franklin
Templeton
SMACS:
Series
H
20
franklintempleton.com
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Shareholders
of
mutual
funds
incur
ongoing
costs,
such
as
management
fees
(if
any),
custodian
fees
and
other
Fund
expenses,
which
are
sometimes
referred
to
as
operating
expenses.
The
table
below
shows
the
ongoing
costs
of
investing
in
the
Fund
and
can
help
you
understand
these
costs
and
compare
them
with
those
of
other
mutual
funds.
The
table
assumes
a
$1,000
investment
held
for
the
six
months
indicated.
Please
note
that
the
expenses
shown
in
the
table
are
meant
to
highlight
your
ongoing
Fund
costs
only
and
do
not
reflect
any
program
fees
that
you
may
pay.
Therefore,
the
table
is
useful
in
comparing
ongoing
costs
of
investing
in
the
Fund
only,
and
will
not
help
you
determine
the
relative
total
costs
of
participating
in
any
one
investment
program.
Actual
Fund
Expenses
The
table
below
provides
information
about
actual
account
values
and
actual
expenses
in
the
columns
under
the
heading
“Actual.”
In
these
columns
the
Fund’s
actual
return,
which
includes
the
effect
of
Fund
expenses,
is
used
to
calculate
the
“Ending
Account
Value.”
You
can
estimate
the
expenses
you
paid
during
the
period
by
following
these
steps
(
of
course,
your
account
value
and
expenses
will
differ
from
those
in
this
illustration
):
Divide
your
account
value
by
$1,000
(
if
your
account
had
an
$8,600
value,
then
$8,600
÷
$1,000
=
8.6
).
Then
multiply
the
result
by
the
number
in
the
row
for
your
class
of
shares
under
the
headings
“Actual”
and
“Expenses
Paid
During
Period”
(
if
Actual
Expenses
Paid
During
Period
were
$7.50,
then
8.6
x
$7.50
=
$64.50
).
In
this
illustration,
the
actual
expenses
paid
this
period
are
$64.50.
Hypothetical
Example
for
Comparison
with
Other
Funds
Under
the
heading
“Hypothetical”
in
the
table,
information
is
provided
about
hypothetical
account
values
and
hypothetical
expenses
based
on
the
Fund’s
actual
expense
ratio
and
an
assumed
rate
of
return
of
5%
per
year
before
expenses,
which
is
not
the
Fund’s
actual
return.
This
information
may
not
be
used
to
estimate
the
actual
ending
account
balance
or
expenses
you
paid
for
the
period,
but
it
can
help
you
compare
ongoing
costs
of
investing
in
the
Fund
with
those
of
other
funds.
To
do
so,
compare
this
5%
hypothetical
example
for
the
class
of
shares
you
hold
with
the
5%
hypothetical
examples
that
appear
in
the
shareholder
reports
of
other
funds.
Please
note
that
expenses
shown
in
the
table
are
meant
to
highlight
ongoing
costs
and
do
not
reflect
any
transactional
costs.
Therefore,
information
under
the
heading
“Hypothetical”
is
useful
in
comparing
ongoing
costs
only,
and
will
not
help
you
compare
total
costs
of
owning
different
funds.
In
addition,
if
transactional
costs
were
included,
your
total
costs
would
have
been
higher.
1.
Expenses
are
equal
to
the
annualized
expense
ratio
for
the
six-month
period
as
indicated
above—in
the
far
right
column—multiplied
by
the
simple
average
account
value
over
the
period
indicated,
and
then
multiplied
by
184/366
to
reflect
the
one-half
year
period.
2.
Reflects
expenses
after
fee
waivers
and
expense
reimbursements.
Does
not
include
acquired
fund
fees
and
expenses.
Actual
(actual
return
after
expenses)
Hypothetical
(5%
annual
return
before
expenses)
Beginning
Account
Value
3/1/20
Ending
Account
Value
8/31/20
Expenses
Paid
During
Period
3/1/20–8/31/20
1,2
Ending
Account
Value
8/31/20
Expenses
Paid
During
Period
3/1/20–8/31/20
1,2
a
Net
Annualized
Expense
Ratio
2
$1,000
$958.30
$0.00
$1,025.14
$0.00
0.00%
21
franklintempleton.com
Annual
Report
Franklin
Templeton
SMACS:
Series
I
This
annual
report
for
Franklin
Templeton
SMACS:
Series
I
(Fund)
covers
the
fiscal
year
ended
August
31,
2020
.
Your
Fund’s
Goal
and
Main
Investments
The
Fund
seeks
to
maximize
income,
while
maintaining
prospects
for
capital
appreciation
by
investing,
under
normal
market
conditions,
predominantly
in
debt
securities.
Performance
Overview
The
Fund
posted
a
-4.51%
cumulative
total
return
for
the
12
months
ended
August
31,
2020.
In
comparison,
the
Fund’s
primary
benchmark,
the
Bloomberg
Barclays
U.S.
High
Yield
Very
Liquid
Index,
which
is
designed
to
track
a
more
liquid
component
of
the
U.S.
dollar-denominated,
high
yield,
fixed-
rate
corporate
bond
market,
posted
a
+4.13%
total
return,
1
while
its
secondary
benchmark,
the
Blended
50%
Bloomberg
Barclays
U.S.
High
Yield
Very
Liquid
Index
and
50%
Bloomberg
Barclays
U.S.
Corporate
Index,
posted
a
+5.88%
total
return
for
the
same
period.
2
You
can
find
more
of
the
Fund’s
performance
data
in
the
Performance
Summary
beginning
on
page
23
.
Performance
data
represent
past
performance,
which
does
not
guarantee
future
results.
Investment
return
and
principal
value
will
fluctuate,
and
you
may
have
a
gain
or
loss
when
you
sell
your
shares.
Economic
and
Market
Overview
The
U.S.
bond
market,
as
measured
by
the
Bloomberg
Barclays
U.S.
Aggregate
Bond
Index,
advanced
during
the
12-month
period.
Before
the
acceleration
of
the
novel
coronavirus
(COVID-19)
outbreak
in
February
2020,
prices
for
most
U.S.
bonds
rose,
and
their
yields
declined,
driven
by
low
inflation,
interest-rate
cuts
and
strong
demand
for
yield.
In
late
February,
the
U.S.
bond
market
began
to
anticipate
the
adverse
economic
impact
of
shutdowns
and
social
distancing
measures.
Higher-quality,
longer-term
bonds
rallied,
while
riskier,
lower-rated
corporate
bonds
declined
sharply,
reflecting
a
reversal
in
many
investors’
appetite
for
risk.
Aggressive
U.S.
Federal
Reserve
(Fed)
action
along
with
phased
business
re-openings
led
to
a
recovery
in
the
corporate
bond
market
beginning
at
the
end
of
March.
However,
yields
on
most
bonds
rose
in
August,
fueled
by
a
change
in
long-standing
inflation
policy
at
the
Fed.
After
reducing
the
federal
funds
target
rate
in
late
2019
to
a
range
of
1.50%–1.75%,
the
Fed
enacted
two
emergency
rate
cuts
in
response
to
the
COVID-19
pandemic
in
March
2020,
further
lowering
the
federal
funds
target
rate
to
a
range
of
0.00%–0.25%.
In
addition,
the
Fed
announced
unlimited,
open-ended
purchasing
of
government-backed
and
corporate
bonds
to
help
keep
markets
functioning.
In
August
2020,
the
Fed
announced
that
future
interest
rates
would
remain
low,
even
if
inflation
persistently
exceeded
the
Fed’s
2%
target.
The
announcement
was
a
major
change
in
inflation
policy
that
affirmed
the
Fed’s
commitment
to
providing
economic
stimulus
until
the
economy
establishes
a
strong
growth
trend.
U.S.
Treasury
bonds,
as
measured
by
the
Bloomberg
Barclays
U.S.
Treasury
Index,
rose
during
the
reporting
period.
Bond
purchasing
by
the
Fed
and
robust
demand
Portfolio
Composition
8/31/20
%
of
Total
Net
Assets
Health
Care
Providers
&
Services
23.9%
Pharmaceuticals
8.6%
Diversified
Financial
Services
7.9%
Automobiles
6.7%
Hotels,
Restaurants
&
Leisure
6.5%
Media
6.5%
Metals
&
Mining
4.6%
Oil,
Gas
&
Consumable
Fuels
4.3%
Energy
Equipment
&
Services
4.1%
Trading
Companies
&
Distributors
3.8%
Food
Products
3.4%
Household
Durables
3.1%
Containers
&
Packaging
3.1%
Entertainment
2.5%
Equity
Real
Estate
Investment
Trusts
(REITs)
1.6%
Wireless
Telecommunication
Services
1.6%
Communications
Equipment
1.5%
Short-Term
Investments
&
Other
Net
Assets
6.3%
1.
Source:
Morningstar.
2.
FactSet.
The
Blended
50%
Bloomberg
Barclays
U.S.
High
Yield
Very
Liquid
Index
and
50%
Bloomberg
Barclays
U.S.
Corporate
Index
was
calculated
internally
and
rebalanced
monthly.
The
indexes
are
unmanaged
and
include
reinvestment
of
any
income
or
distributions.
They
do
not
reflect
any
fees,
expenses
or
sale
charges.
One
cannot
invest
directly
in
an
index,
and
an
index
is
not
representative
of
the
Fund’s
portfolio.
See
www.franklintempletondatasources.com
for
additional
data
provider
information.
The
dollar
value,
number
of
shares
or
principal
amount,
and
names
of
all
portfolio
holdings
are
listed
in
the
Fund’s
Statement
of
Investments
(SOI).
The
SOI
begins
on
page
37
.
Franklin
Templeton
SMACS:
Series
I
22
franklintempleton.com
Annual
Report
for
investments
perceived
as
safe
drove
the
U.S.
Treasury
market
higher
despite
the
widening
U.S.
federal
budget
deficit
and
a
massive
increase
in
issuance.
U.S.
corporate
bond
performance
varied
based
on
credit
rating,
as
investors
became
concerned
about
the
potential
credit
downgrades
of
many
companies.
Investment-grade
corporate
bonds,
as
represented
by
the
Bloomberg
Barclays
U.S.
Corporate
Bond
Index,
posted
higher
returns
than
high-
yield
corporate
bonds,
as
represented
by
the
Bloomberg
Barclays
U.S.
Corporate
High
Yield
Bond
Index.
Investment
Strategy
We
employ
a
bottom-up,
value-oriented,
long-term
approach,
focusing
on
the
market
price
of
a
company’s
securities
relative
to
our
evaluation
of
the
company’s
long-
term
earnings,
asset
value
and
cash
flow
potential.
We
generally
perform
independent
analysis
of
the
securities
being
considered
for
the
Fund’s
portfolio,
rather
than
relying
principally
on
the
ratings
assigned
by
the
ratings
organizations.
We
also
consider
a
company’s
price/earnings
ratio,
profit
margins
and
liquidation
value.
With
respect
to
securities
in
the
utilities
sector,
we
also
consider
the
effects
of
the
regulatory
environment
on
utilities
companies.
The
Fund
may,
from
time
to
time,
use
interest-rate
derivatives
for
various
purposes
including
enhancing
Fund
returns,
increasing
liquidity,
gaining
exposure
to
particular
instruments
in
more
efficient
or
less
expensive
ways
and/
or
hedging
risks
relating
to
changes
in
interest
rates.
The
Fund
also
may,
from
time
to
time,
use
currency
derivatives
to
hedge
(protect)
against
currency
risks,
and
credit-related
derivatives
to
hedge
(protect)
against
credit
risks.
Manager’s
Discussion
During
the
12
months
under
review,
notable
sector
contributors
to
the
Fund’s
performance
relative
to
the
Bloomberg
Barclays
U.S.
High
Yield
Very
Liquid
Index
included
health
care,
industrials
and
materials.
In
contrast,
key
sector
detractors
from
relative
performance
included
energy,
consumer
discretionary
and
communication
services.
Top
individual
contributors
to
the
Fund’s
absolute
performance
included
health
care
services
provider
Tenet
Healthcare,
hospital
manager
and
operator
Community
Health
Systems,
pharmaceuticals
company
Par
Pharmaceutical
and
automobile
manufacturer
Ford
Motor.
In
contrast,
key
detractors
included
in
oil
and
natural
gas
exploration
and
production
company
Chesapeake
Energy,
fitness
club
operator
24
Hour
Holdings,
theater
operator
AMC
Entertainment
Holdings
and
specialty
pharmaceuticals
company
Mallinckrodt,
which
were
no
longer
held
at
period-
end.
The
Fund
did
not
use
derivatives
during
the
period.
The
Fund
is
not
intended
to
be
owned
as
a
stand-alone
investment
vehicle,
but
as
part
of
the
Franklin
Income
separately
managed
account
product.
Thank
you
for
your
participation
in
Franklin
Templeton
SMACS:
Series
I.
We
look
forward
to
serving
your
future
investment
needs.
Edward
Perks,
CFA
Brendan
Circle,
CFA
Todd
Brighton,
CFA
Portfolio
Management
Team
The
foregoing
information
reflects
our
analysis,
opinions
and
portfolio
holdings
as
of
August
31,
2020,
the
end
of
the
reporting
period.
The
way
we
implement
our
main
investment
strategies
and
the
resulting
portfolio
holdings
may
change
depending
on
factors
such
as
market
and
economic
conditions.
These
opinions
may
not
be
relied
upon
as
investment
advice
or
an
offer
for
a
particular
security.
The
information
is
not
a
complete
analysis
of
every
aspect
of
any
market,
country,
industry,
security
or
the
Fund.
Statements
of
fact
are
from
sources
considered
reliable,
but
the
investment
manager
makes
no
representation
or
warranty
as
to
their
completeness
or
accuracy.
Although
historical
performance
is
no
guarantee
of
future
results,
these
insights
may
help
you
understand
our
investment
management
philosophy.
Top
Five
Fixed
Income
Holdings
8/31/20
Company
Industry
%
of
Total
Net
Assets
a
a
CHS/Community
Health
Systems
Inc
15.0%
Health
Care
Providers
&
Services
Tenet
Healthcare
Corp
8.9%
Health
Care
Providers
&
Services
Government
National
Mortgage
Association
7.9%
Diversified
Financial
Services
Bausch
Health
Cos
Inc
5.3%
Pharmaceuticals
Calumet
Specialty
Products
Partners
LP
/
Calumet
Finance
Corp
4.3%
Oil,
Gas
&
Consumable
Fuels
Performance
Summary
as
of
August
31,
2020
Franklin
Templeton
SMACS:
Series
I
23
franklintempleton.com
Annual
Report
The
performance
tables
and
graph
do
not
reflect
any
taxes
that
a
shareholder
would
pay
on
Fund
dividends,
capital
gain
distributions,
if
any,
or
any
realized
gains
on
the
sale
of
Fund
shares.
Total
return
reflects
reinvestment
of
the
Fund’s
dividends
and
capital
gain
distributions,
if
any,
and
any
unrealized
gains
or
losses.
Your
dividend
income
will
vary
depending
on
dividends
or
interest
paid
by
securities
in
the
Fund’s
portfolio,
adjusted
for
operating
expenses.
Capital
gain
distributions
are
net
profits
realized
from
the
sale
of
portfolio
securities.
Performance
as
of
8/31/20
1
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.
Cumulative
Total
Return
2
Average
Annual
Total
Return
3
–
1-Year
-4.51%
-4.51%
Since
Inception
(6/3/19)
-2.37%
-1.91%
30-Day
Standardized
Yield
5
Distribution
Rate
4
(with
fee
waiver)
(without
fee
waiver)
7.08%
5.98%
1.70%
See
page
25
for
Performance
Summary
footnotes.
Franklin
Templeton
SMACS:
Series
I
Performance
Summary
24
franklintempleton.com
Annual
Report
See
page
for
25
Performance
Summary
footnotes.
Total
Return
Index
Comparison
for
a
Hypothetical
$10,000
Investment
1
Total
return
represents
the
change
in
value
of
an
investment
over
the
periods
shown.
It
includes
any
applicable
maximum
sales
charge,
Fund
expenses,
account
fees
and
reinvested
distributions.
The
unmanaged
indexes
include
reinvestment
of
any
income
or
distributions.
They
differ
from
the
Fund
in
composition
and
do
not
pay
management
fees
or
expenses.
One
cannot
invest
directly
in
an
index.
6/3/19-8/31/20
Franklin
Templeton
SMACS:
Series
I
Performance
Summary
25
franklintempleton.com
Annual
Report
All
investments
involve
risks,
including
possible
loss
of
principal.
The
Fund’s
share
price
and
yield
will
be
affected
by
interest-rate
movements.
Bond
prices
generally
move
in
the
opposite
direction
of
interest
rates.
Thus,
as
prices
of
bonds
in
the
Fund
adjust
to
a
rise
in
interest
rates,
the
Fund’s
share
price
may
decline.
Changes
in
the
financial
strength
of
a
bond
issuer
or
in
a
bond’s
credit
rating
may
affect
its
value.
The
Fund’s
portfolio
includes
a
substantial
portion
of
higher-yielding,
lower-rated
debt
securities
because
of
the
relatively
higher
yields
they
offer.
These
securities
carry
a
greater
degree
of
credit
risk
relative
to
investment-grade
securities.
The
Fund’s
distributions
to
shareholders
may
decline
when
prevailing
interest
rates
fall,
when
the
Fund
experiences
defaults
on
debt
securities
it
holds,
or
when
the
Fund
realizes
a
loss
upon
the
sale
of
a
debt
security.
Derivatives,
including
currency
management
strategies,
involve
costs
and
can
create
economic
leverage
in
the
portfolio
which
may
result
in
significant
volatility
and
cause
the
Fund
to
participate
in
losses
(as
well
as
enable
gains)
on
an
amount
that
exceeds
the
Fund’s
initial
investment.
The
Fund
may
not
achieve
the
anticipated
benefits,
and
may
realize
losses
when
a
counterparty
fails
to
perform
as
promised.
Unexpected
events
and
their
aftermaths,
such
as
the
spread
of
deadly
diseases;
natural,
environmental
or
man-made
disasters;
financial,
political
or
social
disruptions;
terrorism
and
war;
and
other
tragedies
or
catastrophes,
can
cause
investor
fear
and
panic,
which
can
adversely
affect
the
econo-
mies
of
many
companies,
sectors,
nations,
regions
and
the
market
in
general,
in
ways
that
cannot
necessarily
be
foreseen.
The
Fund’s
prospectus
also
includes
a
description
of
the
main
investment
risks.
1.
The
Fund
has
an
expense
reduction
(including
acquired
fund
fees
and
expenses)
contractually
guaranteed
through
12/31/20.
Fund
investment
results
reflect
the
expense
reduction;
without
this
reduction,
the
results
would
have
been
lower.
2.
Cumulative
total
return
represents
the
change
in
value
of
an
investment
over
the
periods
indicated.
3.
Average
annual
total
return
represents
the
average
annual
change
in
value
of
an
investment
over
the
periods
indicated.
Return
for
less
than
one
year,
if
any,
has
not
been
annualized.
4.
Distribution
rate
is
based
on
an
annualization
of
the
Fund’s
August
dividend
and
the
NAV
per
share
on
8/31/20.
5.
The
Fund’s
30-day
standardized
yield
is
calculated
over
a
trailing
30-day
period
using
the
yield
to
maturity
on
bonds
and/or
the
dividends
accrued
on
stocks.
It
may
not
equal
the
Fund’s
actual
income
distribution
rate,
which
reflects
the
Fund’s
past
dividends
paid
to
shareholders.
6.
Source:
Morningstar.
The
Bloomberg
Barclays
U.S.
High
Yield
Very
Liquid
Index
is
a
component
of
the
U.S.
Corporate
High
Yield
Index
that
is
designed
to
track
a
more
liquid
component
of
the
U.S.
dollar-denominated,
high
yield,
fixed-rate
corporate
bond
market.
7.
Source:
FactSet.
The
Blended
50%
Bloomberg
Barclays
U.S.
High
Yield
Very
Liquid
Index
and
50%
Bloomberg
Barclays
U.S.
Corporate
Index
was
calculated
internally
and
rebalanced
monthly.
The
Bloomberg
Barclays
U.S.
Corporate
Index
measures
the
investment
grade,
fixed-rate,
taxable
corporate
bond
market.
It
includes
U.S.
dollar-de-
nominated
securities
publicly
issued
by
U.S.
and
non-U.S.
industrial,
utility
and
financial
issuers.
8.
Figures
are
as
stated
in
the
Fund’s
current
prospectus,
including
the
effect
of
acquired
fund
fees
and
expenses,
and
may
differ
from
the
expense
ratios
disclosed
in
the
Your
Fund’s
Expenses
and
Financial
Highlights
sections
in
this
report.
In
periods
of
market
volatility,
assets
may
decline
significantly,
causing
total
annual
Fund
operating
expenses
to
become
higher
than
the
figures
shown.
See
www.franklintempletondatasources.com
for
additional
data
provider
information.
Distributions
(9/1/19–8/31/20)
Net
Investment
Income
$0.707200
Total
Annual
Operating
Expenses
8
With
Fee
Waiver
Without
Fee
Waiver
0.00%
6.02%
Your
Fund’s
Expenses
Franklin
Templeton
SMACS:
Series
I
26
franklintempleton.com
Annual
Report
Shareholders
of
mutual
funds
incur
ongoing
costs,
such
as
management
fees
(if
any),
custodian
fees
and
other
Fund
expenses,
which
are
sometimes
referred
to
as
operating
expenses.
The
table
below
shows
the
ongoing
costs
of
investing
in
the
Fund
and
can
help
you
understand
these
costs
and
compare
them
with
those
of
other
mutual
funds.
The
table
assumes
a
$1,000
investment
held
for
the
six
months
indicated.
Please
note
that
the
expenses
shown
in
the
table
are
meant
to
highlight
your
ongoing
Fund
costs
only
and
do
not
reflect
any
program
fees
that
you
may
pay.
Therefore,
the
table
is
useful
in
comparing
ongoing
costs
of
investing
in
the
Fund
only,
and
will
not
help
you
determine
the
relative
total
costs
of
participating
in
any
one
investment
program.
Actual
Fund
Expenses
The
table
below
provides
information
about
actual
account
values
and
actual
expenses
in
the
columns
under
the
heading
“Actual.”
In
these
columns
the
Fund’s
actual
return,
which
includes
the
effect
of
Fund
expenses,
is
used
to
calculate
the
“Ending
Account
Value.”
You
can
estimate
the
expenses
you
paid
during
the
period
by
following
these
steps
(
of
course,
your
account
value
and
expenses
will
differ
from
those
in
this
illustration
):
Divide
your
account
value
by
$1,000
(
if
your
account
had
an
$8,600
value,
then
$8,600
÷
$1,000
=
8.6
).
Then
multiply
the
result
by
the
number
in
the
row
for
your
class
of
shares
under
the
headings
“Actual”
and
“Expenses
Paid
During
Period”
(
if
Actual
Expenses
Paid
During
Period
were
$7.50,
then
8.6
x
$7.50
=
$64.50
).
In
this
illustration,
the
actual
expenses
paid
this
period
are
$64.50.
Hypothetical
Example
for
Comparison
with
Other
Funds
Under
the
heading
“Hypothetical”
in
the
table,
information
is
provided
about
hypothetical
account
values
and
hypothetical
expenses
based
on
the
Fund’s
actual
expense
ratio
and
an
assumed
rate
of
return
of
5%
per
year
before
expenses,
which
is
not
the
Fund’s
actual
return.
This
information
may
not
be
used
to
estimate
the
actual
ending
account
balance
or
expenses
you
paid
for
the
period,
but
it
can
help
you
compare
ongoing
costs
of
investing
in
the
Fund
with
those
of
other
funds.
To
do
so,
compare
this
5%
hypothetical
example
for
the
class
of
shares
you
hold
with
the
5%
hypothetical
examples
that
appear
in
the
shareholder
reports
of
other
funds.
Please
note
that
expenses
shown
in
the
table
are
meant
to
highlight
ongoing
costs
and
do
not
reflect
any
transactional
costs.
Therefore,
information
under
the
heading
“Hypothetical”
is
useful
in
comparing
ongoing
costs
only,
and
will
not
help
you
compare
total
costs
of
owning
different
funds.
In
addition,
if
transactional
costs
were
included,
your
total
costs
would
have
been
higher.
1.
Expenses
are
equal
to
the
annualized
expense
ratio
for
the
six-month
period
as
indicated
above—in
the
far
right
column—multiplied
by
the
simple
average
account
value
over
the
period
indicated,
and
then
multiplied
by
184/366
to
reflect
the
one-half
year
period.
2.
Reflects
expenses
after
fee
waivers
and
expense
reimbursements.
Does
not
include
acquired
fund
fees
and
expenses.
Actual
(actual
return
after
expenses)
Hypothetical
(5%
annual
return
before
expenses)
Beginning
Account
Value
3/1/20
Ending
Account
Value
8/31/20
Expenses
Paid
During
Period
3/1/20–8/31/20
1,2
Ending
Account
Value
8/31/20
Expenses
Paid
During
Period
3/1/20–8/31/20
1,2
a
Net
Annualized
Expense
Ratio
2
$1,000
$975.90
$0.00
$1,025.14
$0.00
0.00%
Franklin
Strategic
Series
Financial
Highlights
Franklin
Templeton
SMACS:
Series
CH
franklintempleton.com
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Annual
Report
27
a
Year
Ended
August
31,
2020
Year
Ended
August
31,
2019
a
Per
share
operating
performance
(for
a
share
outstanding
throughout
the
year)
Net
asset
value,
beginning
of
year
........................................................
$10.26
$10.00
Income
from
investment
operations
b
:
Net
investment
income
c
..............................................................
0.33
0.05
Net
realized
and
unrealized
gains
(losses)
................................................
(0.31)
0.26
Total
from
investment
operations
.........................................................
0.02
0.31
Less
distributions
from:
Net
investment
income
...............................................................
(0.33)
(0.05)
Net
realized
gains
..................................................................
(0.13)
—
Total
distributions
....................................................................
(0.46)
(0.05)
Net
asset
value,
end
of
year
............................................................
$9.82
$10.26
Total
return
d
........................................................................
0.25%
3.06%
Ratios
to
average
net
assets
e
Expenses
before
waiver
and
payments
by
affiliates
...........................................
4.23%
3.74%
Expenses
net
of
waiver
and
payments
by
affiliates
............................................
—
f
—
Net
investment
income
................................................................
3.38%
1.87%
Supplemental
data
Net
assets,
end
of
year
(000’s)
..........................................................
$2,986
$4,028
Portfolio
turnover
rate
.................................................................
51.23%
18.11%
a
For
the
period
June
3,
2019
(commencement
of
operations)
to
August
31,
2019.
b
The
amount
shown
for
a
share
outstanding
throughout
the
period
may
not
correlate
with
the
Statement
of
Operations
for
the
period
due
to
the
timing
of
sales
and
repurchases
of
the
Fund’s
shares
in
relation
to
income
earned
and/or
fluctuating
fair
value
of
the
investments
of
the
Fund.
c
Based
on
average
daily
shares
outstanding.
d
Total
return
is
not
annualized
for
periods
less
than
one
year.
e
Ratios
are
annualized
for
periods
less
than
one
year,
except
for
non-recurring
expenses,
if
any.
f
Benefit
of
expense
reduction
rounds
to
less
than
0.01%.
Franklin
Strategic
Series
Statement
of
Investments,
August
31,
2020
Franklin
Templeton
SMACS:
Series
CH
franklintempleton.com
Annual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
28
s
a
a
Principal
Amount
a
Value
a
a
a
a
a
Municipal
Bonds
99.2%
California
99.2%
a
California
Community
Housing
Agency
,
Revenue
,
144A,
2019
A
,
5
%
,
4/01/49
......
$
200,000
$
224,586
California
Municipal
Finance
Authority
,
Claremont
Graduate
University,
Revenue,
2020
B,
Refunding,
5%,
10/01/49
......
125,000
135,067
Congregational
Home
Obligated
Group
(The),
Revenue,
2019,
Refunding,
5%,
11/15/39
.......................................................
130,000
141,781
California
Statewide
Communities
Development
Authority
,
Special
Assessment,
2019
C,
5%,
9/02/49
...............................
125,000
140,181
Special
Assessment,
2020
A,
4%,
9/02/50
...............................
100,000
102,150
Community
Facilities
District
No.
2016-02,
Special
Tax,
2019,
5%,
9/01/39
.......
100,000
114,084
a
Loma
Linda
University
Medical
Center
Obligated
Group,
Revenue,
144A,
2018
A,
5.5%,
12/01/58
..................................................
250,000
275,275
a
NCCD-Hooper
Street
LLC,
Revenue,
144A,
2019,
5.25%,
7/01/49
.............
100,000
98,459
a
NCCD-Hooper
Street
LLC,
Revenue,
144A,
2019,
5.25%,
7/01/52
.............
200,000
195,894
City
of
Dublin
,
Community
Facilities
District
No.
2015-1
,
Special
Tax
,
2019
,
5
%
,
9/01/49
130,000
145,895
City
of
Rancho
Cordova
,
Grantline
208
Community
Facilities
District
No.
2018-1
,
Special
Tax
,
2019
,
5
%
,
9/01/49
.......................................
125,000
138,247
City
of
Roseville
,
SVSP
Westpark-Federico
Community
Facilities
District
No.
1,
Special
Tax,
2019,
5%,
9/01/49
........................................................
125,000
138,681
Villages
at
Sierra
Vista
Community
Facilities
District
No.
1,
Special
Tax,
2019,
5%,
9/01/49
........................................................
130,000
144,606
City
of
Santa
Paula
,
Harvest
Community
Facilities
District
No.
1
,
Special
Tax
,
2020
,
4
%
,
9/01/50
......................................................
125,000
128,422
City
of
Tracy
,
Community
Facilities
District
No.
2016-01
,
Special
Tax
,
2018
,
5
%
,
9/01/48
.........................................................
135,000
148,800
City
of
Upland
,
Community
Facilities
District
No.
2015-1
,
Special
Tax
,
2019
A
,
4
%
,
9/01/49
.........................................................
185,000
197,225
Folsom
Ranch
Financing
Authority
,
City
of
Folsom
Community
Facilities
District
No.
19
,
Special
Tax
,
2019
,
5
%
,
9/01/49
.......................................
125,000
141,611
Foothill-Eastern
Transportation
Corridor
Agency
,
Revenue
,
2013
B-2
,
Refunding
,
3.5
%
,
1/15/53
.........................................................
190,000
202,160
Tobacco
Securitization
Authority
of
Southern
California
,
San
Diego
County
Tobacco
Asset
Securitization
Corp.
,
Revenue
,
2019
B-1
,
Refunding
,
5
%
,
6/01/48
.........
125,000
147,598
2,960,722
Total
Municipal
Bonds
(Cost
$2,951,620)
.......................................
2,960,722
a
a
a
a
a
Total
Investments
(Cost
$2,951,620)
99.2%
.....................................
$2,960,722
Other
Assets,
less
Liabilities
0.8%
.............................................
24,791
Net
Assets
100.0%
...........................................................
$2,985,513
See
Abbreviations
on
page
54
.
a
Security
was
purchased
pursuant
to
Rule
144A
under
the
Securities
Act
of
1933
and
may
be
sold
in
transactions
exempt
from
registration
only
to
qualified
institutional
buyers
or
in
a
public
offering
registered
under
the
Securities
Act
of
1933.
At
August
31,
2020,
the
aggregate
value
of
these
securities
was
$794,214,
representing
26.6%
of
net
assets.
Franklin
Strategic
Series
Financial
Highlights
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Templeton
SMACS:
Series
E
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The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Annual
Report
29
a
Year
Ended
August
31,
2020
Year
Ended
August
31,
2019
a
Per
share
operating
performance
(for
a
share
outstanding
throughout
the
year)
Net
asset
value,
beginning
of
year
........................................................
$10.69
$10.00
Income
from
investment
operations
b
:
Net
investment
income
c
..............................................................
0.36
0.10
Net
realized
and
unrealized
gains
(losses)
................................................
(0.19)
0.63
Total
from
investment
operations
.........................................................
0.17
0.73
Less
distributions
from:
Net
investment
income
...............................................................
(0.49)
(0.04)
Net
realized
gains
..................................................................
(0.22)
—
Total
distributions
....................................................................
(0.71)
(0.04)
Net
asset
value,
end
of
year
............................................................
$10.15
$10.69
Total
return
d
........................................................................
1.77%
7.31%
Ratios
to
average
net
assets
e
Expenses
before
waiver
and
payments
by
affiliates
...........................................
2.85%
4.76%
Expenses
net
of
waiver
and
payments
by
affiliates
............................................
—
f
—
Net
investment
income
................................................................
3.48%
4.11%
Supplemental
data
Net
assets,
end
of
year
(000’s)
..........................................................
$3,847
$3,959
Portfolio
turnover
rate
.................................................................
58.50%
16.33%
a
For
the
period
June
3,
2019
(commencement
of
operations)
to
August
31,
2019.
b
The
amount
shown
for
a
share
outstanding
throughout
the
period
may
not
correlate
with
the
Statement
of
Operations
for
the
period
due
to
the
timing
of
sales
and
repurchases
of
the
Fund’s
shares
in
relation
to
income
earned
and/or
fluctuating
fair
value
of
the
investments
of
the
Fund.
c
Based
on
average
daily
shares
outstanding.
d
Total
return
is
not
annualized
for
periods
less
than
one
year.
e
Ratios
are
annualized
for
periods
less
than
one
year,
except
for
non-recurring
expenses.
If
any.
f
Benefit
of
expense
reduction
rounds
to
less
than
0.01%.
Franklin
Strategic
Series
Statement
of
Investments,
August
31,
2020
Franklin
Templeton
SMACS:
Series
E
franklintempleton.com
Annual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
30
a
Country
Shares
a
Value
a
Common
Stocks
75.8%
Aerospace
&
Defense
2.3%
General
Dynamics
Corp.
................................
United
States
600
$
89,610
Beverages
4.9%
PepsiCo,
Inc.
........................................
United
States
1,350
189,081
Capital
Markets
2.0%
Morgan
Stanley
.......................................
United
States
1,500
78,390
Communications
Equipment
2.2%
Cisco
Systems,
Inc.
...................................
United
States
2,000
84,440
Diversified
Telecommunication
Services
2.0%
BCE,
Inc.
...........................................
Canada
1,750
75,234
Electric
Utilities
6.2%
Duke
Energy
Corp.
....................................
United
States
1,650
132,561
Southern
Co.
(The)
....................................
United
States
2,000
104,360
236,921
Equity
Real
Estate
Investment
Trusts
(REITs)
0.9%
Host
Hotels
&
Resorts,
Inc.
..............................
United
States
3,000
33,690
Health
Care
Providers
&
Services
5.3%
CVS
Health
Corp.
.....................................
United
States
3,265
202,822
Insurance
2.0%
MetLife,
Inc.
.........................................
United
States
2,000
76,920
Interactive
Media
&
Services
3.0%
a
Alphabet,
Inc.,
A
......................................
United
States
70
114,067
a
Media
1.5%
Comcast
Corp.,
A
.....................................
United
States
1,300
58,253
Metals
&
Mining
2.9%
Rio
Tinto
plc,
ADR
.....................................
Australia
1,800
110,214
Multiline
Retail
5.1%
Target
Corp.
.........................................
United
States
1,300
196,573
Multi-Utilities
3.9%
Dominion
Energy,
Inc.
..................................
United
States
1,400
109,816
DTE
Energy
Co.
......................................
United
States
350
41,534
151,350
Oil,
Gas
&
Consumable
Fuels
5.4%
Chevron
Corp.
.......................................
United
States
2,000
167,860
TOTAL
SE,
ADR
......................................
France
1,000
39,570
207,430
Pharmaceuticals
13.1%
AstraZeneca
plc,
ADR
..................................
United
Kingdom
3,300
184,800
Bristol-Myers
Squibb
Co.
................................
United
States
3,100
192,820
Merck
&
Co.,
Inc.
.....................................
United
States
1,500
127,905
505,525
Semiconductors
&
Semiconductor
Equipment
7.0%
Analog
Devices,
Inc.
...................................
United
States
650
75,972
Texas
Instruments,
Inc.
.................................
United
States
1,365
194,035
270,007
Specialty
Retail
4.4%
Home
Depot,
Inc.
(The)
.................................
United
States
600
171,024
Franklin
Strategic
Series
Statement
of
Investments
Franklin
Templeton
SMACS:
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E
(continued)
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The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Annual
Report
31
a
Country
Shares
a
Value
a
Common
Stocks
(continued)
Tobacco
1.7%
Philip
Morris
International,
Inc.
...........................
United
States
800
$
63,832
Total
Common
Stocks
(Cost
$2,688,577)
.......................................
2,915,383
b
Equity-Linked
Securities
10.3%
Automobiles
2.0%
c
Wells
Fargo
Bank
NA
into
General
Motors
Co.,
Senior
Unsecured
Note,
144A,
8.5%
...................................
United
States
2,500
75,548
Internet
&
Direct
Marketing
Retail
1.5%
c
Citigroup
Global
Markets
Holdings,
Inc.
into
Amazon.com,
Inc.,
Senior
Unsecured
Note,
144A,
8%
......................
United
States
30
58,637
IT
Services
2.7%
c
Credit
Suisse
AG
into
International
Business
Machines
Corp.,
Senior
Unsecured
Note,
144A,
7.5%
..........................
United
States
810
101,830
Multiline
Retail
4.1%
c
JPMorgan
Chase
Bank
NA
into
Target
Corp.,
Senior
Unsecured
Note,
144A,
9%
.....................................
United
States
1,300
159,304
Total
Equity-Linked
Securities
(Cost
$415,306)
..................................
395,319
Convertible
Preferred
Stocks
5.1%
Electric
Utilities
1.9%
a
American
Electric
Power
Co.,
Inc.,
6.125%
..................
United
States
1,500
72,735
a
Semiconductors
&
Semiconductor
Equipment
3.2%
Broadcom,
Inc.,
8%,
A
..................................
United
States
100
123,020
Total
Convertible
Preferred
Stocks
(Cost
$173,474)
..............................
195,755
Preferred
Stocks
3.6%
Banks
3.6%
Citigroup,
Inc.,
6.875%,
K
...............................
United
States
5,000
141,400
Total
Preferred
Stocks
(Cost
$137,118)
.........................................
141,400
a
Units
a
a
a
a
a
d
Index-Linked
Notes
1.1%
Capital
Markets
1.1%
e
Credit
Suisse
AG,
Senior
Note,
11.06%,
2/08/21
..............
United
States
13
40,020
Total
Index-Linked
Notes
(Cost
$39,189)
.......................................
40,020
Total
Long
Term
Investments
(Cost
$3,453,664)
.................................
3,687,877
a
Franklin
Strategic
Series
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Investments
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32
Short
Term
Investments
4.3%
a
a
Country
Shares
a
Value
a
Money
Market
Funds
4.3%
f,g
Institutional
Fiduciary
Trust
-
Money
Market
Portfolio,
0%
........
United
States
165,509
$
165,509
Total
Money
Market
Funds
(Cost
$165,509)
.....................................
165,509
Total
Short
Term
Investments
(Cost
$165,509
)
..................................
165,509
a
Total
Investments
(Cost
$3,619,173)
100.2%
....................................
$3,853,386
Other
Assets,
less
Liabilities
(0.2)%
...........................................
(6,183)
Net
Assets
100.0%
...........................................................
$3,847,203
See
Abbreviations
on
page
54
.
a
Non-income
producing.
b
See
Note
1(d)
regarding
equity-linked
securities.
c
Security
was
purchased
pursuant
to
Rule
144A
under
the
Securities
Act
of
1933
and
may
be
sold
in
transactions
exempt
from
registration
only
to
qualified
institutional
buyers
or
in
a
public
offering
registered
under
the
Securities
Act
of
1933.
At
August
31,
2020,
the
aggregate
value
of
these
securities
was
$395,319,
representing
10.3%
of
net
assets.
d
See
Note
1(c)
regarding
index-linked
notes.
e
Security
pays
variable
interest
based
on
the
distributions
of
the
strategy
index
and
proceeds
earned
from
related
equity
derivatives.
The
coupon
rate
shown
represents
the
combined
rate
at
period
end.
Cash
payment
at
maturity
or
upon
early
redemption
is
based
on
the
performance
of
the
strategy
index.
f
See
Note
3(d)
regarding
investments
in
affiliated
management
investment
companies.
g
The
rate
shown
is
the
annualized
seven-day
effective
yield
at
period
end.
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a
Year
Ended
August
31,
2020
Year
Ended
August
31,
2019
a
Per
share
operating
performance
(for
a
share
outstanding
throughout
the
year)
Net
asset
value,
beginning
of
year
........................................................
$10.09
$10.00
Income
from
investment
operations
b
:
Net
investment
income
c
..............................................................
0.30
0.04
Net
realized
and
unrealized
gains
(losses)
................................................
(0.34)
0.09
Total
from
investment
operations
.........................................................
(0.04)
0.13
Less
distributions
from:
Net
investment
income
...............................................................
(0.30)
(0.04)
Net
asset
value,
end
of
year
............................................................
$9.75
$10.09
Total
return
d
........................................................................
(0.28)%
e
1.31%
Ratios
to
average
net
assets
f
Expenses
before
waiver
and
payments
by
affiliates
...........................................
3.91%
3.85%
Expenses
net
of
waiver
and
payments
by
affiliates
............................................
—
g
—
Net
investment
income
................................................................
3.10%
1.69%
Supplemental
data
Net
assets,
end
of
year
(000’s)
..........................................................
$2,941
$3,042
Portfolio
turnover
rate
.................................................................
4.93%
—
a
For
the
period
June
3,
2019
(commencement
of
operations)
to
August
31,
2019.
b
The
amount
shown
for
a
share
outstanding
throughout
the
period
may
not
correlate
with
the
Statement
of
Operations
for
the
period
due
to
the
timing
of
sales
and
repurchases
of
the
Fund’s
shares
in
relation
to
income
earned
and/or
fluctuating
fair
value
of
the
investments
of
the
Fund.
c
Based
on
average
daily
shares
outstanding.
d
Total
return
is
not
annualized
for
periods
less
than
one
year.
e
Total
return
excluding
payments
by
Advisers
for
acquired
fund
fees
and
expenses
is
(0.38)%
for
the
year
ended
August
31,
2020.
See
Note
3(e).
d
Ratios
are
annualized
for
periods
less
than
one
year,
except
for
non-recurring
expenses,
if
any.
e
Benefit
of
expense
reduction
rounds
to
less
than
0.01%.
Franklin
Strategic
Series
Statement
of
Investments,
August
31,
2020
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34
a
a
Shares
a
Value
a
Management
Investment
Companies
34.8%
Capital
Markets
34.8%
a
Franklin
Liberty
Intermediate
Municipal
Opportunities
ETF
.....................
40,000
$
1,022,800
Total
Management
Investment
Companies
(Cost
$1,017,100)
.....................
1,022,800
Principal
Amount
a
a
a
a
Municipal
Bonds
63.3%
California
5.0%
Tobacco
Securitization
Authority
of
Southern
California
,
San
Diego
County
Tobacco
Asset
Securitization
Corp.
,
Revenue
,
2019
B-1
,
Refunding
,
5
%
,
6/01/48
.........
$
125,000
147,597
Colorado
18.7%
Colorado
Health
Facilities
Authority
,
Christian
Living
Neighborhoods
Obligated
Group
,
Revenue
,
2019
,
Refunding
,
4
%
,
1/01/38
.................................
100,000
96,119
Denver
Health
&
Hospital
Authority
,
Revenue
,
2019
A
,
Refunding
,
4
%
,
12/01/37
....
100,000
107,616
Hunters
Overlook
Metropolitan
District
No.
5
,
GO
,
2019
A
,
5
%
,
12/01/39
..........
150,000
154,822
Village
at
Dry
Creek
Metropolitan
District
No.
2
(The)
,
GO
,
2019
,
4.375
%
,
12/01/44
..
200,000
191,478
550,035
Indiana
3.9%
Indiana
Finance
Authority
,
Marian
University,
Inc.
,
Revenue
,
2019
A
,
5
%
,
9/15/39
...
100,000
113,450
Louisiana
11.9%
Calcasieu
Parish
Memorial
Hospital
Service
District
,
Southwest
Louisiana
Healthcare
System
Obligated
Group
,
Revenue
,
2019
,
Refunding
,
5
%
,
12/01/39
............
200,000
214,902
b
Louisiana
Local
Government
Environmental
Facilities
&
Community
Development
Authority
,
Parish
of
St.
Martin
,
Revenue
,
144A,
2019
,
4.4
%
,
11/01/44
...........
135,000
135,269
350,171
Maryland
3.2%
b
City
of
Baltimore
,
Harbor
Point
Special
Taxing
District
,
Tax
Allocation,
Senior
Lien
,
144A,
2019
A
,
Refunding
,
3.5
%
,
6/01/39
................................
100,000
92,944
Pennsylvania
3.6%
b
Allentown
Neighborhood
Improvement
Zone
Development
Authority
,
Revenue
,
144A,
2017
,
Refunding
,
5
%
,
5/01/32
........................................
100,000
106,456
Texas
3.9%
b
New
Hope
Cultural
Education
Facilities
Finance
Corp.
,
Cityscape
Schools,
Inc.
,
Revenue
,
144A,
2019
A
,
5
%
,
8/15/39
...................................
110,000
115,935
Washington
3.4%
b
Washington
State
Housing
Finance
Commission
,
Presbyterian
Retirement
Communities
Northwest
Obligated
Group
,
Revenue
,
144A,
2019A
,
5
%
,
1/01/49
...
100,000
100,917
Wisconsin
4.3%
b
Public
Finance
Authority
,
Friends
Homes
Obligated
Group
,
Revenue
,
144A,
2019
,
Refunding
,
5
%
,
9/01/49
.............................................
125,000
127,175
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s
a
a
Principal
Amount
a
Value
a
a
a
a
a
Municipal
Bonds
(continued)
U.S.
Territories
5.4%
District
of
Columbia
5.4%
District
of
Columbia
,
International
School
Obligated
Group
,
Revenue
,
2019
,
5
%
,
7/01/49
......................................................
$
140,000
$
158,472
Total
Municipal
Bonds
(Cost
$1,905,867)
.......................................
1,863,152
Total
Long
Term
Investments
(Cost
$2,922,967)
.................................
2,885,952
a
a
a
a
a
a
Total
Investments
(Cost
$2,922,967)
98.1%
.....................................
$2,885,952
Other
Assets,
less
Liabilities
1.9%
.............................................
55,201
Net
Assets
100.0%
...........................................................
$2,941,153
See
Abbreviations
on
page
54
.
a
See
Note
3(d)
regarding
investments
in
affiliated
management
investment
companies.
b
Security
was
purchased
pursuant
to
Rule
144A
under
the
Securities
Act
of
1933
and
may
be
sold
in
transactions
exempt
from
registration
only
to
qualified
institutional
buyers
or
in
a
public
offering
registered
under
the
Securities
Act
of
1933.
At
August
31,
2020,
the
aggregate
value
of
these
securities
was
$678,696,
representing
23.1%
of
net
assets.
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36
0
a
Year
Ended
August
31,
2020
Year
Ended
August
31,
2019
a
Per
share
operating
performance
(for
a
share
outstanding
throughout
the
year)
Net
asset
value,
beginning
of
year
........................................................
$10.12
$10.00
Income
from
investment
operations
b
:
Net
investment
income
c
..............................................................
0.64
0.19
Net
realized
and
unrealized
gains
(losses)
................................................
(1.10)
0.04
Total
from
investment
operations
.........................................................
(0.46)
0.23
Less
distributions
from:
Net
investment
income
...............................................................
(0.71)
(0.11)
Net
asset
value,
end
of
year
............................................................
$8.95
$10.12
Total
return
d
........................................................................
(4.51)%
2.25%
Ratios
to
average
net
assets
e
Expenses
before
waiver
and
payments
by
affiliates
...........................................
3.55%
5.96%
Expenses
net
of
waiver
and
payments
by
affiliates
............................................
—
f
—
Net
investment
income
................................................................
6.98%
7.61%
Supplemental
data
Net
assets,
end
of
year
(000’s)
..........................................................
$3,506
$3,774
Portfolio
turnover
rate
.................................................................
43.24%
—
a
For
the
period
June
3,
2019
(commencement
of
operations)
to
August
31,
2019.
b
The
amount
shown
for
a
share
outstanding
throughout
the
period
may
not
correlate
with
the
Statement
of
Operations
for
the
period
due
to
the
timing
of
sales
and
repurchases
of
the
Fund’s
shares
in
relation
to
income
earned
and/or
fluctuating
fair
value
of
the
investments
of
the
Fund.
c
Based
on
average
daily
shares
outstanding.
d
Total
return
is
not
annualized
for
periods
less
than
one
year.
e
Ratios
are
annualized
for
periods
less
than
one
year,
except
for
non-recurring
expenses,
if
any.
f
Benefit
of
expense
reduction
rounds
to
less
than
0.01%.
Franklin
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2020
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a
a
Principal
Amount
a
Value
a
a
a
a
a
Corporate
Bonds
85.8%
Automobiles
6.7%
Ford
Motor
Co.
,
Senior
Note
,
9
%
,
4/22/25
.................................
$
100,000
$
117,155
General
Motors
Co.
,
Senior
Note
,
6.125
%
,
10/01/25
.........................
100,000
117,481
234,636
Communications
Equipment
1.5%
a
CommScope
Technologies
LLC
,
Senior
Note
,
144A
,
6
%
,
6/15/25
................
51,000
52,355
Containers
&
Packaging
3.1%
a
Mauser
Packaging
Solutions
Holding
Co.
,
Senior
Note
,
144A
,
7.25
%
,
4/15/25
......
110,000
107,081
Energy
Equipment
&
Services
4.1%
a
Weatherford
International
Ltd.
,
8.75
%
,
9/01/24
.............................
150,000
144,375
Entertainment
2.5%
Netflix,
Inc.
,
Senior
Bond
,
4.875
%
,
4/15/28
................................
75,000
86,935
Equity
Real
Estate
Investment
Trusts
(REITs)
1.6%
a
Iron
Mountain,
Inc.
,
Senior
Note
,
144A
,
4.875
%
,
9/15/27
......................
55,000
57,222
Food
Products
3.4%
a
Post
Holdings,
Inc.
,
Senior
Bond
,
144A
,
5.625
%
,
1/15/28
.....................
110,000
117,802
Health
Care
Providers
&
Services
23.9%
CHS/Community
Health
Systems,
Inc.
,
Senior
Note,
144A,
6.875%,
4/01/28
....................................
425,000
193,109
Senior
Secured
Note,
144A,
8%,
3/15/26
................................
150,000
155,588
Senior
Secured
Note,
144A,
8%,
12/15/27
...............................
174,000
178,024
Tenet
Healthcare
Corp.
,
Senior
Note
,
7
%
,
8/01/25
...........................
300,000
310,531
837,252
Hotels,
Restaurants
&
Leisure
6.5%
a
Golden
Nugget,
Inc.
,
Senior
Note
,
144A
,
6.75
%
,
10/15/24
.....................
55,000
47,094
a
Vail
Resorts,
Inc.
,
Senior
Note
,
144A
,
6.25
%
,
5/15/25
........................
100,000
107,250
a
Wynn
Las
Vegas
LLC
/
Wynn
Las
Vegas
Capital
Corp.
,
Senior
Bond
,
144A
,
5.5
%
,
3/01/25
.........................................................
75,000
74,390
228,734
Household
Durables
3.1%
a
Shea
Homes
LP
/
Shea
Homes
Funding
Corp.
,
Senior
Bond
,
144A
,
6.125
%
,
4/01/25
.
106,000
109,699
Media
6.5%
DISH
DBS
Corp.
,
Senior
Note
,
5.875
%
,
7/15/22
............................
110,000
116,215
a
Univision
Communications,
Inc.
,
Senior
Secured
Note
,
144A
,
5.125
%
,
2/15/25
.....
110,000
110,962
227,177
Metals
&
Mining
4.6%
a
Cleveland-Cliffs,
Inc.
,
Senior
Secured
Note
,
144A
,
9.875
%
,
10/17/25
.............
100,000
110,433
Freeport-McMoRan,
Inc.
,
Senior
Note
,
3.875
%
,
3/15/23
.......................
50,000
51,869
162,302
Oil,
Gas
&
Consumable
Fuels
4.3%
Calumet
Specialty
Products
Partners
LP
/
Calumet
Finance
Corp.
,
Senior
Note,
7.75%,
4/15/23
.........................................
110,000
102,701
a
Senior
Note,
144A,
11%,
4/15/25
......................................
50,000
47,624
150,325
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a
a
Principal
Amount
a
Value
a
a
a
a
a
Corporate
Bonds
(continued)
Pharmaceuticals
8.6%
a
Bausch
Health
Cos.,
Inc.
,
Senior
Bond
,
144A
,
6.125
%
,
4/15/25
.................
$
180,000
$
185,355
a
Par
Pharmaceutical,
Inc.
,
Senior
Secured
Note
,
144A
,
7.5
%
,
4/01/27
.............
110,000
117,569
302,924
Trading
Companies
&
Distributors
3.8%
United
Rentals
North
America,
Inc.
,
Senior
Bond
,
4.875
%
,
1/15/28
..............
75,000
79,835
a
WESCO
Distribution,
Inc.
,
Senior
Note
,
144A
,
7.125
%
,
6/15/25
.................
50,000
55,013
134,848
Wireless
Telecommunication
Services
1.6%
Sprint
Communications,
Inc.
,
Senior
Note
,
6
%
,
11/15/22
......................
50,000
54,312
Total
Corporate
Bonds
(Cost
$2,937,098)
.......................................
3,007,979
Mortgage-Backed
Securities
7.9%
Government
National
Mortgage
Association
(GNMA)
Fixed
Rate
7.9%
GNMA
II,
Single-family,
30
Year,
3%,
7/20/50
...............................
130,826
138,136
GNMA
II,
Single-family,
30
Year,
3.5%,
1/20/50
.............................
131,596
138,448
276,584
Total
Mortgage-Backed
Securities
(Cost
$275,401)
..............................
276,584
Total
Long
Term
Investments
(Cost
$3,212,499)
.................................
3,284,563
a
a
a
a
a
Short
Term
Investments
4.5%
Shares
a
Money
Market
Funds
4.5%
b,c
Institutional
Fiduciary
Trust
-
Money
Market
Portfolio,
0%
......................
159,307
159,307
Total
Money
Market
Funds
(Cost
$159,307)
.....................................
159,307
Total
Short
Term
Investments
(Cost
$159,307
)
..................................
159,307
a
Total
Investments
(Cost
$3,371,806)
98.2%
.....................................
$3,443,870
Other
Assets,
less
Liabilities
1.8%
.............................................
62,603
Net
Assets
100.0%
...........................................................
$3,506,473
See
Abbreviations
on
page
54
.
a
Security
was
purchased
pursuant
to
Rule
144A
under
the
Securities
Act
of
1933
and
may
be
sold
in
transactions
exempt
from
registration
only
to
qualified
institutional
buyers
or
in
a
public
offering
registered
under
the
Securities
Act
of
1933.
At
August
31,
2020,
the
aggregate
value
of
these
securities
was
$1,970,945,
representing
56.2%
of
net
assets.
b
See
Note
3(d)
regarding
investments
in
affiliated
management
investment
companies.
c
The
rate
shown
is
the
annualized
seven-day
effective
yield
at
period
end.
Franklin
Strategic
Series
Financial
Statements
Statements
of
Assets
and
Liabilities
August
31,
2020
franklintempleton.com
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Annual
Report
39
Franklin
Templeton
SMACS:
Series
CH
Franklin
Templeton
SMACS:
Series
E
Franklin
Templeton
SMACS:
Series
H
Franklin
Templeton
SMACS:
Series
I
Assets:
Investments
in
securities:
Cost
-
Unaffiliated
issuers
................
$2,951,620
$3,453,664
$1,905,867
$3,212,499
Cost
-
Non-controlled
affiliates
(Note
3d)
.....
—
165,509
1,017,100
159,307
Value
-
Unaffiliated
issuers
...............
$2,960,722
$3,687,877
$1,863,152
$3,284,563
Value
-
Non-controlled
affiliates
(Note
3d)
....
—
165,509
1,022,800
159,307
Cash
.................................
143
—
39,204
—
Receivables:
Dividends
and
interest
..................
45,895
14,633
23,862
64,244
Affiliates
.............................
53,815
49,234
53,099
56,747
Other
assets
...........................
3,668
2,618
2,410
2,488
Total
assets
.......................
3,064,243
3,919,871
3,004,527
3,567,349
Liabilities:
Payables:
Investment
securities
purchased
...........
—
23,316
—
—
Transfer
agent
fees
.....................
40
76
81
43
Professional
fees
......................
63,199
45,552
50,098
58,427
Distributions
to
shareholders
..............
9,229
—
8,232
—
Accrued
expenses
and
other
liabilities
........
6,262
3,724
4,963
2,406
Total
liabilities
......................
78,730
72,668
63,374
60,876
Net
assets,
at
value
..............
$2,985,513
$3,847,203
$2,941,153
$3,506,473
Net
assets
consist
of:
Paid-in
capital
..........................
$3,000,000
$3,847,110
$3,000,000
$3,934,196
Total
distributable
earnings
(losses)
..........
(14,487)
93
(58,847)
(427,723)
Net
assets,
at
value
..............
$2,985,513
$3,847,203
$2,941,153
$3,506,473
Shares
outstanding
......................
303,978
379,113
301,587
391,817
Net
asset
value
per
share
.................
$9.82
$10.15
$9.75
$8.95
Franklin
Strategic
Series
Financial
Statements
Statements
of
Operations
for
the
year
ended
August
31,
2020
franklintempleton.com
Annual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
40
Franklin
Templeton
SMACS:
Series
CH
Franklin
Templeton
SMACS:
Series
E
Franklin
Templeton
SMACS:
Series
H
Franklin
Templeton
SMACS:
Series
I
Investment
income:
Dividends:
(net
of
foreign
taxes
of
$–,
$2,115,
$–
and
$–)
Unaffiliated
issuers
.....................
$—
$126,172
$—
$—
Non-controlled
affiliates
(Note
3d)
..........
—
2,304
22,239
1,194
Interest:
Unaffiliated
issuers
.....................
103,540
4,202
66,229
243,364
Other
income
a
..........................
—
662
2,574
499
Total
investment
income
................
103,540
133,340
91,042
245,057
Expenses:
Transfer
agent
fees
(Note
3
c
)
...............
621
831
650
737
Custodian
fees
(Note
4
)
...................
6
188
9
178
Reports
to
shareholders
...................
6,332
5,372
5,060
5,233
Registration
and
filing
fees
.................
22,736
22,714
22,674
22,863
Professional
fees
........................
78,583
64,052
65,274
77,028
Amortization
of
offering
costs
...............
15,253
12,964
14,914
15,886
Other
.................................
5,880
2,848
6,219
2,448
Total
expenses
......................
129,411
108,969
114,800
124,373
Expense
reductions
(Note
4
)
............
(17)
(11)
(17)
(4)
Expenses
waived/paid
by
affiliates
(Note
3
d
and
3
e
)
...........................
(129,394)
(108,958)
(114,783)
(124,369)
Net
expenses
......................
—
—
—
—
Net
investment
income
.............
103,540
133,340
91,042
245,057
Realized
and
unrealized
gains
(losses):
Net
realized
gain
(loss)
from:
Investments:
Unaffiliated
issuers
...................
5,974
(152,612)
(21,887)
(501,515)
Written
options
........................
—
1,049
—
—
Foreign
currency
transactions
.............
—
2,478
—
—
Net
realized
gain
(loss)
...............
5,974
(149,085)
(21,887)
(501,515)
Net
change
in
unrealized
appreciation
(depreciation)
on:
Investments:
Unaffiliated
issuers
...................
(109,686)
82,259
(67,502)
88,770
Non-controlled
affiliates
(Note
3d)
........
—
—
(10,600)
—
Translation
of
other
assets
and
liabilities
denominated
in
foreign
currencies
..........
—
(16)
—
—
Written
options
........................
—
(66)
—
—
Net
change
in
unrealized
appreciation
(depreciation)
......................
(109,686)
82,177
(78,102)
88,770
Net
realized
and
unrealized
gain
(loss)
.........
(103,712)
(66,908)
(99,989)
(412,745)
Net
increase
(decrease)
in
net
assets
resulting
from
operations
...............................
$(172)
$66,432
$(8,947)
$(167,688)
a
Other
income
includes
payments
by
Advisers
for
acquired
fund
fees
and
expenses
(See
Note
3
e
).
Franklin
Strategic
Series
Financial
Statements
Statements
of
Changes
in
Net
Assets
franklintempleton.com
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Annual
Report
41
Franklin
Templeton
SMACS:
Series
CH
Franklin
Templeton
SMACS:
Series
E
Year
Ended
August
31,
2020
Year
Ended
August
31,
2019
a
Year
Ended
August
31,
2020
Year
Ended
August
31,
2019
a
Increase
(decrease)
in
net
assets:
Operations:
Net
investment
income
............
$103,540
$22,576
$133,340
$35,568
Net
realized
gain
(loss)
............
5,974
8,374
(149,085)
27,682
Net
change
in
unrealized
appreciation
(depreciation)
.................
(109,686)
118,788
82,177
152,020
Net
increase
(decrease)
in
net
assets
resulting
from
operations
.
(172)
149,738
66,432
215,270
Distribution
s
to
shareholders
........
(141,823)
(22,230)
(266,656)
(14,953)
Capital
share
transactions
(Note
2)
...
(900,000)
3,900,000
88,257
3,758,853
Net
increase
(decrease)
in
net
assets
.....................
(1,041,995)
4,027,508
(111,967)
3,959,170
Net
assets:
Beginning
of
year
..................
4,027,508
—
3,959,170
—
End
of
year
......................
$2,985,513
$4,027,508
$3,847,203
$3,959,170
a
For
the
period
June
3,
2019
(commencement
of
operations)
to
August
31,
2019.
Franklin
Strategic
Series
Financial
Statements
Statements
of
Changes
in
Net
Assets
(continued)
franklintempleton.com
Annual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
42
Franklin
Templeton
SMACS:
Series
H
Franklin
Templeton
SMACS:
Series
I
Year
Ended
August
31,
2020
Year
Ended
August
31,
2019
a
Year
Ended
August
31,
2020
Year
Ended
August
31,
2019
a
Increase
(decrease)
in
net
assets:
Operations:
Net
investment
income
............
$91,042
$20,082
$245,057
$64,197
Net
realized
gain
(loss)
............
(21,887)
—
(501,515)
—
Net
change
in
unrealized
appreciation
(depreciation)
.................
(78,102)
41,087
88,770
(16,706)
Net
increase
(decrease)
in
net
assets
resulting
from
operations
.
(8,947)
61,169
(167,688)
47,491
Distributions
to
shareholders
........
(92,173)
(18,896)
(268,376)
(39,150)
C
apital
share
transactions
(Note
2)
...
—
3,000,000
168,706
3,765,490
Net
increase
(decrease)
in
net
assets
.....................
(101,120)
3,042,273
(267,358)
3,773,831
Net
assets:
Beginning
of
year
..................
3,042,273
—
3,773,831
—
End
of
year
......................
$2,941,153
$3,042,273
$3,506,473
$3,773,831
a
For
the
period
June
3,
2019
(commencement
of
operations)
to
August
31,
2019.
Franklin
Strategic
Series
43
franklintempleton.com
Annual
Report
Notes
to
Financial
Statements
1.
Organization
and
Significant
Accounting
Policies
Franklin
Strategic
Series (Trust)
is
registered
under
the
Investment
Company
Act
of
1940
(1940
Act)
as
an
open-
end
management
investment
company,
consisting
of
eleven
separate
funds, four
of
which
are
included
in
this
report
(Funds)
and
applies
the
specialized
accounting
and
reporting
guidance
in
U.S.
Generally
Accepted
Accounting
Principles
(U.S.
GAAP).
The
following
summarizes
the Funds'
significant
accounting
policies.
a.
Financial
Instrument
Valuation
The Funds'
investments
in
financial
instruments
are
carried
at
fair
value
daily.
Fair
value
is
the
price
that
would
be
received
to
sell
an
asset
or
paid
to
transfer
a
liability
in
an
orderly
transaction
between
market
participants
on
the
measurement
date.
The Funds calculate the
net
asset
value
(NAV)
per
share
each business
day as
of
4
p.m.
Eastern
time
or
the
regularly
scheduled
close
of
the
New
York
Stock
Exchange
(NYSE),
whichever
is
earlier.
Under
compliance
policies
and
procedures
approved
by
the
Trust’s
Board
of
Trustees
(the
Board),
the
Funds' administrator
has
responsibility
for
oversight
of
valuation,
including
leading
the
cross-functional
Valuation
Committee
(VC).
The
Funds
may
utilize
independent
pricing
services,
quotations
from
securities
and
financial
instrument
dealers,
and
other
market
sources
to
determine
fair
value.
Equity
securities,
exchange
traded
funds,
and
derivative
financial
instruments
listed
on
an
exchange
or
on
the
NASDAQ
National
Market
System
are
valued
at
the
last
quoted
sale
price
or
the
official
closing
price of
the
day,
respectively.
Foreign
equity
securities
are
valued
as
of
the
close
of
trading
on
the
foreign
stock
exchange
on
which
the
security
is
primarily
traded,
or
as
of
4
p.m.
Eastern
time.
The
value
is
then
converted
into
its
U.S.
dollar
equivalent
at
the
foreign
exchange
rate
in
effect
at
4
p.m.
Eastern
time
on
the
day
that
the
value
of
the
security
is
determined.
Over-the-
counter
(OTC)
securities
are
valued
within
the
range
of
the
most
recent
quoted
bid
and
ask
prices.
Securities
that
trade
in
multiple
markets
or
on
multiple
exchanges
are
valued
according
to
the
broadest
and
most
representative
market.
Certain
equity
securities
are
valued
based
upon
fundamental
characteristics
or
relationships
to
similar
securities.
Debt
securities
generally
trade
in
the
OTC
market
rather
than
on
a
securities
exchange.
The
Funds'
pricing
services
use
multiple
valuation
techniques
to
determine
fair
value.
In
instances
where
sufficient
market
activity
exists,
the
pricing
services
may
utilize
a
market-based
approach
through
which
quotes
from
market
makers
are
used
to
determine
fair
value.
In
instances
where
sufficient
market
activity
may
not
exist
or
is
limited,
the
pricing
services
also
utilize
proprietary
valuation
models
which
may
consider
market
characteristics
such
as
benchmark
yield
curves,
credit
spreads,
estimated
default
rates,
anticipated
market
interest
rate
volatility,
coupon
rates,
anticipated
timing
of
principal
repayments,
underlying
collateral,
and
other
unique
security
features
in
order
to
estimate
the
relevant
cash
flows,
which
are
then
discounted
to
calculate
the
fair
value.
Investments
in
open-end
mutual
funds
are
valued
at
the
closing
NAV.
The
Funds
have
procedures
to
determine
the
fair
value
of
financial
instruments
for
which
market
prices
are
not
reliable
or
readily
available.
Under
these
procedures,
the
Funds
primarily
employ
a
market-based
approach
which
may
use
related
or
comparable
assets
or
liabilities,
recent
transactions,
market
multiples,
book
values,
and
other
relevant
information
for
the
investment
to
determine
the
fair
value
of
the
investment.
An
income-based
valuation
approach
may
also
be
used
in
which
the
anticipated
future
cash
flows
of
the
investment
are
discounted
to
calculate
fair
value.
Discounts
may
also
be
applied
due
to
the
nature
or
duration
of
any
restrictions
on
the
disposition
of
the
investments.
Due
to
the
inherent
uncertainty
of
valuations
of
such
investments,
the
fair
values
may
differ
significantly
from
the
values
that
would
have
been
used
had
an
active
market
existed.
Trading
in
securities
on
foreign
securities
stock
exchanges
and
OTC
markets
may
be
completed
before
4
p.m.
Eastern
time.
In
addition,
trading
in
certain
foreign
markets
may
not
take
place
on
every
Funds'
business
day.
Occasionally,
events
occur
between
the
time
at
which
trading
in
a
foreign
security
is
completed
and
4
p.m.
Eastern
time
that
might
call
into
question
the
reliability
of
the
value
of
a
portfolio
security
held
by
the
Funds.
As
a
result,
differences
may
arise
between
the
value
of
the
Funds'
portfolio
securities
as
determined
at
the
foreign
market
close
and
the
latest
indications
of
value
at
4
p.m.
Eastern
time.
In
order
to
minimize
the
potential
for
these
differences,
an
independent
Franklin
Strategic
Series
Notes
to
Financial
Statements
44
franklintempleton.com
Annual
Report
pricing
service
may
be
used
to
adjust
the
value
of
the
Funds'
securities
to
the
latest
indications
of
fair
value
at
4
p.m
Eastern
time.
When
the
last
day
of
the
reporting
period
is
a
non-business
day,
certain
foreign
markets
may
be
open
on
those
days
that
the
Funds'
NAV
is
not
calculated,
which
could
result
in
differences
between
the
value
of
the
Funds'
portfolio
securities
on
the
last
business
day
and
the
last
calendar
day
of
the
reporting
period.
Any
security
valuation
changes
due
to
an
open
foreign
market
are
adjusted
and
reflected
by
the
Funds
for
financial
reporting
purposes.
b.
Derivative
Financial
Instruments
Certain
or
all
Funds
invested
in
derivative
financial
instruments
in
order
to
manage
risk
or
gain
exposure
to
various
other
investments
or
markets.
Derivatives
are
financial
contracts
based
on
an
underlying
or
notional
amount,
require
no
initial
investment
or
an
initial
net
investment
that
is
smaller
than
would
normally
be
required
to
have
a
similar
response
to
changes
in
market
factors,
and
require
or
permit
net
settlement.
Derivatives
contain
various
risks
including
the
potential
inability
of
the
counterparty
to
fulfill
their
obligations
under
the
terms
of
the
contract,
the
potential
for
an
illiquid
secondary
market,
and/or
the
potential
for
market
movements
which
expose
the
Fund
to
gains
or
losses
in
excess
of
the
amounts
shown
in
the
Statements
of
Assets
and
Liabilities.
Realized
gain
and
loss
and
unrealized
appreciation
and
depreciation
on
these
contracts
for
the
period
are
included
in
the
Statements
of
Operations.
Collateral
requirements
differ
by
type
of
derivative.
Collateral
or
initial
margin
requirements
are
set
by
the
broker
or
exchange
clearing
house
for
exchange
traded
and
centrally
cleared
derivatives.
Initial
margin
deposited
is
held
at
the
exchange
and
can
be
in
the
form
of
cash
and/or
securities.
Certain
or
all
Funds
purchased
or
wrote
exchange
traded
option
contracts
primarily
to
manage
and/or
gain
exposure
to
equity
price
risk.
An
option
is
a
contract
entitling
the
holder
to
purchase
or
sell
a
specific
amount
of
shares
or
units
of
an
asset
or
notional
amount
of
a
swap
(swaption),
at
a
specified
price.
When
an
option
is
purchased
or
written,
an
amount
equal
to
the
premium
paid
or
received
is
recorded
as
an
asset
or
liability,
respectively.
Upon
exercise
of
an
option,
the
acquisition
cost
or
sales
proceeds
of
the
underlying
investment
is
adjusted
by
any
premium
received
or
paid.
Upon
expiration
of
an
option,
any
premium
received
or
paid
is
recorded
as
a
realized
gain
or
loss.
Upon
closing
an
option
other
than
through
expiration
or
exercise,
the
difference
between
the
premium
received
or
paid
and
the
cost
to
close
the
position
is
recorded
as
a
realized
gain
or
loss.
See
Note
10 regarding
other
derivative
information.
c.
Index-Linked
Notes
Certain
or
all
Funds
invest
in
index-linked
notes.
Index-linked
notes
are
senior,
unsecured,
subordinated
debt
securities
issued
by
a
financial
institution,
and
the
value
is
based
on
the
price
movements
of
the
underlying
index.
Index-linked
notes
are
designed
to
provide
investors
access
to
the
returns
of
various
market
benchmarks
and
intended
to
replicate
the
economic
effects
that
would
apply
had
the
Fund
directly
purchased
the
underlying
referenced
asset
or
basket
of
assets.
The
risks
of
investing
in
index-linked
notes
include
unfavorable
price
movements
in
the
underlying
index
and
the
credit
risk
of
the
issuing
financial
institution.
There
may
be
no
guarantee
of
a
return
of
principal
with
index-linked
notes
and
the
appreciation
potential
may
be
limited.
Index-linked
notes
may
be
more
volatile
and
less
liquid
than
other
investments
held
by
the
Funds.
d.
Equity-Linked
Securities
Certain
or
all
Funds
invest in
equity-linked
securities.
Equity-linked
securities
are
hybrid
financial
instruments
that
generally
combine
both
debt
and
equity
characteristics
into
a
single
note
form.
Income
received
from
equity-linked
securities
is
recorded
as
realized
gains
in
the
Statements
of
Operations
and
may
be
based
on
the
performance
of
an
underlying
equity
security,
an
equity
index,
or
an
option
position.
The
risks
of
investing
in
equity-linked
securities
include
unfavorable
price
movements
in
the
underlying
security
and
the
credit
risk
of
the
issuing
financial
institution.
There
may
be
no
guarantee
of
a
return
of
principal
with
equity-linked
securities
and
the
appreciation
potential
may
be
limited.
Equity-linked
securities
may
be
more
volatile
and
less
liquid
than
other
investments
held
by
the
Funds.
e.
Income
and
Deferred
Taxes
It
is each
Fund's
policy
to
qualify
as
a
regulated
investment
company
under
the
Internal
Revenue
Code. Each
Fund
intends
to
distribute
to
shareholders
substantially
all
of
1.
Organization
and
Significant
Accounting
Policies
(continued)
a.
Financial
Instrument
Valuation
(continued)
Franklin
Strategic
Series
Notes
to
Financial
Statements
45
franklintempleton.com
Annual
Report
its
income
and
net
realized
gains
to
relieve
it
from
federal
income
and
excise
taxes.
As
a
result,
no
provision
for
U.S.
federal
income
taxes
is
required.
The
Funds
may
be
subject
to
foreign
taxation
related
to
income
received,
capital
gains
on
the
sale
of
securities
and
certain
foreign
currency
transactions
in
the
foreign
jurisdictions
in
which
the
Funds
invest.
Foreign
taxes,
if
any,
are
recorded
based
on
the
tax
regulations
and
rates
that
exist
in
the
foreign
markets
in
which
the
Funds
invest.
When
a
capital
gain
tax
is
determined
to
apply,
certain
or
all
Funds
record
an
estimated
deferred
tax
liability
in
an
amount
that
would
be
payable
if
the
securities
were
disposed
of
on
the
valuation
date.
Each
Fund
may
recognize
an
income
tax
liability
related
to
its
uncertain
tax
positions
under
U.S.
GAAP
when
the
uncertain
tax
position
has
a
less
than
50%
probability
that
it
will
be
sustained
upon
examination
by
the
tax
authorities
based
on
its
technical
merits.
As
of
August
31,
2020, each
Fund
has
determined
that
no
tax
liability
is
required
in
its
financial
statements
related
to
uncertain
tax
positions
for
any
open
tax
years
(or
expected
to
be
taken
in
future
tax
years).
Open
tax
years
are
those
that
remain
subject
to
examination
and
are
based
on
the
statute
of
limitations
in
each
jurisdiction
in
which
the
Fund
invests.
f.
Security
Transactions,
Investment
Income,
Expenses
and
Distributions
Security
transactions
are
accounted
for
on
trade
date.
Realized
gains
and
losses
on
security
transactions
are
determined
on
a
specific
identification
basis.
Interest
income
and
estimated
expenses
are
accrued
daily.
Amortization
of
premium
and
accretion
of
discount
on
debt
securities
are
included
in
interest
income.
Dividend
income
is
recorded
on
the
ex-dividend
date
except
for
certain
dividends
from
securities
where
the
dividend
rate
is
not
available.
In
such
cases,
the
dividend
is
recorded
as
soon
as
the
information
is
received
by
the
Fund.
Dividends
from
net
investment
income
are
normally
declared
daily;
these
dividends
may
be
reinvested
or
paid
monthly
to
shareholders
for
Franklin
Templeton
SMACS:
Series
CH
and
Franklin
Templeton
SMACS:
Series
H,
and
recorded
on
ex-dividend
date
for
Franklin
Templeton
SMACS:
Series
E
and
Franklin
Templeton
SMACS:
Series
I.
Distributions
from
realized
capital
gains
and
other
distributions,
if
any,
are
recorded
on
the
ex-dividend
date.
Distributable
earnings
are
determined
according
to
income
tax
regulations
(tax
basis)
and
may
differ
from
earnings
recorded
in
accordance
with
U.S.
GAAP.
These
differences
may
be
permanent
or
temporary.
Permanent
differences
are
reclassified
among
capital
accounts
to
reflect
their
tax
character.
These
reclassifications
have
no
impact
on
net
assets
or
the
results
of
operations.
Temporary
differences
are
not
reclassified,
as
they
may
reverse
in
subsequent
periods.
Common
expenses
incurred
by
the
Trust
are
allocated
among
the
Funds
based
on
the
ratio
of
net
assets
of
each
Fund
to
the
combined
net
assets
of
the
Trust
or
based
on
the
ratio
of
number
of
shareholders
of
each
Fund
to
the
combined
number
of
shareholders
of
the
Trust.
Fund
specific
expenses
are
charged
directly
to
the
Fund
that
incurred
the
expense.
g.
Offering
Costs
Offering
costs
are
amortized
on
a
straight
line
basis
over
the
first
twelve
months
of
operations.
h.
Accounting
Estimates
The
preparation
of
financial
statements
in
accordance
with
U.S.
GAAP
requires
management
to
make
estimates
and
assumptions
that
affect
the
reported
amounts
of
assets
and
liabilities
at
the
date
of
the
financial
statements
and
the
amounts
of
income
and
expenses
during
the
reporting
period.
Actual
results
could
differ
from
those
estimates.
i.
Guarantees
and
Indemnifications
Under
the
Trust’s
organizational
documents,
its
officers
and
trustees
are
indemnified
by
the
Trust
against
certain
liabilities
arising
out
of
the
performance
of
their
duties
to
the
Trust.
Additionally,
in
the
normal
course
of
business,
the
Trust,
on
behalf
of
the
Funds,
enters
into
contracts
with
service
providers
that
contain
general
indemnification
clauses.
The
Trust's
maximum
exposure
under
these
arrangements
is
unknown
as
this
would
involve
future
claims
that
may
be
made
against
the
Trust
that
have
not
yet
occurred.
Currently,
the
Trust
expects
the
risk
of
loss
to
be
remote.
1.
Organization
and
Significant
Accounting
Policies
(continued)
e.
Income
and
Deferred
Taxes
(continued)
Franklin
Strategic
Series
Notes
to
Financial
Statements
46
franklintempleton.com
Annual
Report
2.
Shares
of
Beneficial
Interest
At
August
31,
2020,
there
were
an
unlimited
number
of
shares
authorized
(without
par
value).
Transactions
in
the
Funds’
shares
were
as
follows:
3.
Transactions
with
Affiliates
Franklin
Resources,
Inc.
is
the
holding
company
for
various
subsidiaries
that
together
are
referred
to
as
Franklin
Templeton.
Certain
officers
and
trustees
of
the
Trust
are
also
officers
and/or
directors
of
the
following
subsidiaries:
a.
Management
Fees
Advisers
provides
investment
management
services
to
the
Funds.
The
Funds
do
not
pay
a
fee
for
these
services.
Franklin
Templeton
SMACS:
Series
CH
Franklin
Templeton
SMACS:
Series
E
Shares
Amount
Shares
Amount
Class
A
Year
ended
August
31,
2020
Shares
issued
in
reinvestment
of
distributions
..........
—
$—
8,650
$8,257
Shares
redeemed
...............................
(88,495)
(900,000)
—
—
Net
increase
(decrease)
(88,495)
$(900,000)
8,650
$88,257
Year
ended
August
31,
2019
a
Shares
sold
...................................
500,000
$5,000,000
370,000
$3,754,000
Shares
issued
in
reinvestment
of
distributions
..........
—
—
463
4,853
Shares
redeemed
...............................
(107,527)
(1,100,000)
—
—
Net
increase
(decrease)
392,473
$3,900,000
$3,758,853
Franklin
Templeton
SMACS:
Series
H
Franklin
Templeton
SMACS:
Series
I
Shares
Amount
Shares
Amount
Class
A
Year
ended
August
31,
2020
Shares
sold
...................................
—
$—
9,063
$77,130
Shares
issued
in
reinvestment
of
distributions
..........
—
—
9,998
91,576
Net
increase
(decrease)
—
$—
19,061
$168,706
Year
ended
August
31,
2019
a
Shares
sold
...................................
500,000
$5,000,000
371,500
$3,752,665
Shares
issued
in
reinvestment
of
distributions
..........
—
—
1,256
12,825
Shares
redeemed
...............................
(198,413)
(2,000,000)
—
—
Net
increase
(decrease)
301,587
$3,000,000
372,756
$3,765,490
a
For
the
period
June
3,
2019
(commencement
of
operations)
to
August
31,
2019.
Subsidiary
Affiliation
Franklin
Advisers,
Inc.
(Advisers)
Investment
manager
Franklin
Templeton
Services,
LLC
(FT
Services)
Administrative
manager
Franklin
Templeton
Distributors,
Inc.
(Distributors)
Principal
underwriter
Franklin
Templeton
Investor
Services,
LLC
(Investor
Services)
Transfer
agent
Franklin
Strategic
Series
Notes
to
Financial
Statements
47
franklintempleton.com
Annual
Report
b.
Administrative
Fees
Under
an
agreement
with
Advisers,
FT
Services
provides
administrative
services
to
the
Funds.
The
Funds
do
not
pay
a
fee
for
these
services.
c.
Transfer
Agent
Fees
The
Funds
pay
transfer
agent
fees
to
Investor
Services
for
its
performance
of
shareholder
servicing
obligations.
The
fees
are
based
on
an
annualized
asset
based
fee
of
0.02%
plus
a
transaction
based
fee.
In
addition,
the
Funds
reimburse
Investor
Services
for
out
of
pocket
expenses
incurred
and
reimburses
shareholder
servicing
fees
paid
to
third
parties.
For
the
year
ended
August
31,
2020,
the
Funds
paid
transfer
agent
fees
as
noted
in
the
Statements
of
Operations
of
which
the
following
amounts
were
retained
by
Investor
Services:
Franklin
Templeton
SMACS:
Series
CH
Franklin
Templeton
SMACS:
Series
E
Franklin
Templeton
SMACS:
Series
H
Franklin
Templeton
SMACS:
Series
I
Transfer
agent
fees
........................
$608
$765
$585
$702
3.
Transactions
with
Affiliates
(continued)
Franklin
Strategic
Series
Notes
to
Financial
Statements
48
franklintempleton.com
Annual
Report
d.
Investments
in
Affiliated
Management
Investment
Companies
Certain
or
all
Funds
invest
in
one
or
more
affiliated
management
investment
companies
for
purposes
other
than
exercising
a
controlling
influence
over
the
management
or
policies.
Advisers
has
contractually
agreed
to
reimburse
expenses
of
the
Funds
in
an
amount
equal
to
fees
indirectly
borne
by
the
Funds
on
assets
invested
in
the
affiliated
management
investment
companies,
as
noted
in
the
Statements
of
Operations.
During
the
year
ended
August
31,
2020,
investments
in
affiliated
management
investment
companies
were
as
follows:
e.
Waiver
and
Expense
Reimbursements
Advisers
has
contractually
agreed
in
advance
to
waive
or
limit
its
fees
and
to
assume
as
its
own
expense
certain
expenses
otherwise
payable
by
the
Funds
so
that
the
operating expenses
(excluding
certain
non-routine
expenses
or
costs,
including
those
relating
to
litigation,
indemnification,
reorganizations,
and
liquidations)
and
acquired
fund
fees
and
expenses
of
the
Funds
do
not
exceed
0.00%,
based
on
the
average
net
assets
until
December
31,
2020.
Total
expenses
waived
or
paid
are
not
subject
to
recapture
subsequent
to
the
Funds’
fiscal
year
end.
Acquired
fund
fees
and
expenses
are
indirect
expenses,
and
therefore
Advisers
may
make
payments,
if
necessary,
to
the
Funds
to
offset
these
estimated
indirect
expenses.
Payments
by
Advisers
for
the year
ended
August
31,
2020,
are
reflected
as
other
income
in
the
Statements
of
Operations.
a
Value
at
Beginning
of
Year
Purchases
Sales
Realized
Gain
(Loss)
Net
Change
in
Unrealized
Appreciation
(Depreciation)
Value
at
End
of
Year
Number
of
Shares
Held
at
End
of
Year
Investment
Income
a
a
a
a
a
a
a
a
a
Franklin
Templeton
SMACS
Series
E
Non-Controlled
Affiliates
Dividends
Institutional
Fiduciary
Trust
-
Money
Market
Portfolio,
0%
.........
$324,104
$1,666,928
$(1,825,523)
$
—
$
—
$
165,509
165,509
$
2,304
Total
Affiliated
Securities
....
$324,104
$1,666,928
$(1,825,523)
$—
$—
$165,509
$2,304
Franklin
Templeton
SMACS
Series
H
Non-Controlled
Affiliates
Dividends
Franklin
Liberty
Intermediate
Municipal
Opportunities
ETF
...
$1,033,400
$—
$—
$
—
$
(10,600)
$
1,022,800
40,000
$
22,239
Total
Affiliated
Securities
....
$1,033,400
$—
$—
$—
$(10,600)
$1,022,800
$22,239
Franklin
Templeton
SMACS
Series
I
Non-Controlled
Affiliates
Dividends
Institutional
Fiduciary
Trust
-
Money
Market
Portfolio,
0%
.........
$281,746
$1,102,293
$(1,224,732)
$
—
$
—
$
159,307
159,307
$
1,194
Total
Affiliated
Securities
....
$281,746
$1,102,293
$(1,224,732)
$—
$—
$159,307
$1,194
3.
Transactions
with
Affiliates
(continued)
Franklin
Strategic
Series
Notes
to
Financial
Statements
49
franklintempleton.com
Annual
Report
f.
Other
Affiliated
Transactions
At
August
31,
2020,
Franklin
Advisers,
Inc.
and
Franklin
Resources,
Inc.
owned
a
percentage
of
the
Funds’
outstanding
shares
as
follows:
g.
Interfund
Transactions
Certain
or
all
Funds
engaged
in
purchases
and
sales
of
investments
with
funds
or
other
accounts
that
have
common
investment
managers
(or
affiliated
investment
managers),
directors,
trustees
or
officers.
These
purchases
and
sales
for
the
year
ended
August
31,
2020,
were
as
follows:
4.
Expense
Offset
Arrangement
The
Funds
have entered
into
an
arrangement
with
their
custodian
whereby
credits
realized
as
a
result
of
uninvested
cash
balances
are
used
to
reduce
a
portion
of
the
Funds'
custodian
expenses. During
the year
ended
August
31,
2020, the
custodian
fees
were
reduced
as
noted
in
the
Statements
of
Operations.
5.
Income
Taxes
For
tax
purposes,
capital
losses
may
be
carried
over
to
offset
future
capital
gains.
At
August
31,
2020,
the
capital
loss
carryforwards
were
as
follows:
Shares
Percentage
of
Outstanding
Shares
\
a
Franklin
Templeton
SMACS:
Series
CH
Franklin
Resources,
Inc.
303,978
100.0%
Franklin
Templeton
SMACS:
Series
E
Franklin
Advisers,
Inc.
129,113
34.1%
Franklin
Resources,
Inc.
250,000
65.9%
Franklin
Templeton
SMACS:
Series
H
Franklin
Resources,
Inc.
301,587
100.0%
Franklin
Templeton
SMACS:
Series
I
Franklin
Advisers,
Inc.
141,817
36.2%
Franklin
Resources,
Inc.
250,000
63.8%
a
Investment
activities
of
significant
shareholders
could
have
a
material
impact
on
the
Fund.
Franklin
Templeton
SMACS:
Series
CH
Franklin
Templeton
SMACS:
Series
E
Franklin
Templeton
SMACS:
Series
H
Franklin
Templeton
SMACS:
Series
I
Purchases
..............................
$1,400,000
—
$300,000
—
Sales
..................................
$1,500,000
—
$1,430,000
—
Franklin
Templeton
SMACS:
Series
CH
Franklin
Templeton
SMACS:
Series
E
Franklin
Templeton
SMACS:
Series
H
Franklin
Templeton
SMACS:
Series
I
1
1
1
1
1
Capital
loss
carryforwards
not
subject
to
expiration:
Short
term
.............................
$
—
$
—
$
21,887
$
516,283
3.
Transactions
with
Affiliates
(continued)
Franklin
Strategic
Series
Notes
to
Financial
Statements
50
franklintempleton.com
Annual
Report
The
tax
character
of
distributions
paid
during
the
years
ended
August
31,
2020,
and
2019,
was
as
follows:
For
tax
purposes,
the
Funds
may
elect
to
defer
any
portion
of
a
post-October
capital
loss
or
late-year
ordinary
loss
to
the
first
day
of
the
following
fiscal
year.
At
August
31,
2020,
Franklin
Templeton
SMACS:
Series
CH
and
Franklin
Templeton
SMACS:
Series
E
had
deferred
post-October
capital
losses
of
$23,901
and
$251,034,
respectively.
At
August
31,
2020,
the
cost
of
investments,
net
unrealized
appreciation
(depreciation),
undistributed
tax
exempt
income
and
ordinary
income
for
income
tax
purposes
were
as
follows:
Differences
between
income
and/or
capital
gains
as
determined
on
a
book
basis
and
a
tax
basis
are
primarily
due
to
differing
treatments
of
perpetual
bonds
and
bond
discounts
and
premiums.
Franklin
Templeton
SMACS:
Series
CH
Franklin
Templeton
SMACS:
Series
E
2020
2019
2020
2019
Distributions
paid
from:
Ordinary
income
........................
$38,248
$—
$266,656
$14,953
Tax
exempt
income
......................
103,575
22,230
—
—
$141,823
$22,230
$266,656
$14,953
Franklin
Templeton
SMACS:
Series
H
Franklin
Templeton
SMACS:
Series
I
2020
2019
2020
2019
Distributions
paid
from:
Ordinary
income
........................
$—
$—
$268,376
$39,150
Tax
exempt
income
......................
92,173
18,896
—
—
$92,173
$18,896
$268,376
$39,150
Franklin
Templeton
SMACS:
Series
CH
Franklin
Templeton
SMACS:
Series
E
Franklin
Templeton
SMACS:
Series
H
Franklin
Templeton
SMACS:
Series
I
a
a
a
a
a
Cost
of
investments
.......................
$2,951,420
$3,619,727
$2,922,942
$3,373,677
Unrealized
appreciation
.....................
$52,432
$374,606
$39,549
$159,730
Unrealized
depreciation
.....................
(43,130)
(140,947)
(76,539)
(89,537)
Net
unrealized
appreciation
(depreciation)
.......
$9,302
$233,659
$(36,990)
$70,193
Distributable
earnings:
Undistributed
ordinary
income
................
$—
$20,581
$2,574
$18,367
Undistributed
tax
exempt
income
..............
$9,342
$—
$5,688
$—
Total
distributable
earnings
..................
$9,342
$20,581
$8,262
$18,367
5.
Income
Taxes
(continued)
Franklin
Strategic
Series
Notes
to
Financial
Statements
51
franklintempleton.com
Annual
Report
6.
Investment
Transactions
Purchases
and
sales
of
investments
and
ETFs
(excluding
short
term
securities)
for
the
year
ended
August
31,
2020,
were
as
follows:
7.
Credit
Risk
At
August
31,
2020,
the
Franklin
Templeton
SMACS:
Series
CH,
Franklin
Templeton
SMACS:
Series
H
and
Franklin
Templeton
SMACS:
Series
I
had
83.4%,
37.2%
and
83.9%,
respectively,
of
their
portfolio
invested
in
high
yield,
or
other
securities
rated
below
investment
grade
and
unrated
securities
as
determined
by
Nationally
Recognized
Statistical
Credit
Ratings
Organization
and/or
internally,
by
investment
management.
These
securities
may
be
more
sensitive
to
economic
conditions
causing
greater
price
volatility
and
are
potentially
subject
to
a
greater
risk
of
loss
due
to
default
than
higher
rated
securities.
8.
Concentration
of
Risk
Franklin
Templeton
SMACS:
Series
CH
invests
a
large
percentage
of
their
total
assets
in
obligations
of
issuers
within
California.
Such
concentration
may
subject
the
Funds
to
risks
associated
with
industrial
or
regional
matters,
and
economic,
political
or
legal
developments
occurring
within
California.
In
addition,
investments
in
these
securities
are
sensitive
to
interest
rate
changes
and
credit
risk
of
the
issuer
and
may
subject
the
Funds
to
increased
market
volatility.
The
market
for
these
investments
may
be
limited,
which
may
make
them
difficult
to
buy
or
sell.
9. Novel
Coronavirus
Pandemic
The
global
outbreak
of
the
novel
coronavirus
disease,
known
as
COVID-19, has
caused
adverse
effects
on
many
companies,
sectors,
nations,
regions
and
the
markets
in
general, and
may
continue for
an unpredictable duration.
The
effects
of
this
pandemic
may
materially
impact
the
value
and
performance
of
the
Funds, their ability
to
buy
and
sell
fund
investments
at
appropriate
valuations
and their ability
to
achieve their investment
objectives.
10.
Other
Derivative
Information
For
the
year
ended
August
31,
2020,
the
effect
of
derivative
contracts
in
the
Statements
of
Operations
was
as
follows:
Franklin
Templeton
SMACS:
Series
CH
Franklin
Templeton
SMACS:
Series
E
Franklin
Templeton
SMACS:
Series
H
Franklin
Templeton
SMACS:
Series
I
Purchases
..............................
$1,560,130
$2,268,186
$945,692
$1,645,775
Sales
..................................
$2,440,348
$2,125,987
$137,593
$1,435,669
Derivative
Contracts
Not
Accounted
for
as
Hedging
Instruments
Statement
of
Operations
Location
Net
Realized
Gain
(Loss)
for
the
Year
Statement
of
Operations
Location
Net
Change
in
Unrealized
Appreciation
(Depreciation)
for
the
Year
Net
realized
gain
(loss)
from:
Net
change
in
unrealized
appreciation
(depreciation)
on:
Franklin
Templeton
SMACS:
Series
E
Equity
Contracts
...........
Written
options
$1,049
Written
options
$(66)
Total
....................
$1,049
$(66)
Franklin
Strategic
Series
Notes
to
Financial
Statements
52
franklintempleton.com
Annual
Report
For
the
year
ended
August
31,
2020,
the
average
month
end
notional
amount
of
options
contracts
was
238.
See
Note
1(b)
regarding
derivative
financial
instruments.
11.
Credit
Facility
The
Funds,
together
with
other
U.S.
registered
and
foreign
investment
funds
(collectively,
Borrowers),
managed
by
Franklin
Templeton,
are
borrowers
in
a
joint
syndicated
senior
unsecured
credit
facility
totaling
$2
billion
(Global
Credit
Facility)
which
matures
on
February
5,
2021.
This
Global
Credit
Facility
provides
a
source
of
funds
to
the
Borrowers
for
temporary
and
emergency
purposes,
including
the
ability
to
meet
future
unanticipated
or
unusually
large
redemption
requests.
The
Funds
began
participating
in
the
Global
Credit
Facility
on
February
7,
2020.
Under
the
terms
of
the
Global
Credit
Facility,
the
Funds
shall,
in
addition
to
interest
charged
on
any
borrowings
made
by
the
Funds
and
other
costs
incurred
by
the Funds,
pay
their
share
of
fees
and
expenses
incurred
in
connection
with
the
implementation
and
maintenance
of
the
Global
Credit
Facility,
based
upon
their
relative
share
of
the
aggregate
net
assets
of
all
of
the
Borrowers,
including
an
annual
commitment
fee
of
0.15%
based
upon
the
unused
portion
of
the
Global
Credit
Facility.
These
fees
are
reflected
in
other
expenses
in
the
Statements
of
Operations.
During
the
year
ended
August
31,
2020,
the Funds
did
not
use
the
Global
Credit
Facility.
12.
Fair
Value
Measurements
The Funds
follow
a
fair
value
hierarchy
that
distinguishes
between
market
data
obtained
from
independent
sources
(observable
inputs)
and
the Funds'
own
market
assumptions
(unobservable
inputs).
These
inputs
are
used
in
determining
the
value
of
the Funds' financial
instruments
and
are
summarized
in
the
following
fair
value
hierarchy:
Level
1
–
quoted
prices
in
active
markets
for
identical
financial
instruments
Level
2
–
other
significant
observable
inputs
(including
quoted
prices
for
similar
financial
instruments,
interest
rates,
prepayment
speed,
credit
risk,
etc.)
Level
3
–
significant
unobservable
inputs
(including
the Funds'
own
assumptions
in
determining
the
fair
value
of
financial
instruments)
10.
Other
Derivative
Information
(continued)
Franklin
Strategic
Series
Notes
to
Financial
Statements
53
franklintempleton.com
Annual
Report
The
input
levels
are
not
necessarily
an
indication
of
the
risk
or
liquidity
associated
with
financial
instruments
at
that
level.
A
summary
of
inputs
used
as
of
August
31,
2020,
in
valuing
the
Fund's
assets
carried
at
fair
value,
is
as
follows:
13.
New
Accounting
Pronouncements
In
March
2020,
the
Financial
Accounting
Standards
Board
(FASB)
issued
Accounting
Standards
Update
(ASU)
No.
2020-
04,
Reference
Rate
Reform
(Topic
848)
–
Facilitation
of
the
Effects
of
Reference
Rate
Reform
on
Financial
Reporting.
The
amendments
in
the
ASU
provides
optional
temporary
financial
reporting
relief
from
the
effect
of
certain
types
of
contract
modifications
due
to
the
planned
discontinuation
of
the
London
Interbank
Offered
Rate
(LIBOR)
and
other
interbank-offered
based
reference
rates
as
of
the
end
of
2021.
The
ASU
is
effective
for
certain
reference
rate-related
contract
modifications
that
occur
during
the
period
March
12,
2020
through
December
31,
2022.
Management
has
reviewed
the
requirements
and
believes
the
adoption
of
this
ASU
will
not
have
a
material
impact
on
the
financial
statements.
14.
Subsequent
Events
The
Funds
have
evaluated
subsequent
events
through
the
issuance
of
the
financial
statements
and
determined
that
no
events
have
occurred
that
require
disclosure.
Level
1
Level
2
Level
3
Total
Franklin
Templeton
SMACS:
Series
CH
Assets:
Investments
in
Securities:
Municipal
Bonds
.........................
$
—
$
2,960,722
$
—
$
2,960,722
Total
Investments
in
Securities
...........
$—
$2,960,722
$—
$2,960,722
Franklin
Templeton
SMACS:
Series
E
Assets:
Investments
in
Securities:
a
Common
Stocks
........................
2,915,383
—
—
2,915,383
Equity-Linked
Securities
...................
—
395,319
—
395,319
Convertible
Preferred
Stocks
...............
195,755
—
—
195,755
Preferred
Stocks
........................
141,400
—
—
141,400
Index-Linked
Notes
......................
—
40,020
—
40,020
Short
Term
Investments
...................
165,509
—
—
165,509
Total
Investments
in
Securities
...........
$3,418,047
$435,339
$—
$3,853,386
Franklin
Templeton
SMACS:
Series
H
Assets:
Investments
in
Securities:
Management
Investment
Companies
.........
1,022,800
—
—
1,022,800
Municipal
Bonds
.........................
—
1,863,152
—
1,863,152
Total
Investments
in
Securities
...........
$1,022,800
$1,863,152
$—
$2,885,952
Franklin
Templeton
SMACS:
Series
I
Assets:
Investments
in
Securities:
a
Corporate
Bonds
........................
—
3,007,979
—
3,007,979
Mortgage-Backed
Securities
................
—
276,584
—
276,584
Short
Term
Investments
...................
159,307
—
—
159,307
Total
Investments
in
Securities
...........
$159,307
$3,284,563
$—
$3,443,870
a
For
detailed
categories,
see
the
accompanying
Statement
of
Investments.
12.
Fair
Value
Measurements
(continued)
Franklin
Strategic
Series
Notes
to
Financial
Statements
54
franklintempleton.com
Annual
Report
Abbreviations
Selected
Portfolio
ADR
American
Depositary
Receipt
ETF
Exchange-Traded
Fund
GNMA
Government
National
Mortgage
Association
GO
General
Obligation
Franklin
Strategic
Series
Report
of
Independent
Registered
Public
Accounting
Firm
55
franklintempleton.com
Annual
Report
To
the
Board
of
Trustees
of
Franklin
Strategic
Series
and
Shareholders
of
Franklin
Templeton
SMACS:
Series
CH,
Franklin
Templeton
SMACS:
Series
E,
Franklin
Templeton
SMACS:
Series
H
and
Franklin
Templeton
SMACS:
Series
I
Opinions
on
the
Financial
Statements
We
have
audited
the
accompanying
statements
of
assets
and
liabilities,
including
the
statements
of
investments,
of
Franklin
Templeton
SMACS:
Series
CH,
Franklin
Templeton
SMACS:
Series
E,
Franklin
Templeton
SMACS:
Series
H
and
Franklin
Templeton
SMACS:
Series
I
(four
of
the
funds
constituting
Franklin
Strategic
Series,
hereafter
collectively
referred
to
as
the
"Funds")
as
of
August
31,
2020,
the
related
statements
of
operations
for
the
year
ended
August
31,
2020
and
the
statements
of
changes
in
net
assets
and
the
financial
highlights
for
the
year
ended
August
31,
2020
and
for
the
period
June
3,
2019
(commencement
of
operations)
through
August
31,
2019,
including
the
related
notes
(collectively
referred
to
as
the
“financial
statements”).
In
our
opinion,
the
financial
statements
present
fairly,
in
all
material
respects,
the
financial
position
of
each
of
the
Funds
as
of
August
31,2020,
the
results
of
each
of
their
operations
for
the
year
ended
August
31,
2020,
and
the
changes
in
their
net
assets
and
each
of
the
financial
highlights
for
the
year
ended
August
31,
2020
and
for
the
period
June
3,
2019
(commencement
of
operations)
through
August
31,
2019
in
conformity
with
accounting
principles
generally
accepted
in
the
United
States
of
America.
Basis
for
Opinions
These
financial
statements
are
the
responsibility
of
the
Funds’
management.
Our
responsibility
is
to
express
an
opinion
on
the
Funds’
financial
statements
based
on
our
audits.
We
are
a
public
accounting
firm
registered
with
the
Public
Company
Accounting
Oversight
Board
(United
States)
(PCAOB)
and
are
required
to
be
independent
with
respect
to
the
Funds
in
accordance
with
the
U.S.
federal
securities
laws
and
the
applicable
rules
and
regulations
of
the
Securities
and
Exchange
Commission
and
the
PCAOB.
We
conducted
our
audits
of
these
financial
statements
in
accordance
with
the
standards
of
the
PCAOB.
Those
standards
require
that
we
plan
and
perform
the
audit
to
obtain
reasonable
assurance
about
whether
the
financial
statements
are
free
of
material
misstatement,
whether
due
to
error
or
fraud.
Our
audits
included
performing
procedures
to
assess
the
risks
of
material
misstatement
of
the
financial
statements,
whether
due
to
error
or
fraud,
and
performing
procedures
that
respond
to
those
risks.
Such
procedures
included
examining,
on
a
test
basis,
evidence
regarding
the
amounts
and
disclosures
in
the
financial
statements.
Our
audits
also
included
evaluating
the
accounting
principles
used
and
significant
estimates
made
by
management,
as
well
as
evaluating
the
overall
presentation
of
the
financial
statements.
Our
procedures
included
confirmation
of
securities
owned
as
of
August
31,
2020
by
correspondence
with
the
custodian,
transfer
agent
and
brokers;
when
replies
were
not
received
from
brokers,
we
performed
other
auditing
procedures.
We
believe
that
our
audits
provide
a
reasonable
basis
for
our
opinions.
PricewaterhouseCoopers
LLP
San
Francisco,
California
October
21,
2020
We
have
served
as
the
auditor
of
one
or
more
investment
companies
in
the
Franklin
Templeton
Group
of
Funds
since
1948.
Franklin
Strategic
Series
Tax
Information
(unaudited)
56
franklintempleton.com
Annual
Report
Under
Section
852(b)(5)(A)
of
the
Internal
Revenue
Code,
the
Funds
hereby
report
100%
of
the
distributions
paid
from
net
investment
income
as
exempt-interest
dividends
for
Franklin
Templeton
SMACS:
Series
CH
and
Franklin
Templeton
SMACS:
Series
H
for
the
fiscal
year
ended
August
31,
2020.
A
portion
of
the
Funds’
exempt-interest
dividends
may
be
subject
to
the
federal
alternative
minimum
tax.
By
mid-February
2021,
shareholders
will
be
notified
of
amounts
for
use
in
preparing
their
2020
income
tax
returns.
Under
Section
854(b)(1)(A)
of
the
Internal
Revenue
Code,
the
Funds
hereby
report
the
following
percentage
amounts
of
the
ordinary
income
dividends
as
income
qualifying
for
the
dividends
received
deduction
for
the
fiscal
year
ended
August
31,
2020:
Under
Section
854(b)(1)(B)
of
the
Internal
Revenue
Code,
the
Funds
hereby
report
the
maximum
amount
allowable
but
no
less
than
the
following
amounts
as
qualified
dividends
for
purposes
of
the
maximum
rate
under
Section
1(h)(11)
of
the
Internal
Revenue
Code
for
the
fiscal
year
ended
August
31,
2020:
Under
Section
871(k)(2)(C)
of
the
Internal
Revenue
Code,
the
Funds
hereby
report
the
maximum
amount
allowable
but
no
less
than
the
following
amounts
as
a
short
term
capital
gain
dividend
for
purposes
of
the
tax
imposed
under
Section
871(a)(1)
(A)
of
the
Internal
Revenue
Code
for
the
fiscal
year
ended
August
31,
2020.
Distributions,
including
qualified
dividend
income,
paid
during
calendar
year
2020
will
be
reported
to
shareholders
on
Form
1099-DIV
by
mid-February
2021.
Shareholders
are
advised
to
check
with
their
tax
advisors
for
information
on
the
treatment
of
these
amounts
on
their
individual
income
tax
returns.
Franklin
Templeton
SMACS:
Series
E
26.34%
Franklin
Templeton
SMACS:
Series
E
$117,847
Franklin
Templeton
SMACS:
Series
E
$83,079
Franklin
Strategic
Series
Board
Members
and
Officers
57
franklintempleton.com
Annual
Report
The
name,
year
of
birth
and
address
of
the
officers
and
board
members,
as
well
as
their
affiliations,
positions
held
with
the
Fund,
principal
occupations
during
at
least
the
past
five
years
and
number
of
U.S.
registered
portfolios
overseen
in
the
Franklin
Templeton
fund
complex
are
shown
below.
Generally,
each
board
member
serves
a
three-year
term
that
continues
until
that
person’s
successor
is
elected
and
qualified.
Independent
Board
Members
Name,
Year
of
Birth
and
Address
Position
Length
of
Time
Served
Number
of
Portfolios
in
Fund
Complex
Overseen
by
Board
Member*
Other
Directorships
Held
During
at
Least
the
Past
5
Years
Harris
J.
Ashton
(1932)
Trustee
Since
1991
126
Bar-S
Foods
(meat
packing
company)
(1981-2010).
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Director
of
various
companies;
and
formerly
,
Director,
RBC
Holdings,
Inc.
(bank
holding
company)
(until
2002);
and
President,
Chief
Executive
Officer
and
Chairman
of
the
Board,
General
Host
Corporation
(nursery
and
craft
centers)
(until
1998).
Terrence
J.
Checki
(1945)
Trustee
Since
2017
107
Hess
Corporation
(exploration
of
oil
and
gas)
(2014-present).
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Member
of
the
Council
on
Foreign
Relations
(1996-present);
Member
of
the
National
Committee
on
U.S.-China
Relations
(1999-present);
member
of
the
board
of
trustees
of
the
Economic
Club
of
New
York
(2013-present);
member
of
the
board
of
trustees
of
the
Foreign
Policy
Association
(2005-present);
member
of
the
board
of
directors
of
Council
of
the
Americas
(2007-present)
and
the
Tallberg
Foundation
(2018–
present);
and
formerly
,
Executive
Vice
President
of
the
Federal
Reserve
Bank
of
New
York
and
Head
of
its
Emerging
Markets
and
Internal
Affairs
Group
and
Member
of
Management
Committee
(1995-2014);
and
Visiting
Fellow
at
the
Council
on
Foreign
Relations
(2014).
Mary
C.
Choksi
(1950)
Trustee
Since
2014
126
Omnicom
Group
Inc.
(advertising
and
marketing
communications
services)
(2011-present)
and
White
Mountains
Insurance
Group,
Ltd.
(holding
company)
(2017-present);
and
formerly
,
Avis
Budget
Group
Inc.
(car
rental)
(2007-May
2020).
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Director
of
various
companies;
and
formerly
,
Founder
and
Senior
Advisor,
Strategic
Investment
Group
(investment
management
group)
(2015-2017);
Founding
Partner
and
Senior
Managing
Director,
Strategic
Investment
Group
(1987–2015);
Founding
Partner
and
Managing
Director,
Emerging
Markets
Management
LLC
(investment
management
firm)
(1987-2011);
and
Loan
Officer/Senior
Loan
Officer/Senior
Pension
Investment
Officer,
World
Bank
Group
(international
financial
institution)
(1977-1987).
Franklin
Strategic
Series
58
franklintempleton.com
Annual
Report
Name,
Year
of
Birth
and
Address
Position
Length
of
Time
Served
Number
of
Portfolios
in
Fund
Complex
Overseen
by
Board
Member*
Other
Directorships
Held
During
at
Least
the
Past
5
Years
Edith
E.
Holiday
(1952)
Lead
Independent
Trustee
Trustee
since
1998
and
Lead
Independent
Trustee
since
2019
126
Hess
Corporation
(exploration
of
oil
and
gas)
(1993-present),
Canadian
National
Railway
(railroad)
(2001-present),
White
Mountains
Insurance
Group,
Ltd.
(holding
company)
(2004-present),
Santander
Consumer
USA
Holdings,
Inc.
(consumer
finance)
(2016-present);
Santander
Holdings
USA.
(holding
company)
(2019-present);
and
formerly
,
RTI
International
Metals,
Inc.
(manufacture
and
distribution
of
titanium)
(1999-2015)
and
H.J.
Heinz
Company
(processed
foods
and
allied
products)
(1994-2013).
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Director
or
Trustee
of
various
companies
and
trusts;
and
formerly
,
Assistant
to
the
President
of
the
United
States
and
Secretary
of
the
Cabinet
(1990-1993);
General
Counsel
to
the
United
States
Treasury
Department
(1989-1990);
and
Counselor
to
the
Secretary
and
Assistant
Secretary
for
Public
Affairs
and
Public
Liaison-United
States
Treasury
Department
(1988-1989).
J.
Michael
Luttig
(1954)
Trustee
Since
2009
126
Boeing
Capital
Corporation
(aircraft
financing)
(2006-2010).
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Private
investor;
and
formerly
,
Counselor
and
Senior
Advisor
to
the
Chairman,
CEO,
and
Board
of
Directors,
of
The
Boeing
Company
(aerospace
company),
and
member
of
the
Executive
Council
(May
2019-January
1,
2020);
Executive
Vice
President,
General
Counsel
and
member
of
the
Executive
Council,
The
Boeing
Company
(2006-2019);
and
Federal
Appeals
Court
Judge,
United
States
Court
of
Appeals
for
the
Fourth
Circuit
(1991-2006).
Larry
D.
Thompson
(1945)
Trustee
Since
2007
126
Graham
Holdings
Company
(education
and
media
organization)
(2011-present);
and
formerly
,
The
Southern
Company
(energy
company)
(2014-May
2020;
previously
2010-2012),
Cbeyond,
Inc.
(business
communications
provider)
(2010-2012).
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Director
of
various
companies;
Counsel,
Finch
McCranie,
LLP
(law
firm)
(2015-present);
John
A.
Sibley
Professor
of
Corporate
and
Business
Law,
University
of
Georgia
School
of
Law
(2015-present;
previously
2011-2012);
and
formerly
,
Independent
Compliance
Monitor
and
Auditor,
Volkswagen
AG
(manufacturer
of
automobiles
and
commercial
vehicles)
(2017-September
2020);
Executive
Vice
President
-
Government
Affairs,
General
Counsel
and
Corporate
Secretary,
PepsiCo,
Inc.
(consumer
products)
(2012-2014);
Senior
Vice
President
-
Government
Affairs,
General
Counsel
and
Secretary,
PepsiCo,
Inc.
(2004-2011);
Senior
Fellow
of
The
Brookings
Institution
(2003-2004);
Visiting
Professor,
University
of
Georgia
School
of
Law
(2004);
and
Deputy
Attorney
General,
U.S.
Department
of
Justice
(2001-2003).
Independent
Board
Members
(continued)
Franklin
Strategic
Series
59
franklintempleton.com
Annual
Report
Interested
Board
Members
and
Officers
Name,
Year
of
Birth
and
Address
Position
Length
of
Time
Served
Number
of
Portfolios
in
Fund
Complex
Overseen
by
Board
Member*
Other
Directorships
Held
During
at
Least
the
Past
5
Years
**Gregory
E.
Johnson
(1961)
Trustee
Since
2013
137
None
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Executive
Chairman,
Chairman
of
the
Board
and
Director,
Franklin
Resources,
Inc.;
officer
and/or
director
or
trustee,
as
the
case
may
be,
of
some
of
the
other
subsidiaries
of
Franklin
Resources,
Inc.
and
of
39
of
the
investment
companies
in
Franklin
Templeton;
Vice
Chairman,
Investment
Company
Institute;
and
formerly
,
Chief
Executive
Officer
(2013-2020)
and
President
(1994-2015),
Franklin
Resources,
Inc.
**Rupert
H.
Johnson,
Jr.
(1940)
Chairman
of
the
Board
and
Trustee
Chairman
of
the
Board
since
2013
and
Trustee
since
1991
126
None
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Director
(Vice
Chairman),
Franklin
Resources,
Inc.;
Director,
Franklin
Advisers,
Inc.;
and
officer
and/or
director
or
trustee,
as
the
case
may
be,
of
some
of
the
other
subsidiaries
of
Franklin
Resources,
Inc.
and
of
37
of
the
investment
companies
in
Franklin
Templeton.
Alison
E.
Baur
(1964)
Vice
President
Since
2012
Not
Applicable
Not
Applicable
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Deputy
General
Counsel,
Franklin
Templeton;
and
officer
of
some
of
the
other
subsidiaries
of
Franklin
Resources,
Inc.
and
of
41
of
the
investment
companies
in
Franklin
Templeton.
Breda
M.
Beckerle
(1958)
Interim
Chief
Compliance
Officer
Since
January
2020
Not
Applicable
Not
Applicable
280
Park
Avenue
New
York,
NY
10017
Principal
Occupation
During
at
Least
the
Past
5
Years:
Chief
Compliance
Officer,
Fiduciary
Investment
Management
International,
Inc.,
Franklin
Advisers,
Inc.,
Franklin
Advisory
Services,
LLC,
Franklin
Mutual
Advisers,
LLC,
Franklin
Templeton
Institutional,
LLC;
and
officer
of
41
of
the
investment
companies
in
Franklin
Templeton.
Sonal
Desai,
Ph.D.
(1963)
Vice
President
Since
2018
Not
Applicable
Not
Applicable
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Director
and
Executive
Vice
President,
Franklin
Advisers,
Inc.;
Executive
Vice
President,
Franklin
Templeton
Institutional,
LLC;
and
officer
of
17
of
the
investment
companies
in
Franklin
Templeton.
Gaston
Gardey
(1967)
Treasurer,
Chief
Financial
Officer
and
Chief
Accounting
Officer
Since
2009
Not
Applicable
Not
Applicable
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Treasurer,
U.S.
Fund
Administration
&
Reporting
and
officer
of
24
of
the
investment
companies
in
Franklin
Templeton.
Steven
J.
Gray
(1955)
Vice
President
and
Co-
Secretary
Vice
President
since
2009
and
Co-Secretary
since
2019
Not
Applicable
Not
Applicable
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Senior
Associate
General
Counsel,
Franklin
Templeton;
Vice
President,
Franklin
Templeton
Distributors,
Inc.
and
FASA,
LLC;
and
officer
of
41
of
the
investment
companies
in
Franklin
Templeton.
Franklin
Strategic
Series
60
franklintempleton.com
Annual
Report
Name,
Year
of
Birth
and
Address
Position
Length
of
Time
Served
Number
of
Portfolios
in
Fund
Complex
Overseen
by
Board
Member*
Other
Directorships
Held
During
at
Least
the
Past
5
Years
Matthew
T.
Hinkle
(1971)
Chief
Executive
Officer
–
Finance
and
Administration
Since
2017
Not
Applicable
Not
Applicable
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Senior
Vice
President,
Franklin
Templeton
Services,
LLC;
officer
of
41
of
the
investment
companies
in
Franklin
Templeton;
and
formerly
,
Vice
President,
Global
Tax
(2012-April
2017)
and
Treasurer/Assistant
Treasurer,
Franklin
Templeton
(2009-2017).
Robert
Lim
(1948)
Vice
President
–
AML
Compliance
Since
2016
Not
Applicable
Not
Applicable
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Vice
President,
Franklin
Templeton
Companies,
LLC;
Chief
Compliance
Officer,
Franklin
Templeton
Distributors,
Inc.
and
Franklin
Templeton
Investor
Services,
LLC;
and
officer
of
41
of
the
investment
companies
in
Franklin
Templeton.
Edward
D.
Perks
(1970)
President
and
Chief
Executive
Officer
–
Investment
Management
Since
2018
Not
Applicable
Not
Applicable
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
President
and
Director,
Franklin
Advisers,
Inc.;
and
officer
of
eight
of
the
investment
companies
in
Franklin
Templeton
(since
December
2018).
Robert
C.
Rosselot
(1960)
Chief
Compliance
Officer
Since
2013
Not
Applicable
Not
Applicable
300
S.E.
2nd
Street
Fort
Lauderdale,
FL
33301-
1923
Principal
Occupation
During
at
Least
the
Past
5
Years:
Director,
Global
Compliance,
Franklin
Templeton;
Senior
Vice
President,
Franklin
Templeton
Companies,
LLC;
officer
of
41
of
the
investment
companies
in
Franklin
Templeton;
and
formerly
,
Senior
Associate
General
Counsel,
Franklin
Templeton
(2007-2013);
and
Secretary
and
Vice
President,
Templeton
Group
of
Funds
(2004-2013).
Navid
J.
Tofigh
(1972)
Vice
President
Since
2015
Not
Applicable
Not
Applicable
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
Associate
General
Counsel
and
officer
of
41
of
the
investment
companies
in
Franklin
Templeton.
Craig
S.
Tyle
(1960)
Vice
President
Since
2005
Not
Applicable
Not
Applicable
One
Franklin
Parkway
San
Mateo,
CA
94403-1906
Principal
Occupation
During
at
Least
the
Past
5
Years:
General
Counsel
and
Executive
Vice
President,
Franklin
Resources,
Inc.;
and
officer
of
some
of
the
other
subsidiaries
of
Franklin
Resources,
Inc.
and
of
41
of
the
investment
companies
in
Franklin
Templeton.
Lori
A.
Weber
(1964)
Vice
President
and
Co-Secretary
Vice
President
since
2011
and
Co-Secretary
since
2019
Not
Applicable
Not
Applicable
300
S.E.
2nd
Street
Fort
Lauderdale,
FL
33301-
1923
Principal
Occupation
During
at
Least
the
Past
5
Years:
Senior
Associate
General
Counsel,
Franklin
Templeton;
Assistant
Secretary,
Franklin
Resources,
Inc.;
Vice
President
and
Secretary,
Templeton
Investment
Counsel,
LLC;
and
officer
of
41
of
the
investment
companies
in
Franklin
Templeton.
Interested
Board
Members
and
Officers
(continued)
Franklin
Strategic
Series
61
franklintempleton.com
Annual
Report
*We
base
the
number
of
portfolios
on
each
separate
series
of
the
U.S.
registered
investment
companies
within
the
Franklin
Templeton
fund
complex.
These
portfolios
have
a
common
investment
manager
or
affiliated
investment
managers.
**Gregory
E.
Johnson
is
considered
to
be
an
interested
person
of
the
Fund
under
the
federal
securities
laws
due
to
his
position
as
an
officer
and
director
of
Franklin
Resources,
Inc.
(Resources),
which
is
the
parent
company
of
the
Fund’s
investment
manager
and
distributor.
Rupert
H.
Johnson,
Jr.
is
considered
to
be
an
interested
person
of
the
Fund
under
the
federal
securities
laws
due
to
his
position
as
an
officer
and
director
and
major
shareholder
of
Resources.
Note
1:
Rupert
H.
Johnson,
Jr.
is
the
uncle
of
Gregory
E.
Johnson.
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.
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
includes
at
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
such
financial
expert
on
the
Audit
Committee
and
has
designated
Mary
C.
Choksi
as
its
audit
committee
financial
expert.
The
Board
believes
that
Ms.
Choksi
qualifies
as
such
an
expert
in
view
of
her
extensive
business
background
and
experience.
She
served
as
a
director
of
Avis
Budget
Group,
Inc.
(2007-May
2020)
and
formerly,
Founder
and
Senior
Advisor,
Strategic
Investment
Group
(1987
to
2017).
Ms.
Choksi
has
been
a
Member
of
the
Fund’s
Audit
Committee
since
2014.
As
a
result
of
such
background
and
experience,
the
Board
believes
that
Ms.
Choksi
has
acquired
an
understanding
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
those
of
the
Fund,
as
well
as
an
understanding
of
internal
controls
and
procedures
for
financial
reporting
and
an
understanding
of
audit
committee
functions.
Ms.
Choksi
is
an
independent
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
may
call
(800)
DIAL
BEN/342-5236
to
request
the
SAI.
Interested
Board
Members
and
Officers
(continued)
Franklin
Strategic
Series
Shareholder
Information
62
franklintempleton.com
Annual
Report
Liquidity
Risk
Management
Program
Each
of
the
Funds
has
adopted
and
implemented
a
written
Liquidity
Risk
Management
Program
(the
“LRMP”)
as
required
by
Rule
22e-4
under
the
Investment
Company
Act
of
1940
(the
“Liquidity
Rule”).
The
LRMP
is
designed
to
assess
and
manage
each
Fund’s
liquidity
risk,
which
is
defined
as
the
risk
that
the
Fund
could
not
meet
requests
to
redeem
shares
issued
by
the
Fund
without
significant
dilution
of
remaining
investors’
interests
in
the
Fund.
In
accordance
with
the
Liquidity
Rule,
the
LRMP
includes
policies
and
procedures
that
provide
for:
(1)
assessment,
management,
and
review
(no
less
frequently
than
annually)
of
each
Fund’s
liquidity
risk;
(2)
classification
of
each
Fund’s
portfolio
holdings
into
one
of
four
liquidity
categories
(Highly
Liquid,
Moderately
Liquid,
Less
Liquid,
and
Illiquid);
(3)
for
Funds
that
do
not
primarily
hold
assets
that
are
Highly
Liquid,
establishing
and
maintaining
a
minimum
percentage
of
the
Fund’s
net
assets
in
Highly
Liquid
investments
(called
a
“Highly
Liquid
Investment
Minimum”
or
“HLIM”);
and
(4)
prohibiting
the
Fund’s
acquisition
of
Illiquid
investments
that
would
result
in
the
Fund
holding
more
than
15%
of
its
net
assets
in
Illiquid
assets.
The
LRMP
also
requires
reporting
to
the
SEC
(on
a
non-public
basis)
and
to
the
Board
if
the
Fund’s
holdings
of
Illiquid
assets
exceed
15%
of
the
Fund’s
net
assets.
Funds
with
HLIMs
must
have
procedures
for
addressing
HLIM
shortfalls,
including
reporting
to
the
Board
and,
with
respect
to
HLIM
shortfalls
lasting
more
than
seven
consecutive
calendar
days,
reporting
to
the
Securities
and
Exchange
Commission
(“SEC”)
(on
a
non-public
basis).
The
Funds’
Board
of
Trustees
approved
the
appointment
of
the
Director
of
Liquidity
Risk
within
the
Investment
Risk
Management
Group
(the
“IRMG”)
as
the
Administrator
of
the
LRMP.
The
IRMG
maintains
the
Investment
Liquidity
Committee
(the
“ILC”)
to
provide
oversight
and
administration
of
policies
and
procedures
governing
liquidity
risk
management
for
FT
products
and
portfolios.
The
ILC
includes
representatives
from
Franklin
Templeton’s
Risk,
Trading,
Global
Compliance,
Investment
Compliance,
Investment
Operations,
Valuation
Committee
and
Product
Management
groups.
In
assessing
and
managing
each
Fund’s
liquidity
risk,
the
ILC
considers,
as
relevant,
a
variety
of
factors,
including
the
Fund’s
investment
strategy
and
the
liquidity
of
its
portfolio
investments
during
both
normal
and
reasonably
foreseeable
stressed
conditions;
its
short
and
long-term
cash
flow
projections;
and
its
cash
holdings
and
access
to
other
funding
sources
including
the
Funds’
interfund
lending
facility
and
line
of
credit.
Classification
of
the
Fund’s
portfolio
holdings
in
the
four
liquidity
categories
is
based
on
the
number
of
days
it
is
reasonably
expected
to
take
to
convert
the
investment
to
cash
(for
Highly
Liquid
and
Moderately
Liquid
holdings)
or
sell
or
dispose
of
the
investment
(for
Less
Liquid
and
Illiquid
investments),
in
current
market
conditions
without
significantly
changing
the
investment’s
market
value.
The
Fund
primarily
holds
liquid
assets
that
are
defined
under
the
Liquidity
Rule
as
"Highly
Liquid
Investments,"
and
therefore
is
not
required
to
establish
an
HLIM.
Highly
Liquid
Investments
are
defined
as
cash
and
any
investment
reasonably
expected
to
be
convertible
to
cash
in
current
market
conditions
in
three
business
days
or
less
without
the
conversion
to
cash
significantly
changing
the
market
value
of
the
investment.
At
meetings
of
the
Funds’
Board
of
Trustees
held
in
May
2020,
the
Program
Administrator
provided
a
written
report
to
the
Board
addressing
the
adequacy
and
effectiveness
of
the
program
during
the
period
December
1,
2018
to
December
31,
2019.
The
Program
Administrator
report
concluded
that
(i.)
the
LRMP,
as
adopted
and
implemented,
remains
reasonably
designed
to
assess
and
manage
each
Fund’s
liquidity
risk;
(ii.)
the
LRMP,
including
the
Highly
Liquid
Investment
Minimum
(“HLIM”)
where
applicable,
was
implemented
and
operated
effectively
to
achieve
the
goal
of
assessing
and
managing
each
Fund’s
liquidity
risk;
and
(iii.)
each
Fund
was
able
to
meet
requests
for
redemption
without
significant
dilution
of
remaining
investors’
interests
in
the
Fund.
At
the
same
time,
the
Program
Administrator
also
presented
the
Fund
Board
of
Trustees
an
update
on
liquidity
during
the
first
quarter
of
2020
in
relation
to
the
COVID-19
pandemic.
Proxy
Voting
Policies
and
Procedures
The
Trust’s
investment
manager
has
established
Proxy
Voting
Policies
and
Procedures
(Policies)
that
the
Trust
uses
to
determine
how
to
vote
proxies
relating
to
portfolio
securities.
Shareholders
may
view
the
Trust’s
complete
Policies
online
at
franklintempleton.com.
Alternatively,
shareholders
may
request
copies
of
the
Policies
free
of
charge
by
calling
the
Proxy
Group
collect
at
(954)
527-
7678
or
by
sending
a
written
request
to:
Franklin
Templeton
Companies,
LLC,
300
S.E.
2nd
Street,
Fort
Lauderdale,
FL
33301,
Attention:
Proxy
Group.
Copies
of
the
Trust’s
Franklin
Strategic
Series
Shareholder
Information
63
franklintempleton.com
Annual
Report
proxy
voting
records
are
also
made
available
online
at
franklintempleton.com
and
posted
on
the
U.S.
Securities
and
Exchange
Commission’s
website
at
sec.gov
and
reflect
the
most
recent
12-month
period
ended
June
30.
Quarterly
Statement
of
Investments
The
Trust
files
a
complete
statement
of
investments
with
the
U.S.
Securities
and
Exchange
Commission
for
the
first
and
third
quarters
for
each
fiscal
year
as
an
exhibit
to
its
report
on
Form
N-PORT.
Shareholders
may
view
the
filed
Form
N-PORT
by
visiting
the
Commission’s
website
at
sec.
gov.
The
filed
form
may
also
be
viewed
and
copied
at
the
Commission’s
Public
Reference
Room
in
Washington,
DC.
Information
regarding
the
operations
of
the
Public
Reference
Room
may
be
obtained
by
calling
(800)
SEC-0330.
Householding
of
Reports
and
Prospectuses
You
will
receive
each
Fund’s
financial
reports
every
six
months
as
well
as
an
annual
updated
summary
prospectus
(prospectus
available
upon
request).
To
reduce
Fund
expenses,
we
try
to
identify
related
shareholders
in
a
household
and
send
only
one
copy
of
the
financial
reports
and
summary
prospectus.
This
process,
called
“householding,”
will
continue
indefinitely
unless
you
instruct
us
otherwise.
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
on
our
website.
If
you
choose,
you
may
receive
these
documents
through
electronic
delivery.
FSS3
A
10/20
©
2020
Franklin
Templeton
Investments.
All
rights
reserved.
Authorized
for
distribution
only
when
accompanied
or
preceded
by
a
summary
prospectus
and/or
prospectus.
Investors
should
carefully
consider
a
fund’s
investment
goals,
risks,
charges
and
expenses
before
investing.
A
prospectus
contains
this
and
other
information;
please
read
it
carefully
before
investing.
To
help
ensure
we
provide
you
with
quality
service,
all
calls
to
and
from
our
service
areas
are
monitored
and/or
recorded.
Annual
Report
Franklin
Strategic
Series
Investment
Manager
Distributor
Shareholder
Services
Franklin
Advisors,
Inc.
Franklin
Templeton
Distributors,
Inc.
(800)
DIAL
BEN
®
/
342-5236
franklintempleton.com
(800)
632-2301
Item 2. Code of Ethics.
(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 13(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.
Item 3. Audit Committee Financial Expert.
(a)(1) The Registrant has an audit committee financial expert serving on its audit committee.
(2) The audit committee financial expert is Mary C. Choksi and she is "independent" as defined under the relevant Securities and Exchange Commission Rules and Releases.
Item 4.
Principal Accountant Fees and Services.
((a) Audit Fees
The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $155,467 for the fiscal year ended August 31, 2020 and $139,718 for the fiscal year ended August 31, 2019.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning.
The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning were $0 for the fiscal year ended August 31, 2020 and $20,000 for the fiscal year ended August 31, 2019. The services for which these fees were paid included professional fees in connection with tax treatment of equipment lease transactions and professional fees in connection with an Indonesia withholding tax refund claim.
(d) All Other Fees
There were no fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant, other than the services reported in paragraphs (a)-(c) of Item 4.
The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant not reported in paragraphs (a)-(c) of Item 4 were $175,744 for the fiscal year ended August 31, 2020 and $22,200 for the fiscal year ended August 31, 2019. The services for which these fees were paid included the issuance of an Auditors’ Certificate for South Korean regulatory shareholders disclosures, benchmarking services in connection with the ICI TA survey professional fees in connection with determining the feasibility of a U.S. direct lending structure, and valuation services related to a fair value engagement.
(e) (1) The registrant’s audit committee is directly responsible for approving the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant’s investment adviser or to any entity that controls, is controlled by or is under common control with the registrant’s investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $175,744 for the fiscal year ended August 31, 2020 and $42,200 for the fiscal year ended August 31, 2019.
(h) The registrant’s audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee
of Listed Registrants. N/A
Item 6. Schedule of Investments. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. N/A
Item 8. Portfolio Managers of Closed-End Management Investment Companies. N/A
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and
Affiliated Purchasers. N/A
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein.
Item 11. Controls and Procedures.
(a)
Evaluation of Disclosure Controls and Procedures
.
The Registrant maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
(b)
Changes in Internal Controls. During the period covered by this report, a third-party service provider commenced performing certain accounting and administrative services for the Registrant that are subject to Franklin Templeton’s oversight.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Company. N/A
Item 13. Exhibits.
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN STRATEGIC SERIES
By _S\MATTHEW T. HINKLE______
Matthew T. Hinkle
Chief Executive Officer –
Finance and Administration
Date October 27, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By _S\MATTHEW T. HINKLE ____
Matthew T. Hinkle
Chief Executive Officer –
Finance and Administration
Date October 27, 2020
By __S\GASTON GARDEY_________
Gaston Gardey
Chief Financial Officer and
Chief Accounting Officer
Date October 27, 2020