UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number number 811-22641
Franklin Alternative Strategies Funds
(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) (Zip code)
Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
(Name and address of agent for service)
Registrant’s telephone number, including area code: 650 312-2000
Date of fiscal year end: 5/31
Date of reporting period: 5/31/20
Item 1. Reports to Stockholders.
Sign up for electronic delivery at franklintempleton.com/edelivery
Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.
You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.
FRANKLIN TEMPLETON
Successful investing begins with ambition. And achievement only comes when you reach for it. That’s why we continually strive to deliver better outcomes for investors. No matter what your goals are, our deep, global investment expertise allows us to offer solutions that can help.
During our more than 70 years of experience, we’ve managed through all kinds of markets—up, down and those in between. We’re always preparing for what may come next. It’s because of this, combined with our strength as one of the world’s largest asset managers that we’ve earned the trust of millions of investors around the world.
Dear Fellow Shareholder:
During the 12 months ended May 31, 2020, global markets showed mixed results amid unique circumstances. Global equities benefited through the end of 2019 from upbeat economic data and corporate earnings, accommodative monetary policies and a U.S.-China trade agreement. However, in early 2020, concerns about the novel coronavirus (COVID-19) outbreak caused many equity investors to shift to government bonds and cash. Nevertheless, global equities partially recovered by period-end given optimism about reopening economies and potential COVID-19 treatments. In this environment, global developed market stocks, as measured by the MSCI World Index (USD), posted a +7.37% total return for the period.1 Global emerging market stocks, as measured by the MSCI Emerging Markets Index (USD), posted a -4.02% total return.1 Global government bonds, as measured by the FTSE World Government Bond Index (USD), posted a +6.36% total return.1
We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous analysis of Fund subadvisors and markets with a strong emphasis on investment risk management.
We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.
On the following pages, the Fund’s portfolio management team reviews investment decisions that pertain to performance during the past 12 months in light of the economic environment and other factors. Please remember all securities markets fluctuate, as do mutual fund share prices.
We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to continuing to serve your investment needs in the future.
Sincerely,
Madison S. Gulley, CFA
President and Chief Executive Officer –
Investment Management
Franklin Alternative Strategies Funds
This letter reflects our analysis and opinions as of May 31, 2020, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
CFA® is a trademark owned by CFA Institute.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
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| | Not FDIC Insured | May Lose Value | No Bank Guarantee |
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| Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools. |
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ANNUAL REPORT
Franklin K2 Alternative Strategies Fund
This annual report for Franklin K2 Alternative Strategies Fund covers the fiscal year ended May 31, 2020.
Your Fund’s Goal and Main Investments
The Fund seeks capital appreciation with lower volatility relative to the broad equity markets. The Fund seeks to achieve its investment goal by allocating its assets across multiple non-traditional or alternative strategies, including, but not limited to, some or all of the following strategies: long short equity, relative value, event driven and global macro. The Fund is structured as a multi-manager fund, meaning the Fund’s assets are independently managed by multiple sub-advisors, while the Fund’s investment manager retains overall responsibility for the Fund’s investments. The Fund may invest in a wide range of securities and other investments including, but not limited to: equity securities including common stocks, preferred stocks, convertible securities, rights and warrants, private and registered investment vehicles and exchange-traded funds (ETFs); debt securities including bonds, notes, debentures, banker’s acceptances and commercial paper; loans and loan participations; and mortgage-backed or other asset-backed securities, including collateralized debt obligations; as well as derivatives, commodities and currencies.
Performance Overview
The Fund’s Class A shares posted a -0.15% cumulative total return for the 12 months under review. For comparison, the Fund’s primary benchmark, the HFRX Global Hedge Fund Index, which is designed to be representative of the overall composition of the hedge fund universe, posted a +2.95% total return for the same period.1 Also for comparison, the Fund’s secondary benchmark, the ICE BofAML U.S. 3-Month Treasury Bill Index, which tracks the performance of short-term U.S. government securities with a remaining term to final maturity of less than three months, posted a +1.84% total return for the same period.2 You can find more of the Fund’s performance data in the Performance Summary beginning on page 7.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Economic and Market Overview
Global developed and emerging market equities, as measured by the MSCI All Country World Index (USD), posted a +5.98% total return during the 12 months under review.2 However, stocks fell sharply in early 2020 as countries around the world implemented lockdowns in an effort to slow the spread of the novel coronavirus (COVID-19). Global supply chain disruptions, business and personal restrictions and subdued consumer spending drove many investors to sell equity holdings in favor of perceived safe investments such as government bonds and cash. However, global equities, notably in the U.S., rebounded during the last two months of the reporting period amid optimism about easing lockdown restrictions and potential COVID-19 vaccines and treatments.
In the U.S., a strong labor market and solid consumer spending growth drove steady economic growth through February 2020. However, government-issued restrictions to mitigate the COVID-19 pandemic severely impacted the U.S. economy beginning in March. As a result, the unemployment rate surged to 14.7% in April 2020 with nearly 41 million workers filing for unemployment benefits by the end of the reporting period as many businesses, particularly those involved in hospitality, retail and travel, announced mass layoffs.3 Within just two months, the unemployment rate went from a 50-year low in February 2020 to an 80-year high in April 2020, the fastest reversal of fortune in the post-World War II era. During March and April, consumer spending, a major economic growth engine through most of the reporting period, posted the sharpest decline in more than 60 years. According to the National Bureau of Economic Research, the longest U.S. economic expansion in history ended in February 2020 as the country slipped into a severe recession.
1. Source: FactSet. Hedge Fund Research, Inc. – www.hedgefundresearch.com. The HFRX Global Hedge Fund Index is being used under license from Hedge Fund Research, Inc., which does not endorse or approve of any of the contents of this report.
2. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Unlike most asset class indexes, HFR Index returns reflect fees and expenses.
3. Source: U.S. Bureau of Labor Statistics.
See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of Investments (SOI). The Consolidated SOI begins on page 16.
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The U.S. Federal Reserve (Fed) made efforts to support the U.S. economy both before and during the pandemic. The Fed cut the federal funds target rate three times in 2019, lowering it to a range of 1.50%–1.75%. In March 2020, as the pandemic began to severely impact the economy and financial markets, the Fed implemented two emergency rate cuts, lowering the federal funds target rate to a range of 0.00%–0.25%, and announced sweeping quantitative easing measures aimed at ensuring the free flow of credit to borrowers and supporting credit markets with unlimited amounts of bond purchasing.
In the eurozone, some analysts forecasted a significant contraction in 2020, particularly in southern European countries, as the magnitude of the economic disruption caused by the COVID-19 pandemic became apparent. European developed market equities, as measured by the MSCI Europe Index (USD), posted a -3.94% total return for the period, as the market downturn in the first quarter of 2020 erased previous gains from easing trade tensions and a Brexit agreement.2
Asian developed and emerging market equities, as measured by the MSCI All Country Asia Index (USD), returned +3.24% during the 12-month period.2 Before the pandemic, Asian stocks were aided by easing trade tensions and the eventual U.S.-China phase one trade agreement. The onset of the pandemic brought dramatically slower economic activity in Asia, as businesses halted operations and manufacturing and export activity plummeted in the region’s major economies. Asian markets generally advanced toward period-end, bolstered by fiscal stimulus measures and economies reopening throughout the region.
Emerging market stocks, as measured by the MSCI Emerging Markets Index (USD), posted a -4.02% total return due primarily to the COVID-19 pandemic.2 A sharp decrease in prices for oil and other natural resources also hurt emerging market economies reliant on these exports.
Investment Strategy
We manage the Fund using a multi-manager approach. While we are responsible for the Fund’s overall investments, we allocate assets to multiple subadvisors, each of whom independently manages a separate portion of the Fund’s portfolio in accordance with some or all of the following strategies: long short equity, relative value, event driven and global macro. We allocate the Fund’s assets among these strategies utilizing a top-down approach, generating the Fund’s strategy weightings by taking into account market conditions, risk factors, diversification, liquidity, transparency, and availability of various subadvisors and other investment options, among other things. We allocate the Fund’s assets
to specific subadvisors utilizing a bottom-up approach, selecting subadvisors and their weighting within the Fund’s portfolio by taking into account their correlations to various markets and to each other, their risk profiles and their return expectations. Long short equity strategies generally seek to produce returns from investments in the equity markets by taking long and short positions in stocks and stock indexes (through the use of derivatives or through a position in an ETF). Relative value strategies encompass a wide range of investment techniques that are intended to profit from pricing inefficiencies. Event driven strategies generally invest in securities of companies undergoing significant corporate events. Global macro strategies generally focus on broad-based economic opportunities across numerous markets and investments. In addition, the debt securities in which the Fund may invest may have variable or fixed interest rates, may be of any maturity or credit rating, and may include sovereign debt, high yield (“junk”) bonds and distressed debt securities (securities of companies that are, or are about to be, involved in reorganizations, financial restructurings, or bankruptcy) and securities that are in default.
The Fund may take long and/or short positions in a wide range of asset classes, including equities, fixed income, commodities and currencies, among others. Long positions benefit from an increase in the price of the underlying instrument or asset class, while short positions benefit from a decrease in that price. The Fund may use derivatives for hedging and non-hedging (investment) purposes, although no subadvisor is required to hedge any of the Fund’s positions or to use derivatives. Such derivative investments may include futures contracts, swaps, options and currency forward contracts. As a result of the Fund’s use of derivatives, the Fund may have economic leverage, which means the sum of the Fund’s investment exposures through its use of derivatives may significantly exceed the amount of assets invested in the Fund, although these exposures may vary over time. The Fund may engage in active and frequent trading as part of its investment strategies.
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What is a futures contract? A futures contract is an agreement between the Fund and a counterparty made through a U.S. or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date. |
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What are swap agreements? Swap agreements, such as interest rate, currency and credit default swaps, are contracts between the Fund and another party (the swap counterparty). In a basic swap transaction, the Fund agrees with the swap counterparty to exchange the returns (or differentials in rates of return) earned or realized on a particular “notional amount” of underlying instruments. The notional amount is the set amount selected by the parties as the basis on which to calculate the obligations that they have agreed to exchange. The parties typically do not actually exchange the notional amount. Instead, they agree to exchange the returns that would be earned or realized if the notional amount were invested in given instruments or at given interest rates. |
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What is an option? An option is a contract to buy or sell a specific financial product known as the option’s underlying instrument at a specific price. The buyer of an option has the right, but not the obligation, to buy or sell the underlying instrument at or until a specified expiration date. Conversely, the seller (“writer”) of an option who opens a transaction is obligated to buy or sell the underlying instrument should the option holder exercise that right. |
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What is a currency forward contract? A currency forward contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency in exchange for another currency at a specific exchange rate on a future date. Currency forward contracts are privately traded in the interbank market, not on a centralized exchange. |
Strategy Allocation*
Based on Total Net Assets as of 5/31/20
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| Strategy | | Long
Positions | | | Short
Positions |
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Long Short Equity | | | 36.35% | | | -23.36% |
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Relative Value | | | 33.25% | | | -11.34% |
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Event Driven | | | 16.53% | | | -6.77% |
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Global Macro | | | 109.31% | | | -29.85% |
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Risk Overlay | | | 0.00% | | | -7.38% |
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Total | | | 195.44% | | | -78.70% |
*Figures include the effect of gross notional exposure of derivatives.
Subadvisors
5/31/20
Long Short Equity
Chilton Investment Company, LLC
Impala Asset Management LLC
Jennison Associates, LLC
Portland Hill Asset Management Limited
Wellington Management Company, LLP
Relative Value
Apollo Credit Management LLC
Chatham Asset Management, LLC
Ellington Global Asset Management, LLC
Lazard Asset Management, LLC
Loomis Sayles & Company, L.P.
Event Driven
Bardin Hill Arbitrage IC Management LP
Schoenfeld Asset Management L.P.
Global Macro
Emso Asset Management Limited
Graham Capital Management, L.P.
Grantham, Mayo, Van Otterloo & Co. LLC
H2O AM LLP
Manager’s Discussion
During the 12 months under review, two of the four underlying strategies in which we allocated assets contributed positively to the Fund’s performance, which was driven in large part by the long short equity strategy. The event driven strategy was a modest positive contributor. Global macro and relative value were minor detractors. A conditional risk overlay (CRO), which was engaged throughout the review period to help mitigate downside risk, also hindered performance, due primarily to equity index hedges. The CRO strategy remained active at period-end. The allocation percentages for each strategy are listed in the Strategy Allocation table on this page.
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What is the conditional risk overlay (CRO) strategy? From time to time, the Fund’s investment manager may implement its CRO strategy, which seeks to neutralize certain market sensitivities that may exist in the Fund. The CRO strategy involves investing in derivatives or other instruments in an effort to reduce volatility and provide a hedge against market declines. When implemented, the strategy will reduce the Fund’s ability to benefit from positive market movements. |
The Fund’s long short equity strategy subadvisors were Chilton Investment, Impala Asset Management, Jennison Associates, Portland Hill Asset Management and Wellington Management. Four of the five subadvisors posted gains for the period, led by Portland Hill, Wellington and Jennison. Conversely, Impala posted slightly negative returns. All asset
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
classes represented in the strategy made positive contributions, and equity exposure was the primary driver of the strategy’s advance. In terms of aggregate sector exposures, net long positions in consumer discretionary, health care and information technology (IT) were the largest contributors to positive returns, while net long positions in materials were modest detractors. Equity index hedges had a significant negative impact on performance.
The Fund’s event driven strategy subadvisors were Bardin Hill Arbitrage IC Management and P. Schoenfeld Asset Management. Both subadvisors posted mildly positive returns, benefiting from a healthy volume of mergers-and-acquisitions activity prior to the impact of the COVID-19 pandemic. By asset class, equity was the primary contributor to the strategy’s positive performance, while smaller contributions from cash and currency exposures were offset by modest detraction from credit exposures. In terms of aggregate sector exposures, the top drivers of positive performance were utilities and health care, along with equity index hedges. Consumer discretionary and energy were minor detractors.
The Fund’s global macro subadvisors at period-end were Emso Asset Management; Graham Capital Management; Grantham, Mayo, Van Otterloo & Co. (GMO); and H2O AM. GMO had no impact on performance during the period, while H2O weakened performance, offsetting gains from Emso and Graham and leaving the overall strategy as a modest detractor. By asset class, equity exposure was the primary driver of negative performance, while interest-rate exposures and cash were the largest positive contributors. In terms of aggregate sector exposures, financials and equity hedges were the notable detractors. Conversely, interest-rate futures (especially within government bonds) contributed to positive performance.
The Fund allocated assets to two new relative value strategy subadvisors during the period: Apollo Credit Management and Ellington Global Asset Management. They joined existing subadvisors Chatham Asset Management, Lazard Asset Management and Loomis Sayles & Company. Two of the five subadvisors had negative performance for the 12-month period. Ellington was the biggest detractor from performance during the period, while three others—Chatham, Loomis Sayles and Apollo—were modest positive contributors. Three of the five asset classes represented in the strategy detracted from performance, with equity the largest detractor, though notable positive contributions from credit helped off-set those losses. In terms of aggregate sector exposures, energy and asset-backed securities detracted the most from Fund performance. Conversely, IT and consumer discretionary were overall positive contributors.
Thank you for your participation in Franklin K2 Alternative Strategies Fund. We look forward to continuing to serve your investment needs.
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Brooks Ritchey Co-Lead Portfolio Manager |
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Robert Christian Co-Lead Portfolio Manager |
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Anthony Zanolla, CFA Portfolio Manager |
The foregoing information reflects our analysis, opinions and portfolio holdings as of May 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.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
Performance Summary as of May 31, 2020
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 5/31/201
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
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| Share Class | | Cumulative Total Return2 | | | Average Annual Total Return3 |
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A4 | | | | | | |
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1-Year | | | -0.15% | | | -5.67% |
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5-Year | | | +6.85% | | | +0.19% |
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Since Inception (10/11/13) | | | +20.45% | | | +1.97% |
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Advisor | | | | | | |
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1-Year | | | +0.19% | | | +0.19% |
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5-Year | | | +8.25% | | | +1.60% |
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Since Inception (10/11/13) | | | +22.54% | | | +3.11% |
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. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 9 for Performance Summary footnotes.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. These differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
Class A (10/11/13–5/31/20)
Advisor Class (10/11/13–5/31/20)
Please see page 9 for Performance Summary footnotes.
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PERFORMANCE SUMMARY
Distributions (6/1/19–5/31/20)
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| Share Class | | Net Investment Income | | | Long-Term Capital Gain | | | Total |
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A | | | $0.0691 | | | | $0.0059 | | | $0.0750 |
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C | | | — | | | | $0.0059 | | | $0.0059 |
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R | | | $0.0316 | | | | $0.0059 | | | $0.0375 |
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R6 | | | $0.1073 | | | | $0.0059 | | | $0.1132 |
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Advisor | | | $0.0983 | | | | $0.0059 | | | $0.1042 |
Total Annual Operating Expenses7
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| Share Class | | With Fee Waiver | | | Without Fee Waiver |
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A | | | 2.59% | | | 2.78% |
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Advisor | | | 2.34% | | | 2.53% |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. The market values of securities owned by the Fund will go up or down, sometimes rapidly or unpredictably. The Fund’s performance depends on the manager’s skill in selecting, overseeing and allocating Fund assets to the subadvisors. The Fund is actively managed and could experience losses if the investment manager’s and subadvisors’ judgment about particular investments made for the Fund’s portfolio prove to be incorrect. Some subadvisors may have little or no experience managing the assets of a registered investment company. Foreign investments are subject to greater investment risk such as political, economic, credit and information risks as well as risk of currency fluctuations. Investments in derivatives involve costs and create economic leverage, which may result in significant volatility and cause the Fund to participate in losses (as well as gains) that significantly exceed the Fund’s initial investment. Lower-rated or high-yield debt securities involve greater credit risk, including the possibility of default or bankruptcy. Currency management strategies could result in losses to the Fund if currencies do not perform as the investment manager or subadvisor expects. The Fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. Merger arbitrage investments risk loss if a proposed reorganization in which the Fund invests is renegotiated or terminated. Liquidity risk exists when securities have become more difficult to sell, or are unable to be sold, at the price at which they have been valued. 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 contractually guaranteed through 9/30/20 and a fee waiver related to the management fee paid by a subsidiary. Fund investment results reflect the expense reduction and fee waiver; without these reductions, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
4. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 5.50%.
5. Source: FactSet. Hedge Fund Research, Inc. – www.hedgefundresearch.com. The HFRX Global Hedge Fund Index is being used under license from Hedge Fund Research, Inc., which does not endorse or approve of any of the contents of this report. The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is composed of all eligible hedge fund strategies, including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage and relative value arbitrage. The strategies are asset weighted based on the distribution of assets in the hedge fund industry.
6. Source: Morningstar. The ICE BofAML U.S. 3-Month Treasury Bill Index is an index of short-term U.S. government securities with a remaining term to final maturity of less than three months.
7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Consolidated Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 =$64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
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| | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | | |
Share Class | | Beginning
Account
Value 12/1/19 | | Ending
Account
Value 5/31/20 | | Expenses Paid During
Period 12/1/19–5/31/201,2 | | Ending
Account
Value 5/31/20 | | Expenses Paid During
Period 12/1/19–5/31/201,2 | | Net
Annualized
Expense
Ratio2 |
| | | | | | |
| A | | $1,000 | | $978.50 | | $12.12 | | $1,012.75 | | $12.33 | | 2.45% |
| C | | $1,000 | | $975.60 | | $15.80 | | $1,009.00 | | $16.07 | | 3.20% |
| R | | $1,000 | | $977.90 | | $13.35 | | $1,011.50 | | $13.58 | | 2.70% |
| R6 | | $1,000 | | $981.10 | | $10.45 | | $1,014.45 | | $10.63 | | 2.11% |
| Advisor | | $1,000 | | $980.30 | | $10.89 | | $1,014.00 | | $11.08 | | 2.20% |
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 183/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
| | | | |
| | | |
10 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Financial Highlights
Franklin K2 Alternative Strategies Fund
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | | |
Class A | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance (for a share outstanding throughout the year) | �� | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $11.28 | | | | $11.38 | | | | $11.14 | | | | $10.55 | | | | $11.16 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)b | | | (0.03 | ) | | | 0.04 | | | | 0.01 | | | | 0.03 | | | | (0.05 | ) |
| | | | | |
Net realized and unrealized gains (losses) | | | 0.02 | | | | 0.11 | | | | 0.38 | | | | 0.61 | | | | (0.38 | ) |
| | | | | |
Total from investment operations | | | (0.01 | ) | | | 0.15 | | | | 0.39 | | | | 0.64 | | | | (0.43 | ) |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.07 | ) | | | — | | | | (0.15 | ) | | | (0.05 | ) | | | (0.14 | ) |
| | | | | |
Net realized gains | | | (0.01 | ) | | | (0.25 | ) | | | — | | | | — | | | | (0.04 | ) |
| | | | | |
Total distributions | | | (0.08 | ) | | | (0.25 | ) | | | — | | | | (0.05 | ) | | | (0.18 | ) |
| | | | | |
Net asset value, end of year | | | $11.19 | | | | $11.28 | | | | $11.38 | | | | $11.14 | | | | $10.55 | |
| | | | | |
Total returnc | | | (0.15)% | | | | 1.35% | | | | 3.57% | | | | 6.07% | | | | (3.89)% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductiond | | | 2.58% | | | | 2.73% | | | | 2.81% | | | | 3.07% | | | | 3.22% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductiond | | | 2.40% | | | | 2.56% | | | | 2.59% | | | | 2.73% | | | | 2.88% | e |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.20% | | | | 0.36% | | | | 0.39% | | | | 0.53% | | | | 0.67% | |
| | | | | |
Net investment income (loss) | | | (0.25)% | | | | 0.36% | | | | 0.06% | | | | 0.10% | | | | (0.44)% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $90,205 | | | | $104,452 | | | | $119,214 | | | | $119,385 | | | | $177,412 | |
| | | | | |
Portfolio turnover rate | | | 271.51% | | | | 235.47% | | | | 234.77% | | | | 209.45% | | | | 229.90% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
dIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
eBenefit of expense reduction rounds to less than 0.01%.
| | | | |
| | | |
| franklintempleton.com | | The accompanying notes are an integral part of these consolidated financial statements. | Annual Report | | 11 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | | | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | | |
Class C | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance (for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $11.05 | | | | $11.25 | | | | $11.00 | | | | $10.45 | | | | $11.09 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment (loss)b | | | (0.11 | ) | | | (0.05 | ) | | | (0.08 | ) | | | (0.04 | ) | | | (0.12 | ) |
| | | | | |
Net realized and unrealized gains (losses) | | | 0.02 | | | | 0.10 | | | | 0.39 | | | | 0.59 | | | | (0.39 | ) |
| | | | | |
Total from investment operations | | | (0.09 | ) | | | 0.05 | | | | 0.31 | | | | 0.55 | | | | (0.51 | ) |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | — | | | | — | | | | (0.06 | ) | | | — | | | | (0.09 | ) |
| | | | | |
Net realized gains | | | (0.01 | ) | | | (0.25 | ) | | | — | | | | — | | | | (0.04 | ) |
| | | | | |
Total distributions | | | (0.01 | ) | | | (0.25 | ) | | | (0.06 | ) | | | — | | | | (0.13 | ) |
| | | | | |
Net asset value, end of year | | | $10.95 | | | | $11.05 | | | | $11.25 | | | | $11.00 | | | | $10.45 | |
| | | | | |
Total returnc | | | (0.85)% | | | | 0.56% | | | | 2.82% | | | | 5.26% | | | | (4.62)% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductiond | | | 3.33% | | | | 3.48% | | | | 3.56% | | | | 3.79% | | | | 3.96% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductiond | | | 3.15% | | | | 3.31% | | | | 3.34% | | | | 3.45% | | | | 3.62% | e |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.20% | | | | 0.36% | | | | 0.39% | | | | 0.53% | | | | 0.67% | |
| | | | | |
Net investment income (loss) | | | (1.00)% | | | | (0.39)% | | | | (0.69)% | | | | (0.62)% | | | | (1.18)% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $36,043 | | | | $44,897 | | | | $53,196 | | | | $55,496 | | | | $71,154 | |
| | | | | |
Portfolio turnover rate | | | 271.51% | | | | 235.47% | | | | 234.77% | | | | 209.45% | | | | 229.90% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
dIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
eBenefit of expense reduction rounds to less than 0.01%.
| | | | |
| | | |
12 | | Annual Report | The accompanying notes are an integral part of these consolidated financial statements. | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | | | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | | |
Class R | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance (for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $11.28 | | | | $11.42 | | | | $11.17 | | | | $10.61 | | | | $11.15 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)b | | | (0.06 | ) | | | 0.02 | | | | (0.02 | ) | | | (0.25 | ) | | | (0.10 | ) |
| | | | | |
Net realized and unrealized gains (losses) | | | 0.02 | | | | 0.09 | | | | 0.39 | | | | 0.86 | | | | (0.40 | ) |
| | | | | |
Total from investment operations | | | (0.04 | ) | | | 0.11 | | | | 0.37 | | | | 0.61 | | | | (0.50 | ) |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.03 | ) | | | — | | | | (0.12 | ) | | | (0.05 | ) | | | — | |
| | | | | |
Net realized gains | | | (0.01 | ) | | | (0.25 | ) | | | — | | | | — | | | | (0.04 | ) |
| | | | | |
Total distributions | | | (0.04 | ) | | | (0.25 | ) | | | (0.12 | ) | | | (0.05 | ) | | | (0.04 | ) |
| | | | | |
Net asset value, end of year | | | $11.20 | | | | $11.28 | | | | $11.42 | | | | $11.17 | | | | $10.61 | |
| | | | | |
Total return | | | (0.39)% | | | | 1.08% | | | | 3.28% | | | | 5.79% | | | | (4.51)% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductionc | | | 2.83% | | | | 2.98% | | | | 3.06% | | | | 3.32% | | | | 3.46% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductionc | | | 2.65% | | | | 2.81% | | | | 2.84% | | | | 2.98% | | | | 3.12%d | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.20% | | | | 0.36% | | | | 0.39% | | | | 0.53% | | | | 0.67% | |
| | | | | |
Net investment income (loss) | | | (0.50)% | | | | 0.11% | | | | (0.19)% | | | | (0.15)% | | | | (0.68)% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $884 | | | | $844 | | | | $648 | | | | $597 | | | | $341 | |
| | | | | |
Portfolio turnover rate | | | 271.51% | | | | 235.47% | | | | 234.77% | | | | 209.45% | | | | 229.90% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
dBenefit of expense reduction rounds to less than 0.01%.
| | | | |
| | | |
| franklintempleton.com | | The accompanying notes are an integral part of these consolidated financial statements. | Annual Report | | 13 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | | | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | | |
Class R6 | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance (for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $11.34 | | | | $11.41 | | | | $11.17 | | | | $10.59 | | | | $11.18 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)b | | | 0.01 | | | | 0.08 | | | | 0.03 | | | | 0.02 | | | | (0.01 | ) |
| | | | | |
Net realized and unrealized gains (losses) | | | 0.02 | | | | 0.10 | | | | 0.40 | | | | 0.65 | | | | (0.37 | ) |
| | | | | |
Total from investment operations | | | 0.03 | | | | 0.18 | | | | 0.43 | | | | 0.67 | | | | (0.38 | ) |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.11 | ) | | | — | | | | (0.19 | ) | | | (0.09 | ) | | | (0.17 | ) |
| | | | | |
Net realized gains | | | (0.01 | ) | | | (0.25 | ) | | | — | | | | — | | | | (0.04 | ) |
| | | | | |
Total distributions | | | (0.12 | ) | | | (0.25 | ) | | | (0.19 | ) | | | (0.09 | ) | | | (0.21 | ) |
| | | | | |
Net asset value, end of year | | | $11.25 | | | | $11.34 | | | | $11.41 | | | | $11.17 | | | | $10.59 | |
| | | | | |
Total return | | | 0.27% | | | | 1.70% | | | | 3.83% | | | | 6.40% | | | | (3.45)% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductionc | | | 2.26% | | | | 2.41% | | | | 2.46% | | | | 2.73% | | | | 2.87% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductionc | | | 2.07% | | | | 2.23% | | | | 2.24% | | | | 2.39% | | | | 2.53% | d |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.20% | | | | 0.36% | | | | 0.39% | | | | 0.53% | | | | 0.67% | |
| | | | | |
Net investment income (loss) | | | 0.08% | | | | 0.69% | | | | 0.41% | | | | 0.44% | | | | (0.09)% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $15,537 | | | | $42,842 | | | | $31,805 | | | | $265,247 | | | | $265,517 | |
| | | | | |
Portfolio turnover rate | | | 271.51% | | | | 235.47% | | | | 234.77% | | | | 209.45% | | | | 229.90% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
dBenefit of expense reduction rounds to less than 0.01%.
| | | | |
| | | |
14 | | Annual Report | The accompanying notes are an integral part of these consolidated financial statements. | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | | |
Advisor Class | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance (for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $11.33 | | | | $11.40 | | | | $11.16 | | | | $10.58 | | | | $11.18 | |
| | | | | |
Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)b | | | — | c | | | 0.07 | | | | 0.04 | | | | 0.04 | | | | (0.02 | ) |
| | | | | |
Net realized and unrealized gains (losses) | | | 0.01 | | | | 0.11 | | | | 0.38 | | | | 0.62 | | | | (0.38 | ) |
| | | | | |
Total from investment operations | | | 0.01 | | | | 0.18 | | | | 0.42 | | | | 0.66 | | | | (0.40 | ) |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.10 | ) | | | — | | | | (0.18 | ) | | | (0.08 | ) | | | (0.16 | ) |
| | | | | |
Net realized gains | | | (0.01 | ) | | | (0.25 | ) | | | — | | | | — | | | | (0.04 | ) |
| | | | | |
Total distributions | | | (0.11 | ) | | | (0.25 | ) | | | (0.18 | ) | | | (0.08 | ) | | | (0.20 | ) |
| | | | | |
Net asset value, end of year | | | $11.23 | | | | $11.33 | | | | $11.40 | | | | $11.16 | | | | $10.58 | |
| | | | | |
Total return | | | 0.19% | | | | 1.61% | | | | 3.75% | | | | 6.29% | | | | (3.58)% | |
| | | | | |
Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductiond | | | 2.33% | | | | 2.48% | | | | 2.56% | | | | 2.82% | | | | 2.96% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductiond | | | 2.15% | | | | 2.31% | | | | 2.34% | | | | 2.48% | | | | 2.62% | e |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.20% | | | | 0.36% | | | | 0.39% | | | | 0.53% | | | | 0.67% | |
| | | | | |
Net investment income (loss) | | | — | f | | | 0.61% | | | | 0.31% | | | | 0.35% | | | | (0.18)% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $977,094 | | | | $1,046,252 | | | | $896,278 | | | | $674,828 | | | | $722,216 | |
| | | | | |
Portfolio turnover rate | | | 271.51% | | | | 235.47% | | | | 234.77% | | | | 209.45% | | | | 229.90% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cAmount rounds to less than $0.01.
dIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
eBenefit of expense reduction rounds to less than 0.01%.
fAmount rounds to less than 0.01%.
| | | | |
| | | |
| franklintempleton.com | | The accompanying notes are an integral part of these consolidated financial statements. | Annual Report | | 15 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Statement of Investments, May 31, 2020
Franklin K2 Alternative Strategies Fund
| | | | | | | | | | | | |
| | | Country | | | Shares/
Rights | | | Value | |
| | | |
Common Stocks and Other Equity Interests 40.7% | | | | | | | | | | | | |
Aerospace & Defense 0.0%† | | | | | | | | | | | | |
a,b Bombardier Inc., B | | | Canada | | | | 609,589 | | | $ | 197,020 | |
Lockheed Martin Corp. | | | United States | | | | 27 | | | | 10,488 | |
Northrop Grumman Corp. | | | United States | | | | 14 | | | | 4,693 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 212,201 | |
| | | | | | | | | | | | |
Air Freight & Logistics 0.4% | | | | | | | | | | | | |
a Deutsche Post AG | | | Germany | | | | 46,951 | | | | 1,470,422 | |
DSV Panalpina A/S | | | Denmark | | | | 30,200 | | | | 3,201,154 | |
Expeditors International of Washington Inc. | | | United States | | | | 576 | | | | 43,989 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 4,715,565 | |
| | | | | | | | | | | | |
Airlines 0.1% | | | | | | | | | | | | |
Delta Air Lines Inc. | | | United States | | | | 31,338 | | | | 790,031 | |
| | | | | | | | | | | | |
Auto Components 0.5% | | | | | | | | | | | | |
a Adient PLC | | | United States | | | | 48,267 | | | | 821,022 | |
BorgWarner Inc. | | | United States | | | | 117,152 | | | | 3,766,437 | |
a Freni Brembo SpA | | | Italy | | | | 57,567 | | | | 542,649 | |
a,c Pirelli & C SpA, 144A | | | Italy | | | | 24,591 | | | | 110,673 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 5,240,781 | |
| | | | | | | | | | | | |
Automobiles 0.5% | | | | | | | | | | | | |
General Motors Co. | | | United States | | | | 51,546 | | | | 1,334,010 | |
d Harley-Davidson Inc. | | | United States | | | | 181,249 | | | | 3,867,854 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 5,201,864 | |
| | | | | | | | | | | | |
Banks 0.1% | | | | | | | | | | | | |
Barclays PLC | | | United Kingdom | | | | 108,406 | | | | 154,971 | |
Wells Fargo & Co. | | | United States | | | | 27,843 | | | | 737,004 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 891,975 | |
| | | | | | | | | | | | |
Beverages 0.3% | | | | | | | | | | | | |
The Coca-Cola Co. | | | United States | | | | 2,926 | | | | 136,586 | |
Davide Campari-Milano SpA | | | Italy | | | | 289,406 | | | | 2,361,556 | |
Davide Campari-Milano SpA, Contingent Value, rts., 6/21/20 | | | Italy | | | | 297,968 | | | | — | |
PepsiCo Inc. | | | United States | | | | 2,870 | | | | 377,548 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 2,875,690 | |
| | | | | | | | | | | | |
Biotechnology 2.9% | | | | | | | | | | | | |
AbbVie Inc. | | | United States | | | | 125 | | | | 11,584 | |
a Acadia Pharmaceuticals Inc. | | | United States | | | | 4,333 | | | | 215,263 | |
a Agios Pharmaceuticals Inc. | | | United States | | | | 13,547 | | | | 700,922 | |
a,e,f Alder Biopharmaceuticals Inc., Contingent Value, rts., 12/31/24 | | | United States | | | | 50,624 | | | | 44,549 | |
Amgen Inc. | | | United States | | | | 46 | | | | 10,566 | |
a Amicus Therapeutics Inc. | | | United States | | | | 56,310 | | | | 702,467 | |
a Apellis Pharmaceuticals Inc. | | | United States | | | | 37,611 | | | | 1,267,115 | |
a Argenx SE, ADR | | | Netherlands | | | | 6,535 | | | | 1,433,126 | |
a Assembly Biosciences Inc. | | | United States | | | | 54,198 | | | | 1,056,319 | |
a Biogen Inc. | | | United States | | | | 1,003 | | | | 308,011 | |
a BioMarin Pharmaceutical Inc. | | | United States | | | | 24,269 | | | | 2,585,862 | |
a Black Diamond Therapeutics Inc. | | | United States | | | | 10,447 | | | | 407,955 | |
a Constellation Pharmaceuticals Inc. | | | United States | | | | 6,044 | | | | 214,743 | |
a CRISPR Therapeutics AG | | | Switzerland | | | | 6,271 | | | | 404,981 | |
a Cytodyn Inc. | | | United States | | | | 3,917 | | | | 11,594 | |
a Cytokinetics Inc. | | | United States | | | | 14,108 | | | | 292,177 | |
a,d Denali Therapeutics Inc. | | | United States | | | | 9,775 | | | | 272,038 | |
a Fate Therapeutics Inc. | | | United States | | | | 25,207 | | | | 817,463 | |
a Genmab A/S, ADR | | | Denmark | | | | 13,614 | | | | 414,819 | |
| | | | |
| | | |
16 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares/
Rights | | | Value | |
| | | |
Common Stocks and Other Equity Interests (continued) | | | | | | | | | | | | |
Biotechnology (continued) | | | | | | | | | | | | |
Gilead Sciences Inc. | | | United States | | | | 1,638 | | | $ | 127,486 | |
a Gossamer Bio Inc. | | | United States | | | | 36,904 | | | | 448,384 | |
a Immunomedics Inc. | | | United States | | | | 42,228 | | | | 1,418,439 | |
a,c Innovent Biologics Inc., 144A | | | China | | | | 73,859 | | | | 403,049 | |
a Invitae Corp. | | | United States | | | | 8,635 | | | | 145,241 | |
a Iovance Biotherapeutics Inc. | | | United States | | | | 8,692 | | | | 278,926 | |
a Madrigal Pharmaceuticals Inc. | | | United States | | | | 2,763 | | | | 320,563 | |
a Mirati Therapeutics Inc. | | | United States | | | | 7,214 | | | | 715,557 | |
a Momenta Pharmaceuticals Inc. | | | United States | | | | 14,226 | | | | 447,834 | |
a,d Natera Inc. | | | United States | | | | 35,848 | | | | 1,571,935 | |
a Neurocrine Biosciences Inc. | | | United States | | | | 6,407 | | | | 799,337 | |
a Nextcure Inc. | | | United States | | | | 10,675 | | | | 333,167 | |
a,f Oric Pharmaceuticals Inc. | | | United States | | | | 3,738 | | | | 108,477 | |
a Portola Pharmaceuticals Inc., A | | | United States | | | | 203,611 | | | | 3,654,817 | |
a Principia Biopharma Inc. | | | United States | | | | 6,515 | | | | 416,243 | |
a ProQR Therapeutics NV | | | Netherlands | | | | 46,914 | | | | 260,842 | |
a Regeneron Pharmaceuticals Inc. | | | United States | | | | 1,712 | | | | 1,049,131 | |
a,f Revolution Medicines Inc. | | | United States | | | | 4,995 | | | | 153,446 | |
a Sage Therapeutics Inc. | | | United States | | | | 5,019 | | | | 179,279 | |
a,d Sarepta Therapeutics Inc. | | | United States | | | | 17,759 | | | | 2,704,163 | |
a Seattle Genetics Inc. | | | United States | | | | 3,054 | | | | 480,119 | |
a SpringWorks Therapeutics Inc. | | | United States | | | | 6,838 | | | | 260,323 | |
a,b Stemline Therapeutics Inc. | | | United States | | | | 68,331 | | | | 811,772 | |
a Turning Point Therapeutics Inc. | | | United States | | | | 9,959 | | | | 689,661 | |
a uniQure NV | | | Netherlands | | | | 4,913 | | | | 329,957 | |
a Vertex Pharmaceuticals Inc. | | | United States | | | | 7,941 | | | | 2,286,690 | |
a Zai Lab Ltd., ADR | | | China | | | | 5,100 | | | | 379,440 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 31,945,832 | |
| | | | | | | | | | | | |
| | | |
Building Products 0.1% | | | | | | | | | | | | |
a Carrier Global Corp. | | | United States | | | | 32,160 | | | | 658,315 | |
Johnson Controls International PLC | | | United States | | | | 432 | | | | 13,569 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 671,884 | |
| | | | | | | | | | | | |
| | | |
Capital Markets 1.5% | | | | | | | | | | | | |
a,c Amundi SA, 144A | | | France | | | | 25,204 | | | | 1,882,490 | |
c Anima Holding SpA, 144A | | | Italy | | | | 102,616 | | | | 435,031 | |
Arya Sciences Acquisition Corp. | | | Cayman Islands | | | | 10,049 | | | | 45,220 | |
The Blackstone Group Inc., A | | | United States | | | | 47,021 | | | | 2,670,793 | |
Bolsas y Mercados Espanoles SHMSF SA | | | Spain | | | | 82,306 | | | | 3,009,458 | |
CME Group Inc., A | | | United States | | | | 54 | | | | 9,860 | |
a Deutsche Bank AG | | | Germany | | | | 20,479 | | | | 172,024 | |
d E*Trade Financial Corp. | | | United States | | | | 8,000 | | | | 364,320 | |
Intercontinental Exchange Inc. | | | United States | | | | 52 | | | | 5,057 | |
d Legg Mason Inc. | | | United States | | | | 91,715 | | | | 4,570,158 | |
d Moody’s Corp. | | | United States | | | | 9,897 | | | | 2,646,557 | |
S&P Global Inc. | | | United States | | | | 34 | | | | 11,051 | |
TD Ameritrade Holding Corp. | | | United States | | | | 21,924 | | | | 817,107 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 16,639,126 | |
| | | | | | | | | | | | |
| | | |
Chemicals 0.8% | | | | | | | | | | | | |
a Ingevity Corp. | | | United States | | | | 8,723 | | | | 459,440 | |
The Sherwin-Williams Co. | | | United States | | | | 13,583 | | | | 8,066,265 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 8,525,705 | |
| | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 17 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares/
Rights | | | Value | |
| | | |
Common Stocks and Other Equity Interests (continued) | | | | | | | | | | | | |
| | | |
Commercial Services & Supplies 1.1% | | | | | | | | | | | | |
a Advanced Disposal Services Inc. | | | United States | | | | 191,570 | | | $ | 5,973,153 | |
d Cintas Corp. | | | United States | | | | 14,623 | | | | 3,625,919 | |
Republic Services Inc., A | | | United States | | | | 31,833 | | | | 2,720,448 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 12,319,520 | |
| | | | | | | | | | | | |
| | | |
Communications Equipment 0.2% | | | | | | | | | | | | |
Accton Technology Corp. | | | Taiwan | | | | 81,000 | | | | 651,507 | |
Cisco Systems Inc. | | | United States | | | | 244 | | | | 11,668 | |
a Lumentum Holdings Inc. | | | United States | | | | 17,931 | | | | 1,314,701 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,977,876 | |
| | | | | | | | | | | | |
| | | |
Construction Materials 0.4% | | | | | | | | | | | | |
Buzzi Unicem SpA | | | Italy | | | | 76,143 | | | | 1,522,525 | |
Cemex SAB de CV, ADR | | | Mexico | | | | 72,599 | | | | 174,237 | |
a LafargeHolcim Ltd., B | | | Switzerland | | | | 54,747 | | | | 2,282,706 | |
Martin Marietta Materials Inc. | | | United States | | | | 5,308 | | | | 1,019,614 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 4,999,082 | |
| | | | | | | | | | | | |
| | | |
Containers & Packaging 0.6% | | | | | | | | | | | | |
d Ball Corp. | | | United States | | | | 100,464 | | | | 7,159,065 | |
| | | | | | | | | | | | |
| | | |
Distributors 0.2% | | | | | | | | | | | | |
d Pool Corp. | | | United States | | | | 7,684 | | | | 2,067,150 | |
| | | | | | | | | | | | |
| | | |
Diversified Financial Services 0.1% | | | | | | | | | | | | |
FGL Holdings, A | | | United States | | | | 135,854 | | | | 1,133,022 | |
a,e,g One Call Corp. | | | United States | | | | 4,965 | | | | 556,076 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,689,098 | |
| | | | | | | | | | | | |
| | | |
Diversified Telecommunication Services 0.2% | | | | | | | | | | | | |
AT&T Inc. | | | United States | | | | 18,709 | | | | 577,360 | |
a Bandwidth Inc., A | | | United States | | | | 10,568 | | | | 1,171,463 | |
c China Tower Corp. Ltd., H, 144A | | | China | | | | 2,062,000 | | | | 414,980 | |
a Telecom Italia SpA | | | Italy | | | | 150,112 | | | | 55,724 | |
b Verizon Communications Inc. | | | United States | | | | 176 | | | | 10,099 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 2,229,626 | |
| | | | | | | | | | | | |
| | | |
Electric Utilities 0.9% | | | | | | | | | | | | |
Duke Energy Corp. | | | United States | | | | 1,798 | | | | 153,963 | |
El Paso Electric Co. | | | United States | | | | 98,823 | | | | 6,716,999 | |
a,d Energy Harbor Corp. | | | United States | | | | 81,291 | | | | 3,129,704 | |
Entergy Corp. | | | United States | | | | 39 | | | | 3,971 | |
d Evergy Inc. | | | United States | | | | 5,404 | | | | 333,373 | |
FirstEnergy Corp. | | | United States | | | | 155 | | | | 6,550 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 10,344,560 | |
| | | | | | | | | | | | |
| | | |
Electrical Equipment 0.5% | | | | | | | | | | | | |
a Osram Licht AG | | | Germany | | | | 116,524 | | | | 5,265,731 | |
| | | | | | | | | | | | |
| | | |
Electronic Equipment, Instruments & Components 1.2% | | | | | | | | | | | | |
a Anixter International Inc. | | | United States | | | | 53,323 | | | | 5,103,544 | |
Corning Inc. | | | United States | | | | 28,886 | | | | 658,312 | |
a Flex Ltd. | | | United States | | | | 150,558 | | | | 1,461,918 | |
Isra Vision AG | | | Germany | | | | 24,211 | | | | 1,340,536 | |
Keyence Corp. | | | Japan | | | | 900 | | | | 370,115 | |
Taiyo Yuden Co. Ltd. | | | Japan | | | | 10,900 | | | | 303,213 | |
a,d Tech Data Corp. | | | United States | | | | 29,814 | | | | 4,061,860 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 13,299,498 | |
| | | | | | | | | | | | |
| | | | |
| | | |
18 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares/
Rights | | | Value | |
| | | |
Common Stocks and Other Equity Interests (continued) | | | | | | | | | | | | |
Entertainment 0.1% | | | | | | | | | | | | |
Activision Blizzard Inc. | | | United States | | | | 156 | | | $ | 11,229 | |
d Cinemark Holdings Inc. | | | United States | | | | 55,513 | | | | 834,360 | |
Cineplex Inc. | | | Canada | | | | 13,733 | | | | 145,125 | |
a,d Take-Two Interactive Software Inc. | | | United States | | | | 4,753 | | | | 647,216 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,637,930 | |
| | | | | | | | | | | | |
| | | |
Equity Real Estate Investment Trusts (REITs) 0.2% | | | | | | | | | | | | |
Iron Mountain Inc. | | | United States | | | | 374 | | | | 9,634 | |
d Taubman Centers Inc. | | | United States | | | | 33,362 | | | | 1,379,185 | |
VICI Properties Inc. | | | United States | | | | 33,969 | | | | 666,472 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,055,291 | |
| | | | | | | | | | | | |
| | | |
Food & Staples Retailing 0.4% | | | | | | | | | | | | |
Costco Wholesale Corp. | | | United States | | | | 12,958 | | | | 3,997,154 | |
Wal-Mart Stores Inc. | | | United States | | | | 1,286 | | | | 159,541 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,156,695 | |
| | | | | | | | | | | | |
| | | |
Food Products 0.0%† | | | | | | | | | | | | |
Chocoladefabriken Lindt & Spruengli AG | | | Switzerland | | | | 6 | | | | 523,213 | |
The Hershey Co. | | | United States | | | | 69 | | | | 9,362 | |
Mondelez International Inc., A | | | United States | | | | 130 | | | | 6,776 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 539,351 | |
| | | | | | | | | | | | |
| | | |
Health Care Equipment & Supplies 1.8% | | | | | | | | | | | | |
Abbott Laboratories | | | United States | | | | 19,906 | | | | 1,889,477 | |
a Alcon Inc. | | | Switzerland | | | | 6,799 | | | | 432,008 | |
a Boston Scientific Corp. | | | United States | | | | 44,647 | | | | 1,696,140 | |
Danaher Corp., W | | | United States | | | | 6,033 | | | | 1,005,158 | |
a,d DexCom Inc. | | | United States | | | | 6,104 | | | | 2,309,204 | |
a,d Edwards Lifesciences Corp. | | | United States | | | | 3,382 | | | | 760,003 | |
a Inari Medical Inc. | | | United States | | | | 464 | | | | 20,416 | |
a,d Intuitive Surgical Inc. | | | United States | | | | 2,731 | | | | 1,584,062 | |
a iRhythm Technologies Inc. | | | United States | | | | 2,228 | | | | 276,963 | |
a Shockwave Medical Inc. | | | United States | | | | 13,067 | | | | 575,079 | |
a Silk Road Medical Inc. | | | United States | | | | 15,000 | | | | 574,050 | |
a Tandem Diabetes Care Inc. | | | United States | | | | 7,645 | | | | 635,682 | |
Teleflex Inc. | | | United States | | | | 1,033 | | | | 374,834 | |
a Wright Medical Group NV | | | United States | | | | 240,446 | | | | 7,105,180 | |
Zimmer Biomet Holdings Inc. | | | United States | | | | 5,206 | | | | 657,726 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 19,895,982 | |
| | | | | | | | | | | | |
| | | |
Health Care Providers & Services 0.8% | | | | | | | | | | | | |
AmerisourceBergen Corp., A | | | United States | | | | 116 | | | | 11,059 | |
Anthem Inc. | | | United States | | | | 2,736 | | | | 804,685 | |
a Centene Corp. | | | United States | | | | 16,030 | | | | 1,061,988 | |
Cigna Corp. | | | United States | | | | 6,309 | | | | 1,244,892 | |
CVS Health Corp. | | | United States | | | | 2,471 | | | | 162,023 | |
a Guardant Health Inc. | | | United States | | | | 10,655 | | | | 963,105 | |
Humana Inc. | | | United States | | | | 5,064 | | | | 2,079,532 | |
a,c Jinxin Fertility Group Ltd., 144A | | | China | | | | 117,677 | | | | 157,581 | |
a Petiq Inc., A | | | United States | | | | 2,760 | | | | 84,677 | |
d UnitedHealth Group Inc. | | | United States | | | | 8,309 | | | | 2,532,999 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 9,102,541 | |
| | | | | | | | | | | | |
| | | |
Health Care Technology 0.1% | | | | | | | | | | | | |
a Inspire Medical Systems Inc. | | | United States | | | | 360 | | | | 29,354 | |
a Phreesia Inc. | | | United States | | | | 11,219 | | | | 328,941 | |
a Teladoc Health Inc. | | | United States | | | | 5,740 | | | | 999,105 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,357,400 | |
| | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 19 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares/
Rights | | | Value | |
| | | |
Common Stocks and Other Equity Interests (continued) | | | | | | | | | | | | |
Hotels, Restaurants & Leisure 2.5% | | | | | | | | | | | | |
a Caesars Entertainment Corp. | | | United States | | | | 423,946 | | | $ | 4,828,745 | |
Cedar Fair LP | | | United States | | | | 68,322 | | | | 2,173,323 | |
d Darden Restaurants Inc. | | | United States | | | | 22,941 | | | | 1,763,245 | |
Domino’s Pizza Inc. | | | United States | | | | 6,889 | | | | 2,658,052 | |
Flutter Entertainment PLC | | | Ireland | | | | 98,238 | | | | 12,498,473 | |
Marriott Vacations Worldwide Corp. | | | United States | | | | 3,911 | | | | 351,325 | |
McDonald’s Corp. | | | United States | | | | 7,147 | | | | 1,331,629 | |
a Seaworld Entertainment Inc. | | | United States | | | | 18,425 | | | | 332,756 | |
d SIX Flags Entertainment Corp. | | | United States | | | | 92,975 | | | | 2,136,566 | |
Starbucks Corp. | | | United States | | | | 441 | | | | 34,394 | |
Wynn Resorts Ltd. | | | United States | | | | 3,425 | | | | 285,234 | |
Yum China Holdings Inc. | | | China | | | | 989 | | | | 45,830 | |
Yum! Brands Inc. | | | United States | | | | 95 | | | | 8,524 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 28,448,096 | |
| | | | | | | | | | | | |
| | | |
Household Durables 0.2% | | | | | | | | | | | | |
b D.R. Horton Inc. | | | United States | | | | 138 | | | | 7,631 | |
Garmin Ltd. | | | United States | | | | 128 | | | | 11,542 | |
d KB Home | | | United States | | | | 23,912 | | | | 791,009 | |
a,d NVR Inc. | | | United States | | | | 418 | | | | 1,346,633 | |
Sony Corp. | | | Japan | | | | 7,112 | | | | 453,316 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 2,610,131 | |
| | | | | | | | | | | | |
| | | |
Household Products 0.0%† | | | | | | | | | | | | |
Kimberly-Clark Corp. | | | United States | | | | 73 | | | | 10,325 | |
The Procter & Gamble Co. | | | United States | | | | 1,283 | | | | 148,725 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 159,050 | |
| | | | | | | | | | | | |
| | | |
Independent Power & Renewable Electricity Producers 0.2% | | | | | | | | | | | | |
The AES Corp. | | | United States | | | | 458 | | | | 5,720 | |
Clearway Energy Inc., C | | | United States | | | | 61,207 | | | | 1,341,045 | |
d Terraform Power Inc., A | | | United States | | | | 70,594 | | | | 1,297,518 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 2,644,283 | |
| | | | | | | | | | | | |
| | | |
Industrial Conglomerates 0.0%† | | | | | | | | | | | | |
Honeywell International Inc. | | | United States | | | | 72 | | | | 10,501 | |
Smiths Group PLC | | | United Kingdom | | | | 17,888 | | | | 291,657 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 302,158 | |
| | | | | | | | | | | | |
| | | |
Insurance 0.4% | | | | | | | | | | | | |
The Allstate Corp. | | | United States | | | | 103 | | | | 10,075 | |
b Fidelity National Financial Inc. | | | United States | | | | 250 | | | | 7,975 | |
Lincoln National Corp. | | | United States | | | | 146 | | | | 5,538 | |
The Progressive Corp. | | | United States | | | | 127 | | | | 9,865 | |
RSA Insurance Group PLC | | | United Kingdom | | | | 44,331 | | | | 217,103 | |
a Selectquote Inc. | | | United States | | | | 7,618 | | | | 209,647 | |
a,f Trupanion Inc. | | | United States | | | | 9,830 | | | | 296,080 | |
Unum Group | | | United States | | | | 368 | | | | 5,575 | |
Willis Towers Watson PLC | | | United States | | | | 19,968 | | | | 4,051,507 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 4,813,365 | |
| | | | | | | | | | | | |
| | | |
Interactive Media & Services 1.3% | | | | | | | | | | | | |
a Alphabet Inc., A | | | United States | | | | 2,352 | | | | 3,371,639 | |
a Alphabet Inc., C | | | United States | | | | 1,007 | | | | 1,438,922 | |
a,d Facebook Inc., A | | | United States | | | | 23,051 | | | | 5,188,549 | |
Tencent Holdings Ltd. | | | China | | | | 80,157 | | | | 4,243,880 | |
a Zillow Group Inc., C | | | United States | | | | 4,822 | | | | 279,628 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 14,522,618 | |
| | | | | | | | | | | | |
| | | | |
| | | |
20 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares/
Rights | | | Value | |
| | | |
Common Stocks and Other Equity Interests (continued) | | | | | | | | | | | | |
Internet & Direct Marketing Retail 0.8% | | | | | | | | | | | | |
a,d Alibaba Group Holding Ltd., ADR | | | China | | | | 20,565 | | | $ | 4,264,975 | |
a,d Amazon.com Inc. | | | United States | | | | 1,216 | | | | 2,969,922 | |
a Booking Holdings Inc. | | | United States | | | | 118 | | | | 193,451 | |
eBay Inc. | | | United States | | | | 30,047 | | | | 1,368,341 | |
a MercadoLibre Inc. | | | Argentina | | | | 704 | | | | 599,576 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 9,396,265 | |
| | | | | | | | | | | | |
| | | |
IT Services 3.8% | | | | | | | | | | | | |
Accenture PLC, A | | | United States | | | | 50 | | | | 10,081 | |
Automatic Data Processing Inc. | | | United States | | | | 3,079 | | | | 451,043 | |
a Cardtronics PLC, A | | | United States | | | | 7,209 | | | | 174,386 | |
Edenred | | | France | | | | 5,190 | | | | 217,172 | |
a EPAM Systems Inc. | | | United States | | | | 1,542 | | | | 355,647 | |
a ExlService Holdings Inc. | | | United States | | | | 22,547 | | | | 1,379,200 | |
a,d FleetCor Technologies Inc. | | | United States | | | | 10,209 | | | | 2,488,852 | |
Genpact Ltd. | | | United States | | | | 71,570 | | | | 2,572,942 | |
d Global Payments Inc. | | | United States | | | | 35,194 | | | | 6,316,971 | |
a GoDaddy Inc., A | | | United States | | | | 19,473 | | | | 1,504,289 | |
International Business Machines Corp. | | | United States | | | | 2,003 | | | | 250,175 | |
Leidos Holdings Inc. | | | United States | | | | 105 | | | | 11,055 | |
d MasterCard Inc., A | | | United States | | | | 32,105 | | | | 9,660,073 | |
a,c Nexi SpA, 144A | | | Italy | | | | 16,529 | | | | 273,058 | |
Paychex Inc. | | | United States | | | | 146 | | | | 10,553 | |
a,d PayPal Holdings Inc. | | | United States | | | | 38,872 | | | | 6,025,549 | |
a StoneCo. Ltd. | | | Brazil | | | | 21,003 | | | | 665,375 | |
a VeriSign Inc. | | | United States | | | | 6,806 | | | | 1,490,582 | |
d Visa Inc., A | | | United States | | | | 12,996 | | | | 2,537,339 | |
a,d WEX Inc. | | | United States | | | | 14,653 | | | | 2,169,816 | |
Wirecard AG | | | Germany | | | | 33,349 | | | | 3,537,323 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 42,101,481 | |
| | | | | | | | | | | | |
| | | |
Leisure Products 0.0%† | | | | | | | | | | | | |
BRP Inc. | | | Canada | | | | 12,823 | | | | 444,058 | |
| | | | | | | | | | | | |
| | | |
Life Sciences Tools & Services 1.8% | | | | | | | | | | | | |
a,d 10x Genomics Inc., A | �� | | United States | | | | 3,044 | | | | 237,341 | |
Eurofins Scientific SE | | | Luxembourg | | | | 5,072 | | | | 3,448,423 | |
Gerresheimer AG | | | Germany | | | | 45,135 | | | | 3,861,780 | |
a Illumina Inc. | | | United States | | | | 3,583 | | | | 1,300,808 | |
a IQVIA Holdings Inc. | | | United States | | | | 3,878 | | | | 579,839 | |
a Mettler-Toledo International Inc. | | | United States | | | | 3,910 | | | | 3,108,450 | |
a QIAGEN NV | | | Germany | | | | 82,333 | | | | 3,597,865 | |
a Repligen Corp. | | | United States | | | | 5,221 | | | | 683,794 | |
Thermo Fisher Scientific Inc. | | | United States | | | | 6,487 | | | | 2,265,195 | |
a,c Wuxi Biologics Cayman Inc., 144A | | | China | | | | 37,121 | | | | 583,286 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 19,666,781 | |
| | | | | | | | | | | | |
| | | |
Machinery 0.5% | | | | | | | | | | | | |
Cummins Inc. | | | United States | | | | 1,929 | | | | 327,158 | |
d Deere & Co. | | | United States | | | | 15,113 | | | | 2,298,990 | |
Interpump Group SpA | | | Italy | | | | 2,645 | | | | 79,491 | |
a Kion Group AG | | | Germany | | | | 14,025 | | | | 785,173 | |
Otis Worldwide Corp. | | | United States | | | | 3,203 | | | | 168,638 | |
d PACCAR Inc. | | | United States | | | | 8,130 | | | | 600,482 | |
d The Toro Co. | | | United States | | | | 14,041 | | | | 997,894 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 5,257,826 | |
| | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 21 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares/
Rights | | | Value | |
| | | |
Common Stocks and Other Equity Interests (continued) | | | | | | | | | | | | |
| | | |
Marine 0.0%† | | | | | | | | | | | | |
Star Bulk Carriers Corp. | | | Greece | | | | 37,168 | | | $ | 189,185 | |
| | | | | | | | | | | | |
| | | |
Media 0.5% | | | | | | | | | | | | |
a Altice Europe NV, A | | | Netherlands | | | | 7,834 | | | | 30,946 | |
a Cardlytics Inc. | | | United States | | | | 5,843 | | | | 397,850 | |
a Charter Communications Inc., A | | | United States | | | | 2,214 | | | | 1,204,416 | |
b Comcast Corp., A | | | United States | | | | 16,438 | | | | 650,945 | |
ITV PLC | | | United Kingdom | | | | 293,248 | | | | 292,420 | |
a Netflix Inc. | | | United States | | | | 3,510 | | | | 1,473,252 | |
Omnicom Group Inc. | | | United States | | | | 158 | | | | 8,657 | |
a Postmedia Network Canada Corp., B | | | Canada | | | | 666,338 | | | | 938,879 | |
Stroeer SE & Co. KGaA | | | Germany | | | | 4,952 | | | | 360,350 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 5,357,715 | |
| | | | | | | | | | | | |
| | | |
Metals & Mining 0.1% | | | | | | | | | | | | |
Lundin Mining Corp., Common Subscription Receipt | | | Canada | | | | 94,146 | | | | 433,516 | |
b Newmont Mining Corp. | | | United States | | | | 175 | | | | 10,232 | |
Teck Resources Ltd., B | | | Canada | | | | 64,325 | | | | 610,444 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,054,192 | |
| | | | | | | | | | | | |
| | | |
Multiline Retail 0.1% | | | | | | | | | | | | |
Dollar General Corp. | | | United States | | | | 58 | | | | 11,107 | |
d Target Corp. | | | United States | | | | 8,532 | | | | 1,043,720 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,054,827 | |
| | | | | | | | | | | | |
| | | |
Multi-Utilities 0.0%† | | | | | | | | | | | | |
Dominion Energy Inc. | | | United States | | | | 1,969 | | | | 167,385 | |
| | | | | | | | | | | | |
| | | |
Oil, Gas & Consumable Fuels 0.0%† | | | | | | | | | | | | |
a Battalion Oil Corp. | | | United States | | | | 3,790 | | | | 21,944 | |
a,e Bellatrix Exploration Ltd. | | | Canada | | | | 56,646 | | | | — | |
b Enterprise Products Partners LP | | | United States | | | | 645 | | | | 12,320 | |
Equities Corp. | | | United States | | | | 148 | | | | 1,974 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 36,238 | |
| | | | | | | | | | | | |
| | | |
Paper & Forest Products 0.1% | | | | | | | | | | | | |
a,e Topco Associates LLC | | | United Kingdom | | | | 144,632 | | | | — | |
West Fraser Timber Co. Ltd. | | | Canada | | | | 52,179 | | | | 1,412,056 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,412,056 | |
| | | | | | | | | | | | |
| | | |
Personal Products 0.1% | | | | | | | | | | | | |
The Estee Lauder Cos. Inc., A | | | United States | | | | 2,384 | | | | 470,768 | |
Unilever NV | | | United Kingdom | | | | 6,537 | | | | 337,819 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 808,587 | |
| | | | | | | | | | | | |
| | | |
Pharmaceuticals 1.2% | | | | | | | | | | | | |
d AstraZeneca PLC, ADR | | | United Kingdom | | | | 41,505 | | | | 2,266,173 | |
Bristol-Myers Squibb Co. | | | United States | | | | 10,301 | | | | 615,175 | |
a Bristol-Myers Squibb Co., Contingent Value, rts., 1/23/65 | | | United States | | | | 86,733 | | | | 285,352 | |
a,c Cansino Biologics Inc., H, 144A | | | China | | | | 10,750 | | | | 251,571 | |
a Catalent Inc. | | | United States | | | | 4,288 | | | | 333,306 | |
d Eli Lilly & Co., W | | | United States | | | | 14,519 | | | | 2,220,682 | |
Hikma Pharmaceuticals PLC | | | Jordan | | | | 13,950 | | | | 444,304 | |
Johnson & Johnson | | | United States | | | | 1,116 | | | | 166,005 | |
b Merck & Co. Inc. | | | United States | | | | 124 | | | | 10,009 | |
a,d Myokardia Inc. | | | United States | | | | 2,496 | | | | 255,316 | |
Novo Nordisk AS, ADR | | | Denmark | | | | 24,785 | | | | 1,634,323 | |
a,d Pacira Biosciences Inc. | | | United States | | | | 2,600 | | | | 114,270 | |
| | | | |
| | | |
22 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares/
Rights | | | Value | |
| | | |
Common Stocks and Other Equity Interests (continued) | | | | | | | | | | | | |
Pharmaceuticals (continued) | | | | | | | | | | | | |
a Revance Therapeutics Inc. | | | United States | | | | 9,333 | | | $ | 195,060 | |
Roche Holding AG, ADR | | | Switzerland | | | | 24,841 | | | | 1,076,857 | |
Zoetis Inc., A | | | United States | | | | 22,959 | | | | 3,200,255 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 13,068,658 | |
| | | | | | | | | | | | |
| | | |
Professional Services 1.2% | | | | | | | | | | | | |
a CoStar Group Inc. | | | United States | | | | 1,900 | | | | 1,247,920 | |
Equifax Inc. | | | United States | | | | 11,124 | | | | 1,708,201 | |
Experian PLC | | | United Kingdom | | | | 20,041 | | | | 702,885 | |
c Intertrust NV, 144A | | | Netherlands | | | | 307,440 | | | | 4,855,767 | |
SGS SA | | | Switzerland | | | | 163 | | | | 384,564 | |
TransUnion | | | United States | | | | 17,901 | | | | 1,544,677 | |
a,d TriNet Group Inc. | | | United States | | | | 47,025 | | | | 2,526,653 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 12,970,667 | |
| | | | | | | | | | | | |
| | | |
Real Estate Management & Development 0.1% | | | | | | | | | | | | |
Savills PLC | | | United Kingdom | | | | 80,452 | | | | 863,344 | |
| | | | | | | | | | | | |
| | | |
Road & Rail 1.2% | | | | | | | | | | | | |
a,f Avis Budget Group Inc. | | | United States | | | | 27,127 | | | | 584,044 | |
CSX Corp. | | | United States | | | | 45,085 | | | | 3,227,185 | |
d Kansas City Southern | | | United States | | | | 38,236 | | | | 5,755,282 | |
a Uber Technologies Inc. | | | United States | | | | 11,408 | | | | 414,339 | |
d Union Pacific Corp. | | | United States | | | | 23,705 | | | | 4,026,531 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 14,007,381 | |
| | | | | | | | | | | | |
| | | |
Semiconductors & Semiconductor Equipment 1.4% | | | | | | | | | | | | |
a Adesto Technologies Corp. | | | United States | | | | 71,787 | | | | 866,469 | |
a Advanced Micro Devices Inc. | | | United States | | | | 17,706 | | | | 952,583 | |
b Applied Materials Inc. | | | United States | | | | 191 | | | | 10,730 | |
ASM International NV | | | Netherlands | | | | 8,712 | | | | 1,016,166 | |
ASML Holding NV, N.Y. shares, G | | | Netherlands | | | | 6,477 | | | | 2,134,236 | |
a Axcelis Technologies Inc. | | | United States | | | | 28,448 | | | | 763,829 | |
BE Semiconductor Industries NV | | | Netherlands | | | | 53,713 | | | | 2,054,089 | |
Broadcom Inc. | | | United States | | | | 38 | | | | 11,068 | |
a Enphase Energy Inc. | | | United States | | | | 878 | | | | 51,091 | |
Globalwafers Co. Ltd. | | | Taiwan | | | | 76,000 | | | | 915,037 | |
b Intel Corp. | | | United States | | | | 171 | | | | 10,761 | |
KLA Corp. | | | United States | | | | 5,157 | | | | 907,426 | |
LAM Research Corp. | | | United States | | | | 39 | | | | 10,673 | |
a Lattice Semiconductor Corp. | | | United States | | | | 31,024 | | | | 771,567 | |
Marvell Technology Group Ltd. | | | Bermuda | | | | 95,593 | | | | 3,118,244 | |
a Maxlinear Inc., A | | | United States | | | | 16,805 | | | | 291,063 | |
Mediatek Inc. | | | Taiwan | | | | 45,635 | | | | 703,714 | |
a Micron Technology Inc. | | | United States | | | | 22,274 | | | | 1,067,147 | |
NVIDIA Corp. | | | United States | | | | 36 | | | | 12,781 | |
b QUALCOMM Inc. | | | United States | | | | 4,404 | | | | 356,196 | |
Realtek Semiconductor Corp. | | | Taiwan | | | | 58,000 | | | | 499,350 | |
a,c,e,i SunEdison Inc., Contingent Distribution, 144A | | | United States | | | | 35,000 | | | | 700 | |
Texas Instruments Inc. | | | United States | | | | 94 | | | | 11,162 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 16,536,082 | |
| | | | | | | | | | | | |
| | | |
Software 3.0% | | | | | | | | | | | | |
a 8x8 Inc. | | | United States | | | | 24,537 | | | | 356,768 | |
a Adobe Inc. | | | United States | | | | 3,534 | | | | 1,366,244 | |
a Alteryx Inc., A | | | United States | | | | 1,726 | | | | 248,440 | |
a Atlassian Corp. PLC, A | | | United States | | | | 7,338 | | | | 1,359,731 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 23 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares/ Rights | | | Value | |
| | | |
Common Stocks and Other Equity Interests (continued) | | | | | | | | | | | | |
Software (continued) | | | | | | | | | | | | |
a Avalara Inc. | | | United States | | | | 2,899 | | | $ | 310,367 | |
a Ceridian HCM Holding Inc. | | | United States | | | | 14,640 | | | | 1,008,257 | |
a Fair Isaac Corp. | | | United States | | | | 1,182 | | | | 475,932 | |
a Forescout Technologies Inc. | | | United States | | | | 10,899 | | | | 257,107 | |
a Guidewire Software Inc. | | | United States | | | | 13,916 | | | | 1,427,503 | |
a HubSpot Inc. | | | United States | | | | 3,339 | | | | 667,600 | |
Intuit Inc. | | | United States | | | | 11,066 | | | | 3,212,682 | |
d Microsoft Corp. | | | United States | | | | 43,933 | | | | 8,050,723 | |
NortonLifeLock Inc. | | | United States | | | | 519 | | | | 11,823 | |
b Oracle Corp. | | | United States | | | | 190 | | | | 10,216 | |
a Palo Alto Networks Inc. | | | United States | | | | 143 | | | | 33,644 | |
a Q2 Holdings Inc. | | | United States | | | | 3,800 | | | | 313,956 | |
a Rib Software Se | | | Germany | | | | 79,267 | | | | 2,551,721 | |
a,d Salesforce.com Inc. | | | United States | | | | 9,318 | | | | 1,628,693 | |
SAP SE | | | Germany | | | | 20,721 | | | | 2,644,462 | |
a,d ServiceNow Inc. | | | United States | | | | 5,630 | | | | 2,184,046 | |
a Slack Technologies Inc., A | | | United States | | | | 39,178 | | | | 1,373,189 | |
a,d Splunk Inc. | | | United States | | | | 7,349 | | | | 1,365,738 | |
a SVMK Inc. | | | United States | | | | 37,600 | | | | 757,640 | |
a Workday Inc., A | | | United States | | | | 8,091 | | | | 1,484,132 | |
a Zscaler Inc. | | | United States | | | | 4,287 | | | | 420,512 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 33,521,126 | |
| | | | | | | | | | | | |
| | | |
Specialty Retail 2.2% | | | | | | | | | | | | |
Best Buy Co. Inc. | | | United States | | | | 142 | | | | 11,089 | |
a,d Carmax Inc. | | | United States | | | | 22,023 | | | | 1,939,125 | |
f The Children’s Place Inc. | | | United States | | | | 9,000 | | | | 374,760 | |
Dick’s Sporting Goods Inc. | | | United States | | | | 4,669 | | | | 168,364 | |
a Five Below Inc. | | | United States | | | | 4,413 | | | | 461,820 | |
a Frasers Group PLC | | | United Kingdom | | | | 180,900 | | | | 687,057 | |
a,c Grandvision NV, 144A | | | Netherlands | | | | 120 | | | | 3,250 | |
The Home Depot Inc. | | | United States | | | | 29,128 | | | | 7,237,725 | |
b,d L Brands Inc. | | | United States | | | | 37,532 | | | | 607,643 | |
d Lithia Motors Inc., A | | | United States | | | | 14,250 | | | | 1,718,408 | |
Lowe’s Cos. Inc. | | | United States | | | | 47 | | | | 6,126 | |
a O’Reilly Automotive Inc. | | | United States | | | | 4,102 | | | | 1,711,518 | |
b,d Tiffany & Co. | | | United States | | | | 49,430 | | | | 6,333,466 | |
d The TJX Cos. Inc. | | | United States | | | | 13,406 | | | | 707,301 | |
a Ulta Beauty Inc. | | | United States | | | | 12,140 | | | | 2,962,281 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 24,929,933 | |
| | | | | | | | | | | | |
| | | |
Technology Hardware, Storage & Peripherals 0.1% | | | | | | | | | | | | |
Apple Inc. | | | United States | | | | 2,555 | | | | 812,337 | |
b HP Inc. | | | United States | | | | 10,496 | | | | 158,909 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 971,246 | |
| | | | | | | | | | | | |
| | | |
Textiles, Apparel & Luxury Goods 0.5% | | | | | | | | | | | | |
a Adidas AG | | | Germany | | | | 14,357 | | | | 3,807,585 | |
a Capri Holdings Ltd. | | | United States | | | | 36,843 | | | | 554,119 | |
LVMH Moet Hennessy Louis Vuitton SE | | | France | | | | 93 | | | | 39,016 | |
Nike Inc., B | | | United States | | | | 425 | | | | 41,896 | |
a Skechers USA Inc., A | | | United States | | | | 17,246 | | | | 540,145 | |
Tapestry Inc. | | | United States | | | | 34,291 | | | | 466,358 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 5,449,119 | |
| | | | | | | | | | | | |
| | | |
Tobacco 0.0%† | | | | | | | | | | | | |
b Altria Group Inc. | | | United States | | | | 248 | | | | 9,684 | |
| | | | |
| | | |
24 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares/ Rights | | Value | |
| | | |
Common Stocks and Other Equity Interests (continued) | | | | | | | | | | | | |
Tobacco (continued) | | | | | | | | | | | | |
b Philip Morris International Inc. | | | United States | | | | 144 | | | $ | 10,564 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 20,248 | |
| | | | | | | | | | | | |
| | | |
Trading Companies & Distributors 0.4% | | | | | | | | | | | | |
Brenntag AG | | | Germany | | | | 82,514 | | | | 4,390,028 | |
a IMCD Group NV | | | Netherlands | | | | 4,707 | | | | 443,860 | |
a WESCO International Inc. | | | United States | | | | 1,389 | | | | 46,254 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 4,880,142 | |
| | | | | | | | | | | | |
| | | |
Wireless Telecommunication Services 1.0% | | | | | | | | | | | | |
a T-Mobile U.S. Inc. | | | United States | | | | 100,727 | | | | 10,076,729 | |
d Vodafone Group PLC, ADR | | | United Kingdom | | | | 36,378 | | | | 600,601 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 10,677,330 | |
| | | | | | | | | | | | |
Total Common Stocks and Other Equity Interests
(Cost $331,780,157) | | | | | | | | | | | 456,148,623 | |
| | | | | | | | | | | | |
| | | |
Convertible Preferred Stocks 0.5% | | | | | | | | | | | | |
| | | |
Diversified Financial Services 0.4% | | | | | | | | | | | | |
a,e,g One Call Corp., cvt. pfd | | | United States | | | | 33,337 | | | | 3,733,737 | |
| | | | | | | | | | | | |
| | | |
Electric Utilities 0.1% | | | | | | | | | | | | |
d NextEra Energy Inc., 5.279%, cvt. pfd | | | United States | | | | 26,234 | | | | 1,166,364 | |
| | | | | | | | | | | | |
| | | |
Food Products 0.0%† | | | | | | | | | | | | |
Bunge Ltd., 4.875%, cvt. pfd | | | United States | | | | 3,973 | | | | 365,516 | |
| | | | | | | | | | | | |
| | | |
Gas Utilities 0.0%† | | | | | | | | | | | | |
El Paso Energy Capital Trust I, 4.75%, cvt. pfd | | | United States | | | | 114 | | | | 5,309 | |
| | | | | | | | | | | | |
| | | |
Machinery 0.0%† | | | | | | | | | | | | |
Stanley Black & Decker Inc., 5.25%, cvt. pfd | | | United States | | | | 57 | | | | 4,679 | |
| | | | | | | | | | | | |
| | | |
Oil, Gas & Consumable Fuels 0.0%† | | | | | | | | | | | | |
Chesapeake Energy Corp., 5.75%, cvt. pfd | | | United States | | | | 139 | | | | 1,181 | |
| | | | | | | | | | | | |
Total Convertible Preferred Stocks
(Cost $5,758,752) | | | | | | | | | | | 5,276,786 | |
| | | | | | | | | | | | |
| | | |
Preferred Stocks 0.0%† | | | | | | | | | | | | |
| | | |
Electric Utilities 0.0%† | | | | | | | | | | | | |
SCE Trust II, 5.10%, pfd | | | United States | | | | 10,492 | | | | 252,962 | |
SCE Trust VI, 5.00%, pfd | | | United States | | | | 4,649 | | | | 101,627 | |
| | | | | | | | | | | | |
Total Preferred Stocks
(Cost $357,716) | | | | | | | | | | | 354,589 | |
| | | | | | | | | | | | |
| | | |
| | | | | | Principal Amount* | | | |
Convertible Bonds 16.6% | | | | | | | | | | | | |
| | | |
Air Freight & Logistics 0.3% | | | | | | | | | | | | |
d Air Transport Services Group Inc., senior note, 1.125%, 10/15/24 | | | United States | | | | 1,712,000 | | | | 1,619,208 | |
d Atlas Air Worldwide Holdings Inc., senior note, 1.875%, 6/01/24 | | | United States | | | | 2,145,000 | | | | 1,980,365 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 3,599,573 | |
| | | | | | | | | | | | |
| | | |
Airlines 0.1% | | | | | | | | | | | | |
c Air Canada, senior note, 144A, 4.00%, 7/01/25 | | | Canada | | | | 481,000 | | | | 496,031 | |
c Copa Holdings SA, senior note, 144A, 4.50%, 4/15/25 | | | Panama | | | | 641,000 | | | | 645,159 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,141,190 | |
| | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 25 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
| | | | |
Convertible Bonds (continued) | | | | | | | | | | | | | | |
Automobiles 0.1% | | | | | | | | | | | | | | |
c Winnebago Industries Inc., senior note, 144A, 1.50%, 4/01/25 | | | United States | | | | 1,280,000 | | | | | $ | 1,350,323 | |
| | | | | | | | | | | | | | |
| | | | |
Banks 0.1% | | | | | | | | | | | | | | |
Hope Bancorp Inc., senior bond, 2.00%, 5/15/38 | | | United States | | | | 1,491,000 | | | | | | 1,200,255 | |
| | | | | | | | | | | | | | |
| | | | |
Biotechnology 1.5% | | | | | | | | | | | | | | |
c Apellis Pharmaceuticals Inc., senior note, 144A, 3.50%, 9/15/26 | | | United States | | | | 1,021,000 | | | | | | 1,160,873 | |
BioMarin Pharmaceutical Inc., senior sub. note, | | | | | | | | | | | | | | |
f 0.599%, 8/01/24 | | | United States | | | | 320,000 | | | | | | 360,114 | |
c 144A, 1.25%, 5/15/27 | | | United States | | | | 691,000 | | | | | | 741,000 | |
c,d Bridgebio Pharma Inc., senior note, 144A, 2.50%, 3/15/27 | | | United States | | | | 1,845,000 | | | | | | 1,769,510 | |
c,d Coherus Biosciences Inc., senior sub. note, 144A, 1.50%, 4/15/26 | | | United States | | | | 1,663,000 | | | | | | 1,917,188 | |
Cytokinetics Inc., senior note, 4.00%, 11/15/26 | | | United States | | | | 294,000 | | | | | | 622,545 | |
Flexion Therapeutics Inc., senior note, 3.375%, 5/01/24 | | | United States | | | | 1,400,000 | | | | | | 1,088,001 | |
Gossamer Bio Inc., senior note, 5.00%, 6/01/27 | | | United States | | | | 360,000 | | | | | | 345,671 | |
c Halozyme Therapeutics Inc., senior note, 144A, 1.25%, 12/01/24 | | | United States | | | | 797,000 | | | | | | 945,068 | |
Insmed Inc., senior note, 1.75%, 1/15/25 | | | United States | | | | 797,000 | | | | | | 752,635 | |
Intercept Pharmaceuticals Inc., senior note, | | | | | | | | | | | | | | |
3.25%, 7/01/23 | | | United States | | | | 671,000 | | | | | | 575,250 | |
2.00%, 5/15/26 | | | United States | | | | 753,000 | | | | | | 713,402 | |
Ironwood Pharmaceuticals Inc., senior note, | | | | | | | | | | | | | | |
2.25%, 6/15/22 | | | United States | | | | 1,007,000 | | | | | | 1,040,401 | |
c 144A, 1.50%, 6/15/26 | | | United States | | | | 1,114,000 | | | | | | 1,107,080 | |
d Karyopharm Therapeutics Inc., senior note, 3.00%, 10/15/25 | | | United States | | | | 1,020,000 | | | | | | 1,451,305 | |
Neurocrine Biosciences Inc., senior note, 2.25%, 5/15/24 | | | United States | | | | 741,000 | | | | | | 1,243,432 | |
Radius Health Inc., senior note, 3.00%, 9/01/24 | | | United States | | | | 748,000 | | | | | | 536,850 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 16,370,325 | |
| | | | | | | | | | | | | | |
| | | | |
Building Products 0.1% | | | | | | | | | | | | | | |
Patrick Industries Inc., senior note, 1.00%, 2/01/23 | | | United States | | | | 1,354,000 | | | | | | 1,267,096 | |
| | | | | | | | | | | | | | |
| | | | |
Commercial Services & Supplies 0.1% | | | | | | | | | | | | | | |
d Team Inc., senior note, 5.00%, 8/01/23 | | | United States | | | | 1,255,000 | | | | | | 765,948 | |
| | | | | | | | | | | | | | |
| | | | |
Communications Equipment 0.1% | | | | | | | | | | | | | | |
CalAmp Corp., senior note, 2.00%, 8/01/25 | | | United States | | | | 260,000 | | | | | | 186,553 | |
Infinera Corp., senior note, 2.125%, 9/01/24 | | | United States | | | | 719,000 | | | | | | 567,155 | |
Inseego Corp., senior note, 3.25%, 5/01/25 | | | United States | | | | 199,000 | | | | | | 194,741 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 948,449 | |
| | | | | | | | | | | | | | |
| | | | |
Consumer Finance 0.8% | | | | | | | | | | | | | | |
Encore Capital Group Inc., senior note, | | | | | | | | | | | | | | |
2.875%, 3/15/21 | | | United States | | | | 1,297,000 | | | | | | 1,207,439 | |
d 3.25%, 3/15/22 | | | United States | | | | 2,130,000 | | | | | | 2,020,844 | |
c 144A, 3.25%, 10/01/25 | | | United States | | | | 536,000 | | | | | | 522,821 | |
EZCORP Inc., senior note, | | | | | | | | | | | | | | |
2.875%, 7/01/24 | | | United States | | | | 920,000 | | | | | | 782,920 | |
d 2.375%, 5/01/25 | | | United States | | | | 388,000 | | | | | | 282,436 | |
d PRA Group Inc., senior note, | | | | | | | | | | | | | | |
3.00%, 8/01/20 | | | United States | | | | 2,286,000 | | | | | | 2,273,191 | |
3.50%, 6/01/23 | | | United States | | | | 2,151,000 | | | | | | 2,046,246 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | 9,135,897 | |
| | | | | | | | | | | | | | |
| | | | |
Diversified Consumer Services 0.1% | | | | | | | | | | | | | | |
c Sabre Glbl Inc., senior note, 144A, 4.00%, 4/15/25 | | | United States | | | | 1,200,000 | | | | | | 1,373,059 | |
| | | | | | | | | | | | | | |
| | | | |
Diversified Financial Services 0.3% | | | | | | | | | | | | | | |
Element Fleet Management Corp., sub. note, | | | | | | | | | | | | | | |
4.25%, 6/30/20 | | | Canada | | | | 468,000 | | | CAD | | | 339,923 | |
4.25%, 6/30/24 | | | Canada | | | | 853,000 | | | CAD | | | 650,971 | |
| | | | |
| | | |
26 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | | | Value | |
| | | | |
Convertible Bonds (continued) | | | | | | | | | | | | | | | | |
Diversified Financial Services (continued) | | | | | | | | | | | | | | | | |
d Horizon Pharma Investment Ltd., senior note, 2.50%, 3/15/22 | | | United States | | | | 1,040,000 | | | | | | | $ | 1,836,250 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 2,827,144 | |
| | | | | | | | | | | | | | | | |
| | | | |
Diversified Telecommunication Services 0.1% | | | | | | | | | | | | | | | | |
c Bandwidth Inc., senior note, 144A, 0.25%, 3/01/26 | | | United States | | | | 1,044,000 | | | | | | | | 1,387,843 | |
j Telecom Italia SpA, senior note, Reg S, 1.125%, 3/26/22 | | | Italy | | | | 100,000 | | | | EUR | | | | 107,195 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 1,495,038 | |
| | | | | | | | | | | | | | | | |
| | | | |
Electronic Equipment, Instruments & Components 0.8% | | | | | | | | | | | | | | | | |
d II-VI Inc., senior note, 0.25%, 9/01/22 | | | United States | | | | 2,180,000 | | | | | | | | 2,573,782 | |
Knowles Corp., senior note, 3.25%, 11/01/21 | | | United States | | | | 1,422,000 | | | | | | | | 1,522,754 | |
OSI Systems Inc., senior note, 1.25%, 9/01/22 | | | United States | | | | 1,476,000 | | | | | | | | 1,408,352 | |
d TTM Technologies Inc., senior note, 1.75%, 12/15/20 | | | United States | | | | 1,274,000 | | | | | | | | 1,577,824 | |
Vishay Intertechnology Inc., senior note, 2.25%, 6/15/25 | | | United States | | | | 1,440,000 | | | | | | | | 1,322,772 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 8,405,484 | |
| | | | | | | | | | | | | | | | |
| | | | |
Energy Equipment & Services 0.0%† | | | | | | | | | | | | | | | | |
SEACOR Holdings Inc., senior bond, 3.25%, 5/15/30 | | | United States | | | | 245,000 | | | | | | | | 190,216 | |
| | | | | | | | | | | | | | | | |
| | | | |
Entertainment 0.6% | | | | | | | | | | | | | | | | |
c,d Liberty Media Corp., senior bond, 144A, | | | | | | | | | | | | | | | | |
2.25%, 12/01/48 | | | United States | | | | 2,225,000 | | | | | | | | 2,306,013 | |
2.75%, 12/01/49 | | | United States | | | | 2,448,000 | | | | | | | | 2,220,765 | |
c,d Sea Ltd., senior note, 144A, 1.00%, 12/01/24 | | | Taiwan | | | | 1,049,000 | | | | | | | | 1,749,879 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 6,276,657 | |
| | | | | | | | | | | | | | | | |
| | | | |
Equity Real Estate Investment Trusts (REITs) 0.4% | | | | | | | | | | | | | | | | |
c Colliers International Group Inc., senior sub. note, 144A, 4.00%, 6/01/25 | | | Canada | | | | 600,000 | | | | | | | | 695,250 | |
c,d IIP Operating Partnership LP, senior note, 144A, 3.75%, 2/21/24 | | | United States | | | | 2,652,000 | | | | | | | | 3,503,609 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 4,198,859 | |
| | | | | | | | | | | | | | | | |
| | | | |
Food & Staples Retailing 0.1% | | | | | | | | | | | | | | | | |
c The Chefs’ Warehouse Inc., senior note, 144A, 1.875%, 12/01/24 | | | United States | | | | 1,266,000 | | | | | | | | 975,178 | |
| | | | | | | | | | | | | | | | |
| | | | |
Health Care Equipment & Supplies 0.8% | | | | | | | | | | | | | | | | |
d CONMED Corp., senior note, 2.625%, 2/01/24 | | | United States | | | | 1,628,000 | | | | | | | | 1,734,247 | |
c Cryoport Inc., senior note, 144A, 3.00%, 6/01/25 | | | United States | | | | 521,000 | | | | | | | | 625,073 | |
c Envista Holdings Corp., senior note, 144A, 2.375%, 6/01/25 | | | United States | | | | 1,385,000 | | | | | | | | 1,661,496 | |
Nevro Corp., senior note, 2.75%, 4/01/25 | | | United States | | | | 604,000 | | | | | | | | 853,275 | |
c NuVasive Inc., senior note, 144A, 1.00%, 6/01/23 | | | United States | | | | 1,202,000 | | | | | | | | 1,193,955 | |
Wright Medical Group Inc., senior note, 1.625%, 6/15/23 | | | United States | | | | 441,000 | | | | | | | | 456,918 | |
d Wright Medical Group NV, senior note, 2.25%, 11/15/21 | | | United States | | | | 1,309,000 | | | | | | | | 1,839,889 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 8,364,853 | |
| | | | | | | | | | | | | | | | |
| | | | |
Health Care Providers & Services 0.2% | | | | | | | | | | | | | | | | |
c 1life Healthcare Inc., senior note, 144A, 3.00%, 6/15/25 | | | United States | | | | 1,001,000 | | | | | | | | 982,451 | |
c Petiq Inc., senior note, 144A, 4.00%, 6/01/26 | | | United States | | | | 800,000 | | | | | | | | 962,960 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 1,945,411 | |
| | | | | | | | | | | | | | | | |
| | | | |
Health Care Technology 0.3% | | | | | | | | | | | | | | | | |
c Allscripts Healthcare Solutions Inc., senior note, 144A, 0.875%, 1/01/27 | | | United States | | | | 1,224,000 | | | | | | | | 889,835 | |
Evolent Health Inc., senior note, 1.50%, 10/15/25 | | | United States | | | | 524,000 | | | | | | | | 340,285 | |
c Health Catalyst Inc., senior note, 144A, 2.50%, 4/15/25 | | | United States | | | | 801,000 | | | | | | | | 873,322 | |
c Tabula Rasa Healthcare Inc., senior sub. note, 144A, 1.75%, 2/15/26 | | | United States | | | | 1,682,000 | | | | | | | | 1,688,571 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 3,792,013 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 27 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
| | | |
Convertible Bonds (continued) | | | | | | | | | | | | |
Hotels, Restaurants & Leisure 1.1% | | | | | | | | | | | | |
c Bloomin’ Brands Inc., senior note, 144A, 5.00%, 5/01/25 | | | United States | | | | 400,000 | | | $ | 475,049 | |
c,d Carnival Corp., senior note, 144A, 5.75%, 4/01/23 | | | United States | | | | 3,600,000 | | | | 5,922,000 | |
c,d Luckin Coffee Inc., senior note, 144A, 0.75%, 1/15/25 | | | China | | | | 840,000 | | | | 222,921 | |
d Marriott Vacations Worldwide Corp., senior note, 1.50%, 9/15/22 | | | United States | | | | 1,897,000 | | | | 1,748,806 | |
c NCL Corp. Ltd., senior note, 144A, 6.00%, 5/15/24 | | | United States | | | | 1,201,000 | | | | 1,554,098 | |
d Penn National Gaming Inc., senior note, 2.75%, 5/15/26 | | | United States | | | | 1,600,000 | | | | 2,501,658 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 12,424,532 | |
| | | | | | | | | | | | |
| | | |
Interactive Media & Services 0.3% | | | | | | | | | | | | |
c Joyy Inc., senior note, 144A, 0.75%, 6/15/25 | | | China | | | | 800,000 | | | | 701,500 | |
Twitter Inc., senior note, 0.25%, 6/15/24 | | | United States | | | | 198,000 | | | | 189,327 | |
Zillow Group Inc., senior note, | | | | | | | | | | | | |
1.50%, 7/01/23 | | | United States | | | | 680,000 | | | | 694,008 | |
c,d 144A, 0.75%, 9/01/24 | | | United States | | | | 1,048,000 | | | | 1,509,779 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 3,094,614 | |
| | | | | | | | | | | | |
| | | |
Internet & Direct Marketing Retail 0.4% | | | | | | | | | | | | |
c Booking Holdings Inc., senior note, 144A, 0.75%, 5/01/25 | | | United States | | | | 81,000 | | | | 100,383 | |
c Farfetch Ltd., senior note, 144A, 3.75%, 5/01/27 | | | United Kingdom | | | | 1,120,000 | | | | 1,270,432 | |
Wayfair Inc., senior note, | | | | | | | | | | | | |
d 0.375%, 9/01/22 | | | United States | | | | 1,178,000 | | | | 1,981,199 | |
1.125%, 11/01/24 | | | United States | | | | 800,000 | | | | 1,263,341 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 4,615,355 | |
| | | | | | | | | | | | |
| | | |
Internet Software & Services 0.3% | | | | | | | | | | | | |
c,d IAC Financeco Inc., 144A, 0.875%, 10/01/22 | | | United States | | | | 1,938,000 | | | | 3,515,889 | |
| | | | | | | | | | | | |
| | | |
IT Services 0.7% | | | | | | | | | | | | |
c Akamai Technologies Inc., senior note, 144A, 0.375%, 9/01/27 | | | United States | | | | 15,000 | | | | 16,447 | |
d Cardtronics Inc., senior note, 1.00%, 12/01/20 | | | United States | | | | 3,445,000 | | | | 3,352,449 | |
d CSG Systems International Inc., senior bond, 4.25%, 3/15/36 | | | United States | | | | 1,529,000 | | | | 1,633,885 | |
d KBR Inc., senior note, 2.50%, 11/01/23 | | | United States | | | | 1,587,000 | | | | 1,808,756 | |
Perficient Inc., senior note, 2.375%, 9/15/23 | | | United States | | | | 572,000 | | | | 629,545 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 7,441,082 | |
| | | | | | | | | | | | |
| | | |
Life Sciences Tools & Services 0.2% | | | | | | | | | | | | |
c Nanostring Technologies Inc., senior note, 144A, 2.625%, 3/01/25 | | | United States | | | | 936,000 | | | | 889,200 | |
Repligen Corp., senior note, 0.375%, 7/15/24 | | | United States | | | | 753,000 | | | | 974,850 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,864,050 | |
| | | | | | | | | | | | |
| | | |
Machinery 0.1% | | | | | | | | | | | | |
c Chart Industries Inc., senior sub. note, 144A, 1.00%, 11/15/24 | | | United States | | | | 560,000 | | | | 522,938 | |
The Greenbrier Cos. Inc., senior note, 2.875%, 2/01/24 | | | United States | | | | 853,000 | | | | 697,275 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,220,213 | |
| | | | | | | | | | | | |
| | | |
Media 0.7% | | | | | | | | | | | | |
DISH Network Corp., | | | | | | | | | | | | |
senior bond, 3.375%, 8/15/26 | | | United States | | | | 325,000 | | | | 287,186 | |
senior note, 2.375%, 3/15/24 | | | United States | | | | 395,000 | | | | 341,428 | |
Liberty Interactive LLC, | | | | | | | | | | | | |
senior bond, 4.00%, 11/15/29 | | | United States | | | | 1,249,000 | | | | 839,953 | |
senior note, 3.75%, 2/15/30 | | | United States | | | | 642,000 | | | | 429,338 | |
c Liberty Latin America Ltd., senior note, 144A, 2.00%, 7/15/24 | | | Chile | | | | 1,882,000 | | | | 1,460,902 | |
Live Nation Entertainment Inc., senior note, | | | | | | | | | | | | |
d 2.50%, 3/15/23 | | | United States | | | | 1,750,000 | | | | 1,789,748 | |
c 144A, 2.00%, 2/15/25 | | | United States | | | | 358,000 | | | | 300,187 | |
| | | | |
| | | |
28 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | | | Value | |
| | | | |
Convertible Bonds (continued) | | | | | | | | | | | | | | | | |
Media (continued) | | | | | | | | | | | | | | | | |
c Snap Inc., senior note, 144A, | | | | | | | | | | | | | | | | |
d 0.25%, 5/01/25 | | | United States | | | | 1,800,000 | | | | | | | $ | 1,975,040 | |
0.75%, 8/01/26 | | | United States | | | | 800,000 | | | | | | | | 857,529 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 8,281,311 | |
| | | | | | | | | | | | | | | | |
| | | | |
Metals & Mining 0.4% | | | | | | | | | | | | | | | | |
Cleveland-Cliffs Inc., senior note, 1.50%, 1/15/25 | | | United States | | | | 41,000 | | | | | | | | 34,157 | |
c Endeavour Mining Corp., senior note, 144A, 3.00%, 2/15/23 | | | Ivory Coast | | | | 700,000 | | | | | | | | 827,750 | |
First Majestic Silver Corp., senior note, 1.875%, 3/01/23 | | | Canada | | | | 1,076,000 | | | | | | | | 1,338,329 | |
Pretium Resources Inc., senior sub. note, 2.25%, 3/15/22 | | | Canada | | | | 1,303,000 | | | | | | | | 1,241,107 | |
SSR Mining Inc., senior bond, 2.50%, 4/01/39 | | | Canada | | | | 605,000 | | | | | | | | 772,509 | |
c U.S. Steel Corp., senior note, 144A, 5.00%, 11/01/26 | | | United States | | | | 121,000 | | | | | | | | 91,119 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 4,304,971 | |
| | | | | | | | | | | | | | | | |
| | | | |
Mortgage Real Estate Investment Trusts (REITs) 0.4% | | | | | | | | | | | | | | | | |
c,d Arbor Realty Trust Inc., senior note, 144A, 4.75%, 11/01/22 | | | United States | | | | 1,744,000 | | | | | | | | 1,443,160 | |
c PennyMac Corp., senior note, 144A, 5.50%, 11/01/24 | | | United States | | | | 1,574,000 | | | | | | | | 1,192,553 | |
Redwood Trust Inc., senior note, 4.75%, 8/15/23 | | | United States | | | | 2,418,000 | | | | | | | | 1,997,039 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 4,632,752 | |
| | | | | | | | | | | | | | | | |
| | | | |
Oil, Gas & Consumable Fuels 0.3% | | | | | | | | | | | | | | | | |
Chesapeake Energy Corp., senior note, 5.50%, 9/15/26 | | | United States | | | | 95,000 | | | | | | | | 3,563 | |
c Pioneer Natural Resources Co., senior note, 144A, 0.25%, 5/15/25 | | | United States | | | | 1,599,000 | | | | | | | | 1,743,134 | |
d Ship Finance International Ltd., senior note, 5.75%, 10/15/21 | | | Norway | | | | 1,752,000 | | | | | | | | 1,635,316 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 3,382,013 | |
| | | | | | | | | | | | | | | | |
| | | | |
Personal Products 0.2% | | | | | | | | | | | | | | | | |
d Herbalife Nutrition Ltd., senior note, 2.625%, 3/15/24 | | | United States | | | | 2,623,000 | | | | | | | | 2,566,909 | |
| | | | | | | | | | | | | | | | |
| | | | |
Pharmaceuticals 1.0% | | | | | | | | | | | | | | | | |
c Aerie Pharmaceuticals Inc., senior note, 144A, 1.50%, 10/01/24 | | | United States | | | | 1,294,000 | | | | | | | | 1,165,461 | |
c Aphria Inc., senior note, 144A, 5.25%, 6/01/24 | | | Canada | | | | 2,662,000 | | | | | | | | 1,900,003 | |
Aurora Cannabis Inc., senior note, 5.50%, 2/28/24 | | | Canada | | | | 3,230,000 | | | | | | | | 1,647,300 | |
c Canopy Growth Corp., senior note, 144A, 4.25%, 7/15/23 | | | Canada | | | | 2,115,000 | | | | CAD | | | | 1,228,892 | |
Collegium Pharmaceutical Inc., senior note, 2.625%, 2/15/26 | | | United States | | | | 732,000 | | | | | | | | 742,662 | |
d Innoviva Inc., sub. note, 2.125%, 1/15/23 | | | United States | | | | 1,496,000 | | | | | | | | 1,468,419 | |
Pacira Biosciences Inc., senior note, 2.375%, 4/01/22 | | | United States | | | | 542,000 | | | | | | | | 560,765 | |
c Revance Therapeutics Inc., senior note, 144A, 1.75%, 2/15/27 | | | United States | | | | 885,000 | | | | | | | | 765,853 | |
Theravance Biopharma Inc., senior note, 3.25%, 11/01/23 | | | United States | | | | 831,000 | | | | | | | | 855,930 | |
Tilray Inc., senior note, 5.00%, 10/01/23 | | | Canada | | | | 2,115,000 | | | | | | | | 909,450 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 11,244,735 | |
| | | | | | | | | | | | | | | | |
| | | | |
Real Estate Management & Development 0.1% | | | | | | | | | | | | | | | | |
d Redfin Corp., senior note, 1.75%, 7/15/23 | | | United States | | | | 1,181,000 | | | | | | | | 1,416,446 | |
| | | | | | | | | | | | | | | | |
| | | | |
Semiconductors & Semiconductor Equipment 0.4% | | | | | | | | | | | | | | | | |
c Impinj Inc., senior note, 144A, 2.00%, 12/15/26 | | | United States | | | | 561,000 | | | | | | | | 562,744 | |
d Microchip Technology Inc., senior sub. bond, 1.625%, 2/15/27 | | | United States | | | | 1,311,000 | | | | | | | | 1,767,960 | |
Rambus Inc., senior note, 1.375%, 2/01/23 | | | United States | | | | 203,000 | | | | | | | | 212,832 | |
c SMART Global Holdings Inc., senior note, 144A, 2.25%, 2/15/26 | | | United States | | | | 1,311,000 | | | | | | | | 1,167,888 | |
Synaptics Inc., senior note, 0.50%, 6/15/22 | | | United States | | | | 949,000 | | | | | | | | 1,035,969 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 4,747,393 | |
| | | | | | | | | | | | | | | | |
| | | | |
Software 2.4% | | | | | | | | | | | | | | | | |
8x8 Inc., senior note, 0.50%, 2/01/24 | | | United States | | | | 1,247,000 | | | | | | | | 1,086,294 | |
c Alteryx Inc., senior note, 144A, 0.50%, 8/01/24 | | | United States | | | | 1,355,000 | | | | | | | | 1,425,073 | |
Avaya Holdings Corp., senior note, 2.25%, 6/15/23 | | | United States | | | | 1,789,000 | | | | | | | | 1,585,272 | |
c Blackline Inc., senior note, 144A, 0.125%, 8/01/24 | | | United States | | | | 820,000 | | | | | | | | 982,086 | |
c Cloudflare Inc., senior note, 144A, 0.75%, 5/15/25 | | | United States | | | | 200,000 | | | | | | | | 212,885 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 29 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
| | | |
Convertible Bonds (continued) | | | | | | | | | | | | |
Software (continued) | | | | | | | | | | | | |
c,d Coupa Software Inc., senior note, 144A, 0.125%, 6/15/25 | | | United States | | | | 1,275,000 | | | $ | 1,962,029 | |
Envestnet Inc., senior note, 1.75%, 6/01/23 | | | United States | | | | 482,000 | | | | 591,007 | |
c,d Everbridge Inc., senior note, 144A, 0.125%, 12/15/24 | | | United States | | | | 1,178,000 | | | | 1,666,172 | |
c Five9 Inc., senior note, 144A, 0.50%, 6/01/25 | | | United States | | | | 1,472,000 | | | | 1,530,418 | |
c I3 Verticals LLC, senior note, 144A, 1.00%, 2/15/25 | | | United States | | | | 1,005,000 | | | | 946,049 | |
c J2 Global Inc., senior note, 144A, 1.75%, 11/01/26 | | | United States | | | | 612,000 | | | | 556,590 | |
c LivePerson Inc., senior note, 144A, 0.75%, 3/01/24 | | | United States | | | | 1,531,000 | | | | 1,818,785 | |
d Nuance Communications Inc., senior bond, 1.00%, 12/15/35 | | | United States | | | | 2,410,000 | | | | 2,650,021 | |
Nutanix Inc., senior note, zero cpn., 1/15/23 | | | United States | | | | 790,000 | | | | 700,717 | |
d Palo Alto Networks Inc., senior note, 0.75%, 7/01/23 | | | United States | | | | 1,580,000 | | | | 1,748,290 | |
d Pluralsight Inc., senior note, 0.375%, 3/01/24 | | | United States | | | | 1,573,000 | | | | 1,406,891 | |
c PROS Holdings Inc., senior note, 144A, 1.00%, 5/15/24 | | | United States | | | | 846,000 | | | | 782,455 | |
d Rapid7 Inc., senior note, 1.25%, 8/01/23 | | | United States | | | | 930,000 | | | | 1,213,631 | |
c SailPoint Technologies Holding Inc., senior note, 144A, 0.125%, 9/15/24 | | | United States | | | | 998,000 | | | | 1,037,300 | |
c Slack Technologies Inc., senior note, 144A, 0.50%, 4/15/25 | | | United States | | | | 1,219,000 | | | | 1,594,604 | |
c Varonis Systems Inc., senior note, 144A, 1.25%, 8/15/25 | | | United States | | | | 397,000 | | | | 445,842 | |
c Workiva Inc., senior note, 144A, 1.125%, 8/15/26 | | | United States | | | | 683,000 | | | | 582,581 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 26,524,992 | |
| | | | | | | | | | | | |
| | | |
Specialty Retail 0.4% | | | | | | | | | | | | |
c American Eagle Outfitters Inc., senior note, 144A, 3.75%, 4/15/25 | | | United States | | | | 1,180,000 | | | | 1,457,099 | |
c National Vision Holdings Inc., senior note, 144A, 2.50%, 5/15/25 | | | United States | | | | 1,017,000 | | | | 1,100,493 | |
c RH, senior note, 144A, zero cpn., 9/15/24 | | | United States | | | | 1,440,000 | | | | 1,682,044 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 4,239,636 | |
| | | | | | | | | | | | |
| | | |
Technology Hardware, Storage & Peripherals 0.1% | | | | | | | | | | | | |
Pure Storage Inc., senior note, 0.125%, 4/15/23 | | | United States | | | | 966,000 | | | | 955,300 | |
Western Digital Corp., senior note, 1.50%, 2/01/24 | | | United States | | | | 498,000 | | | | 463,132 | |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | 1,418,432 | |
| | | | | | | | | | | | |
| | | |
Textiles, Apparel & Luxury Goods 0.0%† | | | | | | | | | | | | |
c Under Armour Inc., senior note, 144A, 1.50%, 6/01/24 | | | United States | | | | 280,000 | | | | 292,067 | |
| | | | | | | | | | | | |
| | | |
Tobacco 0.1% | | | | | | | | | | | | |
c Turning Point Brands Inc., senior note, 144A, 2.50%, 7/15/24 | | | United States | | | | 2,018,000 | | | | 1,552,331 | |
| | | | | | | | | | | | |
| | | |
Trading Companies & Distributors 0.1% | | | | | | | | | | | | |
d Kaman Corp., senior note, 3.25%, 5/01/24 | | | United States | | | | 1,573,000 | | | | 1,488,668 | |
| | | | | | | | | | | | |
| | | |
Total Convertible Bonds (Cost $182,018,564) | | | | | | | | | | | 185,891,359 | |
| | | | | | | | | | | | |
Corporate Bonds and Notes 8.0% | | | | | | | | | | | | |
Aerospace & Defense 0.3% | | | | | | | | | | | | |
The Boeing Co., | | | | | | | | | | | | |
senior bond, 2.25%, 6/15/26 | | | United States | | | | 115,000 | | | | 107,160 | |
senior bond, 2.95%, 2/01/30 | | | United States | | | | 50,000 | | | | 47,703 | |
senior bond, 3.25%, 2/01/35 | | | United States | | | | 5,000 | | | | 4,331 | |
senior bond, 3.55%, 3/01/38 | | | United States | | | | 5,000 | | | | 4,108 | |
senior bond, 3.50%, 3/01/39 | | | United States | | | | 5,000 | | | | 4,219 | |
senior bond, 3.625%, 3/01/48 | | | United States | | | | 5,000 | | | | 4,200 | |
senior bond, 3.75%, 2/01/50 | | | United States | | | | 15,000 | | | | 13,093 | |
senior bond, 5.805%, 5/01/50 | | | United States | | | | 230,000 | | | | 260,925 | |
senior bond, 3.95%, 8/01/59 | | | United States | | | | 115,000 | | | | 105,793 | |
senior note, 2.70%, 5/01/22 | | | United States | | | | 375,000 | | | | 376,839 | |
senior note, 5.15%, 5/01/30 | | | United States | | | | 230,000 | | | | 246,072 | |
Embraer Netherlands Finance BV, senior bond, 5.05%, 6/15/25 | | | Brazil | | | | 85,000 | | | | 77,677 | |
c Leonardo US Holdings Inc., senior bond, 144A, 6.25%, 1/15/40 | | | Italy | | | | 236,000 | | | | 259,600 | |
c Rolls-Royce PLC, senior note, 144A, 2.375%, 10/14/20 | | | United Kingdom | | | | 400,000 | | | | 398,525 | |
| | | | |
| | | |
30 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
| | | | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | | | |
Aerospace & Defense (continued) | | | | | | | | | | | | | | | | |
Spirit Aerosystems Inc., | | | | | | | | | | | | | | | | |
senior bond, 4.60%, 6/15/28 | | | United States | | | | 20,000 | | | | | | | $ | 16,000 | |
c secured note, 144A, 7.50%, 4/15/25 | | | United States | | | | 380,000 | | | | | | | | 379,764 | |
c TransDigm Inc., senior secured note, 144A, | | | | | | | | | | | | | | | | |
8.00%, 12/15/25 | | | United States | | | | 348,000 | | | | | | | | 377,580 | |
6.25%, 3/15/26 | | | United States | | | | 280,000 | | | | | | | | 286,955 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 2,970,544 | |
| | | | | | | | | | | | | | | | |
| | | | |
Airlines 0.1% | | | | | | | | | | | | | | | | |
Southwest Airlines Co., senior note, | | | | | | | | | | | | | | | | |
4.75%, 5/04/23 | | | United States | | | | 79,000 | | | | | | | | 80,134 | |
5.25%, 5/04/25 | | | United States | | | | 235,000 | | | | | | | | 238,297 | |
United Airlines Holdings Inc., senior note, 4.25%, 10/01/22 | | | United States | | | | 133,000 | | | | | | | | 106,941 | |
United Airlines Pass-Through Trust, 2019-2, B, 3.50%, 5/01/28 | | | United States | | | | 410,000 | | | | | | | | 266,772 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 692,144 | |
| | | | | | | | | | | | | | | | |
| | | | |
Auto Components 0.1% | | | | | | | | | | | | | | | | |
c,d Delphi Technologies PLC, senior note, 144A, 5.00%, 10/01/25 | | | United States | | | | 768,000 | | | | | | | | 795,168 | |
The Goodyear Tire & Rubber Co., senior bond, | | | | | | | | | | | | | | | | |
5.00%, 5/31/26 | | | United States | | | | 204,000 | | | | | | | | 189,156 | |
4.875%, 3/15/27 | | | United States | | | | 75,000 | | | | | | | | 69,201 | |
c Tenneco Inc., senior secured note, 144A, 4.875%, 4/15/22 | | | United States | | | | 225,000 | | | | EUR | | | | 207,794 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 1,261,319 | |
| | | | | | | | | | | | | | | | |
| | | | |
Automobiles 0.4% | | | | | | | | | | | | | | | | |
c Daimler Finance North America LLC, senior note, 144A, 3.40%, 2/22/22 | | | Germany | | | | 385,000 | | | | | | | | 392,915 | |
Ford Motor Co., | | | | | | | | | | | | | | | | |
senior bond, 9.625%, 4/22/30 | | | United States | | | | 55,000 | | | | | | | | 61,188 | |
senior note, 8.50%, 4/21/23 | | | United States | | | | 220,000 | | | | | | | | 229,009 | |
senior note, 9.00%, 4/22/25 | | | United States | | | | 260,000 | | | | | | | | 274,300 | |
Ford Motor Credit Co. LLC, senior note, 1.514%, 2/17/23 | | | United States | | | | 110,000 | | | | EUR | | | | 114,424 | |
General Motors Co., senior note, 6.80%, 10/01/27 | | | United States | | | | 40,000 | | | | | | | | 45,523 | |
General Motors Financial Co. Inc., senior note, | | | | | | | | | | | | | | | | |
kFRN, 2.17%, (3-Month USD LIBOR + 0.85%), 4/09/21 | | | United States | | | | 275,000 | | | | | | | | 267,844 | |
jReg S, 1.694%, 3/26/25 | | | United States | | | | 430,000 | | | | EUR | | | | 443,355 | |
jReg S, 2.20%, 4/01/24 | | | United States | | | | 405,000 | | | | EUR | | | | 437,712 | |
c Hyundai Capital America, senior note, 144A, | | | | | | | | | | | | | | | | |
3.95%, 2/01/22 | | | United States | | | | 375,000 | | | | | | | | 381,330 | |
2.375%, 2/10/23 | | | United States | | | | 170,000 | | | | | | | | 168,042 | |
c Nissan Motor Acceptance Corp., senior note, 144A, 3.65%, 9/21/21 | | | United States | | | | 375,000 | | | | | | | | 364,915 | |
c Tesla Inc., senior note, 144A, 5.30%, 8/15/25 | | | United States | | | | 172,000 | | | | | | | | 172,535 | |
Toyota Motor Credit Corp., senior note, | | | | | | | | | | | | | | | | |
3.05%, 1/08/21 | | | United States | | | | 325,000 | | | | | | | | 329,613 | |
kFRN, 1.677%, (3-Month USD LIBOR + 0.29%), 10/07/21 | | | United States | | | | 415,000 | | | | | | | | 413,049 | |
c Volkswagen Group of America Finance LLC, senior note, 144A, | | | | | | | | | | | | | | | | |
3.35%, 5/13/25 | | | Germany | | | | 200,000 | | | | | | | | 208,604 | |
kFRN, 2.064%, (3-Month USD LIBOR + 0.86%), 9/24/21 | | | Germany | | | | 410,000 | | | | | | | | 404,246 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 4,708,604 | |
| | | | | | | | | | | | | | | | |
| | | | |
Banks 0.3% | | | | | | | | | | | | | | | | |
c,cc Banco Macro SA, senior note, 144A, 17.50%, 5/08/22 | | | Argentina | | | | 1,740,000 | | | | ARS | | | | 9,116 | |
k Citigroup Inc., senior note, FRN, 0.926%, (SOFR + 0.87%), 11/04/22 | | | United States | | | | 205,000 | | | | | | | | 202,519 | |
k Mitsubishi UFJ Financial Group Inc., senior note, FRN, 1.641%, (3-Month USD LIBOR + 0.65%), 7/26/21 | | | Japan | | | | 380,000 | | | | | | | | 379,414 | |
k PNC Bank NA, senior note, FRN, 1.548%, (3-Month USD LIBOR + 0.45%), 7/22/22 | | | United States | | | | 835,000 | | | | | | | | 832,233 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 31 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| | | | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | | | |
Banks (continued) | | | | | | | | | | | | | | | | |
c,k Standard Chartered PLC, senior bond, 144A, FRN, 4.644%, (US 5 Year CMT T-Note + 3.85%), 4/01/31 | | | United Kingdom | | | | 200,000 | | | | | | | $ | 224,402 | |
j,l VTB Bank OJSC Via VTB Capital SA, loan participation, sub. senior note, Reg S, 6.95%, 10/17/22 | | | Russia | | | | 759,000 | | | | | | | | 808,940 | |
k Wells Fargo & Co., senior note, FRN, 1.378%, (3-Month USD LIBOR + 0.93%), 2/11/22 | | | United States | | | | 495,000 | | | | | | | | 495,112 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 2,951,736 | |
| | | | | | | | | | | | | | | | |
| | | | |
Beverages 0.0%† | | | | | | | | | | | | | | | | |
Anheuser-Busch Cos. LLC / Anheuser-Busch InBev Worldwide Inc., senior bond, 4.90%, 2/01/46 | | | Belgium | | | | 30,000 | | | | | | | | 34,894 | |
Anheuser-Busch InBev Worldwide Inc., senior bond, | | | | | | | | | | | | | | | | |
4.60%, 4/15/48 | | | Belgium | | | | 60,000 | | | | | | | | 66,923 | |
4.50%, 6/01/50 | | | Belgium | | | | 350,000 | | | | | | | | 392,805 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 494,622 | |
| | | | | | | | | | | | | | | | |
| | | | |
Biotechnology 0.0%† | | | | | | | | | | | | | | | | |
c,k AbbVie Inc., senior note, 144A, FRN, 1.024%, (3-Month USD LIBOR + 0.65%), 11/21/22 | | | United States | | | | 415,000 | | | | | | | | 411,864 | |
| | | | | | | | | | | | | | | | |
| | | | |
Building Products 0.0%† | | | | | | | | | | | | | | | | |
c Builders FirstSource Inc., senior secured note, 144A, 6.75%, 6/01/27 | | | United States | | | | 205,000 | | | | | | | | 216,492 | |
| | | | | | | | | | | | | | | | |
| | | | |
Capital Markets 0.2% | | | | | | | | | | | | | | | | |
Ares Capital Corp., senior note, 3.25%, 7/15/25 | | | United States | | | | 420,000 | | | | | | | | 382,464 | |
eG Global Finance PLC, senior secured note, | | | | | | | | | | | | | | | | |
c144A, 4.375%, 2/07/25 | | | United Kingdom | | | | 100,000 | | | | EUR | | | | 105,089 | |
c144A, 6.25%, 10/30/25 | | | United Kingdom | | | | 144,000 | | | | EUR | | | | 160,057 | |
jReg S, 6.25%, 10/30/25 | | | United Kingdom | | | | 418,000 | | | | EUR | | | | 464,611 | |
Jefferies Group LLC, senior bond, 5.125%, 1/20/23 | | | United States | | | | 355,000 | | | | | | | | 382,177 | |
c,m MSCI Inc., senior bond, 144A, 3.625%, 9/01/30 | | | United States | | | | 345,000 | | | | | | | | 354,003 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 1,848,401 | |
| | | | | | | | | | | | | | | | |
| | | | |
Chemicals 0.0%† | | | | | | | | | | | | | | | | |
j Monitchem Holdco 3 SA, senior secured note, Reg S, 5.25%, 3/15/25 | | | Luxembourg | | | | 100,000 | | | | EUR | | | | 112,434 | |
c TPC Group Inc., senior secured note, 144A, 10.50%, 8/01/24 | | | United States | | | | 222,000 | | | | | | | | 190,943 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 303,377 | |
| | | | | | | | | | | | | | | | |
| | | | |
Commercial Services & Supplies 0.8% | | | | | | | | | | | | | | | | |
R.R. Donnelley & Sons Co., senior bond, 6.00%, 4/01/24 | | | United States | | | | 1,615,000 | | | | | | | | 1,491,687 | |
United Rentals North America Inc., senior bond, 4.00%, 7/15/30 | | | United States | | | | 715,000 | | | | | | | | 697,793 | |
c Vericast Corp., 144A, | | | | | | | | | | | | | | | | |
senior note, 9.25%, 3/01/21 | | | United States | | | | 5,680,500 | | | | | | | | 5,669,849 | |
senior secured note, 8.375%, 8/15/22 | | | United States | | | | 2,058,000 | | | | | | | | 1,571,314 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 9,430,643 | |
| | | | | | | | | | | | | | | | |
| | | | |
Communications Equipment 0.1% | | | | | | | | | | | | | | | | |
cCommScope Inc., senior secured note, 144A, 6.00%, 3/01/26 | | | United States | | | | 190,000 | | | | | | | | 200,242 | |
j Nokia OYJ, E, senior note, Reg S, 2.00%, 3/11/26 | | | Finland | | | | 100,000 | | | | EUR | | | | 109,139 | |
c Riverbed Technology Inc., senior note, 144A, 8.875%, 3/01/23 | | | United States | | | | 331,000 | | | | | | | | 198,600 | |
c,l VF Ukraine PAT via VFU Funding PLC, loan participation, sub. senior note, 144A, 6.20%, 2/11/25 | | | Ukraine | | | | 200,000 | | | | | | | | 197,000 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | 704,981 | |
| | | | | | | | | | | | | | | | |
| | | | |
Construction & Engineering 0.0%† | | | | | | | | | | | | | | | | |
j GMR Hyderabad International Airport Ltd., senior secured note, Reg S, 5.375%, 4/10/24 | | | India | | | | 200,000 | | | | | | | | 181,056 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
32 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| | | | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | | | |
Construction Materials 0.0%† | | | | | | | | | | | | | | | | |
c The Azek Co. LLC, senior note, 144A, 9.50%, 5/15/25 | | | United States | | | | 150,000 | | | | | | | $ | 161,250 | |
Vulcan Materials Co., senior bond, 3.50%, 6/01/30 | | | United States | | | | 55,000 | | | | | | | | 57,992 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 219,242 | |
| | | | | | | | | | | | | | | | |
| | | | |
Consumer Finance 0.1% | | | | | | | | | | | | | | | | |
Ally Financial Inc., | | | | | | | | | | | | | | | | |
senior bond, 4.625%, 3/30/25 | | | United States | | | | 35,000 | | | | | | | | 36,141 | |
sub. bond, 5.75%, 11/20/25 | | | United States | | | | 105,000 | | | | | | | | 109,528 | |
senior note, 5.80%, 5/01/25 | | | United States | | | | 295,000 | | | | | | | | 323,975 | |
Springleaf Finance Corp., | | | | | | | | | | | | | | | | |
senior bond, 5.375%, 11/15/29 | | | United States | | | | 60,000 | | | | | | | | 53,329 | |
senior note, 8.875%, 6/01/25 | | | United States | | | | 485,000 | | | | | | | | 505,613 | |
senior note, 6.625%, 1/15/28 | | | United States | | | | 45,000 | | | | | | | | 43,079 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 1,071,665 | |
| | | | | | | | | | | | | | | | |
| | | | |
Distributors 0.1% | | | | | | | | | | | | | | | | |
c,n American News Co. LLC, secured note, senior note, 144A, PIK, 8.50%, 9/01/26 | | | United States | | | | 755,223 | | | | | | | | 825,432 | |
| | | | | | | | | | | | | | | | |
| | | | |
Diversified Consumer Services 0.0%† | | | | | | | | | | | | | | | | |
c Sabre Glbl Inc., senior secured note, 144A, 9.25%, 4/15/25 | | | United States | | | | 35,000 | | | | | | | | 37,363 | |
| | | | | | | | | | | | | | | | |
| | | | |
Diversified Financial Services 0.7% | | | | | | | | | | | | | | | | |
c,k,cc Banco Supervielle SA, senior note, 144A, FRN, 24.833%, (ARS BADLAR + 4.50%), 8/09/20 | | | Argentina | | | | 1,900,000 | | | | ARS | | | | 15,564 | |
j CFLD Cayman Investment Ltd., senior note, Reg S, 8.60%, 4/08/24 | | | China | | | | 200,000 | | | | | | | | 187,000 | |
j FCE Bank PLC, senior note, Reg S, | | | | | | | | | | | | | | | | |
E, 1.875%, 6/24/21 | | | United Kingdom | | | | 255,000 | | | | EUR | | | | 275,533 | |
E, 0.869%, 9/13/21 | | | United Kingdom | | | | 395,000 | | | | EUR | | | | 419,504 | |
c Financiera de Desarrollo Territorial SA Findeter, senior bond, 144A, 7.875%, 8/12/24 | | | Colombia | | | | 795,000,000 | | | | COP | | | | 227,134 | |
c Ladder Capital Finance Holdings LLLP / Ladder Capital Finance Corp., senior note, 144A, | | | | | | | | | | | | | | | | |
5.25%, 3/15/22 | | | United States | | | | 45,000 | | | | | | | | 42,215 | |
5.25%, 10/01/25 | | | United States | | | | 120,000 | | | | | | | | 102,437 | |
4.25%, 2/01/27 | | | United States | | | | 445,000 | | | | | | | | 372,966 | |
j MDC-GMTN BV, senior bond, Reg S, 4.50%, 11/07/28 | | | United Arab Emirates | | | | 261,000 | | | | | | | | 303,858 | |
c One Call Corp., senior secured note, first lien, 144A, 7.50%, 7/01/24 | | | United States | | | | 4,092,583 | | | | | | | | 3,928,880 | |
c Quicken Loans Inc., senior bond, 144A, 5.25%, 1/15/28 | | | United States | | | | 520,000 | | | | | | | | 526,289 | |
c,d Refinitiv U.S. Holdings Inc., senior note, 144A, 8.25%, 11/15/26 | | | United States | | | | 1,411,000 | | | | | | | | 1,544,784 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 7,946,164 | |
| | | | | | | | | | | | | | | | |
| | | | |
Diversified Telecommunication Services 0.4% | | | | | | | | | | | | | | | | |
k AT&T Inc., senior note, FRN, 1.10%, (3-Month USD LIBOR + 0.75%), 6/01/21 | | | United States | | | | 155,000 | | | | | | | | 155,604 | |
c Cincinnati Bell Inc., senior note, 144A, 8.00%, 10/15/25 | | | United States | | | | 3,855,000 | | | | | | | | 3,994,339 | |
c Kenbourne Invest SA, senior note, 144A, 6.875%, 11/26/24 | | | Chile | | | | 200,000 | | | | | | | | 200,438 | |
Telecom Italia Capital SA, senior bond, 6.00%, 9/30/34 | | | Italy | | | | 35,000 | | | | | | | | 37,814 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 4,388,195 | |
| | | | | | | | | | | | | | | | |
| | | | |
Electric Utilities 0.3% | | | | | | | | | | | | | | | | |
Bruce Mansfield Escrow, senior bond, zero cpn., 6/01/34 | | | United States | | | | 6,394,000 | | | | | | | | 57,066 | |
c Enel SpA, sub. bond, 144A, 8.75% to 9/24/23, FRN thereafter, 9/24/73 | | | Italy | | | | 200,000 | | | | | | | | 227,750 | |
j Eskom Holdings SOC Ltd., senior bond, Reg S, | | | | | | | | | | | | | | | | |
5.75%, 1/26/21 | | | South Africa | | | | 1,117,000 | | | | | | | | 1,065,339 | |
8.45%, 8/10/28 | | | South Africa | | | | 891,000 | | | | | | | | 810,587 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 33 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| | | | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | | | |
Electric Utilities (continued) | | | | | | | | | | | | | | | | |
c Ipalco Enterprises Inc., senior secured bond, 144A, 4.25%, 5/01/30 | | | United States | | | | 30,000 | | | | | | | $ | 31,774 | |
c Vistra Operations Co. LLC, senior secured note, 144A, 3.70%, 1/30/27 | | | United States | | | | 680,000 | | | | | | | | 691,229 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 2,883,745 | |
| | | | | | | | | | | | | | | | |
| | | | |
Electronic Equipment, Instruments & Components 0.0%† | | | | | | | | | | | | | | | | |
CDW LLC / CDW Finance Corp., senior note, 4.125%, 5/01/25 | | | United States | | | | 115,000 | | | | | | | | 118,163 | |
c,m WESCO Distribution Inc., senior note, 144A, 7.125%, 6/15/25 | | | United States | | | | 154,000 | | | | | | | | 154,000 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 272,163 | |
| | | | | | | | | | | | | | | | |
| | | | |
Energy Equipment & Services 0.1% | | | | | | | | | | | | | | | | |
c Transocean Inc., senior note, 144A, | | | | | | | | | | | | | | | | |
7.25%, 11/01/25 | | | United States | | | | 183,000 | | | | | | | | 103,395 | |
7.50%, 1/15/26 | | | United States | | | | 1,345,000 | | | | | | | | 739,750 | |
8.00%, 2/01/27 | | | United States | | | | 100,000 | | | | | | | | 55,500 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 898,645 | |
| | | | | | | | | | | | | | | | |
| | | | |
Equity Real Estate Investment Trusts (REITs) 0.1% | | | | | | | | | | | | | | | | |
Equinix Inc., senior bond, 3.20%, 11/18/29 | | | United States | | | | 50,000 | | | | | | | | 53,925 | |
d,f Uniti Group LP / Uniti Group Finance Inc. / CSL Capital LLC, senior note, 8.25%, 10/15/23 | | | United States | | | | 1,201,000 | | | | | | | | 1,132,333 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 1,186,258 | |
| | | | | | | | | | | | | | | | |
| | | | |
Food & Staples Retailing 0.0%† | | | | | | | | | | | | | | | | |
j Casino Guichard Perrachon SA, Reg S, | | | | | | | | | | | | | | | | |
o junior sub. bond, E, 3.992%, Perpetual | | | France | | | | 500,000 | | | | EUR | | | | 246,986 | |
senior bond, E, 4.048%, 8/05/26 | | | France | | | | 100,000 | | | | EUR | | | | 92,412 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 339,398 | |
| | | | | | | | | | | | | | | | |
| | | | |
Food Products 0.1% | | | | | | | | | | | | | | | | |
c JBS USA LLC / Finance Inc., senior bond, 144A, 5.75%, 6/15/25 | | | United States | | | | 1,078,000 | | | | | | | | 1,107,645 | |
c JBS USA LUX SA / JBS USA Food Co. / JBS USA Finance Inc., senior bond, 144A, 5.50%, 1/15/30 | | | United States | | | | 25,000 | | | | | | | | 25,995 | |
Kraft Heinz Foods Co., senior bond, | | | | | | | | | | | | | | | | |
5.00%, 6/04/42 | | | United States | | | | 45,000 | | | | | | | | 46,325 | |
4.375%, 6/01/46 | | | United States | | | | 95,000 | | | | | | | | 89,109 | |
c 144A, 4.875%, 10/01/49 | | | United States | | | | 150,000 | | | | | | | | 147,771 | |
c Lamb Weston Holdings Inc., senior note, 144A, 4.875%, 5/15/28 | | | United States | | | | 50,000 | | | | | | | | 52,485 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 1,469,330 | |
| | | | | | | | | | | | | | | | |
| | | | |
Health Care Equipment & Supplies 0.0%† | | | | | | | | | | | | | | | | |
c,m Ortho-Clinical Diagnostics Inc. / Ortho-Clinical Diagnostics SA, senior note, 144A, 7.375%, 6/01/25 | | | United States | | | | 54,000 | | | | | | | | 55,350 | |
| | | | | | | | | | | | | | | | |
| | | | |
Health Care Providers & Services 0.1% | | | | | | | | | | | | | | | | |
CVS Health Corp., senior note, 2.125%, 6/01/21 | | | United States | | | | 400,000 | | | | | | | | 404,737 | |
c Envision Healthcare Corp., senior note, 144A, 8.75%, 10/15/26 | | | United States | | | | 202,000 | | | | | | | | 89,599 | |
c Rede D’or Finance Sarl, senior bond, 144A, 4.50%, 1/22/30 | | | Brazil | | | | 400,000 | | | | | | | | 335,874 | |
Tenet Healthcare Corp., | | | | | | | | | | | | | | | | |
secured note, 5.125%, 5/01/25 | | | United States | | | | 20,000 | | | | | | | | 20,359 | |
c secured note, 144A, 6.25%, 2/01/27 | | | United States | | | | 35,000 | | | | | | | | 36,280 | |
c senior secured note, 144A, 4.875%, 1/01/26 | | | United States | | | | 45,000 | | | | | | | | 46,317 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 933,166 | |
| | | | | | | | | | | | | | | | |
| | | | |
Hotels, Restaurants & Leisure 0.3% | | | | | | | | | | | | | | | | |
c 1011778 BC ULC/New Red Finance Inc., secured note, 144A, 4.375%, 1/15/28 | | | Canada | | | | 345,000 | | | | | | | | 339,761 | |
Boyd Gaming Corp., senior note, 6.375%, 4/01/26 | | | United States | | | | 25,000 | | | | | | | | 24,925 | |
c 144A, 4.75%, 12/01/27 | | | United States | | | | 308,000 | | | | | | | | 284,368 | |
c 144A, 8.625%, 6/01/25 | | | United States | | | | 79,000 | | | | | | | | 84,649 | |
| | | | |
| | | |
34 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| | | | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | | | |
Hotels, Restaurants & Leisure (continued) | | | | | | | | | | | | | | | | |
Hyatt Hotels Corp., | | | | | | | | | | | | | | | | |
senior bond, 5.75%, 4/23/30 | | | United States | | | | 95,000 | | | | | | | $ | 100,266 | |
senior note, 5.375%, 4/23/25 | | | United States | | | | 50,000 | | | | | | | | 52,384 | |
Marriott International Inc., | | | | | | | | | | | | | | | | |
senior bond, 4.625%, 6/15/30 | | | United States | | | | 75,000 | | | | | | | | 76,901 | |
senior note, 2.125%, 10/03/22 | | | United States | | | | 200,000 | | | | | | | | 193,946 | |
senior note, EE, 5.75%, 5/01/25 | | | United States | | | | 45,000 | | | | | | | | 48,641 | |
c Royal Caribbean Cruises Ltd., senior secured note, 144A, 11.50%, 6/01/25 | | | United States | | | | 395,000 | | | | | | | | 419,172 | |
c,d Scientific Games International Inc., senior secured note, 144A, 5.00%, 10/15/25 | | | United States | | | | 1,343,000 | | | | | | | | 1,260,305 | |
j Tasty Bondco 1 SA, senior secured note, Reg S, 6.25%, 5/15/26 | | | Spain | | | | 100,000 | | | | EUR | | | | 50,507 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 2,935,825 | |
| | | | | | | | | | | | | | | | |
| | | | |
Household Durables 0.0%† | | | | | | | | | | | | | | | | |
c K. Hovnanian Enterprises Inc., senior secured note, 144A, 10.00%, 11/15/25 | | | United States | | | | 703,000 | | | | | | | | 242,535 | |
| | | | | | | | | | | | | | | | |
| | | | |
Independent Power & Renewable Electricity Producers 0.0%† | | | | | | | | | | | | | | | | |
The AES Corp., | | | | | | | | | | | | | | | | |
senior bond, 4.875%, 5/15/23 | | | United States | | | | 5,000 | | | | | | | | 5,048 | |
senior bond, 5.50%, 4/15/25 | | | United States | | | | 45,000 | | | | | | | | 46,265 | |
c senior secured bond, 144A, 3.95%, 7/15/30 | | | United States | | | | 75,000 | | | | | | | | 75,484 | |
senior note, 6.00%, 5/15/26 | | | United States | | | | 15,000 | | | | | | | | 15,897 | |
NRG Energy Inc., | | | | | | | | | | | | | | | | |
c senior bond, 144A, 5.25%, 6/15/29 | | | United States | | | | 45,000 | | | | | | | | 49,154 | |
senior note, 5.75%, 1/15/28 | | | United States | | | | 20,000 | | | | | | | | 21,804 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 213,652 | |
| | | | | | | | | | | | | | | | |
| | | | |
Industrial Conglomerates 0.1% | | | | | | | | | | | | | | | | |
General Electric Co., senior bond, | | | | | | | | | | | | | | | | |
3.625%, 5/01/30 | | | United States | | | | 110,000 | | | | | | | | 109,011 | |
4.35%, 5/01/50 | | | United States | | | | 50,000 | | | | | | | | 48,655 | |
Icahn Enterprises LP / Icahn Enterprises Finance Corp., senior note, | | | | | | | | | | | | | | | | |
4.75%, 9/15/24 | | | United States | | | | 445,000 | | | | | | | | 430,121 | |
6.25%, 5/15/26 | | | United States | | | | 85,000 | | | | | | | | 85,641 | |
5.25%, 5/15/27 | | | United States | | | | 265,000 | | | | | | | | 253,241 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 926,669 | |
| | | | | | | | | | | | | | | | |
| | | | |
Insurance 0.1% | | | | | | | | | | | | | | | | |
American International Group Inc., senior bond, 4.375%, 6/30/50 | | | United States | | | | 375,000 | | | | | | | | 416,262 | |
d,k Genworth Holdings Inc., senior bond, FRN, 2.395%, (3-Month USD LIBOR + 2.00%), 11/15/66 | | | United States | | | | 1,623,000 | | | | | | | | 519,360 | |
c Metropolitan Life Global Funding I, secured note, 144A, 2.40%, 6/17/22 | | | United States | | | | 290,000 | | | | | | | | 299,733 | |
c,k New York Life Global Funding, secured note, 144A, FRN, 0.821%, (3-Month USD LIBOR + 0.32%), 8/06/21 | | | United States | | | | 380,000 | | | | | | | | 380,449 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 1,615,804 | |
| | | | | | | | | | | | | | | | |
| | | | |
Internet & Direct Marketing Retail 0.1% | | | | | | | | | | | | | | | | |
Booking Holdings Inc., | | | | | | | | | | | | | | | | |
senior bond, 4.625%, 4/13/30 | | | United States | | | | 230,000 | | | | | | | | 263,864 | |
senior note, 4.50%, 4/13/27 | | | United States | | | | 145,000 | | | | | | | | 161,773 | |
eBay Inc., senior bond, 4.00%, 7/15/42 | | | United States | | | | 15,000 | | | | | | | | 15,639 | |
Expedia Group Inc., senior note, | | | | | | | | | | | | | | | | |
3.25%, 2/15/30 | | | United States | | | | 250,000 | | | | | | | | 224,452 | |
c 144A, 6.25%, 5/01/25 | | | United States | | | | 315,000 | | | | | | | | 336,700 | |
c 144A, 7.00%, 5/01/25 | | | United States | | | | 160,000 | | | | | | | | 171,139 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 1,173,567 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 35 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| | | | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | | | |
IT Services 0.1% | | | | | | | | | | | | | | | | |
c,d GTT Communications Inc., senior note, 144A, 7.875%, 12/31/24 | | | United States | | | | 1,253,000 | | | | | | | $ | 699,330 | |
c Science Applications International Corp., senior note, 144A, 4.875%, 4/01/28 | | | United States | | | | 97,000 | | | | | | | | 99,289 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 798,619 | |
| | | | | | | | | | | | | | | | |
| | | | |
Media 0.3% | | | | | | | | | | | | | | | | |
c CCO Holdings LLC / CCO Holdings Capital Corp., senior bond, 144A, 4.50%, 8/15/30 | | | United States | | | | 130,000 | | | | | | | | 135,180 | |
c Cedar Fair LP / Canada’s Wonderland Co. / Magnum Management Corp. / Millennium Op, senior secured note, 144A, 5.50%, 5/01/25 | | | United States | | | | 238,000 | | | | | | | | 242,760 | |
c Clear Channel Worldwide Holdings Inc., senior secured note, 144A, 5.125%, 8/15/27 | | | United States | | | | 195,000 | | | | | | | | 195,451 | |
c GE Capital Funding LLC, senior note, 144A, 4.40%, 5/15/30 | | | United States | | | | 415,000 | | | | | | | | 431,188 | |
iHeartCommunications Inc., | | | | | | | | | | | | | | | | |
senior note, 8.375%, 5/01/27 | | | United States | | | | 760,000 | | | | | | | | 712,359 | |
f senior secured note, 6.375%, 5/01/26 | | | United States | | | | 40,000 | | | | | | | | 41,898 | |
c senior secured note, 144A, 5.25%, 8/15/27 | | | United States | | | | 75,000 | | | | | | | | 73,651 | |
c senior secured note, 144A, 4.75%, 1/15/28 | | | United States | | | | 175,000 | | | | | | | | 168,314 | |
Netflix Inc., senior bond, | | | | | | | | | | | | | | | | |
4.875%, 4/15/28 | | | United States | | | | 20,000 | | | | | | | | 21,413 | |
c 144A, 4.875%, 6/15/30 | | | United States | | | | 45,000 | | | | | | | | 48,686 | |
c Outfront Media Capital LLC / Outfront Media Capital Corp., senior bond, 144A, 4.625%, 3/15/30 | | | United States | | | | 65,000 | | | | | | | | 59,951 | |
c Sirius XM Radio Inc., 144A, | | | | | | | | | | | | | | | | |
senior bond, 5.00%, 8/01/27 | | | United States | | | | 145,000 | | | | | | | | 151,861 | |
senior bond, 5.50%, 7/01/29 | | | United States | | | | 15,000 | | | | | | | | 16,047 | |
senior note, 4.625%, 7/15/24 | | | United States | | | | 35,000 | | | | | | | | 35,928 | |
ViacomCBS Inc., senior bond, | | | | | | | | | | | | | | | | |
4.95%, 1/15/31 | | | United States | | | | 290,000 | | | | | | | | 321,553 | |
4.20%, 5/19/32 | | | United States | | | | 260,000 | | | | | | | | 269,060 | |
4.375%, 3/15/43 | | | United States | | | | 85,000 | | | | | | | | 81,277 | |
c Virgin Media Secured Finance PLC, senior secured bond, 144A, 5.50%, 8/15/26 | | | United Kingdom | | | | 200,000 | | | | | | | | 209,081 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 3,215,658 | |
| | | | | | | | | | | | | | | | |
| | | | |
Metals & Mining 0.1% | | | | | | | | | | | | | | | | |
c CSN Islands XI Corp., senior note, 144A, 6.75%, 1/28/28 | | | Brazil | | | | 414,000 | | | | | | | | 324,990 | |
c First Quantum Minerals Ltd., senior note, 144A, 6.875%, 3/01/26 | | | Zambia | | | | 200,000 | | | | | | | | 177,463 | |
c Newcrest Finance Pty Ltd., senior bond, 144A, 3.25%, 5/13/30 | | | Australia | | | | 85,000 | | | | | | | | 88,907 | |
c U.S. Steel Corp., senior secured note, 144A, 12.00%, 6/01/25 | | | United States | | | | 376,000 | | | | | | | | 376,470 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 967,830 | |
| | | | | | | | | | | | | | | | |
| | | | |
Multiline Retail 0.1% | | | | | | | | | | | | | | | | |
Dollar General Corp., senior bond, 3.50%, 4/03/30 | | | United States | | | | 55,000 | | | | | | | | 61,633 | |
Kohl’s Corp., senior note, 9.50%, 5/15/25 | | | United States | | | | 390,000 | | | | | | | | 414,978 | |
c,m Macy’s Inc., senior secured note, 144A, 8.375%, 6/15/25 | | | United States | | | | 226,000 | | | | | | | | 229,673 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 706,284 | |
| | | | | | | | | | | | | | | | |
| | | | |
Oil, Gas & Consumable Fuels 0.9% | | | | | | | | | | | | | | | | |
c AKER BP ASA, senior bond, 144A, 3.75%, 1/15/30 | | | Norway | | | | 350,000 | | | | | | | | 321,703 | |
c,e Bruin E&P Partners LLC, senior note, 144A, 8.875%, 8/01/23 | | | United States | | | | 590,000 | | | | | | | | 14,750 | |
c California Resources Corp., secured note, second lien, 144A, 8.00%, 12/15/22 | | | United States | | | | 785,000 | | | | | | | | 15,700 | |
Callon Petroleum Co., senior note, 6.25%, 4/15/23 | | | United States | | | | 372,000 | | | | | | | | 122,059 | |
c Cheniere Corpus Christi Holdings LLC, senior secured bond, 144A, 3.70%, 11/15/29 | | | United States | | | | 335,000 | | | | | | | | 334,530 | |
Energy Transfer Operating LP, senior bond, 5.00%, 5/15/50 | | | United States | | | | 295,000 | | | | | | | | 284,794 | |
| | | | |
| | | |
36 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
| | | | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | |
Oil, Gas & Consumable Fuels (continued) | | | | | | | | | | | | | | |
Kinder Morgan Inc., senior bond, 5.05%, 2/15/46 | | | United States | | | | 40,000 | | | | | $ | 46,114 | |
c Lonestar Resources America Inc., senior note, 144A, 11.25%, 1/01/23 | | | United States | | | | 95,000 | | | | | | 7,125 | |
c Moss Creek Resources Holdings Inc., senior note, 144A, | | | | | | | | | | | | | | |
7.50%, 1/15/26 | | | United States | | | | 27,000 | | | | | | 14,295 | |
10.50%, 5/15/27 | | | United States | | | | 559,000 | | | | | | 322,018 | |
Petrobras Global Finance BV, | | | | | | | | | | | | | | |
senior bond, 6.90%, 3/19/49 | | | Brazil | | | | 797,000 | | | | | | 795,621 | |
senior bond, 6.75%, 6/03/50 | | | Brazil | | | | 108,000 | | | | | | 105,575 | |
senior note, 8.75%, 5/23/26 | | | Brazil | | | | 1,055,000 | | | | | | 1,231,517 | |
Petroleos Mexicanos, | | | | | | | | | | | | | | |
c senior bond, 144A, 5.95%, 1/28/31 | | | Mexico | | | | 1,204,000 | | | | | | 981,140 | |
senior bond, 6.625%, 6/15/35 | | | Mexico | | | | 380,000 | | | | | | 306,202 | |
senior bond, 6.375%, 1/23/45 | | | Mexico | | | | 1,018,000 | | | | | | 758,710 | |
senior bond, 6.75%, 9/21/47 | | | Mexico | | | | 1,355,000 | | | | | | 1,049,034 | |
senior bond, 6.35%, 2/12/48 | | | Mexico | | | | 1,489,000 | | | | | | 1,112,573 | |
c senior bond, 144A, 6.95%, 1/28/60 | | | Mexico | | | | 415,000 | | | | | | 324,567 | |
senior note, 3.50%, 1/30/23 | | | Mexico | | | | 959,000 | | | | | | 909,271 | |
senior note, 4.50%, 1/23/26 | | | Mexico | | | | 288,000 | | | | | | 245,889 | |
c Sabine Pass Liquefaction LLC, senior secured bond, 144A, 4.50%, 5/15/30 | | | United States | | | | 270,000 | | | | | | 296,118 | |
c YPF Sociedad Anonima, | | | | | | | | | | | | | | |
senior bond, 144A, 6.95%, 7/21/27 | | | Argentina | | | | 105,000 | | | | | | 64,726 | |
k senior note, 144A, FRN, 31.438%, (ARS BADLAR + 4.00%), 7/07/20 | | | Argentina | | | | 245,000 | | | | | | 38,406 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 9,702,437 | |
| | | | | | | | | | | | | | |
| | | | |
Paper & Forest Products 0.0%† | | | | | | | | | | | | | | |
c,n Paper Industries Financing SARL, senior note, 144A, PIK, 0.25%, 2/04/28 | | | Luxembourg | | | | 48,210 | | | | | | 5,084 | |
c Paper Industries Intermediate Financing SARL, senior secured note, 144A, 6.00%, 3/01/25 | | | Luxembourg | | | | 76,000 | | | | | | 63,695 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 68,779 | |
| | | | | | | | | | | | | | |
| | | | |
Pharmaceuticals 0.2% | | | | | | | | | | | | | | |
Bausch Health Cos. Inc., senior note, | | | | | | | | | | | | | | |
c 144A, 6.25%, 2/15/29 | | | United States | | | | 325,000 | | | | | | 333,938 | |
j Reg S, 4.50%, 5/15/23 | | | United States | | | | 305,000 | | | EUR | | | 336,859 | |
c Teva Pharmaceutical Finance Netherlands II BV, senior note, 144A, 6.00%, 1/31/25 | | | Israel | | | | 335,000 | | | EUR | | | 402,471 | |
Teva Pharmaceutical Finance Netherlands III BV, | | | | | | | | | | | | | | |
senior bond, 3.15%, 10/01/26 | | | Israel | | | | 220,000 | | | | | | 198,320 | |
senior bond, 4.10%, 10/01/46 | | | Israel | | | | 1,145,000 | | | | | | 966,666 | |
c senior note, 144A, 7.125%, 1/31/25 | | | Israel | | | | 200,000 | | | | | | 215,021 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 2,453,275 | |
| | | | | | | | | | | | | | |
| | | | |
Real Estate Management & Development 0.0%† | | | | | | | | | | | | | | |
c Kaisa Group Holdings Ltd., senior secured note, 144A, 11.95%, 10/22/22 | | | China | | | | 345,000 | | | | | | 342,507 | |
| | | | | | | | | | | | | | |
| | | | |
Road & Rail 0.2% | | | | | | | | | | | | | | |
c Avis Budget Car Rental LLC / Avis Budget Finance Inc., 144A, | | | | | | | | | | | | | | |
senior bond, 5.25%, 3/15/25 | | | United States | | | | 50,000 | | | | | | 40,250 | |
senior note, 6.375%, 4/01/24 | | | United States | | | | 100,000 | | | | | | 83,115 | |
f senior secured note, 10.50%, 5/15/25 | | | United States | | | | 118,000 | | | | | | 131,865 | |
c Penske Truck Leasing Co. LP / PTL Finance Corp., senior note, 144A, 3.65%, 7/29/21 | | | United States | | | | 285,000 | | | | | | 289,865 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 37 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
| | | | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | |
Road & Rail (continued) | | | | | | | | | | | | | | |
c Uber Technologies Inc., senior note, 144A, | | | | | | | | | | | | | | |
7.50%, 5/15/25 | | | United States | | | | 295,000 | | | | | $ | 294,262 | |
8.00%, 11/01/26 | | | United States | | | | 1,085,000 | | | | | | 1,106,261 | |
7.50%, 9/15/27 | | | United States | | | | 290,000 | | | | | | 295,265 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 2,240,883 | |
| | | | | | | | | | | | | | |
| | | | |
Semiconductors & Semiconductor Equipment 0.1% | | | | | | | | | | | | | | |
Broadcom Corp. / Broadcom Cayman Finance Ltd., senior note, 3.875%, 1/15/27 | | | United States | | | | 10,000 | | | | | | 10,536 | |
c Broadcom Inc., senior bond, 144A, | | | | | | | | | | | | | | |
4.75%, 4/15/29 | | | United States | | | | 405,000 | | | | | | 444,332 | |
5.00%, 4/15/30 | | | United States | | | | 135,000 | | | | | | 149,550 | |
4.30%, 11/15/32 | | | United States | | | | 490,000 | | | | | | 519,114 | |
Micron Technology Inc., senior bond, 5.327%, 2/06/29 | | | United States | | | | 385,000 | | | | | | 444,662 | |
c NXP BV / NXP Funding LLC / NXP USA Inc., 144A, | | | | | | | | | | | | | | |
senior bond, 3.40%, 5/01/30 | | | Netherlands | | | | 25,000 | | | | | | 26,083 | |
senior note, 3.15%, 5/01/27 | | | Netherlands | | | | 40,000 | | | | | | 40,995 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 1,635,272 | |
| | | | | | | | | | | | | | |
| | | | |
Specialty Retail 1.0% | | | | | | | | | | | | | | |
Autonation Inc., senior bond, 4.75%, 6/01/30 | | | United States | | | | 40,000 | | | | | | 41,726 | |
Bed Bath & Beyond Inc., senior bond, 5.165%, 8/01/44 | | | United States | | | | 101,000 | | | | | | 51,889 | |
c Carvana Co., senior note, 144A, 8.875%, 10/01/23 | | | United States | | | | 757,000 | | | | | | 767,874 | |
c The Gap Inc., senior secured note, 144A, | | | | | | | | | | | | | | |
8.375%, 5/15/23 | | | United States | | | | 118,000 | | | | | | 125,965 | |
8.875%, 5/15/27 | | | United States | | | | 180,000 | | | | | | 189,450 | |
L Brands Inc., senior bond, | | | | | | | | | | | | | | |
5.625%, 2/15/22 | | | United States | | | | 30,000 | | | | | | 29,317 | |
d 6.875%, 11/01/35 | | | United States | | | | 1,299,000 | | | | | | 1,081,054 | |
c Staples Inc., senior secured note, 144A, 7.50%, 4/15/26 | | | United States | | | | 1,006,000 | | | | | | 881,145 | |
c Vericast Corp./Harland Clarke, senior secured note, 144A, 12.50%, 5/01/24 | | | United States | | | | 7,271,934 | | | | | | 7,435,552 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 10,603,972 | |
| | | | | | | | | | | | | | |
| | | | |
Textiles, Apparel & Luxury Goods 0.0%† | | | | | | | | | | | | | | |
c Levi Strauss & Co., senior note, 144A, 5.00%, 5/01/25 | | | United States | | | | 290,000 | | | | | | 296,857 | |
| | | | | | | | | | | | | | |
| | | | |
Trading Companies & Distributors 0.0%† | | | | | | | | | | | | | | |
Aircastle Ltd., senior note, 4.25%, 6/15/26 | | | United States | | | | 310,000 | | | | | | 242,548 | |
| | | | | | | | | | | | | | |
| | | | |
Wireless Telecommunication Services 0.1% | | | | | | | | | | | | | | |
c T-Mobile USA Inc., senior secured bond, 144A, 3.875%, 4/15/30 | | | United States | | | | 850,000 | | | | | | 925,718 | |
| | | | | | | | | | | | | | |
| | | | |
Total Corporate Bonds and Notes
(Cost $90,540,021) | | | | | | | | | | | | | 90,010,590 | |
| | | | | | | | | | | | | | |
| | | | |
Corporate Bonds and Notes in Reorganization 0.8% | | | | | | | | | | | | | | |
Diversified Telecommunication Services 0.3% | | | | | | | | | | | | | | |
h Frontier Communications Corp., | | | | | | | | | | | | | | |
senior bond, 7.125%, 1/15/23 | | | United States | | | | 132,000 | | | | | | 41,828 | |
senior bond, 7.625%, 4/15/24 | | | United States | | | | 74,000 | | | | | | 24,096 | |
senior bond, 6.875%, 1/15/25 | | | United States | | | | 33,000 | | | | | | 10,433 | |
senior bond, 9.00%, 8/15/31 | | | United States | | | | 361,000 | | | | | | 115,756 | |
c senior secured note, 144A, 8.00%, 4/01/27 | | | United States | | | | 752,000 | | | | | | 775,361 | |
c,h Intelsat Jackson Holdings SA, senior secured note, first lien, 144A, 9.50%, 9/30/22 | | | Luxembourg | | | | 2,151,000 | | | | | | 2,427,436 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 3,394,910 | |
| | | | | | | | | | | | | | |
| | | | |
| | | |
38 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| | | | |
Corporate Bonds and Notes in Reorganization (continued) | | | | | | | | | | | | | | | | |
Electric Utilities 0.4% | | | | | | | | | | | | | | | | |
h Pacific Gas & Electric Co., senior bond, | | | | | | | | | | | | | | | | |
3.30%, 3/15/27 | | | United States | | | | 49,000 | | | | | | | $ | 50,135 | |
5.80%, 3/01/37 | | | United States | | | | 741,000 | | | | | | | | 843,443 | |
d 5.40%, 1/15/40 | | | United States | | | | 597,000 | | | | | | | | 679,535 | |
d 4.45%, 4/15/42 | | | United States | | | | 1,108,000 | | | | | | | | 1,173,699 | |
d 4.75%, 2/15/44 | | | United States | | | | 870,000 | | | | | | | | 955,477 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 3,702,289 | |
| | | | | | | | | | | | | | | | |
| | | | |
Equity Real Estate Investment Trusts (REITs) 0.0%† | | | | | | | | | | | | | | | | |
c,h Neiman Marcus Group Ltd. LLC / Neiman Marcus Group LLC / Mariposa Borrower, secured note, 144A, 8.00%, 10/25/24 | | | United States | | | | 718,000 | | | | | | | | 25,130 | |
| | | | | | | | | | | | | | | | |
| | | | |
Media 0.1% | | | | | | | | | | | | | | | | |
h The McClatchy Co., senior secured note, 9.00%, 7/15/26 | | | United States | | | | 1,432,000 | | | | | | | | 1,396,866 | |
| | | | | | | | | | | | | | | | |
| | | | |
Oil, Gas & Consumable Fuels 0.0%† | | | | | | | | | | | | | | | | |
e,h Bellatrix Exploration Ltd., secured note, | | | | | | | | | | | | | | | | |
8.50%, 9/11/23 | | | Canada | | | | 141,000 | | | | | | | | — | |
12.50%, 12/15/23 | | | Canada | | | | 154,000 | | | | | | | | — | |
h Whiting Petroleum Corp., senior note, 6.625%, 1/15/26 | | | United States | | | | 505,000 | | | | | | | | 59,668 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 59,668 | |
| | | | | | | | | | | | | | | | |
| | | | |
Road & Rail 0.0%† | | | | | | | | | | | | | | | | |
h The Hertz Corp., senior note, 6.25%, 10/15/22 | | | United States | | | | 45,000 | | | | | | | | 8,128 | |
| | | | | | | | | | | | | | | | |
| | | | |
Total Corporate Bonds and Notes in Reorganization
(Cost $8,932,419) | | | | | | | | | | | | | | | 8,586,991 | |
| | | | | | | | | | | | | | | | |
k,p Senior Floating Rate Interests 0.0%† | | | | | | | | | | | | | | | | |
| | | | |
Diversified Financial Services 0.0%† | | | | | | | | | | | | | | | | |
Ziggo BV, Term Loan H, 3.00%, (3-Month EURIBOR + 3.00%), 1/31/29 | | | United States | | | | 115,000 | | | | | | | | 124,145 | |
| | | | | | | | | | | | | | | | |
| | | | |
Oil, Gas & Consumable Fuels 0.0%† | | | | | | | | | | | | | | | | |
California Resources Corp., Initial Term Loan, 5.75%, (1-Month USD LIBOR + 4.75%), 12/31/22 | | | United States | | | | 873,000 | | | | | | | | 256,080 | |
| | | | | | | | | | | | | | | | |
| | | | |
Wireless Telecommunication Services 0.0%† | | | | | | | | | | | | | | | | |
T-Mobile USA Inc., Term Loan B, 3.174%, (1-Month USD LIBOR + 3.00%), 4/01/27 | | | United States | | | | 115,000 | | | | | | | | 115,150 | |
| | | | | | | | | | | | | | | | |
| | | | |
Total Senior Floating Rate Interests
(Cost $1,082,914) | | | | | | | | | | | | | | | 495,375 | |
| | | | | | | | | | | | | | | | |
| | | | |
Senior Floating Rate Interests in Reorganization
(Cost $197,759) 0.0%† | | | | | | | | | | | | | | | | |
| | | | |
Oil, Gas & Consumable Fuels 0.0%† | | | | | | | | | | | | | | | | |
e,h Gavilan Resources LLC, Initial Term Loan, second lien, 7.603%, 3/01/24 | | | United States | | | | 200,000 | | | | | | | | 15,750 | |
| | | | | | | | | | | | | | | | |
| | | | |
q Credit-Linked Notes (Cost $898,315) 0.1% | | | | | | | | | | | | | | | | |
c ICBC Standard Bank PLC, (Ukraine), 144A, 15.36%, 10/01/21 | | | Ukraine | | | | 21,939,000 | | | | UAH | | | | 833,162 | |
| | | | | | | | | | | | | | | | |
| | | | |
Foreign Government and Agency Securities 2.3% | | | | | | | | | | | | | | | | |
k The Export-Import Bank of Korea, senior note, FRN, 1.741%, (3-Month USD LIBOR + 0.53%), 6/25/22 | | | South Korea | | | | 215,000 | | | | | | | | 213,207 | |
Government of Argentina, senior note, | | | | | | | | | | | | | | | | |
5.875%, 1/11/28 | | | Argentina | | | | 1,619,000 | | | | | | | | 595,080 | |
6.875%, 1/26/27 | | | Argentina | | | | 677,000 | | | | | | | | 248,967 | |
k,cc FRN, 38.036%, (ARLLMONP), 6/21/20 | | | Argentina | | | | 2,275,000 | | | | ARS | | | | 18,287 | |
j Government of Bahrain, senior bond, Reg S, 7.00%, 1/26/26 | | | Bahrain | | | | 467,000 | | | | | | | | 499,655 | |
Government of Colombia, senior bond, 5.20%, 5/15/49 | | | Colombia | | | | 238,000 | | | | | | | | 279,892 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 39 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| | | | |
Foreign Government and Agency Securities (continued) | | | | | | | | | | | | | | | | |
Government of Egypt, senior bond, | | | | | | | | | | | | | | | | |
c 144A, 8.15%, 11/20/59 | | | Egypt | | | | 215,000 | | | | | | | $ | 198,875 | |
c 144A, 8.875%, 5/29/50 | | | Egypt | | | | 530,000 | | | | | | | | 523,455 | |
j Reg S, 8.70%, 3/01/49 | | | Egypt | | | | 822,000 | | | | | | | | 804,607 | |
Government of Italy, senior note, 2.375%, 10/17/24 | | | Italy | | | | 350,000 | | | | | | | | 350,355 | |
Government of Mexico, senior bond, | | | | | | | | | | | | | | | | |
4.75%, 4/27/32 | | | Mexico | | | | 540,000 | | | | | | | | 585,900 | |
5.00%, 4/27/51 | | | Mexico | | | | 558,000 | | | | | | | | 601,245 | |
j Government of Nigeria, senior note, Reg S, 7.625%, 11/21/25 | | | Nigeria | | | | 363,000 | | | | | | | | 349,206 | |
Government of Paraguay, senior bond, | | | | | | | | | | | | | | | | |
c 144A, 4.95%, 4/28/31 | | | Paraguay | | | | 200,000 | | | | | | | | 215,625 | |
j Reg S, 4.625%, 1/25/23 | | | Paraguay | | | | 1,736,000 | | | | | | | | 1,814,120 | |
Government of Russia, | | | | | | | | | | | | | | | | |
j senior bond, Reg S, 5.25%, 6/23/47 | | | Russia | | | | 800,000 | | | | | | | | 1,079,600 | |
senior bond, 6225, 7.25%, 5/10/34 | | | Russia | | | | 131,836,000 | | | | RUB | | | | 2,146,363 | |
senior note, 6227, 7.40%, 7/17/24 | | | Russia | | | | 180,207,000 | | | | RUB | | | | 2,800,616 | |
senior note, 6229, 7.15%, 11/12/25 | | | Russia | | | | 240,745,000 | | | | RUB | | | | 3,758,470 | |
senior note, 6232, 6.00%, 10/06/27 | | | Russia | | | | 155,262,000 | | | | RUB | | | | 2,309,302 | |
c Government of Saudi Arabia, senior bond, 144A, | | | | | | | | | | | | | | | | |
2.75%, 2/03/32 | | | Saudi Arabia | | | | 1,212,000 | | | | | | | | 1,209,055 | |
3.75%, 1/21/55 | | | Saudi Arabia | | | | 354,000 | | | | | | | | 349,575 | |
Government of Ukraine, | | | | | | | | | | | | | | | | |
c senior bond, 144A, 4.375%, 1/27/30 | | | Ukraine | | | | 453,000 | | | | | | | | 413,482 | |
j senior bond, Reg S, zero cpn., 5/31/40 | | | Ukraine | | | | 1,787,000 | | | | | | | | 1,537,774 | |
j senior bond, Reg S, 7.375%, 9/25/32 | | | Ukraine | | | | 820,000 | | | | | | | | 785,224 | |
j senior note, Reg S, 7.75%, 9/01/22 | | | Ukraine | | | | 1,040,000 | | | | | | | | 1,053,752 | |
k,cc Provincia de Buenos Aires, FRN, | | | | | | | | | | | | | | | | |
29.872%, (ARS BADLAR + 3.83%), 5/31/22 | | | Argentina | | | | 18,295,000 | | | | ARS | | | | 99,489 | |
j Reg S, 26.874%, (ARS BADLAR + 3.75%), 4/12/25 | | | Argentina | | | | 3,670,000 | | | | ARS | | | | 19,394 | |
j ZAR Sovereign Capital Fund Property Ltd., senior note, Reg S, 3.903%, 6/24/20 | | | South Africa | | | | 573,000 | | | | | | | | 573,951 | |
| | | | | | | | | | | | | | | | |
Total Foreign Government and Agency Securities
(Cost $25,761,145) | | | | | | | | | | | | | | | 25,434,523 | |
| | | | | | | | | | | | | | | | |
Asset-Backed Securities and Commercial Mortgage-Backed
Securities 5.2% | | | | | | | | | | | | | | | | |
| | | | |
Banks 0.0%† | | | | | | | | | | | | | | | | |
c,r,cc Banco Hipotecario SA, senior note, 144A, FRN, 30.563%, (ARS BADLAR + 4.00%), 11/07/22 | | | Argentina | | | | 3,160,000 | | | | ARS | | | | 22,707 | |
| | | | | | | | | | | | | | | | |
| | | | |
Consumer Finance 0.1% | | | | | | | | | | | | | | | | |
r Discover Card Execution Note Trust, 2018-A3, A3, FRN, 0.414%, (1-Month USD LIBOR + 0.23%), 12/15/23 | | | United States | | | | 345,000 | | | | | | | | 345,535 | |
c,r OHA Loan Funding Ltd., 2020-1A, CR, 144A, FRN, 3.085%, (3-Month USD LIBOR + 1.95%), 1/20/33 | | | United States | | | | 390,000 | | | | | | | | 367,113 | |
World Financial Network Credit Card Master Trust, 2019-C, M, 2.71%, 7/15/26 | | | United States | | | | 415,000 | | | | | | | | 403,329 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 1,115,977 | |
| | | | | | | | | | | | | | | | |
| | | | |
Diversified Financial Services 3.9% | | | | | | | | | | | | | | | | |
c Accelerated Assets LLC, 2018-1, B, 144A, 4.51%, 12/02/33 | | | United States | | | | 66,396 | | | | | | | | 65,066 | |
c Adams Outdoor Advertising LP, 2018-1, A, 144A, 4.81%, 11/15/48 | | | United States | | | | 184,903 | | | | | | | | 184,330 | |
c,m,r AGL CLO 3 Ltd., 2020-3A, C, 144A, FRN, 3.04%, (3-Month USD LIBOR + 2.15%), 1/15/33 | | | United States | | | | 285,000 | | | | | | | | 268,963 | |
c AIM Aviation Finance Ltd., 2015-1A, B1, 144A, 5.072%, 2/15/40 | | | United States | | | | 170,624 | | | | | | | | 50,896 | |
c,r Allegro CLO VI Ltd., 2018-2A, D, 144A, FRN, 3.885%, (3-Month USD LIBOR + 2.75%), 1/17/31 | | | United States | | | | 250,000 | | | | | | | | 216,250 | |
Ally Auto Receivables Trust, 2019-4, A3, 1.84%, 6/17/24 | | | United States | | | | 390,000 | | | | | | | | 397,510 | |
| | | | |
| | | |
40 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | |
| | | | |
Diversified Financial Services (continued) | | | | | | | | | | | | | | |
Alternative Loan Trust, 2006-6CB, 2A11, 5.50%, 5/25/36 | | | United States | | | | 330,454 | | | | | $ | 196,594 | |
AmeriCredit Automobile Receivables Trust, | | | | | | | | | | | | | | |
2018-2, D, 4.01%, 7/18/24 | | | United States | | | | 155,000 | | | | | | 156,947 | |
r 2018-3, A2B, FRN, 0.432%, (1-Month USD LIBOR + 0.25%), 1/18/22 | | | United States | | | | 14,513 | | | | | | 14,511 | |
2018-3, D, 4.04%, 11/18/24 | | | United States | | | | 205,000 | | | | | | 211,330 | |
c,r Anchorage Capital CLO 9 Ltd., 2019-9A, DR, 144A, FRN, 5.219%, (3-Month USD LIBOR + 4.00%), 7/15/32 | | | United States | | | | 450,000 | | | | | | 424,116 | |
r Argent Securities Inc., 2004-W3, M4, FRN, 4.199%, (1-Month USD LIBOR + 4.58%), 2/25/34 | | | United States | | | | 258,604 | | | | | | 203,505 | |
c Ascentium Equipment Receivables Trust, 2017-2A, C, 144A, 2.87%, 8/10/22 | | | United States | | | | 25,000 | | | | | | 25,176 | |
c,s,t BANK, 2019-BN21, XF, 144A, IO, FRN, 1.052%, 10/17/52 | | | United States | | | | 11,400,000 | | | | | | 550,175 | |
c,r Barings CLO Ltd., 2019-4A, C, 144A, FRN, 4.703%, (3-Month USD LIBOR + 2.80%), 1/15/33 | | | United States | | | | 400,000 | | | | | | 396,607 | |
c Bayview Opportunity Master Fund IVA Trust, 2019-RN2, A1, 144A, 3.967%, 3/28/34 | | | United States | | | | 11,599 | | | | | | 11,747 | |
s Bear Stearns ALT-A Trust, 2006-3, 21A1, FRN, 3.549%, 5/25/36 | | | United States | | | | 1,352,206 | | | | | | 1,117,948 | |
c Blackbird Capital Aircraft Lease Securitization Ltd., 2016-1A, A, 144A, 4.213%, 12/16/41 | | | United States | | | | 203,376 | | | | | | 158,946 | |
California Republic Auto Receivables Trust, 2018-1, D, 4.33%, 4/15/25 | | | United States | | | | 115,000 | | | | | | 113,134 | |
c,r Canyon Capital CLO, 2019-2A, E, 144A, FRN, 8.369%, (3-Month USD LIBOR + 7.15%), 10/15/32 | | | United States | | | | 250,000 | | | | | | 212,740 | |
Carmax Auto Owner Trust, | | | | | | | | | | | | | | |
2018-2, D, 3.99%, 4/15/25 | | | United States | | | | 100,000 | | | | | | 101,495 | |
2018-4, D, 4.15%, 4/15/25 | | | United States | | | | 60,000 | | | | | | 59,223 | |
2019-1, A3, 3.05%, 3/15/24 | | | United States | | | | 245,000 | | | | | | 252,513 | |
c,r Catamaran CLO 2013-1 Ltd., 2017-1A, CR, 144A, FRN, 2.791%, (3-Month USD LIBOR + 1.80%), 1/27/28 | | | United States | | | | 250,000 | | | | | | 241,875 | |
c Chesapeake Funding II LLC, 144A, | | | | | | | | | | | | | | |
r 2017-4A, A2, FRN, 0.494%, (1-Month USD LIBOR + 0.31%), 11/15/29 | | | Canada | | | | 64,527 | | | | | | 64,350 | |
2018-1A, D, 3.92%, 4/15/30 | | | Canada | | | | 115,000 | | | | | | 117,740 | |
CHL Mortgage Pass-Through Trust, | | | | | | | | | | | | | | |
r 2003-15, 1A1, FRN, 0.668%, (1-Month USD LIBOR + 0.50%), 6/25/42 | | | United States | | | | 102,004 | | | | | | 94,693 | |
2004-4, M, 5.50%, 5/25/34 | | | United States | | | | 1,476,476 | | | | | | 1,025,132 | |
s 2006-HYB4, 3B, FRN, 4.022%, 6/20/36 | | | United States | | | | 1,992,246 | | | | | | 1,676,397 | |
c CIG Auto Receivables Trust, 2017-1A, A, 144A, 2.71%, 5/15/23 | | | United States | | | | 2,455 | | | | | | 2,457 | |
c Coinstar Funding LLC, 2017-1A, A2, 144A, 5.216%, 4/25/47 | | | United States | | | | 237,650 | | | | | | 229,285 | |
c,r Connecticut Avenue Securities Trust, 2020-R01, 1M2, 144A, FRN, | | | | | | | | | | | | | | |
2.218%, (1-Month USD LIBOR + 2.05%), 1/25/40 | | | United States | | | | 85,000 | | | | | | 77,399 | |
c CoreVest American Finance Trust, 2019-2, B, 144A, 3.424%, 6/15/52 | | | United States | | | | 100,000 | | | | | | 94,392 | |
c CPS Auto Receivables Trust, 2018-D, C, 144A, 3.83%, 9/15/23 | | | United States | | | | 100,000 | | | | | | 101,690 | |
c CSMC Trust, 144A, | | | | | | | | | | | | | | |
2018-RPL2, A1, 4.301%, 8/25/62 | | | United States | | | | 190,288 | | | | | | 178,688 | |
s 2019-RP10, A1, FRN, 3.157%, 12/26/59 | | | United States | | | | 162,876 | | | | | | 165,298 | |
c DB Master Finance LLC, 2019-1A, A23, 144A, 4.352%, 5/20/49 | | | United States | | | | 49,625 | | | | | | 50,774 | |
c,s DBUBS Mortgage Trust, 2017-BRBK, D, 144A, FRN, 3.53%, 10/10/34 | | | United States | | | | 100,000 | | | | | | 99,820 | |
c Domino’s Pizza Master Issuer LLC, 144A, | | | | | | | | | | | | | | |
2017-1A, A23, 4.118%, 7/25/47 | | | United States | | | | 165,750 | | | | | | 173,061 | |
2018-1A, A2II, 4.328%, 7/25/48 | | | United States | | | | 78,600 | | | | | | 82,444 | |
2019-1A, A2, 3.668%, 10/25/49 | | | United States | | | | 169,150 | | | | | | 170,209 | |
Drive Auto Receivables Trust, | | | | | | | | | | | | | | |
2018-1, D, 3.81%, 5/15/24 | | | United States | | | | 220,000 | | | | | | 222,393 | |
2018-3, D, 4.30%, 9/16/24 | | | United States | | | | 25,000 | | | | | | 25,565 | |
2018-5, D, 4.30%, 4/15/26 | | | United States | | | | 125,000 | | | | | | 126,728 | |
c Driven Brands Funding LLC, 2018-1A, A2, 144A, 4.739%, 4/20/48 | | | United States | | | | 58,800 | | | | | | 57,453 | |
c DT Auto Owner Trust, 2018-2A, D, 144A, 4.15%, 3/15/24 | | | United States | | | | 90,000 | | | | | | 91,796 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 41 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | | | |
Diversified Financial Services (continued) | | | | | | | | | | | | | | | | |
c Education Funding Trust Trust, 2020-A, A, 144A, 2.79%, 7/25/41 | | | United States | | | | 199,916 | | | | | | | $ | 200,687 | |
c Fairstone Financial Issuance Trust I, 2019-1A, A, 144A, 3.948%, 3/21/33 | | | Canada | | | | 150,000 | | | | CAD | | | | 107,944 | |
s FNMA, 2004-T5, AB7, FRN, 0.987%, 5/28/35 | | | United States | | | | 372,741 | | | | | | | | 344,333 | |
c First Investors Auto Owner Trust, 2019-2A, D, 144A, 2.80%, 12/15/25 | | | United States | | | | 40,000 | | | | | | | | 38,311 | |
c Flagship Credit Auto Trust, 144A, | | | | | | | | | | | | | | | | |
2019-2, D, 3.53%, 5/15/25 | | | United States | | | | 165,000 | | | | | | | | 158,068 | |
2019-4, D, 3.12%, 1/15/26 | | | United States | | | | 90,000 | | | | | | | | 85,772 | |
2020-1, D, 2.48%, 3/16/26 | | | United States | | | | 140,000 | | | | | | | | 129,444 | |
c,r Galaxy XXVI CLO Ltd., 2018-26A, E, 144A, FRN, 6.208%, (3-Month USD LIBOR + 5.85%), 11/22/31 | | | United States | | | | 260,000 | | | | | | | | 210,799 | |
c GCAT LLC, 2020-1, A1, 144A, 2.981%, 1/26/60 | | | United States | | | | 88,711 | | | | | | | | 84,666 | |
c GLS Auto Receivables Trust, 144A, | | | | | | | | | | | | | | | | |
2018-3A, B, 3.78%, 8/15/23 | | | United States | | | | 70,000 | | | | | | | | 70,668 | |
2019-2A, C, 3.54%, 2/18/25 | | | United States | | | | 255,000 | | | | | | | | 247,460 | |
2020-1A, C, 2.72%, 11/17/25 | | | United States | | | | 150,000 | | | | | | | | 143,810 | |
c,r GPMT Ltd., 144A, FRN, | | | | | | | | | | | | | | | | |
2018-FL1, C, 2.321%, (1-Month USD LIBOR + 2.15%), 11/19/35 | | | United States | | | | 1,250,000 | | | | | | | | 1,167,200 | |
2019-FL2, D, 3.134%, (1-Month USD LIBOR + 2.95%), 2/22/36 | | | United States | | | | 1,000,000 | | | | | | | | 853,430 | |
j,r Great Hall Mortgages No 1 PLC, 2006-1, DA, FRN, Reg S, 1.333%, (3-Month GBP LIBOR + 0.82%), 6/18/38 | | | United Kingdom | | | | 1,330,000 | | | | GBP | | | | 1,342,748 | |
c,r GSRPM Mortgage Loan Trust, 2002-1A, M1, 144A, FRN, 2.118%, (1-Month USD LIBOR + 1.95%), 11/25/31 | | | United States | | | | 1,057,592 | | | | | | | | 1,027,390 | |
c,r Halcyon Loan Advisors Funding Ltd., 2014-1A, D, 144A, FRN, 4.635%, (3-Month USD LIBOR + 3.50%), 4/18/26 | | | United States | | | | 2,190,000 | | | | | | | | 1,910,267 | |
c Hertz Vehicle Financing II LP, 2017-2A, A, 144A, 3.29%, 10/25/23 | | | United States | | | | 91,473 | | | | | | | | 87,369 | |
Honda Auto Receivables Owner Trust, 2019-1, A3, 2.83%, 3/20/23 | | | United States | | | | 150,000 | | | | | | | | 154,366 | |
c Horizon Aircraft Finance I Ltd., 2018-1, A, 144A, 4.458%, 12/15/38 | | | United States | | | | 235,379 | | | | | | | | 204,282 | |
c,r HPLY Trust, 2019-HIT, C, 144A, FRN, 1.784%, (1-Month USD LIBOR + 1.60%), 11/15/36 | | | United States | | | | 86,057 | | | | | | | | 75,787 | |
c,r JFIN CLO Ltd., 2017-1A, DR, 144A, FRN, 3.391%, (3-Month USD LIBOR + 2.65%), 3/15/26 | | | United States | | | | 1,530,000 | | | | | | | | 1,205,702 | |
c Kestrel Aircraft Funding Ltd., 2018-1A, A, 144A, 4.25%, 12/15/38 | | | United States | | | | 222,663 | | | | | | | | 182,850 | |
c Legacy Mortgage Asset Trust, 144A, | | | | | | | | | | | | | | | | |
2018-GS2, A1, 4.00%, 4/25/58 | | | United States | | | | 171,014 | | | | | | | | 169,394 | |
2019-GS3, A1, 3.75%, 4/25/59 | | | United States | | | | 114,493 | | | | | | | | 115,646 | |
2020-GS1, A1, 2.882%, 10/25/59 | | | United States | | | | 263,195 | | | | | | | | 256,435 | |
c,r LoanCore Issuer Ltd., 2018-CRE1, D, 144A, FRN, 3.134%, (1-Month USD LIBOR + 2.95%), 5/15/28 | | | United States | | | | 1,600,000 | | | | | | | | 1,372,042 | |
c Marlette Funding Trust, 144A, | | | | | | | | | | | | | | | | |
2019-3A, A, 2.69%, 9/17/29 | | | United States | | | | 109,351 | | | | | | | | 109,252 | |
2019-4A, B, 2.95%, 12/17/29 | | | United States | | | | 290,000 | | | | | | | | 264,912 | |
r Merrill Lynch Mortgage Investors Trust Series, 2007-MLN1, A2D, FRN, 0.488%, (1-Month USD LIBOR + 0.32%), 3/25/37 | | | United States | | | | 1,122,023 | | | | | | | | 906,170 | |
s Morgan Stanley Mortgage Loan Trust, 2004-11AR, 2A, FRN, 3.115%, 1/25/35 | | | United States | | | | 406,573 | | | | | | | | 377,806 | |
c,r Mountain View CLO Ltd., 2018-1A, DRR, 144A, FRN, 4.869%, (3-Month USD LIBOR + 3.65%), 10/15/26 | | | United States | | | | 2,000,000 | | | | | | | | 1,674,303 | |
c Navient Private Education Refi Loan Trust, 144A, | | | | | | | | | | | | | | | | |
2019-FA, B, 3.12%, 8/15/68 | | | United States | | | | 210,000 | | | | | | | | 202,962 | |
2019-GA, B, 3.08%, 10/15/68 | | | United States | | | | 140,000 | | | | | | | | 134,188 | |
c,r Navistar Financial Dealer Note Master Owner Trust II, 2018-1, A, 144A, FRN, 0.798%, (1-Month USD LIBOR + 0.63%), 9/25/23 | | | United States | | | | 60,000 | | | | | | | | 59,035 | |
c,r Neuberger Berman CLO XIV Ltd., 2020-14A, CR2, 144A, FRN, | | | | | | | | | | | | | | | | |
2.787%, (3-Month USD LIBOR + 1.90%), 1/28/30 | | | United States | | | | 410,000 | | | | | | | | 384,353 | |
| | | | |
| | | |
42 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | | | |
| | | | |
Diversified Financial Services (continued) | | | | | | | | | | | | | | | | |
c,r Neuberger Berman Loan Advisers CLO 30 Ltd., 2019-30A, E, 144A, FRN, 7.885%, (3-Month USD LIBOR + 6.75%), 1/20/31 | | | United States | | | | 565,000 | | | | | | | $ | 481,062 | |
c,r NextGear Floorplan Master Owner Trust, 144A, FRN, | | | | | | | | | | | | | | | | |
2017-2A, A1, 0.864%, (1-Month USD LIBOR + 0.68%), 10/17/22 | | | United States | | | | 220,000 | | | | | | | | 218,264 | |
2018-1A, A1, 0.824%, (1-Month USD LIBOR + 0.64%), 2/15/23 | | | United States | | | | 500,000 | | | | | | | | 493,512 | |
Nissan Auto Receivables Owner Trust, | | | | | | | | | | | | | | | | |
2018-A, A3, 2.65%, 5/16/22 | | | United States | | | | 160,852 | | | | | | | | 162,388 | |
r 2018-C, A2B, FRN, 0.354%, (1-Month USD LIBOR + 0.17%), 10/15/21 | | | United States | | | | 92,695 | | | | | | | | 92,716 | |
r Nomura Home Equity Loan Inc. Home Equity Loan Trust Series, 2006-WF1, M4, FRN, 0.538%, (1-Month USD LIBOR + 0.37%), 3/25/36 | | | United States | | | | 1,294,433 | | | | | | | | 1,055,529 | |
c,r Octagon Investment Partners XXII Ltd., 2018-1A, CRR, 144A, FRN, 2.998%, (3-Month USD LIBOR + 1.90%), 1/22/30 | | | United States | | | | 250,000 | | | | | | | | 232,610 | |
c OneMain Financial Issuance Trust, 2015-3A, B, 144A, 4.16%, 11/20/28 | | | United States | | | | 155,000 | | | | | | | | 155,323 | |
c Oxford Finance Funding LLC, 2019-1A, A2, 144A, 4.459%, 2/15/27 | | | United States | | | | 50,000 | | | | | | | | 50,003 | |
c Planet Fitness Master Issuer LLC, 144A, | | | | | | | | | | | | | | | | |
2018-1A, A2I, 4.262%, 9/05/48 | | | United States | | | | 167,450 | | | | | | | | 161,598 | |
2019-1A, A2, 3.858%, 12/05/49 | | | United States | | | | 149,625 | | | | | | | | 116,989 | |
c Prestige Auto Receivables Trust, 2019-1A, E, 144A, 3.90%, 5/15/26 | | | United States | | | | 100,000 | | | | | | | | 87,273 | |
c Progress Residential Trust, 2019-SFR1, E, 144A, 4.466%, 8/17/35 | | | United States | | | | 115,000 | | | | | | | | 113,638 | |
RALI Series Trust, 2007-QS2, AP, zero cpn., 1/25/37 | | | United States | | | | 205,990 | | | | | | | | 144,780 | |
c,s RBSSP Resecuritization Trust, 2009-12, 17A2, 144A, FRN, 4.072%, 10/25/35 | | | United States | | | | 633,895 | | | | | | | | 604,637 | |
c RCO V Mortgage LLC, 2019-1, A1, 144A, 3.721%, 5/24/24 | | | United States | | | | 157,783 | | | | | | | | 148,710 | |
c Republic Finance Issuance Trust, 2019-A, A, 144A, 3.43%, 11/22/27 | | | United States | | | | 240,000 | | | | | | | | 229,672 | |
Santander Drive Auto Receivables Trust, | | | | | | | | | | | | | | | | |
2018-2, D, 3.88%, 2/15/24 | | | United States | | | | 275,000 | | | | | | | | 279,702 | |
2018-3, D, 4.07%, 8/15/24 | | | United States | | | | 210,000 | | | | | | | | 214,187 | |
2019-2, D, 3.22%, 7/15/25 | | | United States | | | | 210,000 | | | | | | | | 209,484 | |
2020-1, D, 5.35%, 3/15/28 | | | United States | | | | 230,000 | | | | | | | | 236,617 | |
c SCF Equipment Leasing LLC, 2018-1A, C, 144A, 4.21%, 4/20/27 | | | United States | | | | 255,000 | | | | | | | | 257,299 | |
c,s Security National Mortgage Loan Trust, 2004-1A, AF3, 144A, FRN, 6.42%, 6/25/32 | | | United States | | | | 1,991,400 | | | | | | | | 1,713,971 | |
c,r Silvermore CLO Ltd., 2014-1A, C, 144A, FRN, 3.842%, (3-Month USD LIBOR + 3.45%), 5/15/26 | | | United States | | | | 1,250,000 | | | | | | | | 1,099,562 | |
c S-Jets Ltd., 2017-1, A, 144A, 3.967%, 8/15/42 | | | Bermuda | | | | 223,760 | | | | | | | | 188,475 | |
r SLM Private Credit Student Loan Trust, FRN, | | | | | | | | | | | | | | | | |
2003-B, A3, 3.683%, (28-Day T-Bill + 1.00%), 3/15/33 | | | United States | | | | 250,000 | | | | | | | | 232,295 | |
2003-B, A4, 3.722%, (28-Day T-Bill + 1.00%), 3/15/33 | | | United States | | | | 50,000 | | | | | | | | 46,372 | |
c,r SMB Private Education Loan Trust, 2017-B, A2B, 144A, FRN, 0.934%, (1-Month USD LIBOR + 0.75%), 10/15/35 | | | United States | | | | 77,043 | | | | | | | | 74,755 | |
c SoFi Consumer Loan Program Trust, 144A, | | | | | | | | | | | | | | | | |
2018-1, B, 3.65%, 2/25/27 | | | United States | | | | 100,000 | | | | | | | | 99,867 | |
2019-4, C, 2.84%, 8/25/28 | | | United States | | | | 130,000 | | | | | | | | 111,910 | |
c SoFi Professional Loan Program LLC, 2016-A, B, 144A, 3.57%, 1/26/38 | | | United States | | | | 54,972 | | | | | | | | 55,681 | |
r Soundview Home Loan Trust, 2006-WF2, M3, FRN, 0.618%, (1-Month USD LIBOR + 0.45%), 12/25/36 | | | United States | | | | 1,743,389 | | | | | | | | 1,507,400 | |
c Sprite Ltd., 2017-1, B, 144A, 5.75%, 12/15/37 | | | United States | | | | 165,688 | | | | | | | | 96,272 | |
c Stack Infrastructure Issuer LLC, 2019-1A, A2, 144A, 4.54%, 2/25/44 | | | United States | | | | 123,438 | | | | | | | | 127,217 | |
c,r Staniford Street CLO Ltd., 2014-1A, D, 144A, FRN, 4.241%, (3-Month USD LIBOR + 3.50%), 6/15/25 | | | United States | | | | 1,650,000 | | | | | | | | 1,520,938 | |
c,e,r Starwood Retail Property Trust, 2014-STAR, E, 144A, FRN, 4.584%, (1-Month USD LIBOR + 4.40%), 11/15/27 | | | United States | | | | 200,000 | | | | | | | | 72,146 | |
c Taco Bell Funding LLC, 2018-1A, A2II, 144A, 4.94%, 11/25/48 | | | United States | | | | 187,150 | | | | | | | | 196,430 | |
c TAL Advantage V LLC, 2013-2A, A, 144A, 3.55%, 11/20/38 | | | United States | | | | 35,000 | | | | | | | | 35,113 | |
c,r TICP CLO II-2 Ltd., 2018-IIA, C, 144A, FRN, 4.085%, (3-Month USD LIBOR + 2.95%), 4/20/28 | | | United States | | | | 1,020,000 | | | | | | | | 892,492 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 43 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | | | |
| | | | |
Diversified Financial Services (continued) | | | | | | | | | | | | | | | | |
c,s Towd Point Mortgage Trust, 2015-2, 1A13, 144A, FRN, 2.50%, 11/25/60 | | | United States | | | | 64,739 | | | | | | | $ | 65,198 | |
c Tricon American Homes Trust, 2017-SFR1, F, 144A, 5.151%, 9/17/34 | | | United States | | | | 240,000 | | | | | | | | 237,375 | |
c,r TRTX Issuer Ltd., 2019-FL3, B, 144A, FRN, 1.934%, (1-Month USD LIBOR + 1.75%), 9/15/34 | | | United States | | | | 1,300,000 | | | | | | | | 1,197,125 | |
c,r VERDE CLO Ltd., 2019-1A, E, 144A, FRN, 8.119%, (3-Month USD LIBOR + 6.90%), 4/15/32 | | | United States | | | | 340,000 | | | | | | | | 274,265 | |
c Vericrest Opportunity Loan Trust, 2019-NPL5, A1A, 144A, 3.352%, 9/25/49 | | | United States | | | | 310,835 | | | | | | | | 296,357 | |
c,r VMC Finance LLC, 2019-FL3, C, 144A, FRN, 2.234%, (1-Month USD LIBOR + 2.05%), 9/15/36 | | | United States | | | | 555,869 | | | | | | | | 401,823 | |
c VOLT LXXXIII LLC, 2019-NPL9, A1A, 144A, 3.327%, 11/26/49 | | | United States | | | | 90,682 | | | | | | | | 86,486 | |
c VOLT LXXXVII LLC, 2020-NPL3, A1A, 144A, 2.981%, 2/25/50 | | | United States | | | | 245,880 | | | | | | | | 234,400 | |
c Wendy’s Funding LLC, 2018-1A, A2II, 144A, 3.884%, 3/15/48 | | | United States | | | | 215,050 | | | | | | | | 213,549 | |
c,r York CLO-6 Ltd., 2019-1A, D, 144A, FRN, 5.098%, (3-Month USD LIBOR + 4.00%), 7/22/32 | | | United States | | | | 455,000 | | | | | | | | 427,703 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 43,870,382 | |
| | | | | | | | | | | | | | | | |
| | | | |
Equity Real Estate Investment Trusts (REITs) 0.1% | | | | | | | | | | | | | | | | |
c American Homes 4 Rent, 144A, | | | | | | | | | | | | | | | | |
2014-SFR2, E, 6.231%, 10/17/36 | | | United States | | | | 250,000 | | | | | | | | 273,459 | |
2014-SFR3, E, 6.418%, 12/17/36 | | | United States | | | | 100,000 | | | | | | | | 110,409 | |
2015-SFR1, E, 5.639%, 4/17/52 | | | United States | | | | 210,000 | | | | | | | | 217,967 | |
c Colony American Finance Ltd., 2015-1, D, 144A, 5.649%, 10/15/47 | | | United States | | | | 115,000 | | | | | | | | 117,637 | |
c Diamond Resorts Owner Trust, 144A, | | | | | | | | | | | | | | | | |
2017-1A, C, 6.07%, 10/22/29 | | | United States | | | | 28,436 | | | | | | | | 28,309 | |
2018-1, C, 4.53%, 1/21/31 | | | United States | | | | 74,324 | | | | | | | | 71,440 | |
2019-1A, B, 3.53%, 2/20/32 | | | United States | | | | 76,626 | | | | | | | | 73,122 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 892,343 | |
| | | | | | | | | | | | | | | | |
| | | | |
Mortgage Real Estate Investment Trusts (REITs) 1.0% | | | | | | | | | | | | | | | | |
c,s Ajax Mortgage Loan Trust, 2017-B, A, 144A, FRN, 3.163%, 9/25/56 | | | United States | | | | 95,418 | | | | | | | | 94,698 | |
r American Home Mortgage Investment Trust, 2006-1, 11A1, FRN, 0.448%, (1-Month USD LIBOR + 0.28%), 3/25/46 | | | United States | | | | 207,593 | | | | | | | | 180,184 | |
Banc of America Alternative Loan Trust, 2003-8, 1CB1, 5.50%, 10/25/33 | | | United States | | | | 5,749 | | | | | | | | 5,798 | |
Banc of America Funding Trust, | | | | | | | | | | | | | | | | |
2003-1, B2, 6.00%, 5/20/33 | | | United States | | | | 293,685 | | | | | | | | 211,563 | |
2007-4, 5A1, 5.50%, 11/25/34 | | | United States | | | | 77,519 | | | | | | | | 75,714 | |
s Banc of America Mortgage Trust, 2005-A, 2A1, FRN, 3.673%, 2/25/35 | | | United States | | | | 4,801 | | | | | | | | 4,609 | |
c,r BCAP LLC Trust, 2012-RR4, 9A7, 144A, FRN, 0.567%, (1-Month USD | | | | | | | | | | | | | | | | |
LIBOR + 0.08%), 11/26/36 | | | United States | | | | 533,019 | | | | | | | | 467,012 | |
s Bear Stearns ARM Trust, 2007-4, 12A1, FRN, 4.01%, 5/25/37 | | | United States | | | | 1,871,170 | | | | | | | | 1,731,008 | |
c Citigroup Mortgage Loan Trust, 144A, | | | | | | | | | | | | | | | | |
s 2009-10, 6A2, FRN, 4.606%, 9/25/34 | | | United States | | | | 28,441 | | | | | | | | 27,659 | |
s 2018-A, A1, FRN, 4.00%, 1/25/68 | | | United States | | | | 92,269 | | | | | | | | 92,462 | |
2018-C, A1, 4.125%, 3/25/59 | | | United States | | | | 150,614 | | | | | | | | 150,240 | |
s 2019-B, A1, FRN, 3.258%, 4/25/66 | | | United States | | | | 106,170 | | | | | | | | 105,345 | |
2019-E, A1, 3.228%, 11/25/70 | | | United States | | | | 242,031 | | | | | | | | 237,658 | |
Countrywide Alternative Loan Trust, | | | | | | | | | | | | | | | | |
2003-22CB, 1A1, 5.75%, 12/25/33 | | | United States | | | | 38,279 | | | | | | | | 40,069 | |
2004-16CB, 1A1, 5.50%, 7/25/34 | | | United States | | | | 23,071 | | | | | | | | 23,975 | |
2004-16CB, 3A1, 5.50%, 8/25/34 | | | United States | | | | 24,905 | | | | | | | | 25,927 | |
2004-J10, 2CB1, 6.00%, 9/25/34 | | | United States | | | | 70,291 | | | | | | | | 74,218 | |
2005-J1, 2A1, 5.50%, 2/25/25 | | | United States | | | | 3,628 | | | | | | | | 3,677 | |
2005-J14, A3, 5.50%, 12/25/35 | | | United States | | | | 381,743 | | | | | | | | 309,790 | |
| | | | |
| | | |
44 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| | | | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | | | |
| | | | |
Mortgage Real Estate Investment Trusts (REITs) (continued) | | | | | | | | | | | | | | | | |
r Countrywide Asset-Backed Certificates, 2005-15, M3, FRN, 0.688%, (1-Month USD LIBOR + 0.52%), 4/25/36 | | | United States | | | | 2,340,000 | | | | | | | $ | 1,849,383 | |
s Countrywide Home Loans Mortgage Pass-Through Trust, 2004-HYB4, 2A1, FRN, 4.094%, 9/20/34 | | | United States | | | | 57,895 | | | | | | | | 54,090 | |
Credit Suisse First Boston Mortgage Securities Corp., | | | | | | | | | | | | | | | | |
2002-10, 1B, 7.00%, 5/25/32 | | | United States | | | | 154,389 | | | | | | | | 132,535 | |
2003-27, 4A4, 5.75%, 11/25/33 | | | United States | | | | 17,981 | | | | | | | | 18,907 | |
c CSMC OA LLC, 144A, | | | | | | | | | | | | | | | | |
2014-USA, A2, 3.953%, 9/15/37 | | | United States | | | | 150,000 | | | | | | | | 144,312 | |
2014-USA, E, 4.373%, 9/15/37 | | | United States | | | | 400,000 | | | | | | | | 299,716 | |
r DSLA Mortgage Loan Trust, 2005-AR5, 2A1A, FRN, 0.502%, (1-Month USD
LIBOR + 0.33%), 9/19/45 | | | United States | | | | 38,920 | | | | | | | | 28,701 | |
j,r Dukinfield II PLC, 2016-2, A, FRN, Reg S, 1.787%, (3-Month GBP LIBOR + 1.25%), 12/20/52 | | | United Kingdom | | | | 152,896 | | | | GBP | | | | 188,142 | |
r FNMA, 2017-C07, 1M2, FRN, 2.568%, (1-Month USD LIBOR + 2.40%), 5/25/30 | | | United States | | | | 52,679 | | | | | | | | 52,039 | |
r FHLMC Structured Agency Credit Risk Debt Notes, FRN, | | | | | | | | | | | | | | | | |
2015-DNA1, M2, 2.018%, (1-Month USD LIBOR + 1.85%), 10/25/27 | | | United States | | | | 68,311 | | | | | | | | 68,286 | |
2015-DNA1, M3, 3.468%, (1-Month USD LIBOR + 3.30%), 10/25/27 | | | United States | | | | 250,000 | | | | | | | | 256,411 | |
c,s GS Mortgage Securities Trust, 2011-GC5, D, 144A, FRN, 5.389%, 8/10/44 | | | United States | | | | 195,000 | | | | | | | | 141,960 | |
GSR Mortgage Loan Trust, | | | | | | | | | | | | | | | | |
2005-4F, 6A1, 6.50%, 2/25/35 | | | United States | | | | 8,765 | | | | | | | | 8,702 | |
s 2005-AR6, 4A5, FRN, 4.502%, 9/25/35 | | | United States | | | | 50,283 | | | | | | | | 49,271 | |
r Harborview Mortgage Loan Trust, 2004-11, 2A2A, FRN, 0.812%, (1-Month USD LIBOR + 0.64%), 1/19/35 | | | United States | | | | 89,282 | | | | | | | | 80,018 | |
IndyMac INDX Mortgage Loan Trust, FRN, | | | | | | | | | | | | | | | | |
r 2004-AR12, A1, 0.948%, (1-Month USD LIBOR + 0.78%), 12/25/34 | | | United States | | | | 1,910,668 | | | | | | | | 1,506,026 | |
r 2004-AR7, A5, 1.388%, (1-Month USD LIBOR + 1.22%), 9/25/34 | | | United States | | | | 47,128 | | | | | | | | 41,523 | |
s 2005-AR11, A3, 3.572%, 8/25/35 | | | United States | | | | 50,433 | | | | | | | | 43,087 | |
r 2006-AR2, 2A1, 0.378%, (1-Month USD LIBOR + 0.21%), 2/25/46 | | | United States | | | | 218,156 | | | | | | | | 171,540 | |
c,r Invitation Homes Trust, 144A, FRN, | | | | | | | | | | | | | | | | |
2018-SFR1, E, 2.182%, (1-Month USD LIBOR + 2.00%), 3/17/37 | | | United States | | | | 99,986 | | | | | | | | 95,424 | |
2018-SFR2, E, 2.184%, (1-Month USD LIBOR + 2.00%), 6/17/37 | | | United States | | | | 200,000 | | | | | | | | 190,449 | |
JP Morgan Mortgage Trust, | | | | | | | | | | | | | | | | |
2004-S1, 2A1, 6.00%, 9/25/34 | | | United States | | | | 95,617 | | | | | | | | 101,915 | |
s 2007-A1, 4A2, FRN, 4.686%, 7/25/35 | | | United States | | | | 2,825 | | | | | | | | 2,718 | |
r Lehman XS Trust Series, 2006-2N, 1A1, FRN, 0.428%, (1-Month USD LIBOR + 0.26%), 2/25/46 | | | United States | | | | 39,781 | | | | | | | | 33,842 | |
MASTR Alternative Loan Trust, | | | | | | | | | | | | | | | | |
2004-2, 8A4, 5.50%, 3/25/34 | | | United States | | | | 148,202 | | | | | | | | 148,697 | |
2004-8, 2A1, 6.00%, 9/25/34 | | | United States | | | | 45,970 | | | | | | | | 47,816 | |
s Merrill Lynch Mortgage Investors MLCC, 2006-2, 2A, FRN, 3.266%, 5/25/36 | | | United States | | | | 3,521 | | | | | | | | 3,386 | |
c,s Morgan Stanley Capital I Trust, 2011-C2, E, 144A, FRN, 5.478%, 6/15/44 | | | United States | | | | 150,000 | | | | | | | | 89,719 | |
c PRPM LLC, 2019-4A, A1, 144A, 3.351%, 11/25/24 | | | United States | | | | 109,309 | | | | | | | | 105,694 | |
s RFMSI Trust, 2005-SA1, 1A1, FRN, 4.582%, 3/25/35 | | | United States | | | | 100,171 | | | | | | | | 65,496 | |
r Structured ARM Loan Trust, 2005-14, A1, FRN, 0.478%, (1-Month USD LIBOR + 0.31%), 7/25/35 | | | United States | | | | 236,567 | | | | | | | | 171,188 | |
c,s Wells Fargo Commercial Mortgage Trust, 2019-JWDR, C, 144A, FRN, 3.139%, 9/15/31 | | | United States | | | | 290,000 | | | | | | | | 267,059 | |
s WF-RBS Commercial Mortgage Trust, FRN, | | | | | | | | | | | | | | | | |
c,e 2011-C2, D, 144A, 5.662%, 2/15/44 | | | United States | | | | 35,000 | | | | | | | | 25,711 | |
c 2011-C3, D, 144A, 5.68%, 3/15/44 | | | United States | | | | 90,000 | | | | | | | | 40,839 | |
c 2012-C6, D, 144A, 5.578%, 4/15/45 | | | United States | | | | 150,000 | | | | | | | | 136,322 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 45 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| | | | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | | | | | |
| | | | |
Mortgage Real Estate Investment Trusts (REITs) (continued) | | | | | | | | | | | | | | | | |
2012-C7, C, 4.812%, 6/15/45 | | | United States | | | | 25,000 | | | | | | | $ | 16,877 | |
c 2012-C7, E, 144A, 4.812%, 6/15/45 | | | United States | | | | 75,000 | | | | | | | | 30,356 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 10,569,763 | |
| | | | | | | | | | | | | | | | |
| | | | |
Thrifts & Mortgage Finance 0.1% | | | | | | | | | | | | | | | | |
c,r BX Commercial Mortgage Trust, 2019-XL, E, 144A, FRN, 1.984%, (1-Month USD LIBOR + 1.80%), 10/15/36 | | | United States | | | | 1,242,021 | | | | | | | | 1,181,607 | |
| | | | | | | | | | | | | | | | |
Total Asset-Backed Securities and Commercial Mortgage-Backed Securities (Cost $62,769,754) | | | | | | | | | | | | | | | 57,652,779 | |
| | | | | | | | | | | | | | | | |
| | | | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities in Reorganization (Cost $474,871) 0.0%† | | | | | | | | | | | | | | | | |
| | | | |
Airlines 0.0%† | | | | | | | | | | | | | | | | |
h Latam Airlines Pass Through Trust, 2015-1, B, secured note, 4.50%, 11/15/23 | | | Chile | | | | 474,871 | | | | | | | | 290,014 | |
| | | | | | | | | | | | | | | | |
| | | | |
Municipal Bonds in Reorganization 0.5% | | | | | | | | | | | | | | | | |
| | | | |
Puerto Rico 0.5% | | | | | | | | | | | | | | | | |
h Puerto Rico Commonwealth GO, Public Improvement, Refunding, | | | | | | | | | | | | | | | | |
Series A, | | | | | | | | | | | | | | | | |
5.50%, 7/01/39 | | | United States | | | | 715,000 | | | | | | | | 413,806 | |
5.00%, 7/01/41 | | | United States | | | | 1,000,000 | | | | | | | | 556,250 | |
h Puerto Rico Commonwealth GO, Refunding, Series A, 8.00%, 7/01/35 | | | United States | | | | 7,155,000 | | | | | | | | 3,917,363 | |
h Puerto Rico Electric Power Authority Power Revenue, | | | | | | | | | | | | | | | | |
d A-RSA-1, 5.00%, 7/01/42 | | | United States | | | | 563,000 | | | | | | | | 347,653 | |
TT-RSA-1, 5.00%, 7/01/37 | | | United States | | | | 295,000 | | | | | | | | 182,162 | |
WW-RSA-1, 5.25%, 7/01/33 | | | United States | | | | 10,000 | | | | | | | | 6,200 | |
XX, 5.25%, 7/01/40 | | | United States | | | | 170,000 | | | | | | | | 105,400 | |
| | | | | | | | | | | | | | | | |
Total Municipal Bonds in Reorganization (Cost $5,447,687) | | | | | | | | | | | | | | | 5,528,834 | |
| | | | | | | | | | | | | | | | |
| | | |
| | | Number of
Contracts | | | Notional Amount# | | | | |
| | | | | | | | |
Options Purchased 0.2% | | | | | | | | | | | | | | | | |
Calls – Exchange-Traded 0.1% | | | | | | | | | | | | | | | | |
Cardtronics PLC, July Strike Price $30.00, Expires 7/17/20 | | | 26 | | | | 2,600 | | | | | | | | 1,950 | |
E-Mini S&P 500 Futures, June Strike Price $2,800.00, Expires 6/19/20 | | | 28 | | | | 1,400 | | | | | | | | 360,920 | |
Energy Transfer LP, July Strike Price $12.00, Expires 7/17/20 | | | 223 | | | | 22,300 | | | | | | | | 669 | |
HP Inc., July Strike Price $17.00, Expires 7/17/20 | | | 57 | | | | 5,700 | | | | | | | | 2,394 | |
HP Inc., August Strike Price $16.00, Expires 8/21/20 | | | 452 | | | | 45,200 | | | | | | | | 46,556 | |
HP Inc., August Strike Price $18.00, Expires 8/21/20 | | | 487 | | | | 48,700 | | | | | | | | 26,785 | |
S&P 500 Index, June Strike Price $2,950.00, Expires 6/19/20 | | | 3 | | | | 300 | | | | | | | | 37,611 | |
S&P 500 Index, July Strike Price $3,100.00, Expires 7/17/20 | | | 2 | | | | 200 | | | | | | | | 14,200 | |
S&P 500 Index, December Strike Price $3,150.00, Expires 12/18/20 | | | 14 | | | | 1,400 | | | | | | | | 220,360 | |
Sabre Corp., July Strike Price $10.00, Expires 7/17/20 | | | 79 | | | | 7,900 | | | | | | | | 2,765 | |
STOXX Europe 600 Automobiles & Parts Index, December Strike Price 500.00 EUR, Expires 12/18/20 | | | 100 | | | | 5,000 | | | | | | | | 27,751 | |
Taubman Centers Inc., December Strike Price $45.00, Expires 12/18/20 | | | 39 | | | | 3,900 | | | | | | | | 19,110 | |
ViacomCBS Inc., B, June Strike Price $47.50, Expires 6/19/20 | | | 302 | | | | 30,200 | | | | | | | | 302 | |
Vodafone Group PLC, ADR, July Strike Price $20.00, Expires 7/17/20 | | | 280 | | | | 28,000 | | | | | | | | 840 | |
Vodafone Group PLC, September Strike Price 1.20 GBP, Expires 9/18/20 | | | 308 | | | | 308,000 | | | | | | | | 57,057 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 819,270 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
46 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | |
| | | Number of
Contracts | | | Notional Amount# | | Value | |
Options Purchased (continued) | | | | | | | | | | | | | | |
Calls – Over-the-Counter 0.0%† | | | | | | | | | | | | | | |
Currency Options 0.0%† | | | | | | | | | | | | | | |
AUD/USD, Counterparty JPHQ, June Strike Price $0.68, Expires 6/24/20 | | | 1 | | | | 4,000,000 | | | AUD | | $ | 13,608 | |
AUD/USD, Counterparty JPHQ, June Strike Price $0.68, Expires 6/25/20 | | | 1 | | | | 2,600,000 | | | AUD | | | 7,112 | |
AUD/USD, Counterparty JPHQ, June Strike Price $0.68, Expires 6/26/20 | | | 1 | | | | 2,000,000 | | | AUD | | | 7,298 | |
EUR/CHF, Counterparty JPHQ, August Strike Price 1.07 CHF, Expires 8/06/20 | | | 1 | | | | 2,100,000 | | | EUR | | | 22,966 | |
GBP/JPY, Counterparty JPHQ, July Strike Price 150.00 JPY, Expires 7/08/20 | | | 1 | | | | 4,772,727 | | | GBP | | | 18 | |
NZD/USD, Counterparty JPHQ, September Strike Price $0.65, Expires 9/01/20 | | | 1 | | | | 3,200,000 | | | NZD | | | 10,568 | |
USD/BRL, Counterparty JPHQ, June Strike Price 4.50 BRL, Expires 6/08/20 | | | 1 | | | | 1,100,000 | | | | | | 173,049 | |
USD/CNY, Counterparty JPHQ, July Strike Price 7.15 CNY, Expires 7/07/20 | | | 1 | | | | 2,250,000 | | | | | | 17,972 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 252,591 | |
| | | | | | | | | | | | | | |
| | | | |
Puts – Exchange-Traded 0.1% | | | | | | | | | | | | | | |
5-Year U.S. Treasury Note Futures, August Strike Price $123.50, Expires 8/21/20 | | | 84 | | | | 84,000 | | | | | | 5,250 | |
Bombardier Inc., B, January Strike Price 1.00 CAD, Expires 1/15/21 | | | 435 | | | | 43,500 | | | | | | 20,220 | |
Caesars Entertainment Corp., June Strike Price $7.00, Expires 6/19/20 | | | 400 | | | | 40,000 | | | | | | 800 | |
Casino Guichard Perrachon SA, December Strike Price 26.00 EUR, Expires 12/19/20 | | | 15 | | | | 1,500 | | | | | | 2,564 | |
GTT Communications Inc., August Strike Price $7.50, Expires 8/21/20 | | | 98 | | | | 9,800 | | | | | | 16,170 | |
Inseego Corp., September Strike Price $7.50, Expires 9/18/20 | | | 40 | | | | 4,000 | | | | | | 3,400 | |
Invesco QQQ Trust, July Strike Price $223.00, Expires 7/17/20 | | | 409 | | | | 40,900 | | | | | | 211,862 | |
S&P 500 Index, June Strike Price $2,750.00, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | 1,130 | |
STOXX Europe 600 Food & Beverage Index, December Strike Price 760.00 EUR, Expires 12/18/20 | | | 100 | | | | 5,000 | | | | | | 580,001 | |
Taubman Centers Inc., June Strike Price $30.00, Expires 6/19/20 | | | 40 | | | | 4,000 | | | | | | 2,840 | |
Tiffany & Co., January Strike Price $120.00, Expires 1/15/21 | | | 59 | | | | 5,900 | | | | | | 36,875 | |
Vodafone Group PLC, September Strike Price 1.05 GBP, Expires 9/18/20 | | | 548 | | | | 548,000 | | | | | | 15,228 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 896,340 | |
| | | | | | | | | | | | | | |
| | | | |
Puts – Over-the-Counter 0.0%† | | | | | | | | | | | | | | |
Currency Options 0.0%† | | | | | | | | | | | | | | |
AUD/USD, Counterparty JPHQ, June Strike Price $0.64, Expires 6/30/20 | | | 1 | | | | 2,000,000 | | | AUD | | | 3,013 | |
EUR/USD, Counterparty JPHQ, June Strike Price $1.07, Expires 6/18/20 | | | 1 | | | | 2,100,000 | | | EUR | | | 107 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 3,120 | |
| | | | | | | | | | | | | | |
Total Options Purchased (Cost $1,844,069) | | | | | | | | | | | | | 1,971,321 | |
| | | | | | | | | | | | | | |
| | | | |
Total Investments before Short Term Investments
(Cost $717,864,143) | | | | | | | | | | | | | 838,490,696 | |
| | | | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 47 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
| | | | |
Short Term Investments 21.9% | | | | | | | | | | | | |
Convertible Bonds 0.2% | | | | | | | | | | | | |
Health Care Equipment & Supplies 0.2% | | | | | | | | | | | | |
d NuVasive Inc., senior note, 2.25%, 3/15/21 | | | United States | | | 1,898,000 | | | | $ | 2,166,964 | |
| | | | | | | | | | | | |
Independent Power & Renewable Electricity Producers 0.0%† | | | | | | | | | | | | |
c Nextera Energy Partners LP, senior note, 144A, 1.50%, 9/15/20 | | | United States | | | 161,000 | | | | | 167,023 | |
| | | | | | | | | | | | |
| | | | |
Total Convertible Bonds (Cost $2,153,791) | | | | | | | | | | | 2,333,987 | |
| | | | | | | | | | | | |
| | | | |
Corporate Bonds and Notes (Cost $81,886) 0.0%† | | | | | | | | | | | | |
| | | | |
Specialty Retail 0.0%† | | | | | | | | | | | | |
L Brands Inc., senior bond, 6.625%, 4/01/21 | | | United States | | | 88,000 | | | | | 87,879 | |
| | | | | | | | | | | | |
q Credit-Linked Notes (Cost $972,980) 0.1% | | | | | | | | | | | | |
c Citigroup Global Markets Holdings Inc., GMTN, senior note, (Ukraine), 144A, 14.64%, 6/12/20 | | | Ukraine | | | 23,087,704 | | UAH | | | 838,163 | |
| | | | | | | | | | | | |
| | | | |
| | | | | | Shares | | | | | |
Money Market Funds 19.0% | | | | | | | | | | | | |
u,v Dreyfus Government Cash Management, Institutional, 0.10% | | | United States | | | 19,522,965 | | | | | 19,522,965 | |
u Fidelity Investments Money Market Government Portfolio, Institutional, 0.08% | | | United States | | | 192,782,195 | | | | | 192,782,195 | |
| | | | | | | | | | | | |
Total Money Market Funds (Cost $212,305,160) | | | | | | | | | | | 212,305,160 | |
| | | | | | | | | | | | |
| | | |
| | | | | | Principal Amount* | | | |
Repurchase Agreements (Cost $12,235,736) 1.1% | | | | | | | | | | | | |
w Joint Repurchase Agreement, 0.048%, 6/01/20 (Maturity Value $12,235,785) | | | United States | | | 12,235,736 | | | | | 12,235,736 | |
| | | | | | | | | | | | |
BNP Paribas Securities Corp. (Maturity Value $7,603,072) | | | | | | | | | | | | |
Deutsche Bank Securities Inc. (Maturity Value $2,098,437) | | | | | | | | | | | | |
HSBC Securities (USA) Inc. (Maturity Value $2,534,276) Collateralized by U.S. Government Agency Securities, 3.00%– 4.50%, 12/20/49–4/20/50; x U.S. Treasury Bills, 8/18/20–9/22/20; and U.S. Treasury Notes, 2.00%–2.50%, 2/15/22–1/31/24 (valued at $12,487,411) | | | | | | | | | | | | |
| | | | |
| | | | | | Shares | | | | | |
y Investments from Cash Collateral Received for Loaned Securities 0.1% | | | | | | | | | | | | |
Money Market Funds 0.1% | | | | | | | | | | | | |
u,z Institutional Fiduciary Trust Money Market Portfolio, 0.00% | | | United States | | | 1,731,000 | | | | | 1,731,000 | |
| | | | | | | | | | | | |
| | | |
| | | | | | Principal Amount* | | | |
| | | | |
Repurchase Agreements 0.0%† | | | | | | | | | | | | |
w Joint Repurchase Agreement, 0.05%, 6/01/20 (Maturity Value $404,844) | | | United States | | | 404,842 | | | | | 404,842 | |
| | | | | | | | | | | | |
| | | | |
J.P. Morgan Securities LLC | | | | | | | | | | | | |
Collateralized by U.S. Government Agency Obligations, 0.00%-1.50%, 6/15/20-4/15/21 (valued at $412,877) | | | | | | | | | | | | |
Total Investments from Cash Collateral Received for Loaned Securities (Cost $2,135,842) | | | | | | | | | | | 2,135,842 | |
| | | | | | | | | | | | |
| | | | |
| | | |
48 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| | | | |
Short Term Investments (continued) | | | | | | | | | | | | | | | | |
U.S. Government and Agency Securities 1.4% | | | | | | | | | | | | | | | | |
x U.S. Treasury Bill, zero cpn., | | | | | | | | | | | | | | | | |
d 9/24/20 | | | United States | | | | 12,700,000 | | | | | | | $ | 12,693,407 | |
11/19/20–12/03/20 | | | United States | | | | 3,225,000 | | | | | | | | 3,222,452 | |
| | | | | | | | | | | | | | | | |
| | | | |
Total U.S. Government and Agency Securities
(Cost $15,912,363) | | | | | | | | | | | | | | | 15,915,859 | |
| | | | | | | | | | | | | | | | |
Total Investments (Cost $963,661,901) 96.8% | | | | | | | | | | | | | | | 1,084,343,322 | |
Options Written (0.2)% | | | | | | | | | | | | | | | (1,946,512 | ) |
Securities Sold Short (25.7)% | | | | | | | | | | | | | | | (287,893,067 | ) |
Other Assets, less Liabilities 29.1% | | | | | | | | | | | | | | | 325,259,542 | |
| | | | | | | | | | | | | | | | |
| | | | |
Net Assets 100.0% | | | | | | | | | | | | | | $ | 1,119,763,285 | |
| | | | | | | | | | | | | | | | |
| | | Number of
Contracts | | | Notional Amount# | | | | |
| | | | |
aa Options Written (0.2)% | | | | | | | | | | | | | | | | |
Calls – Exchange-Traded (0.0)%† | | | | | | | | | | | | | | | | |
Altria Group Inc., June Strike Price $45.00, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (4 | ) |
Applied Materials Inc., June Strike Price $62.50, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (35 | ) |
Bombardier Inc., B, January Strike Price 2.00 CAD, Expires 1/15/21 | | | 435 | | | | 43,500 | | | | | | | | (2,528 | ) |
Comcast Corp., A, June Strike Price $42.50, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (12 | ) |
D.R. Horton Inc., June Strike Price $50.00, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (610 | ) |
E-Mini S&P 500 Futures, June Strike Price $2,900.00, Expires 6/19/20 | | | 28 | | | | 1,400 | | | | | | | | (238,280 | ) |
Enterprise Products Partners LP, June Strike Price $18.00, Expires 6/19/20 | | | 5 | | | | 500 | | | | | | | | (750 | ) |
Fidelity National Financial Inc., June Strike Price $31.00, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (162 | ) |
HP Inc., June Strike Price $18.00, Expires 6/19/20 | | | 4 | | | | 400 | | | | | | | | (28 | ) |
Intel Corp., June Strike Price $67.50, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (50 | ) |
L Brands Inc., June Strike Price $13.00, Expires 6/19/20 | | | 39 | | | | 3,900 | | | | | | | | (14,703 | ) |
L Brands Inc., June Strike Price $11.00, Expires 6/26/20 | | | 68 | | | | 6,800 | | | | | | | | (35,360 | ) |
L Brands Inc., June Strike Price $11.50, Expires 6/26/20 | | | 168 | | | | 16,800 | | | | | | | | (83,160 | ) |
L Brands Inc., June Strike Price $14.00, Expires 6/26/20 | | | 20 | | | | 2,000 | | | | | | | | (5,750 | ) |
Merck & Co. Inc., June Strike Price $90.00, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (5 | ) |
NASDAQ 100 E-Mini Futures, June Strike Price $9,800.00, Expires 6/19/20 | | | 14 | | | | 280 | | | | | | | | (28,000 | ) |
Newmont Corp., June Strike Price $70.00, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (17 | ) |
Oracle Corp., June Strike Price $57.50, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (40 | ) |
Philip Morris International Inc., June Strike Price $85.00, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (4 | ) |
QUALCOMM Inc., June Strike Price $90.00, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (21 | ) |
S&P 500 Index, June Strike Price $2,950.00, Expires 6/19/20 | | | 2 | | | | 200 | | | | | | | | (25,074 | ) |
S&P E-Mini 500 European Style Weekly Options, July Strike Price $3,060.00, Expires 7/17/20 | | | 28 | | | | 1,400 | | | | | | | | (121,450 | ) |
Stemline Therapeutics Inc., June Strike Price $12.50, Expires 6/19/20 | | | 342 | | | | 34,200 | | | | | | | | (3,420 | ) |
STOXX Europe 600 Food & Beverage Index, December Strike Price 760.00 EUR, Expires 12/18/20 | | | 100 | | | | 5,000 | | | | | | | | (32,191 | ) |
Tiffany & Co., June Strike Price $130.00, Expires 6/19/20 | | | 59 | | | | 5,900 | | | | | | | | (10,915 | ) |
Verizon Communications Inc., June Strike Price $60.00, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (16 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | (602,585 | ) |
| | | | | | | | | | | | | | | | |
Calls – Over-the-Counter (0.1)% | | | | | | | | | | | | | | | | |
Currency Options (0.1)% | | | | | | | | | | | | | | | | |
GBP/JPY, Counterparty JPHQ, July Strike Price 139.00 JPY, Expires 7/17/20 | | | 1 | | | | 2,727,273 | | | | GBP | | | | (3,349 | ) |
GBP/USD, Counterparty JPHQ, June Strike Price $1.31, Expires 6/30/20 | | | 1 | | | | 1,750,000 | | | | GBP | | | | (440 | ) |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 49 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Number of
Contracts | | | Notional Amount# | | | Value | |
| | | | |
aa Options Written (continued) | | | | | | | | | | | | | | | | |
Calls – Over-the-Counter (continued) | | | | | | | | | | | | | | | | |
Currency Options (continued) | | | | | | | | | | | | | | | | |
USD/BRL, Counterparty JPHQ, June Strike Price 4.50 BRL, Expires 6/08/20 | | | 1 | | | | 1,100,000 | | | | | | | $ | (173,049 | ) |
USD/BRL, Counterparty JPHQ, October Strike Price 4.75 BRL, Expires 10/08/20 | | | 1 | | | | 1,210,000 | | | | | | | | (146,475 | ) |
USD/RUB, Counterparty JPHQ, July Strike Price 79.50 RUB, Expires 7/20/20 | | | 1 | | | | 394,000 | | | | | | | | (774 | ) |
USD/ZAR, Counterparty JPHQ, July Strike Price 19.25 ZAR, Expires 7/20/20 | | | 1 | | | | 551,000 | | | | | | | | (2,685 | ) |
USD/ZAR, Counterparty JPHQ, August Strike Price 17.30 ZAR, Expires 8/13/20 | | | 1 | | | | 500,000 | | | | | | | | (20,364 | ) |
USD/ZAR, Counterparty JPHQ, November Strike Price 19.75 ZAR, Expires 11/19/20 | | | 1 | | | | 137,750 | | | | | | | | (2,474 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | (349,610 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Puts – Exchange-Traded (0.1)% | | | | | | | | | | | | | | | | |
5-Year U.S. Treasury Note Futures, August Strike Price $124.75, Expires 8/21/20 | | | 28 | | | | 28,000 | | | | | | | | (4,813 | ) |
Caesars Entertainment Corp., June Strike Price $4.00, Expires 6/19/20 | | | 400 | | | | 40,000 | | | | | | | | (800 | ) |
Cardtronics PLC, September Strike Price $20.00, Expires 9/18/20 | | | 26 | | | | 2,600 | | | | | | | | (5,070 | ) |
HP Inc., August Strike Price $14.00, Expires 8/21/20 | | | 272 | | | | 27,200 | | | | | | | | (29,920 | ) |
S&P 500 Index, June Strike Price $2,500.00, Expires 6/19/20 | | | 1 | | | | 100 | | | | | | | | (340 | ) |
S&P 500 Index, December Strike Price $1,900.00, Expires 12/18/20 | | | 8 | | | | 800 | | | | | | | | (19,880 | ) |
S&P 500 Index, December Strike Price $2,400.00, Expires 12/18/20 | | | 6 | | | | 600 | | | | | | | | (47,340 | ) |
STOXX Europe 600 Automobiles & Parts Index, December Strike Price 500.00 EUR, Expires 12/18/20 | | | 100 | | | | 5,000 | | | | | | | | (753,724 | ) |
Taubman Centers Inc., December Strike Price $30.00, Expires 12/18/20 | | | 39 | | | | 3,900 | | | | | | | | (17,199 | ) |
Tiffany & Co., January Strike Price $100.00, Expires 1/15/21 | | | 59 | | | | 5,900 | | | | | | | | (20,060 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | (899,146 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Puts – Over-the-Counter (0.0)%† | | | | | | | | | | | | | | | | |
Currency Options (0.0)%† | | | | | | | | | | | | | | | | |
AUD/USD, Counterparty JPHQ, June Strike Price $0.64, Expires 6/24/20 | | | 1 | | | | 4,000,000 | | | | AUD | | | | (5,938 | ) |
AUD/USD, Counterparty JPHQ, June Strike Price $0.64, Expires 6/25/20 | | | 1 | | | | 2,600,000 | | | | AUD | | | | (4,074 | ) |
AUD/USD, Counterparty JPHQ, June Strike Price $0.64, Expires 6/26/20 | | | 1 | | | | 2,000,000 | | | | AUD | | | | (2,582 | ) |
AUD/USD, Counterparty JPHQ, June Strike Price $0.64, Expires 6/30/20 | | | 1 | | | | 2,000,000 | | | | AUD | | | | (3,013 | ) |
EUR/CHF, Counterparty JPHQ, August Strike Price 1.04 CHF, Expires 8/06/20 | | | 1 | | | | 2,100,000 | | | | EUR | | | | (4,866 | ) |
EUR/USD, Counterparty JPHQ, June Strike Price $1.07, Expires 6/18/20 | | | 1 | | | | 2,100,000 | | | | EUR | | | | (108 | ) |
GBP/JPY, Counterparty JPHQ, July Strike Price 128.50 JPY, Expires 7/17/20 | | | 1 | | | | 2,727,273 | | | | GBP | | | | (15,808 | ) |
GBP/USD, Counterparty JPHQ, June Strike Price $1.18, Expires 6/30/20 | | | 1 | | | | 1,750,000 | | | | GBP | | | | (2,267 | ) |
NZD/USD, Counterparty JPHQ, September Strike Price $0.60, Expires 9/01/20 | | | 1 | | | | 3,200,000 | | | | NZD | | | | (21,980 | ) |
USD/BRL, Counterparty JPHQ, October Strike Price 4.50 BRL, Expires 10/08/20 | | | 1 | | | | 366,667 | | | | | | | | (737 | ) |
USD/RUB, Counterparty JPHQ, November Strike Price 70.80 RUB, Expires 11/20/20 | | | 1 | | | | 394,000 | | | | | | | | (12,099 | ) |
USD/TWD, Counterparty JPHQ, August Strike Price 29.25 TWD, Expires 8/03/20 | | | 1 | | | | 1,000,000 | | | | | | | | (2,489 | ) |
USD/ZAR, Counterparty JPHQ, July Strike Price 18.25 ZAR, Expires 7/20/20 | | | 1 | | | | 275,500 | | | | | | | | (13,064 | ) |
USD/ZAR, Counterparty JPHQ, November Strike Price 17.00 ZAR, Expires 11/19/20 | | | 1 | | | | 275,500 | | | | | | | | (6,146 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | (95,171 | ) |
| | | | | | | | | | | | | | | | |
Total Options Written (Premiums Received $1,353,412) | | | | | | | | | | | | | | | (1,946,512 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
50 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares | | | Value | |
| | | |
bb Securities Sold Short (25.7)% | | | | | | | | | | | | |
Common Stocks (12.0)% | | | | | | | | | | | | |
Aerospace & Defense (0.5)% | | | | | | | | | | | | |
Heico Corp. | | | United States | | | �� | 19,153 | | | $ | (1,929,856 | ) |
Northrop Grumman Corp. | | | United States | | | | 4,441 | | | | (1,488,623 | ) |
TransDigm Group Inc. | | | United States | | | | 5,336 | | | | (2,266,840 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | (5,685,319 | ) |
| | | | | | | | | | | | |
| | | |
Air Freight & Logistics (0.3)% | | | | | | | | | | | | |
Air Transport Services Group Inc. | | | United States | | | | 36,494 | | | | (786,081 | ) |
Atlas Air Worldwide Holdings Inc. | | | United States | | | | 26,272 | | | | (1,026,184 | ) |
C.H. Robinson Worldwide Inc. | | | United States | | | | 3,247 | | | | (263,429 | ) |
United Parcel Service Inc., B | | | United States | | | | 8,572 | | | | (854,714 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | (2,930,408 | ) |
| | | | | | | | | | | | |
| | | |
Airlines (0.1)% | | | | | | | | | | | | |
Air Canada, B | | | Canada | | | | 16,594 | | | | (191,629 | ) |
American Airlines Group Inc. | | | United States | | | | 1,672 | | | | (17,556 | ) |
Copa Holdings SA, A | | | Panama | | | | 11,785 | | | | (516,890 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | (726,075 | ) |
| | | | | | | | | | | | |
| | | |
Auto Components (0.3)% | | | | | | | | | | | | |
Delphi Technologies PLC | | | United States | | | | 272,005 | | | | (3,503,424 | ) |
| | | | | | | | | | | | |
| | | |
Automobiles (0.2)% | | | | | | | | | | | | |
Ferrari NV | | | Italy | | | | 4,768 | | | | (804,409 | ) |
Ford Motor Co. | | | United States | | | | 77,123 | | | | (440,372 | ) |
Winnebago Industries Inc. | | | United States | | | | 15,839 | | | | (861,642 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | (2,106,423 | ) |
| | | | | | | | | | | | |
| | | |
Banks (0.0)%† | | | | | | | | | | | | |
HSBC Holdings PLC, ADR | | | United Kingdom | | | | 6,141 | | | | (141,550 | ) |
| | | | | | | | | | | | |
| | | |
Biotechnology (0.8)% | | | | | | | | | | | | |
Apellis Pharmaceuticals Inc. | | | United States | | | | 21,377 | | | | (720,191 | ) |
BioMarin Pharmaceutical Inc. | | | United States | | | | 1,839 | | | | (195,945 | ) |
Bridgebio Pharma Inc. | | | United States | | | | 37,262 | | | | (1,092,895 | ) |
Coherus Biosciences Inc. | | | United States | | | | 71,827 | | | | (1,338,855 | ) |
Cytokinetics Inc. | | | United States | | | | 26,158 | | | | (541,732 | ) |
Flexion Therapeutics Inc. | | | United States | | | | 31,863 | | | | (364,194 | ) |
Gossamer Bio Inc. | | | United States | | | | 17,790 | | | | (216,149 | ) |
Halozyme Therapeutics Inc. | | | United States | | | | 25,252 | | | | (612,866 | ) |
Insmed Inc. | | | United States | | | | 11,965 | | | | (290,630 | ) |
Intercept Pharmaceuticals Inc. | | | United States | | | | 6,688 | | | | (483,275 | ) |
Ironwood Pharmaceuticals Inc., A | | | United States | | | | 94,702 | | | | (921,450 | ) |
Karyopharm Therapeutics Inc. | | | United States | | | | 53,869 | | | | (996,038 | ) |
Neurocrine Biosciences Inc. | | | United States | | | | 8,388 | | | | (1,046,487 | ) |
Radius Health Inc. | | | United States | | | | 7,263 | | | | (91,950 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | (8,912,657 | ) |
| | | | | | | | | | | | |
| | | |
Building Products (0.1)% | | | | | | | | | | | | |
Patrick Industries Inc. | | | United States | | | | 10,160 | | | | (526,999 | ) |
| | | | | | | | | | | | |
| | | |
Capital Markets (0.1)% | | | | | | | | | | | | |
The Charles Schwab Corp. | | | United States | | | | 23,758 | | | | (853,150 | ) |
Morgan Stanley | | | United States | | | | 8,346 | | | | (368,893 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | (1,222,043 | ) |
| | | | | | | | | | | | |
| | | |
Commercial Services & Supplies (0.0)%† | | | | | | | | | | | | |
Team Inc. | | | United States | | | | 38,191 | | | | (188,282 | ) |
| | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 51 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares | | | Value | |
| | | |
bb Securities Sold Short (continued) | | | | | | | | | | | | |
Common Stocks (continued) | | | | | | | | | | | | |
Communications Equipment (0.0)%† | | | | | | | | | | | | |
Infinera Corp. | | | United States | | | | 52,060 | | | $ | (259,259 | ) |
Inseego Corp. | | | United States | | | | 6,311 | | | | (67,023 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (326,282 | ) |
| | | | | | | | | | | | |
| | | |
Construction & Engineering (0.0)%† | | | | | | | | | | | | |
Fluor Corp. | | | United States | | | | 2,291 | | | | (26,599 | ) |
| | | | | | | | | | | | |
| | | |
Construction Materials (0.1)% | | | | | | | | | | | | |
Martin Marietta Materials Inc. | | | United States | | | | 5,910 | | | | (1,135,252 | ) |
| | | | | | | | | | | | |
| | | |
Consumer Finance (0.3)% | | | | | | | | | | | | |
Encore Capital Group Inc. | | | United States | | | | 51,275 | | | | (1,629,007 | ) |
EZCORP Inc., A | | | United States | | | | 68,126 | | | | (351,530 | ) |
PRA Group Inc. | | | United States | | | | 32,686 | | | | (1,115,246 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (3,095,783 | ) |
| | | | | | | | | | | | |
| | | |
Diversified Financial Services (0.0)%† | | | | | | | | | | | | |
Element Fleet Management Corp. | | | Canada | | | | 39,624 | | | | (281,744 | ) |
| | | | | | | | | | | | |
| | | |
Diversified Telecommunication Services (0.1)% | | | | | | | | | | | | |
Bandwidth Inc., A | | | United States | | | | 9,752 | | | | (1,081,009 | ) |
Liberty Latin America Ltd., C | | | Chile | | | | 48,694 | | | | (467,463 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (1,548,472 | ) |
| | | | | | | | | | | | |
| | | |
Electric Utilities (0.1)% | | | | | | | | | | | | |
NextEra Energy Inc. | | | United States | | | | 2,099 | | | | (536,420 | ) |
| | | | | | | | | | | | |
| | | |
Electronic Equipment, Instruments & Components (0.4)% | | | | | | | | | | | | |
II-VI Inc. | | | United States | | | | 33,380 | | | | (1,586,552 | ) |
Knowles Corp. | | | United States | | | | 37,033 | | | | (556,976 | ) |
OSI Systems Inc. | | | United States | | | | 6,277 | | | | (475,608 | ) |
TTM Technologies Inc. | | | United States | | | | 113,837 | | | | (1,317,094 | ) |
Vishay Intertechnology Inc. | | | United States | | | | 22,304 | | | | (362,663 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (4,298,893 | ) |
| | | | | | | | | | | | |
| | | |
Energy Equipment & Services (0.0)%† | | | | | | | | | | | | |
Helix Energy Solutions Group Inc. | | | United States | | | | 3,453 | | | | (11,602 | ) |
SEACOR Holdings Inc. | | | United States | | | | 1,616 | | | | (43,309 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (54,911 | ) |
| | | | | | | | | | | | |
| | | |
Entertainment (0.2)% | | | | | | | | | | | | |
Sea Ltd., ADR | | | Taiwan | | | | 18,967 | | | | (1,513,567 | ) |
World Wrestling Entertainment Inc., A | | | United States | | | | 6,642 | | | | (307,325 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (1,820,892 | ) |
| | | | | | | | | | | | |
| | | |
Equity Real Estate Investment Trusts (REITs) (0.3)% | | | | | | | | | | | | |
Colliers International Group Inc. | | | Canada | | | | 7,915 | | | | (406,831 | ) |
Innovative Industrial Properties Inc., A | | | United States | | | | 33,043 | | | | (2,700,274 | ) |
SL Green Realty Corp. | | | United States | | | | 5,142 | | | | (216,581 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (3,323,686 | ) |
| | | | | | | | | | | | |
| | | |
Food & Staples Retailing (0.0)%† | | | | | | | | | | | | |
The Chefs’ Warehouse Inc. | | | United States | | | | 20,078 | | | | (297,154 | ) |
| | | | | | | | | | | | |
| | | |
Health Care Equipment & Supplies (0.5)% | | | | | | | | | | | | |
CONMED Corp. | | | United States | | | | 12,215 | | | | (896,703 | ) |
Cryoport Inc. | | | United States | | | | 17,579 | | | | (431,916 | ) |
Envista Holdings Corp., W | | | United States | | | | 50,267 | | | | (1,062,645 | ) |
Nevro Corp. | | | United States | | | | 4,702 | | | | (590,571 | ) |
NuVasive Inc. | | | United States | | | | 27,268 | | | | (1,652,441 | ) |
| | | | |
| | | |
52 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares | | | Value | |
bb Securities Sold Short (continued) | | | | | | | | | | | | |
Common Stocks (continued) | | | | | | | | | | | | |
Health Care Equipment & Supplies (continued) | | | | | | | | | | | | |
Wright Medical Group NV | | | United States | | | | 46,362 | | | $ | (1,369,997 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (6,004,273 | ) |
| | | | | | | | | | | | |
| | | |
Health Care Providers & Services (0.1)% | | | | | | | | | | | | |
1life Healthcare Inc. | | | United States | | | | 15,319 | | | | (494,803 | ) |
Petiq Inc., A | | | United States | | | | 24,132 | | | | (740,370 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (1,235,173 | ) |
| | | | | | | | | | | | |
| | | |
Health Care Technology (0.2)% | | | | | | | | | | | | |
Allscripts Healthcare Solutions Inc. | | | United States | | | | 66,985 | | | | (423,345 | ) |
Evolent Health Inc., A | | | United States | | | | 9,953 | | | | (88,383 | ) |
Health Catalyst Inc. | | | United States | | | | 22,109 | | | | (600,038 | ) |
Tabula Rasa HealthCare Inc. | | | United States | | | | 19,248 | | | | (1,028,421 | ) |
Teladoc Health Inc. | | | United States | | | | 241 | | | | (41,948 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (2,182,135 | ) |
| | | | | | | | | | | | |
| | | |
Hotels, Restaurants & Leisure (1.1)% | | | | | | | | | | | | |
Bloomin’ Brands Inc. | | | United States | | | | 30,561 | | | | (348,701 | ) |
Carnival Corp. | | | United States | | | | 333,254 | | | | (5,245,418 | ) |
Chipotle Mexican Grill Inc., A | | | United States | | | | 654 | | | | (656,557 | ) |
Choice Hotels International Inc. | | | United States | | | | 2,046 | | | | (165,378 | ) |
Eldorado Resorts Inc. | | | United States | | | | 38,112 | | | | (1,351,452 | ) |
Marriott Vacations Worldwide Corp. | | | United States | | | | 8,459 | | | | (759,872 | ) |
Norwegian Cruise Line Holdings Ltd. | | | United States | | | | 77,505 | | | | (1,213,728 | ) |
Penn National Gaming Inc. | | | United States | | | | 58,544 | | | | (1,920,829 | ) |
Wingstop Inc. | | | United States | | | | 6,142 | | | | (749,017 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (12,410,952 | ) |
| | | | | | | | | | | | |
| | | |
Insurance (0.4)% | | | | | | | | | | | | |
AON PLC, A | | | United States | | | | 21,566 | | | | (4,247,424 | ) |
Fidelity National Financial Inc. | | | United States | | | | 13,898 | | | | (443,346 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (4,690,770 | ) |
| | | | | | | | | | | | |
| | | |
Interactive Media & Services (0.5)% | | | | | | | | | | | | |
IAC/InterActiveCorp. | | | United States | | | | 11,759 | | | | (3,179,281 | ) |
Joyy Inc., ADR | | | China | | | | 6,792 | | | | (414,652 | ) |
Twitter Inc. | | | United States | | | | 2,018 | | | | (62,497 | ) |
Zillow Group Inc., C | | | United States | | | | 31,366 | | | | (1,818,914 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (5,475,344 | ) |
| | | | | | | | | | | | |
| | | |
Internet & Direct Marketing Retail (0.3)% | | | | | | | | | | | | |
Booking Holdings Inc. | | | United States | | | | 21 | | | | (34,428 | ) |
Farfetch Ltd., A | | | United Kingdom | | | | 58,587 | | | | (812,016 | ) |
Wayfair Inc., A | | | United States | | | | 16,370 | | | | (2,808,273 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (3,654,717 | ) |
| | | | | | | | | | | | |
| | | |
IT Services (0.3)% | | | | | | | | | | | | |
CSG Systems International Inc. | | | United States | | | | 10,228 | | | | (484,296 | ) |
I3 Verticals Inc., A | | | United States | | | | 18,543 | | | | (535,151 | ) |
KBR Inc. | | | United States | | | | 46,477 | | | | (1,089,886 | ) |
Perficient Inc. | | | United States | | | | 11,523 | | | | (392,243 | ) |
Sabre Corp. | | | United States | | | | 132,212 | | | | (921,517 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (3,423,093 | ) |
| | | | | | | | | | | | |
| | | |
Life Sciences Tools & Services (0.1)% | | | | | | | | | | | | |
NanoString Technologies Inc. | | | United States | | | | 13,055 | | | | (398,569 | ) |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 53 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares | | | Value | |
bb Securities Sold Short (continued) | | | | | | | | | | | | |
Common Stocks (continued) | | | | | | | | | | | | |
Life Sciences Tools & Services (continued) | | | | | | | | | | | | |
Repligen Corp. | | | United States | | | | 5,285 | | | $ | (692,177 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (1,090,746 | ) |
| | | | | | | | | | | | |
| | | |
Machinery (0.3)% | | | | | | | | | | | | |
Chart Industries Inc. | | | United States | | | | 7,341 | | | | (288,134 | ) |
The Greenbrier Cos. Inc. | | | United States | | | | 5,449 | | | | (115,628 | ) |
Ingersoll Rand Inc. | | | United States | | | | 9,435 | | | | (266,067 | ) |
Kennametal Inc. | | | United States | | | | 29,979 | | | | (831,617 | ) |
Lincoln Electric Holdings Inc. | | | United States | | | | 9,294 | | | | (763,688 | ) |
SKF AB, B | | | Sweden | | | | 11,220 | | | | (207,438 | ) |
The Timken Co. | | | United States | | | | 12,598 | | | | (535,919 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (3,008,491 | ) |
| | | | | | | | | | | | |
| | | |
Marine (0.1)% | | | | | | | | | | | | |
Kirby Corp. | | | United States | | | | 8,169 | | | | (418,906 | ) |
Kuehne + Nagel International AG | | | Switzerland | | | | 4,072 | | | | (588,925 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (1,007,831 | ) |
| | | | | | | | | | | | |
| | | |
Media (0.4)% | | | | | | | | | | | | |
Live Nation Entertainment Inc. | | | United States | | | | 39,169 | | | | (1,925,548 | ) |
Sirius XM Holdings Inc. | | | United States | | | | 171,713 | | | | (999,369 | ) |
Snap Inc., A | | | United States | | | | 92,255 | | | | (1,747,310 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (4,672,227 | ) |
| | | | | | | | | | | | |
| | | |
Metals & Mining (0.2)% | | | | | | | | | | | | |
Endeavour Mining Corp. | | | Ivory Coast | | | | 18,462 | | | | (444,906 | ) |
First Majestic Silver Corp. | | | Canada | | | | 82,294 | | | | (823,763 | ) |
Ivanhoe Mines Ltd., A | | | Canada | | | | 28,312 | | | | (62,717 | ) |
Kaiser Aluminum Corp. | | | United States | | | | 2,957 | | | | (212,165 | ) |
Pretium Resources Inc. | | | Canada | | | | 31,539 | | | | (275,020 | ) |
SSR Mining Inc. | | | Canada | | | | 26,870 | | | | (516,710 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (2,335,281 | ) |
| | | | | | | | | | | | |
| | | |
Mortgage Real Estate Investment Trusts (REITs) (0.0)%† | | | | | | | | | | | | |
Arbor Realty Trust Inc. | | | United States | | | | 19,378 | | | | (163,163 | ) |
PennyMac Mortgage Investment Trust | | | United States | | | | 21,861 | | | | (240,689 | ) |
Redwood Trust Inc. | | | United States | | | | 10,900 | | | | (58,315 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (462,167 | ) |
| | | | | | | | | | | | |
| | | |
Oil, Gas & Consumable Fuels (0.1)% | | | | | | | | | | | | |
Pioneer Natural Resources Co. | | | United States | | | | 10,160 | | | | (930,656 | ) |
SFL Corp. Ltd. | | | Norway | | | | 44,646 | | | | (442,888 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (1,373,544 | ) |
| | | | | | | | | | | | |
| | | |
Personal Products (0.1)% | | | | | | | | | | | | |
Herbalife Nutrition Ltd. | | | United States | | | | 26,776 | | | | (1,173,860 | ) |
| | | | | | | | | | | | |
| | | |
Pharmaceuticals (0.4)% | | | | | | | | | | | | |
Aerie Pharmaceuticals Inc. | | | United States | | | | 31,989 | | | | (448,806 | ) |
Aphria Inc. | | | Canada | | | | 3,281 | | | | (13,879 | ) |
Aurora Cannabis Inc. | | | Canada | | | | 378 | | | | (5,322 | ) |
Canopy Growth Corp. | | | Canada | | | | 1,043 | | | | (18,340 | ) |
Collegium Pharmaceutical Inc. | | | United States | | | | 20,530 | | | | (452,686 | ) |
Horizon Therapeutics PLC | | | United States | | | | 35,568 | | | | (1,804,365 | ) |
Innoviva Inc. | | | United States | | | | 40,947 | | | | (572,029 | ) |
Pacira Biosciences Inc. | | | United States | | | | 6,267 | | | | (275,435 | ) |
Revance Therapeutics Inc. | | | United States | | | | 20,269 | | | | (423,622 | ) |
| | | | |
| | | |
54 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Shares | | | Value | |
bb Securities Sold Short (continued) | | | | | | | | | | | | |
Common Stocks (continued) | | | | | | | | | | | | |
Pharmaceuticals (continued) | | | | | | | | | | | | |
Theravance Biopharma Inc. | | | Cayman Islands | | | | 17,577 | | | $ | (443,819 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (4,458,303 | ) |
| | | | | | | | | | | | |
| | | |
Real Estate Management & Development (0.1)% | | | | | | | | | | | | |
Redfin Corp. | | | United States | | | | 27,901 | | | | (836,751 | ) |
| | | | | | | | | | | | |
| | | |
Semiconductors & Semiconductor Equipment (0.2)% | | | | | | | | | | | | |
Enphase Energy Inc. | | | United States | | | | 878 | | | | (51,091 | ) |
Impinj Inc. | | | United States | | | | 13,271 | | | | (343,055 | ) |
Microchip Technology Inc. | | | United States | | | | 5,090 | | | | (488,742 | ) |
Rambus Inc. | | | United States | | | | 7,004 | | | | (108,842 | ) |
SMART Global Holdings Inc. | | | United States | | | | 25,393 | | | | (680,024 | ) |
Synaptics Inc. | | | United States | | | | 7,726 | | | | (492,301 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (2,164,055 | ) |
| | | | | | | | | | | | |
| | | |
Software (1.3)% | | | | | | | | | | | | |
8x8 Inc. | | | United States | | | | 33,279 | | | | (483,877 | ) |
Alteryx Inc., A | | | United States | | | | 5,414 | | | | (779,291 | ) |
Avaya Holdings Corp. | | | United States | | | | 40,244 | | | | (587,562 | ) |
Blackline Inc. | | | United States | | | | 9,079 | | | | (674,570 | ) |
Cloudflare Inc., A | | | United States | | | | 3,472 | | | | (100,931 | ) |
Coupa Software Inc. | | | United States | | | | 6,842 | | | | (1,556,624 | ) |
Envestnet Inc. | | | United States | | | | 5,427 | | | | (394,055 | ) |
Everbridge Inc. | | | United States | | | | 9,082 | | | | (1,328,333 | ) |
Five9 Inc. | | | United States | | | | 7,766 | | | | (809,217 | ) |
J2 Global Inc. | | | United States | | | | 3,188 | | | | (249,620 | ) |
LivePerson Inc. | | | United States | | | | 31,635 | | | | (1,184,731 | ) |
Nuance Communications Inc. | | | United States | | | | 68,781 | | | | (1,573,709 | ) |
Nutanix Inc., A | | | United States | | | | 8,438 | | | | (203,018 | ) |
Palo Alto Networks Inc. | | | United States | | | | 3,565 | | | | (838,738 | ) |
Pluralsight Inc., A | | | United States | | | | 26,139 | | | | (544,475 | ) |
PROS Holdings Inc. | | | United States | | | | 7,558 | | | | (294,384 | ) |
Rapid7 Inc. | | | United States | | | | 17,421 | | | | (851,713 | ) |
SailPoint Technologies Holding Inc. | | | United States | | | | 25,712 | | | | (587,005 | ) |
Slack Technologies Inc., A | | | United States | | | | 33,123 | | | | (1,160,961 | ) |
Varonis Systems Inc. | | | United States | | | | 3,367 | | | | (284,141 | ) |
Workiva Inc., A | | | United States | | | | 5,398 | | | | (240,427 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (14,727,382 | ) |
| | | | | | | | | | | | |
| | | |
Specialty Retail (0.3)% | | | | | | | | | | | | |
American Eagle Outfitters Inc. | | | United States | | | | 115,091 | | | | (1,054,234 | ) |
Lumber Liquidators Holdings Inc. | | | United States | | | | 2,861 | | | | (28,438 | ) |
National Vision Holdings Inc. | | | United States | | | | 26,855 | | | | (719,177 | ) |
RH | | | United States | | | | 5,689 | | | | (1,233,887 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (3,035,736 | ) |
| | | | | | | | | | | | |
| | | |
Technology Hardware, Storage & Peripherals (0.0)%† | | | | | | | | | | | | |
Pure Storage Inc., A | | | United States | | | | 22,099 | | | | (389,163 | ) |
Western Digital Corp. | | | United States | | | | 1,242 | | | | (55,108 | ) |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | | | (444,271 | ) |
| | | | | | | | | | | | |
| | | |
Textiles, Apparel & Luxury Goods (0.0)%† | | | | | | | | | | | | |
Under Armour Inc., C | | | United States | | | | 19,001 | | | | (149,348 | ) |
| | | | | | | | | | | | |
| | | |
Tobacco (0.1)% | | | | | | | | | | | | |
Turning Point Brands Inc. | | | United States | | | | 21,732 | | | | (521,351 | ) |
| | | | | | | | | | | | |
| | | |
Trading Companies & Distributors (0.1)% | | | | | | | | | | | | |
Kaman Corp. | | | United States | | | | 8,997 | | | | (359,880 | ) |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 55 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Shares | | | | | | Value | |
bb Securities Sold Short (continued) | | | | | | | | | | | | | | | | |
Common Stocks (continued) | | | | | | | | | | | | | | | | |
Trading Companies & Distributors (continued) | | | | | | | | | | | | | | | | |
SiteOne Landscape Supply Inc. | | | United States | | | | 7,196 | | | | | | | $ | (765,007 | ) |
WESCO International Inc. | | | United States | | | | 11,776 | | | | | | | | (392,141 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | (1,517,028 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Transportation Infrastructure (0.1)% | | | | | | | | | | | | | | | | |
Westshore Terminals Investment Corp. | | | Canada | | | | 94,335 | | | | | | | | (1,002,376 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Wireless Telecommunication Services (0.8)% | | | | | | | | | | | | | | | | |
T-Mobile U.S. Inc. | | | United States | | | | 83,896 | | | | | | | | (8,392,956 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Total Common Stocks (Proceeds $126,088,271) | | | | | | | | | | | | | | | (134,139,429 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Exchange Traded Funds (13.2)% | | | | | | | | | | | | | | | | |
Consumer Discretionary Select Sector SPDR Fund | | | United States | | | | 5,030 | | | | | | | | (624,676 | ) |
ETFMG Prime Cyber Security ETF | | | United States | | | | 59,031 | | | | | | | | (2,646,950 | ) |
Health Care Select Sector SPDR Fund | | | United States | | | | 147,603 | | | | | | | | (15,204,585 | ) |
Invesco QQQ Series 1 ETF | | | United States | | | | 77,977 | | | | | | | | (18,196,713 | ) |
iShares Core S&P Small-Cap ETF | | | United States | | | | 29,221 | | | | | | | | (1,932,677 | ) |
iShares Edge MSCI USA Momentum Factor ETF | | | United States | | | | 12,600 | | | | | | | | (1,586,592 | ) |
iShares NASDAQ Biotechnology ETF | | | United States | | | | 93,582 | | | | | | | | (12,609,238 | ) |
iShares North American Tech ETF | | | United States | | | | 19,480 | | | | | | | | (5,154,603 | ) |
iShares North American Tech-Multimedia Networking ETF | | | United States | | | | 59,788 | | | | | | | | (3,030,056 | ) |
iShares North American Tech-Software ETF | | | United States | | | | 13,459 | | | | | | | | (3,597,187 | ) |
iShares PHLX Semiconductor ETF | | | United States | | | | 19,287 | | | | | | | | (4,857,624 | ) |
iShares Russell 2000 Growth ETF | | | United States | | | | 15,025 | | | | | | | | (2,995,835 | ) |
iShares Russell Mid-Cap Growth ETF | | | United States | | | | 13,319 | | | | | | | | (2,059,384 | ) |
iShares S&P Small-Cap 600 Growth ETF | | | United States | | | | 7,818 | | | | | | | | (1,280,901 | ) |
iShares U.S. Telecommunications ETF | | | United States | | | | 42,400 | | | | | | | | (1,191,016 | ) |
SPDR S&P 500 ETF Trust | | | United States | | | | 198,269 | | | | | | | | (60,337,222 | ) |
SPDR S&P MidCap 400 ETF Trust | | | United States | | | | 4,353 | | | | | | | | (1,399,620 | ) |
VanEck Vectors Semiconductor ETF | | | United States | | | | 45,105 | | | | | | | | (6,361,158 | ) |
Vanguard Small-Cap Growth ETF | | | United States | | | | 16,883 | | | | | | | | (3,275,133 | ) |
| | | | | | | | | | | | | | | | |
Total Exchange Traded Funds
(Proceeds $142,141,353) | | | | | | | | | | | | | | | (148,341,170 | ) |
| | | | | | | | | | | | | | | | |
| | | |
| | | | | | Principal Amount* | | | | |
Convertible Bonds (Proceeds $203,011) (0.0)%† | | | | | | | | | | | | | | | | |
| | | | |
Specialty Retail (0.0)%† | | | | | | | | | | | | | | | | |
c Dick’s Sporting Goods Inc., senior note, 144A, 3.25%, 4/15/25 | | | United States | | | | 199,000 | | | | | | | | (245,870 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Corporate Bonds and Notes (0.1)% | | | | | | | | | | | | | | | | |
| | | | |
Electric Utilities (0.1)%† | | | | | | | | | | | | | | | | |
Southern California Edison Co., | | | | | | | | | | | | | | | | |
4.00%, 4/01/47 | | | United States | | | | 191,000 | | | | | | | | (211,225 | ) |
secured bond, 3.65%, 2/01/50 | | | United States | | | | 161,000 | | | | | | | | (170,945 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | (382,170 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Equity Real Estate Investment Trusts (REITs) (0.0)%† | | | | | | | | | | | | | | | | |
Simon Property Group LP, senior bond, 2.45%, 9/13/29 | | | United States | | | | 121,000 | | | | | | | | (111,307 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Hotels, Restaurants & Leisure (0.0)%† | | | | | | | | | | | | | | | | |
c Boyd Gaming Corp., senior note, 144A, 4.75%, 12/01/27 | | | United States | | | | 93,000 | | | | | | | | (85,864 | ) |
MGM Resorts International, senior note, 5.50%, 4/15/27 | | | United States | | | | 132,000 | | | | | | | | (128,559 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | (214,423 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Personal Products (0.0)%† | | | | | | | | | | | | | | | | |
Sally Holdings LLC / Sally Capital Inc., senior note, 5.625%, 12/01/25 | | | United States | | | | 83,000 | | | | | | | | (81,249 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
56 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
bb Securities Sold Short (continued) | | | | | | | | | | | | | | | | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | | | |
Textiles, Apparel & Luxury Goods (0.0)%† | | | | | | | | | | | | | | | | |
c Hanesbrands Inc., senior bond, 144A, 4.875%, 5/15/26 | | | United States | | | | 169,000 | | | | | | | $ | (171,504 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Total Corporate Bonds and Notes (Proceeds $896,627) | | | | | | | | | | | | | | | (960,653 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
U.S. Government and Agency Securities (0.4)% | | | | | | | | | | | | | | | | |
U.S. Treasury Note, | | | | | | | | | | | | | | | | |
1.75%, 11/15/29 | | | United States | | | | 2,518,000 | | | | | | | | (2,779,931 | ) |
1.50%, 2/15/30 | | | United States | | | | 1,319,000 | | | | | | | | (1,426,014 | ) |
| | | | | | | | | | | | | | | | |
Total U.S. Government and Agency Securities
(Proceeds $3,858,303) | | | | | | | | | | | | | | | (4,205,945 | ) |
| | | | | | | | | | | | | | | | |
Total Securities Sold Short (Proceeds $273,187,565) | | | | | | | $ | (287,893,067 | ) |
| | | | | | | | | | | | | | | | |
†Rounds to less than 0.1% of net assets.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
#Notional amount is the number of units specified in the contract, and can include currency units, bushels, shares, pounds, barrels or other units. Currency units are stated in U.S. dollars unless otherwise indicated.
aNon-income producing.
bA portion or all of the security is held in connection with written option contracts open at period end.
cSecurity 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 public offering registered under the Securities Act of 1933. At May 31, 2020, the net value of these securities was $197,408,612, representing 17.6% of net assets.
dA portion or all of the security has been segregated as collateral for securities sold short, open swap contracts, open forward exchange contracts, open futures contracts and/ or open written option contracts. At May 31, 2020, the aggregate value of these securities and/or cash pledged amounted to $250,955,962, representing 22.4% of net assets.
eFair valued using significant unobservable inputs. See Note 13 regarding fair value measurements.
fA portion or all of the security is on loan at May 31, 2020. See Note 1(j).
gSee Note 10 regarding restricted securities.
hSee Note 7 regarding defaulted securities.
iContingent distributions represent the right to receive additional distributions, if any, during the reorganization of the underlying company.
jSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. At May 31, 2020, the aggregate value of these securities was $16,501,200, representing 1.5% of net assets.
kThe coupon rate shown represents the rate at period end.
lSee Note 1(g) regarding loan participation notes.
mA portion or all of the security purchased on a delayed delivery basis. See Note 1(d).
nIncome may be received in additional securities and/or cash.
oPerpetual security with no stated maturity date.
pSee Note 1(l) regarding senior floating rate interests.
qSee Note 1(h) regarding credit-linked notes.
rThe coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
sAdjustable rate security with an interest rate that is not based on a published reference index and spread. The rate is based on the structure of the agreement and current market conditions. The coupon rate shown represents the rate at period end.
tInvestment in an interest-only security entitles holders to receive only the interest payment on the underlying instruments. The principal amount shown is the notional amount of the underlying instruments.
uThe rate shown is the annualized seven-day effective yield at period end.
vA portion or all of the security is owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(k).
wSee Note 1(c) regarding joint repurchase agreement.
xThe security was issued on a discount basis with no stated coupon rate.
ySee Note 1(j) regarding securities on loan.
zSee Note 3(f) regarding investments in affiliated management investment companies.
aa See Note 1(e) regarding written options.
bb See Note 1(i) regarding securities sold short.
cc Securities denominated in Argentine Peso have been designated as Level 3 investments. See Note 13 regarding fair value measurements.
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 57 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
At May 31, 2020, the Fund had the following futures contracts outstanding. See Note 1(e).
Futures Contracts
| | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Type | | | Number of Contracts | | | Notional Amount* | | | Expiration Date | | | Value/Unrealized Appreciation (Depreciation) | |
Commodity Contractsa | | | | | | | | | | | | | | | | | | | | | | | | |
Aluminum | | | Long | | | | 5 | | | $ | 191,875 | | | | 6/15/20 | | | | | | | | $ (22,378 | ) |
Aluminum | | | Short | | | | 5 | | | | 191,875 | | | | 6/15/20 | | | | | | | | 23,422 | |
Brent Crude Oil | | | Short | | | | 22 | | | | 832,480 | | | | 6/30/20 | | | | | | | | (186,463 | ) |
Cocoa | | | Long | | | | 1 | | | | 24,206 | | | | 7/16/20 | | | | | | | | 20 | |
Coffee | | | Short | | | | 9 | | | | 331,256 | | | | 9/18/20 | | | | | | | | 13,175 | |
Copper | | | Long | | | | 23 | | | | 3,081,281 | | | | 6/15/20 | | | | | | | | 74,342 | |
Copper | | | Short | | | | 23 | | | | 3,081,281 | | | | 6/15/20 | | | | | | | | 110,723 | |
Copper | | | Long | | | | 1 | | | | 134,544 | | | | 9/14/20 | | | | | | | | 2,091 | |
Copper | | | Short | | | | 11 | | | | 1,479,981 | | | | 9/14/20 | | | | | | | | (24,296 | ) |
Corn | | | Short | | | | 42 | | | | 684,075 | | | | 7/14/20 | | | | | | | | (1,364 | ) |
Cotton | | | Short | | | | 4 | | | | 115,180 | | | | 7/09/20 | | | | | | | | (8,491 | ) |
Cotton | | | Short | | | | 3 | | | | 86,220 | | | | 12/08/20 | | | | | | | | 276 | |
Crude Oil | | | Short | | | | 10 | | | | 354,900 | | | | 6/22/20 | | | | | | | | (86,682 | ) |
Gasoline | | | Short | | | | 18 | | | | 815,346 | | | | 6/30/20 | | | | | | | | (150,304 | ) |
Gold 100 Oz | | | Long | | | | 10 | | | | 1,751,700 | | | | 8/27/20 | | | | | | | | 19,467 | |
Hard Red Winter Wheat | | | Short | | | | 18 | | | | 423,450 | | | | 7/14/20 | | | | | | | | (15,587 | ) |
Low Sulphur Gas Oil | | | Short | | | | 21 | | | | 618,975 | | | | 7/10/20 | | | | | | | | (51,257 | ) |
Natural Gas | | | Short | | | | 35 | | | | 647,150 | | | | 6/26/20 | | | | | | | | 79,552 | |
NY Harbor | | | Short | | | | 13 | | | | 565,984 | | | | 6/30/20 | | | | | | | | (80,942 | ) |
Silver | | | Long | | | | 10 | | | | 924,950 | | | | 7/29/20 | | | | | | | | 127,982 | |
Soybean Meal | | | Short | | | | 3 | | | | 84,960 | | | | 7/14/20 | | | | | | | | 152 | |
Soybeans | | | Short | | | | 33 | | | | 1,387,237 | | | | 7/14/20 | | | | | | | | 9,974 | |
Sugar | | | Short | | | | 23 | | | | 281,042 | | | | 6/30/20 | | | | | | | | (16,159 | ) |
Sugar | | | Short | | | | 12 | | | | 147,437 | | | | 9/30/20 | | | | | | | | (337 | ) |
Wheat | | | Short | | | | 18 | | | | 468,675 | | | | 7/14/20 | | | | | | | | (9,587 | ) |
Zinc | | | Long | | | | 32 | | | | 1,592,600 | | | | 6/15/20 | | | | | | | | 17,601 | |
Zinc | | | Short | | | | 32 | | | | 1,592,600 | | | | 6/15/20 | | | | | | | | 81,683 | |
Zinc | | | Short | | | | 5 | | | | 248,656 | | | | 9/14/20 | | | | | | | | (3,459 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | (96,846 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Equity Contracts | | | | | | | | | | | | | | | | | | | | | | | | |
CAC 40 10 Euro Indexa | | | Short | | | | 24 | | | | 1,248,407 | | | | 6/19/20 | | | | | | | | (60,008 | ) |
CME E-Mini Russell 2000 Indexa | | | Long | | | | 2 | | | | 139,280 | | | | 6/19/20 | | | | | | | | (1,733 | ) |
CME E-Mini Russell 2000 Index | | | Short | | | | 64 | | | | 4,456,960 | | | | 6/19/20 | | | | | | | | (259,867 | ) |
DAX Indexa | | | Long | | | | 4 | | | | 1,287,936 | | | | 6/19/20 | | | | | | | | 68,404 | |
DAX Index | | | Short | | | | 1 | | | | 321,984 | | | | 6/19/20 | | | | | | | | (80,540 | ) |
DJ EURO STOXX 50 Indexa | | | Long | | | | 86 | | | | 2,907,844 | | | | 6/19/20 | | | | | | | | 446,500 | |
DJ EURO STOXX 50 Index | | | Short | | | | 548 | | | | 18,529,050 | | | | 6/19/20 | | | | | | | | (2,690,279 | ) |
DJIA Mini E-CBOT Indexa | | | Long | | | | 9 | | | | 1,142,010 | | | | 6/19/20 | | | | | | | | 164,537 | |
FTSE 100 Indexa | | | Short | | | | 78 | | | | 5,838,055 | | | | 6/19/20 | | | | | | | | (682,830 | ) |
FTSE/JSE Top 40 Index | | | Short | | | | 42 | | | | 1,115,781 | | | | 6/18/20 | | | | | | | | 4,996 | |
FTSE/MIB Index | | | Short | | | | 3 | | | | 302,661 | | | | 6/19/20 | | | | | | | | (47,362 | ) |
Hang Seng Index | | | Long | | | | 15 | | | | 2,203,025 | | | | 6/29/20 | | | | | | | | (31,015 | ) |
Hang Seng Indexa | | | Short | | | | 14 | | | | 2,056,157 | | | | 6/29/20 | | | | | | | | 18,478 | |
MSCI Emerging Market Index | | | Long | | | | 105 | | | | 4,897,725 | | | | 6/19/20 | | | | | | | | 121,328 | |
MSCI Singapore Index | | | Long | | | | 24 | | | | 489,241 | | | | 6/29/20 | | | | | | | | (7,534 | ) |
NASDAQ 100 E-Mini Indexa | | | Long | | | | 13 | | | | 2,485,665 | | | | 6/19/20 | | | | | | | | 454,108 | |
Nikkei 225 Index | | | Long | | | | 42 | | | | 4,243,034 | | | | 6/11/20 | | | | | | | | 242,795 | |
S&P 200 Index | | | Short | | | | 8 | | | | 766,400 | | | | 6/18/20 | | | | | | | | (28,514 | ) |
S&P 500 E-Mini Indexa | | | Long | | | | 21 | | | | 3,194,100 | | | | 6/19/20 | | | | | | | | 336,881 | |
S&P 500 E-Mini Index | | | Short | | | | 654 | | | | 99,473,400 | | | | 6/19/20 | | | | | | | | (6,910,672 | ) |
STOXX 600 Banks Index | | | Long | | | | 1,802 | | | | 8,921,386 | | | | 6/19/20 | | | | | | | | 1,046,282 | |
STOXX 600 Banks Index | | | Short | | | | 106 | | | | 524,787 | | | | 6/19/20 | | | | | | | | (44,135 | ) |
STOXX Europe 600 Index | | | Short | | | | 20 | | | | 387,408 | | | | 6/19/20 | | | | | | | | (78,944 | ) |
| | | | |
| | | |
58 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Futures Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Type | | | Number of Contracts | | | Notional Amount* | | | Expiration Date | | | Value/Unrealized Appreciation (Depreciation) | |
Equity Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | |
TOPIX Indexa | | | Short | | | | 5 | | | $ | 722,797 | | | | 6/11/20 | | | | | | | $ | (30,826 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | (8,049,950 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate Contracts | | | | | | | | | | | | | | | | | | | | | | | | |
3 Month EURIBORa | | | Long | | | | 137 | | | | 38,182,709 | | | | 6/14/21 | | | | | | | | 5,329 | |
90 Day Eurodollara | | | Long | | | | 551 | | | | 137,481,388 | | | | 6/14/21 | | | | | | | | 1,148,973 | |
90 Day Sterlinga | | | Long | | | | 291 | | | | 44,871,275 | | | | 6/16/21 | | | | | | | | 182,511 | |
Australian 10 Yr. Bonda | | | Long | | | | 29 | | | | 2,880,566 | | | | 6/15/20 | | | | | | | | 1,125 | |
Canadian 10 Yr. Bonda | | | Long | | | | 63 | | | | 7,030,047 | | | | 9/21/20 | | | | | | | | (23,508 | ) |
Euro-BTP | | | Long | | | | 103 | | | | 16,253,891 | | | | 6/08/20 | | | | | | | | (489,712 | ) |
Euro-BTP | | | Long | | | | 8 | | | | 1,245,210 | | | | 9/08/20 | | | | | | | | (5,248 | ) |
Euro-Bunda | | | Short | | | | 34 | | | | 6,508,936 | | | | 6/08/20 | | | | | | | | 75,418 | |
Euro-Bund | | | Short | | | | 14 | | | | 2,729,725 | | | | 9/08/20 | | | | | | | | (326 | ) |
Long Gilta | | | Long | | | | 56 | | | | 9,505,310 | | | | 9/28/20 | | | | | | | | 16,213 | |
Long Gilt | | | Short | | | | 9 | | | | 1,527,639 | | | | 9/28/20 | | | | | | | | (701 | ) |
U.S. Treasury 5 Yr. Note | | | Short | | | | 221 | | | | 27,763,125 | | | | 9/30/20 | | | | | | | | (41,433 | ) |
U.S. Treasury 10 Yr. Note | | | Short | | | | 118 | | | | 16,409,374 | | | | 9/21/20 | | | | | | | | (33,025 | ) |
U.S. Treasury Long Bonda | | | Long | | | | 23 | | | | 4,102,625 | | | | 9/21/20 | | | | | | | | 847 | |
U.S. Treasury Long Bond | | | Short | | | | 20 | | | | 3,567,500 | | | | 9/21/20 | | | | | | | | (16,408 | ) |
U.S. Treasury Ultra Bond | | | Long | | | | 20 | | | | 4,360,625 | | | | 9/21/20 | | | | | | | | (12,659 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 807,396 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Futures Contracts | | | | | | | | | | | | | | | | | | | | | | $ | (7,339,400 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
*As of period end.
aA portion or all of the contracts are owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(k).
At May 31, 2020, the Fund had the following forward exchange contracts outstanding. See Note 1(e).
Forward Exchange Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency | | Counterpartya | | | Type | | | Quantity | | | Contract Amount* | | | Settlement Date | | | Unrealized Appreciation | | | Unrealized Depreciation | |
OTC Forward Exchange Contracts | | | | | | | | | | | | | | | | | | | | | |
Canadian Dollar | | | GSCO | | | | Buy | | | | 25,702 | | | | 18,333 | | | | 6/02/20 | | | $ | 334 | | | $ | — | |
Canadian Dollar | | | GSCO | | | | Sell | | | | 314,286 | | | | 222,620 | | | | 6/02/20 | | | | — | | | | (5,645 | ) |
Canadian Dollar | | | MSCI | | | | Buy | | | | 3,712,932 | | | | 2,618,575 | | | | 6/02/20 | | | | 78,111 | | | | — | |
Canadian Dollar | | | MSCI | | | | Sell | | | | 168,396 | | | | 120,002 | | | | 6/02/20 | | | | — | | | | (2,303 | ) |
Canadian Dollar | | | UBSW | | | | Sell | | | | 1,050,253 | | | | 756,814 | | | | 6/02/20 | | | | — | | | | (5,980 | ) |
Colombian Peso | | | JPHQ | | | | Buy | | | | 2,430,322,306 | | | | 617,422 | | | | 6/05/20 | | | | 33,827 | | | | — | |
Colombian Peso | | | JPHQ | | | | Sell | | | | 2,430,322,306 | | | | 654,703 | | | | 6/05/20 | | | | 3,454 | | | | — | |
Indian Rupee | | | JPHQ | | | | Buy | | | | 121,968,204 | | | | 1,609,318 | | | | 6/08/20 | | | | 2,512 | | | | (88 | ) |
Indian Rupee | | | JPHQ | | | | Sell | | | | 121,968,204 | | | | 1,612,909 | | | | 6/08/20 | | | | 1,168 | | | | — | |
Indonesian Rupiah | | | JPHQ | | | | Buy | | | | 6,130,186,920 | | | | 399,960 | | | | 6/08/20 | | | | 19,149 | | | | — | |
Indonesian Rupiah | | | JPHQ | | | | Sell | | | | 6,130,186,920 | | | | 417,380 | | | | 6/08/20 | | | | — | | | | (1,729 | ) |
South Korean Won | | | JPHQ | | | | Buy | | | | 27,883,238 | | | | 22,665 | | | | 6/08/20 | | | | — | | | | (151 | ) |
South Korean Won | | | JPHQ | | | | Sell | | | | 27,883,238 | | | | 22,549 | | | | 6/08/20 | | | | 35 | | | | — | |
British Pound | | | MSCO | | | | Sell | | | | 390,000 | | | | 491,944 | | | | 6/15/20 | | | | 10,263 | | | | — | |
Euro | | | MSCS | | | | Sell | | | | 270,000 | | | | 298,865 | | | | 6/16/20 | | | | 1,408 | | | | (2,354 | ) |
British Pound | | | BNYM | | | | Buy | | | | 578,261 | | | | 700,191 | | | | 6/17/20 | | | | 14,484 | | | | (469 | ) |
British Pound | | | BNYM | | | | Sell | | | | 1,280,819 | | | | 1,572,759 | | | | 6/17/20 | | | | 2,819 | | | | (11,987 | ) |
British Pound | | | MSCO | | | | Buy | | | | 132,666 | | | | 164,604 | | | | 6/17/20 | | | | — | | | | (750 | ) |
British Pound | | | MSCO | | | | Sell | | | | 1,200,000 | | | | 1,478,760 | | | | 6/17/20 | | | | — | | | | (3,348 | ) |
Euro | | | BNYM | | | | Buy | | | | 2,870,878 | | | | 3,184,358 | | | | 6/17/20 | | | | 12,924 | | | | (9,359 | ) |
Euro | | | BNYM | | | | Sell | | | | 4,815,610 | | | | 5,383,914 | | | | 6/17/20 | | | | 51,807 | | | | (15,314 | ) |
Hungarian Forint | | | JPHQ | | | | Sell | | | | 363,297,991 | | | | 4,097,059 EUR | | | | 6/17/20 | | | | 98,034 | | | | (12,671 | ) |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 59 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Forward Exchange Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency | | Counterpartya | | | Type | | | Quantity | | | Contract
Amount* | | | Settlement
Date | | | Unrealized
Appreciation | | | Unrealized
Depreciation | |
OTC Forward Exchange Contracts (continued) | | | | | | | | | | | | | | | | | |
Euro | | | JPHQ | | | | Sell | | | | 453,000 | | | | 506,131 | | | | 6/17/20 | | | $ | 3,104 | | | $ | — | |
Euro | | | MSCI | | | | Buy | | | | 6,010,004 | | | | 6,518,229 | | | | 6/17/20 | | | | 155,488 | | | | — | |
Euro | | | MSCO | | | | Buy | | | | 59,295 | | | | 65,906 | | | | 6/17/20 | | | | — | | | | (63 | ) |
Euro | | | MSCO | | | | Sell | | | | 150,000 | | | | 161,939 | | | | 6/17/20 | | | | — | | | | (4,626 | ) |
Euro | | | SSBT | | | | Buy | | | | 958,557 | | | | 1,051,659 | | | | 6/17/20 | | | | 12,756 | | | | — | |
Euro | | | JPHQ | | | | Sell | | | | 1,075,292 | | | | 363,297,991 HUF | | | | 6/17/20 | | | | 16,853 | | | | (49,168 | ) |
Indonesian Rupiah | | | JPHQ | | | | Buy | | | | 108,492,678,636 | | | | 7,263,620 | | | | 6/17/20 | | | | 144,368 | | | | — | |
Indonesian Rupiah | | | JPHQ | | | | Sell | | | | 108,492,678,636 | | | | 7,572,407 | | | | 6/17/20 | | | | 167,943 | | | | (3,525 | ) |
Mexican Peso | | | JPHQ | | | | Buy | | | | 8,991,493 | | | | 459,735 | | | | 6/17/20 | | | | — | | | | (55,296 | ) |
Mexican Peso | | | JPHQ | | | | Sell | | | | 8,991,493 | | | | 420,852 | | | | 6/17/20 | | | | 16,413 | | | | — | |
Russian Ruble | | | JPHQ | | | | Buy | | | | 1,074,010,630 | | | | 14,693,941 | | | | 6/17/20 | | | | 537,133 | | | | — | |
Russian Ruble | | | JPHQ | | | | Sell | | | | 1,074,010,630 | | | | 15,206,649 | | | | 6/17/20 | | | | 476,467 | | | | (500,891 | ) |
South African Rand | | | JPHQ | | | | Buy | | | | 76,054,786 | | | | 4,562,808 | | | | 6/17/20 | | | | 5,967 | | | | (243,347 | ) |
South African Rand | | | JPHQ | | | | Sell | | | | 76,054,786 | | | | 4,890,655 | | | | 6/17/20 | | | | 565,479 | | | | (252 | ) |
Swiss Franc | | | BNYM | | | | Sell | | | | 412,255 | | | | 437,448 | | | | 6/17/20 | | | | 8,612 | | | | — | |
Thai Baht | | | JPHQ | | | | Buy | | | | 44,871,048 | | | | 1,406,175 | | | | 6/17/20 | | | | 4,333 | | | | — | |
Thai Baht | | | JPHQ | | | | Sell | | | | 44,871,048 | | | | 1,430,381 | | | | 6/17/20 | | | | 19,873 | | | | — | |
South Korean Won | | | JPHQ | | | | Buy | | | | 6,704,020,105 | | | | 5,463,210 | | | | 6/18/20 | | | | — | | | | (50,237 | ) |
South Korean Won | | | JPHQ | | | | Sell | | | | 4,258,651,367 | | | | 3,609,027 | | | | 6/18/20 | | | | 170,498 | | | | — | |
Australian Dollarb | | | MSCO | | | | Buy | | | | 12,393,000 | | | | 7,921,497 | | | | 6/19/20 | | | | 339,211 | | | | — | |
Australian Dollarb | | | MSCO | | | | Sell | | | | 19,825,000 | | | | 12,511,328 | | | | 6/19/20 | | | | — | | | | (703,271 | ) |
British Pound | | | BZWS | | | | Buy | | | | 61,000 | | | | 76,464 | | | | 6/19/20 | | | | — | | | | (1,123 | ) |
British Pound | | | BZWS | | | | Sell | | | | 78,000 | | | | 95,087 | | | | 6/19/20 | | | | 652 | | | | (1,903 | ) |
British Poundb | | | MSCO | | | | Buy | | | | 5,297,000 | | | | 6,622,096 | | | | 6/19/20 | | | | 11,911 | | | | (91,676 | ) |
British Poundb | | | MSCO | | | | Sell | | | | 8,514,000 | | | | 10,565,184 | | | | 6/19/20 | | | | 71,525 | | | | (21,992 | ) |
Canadian Dollar | | | BZWS | | | | Buy | | | | 32,000 | | | | 23,062 | | | | 6/19/20 | | | | 180 | | | | — | |
Canadian Dollar | | | BZWS | | | | Sell | | | | 229,000 | | | | 163,985 | | | | 6/19/20 | | | | — | | | | (2,340 | ) |
Canadian Dollarb | | | MSCO | | | | Buy | | | | 8,559,000 | | | | 6,168,486 | | | | 6/19/20 | | | | 48,400 | | | | (437 | ) |
Canadian Dollarb | | | MSCO | | | | Sell | | | | 15,625,000 | | | | 11,148,376 | | | | 6/19/20 | | | | — | | | | (200,147 | ) |
Euro | | | BZWS | | | | Buy | | | | 7,396,000 | | | | 8,018,065 | | | | 6/19/20 | | | | 195,045 | | | | — | |
Euro | | | BZWS | | | | Sell | | | | 22,036,000 | | | | 24,037,520 | | | | 6/19/20 | | | | 690 | | | | (433,702 | ) |
Eurob | | | MSCO | | | | Buy | | | | 14,965,000 | | | | 16,531,921 | | | | 6/19/20 | | | | 155,705 | | | | (69,295 | ) |
Eurob | | | MSCO | | | | Sell | | | | 17,289,000 | | | | 19,350,612 | | | | 6/19/20 | | | | 224,798 | | | | (73,273 | ) |
Japanese Yenb | | | MSCO | | | | Buy | | | | 2,476,731,000 | | | | 23,189,394 | | | | 6/19/20 | | | | 21,258 | | | | (238,608 | ) |
Japanese Yenb | | | MSCO | | | | Sell | | | | 2,476,877,000 | | | | 23,199,920 | | | | 6/19/20 | | | | 239,925 | | | | (13,404 | ) |
Mexican Pesob | | | MSCO | | | | Buy | | | | 44,165,000 | | | | 1,937,167 | | | | 6/19/20 | | | | 48,892 | | | | (115 | ) |
Mexican Pesob | | | MSCO | | | | Sell | | | | 75,015,000 | | | | 3,086,299 | | | | 6/19/20 | | | | 1,528 | | | | (288,388 | ) |
New Zealand Dollarb | | | MSCO | | | | Buy | | | | 2,689,000 | | | | 1,640,239 | | | | 6/19/20 | | | | 28,824 | | | | — | |
New Zealand Dollarb | | | MSCO | | | | Sell | | | | 6,694,000 | | | | 4,060,753 | | �� | | 6/19/20 | | | | 1,397 | | | | (95,614 | ) |
Swiss Francb | | | MSCO | | | | Buy | | | | 10,881,000 | | | | 11,554,264 | | | | 6/19/20 | | | | 5,323 | | | | (240,310 | ) |
Swiss Francb | | | MSCO | | | | Sell | | | | 5,050,000 | | | | 5,308,963 | | | | 6/19/20 | | | | 74,429 | | | | (18,876 | ) |
British Pound | | | BNYM | | | | Sell | | | | 1,472,617 | | | | 1,803,787 | | | | 6/22/20 | | | | — | | | | (15,068 | ) |
Canadian Dollar | | | BNYM | | | | Sell | | | | 3,556,000 | | | | 2,533,780 | | | | 6/22/20 | | | | — | | | | (48,968 | ) |
Euro | | | BNYM | | | | Sell | | | | 25,942,185 | | | | 28,126,459 | | | | 6/22/20 | | | | 1,800 | | | | (685,374 | ) |
Hong Kong Dollar | | | BNYM | | | | Buy | | | | 757,094 | | | | 97,598 | | | | 6/22/20 | | | | 23 | | | | — | |
Hong Kong Dollar | | | BNYM | | | | Sell | | | | 16,979,987 | | | | 2,189,765 | | | | 6/22/20 | | | | 331 | | | | — | |
Swiss Franc | | | BNYM | | | | Sell | | | | 2,368,301 | | | | 2,441,705 | | | | 6/22/20 | | | | — | | | | (22,199 | ) |
Australian Dollar | | | JPHQ | | | | Buy | | | | 2,043,575 | | | | 1,319,757 | | | | 6/23/20 | | | | 42,418 | | | | — | |
British Pound | | | JPHQ | | | | Buy | | | | 4,533,367 | | | | 5,510,829 | | | | 6/23/20 | | | | 88,439 | | | | — | |
Canadian Dollar | | | JPHQ | | | | Sell | | | | 2,061,484 | | | | 1,466,938 | | | | 6/23/20 | | | | — | | | | (30,334 | ) |
Euro | | | JPHQ | | | | Sell | | | | 5,154,850 | | | | 5,589,156 | | | | 6/23/20 | | | | — | | | | (135,667 | ) |
Hungarian Forint | | | JPHQ | | | | Buy | | | | 350,760,131 | | | | 1,070,287 | | | | 6/23/20 | | | | 51,303 | | | | — | |
Japanese Yen | | | JPHQ | | | | Buy | | | | 77,826,305 | | | | 727,369 | | | | 6/23/20 | | | | — | | | | (5,476 | ) |
Mexican Peso | | | JPHQ | | | | Buy | | | | 280,288,069 | | | | 11,711,603 | | | | 6/23/20 | | | | 884,263 | | | | — | |
New Israeli Shekel | | | JPHQ | | | | Sell | | | | 1,644,627 | | | | 466,086 | | | | 6/23/20 | | | | — | | | | (2,439 | ) |
New Zealand Dollar | | | JPHQ | | | | Buy | | | | 2,152,423 | | | | 1,288,725 | | | | 6/23/20 | | | | 47,262 | | | | — | |
Norwegian Krone | | | JPHQ | | | | Buy | | | | 95,916,073 | | | | 9,390,750 | | | | 6/23/20 | | | | 478,281 | | | | — | |
Russian Ruble | | | JPHQ | | | | Buy | | | | 49,799,467 | | | | 675,231 | | | | 6/23/20 | | | | 30,390 | | | | — | |
| | | | |
| | | |
60 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Forward Exchange Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency | | Counterpartya | | | Type | | | Quantity | | | Contract Amount* | | | Settlement Date | | | Unrealized Appreciation | | | Unrealized Depreciation | |
OTC Forward Exchange Contracts (continued) | | | | | | | | | | | | | |
South African Rand | | | JPHQ | | | | Buy | | | | 8,505 | | | | 479 | | | | 6/23/20 | | | $ | 4 | | | $ | — | |
South African Rand | | | JPHQ | | | | Sell | | | | 13,292,543 | | | | 719,140 | | | | 6/23/20 | | | | — | | | | (36,367 | ) |
Swiss Franc | | | JPHQ | | | | Sell | | | | 8,699,753 | | | | 8,965,296 | | | | 6/23/20 | | | | — | | | | (85,904 | ) |
Australian Dollar | | | BNYM | | | | Buy | | | | 500,000 | | | | 326,475 | | | | 6/30/20 | | | | 6,809 | | | | — | |
British Pound | | | BNYM | | | | Sell | | | | 189,000 | | | | 234,908 | | | | 6/30/20 | | | | 1,462 | | | | — | |
British Pound | | | MSCO | | | | Buy | | | | 9,789 | | | | 12,032 | | | | 6/30/20 | | | | 59 | | | | — | |
British Pound | | | MSCO | | | | Sell | | | | 9,789 | | | | 12,211 | | | | 6/30/20 | | | | 120 | | | | — | |
Canadian Dollar | | | BNYM | | | | Sell | | | | 463,000 | | | | 329,420 | | | | 6/30/20 | | | | — | | | | (6,862 | ) |
Canadian Dollar | | | MSCO | | | | Buy | | | | 1,820,600 | | | | 1,302,863 | | | | 6/30/20 | | | | 19,656 | | | | (197 | ) |
Canadian Dollar | | | MSCO | | | | Sell | | | | 3,506,603 | | | | 2,498,970 | | | | 6/30/20 | | | | — | | | | (47,916 | ) |
Danish Krone | | | MSCO | | | | Buy | | | | 4,545,933 | | | | 669,715 | | | | 6/30/20 | | | | 7,785 | | | | (111 | ) |
Danish Krone | | | MSCO | | | | Sell | | | | 25,927,533 | | | | 3,785,876 | | | | 6/30/20 | | | | — | | | | (77,584 | ) |
Euro | | | BNYM | | | | Sell | | | | 1,060,000 | | | | 1,163,195 | | | | 6/30/20 | | | | 549 | | | | (14,726 | ) |
Euro | | | JPHQ | | | | Buy | | | | 450,000 | | | | 486,986 | | | | 6/30/20 | | | | 12,842 | | | | — | |
Euro | | | JPHQ | | | | Sell | | | | 2,280,000 | | | | 2,519,286 | | | | 6/30/20 | | | | — | | | | (13,175 | ) |
Euro | | | MSCO | | | | Buy | | | | 1,366,076 | | | | 1,497,591 | | | | 6/30/20 | | | | 19,749 | | | | — | |
Euro | | | MSCO | | | | Sell | | | | 5,614,983 | | | | 6,127,464 | | | | 6/30/20 | | | | — | | | | (109,258 | ) |
Euro | | | MSCS | | | | Sell | | | | 90,000 | | | | 100,033 | | | | 6/30/20 | | | | 67 | | | | — | |
Japanese Yen | | | JPHQ | | | | Buy | | | | 1,000,000 | | | | 9,185 | | | | 6/30/20 | | | | 92 | | | | — | |
Japanese Yen | | | JPHQ | | | | Sell | | | | 6,200,000 | | | | 56,859 | | | | 6/30/20 | | | | — | | | | (656 | ) |
Japanese Yen | | | MSCO | | | | Buy | | | | 6,451,366 | | | | 60,234 | | | | 6/30/20 | | | | — | | | | (387 | ) |
Japanese Yen | | | MSCO | | | | Sell | | | | 53,995,086 | | | | 501,494 | | | | 6/30/20 | | | | 601 | | | | — | |
Swedish Krona | | | BNYM | | | | Buy | | | | 5,000,000 | | | | 487,905 | | | | 6/30/20 | | | | 42,888 | | | | — | |
Swedish Krona | | | MSCO | | | | Buy | | | | 1,837,117 | | | | 185,093 | | | | 6/30/20 | | | | 9,932 | | | | — | |
Swiss Franc | | | MSCO | | | | Buy | | | | 621,562 | | | | 642,614 | | | | 6/30/20 | | | | 4,186 | | | | — | |
Swiss Franc | | | MSCO | | | | Sell | | | | 64,512 | | | | 66,144 | | | | 6/30/20 | | | | — | | | | (987 | ) |
Colombian Peso | | | JPHQ | | | | Buy | | | | 2,430,322,306 | | | | 653,119 | | | | 7/02/20 | | | | — | | | | (3,535 | ) |
Euro | | | HSBC | | | | Sell | | | | 675,000 | | | | 735,076 | | | | 7/02/20 | | | | — | | | | (14,700 | ) |
Indonesian Rupiah | | | JPHQ | | | | Buy | | | | 6,130,186,920 | | | | 415,260 | | | | 7/03/20 | | | | 2,402 | | | | — | |
Euro | | | JPHQ | | | | Sell | | | | 670,000 | | | | 725,721 | | | | 7/06/20 | | | | — | | | | (18,568 | ) |
Colombian Peso | | | MSCS | | | | Sell | | | | 780,000,000 | | | | 192,260 | | | | 7/08/20 | | | | — | | | | (16,121 | ) |
Japanese Yen | | | GSCO | | | | Buy | | | | 98,924,666 | | | | 923,908 | | | | 7/13/20 | | | | — | | | | (6,025 | ) |
Japanese Yen | | | SSBT | | | | Buy | | | | 305,965,235 | | | | 2,856,966 | | | | 7/13/20 | | | | — | | | | (18,035 | ) |
Japanese Yen | | | UBSW | | | | Buy | | | | 39,937,026 | | | | 370,958 | | | | 7/13/20 | | | | — | | | | (398 | ) |
Australian Dollar | | | MSCI | | | | Sell | | | | 453,558 | | | | 297,513 | | | | 7/14/20 | | | | — | | | | (4,813 | ) |
Australian Dollar | | | UBSW | | | | Buy | | | | 183,435 | | | | 121,480 | | | | 7/14/20 | | | | 791 | | | | — | |
Australian Dollar | | | UBSW | | | | Sell | | | | 3,278,373 | | | | 2,122,960 | | | | 7/14/20 | | | | — | | | | (62,288 | ) |
New Zealand Dollar | | | GSCO | | | | Sell | | | | 350,320 | | | | 209,750 | | | | 7/14/20 | | | | — | | | | (7,664 | ) |
New Zealand Dollar | | | UBSW | | | | Sell | | | | 1,269,734 | | | | 772,123 | | | | 7/14/20 | | | | — | | | | (15,893 | ) |
Swiss Franc | | | GSCO | | | | Buy | | | | 100,648 | | | | 104,101 | | | | 7/14/20 | | | | 677 | | | | — | |
Swiss Franc | | | JPHQ | | | | Buy | | | | 300,146 | | | | 311,231 | | | | 7/14/20 | | | | 1,231 | | | | — | |
Swiss Franc | | | MSCI | | | | Buy | | | | 254,966 | | | | 262,537 | | | | 7/14/20 | | | | 2,891 | | | | — | |
British Pound | | | JPHQ | | | | Buy | | | | 637,078 | | | | 792,022 | | | | 7/17/20 | | | | — | | | | (5,072 | ) |
British Pound | | | MSCI | | | | Buy | | | | 759,042 | | | | 926,786 | | | | 7/17/20 | | | | 10,820 | | | | — | |
British Pound | | | SSBT | | | | Buy | | | | 348,104 | | | | 424,957 | | | | 7/17/20 | | | | 5,038 | | | | — | |
Thai Baht | | | UBSW | | | | Buy | | | | 25,860,000 | | | | 806,613 | | | | 7/22/20 | | | | 6,184 | | | | — | |
Thai Baht | | | UBSW | | | | Sell | | | | 25,860,000 | | | | 794,885 | | | | 7/22/20 | | | | — | | | | (17,912 | ) |
Canadian Dollar | | | BOFA | | | | Sell | | | | 145,000 | | | | 102,095 | | | | 7/23/20 | | | | — | | | | (3,220 | ) |
Euro | | | BOFA | | | | Sell | | | | 340,000 | | | | 369,445 | | | | 7/23/20 | | | | — | | | | (8,399 | ) |
Euro | | | BZWS | | | | Sell | | | | 115,000 | | | | 124,960 | | | | 7/23/20 | | | | — | | | | (2,840 | ) |
British Pound | | | DBAB | | | | Sell | | | | 166,000 | | | | 206,486 | | | | 7/31/20 | | | | 1,423 | | | | — | |
Indian Rupee | | | JPHQ | | | | Buy | | | | 121,968,204 | | | | 1,603,263 | | | | 8/03/20 | | | | — | | | | (703 | ) |
Canadian Dollar | | | SSBT | | | | Buy | | | | 2,205,699 | | | | 1,602,596 | | | | 8/04/20 | | | | — | | | | (585 | ) |
Euro | | | HSBC | | | | Sell | | | | 40,000 | | | | 43,332 | | | | 8/13/20 | | | | — | | | | (1,141 | ) |
Euro | | | JPHQ | | | | Sell | | | | 363,926 | | | | 400,289 | | | | 9/16/20 | | | | — | | | | (4,631 | ) |
Indonesian Rupiah | | | JPHQ | | | | Sell | | | | 68,540,989,568 | | | | 4,457,309 | | | | 9/16/20 | | | | — | | | | (168,591 | ) |
Russian Ruble | | | JPHQ | | | | Buy | | | | 13,348,431 | | | | 186,639 | | | | 9/16/20 | | | | 485 | | | | — | |
| | | | |
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| franklintempleton.com | | Annual Report | | 61 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Forward Exchange Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency | | Counterpartya | | | Type | | | Quantity | | | Contract Amount* | | | Settlement Date | | | Unrealized Appreciation | | | Unrealized Depreciation | |
OTC Forward Exchange Contracts (continued) | | | | | | | | | | | | | | | | | |
Russian Ruble | | | JPHQ | | | | Sell | | | | 741,447,078 | | | | 10,095,270 | | | | 9/16/20 | | | $ | — | | | $ | (298,690 | ) |
Thai Baht | | | JPHQ | | | | Buy | | | | 44,871,048 | | | | 1,406,947 | | | | 9/16/20 | | | | 3,230 | | | | — | |
Thai Baht | | | JPHQ | | | | Sell | | | | 44,871,048 | | | | 1,406,175 | | | | 9/16/20 | | | | — | | | | (4,002 | ) |
South African Rand | | | JPHQ | | | | Buy | | | | 3,298,077 | | | | 171,000 | | | | 1/08/21 | | | | 12,902 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Forward Exchange Contracts | | | | | | | | | | | | | | | $ | 5,904,694 | | | $ | (5,497,508 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized appreciation (depreciation) | | | | | | | | | | | | | | | $ | 407,186 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
*In U.S. dollars unless otherwise indicated.
aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
bA portion or all of the contracts are owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(k).
At May 31, 2020, the Fund had the following credit default swap contracts outstanding. See Note 1(e).
Credit Default Swap Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Annual Payment Rate Received (Paid) | | | Payment Frequency | | | Maturity Date | | | Notional Amounta | | | Value | | | Unamortized Upfront Payments (Receipts) | | | Unrealized Appreciation (Depreciation) | | | Ratingb | |
Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | | |
Government of Malaysia | | | (1.00)% | | | | Quarterly | | | | 12/20/24 | | | | 1,796,000 | | | $ | (15,119 | ) | | $ | (47,585 | ) | | $ | 32,466 | | | | | |
Government of Mexico | | | (1.00)% | | | | Quarterly | | | | 6/20/23 | | | | 1,763,000 | | | | 11,323 | | | | (441 | ) | | | 11,764 | | | | | |
Government of Mexico | | | (1.00)% | | | | Quarterly | | | | 12/20/23 | | | | 4,066,000 | | | | 51,695 | | | | (11,463 | ) | | | 63,158 | | | | | |
Government of Mexico | | | (1.00)% | | | | Quarterly | | | | 12/20/23 | | | | 61,000 | | | | 775 | | | | (945 | ) | | | 1,720 | | | | | |
Government of South Africa | | | (1.00)% | | | | Quarterly | | | | 12/20/24 | | | | 748,000 | | | | 73,840 | | | | 70,156 | | | | 3,684 | | | | | |
Government of South Africa | | | (1.00)% | | | | Quarterly | | | | 12/20/24 | | | | 3,065,000 | | | | 302,564 | | | | 90,737 | | | | 211,827 | | | | | |
Government of South Africa | | | (1.00)% | | | | Quarterly | | | | 12/20/24 | | | | 4,478,000 | | | | 442,051 | | | | 132,619 | | | | 309,432 | | | | | |
Government of South Korea | | | (1.00)% | | | | Quarterly | | | | 6/20/24 | | | | 2,481,367 | | | | (79,670 | ) | | | (83,106 | ) | | | 3,436 | | | | | |
Government of South Korea | | | (1.00)% | | | | Quarterly | | | | 12/20/24 | | | | 1,632,000 | | | | (55,777 | ) | | | (53,378 | ) | | | (2,399 | ) | | | | |
Government of Turkey | | | (1.00)% | | | | Quarterly | | | | 9/20/20 | | | | 1,976,000 | | | | 21,785 | | | | 157,717 | | | | (135,932 | ) | | | | |
Government of Turkey | | | (1.00)% | | | | Quarterly | | | | 6/20/24 | | | | 141,000 | | | | 22,555 | | | | 14,153 | | | | 8,402 | | | | | |
Government of Turkey | | | (1.00)% | | | | Quarterly | | | | 6/20/25 | | | | 909,000 | | | | 176,564 | | | | 206,196 | | | | (29,632 | ) | | | | |
L Brand Inc. | | | (1.00)% | | | | Quarterly | | | | 12/20/20 | | | | 385,000 | | | | 4,063 | | | | 9,625 | | | | (5,562 | ) | | | | |
Simon Property Group LP | | | (1.00)% | | | | Quarterly | | | | 6/20/25 | | | | 270,000 | | | | 18,114 | | | | 23,201 | | | | (5,087 | ) | | | | |
Traded Index | | | | | | | | | | | | | | | | | | | | | | | | |
CDX.NA.IG.34 | | | (1.00)% | | | | Quarterly | | | | 6/20/25 | | | | 854,000 | | | | (9,256 | ) | | | 3,466 | | | | (12,722 | ) | | | | |
Contracts to Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | | |
Government of South Africa | | | 1.00% | | | | Quarterly | | | | 12/20/24 | | | | 874,000 | | | | (86,278 | ) | | | (25,494 | ) | | | (60,784 | ) | | | BB+ | |
Government of Turkey | | | 1.00% | | | | Quarterly | | | | 12/20/22 | | | | 826,000 | | | | (85,531 | ) | | | (37,352 | ) | | | (48,179 | ) | | | B+ | |
Traded Index | | | | | | | | | | | | | | | | | | | | | | | | |
CDX.NA.HY.34 | | | 5.00% | | | | Quarterly | | | | 6/20/25 30,279,800 | | | | (598,922 | ) | | | (2,005,110 | ) | | | 1,406,188 | | |
| Investment
Grade |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Centrally Cleared Swap Contracts | | | | | | | $ | 194,776 | | | $ | (1,557,004 | ) | | $ | 1,751,780 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | |
62 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Annual Payment Rate Received (Paid) | | | Payment Frequency | | Counterparty | | | Maturity Date | | | Notional Amounta | | | Value | | | Unamortized Upfront Payments (Receipts) | | | Unrealized Appreciation (Depreciation) | | | Ratingb |
| | | | | | | |
OTC Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 20,000 | | | $ | 9,823 | | | | $ 6,169 | | | | $ 3,654 | | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 30,000 | | | | 14,734 | | | | 7,218 | | | | 7,516 | | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | CITI | | | | 6/20/20 | | | | 30,000 | | | | 324 | | | | 370 | | | | (46 | ) | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | CITI | | | | 6/20/20 | | | | 50,000 | | | | 540 | | | | 740 | | | | (200 | ) | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | CITI | | | | 6/20/25 | | | | 48,000 | | | | 23,575 | | | | 11,616 | | | | 11,959 | | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | FBCO | | | | 6/20/20 | | | | 53,000 | | | | 573 | | | | 817 | | | | (244 | ) | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | FBCO | | | | 12/20/24 | | | | 30,000 | | | | 14,543 | | | | 4,005 | | | | 10,538 | | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/20 | | | | 100,000 | | | | 1,081 | | | | 1,481 | | | | (400 | ) | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 50,000 | | | | 24,238 | | | | 6,913 | | | | 17,325 | | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 41,000 | | | | 19,876 | | | | 9,214 | | | | 10,662 | | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 47,000 | | | | 23,084 | | | | 11,535 | | | | 11,549 | | | |
American Airlines Group Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 48,000 | | | | 23,575 | | | �� | 14,179 | | | | 9,396 | | | |
Avis Budget Group, Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 30,000 | | | | 5,921 | | | | 3,228 | | | | 2,693 | | | |
Avis Budget Group, Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 28,000 | | | | 5,526 | | | | 3,347 | | | | 2,179 | | | |
Avis Budget Group, Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 48,000 | | | | 9,474 | | | | 5,971 | | | | 3,503 | | | |
Avis Budget Group, Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 28,000 | | | | 5,526 | | | | 2,945 | | | | 2,581 | | | |
Avis Budget Group, Inc. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 12/20/24 | | | | 19,000 | | | | 3,750 | | | | 2,363 | | | | 1,387 | | | |
Avis Budget Group, Inc. | | | (5.00)% | | | Quarterly | | | MSCO | | | | 12/20/24 | | | | 19,000 | | | | 3,750 | | | | 1,999 | | | | 1,751 | | | |
Beazer Homes USA, Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 41,000 | | | | (2,679 | ) | | | 8,162 | | | | (10,841 | ) | | |
Beazer Homes USA, Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 41,000 | | | | (2,679 | ) | | | (1,858 | ) | | | (821 | ) | | |
Beazer Homes USA, Inc. | | | (5.00)% | | | Quarterly | | | MSCO | | | | 6/20/25 | | | | 41,000 | | | | (2,678 | ) | | | 9,167 | | | | (11,845 | ) | | |
Best Buy Co. Inc. | | | (5.00)% | | | Quarterly | | | BOFA | | | | 12/20/24 | | | | 47,000 | | | | (9,200 | ) | | | (7,284 | ) | | | (1,916 | ) | | |
Best Buy Co. Inc. | | | (5.00)% | | | Quarterly | | | BOFA | | | | 12/20/24 | | | | 48,000 | | | | (9,395 | ) | | | (7,198 | ) | | | (2,197 | ) | | |
Best Buy Co. Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 48,000 | | | | (9,395 | ) | | | (8,145 | ) | | | (1,250 | ) | | |
Best Buy Co. Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 144,000 | | | | (28,186 | ) | | | (25,016 | ) | | | (3,170 | ) | | |
Best Buy Co. Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 77,000 | | | | (15,071 | ) | | | (11,390 | ) | | | (3,681 | ) | | |
Best Buy Co. Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 29,000 | | | | (5,676 | ) | | | (4,278 | ) | | | (1,398 | ) | | |
Best Buy Co. Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 20,000 | | | | (3,914 | ) | | | (2,803 | ) | | | (1,111 | ) | | |
Best Buy Co. Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 86,000 | | | | (18,225 | ) | | | (10,795 | ) | | | (7,430 | ) | | |
Boyd Gaming Corp. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 25,000 | | | | (1,370 | ) | | | 891 | | | | (2,261 | ) | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 63 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Annual Payment Rate Received (Paid) | | | Payment Frequency | | Counterparty | | | Maturity Date | | | Notional Amounta | | | Value | | | Unamortized Upfront Payments (Receipts) | | | Unrealized Appreciation (Depreciation) | | | Ratingb |
| | | | | | | |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc (continued) | | | | | | | | | | | | | | | | | | | | | | | |
Single Name (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Boyd Gaming Corp. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 25,000 | | | | $ (1,370 | ) | | | $ 943 | | | | $ (2,313 | ) | | |
Boyd Gaming Corp. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 25,000 | | | | (1,370 | ) | | | 943 | | | | (2,313 | ) | | |
Boyd Gaming Corp. | | | (5.00)% | | | Quarterly | | | MSCO | | | | 6/20/25 | | | | 25,000 | | | | (1,371 | ) | | | 788 | | | | (2,159 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | BZWS | | | | 6/20/23 | | | | 41,000 | | | | 9,535 | | | | 11,179 | | | | (1,644 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | BZWS | | | | 6/20/23 | | | | 41,000 | | | | 9,535 | | | | 11,409 | | | | (1,874 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | CITI | | | | 6/20/23 | | | | 20,000 | | | | 4,652 | | | | 5,551 | | | | (899 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | CITI | | | | 6/20/25 | | | | 15,000 | | | | 3,908 | | | | 4,526 | | | | (618 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | FBCO | | | | 6/20/23 | | | | 65,000 | | | | 15,116 | | | | 17,801 | | | | (2,685 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | GSCO | | | | 12/20/20 | | | | 25,000 | | | | 1,500 | | | | 1,209 | | | | 291 | | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | GSCO | | | | 12/20/20 | | | | 25,000 | | | | 1,501 | | | | 2,525 | | | | (1,024 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | GSCO | | | | 12/20/20 | | | | 25,000 | | | | 1,500 | | | | 2,913 | | | | (1,413 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | GSCO | | | | 6/20/23 | | | | 41,000 | | | | 9,535 | | | | 10,680 | | | | (1,145 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | GSCO | | | | 6/20/23 | | | | 41,000 | | | | 9,535 | | | | 11,228 | | | | (1,693 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 39,000 | | | | 10,160 | | | | 11,767 | | | | (1,607 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 39,000 | | | | 10,160 | | | | 14,298 | | | | (4,138 | ) | | |
Carnival Corp. | | | (1.00)% | | | Quarterly | | | JPHQ | | | | 12/20/20 | | | | 13,000 | | | | 781 | | | | 702 | | | | 79 | | | |
Cleveland-Cliffs Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 5,000 | | | | 1,118 | | | | 1,591 | | | | (473 | ) | | |
Cleveland-Cliffs Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 16,000 | | | | 3,575 | | | | 5,473 | | | | (1,898 | ) | | |
Cleveland-Cliffs Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 18,000 | | | | 4,021 | | | | 6,080 | | | | (2,059 | ) | | |
Cleveland-Cliffs Inc. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 2,000 | | | | 447 | | | | 552 | | | | (105 | ) | | |
Cleveland-Cliffs Inc. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 5,000 | | | | 1,117 | | | | 1,366 | | | | (249 | ) | | |
Cleveland-Cliffs Inc. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 16,000 | | | | 3,575 | | | | 5,393 | | | | (1,818 | ) | | |
Cleveland-Cliffs Inc. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 30,000 | | | | 6,702 | | | | 8,870 | | | | (2,168 | ) | | |
Devon Energy Corp. | | | (1.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 80,000 | | | | 1,256 | | | | 7,775 | | | | (6,519 | ) | | |
Devon Energy Corp. | | | (1.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 80,000 | | | | 1,255 | | | | 8,253 | | | | (6,998 | ) | | |
Enel SpA | | | (1.00)% | | | Quarterly | | | BOFA | | | | 6/20/23 | | | | 85,000 | | | | EUR (1,757 | ) | | | (31 | ) | | | (1,726 | ) | | |
Enel SpA | | | (1.00)% | | | Quarterly | | | MSCS | | | | 12/20/23 | | | | 330,000 | | | | EUR (6,896 | ) | | | 1,575 | | | | (8,471 | ) | | |
Goodyear Tire & Rubber Co. (The) | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 19,000 | | | | (384 | ) | | | 849 | | | | (1,233 | ) | | |
Goodyear Tire & Rubber Co. (The) | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 28,000 | | | | (260 | ) | | | 1,100 | | | | (1,360 | ) | | |
Goodyear Tire & Rubber Co. (The) | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 25,000 | | | | (232 | ) | | | 1,591 | | | | (1,823 | ) | | |
Goodyear Tire & Rubber Co. (The) | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 42,000 | | | | (389 | ) | | | 2,275 | | | | (2,664 | ) | | |
Goodyear Tire & Rubber Co. (The) | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 19,000 | | | | (384 | ) | | | (640 | ) | | | 256 | | | |
Goodyear Tire & Rubber Co. (The) | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 47,000 | | | | (436 | ) | | | 942 | | | | (1,378 | ) | | |
Goodyear Tire & Rubber Co. (The) | | | (5.00)% | | | Quarterly | | | MSCO | | | | 12/20/24 | | | | 47,000 | | | | (950 | ) | | | (897 | ) | | | (53 | ) | | |
Goodyear Tire & Rubber Co. (The) | | | (5.00)% | | | Quarterly | | | MSCS | | | | 6/20/25 | | | | 54,000 | | | | (500 | ) | | | 1,930 | | | | (2,430 | ) | | |
Government of Brazil | | | (1.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 201,000 | | | | 16,282 | | | | 23,672 | | | | (7,390 | ) | | |
Government of China | | | (1.00)% | | | Quarterly | | | MSCO | | | | 6/20/25 | | | | 780,000 | | | | (18,701 | ) | | | (15,064 | ) | | | (3,637 | ) | | |
Government of China | | | (1.00)% | | | Quarterly | | | MSCS | | | | 6/20/25 | | | | 755,000 | | | | (18,102 | ) | | | (17,595 | ) | | | (507 | ) | | |
Government of Italy | | | (1.00)% | | | Quarterly | | | JPHQ | | | | 6/20/24 | | | | 218,000 | | | | 6,577 | | | | 1,936 | | | | 4,641 | | | |
Government of Mexico | | | (1.00)% | | | Quarterly | | | BOFA | | | | 6/20/25 | | | | 135,000 | | | | 4,687 | | | | 11,880 | | | | (7,193 | ) | | |
Government of Mexico | | | (1.00)% | | | Quarterly | | | BOFA | | | | 6/20/25 | | | | 680,000 | | | | 23,604 | | | | 59,848 | | | | (36,244 | ) | | |
| | | | |
| | | |
64 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Annual Payment Rate Received (Paid) | | | Payment Frequency | | Counterparty | | | Maturity Date | | | Notional Amounta | | | Value | | | Unamortized Upfront Payments (Receipts) | | | Unrealized Appreciation (Depreciation) | | | Ratingb |
| | | | | | | |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Government of Mexico | | | (1.00)% | | | Quarterly | | | BOFA | | | | 6/20/25 | | | | 695,000 | | | | $ 24,125 | | | | $ 66,669 | | | | $ (42,544 | ) | | |
Government of Russia | | | (1.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 94,000 | | | | 679 | | | | 3,745 | | | | (3,066 | ) | | |
Groupe Casino | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/22 | | | | 114,000 | | | EUR | 1,452 | | | | 11,459 | | | | (10,007 | ) | | |
Groupe Casino | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 75,000 | | | EUR | 5,978 | | | | 5,210 | | | | 768 | | | |
Groupe Casino | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 106,000 | | | EUR | 8,709 | | | | 7,370 | | | | 1,339 | | | |
Groupe Casino | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 210,000 | | | EUR | 16,740 | | | | 18,214 | | | | (1,474 | ) | | |
Heidelbergcement AG | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 101,000 | | | EUR | (21,882 | ) | | | (14,959 | ) | | | (6,923 | ) | | |
Heidelbergcement AG | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 50,000 | | | EUR | (10,832 | ) | | | (8,006 | ) | | | (2,826 | ) | | |
Heidelbergcement AG | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 41,000 | | | EUR | (8,883 | ) | | | (6,637 | ) | | | (2,246 | ) | | |
Heidelbergcement AG | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 42,000 | | | EUR | (9,099 | ) | | | (6,496 | ) | | | (2,603 | ) | | |
K. Hovnanian Enterprises Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 121,000 | | | | 77,395 | | | | 23,942 | | | | 53,453 | | | |
K. Hovnanian Enterprises Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 121,000 | | | | 77,394 | | | | 25,055 | | | | 52,339 | | | |
K. Hovnanian Enterprises Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 360,000 | | | | 230,265 | | | | 93,796 | | | | 136,469 | | | |
K. Hovnanian Enterprises Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 21,000 | | | | 13,682 | | | | 9,162 | | | | 4,520 | | | |
K. Hovnanian Enterprises Inc. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 4,000 | | | | 2,606 | | | | 2,500 | | | | 106 | | | |
K. Hovnanian Enterprises Inc. | | | (5.00)% | | | Quarterly | | | MSCO | | | | 6/20/25 | | | | 6,000 | | | | 3,910 | | | | 3,765 | | | | 145 | | | |
Kimco Realty Corp. | | | (1.00)% | | | Quarterly | | | JPHQ | | | | 6/20/24 | | | | 122,000 | | | | (1,107 | ) | | | – | | | | (1,107 | ) | | |
Kimco Realty Corp. | | | (1.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 121,000 | | | | 57 | | | | 2,018 | | | | (1,961 | ) | | |
Kohl’s Corp. | | | (1.00)% | | | Quarterly | | | BOFA | | | | 6/20/25 | | | | 42,000 | | | | 7,767 | | | | 8,389 | | | | (622 | ) | | |
Kohl’s Corp. | | | (1.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 42,000 | | | | 7,767 | | | | 7,579 | | | | 188 | | | |
Kohl’s Corp. | | | (1.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 42,000 | | | | 7,767 | | | | 8,459 | | | | (692 | ) | | |
Kohl’s Corp. | | | (1.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 50,000 | | | | 9,247 | | | | 8,606 | | | | 641 | | | |
Kohl’s Corp. | | | (1.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 403,000 | | | | 66,503 | | | | 7,896 | | | | 58,607 | | | |
Kohl’s Corp. | | | (1.00)% | | | Quarterly | | | MSCO | | | | 12/20/24 | | | | 153,000 | | | | 25,249 | | | | 2,641 | | | | 22,608 | | | |
Lloyds Bank PLC | | | (1.00)% | | | Quarterly | | | JPHQ | | | | 12/20/24 | | | | 540,000 | | | EUR | 14,586 | | | | 2,140 | | | | 12,446 | | | |
MBIA Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/22 | | | | 24,000 | | | | (385 | ) | | | (582 | ) | | | 197 | | | |
MBIA Inc. | | | (5.00)% | | | Quarterly | | | CITI | | | | 6/20/21 | | | | 340,000 | | | | (7,744 | ) | | | (16,353 | ) | | | 8,609 | | | |
MBIA Inc. | | | (5.00)% | | | Quarterly | | | CITI | | | | 6/20/22 | | | | 40,000 | | | | (642 | ) | | | (2,692 | ) | | | 2,050 | | | |
MBIA Inc. | | | (5.00)% | | | Quarterly | | | CITI | | | | 12/20/24 | | | | 112,000 | | | | 1,089 | | | | (17,942 | ) | | | 19,031 | | | |
MBIA Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/22 | | | | 25,000 | | | | (401 | ) | | | (1,331 | ) | | | 930 | | | |
MBIA Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 360,000 | | | | 3,500 | | | | (54,260 | ) | | | 57,760 | | | |
MBIA Inc. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 16,000 | | | | 275 | | | | (66 | ) | | | 341 | | | |
NRG Energy Inc. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/24 | | | | 288,000 | | | | (47,474 | ) | | | (47,563 | ) | | | 89 | | | |
Petroleo Brasileiro SA | | | (1.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 80,000 | | | | 11,525 | | | | 14,870 | | | | (3,345 | ) | | |
Petroleo Brasileiro SA | | | (1.00)% | | | Quarterly | | | CITI | | | | 6/20/25 | | | | 53,000 | | | | 7,635 | | | | 9,851 | | | | (2,216 | ) | | |
Simon Property Group LP | | | (1.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 161,000 | | | | 9,227 | | | | (1,709 | ) | | | 10,936 | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 65 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Annual Payment Rate Received (Paid) | | | Payment Frequency | | Counterparty | | | Maturity Date | | | Notional Amounta | | | Value | | | Unamortized Upfront Payments (Receipts) | | | Unrealized Appreciation (Depreciation) | | | Ratingb |
| | | | | | | |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Simon Property Group LP | | | (1.00)% | | | Quarterly | | | JPHQ | | | | 12/20/24 | | | | 291,000 | | | | $ 16,677 | | | | $ 5,539 | | | | $ 11,138 | | | |
Simon Property Group LP | | | (1.00)% | | | Quarterly | | | MSCS | | | | 12/20/24 | | | | 370,000 | | | | 21,205 | | | | (11,533 | ) | | | 32,738 | | | |
Softbank Group Corp. | | | (1.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 2,730,000 | | | JPY | 1,336 | | | | 4,341 | | | | (3,005 | ) | | |
Softbank Group Corp. | | | (1.00)% | | | Quarterly | | | CITI | | | | 12/20/24 | | | | 96,500,000 | | | JPY | 47,224 | | | | 47,450 | | | | (226 | ) | | |
Staples Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 12,000 | | | | 3,071 | | | | (44 | ) | | | 3,115 | | | |
Staples Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 225,000 | | | | 57,590 | | | | 10,542 | | | | 47,048 | | | |
Staples Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 177,000 | | | | 48,447 | | | | 3,065 | | | | 45,382 | | | |
Staples Inc. | | | (5.00)% | | | Quarterly | | | MSCS | | | | 12/20/24 | | | | 68,000 | | | | 17,405 | | | | 372 | | | | 17,033 | | | |
Suedzucker AG | | | (1.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 127,000 | | | EUR | 1,834 | | | | 5,896 | | | | (4,062 | ) | | |
Telecom Italia SpA | | | (1.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 227,000 | | | EUR | 16,722 | | | | 32,399 | | | | (15,677 | ) | | |
Transdigm Inc. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 58,000 | | | | (3,506 | ) | | | 870 | | | | (4,376 | ) | | |
Transocean Inc. | | | (5.00)% | | | Quarterly | | | FBCO | | | | 12/20/24 | | | | 356,000 | | | | 187,346 | | | | 208,881 | | | | (21,535 | ) | | |
Transocean Inc. | | | (5.00)% | | | Quarterly | | | FBCO | | | | 6/20/25 | | | | 147,000 | | | | 78,274 | | | | 94,710 | | | | (16,436 | ) | | |
Transocean Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 84,000 | | | | 44,205 | | | | 3,469 | | | | 40,736 | | | |
Transocean Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 185,000 | | | | 97,357 | | | | 25,471 | | | | 71,886 | | | |
Transocean Inc. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | 534,000 | | | | 281,019 | | | | 42,622 | | | | 238,397 | | | |
Transocean Inc. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 12/20/24 | | | | 100,000 | | | | 52,625 | | | | 55,513 | | | | (2,888 | ) | | |
Transocean Inc. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 12/20/24 | | | | 434,000 | | | | 228,393 | | | | 66,286 | | | | 162,107 | | | |
Unisys Corp. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | 20,000 | | | | (1,994 | ) | | | (2,986 | ) | | | 992 | | | |
Unisys Corp. | | | (5.00)% | | | Quarterly | | | CITI | | | | 12/20/24 | | | | 20,000 | | | | (1,995 | ) | | | (3,080 | ) | | | 1,085 | | | |
Unisys Corp. | | | (5.00)% | | | Quarterly | | | CITI | | | | 12/20/24 | | | | 20,000 | | | | (1,995 | ) | | | (2,941 | ) | | | 946 | | | |
US Steel Corp. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 25,000 | | | | 7,541 | | | | 7,742 | | | | (201 | ) | | |
US Steel Corp. | | | (5.00)% | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | 25,000 | | | | 7,540 | | | | 8,703 | | | | (1,163 | ) | | |
US Steel Corp. | | | (5.00)% | | | Quarterly | | | CITI | | | | 6/20/25 | | | | 25,000 | | | | 7,541 | | | | 7,613 | | | | (72 | ) | | |
US Steel Corp. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 25,000 | | | | 7,540 | | | | 8,703 | | | | (1,163 | ) | | |
US Steel Corp. | | | (5.00)% | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | 42,000 | | | | 12,668 | | | | 11,599 | | | | 1,069 | | | |
US Steel Corp. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 25,000 | | | | 7,540 | | | | 7,978 | | | | (438 | ) | | |
US Steel Corp. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 68,000 | | | | 20,510 | | | | 18,770 | | | | 1,740 | | | |
US Steel Corp. | | | (5.00)% | | | Quarterly | | | JPHQ | | | | 6/20/25 | | | | 85,000 | | | | 25,638 | | | | 21,816 | | | | 3,822 | | | |
US Steel Corp. | | | (5.00)% | | | Quarterly | | | MSCO | | | | 6/20/25 | | | | 17,000 | | | | 5,127 | | | | 6,087 | | | | (960 | ) | | |
US Steel Corp. | | | (5.00)% | | | Quarterly | | | MSCO | | | | 6/20/25 | | | | 25,000 | | | | 7,541 | | | | 7,609 | | | | (68 | ) | | |
US Steel Corp. | | | (5.00)% | | | Quarterly | | | MSCO | | | | 6/20/25 | | | | 41,000 | | | | 12,366 | | | | 10,954 | | | | 1,412 | | | |
Contracts to Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
American Airlines Group Inc. | | | 5.00% | | | Quarterly | | | CITI | | | | 12/20/20 | | | | 41,000 | | | | (9,975 | ) | | | (7,854 | ) | | | (2,121 | ) | | CCC |
American Airlines Group Inc. | | | 5.00% | | | Quarterly | | | GSCO | | | | 12/20/20 | | | | 41,000 | | | | (9,974 | ) | | | (7,586 | ) | | | (2,388 | ) | | CCC |
Occidental Petroleum Corp. | | | 1.00% | | | Quarterly | | | BZWS | | | | 9/20/21 | | | | 73,000 | | | | (6,375 | ) | | | (17,014 | ) | | | 10,639 | | | BB+ |
Occidental Petroleum Corp. | | | 1.00% | | | Quarterly | | | BZWS | | | | 9/20/21 | | | | 41,000 | | | | (3,580 | ) | | | (8,116 | ) | | | 4,536 | | | BB+ |
Occidental Petroleum Corp. | | | 1.00% | | | Quarterly | | | CITI | | | | 6/20/21 | | | | 11,000 | | | | (758 | ) | | | (2,117 | ) | | | 1,359 | | | BB+ |
Occidental Petroleum Corp. | | | 1.00% | | | Quarterly | | | JPHQ | | | | 6/20/21 | | | | 32,000 | | | | (2,206 | ) | | | (5,050 | ) | | | 2,844 | | | BB+ |
| | | | |
| | | |
66 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Annual Payment Rate Received (Paid) | | | Payment Frequency | | Counterparty | | | Maturity Date | | | Notional Amounta | | | Value | | | Unamortized Upfront Payments (Receipts) | | | Unrealized Appreciation (Depreciation) | | | Ratingb |
| | | | | | | | |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Traded Index | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX.EM.33 | | | 1.00% | | | Quarterly | | | MSCO | | | | 6/20/25 | | | | 750,000 | | | $ | (63,792 | ) | | $ | (72,010 | ) | | | $ 8,218 | | | Investment Grade |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total OTC Swap Contracts | | | | | | | | | | | | | | | | | $ | 1,932,789 | | | $ | 1,010,158 | | | | $ 922,631 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Credit Default Swap Contracts | | | | | | | | | | | | | | | | | $ | 2,127,565 | | | $ | (546,846 | ) | | | $ 2,674,411 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
aIn U.S. dollars unless otherwise indicated. For contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse provisions have been entered into in association with the contracts.
bBased on Standard and Poor’s (S&P) Rating for single name swaps and internal ratings for index swaps. Internal ratings based on mapping into equivalent ratings from external vendors.
cPerformance triggers for settlement of contract include default, bankruptcy or restructuring for single name swaps and failure to pay or bankruptcy of the underlying securities for traded index swaps.
dThe Fund enters contracts to sell protection to create a long credit position.
At May 31, 2020, the Fund had the following interest rate swap contracts outstanding. See Note 1(e).
Interest Rate Swap Contracts
| | | | | | | | | | | | | | | | | | | | |
| Description | | Payment Frequency | | | Maturity Date | | | Notional Amount | | | Value/Unrealized Appreciation (Depreciation) | |
| | | | | |
Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | | |
Receive Fixed 5.49%
Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 6/15/22 | | | | 46,991,626 | | | | MXN | | | | $ 28,565 | |
Receive Fixed 5.85%
Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 6/11/25 | | | | 38,840,816 | | | | MXN | | | | 43,956 | |
Receive Fixed 6.98%
Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 6/05/30 | | | | 45,566,603 | | | | MXN | | | | 157,905 | |
| | | | | | | | | | | | | | | | | | | | |
Total Interest Rate Swap Contracts | | | | | | | | | | | | | | | | | | | $ 230,426 | |
| | | | | | | | | | | | | | | | | | | | |
At May 31, 2020, the Fund had the following total return swap contracts outstanding. See Note 1(e).
Total Return Swap Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Underlying Instrument | | Financing Rate | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Value* | | | | | | Unamortized
Upfront
Payments
(Receipts) | | | Value/Unrealized
Appreciation
(Depreciation) | |
| |
OTC Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Contracts – Longa | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ampol LTD | | 1-Month BBSW + 0.55% | | | Monthly | | | | MSCS | | | | 12/22/21 | | | | 1,064,189 | | | | AUD | | | | $ — | | | | $ (154,359 | ) |
Amundi SA | | 1-Day EONIA + 0.40% | | | Monthly | | | | MSCS | | | | 3/10/21 | | | | 266,038 | | | | EUR | | | | — | | | | 117,965 | |
Anima Holding SpA | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 841,938 | | | | EUR | | | | — | | | | 91,268 | |
Anixter International Inc. | | 1-Day FEDEF + 0.40% | | | Monthly | | | | MSCO | | | | 12/23/20 | | | | 1,995,247 | | | | | | | | — | | | | 137,268 | |
Ashtead Group PLC | | 1-Month LIBOR + 0.50% | | | Monthly | | | | BOFA | | | | 5/03/21 | | | | 325,851 | | | | GBP | | | | — | | | | 29,115 | |
Barclays PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/16/21 | | | | 417,778 | | | | GBP | | | | — | | | | 63,419 | |
BNP Paribas SA | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 956,722 | | | | EUR | | | | — | | | | 42,996 | |
Bolsas y Mercados Espanoles SHMSF SA | | 1-Month LIBOR + 0.48% | | | Monthly | | | | BZWS | | | | 12/21/20 | | | | 2,566,410 | | | | EUR | | | | — | | | | 12 | |
BorgWarner Inc. | | 1-Day FEDEF + 0.40% | | | Monthly | | | | MSCO | | | | 5/17/21 | | | | 556,232 | | | | | | | | — | | | | 49,606 | |
Bureau Veritas SA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 758,186 | | | | EUR | | | | — | | | | 33,245 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 67 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Total Return Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Underlying Instrument | | Financing Rate | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Value* | | | | | | Unamortized
Upfront
Payments
(Receipts) | | | Value/Unrealized
Appreciation
(Depreciation) | |
| |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Contracts – Longa (continued) | | | | | | | | | | | | | | | | | | | | | | | | | |
Bureau Veritas SA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 5/18/21 | | | | 132,057 | | | | EUR | | | | $ — | | | | $ 2,617 | |
Caesars Entertainment Corp. | | 1-Day FEDEF + 0.40% | | | Monthly | | | | MSCS | | | | 12/23/20 | | | | 3,923,646 | | | | | | | | — | | | | 149,076 | |
Carrier Global Corp. | | 1-Day FEDEF + 0.40% | | | Monthly | | | | MSCO | | | | 12/23/20 | | | | 569,590 | | | | | | | | — | | | | 224,114 | |
Celesio AG | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCS | | | | 11/04/20 | | | | 3,563,710 | | | | EUR | | | | — | | | | (77,620 | ) |
Cie Plastic Omnium SA | | 1-Month EURIBOR + 0.50% | | | Monthly | | | | MSCS | | | | 1/12/21 | | | | 1,104,432 | | | | EUR | | | | — | | | | 267,824 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 3/04/21 | | | | 27,591 | | | | | | | | — | | | | 962 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 3/15/21 | | | | 53,417 | | | | | | | | — | | | | 9,003 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 4/01/21 | | | | 3,351 | | | | | | | | — | | | | 11 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 4/01/21 | | | | 39,797 | | | | | | | | — | | | | 7,388 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 4/28/21 | | | | 7,393 | | | | | | | | — | | | | 618 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 4/29/21 | | | | 9,918 | | | | | | | | — | | | | 675 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/03/21 | | | | 15,061 | | | | | | | | — | | | | 1,002 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/04/21 | | | | 6,489 | | | | | | | | — | | | | 868 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/04/21 | | | | 9,554 | | | | | | | | — | | | | 937 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/05/21 | | | | 3,655 | | | | | | | | — | | | | 464 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/06/21 | | | | 8,218 | | | | | | | | — | | | | 716 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/07/21 | | | | 1,807 | | | | | | | | — | | | | 201 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/10/21 | | | | 3,024 | | | | | | | | — | | | | 255 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/11/21 | | | | 5,404 | | | | | | | | — | | | | 335 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/18/21 | | | | 9,318 | | | | | | | | — | | | | 746 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/19/21 | | | | 6,999 | | | | | | | | — | | | | 298 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/20/21 | | | | 19,267 | | | | | | | | — | | | | 861 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/21/21 | | | | 19,120 | | | | | | | | — | | | | 1,009 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/24/21 | | | | 2,396 | | | | | | | | — | | | | 105 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/27/21 | | | | 3,220 | | | | | | | | — | | | | 101 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/31/21 | | | | 9,835 | | | | | | | | — | | | | (15 | ) |
Croda International PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/16/21 | | | | 546,018 | | | | GBP | | | | — | | | | 25,155 | |
Danone SA | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 2,704,142 | | | | EUR | | | | — | | | | 491,399 | |
DP World PLC | | 1-Day FEDEF + 2.00% | | | Monthly | | | | MSCO | | | | 4/19/21 | | | | 678,923 | | | | | | | | — | | | | (4,587 | ) |
EDP Renovaveis SA | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCS | | | | 9/04/20 | | | | 797,888 | | | | EUR | | | | — | | | | 520,646 | |
Elisa OYJ | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 3/08/21 | | | | 282,271 | | | | EUR | | | | — | | | | 2,849 | |
Elisa OYJ | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCO | | | | 4/15/21 | | | | 172,676 | | | | EUR | | | | — | | | | 9,425 | |
Eurofins Scientific SE | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 299,597 | | | | EUR | | | | — | | | | 174,797 | |
Faurecia | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCO | | | | 9/04/20 | | | | 653,435 | | | | EUR | | | | — | | | | (12,300 | ) |
Faurecia | | 1-Month LIBOR + 0.08% | | | Monthly | | | | BZWS | | | | 3/08/21 | | | | 240,138 | | | | EUR | | | | — | | | | (17,865 | ) |
Fiat Chrysler Automobiles NV | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCO | | | | 9/04/20 | | | | 3,813,879 | | | | EUR | | | | — | | | | (344,772 | ) |
Fiat Chrysler Automobiles NV | | 1-Month LIBOR + 0.08% | | | Monthly | | | | BZWS | | | | 3/08/21 | | | | 1,282,960 | | | | EUR | | | | — | | | | (37,698 | ) |
Flutter Entertainment PLC | | 1-Day SONIA + 0.75% | | | Monthly | | | | MSCS | | | | 2/08/21 | | | | 1,042,392 | | | | GBP | | | | — | | | | 575,117 | |
Fortescue Metals Group LTD | | 1-Month BBSW + 0.55% | | | Monthly | | | | MSCS | | | | 3/26/21 | | | | 171,691 | | | | AUD | | | | — | | | | 39,276 | |
GrandVision NV | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCS | | | | 9/04/20 | | | | 3,588,185 | | | | EUR | | | | — | | | | (434,738 | ) |
GrandVision NV | | 1-Month LIBOR + 0.05% | | | Monthly | | | | BZWS | | | | 5/11/21 | | | | 4,252,156 | | | | EUR | | | | — | | | | 58,768 | |
HeidelbergCement AG | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 1,096,195 | | | | EUR | | | | — | | | | 77,767 | |
Hermes International | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCO | | | | 3/18/21 | | | | 250,009 | | | | EUR | | | | — | | | | 36,260 | |
Hikma Pharmaceuticals PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/16/21 | | | | 116,608 | | | | GBP | | | | — | | | | 3,754 | |
HP Inc. | | 1-Month LIBOR + 0.52% | | | Monthly | | | | BZWS | | | | 5/26/21 | | | | 878,102 | | | | | | | | — | | | | (101,594 | ) |
| | | | |
| | | |
68 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Total Return Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Underlying Instrument | | Financing Rate | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Value* | | | | | | Unamortized
Upfront
Payments
(Receipts) | | | Value/Unrealized
Appreciation
(Depreciation) | |
| |
| | | | | | | |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Contracts – Longa (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Iliad SA | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 578,217 | | | | EUR | | | | $ — | | | | | | | | $ 277,398 | |
Ingenico Group SA | | 1-Month LIBOR + 0.06% | | | Monthly | | | | BZWS | | | | 5/20/21 | | | | 2,846,425 | | | | EUR | | | | — | | | | | | | | 97,202 | |
ITV PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/16/21 | | | | 755,380 | | | | GBP | | | | — | | | | | | | | 77,542 | |
Kering SA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 827,444 | | | | EUR | | | | — | | | | | | | | 203,302 | |
Kering SA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCO | | | | 3/15/21 | | | | 537,739 | | | | EUR | | | | — | | | | | | | | 61,458 | |
Knight-Swift Transportation Holdings Inc. | | 1-Month LIBOR + 0.55% | | | Monthly | | | | MSCS | | | | 9/22/20 | | | | 2,775,288 | | | | | | | | — | | | | | | | | 499,377 | |
LINE Corp. | | 1-Month LIBOR + 0.55% | | | Monthly | | | | MSCS | | | | 11/24/21 | | | | 322,911,580 | | | | JPY | | | | — | | | | | | | | 45,512 | |
Louisiana-Pacific Corp. | | 1-Month LIBOR + 0.50% | | | Monthly | | | | MSCS | | | | 5/31/21 | | | | 2,834,155 | | | | | | | | — | | | | | | | | (44,893 | ) |
LVMH Moet Hennessy Louis Vuitton | | 1-Day EONIA + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 231,552 | | | | EUR | | | | — | | | | | | | | 62,660 | |
Norfolk Southern Corp. | | 1-Month LIBOR + 0.50% | | | Monthly | | | | MSCO | | | | 9/22/20 | | | | 3,604,299 | | | | | | | | — | | | | | | | | (39,390 | ) |
NVR Inc. | | 1-Month LIBOR + 0.50% | | | Monthly | | | | MSCS | | | | 9/22/20 | | | | 3,205,630 | | | | | | | | — | | | | | | | | 286,595 | |
Osram Licht AG | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCS | | | | 4/19/21 | | | | 447,010 | | | | EUR | | | | — | | | | | | | | 3,646 | |
Osram Licht AG | | 1-Month LIBOR + 0.03% | | | Monthly | | | | BZWS | | | | 5/14/21 | | | | 873,921 | | | | EUR | | | | — | | | | | | | | 12,426 | |
QUALCOMM Inc. | | 1-Month LIBOR + 0.50% | | | Monthly | | | | MSCS | | | | 5/03/21 | | | | 2,080,723 | | | | | | | | — | | | | | | | | 54,105 | |
Rio Tinto PLC | | 1-Month LIBOR + 0.50% | | | Monthly | | | | MSCS | | | | 9/22/20 | | | | 3,323,918 | | | | | | | | — | | | | | | | | 406,861 | |
RSA Insurance Group PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/16/21 | | | | 636,646 | | | | GBP | | | | — | | | | | | | | 23,400 | |
Ryanair Holdings PLC | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 327,118 | | | | EUR | | | | — | | | | | | | | 93,241 | |
Smith & Nephew PLC | | 1-Month LOBOR + 0.40% | | | Monthly | | | | MSCO | | | | 3/12/21 | | | | 363,439 | | | | GBP | | | | — | | | | | | | | 9,792 | |
Smiths Group PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/16/21 | | | | 621,243 | | | | GBP | | | | — | | | | | | | | 28,099 | |
Societe Generale SA | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 621,498 | | | | EUR | | | | — | | | | | | | | (102,688 | ) |
Sports Direct International PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/16/21 | | | | 356,681 | | | | GBP | | | | — | | | | | | | | 111,081 | |
Stroeer SE & Co. KGaA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 2,549,428 | | | | EUR | | | | — | | | | | | | | 300,365 | |
T-Mobile US Inc. | | 1-Month LIBOR + 0.52% | | | Monthly | | | | BZWS | | | | 5/26/21 | | | | 1,116,245 | | | | | | | | — | | | | | | | | 32,565 | |
Vodafone Group PLC | | 1-Day SONIA + 0.65% | | | Monthly | | | | MSCS | | | | 2/08/21 | | | | 726,258 | | | | GBP | | | | — | | | | | | | | 2,673 | |
Wheelock & Co. LTD | | 1-Day HONIX + 0.55% | | | Monthly | | | | MSCS | | | | 4/19/21 | | | | 175,784 | | | | HKD | | | | — | | | | | | | | (357 | ) |
Zhongsheng Group Holdings | | 1-Month HIBOR + 0.95% | | | Monthly | | | | MSCS | | | | 3/31/21 | | | | 2,550,542 | | | | HKD | | | | — | | | | | | | | 134,360 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,701,077 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Contracts – Shortb | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
AbbVie Inc. | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCS | | | | 2/04/21 | | | | 71 | | | | | | | | — | | | | | | | | (23 | ) |
Brookfield Renewable Partners | | 1-Day FEDEF - 3.68% | | | Monthly | | | | MSCO | | | | 2/04/21 | | | | 1,396,270 | | | | | | | | — | | | | | | | | 141,404 | |
Colruyt SA | | 1-Day EONIA - 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 1,373,519 | | | | EUR | | | | — | | | | | | | | (499,087 | ) |
Delphi Technologies PLC | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 5/17/21 | | | | 513,717 | | | | | | | | — | | | | | | | | (46,846 | ) |
DJ EURO STOXX 50 Index | | 1-Day EONIA - 0.45% | | | Monthly | | | | MSCO | | | | 3/19/21 | | | | 579,095 | | | | EUR | | | | — | | | | | | | | (163,014 | ) |
Eldorado Resorts Inc. | | 1-Day FEDEF - 1.77% | | | Monthly | | | | MSCS | | | | 2/04/21 | | | | 1,165,323 | | | | | | | | — | | | | | | | | 25,461 | |
Elisa OYJ | | 1-Day EONIA - 0.40% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 298,648 | | | | EUR | | | | — | | | | | | | | (92,129 | ) |
Ferrari NV | | 1-Day EONIA - 0.50% | | | Monthly | | | | MSCS | | | | 3/10/21 | | | | 100,100 | | | | EUR | | | | — | | | | | | | | (28,836 | ) |
Flutter Entertainment PLC | | 1-Month LIBOR - 0.45% | | | Monthly | | | | BZWS | | | | 11/04/20 | | | | 218,402 | | | | | | | | — | | | | | | | | 162 | |
Flutter Entertainment PLC | | 1-Month LIBOR - 0.43% | | | Monthly | | | | BZWS | | | | 11/04/20 | | | | 12,262,766 | | | | | | | | — | | | | | | | | 8,617 | |
| | | | |
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| franklintempleton.com | | Annual Report | | 69 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
Total Return Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Underlying Instrument | | Financing Rate | | Payment
Frequency | | | Counter-
party | | | Maturity
Date | | | Notional
Value* | | | | | | Unamortized
Upfront
Payments
(Receipts) | | | Value/Unrealized
Appreciation
(Depreciation) | |
| |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Contracts – Shortb (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Flutter Entertainment PLC | | 1-Day SONIA - 0.75% | | | Monthly | | | | MSCS | | | | 2/08/21 | | | | 1,105,995 | | | | GBP | | | | $ — | | | | | | | | $ (489,078 | ) |
Genworth Financial Inc. | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 2/04/21 | | | | 145,452 | | | | | | | | — | | | | | | | | 33,578 | |
Hannover Rueck SE | | 1-Day EONIA - 0.35% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 416,609 | | | | EUR | | | | — | | | | | | | | (116,526 | ) |
Hennes & Mauritz AB | | 1-Week STIBOR - 0.40% | | | Monthly | | | | MSCS | | | | 11/10/20 | | | | 4,131,636 | | | | SEK | | | | — | | | | | | | | (34,081 | ) |
JD Sports Fashion PLC | | 1-Day SONIA - 0.30% | | | Monthly | | | | MSCS | | | | 4/16/21 | | | | 108,881 | | | | GBP | | | | — | | | | | | | | (29,743 | ) |
L’Oreal SA | | 1-Day EONIA - 0.35% | | | Monthly | | | | MSCS | | | | 12/21/20 | | | | 401,718 | | | | EUR | | | | — | | | | | | | | (102,386 | ) |
Marks & Spencer Group PLC | | 1-Day SONIA - 0.30% | | | Monthly | | | | MSCS | | | | 4/16/21 | | | | 111,386 | | | | GBP | | | | — | | | | | | | | (16,043 | ) |
Morgan Stanley MSPSCARR Index | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 4/06/21 | | | | 485,059 | | | | | | | | — | | | | | | | | (118,712 | ) |
Morgan Stanley MSPSEVRG Index | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 5/21/21 | | | | 320,158 | | | | | | | | — | | | | | | | | (13,869 | ) |
Nestle SA | | 1-Day SARON - 0.40% | | | Monthly | | | | MSCS | | | | 7/14/20 | | | | 853,801 | | | | CHF | | | | — | | | | | | | | (135,259 | ) |
Next PLC | | 1-Day SONIA - 0.30% | | | Monthly | | | | MSCS | | | | 4/16/21 | | | | 314,282 | | | | GBP | | | | — | | | | | | | | (5,554 | ) |
Nike Inc. | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 3/15/21 | | | | 512,936 | | | | | | | | — | | | | | | | | (44,621 | ) |
Peugeot SA | | 1-Day EONIA - 0.40% | | | Monthly | | | | MSCO | | | | 9/04/20 | | | | 3,419,169 | | | | EUR | | | | — | | | | | | | | 195,492 | |
Peugeot SA | | 1-Month LIBOR - 0.76% | | | Monthly | | | | BZWS | | | | 3/08/21 | | | | 1,226,070 | | | | EUR | | | | — | | | | | | | | 77,585 | |
Russell 2000 Index | | 1-Day FEDEF - 0.50% | | | Monthly | | | | MSCS | | | | 5/01/21 | | | | 1,108,522 | | | | | | | | — | | | | | | | | (41,557 | ) |
S&P 500 High Beta Total Return Index | | 1-Month LIBOR - 0.05% | | | Monthly | | | | BZWS | | | | 5/03/21 | | | | 1,920,993 | | | | | | | | — | | | | | | | | (220,921 | ) |
S&P 500 Index | | 1-Day FEDEF - 0.20% | | | Monthly | | | | MSCS | | | | 5/26/21 | | | | 983,242 | | | | | | | | — | | | | | | | | (33,558 | ) |
S&P Total Return Index | | 1-Month LIBOR - 1.20% | | | Monthly | | | | BOFA | | | | 3/25/21 | | | | 577,473 | | | | | | | | — | | | | | | | | (12,516 | ) |
SKF AB | | 1-Week STIBOR - 0.35% | | | Monthly | | | | MSCO | | | | 3/01/21 | | | | 3,710,824 | | | | SEK | | | | — | | | | | | | | (39,104 | ) |
Swisscom AG | | 1-Day SARON - 0.35% | | | Monthly | | | | MSCS | | | | 7/14/20 | | | | 576,937 | | | | CHF | | | | — | | | | | | | | (42,976 | ) |
WESCO International Inc. | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 2/04/21 | | | | 146,139 | | | | | | | | — | | | | | | | | 21,164 | |
Wharf Holdings | | 1-Day HONIX - 3.50% | | | Monthly | | | | MSCS | | | | 4/19/21 | | | | 46,345 | | | | HKD | | | | — | | | | | | | | 87 | |
Wharf Real Estate Investment | | 1-Day HONIX - 2.00% | | | Monthly | | | | MSCS | | | | 4/19/21 | | | | 97,403 | | | | HKD | | | | — | | | | | | | | (140 | ) |
Worldline SA | | 1-Month LIBOR - 0.57% | | | Monthly | | | | BZWS | | | | 5/20/21 | | | | 2,352,426 | | | | EUR | | | | — | | | | | | | | (154,574 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,977,603 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate Contracts – Longa | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Government of Indonesia | | 3-Month LIBOR + 1.00% | | | Monthly | | | | BOFA | | | | 5/18/21 | | | | 2,047,666 | | | | | | | | — | | | | | | | | 22,085 | |
Government of Indonesia | | 3-Month LIBOR + 0.60% | | | Monthly | | | | DBAB | | | | 6/15/32 | | | | 2,743,329 | | | | | | | | — | | | | | | | | (188,304 | ) |
Government of Ukraine | | — | | | Monthly | | | | BOFA | | | | 7/08/20 | | | | — | | | | | | | | 1,707,737 | | | | | | | | (200,489 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (366,708 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
Total Total Return Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 2,356,766 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
*In U.S. dollars unless otherwise indicated.
aThe Fund receives the total return on the underlying instrument and pays a variable financing rate.
bThe Fund receives the variable financing rate and pays the total return on the underlying instrument.
See Note 11 regarding other derivative information.
See Abbreviations on page 92.
| | | | | | |
| | | |
70 | | Annual Report | The accompanying notes are an integral part of these consolidated financial statements. | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Assets and Liabilities
May 31, 2020
Franklin K2 Alternative Strategies Fund
| | | | |
Assets: | | | | |
Investments in securities: | | | | |
Cost – Unaffiliated issuers | | $ | 949,290,323 | |
Cost – Non-controlled affiliates (Note 3f) | | | 1,731,000 | |
Cost – Unaffiliated repurchase agreements | | | 12,640,578 | |
| |
Value – Unaffiliated issuers† | | $ | 1,069,971,744 | |
Value – Non-controlled affiliates (Note 3f) | | | 1,731,000 | |
Value – Unaffiliated repurchase agreements | | | 12,640,578 | |
Cash | | | 38,008,889 | |
Restricted cash for OTC derivatives (Note 1f) | | | 3,250,000 | |
Foreign currency, at value (cost $1,853,851) | | | 1,763,823 | |
Receivables: | | | | |
Investment securities sold | | | 29,191,494 | |
Capital shares sold | | | 1,399,395 | |
Dividends and interest | | | 3,479,425 | |
Deposits with brokers for: | | | | |
Exchange traded options written | | | 1,793,514 | |
Securities sold short | | | 219,786,372 | |
OTC derivative contracts | | | 17,956,517 | |
Futures contracts | | | 20,988,755 | |
Centrally cleared swap contracts | | | 5,016,455 | |
Due from brokers | | | 15,825,935 | |
Variation margin on centrally cleared swap contracts | | | 202,661 | |
OTC swap contracts (upfront payments $3,236,275) | | | 3,149,816 | |
Unrealized appreciation on OTC forward exchange contracts | | | 5,904,694 | |
Unrealized appreciation on OTC swap contracts | | | 7,853,362 | |
Other assets | | | 24,593 | |
| |
Total assets | | | 1,459,939,022 | |
| |
Liabilities: | | | | |
Payables: | | | | |
Investment securities purchased | | | 15,910,075 | |
Capital shares redeemed | | | 1,870,718 | |
Management fees | | | 1,717,435 | |
Distribution fees | | | 49,785 | |
Transfer agent fees | | | 174,182 | |
Variation margin on futures contracts | | | 66,379 | |
Deposits from brokers for: | | | | |
OTC derivative contracts | | | 3,250,000 | |
Due to brokers | | | 14,219,176 | |
OTC swap contracts (upfront receipts $469,737) | | | 431,921 | |
Options written, at value (premiums received $1,353,412) | | | 1,946,512 | |
Securities sold short, at value (proceeds $273,187,565) | | | 287,893,067 | |
Payable upon return of securities loaned | | | 2,135,842 | |
Unrealized depreciation on OTC forward exchange contracts | | | 5,497,508 | |
Unrealized depreciation on OTC swap contracts | | | 4,573,965 | |
Accrued expenses and other liabilities | | | 439,172 | |
| |
Total liabilities | | | 340,175,737 | |
| |
Net assets, at value | | $ | 1,119,763,285 | |
| |
Net assets consist of: | | | | |
Paid-in capital | | $ | 1,065,961,420 | |
Total distributable earnings (loss) | | | 53,801,865 | |
| |
Net assets, at value | | $ | 1,119,763,285 | |
†Includes securities loaned | | $ | 2,099,903 | |
| | | | |
| | | |
| franklintempleton.com | | The accompanying notes are an integral part of these consolidated financial statements. | Annual Report | | 71 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Assets and Liabilities (continued)
May 31, 2020
Franklin K2 Alternative Strategies Fund
| | | | |
Class A: | | | | |
| |
Net assets, at value | | | $90,204,854 | |
| |
Shares outstanding | | | 8,064,612 | |
| |
Net asset value per sharea | | | $11.19 | |
| |
Maximum offering price per share (net asset value per share ÷ 94.50%) | | | $11.84 | |
| |
Class C: | | | | |
| |
Net assets, at value | | | $36,043,461 | |
| |
Shares outstanding | | | 3,292,957 | |
| |
Net asset value and maximum offering price per sharea | | | $10.95 | |
| |
Class R: | | | | |
| |
Net assets, at value | | | $883,519 | |
| |
Shares outstanding | | | 78,915 | |
| |
Net asset value and maximum offering price per share | | | $11.20 | |
| |
Class R6: | | | | |
| |
Net assets, at value | | | $15,537,479 | |
| |
Shares outstanding | | | 1,380,758 | |
| |
Net asset value and maximum offering price per share | | | $11.25 | |
| |
Advisor Class: | | | | |
| |
Net assets, at value | | | $977,093,972 | |
| |
Shares outstanding | | | 86,980,988 | |
| |
Net asset value and maximum offering price per share | | | $11.23 | |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
| | | | |
| | | |
72 | | Annual Report | The accompanying notes are an integral part of these consolidated financial statements. | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations
for the year ended May 31, 2020
Franklin K2 Alternative Strategies Fund
| | | | |
Investment income: | | | | |
Dividends: (net of foreign taxes)* | | | | |
Unaffiliated issuers | | $ | 9,468,627 | |
Interest: | | | | |
Unaffiliated issuers | | | 16,809,899 | |
Income from securities loaned: | | | | |
Unaffiliated entities (net of fees and rebates) | | | 50,109 | |
Non-controlled affiliates (Note 3f) | | | 57,601 | |
Total investment income | | | 26,386,236 | |
| |
Expenses: | | | | |
Management fees (Note 3a) | | | 23,322,593 | |
Distribution fees: (Note 3c) | | | | |
Class A | | | 253,103 | |
Class C | | | 409,900 | |
Class R | | | 4,564 | |
Transfer agent fees: (Note 3e) | | | | |
Class A | | | 106,623 | |
Class C | | | 43,337 | |
Class R | | | 961 | |
Class R6 | | | 10,018 | |
Advisor Class | | | 1,107,259 | |
Custodian fees (Note 4) | | | 250,027 | |
Reports to shareholders | | | 114,208 | |
Registration and filing fees | | | 135,072 | |
Professional fees | | | 576,923 | |
Trustees’ fees and expenses | | | 433,636 | |
Dividends and interest on securities sold short | | | 2,395,833 | |
Other | | | 138,286 | |
Total expenses | | | 29,302,343 | |
Expense reductions (Note 4) | | | (289,793 | ) |
Expenses waived/paid by affiliates (Note 3f and 3g) | | | (2,043,016 | ) |
Net expenses | | | 26,969,534 | |
Net investment loss | | | (583,298 | ) |
| |
Realized and unrealized gains (losses): | | | | |
Net realized gain (loss) from: | | | | |
Investments: | | | | |
Unaffiliated issuers | | | 25,786,179 | |
Written options | | | (745,362 | ) |
Foreign currency transactions | | | (431,365 | ) |
Forward exchange contracts | | | 301,119 | |
Futures contracts | | | 2,396,244 | |
Securities sold short | | | (20,211,741 | ) |
Swap contracts | | | (6,644,614 | ) |
Net realized gain (loss) | | | 450,460 | |
| |
Net change in unrealized appreciation (depreciation) on: | | | | |
Investments: | | | | |
Unaffiliated issuers | | | 26,148,022 | |
Translation of other assets and liabilities denominated in foreign currencies | | | 711,358 | |
Forward exchange contracts | | | (1,150,368 | ) |
Written options | | | (850,050 | ) |
Futures contracts | | | (11,747,549 | ) |
Securities sold short | | | (21,166,666 | ) |
Swap contracts | | | 5,403,359 | |
Net change in unrealized appreciation (depreciation) | | | (2,651,894 | ) |
Net realized and unrealized gain (loss) | | | (2,201,434 | ) |
Net increase (decrease) in net assets resulting from operations | | $ | (2,784,732 | ) |
* Foreign taxes withheld on dividends | | $ | 142,228 | |
| | | | |
| | | |
| franklintempleton.com | | The accompanying notes are an integral part of these consolidated financial statements. | Annual Report | | 73 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Net Assets
Franklin K2 Alternative Strategies Fund
| | | | | | | | |
| | | Year Ended May 31, | |
| | |
| | | 2020 | | | 2019 | |
Increase (decrease) in net assets: | | | | | | | | |
Operations: | | | | | | | | |
Net investment income (loss) | | | $ (583,298 | ) | | | $ 6,523,460 | |
Net realized gain (loss) | | | 450,460 | | | | 8,805,411 | |
Net change in unrealized appreciation (depreciation) | | | (2,651,894 | ) | | | 640,752 | |
| | |
Net increase (decrease) in net assets resulting from operations | | | (2,784,732 | ) | | | 15,969,623 | |
| | |
Distributions to shareholders: | | | | | | | | |
Class A | | | (679,196 | ) | | | (2,359,116 | ) |
Class C | | | (21,557 | ) | | | (1,085,438 | ) |
Class R | | | (3,120 | ) | | | (16,101 | ) |
Class R6 | | | (410,046 | ) | | | (817,934 | ) |
Advisor Class | | | (9,695,842 | ) | | | (21,685,004 | ) |
| | |
Total distributions to shareholders | | | (10,809,761 | ) | | | (25,963,593 | ) |
| | |
Capital share transactions: (Note 2) | | | | | | | | |
Class A | | | (13,345,502 | ) | | | (13,877,422 | ) |
Class C | | | (8,451,161 | ) | | | (7,442,314 | ) |
Class R | | | 55,826 | | | | 189,631 | |
Class R6 | | | (27,551,565 | ) | | | 11,235,421 | |
Advisor Class | | | (56,636,996 | ) | | | 158,034,578 | |
| | |
Total capital share transactions | | | (105,929,398 | ) | | | 148,139,894 | |
| | |
Net increase (decrease) in net assets | | | (119,523,891 | ) | | | 138,145,924 | |
Net assets: | | | | | | | | |
Beginning of year | | | 1,239,287,176 | | | | 1,101,141,252 | |
| | |
End of year | | | $1,119,763,285 | | | | $1,239,287,176 | |
| | | | |
| | | |
74 | | Annual Report | The accompanying notes are an integral part of these consolidated financial statements. | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Notes to Consolidated Financial Statements
Franklin K2 Alternative Strategies Fund
1. Organization and Significant Accounting Policies
Franklin Alternative Strategies Funds (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of two separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin K2 Alternative Strategies Fund (Fund) is included in this report. The Fund offers five classes of shares: Class A, Class C, Class R, Class R6 and Advisor Class. Class C shares automatically convert to Class A shares after they have been held for 10 years. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees due to differing arrangements for distribution and transfer agent fees.
The following summarizes the Fund’s significant accounting policies.
a. Financial Instrument Valuation
The Fund’s investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Fund calculates 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 Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The Fund 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 Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the date that the values of the foreign debt securities are determined.
Investments in open-end mutual funds are valued at the closing NAV. Investments in repurchase agreements are valued at cost, which approximates fair value.
Certain derivative financial instruments are centrally cleared or trade in the OTC market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair value of the contract, is included in net assets.
The Fund has procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 75 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
1. Organization and Significant Accounting Policies (continued)
a. Financial Instrument Valuation (continued)
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 Fund’s 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 Fund. As a result, differences may arise between the value of the Fund’s 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, the VC monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services. At May 31, 2020, a market event occurred resulting in a portion of the securities held by the Fund being valued using fair value procedures.
When the last day of the reporting period is a non-business day, certain foreign markets may be open on those days that the Fund’s NAV is not calculated, which could result in differences between the value of the Fund’s portfolio securities on the last business day and the last calendar day of the reporting period. Any significant security valuation changes due to an open foreign market are adjusted and reflected by the Fund for financial reporting purposes.
b. Foreign Currency Translation
Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars
based on the exchange rate of such currencies against U.S. dollars on the date of valuation. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Board.
The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments in the Consolidated Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.
c. Joint Repurchase Agreement
The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is used to invest in one or more repurchase agreements. The value and face amount of the joint repurchase agreement are allocated to the funds based on their pro-rata interest. A repurchase agreement is accounted for as a loan by the Fund to the seller, collateralized by securities which are delivered to the Fund’s custodian. The fair value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. Repurchase agreements are subject to the terms of Master Repurchase Agreements (MRAs) with
| | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
approved counterparties (sellers). The MRAs contain various provisions, including but not limited to events of default and maintenance of collateral for repurchase agreements. In the event of default by either the seller or the Fund, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Fund may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any other amounts owed by the seller to the Fund in the event of default by the seller. This could involve costs or delays in addition to a loss on the securities if their value falls below the repurchase price owed by the seller. The joint repurchase agreement held by the Fund at year end, as indicated in the Consolidated Statement of Investments, had been entered into on May 29, 2020.
d. Securities Purchased on a Delayed Delivery Basis
The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.
e. Derivative Financial Instruments
The Fund 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 Consolidated Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Consolidated Statement of Operations.
Derivative counterparty credit risk is managed through a for-mal evaluation of the creditworthiness of all potential counterparties. The Fund attempts to reduce its exposure to
counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement.
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. For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the Fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of Fund business each day and any additional collateral required due to changes in derivative values may be delivered by the Fund or the counterparty the next business day, or within a few business days. Collateral pledged and/or received by the Fund for OTC derivatives, if any, is held in segregated accounts with the Fund’s custodian/counterparty broker and can be in the form of cash and/ or securities. Unrestricted cash may be invested according to the Fund’s investment objectives. To the extent that the amounts due to the Fund from its counterparties are not subject to collateralization or are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
1. Organization and Significant Accounting Policies (continued)
e. Derivative Financial Instruments (continued)
The Fund entered into exchange traded futures contracts primarily to manage and/or gain exposure to commodity price, interest rate and equity price risk. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset at a specified price on a future date. Required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities.
The Fund entered into OTC forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.
The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (OTC credit default swaps) or may be executed in a multilateral trade facility platform, such as a registered exchange (centrally cleared credit default swaps). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, a basket of issuers or indices, or a tranche of a credit index or basket of issuers or indices. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. For centrally cleared credit default swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Upfront payments
and receipts are reflected in the Consolidated Statement of Assets and Liabilities and represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments and receipts are amortized over the term of the contract as a realized gain or loss in the Consolidated Statement of Operations.
The Fund entered into interest rate swap contracts primarily to manage interest rate risk. An interest rate swap is an agreement between the Fund and a counterparty to exchange cash flows based on the difference between two interest rates, applied to a notional amount. These agreements may be privately negotiated in the over-the-counter market (OTC interest rate swaps) or may be executed on a registered exchange (centrally cleared interest rate swaps). For centrally cleared interest rate swaps, required initial mar-gins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities. Over the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized.
The Fund entered into OTC total return swap contracts primarily to manage and/or gain exposure to interest rate, equity price, commodity price and credit risk of an underlying instrument such as a stock, bond, index or basket of securities or indices. A total return swap is an agreement between the Fund and a counterparty to exchange a return linked to an underlying instrument for a floating or fixed rate payment, both based upon a notional amount. Over the term of the contract, contractually required payments to be paid or received are accrued daily and recorded as unrealized appreciation or depreciation until the payments are made, at which time they are recognized as realized gain or loss.
The Fund purchased or wrote exchange traded and/or OTC option contracts primarily to manage and/or gain exposure to interest rate, equity price and foreign exchange rate 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
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
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 Notes 6 and 11 regarding investment transactions and other derivative information, respectively.
f. Restricted Cash
At May 31, 2020, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian/counterparty broker and is reflected in the Consolidated Statement of Assets and Liabilities.
g. Loan Participation Notes
The Fund invests in loan participation notes (Participations). Participations are loans originally issued to a borrower by one or more financial institutions (the Lender) and subsequently sold to other investors, such as the Fund. Participations typically result in the Fund having a contractual relationship only with the Lender and not with the borrower. The Fund has the right to receive from the Lender any payments of principal, interest and fees which the Lender received from the borrower. The Fund generally has no rights to either enforce compliance by the borrower with the terms of the loan agreement or to any collateral relating to the original loan. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. The Participations may also involve interest rate risk and liquidity risk, including the potential default or insolvency of the borrower and/or the Lender.
h. Credit-Linked Notes
The Fund purchases credit-linked notes. Credit-linked notes are intended to replicate the economic effects that would apply had the Fund directly purchased the underlying reference asset. The risks of credit-linked notes include the potential default of the underlying reference asset, the movement in the value of the currency of the underlying reference asset relative to the credit-linked note, the potential inability of the Fund to dispose of the credit-linked note in the normal course of business, and the possible inability of the counter-parties to fulfill their obligations under the contracts.
i. Securities Sold Short
The Fund is engaged in selling securities short, which obligates the Fund to replace a borrowed security with the same security at current fair value. The Fund incurs a loss if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund realizes a gain if the price of the security declines between those dates. Gains are limited to the price at which the Fund sold the security short, while losses are potentially unlimited in size.
The Fund is required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale to the extent necessary to meet margin requirements until the short position is closed out. A deposit must also be maintained with the Fund’s custodian/counterparty broker consisting of cash and/or securities having a value equal to a specified percentage of the value of the securities sold short. The Fund is obligated to pay fees for borrowing the securities sold short and is required to pay the counterparty any dividends and/or interest due on securities sold short. Such dividends and/or interest and any security borrowing fees are recorded as an expense to the Fund.
j. Securities Lending
The Fund participates in an agency based securities lending program to earn additional income. The Fund receives cash collateral against the loaned securities in an amount equal to at least 102% of the fair value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the fair value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. The collateral is deposited into a joint cash account with other funds and is used to invest in a money market fund managed by Franklin Advisers, Inc., an affiliate of the Fund, and/or a joint repurchase agreement. The Fund may receive income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. Income from securities loaned, net of fees paid to the securities lending agent and/or third party vendor, is reported separately in the Consolidated Statement of Operations. The Fund bears the market risk with respect to the collateral investment, securities loaned, and the risk that the agent may default on its obligations to the Fund. If the borrower defaults on its
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| franklintempleton.com | | Annual Report | | 79 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
1. Organization and Significant Accounting Policies (continued)
j. Securities Lending (continued)
obligations to return the securities loaned, the Fund has the right to repurchase the securities in the open market using the collateral received. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower.
k. Investments in K2 Holdings Investment Corp. (K2 Subsidiary)
The Fund invests in certain financial instruments and commodity-linked derivative investments through its investment in the K2 Subsidiary. The K2 Subsidiary is a Cayman Islands exempted company with limited liability, is a wholly-owned subsidiary of the Fund, and is able to invest in certain financial instruments and commodity-linked derivative investments consistent with the investment objective of the Fund. At May 31, 2020, the K2 Subsidiary’s investments, as well as any other assets and liabilities of the K2 Subsidiary, are reflected in the Fund’s Consolidated Statement of Investments and Consolidated Statement of Assets and Liabilities. All intercompany transactions and balances have been eliminated. For tax purposes, the Fund is required to increase its taxable income by its share of the K2 Subsidiary’s income. Net losses incurred by the K2 Subsidiary cannot offset income earned by the Fund and cannot be carried back or forward by the K2 Subsidiary to offset income from prior or future years. At May 31, 2020, the net assets of the K2 Subsidiary were $17,723,162 representing 1.6% of the Fund’s consolidated net assets. The Fund’s investment in the K2 Subsidiary is limited to 25% of consolidated assets.
l. Senior Floating Rate Interests
The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity. Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to certain restrictions on resale.
m. Income and Deferred Taxes
It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply, the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.
The Fund 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 May 31, 2020, the Fund has determined that no tax liability is required in its consolidated 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.
n. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income and dividends declared on securities sold short are 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. Distributions to shareholders 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
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
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.
Realized and unrealized gains and losses and net investment income, excluding class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions by class are generally due to differences in class specific expenses.
o. 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.
p. Guarantees and Indemnifications
Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.
2. Shares of Beneficial Interest
At May 31, 2020, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
| | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | |
| | | 2020 | | | | | 2019 | |
| | | | | |
| | | Shares | | | Amount | | | | | Shares | | | Amount |
| | | | | |
Class A Shares: | | | | | | | | | | | | | | | | | | |
Shares solda | | | 1,834,464 | | | $ | 20,825,586 | | | | | | 2,351,885 | | | $ | 26,666,136 | |
Shares issued in reinvestment of distributions | | | 55,183 | | | | 634,600 | | | | | | 207,339 | | | | 2,233,039 | |
Shares redeemed | | | (3,087,523 | ) | | | (34,805,688 | ) | | | | | (3,768,289 | ) | | | (42,776,597 | ) |
| | | | | |
Net increase (decrease) | | | (1,197,876 | ) | | $ | (13,345,502 | ) | | | | | (1,209,065 | ) | | $ | (13,877,422 | ) |
| | | | | |
Class C Shares: | | | | | | | | | | | | | | | | | | |
Shares sold | | | 436,592 | | | $ | 4,835,910 | | | | | | 660,253 | | | $ | 7,380,998 | |
Shares issued in reinvestment of distributions | | | 1,688 | | | | 19,060 | | | | | | 93,730 | | | | 992,601 | |
Shares redeemeda | | | (1,207,657 | ) | | | (13,306,131 | ) | | | | | (1,421,875 | ) | | | (15,815,913 | ) |
| | | | | |
Net increase (decrease) | | | (769,377 | ) | | $ | (8,451,161 | ) | | | | | (667,892 | ) | | $ | (7,442,314 | ) |
| | | | | |
Class R Shares: | | | | | | | | | | | | | | | | | | |
Shares sold | | | 20,353 | | | $ | 232,838 | | | | | | 128,380 | | | $ | 1,438,887 | |
Shares issued in reinvestment of distributions | | | 271 | | | | 3,120 | | | | | | 1,492 | | | | 16,101 | |
Shares redeemed | | | (16,509 | ) | | | (180,132 | ) | | | | | (111,838 | ) | | | (1,265,357 | ) |
| | | | | |
Net increase (decrease) | | | 4,115 | | | $ | 55,826 | | | | | | 18,034 | | | $ | 189,631 | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
2. Shares of Beneficial Interest (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | |
| | | 2020 | | | | | | 2019 | |
| | | | | |
| | | Shares | | | Amount | | | | | | Shares | | | Amount |
| | | | | |
Class R6 Shares: | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 423,043 | | | $ | 4,803,618 | | | | | | | | 1,328,232 | | | $ | 15,139,519 | |
Shares issued in reinvestment of distributions | | | 33,385 | | | | 385,596 | | | | | | | | 74,668 | | | | 807,913 | |
Shares redeemed | | | (2,852,217 | ) | | | (32,740,779 | ) | | | | | | | (412,633 | ) | | | (4,712,011 | ) |
| | | | | |
Net increase (decrease) | | | (2,395,789 | ) | | $ | (27,551,565 | ) | | | | | | | 990,267 | | | $ | 11,235,421 | |
| | | | | |
Advisor Class Shares: | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 26,636,798 | | | $ | 304,127,350 | | | | | | | | 38,287,620 | | | $ | 435,094,092 | |
Shares issued in reinvestment of distributions | | | 596,749 | | | | 6,880,518 | | | | | | | | 1,729,893 | | | | 18,700,140 | |
Shares redeemed | | | (32,633,640 | ) | | | (367,644,864 | ) | | | | | | | (26,229,040 | ) | | | (295,759,654 | ) |
| | | | | |
Net increase (decrease) | | | (5,400,093 | ) | | $ | (56,636,996 | ) | | | | | | | 13,788,473 | | | $ | 158,034,578 | |
aMay include a portion of Class C shares that were automatically converted to Class A.
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
| | |
| Subsidiary | | Affiliation |
| |
K2/D&S Management Co., L.L.C. (K2 Advisors) | | Investment manager |
| |
Franklin Templeton Services, LLC (FT Services) | | Administrative manager |
| |
Franklin Templeton Distributors, Inc. (Distributors) | | Principal underwriter |
| |
Franklin Templeton Investor Services, LLC (Investor Services) | | Transfer agent |
a. Management Fees
The Fund and K2 Subsidiary pay an investment management fee to K2 Advisors of 1.90% per year of the average daily net assets of the Fund and K2 Subsidiary. Management fees paid by the fund are reduced on assets invested in the K2 Subsidiary, in an amount equal to the management fees paid by the K2 Subsidiary.
Effective June 1, 2020, the Fund and K2 Subsidiary will pay an investment management fee to K2 Advisors based on the average daily net assets of the Fund and K2 Subsidiary as follows:
| | | | |
| Annualized Fee Rate | | | | Net Assets |
| | |
1.90% | | | | Up to and including $1 billion |
| | |
1.85% | | | | Over $1 billion, up to and including $1.5 billion |
| | |
1.80% | | | | Over $1.5 billion, up to and including $3 billion |
| | |
1.75% | | | | In excess of $3 billion |
Under each subadvisory agreement, the below entities provide subadvisory services to the Fund or K2 Subsidiary. The subadvisory fees are paid by K2 Advisors and are not an additional expense of the Fund or K2 Subsidiary. Each subadvisor is compensated for managing its respective portion of the average daily net assets of the Fund or K2 Subsidiary.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
|
| Subadvisors |
|
Apollo Credit Management LLC |
|
Bardin Hill Arbitrage IC Management LP |
|
Chatham Asset Management, LLC |
|
Chilton Investment Company, LLC |
|
Ellington Global Asset Management, LLC |
|
Emso Asset Management Limited |
|
Graham Capital Management, L.P. |
|
Grantham, Mayo, Van Otterloo & Co. LLC |
|
H2O AM LLP |
|
Impala Asset Management LLC |
|
Jennison Associates, LLC |
|
Lazard Asset Management, LLC |
|
Loomis Sayles & Company, L.P. |
|
P. Schoenfeld Asset Management L.P. |
|
Portland Hill Asset Management Limited |
|
Wellington Management Company, LLP |
b. Administrative Fees
Under an agreement with K2 Advisors, FT Services provides administrative services to the Fund and K2 Subsidiary. The fee is paid by K2 Advisors based on the Fund and K2 Subsidiary average daily net assets, and is not an additional expense of the Fund or K2 Subsidiary.
c. Distribution Fees
The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s Class A reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Fund’s Class C and R compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate for each class. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31.
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| | | | |
Class A | | | 0.30% | |
Class C | | | 1.00% | |
Class R | | | 0.50% | |
The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.
| | | | |
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| franklintempleton.com | | Annual Report | | 83 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
3. Transactions with Affiliates (continued)
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the year:
| | | | |
Sales charges retained net of commissions paid to unaffiliated brokers/dealers | | $ | 15,790 | |
CDSC retained | | $ | 4,566 | |
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the year ended May 31, 2020, the Fund paid transfer agent fees of $1,268,198, of which $404,068 was retained by Investor Services.
f. Investments in Affiliated Management Investment Companies
The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Consolidated Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the year ended May 31, 2020, the Fund held investments in affiliated management investment companies as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | | Income from Securities Loaned | |
Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
Institutional Fiduciary Trust Money Market Portfolio, 0.00% | | $ | 4,871,000 | | | $ | 52,072,000 | | | $ | (55,212,000 | ) | | | $ — | | | | $ — | | | $ | 1,731,000 | | | | 1,731,000 | | | | $57,601 | |
g. Waiver and Expense Reimbursements
K2 Advisors and Investor Services have contractually agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses, expenses related to securities sold short and certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations and liquidations) for each class of the Fund do not exceed 1.95%, and Class R6 does not exceed 1.87% based on the average net assets of each class until September 30, 2020. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended May 31, 2020, the custodian fees were reduced as noted in the Consolidated Statement of Operations.
| | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains, if any. At May 31, 2020, the Fund had short-term capital loss carryforwards of $8,025,560, not subject to expiration.
For tax purposes, the Fund may elect to defer any portion of a post-October capital loss or late-year ordinary loss to the first day of the following fiscal year. At May 31, 2020, the Fund deferred late-year ordinary losses of $9,759,745.
The tax character of distributions paid during the years ended May 31, 2020 and 2019, was as follows:
| | | | | | | | |
| | | 2020 | | | 2019 |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 10,163,914 | | | $ | — | |
Long term capital gains | | | 645,847 | | | | 25,963,593 | |
| | |
Total distributions paid | | $ | 10,809,761 | | | $ | 25,963,593 | |
At May 31, 2020, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
| | | | |
Cost of investments | | $ | 721,403,185 | |
| |
Unrealized appreciation | | $ | 154,711,387 | |
Unrealized depreciation | | | (83,665,529 | ) |
| |
Net unrealized appreciation (depreciation) | | $ | 71,045,858 | |
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions, wash sales and investments in the K2 Subsidiary.
6. Investment Transactions
Purchases and sales of investments and securities sold short (excluding short term securities) for the year ended May 31, 2020, aggregated $2,720,262,043 and $2,744,592,906, respectively.
At May 31, 2020, in connection with securities lending transactions, the Fund loaned equity investments and corporate bonds and notes and received $2,135,842 of cash collateral. The gross amounts of recognized liability for such transactions is included in payable upon return of securities loaned in the Consolidated Statement of Assets and Liabilities. The agreements can be terminated at any time.
The Fund sold certain long positions held in the portfolio and simultaneously entered into total return swaps on the positions, retaining substantially all of the exposure to the economic return and the related risks on the long positions. At May 31, 2020, the transfers of financial assets accounted for as sales were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | At Original Transactions Dates | | | At Year Ended May 31, 2020 | |
| | | | | |
| | |
| Cost Basis
of Positions Sold |
| |
| Gross
Cash Received for Positions Sold |
| |
| Fair Value of
Transferred Assetsa |
| |
| Gross
Derivative Assets Recorded |
b | |
| Gross
Derivative Liabilities Recorded |
b |
Sales and total return swaps | | | $18,021,660 | | | | $17,925,848 | | | | $18,005,668 | | | | $18,025,856 | | | | $(17,946,036 | ) |
a$79,820 of fair value of transferred assets are included as unrealized appreciation and depreciation on OTC swap contracts in the Consolidated Statement of Assets and Liabilities.
bBalances are presented on a gross basis, based on each leg of the swap contract, before the application of counterparty and cash collateral offsetting.
See Notes 1(e) and 11 regarding derivative financial instruments and other derivative information, respectively.
| | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
7. Credit Risk and Defaulted Securities
The Fund may purchase the pre-default or defaulted debt of distressed companies. Distressed companies are financially troubled and could be or are already involved in financial restructuring or bankruptcy. Risks associated with purchasing these securities include the possibility that the bankruptcy or other restructuring process takes longer than expected, or that distributions in restructuring are less than anticipated, either or both of which may result in unfavorable consequences to the Fund. If it becomes probable that the income on debt securities, including those of distressed companies, will not be collected, the Fund discontinues accruing income and recognizes an adjustment for uncollectible interest.
At May 31, 2020, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $14,421,589 representing 1.3% of the Fund’s net assets. For information as to specific securities, see the accompanying Consolidated Statement of Investments.
8. Concentration of Risk
Investments in issuers domiciled or with significant operations in developing or emerging market countries may be subject to higher risks than investments in developed countries. These risks include fluctuating currency values, underdeveloped legal or business systems, and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities. Currencies of developing or emerging market countries may be subject to significantly greater risks than currencies of developed countries, including the potential inability to repatriate those currencies into U.S. dollars.
At May 31, 2020, the Fund had less than 0.1% of its net assets denominated in Argentine Pesos, which has restricted currency repatriation since September 2019, and had restructured certain issues of its debt. Political and economic conditions in Argentina could continue to affect the value of the Fund’s holdings.
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 Fund, its ability to buy and sell fund investments at appropriate valuations and its ability to achieve its investment objectives.
10. Restricted Securities
The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Fund may have registration rights for restricted securities. The issuer generally incurs all registration costs.
At May 31, 2020, investments in restricted securities, excluding securities exempt from registration under the 1933 Act, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | | | Issuer | | Acquisition Date | | | | | | Cost | | | | | | Value | |
4,965 | | | | aOne Call Corp. | | | 10/28/19 | | | | | | | $ | 595,597 | | | | | | | $ | 556,076 | |
33,337 | | | | aOne Call Corp., cvt. pfd. | | | 10/28/19 | | | | | | | | 3,999,099 | | | | | | | | 3,733,737 | |
| | | |
Total Restricted Securities (Value is 0.4% of Net Assets) | | | $ | 4,594,696 | | | | | | | $ | 4,289,813 | |
aThe Fund also invests in unrestricted securities of this issuer, valued at $3,928,880 as of May 31, 2020.
| | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
11. Other Derivative Information
At May 31, 2020, the investments in derivative contracts are reflected in the Consolidated Statement of Assets and Liabilities as follows:
| | | | | | | | | | | | |
| | | Asset Derivatives | | | Liability Derivatives | |
| | | |
| | | | |
Derivative Contracts Not Accounted for as Hedging Instruments | | Consolidated Statement of Assets and Liabilities Location | | Fair Value | | | Consolidated Statement of Assets and Liabilities Location | | Fair Value | |
| | | | |
Interest rate contracts | | Investments in securities, at value | | $ | 5,250 | a | | Options written, at value | | $ | 4,813 | |
| | Variation margin on futures contracts | | | 1,430,416 | b | | Variation margin on futures contracts | | | 623,020 | b |
| | Variation margin on centrally cleared swap contracts | | | 230,426 | b | | | | | | |
| | OTC swap contracts (upfront payments) | | | 1,707,737 | | | | | | | |
| | Unrealized appreciation on OTC swap contracts | | | 22,085 | | | Unrealized depreciation on OTC swap contracts | | | 388,793 | |
| | | | |
Foreign exchange contracts | | Investments in securities, at value | | | 255,711 | a | | Options written, at value | | | 444,781 | |
| | Unrealized appreciation on OTC forward exchange contracts | | | 5,904,694 | | | Unrealized depreciation on OTC forward exchange contracts | | | 5,497,508 | |
| | | | |
Credit contracts | | Variation margin on centrally cleared swap contracts | | | 2,052,077 | b | | Variation margin on centrally cleared swap contracts | | | 300,297 | b |
| | OTC swap contracts (upfront payments) | | | 1,442,079 | | | OTC swap contracts (upfront receipts) | | | 431,921 | |
| | Unrealized appreciation on OTC swap contracts | | | 1,253,774 | | | Unrealized depreciation on OTC swap contracts | | | 331,143 | |
| | | | |
Equity contracts | | Investments in securities, at value | | | 1,710,360 | a | | Options written, at value | | | 1,496,918 | |
| | Variation margin on futures contracts | | | 2,904,309 | b | | Variation margin on futures contracts | | | 10,954,259 | b |
| | | | |
| | Unrealized appreciation on OTC swap contracts | | | 6,577,503 | | | Unrealized depreciation on OTC swap contracts | | | 3,854,029 | |
| | | | |
Commodity contracts | | Variation margin on futures contracts | | | 560,460 | b | | Variation margin on futures contracts | | | 657,306 | b |
| | | | | | | | | | | | |
Totals | | | | $ | 26,056,881 | | | | | $ | 24,984,788 | |
| | | | | | | | | | | | |
aPurchased option contracts are included in investments in securities, at value in the Consolidated Statement of Assets and Liabilities.
bThis amount reflects the cumulative appreciation (depreciation) of futures contracts and centrally cleared swap contracts as reported in the Consolidated Statement of Investments. Only the variation margin receivable/payable at year end is separately reported within the Consolidated Statement of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.
| | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
11. Other Derivative Information (continued)
For the year ended May 31, 2020, the effect of derivative contracts in the Consolidated Statement of Operations was as follows:
| | | | | | | | | | | | |
Derivative Contracts Not Accounted for as Hedging Instruments | | Consolidated Statement of Operations Location | | Net Realized Gain (Loss) for the Year | | | Consolidated 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: | | | | |
Interest rate contracts | | Investments | | $ | (199,095 | )a | | Investments | | $ | (965 | )a |
| | Written options | | | 40,983 | | | Written options | | | 1,217 | |
| | Futures contracts | | | 6,597,876 | | | Futures contracts | | | (1,680,206 | ) |
| | Swap contracts | | | (126,742 | ) | | Swap contracts | | | (102,577 | ) |
| | | | |
Foreign exchange contracts | | Investments | | | (319,481 | )a | | Investments | | | 48,997 | a |
| | Written options | | | 161,621 | | | Written options | | | (154,794 | ) |
| | Forward exchange contracts | | | 301,119 | | | Forward exchange contracts | | | (1,150,368 | ) |
| | | | |
Credit contracts | | Swap contracts | | | (2,379,926 | ) | | Swap contracts | | | 2,859,859 | |
| | | | |
Equity contracts | | Investments | | | 893,776 | a | | Investments | | | 1,344,658 | a |
| | Written options | | | (947,966 | ) | | Written options | | | (696,473 | ) |
| | Futures contracts | | | (3,975,671 | ) | | Futures contracts | | | (10,984,173 | ) |
| | Swap contracts | | | (4,419,242 | ) | | Swap contracts | | | 2,657,923 | |
| | | | |
Commodity contracts | | Futures contracts | | | (225,961 | ) | | Futures contracts | | | 916,830 | |
| | Swap contracts | | | 281,296 | | | Swap contracts | | | (11,846 | ) |
| | | | | | | | | | | | |
Totals | | | | $ | (4,317,413 | ) | | | | $ | (6,951,918 | ) |
| | | | | | | | | | | | |
aPurchased option contracts are included in net realized gain (loss) from investments and net change in unrealized appreciation (depreciation) on investments in the Consolidated Statement of Operations.
For the year ended May 31, 2020, the average month end notional amount of options, futures contracts and swap contracts represented 52,036,173 shares/units, $764,721,590 and $192,158,476, respectively. The average month end contract value of forward exchange contracts was $448,924,813.
At May 31, 2020, OTC derivative assets and liabilities are as follows:
| | | | | | | | |
| | | Gross Amounts of Assets
and Liabilities Presented in
the Consolidated Statement
of Assets and Liabilities |
| | |
| | | Assetsa | | Liabilitiesa | |
| | |
Derivatives | | | | | | | | |
Forward Exchange Contracts | | $ | 5,904,694 | | | $ | 5,497,508 | |
Options Purchased | | | 255,711 | | | | — | |
Options Written | | | — | | | | 444,781 | |
Swap Contracts | | | 11,003,178 | | | | 5,005,886 | |
| | | | |
Total | | $ | 17,163,583 | | | $ | 10,948,175 | |
| | | | |
aAbsent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and Liabilities.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
At May 31, 2020, OTC derivative assets, which may be offset against OTC derivative liabilities and collateral received from the counterparty, are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Amounts Not Offset in the Consolidated
Statement of Assets and Liabilities | | | | |
| | | | | |
| | |
| Gross Amounts of Assets
Presented in the
Consolidated Statement of
Assets and Liabilities |
| |
| Financial
Instruments
Available for Offset |
| |
| Financial
Instruments
Collateral
Received |
a | |
| Cash
Collateral
Received |
a | |
| Net Amount (Not
less than zero) |
|
| | | | | |
Counterparty | | | | | | | | | | | | | | | | | | | | |
BNYM | | | $ 144,508 | | | | $ (144,508 | ) | | | $— | | | | $ — | | | | $ — | |
BOFA | | | 1,905,723 | | | | (331,579 | ) | | | — | | | | (70,000 | ) | | | 1,504,144 | |
BZWS | | | 1,157,377 | | | | (1,129,384 | ) | | | — | | | | (27,993 | ) | | | — | |
CITI | | | 132,756 | | | | (59,377 | ) | | | — | | | | — | | | | 73,379 | |
DBAB | | | 1,423 | | | | (1,423 | ) | | | — | | | | — | | | | — | |
FBCO | | | 336,752 | | | | (40,900 | ) | | | — | | | | — | | | | 295,852 | |
GSCO | | | 859,510 | | | | (191,131 | ) | | | — | | | | (668,379 | ) | | | — | |
HSBC | | | — | | | | — | | | | — | | | | — | | | | — | |
JPHQ | | | 774,974 | | | | (564,249 | ) | | | — | | | | — | | | | 210,725 | |
JPHQc | | | 3,868,858 | | | | — | | | | — | | | | — | | | | 3,868,858 | |
MSCI | | | 247,310 | | | | (7,116 | ) | | | — | | | | — | | | | 240,194 | |
MSCO | | | 1,069,056 | | | | (1,069,056 | ) | | | — | | | | — | | | | — | |
MSCOd | | | 1,273,126 | | | | (1,273,126 | ) | | | — | | | | — | | | | — | |
MSCS | | | 55,123 | | | | (55,123 | ) | | | — | | | | — | | | | — | |
MSCSc | | | 5,312,318 | | | | — | | | | — | | | | — | | | | 5,312,318 | |
SSBT | | | 17,794 | | | | (17,794 | ) | | | — | | | | — | | | | — | |
UBSW | | | 6,975 | | | | (6,975 | ) | | | — | | | | — | | | | — | |
Total | | | $17,163,583 | | | | $(4,891,741 | ) | | | $— | | | | $(766,372 | ) | | | $11,505,470 | |
At May 31, 2020, OTC derivative liabilities, which may be offset against OTC derivative assets and collateral pledged to the counterparty, are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Amounts Not Offset in the Consolidated
Statement of Assets and Liabilities | | | | |
| | | | | |
| | |
| Gross Amounts of Liabilities
Presented in the Consolidated Statement of Assets and Liabilities |
| |
| Financial
Instruments
Available for Offset |
| |
| Financial
Instruments
Collateral
Pledged |
b | |
| Cash
Collateral
Pledged |
a | |
| Net Amount (Not
less than zero) |
|
| | | | | |
Counterparty | | | | | | | | | | | | | | | | | | | | |
BNYM | | | $ 830,326 | | | | $ (144,508 | ) | | | $— | | | | $(660,000 | ) | | | $ 25,818 | |
BOFA | | | 331,579 | | | | (331,579 | ) | | | — | | | | — | | | | — | |
BZWS | | | 1,129,384 | | | | (1,129,384 | ) | | | — | | | | — | | | | — | |
CITI | | | 59,377 | | | | (59,377 | ) | | | — | | | | — | | | | — | |
DBAB | | | 188,304 | | | | (1,423 | ) | | | — | | | | (186,881 | ) | | | — | |
FBCO | | | 40,900 | | | | (40,900 | ) | | | — | | | | — | | | | — | |
GSCO | | | 191,131 | | | | (191,131 | ) | | | — | | | | — | | | | — | |
HSBC | | | 15,841 | | | | — | | | | — | | | | — | | | | 15,841 | |
JPHQ | | | 564,249 | | | | (564,249 | ) | | | — | | | | — | | | | — | |
JPHQc | | | 1,693,694 | | | | — | | | | — | | | | — | | | | 1,693,694 | |
MSCI | | | 7,116 | | | | (7,116 | ) | | | — | | | | — | | | | — | |
MSCO | | | 1,179,135 | | | | (1,069,056 | ) | | | — | | | | (110,000 | ) | | | 79 | |
MSCOd | | | 2,055,406 | | | | (1,273,126 | ) | | | — | | | | (782,280 | ) | | | — | |
MSCS | | | 59,011 | | | | (55,123 | ) | | | — | | | | (3,888 | ) | | | — | |
MSCSc | | | 2,481,631 | | | | — | | | | — | | | | — | | | | 2,481,631 | |
| | | | |
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| franklintempleton.com | | Annual Report | | 89 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
11. Other Derivative Information (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Amounts Not Offset in the Consolidated
Statement of Assets and Liabilities | | | | |
| | | | | |
| | |
| Gross Amounts of Liabilities
Presented in the Consolidated Statement of Assets and Liabilities |
| |
| Financial
Instruments
Available for Offset |
| |
| Financial
Instruments
Collateral
Pledged |
b | |
| Cash
Collateral
Pledged |
a | |
| Net Amount (Not
less than zero) |
|
| | | | | |
Counterparty (continued) | | | | | | | | | | | | | | | | | | | | |
SSBT | | | $ 18,620 | | | | $ (17,794 | ) | | | $— | | | | $ — | | | | $ 826 | |
UBSW | | | 102,471 | | | | (6,975 | ) | | | — | | | | — | | | | 95,496 | |
| | | | | |
Total | | | $10,948,175 | | �� | | $(4,891,741 | ) | | | $— | | | | $(1,743,049 | ) | | | $4,313,385 | |
aIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit the collateral amounts to avoid the effect of over collateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.
bSee the accompanying Consolidated Statement of Investments for securities pledged as collateral for derivatives.
cRepresents derivatives not subject to an ISDA master agreement.
dRepresents derivatives owned by the K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(k).
See Notes 1(e) and 6 regarding derivative financial instruments and investment transactions, respectively.
See Abbreviations on page 92.
12. Credit Facility
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 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.
Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Consolidated Statement of Operations. During the year ended May 31, 2020, the Fund did not use the Global Credit Facility.
13. Fair Value Measurements
The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:
| | • | | Level 1 – quoted prices in active markets for identical financial instruments |
| | • | | Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, pre-payment speed, credit risk, etc.) |
| | • | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments) |
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
| | | | |
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90 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
A summary of inputs used as of May 31, 2020, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | |
Investments in Securities:a | | | | | | | | | | | | | | | | | | | | |
Equity Investmentsb | | | | | | $ | 382,415,412 | | | $ | 75,029,524 | | | $ | 4,335,062 | c | | $ | 461,779,998 | |
Convertible Bonds | | | | | | | — | | | | 185,891,359 | | | | — | | | | 185,891,359 | |
Corporate Bonds and Notes | | | | | | | — | | | | 89,971,160 | | | | 39,430 | | | | 90,010,590 | |
Corporate Bonds and Notes in Reorganization | | | | | | | — | | | | 8,586,991 | | | | — | c | | | 8,586,991 | |
Senior Floating Rate Interests | | | | | | | — | | | | 495,375 | | | | — | | | | 495,375 | |
Senior Floating Rate Interests in Reorganization | | | | | | | — | | | | — | | | | 15,750 | | | | 15,750 | |
Credit-Linked Notes | | | | | | | — | | | | 833,162 | | | | — | | | | 833,162 | |
Foreign Government and Agency Securities | | | | | | | — | | | | 25,297,353 | | | | 137,170 | | | | 25,434,523 | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities | | | | | | | — | | | | 57,532,215 | | | | 120,564 | | | | 57,652,779 | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities in Reorganization | | | | | | | — | | | | 290,014 | | | | — | | | | 290,014 | |
Municipal Bonds in Reorganization | | | | | | | — | | | | 5,528,834 | | | | — | | | | 5,528,834 | |
Options Purchased | | | | | | | 1,715,610 | | | | 255,711 | | | | — | | | | 1,971,321 | |
Short Term Investments | | | | | | | 229,952,019 | | | | 15,900,607 | | | | — | | | | 245,852,626 | |
| | | | |
| | | | | |
Total Investments in Securities | | | | | | $ | 614,083,041 | | | $ | 465,612,305 | | | $ | 4,647,976 | | | $ | 1,084,343,322 | |
| | | | |
| | | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | | | | | |
Futures Contracts | | | | | | $ | 4,895,185 | | | $ | — | | | $ | — | | | $ | 4,895,185 | |
Forward Exchange Contracts | | | | | | | — | | | | 5,904,694 | | | | — | | | | 5,904,694 | |
Swap Contracts | | | | | | | — | | | | 10,135,865 | | | | — | | | | 10,135,865 | |
| | | | |
| | | | | |
Total Other Financial Instruments | | | | | | $ | 4,895,185 | | | $ | 16,040,559 | | | $ | — | | | $ | 20,935,744 | |
| | | | |
| | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | | | | | |
Options Written | | | | | | $ | 1,501,731 | | | $ | 444,781 | | | $ | — | | | $ | 1,946,512 | |
Securities Sold Shorta | | | | | | | 281,684,236 | | | | 6,208,831 | | | | — | | | | 287,893,067 | |
Futures Contracts | | | | | | | 12,234,585 | | | | — | | | | — | | | | 12,234,585 | |
Forward Exchange Contracts | | | | | | | — | | | | 5,497,508 | | | | — | | | | 5,497,508 | |
Swap Contracts | | | | | | | — | | | | 4,874,262 | | | | — | | | | 4,874,262 | |
| | | | |
| | | | | |
Total Other Financial Instruments | | | | | | $ | 295,420,552 | | | $ | 17,025,382 | | | $ | — | | | $ | 312,445,934 | |
| | | | |
aFor detailed categories, see the accompanying Consolidated Statement of Investments.
bIncludes common, preferred and convertible preferred stocks as well as other equity interests.
cIncludes securities determined to have no value at May 31, 2020.
A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the beginning and/or end of the year.
14. New Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board 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 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 is currently evaluating the impact, if any, of applying this ASU.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
15. Subsequent Events
The Fund has evaluated subsequent events through the issuance of the consolidated financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the consolidated financial statements.
Abbreviations
| | | | | | | | | | |
| Counterparty | | Currency | | Selected Portfolio |
| BNYM | | The Bank of New York Mellon Corp. | | ARS | | Argentine Peso | | ADR | | American Depositary Receipt |
| BOFA | | Bank of America Corp. | | AUD | | Australian Dollar | | ARLLMONP | | Argentina Blended Policy Rate |
| BZWS | | Barclays Bank PLC | | BRL | | Brazilian Real | | ARM | | Adjustable Rate Mortgage |
| CITI | | Citigroup, Inc. | | CAD | | Canadian Dollar | | BADLAR | | Argentina Deposit Rates BADLAR Private Banks ARS |
| DBAB | | Deutsche Bank, AG | | CHF | | Swiss Franc | | BBSW | | Bank Bill Swap Rate |
| FBCO | | Credit Suisse Group AG | | CNY | | Chinese Yuan | | CAC | | Cotation Assistee en Continu |
| GSCO | | The Goldman Sachs Group, Inc. | | COP | | Colombian Peso | | CLO | | Collateralized Loan Obligation |
| HSBC | | HSBC Bank USA, N.A. | | EUR | | Euro | | CME | | Chicago Mercantile Exchange |
| JPHQ | | JP Morgan Chase & Co. | | GBP | | British Pound | | CMT | | Constant Maturity Treasury Index |
| MSCI | | Morgan Stanley Capital International PLC | | HKD | | Hong Kong Dollar | | DAX | | Deutscher Aktienindex |
| MSCO | | Morgan Stanley | | HUF | | Hungarian Forint | | DJIA | | Dow Jones Industrial Average |
| MSCS | | Morgan Stanley Capital Services LLC | | JPY | | Japanese Yen | | EONIA | | Euro OverNight Index Average |
| SSBT | | State Street Bank and Trust Co., N.A. | | MXN | | Mexican Peso | | ETF | | Exchange Traded Fund |
| UBSW | | UBS AG | | NZD | | New Zealand Dollar | | EURIBOR | | Euro Interbank Offered Rate |
| | | | RUB | | Russian Ruble | | FEDEF | | Federal Funds Effective Rate |
| | | | SEK | | Swedish Krona | | FHLMC | | Federal Home Loan Mortgage Corp. |
| | | | TWD | | Taiwan Dollar | | FNMA | | Federal National Mortgage Association |
| Index | | | | UAH | | Ukraine Hryvnia | | FRN | | Floating Rate Note |
| CDX.EM | | CDX Emerging Markets Index | | USD | | United States Dollar | | FTSE | | Financial Times Stock Exchange |
| CDX.NA.HY | | CDX North America High Yield Index | | ZAR | | South African Rand | | GO | | General Obligation |
| CDX.NA.IG | | CDX North America Investment Grade Index | | | | | | HIBOR | | Hong Kong Interbank Offer Rate |
| | | | | | | | HONIX | | Hong Kong Overnight Index Rate |
| | | | | | | | IO | | Interest Only |
| | | | | | | | LIBOR | | London InterBank Offered Rate |
| | | | | | | | MIB | | Milano Italia Borsa |
| | | | | | | | MSCI | | Morgan Stanley Capital International |
| | | | | | | | PIK | | Payment In-Kind |
| | | | | | | | REIT | | Real Estate Investment Trust |
| | | | | | | | SARON | | Swiss Average Rate Overnight |
| | | | | | | | SOFR | | Secured Overnight Financing Rate |
| | | | | | | | SONIA | | Sterling Overnight Index Average |
| | | | | | | | SPDR | | Standard & Poor’s Depositary Receipt |
| | | | | | | | STIBOR | | Stockholm Interbank Offered Rate |
| | | | | | | | TOPIX | | Tokyo Price Index |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Franklin Alternative Strategies Funds and Shareholders of Franklin K2 Alternative Strategies Fund:
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities of Franklin K2 Alternative Strategies Fund (the “Fund”) (one of the funds constituting the Franklin Alternative Strategies Funds), including the consolidated statement of investments, as of May 31, 2020, and the related consolidated statement of operations for the year then ended, the consolidated statements of changes in net assets for each of the two years in the period then ended, the consolidated financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of Franklin K2 Alternative Strategies Fund (one of the funds constituting the Franklin Alternative Strategies Funds) at May 31, 2020, the consolidated results of its operations for the year then ended, the consolidated changes in its net assets for each of the two years in the period then ended and its consolidated financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s 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 Fund 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 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. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
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 procedures included confirmation of securities owned as of May 31, 2020, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. 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. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Franklin investment companies since 1987.
Boston, Massachusetts
July 27, 2020
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
Tax Information (unaudited)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund hereby reports the maximum amount allowable but no less than $645,847 as long term capital gain dividend for the fiscal year ended May 31, 2020.
Under Section 854(b)(1)(A) of the Code, the Fund hereby reports 39.93% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended May 31, 2020.
Under Section 854(b)(1)(B) of the Code, the Fund hereby reports the maximum amount allowable but no less than $4,282,079 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended May 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.
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Board Members and Officers
The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Funds, 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 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 |
| | | | |
Edward I. Altman, Ph.D. (1941) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 11 | | None |
Principal Occupation During at Least the Past 5 Years:
Max L. Heine Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School of Business, New York University; editor and author of numerous financial publications; financial consultant; an adviser to numerous financial and publishing organizations; and formerly, Vice Director, Salomon Center, Stern School of Business, New York University.
| | | | | | | | |
| | | | | |
Ann Torre Bates (1958) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee and Chairperson | | Trustee since 2011 and Chairperson since January 2020 | | 30 | | Ares Capital Corporation (specialty finance company) (2010-present), United Natural Foods, Inc. (distributor of natural, organic and specialty foods) (2013-present), formerly, Allied Capital Corporation (financial services) (2003-2010), SLM Corporation (Sallie Mae) (1997-2014) and Navient Corporation (loan management, servicing and asset recovery) (2014-2016). |
Principal Occupation During at Least the Past 5 Years:
Director of various companies; and formerly, Executive Vice President and Chief Financial Officer, NHP Incorporated (manager of multifamily housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc. (until 1995).
| | | | | | | | |
| | | | | |
Burton J. Greenwald (1929) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 11 | | Franklin Templeton Emerging Markets Debt Opportunities Fund PLC (1999- present) and Fiduciary International Ireland Limited (1999-2015). |
Principal Occupation During at Least the Past 5 Years:
Managing Director, B.J. Greenwald Associates (management consultants to the financial services industry); and formerly, Chairman, Fiduciary Trust International Funds; Executive Vice President, L.F. Rothschild Fund Management, Inc.; President and Director, Merit Mutual Funds; President, Underwriting Division and Director, National Securities & Research Corporation; Governor, Investment Company Institute; and Chairman, ICI Public Information Committee.
| | | | | | | | |
| | | | | |
Jan Hopkins Trachtman (1947) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 11 | | FinTech Acquisition Corp. III (special purpose fintech acquisition company) (2018-present) |
Principal Occupation During at Least the Past 5 Years: President and Founder, The Jan Hopkins Group (communications consulting firm); serves on Alumni Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (2007-2015); Anchor/Correspondent, CNN Financial News (until 2003); Managing Director and Head of Client Communications, Citigroup Private Bank (until 2005); Off-Air Reporter, ABC News’ World News Tonight; and Editor, CBS Network News. |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Independent Board Members (continued)
| | | | | | | | |
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 |
| | | | |
Keith E. Mitchell (1954) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 11 | | None |
Principal Occupation During at Least the Past 5 Years:
Director of various boards of asset management firms; and formerly, Managing Member, Mitchell, Hartley & Bechtel Advisers, LLC (formerly, Mitchell Advisers, LLC) (advisory firm) (2003-2015) and Managing Director, Putman Lovell NBF.
| | | | | | | | |
| | | | | |
David W. Niemiec (1949) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2015 | | 30 | | Hess Midstream LP (oil and gas midstream infrastructure) (2017- present). |
Principal Occupation During at Least the Past 5 Years:
Advisor, Saratoga Partners (private equity fund); and formerly, Managing Director, Saratoga Partners (1998-2001) and SBC Warburg Dillon Read (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc. (investment banking) (1991-1997); and Chief Financial Officer, Dillon, Read & Co. Inc. (1982-1997).
| | | | | | | | |
| | | | | |
Charles Rubens II (1930) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 11 | | None |
Principal Occupation During at Least the Past 5 Years:
Private investor and president of non-profit organizations; and formerly, an executive of Time, Inc.; and Trustee of Colorado College.
| | | | | | | | |
| | | | | |
Robert E. Wade (1946) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 30 | | El Oro Ltd (investments) (2003-2019). |
Principal Occupation During at Least the Past 5 Years:
Attorney at law engaged in private practice as a sole practitioner (1972-2008) and member of various boards.
| | | | | | | | |
| | | | | |
Gregory H. Williams (1943) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2015 | | 11 | | None |
Principal Occupation During at Least the Past 5 Years: Private investor; Consultant; and formerly, President, University of Cincinnati (2009-2012); President, The City College of New York (2001-2009); Dean, College of Law, Ohio State University (1993-2001); and Associate Vice President, Academic Affairs and Professor of Law, University of Iowa (1977-1993). |
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) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 140 | | None |
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. |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Interested Board Members and Officers (continued)
| | | | | | | | |
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 |
| | | | |
**Jennifer M. Johnson (1964) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2015 | | 51 | | None |
|
| Principal Occupation During at Least the Past 5 Years: |
Chief Executive Officer, President 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 four of the investment companies in Franklin Templeton; and formerly, Chief Operating Officer and Executive Vice President, Franklin Resources, Inc. (1994-2015); Executive Vice President of Operations and Technology, Franklin Resources, Inc. (2005-2010); and Senior Vice President, Franklin Resources, Inc. (2003-2005). |
| | | | |
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2012 | | Not Applicable | | Not Applicable |
| | |
| 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) 280 Park Avenue New York, NY 10017 | | Interim Chief Compliance Officer | | Since January 2020 | | Not Applicable | | Not Applicable |
| | |
| 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. |
| | | | |
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President and Secretary | | Since 2011 | | Not Applicable | | Not Applicable |
| | |
| 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. |
| | | | |
Madison S. Gulley (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | President and Chief Executive Officer – Investment Management | | Since 2017 | | Not Applicable | | Not Applicable |
| | |
| Principal Occupation During at Least the Past 5 Years: | | | | |
President, FASA, LLC; Executive Vice President, Franklin Advisers, Inc., Franklin Templeton Institutional, LLC, Templeton Global Advisors Limited and Templeton Investment Counsel, LLC; Executive Vice President, Alternative Strategies, K2 Advisors, LLC and K2/D&S Management Co., LLC; Senior Vice President, Franklin Templeton Companies, LLC; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of one of the investment companies in Franklin Templeton. |
| | | | |
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906 | | Chief Executive Officer – Finance and Administration | | Since 2017 | | Not Applicable | | Not Applicable |
| | |
| 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). |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Interested Board Members and Officers (continued)
| | | | | | | | |
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 |
| | | | |
Robert G. Kubilis (1973) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Chief Financial Officer, Chief Accounting Officer and Treasurer | | Since 2015 | | Not Applicable | | Not Applicable |
|
Principal Occupation During at Least the Past 5 Years: |
Treasurer, U.S. Fund Administration & Reporting and officer of 15 of the investment companies in Franklin Templeton. |
| | | | |
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President – AML Compliance | | Since 2016 | | Not Applicable | | Not Applicable |
|
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. |
| | | | |
Navid J. Tofigh (1972) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2015 | | Not Applicable | | Not Applicable |
|
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) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2011 | | Not Applicable | | Not Applicable |
|
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) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2012 | | Not Applicable | | Not Applicable |
|
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. |
*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. Jennifer M. Johnson is considered to be an interested person of the Fund under the federal securities laws due to her position as an officer of Resources.
Note 1: Gregory E. Johnson and Jennifer M. Johnson are siblings.
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 U.S. 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 each of Edward I. Altman, Ph.D., Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes that Messrs. Altman and Niemiec and Ms. Bates qualify as such an expert in view of their extensive business background and experience. Mr. Altman has served as a member of the Fund Audit Committee since 2011. He currently serves as a Max L. Heine Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School of Business, New York University. Ms. Bates has served as a member of the Fund Audit Committee since 2011. She currently serves as a director of Ares Capital Corporation (2010-present) and United Natural Foods, Inc. (2013-present) and was formerly a director of Navient Corporation from 2014 to 2016, SLM Corporation from 1997 to 2014 and Allied Capital Corporation from 2003 to 2010, Executive Vice President and Chief Financial Officer of NHP Incorporated from 1995 to 1997 and Vice President and
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Treasurer of US Airways, Inc. until 1995. Mr. Niemiec has served as a member of the Fund Audit Committee since 2015, currently serves as an Advisor to Saratoga Partners and was formerly its Managing Director from 1998 to 2001 and serves as a director of Hess Midstream Partners LP (2017-present). Mr. Niemiec was formerly a director of Emeritus Corporation from 1999 to 2010 and OSI Pharmaceuticals, Inc. from 2006 to 2010, Managing Director of SBC Warburg Dillon Read from 1997 to 1998, and was Vice Chairman from 1991 to 1997 and Chief Financial Officer from 1982 to 1997 of Dillon, Read & Co. Inc. As a result of such background and experience, the Board believes that Messrs. Altman and Niemiec and Ms. Bates have each 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. Messrs. Altman and Niemiec and Ms. Bates are independent Board members as that term is defined under the applicable U.S. 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.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
Shareholder Information
Board Approval of Investment Management Agreement and Sub-Advisory Agreements
FRANKLIN ALTERNATIVE STRATEGIES FUNDS Franklin K2 Alternative Strategies Fund
(Fund)
The Board of Trustees (Board) of Franklin Alternative Strategies Funds (the Trust), including a majority of trustees that are not “interested persons” as such term is defined in section 2(a)(19) of the Investment Company Act of 1940 (hereinafter referred to as “independent trustees”), at a meeting held on May 14, 2020, unanimously approved the renewal of the Fund’s investment management agreement with K2/D&S Management Co., L.L.C. (K2 Advisors), and of each sub-advisory agreement between K2 Advisors and each of following sub-advisors (the Sub-Advisors):
Bardin Hill Arbitrage IC Management LP
Chatham Asset Management, LLC
Chilton Investment Company, LLC
EMSO Asset Management Limited
Graham Capital Management, L.P.
Grantham, Mayo, Van Otterloo & Co. LLC
H2O AM LLP
Impala Asset Management LLC
Jennison Associates LLC
Lazard Asset Management, LLC
Loomis, Sayles & Company, L.P.
P. Schoenfeld Asset Management LP
Portland Hill Asset Management Limited
Wellington Management Company, LLP
Prior to a meeting of all of the trustees for the purpose of considering such renewal, the independent trustees participated in two other meetings held in connection with the renewal process. Throughout the process, the independent trustees received assistance and advice from and met separately with independent counsel. The independent trustees met with and interviewed officers of K2 Advisors (including portfolio managers), the transfer agent and shareholder services group and the distributor. In approving the renewal of the investment management agreement and the sub-advisory agreements for the Fund, the Board, including the independent trustees, determined that the investment management fee structure was fair and reasonable and that continuance of the agreement was in the best interests of the Fund and its shareholders.
In making the foregoing approvals, the Board considered various materials related to the investment management agreement and the sub-advisory agreements including: (1) a copy of the investment management agreement and sub-advisory agreements; (2) information describing the nature, quality and extent of services that K2 Advisors and each Sub-Advisor provided, and are expected to provide, to the Fund, and the investment management fees and sub-advisory fees payable to K2 Advisors and each Sub-Advisor; (3) reports from K2 Advisors on the continued diligence conducted on each Sub-Advisor and the reasons for recommending renewal of each of the sub-advisory agreements, including, but not limited to, each Sub-Advisor’s background, experience, personnel, operations, policies, procedures and compliance functions; and (4) a report from the Trust’s Interim Chief Compliance Officer regarding K2 Advisors’ and each Sub-Advisor’s compliance program and capabilities, including policies and procedures in place to address potential conflicts of interest, and the diligence undertaken by the Trust’s Interim Chief Compliance Officer with respect thereto. The Board also noted that it received an annual report on all payments made by Franklin Templeton Investments (FTI) or the Fund to financial intermediaries engaged in the sale of Fund shares, as well as a memorandum relating to third-party servicing arrangements in response to a Guidance Update from the U.S. Securities and Exchange Commission (SEC) relating to mutual fund distribution and sub-accounting fees.
The Board also took into account information furnished throughout the year at regular Board meetings, as well as information specifically requested and furnished for the renewal process, which culminated in the meetings referred to above for the specific purpose of considering such agreements. Information furnished throughout the year included, among others, reports on the Fund’s investment performance, expenses, portfolio composition, derivatives, asset segregation, portfolio turnover, Rule 12b-1 plan, distribution, shareholder servicing, legal and compliance matters, pricing of securities, sales and redemptions, and marketing support payments made to financial intermediaries, as well as a third-party survey of transfer agent fees charged to funds within the FTI complex in comparison with those charged to other fund complexes deemed comparable. Also, related financial statements and other information about the scope and quality of services provided by K2 Advisors and its affiliates and enhancements to such services over the past year were provided. In addition, the trustees received periodic reports throughout the year and during the renewal process relating to compliance with the Fund’s investment policies and
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restrictions. During the renewal process, the independent trustees considered K2 Advisors’ methods of operation within the Franklin Templeton group and its activities on behalf of other clients.
The information obtained by the trustees during the renewal process also included a special report prepared by Broad-ridge Financial Solutions, Inc., an independent third-party analyst that utilizes data from Lipper, Inc. (“Lipper”), comparing the Fund’s investment performance and expenses with those of other mutual funds deemed comparable to such Fund as selected by Lipper (Broadridge Section 15(c) Report). The trustees reviewed the Broadridge Section 15(c) Report and its usefulness in the renewal process with respect to matters such as comparative fees, expenses, expense ratios and performance. The Board considered K2 Advisors’ views that the peer group determined by Lipper for comparison purposes may not be an entirely appropriate representation of the Fund’s peer universe. K2 Advisors explained that the universe of funds that are managed using multi-manager, multi-strategy structures, like the Fund, continues to evolve, and has presented challenges in identifying an appropriate set of peers for the Fund. It was noted by K2 Advisors that the peer group compiled by Lipper includes single-manager funds which, due to their nature and relative simplicity, have lower expense ratios and are not true peers for fee comparison purposes (“Base Expense Group”). Because some of the sponsors of funds with multi-manager strategies that K2 Advisors considers to be peers were excluded from the peer group determined by Lipper, K2 Advisors requested a second peer group including funds that K2 Advisors considers to be peer funds (“Alternate Expense Group”). While noting the limitations of the Broadridge Section 15(c) Report, the Board concluded that the Broad-ridge Section 15(c) Report was helpful in the performance of its duties.
In addition, the trustees received a Profitability Study (Profitability Study) prepared by management discussing the profitability to FTI from its overall U.S. fund operations, as well as on an individual fund-by-fund basis. Over the past year, the Board and counsel to the independent trustees continued to receive reports on management’s handling of recent regulatory inquiries and pending legal actions against K2 Advisors and its affiliates. The independent trustees were satisfied with the actions taken to date by management in response to such regulatory and legal matters. The independent trustees also received reports from the Trust’s Interim Chief Compliance Officer on regulatory inquiries and pending legal actions against the Sub-Advisors applicable to the services provided by the Sub-Advisors to the Fund and noted
that there were not any issues in this regard that should prevent the renewal of the sub-advisory agreements.
The trustees reviewed the personnel, operations, financial condition, and investment management capabilities, methodologies and resources of K2 Advisors and each Sub-Advisor, including each management team’s expertise in the management of other alternative strategies funds. As part of this review, particular attention was given to (1) the diligent risk management program of K2 Advisors and its parent, including those aspects of the program related to selecting and overseeing sub-advisors to the Fund and continual monitoring and management of cybersecurity, liquidity and counterparty credit risk, (2) each Sub-Advisor’s risk management program, and (3) derivatives and other complex instruments that are held and expected to be held by the Fund and how such instruments are used to carry out the Fund’s investment goal.
The Board also took into account, among other things, management’s efforts in establishing a global credit facility for the benefit of the Fund and other accounts managed by FTI to provide a source of cash for temporary and emergency purposes or to meet unusual redemption requests as well as the strong financial position of K2 Advisors’ parent company and its commitment to the mutual fund business. The Board noted management’s continuing efforts and expenditures in establishing effective business continuity plans and developing strategies to address areas of heightened concern in the mutual fund industry, such as cybersecurity and liquidity risk management. The Board also recognized management’s commitment to facilitating Board oversight of particular areas, including derivatives and payments to intermediaries, by enhanced reporting. In addition, the Board received updates from management on the compliance of the investment manager with comprehensive rules and regulations promulgated by the SEC and the U.S. Commodity Futures Trading Commission.
In addition to the above and other matters considered by the trustees throughout the course of the year, the following discussion relates to certain primary factors relevant to the Board’s decision. This discussion of the information and factors considered by the Board (including the information and factors discussed above) is not intended to be exhaustive, but rather summarizes certain factors considered by the Board. In view of the wide variety of factors considered, the Board did not, unless otherwise noted, find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual trustees may have assigned different weights to various factors.
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NATURE, EXTENT AND QUALITY OF SERVICES. The trustees reviewed the nature, extent and quality of the services provided, and to be provided, by K2 Advisors and each Sub-Advisor. In this regard, they reviewed the Fund’s investment goal and K2 Advisors’ and each Sub-Advisor’s investment strategy and sub-strategy, and K2 Advisors’ and each Sub-Advisor’s ability to implement such investment strategy and/or sub-strategy, including, but not limited to, K2 Advisors’ and each Sub-Advisor’s trading practices, investment decision processes and reputation. The Board also considered the investment management services that the investment manager provides to the Cayman Islands-based company, which is wholly owned by the Fund (Cayman Subsidiary).
The Board noted that the Fund employs a “manager of managers” structure, whereby K2 Advisors is responsible for selecting sub-advisors (subject to Board approval), allocating the Fund’s assets among them, and overseeing the sub-advisors’ day-to-day management of the Fund’s assets. The Board noted the responsibilities that K2 Advisors has as the Fund’s investment manager, including (1) due diligence on the Sub-Advisors and any potential new sub-advisors to the Fund, their respective trading strategies, risk management, operations and businesses, (2) on-going oversight and monitoring of the day-to-day investment activities of Sub-Advisors and other service providers, including their respective compliance with the investment mandate and restrictions, compliance policies and procedures and federal securities laws, and K2 Advisors’ ongoing assessment of their performance, (3) portfolio construction with respect to the allocation of assets among Sub-Advisors, investment funds, cash and other investments, (4) risk management, (5) preparing quarterly reports to the Board, and (6) the implementation of Board directives as they relate to the Fund. The Trustees also considered the successful performance of K2 Advisors in managing the Fund and other investment products with similar investment strategies to the investment strategies of the Fund that are not subject to the Investment Company Act of 1940.
With respect to the sub-advisory services provided, and to be provided, by each Sub-Advisor, the Board noted the responsibilities that each Sub-Advisor has with respect to the portion of the Fund’s assets allocated to the Sub-Advisor by K2 Advisors (Sub-Advised Portion), including, among others, implementing the investment strategies with respect to the Sub-Advised Portion and ensuring compliance with the investment strategies, policies and limitations of the Sub-Advised Portion. The trustees considered the successful performance of each Sub-Advisor in managing the Fund and
other investment products with similar investment strategies to the investment strategies of its Sub-Advised Portion of the Fund, including, with respect to certain Sub-Advisors, mutual funds with similar investment strategies. The Board considered K2 Advisors’ rationale for recommending the continued retention of each Sub-Advisor.
The trustees reviewed the Fund’s portfolio management teams at K2 Advisors and each Sub-Advisor, including each such team’s performance, staffing, skills and compensation program. With respect to portfolio manager compensation, management assured the trustees that the Fund’s long-term performance is a significant component of incentive-based compensation for K2 Advisors’ portfolio management team and noted that a portion of a K2 Advisors’ portfolio manager’s incentive-based compensation is paid in shares of pre-designated funds from the portfolio manager’s fund management area. The trustees noted that the portfolio manager compensation program aligned the interests of the portfolio managers with that of Fund shareholders. During regular Board meetings and the aforementioned meetings of the independent trustees, the trustees considered periodic reports provided to them showing that K2 Advisors and the Sub-Advisors complied with the investment policies and restrictions of the Fund as well as other reports periodically furnished to the Board covering matters such as the compliance of portfolio managers and other management personnel with the code of ethics covering the investment management personnel, the adherence to fair value pricing procedures established by the Board and the accuracy of net asset value calculations. The Board noted the extent of the benefits provided to Fund shareholders from being part of the Franklin Templeton group of funds, including the right to exchange investments between funds (same class) without a sales charge, the ability to reinvest Fund dividends into other funds and the right to combine holdings of other funds to obtain reduced sales charges.
The trustees discussed with management various other products, portfolios and entities that are advised by K2 Advisors and each Sub-Advisor and the allocation of assets and expenses among and within them, as well as their relative fees and reasons for differences with respect thereto and any potential conflicts.
The Board also considered a report from the Trust’s Interim Chief Compliance Officer regarding K2 Advisors’ and each Sub-Advisor’s compliance programs and capabilities as such programs and capabilities relate to the operations of the Fund and the monitoring and testing of such program undertaken by the Trust’s Interim Chief Compliance Officer. The
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Board considered the selection and due diligence process employed by K2 Advisors in selecting and deciding to retain each Sub-Advisor as a sub-advisor to the Fund, including the due diligence undertaken with respect to the Sub-Advisor’s compliance and risk management capabilities. The trustees considered K2 Advisors’ significant efforts in developing and implementing compliance procedures established in accordance with SEC and other requirements.
The Board also considered the nature, extent and quality of the services to be provided under the Fund’s other service agreements to determine that, on an overall basis, Fund shareholders were well served. In this connection, the Board also took into account transfer agent and shareholder services provided to Fund shareholders by an affiliate of K2 Advisors, noting continuing expenditures by management to increase and improve the scope of such services and favorable periodic reports on shareholder services conducted by independent third parties. While such considerations directly affected the trustees’ decision in renewing the Fund’s transfer agent and shareholder services agreement, the Board also considered these commitments as incidental benefits to Fund shareholders deriving from the investment management relationship.
Based on their review, the trustees were satisfied with the nature and quality of the overall services provided, and to be provided, by K2 Advisors and its affiliates and each Sub Advisor to the Fund and its shareholders and were confident in the abilities of K2 Advisors and each Sub-Advisor to implement their respective investment strategy and/or sub-strategy and to provide quality services to the Fund and its shareholders.
INVESTMENT PERFORMANCE. As the Fund commenced operations in October 2013, the trustees reviewed the investment performance of the Fund for the one-, three-, and five-year periods ended December 31, 2019.
As part of their review, they inquired of management regarding benchmark and hedging activities. Consideration was also given to performance in the context of available levels of cash, including as affected by net flows, during the periods. The trustees had meetings during the year, including the meetings referred to above held in connection with the renewal process, with the Fund’s portfolio managers to discuss performance and the management of the Fund and each Sub-Advisor.
In addition, attention in assessing performance was given to the Broadridge Section 15(c) Report. That report showed the
investment performance of the Fund (Advisor Class shares) in comparison to other funds determined comparable by Lipper.
The comparable funds to the Fund, as chosen by Lipper, included all retail and institutional alternative multi-strategy funds. The Fund had total returns in the middle performing quintile for the one-year period ended December 31, 2019 and total returns in the second-best performing quintile for the three-year period ended December 31, 2019 and in the best performing quintile for the five-year period ended December 31, 2019. The Board was satisfied with such performance.
The trustees also compared Fund performance to other industry benchmarks, including measures of risk-adjusted performance of a fund, as part of their evaluation of investment performance. The trustees concluded that the Fund had continued to perform well in comparison to its various benchmarks and in the context of the Fund’s investment goal.
COMPARATIVE EXPENSES AND PROFITABILITY. The trustees considered the cost of the services provided, and to be provided, by K2 Advisors and each Sub-Advisor and the profits realized by K2 Advisors and its affiliates from their relationships with the Fund. As part of the renewal process, they explored with management the trends in expense ratios over the past three fiscal years and the reasons for any increases in the Fund’s expense ratios (or components thereof). In this regard, and following on-going discussions with the independent trustees with respect to the investment management fees and expense ratio of the Fund, the trustees took into account the introduction of breakpoints in the investment management fee schedule of the Fund proposed by management, which were designed to better position the Fund for potential asset growth. In considering the appropriateness of the management fee and other expenses charged to the Fund, the Board took into account various factors including investment performance and matters relating to Fund operations, including, but not limited to, the quality and experience of K2 Advisors personnel. The Board also reviewed and considered the investment management fees in light of the nature, extent and quality of the investment management services provided, and to be provided, by K2 Advisors and each Sub-Advisor, as more fully discussed above. The Board also considered the reductions negotiated by K2 Advisors in the sub-advisory fees charged by the Sub-Advisers, including the addition of breakpoints in the sub-advisory fee schedules of certain Sub-Advisors. The Board noted that the sub-advisory fees are paid by K2 Advisors to each Sub-Advisor and are not additional fees borne
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by the Fund. The Board also noted that the sub-advisory fees paid, and to be paid, by K2 Advisors to each Sub-Advisor were the product of arms-length negotiations between K2 Advisors and each Sub-Advisor.
Furthermore, the Board took into account that information regarding Sub-Advisor profitability is not legally required to be provided. Accordingly, profitability information of the sub-advisors was given lesser weight than other factors. In addition, the Board considered the allocation of the investment management fee charged to the Fund between K2 Advisors and each Sub-Advisor in light of the nature, extent and quality of the investment management services provided, and to be provided, by K2 Advisors and each Sub-Advisor. As part of this discussion, the Board took into account the fee waiver and expense limitation arrangement in effect, and the amount of Fund expenses that were absorbed since inception of the Fund by K2 Advisors through such waivers and arrangements. The Board also considered the investment management services that the investment manager provides to the Cayman Subsidiary and the related fee waivers that were in place.
Consideration was also given to a comparative analysis in the Broadridge Section 15(c) Report of the investment management fee and total expense ratio of the Fund in comparison with those of a group of other funds selected by Lipper as its appropriate Lipper expense group.
Lipper expense data is based upon information taken from each fund’s most recent annual report, which reflects historical asset levels that may be quite different from those currently existing, particularly in a period of market volatility.
In reviewing comparative costs, emphasis was given to the Fund’s contractual management fee in comparison with the contractual management fee that would have been charged by other funds within its Lipper expense group assuming they were similar in size to the Fund, as well as the actual total expenses of the Fund in comparison with those of its Lipper expense group. The Lipper contractual management fee analysis includes administrative charges as being part of the management fee, and total expenses, for comparative consistency, are shown by Lipper for Fund Advisor Class shares. The Fund’s contractual management fee rate was in the most expensive quintile of both its Base Expense Group and Alternate Expense Group. The Fund’s total expenses were in the second-most expensive quintile of its Base Expense Group and its Alternate Expense Group.
Noting (i) that the fees total expense were lower than the Fund’s primary competitor, (ii) the factors and limitations with
respect to the Broadridge Section 15(c) Report (including the inclusion of single-manager funds in both peer groups), and (iii) factors relating to the Fund’s operations, such as the quality and experience of K2 Advisors and the Sub-Advisors and the nature and quality of the services provided and to be provided by K2 Advisors and the Sub-Advisors, the Board found such comparative fees and expenses to be acceptable.
The trustees also reviewed the Profitability Study addressing profitability of Franklin Resources, Inc., from its overall U.S. fund business, as well as profitability to K2 Advisors and its affiliates, from providing investment management and other services to the Fund during the 12-month period ended September 30, 2019, the most recent fiscal year-end of Franklin Resources, Inc. The trustees reviewed the basis on which such reports are prepared and the cost allocation methodology utilized in the Profitability Study, it being recognized that allocation methodologies may each be reasonable while producing different results. In this respect, the Board noted that the reasonableness of the cost allocation methodologies was reviewed by independent accountants on an every other year basis.
The independent trustees met with management to discuss the Profitability Study. This included, among other things, a comparison of investment management income with investment management expenses of the Fund; comparison of underwriting revenues and expenses; the relative relationship of investment management and underwriting expenses; shareholder servicing profitability; economies of scale; and the relative contribution of the Fund to the profitability of K2 Advisors and its parent. In discussing the Profitability Study with the Board, K2 Advisors stated its belief that the costs incurred in establishing the infrastructure necessary to operate the type of mutual fund operations conducted by it and its affiliates may not be fully reflected in the expenses allocated to the Fund in determining its profitability.
The Board also took into account management’s expenditures in improving shareholder services provided to the Fund, as well as the need to meet additional regulatory and compliance requirements. The trustees also considered the extent to which K2 Advisors and the Sub-Advisors may derive ancillary benefits from Fund operations, including those derived from the allocation of Fund brokerage and the use of commission dollars to pay for research and other similar services.
Based upon their consideration of all these factors, the trustees determined that the level of profits realized by K2 Advisors and its affiliates in providing services to the Fund was not excessive in view of the nature, quality and extent of
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services provided. In addition, the Board noted that shareholders are able to redeem their Fund shares at any time if shareholders believe that Fund fees and expenses are too high or if they are dissatisfied with the performance of the Fund.
ECONOMIES OF SCALE. The Board considered economies of scale realized by K2 Advisors and its affiliates and the Sub-Advisors as the Fund grows larger and the extent to which they are shared with Fund shareholders, as for example, in the level of the investment management fees charged, in the quality and efficiency of services rendered and in increased capital commitments benefiting the Fund directly or indirectly. The trustees noted that benefits of economies of scale will, depending on the fee waiver and expense limitation arrangement in effect at the time, potentially be shared with Fund shareholders due to the decline in the effective investment management fee rate as breakpoints are achieved by the Fund. The Board also considered the fee waiver and expense limitation arrangement in effect, and the amount of Fund expenses that were absorbed since inception of the Fund by K2 Advisors through such waiver and arrangement. The Board concluded that economies of scale were deemed not to be a significant factor at that time in light of, among other matters, the fee waiver and expense limitation arrangement in effect and the fact that the Fund had less than six complete years of operating results.
Board Approval of Sub-Advisory Agreement
FRANKLIN ALTERNATIVE STRATEGIES FUNDS Franklin K2 Alternative Strategies Fund
(Fund)
The Board of Trustees (Board) of Franklin Alternative Strategies Funds (the Trust), including a majority of trustees that are not “interested persons” as such term is defined in section 2(a)(19) of the Investment Company Act of 1940 (hereinafter referred to as “independent trustees”), at a meeting held on May 14, 2020, unanimously approved a sub-advisory agreement (the “New Sub-Advisory Agreement”) with K2/D&S Management Co., L.L.C., the Fund’s investment manager (“K2 Advisors”), and BlueBay Asset Management LLP (the “Sub-Advisor”).
In approving the New Sub-Advisory Agreement, the Board, including the independent trustees, determined that fees to be paid under the New Sub-Advisory Agreement were fair and reasonable and that approval of the New Sub-Advisory Agreement was in the best interests of the Fund and its
shareholders. In making the foregoing approvals, the independent trustees received assistance and advice from their independent counsel and, in addition to the materials provided at prior meetings, considered various matters related to the New Sub-Advisory Agreement including: (1) the proposed form of New Sub-Advisory Agreement; (2) information describing the nature, quality and extent of services that the Sub-Advisor would provide to the Fund, and the proposed sub-advisory fees payable to the Sub-Advisor; (3) a report (written or oral) from K2 Advisors on the diligence conducted on the Sub-Advisor and the reasons for recommending the Sub-Advisor for the Fund, including, but not limited to, the Sub-Advisor’s background, experience, personnel, operations, policies, procedures and compliance functions; and (4) a report (written or oral) from the Trust’s Interim Chief Compliance Officer regarding the Sub-Advisor’s compliance program and capabilities, including the Sub-Advisor’s policies and procedures in place to address potential conflicts of interest, and the diligence undertaken by the Trust’s Interim Chief Compliance Officer with respect thereto. The Board noted that the terms of the New Sub-Advisory Agreement were substantially similar to the terms of the sub-advisory agreements with the Fund’s existing sub-advisors.
The Board’s consideration of whether to approve the New Sub-Advisory Agreement on behalf of the Fund took into account several factors including, but not limited to, the following: (1) the nature and quality of the services to be provided by the Sub-Advisor to the Fund under the respective New Sub-Advisory Agreement; (2) the Sub-Advisor’s experience as a manager of other mutual funds and accounts; (3) the Sub-Advisor’s strength and reputation within the industry; (4) the fairness of the compensation under the New Sub-Advisory Agreement; (5) the personnel, operations, financial condition, and investment management capabilities, methodologies and resources of the Sub-Advisor; (6) profitability matters; (7) reports (written or oral) from K2 Advisors on the diligence conducted on the Sub-Advisor and the reasons for recommending the Sub-Advisor as a sub-advisor for the Fund, including, but not limited to, the Sub-Advisor’s background, experience, personnel, operations, policies, procedures and compliance functions; and (8) a report (written or oral) from the Trust’s Interim Chief Compliance Officer regarding each compliance program and capabilities, including the Sub-Advisor’s policies and procedures in place to address potential conflicts of interest, and the diligence undertaken by the Trust’s Interim Chief Compliance Officer with respect thereto. Particular attention was given to the due diligence and risk management procedures of K2 Advisors with respect to selecting and
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overseeing sub-advisors of the Fund, as well as the Sub-Advisor’s risk management program and to derivatives and other complex instruments that are expected to be held by the Fund and how such instruments are expected to be used to pursue the Fund’s investment goals.
The following discussion relates to certain primary factors relevant to the Board’s decision to approve the New Sub-Advisory Agreement. This discussion of the information and factors considered by the Board (including the information and factors discussed above) is not intended to be exhaustive, but rather summarizes certain factors considered by the Board. In view of the wide variety of factors considered, the Board did not, unless otherwise noted, find it practicable to quantify or otherwise assign relative weights to the following factors. In addition, individual trustees may have assigned different weights to various factors.
NATURE, EXTENT AND QUALITY OF SERVICES. The trustees reviewed the nature, extent and quality of the services to be provided by the Sub-Advisor. In this regard, they reviewed the Fund’s investment goal and the Sub-Advisor’s proposed investment strategy, and the Sub-Advisor’s ability to implement such investment goal and/or investment strategy, including, but not limited to, the Sub-Advisor’s trading practices and investment decision processes.
With respect to the sub-advisory services to be provided by the Sub-Advisor, the Board noted the responsibilities that the Sub-Advisor would have with respect to the Fund’s assets to be allocated to the Sub-Advisor by K2-Advisors (the “Sub-Advised Portion”), including, among others, implementing the investment strategies with respect to the Sub-Advised Portion and ensuring compliance with the investment strategies, policies, and limitations of the Sub-Advised Portion. The trustees considered the successful performance of the Sub-Advisor in managing other investment products with investment strategies similar to the investment strategies of the Sub-Advised Portion of the Fund.
The trustees reviewed the portfolio management team at the Sub-Advisor that would be responsible for managing the Sub-Advised Portion, including the team’s performance, staffing, skills and compensation program. The trustees considered various other products, portfolios and entities that are advised by the Sub-Advisor, their relative fees and reasons for differences with respect thereto and any potential conflicts. The Board also considered a report (written or oral) from the Trust’s Interim Chief Compliance Officer regarding the Sub-Advisor’s compliance program as such policies relate to the operations of the Fund. The Board considered
the selection and due diligence process employed by K2 Advisors in proposing the Sub-Advisor as a sub-advisor to the Fund, including the due diligence undertaken with respect to the Sub-Advisor’s compliance capabilities.
Based on their review, the trustees were satisfied with the nature and quality of the overall services to be provided by the Sub-Advisor to the Fund and its shareholders and were confident in the abilities of the Sub-Advisor to implement its proposed investment strategy, and to provide quality services to the Fund and its shareholders.
INVESTMENT PERFORMANCE. The Board noted that, as the Sub-Advisor had not provided any services to the Fund, there was no investment performance of the Sub-Advisor with respect to the Fund. The Board considered the investment performance of the Sub-Advisor in managing other investment products with similar investment strategies to the investment strategies of the Sub-Advised Portion. The Board also considered the performance benchmarks for the Fund and how such benchmarks would be utilized to measure the performance of the Sub-Advisor in managing the Sub-Advised Portion.
COMPARATIVE EXPENSES AND PROFITABILITY. The Board considered the cost of the services to be provided by the Sub-Advisor. The Board also noted that it could not evaluate the Sub-Advisor’s profitability with respect to the Fund since no assets had yet been allocated to the Sub-Advisor.
The Board noted that the sub-advisory fees would be paid by K2 Advisors to the Sub-Advisor and would not be additional fees to be borne by the Fund. The Board also noted that the sub-advisory fees to be paid by K2 Advisors to the Sub-Advisor were the product of arms-length negotiations between K2 Advisors and the Sub-Advisor and the Board considered the allocation of the investment management fee charged to the Fund between K2 Advisors and the Sub-Advisor in light of the nature, extent and quality of the investment management services expected to be provided by K2 Advisors and the Sub-Advisor. The trustees considered various other products, portfolios and entities that are advised by the Sub-Advisor, and the allocation of assets and expenses among and within them, as well as their relative fees and reasons for differences with respect thereto and any potential conflicts. The Board considered the extent to which the Sub-Advisor may derive ancillary benefits from the Fund’s operations.
With respect to the impact on K2 Advisors’ and its affiliates’ profitability as a result of hiring the Sub-Advisor as a
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sub-advisor to the Fund, the Board considered the following: (1) the fee waiver and expense limitation arrangements in effect, and the amount of Fund expenses that were absorbed since the inception of the Fund by K2 Advisors through such arrangements, (2) the sub-advisory fees to be paid to the Sub-Advisor, which are lower than some of the Fund’s existing Sub-Advisors, and (3) K2 Advisors’ belief that the hiring of the Sub-Advisor as a sub-advisor will not have a material impact on K2 Advisors’ profitability.
Based upon its consideration of all these factors, the Board determined that the sub-advisory fee structure for the Sub-Advisor was fair and reasonable.
ECONOMIES OF SCALE. The Board considered economies of scale that may be realized by the Sub-Advisor as the Fund grows larger and the extent to which such economies of scale may be shared with Fund shareholders, as for example, in the level of the sub-advisory fees charged, in the quality and efficiency of services rendered and in increased capital commitments benefiting the Fund directly or indirectly. The trustees noted that benefits of economies of scale will, depending on the fee waiver and expense limitation arrangement in effect at the time, potentially be shared with Fund shareholders due to the decline in the effective investment management fee rate as breakpoints are achieved by the Fund. The Board concluded that economies of scale were deemed not to be a significant factor at that time in light of, among other matters, the fee waiver and expense limitation arrangement in effect.
CONCLUSION. After consideration of the foregoing factors, and such other matters as were deemed relevant, and with no single factor being determinative to their decision, the trustees—including a majority of the independent trustees—with the assistance of independent counsel approved each New Sub-Advisory Agreement, including the fees payable thereunder, with the Sub-Advisor for the Fund.
Liquidity Risk Management Program
The Funds have 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 program is designed to assess and manage each Fund’s liquidity risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during 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. 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.
The LRMP Administrator Annual Report was presented to the Fund(s) Board of Trustees at their meetings in May 2020. The report covered the adequacy and effectiveness of the program during the period December 1, 2018 to December 31, 2019 (the “covered period”). The 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. In addition, the LRMP Administrator presented the Fund Board of Trustees an update on liquidity during the first quarter of 2020 in relation to the COVID-19 pandemic.
During the reporting period, the Fund maintained a high level of liquid assets that are defined under the Liquidity Rule as “Highly Liquid Investments.” As a result, the Fund was designated a “Primarily Highly Liquid Fund” as defined under the Liquidity Rule and has not adopted a “Highly Liquid Investment Minimum.” A Highly Liquid Investment is 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.
There can be no assurance that the program will achieve its objectives in the future. Please refer to your Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other principal risks to which an investment in the Fund may be subject.
Proxy Voting Policies and Procedures
The Fund’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund’s complete Policies online
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
SHAREHOLDER INFORMATION
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 Fund’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.
Quarterly Consolidated Statement of Investments
The Trust, on behalf of the Fund, 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 the 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.
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Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
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 | | Annual Report and Shareholder Letter Franklin K2 Alternative Strategies Fund |
| | Investment Manager | | Distributor | | Shareholder Services |
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| | K2/D&S Management Co., L.L.C. | | Franklin Templeton Distributors, Inc. | | (800) 632-2301 |
| | | | (800) DIAL BEN®/342-5236 | | |
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| © 2020 Franklin Templeton Investments. All rights reserved. | | | | 068 A 07/20 |
Sign up for electronic delivery at franklintempleton.com/edelivery
Internet Delivery of Fund Reports Unless You Request Paper Copies: Effective January 1, 2021, as permitted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request them from the Fund or your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you have not signed up for electronic delivery, we would encourage you to join fellow shareholders who have. You may elect to receive shareholder reports and other communications electronically from the Fund by calling (800) 632-2301 or by contacting your financial intermediary.
You may elect to continue to receive paper copies of all your future shareholder reports free of charge by contacting your financial intermediary or, if you invest directly with a Fund, calling (800) 632-2301 to let the Fund know of your request. Your election to receive reports in paper will apply to all funds held in your account.
FRANKLIN TEMPLETON
Successful investing begins with ambition. And achievement only comes when you reach for it. That’s why we continually strive to deliver better outcomes for investors. No matter what your goals are, our deep, global investment expertise allows us to offer solutions that can help.
During our more than 70 years of experience, we’ve managed through all kinds of markets—up, down and those in between. We’re always preparing for what may come next. It’s because of this, combined with our strength as one of the world’s largest asset managers that we’ve earned the trust of millions of investors around the world.
Dear Fellow Shareholder:
During the 12 months ended May 31, 2020, global markets showed mixed results amid unique circumstances. Global equities benefited through the end of 2019 from upbeat economic data and corporate earnings, accommodative monetary policies and a U.S.-China trade agreement. However, in early 2020, concerns about the novel coronavirus (COVID-19) outbreak caused many equity investors to shift to government bonds and cash. Nevertheless, global equities partially recovered by period-end given optimism about reopening economies and potential COVID-19 treatments. In this environment, global developed market stocks, as measured by the MSCI World Index (USD), posted a +7.37% total return for the period. 1 Global emerging market stocks, as measured by the MSCI Emerging Markets Index (USD), posted a -4.02% total return. 1 Global government bonds, as measured by the FTSE World Government Bond Index (USD), posted a +6.36% total return. 1
We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous analysis of Fund subadvisors and markets with a strong emphasis on investment risk management.
We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.
On the following pages, the Fund’s portfolio management team reviews investment decisions that pertain to performance during the past 12 months in light of the economic environment and other factors. Please remember all securities markets fluctuate, as do mutual fund share prices.
We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to continuing to serve your investment needs in the future.
Sincerely,
Madison S. Gulley, CFA
President and Chief Executive Officer –
Investment Management
Franklin Alternative Strategies Funds
This letter reflects our analysis and opinions as of May 31, 2020, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
CFA® is a trademark owned by CFA Institute.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
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Contents
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| Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools. |
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ANNUAL REPORT
Franklin K2 Long Short Credit Fund
This annual report for Franklin K2 Long Short Credit Fund covers the fiscal year ended May 31, 2020.
Your Fund’s Goal and Main Investments
The Fund seeks total return through a combination of current income, capital preservation and capital appreciation. The Fund seeks to achieve its investment goal by allocating its assets across multiple non-traditional or alternative strategies in the fixed income and credit areas, including, but not limited to, some or all of the following: credit long short, structured credit and emerging market fixed income. The Fund is structured as a multi-manager fund, meaning the Fund’s assets are managed by multiple subadvisors, and the Fund’s investment manager has overall responsibility for the Fund’s investments.
Under normal market conditions, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in credit-related investments. The Fund invests in a wide range of securities and other investments including, but not limited to: corporate bonds, mortgage-backed securities (MBS) and asset-backed securities (ABS), U.S. government and agency securities, collateralized debt and loan obligations, foreign government and supranational debt securities, loans and loan participations and derivatives with similar economic characteristics. The Fund may also invest in repurchase agreements, reverse repurchase agreements, mortgage real estate investment trusts (REITs) and other similar transactions.
Performance Overview
The Fund’s Class A shares posted a -2.92% cumulative total return for the 12 months under review. For comparison, the Fund’s primary benchmark, the HFRX Fixed Income – Credit Index, which measures performance of strategies with exposure to credit across a broad continuum of credit sub-strategies, posted a +3.96% total return for the same period. 1 Also for comparison, the Fund’s secondary benchmark, the ICE BofAML U.S. 3-Month Treasury Bill Index, which is an index of short-term U.S. government securities with a
Portfolio Composition*
Based on Total Net Assets as of 5/31/20
*Figures represent the net Fund exposure and include certain derivatives held in the portfolio (or their underlying reference assets) or unsettled trades and may not total 100% or may be negative due to rounding, use of any derivatives or other factors.
remaining term to final maturity of less than three months, posted a +1.84% total return. 2 You can find more of the Fund’s performance data in the Performance Summary beginning on page 7.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Economic and Market Overview
Global developed and emerging market equities, as measured by the MSCI All Country World Index (USD), posted a +5.98% total return during the 12 months under review. 2 However, stocks fell sharply in early 2020 as countries around the world implemented lockdowns in an effort to slow the spread of the novel coronavirus (COVID-19). Global supply chain disruptions, business and personal restrictions and subdued consumer spending drove many investors to sell equity holdings in favor of perceived safe investments such as government bonds and cash. However, global equities,
1. Source: FactSet. Hedge Fund Research, Inc. – www.hedgefundresearch.com. The HFRX Fixed Income – Credit Index is being used under license from Hedge Fund Research, Inc., which does not endorse or approve of any of the contents of this report.
2. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Unlike most asset class indexes, HFR Index returns reflect fees and expenses.
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 16.
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FRANKLIN K2 LONG SHORT CREDIT FUND
notably in the U.S., rebounded during the last two months of the reporting period amid optimism about easing lockdown restrictions and potential COVID-19 vaccines and treatments.
In the U.S., a strong labor market and solid consumer spending growth drove steady economic growth through February 2020. However, government-issued restrictions to mitigate the COVID-19 pandemic severely impacted the U.S. economy beginning in March. As a result, the unemployment rate surged to 14.7% in April 2020 with nearly 41 million workers filing for unemployment benefits by the end of the reporting period as many businesses, particularly those involved in hospitality, retail and travel, announced mass layoffs. 3 Within just two months, the unemployment rate went from a 50-year low in February 2020 to an 80-year high in April 2020, the fastest reversal of fortune in the post-World War II era. During March and April, consumer spending, a major economic growth engine through most of the reporting period, posted the sharpest decline in more than 60 years. According to the National Bureau of Economic Research, the longest U.S. economic expansion in history ended in February 2020 as the country slipped into a severe recession.
The U.S. Federal Reserve (Fed) made efforts to support the U.S. economy both before and during the pandemic. The Fed cut the federal funds target rate three times in 2019, lowering it to a range of 1.50%–1.75%. In March 2020, as the pandemic began to severely impact the economy and financial markets, the Fed implemented two emergency rate cuts, lowering the federal funds target rate to a range of 0.00%–0.25%, and announced sweeping quantitative easing measures aimed at ensuring the free flow of credit to borrowers and supporting credit markets with unlimited amounts of bond purchasing.
In the eurozone, some analysts forecasted a significant contraction in 2020, particularly in southern European countries, as the magnitude of the economic disruption caused by the COVID-19 pandemic became apparent. European developed market equities, as measured by the MSCI Europe Index (USD), posted a -3.94% total return for the period, as the market downturn in the first quarter of 2020 erased previous gains from easing trade tensions and a Brexit agreement. 2
Asian developed and emerging market equities, as measured by the MSCI All Country Asia Index (USD), returned +3.24% during the 12-month period. 2 Before the pandemic, Asian stocks were aided by easing trade tensions and the eventual U.S.-China phase one trade agreement. The onset of the pandemic brought dramatically slower economic activity in
Asia, as businesses halted operations and manufacturing and export activity plummeted in the region’s major economies. Asian markets generally advanced toward period-end, bolstered by fiscal stimulus measures and economies reopening throughout the region.
Emerging market stocks, as measured by the MSCI Emerging Markets Index (USD), posted a -4.02% total return due primarily to the COVID-19 pandemic. 2 A sharp decrease in prices for oil and other natural resources also hurt emerging market economies reliant on these exports.
Investment Strategy
We manage the Fund using a multi-manager approach. While we have overall responsibility for the Fund’s investments, we allocate the Fund’s assets to multiple subadvisors, each of whom independently manages a separate portion of the Fund’s portfolio in accordance with some or all of the following strategies: credit long short, structured credit and emerging market fixed income. We allocate the Fund’s assets among these strategies utilizing a top-down approach, generating the Fund’s strategy and subadvisor weightings by taking into account market conditions, risk factors, diversification, liquidity, transparency, and other investment options, among other things. We allocate the Fund’s assets to specific subadvisors utilizing a bottom-up approach, selecting subadvisors and their weighting within the Fund’s portfolio by taking into account their correlation to various markets and to each other, risk profiles and their return expectations.
Credit long short strategies seek to isolate issuer-specific exposure, while limiting general market risks, by taking long and/or short positions in debt securities and other related instruments. Structured credit strategies aim to profit from trading in interest-rate sensitive securities such as residential and commercial MBS, REITs, credit default swaps on various indexes, collateralized loan obligations (CLOs) and ABS. Emerging market fixed income strategies invest in corporate and/or sovereign securities in emerging markets countries with a focus on fixed income. The Fund may invest in debt securities of any credit quality or rating, including high-yield (“junk”) bonds, distressed debt securities (securities of companies that are, or are about to be, involved in reorganizations, financial restructurings, or bankruptcy) and securities that are in default. The Fund may engage in active and frequent trading as part of its investment strategies.
3. Source: U.S. Bureau of Labor Statistics.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN K2 LONG SHORT CREDIT FUND
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What are swap agreements? Swap agreements, such as interest rate, currency and credit default swaps, are contracts between the Fund and another party (the swap counterparty). In a basic swap transaction, the Fund agrees with the swap counterparty to exchange the returns (or differentials in rates of return) earned or realized on a particular “notional amount” of underlying instruments. The notional amount is the set amount selected by the parties as the basis on which to calculate the obligations that they have agreed to exchange. The parties typically do not actually exchange the notional amount. Instead, they agree to exchange the returns that would be earned or realized if the notional amount were invested in given instruments or at given interest rates. |
The Fund takes long and/or short positions in a wide range of asset classes, including credit, fixed income, equities and currencies, among others. The Fund may gain long or short exposure to select instruments by utilizing derivatives, engaging in short sales or entering into a series of purchase and sale contracts or repurchase agreements. Long positions benefit from an increase in the price of the underlying instrument, while short positions benefit from a decrease in that price. The Fund may also use derivatives for hedging and nonhedging (investment) purposes, although no subadvisor is required to hedge any of the Fund’s positions or to use derivatives. Such derivative investments may include currency forward contracts; futures contracts; put and call options on currencies, securities, indexes and exchange-traded funds; and swaps. The Fund may engage in active and frequent trading as part of its investment strategies.
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What is a currency forward contract? A currency forward contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency in exchange for another currency at a specific exchange rate on a future date. Currency forward contracts are privately traded in the interbank market, not on a centralized exchange. |
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What is a futures contract? A futures contract is an agreement between the Fund and a counterparty made through a U.S. or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date. |
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What is an option? An option is a contract to buy or sell a specific financial product known as the option’s underlying instrument at a specific price. The buyer of an option has the right, but not the obligation, to buy or sell the underlying instrument at or until a specified expiration date. Conversely, the seller (“writer”) of an option who opens a transaction is obligated to buy or sell the underlying instrument should the option holder exercise that right. |
Subadvisors
5/31/20
Credit Long Short
Apollo Credit Management LLC
Chatham Asset Management, LLC
Structured Credit
Ellington Global Asset Management, L.L.C.
Medalist Partners, LP
Emerging Market Fixed Income
Emso Asset Management Limited
Manager’s Discussion
The Fund’s subadvisors for the 12 months under review were Apollo Credit Management, Chatham Asset Management, Ellington Global Asset Management, Emso Asset Management and Medalist Partners. These subadvisors are also listed in the Subadvisors table on this page. Apollo was the top positive contributor to Fund performance, followed by Emso and Chatham. Conversely, the top detractors from Fund performance were Medalist and Ellington.
In terms of strategy performance, the largest positive contributor to Fund performance was credit long short, followed by emerging market fixed income. In contrast, structured credit detracted from Fund performance. By asset class, currency exposures overall contributed positively to Fund performance, while credit, equity and interest rates detracted from performance.
In terms of aggregate sector exposures, the top positive drivers of performance for the Fund were consumer discretionary, utilities and information technology. In contrast, mortgage-backed securities (MBS), asset-backed securities (ABS) and energy hindered returns.
The credit long short strategy benefited from long positions in corporate bonds, particularly in the consumer discretionary and communication services sectors. A short position in swaps within the consumer discretionary sector also contributed positively to strategy results. Conversely, net detractors included a neutral position in an equity total return swap within the energy sector and a short equity position within the consumer discretionary sector.
The emerging market fixed income strategy benefited primarily from a long position in corporate fixed-rate callable bonds in Mexico. A long position in sovereign bonds in Russia also contributed positively to performance. In contrast, emerging market sovereign bonds in Argentina detracted from performance.
In structured credit, long positions in MBS and ABS detracted from strategy results.
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FRANKLIN K2 LONG SHORT CREDIT FUND
Over the 12-month reporting period, we added substantially to the structured credit strategy, increasing our allocation to subadvisors Ellington and Medalist. At the same time, we modestly reduced our position in credit long short by trimming our allocation to Chatham. We also slightly reduced the portfolio’s allocation to emerging market fixed income subadvisor Emso.
Thank you for your participation in Franklin K2 Long Short Credit Fund. We look forward to continuing to serve your future investment needs.
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Robert Christian Co-Lead Portfolio Manager |
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Brooks Ritchey Co-Lead Portfolio Manager |
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Art Vinokur Portfolio Manager |
The foregoing information reflects our analysis, opinions and portfolio holdings as of May 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.
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FRANKLIN K2 LONG SHORT CREDIT FUND
Performance Summary as of May 31, 2020
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 5/31/201
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
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| Share Class | | Cumulative
Total Return2 | | Average Annual
Total Return3 |
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A4 | | | | |
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1-Year | | -2.92% | | -8.28% |
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3-Year | | +4.05% | | -0.56% |
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Since Inception (9/8/15) | | +15.28% | | +1.83% |
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Advisor | | | | |
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1-Year | | -2.61% | | -2.61% |
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3-Year | | +4.69% | | +1.54% |
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Since Inception (9/8/15) | | +16.11% | | +3.21% |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 9 for Performance Summary footnotes.
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FRANKLIN K2 LONG SHORT CREDIT FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. These differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
Class A (9/8/15–5/31/20)
Advisor Class (9/8/15–5/31/20)
See page 9 for Performance Summary footnotes.
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FRANKLIN K2 LONG SHORT CREDIT FUND
PERFORMANCE SUMMARY
Distributions (6/1/19–5/31/20)
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| Share Class | | Net Investment
Income | | | Short-Term
Capital Gain | | | Total |
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| A | | | $0.2488 | | | | $0.0416 | | | $0.2904 |
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| C | | | $0.1636 | | | | $0.0416 | | | $0.2052 |
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| R | | | $0.2286 | | | | $0.0416 | | | $0.2702 |
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| R6 | | | $0.2749 | | | | $0.0416 | | | $0.3165 |
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| Advisor | | | $0.2715 | | | | $0.0416 | | | $0.3131 |
Total Annual Operating Expenses7
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| Share Class | | With Fee
Waiver | | | Without Fee
Waiver |
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| A | | | 2.54% | | | 3.00% |
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| Advisor | | | 2.29% | | | 2.75% |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. The market values of securities owned by the Fund will go up or down, sometimes rapidly or unpredictably. The Fund’s performance depends on the manager’s skill in selecting, overseeing and allocating Fund assets to the subadvisors. The Fund is actively managed and could experience losses if the manager’s and subadvisors’ judgment about particular Fund portfolio investments prove to be incorrect. Some subadvisors may have little or no experience managing the assets of a registered investment company. Bond prices generally move in the opposite direction of interest rates. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. Lower-rated or high-yield debt securities (junk bonds) involve greater credit risk, including the possibility of default or bankruptcy. Liquidity risk exists when securities become more difficult to sell, or are unable to be sold, at the price at which they have been valued. Investments in derivatives involve costs and create economic leverage, which may result in significant volatility and cause the Fund to participate in losses (as well as gains) that significantly exceed the Fund’s initial investment. The Fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. 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 contractually guaranteed through 9/30/20. 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. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 5.50%.
5. Source: FactSet. Hedge Fund Research, Inc. – www.hedgefundresearch.com. The HFRX Fixed Income – Credit Index measures performance of strategies with exposure to credit across a broad continuum of credit substrategies, including corporate, sovereign, distressed, convertible, asset backed, capital structure arbitrage, multi-strategy and other relative value and event driven substrategies. Investment thesis across all strategies is predicated on realization of a valuation discrepancy between the related credit instruments. Strategies may also include and utilize equity securities, credit derivatives, government fixed income, commodities, currencies or other hybrid securities.
6. Source: Morningstar. The ICE BofAML U.S. 3-Month Treasury Bill Index is an index of short-term U.S. government securities with a remaining term to final maturity of less than three months.
7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN K2 LONG SHORT CREDIT FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 =$64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | Actual
(actual return after expenses) | | Hypothetical
(5% annual return before expenses) | | |
| | | | | | |
Share Class | | Beginning
Account
Value 12/1/19 | | Ending Account
Value 5/31/20 | | Expenses Paid During Period
12/1/19-5/31/201,2,3 | | Ending
Account
Value 5/31/20 | | Expenses Paid During Period 12/1/19-5/31/201,2,3 | | Net Annualized Expense Ratio2,3 |
| | | | | | |
| A | | $1,000 | | $958.00 | | $13.07 | | $1,011.65 | | $13.43 | | 2.67% |
| C | | $1,000 | | $955.00 | | $16.72 | | $1,007.90 | | $17.17 | | 3.42% |
| R | | $1,000 | | $957.60 | | $14.29 | | $1,010.40 | | $14.68 | | 2.92% |
| R6 | | $1,000 | | $959.50 | | $11.56 | | $1,013.20 | | $11.88 | | 2.36% |
| Advisor | | $1,000 | | $960.20 | | $11.86 | | $1,012.90 | | $12.18 | | 2.42% |
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 183/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
3. Effective March 1, 2020, the expense waivers for Classes A, C, R, R6 and Advisor changed and the new annualized net expense ratios for each class were: Class A 2.48%, Class C 3.23%, Class R 2.73%, Class R6 2.17% and Advisor Class 2.23%. Had such expense waivers been in effect for the full period, the Actual expenses paid for each share class would have been: A $12.14, C $15.79, R $13.36, R6 $10.63 and Advisor $10.93, and the Hypothetical expenses paid for each share class would have been: A $12.48, C $16.22, R $13.73, R6 $10.93 and Advisor $11.23.
| | | | |
| | | |
10 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Financial Highlights
Franklin K2 Long Short Credit Fund
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | | | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016a | |
| | | | | |
Class A | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $10.45 | | | | $10.50 | | | | $10.49 | | | | $10.15 | | | | $10.00 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomec | | | 0.23 | | | | 0.37 | | | | 0.29 | | | | 0.23 | | | | 0.21 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.53 | ) | | | (0.02 | ) | | | 0.08 | | | | 0.53 | | | | 0.08 | |
| | | | | |
Total from investment operations | | | (0.30 | ) | | | 0.35 | | | | 0.37 | | | | 0.76 | | | | 0.29 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.25 | ) | | | (0.31 | ) | | | (0.19 | ) | | | (0.32 | ) | | | (0.08 | ) |
| | | | | |
Net realized gains | | | (0.04 | ) | | | (0.09 | ) | | | (0.17 | ) | | | (0.10 | ) | | | (0.06 | ) |
| | | | | |
Total distributions | | | (0.29 | ) | | | (0.40 | ) | | | (0.36 | ) | | | (0.42 | ) | | | (0.14 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.86 | | | | $10.45 | | | | $10.50 | | | | $10.49 | | | | $10.15 | |
| | | | | |
Total returnd | | | (2.92)% | | | | 3.42% | | | | 3.63% | | | | 7.58% | | | | 2.99% | |
| | | | | |
Ratios to average net assetse | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductionsf | | | 3.24% | | | | 3.15% | | | | 3.51% | | | | 3.50% | | | | 3.37% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductionsf | | | 2.74% | | | | 2.69% | | | | 2.98%g | | | | 2.75% | | | | 2.30%g | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.58% | | | | 0.62% | | | | 0.89% | | | | 0.76% | | | | 0.40% | |
| | | | | |
Net investment income | | | 2.24% | | | | 3.49% | | | | 2.71% | | | | 2.24% | | | | 2.85% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $20,212 | | | | $27,870 | | | | $45,088 | | | | $41,001 | | | | $28,198 | |
| | | | | |
Portfolio turnover rate | | | 205.14% | | | | 158.66% | | | | 251.81% | | | | 317.70% | | | | 511.62% | |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
gBenefit of expense reduction rounds to less than 0.01%.
| | | | |
| | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 11 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL HIGHLIGHTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | | | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016a | |
| | | | | |
Class C | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $10.26 | | | | $10.34 | | | | $10.35 | | | | $10.07 | | | | $10.00 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomec | | | 0.15 | | | | 0.27 | | | | 0.19 | | | | 0.14 | | | | 0.09 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.52 | ) | | | (0.01 | ) | | | 0.07 | | | | 0.52 | | | | 0.12 | |
| | | | | |
Total from investment operations | | | (0.37 | ) | | | 0.26 | | | | 0.26 | | | | 0.66 | | | | 0.21 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.16 | ) | | | (0.25 | ) | | | (0.10 | ) | | | (0.28 | ) | | | (0.08 | ) |
| | | | | |
Net realized gains | | | (0.04 | ) | | | (0.09 | ) | | | (0.17 | ) | | | (0.10 | ) | | | (0.06 | ) |
| | | | | |
Total distributions | | | (0.20 | ) | | | (0.34 | ) | | | (0.27 | ) | | | (0.38 | ) | | | (0.14 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.69 | | | | $10.26 | | | | $10.34 | | | | $10.35 | | | | $10.07 | |
| | | | | |
Total returnd | | | (3.66)% | | | | 2.61% | | | | 2.70% | | | | 6.56% | | | | 2.20% | |
| | | | | |
Ratios to average net assetse | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductionsf | | | 3.96% | | | | 4.03% | | | | 4.37% | | | | 4.44% | | | | 3.62% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductionsf | | | 3.46% | | | | 3.57% | | | | 3.84%g | | | | 3.69% | | | | 2.55%g | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.58% | | | | 0.62% | | | | 0.89% | | | | 0.76% | | | | 0.40% | |
| | | | | |
Net investment income | | | 1.52% | | | | 2.61% | | | | 1.85% | | | | 1.30% | | | | 2.60% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $2,882 | | | | $2,893 | | | | $2,503 | | | | $1,507 | | | | $270 | |
| | | | | |
Portfolio turnover rate | | | 205.14% | | | | 158.66% | | | | 251.81% | | | | 317.70% | | | | 511.62% | |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
gBenefit of expense reduction rounds to less than 0.01%.
| | | | |
| | | |
12 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL HIGHLIGHTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | | | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016a | |
| | | | | |
Class R | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $10.36 | | | | $10.41 | | | | $10.41 | | | | $10.10 | | | | $10.00 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomec | | | 0.21 | | | | 0.33 | | | | 0.25 | | | | 0.20 | | | | 0.08 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.53 | ) | | | (0.01 | ) | | | 0.09 | | | | 0.53 | | | | 0.16 | |
| | | | | |
Total from investment operations | | | (0.32 | ) | | | 0.32 | | | | 0.34 | | | | 0.73 | | | | 0.24 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.23 | ) | | | (0.28 | ) | | | (0.17 | ) | | | (0.32 | ) | | | (0.08 | ) |
| | | | | |
Net realized gains | | | (0.04 | ) | | | (0.09 | ) | | | (0.17 | ) | | | (0.10 | ) | | | (0.06 | ) |
| | | | | |
Total distributions | | | (0.27 | ) | | | (0.37 | ) | | | (0.34 | ) | | | (0.42 | ) | | | (0.14 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.77 | | | | $10.36 | | | | $10.41 | | | | $10.41 | | | | $10.10 | |
| | | | | |
Total returnd | | | (3.13)% | | | | 3.12% | | | | 3.29% | | | | 7.29% | | | | 2.48% | |
| | | | | |
Ratios to average net assetse | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductionsf | | | 3.46% | | | | 3.50% | | | | 3.82% | | | | 3.83% | | | | 3.37% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductionsf | | | 2.96% | | | | 3.04% | | | | 3.29%g | | | | 3.08% | | | | 2.30%g | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.58% | | | | 0.62% | | | | 0.89% | | | | 0.76% | | | | 0.40% | |
| | | | | |
Net investment income | | | 2.02% | | | | 3.14% | | | | 2.40% | | | | 1.91% | | | | 2.85% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $169 | | | | $166 | | | | $162 | | | | $127 | | | | $12 | |
| | | | | |
Portfolio turnover rate | | | 205.14% | | | | 158.66% | | | | 251.81% | | | | 317.70% | | | | 511.62% | |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
gBenefit of expense reduction rounds to less than 0.01%.
| | | | |
| | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 13 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL HIGHLIGHTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | | | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016a | |
| | | | | |
Class R6 | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $10.45 | | | | $10.51 | | | | $10.50 | | | | $10.15 | | | | $10.00 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomec | | | 0.26 | | | | 0.36 | | | | 0.31 | | | | 0.24 | | | | 0.23 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.53 | ) | | | — | d | | | 0.08 | | | | 0.53 | | | | 0.06 | |
| | | | | |
Total from investment operations | | | (0.27 | ) | | | 0.36 | | | | 0.39 | | | | 0.77 | | | | 0.29 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.27 | ) | | | (0.33 | ) | | | (0.21 | ) | | | (0.32 | ) | | | (0.08 | ) |
| | | | | |
Net realized gains | | | (0.04 | ) | | | (0.09 | ) | | | (0.17 | ) | | | (0.10 | ) | | | (0.06 | ) |
| | | | | |
Total distributions | | | (0.31 | ) | | | (0.42 | ) | | | (0.38 | ) | | | (0.42 | ) | | | (0.14 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.87 | | | | $10.45 | | | | $10.51 | | | | $10.50 | | | | $10.15 | |
| | | | | |
Total returne | | | (2.58)% | | | | 3.53% | | | | 3.76% | | | | 7.71% | | | | 3.01% | |
| | | | | |
Ratios to average net assetsf | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductionsg | | | 2.95% | | | | 3.10% | | | | 3.35% | | | | 3.43% | | | | 3.35% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductionsg | | | 2.41% | | | | 2.55% | | | | 2.83%h | | | | 2.68% | | | | 2.28%h | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.58% | | | | 0.62% | | | | 0.89% | | | | 0.76% | | | | 0.40% | |
| | | | | |
Net investment income | | | 2.57% | | | | 3.63% | | | | 2.86% | | | | 2.31% | | | | 2.87% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $5 | | | | $233 | | | | $13 | | | | $13,052 | | | | $12,384 | |
| | | | | |
Portfolio turnover rate | | | 205.14% | | | | 158.66% | | | | 251.81% | | | | 317.70% | | | | 511.62% | |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dAmount rounds to less than $0.01 per share.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
hBenefit of expense reduction rounds to less than 0.01%.
| | | | |
| | | |
14 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL HIGHLIGHTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | | | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016a | |
| | | | | |
Advisor Class | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance | | | | | | | | | | | | | | | | | | | | |
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $10.46 | | | | $10.51 | | | | $10.50 | | | | $10.15 | | | | $10.00 | |
| | | | | |
Income from investment operationsb: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomec | | | 0.26 | | | | 0.38 | | | | 0.30 | | | | 0.24 | | | | 0.20 | |
| | | | | |
Net realized and unrealized gains (losses) | | | (0.53 | ) | | | (0.01 | ) | | | 0.09 | | | | 0.53 | | | | 0.09 | |
| | | | | |
Total from investment operations | | | (0.27 | ) | | | 0.37 | | | | 0.39 | | | | 0.77 | | | | 0.29 | |
| | | | | |
Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.27 | ) | | | (0.33 | ) | | | (0.21 | ) | | | (0.32 | ) | | | (0.08 | ) |
| | | | | |
Net realized gains | | | (0.04 | ) | | | (0.09 | ) | | | (0.17 | ) | | | (0.10 | ) | | | (0.06 | ) |
| | | | | |
Total distributions | | | (0.31 | ) | | | (0.42 | ) | | | (0.38 | ) | | | (0.42 | ) | | | (0.14 | ) |
| | | | | |
Net asset value, end of year | | | $ 9.88 | | | | $10.46 | | | | $10.51 | | | | $10.50 | | | | $10.15 | |
| | | | | |
Total returnd | | | (2.61)% | | | | 3.60% | | | | 3.75% | | | | 7.70% | | | | 2.99% | |
| | | | | |
Ratios to average net assetse | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductionsf | | | 2.96% | | | | 3.03% | | | | 3.37% | | | | 3.44% | | | | 3.36% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductionsf | | | 2.46% | | | | 2.57% | | | | 2.84%g | | | | 2.69% | | | | 2.29%g | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.58% | | | | 0.62% | | | | 0.89% | | | | 0.76% | | | | 0.40% | |
| | | | | |
Net investment income | | | 2.52% | | | | 3.61% | | | | 2.85% | | | | 2.30% | | | | 2.86% | |
| | | | | |
Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $73,047 | | | | $86,868 | | | | $45,514 | | | | $25,125 | | | | $23,058 | |
| | | | | |
Portfolio turnover rate | | | 205.14% | | | | 158.66% | | | | 251.81% | | | | 317.70% | | | | 511.62% | |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
gBenefit of expense reduction rounds to less than 0.01%.
| | | | |
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| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 15 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Statement of Investments, May 31, 2020
Franklin K2 Long Short Credit Fund
| | | | | | | | | | | | | | |
| | | Country | | | Shares | | | | | Value | |
Common Stocks and Other Equity Interests 2.2% | | | | | | | | | | | | | | |
Biotechnology 0.0%† | | | | | | | | | | | | | | |
a Cytodyn Inc. | | | United States | | | 3,413 | | | | | | $ | 10,102 | |
| | | | | | | | | | | | | | |
Diversified Financial Services 0.1% | | | | | | | | | | | | | | |
a,b,c One Call Corp. | | | United States | | | 947 | | | | | | | 106,011 | |
| | | | | | | | | | | | | | |
Diversified Telecommunication Services 0.1% | | | | | | | | | | | | | | |
a Telecom Italia SpA | | | Italy | | | 140,194 | | | | | | | 52,043 | |
| | | | | | | | | | | | | | |
Equity Real Estate Investment Trusts (REITs) 0.7% | | | | | | | | | | | | | | |
VICI Properties Inc. | | | United States | | | 33,532 | | | | | | | 657,898 | |
| | | | | | | | | | | | | | |
Independent Power & Renewable Electricity Producers 1.0% | | | | | | | | | | | | | | |
d Clearway Energy Inc., A | | | United States | | | 30,417 | | | | | | | 617,161 | |
d Clearway Energy Inc., C | | | United States | | | 16,244 | | | | | | | 355,906 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 973,067 | |
| | | | | | | | | | | | | | |
Media 0.3% | | | | | | | | | | | | | | |
a Altice Europe NV, A | | | Netherlands | | | 6,827 | | | | | | | 26,968 | |
a Liberty Global PLC, C | | | United Kingdom | | | 6,944 | | | | | | | 143,255 | |
a Postmedia Network Canada Corp., B | | | Canada | | | 56,068 | | | | | | | 79,000 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | 249,223 | |
| | | | | | | | | | | | | | |
Metals & Mining 0.0%† | | | | | | | | | | | | | | |
Vedanta Ltd., ADR | | | India | | | 3,457 | | | | | | | 16,870 | |
| | | | | | | | | | | | | | |
Paper & Forest Products 0.0%† | | | | | | | | | | | | | | |
a,b Topco Associates LLC | | | United Kingdom | | | 100,439 | | | | | | | — | |
| | | | | | | | | | | | | | |
Professional Services 0.0%† | | | | | | | | | | | | | | |
a,b,c Acosta Inc. | | | United States | | | 923 | | | | | | | 8,144 | |
| | | | | | | | | | | | | | |
Trading Companies & Distributors 0.0%† | | | | | | | | | | | | | | |
a WESCO International Inc. | | | United States | | | 1,209 | | | | | | | 40,260 | |
| | | | | | | | | | | | | | |
Total Common Stocks and Other Equity Interests
(Cost $1,658,476) | | | | | | | | | | | | | 2,113,618 | |
| | | | | | | | | | | | | | |
Convertible Preferred Stocks 0.5% | | | | | | | | | | | | | | |
Diversified Financial Services 0.4% | | | | | | | | | | | | | | |
a,b,c One Call Corp., cvt. pfd | | | United States | | | 3,821 | | | | | | | 427,927 | |
| | | | | | | | | | | | | | |
Professional Services 0.1% | | | | | | | | | | | | | | |
a,b,c Acosta Inc., cvt. pfd | | | United States | | | 745 | | | | | | | 50,262 | |
| | | | | | | | | | | | | | |
Total Convertible Preferred Stocks (Cost $508,603) | | | | | | | | | | | | | 478,189 | |
| | | | | | | | | | | | | | |
Preferred Stocks 0.3% | | | | | | | | | | | | | | |
Electric Utilities 0.3% | | | | | | | | | | | | | | |
d SCE Trust II, 5.10%, pfd | | | United States | | | 2,725 | | | | | | | 65,700 | |
SCE Trust III, 5.75%, pfd., H | | | United States | | | 1,342 | | | | | | | 31,067 | |
SCE Trust IV, 5.375%, pfd., J | | | United States | | | 4,637 | | | | | | | 102,663 | |
SCE Trust V, 5.45%, pfd., K | | | United States | | | 1,605 | | | | | | | 36,466 | |
SCE Trust VI, 5.00%, pfd | | | United States | | | 3,404 | | | | | | | 74,411 | |
| | | | | | | | | | | | | | |
Total Preferred Stocks (Cost $284,330) | | | | | | | | | | | | | 310,307 | |
| | | | | | | | | | | | | | |
| | | |
| | | | | | Principal Amount* | | | | |
Convertible Bonds 1.3% | | | | | | | | | | | | | | |
Automobiles 1.1% | | | | | | | | | | | | | | |
d Tesla Inc., senior note, 1.25%, 3/01/21 | | | United States | | | 461,000 | | | | | | | 1,080,657 | |
| | | | | | | | | | | | | | |
Diversified Telecommunication Services 0.1% | | | | | | | | | | | | | | |
e Telecom Italia SpA, senior note, Reg S, 1.125%, 3/26/22 | | | Italy | | | 100,000 | | | EUR | | | | 107,195 | |
| | | | | | | | | | | | | | |
| | | | |
| | | |
16 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
Convertible Bonds (continued) | | | | | | | | | | | | | | | | |
Metals & Mining 0.1% | | | | | | | | | | | | | | | | |
Cleveland-Cliffs Inc., senior note, 1.50%, 1/15/25 | | | United States | | | | 35,000 | | | | | | | $ | 29,158 | |
f U.S. Steel Corp., senior note, 144A, 5.00%, 11/01/26 | | | United States | | | | 106,000 | | | | | | | | 79,824 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 108,982 | |
| | | | | | | | | | | | | | | | |
Total Convertible Bonds (Cost $942,362) | | | | | | | | | | | | | | | 1,296,834 | |
| | | | | | | | | | | | | | | | |
Corporate Bonds and Notes 19.2% | | | | | | | | | | | | | | | | |
Aerospace & Defense 1.0% | | | | | | | | | | | | | | | | |
The Boeing Co., | | | | | | | | | | | | | | | | |
d senior bond, 5.805%, 5/01/50 | | | United States | | | | 183,000 | | | | | | | | 207,606 | |
senior note, 5.15%, 5/01/30 | | | United States | | | | 158,000 | | | | | | | | 169,040 | |
f TransDigm Inc., senior secured note, 144A, 8.00%, 12/15/25 | | | United States | | | | 228,000 | | | | | | | | 247,380 | |
f Triumph Group Inc., secured note, 144A, 6.25%, 9/15/24 | | | United States | | | | 349,000 | | | | | | | | 300,177 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 924,203 | |
| | | | | | | | | | | | | | | | |
Air Freight & Logistics 0.1% | | | | | | | | | | | | | | | | |
United Parcel Service Inc., senior bond, 5.30%, 4/01/50 | | | United States | | | | 83,000 | | | | | | | | 117,724 | |
| | | | | | | | | | | | | | | | |
Airlines 0.4% | | | | | | | | | | | | | | | | |
Southwest Airlines Co., senior note, 4.75%, 5/04/23 | | | United States | | | | 68,000 | | | | | | | | 68,976 | |
5.25%, 5/04/25 | | | United States | | | | 204,000 | | | | | | | | 206,862 | |
United Airlines Holdings Inc., senior note, 4.25%, 10/01/22 | | | United States | | | | 128,000 | | | | | | | | 102,920 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 378,758 | |
| | | | | | | | | | | | | | | | |
Auto Components 0.3% | | | | | | | | | | | | | | | | |
The Goodyear Tire & Rubber Co., senior bond, | | | | | | | | | | | | | | | | |
d 5.00%, 5/31/26 | | | United States | | | | 191,000 | | | | | | | | 177,102 | |
4.875%, 3/15/27 | | | United States | | | | 75,000 | | | | | | | | 69,201 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 246,303 | |
| | | | | | | | | | | | | | | | |
Automobiles 0.2% | | | | | | | | | | | | | | | | |
f Tesla Inc., senior note, 144A, 5.30%, 8/15/25 | | | United States | | | | 165,000 | | | | | | | | 165,513 | |
| | | | | | | | | | | | | | | | |
Banks 0.9% | | | | | | | | | | | | | | | | |
h Bank of America Corp., senior bond, FRN, 2.496%, (3-Month USD LIBOR + 0.99%), 2/13/31 | | | United States | | | | 69,000 | | | | | | | | 70,411 | |
Citigroup Inc., | | | | | | | | | | | | | | | | |
senior bond, 2.976%, 11/05/30 | | | United States | | | | 88,000 | | | | | | | | 91,601 | |
senior bond, 2.572%, 6/03/31 | | | United States | | | | 103,000 | | | | | | | | 103,043 | |
senior bond, 5.316%, 3/26/41 | | | United States | | | | 51,000 | | | | | | | | 66,734 | |
senior note, 3.106%, 4/08/26 | | | United States | | | | 12,000 | | | | | | | | 12,657 | |
JPMorgan Chase & Co., | | | | | | | | | | | | | | | | |
senior bond, 4.032%, 7/24/48 | | | United States | | | | 33,000 | | | | | | | | 38,683 | |
senior note, 2.005%, 3/13/26 | | | United States | | | | 60,000 | | | | | | | | 61,208 | |
senior note, 2.083%, 4/22/26 | | | United States | | | | 48,000 | | | | | | | | 49,178 | |
e,i VTB Bank OJSC Via VTB Capital SA, loan participation, sub. senior note, Reg S, 6.95%, 10/17/22 | | | Russia | | | | 200,000 | | | | | | | | 213,159 | |
Wells Fargo & Co., | | | | | | | | | | | | | | | | |
senior bond, 4.15%, 1/24/29 | | | United States | | | | 9,000 | | | | | | | | 10,297 | |
senior note, 2.406%, 10/30/25 | | | United States | | | | 56,000 | | | | | | | | 57,537 | |
senior note, 2.164%, 2/11/26 | | | United States | | | | 44,000 | | | | | | | | 44,653 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 819,161 | |
| | | | | | | | | | | | | | | | |
Beverages 0.2% | | | | | | | | | | | | | | | | |
The Coca-Cola Co., senior bond, | | | | | | | | | | | | | | | | |
4.125%, 3/25/40 | | | United States | | | | 17,000 | | | | | | | | 21,164 | |
2.60%, 6/01/50 | | | United States | | | | 128,000 | | | | | | | | 126,393 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 147,557 | |
| | | | | | | | | | | | | | | | |
| | | | |
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| franklintempleton.com | | Annual Report | | 17 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | | | |
Capital Markets 0.5% | | | | | | | | | | | | | | | | |
f eG Global Finance PLC, senior secured note, 144A, 4.375%, 2/07/25 | | | United Kingdom | | | | 192,000 | | | | EUR | | | $ | 201,770 | |
6.25%, 10/30/25 | | | United Kingdom | | | | 261,000 | | | | EUR | | | | 290,104 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 491,874 | |
| | | | | | | | | | | | | | | | |
Chemicals 0.3% | | | | | | | | | | | | | | | | |
e Monitchem Holdco 3 SA, senior secured note, Reg S, 5.25%, 3/15/25 | | | Luxembourg | | | | 100,000 | | | | EUR | | | | 112,433 | |
f TPC Group Inc., senior secured note, 144A, 10.50%, 8/01/24 | | | United States | | | | 216,000 | | | | | | | | 185,783 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 298,216 | |
| | | | | | | | | | | | | | | | |
Commercial Services & Supplies 1.8% | | | | | | | | | | | | | | | | |
R.R. Donnelley & Sons Co., senior bond, 6.00%, 4/01/24 | | | United States | | | | 297,000 | | | | | | | | 274,323 | |
f Vericast Corp., 144A, | | | | | | | | | | | | | | | | |
senior note, 9.25%, 3/01/21 | | | United States | | | | 1,082,500 | | | | | | | | 1,080,470 | |
senior secured note, 8.375%, 8/15/22 | | | United States | | | | 523,000 | | | | | | | | 399,318 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 1,754,111 | |
| | | | | | | | | | | | | | | | |
Communications Equipment 0.3% | | | | | | | | | | | | | | | | |
Cisco Systems Inc., senior bond, 5.50%, 1/15/40 | | | United States | | | | 48,000 | | | | | | | | 69,247 | |
f Riverbed Technology Inc., senior note, 144A, 8.875%, 3/01/23 | | | United States | | | | 291,000 | | | | | | | | 174,600 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 243,847 | |
| | | | | | | | | | | | | | | | |
Construction & Engineering 0.1% | | | | | | | | | | | | | | | | |
Fluor Corp., senior bond, 4.25%, 9/15/28 | | | United States | | | | 92,000 | | | | | | | | 79,080 | |
| | | | | | | | | | | | | | | | |
Distributors 0.3% | | | | | | | | | | | | | | | | |
f,j American News Co. LLC, secured note, senior note, 144A, PIK, 8.50%, 9/01/26 | | | United States | | | | 261,209 | | | | | | | | 285,492 | |
| | | | | | | | | | | | | | | | |
Diversified Financial Services 0.5% | | | | | | | | | | | | | | | | |
f One Call Corp., senior secured note, first lien, 144A, 7.50%, 7/01/24 | | | United States | | | | 469,056 | | | | | | | | 450,294 | |
| | | | | | | | | | | | | | | | |
Diversified Telecommunication Services 0.4% | | | | | | | | | | | | | | | | |
f Altice France SA, senior secured note, 144A, 3.375%, 1/15/28 | | | France | | | | 158,000 | | | | EUR | | | | 170,033 | |
Hughes Satellite Systems Corp., senior secured note, 5.25%, 8/01/26 | | | United States | | | | 183,000 | | | | | | | | 190,057 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 360,090 | |
| | | | | | | | | | | | | | | | |
Electric Utilities 1.2% | | | | | | | | | | | | | | | | |
Duke Energy Indiana LLC, secured bond, 2.75%, 4/01/50 | | | United States | | | | 48,000 | | | | | | | | 48,404 | |
Edison International, | | | | | | | | | | | | | | | | |
senior bond, 4.125%, 3/15/28 | | | United States | | | | 68,000 | | | | | | | | 70,758 | |
senior note, 4.95%, 4/15/25 | | | United States | | | | 44,000 | | | | | | | | 48,028 | |
senior note, 5.75%, 6/15/27 | | | United States | | | | 74,000 | | | | | | | | 83,637 | |
e Eskom Holdings SOC Ltd., senior bond, Reg S, | | | | | | | | | | | | | | | | |
5.75%, 1/26/21 | | | South Africa | | | | 222,000 | | | | | | | | 211,732 | |
8.45%, 8/10/28 | | | South Africa | | | | 200,000 | | | | | | | | 181,950 | |
Florida Power & Light Co., secured bond, 3.95%, 3/01/48 | | | United States | | | | 48,000 | | | | | | | | 60,610 | |
Southern California Edison Co., | | | | | | | | | | | | | | | | |
secured bond, 3.65%, 2/01/50 | | | United States | | | | 141,000 | | | | | | | | 149,710 | |
secured note, E, 3.70%, 8/01/25 | | | United States | | | | 125,000 | | | | | | | | 137,114 | |
senior bond, 4.65%, 10/01/43 | | | United States | | | | 25,000 | | | | | | | | 29,183 | |
senior bond, 4.00%, 4/01/47 | | | United States | | | | 50,000 | | | | | | | | 55,294 | |
senior bond, 4.125%, 3/01/48 | | | United States | | | | 25,000 | | | | | | | | 28,317 | |
Virginia Electric And Power Co., senior bond, 3.30%, 12/01/49 | | | United States | | | | 48,000 | | | | | | | | 53,763 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 1,158,500 | |
| | | | | | | | | | | | | | | | |
Electronic Equipment, Instruments & Components 0.1% | | | | | | | | | | | | | | | | |
f,k WESCO Distribution Inc., senior note, 144A, 7.125%, 6/15/25 | | | United States | | | | 134,000 | | | | | | | | 134,000 | |
| | | | | | | | | | | | | | | | |
| | | | |
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18 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | | | |
Energy Equipment & Services 0.6% | | | | | | | | | | | | | | | | |
f Transocean Inc., senior note, | | | | | | | | | | | | | | | | |
144A, 7.25%, 11/01/25 | | | United States | | | | 164,000 | | | | | | | $ | 92,660 | |
7.50%, 1/15/26 | | | United States | | | | 797,000 | | | | | | | | 438,350 | |
8.00%, 2/01/27 | | | United States | | | | 100,000 | | | | | | | | 55,500 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 586,510 | |
| | | | | | | | | | | | | | | | |
Food & Staples Retailing 0.4% | | | | | | | | | | | | | | | | |
e Casino Guichard Perrachon SA, Reg S, | | | | | | | | | | | | | | | | |
g junior sub. bond, E, 3.992%, Perpetual | | | France | | | | 500,000 | | | | EUR | | | | 246,986 | |
senior bond, E, 4.048%, 8/05/26 | | | France | | | | 100,000 | | | | EUR | | | | 92,412 | |
SYSCO Corp., senior note, 5.65%, 4/01/25 | | | United States | | | | 2,000 | | | | | | | | 2,280 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 341,678 | |
| | | | | | | | | | | | | | | | |
Health Care Equipment & Supplies 0.0%† | | | | | | | | | | | | | | | | |
f,k Ortho-Clinical Diagnostics Inc. / Ortho-Clinical Diagnostics SA, senior note, 144A, 7.375%, 6/01/25 | | | United States | | | | 46,000 | | | | | | | | 47,150 | |
| | | | | | | | | | | | | | | | |
Health Care Providers & Services 0.1% | | | | | | | | | | | | | | | | |
f Envision Healthcare Corp., senior note, 144A, 8.75%, 10/15/26 | | | United States | | | | 177,000 | | | | | | | | 78,510 | |
| | | | | | | | | | | | | | | | |
Hotels, Restaurants & Leisure 0.7% | | | | | | | | | | | | | | | | |
Boyd Gaming Corp., senior note, 6.375%, 4/01/26 | | | United States | | | | 21,000 | | | | | | | | 20,938 | |
f 144A, 4.75%, 12/01/27 | | | United States | | | | 63,000 | | | | | | | | 58,166 | |
f 144A, 8.625%, 6/01/25 | | | United States | | | | 68,000 | | | | | | | | 72,862 | |
McDonald’s Corp., senior bond, 3.625%, 9/01/49 | | | United States | | | | 48,000 | | | | | | | | 52,672 | |
d,f Royal Caribbean Cruises Ltd., senior secured note, 144A, 11.50%, 6/01/25 | | | United States | | | | 340,000 | | | | | | | | 360,806 | |
e Tasty Bondco 1 SA, senior secured note, Reg S, 6.25%, 5/15/26 | | | Spain | | | | 100,000 | | | | EUR | | | | 50,507 | |
e TUI AG, senior note, Reg S, 2.125%, 10/26/21 | | | Germany | | | | 100,000 | | | | EUR | | | | 95,086 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 711,037 | |
| | | | | | | | | | | | | | | | |
Household Durables 0.2% | | | | | | | | | | | | | | | | |
f K. Hovnanian Enterprises Inc., senior secured note, 144A, 10.00%, 11/15/25 | | | United States | | | | 559,000 | | | | | | | | 192,855 | |
| | | | | | | | | | | | | | | | |
Household Products 0.1% | | | | | | | | | | | | | | | | |
The Procter & Gamble Co., | | | | | | | | | | | | | | | | |
senior bond, 3.60%, 3/25/50 | | | United States | | | | 48,000 | | | | | | | | 60,443 | |
senior note, 2.80%, 3/25/27 | | | United States | | | | 11,000 | | | | | | | | 12,214 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 72,657 | |
| | | | | | | | | | | | | | | | |
Industrial Conglomerates 0.0%† | | | | | | | | | | | | | | | | |
Honeywell International Inc., senior bond, 1.95%, 6/01/30 | | | United States | | | | 37,000 | | | | | | | | 37,911 | |
| | | | | | | | | | | | | | | | |
Insurance 0.0%† | | | | | | | | | | | | | | | | |
f Ambac Assurance Corp., sub. bond, 144A, 5.10%, 6/07/20 | | | United States | | | | 2 | | | | | | | | 3 | |
h,f Ambac LSNI LLC, senior secured note, 144A, FRN, 6.45%, (3-Month | | | | | | | | | | | | | | | | |
USD LIBOR + 5.00%), 2/12/23 | | | Cayman Islands | | | | 7 | | | | | | | | 7 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 10 | |
| | | | | | | | | | | | | | | | |
Interactive Media & Services 0.2% | | | | | | | | | | | | | | | | |
f Tencent Holdings Ltd., senior bond, 144A, 2.39%, 6/03/30 | | | China | | | | 103,000 | | | | | | | | 102,998 | |
3.24%, 6/03/50 | | | China | | | | 34,000 | | | | | | | | 33,954 | |
3.29%, 6/03/60 | | | China | | | | 55,000 | | | | | | | | 55,216 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 192,168 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 19 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | |
Internet & Direct Marketing Retail 0.2% | | | | | | | | | | | | |
Amazon.com Inc., senior bond, | | | | | | | | | | | | |
4.05%, 8/22/47 | | | United States | | | | 35,000 | | | $ | 46,134 | |
4.25%, 8/22/57 | | | United States | | | | 93,000 | | | | 127,863 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 173,997 | |
| | | | | | | | | | | | |
IT Services 0.3% | | | | | | | | | | | | |
Fiserv Inc., | | | | | | | | | | | | |
senior bond, 2.65%, 6/01/30 | | | United States | | | | 48,000 | | | | 49,463 | |
senior note, 2.25%, 6/01/27 | | | United States | | | | 48,000 | | | | 48,940 | |
Global Payments Inc., senior bond, 4.15%, 8/15/49 | | | United States | | | | 54,000 | | | | 60,637 | |
f Science Applications International Corp., senior note, 144A, 4.875%, 4/01/28 | | | United States | | | | 92,000 | | | | 94,171 | |
Visa Inc., | | | | | | | | | | | | |
senior bond, 2.05%, 4/15/30 | | | United States | | | | 37,000 | | | | 38,830 | |
senior note, 1.90%, 4/15/27 | | | United States | | | | 11,000 | | | | 11,539 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 303,580 | |
| | | | | | | | | | | | |
Media 0.7% | | | | | | | | | | | | |
f Cedar Fair LP / Canada’s Wonderland Co. / Magnum Management Corp. / Millennium Op, senior secured note, 144A, 5.50%, 5/01/25 | | | United States | | | | 183,000 | | | | 186,660 | |
Charter Communications Operating LLC / Charter Communications Operating Capital, senior secured bond, | | | | | | | | | | | | |
2.80%, 4/01/31 | | | United States | | | | 59,000 | | | | 59,148 | |
6.484%, 10/23/45 | | | United States | | | | 34,000 | | | | 44,037 | |
5.375%, 5/01/47 | | | United States | | | | 29,000 | | | | 34,431 | |
5.75%, 4/01/48 | | | United States | | | | 73,000 | | | | 90,164 | |
5.125%, 7/01/49 | | | United States | | | | 14,000 | | | | 16,299 | |
3.70%, 4/01/51 | | | United States | | | | 126,000 | | | | 122,126 | |
f Diamond Sports Group LLC / Diamond Sports Finance Co., senior secured note, 144A, 5.375%, 8/15/26 | | | United States | | | | 157,000 | | | | 125,182 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 678,047 | |
| | | | | | | | | | | | |
Metals & Mining 0.5% | | | | | | | | | | | | |
f CSN Islands XI Corp., senior note, 144A, 6.75%, 1/28/28 | | | Brazil | | | | 200,000 | | | | 157,000 | |
f U.S. Steel Corp., senior secured note, 144A, 12.00%, 6/01/25 | | | United States | | | | 326,000 | | | | 326,408 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 483,408 | |
| | | | | | | | | | | | |
Multiline Retail 0.6% | | | | | | | | | | | | |
d Kohl’s Corp., senior note, 9.50%, 5/15/25 | | | United States | | | | 362,000 | | | | 385,185 | |
f,k Macy’s Inc., senior secured note, 144A, 8.375%, 6/15/25 | | | United States | | | | 193,000 | | | | 196,136 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 581,321 | |
| | | | | | | | | | | | |
Oil, Gas & Consumable Fuels 1.7% | | | | | | | | | | | | |
f Moss Creek Resources Holdings Inc., senior note, 144A, | | | | | | | | | | | | |
7.50%, 1/15/26 | | | United States | | | | 20,000 | | | | 10,589 | |
10.50%, 5/15/27 | | | United States | | | | 191,000 | | | | 110,028 | |
Occidental Petroleum Corp., | | | | | | | | | | | | |
senior bond, 3.125%, 2/15/22 | | | United States | | | | 104,000 | | | | 97,899 | |
senior note, 2.60%, 4/15/22 | | | United States | | | | 104,000 | | | | 95,420 | |
Petrobras Global Finance BV, | | | | | | | | | | | | |
senior bond, 6.90%, 3/19/49 | | | Brazil | | | | 153,000 | | | | 152,735 | |
senior note, 8.75%, 5/23/26 | | | Brazil | | | | 257,000 | | | | 300,000 | |
Petroleos Mexicanos, | | | | | | | | | | | | |
f senior bond, 144A, 5.95%, 1/28/31 | | | Mexico | | | | 87,000 | | | | 70,896 | |
senior bond, 6.375%, 1/23/45 | | | Mexico | | | | 152,000 | | | | 113,285 | |
senior bond, 6.75%, 9/21/47 | | | Mexico | | | | 306,000 | | | | 236,904 | |
senior bond, 6.35%, 2/12/48 | | | Mexico | | | | 301,000 | | | | 224,906 | |
f senior bond, 144A, 6.95%, 1/28/60 | | | Mexico | | | | 101,000 | | | | 78,991 | |
senior note, 3.50%, 1/30/23 | | | Mexico | | | | 135,000 | | | | 128,000 | |
senior note, 4.50%, 1/23/26 | | | Mexico | | | | 53,000 | | | | 45,250 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,664,903 | |
| | | | | | | | | | | | |
| | | | |
| | | |
20 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | |
Paper & Forest Products 0.0%† | | | | | | | | | | | | |
f,j Paper Industries Financing SARL, senior note, 144A, PIK, 0.25%, 2/04/28 | | | Luxembourg | | | | 33,479 | | | $ | 3,530 | |
f Paper Industries Intermediate Financing SARL, senior secured note, 144A,
6.00%, 3/01/25 | | | Luxembourg | | | | 52,666 | | | | 44,139 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 47,669 | |
| | | | | | | | | | | | |
Pharmaceuticals 0.0%† | | | | | | | | | | | | |
f Bristol-Myers Squibb Co., senior bond, 144A, 4.25%, 10/26/49 | | | United States | | | | 35,000 | | | | 46,145 | |
| | | | | | | | | | | | |
Road & Rail 0.1% | | | | | | | | | | | | |
f Avis Budget Car Rental LLC / Avis Budget Finance Inc., 144A, | | | | | | | | | | | | |
senior bond, 5.25%, 3/15/25 | | | United States | | | | 50,000 | | | | 40,250 | |
senior note, 6.375%, 4/01/24 | | | United States | | | | 100,000 | | | | 83,115 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 123,365 | |
| | | | | | | | | | | | |
Semiconductors & Semiconductor Equipment 0.1% | | | | | | | | | | | | |
f Broadcom Inc., senior bond, 144A, 4.15%, 11/15/30 | | | United States | | | | 85,000 | | | | 88,685 | |
QUALCOMM Inc., senior bond, 3.25%, 5/20/50 | | | United States | | | | 35,000 | | | | 37,510 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 126,195 | |
| | | | | | | | | | | | |
Software 0.5% | | | | | | | | | | | | |
Microsoft Corp., senior bond, 4.25%, 2/06/47 | | | United States | | | | 271,000 | | | | 367,926 | |
Oracle Corp., senior bond, 3.60%, 4/01/50 | | | United States | | | | 104,000 | | | | 116,405 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 484,331 | |
| | | | | | | | | | | | |
Specialty Retail 2.9% | | | | | | | | | | | | |
Bed Bath & Beyond Inc., senior bond, 5.165%, 8/01/44 | | | United States | | | | 203,000 | | | | 104,291 | |
d,f Carvana Co., senior note, 144A, 8.875%, 10/01/23 | | | United States | | | | 579,000 | | | | 587,317 | |
f The Gap Inc., senior secured note, 144A, | | | | | | | | | | | | |
8.375%, 5/15/23 | | | United States | | | | 106,000 | | | | 113,155 | |
8.875%, 5/15/27 | | | United States | | | | 164,000 | | | | 172,610 | |
L Brands Inc., senior bond, 5.625%, 2/15/22 | | | United States | | | | 26,000 | | | | 25,408 | |
d,f Staples Inc., senior secured note, 144A, 7.50%, 4/15/26 | | | United States | | | | 423,000 | | | | 370,502 | |
f Vericast Corp./Harland Clarke, senior secured note, 144A, 12.50%, 5/01/24 | | | United States | | | | 1,383,830 | | | | 1,414,966 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,788,249 | |
| | | | | | | | | | | | |
Technology Hardware, Storage & Peripherals 0.3% | | | | | | | | | | | | |
Apple Inc., senior bond, 1.65%, 5/11/30 | | | United States | | | | 36,000 | | | | 36,529 | |
3.85%, 5/04/43 | | | United States | | | | 140,000 | | | | 172,863 | |
2.65%, 5/11/50 | | | United States | | | | 71,000 | | | | 73,202 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 282,594 | |
| | | | | | | | | | | | |
Wireless Telecommunication Services 0.4% | | | | | | | | | | | | |
f T-Mobile USA Inc., 144A, | | | | | | | | | | | | |
senior secured bond, 3.875%, 4/15/30 | | | United States | | | | 164,000 | | | | 178,609 | |
senior secured note, 3.75%, 4/15/27 | | | United States | | | | 154,000 | | | | 167,273 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 345,882 | |
| | | | | | | | | | | | |
Total Corporate Bonds and Notes (Cost $18,643,441) | | | | | | | | | | | 18,444,895 | |
| | | | | | | | | | | | |
| | | |
Corporate Bonds and Notes in Reorganization 2.1% | | | | | | | | | | | | |
Diversified Telecommunication Services 1.6% | | | | | | | | | | | | |
l Frontier Communications Corp., | | | | | | | | | | | | |
senior bond, 7.125%, 1/15/23 | | | United States | | | | 125,000 | | | | 39,609 | |
senior bond, 7.625%, 4/15/24 | | | United States | | | | 69,000 | | | | 22,468 | |
senior bond, 6.875%, 1/15/25 | | | United States | | | | 32,000 | | | | 10,117 | |
senior bond, 9.00%, 8/15/31 | | | United States | | | | 245,000 | | | | 78,561 | |
d,f senior secured note, 144A, 8.00%, 4/01/27 | | | United States | | | | 849,000 | | | | 875,374 | |
d,f,l Intelsat Jackson Holdings SA, senior secured note, first lien, 144A, 9.50%, 9/30/22 | | | Luxembourg | | | | 454,000 | | | | 512,346 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,538,475 | |
| | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 21 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
Corporate Bonds and Notes in Reorganization (continued) | | | | | | | | | | | | |
Electric Utilities 0.2% | | | | | | | | | | | | |
l Pacific Gas & Electric Co., | | | | | | | | | | | | |
senior bond, 3.30%, 3/15/27 | | | United States | | | | 46,000 | | | $ | 47,065 | |
senior note, 3.30%, 12/01/27 | | | United States | | | | 144,000 | | | | 149,134 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 196,199 | |
| | | | | | | | | | | | |
Media 0.2% | | | | | | | | | | | | |
l The McClatchy Co., senior secured note, 9.00%, 7/15/26 | | | United States | | | | 134,000 | | | | 130,712 | |
| | | | | | | | | | | | |
Oil, Gas & Consumable Fuels 0.1% | | | | | | | | | | | | |
f,l American Energy- Permian Basin LLC, senior secured note, 144A, 12.00%, 10/01/24 | | | United States | | | | 962,000 | | | | 120,250 | |
| | | | | | | | | | | | |
Road & Rail 0.0%† | | | | | | | | | | | | |
l The Hertz Corp., senior note, 6.25%, 10/15/22 | | | United States | | | | 114,000 | | | | 20,590 | |
| | | | | | | | | | | | |
Total Corporate Bonds and Notes in Reorganization
(Cost $2,731,928) | | | | | | | | | | | 2,006,226 | |
| | | | | | | | | | | | |
h,mSenior Floating Rate Interests 3.3% | | | | | | | | | | | | |
Auto Components 0.0%† | | | | | | | | | | | | |
The Goodyear Tire & Rubber Co., 3.20%, (1-Month USD LIBOR + 2.00%), 3/03/25 | | | United States | | | | 14,946 | | | | 14,108 | |
| | | | | | | | | | | | |
Communications Equipment 0.5% | | | | | | | | | | | | |
Riverbed Technology Inc., Term Loan B, 4.25%, (1-Month USD LIBOR + 3.25%), 4/24/22 | | | United States | | | | 550,949 | | | | 479,030 | |
| | | | | | | | | | | | |
Containers & Packaging 0.0%† | | | | | | | | | | | | |
Flex Acquisition Co. Inc., Term Loan B, 4.683%, (1-Month USD LIBOR + 3.25%), 6/29/25 | | | United States | | | | 36,553 | | | | 34,510 | |
Flex Acquisition Holdings Inc., 4.433%, (1-Month USD LIBOR + 3.00%), 12/29/23 | | | United States | | | | 2,997 | | | | 2,894 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 37,404 | |
| | | | | | | | | | | | |
Diversified Consumer Services 0.7% | | | | | | | | | | | | |
Advantage Sales & Marketing Inc., | | | | | | | | | | | | |
Term Loan 1L, 4.70%, (1-Month USD LIBOR + 3.25%), 7/23/21 | | | United States | | | | 479,442 | | | | 434,973 | |
Term Loan B2, 4.70%, (1-Month USD LIBOR + 3.25%), 7/23/21 | | | United States | | | | 276,371 | | | | 250,738 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 685,711 | |
| | | | | | | | | | | | |
Diversified Telecommunication Services 1.5% | | | | | | | | | | | | |
CenturyLink Inc., 2.424%, (1-Month USD LIBOR + 2.25%), 3/15/27 | | | United States | | | | 569,936 | | | | 548,970 | |
Frontier Communications Corp., Term Loan B1, 5.35%, (1-Month USD LIBOR + 3.75%), 6/17/24 | | | United States | | | | 273,993 | | | | 270,055 | |
Intelsat Jackson Holdings SA, | | | | | | | | | | | | |
Term Loan B3, 6.00%, (6-Month USD LIBOR + 3.75%), 11/27/23 | | | United States | | | | 281,120 | | | | 282,524 | |
Term Loan B4, 6.75%, (1-Month USD LIBOR + 4.50%), 1/02/24 | | | United States | | | | 16,979 | | | | 17,140 | |
Term Loan B5, 6.625%, (6-Month USD LIBOR + 6.63%), 1/02/24 | | | United States | | | | 329,824 | | | | 332,958 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,451,647 | |
| | | | | | | | | | | | |
Electronic Equipment, Instruments & Components 0.3% | | | | | | | | | | | | |
Veritas U.S. Inc., Term Loan B1, 5.95%, (1-Month USD LIBOR + 4.50%), 1/27/23 | | | United States | | | | 307,612 | | | | 288,194 | |
| | | | | | | | | | | | |
| | | | |
| | | |
22 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| h,m Senior Floating Rate Interests (continued) | | | | | | | | | | | | | | | | |
Specialty Retail 0.3% | | | | | | | | | | | | | | | | |
PETCO Animal Supplies Inc., Term Loan B1, 4.25%, (3-Month USD LIBOR + 3.25%), 1/26/23 | | | United States | | | | 275,949 | | | | | | | $ | 193,953 | |
n PetSmart Inc., Term Loan B2, 5.00%, (1-Month USD LIBOR + 4.00%), 3/11/22 | | | United States | | | | 77,963 | | | | | | | | 76,842 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 270,795 | |
| | | | | | | | | | | | | | | | |
Total Senior Floating Rate Interests
(Cost $3,271,422) | | | | | | | | | | | | | | | 3,226,889 | |
| | | | | | | | | | | | | | | | |
o Credit-Linked Notes (Cost $218,488) 0.2% | | | | | | | | | | | | | | | | |
f ICBC Standard Bank PLC, (Ukraine), 144A, 15.36%, 10/01/21 | | | Ukraine | | | | 5,336,000 | | | | UAH | | | | 202,642 | |
| | | | | | | | | | | | | | | | |
Foreign Government and Agency Securities 5.4% | | | | | | | | | | | | | | | | |
Government of Argentina, senior note, | | | | | | | | | | | | | | | | |
6.875%, 1/26/27 | | | Argentina | | | | 127,000 | | | | | | | | 46,704 | |
5.875%, 1/11/28 | | | Argentina | | | | 291,000 | | | | | | | | 106,960 | |
e Government of Bahrain, senior bond, Reg S, 7.00%, 1/26/26 | | | Bahrain | | | | 200,000 | | | | | | | | 213,985 | |
e Government of Egypt, senior bond, Reg S, 8.70%, 3/01/49 | | | Egypt | | | | 200,000 | | | | | | | | 195,768 | |
e Government of Germany, senior bond, Reg S, 0.50%, 2/15/25 | | | Germany | | | | 94,000 | | | | EUR | | | | 110,125 | |
d Government of Italy, senior note, 2.375%, 10/17/24 | | | Italy | | | | 373,000 | | | | | | | | 373,379 | |
Government of Mexico, senior bond, | | | | | | | | | | | | | | | | |
4.75%, 4/27/32 | | | Mexico | | | | 200,000 | | | | | | | | 217,000 | |
5.00%, 4/27/51 | | | Mexico | | | | 200,000 | | | | | | | | 215,500 | |
e Government of Paraguay, senior bond, Reg S, 4.625%, 1/25/23 | | | Paraguay | | | | 421,000 | | | | | | | | 439,945 | |
Government of Russia, | | | | | | | | | | | | | | | | |
e senior bond, Reg S, 5.25%, 6/23/47 | | | Russia | | | | 200,000 | | | | | | | | 269,900 | |
senior bond, 6225, 7.25%, 5/10/34 | | | Russia | | | | 24,782,000 | | | | RUB | | | | 403,465 | |
senior note, 6227, 7.40%, 7/17/24 | | | Russia | | | | 37,531,000 | | | | RUB | | | | 583,273 | |
senior note, 6229, 7.15%, 11/12/25 | | | Russia | | | | 43,267,000 | | | | RUB | | | | 675,477 | |
senior note, 6232, 6.00%, 10/06/27 | | | Russia | | | | 29,540,000 | | | | RUB | | | | 439,366 | |
f Government of Saudi Arabia, senior bond, 144A, 2.75%, 2/03/32 | | | Saudi Arabia | | | | 221,000 | | | | | | | | 220,463 | |
Government of Ukraine, | | | | | | | | | | | | | | | | |
f senior bond, 144A, 4.375%, 1/27/30 | | | Ukraine | | | | 110,000 | | | | | | | | 100,404 | |
e senior bond, Reg S, 7.375%, 9/25/32 | | | Ukraine | | | | 200,000 | | | | | | | | 191,518 | |
e senior bond, Reg S, zero cpn., 5/31/40 | | | Ukraine | | | | 340,000 | | | | | | | | 292,582 | |
e senior note, Reg S, 7.75%, 9/01/22 | | | Ukraine | | | | 100,000 | | | | | | | | 101,322 | |
| | | | | | | | | | | | | | | | |
Total Foreign Government and Agency Securities
(Cost $5,018,970) | | | | | | | | | | | | | | | 5,197,136 | |
| | | | | | | | | | | | | | | | |
U.S. Government and Agency Securities 1.3% | | | | | | | | | | | | | | | | |
U.S. Treasury Bond, 2.00%, 2/15/50 | | | United States | | | | 197,200 | | | | | | | | 225,505 | |
U.S. Treasury Note, | | | | | | | | | | | | | | | | |
1.50%, 9/30/24 | | | United States | | | | 56,900 | | | | | | | | 59,926 | |
1.75%, 12/31/24 | | | United States | | | | 11,000 | | | | | | | | 11,735 | |
0.50%, 3/31/25 | | | United States | | | | 38,000 | | | | | | | | 38,367 | |
0.375%, 4/30/25 | | | United States | | | | 179,000 | | | | | | | | 179,633 | |
0.50%, 4/30/27 | | | United States | | | | 4,000 | | | | | | | | 4,002 | |
0.625%, 5/15/30 | | | United States | | | | 694,000 | | | | | | | | 692,143 | |
| | | | | | | | | | | | | | | | |
Total U.S. Government and Agency Securities
(Cost $1,204,070) | | | | | | | | | | | | | | | 1,211,311 | |
| | | | | | | | | | | | | | | | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities 50.0% | | | | | | | | | | | | | |
Diversified Financial Services 29.0% | | | | | | | | | | | | | | | | |
f,p ACIS CLO Ltd., 2014-5A, D, 144A, FRN, 5.027%, (3-Month USD LIBOR + 4.34%), 11/01/26 | | | United States | | | | 1,120,000 | | | | | | | | 979,658 | |
q Adjustable Rate Mortgage Trust, 2005-4, 3A1, FRN, 4.237%, 8/25/35 | | | United States | | | | 68,813 | | | | | | | | 65,847 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 23 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | |
Diversified Financial Services (continued) | | | | | | | | | | | | |
Alternative Loan Trust, 2005-J10, 2A4, 6.00%, 10/25/35 | | | United States | | | | 439,164 | | | $ | 311,866 | |
f,q AMSR Trust, 144A, FRN, | | | | | | | | | | | | |
2019-SFR1, H, 6.04%, 1/19/39 | | | United States | | | | 750,000 | | | | 615,485 | |
2019-SFR1, I, 8.976%, 1/19/39 | | | United States | | | | 750,000 | | | | 615,986 | |
f,p Ashford Hospitality Trust, 2018-ASHF, E, 144A, FRN, 3.284%, (1-Month USD LIBOR + 3.10%), 4/15/35 | | | United States | | | | 1,250,000 | | | | 967,136 | |
f,p Atlas Senior Loan Fund III Ltd., 2017-1A, DR, 144A, FRN, 2.986%, (3-Month USD LIBOR + 2.60%), 11/17/27 | | | United States | | | | 1,334,163 | | | | 999,860 | |
Bear Stearns ALT-A Trust, FRN, | | | | | | | | | | | | |
q 2004-12, 2A4, 3.68%, 1/25/35 | | | United States | | | | 295,376 | | | | 266,934 | |
p 2004-6, B1, 3.018%, (1-Month USD LIBOR + 2.85%), 7/25/34 | | | United States | | | | 346,495 | | | | 335,333 | |
f,p BXMT Ltd., 2020-FL2, C, 144A, FRN, 1.834%, (1-Month USD LIBOR + 1.65%), 2/16/37 | | | United States | | | | 1,300,000 | | | | 1,137,750 | |
f Castlelake Aircraft Securitization Trust, 2018-1, A, 144A, 4.125%, 6/15/43 | | | United States | | | | 567,762 | | | | 465,083 | |
q Chase Mortgage Finance Trust, 2007-A1, 11M1, FRN, 3.653%, 3/25/37 | | | United States | | | | 24,513 | | | | 22,983 | |
Citimortgage Alternative Loan Trust, 2007-A1, 2A1, 5.50%, 1/25/22 | | | United States | | | | 31,038 | | | | 30,523 | |
f,p Credit Suisse Mortgage Capital Certificates, 2019-ICE4, A, 144A, FRN, 1.164%, (1-Month USD LIBOR + 0.98%), 5/15/36 | | | United States | | | | 425,000 | | | | 416,467 | |
f,p Cutwater 2014-II Ltd., 2017-2A, CR, 144A, FRN, 4.969%, (3-Month USD LIBOR + 3.75%), 1/15/27 | | | United States | | | | 1,000,000 | | | | 855,904 | |
f,p CVP Cascade CLO-2 Ltd., 2014-2A, C, 144A, FRN, 4.935%, (3-Month USD LIBOR + 3.80%), 7/18/26 | | | United States | | | | 700,000 | | | | 578,511 | |
Delta Funding Home Equity Loan Trust, 2000-2, M2, 8.86%, 8/15/30 | | | United States | | | | 300,895 | | | | 265,806 | |
f,p Goldentree Loan Management US CLO 6 Ltd., 2019-6A, C, 144A, FRN, 3.735%, (3-Month USD LIBOR + 2.60%), 1/20/33 | | | United States | | | | 1,000,000 | | | | 995,418 | |
f,p GPMT Ltd., 2019-FL2, D, 144A, FRN, 3.134%, (1-Month USD LIBOR + 2.95%), 2/22/36 | | | United States | | | | 1,000,000 | | | | 853,430 | |
f,p Greywolf CLO II Ltd., 2017-1A, BR, 144A, FRN, 3.369%, (3-Month USD LIBOR + 2.15%), 10/15/29 | | | United States | | | | 750,000 | | | | 699,375 | |
GSAA Trust, 2006-7, AF3, 6.22%, 3/25/46 | | | United States | | | | 262,680 | | | | 150,151 | |
f GSMSC Pass-Through Trust, 144A, FRN, | | | | | | | | | | | | |
b,p 2009-4R, 2A3, 0.937%, (1-Month USD LIBOR + 0.45%), 12/26/36 | | | United States | | | | 773,748 | | | | 462,124 | |
q 2009-5R, 3A2, 5.50%, 10/26/35 | | | United States | | | | 207,282 | | | | 197,457 | |
f,p Hull Street CLO Ltd., 2014-1A, D, 144A, FRN, 4.735%, (3-Month USD LIBOR + 3.60%), 10/18/26 | | | United States | | | | 1,130,000 | | | | 771,045 | |
f,p JFIN CLO Ltd., 2017-1A, DR, 144A, FRN, 3.391%, (3-Month USD LIBOR + 2.65%), 3/15/26 | | | United States | | | | 650,000 | | | | 512,226 | |
JPMorgan Mortgage Acquisition Trust, 2007-CH2, AF2, 4.632%, 1/25/37 | | | United States | | | | 175,125 | | | | 125,270 | |
f,q,r JPMorgan Mortgage Trust, 144A, IO, FRN, | | | | | | | | | | | | |
2019-8, B1X, 1.25%, 3/25/50 | | | United States | | | | 820,417 | | | | 40,554 | |
2019-8, B2X, 1.00%, 3/25/50 | | | United States | | | | 1,230,676 | | | | 48,274 | |
2019-8, B3X, 0.75%, 3/25/50 | | | United States | | | | 788,775 | | | | 23,116 | |
f,p KREF Ltd., 2018-FL1, D, 144A, FRN, 2.734%, (1-Month USD LIBOR + 2.55%), 6/15/36 | | | United States | | | | 300,000 | | | | 259,172 | |
MASTR Adjustable Rate Mortgages Trust, FRN, | | | | | | | | | | | | |
q 2004-10, B1, 3.942%, 10/25/34 | | | United States | | | | 540,390 | | | | 454,920 | |
p 2006-OA1, 1A1, 0.378%, (1-Month USD LIBOR + 0.21%), 4/25/46 | | | United States | | | | 340,039 | | | | 296,505 | |
q MASTR Alternative Loan Trust, 2007-HF1, 3A1, FRN, 3.371%, 10/25/47 | | | United States | | | | 672,094 | | | | 457,486 | |
f,p Morgan Stanley RE-REMIC Trust, 2013-R8, 2B2, 144A, FRN, 1.327%, (1-Month USD LIBOR + 0.42%), 9/26/36 | | | United States | | | | 1,008,595 | | | | 618,326 | |
f,p Mountain View CLO Ltd., 2018-1A, DRR, 144A, FRN, 4.869%, (3-Month USD LIBOR + 3.65%), 10/15/26 | | | United States | | | | 1,290,000 | | | | 1,079,925 | |
f,p OHA Credit Funding 4 Ltd., 2019-4A, C, 144A, FRN, 3.748%, (3-Month USD LIBOR + 2.65%), 10/22/32 | | | United States | | | | 1,500,000 | | | | 1,499,475 | |
f Progress Residential Trust, 2017-SFR2, C, 144A, 3.395%, 12/17/34 | | | United States | | | | 350,000 | | | | 351,979 | |
f Sapphire Aviation Finance I Ltd., 2018-1A, B, 144A, 5.926%, 3/15/40 | | | United States | | | | 746,997 | | | | 440,053 | |
| | | | |
| | | |
24 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | |
Diversified Financial Services (continued) | | | | | | | | | | | | |
q Seasoned Credit Risk Transfer Trust, FRN, | | | | | | | | | | | | |
f 2016-1, M2, 144A, 3.75%, 9/25/55 | | | United States | | | | 500,000 | | | $ | 400,503 | |
2017-3, M1, 4.00%, 7/25/56 | | | United States | | | | 40,000 | | | | 38,905 | |
f S-Jets Ltd., 2017-1, A, 144A, 3.967%, 8/15/42 | | | Bermuda | | | | 785,122 | | | | 661,315 | |
f,p STACR Trust, 2018-HRP1, B2, 144A, FRN, 11.918%, (1-Month USD LIBOR + 11.75%), 4/25/43 | | | United States | | | | 3,038,769 | | | | 1,581,320 | |
f,p Staniford Street CLO Ltd., 2014-1A, D, 144A, FRN, 4.241%, (3-Month USD LIBOR + 3.50%), 6/15/25 | | | United States | | | | 1,160,000 | | | | 1,069,266 | |
q STARM Mortgage Loan Trust, 2007-2, 4A1, FRN, 3.858%, 4/25/37 | | | United States | | | | 80,103 | | | | 59,367 | |
p Suntrust Alternative Loan Trust, 2005-1F, 1A1, FRN, 0.818%, (1-Month USD LIBOR + 0.65%), 12/25/35 | | | United States | | | | 212,498 | | | | 171,068 | |
p Terwin Mortgage Trust, 2003-6HE, M2, FRN, 2.793%, (1-Month USD LIBOR + 2.63%), 11/25/33 | | | United States | | | | 144,756 | | | | 134,170 | |
f Thunderbolt II Aircraft Lease Ltd., 2018-A, A, 144A, 4.147%, 9/15/38 | | | United States | | | | 2,664,116 | | | | 2,325,982 | |
Wells Fargo Alternative Loan Trust, 2007-PA3, 2A2, 6.00%, 7/25/37 | | | United States | | | | 163,965 | | | | 160,288 | |
q Wells Fargo Commercial Mortgage Trust, 2018-C48, C, FRN, 5.121%, 1/15/52 | | | United States | | | | 900,000 | | | | 871,203 | |
q Wells Fargo Mortgage Backed Securities Trust, 2006-AR13, A2, FRN, 4.694%, 9/25/36 | | | United States | | | | 156,984 | | | | 143,159 | |
f,p Westchester CLO Ltd., 2007-1A, E, 144A, FRN, 4.987%, (3-Month USD LIBOR + 4.30%), 8/01/22 | | | United States | | | | 671,845 | | | | 673,576 | |
f,p Zais CLO 1 Ltd., 2018-1A, CR, 144A, FRN, 4.629%, (3-Month USD LIBOR + 3.41%), 4/15/28 | | | United States | | | | 500,000 | | | | 392,374 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 27,949,909 | |
| | | | | | | | | | | | |
Metals & Mining 2.8% | | | | | | | | | | | | |
f,p Palmer Square Loan Funding Ltd., 144A, FRN, | | | | | | | | | | | | |
2018-5A, B, 3.035%, (3-Month USD LIBOR + 1.90%), 1/20/27 | | | United States | | | | 1,750,000 | | | | 1,687,221 | |
2019-2A, B, 3.385%, (3-Month USD LIBOR + 2.25%), 4/20/27 | | | United States | | | | 1,000,000 | | | | 978,117 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,665,338 | |
| | | | | | | | | | | | |
Mortgage Real Estate Investment Trusts (REITs) 18.2% | | | | | | | | | | | | |
q American Home Mortgage Assets Trust, 2005-1, 1A1, FRN, 3.958%, 11/25/35 | | | United States | | | | 139,676 | | | | 118,353 | |
q Banc of America Mortgage Trust, FRN, | | | | | | | | | | | | |
2005-K, 2A1, 3.797%, 12/25/35 | | | United States | | | | 211,381 | | | | 191,723 | |
2005-L, 1A1, 3.743%, 1/25/36 | | | United States | | | | 135,918 | | | | 120,043 | |
2005-L, 3A1, 3.996%, 1/25/36 | | | United States | | | | 290,653 | | | | 257,680 | |
f,q BCAP LLC Trust, 2010-RR1, 1A4, 144A, FRN, 3.635%, 3/26/37 | | | United States | | | | 278,841 | | | | 231,305 | |
q Bear Stearns ARM Trust, FRN, | | | | | | | | | | | | |
2002-11, 1A2, 3.754%, 2/25/33 | | | United States | | | | 4,639 | | | | 4,015 | |
2006-2, 4A1, 3.971%, 7/25/36 | | | United States | | | | 51,129 | | | | 44,450 | |
Citigroup Mortgage Loan Trust, FRN, | | | | | | | | | | | | |
p 2004-OPT1, M4, 1.173%, (1-Month USD LIBOR + 1.01%), 10/25/34 | | | United States | | | | 588,602 | | | | 509,643 | |
q 2007-AR5, 2A1A, 4.194%, 4/25/37 | | | United States | | | | 116,387 | | | | 104,783 | |
f,p 2008-RR1, A1A1, 144A, 0.238%, (1-Month USD LIBOR + 0.07%), 1/25/37 | | | United States | | | | 670,257 | | | | 582,114 | |
Countrywide Alternative Loan Trust, | | | | | | | | | | | | |
2005-73CB, 1A2, 6.25%, 1/25/36 | | | United States | | | | 174,193 | | | | 175,950 | |
p 2005-IM1, A1, FRN, 0.768%, (1-Month USD LIBOR + 0.60%), 1/25/36 | | | United States | | | | 151,819 | | | | 134,527 | |
2006-4CB, 2A3, 5.50%, 4/25/36 | | | United States | | | | 77,584 | | | | 72,934 | |
CS First Boston Mortgage Securities Corp., | | | | | | | | | | | | |
2002-9, 1A2, 7.50%, 3/25/32 | | | United States | | | | 472,878 | | | | 503,954 | |
q 2004-AR3, CB2, FRN, 3.776%, 4/25/34 | | | United States | | | | 133,842 | | | | 120,503 | |
f,p 2004-CF2, 2M2, 144A, FRN, 1.568%, (1-Month USD LIBOR + 1.40%), 5/25/44 | | | United States | | | | 255,239 | | | | 227,809 | |
| | | | |
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| franklintempleton.com | | Annual Report | | 25 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | |
Mortgage Real Estate Investment Trusts (REITs) (continued) | | | | | | | | | | | | |
CSMC Mortgage-Backed Trust, 2006-4, 9A1, 6.50%, 5/25/36 | | | United States | | | | 813,276 | | | $ | 435,540 | |
f,q FHLMC Seasoned Credit Risk Transfer Trust, 2017-2, M1, 144A, FRN, 4.00%, 8/25/56 | | | United States | | | | 2,170,000 | | | | 2,043,290 | |
f,q FHLMC Structured Agency Credit Risk Debt Notes, 144A, FRN, | | | | | | | | | | | | |
2017-SPI1, M2, 3.978%, 9/25/47 | | | United States | | | | 150,000 | | | | 131,087 | |
2018-SPI1, M2, 3.727%, 2/25/48 | | | United States | | | | 693,000 | | | | 569,123 | |
2018-SPI2, M2, 3.81%, 5/25/48 | | | United States | | | | 350,000 | | | | 296,847 | |
2018-SPI3, B, 4.145%, 8/25/48 | | | United States | | | | 249,967 | | | | 90,870 | |
q First Horizon Alternative Mortgage Securities Trust, 2004-AA2, 2A1, FRN, 3.617%, 8/25/34 | | | United States | | | | 241,697 | | | | 230,186 | |
GSR Mortgage Loan Trust, | | | | | | | | | | | | |
2004-6F, 2A4, 5.50%, 5/25/34 | | | United States | | | | 180,949 | | | | 184,802 | |
q 2005-AR6, B1, FRN, 4.242%, 9/25/35 | | | United States | | | | 620,011 | | | | 529,434 | |
2007-1F, 1A1, 5.00%, 12/25/35 | | | United States | | | | 218,742 | | | | 241,775 | |
Impac CMB Trust, | | | | | | | | | | | | |
2004-4, 2A2, 4.864%, 9/25/34 | | | United States | | | | 165,182 | | | | 176,832 | |
p 2004-8, 3B, FRN, 2.793%, (1-Month USD LIBOR + 2.63%), 8/25/34 | | | United States | | | | 129,209 | | | | 120,830 | |
p 2005-2, 2B, FRN, 2.643%, (1-Month USD LIBOR + 2.48%), 4/25/35 | | | United States | | | | 106,516 | | | | 98,301 | |
p 2005-4, 2B1, FRN, 2.643%, (1-Month USD LIBOR + 2.48%), 5/25/35 | | | United States | | | | 141,087 | | | | 128,720 | |
p 2005-4, 2M1, FRN, 0.918%, (1-Month USD LIBOR + 0.75%), 5/25/35 | | | United States | | | | 164,602 | | | | 141,896 | |
p 2005-8, 2B, FRN, 2.418%, (1-Month USD LIBOR + 2.25%), 2/25/36 | | | United States | | | | 127,256 | | | | 116,466 | |
IndyMac INDX Mortgage Loan Trust, FRN, | | | | | | | | | | | | |
p 2004-AR14, 2A1A, 0.888%, (1-Month USD LIBOR + 0.72%), 1/25/35 | | | United States | | | | 617,531 | | | | 504,298 | |
q 2005-AR21, 4A1, 3.666%, 10/25/35 | | | United States | | | | 341,950 | | | | 308,396 | |
p 2006-AR12, A1, 0.358%, (1-Month USD LIBOR + 0.19%), 9/25/46 | | | United States | | | | 117,532 | | | | 101,001 | |
p 2006-AR29, A2, 0.248%, (1-Month USD LIBOR + 0.08%), 11/25/36 | | | United States | | | | 152,482 | | | | 134,967 | |
q J.P. Morgan Mortgage Trust, FRN, | | | | | | | | | | | | |
2007-A2, 2A1, 4.021%, 4/25/37 | | | United States | | | | 195,299 | | | | 170,445 | |
f 2019-2, B4, 144A, 4.639%, 8/25/49 | | | United States | | | | 587,029 | | | | 569,708 | |
f,p JPMorgan Chase Commercial Mortgage Securities Trust, 2018-ASH8, F, 144A, FRN, 4.184%, (1-Month USD LIBOR + 4.00%), 2/15/35 | | | United States | | | | 4,000,000 | | | | 2,684,370 | |
q JPMorgan Mortgage Trust, FRN, | | | | | | | | | | | | |
2006-A5, 6A1, 3.656%, 8/25/36 | | | United States | | | | 290,755 | | | | 251,326 | |
2006-A7, 2A3, 3.798%, 1/25/37 | | | United States | | | | 132,697 | | | | 118,012 | |
Lehman Mortgage Trust, 2005-3, 2A3, 5.50%, 1/25/36 | | | United States | | | | 76,768 | | | | 78,202 | |
q MASTR Seasoned Securitization Trust, 2004-1, 4A1, FRN, 4.464%, 10/25/32 | | | United States | | | | 61,112 | | | | 58,908 | |
p New Century Home Equity Loan Trust, 2003-4, M1, FRN, 1.293%, (1-Month USD LIBOR + 1.13%), 10/25/33 | | | United States | | | | 537,690 | | | | 522,089 | |
q Provident Funding Mortgage Loan Trust, FRN, | | | | | | | | | | | | |
2003-1, B1, 4.232%, 8/25/33 | | | United States | | | | 46,485 | | | | 42,025 | |
2004-1, B1, 3.988%, 4/25/34 | | | United States | | | | 28,845 | | | | 25,273 | |
q RALI Series Trust, FRN, | | | | | | | | | | | | |
2005-QA8, NB2, 3.928%, 7/25/35 | | | United States | | | | 69,600 | | | | 59,499 | |
2005-QA8, NB3, 4.909%, 7/25/35 | | | United States | | | | 1,314 | | | | 1,020 | |
q RFMSI Trust, 2007-SA2, 3A, FRN, 4.87%, 4/25/37 | | | United States | | | | 1,105,117 | | | | 509,400 | |
p Securitized Asset Backed Receivables LLC Trust, 2004-OP2, A2, FRN, 0.868%, (1-Month USD LIBOR + 0.70%), 8/25/34 | | | United States | | | | 199,024 | | | | 176,640 | |
q Structured ARM Loan Trust, FRN, | | | | | | | | | | | | |
2004-2, 1A1, 4.311%, 3/25/34 | | | United States | | | | 126,659 | | | | 120,581 | |
2004-4, B1, 3.896%, 4/25/34 | | | United States | | | | 445,503 | | | | 391,334 | |
q Wachovia Mortgage Loan Trust LLC, 2005-B, 1A1, FRN, 4.256%, 10/20/35 | | | United States | | | | 411,915 | | | | 390,478 | |
p WaMu Mortgage Pass-Through Certificates Trust, 2007-OA3, 2A1A, FRN, 2.451%, (1 Year CMT + 0.76%), 4/25/47 | | | United States | | | | 57,702 | | | | 51,400 | |
p Washington Mutual Mortgage Pass-Through Certificates, 2006-4, 3A2B, FRN, 0.248%, (1-Month USD LIBOR + 0.08%), 5/25/36 | | | United States | | | | 291,498 | | | | 217,467 | |
| | | | |
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26 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | | | | | | | | | | | | |
Mortgage Real Estate Investment Trusts (REITs) (continued) | | | | | | | | | | | | |
q Washington Mutual MSC Mortgage Pass-Through Certificates Series Trust, FRN, | | | | | | | | | | | | |
2003-AR2, M, 3.213%, 5/25/33 | | | United States | | | | 941,089 | | | $ | 846,917 | |
2003-AR3, B1, 3.706%, 6/25/33 | | | United States | | | | 258,242 | | | | 228,824 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 17,498,365 | |
| | | | | | | | | | | | |
Total Asset-Backed Securities and Commercial Mortgage- Backed Securities
(Cost $54,894,881) | | | | | | | | | | | 48,113,612 | |
| | | | | | | | | | | | |
Municipal Bonds in Reorganization 1.0% | | | | | | | | | | | | |
Puerto Rico 1.0% | | | | | | | | | | | | |
l Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series A, | | | | | | | | | | | | |
5.50%, 7/01/39 | | | United States | | | | 155,000 | | | | 89,707 | |
5.00%, 7/01/41 | | | United States | | | | 225,000 | | | | 125,156 | |
l Puerto Rico Commonwealth GO, Refunding, Series A, 8.00%, 7/01/35 | | | United States | | | | 1,330,000 | | | | 728,175 | |
| | | | | | | | | | | | |
Total Municipal Bonds in Reorganization
(Cost $873,250) | | | | | | | | | | | 943,038 | |
| | | | | | | | | | | | |
| | | |
| | | Number of
Contracts | | | Notional Amount# | | | |
Options Purchased 0.2% | | | | | | | | | | | | |
Calls – Exchange-Traded 0.1% | | | | | | | | | | | | |
Energy Transfer LP, July Strike Price $12.00, Expires 7/17/20 | | | 210 | | | | 21,000 | | | | 630 | |
iShares MSCI Emerging Markets ETF, September Strike Price $39.00, Expires 9/18/20 | | | 68 | | | | 6,800 | | | | 10,200 | |
MGM Resorts International, January Strike Price $10.00, Expires 1/15/21 | | | 105 | | | | 10,500 | | | | 87,780 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 98,610 | |
| | | | | | | | | | | | |
Calls – Over-the-Counter 0.0%† | | | | | | | | | | | | |
Hertz Global Holdings Inc., Counterparty GSCO, July Strike Price $15.00, Expires 7/17/20 | | | 42 | | | | 4,200 | | | | 126 | |
Hertz Global Holdings Inc., Counterparty CITI, July Strike Price $15.00, Expires 7/17/20 | | | 42 | | | | 4,200 | | | | 126 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 252 | |
| | | | | | | | | | | | |
Puts – Exchange-Traded 0.1% | | | | | | | | | | | | |
American Airlines Group Inc., August Strike Price $6.00, Expires 8/21/20 | | | 27 | | | | 2,700 | | | | 2,214 | |
American Airlines Group Inc., November Strike Price $3.00, Expires 11/20/20 | | | 3 | | | | 300 | | | | 183 | |
American Airlines Group Inc., November Strike Price $4.00, Expires 11/20/20 | | | 3 | | | | 300 | | | | 276 | |
American Airlines Group Inc., November Strike Price $5.00, Expires 11/20/20 | | | 3 | | | | 300 | | | | 396 | |
American Airlines Group Inc., January Strike Price $3.00, Expires 1/15/21 | | | 3 | | | | 300 | | | | 246 | |
American Airlines Group Inc., January Strike Price $4.00, Expires 1/15/21 | | | 3 | | | | 300 | | | | 360 | |
American Airlines Group Inc., January Strike Price $5.00, Expires 1/15/21 | | | 237 | | | | 23,700 | | | | 38,394 | |
Bed Bath & Beyond Inc., January Strike Price $4.00, Expires 1/15/21 | | | 112 | | | | 11,200 | | | | 8,960 | |
The Boeing Co., January Strike Price $100.00, Expires 1/15/21 | | | 16 | | | | 1,600 | | | | 15,648 | |
Casino Guichard Perrachon SA, December Strike Price 26.00 EUR, Expires 12/19/20 | | | 13 | | | | 1,300 | | | | 2,222 | |
Hertz Global Holdings Inc., July Strike Price $4.00, Expires 7/17/20 | | | 100 | | | | 10,000 | | | | 24,250 | |
United Airlines Holdings Inc., June Strike Price $18.00, Expires 6/19/20 | | | 42 | | | | 4,200 | | | | 840 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 93,989 | |
| | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 27 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | |
| | | Number of Contracts | | | Notional Amount# | | Value | |
Options Purchased (continued) | | | | | | | | | | | | |
Puts – Over-the-Counter 0.0%† | | | | | | | | | | | | |
American Airlines Group Inc., Counterparty JPHQ, November Strike Price $5.00, Expires 11/20/20 | | | 135 | | | 13,500 | | | | $ | 17,820 | |
CoStar Group Inc., Counterparty GSCO, October Strike Price $500.00, Expires 10/16/20 | | | 10 | | | 1,000 | | | | | 16,000 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 33,820 | |
| | | | | | | | | | | | |
Total Options Purchased (Cost $223,077) | | | | | | | | | | | 226,671 | |
| | | | | | | | | | | | |
Total Investments before Short Term Investments
(Cost $90,473,316) | | | | | | | | | | | 83,771,368 | |
| | | | | | | | | | | | |
| | | |
| | | Country | | | Principal Amount* | | | |
Short Term Investments 9.7% | | | | | | | | | | | | |
Convertible Bonds 0.3% | | | | | | | | | | | | |
Independent Power & Renewable Electricity Producers 0.3% | | | | | | | | | | | | |
f Clearway Energy Inc., senior note, 144A, 3.25%, 6/01/20 | | | United States | | | 68,000 | | | | | 67,981 | |
d,f Nextera Energy Partners LP, senior note, 144A, 1.50%, 9/15/20 | | | United States | | | 164,000 | | | | | 170,135 | |
| | | | | | | | | | | | |
Total Convertible Bonds (Cost $225,657) | | | | | | | | | | | 238,116 | |
| | | | | | | | | | | | |
Corporate Bonds and Notes (Cost $71,648) 0.1% | | | | | | | | | | | | |
Specialty Retail 0.1% | | | | | | | | | | | | |
L Brands Inc., senior bond, 6.625%, 4/01/21 | | | United States | | | 77,000 | | | | | 76,894 | |
| | | | | | | | | | | | |
o Credit-Linked Notes (Cost $236,651) 0.2% | | | | | | | | | | | | |
f Citigroup Global Markets Holdings Inc., GMTN, senior note, (Ukraine), 144A, 14.64%, 6/12/20 | | | Ukraine | | | 5,615,461 | | UAH | | | 203,861 | |
| | | | | | | | | | | | |
| | | | |
| | | | | | Shares | | | | | |
Money Market Funds (Cost $5,035,359) 5.2% | | | | | | | | | | | | |
s Fidelity Investments Money Market Government Portfolio, Institutional, 0.08% | | | United States | | | 5,035,359 | | | | | 5,035,359 | |
| | | | | | | | | | | | |
| | | |
| | | | | | Principal Amount* | | | |
Repurchase Agreements (Cost $3,789,755) 3.9% | | | | | | | | | | | | |
t Joint Repurchase Agreement, 0.048%, 6/01/20 (Maturity Value $3,789,770) | | | United States | | | 3,789,755 | | | | | 3,789,755 | |
| | | | | | | | | | | | |
BNP Paribas Securities Corp. (Maturity Value $2,354,887) Deutsche Bank Securities Inc. (Maturity Value $649,946) HSBC Securities (USA) Inc. (Maturity Value $784,937) Collateralized by U.S. Government Agency Securities, 3.00% – 4.50%, 12/20/49 – 4/20/50; uU.S. Treasury Bills, 8/18/20 – 9/22/20; and U.S. Treasury Notes, 2.00% – 2.50%, 2/15/22 – 1/31/24 (valued at $3,867,706) | | | | | | | | | | | | |
Total Investments (Cost $99,832,386) 96.7% | | | | | | | | | | | 93,115,353 | |
Options Written (0.0)%† | | | | | | | | | | | (39,813 | ) |
Securities Sold Short (10.2)% | | | | | | | | | | | (9,852,651 | ) |
Other Assets, less Liabilities 13.6% | | | | | | | | | | | 13,092,731 | |
| | | | | | | | | | | | |
Net Assets 100.0% | | | | | | | | | | $ | 96,315,620 | |
| | | | | | | | | | | | |
| | | | |
| | | |
28 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | |
| | | Number of
Contracts | | | Notional Amount# | | Value | |
| |
v Options Written (0.0)%† | | | | | | | | | | | | | | |
Calls – Exchange-Traded (0.0)%† | | | | | | | | | | | | | | |
Hertz Global Holdings Inc., July Strike Price $15.00, Expires 7/17/20 | | | 84 | | | | 8,400 | | | | | $ | (252 | ) |
MGM Resorts International, January Strike Price $15.00, Expires 1/15/21 | | | 48 | | | | 4,800 | | | | | | (25,200 | ) |
MGM Resorts International, January Strike Price $18.00, Expires 1/15/21 | | | 22 | | | | 2,200 | | | | | | (8,250 | ) |
MGM Resorts International, January Strike Price $20.00, Expires 1/15/21 | | | 21 | | | | 2,100 | | | | | | (6,111 | ) |
| | | | | | | | | | | | | | |
Total Options Written
(Premiums Received $26,045) | | | | | | | | | | | | | (39,813 | ) |
| | | | | | | | | | | | | | |
| | | |
| | | Country | | | Shares | | | |
w Securities Sold Short (10.2)% | | | | | | | | | | | | | | |
Common Stocks (1.7)% | | | | | | | | | | | | | | |
Airlines (0.0)%† | | | | | | | | | | | | | | |
United Airlines Holdings Inc. | | | United States | | | | 1,033 | | | | | | (28,965 | ) |
| | | | | | | | | | | | | | |
Automobiles (1.1)% | | | | | | | | | | | | | | |
Tesla Inc. | | | United States | | | | 1,245 | | | | | | (1,039,575 | ) |
| | | | | | | | | | | | | | |
Consumer Finance (0.1)% | | | | | | | | | | | | | | |
Credit Acceptance Corp. | | | United States | | | | 139 | | | | | | (51,405 | ) |
| | | | | | | | | | | | | | |
Diversified Telecommunication Services (0.1)% | | | | | | | | | | | | | | |
AT&T Inc. | | | United States | | | | 3,742 | | | | | | (115,478 | ) |
| | | | | | | | | | | | | | |
Hotels, Restaurants & Leisure (0.0)%† | | | | | | | | | | | | | | |
MGM Resorts International | | | United States | | | | 1,100 | | | | | | (18,898 | ) |
| | | | | | | | | | | | | | |
Oil, Gas & Consumable Fuels (0.1)% | | | | | | | | | | | | | | |
Continental Resources Inc. | | | United States | | | | 1,742 | | | | | | (21,305 | ) |
Occidental Petroleum Corp. | | | United States | | | | 4,213 | | | | | | (54,558 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | (75,863 | ) |
| | | | | | | | | | | | | | |
Professional Services (0.3)% | | | | | | | | | | | | | | |
CoStar Group Inc. | | | United States | | | | 380 | | | | | | (249,584 | ) |
| | | | | | | | | | | | | | |
Road & Rail (0.0)%† | | | | | | | | | | | | | | |
Hertz Global Holdings Inc. | | | United States | | | | 13,647 | | | | | | (13,647 | ) |
| | | | | | | | | | | | | | |
Total Common Stocks (Proceeds $1,280,160) | | | | | | | | | | | | | (1,593,415 | ) |
| | | | | | | | | | | | | | |
| | | |
| | | | | | Principal Amount* | | | |
Corporate Bonds and Notes (4.4)% | | | | | | | | | | | | | | |
Aerospace & Defense (0.1)% | | | | | | | | | | | | | | |
Triumph Group Inc., senior note, 7.75%, 8/15/25 | | | United States | | | | 170,000 | | | | | | (111,120 | ) |
| | | | | | | | | | | | | | |
Airlines (0.4)% | | | | | | | | | | | | | | |
f Delta Air Lines Inc., senior secured note, 144A, 7.00%, 5/01/25 | | | United States | | | | 241,000 | | | | | | (249,342 | ) |
e Easyjet PLC, E, senior note, Reg S, 1.75%, 2/09/23 | | | United Kingdom | | | | 89,000 | | | EUR | | | (87,034 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | (336,376 | ) |
| | | | | | | | | | | | | | |
Banks (0.1)% | | | | | | | | | | | | | | |
g,h,e China Zheshang Bank Co. Ltd., junior sub. bond, FRN, Reg S, 5.45%, (US 5 Year CMT T-Note + 3.52%), Perpetual | | | China | | | | 72,000 | | | | | | (71,986 | ) |
| | | | | | | | | | | | | | |
Construction & Engineering (0.3)% | | | | | | | | | | | | | | |
Fluor Corp., senior bond, 3.50%, 12/15/24 | | | United States | | | | 233,000 | | | | | | (211,590 | ) |
e Webuild SpA, senior note, Reg S, 1.75%, 10/26/24 | | | Italy | | | | 82,000 | | | EUR | | | (79,615 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | (291,205 | ) |
| | | | | | | | | | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 29 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | Value | |
| |
w Securities Sold Short (continued) | | | | | | | | | | | | | | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | |
Containers & Packaging (0.0)%† | | | | | | | | | | | | | | |
f Flex Acquisition Co. Inc., senior note, 144A, 7.875%, 7/15/26 | | | United States | | | | 18,000 | | | | | $ | (18,052 | ) |
| | | | | | | | | | | | | | |
Diversified Financial Services (0.6)% | | | | | | | | | | | | | | |
Aercap Ireland Capital Dac / Aercap Global Aviation Trust, | | | | | | | | | | | | | | |
senior bond, 3.65%, 7/21/27 | | | Ireland | | | | 174,000 | | | | | | (144,918 | ) |
senior bond, 3.875%, 1/23/28 | | | Ireland | | | | 207,000 | | | | | | (171,043 | ) |
senior note, 4.875%, 1/16/24 | | | Ireland | | | | 174,000 | | | | | | (155,752 | ) |
g,h,e Repsol International Finance BV, senior note, FRN, Reg S, 3.875%, (EUR 6 Year Swap + 3.56%), Perpetual | | | Spain | | | | 75,000 | | | EUR | | | (83,374 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | (555,087 | ) |
| | | | | | | | | | | | | | |
Diversified Telecommunication Services (0.2)% | | | | | | | | | | | | | | |
Hughes Satellite Systems Corp., senior note, 6.625%, 8/01/26 | | | United States | | | | 183,000 | | | | | | (191,603 | ) |
| | | | | | | | | | | | | | |
Energy Equipment & Services (0.1)% | | | | | | | | | | | | | | |
e Saipem Finance International BV, E, senior note, Reg S, 2.625%, 1/07/25 | | | Italy | | | | 100,000 | | | EUR | | | (108,803 | ) |
| | | | | | | | | | | | | | |
Equity Real Estate Investment Trusts (REITs) (0.1)% | | | | | | | | | | | | | | |
f Iron Mountain Inc., senior bond, 144A, 5.25%, 3/15/28 | | | United States | | | | 138,000 | | | | | | (140,389 | ) |
| | | | | | | | | | | | | | |
Food & Staples Retailing (0.1)% | | | | | | | | | | | | | | |
f Performance Food Group Inc., senior note, 144A, | | | | | | | | | | | | | | |
5.50%, 6/01/24 | | | United States | | | | 51,000 | | | | | | (51,058 | ) |
5.50%, 10/15/27 | | | United States | | | | 84,000 | | | | | | (82,596 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | (133,654 | ) |
| | | | | | | | | | | | | | |
Food Products (0.2)% | | | | | | | | | | | | | | |
B&G Foods Inc., senior note, | | | | | | | | | | | | | | |
5.25%, 4/01/25 | | | United States | | | | 91,000 | | | | | | (93,740 | ) |
5.25%, 9/15/27 | | | United States | | | | 58,000 | | | | | | (59,655 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | (153,395 | ) |
| | | | | | | | | | | | | | |
Hotels, Restaurants & Leisure (0.1)% | | | | | | | | | | | | | | |
MGM Resorts International, senior note, 6.75%, 5/01/25 | | | United States | | | | 80,000 | | | | | | (81,600 | ) |
| | | | | | | | | | | | | | |
Independent Power & Renewable Electricity Producers (0.4)% | | | | | | | | | | | | | | |
NRG Energy Inc., | | | | | | | | | | | | | | |
f senior bond, 144A, 5.25%, 6/15/29 | | | United States | | | | 356,000 | | | | | | (388,864 | ) |
senior note, 5.75%, 1/15/28 | | | United States | | | | 17,000 | | | | | | (18,533 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | (407,397 | ) |
| | | | | | | | | | | | | | |
Marine (0.2)% | | | | | | | | | | | | | | |
e CMA CGM SA, senior note, Reg S, | | | | | | | | | | | | | | |
7.75%, 1/15/21 | | | France | | | | 100,000 | | | EUR | | | (107,245 | ) |
6.50%, 7/15/22 | | | France | | | | 82,000 | | | EUR | | | (75,550 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | (182,795 | ) |
| | | | | | | | | | | | | | |
Media (0.2)% | | | | | | | | | | | | | | |
f Diamond Sports Group LLC / Diamond Sports Finance Co., senior note, 144A, 6.625%, 8/15/27 | | | United States | | | | 141,000 | | | | | | (85,166 | ) |
Meredith Corp., senior note, 6.875%, 2/01/26 | | | United States | | | | 77,000 | | | | | | (71,545 | ) |
f Sinclair Television Group Inc., senior note, 144A, 5.875%, 3/15/26 | | | United States | | | | 44,000 | | | | | | (43,222 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | (199,933 | ) |
| | | | | | | | | | | | | | |
Mortgage Real Estate Investment Trusts (REITs) (0.1)% | | | | | | | | | | | | | | |
f Brookfield Property REIT Inc. / BPR Cumulus LLC / BPR Nimbus LLC, senior secured note, 144A, 5.75%, 5/15/26 | | | United States | | | | 131,000 | | | | | | (99,867 | ) |
| | | | | | | | | | | | | | |
Oil, Gas & Consumable Fuels (0.4)% | | | | | | | | | | | | | | |
Occidental Petroleum Corp., senior note, 2.70%, 8/15/22 | | | United States | | | | 194,000 | | | | | | (178,422 | ) |
f Tallgrass Energy Partners LP / Tallgrass Energy Finance Corp., senior bond, 144A, 5.50%, 1/15/28 | | | United States | | | | 224,000 | | | | | | (200,949 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | (379,371 | ) |
| | | | | | | | | | | | | | |
| | | | |
| | | |
30 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Country | | | Principal Amount* | | | Value | |
| |
w Securities Sold Short (continued) | | | | | | | | | | | | | | | | |
Corporate Bonds and Notes (continued) | | | | | | | | | | | | | | | | |
Professional Services (0.1)% | | | | | | | | | | | | | | | | |
e Teleperformance, senior note, Reg S, 1.875%, 7/02/25 | | | France | | | | 100,000 | | | | EUR | | | $ | (112,529 | ) |
| | | | | | | | | | | | | | | | |
Road & Rail (0.1)% | | | | | | | | | | | | | | | | |
f Avis Budget Car Rental LLC / Avis Budget Finance Inc., senior secured note, 144A, 10.50%, 5/15/25 | | | United States | | | | 70,000 | | | | | | | | (78,225 | ) |
| | | | | | | | | | | | | | | | |
Software (0.3)% | | | | | | | | | | | | | | | | |
f Veritas U.S. Inc. / Veritas Bermuda Ltd., senior note, 144A, 10.50%, 2/01/24 | | | United States | | | | 312,000 | | | | | | | | (285,057 | ) |
| | | | | | | | | | | | | | | | |
Specialty Retail (0.0)%† | | | | | | | | | | | | | | | | |
f PetSmart Inc., senior note, 144A, 8.875%, 6/01/25 | | | United States | | | | 33,000 | | | | | | | | (32,856 | ) |
| | | | | | | | | | | | | | | | |
Wireless Telecommunication Services (0.3)% | | | | | | | | | | | | | | | | |
e Softbank Group Corp., senior bond, Reg S, 5.125%, 9/19/27 | | | Japan | | | | 300,000 | | | | | | | | (299,258 | ) |
| | | | | | | | | | | | | | | | |
Total Corporate Bonds and Notes
(Proceeds $4,174,393) | | | | | | | | | | | | | | | (4,270,558 | ) |
| | | | | | | | | | | | | | | | |
Foreign Government and Agency Securities (0.2)% | | | | | | | | | | | | | | | | |
Government of Italy, senior bond, 5.25%, 11/01/29 | | | Italy | | | | 63,000 | | | | EUR | | | | (93,065 | ) |
e Italy Treasury Bond, senior bond, Reg S, 5.00%, 3/01/25 | | | Italy | | | | 88,000 | | | | EUR | | | | (116,105 | ) |
| | | | | | | | | | | | | | | | |
Total Foreign Government and Agency Securities
(Proceeds $205,904) | | | | | | | | | | | | | | | (209,170 | ) |
| | | | | | | | | | | | | | | | |
U.S. Government and Agency Securities (3.9)% | | | | | | | | | | | | | | | | |
U.S. Treasury Bond, 2.375%, 11/15/49 | | | United States | | | | 1,742,600 | | | | | | | | (2,148,095 | ) |
U.S. Treasury Note, | | | | | | | | | | | | | | | | |
2.00%, 5/31/24 | | | United States | | | | 101,000 | | | | | | | | (108,052 | ) |
1.375%, 1/31/25 | | | United States | | | | 37,000 | | | | | | | | (38,860 | ) |
1.125%, 2/28/25 | | | United States | | | | 576,000 | | | | | | | | (598,973 | ) |
1.125%, 2/28/27 | | | United States | | | | 60,000 | | | | | | | | (62,572 | ) |
0.625%, 3/31/27 | | | United States | | | | 167,000 | | | | | | | | (168,546 | ) |
1.50%, 2/15/30 | | | United States | | | | 605,300 | | | | | | | | (654,410 | ) |
| | | | | | | | | | | | | | | | |
Total U.S. Government and Agency Securities
(Proceeds $3,801,161) | | | | | | | | | | | | | | | (3,779,508 | ) |
| | | | | | | | | | | | | | | | |
Total Securities Sold Short (Proceeds $9,461,618) | | | | | | | | | | | | | | $ | (9,852,651 | ) |
| | | | | | | | | | | | | | | | |
†Rounds to less than 0.1% of net assets.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
#Notional amount is the number of units specified in the contract, and can include currency units, bushels, shares, pounds, barrels or other units. Currency units are stated in U.S. dollars unless otherwise indicated.
aNon-income producing.
bFair valued using significant unobservable inputs. See Note 13 regarding fair value measurements.
cSee Note 9 regarding restricted securities.
dA portion or all of the security has been segregated as collateral for securities sold short, open swap contracts, open forward exchange contracts, open futures contracts and/ or open written option contracts. At May 31, 2020, the aggregate value of these securities and/or cash pledged amounted to $7,533,187, representing 7.8% of net assets.
eSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. At May 31, 2020, the net value of these securities was $1,985,106, representing 2.1% of net assets.
fSecurity 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 public offering registered under the Securities Act of 1933. At May 31, 2020, the net value of these securities was $44,817,951, representing 46.5% of net assets.
gPerpetual security with no stated maturity date.
hThe coupon rate shown represents the rate at period end.
iSee Note 1(g) regarding loan participation notes.
jIncome may be received in additional securities and/or cash.
kA portion or all of the security purchased on a delayed delivery basis. See Note 1(d).
lSee Note 7 regarding defaulted securities.
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 31 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
mSee Note 1(j) regarding senior floating rate interests.
nSee Note 10 regarding unfunded loan commitments.
oSee Note 1(h) regarding credit-linked notes.
pThe coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
qAdjustable rate security with an interest rate that is not based on a published reference index and spread. The rate is based on the structure of the agreement and current market conditions. The coupon rate shown represents the rate at period end.
rInvestment in an interest-only security entitles holders to receive only the interest payment on the underlying instruments. The principal amount shown is the notional amount of the underlying instruments.
sThe rate shown is the annualized seven-day effective yield at period end.
tSee Note 1(c) regarding joint repurchase agreement.
uThe security was issued on a discount basis with no stated coupon rate.
vSee Note 1(e) regarding written options.
wSee Note 1(i) regarding securities sold short.
At May 31, 2020, the Fund had the following futures contracts outstanding. See Note 1(e).
Futures Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Type | | | Number of
Contracts | | | Notional
Amount* | | | Expiration
Date | | | Value/Unrealized Appreciation (Depreciation) | |
Equity Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
S&P 500 E-Mini Index | | | Short | | | | 3 | | | | $456,300 | | | | 6/19/20 | | | | | | | | $(95,833) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Futures Contracts | | | | | | | | | | | | | | | | | | | | | | | $(95,833) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
*As of period end.
At May 31, 2020, the Fund had the following forward exchange contracts outstanding. See Note 1(e).
Forward Exchange Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency | | Counterpartya | | | Type | | | Quantity | | | Contract
Amount* | | | | | | Settlement
Date | | | Unrealized
Appreciation | | | Unrealized
Depreciation | |
| |
OTC Forward Exchange Contracts | | | | | | | | | | | | | | | | | | | | | | | | | |
Hungarian Forint | | | JPHQ | | | | Sell | | | | 88,085,573 | | | | 370,716 | | | | EUR | | | | 6/17/20 | | | $ | 9,434 | | | $ | (3,072 | ) |
Euro | | | JPHQ | | | | Sell | | | | 110,000 | | | | 122,902 | | | | | | | | 6/17/20 | | | | 754 | | | | — | |
Euro | | | JPHQ | | | | Sell | | | | 260,716 | | | | 88,085,573 | | | | HUF | | | | 6/17/20 | | | | 4,086 | | | | (11,921 | ) |
Indonesian Rupiah | | | JPHQ | | | | Buy | | | | 26,332,056,533 | | | | 1,762,966 | | | | | | | | 6/17/20 | | | | 35,014 | | | | — | |
Indonesian Rupiah | | | JPHQ | | | | Sell | | | | 26,332,056,533 | | | | 1,837,915 | | | | | | | | 6/17/20 | | | | 40,777 | | | | (841 | ) |
Mexican Peso | | | JPHQ | | | | Buy | | | | 2,183,493 | | | | 111,642 | | | | | | | | 6/17/20 | | | | — | | | | (13,428 | ) |
Mexican Peso | | | JPHQ | | | | Sell | | | | 2,183,493 | | | | 102,200 | | | | | | | | 6/17/20 | | | | 3,986 | | | | — | |
Russian Ruble | | | JPHQ | | | | Buy | | | | 230,106,193 | | | | 3,141,581 | | | | | | | | 6/17/20 | | | | 121,669 | | | | — | |
Russian Ruble | | | JPHQ | | | | Sell | | | | 230,106,193 | | | | 3,288,837 | | | | | | | | 6/17/20 | | | | 115,644 | | | | (90,057 | ) |
South African Rand | | | JPHQ | | | | Buy | | | | 18,459,731 | | | | 1,107,455 | | | | | | | | 6/17/20 | | | | 1,449 | | | | (59,052 | ) |
South African Rand | | | JPHQ | | | | Sell | | | | 18,459,731 | | | | 1,187,056 | | | | | | | | 6/17/20 | | | | 137,265 | | | | (60 | ) |
Thai Baht | | | JPHQ | | | | Buy | | | | 10,882,105 | | | | 341,025 | | | | | | | | 6/17/20 | | | | 1,051 | | | | — | |
Thai Baht | | | JPHQ | | | | Sell | | | | 10,882,105 | | | | 346,895 | | | | | | | | 6/17/20 | | | | 4,819 | | | | — | |
British Pound | | | JPHQ | | | | Buy | | | | 130,000 | | | | 161,344 | | | | | | | | 6/30/20 | | | | — | | | | (773 | ) |
British Pound | | | JPHQ | | | | Sell | | | | 130,000 | | | | 161,313 | | | | | | | | 6/30/20 | | | | 742 | | | | — | |
Euro | | | JPHQ | | | | Buy | | | | 360,000 | | | | 398,463 | | | | | | | | 6/30/20 | | | | 1,399 | | | | — | |
Euro | | | JPHQ | | | | Sell | | | | 1,970,000 | | | | 2,176,752 | | | | | | | | 6/30/20 | | | | — | | | | (11,383 | ) |
Japanese Yen | | | JPHQ | | | | Buy | | | | 480,000 | | | | 4,409 | | | | | | | | 6/30/20 | | | | 44 | | | | — | |
Japanese Yen | | | JPHQ | | | | Sell | | | | 12,670,000 | | | | 116,269 | | | | | | | | 6/30/20 | | | | 15 | | | | (1,282 | ) |
Euro | | | JPHQ | | | | Sell | | | | 88,371 | | | | 97,200 | | | | | | | | 9/16/20 | | | | — | | | | (1,125 | ) |
Indonesian Rupiah | | | JPHQ | | | | Sell | | | | 14,961,923,656 | | | | 973,401 | | | | | | | | 9/16/20 | | | | — | | | | (36,394 | ) |
Russian Ruble | | | JPHQ | | | | Buy | | | | 2,438,338 | | | | 34,093 | | | | | | | | 9/16/20 | | | | 89 | | | | — | |
Russian Ruble | | | JPHQ | | | | Sell | | | | 139,334,721 | | | | 1,897,130 | | | | | | | | 9/16/20 | | | | — | | | | (56,131 | ) |
Thai Baht | | | JPHQ | | | | Buy | | | | 10,882,105 | | | | 341,212 | | | | | | | | 9/16/20 | | | | 783 | | | | — | |
Thai Baht | | | JPHQ | | | | Sell | | | | 10,882,105 | | | | 341,025 | | | | | | | | 9/16/20 | | | | — | | | | (970 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Forward Exchange Contracts | | | | | | | | | | | | | | | | | | | | $479,020 | | | | $(286,489 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized appreciation (depreciation) | | | | | | | | | | | | | | | | | | | | $192,531 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
*In U.S. dollars unless otherwise indicated.
aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
| | | | |
| | | |
32 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
At May 31, 2020, the Fund had the following credit default swap contracts outstanding. See Note 1(e).
Credit Default Swap Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Annual Payment Rate Received (Paid) | | Payment Frequency | | | | Maturity Date | | Notional Amounta | | Value | | Unamortized Upfront Payments (Receipts) | | Unrealized
Appreciation (Depreciation) | | Ratingb |
Centrally Cleared Swap Contracts | | | | | | | | | | | | | | |
Contracts to Buy Protectionc | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | |
Government of Malaysia | | | | (1.00 | )% | | | | Quarterly | | | | | | | 12/20/24 | | | | | 435,000 | | | | $ | (3,662 | ) | | | $ | (11,525 | ) | | | $ | 7,863 | | | | | | |
Government of Mexico | | | | (1.00 | )% | | | | Quarterly | | | | | | | 6/20/23 | | | | | 186,000 | | | | | 1,195 | | | | | (26 | ) | | | | 1,221 | | | | | | |
Government of Mexico | | | | (1.00 | )% | | | | Quarterly | | | | | | | 12/20/23 | | | | | 966,000 | | | | | 12,282 | | | | | (3,881 | ) | | | | 16,163 | | | | | | |
Government of Mexico | | | | (1.00 | )% | | | | Quarterly | | | | | | | 12/20/23 | | | | | 15,000 | | | | | 191 | | | | | (232 | ) | | | | 423 | | | | | | |
Government of South Africa | | | | (1.00 | )% | | | | Quarterly | | | | | | | 12/20/24 | | | | | 903,000 | | | | | 89,140 | | | | | 26,642 | | | | | 62,498 | | | | | | |
Government of South Africa | | | | (1.00 | )% | | | | Quarterly | | | | | | | 12/20/24 | | | | | 900,000 | | | | | 88,844 | | | | | 26,654 | | | | | 62,190 | | | | | | |
Government of South Korea | | | | (1.00 | )% | | | | Quarterly | | | | | | | 6/20/24 | | | | | 602,327 | | | | | (19,339 | ) | | | | (20,614 | ) | | | | 1,275 | | | | | | |
Government of South Korea | | | | (1.00 | )% | | | | Quarterly | | | | | | | 12/20/24 | | | | | 395,000 | | | | | (13,500 | ) | | | | (12,919 | ) | | | | (581 | ) | | | | | |
Government of Turkey | | | | (1.00 | )% | | | | Quarterly | | | | | | | 6/20/22 | | | | | 6,000 | | | | | 503 | | | | | 316 | | | | | 187 | | | | | | |
Government of Turkey | | | | (1.00 | )% | | | | Quarterly | | | | | | | 6/20/24 | | | | | 462,000 | | | | | 73,904 | | | | | 46,375 | | | | | 27,529 | | | | | | |
Traded Index | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX.NA.HY.25 | | | | (5.00 | )% | | | | Quarterly | | | | | | | 12/20/20 | | | | | 1,284,800 | | | | | 47,585 | | | | | 25,874 | | | | | 21,711 | | | | | | |
CDX.NA.HY.34 | | | | (5.00 | )% | | | | Quarterly | | | | | | | 6/20/25 | | | | | 2,387,500 | | | | | 47,224 | | | | | 66,850 | | | | | (19,626 | ) | | | | | |
Contracts to Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | |
Government of South Africa | | | | 1.00 | % | | | | Quarterly | | | | | | | 12/20/24 | | | | | 184,000 | | | | | (18,164 | ) | | | | (5,367 | ) | | | | (12,797 | ) | | | | BB+ | |
Government of Turkey | | | | 1.00 | % | | | | Quarterly | | | | | | | 12/20/22 | | | | | 136,000 | | | | | (14,083 | ) | | | | (6,150 | ) | | | | (7,933 | ) | | | | B+ | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | $ | 292,120 | | | | $ | 131,997 | | | | $ | 160,123 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTC Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc | | | | | | | | | | | | | | | | | | | | | | | |
| Single Name | | | | | | Counterparty | | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | | 19,000 | | | | | 9,332 | | | | | 5,861 | | | | | 3,471 | | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | | 29,000 | | | | | 14,244 | | | | | 6,978 | | | | | 7,266 | | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | CITI | | | | 6/20/20 | | | | | 30,000 | | | | | 324 | | | | | 370 | | | | | (46 | ) | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | CITI | | | | 6/20/20 | | | | | 50,000 | | | | | 540 | | | | | 740 | | | | | (200 | ) | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | CITI | | | | 6/20/25 | | | | | 47,000 | | | | | 23,084 | | | | | 11,374 | | | | | 11,710 | | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | FBCO | | | | 6/20/20 | | | | | 53,000 | | | | | 572 | | | | | 816 | | | | | (244 | ) | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | FBCO | | | | 12/20/24 | | | | | 30,000 | | | | | 14,543 | | | | | 4,005 | | | | | 10,538 | | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | GSCO | | | | 6/20/20 | | | | | 100,000 | | | | | 1,081 | | | | | 1,481 | | | | | (400 | ) | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | | 50,000 | | | | | 24,238 | | | | | 6,913 | | | | | 17,325 | | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | | 39,000 | | | | | 18,906 | | | | | 8,764 | | | | | 10,142 | | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | | 46,000 | | | | | 22,592 | | | | | 11,289 | | | | | 11,303 | | | | | | |
American Airlines Group Inc. | | | | (5.00 | )% | | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | | 47,000 | | | | | 23,085 | | | | | 13,884 | | | | | 9,201 | | | | | | |
Avis Budget Group, Inc. | | | | (5.00 | )% | | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | | 27,000 | | | | | 5,329 | | | | | 2,905 | | | | | 2,424 | | | | | | |
Avis Budget Group, Inc. | | | | (5.00 | )% | | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | | 27,000 | | | | | 5,329 | | | | | 3,228 | | | | | 2,101 | | | | | | |
Avis Budget Group, Inc. | | | | (5.00 | )% | | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | | 45,000 | | | | | 8,882 | | | | | 5,598 | | | | | 3,284 | | | | | | |
Avis Budget Group, Inc. | | | | (5.00 | )% | | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | | 27,000 | | | | | 5,329 | | | | | 2,840 | | | | | 2,489 | | | | | | |
Avis Budget Group, Inc. | | | | (5.00 | )% | | | | Quarterly | | | JPHQ | | | | 12/20/24 | | | | | 18,000 | | | | | 3,553 | | | | | 2,239 | | | | | 1,314 | | | | | | |
Avis Budget Group, Inc. | | | | (5.00 | )% | | | | Quarterly | | | MSCO | | | | 12/20/24 | | | | | 18,000 | | | | | 3,552 | | | | | 1,893 | | | | | 1,659 | | | | | | |
Beazer Homes USA, Inc. | | | | (5.00 | )% | | | | Quarterly | | | BZWS | | | | 6/20/25 | | | | | 35,000 | | | | | (2,287 | ) | | | | 6,967 | | | | | (9,254 | ) | | | | | |
Beazer Homes USA, Inc. | | | | (5.00 | )% | | | | Quarterly | | | GSCO | | | | 6/20/25 | | | | | 36,000 | | | | | (2,352 | ) | | | | (1,631 | ) | | | | (721 | ) | | | | | |
Beazer Homes USA, Inc. | | | | (5.00 | )% | | | | Quarterly | | | MSCO | | | | 6/20/25 | | | | | 36,000 | | | | | (2,352 | ) | | | | 8,049 | | | | | (10,401 | ) | | | | | |
Best Buy Co. Inc. | | | | (5.00 | )% | | | | Quarterly | | | BOFA | | | | 12/20/24 | | | | | 45,000 | | | | | (8,808 | ) | | | | (6,974 | ) | | | | (1,834 | ) | | | | | |
Best Buy Co. Inc. | | | | (5.00 | )% | | | | Quarterly | | | BOFA | | | | 12/20/24 | | | | | 45,000 | | | | | (8,808 | ) | | | | (6,748 | ) | | | | (2,060 | ) | | | | | |
Best Buy Co. Inc. | | | | (5.00 | )% | | | | Quarterly | | | BZWS | | | | 12/20/24 | | | | | 45,000 | | | | | (8,808 | ) | | | | (7,636 | ) | | | | (1,172 | ) | | | | | |
Best Buy Co. Inc. | | | | (5.00 | )% | | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | | 135,000 | | | | | (26,424 | ) | | | | (23,452 | ) | | | | (2,972 | ) | | | | | |
Best Buy Co. Inc. | | | | (5.00 | )% | | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | | 72,000 | | | | | (14,093 | ) | | | | (10,651 | ) | | | | (3,442 | ) | | | | | |
Best Buy Co. Inc. | | | | (5.00 | )% | | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | | 27,000 | | | | | (5,285 | ) | | | | (3,983 | ) | | | | (1,302 | ) | | | | | |
Best Buy Co. Inc. | | | | (5.00 | )% | | | | Quarterly | | | GSCO | | | | 12/20/24 | | | | | 19,000 | | | | | (3,719 | ) | | | | (2,663 | ) | | | | (1,056 | ) | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 33 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Annual Payment Rate Received (Paid) | | Payment Frequency | | Counterparty | | Maturity Date | | Notional Amounta | | Value | | Unamortized
Upfront
Payments
(Receipts) | | Unrealized
Appreciation (Depreciation) | | Ratingb |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Best Buy Co. Inc. | | | | (5.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/25 | | | | | 81,000 | | | | $ | (17,166 | ) | | | $ | (10,168 | ) | | | $ | (6,998 | ) | | | | | |
Boyd Gaming Corp. | | | | (5.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/25 | | | | | 22,000 | | | | | (1,206 | ) | | | | 784 | | | | | (1,990 | ) | | | | | |
Boyd Gaming Corp. | | | | (5.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/25 | | | | | 21,000 | | | | | (1,151 | ) | | | | 792 | | | | | (1,943 | ) | | | | | |
Boyd Gaming Corp. | | | | (5.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/25 | | | | | 21,000 | | | | | (1,151 | ) | | | | 792 | | | | | (1,943 | ) | | | | | |
Boyd Gaming Corp. | | | | (5.00 | )% | | | | Quarterly | | | | | MSCO | | | | | 6/20/25 | | | | | 22,000 | | | | | (1,206 | ) | | | | 694 | | | | | (1,900 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | BZWS | | | | | 6/20/23 | | | | | 35,000 | | | | | 8,139 | | | | | 9,739 | | | | | (1,600 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | BZWS | | | | | 6/20/23 | | | | | 36,000 | | | | | 8,372 | | | | | 9,816 | | | | | (1,444 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | CITI | | | | | 6/20/23 | | | | | 18,000 | | | | | 4,185 | | | | | 4,995 | | | | | (810 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | CITI | | | | | 6/20/25 | | | | | 13,000 | | | | | 3,386 | | | | | 3,922 | | | | | (536 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | FBCO | | | | | 6/20/23 | | | | | 57,000 | | | | | 13,256 | | | | | 15,610 | | | | | (2,354 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 12/20/20 | | | | | 21,000 | | | | | 1,261 | | | | | 1,016 | | | | | 245 | | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 12/20/20 | | | | | 21,000 | | | | | 1,260 | | | | | 2,121 | | | | | (861 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 12/20/20 | | | | | 21,000 | | | | | 1,260 | | | | | 2,447 | | | | | (1,187 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/23 | | | | | 36,000 | | | | | 8,371 | | | | | 9,377 | | | | | (1,006 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/23 | | | | | 36,000 | | | | | 8,372 | | | | | 9,859 | | | | | (1,487 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/25 | | | | | 33,000 | | | | | 8,597 | | | | | 9,957 | | | | | (1,360 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/25 | | | | | 33,000 | | | | | 8,598 | | | | | 12,099 | | | | | (3,501 | ) | | | | | |
Carnival Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | JPHQ | | | | | 12/20/20 | | | | | 11,000 | | | | | 661 | | | | | 594 | | | | | 67 | | | | | | |
CenturyLink Inc. | | | | (1.00 | )% | | | | Quarterly | | | | | BZWS | | | | | 12/20/23 | | | | | 63,000 | | | | | 4,089 | | | | | 4,918 | | | | | (829 | ) | | | | | |
CenturyLink Inc. | | | | (1.00 | )% | | | | Quarterly | | | | | BZWS | | | | | 12/20/23 | | | | | 63,000 | | | | | 4,089 | | | | | 4,965 | | | | | (876 | ) | | | | | |
CenturyLink Inc. | | | | (1.00 | )% | | | | Quarterly | | | | | CITI | | | | | 12/20/23 | | | | | 38,000 | | | | | 2,466 | | | | | 2,914 | | | | | (448 | ) | | | | | |
CenturyLink Inc. | | | | (1.00 | )% | | | | Quarterly | | | | | CITI | | | | | 12/20/23 | | | | | 63,000 | | | | | 4,089 | | | | | 5,002 | | | | | (913 | ) | | | | | |
CenturyLink Inc. | | | | (1.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 12/20/23 | | | | | 63,000 | | | | | 4,089 | | | | | 4,868 | | | | | (779 | ) | | | | | |
CenturyLink Inc. | | | | (1.00 | )% | | | | Quarterly | | | | | JPHQ | | | | | 12/20/23 | | | | | 89,000 | | | | | 5,776 | | | | | 6,971 | | | | | (1,195 | ) | | | | | |
Cleveland-Cliffs Inc. | | | | (5.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/25 | | | | | 4,000 | | | | | 893 | | | | | 1,272 | | | | | (379 | ) | | | | | |
Cleveland-Cliffs Inc. | | | | (5.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/25 | | | | | 13,000 | | | | | 2,904 | | | | | 4,446 | | | | | (1,542 | ) | | | | | |
Cleveland-Cliffs Inc. | | | | (5.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/25 | | | | | 15,000 | | | | | 3,351 | | | | | 5,067 | | | | | (1,716 | ) | | | | | |
Cleveland-Cliffs Inc. | | | | (5.00 | )% | | | | Quarterly | | | | | JPHQ | | | | | 6/20/25 | | | | | 1,000 | | | | | 223 | | | | | 276 | | | | | (53 | ) | | | | | |
Cleveland-Cliffs Inc. | | | | (5.00 | )% | | | | Quarterly | | | | | JPHQ | | | | | 6/20/25 | | | | | 4,000 | | | | | 894 | | | | | 1,093 | | | | | (199 | ) | | | | | |
Cleveland-Cliffs Inc. | | | | (5.00 | )% | | | | Quarterly | | | | | JPHQ | | | | | 6/20/25 | | | | | 13,000 | | | | | 2,904 | | | | | 4,382 | | | | | (1,478 | ) | | | | | |
Cleveland-Cliffs Inc. | | | | (5.00 | )% | | | | Quarterly | | | | | JPHQ | | | | | 6/20/25 | | | | | 24,000 | | | | | 5,362 | | | | | 7,096 | | | | | (1,734 | ) | | | | | |
Devon Energy Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/25 | | | | | 73,000 | | | | | 1,145 | | | | | 7,094 | | | | | (5,949 | ) | | | | | |
Devon Energy Corp. | | | | (1.00 | )% | | | | Quarterly | | | | | JPHQ | | | | | 6/20/25 | | | | | 73,000 | | | | | 1,145 | | | | | 7,531 | | | | | (6,386 | ) | | | | | |
Goodyear Tire & Rubber Co. (The) | | | | (5.00 | )% | | | | Quarterly | | | | | BZWS | | | | | 12/20/24 | | | | | 18,000 | | | | | (363 | ) | | | | 805 | | | | | (1,168 | ) | | | | | |
Goodyear Tire & Rubber Co. (The) | | | | (5.00 | )% | | | | Quarterly | | | | | BZWS | | | | | 6/20/25 | | | | | 27,000 | | | | | (250 | ) | | | | 1,061 | | | | | (1,311 | ) | | | | | |
Goodyear Tire & Rubber Co. (The) | | | | (5.00 | )% | | | | Quarterly | | | | | BZWS | | | | | 6/20/25 | | | | | 21,000 | | | | | (194 | ) | | | | 1,337 | | | | | (1,531 | ) | | | | | |
Goodyear Tire & Rubber Co. (The) | | | | (5.00 | )% | | | | Quarterly | | | | | BZWS | | | | | 6/20/25 | | | | | 36,000 | | | | | (333 | ) | | | | 1,950 | | | | | (2,283 | ) | | | | | |
Goodyear Tire & Rubber Co. (The) | | | | (5.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 12/20/24 | | | | | 18,000 | | | | | (363 | ) | | | | (606 | ) | | | | 243 | | | | | | |
Goodyear Tire & Rubber Co. (The) | | | | (5.00 | )% | | | | Quarterly | | | | | GSCO | | | | | 6/20/25 | | | | | 45,000 | | | | | (417 | ) | | | | 902 | | | | | (1,319 | ) | | | | | |
Goodyear Tire & Rubber Co. (The) | | | | (5.00 | )% | | | | Quarterly | | | | | MSCO | | | | | 12/20/24 | | | | | 45,000 | | | | | (909 | ) | | | | (859 | ) | | | | (50 | ) | | | | | |
Goodyear Tire & Rubber Co. (The) | | | | (5.00 | )% | | | | Quarterly | | | | | MSCS | | | | | 6/20/25 | | | | | 50,000 | | | | | (463 | ) | | | | 1,787 | | | | | (2,250 | ) | | | | | |
Government of Brazil | | | | (1.00 | )% | | | | Quarterly | | | | | BZWS | | | | | 6/20/25 | | | | | 182,000 | | | | | 14,743 | | | | | 21,434 | | | | | (6,691 | ) | | | | | |
Government of Italy | | | | (1.00 | )% | | | | Quarterly | | | | | BOFA | | | | | 6/20/24 | | | | | 233,000 | | | | | 7,030 | | | | | 1,981 | | | | | 5,049 | | | | | | |
Government of Russia | | | | (1.00 | )% | | | | Quarterly | | | | | BZWS | | | | | 6/20/25 | | | | | 72,000 | | | | | 520 | | | | | 2,868 | | | | | (2,348 | ) | | | | | |
| | | | |
| | | |
34 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Annual Payment Rate Received (Paid) | | | Payment
Frequency | | | Counterparty | | | Maturity Date | | | Notional Amounta | | | | | | Value | | | Unamortized Upfront Payments (Receipts) | | | Unrealized Appreciation (Depreciation) Ratingb | | | |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Groupe Casino | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 71,000 | | | | EUR | | | $ | 905 | | | $ | 7,137 | | | $ | (6,232 | ) | | | | |
Groupe Casino | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 12/20/24 | | | | 244,000 | | | | EUR | | | | 19,450 | | | | 18,923 | | | | 527 | | | | | |
Heidelbergcement AG | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 85,000 | | | | EUR | | | | (18,415 | ) | | | (12,589 | ) | | | (5,826 | ) | | | | |
Heidelbergcement AG | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 43,000 | | | | EUR | | | | (9,316 | ) | | | (6,885 | ) | | | (2,431 | ) | | | | |
Heidelbergcement AG | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 36,000 | | | | EUR | | | | (7,799 | ) | | | (5,827 | ) | | | (1,972 | ) | | | | |
Heidelbergcement AG | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 36,000 | | | | EUR | | | | (7,800 | ) | | | (5,568 | ) | | | (2,232 | ) | | | | |
Itochu Corp. | | | (1.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/22 | | | | 17,300,000 | | | | JPY | | | | (3,276 | ) | | | (2,123 | ) | | | (1,153 | ) | | | | |
Itochu Corp. | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 4,307,000 | | | | JPY | | | | (815 | ) | | | (545 | ) | | | (270 | ) | | | | |
JFE Holdings Inc. | | | (1.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/22 | | | | 5,746,000 | | | | JPY | | | | (914 | ) | | | (727 | ) | | | (187 | ) | | | | |
JFE Holdings Inc. | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 3,802,000 | | | | JPY | | | | (605 | ) | | | (489 | ) | | | (116 | ) | | | | |
K. Hovnanian Enterprises Inc. | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/24 | | | | 38,000 | | | | | | | | 23,761 | | | | 13,079 | | | | 10,682 | | | | | |
K. Hovnanian Enterprises Inc. | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 12/20/24 | | | | 96,000 | | | | | | | | 61,404 | | | | 18,995 | | | | 42,409 | | | | | |
K. Hovnanian Enterprises Inc. | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 12/20/24 | | | | 96,000 | | | | | | | | 61,405 | | | | 19,879 | | | | 41,526 | | | | | |
K. Hovnanian Enterprises Inc. | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 12/20/24 | | | | 113,000 | | | | | | | | 72,278 | | | | 34,080 | | | | 38,198 | | | | | |
K. Hovnanian Enterprises Inc. | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/25 | | | | 18,000 | | | | | | | | 11,727 | | | | 7,853 | | | | 3,874 | | | | | |
K. Hovnanian Enterprises Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 9/20/24 | | | | 68,000 | | | | | | | | 43,033 | | | | 21,871 | | | | 21,162 | | | | | |
K. Hovnanian Enterprises Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 12/20/24 | | | | 57,000 | | | | | | | | 36,459 | | | | 17,191 | | | | 19,268 | | | | | |
K. Hovnanian Enterprises Inc. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 4,000 | | | | | | | | 2,606 | | | | 2,500 | | | | 106 | | | | | |
K. Hovnanian Enterprises Inc. | | | (5.00 | )% | | | Quarterly | | | | MSCO | | | | 12/20/24 | | | | 34,000 | | | | | | | | 21,747 | | | | 11,308 | | | | 10,439 | | | | | |
K. Hovnanian Enterprises Inc. | | | (5.00 | )% | | | Quarterly | | | | MSCO | | | | 6/20/25 | | | | 5,000 | | | | | | | | 3,257 | | | | 3,137 | | | | 120 | | | | | |
Kimco Realty Corp. | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/24 | | | | 121,000 | | | | | | | | (1,098 | ) | | | 224 | | | | (1,322 | ) | | | | |
Kimco Realty Corp. | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 109,000 | | | | | | | | 51 | | | | 1,818 | | | | (1,767 | ) | | | | |
Kohl’s Corp. | | | (1.00 | )% | | | Quarterly | | | | BOFA | | | | 6/20/25 | | | | 36,000 | | | | | | | | 6,658 | | | | 7,191 | | | | (533 | ) | | | | |
Kohl’s Corp. | | | (1.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/25 | | | | 36,000 | | | | | | | | 6,657 | | | | 6,496 | | | | 161 | | | | | |
Kohl’s Corp. | | | (1.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/25 | | | | 36,000 | | | | | | | | 6,657 | | | | 7,250 | | | | (593 | ) | | | | |
Kohl’s Corp. | | | (1.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/25 | | | | 48,000 | | | | | | | | 8,876 | | | | 8,261 | | | | 615 | | | | | |
Kohl’s Corp. | | | (1.00 | )% | | | Quarterly | | | | GSCO | | | | 12/20/24 | | | | 278,000 | | | | | | | | 39,938 | | | | 2,618 | | | | 37,320 | | | | | |
Kohl’s Corp. | | | (1.00 | )% | | | Quarterly | | | | MSCO | | | | 12/20/24 | | | | 221,000 | | | | | | | | 36,469 | | | | 3,814 | | | | 32,655 | | | | | |
Kohl’s Corp. | | | (1.00 | )% | | | Quarterly | | | | MSCS | | | | 12/20/24 | | | | 24,000 | | | | | | | | 3,448 | | | | 745 | | | | 2,703 | | | | | |
Lloyds Bank PLC | | | (1.00 | )% | | | Quarterly | | | | BOFA | | | | 12/20/22 | | | | 196,000 | | | | EUR | | | | (1,297 | ) | | | (1,272 | ) | | | (25 | ) | | | | |
Lloyds Bank PLC | | | (1.00 | )% | | | Quarterly | | | | GSCO | | | | 12/20/23 | | | | 210,000 | | | | EUR | | | | (806 | ) | | | 255 | | | | (1,061 | ) | | | | |
Lloyds Bank PLC | | | (1.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/24 | | | | 127,000 | | | | EUR | | | | (3,368 | ) | | | 807 | | | | (4,175 | ) | | | | |
Lloyds Bank PLC | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 12/20/22 | | | | 196,000 | | | | EUR | | | | (1,298 | ) | | | (1,383 | ) | | | 85 | | | | | |
Lloyds Bank PLC | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 12/20/23 | | | | 67,000 | | | | EUR | | | | (257 | ) | | | 791 | | | | (1,048 | ) | | | | |
Lloyds Bank PLC | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 12/20/24 | | | | 121,000 | | | | EUR | | | | 3,268 | | | | 3,313 | | | | (45 | ) | | | | |
Marubeni Corp. | | | (1.00 | )% | | | Quarterly | | | | CITI | | | | 6/20/25 | | | | 4,807,000 | | | | JPY | | | | (1,206 | ) | | | 1,446 | | | | (2,652 | ) | | | | |
Marubeni Corp. | | | (1.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/22 | | | | 27,269,000 | | | | JPY | | | | (4,732 | ) | | | (2,768 | ) | | | (1,964 | ) | | | | |
Marubeni Corp. | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 6,291,000 | | | | JPY | | | | (1,092 | ) | | | (675 | ) | | | (417 | ) | | | | |
Marubeni Corp. | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 2,404,000 | | | | JPY | | | | (603 | ) | | | 622 | | | | (1,225 | ) | | | | |
MBIA Inc. | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 23,000 | | | | | | | | (369 | ) | | | (558 | ) | | | 189 | | | | | |
MBIA Inc. | | | (5.00 | )% | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 36,000 | | | | | | | | (578 | ) | | | (2,423 | ) | | | 1,845 | | | | | |
MBIA Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/22 | | | | 21,000 | | | | | | | | (337 | ) | | | (1,118 | ) | | | 781 | | | | | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 35 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Annual Payment Rate Received (Paid) | | | Payment
Frequency | | | Counterparty | | | Maturity
Date | | | Notional
Amounta | | | | | Value | | | Unamortized
Upfront
Payments
(Receipts) | | | Unrealized
Appreciation
(Depreciation) | | | Ratingb |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
MBIA Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 10,000 | | | | | $ | 172 | | | | $ 301 | | | | $ (129 | ) | | |
MBIA Inc. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/21 | | | | 269,000 | | | | | | (6,126 | ) | | | (9,000 | ) | | | 2,874 | | | |
MBIA Inc. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 12/20/24 | | | | 143,000 | | | | | | 1,390 | | | | (18,366 | ) | | | 19,756 | | | |
MBIA Inc. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 14,000 | | | | | | 240 | | | | (58 | ) | | | 298 | | | |
Mitsui O.S.K. Lines Ltd. | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 9,678,000 | | | JPY | | | (1,207 | ) | | | (305 | ) | | | (902 | ) | | |
Mitsui O.S.K. Lines Ltd. | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 3,618,000 | | | JPY | | | (451 | ) | | | (114 | ) | | | (337 | ) | | |
NRG Energy Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/24 | | | | 24,000 | | | | | | (3,929 | ) | | | (3,391 | ) | | | (538 | ) | | |
Petroleo Brasileiro S/A | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Petrobras | | | (1.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/25 | | | | 73,000 | | | | | | 10,516 | | | | 13,568 | | | | (3,052 | ) | | |
Petroleo Brasileiro S/A | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Petrobras | | | (1.00 | )% | | | Quarterly | | | | CITI | | | | 6/20/25 | | | | 49,000 | | | | | | 7,059 | | | | 9,108 | | | | (2,049 | ) | | |
Simon Property | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Group LP | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 12/20/24 | | | | 434,000 | | | | | | 24,873 | | | | (10,425 | ) | | | 35,298 | | | |
Simon Property | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Group LP | | | (1.00 | )% | | | Quarterly | | | | MSCO | | | | 12/20/24 | | | | 340,000 | | | | | | 19,486 | | | | (7,574 | ) | | | 27,060 | | | |
Softbank Group Corp. | | | (1.00 | )% | | | Quarterly | | | | BZWS | | | | 12/20/23 | | | | 12,747,000 | | | JPY | | | 4,005 | | | | 3,970 | | | | 35 | | | |
Softbank Group Corp. | | | (1.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/24 | | | | 6,374,000 | | | JPY | | | 2,471 | | | | 1,854 | | | | 617 | | | |
Softbank Group Corp. | | | (1.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/24 | | | | 12,747,000 | | | JPY | | | 4,943 | | | | 4,027 | | | | 916 | | | |
Softbank Group Corp. | | | (1.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/24 | | | | 25,494,000 | | | JPY | | | 9,885 | | | | 6,603 | | | | 3,282 | | | |
Softbank Group Corp. | | | (1.00 | )% | | | Quarterly | | | | CITI | | | | 6/20/24 | | | | 12,746,000 | | | JPY | | | 4,942 | | | | 3,978 | | | | 964 | | | |
Softbank Group Corp. | | | (1.00 | )% | | | Quarterly | | | | GSCO | | | | 12/20/23 | | | | 12,747,000 | | | JPY | | | 4,005 | | | | 3,734 | | | | 271 | | | |
Softbank Group Corp. | | | (1.00 | )% | | | Quarterly | | | | GSCO | | | | 12/20/23 | | | | 12,747,000 | | | JPY | | | 4,005 | | | | 3,892 | | | | 113 | | | |
Staples Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 12/20/24 | | | | 25,000 | | | | | | 6,399 | | | | 1,171 | | | | 5,228 | | | |
Staples Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 180,000 | | | | | | 49,268 | | | | 4,467 | | | | 44,801 | | | |
Staples Inc. | | | (5.00 | )% | | | Quarterly | | | | MSCO | | | | 12/20/24 | | | | 60,000 | | | | | | 15,357 | | | | 1,480 | | | | 13,877 | | | |
Suedzucker AG | | | (1.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 109,000 | | | EUR | | | 1,574 | | | | 5,060 | | | | (3,486 | ) | | |
Telecom Italia SpA | | | (1.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/25 | | | | 213,000 | | | EUR | | | 15,691 | | | | 30,401 | | | | (14,710 | ) | | |
Transdigm Inc. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 49,000 | | | | | | (2,962 | ) | | | 735 | | | | (3,697 | ) | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 2,000 | | | | | | 812 | | | | 32 | | | | 780 | | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | FBCO | | | | 12/20/24 | | | | 146,000 | | | | | | 76,833 | | | | 85,665 | | | | (8,832 | ) | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | FBCO | | | | 6/20/25 | | | | 132,000 | | | | | | 70,288 | | | | 85,046 | | | | (14,758 | ) | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/22 | | | | 23,000 | | | | | | 9,336 | | | | 463 | | | | 8,873 | | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/23 | | | | 34,000 | | | | | | 16,762 | | | | (1,360 | ) | | | 18,122 | | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/23 | | | | 43,000 | | | | | | 21,200 | | | | (877 | ) | | | 22,077 | | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 12/20/24 | | | | 48,000 | | | | | | 25,260 | | | | 6,609 | | | | 18,651 | | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 12/20/24 | | | | 239,000 | | | | | | 125,774 | | | | 18,621 | | | | 107,153 | | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 12/20/24 | | | | 4,000 | | | | | | 2,105 | | | | 610 | | | | 1,495 | | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 12/20/24 | | | | 138,000 | | | | | | 72,623 | | | | 21,077 | | | | 51,546 | | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 12/20/24 | | | | 100,000 | | | | | | 52,626 | | | | 55,513 | | | | (2,887 | ) | | |
Transocean Inc. | | | (5.00 | )% | | | Quarterly | | | | MSCO | | | | 12/20/24 | | | | 20,000 | | | | | | 10,525 | | | | 2,878 | | | | 7,647 | | | |
TUI AG | | | (5.00 | )% | | | Quarterly | | | | FBCO | | | | 12/20/21 | | | | 100,000 | | | EUR | | | 20,122 | | | | 6,194 | | | | 13,928 | | | |
Unisys Corp. | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 12/20/24 | | | | 19,000 | | | | | | (1,895 | ) | | | (2,837 | ) | | | 942 | | | |
Unisys Crop. | | | (5.00 | )% | | | Quarterly | | | | CITI | | | | 12/20/24 | | | | 19,000 | | | | | | (1,895 | ) | | | (2,926 | ) | | | 1,031 | | | |
Unisys Crop. | | | (5.00 | )% | | | Quarterly | | | | CITI | | | | 12/20/24 | | | | 19,000 | | | | | | (1,895 | ) | | | (2,794 | ) | | | 899 | | | |
US Steel Corp. | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/25 | | | | 22,000 | | | | | | 6,636 | | | | 6,813 | | | | (177 | ) | | |
US Steel Corp | | | (5.00 | )% | | | Quarterly | | | | BZWS | | | | 6/20/25 | | | | 22,000 | | | | | | 6,635 | | | | 7,658 | | | | (1,023 | ) | | |
US Steel Corp. | | | (5.00 | )% | | | Quarterly | | | | CITI | | | | 6/20/25 | | | | 22,000 | | | | | | 6,635 | | | | 6,699 | | | | (64 | ) | | |
US Steel Corp. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 22,000 | | | | | | 6,635 | | | | 7,658 | | | | (1,023 | ) | | |
US Steel Corp. | | | (5.00 | )% | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 36,000 | | | | | | 10,858 | | | | 9,942 | | | | 916 | | | |
US Steel Corp. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 22,000 | | | | | | 6,636 | | | | 7,021 | | | | (385 | ) | | |
US Steel Corp. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 59,000 | | | | | | 17,795 | | | | 16,285 | | | | 1,510 | | | |
US Steel Corp. | | | (5.00 | )% | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 73,000 | | | | | | 22,018 | | | | 18,736 | | | | 3,282 | | | |
| | | | |
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36 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
Credit Default Swap Contracts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Annual
Payment
Rate
Received
(Paid) | | | Payment
Frequency | | | Counterparty | | | Maturity
Date | | | Notional
Amounta | | | Value | | | Unamortized
Upfront
Payments
(Receipts) | | | Unrealized
Appreciation
(Depreciation) | | | Ratingb | |
OTC Swap Contracts (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contracts to Buy Protectionc (continued) | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
US Steel Corp. | | | (5.00 | )% | | | Quarterly | | | | MSCO | | | | 6/20/25 | | | | 15,000 | | | $ | 4,524 | | | $ | 5,371 | | | $ | (847 | ) | | | | |
US Steel Corp. | | | (5.00 | )% | | | Quarterly | | | | MSCO | | | | 6/20/25 | | | | 22,000 | | | | 6,635 | | | | 6,695 | | | | (60 | ) | | | | |
US Steel Corp. | | | (5.00 | )% | | | Quarterly | | | | MSCO | | | | 6/20/25 | | | | 36,000 | | | | 10,858 | | | | 9,618 | | | | 1,240 | | | | | |
Contracts to Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Single Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
American Airlines Group Inc. | | | 5.00 | % | | | Quarterly | | | | CITI | | | | 12/20/20 | | | | 36,000 | | | | (8,758 | ) | | | (6,896 | ) | | | (1,862 | ) | | | CCC | |
American Airlines Group Inc. | | | 5.00 | % | | | Quarterly | | | | GSCO | | | | 12/20/20 | | | | 36,000 | | | | (8,758 | ) | | | (6,661 | ) | | | (2,097 | ) | | | CCC | |
Occidental Petroleum Corp. | | | 1.00 | % | | | Quarterly | | | | BZWS | | | | 9/20/21 | | | | 167,000 | | | | (14,584 | ) | | | (38,923 | ) | | | 24,339 | | | | BB+ | |
Occidental Petroleum Corp. | | | 1.00 | % | | | Quarterly | | | | BZWS | | | | 9/20/21 | | | | 36,000 | | | | (3,143 | ) | | | (7,126 | ) | | | 3,983 | | | | BB+ | |
Occidental Petroleum Corp. | | | 1.00 | % | | | Quarterly | | | | CITI | | | | 6/20/21 | | | | 25,000 | | | | (1,723 | ) | | | (4,811 | ) | | | 3,088 | | | | BB+ | |
Occidental Petroleum Corp. | | | 1.00 | % | | | Quarterly | | | | JPHQ | | | | 6/20/21 | | | | 20,000 | | | | (1,378 | ) | | | (3,156 | ) | | | 1,778 | | | | BB+ | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total OTC Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | $1,359,618 | | | | $756,064 | | | | $603,554 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Credit Default Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | $1,651,738 | | | | $888,061 | | | | $763,677 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
aIn U.S. dollars unless otherwise indicated. For contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse provisions have been entered into in association with the contracts.
bBased on Standard and Poor’s (S&P) Rating for single name swaps and internal ratings for index swaps.
cPerformance triggers for settlement of contract include default, bankruptcy or restructuring for single name swaps and failure to pay or bankruptcy of the underlying securities for traded index swaps.
dThe Fund enters contracts to sell protection to create a long credit position.
At May 31, 2020, the Fund had the following interest rate swap contracts outstanding. See Note 1(e).
Interest Rate Swap Contracts
| | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Payment
Frequency | | | Maturity
Date | | | Notional
Amount* | | | | | | Value/Unrealized Appreciation
(Depreciation) | | | |
Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | |
Receive Floating rate 3 Month USD-LIBOR Pay Fixed rate 1.75% | | | Quarterly | | | | 6/20/20 | | | | 1,500,000 | | | | | | | | | | $ (32,307 | ) | | |
Receive Floating rate 3 Month USD-LIBOR Pay Fixed rate 1.75% | | | Quarterly | | | | 9/18/21 | | | | 1,500,000 | | | | | | | | | | (26,122 | ) | | |
Receive Floating rate 3 Month USD-LIBOR Pay Fixed rate 1.75% | | | Quarterly | | | | 3/18/22 | | | | 1,100,000 | | | | | | | | | | (27,764 | ) | | |
Receive Fixed 5.49% Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 6/15/22 | | | | 8,585,811 | | | | MXN | | | | | | 5,219 | | | |
Receive Fixed 5.08% Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 6/11/25 | | | | 204,068 | | | | MXN | | | | | | (91 | ) | | |
Receive Fixed 5.85% Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 6/11/25 | | | | 7,389,290 | | | | MXN | | | | | | 8,362 | | | |
Receive Floating rate 3 Month USD-LIBOR Pay Fixed rate 2.25% | | | Quarterly | | | | 6/20/28 | | | | 1,100,000 | | | | | | | | | | (224,901 | ) | | |
Receive Fixed 6.98% Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 6/05/30 | | | | 8,325,446 | | | | MXN | | | | | | 28,851 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Interest Rate Swap Contracts | | | | | | | | | | | | | | | | | | | | | $(268,753 | ) | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
*In U.S. dollars unless otherwise indicated.
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 37 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
At May 31, 2020, the Fund had the following total return swap contracts outstanding. See Note 1(e).
Total Return Swap Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Underlying Instrument | | Financing Rate | | Payment
Frequency | | | Counterparty | | | Maturity
Date | | | Notional
Value | | | Unamortized
Upfront
Payments (Receipts) | | | Value/Unrealized
Appreciation
(Depreciation) | |
OTC Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Contracts – Longa | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/07/20 | | | $ | 6,290 | | | | $ — | | | | | | | | $ 708 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/09/20 | | | | 809 | | | | — | | | | | | | | 78 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/14/20 | | | | 2,422 | | | | — | | | | | | | | 273 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/15/20 | | | | 1,766 | | | | — | | | | | | | | 201 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/15/20 | | | | 347 | | | | — | | | | | | | | 39 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/19/20 | | | | 1,424 | | | | — | | | | | | | | 157 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/20/20 | | | | 13,238 | | | | — | | | | | | | | 1,426 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/21/20 | | | | 1,301 | | | | — | | | | | | | | 99 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/21/20 | | | | 2,199 | | | | — | | | | | | | | 214 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/23/20 | | | | 988 | | | | — | | | | | | | | 66 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/26/20 | | | | 365 | | | | — | | | | | | | | 20 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/27/20 | | | | 1,540 | | | | — | | | | | | | | 80 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 10/28/20 | | | | 1,881 | | | | — | | | | | | | | 105 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 11/03/20 | | | | 18,876 | | | | — | | | | | | | | 3,201 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | BZWS | | | | 2/17/21 | | | | 1,897 | | | | — | | | | | | | | 17 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | BZWS | | | | 2/19/21 | | | | 3,210 | | | | — | | | | | | | | (50 | ) |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | BZWS | | | | 2/22/21 | | | | 227 | | | | — | | | | | | | | (4 | ) |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 3/04/21 | | | | 7,036 | | | | — | | | | | | | | 241 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 3/04/21 | | | | 27,062 | | | | — | | | | | | | | 505 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 3/05/21 | | | | 15,291 | | | | — | | | | | | | | 521 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 3/10/21 | | | | 8,467 | | | | — | | | | | | | | 249 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 3/11/21 | | | | 27,315 | | | | — | | | | | | | | 922 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 3/11/21 | | | | 13,131 | | | | — | | | | | | | | (63 | ) |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 3/15/21 | | | | 14,066 | | | | — | | | | | | | | (138 | ) |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 3/15/21 | | | | 33,991 | | | | — | | | | | | | | 792 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 3/15/21 | | | | 1,246 | | | | — | | | | | | | | 4 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 3/15/21 | | | | 8,540 | | | | — | | | | | | | | 1,179 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 3/15/21 | | | | 50,469 | | | | — | | | | | | | | 8,507 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 4/01/21 | | | | 34,272 | | | | — | | | | | | | | 6,362 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 4/28/21 | | | | 2,779 | | | | — | | | | | | | | 232 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 4/29/21 | | | | 3,722 | | | | — | | | | | | | | 253 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/03/21 | | | | 5,648 | | | | — | | | | | | | | 376 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/04/21 | | | | 2,440 | | | | — | | | | | | | | 327 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/04/21 | | | | 3,583 | | | | — | | | | | | | | 351 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/05/21 | | | | 1,364 | | | | — | | | | | | | | 174 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/06/21 | | | | 3,072 | | | | — | | | | | | | | 268 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/07/21 | | | | 682 | | | | — | | | | | | | | 75 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/10/21 | | | | 1,134 | | | | — | | | | | | | | 95 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/11/21 | | | | 2,026 | | | | — | | | | | | | | 125 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/18/21 | | | | 3,492 | | | | — | | | | | | | | 280 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/19/21 | | | | 2,615 | | | | — | | | | | | | | 111 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/20/21 | | | | 7,220 | | | | — | | | | | | | | 323 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/21/21 | | | | 7,165 | | | | — | | | | | | | | 378 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/24/21 | | | | 903 | | | | — | | | | | | | | 39 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/27/21 | | | | 1,212 | | | | — | | | | | | | | 38 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 5/31/21 | | | | 3,678 | | | | — | | | | | | | | (6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | 29,150 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate Contracts – Longa | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Government of Indonesia | | 3-Month LIBOR + 1.00% | | | Monthly | | | | BOFA | | | | 5/18/21 | | | | 384,829 | | | | — | | | | | | | | 4,150 | |
Government of Indonesia | | 3-Month LIBOR + 0.60% | | | Monthly | | | | DBAB | | | | 6/15/32 | | | | 666,915 | | | | — | | | | | | | | (46,881 | ) |
Government of Ukraine | | — | | | Monthly | | | | BOFA | | | | 7/08/20 | | | | — | | | | 412,879 | | | | | | | | (48,472 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | (91,203 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Total Return Swap Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | $(62,053 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
aThe Fund receives the total return on the underlying instrument and pays a variable financing rate.
See Note 11 regarding other derivative information.
See Abbreviations on page 58.
| | | | |
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38 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
May 31, 2020
Franklin K2 Long Short Credit Fund
| | | | |
Assets: | | | | |
Investments in securities: | | | | |
Cost – Unaffiliated issuers | | $ | 96,042,631 | |
Cost – Unaffiliated repurchase agreements | | | 3,789,755 | |
| |
Value – Unaffiliated issuers | | $ | 89,325,598 | |
Value – Unaffiliated repurchase agreements | | | 3,789,755 | |
Cash | | | 83,169 | |
Restricted cash for OTC derivatives (Note 1f) | | | 940,000 | |
Foreign currency, at value (cost $256,391) | | | 281,050 | |
Receivables: | | | | |
Investment securities sold | | | 3,429,461 | |
Capital shares sold | | | 105,095 | |
Dividends and interest | | | 520,803 | |
Affiliates | | | 29,970 | |
Deposits with brokers for: | | | | |
Securities sold short | | | 9,027,238 | |
OTC derivative contracts | | | 220,000 | |
Futures contracts | | | 36,000 | |
Centrally cleared swap contracts | | | 551,765 | |
Due from brokers | | | 1,029,828 | |
OTC swap contracts (upfront payments $1,500,814) | | | 1,416,864 | |
Unrealized appreciation on OTC forward exchange contracts | | | 479,020 | |
Unrealized appreciation on OTC swap contracts | | | 846,727 | |
Unrealized appreciation on unfunded loan commitments (Note 10) | | | 45,376 | |
Other assets | | | 129 | |
| |
Total assets | | | 112,157,848 | |
| |
Liabilities: | | | | |
Payables: | | | | |
Investment securities purchased | | | 3,585,522 | |
Capital shares redeemed | | | 45,286 | |
Management fees | | | 59,979 | |
Distribution fees | | | 6,413 | |
Variation margin on futures contracts | | | 585 | |
Variation margin on centrally cleared swap contracts | | | 18,144 | |
Deposits from brokers for: | | | | |
OTC derivative contracts | | | 940,000 | |
Due to brokers | | | 224,057 | |
OTC swap contracts (upfront receipts $294,377) | | | 247,921 | |
Options written, at value (premiums received $26,045) | | | 39,813 | |
Securities sold short, at value (proceeds $9,461,618) | | | 9,852,651 | |
Unrealized depreciation on OTC forward exchange contracts | | | 286,489 | |
Unrealized depreciation on OTC swap contracts | | | 305,226 | |
Accrued expenses and other liabilities | | | 230,142 | |
| |
Total liabilities | | | 15,842,228 | |
| |
Net assets, at value | | $ | 96,315,620 | |
| |
Net assets consist of: | | | | |
Paid-in capital | | $ | 102,468,502 | |
Total distributable earnings (loss) | | | (6,152,882 | ) |
| |
Net assets, at value | | $ | 96,315,620 | |
| | | | |
| | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 39 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (continued)
May 31, 2020
Franklin K2 Long Short Credit Fund
| | | | |
Class A: | | | | |
| |
Net assets, at value | | | $20,212,395 | |
| |
Shares outstanding | | | 2,049,378 | |
| |
Net asset value per sharea | | | $9.86 | |
| |
Maximum offering price per share (net asset value per share ÷ 94.50%) | | | $10.43 | |
| |
Class C: | | | | |
| |
Net assets, at value | | | $2,881,681 | |
| |
Shares outstanding | | | 297,362 | |
| |
Net asset value and maximum offering price per sharea | | | $9.69 | |
| |
Class R: | | | | |
| |
Net assets, at value | | | $169,202 | |
| |
Shares outstanding | | | 17,325 | |
| |
Net asset value and maximum offering price per share | | | $9.77 | |
| |
Class R6: | | | | |
| |
Net assets, at value | | | $5,238 | |
| |
Shares outstanding | | | 531 | |
| |
Net asset value and maximum offering price per share | | | $9.87 | |
| |
Advisor Class: | | | | |
| |
Net assets, at value | | | $73,047,104 | |
| |
Shares outstanding | | | 7,396,369 | |
| |
Net asset value and maximum offering price per share | | | $9.88 | |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
| | | | |
| | | |
40 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS
Statement of Operations
for the year ended May 31, 2020
Franklin K2 Long Short Credit Fund
| | | | |
Investment income: | | | | |
Dividends: | | | | |
Unaffiliated issuers | | $ | 524,206 | |
Interest: (net of foreign taxes)~ | | | | |
Unaffiliated issuers | | | 5,490,334 | |
| |
Total investment income | | | 6,014,540 | |
| |
Expenses: | | | | |
Management fees (Note 3a) | | | 2,215,832 | |
Distribution fees: (Note 3c) | | | | |
Class A | | | 76,908 | |
Class C | | | 29,188 | |
Class R | | | 974 | |
Transfer agent fees: (Note 3e) | | | | |
Class A | | | 31,528 | |
Class C | | | 3,301 | |
Class R | | | 222 | |
Class R6 | | | 346 | |
Advisor Class | | | 101,440 | |
Custodian fees (Note 4) | | | 79,345 | |
Reports to shareholders | | | 37,324 | |
Registration and filing fees | | | 87,227 | |
Professional fees | | | 205,145 | |
Trustees’ fees and expenses | | | 43,058 | |
Dividends and interest on securities sold short | | | 582,604 | |
Security borrowing fees | | | 120,687 | |
Other | | | 65,297 | |
| |
Total expenses | | | 3,680,426 | |
Expense reductions (Note 4) | | | (47,979 | ) |
Expenses waived/paid by affiliates (Note 3f) | | | (545,987 | ) |
| |
Net expenses | | | 3,086,460 | |
| |
Net investment income | | | 2,928,080 | |
| |
Realized and unrealized gains (losses): | | | | |
Net realized gain (loss) from: | | | | |
Investments: | | | | |
Unaffiliated issuers | | | (1,543,732 | ) |
Written options | | | 93,398 | |
Foreign currency transactions | | | 32,338 | |
Forward exchange contracts | | | 4,286 | |
Futures contracts | | | 45,156 | |
Securities sold short | | | 2,354,179 | |
Swap contracts | | | 184,799 | |
| |
Net realized gain (loss) | | | 1,170,424 | |
| |
Net change in unrealized appreciation (depreciation) on: | | | | |
Investments: | | | | |
Unaffiliated issuers | | | (8,965,379 | ) |
Translation of other assets and liabilities denominated in foreign currencies | | | (120,891 | ) |
Forward exchange contracts | | | 208,413 | |
Written options | | | (6,743 | ) |
Futures contracts | | | (83,178 | ) |
Securities sold short | | | (741,880 | ) |
Swap contracts | | | 679,719 | |
| |
Net change in unrealized appreciation (depreciation) | | | (9,029,939 | ) |
| |
Net realized and unrealized gain (loss) | | | (7,859,515 | ) |
| |
Net increase (decrease) in net assets resulting from operations | | $ | (4,931,435 | ) |
| |
~ Foreign taxes withheld on interest | | $ | 676 | |
| | | | |
| | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | 41 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
Franklin K2 Long Short Credit Fund
| | | | | | | | |
| | | Year Ended May 31, | |
| | |
| | | 2020 | | | 2019 | |
Increase (decrease) in net assets: | | | | | | | | |
| | |
Operations: | | | | | | | | |
Net investment income | | $ | 2,928,080 | | | $ | 3,762,777 | |
Net realized gain (loss) | | | 1,170,424 | | | | 306,833 | |
Net change in unrealized appreciation (depreciation) | | | (9,029,939 | ) | | | (199,299 | ) |
| | |
Net increase (decrease) in net assets resulting from operations | | | (4,931,435 | ) | | | 3,870,311 | |
| | |
Distributions to shareholders: | | | | | | | | |
Class A | | | (849,841 | ) | | | (1,424,776 | ) |
Class C | | | (56,967 | ) | | | (100,011 | ) |
Class R | | | (5,574 | ) | | | (5,804 | ) |
Class R6 | | | (14,013 | ) | | | (7,008 | ) |
Advisor Class | | | (2,791,426 | ) | | | (2,656,330 | ) |
| | |
Total distributions to shareholders | | | (3,717,821 | ) | | | (4,193,929 | ) |
| | |
Capital share transactions: (Note 2) | | | | | | | | |
Class A | | | (6,100,444 | ) | | | (17,059,204 | ) |
Class C | | | 170,969 | | | | 409,512 | |
Class R | | | 17,268 | | | | 5,307 | |
Class R6 | | | (180,366 | ) | | | 221,435 | |
Advisor Class | | | (6,973,581 | ) | | | 41,498,540 | |
| | |
Total capital share transactions | | | (13,066,154 | ) | | | 25,075,590 | |
| | |
Net increase (decrease) in net assets | | | (21,715,410 | ) | | | 24,751,972 | |
Net assets: | | | | | | | | |
| | |
Beginning of year | | | 118,031,030 | | | | 93,279,058 | |
| | |
End of year | | $ | 96,315,620 | | | $ | 118,031,030 | |
| | | | |
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42 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 LONG SHORT CREDIT FUND
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Franklin Alternative Strategies Funds (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of two separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin K2 Long Short Credit Fund (Fund) is included in this report. The Fund offers five classes of shares: Class A, Class C, Class R, Class R6 and Advisor Class. Class C shares automatically convert to Class A shares after they have been held for 10 years. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees due to differing arrangements for distribution and transfer agent fees.
The following summarizes the Fund’s significant accounting policies.
a. Financial Instrument Valuation
The Fund’s investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Fund calculates 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 Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Equity securities 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 Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the date that the values of the foreign debt securities are determined.
Investments in open-end mutual funds are valued at the closing NAV. Investments in repurchase agreements are valued at cost, which approximates fair value.
Certain derivative financial instruments are centrally cleared or trade in the OTC market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair value of the contract, is included in net assets.
The Fund has procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncer-
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| franklintempleton.com | | Annual Report | | 43 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
1. Organization and Significant Accounting Policies (continued)
a. Financial Instrument Valuation (continued)
tainty 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 Fund’s 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 Fund. As a result, differences may arise between the value of the Fund’s 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, the VC monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services. At May 31, 2020, a market event occurred resulting in a portion of the securities held by the Fund being valued using fair value procedures.
When the last day of the reporting period is a non-business day, certain foreign markets may be open on those days that the Fund’s NAV is not calculated, which could result in differences between the value of the Fund’s portfolio securities on the last business day and the last calendar day of the reporting period. Any significant security valuation changes due to an open foreign market are adjusted and reflected by the Fund for financial reporting purposes.
b. Foreign Currency Translation
Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. The Fund may enter into foreign currency exchange contracts to facilitate transactions
denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Board.
The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments in the Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.
c. Joint Repurchase Agreement
The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is used to invest in one or more repurchase agreements. The value and face amount of the joint repurchase agreement are allocated to the funds based on their pro-rata interest. A repurchase agreement is accounted for as a loan by the Fund to the seller, collateralized by securities which are delivered to the Fund’s custodian. The fair value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. Repurchase agreements are subject to the terms of Master Repurchase Agreements (MRAs) with approved counterparties (sellers). The MRAs contain various provisions, including but not limited to events of default and maintenance of collateral for repurchase agreements. In the
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44 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
event of default by either the seller or the Fund, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Fund may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any other amounts owed by the seller to the Fund in the event of default by the seller. This could involve costs or delays in addition to a loss on the securities if their value falls below the repurchase price owed by the seller. The joint repurchase agreement held by the Fund at year end, as indicated in the Statement of Investments, had been entered into on May 29, 2020.
d. Securities Purchased on a Delayed Delivery Basis
The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.
e. Derivative Financial Instruments
The Fund 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 Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.
Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counterparties. The Fund attempts to reduce its exposure to counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions,
including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement.
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. For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the Fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of Fund business each day and any additional collateral required due to changes in derivative values may be delivered by the Fund or the counterparty the next business day, or within a few business days. Collateral pledged and/or received by the Fund for OTC derivatives, if any, is held in segregated accounts with the Fund’s custodian/counterparty broker and can be in the form of cash and/ or securities. Unrestricted cash may be invested according to the Fund’s investment objectives. To the extent that the amounts due to the Fund from its counterparties are not subject to collateralization or are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance.
The Fund entered into exchange traded futures contracts primarily to manage and/or gain exposure to interest rate and equity price risk. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset at a specified price on a future date. Required initial margins are
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| franklintempleton.com | | Annual Report | | 45 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
1. Organization and Significant Accounting Policies (continued)
e. Derivative Financial Instruments (continued)
pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statement of Assets and Liabilities.
The Fund entered into OTC forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.
The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (OTC credit default swaps) or may be executed in a multilateral trade facility platform, such as a registered exchange (centrally cleared credit default swaps). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, a basket of issuers or indices, or a tranche of a credit index or basket of issuers or indices. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. For centrally cleared credit default swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statement of Assets and Liabilities. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Upfront payments and receipts are reflected in the Statement of Assets and Liabilities and represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments and receipts are amortized over the term of the contract as a realized gain or loss in the Statement of Operations.
The Fund entered into interest rate swap contracts primarily to manage interest rate risk. An interest rate swap is an agreement between the Fund and a counterparty to exchange cash flows based on the difference between two interest rates, applied to a notional amount. These agreements may be privately negotiated in the over-the-counter market (OTC interest rate swaps) or may be executed on a registered exchange (centrally cleared interest rate swaps). For centrally cleared interest rate swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statement of Assets and Liabilities. Over the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized.
The Fund entered into OTC total return swap contracts primarily to manage and/or gain exposure to interest rate, equity price and credit risk of an underlying instrument such as a stock, bond, index or basket of securities or indices. A total return swap is an agreement between the Fund and a counterparty to exchange a return linked to an underlying instrument for a floating or fixed rate payment, both based upon a notional amount. Over the term of the contract, contractually required payments to be paid or received are accrued daily and recorded as unrealized appreciation or depreciation until the payments are made, at which time they are recognized as realized gain or loss.
The Fund purchased or wrote exchange traded and/or OTC option contracts primarily to manage and/or gain exposure to interest rate and 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 11 regarding other derivative information.
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46 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
f. Restricted Cash
At May 31, 2020, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian/counterparty broker and is reflected in the Statement of Assets and Liabilities.
g. Loan Participation Notes
The Fund invests in loan participation notes (Participations). Participations are loans originally issued to a borrower by one or more financial institutions (the Lender) and subsequently sold to other investors, such as the Fund. Participations typically result in the Fund having a contractual relationship only with the Lender and not with the borrower. The Fund has the right to receive from the Lender any payments of principal, interest and fees which the Lender received from the borrower. The Fund generally has no rights to either enforce compliance by the borrower with the terms of the loan agreement or to any collateral relating to the original loan. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. The Participations may also involve interest rate risk and liquidity risk, including the potential default or insolvency of the borrower and/or the Lender.
h. Credit-Linked Notes
The Fund purchases credit-linked notes. Credit-linked notes are intended to replicate the economic effects that would apply had the Fund directly purchased the underlying reference asset. The risks of credit-linked notes include the potential default of the underlying reference asset, the movement in the value of the currency of the underlying reference asset relative to the credit-linked note, the potential inability of the Fund to dispose of the credit-linked note in the normal course of business, and the possible inability of the counter-parties to fulfill their obligations under the contracts.
i. Securities Sold Short
The Fund is engaged in selling securities short, which obligates the Fund to replace a borrowed security with the same security at current fair value. The Fund incurs a loss if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund realizes a gain if the price of the security declines between those dates. Gains are limited to the price at which the Fund sold the security short, while losses are potentially unlimited in size.
The Fund is required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale to the extent necessary to meet margin requirements until the short position is closed out. A deposit must also be maintained with the Fund’s custodian/counterparty broker consisting of cash and/or securities having a value equal to a specified percentage of the value of the securities sold short. The Fund is obligated to pay fees for borrowing the securities sold short and is required to pay the counterparty any dividends and/or interest due on securities sold short. Such dividends and/or interest and any security borrowing fees are recorded as an expense to the Fund.
j. Senior Floating Rate Interests
The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity. Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to certain restrictions on resale.
k. Income and Deferred Taxes
It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply, the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.
The Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 47 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
1. Organization and Significant Accounting Policies (continued)
k. Income and Deferred Taxes (continued)
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 May 31, 2020, the 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.
l. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income and dividends declared on securities sold short are 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. Distributions to shareholders 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.
Realized and unrealized gains and losses and net investment income, excluding class specific expenses, are allocated
daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions by class are generally due to differences in class specific expenses.
m. 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.
n. Guarantees and Indemnifications
Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.
| | | | |
| | | |
48 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
2. Shares of Beneficial Interest
At May 31, 2020, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
| | | | | | | | | | | | | | | | |
| | | Year Ended May 31, | |
| | | 2020 | | | 2019 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| | | | |
Class A Shares: | | | | | | | | | | | | | | | | |
Shares solda | | | 1,136,532 | | | $ | 11,916,755 | | | | 518,127 | | | $ | 5,443,153 | |
Shares issued in reinvestment of distributions | | | 40,491 | | | | 420,700 | | | | 49,211 | | | | 498,509 | |
Shares redeemed | | | (1,793,471 | ) | | | (18,437,899 | ) | | | (2,195,001 | ) | | | (23,000,866 | ) |
| | | | |
Net increase (decrease) | | | (616,448 | ) | | $ | (6,100,444 | ) | | | (1,627,663 | ) | | $ | (17,059,204 | ) |
| | | | |
Class C Shares: | | | | | | | | | | | | | | | | |
Shares sold | | | 97,563 | | | $ | 996,165 | | | | 176,881 | | | $ | 1,824,644 | |
Shares issued in reinvestment of distributions | | | 5,569 | | | | 56,967 | | | | 10,021 | | | | 100,011 | |
Shares redeemeda | | | (87,629 | ) | | | (882,163 | ) | | | (147,058 | ) | | | (1,515,143 | ) |
| | | | |
Net increase (decrease) | | | 15,503 | | | $ | 170,969 | | | | 39,844 | | | $ | 409,512 | |
| | | | |
Class R Shares: | | | | | | | | | | | | | | | | |
Shares sold | | | 5,832 | | | $ | 60,909 | | | | 1,059 | | | $ | 10,958 | |
Shares issued in reinvestment of distributions | | | 483 | | | | 4,975 | | | | 533 | | | | 5,358 | |
Shares redeemed | | | (5,065 | ) | | | (48,616 | ) | | | (1,066 | ) | | | (11,009 | ) |
| | | | |
Net increase (decrease) | | | 1,250 | | | $ | 17,268 | | | | 526 | | | $ | 5,307 | |
| | | | |
Class R6 Shares: | | | | | | | | | | | | | | | | |
Shares sold | | | 23,094 | | | $ | 242,849 | | | | 22,273 | | | $ | 233,301 | |
Shares issued in reinvestment of distributions | | | 1,350 | | | | 14,013 | | | | 642 | | | | 6,497 | |
Shares redeemed | | | (46,241 | ) | | | (437,228 | ) | | | (1,782 | ) | | | (18,363 | ) |
| | | | |
Net increase (decrease) | | | (21,797 | ) | | $ | (180,366 | ) | | | 21,133 | | | $ | 221,435 | |
| | | | |
Advisor Class Shares: | | | | | | | | | | | | | | | | |
Shares sold | | | 5,690,910 | | | $ | 58,760,489 | | | | 5,072,991 | | | $ | 52,995,139 | |
Shares issued in reinvestment of distributions | | | 198,394 | | | | 2,061,319 | | | | 166,635 | | | | 1,688,016 | |
Shares redeemed | | | (6,798,288 | ) | | | (67,795,389 | ) | | | (1,263,815 | ) | | | (13,184,615 | ) |
| | | | |
Net increase (decrease) | | | (908,984 | ) | | $ | (6,973,581 | ) | | | 3,975,811 | | | $ | 41,498,540 | |
aMay include a portion of Class C shares that were automatically converted to Class A.
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
| | |
| Subsidiary | | Affiliation |
| |
K2/D&S Management Co., L.L.C. (K2 Advisors) | | 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 |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 49 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
3. Transactions with Affiliates (continued)
a. Management Fees
The Fund pays an investment management fee to K2 Advisors of 1.60% per year of the average daily net assets of the Fund.
Prior to March 1, 2020, the Fund paid an investment management fee to K2 Advisors of 1.90% per year of the average daily net assets of the Fund.
Under each subadvisory agreement, the below entities provide subadvisory services to the Fund. The subadvisory fees are paid by K2 Advisors and is not an additional expense of the Fund. Each subadvisor is compensated for managing its respective portion of the average daily net assets of the Fund.
|
| Subadvisors |
|
Apollo Credit Management LLC |
|
Chatham Asset Management, LLC |
|
Ellington Global Asset Management, L.L.C. |
|
Emso Asset Management Limited |
|
Medalist Partners, LP |
b. Administrative Fees
Under an agreement with K2 Advisors, FT Services provides administrative services to the Fund. The fee is paid by K2 Advisors based on the Fund’s average daily net assets, and is not an additional expense of the Fund.
c. Distribution Fees
The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s Class A reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Fund’s Class C and R compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate for each class. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31.
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| | | | |
Class A | | | 0.25 | % |
Class C | | | 1.00 | % |
Class R | | | 0.50 | % |
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the year:
| | | | |
Sales charges retained net of commissions paid to unaffiliated brokers/dealers | | $ | 1,176 | |
CDSC retained | | $ | 946 | |
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. In addition, each class reim-
| | | | |
| | | |
50 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
burses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the year ended May 31, 2020, the Fund paid transfer agent fees of $136,837 of which $45,757 was retained by Investor Services.
f. Waiver and Expense Reimbursements
K2 Advisors and Investor Services have contractually agreed in advance to waive or limit their respective fees and to assume as their own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses, expenses related to securities sold short, and certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) for each class of the Fund do not exceed 1.65%, and Class R6 does not exceed 1.59% based on the average net assets of each class until September 30, 2020. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.
Prior to March 1, 2020, expenses (excluding certain fees and expenses as previously disclosed) for each class of the Fund were limited to 1.95% and expenses for Class R6 were limited to 1.89% based on the average net assets of each class.
Prior to October 1, 2019, expenses (excluding certain fees and expenses as previously disclosed) for Class R6 were limited to 1.93% based on the average net assets of the class.
g. Other Affiliated Transactions
At May 31, 2020, Franklin Resources, Inc. owned 20.0% of the Fund’s outstanding shares.
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the year ended May 31, 2020, the custodian fees were reduced as noted in the Statement of Operations.
5. Income Taxes
The tax character of distributions paid during the years ended May 31, 2020 and 2019, was as follows:
| | | | | | | | |
| | | 2020 | | | 2019 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 3,717,821 | | | $ | 3,552,269 | |
Long term capital gains | | | — | | | | 641,660 | |
| | |
Total distributions paid | | $ | 3,717,821 | | | $ | 4,193,929 | |
At May 31, 2020, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:
| | | | |
Cost of investments | | $ | 91,674,783 | |
| |
Unrealized appreciation | | $ | 4,134,169 | |
Unrealized depreciation | | | (11,040,186 | ) |
| |
Net unrealized appreciation (depreciation) | | $ | (6,906,017 | ) |
| |
Distributable earnings | | | | |
Undistributed ordinary income | | $ | 898,385 | |
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 51 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
5. Income Taxes (continued)
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions and wash sales.
The Fund utilized a tax accounting practice to treat a portion of the proceeds from the capital shares redeemed as a distribution from realized capital gains.
6. Investment Transactions
Purchases and sales of investments and securities sold short (excluding short term securities) for the year ended May 31, 2020, aggregated $174,998,340 and $165,949,643, respectively.
7. Credit Risk and Defaulted Securities
At May 31, 2020, the Fund had 33.9% of its portfolio invested in high yield, senior secured floating rate loans, or other securities rated below investment grade and unrated securities, if any. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.
The Fund may purchase the pre-default or defaulted debt of distressed companies. Distressed companies are financially troubled and could be or are already involved in financial restructuring or bankruptcy. Risks associated with purchasing these securities include the possibility that the bankruptcy or other restructuring process takes longer than expected, or that distributions in restructuring are less than anticipated, either or both of which may result in unfavorable consequences to the Fund. If it becomes probable that the income on debt securities, including those of distressed companies, will not be collected, the Fund discontinues accruing income and recognizes an adjustment for uncollectible interest.
At May 31, 2020, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $2,949,264, representing 3.1% of the Fund’s net assets. For information as to specific securities, see the accompanying Statement of Investments.
8. 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 Fund, its ability to buy and sell fund investments at appropriate valuations and its ability to achieve its investment objectives.
9. Restricted Securities
The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Fund may have registration rights for restricted securities. The issuer generally incurs all registration costs.
At May 31, 2020, investments in restricted securities, excluding securities exempt from registration under the 1933 Act, were as follows:
| | | | | | | | | | | | | | |
| Shares | | Issuer | | Acquisition Date | | | Cost | | | Value | |
923 | | Acosta Inc. | | | 12/31/19 | | | $ | 8,144 | | | $ | 8,144 | |
745 | | Acosta Inc., cvt. Pfd. | | | 12/31/19 | | | | 50,262 | | | | 50,262 | |
947 | | aOne Call Corp. | | | 10/28/19 | | | | 113,545 | | | | 106,011 | |
3,821 | | aOne Call Corp., cvt. Pfd. | | | 10/28/19 | | | | 458,341 | | | | 427,927 | |
| | |
Total Restricted Securities (Value is 0.6% of Net Assets) | | | $ | 630,292 | | | $ | 592,344 | |
aThe Fund also invests in unrestricted securities of this issuer, valued at $ 450,294 as of May 31, 2020.
| | | | |
| | | |
52 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
10. Unfunded Loan Commitments
The Fund enters into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrowers’ discretion. Unfunded loan commitments and funded portions of credit agreements are marked to market daily and any unrealized appreciation or depreciation is included in the Statement of Assets and Liabilities and Statement of Operations. Funded portions of credit agreements are presented in the Statement of Investments.
At May 31, 2020, unfunded commitments were as follows:
| | | | |
| Borrower | | Unfunded Commitment | |
Areas, Term Loan B1 | | | $ 34,447 | |
Pacific Gas & Electric, Term Loan | | | 105,116 | |
PetSmart Inc., Term Loan B1 | | | 225,521 | |
Refresco Group, Term Loan B1 | | | 7,292 | |
Verisure Holding, Term Loan L | | | 68,956 | |
| |
| | | $441,332 | |
11. Other Derivative Information
At May 31, 2020, the investments in derivative contracts are reflected in the Statement of Assets and Liabilities as follows:
| | | | | | | | | | | | |
| | | Asset Derivatives | | | | | Liability Derivatives | | | |
Derivative Contracts Not Accounted for as Hedging Instruments | | Statement of Assets and Liabilities Location | | Fair Value | | | Statement of Assets and Liabilities Location | | Fair Value | |
Interest rate contracts | | Variation margin on centrally cleared swap contracts | | $ | 42,432 | a | | Variation margin on centrally cleared swap contracts | | $ | 311,185 | a |
| | OTC swap contracts (upfront payments) | | | 412,879 | | | | | | | |
| | Unrealized appreciation on OTC swap contracts | | | 4,150 | | | Unrealized depreciation on OTC swap contracts | | | 95,353 | |
Foreign exchange contracts | | Unrealized appreciation on OTC forward exchange contracts | | | 479,020 | | | Unrealized depreciation on OTC forward exchange contracts | | | 286,489 | |
Credit contracts | | Variation margin on centrally cleared swap contracts | | | 201,060 | a | | Variation margin on centrally cleared swap contracts | | | 40,937 | a |
| | OTC swap contracts (upfront payments) | | | 1,003,985 | | | OTC swap contracts (upfront receipts) | | | 247,921 | |
| | Unrealized appreciation on OTC swap contracts | | | 813,166 | | | Unrealized depreciation on OTC swap contracts | | | 209,612 | |
Equity contracts | | Investments in securities, at value | | | 226,671 | b | | Options written, at value | | | 39,813 | |
| | Unrealized appreciation on OTC swap contracts | | | 29,411 | | | Unrealized depreciation on OTC swap contracts | | | 261 | |
| | | | | | | | Variation margin on futures contracts | | | 95,833 | a |
| | | | | | | | | | | | |
Totals | | | | $ | 3,212,774 | | | | | $ | 1,327,404 | |
| | | | | | | | | | | | |
a This amount reflects the cumulative appreciation (depreciation) of futures contracts and centrally cleared swap contracts as reported in the Statement of Investments. Only the variation margin receivable/payable at year end is separately reported within the Statement of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.
b Purchased option contracts are included in investments in securities, at value in the Statement of Assets and Liabilities.
| | | | |
| | | |
| franklintempleton.com | | Annual Report | | 53 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
11. Other Derivative Information (continued)
For the year ended May 31, 2020, the effect of derivative contracts in the Statement of Operations was as follows:
| | | | | | | | | | | | | | | | | | | | |
Derivative Contracts Not Accounted for as Hedging Instruments | | Statement of Operations Location | | Net Realized Gain (Loss) for the 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: | | | | | | | | |
Interest rate contracts | | Investments | | | | | | | $ (8,020 | )a | | | | | | | | | | |
| | Futures contracts | | | | | | | (33,127 | ) | | Futures contracts | | | | | | | $ 12,891 | |
| | Swap contracts | | | | | | | 1,338 | | | Swap contracts | | | | | | | (245,990 | ) |
Foreign exchange contracts | | Forward exchange contracts | | | | | | | 4,286 | | | Forward exchange contracts | | | | | | | 208,413 | |
Credit contracts | | Swap contracts | | | | | | | 735,421 | | | Swap contracts | | | | | | | 855,700 | |
Equity contracts | | Investments | | | | | | | (437,471 | )a | | Investments | | | | | | | (46,009 | )a |
| | Written options | | | | | | | 93,398 | | | Written options | | | | | | | (6,743 | ) |
| | Futures contracts | | | | | | | 78,283 | | | Futures contracts | | | | | | | (96,069 | ) |
| | Swap contracts | | | | | | | (551,960 | ) | | Swap contracts | | | | | | | 70,009 | |
| | | | | | | | | | | | | | | | | | | | |
Totals | | | | | | | | | $(117,852 | ) | | | | | | | | | $ 752,202 | |
| | | | | | | | | | | | | | | | | | | | |
aPurchased option contracts are included in net realized gain (loss) from investments and net change in unrealized appreciation (depreciation) on investments in the Statement of Operations.
For the year ended May 31, 2020, the average month end notional amount of options, futures contracts and swap contracts represented 430,650 shares/units, $512,583 and $28,907,256, respectively. The average month end contract value of forward exchange contracts was $12,322,002.
At May 31, 2020, OTC derivative assets and liabilities are as follows:
| | | | | | | | |
| | | Gross Amounts of Assets and Liabilities Presented in the Statement of Assets and Liabilities | |
| | | Assetsa | | | Liabilitiesa | |
Derivatives | | | | | | | | |
Forward Exchange Contracts | | | $ 479,020 | | | | $286,489 | |
Options Purchased | | | 34,072 | | | | — | |
Swap Contracts | | | 2,263,591 | | | | 553,147 | |
Total | | | $2,776,683 | | | | $839,636 | |
aAbsent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.
| | | | |
| | | |
54 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
At May 31, 2020, OTC derivative assets, which may be offset against OTC derivative liabilities and collateral received from the counterparty, are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Amounts Not Offset in the Statement of Assets and Liabilities | | | | |
| | | | | |
| | |
| Gross Amounts
of Assets Presented in the Statement of Assets and Liabilities |
| |
| Financial
Instruments Available for Offset |
| |
| Financial
Instruments Collateral Received |
a,b | |
| Cash
Collateral Received |
a | |
| Net Amount (Not
less than zero) |
|
Counterparty | | | | | | | | | | | | | | | | | | | | |
BOFA | | | $ 431,250 | | | | $ (67,918 | ) | | | $ — | | | | $ — | | | | $ 363,332 | |
BZWS | | | 479,497 | | | | (113,428 | ) | | | — | | | | (366,069 | ) | | | — | |
CITI | | | 70,211 | | | | (29,430 | ) | | | — | | | | — | | | | 40,781 | |
DBAB | | | — | | | | — | | | | — | | | | — | | | | — | |
FBCO | | | 221,802 | | | | (26,188 | ) | | | — | | | | — | | | | 195,614 | |
GSCO | | | 598,866 | | | | (128,560 | ) | | | — | | | | (410,000 | ) | | | 60,306 | |
JPHQ | | | 343,368 | | | | (130,239 | ) | | | (38,486 | ) | | | — | | | | 174,643 | |
JPHQd | | | 476,820 | | | | — | | | | — | | | | — | | | | 476,820 | |
MSCO | | | 149,634 | | | | (21,691 | ) | | | — | | | | — | | | | 127,943 | |
MSCS | | | 5,235 | | | | (2,250 | ) | | | — | | | | — | | | | 2,985 | |
Total | | | $2,776,683 | | | | $(519,704 | ) | | | $(38,486 | ) | | | $(776,069 | ) | | | $1,442,424 | |
At May 31, 2020, OTC derivative liabilities, which may be offset against OTC derivative assets and collateral pledged to the counterparty, are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Amounts Not Offset in the Statement of Assets and Liabilities | | | | |
| | | | | |
| | |
| Gross Amounts
of Liabilities Presented in the Statement of Assets and Liabilities |
| |
| Financial
Instruments Available for Offset |
| |
| Financial
Instruments Collateral Pledged |
c | |
| Cash
Collateral Pledged |
a | |
| Net Amount (Not
less than zero) |
|
Counterparty | | | | | | | | | | | | | | | | | | | | |
BOFA | | | $ 67,918 | | | | $ (67,918 | ) | | | $ — | | | | $ — | | | | $ — | |
BZWS | | | 113,428 | | | | (113,428 | ) | | | — | | | | — | | | | — | |
CITI | | | 29,430 | | | | (29,430 | ) | | | — | | | | — | | | | — | |
DBAB | | | 46,881 | | | | — | | | | — | | | | (46,881 | ) | | | — | |
FBCO | | | 26,188 | | | | (26,188 | ) | | | — | | | | — | | | | — | |
GSCO | | | 128,560 | | | | (128,560 | ) | | | — | | | | — | | | | — | |
JPHQ | | | 130,239 | | | | (130,239 | ) | | | — | | | | — | | | | — | |
JPHQd | | | 273,051 | | | | — | | | | — | | | | — | | | | 273,051 | |
MSCO | | | 21,691 | | | | (21,691 | ) | | | — | | | | — | | | | — | |
MSCS | | | 2,250 | | | | (2,250 | ) | | | — | | | | — | | | | — | |
Total | | | $839,636 | | | | $(519,704 | ) | | | $ — | | | | $(46,881 | ) | | | $273,051 | |
aIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit the collateral amounts to avoid the effect of over collateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.
bAt May 31, 2020, the Fund received U.S. Treasury Bonds and Notes as collateral for derivatives.
cSee the accompanying Statement of Investments for securities pledged as collateral for derivatives.
dRepresents derivatives not subject to an ISDA master agreement.
See Note 1(e) regarding derivative financial instruments.
See Abbreviations on page 58.
| | | | |
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| franklintempleton.com | | Annual Report | | 55 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
12. Credit Facility
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 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.
Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statement of Operations. During the year ended May 31, 2020, the Fund did not use the Global Credit Facility.
13. Fair Value Measurements
The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:
| | • | | Level 1 – quoted prices in active markets for identical financial instruments |
| | • | | Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.) |
| | • | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments) |
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
A summary of inputs used as of May 31, 2020, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | |
Assets: | | | | | | | | | | | | | | | | |
Investments in Securities:a | | | | | | | | | | | | | | | | |
Equity Investmentsb | | $ | 2,230,759 | | | $ | 79,011 | | | $ | 592,344 | c | | $ | 2,902,114 | |
Convertible Bonds | | | — | | | | 1,296,834 | | | | — | | | | 1,296,834 | |
Corporate Bonds and Notes | | | — | | | | 18,444,895 | | | | — | | | | 18,444,895 | |
Corporate Bonds and Notes in Reorganization | | | — | | | | 2,006,226 | | | | — | | | | 2,006,226 | |
Senior Floating Rate Interests | | | — | | | | 3,226,889 | | | | — | | | | 3,226,889 | |
Credit-Linked Notes | | | — | | | | 202,642 | | | | — | | | | 202,642 | |
Foreign Government and Agency Securities | | | — | | | | 5,197,136 | | | | — | | | | 5,197,136 | |
U.S. Government and Agency Securities | | | — | | | | 1,211,311 | | | | — | | | | 1,211,311 | |
Asset-Backed Securities and Commercial Mortgage-Backed | | | | | | | | | | | | | | | | |
Securities | | | — | | | | 47,651,488 | | | | 462,124 | | | | 48,113,612 | |
Municipal Bonds in Reorganization | | | — | | | | 943,038 | | | | — | | | | 943,038 | |
Options Purchased | | | 192,599 | | | | 34,072 | | | | — | | | | 226,671 | |
Short Term Investments | | | 5,035,359 | | | | 4,308,626 | | | | — | | | | 9,343,985 | |
Total Investments in Securities | | $ | 7,458,717 | | | $ | 84,602,168 | | | $ | 1,054,468 | | | $ | 93,115,353 | |
| | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Other Financial Instruments: | | | | | | | | | | | | | | | | |
Forward Exchange Contracts | | $ | — | | | $ | 479,020 | | | $ | — | | | $ | 479,020 | |
Swap Contracts | | | — | | | | 1,090,219 | | | | — | | | | 1,090,219 | |
Unfunded Loan Commitments | | | — | | | | 45,376 | | | | — | | | | 45,376 | |
Total Other Financial Instruments | | $ | — | | | $ | 1,614,615 | | | $ | — | | | $ | 1,614,615 | |
Liabilities: | | | | | | | | | | | | | | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | |
Options Written | | $ | 39,813 | | | $ | — | | | $ | — | | | $ | 39,813 | |
Securities Sold Shorta | | | 1,593,415 | | | | 8,259,236 | | | | — | | | | 9,852,651 | |
Futures Contracts | | | 95,833 | | | | — | | | | — | | | | 95,833 | |
Forward Exchange Contracts | | | — | | | | 286,489 | | | | — | | | | 286,489 | |
Swap Contracts | | | — | | | | 657,348 | | | | — | | | | 657,348 | |
Total Other Financial Instruments | | $ | 1,729,061 | | | $ | 9,203,073 | | | $ | — | | | $ | 10,932,134 | |
aFor detailed categories, see the accompanying Statement of Investments.
bIncludes common, preferred and convertible preferred stocks as well as other equity interests.
cIncludes securities determined to have no value at May 31, 2020.
A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the beginning and/or end of the year. At May 31, 2020, the reconciliation of assets, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| Balance at
Beginning of Year |
| | | Purchases | | | | Sales | | |
| Transfer
Into (Out of) Level 3 |
a | |
| Cost Basis
Adjustments |
| |
| Net
Realized Gain (Loss) |
| |
| Net
Unrealized Appreciation (Depreciation) |
| |
| Balance at
End of Year |
| |
| Net Change
in Unrealized Appreciation (Depreciation) on Assets Held at Year End |
|
| | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Investmentsb | | | $ — | | | | $ — | | | | $ — | | | | $ 630,292 | c | | | $ — | | | | $ — | | | | $(37,948 | ) | | | $ 592,344 | c | | | $(37,948 | ) |
Asset-Backed Securities and Commercial Mortgage-Backed Securities | | | — | | | | — | | | | — | | | | 462,124 | | | | — | | | | — | | | | — | | | | 462,124 | | | | — | |
Total Investments in Securities | | | $ — | | | | $ — | | | | $ — | | | | $1,092,416 | | | | $ — | | | | $ — | | | | $(37,948 | ) | | | $1,054,468 | | | | $(37,948 | ) |
aThe investments were transferred into Level 3 as a result of the unavailability of a quoted market price in an active market for identical securities and other significant observable valuation inputs. May include amounts related to a corporate action.
bIncludes common and convertible preferred stocks.
cIncludes securities determined to have no value at May 31, 2020.
| | | | |
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| franklintempleton.com | | Annual Report | | 57 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
Significant unobservable valuation inputs for material Level 3 financial instruments and impact to fair value as a result of changes in unobservable valuation inputs as of May 31, 2020, are as follows:
| | | | | | | | | | | | | | | | | | | | |
| Description | |
| Fair Value at
End of year |
| |
| Valuation
Technique |
| | | Unobservable Inputs | | |
| Amount/
Range |
| |
| Impact to Fair
Value if input Increases |
a |
| |
Assets: | | | | | | | | | | | | | | | | | | | | |
Investments in Securities: | | | | | | | | | | | | | | | | | | | | |
Equity Investmentsb | | | $ 533,938 | | | | Discounted cash flow | | | | Discount rate | | | | 9.8% - 11.8% | | | | Decrease | c |
| | | | | | | | | | | | |
| | | | | | | | | | | Exit multiple | | | | 9.0x - 11.0x | | | | Increase | c |
| | | | | | | | |
| | | | | | | Market comparables | | | | EV / Revenue multiple | | | | 1.3x - 1.5x | | | | Increase | c |
| | | | | | | | | | | | |
| | | | | | | | | | | EV / EBITDA multiple | | | | 11.0x - 13.0x | | | | Increase | c |
| | | | | | | | |
| | | | | | | Market transaction | | | | EV / EBITDA multiple | | | | 11.5x - 13.5x | | | | Increase | c |
| |
All Other Investmentsd | | | 520,530 | e | | | | | | | | | | | | | | | | |
| |
Total | | | $1,054,468 | | | | | | | | | | | | | | | | | |
| |
aRepresents the directional change in the fair value of the Level 3 financial instruments that would result from a significant and reasonable increase in the corresponding input. A significant and reasonable decrease in the input would have the opposite effect. Significant impacts, if any, to fair value and/or net assets have been indicated.
bIncludes common and convertible preferred stocks.
cRepresents a significant impact to fair value and net assets.
dIncludes fair value of immaterial financial instruments developed using various valuation techniques and unobservable inputs. May also include financial instruments with values derived using private transaction prices or non-public third party pricing information which is unobservable.
eIncludes securities determined to have no value at May 31, 2020.
Abbreviations List
EBITDA Earnings before interest, taxes, depreciation and amortization
EV Enterprise value
14. New Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board 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 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 is currently evaluating the impact, if any, of applying this ASU.
15. Subsequent Events
The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.
| | | | | | | | | | | | | | |
Abbreviations Counterparty | | Currency | | Selected Portfolio | | Index |
| BOFA | | Bank of America Corp. | | EUR | | Euro | | ADR | | American Depositary Receipt | | CDX.NA.HY | | CDX North |
| BZWS | | Barclays Bank PLC | | HUF | | Hungarian Forint | | ARM | | Adjustable Rate Mortgage | | | | America |
| CITI | | Citigroup, Inc. | | JPY | | Japanese Yen | | CLO | | Collateralized Loan Obligation | | | | High Yield |
| DBAB | | Deutsche Bank AG | | MXN | | Mexican Peso | | CMT | | Constant Maturity Treasury Index | | | | Index |
| FBCO | | Credit Suisse Group AG | | RUB | | Russian Ruble | | ETF | | Exchange Traded Fund | | | | |
| GSCO | | The Goldman Sachs Group, Inc. | | UAH | | Ukraine Hryvnia | | FHLMC | | Federal Home Loan Mortgage Corp. | | | | |
| JPHQ | | JP Morgan Chase & Co. | | USD | | United States Dollar | | FRN | | Floating Rate Note | | | | |
| MSCO | | Morgan Stanley | | | | | | GO | | General Obligation | | | | |
| MSCS | | Morgan Stanley Capital | | | | | | IO | | Interest Only | | | | |
| | Services LLC | | | | | | LIBOR | | London InterBank Offered Rate | | | | |
| | | | | | | | PIK | | Payment In-Kind | | | | |
| | | | | | | | REIT | | Real Estate Investment Trust | | | | |
| | | | | | | | SFR | | Single Family Revenue | | | | |
| | | | |
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58 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Franklin Alternative Strategies Funds
and Shareholders of Franklin K2 Long Short Credit Fund:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Franklin K2 Long Short Credit Fund (the “Fund”) (one of the funds constituting the Franklin Alternative Strategies Funds), including the statement of investments, as of May 31, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the four years in the period then ended and the period from September 8, 2015 (commencement of operations) through May 31, 2016 and 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 Franklin K2 Long Short Credit Fund (one of the funds constituting the Franklin Alternative Strategies Funds) at May 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the four years in the period then ended and the period from September 8, 2015 (commencement of operations) through May 31, 2016, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s 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 Fund 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 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. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
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 procedures included confirmation of securities owned as of May 31, 2020, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. 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. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Franklin investment companies since 1987.
Boston, MA
July 27, 2020
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| franklintempleton.com | | Annual Report | | 59 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 LONG SHORT CREDIT FUND
Tax Information (unaudited)
Under Section 871(k)(2)(C) of the Internal Revenue Code, the Fund hereby reports the maximum amount allowable but no less than $919,439 as 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 May 31, 2020.
| | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Board Members and Officers
The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Funds, 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 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 |
| | | | | |
Edward I. Altman, Ph.D. (1941) One Franklin Parkway
San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 11 | | None |
|
Principal Occupation During at Least the Past 5 Years: Max L. Heine Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School of Business, New York University; editor and author of numerous financial publications; financial consultant; an adviser to numerous financial and publishing organizations; and formerly, Vice Director, Salomon Center, Stern School of Business, New York University. |
| | | | | |
Ann Torre Bates (1958) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee and Chairperson | | Trustee since 2011 and Chairperson since January 2020 | | 30 | | Ares Capital Corporation (specialty finance company) (2010-present), United Natural Foods, Inc. (distributor of natural, organic and specialty foods) (2013-present), formerly, Allied Capital Corporation (financial services) (2003-2010), SLM Corporation (Sallie Mae) (1997-2014) and Navient Corporation (loan management, servicing and asset recovery) (2014-2016). |
|
Principal Occupation During at Least the Past 5 Years: Director of various companies; and formerly, Executive Vice President and Chief Financial Officer, NHP Incorporated (manager of multifamily housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc. (until 1995). |
| | | | | |
Burton J. Greenwald (1929) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 11 | | Franklin Templeton Emerging Markets Debt Opportunities Fund PLC (1999- present) and Fiduciary International Ireland Limited (1999-2015). |
|
Principal Occupation During at Least the Past 5 Years: Managing Director, B.J. Greenwald Associates (management consultants to the financial services industry); and formerly, Chairman, Fiduciary Trust International Funds; Executive Vice President, L.F. Rothschild Fund Management, Inc.; President and Director, Merit Mutual Funds; President, Underwriting Division and Director, National Securities & Research Corporation; Governor, Investment Company Institute; and Chairman, ICI Public Information Committee. |
| | | | | |
Jan Hopkins Trachtman (1947) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 11 | | FinTech Acquisition Corp. III (special purpose fintech acquisition company) (2018-present) |
|
Principal Occupation During at Least the Past 5 Years: President and Founder, The Jan Hopkins Group (communications consulting firm); serves on Alumni Advisory Board of Knight Bagehot Fellowship; and formerly, President, Economic Club of New York (2007-2015); Anchor/Correspondent, CNN Financial News (until 2003); Managing Director and Head of Client Communications, Citigroup Private Bank (until 2005); Off-Air Reporter, ABC News’ World News Tonight; and Editor, CBS Network News. |
| | | | |
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| franklintempleton.com | | Annual Report | | 61 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Independent Board Members (continued)
| | | | | | | | |
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 |
| | | | | |
Keith E. Mitchell (1954) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 11 | | None |
|
Principal Occupation During at Least the Past 5 Years: Director of various boards of asset management firms; and formerly, Managing Member, Mitchell, Hartley & Bechtel Advisers, LLC (formerly, Mitchell Advisers, LLC) (advisory firm) (2003-2015) and Managing Director, Putman Lovell NBF. |
| | | | | |
David W. Niemiec (1949) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2015 | | 30 | | Hess Midstream LP (oil and gas midstream infrastructure) (2017- present). |
|
Principal Occupation During at Least the Past 5 Years: Advisor, Saratoga Partners (private equity fund); and formerly, Managing Director, Saratoga Partners (1998-2001) and SBC Warburg Dillon Read (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc. (investment banking) (1991-1997); and Chief Financial Officer, Dillon, Read & Co. Inc. (1982-1997). |
| | | | | |
Charles Rubens II (1930) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 11 | | None |
|
Principal Occupation During at Least the Past 5 Years: Private investor and president of non-profit organizations; and formerly, an executive of Time, Inc.; and Trustee of Colorado College. |
| | | | | |
Robert E. Wade (1946) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 30 | | El Oro Ltd (investments) (2003-2019). |
|
Principal Occupation During at Least the Past 5 Years: Attorney at law engaged in private practice as a sole practitioner (1972-2008) and member of various boards. |
| | | | | |
Gregory H. Williams (1943) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2015 | | 11 | | None |
|
Principal Occupation During at Least the Past 5 Years: Private investor; Consultant; and formerly, President, University of Cincinnati (2009-2012); President, The City College of New York (2001- 2009); Dean, College of Law, Ohio State University (1993-2001); and Associate Vice President, Academic Affairs and Professor of Law, University of Iowa (1977-1993). |
|
| 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) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 140 | | None |
|
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. |
| | | | |
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62 | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Interested Board Members and Officers (continued)
| | | | | | | | |
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 |
| | | | | |
**Jennifer M. Johnson (1964) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2015 | | 51 | | None |
|
Principal Occupation During at Least the Past 5 Years: Chief Executive Officer, President 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 four of the investment companies in Franklin Templeton; and formerly, Chief Operating Officer and Executive Vice President, Franklin Resources, Inc. (1994-2015); Executive Vice President of Operations and Technology, Franklin Resources, Inc. (2005-2010); and Senior Vice President, Franklin Resources, Inc. (2003-2005). |
| | | | | |
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2012 | | Not Applicable | | Not Applicable |
|
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) 280 Park Avenue New York, NY 10017 | | Interim Chief Compliance Officer | | Since January 2020 | | Not Applicable | | Not Applicable |
|
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. |
| | | | | |
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President and Secretary | | Since 2011 | | Not Applicable | | Not Applicable |
|
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. |
| | | | | |
Madison S. Gulley (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | President and Chief Executive Officer – Investment Management | | Since 2017 | | Not Applicable | | Not Applicable |
|
Principal Occupation During at Least the Past 5 Years: President, FASA, LLC; Executive Vice President, Franklin Advisers, Inc., Franklin Templeton Institutional, LLC, Templeton Global Advisors Limited and Templeton Investment Counsel, LLC; Executive Vice President, Alternative Strategies, K2 Advisors, LLC and K2/D&S Management Co., LLC; Senior Vice President, Franklin Templeton Companies, LLC; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of one of the investment companies in Franklin Templeton. |
| | | | | |
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906 | | Chief Executive Officer – Finance and Administration | | Since 2017 | | Not Applicable | | Not Applicable |
|
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). |
| | | | |
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| franklintempleton.com | | Annual Report | | 63 |
FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
Interested Board Members and Officers (continued)
| | | | | | | | |
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 |
| | | | | |
Robert G. Kubilis (1973) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Chief Financial Officer, Chief Accounting Officer and Treasurer | | Since 2015 | | Not Applicable | | Not Applicable |
|
Principal Occupation During at Least the Past 5 Years: Treasurer, U.S. Fund Administration & Reporting and officer of 15 of the investment companies in Franklin Templeton. |
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Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President – AML Compliance | | Since 2016 | | Not Applicable | | Not Applicable |
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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. |
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Navid J. Tofigh (1972) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2015 | | Not Applicable | | Not Applicable |
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Principal Occupation During at Least the Past 5 Years: Associate General Counsel and officer of 41 of the investment companies in Franklin Templeton. |
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Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2011 | | Not Applicable | | Not Applicable |
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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. |
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Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2012 | | Not Applicable | | Not Applicable |
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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. |
*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. Jennifer M. Johnson is considered to be an interested person of the Fund under the federal securities laws due to her position as an officer of Resources.
Note 1: Gregory E. Johnson and Jennifer M. Johnson are siblings.
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 U.S. 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 each of Edward I. Altman, Ph.D., Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes that Messrs. Altman and Niemiec and Ms. Bates qualify as such an expert in view of their extensive business background and experience. Mr. Altman has served as a member of the Fund Audit Committee since 2011. He currently serves as a Max L. Heine Professor of Finance, Emeritus and Director of The Credit and Debt Markets Research Program, Salomon Center, Stern School of Business, New York University. Ms. Bates has served as a member of the Fund Audit Committee since 2011. She currently serves as a director of Ares Capital Corporation (2010-present) and United Natural Foods, Inc. (2013-present) and was formerly a director of Navient Corporation from 2014 to 2016, SLM Corporation from 1997 to 2014 and Allied Capital Corporation from 2003 to 2010, Executive Vice President and Chief Financial Officer of NHP Incorporated from 1995 to 1997 and Vice President and
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Treasurer of US Airways, Inc. until 1995. Mr. Niemiec has served as a member of the Fund Audit Committee since 2015, currently serves as an Advisor to Saratoga Partners and was formerly its Managing Director from 1998 to 2001 and serves as a director of Hess Midstream Partners LP (2017-present). Mr. Niemiec was formerly a director of Emeritus Corporation from 1999 to 2010 and OSI Pharmaceuticals, Inc. from 2006 to 2010, Managing Director of SBC Warburg Dillon Read from 1997 to 1998, and was Vice Chairman from 1991 to 1997 and Chief Financial Officer from 1982 to 1997 of Dillon, Read & Co. Inc. As a result of such background and experience, the Board believes that Messrs. Altman and Niemiec and Ms. Bates have each 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. Messrs. Altman and Niemiec and Ms. Bates are independent Board members as that term is defined under the applicable U.S. 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.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 LONG SHORT CREDIT FUND
Shareholder Information
Board Approval of Investment
Management Agreement and
Sub-Advisory Agreements
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Franklin K2 Long Short Credit Fund
(Fund)
The Board of Trustees (Board) of Franklin Alternative Strategies Funds (the Trust), including a majority of trustees that are not “interested persons” as such term is defined in section 2(a)(19) of the Investment Company Act of 1940 (hereinafter referred to as “independent trustees”), at a meeting held on May 14, 2020, unanimously approved the renewal of the Fund’s investment management agreement with K2/D&S Management Co., L.L.C. (K2 Advisors), and of each sub-advisory agreement between K2 Advisors and each of following sub-advisors (the Sub-Advisors):
Apollo Credit Management, LLC
Chatham Asset Management, LLC
Ellington Global Asset Management, L.L.C.
EMSO Asset Management Limited Medalist Partners, LP
Prior to a meeting of all of the trustees for the purpose of considering such renewal, the independent trustees participated in two other meetings held in connection with the renewal process. Throughout the process, the independent trustees received assistance and advice from and met separately with independent counsel. The independent trustees met with and interviewed officers of K2 Advisors (including portfolio managers), the transfer agent and shareholder services group and the distributor. In approving the renewal of the investment management agreement and the sub-advisory agreements for the Fund, the Board, including the independent trustees, determined that the investment management fee structure was fair and reasonable and that continuance of the agreement was in the best interests of the Fund and its shareholders.
In making the foregoing approvals, the Board considered various materials related to the investment management agreement and the sub-advisory agreements including: (1) a copy of the investment management agreement and sub-advisory agreements; (2) information describing the nature, quality and extent of services that K2 Advisors and each Sub-Advisor provided, and are expected to provide, to the Fund, and the investment management fees and sub-advisory fees payable to K2 Advisors and each Sub-Advisor; (3) reports from K2 Advisors on the continued diligence conducted on each Sub-Advisor and the reasons
for recommending renewal of each of the sub-advisory agreements, including, but not limited to, each Sub-Advisor’s background, experience, personnel, operations, policies, procedures and compliance functions; and (4) a report from the Trust’s Interim Chief Compliance Officer regarding K2 Advisors’ and each Sub-Advisor’s compliance program and capabilities, including policies and procedures in place to address potential conflicts of interest, and the diligence undertaken by the Trust’s Interim Chief Compliance Officer with respect thereto. The Board also noted that it received an annual report on all payments made by Franklin Templeton Investments (FTI) or the Fund to financial intermediaries engaged in the sale of Fund shares, as well as a memorandum relating to third-party servicing arrangements in response to a Guidance Update from the U.S. Securities and Exchange Commission (SEC) relating to mutual fund distribution and sub-accounting fees.
The Board also took into account information furnished throughout the year at regular Board meetings, as well as information specifically requested and furnished for the renewal process, which culminated in the meetings referred to above for the specific purpose of considering such agreements. Information furnished throughout the year included, among others, reports on the Fund’s investment performance, expenses, portfolio composition, derivatives, asset segregation, portfolio turnover, Rule 12b-1 plan, distribution, shareholder servicing, legal and compliance matters, pricing of securities, sales and redemptions, and marketing support payments made to financial intermediaries, as well as a third-party survey of transfer agent fees charged to funds within the FTI complex in comparison with those charged to other fund complexes deemed comparable. Also, related financial statements and other information about the scope and quality of services provided by K2 Advisors and its affiliates and enhancements to such services over the past year were provided. In addition, the trustees received periodic reports throughout the year and during the renewal process relating to compliance with the Fund’s investment policies and restrictions. During the renewal process, the independent trustees considered K2 Advisors’ methods of operation within the Franklin Templeton group and its activities on behalf of other clients.
The information obtained by the trustees during the renewal process also included a special report prepared by Broad-ridge Financial Solutions, Inc., an independent third-party analyst that utilizes data from Lipper, Inc. (“Lipper”), comparing the Fund’s investment performance and expenses with those of other mutual funds deemed comparable to such
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Fund as selected by Lipper (Broadridge Section 15(c) Report). The trustees reviewed the Broadridge Section 15(c) Report and its usefulness in the renewal process with respect to matters such as comparative fees, expenses, expense ratios and performance. The Board considered K2 Advisors’ views that the peer group determined by Lipper for comparison purposes may not be an entirely appropriate representation of the Fund’s peer universe. K2 Advisors explained that the universe of funds that are managed using multi-manager, multi-strategy structures, like the Fund, continues to evolve, and has presented challenges in identifying an appropriate set of peers for the Fund. It was noted by K2 Advisors that the peer group compiled by Lipper includes single-manager funds which, due to their nature and relative simplicity, have lower expense ratios and are not true peers for fee comparison purposes (“Base Expense Group”). Because some of the sponsors of funds with multi-manager strategies that K2 Advisors considers to be peers were excluded from the peer group determined by Lipper, K2 Advisors requested a second peer group including funds that K2 Advisors considers to be peer funds (“Alternate Expense Group”). While noting the limitations of the Broadridge Section 15(c) Report, the Board concluded that the Broadridge Section 15(c) Report was helpful in the performance of its duties.
In addition, the trustees received a Profitability Study (Profitability Study) prepared by management discussing the profitability to FTI from its overall U.S. fund operations, as well as on an individual fund-by-fund basis. Over the past year, the Board and counsel to the independent trustees continued to receive reports on management’s handling of recent regulatory inquiries and pending legal actions against K2 Advisors and its affiliates. The independent trustees were satisfied with the actions taken to date by management in response to such regulatory and legal matters. The independent trustees also received reports from the Trust’s Interim Chief Compliance Officer on regulatory inquiries and pending legal actions against the Sub-Advisors applicable to the services provided by the Sub-Advisors to the Fund and noted that there were not any issues in this regard that should prevent the renewal of the sub-advisory agreements.
The trustees reviewed the personnel, operations, financial condition, and investment management capabilities, methodologies and resources of K2 Advisors and each Sub-Advisor, including each management team’s expertise in the management of other alternative strategies funds. As part of this review, particular attention was given to (1) the diligent risk management program of K2 Advisors and its parent, including those aspects of the program related to selecting and
overseeing sub-advisors to the Fund and continual monitoring and management of cybersecurity, liquidity and counterparty credit risk, (2) each Sub-Advisor’s risk management program, and (3) derivatives and other complex instruments that are held and expected to be held by the Fund and how such instruments are used to carry out the Fund’s investment goal.
The Board also took into account, among other things, management’s efforts in establishing a global credit facility for the benefit of the Fund and other accounts managed by FTI to provide a source of cash for temporary and emergency purposes or to meet unusual redemption requests as well as the strong financial position of K2 Advisors’ parent company and its commitment to the mutual fund business. The Board noted management’s continuing efforts and expenditures in establishing effective business continuity plans and developing strategies to address areas of heightened concern in the mutual fund industry, such as cybersecurity and liquidity risk management. The Board also recognized management’s commitment to facilitating Board oversight of particular areas, including derivatives and payments to intermediaries, by enhanced reporting. In addition, the Board received updates from management on the compliance of the investment manager with comprehensive rules and regulations promulgated by the SEC and the U.S. Commodity Futures Trading Commission.
In addition to the above and other matters considered by the trustees throughout the course of the year, the following discussion relates to certain primary factors relevant to the Board’s decision. This discussion of the information and factors considered by the Board (including the information and factors discussed above) is not intended to be exhaustive, but rather summarizes certain factors considered by the Board. In view of the wide variety of factors considered, the Board did not, unless otherwise noted, find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual trustees may have assigned different weights to various factors.
NATURE, EXTENT AND QUALITY OF SERVICES. The trustees reviewed the nature, extent and quality of the services provided, and to be provided, by K2 Advisors and each Sub-Advisor. In this regard, they reviewed the Fund’s investment goal and K2 Advisors’ and each Sub-Advisor’s investment strategy and sub-strategy, and K2 Advisors’ and each Sub-Advisor’s ability to implement such investment strategy and/or sub-strategy, including, but not limited to, K2 Advisors’ and each Sub-Advisor’s trading practices, investment decision processes and reputation.
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The Board noted that the Fund employs a “manager of managers” structure, whereby K2 Advisors is responsible for selecting sub-advisors (subject to Board approval), allocating the Fund’s assets among them, and overseeing the sub-advisors’ day-to-day management of the Fund’s assets. The Board noted the responsibilities that K2 Advisors has as the Fund’s investment manager, including (1) due diligence on the Sub-Advisors and any potential new sub-advisors to the Fund, their respective trading strategies, risk management, operations and businesses, (2) on-going oversight and monitoring of the day-to-day investment activities of Sub-Advisors and other service providers, including their respective compliance with the investment mandate and restrictions, compliance policies and procedures and federal securities laws, and K2 Advisors’ ongoing assessment of their performance, (3) portfolio construction with respect to the allocation of assets among Sub-Advisors, investment funds, cash and other investments, (4) risk management, (5) preparing quarterly reports to the Board, and (6) the implementation of Board directives as they relate to the Fund. The Trustees also considered the successful performance of K2 Advisors in managing the Fund and other investment products with similar investment strategies to the investment strategies of the Fund that are not subject to the Investment Company Act of 1940.
With respect to the sub-advisory services provided, and to be provided, by each Sub-Advisor, the Board noted the responsibilities that each Sub-Advisor has with respect to the portion of the Fund’s assets allocated to the Sub-Advisor by K2 Advisors (Sub-Advised Portion), including, among others, implementing the investment strategies with respect to the Sub-Advised Portion and ensuring compliance with the investment strategies, policies and limitations of the Sub-Advised Portion. The trustees considered the successful performance of each Sub-Advisor in managing the Fund and other investment products with similar investment strategies to the investment strategies of its Sub-Advised Portion of the Fund, including, with respect to certain Sub-Advisors, mutual funds with similar investment strategies. The Board considered K2 Advisors’ rationale for recommending the continued retention of each Sub-Advisor.
The trustees reviewed the Fund’s portfolio management teams at K2 Advisors and each Sub-Advisor, including each such team’s performance, staffing, skills and compensation program. With respect to portfolio manager compensation, management assured the trustees that the Fund’s long-term performance is a significant component of incentive-based compensation for K2 Advisors’ portfolio management team
and noted that a portion of a K2 Advisors’ portfolio manager’s incentive-based compensation is paid in shares of pre-designated funds from the portfolio manager’s fund management area. The trustees noted that the portfolio manager compensation program aligned the interests of the portfolio managers with that of Fund shareholders. During regular Board meetings and the aforementioned meetings of the independent trustees, the trustees considered periodic reports provided to them showing that K2 Advisors and the Sub-Advisors complied with the investment policies and restrictions of the Fund as well as other reports periodically furnished to the Board covering matters such as the compliance of portfolio managers and other management personnel with the code of ethics covering the investment management personnel, the adherence to fair value pricing procedures established by the Board and the accuracy of net asset value calculations. The Board noted the extent of the benefits provided to Fund shareholders from being part of the Franklin Templeton group of funds, including the right to exchange investments between funds (same class) without a sales charge, the ability to reinvest Fund dividends into other funds and the right to combine holdings of other funds to obtain reduced sales charges.
The trustees discussed with management various other products, portfolios and entities that are advised by K2 Advisors and each Sub-Advisor and the allocation of assets and expenses among and within them, as well as their relative fees and reasons for differences with respect thereto and any potential conflicts.
The Board also considered a report from the Trust’s Interim Chief Compliance Officer regarding K2 Advisors’ and each Sub-Advisor’s compliance programs and capabilities as such programs and capabilities relate to the operations of the Fund and the monitoring and testing of such program undertaken by the Trust’s Interim Chief Compliance Officer. The Board considered the selection and due diligence process employed by K2 Advisors in selecting and deciding to retain each Sub-Advisor as a sub-advisor to the Fund, including the due diligence undertaken with respect to the Sub-Advisor’s compliance and risk management capabilities. The trustees considered K2 Advisors’ significant efforts in developing and implementing compliance procedures established in accordance with SEC and other requirements.
The Board also considered the nature, extent and quality of the services to be provided under the Fund’s other service agreements to determine that, on an overall basis, Fund shareholders were well served. In this connection, the Board
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also took into account transfer agent and shareholder services provided to Fund shareholders by an affiliate of K2 Advisors, noting continuing expenditures by management to increase and improve the scope of such services and favorable periodic reports on shareholder services conducted by independent third parties. While such considerations directly affected the trustees’ decision in renewing the Fund’s transfer agent and shareholder services agreement, the Board also considered these commitments as incidental benefits to Fund shareholders deriving from the investment management relationship.
Based on their review, the trustees were satisfied with the nature and quality of the overall services provided, and to be provided, by K2 Advisors and its affiliates and each Sub Advisor to the Fund and its shareholders and were confident in the abilities of K2 Advisors and each Sub-Advisor to implement their respective investment strategy and/or sub-strategy and to provide quality services to the Fund and its shareholders.
INVESTMENT PERFORMANCE. As the Fund commenced operations in September 2015, the trustees reviewed the investment performance of the Fund for the one– through four-year periods ended December 31, 2019.
As part of their review, they inquired of management regarding benchmark and hedging activities. Consideration was also given to performance in the context of available levels of cash, including as affected by net flows, during the periods. The trustees had meetings during the year, including the meetings referred to above held in connection with the renewal process, with the Fund’s portfolio managers to discuss performance and the management of the Fund and each Sub-Advisor.
In addition, attention in assessing performance was given to the Broadridge Section 15(c) Report. That report showed the investment performance of the Fund (Advisor Class shares) in comparison to other funds determined comparable by Lipper.
The comparable funds to the Fund, as chosen by Lipper, included all retail and institutional specialty fixed income funds. The Fund had total returns in the middle performing quintile for the one-year period ended December 31, 2019 and total returns in the second-best performing quintile for the three-year period ended December 31, 2019 and total returns in the best performing quintile for the four-year period ended December 31, 2019. The Board was satisfied with such performance.
The trustees also compared Fund performance to other industry benchmarks, including measures of risk-adjusted performance of a fund, as part of their evaluation of investment performance. The trustees concluded that the Fund had continued to perform well in comparison to its various benchmarks and in the context of the Fund’s investment goal.
COMPARATIVE EXPENSES AND PROFITABILITY. The trustees considered the cost of the services provided, and to be provided, by K2 Advisors and each Sub-Advisor and the losses realized by K2 Advisors and its affiliates from their relationships with the Fund. As part of the renewal process, they explored with management the trends in expense ratios over the past three fiscal years and the reasons for any increases in the Fund’s expense ratios (or components thereof). In this regard, and following on-going discussions with the independent trustees with respect to the investment management fees and expense ratio of the Fund, the trustees took into account the reduction of the investment management fee from 1.90% to 1.60% proposed by management, as well as the proposed reduction in the cap in the fee waiver and expense limitation arrangement from 1.95% to 1.65%. In considering the appropriateness of the management fee and other expenses charged to the Fund, the Board took into account various factors including investment performance and matters relating to Fund operations, including, but not limited to, the quality and experience of K2 Advisors personnel. The Board also reviewed and considered the investment management fees in light of the nature, extent and quality of the investment management services provided, and to be provided, by K2 Advisors and each Sub-Advisor, as more fully discussed above. The Board also considered the reductions negotiated by K2 Advisors in the sub-advisory fees charged by the Sub-Advisers, including the addition of breakpoints in the sub-advisory fee schedules of certain Sub-Advisors. The Board noted that the sub-advisory fees are paid by K2 Advisors to each Sub-Advisor and are not additional fees borne by the Fund. The Board also noted that the sub-advisory fees paid, and to be paid, by K2 Advisors to each Sub-Advisor were the product of arms-length negotiations between K2 Advisors and each Sub-Advisor.
Furthermore, the Board took into account that information regarding Sub-Advisor profitability is not legally required to be provided. Accordingly, profitability information of the sub-advisors was given lesser weight than other factors. In addition, the Board considered the allocation of the investment management fee charged to the Fund between K2 Advisors and each Sub-Advisor in light of the nature, extent
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and quality of the investment management services provided, and to be provided, by K2 Advisors and each Sub-Advisor. As part of this discussion, the Board took into account the fee waiver and expense limitation arrangement in effect (as modified on the terms set forth above), and the amount of Fund expenses that were absorbed since inception of the Fund by K2 Advisors through such waivers and arrangements.
Consideration was also given to a comparative analysis in the Broadridge Section 15(c) Report of the investment management fee and total expense ratio of the Fund in comparison with those of a group of other funds selected by Lipper as its appropriate Lipper expense group.
Lipper expense data is based upon information taken from each fund’s most recent annual report, which preceded the date of the new fee structure noted above and which reflects historical asset levels that may be quite different from those currently existing, particularly in a period of market volatility.
In reviewing comparative costs, emphasis was given to the Fund’s contractual management fee in comparison with the contractual management fee that would have been charged by other funds within its Lipper expense group assuming they were similar in size to the Fund, as well as the actual total expenses of the Fund in comparison with those of its Lipper expense group. The Lipper contractual management fee analysis includes administrative charges as being part of the management fee, and total expenses, for comparative consistency, are shown by Lipper for Fund Advisor Class shares. The Fund’s contractual management fee rate was in the most expensive quintile of both its Base Expense Group and Alternate Expense Group. The Fund’s total expenses were also in the most expensive quintile of both its Base Expense Group and Alternate Expense Group.
Noting (i) that under the new few structure the comparative expense results would have improved, (ii) the factors and limitations with respect to the Broadridge Section 15(c) Report (including the inclusion of single-manager funds in both peer groups), and (iii) factors relating to the Fund’s operations, such as the quality and experience of K2 Advisors and the Sub-Advisors and the nature and quality of the services provided and to be provided by K2 Advisors and the Sub-Advisors, the Board found such comparative fees and expenses to be acceptable.
The trustees also reviewed the Profitability Study addressing profitability of Franklin Resources, Inc., from its overall U.S. fund business, as well as profitability to K2 Advisors and its affiliates, from providing investment management and other
services to the Fund during the 12-month period ended September 30, 2019, the most recent fiscal year-end of Franklin Resources, Inc. The trustees reviewed the basis on which such reports are prepared and the cost allocation methodology utilized in the Profitability Study, it being recognized that allocation methodologies may each be reasonable while producing different results. In this respect, the Board noted that the reasonableness of the cost allocation methodologies was reviewed by independent accountants on an every other year basis.
The independent trustees met with management to discuss the Profitability Study. This included, among other things, a comparison of investment management income with investment management expenses of the Fund; comparison of underwriting revenues and expenses; the relative relationship of investment management and underwriting expenses; shareholder servicing profitability; economies of scale; and the relative contribution of the Fund to the profitability of K2 Advisors and its parent. In discussing the Profitability Study with the Board, K2 Advisors stated its belief that the costs incurred in establishing the infrastructure necessary to operate the type of mutual fund operations conducted by it and its affiliates may not be fully reflected in the expenses allocated to the Fund in determining its profitability.
The Board also took into account management’s expenditures in improving shareholder services provided to the Fund, as well as the need to meet additional regulatory and compliance requirements. The trustees also considered the extent to which K2 Advisors and the Sub-Advisors may derive ancillary benefits from Fund operations, including those derived from the allocation of Fund brokerage and the use of commission dollars to pay for research and other similar services.
The Board noted that shareholders are able to redeem their Fund shares at any time if shareholders believe that Fund fees and expenses are too high or if they are dissatisfied with the performance of the Fund.
ECONOMIES OF SCALE. The Board considered economies of scale realized by K2 Advisors and its affiliates and the Sub-Advisors as the Fund grows larger and the extent to which they are shared with Fund shareholders, as for example, in the level of the investment management fees charged, in the quality and efficiency of services rendered and in increased capital commitments benefiting the Fund directly or indirectly. The Board also considered the fee waiver and expense limitation arrangement in effect, and the amount of Fund expenses that were absorbed since inception of the Fund by K2 Advisors through such waiver and arrangement.
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The Board concluded that economies of scale were deemed not to be a significant factor at that time in light of, among other matters, the fee waiver and expense limitation arrangement in effect.
Liquidity Risk Management Program
The Funds have 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 program is designed to assess and manage each Fund’s liquidity risk, taking into consideration the Fund’s investment strategy and the liquidity of its portfolio investments during 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. 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.
The LRMP Administrator Annual Report was presented to the Fund(s) Board of Trustees at their meetings in May 2020. The report covered the adequacy and effectiveness of the program during the period December 1, 2018 to December 31, 2019 (the “covered period”). The 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. In addition, the LRMP Administrator presented the Fund Board of Trustees an update on liquidity during the first quarter of 2020 in relation to the COVID-19 pandemic.
During the reporting period, the Fund maintained a high level of liquid assets that are defined under the Liquidity Rule as “Highly Liquid Investments.” As a result, the Fund was designated a “Primarily Highly Liquid Fund” as defined under the Liquidity Rule and has not adopted a “Highly Liquid Investment Minimum.” A Highly Liquid Investment is 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.
There can be no assurance that the program will achieve its objectives in the future. Please refer to your Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other principal risks to which an investment in the Fund may be subject.
Proxy Voting Policies and Procedures
The Fund’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund’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 Fund’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.
Quarterly Statement of Investments
The Trust, on behalf of the Fund, 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 the 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.
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Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
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| | Annual Report and Shareholder Letter Franklin K2 Long Short Credit Fund | | |
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| | Investment Manager | | Distributor | | Shareholder Services |
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| © 2020 Franklin Templeton Investments. All rights reserved. | | | | 948 A 07/20 |
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 experts are Edward I. Altman, Ann Torre Bates and David W. Niemiec and they are “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 $253,213 for the fiscal year ended May 31, 2020 and $328,925 for the fiscal year ended May 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
The aggregate 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 were $14,987 for the fiscal year ended May 31, 2020 and $9,827 for the fiscal year ended May 31,
2019. The services for which these fees were paid included identifying passive foreign investment companies to manage exposure to tax liabilities.
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 $71,000 for the fiscal year ended May 31, 2020 and $89,484 for the fiscal year ended May 31, 2019. The services for which these fees were paid included technical tax consultation for withholding tax report to foreign governments, application of local country tax laws and tax advice.
(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.
There were no 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 other than the services reported in paragraphs (a)-(c) of Item 4.
(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 $85,987 for the fiscal year ended May 31, 2020 and $99,311 for the fiscal year ended May 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.
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| Item 5. Audit Committee of Listed Registrants. | | N/A | | |
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| Item 6. Schedule of Investments. | | N/A | | |
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| Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment |
| Companies. | | N/A | | |
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| Item 8. Portfolio Managers of Closed-End Management Investment Companies. | | N/A | | |
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| Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated |
| Purchasers. | | N/A | | |
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| Item 10. Submission of Matters to a Vote of Security Holders. | | | | |
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees that would require disclosure herein.
Item 11. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There have been no changes in the Registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect the internal control over financial reporting.
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| 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 Robert G. Kubilis, 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 Robert G. Kubilis, 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.
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| FRANKLIN ALTERATIVE STRATEGIES FUNDS |
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| By | | /S/ MATTHEW T. HINKLE |
| | Matthew T. Hinkle |
| | Chief Executive Officer - Finance and Administration |
| Date July 31, 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.
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| By | | /S/ MATTHEW T. HINKLE |
| | Matthew T. Hinkle |
| | Chief Executive Officer - Finance and Administration |
| Date July 31, 2020 |
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| By | | /S/ ROBERT G. KUBILIS |
| | Robert G. Kubilis |
| | Chief Financial Officer and Chief Accounting Officer |
| Date July 31, 2020 |
