UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file 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 94403-1096
(Name and address of agent for service)
Registrant’s telephone number, including area code: 650-312-2000
Date of fiscal year end: May 31
Date of reporting period: May 31, 2021
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
(b) Not applicable.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
A Series of Franklin Alternative Strategies Funds
May 31, 2021
Sign up for electronic delivery at franklintempleton.com/edelivery
SHAREHOLDER LETTER
Dear Fellow Shareholder:
During the 12 months ended May 31, 2021, the global economy began to recover from the disruptions caused by the onset of the novel coronavirus (COVID-19) pandemic in early 2020 and subsequent economic lockdowns imposed by many governments worldwide. Global stocks and bonds generally advanced during the period amid the reopening of many economies and investor optimism about the development of COVID-19 treatments and vaccines, as well as the beginning of vaccination programs in many countries. Many central banks, including the U.S. Federal Reserve (Fed) and the European Central Bank, maintained low benchmark interest rates and continued their monetary stimulus programs to bolster economic growth. Investor sentiment was further boosted by encouraging economic data from China and the U.S., as well as the Fed’s indication through period-end that, despite rising inflation, it would continue to support low interest rates for some time.
In this environment, global developed market stocks, as measured by the MSCI World Index (USD), posted a +41.28% total return for the period.1 Global emerging market stocks, as measured by the MSCI Emerging Markets Index (USD), posted a +51.51% total return.1 Global government bonds, as measured by the FTSE World Government Bond Index (USD), posted a +2.49% total return.1
We are committed to our long-term perspective and disciplined investment approach as we continue to conduct a rigorous analysis of Fund subadvisors and markets with a strong emphasis on investment risk management.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
We believe active, professional investment management serves investors well. We also recognize the important role of financial professionals 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,
Brooks Ritchey
President and Chief Executive Officer –
Investment Management
Franklin Alternative Strategies Funds
This letter reflects our analysis and opinions as of May 31, 2021, 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.
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| Not FDIC Insured | | | | | May Lose Value | | | | | No Bank Guarantee |
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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, 2021.
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 subadvisors, 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 +12.25% 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 +13.54% cumulative total return for the same period.1 Also for comparison, the Fund’s secondary benchmark, the ICE BofA 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 +0.11% cumulative 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 +42.48% total return for the 12 months ended May 31, 2021.2 Global equities rebounded from the market turmoil at the onset of the novel coronavirus (COVID-19) pandemic amid strong monetary and fiscal stimulus measures, easing lockdown restrictions and the development of COVID-19 treatments and vaccines. Geopolitical tensions and rising infection rates in the fall of 2020 briefly drove stock prices lower, but the start of vaccination programs and expectations for additional fiscal stimulus measures led many equity markets to reach new highs. Improving economic data in many countries generally tempered investor concerns about rising inflation.
In the U.S., equities rallied following the initial shock of pandemic-related restrictions and mass layoffs. Monetary and fiscal stimulus measures, partial economic reopening, rising retail sales and optimism about treatments and potential vaccines for COVID-19 drove equities higher. Following a record annualized decline in second-quarter 2020 gross domestic product (GDP), resilient consumer spending helped drive the third-quarter GDP to expand at a record annualized rate, with fourth-quarter 2020 GDP and first-quarter 2021 GDP expanding at a less robust pace. Equity prices continued to rise during the summer of 2020 before declining in the fall due to rising COVID-19 infection rates and uncertainty about additional fiscal stimulus and the U.S. presidential election. Investor sentiment improved beginning in November 2020 following the outcome of the U.S. presidential election, the start of COVID-19 vaccination programs and the passage of a large U.S. stimulus bill. A decline in the unemployment rate also helped drive a rebound in earnings and equity
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.
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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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
prices, resulting in all-time price highs for the Standard & Poor’s® 500 Index (S&P 500®) in early May 2021.
The U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25% and continued its program of open-ended bond purchases to help keep markets functioning. Furthermore, the Fed reiterated that interest rates would likely remain low, even if inflation moderately exceeded the Fed’s 2% target.
The economic recovery in the eurozone was relatively weak, as quarter-over-quarter GDP growth rebounded in 2020’s third quarter but slightly contracted over the subsequent two quarters. GDP growth rates were mostly negative among the region’s largest economies amid renewed lockdowns and delays in COVID-19 vaccine distribution. Nevertheless, general optimism that successful vaccine programs would lift global growth, along with a Brexit resolution, helped European developed market equities, as measured by the MSCI Europe Index (USD), to post a +43.30% total return for the 12 months under review.2
Asian developed and emerging market equities, as measured by the MSCI All Country Asia Index (USD), posted a +41.27% total return for the 12-month period.2 China, a key driver of regional economies, began to recover in 2020’s second quarter and was the only major global economy to post positive GDP growth for full-year 2020 amid strong manufacturing gains. In the final three months of the reporting period, several Asian equity markets declined due to rising COVID-19 infection rates in many countries, especially India, as well as inflation concerns.
Global emerging market stocks, as measured by the MSCI Emerging Markets Index (USD), posted a +51.51% total return for the 12 months under review.2 Generally improving economic activity, stabilizing oil prices and U.S. dollar weakness supported emerging market equities. Late in the reporting period, higher COVID-19 cases in some countries and concerns about inflation amid rising commodity prices dampened investor enthusiasm in emerging market equities.
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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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
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| Strategy Allocation* | | | | | | |
|
| Based on Total Net Assets as of 5/31/21 | |
| | |
| Strategy | | Long
Positions | | | Short
Positions | |
Long Short Equity | | | 35.0% | | | | -20.3% | |
Relative Value | | | 28.9% | | | | -10.4% | |
Event Driven | | | 18.9% | | | | -8.9% | |
Global Macro | | | 61.6% | | | | -30.3% | |
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| Total | | | 144.4% | | | | -69.9% | |
*Figures include the effect of gross notional exposure of derivatives.
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| Subadvisors | | | |
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| 5/31/21 | | | |
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| Long Short Equity | | | | |
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Chilton Investment Company, LLC | | | | |
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Electron Capital Partners, LLC | | | | |
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Jennison Associates, LLC | | | | |
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Portland Hill Asset Management Limited | | | | |
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Wellington Management Company, LLP | | | | |
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| Relative Value | | | | |
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Apollo Credit Management LLC | | | | |
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Ellington Global Asset Management, LLC | | | | |
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Lazard Asset Management, LLC | | | | |
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Loomis Sayles & Company, L.P. | | | | |
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One River Asset Management, LLC | | | | |
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| Event Driven | | | | |
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Bardin Hill Arbitrage IC Management LP | | | | |
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P. Schoenfeld Asset Management L.P. | | | | |
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| Global Macro | | | | |
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BlueBay Asset Management | | | | |
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Emso Asset Management Limited | | | | |
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Graham Capital Management, L.P. | | | | |
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RV Capital Management Private Ltd | | | | |
Manager’s Discussion
During the 12 months under review, all four underlying strategies in which we allocated assets contributed to the Fund’s positive absolute performance, which was driven in large part by the long short equity strategy. The relative value strategy was also a significant contributor, followed by event driven and global macro. A conditional risk overlay (CRO), which was engaged during the early parts of the review period to help mitigate downside risk, detracted slightly from the Fund’s absolute return, due primarily to equity index hedges against the S&P 500. The CRO was deactivated at the end of September 2020. The allocation percentages for each strategy are listed in the Strategy Allocation table on this page.
The Fund allocated assets to a new long short equity subadvisor in September 2020: Electron Capital Partners. Electron joined existing subadvisors Chilton Investment, Impala Asset Management, Jennison Associates, Portland Hill Asset Management and Wellington Management. We completed a full redemption of Impala in October 2020. All six subadvisors contributed to absolute gains for the period, led by Electron, Chilton, Jennison and Portland Hill. In asset class terms, equity exposure drove the strategy’s advance, as cash and currency exposures were modest detractors. In terms of aggregate sector exposures, all net long positions in equity sectors bolstered absolute performance, with the strongest contributions from consumer discretionary, industrials and health care. Equity index hedges had a sizable negative impact on performance. Currency hedges also detracted slightly from returns.
The Fund also allocated assets to a new relative value subadvisor in March 2021 as One River Asset Management joined existing subadvisors Apollo Credit Management, Chatham Asset Management, Ellington Global Asset Management, Lazard Asset Management and Loomis Sayles & Company. We reduced exposure to Chatham to zero in January 2021. Five of the six subadvisors recorded positive performance for the 12-month period. Lazard and Loomis Sayles were the largest contributors to the strategy’s positive returns, followed by Ellington. One River was a slight detractor. In asset class terms, long credit exposure was the primary driver of gains, with slight contribution from interest-rate positioning. The combination more than offset the notable detraction from short equity positioning. In terms of aggregate sector exposures, health care, asset-backed securities and information technology (IT) contributed the most to the strategy’s positive performance. Conversely, currency hedges and cash were the strategy’s only sector detractors, as they slightly hindered performance.
The Fund’s event driven strategy subadvisors during the 12 months under review were Bardin Hill Arbitrage IC Management and P. Schoenfeld Asset Management. Both subadvisors delivered positive returns, bolstered by the continued tightening of merger arbitrage spreads on a range of strategic acquisitions. In asset class terms, equity was the primary contributor to the strategy’s positive performance, with additional strength from credit exposures. Currency exposures were a modest overall detractor. In terms of aggregate sector exposures, the top drivers of positive performance were consumer discretionary, industrials and IT. Equity index hedges and currency hedges were minor detractors.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
The Fund allocated assets to two new global macro subadvisors in January 2021: BlueBay Asset Management and RV Capital Management Private. They joined existing subadvisors Emso Asset Management; Graham Capital Management; H2O Asset Management; and Grantham, Mayo, Van Otterloo & Co. (GMO). We completed a full redemption of H2O in October 2020 and reduced exposure to GMO to zero in January 2021. Five of the six subadvisors strengthened Fund performance during the period, led by positive contributions from Graham and Emso. RV Capital was a slight detractor. In asset class terms, credit exposure was the leading driver of the strategy’s gains, followed closely by positive contributions from equity, commodity and currency positioning. Cash was a modest detractor. In terms of aggregate sector exposures, government and corporate bonds were key positive contributors, along with equity index futures and currency forwards. Conversely, short interest-rate positioning (bond futures) and credit default swaps detracted slightly.
Thank you for your participation in Franklin K2 Alternative Strategies Fund. We look forward to continuing to serve your investment needs.
Brooks Ritchey
Co-Lead Portfolio Manager
Robert Christian
Co-Lead Portfolio Manager
Anthony Zanolla, CFA
Portfolio Manager
The foregoing information reflects our analysis, opinions and portfolio holdings as of May 31, 2021, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
CFA® is a trademark owned by CFA Institute.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
Performance Summary as of May 31, 2021
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 5/31/211
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 | |
| | |
| A4 | | | | | | | | |
1-Year | | | +12.25% | | | | +6.08% | |
5-Year | | | +24.79% | | | | +3.36% | |
Since Inception (10/11/13) | | | +35.20% | | | | +3.26% | |
| | |
| Advisor | | | | | | | | |
1-Year | | | +12.55% | | | | +12.55% | |
5-Year | | | +26.36% | | | | +4.79% | |
Since Inception (10/11/13) | | | +37.91% | | | | +4.30% | |
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 (10/11/13–5/31/21)
Advisor Class (10/11/13–5/31/21)
Please see page 9 for Performance Summary footnotes.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
PERFORMANCE SUMMARY
Distributions (6/1/20–5/31/21)
| | | | |
| |
| Share Class | | Long-Term
Capital Gain | |
| A | | | $0.0982 | |
| C | | | $0.0982 | |
| R | | | $0.0982 | |
| R6 | | | $0.0982 | |
| Advisor | | | $0.0982 | |
Total Annual Operating Expenses7
| | | | | | | | |
| | |
| Share Class | | With Fee
Waiver | | | Without Fee
Waiver | |
| A | | | 2.43% | | | | 2.64% | |
| Advisor | | | 2.18% | | | | 2.39% | |
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. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has an expense reduction contractually guaranteed through 9/30/21 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 BofA 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
(actual return after expenses) | | | Hypothetical
(5% annual return before expenses) | | | | |
Share Class | | Beginning
Account
Value 12/1/20 | | | Ending
Account
Value 5/31/21 | | | Expenses
Paid During
Period
12/1/20–5/31/211,2 | | | Ending
Account
Value 5/31/21 | | | Expenses
Paid During
Period
12/1/20–5/31/211,2 | | | Net
Annualized
Expense
Ratio2 | |
| A | | $ | 1,000 | | | $ | 1,041.50 | | | $ | 13.54 | | | $ | 1,011.67 | | | $ | 13.34 | | | | 2.66 | % |
| C | | $ | 1,000 | | | $ | 1,038.30 | | | $ | 17.33 | | | $ | 1,007.93 | | | $ | 17.07 | | | | 3.41 | % |
| R | | $ | 1,000 | | | $ | 1,039.80 | | | $ | 14.80 | | | $ | 1,010.42 | | | $ | 14.59 | | | | 2.91 | % |
| R6 | | $ | 1,000 | | | $ | 1,043.70 | | | $ | 11.92 | | | $ | 1,013.26 | | | $ | 11.75 | | | | 2.34 | % |
| Advisor | | $ | 1,000 | | | $ | 1,042.90 | | | $ | 12.27 | | | $ | 1,012.91 | | | $ | 12.09 | | | | 2.41 | % |
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 182/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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| 10 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Financial Highlights
Franklin K2 Alternative Strategies Fund
| | | | | | | | | | | | | | | | | | | | |
| |
| | | Year Ended May 31, | |
| | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | |
| Class A | | | | | | | | | | | | | | | | | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | $ | 11.19 | | | $ | 11.28 | | | $ | 11.38 | | | $ | 11.14 | | | $ | 10.55 | |
| | | | |
| | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)b | | | (0.08 | ) | | | (0.03 | ) | | | 0.04 | | | | 0.01 | | | | 0.03 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 1.45 | | | | 0.02 | | | | 0.11 | | | | 0.38 | | | | 0.61 | |
| | | | |
| | | | | |
Total from investment operations | | | 1.37 | | | | (0.01 | ) | | | 0.15 | | | | 0.39 | | | | 0.64 | |
| | | | |
| | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | — | | | | (0.07 | ) | | | — | | | | (0.15 | ) | | | (0.05 | ) |
| | | | | |
Net realized gains | | | (0.10 | ) | | | (0.01 | ) | | | (0.25 | ) | | | — | | | | — | |
| | | | |
| | | | | |
Total distributions | | | (0.10 | ) | | | (0.08 | ) | | | (0.25 | ) | | | (0.15 | ) | | | (0.05 | ) |
| | | | |
| | | | | |
Net asset value, end of year | | $ | 12.46 | | | $ | 11.19 | | | $ | 11.28 | | | $ | 11.38 | | | $ | 11.14 | |
| | | | |
| | | | | |
Total returnc | | | 12.25% | | �� | | (0.15)% | | | | 1.35% | | | | 3.57% | | | | 6.07% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductiond | | | 2.82% | | | | 2.58% | | | | 2.73% | | | | 2.81% | | | | 3.07% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductiond | | | 2.64% | | | | 2.40% | | | | 2.56% | | | | 2.59% | | | | 2.73% | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.44% | | | | 0.20% | | | | 0.36% | | | | 0.39% | | | | 0.53% | |
| | | | | |
Net investment income (loss) | | | (0.67)% | | | | (0.25)% | | | | 0.36% | | | | 0.06% | | | | 0.10% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $102,138 | | | | $90,205 | | | | $104,452 | | | | $119,214 | | | | $119,385 | |
| | | | | |
Portfolio turnover rate | | | 236.64% | | | | 271.51% | | | | 235.47% | | | | 234.77% | | | | 209.45% | |
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).
| | | | | | | | | | |
| | | | | | |
| 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, | |
| | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | |
| Class C | | | | | | | | | | | | | | | | | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | $ | 10.95 | | | $ | 11.05 | | | $ | 11.25 | | | $ | 11.00 | | | $ | 10.45 | |
| | | | |
| | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)b | | | (0.15 | ) | | | (0.11 | ) | | | (0.05 | ) | | | (0.08 | ) | | | (0.04 | ) |
| | | | | |
Net realized and unrealized gains (losses) | | | 1.41 | | | | 0.02 | | | | 0.10 | | | | 0.39 | | | | 0.59 | |
| | | | |
| | | | | |
Total from investment operations | | | 1.26 | | | | (0.09 | ) | | | 0.05 | | | | 0.31 | | | | 0.55 | |
| | | | |
| | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | — | | | | — | | | | — | | | | (0.06 | ) | | | — | |
| | | | | |
Net realized gains | | | (0.10 | ) | | | (0.01 | ) | | | (0.25 | ) | | | — | | | | — | |
| | | | |
| | | | | |
Total distributions | | | (0.10 | ) | | | (0.01 | ) | | | (0.25 | ) | | | (0.06 | ) | | | — | |
| | | | |
| | | | | |
Net asset value, end of year | | $ | 12.11 | | | $ | 10.95 | | | $ | 11.05 | | | $ | 11.25 | | | $ | 11.00 | |
| | | | |
| | | | | |
Total returnc | | | 11.51% | | | | (0.85)% | | | | 0.56% | | | | 2.82% | | | | 5.26% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductiond | | | 3.54% | | | | 3.33% | | | | 3.48% | | | | 3.56% | | | | 3.79% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductiond | | | 3.36% | | | | 3.15% | | | | 3.31% | | | | 3.34% | | | | 3.45% | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.44% | | | | 0.20% | | | | 0.36% | | | | 0.39% | | | | 0.53% | |
| | | | | |
Net investment income (loss) | | | (1.39)% | | | | (1.00)% | | | | (0.39)% | | | | (0.69)% | | | | (0.62)% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $31,541 | | | | $36,043 | | | | $44,897 | | | | $53,196 | | | | $55,496 | |
| | | | | |
Portfolio turnover rate | | | 236.64% | | | | 271.51% | | | | 235.47% | | | | 234.77% | | | | 209.45% | |
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).
| | | | | | | | | | |
| | | | | | |
| 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, | |
| | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | |
| Class R | | | | | | | | | | | | | | | | | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | $ | 11.20 | | | $ | 11.28 | | | $ | 11.42 | | | $ | 11.17 | | | $ | 10.61 | |
| | | | |
| | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)b | | | (0.11 | ) | | | (0.06 | ) | | | 0.02 | | | | (0.02 | ) | | | (0.25 | ) |
| | | | | |
Net realized and unrealized gains (losses) | | | 1.45 | | | | 0.02 | | | | 0.09 | | | | 0.39 | | | | 0.86 | |
| | | | |
| | | | | |
Total from investment operations | | | 1.34 | | | | (0.04 | ) | | | 0.11 | | | | 0.37 | | | | 0.61 | |
| | | | |
| | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | — | | | | (0.03 | ) | | | — | | | | (0.12 | ) | | | (0.05 | ) |
| | | | | |
Net realized gains | | | (0.10 | ) | | | (0.01 | ) | | | (0.25 | ) | | | — | | | | — | |
| | | | |
| | | | | |
Total distributions | | | (0.10 | ) | | | (0.04 | ) | | | (0.25 | ) | | | (0.12 | ) | | | (0.05 | ) |
| | | | |
| | | | | |
Net asset value, end of year | | $ | 12.44 | | | $ | 11.20 | | | $ | 11.28 | | | $ | 11.42 | | | $ | 11.17 | |
| | | | |
| | | | | |
Total return | | | 11.97% | | | | (0.39)% | | | | 1.08% | | | | 3.28% | | | | 5.79% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductionc | | | 3.06% | | | | 2.83% | | | | 2.98% | | | | 3.06% | | | | 3.32% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductionc | | | 2.88% | | | | 2.65% | | | | 2.81% | | | | 2.84% | | | | 2.98% | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.44% | | | | 0.20% | | | | 0.36% | | | | 0.39% | | | | 0.53% | |
| | | | | |
Net investment income (loss) | | | (0.91)% | | | | (0.50)% | | | | 0.11% | | | | (0.19)% | | | | (0.15)% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $840 | | | | $884 | | | | $844 | | | | $648 | | | | $597 | |
| | | | | |
Portfolio turnover rate | | | 236.64% | | | | 271.51% | | | | 235.47% | | | | 234.77% | | | | 209.45% | |
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).
| | | | | | | | | | |
| | | | | | |
| 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, | |
| | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | |
| Class R6 | | | | | | | | | | | | | | | | | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | $ | 11.25 | | | $ | 11.34 | | | $ | 11.41 | | | $ | 11.17 | | | $ | 10.59 | |
| | | | |
| | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)b | | | (0.04 | ) | | | 0.01 | | | | 0.08 | | | | 0.03 | | | | 0.02 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 1.47 | | | | 0.02 | | | | 0.10 | | | | 0.40 | | | | 0.65 | |
| | | | |
| | | | | |
Total from investment operations | | | 1.43 | | | | 0.03 | | | | 0.18 | | | | 0.43 | | | | 0.67 | |
| | | | |
| | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | — | | | | (0.11 | ) | | | — | | | | (0.19 | ) | | | (0.09 | ) |
| | | | | |
Net realized gains | | | (0.10 | ) | | | (0.01 | ) | | | (0.25 | ) | | | — | | | | — | |
| | | | |
| | | | | |
Total distributions | | | (0.10 | ) | | | (0.12 | ) | | | (0.25 | ) | | | (0.19 | ) | | | (0.09 | ) |
| | | | |
| | | | | |
Net asset value, end of year | | $ | 12.58 | | | $ | 11.25 | | | $ | 11.34 | | | $ | 11.41 | | | $ | 11.17 | |
| | | | |
| | | | | |
Total return | | | 12.61% | | | | 0.27% | | | | 1.70% | | | | 3.83% | | | | 6.40% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductionc | | | 2.50% | | | | 2.26% | | �� | | 2.41% | | | | 2.46% | | | | 2.73% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductionc | | | 2.32% | | | | 2.07% | | | | 2.23% | | | | 2.24% | | | | 2.39% | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.44% | | | | 0.20% | | | | 0.36% | | | | 0.39% | | | | 0.53% | |
| | | | | |
Net investment income (loss) | | | (0.35)% | | | | 0.08% | | | | 0.69% | | | | 0.41% | | | | 0.44% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $27,471 | | | | $15,537 | | | | $42,842 | | | | $31,805 | | | | $265,247 | |
| | | | | |
Portfolio turnover rate | | | 236.64% | | | | 271.51% | | | | 235.47% | | | | 234.77% | | | | 209.45% | |
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).
| | | | | | | | | | |
| | | | | | |
| 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, | |
| | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | |
| Advisor Class | | | | | | | | | | | | | | | | | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | $ | 11.23 | | | $ | 11.33 | | | $ | 11.40 | | | $ | 11.16 | | | $ | 10.58 | |
| | | | |
| | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)b | | | (0.05 | ) | | | — | c | | | 0.07 | | | | 0.04 | | | | 0.04 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 1.47 | | | | 0.01 | | | | 0.11 | | | | 0.38 | | | | 0.62 | |
| | | | |
| | | | | |
Total from investment operations | | | 1.42 | | | | 0.01 | | | | 0.18 | | | | 0.42 | | | | 0.66 | |
| | | | |
| | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | — | | | | (0.10 | ) | | | — | | | | (0.18 | ) | | | (0.08 | ) |
| | | | | |
Net realized gains | | | (0.10 | ) | | | (0.01 | ) | | | (0.25 | ) | | | — | | | | — | |
| | | | |
| | | | | |
Total distributions | | | (0.10 | ) | | | (0.11 | ) | | | (0.25 | ) | | | (0.18 | ) | | | (0.08 | ) |
| | | | |
| | | | | |
Net asset value, end of year | | $ | 12.55 | | | $ | 11.23 | | | $ | 11.33 | | | $ | 11.40 | | | $ | 11.16 | |
| | | | |
| | | | | |
Total return | | | 12.55% | | | | 0.19% | | | | 1.61% | | | | 3.75% | | | | 6.29% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductiond | | | 2.57% | | | | 2.33% | | | | 2.48% | | | | 2.56% | | | | 2.82% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductiond | | | 2.39% | | | | 2.15% | | | | 2.31% | | | | 2.34% | | | | 2.48% | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.44% | | | | 0.20% | | | | 0.36% | | | | 0.39% | | | | 0.53% | |
| | | | | |
Net investment income (loss) | | | (0.42)% | | | | — | e | | | 0.61% | | | | 0.31% | | | | 0.35% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $1,152,105 | | | | $977,094 | | | | $1,046,252 | | | | $896,278 | | | | $674,828 | |
| | | | | |
Portfolio turnover rate | | | 236.64% | | | | 271.51% | | | | 235.47% | | | | 234.77% | | | | 209.45% | |
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).
eAmount 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, 2021
Franklin K2 Alternative Strategies Fund
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests 41.2% | |
| | | Aerospace & Defense 0.3% | |
| | Aerojet Rocketdyne Holdings Inc. | | | United States | | | | 74,331 | | | | | | | $ | 3,601,337 | |
| a | | Bombardier Inc., B | | | Canada | | | | 1,097,235 | | | | | | | | 890,878 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 4,492,215 | |
| | | | | | | | | | | | | | | | | | |
| | | Air Freight & Logistics 0.3% | |
| | Expeditors International of Washington Inc. | | | United States | | | | 1,268 | | | | | | | | 159,375 | |
| | United Parcel Service Inc., B | | | United States | | | | 354 | | | | | | | | 75,969 | |
| a | | XPO Logistics Inc. | | | United States | | | | 25,093 | | | | | | | | 3,686,914 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 3,922,258 | |
| | | | | | | | | | | | | | | | | | |
| | | Airlines 0.0%† | |
| a | | Japan Airlines Co. Ltd. | | | Japan | | | | 22,291 | | | | | | | | 509,825 | |
| | | | | | | | | | | | | | | | | | |
| | | Automobiles 0.3% | |
| a | | Ford Motor Co. | | | United States | | | | 147,349 | | | | | | | | 2,140,981 | |
| a | | General Motors Co. | | | United States | | | | 19,930 | | | | | | | | 1,182,048 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 3,323,029 | |
| | | | | | | | | | | | | | | | | | |
| | | Banks 0.0%† | |
| | Barclays PLC | | | United Kingdom | | | | 108,406 | | | | | | | | 281,739 | |
| b | | Citigroup Inc. | | | United States | | | | 894 | | | | | | | | 70,367 | |
| b | | Citizens Financial Group Inc. | | | United States | | | | 1,404 | | | | | | | | 70,059 | |
| b | | JPMorgan Chase & Co. | | | United States | | | | 411 | | | | | | | | 67,503 | |
| b | | Truist Financial Corp. | | | United States | | | | 1,011 | | | | | | | | 62,459 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 552,127 | |
| | | | | | | | | | | | | | | | | | |
| | | Beverages 0.4% | |
| b | | The Coca-Cola Co. | | | United States | | | | 4,153 | | | | | | | | 229,620 | |
| | Davide Campari-Milano NV | | | Italy | | | | 246,410 | | | | | | | | 3,190,273 | |
| | Primo Water Corp. | | | United States | | | | 122,713 | | | | | | | | 2,124,162 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 5,544,055 | |
| | | | | | | | | | | | | | | | | | |
| | | Biotechnology 1.9% | |
| | AbbVie Inc. | | | United States | | | | 9,658 | | | | | | | | 1,093,286 | |
| a,c,d | | Alder Biopharmaceuticals Inc., Contingent Value, rts., 12/31/24 | | | United States | | | | 50,624 | | | | | | | | 44,549 | |
| a | | Alexion Pharmaceuticals Inc. | | | United States | | �� | | 3,150 | | | | | | | | 556,132 | |
| a | | Allakos Inc. | | | United States | | | | 2,157 | | | | | | | | 218,806 | |
| a | | Amicus Therapeutics Inc. | | | United States | | | | 51,566 | | | | | | | | 477,501 | |
| a | | Apellis Pharmaceuticals Inc. | | | United States | | | | 41,833 | | | | | | | | 2,354,361 | |
| a | | Argenx SE, ADR | | | Netherlands | | | | 4,614 | | | | | | | | 1,287,260 | |
| a | | Biogen Inc. | | | United States | | | | 1,617 | | | | | | | | 432,515 | |
| a | | BioNTech SE, ADR | | | Germany | | | | 6,140 | | | | | | | | 1,252,560 | |
| a | | Blueprint Medicines Corp. | | | United States | | | | 8,030 | | | | | | | | 733,540 | |
| a | | Burning Rock Biotech Ltd., ADR | | | China | | | | 28,082 | | | | | | | | 760,180 | |
| a,d | | C4 Therapeutics Inc. | | | United States | | | | 6,325 | | | | | | | | 233,709 | |
| a | | Constellation Pharmaceuticals Inc. | | | United States | | | | 13,650 | | | | | | | | 270,406 | |
| a | | CRISPR Therapeutics AG | | | Switzerland | | | | 5,322 | | | | | | | | 628,954 | |
| a | | CytoDyn Inc. | | | United States | | | | 2,742 | | | | | | | | 5,210 | |
| a | | Denali Therapeutics Inc. | | | United States | | | | 7,683 | | | | | | | | 488,562 | |
| a | | Dicerna Pharmaceuticals Inc. | | | United States | | | | 8,470 | | | | | | | | 276,122 | |
| a | | Fate Therapeutics Inc. | | | United States | | | | 16,262 | | | | | | | | 1,245,669 | |
| a | | Genetron Holdings Ltd., ADR | | | China | | | | 31,720 | | | | | | | | 671,512 | |
| b | | Gilead Sciences Inc. | | | United States | | | | 7,000 | | | | | | | | 462,770 | |
| a | | I-Mab, ADR | | | China | | | | 3,466 | | | | | | | | 280,989 | |
| a | | Immatics NV, wts., 12/31/25 | | | Germany | | | | 10,049 | | | | | | | | 31,654 | |
| a,e | | Innovent Biologics Inc., 144A | | | China | | | | 62,682 | | | | | | | | 755,879 | |
| a | | Intellia Therapeutics Inc. | | | United States | | | | 15,283 | | | | | | | | 1,145,308 | |
| | | | | | | | | | |
| | | | | | |
| 16 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Biotechnology (continued) | |
| a | | Kymera Therapeutics Inc. | | | United States | | | | 4,162 | | | | | | | $ | 200,151 | |
| a | | Mirati Therapeutics Inc. | | | United States | | | | 2,572 | | | | | | | | 406,762 | |
| a,f | | Natera Inc. | | | United States | | | | 13,408 | | | | | | | | 1,262,229 | |
| a,d | | Novavax Inc. | | | United States | | | | 3,652 | | | | | | | | 539,108 | |
| a | | Nurix Therapeutics Inc. | | | United States | | | | 7,354 | | | | | | | | 205,177 | |
| a | | ORIC Pharmaceuticals Inc. | | | United States | | | | 10,440 | | | | | | | | 238,554 | |
| a | | PMV Pharmaceuticals Inc. | | | United States | | | | 7,999 | | | | | | | | 275,166 | |
| a | | Praxis Precision Medicines Inc. | | | United States | | | | 4,250 | | | | | | | | 83,257 | |
| a | | ProQR Therapeutics NV | | | Netherlands | | | | 39,814 | | | | | | | | 248,439 | |
| a | | Sage Therapeutics Inc. | | | United States | | | | 11,360 | | | | | | | | 790,656 | |
| a | | SpringWorks Therapeutics Inc. | | | United States | | | | 3,588 | | | | | | | | 292,566 | |
| a | | Turning Point Therapeutics Inc. | | | United States | | | | 10,563 | | | | | | | | 699,059 | |
| a,f | | Vertex Pharmaceuticals Inc. | | | United States | | | | 9,090 | | | | | | | | 1,896,447 | |
| a | | Zai Lab Ltd., ADR | | | China | | | | 10,801 | | | | | | | | 1,918,906 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 24,763,911 | |
| | | | | | | | | | | | | | | | | | |
| | | Building Products 0.3% | |
| | AO Smith Corp. | | | United States | | | | 4,888 | | | | | | | | 347,390 | |
| | Carrier Global Corp. | | | United States | | | | 44,941 | | | | | | | | 2,064,140 | |
| a | | Johnson Controls International PLC | | | United States | | | | 9,809 | | | | | | | | 652,691 | |
| a | | Trane Technologies PLC | | | United States | | | | 7,210 | | | | | | | | 1,343,944 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 4,408,165 | |
| | | | | | | | | | | | | | | | | | |
| | | Capital Markets 0.5% | |
| e | | Amundi SA, 144A | | | France | | | | 25,204 | | | | | | | | 2,241,249 | |
| e | | Anima Holding SpA, 144A | | | Italy | | | | 102,616 | | | | | | | | 539,045 | |
| b | | Artisan Partners Asset Management Inc., A | | | United States | | | | 1,133 | | | | | | | | 57,874 | |
| b | | The Blackstone Group Inc., A | | | United States | | | | 780 | | | | | | | | 72,283 | |
| a | | Capstar Special Purpose Acquisition Corp., A | | | United States | | | | 10,190 | | | | | | | | 99,454 | |
| a | | Capstar Special Purpose Acquisition Corp., wts., 7/09/27 | | | United States | | | | 6,891 | | | | | | | | 6,064 | |
| b | | The Charles Schwab Corp. | | | United States | | | | 916 | | | | | | | | 67,647 | |
| a,f | | E.Merge Technology Acquisition Corp., A | | | United States | | | | 6,534 | | | | | | | | 63,510 | |
| a | | Foley Trasimene Acquisition Corp., wts., 5/26/25 | | | United States | | | | 13,125 | | | | | | | | 24,281 | |
| a,f | | GS Acquisition Holdings Corp. II, A | | | United States | | | | 2,923 | | | | | | | | 29,435 | |
| a | | Hudson Executive Investment Corp., A | | | United States | | | | 18,651 | | | | | | | | 185,018 | |
| | Moody’s Corp. | | | United States | | | | 8,581 | | | | | | | | 2,877,638 | |
| b | | Morgan Stanley | | | United States | | | | 749 | | | | | | | | 68,122 | |
| a,d | | SCVX Corp., A | | | United States | | | | 6,585 | | | | | | | | 65,126 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 6,396,746 | |
| | | | | | | | | | | | | | | | | | |
| | | Chemicals 0.8% | |
| | International Flavors & Fragrances Inc. | | | United States | | | | 2,323 | | | | | | | | 329,099 | |
| | The Sherwin-Williams Co. | | | United States | | | | 29,364 | | | | | | | | 8,325,575 | |
| a | | Tikkurila OYJ | | | Finland | | | | 21,645 | | | | | | | | 897,375 | |
| | WR Grace & Co. | | | United States | | | | 21,432 | | | | | | | | 1,468,521 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 11,020,570 | |
| | | | | | | | | | | | | | | | | | |
| | | Commercial Services & Supplies 1.2% | |
| a | | 468 SPAC I SE, A | | | Germany | | | | 124,814 | | | | | | | | 1,477,446 | |
| a | | 468 SPAC I SE, wts., 4/30/26, A | | | Germany | | | | 41,605 | | | | | | | | 45,789 | |
| a | | 7GC & Co. Holdings Inc., wts., 12/31/26, A | | | United States | | | | 3,244 | | | | | | | | 2,498 | |
| a | | 890 5th Avenue Partners Inc., A | | | United States | | | | 39,498 | | | | | | | | 382,341 | |
| a | | Atlas Crest Investment Corp. II, A | | | United States | | | | 20,011 | | | | | | | | 194,907 | |
| a | | Atlas Crest Investment Corp. II, wts., 2/23/28, A | | | United States | | | | 4,212 | | | | | | | | 4,381 | |
| f | | Cintas Corp. | | | United States | | | | 12,657 | | | | | | | | 4,474,756 | |
| a | | Class Acceleration Corp., A | | | United States | | | | 13,473 | | | | | | | | 130,958 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 17 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Commercial Services & Supplies (continued) | |
| a | | Class Acceleration Corp., wts., 3/31/28 | | | United States | | | | 4,133 | | | | | | | $ | 2,315 | |
| a | | CM Life Sciences III Inc. | | | United States | | | | 22,217 | | | | | | | | 237,055 | |
| | Covanta Holding Corp. | | | United States | | | | 20,015 | | | | | | | | 296,422 | |
| a | | Digital Transformation Opportunities Corp. | | | United States | | | | 39,182 | | | | | | | | 389,469 | |
| a | | dMY Technology Group Inc. III, wts., 1/31/26, A | | | United States | | | | 12,583 | | | | | | | | 26,300 | |
| a | | dMY Technology Group Inc. IV | | | United States | | | | 41,278 | | | | | | | | 416,495 | |
| a | | dMY Technology Group Inc. IV, A | | | United States | | | | 645 | | | | | | | | 6,353 | |
| a | | dMY Technology Group Inc. IV, wts., 12/31/27, A | | | United States | | | | 129 | | | | | | | | 153 | |
| a,d | | DPCM Capital Inc. | | | United States | | | | 16,677 | | | | | | | | 163,768 | |
| a | | Executive Network Partnering Corp., A | | | United States | | | | 19,832 | | | | | | | | 192,767 | |
| a | | Executive Network Partnering Corp., wts., 9/25/28 | | | United States | | | | 2,901 | | | | | | | | 2,263 | |
| a | | First Reserve Sustainable Growth Corp. | | | United States | | | | 32,362 | | | | | | | | 322,002 | |
| a | | Gores Guggenheim Inc. | | | United States | | | | 10,074 | | | | | | | | 100,035 | |
| a | | Gores Metropoulos II Inc. | | | United States | | | | 110 | | | | | | | | 1,109 | |
| a,d | | Gores Metropoulos II Inc., A | | | United States | | | | 140 | | | | | | | | 1,380 | |
| a | | Gores Metropoulos II Inc., wts., 1/31/28 | | | United States | | | | 9,044 | | | | | | | | 10,491 | |
| a | | Gores Technology Partners II Inc. | | | United States | | | | 12,807 | | | | | | | | 128,070 | |
| a | | Gores Technology Partners II Inc., A | | | United States | | | | 1,220 | | | | | | | | 11,956 | |
| a | | Gores Technology Partners Inc. | | | United States | | | | 11,237 | | | | | | | | 111,808 | |
| a | | Hedosophia European Growth | | | Cayman Islands | | | | 16,667 | | | | | | | | 204,628 | |
| a | | Juniper Industrial Holdings Inc., wts., 11/13/26 | | | United States | | | | 6,149 | | | | | | | | 21,214 | |
| a | | Kins Technology Group Inc., wts., 12/31/25, A | | | United States | | | | 1,892 | | | | | | | | 1,513 | |
| | Knoll Inc. | | | United States | | | | 31,761 | | | | | | | | 825,786 | |
| a | | Landcadia Holdings III Inc., wts., 10/01/27 | | | United States | | | | 27,482 | | | | | | | | 57,712 | |
| a | | Landcadia Holdings IV Inc. | | | United States | | | | 12,322 | | | | | | | | 122,357 | |
| a | | Northern Star Investment Corp. II, wts., 1/31/28, A | | | United States | | | | 5,216 | | | | | | | | 9,545 | |
| a | | Novus Capital Corp. II, A | | | United States | | | | 19,008 | | | | | | | | 183,997 | |
| a | | Novus Capital Corp. II, wts., 2/02/26, A | | | United States | | | | 6,336 | | | | | | | | 6,906 | |
| a | | One Equity Partners Open Water I Corp., A | | | United States | | | | 2,269 | | | | | | | | 21,873 | |
| a | | One Equity Partners Open Water I Corp., wts., 1/14/26 | | | United States | | | | 2,933 | | | | | | | | 2,375 | |
| a | | Post Holdings Partnering Corp. | | | United States | | | | 15,394 | | | | | | | | 154,710 | |
| | Republic Services Inc., A | | | United States | | | | 36,014 | | | | | | | | 3,932,009 | |
| a | | Star Peak Corp. II, A | | | United States | | | | 13,937 | | | | | | | | 137,558 | |
| a | | Star Peak Corp. II, wts., 12/24/25, A | | | United States | | | | 5,563 | | | | | | | | 7,510 | |
| a | | Tech And Energy Transition Corp. | | | United States | | | | 8,501 | | | | | | | | 85,010 | |
| a | | Tishman Speyer Innovation Corp. II | | | United States | | | | 1,534 | | | | | | | | 15,340 | |
| a | | Tishman Speyer Innovation Corp. II, A | | | United States | | | | 509 | | | | | | | | 5,029 | |
| a | | Tishman Speyer Innovation Corp. II, wts., 2/11/26, A | | | United States | | | | 77 | | | | | | | | 92 | |
| a | | TWC Tech Holdings II Corp., A | | | United States | | | | 21,061 | | | | | | | | 208,083 | |
| a | | TWC Tech Holdings II Corp., wts., 9/15/27 | | | United States | | | | 1,034 | | | | | | | | 1,696 | |
| a | | Twelve Seas Investment Co. II | | | United States | | | | 4,888 | | | | | | | | 48,636 | |
| a | | Twelve Seas Investment Co. II, A | | | United States | | | | 10,429 | | | | | | | | 102,204 | |
| a | | Twelve Seas Investment Co. II, wts., 3/02/28 | | | United States | | | | 3,476 | | | | | | | | 2,259 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 15,291,329 | |
| | | | | | | | | | | | | | | | | | |
| | | Communications Equipment 0.1% | |
| | Accton Technology Corp. | | | Taiwan | | | | 157,660 | | | | | | | | 1,758,634 | |
| b | | Cisco Systems Inc. | | | United States | | | | 1,281 | | | | | | | | 67,765 | |
| d | | Ubiquiti Inc. | | | United States | | | | 225 | | | | | | | | 67,842 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 1,894,241 | |
| | | | | | | | | | | | | | | | | | |
| | | Construction & Engineering 0.5% | |
| a | | AECOM | | | United States | | | | 20,518 | | | | | | | | 1,333,875 | |
| a | | Mastec Inc. | | | United States | | | | 22,333 | | | | | | | | 2,597,998 | |
| | Quanta Services Inc. | | | United States | | | | 23,014 | | | | | | | | 2,194,385 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 6,126,258 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 18 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Construction Materials 0.4% | |
| a | | Cemex SAB de CV, ADR | | | Mexico | | | | 232,490 | | | | | | | $ | 1,925,017 | |
| | LafargeHolcim Ltd., B | | | Switzerland | | | | 67,059 | | | | | | | | 3,990,033 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 5,915,050 | |
| | | | | | | | | | | | | | | | | | |
| | | Containers & Packaging 0.6% | |
| f | | Ball Corp. | | | United States | | | | 100,464 | | | | | | | | 8,254,122 | |
| | | | | | | | | | | | | | | | | | |
| | | Distributors 0.2% | |
| | Pool Corp. | | | United States | | | | 6,697 | | | | | | | | 2,923,575 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Financial Services 1.5% | |
| a | | 2MX Organic SA, wts., 11/16/25 | | | France | | | | 3,920 | | | | | | | | 2,133 | |
| a | | Acies Acquisition Corp., wts., 11/30/27 | | | Cayman Islands | | | | 245 | | | | | | | | 453 | |
| a | | Adit EdTech Acquisition Corp., wts., 12/31/27 | | | United States | | | | 1,411 | | | | | | | | 832 | |
| a | | AEA-Bridges Impact Corp., A | | | Cayman Islands | | | | 23,496 | | | | | | | | 229,086 | |
| a | | AEA-Bridges Impact Corp., wts., 9/19/25 | | | Cayman Islands | | | | 1,407 | | | | | | | | 1,210 | |
| a | | Aequi Acquisition Corp. | | | United States | | | | 13,355 | | | | | | | | 132,749 | |
| a | | African Gold Acquisition Corp., A | | | United States | | | | 6,518 | | | | | | | | 62,964 | |
| a | | African Gold Acquisition Corp., wts., 3/13/28, A | | | United States | | | | 4,888 | | | | | | | | 2,444 | |
| a | | Agile Growth Corp. | | | United States | | | | 4,309 | | | | | | | | 42,831 | |
| a | | Ajax I, wts., 12/18/26 | | | United States | | | | 44,707 | | | | | | | | 73,767 | |
| a | | Alkuri Global Acquisition Corp. | | | United States | | | | 4,150 | | | | | | | | 41,873 | |
| a | | Altitude Acquisition Corp., A | | | United States | | | | 10,922 | | | | | | | | 106,599 | |
| a | | Altitude Acquisition Corp., wts., 11/30/27, A | | | United States | | | | 23,064 | | | | | | | | 16,597 | |
| a | | Angel Pond Holdings Corp. | | | United States | | | | 7,260 | | | | | | | | 72,310 | |
| a | | Apollo Strategic Growth Capital, A | | | United States | | | | 8,654 | | | | | | | | 84,376 | |
| a | | Apollo Strategic Growth Capital II | | | United States | | | | 8,845 | | | | | | | | 88,450 | |
| a | | ArcLight Clean Transition Corp. II | | | United States | | | | 3,419 | | | | | | | | 34,258 | |
| a | | Ares Acquisition Corp., A | | | United States | | | | 13,000 | | | | | | | | 127,010 | |
| a | | Ares Acquisition Corp., wts., 12/30/21 | | | United States | | | | 1,934 | | | | | | | | 2,050 | |
| a,d | | Artius Acquisition Inc., A | | | United States | | | | 3,259 | | | | | | | | 32,460 | |
| a | | Artius Acquisition Inc., wts., 7/13/26 | | | United States | | | | 910 | | | | | | | | 1,592 | |
| a | | Ascendant Digital Acquisition Corp. | | | United States | | | | 165 | | | | | | | | 1,633 | |
| a | | Athlon Acquisition Corp., wts., 1/18/23 | | | United States | | | | 4,234 | | | | | | | | 2,815 | |
| a | | Atlantic Avenue Acquisition Corp., A | | | United States | | | | 8,680 | | | | | | | | 84,196 | |
| a | | Atlantic Avenue Acquisition Corp., wts., 10/06/27 | | | United States | | | | 4,340 | | | | | | | | 2,995 | |
| a | | Atlantic Coastal Acquisition Corp. | | | United States | | | | 16,329 | | | | | | | | 161,657 | |
| a | | Austerlitz Acquisition Corp I, wts., 2/19/26 | | | United States | | | | 9,072 | | | | | | | | 13,699 | |
| a,d | | Austerlitz Acquisition Corp. I | | | United States | | | | 18,988 | | | | | | | | 194,247 | |
| a,d | | Austerlitz Acquisition Corp. I, A | | | United States | | | | 8,276 | | | | | | | | 81,767 | |
| a | | Austerlitz Acquisition Corp. II | | | United States | | | | 12,632 | | | | | | | | 126,573 | |
| a | | Austerlitz Acquisition Corp. II, A | | | United States | | | | 1,111 | | | | | | | | 10,888 | |
| a | | Authentic Equity Acquisition Corp I, wts., 1/20/28 | | | Cayman Islands | | | | 9,239 | | | | | | | | 6,098 | |
| a | | Biotech Acquisition Co., wts., 11/30/27 | | | United States | | | | 4,353 | | | | | | | | 3,004 | |
| a | | BowX Acquisition Corp., wts., 8/07/27 | | | United States | | | | 43,189 | | | | | | | | 125,680 | |
| a | | Broadscale Acquisition Corp. | | | United States | | | | 6,216 | | | | | | | | 61,911 | |
| a | | Broadstone Acquisition Corp., wts., 9/15/28 | | | United States | | | | 25,789 | | | | | | | | 20,244 | |
| a | | Burgundy Technology Acquisition Corp. | | | United States | | | | 8,583 | | | | | | | | 84,886 | |
| a | | Carney Technology Acquisition Corp. II, A | | | United States | | | | 12,636 | | | | | | | | 122,696 | |
| a | | Carney Technology Acquisition Corp. II, wts., 11/30/27 | | | United States | | | | 5,876 | | | | | | | | 5,229 | |
| a | | CBRE Acquisition Holdings Inc. | | | United States | | | | 4 | | | | | | | | 40 | |
| a | | CBRE Acquisition Holdings Inc., A | | | United States | | | | 4,159 | | | | | | | | 40,550 | |
| a,d | | CC Neuberger Principal Holdings II | | | United States | | | | 12,116 | | | | | | | | 119,100 | |
| a | | CC Neuberger Principal Holdings II, wts., 7/29/25 | | | United States | | | | 673 | | | | | | | | 794 | |
| a | | CC Neuberger Principal Holdings III | | | United States | | | | 558 | | | | | | | | 5,641 | |
| a | | CC Neuberger Principal Holdings III, wts., 12/31/27 | | | United States | | | | 789 | | | | | | | | 884 | |
| a | | Cerved Information Solutions SpA | | | Italy | | | | 40,026 | | | | | | | | 481,048 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 19 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Diversified Financial Services (continued) | |
| a | | CF Acquisition Corp. V, A | | | United States | | | | 6,004 | | | | | | | $ | 58,059 | |
| a | | CF Acquisition Corp. V, wts., 1/25/26, A | | | United States | | | | 2,058 | | | | | | | | 1,924 | |
| a | | CF Acquisition Corp. VIII | | | United States | | | | 2,475 | | | | | | | | 24,626 | |
| a | | Churchill Capital Corp. VI | | | United States | | | | 1,080 | | | | | | | | 10,843 | |
| a | | Churchill Capital Corp. VII | | | United States | | | | 9,560 | | | | | | | | 95,600 | |
| a | | Churchill Capital Corp. VII, wts., 2/29/28 | | | United States | | | | 92 | | | | | | | | 106 | |
| a | | Clarim Acquisition Corp. | | | United States | | | | 29,231 | | | | | | | | 289,095 | |
| a | | Clarim Acquisition Corp., A | | | United States | | | | 21,495 | | | | | | | | 208,287 | |
| a | | Clarim Acquisition Corp., wts., 2/03/28, A | | | United States | | | | 7,165 | | | | | | | | 4,668 | |
| a | | Climate Real Impact Solutions II Acquisition Corp. | | | United States | | | | 563 | | | | | | | | 5,658 | |
| a | | Colicity Inc. | | | United States | | | | 37,960 | | | | | | | | 378,081 | |
| a | | Corner Growth Acquisition Corp., A | | | United States | | | | 22,818 | | | | | | | | 221,106 | |
| a | | Corner Growth Acquisition Corp., wts., 1/02/28 | | | United States | | | | 7,606 | | | | | | | | 6,009 | |
| a | | Crescent Acquisition Corp., wts., 3/07/24 | | | United States | | | | 19,664 | | | | | | | | 28,513 | |
| a | | Crucible Acquisition Corp. | | | United States | | | | 4,437 | | | | | | | | 44,988 | |
| a,d | | Decarbonization Plus Acquisition Corp. II, A | | | United States | | | | 7,711 | | | | | | | | 75,722 | |
| a | | Decarbonization Plus Acquisition Corp. II, wts., 1/19/26, A | | | United States | | | | 1,009 | | | | | | | | 1,231 | |
| a | | Decarbonization Plus Acquisition Corp. III | | | United States | | | | 12,099 | | | | | | | | 120,990 | |
| a | | DHC Acquisition Corp., A | | | United States | | | | 6,265 | | | | | | | | 60,551 | |
| a | | DHC Acquisition Corp., wts., 12/31/27 | | | United States | | | | 2,088 | | | | | | | | 2,464 | |
| a | | Disruptive Acquisition Corp. I | | | United States | | | | 6,844 | | | | | | | | 68,372 | |
| a | | Dragoneer Growth Opportunities Corp., A | | | United States | | | | 5,962 | | | | | | | | 59,262 | |
| a | | Dragoneer Growth Opportunities Corp. II, A | | | United States | | | | 1,335 | | | | | | | | 13,350 | |
| a | | Dragoneer Growth Opportunities Corp. III, A | | | United States | | | | 20,225 | | | | | | | | 203,261 | |
| a | | Dragoneer Growth Opportunities Corp., wts., 8/18/27 | | | United States | | | | 31,448 | | | | | | | | 64,154 | |
| a | | ECP Environmental Growth Opportunities Corp. | | | United States | | | | 10,712 | | | | | | | | 107,120 | |
| a | | ECP Environmental Growth Opportunities Corp., wts., 2/11/28 | | | United States | | | | 462 | | | | | | | | 419 | |
| a | | Empower Ltd., wts., 11/30/27 | | | United States | | | | 9,631 | | | | | | | | 15,650 | |
| a,d | | ESM Acquisition Corp. | | | United States | | | | 8,367 | | | | | | | | 83,377 | |
| a | | European Biotech Acquisition Corp. | | | Netherlands | | | | 1,230 | | | | | | | | 12,189 | |
| a | | Fast Acquisition Corp. II | | | United States | | | | 16,166 | | | | | | | | 160,367 | |
| a | | Figure Acquisition Corp. I, A | | | United States | | | | 1,393 | | | | | | | | 14,000 | |
| a | | Figure Acquisition Corp. I, wts., 12/31/27, A | | | United States | | | | 1,176 | | | | | | | | 1,294 | |
| a | | Fintech Evolution Acquisition Group | | | United States | | | | 17,597 | | | | | | | | 175,090 | |
| a | | Fortress Capital Acquisition Corp., A | | | United States | | | | 9,805 | | | | | | | | 95,599 | |
| a | | Fortress Capital Acquisition Corp., wts., 1/04/28 | | | United States | | | | 1,961 | | | | | | | | 1,922 | |
| a,d | | Fortress Value Acquisition Corp. II, A | | | United States | | | | 23,541 | | | | | | | | 234,939 | |
| a | | Fortress Value Acquisition Corp. II, wts., 8/10/27 | | | United States | | | | 11,288 | | | | | | | | 20,882 | |
| a | | Fortress Value Acquisition Corp. III, A | | | United States | | | | 10,335 | | | | | | | | 102,006 | |
| a | | Fortress Value Acquisition Corp. IV | | | United States | | | | 12,743 | | | | | | | | 126,920 | |
| a | | Forum Merger IV Corp. | | | United States | | | | 2,892 | | | | | | | | 28,718 | |
| a | | Freedom Acquisition I Corp., A | | | United States | | | | 1,955 | | | | | | | | 19,012 | |
| a | | Freedom Acquisition I Corp., wts., 12/31/27 | | | United States | | | | 488 | | | | | | | | 515 | |
| a | | FS Development Corp. II, A | | | United States | | | | 2,114 | | | | | | | | 21,119 | |
| a | | FTAC Athena Acquisition Corp. | | | United States | | | | 28,460 | | | | | | | | 284,885 | |
| a | | FTAC Hera Acquisition Corp. | | | United States | | | | 35,780 | | | | | | | | 358,516 | |
| a | | FTAC Hera Acquisition Corp., A | | | United States | | | | 6,156 | | | | | | | | 60,144 | |
| a | | FTAC Hera Acquisition Corp., wts., 2/28/26 | | | United States | | | | 1,539 | | | | | | | | 1,708 | |
| a | | FTAC Parnassus Acquisition Corp. | | | United States | | | | 49,016 | | | | | | | | 491,140 | |
| a | | Fusion Acquisition Corp. II | | | United States | | | | 12,633 | | | | | | | | 125,825 | |
| a | | Fusion Acquisition Corp. II, A | | | United States | | | | 3,259 | | | | | | | | 31,514 | |
| a | | Fusion Acquisition Corp. II, wts., 12/31/27, A | | | United States | | | | 1,086 | | | | | | | | 804 | |
| a | | G Squared Ascend I Inc. | | | United States | | | | 5,572 | | | | | | | | 55,720 | |
| a | | Galileo Acquisition Corp., wts., 10/31/26 | | | United States | | | | 26,147 | | | | | | | | 24,842 | |
| a | | Glenfarne Merger Corp. | | | United States | | | | 1,231 | | | | | | | | 12,224 | |
| a | | Global Partner Acquisition Corp II, wts., 12/31/27 | | | United States | | | | 2,950 | | | | | | | | 2,649 | |
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| 20 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Diversified Financial Services (continued) | |
| a | | Global Partner Acquisition Corp. II, A | | | United States | | | | 17,700 | | | | | | | $ | 173,283 | |
| a | | Gores Holdings V Inc., A | | | United States | | | | 10,535 | | | | | | | | 106,403 | |
| a | | Gores Holdings V Inc., wts., 8/10/27 | | | United States | | | | 3,120 | | | | | | | | 5,866 | |
| a | | Gores Holdings VI Inc., wts., 8/24/27 | | | United States | | | | 847 | | | | | | | | 4,015 | |
| a | | Gores Holdings VII Inc. | | | United States | | | | 38,284 | | | | | | | | 381,691 | |
| a | | Gores Holdings VIII Inc. | | | United States | | | | 8,934 | | | | | | | | 89,251 | |
| a | | Group Nine Acquisition Corp., A | | | United States | | | | 22,173 | | | | | | | | 216,187 | |
| a | | Group Nine Acquisition Corp., wts., 1/14/26, A | | | United States | | | | 7,391 | | | | | | | | 5,266 | |
| a | | Healthcare Services Acquisition Corp., A | | | United States | | | | 3,074 | | | | | | | | 29,664 | |
| a | | Healthcare Services Acquisition Corp., wts., 1/04/28 | | | United States | | | | 4,019 | | | | | | | | 2,612 | |
| a | | HealthCor Catalio Acquisition Corp., A | | | United States | | | | 4,875 | | | | | | | | 48,067 | |
| a | | Hennessy Capital Investment Corp. V | | | United States | | | | 3 | | | | | | | | 30 | |
| a,d | | Hennessy Capital Investment Corp. V, A | | | United States | | | | 15,991 | | | | | | | | 157,991 | |
| a | | Hennessy Capital Investment Corp. V, wts., 1/11/26 | | | United States | | | | 1,241 | | | | | | | | 1,440 | |
| a | | Investindustrial Acquisition Corp., wts., 10/30/27 | | | United States | | | | 2,150 | | | | | | | | 1,828 | |
| a | | ION Acquisition Corp II Ltd., wts., 2/17/28 | | | Israel | | | | 69 | | | | | | | | 90 | |
| a | | ION Acquisition Corp. 2 Ltd, A | | | Israel | | | | 555 | | | | | | | | 5,506 | |
| a | | ION Acquisition Corp. 3 Ltd, A | | | Israel | | | | 2,698 | | | | | | | | 26,575 | |
| a | | Jack Creek Investment Corp., wts., 10/01/25 | | | United States | | | | 5,880 | | | | | | | | 3,940 | |
| a | | Jaws Mustang Acquisition Corp. | | | United States | | | | 6,135 | | | | | | | | 61,657 | |
| a | | Jaws Mustang Acquisition Corp., A | | | United States | | | | 7,860 | | | | | | | | 76,792 | |
| a | | Jaws Mustang Acquisition Corp., wts., 1/30/27 | | | United States | | | | 1,965 | | | | | | | | 2,201 | |
| a | | Jaws Spitfire Acquisition Corp., wts., 12/01/25 | | | United States | | | | 34,186 | | | | | | | | 52,988 | |
| a | | Joff Fintech Acquisition Corp., A | | | United States | | | | 5,277 | | | | | | | | 50,870 | |
| a | | Joff Fintech Acquisition Corp., wts., 2/04/28 | | | United States | | | | 1,759 | | | | | | | | 1,478 | |
| a | | Kairos Acquisition Corp., wts., 12/31/27 | | | Cayman Islands | | | | 4,433 | | | | | | | | 2,882 | |
| a | | Kensington Capital Acquisition Corp. II | | | United States | | | | 8,424 | | | | | | | | 86,262 | |
| a | | Khosla Ventures Acquisition Co., A | | | United States | | | | 27,998 | | | | | | | | 281,660 | |
| a | | Khosla Ventures Acquisition Co. II, A | | | United States | | | | 16,634 | | | | | | | | 167,172 | |
| a | | Khosla Ventures Acquisition Co. III, A | | | United States | | | | 19,002 | | | | | | | | 189,639 | |
| a | | KKR Acquisition Holdings I Corp. | | | United States | | | | 16,205 | | | | | | | | 162,698 | |
| a | | L Catterton Asia Acquisition Corp. | | | Singapore | | | | 2,279 | | | | | | | | 22,767 | |
| a | | Lakestar SPAC I SE | | | Luxembourg | | | | 1,961 | | | | | | | | 23,873 | |
| a | | Lakestar SPAC I SE, wts., 12/31/25 | | | Luxembourg | | | | 716 | | | | | | | | 744 | |
| a | | Lazard Growth Acquisition Corp. I | | | United States | | | | 4,240 | | | | | | | | 42,400 | |
| a | | LDH Growth Corp. I | | | United States | | | | 615 | | | | | | | | 6,168 | |
| a | | Lead Edge Growth Opportunities Ltd. | | | United States | | | | 4,701 | | | | | | | | 46,775 | |
| a | | Legato Merger Corp., wts., 12/31/25 | | | United States | | | | 17,421 | | | | | | | | 24,564 | |
| a | | Leo Holdings III Corp., A | | | United States | | | | 1,303 | | | | | | | | 12,698 | |
| a | | Leo Holdings III Corp., wts., 3/02/28 | | | United States | | | | 260 | | | | | | | | 227 | |
| a | | Lerer Hippeau Acquisition Corp., A | | | United States | | | | 20,644 | | | | | | | | 204,169 | |
| a | | LGL Systems Acquisition Corp., wts., 11/12/26 | | | United States | | | | 16,717 | | | | | | | | 28,083 | |
| a | | Live Oak Acquisition Corp. II, A | | | United States | | | | 11,538 | | | | | | | | 114,226 | |
| a | | Live Oak Acquisition Corp. II, wts., 12/07/27, A | | | United States | | | | 6,871 | | | | | | | | 11,406 | |
| a | | Live Oak Mobility Acquisition Corp., A | | | United States | | | | 2,581 | | | | | | | | 25,139 | |
| a | | Live Oak Mobility Acquisition Corp., wts., 3/04/28 | | | United States | | | | 516 | | | | | | | | 537 | |
| a | | Longview Acquisition Corp. II | | | United States | | | | 16,780 | | | | | | | | 169,981 | |
| a | | Marlin Technology Corp., A | | | United States | | | | 9,915 | | | | | | | | 95,184 | |
| a | | Marlin Technology Corp., wts., 3/05/26 | | | United States | | | | 3,305 | | | | | | | | 2,677 | |
| a | | Marquee Raine Acquisition Corp., wts., 12/01/25 | | | Cayman Islands | | | | 8,332 | | | | | | | | 7,249 | |
| a | | MDH Acquisition Corp., A | | | United States | | | | 4,587 | | | | | | | | 44,287 | |
| a | | MDH Acquisition Corp., wts., 2/02/28, A | | | United States | | | | 2,293 | | | | | | | | 1,395 | |
| a | | Motive Capital Corp., A | | | United States | | | | 17,457 | | | | | | | | 170,904 | |
| a | | Motive Capital Corp., wts., 12/09/25 | | | United States | | | | 3,179 | | | | | | | | 2,785 | |
| a | | Mudrick Capital Acquisition Corp. II, wts., 9/10/27 | | | United States | | | | 10,302 | | | | | | | | 51,098 | |
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| franklintempleton.com | | Annual Report | | | | | | | | 21 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Diversified Financial Services (continued) | |
| a | | The Music Acquisition Corp., A | | | United States | | | | 5,363 | | | | | | | $ | 52,289 | |
| a | | The Music Acquisition Corp., wts., 2/05/28, A | | | United States | | | | 2,681 | | | | | | | | 1,636 | |
| a | | Nightdragon Acquisition Corp. | | | United States | | | | 21,996 | | | | | | | | 220,180 | |
| a | | Nightdragon Acquisition Corp., A | | | United States | | | | 1,253 | | | | | | | | 12,229 | |
| a | | Nightdragon Acquisition Corp., wts., 4/22/26 | | | United States | | | | 217 | | | | | | | | 236 | |
| a | | North Atlantic Acquisition Corp., A | | | United States | | | | 6,495 | | | | | | | | 62,709 | |
| a | | North Atlantic Acquisition Corp., wts., 10/20/25 | | | United States | | | | 2,165 | | | | | | | | 1,898 | |
| a | | Northern Genesis Acquisition Corp. III | | | United States | | | | 580 | | | | | | | | 5,777 | |
| a | | Oaktree Acquisition Corp II, wts., 9/15/27 | | | United States | | | | 4,143 | | | | | | | | 4,599 | |
| a | | Oaktree Acquisition Corp. II, A | | | United States | | | | 17,512 | | | | | | | | 171,092 | |
| a | | Obotech Acquisition SE, A | | | Luxembourg | | | | 4,205 | | | | | | | | 49,878 | |
| a | | Obotech Acquisition SE, wts., 4/30/26 | | | Luxembourg | | | | 1,401 | | | | | | | | 1,542 | |
| a | | One, wts., 8/17/25 | | | United States | | | | 19,304 | | | | | | | | 37,257 | |
| a | | Orion Biotech Opportunities Corp. | | | United States | | | | 16,960 | | | | | | | | 170,109 | |
| a | | Pathfinder Acquisition Corp. | | | United States | | | | 35,815 | | | | | | | | 357,792 | |
| a | | Pegasus Acquisition Co. Europe BV | | | Netherlands | | | | 109,017 | | | | | | | | 1,333,114 | |
| a | | Peridot Acquisition Corp. II | | | United States | | | | 2,506 | | | | | | | | 25,010 | |
| a | | Periphas Capital Partnering Corp., A | | | United States | | | | 10,736 | | | | | | | | 263,461 | |
| a | | Periphas Capital Partnering Corp., wts., 12/10/28, A | | | United States | | | | 2,684 | | | | | | | | 4,804 | |
| a | | Pershing Square Tontine Holdings Ltd., A | | | United States | | | | 8,097 | | | | | | | | 203,397 | |
| a | | Pershing Square Tontine Holdings Ltd., wts., 7/24/21 | | | United States | | | | 1 | | | | | | | | 9 | |
| a | | Pioneer Merger Corp., A | | | United States | | | | 2,043 | | | | | | | | 20,185 | |
| a | | PMV Consumer Acquisition Corp., wts., 8/31/27 | | | United States | | | | 2,466 | | | | | | | | 1,973 | |
| a | | Poema Global Holdings Corp., A | | | United States | | | | 8,866 | | | | | | | | 85,557 | |
| a | | Poema Global Holdings Corp., wts., 1/08/26 | | | United States | | | | 4,433 | | | | | | | | 3,103 | |
| a | | Pontem Corp., A | | | United States | | | | 16,446 | | | | | | | | 159,362 | |
| a | | Pontem Corp., wts., 1/05/26 | | | United States | | | | 5,482 | | | | | | | | 4,385 | |
| a | | Population Health Investment Co. Inc., A | | | United States | | | | 1,144 | | | | | | | | 11,223 | |
| a | | Power & Digital Infrastructure Acquisition Corp. | | | United States | | | | 5,532 | | | | | | | | 55,873 | |
| a | | Powered Brands, A | | | United States | | | | 3,648 | | | | | | | | 35,823 | |
| a,d | | Primavera Capital Acquisition Corp., A | | | Hong Kong | | | | 3,048 | | | | | | | | 29,444 | |
| a | | Primavera Capital Aquisition Corp., wts., 1/19/26 | | | Hong Kong | | | | 1,524 | | | | | | | | 1,082 | |
| a,d | | Property Solutions Acquisition Corp. II | | | United States | | | | 3,238 | | | | | | | | 32,218 | |
| a | | PWP Forward Acquisition Corp. I | | | United States | | | | 6,157 | | | | | | | | 61,139 | |
| a | | RedBall Acquisition Corp. | | | United States | | | | 8,172 | | | | | | | | 80,086 | |
| a | | Reinvent Technology Partners Z, wts., 12/31/27 | | | United States | | | | 2,987 | | | | | | | | 4,391 | |
| a | | Revolution Acceleration Acquisition Corp., A | | | United States | | | | 3,334 | | | | | | | | 33,340 | |
| a | | Revolution Acceleration Acquisition Corp., wts., 12/10/26 | | | United States | | | | 21,890 | | | | | | | | 31,303 | |
| a | | Rice Acquisition Corp., wts., 10/26/27 | | | United States | | | | 23,377 | | | | | | | | 110,573 | |
| a | | RMG Acquisition Corp. II, A | | | United States | | | | 3,263 | | | | | | | | 32,402 | |
| a | | RMG Acquisition Corp. II, wts., 12/27/25 | | | United States | | | | 1,928 | | | | | | | | 3,085 | |
| a | | RMG Acquisition Corp. III | | | United States | | | | 2,786 | | | | | | | | 27,721 | |
| a | | RMG Acquisition Corp. III, A | | | United States | | | | 21,555 | | | | | | | | 210,808 | |
| a | | RMG Acquisition Corp. III, wts., 12/31/27 | | | United States | | | | 4,311 | | | | | | | | 4,031 | |
| a | | Rosecliff Acquisition Corp. I | | | United States | | | | 59,628 | | | | | | | | 588,528 | |
| a | | Ross Acquisition Corp. II | | | United States | | | | 4,378 | | | | | | | | 43,561 | |
| a | | RXR Acquisition Corp. | | | United States | | | | 9,640 | | | | | | | | 96,400 | |
| a | | Sarissa Capital Acquisition Corp., A | | | United States | | | | 13,243 | | | | | | | | 132,298 | |
| a,d | | Science Strategic Acquisition Corp. Alpha | | | United States | | | | 5,442 | | | | | | | | 54,229 | |
| a | | ScION Tech Growth I, A | | | United Kingdom | | | | 3,306 | | | | | | | | 32,134 | |
| a | | ScION Tech Growth I, wts., 11/01/25 | | | United Kingdom | | | | 1,102 | | | | | | | | 926 | |
| a | | ScION Tech Growth II | | | United Kingdom | | | | 2,073 | | | | | | | | 20,740 | |
| a | | SCP & Co. Healthcare Acquisition Co., wts., 1/31/28 | | | United States | | | | 5,434 | | | | | | | | 3,315 | |
| a | | Silver Crest Acquisition Corp., A | | | United States | | | | 2,931 | | | | | | | | 28,255 | |
| a | | Silver Crest Acquisition Corp., wts., 12/15/25 | | | United States | | | | 1,465 | | | | | | | | 952 | |
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| 22 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Diversified Financial Services (continued) | |
| a,d | | Soaring Eagle Acquisition Corp., A | | | United States | | | | 53,571 | | | | | | | $ | 528,746 | |
| a | | Soaring Eagle Acquisition Corp., wts., 2/23/26 | | | United States | | | | 8,102 | | | | | | | | 17,581 | |
| a,b | | Social Capital Hedosophia Holdings Corp. VI, A | | | United States | | | | 34,911 | | | | | | | | 353,648 | |
| a | | Social Leverage Acquisition Corp. I | | | United States | | | | 13,866 | | | | | | | | 138,660 | |
| a | | Social Leverage Acquisition Corp. I, A | | | United States | | | | 3,470 | | | | | | | | 33,763 | |
| a | | Software Acquisition Group Inc. II, wts., 3/17/27 | | | United States | | | | 4,840 | | | | | | | | 8,131 | |
| a | | Spartan Acquisition Corp. III, A | | | United States | | | | 32,665 | | | | | | | | 319,464 | |
| a | | Spartan Acquisition Corp. III, wts., 3/04/28, A | | | United States | | | | 4,195 | | | | | | | | 4,027 | |
| a | | Sports Entertainment Acquisition Corp., wts., 10/30/25 | | | United States | | | | 15,465 | | | | | | | | 31,549 | |
| a | | Starboard Value Acquisition Corp., A | | | United States | | | | 1,742 | | | | | | | | 17,263 | |
| a | | Supernova Partners Acquisition Co. II Ltd., A | | | United States | | | | 8,105 | | | | | | | | 79,105 | |
| a | | Supernova Partners Acquisition Co. II Ltd., wts., 12/31/27 | | | United States | | | | 2,026 | | | | | | | | 1,915 | |
| a | | Supernova Partners Acquisition Co. III Ltd. | | | United States | | | | 8,623 | | | | | | | | 86,230 | |
| a | | Supernova Partners Acquisition Co. Inc., A | | | United States | | | | 10 | | | | | | | | 99 | |
| a | | Supernova Partners Acquisition Co. Inc., wts., 10/16/25 | | | United States | | | | 13,362 | | | | | | | | 20,043 | |
| a | | Sustainable Development Acquisition I Corp. | | | United States | | | | 8,363 | | | | | | | | 83,964 | |
| a | | SVF Investment Corp., A | | | United States | | | | 341 | | | | | | | | 3,407 | |
| a | | SVF Investment Corp. 2, A | | | United States | | | | 281 | | | | | | | | 2,810 | |
| a | | SVF Investment Corp. 3, A | | | United States | | | | 281 | | | | | | | | 2,796 | |
| a | | Tailwind Acquisition Corp., wts., 9/07/27 | | | United States | | | | 14,703 | | | | | | | | 16,320 | |
| a | | TB SA Acquisition Corp. | | | Cayman Islands | | | | 22,005 | | | | | | | | 218,510 | |
| a | | TCV Acquisition Corp., A | | | United States | | | | 1,698 | | | | | | | | 16,980 | |
| a | | TCW Special Purpose Acquisition Corp., A | | | United States | | | | 6,265 | | | | | | | | 61,077 | |
| a | | TCW Special Purpose Acquisition Corp., wts., 12/31/28 | | | United States | | | | 2,088 | | | | | | | | 1,536 | |
| a | | Tekkorp Digital Acquisition Corp., wts., 9/29/27 | | | United States | | | | 1,328 | | | | | | | | 1,195 | |
| a | | Thoma Bravo Advantage, A | | | United States | | | | 16,627 | | | | | | | | 171,757 | |
| a | | TLG Acquisition One Corp., A | | | United States | | | | 9,876 | | | | | | | | 95,501 | |
| a | | TLG Acquisition One Corp., wts., 1/25/28 | | | United States | | | | 3,292 | | | | | | | | 2,074 | |
| a,d | | TPG Pace Beneficial II Corp., A | | | United States | | | | 17,023 | | | | | | | | 170,400 | |
| a | | TPG Pace Solutions Corp. | | | United States | | | | 17,077 | | | | | | | | 169,490 | |
| a | | TS Innovation Acquisitions Corp., wts., 12/31/26, A | | | United States | | | | 16,766 | | | | | | | | 39,065 | |
| a | | Twin Ridge Capital Acquisition Corp., A | | | United States | | | | 7,511 | | | | | | | | 74,291 | |
| a | | Twin Ridge Capital Acquisition Corp., wts., 3/07/28 | | | United States | | | | 2,503 | | | | | | | | 1,652 | |
| a | | two, A | | | United States | | | | 9,851 | | | | | | | | 98,313 | |
| a | | Valor Latitude Acquisition Corp. | | | United States | | | | 16,723 | | | | | | | | 166,812 | |
| a | | Vector Acquisition Corp. II, A | | | United States | | | | 8,707 | | | | | | | | 86,112 | |
| a | | Virgin Group Acquisition Corp. II | | | United States | | | | 10,835 | | | | | | | | 108,025 | |
| a | | Virtuoso Acquisition Corp., A | | | United States | | | | 19,976 | | | | | | | | 195,765 | |
| a | | Virtuoso Acquisition Corp., wts., 1/31/28, A | | | United States | | | | 14,047 | | | | | | | | 12,221 | |
| a | | Viveon Health Acquisition Corp., Contingent Value, rts., 12/31/27 | | | United States | | | | 22,809 | | | | | | | | 4,448 | |
| a | | Viveon Health Acquisition Corp., wts., 12/31/27 | | | United States | | | | 22,809 | | | | | | | | 7,322 | |
| a,d | | VPC Impact Acquisition Holdings II Inc. | | | United States | | | | 6,544 | | | | | | | | 65,145 | |
| a | | VPC Impact Acquisition Holdings II Inc., A | | | United States | | | | 3,698 | | | | | | | | 36,536 | |
| a | | VPC Impact Acquisition Holdings II, wts., 3/05/26 | | | United States | | | | 924 | | | | | | | | 832 | |
| a | | VPC Impact Acquisition Holdings III Inc. | | | United States | | | | 6,868 | | | | | | | | 68,611 | |
| a | | VPC Impact Acquisition Holdings III Inc., A | | | United States | | | | 4,931 | | | | | | | | 48,422 | |
| a | | VPC Impact Acquisition Holdings III Inc., wts., 12/31/27, A | | | United States | | | | 1,232 | | | | | | | | 1,079 | |
| a | | Waldencast Acquisition Corp. | | | United States | | | | 1,008 | | | | | | | | 10,171 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 19,840,014 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Telecommunication Services 0.2% | |
| a,d | | AST Spacemobile Inc. | | | United States | | | | 3,287 | | | | | | | | 23,732 | |
| a | | AST Spacemobile Inc., wts., 9/01/24 | | | United States | | | | 37 | | | | | | | | 93 | |
| a | | Frontier Communications Parent Inc. | | | United States | | | | 21,735 | | | | | | | | 542,940 | |
| a | | ORBCOMM Inc. | | | United States | | | | 163,067 | | | | | | | | 1,824,720 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 23 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Diversified Telecommunication Services (continued) | |
| | Verizon Communications Inc. | | | United States | | | | 1,077 | | | | | | | $ | 60,840 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 2,452,325 | |
| | | | | | | | | | | | | | | | | | |
| | | Electric Utilities 0.9% | |
| | Duke Energy Corp. | | | United States | | | | 2,117 | | | | | | | | 212,166 | |
| | Edison International | | | United States | | | | 2,083 | | | | | | | | 116,377 | |
| a,f | | Energy Harbor Corp. | | | United States | | | | 84,940 | | | | | | | | 2,760,975 | |
| | Exelon Corp. | | | United States | | | | 92,783 | | | | | | | | 4,186,369 | |
| f | | FirstEnergy Corp. | | | United States | | | | 32,457 | | | | | | | | 1,230,445 | |
| a | | PG&E Corp. | | | United States | | | | 262,954 | | | | | | | | 2,666,353 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 11,172,685 | |
| | | | | | | | | | | | | | | | | | |
| | | Electrical Equipment 0.1% | |
| a | | Chargepoint Holdings Inc. | | | United States | | | | 32,641 | | | | | | | | 794,808 | |
| a | | Chargepoint Holdings Inc., wts., 12/31/24 | | | United States | | | | 7 | | | | | | | | 89 | |
| a | | Generac Holdings Inc. | | | United States | | | | 2,939 | | | | | | | | 966,108 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,761,005 | |
| | | | | | | | | | | | | | | | | | |
| | | Electronic Equipment, Instruments & Components 0.3% | |
| a | | Coherent Inc. | | | United States | | | | 6,978 | | | | | | | | 1,832,493 | |
| | Hollysys Automation Technologies Ltd. | | | China | | | | 85,272 | | | | | | | | 1,151,172 | |
| a,d | | II-VI Inc. | | | United States | | | | 11,448 | | | | | | | | 771,252 | |
| | TE Connectivity Ltd. | | | United States | | | | 471 | | | | | | | | 63,905 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 3,818,822 | |
| | | | | | | | | | | | | | | | | | |
| | | Entertainment 0.1% | |
| b | | Activision Blizzard Inc. | | | United States | | | | 641 | | | | | | | | 62,337 | |
| | Electronic Arts Inc. | | | United States | | | | 8,017 | | | | | | | | 1,145,870 | |
| a,d | | SciPlay Corp., A | | | United States | | | | 21,885 | | | | | | | | 377,516 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,585,723 | |
| | | | | | | | | | | | | | | | | | |
| | | Equity Real Estate Investment Trusts (REITs) 0.1% | |
| b | | American Tower Corp. | | | United States | | | | 252 | | | | | | | | 64,376 | |
| a | | EPR Properties | | | United States | | | | 7,200 | | | | | | | | 353,880 | |
| | OMEGA Healthcare Investors Inc. | | | United States | | | | 628 | | | | | | | | 22,997 | |
| a | | Ryman Hospitality Properties Inc. | | | United States | | | | 3,591 | | | | | | | | 269,002 | |
| | VICI Properties Inc. | | | United States | | | | 18,873 | | | | | | | | 587,517 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,297,772 | |
| | | | | | | | | | | | | | | | | | |
| | | Food & Staples Retailing 0.4% | |
| | Costco Wholesale Corp. | | | United States | | | | 11,867 | | | | | | | | 4,488,930 | |
| b | | Walmart Inc. | | | United States | | | | 1,637 | | | | | | | | 232,503 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 4,721,433 | |
| | | | | | | | | | | | | | | | | | |
| | | Food Products 0.3% | |
| | Nestle SA | | | Switzerland | | | | 34,063 | | | | | | | | 4,195,906 | |
| b | | Tyson Foods Inc., A | | | United States | | | | 795 | | | | | | | | 63,202 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 4,259,108 | |
| | | | | | | | | | | | | | | | | | |
| | | Health Care Equipment & Supplies 1.6% | |
| b | | Abbott Laboratories | | | United States | | | | 502 | | | | | | | | 58,558 | |
| a | | Align Technology Inc. | | | United States | | | | 2,471 | | | | | | | | 1,458,261 | |
| a | | Axonics Inc. | | | United States | | | | 6,496 | | | | | | | | 374,754 | |
| f | | Becton Dickinson and Co. | | | United States | | | | 5,467 | | | | | | | | 1,322,413 | |
| f | | The Cooper Cos. Inc. | | | United States | | | | 3,180 | | | | | | | | 1,251,171 | |
| | Danaher Corp., W | | | United States | | | | 24,762 | | | | | | | | 6,342,539 | |
| | | | | | | | | | |
| | | | | | |
| 24 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Health Care Equipment & Supplies (continued) | |
| a | | DexCom Inc. | | | United States | | | | 5,311 | | | | | | | $ | 1,961,830 | |
| a,f | | Intuitive Surgical Inc. | | | United States | | | | 2,030 | | | | | | | | 1,709,625 | |
| a | | LivaNova PLC | | | United States | | | | 4,810 | | | | | | | | 401,827 | |
| | Medtronic PLC | | | United States | | | | 5,480 | | | | | | | | 693,713 | |
| a | | Nevro Corp. | | | United States | | | | 3,528 | | | | | | | | 531,670 | |
| a | | NuVasive Inc. | | | United States | | | | 10,359 | | | | | | | | 706,484 | |
| a,d | | Outset Medical Inc. | | | United States | | | | 7,691 | | | | | | | | 371,244 | |
| a | | Shockwave Medical Inc. | | | United States | | | | 6,117 | | | | | | | | 1,100,448 | |
| a | | Tandem Diabetes Care Inc. | | | United States | | | | 6,440 | | | | | | | | 549,912 | |
| a | | Treace Medical Concepts Inc. | | | United States | | | | 4,571 | | | | | | | | 148,329 | |
| | Zimmer Biomet Holdings Inc. | | | United States | | | | 10,423 | | | | | | | | 1,754,504 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 20,737,282 | |
| | | | | | | | | | | | | | | | | | |
| | | Health Care Providers & Services 1.2% | |
| a | | Accolade Inc. | | | United States | | | | 6,507 | | | | | | | | 328,538 | |
| a | | Agilon Health Inc. | | | United States | | | | 9,169 | | | | | | | | 329,534 | |
| b | | Anthem Inc. | | | United States | | | | 167 | | | | | | | | 66,503 | |
| | Cigna Corp. | | | United States | | | | 3,561 | | | | | | | | 921,765 | |
| | CVS Health Corp. | | | United States | | | | 27,290 | | | | | | | | 2,358,948 | |
| a,f | | Guardant Health Inc. | | | United States | | | | 9,043 | | | | | | | | 1,122,417 | |
| f | | Humana Inc. | | | United States | | | | 10,122 | | | | | | | | 4,430,399 | |
| a | | Innovage Holding Corp. | | | United States | | | | 10,554 | | | | | | | | 225,856 | |
| a | | New Frontier Health Corp. | | | Hong Kong | | | | 110,724 | | | | | | | | 1,256,717 | |
| f | | UnitedHealth Group Inc. | | | United States | | | | 12,807 | | | | | | | | 5,275,459 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 16,316,136 | |
| | | | | | | | | | | | | | | | | | |
| | | Health Care Technology 0.1% | |
| a | | Phreesia Inc. | | | United States | | | | 12,944 | | | | | | | | 640,728 | |
| a,f | | Teladoc Health Inc. | | | United States | | | | 5,569 | | | | | | | | 838,580 | |
| a,e | | Yidu Tech Inc., 144A | | | China | | | | 6,520 | | | | | | | | 34,632 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,513,940 | |
| | | | | | | | | | | | | | | | | | |
| | | Hotels, Restaurants & Leisure 1.1% | |
| a,d | | Airbnb Inc., A | | | United States | | | | 4,969 | | | | | | | | 697,648 | |
| a,d | | Carnival Corp. | | | United States | | | | 1,603 | | | | | | | | 47,385 | |
| a | | Carnival PLC | | | United States | | | | 30,833 | | | | | | | | 771,568 | |
| a | | Chipotle Mexican Grill Inc., A | | | United States | | | | 1,650 | | | | | | | | 2,263,767 | |
| a | | Crown Resorts Ltd. | | | Australia | | | | 225,379 | | | | | | | | 2,236,869 | |
| d | | Domino’s Pizza Inc. | | | United States | | | | 5,312 | | | | | | | | 2,267,533 | |
| | Extended Stay America Inc. | | | United States | | | | 34,508 | | | | | | | | 680,153 | |
| a | | Great Canadian Gaming Corp. | | | Canada | | | | 115,308 | | | | | | | | 4,176,691 | |
| | McDonald’s Corp. | | | United States | | | | 1,165 | | | | | | | | 272,482 | |
| a,d | | Norwegian Cruise Line Holdings Ltd. | | | United States | | | | 1,495 | | | | | | | | 47,691 | |
| a | | Royal Caribbean Cruises Ltd. | | | United States | | | | 1,020 | | | | | | | | 95,135 | |
| a | | Scientific Games Corp., A | | | United States | | | | 956 | | | | | | | | 69,348 | |
| | Starbucks Corp. | | | United States | | | | 1,213 | | | | | | | | 138,136 | |
| a | | Wynn Resorts Ltd. | | | United States | | | | 686 | | | | | | | | 90,463 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 13,854,869 | |
| | | | | | | | | | | | | | | | | | |
| | | Household Durables 0.0%† | |
| | Installed Building Products Inc. | | | United States | | | | 4,974 | | | | | | | | 589,916 | |
| b | | Lennar Corp., A | | | United States | | | | 579 | | | | | | | | 57,327 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 647,243 | |
| | | | | | | | | | | | | | | | | | |
| | | Household Products 0.0%† | |
| b | | The Procter & Gamble Co. | | | United States | | | | 1,827 | | | | | | | | 246,371 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 25 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Independent Power & Renewable Electricity Producers 0.7% | |
| | The AES Corp. | | | United States | | | | 179,539 | | | | | | | $ | 4,562,086 | |
| | Clearway Energy Inc., C | | | United States | | | | 39,025 | | | | | | | | 1,047,041 | |
| | NextEra Energy Partners LP | | | United States | | | | 28,755 | | | | | | | | 1,965,979 | |
| a | | Sunnova Energy International Inc. | | | United States | | | | 41,273 | | | | | | | | 1,205,172 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 8,780,278 | |
| | | | | | | | | | | | | | | | | | |
| | | Industrial Conglomerates 0.1% | |
| | Honeywell International Inc. | | | United States | | | | 271 | | | | | | | | 62,577 | |
| | Smiths Group PLC | | | United Kingdom | | | | 17,888 | | | | | | | | 392,321 | |
| | Toshiba Corp. | | | Japan | | | | 10,703 | | | | | | | | 450,225 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 905,123 | |
| | | | | | | | | | | | | | | | | | |
| | | Insurance 1.1% | |
| | Aon PLC, A | | | United States | | | | 6,489 | | | | | | | | 1,644,118 | |
| b | | Fidelity National Financial Inc. | | | United States | | | | 728 | | | | | | | | 34,209 | |
| | The Hartford Financial Services Group Inc. | | | United States | | | | 4,784 | | | | | | | | 312,634 | |
| | The Progressive Corp. | | | United States | | | | 650 | | | | | | | | 64,402 | |
| a,d | | Trupanion Inc. | | | United States | | | | 15,562 | | | | | | | | 1,403,226 | |
| a | | Willis Towers Watson PLC | | | United States | | | | 39,637 | | | | | | | | 10,359,526 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 13,818,115 | |
| | | | | | | | | | | | | | | | | | |
| | | Interactive Media & Services 2.1% | |
| a,f | | Alphabet Inc., A | | | United States | | | | 2,723 | | | | | | | | 6,417,702 | |
| a,f | | Alphabet Inc., C | | | United States | | | | 1,232 | | | | | | | | 2,971,042 | |
| a,f | | Facebook Inc., A | | | United States | | | | 14,234 | | | | | | | | 4,679,143 | |
| a | | Genius Sports LTD., wts., 12/31/28 | | | United States | | | | 877 | | | | | | | | 9,384 | |
| a,d | | Match Group Inc. | | | United States | | | | 24,555 | | | | | | | | 3,520,696 | |
| a,f | | Snap Inc., A | | | United States | | | | 50,395 | | | | | | | | 3,130,537 | |
| | Tencent Holdings Ltd. | | | China | | | | 79,596 | | | | | | | | 6,322,881 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 27,051,385 | |
| | | | | | | | | | | | | | | | | | |
| | | Internet & Direct Marketing Retail 1.4% | |
| a,f | | Alibaba Group Holding Ltd., ADR | | | China | | | | 21,388 | | | | | | | | 4,576,177 | |
| a | | Amazon.com Inc. | | | United States | | | | 1,434 | | | | | | | | 4,621,882 | |
| a | | Booking Holdings Inc. | | | United States | | | | 699 | | | | | | | | 1,650,723 | |
| a,e | | Deliveroo PLC, A, 144A | | | United Kingdom | | | | 144,586 | | | | | | | | 516,409 | |
| f | | eBay Inc. | | | United States | | | | 36,805 | | | | | | | | 2,240,688 | |
| a | | Grubhub Inc. | | | United States | | | | 69,960 | | | | | | | | 4,205,296 | |
| a | | MercadoLibre Inc. | | | Argentina | | | | 122 | | | | | | | | 165,758 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 17,976,933 | |
| | | | | | | | | | | | | | | | | | |
| | | IT Services 2.8% | |
| a | | 21Vianet Group Inc., ADR | | | China | | | | 9,773 | | | | | | | | 218,133 | |
| b | | Accenture PLC, A | | | United States | | | | 212 | | | | | | | | 59,818 | |
| a | | Affirm Holdings Inc., A | | | United States | | | | 2,768 | | | | | | | | 168,322 | |
| a | | FleetCor Technologies Inc. | | | United States | | | | 3,844 | | | | | | | | 1,054,947 | |
| | Genpact Ltd. | | | United States | | | | 63,687 | | | | | | | | 2,913,043 | |
| | Global Payments Inc. | | | United States | | | | 28,415 | | | | | | | | 5,504,270 | |
| a | | GoDaddy Inc., A | | | United States | | | | 34,828 | | | | | | | | 2,819,675 | |
| | International Business Machines Corp. | | | United States | | | | 2,072 | | | | | | | | 297,829 | |
| b | | MasterCard Inc., A | | | United States | | | | 14,385 | | | | | | | | 5,186,944 | |
| a,d | | MongoDB Inc., A | | | United States | | | | 4,230 | | | | | | | | 1,234,906 | |
| a | | Nuvei Corp. | | | Canada | | | | 28,429 | | | | | | | | 2,061,102 | |
| a,f | | PayPal Holdings Inc. | | | United States | | | | 30,388 | | | | | | | | 7,901,487 | |
| a | | Shopify Inc., A | | | Canada | | | | 756 | | | | | | | | 939,610 | |
| a | | StoneCo. Ltd. | | | Brazil | | | | 45,782 | | | | | | | | 3,020,239 | |
| | | | | | | | | | |
| | | | | | |
| 26 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | IT Services (continued) | |
| a | | VeriSign Inc. | | | United States | | | | 5,380 | | | | | | | $ | 1,183,170 | |
| d | | Visa Inc., A | | | United States | | | | 3,671 | | | | | | | | 834,418 | |
| a | | WEX Inc. | | | United States | | | | 6,804 | | | | | | | | 1,332,972 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 36,730,885 | |
| | | | | | | | | | | | | | | | | | |
| | | Leisure Products 0.1% | |
| | Callaway Golf Co. | | | United States | | | | 34,006 | | | | | | | | 1,255,502 | |
| | | | | | | | | | | | | | | | | | |
| | | Life Sciences Tools & Services 1.8% | |
| a | | 10x Genomics Inc., A | | | United States | | | | 3,334 | | | | | | | | 600,120 | |
| a | | Akoya Biosciences Inc. | | | United States | | | | 5,644 | | | | | | | | 117,508 | |
| a | | Avantor Inc. | | | United States | | | | 26,701 | | | | | | | | 858,437 | |
| a | | Eurofins Scientific SE | | | Luxembourg | | | | 23,368 | | | | | | | | 2,522,612 | |
| | Gerresheimer AG | | | Germany | | | | 9,835 | | | | | | | | 1,088,466 | |
| a | | Illumina Inc. | | | United States | | | | 2,404 | | | | | | | | 975,159 | |
| a | | IQVIA Holdings Inc. | | | United States | | | | 5,730 | | | | | | | | 1,376,117 | |
| | Luminex Corp. | | | United States | | | | 16,495 | | | | | | | | 608,501 | |
| a | | Mettler-Toledo International Inc. | | | United States | | | | 3,910 | | | | | | | | 5,086,714 | |
| a | | Olink Holding AB, ADR | | | Sweden | | | | 1,251 | | | | | | | | 44,198 | |
| a,e | | Polypeptide Group AG, 144A | | | United States | | | | 1,573 | | | | | | | | 133,859 | |
| a | | PRA Health Sciences Inc. | | | United States | | | | 27,189 | | | | | | | | 4,647,144 | |
| a | | QIAGEN NV | | | United States | | | | 5,780 | | | | | | | | 285,301 | |
| a | | Repligen Corp. | | | United States | | | | 2,054 | | | | | | | | 375,081 | |
| | Sartorius Stedim Biotech | | | France | | | | 3,487 | | | | | | | | 1,511,406 | |
| | Thermo Fisher Scientific Inc. | | | United States | | | | 5,107 | | | | | | | | 2,397,736 | |
| a,e | | Wuxi Biologics Cayman Inc., 144A | | | China | | | | 108,141 | | | | | | | | 1,683,783 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 24,312,142 | |
| | | | | | | | | | | | | | | | | | |
| | | Machinery 0.3% | |
| b | | Caterpillar Inc. | | | United States | | | | 268 | | | | | | | | 64,610 | |
| | Cummins Inc. | | | United States | | | | 237 | | | | | | | | 60,975 | |
| b | | Deere & Co. | | | United States | | | | 163 | | | | | | | | 58,859 | |
| a,d | | Nikola Corp. | | | United States | | | | 6,400 | | | | | | | | 95,744 | |
| | Parker-Hannifin Corp. | | | United States | | | | 206 | | | | | | | | 63,479 | |
| | Stanley Black & Decker Inc. | | | United States | | | | 6,483 | | | | | | | | 1,405,514 | |
| | The Toro Co. | | | United States | | | | 14,096 | | | | | | | | 1,565,925 | |
| a | | Welbilt Inc. | | | United States | | | | 15,772 | | | | | | | | 389,726 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 3,704,832 | |
| | | | | | | | | | | | | | | | | | |
| | | Media 0.4% | |
| a | | Altice USA Inc., A | | | United States | | | | 9,027 | | | | | | | | 325,514 | |
| a,d | | Cardlytics Inc. | | | United States | | | | 9,355 | | | | | | | | 996,775 | |
| | Comcast Corp., A | | | United States | | | | 1,147 | | | | | | | | 65,769 | |
| b | | Fox Corp. | | | United States | | | | 1,639 | | | | | | | | 61,217 | |
| | The Interpublic Group of Cos. Inc. | | | United States | | | | 541 | | | | | | | | 18,226 | |
| a | | ITV PLC | | | United Kingdom | | | | 293,248 | | | | | | | | 530,775 | |
| | Nexstar Media Group Inc., A | | | United States | | | | 412 | | | | | | | | 62,587 | |
| | Shaw Communications Inc., B | | | Canada | | | | 96,920 | | | | | | | | 2,875,481 | |
| | Stroeer SE & Co. KGaA | | | Germany | | | | 1,613 | | | | | | | | 132,195 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 5,068,539 | |
| | | | | | | | | | | | | | | | | | |
| | | Metals & Mining 0.2% | |
| a | | Arcelormittal SA | | | Luxembourg | | | | 31,108 | | | | | | | | 1,023,532 | |
| a | | Cleveland-Cliffs Inc. | | | United States | | | | 30,027 | | | | | | | | 604,143 | |
| | First Quantum Minerals Ltd. | | | Zambia | | | | 7,030 | | | | | | | | 172,983 | |
| | Freeport-McMoRan Inc. | | | United States | | | | 7,184 | | | | | | | | 306,901 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 27 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Metals & Mining (continued) | |
| b | | Newmont Corp. | | | United States | | | | 988 | | | | | | | $ | 72,598 | |
| | Reliance Steel & Aluminum Co. | | | United States | | | | 157 | | | | | | | | 26,387 | |
| | Steel Dynamics Inc. | | | United States | | | | 1,403 | | | | | | | | 87,589 | |
| | United States Steel Corp. | | | United States | | | | 3,608 | | | | | | | | 93,556 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 2,387,689 | |
| | | | | | | | | | | | | | | | | | |
| | | Multiline Retail 0.3% | |
| | Kohl’s Corp. | | | United States | | | | 31,723 | | | | | | | | 1,760,309 | |
| b | | Target Corp. | | | United States | | | | 10,992 | | | | | | | | 2,494,305 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 4,254,614 | |
| | | | | | | | | | | | | | | | | | |
| | | Multi-Utilities 0.0%† | |
| | NiSource Inc. | | | United States | | | | 7,973 | | | | | | | | 203,312 | |
| | | | | | | | | | | | | | | | | | |
| | | Oil, Gas & Consumable Fuels 0.1% | |
| a | | Battalion Oil Corp. | | | United States | | | | 3,790 | | | | | | | | 46,996 | |
| a | | California Resources Corp. | | | United States | | | | 9,392 | | | | | | | | 272,462 | |
| b | | Chevron Corp. | | | United States | | | | 609 | | | | | | | | 63,208 | |
| b | | ConocoPhillips | | | United States | | | | 970 | | | | | | | | 54,068 | |
| a | | Denbury Inc. | | | United States | | | | 9,313 | | | | | | | | 624,157 | |
| b | | Enterprise Products Partners LP | | | United States | | | | 2,681 | | | | | | | | 63,298 | |
| b | | Exxon Mobil Corp. | | | United States | | | | 1,060 | | | | | | | | 61,872 | |
| a | | Lonestar Resources US Inc. | | | United States | | | | 3,072 | | | | | | | | 21,965 | |
| a | | Whiting Petroleum Corp. | | | United States | | | | 5,611 | | | | | | | | 256,928 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,464,954 | |
| | | | | | | | | | | | | | | | | | |
| | | Paper & Forest Products 0.0%† | |
| | Semapa-Sociedade de Investimento E Gestao | | | Portugal | | | | 31,705 | | | | | | | | 453,610 | |
| a,c | | Topco Associates LLC | | | United Kingdom | | | | 144,632 | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 453,610 | |
| | | | | | | | | | | | | | | | | | |
| | | Personal Products 0.2% | |
| | The Estee Lauder Cos. Inc., A | | | United States | | | | 460 | | | | | | | | 140,999 | |
| a | | Unilever PLC | | | United Kingdom | | | | 43,087 | | | | | | | | 2,569,875 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 2,710,874 | |
| | | | | | | | | | | | | | | | | | |
| | | Pharmaceuticals 0.8% | |
| a | | Arvinas Inc. | | | United States | | | | 3,611 | | | | | | | | 262,664 | |
| b | | Bristol-Myers Squibb Co. | | | United States | | | | 931 | | | | | | | | 61,185 | |
| a | | Catalent Inc. | | | United States | | | | 2,601 | | | | | | | | 272,663 | |
| a | | Centessa Pharmaceuticals PLC, ADR | | | United Kingdom | | | | 6,778 | | | | | | | | 147,422 | |
| f | | Eli Lilly & Co., W | | | United States | | | | 12,834 | | | | | | | | 2,563,463 | |
| | Hikma Pharmaceuticals PLC | | | Jordan | | | | 18,134 | | | | | | | | 629,015 | |
| | Johnson & Johnson | | | United States | | | | 1,567 | | | | | | | | 265,215 | |
| | Merck & Co. Inc. | | | United States | | | | 752 | | | | | | | | 57,069 | |
| f | | Novo Nordisk AS, ADR | | | Denmark | | | | 12,001 | | | | | | | | 946,879 | |
| b | | Pfizer Inc. | | | United States | | | | 1,625 | | | | | | | | 62,936 | |
| a,d | | Revance Therapeutics Inc. | | | United States | | | | 17,112 | | | | | | | | 506,686 | |
| | Roche Holding AG | | | Switzerland | | | | 13,291 | | | | | | | | 4,625,345 | |
| | Viatris Inc. | | | United States | | | | 43,030 | | | | | | | | 655,777 | |
| a,e | | Zhaoke Ophthalmology Ltd., 144A | | | Hong Kong | | | | 52,004 | | | | | | | | 85,764 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 11,142,083 | |
| | | | | | | | | | | | | | | | | | |
| | | Professional Services 1.4% | |
| f | | CoreLogic Inc. | | | United States | | | | 42,079 | | | | | | | | 3,345,280 | |
| a | | CoStar Group Inc. | | | United States | | | | 1,311 | | | | | | | | 1,119,594 | |
| a | | IHS Markit Ltd. | | | United States | | | | 56,225 | | | | | | | | 5,921,055 | |
| | | | | | | | | | |
| | | | | | |
| 28 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Professional Services (continued) | |
| a,e | | Intertrust NV, 144A | | | Netherlands | | | | 209,981 | | | | | | | $ | 3,873,424 | |
| | SGS SA | | | Switzerland | | | | 200 | | | | | | | | 623,901 | |
| | TransUnion | | | United States | | | | 11,237 | | | | | | | | 1,202,359 | |
| a | | TriNet Group Inc. | | | United States | | | | 27,855 | | | | | | | | 2,098,596 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 18,184,209 | |
| | | | | | | | | | | | | | | | | | |
| | | Road & Rail 1.4% | |
| | Canadian National Railway Co. | | | Canada | | | | 14,960 | | | | | | | | 1,684,047 | |
| | CSX Corp. | | | United States | | | | 39,176 | | | | | | | | 3,922,301 | |
| b | | Kansas City Southern | | | United States | | | | 21,568 | | | | | | | | 6,420,362 | |
| | Ryder System Inc. | | | United States | | | | 797 | | | | | | | | 65,187 | |
| a | | Uber Technologies Inc. | | | United States | | | | 6,403 | | | | | | | | 325,464 | |
| f | | Union Pacific Corp. | | | United States | | | | 23,705 | | | | | | | | 5,327,225 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 17,744,586 | |
| | | | | | | | | | | | | | | | | | |
| | | Semiconductors & Semiconductor Equipment 2.1% | |
| a | | Advanced Micro Devices Inc. | | | United States | | | | 19,318 | | | | | | | | 1,546,985 | |
| b | | Applied Materials Inc. | | | United States | | | | 1,235 | | | | | | | | 170,591 | |
| | ASML Holding NV, G | | | Netherlands | | | | 3,825 | | | | | | | | 2,583,673 | |
| a | | Dialog Semiconductor PLC | | | United Kingdom | | | | 7,565 | | | | | | | | 603,526 | |
| | KLA Corp. | | | United States | | | | 435 | | | | | | | | 137,847 | |
| | LAM Research Corp. | | | United States | | | | 98 | | | | | | | | 63,685 | |
| | Marvell Technology Inc. | | | United States | | | | 49,839 | | | | | | | | 2,407,224 | |
| | Maxim Integrated Products Inc. | | | United States | | | | 71,117 | | | | | | | | 7,254,645 | |
| | MediaTek Inc. | | | Taiwan | | | | 53,295 | | | | | | | | 1,919,874 | |
| a | | Micron Technology Inc. | | | United States | | | | 18,488 | | | | | | | | 1,555,580 | |
| | NVIDIA Corp. | | | United States | | | | 265 | | | | | | | | 172,192 | |
| | NXP Semiconductors NV | | | Netherlands | | | | 310 | | | | | | | | 65,540 | |
| a | | Qorvo Inc. | | | United States | | | | 7,959 | | | | | | | | 1,454,268 | |
| b | | QUALCOMM Inc. | | | United States | | | | 1,438 | | | | | | | | 193,469 | |
| | Skyworks Solutions Inc. | | | United States | | | | 7,908 | | | | | | | | 1,344,360 | |
| b | | Texas Instruments Inc. | | | United States | | | | 11,460 | | | | | | | | 2,175,337 | |
| | Xilinx Inc. | | | United States | | | | 31,518 | | | | | | | | 4,002,786 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 27,651,582 | |
| | | | | | | | | | | | | | | | | | |
| | | Software 5.4% | |
| a | | Adobe Inc. | | | United States | | | | 7,241 | | | | | | | | 3,653,664 | |
| a | | Atlassian Corp. PLC, A | | | United States | | | | 6,700 | | | | | | | | 1,562,976 | |
| a | | Autodesk Inc. | | | United States | | | | 312 | | | | | | | | 89,188 | |
| a,d | | Avalara Inc. | | | United States | | | | 17,233 | | | | | | | | 2,277,686 | |
| a | | Blackberry Ltd. | | | Canada | | | | 70,757 | | | | | | | | 712,523 | |
| a,b | | Box Inc., A | | | United States | | | | 63,778 | | | | | | | | 1,486,665 | |
| a | | Ceridian HCM Holding Inc. | | | United States | | | | 21,191 | | | | | | | | 1,895,747 | |
| a | | HubSpot Inc. | | | United States | | | | 3,885 | | | | | | | | 1,959,516 | |
| | Intuit Inc. | | | United States | | | | 8,044 | | | | | | | | 3,532,040 | |
| b,f | | Microsoft Corp. | | | United States | | | | 23,508 | | | | | | | | 5,869,478 | |
| a | | Nuance Communications Inc. | | | United States | | | | 102,341 | | | | | | | | 5,413,839 | |
| b | | Oracle Corp. | | | United States | | | | 800 | | | | | | | | 62,992 | |
| a,b | | Proofpoint Inc. | | | United States | | | | 55,943 | | | | | | | | 9,667,510 | |
| a,d | | RingCentral Inc., A | | | United States | | | | 10,462 | | | | | | | | 2,745,961 | |
| a | | Salesforce.com Inc. | | | United States | | | | 13,178 | | | | | | | | 3,137,682 | |
| | SAP SE | | | Germany | | | | 43,399 | | | | | | | | 6,026,301 | |
| a | | ServiceNow Inc. | | | United States | | | | 4,888 | | | | | | | | 2,316,326 | |
| a | | Slack Technologies Inc., A | | | United States | | | | 189,251 | | | | | | | | 8,334,614 | |
| a | | Talend SA, ADR | | | United States | | | | 77,098 | | | | | | | | 5,009,057 | |
| a | | Varonis Systems Inc., B | | | United States | | | | 28,733 | | | | | | | | 1,387,804 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 29 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | |
| | | Software (continued) | |
| a | | Workday Inc., A | | | United States | | | | 11,767 | | | | | | | $ | 2,691,348 | |
| a,f | | Zscaler Inc. | | | United States | | | | 3,542 | | | | | | | | 687,856 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 70,520,773 | |
| | | | | | | | | | | | | | | | | | |
| | | Specialty Retail 1.2% | |
| a,b | | At Home Group Inc. | | | United States | | | | 26,840 | | | | | | | | 1,007,574 | |
| a | | Five Below Inc. | | | United States | | | | 15,195 | | | | | | | | 2,797,703 | |
| a | | Frasers Group PLC | | | United Kingdom | | | | 180,900 | | | | | | | | 1,482,370 | |
| b | | The Home Depot Inc. | | | United States | | | | 18,556 | | | | | | | | 5,917,694 | |
| a | | L Brands Inc. | | | United States | | | | 13,323 | | | | | | | | 930,878 | |
| b | | Lowe’s Cos. Inc. | | | United States | | | | 315 | | | | | | | | 61,371 | |
| | The TJX Cos. Inc. | | | United States | | | | 891 | | | | | | | | 60,178 | |
| | Tractor Supply Co. | | | United States | | | | 9,978 | | | | | | | | 1,813,003 | |
| a,e | | Watches of Switzerland Group PLC, 144A | | | United Kingdom | | | | 107,428 | | | | | | | | 1,194,856 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 15,265,627 | |
| | | | | | | | | | | | | | | | | | |
| | | Technology Hardware, Storage & Peripherals 0.1% | |
| b | | Apple Inc. | | | United States | | | | 1,853 | | | | | | | | 230,902 | |
| a | | Dell Technologies Inc., C | | | United States | | | | 11,233 | | | | | | | | 1,108,023 | |
| | HP Inc. | | | United States | | | | 1,848 | | | | | | | | 54,017 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,392,942 | |
| | | | | | | | | | | | | | | | | | |
| | | Textiles, Apparel & Luxury Goods 0.8% | |
| | Adidas AG | | | Germany | | | | 14,540 | | | | | | | | 5,306,379 | |
| a | | Capri Holdings Ltd. | | | United States | | | | 45,129 | | | | | | | | 2,559,266 | |
| | LVMH Moet Hennessy Louis Vuitton SE | | | France | | | | 197 | | | | | | | | 157,122 | |
| b | | Nike Inc., B | | | United States | | | | 1,493 | | | | | | | | 203,735 | |
| a,f | | Tapestry Inc. | | | United States | | | | 42,003 | | | | | | | | 1,885,515 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 10,112,017 | |
| | | | | | | | | | | | | | | | | | |
| | | Tobacco 0.0%† | |
| b | | Altria Group Inc. | | | United States | | | | 1,265 | | | | | | | | 62,263 | |
| b | | Philip Morris International Inc. | | | United States | | | | 608 | | | | | | | | 58,630 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 120,893 | |
| | | | | | | | | | | | | | | | | | |
| | | Trading Companies & Distributors 0.4% | |
| | Brenntag SE | | | Germany | | | | 50,334 | | | | | | | | 4,749,546 | |
| | IMCD Group NV | | | Netherlands | | | | 2,228 | | | | | | | | 360,551 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 5,110,097 | |
| | | | | | | | | | | | | | | | | | |
| | | Transportation Infrastructure 0.1% | |
| a | | Atlantia SpA | | | Italy | | | | 57,216 | | | | | | | | 1,126,694 | |
| | Macquarie Infrastructure Corp. | | | United States | | | | 9,831 | | | | | | | | 342,905 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,469,599 | |
| | | | | | | | | | | | | | | | | | |
| | | Water Utilities 0.1% | |
| | Guangdong Investment Ltd. | | | China | | | | 545,824 | | | | | | | | 800,977 | |
| | | | | | | | | | | | | | | | | | |
| | | Wireless Telecommunication Services 0.1% | |
| a | | Boingo Wireless Inc. | | | United States | | | | 1,451 | | | | | | | | 20,285 | |
| a | | T-Mobile USA Inc. | | | United States | | | | 2,627 | | | | | | | | 371,589 | |
| f | | Vodafone Group PLC, ADR | | | United Kingdom | | | | 49,788 | | | | | | | | 919,585 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,311,459 | |
| | | | | | | | | | | | | | | | | | |
| | Total Common Stocks and Other Equity Interests
(Cost $384,391,104) | | | | | | | | | | | | | | | 541,467,835 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 30 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares/
Warrants/
Rights | | | | | | Value | |
| | | Exchange Traded Funds 0.1% | |
| | Invesco Solar ETF | | | United States | | | | 7,531 | | | | | | | $ | 595,778 | |
| | SPDR S&P Metals & Mining ETF | | | United States | | | | 4,561 | | | | | | | | 211,995 | |
| | | | | | | | | | | | | | | | | | |
| | Total Exchange Traded Funds (Cost $799,760) | | | | | | | | | | | | | | | 807,773 | |
| | | | | | | | | | | | | | | | | | |
| | | Convertible Preferred Stocks 0.2% | | | |
| | | Banks 0.1% | |
| | Bank of America Corp., 7.25%, cvt. pfd., L | | | United States | | | | 202 | | | | | | | | 283,939 | |
| | Wells Fargo & Co., 7.50%, cvt. pfd., L | | | United States | | | | 268 | | | | | | | | 389,870 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 673,809 | |
| | | | | | | | | | | | | | | | | | |
| | | Construction & Engineering 0.0%† | |
| e | | Fluor Corp., 6.50%, cvt. pfd., 144A | | | United States | | | | 457 | | | | | | | | 485,700 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Telecommunication Services 0.0%† | |
| e | | 2020 Cash Mandatory Exchangeable Trust, 5.25%, cvt. pfd., 144A | | | United States | | | | 250 | | | | | | | | 308,870 | |
| | | | | | | | | | | | | | | | | | |
| | | Food Products 0.1% | |
| | Bunge Ltd., 4.875%, cvt. pfd. | | | United States | | | | 4,895 | | | | | | | | 591,184 | |
| | | | | | | | | | | | | | | | | | |
| | | Gas Utilities 0.0%† | |
| | El Paso Energy Capital Trust I, 4.75%, cvt. pfd. | | | United States | | | | 114 | | | | | | | | 5,802 | |
| | | | | | | | | | | | | | | | | | |
| | | Health Care Equipment & Supplies 0.0%† | |
| | Boston Scientific Corp., 5.50%, cvt. pfd., A | | | United States | | | | 1,204 | | | | | | | | 137,148 | |
| | | | | | | | | | | | | | | | | | |
| | | Multi-Utilities 0.0%† | |
| | NiSource Inc., 7.75%, cvt. pfd. | | | United States | | | | 1,700 | | | | | | | | 180,931 | |
| | | | | | | | | | | | | | | | | | |
| | Total Convertible Preferred Stocks
(Cost $2,195,022) | | | | | | | | | | | | | | | 2,383,444 | |
| | | | | | | | | | | | | | | | | | |
| | | Preferred Stocks 0.1% | | | |
| | | Automobiles 0.1% | |
| | Volkswagen AG, 2.08%, pfd. | | | Germany | | | | 2,196 | | | | | | | | 613,637 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Financial Services 0.0%† | |
| a | | 2MX Organic SA, pfd. | | | France | | | | 3,964 | | | | | | | | 48,197 | |
| | | | | | | | | | | | | | | | | | |
| | | Electric Utilities 0.0%† | |
| | SCE Trust II, 5.10%, pfd. | | | United States | | | | 4,811 | | | | | | | | 120,756 | |
| | SCE Trust III, 5.75%, pfd., H | | | United States | | | | 5,399 | | | | | | | | 136,271 | |
| | SCE Trust IV, 5.375%, pfd., J | | | United States | | | | 3,191 | | | | | | | | 79,966 | |
| | SCE Trust VI, 5.00%, pfd. | | | United States | | | | 4,386 | | | | | | | | 109,387 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 446,380 | |
| | | | | | | | | | | | | | | | | | |
| | | Thrifts & Mortgage Finance 0.0%† | | | | | | | | | | | | |
| | FHLMC, 8.375%, pfd., Z | | | United States | | | | 3,672 | | | | | | | | 22,179 | |
| | FNMA, 8.25%, pfd., S | | | United States | | | | 3,650 | | | | | | | | 23,251 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 45,430 | |
| | | | | | | | | | | | | | | | | | |
| | Total Preferred Stocks (Cost $1,164,745) | | | | | | | | | | | | | | | 1,153,644 | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | Principal Amount* | | | | |
| | | Convertible Bonds 13.0% | |
| | | Aerospace & Defense 0.2% | |
| f | | Kaman Corp., senior note, 3.25%, 5/01/24 | | | United States | | | | 1,517,000 | | | | | | | | 1,650,956 | |
| e | | Parsons Corp., senior note, 144A, 0.25%, 8/15/25 | | | United States | | | | 1,159,000 | | | | | | | | 1,238,971 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 2,889,927 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 31 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| | | Convertible Bonds (continued) | |
| | | Air Freight & Logistics 0.3% | |
| f | | Air Transport Services Group Inc., senior note, 1.125%, 10/15/24 | | | United States | | | | 1,376,000 | | | | | | | $ | 1,430,214 | |
| f | | Atlas Air Worldwide Holdings Inc., senior note,
2.25%, 6/01/22 | | | United States | | | | 1,456,000 | | | | | | | | 1,665,373 | |
| | 1.875%, 6/01/24 | | | United States | | | | 965,000 | | | | | | | | 1,330,494 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 4,426,081 | |
| | | | | | | | | | | | | | | | | | |
| | | Airlines 0.3% | | | | | | | | | | | | |
| g | | Air France-KLM, senior note, Reg S, 0.125%, 3/25/26 | | | France | | | | 38,493 | | | | EUR | | | | 738,735 | |
| f | | American Airlines Group Inc., senior note, 6.50%, 7/01/25 | | | United States | | | | 1,202,000 | | | | | | | | 2,085,470 | |
| e | | GOL Equity Finance SA, senior note, 144A, 3.75%, 7/15/24 | | | Brazil | | | | 1,159,000 | | | | | | | | 1,079,220 | |
| e | | Jetblue Airways Corp., senior note, 144A, 0.50%, 4/01/26 | | | United States | | | | 60,000 | | | | | | | | 65,670 | |
| | Southwest Airlines Co., senior note, 1.25%, 5/01/25 | | | United States | | | | 195,000 | | | | | | | | 332,962 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 4,302,057 | |
| | | | | | | | | | | | | | | | | | |
| | | Auto Components 0.2% | | | | | | | | | | | | |
| e | | LCI Industries, senior note, 144A, 1.125%, 5/15/26 | | | United States | | | | 437,000 | | | | | | | | 480,044 | |
| f | | Patrick Industries Inc., senior note, 1.00%, 2/01/23 | | | United States | | | | 1,541,000 | | | | | | | | 1,825,122 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 2,305,166 | |
| | | | | | | | | | | | | | | | | | |
| | | Automobiles 0.3% | | | | | | | | | | | | |
| e | | LI Auto Inc., senior note, 144A, 0.25%, 5/01/28 | | | China | | | | 914,000 | | | | | | | | 961,590 | |
| e | | NIO Inc., senior note, 144A,
0.50%, 2/01/27 | | | China | | | | 1,206,000 | | | | | | | | 1,020,879 | |
| | zero cpn., 2/01/26 | | | China | | | | 1,679,000 | | | | | | | | 1,462,409 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 3,444,878 | |
| | | | | | | | | | | | | | | | | | |
| | | Banks 0.3% | | | | | | | | | | | | |
| f | | Hope Bancorp Inc., senior bond, 2.00%, 5/15/38 | | | United States | | | | 2,183,000 | | | | | | | | 2,178,581 | |
| g | | JPMorgan Chase Bank NA, senior note, Reg S, zero cpn., 12/28/23 | | | United States | | | | 1,000,000 | | | | | | | | 1,050,250 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 3,228,831 | |
| | | | | | | | | | | | | | | | | | |
| | | Biotechnology 1.2% | | | | | | | | | | | | |
| e | | Avid SPV LLC, senior note, 144A, 1.25%, 3/15/26 | | | United States | | | | 563,000 | | | | | | | | 674,133 | |
| | BioMarin Pharmaceutical Inc., senior sub. note, 1.25%, 5/15/27 | | | United States | | | | 2,314,000 | | | | | | | | 2,264,943 | |
| e | | Bridgebio Pharma Inc., senior note, 144A, 2.25%, 2/01/29 | | | United States | | | | 966,000 | | | | | | | | 904,332 | |
| | Coherus Biosciences Inc., senior sub. note, 1.50%, 4/15/26 | | | United States | | | | 954,000 | | | | | | | | 958,013 | |
| e | | Dynavax Technologies Corp., 144A, 2.50%, 5/15/26 | | | United States | | | | 985,000 | | | | | | | | 1,014,923 | |
| f | | Flexion Therapeutics Inc., senior note, 3.375%, 5/01/24 | | | United States | | | | 1,493,000 | | | | | | | | 1,349,800 | |
| | Gossamer Bio Inc., senior note, 5.00%, 6/01/27 | | | United States | | | | 750,000 | | | | | | | | 627,187 | |
| e | | Halozyme Therapeutics Inc., senior note, 144A, 0.25%, 3/01/27 | | | United States | | | | 35,000 | | | | | | | | 31,369 | |
| | Insmed Inc., senior note, 0.75%, 6/01/28 | | | United States | | | | 686,000 | | | | | | | | 688,144 | |
| e | | Ionis Pharmaceuticals Inc., senior note, 144A, zero cpn., 4/01/26 | | | United States | | | | 80,000 | | | | | | | | 76,720 | |
| | Ironwood Pharmaceuticals Inc., senior note,
2.25%, 6/15/22 | | | United States | | | | 603,000 | | | | | | | | 651,380 | |
| | d 1.50%, 6/15/26 | | | United States | | | | 846,000 | | | | | | | | 958,208 | |
| e | | Kadmon Holdings Inc., senior note, 144A, 3.625%, 2/15/27 | | | United States | | | | 399,000 | | | | | | | | 347,221 | |
| f | | Karyopharm Therapeutics Inc., senior note, 3.00%, 10/15/25 | | | United States | | | | 1,351,000 | | | | | | | | 1,335,506 | |
| f | | Ligand Pharmaceuticals Inc., senior note, 0.75%, 5/15/23 | | | United States | | | | 1,750,000 | | | | | | | | 1,713,395 | |
| e | | Mannkind Corp., senior note, 144A, 2.50%, 3/01/26 | | | United States | | | | 1,155,000 | | | | | | | | 1,282,877 | |
| d | | Neurocrine Biosciences Inc., senior note, 2.25%, 5/15/24 | | | United States | | | | 110,000 | | | | | | | | 149,256 | |
| g | | Pharming Group NV, senior note, Reg S, 3.00%, 1/21/25 | | | Netherlands | | | | 800,000 | | | | EUR | | | | 803,657 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 15,831,064 | |
| | | | | | | | | | | | | | | | | | |
| | | Capital Markets 0.1% | | | | | | | | | | | | |
| g | | SGX Treasury I Pte Ltd., senior note, Reg S, zero cpn., 3/01/24 | | | Singapore | | | | 1,000,000 | | | | EUR | | | | 1,246,837 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 32 | | | | | | | | 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) | |
| | | Consumer Finance 0.7% | | | | | | | | | | | | |
| f | | Encore Capital Group Inc., senior note,
3.25%, 3/15/22 | | | United States | | | | 2,122,000 | | | | | | | $ | 2,407,144 | |
| | 3.25%, 10/01/25 | | | United States | | | | 1,254,000 | | | | | | | | 1,649,010 | |
| | EZCORP Inc., senior note, 2.875%, 7/01/24 | | | United States | | | | 1,160,000 | | | | | | | | 1,196,250 | |
| e,f | | LendingTree Inc., senior note, 144A, 0.50%, 7/15/25 | | | United States | | | | 2,062,000 | | | | | | | | 1,824,870 | |
| f | | PRA Group Inc., senior note, 3.50%, 6/01/23 | | | United States | | | | 1,386,000 | | | | | | | | 1,504,676 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 8,581,950 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Consumer Services 0.1% | | | | | | | | | | | | |
| e | | Stride Inc., senior note, 144A, 1.125%, 9/01/27 | | | United States | | | | 1,115,000 | | | | | | | | 977,521 | |
| | | | | | | | | | | | | | | | | | |
| | | Electronic Equipment, Instruments & Components 0.2% | | | | | | | | | | | | |
| f | | OSI Systems Inc., senior note, 1.25%, 9/01/22 | | | United States | | | | 1,190,000 | | | | | | | | 1,256,997 | |
| f | | Vishay Intertechnology Inc., senior note, 2.25%, 6/15/25 | | | United States | | | | 1,225,000 | | | | | | | | 1,328,390 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 2,585,387 | |
| | | | | | | | | | | | | | | | | | |
| | | Energy Equipment & Services 0.1% | | | | | | | | | | | | |
| f | | Helix Energy Solutions Group Inc., senior note, 6.75%, 2/15/26 | | | United States | | | | 1,389,000 | | | | | | | | 1,639,853 | |
| e | | Oil States International Inc., senior note, 144A, 4.75%, 4/01/26 | | | United States | | | | 255,000 | | | | | | | | 246,858 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,886,711 | |
| | | | | | | | | | | | | | | | | | |
| | | Entertainment 0.4% | | | | | | | | | | | | |
| e | | Cinemark Holdings Inc., senior note, 144A, 4.50%, 8/15/25 | | | United States | | | | 1,333,000 | | | | | | | | 2,420,228 | |
| | Live Nation Entertainment Inc., senior note, 2.00%, 2/15/25 | | | United States | | | | 964,000 | | | | | | | | 1,111,974 | |
| e | | The Marcus Corp., senior note, 144A, 5.00%, 9/15/25 | | | United States | | | | 645,000 | | | | | | | | 1,354,903 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 4,887,105 | |
| | | | | | | | | | | | | | | | | | |
| | | Equity Real Estate Investment Trusts (REITs) 0.4% | | | | | | | | | | | | |
| e | | Braemar Hotels & Resorts Inc., senior note, 144A, 4.50%, 6/01/26 | | | United States | | | | 346,000 | | | | | | | | 413,715 | |
| e | | Geo Corrections Holdings Inc., senior note, 144A, 6.50%, 2/23/26 | | | United States | | | | 608,000 | | | | | | | | 463,982 | |
| e,f | | IIP Operating Partnership LP, senior note, 144A, 3.75%, 2/21/24 | | | United States | | | | 688,000 | | | | | | | | 1,897,573 | |
| | Pebblebrook Hotel Trust, senior note, 1.75%, 12/15/26 | | | United States | | | | 815,000 | | | | | | | | 900,575 | |
| | Summit Hotel Properties Inc., senior note, 1.50%, 2/15/26 | | | United States | | | | 1,035,000 | | | | | | | | 1,086,750 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 4,762,595 | |
| | | | | | | | | | | | | | | | | | |
| | | Food & Staples Retailing 0.2% | | | | | | | | | | | | |
| e | | The Chefs’ Warehouse Inc., senior note, 144A, 1.875%, 12/01/24 | | | United States | | | | 2,109,000 | | | | | | | | 2,169,739 | |
| | | | | | | | | | | | | | | | | | |
| | | Food Products 0.1% | | | | | | | | | | | | |
| e | | Beyond Meat Inc., senior note, 144A, zero cpn., 3/15/27 | | | United States | | | | 942,000 | | | | | | | | 944,944 | |
| | | | | | | | | | | | | | | | | | |
| | | Health Care Equipment & Supplies 0.6% | | | | | | | | | | | | |
| e,f | | Cryoport Inc., senior note, 144A, 3.00%, 6/01/25 | | | United States | | | | 536,000 | | | | | | | | 1,337,320 | |
| e | | Cutera Inc., senior note, 144A, 2.25%, 3/15/26 | | | United States | | | | 587,000 | | | | | | | | 775,603 | |
| e | | Invacare Corp., senior note, 144A, 4.25%, 3/15/26 | | | United States | | | | 247,000 | | | | | | | | 246,745 | |
| | Mesa Laboratories Inc., senior note, 1.375%, 8/15/25 | | | United States | | | | 423,000 | | | | | | | | 464,792 | |
| e,f | | NuVasive Inc., senior note, 144A, 1.00%, 6/01/23 | | | United States | | | | 1,966,000 | | | | | | | | 2,059,385 | |
| e | | SmileDirectClub Inc., senior note, 144A, zero cpn., 2/01/26 | | | United States | | | | 1,963,000 | | | | | | | | 1,558,131 | |
| e | | Varex Imaging Corp., senior note, 144A, 4.00%, 6/01/25 | | | United States | | | | 1,080,000 | | | | | | | | 1,526,850 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 7,968,826 | |
| | | | | | | | | | | | | | | | | | |
| | | Health Care Providers & Services 0.2% | | | | | | | | | | | | |
| e | | 1Life Healthcare Inc., senior note, 144A, 3.00%, 6/15/25 | | | United States | | | | 703,000 | | | | | | | | 809,364 | |
| e | | Accolade Inc., senior note, 144A, 0.50%, 4/01/26 | | | United States | | | | 282,000 | | | | | | | | 338,781 | |
| e | | Guardant Health Inc., senior note, 144A, zero cpn., 11/15/27 | | | United States | | | | 70,000 | | | | | | | | 78,356 | |
| e,f | | PetIQ Inc., senior note, 144A, 4.00%, 6/01/26 | | | United States | | | | 1,106,000 | | | | | | | | 1,745,406 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 2,971,907 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 33 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| | | Convertible Bonds (continued) | |
| | | Health Care Technology 0.1% | | | | | | | | | | | | |
| e | | Livongo Health Inc., senior note, 144A, 0.875%, 6/01/25 | | | United States | | | | 70,000 | | | | | | | $ | 103,351 | |
| f | | Tabula Rasa Healthcare Inc., senior sub. note, 1.75%, 2/15/26 | | | United States | | | | 586,000 | | | | | | | | 569,153 | |
| e | | Teladoc Health Inc., senior note, 144A, 1.25%, 6/01/27 | | | United States | | | | 420,000 | | | | | | | | 444,675 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,117,179 | |
| | | | | | | | | | | | | | | | | | |
| | | Hotels, Restaurants & Leisure 0.3% | | | | | | | | | | | | |
| e | | Draftkings Inc., senior note, 144A, zero cpn., 3/15/28 | | | United States | | | | 1,272,000 | | | | | | | | 1,163,880 | |
| e | | Marriott Vacations Worldwide Corp., senior note, 144A, zero cpn., 1/15/26 | | | United States | | | | 1,218,000 | | | | | | | | 1,421,254 | |
| e,f | | Royal Caribbean Cruises Ltd., senior note, 144A, 2.875%, 11/15/23 | | | United States | | | | 1,130,000 | | | | | | | | 1,502,335 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 4,087,469 | |
| | | | | | | | | | | | | | | | | | |
| | | Independent Power & Renewable Electricity Producers 0.1% | | | | | | | | | | | | |
| e | | Sunnova Energy International Inc., senior note, 144A, 0.25%, 12/01/26 | | | United States | | | | 1,142,000 | | | | | | | | 1,202,526 | |
| | | | | | | | | | | | | | | | | | |
| | | Interactive Media & Services 0.0%† | | | | | | | | | | | | |
| d,e | | Twitter Inc., senior note, 144A, zero cpn., 3/15/26 | | | United States | | | | 130,000 | | | | | | | | 120,087 | |
| | | | | | | | | | | | | | | | | | |
| | | Internet & Direct Marketing Retail 0.5% | | | | | | | | | | | | |
| g | | Delivery Hero AG, senior note, Reg S, 1.50%, 1/15/28 | | | Germany | | | | 1,400,000 | | | | EUR | | | | 1,804,000 | |
| d,e | | Expedia Group Inc., senior note, 144A, zero cpn., 2/15/26 | | | United States | | | | 1,026,000 | | | | | | | | 1,136,294 | |
| e | | Fiverr International Ltd., senior note, 144A, zero cpn., 11/01/25 | | | Israel | | | | 664,000 | | | | | | | | 799,722 | |
| e | | Groupon Inc., senior note, 144A, 1.125%, 3/15/26 | | | United States | | | | 965,000 | | | | | | | | 939,669 | |
| g | | Just Eat Takeaway.Com NV, B, senior note, Reg S, 0.625%, 2/09/28 | | | Germany | | | | 200,000 | | | | EUR | | | | 227,049 | |
| e | | Spotify USA Inc., senior note, 144A, zero cpn., 3/15/26 | | | United States | | | | 217,000 | | | | | | | | 198,663 | |
| g | | Takeaway.com NV, senior note, Reg S, 1.25%, 4/30/26 | | | Germany | | | | 800,000 | | | | EUR | | | | 991,037 | |
| e,f | | Wayfair Inc., senior note, 144A, 0.625%, 10/01/25 | | | United States | | | | 1,013,000 | | | | | | | | 1,071,881 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 7,168,315 | |
| | | | | | | | | | | | | | | | | | |
| | | IT Services 0.3% | | | | | | | | | | | | |
| g | | Afterpay Ltd., senior note, Reg S, zero cpn., 3/12/26 | | | Australia | | | | 1,200,000 | | | | AUD | | | | 786,838 | |
| | Akamai Technologies Inc., senior note, 0.375%, 9/01/27 | | | United States | | | | 494,000 | | | | | | | | 568,594 | |
| | CSG Systems International Inc., senior bond, 4.25%, 3/15/36 | | | United States | | | | 1,853,000 | | | | | | | | 1,929,529 | |
| e | | Fastly Inc., senior note, 144A, zero cpn., 3/15/26 | | | United States | | | | 868,000 | | | | | | | | 755,594 | |
| e | | Shift4 Payments Inc., senior note, 144A, zero cpn., 12/15/25 | | | United States | | | | 25,000 | | | | | | | | 33,876 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 4,074,431 | |
| | | | | | | | | | | | | | | | | | |
| | | Leisure Products 0.0%† | | | | | | | | | | | | |
| e | | Peloton Interactive Inc., senior note, 144A, zero cpn., 2/15/26 | | | United States | | | | 378,000 | | | | | | | | 362,880 | |
| | | | | | | | | | | | | | | | | | |
| | | Machinery 0.1% | | | | | | | | | | | | |
| e | | The Greenbrier Cos. Inc., senior note, 144A, 2.875%, 4/15/28 | | | United States | | | | 1,186,000 | | | | | | | | 1,261,311 | |
| e | | John Bean Technologies Corp., senior note, 144A, 0.25%, 5/15/26 | | | United States | | | | 137,000 | | | | | | | | 147,481 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,408,792 | |
| | | | | | | | | | | | | | | | | | |
| | | Media 1.4% | | | | | | | | | | | | |
| | Dish Network Corp.,
senior bond, 3.375%, 8/15/26 | | | United States | | | | 2,104,000 | | | | | | | | 2,176,589 | |
| | e senior note, 144A, zero cpn., 12/15/25 | | | United States | | | | 80,000 | | | | | | | | 96,400 | |
| e | | Liberty Broadband Corp., senior bond, 144A,
f 1.25%, 9/30/50 | | | United States | | | | 2,762,000 | | | | | | | | 2,782,715 | |
| | 2.75%, 9/30/50 | | | United States | | | | 1,641,000 | | | | | | | | 1,726,940 | |
| | Liberty Interactive LLC,
senior bond, 4.00%, 11/15/29 | | | United States | | | | 1,526,000 | | | | | | | | 1,186,465 | |
| | senior note, 3.75%, 2/15/30 | | | United States | | | | 1,175,000 | | | | | | | | 909,156 | |
| | Liberty Media Corp.,
e,f senior bond, 144A, 2.125%, 3/31/48 | | | United States | | | | 1,736,000 | | | | | | | | 1,795,718 | |
| | e,f senior bond, 144A, 2.75%, 12/01/49 | | | United States | | | | 2,074,000 | | | | | | | | 2,145,553 | |
| | | | | | | | | | |
| | | | | | |
| 34 | | | | | | | | 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) | | | | | | | | | | | | |
| | Liberty Media Corp., (continued) | | | | | | | | | | | | | | | | |
| | e senior bond, 144A, 0.50%, 12/01/50 | | | United States | | | | 889,000 | | | | | | | $ | 1,048,131 | |
| | f senior note, 1.00%, 1/30/23 | | | United States | | | | 942,000 | | | | | | | | 1,209,410 | |
| | senior note, 1.375%, 10/15/23 | | | United States | | | | 1,158,000 | | | | | | | | 1,475,229 | |
| e | | Magnite Inc., senior note, 144A, 0.25%, 3/15/26 | | | United States | | | | 1,581,000 | | | | | | | | 1,353,810 | |
| e,f | | Techtarget Inc., senior note, 144A, 0.125%, 12/15/25 | | | United States | | | | 887,000 | | | | | | | | 1,055,087 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 18,961,203 | |
| | | | | | | | | | | | | | | | | | |
| | | Metals & Mining 0.2% | |
| e | | Century Aluminum Co., senior note, 144A, 2.75%, 5/01/28 | | | United States | | | | 307,000 | | | | | | | | 308,267 | |
| e | | Ivanhoe Mines Ltd., senior note, 144A, 2.50%, 4/15/26 | | | Canada | | | | 454,000 | | | | | | | | 556,150 | |
| e | | MP Materials Corp., senior note, 144A, 0.25%, 4/01/26 | | | United States | | | | 891,000 | | | | | | | | 820,315 | |
| | Pretium Resources Inc., senior sub. note, 2.25%, 3/15/22 | | | Canada | | | | 1,383,000 | | | | | | | | 1,443,575 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 3,128,307 | |
| | | | | | | | | | | | | | | | | | |
| | | Mortgage Real Estate Investment Trusts (REITs) 0.6% | |
| f | | Arbor Realty Trust Inc., senior note, 4.75%, 11/01/22 | | | United States | | | | 2,209,000 | | | | | | | | 2,405,380 | |
| | PennyMac Corp., senior note,
f 5.50%, 11/01/24 | | | United States | | | | 1,736,000 | | | | | | | | 1,739,255 | |
| | e 144A, 5.50%, 3/15/26 | | | United States | | | | 1,011,000 | | | | | | | | 1,041,330 | |
| | Redwood Trust Inc., senior note, 4.75%, 8/15/23 | | | United States | | | | 1,984,000 | | | | | | | | 1,969,120 | |
| | Two Harbors Investment Corp., senior note, 6.25%, 1/15/26 | | | United States | | | | 549,000 | | | | | | | | 593,000 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 7,748,085 | |
| | | | | | | | | | | | | | | | | | |
| | | Personal Products 0.1% | |
| f | | Herbalife Nutrition Ltd., senior note, 2.625%, 3/15/24 | | | United States | | | | 1,522,000 | | | | | | | | 1,655,175 | |
| | | | | | | | | | | | | | | | | | |
| | | Pharmaceuticals 1.0% | |
| | Aerie Pharmaceuticals Inc., senior note, 1.50%, 10/01/24 | | | United States | | | | 993,000 | | | | | | | | 991,715 | |
| f | | Aurora Cannabis Inc., senior note, 5.50%, 2/28/24 | | | Canada | | | | 1,783,000 | | | | | | | | 1,511,093 | |
| e,f | | Avadel Finance Cayman Ltd., senior note, 144A, 4.50%, 2/01/23 | | | United States | | | | 1,178,000 | | | | | | | | 1,242,790 | |
| e | | Canopy Growth Corp., senior note, 144A, 4.25%, 7/15/23 | | | Canada | | | | 1,465,000 | | | | CAD | | | | 1,282,027 | |
| | Collegium Pharmaceutical Inc., senior note, 2.625%, 2/15/26 | | | United States | | | | 860,000 | | | | | | | | 939,307 | |
| f | | Innoviva Inc., sub. note, 2.125%, 1/15/23 | | | United States | | | | 1,849,000 | | | | | | | | 1,891,758 | |
| | Jazz Investments I Ltd., senior note, 1.50%, 8/15/24 | | | United States | | | | 869,000 | | | | | | | | 962,988 | |
| | Omeros Corp., senior note, 5.25%, 2/15/26 | | | United States | | | | 1,285,000 | | | | | | | | 1,449,857 | |
| | Revance Therapeutics Inc., senior note, 1.75%, 2/15/27 | | | United States | | | | 1,107,000 | | | | | | | | 1,290,347 | |
| e | | Zogenix Inc., senior note, 144A, 2.75%, 10/01/27 | | | United States | | | | 1,011,000 | | | | | | | | 1,042,594 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 12,604,476 | |
| | | | | | | | | | | | | | | | | | |
| | | Real Estate Management & Development 0.2% | |
| e | | Realogy Group LLC / Realogy Co.-Issuer Corp., senior note, 144A, 0.25%, 6/15/26 | | | United States | | | | 572,000 | | | | | | | | 583,726 | |
| e | | Tricon Residential Inc., senior sub. note, 144A, 5.75%, 3/31/22 | | | Canada | | | | 1,423,000 | | | | | | | | 1,522,610 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 2,106,336 | |
| | | | | | | | | | | | | | | | | | |
| | | Road & Rail 0.0%† | |
| d,e | | Uber Technologies Inc., senior note, 144A, zero cpn., 12/15/25 | | | United States | | | | 115,000 | | | | | | | | 117,587 | |
| | | | | | | | | | | | | | | | | | |
| | | Semiconductors & Semiconductor Equipment 0.3% | |
| g | | ams AG, senior note, Reg S, 2.125%, 11/03/27 | | | Austria | | | | 1,100,000 | | | | EUR | | | | 1,314,372 | |
| | Impinj Inc., senior note, 2.00%, 12/15/26 | | | United States | | | | 677,000 | | | | | | | | 1,143,318 | |
| f | | Rambus Inc., senior note, 1.375%, 2/01/23 | | | United States | | | | 754,000 | | | | | | | | 890,172 | |
| | Sunpower Corp., senior note, 4.00%, 1/15/23 | | | United States | | | | 941,000 | | | | | | | | 1,179,592 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 4,527,454 | |
| | | | | | | | | | | | | | | | | | |
| | | Software 1.5% | |
| | Alteryx Inc., senior note,
f 0.50%, 8/01/24 | | | United States | | | | 1,186,000 | | | | | | | | 1,125,988 | |
| | 1.00%, 8/01/26 | | | United States | | | | 988,000 | | | | | | | | 908,367 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 35 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| | | Convertible Bonds (continued) | |
| | | Software (continued) | |
| f | | Avaya Holdings Corp., senior note, 2.25%, 6/15/23 | | | United States | | | | 1,317,000 | | | | | | | $ | 1,621,885 | |
| e | | Bentley Systems Inc., senior note, 144A, 0.125%, 1/15/26 | | | United States | | | | 1,791,000 | | | | | | | | 2,030,994 | |
| e,f | | Coupa Software Inc., senior note, 144A, 0.375%, 6/15/26 | | | United States | | | | 344,000 | | | | | | | | 376,035 | |
| | CyberArk Software Ltd., senior note, zero cpn., 11/15/24 | | | United States | | | | 624,000 | | | | | | | | 667,306 | |
| e | | Dye & Durham Ltd., senior note, 144A, 3.75%, 3/01/26 | | | Canada | | | | 656,000 | | | | CAD | | | | 558,456 | |
| d,e,f | | Envestnet Inc., senior note, 144A, 0.75%, 8/15/25 | | | United States | | | | 565,000 | | | | | | | | 554,434 | |
| e | | Fubotv Inc., senior note, 144A, 3.25%, 2/15/26 | | | United States | | | | 1,299,000 | | | | | | | | 1,154,486 | |
| | i3 Verticals LLC, senior note, 1.00%, 2/15/25 | | | United States | | | | 999,000 | | | | | | | | 1,035,214 | |
| f | | LivePerson Inc., senior note, 0.75%, 3/01/24 | | | United States | | | | 540,000 | | | | | | | | 859,901 | |
| e | | Microstrategy Inc., senior note, 144A, zero cpn., 2/15/27 | | | United States | | | | 1,594,000 | | | | | | | | 1,159,635 | |
| e | | Mitek Systems Inc., senior note, 144A, 0.75%, 2/01/26 | | | United States | | | | 770,000 | | | | | | | | 833,044 | |
| f | | Nutanix Inc., senior note, zero cpn., 1/15/23 | | | United States | | | | 1,831,000 | | | | | | | | 1,844,732 | |
| e | | Palo Alto Networks Inc., senior note, 144A, 0.375%, 6/01/25 | | | United States | | | | 305,000 | | | | | | | | 409,920 | |
| | PROS Holdings Inc., senior note,
1.00%, 5/15/24 | | | United States | | | | 1,043,000 | | | | | | | | 1,066,468 | |
| | e 144A, 2.25%, 9/15/27 | | | United States | | | | 521,000 | | | | | | | | 671,113 | |
| e | | Rapid7 Inc., senior note, 144A, 0.25%, 3/15/27 | | | United States | | | | 988,000 | | | | | | | | 1,035,523 | |
| e,f | | Splunk Inc., senior note, 144A, 1.125%, 6/15/27 | | | United States | | | | 1,827,000 | | | | | | | | 1,685,408 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 19,598,909 | |
| | | | | | | | | | | | | | | | | | |
| | | Specialty Retail 0.2% | |
| | Guess? Inc., senior note, 2.00%, 4/15/24 | | | United States | | | | 1,085,000 | | | | | | | | 1,441,016 | |
| e | | Shake Shack Inc., senior note, 144A, zero cpn., 3/01/28 | | | United States | | | | 182,000 | | | | | | | | 166,917 | |
| e | | Shift Technologies Inc., senior note, 144A, 4.75%, 5/15/26 | | | United States | | | | 434,000 | | | | | | | | 472,539 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 2,080,472 | |
| | | | | | | | | | | | | | | | | | |
| | | Technology Hardware, Storage & Peripherals 0.1% | |
| f | | Pure Storage Inc., senior note, 0.125%, 4/15/23 | | | United States | | | | 952,000 | | | | | | | | 995,435 | |
| | | | | | | | | | | | | | | | | | |
| | | Tobacco 0.1% | |
| f | | Turning Point Brands Inc., senior note, 2.50%, 7/15/24 | | | United States | | | | 1,721,000 | | | | | | | | 1,887,722 | |
| | | | | | | | | | | | | | | | | | |
| | Total Convertible Bonds (Cost $158,423,286) | | | | | | | | | | | | | | | 170,364,366 | |
| | | | | | | | | | | | | | | | | | |
| | | Corporate Bonds and Notes 9.4% | | | |
| | | Aerospace & Defense 0.6% | |
| | The Boeing Co.,
senior bond, 2.25%, 6/15/26 | | | United States | | | | 115,000 | | | | | | | | 117,192 | |
| | senior bond, 2.95%, 2/01/30 | | | United States | | | | 50,000 | | | | | | | | 50,514 | |
| | senior bond, 3.25%, 2/01/35 | | | United States | | | | 25,000 | | | | | | | | 24,773 | |
| | senior bond, 3.55%, 3/01/38 | | | United States | | | | 5,000 | | | | | | | | 4,952 | |
| | senior bond, 3.50%, 3/01/39 | | | United States | | | | 5,000 | | | | | | | | 4,928 | |
| | senior bond, 5.705%, 5/01/40 | | | United States | | | | 80,000 | | | | | | | | 99,735 | |
| | senior bond, 3.375%, 6/15/46 | | | United States | | | | 90,000 | | | | | | | | 82,963 | |
| | senior bond, 3.65%, 3/01/47 | | | United States | | | | 20,000 | | | | | | | | 19,115 | |
| | senior bond, 3.625%, 3/01/48 | | | United States | | | | 25,000 | | | | | | | | 23,988 | |
| | senior bond, 3.90%, 5/01/49 | | | United States | | | | 100,000 | | | | | | | | 100,019 | |
| | senior bond, 3.75%, 2/01/50 | | | United States | | | | 130,000 | | | | | | | | 127,570 | |
| | senior bond, 5.805%, 5/01/50 | | | United States | | | | 610,000 | | | | | | | | 785,813 | |
| | senior bond, 3.825%, 3/01/59 | | | United States | | | | 25,000 | | | | | | | | 24,167 | |
| | senior bond, 3.95%, 8/01/59 | | | United States | | | | 115,000 | | | | | | | | 113,838 | |
| | senior bond, 5.93%, 5/01/60 | | | United States | | | | 95,000 | | | | | | | | 123,731 | |
| | senior note, 2.196%, 2/04/26 | | | United States | | | | 435,000 | | | | | | | | 436,932 | |
| | senior note, 5.15%, 5/01/30 | | | United States | | | | 230,000 | | | | | | | | 269,443 | |
| e | | Bombardier Inc., 144A,
f senior bond, 6.125%, 1/15/23 | | | Canada | | | | 2,845,000 | | | | | | | | 2,988,246 | |
| | senior note, 6.00%, 10/15/22 | | | Canada | | | | 1,672,000 | | | | | | | | 1,676,180 | |
| | Embraer Netherlands Finance BV, senior bond, 5.05%, 6/15/25 | | | Brazil | | | | 55,000 | | | | | | | | 58,193 | |
| | | | | | | | | | |
| | | | | | |
| 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) | | | |
| | | Aerospace & Defense (continued) | |
| e | | Leonardo US Holdings Inc., senior bond, 144A, 6.25%, 1/15/40 | | | Italy | | | | 236,000 | | | | | | | $ | 277,890 | |
| | Spirit Aerosystems Inc.,
senior bond, 4.60%, 6/15/28 | | | United States | | | | 20,000 | | | | | | | | 19,381 | |
| | e senior secured note, 144A, 5.50%, 1/15/25 | | | United States | | | | 376,000 | | | | | | | | 397,152 | |
| e | | TransDigm Inc., senior note, 144A, 4.625%, 1/15/29 | | | United States | | | | 150,000 | | | | | | | | 148,442 | |
| e | | Triumph Group Inc., senior secured note, 144A, 8.875%, 6/01/24 | | | United States | | | | 46,000 | | | | | | | | 51,031 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 8,026,188 | |
| | | | | | | | | | | | | | | | | | |
| | | Airlines 0.4% | |
| | American Airlines 2015-2 Class Aa Pass-Through Trust, 3.60%, 9/22/27 | | | United States | | | | 1,053,936 | | | | | | | | 1,079,700 | |
| | American Airlines 2016-1 Class Aa Pass-Through Trust, AA, 3.575%, 1/15/28 | | | United States | | | | 487,085 | | | | | | | | 498,763 | |
| e | | Hawaiian Airlines 2020-1 Class A Pass-Through Certificates, 144A, 7.375%, 9/15/27 | | | United States | | | | 1,885,226 | | | | | | | | 2,145,647 | |
| e | | Hawaiian Brand Intellectual Property Ltd. / Hawaiianmiles Loyalty Ltd., senior secured note, 144A, 5.75%, 1/20/26 | | | United States | | | | 581,000 | | | | | | | | 618,039 | |
| | United Airlines 2020-1 Class B Pass-Through Trust, 4.875%, 1/15/26 | | | United States | | | | 48,525 | | | | | | | | 51,747 | |
| e | | United Airlines Inc., senior secured note, 144A, | | | | | | | | | | | | | | | | |
| | 4.375%, 4/15/26 | | | United States | | | | 40,000 | | | | | | | | 41,501 | |
| | 4.625%, 4/15/29 | | | United States | | | | 55,000 | | | | | | | | 56,892 | |
| | United Airlines Pass-Through Trust, 2019-2, B, 3.50%, 5/01/28 | | | United States | | | | 367,272 | | | | | | | | 361,271 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 4,853,560 | |
| | | | | | | | | | | | | | | | | | |
| | | Automobiles 0.1% | |
| | General Motors Co., senior bond,
5.20%, 4/01/45 | | | United States | | | | 30,000 | | | | | | | | 35,788 | |
| | 5.40%, 4/01/48 | | | United States | | | | 140,000 | | | | | | | | 171,593 | |
| | 5.95%, 4/01/49 | | | United States | | | | 525,000 | | | | | | | | 686,775 | |
| h | | General Motors Financial Co. Inc., A, junior sub. note, 5.75% to 9/30/27, FRN thereafter, Perpetual | | | United States | | | | 100,000 | | | | | | | | 109,000 | |
| h | | General Motors Financial Co. Inc., B, junior sub. note, 6.50% to 3/30/28, FRN thereafter, Perpetual | | | United States | | | | 75,000 | | | | | | | | 83,297 | |
| d,h | | General Motors Financial Co. Inc., C, junior sub. note, 5.70% to 9/30/30, FRN thereafter, Perpetual | | | United States | | | | 35,000 | | | | | | | | 39,331 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,125,784 | |
| | | | | | | | | | | | | | | | | | |
| | | Banks 0.8% | |
| g | | Axis Bank Ltd., senior note, Reg S, 3.00%, 8/08/22 | | | India | | | | 1,400,000 | | | | | | | | 1,429,774 | |
| e,i,j | | Banco Hipotecario SA, senior note, 144A, FRN, 38.125%, (ARS BADLAR + 4.00%), 11/07/22 | | | Argentina | | | | 3,160,000 | | | | ARS | | | | 20,494 | |
| e,j | | Banco Macro SA, senior note, 144A, 17.50%, 5/08/22 | | | Argentina | | | | 1,740,000 | | | | ARS | | | | 9,848 | |
| g | | Bank Rakyat Indonesia Persero TBK PT, senior note, Reg S, 4.625%, 7/20/23 | | | Indonesia | | | | 200,000 | | | | | | | | 214,250 | |
| | Barclays PLC, sub. bond, 3.564% to 9/23/30, FRN thereafter, 9/23/35 | | | United Kingdom | | | | 325,000 | | | | | | | | 332,813 | |
| g | | Canara Bank, senior note, Reg S,
E, 3.25%, 8/10/22 | | | India | | | | 200,000 | | | | | | | | 204,899 | |
| | E, 3.875%, 3/28/24 | | | India | | | | 466,000 | | | | | | | | 492,540 | |
| | Deutsche Bank AG,
d senior note, 3.547% to 9/18/30, FRN thereafter, 9/18/31 | | | Germany | | | | 150,000 | | | | | | | | 157,653 | |
| | senior note, 0.898%, 5/28/24 | | | Germany | | | | 170,000 | | | | | | | | 170,253 | |
| | sub. note, 3.729% to 1/14/31, FRN thereafter, 1/14/32 | | | Germany | | | | 200,000 | | | | | | | | 200,570 | |
| h | | HSBC Holdings PLC, junior sub. note, 6.875% to 6/01/21, FRN thereafter, Perpetual | | | United Kingdom | | | | 1,100,000 | | | | | | | | 1,123,604 | |
| g | | ICICI Bank Ltd., E, senior note, Reg S, 3.25%, 9/09/22 | | | India | | | | 300,000 | | | | | | | | 308,120 | |
| g | | Indusind Bank Ltd., E, senior note, Reg S, 3.875%, 4/15/22 | | | India | | | | 800,000 | | | | | | | | 807,538 | |
| | JPMorgan Chase & Co., senior note, 1.578% to 4/22/26, FRN thereafter, 4/22/27 | | | United States | | | | 175,000 | | | | | | | | 176,412 | |
| | | | | | | | | | |
| | | | | | |
| 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) | | | |
| | | Banks (continued) | |
| g,h | | Krung Thai Bank PCL, junior sub. note, Reg S, 4.40% to 3/25/26, FRN thereafter, Perpetual | | | Thailand | | | | 200,000 | | | | | | | $ | 201,960 | |
| e | | Societe Generale SA, sub. bond, 144A, 3.653% to 7/08/30, FRN thereafter, 7/08/35 | | | France | | | | 200,000 | | | | | | | | 205,514 | |
| | Standard Chartered PLC, | | | | | | | | | | | | | | | | |
| | e sub. bond, 144A, 3.265% to 11/18/30, FRN thereafter, 2/18/36 | | | United Kingdom | | | | 255,000 | | | | | | | | 254,480 | |
| | g,h junior sub. bond, Reg S, 7.50% to 4/02/22, FRN thereafter, Perpetual | | | United Kingdom | | | | 800,000 | | | | | | | | 838,436 | |
| g | | State Bank of India, E, senior note, Reg S, 4.50%, 9/28/23 | | | India | | | | 1,500,000 | | | | | | | | 1,613,378 | |
| g,h | | TMB Bank PCL, E, junior sub. note, Reg S, 4.90% to 12/02/24, FRN thereafter, Perpetual | | | Thailand | | | | 400,000 | | | | | | | | 404,516 | |
| g,k | | VTB Bank OJSC Via VTB Capital SA, loan participation, sub. senior note, Reg S, 6.95%, 10/17/22 | | | Russia | | | | 959,000 | | | | | | | | 1,018,072 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 10,185,124 | |
| | | | | | | | | | | | | | | | | | |
| | | Beverages 0.0%† | |
| | Fomento Economico Mexicano SAB de CV, senior bond, 3.50%, 1/16/50 | | | Mexico | | | | 244,000 | | | | | | | | 247,392 | |
| | | | | | | | | | | | | | | | | | |
| | | Capital Markets 0.2% | |
| | eG Global Finance PLC, senior secured note,
e 144A, 4.375%, 2/07/25 | | | United Kingdom | | | | 100,000 | | | | EUR | | | | 119,802 | |
| | e 144A, 6.25%, 10/30/25 | | | United Kingdom | | | | 144,000 | | | | EUR | | | | 179,264 | |
| | g Reg S, 6.25%, 10/30/25 | | | United Kingdom | | | | 318,000 | | | | EUR | | | | 395,876 | |
| | FS KKR Capital Corp., senior note, 3.40%, 1/15/26 | | | United States | | | | 365,000 | | | | | | | | 377,133 | |
| g | | Huarong Finance 2017 Co. Ltd., senior note, Reg S,
| | | | | | | | | | | | | | | | |
| | i FRN, 2.031%, (3-Month USD LIBOR + 1.85%), 4/27/22 | | | China | | | | 500,000 | | | | | | | | 373,750 | |
| | h 4.50% to 1/24/22, FRN thereafter, Perpetual | | | China | | | | 600,000 | | | | | | | | 375,600 | |
| g | | Huarong Finance 2019 Co. Ltd., Reg S,
senior bond, E, 4.50%, 5/29/29 | | | China | | | | 200,000 | | | | | | | | 133,000 | |
| | senior bond, E, 3.625%, 9/30/30 | | | China | | | | 200,000 | | | | | | | | 133,000 | |
| | senior note, E, 3.25%, 11/13/24 | | | China | | | | 200,000 | | | | | | | | 139,000 | |
| g,h | | Huarong Finance II Co. Ltd., E, senior note, Reg S, 2.875% to 9/14/21, FRN thereafter, Perpetual | | | China | | | | 600,000 | | | | | | | | 402,000 | |
| | Oaktree Specialty Lending Corp., senior note, 2.70%, 1/15/27 | | | United States | | | | 75,000 | | | | | | | | 75,435 | |
| | Owl Rock Capital Corp., senior note, 3.40%, 7/15/26 | | | United States | | | | 290,000 | | | | | | | | 303,309 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 3,007,169 | |
| | | | | | | | | | | | | | | | | | |
| | | Chemicals 0.0%† | |
| e | | Braskem Netherlands Finance BV, senior bond, 144A, 4.50%, 1/31/30 | | | Brazil | | | | 200,000 | | | | | | | | 208,350 | |
| e | | Orbia Advance Corp. SAB de CV, senior bond, 144A, 2.875%, 5/11/31 | | | Mexico | | | | 200,000 | | | | | | | | 199,060 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 407,410 | |
| | | | | | | | | | | | | | | | | | |
| | | Communications Equipment 0.1% | |
| e | | CommScope Inc., senior note, 144A, 7.125%, 7/01/28 | | | United States | | | | 430,000 | | | | | | | | 460,614 | |
| e | | CommScope Technologies LLC, senior bond, 144A, 5.00%, 3/15/27 | | | United States | | | | 180,000 | | | | | | | | 181,659 | |
| e | | HTA Group Ltd., senior note, 144A, 7.00%, 12/18/25 | | | Democratic Republic of the Congo | | | | 435,000 | | | | | | | | 465,124 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,107,397 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 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 (continued) | | | |
| | | Construction & Engineering 0.0%† | |
| g | | Cliffton Ltd., senior secured note, Reg S, 6.25%, 10/25/25 | | | India | | | | 200,000 | | | | | | | $ | 200,050 | |
| | GMR Hyderabad International Airport Ltd., senior secured note,
g Reg S, 5.375%, 4/10/24 | | | India | | | | 200,000 | | | | | | | | 206,996 | |
| | e 144A, 4.75%, 2/02/26 | | | India | | | | 200,000 | | | | | | | | 201,315 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 608,361 | |
| | | | | | | | | | | | | | | | | | |
| | | Construction Materials 0.1% | |
| e | | Cemex SAB de CV, senior secured bond, 144A,
5.45%, 11/19/29 | | | Mexico | | | | 200,000 | | | | | | | | 219,850 | |
| | 5.20%, 9/17/30 | | | Mexico | | | | 245,000 | | | | | | | | 267,724 | |
| | 3.875%, 7/11/31 | | | Mexico | | | | 200,000 | | | | | | | | 200,529 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 688,103 | |
| | | | | | | | | | | | | | | | | | |
| | | Consumer Finance 0.1% | |
| h | | Ally Financial Inc., C, junior sub. note, 4.70% to 5/15/28, FRN thereafter, Perpetual | | | United States | | | | 305,000 | | | | | | | | 308,431 | |
| g | | Manappuram Finance Ltd., E, senior secured note, Reg S, 5.90%, 1/13/23 | | | India | | | | 200,000 | | | | | | | | 205,750 | |
| g | | Muthoot Finance Ltd., senior secured note, Reg S, | | | | | | | | | | | | | | | | |
| | 6.125%, 10/31/22 | | | India | | | | 600,000 | | | | | | | | 624,345 | |
| | 4.40%, 9/02/23 | | | India | | | | 200,000 | | | | | | | | 204,580 | |
| g | | Shriram Transport Finance Co. Ltd., E, senior secured note, Reg S, 5.70%, 2/27/22 | | | India | | | | 200,000 | | | | | | | | 202,249 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,545,355 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Consumer Services 0.0%† | |
| g | | Loxam SAS, senior secured note, Reg S, 3.25%, 1/14/25 | | | France | | | | 100,000 | | | | EUR | | | | 123,878 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Financial Services 0.6% | |
| | AerCap Ireland Capital DAC / AerCap Global Aviation Trust, senior note, 6.50%, 7/15/25 | | | Ireland | | | | 150,000 | | | | | | | | 175,836 | |
| e | | Aviation Capital Group LLC, senior note, 144A, 1.95%, 1/30/26 | | | United States | | | | 50,000 | | | | | | | | 49,697 | |
| g | | Azure Orbit IV International Finance Ltd., E, senior note, Reg S, 3.75%, 1/25/23 | | | China | | | | 1,000,000 | | | | | | | | 1,039,429 | |
| g | | Bocom Leasing Management Hong Kong Co. Ltd., senior note, Reg S,
E, 4.00%, 1/22/22 | | | China | | | | 200,000 | | | | | | | | 203,490 | |
| | E, 1.75%, 7/14/23 | | | China | | | | 200,000 | | | | | | | | 201,446 | |
| g | | CDBL Funding 2, senior note, Reg S,
E, 3.00%, 8/01/22 | | | China | | | | 200,000 | | | | | | | | 204,034 | |
| | E, 1.375%, 3/04/24 | | | China | | | | 800,000 | | | | | | | | 799,146 | |
| g,h | | China Great Wall International Holdings IV Ltd., senior note, Reg S, 3.95% to 7/31/24, FRN thereafter, Perpetual | | | China | | | | 200,000 | | | | | | | | 199,014 | |
| g | | CICC Hong Kong Finance 2016 MTN Ltd., senior note, Reg S,
E, 1.75%, 8/10/23 | | | China | | | | 400,000 | | | | | | | | 403,017 | |
| | E, 1.625%, 1/26/24 | | | China | | | | 300,000 | | | | | | | | 301,014 | |
| e | | Financiera de Desarrollo Territorial SA Findeter, senior bond, 144A, 7.875%, 8/12/24 | | | Colombia | | | | 393,000,000 | | | | COP | | | | 110,161 | |
| g | | Horse Gallop Finance Ltd., E, senior note, Reg S, 3.25%, 5/30/22 | | | China | | | | 800,000 | | | | | | | | 816,584 | |
| e | | Indian Railway Finance Corp. Ltd., senior bond, 144A, 2.80%, 2/10/31 | | | India | | | | 200,000 | | | | | | | | 191,593 | |
| g | | MDC-GMTN BV, senior bond, Reg S, 4.50%, 11/07/28 | | | United Arab Emirates | | | | 261,000 | | | | | | | | 303,120 | |
| e | | Quicken Loans Inc., senior bond, 144A, 5.25%, 1/15/28 | | | United States | | | | 520,000 | | | | | | | | 544,380 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 39 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| | | Corporate Bonds and Notes (continued) | | | |
| | | Diversified Financial Services (continued) | |
| e | | Quicken Loans LLC / Quicken Loans Co.-Issuer Inc., 144A,
senior bond, 3.875%, 3/01/31 | | | United States | | | | 410,000 | | | | | | | $ | 401,546 | |
| | senior note, 3.625%, 3/01/29 | | | United States | | | | 380,000 | | | | | | | | 371,212 | |
| g | | Rec Ltd., senior note, Reg S,
4.75%, 5/19/23 | | | India | | | | 1,000,000 | | | | | | | | 1,058,477 | |
| | 5.25%, 11/13/23 | | | India | | | | 400,000 | | | | | | | | 432,748 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 7,805,944 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Telecommunication Services 0.6% | |
| g | | Bharti Airtel International Netherlands BV, senior bond, Reg S, 5.125%, 3/11/23 | | | India | | | | 500,000 | | | | | | | | 531,944 | |
| e | | Cincinnati Bell Inc., senior note, 144A, 8.00%, 10/15/25 | | | United States | | | | 4,421,000 | | | | | | | | 4,680,734 | |
| e | | Frontier Communications Corp., senior secured note, 144A,
5.875%, 10/15/27 | | | United States | | | | 465,000 | | | | | | | | 495,004 | |
| | 5.00%, 5/01/28 | | | United States | | | | 219,000 | | | | | | | | 224,749 | |
| | Frontier Communications Holdings LLC, secured note, 5.875%, 11/01/29 | | | United States | | | | 113,478 | | | | | | | | 114,367 | |
| e | | Kenbourne Invest SA, senior note, 144A, 6.875%, 11/26/24 | | | Chile | | | | 200,000 | | | | | | | | 212,894 | |
| e,l | | Ligado Networks LLC, 144A, PIK,
secured note, 17.50%, 5/01/24 | | | United States | | | | 446,210 | | | | | | | | 351,390 | |
| | f senior secured note, 15.50%, 11/01/23 | | | United States | | | | 1,135,744 | | | | | | | | 1,132,360 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 7,743,442 | |
| | | | | | | | | | | | | | | | | | |
| | | Electric Utilities 0.4% | |
| c,f | | Bruce Mansfield Escrow, senior bond, zero cpn., 6/01/34 | | | United States | | | | 6,394,000 | | | | | | | | 23,977 | |
| g,h | | China Huaneng Group Hong Kong Treasury Management Holding Ltd., senior note, Reg S, 3.08% to 12/09/25, FRN thereafter, Perpetual | | | China | | | | 400,000 | | | | | | | | 409,150 | |
| h | | Edison International, A, junior sub. note, 5.375% to 3/15/26, FRN thereafter, Perpetual | | | United States | | | | 1,111,000 | | | | | | | | 1,124,888 | |
| g | | Eskom Holdings SOC Ltd., senior bond, Reg S, 8.45%, 8/10/28 | | | South Africa | | | | 1,134,000 | | | | | | | | 1,284,255 | |
| g | | Greenko Investment Co., senior secured note, Reg S, 4.875%, 8/16/23 | | | India | | | | 200,000 | | | | | | | | 203,350 | |
| g,h | | Huaneng Hong Kong Capital Ltd., senior note, Reg S, 3.60% to 10/30/22, FRN thereafter, Perpetual | | | China | | | | 400,000 | | | | | | | | 407,095 | |
| e | | Oryx Funding Ltd., senior bond, 144A, 5.80%, 2/03/31 | | | Oman | | | | 283,000 | | | | | | | | 299,657 | |
| | Pacific Gas and Electric Co.,
secured bond, 4.50%, 7/01/40 | | | United States | | | | 1,106,000 | | | | | | | | 1,086,680 | |
| | secured bond, 4.95%, 7/01/50 | | | United States | | | | 55,000 | | | | | | | | 55,693 | |
| | secured bond, 3.50%, 8/01/50 | | | United States | | | | 200,000 | | | | | | | | 173,178 | |
| | senior bond, 4.30%, 3/15/45 | | | United States | | | | 95,000 | | | | | | | | 88,357 | |
| g | | Power Grid Corp. of India Ltd., senior bond, Reg S, 3.875%, 1/17/23 | | | India | | | | 400,000 | | | | | | | | 417,950 | |
| | Southern California Edison Co.,
secured bond, 3.65%, 2/01/50 | | | United States | | | | 40,000 | | | | | | | | 39,325 | |
| | senior bond, 4.00%, 4/01/47 | | | United States | | | | 10,000 | | | | | | | | 10,216 | |
| | senior bond, C, 4.125%, 3/01/48 | | | United States | | | | 15,000 | | | | | | | | 15,538 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 5,639,309 | |
| | | | | | | | | | | | | | | | | | |
| | | Energy Equipment & Services 0.0%† | |
| e | | Transocean Inc., senior note, 144A, 7.50%, 1/15/26 | | | United States | | | | 405,000 | | | | | | | | 319,016 | |
| | | | | | | | | | | | | | | | | | |
| | | Entertainment 0.1% | |
| e | | AMC Entertainment Holdings Inc., senior secured note, 144A, 10.50%, 4/15/25 | | | United States | | | | 578,000 | | | | | | | | 627,855 | |
| | Netflix Inc., senior bond,
4.875%, 4/15/28 | | | United States | | | | 80,000 | | | | | | | | 92,132 | |
| | 5.875%, 11/15/28 | | | United States | | | | 70,000 | | | | | | | | 84,794 | |
| | 6.375%, 5/15/29 | | | United States | | | | 75,000 | | | | | | | | 93,834 | |
| | e 144A, 5.375%, 11/15/29 | | | United States | | | | 20,000 | | | | | | | | 23,675 | |
| | e 144A, 4.875%, 6/15/30 | | | United States | | | | 215,000 | | | | | | | | 248,056 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 1,170,346 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 40 | | | | | | | | 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) | | | |
| | | Equity Real Estate Investment Trusts (REITs) 0.0%† | |
| | National Health Investors Inc., senior bond, 3.00%, 2/01/31 | | | United States | | | | 30,000 | | | | | | | $ | 28,572 | |
| | | | | | | | | | | | | | | | | | |
| | | Food & Staples Retailing 0.1% | |
| g,h | | Casino Guichard Perrachon SA, E, junior sub. note, Reg S, 3.992% to 1/31/24, FRN thereafter, Perpetual | | | France | | | | 400,000 | | | | EUR | | | | 366,781 | |
| e | | JBS USA/Food/Finance, senior bond, 144A, 3.75%, 12/01/31 | | | United States | | | | 75,000 | | | | | | | | 76,061 | |
| e | | Marb Bondco PLC, senior bond, 144A, 3.95%, 1/29/31 | | | Brazil | | | | 225,000 | | | | | | | | 216,602 | |
| e | | Smithfield Foods Inc., senior bond, 144A, 3.00%, 10/15/30 | | | United States | | | | 30,000 | | | | | | | | 29,967 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 689,411 | |
| | | | | | | | | | | | | | | | | | |
| | | Food Products 0.0%† | |
| | Kraft Heinz Foods Co., senior bond,
5.00%, 6/04/42 | | | United States | | | | 45,000 | | | | | | | | 52,377 | |
| | 4.375%, 6/01/46 | | | United States | | | | 95,000 | | | | | | | | 102,035 | |
| | 4.875%, 10/01/49 | | | United States | | | | 150,000 | | | | | | | | 172,384 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 326,796 | |
| | | | | | | | | | | | | | | | | | |
| | | Health Care Providers & Services 0.2% | |
| | Centene Corp., senior bond,
3.00%, 10/15/30 | | | United States | | | | 85,000 | | | | | | | | 85,143 | |
| | 2.50%, 3/01/31 | | | United States | | | | 350,000 | | | | | | | | 335,809 | |
| e | | Centene Escrow I Corp., senior note, 144A, 5.375%, 6/01/26 | | | United States | | | | 1,000,000 | | | | | | | | 1,042,950 | |
| | Encompass Health Corp., senior bond, 4.625%, 4/01/31 | | | United States | | | | 764,000 | | | | | | | | 811,467 | |
| | HCA Inc., senior bond, 3.50%, 9/01/30 | | | United States | | | | 180,000 | | | | | | | | 185,099 | |
| d | | UnitedHealth Group Inc., senior note, 0.55%, 5/15/24 | | | United States | | | | 460,000 | | | | | | | | 460,523 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 2,920,991 | |
| | | | | | | | | | | | | | | | | | |
| | | Hotels, Restaurants & Leisure 0.3% | |
| e | | 1011778 BC ULC / New Red Finance Inc., 144A,
secured bond, 4.00%, 10/15/30 | | | Canada | | | | 70,000 | | | | | | | | 67,907 | |
| | secured note, 4.375%, 1/15/28 | | | Canada | | | | 345,000 | | | | | | | | 350,120 | |
| e | | Carnival Corp., senior note, 144A, 5.75%, 3/01/27 | | | United States | | | | 295,000 | | | | | | | | 313,806 | |
| e | | GENM Capital Labuan Ltd., senior bond, 144A, 3.882%, 4/19/31 | | | Malaysia | | | | 200,000 | | | | | | | | 196,673 | |
| e,f | | Golden Nugget Inc., senior note, 144A, 6.75%, 10/15/24 | | | United States | | | | 114,000 | | | | | | | | 115,200 | |
| g | | Haidilao International Holding Ltd., senior note, Reg S, 2.15%, 1/14/26 | | | China | | | | 420,000 | | | | | | | | 415,970 | |
| e,m | | Hilton Grand Vacations Borrower Escrow LLC, senior note, 144A, 5.00%, 6/01/29 | | | United States | | | | 155,000 | | | | | | | | 156,744 | |
| | Hyatt Hotels Corp.,
senior bond, 5.75%, 4/23/30 | | | United States | | | | 95,000 | | | | | | | | 113,109 | |
| | senior note, 5.375%, 4/23/25 | | | United States | | | | 50,000 | | | | | | | | 56,672 | |
| | Marriott International Inc., FF, senior bond, 4.625%, 6/15/30 | | | United States | | | | 75,000 | | | | | | | | 84,684 | |
| e | | Royal Caribbean Cruises Ltd., 144A,
senior note, 9.125%, 6/15/23 | | | United States | | | | 547,000 | | | | | | | | 605,775 | |
| | senior note, 5.50%, 4/01/28 | | | United States | | | | 310,000 | | | | | | | | 326,662 | |
| | senior secured note, 11.50%, 6/01/25 | | | United States | | | | 484,000 | | | | | | | | 560,874 | |
| e | | Scientific Games International Inc., senior note, 144A,
7.00%, 5/15/28 | | | United States | | | | 200,000 | | | | | | | | 216,696 | |
| | 7.25%, 11/15/29 | | | United States | | | | 70,000 | | | | | | | | 77,616 | |
| | Travel + Leisure Co.,
senior secured bond, 6.00%, 4/01/27 | | | United States | | | | 10,000 | | | | | | | | 11,104 | |
| | e senior secured bond, 144A, 4.625%, 3/01/30 | | | United States | | | | 80,000 | | | | | | | | 82,577 | |
| | e senior secured note, 144A, 6.625%, 7/31/26 | | | United States | | | | 125,000 | | | | | | | | 143,299 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 3,895,488 | |
| | | | | | | | | | | | | | | | | | |
| | | Household Durables 0.1% | |
| e | | K. Hovnanian Enterprises Inc., senior secured note, 144A, 7.75%, 2/15/26 | | | United States | | | | 1,628,000 | | | | | | | | 1,770,450 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 41 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| | | Corporate Bonds and Notes (continued) | | | |
| | | Independent Power & Renewable Electricity Producers 0.0%† | |
| e | | Calpine Corp., senior note, 144A, 5.125%, 3/15/28 | | | United States | | | | 85,000 | | | | | | | $ | 85,747 | |
| g | | NTPC Ltd., E, senior bond, Reg S, 4.75%, 10/03/22 | | | India | | | | 200,000 | | | | | | | | 209,558 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 295,305 | |
| | | | | | | | | | | | | | | | | | |
| | | Industrial Conglomerates 0.1% | |
| | General Electric Co., senior bond,
3.625%, 5/01/30 | | | United States | | | | 110,000 | | | | | | | | 120,929 | |
| | 4.35%, 5/01/50 | | | United States | | | | 50,000 | | | | | | | | 57,063 | |
| | Icahn Enterprises LP / Icahn Enterprises Finance Corp., senior note,
6.25%, 5/15/26 | | | United States | | | | 85,000 | | | | | | | | 90,000 | |
| | d 5.25%, 5/15/27 | | | United States | | | | 265,000 | | | | | | | | 272,009 | |
| | e 144A, 4.375%, 2/01/29 | | | United States | | | | 235,000 | | | | | | | | 230,927 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 770,928 | |
| | | | | | | | | | | | | | | | | | |
| | | Insurance 0.2% | |
| | Athene Holding Ltd., senior bond, 3.50%, 1/15/31 | | | United States | | | | 110,000 | | | | | | | | 116,003 | |
| f,i | | Genworth Holdings Inc., senior bond, FRN, 2.158%, (3-Month USD LIBOR + 2.00%), 11/15/36 | | | United States | | | | 1,811,000 | | | | | | | | 1,049,828 | |
| e | | Global Atlantic Finance Co., senior bond, 144A, 4.40%, 10/15/29 | | | United States | | | | 165,000 | | | | | | | | 177,340 | |
| g,h | | KDB Life Insurance Co. Ltd., sub. note, Reg S, 7.50% to 5/21/23, FRN thereafter, Perpetual | | | South Korea | | | | 400,000 | | | | | | | | 404,863 | |
| g,h | | Tongyang Life Insurance Co. Ltd., sub. note, Reg S, 5.25% to 9/22/25, FRN thereafter, Perpetual | | | South Korea | | | | 400,000 | | | | | | | | 417,750 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 2,165,784 | |
| | | | | | | | | | | | | | | | | | |
| | | Interactive Media & Services 0.1% | |
| g | | Tencent Holdings Ltd., senior bond, Reg S, 3.94%, 4/22/61 | | | China | | | | 1,000,000 | | | | | | | | 1,023,467 | |
| | | | | | | | | | | | | | | | | | |
| | | Internet & Direct Marketing Retail 0.1% | |
| | Expedia Group Inc.,
senior bond, 3.80%, 2/15/28 | | | United States | | | | 95,000 | | | | | | | | 102,414 | |
| | e senior bond, 144A, 2.95%, 3/15/31 | | | United States | | | | 80,000 | | | | | | | | 79,901 | |
| | e senior note, 144A, 4.625%, 8/01/27 | | | United States | | | | 115,000 | | | | | | | | 130,288 | |
| | senior note, 3.25%, 2/15/30 | | | United States | | | | 505,000 | | | | | | | | 517,539 | |
| g,h | | Rakuten Group Inc., senior bond, Reg S, 6.25% to 4/22/31, FRN thereafter, Perpetual | | | Japan | | | | 200,000 | | | | | | | | 214,250 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 1,044,392 | |
| | | | | | | | | | | | | | | | | | |
| | | IT Services 0.0%† | |
| e | | Square Inc., senior bond, 144A, 3.50%, 6/01/31 | | | United States | | | | 100,000 | | | | | | | | 100,119 | |
| | | | | | | | | | | | | | | | | | |
| | | Leisure Products 0.0%† | |
| e | | NCL Corp. Ltd., senior note, 144A, 5.875%, 3/15/26 | | | United States | | | | 195,000 | | | | | | | | 203,532 | |
| e | | NCL Finance Ltd., senior note, 144A, 6.125%, 3/15/28 | | | United States | | | | 65,000 | | | | | | | | 67,848 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 271,380 | |
| | | | | | | | | | | | | | | | | | |
| | | Marine 0.0%† | |
| e | | Stena International SA, senior secured bond, 144A, 5.75%, 3/01/24 | | | Sweden | | | | 299,000 | | | | | | | | 308,447 | |
| | | | | | | | | | | | | | | | | | |
| | | Media 0.3% | |
| e | | CCO Holdings LLC / CCO Holdings Capital Corp., senior bond, 144A, 4.25%, 2/01/31 | | | United States | | | | 585,000 | | | | | | | | 584,561 | |
| m | | Charter Communications Operating LLC / Charter Communications Operating Capital, senior secured bond, 4.40%, 12/01/61 | | | United States | | | | 920,000 | | | | | | | | 932,142 | |
| e | | CSC Holdings LLC, senior bond, 144A, 4.625%, 12/01/30 | | | United States | | | | 610,000 | | | | | | | | 591,859 | |
| d,e | | Diamond Sports Group LLC / Diamond Sports Finance Co., senior note, 144A, 6.625%, 8/15/27 | | | United States | | | | 711,000 | | | | | | | | 407,780 | |
| e | | Dish DBS Corp., senior note, 144A, 5.125%, 6/01/29 | | | United States | | | | 140,000 | | | | | | | | 139,069 | |
| | iHeartCommunications Inc.,
senior note, 8.375%, 5/01/27 | | | United States | | | | 760,000 | | | | | | | | 814,469 | |
| | senior secured note, 6.375%, 5/01/26 | | | United States | | | | 40,000 | | | | | | | | 42,778 | |
| | | | | | | | | | |
| | | | | | |
| 42 | | | | | | | | 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) | | | |
| | | Media (continued) | |
| | iHeartCommunications Inc., (continued) | | | | | | | | | | | | | | | | |
| | e senior secured note, 144A, 5.25%, 8/15/27 | | | United States | | | | 90,000 | | | | | | | $ | 93,369 | |
| | e senior secured note, 144A, 4.75%, 1/15/28 | | | United States | | | | 175,000 | | | | | | | | 179,015 | |
| e | | Outfront Media Capital LLC / Outfront Media Capital Corp., senior bond, 144A, 4.625%, 3/15/30 | | | United States | | | | 65,000 | | | | | | | | 64,763 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 3,849,805 | |
| | | | | | | | | | | | | | | | | | |
| | | Metals & Mining 0.3% | |
| g | | Abja Investment Co. Pte Ltd., senior note, Reg S, 4.45%, 7/24/23 | | | India | | | | 400,000 | | | | | | | | 412,590 | |
| e | | CSN Inova Ventures, senior note, 144A, 6.75%, 1/28/28 | | | Brazil | | | | 414,000 | | | | | | | | 456,462 | |
| e | | First Quantum Minerals Ltd., senior note, 144A,
6.875%, 3/01/26 | | | Zambia | | | | 200,000 | | | | | | | | 210,000 | |
| | 6.875%, 10/15/27 | | | Zambia | | | | 620,000 | | | | | | | | 677,350 | |
| e | | FMG Resources August 2006 Pty Ltd., senior bond, 144A, 4.375%, 4/01/31 | | | Australia | | | | 155,000 | | | | | | | | 162,138 | |
| | Freeport-McMoRan Inc., senior bond,
4.625%, 8/01/30 | | | United States | | | | 95,000 | | | | | | | | 104,428 | |
| | 5.40%, 11/14/34 | | | United States | | | | 145,000 | | | | | | | | 172,086 | |
| | 5.45%, 3/15/43 | | | United States | | | | 20,000 | | | | | | | | 24,175 | |
| d,e | | Glencore Funding LLC, senior bond, 144A, 2.85%, 4/27/31 | | | Australia | | | | 390,000 | | | | | | | | 389,271 | |
| g | | Indonesia Asahan Aluminium Persero PT, senior bond, Reg S, 5.80%, 5/15/50 | | | Indonesia | | | | 400,000 | | | | | | | | 467,000 | |
| e | | Infrabuild Australia Pty Ltd., senior secured note, 144A, 12.00%, 10/01/24 | | | Australia | | | | 84,000 | | | | | | | | 87,780 | |
| g | | JSW Steel Ltd., senior note, Reg S, 5.25%, 4/13/22 | | | India | | | | 400,000 | | | | | | | | 410,247 | |
| g,h | | MCC Holding Hong Kong Corp. Ltd., senior note, Reg S, 3.50% to 1/16/23, FRN thereafter, Perpetual | | | China | | | | 200,000 | | | | | | | | 203,405 | |
| e | | Novelis Corp., senior bond, 144A, 4.75%, 1/30/30 | | | United States | | | | 90,000 | | | | | | | | 94,612 | |
| | U.S. Steel Corp., senior note, 6.875%, 3/01/29 | | | United States | | | | 224,000 | | | | | | | | 234,968 | |
| e | | Volcan Cia Minera SAA, senior note, 144A, 4.375%, 2/11/26 | | | Peru | | | | 30,000 | | | | | | | | 29,370 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 4,135,882 | |
| | | | | | | | | | | | | | | | | | |
| | | Multiline Retail 0.0%† | |
| | Kohl’s Corp., senior bond, 5.55%, 7/17/45 | | | United States | | | | 338,000 | | | | | | | | 397,451 | |
| | | | | | | | | | | | | | | | | | |
| | | Oil, Gas & Consumable Fuels 1.4% | |
| e | | Aker BP ASA, senior bond, 144A,
3.75%, 1/15/30 | | | Norway | | | | 350,000 | | | | | | | | 370,246 | |
| | 4.00%, 1/15/31 | | | Norway | | | | 150,000 | | | | | | | | 161,710 | |
| d,e | | Continental Resources Inc., senior bond, 144A, 5.75%, 1/15/31 | | | United States | | | | 195,000 | | | | | | | | 229,104 | |
| e,g | | Energean Israel Finance Ltd., 144A, Reg S,
senior secured bond, 5.875%, 3/30/31 | | | Israel | | | | 130,000 | | | | | | | | 135,206 | |
| | senior secured note, 5.375%, 3/30/28 | | | Israel | | | | 105,000 | | | | | | | | 109,160 | |
| | Energy Transfer LP, senior bond,
5.30%, 4/01/44 | | | United States | | | | 119,000 | | | | | | | | 131,711 | |
| | 6.25%, 4/15/49 | | | United States | | | | 222,000 | | | | | | | | 277,531 | |
| | Equities Corp., senior note,
5.00%, 1/15/29 | | | United States | | | | 10,000 | | | | | | | | 11,112 | |
| | e 144A, 3.125%, 5/15/26 | | | United States | | | | 15,000 | | | | | | | | 15,315 | |
| | e 144A, 3.625%, 5/15/31 | | | United States | | | | 30,000 | | | | | | | | 30,936 | |
| e | | Gray Oak Pipeline LLC, senior note, 144A, 3.45%, 10/15/27 | | | United States | | | | 20,000 | | | | | | | | 20,956 | |
| e | | Hurricane Finance PLC, senior note, 144A, 8.00%, 10/15/25 | | | United Kingdom | | | | 158,000 | | | | | | | | 244,392 | |
| g | | Indian Oil Corp. Ltd., senior bond, Reg S, 5.75%, 8/01/23 | | | India | | | | 700,000 | | | | | | | | 765,316 | |
| e,g | | Leviathan Bond Ltd., senior note, 144A, Reg S, 6.50%, 6/30/27 | | | Israel | | | | 100,000 | | | | | | | | 111,502 | |
| e | | Moss Creek Resources Holdings Inc., senior note, 144A,
7.50%, 1/15/26 | | | United States | | | | 193,000 | | | | | | | | 170,312 | |
| | 10.50%, 5/15/27 | | | United States | | | | 455,000 | | | | | | | | 432,045 | |
| g | | ONGC Videsh Vankorneft Pte Ltd., senior note, Reg S, 2.875%, 1/27/22 | | | India | | | | 1,100,000 | | | | | | | | 1,114,519 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 43 |
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) | |
| e | | OQ SAOC, senior note, 144A, 5.125%, 5/06/28 | | | Oman | | | | 224,000 | | | | | | | $ | 226,651 | |
| | Ovintiv Inc., senior bond,
8.125%, 9/15/30 | | | United States | | | | 25,000 | | | | | | | | 34,065 | |
| | 7.20%, 11/01/31 | | | United States | | | | 5,000 | | | | | | | | 6,543 | |
| | 7.375%, 11/01/31 | | | United States | | | | 5,000 | | | | | | | | 6,675 | |
| | 6.50%, 8/15/34 | | | United States | | | | 20,000 | | | | | | | | 26,487 | |
| | 6.625%, 8/15/37 | | | United States | | | | 45,000 | | | | | | | | 59,227 | |
| | 6.50%, 2/01/38 | | | United States | | | | 10,000 | | | | | | | | 13,112 | |
| | Petroleos Mexicanos,
g senior bond, Reg S, 7.19%, 9/12/24 | | | Mexico | | | | 8,080,000 | n | | | MXN | | | | 382,973 | |
| | senior bond, 5.95%, 1/28/31 | | | Mexico | | | | 1,204,000 | | | | | | | | 1,172,395 | |
| | senior bond, 6.625%, 6/15/35 | | | Mexico | | | | 380,000 | | | | | | | | 367,175 | |
| | senior bond, 6.375%, 1/23/45 | | | Mexico | | | | 1,018,000 | | | | | | | | 875,327 | |
| | senior bond, 6.75%, 9/21/47 | | | Mexico | | | | 1,853,000 | | | | | | | | 1,632,623 | |
| | senior bond, 6.35%, 2/12/48 | | | Mexico | | | | 1,509,000 | | | | | | | | 1,280,620 | |
| | senior bond, 6.95%, 1/28/60 | | | Mexico | | | | 415,000 | | | | | | | | 368,124 | |
| | senior bond, 14-2, 7.47%, 11/12/26 | | | Mexico | | | | 26,230,000 | n | | | MXN | | | | 1,173,593 | |
| | senior note, 3.50%, 1/30/23 | | | Mexico | | | | 959,000 | | | | | | | | 983,781 | |
| | e senior note, 144A, 6.875%, 10/16/25 | | | Mexico | | | | 297,000 | | | | | | | | 332,091 | |
| | senior note, 4.50%, 1/23/26 | | | Mexico | | | | 288,000 | | | | | | | | 295,474 | |
| | senior note, 6.84%, 1/23/30 | | | Mexico | | | | 514,000 | | | | | | | | 533,275 | |
| | Sabine Pass Liquefaction LLC, senior secured note, 4.50%, 5/15/30 | | | United States | | | | 270,000 | | | | | | | | 306,373 | |
| e | | Saudi Arabian Oil Co., senior bond, 144A, 3.25%, 11/24/50 | | | Saudi Arabia | | | | 285,000 | | | | | | | | 266,642 | |
| e | | Talos Production Inc., secured note, 144A, 12.00%, 1/15/26 | | | United States | | | | 518,000 | | | | | | | | 529,077 | |
| g | | Thai Oil PCL, senior bond, Reg S, 3.625%, 1/23/23 | | | Thailand | | | | 200,000 | | | | | | | | 207,580 | |
| e | | Tullow Oil PLC, senior secured note, 144A, 10.25%, 5/15/26 | | | Ghana | | | | 1,295,000 | | | | | | | | 1,332,231 | |
| | YPF Sociedad Anonima,
e senior bond, 144A, 6.95%, 7/21/27 | | | Argentina | | | | 105,000 | | | | | | | | 68,934 | |
| | g senior note, Reg S, 8.75%, 4/04/24 | | | Argentina | | | | 1,267,000 | | | | | | | | 1,076,316 | |
| | g senior note, Reg S, 8.50%, 3/23/25 | | | Argentina | | | | 487,000 | | | | | | | | 415,654 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 18,304,091 | |
| | | | | | | | | | | | | | | | | | |
| | | Paper & Forest Products 0.0%† | |
| e | | Paper Industries Intermediate Financing SARL, senior secured note, 144A, 6.00%, 3/01/25 | | | Luxembourg | | | | 76,000 | | | | | | | | 68,773 | |
| | Suzano Austria GMBH, senior bond, 3.75%, 1/15/31 | | | Brazil | | | | 160,000 | | | | | | | | 166,298 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 235,071 | |
| | | | | | | | | | | | | | | | | | |
| | | Pharmaceuticals 0.2% | |
| | Teva Pharmaceutical Finance Netherlands II BV, senior note, 6.00%, 1/31/25 | | | Israel | | | | 335,000 | | | | EUR | | | | 447,161 | |
| | Teva Pharmaceutical Finance Netherlands III BV,
senior bond, 3.15%, 10/01/26 | | | Israel | | | | 220,000 | | | | | | | | 207,624 | |
| | senior bond, 4.10%, 10/01/46 | | | Israel | | | | 1,145,000 | | | | | | | | 983,469 | |
| | senior note, 2.80%, 7/21/23 | | | Israel | | | | 390,000 | | | | | | | | 386,831 | |
| | senior note, 7.125%, 1/31/25 | | | Israel | | | | 200,000 | | | | | | | | 218,714 | |
| e | | Viatris Inc., senior bond, 144A, 4.00%, 6/22/50 | | | United States | | | | 115,000 | | | | | | | | 116,722 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 2,360,521 | |
| | | | | | | | | | | | | | | | | | |
| | | Pipelines 0.0%† | |
| e | | Galaxy Pipeline Assets Bidco Ltd., senior secured bond, 144A, 2.94%, 9/30/40 | | | United Arab Emirates | | | | 200,000 | | | | | | | | 198,424 | |
| | | | | | | | | | | | | | | | | | |
| | | Professional Services 0.0%† | |
| e | | TriNet Group Inc., senior note, 144A, 3.50%, 3/01/29 | | | United States | | | | 155,000 | | | | | | | | 151,234 | |
| | | | | | | | | | | | | | | | | | |
| | | Real Estate Management & Development 0.8% | |
| g | | China Evergrande Group, Reg S,
senior note, 8.25%, 3/23/22 | | | China | | | | 430,000 | | | | | | | | 411,725 | |
| | senior secured note, 9.50%, 4/11/22 | | | China | | | | 1,070,000 | | | | | | | | 1,029,875 | |
| | | | | | | | | | |
| | | | | | |
| 44 | | | | | | | | 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) | | | |
| | | Real Estate Management & Development (continued) | |
| g | | China Overseas Grand Oceans Finance IV Cayman Ltd., senior note, Reg S, 4.875%, 6/01/21 | | | China | | | | 600,000 | | | | | | | $ | 600,000 | |
| g | | CIFI Holdings Group Co. Ltd., senior note, Reg S,
5.50%, 1/23/22 | | | China | | | | 200,000 | | | | | | | | 203,125 | |
| | 5.95%, 10/20/25 | | | China | | | | 200,000 | | | | | | | | 212,632 | |
| g | | Country Garden Holdings Co. Ltd., senior secured note, Reg S,
4.75%, 7/25/22 | | | China | | | | 200,000 | | | | | | | | 203,300 | |
| | 4.75%, 1/17/23 | | | China | | | | 1,000,000 | | | | | | | | 1,022,480 | |
| | 4.75%, 9/28/23 | | | China | | | | 600,000 | | | | | | | | 612,197 | |
| g | | Kaisa Group Holdings Ltd., senior secured note, Reg S,
9.375%, 6/30/24 | | | China | | | | 314,000 | | | | | | | | 311,487 | |
| | 11.25%, 4/16/25 | | | China | | | | 640,000 | | | | | | | | 645,658 | |
| | 11.70%, 11/11/25 | | | China | | | | 400,000 | | | | | | | | 403,610 | |
| g | | Leading Affluence Ltd., senior bond, Reg S, 4.50%, 1/24/23 | | | China | | | | 500,000 | | | | | | | | 522,313 | |
| g | | Logan Group Co. Ltd., senior note, Reg S,
5.75%, 1/03/22 | | | China | | | | 400,000 | | | | | | | | 406,200 | |
| | 6.50%, 7/16/23 | | | China | | | | 200,000 | | | | | | | | 205,190 | |
| g | | Longfor Group Holdings Ltd., senior note, Reg S, 3.875%, 7/13/22 | | | China | | | | 400,000 | | | | | | | | 410,685 | |
| g,h,m | | NWD Finance Bvi Ltd., senior note, Reg S, 4.125% to 3/10/28, FRN thereafter, Perpetual | | | Hong Kong | | | | 200,000 | | | | | | | | 201,668 | |
| g,h | | Overseas Chinese Town Asia Holdings Ltd., senior note, Reg S, 4.50% to 7/15/23, FRN thereafter, Perpetual | | | China | | | | 200,000 | | | | | | | | 205,675 | |
| g | | Powerlong Real Estate Holdings Ltd., senior note, Reg S, 4.90%, 5/13/26 | | | China | | | | 200,000 | | | | | | | | 199,055 | |
| g | | Shimao Group Holdings Ltd., senior secured note, Reg S,
6.375%, 10/15/21 | | | China | | | | 400,000 | | | | | | | | 407,329 | |
| | 4.75%, 7/03/22 | | | China | | | | 900,000 | | | | | | | | 913,449 | |
| g | | Times China Holdings Ltd., senior secured note, Reg S, 5.55%, 6/04/24 | | | China | | | | 200,000 | | | | | | | | 202,250 | |
| g | | Vanke Real Estate Hong Kong Co. Ltd., senior note, Reg S, | | | | | | | | | | | | | | | | |
| | i FRN, 1.697%, (3-Month USD LIBOR + 1.55%), 5/25/23 | | | China | | | | 400,000 | | | | | | | | 401,100 | |
| | 4.15%, 4/18/23 | | | China | | | | 200,000 | | | | | | | | 209,719 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 9,940,722 | |
| | | | | | | | | | | | | | | | | | |
| | | Road & Rail 0.2% | |
| e | | Uber Technologies Inc., senior note, 144A,
7.50%, 5/15/25 | | | United States | | | | 295,000 | | | | | | | | 318,821 | |
| | 8.00%, 11/01/26 | | | United States | | | | 1,085,000 | | | | | | | | 1,173,541 | |
| | 7.50%, 9/15/27 | | | United States | | | | 455,000 | | | | | | | | 499,133 | |
| | 6.25%, 1/15/28 | | | United States | | | | 200,000 | | | | | | | | 216,000 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 2,207,495 | |
| | | | | | | | | | | | | | | | | | |
| | | Semiconductors & Semiconductor Equipment 0.2% | |
| | Broadcom Inc.,
senior bond, 4.15%, 11/15/30 | | | United States | | | | 10,000 | | | | | | | | 10,959 | |
| | senior bond, 4.30%, 11/15/32 | | | United States | | | | 490,000 | | | | | | | | 541,389 | |
| | senior note, 4.75%, 4/15/29 | | | United States | | | | 115,000 | | | | | | | | 131,656 | |
| | senior note, 5.00%, 4/15/30 | | | United States | | | | 135,000 | | | | | | | | 155,984 | |
| e | | Marvell Technology Inc., senior bond, 144A, 2.95%, 4/15/31 | | | United States | | | | 95,000 | | | | | | | | 96,235 | |
| e | | Microchip Technology Inc., senior secured note, 144A, 0.983%, 9/01/24 | | | United States | | | | 85,000 | | | | | | | | 85,140 | |
| | Micron Technology Inc., senior bond,
5.327%, 2/06/29 | | | United States | | | | 385,000 | | | | | | | | 459,645 | |
| | 4.663%, 2/15/30 | | | United States | | | | 140,000 | | | | | | | | 161,497 | |
| | Skyworks Solutions Inc., senior note, 1.80%, 6/01/26 | | | United States | | | | 25,000 | | | | | | | | 25,197 | |
| g | | TSMC Global Ltd., senior bond, Reg S, 2.25%, 4/23/31 | | | Taiwan | | | | 1,000,000 | | | | | | | | 994,317 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 2,662,019 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 45 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| | | Corporate Bonds and Notes (continued) | | | |
| | | Specialty Retail 0.4% | |
| g,h | | Baoxin Auto Finance I Ltd., senior note, Reg S, 9.109% to 10/30/21, FRN thereafter, Perpetual | | | China | | | | 200,000 | | | | | | | $ | 148,500 | |
| e | | Carvana Co., senior note, 144A,
5.625%, 10/01/25 | | | United States | | | | 180,000 | | | | | | | | 185,645 | |
| | 5.50%, 4/15/27 | | | United States | | | | 564,000 | | | | | | | | 582,558 | |
| | 5.875%, 10/01/28 | | | United States | | | | 488,000 | | | | | | | | 512,512 | |
| e | | Douglas GMBH, senior secured note, 144A, 6.00%, 4/08/26 | | | Germany | | | | 1,714,000 | | | | EUR | | | | 2,115,522 | |
| e | | Guitar Center Inc., senior secured note, 144A, 8.50%, 1/15/26 | | | United States | | | | 754,000 | | | | | | | | 800,213 | |
| e,l | | Kirk Beauty Sun GMBH, senior note, 144A, PIK, 8.25%, 10/01/26 | | | Germany | | | | 382,000 | | | | EUR | | | | 467,845 | |
| e | | Lithia Motors Inc., senior note, 144A, 3.875%, 6/01/29 | | | United States | | | | 70,000 | | | | | | | | 72,003 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 4,884,798 | |
| | | | | | | | | | | | | | | | | | |
| | | Thrifts & Mortgage Finance 0.1% | |
| g | | IIFL Finance Ltd., E, senior secured note, Reg S, 5.875%, 4/20/23 | | | India | | | | 400,000 | | | | | | | | 387,488 | |
| g | | Indiabulls Housing Finance Ltd., E, senior secured note, Reg S, 6.375%, 5/28/22 | | | India | | | | 400,000 | | | | | | | | 379,997 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 767,485 | |
| | | | | | | | | | | | | | | | | | |
| | | Trading Companies & Distributors 0.1% | |
| | Air Lease Corp.,
senior bond, 3.125%, 12/01/30 | | | United States | | | | 360,000 | | | | | | | | 360,307 | |
| | d,h junior sub. note, 4.65% to 6/15/26, FRN thereafter, Perpetual | | | United States | | | | 180,000 | | | | | | | | 184,950 | |
| | Aircastle Ltd., senior note, 4.25%, 6/15/26 | | | United States | | | | 310,000 | | | | | | | | 335,431 | |
| g | | BOC Aviation Ltd., senior note, Reg S,
G, 3.00%, 5/23/22 | | | Singapore | | | | 200,000 | | | | | | | | 203,243 | |
| | G, 2.75%, 12/02/23 | | | Singapore | | | | 500,000 | | | | | | | | 518,440 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,602,371 | |
| | | | | | | | | | | | | | | | | | |
| | | Transportation Infrastructure 0.0%† | |
| e | | Adani Ports & Special Economic Zone Ltd., senior note, 144A, 4.20%, 8/04/27 | | | India | | | | 200,000 | | | | | | | | 212,876 | |
| | | | | | | | | | | | | | | | | | |
| | | Wireless Telecommunication Services 0.1% | |
| e | | Bharti Airtel Ltd., senior bond, 144A, 3.25%, 6/03/31 | | | India | | | | 200,000 | | | | | | | | 196,915 | |
| d | | T-Mobile USA Inc.,
senior bond, 3.50%, 4/15/31 | | | United States | | | | 220,000 | | | | | | | | 224,024 | |
| | senior note, 3.375%, 4/15/29 | | | United States | | | | 455,000 | | | | | | | | 463,633 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 884,572 | |
| | | | | | | | | | | | | | | | | | |
| | Total Corporate Bonds and Notes
(Cost $118,599,374) | | | | | | | | | | | | | | | 123,010,125 | |
| | | | | | | | | | | | | | | | | | |
| | | Corporate Bonds and Notes in Reorganization 0.4% | | | |
| | | Airlines 0.0%† | |
| e,o | | LATAM Finance Ltd., senior note, 144A,
6.875%, 4/11/24 | | | Chile | | | | 200,000 | | | | | | | | 188,752 | |
| | 7.00%, 3/01/26 | | | Chile | | | | 400,000 | | | | | | | | 378,004 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 566,756 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Telecommunication Services 0.1% | |
| e,o | | Intelsat Jackson Holdings SA, senior secured note, first lien, 144A, 9.50%, 9/30/22 | | | Luxembourg | | | | 507,000 | | | | | | | | 595,560 | |
| | | | | | | | | | | | | | | | | | |
| | | Metals & Mining 0.0%† | |
| g,o | | Samarco Mineracao SA, senior bond, Reg S, 4.125%, 11/01/22 | | | Brazil | | | | 535,000 | | | | | | | | 423,453 | |
| | | | | | | | | | | | | | | | | | |
| | | Road & Rail 0.3% | |
| o | | The Hertz Corp., senior note,
6.25%, 10/15/22 | | | United States | | | | 562,000 | | | | | | | | 585,182 | |
| | | | | | | | | | |
| | | | | | |
| 46 | | | | | | | | 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) | |
| | | Road & Rail (continued) | |
| | | | | |
| o | | The Hertz Corp., senior note, (continued) | | | | | | | | | | | | | | | | |
| | e,f 144A, 5.50%, 10/15/24 | | | United States | | | | 721,000 | | | | | | | $ | 749,281 | |
| | e 144A, 7.125%, 8/01/26 | | | United States | | | | 262,000 | | | | | | | | 280,013 | |
| | e 144A, 6.00%, 1/15/28 | | | United States | | | | 2,188,000 | | | | | | | | 2,338,425 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 3,952,901 | |
| | | | | | | | | | | | | | | | | | |
| | Total Corporate Bonds and Notes in Reorganization (Cost $3,920,090) | | | | | | | | | | | | | | | 5,538,670 | |
| | | | | | | | | | | | | | | | | | |
| i,p | | Senior Floating Rate Interests 0.3% | | | |
| | | Airlines 0.0%† | |
| | United Airlines Inc., Term Loan B, 4.50%, (1-Month USD LIBOR + 3.75%), 4/14/28 | | | United States | | | | 100,000 | | | | | | | | 101,081 | |
| | | | | | | | | | | | | | | | | | |
| | | Communications Equipment 0.1% | |
| | Riverbed Technology Inc., Term Loan B,
q 7.00%, (3-Month USD LIBOR + 6.00%), 12/31/25 | | | United States | | | | 54,985 | | | | | | | | 52,476 | |
| | 12.00%, (3-Month USD LIBOR + 4.50%), 12/31/26 | | | United States | | | | 851,002 | | | | | | | | 672,823 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 725,299 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Financial Services 0.0%† | |
| | Ziggo BV, Term Loan H, 3.00%, (3-Month EURIBOR + 3.00%), 1/31/29 | | | United States | | | | 115,000 | | | | | | | | 140,178 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Telecommunication Services 0.2% | |
| | Frontier Communications Corp., Term Loan DIP, 4.50%, (1-Month USD LIBOR + 3.75%), 10/08/21 | | | United States | | | | 260,381 | | | | | | | | 260,576 | |
| q | | Intelsat Jackson Holdings SA,
| | | | | | | | | | | | | | | | |
| | Term Loan DIP, 6.50%, (1-Month USD LIBOR + 5.50%), 7/13/22 | | | United States | | | | 91,150 | | | | | | | | 91,919 | |
| | Term Loan B4, 8.75%, (1-Month USD LIBOR + 4.50%), 1/02/24 | | | United States | | | | 2,000,000 | | | | | | | | 2,041,790 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 2,394,285 | |
| | | | | | | | | | | | | | | | | | |
| | | Entertainment 0.0%† | |
| | Playtika Holding Corp., Term Loan B, 2.843%, (1-Month USD LIBOR + 2.75%), 3/13/28 | | | United States | | | | 220,000 | | | | | | | | 219,462 | |
| | | | | | | | | | | | | | | | | | |
| | | Equity Real Estate Investment Trusts (REITs) 0.0%† | |
| | The GEO Group Inc., Term Loan B, 2.75%, (3-Month USD LIBOR + 2.00%), 3/22/24 | | | United States | | | | 264,404 | | | | | | | | 225,720 | |
| c | | McCarthy & Stone PLC, Term Loan B, 7.00%, 12/16/25 | | | United Kingdom | | | | 170,938 | | | | GBP | | | | 241,637 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 467,357 | |
| | | | | | | | | | | | | | | | | | |
| | | Household Durables 0.0%† | |
| | Weber-Stephen Products LLC, Term Loan B, 4.00%, (1-Month USD LIBOR + 3.25%), 10/30/27 | | | United States | | | | 84,788 | | | | | | | | 85,042 | |
| | | | | | | | | | | | | | | | | | |
| | | Insurance 0.0%† | |
| | AmWINS Group Inc., Term Loan B, 3.00%, (1-Month USD LIBOR + 2.25%), 2/19/28 | | | United States | | | | 42,920 | | | | | | | | 42,774 | |
| | | | | | | | | | | | | | | | | | |
| | | Pharmaceuticals 0.0%† | |
| | Jazz Pharmaceuticals PLC, Term Loan B, 4.00%, (1-Month USD LIBOR + 3.50%), 4/22/28 | | | United States | | | | 85,000 | | | | | | | | 85,463 | |
| | | | | | | | | | | | | | | | | | |
| | Total Senior Floating Rate Interests
(Cost $4,220,265) | | | | | | | | | | | | | | | 4,260,941 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 47 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| r | | Credit-Linked Notes 0.4% | | | |
| e | | HSBC Bank PLC, (Egypt), senior note, 144A, zero cpn., 8/19/21 | | | Egypt | | | | 12,625,000 | | | | EGP | | | $ | 784,024 | |
| e | | HSBC Bank PLC, (Egypt), senior note, 144A, zero cpn., 7/15/21 | | | Egypt | | | | 7,550,000 | | | | EGP | | | | 474,743 | |
| e | | HSBC Bank PLC, (Ghana), senior note, 144A, 17.60%, 2/23/23 | | | Ghana | | | | 2,875,000 | | | | GHS | | | | 500,408 | |
| c,e | | ICBC Standard Bank PLC, (Egypt), EmTN, senior note, 144A, zero cpn., 7/01/21 | | | Egypt | | | | 31,527,794 | | | | EGP | | | | 1,993,660 | |
| c,e | | ICBC Standard Bank PLC, (Kenya), E, 144A, 12.667%, 3/23/39 | | | Kenya | | | | 38,593,478 | | | | KES | | | | 369,037 | |
| e | | JPMorgan Chase Bank NA, (Egypt), EmTN, senior note, 144A, zero cpn., 9/16/21 | | | Egypt | | | | 11,801,000 | | | | EGP | | | | 725,856 | |
| e | | JPMorgan Structured Products BV, (Egypt), senior note, 144A, 13.765%, 1/08/24 | | | Egypt | | | | 8,250,000 | | | | EGP | | | | 524,797 | |
| e | | Standard Chartered Bank, (Uganda), senior bond, 144A, 17.00%, 4/07/31 | | | Uganda | | | | 1,011,700,000 | | | | UGX | | | | 320,495 | |
| | | | | | | | | | | | | | | | | | |
| | Total Credit-Linked Notes (Cost $5,662,230) | | | | | | | | | | | | | | | 5,693,020 | |
| | | | | | | | | | | | | | | | | | |
| | | Foreign Government and Agency Securities 3.4% | | | |
| g | | Banque Centrale de Tunisie International Bond, senior bond, Reg S, 5.75%, 1/30/25 | | | Tunisia | | | | 888,000 | | | | | | | | 845,407 | |
| | Brazil Notas Do Tesouro Nacional Serie F, NTNF, senior bond, 10.00%, 1/01/25 | | | Brazil | | | | 2,332,000 | | | | BRL | | | | 486,037 | |
| g | | Export-Import Bank of Korea, senior note, Reg S, 6.75%, 8/09/22 | | | South Korea | | | | 7,100,000 | | | | INR | | | | 99,030 | |
| g | | Government of Angola, senior bond, Reg S,
8.00%, 11/26/29 | | | Angola | | | | 819,000 | | | | | | | | 836,915 | |
| | 9.375%, 5/08/48 | | | Angola | | | | 380,000 | | | | | | | | 395,451 | |
| | 9.125%, 11/26/49 | | | Angola | | | | 1,090,000 | | | | | | | | 1,112,536 | |
| | Government of Argentina,
senior bond, 0.125%, 1/09/38 | | | Argentina | | | | 3,616,359 | | | | | | | | 1,432,657 | |
| | senior bond, 0.125%, 7/09/41 | | | Argentina | | | | 1,367,698 | | | | | | | | 510,274 | |
| | senior note, 0.125%, 7/09/30 | | | Argentina | | | | 1,037,302 | | | | | | | | 384,621 | |
| e | | Government of Bahamas, senior bond, 144A, 8.95%, 10/15/32 | | | Bahamas | | | | 721,000 | | | | | | | | 829,150 | |
| g | | Government of Bahrain, senior bond, Reg S, 7.00%, 1/26/26 | | | Bahrain | | | | 467,000 | | | | | | | | 535,763 | |
| | Government of Colombia, B, senior bond, 7.00%, 6/30/32 | | | Colombia | | | | 3,734,300,000 | | | | COP | | | | 969,125 | |
| g | | Government of Ecuador, senior bond, Reg S, 0.50%, 7/31/35 | | | Ecuador | | | | 1,461,468 | | | | | | | | 1,030,335 | |
| | | | | |
| | Government of Egypt,
| | | | | | | | | | | | | | | | |
| | 182D, zero cpn., 6/22/21 | | | Egypt | | | | 22,500,000 | | | | EGP | | | | 1,429,046 | |
| | g senior bond, Reg S, 7.50%, 1/31/27 | | | Egypt | | | | 1,046,000 | | | | | | | | 1,194,072 | |
| | g senior bond, Reg S, 7.60%, 3/01/29 | | | Egypt | | | | 789,000 | | | | | | | | 881,550 | |
| | e senior bond, 144A, 5.875%, 2/16/31 | | | Egypt | | | | 487,000 | | | | | | | | 480,437 | |
| | g senior bond, Reg S, 8.70%, 3/01/49 | | | Egypt | | | | 822,000 | | | | | | | | 886,404 | |
| | g senior bond, Reg S, 8.875%, 5/29/50 | | | Egypt | | | | 200,000 | | | | | | | | 220,145 | |
| | Government of Ghana,
g senior bond, Reg S, 8.875%, 5/07/42 | | | Ghana | | | | 670,000 | | | | | | | | 680,288 | |
| | g senior bond, Reg S, 8.95%, 3/26/51 | | | Ghana | | | | 753,000 | | | | | | | | 753,241 | |
| | e senior note, 144A, zero cpn., 4/07/25 | | | Ghana | | | | 278,000 | | | | | | | | 221,803 | |
| | e senior note, 144A, 7.75%, 4/07/29 | | | Ghana | | | | 372,000 | | | | | | | | 384,202 | |
| | Government of Indonesia, FR68, senior bond, 8.375%, 3/15/34 | | | Indonesia | | | | 30,911,000,000 | | | | IDR | | | | 2,399,954 | |
| | Government of Italy, senior note, 2.375%, 10/17/24 | | | Italy | | | | 350,000 | | | | | | | | 365,414 | |
| e | | Government of Jordan, 144A,
senior bond, 5.85%, 7/07/30 | | | Jordan | | | | 386,000 | | | | | | | | 402,565 | |
| | senior note, 4.95%, 7/07/25 | | | Jordan | | | | 578,000 | | | | | | | | 602,912 | |
| | Government of Mexico, senior bond,
4.28%, 8/14/41 | | | Mexico | | | | 350,000 | | | | | | | | 363,640 | |
| | 3.771%, 5/24/61 | | | Mexico | | | | 455,000 | | | | | | | | 417,751 | |
| g | | Government of Nigeria, senior note, Reg S, 7.625%, 11/21/25 | | | Nigeria | | | | 1,895,000 | | | | | | | | 2,158,879 | |
| e | | Government of Oman, senior bond, 144A, 7.00%, 1/25/51 | | | Oman | | | | 286,000 | | | | | | | | 286,243 | |
| g | | Government of Paraguay, senior bond, Reg S, 4.625%, 1/25/23 | | | Paraguay | | | | 2,414,000 | | | | | | | | 2,558,864 | |
| e | | Government of Romania, 144A, 2.00%, 4/14/33 | | | Romania | | | | 170,000 | | | | EUR | | | | 205,767 | |
| | Government of Russia,
senior bond, 6233, 6.10%, 7/18/35 | | | Russia | | | | 70,603,000 | | | | RUB | | | | 876,819 | |
| | | | | | | | | | |
| | | | | | |
| 48 | | | | | | | | Annual Report | | franklintempleton.com |
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 Russia, (continued) | | | | | | | | | | | | | | | | |
| | senior note, 6227, 7.40%, 7/17/24 | | | Russia | | | | 143,905,000 | | | | RUB | | | $ | 2,023,137 | |
| | senior note, 6229, 7.15%, 11/12/25 | | | Russia | | | | 74,375,000 | | | | RUB | | | | 1,043,453 | |
| | Government of Saudi Arabia, senior bond,
e 144A, 2.75%, 2/03/32 | | | Saudi Arabia | | | | 910,000 | | | | | | | | 924,274 | |
| | e 144A, 3.75%, 1/21/55 | | | Saudi Arabia | | | | 354,000 | | | | | | | | 361,567 | |
| | g Reg S, 2.75%, 2/03/32 | | | Saudi Arabia | | | | 302,000 | | | | | | | | 306,737 | |
| | Government of South Africa, senior bond,
2030, 8.00%, 1/31/30 | | | South Africa | | | | 43,638,538 | | | | ZAR | | | | 2,996,760 | |
| | 2032, 8.25%, 3/31/32 | | | South Africa | | | | 20,977,596 | | | | ZAR | | | | 1,380,316 | |
| | 2037, 8.50%, 1/31/37 | | | South Africa | | | | 15,025,000 | | | | ZAR | | | | 926,963 | |
| | Government of Turkey, senior note, 6.375%, 10/14/25 | | | Turkey | | | | 875,000 | | | | | | | | 911,280 | |
| | Government of Ukraine,
g senior bond, Reg S, 1.258%, 5/31/40 | | | Ukraine | | | | 3,555,000 | | | | | | | | 3,955,933 | |
| | e senior note, 144A, 6.876%, 5/21/29 | | | Ukraine | | | | 302,000 | | | | | | | | 315,351 | |
| g | | Government of Zambia, Reg S,
senior bond, 5.375%, 9/20/22 | | | Zambia | | | | 1,260,000 | | | | | | | | 826,673 | |
| | senior bond, 8.97%, 7/30/27 | | | Zambia | | | | 300,000 | | | | | | | | 196,996 | |
| | International Finance Corp., senior note, 5.85%, 11/25/22 | | | Supranational | s | | | 8,120,000 | | | | INR | | | | 114,792 | |
| g | | Malaysia Wakala Sukuk Bhd, senior bond, Reg S, 3.075%, 4/28/51 | | | Malaysia | | | | 1,000,000 | | | | | | | | 1,007,314 | |
| | Mexican Bonos, M, senior note, 6.75%, 3/09/23 | | | Mexico | | | | 9,060,800 | n | | | MXN | | | | 468,513 | |
| i,j | | Provincia de Buenos Aires, FRN,
e,g 144A, Reg S, 37.85%, (ARS BADLAR + 3.75%), 4/12/25 | | | Argentina | | | | 3,670,000 | | | | ARS | | | | 17,930 | |
| | 37.913%, (ARS BADLAR + 3.83%), 5/31/22 | | | Argentina | | | | 18,295,000 | | | | ARS | | | | 107,217 | |
| g | | The Third Pakistan International Sukuk Co. Ltd., senior note, Reg S, 5.50%, 10/13/21 | | | Pakistan | | | | 200,000 | | | | | | | | 202,155 | |
| | | | | | | | | | | | | | | | | | |
| | Total Foreign Government and Agency Securities
(Cost $45,038,699) | | | | | | | | | | | | | | | 45,324,658 | |
| | | | | | | | | | | | | | | | | | |
| | | Foreign Government and Agency Securities in
Reorganization (Cost $151,635) 0.0%† | | | | | | | | | | | | |
| o | | Government of Lebanon, G, senior bond, 6.375%, 3/09/20 | | | Lebanon | | | | 1,100,000 | | | | | | | | 148,500 | |
| | | | | | | | | | | | | | | | | | |
| | | U.S. Government and Agency Securities 0.0%† | |
| | U.S. Treasury Bond,
1.875%, 2/15/41 | | | United States | | | | 2,000 | | | | | | | | 1,895 | |
| | 1.625%, 11/15/50 | | | United States | | | | 556,000 | | | | | | | | 475,206 | |
| | | | | | | | | | | | | | | | | | |
| | Total U.S. Government and Agency Securities
(Cost $472,411) | | | | | | | | | | | | | | | 477,101 | |
| | | | | | | | | | | | | | | | | | |
| | | Asset-Backed Securities and Commercial Mortgage-
Backed Securities 7.1% | | | | | | | | | | | | |
| | | Diversified Financial Services 5.3% | |
| e | | Accelerated Assets LLC, 2018-1, B, 144A, 4.51%, 12/02/33 | | | United States | | | | 51,868 | | | | | | | | 53,904 | |
| t | | ACE Securities Corp. Home Equity Loan Trust, 2003-FM1, M1, FRN, 1.382%, (1-Month USD LIBOR + 1.29%), 11/25/32 | | | United States | | | | 1,419,199 | | | | | | | | 1,438,819 | |
| e | | Adams Outdoor Advertising LP, 2018-1, A, 144A, 4.81%, 11/15/48 | | | United States | | | | 178,992 | | | | | | | | 193,233 | |
| e,t | | AGL CLO 3 Ltd., 2020-3A, C, 144A, FRN, 2.334%, (3-Month USD LIBOR + 2.15%), 1/15/33 | | | United States | | | | 285,000 | | | | | | | | 287,396 | |
| e | | AIM Aviation Finance Ltd., 2015-1A, B1, 144A, 5.072%, 2/15/40 | | | United States | | | | 170,624 | | | | | | | | 73,118 | |
| e,t | | Allegro CLO VI Ltd., 2018-2A, D, 144A, FRN, 2.94%, (3-Month USD LIBOR + 2.75%), 1/17/31 | | | United States | | | | 250,000 | | | | | | | | 240,428 | |
| e | | American Credit Acceptance Receivables Trust, 144A,
2020-3, D, 2.40%, 6/15/26 | | | United States | | | | 200,000 | | | | | | | | 206,866 | |
| | 2020-4, D, 1.77%, 12/14/26 | | | United States | | | | 185,000 | | | | | | | | 188,509 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 49 |
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) | |
| | AmeriCredit Automobile Receivables Trust,
2020-2, D, 2.13%, 3/18/26 | | | United States | | | | 110,000 | | | | | | | $ | 113,583 | |
| | 2020-3, D, 1.49%, 9/18/26 | | | United States | | | | 305,000 | | | | | | | | 308,940 | |
| e,t | | Anchorage Capital CLO 9 Ltd., 2019-9A, DR, 144A, FRN, 4.184%, (3-Month USD LIBOR + 4.00%), 7/15/32 | | | United States | | | | 450,000 | | | | | | | | 450,702 | |
| e | | Arbys Funding LLC, 2020-1A, A2, 144A, 3.237%, 7/30/50 | | | United States | | | | 99,250 | | | | | | | | 103,513 | |
| t | | Argent Securities Inc., 2004-W3, M4, FRN, 3.944%, (1-Month USD LIBOR + 4.58%), 2/25/34 | | | United States | | | | 236,275 | | | | | | | | 249,729 | |
| e | | Ascentium Equipment Receivables Trust, 2017-2A, C, 144A, 2.87%, 8/10/22 | | | United States | | | | 25,000 | | | | | | | | 25,232 | |
| e | | Avis Budget Rental Car Funding AESOP LLC, 144A,
2020-2A, B, 2.96%, 2/20/27 | | | United States | | | | 100,000 | | | | | | | | 106,575 | |
| | 2020-2A, C, 4.25%, 2/20/27 | | | United States | | | | 100,000 | | | | | | | | 109,715 | |
| e,t | | Barings CLO Ltd., 2019-4A, C, 144A, FRN, 2.984%, (3-Month USD LIBOR + 2.80%), 1/15/33 | | | United States | | | | 400,000 | | | | | | | | 402,006 | |
| e,u | | Barings Euro CLO BV, 2014-1, 144A, FRN, 1.90%, 7/15/31 | | | Netherlands | | | | 500,000 | | | | | | | | 613,682 | |
| e,t | | Battalion CLO XIV Ltd., 2019-14A, E, 144A, FRN, 6.868%, (3-Month USD LIBOR + 6.68%), 4/20/32 | | | United States | | | | 250,000 | | | | | | | | 250,781 | |
| e | | Bayview Opportunity Master Fund V Trust, 2020-RN3, A1, 144A, 3.228%, 9/25/35 | | | United States | | | | 91,184 | | | | | | | | 92,326 | |
| u | | Bear Stearns ALT-A Trust, 2006-3, 21A1, FRN, 2.694%, 5/25/36 | | | United States | | | | 1,220,861 | | | | | | | | 1,043,590 | |
| e | | Blackbird Capital Aircraft Lease Securitization Ltd., 2016-1A, A, 144A, 4.213%, 12/16/41 | | | United States | | | | 185,938 | | | | | | | | 185,426 | |
| e,t | | BNPP IP CLO Ltd., 2017-2A, DR, 144A, FRN, 3.686%, (3-Month USD LIBOR + 3.50%), 10/30/25 | | | United States | | | | 1,250,000 | | | | | | | | 1,241,684 | |
| e,t | | BX Commercial Mortgage Trust, 2019-XL, E, 144A, FRN, 1.901%, (1-Month USD LIBOR + 1.80%), 10/15/36 | | | United States | | | | 1,217,850 | | | | | | | | 1,220,482 | |
| | California Republic Auto Receivables Trust, 2018-1, D, 4.33%, 4/15/25 | | | United States | | | | 115,000 | | | | | | | | 118,870 | |
| e,t | | Canyon Capital CLO, 2019-2A, E, 144A, FRN, 7.334%, (3-Month USD LIBOR + 7.15%), 10/15/32 | | | United States | | | | 250,000 | | | | | | | | 250,772 | |
| e,t | | Carlyle US CLO Ltd., 2017-4A, C, 144A, FRN, 2.984%, (3-Month USD LIBOR + 2.80%), 1/15/30 | | | United States | | | | 250,000 | | | | | | | | 240,977 | |
| | Carmax Auto Owner Trust, 2018-4, D, 4.15%, 4/15/25 | | | United States | | | | 60,000 | | | | | | | | 63,156 | |
| e | | Castlelake Aircraft Structured Trust, 2021-1A, A, 144A, 3.474%, 1/15/46 | | | United States | | | | 402,989 | | | | | | | | 412,511 | |
| e,t | | Catamaran CLO Ltd., 144A, FRN,
2014-2, C, 3.69%, (3-Month USD LIBOR + 3.50%), 10/18/26 | | | United States | | | | 2,030,000 | | | | | | | | 2,032,034 | |
| | 2014-2A, D, 5.04%, (3-Month USD LIBOR + 4.85%), 10/18/26 | | | United States | | | | 1,000,000 | | | | | | | | 980,123 | |
| | 2017-1A, CR, 1.981%, (3-Month USD LIBOR + 1.80%), 1/27/28 | | | United States | | | | 250,000 | | | | | | | | 250,126 | |
| e,t | | CHCP Ltd., 2021-FL1, C, 144A, FRN, 2.201%, (1-Month USD LIBOR + 2.10%), 2/15/38 | | | United States | | | | 1,000,000 | | | | | | | | 1,004,438 | |
| e | | Chesapeake Funding II LLC, 2018-1A, D, 144A, 3.92%, 4/15/30 | | | Canada | | | | 115,000 | | | | | | | | 115,558 | |
| | CHL Mortgage Pass-Through Trust,
t 2003-15, 1A1, FRN, 0.592%, (1-Month USD LIBOR + 0.50%), 6/25/18 | | | United States | | | | 98,994 | | | | | | | | 98,728 | |
| | 2004-4, M, 5.50%, 5/25/34 | | | United States | | | | 947,640 | | | | | | | | 671,837 | |
| | 2006-21, A8, 5.75%, 2/25/37 | | | United States | | | | 378,334 | | | | | | | | 272,723 | |
| | u 2006-HYB4, 3B, FRN, 3.66%, 6/20/36 | | | United States | | | | 1,621,090 | | | | | | | | 1,379,649 | |
| e | | CLI Funding VIII LLC, 2021-1A, A, 144A, 1.64%, 2/18/46 | | | United States | | | | 390,086 | | | | | | | | 386,854 | |
| e,t | | Connecticut Avenue Securities Trust, 2020-R01, 1M2, 144A, FRN, 2.142%, (1-Month USD LIBOR + 2.05%), 1/25/40 | | | United States | | | | 72,542 | | | | | | | | 72,951 | |
| e | | CoreVest American Finance Trust, 144A,
2019-2, B, 3.424%, 6/15/52 | | | United States | | | | 100,000 | | | | | | | | 107,199 | |
| | 2020-4, C, 2.25%, 12/15/52 | | | United States | | | | 100,000 | | | | | | | | 97,817 | |
| | | | | | | | | | |
| | | | | | |
| 50 | | | | | | | | 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) | |
| e | | CSMC Trust, 144A,
t 2013-5R, 1A5, FRN, 0.627%, (1-Month USD LIBOR + 0.25%), 2/27/36 | | | United States | | | | 1,166,487 | | | | | | | $ | 1,032,640 | |
| | u 2019-RP10, A1, FRN, 3.025%, 12/26/59 | | | United States | | | | 151,145 | | | | | | | | 152,256 | |
| | u 2020-RPL3, A1, FRN, 2.691%, 3/25/60 | | | United States | | | | 122,360 | | | | | | | | 124,125 | |
| | 2021-RPL1, A2, 3.937%, 9/27/60 | | | United States | | | | 155,000 | | | | | | | | 154,920 | |
| e | | DB Master Finance LLC, 2019-1A, A23, 144A, 4.352%, 5/20/49 | | | United States | | | | 49,125 | | | | | | | | 54,124 | |
| e,u | | DBUBS Mortgage Trust, 2017-BRBK, D, 144A, FRN, 3.53%, 10/10/34 | | | United States | | | | 100,000 | | | | | | | | 104,889 | |
| e | | Domino’s Pizza Master Issuer LLC, 144A,
2017-1A, A23, 4.118%, 7/25/47 | | | United States | | | | 164,475 | | | | | | | | 178,321 | |
| | 2018-1A, A2II, 4.328%, 7/25/48 | | | United States | | | | 175,500 | | | | | | | | 191,659 | |
| | 2019-1A, A2, 3.668%, 10/25/49 | | | United States | | | | 167,875 | | | | | | | | 181,378 | |
| | 2021-1A, A2I, 2.662%, 4/25/51 | | | United States | | | | 225,000 | | | | | | | | 229,881 | |
| | Drive Auto Receivables Trust, 2018-3, D, 4.30%, 9/16/24 | | | United States | | | | 22,263 | | | | | | | | 22,850 | |
| e | | DT Auto Owner Trust, 2020-3A, D, 144A, 1.84%, 6/15/26 | | | United States | | | | 80,000 | | | | | | | | 81,735 | |
| e | | Education Funding Trust Trust, 2020-A, A, 144A, 2.79%, 7/25/41 | | | United States | | | | 131,978 | | | | | | | | 135,925 | |
| | Exeter Automobile Receivables Trust,
e 2020-2A, D, 144A, 4.73%, 4/15/26 | | | United States | | | | 90,000 | | | | | | | | 96,993 | |
| | 2020-3A, C, 1.32%, 7/15/25 | | | United States | | | | 145,000 | | | | | | | | 146,807 | |
| u | | Fannie Mae Grantor Trust, 2004-T5, AB7, FRN, 0.606%, 5/28/35 | | | United States | | | | 335,130 | | | | | | | | 324,186 | |
| e | | First Investors Auto Owner Trust, 2019-2A, D, 144A, 2.80%, 12/15/25 | | | United States | | | | 40,000 | | | | | | | | 41,213 | |
| e | | FirstKey Homes Trust, 144A,
2020-SFR1, F1, 3.638%, 9/17/25 | | | United States | | | | 225,000 | | | | | | | | 233,459 | |
| | 2020-SFR2, F1, 3.017%, 10/19/37 | | | United States | | | | 320,000 | | | | | | | | 328,237 | |
| e | | Flagship Credit Auto Trust, 2019-4, D, 144A, 3.12%, 1/15/26 | | | United States | | | | 90,000 | | | | | | | | 94,742 | |
| e,t | | FREMF Mortgage Trust, 2021-KF112, D, 144A, FRN, 3.051%, (1-Month USD LIBOR + 2.95%), 5/15/28 | | | United States | | | | 1,600,000 | | | | | | | | 1,601,033 | |
| e,t | | Galaxy XXVI CLO Ltd., 2018-26A, E, 144A, FRN, 6.00%, (3-Month USD LIBOR + 5.85%), 11/22/31 | | | United States | | | | 260,000 | | | | | | | | 255,014 | |
| e | | GLS Auto Receivables Trust, 144A,
2018-3A, B, 3.78%, 8/15/23 | | | United States | | | | 33,487 | | | | | | | | 33,799 | |
| | 2020-1A, C, 2.72%, 11/17/25 | | | United States | | | | 150,000 | | | | | | | | 154,701 | |
| | 2020-3A, C, 1.92%, 5/15/25 | | | United States | | | | 330,000 | | | | | | | | 336,984 | |
| e,t | | GPMT Ltd., 144A, FRN,
2018-FL1, C, 2.247%, (1-Month USD LIBOR + 2.15%), 11/19/35 | | | United States | | | | 1,400,000 | | | | | | | | 1,397,241 | |
| | 2019-FL2, D, 3.047%, (1-Month USD LIBOR + 2.95%), 2/22/36 | | | United States | | | | 800,000 | | | | | | | | 794,033 | |
| e,t | | Grand Avenue CRE, 2019-FL1, B, 144A, FRN, 1.951%, (1-Month USD LIBOR + 1.85%), 6/15/37 | | | United States | | | | 1,200,000 | | | | | | | | 1,200,730 | |
| e,t | | Grand Avenue CRE Ltd., 2020-FL2, C, 144A, FRN, 3.721%, (1-Month USD LIBOR + 3.62%), 3/15/35 | | | United States | | | | 1,310,000 | | | | | | | | 1,314,585 | |
| e,t | | GSRPM Mortgage Loan Trust, 2002-1A, M1, 144A, FRN, 2.042%, (1-Month USD LIBOR + 1.95%), 11/25/31 | | | United States | | | | 918,610 | | | | | | | | 924,648 | |
| e,t | | Halcyon Loan Advisors Funding Ltd., 2014-1A, D, 144A, FRN, 3.69%, (3-Month USD LIBOR + 3.50%), 4/18/26 | | | United States | | | | 1,490,000 | | | | | | | | 1,483,422 | |
| e | | Hardee’s Funding LLC, 2020-1A, A2, 144A, 3.981%, 12/20/50 | | | United States | | | | 164,588 | | | | | | | | 174,191 | |
| e,t | | Hayfin US XII Ltd., 2019-2A, E, 144A, FRN, 7.088%, (3-Month USD LIBOR + 6.90%), 7/20/32 | | | United States | | | | 70,000 | | | | | | | | 68,880 | |
| e | | HPEFS Equipment Trust, 2020-2A, D, 144A, 2.79%, 7/22/30 | | | United States | | | | 325,000 | | | | | | | | 336,714 | |
| e,t | | JFIN CLO Ltd., 2017-1A, DR, 144A, FRN, 2.834%, (3-Month USD LIBOR + 2.65%), 3/15/26 | | | United States | | | | 1,530,000 | | | | | | | | 1,522,431 | |
| e | | Kestrel Aircraft Funding Ltd., 2018-1A, A, 144A, 4.25%, 12/15/38 | | | United States | | | | 210,238 | | | | | | | | 211,150 | |
| | Legacy Mortgage Asset Trust,
e 2019-GS3, A1, 144A, 3.75%, 4/25/59 | | | United States | | | | 99,580 | | | | | | | | 100,543 | |
| | e 2019-GS4, A1, 144A, 3.438%, 5/25/59 | | | United States | | | | 158,115 | | | | | | | | 158,761 | |
| | 2019-PR1, A2, 4.50%, 9/25/59 | | | United States | | | | 1,600,000 | | | | | | | | 1,596,113 | |
| | e 2020-GS1, A1, 144A, 2.882%, 10/25/59 | | | United States | | | | 240,165 | | | | | | | | 242,650 | |
| e | | Marlette Funding Trust, 2019-4A, B, 144A, 2.95%, 12/17/29 | | | United States | | | | 290,000 | | | | | | | | 295,316 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 51 |
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) | |
| u | | Master Adjustable Rate Mortgages Trust, 2005-1, B1, FRN, 2.539%, 3/25/35 | | | United States | | | | 2,026,090 | | | | | | | $ | 1,696,959 | |
| t | | Merrill Lynch Mortgage Investors Trust Series, 2007-MLN1, A2D, FRN, 0.412%, (1-Month USD LIBOR + 0.32%), 3/25/37 | | | United States | | | | 969,025 | | | | | | | | 904,502 | |
| e,u | | Mill City Mortgage Loan Trust, 2021-NMR1, M3, 144A, FRN, 2.50%, 11/25/60 | | | United States | | | | 100,000 | | | | | | | | 97,348 | |
| | Morgan Stanley Mortgage Loan Trust,
u 2004-11AR, 2A, FRN, 2.493%, 1/25/35 | | | United States | | | | 365,040 | | | | | | | | 361,554 | |
| | 2006-15XS, A3, 5.988%, 11/25/36 | | | United States | | | | 2,244,274 | | | | | | | | 814,022 | |
| t | | MortgageIT Mortgage Loan Trust, 2006-1, 2A1B, FRN, 0.652%, (1-Month USD LIBOR + 0.56%), 4/25/36 | | | United States | | | | 625,280 | | | | | | | | 236,748 | |
| e,t | | Mountain View CLO Ltd., 2018-1A, DRR, 144A, FRN, 3.834%, (3-Month USD LIBOR + 3.65%), 10/15/26 | | | United States | | | | 2,000,000 | | | | | | | | 2,006,060 | |
| e | | MVW LLC, 2020-1A, C, 144A, 4.21%, 10/20/37 | | | United States | | | | 245,755 | | | | | | | | 261,791 | |
| e | | MVW Owner Trust, 2019-1A, C, 144A, 3.33%, 11/20/36 | | | United States | | | | 67,529 | | | | | | | | 69,451 | |
| e | | Navient Private Education Refi Loan Trust, 144A,
2019-FA, B, 3.12%, 8/15/68 | | | United States | | | | 210,000 | | | | | | | | 215,789 | |
| | 2019-GA, B, 3.08%, 10/15/68 | | | United States | | | | 140,000 | | | | | | | | 145,265 | |
| e,t | | Neuberger Berman CLO XIV Ltd., 2020-14A, CR2, 144A, FRN, 2.084%, (3-Month USD LIBOR + 1.90%), 1/28/30 | | | United States | | | | 410,000 | | | | | | | | 410,780 | |
| t | | Nomura Home Equity Loan Inc. Home Equity Loan Trust Series, 2006-WF1, M4, FRN, 0.647%, (1-Month USD LIBOR + 0.56%), 3/25/36 | | | United States | | | | 1,310,370 | | | | | | | | 1,280,935 | |
| e,t | | Octagon Investment Partners XXII Ltd., 2018-1A, CRR, 144A, FRN, 2.084%, (3-Month USD LIBOR + 1.90%), 1/22/30 | | | United States | | | | 250,000 | | | | | | | | 249,376 | |
| e,t | | OHA Credit Funding 2 Ltd., 2021-2A, DR, 144A, FRN, 3.486%, (3-Month USD LIBOR + 3.30%), 4/21/34 | | | United States | | | | 335,000 | | | | | | | | 335,005 | |
| e,t | | OHA Credit Funding 4 Ltd., 2019-4A, E, 144A, FRN, 6.322%, (3-Month USD LIBOR + 6.10%), 10/22/32 | | | United States | | | | 320,000 | | | | | | | | 320,302 | |
| e | | OneMain Financial Issuance Trust, 144A,
2015-3A, B, 4.16%, 11/20/28 | | | United States | | | | 155,000 | | | | | | | | 155,108 | |
| | 2020-2A, C, 2.76%, 9/14/35 | | | United States | | | | 100,000 | | | | | | | | 104,325 | |
| e,t | | Palmer Square CLO Ltd., 2018-3A, D, 144A, FRN, 4.556%, (3-Month USD LIBOR + 4.40%), 8/15/26 | | | United States | | | | 250,000 | | | | | | | | 249,722 | |
| e,t | | Pikes Peak CLO 3, 2019-3A, E, 144A, FRN, 7.036%, (3-Month USD LIBOR + 6.86%), 4/25/30 | | | United States | | | | 250,000 | | | | | | | | 250,718 | |
| e,t | | Pikes Peak CLO 4, 2019-4A, E, 144A, FRN, 6.954%, (3-Month USD LIBOR + 6.77%), 7/15/32 | | | United States | | | | 250,000 | | | | | | | | 251,386 | |
| e | | Planet Fitness Master Issuer LLC, 2019-1A, A2, 144A, 3.858%, 12/05/49 | | | United States | | | | 148,125 | | | | | | | | 148,487 | |
| e | | Prestige Auto Receivables Trust, 144A,
2019-1A, E, 3.90%, 5/15/26 | | | United States | | | | 100,000 | | | | | | | | 103,221 | |
| | 2020-1A, E, 3.67%, 2/15/28 | | | United States | | | | 100,000 | | | | | | | | 103,790 | |
| e | | Progress Residential, 2021-SFR4, F, 144A, 3.407%, 5/17/38 | | | United States | | | | 230,000 | | | | | | | | 230,876 | |
| e | | Progress Residential Trust, 144A,
2018-SFR3, E, 4.873%, 10/17/35 | | | United States | | | | 100,000 | | | | | | | | 101,640 | |
| | 2019-SFR1, E, 4.466%, 8/17/35 | | | United States | | | | 115,000 | | | | | | | | 118,380 | |
| | 2019-SFR2, E, 4.142%, 5/17/36 | | | United States | | | | 175,000 | | | | | | | | 178,666 | |
| | 2020-SFR3, F, 2.796%, 10/17/27 | | | United States | | | | 100,000 | | | | | | | | 101,000 | |
| | 2021-SFR2, E2, 2.647%, 4/19/38 | | | United States | | | | 100,000 | | | | | | | | 101,013 | |
| | RALI Series Trust, 2007-QS2, AP, 1/25/37 | | | United States | | | | 167,763 | | | | | | | | 112,369 | |
| e,u | | RBSSP Resecuritization Trust, 2009-12, 17A2, 144A, FRN, 2.664%, 10/25/35 | | | United States | | | | 349,868 | | | | | | | | 346,068 | |
| e | | Republic Finance Issuance Trust, 2019-A, A, 144A, 3.43%, 11/22/27 | | | United States | | | | 240,000 | | | | | | | | 242,863 | |
| | Santander Drive Auto Receivables Trust,
2020-1, D, 5.35%, 3/15/28 | | | United States | | | | 240,000 | | | | | | | | 263,769 | |
| | 2020-2, D, 2.22%, 9/15/26 | | | United States | | | | 100,000 | | | | | | | | 103,121 | |
| | 2020-4, D, 1.48%, 1/15/27 | | | United States | | | | 305,000 | | | | | | | | 308,829 | |
| | | | | | | | | | |
| | | | | | |
| 52 | | | | | | | | 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) | |
| e | | SCF Equipment Leasing LLC, 2021-1A, E, 144A, 3.56%, 8/20/32 | | | United States | | | | 100,000 | | | | | | | $ | 99,916 | |
| e,u | | Security National Mortgage Loan Trust, 2004-1A, AF3, 144A, FRN, 6.42%, 6/25/32 | | | United States | | | | 1,826,038 | | | | | | | | 1,591,218 | |
| e | | Sierra Timeshare Receivables Funding LLC, 2021-1A, C, 144A, 1.79%, 11/20/37 | | | United States | | | | 253,568 | | | | | | | | 255,900 | |
| e,t | | Silvermore CLO Ltd., 2014-1A, C, 144A, FRN, 3.606%, (3-Month USD LIBOR + 3.45%), 5/15/26 | | | United States | | | | 1,250,000 | | | | | | | | 1,252,454 | |
| e | | S-Jets Ltd., 2017-1, A, 144A, 3.967%, 8/15/42 | | | Bermuda | | | | 397,972 | | | | | | | | 393,422 | |
| t | | SLM Private Credit Student Loan Trust, 2003-B, A3, FRN, 2.806%, (28-Day T-Bill + 1.00%), 3/15/33 | | | United States | | | | 200,000 | | | | | | | | 194,353 | |
| e,t | | SMB Private Education Loan Trust, 2017-B, A2B, 144A, FRN, 0.865%, (1-Month USD LIBOR + 0.75%), 10/15/35 | | | United States | | | | 61,009 | | | | | | | | 61,298 | |
| e | | SoFi Consumer Loan Program Trust, 144A,
2018-1, B, 3.65%, 2/25/27 | | | United States | | | | 76,413 | | | | | | | | 77,612 | |
| | 2019-4, C, 2.84%, 8/25/28 | | | United States | | | | 130,000 | | | | | | | | 133,111 | |
| e | | SoFi Professional Loan Program LLC, 2016-A, B, 144A, 3.57%, 1/26/38 | | | United States | | | | 34,090 | | | | | | | | 34,598 | |
| t | | Soundview Home Loan Trust, FRN,
2006-WF2, M3, 0.767%, (1-Month USD LIBOR + 0.68%), 12/25/36 | | | United States | | | | 1,745,770 | | | | | | | | 1,969,691 | |
| | 2007-NS1, M1, 0.442%, (1-Month USD LIBOR + 0.35%), 1/25/37 | | | United States | | | | 1,125,056 | | | | | | | | 1,159,763 | |
| e | | SpringCastle America Funding LLC, 2020-AA, A, 144A, 1.97%, 9/25/37 | | | United States | | | | 237,079 | | | | | | | | 240,684 | |
| e | | Sprite Ltd., 2017-1, B, 144A, 5.75%, 12/15/37 | | | United States | | | | 164,302 | | | | | | | | 146,493 | |
| e | | Stack Infrastructure Issuer LLC, 2019-1A, A2, 144A, 4.54%, 2/25/44 | | | United States | | | | 122,188 | | | | | | | | 129,985 | |
| e,t | | Staniford Street CLO Ltd., 2014-1A, D, 144A, FRN, 3.684%, (3-Month USD LIBOR + 3.50%), 6/15/25 | | | United States | | | | 1,650,000 | | | | | | | | 1,654,407 | |
| e,t | | Starwood Retail Property Trust, 2014-STAR, E, 144A, FRN, 4.501%, (1-Month USD LIBOR + 4.40%), 11/15/27 | | | United States | | | | 200,000 | | | | | | | | 4,375 | |
| e | | Textainer Marine Containers VII Ltd., 2021-1A, A, 144A, 1.68%, 2/20/46 | | | Bermuda | | | | 186,200 | | | | | | | | 184,100 | |
| e | | TIF Funding II LLC, 2021-1A, A, 144A, 1.65%, 2/20/46 | | | United States | | | | 287,379 | | | | | | | | 283,292 | |
| e | | Towd Point Mortgage Trust, 144A, FRN,
u 2015-2, 1A13, 2.50%, 11/25/60 | | | United States | | | | 5,622 | | | | | | | | 5,622 | |
| | u 2018-5, M1, 3.25%, 7/25/58 | | | United States | | | | 100,000 | | | | | | | | 104,850 | |
| | u 2019-2, M1, 3.75%, 12/25/58 | | | United States | | | | 200,000 | | | | | | | | 212,066 | |
| | t 2019-HE1, M2, 1.842%, (1-Month USD LIBOR + 1.75%), 4/25/48 | | | United States | | | | 1,481,000 | | | | | | | | 1,495,878 | |
| e,t | | TPG Real Estate Finance Issuer Ltd., 2018-FL2, C, 144A, FRN, 2.401%, (1-Month USD LIBOR + 2.30%), 11/15/37 | | | United States | | | | 1,500,000 | | | | | | | | 1,497,755 | |
| e | | Tricon American Homes Trust, 2020-SFR2, E1, 144A, 2.73%, 11/17/39 | | | United States | | | | 100,000 | | | | | | | | 99,532 | |
| e | | VCAT LLC, 2021-NPL1, A1, 144A, 2.289%, 12/26/50 | | | United States | | | | 94,380 | | | | | | | | 94,700 | |
| e,t | | VMC Finance LLC, 144A, FRN,
2019-FL3, C, 2.151%, (1-Month USD LIBOR + 2.05%), 9/15/36 | | | United States | | | | 1,145,249 | | | | | | | | 1,136,719 | |
| | 2021-FL4, C, 2.36%, (1-Month USD LIBOR + 2.25%), 6/16/36 | | | United States | | | | 1,000,000 | | | | | | | | 1,003,752 | |
| e,u | | WaMu Commercial Mortgage Securities Trust, 2007-SL2, G, 144A, FRN, 2.663%, 12/27/49 | | | United States | | | | 2,866,082 | | | | | | | | 2,326,361 | |
| t | | WaMu Mortgage Pass-Through Certificates Trust, 2005-AR19, B1, FRN, 1.142%, (1-Month USD LIBOR + 1.05%), 12/25/45 | | | United States | | | | 2,133,231 | | | | | | | | 1,726,540 | |
| e | | Wave Trust, 2017-1A, A, 144A, 3.844%, 11/15/42 | | | United States | | | | 187,249 | | | | | | | | 185,978 | |
| u | | Wells Fargo Mortgage Backed Securities Trust, 2007-AR6, A2, FRN, 2.928%, 10/25/37 | | | United States | | | | 177,810 | | | | | | | | 174,609 | |
| e | | Wendy’s Funding LLC, 2018-1A, A2II, 144A, 3.884%, 3/15/48 | | | United States | | | | 212,850 | | | | | | | | 227,741 | |
| e | | Westlake Automobile Receivables Trust, 2020-3A, D, 144A, 1.65%, 2/17/26 | | | United States | | | | 120,000 | | | | | | | | 122,133 | |
| e,t | | York CLO-6 Ltd., 2019-1A, D, 144A, FRN, 4.184%, (3-Month USD LIBOR + 4.00%), 7/22/32 | | | United States | | | | 455,000 | | | | | | | | 457,010 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 69,588,997 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 53 |
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) | | | | | | | | | | | | |
| | | Equity Real Estate Investment Trusts (REITs) 0.1% | | | | | | | | | | | | |
| e | | American Homes 4 Rent, 144A,
2014-SFR2, E, 6.231%, 10/17/36 | | | United States | | | | 250,000 | | | | | | | $ | 273,531 | |
| | 2014-SFR3, E, 6.418%, 12/17/36 | | | United States | | | | 100,000 | | | | | | | | 110,348 | |
| | 2015-SFR1, E, 5.639%, 4/17/52 | | | United States | | | | 210,000 | | | | | | | | 231,706 | |
| e | | Diamond Resorts Owner Trust, 144A,
2017-1A, C, 6.07%, 10/22/29 | | | United States | | | | 21,011 | | | | | | | | 21,511 | |
| | 2018-1, C, 4.53%, 1/21/31 | | | United States | | | | 53,789 | | | | | | | | 55,630 | |
| | 2019-1A, B, 3.53%, 2/20/32 | | | United States | | | | 53,270 | | | | | | | | 55,027 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 747,753 | |
| | | | | | | | | | | | | | | | | | |
| | | Mortgage Real Estate Investment Trusts (REITs) 1.7% | | | | | | | | | | | | |
| t | | American Home Mortgage Investment Trust, 2006-1, 11A1, FRN, 0.372%, (1-Month USD LIBOR + 0.28%), 3/25/46 | | | United States | | | | 164,084 | | | | | | | | 158,216 | |
| | Banc of America Alternative Loan Trust, 2003-8, 1CB1, 5.50%, 10/25/33 | | | United States | | | | 4,314 | | | | | | | | 4,451 | |
| | Banc of America Funding Trust,
2003-1, B2, 6.00%, 5/20/33 | | | United States | | | | 173,867 | | | | | | | | 121,807 | |
| | 2007-4, 5A1, 5.50%, 11/25/34 | | | United States | | | | 51,473 | | | | | | | | 51,377 | |
| u | | Banc of America Mortgage Trust, 2005-A, 2A1, FRN, 2.581%, 2/25/35 | | | United States | | | | 3,773 | | | | | | | | 3,912 | |
| e,t | | BBCMS Mortgage Trust, 2020-BID, B, 144A, FRN, 2.641%, (1-Month USD LIBOR + 2.54%), 10/15/37 | | | United States | | | | 210,000 | | | | | | | | 211,826 | |
| e,t | | BCAP LLC Trust, 2012-RR4, 9A7, 144A, FRN, 0.186%, (1-Month USD LIBOR + 0.08%), 11/26/36 | | | United States | | | | 452,373 | | | | | | | | 452,700 | |
| u | | Bear Stearns ARM Trust, FRN,
2007-1, 4A1, 3.163%, 2/25/47 | | | United States | | | | 890,190 | | | | | | | | 782,837 | |
| | 2007-4, 12A1, 2.997%, 5/25/37 | | | United States | | | | 1,437,467 | | | | | | | | 1,418,924 | |
| e,t | | BXMT Ltd., 2021-FL4, C, 144A, FRN, 1.851%, (1-Month USD LIBOR + 1.75%), 5/15/38 | | | United States | | | | 2,500,000 | | | | | | | | 2,508,750 | |
| e | | CIM Trust, 2021-NR2, A1, 144A, 2.568%, 7/25/59 | | | United States | | | | 199,640 | | | | | | | | 200,590 | |
| e | | Citigroup Mortgage Loan Trust, 144A,
u 2009-10, 6A2, FRN, 2.682%, 9/25/34 | | | United States | | | | 27,571 | | | | | | | | 28,810 | |
| | u 2018-A, A1, FRN, 4.00%, 1/25/68 | | | United States | | | | 82,107 | | | | | | | | 82,358 | |
| | u 2019-B, A1, FRN, 3.258%, 4/25/66 | | | United States | | | | 94,417 | | | | | | | | 95,338 | |
| | 2019-E, A1, 3.228%, 11/25/70 | | | United States | | | | 222,319 | | | | | | | | 223,458 | |
| | Countrywide Alternative Loan Trust,
2003-22CB, 1A1, 5.75%, 12/25/33 | | | United States | | | | 30,554 | | | | | | | | 31,630 | |
| | 2004-16CB, 1A1, 5.50%, 7/25/34 | | | United States | | | | 16,525 | | | | | | | | 16,997 | |
| | 2004-16CB, 3A1, 5.50%, 8/25/34 | | | United States | | | | 17,204 | | | | | | | | 17,704 | |
| | 2004-3T1, M, 6.00%, 5/25/34 | | | United States | | | | 316,715 | | | | | | | | 249,276 | |
| | 2004-J10, 2CB1, 6.00%, 9/25/34 | | | United States | | | | 48,451 | | | | | | | | 50,409 | |
| | 2005-J1, 2A1, 5.50%, 2/25/25 | | | United States | | | | 2,437 | | | | | | | | 2,467 | |
| | 2005-J14, A3, 5.50%, 12/25/35 | | | United States | | | | 327,615 | | | | | | | | 278,512 | |
| | 2006-6CB, 2A11, 5.50%, 5/25/36 | | | United States | | | | 295,056 | | | | | | | | 173,788 | |
| t | | Countrywide Asset-Backed Certificates, 2005-15, M3, FRN, 0.612%, (1-Month USD LIBOR + 0.52%), 4/25/36 | | | United States | | | | 2,340,000 | | | | | | | | 2,210,694 | |
| u | | Countrywide Home Loans Mortgage Pass-Through Trust, 2004-HYB4, 2A1, FRN, 2.938%, 9/20/34 | | | United States | | | | 41,371 | | | | | | | | 41,712 | |
| e,t | | Credit Suisse Commercial Mortgage Securities Corp., 2019-SKLZ, D, 144A, FRN, 3.701%, (1-Month USD LIBOR + 3.60%), 1/15/34 | | | United States | | | | 105,000 | | | | | | | | 103,845 | |
| | Credit Suisse First Boston Mortgage Securities Corp.,
2002-10, 1B, 7.50%, 5/25/32 | | | United States | | | | 150,511 | | | | | | | | 137,737 | |
| | 2003-27, 4A4, 5.75%, 11/25/33 | | | United States | | | | 14,990 | | | | | | | | 16,031 | |
| | 2005-8, 1A3, 5.25%, 9/25/35 | | | United States | | | | 100,130 | | | | | | | | 97,898 | |
| e | | CSMC OA LLC, 144A,
2014-USA, A2, 3.953%, 9/15/37 | | | United States | | | | 150,000 | | | | | | | | 162,276 | |
| | 2014-USA, E, 4.373%, 9/15/37 | | | United States | | | | 400,000 | | | | | | | | 349,515 | |
| | | | | | | | | | |
| | | | | | |
| 54 | | | | | | | | 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) | | | | | | | | | | | | |
| t | | DSLA Mortgage Loan Trust, 2005-AR5, 2A1A, FRN, 0.428%, (1-Month USD LIBOR + 0.33%), 9/19/45 | | | United States | | | | 33,736 | | | | | | | $ | 25,752 | |
| g,t | | Dukinfield II PLC, 2016-2, A, FRN, Reg S, 1.334%, (3-Month GBP LIBOR + 1.25%), 12/20/52 | | | United Kingdom | | | | 134,121 | | | | GBP | | | | 190,909 | |
| t | | FHLMC Structured Agency Credit Risk Debt Notes, 2015-DNA1, M3, FRN, 3.392%, (1-Month USD LIBOR + 3.30%), 10/25/27 | | | United States | | | | 144,381 | | | | | | | | 146,664 | |
| e | | GCAT LLC, 2020-4, A1, 144A, 2.611%, 12/25/25 | | | United States | | | | 281,749 | | | | | | | | 283,633 | |
| u | | GS Mortgage Securities Trust, FRN,
e 2011-GC5, C, 144A, 5.298%, 8/10/44 | | | United States | | | | 100,000 | | | | | | | | 83,865 | |
| | e 2011-GC5, D, 144A, 5.298%, 8/10/44 | | | United States | | | | 195,000 | | | | | | | | 121,821 | |
| | 2014-GC18, B, 4.885%, 1/10/47 | | | United States | | | | 100,000 | | | | | | | | 99,103 | |
| | GSR Mortgage Loan Trust,
2005-4F, 6A1, 6.50%, 2/25/35 | | | United States | | | | 8,103 | | | | | | | | 8,290 | |
| | u 2005-AR6, 4A5, FRN, 2.979%, 9/25/35 | | | United States | | | | 31,842 | | | | | | | | 32,016 | |
| t | | Harborview Mortgage Loan Trust, 2004-11, 2A2A, FRN, 0.738%, (1-Month USD LIBOR + 0.64%), 1/19/35 | | | United States | | | | 75,812 | | | | | | | | 71,776 | |
| | IndyMac INDX Mortgage Loan Trust, FRN,
u 2004-AR15, B1, 2.724%, 2/25/35 | | | United States | | | | 1,603,396 | | | | | | | | 1,357,091 | |
| | t 2004-AR7, A5, 1.312%, (1-Month USD LIBOR + 1.22%), 9/25/34 | | | United States | | | | 39,680 | | | | | | | | 38,272 | |
| | u 2005-AR11, A3, 2.992%, 8/25/35 | | | United States | | | | 43,500 | | | | | | | | 40,154 | |
| | t 2006-AR2, 2A1, 0.512%, (1-Month USD LIBOR + 0.42%), 2/25/46 | | | United States | | | | 189,981 | | | | | | | | 156,287 | |
| | u 2006-AR3, 3A1A, 3.069%, 4/25/36 | | | United States | | | | 2,096,660 | | | | | | | | 2,193,215 | |
| u | | JPMorgan Alternative Loan Trust, 2006-A2, 2A2, FRN, 2.968%, 5/25/36 | | | United States | | | | 1,465,984 | | | | | | | | 1,152,739 | |
| e,u | | JPMorgan Chase Commercial Mortgage Securities Trust, 144A, FRN,
2012-C8, C, 4.622%, 10/15/45 | | | United States | | | | 100,000 | | | | | | | | 94,704 | |
| | 2012-LC9, C, 4.419%, 12/15/47 | | | United States | | | | 100,000 | | | | | | | | 102,349 | |
| | 2012-LC9, D, 4.419%, 12/15/47 | | | United States | | | | 120,000 | | | | | | | | 118,349 | |
| | JPMorgan Mortgage Trust,
2004-S1, 2A1, 6.00%, 9/25/34 | | | United States | | | | 72,425 | | | | | | | | 75,827 | |
| | u 2006-A3, 2B1, FRN, 2.91%, 4/25/35 | | | United States | | | | 1,921,621 | | | | | | | | 1,257,379 | |
| | u 2007-A1, 4A2, FRN, 2.964%, 7/25/35 | | | United States | | | | 1,713 | | | | | | | | 1,728 | |
| t | | Lehman XS Trust Series, 2006-2N, 1A1, FRN, 0.612%, (1-Month USD LIBOR + 0.52%), 2/25/46 | | | United States | | | | 32,003 | | | | | | | | 29,557 | |
| | MASTR Alternative Loan Trust,
2004-2, 8A4, 5.50%, 3/25/34 | | | United States | | | | 133,565 | | | | | | | | 136,202 | |
| | 2004-8, 2A1, 6.00%, 9/25/34 | | | United States | | | | 31,805 | | | | | | | | 32,720 | |
| u | | Merrill Lynch Mortgage Investors MLCC, 2006-2, 2A, FRN, 2.114%, 5/25/36 | | | United States | | | | 2,062 | | | | | | | | 2,098 | |
| u | | Morgan Stanley Bank of America Merrill Lynch Trust, 2013-C11, B, FRN, 4.352%, 8/15/46 | | | United States | | | | 200,000 | | | | | | | | 145,991 | |
| e,u | | Morgan Stanley Capital I Trust, 144A, FRN,
2011-C2, B, 5.20%, 6/15/44 | | | United States | | | | 100,000 | | | | | | | | 101,706 | |
| | 2011-C2, E, 5.313%, 6/15/44 | | | United States | | | | 150,000 | | | | | | | | 101,532 | |
| e,u | | MSBAM Commercial Mortgage Securities Trust, 2012-CKSV, C, 144A, FRN, 4.283%, 10/15/30 | | | United States | | | | 340,000 | | | | | | | | 272,396 | |
| e | | PRPM LLC, 144A,
2020-3, A2, 5.071%, 9/25/25 | | | United States | | | | 100,000 | | | | | | | | 100,777 | |
| | 2020-5, A2, 5.437%, 11/25/25 | | | United States | | | | 305,000 | | | | | | | | 307,473 | |
| | u 2021-2, A2, FRN, 3.77%, 3/25/26 | | | United States | | | | 130,000 | | | | | | | | 130,388 | |
| | 2021-3, A1, 1.867%, 4/25/26 | | | United States | | | | 196,207 | | | | | | | | 197,681 | |
| e | | RCO V Mortgage LLC, 2020-1, A1, 144A, 3.105%, 9/25/25 | | | United States | | | | 96,246 | | | | | | | | 97,157 | |
| u | | RFMSI Trust, 2005-SA1, 1A1, FRN, 4.058%, 3/25/35 | | | United States | | | | 99,078 | | | | | | | | 66,017 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 55 |
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) | | | | | | | | | | | | |
| t | | Structured ARM Loan Trust, 2005-14, A1, FRN, 0.402%, (1-Month USD LIBOR + 0.31%), 7/25/35 | | | United States | | | | 207,672 | | | | | | | $ | 156,192 | |
| e,m | | Toorak Mortgage Corp. Ltd., 2021-1, A1, 144A, 2.24%, 6/25/24 | | | United States | | | | 190,000 | | | | | | | | 190,000 | |
| e | | VOLT XCII LLC, 2021-NPL1, A1, 144A, 1.893%, 2/27/51 | | | United States | | | | 102,661 | | | | | | | | 102,850 | |
| e | | VOLT XCII LLC, 2021-NPL2, A1, 144A, 1.893%, 2/27/51 | | | United States | | | | 260,536 | | | | | | | | 259,703 | |
| e | | VOLT XCIV LLC, 2021-NPL3, A2, 144A, 4.949%, 2/27/51 | | | United States | | | | 215,000 | | | | | | | | 215,149 | |
| | Wells Fargo Commercial Mortgage Trust,
2014-LC16, C, 4.458%, 8/15/50 | | | United States | | | | 215,000 | | | | | | | | 160,831 | |
| | u 2016-C36, B, FRN, 3.671%, 11/15/59 | | | United States | | | | 100,000 | | | | | | | | 99,702 | |
| | u 2016-C36, C, FRN, 4.186%, 11/15/59 | | | United States | | | | 100,000 | | | | | | | | 88,758 | |
| | e,u 2019-JWDR, C, 144A, FRN, 3.038%, 9/15/31 | | | United States | | | | 290,000 | | | | | | | | 294,766 | |
| | WFRBS Commercial Mortgage Trust,
e,u 2011-C3, D, 144A, FRN, 5.598%, 3/15/44 | | | United States | | | | 250,409 | | | | | | | | 127,483 | |
| | e,u 2011-C4, E, 144A, FRN, 5.134%, 6/15/44 | | | United States | | | | 120,000 | | | | | | | | 75,136 | |
| | u 2012-C10, C, FRN, 4.361%, 12/15/45 | | | United States | | | | 320,000 | | | | | | | | 274,260 | |
| | e,u 2012-C6, D, 144A, FRN, 5.614%, 4/15/45 | | | United States | | | | 150,000 | | | | | | | | 152,752 | |
| | u 2012-C7, C, FRN, 4.803%, 6/15/45 | | | United States | | | | 25,000 | | | | | | | | 18,918 | |
| | c,e,u 2012-C7, D, 144A, FRN, 4.803%, 6/15/45 | | | United States | | | | 130,000 | | | | | | | | 36,841 | |
| | e,u 2012-C7, E, 144A, FRN, 4.803%, 6/15/45 | | | United States | | | | 75,000 | | | | | | | | 17,305 | |
| | 2014-C20, B, 4.378%, 5/15/47 | | | United States | | | | 100,000 | | | | | | | | 105,573 | |
| | u 2014-C24, B, FRN, 4.204%, 11/15/47 | | | United States | | | | 100,000 | | | | | | | | 102,117 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 22,137,799 | |
| | | | | | | | | | | | | | | | | | |
| | Total Asset-Backed Securities and Commercial Mortgage-Backed Securities (Cost $91,592,347) | | | | | | | | | | | | | | | 92,474,549 | |
| | | | | | | | | | | | | | | | | | |
| | | Municipal Bonds in Reorganization 0.6% | | | | | | | | | | | | |
| | | Puerto Rico 0.6% | | | | | | | | | | | | |
| o | | Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series A,
5.50%, 7/01/39 | | | United States | | | | 715,000 | | | | | | | | 604,175 | |
| | 5.00%, 7/01/41 | | | United States | | | | 1,000,000 | | | | | | | | 805,000 | |
| o | | Puerto Rico Commonwealth GO, Refunding, Series A, 8.00%, 7/01/35 | | | United States | | | | 8,405,000 | | | | | | | | 6,787,037 | |
| | | | | | | | | | | | | | | | | | |
| | Total Municipal Bonds in Reorganization
(Cost $5,605,966) | | | | | | | | | | | | | | | 8,196,212 | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Number of
Contracts | | | Notional Amount# | | | | |
| | | Options Purchased 0.1% | | | | | | | | | | | | |
| | | Calls – Exchange-Traded 0.0%† | | | | | | | | | | | | |
| | Ajax I, August Strike Price $15.00, Expires 8/20/21 | | | 163 | | | | 16,300 | | | | | | | | 1,630 | |
| | Avaya Holdings Corp., July Strike Price $34.00, Expires 7/16/21 | | | 44 | | | | 4,400 | | | | | | | | 1,760 | |
| | Callaway Golf Co., November Strike Price $33.00, Expires 11/19/21 | | | 67 | | | | 6,700 | | | | | | | | 43,885 | |
| | Casino Guichard Perrachon SA, June Strike Price 30.00 EUR, Expires 6/18/21 | | | 44 | | | | 4,400 | | | | | | | | 108 | |
| | Casino Guichard Perrachon SA, June Strike Price 31.00 EUR, Expires 6/18/21 | | | 44 | | | | 4,400 | | | | | | | | 54 | |
| | Chicago Board Options Exchange Volatility Index, June Strike Price $23.00, Expires 6/16/21 | | | 120 | | | | 12,000 | | | | | | | | 11,400 | |
| | Chicago Board Options Exchange Volatility Index, June Strike Price $24.00, Expires 6/16/21 | | | 196 | | | | 19,600 | | | | | | | | 16,660 | |
| | Chicago Board Options Exchange Volatility Index, July Strike Price $24.00, Expires 7/21/21 | | | 89 | | | | 8,900 | | | | | | | | 21,093 | |
| | Chicago Board Options Exchange Volatility Index, July Strike Price $25.00, Expires 7/21/21 | | | 102 | | | | 10,200 | | | | | | | | 21,930 | |
| | | | | | | | | | |
| | | | | | |
| 56 | | | | | | | | 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 – Exchange-Traded (continued)† | | | | | | | | | | | | |
| | Chicago Board Options Exchange Volatility Index, July Strike Price $26.00, Expires 7/21/21 | | | 183 | | | | 18,300 | | | | | | | $ | 36,600 | |
| | Chicago Board Options Exchange Volatility Index, August Strike Price $26.00, Expires 8/18/21 | | | 88 | | | | 8,800 | | | | | | | | 23,760 | |
| | Financial Select Sector SPDR Fund, June Strike Price $36.00, Expires 6/18/21 | | | 395 | | | | 39,500 | | | | | | | | 84,925 | |
| | Fox Corp., July Strike Price $36.00, Expires 7/16/21 | | | 10 | | | | 1,000 | | | | | | | | 2,375 | |
| | Fox Corp., July Strike Price $40.00, Expires 7/16/21 | | | 19 | | | | 1,900 | | | | | | | | 1,330 | |
| | Fox Corp., October Strike Price $39.00, Expires 10/15/21 | | | 22 | | | | 2,200 | | | | | | | | 4,730 | |
| | General Motors Co., June Strike Price $50.00, Expires 6/18/21 | | | 88 | | | | 8,800 | | | | | | | | 83,160 | |
| | GOL Linhas Aereas Inteligentes SA, June Strike Price $10.00, Expires 6/18/21 | | | 46 | | | | 4,600 | | | | | | | | 2,760 | |
| | Intel Corp., January Strike Price $70.00, Expires 1/21/22 | | | 100 | | | | 10,000 | | | | | | | | 14,400 | |
| | Nikola Corp., January Strike Price $12.50, Expires 1/21/22 | | | 67 | | | | 6,700 | | | | | | | | 34,505 | |
| | Nuance Communications Inc., October Strike Price $50.00, Expires 10/15/21 | | | 82 | | | | 8,200 | | | | | | | | 31,980 | |
| | Social Capital Hedosophia Holdings Corp. IV, July Strike Price $15.00, Expires 7/16/21 | | | 102 | | | | 10,200 | | | | | | | | 714 | |
| | Social Capital Hedosophia Holdings Corp. VI, July Strike Price $17.50, Expires 7/16/21 | | | 102 | | | | 10,200 | | | | | | | | 510 | |
| | SPDR Gold Shares ETF, June Strike Price $200.00, Expires 6/17/22 | | | 147 | | | | 14,700 | | | | | | | | 83,790 | |
| | SPDR S&P Oil & Gas Exploration & Production ETF, June Strike Price $90.00, Expires 6/18/21 | | | 148 | | | | 14,800 | | | | | | | | 43,512 | |
| | United Airlines Holdings Inc., June Strike Price $57.50, Expires 6/18/21 | | | 80 | | | | 8,000 | | | | | | | | 20,640 | |
| | VanEck Vectors Oil Services ETF, July Strike Price $210.00, Expires 7/16/21 | | | 39 | | | | 3,900 | | | | | | | | 60,840 | |
| | Vishay Intertechnology Inc., June Strike Price $30.00, Expires 6/18/21 | | | 33 | | | | 3,300 | | | | | | | | 33 | |
| | Vodafone Group PLC, September Strike Price 1.40 GBP, Expires 9/17/21 | | | 218 | | | | 218,000 | | | | | | | | 5,420 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 654,504 | |
| | | | | | | | | | | | | | | | | | |
| | | Calls – Over-the-Counter 0.0%† | | | | | | | | | | | | |
| | MSCI EAFE Index, Counterparty CITI, June Strike Price $2,322.00, Expires 6/07/21 | | | 2,508 | | | | 5,016 | | | | | | | | 52,914 | |
| | Nikkei 225 Index, Counterparty JPHQ, June Strike Price 29,237.00 JPY, Expires 6/10/21 | | | 16,352 | | | | 32,704 | | | | | | | | 26,297 | |
| | Swiss Market Index, Counterparty CITI, June Strike Price 11,318.00 CHF, Expires 6/25/21 | | | 474 | | | | 474 | | | | | | | | 88,711 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 167,922 | |
| | | | | | | | | | | | | | | | | | |
| | | Puts – Exchange-Traded 0.1% | | | | | | | | | | | | |
| | Air France-KLM, June Strike Price 4.20 EUR, Expires 6/18/21 | | | 91 | | | | 9,100 | | | | | | | | 668 | |
| | Akamai Technologies Inc., June Strike Price $110.00, Expires 6/18/21 | | | 7 | | | | 700 | | | | | | | | 574 | |
| | Alteryx Inc., June Strike Price $70.00, Expires 6/18/21 | | | 11 | | | | 1,100 | | | | | | | | 737 | |
| | American Airlines Group Inc., November Strike Price $18.00, Expires 11/19/21 | | | 145 | | | | 14,500 | | | | | | | | 14,790 | |
| | American Airlines Group Inc., January Strike Price $10.00, Expires 1/20/23 | | | 40 | | | | 4,000 | | | | | | | | 2,600 | |
| | Arbor Realty Trust Inc., June Strike Price $15.00, Expires 6/18/21 | | | 46 | | | | 4,600 | | | | | | | | 230 | |
| | Box Inc., September Strike Price $18.00, Expires 9/17/21 | | | 101 | | | | 10,100 | | | | | | | | 4,545 | |
| | Box Inc., September Strike Price $19.00, Expires 9/17/21 | | | 99 | | | | 9,900 | | | | | | | | 4,950 | |
| | Box Inc., September Strike Price $20.00, Expires 9/17/21 | | | 24 | | | | 2,400 | | | | | | | | 1,680 | |
| | Chicago Board Options Exchange Volatility Index, June Strike Price $23.00, Expires 6/16/21 | | | 215 | | | | 21,500 | | | | | | | | 109,005 | |
| | Chicago Board Options Exchange Volatility Index, June Strike Price $24.00, Expires 6/16/21 | | | 395 | | | | 39,500 | | | | | | | | 235,420 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 57 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Number of
Contracts | | | Notional Amount# | | | Value | |
| | | Options Purchased (continued) | | | | | | | | | | | | |
| | | Puts – Exchange-Traded (continued) | | | | | | | | | | | | |
| | Chicago Board Options Exchange Volatility Index, July Strike Price $24.00, Expires 7/21/21 | | | 186 | | | | 18,600 | | | | | | | $ | 106,020 | |
| | Cinemark Holdings Inc., January Strike Price $10.00, Expires 1/21/22 | | | 75 | | | | 7,500 | | | | | | | | 1,500 | |
| | Envestnet Inc., June Strike Price $65.00, Expires 6/18/21 | | | 10 | | | | 1,000 | | | | | | | | 275 | |
| | Expedia Group Inc., June Strike Price $165.00, Expires 6/18/21 | | | 11 | | | | 1,100 | | | | | | | | 1,705 | |
| | The GEO Group Inc., January Strike Price $5.00, Expires 1/21/22 | | | 75 | | | | 7,500 | | | | | | | | 7,125 | |
| | GOL Linhas Aereas Inteligentes SA, October Strike Price $4.00, Expires 10/15/21 | | | 66 | | | | 6,600 | | | | | | | | 660 | |
| | Hewlett Packard Enterprise Co., November Strike Price $14.00, Expires 11/19/21 | | | 98 | | | | 9,800 | | | | | | | | 6,370 | |
| | HP Inc., November Strike Price $30.00, Expires 11/19/21 | | | 45 | | | | 4,500 | | | | | | | | 13,050 | |
| | Invesco QQQ Trust Series 1, June Strike Price $311.00, Expires 6/18/21 | | | 348 | | | | 34,800 | | | | | | | | 36,540 | |
| | LendingTree Inc., June Strike Price $175.00, Expires 6/18/21 | | | 2 | | | | 200 | | | | | | | | 375 | |
| | The Marcus Corp., December Strike Price $10.00, Expires 12/17/21 | | | 37 | | | | 3,700 | | | | | | | | 1,202 | |
| | PLBY Group Inc., June Strike Price $35.00, Expires 6/18/21 | | | 244 | | | | 24,400 | | | | | | | | 20,008 | |
| | S&P 500 Index, June Strike Price $3,900.00, Expires 6/18/21 | | | 43 | | | | 4,300 | | | | | | | | 32,250 | |
| | S&P 500 Index, September Strike Price $4,000.00, Expires 9/17/21 | | | 7 | | | | 700 | | | | | | | | 61,390 | |
| | SmileDirectClub Inc., June Strike Price $7.00, Expires 6/18/21 | | | 46 | | | | 4,600 | | | | | | | | 368 | |
| | Splunk Inc., June Strike Price $105.00, Expires 6/18/21 | | | 4 | | | | 400 | | | | | | | | 476 | |
| | Splunk Inc., June Strike Price $110.00, Expires 6/18/21 | | | 4 | | | | 400 | | | | | | | | 804 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 665,317 | |
| | | | | | | | | | | | | | | | | | |
| | | Puts – Over-the-Counter 0.0%† | | | | | | | | | | | | |
| | Air France-KLM, Counterparty BOFA, June Strike Price 4.00 EUR, Expires 6/18/21 | | | 51 | | | | 5,100 | | | | | | | | 187 | |
| | Air France-KLM, Counterparty BOFA, September Strike Price 4.00 EUR, Expires 9/17/21 | | | 292 | | | | 29,200 | | | | | | | | 7,499 | |
| | B&G Foods Inc., Counterparty GSCO, August Strike Price $25.00, Expires 8/20/21 | | | 93 | | | | 9,300 | | | | | | | | 3,255 | |
| | Freshpet Inc., Counterparty GSCO, August Strike Price $170.00, Expires 8/20/21 | | | 7 | | | | 700 | | | | | | | | 6,790 | |
| | MSCI EAFE Index, Counterparty CITI, June Strike Price $2,322.00, Expires 6/07/21 | | | 2,508 | | | | 5,016 | | | | | | | | 23,957 | |
| | Nikkei 225 Index, Counterparty JPHQ, June Strike Price 29,237.00 JPY, Expires 6/10/21 | | | 16,352 | | | | 32,704 | | | | | | | | 82,662 | |
| | Swiss Market Index, Counterparty CITI, June Strike Price 11,318.00 CHF, Expires 6/25/21 | | | 474 | | | | 474 | | | | | | | | 61,301 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 185,651 | |
| | | | | | | | | | | | | | | | | | |
| | Total Options Purchased (Cost $2,533,198) | | | | | | | | | | | | | | | 1,673,394 | |
| | | | | | | | | | | | | | | | | | |
| | Total Investments before Short Term Investments
(Cost $824,770,132) | | | | | | | | | | | | | | | 1,002,974,232 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares | | | | | | | |
| | | Short Term Investments 23.0% | | | | | | | | | | | | |
| | | Money Market Funds 21.7% | | | |
| v,w | | Dreyfus Government Cash Management, Institutional, 0.03% | | | United States | | | | 28,432,809 | | | | | | | | 28,432,809 | |
| v | | Fidelity Investments Money Market Government Portfolio, Institutional, 0.01% | | | United States | | | | 256,738,684 | | | | | | | | 256,738,684 | |
| | | | | | | | | | | | | | | | | | |
| | Total Money Market Funds (Cost $285,171,493) | | | | | | | | | | | | | | | 285,171,493 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 58 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares | | | | | | Value | |
| x | | Investments from Cash Collateral Received for
Loaned Securities 0.4% | | | | | | | | | | | | |
| | | Money Market Funds 0.3% | | | | | | | | | | | | |
| v,y | | Institutional Fiduciary Trust Money Market Portfolio, 0.01% | | | United States | | | | 3,305,000 | | | | | | | $ | 3,305,000 | |
| | | | |
| | | | | | | | Principal Amount* | | | | |
| | | Repurchase Agreements 0.1% | | | | | | | | | | | | |
| z | | Joint Repurchase Agreement, 0.00%, 6/01/21 (Maturity Value $908,117) | | | United States | | | | 908,116 | | | | | | | | 908,116 | |
| | J.P. Morgan Securities LLC Collateralized by U.S. Government Agency Obligations, 8/05/21
(valued at $926,281) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Total Investments from Cash Collateral Received for Loaned Securities (Cost $4,213,116) | | | | | | | | | | | | | | | 4,213,116 | |
| | | | | | | | | | | | | | | | | | |
| |
| | U.S. Government and Agency Securities 0.9% | |
| aa | | Federal Home Loan Bank Discount Notes, zero cpn., 6/01/21 | | | United States | | | | 1,460,000 | | | | | | | | 1,460,000 | |
| aa | | U.S. Treasury Bill, zero cpn.,
7/15/21 | | | United States | | | | 1,790,000 | | | | | | | | 1,789,989 | |
| | 9/09/21 | | | United States | | | | 910,000 | | | | | | | | 909,981 | |
| | 10/07/21 | | | United States | | | | 405,000 | | | | | | | | 404,984 | |
| | 10/14/21 | | | United States | | | | 7,000,000 | | | | | | | | 6,999,672 | |
| | 11/04/21 | | | United States | | | | 435,000 | | | | | | | | 434,971 | |
| | | | | | | | | | | | | | | | | | |
| | Total U.S. Government and Agency Securities
(Cost $11,998,487) | | | | | | | | | | | | | | | 11,999,597 | |
| | | | | | | | | | | | | | | | | | |
| | Total Investments (Cost $1,126,153,228) 99.3% | | | | | | | | | | | | | | $ | 1,304,358,438 | |
| | Options Written (0.0)%† | | | | | | | | | | | | | | | (364,763 | ) |
| | Securities Sold Short (18.5)% | | | | | | | | | | | | | | | (243,198,825 | ) |
| | Other Assets, less Liabilities 19.2% | | | | | | | | | | | | | | | 253,299,817 | |
| | | | | | | | | | | | | | | | | | |
| | Net Assets 100.0% | | | | | | | | | | | | | | $ | 1,314,094,667 | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Number of
Contracts | | | Notional Amount# | | | | |
| bb | | Options Written (0.0)%† | | | |
| | | Calls – Exchange-Traded (0.0)%† | | | |
| | Abbott Laboratories, June Strike Price $130.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (5 | ) |
| | Accenture PLC, June Strike Price $300.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (28 | ) |
| | Activision Blizzard Inc., June Strike Price $105.00, Expires 6/18/21 | | | 4 | | | | 400 | | | | | | | | (100 | ) |
| | Ajax I, August Strike Price $25.00, Expires 8/20/21 | | | 163 | | | | 16,300 | | | | | | | | (815 | ) |
| | Altria Group Inc., June Strike Price $55.00, Expires 6/18/21 | | | 6 | | | | 600 | | | | | | | | (18 | ) |
| | American Tower Corp., June Strike Price $260.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (260 | ) |
| | Anthem Inc., June Strike Price $400.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (600 | ) |
| | Apple Inc., June Strike Price $145.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (6 | ) |
| | Applied Materials Inc., June Strike Price $150.00, Expires 6/18/21 | | | 3 | | | | 300 | | | | | | | | (255 | ) |
| | Artisan Partners Asset Management Inc., June Strike Price $59.69, Expires 6/18/21 | | | 7 | | | | 700 | | | | | | | | (14 | ) |
| | At Home Group Inc., September Strike Price $36.00, Expires 9/17/21 | | | 22 | | | | 2,200 | | | | | | | | (6,490 | ) |
| | Avis Budget Group Inc., January Strike Price $100.00, Expires 1/21/22 | | | 13 | | | | 1,300 | | | | | | | | (14,235 | ) |
| | Avis Budget Group Inc., January Strike Price $100.00, Expires 1/20/23 | | | 13 | | | | 1,300 | | | | | | | | (27,300 | ) |
| | Bally’s Corp., August Strike Price $75.00, Expires 8/20/21 | | | 81 | | | | 8,100 | | | | | | | | (9,720 | ) |
| | The Blackstone Group Inc., June Strike Price $85.00, Expires 6/18/21 | | | 4 | | | | 400 | | | | | | | | (3,192 | ) |
| | Box Inc., September Strike Price $24.00, Expires 9/17/21 | | | 50 | | | | 5,000 | | | | | | | | (9,350 | ) |
| | Box Inc., September Strike Price $26.00, Expires 9/17/21 | | | 99 | | | | 9,900 | | | | | | | | (10,890 | ) |
| | Box Inc., September Strike Price $27.00, Expires 9/17/21 | | | 75 | | | | 7,500 | | | | | | | | (6,000 | ) |
| | Bristol-Myers Squibb Co., June Strike Price $70.00, Expires 6/18/21 | | | 5 | | | | 500 | | | | | | | | (45 | ) |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 59 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Number of
Contracts | | | Notional Amount# | | | Value | |
| bb | | Options Written† (continued) | | | |
| | | Calls – Exchange-Traded† (continued) | | | |
| | Casino Guichard Perrachon SA, June Strike Price 33.00 EUR, Expires 6/18/21 | | | 44 | | | | 4,400 | | | | | | | $ | (54 | ) |
| | Caterpillar Inc., June Strike Price $250.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (197 | ) |
| | The Charles Schwab Corp., June Strike Price $70.00, Expires 6/18/21 | | | 4 | | | | 400 | | | | | | | | (1,800 | ) |
| | Chevron Corp., June Strike Price $110.00, Expires 6/18/21 | | | 2 | | | | 200 | | | | | | | | (86 | ) |
| | Cisco Systems Inc., June Strike Price $55.00, Expires 6/18/21 | | | 9 | | | | 900 | | | | | | | | (162 | ) |
| | Citigroup Inc., June Strike Price $80.00, Expires 6/18/21 | | | 5 | | | | 500 | | | | | | | | (575 | ) |
| | Citizens Financial Group Inc., June Strike Price $47.50, Expires 6/18/21 | | | 6 | | | | 600 | | | | | | | | (1,644 | ) |
| | The Coca-Cola Co., June Strike Price $55.00, Expires 6/18/21 | | | 5 | | | | 500 | | | | | | | | (395 | ) |
| | ConocoPhillips, June Strike Price $55.00, Expires 6/18/21 | | | 5 | | | | 500 | | | | | | | | (970 | ) |
| | Deere & Co., June Strike Price $410.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (38 | ) |
| | Enterprise Products Partners LP, June Strike Price $24.00, Expires 6/18/21 | | | 12 | | | | 1,200 | | | | | | | | (312 | ) |
| | Expedia Group Inc., July Strike Price $200.00, Expires 7/16/21 | | | 14 | | | | 1,400 | | | | | | | | (2,772 | ) |
| | Exxon Mobil Corp., June Strike Price $62.50, Expires 6/18/21 | | | 6 | | | | 600 | | | | | | | | (174 | ) |
| | Fidelity National Financial Inc., June Strike Price $48.00, Expires 6/18/21 | | | 4 | | | | 400 | | | | | | | | (136 | ) |
| | Financial Select Sector SPDR Fund, June Strike Price $40.00, Expires 6/18/21 | | | 395 | | | | 39,500 | | | | | | | | (2,765 | ) |
| | Fox Corp., June Strike Price $43.00, Expires 6/18/21 | | | 10 | | | | 1,000 | | | | | | | | (180 | ) |
| | Gilead Sciences Inc., June Strike Price $72.50, Expires 6/18/21 | | | 4 | | | | 400 | | | | | | | | (44 | ) |
| | The Home Depot Inc., June Strike Price $345.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (26 | ) |
| | JPMorgan Chase & Co., June Strike Price $160.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (580 | ) |
| | Kansas City Southern, June Strike Price $310.00, Expires 6/18/21 | | | 15 | | | | 1,500 | | | | | | | | (1,335 | ) |
| | Lennar Corp., June Strike Price $115.00, Expires 6/18/21 | | | 3 | | | | 300 | | | | | | | | (63 | ) |
| | Lowe’s Cos. Inc., June Strike Price $220.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (3 | ) |
| | Mastercard Inc., June Strike Price $420.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (15 | ) |
| | Microsoft Corp., June Strike Price $280.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (10 | ) |
| | Morgan Stanley, June Strike Price $85.00, Expires 6/18/21 | | | 4 | | | | 400 | | | | | | | | (2,520 | ) |
| | Newmont Corp., June Strike Price $70.00, Expires 6/18/21 | | | 5 | | | | 500 | | | | | | | | (1,875 | ) |
| | Nike Inc., June Strike Price $145.00, Expires 6/18/21 | | | 2 | | | | 200 | | | | | | | | (82 | ) |
| | Oracle Corp., June Strike Price $85.00, Expires 6/18/21 | | | 3 | | | | 300 | | | | | | | | (87 | ) |
| | Pfizer Inc., June Strike Price $41.00, Expires 6/18/21 | | | 11 | | | | 1,100 | | | | | | | | (99 | ) |
| | Philip Morris International Inc., June Strike Price $97.50, Expires 6/18/21 | | | 2 | | | | 200 | | | | | | | | (210 | ) |
| | The Procter & Gamble Co.., June Strike Price $145.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (8 | ) |
| | Proofpoint Inc., August Strike Price $180.00, Expires 8/20/21 | | | 9 | | | | 900 | | | | | | | | (252 | ) |
| | QUALCOMM Inc., June Strike Price $160.00, Expires 6/18/21 | | | 2 | | | | 200 | | | | | | | | (12 | ) |
| | Social Capital Hedosophia Holdings Corp. IV, July Strike Price $25.00, Expires 7/16/21 | | | 102 | | | | 10,200 | | | | | | | | (510 | ) |
| | Social Capital Hedosophia Holdings Corp. VI, July Strike Price $30.00, Expires 7/16/21 | | | 102 | | | | 10,200 | | | | | | | | (204 | ) |
| | Target Corp., June Strike Price $230.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (267 | ) |
| | Texas Instruments Inc., June Strike Price $200.00, Expires 6/18/21 | | | 1 | | | | 100 | | | | | | | | (76 | ) |
| | Truist Financial Corp., June Strike Price $62.50, Expires 6/18/21 | | | 6 | | | | 600 | | | | | | | | (540 | ) |
| | Tyson Foods Inc., June Strike Price $85.00, Expires 6/18/21 | | | 4 | | | | 400 | | | | | | | | (48 | ) |
| | Walmart Inc., June Strike Price $150.00, Expires 6/18/21 | | | 3 | | | | 300 | | | | | | | | (51 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (110,500 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Puts – Exchange-Traded (0.0)%† | | | |
| | Ajax I, August Strike Price $12.50, Expires 8/20/21 | | | 163 | | | | 16,300 | | | | | | | | (46,455 | ) |
| | Avaya Holdings Corp., July Strike Price $27.00, Expires 7/16/21 | | | 44 | | | | 4,400 | | | | | | | | (4,620 | ) |
| | Callaway Golf Co., November Strike Price $26.00, Expires 11/19/21 | | | 67 | | | | 6,700 | | | | | | | | (5,360 | ) |
| | Energy Transfer LP, January Strike Price $8.00, Expires 1/21/22 | | | 349 | | | | 34,900 | | | | | | | | (16,752 | ) |
| | Kansas City Southern, September Strike Price $280.00, Expires 9/17/21 | | | 30 | | | | 3,000 | | | | | | | | (23,100 | ) |
| | Nikola Corp., January Strike Price $7.50, Expires 1/21/22 | | | 67 | | | | 6,700 | | | | | | | | (7,772 | ) |
| | | | | | | | | | |
| | | | | | |
| 60 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Number of
Contracts | | | Notional Amount# | | | Value | |
| bb | | Options Written† (continued) | | | |
| | | Puts – Exchange-Traded† (continued) | | | |
| | S&P 500 Index, August Strike Price $3,300.00, Expires 8/20/21 | | | 43 | | | | 4,300 | | | | | | | $ | (56,330 | ) |
| | S&P 500 Index, September Strike Price $3,600.00, Expires 9/17/21 | | | 7 | | | | 700 | | | | | | | | (26,614 | ) |
| | Social Capital Hedosophia Holdings Corp. IV, July Strike Price $12.50, Expires 7/16/21 | | | 102 | | | | 10,200 | | | | | | | | (21,930 | ) |
| | Social Capital Hedosophia Holdings Corp. VI, July Strike Price $12.50, Expires 7/16/21 | | | 102 | | | | 10,200 | | | | | | | | (25,500 | ) |
| | Vishay Intertechnology Inc., June Strike Price $25.00, Expires 6/18/21 | | | 22 | | | | 2,200 | | | | | | | | (2,860 | ) |
| | Vodafone Group PLC, July Strike Price 1.10 GBP, Expires 7/16/21 | | | 212 | | | | 212,000 | | | | | | | | (2,259 | ) |
| | Vodafone Group PLC, September Strike Price 1.20 GBP, Expires 9/17/21 | | | 218 | | | | 218,000 | | | | | | | | (14,711 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (254,263 | ) |
| | | | | | | | | | | | | | | | | | |
| | Total Options Written (Premiums Received $534,405) | | | | | | | | | | | | | | | (364,763 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares | | | | | | | |
| cc | | Securities Sold Short (18.5)% | | | |
| | | Common Stocks (8.9)% | | | |
| | | Aerospace & Defense (0.1)% | |
| | Kaman Corp. | | | United States | | | | 9,531 | | | | | | | | (512,959 | ) |
| | Parsons Corp. | | | United States | | | | 15,102 | | | | | | | | (598,190 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (1,111,149 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Air Freight & Logistics (0.2)% | |
| | Air Transport Services Group Inc. | | | United States | | | | 22,358 | | | | | | | | (555,373 | ) |
| | Atlas Air Worldwide Holdings Inc. | | | United States | | | | 23,125 | | | | | | | | (1,732,756 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (2,288,129 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Airlines (0.1)% | |
| | American Airlines Group Inc. | | | United States | | | | 67,149 | | | | | | | | (1,627,692 | ) |
| | GOL Linhas Aereas Inteligentes SA, ADR | | | Brazil | | | | 22,321 | | | | | | | | (228,567 | ) |
| | GOL Linhas Aereas Inteligentes SA, Contingent Value, rts., 6/5/21 | | | Brazil | | | | 1,458 | | | | | | | | (525 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (1,856,784 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Auto Components (0.1)% | |
| | LCI Industries | | | United States | | | | 1,652 | | | | | | | | (246,230 | ) |
| | Patrick Industries Inc. | | | United States | | | | 11,211 | | | | | | | | (960,783 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (1,207,013 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Automobiles (0.2)% | |
| | Li Auto Inc., ADR | | | China | | | | 24,888 | | | | | | | | (579,890 | ) |
| | NIO Inc., ADR | | | China | | | | 15,852 | | | | | | | | (612,204 | ) |
| | Tesla Inc. | | | United States | | | | 1,308 | | | | | | | | (817,788 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (2,009,882 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Banks (0.0)%† | |
| | Hope Bancorp Inc. | | | United States | | | | 14,632 | | | | | | | | (223,870 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Biotechnology (0.4)% | |
| | Avid Bioservices Inc. | | | United States | | | | 19,445 | | | | | | | | (413,789 | ) |
| | BioMarin Pharmaceutical Inc. | | | United States | | | | 463 | | | | | | | | (35,790 | ) |
| | Bridgebio Pharma Inc. | | | United States | | | | 6,063 | | | | | | | | (358,930 | ) |
| | Coherus Biosciences Inc. | | | United States | | | | 32,793 | | | | | | | | (431,556 | ) |
| | Dynavax Technologies Corp. | | | United States | | | | 68,861 | | | | | | | | (564,660 | ) |
| | Flexion Therapeutics Inc. | | | United States | | | | 18,024 | | | | | | | | (150,861 | ) |
| | Gossamer Bio Inc. | | | United States | | | | 39,093 | | | | | | | | (331,118 | ) |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 61 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares | | | | | | Value | |
| cc | | Securities Sold Short (continued) | | | |
| | | Common Stocks (continued) | | | |
| | | Biotechnology (continued) | |
| | Insmed Inc. | | | United States | | | | 13,603 | | | | | | | $ | (334,634 | ) |
| | Ironwood Pharmaceuticals Inc., A | | | United States | | | | 59,953 | | | | | | | | (693,656 | ) |
| | Kadmon Holdings Inc. | | | United States | | | | 45,895 | | | | | | | | (176,237 | ) |
| | Karyopharm Therapeutics Inc. | | | United States | | | | 51,375 | | | | | | | | (476,760 | ) |
| | Ligand Pharmaceuticals Inc. | | | United States | | | | 1,648 | | | | | | | | (193,970 | ) |
| | Mannkind Corp. | | | United States | | | | 171,839 | | | | | | | | (759,528 | ) |
| | Pharming Group NV | | | Netherlands | | | | 116,994 | | | | | | | | (143,772 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (5,065,261 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Capital Markets (0.5)% | |
| | S&P Global Inc. | | | United States | | | | 15,955 | | | | | | | | (6,054,444 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Commercial Services & Supplies (0.0)%† | |
| | Herman Miller Inc. | | | United States | | | | 10,163 | | | | | | | | (485,791 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Consumer Finance (0.3)% | |
| | Encore Capital Group Inc. | | | United States | | | | 48,490 | | | | | | | | (2,244,602 | ) |
| | EZCORP Inc., A | | | United States | | | | 66,267 | | | | | | | | (487,062 | ) |
| | LendingTree Inc. | | | United States | | | | 1,063 | | | | | | | | (218,181 | ) |
| | PRA Group Inc. | | | United States | | | | 14,612 | | | | | | | | (568,845 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (3,518,690 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Consumer Services (0.0)%† | |
| | Stride Inc. | | | United States | | | | 11,892 | | | | | | | | (319,657 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Electric Utilities (0.2)% | |
| e | | Orsted As, 144A | | | Denmark | | | | 5,093 | | | | | | | | (772,327 | ) |
| | The Southern Co. | | | United States | | | | 11,518 | | | | | | | | (736,231 | ) |
| | Terna Rete Elettrica Nazionale SpA | | | Italy | | | | 97,630 | | | | | | | | (746,262 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (2,254,820 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Electronic Equipment, Instruments & Components (0.1)% | |
| | II-VI Inc. | | | United States | | | | 6,351 | | | | | | | | (427,867 | ) |
| | OSI Systems Inc. | | | United States | | | | 4,533 | | | | | | | | (436,800 | ) |
| | Vishay Intertechnology Inc. | | | United States | | | | 16,438 | | | | | | | | (395,662 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (1,260,329 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Energy Equipment & Services (0.1)% | |
| | Helix Energy Solutions Group Inc. | | | United States | | | | 162,267 | | | | | | | | (848,656 | ) |
| | Oil States International Inc. | | | United States | | | | 13,483 | | | | | | | | (86,696 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (935,352 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Entertainment (0.3)% | |
| | Cinemark Holdings Inc. | | | United States | | | | 83,441 | | | | | | | | (1,890,773 | ) |
| | Live Nation Entertainment Inc. | | | United States | | | | 10,948 | | | | | | | | (986,524 | ) |
| | The Marcus Corp. | | | United States | | | | 54,515 | | | | | | | | (1,150,812 | ) |
| | Spotify Technology SA | | | United States | | | | 42 | | | | | | | | (10,146 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (4,038,255 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Equity Real Estate Investment Trusts (REITs) (0.3)% | |
| | Braemar Hotels & Resorts Inc. | | | United States | | | | 30,253 | | | | | | | | (186,056 | ) |
| | The GEO Group Inc. | | | United States | | | | 59,317 | | | | | | | | (307,855 | ) |
| | Innovative Industrial Properties Inc., A | | | United States | | | | 9,807 | | | | | | | | (1,767,516 | ) |
| | Pebblebrook Hotel Trust | | | United States | | | | 22,134 | | | | | | | | (494,695 | ) |
| | Summit Hotel Properties Inc. | | | United States | | | | 58,662 | | | | | | | | (563,742 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (3,319,864 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Food & Staples Retailing (0.0)%† | |
| e | | The Chefs’ Warehouse Inc., 144A | | | United States | | | | 21,715 | | | | | | | | (667,953 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 62 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares | | | | | | Value | |
| cc | | Securities Sold Short (continued) | | | |
| | | Common Stocks (continued) | | | |
| | | Food Products (0.0)%† | |
| | Beyond Meat Inc. | | | United States | | | | 3,086 | | | | | | | $ | (448,766 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Health Care Equipment & Supplies (0.3)% | |
| | Cryoport Inc. | | | United States | | | | 20,756 | | | | | | | | (1,160,676 | ) |
| | Cutera Inc. | | | United States | | | | 14,958 | | | | | | | | (574,088 | ) |
| | Invacare Corp. | | | United States | | | | 18,501 | | | | | | | | (148,008 | ) |
| | Mesa Laboratories Inc. | | | United States | | | | 1,047 | | | | | | | | (257,625 | ) |
| | NuVasive Inc. | | | United States | | | | 10,657 | | | | | | | | (726,807 | ) |
| | SmileDirectClub Inc., A | | | United States | | | | 54,549 | | | | | | | | (447,847 | ) |
| | Varex Imaging Corp. | | | United States | | | | 44,036 | | | | | | | | (1,104,863 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (4,419,914 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Health Care Providers & Services (0.1)% | |
| | 1Life Healthcare Inc. | | | United States | | | | 10,712 | | | | | | | | (396,344 | ) |
| | Accolade Inc. | | | United States | | | | 4,576 | | | | | | | | (231,042 | ) |
| | PetIQ Inc., A | | | United States | | | | 31,890 | | | | | | | | (1,310,679 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (1,938,065 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Health Care Technology (0.0)%† | |
| | Tabula Rasa HealthCare Inc. | | | United States | | | | 5,201 | | | | | | | | (224,735 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Hotels, Restaurants & Leisure (0.2)% | |
| | Draftkings Inc., A | | | United States | | | | 7,117 | | | | | | | | (355,494 | ) |
| | Marriott Vacations Worldwide Corp. | | | United States | | | | 5,100 | | | | | | | | (878,679 | ) |
| | Royal Caribbean Cruises Ltd. | | | United States | | | | 10,402 | | | | | | | | (970,195 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (2,204,368 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Independent Power & Renewable Electricity Producers (0.1)% | |
| | Sunnova Energy International Inc. | | | United States | | | | 25,389 | | | | | | | | (741,359 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Industrial Conglomerates (0.0)%† | |
| | 3M Co. | | | United States | | | | 2,319 | | | | | | | | (470,850 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Insurance (0.8)% | |
| | Aon PLC, A | | | United States | | | | 42,807 | | | | | | | | (10,846,010 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Internet & Direct Marketing Retail (0.5)% | |
| e | | Delivery Hero SE, 144A | | | Germany | | | | 4,847 | | | | | | | | (667,012 | ) |
| | Expedia Group Inc. | | | United States | | | | 570 | | | | | | | | (100,862 | ) |
| | Fiverr International Ltd. | | | Israel | | | | 2,395 | | | | | | | | (491,717 | ) |
| | Groupon Inc., A | | | United States | | | | 10,414 | | | | | | | | (492,062 | ) |
| e | | Takeaway.com NV, 144A | | | Netherlands | | | | 48,752 | | | | | | | | (4,426,662 | ) |
| | Wayfair Inc., A | | | United States | | | | 1,565 | | | | | | | | (479,735 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (6,658,050 | ) |
| | | | | | | | | | | | | | | | | | |
| | | IT Services (0.1)% | |
| | Afterpay Ltd. | | | Australia | | | | 573 | | | | | | | | (40,887 | ) |
| | Akamai Technologies Inc. | | | United States | | | | 1,504 | | | | | | | | (171,772 | ) |
| | CSG Systems International Inc. | | | United States | | | | 2,040 | | | | | | | | (89,842 | ) |
| | Fastly Inc., A | | | United States | | | | 4,315 | | | | | | | | (203,625 | ) |
| | i3 Verticals Inc., A | | | United States | | | | 15,943 | | | | | | | | (495,349 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (1,001,475 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Life Sciences Tools & Services (0.2)% | |
| | ICON PLC | | | Ireland | | | | 11,215 | | | | | | | | (2,509,468 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Machinery (0.0)%† | |
| | The Greenbrier Cos. Inc. | | | United States | | | | 14,032 | | | | | | | | (623,161 | ) |
| | John Bean Technologies Corp. | | | United States | | | | 319 | | | | | | | | (45,946 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (669,107 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 63 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares | | | | | | Value | |
| cc | | Securities Sold Short (continued) | | | |
| | | Common Stocks (continued) | | | |
| | | Media (0.4)% | |
| | Charter Communications Inc., A | | | United States | | | | 1,028 | | | | | | | $ | (713,977 | ) |
| | Dish Network Corp., A | | | United States | | | | 8,458 | | | | | | | | (368,092 | ) |
| | Liberty Media Corp., C | | | United States | | | | 19,932 | | | | | | | | (889,964 | ) |
| | Liberty Media Group, A | | | United States | | | | 1,106 | | | | | | | | (44,284 | ) |
| | Liberty SiriusXM Group | | | United States | | | | 19,428 | | | | | | | | (848,226 | ) |
| | Magnite Inc. | | | United States | | | | 12,917 | | | | | | | | (383,635 | ) |
| | Sirius XM Holdings Inc. | | | United States | | | | 119,749 | | | | | | | | (748,431 | ) |
| | Techtarget Inc. | | | United States | | | | 9,273 | | | | | | | | (651,985 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (4,648,594 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Metals & Mining (0.1)% | |
| | Century Aluminum Co. | | | United States | | | | 13,110 | | | | | | | | (178,427 | ) |
| | Ivanhoe Mines Ltd., A | | | Canada | | | | 47,207 | | | | | | | | (347,697 | ) |
| | MP Materials Corp. | | | United States | | | | 14,550 | | | | | | | | (408,564 | ) |
| | Pretium Resources Inc. | | | Canada | | | | 17,531 | | | | | | | | (199,854 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (1,134,542 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Mortgage Real Estate Investment Trusts (REITs) (0.2)% | |
| | Arbor Realty Trust Inc. | | | United States | | | | 62,301 | | | | | | | | (1,136,370 | ) |
| | PennyMac Mortgage Investment Trust | | | United States | | | | 31,631 | | | | | | | | (619,968 | ) |
| | Redwood Trust Inc. | | | United States | | | | 10,892 | | | | | | | | (121,228 | ) |
| | Two Harbors Investment Corp. | | | United States | | | | 30,500 | | | | | | | | (219,295 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (2,096,861 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Personal Products (0.0)%† | |
| | Herbalife Nutrition Ltd. | | | United States | | | | 12,119 | | | | | | | | (637,096 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Pharmaceuticals (0.7)% | |
| | Aerie Pharmaceuticals Inc. | | | United States | | | | 23,803 | | | | | | | | (387,751 | ) |
| | AstraZeneca PLC, ADR | | | United Kingdom | | | | 86,982 | | | | | | | | (4,937,968 | ) |
| | Avadel Pharmaceuticals PLC, ADR | | | United States | | | | 52,572 | | | | | | | | (404,279 | ) |
| | Canopy Growth Corp. | | | Canada | | | | 11,775 | | | | | | | | (295,106 | ) |
| | Collegium Pharmaceutical Inc. | | | United States | | | | 21,055 | | | | | | | | (503,004 | ) |
| | Innoviva Inc. | | | United States | | | | 25,353 | | | | | | | | (340,998 | ) |
| | Jazz Pharmaceuticals PLC | | | United States | | | | 1,577 | | | | | | | | (280,911 | ) |
| | Omeros Corp. | | | United States | | | | 53,636 | | | | | | | | (814,731 | ) |
| | Revance Therapeutics Inc. | | | United States | | | | 28,311 | | | | | | | | (838,289 | ) |
| | Zogenix Inc. | | | United States | | | | 31,466 | | | | | | | | (552,228 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (9,355,265 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Real Estate Management & Development (0.0)%† | |
| | Realogy Holdings Corp. | | | United States | | | | 6,117 | | | | | | | | (108,332 | ) |
| | Tricon Residential Inc., Common Subscription Receipt | | | Canada | | | | 23,058 | | | | | | | | (247,964 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (356,296 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Road & Rail (0.1)% | |
| | Canadian National Railway Co. | | | Canada | | | | 1,368 | | | | | | | | (153,996 | ) |
| | Norfolk Southern Corp. | | | United States | | | | 2,637 | | | | | | | | (740,733 | ) |
| | TFI International Inc. | | | Canada | | | | 8,142 | | | | | | | | (782,900 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (1,677,629 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Semiconductors & Semiconductor Equipment (1.1)% | |
| | Advanced Micro Devices Inc. | | | United States | | | | 54,315 | | | | | | | | (4,349,545 | ) |
| | ams AG | | | Austria | | | | 15,873 | | | | | | | | (312,869 | ) |
| | Analog Devices Inc. | | | United States | | | | 44,772 | | | | | | | | (7,369,471 | ) |
| | First Solar Inc. | | | United States | | | | 9,926 | | | | | | | | (755,468 | ) |
| | Impinj Inc. | | | United States | | | | 17,544 | | | | | | | | (913,165 | ) |
| | Rambus Inc. | | | United States | | | | 24,354 | | | | | | | | (476,364 | ) |
| | | | | | | | | | |
| | | | | | |
| 64 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | Country | | | Shares | | | | | | Value | |
| cc | | Securities Sold Short (continued) | | | |
| | | Common Stocks (continued) | | | |
| | | Semiconductors & Semiconductor Equipment (continued) | |
| | Sunpower Corp., A | | | United States | | | | 27,079 | | | | | | | $ | (633,378 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (14,810,260 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Software (0.9)% | |
| | Alteryx Inc., A | | | United States | | | | 1,839 | | | | | | | | (143,019 | ) |
| | Avaya Holdings Corp. | | | United States | | | | 34,704 | | | | | | | | (995,311 | ) |
| | Bentley Systems Inc., B | | | United States | | | | 19,730 | | | | | | | | (1,131,713 | ) |
| | Coupa Software Inc. | | | United States | | | | 709 | | | | | | | | (168,884 | ) |
| | CyberArk Software Ltd. | | | United States | | | | 2,359 | | | | | | | | (298,508 | ) |
| | Dye & Durham Ltd. | | | Canada | | | | 4,773 | | | | | | | | (190,762 | ) |
| | Envestnet Inc. | | | United States | | | | 2,441 | | | | | | | | (175,679 | ) |
| | Fubotv Inc. | | | United States | | | | 13,530 | | | | | | | | (321,202 | ) |
| | Kaleyra Inc. | | | Italy | | | | 3,358 | | | | | | | | (40,800 | ) |
| | LivePerson Inc. | | | United States | | | | 11,714 | | | | | | | | (643,684 | ) |
| | Microstrategy Inc., A | | | United States | | | | 723 | | | | | | | | (339,810 | ) |
| | Mitek Systems Inc. | | | United States | | | | 26,017 | | | | | | | | (441,248 | ) |
| | Nuance Communications Inc. | | | United States | | | | 39,633 | | | | | | | | (2,096,586 | ) |
| | Nutanix Inc., A | | | United States | | | | 6,689 | | | | | | | | (210,770 | ) |
| | PROS Holdings Inc. | | | United States | | | | 18,264 | | | | | | | | (810,374 | ) |
| | Rapid7 Inc. | | | United States | | | | 6,517 | | | | | | | | (545,147 | ) |
| | Salesforce.com Inc. | | | United States | | | | 9,754 | | | | | | | | (2,322,427 | ) |
| | Splunk Inc. | | | United States | | | | 1,268 | | | | | | | | (153,681 | ) |
| | VMware Inc., A | | | United States | | | | 5,120 | | | | | | | | (808,397 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (11,838,002 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Specialty Retail (0.1)% | |
| | Guess? Inc. | | | United States | | | | 31,326 | | | | | | | | (920,045 | ) |
| | Shift Technologies Inc. | | | United States | | | | 35,840 | | | | | | | | (253,747 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (1,173,792 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Technology Hardware, Storage & Peripherals (0.0)%† | |
| | Pure Storage Inc., A | | | United States | | | | 14,493 | | | | | | | | (276,092 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Tobacco (0.1)% | |
| | Turning Point Brands Inc. | | | United States | | | | 18,120 | | | | | | | | (774,992 | ) |
| | | | | | | | | | | | | | | | | | |
| | Total Common Stocks (Proceeds $113,602,565) | | | | | | | | | | | | | | | (117,528,831 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Exchange Traded Funds (8.5)% | | | |
| | Health Care Select Sector SPDR Fund | | | United States | | | | 84,135 | | | | | | | | (10,399,086 | ) |
| | Invesco QQQ Series 1 ETF | | | United States | | | | 2,498 | | | | | | | | (834,157 | ) |
| | iShares Nasdaq Biotechnology ETF | | | United States | | | | 57,109 | | | | | | | | (8,677,712 | ) |
| | iShares North American Tech-Software ETF | | | United States | | | | 47,672 | | | | | | | | (17,109,481 | ) |
| | iShares Russell 2000 Growth ETF | | | United States | | | | 75,343 | | | | | | | | (22,462,762 | ) |
| | iShares Russell Mid-Cap Growth ETF | | | United States | | | | 65,491 | | | | | | | | (6,947,285 | ) |
| | SPDR S&P 500 ETF Trust | | | United States | | | | 107,014 | | | | | | | | (44,950,161 | ) |
| | | | | | | | | | | | | | | | | | |
| | Total Exchange Traded Funds
(Proceeds $106,099,820) | | | | | | | | | | | | | | | (111,380,644 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | Principal Amount* | | | | |
| |
| | | Corporate Bonds and Notes (0.9)% | | | |
| | | Aerospace & Defense (0.0)%† | |
| e | | Spirit Aerosystems Inc., secured note, 144A, 7.50%, 4/15/25 | | | United States | | | | 273,000 | | | | | | | | (292,451 | ) |
| | Triumph Group Inc., senior note, 5.25%, 6/01/22 | | | United States | | | | 374,000 | | | | | | | | (374,608 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (667,059 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 65 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| cc | | Securities Sold Short (continued) | | | |
| | | Corporate Bonds and Notes (continued) | | | |
| | | Airlines (0.1)% | |
| e | | American Airlines Inc., senior secured note, 144A, 11.75%, 7/15/25 | | | United States | | | | 994,000 | | | | | | | $ | (1,250,233 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Auto Components (0.1)% | |
| | American Axle & Manufacturing Inc., senior note,
6.50%, 4/01/27 | | | United States | | | | 150,000 | | | | | | | | (159,422 | ) |
| | 6.875%, 7/01/28 | | | United States | | | | 300,000 | | | | | | | | (325,906 | ) |
| g | | ZF Europe Finance BV, senior bond, Reg S, 3.00%, 10/23/29 | | | Germany | | | | 200,000 | | | | EUR | | | | (254,569 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (739,897 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Communications Equipment (0.0)%† | |
| e | | Entercom Media Corp., secured note, 144A, 6.50%, 5/01/27 | | | United States | | | | 495,000 | | | | | | | | (506,274 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Construction & Engineering (0.1)% | |
| e | | Tutor Perini Corp., senior note, 144A, 6.875%, 5/01/25 | | | United States | | | | 646,000 | | | | | | | | (669,563 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Consumer Services (0.1)% | |
| e | | MPH Acquisition Holdings LLC, senior note, 144A, 5.75%, 11/01/28 | | | United States | | | | 774,000 | | | | | | | | (771,272 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Financial Services (0.2)% | |
| | AerCap Ireland Capital DAC / AerCap Global Aviation Trust,
senior bond, 3.65%, 7/21/27 | | | Ireland | | | | 2,073,000 | | | | | | | | (2,204,047 | ) |
| | senior note, 4.625%, 10/15/27 | | | Ireland | | | | 73,000 | | | | | | | | (80,796 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (2,284,843 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Telecommunication Services (0.0)%† | |
| g | | DKT Finance ApS, senior secured note, Reg S, 7.00%, 6/17/23 | | | Denmark | | | | 358,000 | | | | EUR | | | | (446,536 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Equity Real Estate Investment Trusts (REITs) (0.1)% | |
| | The GEO Group Inc.,
senior bond, 5.875%, 10/15/24 | | | United States | | | | 144,000 | | | | | | | | (105,278 | ) |
| | senior note, 6.00%, 4/15/26 | | | United States | | | | 37,000 | | | | | | | | (22,292 | ) |
| e | | Iron Mountain Inc., senior bond, 144A, 5.25%, 3/15/28 | | | United States | | | | 408,000 | | | | | | | | (426,958 | ) |
| | Simon Property Group LP, senior bond, 2.65%, 7/15/30 | | | United States | | | | 350,000 | | | | | | | | (355,165 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (909,693 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Food & Staples Retailing (0.2)% | |
| g | | Casino Guichard Perrachon SA, senior note, Reg S, 5.25%, 4/15/27 | | | France | | | | 149,000 | | | | EUR | | | | (184,482 | ) |
| | Koninklijke Ahold Delhaize NV, senior bond, 5.70%, 10/01/40 | | | Netherlands | | | | 603,000 | | | | | | | | (800,592 | ) |
| | The Kroger Co., senior bond,
5.40%, 1/15/49 | | | United States | | | | 241,000 | | | | | | | | (314,685 | ) |
| | 3.95%, 1/15/50 | | | United States | | | | 15,000 | | | | | | | | (16,298 | ) |
| e | | SEG Holding LLC / SEG Finance Corp., senior secured note, 144A, 5.625%, 10/15/28 | | | United States | | | | 473,000 | | | | | | | | (495,822 | ) |
| g | | Sigma Holdco BV, senior note, Reg S, 5.75%, 5/15/26 | | | Netherlands | | | | 200,000 | | | | EUR | | | | (235,704 | ) |
| e | | Sigma Holdco BV, senior note, 144A, 7.875%, 5/15/26 | | | Netherlands | | | | 200,000 | | | | | | | | (202,751 | ) |
| e | | United Natural Foods Inc., senior note, 144A, 6.75%, 10/15/28 | | | United States | | | | 118,000 | | | | | | | | (126,551 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (2,376,885 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Food Products (0.0)%† | |
| | B&G Foods Inc., senior note, 5.25%, 9/15/27 | | | United States | | | | 361,000 | | | | | | | | (373,184 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Oil, Gas & Consumable Fuels (0.0)%† | |
| | Apache Corp., senior bond, 4.375%, 10/15/28 | | | United States | | | | 84,000 | | | | | | | | (86,289 | ) |
| | PDC Energy Inc., senior note, 5.75%, 5/15/26 | | | United States | | | | 170,000 | | | | | | | | (177,652 | ) |
| e | | SM Energy Co., secured note, 144A, 10.00%, 1/15/25 | | | United States | | | | 172,000 | | | | | | | | (195,151 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (459,092 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 66 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| cc | | Securities Sold Short (continued) | | | |
| | | Corporate Bonds and Notes (continued) | | | |
| | | Specialty Retail (0.0)%† | |
| g | | Stonegate Pub Co. Financing 2019 PLC, senior secured note, Reg S, 8.25%, 7/31/25 | | | United Kingdom | | | | 300,000 | | | | GBP | | | $ | (449,517 | ) |
| | | | | | | | | | | | | | | | | | |
| | Total Corporate Bonds and Notes
(Proceeds $11,124,445) | | | | | | | | | | | | | | | (11,904,048 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Foreign Government and Agency Securities
(Proceeds $49,822) (0.0)%† | | | |
| e,g | | Government of Italy, senior bond, 144A, Reg S, 5.00%, 3/01/25 | | | Italy | | | | 36,000 | | | | EUR | | | | (52,367 | ) |
| | | | | | | | | | | | | | | | | | |
| | | U.S. Government and Agency Securities (0.2)% | | | |
| | U.S. Treasury Bond, 1.375%, 8/15/50 | | | United States | | | | 1,049,000 | | | | | | | | (841,064 | ) |
| | U.S. Treasury Note,
0.875%, 11/15/30 | | | United States | | | | 472,000 | | | | | | | | (443,237 | ) |
| | 1.125%, 2/15/31 | | | United States | | | | 1,095,000 | | | | | | | | (1,048,634 | ) |
| | | | | | | | | | | | | | | | | | |
| | Total U.S. Government and Agency Securities
(Proceeds $2,515,429) | | | | | | | | | | | | | | | (2,332,935 | ) |
| | | | | | | | | | | | | | | | | | |
| | Total Securities Sold Short
(Proceeds $233,392,081) | | | | | | | | | | | | | | $ | (243,198,825 | ) |
| | | | | | | | | | | | | | | | | | |
† 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.
a Non-income producing.
b A portion or all of the security is held in connection with written option contracts open at period end.
c Fair valued using significant unobservable inputs. See Note 13 regarding fair value measurements.
d A portion or all of the security is on loan at May 31, 2021. See Note 1(j).
e Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in public offering registered under the Securities Act of 1933. At May 31, 2021, the net value of these securities was $199,533,207, representing 15.2% of net assets.
f A 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, 2021, the aggregate value of these securities and/or cash pledged amounted to $227,686,926, representing 17.3% of net assets.
g Security 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, 2021, the net value of these securities was $70,562,214, representing 5.4% of net assets.
h Perpetual security with no stated maturity date.
i The coupon rate shown represents the rate at period end.
j Securities denominated in Argentine Peso have been designated as Level 3 investments. See Note 13 regarding fair value measurements.
k See Note 1(g) regarding loan participation notes.
l Income may be received in additional securities and/or cash.
m A portion or all of the security purchased on a delayed delivery basis. See Note 1(d).
n Principal amount is stated in 100 Mexican Peso Units.
o See Note 7 regarding defaulted securities.
p See Note 1(l) regarding senior floating rate interests.
q See Note 10 regarding unfunded loan commitments.
r See Note 1(h) regarding credit-linked notes.
s A supranational organization is an entity formed by two or more central governments through international treaties.
t The coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
u Adjustable 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.
v The rate shown is the annualized seven-day effective yield at period end.
w A portion or all of the security is owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(k).
x See Note 1(j) regarding securities on loan.
y See Note 3(f) regarding investments in affiliated management investment companies.
z See Note 1(c) regarding joint repurchase agreement.
aa The security was issued on a discount basis with no stated coupon rate.
bb See Note 1(e) regarding written options.
cc See Note 1(i) regarding securities sold short.
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 67 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
At May 31, 2021, 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 | | | | 18 | | | $ | 1,110,042 | | | | 6/14/21 | | | $ | 208,625 | |
Aluminum | | | Short | | | | 18 | | | | 1,110,042 | | | | 6/14/21 | | | | (30,747 | ) |
Aluminum | | | Long | | | | 15 | | | | 932,719 | | | | 9/13/21 | | | | (7,367 | ) |
Brent Crude Oil | | | Long | | | | 18 | | | | 1,236,960 | | | | 6/30/21 | | | | 15,283 | |
Cocoa | | | Short | | | | 6 | | | | 137,836 | | | | 7/15/21 | | | | 1,262 | |
Coffee | | | Long | | | | 11 | | | | 669,694 | | | | 7/20/21 | | | | 92,368 | |
Copper | | | Long | | | | 17 | | | | 4,356,569 | | | | 6/14/21 | | | | 699,175 | |
Copper | | | Short | | | | 17 | | | | 4,356,569 | | | | 6/14/21 | | | | (237,864 | ) |
Copper | | | Long | | | | 9 | | | | 2,309,344 | | | | 9/13/21 | | | | 1,166 | |
Copper | | | Short | | | | 10 | | | | 2,565,937 | | | | 9/13/21 | | | | (56,937 | ) |
Corn | | | Long | | | | 29 | | | | 952,287 | | | | 7/14/21 | | | | 120,571 | |
Cotton | | | Short | | | | 6 | | | | 246,360 | | | | 7/08/21 | | | | 1,008 | |
Crude Oil | | | Long | | | | 14 | | | | 928,480 | | | | 6/22/21 | | | | 27,539 | |
Gasoline | | | Long | | | | 18 | | | | 1,615,496 | | | | 6/30/21 | | | | 30,717 | |
Gold 100 Oz | | | Long | | | | 9 | | | | 1,714,770 | | | | 8/27/21 | | | | 4,040 | |
Hard Red Winter Wheat | | | Long | | | | 16 | | | | 490,600 | | | | 7/14/21 | | | | (35,156 | ) |
Low Sulphur Gas Oil | | | Long | | | | 9 | | | | 510,525 | | | | 7/12/21 | | | | 8,886 | |
Natural Gas | | | Short | | | | 3 | | | | 89,580 | | | | 6/28/21 | | | | 3,553 | |
NY Harbor | | | Long | | | | 16 | | | | 1,369,738 | | | | 6/30/21 | | | | 691 | |
Silver | | | Long | | | | 13 | | | | 1,820,910 | | | | 7/28/21 | | | | 122,790 | |
Soybean Meal | | | Long | | | | 9 | | | | 355,950 | | | | 7/14/21 | | | | (7,405 | ) |
Soybean Oil | | | Long | | | | 11 | | | | 434,214 | | | | 7/14/21 | | | | 86,442 | |
Soybeans | | | Long | | | | 17 | | | | 1,300,925 | | | | 7/14/21 | | | | 116,929 | |
Sugar | | | Long | | | | 25 | | | | 486,080 | | | | 6/30/21 | | | | 48,515 | |
Wheat | | | Long | | | | 13 | | | | 431,275 | | | | 7/14/21 | | | | 9,865 | |
Zinc | | | Long | | | | 13 | | | | 989,479 | | | | 6/14/21 | | | | 122,712 | |
Zinc | | | Short | | | | 13 | | | | 989,479 | | | | 6/14/21 | | | | (45,218 | ) |
Zinc | | | Long | | | | 9 | | | | 689,456 | | | | 9/13/21 | | | | 20,506 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 1,321,949 | |
| | | | | | | | | | | | | | | | | | | | |
| Currency Contractsa | | | | | | | | | | | | | | | |
U.S. Dollar Index | | | Short | | | | 5 | | | | 449,965 | | | | 6/14/21 | | | | 70 | |
| | | | | | | | | | | | | | | | | | | | |
| Equity Contracts | | | | | | | | | | | | | | | |
CAC 40 10 Euro Indexa | | | Long | | | | 8 | | | | 633,094 | | | | 6/18/21 | | | | 6,235 | |
CBOE Volatility Index | | | Long | | | | 5 | | | | 104,254 | | | | 7/21/21 | | | | (9,001 | ) |
CBOE Volatility Index | | | Long | | | | 5 | | | | 109,126 | | | | 8/18/21 | | | | (9,460 | ) |
CBOE Volatility Index | | | Long | | | | 14 | | | | 317,276 | | | | 9/15/21 | | | | (17,537 | ) |
CBOE Volatility Index | | | Long | | | | 26 | | | | 604,919 | | | | 10/20/21 | | | | (28,031 | ) |
CBOE Volatility Index | | | Long | | | | 12 | | | | 280,800 | | | | 11/17/21 | | | | (11,807 | ) |
DAX Indexa | | | Long | | | | 5 | | | | 2,371,106 | | | | 6/18/21 | | | | 45,588 | |
DJ EURO STOXX 50 Indexa | | | Long | | | | 72 | | | | 3,579,917 | | | | 6/18/21 | | | | 121,005 | |
DJ EURO STOXX 50 Index | | | Short | | | | 625 | | | | 31,075,667 | | | | 6/18/21 | | | | (1,970,368 | ) |
DJIA Mini E-CBOT Indexa | | | Long | | | | 17 | | | | 2,933,605 | | | | 6/18/21 | | | | 83,991 | |
E-Mini Russell 2000a | | | Long | | | | 14 | | | | 1,588,020 | | | | 6/18/21 | | | | 49,072 | |
FTSE 100 Indexa | | | Long | | | | 28 | | | | 2,793,922 | | | | 6/18/21 | | | | 55,096 | |
FTSE 100 Index | | | Short | | | | 67 | | | | 6,685,455 | | | | 6/18/21 | | | | (229,562 | ) |
FTSE China A50 Index | | | Long | | | | 130 | | | | 2,370,420 | | | | 6/29/21 | | | | 23,149 | |
FTSE/MIB Index | | | Short | | | | 3 | | | | 461,650 | | | | 6/18/21 | | | | (20,847 | ) |
Hang Seng Indexa | | | Long | | | | 17 | | | | 3,174,420 | | | | 6/29/21 | | | | 28,055 | |
Mini TOPIX Index | | | Long | | | | 137 | | | | 2,437,446 | | | | 6/10/21 | | | | 88,265 | |
NASDAQ 100 E-Mini Indexa | | | Long | | | | 7 | | | | 1,916,110 | | | | 6/18/21 | | | | 100,301 | |
NASDAQ 100 E-Mini Index | | | Short | | | | 10 | | | | 2,737,300 | | | | 6/18/21 | | | | 1,806 | |
Nikkei 225 Indexa | | | Long | | | | 7 | | | | 1,861,723 | | | | 6/10/21 | | | | 38,941 | |
| | | | | | | | | | |
| | | | | | |
| 68 | | | | | | | | 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) | | | | | | | | | | | | | | | |
S&P 500 E-Mini Indexa | | | Long | | | | 13 | | | $ | 2,731,560 | | | | 6/18/21 | | | $ | 75,109 | |
S&P 500 E-Mini Index | | | Short | | | | 71 | | | | 14,918,520 | | | | 6/18/21 | | | | (665,162 | ) |
STOXX 600 Banks Index | | | Short | | | | 118 | | | | 1,012,960 | | | | 6/18/21 | | | | (86,165 | ) |
STOXX Europe 600 | | | Short | | | | 12 | | | | 329,289 | | | | 6/18/21 | | | | (5,499 | ) |
TOPIX Indexa | | | Long | | | | 13 | | | | 2,312,905 | | | | 6/10/21 | | | | 62,567 | |
VSTOXX | | | Long | | | | 8 | | | | 18,196 | | | | 6/16/21 | | | | (21 | ) |
VSTOXX | | | Long | | | | 13 | | | | 31,238 | | | | 7/21/21 | | | | (2,614 | ) |
VSTOXX | | | Long | | | | 5 | | | | 12,381 | | | | 8/18/21 | | | | (601 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | (2,277,495 | ) |
| | | | | | | | | | | | | | | | | | | | |
| Interest Rate Contracts | | | | | | | | | | | | | | | |
3 Month EURIBORa | | | Long | | | | 127 | | | | 39,021,546 | | | | 6/13/22 | | | | (11,957 | ) |
10 Yr. Mini JGBa | | | Short | | | | 6 | | | | 830,048 | | | | 6/11/21 | | | | 140 | |
90 Day Eurodollar | | | Short | | | | 35 | | | | 8,734,688 | | | | 12/13/21 | | | | 468 | |
90 Day Eurodollara | | | Long | | | | 263 | | | | 65,618,500 | | | | 6/13/22 | | | | 28,281 | |
90 Day Eurodollar | | | Short | | | | 40 | | | | 9,980,000 | | | | 6/13/22 | | | | (2,842 | ) |
90 Day Eurodollar | | | Long | | | | 35 | | | | 8,716,313 | | | | 12/19/22 | | | | (162 | ) |
90 Day Eurodollar | | | Long | | | | 40 | | | | 9,942,000 | | | | 6/19/23 | | | | 3,689 | |
90 Day Sterlinga | | | Short | | | | 197 | | | | 34,892,046 | | | | 6/15/22 | | | | 13,251 | |
Australian 10 Yr. Bonda | | | Short | | | | 48 | | | | 5,209,851 | | | | 6/15/21 | | | | (24,802 | ) |
Canadian 10 Yr. Bonda | | | Short | | | | 47 | | | | 5,617,026 | | | | 9/21/21 | | | | 3,161 | |
Euro-BOBLa | | | Short | | | | 60 | | | | 9,886,006 | | | | 6/08/21 | | | | (8,071 | ) |
Euro-Bunda | | | Short | | | | 70 | | | | 14,546,775 | | | | 6/08/21 | | | | (67,392 | ) |
Euro-SCHATZa | | | Long | | | | 108 | | | | 14,797,533 | | | | 6/08/21 | | | | (5,249 | ) |
Long Gilta | | | Short | | | | 25 | | | | 4,519,604 | | | | 9/28/21 | | | | (2,278 | ) |
U.S. Treasury 2 Yr. Notea | | | Long | | | | 154 | | | | 33,993,094 | | | | 9/30/21 | | | | 8,906 | |
U.S. Treasury 5 Yr. Notea | | | Short | | | | 99 | | | | 12,261,305 | | | | 9/30/21 | | | | (11,706 | ) |
U.S. Treasury 10 Yr. Notea | | | Short | | | | 96 | | | | 12,666,000 | | | | 9/21/21 | | | | (14,132 | ) |
U.S. Treasury 10 Yr. Ultra | | | Short | | | | 68 | | | | 9,856,812 | | | | 9/21/21 | | | | 1,755 | |
U.S. Treasury Long Bonda | | | Short | | | | 106 | | | | 16,592,312 | | | | 9/21/21 | | | | 1,926 | |
U.S. Treasury Ultra Bond | | | Short | | | | 74 | | | | 13,708,500 | | | | 9/21/21 | | | | (49,627 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | (136,641 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total Futures Contracts | | | $ | (1,092,117 | ) |
| | | | | |
*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, 2021, 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 | | | | | | | | | | | | | | | | | | | | | | |
Brazilian Real | | | BOFA | | | | Buy | | | | 1,192,000 | | | | 224,482 | | | | | | | | 6/02/21 | | | $ | 4,234 | | | $ | — | |
Brazilian Real | | | BOFA | | | | Sell | | | | 1,192,000 | | | | 209,689 | | | | | | | | 6/02/21 | | | | — | | | | (19,027 | ) |
Chinese Yuan | | | MSCO | | | | Buy | | | | 9,930,757 | | | | 1,550,000 | | | | | | | | 6/15/21 | | | | 8,440 | | | | — | |
Chinese Yuan | | | MSCO | | | | Sell | | | | 21,152,430 | | | | 3,220,729 | | | | | | | | 6/15/21 | | | | — | | | | (98,735 | ) |
New Zealand Dollar | | | JPHQ | | | | Sell | | | | 1,498,628 | | | | 1,400,000 | | | | AUD | | | | 6/16/21 | | | | 9,235 | | | | (13,558 | ) |
Australian Dollar | | | JPHQ | | | | Sell | | | | 1,884,000 | | | | 1,459,446 | | | | | | | | 6/16/21 | | | | 4,038 | | | | (2,731 | ) |
British Pound | | | BNYM | | | | Sell | | | | 699,458 | | | | 973,337 | | | | | | | | 6/16/21 | | | | — | | | | (20,406 | ) |
British Pound | | | JPHQ | | | | Buy | | | | 1,400,000 | | | | 1,982,113 | | | | | | | | 6/16/21 | | | | 6,913 | | | | — | |
British Pound | | | JPHQ | | | | Sell | | | | 900,000 | | | | 1,275,296 | | | | | | | | 6/16/21 | | | | — | | | | (3,363 | ) |
British Pound | | | MSCO | | | | Buy | | | | 2,700,000 | | | | 3,786,926 | | | | | | | | 6/16/21 | | | | 49,050 | | | | — | |
British Pound | | | MSCO | | | | Sell | | | | 2,787,349 | | | | 3,897,034 | | | | | | | | 6/16/21 | | | | — | | | | (63,042 | ) |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 69 |
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) | | | | | | | | | | | | | | | | |
Canadian Dollar | | | JPHQ | | | | Buy | | | | 1,207,901 | | | | 1,000,000 | | | | | | | | 6/16/21 | | | $ | 1,644 | | | $ | (920 | ) |
Euro | | | JPHQ | | | | Sell | | | | 546,000 | | | | 4,287,107 | | | | CNY | | | | 6/16/21 | | | | 92,659 | | | | (7,295 | ) |
Chinese Yuan | | | JPHQ | | | | Sell | | | | 19,359,311 | | | | 3,010,989 | | | | | | | | 6/16/21 | | | | 111 | | | | (29,927 | ) |
Colombian Peso | | | JPHQ | | | | Buy | | | | 3,307,759,917 | | | | 890,380 | | | | | | | | 6/16/21 | | | | 750 | | | | — | |
Colombian Peso | | | JPHQ | | | | Sell | | | | 3,307,759,917 | | | | 865,290 | | | | | | | | 6/16/21 | | | | — | | | | (25,840 | ) |
Czech Koruna | | | JPHQ | | | | Buy | | | | 28,968,049 | | | | 1,326,455 | | | | | | | | 6/16/21 | | | | 60,926 | | | | — | |
Euro | | | BNYM | | | | Sell | | | | 2,579,913 | | | | 3,089,262 | | | | | | | | 6/16/21 | | | | — | | | | (66,562 | ) |
Chinese Yuan | | | JPHQ | | | | Sell | | | | 4,268,008 | | | | 546,000 | | | | EUR | | | | 6/16/21 | | | | 16,303 | | | | (16,029 | ) |
Euro | | | JPHQ | | | | Sell | | | | 668,142 | | | | 809,873 | | | | | | | | 6/16/21 | | | | — | | | | (7,417 | ) |
Euro | | | MSCO | | | | Sell | | | | 662,764 | | | | 792,022 | | | | | | | | 6/16/21 | | | | — | | | | (18,690 | ) |
Indonesian Rupiah | | | DBAB | | | | Buy | | | | 1,515,083,328 | | | | 103,631 | | | | | | | | 6/16/21 | | | | 2,287 | | | | — | |
Indonesian Rupiah | | | JPHQ | | | | Buy | | | | 41,745,778,000 | | | | 2,890,184 | | | | | | | | 6/16/21 | | | | 28,222 | | | | — | |
Indonesian Rupiah | | | JPHQ | | | | Sell | | | | 87,437,817,212 | | | | 6,030,486 | | | | | | | | 6/16/21 | | | | — | | | | (82,205 | ) |
Japanese Yen | | | JPHQ | | | | Buy | | | | 317,422,275 | | | | 2,900,000 | | | | | | | | 6/16/21 | | | | 4,103 | | | | (4,642 | ) |
Japanese Yen | | | JPHQ | | | | Sell | | | | 317,593,757 | | | | 2,900,000 | | | | | | | | 6/16/21 | | | | 3,424 | | | | (4,453 | ) |
Mexican Peso | | | JPHQ | | | | Buy | | | | 18,586,721 | | | | 867,525 | | | | | | | | 6/16/21 | | | | 63,910 | | | | — | |
Australian Dollar | | | JPHQ | | | | Sell | | | | 400,000 | | | | 431,645 | | | | NZD | | | | 6/16/21 | | | | 8,999 | | | | (1,067 | ) |
New Zealand Dollar | | | JPHQ | | | | Sell | | | | 800,000 | | | | 578,197 | | | | | | | | 6/16/21 | | | | — | | | | (1,301 | ) |
Norwegian Krone | | | JPHQ | | | | Buy | | | | 2,077,441 | | | | 250,000 | | | | | | | | 6/16/21 | | | | — | | | | (1,583 | ) |
Polish Zloty | | | JPHQ | | | | Sell | | | | 5,068,550 | | | | 1,326,455 | | | | | | | | 6/16/21 | | | | — | | | | (52,310 | ) |
Russian Ruble | | | DBAB | | | | Sell | | | | 130,325,039 | | | | 1,764,405 | | | | | | | | 6/16/21 | | | | — | | | | (11,671 | ) |
Russian Ruble | | | GSCO | | | | Buy | | | | 28,840,048 | | | | 386,425 | | | | | | | | 6/16/21 | | | | 6,608 | | | | — | |
Russian Ruble | | | HSBC | | | | Buy | | | | 36,917,045 | | | | 500,352 | | | | | | | | 6/16/21 | | | | 2,755 | | | | — | |
Russian Ruble | | | JPHQ | | | | Buy | | | | 286,263,027 | | | | 3,824,979 | | | | | | | | 6/16/21 | | | | 76,226 | | | | — | |
Russian Ruble | | | JPHQ | | | | Sell | | | | 423,696,388 | | | | 5,647,177 | | | | | | | | 6/16/21 | | | | — | | | | (126,976 | ) |
Russian Ruble | | | MSCO | | | | Sell | | | | 38,889,471 | | | | 521,726 | | | | | | | | 6/16/21 | | | | — | | | | (8,261 | ) |
Singapore Dollar | | | JPHQ | | | | Buy | | | | 980,302 | | | | 730,000 | | | | | | | | 6/16/21 | | | | 11,219 | | | | — | |
Singapore Dollar | | | JPHQ | | | | Sell | | | | 1,492,738 | | | | 1,114,000 | | | | | | | | 6/16/21 | | | | — | | | | (14,679 | ) |
South Korean Won | | | JPHQ | | | | Buy | | | | 5,165,104,080 | | | | 4,600,000 | | | | | | | | 6/16/21 | | | | 32,152 | | | | (793 | ) |
South Korean Won | | | JPHQ | | | | Sell | | | | 5,145,437,160 | | | | 4,600,000 | | | | | | | | 6/16/21 | | | | 6,458 | | | | (20,181 | ) |
Taiwan Dollar | | | JPHQ | | | | Buy | | | | 116,971,840 | | | | 4,200,000 | | | | | | | | 6/16/21 | | | | 37,587 | | | | — | |
Taiwan Dollar | | | JPHQ | | | | Sell | | | | 116,741,051 | | | | 4,200,000 | | | | | | | | 6/16/21 | | | | — | | | | (29,228 | ) |
Thai Baht | | | JPHQ | | | | Buy | | | | 12,042,701 | | | | 384,000 | | | | | | | | 6/16/21 | | | | 1,347 | | | | — | |
Turkish Lira | | | FBCO | | | | Sell | | | | 10,313,006 | | | | 1,201,982 | | | | | | | | 6/16/21 | | | | 8,469 | | | | — | |
Turkish Lira | | | JPHQ | | | | Buy | | | | 14,163,523 | | | | 1,840,112 | | | | | | | | 6/16/21 | | | | — | | | | (200,984 | ) |
Turkish Lira | | | JPHQ | | | | Sell | | | | 3,850,517 | | | | 451,704 | | | | | | | | 6/16/21 | | | | 6,088 | | | | — | |
South African Rand | | | JPHQ | | | | Buy | | | | 576,386 | | | | 39,221 | | | | | | | | 6/17/21 | | | | 2,509 | | | | — | |
South African Rand | | | JPHQ | | | | Sell | | | | 25,412,787 | | | | 1,697,774 | | | | | | | | 6/17/21 | | | | — | | | | (142,084 | ) |
Taiwan Dollar | | | JPHQ | | | | Sell | | | | 11,140,080 | | | | 400,000 | | | | | | | | 6/17/21 | | | | — | | | | (3,578 | ) |
Australian Dollar | | | BZWS | | | | Buy | | | | 133,000 | | | | 103,200 | | | | | | | | 6/18/21 | | | | 48 | | | | (309 | ) |
Australian Dollar | | | BZWS | | | | Sell | | | | 3,049,000 | | | | 2,347,327 | | | | | | | | 6/18/21 | | | | 5,975 | | | | (18,472 | ) |
Australian Dollarb | | | MSCO | | | | Buy | | | | 2,691,000 | | | | 2,071,368 | | | | | | | | 6/18/21 | | | | 12,089 | | | | (715 | ) |
Australian Dollarb | | | MSCO | | | | Sell | | | | 5,787,000 | | | | 4,460,382 | | | | | | | | 6/18/21 | | | | 3,261 | | | | (21,821 | ) |
British Pound | | | BNYM | | | | Sell | | | | 2,895,874 | | | | 4,061,952 | | | | | | | | 6/18/21 | | | | — | | | | (52,320 | ) |
British Pound | | | BZWS | | | | Buy | | | | 1,079,000 | | | | 1,495,632 | | | | | | | | 6/18/21 | | | | 37,344 | | | | (1 | ) |
British Pound | | | BZWS | | | | Sell | | | | 1,360,000 | | | | 1,883,737 | | | | | | | | 6/18/21 | | | | — | | | | (48,463 | ) |
British Poundb | | | MSCO | | | | Buy | | | | 10,756,000 | | | | 15,042,852 | | | | | | | | 6/18/21 | | | | 238,584 | | | | — | |
British Poundb | | | MSCO | | | | Sell | | | | 5,212,000 | | | | 7,188,922 | | | | | | | | 6/18/21 | | | | — | | | | (215,951 | ) |
Canadian Dollar | | | BZWS | | | | Buy | | | | 70,000 | | | | 57,715 | | | | | | | | 6/18/21 | | | | 281 | | | | (3 | ) |
Canadian Dollar | | | BZWS | | | | Sell | | | | 5,155,000 | | | | 4,117,682 | | | | | | | | 6/18/21 | | | | 1 | | | | (153,132 | ) |
Canadian Dollarb | | | MSCO | | | | Buy | | | | 12,569,000 | | | | 9,982,200 | | | | | | | | 6/18/21 | | | | 430,964 | | | | — | |
Canadian Dollarb | | | MSCO | | | | Sell | | | | 2,261,000 | | | | 1,861,830 | | | | | | | | 6/18/21 | | | | 1,043 | | | | (12,406 | ) |
Euro | | | BNYM | | | | Sell | | | | 27,912,283 | | | | 33,734,134 | | | | | | | | 6/18/21 | | | | — | | | | (410,294 | ) |
Euro | | | BZWS | | | | Buy | | | | 1,835,000 | | | | 2,186,843 | | | | | | | | 6/18/21 | | | | 57,875 | | | | (11 | ) |
Euro | | | BZWS | | | | Sell | | | | 4,478,000 | | | | 5,351,692 | | | | | | | | 6/18/21 | | | | 45 | | | | (126,182 | ) |
Eurob | | | MSCO | | | | Buy | | | | 12,229,000 | | | | 14,725,338 | | | | | | | | 6/18/21 | | | | 234,106 | | | | — | |
| | | | | | | | | | |
| | | | | | |
| 70 | | | | | | | | 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) | | | | | | | | | | | | | | | | |
Eurob | | | MSCO | | | | Sell | | | | 12,035,000 | | | | 14,300,932 | | | | | | | | 6/18/21 | | | $ | — | | | $ | (421,194 | ) |
Hong Kong Dollar | | | BNYM | | | | Buy | | | | 551,765 | | | | 71,063 | | | | | | | | 6/18/21 | | | | 30 | | | | — | |
Hong Kong Dollar | | | BNYM | | | | Sell | | | | 32,451,389 | | | | 4,178,382 | | | | | | | | 6/18/21 | | | | — | | | | (2,884 | ) |
Japanese Yen | | | BZWS | | | | Buy | | | | 3,670,000 | | | | 33,875 | | | | | | | | 6/18/21 | | | | — | | | | (351 | ) |
Japanese Yen | | | BZWS | | | | Sell | | | | 53,225,000 | | | | 489,188 | | | | | | | | 6/18/21 | | | | 3,002 | | | | — | |
Japanese Yenb | | | MSCO | | | | Buy | | | | 1,317,283,000 | | | | 12,036,390 | | | | | | | | 6/18/21 | | | | 27,033 | | | | (30,646 | ) |
Japanese Yenb | | | MSCO | | | | Sell | | | | 2,547,776,000 | | | | 23,433,312 | | | | | | | | 6/18/21 | | | | 163,219 | | | | (2,676 | ) |
Mexican Pesob | | | MSCO | | | | Buy | | | | 52,832,000 | | | | 2,493,439 | | | | | | | | 6/18/21 | | | | 153,514 | | | | — | |
Mexican Pesob | | | MSCO | | | | Sell | | | | 3,325,000 | | | | 162,904 | | | | | | | | 6/18/21 | | | | 105 | | | | (3,789 | ) |
New Zealand Dollarb | | | MSCO | | | | Buy | | | | 6,057,000 | | | | 4,348,221 | | | | | | | | 6/18/21 | | | | 39,865 | | | | (579 | ) |
New Zealand Dollarb | | | MSCO | | | | Sell | | | | 2,074,000 | | | | 1,489,106 | | | | | | | | 6/18/21 | | | | 202 | | | | (13,439 | ) |
Swedish Krona | | | BZWS | | | | Sell | | | | 1,000 | | | | 117 | | | | | | | | 6/18/21 | | | | — | | | | (3 | ) |
Swiss Franc | | | BNYM | | | | Sell | | | | 11,901,194 | | | | 13,129,354 | | | | | | | | 6/18/21 | | | | 2,571 | | | | (119,787 | ) |
Swiss Francb | | | MSCO | | | | Buy | | | | 4,978,000 | | | | 5,531,483 | | | | | | | | 6/18/21 | | | | 13,391 | | | | (4,134 | ) |
Swiss Francb | | | MSCO | | | | Sell | | | | 6,518,000 | | | | 7,046,538 | | | | | | | | 6/18/21 | | | | — | | | | (208,291 | ) |
Australian Dollar | | | BNYM | | | | Sell | | | | 989,000 | | | | 766,551 | | | | | | | | 6/24/21 | | | | 1,077 | | | | — | |
Canadian Dollar | | | BNYM | | | | Buy | | | | 1,060,000 | | | | 860,812 | | | | | | | | 6/24/21 | | | | 17,369 | | | | — | |
Canadian Dollar | | | BNYM | | | | Sell | | | | 3,267,000 | | | | 2,601,103 | | | | | | | | 6/24/21 | | | | — | | | | (105,518 | ) |
Euro | | | BNYM | | | | Buy | | | | 645,000 | | | | 784,378 | | | | | | | | 6/24/21 | | | | 4,727 | | | | — | |
Euro | | | BNYM | | | | Sell | | | | 5,276,000 | | | | 6,275,667 | | | | | | | | 6/24/21 | | | | — | | | | (179,087 | ) |
British Pound | | | BNYM | | | | Sell | | | | 1,089,000 | | | | 1,506,628 | | | | | | | | 6/29/21 | | | | — | | | | (40,577 | ) |
Canadian Dollar | | | BNYM | | | | Sell | | | | 4,209,000 | | | | 3,418,608 | | | | | | | | 6/29/21 | | | | 1,966 | | | | (70,377 | ) |
Euro | | | BNYM | | | | Sell | | | | 1,425,000 | | | | 1,683,025 | | | | | | | | 6/29/21 | | | | — | | | | (60,515 | ) |
British Pound | | | JPHQ | | | | Buy | | | | 180,000 | | | | 249,917 | | | | | | | | 6/30/21 | | | | 5,820 | | | | — | |
British Pound | | | JPHQ | | | | Sell | | | | 1,150,000 | | | | 1,579,440 | | | | | | | | 6/30/21 | | | | — | | | | (54,433 | ) |
British Pound | | | MSCO | | | | Sell | | | | 665,000 | | | | 928,555 | | | | | | | | 6/30/21 | | | | — | | | | (16,250 | ) |
Canadian Dollar | | | JPHQ | | | | Sell | | | | 910,000 | | | | 721,386 | | | | | | | | 6/30/21 | | | | — | | | | (32,518 | ) |
Euro | | | JPHQ | | | | Sell | | | | 4,210,000 | | | | 4,986,900 | | | | | | | | 6/30/21 | | | | — | | | | (164,289 | ) |
Colombian Peso | | | MSCS | | | | Sell | | | | 424,857,000 | | | | 116,425 | | | | | | | | 7/08/21 | | | | 2,113 | | | | — | |
Euro | | | BOFA | | | | Sell | | | | 370,000 | | | | 445,945 | | | | | | | | 7/26/21 | | | | — | | | | (7,003 | ) |
Euro | | | BZWS | | | | Sell | | | | 115,000 | | | | 138,572 | | | | | | | | 7/26/21 | | | | — | | | | (2,209 | ) |
British Pound | | | DBAB | | | | Sell | | | | 166,000 | | | | 230,517 | | | | | | | | 7/30/21 | | | | — | | | | (5,332 | ) |
Chinese Yuan | | | JPHQ | | | | Buy | | | | 6,383,934 | | | | 1,000,000 | | | | | | | | 7/30/21 | | | | — | | | | (183 | ) |
Chinese Yuan | | | JPHQ | | | | Sell | | | | 6,381,698 | | | | 1,000,000 | | | | | | | | 7/30/21 | | | | 533 | | | | — | |
Euro | | | HSBC | | | | Sell | | | | 125,000 | | | | 151,376 | | | | | | | | 8/17/21 | | | | — | | | | (1,713 | ) |
Colombian Peso | | | JPHQ | | | | Sell | | | | 3,369,285,912 | | | | 872,081 | | | | | | | | 8/18/21 | | | | — | | | | (32,636 | ) |
Czech Koruna | | | JPHQ | | | | Buy | | | | 39,591,296 | | | | 1,880,000 | | | | | | | | 8/18/21 | | | | 15,825 | | | | — | |
Indonesian Rupiah | | | JPHQ | | | | Buy | | | | 27,062,910,000 | | | | 1,890,000 | | | | | | | | 8/18/21 | | | | — | | | | (8,316 | ) |
Indonesian Rupiah | | | JPHQ | | | | Sell | | | | 36,123,719,108 | | | | 2,469,662 | | | | | | | | 8/18/21 | | | | — | | | | (42,021 | ) |
Mexican Peso | | | JPHQ | | | | Buy | | | | 75,650,196 | | | | 3,740,000 | | | | | | | | 8/18/21 | | | | 24,202 | | | | — | |
Mexican Peso | | | JPHQ | | | | Sell | | | | 64,761,758 | | | | 3,189,472 | | | | | | | | 8/18/21 | | | | — | | | | (32,943 | ) |
Philippine Peso | | | JPHQ | | | | Sell | | | | 54,994,145 | | | | 1,136,243 | | | | | | | | 8/18/21 | | | | — | | | | (11,890 | ) |
Polish Zloty | | | JPHQ | | | | Buy | | | | 5,628,560 | | | | 1,520,000 | | | | | | | | 8/18/21 | | | | 11,464 | | | | — | |
Russian Ruble | | | JPHQ | | | | Buy | | | | 25,889,705 | | | | 341,320 | | | | | | | | 8/18/21 | | | | 8,302 | | | | — | |
Russian Ruble | | | JPHQ | | | | Sell | | | | 26,719,139 | | | | 351,199 | | | | | | | | 8/18/21 | | | | — | | | | (9,624 | ) |
South African Rand | | | JPHQ | | | | Sell | | | | 59,357,977 | | | | 4,161,673 | | | | | | | | 8/18/21 | | | | — | | | | (99,765 | ) |
South Korean Won | | | JPHQ | | | | Buy | | | | 4,196,940,906 | | | | 3,772,727 | | | | | | | | 8/18/21 | | | | — | | | | (8,886 | ) |
Swedish Krona | | | MSCO | | | | Sell | | | | 1,500,000 | | | | 177,296 | | | | | | | | 8/27/21 | | | | — | | | | (3,463 | ) |
Taiwan Dollar | | | JPHQ | | | | Buy | | | | 54,940,000 | | | | 2,000,000 | | | | | | | | 8/31/21 | | | | — | | | | (9,036 | ) |
Taiwan Dollar | | | JPHQ | | | | Sell | | | | 222,300,000 | | | | 8,000,000 | | | | | | | | 8/31/21 | | | | — | | | | (55,904 | ) |
Brazilian Real | | | BOFA | | | | Sell | | | | 1,192,000 | | | | 222,359 | | | | | | | | 9/02/21 | | | | — | | | | (4,121 | ) |
New Zealand Dollar | | | JPHQ | | | | Sell | | | | 697,421 | | | | 650,000 | | | | AUD | | | | 9/15/21 | | | | 233 | | | | (2,023 | ) |
Chinese Yuan | | | JPHQ | | | | Sell | | | | 1,962,117 | | | | 250,000 | | | | EUR | | | | 9/15/21 | | | | 703 | | | | (720 | ) |
New Zealand Dollar | | | JPHQ | | | | Buy | | | | 400,000 | | | | 291,562 | | | | | | | | 9/15/21 | | | | — | | | | (1,904 | ) |
South Korean Won | | | JPHQ | | | | Buy | | | | 1,126,850,000 | | | | 1,000,000 | | | | | | | | 9/15/21 | | | | 10,609 | | | | — | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 71 |
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) | | | | | | | | | | | | | | | | |
Taiwan Dollar | | | JPHQ | | | | Sell | | | | 16,544,340 | | | | 600,000 | | | | | | | | 9/15/21 | | | $ | 397 | | | $ | — | |
Taiwan Dollar | | | JPHQ | | | | Buy | | | | 218,296,000 | | | | 8,000,000 | | | | | | | | 3/01/22 | | | | 5,577 | | | | (81,425 | ) |
Taiwan Dollar | | | JPHQ | | | | Sell | | | | 53,886,000 | | | | 2,000,000 | | | | | | | | 3/01/22 | | | | 43,937 | | | | — | |
South Korean Won | | | JPHQ | | | | Buy | | | | 335,400,900 | | | | 300,000 | | | | | | | | 3/16/22 | | | | 861 | | | | — | |
South Korean Won | | | JPHQ | | | | Sell | | | | 335,106,000 | | | | 300,000 | | | | | | | | 3/16/22 | | | | — | | | | (596 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Forward Exchange Contracts | | | $ | 2,136,929 | | | $ | (4,112,668 | ) |
| | | | | | | | | | | | | |
Net unrealized appreciation (depreciation) | | | | | | | $ | (1,975,739 | ) |
| | | | | |
*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, 2021, 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 Mexico | | | (1.00)% | | | | Quarterly | | | | | | | | 6/20/23 | | | | 1,763,000 | | | | | | | $ | (23,518 | ) | | $ | (441 | ) | | $ | (23,077 | ) | | | | |
Government of Mexico | | | (1.00)% | | | | Quarterly | | | | | | | | 12/20/23 | | | | 4,039,000 | | | | | | | | (58,543 | ) | | | (11,786 | ) | | | (46,757 | ) | | | | |
Government of Mexico | | | (1.00)% | | | | Quarterly | | | | | | | | 12/20/23 | | | | 61,000 | | | | | | | | (884 | ) | | | (945 | ) | | | 61 | | | | | |
Government of Mexico | | | (1.00)% | | | | Quarterly | | | | | | | | 6/20/25 | | | | 142,000 | | | | | | | | (1,706 | ) | | | (1,790 | ) | | | 84 | | | | | |
Government of South Africa | | | (1.00)% | | | | Quarterly | | | | | | | | 12/20/24 | | | | 714,000 | | | | | | | | 10,302 | | | | 66,967 | | | | (56,665 | ) | | | | |
Government of South Africa | | | (1.00)% | | | | Quarterly | | | | | | | | 12/20/24 | | | | 3,065,000 | | | | | | | | 44,223 | | | | 90,737 | | | | (46,514 | ) | | | | |
Government of South Africa | | | (1.00)% | | | | Quarterly | | | | | | | | 12/20/24 | | | | 4,478,000 | | | | | | | | 64,610 | | | | 132,619 | | | | (68,009 | ) | | | | |
Government of Turkey | | | (1.00)% | | | | Quarterly | | | | | | | | 6/20/25 | | | | 909,000 | | | | | | | | 99,551 | | | | 206,196 | | | | (106,645 | ) | | | | |
| Traded Index | | | | | | | | | | | | | | | | | | | |
iTraxx Europe Crossover S35 | | | (5.00)% | | | | Quarterly | | | | | | | | 6/20/26 | | | | 3,030,000 | | | | EUR | | | | (439,001 | ) | | | (411,252 | ) | | | (27,749 | ) | | | | |
| Contracts to Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | |
| Single Name | | | | | | | | | | | | | | | | | | | |
Government of South Africa | | | 1.00% | | | | Quarterly | | | | | | | | 12/20/24 | | | | 2,847,000 | | | | | | | | (41,078 | ) | | | (221,735 | ) | | | 180,657 | | | | BB- | |
Government of South Africa | | | 1.00% | | | | Quarterly | | | | | | | | 12/20/24 | | | | 874,000 | | | | | | | | (12,610 | ) | | | (25,494 | ) | | | 12,884 | | | | BB- | |
Government of Turkey | | | 1.00% | | | | Quarterly | | | | | | | | 12/20/22 | | | | 826,000 | | | | | | | | (33,851 | ) | | | (37,352 | ) | | | 3,501 | | | | B+ | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | $ | (392,505 | ) | | $ | (214,276 | ) | | $ | (178,229 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 72 | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/21 | | | | 32,000 | | | | EUR | | | $ | (624 | ) | | $ | 514 | | | $ | (1,138 | ) | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/21 | | | | 48,000 | | | | EUR | | | | (936 | ) | | | 575 | | | | (1,511 | ) | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/21 | | | | 64,000 | | | | EUR | | | | (1,248 | ) | | | 1,028 | | | | (2,276 | ) | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 73,000 | | | | EUR | | | | (1,723 | ) | | | (814 | ) | | | (909 | ) | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 44,000 | | | | EUR | | | | (1,038 | ) | | | (518 | ) | | | (520 | ) | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 44,000 | | | | EUR | | | | (1,038 | ) | | | (494 | ) | | | (544 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/21 | | | | 44,000 | | | | | | | | (1,113 | ) | | | 2,443 | | | | (3,556 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/21 | | | | 73,000 | | | | | | | | (1,846 | ) | | | 3,301 | | | | (5,147 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/21 | | | | 73,000 | | | | | | | | (1,846 | ) | | | 5,826 | | | | (7,672 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/21 | | | | 147,000 | | | | | | | | (3,718 | ) | | | 7,014 | | | | (10,732 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | CITI | | | | 12/20/21 | | | | 44,000 | | | | | | | | (1,113 | ) | | | 2,963 | | | | (4,076 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | CITI | | | | 12/20/21 | | | | 147,000 | | | | | | | | (3,718 | ) | | | 6,235 | | | | (9,953 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | FBCO | | | | 12/20/21 | | | | 29,000 | | | | | | | | (733 | ) | | | 1,235 | | | | (1,968 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | FBCO | | | | 12/20/21 | | | | 44,000 | | | | | | | | (1,113 | ) | | | 2,165 | | | | (3,278 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/21 | | | | 29,000 | | | | | | | | (733 | ) | | | 1,241 | | | | (1,974 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/21 | | | | 73,000 | | | | | | | | (1,846 | ) | | | 6,511 | | | | (8,357 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/21 | | | | 29,000 | | | | | | | | (734 | ) | | | 2,033 | | | | (2,767 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/21 | | | | 73,000 | | | | | | | | (1,846 | ) | | | 3,351 | | | | (5,197 | ) | | | | |
American Airlines Inc. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 241,000 | | | | | | | | 12,790 | | | | 44,750 | | | | (31,960 | ) | | | | |
American Axle & Manufacturing Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/25 | | | | 281,000 | | | | | | | | (21,623 | ) | | | (12,120 | ) | | | (9,503 | ) | | | | |
American Axle & Manufacturing Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 44,000 | | | | | | | | (3,386 | ) | | | (2,530 | ) | | | (856 | ) | | | | |
American Axle & Manufacturing Inc. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 44,000 | | | | | | | | (3,386 | ) | | | (2,530 | ) | | | (856 | ) | | | | |
American Axle & Manufacturing Inc. | | | (5.00)% | | | | Quarterly | | | | MSCS | | | | 12/20/25 | | | | 73,000 | | | | | | | | (5,617 | ) | | | (4,197 | ) | | | (1,420 | ) | | | | |
Dell Technologies Inc. | | | (1.00)% | | | | Quarterly | | | | BNPP | | | | 12/20/25 | | | | 29,000 | | | | | | | | (171 | ) | | | 1,824 | | | | (1,995 | ) | | | | |
Dell Technologies Inc. | | | (1.00)% | | | | Quarterly | | | | BNPP | | | | 12/20/25 | | | | 316,000 | | | | | | | | (1,868 | ) | | | 15,177 | | | | (17,045 | ) | | | | |
Dell Technologies Inc. | | | (1.00)% | | | | Quarterly | | | | CITI | | | | 12/20/25 | | | | 37,000 | | | | | | | | (219 | ) | | | 1,923 | | | | (2,142 | ) | | | | |
Dell Technologies Inc. | | | (1.00)% | | | | Quarterly | | | | CITI | | | | 12/20/25 | | | | 59,000 | | | | | | | | (349 | ) | | | 3,527 | | | | (3,876 | ) | | | | |
Dell Technologies Inc. | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 190,000 | | | | | | | | (1,123 | ) | | | 7,992 | | | | (9,115 | ) | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/25 | | | | 31,000 | | | | | | | | 12,795 | | | | 14,381 | | | | (1,586 | ) | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/25 | | | | 44,000 | | | | | | | | 18,161 | | | | 20,434 | | | | (2,273 | ) | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 31,000 | | | | | | | | 12,080 | | | | 15,023 | | | | (2,943 | ) | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 1,000 | | | | | | | | 413 | | | | 408 | | | | 5 | | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 17,000 | | | | | | | | 7,017 | | | | 6,944 | | | | 73 | | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 17,000 | | | | | | | | 7,017 | | | | 6,948 | | | | 69 | | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 29,000 | | | | | | | | 11,970 | | | | 9,846 | | | | 2,124 | | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 33,000 | | | | | | | | 13,621 | | | | 12,901 | | | | 720 | | | | | |
Dow Inc. | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 78,000 | | | | | | | | (1,757 | ) | | | (462 | ) | | | (1,295 | ) | | | | |
Dow Inc. | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 78,000 | | | | | | | | (1,757 | ) | | | (431 | ) | | | (1,326 | ) | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 73 |
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) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dow Inc. | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 78,000 | | | | | | | $ | (1,757 | ) | | $ | (307 | ) | | $ | (1,450 | ) | | | | |
GE Capital Funding LLC | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 147,000 | | | | | | | | (1,936 | ) | | | 4,684 | | | | (6,620 | ) | | | | |
GE Capital Funding LLC | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 221,000 | | | | | | | | (2,911 | ) | | | 7,944 | | | | (10,855 | ) | | | | |
GE Capital Funding LLC | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 148,000 | | | | | | | | (1,950 | ) | | | 4,410 | | | | (6,360 | ) | | | | |
GE Capital Funding LLC | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 221,000 | | | | | | | | (2,911 | ) | | | 8,214 | | | | (11,125 | ) | | | | |
Government of Brazil | | | (1.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/25 | | | | 201,000 | | | | | | | | 2,971 | | | | 18,989 | | | | (16,018 | ) | | | | |
Government of Italy | | | (1.00)% | | | | Quarterly | | | | BOFA | | | | 6/20/24 | | | | 132,000 | | | | | | | | (2,195 | ) | | | 1,898 | | | | (4,093 | ) | | | | |
Government of Italy | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/24 | | | | 218,000 | | | | | | | | (3,626 | ) | | | 1,459 | | | | (5,085 | ) | | | | |
Government of Mexico | | | (1.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/26 | | | | 1,510,000 | | | | | | | | (7,693 | ) | | | 5,865 | | | | (13,558 | ) | | | | |
Kohl’s Corp. | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 899,000 | | | | | | | | 6,758 | | | | 74,166 | | | | (67,408 | ) | | | | |
Kohl’s Corp. | | | (1.00)% | | | | Quarterly | | | | MSCO | | | | 12/20/25 | | | | 455,000 | | | | | | | | 3,420 | | | | 38,051 | | | | (34,631 | ) | | | | |
Lloyds Bank PLC | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/24 | | | | 540,000 | | | | EUR | | | | (10,590 | ) | | | 1,634 | | | | (12,224 | ) | | | | |
Loxam SAS | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/26 | | | | 100,000 | | | | EUR | | | | (7,637 | ) | | | 1,821 | | | | (9,458 | ) | | | | |
MBIA Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 24,000 | | | | | | | | (911 | ) | | | (298 | ) | | | (613 | ) | | | | |
MBIA Inc. | | | (5.00)% | | | | Quarterly | | | | CITI | | | | 6/20/21 | | | | 340,000 | | | | | | | | (3,957 | ) | | | (809 | ) | | | (3,148 | ) | | | | |
MBIA Inc. | | | (5.00)% | | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 40,000 | | | | | | | | (1,518 | ) | | | (1,380 | ) | | | (138 | ) | | | | |
MBIA Inc. | | | (5.00)% | | | | Quarterly | | | | CITI | | | | 12/20/24 | | | | 112,000 | | | | | | | | (4,256 | ) | | | (14,004 | ) | | | 9,748 | | | | | |
MBIA Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/22 | | | | 25,000 | | | | | | | | (949 | ) | | | (682 | ) | | | (267 | ) | | | | |
MBIA Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/24 | | | | 244,000 | | | | | | | | (9,271 | ) | | | (28,704 | ) | | | 19,433 | | | | | |
Simon Property Group LP | | | (1.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/25 | | | | 625,000 | | | | | | | | (9,077 | ) | | | 10,786 | | | | (19,863 | ) | | | | |
Simon Property Group LP | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 291,000 | | | | | | | | (4,226 | ) | | | 5,637 | | | | (9,863 | ) | | | | |
Simon Property Group LP | | | (1.00)% | | | | Quarterly | | | | MSCO | | | | 12/20/25 | | | | 531,000 | | | | | | | | (7,711 | ) | | | 10,287 | | | | (17,998 | ) | | | | |
Stena AB | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/24 | | | | 87,000 | | | | EUR | | | | (696 | ) | | | 4,769 | | | | (5,465 | ) | | | | |
Stena AB | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/24 | | | | 186,000 | | | | EUR | | | | (1,487 | ) | | | 9,978 | | | | (11,465 | ) | | | | |
Stena AB | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/26 | | | | 29,000 | | | | EUR | | | | 513 | | | | 1,339 | | | | (826 | ) | | | | |
Transocean Inc. | | | (5.00)% | | | | Quarterly | | | | FBCO | | | | 12/20/24 | | | | 164,000 | | | | | | | | 38,960 | | | | 75,106 | | | | (36,146 | ) | | | | |
Transocean Inc. | | | (5.00)% | | | | Quarterly | | | | FBCO | | | | 6/20/25 | | | | 52,000 | | | | | | | | 14,095 | | | | 26,875 | | | | (12,780 | ) | | | | |
Transocean Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/24 | | | | 84,000 | | | | | | | | 19,955 | | | | 2,708 | | | | 17,247 | | | | | |
Transocean Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/24 | | | | 125,000 | | | | | | | | 29,695 | | | | 7,787 | | | | 21,908 | | | | | |
Transocean Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/24 | | | | 185,000 | | | | | | | | 43,949 | | | | 19,880 | | | | 24,069 | | | | | |
Transocean Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 240,000 | | | | | | | | 69,956 | | | | 171,081 | | | | (101,125 | ) | | | | |
US Steel Corp. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 16,000 | | | | | | | | (1,569 | ) | | | 3,294 | | | | (4,863 | ) | | | | |
US Steel Corp. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 16,000 | | | | | | | | (1,569 | ) | | | 4,096 | | | | (5,665 | ) | | | | |
US Steel Corp. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 42,000 | | | | | | | | (4,118 | ) | | | 7,808 | | | | (11,926 | ) | | | | |
US Steel Corp. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 68,000 | | | | | | | | (6,667 | ) | | | 15,056 | | | | (21,723 | ) | | | | |
| Contracts to Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | |
| Single Name | | | | | | | | | | | | | | | | | | | |
Groupe Casino | | | 5.00% | | | | Quarterly | | | | FBCO | | | | 6/20/26 | | | | 149,000 | | | | EUR | | | | (3,947 | ) | | | (5,227 | ) | | | 1,280 | | | | B | |
Transocean Inc. | | | 1.00% | | | | Quarterly | | | | BZWS | | | | 12/20/24 | | | | 37,000 | | | | | | | | (13,286 | ) | | | (23,739 | ) | | | 10,453 | | | | CCC- | |
Transocean Inc. | | | 1.00% | | | | Quarterly | | | | BZWS | | | | 12/20/24 | | | | 10,000 | | | | | | | | (3,591 | ) | | | (6,240 | ) | | | 2,649 | | | | CCC- | |
Transocean Inc. | | | 1.00% | | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 52,000 | | | | | | | | (20,973 | ) | | | (36,185 | ) | | | 15,212 | | | | CCC- | |
| | | | | | | | | | |
| | | | | | |
| 74 | | | | | | | | 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 Sell Protectionc,d (continued) | | | | | | | | | | | | | | | | | | | | | | |
| Single Name (continued) | | | | | | | | | | | | | | | | | | | |
Transocean Inc. | | | 1.00% | | | | Quarterly | | | | MSCS | | | | 12/20/24 | | | | 270,000 | | | | | | | $ | (96,951 | ) | | $ | (178,371 | ) | | $ | 81,420 | | | | CCC- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total OTC Swap Contracts | | | | | | | | | | | $ | 17,978 | | | $ | 434,093 | | | $ | (416,115 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Credit Default Swap Contracts | | | | | | | | | | | $ | (374,527 | ) | | $ | 219,817 | | | $ | (594,344 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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.
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, 2021, 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 4.79%
Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 6/14/23 | | | | 43,427,675 | MXN | | $ | (20,927 | ) |
Receive Fixed 5.70%
Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 6/10/26 | | | | 43,547,002 | MXN | | | (43,666 | ) |
Receive Floating rate 3-Month USD LIBOR
Pay Fixed rate 0.50% | | | Semi-Annually | | | | 6/16/26 | | | | 1,400,000 | | | | (7,566 | ) |
Receive Floating rate 3-Month USD LIBOR
Pay Fixed rate 0.50% | | | Semi-Annually | | | | 6/16/26 | | | | 1,150,000 | | | | (4,800 | ) |
Receive Fixed 2.75%
Pay Floating rate China 7-Day Repo | | | Quarterly | | | | 8/18/26 | | | | 37,000,000 | CNY | | | (2,779 | ) |
Receive Fixed 5.11%
Pay Floating rate 1-Day-COPIBR | | | Quarterly | | | | 8/18/26 | | | | 7,805,609,030 | COP | | | 6,143 | |
Receive Floating rate 6 Month-SOFR
Pay Fixed rate 1.63% | | | Semi-Annually | | | | 6/16/31 | | | | 935,928 | SGD | | | (5,531 | ) |
Receive Floating rate 6 Month-SOFR
Pay Fixed rate 1.65% | | | Semi-Annually | | | | 6/16/31 | | | | 1,421,565 | SGD | | | (11,140 | ) |
Receive Floating rate 6 Month-WIBOR
Pay Fixed rate 1.91% | | | Semi-Annually | | | | 6/16/31 | | | | 16,101,906 | PLN | | | 7,383 | |
Receive Fixed 7.00%
Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 8/06/31 | | | | 37,105,000 | MXN | | | 13,067 | |
Receive Fixed 7.64%
Pay Floating rate 3-Month-JIBAR | | | Quarterly | | | | 8/18/31 | | | | 12,134,831 | ZAR | | | 8,711 | |
| | | | | | | | | | | | | | | | |
Total Interest Rate Swap Contracts | | | $ | (61,105 | ) |
| | | | | | | | | | | | | | | | |
*In U.S. dollars unless otherwise indicated.
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 75 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS
Franklin K2 Alternative Strategies Fund (continued)
At May 31, 2021, 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* | | | Value/Unrealized
Appreciation
(Depreciation) | |
| OTC Swap Contracts | |
| Equity Contracts – Longa | |
Alexion Pharmaceuticals Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | BZWS | | | | 3/28/22 | | | | 6,656,228 | | | $ | 16,682 | |
Alexion Pharmaceuticals Inc. | | 1-Day FEDEF + 0.40% | | | Monthly | | | | MSCS | | | | 11/22/22 | | | | 5,149,399 | | | | 713,044 | |
Amundi SA | | 1-Day EONIA + 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 266,038 | EUR | | | 170,755 | |
Anima Holding SpA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/21 | | | | 1,074,674 | EUR | | | (35,874 | ) |
Barclays PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/20/22 | | | | 968,119 | GBP | | | (14,927 | ) |
BHP Group PLC | | 1-Day FEDEF + 0.40% | | | Monthly | | | | MSCS | | | | 11/22/22 | | | | 523,119 | | | | (26,858 | ) |
BMF | | — | | | Monthly | | | | MSCO | | | | 12/23/22 | | | | 1,687,547 | | | | 48,648 | |
BNP Paribas SA | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 1,283,133 | EUR | | | 1,041,839 | |
Brookfield Property Partners | | 1-Month LIBOR + 0.65% | | | Monthly | | | | BZWS | | | | 1/05/22 | | | | 956,163 | | | | 9,201 | |
Brookfield Property Partners | | 1-Day FEDEF + 1.00% | | | Monthly | | | | MSCS | | | | 11/22/22 | | | | 2,625,315 | | | | 267,871 | |
Bureau Veritas SA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 12/21/21 | | | | 183,137 | EUR | | | 2,266 | |
Bureau Veritas SA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 897,751 | EUR | | | 402,729 | |
Capitaland Ltd. | | 1-Month SIBOR + 0.55% | | | Monthly | | | | MSCO | | | | 5/22/23 | | | | 233,751 | SGD | | | 2,638 | |
Christian Dior SE | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | BZWS | | | | 5/25/22 | | | | 766,504 | EUR | | | 13,426 | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 1/20/22 | | | | 229,450 | | | | (13,229 | ) |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 4/20/22 | | | | 37,164 | | | | (2,044 | ) |
Croda International PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/20/22 | | | | 893,156 | GBP | | | 66,991 | |
Crown Holdings Inc. | | 1-Day FEDEF + 0.40% | | | Monthly | | | | MSCO | | | | 11/22/22 | | | | 2,473,604 | | | | 113,944 | |
Crown Resorts Ltd. | | 1-Month BBSW + 0.55% | | | Monthly | | | | MSCO | | | | 12/22/21 | | | | 243,988 | AUD | | | 14,111 | |
Danone SA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCO | | | | 12/21/21 | | | | 1,997,738 | EUR | | | 37,541 | |
Danone SA | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 3,640,187 | EUR | | | 374,751 | |
Deutsche Wohnen SE | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | BZWS | | | | 5/26/22 | | | | 1,501,273 | EUR | | | (694 | ) |
Dialog Semiconductor PLC | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCS | | | | 9/06/21 | | | | 820,076 | EUR | | | 8,256 | |
Electricite de France SA | | 1-Day EONIA + 0.40% | | | Monthly | | | | MSCS | | | | 9/23/22 | | | | 1,384,951 | EUR | | | (3,036 | ) |
Elisa OYJ | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCO | | | | 12/21/21 | | | | 258,198 | EUR | | | (3,366 | ) |
Elisa OYJ | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 355,012 | EUR | | | 147,140 | |
Energy Transfer LP | | 1-Month LIBOR + 0.40% | | | Monthly | | | | BOFA | | | | 11/09/21 | | | | 124,172 | | | | 28,254 | |
Energy Transfer LP | | 1-Month LIBOR + 0.90% | | | Monthly | | | | GSCO | | | | 4/20/22 | | | | 41,130 | | | | 9,322 | |
Energy Transfer LP | | 1-Month LIBOR + 0.90% | | | Monthly | | | | GSCO | | | | 6/01/22 | | | | 223,293 | | | | (2,454 | ) |
Engie SA | | 1-Day EONIA + 0.40% | | | Monthly | | | | MSCS | | | | 9/23/22 | | | | 4,065,076 | EUR | | | (175,774 | ) |
Entain PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | BZWS | | | | 2/28/22 | | | | 1,019,573 | GBP | | | (18,281 | ) |
Enterprise Products Partners LP | | 1-Month LIBOR + 0.90% | | | Monthly | | | | BOFA | | | | 3/04/22 | | | | 97,396 | | | | 2,693 | |
Enterprise Products Partners LP | | 1-Month LIBOR + 0.90% | | | Monthly | | | | GSCO | | | | 3/08/22 | | | | 256,165 | | | | 6,914 | |
Equiniti Group PLC | | 1-Day SONIA + 0.40% | | | Monthly | | | | BZWS | | | | 5/16/22 | | | | 314,255 | GBP | | | 34,443 | |
ESG Core Investments BV | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCS | | | | 9/06/21 | | | | 41,835 | EUR | | | (3,306 | ) |
Evolution Gaming Group | | 1-Week STIBOR + 0.65% | | | Monthly | | | | MSCS | | | | 2/06/23 | | | | 3,891,869 | SEK | | | 219,449 | |
Ferguson PLC | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCO | | | | 9/23/22 | | | | 1,025,035 | | | | 342,940 | |
Flutter Entertainment PLC | | 1-Day SONIA + 0.65% | | | Monthly | | | | MSCO | | | | 2/08/22 | | | | 221,348 | GBP | | | 13,892 | |
Frasers Group PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/20/22 | | | | 840,706 | GBP | | | 3,805 | |
Gamesys Group PLC | | 1-Day SONIA + 0.65% | | | Monthly | | | | MSCO | | | | 2/08/22 | | | | 453,724 | GBP | | | (9,982 | ) |
Gamesys Group PLC | | 1-Day SONIA + 0.40% | | | Monthly | | | | BZWS | | | | 3/29/22 | | | | 610,268 | GBP | | | 8,748 | |
GrandVision NV | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCS | | | | 9/06/21 | | | | 669,751 | EUR | | | 96,142 | |
GrandVision NV | | 1-Month LIBOR + 0.05% | | | Monthly | | | | BZWS | | | | 5/11/22 | | | | 5,563,858 | EUR | | | 101,125 | |
HeidelbergCement AG | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/21 | | | | 2,175,617 | EUR | | | (19,484 | ) |
Hermes International | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCO | | | | 12/21/21 | | | | 489,843 | EUR | | | 48,754 | |
Hikma Pharmaceuticals PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/20/22 | | | | 109,393 | GBP | | | 6,173 | |
Iliad SA | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 120,001 | EUR | | | 32,109 | |
ITV PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/20/22 | | | | 1,651,001 | GBP | | | 51,864 | |
Kering SA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCO | | | | 12/21/21 | | | | 889,657 | EUR | | | 68,665 | |
Kering SA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 1,329,671 | EUR | | | 1,052,341 | |
Kerry Logistics Network Ltd. | | 1-Month HIBOR + 0.55% | | | Monthly | | | | MSCO | | | | 11/24/21 | | | | 917,906 | HKD | | | 1,664 | |
Koninklijke KPN NV | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCO | | | | 9/06/21 | | | | 378,376 | EUR | | | (11,932 | ) |
| | | | | | | | | | |
| | | | | | |
| 76 | | | | | | | | 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 | | | Counterparty | | | Maturity
Date | | | Notional
Value* | | | Value/Unrealized
Appreciation
(Depreciation) | |
| OTC Swap Contracts (continued) | |
| Equity Contracts – Longa (continued) | |
Landmark Infrastructure Partners LP | | 1-Month LIBOR + 0.35% | | | Monthly | | | | BZWS | | | | 5/20/22 | | | | 832,289 | | | $ | (2,067 | ) |
LVMH Moet Hennessy Louis Vuitton SE | | 1-Day EONIA + 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 322,564 | EUR | | | 360,181 | |
Maxim Integrated Products Inc. | | 1-Day FEDEF + 0.40% | | | Monthly | | | | MSCO | | | | 11/22/22 | | | | 990,723 | | | | 261,504 | |
McKesson Europe AG | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCS | | | | 11/03/21 | | | | 632,619 | EUR | | | (48,900 | ) |
Monmouth Real Estate Investment Corp. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | BZWS | | | | 1/19/22 | | | | 676,954 | | | | (6,631 | ) |
Natixis SA | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCO | | | | 9/06/21 | | | | 227,166 | EUR | | | (670 | ) |
Natixis SA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | BZWS | | | | 2/11/22 | | | | 592,549 | EUR | | | (354 | ) |
Nestle SA | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 1/20/22 | | | | 1,579,737 | CHF | | | 34,560 | |
PRA Health Sciences Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | BZWS | | | | 4/12/22 | | | | 488,519 | | | | (1,421 | ) |
PRA Health Sciences Inc. | | 1-Day FEDEF + 0.40% | | | Monthly | | | | MSCO | | | | 11/22/22 | | | | 1,204,371 | | | | 107,693 | |
Rolls-Royce Holdings PLC | | 1-Day SONIA + 0.40% | | | Monthly | | | | MSCS | | | | 9/26/22 | | | | 732,885 | GBP | | | 40,681 | |
RSA Insurance Group PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | BZWS | | | | 9/07/21 | | | | 2,711,273 | GBP | | | 936 | |
RSA Insurance Group PLC | | 1-Day SONIA + 0.65% | | | Monthly | | | | MSCO | | | | 2/08/22 | | | | 1,032,507 | GBP | | | 15,878 | |
Ryanair Holdings PLC | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/21 | | | | 777,972 | EUR | | | (21,936 | ) |
Signature Aviation PLC | | 1-Month LIBOR + 0.75% | | | Monthly | | | | BZWS | | | | 12/20/21 | | | | 4,320,729 | | | | 11,786 | |
Siltronic AG | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCO | | | | 11/03/21 | | | | 363,365 | EUR | | | 296 | |
Siltronic AG | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCS | | | | 11/03/21 | | | | 454,623 | EUR | | | 5,369 | |
Siltronic AG | | 1-Month LIBOR + 0.40% | | | Monthly | | | | BZWS | | | | 2/28/22 | | | | 2,543,940 | EUR | | | 60,008 | |
Smith & Nephew PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCO | | | | 4/20/22 | | | | 4,228,731 | GBP | | | (5,231 | ) |
Smiths Group PLC | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 4/20/22 | | | | 1,020,062 | GBP | | | (31,566 | ) |
Societe Generale SA | | 1-Month LIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 802,017 | EUR | | | 591,114 | |
Stroeer SE & Co. KGaA | | 1-Month EURIBOR + 0.40% | | | Monthly | | | | MSCS | | | | 12/21/21 | | | | 991,675 | EUR | | | (54,247 | ) |
Suez SA | | 1-Day EONIA + 0.65% | | | Monthly | | | | MSCO | | | | 9/06/21 | | | | 431,334 | EUR | | | 79,413 | |
TGOOD | | 1-Day FEDEF + 0.30% | | | Monthly | | | | MSCS | | | | 9/28/22 | | | | 1,247,402 | | | | 152,847 | |
Vodafone Group PLC | | 1-Day SONIA + 0.65% | | | Monthly | | | | MSCS | | | | 2/08/22 | | | | 951,494 | GBP | | | 194,448 | |
Willis Towers Watson PLC | | 1-Day FEDEF + 0.40% | | | Monthly | | | | MSCS | | | | 11/22/22 | | | | 3,915,070 | | | | 672,135 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | 7,655,715 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Equity Contracts – Shortb | | | | | | | | | | | | | | | | | |
Analog Devices Inc. | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 2/04/22 | | | | 1,047,065 | | | | (231,854 | ) |
Aon PLC | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCS | | | | 2/04/22 | | | | 4,167,982 | | | | (623,746 | ) |
AstraZeneca PLC | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCS | | | | 2/04/22 | | | | 3,563,026 | | | | (444,194 | ) |
BHP Group PLC | | 1-Day FEDEF - 2.02% | | | Monthly | | | | MSCS | | | | 2/04/22 | | | | 624,865 | | | | 18,456 | |
Brookfield Asset Management | | 1-Month LIBOR - 0.35% | | | Monthly | | | | BZWS | | | | 2/02/22 | | | | 426,675 | | | | (6,623 | ) |
Brookfield Asset Management | | 1-Day FEDEF - 0.35% | | | Monthly | | | | BZWS | | | | 2/04/22 | | | | 832,215 | | | | (233,748 | ) |
Capitaland Integrated Commercial Trust | | 1-Day SOFR - 0.50% | | | Monthly | | | | MSCO | | | | 5/22/23 | | | | 20,717 | SGD | | | 92 | |
Carnival Corp. | | 1-Month LIBOR - 0.40% | | | Monthly | | | | MSCS | | | | 9/20/22 | | | | 842,385 | | | | (69,014 | ) |
Colruyt SA | | 1-Day EONIA - 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 1,373,519 | EUR | | | (368,599 | ) |
DJ EURO STOXX 50 Index | | 1-Day EONIA - 0.45% | | | Monthly | | | | MSCO | | | | 3/22/22 | | | | 307,887 | EUR | | | (250,922 | ) |
Elisa OYJ | | 1-Day EONIA - 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 373,207 | EUR | | | (36,678 | ) |
Hannover Rueck SE | | 1-Day EONIA - 0.35% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 532,156 | EUR | | | (125,076 | ) |
Hennes & Mauritz AB | | 1-Week STIBOR - 0.40% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 5,460,052 | SEK | | | (335,183 | ) |
ICON PLC | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 2/04/22 | | | | 630,302 | | | | (78,265 | ) |
ICON PLC | | 1-Month LIBOR - 0.35% | | | Monthly | | | | BZWS | | | | 4/12/22 | | | | 263,376 | | | | 451 | |
JD Sports Fashion PLC | | 1-Day SONIA - 0.30% | | | Monthly | | | | MSCS | | | | 4/20/22 | | | | 165,842 | GBP | | | (7,545 | ) |
L’Oreal SA | | 1-Month LIBOR - 0.48% | | | Monthly | | | | GSCO | | | | 3/14/25 | | | | 536,228 | EUR | | | (394,295 | ) |
LVMH Moet Hennessy Louis Vuitton SE | | 1-Day EONIA - 0.30% | | | Monthly | | | | BZWS | | | | 5/25/22 | | | | 661,984 | EUR | | | (8,495 | ) |
Marks & Spencer Group PLC | | 1-Day SONIA - 0.30% | | | Monthly | | | | MSCS | | | | 4/20/22 | | | | 229,078 | GBP | | | (7,069 | ) |
Morgan Stanley MSHDGKPX Index | | 1-Day EONIA - 0.45% | | | Monthly | | | | MSCO | | | | 5/22/23 | | | | 187,402 | EUR | | | 622 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 77 |
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 | | | Counterparty | | | Maturity
Date | | | Notional
Value* | | | Value/Unrealized
Appreciation
(Depreciation) | |
| OTC Swap Contracts (continued) | |
| Equity Contracts – Shortb (continued) | | | | | | | | | | | | | | | |
Morgan Stanley MSPSCCK2 Index | | 1-Day FEDEF - 0.32% | | | Monthly | | | | MSCO | | | | 9/21/22 | | | | 1,690,979 | | | $ | (14,226 | ) |
Morgan Stanley MSPSFERL Index | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 9/21/22 | | | | 361,088 | | | | (88,924 | ) |
Morgan Stanley MSPSKSS Index | | 1-Day FEDEF - 0.40% | | | Monthly | | | | MSCO | | | | 9/21/22 | | | | 348,303 | | | | (27,067 | ) |
Morgan Stanley MSPSPRMW Index | | 1-Day FEDEF - 0.55% | | | Monthly | | | | MSCO | | | | 9/21/22 | | | | 574,402 | | | | (93,272 | ) |
Morgan Stanley MSPSPRNT Index | | 1-Day FEDEF - 1.48% | | | Monthly | | | | MSCO | | | | 9/21/22 | | | | 22,740 | | | | (520 | ) |
Morgan Stanley MSPSQQQ Index | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 9/21/22 | | | | 164,518 | | | | (14,017 | ) |
Morgan Stanley MSPSVOD Index | | 1-Day FEDEF - 0.39% | | | Monthly | | | | MSCO | | | | 9/21/22 | | | | 655,308 | | | | (33,651 | ) |
Morgan Stanley MSPSXLU Index | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 9/21/22 | | | | 1,061,175 | | | | (112,779 | ) |
Morgan Stanley MSPSXPOH Index | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 9/21/22 | | | | 952,995 | | | | (78,161 | ) |
MSCI World Utilities Sector Gross Index | | 1-Day FEDEF - 0.55% | | | Monthly | | | | MSCS | | | | 9/28/22 | | | | 7,407,647 | | | | 52,077 | |
Next PLC | | 1-Day SONIA - 0.30% | | | Monthly | | | | MSCS | | | | 4/20/22 | | | | 664,431 | GBP | | | 13,486 | |
Nike Inc. | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 3/16/22 | | | | 1,015,332 | | | | (3,787 | ) |
S&P 500 Industrials Index | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCO | | | | 5/15/23 | | | | 238,381 | | | | (3,642 | ) |
Severn Trent PLC | | 1-Day SONIA - 0.35% | | | Monthly | | | | MSCS | | | | 9/26/22 | | | | 523,108 | GBP | | | (5,169 | ) |
Siltronic AG | | 1-Day EONIA - 4.00% | | | Monthly | | | | BZWS | | | | 3/04/22 | | | | 1,166,080 | EUR | | | (3,249 | ) |
Straits Times Index | | 1-Day SOFR - 0.65% | | | Monthly | | | | MSCO | | | | 5/24/23 | | | | 115,160 | SGD | | | (1,857 | ) |
Swisscom AG | | 1-Day SARON - 0.35% | | | Monthly | | | | MSCS | | | | 3/14/25 | | | | 716,548 | CHF | | | (60,985 | ) |
Tesla Inc. | | 1-Day FEDEF - 0.35% | | | Monthly | | | | MSCS | | | | 3/16/22 | | | | 360,440 | | | | 2,128 | |
Tesla Inc. | | 1-Month LIBOR - 0.35% | | | Monthly | | | | GSCO | | | | 12/31/25 | | | | 532,303 | | | | 20,856 | |
United Utilities Group PLC | | 1-Day SONIA - 0.35% | | | Monthly | | | | MSCS | | | | 9/26/22 | | | | 522,629 | GBP | | | (1,628 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | (3,656,072 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| Interest Rate Contracts – Longa | | | | | | | | | | | | | | | | | |
Government of Egypt | | 1-Day FEDEF | | | Monthly | | | | CITI | | | | 7/13/21 | | | | 454,284 | | | | 20,087 | |
Government of Indonesia | | 3-Month LIBOR + 0.70% | | | Monthly | | | | BOFA | | | | 5/18/22 | | | | 2,043,470 | | | | (56,540 | ) |
Government of Indonesia | | 3-Month LIBOR + 0.60% | | | Monthly | | | | DBAB | | | | 6/15/32 | | | | 943,202 | | | | 47,152 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | 10,699 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total – Total Return Swap Contracts | | | | | | | $ | 4,010,342 | |
| | | | | | | | | | | | | | | | | | | | | | |
*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 101.
| | | | | | | | | | |
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| 78 | | | | | | | | 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, 2021
Franklin K2 Alternative Strategies Fund
| | | | |
| |
Assets: | | | | |
Investments in securities: | | | | |
Cost – Unaffiliated issuers | | $ | 1,121,940,112 | |
Cost – Non-controlled affiliates (Note 3f) | | | 3,305,000 | |
Cost – Unaffiliated repurchase agreements | | | 908,116 | |
| | | | |
Value – Unaffiliated issuers† | | $ | 1,300,145,322 | |
Value – Non-controlled affiliates (Note 3f) | | | 3,305,000 | |
Value – Unaffiliated repurchase agreements | | | 908,116 | |
Cash | | | 68,246,799 | |
Restricted cash for OTC derivatives (Note 1f) | | | 2,910,000 | |
Foreign currency, at value (cost $5,773,523) | | | 6,014,526 | |
Receivables: | | | | |
Investment securities sold | | | 23,524,524 | |
Capital shares sold | | | 3,108,613 | |
Dividends and interest | | | 3,690,594 | |
Deposits with brokers for: | | | | |
Exchange traded options written | | | 242,428 | |
Securities sold short | | | 158,411,165 | |
OTC derivative contracts | | | 22,934,429 | |
Futures contracts | | | 9,285,910 | |
Centrally cleared swap contracts | | | 1,299,526 | |
Due from brokers | | | 18,260,437 | |
Variation margin on centrally cleared swap contracts | | | 1,471 | |
OTC swap contracts (upfront payments $931,653) | | | 754,135 | |
Unrealized appreciation on OTC forward exchange contracts | | | 2,136,929 | |
Unrealized appreciation on OTC swap contracts | | | 8,551,796 | |
Other assets | | | 6,507 | |
| | | | |
Total assets | | | 1,633,738,227 | |
| | | | |
Liabilities: | | | | |
Payables: | | | | |
Investment securities purchased | | | 34,636,774 | |
Capital shares redeemed | | | 1,043,381 | |
Management fees | | | 1,911,607 | |
Distribution fees | | | 48,679 | |
Transfer agent fees | | | 244,283 | |
Variation margin on futures contracts | | | 155,807 | |
Deposits from brokers for: | | | | |
OTC derivative contracts | | | 2,910,000 | |
Due to brokers | | | 20,957,535 | |
OTC swap contracts (upfront receipts $414,588) | | | 320,042 | |
Options written, at value (premiums received $534,405) | | | 364,763 | |
Securities sold short, at value (proceeds $233,392,081) | | | 243,198,825 | |
Payable upon return of securities loaned (Note1j) | | | 4,213,116 | |
Unrealized depreciation on OTC forward exchange contracts | | | 4,112,668 | |
Unrealized depreciation on OTC swap contracts | | | 4,957,569 | |
Unrealized depreciation on unfunded loan commitments (Note 10) | | | 34,135 | |
Accrued expenses and other liabilities | | | 534,376 | |
| | | | |
Total liabilities | | | 319,643,560 | |
| | | | |
Net assets, at value | | $ | 1,314,094,667 | |
| | | | |
Net assets consist of: | | | | |
Paid-in capital | | $ | 1,132,956,861 | |
Total distributable earnings (loss) | | | 181,137,806 | |
| | | | |
Net assets, at value | | $ | 1,314,094,667 | |
| | | | |
†Includes securities loaned | | $ | 19,150,252 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these consolidated financial statements. | Annual Report | | | | | | | | 79 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Assets and Liabilities (continued)
May 31, 2021
Franklin K2 Alternative Strategies Fund
| | | | |
| |
| Class A: | | | | |
Net assets, at value | | | $102,137,577 | |
| | | | |
Shares outstanding | | | 8,194,606 | |
| | | | |
Net asset value per sharea | | | $12.46 | |
| | | | |
Maximum offering price per share (net asset value per share ÷ 94.50%) | | | $13.19 | |
| | | | |
| |
| Class C: | | | | |
Net assets, at value | | | $31,541,396 | |
| | | | |
Shares outstanding | | | 2,605,269 | |
| | | | |
Net asset value and maximum offering price per sharea | | | $12.11 | |
| | | | |
| |
| Class R: | | | | |
Net assets, at value | | | $840,217 | |
| | | | |
Shares outstanding | | | 67,516 | |
| | | | |
Net asset value and maximum offering price per share | | | $12.44 | |
| | | | |
| |
| Class R6: | | | | |
Net assets, at value | | | $27,470,869 | |
| | | | |
Shares outstanding | | | 2,183,580 | |
| | | | |
Net asset value and maximum offering price per share | | | $12.58 | |
| | | | |
| |
| Advisor Class: | | | | |
Net assets, at value | | | $1,152,104,608 | |
| | | | |
Shares outstanding | | | 91,805,940 | |
| | | | |
Net asset value and maximum offering price per share | | | $12.55 | |
| | | | |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
| | | | | | | | | | |
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| 80 | | | | | | | | 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, 2021
Franklin K2 Alternative Strategies Fund
| | | | |
| |
Investment income: | | | | |
Dividends: (net of foreign taxes)* | | | | |
Unaffiliated issuers | | $ | 4,572,583 | |
Interest: (net of foreign taxes)~ | | | | |
Unaffiliated issuers | | | 19,143,784 | |
Income from securities loaned: | | | | |
Unaffiliated entities (net of fees and rebates) | | | 226,170 | |
Non-controlled affiliates (Note 3f) | | | 107 | |
| | | | |
Total investment income | | | 23,942,644 | |
| | | | |
Expenses: | | | | |
Management fees (Note 3a) | | | 23,017,970 | |
Distribution fees: (Note 3c) | | | | |
Class A | | | 237,871 | |
Class C | | | 321,960 | |
Class R | | | 4,179 | |
Transfer agent fees: (Note 3e) | | | | |
Class A | | | 95,268 | |
Class C | | | 33,383 | |
Class R | | | 855 | |
Class R6 | | | 8,492 | |
Advisor Class | | | 1,057,020 | |
Custodian fees (Note 4) . | | | 214,993 | |
Reports to shareholders | | | 92,602 | |
Registration and filing fees | | | 114,107 | |
Professional fees | | | 766,084 | |
Trustees’ fees and expenses | | | 439,294 | |
Dividends and interest on securities sold short | | | 2,690,999 | |
Security borrowing fees | | | 2,681,436 | |
Other | | | 160,352 | |
| | | | |
Total expenses | | | 31,936,865 | |
| | | | |
Expense reductions (Note 4) | | | (104,274 | ) |
Expenses waived/paid by affiliates (Note 3f and 3g) | | | (2,183,655 | ) |
| | | | |
Net expenses | | | 29,648,936 | |
| | | | |
Net investment income (loss) | | | (5,706,292 | ) |
| | | | |
Realized and unrealized gains (losses): | | | | |
Net realized gain (loss) from: | | | | |
Investments: | | | | |
Unaffiliated issuers | | | 187,813,217 | |
Written options | | | 1,891,651 | |
Foreign currency transactions | | | 1,119,703 | |
Forward exchange contracts | | | (1,872,053 | ) |
Futures contracts | | | (18,597,565 | ) |
Securities sold short | | | (109,950,828 | ) |
Swap contracts | | | 22,356,557 | |
| | | | |
Net realized gain (loss) | | | 82,760,682 | |
| | | | |
Net change in unrealized appreciation (depreciation) on: | | | | |
Investments: | | | | |
Unaffiliated issuers | | | 57,489,654 | |
Translation of other assets and liabilities denominated in foreign currencies | | | (430,501 | ) |
Forward exchange contracts | | | (2,382,925 | )�� |
Written options | | | 762,742 | |
Futures contracts | | | 6,247,283 | |
Securities sold short | | | 4,898,758 | |
Swap contracts | | | (1,906,710 | ) |
| | | | |
Net change in unrealized appreciation (depreciation) | | | 64,678,301 | |
| | | | |
Net realized and unrealized gain (loss) | | | 147,438,983 | |
| | | | |
Net increase (decrease) in net assets resulting from operations | | $ | 141,732,691 | |
| | | | |
* Foreign taxes withheld on dividends | | $ | 122,477 | |
~ Foreign taxes withheld on interest | | $ | 13,397 | |
| | | | | | | | | | |
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| franklintempleton.com | | The accompanying notes are an integral part of these consolidated financial statements. | Annual Report | | | | | | | | 81 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Net Assets
Franklin K2 Alternative Strategies Fund
| | | | | | | | |
| | | Year Ended May 31, | |
| | |
| | | 2021 | | | 2020 | |
Increase (decrease) in net assets: | | | | | | | | |
Operations: | | | | | | | | |
Net investment income (loss) | | $ | (5,706,292 | ) | | $ | (583,298 | ) |
Net realized gain (loss) | | | 82,760,682 | | | | 450,460 | |
Net change in unrealized appreciation (depreciation) | | | 64,678,301 | | | | (2,651,894 | ) |
| | | | |
Net increase (decrease) in net assets resulting from operations | | | 141,732,691 | | | | (2,784,732 | ) |
| | | | |
Distributions to shareholders: | | | | | | | | |
Class A | | | (770,421 | ) | | | (679,196 | ) |
Class C | | | (270,063 | ) | | | (21,557 | ) |
Class R | | | (6,563 | ) | | | (3,120 | ) |
Class R6 | | | (218,294 | ) | | | (410,046 | ) |
Advisor Class | | | (8,558,261 | ) | | | (9,695,842 | ) |
| | | | |
Total distributions to shareholders | | | (9,823,602 | ) | | | (10,809,761 | ) |
| | | | |
Capital share transactions: (Note 2) | | | | | | | | |
Class A | | | 1,751,000 | | | | (13,345,502 | ) |
Class C | | | (7,911,374 | ) | | | (8,451,161 | ) |
Class R | | | (133,193 | ) | | | 55,826 | |
Class R6 | | | 9,227,168 | | | | (27,551,565 | ) |
Advisor Class | | | 59,488,692 | | | | (56,636,996 | ) |
| | | | |
Total capital share transactions | | | 62,422,293 | | | | (105,929,398 | ) |
| | | | |
Net increase (decrease) in net assets | | | 194,331,382 | | | | (119,523,891 | ) |
Net assets: | | | | | | | | |
Beginning of year | | | 1,119,763,285 | | | | 1,239,287,176 | |
| | | | |
End of year | | $ | 1,314,094,667 | | | $ | 1,119,763,285 | |
| | | | |
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| 82 | | | | | | | | 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
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| franklintempleton.com | | Annual Report | | | | | | | | 83 |
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. Events can 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, an independent pricing service may be used to adjust the value of the Funds’ portfolio securities to the latest indications of fair value at 4 p.m. Eastern time. At May 31, 2021, certain securities may have been fair valued using these procedures, in which case the securities were categorized as Level 2 inputs within the fair value hierarchy (referred to as “market level fair value”). See the Fair Value Measurements note for more information.
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 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
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| 84 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
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 28, 2021.
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.
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 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 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.
The Fund entered into exchange traded futures contracts primarily to manage and/or gain exposure to commodity price, interest rate, equity price and foreign exchange rate 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,
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| franklintempleton.com | | Annual Report | | | | | | | | 85 |
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)
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 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, 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 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
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
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, 2021, 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 counterparties 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 collateral in the form of cash and/or U.S. Government and Agency Securities 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. Any cash collateral received 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. Additionally, the Fund received $15,415,553 in U.S. Government and Agency Securities as collateral. These securities received as collateral are held in segregated accounts with the Fund’s custodian. The Fund cannot repledge or resell these securities received as collateral. As such, the non-cash collateral is excluded from the Consolidated Statement of Assets and Liabilities. 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
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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)
j. Securities Lending (continued)
Operations. The Fund bears the market risk with respect to any cash collateral investment, securities loaned, and the risk that the agent may default on its obligation to the Fund. If the borrower defaults on its 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, 2021, 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, 2021, the net assets of the K2 Subsidiary were $24,016,443 representing 1.8% 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, 2021, 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
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
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.
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, 2021, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
| | | | | | | | | | | | | | | | | | | | |
| |
| | | Year Ended May 31, | |
| | | |
| | | 2021 | | | | | | 2020 | |
| | | | | |
| | | Shares | | | Amount | | | | | | Shares | | | Amount | |
| | | | | |
| Class A Shares: | | | | | | | | | | | | | | | | | | | | |
Shares solda | | | 1,951,153 | | | $ | 23,399,007 | | | | | | | | 1,834,464 | | | $ | 20,825,586 | |
Shares issued in reinvestment of distributions | | | 57,588 | | | | 702,572 | | | | | | | | 55,183 | | | | 634,600 | |
Shares redeemed | | | (1,878,747 | ) | | | (22,350,579 | ) | | | | | | | (3,087,523 | ) | | | (34,805,688 | ) |
| | | | |
Net increase (decrease) | | | 129,994 | | | $ | 1,751,000 | | | | | | | | (1,197,876 | ) | | $ | (13,345,502 | ) |
| | | | |
| | | | | |
| Class C Shares: | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 378,698 | | | $ | 4,426,844 | | | | | | | | 436,592 | | | $ | 4,835,910 | |
Shares issued in reinvestment of distributions | | | 20,310 | | | | 241,483 | | | | | | | | 1,688 | | | | 19,060 | |
Shares redeemeda | | | (1,086,696 | ) | | | (12,579,701 | ) | | | | | | | (1,207,657 | ) | | | (13,306,131 | ) |
| | | | |
Net increase (decrease) | | | (687,688 | ) | | $ | (7,911,374 | ) | | | | | | | (769,377 | ) | | $ | (8,451,161 | ) |
| | | | |
| | | | | |
| Class R Shares: | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 7,188 | | | $ | 83,786 | | | | | | | | 20,353 | | | $ | 232,838 | |
Shares issued in reinvestment of distributions | | | 538 | | | | 6,563 | | | | | | | | 271 | | | | 3,120 | |
Shares redeemed | | | (19,125 | ) | | | (223,542 | ) | | | | | | | (16,509 | ) | | | (180,132 | ) |
| | | | |
Net increase (decrease) | | | (11,399 | ) | | $ | (133,193 | ) | | | | | | | 4,115 | | | $ | 55,826 | |
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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, | |
| | | |
| | | 2021 | | | | | | 2020 | |
| | | | | |
| | | Shares | | | Amount | | | | | | Shares | | | Amount | |
| | | | | |
| Class R6 Shares: | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 1,604,568 | | | $ | 19,048,050 | | | | | | | | 423,043 | | | $ | 4,803,618 | |
Shares issued in reinvestment of distributions | | | 15,991 | | | | 196,690 | | | | | | | | 33,385 | | | | 385,596 | |
Shares redeemed | | | (817,737 | ) | | | (10,017,572 | ) | | | | | | | (2,852,217 | ) | | | (32,740,779 | ) |
| | | | |
Net increase (decrease) | | | 802,822 | | | $ | 9,227,168 | | | | | | | | (2,395,789 | ) | | $ | (27,551,565 | ) |
| | | | |
| | | | | |
| Advisor Class Shares: | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 25,684,121 | | | $ | 308,883,780 | | | | | | | | 26,636,798 | | | $ | 304,127,350 | |
Shares issued in reinvestment of distributions | | | 466,135 | | | | 5,719,482 | | | | | | | | 596,749 | | | | 6,880,518 | |
Shares redeemed | | | (21,325,304 | ) | | | (255,114,570 | ) | | | | | | | (32,633,640 | ) | | | (367,644,864 | ) |
| | | | |
Net increase (decrease) | | | 4,824,952 | | | $ | 59,488,692 | | | | | | | | (5,400,093 | ) | | $ | (56,636,996 | ) |
| | | | |
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 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 |
For the year ended May 31, 2021, the gross effective management fee rate was 1.89% of the Fund’s average daily net assets.
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.
Prior to June 1, 2020, the Fund and K2 Subsidiary paid an investment management fee to K2 Advisors of 1.90% per year of the average daily net assets of the Fund and K2 Subsidiary.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
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.
|
|
| Subadvisors |
Apollo Credit Management LLC |
Bardin Hill Arbitrage IC Management LP |
BlueBay Asset Management, LLP |
Chilton Investment Company, LLC |
Electron Capital Partners, LLC |
Ellington Global Asset Management, LLC |
Emso Asset Management Limited |
Graham Capital Management, L.P. |
Jennison Associates, LLC |
Lazard Asset Management, LLC |
Loomis Sayles & Company, L.P. |
One River Asset Management, LLC |
P. Schoenfeld Asset Management L.P. |
Portland Hill Asset Management Limited |
RV Capital Management Private, Ltd. |
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’s and K2 Subsidiary’s 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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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 | | $ | 15,356 | |
CDSC retained | | $ | 4,385 | |
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, 2021, the Fund paid transfer agent fees of $1,195,018, of which $404,884 was retained by Investor Services.
f. Investments in Affiliated Management Investment Companies
The Fund invests in one or more affiliated management investment companies. As defined in the 1940 Act, an investment is deemed to be a “Controlled Affiliate” of a fund when a fund owns, either directly or indirectly, 25% or more of the affiliated fund’s outstanding shares or has the power to exercise control over management or policies of such fund. The Fund does not invest for purposes of 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, 2021, 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, 0.01% | | $ | 1,731,000 | | | $ | 63,397,000 | | | $ | (61,823,000 | ) | | $ | — | | | $ | — | | | $ | 3,305,000 | | | | 3,305,000 | | | $ | 107 | |
| | | | |
g. Waiver and Expense Reimbursements
K2 Advisors has contractually agreed in advance to waive or limit its fees and to assume as their own expense certain expenses otherwise payable by the Fund so that the operating 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% based on the average net assets of each class until September 30, 2021. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
Investor Services has contractually agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.03% based on the average net assets of the class until September 30, 2021. Prior to October 1, 2020, the Class R6 transfer agent fees were limited to 0.02%.
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, 2021, the custodian fees were reduced as noted in the Consolidated Statement of Operations.
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains. During the year ended May 31, 2021, the Fund utilized $8,029,791 of capital loss carryforwards.
The tax character of distributions paid during the years ended May 31, 2021 and 2020, was as follows:
| | | | | | | | |
| | |
| | | 2021 | | | 2020 | |
| Distributions paid from: | | | | | | | | |
Ordinary income | | $ | — | | | $ | 10,163,914 | |
Long term capital gain | | | 9,823,602 | | | | 645,847 | |
| | | | |
Total distributions paid | | $ | 9,823,602 | | | $ | 10,809,761 | |
| | | | |
At May 31, 2021, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gain for income tax purposes were as follows:
| | | | |
Cost of investments | | $ | 931,291,033 | |
| | | | |
Unrealized appreciation | | $ | 184,548,402 | |
Unrealized depreciation | | | (56,702,948 | ) |
| | | | |
Net unrealized appreciation (depreciation) | | $ | 127,845,454 | |
| | | | |
Distributable earnings | | | | |
Undistributed ordinary income | | $ | 15,428,010 | |
Undistributed long term capital gain | | $ | 35,329,441 | |
| | | | |
Total distributable earnings | | $ | 50,757,451 | |
| | | | |
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.
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, 2021, aggregated $2,902,577,334 and $2,849,190,395, respectively.
At May 31, 2021, in connection with securities lending transactions, the Fund loaned equity investments and corporate bonds and notes and received $4,213,116 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.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
6. Investment Transactions (continued)
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, 2021, the transfers of financial assets accounted for as sales were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | At Original Transactions Dates | | | At Year Ended May 31, 2021 | |
| | | | | |
| | | Cost Basis of Positions Sold | | | Gross Cash Received for Positions Sold | | | Fair Value of Transferred Assetsa | | | Gross Derivative Assets
Recordedb | | | Gross Derivative Liabilities
Recordedb | |
Sales and total
return swaps | | $ | 12,916,045 | | | $ | 13,217,228 | | | $ | 13,477,212 | | | $ | 14,591,021 | | | $ | (14,331,037 | ) |
| | | | | | | | |
a $259,984 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.
b Balances 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.
7. Credit Risk and Defaulted Securities
At May 31, 2021, the Fund had 6.4% of its portfolio invested in high yield, senior secured floating rate loans, or other securities rated below investment grade as determined by Nationally Recognized Statistical Credit Ratings Organizations and/or internally, by investment management and unrated securities. 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, 2021, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $13,883,382 representing 1.1% 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, 2021, the Fund had less than 0.1% of its net assets denominated in Argentine Pesos. Argentina 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.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
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. 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 Consolidated Statement of Assets and Liabilities and the Consolidated Statement of Operations. Funded portions of credit agreements are presented in the Consolidated Statement of Investments.
At May 31, 2021, unfunded commitments were as follows:
| | | | |
| |
| Borrower | | Unfunded
Commitment | |
CoreLogic Inc., Term Loan B | | $ | 170,000 | |
Hilton Grand Vacations Inc., Term Loan B | | | 105,000 | |
Intelsat Jackson Holdings SA, Term Loan B4 | | | 467,032 | |
Intelsat Jackson Holdings SA, Term Loan DIP | | | 45,851 | |
Lecta, Super Senior Term Loan | | | 32,441 | |
Lecta, Super Senior Term Loan RC | | | 31,344 | |
Riverbed Technology Inc., Term Loan B | | | 896,098 | |
| | | | |
| | $ | 1,747,766 | |
| | | | |
11. Other Derivative Information
At May 31, 2021, 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 | | Variation margin on futures contracts | | $ | 61,577 | a | | Variation margin on futures contracts | | $ | 198,218 | a |
| | Variation margin on centrally cleared swap contracts | | | 35,304 | a | | Variation margin on centrally cleared swap contracts | | | 96,409 | a |
| | Unrealized appreciation on OTC swap contracts | | | 67,239 | | | Unrealized depreciation on OTC swap contracts | | | 56,540 | |
| | | | |
Foreign exchange contracts | | Variation margin on futures contracts | | | 70 | a | | | | | | |
| | Unrealized appreciation on OTC forward exchange contracts | | | 2,136,929 | | | Unrealized depreciation on OTC forward exchange contracts | | | 4,112,668 | |
| | | | | | | | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
11. Other Derivative Information (continued)
| | | | | | | | | | | | |
| | |
| | | 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 | |
| | | | |
Credit contracts | | Variation margin on centrally cleared swap contracts | | | 197,187 | a | | Variation margin on centrally cleared swap contracts | | | 375,416 | a |
| | OTC swap contracts (upfront payments) | | | 754,135 | | | OTC swap contracts (upfront receipts) | | | 320,042 | |
| | Unrealized appreciation on OTC swap contracts | | | 206,410 | | | Unrealized depreciation on OTC swap contracts | | | 622,525 | |
| | | | |
Equity contracts | | Investments in securities, at value | | | 1,673,394 | b | | Options written, at value | | | 364,763 | |
| | Variation margin on futures contracts | | | 779,180 | a | | Variation margin on futures contracts | | | 3,056,675 | a |
| | Unrealized appreciation on OTC swap contracts | | | 8,278,147 | | | Unrealized depreciation on OTC swap contracts | | | 4,278,504 | |
| | | | |
Commodity contracts | | Variation margin on futures contracts | | | 1,742,643 | a | | Variation margin on futures contracts | | | 420,694 | a |
| | | | | | | | | | | | |
Totals | | | | $ | 15,932,215 | | | | | $ | 13,902,454 | |
| | | | | | | | | | | | |
a This 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.
b Purchased option contracts are included in investments in securities, at value in the Consolidated Statement of Assets and Liabilities.
For the year ended May 31, 2021, 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 | | $ | 51,947 | a | | Investments | | $ | 965 | a |
| | Written options | | | (241,964 | ) | | Written options | | | (1,217 | ) |
| | Futures contracts | | | 298,261 | | | Futures contracts | | | (944,037 | ) |
| | Swap contracts | | | 330,405 | | | Swap contracts | | | 85,876 | |
| | | | |
Foreign exchange contracts | | Investments | | | (233,987 | )a | | Investments | | | 22,364 | a |
| | Written options | | | 175,540 | | | Written options | | | 94,433 | |
| | Forward exchange contracts | | | (1,872,053 | ) | | Forward exchange contracts | | | (2,382,925 | ) |
| | Futures contracts | | | (21,990 | ) | | Futures contracts | | | 70 | |
| | | | |
Credit contracts | | Swap contracts | | | 2,909,646 | | | Swap contracts | | | (3,268,755 | ) |
| | | | |
Equity contracts | | Investments | | | (2,655,123 | )a | | Investments | | | (1,033,629 | )a |
| | Written options | | | 1,958,075 | | | Written options | | | 669,526 | |
| | Futures contracts | | | (20,789,275 | ) | | Futures contracts | | | 5,772,455 | |
| | Swap contracts | | | 19,120,530 | | | Swap contracts | | | 1,276,169 | |
| | | | |
Commodity contracts | | Futures contracts | | | 1,915,439 | | | Futures contracts | | | 1,418,795 | |
| | Swap contracts | | | (4,024 | ) | | | | | | |
| | | | | | | | | | | | |
Totals | | | | $ | 941,427 | | | | | $ | 1,710,090 | |
| | | | | | | | | | | | |
a Purchased 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.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
For the year ended May 31, 2021, the average month end notional amount of options, futures contracts and swap contracts represented 11,388,896 shares/units, $486,315,738 and $196,880,112, respectively. The average month end contract value of forward exchange contracts was $307,625,069.
At May 31, 2021, 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 | | $ | 2,136,929 | | | $ | 4,112,668 | |
Options Purchased | | | 353,573 | | | | — | |
Swap Contracts | | | 9,305,931 | | | | 5,277,611 | |
| | | | |
Total | | $ | 11,796,433 | | | $ | 9,390,279 | |
| | | | |
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.
At May 31, 2021, 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 | | | Cash
Collateral
Receiveda | | | Net Amount (Not
less than zero) | |
| Counterparty | | | | | | | | | | | | | | | |
BNPP | | $ | 17,001 | | | $ | (17,001 | ) | | $ | — | | | $ | — | | | $ | — | |
BNYM | | | 27,740 | | | | (27,740 | ) | | | — | | | | — | | | | — | |
BOFA | | | 44,765 | | | | (44,765 | ) | | | — | | | | — | | | | — | |
BZWS | | | 463,518 | | | | (463,518 | ) | | | — | | | | — | | | | — | |
CITI | | | 271,366 | | | | (39,526 | ) | | | — | | | | — | | | | 231,840 | |
DBAB | | | 49,439 | | | | (17,003 | ) | | | — | | | | — | | | | 32,436 | |
FBCO | | | 115,130 | | | | (59,399 | ) | | | — | | | | — | | | | 55,731 | |
GSCO | | | 505,817 | | | | (505,817 | ) | | | — | | | | — | | | | — | |
HSBC | | | 2,755 | | | | (1,713 | ) | | | — | | | | — | | | | 1,042 | |
JPHQ | | | 604,132 | | | | (604,132 | ) | | | — | | | | — | | | | — | |
JPHQb | | | 236,997 | | | | — | | | | — | | | | — | | | | 236,997 | |
MSCO | | | 1,264,123 | | | | (1,264,123 | ) | | | — | | | | — | | | | — | |
MSCOc | | | 1,317,376 | | | | (935,641 | ) | | | — | | | | — | | | | 381,735 | |
MSCS | | | 329,138 | | | | (329,138 | ) | | | — | | | | — | | | | — | |
MSCSb | | | 6,547,136 | | | | — | | | | — | | | | — | | | | 6,547,136 | |
| | | | |
Total | | $ | 11,796,433 | | | $ | (4,309,516 | ) | | $ | — | | | $ | — | | | $ | 7,486,917 | |
| | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
11. Other Derivative Information (continued)
At May 31, 2021, 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 | | | Cash
Collateral
Pledgeda | | | Net Amount (Not
less than zero) | |
| Counterparty | | | | | | | | | | | | | | | |
BNPP | | $ | 19,040 | | | $ | (17,001 | ) | | $ | — | | | $ | — | | | $ | 2,039 | |
BNYM | | | 1,128,327 | | | | (27,740 | ) | | | — | | | | (1,000,000 | ) | | | 100,587 | |
BOFA | | | 90,784 | | | | (44,765 | ) | | | — | | | | (46,019 | ) | | | — | |
BZWS | | | 763,617 | | | | (463,518 | ) | | | — | | | | (300,099 | ) | | | — | |
CITI | | | 39,526 | | | | (39,526 | ) | | | — | | | | — | | | | — | |
DBAB | | | 17,003 | | | | (17,003 | ) | | | — | | | | — | | | | — | |
FBCO | | | 59,399 | | | | (59,399 | ) | | | — | | | | — | | | | — | |
GSCO | | | 652,097 | | | | (505,817 | ) | | | — | | | | — | | | | 146,280 | |
HSBC | | | 1,713 | | | | (1,713 | ) | | | — | | | | — | | | | — | |
JPHQ | | | 1,046,545 | | | | (604,132 | ) | | | — | | | | (442,413 | ) | | | — | |
JPHQb | | | 606,610 | | | | — | | | | — | | | | — | | | | 606,610 | |
MSCO | | | 1,325,195 | | | | (1,264,123 | ) | | | — | | | | — | | | | 61,072 | |
MSCOc | | | 935,641 | | | | (935,641 | ) | | | — | | | | — | | | | — | |
MSCS | | | 438,609 | | | | (329,138 | ) | | | — | | | | (109,471 | ) | | | — | |
MSCSb | | | 2,266,173 | | | | — | | | | — | | | | — | | | | 2,266,173 | |
| | | | |
Total | | $ | 9,390,279 | | | $ | (4,309,516 | ) | | $ | — | | | $ | (1,898,002 | ) | | $ | 3,182,761 | |
| | | | |
a In 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.
b Represents derivatives not subject to an ISDA master agreement.
c Represents 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 101.
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 $2.675 billion (Global Credit Facility) which matures on February 4, 2022. 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, 2021, the Fund did not use the Global Credit Facility.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
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, 2021, 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 | | $ | 475,749,013 | | | $ | 70,019,134 | | | $ | 44,549 | c | | $ | 545,812,696 | |
Convertible Bonds | | | — | | | | 170,364,366 | | | | — | | | | 170,364,366 | |
Corporate Bonds and Notes | | | — | | | | 122,955,806 | | | | 54,319 | | | | 123,010,125 | |
Corporate Bonds and Notes in Reorganization | | | — | | | | 5,538,670 | | | | — | | | | 5,538,670 | |
Senior Floating Rate Interests | | | — | | | | 4,019,208 | | | | 241,637 | | | | 4,260,845 | |
Credit-Linked Notes | | | — | | | | 3,330,323 | | | | 2,362,697 | | | | 5,693,020 | |
Foreign Government and Agency Securities | | | — | | | | 45,199,511 | | | | 125,147 | | | | 45,324,658 | |
Foreign Government and Agency Securities in Reorganization | | | — | | | | 148,500 | | | | — | | | | 148,500 | |
U.S. Government and Agency Securities | | | — | | | | 477,101 | | | | — | | | | 477,101 | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities | | | — | | | | 92,437,708 | | | | 36,841 | | | | 92,474,549 | |
Municipal Bonds in Reorganization | | | — | | | | 8,196,212 | | | | — | | | | 8,196,212 | |
Options Purchased | | | 1,337,552 | | | | 335,842 | | | | — | | | | 1,673,394 | |
Short Term Investments | | | 300,476,090 | | | | 908,116 | | | | — | | | | 301,384,206 | |
| | | | |
Total Investments in Securities | | $ | 777,562,655 | | | $ | 523,930,497 | d | | $ | 2,865,190 | | | $ | 1,304,358,342 | |
| | | | |
Other Financial Instruments: | | | | |
Futures Contracts | | $ | 2,583,470 | | | $ | — | | | $ | — | | | $ | 2,583,470 | |
Forward Exchange Contracts | | | — | | | | 2,136,929 | | | | — | | | | 2,136,929 | |
Swap Contracts | | | — | | | | 8,784,287 | | | | — | | | | 8,784,287 | |
Unfunded Loan Commitments | | | — | | | | — | | | | 1,208 | e | | | 1,208 | |
| | | | |
Total Other Financial Instruments | | $ | 2,583,470 | | | $ | 10,921,216 | | | $ | 1,208 | | | $ | 13,505,894 | |
| | | | |
|
| Liabilities: | |
Other Financial Instruments: | |
Options Written | | $ | 364,763 | | | $ | — | | | $ | — | | | $ | 364,763 | |
Securities Sold Shorta | | | 221,799,158 | | | | 21,399,667 | f | | | — | | | | 243,198,825 | |
Futures Contracts | | | 3,675,587 | | | | — | | | | — | | | | 3,675,587 | |
Forward Exchange Contracts | | | — | | | | 4,112,668 | | | | — | | | | 4,112,668 | |
Swap Contracts | | | — | | | | 5,429,394 | | | | — | | | | 5,429,394 | |
Unfunded Loan Commitments | | | — | | | | 35,343 | e | | | — | | | | 35,343 | |
| | | | |
Total Other Financial Instruments | | $ | 225,839,508 | | | $ | 30,977,072 | | | $ | — | | | $ | 256,816,580 | |
| | | | |
| | | | | | | | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
13. Fair Value Measurements (continued)
a For detailed categories, see the accompanying Consolidated Statement of Investments.
b Includes common, preferred and convertible preferred stocks and exchange traded funds as well as other equity interests.
c Includes securities determined to have no value at May 31, 2021.
d Includes foreign securities valued at $69,997,168, which were categorized as Level 2 as a result of the application of market level fair value procedures. See the Financial Instrument Valuation note for more information.
e Included in unrealized depreciation on unfunded loan commitments in the Consolidated Statement of Assets and Liabilities.
f Includes foreign securities valued at $7,109,791, which were categorized as Level 2 as a result of the application of market level fair value procedures. See the Financial Instrument Valuation note for more information.
A reconciliation in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 assets and/or liabilities 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 the LIBOR and other interbank-offered based reference rates as of the end of 2021. The ASU is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has reviewed the requirements and believes the adoption of this ASU will not have a material impact on the consolidated financial statements.
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, except for the following:
On July 13, 2021, the Board approved a change to the automatic conversion feature for Class C that will convert shareholders’ Class C shares into Class A shares after they have been held for 8 years. The change will become effective August 2, 2021. Further details are disclosed in the Fund’s Prospectus.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
Abbreviations
| | | | | | | | | | |
| Counterparty | | Currency | | Selected Portfolio |
| BNPP | | BNP Paribas | | ARS | | Argentine Peso | | ADR | | American Depositary Receipt |
| BNYM | | The Bank of New York Mellon Corp. | | AUD | | Australian Dollar | | ARM | | Adjustable Rate Mortgage |
| BOFA | | Bank of America Corp. | | BRL | | Brazilian Real | | BADLAR | | Argentina Deposit Rates BADLAR Private Banks ARS |
| BZWS | | Barclays Bank PLC | | CAD | | Canadian Dollar | | BBSW | | Bank Bill Swap Rate |
| CITI | | Citigroup, Inc. | | CHF | | Swiss Franc | | CAC | | Cotation Assistee en Continu |
| DBAB | | Deutsche Bank, AG | | CNY | | Chinese Yuan | | CLO | | Collateralized Loan Obligation |
| FBCO | | Credit Suisse Group AG | | COP | | Colombian Peso | | COPIBR | | Colombian Peso Interbank Offered Rate |
| GSCO | | The Goldman Sachs Group, Inc. | | EGP | | Egyptian Pound | | DIP | | Debtor-In-Possession |
| HSBC | | HSBC Bank USA, N.A. | | EUR | | Euro | | DAX | | Deutscher Aktienindex |
| JPHQ | | JP Morgan Chase & Co. | | GBP | | British Pound | | DJIA | | Dow Jones Industrial Average |
| MSCO | | Morgan Stanley & Co. LLC | | GHS | | Ghanaian Cedi | | EONIA | | Euro OverNight Index Average |
| MSCS | | Morgan Stanley Capital Services LLC | | HKD | | Hong Kong Dollar | | ETF | | Exchange Traded Fund |
| | | | IDR | | Indonesian Rupiah | | EURIBOR | | Euro Interbank Offered Rate |
| | | | INR | | Indian Rupee | | FEDEF | | Federal Funds Effective Rate |
| | | | JPY | | Japanese Yen | | FHLMC | | Federal Home Loan Mortgage Corp. |
| | | | KES | | Kenyan Shilling | | FNMA | | Federal National Mortgage Association |
| | MXN | | Mexican Peso | | FRN | | Floating Rate Note |
| | NZD | | New Zealand Dollar | | FTSE | | Financial Times Stock Exchange |
| | | | PLN | | Polish Zloty | | GO | | General Obligation |
| | | | RUB | | Russian Ruble | | HIBOR | | Hong Kong Interbank Offer Rate |
| | | | SEK | | Swedish Krona | | JIBAR | | Johannesburg Interbank Agreed Rate |
| | SGD | | Singapore Dollar | | LIBOR | | London InterBank Offered Rate |
| | | | UGX | | Ugandan Shilling | | MIB | | Milano Italia Borsa |
| | | | USD | | United States Dollar | | MSCI | | Morgan Stanley Capital International |
| | | | ZAR | | South African Rand | | MTN | | Medium Term Note |
| | | | | | | | PIK | | Payment In-Kind |
| | | | | | | | REIT | | Real Estate Investment Trust |
| | | | | | | | SARON | | Swiss Average Rate Overnight |
| | | | | | | | SIBOR | | Singapore Interbank Offered Rate |
| | | | | | | | SOFR | | Secured Overnight Financing Rate |
| | | | | | | | SONIA | | Sterling Overnight Index Average |
| | | | | | | | SPAC | | Special Purpose Acquisition Company |
| | | | | | | | SPDR | | Standard & Poor’s Depositary Receipt |
| | | | | | | | STIBOR | | Stockholm Interbank Offered Rate |
| | | | | | | | TOPIX | | Tokyo Price Index |
| | | | | | | | WIBOR | | Warsaw Interbank Offered Rate |
| | | | | | | | | | |
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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, 2021, 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, 2021, 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, 2021, 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 26, 2021
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
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 $10,528,528 as long term capital gain dividend for the fiscal year ended May 31, 2021.
Under Section 854(b)(1)(B) of the Code, the Fund hereby reports the maximum amount allowable but no less than $4,068,331 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended May 31, 2021. Distributions, including qualified dividend income, paid during calendar year 2021 will be reported to shareholders on Form 1099-DIV by mid-February 2022. 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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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 2020 | | 29 | | 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 formerly, 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 | | FTAC Olympus Acquisition Corp. (special purpose fintech acquisition company) (2020-present) and FTAC Parnassus Acquisition Corp. (special purpose fintech acquisition company) (February 2021-present); and formerly, FinTech Acquisition Corp. III (special purpose fintech acquisition company) (2018- 2021). |
|
| 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 | | 29 | | 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). |
| | | | |
Robert E. Wade (1946)
One Franklin Parkway
San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 29 | | 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 | | 137 | | 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. |
| | | | |
**Jennifer M. Johnson (1964)
One Franklin Parkway
San Mateo, CA 94403-1906 | | Trustee | | Since 2015 | | 60 | | 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 six 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). |
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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 |
| | | | |
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 42 of the investment companies in Franklin Templeton. |
| | | | |
Breda M. Beckerle (1958) 280 Park Avenue New York, NY 10017 | | Chief Compliance Officer | | Since October 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 42 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 42 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 42 of the investment companies in Franklin Templeton; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton (2009-2017). |
| | | | |
Robert 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 39 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 42 of the investment companies in Franklin Templeton. |
| | | | |
Brooks Ritchey (1959)
300 Atlantic Street Stamford, CT 06901 | | President and Chief Executive Officer – Investment Management | | Since December 2020 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Managing Director and Co-Head of the Investment Research & Management, K2 Advisors; and officer of one of the investment companies in Franklin Templeton. |
| | | | | | | | | | |
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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 |
| | | | |
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 42 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 42 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 42 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 and director 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.
Note 3: Effective October 17, 2020, Charles Rubens, II ceased to be a trustee of the Trust.
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 Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes that Ms. Bates and Mr. Niemiec qualify as such an expert in view of their extensive business background and experience. 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 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 Ms. Bates and Mr. Niemiec 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. Ms. Bates and Mr. Niemiec 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
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 19, 2021, 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
Bardin Hill Arbitrage IC Management LP
Chilton Investment Company, LLC
Elementum Advisors, LLC
Ellington Global Asset Management, LLC
EMSO Asset Management Limited
Graham Capital Management, L.P.
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 and certain Sub-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 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 Chief Compliance Officer with respect thereto. The Board also reviewed and considered an annual report on payments made by Franklin Templeton (FT) or the Fund to financial intermediaries, as well as a memorandum relating to third-party servicing arrangements, which included discussion of the changing distribution landscape for the Fund.
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 FT 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.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
SHAREHOLDER INFORMATION
The information obtained by the trustees during the renewal process also included a special report prepared by Broadridge 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”), which management further revised for the Board’s consideration. 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 and took into account management’s further revisions to the Alternate Expense Group as part of their considerations.
In addition, the trustees received a Profitability Study (Profitability Study) prepared by management discussing the profitability to FT 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 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 FT 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 in the current work-from-home environment 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
| | | | | | | | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
SHAREHOLDER INFORMATION
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 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 Chief Compliance Officer. The Board considered the selection and due diligence process
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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 and since inception periods ended December 31, 2020.
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 second-best performing quintile for the one-year period ended December 31, 2020 and total returns also in the second-best performing quintile for the three- and five-year periods ended December 31, 2020 and in the best performing quintile for the since inception period ended December 31, 2020. 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, the trustees took into account the introduction in 2020 of breakpoints in the investment management fee schedule of the Fund, 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 in 2020. 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
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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 its Base Expense Group and the second-most expensive quintile of its Alternate Expense Group. The Fund’s total expenses were in the most expensive quintile of its Base Expense Group and the middle quintile of its Alternate Expense Group.
Noting (i) that the Fund’s total expenses 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, 2020, 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 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.
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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.
Liquidity Risk Management Program-Funds no HLIM
Each Fund has adopted and implemented a written Liquidity Risk Management Program (the “LRMP”) as required by Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The LRMP is designed to assess and manage each Fund’s liquidity risk, which is defined as the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors’ interests in the Fund. In accordance with the Liquidity Rule, the LRMP includes policies and procedures that provide for: (1) assessment, management, and review (no less frequently than annually) of each Fund’s liquidity risk; (2) classification of each Fund’s portfolio holdings into one of four liquidity categories (Highly Liquid, Moderately Liquid, Less Liquid, and Illiquid); (3) for Funds that do not primarily hold assets that are Highly Liquid, establishing and maintaining a minimum percentage of the Fund’s net assets in Highly Liquid investments (called a “Highly Liquid Investment Minimum” or “HLIM”); and (4) prohibiting the Fund’s acquisition of Illiquid investments that would result in the Fund holding more than 15% of its net assets in Illiquid assets. The LRMP also requires reporting to the Securities and Exchange Commission (“SEC”) (on a non-public basis) and to the Board if the Fund’s holdings of Illiquid assets exceed 15% of the Fund’s net assets. Funds with HLIMs must have procedures for addressing HLIM shortfalls, including reporting to the Board and, with respect to HLIM
shortfalls lasting more than seven consecutive calendar days, reporting to the SEC (on a non-public basis).
The Director of Liquidity Risk within the Investment Risk Management Group (the “IRMG”) is the appointed 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, Product Management and Global Product Strategy.
In assessing and managing each Fund’s liquidity risk, the ILC considers, as relevant, a variety of factors, including the Fund’s investment strategy and the liquidity of its portfolio investments during both normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources including the Funds’ interfund lending facility and line of credit. Classification of the Fund’s portfolio holdings in the four liquidity categories is based on the number of days it is reasonably expected to take to convert the investment to cash (for Highly Liquid and Moderately Liquid holdings) or sell or dispose of the investment (for Less Liquid and Illiquid investments), in current market conditions without significantly changing the investment’s market value.
Each Fund primarily holds liquid assets that are defined under the Liquidity Rule as “Highly Liquid Investments,” and therefore is not required to establish an HLIM. Highly Liquid Investments are defined as cash and any investment reasonably expected to be convertible to cash in current market conditions in three business days or less without the conversion to cash significantly changing the market value of the investment.
At meetings of the Funds’ Board of Trustees held in May 2021, the Program Administrator provided a written report to the Board addressing the adequacy and effectiveness of the program for the year ended December 31, 2020. The Program Administrator report concluded that (i.) the LRMP, as adopted and implemented, remains reasonably designed to assess and manage each Fund’s liquidity risk; (ii.) the LRMP, including the Highly Liquid Investment Minimum (“HLIM”) where applicable, was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk; and (iii.) each Fund was able to meet requests for redemption without significant dilution of remaining investors’ interests in the Fund.
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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 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, or receive notice of the availability of, the Fund’s financial reports every six months. In addition, you will receive an annual updated summary prospectus (detail 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 (to the extent received by mail) 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 | | |
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| | Investment Manager | | Distributor | | Shareholder Services |
| | K2/D&S Management Co., L.L.C. | | Franklin Templeton Distributors, Inc. (800) DIAL BEN®/342-5236 franklintempleton.com | | (800) 632-2301 |
| © 2021 Franklin Templeton Investments. All rights reserved. | | | | 068 A 07/21 |
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN K2 LONG SHORT CREDIT FUND
A Series of Franklin Alternative Strategies Funds
May 31, 2021
Sign up for electronic delivery at franklintempleton.com/edelivery
SHAREHOLDER LETTER
Dear Fellow Shareholder:
During the 12 months ended May 31, 2021, the global economy began to recover from the disruptions caused by the onset of the novel coronavirus (COVID-19) pandemic in early 2020 and subsequent economic lockdowns imposed by many governments worldwide. Global stocks and bonds generally advanced during the period amid the reopening of many economies and investor optimism about the development of COVID-19 treatments and vaccines, as well as the beginning of vaccination programs in many countries. Many central banks, including the U.S. Federal Reserve (Fed) and the European Central Bank, maintained low benchmark interest rates and continued their monetary stimulus programs to bolster economic growth. Investor sentiment was further boosted by encouraging economic data from China and the U.S., as well as the Fed’s indication through period-end that, despite rising inflation, it would continue to support low interest rates for some time.
In this environment, global developed market stocks, as measured by the MSCI World Index (USD), posted a +41.28% total return for the period.1 Global emerging market stocks, as measured by the MSCI Emerging Markets Index (USD), posted a +51.51% total return.1 Global government bonds, as measured by the FTSE World Government Bond Index (USD), posted a +2.49% total return.1
We are committed to our long-term perspective and disciplined investment approach as we continue to conduct a rigorous analysis of Fund subadvisors and markets with a strong emphasis on investment risk management.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
We believe active, professional investment management serves investors well. We also recognize the important role of financial professionals 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,
Brooks Ritchey
President and Chief Executive Officer –
Investment Management
Franklin Alternative Strategies Funds
This letter reflects our analysis and opinions as of May 31, 2021, 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.
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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, 2021.
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 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 +13.33% 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 substrategies, posted a +12.86% cumulative total return for the same period.1 Also for comparison, the Fund’s secondary benchmark, the ICE BofA U.S. 3-Month Treasury Bill Index, which is an index of short-term U.S. government securities with a remaining term to final maturity of less than three months, posted a +0.11% cumulative total return.2 You can
find more of the Fund’s performance data in the Performance Summary beginning on page 6.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
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| Portfolio Composition* | | |
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| 5/31/21 |
| |
| | | % of Total
Net Assets |
| Long Positions | | 75.1% |
Short Positions | | -4.7% |
Short-Term Investments | | 21.4% |
Other Assets, less Liabilities | | 8.2% |
Economic and Market Overview
Global developed and emerging market equities, as measured by the MSCI All Country World Index (USD), posted a +42.48% total return for the 12 months ended May 31, 2021.2 Global equities rebounded from the market turmoil at the onset of the novel coronavirus (COVID-19) pandemic amid strong monetary and fiscal stimulus measures, easing lockdown restrictions and the development of COVID-19 treatments and vaccines. Geopolitical tensions and rising infection rates in the fall of 2020 briefly drove stock prices lower, but the start of vaccination programs and expectations for additional fiscal stimulus measures led many equity markets to reach new highs. Improving economic data in many countries generally tempered investor concerns about rising inflation.
In the U.S., equities rallied following the initial shock of pandemic-related restrictions and mass layoffs. Monetary
and fiscal stimulus measures, partial economic reopening, rising retail sales and optimism about treatments and potential vaccines for COVID-19 drove equities higher. Following a record annualized decline in second-quarter 2020 gross domestic product (GDP), resilient consumer spending helped drive the third-quarter GDP to expand at a record annualized
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.
See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 15.
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rate, with fourth-quarter 2020 GDP and first-quarter 2021 GDP expanding at a less robust pace. Equity prices continued to rise during the summer of 2020 before declining in the fall due to rising COVID-19 infection rates and uncertainty about additional fiscal stimulus and the U.S. presidential election. Investor sentiment improved beginning in November 2020 following the outcome of the U.S. presidential election, the start of COVID-19 vaccination programs and the passage of a large U.S. stimulus bill. A decline in the unemployment rate also helped drive a rebound in earnings and equity prices, resulting in all-time price highs for the Standard & Poor’s® 500 Index (S&P 500®) in early May 2021.
The U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25% and continued its program of open-ended bond purchases to help keep markets functioning. Furthermore, the Fed reiterated that interest rates would likely remain low, even if inflation moderately exceeded the Fed’s 2% target.
The economic recovery in the eurozone was relatively weak, as quarter-over-quarter GDP growth rebounded in 2020’s third quarter but slightly contracted over the subsequent two quarters. GDP growth rates were mostly negative among the region’s largest economies amid renewed lockdowns and delays in COVID-19 vaccine distribution. Nevertheless, general optimism that successful vaccine programs would lift global growth, along with a Brexit resolution, helped European developed market equities, as measured by the MSCI Europe Index (USD), to post a +43.30% total return for the 12 months under review.2
Asian developed and emerging market equities, as measured by the MSCI All Country Asia Index (USD), posted a +41.27% total return for the 12-month period.2 China, a key driver of regional economies, began to recover in 2020’s second quarter and was the only major global economy to post positive GDP growth for full-year 2020 amid strong manufacturing gains. In the final three months of the reporting period, several Asian equity markets declined due to rising COVID-19 infection rates in many countries, especially India, as well as inflation concerns.
Global emerging market stocks, as measured by the MSCI Emerging Markets Index (USD), posted a +51.51% total return for the 12 months under review.1 Generally improving economic activity, stabilizing oil prices and U.S. dollar weakness supported emerging market equities. Late in the reporting period, higher COVID-19 cases in some countries and concerns about inflation amid rising commodity prices dampened investor enthusiasm in emerging market equities.
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.
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.
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| 4 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN K2 LONG SHORT CREDIT FUND
| | | | |
| Subadvisors | | | |
| |
| 5/31/21 | | | |
| |
| Credit Long Short | | | | |
| |
Apollo Credit Management LLC | | | | |
| |
Benefit Street Partners L.L.C. | | | | |
| |
| Structured Credit | | | | |
| |
Ellington Global Asset Management, LLC | | | | |
| |
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 Management, Benefit Street Partners (BSP; added in September 2020), Chatham Asset Management (liquidated in December 2020), Ellington Global Asset Management, Emso Asset Management and Medalist Partners. All six subadvisors made positive contributions to the Fund’s absolute performance for the fiscal year. Medalist was the top contributor, followed by Ellington, Apollo, BSP, Emso and Chatham. The subadvisors with assets allocated at period-end are also listed in the Subadvisors table on this page.
All of the Fund’s three underlying strategies strengthened absolute performance for the 12-month period. The largest positive contributor was structured credit, followed by credit long short and emerging market fixed income. By asset class, the top positive contributors to the Fund’s aggregate returns were fixed income structured products and corporate fixed income. Conversely, the largest detractors from Fund performance included equity shorts, hedges, and swaps.
In terms of aggregate sector exposures, the top positive drivers of Fund performance were MBS, ABS and communication services. In contrast, credit index shorts, swaps and short equity index exposures hindered returns.
In the structured credit strategy, long positions in MBS and ABS contributed positively to results. Conversely, detractors from strategy results included credit index hedges.
In the credit long short strategy, long positions in corporate bonds, specifically within the consumer discretionary and communication services sectors, benefited strategy performance. Conversely, net detractors included short exposure to the S&P 500 and swaps.
The emerging market fixed income strategy benefited primarily from a long position in municipal fixed rate callable bonds in Puerto Rico and a long position in total return swaps in Indonesia. In contrast, a long position in sovereign bonds in Russia detracted, as did a short position in equity index futures.
Over the 12-month reporting period, we substantially reduced the Fund’s position in the structured credit strategy, trimming our allocations to subadvisors Ellington and Medalist. Within the credit long short strategy, we eliminated our position in Chatham, added a position in BSP and increased our exposure to Apollo, ultimately resulting in a modestly larger position in the credit long short strategy compared to the position size at the beginning of the period. We also marginally increased the Fund’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.
|
| Robert Christian |
| Co-Lead Portfolio Manager |
|
| Brooks Ritchey |
| Co-Lead Portfolio Manager |
|
| Art Vinokur |
| Portfolio Manager |
The foregoing information reflects our analysis, opinions and portfolio holdings as of May 31, 2021, 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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| franklintempleton.com | | Annual Report | | | | | | | | 5 |
FRANKLIN K2 LONG SHORT CREDIT FUND
Performance Summary as of May 31, 2021
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 5/31/211
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.
| | | | | | | | |
| Share Class | | Cumulative
Total Return2 | | | Average Annual
Total Return3 | |
| | |
| A4 | | | | | | | | |
1-Year | | | +13.33% | | | | +7.14% | |
5-Year | | | +26.86% | | | | +3.70% | |
Since Inception (9/8/15) | | | +30.65% | | | | +3.75% | |
| | |
| Advisor | | | | | | | | |
1-Year | | | +13.45% | | | | +13.45% | |
5-Year | | | +27.91% | | | | +5.05% | |
Since Inception (9/8/15) | | | +31.73% | | | | +4.93% | |
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 8 for Performance Summary footnotes.
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| 6 | | | | | | | | Annual Report | | franklintempleton.com |
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 (9/8/15–5/31/21)
Advisor Class (9/8/15–5/31/21)
See page 8 for Performance Summary footnotes.
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| franklintempleton.com | | Annual Report | | | | | | | | 7 |
FRANKLIN K2 LONG SHORT CREDIT FUND
PERFORMANCE SUMMARY
Distributions (6/1/20–5/31/21)
| | | | | | | | | | | | |
| | | |
| Share Class | | Net Investment
Income | | | Short-Term
Capital Gain | | | Total | |
| A | | | $0.2574 | | | | $0.0110 | | | | $0.2684 | |
| C | | | $0.1764 | | | | $0.0110 | | | | $0.1874 | |
| R | | | $0.2292 | | | | $0.0110 | | | | $0.2402 | |
| R6 | | | $0.2492 | | | | $0.0110 | | | | $0.2602 | |
| Advisor | | | $0.2809 | | | | $0.0110 | | | | $0.2919 | |
Total Annual Operating Expenses7
| | | | | | | | |
| | |
| Share Class | | With Fee
Waiver | | | Without Fee
Waiver | |
| A | | | 2.32% | | | | 2.82% | |
| Advisor | | | 2.07% | | | | 2.57% | |
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. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks, including the risks of foreign investments.
1. The Fund has an expense reduction contractually guaranteed through 9/30/21. 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 BofA 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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| 8 | | | | | | | | Annual Report | | franklintempleton.com |
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 12/1/20 | | | Ending
Account
Value 5/31/21 | | | Expenses
Paid During
Period
12/1/20–5/31/211,2 | | | Ending
Account
Value 5/31/21 | | | Expenses
Paid During
Period
12/1/20–5/31/211,2 | | | Net
Annualized
Expense
Ratio2 | |
| A | | $ | 1,000 | | | $ | 1,042.40 | | | $ | 11.30 | | | $ | 1,013.86 | | | $ | 11.15 | | | | 2.22 | % |
| C | | $ | 1,000 | | | $ | 1,038.20 | | | $ | 15.19 | | | $ | 1,010.02 | | | $ | 14.98 | | | | 2.99 | % |
| R | | $ | 1,000 | | | $ | 1,041.10 | | | $ | 12.62 | | | $ | 1,012.57 | | | $ | 12.44 | | | | 2.48 | % |
| R6 | | $ | 1,000 | | | $ | 1,044.40 | | | $ | 9.68 | | | $ | 1,015.46 | | | $ | 9.55 | | | | 1.90 | % |
| Advisor | | $ | 1,000 | | | $ | 1,042.70 | | | $ | 10.13 | | | $ | 1,015.01 | | | $ | 10.00 | | | | 1.99 | % |
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 182/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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| franklintempleton.com | | Annual Report | | | | | | | | 9 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Financial Highlights
Franklin K2 Long Short Credit Fund
| | | | | | | | | | | | | | | | | | | | |
| |
| | | Year Ended May 31, | |
| | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | |
| Class A | | | | | | | | | | | | | | | | | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | $ | 9.86 | | | $ | 10.45 | | | $ | 10.50 | | | $ | 10.49 | | | $ | 10.15 | |
| | | | |
| | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.28 | | | | 0.23 | | | | 0.37 | | | | 0.29 | | | | 0.23 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 1.03 | | | | (0.53 | ) | | | (0.02 | ) | | | 0.08 | | | | 0.53 | |
| | | | |
| | | | | |
Total from investment operations | | | 1.31 | | | | (0.30 | ) | | | 0.35 | | | | 0.37 | | | | 0.76 | |
| | | | |
| | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.26 | ) | | | (0.25 | ) | | | (0.31 | ) | | | (0.19 | ) | | | (0.32 | ) |
| | | | | |
Net realized gains | | | (0.01 | ) | | | (0.04 | ) | | | (0.09 | ) | | | (0.17 | ) | | | (0.10 | ) |
| | | | |
| | | | | |
Total distributions | | | (0.27 | ) | | | (0.29 | ) | | | (0.40 | ) | | | (0.36 | ) | | | (0.42 | ) |
| | | | |
| | | | | |
Net asset value, end of year | | $ | 10.90 | | | $ | 9.86 | | | $ | 10.45 | | | $ | 10.50 | | | $ | 10.49 | |
| | | | |
| | | | | |
Total returnc | | | 13.33% | | | | (2.92)% | | | | 3.42% | | | | 3.63% | | | | 7.58% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductiond | | | 2.85% | | | | 3.24% | | | | 3.15% | | | | 3.51% | | | | 3.50% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductiond | | | 2.27% | e | | | 2.74% | | | | 2.69% | | | | 2.98% | e | | | 2.75% | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.41% | | | | 0.58% | | | | 0.62% | | | | 0.89% | | | | 0.76% | |
| | | | | |
Net investment income | | | 2.61% | | | | 2.24% | | | | 3.49% | | | | 2.71% | | | | 2.24% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $26,581 | | | | $20,212 | | | | $27,870 | | | | $45,088 | | | | $41,001 | |
| | | | | |
Portfolio turnover rate | | | 194.81% | | | | 205.14% | | | | 158.66% | | | | 251.81% | | | | 317.70% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
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(h).
eBenefit of expense reduction rounds to less than 0.01%.
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| 10 | | | | | | | | 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, | |
| | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | |
| Class C | | | | | | | | | | | | | | | | | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | $ | 9.69 | | | $ | 10.26 | | | $ | 10.34 | | | $ | 10.35 | | | $ | 10.07 | |
| | | | |
| | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.19 | | | | 0.15 | | | | 0.27 | | | | 0.19 | | | | 0.14 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 1.01 | | | | (0.52 | ) | | | (0.01 | ) | | | 0.07 | | | | 0.52 | |
| | | | |
| | | | | |
Total from investment operations | | | 1.20 | | | | (0.37 | ) | | | 0.26 | | | | 0.26 | | | | 0.66 | |
| | | | |
| | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.18 | ) | | | (0.16 | ) | | | (0.25 | ) | | | (0.10 | ) | | | (0.28 | ) |
| | | | | |
Net realized gains | | | (0.01 | ) | | | (0.04 | ) | | | (0.09 | ) | | | (0.17 | ) | | | (0.10 | ) |
| | | | |
| | | | | |
Total distributions | | | (0.19 | ) | | | (0.20 | ) | | | (0.34 | ) | | | (0.27 | ) | | | (0.38 | ) |
| | | | |
| | | | | |
Net asset value, end of year | | $ | 10.70 | | | $ | 9.69 | | | $ | 10.26 | | | $ | 10.34 | | | $ | 10.35 | |
| | | | |
| | | | | |
Total returnc | | | 12.40% | | | | (3.66)% | | | | 2.61% | | | | 2.70% | | | | 6.56% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductiond | | | 3.64% | | | | 3.96% | | | | 4.03% | | | | 4.37% | | | | 4.44% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductiond | | | 3.05% | e | | | 3.46% | | | | 3.57% | | | | 3.84% | e | | | 3.69% | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.41% | | | | 0.58% | | | | 0.62% | | | | 0.89% | | | | 0.76% | |
| | | | | |
Net investment income | | | 1.82% | | | | 1.52% | | | | 2.61% | | | | 1.85% | | | | 1.30% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $2,945 | | | | $2,882 | | | | $2,893 | | | | $2,503 | | | | $1,507 | |
| | | | | |
Portfolio turnover rate | | | 194.81% | | | | 205.14% | | | | 158.66% | | | | 251.81% | | | | 317.70% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
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(h).
eBenefit 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 | | | | | | | | 11 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL HIGHLIGHTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | | | |
| |
| | | Year Ended May 31, | |
| | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | |
| Class R | | | | | | | | | | | | | | | | | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | $ | 9.77 | | | $ | 10.36 | | | $ | 10.41 | | | $ | 10.41 | | | $ | 10.10 | |
| | | | |
| | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.25 | | | | 0.21 | | | | 0.33 | | | | 0.25 | | | | 0.20 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 1.01 | | | | (0.53 | ) | | | (0.01 | ) | | | 0.09 | | | | 0.53 | |
| | | | |
| | | | | |
Total from investment operations | | | 1.26 | | | | (0.32 | ) | | | 0.32 | | | | 0.34 | | | | 0.73 | |
| | | | |
| | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.23 | ) | | | (0.23 | ) | | | (0.28 | ) | | | (0.17 | ) | | | (0.32 | ) |
| | | | | |
Net realized gains | | | (0.01 | ) | | | (0.04 | ) | | | (0.09 | ) | | | (0.17 | ) | | | (0.10 | ) |
| | | | |
| | | | | |
Total distributions | | | (0.24 | ) | | | (0.27 | ) | | | (0.37 | ) | | | (0.34 | ) | | | (0.42 | ) |
| | | | |
| | | | | |
Net asset value, end of year | | $ | 10.79 | | | $ | 9.77 | | | $ | 10.36 | | | $ | 10.41 | | | $ | 10.41 | |
| | | | |
| | | | | |
Total return | | | 12.95% | | | | (3.13)% | | | | 3.12% | | | | 3.29% | | | | 7.29% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductionc | | | 3.15% | | | | 3.46% | | | | 3.50% | | | | 3.82% | | | | 3.83% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductionc | | | 2.55% | d | | | 2.96% | | | | 3.04% | | | | 3.29% | d | | | 3.08% | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.41% | | | | 0.58% | | | | 0.62% | | | | 0.89% | | | | 0.76% | |
| | | | | |
Net investment income | | | 2.31% | | | | 2.02% | | | | 3.14% | | | | 2.40% | | | | 1.91% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $196 | | | | $169 | | | | $166 | | | | $162 | | | | $127 | |
| | | | | |
Portfolio turnover rate | | | 194.81% | | | | 205.14% | | | | 158.66% | | | | 251.81% | | | | 317.70% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
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(h).
dBenefit 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, | |
| | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | |
| Class R6 | | | | | | | | | | | | | | | | | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | $ | 9.87 | | | $ | 10.45 | | | $ | 10.51 | | | $ | 10.50 | | | $ | 10.15 | |
| | | | |
| | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.31 | | | | 0.26 | | | | 0.36 | | | | 0.31 | | | | 0.24 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 1.02 | | | | (0.53 | ) | | | — | c | | | 0.08 | | | | 0.53 | |
| | | | |
| | | | | |
Total from investment operations | | | 1.33 | | | | (0.27 | ) | | | 0.36 | | | | 0.39 | | | | 0.77 | |
| | | | |
| | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.25 | ) | | | (0.27 | ) | | | (0.33 | ) | | | (0.21 | ) | | | (0.32 | ) |
| | | | | |
Net realized gains | | | (0.01 | ) | | | (0.04 | ) | | | (0.09 | ) | | | (0.17 | ) | | | (0.10 | ) |
| | | | |
| | | | | |
Total distributions | | | (0.26 | ) | | | (0.31 | ) | | | (0.42 | ) | | | (0.38 | ) | | | (0.42 | ) |
| | | | |
| | | | | |
Net asset value, end of year | | $ | 10.94 | | | $ | 9.87 | | | $ | 10.45 | | | $ | 10.51 | | | $ | 10.50 | |
| | | | |
| | | | | |
Total return | | | 13.54% | | | | (2.58)% | | | | 3.53% | | | | 3.76% | | | | 7.71% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductiond | | | 2.58% | | | | 2.95% | | | | 3.10% | | | | 3.35% | | | | 3.43% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductiond | | | 1.99% | e | | | 2.41% | | | | 2.55% | | | | 2.83% | e | | | 2.68% | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.42% | | | | 0.58% | | | | 0.62% | | | | 0.89% | | | | 0.76% | |
| | | | | |
Net investment income | | | 2.88% | | | | 2.57% | | | | 3.63% | | | | 2.86% | | | | 2.31% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $6 | | | | $5 | | | | $233 | | | | $13 | | | | $13,052 | |
| | | | | |
Portfolio turnover rate | | | 194.81% | | | | 205.14% | | | | 158.66% | | | | 251.81% | | | | 317.70% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cAmount rounds to less than $0.01 per share.
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(h).
eBenefit 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, | |
| | | | | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | |
| Advisor Class | | | | | | | | | | | | | | | | | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | $ | 9.88 | | | $ | 10.46 | | | $ | 10.51 | | | $ | 10.50 | | | $ | 10.15 | |
| | | | |
| | | | | |
| Income from investment operationsa: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment incomeb | | | 0.30 | | | | 0.26 | | | | 0.38 | | | | 0.30 | | | | 0.24 | |
| | | | | |
Net realized and unrealized gains (losses) | | | 1.02 | | | | (0.53 | ) | | | (0.01 | ) | | | 0.09 | | | | 0.53 | |
| | | | |
| | | | | |
Total from investment operations | | | 1.32 | | | | (0.27 | ) | | | 0.37 | | | | 0.39 | | | | 0.77 | |
| | | | |
| | | | | |
| Less distributions from: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | (0.28 | ) | | | (0.27 | ) | | | (0.33 | ) | | | (0.21 | ) | | | (0.32 | ) |
| | | | | |
Net realized gains | | | (0.01 | ) | | | (0.04 | ) | | | (0.09 | ) | | | (0.17 | ) | | | (0.10 | ) |
| | | | |
| | | | | |
Total distributions | | | (0.29 | ) | | | (0.31 | ) | | | (0.42 | ) | | | (0.38 | ) | | | (0.42 | ) |
| | | | |
| | | | | |
Net asset value, end of year | | $ | 10.91 | | | $ | 9.88 | | | $ | 10.46 | | | $ | 10.51 | | | $ | 10.50 | |
| | | | |
| | | | | |
Total return | | | 13.45% | | | | (2.61)% | | | | 3.60% | | | | 3.75% | | | | 7.70% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver, payments by affiliates and expense reductionc | | | 2.65% | | | | 2.96% | | | | 3.03% | | | | 3.37% | | | | 3.44% | |
| | | | | |
Expenses net of waiver, payments by affiliates and expense reductionc | | | 2.06% | d | | | 2.46% | | | | 2.57% | | | | 2.84% | d | | | 2.69% | |
| | | | | |
Expenses incurred in connection with securities sold short | | | 0.41% | | | | 0.58% | | | | 0.62% | | | | 0.89% | | | | 0.76% | |
| | | | | |
Net investment income | | | 2.81% | | | | 2.52% | | | | 3.61% | | | | 2.85% | | | | 2.30% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $76,637 | | | | $73,047 | | | | $86,868 | | | | $45,514 | | | | $25,125 | |
| | | | | |
Portfolio turnover rate | | | 194.81% | | | | 205.14% | | | | 158.66% | | | | 251.81% | | | | 317.70% | |
aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
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(h).
dBenefit 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
Statement of Investments, May 31, 2021
Franklin K2 Long Short Credit Fund
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Shares/Warrants | | | Value | |
| | | Common Stocks and Other Equity Interests 2.8% | | | | | | | | | | | | |
| | | Biotechnology 0.0%† | | | | | | | | | | | | |
| a | | CytoDyn Inc. | | | United States | | | | 2,389 | | | | | | | $ | 4,539 | |
| | | | | | | | | | | | | | | | | | |
| | | Commercial Services & Supplies 0.4% | | | | | | | | | | | | |
| a | | CM Life Sciences III Inc. | | | United States | | | | 2,593 | | | | | | | | 27,667 | |
| | Covanta Holding Corp. | | | United States | | | | 5,993 | | | | | | | | 88,756 | |
| a | | dMY Technology Group Inc. IV, A | | | United States | | | | 189 | | | | | | | | 1,862 | |
| a | | dMY Technology Group Inc. IV, wts., 12/31/27, A | | | United States | | | | 37 | | | | | | | | 44 | |
| a | | Executive Network Partnering Corp., A | | | United States | | | | 6,280 | | | | | | | | 61,042 | |
| a | | Executive Network Partnering Corp., wts., 9/25/28 | | | United States | | | | 925 | | | | | | | | 722 | |
| a | | Gores Guggenheim Inc. | | | United States | | | | 2,956 | | | | | | | | 29,353 | |
| a | | Gores Technology Partners II Inc. | | | United States | | | | 362 | | | | | | | | 3,620 | |
| a | | Gores Technology Partners Inc. | | | United States | | | | 145 | | | | | | | | 1,443 | |
| a | | Hedosophia European Growth | | | Cayman Islands | | | | 1,142 | | | | | | | | 14,021 | |
| a | | Landcadia Holdings IV Inc. | | | United States | | | | 3,613 | | | | | | | | 35,877 | |
| a | | Post Holdings Partnering Corp. | | | United States | | | | 788 | | | | | | | | 7,919 | |
| a | | Tech And Energy Transition Corp. | | | United States | | | | 2,499 | | | | | | | | 24,990 | |
| a | | Tishman Speyer Innovation Corp. II, A | | | United States | | | | 113 | | | | | | | | 1,117 | |
| a | | Tishman Speyer Innovation Corp. II, wts., 02/11/26, A | | | United States | | | | 22 | | | | | | | | 26 | |
| a | | TWC Tech Holdings II Corp., A | | | United States | | | | 6,558 | | | | | | | | 64,793 | |
| a | | TWC Tech Holdings II Corp., wts., 9/15/27 | | | United States | | | | 400 | | | | | | | | 656 | |
| a | | Twelve Seas Investment Co. II, A | | | United States | | | | 3,059 | | | | | | | | 29,978 | |
| a | | Twelve Seas Investment Co. II, wts., 3/02/28 | | | United States | | | | 1,019 | | | | | | | | 662 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 394,548 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Financial Services 0.7% | |
| a | | 2MX Organic SA, wts., 11/16/25 | | | France | | | | 1,165 | | | | | | | | 634 | |
| a | | Aequi Acquisition Corp. | | | United States | | | | 440 | | | | | | | | 4,374 | |
| a | | Aequi Acquisition Corp., A | | | United States | | | | 3,553 | | | | | | | | 34,322 | |
| a | | African Gold Acquisition Corp., A | | | United States | | | | 1,912 | | | | | | | | 18,470 | |
| a | | African Gold Acquisition Corp., wts., 03/13/28, A | | | United States | | | | 1,434 | | | | | | | | 717 | |
| a | | Agile Growth Corp. | | | United States | | | | 1,265 | | | | | | | | 12,574 | |
| a | | Alkuri Global Acquisition Corp. | | | United States | | | | 1,218 | | | | | | | | 12,290 | |
| a | | ArcLight Clean Transition Corp. II | | | United States | | | | 1,003 | | | | | | | | 10,050 | |
| a | | Ares Acquisition Corp., A | | | United States | | | | 2,110 | | | | | | | | 20,615 | |
| a | | Ares Acquisition Corp., wts., 12/30/21 | | | United States | | | | 566 | | | | | | | | 600 | |
| a | | CC Neuberger Principal Holdings III, wts., 12/31/27 | | | United States | | | | 231 | | | | | | | | 259 | |
| a | | CF Acquisition Corp. V, A | | | United States | | | | 1,761 | | | | | | | | 17,029 | |
| a | | CF Acquisition Corp. V, wts., 1/25/26, A | | | United States | | | | 603 | | | | | | | | 564 | |
| a | | CF Acquisition Corp. VIII | | | United States | | | | 727 | | | | | | | | 7,234 | |
| a | | Churchill Capital Corp. VII, wts., 2/29/28 | | | United States | | | | 27 | | | | | | | | 31 | |
| a | | Decarbonization Plus Acquisition Corp. II, A | | | United States | | | | 1,373 | | | | | | | | 13,483 | |
| a | | Decarbonization Plus Acquisition Corp. III | | | United States | | | | 3,547 | | | | | | | | 35,470 | |
| a | | DHC Acquisition Corp., A | | | United States | | | | 1,838 | | | | | | | | 17,764 | |
| a | | DHC Acquisition Corp., wts., 12/31/27 | | | United States | | | | 612 | | | | | | | | 722 | |
| a | | Disruptive Acquisition Corp. I | | | United States | | | | 2,007 | | | | | | | | 20,050 | |
| a | | Dragoneer Growth Opportunities Corp. III, A | | | United States | | | | 3,050 | | | | | | | | 30,652 | |
| a | | ECP Environmental Growth Opportunities Corp., wts., 2/11/28 | | | United States | | | | 135 | | | | | | | | 122 | |
| a | | European Biotech Acquisition Corp. | | | Netherlands | | | | 361 | | | | | | | | 3,578 | |
| a | | Fast Acquisition Corp. II | | | United States | | | | 723 | | | | | | | | 7,172 | |
| a | | Figure Acquisition Corp. I, A | | | United States | | | | 409 | | | | | | | | 4,110 | |
| a | | Figure Acquisition Corp. I, wts., 12/31/27, A | | | United States | | | | 345 | | | | | | | | 379 | |
| a | | Fortress Value Acquisition Corp. IV | | | United States | | | | 1,319 | | | | | | | | 13,137 | |
| a | | Forum Merger IV Corp. | | | United States | | | | 849 | | | | | | | | 8,431 | |
| a | | Freedom Acquisition I Corp., A | | | United States | | | | 573 | | | | | | | | 5,572 | |
| a | | Freedom Acquisition I Corp., wts., 12/31/27 | | | United States | | | | 143 | | | | | | | | 151 | |
| a | | FTAC Hera Acquisition Corp., A | | | United States | | | | 1,805 | | | | | | | | 17,635 | |
| a | | FTAC Hera Acquisition Corp., wts., 2/28/26 | | | United States | | | | 451 | | | | | | | | 501 | |
| a | | Fusion Acquisition Corp. II, A | | | United States | | | | 956 | | | | | | | | 9,245 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 15 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Shares/Warrants | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | | | | | | | | | | | | |
| | | Diversified Financial Services (continued) | |
| a | | Fusion Acquisition Corp. II, wts., 12/31/27, A | | | United States | | | | 318 | | | | | | | $ | 235 | |
| a | | Glenfarne Merger Corp. | | | United States | | | | 361 | | | | | | | | 3,585 | |
| a | | Investindustrial Acquisition Corp., wts., 10/30/27 | | | United States | | | | 580 | | | | | | | | 493 | |
| a | | ION Acquisition Corp. 3 Ltd, A | | | Israel | | | | 796 | | | | | | | | 7,841 | |
| a | | Joff Fintech Acquisition Corp., A | | | United States | | | | 1,575 | | | | | | | | 15,183 | |
| a | | Joff Fintech Acquisition Corp., wts., 2/04/28 | | | United States | | | | 525 | | | | | | | | 441 | |
| a | | Khosla Ventures Acquisition Co., A | | | United States | | | | 2,127 | | | | | | | | 21,398 | |
| a | | Khosla Ventures Acquisition Co. II, A | | | United States | | | | 2,956 | | | | | | | | 29,708 | |
| a | | Khosla Ventures Acquisition Co. III, A | | | United States | | | | 3,571 | | | | | | | | 35,639 | |
| a | | KKR Acquisition Holdings I Corp. | | | United States | | | | 1,809 | | | | | | | | 18,162 | |
| a | | L Catterton Asia Acquisition Corp. | | | Singapore | | | | 668 | | | | | | | | 6,673 | |
| a | | Lakestar SPAC I SE | | | Luxembourg | | | | 575 | | | | | | | | 7,000 | |
| a | | Lakestar SPAC I SE, wts., 12/31/25 | | | Luxembourg | | | | 210 | | | | | | | | 218 | |
| a | | LDH Growth Corp. I | | | United States | | | | 180 | | | | | | | | 1,805 | |
| a | | Lead Edge Growth Opportunities Ltd. | | | United States | | | | 1,379 | | | | | | | | 13,721 | |
| a | | Leo Holdings III Corp., A | | | Bahamas | | | | 382 | | | | | | | | 3,723 | |
| a | | Leo Holdings III Corp., wts., 3/02/28 | | | United States | | | | 76 | | | | | | | | 67 | |
| a | | Lerer Hippeau Acquisition Corp., A | | | United States | | | | 2,839 | | | | | | | | 28,078 | |
| a | | Live Oak Mobility Acquisition Corp., A | | | United States | | | | 757 | | | | | | | | 7,373 | |
| a | | Live Oak Mobility Acquisition Corp., wts., 3/04/28 | | | United States | | | | 151 | | | | | | | | 157 | |
| a | | MDH Acquisition Corp., A | | | United States | | | | 1,367 | | | | | | | | 13,198 | |
| a | | MDH Acquisition Corp., wts., 2/02/28, A | | | United States | | | | 683 | | | | | | | | 416 | |
| a | | The Music Acquisition Corp., A | | | United States | | | | 1,590 | | | | | | | | 15,502 | |
| a | | The Music Acquisition Corp., wts., 2/05/28, A | | | United States | | | | 795 | | | | | | | | 485 | |
| a | | Nightdragon Acquisition Corp., A | | | United States | | | | 367 | | | | | | | | 3,582 | |
| a | | Nightdragon Acquisition Corp., wts., 4/22/26 | | | United States | | | | 63 | | | | | | | | 69 | |
| a | | Northern Genesis Acquisition Corp. III | | | United States | | | | 170 | | | | | | | | 1,693 | |
| a | | Obotech Acquisition SE, A | | | Luxembourg | | | | 1,240 | | | | | | | | 14,708 | |
| a | | Obotech Acquisition SE, wts., 4/30/26 | | | Luxembourg | | | | 413 | | | | | | | | 455 | |
| a | | Pegasus Acquisition Co. Europe BV | | | Netherlands | | | | 1,768 | | | | | | | | 21,620 | |
| a | | Peridot Acquisition Corp. II | | | United States | | | | 735 | | | | | | | | 7,335 | |
| a | | Pioneer Merger Corp., A | | | United States | | | | 597 | | | | | | | | 5,898 | |
| a | | Population Health Investment Co. Inc., A | | | United States | | | | 342 | | | | | | | | 3,355 | |
| a | | Powered Brands, A | | | United States | | | | 1,065 | | | | | | | | 10,458 | |
| a | | PWP Forward Acquisition Corp. I | | | United States | | | | 1,807 | | | | | | | | 17,944 | |
| a | | Ross Acquisition Corp. II | | | United States | | | | 1,286 | | | | | | | | 12,796 | |
| a | | Silver Crest Acquisition Corp., A | | | Hong Kong | | | | 857 | | | | | | | | 8,261 | |
| a | | Silver Crest Acquisition Corp., wts., 12/15/25 | | | United States | | | | 428 | | | | | | | | 278 | |
| a | | Supernova Partners Acquisition Co. II Ltd., A | | | United States | | | | 2,379 | | | | | | | | 23,219 | |
| a | | Supernova Partners Acquisition Co. II Ltd., wts., 12/31/27 | | | United States | | | | 594 | | | | | | | | 561 | |
| a | | Supernova Partners Acquisition Co. III Ltd. | | | United States | | | | 2,530 | | | | | | | | 25,300 | |
| a | | SVF Investment Corp. 2, A | | | United States | | | | 72 | | | | | | | | 720 | |
| a | | SVF Investment Corp. 3, A | | | United States | | | | 72 | | | | | | | | 716 | |
| a | | TCV Acquisition Corp., A | | | United States | | | | 500 | | | | | | | | 5,000 | |
| a | | TCW Special Purpose Acquisition Corp., A | | | United States | | | | 1,838 | | | | | | | | 17,918 | |
| a | | TCW Special Purpose Acquisition Corp., wts., 12/31/28 | | | United States | | | | 612 | | | | | | | | 450 | |
| a | | Tekkorp Digital Acquisition Corp., wts., 9/29/27 | | | United States | | | | 433 | | | | | | | | 390 | |
| a | | TPG Pace Beneficial II Corp., A | | | United States | | | | 83 | | | | | | | | 831 | |
| a | | TPG Pace Solutions Corp. | | | United States | | | | 95 | | | | | | | | 943 | |
| a | | Twin Ridge Capital Acquisition Corp., A | | | United States | | | | 2,202 | | | | | | | | 21,780 | |
| a | | Twin Ridge Capital Acquisition Corp., wts., 03/07/28 | | | United States | | | | 734 | | | | | | | | 484 | |
| a | | VPC Impact Acquisition Holdings II Inc., A | | | United States | | | | 1,084 | | | | | | | | 10,710 | |
| a | | VPC Impact Acquisition Holdings II, wts., 3/05/26 | | | United States | | | | 271 | | | | | | | | 244 | |
| a | | VPC Impact Acquisition Holdings III Inc., A | | | United States | | | | 1,445 | | | | | | | | 14,190 | |
| a | | VPC Impact Acquisition Holdings III Inc., wts., 12/31/27, A | | | United States | | | | 361 | | | | | | | | 316 | |
| a | | Waldencast Acquisition Corp. | | | United States | | | | 296 | | | | | | | | 2,987 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 794,249 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 16 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Shares/Warrants | | | Value | |
| | | Common Stocks and Other Equity Interests (continued) | | | | | | | | | | | | |
| | | Diversified Telecommunication Services 0.3% | |
| a | | Frontier Communications Parent Inc. | | | United States | | | | 6,642 | | | | | | | $ | 165,917 | |
| a | | Liberty Global PLC, C | | | United Kingdom | | | | 5,067 | | | | | | | | 137,924 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 303,841 | |
| | | | | | | | | | | | | | | | | | |
| | | Equity Real Estate Investment Trusts (REITs) 0.3% | |
| a | | EPR Properties | | | United States | | | | 2,100 | | | | | | | | 103,215 | |
| a | | Ryman Hospitality Properties Inc. | | | United States | | | | 1,058 | | | | | | | | 79,255 | |
| b | | VICI Properties Inc. | | | United States | | | | 5,544 | | | | | | | | 172,584 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 355,054 | |
| | | | | | | | | | | | | | | | | | |
| | | Hotels, Restaurants & Leisure 0.3% | |
| a | | Carnival PLC | | | United States | | | | 12,183 | | | | | | | | 304,869 | |
| | | | | | | | | | | | | | | | | | |
| | | Independent Power & Renewable Electricity Producers 0.4% | |
| b | | Clearway Energy Inc., A | | | United States | | | | 12,246 | | | | | | | | 307,742 | |
| | Clearway Energy Inc., C | | | United States | | | | 3,524 | | | | | | | | 94,549 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 402,291 | |
| | | | | | | | | | | | | | | | | | |
| | | Multi-Utilities 0.1% | |
| | NiSource Inc. | | | United States | | | | 2,341 | | | | | | | | 59,695 | |
| | | | | | | | | | | | | | | | | | |
| | | Oil, Gas & Consumable Fuels 0.0%† | |
| a,c | | Bighorn Permian Resources LLC, wts., 2/01/24 | | | United States | | | | 1,439 | | | | | | | | 11,800 | |
| | | | | | | | | | | | | | | | | | |
| | | Paper & Forest Products 0.0%† | |
| a,c | | Topco Associates LLC | | | United Kingdom | | | | 100,439 | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | |
| | | Professional Services 0.0%† | |
| a,c,d | | Acosta Inc. | | | United States | | | | 923 | | | | | | | | 7,042 | |
| | | | | | | | | | | | | | | | | | |
| | | Technology Hardware, Storage & Peripherals 0.3% | |
| a,b | | Dell Technologies Inc., C | | | United States | | | | 3,562 | | | | | | | | 351,356 | |
| | | | | | | | | | | | | | | | | | |
| | Total Common Stocks and Other Equity Interests
(Cost $2,482,867) | | | | | | | | | | | | | | | 2,989,284 | |
| | | | | | | | | | | | | | | | | | |
| | | Convertible Preferred Stocks 0.4% | | | |
| | | Media 0.3% | |
| | Viacomcbs Inc., 5.75%, cvt. pfd., A | | | United States | | | | 4,492 | | | | | | | | 326,973 | |
| | | | | | | | | | | | | | | | | | |
| | | Multi-Utilities 0.1% | |
| | NiSource Inc., 7.75%, cvt. pfd. | | | United States | | | | 500 | | | | | | | | 53,215 | |
| | | | | | | | | | | | | | | | | | |
| | | Professional Services 0.0%† | |
| a,c,d | | Acosta Inc., cvt. pfd. | | | United States | | | | 861 | | | | | | | | 43,377 | |
| | | | | | | | | | | | | | | | | | |
| | Total Convertible Preferred Stocks
(Cost $393,770) | | | | | | | | | | | | | | | 423,565 | |
| | | | | | | | | | | | | | | | | | |
| | | Preferred Stocks 0.6% | | | |
| | | Diversified Financial Services 0.0%† | |
| a | | 2MX Organic SA, pfd. | | | France | | | | 1,177 | | | | | | | | 14,311 | |
| | | | | | | | | | | | | | | | | | |
| | | Electric Utilities 0.2% | | | | | | | | | | | | |
| | SCE Trust II, 5.10%, pfd. | | | United States | | | | 1,250 | | | | | | | | 31,375 | |
| | SCE Trust III, 5.75%, pfd., H | | | United States | | | | 707 | | | | | | | | 17,845 | |
| | SCE Trust IV, 5.375%, pfd., J | | | United States | | | | 3,469 | | | | | | | | 86,933 | |
| | SCE Trust V, 5.45%, pfd., K | | | United States | | | | 1,162 | | | | | | | | 29,631 | |
| | SCE Trust VI, 5.00%, pfd. | | | United States | | | | 3,212 | | | | | | | | 80,107 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 245,891 | |
| | | | | | | | | | | | | | | | | | |
| | | Internet & Direct Marketing Retail 0.4% | | | | | | | | | | | | |
| | Qurate Retail Inc., 8.00%, pfd. | | | United States | | | | 3,445 | | | | | | | | 363,723 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 17 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Shares/Warrants | | | Value | |
| | | Preferred Stocks (continued) | | | |
| | | Thrifts & Mortgage Finance 0.0%† | | | | | | | | | | | | |
| | FHLMC, 8.375%, pfd., Z | | | United States | | | | 1,093 | | | | | | | $ | 6,602 | |
| | FNMA, 8.25%, pfd., S | | | United States | | | | 1,075 | | | | | | | | 6,848 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 13,450 | |
| | | | | | | | | | | | | | | | | | |
| | Total Preferred Stocks (Cost $569,431) | | | | | | | | | | | | | | | 637,375 | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | Principal Amount* | | | | |
| | | Convertible Bonds 0.6% | | | | | | | | | | | | |
| | | Airlines 0.2% | | | | | | | | | | | | |
| e | | Air France-KLM, senior note, Reg S, 0.125%, 3/25/26 | | | France | | | | 11,288 | | | | EUR | | | | 216,633 | |
| | | | | | | | | | | | | | | | | | |
| | | Hotels, Restaurants & Leisure 0.1% | | | | | | | | | | | | |
| f | | Draftkings Inc., senior note, 144A, zero cpn., 3/15/28 | | | United States | | | | 101,000 | | | | | | | | 92,415 | |
| | | | | | | | | | | | | | | | | | |
| | | Internet & Direct Marketing Retail 0.2% | | | | | | | | | | | | |
| e | | Just Eat Takeaway.Com NV, B, senior note, Reg S, 0.625%, 2/09/28 | | | Germany | | | | 200,000 | | | | EUR | | | | 227,049 | |
| | | | | | | | | | | | | | | | | | |
| | | Leisure Products 0.1% | | | | | | | | | | | | |
| f | | Peloton Interactive Inc., senior note, 144A, zero cpn., 2/15/26 | | | United States | | | | 81,000 | | | | | | | | 77,760 | |
| | | | | | | | | | | | | | | | | | |
| | | Software 0.0%† | | | | | | | | | | | | |
| f | | Splunk Inc., senior note, 144A, 1.125%, 6/15/27 | | | United States | | | | 32,000 | | | | | | | | 29,520 | |
| | | | | | | | | | | | | | | | | | |
| | | Specialty Retail 0.0%† | | | | | | | | | | | | |
| f | | Shake Shack Inc., senior note, 144A, zero cpn., 3/01/28 | | | United States | | | | 54,000 | | | | | | | | 49,525 | |
| | | | | | | | | | | | | | | | | | |
| | Total Convertible Bonds (Cost $665,770) | | | | | | | | | | | | | | | 692,902 | |
| | | | | | | | | | | | | | | | | | |
| | | Corporate Bonds and Notes 27.1% | | | | | | | | | | | | |
| | | Aerospace & Defense 0.4% | | | | | | | | | | | | |
| f | | Spirit Aerosystems Inc., senior secured note, 144A, 5.50%, 1/15/25 | | | United States | | | | 118,000 | | | | | | | | 124,638 | |
| f | | TransDigm Inc., senior note, 144A, 4.875%, 5/01/29 | | | United States | | | | 273,000 | | | | | | | | 270,201 | |
| f | | Triumph Group Inc., senior secured note, 144A, 8.875%, 6/01/24 | | | United States | | | | 14,000 | | | | | | | | 15,531 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 410,370 | |
| | | | | | | | | | | | | | | | | | |
| | | Airlines 0.7% | | | | | | | | | | | | |
| f | | American Airlines Inc./Aadvantage Loyalty Ip Ltd., senior secured note, 144A,
5.50%, 4/20/26 | | | United States | | | | 263,000 | | | | | | | | 277,144 | |
| | 5.75%, 4/20/29 | | | United States | | | | 263,000 | | | | | | | | 282,463 | |
| f | | Hawaiian Brand Intellectual Property Ltd. / Hawaiianmiles Loyalty Ltd., senior secured note, 144A, 5.75%, 1/20/26 | | | United States | | | | 173,000 | | | | | | | | 184,029 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 743,636 | |
| | | | | | | | | | | | | | | | | | |
| | | Automobiles 0.2% | | | | | | | | | | | | |
| f | | Aston Martin Capital Holdings Ltd., senior secured note, 144A, 10.50%, 11/30/25 | | | United Kingdom | | | | 200,000 | | | | | | | | 221,250 | |
| | | | | | | | | | | | | | | | | | |
| | | Banks 0.2% | | | | | | | | | | | | |
| e,g | | VTB Bank OJSC Via VTB Capital SA, loan participation, sub. senior note, Reg S, 6.95%, 10/17/22 | | | Russia | | | | 200,000 | | | | | | | | 212,319 | |
| | | | | | | | | | | | | | | | | | |
| | | Capital Markets 0.8% | | | | | | | | | | | | |
| f | | eG Global Finance PLC, senior secured note, 144A,
4.375%, 2/07/25 | | | United Kingdom | | | | 192,000 | | | | EUR | | | | 230,020 | |
| | 6.25%, 10/30/25 | | | United Kingdom | | | | 161,000 | | | | EUR | | | | 200,427 | |
| f | | Stonex Group Inc., senior secured note, 144A, 8.625%, 6/15/25 | | | United States | | | | 400,000 | | | | | | | | 428,950 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 859,397 | |
| | | | | | | | | | | | | | | | | | |
| | | Chemicals 1.2% | | | | | | | | | | | | |
| f | | Polar US Borrower LLC / Schenectady International Group Inc., senior note, 144A, 6.75%, 5/15/26 | | | United States | | | | 500,000 | | | | | | | | 495,815 | |
| | | | | | | | | | |
| | | | | | |
| 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) | | | | | | | | | | | | |
| | | Chemicals (continued) | | | | | | | | | | | | |
| f | | SCIH Salt Holdings Inc., senior secured note, 144A, 4.875%, 5/01/28 | | | United States | | | | 383,000 | | | | | | | $ | 380,606 | |
| f | | Venator Finance Sarl / Venator Materials LLC, senior note, 144A, 5.75%, 7/15/25 | | | United States | | | | 400,000 | | | | | | | | 394,704 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,271,125 | |
| | | | | | | | | | | | | | | | | | |
| | | Communications Equipment 0.4% | | | | | | | | | | | | |
| f | | Entercom Media Corp., secured note, 144A, 6.75%, 3/31/29 | | | United States | | | | 450,000 | | | | | | | | 458,728 | |
| | | | | | | | | | | | | | | | | | |
| | | Construction & Engineering 0.7% | | | | | | | | | | | | |
| f | | Brand Industrial Services Inc., senior note, 144A, 8.50%, 7/15/25 | | | United States | | | | 400,000 | | | | | | | | 410,244 | |
| f | | Powerteam Services LLC, senior secured note, 144A, 9.033%, 12/04/25 | | | United States | | | | 273,000 | | | | | | | | 301,844 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 712,088 | |
| | | | | | | | | | | | | | | | | | |
| | | Construction Materials 0.2% | | | | | | | | | | | | |
| f | | CP Atlas Buyer Inc., senior note, 144A, 7.00%, 12/01/28 | | | United States | | | | 182,000 | | | | | | | | 188,468 | |
| | | | | | | | | | | | | | | | | | |
| | | Containers & Packaging 0.4% | | | | | | | | | | | | |
| f | | Mauser Packaging Solutions Holding Co., senior note, 144A, 7.25%, 4/15/25 | | | United States | | | | 400,000 | | | | | | | | 394,332 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Consumer Services 0.6% | | | | | | | | | | | | |
| f | | Bidfair Holdings Inc., senior note, 144A, 5.875%, 6/01/29 | | | United States | | | | 200,000 | | | | | | | | 201,310 | |
| f | | MPH Acquisition Holdings LLC, senior note, 144A, 5.75%, 11/01/28 | | | United States | | | | 400,000 | | | | | | | | 398,590 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 599,900 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Financial Services 0.7% | | | | | | | | | | | | |
| f | | Advisor Group Holdings Inc., senior note, 144A, 10.75%, 8/01/27 | | | United States | | | | 360,000 | | | | | | | | 402,457 | |
| f | | Finance of America Funding LLC, senior note, 144A, 7.875%, 11/15/25 | | | United States | | | | 250,000 | | | | | | | | 253,593 | |
| f | | LBM Acquisition LLC, senior note, 144A, 6.25%, 1/15/29 | | | United States | | | | 136,000 | | | | | | | | 139,458 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 795,508 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Telecommunication Services 1.0% | | | | | | | | | | | | |
| f | | Connect Finco Sarl / Connect US Finco LLC, senior secured note, 144A, 6.75%, 10/01/26 | | | United Kingdom | | | | 370,000 | | | | | | | | 382,961 | |
| f | | Consolidated Communications Inc., senior secured note, 144A, 5.00%, 10/01/28 | | | United States | | | | 62,000 | | | | | | | | 63,163 | |
| f | | Frontier Communications Corp., 144A,
secured note, 6.75%, 5/01/29 | | | United States | | | | 156,000 | | | | | | | | 163,305 | |
| | senior secured note, 5.875%, 10/15/27 | | | United States | | | | 125,000 | | | | | | | | 133,066 | |
| | senior secured note, 5.00%, 5/01/28 | | | United States | | | | 282,000 | | | | | | | | 289,403 | |
| | Frontier Communications Holdings LLC, secured note, 5.875%, 11/01/29 | | | United States | | | | 34,658 | | | | | | | | 34,930 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,066,828 | |
| | | | | | | | | | | | | | | | | | |
| | | Electric Utilities 0.8% | |
| h | | Edison International, A, junior sub. note, 5.375% to 3/15/26, FRN thereafter, Perpetual | | | United States | | | | 223,000 | | | | | | | | 225,788 | |
| e | | Eskom Holdings SOC Ltd., senior bond, Reg S, 8.45%, 8/10/28 | | | South Africa | | | | 200,000 | | | | | | | | 226,500 | |
| | Pacific Gas and Electric Co.,
secured bond, 4.50%, 7/01/40 | | | United States | | | | 320,653 | | | | | | | | 315,052 | |
| | secured bond, 4.95%, 7/01/50 | | | United States | | | | 60,000 | | | | | | | | 60,756 | |
| | secured note, 3.15%, 1/01/26 | | | United States | | | | 36 | | | | | | | | 37 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 828,133 | |
| | | | | | | | | | | | | | | | | | |
| | | Energy Equipment & Services 0.2% | |
| f | | Transocean Inc., senior note, 144A, 7.50%, 1/15/26 | | | United States | | | | 242,000 | | | | | | | | 190,622 | |
| | | | | | | | | | | | | | | | | | |
| | | Entertainment 0.5% | |
| f,i | | AMC Entertainment Holdings Inc., secured note, 144A, PIK, 12.00%, 6/15/26 | | | United States | | | | 600,000 | | | | | | | | 591,750 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 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) | | | | | | | | | | | | |
| | | Equity Real Estate Investment Trusts (REITs) 0.1% | |
| f | | Uniti Group LP / Uniti Group Finance Inc. / CSL Capital LLC, senior note, 144A, 6.50%, 2/15/29 | | | United States | | | | 62,000 | | | | | | | $ | 61,457 | |
| | | | | | | | | | | | | | | | | | |
| | | Food & Staples Retailing 0.2% | |
| e,h | | Casino Guichard Perrachon SA, E, junior sub. note, Reg S, 3.992% to 1/31/24, FRN thereafter, Perpetual | | | France | | | | 200,000 | | | | EUR | | | | 183,391 | |
| | | | | | | | | | | | | | | | | | |
| | | Health Care Providers & Services 1.6% | |
| f | | CHS/Community Health Systems Inc., secured note, 144A, 6.875%, 4/15/29 | | | United States | | | | 218,000 | | | | | | | | 222,798 | |
| | | | | |
| | Encompass Health Corp., senior bond, 4.625%, 4/01/31 | | | United States | | | | 220,000 | | | | | | | | 233,668 | |
| f | | Envision Healthcare Corp., senior note, 144A, 8.75%, 10/15/26 | | | United States | | | | 500,000 | | | | | | | | 346,205 | |
| f | | LifePoint Health Inc., senior note, 144A, 5.375%, 1/15/29 | | | United States | | | | 187,000 | | | | | | | | 182,356 | |
| f | | Team Health Holdings Inc., senior note, 144A, 6.375%, 2/01/25 | | | United States | | | | 500,000 | | | | | | | | 465,625 | |
| f | | US Acute Care Solutions LLC, senior secured note, 144A, 6.375%, 3/01/26 | | | United States | | | | 229,000 | | | | | | | | 236,169 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,686,821 | |
| | | | | | | | | | | | | | | | | | |
| | | Hotels, Restaurants & Leisure 1.5% | |
| f,j | | Boyd Gaming Corp., senior bond, 144A, 4.75%, 6/15/31 | | | United States | | | | 482,000 | | | | | | | | 488,170 | |
| f | | Midwest Gaming Borrower LLC / Midwest Gaming Finance Corp., senior secured note, 144A, 4.875%, 5/01/29 | | | United States | | | | 382,000 | | | | | | | | 383,108 | |
| f | | Royal Caribbean Cruises Ltd., 144A, | | | | | | | | | | | | | | | | |
| | senior note, 9.125%, 6/15/23 | | | United States | | | | 151,000 | | | | | | | | 167,225 | |
| | senior secured note, 11.50%, 6/01/25 | | | United States | | | | 127,000 | | | | | | | | 147,171 | |
| f | | Scientific Games International Inc., senior note, 144A, 7.00%, 5/15/28 | | | United States | | | | 400,000 | | | | | | | | 433,392 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,619,066 | |
| | | | | | | | | | | | | | | | | | |
| | | Household Durables 0.6% | | | | | | | | | | | | |
| f | | K. Hovnanian Enterprises Inc., senior secured note, 144A, 7.75%, 2/15/26 | | | United States | | | | 626,000 | | | | | | | | 680,775 | |
| | | | | | | | | | | | | | | | | | |
| | | Insurance 1.2% | | | | | | | | | | | | |
| f | | Acrisure LLC / Acrisure Finance Inc., senior note, 144A, 7.00%, 11/15/25 | | | United States | | | | 400,000 | | | | | | | | 409,036 | |
| f,k | | Ambac LSNI LLC, senior secured note, 144A, FRN, 6.00%, (3-Month USD LIBOR + 5.00%), 2/12/23 | | | Cayman Islands | | | | 7 | | | | | | | | 7 | |
| f | | Assuredpartners Inc., senior note, 144A, 5.625%, 1/15/29 | | | United States | | | | 400,000 | | | | | | | | 397,512 | |
| | Genworth Holdings Inc., senior note, 4.90%, 8/15/23 | | | United States | | | | 500,000 | | | | | | | | 494,753 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,301,308 | |
| | | | | | | | | | | | | | | | | | |
| | | Internet & Direct Marketing Retail 0.5% | | | | | | | | | | | | |
| f | | Arches Buyer Inc., senior note, 144A, 6.125%, 12/01/28 | | | United States | | | | 502,000 | | | | | | | | 514,598 | |
| | | | | | | | | | | | | | | | | | |
| | | IT Services 0.3% | | | | | | | | | | | | |
| f | | Austin Bidco Inc., senior note, 144A, 7.125%, 12/15/28 | | | United States | | | | 286,000 | | | | | | | | 286,363 | |
| | | | | | | | | | | | | | | | | | |
| | | Leisure Products 0.4% | | | | | | | | | | | | |
| f,j | | Majordrive Holdings IV LLC, senior note, 144A, 6.375%, 6/01/29 | | | United States | | | | 400,000 | | | | | | | | 397,060 | |
| | | | | | | | | | | | | | | | | | |
| | | Marine 0.1% | | | | | | | | | | | | |
| f | | Stena International SA, senior secured bond, 144A, 5.75%, 3/01/24 | | | Sweden | | | | 100,000 | | | | | | | | 103,159 | |
| | | | | | | | | | | | | | | | | | |
| | | Media 3.0% | | | | | | | | | | | | |
| f | | Clear Channel Outdoor Holdings Inc., senior note, 144A, 7.75%, 4/15/28 | | | United States | | | | 364,000 | | | | | | | | 373,355 | |
| f | | Cumulus Media New Holdings Inc., senior secured note, 144A, 6.75%, 7/01/26 | | | United States | | | | 360,000 | | | | | | | | 376,557 | |
| f | | Diamond Sports Group LLC / Diamond Sports Finance Co., 144A, | | | | | | | | | | | | | | | | |
| | senior note, 6.625%, 8/15/27 | | | United States | | | | 68,000 | | | | | | | | 39,000 | |
| | senior secured note, 5.375%, 8/15/26 | | | United States | | | | 595,000 | | | | | | | | 441,038 | |
| | | | | | | | | | |
| | | | | | |
| 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) | | | | | | | | | | | | |
| | | Media (continued) | | | | | | | | | | | | |
| f | | Dish DBS Corp., senior note, 144A, 5.125%, 6/01/29 | | | United States | | | | 1,000 | | | | | | | $ | 993 | |
| | iHeartCommunications Inc., senior note, 8.375%, 5/01/27 | | | United States | | | | 400,000 | | | | | | | | 428,668 | |
| | Liberty Interactive LLC, senior bond, 8.25%, 2/01/30 | | | United States | | | | 360,000 | | | | | | | | 413,226 | |
| f | | Radiate Holdco LLC / Radiate Finance Inc., senior note, 144A, 6.50%, 9/15/28 | | | United States | | | | 360,000 | | | | | | | | 370,679 | |
| f | | Terrier Media Buyer Inc., senior note, 144A, 8.875%, 12/15/27 | | | United States | | | | 360,000 | | | | | | | | 385,650 | |
| f | | Urban One Inc., senior secured note, 144A, 7.375%, 2/01/28 | | | United States | | | | 306,000 | | | | | | | | 324,449 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 3,153,615 | |
| | | | | | | | | | | | | | | | | | |
| | | Metals & Mining 1.1% | | | | | | | | | | | | |
| f | | CSN Inova Ventures, senior note, 144A, 6.75%, 1/28/28 | | | Brazil | | | | 200,000 | | | | | | | | 220,513 | |
| f | | Infrabuild Australia Pty Ltd., senior secured note, 144A, 12.00%, 10/01/24 | | | Australia | | | | 23,000 | | | | | | | | 24,035 | |
| f | | Taseko Mines Ltd., senior secured note, 144A, 7.00%, 2/15/26 | | | Canada | | | | 387,000 | | | | | | | | 405,007 | |
| | U.S. Steel Corp., senior note, | | | | | | | | | | | | | | | | |
| | 6.875%, 8/15/25 | | | United States | | | | 400,000 | | | | | | | | 410,000 | |
| | 6.875%, 3/01/29 | | | United States | | | | 67,000 | | | | | | | | 70,281 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,129,836 | |
| | | | | | | | | | | | | | | | | | |
| | | Mortgage Real Estate Investment Trusts (REITs) 0.5% | | | | | | | | | | | | |
| f | | New Residential Investment Corp., senior note, 144A, 6.25%, 10/15/25 | | | United States | | | | 520,000 | | | | | | | | 520,666 | |
| | | | | | | | | | | | | | | | | | |
| | | Multiline Retail 0.1% | | | | | | | | | | | | |
| | Kohl’s Corp., senior bond, 5.55%, 7/17/45 | | | United States | | | | 123,000 | | | | | | | | 144,635 | |
| | | | | | | | | | | | | | | | | | |
| | | Oil, Gas & Consumable Fuels 2.9% | | | | | | | | | | | | |
| f,j | | DT Midstream Inc., 144A, | | | | | | | | | | | | | | | | |
| | senior bond, 4.375%, 6/15/31 | | | United States | | | | 86,000 | | | | | | | | 86,546 | |
| | senior note, 4.125%, 6/15/29 | | | United States | | | | 151,000 | | | | | | | | 151,729 | |
| | Energy Transfer LP, senior bond, | | | | | | | | | | | | | | | | |
| | 5.30%, 4/01/44 | | | United States | | | | 39,000 | | | | | | | | 43,166 | |
| | 6.25%, 4/15/49 | | | United States | | | | 60,000 | | | | | | | | 75,008 | |
| f | | Hurricane Finance PLC, senior note, 144A, 8.00%, 10/15/25 | | | United Kingdom | | | | 134,000 | | | | | | | | 207,270 | |
| f | | Moss Creek Resources Holdings Inc., senior note, 144A, | | | | | | | | | | | | | | | | |
| | 7.50%, 1/15/26 | | | United States | | | | 67,000 | | | | | | | | 59,124 | |
| | 10.50%, 5/15/27 | | | United States | | | | 551,000 | | | | | | | | 523,202 | |
| f | | Northern Oil And Gas Inc., senior note, 144A, 8.125%, 3/01/28 | | | United States | | | | 400,000 | | | | | | | | 419,550 | |
| | Petroleos Mexicanos, | | | | | | | | | | | | | | | | |
| | senior bond, 5.95%, 1/28/31 | | | Mexico | | | | 87,000 | | | | | | | | 84,716 | |
| | senior bond, 6.375%, 1/23/45 | | | Mexico | | | | 152,000 | | | | | | | | 130,697 | |
| | senior bond, 6.75%, 9/21/47 | | | Mexico | | | | 165,000 | | | | | | | | 145,377 | |
| | senior bond, 6.35%, 2/12/48 | | | Mexico | | | | 283,000 | | | | | | | | 240,169 | |
| | senior bond, 6.95%, 1/28/60 | | | Mexico | | | | 101,000 | | | | | | | | 89,592 | |
| | senior note, 3.50%, 1/30/23 | | | Mexico | | | | 135,000 | | | | | | | | 138,489 | |
| | f senior note, 144A, 6.875%, 10/16/25 | | | Mexico | | | | 47,000 | | | | | | | | 52,553 | |
| | senior note, 4.50%, 1/23/26 | | | Mexico | | | | 53,000 | | | | | | | | 54,375 | |
| f | | Renewable Energy Group Inc., senior secured note, 144A, 5.875%, 6/01/28 | | | United States | | | | 24,000 | | | | | | | | 25,008 | |
| f | | Tullow Oil PLC, senior secured note, 144A, 10.25%, 5/15/26 | | | Ghana | | | | 200,000 | | | | | | | | 205,750 | |
| f | | Vine Energy Holdings LLC, senior note, 144A, 6.75%, 4/15/29 | | | United States | | | | 380,000 | | | | | | | | 385,225 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 3,117,546 | |
| | | | | | | | | | | | | | | | | | |
| | | Paper & Forest Products 0.0%† | | | | | | | | | | | | |
| f | | Paper Industries Intermediate Financing SARL, senior secured note, 144A, 6.00%, 3/01/25 | | | Luxembourg | | | | 52,666 | | | | | | | | 47,658 | |
| | | | | | | | | | | | | | | | | | |
| | | Pharmaceuticals 0.2% | | | | | | | | | | | | |
| f | | ENDO Luxembourg Finance Co. I Sarl / ENDO US Inc., senior secured note, 144A, 6.125%, 4/01/29 | | | United States | | | | 217,000 | | | | | | | | 214,287 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 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 (continued) | | | | | | | | | | | | |
| | | Real Estate Management & Development 1.2% | | | | | | | | | | | | |
| f | | Hunt Cos. Inc., senior secured note, 144A, 5.25%, 4/15/29 | | | United States | | | | 1,000,000 | | | | | | | $ | 963,475 | |
| f | | Realogy Group LLC / Realogy Co.-Issuer Corp., senior note, 144A, 5.75%, 1/15/29 | | | United States | | | | 312,000 | | | | | | | | 326,385 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,289,860 | |
| | | | | | | | | | | | | | | | | | |
| | | Specialty Retail 1.9% | | | | | | | | | | | | |
| f | | Carvana Co., senior note, 144A, | | | | | | | | | | | | | | | | |
| | 5.50%, 4/15/27 | | | United States | | | | 167,000 | | | | | | | | 172,495 | |
| | 5.875%, 10/01/28 | | | United States | | | | 74,000 | | | | | | | | 77,717 | |
| f | | Douglas GMBH, senior secured note, 144A, 6.00%, 4/08/26 | | | Germany | | | | 531,000 | | | | EUR | | | | 655,392 | |
| f | | Guitar Center Inc., senior secured note, 144A, 8.50%, 1/15/26 | | | United States | | | | 222,000 | | | | | | | | 235,606 | |
| f,i | | Kirk Beauty Sun GMBH, senior note, 144A, PIK, 8.25%, 10/01/26 | | | Germany | | | | 141,000 | | | | EUR | | | | 172,687 | |
| f | | Magic Mergeco Inc., 144A, | | | | | | | | | | | | | | | | |
| | senior note, 7.875%, 5/01/29 | | | United States | | | | 273,000 | | | | | | | | 279,276 | |
| | senior secured note, 5.25%, 5/01/28 | | | United States | | | | 43,000 | | | | | | | | 43,592 | |
| f | | Staples Inc., senior note, 144A, 10.75%, 4/15/27 | | | United States | | | | 400,000 | | | | | | | | 410,336 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 2,047,101 | |
| | | | | | | | | | | | | | | | | | |
| | | Thrifts & Mortgage Finance 0.7% | | | | | | | | | | | | |
| f | | Home Point Capital Inc., senior note, 144A, 5.00%, 2/01/26 | | | United States | | | | 273,000 | | | | | | | | 263,546 | |
| f | | Pennymac Financial Services Inc., senior note, 144A, 4.25%, 2/15/29 | | | United States | | | | 500,000 | | | | | | | | 485,682 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 749,228 | |
| | | | | | | | | | | | | | | | | | |
| | Total Corporate Bonds and Notes
(Cost $27,791,607) | | | | | | | | | | | | | | | 28,792,884 | |
| | | | | | | | | | | | | | | | | | |
| | | Corporate Bonds and Notes in Reorganization
(Cost $112,777) 0.1% | | | | | | | | | | | | |
| | | Diversified Telecommunication Services 0.1% | | | | | | | | | | | | |
| f,l | | Intelsat Jackson Holdings SA, senior secured note, first lien, 144A, 9.50%, 9/30/22 | | | Luxembourg | | | | 107,000 | | | | | | | | 125,690 | |
| | | | | | | | | | | | | | | | | | |
| k,m | | Senior Floating Rate Interests 2.1% | | | | | | | | | | | | |
| | | Communications Equipment 0.7% | | | | | | | | | | | | |
| | Riverbed Technology Inc., | | | | | | | | | | | | | | | | |
| | Term Loan B, 7.00%, (3-Month USD LIBOR + 6.00%), 12/31/25 | | | United States | | | | 306,741 | | | | | | | | 292,746 | |
| | Term Loan B, 12.00%, (3-Month USD LIBOR + 4.50%), 12/31/26 | | | United States | | | | 547,881 | | | | | | | | 433,168 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 725,914 | |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Telecommunication Services 1.3% | | | | | | | | | | | | |
| | Frontier Communications Corp., Term Loan DIP, 4.50%, (1-Month USD LIBOR + 3.75%), 10/08/21 | | | United States | | | | 84,122 | | | | | | | | 84,185 | |
| | Intelsat Jackson Holdings SA, | | | | | | | | | | | | | | | | |
| | Term Loan B3, 8.00%, (6-Month USD LIBOR + 3.75%), 11/27/23 | | | United States | | | | 281,120 | | | | | | | | 286,508 | |
| | n Term Loan B4, 8.75%, (1-Month USD LIBOR + 4.50%), 1/02/24 | | | United States | | | | 16,979 | | | | | | | | 17,334 | |
| | Term Loan B5, 8.625%, (6-Month USD LIBOR + 6.63%), 1/02/24 | | | United States | | | | 329,824 | | | | | | | | 336,480 | |
| | n Term Loan DIP, 6.50%, (1-Month USD LIBOR + 5.50%), 7/13/22 | | | United States | | | | 682,430 | | | | | | | | 688,190 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 1,412,697 | |
| | | | | | | | | | | | | | | | | | |
| | | Equity Real Estate Investment Trusts (REITs) 0.1% | | | | | | | | | | | | |
| | The GEO Group Inc., Term Loan B, 2.75%, (3-Month USD LIBOR + 2.00%), 3/22/24 | | | United States | | | | 78,566 | | | | | | | | 67,071 | |
| c | | McCarthy & Stone PLC, Term Loan B, 7.00%, 12/16/25 | | | United Kingdom | | �� | | 50,969 | | | | | | | | 72,050 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 139,121 | |
| | | | | | | | | | | | | | | | | | |
| | Total Senior Floating Rate Interests
(Cost $2,222,597) | | | | | | | | | | | | | | | 2,277,732 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 22 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| o | | Credit-Linked Notes 0.9% | | | | | | | | | | | | |
| f | | HSBC Bank PLC, (Egypt), senior note, 144A, zero cpn., 8/19/21 | | | Egypt | | | | 8,450,000 | | | | EGP | | | $ | 524,752 | |
| f | | HSBC Bank PLC, (Egypt), senior note, 144A, zero cpn., 7/15/21 | | | Egypt | | | | 1,375,000 | | | | EGP | | | | 86,460 | |
| c,f | | ICBC Standard Bank PLC, (Egypt), senior note, EmTN, 144A, zero cpn., 7/01/21 | | | Egypt | | | | 4,951,337 | | | | EGP | | | | 313,098 | |
| | | | | | | | | | | | | | | | | | |
| | Total Credit-Linked Notes (Cost $923,063) | | | | | | | | | | | | | | | 924,310 | |
| | | | | | | | | | | | | | | | | | |
| | | Foreign Government and Agency Securities 4.7% | | | |
| e | | Banque Centrale de Tunisie International Bond, senior bond, Reg S, 5.75%, 1/30/25 | | | Tunisia | | | | 200,000 | | | | | | | | 190,407 | |
| f | | Government of Bahamas, senior bond, 144A, 8.95%, 10/15/32 | | | Bahamas | | | | 200,000 | | | | | | | | 230,000 | |
| e | | Government of Bahrain, senior bond, Reg S, 7.00%, 1/26/26 | | | Bahrain | | | | 200,000 | | | | | | | | 229,449 | |
| e | | Government of Egypt, senior bond, Reg S, | | | | | | | | | | | | | | | | |
| | 7.50%, 1/31/27 | | | Egypt | | | | 400,000 | | | | | | | | 456,624 | |
| | 7.60%, 3/01/29 | | | Egypt | | | | 200,000 | | | | | | | | 223,460 | |
| | 8.70%, 3/01/49 | | | Egypt | | | | 200,000 | | | | | | | | 215,670 | |
| e | | Government of Germany, senior bond, Reg S, 0.50%, 2/15/25 | | | Germany | | | | 94,000 | | | | EUR | | | | 119,960 | |
| | Government of Italy, senior note, 2.375%, 10/17/24 | | | Italy | | | | 373,000 | | | | | | | | 389,427 | |
| f | | Government of Jordan, senior note, 144A, 4.95%, 7/07/25 | | | Jordan | | | | 200,000 | | | | | | | | 208,620 | |
| e | | Government of Nigeria, senior note, Reg S, 7.625%, 11/21/25 | | | Nigeria | | | | 400,000 | | | | | | | | 455,700 | |
| e | | Government of Paraguay, senior bond, Reg S, 4.625%, 1/25/23 | | | Paraguay | | | | 421,000 | | | | | | | | 446,264 | |
| f | | Government of Romania, 144A, 2.00%, 4/14/33 | | | Romania | | | | 33,000 | | | | EUR | | | | 39,943 | |
| | Government of Russia, | | | | | | | | | | | | | | | | |
| | senior bond, 6233, 6.10%, 7/18/35 | | | Russia | | | | 16,058,000 | | | | RUB | | | | 199,424 | |
| | senior note, 6227, 7.40%, 7/17/24 | | | Russia | | | | 13,568,000 | | | | RUB | | | | 190,750 | |
| | senior note, 6229, 7.15%, 11/12/25 | | | Russia | | | | 28,550,000 | | | | RUB | | | | 400,546 | |
| f | | Government of Saudi Arabia, senior bond, 144A, 2.75%, 2/03/32 | | | Saudi Arabia | | | | 221,000 | | | | | | | | 224,467 | |
| | Government of South Africa, senior bond, | | | | | | | | | | | | | | | | |
| | 2030, 8.00%, 1/31/30 | | | South Africa | | | | 2,600,259 | | | | ZAR | | | | 178,566 | |
| | 2032, 8.25%, 3/31/32 | | | South Africa | | | | 2,581,000 | | | | ZAR | | | | 169,829 | |
| | Government of Turkey, senior note, 6.375%, 10/14/25 | | | Turkey | | | | 200,000 | | | | | | | | 208,293 | |
| e | | Government of Ukraine, senior bond, Reg S, 1.258% 5/31/40 | | | Ukraine | | | | 171,000 | | | | | | | | 190,285 | |
| | | | | | | | | | | | | | | | | | |
| | Total Foreign Government and Agency Securities
(Cost $4,729,304) | | | | | | | | | | | | | | | 4,967,684 | |
| | | | | | | | | | | | | | | | | | |
| | | U.S. Government and Agency Securities 0.1% | | | |
| | U.S. Treasury Bond, | | | | | | | | | | | | | | | | |
| | 1.875%, 2/15/41 | | | United States | | | | 1,000 | | | | | | | | 947 | |
| | 1.625%, 11/15/50 | | | United States | | | | 77,000 | | | | | | | | 65,811 | |
| | | | | | | | | | | | | | | | | | |
| | Total U.S. Government and Agency Securities
(Cost $66,029) | | | | | | | | | | | | | | | 66,758 | |
| | | | | | | | | | | | | | | | | | |
| | | Asset-Backed Securities and Commercial
Mortgage-Backed Securities 34.1% | | | | | | | | | | | | |
| | | Diversified Financial Services 17.6% | |
| f,p | | ACIS CLO Ltd., 2014-5A, D, 144A, FRN, 4.516%, (3-Month USD LIBOR + 4.34%), 11/01/26 | | | United States | | | | 1,120,000 | | | | | | | | 1,123,717 | |
| f | | AMSR Trust, 144A, | | | | | | | | | | | | | | | | |
| | 2019-SFR1, I, 8.976%, 1/19/39 | | | United States | | | | 750,000 | | | | | | | | 767,125 | |
| | q 2021-SFR1, G, FRN, 4.612%, 6/17/38 | | | United States | | | | 500,000 | | | | | | | | 512,961 | |
| f,p | | Blue Ridge CLO Ltd. II, 2014-2A, C, 144A, FRN, 3.99%, (3-Month USD LIBOR + 3.80%), 7/18/26 | | | United States | | | | 700,000 | | | | | | | | 698,637 | |
| q | | CD Mortgage Trust, 2019-CD8, C, FRN, 3.719%, 8/15/57 | | | United States | | | | 384,000 | | | | | | | | 402,322 | |
| | CitiMortgage Alternative Loan Trust, 2007-A1, 2A1, 5.50%, 1/25/22 | | | United States | | | | 20,228 | | | | | | | | 20,238 | |
| f,p | | Cutwater 2014-II Ltd., 2017-2A, CR, 144A, FRN, 3.934%, (3-Month USD LIBOR + 3.75%), 1/15/27 | | | United States | | | | 1,000,000 | | | | | | | | 1,002,766 | |
| | | | | | | | | | |
| | | | | | |
| 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) | |
| f,p | | Goldentree Loan Management US CLO 6 Ltd., 2019-6A, C, 144A, FRN, 2.788%, (3-Month USD LIBOR + 2.60%), 1/20/33 | | | United States | | | | 1,000,000 | | | | | | | $ | 1,006,424 | |
| f,p | | GPMT Ltd., 2019-FL2, D, 144A, FRN, 3.047%, (1-Month USD LIBOR + 2.95%), 2/22/36 | | | United States | | | | 800,000 | | | | | | | | 794,033 | |
| f,p | | GSMSC Pass-Through Trust, 2009-4R, 2A3, 144A, FRN, 0.556%, (1-Month USD LIBOR + 0.45%), 12/26/36 | | | United States | | | | 717,911 | | | | | | | | 464,836 | |
| f,p | | Hull Street CLO Ltd., 2014-1A, D, 144A, FRN, 3.79%, (3-Month USD LIBOR + 3.60%), 10/18/26 | | | United States | | | | 1,130,000 | | | | | | | | 1,042,908 | |
| f,p | | JFIN CLO Ltd., 2017-1A, DR, 144A, FRN, 2.834%, (3-Month USD LIBOR + 2.65%), 3/15/26 | | | United States | | | | 650,000 | | | | | | | | 646,784 | |
| f,p | | KREF Ltd., 2018-FL1, D, 144A, FRN, 2.651%, (1-Month USD LIBOR + 2.55%), 6/15/36 | | | United States | | | | 300,000 | | | | | | | | 300,465 | |
| f,p | | Mountain View CLO Ltd., 2018-1A, DRR, 144A, FRN, 3.834%, (3-Month USD LIBOR + 3.65%), 10/15/26 | | | United States | | | | 1,290,000 | | | | | | | | 1,293,908 | |
| f,p | | OCP CLO Ltd., 2021-8RA, C, 144A, FRN, 3.97%, (3-Month USD LIBOR + 3.75%), 1/17/32 | | | United States | | | | 1,000,000 | | | | | | | | 1,008,740 | |
| f,p | | OHA Credit Funding 4 Ltd., 2019-4A, C, 144A, FRN, 2.872%, (3-Month USD LIBOR + 2.65%), 10/22/32 | | | United States | | | | 1,000,000 | | | | | | | | 1,004,521 | |
| f | | S-Jets Ltd., 2017-1, A, 144A, 3.967%, 8/15/42 | | | Bermuda | | | | 743,872 | | | | | | | | 735,368 | |
| f,p | | Staniford Street CLO Ltd., 2014-1A, D, 144A, FRN, 3.684%, (3-Month USD LIBOR + 3.50%), 6/15/25 | | | United States | | | | 1,160,000 | | | | | | | | 1,163,098 | |
| q | | STARM Mortgage Loan Trust, 2007-2, 4A1, FRN, 2.436%, 4/25/37 | | | United States | | | | 72,634 | | | | | | | | 55,656 | |
| p | | Suntrust Alternative Loan Trust, 2005-1F, 1A1, FRN, 0.742%, (1-Month USD LIBOR + 0.65%), 12/25/35 | | | United States | | | | 162,152 | | | | | | | | 138,817 | |
| p | | Terwin Mortgage Trust, 2003-6HE, M2, FRN, 2.717%, (1-Month USD LIBOR + 2.63%), 11/25/33 | | | United States | | | | 126,753 | | | | | | | | 128,212 | |
| f | | Thunderbolt II Aircraft Lease Ltd., 2018-A, A, 144A, 4.147%, 9/15/38 | | | United States | | | | 2,657,400 | | | | | | | | 2,677,529 | |
| f,p | | VMC Finance LLC, 2019-FL3, C, 144A, FRN, 2.151%, (1-Month USD LIBOR + 2.05%), 9/15/36 | | | United States | | | | 1,145,249 | | | | | | | | 1,136,719 | |
| | Wells Fargo Alternative Loan Trust, 2007-PA3, 2A2, 6.00%, 7/25/37 | | | United States | | | | 125,842 | | | | | | | | 126,212 | |
| f,p | | ZAIS CLO 1 Ltd., 2018-1A, CR, 144A, FRN, 3.594%, (3-Month USD LIBOR + 3.41%), 4/15/28 | | | United States | | | | 500,000 | | | | | | | | 502,568 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 18,754,564 | |
| | | | | | | | | | | | | | | | | | |
| | | Mortgage Real Estate Investment Trusts (REITs) 16.5% | |
| q | | American Home Mortgage Assets Trust, 2005-1, 1A1, FRN, 2.865%, 11/25/35 | | | United States | | | | 115,726 | | | | | | | | 101,087 | |
| q | | Banc of America Mortgage Trust, FRN, | | | | | | | | | | | | | | | | |
| | 2005-K, 2A1, 2.635%, 12/25/35 | | | United States | | | | 171,485 | | | | | | | | 167,047 | |
| | 2005-L, 1A1, 3.15%, 1/25/36 | | | United States | | | | 118,880 | | | | | | | | 115,915 | |
| | 2005-L, 3A1, 2.931%, 1/25/36 | | | United States | | | | 156,949 | | | | | | | | 153,226 | |
| f,q | | BCAP LLC Trust, 2010-RR1, 1A4, 144A, FRN, 3.267%, 3/26/37 | | | United States | | | | 233,263 | | | | | | | | 205,315 | |
| q | | Bear Stearns ARM Trust, FRN, | | | | | | | | | | | | | | | | |
| | 2002-11, 1A2, 2.828%, 2/25/33 | | | United States | | | | 2,897 | | | | | | | | 2,702 | |
| | 2006-2, 4A1, 3.382%, 7/25/36 | | | United States | | | | 37,991 | | | | | | | | 35,782 | |
| f,p | | BXMT Ltd., 2021-FL4, C, 144A, FRN, 1.851%, (1-Month USD LIBOR + 1.75%), 5/15/38 | | | United States | | | | 500,000 | | | | | | | | 501,750 | |
| | Citigroup Commercial Mortgage Trust, | | | | | | | | | | | | | | | | |
| | 2015-GC33, D, 3.172%, 9/10/58 | | | United States | | | | 2,000,000 | | | | | | | | 1,809,572 | |
| | f,q 2016-P4, D, 144A, FRN, 3.971%, 7/10/49 | | | United States | | | | 2,000,000 | | | | | | | | 1,774,395 | |
| q | | Citigroup Mortgage Loan Trust, 2007-AR5, 2A1A, FRN, 3.369%, 4/25/37 | | | United States | | | | 96,953 | | | | | | | | 95,789 | |
| | Countrywide Alternative Loan Trust, | | | | | | | | | | | | | | | | |
| | 2005-73CB, 1A2, 6.25%, 1/25/36 | | | United States | | | | 141,627 | | | | | | | | 144,891 | |
| | p 2005-IM1, A1, FRN, 0.692%, (1-Month USD LIBOR + 0.60%), 1/25/36 | | | United States | | | | 129,902 | | | | | | | | 125,311 | |
| | 2005-J10, 2A4, 6.00%, 10/25/35 | | | United States | | | | 413,580 | | | | | | | | 285,720 | |
| | 2006-4CB, 2A3, 5.50%, 4/25/36 | | | United States | | | | 63,677 | | | | | | | | 62,255 | |
| | | | | | | | | | |
| | | | | | |
| 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) | | | | | | | | | | | | |
| | | Mortgage Real Estate Investment Trusts (REITs) (continued) | |
| q | | Credit Suisse First Boston Mortgage Securities Corp., 2004-AR3, CB2, FRN, 2.391%, 4/25/34 | | | United States | | | | 122,048 | | | | | | | $ | 110,335 | |
| | CSMC Mortgage-Backed Trust, 2006-4, 9A1, 6.50%, 5/25/36 | | | United States | | | | 779,242 | | | | | | | | 409,200 | |
| f,p | | FHLMC Structured Agency Credit Risk Debt Notes, 144A, FRN, | | | | | | | | | | | | | | | | |
| | 2018-HRP1, B2, 11.842%, (1-Month USD LIBOR + 11.75%), 5/25/43 | | | United States | | | | 2,899,678 | | | | | | | | 3,315,809 | |
| | 2020-DNA4, M2, 3.842%, (1-Month USD LIBOR + 3.75%), 8/25/50 | | | United States | | | | 811,721 | | | | | | | | 819,679 | |
| q | | First Horizon Alternative Mortgage Securities Trust, 2004-AA2, 2A1, FRN, 2.296%, 8/25/34 | | | United States | | | | 202,484 | | | | | | | | 205,541 | |
| | GSR Mortgage Loan Trust, 2004-6F, 2A4, 5.50%, 5/25/34 | | | United States | | | | 110,546 | | | | | | | | 115,512 | |
| | Impac CMB Trust, | | | | | | | | | | | | | | | | |
| | 2004-4, 2A2, 5.175%, 9/25/34 | | | United States | | | | 147,562 | | | | | | | | 153,353 | |
| | p 2004-8, 3B, FRN, 2.717%, (1-Month USD LIBOR + 2.63%), 8/25/34 | | | United States | | | | 100,032 | | | | | | | | 102,234 | |
| | p 2005-2, 2B, FRN, 2.567%, (1-Month USD LIBOR + 2.48%), 4/25/35 | | | United States | | | | 85,859 | | | | | | | | 84,392 | |
| | p 2005-4, 2B1, FRN, 2.567%, (1-Month USD LIBOR + 1.65%), 5/25/35 | | | United States | | | | 128,095 | | | | | | | | 129,967 | |
| | p 2005-4, 2M1, FRN, 0.842%, (1-Month USD LIBOR + 0.50%), 5/25/35 | | | United States | | | | 149,444 | | | | | | | | 145,175 | |
| | p 2005-8, 2B, FRN, 2.342%, (1-Month USD LIBOR + 2.25%), 2/25/36 | | | United States | | | | 82,358 | | | | | | | | 82,876 | |
| p | | IndyMac INDX Mortgage Loan Trust, FRN, | | | | | | | | | | | | | | | | |
| | 2006-AR12, A1, 0.282%, (1-Month USD LIBOR + 0.19%), 9/25/46 | | | United States | | | | 98,348 | | | | | | | | 92,198 | |
| | 2006-AR29, A2, 0.172%, (1-Month USD LIBOR + 0.08%), 11/25/36 | | | United States | | | | 331,518 | | | | | | | | 327,188 | |
| q | | JPMorgan Mortgage Trust, FRN, | | | | | | | | | | | | | | | | |
| | 2006-A5, 6A1, 3.326%, 8/25/36 | | | United States | | | | 222,441 | | | | | | | | 199,869 | |
| | 2006-A7, 2A3, 3.094%, 1/25/37 | | | United States | | | | 98,151 | | | | | | | | 92,385 | |
| | 2007-A2, 2A1, 3.132%, 4/25/37 | | | United States | | | | 140,556 | | | | | | | | 127,137 | |
| | Lehman Mortgage Trust, 2005-3, 2A3, 5.50%, 1/25/36 | | | United States | | | | 60,255 | | | | | | | | 64,557 | |
| | MASTR Adjustable Rate Mortgages Trust, FRN, | | | | | | | | | | | | | | | | |
| | p 2004-10, B1, 2.798%, 10/25/34 | | | United States | | | | 526,331 | | | | | | | | 491,172 | |
| | p 2006-OA1, 1A1, 0.302%, (1-Month USD LIBOR + 0.21%), 4/25/46 | | | United States | | | | 238,605 | | | | | | | | 220,123 | |
| q | | MASTR Alternative Loan Trust, 2007-HF1, 3A1, FRN, 2.279%, 10/25/47 | | | United States | | | | 595,817 | | | | | | | | 443,164 | |
| q | | MASTR Seasoned Securitization Trust, 2004-1, 4A1, FRN, 2.756%, 10/25/32 | | | United States | | | | 69,903 | | | | | | | | 72,814 | |
| p | | New Century Home Equity Loan Trust, 2003-4, M1, FRN, 1.217%, (1-Month USD LIBOR + 1.13%), 10/25/33 | | | United States | | | | 459,470 | | | | | | | | 459,385 | |
| f,q | | NYC Commercial Mortgage Trust, 2021-909, E, 144A, FRN, 3.206%, 4/10/43 | | | United States | | | | 2,500,000 | | | | | | | | 2,123,052 | |
| q | | RFMSI Trust, 2007-SA2, 3A, FRN, 4.935%, 4/25/37 | | | United States | | | | 930,161 | | | | | | | | 388,325 | |
| p | | Securitized Asset Backed Receivables LLC Trust, 2004-OP2, A2, FRN, 0.792%, (1-Month USD LIBOR + 0.70%), 8/25/34 | | | United States | | | | 199,024 | | | | | | | | 190,097 | |
| q | | Structured ARM Loan Trust, 2004-4, B1, FRN, 2.70%, 4/25/34 | | | United States | | | | 424,668 | | | | | | | | 409,435 | |
| q | | Wachovia Mortgage Loan Trust LLC, 2005-B, 1A1, FRN, 2.561%, 10/20/35 | | | United States | | | | 201,521 | | | | | | | | 195,207 | |
| p | | Washington Mutual Mortgage Pass-Through Certificates, 2006-4, 3A2B, FRN, 0.172%, (1-Month USD LIBOR + 0.08%), 5/25/36 | | | United States | | | | 240,307 | | | | | | | | 191,939 | |
| q | | Washington Mutual MSC Mortgage Pass-Through Certificates Series Trust, 2003-AR3, B1, FRN, 3.016%, 6/25/33 | | | United States | | | | 238,660 | | | | | | | | 233,698 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 17,576,575 | |
| | | | | | | | | | | | | | | | | | |
| | Total Asset-Backed Securities and Commercial Mortgage-Backed Securities (Cost $35,661,773) | | | | | | | | | | | | | | | 36,331,139 | |
| | | | | | | | | | | | | | | | | | |
| | | Municipal Bonds in Reorganization 1.5% | | | |
| | | Puerto Rico 1.5% | |
| l | | Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series A, | |
| | 5.50%, 7/01/39 | | | United States | | | | 155,000 | | | | | | | | 130,975 | |
| | 5.00%, 7/01/41 | | | United States | | | | 225,000 | | | | | | | | 181,125 | |
| l | | Puerto Rico Commonwealth GO, Refunding, Series A, 8.00%, 7/01/35 | | | United States | | | | 1,570,000 | | | | | | | | 1,267,775 | |
| | | | | | | | | | | | | | | | | | |
| | Total Municipal Bonds in Reorganization
(Cost $1,058,050) | | | | | | | | | | | | | | | 1,579,875 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 25 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Number of
Contracts | | | Notional Amount# | | | Value | |
| | | Options Purchased 0.1% | | | |
| | | Calls – Exchange-Traded 0.1% | | | |
| | Casino Guichard Perrachon SA, June Strike Price 30.00 EUR, Expires 6/18/21 | | | 13 | | | | 1,300 | | | | | | | $ | 32 | |
| | Casino Guichard Perrachon SA, June Strike Price 31.00 EUR, Expires 6/18/21 | | | 12 | | | | 1,200 | | | | | | | | 15 | |
| | Fox Corp., July Strike Price $36.00, Expires 7/16/21 | | | 3 | | | | 300 | | | | | | | | 712 | |
| | Fox Corp., July Strike Price $40.00, Expires 7/16/21 | | | 5 | | | | 500 | | | | | | | | 350 | |
| | Fox Corp., October Strike Price $39.00, Expires 10/15/21 | | | 6 | | | | 600 | | | | | | �� | | 1,290 | |
| | General Motors Co., June Strike Price $50.00, Expires 6/18/21 | | | 27 | | | | 2,700 | | | | | | | | 25,515 | |
| | SPDR Gold Shares ETF, June Strike Price $200.00, Expires 6/17/22 | | | 43 | | | | 4,300 | | | | | | | | 24,510 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 52,424 | |
| | | | | | | | | | | | | | | | | | |
| | | Puts – Exchange-Traded 0.0%† | | | |
| | Air France-KLM, June Strike Price 4.20 EUR, Expires 6/18/21 | | | 26 | | | | 2,600 | | | | | | | | 191 | |
| | American Airlines Group Inc., November Strike Price $18.00, Expires 11/19/21 | | | 42 | | | | 4,200 | | | | | | | | 4,284 | |
| | Hewlett Packard Enterprise Co., November Strike Price $14.00, Expires 11/19/21 | | | 31 | | | | 3,100 | | | | | | | | 2,015 | |
| | HP Inc., November Strike Price $30.00, Expires 11/19/21 | | | 14 | | | | 1,400 | | | | | | | | 4,060 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 10,550 | |
| | | | | | | | | | | | | | | | | | |
| | | Puts – Over-the-Counter 0.0%† | | | |
| | Air France-KLM, Counterparty BOFA, June Strike Price 4.00 EUR, Expires 6/18/21 | | | 15 | | | | 1,500 | | | | | | | | 55 | |
| | Air France-KLM, Counterparty BOFA, September Strike Price 4.00 EUR, Expires 9/17/21 | | | 86 | | | | 8,600 | | | | | | | | 2,208 | |
| | B&G Foods Inc., Counterparty GSCO, August Strike Price $25.00, Expires 8/20/21 | | | 29 | | | | 2,900 | | | | | | | | 1,015 | |
| | Freshpet Inc., Counterparty GSCO, August Strike Price $170.00, Expires 8/20/21 | | | 2 | | | | 200 | | | | | | | | 1,940 | |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | 5,218 | |
| | | | | | | | | | | | | | | | | | |
| | Total Options Purchased (Cost $62,698) | | | | | | | | | | | | | | | 68,192 | |
| | | | | | | | | | | | | | | | | | |
| | Total Investments before Short Term Investments
(Cost $76,739,736) | | | | | | | | | | | | | | | 79,877,390 | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Shares | | | | |
| | | Short Term Investments 21.4% | | | | | | | | | |
| | | Money Market Funds (Cost $20,677,060) 19.5% | | | | | | | | | �� | | | |
| r | | Fidelity Investments Money Market Government Portfolio, Institutional, 0.01% | | | United States | | | | 20,677,060 | | | | | | | | 20,677,060 | |
| | | | | | | | | | |
| | | | | | |
| 26 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| | | Repurchase Agreements (Cost $2,042,274) 1.9% | | | |
| s | | Joint Repurchase Agreement, 0.001%, 6/01/21
(Maturity Value $2,042,274) | | | United States | | | | 2,042,274 | | | | | | | $ | 2,042,274 | |
| | BNP Paribas Securities Corp. (Maturity Value $1,649,075)
Deutsche Bank Securities Inc. (Maturity Value $187,072)
HSBC Securities (USA) Inc. (Maturity Value $206,127) | | | | | | | | | | | | | | | | |
| | Collateralized by U.S. Government Agency Securities, 5.00%, 5/20/49; U.S. Treasury Bonds, Index Linked, 0.13%, 10/15/24 - 4/15/26; and U.S. Treasury Notes, 2.13%, 9/30/24 (Valued at $2,083,367) | | | | | | | | | | | | | | | | |
| | Total Investments (Cost $99,459,070) 96.5% | | | | | | | | | | | | | | | 102,596,724 | |
| | Options Written (0.0)%† | | | | | | | | | | | | | | | (14,497 | ) |
| | Securities Sold Short (4.7)% | | | | | | | | | | | | | | | (4,956,628 | ) |
| | Other Assets, less Liabilities 8.2% | | | | | | | | | | | | | | | 8,739,008 | |
| | | | | | | | | | | | | | | | | | |
| | Net Assets 100.0% | | | | | | | | | | | | | | $ | 106,364,607 | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Number of
Contracts | | | Notional Amount# | | | | |
| t | | Options Written (0.0)%† | | | | | | | | | | | | |
| | | Calls – Exchange-Traded (0.0)%† | | | |
| | Avis Budget Group Inc., January Strike Price $100.00, Expires 1/21/22 | | | 3 | | | | 300 | | | | | | | | (3,285 | ) |
| | Avis Budget Group Inc., January Strike Price $100.00, Expires 1/20/23 | | | 3 | | | | 300 | | | | | | | | (6,300 | ) |
| | Casino Guichard Perrachon SA, June Strike Price 33.00 EUR, Expires 6/18/21 | | | 13 | | | | 1,300 | | | | | | | | (16 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | (9,601 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Puts – Exchange-Traded (0.0)%† | | | |
| | Energy Transfer LP, January Strike Price $8.00, Expires 1/21/22 | | | 102 | | | | 10,200 | | | | | | | | (4,896 | ) |
| | | | | | | | | | | | | | | | | | |
| | Total Options Written
(Premiums Received $13,481) | | | | | | | | | | | | | | | (14,497 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Shares | | | | |
| u | | Securities Sold Short (4.7)% | | | |
| | Common Stocks (0.5)% | | | | |
| | | Hotels, Restaurants & Leisure (0.2)% | |
| | Carnival Corp. | | | United States | | | | 8,470 | | | | | | | | (250,373 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Software (0.3)% | |
| | VMware Inc., A | | | United States | | | | 1,651 | | | | | | | | (260,677 | ) |
| | | | | | | | | | | | | | | | | | |
| | Total Common Stocks (Proceeds $361,809) | | | | | | | | | | | | | | | (511,050 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | Principal Amount* | | | | |
| | | Corporate Bonds and Notes (3.7)% | | | |
| | | Aerospace & Defense (0.2)% | |
| f | | Spirit Aerosystems Inc., secured note, 144A, 7.50%, 4/15/25 | | | United States | | | | 87,000 | | | | | | | | (93,199 | ) |
| | Triumph Group Inc., senior note, 5.25%, 6/01/22 | | | United States | | | | 129,000 | | | | | | | | (129,209 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | (222,408 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Airlines (0.4)% | | | | | | | | | | | | |
| f | | American Airlines Inc., senior secured note, 144A, 11.75%, 7/15/25 | | | United States | | | | 310,000 | | | | | | | | (389,912 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Auto Components (0.1)% | | | | | | | | | | | | |
| | American Axle & Manufacturing Inc., senior note, | | | | | | | | | | | | | | | | |
| | 6.50%, 4/01/27 | | | United States | | | | 45,000 | | | | | | | | (47,826 | ) |
| | 6.875%, 7/01/28 | | | United States | | | | 89,000 | | | | | | | | (96,686 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | (144,512 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 27 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| u | | Securities Sold Short (continued) | | | | | | | | | | | | |
| | | Corporate Bonds and Notes (continued) | | | |
| | | Banks (0.1)% | | | | | | | | | | | | |
| e,h | | China Zheshang Bank Co. Ltd., junior sub. note, Reg S, 5.45% to 3/29/22, FRN thereafter, Perpetual | | | China | | | | 72,000 | | | | | | | $ | (73,103 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Communications Equipment (0.1)% | | | | | | | | | | | | |
| f | | Entercom Media Corp., secured note, 144A, 6.50%, 5/01/27 | | | United States | | | | 145,000 | | | | | | | | (148,302 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Construction & Engineering (0.4)% | | | | | | | | | | | | |
| | Fluor Corp., senior bond, 3.50%, 12/15/24 | | | United States | | | | 191,000 | | | | | | | | (201,486 | ) |
| f | | Tutor Perini Corp., senior note, 144A, 6.875%, 5/01/25 | | | United States | | | | 199,000 | | | | | | | | (206,258 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | (407,744 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Consumer Services (0.2)% | |
| f | | MPH Acquisition Holdings LLC, senior note, 144A, 5.75%, 11/01/28 | | | United States | | | | 231,000 | | | | | | | | (230,186 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Financial Services (0.6)% | |
| | AerCap Ireland Capital DAC / AerCap Global Aviation Trust, | | | | | | | | | | | | | | | | |
| | senior bond, 3.65%, 7/21/27 | | | Ireland | | | | 22,000 | | | | | | | | (23,391 | ) |
| | senior bond, 3.875%, 1/23/28 | | | Ireland | | | | 138,000 | | | | | | | | (145,969 | ) |
| | senior note, 4.875%, 1/16/24 | | | Ireland | | | | 174,000 | | | | | | | | (189,918 | ) |
| | senior note, 6.50%, 7/15/25 | | | Ireland | | | | 171,000 | | | | | | | | (200,453 | ) |
| | senior note, 4.625%, 10/15/27 | | | Ireland | | | | 91,000 | | | | | | | | (100,718 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (660,449 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Diversified Telecommunication Services (0.2)% | |
| e | | DKT Finance ApS, senior secured note, Reg S, 7.00%, 6/17/23 | | | Denmark | | | | 156,000 | | | | EUR | | | | (194,580 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Energy Equipment & Services (0.1)% | |
| e | | Saipem Finance International BV, E, senior note, Reg S, 2.625%, 1/07/25 | | | Italy | | | | 89,000 | | | | EUR | | | | (111,985 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Equity Real Estate Investment Trusts (REITs) (0.3)% | |
| | The GEO Group Inc., | | | | | | | | | | | | | | | | |
| | senior bond, 5.875%, 10/15/24 | | | United States | | | | 44,000 | | | | | | | | (32,168 | ) |
| | senior note, 6.00%, 4/15/26 | | | United States | | | | 11,000 | | | | | | | | (6,628 | ) |
| f | | Iron Mountain Inc., senior bond, 144A, 5.25%, 3/15/28 | | | United States | | | | 122,000 | | | | | | | | (127,669 | ) |
| | Simon Property Group LP, senior bond, 2.65%, 7/15/30 | | | United States | | | | 115,000 | | | | | | | | (116,697 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (283,162 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Food & Staples Retailing (0.7)% | |
| | Koninklijke Ahold Delhaize NV, senior bond, 5.70%, 10/01/40 | | | Netherlands | | | | 196,000 | | | | | | | | (260,226 | ) |
| | The Kroger Co., senior bond, | | | | | | | | | | | | | | | | |
| | 5.40%, 1/15/49 | | | United States | | | | 78,000 | | | | | | | | (101,848 | ) |
| | 3.95%, 1/15/50 | | | United States | | | | 4,000 | | | | | | | | (4,346 | ) |
| f | | SEG Holding LLC / SEG Finance Corp., senior secured note, 144A, 5.625%, 10/15/28 | | | United States | | | | 149,000 | | | | | | | | (156,189 | ) |
| e | | Sigma Holdco BV, senior note, Reg S, 5.75%, 5/15/26 | | | Netherlands | | | | 100,000 | | | | EUR | | | | (117,852 | ) |
| f | | Sigma Holdco BV, senior note, 144A, 7.875%, 5/15/26 | | | Netherlands | | | | 58,000 | | | | | | | | (58,798 | ) |
| f | | United Natural Foods Inc., senior note, 144A, 6.75%, 10/15/28 | | | United States | | | | 36,000 | | | | | | | | (38,609 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (737,868 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Food Products (0.1)% | |
| | B&G Foods Inc., senior note, 5.25%, 9/15/27 | | | United States | | | | 115,000 | | | | | | | | (118,881 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Oil, Gas & Consumable Fuels (0.1)% | |
| | PDC Energy Inc., senior note, 5.75%, 5/15/26 | | | United States | | | | 50,000 | | | | | | | | (52,251 | ) |
| f | | SM Energy Co., secured note, 144A, 10.00%, 1/15/25 | | | United States | | | | 54,000 | | | | | | | | (61,268 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | (113,519 | ) |
| | | | | | | | | | | | | | | | | | |
| | | Professional Services (0.1)% | |
| e | | Teleperformance, senior note, Reg S, 1.875%, 7/02/25 | | | France | | | | 100,000 | | | | EUR | | | | (130,436 | ) |
| | | | | | | | | | | | | | | | | | |
| | Total Corporate Bonds and Notes
(Proceeds $3,689,415) | | | | | | | | | | | | | | | (3,967,047 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 28 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | Country | | | Principal Amount* | | | Value | |
| u | | Securities Sold Short (continued) | | | | | | | | | | | | |
| | | Foreign Government and Agency Securities
(Proceeds $36,800) (0.1)% | | | | | | | | | | | | |
| e,f | | Government of Italy, senior bond, 144A, Reg S, 5.00%, 3/01/25 | | | Italy | | | | 30,000 | | | | EUR | | | $ | (43,639 | ) |
| | | | | | | | | | | | | | | | | | |
| | | U.S. Government and Agency Securities (0.4)% | | | | | | | | | | | | |
| | U.S. Treasury Bond, | | | | | | | | | | | | | | | | |
| | 1.375%, 11/15/40 | | | United States | | | | 2,000 | | | | | | | | (1,736 | ) |
| | 1.375%, 8/15/50 | | | United States | | | | 266,700 | | | | | | | | (213,834 | ) |
| | U.S. Treasury Note, | | | | | | | | | | | | | | | | |
| | 0.875%, 11/15/30 | | | United States | | | | 205,000 | | | | | | | | (192,508 | ) |
| | 1.125%, 2/15/31 | | | United States | | | | 28,000 | | | | | | | | (26,814 | ) |
| | | | | | | | | | | | | | | | | | |
| | Total U.S. Government and Agency Securities (Proceeds $483,066) | | | | | | | | | | | | | | | (434,892 | ) |
| | | | | | | | | | | | | | | | | | |
| | Total Securities Sold Short (Proceeds $4,571,090) | | | | | | | | | | | | | | $ | (4,956,628 | ) |
| | | | | | | | | | | | | | | | | | |
†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 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, 2021, the aggregate value of these securities and/or cash pledged amounted to $2,183,477, representing 2.1% of net assets.
cFair valued using significant unobservable inputs. See Note 13 regarding fair value measurements.
dSee Note 9 regarding restricted securities.
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, 2021, the net value of these securities was $2,922,116, representing 2.7% 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, 2021, the net value of these securities was $51,408,619, representing 48.3% of net assets.
gSee Note 1(f) regarding loan participation notes.
hPerpetual security with no stated maturity date.
iIncome may be received in additional securities and/or cash.
jA portion or all of the security purchased on a delayed delivery basis. See Note 1(d).
kThe coupon rate shown represents the rate at period end.
lSee Note 7 regarding defaulted securities.
mSee Note 1(i) regarding senior floating rate interests.
nSee Note 10 regarding unfunded loan commitments.
oSee Note 1(g) 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.
rThe rate shown is the annualized seven-day effective yield at period end.
sSee Note 1(c) regarding joint repurchase agreement.
tSee Note 1(e) regarding written options.
uSee Note 1(h) regarding securities sold short.
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 29 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
At May 31, 2021, 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 | | | | 2 | | | $ | 420,240 | | | | 6/18/21 | | | $ | (26,939 | ) |
| Interest Rate Contracts | | | | | | | | | | | | | | | |
U.S. Treasury 10 Yr. Note | | | Short | | | | 1 | | | | 131,938 | | | | 9/21/21 | | | | (96 | ) |
U.S. Treasury Long Bond | | | Short | | | | 8 | | | | 1,252,250 | | | | 9/21/21 | | | | (638 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | (734 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total Futures Contracts | | | $ | (27,673 | ) |
| | | | | | | | | | | | | | | | | | | | |
*As of period end.
At May 31, 2021, 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 | | | | | | | | | | | | | | | | | | | |
Chinese Yuan | | | JPHQ | | | | Buy | | | | 1,010,184 | | | $ | 155,043 | | | | 6/16/21 | | | $ | 3,628 | | | $ | — | |
Colombian Peso | | | JPHQ | | | | Buy | | | | 639,654,681 | | | | 172,182 | | | | 6/16/21 | | | | 145 | | | | — | |
Colombian Peso | | | JPHQ | | | | Sell | | | | 639,654,681 | | | | 167,330 | | | | 6/16/21 | | | | — | | | | (4,997 | ) |
Czech Koruna | | | JPHQ | | | | Buy | | | | 5,601,383 | | | | 256,489 | | | | 6/16/21 | | | | 11,781 | | | | — | |
Euro | | | JPHQ | | | | Sell | | | | 32,639 | | | | 38,848 | | | | 6/16/21 | | | | — | | | | (1,077 | ) |
Indonesian Rupiah | | | JPHQ | | | | Sell | | | | 9,389,872,441 | | | | 646,329 | | | | 6/16/21 | | | | — | | | | (10,108 | ) |
Mexican Peso | | | JPHQ | | | | Buy | | | | 3,589,975 | | | | 167,560 | | | | 6/16/21 | | | | 12,344 | | | | — | |
Polish Zloty | | | JPHQ | | | | Sell | | | | 980,076 | | | | 256,489 | | | | 6/16/21 | | | | — | | | | (10,115 | ) |
Russian Ruble | | | DBAB | | | | Sell | | | | 25,178,256 | | | | 340,875 | | | | 6/16/21 | | | | — | | | | (2,255 | ) |
Russian Ruble | | | GSCO | | | | Buy | | | | 5,822,690 | | | | 78,018 | | | | 6/16/21 | | | | 1,334 | | | | — | |
Russian Ruble | | | HSBC | | | | Buy | | | | 7,482,903 | | | | 101,419 | | | | 6/16/21 | | | | 558 | | | | — | |
Russian Ruble | | | JPHQ | | | | Buy | | | | 54,499,387 | | | | 728,206 | | | | 6/16/21 | | | | 14,514 | | | | — | |
Russian Ruble | | | JPHQ | | | | Sell | | | | 81,783,057 | | | | 1,090,034 | | | | 6/16/21 | | | | — | | | | (24,509 | ) |
Russian Ruble | | | MSCO | | | | Sell | | | | 7,510,693 | | | | 100,761 | | | | 6/16/21 | | | | — | | | | (1,595 | ) |
Turkish Lira | | | FBCO | | | | Sell | | | | 1,651,015 | | | | 192,426 | | | | 6/16/21 | | | | 1,356 | | | | — | |
Turkish Lira | | | JPHQ | | | | Buy | | | | 2,253,177 | | | | 292,731 | | | | 6/16/21 | | | | — | | | | (31,973 | ) |
Turkish Lira | | | JPHQ | | | | Sell | | | | 602,161 | | | | 70,511 | | | | 6/16/21 | | | | 824 | | | | — | |
South African Rand | | | JPHQ | | | | Buy | | | | 106,466 | | | | 7,245 | | | | 6/17/21 | | | | 463 | | | | — | |
South African Rand | | | JPHQ | | | | Sell | | | | 4,821,251 | | | | 322,241 | | | | 6/17/21 | | | | — | | | | (26,812 | ) |
British Pound | | | JPHQ | | | | Sell | | | | 450,000 | | | | 618,042 | | | | 6/30/21 | | | | — | | | | (21,300 | ) |
Canadian Dollar | | | JPHQ | | | | Sell | | | | 360,000 | | | | 285,383 | | | | 6/30/21 | | | | — | | | | (12,865 | ) |
Euro | | | JPHQ | | | | Sell | | | | 2,370,000 | | | | 2,797,568 | | | | 6/30/21 | | | | — | | | | (102,270 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Forward Exchange Contracts | | | $ | 46,947 | | | $ | (249,876 | ) |
| | | | | | | | | | | | | |
Net unrealized appreciation (depreciation) | | | | | | | $ | (202,929 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
| | | | | | | | | | |
| | | | | | |
| 30 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
At May 31, 2021, 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 Mexico | | | (1.00)% | | | | Quarterly | | | | | | | | 6/20/23 | | | | 186,000 | | | | | | | $ | (2,481 | ) | | $ | (26 | ) | | $ | (2,455 | ) | | | | |
Government of Mexico | | | (1.00)% | | | | Quarterly | | | | | | | | 12/20/23 | | | | 787,000 | | | | | | | | (11,407 | ) | | | (5,984 | ) | | | (5,423 | ) | | | | |
Government of Mexico | | | (1.00)% | | | | Quarterly | | | | | | | | 12/20/23 | | | | 15,000 | | | | | | | | (217 | ) | | | (232 | ) | | | 15 | | | | | |
Government of Mexico | | | (1.00)% | | | | Quarterly | | | | | | | | 6/20/25 | | | | 105,000 | | | | | | | | (1,262 | ) | | | (1,324 | ) | | | 62 | | | | | |
Government of South Africa | | | (1.00)% | | | | Quarterly | | | | | | | | 12/20/24 | | | | 792,000 | | | | | | | | 11,427 | | | | 23,305 | | | | (11,878 | ) | | | | |
Government of South Africa | | | (1.00)% | | | | Quarterly | | | | | | | | 12/20/24 | | | | 900,000 | | | | | | | | 12,985 | | | | 26,654 | | | | (13,669 | ) | | | | |
Government of Turkey | | | (1.00)% | | | | Quarterly | | | | | | | | 6/20/24 | | | | 215,000 | | | | | | | | 17,711 | | | | 21,581 | | | | (3,870 | ) | | | | |
| Traded Index | | | | | | | | | | | | | | | | | | | |
CDX.NA.HY.34 | | | (5.00)% | | | | Quarterly | | | | | | | | 6/20/25 | | | | 3,450,000 | | | | | | | | (333,752 | ) | | | 17,346 | | | | (351,098 | ) | | | | |
CDX.NA.HY.35 | | | (5.00)% | | | | Quarterly | | | | | | | | 12/22/25 | | | | 3,930,000 | | | | | | | | (382,941 | ) | | | (371,211 | ) | | | (11,730 | ) | | | | |
| Contracts to Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | |
| Single Name | | | | | | | | | | | | | | | | | | | |
Government of South Africa | | | 1.00% | | | | Quarterly | | | | | | | | 12/20/24 | | | | 646,000 | | | | | | | | (9,321 | ) | | | (50,313 | ) | | | 40,992 | | | | BB- | |
Government of South Africa | | | 1.00% | | | | Quarterly | | | | | | | | 12/20/24 | | | | 184,000 | | | | | | | | (2,655 | ) | | | (5,367 | ) | | | 2,712 | | | | BB- | |
Government of Turkey | | | 1.00% | | | | Quarterly | | | | | | | | 12/20/22 | | | | 136,000 | | | | | | | | (5,573 | ) | | | (6,150 | ) | | | 577 | | | | B+ | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Centrally Cleared Swap Contracts | | | | | | | | | | | | | | | | | | | $ | (707,486 | ) | | $ | (351,721 | ) | | $ | (355,765 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| OTC Swap Contracts | | | | | | | | | | | | | | | | | | | | | | |
| Contracts to Buy Protectionc | | | | | | | | | | | | | | | | | | | | | | |
| Single Name | | | | | | | | Counterparty | | | | | | | | | | | | | | | | | | | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/21 | | | | 9,000 | | | | EUR | | | | (175 | ) | | | 145 | | | | (320 | ) | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/21 | | | | 14,000 | | | | EUR | | | | (273 | ) | | | 168 | | | | (441 | ) | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/21 | | | | 19,000 | | | | EUR | | | | (371 | ) | | | 305 | | | | (676 | ) | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 21,000 | | | | EUR | | | | (495 | ) | | | (234 | ) | | | (261 | ) | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 13,000 | | | | EUR | | | | (307 | ) | | | (153 | ) | | | (154 | ) | | | | |
Air France-KLM | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 13,000 | | | | EUR | | | | (307 | ) | | | (146 | ) | | | (161 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/21 | | | | 13,000 | | | | | | | | (329 | ) | | | 722 | | | | (1,051 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/21 | | | | 23,000 | | | | | | | | (582 | ) | | | 1,040 | | | | (1,622 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/21 | | | | 23,000 | | | | | | | | (582 | ) | | | 1,056 | | | | (1,638 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/21 | | | | 24,000 | | | | | | | | (607 | ) | | | 1,915 | | | | (2,522 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/21 | | | | 43,000 | | | | | | | | (1,087 | ) | | | 2,052 | | | | (3,139 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | CITI | | | | 12/20/21 | | | | 14,000 | | | | | | | | (354 | ) | | | 943 | | | | (1,297 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | CITI | | | | 12/20/21 | | | | 43,000 | | | | | | | | (1,087 | ) | | | 1,824 | | | | (2,911 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | FBCO | | | | 12/20/21 | | | | 9,000 | | | | | | | | (228 | ) | | | 383 | | | | (611 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | FBCO | | | | 12/20/21 | | | | 14,000 | | | | | | | | (354 | ) | | | 689 | | | | (1,043 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/21 | | | | 9,000 | | | | | | | | (228 | ) | | | 385 | | | | (613 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/21 | | | | 24,000 | | | | | | | | (607 | ) | | | 2,141 | | | | (2,748 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/21 | | | | 10,000 | | | | | | | | (253 | ) | | | 701 | | | | (954 | ) | | | | |
American Airlines Group Inc. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 75,000 | | | | | | | | 3,980 | | | | 13,926 | | | | (9,946 | ) | | | | |
American Axle & Manufacturing Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/25 | | | | 84,000 | | | | | | | | (6,464 | ) | | | (3,623 | ) | | | (2,841 | ) | | | | |
American Axle & Manufacturing Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 13,000 | | | | | | | | (1,000 | ) | | | (747 | ) | | | (253 | ) | | | | |
American Axle & Manufacturing Inc. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 13,000 | | | | | | | | (1,000 | ) | | | (747 | ) | | | (253 | ) | | | | |
American Axle & Manufacturing Inc. | | | (5.00)% | | | | Quarterly | | | | MSCO | | | | 12/20/25 | | | | 22,000 | | | | | | | | (1,693 | ) | | | (1,265 | ) | | | (428 | ) | | | | |
Dell Inc. | | | (1.00)% | | | | Quarterly | | | | BNPP | | | | 12/20/25 | | | | 12,000 | | | | | | | | (71 | ) | | | 755 | | | | (826 | ) | | | | |
Dell Inc. | | | (1.00)% | | | | Quarterly | | | | BNPP | | | | 12/20/25 | | | | 133,000 | | | | | | | | (786 | ) | | | 6,388 | | | | (7,174 | ) | | | | |
Dell Inc. | | | (1.00)% | | | | Quarterly | | | | CITI | | | | 12/20/25 | | | | 15,000 | | | | | | | | (88 | ) | | | 780 | | | | (868 | ) | | | | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 31 |
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) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dell Inc. | | | (1.00)% | | | | Quarterly | | | | CITI | | | | 12/20/25 | | | | 19,000 | | | | | | | $ | (112 | ) | | $ | 1,136 | | | $ | (1,248 | ) | | | | |
Dell Inc. | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 62,000 | | | | | | | | (366 | ) | | | 2,608 | | | | (2,974 | ) | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/25 | | | | 11,000 | | | | | | | | 4,540 | | | | 5,103 | | | | (563 | ) | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 12/20/25 | | | | 14,000 | | | | | | | | 5,779 | | | | 6,502 | | | | (723 | ) | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 11,000 | | | | | | | | 4,287 | | | | 5,331 | | | | (1,044 | ) | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 1,000 | | | | | | | | 412 | | | | 408 | | | | 4 | | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 6,000 | | | | | | | | 2,477 | | | | 2,451 | | | | 26 | | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 6,000 | | | | | | | | 2,476 | | | | 2,452 | | | | 24 | | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 10,000 | | | | | | | | 4,127 | | | | 3,395 | | | | 732 | | | | | |
Diamond Sports Group LLC | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 12,000 | | | | | | | | 4,953 | | | | 4,691 | | | | 262 | | | | | |
Dow Inc. | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 66,000 | | | | | | | | (1,487 | ) | | | (391 | ) | | | (1,096 | ) | | | | |
Dow Inc. | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 66,000 | | | | | | | | (1,486 | ) | | | (260 | ) | | | (1,226 | ) | | | | |
Dow Inc. | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/25 | | | | 7,000 | | | | | | | | (158 | ) | | | (39 | ) | | | (119 | ) | | | | |
GE Capital Funding LLC | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 48,000 | | | | | | | | (633 | ) | | | 1,529 | | | | (2,162 | ) | | | | |
GE Capital Funding LLC | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 72,000 | | | | | | | | (949 | ) | | | 2,588 | | | | (3,537 | ) | | | | |
GE Capital Funding LLC | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 48,000 | | | | | | | | (633 | ) | | | 1,430 | | | | (2,063 | ) | | | | |
GE Capital Funding LLC | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 72,000 | | | | | | | | (949 | ) | | | 2,676 | | | | (3,625 | ) | | | | |
Government of Brazil | | | (1.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/25 | | | | 182,000 | | | | | | | | 2,690 | | | | 17,194 | | | | (14,504 | ) | | | | |
Government of Italy | | | (1.00)% | | | | Quarterly | | | | BOFA | | | | 6/20/24 | | | | 233,000 | | | | | | | | (3,875 | ) | | | 1,493 | | | | (5,368 | ) | | | | |
Government of Italy | | | (1.00)% | | | | Quarterly | | | | BOFA | | | | 6/20/24 | | | | 140,000 | | | | | | | | (2,328 | ) | | | 2,013 | | | | (4,341 | ) | | | | |
Itochu Corp. | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/22 | | | | 12,107,000 | | | | JPY | | | | (1,348 | ) | | | (745 | ) | | | (603 | ) | | | | |
JFE Holdings Inc. | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/22 | | | | 5,348,000 | | | | JPY | | | | (578 | ) | | | (339 | ) | | | (239 | ) | | | | |
Kohl’s Corp. | | | (1.00)% | | | | Quarterly | | | | CITI | | | | 12/20/25 | | | | 207,000 | | | | | | | | 1,556 | | | | 17,311 | | | | (15,755 | ) | | | | |
Kohl’s Corp. | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 154,000 | | | | | | | | 1,158 | | | | 12,705 | | | | (11,547 | ) | | | | |
Kohl’s Corp. | | | (1.00)% | | | | Quarterly | | | | MSCO | | | | 12/20/25 | | | | 221,000 | | | | | | | | 1,662 | | | | 18,482 | | | | (16,820 | ) | | | | |
Lloyds Bank PLC | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/24 | | | | 127,000 | | | | EUR | | | | (4,050 | ) | | | 600 | | | | (4,650 | ) | | | | |
Lloyds Bank PLC | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/24 | | | | 121,000 | | | | EUR | | | | (2,373 | ) | | | 2,530 | | | | (4,903 | ) | | | | |
Marubeni Corp. | | | (1.00)% | | | | Quarterly | | | | CITI | | | | 6/20/25 | | | | 3,711,000 | | | | JPY | | | | (1,095 | ) | | | 884 | | | | (1,979 | ) | | | | |
Marubeni Corp. | | | (1.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/22 | | | | 18,860,000 | | | | JPY | | | | (2,048 | ) | | | (960 | ) | | | (1,088 | ) | | | | |
MBIA Inc. | | | (5.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/22 | | | | 23,000 | | | | | | | | (873 | ) | | | (286 | ) | | | (587 | ) | | | | |
MBIA Inc. | | | (5.00)% | | | | Quarterly | | | | CITI | | | | 6/20/22 | | | | 36,000 | | | | | | | | (1,366 | ) | | | (1,242 | ) | | | (124 | ) | | | | |
MBIA Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/22 | | | | 21,000 | | | | | | | | (797 | ) | | | (573 | ) | | | (224 | ) | | | | |
MBIA Inc. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/21 | | | | 269,000 | | | | | | | | (3,130 | ) | | | (445 | ) | | | (2,685 | ) | | | | |
MBIA Inc. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/24 | | | | 97,000 | | | | | | | | (3,686 | ) | | | (9,724 | ) | | | 6,038 | | | | | |
Mitsui O.S.K. Lines Ltd. | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 3,878,000 | | | | JPY | | | | (385 | ) | | | (61 | ) | | | (324 | ) | | | | |
Mitsui O.S.K. Lines Ltd. | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/22 | | | | 3,618,000 | | | | JPY | | | | (360 | ) | | | (57 | ) | | | (303 | ) | | | | |
Simon Property Group LP | | | (1.00)% | | | | Quarterly | | | | JPHQ | | | | 12/20/25 | | | | 434,000 | | | | | | | | (6,302 | ) | | | 8,408 | | | | (14,710 | ) | | | | |
Simon Property Group LP | | | (1.00)% | | | | Quarterly | | | | MSCO | | | | 12/20/25 | | | | 340,000 | | | | | | | | (4,937 | ) | | | 6,587 | | | | (11,524 | ) | | | | |
Softbank Group Corp. | | | (1.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/24 | | | | 6,394,000 | | | | JPY | | | | 427 | | | | 1,504 | | | | (1,077 | ) | | | | |
Softbank Group Corp. | | | (1.00)% | | | | Quarterly | | | | BZWS | | | | 6/20/24 | | | | 9,987,000 | | | | JPY | | | | 667 | | | | 1,911 | | | | (1,244 | ) | | | | |
Stena AB | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/24 | | | | 92,000 | | | | EUR | | | | (735 | ) | | | 4,936 | | | | (5,671 | ) | | | | |
Stena AB | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 6/20/26 | | | | 9,000 | | | | EUR | | | | 160 | | | | 416 | | | | (256 | ) | | | | |
Transocean Inc. | | | (5.00)% | | | | Quarterly | | | | FBCO | | | | 12/20/24 | | | | 77,000 | | | | | | | | 18,292 | | | | 35,263 | | | | (16,971 | ) | | | | |
Transocean Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/24 | | | | 71,000 | | | | | | | | 16,867 | | | | 4,318 | | | | 12,549 | | | | | |
Transocean Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/24 | | | | 48,000 | | | | | | | | 11,403 | | | | 5,158 | | | | 6,245 | | | | | |
Transocean Inc. | | | (5.00)% | | | | Quarterly | | | | GSCO | | | | 12/20/25 | | | | 209,000 | | | | | | | | 60,920 | | | | 148,983 | | | | (88,063 | ) | | | | |
Transocean Inc. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 155,000 | | | | | | | | 42,014 | | | | 88,081 | | | | (46,067 | ) | | | | |
US Steel Corp. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 23,000 | | | | | | | | (2,255 | ) | | | 4,276 | | | | (6,531 | ) | | | | |
US Steel Corp. | | | (5.00)% | | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 25,000 | | | | | | | | (2,451 | ) | | | 5,147 | | | | (7,598 | ) | | | | |
| | | | | | | | | | |
| | | | | | |
| 32 | | | | | | | | 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 Sell Protectionc,d | | | | | | | | | | | | | | | | | | | | | | |
| Single Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transocean Inc. | | | 1.00% | | | | Quarterly | | | | BZWS | | | | 12/20/24 | | | | 65,000 | | | | | | | $ | (23,340 | ) | | $ | (40,557 | ) | | $ | 17,217 | | | | CCC- | |
Transocean Inc. | | | 1.00% | | | | Quarterly | | | | BZWS | | | | 12/20/24 | | | | 33,000 | | | | | | | | (11,850 | ) | | | (21,173 | ) | | | 9,323 | | | | CCC- | |
Transocean Inc. | | | 1.00% | | | | Quarterly | | | | BZWS | | | | 12/20/24 | | | | 2,000 | | | | | | | | (718 | ) | | | (1,222 | ) | | | 504 | | | | CCC- | |
Transocean Inc. | | | 1.00% | | | | Quarterly | | | | JPHQ | | | | 6/20/25 | | | | 155,000 | | | | | | | | (62,516 | ) | | | (107,860 | ) | | | 45,344 | | | | CCC- | |
Transocean Inc. | | | 1.00% | | | | Quarterly | | | | MSCS | | | | 12/20/24 | | | | 408,000 | | | | | | | | (146,505 | ) | | | (269,539 | ) | | | 123,034 | | | | CCC- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total OTC Swap Contracts | | | | | | | | | | | $ | (125,155 | ) | | $ | 4,430 | | | $ | (129,585 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Credit Default Swap Contracts | | | | | | | | | | | $ | (832,641 | ) | | $ | (347,291 | ) | | $ | (485,350 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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.
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, 2021, 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 | | | | 9/18/21 | | | | 1,500,000 | | | $ | (4,838 | ) |
Receive Floating rate 3 Month USD-LIBOR
Pay Fixed rate 1.75% | | | Quarterly | | | | 3/18/22 | | | | 1,100,000 | | | | (12,473 | ) |
Receive Fixed 4.79%
Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 6/14/23 | | | | 8,343,421 | MXN | | | (4,020 | ) |
Receive Fixed 5.70%
Pay Floating Banxico Mexico 1 Month rate | | | Monthly | | | | 6/10/26 | | | | 8,405,513 | MXN | | | (8,429 | ) |
Receive Floating rate 3 Month USD-LIBOR
Pay Fixed rate 2.25% | | | Quarterly | | | | 6/20/28 | | | | 1,100,000 | | | | (152,046 | ) |
Receive Floating rate 6 Month-SOFR
Pay Fixed rate 1.63% | | | Semi-Annually | | | | 6/16/31 | | | | 229,655 | SGD | | | (1,357 | ) |
Receive Floating rate 6 Month-SOFR
Pay Fixed rate 1.65% | | | Semi-Annually | | | | 6/16/31 | | | | 226,246 | SGD | | | (1,773 | ) |
Receive Floating rate 6 Month-WIBOR
Pay Fixed rate 1.91% | | | Semi-Annually | | | | 6/16/31 | | | | 3,104,962 | PLN | | | 1,424 | |
| | | | | | | | | | | | | | | | |
Total Interest Rate Swap Contracts | | | $ | (183,512 | ) |
| | | | | | | | | | | | | | | | |
*In U.S. dollars unless otherwise indicated.
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | Annual Report | | | | | | | | 33 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS
Franklin K2 Long Short Credit Fund (continued)
At May 31, 2021, 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 | | | Value/Unrealized
Appreciation
(Depreciation) | |
| OTC Swap Contracts | | | | | | | | | | | | | | | | | |
| Equity Contracts – Longa | | | | | | | | | | | | | | | | | |
Clearway Energy Inc. | | 1-Month LIBOR + 0.35% | | | Monthly | | | | JPHQ | | | | 1/20/22 | | | $ | 62,123 | | | $ | (3,581 | ) |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 4/20/22 | | | | 115,603 | | | | (6,716 | ) |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | GSCO | | | | 4/20/22 | | | | 123,381 | | | | (6,788 | ) |
Clearway Energy Inc. | | 1-Month LIBOR + 0.40% | | | Monthly | | | | BZWS | | | | 5/16/22 | | | | 7,004 | | | | (387 | ) |
Energy Transfer LP | | 1-Month LIBOR + 0.40% | | | Monthly | | | | BOFA | | | | 11/09/21 | | | | 40,469 | | | | 9,208 | |
Energy Transfer LP | | 1-Month LIBOR + 0.90% | | | Monthly | | | | GSCO | | | | 4/20/22 | | | | 16,289 | | | | 3,693 | |
Energy Transfer LP | | 1-Month LIBOR + 0.90% | | | Monthly | | | | GSCO | | | | 6/01/22 | | | | 58,278 | | | | (640 | ) |
Enterprise Products Partners LP | | 1-Month LIBOR + 0.90% | | | Monthly | | | | BOFA | | | | 3/04/22 | | | | 28,562 | | | | 790 | |
Enterprise Products Partners LP | | 1-Month LIBOR + 0.90% | | | Monthly | | | | GSCO | | | | 3/08/22 | | | | 80,429 | | | | 2,171 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | (2,250 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| Equity Contracts – Shortb | | | | | | | | | | | | | | | | | |
Carnival Corp. | | 1-Month LIBOR - 0.40% | | | Monthly | | | | MSCO | | | | 11/08/22 | | | | 101,439 | | | | (8,310 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| Interest Rate Contracts – Longa | | | | | | | | | | | | | | | | | |
Government of Egypt | | 1-Day FEDEF | | | Monthly | | | | CITI | | | | 7/13/21 | | | | 82,753 | | | | 3,659 | |
Government of Indonesia | | 3-Month LIBOR + 0.70% | | | Monthly | | | | BOFA | | | | 2/17/22 | | | | 114,441 | | | | (4,587 | ) |
Government of Indonesia | | 3-Month LIBOR + 0.70% | | | Monthly | | | | BOFA | | | | 5/18/22 | | | | 431,215 | | | | (11,931 | ) |
Government of Indonesia | | 3-Month LIBOR + 0.60% | | | Monthly | | | | DBAB | | | | 6/15/32 | | | | 103,643 | | | | 5,181 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | (7,678 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Total – Total Return Swap Contracts | | | | | | | $ | (18,238 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
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 54.
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| 34 | | | | | | | | 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, 2021
Franklin K2 Long Short Credit Fund
| | | | |
| |
Assets: | | | | |
Investments in securities: | | | | |
Cost – Unaffiliated issuers | | $ | 97,416,796 | |
Cost – Unaffiliated repurchase agreements | | | 2,042,274 | |
| | | | |
Value – Unaffiliated issuers | | $ | 100,554,450 | |
Value – Unaffiliated repurchase agreements | | | 2,042,274 | |
Cash | | | 2,007,269 | |
Foreign currency, at value (cost $931,406) | | | 1,022,216 | |
Receivables: | | | | |
Investment securities sold | | | 748,598 | |
Capital shares sold | | | 227,259 | |
Dividends and interest | | | 639,683 | |
Deposits with brokers for: | | | | |
Securities sold short | | | 4,963,638 | |
OTC derivative contracts | | | 1,040,000 | |
Futures contracts | | | 40,540 | |
Centrally cleared swap contracts | | | 524,594 | |
Due from brokers | | | 311,797 | |
OTC swap contracts (upfront payments $568,608) | | | 466,818 | |
Unrealized appreciation on OTC forward exchange contracts | | | 46,947 | |
Unrealized appreciation on OTC swap contracts | | | 246,004 | |
Unrealized appreciation on unfunded loan commitments (Note 10) | | | 2,016 | |
| | | | |
Total assets | | | 114,884,103 | |
| | | | |
Liabilities: | | | | |
Payables: | | | | |
Investment securities purchased | | | 2,042,057 | |
Capital shares redeemed | | | 54,172 | |
Management fees | | | 76,435 | |
Distribution fees | | | 8,215 | |
Trustees’ fees and expenses | | | 9,263 | |
Transfer agent fees | | | 22,390 | |
Variation margin on futures contracts | | | 12,678 | |
Due to brokers | | | 5,564 | |
OTC swap contracts (upfront receipts $587,468) | | | 462,388 | |
Options written, at value (premiums received $13,481) | | | 14,497 | |
Securities sold short, at value (proceeds $4,571,090) | | | 4,956,628 | |
Unrealized depreciation on OTC forward exchange contracts | | | 249,876 | |
Unrealized depreciation on OTC swap contracts | | | 393,827 | |
Accrued expenses and other liabilities | | | 211,506 | |
| | | | |
Total liabilities | | | 8,519,496 | |
| | | | |
Net assets, at value | | $ | 106,364,607 | |
| | | | |
Net assets consist of: | | | | |
Paid-in capital | | $ | 102,543,618 | |
Total distributable earnings (loss) | | | 3,820,989 | |
| | | | |
Net assets, at value | | $ | 106,364,607 | |
| | | | |
| | | | | | | | | | |
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| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | | | | | | 35 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (continued)
May 31, 2021
Franklin K2 Long Short Credit Fund
| | | | |
| |
| Class A: | | | | |
Net assets, at value | | | $26,581,406 | |
| | | | |
Shares outstanding | | | 2,438,257 | |
| | | | |
Net asset value per sharea | | | $10.90 | |
| | | | |
Maximum offering price per share (net asset value per share ÷ 94.50%) | | | $11.53 | |
| | | | |
| |
| Class C: | | | | |
Net assets, at value | | | $2,945,284 | |
| | | | |
Shares outstanding | | | 275,138 | |
| | | | |
Net asset value and maximum offering price per sharea | | | $10.70 | |
| | | | |
| |
| Class R: | | | | |
Net assets, at value | | | $195,570 | |
| | | | |
Shares outstanding | | | 18,125 | |
| | | | |
Net asset value and maximum offering price per share | | | $10.79 | |
| | | | |
| |
| Class R6: | | | | |
Net assets, at value | | | $5,811 | |
| | | | |
Shares outstanding | | | 531 | |
| | | | |
Net asset value and maximum offering price per share | | | $10.94 | |
| | | | |
| |
| Advisor Class: | | | | |
Net assets, at value | | | $76,636,536 | |
| | | | |
Shares outstanding | | | 7,021,677 | |
| | | | |
Net asset value and maximum offering price per share | | | $10.91 | |
| | | | |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
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| 36 | | | | | | | | 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, 2021
Franklin K2 Long Short Credit Fund
| | | | |
| |
Investment income: | | | | |
Dividends: | | | | |
Unaffiliated issuers | | $ | 84,583 | |
Interest: (net of foreign taxes)~ | | | | |
Unaffiliated issuers: | | | | |
Paydown gain (loss) | | | 485,163 | |
Paid in cash | | | 4,288,129 | |
| | | | |
Total investment income | | | 4,857,875 | |
| | | | |
Expenses: | | | | |
Management fees (Note 3a) | | | 1,597,086 | |
Distribution fees: (Note 3c) | | | | |
Class A | | | 47,892 | |
Class C | | | 28,859 | |
Class R | | | 910 | |
Transfer agent fees: (Note 3e) | | | | |
Class A | | | 23,218 | |
Class C | | | 2,990 | |
Class R | | | 186 | |
Class R6 | | | 6 | |
Advisor Class | | | 75,296 | |
Custodian fees (Note 4) . | | | 112,532 | |
Reports to shareholders | | | 17,276 | |
Registration and filing fees | | | 89,769 | |
Professional fees | | | 218,910 | |
Trustees’ fees and expenses | | | 36,394 | |
Dividends and interest on securities sold short | | | 334,627 | |
Security borrowing fees | | | 74,477 | |
Other | | | 61,690 | |
| | | | |
Total expenses | | | 2,722,118 | |
Expense reductions (Note 4) | | | (1,747 | ) |
Expenses waived/paid by affiliates (Note 3f) | | | (586,621 | ) |
| | | | |
Net expenses | | | 2,133,750 | |
| | | | |
Net investment income | | | 2,724,125 | |
| | | | |
Realized and unrealized gains (losses): | | | | |
Net realized gain (loss) from: | | | | |
Investments: | | | | |
Unaffiliated issuers | | | 4,239,694 | |
Written options | | | 48,881 | |
Foreign currency transactions | | | 77,846 | |
Forward exchange contracts | | | 149,456 | |
Futures contracts | | | (366,777 | ) |
Securities sold short | | | (2,794,038 | ) |
Swap contracts | | | (156,533 | ) |
| | | | |
Net realized gain (loss) | | | 1,198,529 | |
| | | | |
Net change in unrealized appreciation (depreciation) on: | | | | |
Investments: | | | | |
Unaffiliated issuers | | | 9,811,327 | |
Translation of other assets and liabilities denominated in foreign currencies | | | 191,855 | |
Forward exchange contracts | | | (395,460 | ) |
Written options | | | 12,752 | |
Futures contracts | | | 68,160 | |
Securities sold short | | | 5,495 | |
Swap contracts | | | (1,119,971 | ) |
| | | | |
Net change in unrealized appreciation (depreciation) | | | 8,574,158 | |
| | | | |
Net realized and unrealized gain (loss) | | | 9,772,687 | |
| | | | |
Net increase (decrease) in net assets resulting from operations | | $ | 12,496,812 | |
| | | | |
| |
~ Foreign taxes withheld on interest | | $ | 354 | |
| | | | | | | | | | |
| | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | | | | | | 37 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
Franklin K2 Long Short Credit Fund
| | | | | | | | |
| |
| | | Year Ended May 31, | |
| | |
| | | 2021 | | | 2020 | |
Increase (decrease) in net assets: | | | | | | | | |
Operations: | | | | | | | | |
Net investment income | | $ | 2,724,125 | | | $ | 2,928,080 | |
Net realized gain (loss) | | | 1,198,529 | | | | 1,170,424 | |
Net change in unrealized appreciation (depreciation) | | | 8,574,158 | | | | (9,029,939 | ) |
| | | | |
Net increase (decrease) in net assets resulting from operations | | | 12,496,812 | | | | (4,931,435 | ) |
| | | | |
Distributions to shareholders: | | | | | | | | |
Class A | | | (567,339 | ) | | | (849,841 | ) |
Class C | | | (51,591 | ) | | | (56,967 | ) |
Class R | | | (4,161 | ) | | | (5,574 | ) |
Class R6 | | | (138 | ) | | | (14,013 | ) |
Advisor Class | | | (1,899,712 | ) | | | (2,791,426 | ) |
| | | | |
Total distributions to shareholders | | | (2,522,941 | ) | | | (3,717,821 | ) |
| | | | |
Capital share transactions: (Note 2) | | | | | | | | |
Class A | | | 4,161,929 | | | | (6,100,444 | ) |
Class C | | | (226,267 | ) | | | 170,969 | |
Class R | | | 8,527 | | | | 17,268 | |
Class R6 | | | — | | | | (180,366 | ) |
Advisor Class | | | (3,869,073 | ) | | | (6,973,581 | ) |
| | | | |
Total capital share transactions | | | 75,116 | | | | (13,066,154 | ) |
| | | | |
Net increase (decrease) in net assets | | | 10,048,987 | | | | (21,715,410 | ) |
Net assets: | | | | | | | | |
Beginning of year | | | 96,315,620 | | | | 118,031,030 | |
| | | | |
End of year | | $ | 106,364,607 | | | $ | 96,315,620 | |
| | | | |
| | | | | | | | | | |
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| 38 | | | | | | | | 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
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| franklintempleton.com | | Annual Report | | | | | | | | 39 |
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)
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. Events can 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, an independent pricing service may be used to adjust the value of the Funds’ portfolio securities to the latest indications of fair value at 4 p.m. Eastern time. At May 31, 2021, certain securities may have been fair valued using these procedures, in which case the securities were categorized as Level 2 inputs within the fair value hierarchy (referred to as “market level fair value”). See the Fair Value Measurements note for more information.
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 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
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| 40 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
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 28, 2021.
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.
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 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.
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| franklintempleton.com | | Annual Report | | | | | | | | 41 |
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)
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 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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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
f. 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.
g. 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 counterparties to fulfill their obligations under the contracts.
h. 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.
i. 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.
j. 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, 2021, 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
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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)
j. Income and Deferred Taxes (continued)
years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.
k. 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.
l. 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.
m. 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.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
2. Shares of Beneficial Interest
At May 31, 2021, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
| | | | | | | | | | | | | | | | | | | | |
| |
| | | Year Ended May 31, | |
| | | |
| | | 2021 | | | | | | 2020 | |
| | | | | |
| | | Shares | | | Amount | | | | | | Shares | | | Amount | |
|
| Class A Shares: | |
Shares solda | | | 822,527 | | | $ | 8,771,228 | | | | | | | | 1,136,532 | | | $ | 11,916,755 | |
Shares issued in reinvestment of distributions | | | 28,242 | | | | 300,782 | | | | | | | | 40,491 | | | | 420,700 | |
Shares redeemed | | | (461,890 | ) | | | (4,910,081 | ) | | | | | | | (1,793,471 | ) | | | (18,437,899 | ) |
| | | | |
Net increase (decrease) | | | 388,879 | | | $ | 4,161,929 | | | | | | | | (616,448 | ) | | $ | (6,100,444 | ) |
| | | | |
|
| Class C Shares: | |
Shares sold | | | 36,427 | | | $ | 380,419 | | | | | | | | 97,563 | | | $ | 996,165 | |
Shares issued in reinvestment of distributions | | | 4,906 | | | | 51,466 | | | | | | | | 5,569 | | | | 56,967 | |
Shares redeemeda | | | (63,557 | ) | | | (658,152 | ) | | | | | | | (87,629 | ) | | | (882,163 | ) |
| | | | |
Net increase (decrease) | | | (22,224 | ) | | $ | (226,267 | ) | | | | | | | 15,503 | | | $ | 170,969 | |
| | | | |
|
| Class R Shares: | |
Shares sold | | | 466 | | | $ | 5,000 | | | | | | | | 5,832 | | | $ | 60,909 | |
Shares issued in reinvestment of distributions | | | 337 | | | | 3,557 | | | | | | | | 483 | | | | 4,975 | |
Shares redeemed | | | (3 | ) | | | (30 | ) | | | | | | | (5,065 | ) | | | (48,616 | ) |
| | | | |
Net increase (decrease) | | | 800 | | | $ | 8,527 | | | | | | | | 1,250 | | | $ | 17,268 | |
| | | | |
|
| Class R6 Shares: | |
Shares sold | | | — | | | $ | — | | | | | | | | 23,094 | | | $ | 242,849 | |
Shares issued in reinvestment of distributions | | | — | | | | — | | | | | | | | 1,350 | | | | 14,013 | |
Shares redeemed | | | — | | | | — | | | | | | | | (46,241 | ) | | | (437,228 | ) |
| | | | |
Net increase (decrease) | | | — | | | $ | — | | | | | | | | (21,797 | ) | | $ | (180,366 | ) |
| | | | |
|
| Advisor Class Shares: | |
Shares sold | | | 3,735,776 | | | $ | 39,446,888 | | | | | | | | 5,690,910 | | | $ | 58,760,489 | |
Shares issued in reinvestment of distributions | | | 144,113 | | | | 1,534,808 | | | | | | | | 198,394 | | | | 2,061,319 | |
Shares redeemed | | | (4,254,581 | ) | | | (44,850,769 | ) | | | | | | | (6,798,288 | ) | | | (67,795,389 | ) |
| | | | |
Net increase (decrease) | | | (374,692 | ) | | $ | (3,869,073 | ) | | | | | | | (908,984 | ) | | $ | (6,973,581 | ) |
| | | | |
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 |
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| franklintempleton.com | | Annual Report | | | | | | | | 45 |
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.
Under each subadvisory agreement, the below entities provide subadvisory services to the Fund. The subadvisory fees are paid by K2 Advisors and are 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 |
Benefit Street Partners L.L.C. |
Ellington Global Asset Management, LLC |
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 | | $ | 2,411 | |
CDSC retained | | $ | 2,873 | |
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
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| 46 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
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, 2021, the Fund paid transfer agent fees of $101,696 of which $37,650 was retained by Investor Services.
f. Waiver and Expense Reimbursements
K2 Advisors has contractually agreed in advance to waive or limit its fees and to assume as their own expense certain expenses otherwise payable by the Fund so that the operating 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% based on the average net assets of each class until September 30, 2021. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.
Investor Services has contractually agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.03% based on the average net assets of the class until September 30, 2021. Prior to October 1, 2020, the Class R6 transfer agent fees were limited to 0.02%.
g. Other Affiliated Transactions
At May 31, 2021, Franklin Resources, Inc. owned 17.4% 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, 2021, 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, 2021 and 2020, was as follows:
| | | | | | | | |
| | |
| | | 2021 | | | 2020 | |
| Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 2,522,941 | | | $ | 3,717,821 | |
Long term capital gain | | | — | | | | — | |
| | | | |
Total distributions paid | | $ | 2,522,941 | | | $ | 3,717,821 | |
| | | | |
At May 31, 2021, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:
| | | | |
Cost of investments | | $ | 94,346,594 | |
| | | | |
Unrealized appreciation | | $ | 4,333,266 | |
Unrealized depreciation | | | (2,208,865 | ) |
| | | | |
Net unrealized appreciation (depreciation) | | $ | 2,124,401 | |
| | | | |
| Distributable earnings | | | | |
Undistributed ordinary income | | $ | 1,591,859 | |
| | | | |
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.
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| franklintempleton.com | | Annual Report | | | | | | | | 47 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
6. Investment Transactions
Purchases and sales of investments and securities sold short (excluding short term securities) for the year ended May 31, 2021, aggregated $165,875,737 and $176,128,955, respectively.
7. Credit Risk and Defaulted Securities
At May 31, 2021, the Fund had 22.5% of its portfolio invested in high yield, senior secured floating rate loans, or other securities rated below investment grade as determined by Nationally Recognized Statistical Credit Ratings Organizations and/or internally, by investment management and unrated securities. 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, 2021, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $1,705,565, representing 1.6% 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, 2021, 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 | | | $ | 7,042 | |
| | 861 | | | Acosta Inc., cvt. pfd. | | | 12/31/19-1/28/21 | | | | 50,262 | | | | 43,377 | |
| | | | | | | | | | | | |
| | Total Restricted Securities (Value is less than 0.1% of Net Assets) | | | $ | 58,406 | | | $ | 50,419 | |
| | | | | | | | | | | | |
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 the Statement of Operations. Funded portions of credit agreements are presented in the Statement of Investments.
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| 48 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
At May 31, 2021, unfunded commitments were as follows:
| | | | |
| |
| Borrower | | Unfunded
Commitment | |
Intelsat Jackson Holdings SA, Term Loan B4 | | $ | 3,965 | |
Intelsat Jackson Holdings SA, Term Loan DIP | | | 14,769 | |
Lecta, Super Senior Term Loan | | | 22,483 | |
Lecta, Super Senior Term Loan RC | | | 21,722 | |
| | | | |
| | $ | 62,939 | |
| | | | |
11. Other Derivative Information
At May 31, 2021, 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 | | $ | 1,424 | a | | Variation margin on centrally cleared swap contracts | | $ | 184,936 | a |
| | Unrealized appreciation on OTC swap contracts | | | 8,840 | | | Unrealized depreciation on OTC swap contracts | | | 16,518 | |
| | | | | | | | Variation margin on futures contracts | | | 734 | a |
| | | | |
Foreign exchange contracts | | Unrealized appreciation on OTC forward exchange contracts | | | 46,947 | | | Unrealized depreciation on OTC forward exchange contracts | | | 249,876 | |
| | | | |
Credit contracts | | Variation margin on centrally cleared swap contracts | | | 44,358 | a | | Variation margin on centrally cleared swap contracts | | | 400,123 | a |
| | | | |
| | OTC swap contracts (upfront payments) | | | 466,818 | | | OTC swap contracts (upfront receipts) | | | 462,388 | |
| | | | |
| | Unrealized appreciation on OTC swap contracts | | | 221,302 | | | Unrealized depreciation on OTC swap contracts | | | 350,887 | |
| | | | |
Equity contracts | | Investments in securities, at value | | | 68,192 | b | | Options written, at value | | | 14,497 | |
| | | | |
| | Unrealized appreciation on OTC swap contracts | | | 15,862 | | | Unrealized depreciation on OTC swap contracts | | | 26,422 | |
| | | | |
| | | | | | | | Variation margin on futures contracts | | | 26,939 | a |
| | | | | | | | | | | | |
Totals | | | | $ | 873,743 | | | | | $ | 1,733,320 | |
| | | | | | | | | | | | |
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.
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| franklintempleton.com | | Annual Report | | | | | | | | 49 |
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, 2021, 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 | | Swap contracts | | $ | 96,546 | | | Swap contracts | | $ | 168,766 | |
| | | | |
| | Futures contracts | | | 22,273 | | | Futures contracts | | | (734 | ) |
| | | | |
Foreign exchange contracts | | Forward exchange contracts | | | 149,456 | | | Forward exchange contracts | | | (395,460 | ) |
| | | | |
Credit contracts | | Swap contracts | | | (507,969 | ) | | Swap contracts | | | (1,249,027 | ) |
| | | | |
Equity contracts | | Investments | | | (169,562 | )a | | Investments | | | 1,900a | |
| | | | |
| | Written options | | | 48,881 | | | Written options | | | 12,752 | |
| | | | |
| | Futures contracts | | | (389,050 | ) | | Futures contracts | | | 68,894 | |
| | | | |
| | Swap contracts | | | 254,890 | | | Swap contracts | | | (39,710 | ) |
| | | | | | | | | | | | |
Totals | | | | $ | (494,535 | ) | | | | $ | (1,432,619 | ) |
| | | | | | | | | | | | |
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, 2021, the average month end notional amount of options, futures contracts and swap contracts represented 58,915 shares, $1,176,110 and $29,627,577, respectively. The average month end contract value of forward exchange contracts was $8,267,664.
At May 31, 2021, 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 | | $ | 46,947 | | | $ | 249,876 | |
Options Purchased | | | 5,218 | | | | — | |
Swap Contracts | | | 712,822 | | | | 856,215 | |
| | | | |
Total | | $ | 764,987 | | | $ | 1,106,091 | |
| | | | |
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.
| | | | | | | | | | |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
At May 31, 2021, 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 | | | Cash
Collateral
Received | | | Net Amount (Not
less than zero) | |
| Counterparty | | | | | | | | | | | | | | | | | | | | |
BNPP | | $ | 7,143 | | | $ | (7,143 | ) | | $ | — | | | $ | — | | | $ | — | |
BOFA | | | 15,767 | | | | (15,767 | ) | | | — | | | | — | | | | — | |
BZWS | | | 66,043 | | | | (66,043 | ) | | | — | | | | — | | | | — | |
CITI | | | 26,537 | | | | (25,424 | ) | | | — | | | | — | | | | 1,113 | |
DBAB | | | 5,181 | | | | (2,255 | ) | | | — | | | | — | | | | 2,926 | |
FBCO | | | 37,691 | | | | (18,625 | ) | | | — | | | | — | | | | 19,066 | |
GSCO | | | 232,482 | | | | (143,337 | ) | | | — | | | | — | | | | 89,145 | |
HSBC | | | 558 | | | | — | | | | — | | | | — | | | | 558 | |
JPHQ | | | 181,783 | | | | (181,783 | ) | | | — | | | | — | | | | — | |
JPHQa | | | 43,699 | | | | — | | | | — | | | | — | | | | 43,699 | |
MSCO | | | 25,069 | | | | (25,069 | ) | | | — | | | | — | | | | — | |
MSCS | | | 123,034 | | | | (123,034 | ) | | | — | | | | — | | | | — | |
| | | | |
Total | | $ | 764,987 | | | $ | (608,480 | ) | | $ | — | | | $ | — | | | $ | 156,507 | |
| | | | |
At May 31, 2021, 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 | | | Cash
Collateral
Pledgedb | | | Net Amount (Not
less than zero) | |
| Counterparty | | | | | | | | | | | | | | | | | | | | |
BNPP | | $ | 8,000 | | | $ | (7,143 | ) | | $ | — | | | $ | — | | | $ | 857 | |
BOFA | | | 26,227 | | | | (15,767 | ) | | | — | | | | (10,460 | ) | | | — | |
BZWS | | | 98,759 | | | | (66,043 | ) | | | — | | | | (32,716 | ) | | | — | |
CITI | | | 25,424 | | | | (25,424 | ) | | | — | | | | — | | | | — | |
DBAB | | | 2,255 | | | | (2,255 | ) | | | — | | | | — | | | | — | |
FBCO | | | 18,625 | | | | (18,625 | ) | | | — | | | | — | | | | — | |
GSCO | | | 143,337 | | | | (143,337 | ) | | | — | | | | — | | | | — | |
HSBC | | | — | | | | — | | | | — | | | | — | | | | — | |
JPHQ | | | 364,392 | | | | (181,783 | ) | | | — | | | | (182,609 | ) | | | — | |
JPHQa | | | 109,591 | | | | — | | | | — | | | | — | | | | 109,591 | |
MSCO | | | 39,942 | | | | (25,069 | ) | | | — | | | | — | | | | 14,873 | |
MSCS | | | 269,539 | | | | (123,034 | ) | | | — | | | | (146,505 | ) | | | — | |
| | | | |
Total | | $ | 1,106,091 | | | $ | (608,480 | ) | | $ | — | | | $ | (372,290 | ) | | $ | 125,321 | |
| | | | |
aRepresents derivatives not subject to an ISDA master agreement.
bIn 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.
See Note 1(e) regarding derivative financial instruments.
See Abbreviations on page 54.
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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 $2.675 billion (Global Credit Facility) which matures on February 4, 2022. 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, 2021, 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, 2021, 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 | | $ | 3,683,136 | | | $ | 304,869 | | | $ | 62,219 | c | | $ | 4,050,224 | |
Convertible Bonds | | | — | | | | 692,902 | | | | — | | | | 692,902 | |
Corporate Bonds and Notes | | | — | | | | 28,792,884 | | | | — | | | | 28,792,884 | |
Corporate Bonds and Notes in Reorganization | | | — | | | | 125,690 | | | | — | | | | 125,690 | |
Senior Floating Rate Interests | | | — | | | | 2,205,682 | | | | 72,050 | | | | 2,277,732 | |
Credit-Linked Notes | | | — | | | | 611,212 | | | | 313,098 | | | | 924,310 | |
Foreign Government and Agency Securities | | | — | | | | 4,967,684 | | | | — | | | | 4,967,684 | |
U.S. Government and Agency Securities | | | — | | | | 66,758 | | | | — | | | | 66,758 | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities | | | — | | | | 36,331,139 | | | | — | | | | 36,331,139 | |
Municipal Bonds in Reorganization | | | — | | | | 1,579,875 | | | | — | | | | 1,579,875 | |
Options Purchased | | | 68,192 | | | | — | | | | — | | | | 68,192 | |
Short Term Investments | | | 20,677,060 | | | | 2,042,274 | | | | — | | | | 22,719,334 | |
| | | | |
Total Investments in Securities | | $ | 24,428,388 | | | $ | 77,720,969 | d | | $ | 447,367 | | | $ | 102,596,724 | |
| | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | |
Forward Exchange Contracts | | $ | — | | | $ | 46,947 | | | $ | — | | | $ | 46,947 | |
Swap Contracts | | | — | | | | 291,786 | | | | — | | | | 291,786 | |
Unfunded Loan Commitments | | | — | | | | 1,179 | | | | 837 | | | | 2,016 | |
| | | | |
Total Other Financial Instruments | | $ | — | | | $ | 339,912 | | | $ | 837 | | | $ | 340,749 | |
| | | | |
| | | | | | | | | | |
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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 | |
| | | | |
| Liabilities: | | | | | | | | | | | | | | | | |
Other Financial Instruments: | | | | | | | | | | | | | | | | |
Options Written | | $ | 14,497 | | | $ | — | | | $ | — | | | $ | 14,497 | |
Securities Sold Shorta | | | 511,050 | | | | 4,445,578 | | | | — | | | | 4,956,628 | |
Futures Contracts | | | 27,673 | | | | — | | | | — | | | | 27,673 | |
Forward Exchange Contracts | | | — | | | | 249,876 | | | | — | | | | 249,876 | |
Swap Contracts | | | — | | | | 978,886 | | | | — | | | | 978,886 | |
| | | | |
Total Other Financial Instruments | | $ | 553,220 | | | $ | 5,674,340 | | | $ | — | | | $ | 6,227,560 | |
| | | | |
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, 2021.
dIncludes foreign securities valued at $304,869, which were categorized as Level 2 as a result of the application of market level fair value procedures. See the Financial Instrument Valuation note for more information.
A reconciliation in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 assets and/or liabilities at the beginning and/or end of the year. At May 31, 2021, the reconciliation is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | Balance at
Beginning of
Year | | | Purchasesa | | | Salesb | | | Transfer
Into
(Out of)
Level 3 | | | 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 Investmentsc | | $ | 592,344 | d | | $ | 10,274 | | | $ | (496,992 | ) | | $ | — | | | $ | (74,893 | ) | | $ | 31,486 | | | $ | 62,219 | d | | $ | (43,407 | ) |
Senior Floating Rate Interests | | | — | | | | 68,764 | | | | — | | | | — | | | | — | | | | 3,286 | | | | 72,050 | | | | 3,286 | |
Credit-Linked Notes | | | — | | | | 303,034 | | | | — | | | | — | | | | — | | | | 10,064 | | | | 313,098 | | | | 10,064 | |
Asset-Backed Securities and Commercial Mortgage-Backed Securities | | | 462,124 | | | | — | | | | (10,995 | ) | | | (487,123 | )e | | | 5,326 | | | | 30,668 | | | | — | | | | — | |
Unfunded Loan Commitments | | | — | | | | — | | | | — | | | | 837 | f | | | — | | | | — | | | | 837 | | | | — | |
Total Investments in Securities | | $ | 1,054,468 | | | $ | 382,072 | | | $ | (507,987 | ) | | $ | (486,286 | ) | | $ | (69,567 | ) | | $ | 75,504 | | | $ | 448,204 | | | $ | (30,057 | ) |
aPurchases include all purchases of securities and securities received in corporate actions.
bSales include all sales of securities, maturities, paydowns and securities tendered in corporate actions.
cIncludes common and convertible preferred stocks.
dIncludes securities determined to have no value at May 31, 2021.
eThe investment was transferred out of Level 3 as a result of the availability of other significant observable valuation inputs.
fThe investment was 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.
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 the LIBOR and other interbank-offered based reference rates as of the end of 2021. The ASU is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has reviewed the requirements and believes the adoption of this ASU will not have a material impact on the financial statements.
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| franklintempleton.com | | Annual Report | | | | | | | | 53 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
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, except for the following:
On July 13, 2021, the Board approved a change to the automatic conversion feature for Class C that will convert shareholders’ Class C shares into Class A shares after they have been held for 8 years. The change will become effective August 2, 2021. Further details are disclosed in the Fund’s Prospectus.
Abbreviations
| | | | | | | | | | |
| Counterparty | | Currency | | Selected Portfolio |
| BNPP | | BNP Paribas | | EGP | | Egyptian Pound | | ARM | | Adjustable Rate Mortgage |
| BOFA | | Bank of America Corp. | | EUR | | Euro | | CLO | | Collateralized Loan Obligation |
| BZWS | | Barclays Bank PLC | | JPY | | Japanese Yen | | DIP | | Debtor-In-Possession |
| CITI | | Citigroup, Inc. | | MXN | | Mexican Peso | | ETF | | Exchange Traded Fund |
| DBAB | | Deutsche Bank AG | | PLN | | Polish Zloty | | FEDEF | | Federal Funds Effective Rate |
| FBCO | | Credit Suisse Group AG | | RUB | | Russian Ruble | | FHLMC | | Federal Home Loan Mortgage Corp. |
| GSCO | | The Goldman Sachs Group, Inc. | | SGD | | Singapore Dollar | | FNMA | | Federal National Mortgage Association |
| HSBC | | HSBC Bank USA, N.A. | | USD | | United States Dollar | | FRN | | Floating Rate Note |
| JPHQ | | JP Morgan Chase & Co. | | ZAR | | South African Rand | | GO | | General Obligation |
| MSCO | | Morgan Stanley & Co. LLC | | | | | | LIBOR | | London InterBank Offered Rate |
| MSCS | | Morgan Stanley Capital Services LLC | | | | | | PIK | | Payment In-Kind |
| | | | | | | | REIT | | Real Estate Investment Trust |
| | | | | | | | SFR | | Single Family Revenue |
| | | | | | | | SOFR | | Secured Overnight Financing Rate |
| | | | | | | | SPAC | | Special Purpose Acquisition Company |
| | | | | | | | SPDR | | Standard & Poor’s Depositary Receipt |
| | | | | | | | WIBOR | | Warsaw Interbank Offered Rate |
| | | | |
| Index | | | | | | | | |
| CDX.NA.HY | | CDX North America High Yield Index | | | | | | | | |
| | | | | | | | | | |
| | | | | | |
| 54 | | | | | | | | 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, 2021, 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 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 financial position of Franklin K2 Long Short Credit Fund (one of the funds constituting the Franklin Alternative Strategies Funds) at May 31, 2021, 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 five years in the period then, 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, 2021, 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 26, 2021
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| franklintempleton.com | | Annual Report | | | | | | | | 55 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
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 $98,065 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, 2021.
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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 2020 | | 29 | | 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 formerly, 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 | | FTAC Olympus Acquisition Corp. (special purpose fintech acquisition company) (2020-present) and FTAC Parnassus Acquisition Corp. (special purpose fintech acquisition company) (February 2021-present); and formerly, FinTech Acquisition Corp. III (special purpose fintech acquisition company) (2018- 2021). |
|
| 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 | | | | | | | | 57 |
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 | | 29 | | 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). |
| | | | |
Robert E. Wade (1946)
One Franklin Parkway
San Mateo, CA 94403-1906 | | Trustee | | Since 2011 | | 29 | | 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 | | 137 | | 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. |
| | | | |
**Jennifer M. Johnson (1964)
One Franklin Parkway
San Mateo, CA 94403-1906 | | Trustee | | Since 2015 | | 60 | | 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 six 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). |
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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 |
| | | | |
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 42 of the investment companies in Franklin Templeton. |
| | | | |
Breda M. Beckerle (1958) 280 Park Avenue New York, NY 10017 | | Chief Compliance Officer | | Since October 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 42 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 42 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 42 of the investment companies in Franklin Templeton; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton (2009-2017). |
| | | | |
Robert 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 39 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 42 of the investment companies in Franklin Templeton. |
| | | | |
Brooks Ritchey (1959)
300 Atlantic Street Stamford, CT 06901 | | President and Chief Executive Officer – Investment Management | | Since December 2020 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Managing Director and Co-Head of the Investment Research & Management, K2 Advisors; and officer of one of the investment companies in Franklin Templeton. |
| | | | | | | | | | |
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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 |
| | | | |
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 42 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 42 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 42 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 and director 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.
Note 3: Effective October 17, 2020, Charles Rubens, II ceased to be a trustee of the Trust.
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 Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes that Ms. Bates and Mr. Niemiec qualify as such an expert in view of their extensive business background and experience. 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 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 Ms. Bates and Mr. Niemiec 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. Ms. Bates and Mr. Niemiec 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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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 19, 2021, 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
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 and certain Sub-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 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 Chief Compliance Officer with respect thereto. The Board also reviewed and considered an annual report on payments made by Franklin Templeton (FT) or the Fund to financial intermediaries, as well as a memorandum relating to third-party servicing arrangements, which included discussion of the changing distribution landscape for the Fund.
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 FT 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 Fund as selected by Lipper (Broadridge Section 15(c) Report). The trustees reviewed the Broadridge Section 15(c)
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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 FT 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 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 FT 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 in the current work-from-home environment 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 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 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-, three- and five-year periods ended December 31, 2020.
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 second-best performing quintile for the one-year period ended December 31, 2020 and total returns also in the second-best performing quintile for the three- and five-year periods ended December 31, 2020. 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, the trustees took into account the reduction of the investment management fee as part of last year’s renewal process from 1.90% to 1.60%, as well as the 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 in 2020. 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 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
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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 in the second-most expensive quintile of both its Base Expense Group and Alternate Expense Group.
Noting (i) 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 (ii) 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, 2020, 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. 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.
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| franklintempleton.com | | Annual Report | | | | | | | | 65 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
SHAREHOLDER INFORMATION
Liquidity Risk Management Program-Funds no HLIM
Each Fund has adopted and implemented a written Liquidity Risk Management Program (the “LRMP”) as required by Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The LRMP is designed to assess and manage each Fund’s liquidity risk, which is defined as the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors’ interests in the Fund. In accordance with the Liquidity Rule, the LRMP includes policies and procedures that provide for: (1) assessment, management, and review (no less frequently than annually) of each Fund’s liquidity risk; (2) classification of each Fund’s portfolio holdings into one of four liquidity categories (Highly Liquid, Moderately Liquid, Less Liquid, and Illiquid); (3) for Funds that do not primarily hold assets that are Highly Liquid, establishing and maintaining a minimum percentage of the Fund’s net assets in Highly Liquid investments (called a “Highly Liquid Investment Minimum” or “HLIM”); and (4) prohibiting the Fund’s acquisition of Illiquid investments that would result in the Fund holding more than 15% of its net assets in Illiquid assets. The LRMP also requires reporting to the Securities and Exchange Commission (“SEC”) (on a non-public basis) and to the Board if the Fund’s holdings of Illiquid assets exceed 15% of the Fund’s net assets. Funds with HLIMs must have procedures for addressing HLIM shortfalls, including reporting to the Board and, with respect to HLIM shortfalls lasting more than seven consecutive calendar days, reporting to the SEC (on a non-public basis).
The Director of Liquidity Risk within the Investment Risk Management Group (the “IRMG”) is the appointed 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, Product Management and Global Product Strategy.
In assessing and managing each Fund’s liquidity risk, the ILC considers, as relevant, a variety of factors, including the Fund’s investment strategy and the liquidity of its portfolio investments during both normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources including the Funds’ interfund lending facility and line
of credit. Classification of the Fund’s portfolio holdings in the four liquidity categories is based on the number of days it is reasonably expected to take to convert the investment to cash (for Highly Liquid and Moderately Liquid holdings) or sell or dispose of the investment (for Less Liquid and Illiquid investments), in current market conditions without significantly changing the investment’s market value.
Each Fund primarily holds liquid assets that are defined under the Liquidity Rule as “Highly Liquid Investments,” and therefore is not required to establish an HLIM. Highly Liquid Investments are defined as cash and any investment reasonably expected to be convertible to cash in current market conditions in three business days or less without the conversion to cash significantly changing the market value of the investment.
At meetings of the Funds’ Board of Trustees held in May 2021, the Program Administrator provided a written report to the Board addressing the adequacy and effectiveness of the program for the year ended December 31, 2020. The Program Administrator report concluded that (i.) the LRMP, as adopted and implemented, remains reasonably designed to assess and manage each Fund’s liquidity risk; (ii.) the LRMP, including the Highly Liquid Investment Minimum (“HLIM”) where applicable, was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk; and (iii.) each Fund was able to meet requests for redemption without significant dilution of remaining investors’ interests in the Fund.
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.
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| 66 | | | | | | | | Annual Report | | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
SHAREHOLDER INFORMATION
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, or receive notice of the availability of, the Fund’s financial reports every six months. In addition, you will receive an annual updated summary prospectus (detail 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 (to the extent received by mail) 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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| franklintempleton.com | | Annual Report | | | | | | | | 67 |
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 |
| | K2/D&S Management Co., L.L.C. | | Franklin Templeton Distributors, Inc. (800) DIAL BEN®/342-5236 franklintempleton.com | | (800) 632-2301 |
| © 2021 Franklin Templeton Investments. All rights reserved. | | | | 948 A 07/21 |
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 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.
Audit Fees
(a) 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 $203,775 for the fiscal year ended May 31, 2021 and $253,213 for the fiscal year ended May 31, 2020.
Audit-Related Fees
(b) 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.
Tax Fees
(c) 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 $1,637 for the fiscal year ended May 31, 2021 and $14,987 for the fiscal year ended May 31, 2020. 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, 2021 and $71,000 for the fiscal year ended May 31, 2020. 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.
All Other Fees
(d) 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.
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| (e)(2) | | None of the services described in each of paragraphs (b) through (d) of this Item that 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 $72,637 for the fiscal year ended May 31, 2021 and $85,987 for the fiscal year ended May 31, 2020.
(h) The registrant’s audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants.
Not Applicable.
Item 6. Investments.
Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment
Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and
Affiliated Purchasers.
Not applicable.
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) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
| | (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
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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| (Registrant) Franklin Alternative Strategies Funds |
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| By (Signature and Title) | | /s/ Matthew T. Hinkle |
| | Matthew T. Hinkle, Chief Executive Officer – Finance and |
| | Administration |
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| Date July 27, 2021 | | |
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 (Signature and Title) | | /s/ Matthew T. Hinkle |
| | Matthew T. Hinkle, Chief Executive Officer – Finance and |
| | Administration |
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| Date July 27, 2021 | | |
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| By (Signature and Title) | | /s/ Robert G. Kubilis |
| | Robert G. Kubilis, Chief Financial Officer and Chief Accounting |
| | Officer |
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| Date July 27, 2021 | | |
