UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSRS
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 94403-1906
(Name and address of agent for service)
Registrant’s telephone number, including area code: 650 312-2000
Date of fiscal year end: 5/31
Date of reporting period: 11/30/17
Item 1. | Reports to Stockholders. |
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Semiannual Report and Shareholder Letter November 30, 2017 |
Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Dear Fellow Shareholder:
During the six months ended November 30, 2017, the global economy generally expanded amid improved commodity prices, generally upbeat economic data, encouraging corporate earnings and the European Central Bank’s (ECB’s) extension of its monetary easing time frame. The ECB kept its benchmark interest rate unchanged, while the US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% to 1.00%–1.25% amid signs of a growing US economy. In this environment, global developed stock markets, as measured by the MSCI World Index, posted a +9.81 total return for the period.1 Global emerging market stocks, as measured by the MSCI Emerging Markets Index, generated a +13.27% total return.1 Global government bonds, as measured by the Citigroup World Government Bond Index, posted a +2.57% total return.1
A couple of weeks after the end of the reporting period, the Fed raised its target range a quarter point to 1.25%–1.50% amid ongoing labor market strength and rising economic activity in the US. The Fed’s inflation outlook remained essentially the same.
We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.
We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue
to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.
On the following pages, the Fund’s portfolio management team reviews investment decisions made during the past six 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.
Sincerely,
Madison S. Gulley, CFA
President and Chief Executive Officer – Investment Management
Franklin Alternative Strategies Funds
This letter reflects our analysis and opinions as of November 30, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
CFA® is a trademark owned by CFA Institute.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
Not FDIC Insured | | May Lose Value | | No Bank Guarantee |
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Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.
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Franklin K2 Alternative Strategies Fund
This semiannual report for Franklin K2 Alternative Strategies Fund covers the period ended November 30, 2017.
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 nontraditional or “alternative” strategies, including but not limited to relative value, long short equity, global macro and event driven. 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); and 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 delivered a +2.15% cumulative total return for the six months under review. For comparison, the Fund’s new primary and old secondary benchmark, the HFRX Global Hedge Fund Index, which is designed to be representative of the overall composition of the hedge fund universe, generated a +2.67% total return.1 As the investment manager believes the composition of the HFRX Global Hedge Fund Index more accurately reflects the Fund’s holdings, it has replaced the ICE BofA Merrill Lynch 3-Month US Treasury Bill Index as the Fund’s primary benchmark. Also for comparison, the Fund’s new secondary and old primary benchmark, the ICE BofA Merrill Lynch 3-Month US Treasury Bill Index, which tracks the performance of short-term US government securities with a remaining term to final maturity of
less than three months, posted a +0.52% 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
The global economy generally expanded during the six-month period under review. In this environment, global developed and emerging market stocks, as measured by the MSCI All Country World Index, generated a +10.19% total return.2 Global markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions, the European Central Bank’s (ECB’s) extension of its monetary easing program, and encouraging corporate earnings reports. The US Senate’s approval of a budget plan in October and its subsequent vote near period-end to begin debate on a tax bill, which raised expectations for reforms, also aided global markets.
However, global markets reflected investor concerns about the terms of the UK’s exit from the European Union (also known as “Brexit”), geopolitical tensions in the Korean peninsula and other regions, comments from key central bankers around the world about potentially raising interest rates, and uncertainty about the US government’s ability to implement a tax reform plan.
The US economy strengthened in 2017’s third quarter compared to the second quarter largely due to growth in consumer spending across goods and services, business and inventory investment, as well as net exports due to lower imports. The unemployment rate declined from 4.3% in May 2017, as reported at the beginning of the six-month period, to 4.1% at period-end.3 Annual inflation, as measured by the Consumer Price Index, increased from 1.9% in May 2017, as reported at
1. Source: FactSet. Hedge Fund Research, Inc. – www.hedgefundresearch.com. The HFRX Global Hedge Fund Index is being used under license from Hedge Fund Research, Inc., which does not endorse or approve of any of the contents of this report.
2. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Unlike most asset class indexes, HFR Index returns reflect fees and expenses.
3. Source: US Bureau of Labor Statistics.
See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of Investments (SOI). The Consolidated SOI begins on page 15.
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the beginning of the period, to 2.2% at period-end.3 At its June meeting, the US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% to 1.00%–1.25%, amid signs of a growing US economy, strengthening labor market and improving business spending. At its subsequent meetings, the Fed kept its target range unchanged. However, minutes of its October 31–November 1 meeting indicated that the Fed continued to maintain a positive outlook for the US economy and signaled the possibility of a third rate hike in 2017, though concerns about the ongoing softness in inflation remained.
In Europe, the UK’s economic growth accelerated in 2017’s third quarter over the previous quarter, largely due to growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The euro-zone’s growth moderated in 2017’s third quarter over the previous quarter. The bloc’s annual inflation rate, while low, ended higher than it was at the start of the period. The ECB kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.
In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017 growth was lower than the previous quarter. At its October 2017 meeting, the Bank of Japan left its benchmark interest rate unchanged and continued its monetary stimulus measures, while reducing its fiscal 2017 inflation forecast.
In emerging markets, Brazil’s GDP grew for the third consecutive quarter, although third-quarter growth slowed from the previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s third quarter compared to the prior-year period, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017’s third quarter compared to the prior-year period. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose substantially during the period.
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. The allocations to specific subadvisors may change from time to time based upon our assessment of their correlations to various markets and to each other, their risk profiles and 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 ETFs). 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.
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 nonhedging (investment) purposes. Such derivative investments may include futures contracts, swaps, options and currency forward contracts. The Fund may engage in active and frequent trading as part of its investment strategies.
What is a futures contract?
A futures contract is an agreement between the Fund and a counterparty made through a US or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.
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What are swap agreements?
Swap agreements, such as interest rate, currency and credit default swaps, are contracts between the Fund and another party (the swap counterparty). In a basic swap transaction, the Fund agrees with the swap counterparty to exchange the returns (or differentials in rates of return) earned or realized on a particular “notional amount” of underlying instruments. The notional amount is the set amount selected by the parties as the basis on which to calculate the obligations that they have agreed to exchange. The parties typically do not actually exchange the notional amount. Instead, they agree to exchange the returns that would be earned or realized if the notional amount were invested in given instruments or at given interest rates.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
What is an option?
An option is a contract to buy or sell a specific financial product known as the option’s underlying instrument at a specific price. The buyer of an option has the right, but not the obligation, to buy or sell the underlying instrument at or until a specified expiration date. Conversely, the seller (“writer”) of an option who opens a transaction is obligated to buy or sell the underlying instrument should the option holder exercise that right.
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What is a currency forward contract?
A currency forward contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency in exchange for another currency at a specific exchange rate on a future date. Currency forward contracts are privately traded in the interbank market, not on a centralized exchange.
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Manager’s Discussion
Four underlying strategies benefited the Fund’s overall performance for the six-month review period. Long short equity led contributions to performance among strategies, followed by relative value, event driven and global macro. A conditional risk overlay (CRO) strategy, which helped the Fund maintain its conservative positioning, detracted from relative returns as global equity markets demonstrated continued strength. The CRO strategy was not active at period-end. The allocation percentages for each strategy are listed in the Strategy Allocation table on this page.
What is a conditional risk overlay (CRO) strategy?
From time to time, the Fund’s investment manager may implement its CRO strategy, which seeks to neutralize certain market sensitivities that may exist in the Fund. The CRO strategy involves investing in derivatives or other instruments in an effort to reduce volatility and provide a hedge against market declines. When implemented, the strategy will reduce the Fund’s ability to benefit from positive market movements.
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The Fund’s long short equity strategy subadvisors were Chilton Investment Company, Impala Asset Management, Jennison Associates, Portland Hill Asset Management Limited and Wellington Management Company. All subadvisors delivered positive performance for the review period. On a sector level, the top performance drivers for the strategy were information technology (IT), materials and industrials. In contrast, equity indexes, currencies and telecommunication services hindered returns.
The Fund’s relative value strategy subadvisors were Basso Capital Management, Chatham Asset Management, Lazard Asset Management and Loomis Sayles & Company. Three subadvisors contributed positively to performance for the period,
Strategy Allocation*
Based on Total Investments as of 11/30/17
Strategy Total | Long Positions | Short Positions | ||||||||||
Relative Value | 35.7% | 57.2% | -21.5% | |||||||||
Long Short Equity | 34.4% | 54.6% | -20.2% | |||||||||
Event Driven | 16.5% | 19.7% | -3.2% | |||||||||
Global Macro | 13.4% | 15.7% | -2.3% |
*Figures represent the net Fund exposure and include certain derivatives held in the portfolio (or their underlying reference assets) or unsettled trades and may not total 100% or may be negative due to rounding, use of any derivatives or other factors.
Subadvisors
11/30/17
Long Short Equity
Chilton Investment Company, LLC
Impala Asset Management LLC
Jennison Associates, LLC
Portland Hill Asset Management Limited
Wellington Management Company, LLP
Relative Value
Basso Capital Management, L.P.
Chatham Asset Management, LLC
Lazard Asset Management, LLC
Loomis Sayles & Company, L.P.
Event Driven
Halcyon Arbitrage IC Management LP
P. Schoenfeld Asset Management L.P.
Global Macro
Emso Asset Management Limited
Graham Capital Management, L.P.
with Basso Capital Management the lone exception. In terms of aggregate sector performance, the top contributors were consumer discretionary, health care and IT. Conversely, exposure to equity index hedges and industrials detracted.
The Fund’s event driven strategy subadvisors were Halcyon Arbitrage IC Management and P. Schoenfeld Asset Management. Both subadvisors enjoyed positive results for the review period. In aggregate, the top performance drivers for the strategy by asset class were equities and credit. Currencies modestly detracted from performance over the period. In terms of sector gains, utilities, industrials and IT contributed the most to returns, while consumer discretionary and equity index hedges curbed results.
Emso Asset Management Limited and Graham Capital Management represented our global macro exposure, and both subadvisors delivered positive performance for the review period. Long exposure to equity and credit indexes benefited returns. In contrast, currencies and, to a small extent, interest-rate derivatives weighed on results. On a sector/industry level,
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
the financials and energy sectors benefited returns, while the energy and environment industry had a small negative impact.
Thank you for your participation in Franklin K2 Alternative Strategies Fund. We look forward to continuing to serve your investment needs.
![]() | David C. Saunders | |
![]() | Brooks Ritchey | |
![]() | Robert Christian | |
Portfolio Management Team |
The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2017, 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.
David C. Saunders is the founding managing director of K2 Advisors, which he co-founded in 1994. He has worked at Tucker Anthony & R.L. Day as an equity trader; First Boston Corp. as vice president on the equity block trading desk; WaterStreet Capital, a hedge fund, as head trader; Tiger Management, as head trader; WorldSec Securities as president and ABN Amro Inc. as a senior managing director. Mr. Saunders graduated from the University of Maryland, College Park, with a B.S. degree in Business.
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Brooks Ritchey is a senior managing director and head of portfolio construction for K2 Advisors. He is also a senior vice president and director of investment solutions for the Franklin Templeton Multi-Asset Solutions division. Since 1987 Mr. Ritchey has managed multi-asset mutual fund and hedge fund portfolios during his employment with organizations including Steinhardt Partners, Citibank, Finch Asset Management, Paribas, AIG and ING. Mr. Ritchey joined K2 Advisors in 2005. Mr. Ritchey graduated from Franklin & Marshall College in 1982.
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Robert Christian is a senior managing director and head of investment research for K2 Advisors, which he joined in 2010. Mr. Christian worked at Graham Capital Management LP from 1998 to 2003 as a portfolio manager and researcher of quantitative-based trading strategies. At Julius Baer Investment Management from 2003 to 2005, he was the head of macro strategies. From 2005 to 2010, he worked at FRM Americas LLC where he was the global head of directional trading strategies and portfolio advisor to numerous funds. Mr. Christian holds a B.A.S. in biology and economics from Stanford University (1985) and an M.B.A. in finance from Leonard N. Stern School of Business –New York University (1990). |
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
Performance Summary as of November 30, 2017
The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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 11/30/171
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 5.75% and the minimum is 0%. Class A: 5.75% 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 | ||
A | ||||
6-Month | +2.15% | -3.72% | ||
1-Year | +6.34% | +0.19% | ||
3-Year | +7.08% | +0.30% | ||
Since Inception (10/11/13) | +17.39% | +2.48% | ||
Advisor | ||||
6-Month | +2.33% | +2.33% | ||
1-Year | +6.65% | +6.65% | ||
3-Year | +7.99% | +2.60% | ||
Since Inception (10/11/13) | +18.72% | +4.23% |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. 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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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
PERFORMANCE SUMMARY
Total Annual Operating Expenses4
Share Class | With Waiver | Without Waiver | ||||||
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A | 2.76% | 3.01% | ||||||
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Advisor | 2.51% | 2.76% | ||||||
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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. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has an expense reduction contractually guaranteed through 9/30/18 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. 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.
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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 × $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 Value 6/1/17 | Ending Value 11/30/17 | Expenses Paid During 6/1/17–11/30/171,2 | Ending Value 11/30/17 | Expenses Paid During 6/1/17–11/30/171,2 | Net Annualized Ratio2 | ||||||||||||
A | $1,000 | $1,022.40 | $13.18 | $1,012.03 | $13.11 | 2.60% | ||||||||||||
C | $1,000 | $1,018.20 | $16.95 | $1,008.27 | $16.87 | 3.35% | ||||||||||||
R | $1,000 | $1,020.60 | $14.44 | $1,010.78 | $14.37 | 2.85% | ||||||||||||
R6 | $1,000 | $1,024.20 | $11.47 | $1,013.74 | $11.41 | 2.26% | ||||||||||||
Advisor | $1,000 | $1,023.30 | $11.92 | $1,013.29 | $11.86 | 2.35% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 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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Consolidated Financial Highlights
Franklin K2 Alternative Strategies Fund
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014a | |||||||||||||||||
Class A | ||||||||||||||||||||
Per share operating performance | ||||||||||||||||||||
(for a share outstanding throughout the period) | ||||||||||||||||||||
Net asset value, beginning of period | $11.14 | $10.55 | $11.16 | $10.64 | $10.00 | |||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||
Net investment income (loss)c | 0.01 | 0.03 | (0.05 | ) | (0.11 | ) | (0.02 | ) | ||||||||||||
Net realized and unrealized gains (losses) | 0.24 | 0.61 | (0.38 | ) | 0.70 | 0.70 | ||||||||||||||
Total from investment operations | 0.25 | 0.64 | (0.43 | ) | 0.59 | 0.68 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | — | (0.05 | ) | (0.14 | ) | (0.07 | ) | (0.04 | ) | |||||||||||
Net realized gains | — | — | (0.04 | ) | — | — | ||||||||||||||
Total distributions | — | (0.05 | ) | (0.18 | ) | (0.07 | ) | (0.04 | ) | |||||||||||
Net asset value, end of period | $11.39 | $11.14 | $10.55 | $11.16 | $10.64 | |||||||||||||||
Total returnd | 2.24% | 6.07% | (3.89)% | 5.53% | 6.82% | |||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 2.86% | 3.07% | 3.22% | 3.40% | 3.33% | |||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.60% | 2.73% | 2.88% | g | 2.99% | g | 2.83% | |||||||||||||
Expenses incurred in connection with securities sold short | 0.40% | 0.53% | 0.67% | 0.65% | 0.56% | |||||||||||||||
Net investment income (loss) | 0.06% | 0.10% | (0.44)% | (0.95)% | (0.35)% | |||||||||||||||
Supplemental data | ||||||||||||||||||||
Net assets, end of period (000’s) | $118,839 | $119,385 | $177,412 | $148,991 | $96,889 | |||||||||||||||
Portfolio turnover rate | 104.19% | 209.45% | 229.90% | 295.81% | 181.06% |
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
bThe 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 Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(g).
gBenefit of expense reduction rounds to less than 0.01%.
10 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Alternative Strategies Fund (continued)
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014a | |||||||||||||||||
Class C | ||||||||||||||||||||
Per share operating performance | ||||||||||||||||||||
(for a share outstanding throughout the period) | ||||||||||||||||||||
Net asset value, beginning of period | $11.00 | $10.45 | $11.09 | $10.60 | $10.00 | |||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||
Net investment income (loss)c | (0.04 | ) | (0.04 | ) | (0.12 | ) | (0.17 | ) | (0.08 | ) | ||||||||||
Net realized and unrealized gains (losses) | 0.24 | 0.59 | (0.39 | ) | 0.69 | 0.72 | ||||||||||||||
Total from investment operations | 0.20 | 0.55 | (0.51 | ) | 0.52 | 0.64 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | — | — | (0.09 | ) | (0.03 | ) | (0.04 | ) | ||||||||||||
Net realized gains | — | — | (0.04 | ) | — | — | ||||||||||||||
Total distributions | — | — | (0.13 | ) | (0.03 | ) | (0.04 | ) | ||||||||||||
Net asset value, end of period | $11.20 | $11.00 | $10.45 | $11.09 | $10.60 | |||||||||||||||
Total returnd | 1.82% | 5.26% | (4.62)% | 4.87% | 6.42% | |||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.61% | 3.79% | 3.96% | 4.04% | 4.03% | |||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 3.35% | 3.45% | 3.62% | g | 3.63% | g | 3.53% | |||||||||||||
Expenses incurred in connection with securities sold short | 0.40% | 0.53% | 0.67% | 0.65% | 0.56% | |||||||||||||||
Net investment income (loss) | (0.69)% | (0.62)% | (1.18)% | (1.59)% | (1.05)% | |||||||||||||||
Supplemental data | ||||||||||||||||||||
Net assets, end of period (000’s) | $52,524 | $55,496 | $71,154 | $37,937 | $16,618 | |||||||||||||||
Portfolio turnover rate | 104.19% | 209.45% | 229.90% | 295.81% | 181.06% |
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
bThe 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 Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(g).
gBenefit of expense reduction rounds to less than 0.01%.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 11 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Alternative Strategies Fund (continued)
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014a | |||||||||||||||||
Class R | ||||||||||||||||||||
Per share operating performance | ||||||||||||||||||||
(for a share outstanding throughout the period) | ||||||||||||||||||||
Net asset value, beginning of period | $11.17 | $10.61 | $11.15 | $10.62 | $10.00 | |||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||
Net investment income (loss)c | (0.01 | ) | (0.25 | ) | (0.10 | ) | (0.16 | ) | (0.05 | ) | ||||||||||
Net realized and unrealized gains (losses) | 0.24 | 0.86 | (0.40 | ) | 0.73 | 0.71 | ||||||||||||||
Total from investment operations | 0.23 | 0.61 | (0.50 | ) | 0.57 | 0.66 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | — | (0.05 | ) | — | (0.04 | ) | (0.04 | ) | ||||||||||||
Net realized gains | — | — | (0.04 | ) | — | — | ||||||||||||||
Total distributions | — | (0.05 | ) | (0.04 | ) | (0.04 | ) | (0.04 | ) | |||||||||||
Net asset value, end of period | $11.40 | $11.17 | $10.61 | $11.15 | $10.62 | |||||||||||||||
Total returnd | 2.06% | 5.79% | (4.51)% | 5.39% | 6.62% | |||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.11% | 3.32% | 3.46% | 3.57% | 3.63% | |||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.85% | 2.98% | 3.12% | g | 3.16% | g | 3.13% | |||||||||||||
Expenses incurred in connection with securities sold short | 0.40% | 0.53% | 0.67% | 0.65% | 0.56% | |||||||||||||||
Net investment income (loss) | (0.19)% | (0.15)% | (0.68)% | (1.12)% | (0.65)% | |||||||||||||||
Supplemental data | ||||||||||||||||||||
Net assets, end of period (000’s) | $553 | $597 | $341 | $9,173 | $11,660 | |||||||||||||||
Portfolio turnover rate | 104.19% | 209.45% | 229.90% | 295.81% | 181.06% |
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
bThe 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 Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(g).
gBenefit of expense reduction rounds to less than 0.01%.
12 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Alternative Strategies Fund (continued)
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014a | |||||||||||||||||
Class R6 | ||||||||||||||||||||
Per share operating performance | ||||||||||||||||||||
(for a share outstanding throughout the period) | ||||||||||||||||||||
Net asset value, beginning of period | $11.17 | $10.59 | $11.18 | $10.66 | $10.00 | |||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||
Net investment income (loss)c | 0.02 | 0.02 | (0.01 | ) | (0.08 | ) | (0.01 | ) | ||||||||||||
Net realized and unrealized gains (losses) | 0.25 | 0.65 | (0.37 | ) | 0.70 | 0.71 | ||||||||||||||
Total from investment operations | 0.27 | 0.67 | (0.38 | ) | 0.62 | 0.70 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | — | (0.09 | ) | (0.17 | ) | (0.10 | ) | (0.04 | ) | |||||||||||
Net realized gains | — | — | (0.04 | ) | — | — | ||||||||||||||
Total distributions | — | (0.09 | ) | (0.21 | ) | (0.10 | ) | (0.04 | ) | |||||||||||
Net asset value, end of period | $11.44 | $11.17 | $10.59 | $11.18 | $10.66 | |||||||||||||||
Total returnd | 2.42% | 6.40% | (3.45)% | 5.80% | 7.02% | |||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 2.52% | 2.73% | 2.87% | 2.98% | 3.19% | |||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.26% | 2.39% | 2.53% | g | 2.60% | g | 2.69% | |||||||||||||
Expenses incurred in connection with securities sold short | 0.40% | 0.53% | 0.67% | 0.65% | 0.56% | |||||||||||||||
Net investment income (loss) | 0.40% | 0.44% | (0.09)% | (0.56)% | (0.21)% | |||||||||||||||
Supplemental data | ||||||||||||||||||||
Net assets, end of period (000’s) | $153,282 | $265,247 | $265,517 | $239,754 | $215,526 | |||||||||||||||
Portfolio turnover rate | 104.19% | 209.45% | 229.90% | 295.81% | 181.06% |
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
bThe 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 Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(g).
gBenefit of expense reduction rounds to less than 0.01%.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 13 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Alternative Strategies Fund (continued)
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014a | |||||||||||||||||
Advisor Class | ||||||||||||||||||||
Per share operating performance | ||||||||||||||||||||
(for a share outstanding throughout the period) | ||||||||||||||||||||
Net asset value, beginning of period | $11.16 | $10.58 | $11.18 | $10.65 | $10.00 | |||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||
Net investment income (loss)c | 0.02 | 0.04 | (0.02 | ) | (0.02 | ) | (0.02 | ) | ||||||||||||
Net realized and unrealized gains (losses) | 0.24 | 0.62 | (0.38 | ) | 0.64 | 0.71 | ||||||||||||||
Total from investment operations | 0.26 | 0.66 | (0.40 | ) | 0.62 | 0.69 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | — | (0.08 | ) | (0.16 | ) | (0.09 | ) | (0.04 | ) | |||||||||||
Net realized gains | — | — | (0.04 | ) | — | — | ||||||||||||||
Total distributions | — | (0.08 | ) | (0.20 | ) | (0.09 | ) | (0.04 | ) | |||||||||||
Net asset value, end of period | $11.42 | $11.16 | $10.58 | $11.18 | $10.65 | |||||||||||||||
Total returnd | 2.33% | 6.29% | (3.58)% | 5.88% | 6.92% | |||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 2.61% | 2.82% | 2.96% | 3.07% | 3.21% | |||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.35% | 2.48% | 2.62% | g | 2.66% | g | 2.71% | |||||||||||||
Expenses incurred in connection with securities sold short | 0.40% | 0.53% | 0.67% | 0.65% | 0.56% | |||||||||||||||
Net investment income (loss) | 0.31% | 0.35% | (0.18)% | (0.62)% | (0.23)% | |||||||||||||||
Supplemental data | ||||||||||||||||||||
Net assets, end of period (000’s) | $757,695 | $674,828 | $722,216 | $329,139 | $54,593 | |||||||||||||||
Portfolio turnover rate | 104.19% | 209.45% | 229.90% | 295.81% | 181.06% |
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
bThe 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 Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(g).
gBenefit of expense reduction rounds to less than 0.01%.
14 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Statement of Investments, November 30, 2017 (unaudited)
Franklin K2 Alternative Strategies Fund
Country | Shares/ Warrants/ Rights | Value | ||||||||||
Common Stocks and Other Equity Interests 39.8% | ||||||||||||
Aerospace & Defense 1.0% | ||||||||||||
Airbus SE | France | 18,500 | $ | 1,922,092 | ||||||||
aArconic Inc. | United States | 9,942 | 244,673 | |||||||||
The Boeing Co. | United States | 433 | 119,854 | |||||||||
Heico Corp. | United States | 14,343 | 1,296,034 | |||||||||
Lockheed Martin Corp. | United States | 5,220 | 1,665,806 | |||||||||
Rockwell Collins Inc. | United States | 35,641 | 4,715,661 | |||||||||
aSpirit Aerosystems Holdings Inc., A | United States | 6,799 | 572,816 | |||||||||
United Technologies Corp. | United States | 1,169 | 141,975 | |||||||||
|
| |||||||||||
10,678,911 | ||||||||||||
|
| |||||||||||
Air Freight & Logistics 0.3% | ||||||||||||
aFedEx Corp. | United States | 14,988 | 3,469,123 | |||||||||
|
| |||||||||||
Airlines 0.2% | ||||||||||||
Copa Holdings SA, A | Panama | 4,478 | 600,903 | |||||||||
Delta Air Lines Inc. | United States | 701 | 37,097 | |||||||||
aSouthwest Airlines Co. | United States | 15,232 | 924,125 | |||||||||
|
| |||||||||||
1,562,125 | ||||||||||||
|
| |||||||||||
Auto Components 0.2% | ||||||||||||
bAdient PLC | United States | 27,908 | 2,184,080 | |||||||||
Delphi Automotive PLC | United States | 476 | 49,823 | |||||||||
|
| |||||||||||
2,233,903 | ||||||||||||
|
| |||||||||||
Automobiles 0.5% | ||||||||||||
General Motors Co. | United States | 1,544 | 66,531 | |||||||||
aHarley-Davidson Inc. | United States | 27,227 | 1,366,795 | |||||||||
bTesla Inc. | United States | 4,097 | 1,265,359 | |||||||||
Thor Industries Inc. | United States | 16,713 | 2,566,281 | |||||||||
|
| |||||||||||
5,264,966 | ||||||||||||
|
| |||||||||||
Banks 0.4% | ||||||||||||
Barclays PLC, ADR | United Kingdom | 108,406 | 283,685 | |||||||||
BB&T Corp. | United States | 2,448 | 120,980 | |||||||||
aCitigroup Inc. | United States | 47,864 | 3,613,732 | |||||||||
JPMorgan Chase & Co. | United States | 2,656 | 277,605 | |||||||||
The PNC Financial Services Group Inc. | United States | 794 | 111,605 | |||||||||
US Bancorp | United States | 1,019 | 56,198 | |||||||||
Wells Fargo & Co. | United States | 1,772 | 100,065 | |||||||||
|
| |||||||||||
4,563,870 | ||||||||||||
|
| |||||||||||
Beverages 0.6% | ||||||||||||
aBrown-Forman Corp., B | United States | 4,854 | 290,269 | |||||||||
aConstellation Brands Inc., A | United States | 5,860 | 1,275,078 | |||||||||
Davide Campari-Milano SpA | Italy | 346,586 | 2,697,906 | |||||||||
bMonster Beverage Corp. | United States | 37,108 | 2,325,558 | |||||||||
PepsiCo Inc. | United States | 1,516 | 176,644 | |||||||||
|
| |||||||||||
6,765,455 | ||||||||||||
|
| |||||||||||
Biotechnology 2.3% | ||||||||||||
Abbvie Inc. | United States | 10,966 | 1,062,825 | |||||||||
bAdvanced Accelerator Applications SA, ADR | France | 8,355 | 679,679 | |||||||||
bAeglea BioTherapeutics Inc. | United States | 13,603 | 54,412 | |||||||||
bAgios Pharmaceuticals Inc. | United States | 2,812 | 173,079 |
franklintempleton.com | Semiannual Report | 15 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares/ Warrants/ Rights | Value | ||||||||||
Common Stocks and Other Equity Interests (continued) | ||||||||||||
Biotechnology (continued) | ||||||||||||
b Aileron Therapeutics Inc. | United States | 4,724 | $ | 53,003 | ||||||||
b Alexion Pharmaceuticals Inc. | United States | 7,834 | 860,252 | |||||||||
b Alkermes PLC | United States | 6,938 | 362,788 | |||||||||
b Amicus Therapeutics Inc. | United States | 78,369 | 1,090,896 | |||||||||
b Apellis Pharmaceuticals Inc. | United States | 11,304 | 156,221 | |||||||||
b Argenx SE, ADR | Netherlands | 2,302 | 73,710 | |||||||||
b Audentes Therapeutics Inc. | United States | 15,945 | 460,173 | |||||||||
b Avexis Inc. | United States | 3,290 | 311,925 | |||||||||
b BioCryst Pharmaceuticals Inc. | United States | 50,502 | 256,550 | |||||||||
a,b BioMarin Pharmaceutical Inc. | United States | 34,242 | 2,937,964 | |||||||||
b Bluebird Bio Inc. | United States | 10,753 | 1,858,118 | |||||||||
b Blueprint Medicines Corp. | United States | 3,259 | 244,621 | |||||||||
b Celgene Corp. | United States | 12,027 | 1,212,682 | |||||||||
b Clovis Oncology Inc. | United States | 10,771 | 677,173 | |||||||||
b Corvus Pharmaceuticals Inc. | United States | 11,363 | 127,379 | |||||||||
b DBV Technologies SA, ADR | France | 14,670 | 335,063 | |||||||||
b Eiger Biopharmaceuticals Inc. | United States | 7,007 | 81,632 | |||||||||
b Epizyme Inc. | United States | 31,940 | 383,280 | |||||||||
b Exact Sciences Corp. | United States | 6,802 | 404,583 | |||||||||
b Exelixis Inc. | United States | 44,143 | 1,195,392 | |||||||||
b Fibrogen Inc. | United States | 5,307 | 252,082 | |||||||||
b GlycoMimetics Inc. | United States | 25,260 | 356,419 | |||||||||
b Ignyta Inc. | United States | 7,395 | 121,278 | |||||||||
b Immunomedics Inc. | United States | 31,335 | 340,298 | |||||||||
a,b Incyte Corp. | United States | 10,117 | 1,001,482 | |||||||||
b InflaRx NV | Germany | 3,763 | 80,077 | |||||||||
b Juno Therapeutics Inc. | United States | 12,875 | 703,232 | |||||||||
b La Jolla Pharmaceutical Co. | United States | 13,614 | 454,027 | |||||||||
b Mirati Therapeutics Inc. | United States | 3,541 | 60,728 | |||||||||
b Natera Inc. | United States | 32,709 | 318,259 | |||||||||
b Neurocrine Biosciences Inc. | United States | 6,995 | 502,871 | |||||||||
b OvaScience Inc. | United States | 29,043 | 43,274 | |||||||||
b Ovid Therapeutics Inc. | United States | 8,897 | 109,522 | |||||||||
b ProQR Therapeutics NV | Netherlands | 39,735 | 131,126 | |||||||||
b Proteostasis Therapeutics Inc. | United States | 32,451 | 84,048 | |||||||||
b Prothena Corp. PLC | Ireland | 8,540 | 397,025 | |||||||||
b Regeneron Pharmaceuticals Inc. | United States | 1,429 | 517,098 | |||||||||
b Retrophin Inc. | United States | 12,231 | 275,687 | |||||||||
b Sage Therapeutics Inc. | United States | 12,662 | 1,170,095 | |||||||||
b Sarepta Therapeutics Inc. | United States | 20,450 | 1,138,451 | |||||||||
b Savara Inc. | United States | 9,414 | 121,911 | |||||||||
b Savara Inc., wts., 6/14/18 | United States | 68,920 | 34 | |||||||||
b Spark Therapeutics Inc. | United States | 5,349 | 391,707 | |||||||||
b Syndax Pharmaceuticals Inc. | United States | 14,152 | 123,972 | |||||||||
b Tesaro Inc. | United States | 5,890 | 498,294 | |||||||||
b TG Therapeutics Inc. | United States | 21,451 | 184,479 | |||||||||
b Vertex Pharmaceuticals Inc. | United States | 5,798 | 836,593 | |||||||||
|
| |||||||||||
25,267,469 | ||||||||||||
|
| |||||||||||
Building Products 0.3% | ||||||||||||
a AO Smith Corp. | United States | 6,238 | 395,614 |
16 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares/ Warrants/ Rights | Value | ||||||||||
Common Stocks and Other Equity Interests (continued) | ||||||||||||
Building Products (continued) | ||||||||||||
a,b Builders FirstSource Inc. | United States | 24,481 | $ | 499,412 | ||||||||
a Fortune Brands Home & Security Inc. | United States | 32,073 | 2,194,435 | |||||||||
|
| |||||||||||
3,089,461 | ||||||||||||
|
| |||||||||||
Capital Markets 0.2% | ||||||||||||
a Moody’s Corp. | United States | 10,929 | 1,659,241 | |||||||||
|
| |||||||||||
Chemicals 2.2% | ||||||||||||
b Axalta Coating Systems Ltd. | United States | 18,173 | 575,357 | |||||||||
CF Industries Holdings Inc. | United States | 7,651 | 286,683 | |||||||||
Croda International PLC | United Kingdom | 14,287 | 825,614 | |||||||||
a DowDuPont Inc. | United States | 50,448 | 3,630,238 | |||||||||
Huntsman Corp. | United States | 1,544 | 49,346 | |||||||||
a,b Ingevity Corp. | United States | 35,829 | 2,851,630 | |||||||||
a Monsanto Co. | United States | 49,881 | 5,902,917 | |||||||||
The Mosaic Co. | United States | 29,891 | 726,052 | |||||||||
a Olin Corp. | United States | 33,037 | 1,177,439 | |||||||||
Praxair Inc. | United States | 8,505 | 1,309,090 | |||||||||
a Sherwin-Williams Co. | United States | 15,925 | 6,360,764 | |||||||||
|
| |||||||||||
23,695,130 | ||||||||||||
|
| |||||||||||
Commercial Services & Supplies 0.2% | ||||||||||||
b Atento SA | Spain | 147,001 | 1,425,910 | |||||||||
Edenred | France | 39,306 | 1,124,686 | |||||||||
|
| |||||||||||
2,550,596 | ||||||||||||
|
| |||||||||||
Communications Equipment 0.2% | ||||||||||||
b Arista Networks Inc. | United States | 747 | 174,141 | |||||||||
b Ciena Corp. | United States | 13,763 | 299,345 | |||||||||
b Finisar Corp. | United States | 8,098 | 162,041 | |||||||||
b Infinera Corp. | United States | 50,823 | 367,958 | |||||||||
b NETGEAR Inc. | United States | 7,346 | 378,319 | |||||||||
a,b,c Nortel Networks Capital Corp., Contingent Distribution | Canada | 324,000 | 24,300 | |||||||||
a,b,c Nortel Networks Ltd., Contingent Distribution | Canada | 384,000 | 28,800 | |||||||||
b,c Nortel Networks Ltd., Contingent Distribution | Canada | 1,199,000 | 92,922 | |||||||||
b,c Nortel Networks Ltd., Contingent Distribution | Canada | 3,448,000 | 258,600 | |||||||||
b Oclaro Inc. | United States | 16,447 | 117,103 | |||||||||
b Quantenna Communications Inc. | United States | 37,056 | 453,195 | |||||||||
|
| |||||||||||
2,356,724 | ||||||||||||
|
| |||||||||||
Construction & Engineering 0.1% | ||||||||||||
Eiffage SA | France | 9,246 | 1,014,555 | |||||||||
|
| |||||||||||
Construction Materials 0.7% | ||||||||||||
Buzzi Unicem SpA | Italy | 20,710 | 550,929 | |||||||||
HeidelbergCement AG | Germany | 28,928 | 3,077,146 | |||||||||
a Martin Marietta Materials Inc. | United States | 15,605 | 3,251,926 | |||||||||
a,b Summit Materials Inc., A | United States | 34,876 | 1,072,786 | |||||||||
|
| |||||||||||
7,952,787 | ||||||||||||
|
| |||||||||||
Consumer Finance 0.2% | ||||||||||||
b,d iPayment Inc. | United States | 4,383,614 | 2,410,988 | |||||||||
|
|
franklintempleton.com | Semiannual Report | 17 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares/ Warrants/ Rights | Value | ||||||||||
Common Stocks and Other Equity Interests (continued) | ||||||||||||
Containers & Packaging 0.5% | ||||||||||||
Ball Corp. | United States | 141,007 | $ 5,627,589 | |||||||||
WestRock Co. | United States | 744 | 46,433 | |||||||||
|
| |||||||||||
5,674,022 | ||||||||||||
|
| |||||||||||
Diversified Financial Services 0.2% | ||||||||||||
b Berkshire Hathaway Inc., B | United States | 11,114 | 2,145,113 | |||||||||
|
| |||||||||||
Diversified Telecommunication Services 0.6% | ||||||||||||
AT&T Inc. | United States | 2,053 | 74,688 | |||||||||
e CenturyLink Inc. | United States | 4,864 | 70,966 | |||||||||
b China Unicom Hong Kong Ltd., ADR | China | 32,819 | 477,845 | |||||||||
a,b General Communication Inc., A | United States | 37,727 | 1,505,685 | |||||||||
b ORBCOMM Inc. | United States | 59,418 | 639,338 | |||||||||
b,e Straight Path Communications Inc., B | United States | 11,834 | 2,151,894 | |||||||||
b,e Telecom Italia SpA | Italy | 200,409 | 167,691 | |||||||||
Telecom Italia SpA, RSP | Italy | 1,523,333 | 1,031,680 | |||||||||
Verizon Communications Inc. | United States | 15,568 | 792,255 | |||||||||
|
| |||||||||||
6,912,042 | ||||||||||||
|
| |||||||||||
Electric Utilities 0.0%† | ||||||||||||
American Electric Power Co. Inc. | United States | 349 | 27,093 | |||||||||
Exelon Corp. | United States | 2,768 | 115,453 | |||||||||
NextEra Energy Inc. | United States | 815 | 128,803 | |||||||||
|
| |||||||||||
271,349 | ||||||||||||
|
| |||||||||||
Electronic Equipment, Instruments & Components 0.5% | ||||||||||||
b Flex Ltd. | Singapore | 108,787 | 1,965,781 | |||||||||
b Itron Inc. | United States | 17,882 | 1,152,495 | |||||||||
Sunny Optical Technology Group Co. Ltd. | China | 22,500 | 374,513 | |||||||||
b Zebra Technologies Corp., A | United States | 13,022 | 1,436,587 | |||||||||
|
| |||||||||||
4,929,376 | ||||||||||||
|
| |||||||||||
Energy Equipment & Services 0.2% | ||||||||||||
b Songa Offshore | Norway | 232,385 | 1,668,981 | |||||||||
|
| |||||||||||
Food & Staples Retailing 0.2% | ||||||||||||
Costco Wholesale Corp. | United States | 13,878 | 2,559,520 | |||||||||
|
| |||||||||||
Food Products 0.2% | ||||||||||||
Chocoladefabriken Lindt & Spruengli AG | Switzerland | 28 | 1,961,921 | |||||||||
Mondelez International Inc. | United States | 2,237 | 96,057 | |||||||||
|
| |||||||||||
2,057,978 | ||||||||||||
|
| |||||||||||
Health Care Equipment & Supplies 1.1% | ||||||||||||
Abbott Laboratories | United States | 9,235 | 520,577 | |||||||||
b Align Technology Inc. | United States | 1,567 | 408,799 | |||||||||
b Boston Scientific Corp. | United States | 31,684 | 832,655 | |||||||||
CR Bard Inc. | United States | 14,371 | 4,827,794 | |||||||||
b DexCom Inc. | United States | 13,836 | 808,437 | |||||||||
b Edwards Lifesciences Corp. | United States | 2,963 | 347,264 | |||||||||
b Haemonetics Corp. | United States | 7,695 | 444,771 | |||||||||
b IDEXX Laboratories Inc. | United States | 9,227 | 1,443,195 | |||||||||
b iRhythm Technologies Inc. | United States | 1,460 | 81,030 | |||||||||
Medtronic PLC | United States | 1,282 | 105,291 |
18 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares/ Warrants/ Rights | Value | ||||||||||
Common Stocks and Other Equity Interests (continued) | ||||||||||||
Health Care Equipment & Supplies (continued) | ||||||||||||
b Nevro Corp. | United States | 9,858 | $ | 737,576 | ||||||||
Smith & Nephew PLC | United Kingdom | 72,763 | 1,289,095 | |||||||||
Straumann Holding AG | Switzerland | 170 | 126,495 | |||||||||
|
| |||||||||||
11,972,979 | ||||||||||||
|
| |||||||||||
Health Care Providers & Services 1.1% | ||||||||||||
Aetna Inc. | United States | 13,909 | 2,506,123 | |||||||||
b Centene Corp. | United States | 11,196 | 1,143,000 | |||||||||
Cigna Corp. | United States | 8,731 | 1,848,615 | |||||||||
Humana Inc. | United States | 8,148 | 2,125,487 | |||||||||
b Teladoc Inc. | United States | 4,700 | 174,370 | |||||||||
a UnitedHealth Group Inc. | United States | 17,159 | 3,915,169 | |||||||||
|
| |||||||||||
11,712,764 | ||||||||||||
|
| |||||||||||
Health Care Technology 0.0%† | ||||||||||||
b Evolent Health Inc., A | United States | 7,989 | 102,659 | |||||||||
b Tabula Rasa HealthCare Inc. | United States | 4,783 | 165,922 | |||||||||
|
| |||||||||||
268,581 | ||||||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure 0.7% | ||||||||||||
a Carnival Corp. | United States | 34,173 | 2,243,116 | |||||||||
a Domino’s Pizza Inc. | United States | 8,635 | 1,607,492 | |||||||||
Hilton Worldwide Holdings Inc. | United States | 1,490 | 115,564 | |||||||||
a Marriott International Inc., A | United States | 3,693 | 469,011 | |||||||||
McDonald’s Corp. | United States | 813 | 139,812 | |||||||||
b Norwegian Cruise Line Holdings Ltd. | United States | 57,258 | 3,101,093 | |||||||||
b Seaworld Entertainment Inc. | United States | 18,350 | 215,612 | |||||||||
|
| |||||||||||
7,891,700 | ||||||||||||
|
| |||||||||||
Household Durables 0.6% | ||||||||||||
CalAtlantic Group Inc. | United States | 37,454 | 2,098,922 | |||||||||
a D.R. Horton Inc. | United States | 33,558 | 1,711,458 | |||||||||
b iRobot Corp. | United States | 11,091 | 761,065 | |||||||||
Whirlpool Corp. | United States | 9,058 | 1,526,907 | |||||||||
|
| |||||||||||
6,098,352 | ||||||||||||
|
| |||||||||||
Household Products 0.0%† | ||||||||||||
The Procter & Gamble Co. | United States | 1,486 | 133,725 | |||||||||
|
| |||||||||||
Independent Power & Renewable Electricity Producers 0.6% | ||||||||||||
a,b Calpine Corp. | United States | 447,179 | 6,716,629 | |||||||||
|
| |||||||||||
Industrial Conglomerates 0.1% | ||||||||||||
General Electric Co. | United States | 41,854 | 765,510 | |||||||||
Honeywell International Inc. | United States | 1,020 | 159,079 | |||||||||
Smiths Group PLC | United Kingdom | 17,888 | 358,761 | |||||||||
|
| |||||||||||
1,283,350 | ||||||||||||
|
| |||||||||||
Insurance 0.2% | ||||||||||||
b Chubb Ltd. | United States | 742 | 112,866 | |||||||||
MetLife Inc. | United States | 1,617 | 86,800 | |||||||||
RSA Insurance Group PLC | United Kingdom | 44,331 | 364,814 | |||||||||
b Trupanion Inc. | United States | 14,826 | 441,518 |
franklintempleton.com | Semiannual Report | 19 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares/ Warrants/ Rights | Value | ||||||||||
Common Stocks and Other Equity Interests (continued) | ||||||||||||
Insurance (continued) | ||||||||||||
W.R. Berkley Corp. | United States | 15,311 | $ | 1,058,296 | ||||||||
|
| |||||||||||
2,064,294 | ||||||||||||
|
| |||||||||||
Internet & Direct Marketing Retail 0.9% | ||||||||||||
b Amazon.com Inc. | United States | 1,907 | 2,244,062 | |||||||||
Expedia Inc. | United States | 11,074 | 1,356,565 | |||||||||
a,b Liberty Interactive Corp. QVC Group, A | United States | 112,963 | 2,756,297 | |||||||||
a,b The Priceline Group Inc. | United States | 956 | 1,663,163 | |||||||||
Rakuten Inc. | Japan | 30,391 | 309,864 | |||||||||
a,b Wayfair Inc., A | United States | 22,958 | 1,606,831 | |||||||||
|
| |||||||||||
9,936,782 | ||||||||||||
|
| |||||||||||
Internet Software & Services 2.0% | ||||||||||||
b Alibaba Group Holding Ltd., ADR | China | 12,322 | 2,181,980 | |||||||||
b Alphabet Inc., A | United States | 1,417 | 1,468,253 | |||||||||
b Alphabet Inc., C | United States | 1,510 | 1,542,329 | |||||||||
b Benefitfocus Inc. | United States | 3,800 | 102,980 | |||||||||
b Cloudera Inc. | United States | 46,587 | 737,472 | |||||||||
b CoStar Group Inc. | United States | 3,224 | 983,223 | |||||||||
b eBay Inc. | United States | 53,942 | 1,870,169 | |||||||||
a,b Facebook Inc., A | United States | 32,379 | 5,736,911 | |||||||||
b GoDaddy Inc., A | United States | 21,767 | 1,058,965 | |||||||||
b Just Eat PLC | United Kingdom | 97,537 | 1,053,288 | |||||||||
b Nutanix Inc., A | United States | 8,500 | 278,800 | |||||||||
Tencent Holdings Ltd. | China | 25,425 | 1,295,641 | |||||||||
a,b VeriSign Inc. | United States | 12,449 | 1,432,880 | |||||||||
b Yandex NV, A | Russia | 18,883 | 625,216 | |||||||||
b Zillow Group Inc., A | United States | 7,458 | 306,225 | |||||||||
a,b Zillow Group Inc., C | United States | 7,913 | 324,750 | |||||||||
|
| |||||||||||
20,999,082 | ||||||||||||
|
| |||||||||||
IT Services 3.6% | ||||||||||||
Accenture PLC, A | United States | 6,237 | 923,138 | |||||||||
a Alliance Data Systems Corp. | United States | 11,194 | 2,678,388 | |||||||||
a Automatic Data Processing Inc. | United States | 8,103 | 927,469 | |||||||||
a,b Blackhawk Network Holdings Inc., A | United States | 22,324 | 820,407 | |||||||||
a Cognizant Technology Solutions Corp., A | United States | 12,688 | 917,089 | |||||||||
a,b Conduent Inc. | United States | 59,251 | 904,170 | |||||||||
b EPAM Systems Inc. | United States | 13,488 | 1,368,223 | |||||||||
b ExlService Holdings Inc. | United States | 30,709 | 1,884,918 | |||||||||
a,b FleetCor Technologies Inc. | United States | 18,823 | 3,423,339 | |||||||||
b Gartner Inc. | United States | 8,306 | 1,004,112 | |||||||||
Genpact Ltd. | United States | 87,144 | 2,809,523 | |||||||||
a Global Payments Inc. | United States | 37,222 | 3,743,044 | |||||||||
MasterCard Inc., A | United States | 32,315 | 4,862,438 | |||||||||
b PayPal Holdings Inc. | United States | 63,677 | 4,822,260 | |||||||||
Total System Services Inc. | United States | 33,985 | 2,527,125 | |||||||||
Visa Inc., A | United States | 23,237 | 2,616,254 | |||||||||
a,b WEX Inc. | United States | 23,585 | 3,035,861 | |||||||||
|
| |||||||||||
39,267,758 | ||||||||||||
|
|
20 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares/ Warrants/ Rights | Value | ||||||||||
Common Stocks and Other Equity Interests (continued) | ||||||||||||
Life Sciences Tools & Services 0.7% | ||||||||||||
Gerresheimer AG | Germany | 47,443 | $ | 3,786,812 | ||||||||
b Illumina Inc. | United States | 7,449 | 1,713,493 | |||||||||
a,b Mettler-Toledo International Inc. | United States | 2,342 | 1,473,610 | |||||||||
|
| |||||||||||
6,973,915 | ||||||||||||
|
| |||||||||||
Machinery 1.0% | ||||||||||||
Cummins Inc. | United States | 244 | 40,846 | |||||||||
a Deere & Co. | United States | 6,766 | 1,013,953 | |||||||||
Dover Corp. | United States | 744 | 72,696 | |||||||||
Fanuc Corp. | Japan | 3,823 | 949,254 | |||||||||
Kennametal Inc. | United States | 3,693 | 172,168 | |||||||||
a,b Navistar International Corp. | United States | 51,416 | 2,093,145 | |||||||||
Tadano Ltd. | Japan | 7,521 | 114,006 | |||||||||
a Trinity Industries Inc. | United States | 116,562 | 4,155,435 | |||||||||
Wabtec Corp. | United States | 2,192 | 168,565 | |||||||||
a Xylem Inc. | United States | 35,475 | 2,459,836 | |||||||||
|
| |||||||||||
11,239,904 | ||||||||||||
|
| |||||||||||
Marine 0.2% | ||||||||||||
Irish Continental Group PLC | Ireland | 363,101 | 2,515,292 | |||||||||
|
| |||||||||||
Media 2.9% | ||||||||||||
CBS Corp., B | United States | 4,519 | 253,335 | |||||||||
b Charter Communications Inc., A | United States | 6,462 | 2,107,969 | |||||||||
e Comcast Corp., A | United States | 84,526 | 3,173,106 | |||||||||
Entertainment One Ltd. | Canada | 67,140 | 277,665 | |||||||||
a Grupo Televisa SAB, ADR | Mexico | 78,688 | 1,468,318 | |||||||||
ITV PLC | United Kingdom | 293,248 | 634,142 | |||||||||
b Liberty Global PLC, C | United Kingdom | 49,663 | 1,531,110 | |||||||||
b Liberty Global PLC LiLAC, A | United Kingdom | 30,581 | 636,085 | |||||||||
a,b Liberty Media Corp., A | United States | 11,243 | 254,317 | |||||||||
b Postmedia Network Canada Corp. | Canada | 666,338 | 1,032,962 | |||||||||
Regal Entertainment Group, A | United States | 33,109 | 669,133 | |||||||||
Scripps Networks Interactive Inc. | United States | 41,895 | 3,428,687 | |||||||||
Stroeer SE & Co. KGaA | Germany | 44,132 | 3,341,837 | |||||||||
a Time Warner Inc. | United States | 63,027 | 5,767,601 | |||||||||
Tribune Media Co., A | United States | 74,297 | 3,061,036 | |||||||||
Vivendi SA | France | 70,466 | 1,875,800 | |||||||||
The Walt Disney Co. | United States | 18,962 | 1,987,597 | |||||||||
|
| |||||||||||
31,500,700 | ||||||||||||
|
| |||||||||||
Metals & Mining 0.9% | ||||||||||||
First Quantum Minerals Ltd. | Zambia | 236,759 | 2,721,494 | |||||||||
b Nexa Resources SA | Luxembourg | 4,831 | 84,060 | |||||||||
Teck Resources Ltd., B | Canada | 242,514 | 5,572,972 | |||||||||
Voestalpine AG | Austria | 21,537 | 1,251,215 | |||||||||
|
| |||||||||||
9,629,741 | ||||||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels 0.8% | ||||||||||||
Altagas Ltd. | Canada | 18,615 | 420,592 | |||||||||
Anadarko Petroleum Corp. | United States | 8,839 | 425,067 | |||||||||
Canadian Natural Resources Ltd. | Canada | 4,487 | 152,196 | |||||||||
Chevron Corp. | United States | 594 | 70,680 |
franklintempleton.com | Semiannual Report | 21 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares/ Warrants/ Rights | Value | ||||||||||
Common Stocks and Other Equity Interests (continued) | ||||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||
EnCana Corp. | Canada | 18,324 | $ | 216,956 | ||||||||
Equities Corp. | United States | 406 | 24,198 | |||||||||
b,d Etablissements Maurel Et Prom, Contingent Value, rts., 12/31/17 | France | 131,406 | — | |||||||||
Exxon Mobil Corp. | United States | 2,016 | 167,913 | |||||||||
Golar LNG Ltd. | Bermuda | 1,386 | 34,248 | |||||||||
b Halcon Resources Corp., wts., 9/09/20 | United States | 2,159 | 1,230 | |||||||||
Hess Corp. | United States | 56,139 | 2,575,657 | |||||||||
b Jagged Peak Energy Inc. | United States | 35,009 | 531,437 | |||||||||
a,b Laredo Petroleum Inc. | United States | 91,180 | 974,714 | |||||||||
b Oasis Petroleum Inc. | United States | 16,979 | 173,695 | |||||||||
b Parsley Energy Inc., A | United States | 15,543 | 417,485 | |||||||||
b PDC Energy Inc. | United States | 9,743 | 447,691 | |||||||||
Premier Oil PLC, wts., 5/31/22 | United Kingdom | 73,513 | 26,346 | |||||||||
b Santos Ltd. | Australia | 175,087 | 672,775 | |||||||||
Valero Energy Corp. | United States | 322 | 27,570 | |||||||||
b Whiting Petroleum Corp. | United States | 28,483 | 710,651 | |||||||||
The Williams Cos. Inc. | United States | 1,860 | 54,033 | |||||||||
|
| |||||||||||
8,125,134 | ||||||||||||
|
| |||||||||||
Paper & Forest Products 0.4% | ||||||||||||
b Canfor Corp. | Canada | 132,262 | 2,723,870 | |||||||||
West Fraser Timber Co. Ltd. | Canada | 25,920 | 1,638,195 | |||||||||
|
| |||||||||||
4,362,065 | ||||||||||||
|
| |||||||||||
Personal Products 0.0%† | ||||||||||||
The Estee Lauder Cos. Inc., A | United States | 314 | 39,197 | |||||||||
|
| |||||||||||
Pharmaceuticals 1.1% | ||||||||||||
b Aerie Pharmaceuticals Inc. | United States | 29,062 | 1,867,233 | |||||||||
a,b Akorn Inc. | United States | 41,746 | 1,358,832 | |||||||||
Allergan PLC | United States | 11,059 | 1,922,386 | |||||||||
b Assembly Biosciences Inc. | United States | 35,863 | 1,789,922 | |||||||||
Bristol-Myers Squibb Co. | United States | 23,138 | 1,462,090 | |||||||||
b,f Cassiopea SpA, 144A | Italy | 4,160 | 144,411 | |||||||||
b Dermira Inc. | United States | 8,523 | 218,189 | |||||||||
Eli Lilly & Co. | United States | 12,400 | 1,049,535 | |||||||||
b GW Pharmaceuticals PLC, ADR | United Kingdom | 6,231 | 775,697 | |||||||||
Hikma Pharmaceuticals PLC | Jordan | 10,168 | 141,637 | |||||||||
b,d Impax Laboratories Inc., Escrow Account | United States | 105,000 | — | |||||||||
b Mylan NV | United States | 6,911 | 252,459 | |||||||||
b Nektar Therapeutics, A | United States | 4,140 | 223,519 | |||||||||
b Ocular Therapeutix Inc. | United States | 32,927 | 135,659 | |||||||||
Pfizer Inc. | United States | 5,545 | 201,062 | |||||||||
b Revance Therapeutics Inc. | United States | 6,281 | 174,298 | |||||||||
UCB SA | Belgium | 5,400 | 403,252 | |||||||||
|
| |||||||||||
12,120,181 | ||||||||||||
|
| |||||||||||
Professional Services 0.7% | ||||||||||||
Equifax Inc. | United States | 8,718 | 994,898 | |||||||||
Experian PLC | United Kingdom | 64,491 | 1,341,400 | |||||||||
a,b Huron Consulting Group Inc. | United States | 17,656 | 722,130 | |||||||||
b TransUnion | United States | 28,088 | 1,559,446 | |||||||||
b TriNet Group Inc. | United States | 36,246 | 1,622,371 |
22 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares/ Warrants/ Rights | Value | ||||||||||
Common Stocks and Other Equity Interests (continued) | ||||||||||||
Professional Services (continued) | ||||||||||||
a,b WageWorks Inc. | United States | 24,045 | $ | 1,542,487 | ||||||||
|
| |||||||||||
7,782,732 | ||||||||||||
|
| |||||||||||
Road & Rail 0.7% | ||||||||||||
CSX Corp. | United States | 44,791 | 2,497,099 | |||||||||
a Kansas City Southern | United States | 18,882 | 2,117,427 | |||||||||
a Old Dominion Freight Line Inc. | United States | 10,947 | 1,414,790 | |||||||||
a Union Pacific Corp. | United States | 8,596 | 1,087,394 | |||||||||
|
| |||||||||||
7,116,710 | ||||||||||||
|
| |||||||||||
Semiconductors & Semiconductor Equipment 3.1% | ||||||||||||
b Advanced Micro Devices Inc. | United States | 42,250 | 460,102 | |||||||||
Applied Materials Inc. | United States | 12,942 | 682,949 | |||||||||
b Axcelis Technologies Inc. | United States | 17,661 | 565,152 | |||||||||
b Broadcom Ltd. | Singapore | 3,108 | 863,838 | |||||||||
b Cavium Inc. | United States | 15,831 | 1,353,234 | |||||||||
Cypress Semiconductor Corp. | United States | 2,482 | 39,737 | |||||||||
b Integrated Device Technology Inc. | United States | 38,940 | 1,171,705 | |||||||||
b IXYS Corp. | United States | 41,575 | 1,010,272 | |||||||||
KLA-Tencor Corp. | United States | 7,959 | 813,728 | |||||||||
Marvell Technology Group Ltd. | Bermuda | 96,310 | 2,151,565 | |||||||||
a Microchip Technology Inc. | United States | 11,091 | 964,806 | |||||||||
a,b Micron Technology Inc. | United States | 49,830 | 2,112,294 | |||||||||
b Microsemi Corp. | United States | 16,778 | 886,717 | |||||||||
a NVIDIA Corp. | United States | 4,102 | 823,313 | |||||||||
a,b,e NXP Semiconductors NV | Netherlands | 95,565 | 10,836,115 | |||||||||
e QUALCOMM Inc. | United States | 87,035 | 5,773,902 | |||||||||
Teradyne Inc. | United States | 24,240 | 980,993 | |||||||||
Texas Instruments Inc. | United States | 3,482 | 338,764 | |||||||||
b Tower Semiconductor Ltd. | Israel | 43,795 | 1,542,022 | |||||||||
|
| |||||||||||
33,371,208 | ||||||||||||
|
| |||||||||||
Software 1.7% | ||||||||||||
Activision Blizzard Inc. | United States | 2,671 | 166,670 | |||||||||
a,b Adobe Systems Inc. | United States | 4,777 | 866,882 | |||||||||
b Atlassian Corp. PLC | Australia | 19,820 | 925,396 | |||||||||
Blackbaud Inc. | United States | 6,317 | 621,909 | |||||||||
a,b Dell Technologies Inc., V | United States | 28,388 | 2,221,077 | |||||||||
b Globant SA | Argentina | 7,370 | 294,800 | |||||||||
a,b Guidewire Software Inc. | United States | 12,239 | 910,459 | |||||||||
b HubSpot Inc. | United States | 12,677 | 1,026,203 | |||||||||
a Intuit Inc. | United States | 4,026 | 632,968 | |||||||||
a,e Microsoft Corp. | United States | 74,049 | 6,232,705 | |||||||||
b Nexon Co. Ltd. | Japan | 18,030 | 515,852 | |||||||||
a Nintendo Co. Ltd., ADR | Japan | 12,140 | 1,306,847 | |||||||||
Oracle Corp. | United States | 3,127 | 153,411 | |||||||||
b Proofpoint Inc. | United States | 2,860 | 257,543 | |||||||||
a,b Salesforce.com Inc. | United States | 13,311 | 1,388,603 | |||||||||
a,b ServiceNow Inc. | United States | 6,817 | 838,491 | |||||||||
b Workday Inc., A | United States | 3,642 | 375,126 | |||||||||
|
| |||||||||||
18,734,942 | ||||||||||||
|
|
franklintempleton.com | Semiannual Report | 23 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares/ Warrants/ Rights | Value | ||||||||||
Common Stocks and Other Equity Interests (continued) | ||||||||||||
Specialty Retail 0.8% | ||||||||||||
The Home Depot Inc. | United States | 32,209 | $ | 5,791,822 | ||||||||
a,b MarineMax Inc. | United States | 74,921 | 1,599,563 | |||||||||
b Sports Direct International PLC | United Kingdom | 155,760 | 797,306 | |||||||||
|
| |||||||||||
8,188,691 | ||||||||||||
|
| |||||||||||
Technology Hardware, Storage & Peripherals 0.4% | ||||||||||||
e Apple Inc. | United States | 5,345 | 918,538 | |||||||||
Netapp Inc. | United States | 37,843 | 2,138,508 | |||||||||
Samsung Electronics Co. Ltd. | South Korea | 424 | 989,626 | |||||||||
|
| |||||||||||
4,046,672 | ||||||||||||
|
| |||||||||||
Textiles, Apparel & Luxury Goods 0.6% | ||||||||||||
a Hanesbrands Inc. | United States | 13,194 | 275,623 | |||||||||
b Michael Kors Holdings Ltd. | United States | 39,532 | 2,310,250 | |||||||||
Moncler SpA | Italy | 14,204 | 389,352 | |||||||||
Nike Inc., B | United States | 26,874 | 1,623,727 | |||||||||
The Swatch Group AG | Switzerland | 972 | 354,416 | |||||||||
Tapestry Inc. | United States | 36,793 | 1,533,900 | |||||||||
|
| |||||||||||
6,487,268 | ||||||||||||
|
| |||||||||||
Tobacco 0.1% | ||||||||||||
Altria Group Inc. | United States | 2,034 | 137,966 | |||||||||
a Philip Morris International Inc. | United States | 10,686 | 1,097,987 | |||||||||
|
| |||||||||||
1,235,953 | ||||||||||||
|
| |||||||||||
Trading Companies & Distributors 0.5% | ||||||||||||
Brenntag AG | Germany | 78,092 | 4,861,230 | |||||||||
Ferguson PLC | Switzerland | 5,739 | 413,682 | |||||||||
|
| |||||||||||
5,274,912 | ||||||||||||
|
| |||||||||||
Transportation Infrastructure 0.3% | ||||||||||||
Abertis Infraestructuras SA | Spain | 144,081 | 3,217,196 | |||||||||
|
| |||||||||||
Wireless Telecommunication Services 0.0%† | ||||||||||||
b T-Mobile U.S. Inc. | United States | 5,804 | 354,450 | |||||||||
|
| |||||||||||
Total Common Stocks and Other Equity Interests | 431,416,544 | |||||||||||
|
| |||||||||||
Exchange Traded Funds 0.0%† | ||||||||||||
Financial Select Sector SPDR Fund | United States | 10,235 | 281,667 | |||||||||
PowerShares QQQ Series 1 Trust | United States | 2,440 | 378,566 | |||||||||
|
| |||||||||||
Total Exchange Traded Funds (Cost $621,981) | 660,233 | |||||||||||
|
| |||||||||||
Convertible Preferred Stocks 0.3% | ||||||||||||
Capital Markets 0.1% | ||||||||||||
Virtus Investment Partners Inc., 7.25%, cvt. pfd. | United States | 5,250 | 553,403 | |||||||||
|
| |||||||||||
Internet Software & Services 0.1% | ||||||||||||
a,f Mandatory Exchangeable Trust, 5.75%, cvt. pfd., 144A | China | 7,532 | 1,505,458 | |||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels 0.1% | ||||||||||||
Chesapeake Energy Corp., 5.75%, cvt. pfd. | United States | 139 | 81,315 | |||||||||
WPX Energy Inc., 6.25%, cvt. pfd. | United States | 12,008 | 682,295 | |||||||||
|
| |||||||||||
763,610 | ||||||||||||
|
| |||||||||||
Total Convertible Preferred Stocks (Cost $1,994,815) | 2,822,471 | |||||||||||
|
|
24 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued) | ||||||||||||
Country | Shares | Value | ||||||||||
Preferred Stocks 0.4% | ||||||||||||
Consumer Finance 0.3% | ||||||||||||
b,d iPayment Inc., pfd. | United States | 28,073 | $ | 2,807,300 | ||||||||
|
| |||||||||||
Diversified Financial Services 0.0%† | ||||||||||||
b,d Aergen Structured Investments Cayman Blocker LLC, pfd. | Ireland | 4,480 | 454,510 | |||||||||
|
| |||||||||||
Diversified Telecommunication Services 0.1% | ||||||||||||
Iridium Communications Inc., 7.00%, pfd. | United States | 3,596 | 492,202 | |||||||||
|
| |||||||||||
Food Products 0.0%† | ||||||||||||
Bunge Ltd., 4.875%, pfd. | United States | 2,376 | 247,033 | |||||||||
|
| |||||||||||
Total Preferred Stocks (Cost $3,888,318) | 4,001,045 | |||||||||||
|
| |||||||||||
Principal Amount* | ||||||||||||
Convertible Bonds 9.4% | ||||||||||||
Aerospace & Defense 0.1% | ||||||||||||
f Aerojet Rocketdyne Holdings Inc., senior note, 144A, 2.25%, 12/15/23 | United States | 468,000 | 648,472 | |||||||||
|
| |||||||||||
Air Freight & Logistics 0.1% | ||||||||||||
f Air Transport Services Group Inc., senior note, 144A, 1.125%, 10/15/24 | United States | 429,000 | 447,233 | |||||||||
Atlas Air Worldwide Holdings Inc., senior note, 1.875%, 6/01/24 | United States | 525,000 | 617,531 | |||||||||
Echo Global Logistics Inc., senior note, 2.50%, 5/01/20 | United States | 45,000 | 45,759 | |||||||||
|
| |||||||||||
1,110,523 | ||||||||||||
|
| |||||||||||
Auto Components 0.1% | ||||||||||||
Horizon Global Corp., senior note, 2.75%, 7/01/22 | United States | 569,000 | 543,751 | |||||||||
|
| |||||||||||
Automobiles 0.4% | ||||||||||||
Tesla Inc., senior note, | ||||||||||||
0.25%, 3/01/19 | United States | 626,000 | 663,169 | |||||||||
a 2.375%, 3/15/22 | United States | 2,945,000 | 3,423,562 | |||||||||
|
| |||||||||||
4,086,731 | ||||||||||||
|
| |||||||||||
Biotechnology 0.7% | ||||||||||||
a,f Amicus Therapeutics Inc., senior note, 144A, 3.00%, 12/15/23 | United States | 963,000 | 2,320,228 | |||||||||
BioMarin Pharmaceutical Inc., senior sub. note, | ||||||||||||
1.50%, 10/15/20 | United States | 160,000 | 185,600 | |||||||||
0.599%, 8/01/24 | United States | 996,000 | 972,345 | |||||||||
f Flexion Therapeutics Inc., senior note, 144A, 3.375%, 5/01/24 | United States | 289,000 | 360,346 | |||||||||
a Intercept Pharmaceuticals Inc., senior note, 3.25%, 7/01/23 | United States | 271,000 | 217,816 | |||||||||
f Neurocrine Biosciences Inc., senior note, 144A, 2.25%, 5/15/24 | United States | 871,000 | 1,070,241 | |||||||||
a PDL BioPharma Inc., senior note, 2.75%, 12/01/21 | United States | 525,000 | 525,656 | |||||||||
a Radius Health Inc., senior note, 3.00%, 9/01/24 | United States | 815,000 | 716,691 | |||||||||
f Sarepta Therapeutics Inc., senior note, 144A, 1.50%, 11/15/24 | United States | 571,000 | 609,899 | |||||||||
|
| |||||||||||
6,978,822 | ||||||||||||
|
| |||||||||||
Capital Markets 0.4% | ||||||||||||
a Ares Capital Corp., senior note, | ||||||||||||
4.75%, 1/15/18 | United States | 1,613,000 | 1,625,097 | |||||||||
f 144A, 3.75%, 2/01/22 | United States | 920,000 | 942,425 | |||||||||
a Cowen Inc., senior note, 3.00%, 3/15/19 | United States | 699,000 | 711,233 | |||||||||
Global Brokerage Inc., senior note, 2.25%, 6/15/18 | United States | 373,000 | 154,795 | |||||||||
f Hercules Capital Inc., senior note, 144A, 4.375%, 2/01/22 | United States | 358,000 | 366,950 | |||||||||
TCP Capital Corp., senior note, 4.625%, 3/01/22 | United States | 502,000 | 520,825 | |||||||||
|
| |||||||||||
4,321,325 | ||||||||||||
|
|
franklintempleton.com | Semiannual Report | 25 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued) | ||||||||||||
Country | Principal Amount* | Value | ||||||||||
Convertible Bonds (continued) | ||||||||||||
Chemicals 0.1% | ||||||||||||
g Kansai Paint Co. Ltd., senior note, Reg S, zero cpn., 6/17/22 | Japan | 30,000,000 | JPY | $ | 296,215 | |||||||
g Mitsubishi Chemical Holdings Corp., senior note, Reg S, | ||||||||||||
zero cpn., 3/30/22 | Japan | 30,000,000 | JPY | 298,547 | ||||||||
zero cpn., 3/29/24 | Japan | 30,000,000 | JPY | 305,545 | ||||||||
|
| |||||||||||
900,307 | ||||||||||||
|
| |||||||||||
Commercial Services & Supplies 0.1% | ||||||||||||
a RWT Holdings Inc., senior note, 5.625%, 11/15/19 | United States | 824,000 | 841,510 | |||||||||
|
| |||||||||||
Communications Equipment 0.1% | ||||||||||||
Calamp Corp., senior note, 1.625%, 5/15/20 | United States | 631,000 | 675,959 | |||||||||
f Finisar Corp., senior bond, 144A, 0.50%, 12/15/36 | United States | 255,000 | 235,875 | |||||||||
a InterDigital Inc., senior note, 1.50%, 3/01/20 | United States | 263,000 | 313,627 | |||||||||
f Viavi Solutions Inc., senior note, 144A, 1.00%, 3/01/24 | United States | 265,000 | 268,313 | |||||||||
|
| |||||||||||
1,493,774 | ||||||||||||
|
| |||||||||||
Construction & Engineering 0.0%† | ||||||||||||
Dycom Industries Inc., senior note, 0.75%, 9/15/21 | United States | 27,000 | 34,931 | |||||||||
g Mirait Holdings Corp., senior note, Reg S, zero cpn., 12/30/21 | Japan | 30,000,000 | JPY | 318,206 | ||||||||
Tutor Perini Corp., senior note, 2.875%, 6/15/21 | United States | 50,000 | 54,938 | |||||||||
|
| |||||||||||
408,075 | ||||||||||||
|
| |||||||||||
Construction Materials 0.1% | ||||||||||||
a Cemex SAB de CV, sub. note, 3.72%, 3/15/20 | Mexico | 773,000 | 805,853 | |||||||||
|
| |||||||||||
Consumer Finance 0.3% | ||||||||||||
a,f Encore Capital Group Inc., senior note, 144A, 3.25%, 3/15/22 | United States | 1,075,000 | 1,272,531 | |||||||||
a,f Ezcorp Inc., senior note, 144A, 2.875%, 7/01/24 | United States | 794,000 | 1,093,735 | |||||||||
PRA Group Inc., senior note, | ||||||||||||
a 3.00%, 8/01/20 | United States | 286,000 | 275,811 | |||||||||
f 144A, 3.50%, 6/01/23 | United States | 671,000 | 684,840 | |||||||||
|
| |||||||||||
3,326,917 | ||||||||||||
|
| |||||||||||
Diversified Consumer Services 0.1% | ||||||||||||
a Carriage Services Inc., sub. note, 2.75%, 3/15/21 | United States | 504,000 | 631,890 | |||||||||
|
| |||||||||||
Diversified Financial Services 0.2% | ||||||||||||
f Element Fleet Management Corp., sub. note, 144A, | ||||||||||||
5.125%, 6/30/19 | Canada | 1,110,000 | CAD | 881,874 | ||||||||
4.25%, 6/30/20 | Canada | 967,000 | CAD | 741,955 | ||||||||
|
| |||||||||||
1,623,829 | ||||||||||||
|
| |||||||||||
Electric Utilities 0.1% | ||||||||||||
g Kyushu Electric Power Co. Inc., senior note, Reg S, zero cpn., | ||||||||||||
3/31/20 | Japan | 40,000,000 | JPY | 373,184 | ||||||||
3/31/22 | Japan | 40,000,000 | JPY | 376,294 | ||||||||
|
| |||||||||||
749,478 | ||||||||||||
|
| |||||||||||
Electronic Equipment, Instruments & Components 0.7% | ||||||||||||
f II-VI Inc., senior note, 144A, 0.25%, 9/01/22 | United States | 725,000 | 872,265 | |||||||||
a Knowles Corp., senior note, 3.25%, 11/01/21 | United States | 823,000 | 946,450 | |||||||||
f OSI Systems Inc., senior note, 144A, 1.25%, 9/01/22 | United States | 223,000 | 235,683 |
26 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued) | ||||||||||||||
Country | Principal Amount* | Value | ||||||||||||
Convertible Bonds (continued) | ||||||||||||||
Electronic Equipment, Instruments & Components (continued) | ||||||||||||||
aVishay Intertechnology Inc., senior bond, | ||||||||||||||
2.25%, 11/15/40 | United States | 2,892,000 | $ | 4,948,935 | ||||||||||
2.25%, 5/15/41 | United States | 428,000 | 550,783 | |||||||||||
|
| |||||||||||||
7,554,116 | ||||||||||||||
|
| |||||||||||||
Energy Equipment & Services 0.0%† | ||||||||||||||
f Nabors Industries Inc., senior note, 144A, 0.75%, 1/15/24 | United States | 135,000 | 100,575 | |||||||||||
|
| |||||||||||||
Equity Real Estate Investment Trusts (REITs) 0.9% | ||||||||||||||
a,f American Residential Properties OP LP, senior note, 144A, 3.25%, 11/15/18 | United States | 1,009,000 | 1,245,484 | |||||||||||
Colony Capital Inc., senior note, 3.875%, 1/15/21 | United States | 497,000 | 499,485 | |||||||||||
f Empire State Realty OP LP, senior note, 144A, 2.625%, 8/15/19 | United States | 1,709,000 | 1,882,036 | |||||||||||
aForest City Enterprises Inc., senior note, 3.625%, 8/15/20 | United States | 1,453,000 | 1,627,360 | |||||||||||
Forest City Realty Trust Inc., senior note, 4.25%, 8/15/18 | United States | 693,000 | 808,211 | |||||||||||
f iStar Inc., senior note, 144A, 3.125%, 9/15/22 | United States | 795,000 | 799,472 | |||||||||||
aStarwood Waypoint Homes, senior note, 3.00%, 7/01/19 | United States | 1,188,000 | 1,532,520 | |||||||||||
f 144A, 3.50%, 1/15/22 | United States | 857,000 | 986,086 | |||||||||||
|
| |||||||||||||
9,380,654 | ||||||||||||||
|
| |||||||||||||
Health Care Equipment & Supplies 0.5% | ||||||||||||||
a,f DexCom Inc., senior note, 144A, 0.75%, 5/15/22 | United States | 264,000 | 251,460 | |||||||||||
Insulet Corp., senior note, 1.25%, 9/15/21 | United States | 138,000 | 184,920 | |||||||||||
f 144A, 1.375%, 11/15/24 | United States | 446,000 | 457,986 | |||||||||||
aInvacare Corp., senior note, 5.00%, 2/15/21 | United States | 765,000 | 965,812 | |||||||||||
gNipro Corp., senior note, Reg S, zero cpn., 1/29/21 | Japan | 40,000,000 | JPY | 426,496 | ||||||||||
Quidel Corp., senior note, 3.25%, 12/15/20 | United States | 1,150,000 | 1,593,469 | |||||||||||
aWright Medical Group Inc., senior note, 2.00%, 2/15/20 | United States | 829,000 | 875,631 | |||||||||||
Wright Medical Group NV, senior note, 2.25%, 11/15/21 | United States | 814,000 | 1,053,113 | |||||||||||
|
| |||||||||||||
5,808,887 | ||||||||||||||
|
| |||||||||||||
Health Care Providers & Services 0.0%† | ||||||||||||||
f Teladoc Inc., senior note, 144A, 3.00%, 12/15/22 | United States | 358,000 | 411,700 | |||||||||||
|
| |||||||||||||
Health Care Technology 0.1% | ||||||||||||||
aAllscripts Healthcare Solutions Inc., senior note, 1.25%, 7/01/20 | United States | 498,000 | 528,502 | |||||||||||
f Evolent Health Inc., senior note, 144A, 2.00%, 12/01/21 | United States | 50,000 | 47,969 | |||||||||||
|
| |||||||||||||
576,471 | ||||||||||||||
|
| |||||||||||||
Hotels, Restaurants & Leisure 0.1% | ||||||||||||||
fMarriott Vacations Worldwide Corp., senior note, 144A, 1.50%, 9/15/22 | United States | 685,000 | 757,353 | |||||||||||
|
| |||||||||||||
Independent Power & Renewable Electricity Producers 0.0%† | ||||||||||||||
Pattern Energy Group Inc., senior note, 4.00%, 7/15/20 | United States | 313,000 | 321,412 | |||||||||||
|
| |||||||||||||
Insurance 0.0%† | ||||||||||||||
aAmTrust Financial Services Inc., senior bond, 2.75%, 12/15/44 | United States | 379,000 | 274,538 | |||||||||||
f HCI Group Inc., senior bond, 144A, 4.25%, 3/01/37 | United States | 161,000 | 134,938 | |||||||||||
|
| |||||||||||||
409,476 | ||||||||||||||
|
| |||||||||||||
Internet & Direct Marketing Retail 0.1% | ||||||||||||||
The Priceline Group Inc., senior note, 0.35%, 6/15/20 | United States | 551,000 | 761,757 |
franklintempleton.com | Semiannual Report | 27 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued) | ||||||||||||
Country | Principal Amount* | Value | ||||||||||
Convertible Bonds (continued) | ||||||||||||
Internet & Direct Marketing Retail (continued) | ||||||||||||
f Wayfair Inc., senior note, 144A, 0.375%, 9/01/22 | United States | 548,000 | $ | 532,930 | ||||||||
|
| |||||||||||
1,294,687 | ||||||||||||
|
| |||||||||||
Internet Software & Services 0.9% | ||||||||||||
Altaba Inc., senior note, zero cpn., 12/01/18 | United States | 3,604,000 | 4,890,177 | |||||||||
f Carbonite Inc., senior note, 144A, 2.50%, 4/01/22 | United States | 612,000 | 731,723 | |||||||||
f IAC Financeco Inc., senior note, 144A, 0.875%, 10/01/22 | United States | 936,000 | 1,004,445 | |||||||||
f Quotient Technology Inc., senior note, 144A, 1.75%, 12/01/22 | United States | 699,000 | 689,825 | |||||||||
a Twitter Inc., senior note, 1.00%, 9/15/21 | United States | 1,675,000 | 1,552,516 | |||||||||
f Weibo Corp., senior note, 144A, 1.25%, 11/15/22 | China | 448,000 | 500,640 | |||||||||
f Zillow Group Inc., senior note, 144A, 2.00%, 12/01/21 | United States | 429,000 | 468,951 | |||||||||
|
| |||||||||||
9,838,277 | ||||||||||||
|
| |||||||||||
IT Services 0.0%† | ||||||||||||
a,f Square Inc., senior note, 144A, 0.375%, 3/01/22 | United States | 143,000 | 257,668 | |||||||||
|
| |||||||||||
Life Sciences Tools & Services 0.1% | ||||||||||||
Fluidigm Corp., senior bond, 2.75%, 2/01/34 | United States | 759,000 | 611,469 | |||||||||
|
| |||||||||||
Machinery 0.2% | ||||||||||||
f Chart Industries Inc., senior sub. note, 144A, 1.00%, 11/15/24 | United States | 288,000 | 306,900 | |||||||||
f The Greenbrier Cos. Inc., senior note, 144A, 2.875%, 2/01/24 | United States | 544,000 | 630,700 | |||||||||
Navistar International Corp., senior sub. note, | ||||||||||||
4.50%, 10/15/18 | United States | 214,000 | 222,560 | |||||||||
a 4.75%, 4/15/19 | United States | 552,000 | 598,575 | |||||||||
Trinity Industries Inc., sub. bond, 3.875%, 6/01/36 | United States | 525,000 | 789,797 | |||||||||
|
| |||||||||||
2,548,532 | ||||||||||||
|
| |||||||||||
Media 0.5% | ||||||||||||
a,f DISH Network Corp., senior note, 144A, 2.375%, 3/15/24 | United States | 489,000 | 478,303 | |||||||||
Liberty Interactive LLC, senior bond, | ||||||||||||
4.00%, 11/15/29 | United States | 1,122,000 | 802,230 | |||||||||
3.75%, 2/15/30 | United States | 263,000 | 185,415 | |||||||||
Liberty Media Corp., senior bond, 2.25%, 9/30/46 | United States | 50,000 | 52,344 | |||||||||
f Liberty Media Corp.-Liberty Formula One, senior note, 144A, 1.00%, 1/30/23 | United States | 1,735,000 | 2,016,937 | |||||||||
f World Wrestling Entertainment Inc., senior note, 144A, 3.375%, 12/15/23 | United States | 1,707,000 | 2,210,565 | |||||||||
|
| |||||||||||
5,745,794 | ||||||||||||
|
| |||||||||||
Metals & Mining 0.1% | ||||||||||||
a AK Steel Corp., senior note, 5.00%, 11/15/19 | United States | 780,000 | 961,837 | |||||||||
RTI International Metals Inc., senior note, 1.625%, 10/15/19 | United States | 276,000 | 304,808 | |||||||||
|
| |||||||||||
1,266,645 | ||||||||||||
|
| |||||||||||
Mortgage Real Estate Investment Trusts (REITs) 0.6% | ||||||||||||
Apollo Commercial Real Estate Finance Inc., senior note, | ||||||||||||
5.50%, 3/15/19 | United States | 539,000 | 584,481 | |||||||||
4.75%, 8/23/22 | United States | 1,548,000 | 1,566,382 | |||||||||
Arbor Realty Trust Inc., senior note, 5.375%, 11/15/20 | United States | 538,000 | 540,690 | |||||||||
Blackstone Mortgage Trust Inc., senior note, 4.375%, 5/05/22 | United States | 580,000 | 591,600 | |||||||||
Hannon Armstrong Sustainable Infrastructure Capital Inc., senior note, 4.125%, 9/01/22 | United States | 107,000 | 109,408 | |||||||||
a Redwood Trust Inc., senior note, 4.75%, 8/15/23 | United States | 1,791,000 | 1,737,270 | |||||||||
Starwood Property Trust Inc., senior note, 4.375%, 4/01/23 | United States | 588,000 | 601,230 |
28 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued) | ||||||||||||
Country | Principal Amount* | Value | ||||||||||
Convertible Bonds (continued) | ||||||||||||
Mortgage Real Estate Investment Trusts (REITs) (continued) | ||||||||||||
Two Harbors Investment Corp., senior note, 6.25%, 1/15/22 | United States | 772,000 | $ | 805,775 | ||||||||
|
| |||||||||||
6,536,836 | ||||||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels 0.4% | ||||||||||||
f Aegean Marine Petroleum Network Inc., senior note, 144A, 4.25%, 12/15/21 | Greece | 824,000 | 557,230 | |||||||||
f Chesapeake Energy Corp., senior note, 144A, 5.50%, 9/15/26 | United States | 95,000 | 87,578 | |||||||||
DHT Holdings Inc., senior note, 4.50%, 10/01/19 | United States | 625,000 | 616,016 | |||||||||
aGreen Plains Inc., senior note, | ||||||||||||
3.25%, 10/01/18 | United States | 1,251,000 | 1,369,063 | |||||||||
4.125%, 9/01/22 | United States | 811,000 | 764,874 | |||||||||
gPremier Oil Finance Jersey Ltd., senior note, Reg S, 2.50%, 5/31/22 | United Kingdom | 965,000 | 989,125 | |||||||||
Ship Finance International Ltd., senior note, 3.25%, 2/01/18 | Norway | 125,000 | 143,360 | |||||||||
SM Energy Co., senior note, 1.50%, 7/01/21 | United States | 30,000 | 28,350 | |||||||||
Whiting Petroleum Corp., senior note, 1.25%, 4/01/20 | United States | 45,000 | 40,725 | |||||||||
|
| |||||||||||
4,596,321 | ||||||||||||
|
| |||||||||||
Personal Products 0.0%† | ||||||||||||
Herbalife Ltd., senior note, 2.00%, 8/15/19 | United States | 291,000 | 296,093 | |||||||||
|
| |||||||||||
Pharmaceuticals 0.3% | ||||||||||||
f Dermira Inc., senior note, 144A, 3.00%, 5/15/22 | United States | 575,000 | 608,781 | |||||||||
Impax Laboratories Inc., senior note, 2.00%, 6/15/22 | United States | 105,000 | 103,228 | |||||||||
Innoviva Inc., | ||||||||||||
f senior note, 144A, 2.50%, 8/15/25 | United States | 269,000 | 272,531 | |||||||||
a sub. note, 2.125%, 1/15/23 | United States | 1,540,000 | 1,473,588 | |||||||||
a The Medicines Co., senior note, 2.75%, 7/15/23 | United States | 262,000 | 246,280 | |||||||||
f Pacira Pharmaceuticals Inc., senior note, 144A, 2.375%, 4/01/22 | United States | 264,000 | 277,365 | |||||||||
f Sucampo Pharmaceuticals Inc., senior note, 144A, 3.25%, 12/15/21 | United States | 702,000 | 755,966 | |||||||||
|
| |||||||||||
3,737,739 | ||||||||||||
|
| |||||||||||
Professional Services 0.1% | ||||||||||||
51job Inc., senior note, 3.25%, 4/15/19 | China | 742,000 | 1,046,220 | |||||||||
|
| |||||||||||
Semiconductors & Semiconductor Equipment 0.4% | ||||||||||||
Cypress Semiconductor Corp., senior note, | ||||||||||||
a 4.50%, 1/15/22 | United States | 587,000 | 794,284 | |||||||||
f 144A, 2.00%, 2/01/23 | United States | 278,000 | 289,120 | |||||||||
Inphi Corp., senior note, 1.125%, 12/01/20 | United States | 341,000 | 424,545 | |||||||||
f Microchip Technology Inc., 144A, | ||||||||||||
junior sub. bond, 2.25%, 2/15/37 | United States | 925,000 | 1,080,516 | |||||||||
a senior sub. bond, 1.625%, 2/15/27 | United States | 600,000 | 701,625 | |||||||||
Micron Technology Inc., senior bond, 3.00%, 11/15/43 | United States | 114,000 | 169,646 | |||||||||
f ON Semiconductor Corp., senior note, 144A, 1.625%, 10/15/23 | United States | 57,000 | 68,756 | |||||||||
f Rambus Inc., senior note, 144A, 1.375%, 2/01/23 | United States | 572,000 | 580,938 | |||||||||
f Silicon Laboratories Inc., senior note, 144A, 1.375%, 3/01/22 | United States | 80,000 | 93,850 | |||||||||
f Teradyne Inc., senior note, 144A, 1.25%, 12/15/23 | United States | 132,000 | 183,728 | |||||||||
|
| |||||||||||
4,387,008 | ||||||||||||
|
| |||||||||||
Software 0.4% | ||||||||||||
Bottomline Technologies de Inc., senior note, 1.50%, 12/04/17 | United States | 627,000 | 692,835 | |||||||||
Everbridge Inc., senior note, 1.50%, 11/01/22 | United States | 470,000 | 488,212 | |||||||||
a FireEye Inc., senior bond, 1.625%, 6/01/35 | United States | 590,000 | 549,069 | |||||||||
f HubSpot Inc., senior note, 144A, 0.25%, 6/01/22 | United States | 274,000 | 300,201 | |||||||||
f Nuance Communications Inc., senior note, 144A, 1.25%, 4/01/25 | United States | 143,000 | 140,498 |
franklintempleton.com | Semiannual Report | 29 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued) | ||||||||||||||
Country | Principal Amount* | Value | ||||||||||||
Convertible Bonds (continued) | ||||||||||||||
Software (continued) | ||||||||||||||
Rovi Corp., senior note, 0.50%, 3/01/20 | United States | 166,000 | $ | 161,747 | ||||||||||
f ServiceNow Inc., senior note, 144A, zero cpn., 6/01/22 | United States | 1,461,000 | 1,623,536 | |||||||||||
Verint Systems Inc., senior note, 1.50%, 6/01/21 | United States | 110,000 | 108,969 | |||||||||||
a,f Workday Inc., senior note, 144A, 0.25%, 10/01/22 | United States | 571,000 | 564,576 | |||||||||||
|
| |||||||||||||
4,629,643 | ||||||||||||||
|
| |||||||||||||
Trading Companies & Distributors 0.1% | ||||||||||||||
a,f Kaman Corp., senior note, 144A, 3.25%, 5/01/24 | United States | 1,038,000 | 1,165,804 | |||||||||||
|
| |||||||||||||
Transportation Infrastructure 0.0%† | ||||||||||||||
Macquarie Infrastructure Corp., senior note, 2.00%, 10/01/23 | United States | 240,000 | 231,600 | |||||||||||
|
| |||||||||||||
Total Convertible Bonds (Cost $93,487,668) | 101,982,237 | |||||||||||||
|
| |||||||||||||
Convertible Bonds in Reorganization 0.0%† | ||||||||||||||
Chemicals 0.0%† | ||||||||||||||
a,d,h TerraVia Holdings Inc., senior sub. note, 5.00%, 10/01/19 | United States | 1,117,000 | 134,040 | |||||||||||
|
| |||||||||||||
Semiconductors & Semiconductor Equipment 0.0%† | ||||||||||||||
h SunEdison Inc., senior note, | ||||||||||||||
f 144A, 0.25%, 1/15/20 | United States | 161,000 | 3,623 | |||||||||||
2.375%, 4/15/22 | United States | 247,000 | 5,557 | |||||||||||
|
| |||||||||||||
9,180 | ||||||||||||||
|
| |||||||||||||
Total Convertible Bonds in Reorganization | | 143,220 | | |||||||||||
|
| |||||||||||||
Corporate Bonds and Notes 14.8% | ||||||||||||||
Aerospace & Defense 0.1% | ||||||||||||||
Embraer Netherlands Finance BV, senior bond, | ||||||||||||||
5.05%, 6/15/25 | Brazil | 95,000 | 99,631 | |||||||||||
5.40%, 2/01/27 | Brazil | 130,000 | 137,638 | |||||||||||
f Embraer Overseas Ltd., senior bond, 144A, 5.696%, 9/16/23 | Brazil | 90,000 | 97,848 | |||||||||||
f Leonardo US Holdings Inc., senior bond, 144A, 6.25%, 1/15/40 | Italy | 555,000 | 652,125 | |||||||||||
|
| |||||||||||||
987,242 | ||||||||||||||
|
| |||||||||||||
Automobiles 0.0%† | ||||||||||||||
i Toyota Motor Credit Corp., senior note, FRN, 1.743%, (3-Month USD LIBOR + 0.39%), 1/17/19 | United States | 40,000 | 40,136 | |||||||||||
|
| |||||||||||||
Banks 0.1% | ||||||||||||||
f Banco Macro SA, senior note, 144A, 17.50%, 5/08/22 | Argentina | 1,740,000 | ARS | 95,773 | ||||||||||
i Bank of America Corp., senior note, FRN, 2.399%, (3-Month USD LIBOR + 1.04%), 1/15/19 | United States | 20,000 | 20,182 | |||||||||||
g Bano do Brasil SA, senior note, Reg S, 4.625%, 1/15/25 | Brazil | 200,000 | 197,200 | |||||||||||
i Citibank NA, senior note, FRN, 1.584%, (3-Month USD LIBOR + 0.26%), 9/18/19 | United States | 430,000 | 430,127 | |||||||||||
i JPMorgan Chase & Co., senior note, FRN, 2.161%, (3-Month USD LIBOR + 0.68%), 6/01/21 | United States | 480,000 | 482,604 | |||||||||||
Qwest Capital Funding Inc., senior bond, 6.875%, 7/15/28 | United States | 260,000 | 228,808 | |||||||||||
|
| |||||||||||||
1,454,694 | ||||||||||||||
|
| |||||||||||||
Biotechnology 0.1% | ||||||||||||||
iGilead Sciences Inc., senior note, FRN, | ||||||||||||||
1.546%, (3-Month USD LIBOR + 0.22%), 3/20/19 | United States | 430,000 | 430,846 | |||||||||||
1.576%, (3-Month USD LIBOR + 0.25%), 9/20/19 | United States | 430,000 | 430,638 |
30 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||||
Biotechnology (continued) | ||||||||||||||
f Grifols SA, senior note, 144A, 3.20%, 5/01/25 | Spain | 225,000 | EUR | $ | 274,050 | |||||||||
|
| |||||||||||||
1,135,534 | ||||||||||||||
|
| |||||||||||||
Capital Markets 0.2% | ||||||||||||||
Deutsche Bank AG, zero cpn., 2/15/18 | Egypt | 29,900,000 | EGP | 1,633,677 | ||||||||||
|
| |||||||||||||
Chemicals 0.0%† | ||||||||||||||
f Braskem Netherlands Finance BV, senior note, 144A, 3.50%, 1/10/23 | Brazil | 215,000 | 213,656 | |||||||||||
f Mexichem SAB de CV, senior bond, 144A, 4.00%, 10/04/27 | Mexico | 220,000 | 219,450 | |||||||||||
|
| |||||||||||||
433,106 | ||||||||||||||
|
| |||||||||||||
Commercial Services & Supplies 1.4% | ||||||||||||||
f Harland Clarke Holdings Corp., senior note, 144A, 9.25%, 3/01/21 | United States | 9,176,000 | 9,348,050 | |||||||||||
R.R. Donnelley & Sons Co., | ||||||||||||||
a senior bond, 6.50%, 11/15/23 | United States | 2,694,000 | 2,599,710 | |||||||||||
a senior bond, 6.00%, 4/01/24 | United States | 1,910,000 | 1,790,625 | |||||||||||
senior bond, 6.625%, 4/15/29 | United States | 25,000 | 23,000 | |||||||||||
senior note, 7.00%, 2/15/22 | United States | 1,375,000 | 1,431,719 | |||||||||||
|
| |||||||||||||
15,193,104 | ||||||||||||||
|
| |||||||||||||
Construction & Engineering 0.1% | ||||||||||||||
a Engility Corp., senior note, 8.875%, 9/01/24 | United States | 634,000 | 683,927 | |||||||||||
Great Lakes Dredge & Dock Corp., senior note, 8.00%, 5/15/22 | United States | 160,000 | 169,200 | |||||||||||
|
| |||||||||||||
853,127 | ||||||||||||||
|
| |||||||||||||
Construction Materials 0.0%† | ||||||||||||||
f Cemex SAB de CV, senior bond, first lien, 144A, 6.125%, 5/05/25 | Mexico | 365,000 | 387,812 | |||||||||||
|
| |||||||||||||
Consumer Finance 0.9% | ||||||||||||||
f,k Everi Payments Inc., senior note, 144A, 7.50%, 12/15/25 | United States | 5,729,000 | 5,741,604 | |||||||||||
a,f iPayment Inc., second lien, 144A, 10.75%, 4/15/24 | United States | 3,214,000 | 3,651,907 | |||||||||||
|
| |||||||||||||
9,393,511 | ||||||||||||||
|
| |||||||||||||
Containers & Packaging 0.4% | ||||||||||||||
a,f Coveris Holdings SA, senior note, 144A, 7.875%, 11/01/19 | Luxembourg | 3,836,000 | 3,864,770 | |||||||||||
|
| |||||||||||||
Diversified Financial Services 1.5% | ||||||||||||||
f,i Banco Supervielle SA, senior note, 144A, FRN, 26.50%, | ||||||||||||||
(ARS Badlar + 4.50%), 8/09/20 | Argentina | 3,800,000 | ARS | 222,670 | ||||||||||
Citigroup Global Markets Holdings Inc., zero cpn., 12/21/17 | Egypt | 5,000,000 | EGP | 280,237 | ||||||||||
g Reg S, 3/01/18 | Egypt | 5,000,000 | EGP | 271,175 | ||||||||||
g senior note, Reg S, 3/15/18 | Egypt | 50,247,958 | EGP | 2,709,696 | ||||||||||
a,f Exela Intermediate LLC / Exela Finance Inc., senior secured note, first lien, 144A, 10.00%, 7/15/23 | United States | 1,612,000 | 1,521,325 | |||||||||||
f Financiera de Desarrollo Territorial SA Findeter, senior bond, 144A, 7.875%, 8/12/24 | Colombia | 795,000,000 | COP | 270,439 | ||||||||||
f Opal Acquisition Inc., 144A, | United States | 6,248,000 | 5,404,520 | |||||||||||
senior secured note, first lien, 7.50%, 7/01/24 | United States | 5,104,000 | 4,925,360 | |||||||||||
f,l Polaris Intermediate Corp., senior note, 144A, PIK, 8.50%, 12/01/22 | United States | 210,000 | 219,009 | |||||||||||
Rumo Luxembourg Sarl, senior note, 7.375%, 2/09/24 | Brazil | 200,000 | 216,500 | |||||||||||
|
| |||||||||||||
16,040,931 | ||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 31 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||||
Diversified Telecommunication Services 0.2% | ||||||||||||||
a Intelsat Jackson Holdings SA, | ||||||||||||||
senior bond, 7.25%, 10/15/20 | Luxembourg | 1,424,000 | $ | 1,352,800 | ||||||||||
fsenior note, 144A, 9.75%, 7/15/25 | Luxembourg | 968,000 | 936,540 | |||||||||||
f,k Telenet Finance Luxembourg Notes Sarl, senior secured bond, 144A, | Belgium | 400,000 | 399,704 | |||||||||||
|
| |||||||||||||
2,689,044 | ||||||||||||||
|
| |||||||||||||
Electric Utilities 0.3% | ||||||||||||||
g 1MDB Energy Ltd., senior note, Reg S, 5.99%, 5/11/22 | Malaysia | 1,300,000 | 1,413,945 | |||||||||||
a Bruce Mansfield Unit 1 2007 Pass-Through Trust, secured bond, | United States | 1,941,801 | 847,111 | |||||||||||
f Empresas Publicas de Medellin Esp, senior bond, 144A, 8.375%, 11/08/27 | Colombia | 665,000,000 | COP | 226,726 | ||||||||||
f Enel SpA, sub. bond, 144A, 8.75% to 9/24/23, FRN thereafter, 9/24/73 | Italy | 745,000 | 922,869 | |||||||||||
|
| |||||||||||||
3,410,651 | ||||||||||||||
|
| |||||||||||||
Food & Staples Retailing 0.1% | ||||||||||||||
f BRF GmbH, senior bond, 144A, 4.35%, 9/29/26 | Brazil | 530,000 | 518,075 | |||||||||||
f Cencosud SA, senior bond, 144A, 4.375%, 7/17/27 | Chile | 215,000 | 213,962 | |||||||||||
|
| |||||||||||||
732,037 | ||||||||||||||
|
| |||||||||||||
Food Products 0.1% | ||||||||||||||
f Grupo Bimbo SAB de CV, senior bond, 144A, 4.70%, 11/10/47 | Mexico | 470,000 | 471,763 | |||||||||||
f JBS USA LLC / JBS USA Finance Inc., senior bond, 144A, | ||||||||||||||
7.25%, 6/01/21 | United States | 190,000 | 195,107 | |||||||||||
5.75%, 6/15/25 | United States | 180,000 | 176,625 | |||||||||||
|
| |||||||||||||
843,495 | ||||||||||||||
|
| |||||||||||||
Gas Utilities 0.2% | ||||||||||||||
NGL Energy Partners LP / NGL Energy Finance Corp., senior note, | ||||||||||||||
5.125%, 7/15/19 | United States | 230,000 | 232,875 | |||||||||||
6.875%, 10/15/21 | United States | 15,000 | 15,300 | |||||||||||
7.50%, 11/01/23 | United States | 885,000 | 913,762 | |||||||||||
6.125%, 3/01/25 | United States | 255,000 | 248,625 | |||||||||||
i Transcanada Trust, junior sub. bond, FRN, 5.30%, (3-Month USD LIBOR + 3.21%), 3/15/77 | Canada | 980,000 | 1,016,138 | |||||||||||
|
| |||||||||||||
2,426,700 | ||||||||||||||
|
| |||||||||||||
Health Care Providers & Services 0.2% | ||||||||||||||
Kindred Healthcare Inc., senior note, 8.75%, 1/15/23 | United States | 2,068,000 | 2,078,340 | |||||||||||
|
| |||||||||||||
Health Care Technology 0.0%† | ||||||||||||||
f Quintiles IMS Inc., senior note, 144A, 3.25%, 3/15/25 | United States | 230,000 | EUR | 283,408 | ||||||||||
|
| |||||||||||||
Hotels, Restaurants & Leisure 1.3% | ||||||||||||||
f Constellation Merger Sub Inc., senior note, 144A, 8.50%, 9/15/25 | United States | 110,000 | 108,350 | |||||||||||
a,f Golden Nugget Inc., senior note, 144A, 8.75%, 10/01/25 | United States | 3,061,000 | 3,191,092 | |||||||||||
a,f Jack Ohio Finance LLC / Jack Ohio Finance 1 Corp., senior secured note, second | United States | 5,148,000 | 5,669,235 | |||||||||||
f Mohegan Gaming & Entertainment, senior note, 144A, 7.875%, 10/15/24 | United States | 4,521,000 | 4,780,958 | |||||||||||
|
| |||||||||||||
13,749,635 | ||||||||||||||
|
|
32 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||||||
Insurance 0.1% | ||||||||||||||||
f Ardonagh Midco 3 PLC, senior secured note, 144A, 8.375%, 7/15/23 | United Kingdom | 475,000 | GBP | $ | 664,870 | |||||||||||
|
| |||||||||||||||
Machinery 0.2% | ||||||||||||||||
i Caterpillar Financial Services Corp., senior note, FRN, 1.777%, (3-Month USD | ||||||||||||||||
LIBOR + 0.29%), 9/04/20 | United States | 450,000 | 450,888 | |||||||||||||
f Navistar International Corp., senior note, 144A, 6.625%, 11/01/25 | United States | 1,384,000 | 1,436,772 | |||||||||||||
f Titan International Inc., senior secured note, 144A, 6.50%, 11/30/23 | United States | 483,000 | 481,647 | |||||||||||||
|
| |||||||||||||||
2,369,307 | ||||||||||||||||
|
| |||||||||||||||
Media 3.6% | ||||||||||||||||
f American Media Inc., sub. note, 144A, zero cpn., 3/01/22 | United States | 19,207,513 | 17,286,762 | |||||||||||||
Clear Channel Worldwide Holdings Inc., B, senior note, 7.625%, 3/15/20 | United States | 1,095,000 | 1,088,156 | |||||||||||||
f COX Communications Inc., senior bond, 144A, | ||||||||||||||||
4.70%, 12/15/42 | United States | 120,000 | 115,895 | |||||||||||||
4.50%, 6/30/43 | United States | 220,000 | 205,196 | |||||||||||||
DISH DBS Corp., senior note, | ||||||||||||||||
5.875%, 11/15/24 | United States | 405,000 | 408,463 | |||||||||||||
7.75%, 7/01/26 | United States | 250,000 | 270,625 | |||||||||||||
f Lee Enterprises Inc., senior secured note, first lien, 144A, 9.50%, 3/15/22 | United States | 4,091,000 | 4,234,185 | |||||||||||||
The McClatchy Co., senior bond, | ||||||||||||||||
7.15%, 11/01/27 | United States | 632,000 | 662,020 | |||||||||||||
6.875%, 3/15/29 | United States | 4,767,000 | 4,397,558 | |||||||||||||
f,l Postmedia Network Inc., secured note, second lien, 144A, PIK, | Canada | 4,495,729 | 5,141,990 | |||||||||||||
f Time Inc., senior note, 144A, | ||||||||||||||||
a5.75%, 4/15/22 | United States | 3,948,000 | 4,140,465 | |||||||||||||
7.50%, 10/15/25 | United States | 697,000 | 818,975 | |||||||||||||
Time Warner Cable LLC, senior bond, 4.50%, 9/15/42 | United States | 240,000 | 222,792 | |||||||||||||
|
| |||||||||||||||
38,993,082 | ||||||||||||||||
|
| |||||||||||||||
Metals & Mining 0.1% | ||||||||||||||||
f Gerdau Trade Inc., senior bond, 144A, 4.875%, 10/24/27 | Brazil | 220,000 | 221,155 | |||||||||||||
f Stillwater Mining Co., senior note, 144A, 6.125%, 6/27/22 | South Africa | 235,000 | 240,922 | |||||||||||||
Vale Overseas Ltd., senior bond, 6.25%, 8/10/26 | Brazil | 155,000 | 180,170 | |||||||||||||
|
| |||||||||||||||
642,247 | ||||||||||||||||
|
| |||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) 0.3% | ||||||||||||||||
g JP Morgan Structured Products BV, senior note, Reg S, zero cpn., 1/18/18 | Egypt | 55,885,000 | EGP | 3,091,830 | ||||||||||||
|
| |||||||||||||||
Oil, Gas & Consumable Fuels 1.6% | ||||||||||||||||
f Bellatrix Exploration Ltd., senior note, 144A, 8.50%, 5/15/20 | Canada | 625,000 | 604,687 | |||||||||||||
i BP Capital Markets PLC, senior note, FRN, 1.838%, (3-Month USD LIBOR + | United Kingdom | 105,000 | 105,063 | |||||||||||||
California Resources Corp., | ||||||||||||||||
f secured note, second lien, 144A, 8.00%, 12/15/22 | United States | 280,000 | 208,250 | |||||||||||||
senior note, 5.50%, 9/15/21 | United States | 9,000 | 6,660 | |||||||||||||
senior note, 6.00%, 11/15/24 | United States | 112,000 | 70,000 | |||||||||||||
Calumet Specialty Products Partners LP / Calumet Finance Corp., senior note, | United States | 786,000 | 791,895 | |||||||||||||
f Cenovus Energy Inc., senior bond, 144A, 5.40%, 6/15/47 | Canada | 245,000 | 250,532 |
franklintempleton.com | Semiannual Report | 33 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||||
a,f Cheniere Corpus Christi Holdings LLC, secured bond, 144A, | United States | 1,060,000 | $ | 1,098,425 | ||||||||||
Eclipse Resources Corp., senior note, 8.875%, 7/15/23 | United States | 545,000 | 559,987 | |||||||||||
f Endeavor Energy Resources LP / EER Finance Inc., senior note, 144A, | United States | 279,000 | 282,836 | |||||||||||
m Enlink Midstream Partners LP, junior sub. note, 6.00% to 12/15/22, | United States | 390,000 | 379,538 | |||||||||||
g,i EP PetroEcuador via Noble Sovereign Funding I Ltd., FRN, Reg S, 6.961%, | Ecuador | 339,789 | 348,284 | |||||||||||
f Halcon Resources Corp., senior note, 144A, 6.75%, 2/15/25 | United States | 221,000 | 225,420 | |||||||||||
f MEG Energy Corp., senior bond, 144A, | ||||||||||||||
6.375%, 1/30/23 | Canada | 180,000 | 165,825 | |||||||||||
7.00%, 3/31/24 | Canada | 665,000 | 601,825 | |||||||||||
f NGPL PipeCo LLC, 144A, | ||||||||||||||
senior bond, 4.875%, 8/15/27 | United States | 65,000 | 67,725 | |||||||||||
senior bond, 7.768%, 12/15/37 | United States | 80,000 | 99,200 | |||||||||||
senior note, 4.375%, 8/15/22 | United States | 40,000 | 41,150 | |||||||||||
Petrobras Global Finance BV | ||||||||||||||
f senior bond, 144A, 5.999%, 1/27/28 | Brazil | 570,000 | 574,161 | |||||||||||
senior bond, 5.625%, 5/20/43 | Brazil | 380,000 | 342,000 | |||||||||||
senior bond, 7.25%, 3/17/44 | Brazil | 165,000 | 172,631 | |||||||||||
senior note, 5.375%, 1/27/21 | Brazil | 672,000 | 700,560 | |||||||||||
senior note, 8.375%, 5/23/21 | Brazil | 2,060,000 | 2,345,310 | |||||||||||
senior note, 6.125%, 1/17/22 | Brazil | 915,000 | 976,763 | |||||||||||
senior note, 6.25%, 3/17/24 | Brazil | 822,000 | 876,129 | |||||||||||
f senior note, 144A, 5.299%, 1/27/25 | Brazil | 223,000 | 223,223 | |||||||||||
Petroleos Mexicanos, senior note, | ||||||||||||||
6.375%, 2/04/21 | Mexico | 770,000 | 843,150 | |||||||||||
4.25%, 1/15/25 | Mexico | 247,000 | 246,580 | |||||||||||
6.875%, 8/04/26 | Mexico | 317,000 | 361,919 | |||||||||||
g,i FRN, Reg S, 4.967%, (3-Month USD LIBOR + 3.65%), 3/11/22 | Mexico | 402,000 | 441,798 | |||||||||||
g Reg S, 5.375%, 3/13/22 | Mexico | 442,000 | 473,603 | |||||||||||
g Reg S, 1.875%, 4/21/22 | Mexico | 869,000 | EUR | 1,063,347 | ||||||||||
g Reg S, 3.75%, 2/21/24 | Mexico | 290,000 | EUR | 371,970 | ||||||||||
Southwestern Energy Co., senior bond, 6.70%, 1/23/25 | United States | 215,000 | 224,138 | |||||||||||
f SRC Energy Inc., senior note, 144A, 6.25%, 12/01/25 | United States | 470,000 | 484,100 | |||||||||||
f Vine Oil & Gas LP / Vine Oil & Gas Finance Corp., senior note, 144A, | United States | 220,000 | 217,250 | |||||||||||
f YPF Sociedad Anonima, | ||||||||||||||
senior bond, 144A, 6.95%, 7/21/27 | Argentina | 185,000 | 198,181 | |||||||||||
isenior note, 144A, FRN, 25.458%, (ARS Badlar + 4.00%), 7/07/20 | Argentina | 245,000 | 231,827 | |||||||||||
|
| |||||||||||||
17,275,942 | ||||||||||||||
|
| |||||||||||||
Paper & Forest Products 1.4% | ||||||||||||||
Fibria Overseas Finance Ltd., senior note, 4.00%, 1/14/25 | Brazil | 200,000 | 198,815 | |||||||||||
Resolute Forest Products Inc., senior note, 5.875%, 5/15/23 | United States | 14,550,000 | 15,095,625 | |||||||||||
|
| |||||||||||||
15,294,440 | ||||||||||||||
|
| |||||||||||||
Personal Products 0.1% | ||||||||||||||
a,f Avon International Operations Inc., senior secured note, first lien, 144A, 7.875%, 8/15/22 | United Kingdom | 1,397,000 | 1,421,014 | |||||||||||
|
|
34 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||||||||
Pharmaceuticals 0.0%† | ||||||||||||||||||
Teva Pharmaceutical Finance Netherlands III BV, senior bond, 4.10%, 10/01/46 | Israel | 120,000 | $ | 91,276 | ||||||||||||||
f Valeant Pharmaceuticals International Inc., senior note, 144A, 5.875%, 5/15/23 | United States | 240,000 | 210,300 | |||||||||||||||
|
| |||||||||||||||||
301,576 | ||||||||||||||||||
|
| |||||||||||||||||
Real Estate Management & Development 0.0%† | ||||||||||||||||||
f Rialto Holdings LLC / Rialto Corp., senior note, 144A, 7.00%, 12/01/18 | United States | 178,000 | 179,335 | |||||||||||||||
|
| |||||||||||||||||
Specialty Retail 0.1% | ||||||||||||||||||
a,f Guitar Center Inc., senior secured note, first lien, 144A, 6.50%, 4/15/19 | United States | 783,000 | 744,829 | |||||||||||||||
i Lowe’s Cos. Inc., senior note, FRN, 1.919%, (3-Month USD LIBOR + 0.60%), 9/14/18 | United States | 255,000 | 256,169 | |||||||||||||||
|
| |||||||||||||||||
1,000,998 | ||||||||||||||||||
|
| |||||||||||||||||
Technology Hardware, Storage & Peripherals 0.1% | ||||||||||||||||||
f Dell International LLC / EMC Corp., senior secured bond, first lien, 144A, 6.02%, 6/15/26 | United States | 1,170,000 | 1,287,366 | |||||||||||||||
|
| |||||||||||||||||
Wireless Telecommunication Services 0.0%† | ||||||||||||||||||
g GTH Finance BV, senior note, Reg S, 6.25%, 4/26/20 | Netherlands | 249,000 | 264,108 | |||||||||||||||
|
| |||||||||||||||||
Total Corporate Bonds and Notes (Cost $142,454,876) | 160,417,069 | |||||||||||||||||
|
| |||||||||||||||||
Corporate Bonds and Notes in Reorganization 0.4% | ||||||||||||||||||
Diversified Telecommunication Services 0.0%† | ||||||||||||||||||
f,h Oi SA, senior note, 144A, 9.75%, 9/15/16 | Brazil | 300,000 | BRL | 27,608 | ||||||||||||||
|
| |||||||||||||||||
Independent Power & Renewable Electricity Producers 0.4% | ||||||||||||||||||
a,h GenOn Energy Inc., | ||||||||||||||||||
senior bond, 7.875%, 6/15/17 | United States | 569,000 | 409,680 | |||||||||||||||
senior note, 9.50%, 10/15/18 | United States | 2,481,000 | 1,773,915 | |||||||||||||||
senior note, 9.875%, 10/15/20 | United States | 2,625,000 | 1,863,750 | |||||||||||||||
|
| |||||||||||||||||
4,047,345 | ||||||||||||||||||
|
| |||||||||||||||||
Total Corporate Bonds and Notes in Reorganization | 4,074,953 | |||||||||||||||||
|
| |||||||||||||||||
i,n Senior Floating Rate Interests 0.8% | ||||||||||||||||||
Aerospace & Defense 0.1% | ||||||||||||||||||
Avolon, Term Loan B, 3.533%, (LIBOR + 2.25%), 3/21/22 | United States | 159,600 | 159,800 | |||||||||||||||
TransDigm Group Inc., | ||||||||||||||||||
4.333%, (LIBOR + 3.00%), 5/14/22 | United States | 28,958 | 29,061 | |||||||||||||||
4.239%, (LIBOR + 3.00%), 6/09/23 | United States | 204,386 | 204,787 | |||||||||||||||
4.333%, (LIBOR + 3.00%), 8/22/24 | United States | 5,498 | 5,530 | |||||||||||||||
TransDigm Inc., Term Loan G, 4.235%, (LIBOR + 3.00%), 8/22/24 | United States | 19,440 | 19,553 | |||||||||||||||
|
| |||||||||||||||||
418,731 | ||||||||||||||||||
|
| |||||||||||||||||
Auto Components 0.0%† | ||||||||||||||||||
Tectum Holdings/Truck Hero, Term Loan, 5.326%, (LIBOR + 4.00%), 4/22/24 | United States | 217,456 | 217,660 | |||||||||||||||
USS Ultimate Holdings Inc., Term Loan B, 4.992%, (LIBOR + 3.75%), 8/25/24 | United States | 15,000 | 15,159 | |||||||||||||||
|
| |||||||||||||||||
232,819 | ||||||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 35 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||||
i,n Senior Floating Rate Interests (continued) | ||||||||||||||||||||
Building Products 0.0%† | ||||||||||||||||||||
Ply Gem Holdings Inc., Term Loan, first lien, 4.333%, (LIBOR + 3.00%), 2/01/21 | United States | 22,769 | $ | 22,990 | ||||||||||||||||
Quickrete Holdings Inc., Term Loan B, 3.992%, (LIBOR + 2.75%), 11/15/23 | United States | 283,049 | 284,189 | |||||||||||||||||
|
| |||||||||||||||||||
307,179 | ||||||||||||||||||||
|
| |||||||||||||||||||
Capital Markets 0.0%† | ||||||||||||||||||||
BCP Raptor LLC, Term Loan B, 5.522%, (LIBOR + 4.25%), 6/24/24 | United States | 129,675 | 130,891 | |||||||||||||||||
Donnelley Financial Solutions Inc., Term Loan B, 4.246%, (LIBOR + 3.00%), 9/29/23 | United States | 65,714 | 66,125 | |||||||||||||||||
|
| |||||||||||||||||||
197,016 | ||||||||||||||||||||
|
| |||||||||||||||||||
Chemicals 0.0%† | ||||||||||||||||||||
Ashland LLC, Term Loan B, | ||||||||||||||||||||
3.264%, (LIBOR + 2.00%), 5/17/24 | United States | 9,925 | 9,981 | |||||||||||||||||
3.319%, (LIBOR + 2.00%), 5/17/24 | United States | 20,000 | 20,113 | |||||||||||||||||
Axalta Coating Systems Dutch Holding BV, Term Loan B, 3.333%, (LIBOR + 2.00%), 6/01/24 | United States | 59,117 | 59,400 | |||||||||||||||||
|
| |||||||||||||||||||
89,494 | ||||||||||||||||||||
|
| |||||||||||||||||||
Commercial Services & Supplies 0.0%† | ||||||||||||||||||||
Camelot Finance LP, Term Loan B, 4.60%, (LIBOR + 3.25%), 10/03/23 | United States | 130,104 | 130,592 | |||||||||||||||||
GFL Environmental, Term Loan B, 4.083%, (LIBOR + 2.75%), 9/29/23 | Canada | 69,300 | 69,647 | |||||||||||||||||
|
| |||||||||||||||||||
200,239 | ||||||||||||||||||||
|
| |||||||||||||||||||
Construction & Engineering 0.0%† | ||||||||||||||||||||
Engility Corp., Term Loan B, 4.492%, (PRIME + 2.25%), 8/14/23 | United States | 89,295 | 89,998 | |||||||||||||||||
|
| |||||||||||||||||||
Diversified Financial Services 0.1% | ||||||||||||||||||||
B.C. Unlimited Liability Co., Term Loan B-3, | ||||||||||||||||||||
3.485%, (LIBOR + 2.25%), 2/16/24 | United States | 169,853 | 170,065 | |||||||||||||||||
3.583%, (LIBOR + 2.25%), 2/16/24 | United States | 108,744 | 108,880 | |||||||||||||||||
Cequel/SuddenLink, Term Loan, 3.49%, (LIBOR + 2.25%), 7/28/25 | United States | 24,238 | 23,996 | |||||||||||||||||
Harbor Freight Tools USA Inc., Term Loan B, 4.492%, (LIBOR + 3.25%), 8/18/23 | United States | 117,083 | 117,998 | |||||||||||||||||
Klockner Pentaplast, Term Loan B, 5.583%, (LIBOR + 4.25%), 6/30/22 | United States | 240,000 | 242,250 | |||||||||||||||||
Serta Simmons Holdings LLC, Term Loan, second lien, 9.244%, (LIBOR + 8.00%), 11/08/24 | United States | 189,608 | 174,202 | |||||||||||||||||
Ziggo BV, Term Loan E, 3.75%, (LIBOR + 2.50%), 4/15/25 | United States | 236,200 | 237,530 | |||||||||||||||||
|
| |||||||||||||||||||
1,074,921 | ||||||||||||||||||||
|
| |||||||||||||||||||
Diversified Telecommunication Services 0.1% | ||||||||||||||||||||
Consolidated Communications Inc., Term Loan B, 4.25%, (LIBOR + 3.00%), 10/05/23 | United States | 94,883 | 93,618 | |||||||||||||||||
Sprint Communications Inc., Term Loan B, 3.75%, (LIBOR + 2.50%), 2/02/24 | United States | 223,875 | 224,183 | |||||||||||||||||
Zayo Group LLC, Term Loan B-2, 3.563%, (LIBOR + 2.25%), 1/19/24 | United States | 95,449 | 95,774 | |||||||||||||||||
|
| |||||||||||||||||||
413,575 | ||||||||||||||||||||
|
| |||||||||||||||||||
Electric Utilities 0.0%† | ||||||||||||||||||||
The AES Corp., Term Loan B, 3.454%, (LIBOR + 2.00%), 5/24/22 | United States | 291,886 | 293,163 | |||||||||||||||||
|
| |||||||||||||||||||
Electronic Equipment, Instruments & Components 0.1% | ||||||||||||||||||||
Dell International LLC, Term Loan A-2, 3.00%, (LIBOR + 1.75%), 9/07/21 | United States | 220,000 | 220,320 | |||||||||||||||||
Veritas U.S. Inc., Term Loan B, 5.833%, (LIBOR + 4.50%), 1/27/23 | United States | 604,551 | 605,609 | |||||||||||||||||
|
| |||||||||||||||||||
825,929 | ||||||||||||||||||||
|
|
36 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||||
i,n Senior Floating Rate Interests (continued) | ||||||||||||||||||||
Food & Staples Retailing 0.0%† | ||||||||||||||||||||
Utz Quality Foods LLC, Term Loan B, 4.787%, (LIBOR + 3.50%), 11/21/24 | United States | 105,000 | $ | 105,591 | ||||||||||||||||
|
| |||||||||||||||||||
Food Products 0.0%† | ||||||||||||||||||||
Post Holdings Inc., Term Loan B, 3.49%, (LIBOR + 2.25%), 5/24/24 | United States | 114,713 | 115,277 | |||||||||||||||||
|
| |||||||||||||||||||
Health Care Providers & Services 0.1% | ||||||||||||||||||||
Envision Healthcare Corp., Term Loan B, 4.25%, (LIBOR + 3.00%), 12/01/23 | United States | 74,438 | 74,694 | |||||||||||||||||
Surgery Center Holdings Inc., Term Loan B, 4.50%, (LIBOR + 3.25%), 9/02/24 | United States | 200,000 | 196,333 | |||||||||||||||||
Team Health Inc., Term Loan B, 3.992%, (LIBOR + 2.75%), 2/06/24 | United States | 298,596 | 292,064 | |||||||||||||||||
|
| |||||||||||||||||||
|
563,091 |
| ||||||||||||||||||
|
| |||||||||||||||||||
Health Care Technology 0.0%† | ||||||||||||||||||||
Quintiles IMS Inc., Term Loan B-2, 3.321%, (LIBOR + 2.00%), 1/17/25 | United States | 80,000 | 80,525 | |||||||||||||||||
|
| |||||||||||||||||||
Hotels, Restaurants & Leisure 0.0%† | ||||||||||||||||||||
Boyd Gaming Corp., Term Loan, 3.701%, (LIBOR + 2.50%), 9/15/23 | United States | 62,838 | 63,216 | |||||||||||||||||
ClubCorp Holdings Inc., Term Loan B, 4.588%, (LIBOR + 3.25%), 9/18/24 | United States | 85,000 | 85,265 | |||||||||||||||||
|
| |||||||||||||||||||
|
148,481 |
| ||||||||||||||||||
|
| |||||||||||||||||||
Industrial Conglomerates 0.0%† | ||||||||||||||||||||
Duravant LLC, Term Loan B, 4.56%, (LIBOR + 3.25%), 7/19/24 | United States | 67,612 | 67,739 | |||||||||||||||||
o Duravant LLC, Term Loan, 4.583%, (LIBOR + 3.25%), 7/19/24 | United States | 6,762 | 6,774 | |||||||||||||||||
Plastipak Holdings Inc., Term Loan B, 4.02%, (LIBOR + 2.75%), 10/14/24 | United States | 35,000 | 35,226 | |||||||||||||||||
|
| |||||||||||||||||||
|
109,739 |
| ||||||||||||||||||
|
| |||||||||||||||||||
Insurance 0.0%† | ||||||||||||||||||||
Hyperion Insurance Group Ltd., Term Loan B, 5.25%, (LIBOR + 4.00%), 4/29/22 | United States | 41,501 | 41,976 | |||||||||||||||||
U.S.I. Inc., Term Loan B, 4.314%, (LIBOR + 3.00%), 5/16/24 | United States | 245,701 | 245,445 | |||||||||||||||||
|
| |||||||||||||||||||
|
287,421 |
| ||||||||||||||||||
|
| |||||||||||||||||||
Internet & Direct Marketing Retail 0.0%† | ||||||||||||||||||||
BWay, Term Loan, | ||||||||||||||||||||
4.522%, (LIBOR + 3.25%), 4/03/24 | United States | 600 | 603 | |||||||||||||||||
4.599%, (LIBOR + 3.25%), 4/03/24 | United States | 238,800 | 240,193 | |||||||||||||||||
|
| |||||||||||||||||||
|
240,796 |
| ||||||||||||||||||
|
| |||||||||||||||||||
Internet Software & Services 0.1% | ||||||||||||||||||||
GTT Communications, Term Loan B, 4.50%, (LIBOR + 3.25%), 1/09/24 | United States | 52,603 | 53,112 | |||||||||||||||||
McAfee LLC, Term Loan B, 5.833%, (LIBOR + 4.50%), 9/30/24 | United States | 210,000 | 211,199 | |||||||||||||||||
Rackspace Hosting Inc., Term Loan B, | ||||||||||||||||||||
4.322%, (LIBOR + 3.00%), 11/03/23 | United States | 212 | 212 | |||||||||||||||||
4.385%, (LIBOR + 3.00%), 11/03/23 | United States | 84,364 | 84,469 | |||||||||||||||||
Uber Technologies Inc., Term Loan, 5.328%, (LIBOR + 4.00%), 7/13/23 | United States | 297,299 | 300,087 | |||||||||||||||||
|
| |||||||||||||||||||
|
649,079 |
| ||||||||||||||||||
|
| |||||||||||||||||||
IT Services 0.1% | ||||||||||||||||||||
First Data Club Corp., Term Loan B, 3.563%, (LIBOR + 2.25%), 7/08/22 | United States | 36,496 | 36,554 | |||||||||||||||||
Gartner Inc., Term Loan B, 3.24%, (LIBOR + 2.00%), 4/05/24 | United States | 29,850 | 30,130 | |||||||||||||||||
Micro Focus, Term Loan B, 4.063%, (LIBOR + 2.75%), 6/21/24 | United States | 61,071 | 61,202 | |||||||||||||||||
NeuStar Inc., Term Loan B, 5.147%, (LIBOR + 3.75%), 8/08/24 | United States | 110,000 | 111,289 | |||||||||||||||||
Presidio Inc., Term Loan B, | ||||||||||||||||||||
4.492%, (LIBOR + 3.25%), 2/02/22 | United States | 3,843 | 3,877 | |||||||||||||||||
4.585%, (LIBOR + 3.25%), 2/02/22 | United States | 150,294 | 151,636 | |||||||||||||||||
|
| |||||||||||||||||||
|
394,688 |
| ||||||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 37 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||
i,n Senior Floating Rate Interests (continued) | ||||||||||||||||
Machinery 0.0%† | ||||||||||||||||
North American Lifting Holdings Inc., Initial Term Loan, 5.833%, (LIBOR + 4.50%), 11/27/20 | United States | 15,417 | $ | 14,559 | ||||||||||||
|
| |||||||||||||||
Media 0.0%† | ||||||||||||||||
AMC Entertainment Holdings Inc., Term Loan B, 3.50%, (LIBOR + 2.25%), 12/15/23 | United States | 24,813 | 24,839 | |||||||||||||
Cablevision SA, Term Loan B, 3.514%, (LIBOR + 2.25%), 7/17/25 | United States | 34,738 | 34,564 | |||||||||||||
CBS Radio Inc., Term Loan B, 4.172%, (LIBOR + 2.75%), 11/18/24 | United States | 80,194 | 80,558 | |||||||||||||
UPC Financing Partnership, Term Loan, 3.75%, (LIBOR + 2.50%), 1/15/26 | United States | 115,789 | 116,099 | |||||||||||||
|
| |||||||||||||||
|
256,060 |
| ||||||||||||||
|
| |||||||||||||||
Metals & Mining 0.0%† | ||||||||||||||||
Signode Industrial Group, | ||||||||||||||||
Initial Term Loan B, 3.992%, (LIBOR + 2.75%), 5/01/21 | United States | 7,917 | 7,976 | |||||||||||||
Initial Term Loan B, 4.083%, (LIBOR + 2.75%), 5/01/21 | United States | 10,417 | 10,495 | |||||||||||||
Term Loan B, 3.992%, (LIBOR + 2.75%), 5/01/21 | United States | 3,333 | 3,358 | |||||||||||||
|
| |||||||||||||||
|
21,829 |
| ||||||||||||||
|
| |||||||||||||||
Oil, Gas & Consumable Fuels 0.0%† | ||||||||||||||||
Southcross Energy Partners LP, senior secured, Term Loan B, first lien guaranteed, 5.583%, (LIBOR + 4.25%), 8/04/21 | United States | 29,110 | 28,709 | |||||||||||||
|
| |||||||||||||||
Semiconductors & Semiconductor Equipment 0.0%† | ||||||||||||||||
Cavium Inc., Term Loan B, 3.597%, (LIBOR + 2.25%), 8/16/22 | United States | 65,434 |
|
65,473 |
| |||||||||||
|
| |||||||||||||||
Software 0.0%† | ||||||||||||||||
Change Healthcare Holdings LLC, Term Loan, 3.992%, (LIBOR + 2.75%), 3/01/24 | United States | 159,019 | 159,603 | |||||||||||||
Misys PLC, Term Loan, 4.817%, (LIBOR + 3.50%), 6/13/24 | United States | 150,000 | 150,035 | |||||||||||||
|
| |||||||||||||||
|
309,638 |
| ||||||||||||||
|
| |||||||||||||||
Specialty Retail 0.0%† | ||||||||||||||||
Bass Pro Group LLC, Term Loan B, 6.242%, (LIBOR + 5.00%), 9/25/24 | United States | 245,000 | 238,951 | |||||||||||||
Belron Finance US LLC, Term Loan B, 3.892%, (LIBOR + 2.50%), 11/07/24 | United States | 50,000 | 50,469 | |||||||||||||
|
| |||||||||||||||
|
289,420 |
| ||||||||||||||
|
| |||||||||||||||
Trading Companies & Distributors 0.0%† | ||||||||||||||||
HD Supply Inc., Term Loan B, 3.833%, (LIBOR + 2.50%), 10/17/23 | United States | 143,913 | 145,202 | |||||||||||||
|
| |||||||||||||||
Wireless Telecommunication Services 0.1% | ||||||||||||||||
Unitymedia Hessen GmbH & Co. KG, Term Loan, 3.50%, (LIBOR + 2.25%), 9/30/25 | United States | 301,134 | 301,510 | |||||||||||||
Virgin Media, Term Loan I, 3.75%, (LIBOR + 2.50%), 1/15/26 | United States | 210,000 | 210,150 | |||||||||||||
|
| |||||||||||||||
|
511,660 |
| ||||||||||||||
|
| |||||||||||||||
Total Senior Floating Rate Interests (Cost $8,458,465) |
|
8,480,302 |
| |||||||||||||
|
| |||||||||||||||
Foreign Government and Agency Securities 2.0% | ||||||||||||||||
g Africa Finance Corp., senior note, Reg S, 3.875%, 4/13/24 | Supranational | 869,000 | 877,936 | |||||||||||||
Banco Central de la República Argentina SA, zero cpn., 6/13/18 | Argentina | 32,682,105 | ARS | 1,622,755 | ||||||||||||
g Eastern and Southern African Trade and Development Bank, senior note, Reg S, 5.375%, 3/14/22 | Supranational | 692,000 | 728,542 | |||||||||||||
Government of Argentina, | ||||||||||||||||
7.82%, 12/31/33 | Argentina | 1,011,436 | EUR | 1,380,421 | ||||||||||||
2.26% to 3/31/19, 4.74% thereafter, 12/31/38 | Argentina | 2,313,071 | EUR | 1,966,659 |
38 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||
Foreign Government and Agency Securities (continued) | ||||||||||||||
Government of Argentina, (continued) | ||||||||||||||
i senior note, FRN, 27.493%, (ARPP7DRR), 6/21/20 | Argentina | 9,574,985 | ARS | $ | 593,388 | |||||||||
g senior note, Reg S, 3.875%, 1/15/22 | Argentina | 1,046,000 | EUR | 1,301,860 | ||||||||||
senior note, 5.625%, 1/26/22 | Argentina | 527,000 | 554,404 | |||||||||||
g Government of Ecuador, senior note, Reg S, 10.75%, 3/28/22 | Ecuador | 316,000 | 365,770 | |||||||||||
g Government of Iraq, senior note, Reg S, 6.752%, 3/09/23 | Iraq | 418,000 | 423,369 | |||||||||||
Government of Malaysia, senior note, 3.441%, 2/15/21 | Malaysia | 3,665,000 | MYR | 897,139 | ||||||||||
Government of Mexico, senior bond, 5.75%, 3/05/26 | Mexico | 10,000,000p | MXN | 488,121 | ||||||||||
g Government of Pakistan, senior note, Reg S, 6.75%, 12/03/19 | Pakistan | 648,000 | 671,629 | |||||||||||
g Government of Paraguay, Reg S, | ||||||||||||||
senior note, 4.625%, 1/25/23 | Paraguay | 945,000 | 999,101 | |||||||||||
senior bond, 4.70%, 3/27/27 | Paraguay | 200,000 | 211,500 | |||||||||||
Government of Poland, senior bond, 2.50%, 7/25/27 | Poland | 10,292,000 | PLN | 2,716,210 | ||||||||||
Government of Russia, 7.40%, 12/07/22 | Russia | 47,297,000 | RUB | 821,994 | ||||||||||
Government of South Africa,senior bond, | ||||||||||||||
8.75%, 1/31/44 | South Africa | 19,480,000 | ZAR | 1,214,818 | ||||||||||
8.75%, 2/28/48 | South Africa | 7,720,000 | ZAR | 481,803 | ||||||||||
g National Highways Authority of India, senior note, Reg S, 7.30%, 5/18/22 | India | 110,000,000 | INR | 1,738,490 | ||||||||||
Provincia de Buenos Aires, | ||||||||||||||
i FRN, 24.50%, (ARS Badlar + 3.83%), 5/31/22 | Argentina | 15,505,000 | ARS | 913,302 | ||||||||||
f senior bond, 144A, 7.875%, 6/15/27 | Argentina | 240,000 | 268,536 | |||||||||||
f senior note, 144A, 5.75%, 6/15/19 | Argentina | 250,000 | 260,375 | |||||||||||
f senior note, 144A, 6.50%, 2/15/23 | Argentina | 185,000 | 197,103 | |||||||||||
|
| |||||||||||||
Total Foreign Government and Agency Securities |
|
21,695,225 |
| |||||||||||
|
| |||||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed Securities 2.2% | ||||||||||||||
Airlines 0.1% | ||||||||||||||
f Air Canada 2015-2 Class B Pass-Through Trust, third lien note, 144A, 5.00%, 6/15/25 | Canada | 457,865 | 480,186 | |||||||||||
Latam Airlines 2015-1 Class B Pass Through Trust, secured note, 4.50%, 8/15/25 | Chile | 661,451 | 658,558 | |||||||||||
|
| |||||||||||||
|
1,138,744 |
| ||||||||||||
|
| |||||||||||||
Banks 0.0%† | ||||||||||||||
f Banco Hipotecario SA, 144A, FRN, | ||||||||||||||
j 25.938%, 11/07/22 | Argentina | 3,160,000 | ARS | 184,057 | ||||||||||
q senior note, 23.708%, (ARS Badlar + 2.50%), 1/12/20 | Argentina | 3,890,000 | ARS | 219,904 | ||||||||||
|
| |||||||||||||
|
403,961 |
| ||||||||||||
|
| |||||||||||||
Consumer Finance 0.1% | ||||||||||||||
j American Express Credit Account Master 2017-8 Trust, FRN, 1.358%, 5/16/22 | United States | 210,000 | 210,149 | |||||||||||
q Bank of America Credit Card 2014-A1 Trust, FRN, 1.63%, (1-Month USD LIBOR + 0.38%), 6/15/21 | United States | 100,000 | 100,318 | |||||||||||
Chase Issuance Trust, | ||||||||||||||
q 2014-A5, A5, FRN, 1.62%, (1-Month USD LIBOR + 0.37%), 4/15/21 | United States | 120,000 | 120,512 | |||||||||||
2015-A2, A2, 1.59%, 2/18/20 | United States | 135,000 | 135,038 | |||||||||||
Citibank Credit Card Issuance 2017-A8 Trust, A8, 1.86%, 8/08/22 | United States | 425,000 | 422,243 | |||||||||||
q World Financial Network Credit Card Master 2015-A Trust, A, FRN, 1.73%, (1-Month USD LIBOR + 0.48%), 2/15/22 | United States | 120,000 | 120,131 | |||||||||||
|
| |||||||||||||
|
1,108,391 |
| ||||||||||||
|
|
franklintempleton.com | Semiannual Report | 39 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | ||||||||||||||||||||
Diversified Financial Services 0.9% | ||||||||||||||||||||
f AIM Aviation Finance Ltd. 2015-1A, B1, 144A, 5.072%, 2/15/40 | Cayman Islands | 278,935 | $ | 273,875 | ||||||||||||||||
Ally Auto Receivables 2016-3 Trust, A3, 1.44%, 8/17/20 | United States | 180,000 | 179,605 | |||||||||||||||||
f Ascentium Equipment Receivables 2017-2A Trust, C, 144A, 2.87%, 8/10/22 | United States | 25,000 | 24,888 | |||||||||||||||||
f Bayview Opportunity Master Fund IIIA 2017-RN7 Trust, A1, 144A, 3.105%, 9/28/32 | United States | 106,899 | 107,118 | |||||||||||||||||
f,j Bayview Opportunity Master Fund IIIB 2017-RN2 Trust, A1, 144A, FRN, 3.475%, 4/28/32 | United States | 53,937 | 54,277 | |||||||||||||||||
f Bayview Opportunity Master Fund IVB Trust, 144A, | ||||||||||||||||||||
2017-NPL1, A1, 3.598%, 1/28/32 | United States | 59,262 | 59,550 | |||||||||||||||||
2017-NPL2, A1, 2.981%, 10/28/32 | United States | 129,994 | 130,284 | |||||||||||||||||
f Blackbird Capital Aircraft Lease Securitization Ltd 2016-1A, 144A, 4.213%, 12/16/41 | United States | 241,719 | 251,203 | |||||||||||||||||
j CarMax Auto Owner Trust, 2017-4, A2B, FRN, 1.38%, 4/15/21 | United States | 250,000 | 250,073 | |||||||||||||||||
f,j Chesapeake Funding II LLC 2017-4A, A2, 144A, FRN, 1.81%, 11/15/29 | United States | 185,000 | 185,000 | |||||||||||||||||
f Cig Auto Receivables 2017-1A Trust, A, 144A, 2.71%, 5/15/23 | United States | 45,000 | 44,986 | |||||||||||||||||
f CLI Funding V LLC 2014-2A, A, 144A, 3.38%, 10/18/29 | United States | 68,091 | 67,916 | |||||||||||||||||
f Club Credit 2017-P1 Trust, A, 144A, 2.42%, 9/15/23 | United States | 93,379 | 93,422 | |||||||||||||||||
f Coinstar Funding LLC 2017-1A, A2, 144A, 5.216%, 4/25/47 | United States | 243,775 | 253,904 | |||||||||||||||||
f CPS Auto Receivables Trust, 144A, | ||||||||||||||||||||
2014-B, D, 4.62%, 5/15/20 | United States | 110,000 | 111,233 | |||||||||||||||||
2016-B, E, 8.14%, 5/15/23 | United States | 500,000 | 538,362 | |||||||||||||||||
f DT Auto Owner Trust, 144A, | ||||||||||||||||||||
2014-3A, D, 4.47%, 11/15/21 | United States | 50,000 | 50,797 | |||||||||||||||||
2016-1A, D, 4.66%, 12/15/22 | United States | 180,000 | 183,721 | |||||||||||||||||
2016-2A, D, 5.43%, 11/15/22 | United States | 240,000 | 247,521 | |||||||||||||||||
j Fifth Third Auto 2017-1 Trust, A2B, FRN, 1.40%, 4/15/20 | United States | 125,000 | 125,049 | |||||||||||||||||
f First Investors Auto Owner 2016-1A Trust, D, 144A, 4.70%, 4/18/22 | United States | 110,000 | 112,931 | |||||||||||||||||
f Five Guys Funding LLC 2017-1A, A2, 144A, 4.60%, 7/25/47 | United States | 74,813 | 76,521 | |||||||||||||||||
Ford Credit Auto Owner Trust, | ||||||||||||||||||||
f 2014-2, A, 144A, 2.31%, 4/15/26 | United States | 100,000 | 100,478 | |||||||||||||||||
2014-C, A3, 1.06%, 5/15/19 | United States | 6,508 | 6,504 | |||||||||||||||||
2015-A, A3, 1.28%, 9/15/19 | United States | 23,373 | 23,357 | |||||||||||||||||
j 2017-C, A2B, FRN, 1.365%, 9/15/20 | United States | 480,000 | 480,300 | |||||||||||||||||
f GCAT LLC, 144A, | ||||||||||||||||||||
2017-2, A1, 3.50%, 4/25/47 | United States | 111,821 | 112,519 | |||||||||||||||||
2017-3, A1, 3.352%, 4/25/47 | United States | 73,664 | 73,924 | |||||||||||||||||
2017-5, A1, 3.228%, 7/25/47 | United States | 72,033 | 72,397 | |||||||||||||||||
f Hertz Vehicle Financing II LP 2017-2A, A, 144A, 3.29%, 10/25/23 | United States | 100,000 | 100,085 | |||||||||||||||||
Honda Auto Receivables Owner Trust, | ||||||||||||||||||||
2014-3, A4, 1.31%, 10/15/20 | United States | 20,693 | 20,691 | |||||||||||||||||
2015-1, A3, 1.05%, 10/15/18 | United States | 5,902 | 5,900 | |||||||||||||||||
2015-3, A3, 1.27%, 4/18/19 | United States | 48,724 | 48,690 | |||||||||||||||||
2017-3, A3, 1.79%, 9/20/21 | United States | 115,000 | 114,407 | |||||||||||||||||
Hyundai Auto Receivables Owner 2015-A Trust, A3, 1.05%, 4/15/19 | United States | 6,416 | 6,413 | |||||||||||||||||
f Merlin Aviation Holdings DAC 2016-1, A, 144A, 4.50%, 12/15/32 | United States | 181,250 | 182,154 | |||||||||||||||||
f,q NextGear Floorplan Master Owner 2017-1A Trust, A1, 144A, FRN, | ||||||||||||||||||||
2.084%, (1-Month USD LIBOR + 0.85%), 4/18/22 | United States | 240,000 | 241,752 | |||||||||||||||||
j Nissan Auto Lease Trust, 2017-B, A2B, FRN, 1.46%, 12/16/19 | United States | 310,000 | 310,160 | |||||||||||||||||
Nissan Auto Receivables Owner 2016-C Trust, A3, 1.18%, 1/15/21 | United States | 85,000 | 84,291 |
40 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | ||||||||||||||||||||
Diversified Financial Services (continued) | ||||||||||||||||||||
f OneMain Financial Issuance Trust, 144A, | ||||||||||||||||||||
2015-1A, A, 3.19%, 3/18/26 | United States | 150,000 | $ | 151,198 | ||||||||||||||||
2015-2A, D, 5.64%, 7/18/25 | United States | 285,000 | 285,015 | |||||||||||||||||
2015-3A, B, 4.16%, 11/20/28 | United States | 155,000 | 157,431 | |||||||||||||||||
2016-2A, B, 5.94%, 3/20/28 | United States | 335,000 | 344,586 | |||||||||||||||||
f,j Santander Retail Auto Lease 2017-A Trust, A2B, 144A, FRN, 1.513%, 3/20/20 | United States | 470,000 | 470,127 | |||||||||||||||||
f Shenton Aircraft Investment I Ltd. 2015-1A, 144A, 4.75%, 10/15/42 | Cayman Islands | 267,830 | 278,350 | |||||||||||||||||
f Sierra Timeshare Receivables Funding LLC 2013-3A, A, 144A, 2.20%, 10/20/30 | United States | 26,779 | 26,749 | |||||||||||||||||
q SLM Private Credit Student Loan Trust, FRN, | ||||||||||||||||||||
2003-A, A3, 3.78%, (28-Day T-Bill), 6/15/32 | United States | 65,000 | 65,005 | |||||||||||||||||
2003-B, A3, 3.79%, (28-Day T-Bill), 3/15/33 | United States | 300,000 | 297,783 | |||||||||||||||||
f,j SMB Private Education Loan Trust, 2017-B, A2B, 144A, FRN, 1.966%, 10/15/35 | United States | 100,000 | 100,506 | |||||||||||||||||
f Sofi Professional Loan Program LLC 2016-A, B, 144A, 3.57%, 1/26/38 | United States | 155,166 | 154,992 | |||||||||||||||||
f Sprite Cayman 2017-1, B, 144A, 5.75%, 12/15/37 | Cayman Islands | 250,000 | 245,609 | |||||||||||||||||
f TAL Advantage V LLC 2013-2A, A, 144A, 3.55%, 11/20/38 | United States | 60,000 | 60,039 | |||||||||||||||||
Toyota Auto Receivables Owner Trust | ||||||||||||||||||||
2016-C, A3, 1.14%, 8/17/20 | United States | 70,000 | 69,534 | |||||||||||||||||
j 2017-D, A2B, FRN, 1.249%, 8/17/20 | United States | 430,000 | 430,021 | |||||||||||||||||
USAA Auto Owner 2015-1 Trust, A3, 1.20%, 6/17/19 | United States | 22,846 | 22,838 | |||||||||||||||||
f,j Verizon Owner 2017-3 2017-3A Trust, A1B, 144A, FRN, 1.489%, 4/20/22 | United States | 165,000 | 165,403 | |||||||||||||||||
f Veros Automobile Receivables 2017-1 Trust, A, 144A, 2.84%, 4/17/23 | United States | 105,000 | 104,941 | |||||||||||||||||
f VOLT LIV LLC | ||||||||||||||||||||
2017-NPL1, A1, 144A, 3.50%, 2/25/47 | United States | 60,972 | 61,336 | |||||||||||||||||
2017-NPL1, A2, 144A, 6.00%, 2/25/47 | United States | 100,000 | 100,802 | |||||||||||||||||
f VOLT LV LLC 2017-NPL2, A1, 144A, 3.50%, 3/25/47 | United States | 76,795 | 77,322 | |||||||||||||||||
f VOLT LVI LLC 2017-NPL3, A2, 144A, 5.875%, 3/25/47 | United States | 220,000 | 221,625 | |||||||||||||||||
f VOLT LXI LLC 2017-NPL8, A1, 144A, 3.125%, 6/25/47 | United States | 74,368 | 74,687 | |||||||||||||||||
f VOLT LXIII LLC 2017-NP10, A1, 144A, 3.00%, 10/25/47 | United States | 100,000 | 100,151 | |||||||||||||||||
f VOLT XL LLC 2015-NP14, A2, 144A, 4.875%, 11/27/45 | United States | 140,000 | 140,181 | |||||||||||||||||
|
| |||||||||||||||||||
9,612,489 | ||||||||||||||||||||
|
| |||||||||||||||||||
Equity Real Estate Investment Trusts (REITs) 0.2% | ||||||||||||||||||||
f American Homes 4 Rent, 144A, | ||||||||||||||||||||
2014-SFR2, E, 6.231%, 10/17/36 | United States | 250,000 | 280,006 | |||||||||||||||||
2014-SFR3, E, 6.418%, 12/17/36 | United States | 100,000 | 113,022 | |||||||||||||||||
2015-SFR1, E, 5.639%, 4/17/52 | United States | 210,000 | 229,117 | |||||||||||||||||
f Colony American Finance Ltd. 2015-1, D, 144A, 5.649%, 10/15/47 | Cayman Islands | 115,000 | 121,509 | |||||||||||||||||
f Colony American Homes, 144A, FRN, | ||||||||||||||||||||
q 2014-1A, E, 4.066%, (1-Month USD LIBOR + 2.80%), 5/17/31 | United States | 215,000 | 216,506 | |||||||||||||||||
q 2014-2A, E, 4.44%, (1-Month USD LIBOR + 3.20%), 7/17/31 | United States | 72,166 | 72,680 | |||||||||||||||||
q 2015-1A, D, 3.416%, (1-Month USD LIBOR + 2.15%), 7/17/32 | United States | 245,000 | 245,691 | |||||||||||||||||
j 2015-1A, E, 4.266%, 7/17/32 | United States | 100,000 | 101,022 | |||||||||||||||||
j 2015-1A, F, 4.916%, 7/17/32 | United States | 100,000 | 101,715 | |||||||||||||||||
f Diamond Resorts Owner 2017-1A Trust, C, 144A, 6.07%, 10/22/29 | United States | 97,427 | 97,068 | |||||||||||||||||
f Invitation Homes Trust, 144A, FRN, | ||||||||||||||||||||
q 2015-SFR1, E, 5.451%, (1-Month USD LIBOR + 4.20%), 3/17/32 | United States | 205,000 | 208,327 | |||||||||||||||||
j 2015-SFR3, E, 5.001%, 8/17/32 | United States | 110,000 | 112,234 |
franklintempleton.com | Semiannual Report | 41 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
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) (continued) | ||||||||||||||||||||
f Oak Hill Advisors Residential Loan Trust, 144A, | ||||||||||||||||||||
2017-NPL2, A1, 3.00%, 7/25/57 | United States | 162,897 | $ | 163,346 | ||||||||||||||||
2017-NPL2, A2, 4.875%, 7/25/57 | United States | 235,000 | 234,772 | |||||||||||||||||
|
| |||||||||||||||||||
2,297,015 | ||||||||||||||||||||
|
| |||||||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) 0.9% | ||||||||||||||||||||
j Adjustable Rate Mortgage 2005-1 Trust, 3A1, FRN, 3.281%, 5/25/35 | United States | 97,797 | 98,903 | |||||||||||||||||
f Ajax Mortgage Loan Trust, 144A, | ||||||||||||||||||||
2016-B, A, 4.00%, 9/25/65 | United States | 150,377 | 150,541 | |||||||||||||||||
2016-C, A, 4.00%, 10/25/57 | United States | 134,889 | 136,289 | |||||||||||||||||
q American Home Mortgage Investment 2006-1 Trust, 11A1, FRN, 1.518%, (1-Month USD LIBOR + 0.28%), 3/25/46 | United States | 303,010 | 292,756 | |||||||||||||||||
Banc of America Alternative Loan 2003-8 Trust, 1CB1, 5.50%, 10/25/33 | United States | 8,952 | 9,162 | |||||||||||||||||
Banc of America Funding Trust, | ||||||||||||||||||||
2005-5, 1A1, 5.50%, 9/25/35 | United States | 13,457 | 14,181 | |||||||||||||||||
2007-4, 5A1, 5.50%, 11/25/34 | United States | 155,108 | 159,065 | |||||||||||||||||
j Banc of America Mortgage Trust, FRN, | ||||||||||||||||||||
2005-A, 2A1, 3.472%, 2/25/35 | United States | 9,178 | 9,155 | |||||||||||||||||
2005-I, 4A1, 3.42%, 10/25/35 | United States | 109,987 | 108,382 | |||||||||||||||||
BCAP LLC 2007-AA2 Trust, 22A1, 6.00%, 3/25/22 | United States | 148,528 | 147,781 | |||||||||||||||||
f CAM Mortgage Trust, 144A, | ||||||||||||||||||||
2016-1, A, 4.00%, 1/15/56 | United States | 3,002 | 3,012 | |||||||||||||||||
j 2016-1, M, FRN, 5.00%, 1/15/56 | United States | 150,000 | 147,988 | |||||||||||||||||
f,j CCRESG Commercial Mortgage Trust, 2016-HEAT, D, 144A, FRN, 5.671%, 4/10/29 | United States | 100,000 | 100,902 | |||||||||||||||||
j Citigroup Mortgage Loan Trust, FRN, | ||||||||||||||||||||
2005-3, 2A3, 3.469%, 8/25/35 | United States | 82,159 | 82,292 | |||||||||||||||||
f 2009-10, 6A2, 144A, 3.75%, 9/25/34 | United States | 63,295 | 61,382 | |||||||||||||||||
f,q Communication Mortgage Trust, 2016-SAVA, C, 144A, FRN, 4.251%, (1-Month USD LIBOR + 3.00%), 10/15/34 | United States | 155,000 | 155,985 | |||||||||||||||||
Countrywide Alternative Loan Trust, | ||||||||||||||||||||
2003-22CB, 1A1, 5.75%, 12/25/33 | United States | 61,304 | 63,133 | |||||||||||||||||
2003-9T1, A7, 5.50%, 7/25/33 | United States | 18,603 | 18,988 | |||||||||||||||||
2004-16CB, 1A1, 5.50%, 7/25/34 | United States | 41,719 | 43,022 | |||||||||||||||||
2004-16CB, 3A1, 5.50%, 8/25/34 | United States | 44,472 | 45,779 | |||||||||||||||||
2004-28CB, 5A1, 5.75%, 1/25/35 | United States | 7,855 | 7,881 | |||||||||||||||||
2004-J10, 2CB1, 6.00%, 9/25/34 | United States | 102,010 | 106,165 | |||||||||||||||||
2004-J3, 1A1, 5.50%, 4/25/34 | United States | 40,128 | 40,843 | |||||||||||||||||
q 2005-14, 2A1, FRN, 1.448%, (1-Month USD LIBOR + 0.21%), 5/25/35 | United States | 45,785 | 43,792 | |||||||||||||||||
2005-J1, 2A1, 5.50%, 2/25/25 | United States | 8,500 | 8,665 | |||||||||||||||||
Countrywide Home Loans Mortgage Pass-Through Trust, | ||||||||||||||||||||
j 2004-12, 8A1, FRN, 3.713%, 8/25/34 | United States | 10,682 | 10,545 | |||||||||||||||||
j 2004-HYB4, 2A1, FRN, 3.512%, 9/20/34 | United States | 97,610 | 95,301 | |||||||||||||||||
2005-21, A17, 5.50%, 10/25/35 | United States | 12,751 | 12,220 | |||||||||||||||||
Credit Suisse First Boston Mortgage Securities Corp., | ||||||||||||||||||||
2003-27, 4A4, 5.75%, 11/25/33 | United States | 24,945 | 25,842 | |||||||||||||||||
j 2003-AR26, 7A1, FRN, 3.534%, 11/25/33 | United States | 7,533 | 7,610 | |||||||||||||||||
j 2003-AR28, 4A1, FRN, 3.541%, 12/25/33 | United States | 4,723 | 4,757 | |||||||||||||||||
2005-10, 2A1, 5.25%, 11/25/20 | United States | 37,714 | 35,584 |
42 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
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) | ||||||||||||||||||||
f,q Credit Suisse Mortgage Trust, 2015-TOWN, A, 144A, FRN, 2.50%, (1-Month USD LIBOR + 1.25%), 3/15/28 | United States | 110,000 | $ | 110,090 | ||||||||||||||||
f CSMC OA LLC 2014-USA, E, 144A, 4.373%, 9/15/37 | United States | 300,000 | 267,581 | |||||||||||||||||
q Deutsche Mortgage Securities Inc. Mortgage Loan 2004-4 Trust, 7AR1, FRN, 1.582%, (1-Month USD LIBOR + 0.35%), 6/25/34 | United States | 85,197 | 80,775 | |||||||||||||||||
q DSLA Mortgage Loan 2005-AR5 Trust, 2A1A, FRN, 1.613%, (1-Month USD LIBOR + 0.33%), 9/19/45 | United States | 56,326 | 46,922 | |||||||||||||||||
g,q Dukinfield PLC, 2016-2, A, FRN, Reg S, 1.537%, (3-Month GBP LIBOR + 1.25%), 12/20/52 | United Kingdom | 213,424 | GBP | 292,371 | ||||||||||||||||
g,q Eurosail-UK PLC 2007-2X, A3C, FRN, Reg S, 0.44%, (3-Month GBP LIBOR + 0.15%), 3/13/45 | United Kingdom | 61,682 | GBP | 81,766 | ||||||||||||||||
q FHLMC Structural Agency Credit Risk Debt Notes, 2015-DNA1, M2, FRN, 3.088%, (1-Month USD LIBOR + 1.85%), 10/25/27 | United States | 250,000 | 255,808 | |||||||||||||||||
q FHLMC Structural Agency Credit Risk Debt Notes, 2015-DNA1, M3, FRN, 4.538%, (1-Month USD LIBOR + 3.30%), 10/25/27 | United States | 250,000 | 279,682 | |||||||||||||||||
j GMACM Mortgage Loan Trust, FRN, | ||||||||||||||||||||
2005-AR1, 3A, 3.906%, 3/18/35 | United States | 113,471 | 114,828 | |||||||||||||||||
2005-AR4, 3A1, 4.002%, 7/19/35 | United States | 160,267 | 156,028 | |||||||||||||||||
f,q GP Portfolio Trust, 2014-GPP, A, 144A, FRN, 2.45%, (1-Month USD LIBOR + 1.20%), 2/15/27 | United States | 35,155 | 35,170 | |||||||||||||||||
j GS Mortgage Securities 2007-GG10 Trust, AM, FRN, 5.78%, 8/10/45 | United States | 94,906 | 97,039 | |||||||||||||||||
GSR Mortgage Loan Trust, | ||||||||||||||||||||
2005-4F, 6A1, 6.50%, 2/25/35 | United States | 11,174 | 11,200 | |||||||||||||||||
j 2005-AR6, 4A5, FRN, 3.514%, 9/25/35 | United States | 128,809 | 130,204 | |||||||||||||||||
q Harborview Mortgage Loan Trust, FRN, | ||||||||||||||||||||
2003-2, 1A, 2.023%, (1-Month USD LIBOR + 0.74%), 10/19/33 | United States | 82,381 | 80,473 | |||||||||||||||||
2004-11, 2A2A, 1.923%, (1-Month USD LIBOR + 0.64%), 1/19/35 | United States | 128,420 | 119,110 | |||||||||||||||||
2004-2, 1A1, 1.803%, (1-Month USD LIBOR + 0.52%), 6/19/34 | United States | 130,479 | 128,628 | |||||||||||||||||
IndyMac Index Mortgage Loan Trust, FRN, | ||||||||||||||||||||
q 2004-AR12, A1, 2.018%, (1-Month USD LIBOR + 0.78%), 12/25/34 | United States | 209,509 | 194,337 | |||||||||||||||||
j 2004-AR6, 4A, 3.667%, 10/25/34 | United States | 246,215 | 251,519 | |||||||||||||||||
q 2004-AR7, A5, 2.458%, (1-Month USD LIBOR + 1.22%), 9/25/34 | United States | 68,411 | 62,766 | |||||||||||||||||
j 2005-AR11, A3, 3.29%, 8/25/35 | United States | 75,588 | 68,942 | |||||||||||||||||
q 2006-AR2, 2A1, 1.448%, (1-Month USD LIBOR + 0.21%), 2/25/46 | United States | 322,373 | 282,045 | |||||||||||||||||
JP Morgan Chase Commercial Mortgage Securities Trust, FRN, j 2007-LDPX, AM, 5.464%, 1/15/49 | United States | 24,480 | 24,588 | |||||||||||||||||
f,q 2015-SGP, D, 144A, 5.751%, (1-Month USD LIBOR + 4.50%), 7/15/36 | United States | 180,000 | 182,378 | |||||||||||||||||
JP Morgan Mortgage Trust, | ||||||||||||||||||||
j 2003-A2, 3A1, FRN, 3.046%, 11/25/33 | United States | 10,845 | 10,486 | |||||||||||||||||
2004-S1, 2A1, 6.00%, 9/25/34 | United States | 138,099 | 139,820 | |||||||||||||||||
j 2005-A1, 6T1, FRN, 3.684%, 2/25/35 | United States | 19,253 | 19,129 | |||||||||||||||||
j 2005-A3, 4A1, FRN, 3.598%, 6/25/35 | United States | 7,996 | 8,099 | |||||||||||||||||
j 2006-A1, 1A2, FRN, 3.573%, 2/25/36 | United States | 81,580 | 76,463 | |||||||||||||||||
j 2007-A1, 4A2, FRN, 3.729%, 7/25/35 | United States | 6,642 | 6,858 | |||||||||||||||||
q Lehman XS Trust, 2006-2N,1A1, FRN, | ||||||||||||||||||||
1.498%, (1-Month USD LIBOR + 0.26%), 2/25/46 | United States | 63,154 | 56,242 | |||||||||||||||||
g,q Ludgate Funding PLC, FRN, Reg S, | ||||||||||||||||||||
2007-1, A2B, 1.209%, (3-Month EURIBOR + 0.16%), 1/01/61 | United Kingdom | 35,701 | EUR | 41,379 | ||||||||||||||||
2008-W1X, A1, 0.941%, (3-Month GBP LIBOR + 0.60%), 1/01/61 | United Kingdom | 163,308 | GBP | 216,849 |
franklintempleton.com | Semiannual Report | 43 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
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) | ||||||||||||||||||
j MASTR Adjustable Rate Mortgages 2004-7 Trust, 3A1, FRN, 3.31%, 7/25/34 | United States | 43,149 | $ | 42,359 | ||||||||||||||
MASTR Alternative Loan Trust, | ||||||||||||||||||
2004-2, 8A4, 5.50%, 3/25/34 | United States | 213,173 | 217,713 | |||||||||||||||
2004-8, 2A1, 6.00%, 9/25/34 | United States | 80,033 | 85,657 | |||||||||||||||
j Merrill Lynch Mortgage Investors MLCC 2006-2, 2A, FRN, 3.155%, 5/25/36 | United States | 9,534 | 9,647 | |||||||||||||||
f,j Morgan Stanley Capital I 2011-C2 Trust, E, 144A, FRN, 5.666%, 6/15/44 | United States | 150,000 | 142,749 | |||||||||||||||
j New York Mortgage Trust Inc. 2006-1, 2A2, FRN, 3.623%, 5/25/36 | United States | 27,263 | 26,643 | |||||||||||||||
g,q Newgate Funding PLC 2007-3X, A2B, FRN, Reg S, 0.271%, (3-Month EURIBOR + 0.60%), 12/15/50 | United Kingdom | 75,416 | EUR | 89,465 | ||||||||||||||
f PRPM 2017-2 LLC, 144A, | ||||||||||||||||||
2017-2A, A1, 3.50%, 9/25/22 | United States | 302,878 | 302,474 | |||||||||||||||
2017-2A, A2, 5.00%, 9/25/22 | United States | 100,000 | 96,664 | |||||||||||||||
f,j PRPM 2017-3 LLC 2017-3A, A1, 144A, FRN, 3.47%, 11/25/22 | United States | 115,000 | 114,989 | |||||||||||||||
q Rali Trust, 2006-QO4, 2A1, FRN, 1.428%, (1-Month USD LIBOR + 0.19%), 4/25/46 | United States | 85,734 | 81,149 | |||||||||||||||
f RCO Mortgage LLC 2017-1, A1, 144A, 3.375%, 8/25/22 | United States | 203,249 | 204,328 | |||||||||||||||
Residential Asset Securitization 2003-A9 Trust, A2, 4.00%, 8/25/33 | United States | 115,211 | 115,648 | |||||||||||||||
j RFMSI Trust, FRN, | ||||||||||||||||||
2005-SA1, 1A1, 4.255%, 3/25/35 | United States | 137,856 | 112,236 | |||||||||||||||
2006-SA2, 3A1, 4.594%, 8/25/36 | United States | 187,747 | 176,863 | |||||||||||||||
g RMAC Securities PLC, Reg S, | ||||||||||||||||||
q 2005-NS3X, A2C, FRN, 0.029%, (3-Month EURIBOR + 0.36%), 6/12/43 | United Kingdom | 20,910 | EUR | 24,461 | ||||||||||||||
zero cpn., 6/12/44 | United Kingdom | 49,371 | EUR | 57,511 | ||||||||||||||
f,q SCG Trust, 144A, FRN, | ||||||||||||||||||
2013-SRP1, A, 2.889%, (1-Month USD LIBOR + 1.65%), 11/15/26 | United States | 100,000 | 99,774 | |||||||||||||||
2013-SRP1, B, 4.001%, (1-Month USD LIBOR + 2.50%), 11/15/26 | United States | 100,000 | 97,133 | |||||||||||||||
2013-SRP1, C, 4.489%, (1-Month USD LIBOR + 3.25%), 11/15/26 | United States | 100,000 | 95,571 | |||||||||||||||
2013-SRP1, D, 4.594%, (1-Month USD LIBOR + 3.34%), 11/15/26 | United States | 245,000 | 225,800 | |||||||||||||||
Structured ARM Loan Trust, FRN, | ||||||||||||||||||
j 2004-12, 7A3, 3.73%, 9/25/34 | United States | 24,271 | 24,694 | |||||||||||||||
j 2004-6, 1A, 3.358%, 6/25/34 | United States | 14,692 | 14,539 | |||||||||||||||
q 2005-14, A1, 1.542%, (1-Month USD LIBOR + 0.31%), 7/25/35 | United States | 314,192 | 254,393 | |||||||||||||||
Structured Asset Securities Corp. 2005-1 Trust, 7A7, 5.50%, 2/25/35 | United States | 15,232 | 15,499 | |||||||||||||||
g,q Towd Point Mortgage Funding, 2016-GR1X PLC, B, FRN, Reg S, 1.791%, (3-Month GBP LIBOR + 1.40%), 7/20/46 | United Kingdom | 100,000 | GBP | 136,628 | ||||||||||||||
j Wells Fargo Bank, N.A., Adjustable Rate Mortgage 2004-4 Trust, 3A1, FRN, 3.462%, 3/25/35 | United States | 40,268 | 39,648 | |||||||||||||||
Wells Fargo Mortgage Backed Securities Trust, | ||||||||||||||||||
j 2003-M, A1, FRN, 3.463%, 12/25/33 | United States | 23,640 | 23,897 | |||||||||||||||
j 2004-I, 2A1, FRN, 3.443%, 7/25/34 | United States | 148,006 | 150,495 | |||||||||||||||
j 2004-O, A1, FRN, 3.528%, 8/25/34 | United States | 9,779 | 10,060 | |||||||||||||||
2005-16, A18, 6.00%, 1/25/36 | United States | 4,673 | 4,715 | |||||||||||||||
j 2005-AR10, 2A4, FRN, 3.369%, 6/25/35 | United States | 14,482 | 14,898 | |||||||||||||||
j 2005-AR12, 2A5, FRN, 3.29%, 6/25/35 | United States | 42,968 | 43,618 | |||||||||||||||
f,j WF-RBS Commercial Mortgage 2012-C6 Trust, D, 144A, FRN, 5.58%, 4/15/45 | United States | 150,000 | 148,406 | |||||||||||||||
|
| |||||||||||||||||
9,477,802 | ||||||||||||||||||
|
| |||||||||||||||||
Total Asset-Backed Securities and Commercial Mortgage-Backed Securities (Cost $23,408,485) | 24,038,402 | |||||||||||||||||
|
|
44 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Number of Contracts | Notional Amount* | Value | |||||||||||||
Options Purchased 0.2% | ||||||||||||||||
Calls – Exchange-Traded 0.1% | ||||||||||||||||
Adient PLC, January Strike Price $85.00, Expires 1/19/18 | United States | 216 | 21,600 | $ | 12,744 | |||||||||||
AK Steel Holding Corp., January Strike Price $7.00, Expires 1/19/18 | United States | 265 | 26,500 | 1,060 | ||||||||||||
Akzo Nobel NV, December Strike Price 80.00 EUR, Expires 12/15/17 | Netherlands | 29 | 2,900 | 898 | ||||||||||||
American International Group Inc., January Strike Price $65.00, Expires 1/19/18 | United States | 50 | 5,000 | 600 | ||||||||||||
American International Group Inc., January Strike Price $67.50, Expires 1/19/18 | United States | 50 | 5,000 | 350 | ||||||||||||
AT&T Inc., December Strike Price $41.00, Expires 12/15/17 | United States | 148 | 14,800 | 296 | ||||||||||||
AT&T Inc., January Strike Price $34.00, Expires 1/19/18 | United States | 74 | 7,400 | 20,350 | ||||||||||||
AT&T Inc., January Strike Price $38.00, Expires 1/19/18 | United States | 215 | 21,500 | 8,600 | ||||||||||||
Bunge Ltd., April Strike Price $75.00, Expires 4/20/18 | United States | 52 | 5,200 | 11,700 | ||||||||||||
CenturyLink Inc., January Strike Price $15.00, Expires 1/19/18 | United States | 114 | 11,400 | 8,550 | ||||||||||||
Charter Communications Inc., A, January Strike Price $440.00, Expires 1/19/18 | United States | 94 | 9,400 | 4,230 | ||||||||||||
Comcast Corp., A, January Strike Price $36.25, Expires 1/19/18 | United States | 113 | 11,300 | 23,956 | ||||||||||||
Cypress Semiconductor Corp., December Strike Price $16.00, Expires 12/15/17 | United States | 27 | 2,700 | 1,134 | ||||||||||||
DISH Network Corp., December Strike Price $55.00, Expires 12/15/17 | United States | 16 | 1,600 | 960 | ||||||||||||
DISH Network Corp., January Strike Price $52.50, Expires 1/19/18 | United States | 376 | 37,600 | 37,600 | ||||||||||||
DISH Network Corp., March Strike Price $55.00, Expires 3/16/18 | United States | 1,232 | 123,200 | 338,800 | ||||||||||||
DowDuPont Inc., January Strike Price $70.00, Expires 1/19/18 | United States | 130 | 13,000 | 44,200 | ||||||||||||
DowDuPont Inc., March Strike Price $80.00, Expires 3/16/18 | United States | 131 | 13,100 | 7,467 | ||||||||||||
GGP Inc., January Strike Price $22.00, Expires 1/19/18 | United States | 27 | 2,700 | 4,644 | ||||||||||||
Johnson Controls International PLC, April Strike Price $41.00, Expires 4/20/18 | Ireland | 256 | 25,600 | 19,840 | ||||||||||||
Nabors Industries Ltd., December Strike Price $9.00, Expires 12/15/17 | United States | 59 | 5,900 | 59 | ||||||||||||
Navistar International Corp., January Strike Price $42.00, Expires 1/19/18 | United States | 14 | 1,400 | 2,870 | ||||||||||||
Neurocrine Biosciences Inc., December Strike Price $80.00, Expires 12/15/17 | United States | 9 | 900 | 315 | ||||||||||||
Nuance Communications Inc., January Strike Price $15.00, Expires 1/19/18 | United States | 61 | 6,100 | 6,893 | ||||||||||||
NXP Semiconductors NV, January Strike Price $105.00, Expires 1/19/18 | Netherlands | 31 | 3,100 | 29,760 | ||||||||||||
NXP Semiconductors NV, January Strike Price $110.00, Expires 1/19/18 | Netherlands | 147 | 14,700 | 76,440 | ||||||||||||
QUALCOMM Inc., December Strike Price $62.50, Expires 12/15/17 | United States | 9 | 900 | 3,870 | ||||||||||||
QUALCOMM Inc., January Strike Price $70.00, Expires 1/19/18 | United States | 188 | 18,800 | 24,064 | ||||||||||||
QUALCOMM Inc., June Strike Price $70.00, Expires 6/15/18 | United States | 27 | 2,700 | 8,100 | ||||||||||||
Radius Health Inc., January Strike Price $30.00, Expires 1/19/18 | United States | 15 | 1,500 | 3,188 |
franklintempleton.com | Semiannual Report | 45 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Number of Contracts | Notional Amount* | Value | |||||||||||||
Options Purchased (continued) | ||||||||||||||||
Calls – Exchange-Traded (continued) | ||||||||||||||||
S&P 500 Index, December Strike Price $2,650.00, Expires 12/29/17 | United States | 83 | 8,300 | $ | 186,501 | |||||||||||
S&P 500 Index, January Strike Price $2,650.00, Expires 1/19/18 | United States | 82 | 8,200 | 261,580 | ||||||||||||
S&P 500 Index, March Strike Price $2,800.00, Expires 3/16/18 | United States | 267 | 26,700 | 128,160 | ||||||||||||
Silver Spring Networks Inc., February Strike Price $17.50, Expires 2/16/18 | United States | 42 | 4,200 | 210 | ||||||||||||
Straight Path Communications Inc., January Strike Price $150.00, Expires 1/19/18 | United States | 110 | 11,000 | 352,550 | ||||||||||||
Straight Path Communications Inc., February Strike Price $150.00, Expires 2/16/18 | United States | 51 | 5,100 | 162,435 | ||||||||||||
Telecom Italia SpA, December Strike Price 0.90 EUR, Expires 12/15/17 | Italy | 1,015 | 1,015,000 | 725 | ||||||||||||
Telecom Italia SpA, June Strike Price 0.70 EUR, Expires 6/15/18 | Italy | 472 | 472,000 | 35,730 | ||||||||||||
Telecom Italia SpA, June Strike Price 0.76 EUR, Expires 6/15/18 | Italy | 534 | 534,000 | 25,233 | ||||||||||||
thyssenkrupp AG, March Strike Price 24.00 EUR, Expires 3/16/18 | Germany | 169 | 16,900 | 16,092 | ||||||||||||
thyssenkrupp AG, March Strike Price 25.00 EUR, Expires 3/16/18 | Germany | 179 | 17,900 | 10,866 | ||||||||||||
thyssenkrupp AG, March Strike Price 27.00 EUR, Expires 3/16/18 | Germany | 172 | 17,200 | 4,299 | ||||||||||||
Trinity Industries Inc., January Strike Price $37.00, Expires 1/19/18 | United States | 16 | 1,600 | 1,040 | ||||||||||||
Trinity Industries Inc., April Strike Price $38.00, Expires 4/20/18 | United States | 297 | 29,700 | 43,659 | ||||||||||||
TTM Technologies Inc., December Strike Price $17.50, Expires 12/15/17 | United States | 68 | 6,800 | 680 | ||||||||||||
Vivendi SA, December Strike Price 21.00 EUR, Expires 12/15/17 | France | 110 | 11,000 | 18,592 | ||||||||||||
Vivendi SA, December Strike Price 22.00 EUR, Expires 12/15/17 | France | 215 | 21,500 | 14,842 | ||||||||||||
Vodafone Group PLC, ADR, January Strike Price $32.00, Expires 1/19/18 | United Kingdom | 535 | 53,500 | 10,165 | ||||||||||||
Vodafone Group PLC, ADR, January Strike Price $40.00, Expires 1/19/18 | United Kingdom | 36 | 3,600 | 108 | ||||||||||||
|
| |||||||||||||||
1,977,005 | ||||||||||||||||
|
| |||||||||||||||
Calls – Over-the-Counter 0.0%† | ||||||||||||||||
Currency Options 0.0%† | ||||||||||||||||
USD/PHP, May Strike Price 50.95 PHP, Counterparty BOFA, Expires 5/18/18 | United States | 1 | 2,950,000 | 45,077 | ||||||||||||
|
| |||||||||||||||
Puts – Exchange-Traded 0.1% | ||||||||||||||||
Aegean Marine Petroleum Network Inc., December Strike Price $2.50, Expires 12/15/17 | Greece | 124 | 12,400 | 620 | ||||||||||||
Apollo Commercial Real Estate Finance Inc., February Strike Price $17.50, Expires 2/16/18 | United States | 53 | 5,300 | 1,060 | ||||||||||||
CAC 40 Index, December Strike Price 5,200.00 EUR, Expires 12/15/17 | France | 72 | 720 | 8,724 |
46 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Number of Contracts | Notional Amount* | Value | |||||||||||||
Options Purchased (continued) | ||||||||||||||||
Puts – Exchange-Traded (continued) | ||||||||||||||||
Chicago Board Options Exchange SPX Volatility Index, December Strike Price $12.00, Expires 12/20/17 | United States | 105 | 10,500 | $ | 13,125 | |||||||||||
Deutsche Boerse AG German Stock Index DAX, December Strike Price 12,350.00 EUR, Expires 12/15/17 | Germany | 87 | 435 | 8,129 | ||||||||||||
DISH Network Corp., March Strike Price $40.00, Expires 3/16/18 | United States | 422 | 42,200 | 35,870 | ||||||||||||
EURO STOXX 50 Price EUR, January Strike Price 3,500.00 EUR, Expires 1/19/18 | Germany | 103 | 1,030 | 47,199 | ||||||||||||
Financial Select Sector SPDR Fund, January Strike Price $27.00, Expires 1/19/18 | United States | 175 | 17,500 | 7,700 | ||||||||||||
Golar LNG Ltd., December Strike Price $17.50, Expires 12/15/17 | Bermuda | 60 | 6,000 | 600 | ||||||||||||
Golar LNG Ltd., January Strike Price $17.50, Expires 1/19/18 | Bermuda | 14 | 1,400 | 140 | ||||||||||||
Hannon Armstrong Sustainable Infrastructure Capital Inc., December Strike Price $20.00, Expires 12/15/17 | United States | 15 | 1,500 | 75 | ||||||||||||
Innoviva Inc., December Strike Price $10.00, Expires 12/15/17 | United States | 56 | 5,600 | 1,120 | ||||||||||||
iShares iBoxx High Yield Corporate Bond ETF, January Strike Price $86.00, Expires 1/19/18 | United States | 136 | 13,600 | 6,120 | ||||||||||||
iShares iBoxx High Yield Corporate Bond ETF, March Strike Price $85.00, Expires 3/16/18 | United States | 153 | 15,300 | 13,770 | ||||||||||||
iShares MSCI Emerging Markets ETF, January Strike Price $47.00, Expires 1/19/18 | United States | 182 | 18,200 | 33,124 | ||||||||||||
iShares Russell 2000 ETF, December Strike Price $145.00, Expires 12/15/17 | United States | 116 | 11,600 | 2,552 | ||||||||||||
iShares Russell 2000 ETF, January Strike Price $151.00, Expires 1/19/18 | United States | 75 | 7,500 | 18,000 | ||||||||||||
iStar Inc., January Strike Price $11.00, Expires 1/19/18 | United States | 88 | 8,800 | 1,320 | ||||||||||||
Pattern Energy Group Inc., December Strike Price $20.00, Expires 12/15/17 | United States | 46 | 4,600 | 690 | ||||||||||||
PowerShares QQQ Series 1 Trust, December Strike Price $150.00, Expires 12/15/17 | United States | 116 | 11,600 | 6,032 | ||||||||||||
PowerShares QQQ Series 1 Trust, December Strike Price $153.00, Expires 12/15/17 | United States | 24 | 2,400 | 2,640 | ||||||||||||
Redwood Trust Inc., January Strike Price $15.00, Expires 1/19/18 | United States | 60 | 6,000 | 2,850 | ||||||||||||
S&P 500 Index, December Strike Price $2,450.00, Expires 12/15/17 | United States | 129 | 12,900 | 15,480 | ||||||||||||
S&P 500 Index, December Strike Price $2,455.00, Expires 12/15/17 | United States | 7 | 700 | 840 | ||||||||||||
S&P 500 Index, December Strike Price $2,500.00, Expires 12/15/17 | United States | 27 | 2,700 | 4,860 | ||||||||||||
S&P 500 Index, December Strike Price $2,500.00, Expires 12/29/17 | United States | 589 | 58,900 | 259,160 | ||||||||||||
S&P 500 Index, January Strike Price $2,475.00, Expires 1/19/18 | United States | 55 | 5,500 | 40,700 | ||||||||||||
S&P 500 Index, February Strike Price $2,525.00, Expires 2/16/18 | United States | 29 | 2,900 | 57,420 | ||||||||||||
SPDR S&P 500 ETF Trust, December Strike Price $250.00, Expires 12/15/17 | United States | 124 | 12,400 | 2,728 | ||||||||||||
SPDR S&P Retail ETF, January Strike Price $42.00, Expires 1/19/18 | United States | 231 | 23,100 | 15,939 |
franklintempleton.com | Semiannual Report | 47 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Number of Contracts | Notional Amount* | Value | |||||||||||||
Options Purchased (continued) | ||||||||||||||||
Puts – Exchange-Traded (continued) | ||||||||||||||||
Texas Instruments Inc., December Strike Price $82.50, Expires 12/15/17 | United States | 218 | 21,800 | $ | 1,635 | |||||||||||
Texas Instruments Inc., December Strike Price $85.00, Expires 12/15/17 | United States | 75 | 7,500 | 525 | ||||||||||||
Texas Instruments Inc., January Strike Price $92.50, Expires 1/19/18 | United States | 36 | 3,600 | 3,384 | ||||||||||||
Texas Instruments Inc., January Strike Price $95.00, Expires 1/19/18 | United States | 36 | 3,600 | 6,228 | ||||||||||||
Vishay Intertechnology Inc., January Strike Price $20.00, Expires 1/19/18 | United States | 46 | 4,600 | 1,380 | ||||||||||||
WPX Energy Inc., December Strike Price $11.00, Expires 12/15/17 | United States | 120 | 12,000 | 600 | ||||||||||||
|
| |||||||||||||||
622,339 | ||||||||||||||||
|
| |||||||||||||||
Total Options Purchased (Cost $3,270,552) | 2,644,421 | |||||||||||||||
|
| |||||||||||||||
Total Investments before Short Term | 762,376,122 | |||||||||||||||
|
| |||||||||||||||
Country | Shares | |||||||||||||||
|
|
|
| |||||||||||||
Short Term Investments 21.9% | ||||||||||||||||
Money Market Funds 16.6% | ||||||||||||||||
r,s Dreyfus Government Cash Management, Institutional Shares, 0.95% | United States | 22,983,302 | 22,983,302 | |||||||||||||
r Fidelity Investments Money Market Funds, 0.97% | United States | 156,890,921 | 156,890,921 | |||||||||||||
|
| |||||||||||||||
Total Money Market Funds (Cost $179,874,223) | 179,874,223 | |||||||||||||||
|
| |||||||||||||||
Principal Amount* | ||||||||||||||||
|
| |||||||||||||||
Repurchase Agreements (Cost $19,665,720) 1.8% | ||||||||||||||||
t Joint Repurchase Agreement, 1.029%, 12/01/17 | United States | 19,665,720 | 19,665,720 | |||||||||||||
|
| |||||||||||||||
BNP Paribas Securities Corp. (Maturity Value $16,627,645) | ||||||||||||||||
Deutsche Bank Securities Inc. (Maturity Value $876,920) | ||||||||||||||||
HSBC Securities (USA) Inc. (Maturity Value $2,078,529) | ||||||||||||||||
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $83,188) | ||||||||||||||||
Collateralized by U.S. Government Agency Securities, 1.875%, 9/18/18; | ||||||||||||||||
U.S. Government and Agency Securities 3.5% | ||||||||||||||||
t U.S. Treasury Bill, | ||||||||||||||||
1/11/18 | United States | 1,750,000 | 1,747,783 | |||||||||||||
2/01/18 | United States | 865,000 | 863,320 | |||||||||||||
a3/01/18 | United States | 27,100,000 | 27,015,736 | |||||||||||||
3/22/18 | United States | 1,400,000 | 1,394,556 | |||||||||||||
3/29/18 | United States | 1,750,000 | 1,742,672 | |||||||||||||
4/12/18 | United States | 1,400,000 | 1,393,352 | |||||||||||||
7/19/18 | United States | 1,315,000 | 1,302,849 | |||||||||||||
8/16/18 | United States | 1,750,000 | 1,731,313 | |||||||||||||
|
| |||||||||||||||
Total U.S. Government and Agency Securities (Cost $37,200,014) | 37,191,581 | |||||||||||||||
|
| |||||||||||||||
Total Investments (Cost $883,689,353) 92.2% | 999,107,646 |
48 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Principal Amount* | Value | |||||||||||||||
Short Term Investments (continued) | ||||||||||||||||
Options Written (0.0)%† | $ | (507,956) | ||||||||||||||
Securities Sold Short (20.4)% | (220,393,416) | |||||||||||||||
Other Assets, less Liabilities 28.2% | 304,687,304 | |||||||||||||||
|
| |||||||||||||||
Net Assets 100.0% | $ | 1,082,893,578 | ||||||||||||||
|
| |||||||||||||||
Country | Number of Contracts | Notional Amount* | ||||||||||||||
|
| |||||||||||||||
v Options Written (0.0)%† | ||||||||||||||||
Calls – Exchange-Traded (0.0)%† | ||||||||||||||||
Apple Inc., January Strike Price $180.00, Expires 1/19/18 | United States | 11 | 1,100 | (2,178) | ||||||||||||
CenturyLink Inc., January Strike Price $17.00, Expires 1/19/18 | United States | 114 | 11,400 | (2,508) | ||||||||||||
Charter Communications Inc., A, January Strike Price $500.00, Expires 1/19/18 | United States | 94 | 9,400 | (8,930) | ||||||||||||
Comcast Corp., A, January Strike Price $41.25, Expires 1/19/18 | United States | 113 | 11,300 | (2,938) | ||||||||||||
Microsoft Corp., December Strike Price $87.50, Expires 12/15/17 | United States | 16 | 1,600 | (240) | ||||||||||||
NXP Semiconductors NV, January Strike Price $115.00, Expires 1/19/18 | Netherlands | 31 | 3,100 | (7,130) | ||||||||||||
QUALCOMM Inc., December Strike Price $67.50, Expires 12/15/17 | United States | 10 | 1,000 | (870) | ||||||||||||
S&P 500 Index, December Strike Price $2,675.00, Expires 12/29/17 | United States | 83 | 8,300 | (97,110) | ||||||||||||
S&P 500 Index, January Strike Price $2,680.00, Expires 1/19/18 | United States | 41 | 4,100 | (82,779) | ||||||||||||
S&P 500 Index, January Strike Price $2,690.00, Expires 1/19/18 | United States | 41 | 4,100 | (55,883) | ||||||||||||
S&P 500 Index, March Strike Price $2,900.00, Expires 3/16/18 | United States | 53 | 5,300 | (7,950) | ||||||||||||
Straight Path Communications Inc., January Strike Price $185.00, Expires 1/19/18 | United States | 110 | 11,000 | (6,875) | ||||||||||||
Straight Path Communications Inc., February Strike Price $185.00, Expires 2/16/18 | United States | 51 | 5,100 | (8,670) | ||||||||||||
Telecom Italia SpA, December Strike Price 1.20 EUR, Expires 12/15/17 | Italy | 1,015 | 1,015,000 | (242) | ||||||||||||
|
| |||||||||||||||
(284,303 | ) | |||||||||||||||
|
| |||||||||||||||
Puts – Exchange-Traded (0.0)%† | ||||||||||||||||
AK Steel Holding Corp., January Strike Price $5.50, Expires 1/19/18 | United States | 133 | 13,300 | (10,174) | ||||||||||||
Bunge Ltd., April Strike Price $60.00, Expires 4/20/18 | United States | 52 | 5,200 | (9,100) | ||||||||||||
CAC 40 Index, December Strike Price 4,700.00 EUR, Expires 12/15/17 | France | 72 | 720 | (574) | ||||||||||||
Chicago Board Options Exchange SPX Volatility Index, December Strike Price $10.50, Expires 12/20/17 | United States | 105 | 10,500 | (3,150) | ||||||||||||
Deutsche Boerse AG German Stock Index DAX, December Strike Price 11,500.00 EUR, Expires 12/15/17 | Germany | 89 | 445 | (1,642) | ||||||||||||
DISH Network Corp., January Strike Price $47.50, Expires 1/19/18 | United States | 27 | 2,700 | (3,645) | ||||||||||||
DISH Network Corp., March Strike Price $45.00, Expires 3/16/18 | United States | 523 | 52,300 | (101,985) |
franklintempleton.com | Semiannual Report | 49 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Number of Contracts | Notional Amount* | Value | |||||||||||||
v Options Written (continued)† | ||||||||||||||||
Puts – Exchange-Traded (continued)† | ||||||||||||||||
EURO STOXX 50 Price EUR, January Strike Price 3,150.00 EUR, Expires 1/19/18 | Germany | 104 | 1,040 | $ | (5,818) | |||||||||||
iShares iBoxx High Yield Corporate Bond ETF, January Strike Price $81.00, Expires 1/19/18 | United States | 136 | 13,600 | (1,088) | ||||||||||||
iShares iBoxx High Yield Corporate Bond ETF, March Strike Price $80.00, Expires 3/16/18 | United States | 153 | 15,300 | (4,590) | ||||||||||||
iShares MSCI Emerging Markets ETF, January Strike Price $45.00, Expires 1/19/18 | United States | 182 | 18,200 | (16,016) | ||||||||||||
iShares Russell 2000 ETF, January Strike Price $144.00, Expires 1/19/18 | United States | 75 | 7,500 | (6,675) | ||||||||||||
Navistar International Corp., January Strike Price $35.00, Expires 1/19/18 | United States | 14 | 1,400 | (938) | ||||||||||||
Neurocrine Biosciences Inc., December Strike Price $70.00, Expires 12/15/17 | United States | 9 | 900 | (1,440) | ||||||||||||
Radius Health Inc., April Strike Price $25.00, Expires 4/20/18 | United States | 15 | 1,500 | (4,800) | ||||||||||||
S&P 500 Index, January Strike Price $2,300.00, Expires 1/19/18 | United States | 55 | 5,500 | (13,640) | ||||||||||||
S&P 500 Index, February Strike Price $2,425.00, Expires 2/16/18 | United States | 29 | 2,900 | (32,625) | ||||||||||||
SPDR S&P 500 ETF Trust, December Strike Price $240.00, Expires 12/15/17 | United States | 124 | 12,400 | (1,364) | ||||||||||||
SPDR S&P Retail ETF, January Strike Price $39.00, Expires 1/19/18 | United States | 231 | 23,100 | (4,389) | ||||||||||||
|
| |||||||||||||||
(223,653 | ) | |||||||||||||||
|
| |||||||||||||||
Total Options Written | (507,956) | |||||||||||||||
|
|
Country | Shares | |||||||||||||||
w Securities Sold Short (20.4)% | ||||||||||||||||
Common Stocks (7.8)% | ||||||||||||||||
Aerospace & Defense (0.1)% | ||||||||||||||||
Aerojet Rocketdyne Holdings Inc. | United States | 9,530 | (300,100 | ) | ||||||||||||
Arconic Inc. | United States | 4,369 | (107,521 | ) | ||||||||||||
United Technologies Corp. | United States | 6,772 | (822,459 | ) | ||||||||||||
(1,230,080 | ) | |||||||||||||||
|
| |||||||||||||||
Air Freight & Logistics (0.1)% | ||||||||||||||||
Air Transport Services Group Inc. | United States | 7,980 | (193,515 | ) | ||||||||||||
Atlas Air Worldwide Holdings Inc. | United States | 5,329 | (307,750 | ) | ||||||||||||
United Parcel Service Inc., B | United States | 3,016 | (366,293 | ) | ||||||||||||
|
| |||||||||||||||
(867,558 | ) | |||||||||||||||
|
| |||||||||||||||
Airlines (0.0)%† | ||||||||||||||||
Norwegian Air Shuttle ASA | Norway | 7,569 | (165,583 | ) | ||||||||||||
SAS AB | Sweden | 102,930 | (317,239 | ) | ||||||||||||
|
| |||||||||||||||
(482,822 | ) | |||||||||||||||
|
| |||||||||||||||
Auto Components (0.0)%† | ||||||||||||||||
Horizon Global Corp. | United States | 14,624 | (206,198 | ) | ||||||||||||
|
|
50 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares | Value | ||||||||||||
w Securities Sold Short (continued) | ||||||||||||||
Common Stocks (continued) | ||||||||||||||
Automobiles (0.2)% | ||||||||||||||
Ford Motor Co. | United States | 20,319 | $ | (254,394 | ) | |||||||||
Tesla Inc. | United States | 7,467 | (2,306,183 | ) | ||||||||||
|
| |||||||||||||
(2,560,577 | ) | |||||||||||||
|
| |||||||||||||
Beverages (0.0)%† | ||||||||||||||
The Boston Beer Co. Inc., A | United States | 993 | (178,591 | ) | ||||||||||
|
| |||||||||||||
Biotechnology (0.4)% | ||||||||||||||
Amicus Therapeutics Inc. | United States | 147,886 | (2,058,573 | ) | ||||||||||
BioMarin Pharmaceutical Inc. | United States | 3,654 | (313,513 | ) | ||||||||||
Flexion Therapeutics Inc. | United States | 5,467 | (141,650 | ) | ||||||||||
Intercept Pharmaceuticals Inc. | United States | 396 | (24,318 | ) | ||||||||||
Neurocrine Biosciences Inc. | United States | 5,094 | (366,208 | ) | ||||||||||
PDL BioPharma Inc. | United States | 102,662 | (298,746 | ) | ||||||||||
Radius Health Inc. | United States | 10,353 | (293,094 | ) | ||||||||||
Sarepta Therapeutics Inc. | United States | 5,038 | (280,466 | ) | ||||||||||
|
| |||||||||||||
(3,776,568 | ) | |||||||||||||
|
| |||||||||||||
Capital Markets (0.1)% | ||||||||||||||
Ares Capital Corp. | United States | 9,082 | (147,310 | ) | ||||||||||
Cowen Inc., A | United States | 11,294 | (168,280 | ) | ||||||||||
Hercules Capital Inc. | United States | 3,162 | (42,466 | ) | ||||||||||
TCP Capital Corp. | United States | 4,102 | (65,017 | ) | ||||||||||
Virtus Investment Partners Inc. | United States | 3,573 | (428,939 | ) | ||||||||||
|
| |||||||||||||
(852,012 | ) | |||||||||||||
|
| |||||||||||||
Chemicals (0.2)% | ||||||||||||||
Eastman Chemical Co. | United States | 3,350 | (309,439 | ) | ||||||||||
HB Fuller Co. | United States | 5,077 | (287,206 | ) | ||||||||||
Kansai Paint Co. Ltd. | Japan | 4,200 | (110,052 | ) | ||||||||||
LyondellBasell Industries NV, A | United States | 4,537 | (475,024 | ) | ||||||||||
Methanex Corp. | Canada | 8,902 | (474,032 | ) | ||||||||||
Mitsubishi Chemical Holdings Corp. | Japan | 13,000 | (140,459 | ) | ||||||||||
Yara International ASA | Norway | 7,363 | (327,374 | ) | ||||||||||
|
| |||||||||||||
(2,123,586 | ) | |||||||||||||
|
| |||||||||||||
Commercial Services & Supplies (0.0)%† | ||||||||||||||
Ritchie Bros Auctioneers Inc. | Canada | 5,894 | (156,191 | ) | ||||||||||
|
| |||||||||||||
Communications Equipment (0.1)% | ||||||||||||||
Calamp Corp. | United States | 9,608 | (219,543 | ) | ||||||||||
InterDigital Inc. | United States | 2,038 | (155,092 | ) | ||||||||||
Viavi Solutions Inc. | United States | 13,285 | (124,480 | ) | ||||||||||
|
| |||||||||||||
(499,115 | ) | |||||||||||||
|
| |||||||||||||
Construction & Engineering (0.1)% | ||||||||||||||
Dycom Industries Inc. | United States | 183 | (19,648 | ) | ||||||||||
Mirait Holdings Corp. | Japan | 9,400 | (125,534 | ) | ||||||||||
Valmont Industries Inc. | United States | 3,936 | (680,141 | ) | ||||||||||
|
| |||||||||||||
(825,323 | ) | |||||||||||||
|
| |||||||||||||
Construction Materials (0.0)%† | ||||||||||||||
Cemex SAB de CV, ADR | Mexico | 28,806 | (218,638 | ) | ||||||||||
|
|
franklintempleton.com | Semiannual Report | 51 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares | Value | ||||||||||||
w Securities Sold Short (continued) | ||||||||||||||
Common Stocks (continued) | ||||||||||||||
Consumer Finance (0.2)% | ||||||||||||||
Encore Capital Group Inc. | United States | 17,930 | $ | (821,194 | ) | |||||||||
Ezcorp Inc., A | United States | 59,473 | (716,650 | ) | ||||||||||
PRA Group Inc. | United States | 10,831 | (376,919 | ) | ||||||||||
|
| |||||||||||||
(1,914,763 | ) | |||||||||||||
|
| |||||||||||||
Diversified Consumer Services (0.0)%† | ||||||||||||||
Carriage Services Inc., A | United States | 16,253 | (416,402 | ) | ||||||||||
|
| |||||||||||||
Diversified Financial Services (0.0)%† | ||||||||||||||
Element Fleet Management Corp., Common Subscription Receipt | Canada | 16,759 | (126,392 | ) | ||||||||||
|
| |||||||||||||
Diversified Telecommunication Services (0.3)% | ||||||||||||||
AT&T Inc. | United States | 72,331 | (2,631,402 | ) | ||||||||||
Iridium Communications Inc. | United States | 34,298 | (423,580 | ) | ||||||||||
|
| |||||||||||||
(3,054,982 | ) | |||||||||||||
|
| |||||||||||||
Electric Utilities (0.0)%† | ||||||||||||||
Kyushu Electric Power Co. Inc. | Japan | 25,500 | (290,697 | ) | ||||||||||
|
| |||||||||||||
Electrical Equipment (0.1)% | ||||||||||||||
Eaton Corp. PLC | United States | 5,495 | (427,401 | ) | ||||||||||
Regal Beloit Corp. | United States | 13,511 | (1,039,672 | ) | ||||||||||
|
| |||||||||||||
(1,467,073 | ) | |||||||||||||
|
| |||||||||||||
Electronic Equipment, Instruments & Components (0.6)% | ||||||||||||||
II-VI Inc. | United States | 10,971 | (520,026 | ) | ||||||||||
Knowles Corp. | United States | 28,263 | (446,273 | ) | ||||||||||
Littelfuse Inc. | United States | 2,626 | (532,815 | ) | ||||||||||
OSI Systems Inc. | United States | 2,117 | (183,459 | ) | ||||||||||
Vishay Intertechnology Inc. | United States | 232,240 | (5,086,056 | ) | ||||||||||
|
| |||||||||||||
(6,768,629 | ) | |||||||||||||
|
| |||||||||||||
Energy Equipment & Services (0.1)% | ||||||||||||||
Transocean Ltd. | United States | 87,934 | (891,651 | ) | ||||||||||
|
| |||||||||||||
Equity Real Estate Investment Trusts (REITs) (0.6)% | ||||||||||||||
American Homes 4 Rent, A | United States | 41,677 | (895,222 | ) | ||||||||||
Colony Northstar Inc., A | United States | 8,728 | (106,394 | ) | ||||||||||
Empire State Realty Trust Inc., A | United States | 53,709 | (1,090,293 | ) | ||||||||||
Forest City Realty Trust Inc., A | United States | 61,326 | (1,468,758 | ) | ||||||||||
Host Hotels & Resorts Inc. | United States | 22,598 | (447,214 | ) | ||||||||||
Invitation Homes Inc. | United States | 67,190 | (1,582,332 | ) | ||||||||||
iStar Inc. | United States | 21,712 | (249,688 | ) | ||||||||||
Ryman Hospitality Properties Inc. | United States | 5,870 | (407,847 | ) | ||||||||||
|
| |||||||||||||
(6,247,748 | ) | |||||||||||||
|
| |||||||||||||
Food & Staples Retailing (0.1)% | ||||||||||||||
Casey’s General Stores Inc. | United States | 4,841 | (584,551 | ) | ||||||||||
CVS Health Corp. | United States | 2,895 | (221,757 | ) | ||||||||||
SUPERVALU Inc. | United States | 11,643 | (212,834 | ) | ||||||||||
|
| |||||||||||||
(1,019,142 | ) | |||||||||||||
|
| |||||||||||||
Health Care Equipment & Supplies (0.5)% | ||||||||||||||
Becton Dickinson and Co. | United States | 7,296 | (1,665,020 | ) | ||||||||||
DexCom Inc. | United States | 1,066 | (62,287 | ) |
52 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares | Value | ||||||||||||
w Securities Sold Short (continued) | ||||||||||||||
Common Stocks (continued) | ||||||||||||||
Health Care Equipment & Supplies (continued) | ||||||||||||||
Insulet Corp. | United States | 3,984 | $ | (285,772 | ) | |||||||||
Invacare Corp. | United States | 37,566 | (659,283 | ) | ||||||||||
Nipro Corp. | Japan | 14,600 | (210,675 | ) | ||||||||||
Quidel Corp. | United States | 26,791 | (1,017,790 | ) | ||||||||||
Wright Medical Group NV | United States | 43,227 | (1,050,848 | ) | ||||||||||
|
| |||||||||||||
(4,951,675 | ) | |||||||||||||
|
| |||||||||||||
Health Care Providers & Services (0.0)%† | ||||||||||||||
Teladoc Inc. | United States | 4,206 | (156,043 | ) | ||||||||||
|
| |||||||||||||
Health Care Technology (0.0)%† | ||||||||||||||
Allscripts Healthcare Solutions Inc. | United States | 16,288 | (232,918 | ) | ||||||||||
|
| |||||||||||||
Hotels, Restaurants & Leisure (0.2)% | ||||||||||||||
The Cheesecake Factory Inc. | United States | 8,866 | (434,789 | ) | ||||||||||
Marriott Vacations Worldwide Corp. | United States | 2,730 | (366,503 | ) | ||||||||||
Wyndham Worldwide Corp. | United States | 11,527 | (1,295,519 | ) | ||||||||||
|
| |||||||||||||
(2,096,811 | ) | |||||||||||||
|
| |||||||||||||
Household Durables (0.3)% | ||||||||||||||
Lennar Corp., A | United States | 33,147 | (2,080,969 | ) | ||||||||||
Lennar Corp., B | United States | 663 | (34,025 | ) | ||||||||||
Meritage Homes Corp. | United States | 11,602 | (637,530 | ) | ||||||||||
Newell Brands Inc. | United States | 5,302 | (164,203 | ) | ||||||||||
PulteGroup Inc. | United States | 13,833 | (472,120 | ) | ||||||||||
Whirlpool Corp. | United States | 993 | (167,390 | ) | ||||||||||
|
| |||||||||||||
(3,556,237 | ) | |||||||||||||
|
| |||||||||||||
Independent Power & Renewable Electricity Producers (0.0)%† | ||||||||||||||
Pattern Energy Group Inc., A | United States | 3,049 | (68,724 | ) | ||||||||||
|
| |||||||||||||
Insurance (0.0)%† | ||||||||||||||
AmTrust Financial Services Inc. | United States | 4,040 | (38,946 | ) | ||||||||||
HCI Group Inc. | United States | 1,565 | (47,059 | ) | ||||||||||
|
| |||||||||||||
(86,005 | ) | |||||||||||||
|
| |||||||||||||
Internet & Direct Marketing Retail (0.2)% | ||||||||||||||
Liberty Ventures, A | United States | 23,768 | (1,326,492 | ) | ||||||||||
The Priceline Group Inc. | United States | 340 | (591,501 | ) | ||||||||||
Wayfair Inc., A | United States | 3,123 | (218,579 | ) | ||||||||||
|
| |||||||||||||
(2,136,572 | ) | |||||||||||||
|
| |||||||||||||
Internet Software & Services (0.7)% | ||||||||||||||
Alibaba Group Holding Ltd., ADR | China | 8,842 | (1,565,741 | ) | ||||||||||
Altaba Inc. | United States | 58,661 | (4,109,790 | ) | ||||||||||
Carbonite Inc. | United States | 16,441 | (395,406 | ) | ||||||||||
IAC/InterActiveCorp. | United States | 3,677 | (467,972 | ) | ||||||||||
Quotient Technology Inc. | United States | 16,887 | (200,955 | ) | ||||||||||
Weibo Corp., ADR | China | 1,826 | (198,230 | ) | ||||||||||
Zillow Group Inc., C | United States | 3,991 | (163,791 | ) | ||||||||||
|
| |||||||||||||
(7,101,885 | ) | |||||||||||||
|
|
franklintempleton.com | Semiannual Report | 53 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares | Value | ||||||||||||
w Securities Sold Short (continued) | ||||||||||||||
Common Stocks (continued) | ||||||||||||||
IT Services (0.0)%† | ||||||||||||||
Euronet Worldwide Inc. | United States | 1,037 | $ | (94,730 | ) | |||||||||
Square Inc., A | United States | 5,451 | (213,788 | ) | ||||||||||
|
| |||||||||||||
(308,518 | ) | |||||||||||||
|
| |||||||||||||
Leisure Products (0.1)% | ||||||||||||||
Polaris Industries Inc. | United States | 4,425 | (562,019 | ) | ||||||||||
|
| |||||||||||||
Life Sciences Tools & Services (0.0)%† | ||||||||||||||
Fluidigm Corp. | United States | 3,755 | (22,342 | ) | ||||||||||
|
| |||||||||||||
Machinery (0.3)% | ||||||||||||||
Chart Industries Inc. | United States | 2,765 | (134,600 | ) | ||||||||||
CNH Industrial NV | United Kingdom | 19,729 | (256,477 | ) | ||||||||||
Flowserve Corp. | United States | 14,487 | (616,856 | ) | ||||||||||
The Greenbrier Cos. Inc. | United States | 3,479 | (173,950 | ) | ||||||||||
Navistar International Corp. | United States | 4,685 | (190,726 | ) | ||||||||||
SKF AB, B | Sweden | 6,664 | (150,620 | ) | ||||||||||
The Timken Co. | United States | 8,715 | (434,878 | ) | ||||||||||
Trinity Industries Inc. | United States | 19,138 | (682,270 | ) | ||||||||||
Volvo AB, B | Sweden | 8,405 | (159,848 | ) | ||||||||||
|
| |||||||||||||
(2,800,225 | ) | |||||||||||||
|
| |||||||||||||
Marine (0.0)%† | ||||||||||||||
Kirby Corp. | United States | 5,912 | (397,878 | ) | ||||||||||
|
| |||||||||||||
Media (0.4)% | ||||||||||||||
AMC Networks Inc., A | United States | 6,100 | (314,394 | ) | ||||||||||
Discovery Communications Inc., C | United States | 47,341 | (855,925 | ) | ||||||||||
DISH Network Corp., A | United States | 3,147 | (159,396 | ) | ||||||||||
Liberty Media Corp., C | United States | 34,673 | (1,262,097 | ) | ||||||||||
Sinclair Broadcast Group Inc., A | United States | 17,088 | (581,846 | ) | ||||||||||
World Wrestling Entertainment Inc., A | United States | 50,832 | (1,448,204 | ) | ||||||||||
|
| |||||||||||||
(4,621,862 | ) | |||||||||||||
|
| |||||||||||||
Metals & Mining (0.1)% | ||||||||||||||
AK Steel Holding Corp. | United States | 115,377 | (561,886 | ) | ||||||||||
Kaiser Aluminum Corp. | United States | 1,814 | (175,704 | ) | ||||||||||
|
| |||||||||||||
(737,590 | ) | |||||||||||||
|
| |||||||||||||
Mortgage Real Estate Investment Trusts (REITs) (0.2)% | ||||||||||||||
Apollo Commercial Real Estate Finance Inc. | United States | 33,181 | (618,826 | ) | ||||||||||
Arbor Realty Trust Inc. | United States | 15,471 | (132,741 | ) | ||||||||||
Blackstone Mortgage Trust Inc., A | United States | 3,245 | (106,176 | ) | ||||||||||
Hannon Armstrong Sustainable Infrastructure Capital Inc. | United States | 1,913 | (45,472 | ) | ||||||||||
Redwood Trust Inc. | United States | 29,988 | (450,420 | ) | ||||||||||
Starwood Property Trust Inc. | United States | 4,860 | (105,365 | ) | ||||||||||
Two Harbors Investment Corp. | United States | 21,835 | (349,360 | ) | ||||||||||
|
| |||||||||||||
(1,808,360 | ) | |||||||||||||
|
| |||||||||||||
Oil, Gas & Consumable Fuels (0.2)% | ||||||||||||||
Aegean Marine Petroleum Network Inc. | Greece | 30,536 | (122,144 | ) | ||||||||||
Green Plains Inc. | United States | 54,941 | (925,756 | ) | ||||||||||
WPX Energy Inc. | United States | 42,025 | (532,457 | ) | ||||||||||
|
| |||||||||||||
(1,580,357 | ) | |||||||||||||
|
|
54 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares | Value | ||||||||||||
w Securities Sold Short (continued) | ||||||||||||||
Common Stocks (continued) | ||||||||||||||
Paper & Forest Products (0.1)% | ||||||||||||||
Domtar Corp. | United States | 9,371 | $ | (451,870 | ) | |||||||||
Louisiana-Pacific Corp. | United States | 17,245 | (476,134 | ) | ||||||||||
|
| |||||||||||||
(928,004 | ) | |||||||||||||
|
| |||||||||||||
Personal Products (0.0)%† | ||||||||||||||
Herbalife Ltd. | United States | 1,445 | (101,352 | ) | ||||||||||
|
| |||||||||||||
Pharmaceuticals (0.1)% | ||||||||||||||
Dermira Inc. | United States | 9,732 | (249,139 | ) | ||||||||||
Impax Laboratories Inc. | United States | 184 | (3,064 | ) | ||||||||||
Innoviva Inc. | United States | 59,259 | (777,478 | ) | ||||||||||
The Medicines Co. | United States | 3,124 | (90,596 | ) | ||||||||||
Pacira Pharmaceuticals Inc. | United States | 2,246 | (103,765 | ) | ||||||||||
Sucampo Pharmaceuticals Inc., A | United States | 26,261 | (333,515 | ) | ||||||||||
|
| |||||||||||||
(1,557,557 | ) | |||||||||||||
|
| |||||||||||||
Professional Services (0.1)% | ||||||||||||||
51job Inc., ADR | China | 16,156 | (928,970 | ) | ||||||||||
|
| |||||||||||||
Road & Rail (0.0)%† | ||||||||||||||
Canadian National Railway Co. | Canada | 2,199 | (171,478 | ) | ||||||||||
Schneider National Inc., B | United States | 6,162 | (161,629 | ) | ||||||||||
|
| |||||||||||||
(333,107 | ) | |||||||||||||
|
| |||||||||||||
Semiconductors & Semiconductor Equipment (0.3)% | ||||||||||||||
Cypress Semiconductor Corp. | United States | 35,835 | (573,718 | ) | ||||||||||
Inphi Corp. | United States | 5,774 | (237,138 | ) | ||||||||||
Marvell Technology Group Ltd. | Bermuda | 17,845 | (398,657 | ) | ||||||||||
Microchip Technology Inc. | United States | 18,258 | (1,588,264 | ) | ||||||||||
Micron Technology Inc. | United States | 3,831 | (162,396 | ) | ||||||||||
ON Semiconductor Corp. | United States | 1,842 | (36,988 | ) | ||||||||||
Rambus Inc. | United States | 12,085 | (178,858 | ) | ||||||||||
Silicon Laboratories Inc. | United States | 552 | (50,287 | ) | ||||||||||
Teradyne Inc. | United States | 2,488 | (100,689 | ) | ||||||||||
|
| |||||||||||||
(3,326,995 | ) | |||||||||||||
|
| |||||||||||||
Software (0.4)% | ||||||||||||||
Bottomline Technologies de Inc. | United States | 1,841 | (61,361 | ) | ||||||||||
Everbridge Inc. | United States | 6,777 | (179,590 | ) | ||||||||||
HubSpot Inc. | United States | 1,770 | (143,282 | ) | ||||||||||
Intuit Inc. | United States | 1,242 | (195,267 | ) | ||||||||||
Nuance Communications Inc. | United States | 3,876 | (60,233 | ) | ||||||||||
ServiceNow Inc. | United States | 6,888 | (847,224 | ) | ||||||||||
Silver Spring Networks Inc. | United States | 4,133 | (66,417 | ) | ||||||||||
TiVo Corp. | United States | 1,477 | (26,291 | ) | ||||||||||
VMware Inc., A | United States | 22,180 | (2,664,040 | ) | ||||||||||
Workday Inc., A | United States | 1,798 | (185,194 | ) | ||||||||||
|
| |||||||||||||
(4,428,899 | ) | |||||||||||||
|
| |||||||||||||
Specialty Retail (0.1)% | ||||||||||||||
Asbury Automotive Group Inc. | United States | 7,536 | (495,869 | ) | ||||||||||
Monro Inc. | United States | 3,936 | (198,571 | ) | ||||||||||
Penske Automotive Group Inc. | United States | 10,863 | (525,335 | ) | ||||||||||
|
| |||||||||||||
(1,219,775 | ) | |||||||||||||
|
|
franklintempleton.com | Semiannual Report | 55 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares | Value | ||||||||||||||||
wSecurities Sold Short (continued) | ||||||||||||||||||
Common Stocks (continued) | ||||||||||||||||||
Textiles, Apparel & Luxury Goods (0.1)% | ||||||||||||||||||
Ralph Lauren Corp., A | United States | 4,877 | $ | (464,047 | ) | |||||||||||||
Under Armour Inc., A | United States | 8,490 | (112,832 | ) | ||||||||||||||
|
| |||||||||||||||||
(576,879 | ) | |||||||||||||||||
|
| |||||||||||||||||
Tobacco (0.1)% | ||||||||||||||||||
Japan Tobacco Inc. | Japan | 15,998 | (528,789 | ) | ||||||||||||||
|
| |||||||||||||||||
Trading Companies & Distributors (0.0)%† | ||||||||||||||||||
Kaman Corp. | United States | 8,075 | (481,755 | ) | ||||||||||||||
|
| |||||||||||||||||
Total Common Stocks (Proceeds $79,438,675) | 83,812,841 | |||||||||||||||||
|
| |||||||||||||||||
Exchange Traded Funds (10.2)% | ||||||||||||||||||
Consumer Discretionary Select Sector SPDR Fund | United States | 21,503 | (2,078,265 | ) | ||||||||||||||
ETFMG Prime Cyber Security ETF | United States | 97,826 | (3,072,715 | ) | ||||||||||||||
Health Care Select Sector SPDR Fund | United States | 19,200 | (1,602,624 | ) | ||||||||||||||
iShares Core S&P Small-Cap ETF | United States | 43,594 | (3,377,663 | ) | ||||||||||||||
iShares Edge MSCI USA Momentum Factor ETF | United States | 29,951 | (3,094,238 | ) | ||||||||||||||
iShares Global Consumer Discretionary ETF | United States | 9,816 | (1,056,496 | ) | ||||||||||||||
iShares MSCI South Korea Capped ETF | South Korea | 32,141 | (2,415,396 | ) | ||||||||||||||
iShares NASDAQ Biotechnology ETF | United States | 4,972 | (1,569,959 | ) | ||||||||||||||
iShares North American Tech ETF | United States | 37,749 | (6,375,806 | ) | ||||||||||||||
iShares North American Tech-Multimedia Networking ETF | United States | 52,864 | (2,581,878 | ) | ||||||||||||||
iShares North American Tech-Software ETF | United States | 24,899 | (3,879,264 | ) | ||||||||||||||
iShares PHLX Semiconductor ETF | United States | 37,585 | (6,485,667 | ) | ||||||||||||||
iShares Russell 2000 Growth ETF | United States | 23,642 | (4,415,616 | ) | ||||||||||||||
iShares Russell Mid-Cap Growth ETF | United States | 12,019 | (1,445,045 | ) | ||||||||||||||
iShares S&P Small-Cap 600 Growth ETF | United States | 10,237 | (1,759,740 | ) | ||||||||||||||
iShares STOXX Europe 600 UCITS ETF | Germany | 21,225 | (962,522 | ) | ||||||||||||||
iShares US Technology ETF | United States | 24,690 | (4,024,470 | ) | ||||||||||||||
PowerShares NASDAQ Internet Portfolio | United States | 21,508 | (2,444,599 | ) | ||||||||||||||
PowerShares QQQ Series 1 Trust | United States | 26,238 | (4,070,826 | ) | ||||||||||||||
SPDR S&P 500 ETF Trust | United States | 178,684 | (47,353,046 | ) | ||||||||||||||
SPDR S&P MidCap 400 ETF Trust | United States | 5,972 | (2,065,775 | ) | ||||||||||||||
Vanguard Small-Cap Growth ETF | United States | 28,565 | (4,598,394 | ) | ||||||||||||||
|
| |||||||||||||||||
Total Exchange Traded Funds (Proceeds $101,335,985) | (110,730,004 | ) | ||||||||||||||||
|
| |||||||||||||||||
Principal Amount* | ||||||||||||||||||
|
| |||||||||||||||||
Convertible Bonds and Notes (0.1)% | ||||||||||||||||||
Communications Equipment (0.1)% | ||||||||||||||||||
f Finisar Corp., senior bond, 144A, 0.50%, 12/15/36 | United States | 590,000 | (545,750 | ) | ||||||||||||||
|
| |||||||||||||||||
Internet & Direct Marketing Retail (0.0)%† | ||||||||||||||||||
The Priceline Group Inc., senior note, 0.90%, 9/15/21 | United States | 467,000 | (530,337 | ) | ||||||||||||||
|
| |||||||||||||||||
Software (0.0)%† | ||||||||||||||||||
Proofpoint Inc., senior note, 0.75%, 6/15/20 | United States | 400,000 | (506,750 | ) | ||||||||||||||
|
| |||||||||||||||||
Total Convertible Bonds and Notes (Proceeds $1,549,302) | (1,582,837) | |||||||||||||||||
|
| |||||||||||||||||
Corporate Bonds and Notes (2.0)% | ||||||||||||||||||
Automobiles (0.0)%† | ||||||||||||||||||
f Tesla Inc., senior note, 144A, 5.30%, 8/15/25 | United States | 441,000 | (422,677 | ) | ||||||||||||||
|
|
56 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||
Securities Sold Short (continued) | ||||||||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||||||||
Chemicals (0.2)% | ||||||||||||||||||
f CVR Partners LP / CVR Nitrogen Finance Corp., senior note, 144A, 9.25%, 6/15/23 | United States | 2,001,000 | �� | $ | (2,128,564 | ) | ||||||||||||
|
| |||||||||||||||||
Commercial Services & Supplies (0.3)% | ||||||||||||||||||
f Olympus Merger Sub Inc., senior note, 144A, 8.50%, 10/15/25 | United States | 3,207,000 | (3,138,851 | ) | ||||||||||||||
|
| |||||||||||||||||
Energy Equipment & Services (0.1)% | ||||||||||||||||||
f Precision Drilling Corp., senior note, 144A, 7.125%, 1/15/26 | Canada | 797,000 | (804,978 | ) | ||||||||||||||
|
| |||||||||||||||||
Equity Real Estate Investment Trusts (REITs) (0.0)%† | ||||||||||||||||||
f Rayonier AM Products Inc., senior bond, 144A, 5.50%, 6/01/24 | United States | 176,000 | (174,523 | ) | ||||||||||||||
|
| |||||||||||||||||
Food & Staples Retailing (0.2)% | ||||||||||||||||||
f Rite Aid Corp., senior note, 144A, 6.125%, 4/01/23 | United States | 2,569,000 | (2,385,959 | ) | ||||||||||||||
|
| |||||||||||||||||
Health Care Providers & Services (0.1)% | ||||||||||||||||||
f West Street Merger Sub Inc., senior note, 144A, 6.375%, 9/01/25 | United States | 797,000 | (808,955 | ) | ||||||||||||||
|
| |||||||||||||||||
Hotels, Restaurants & Leisure (0.3)% | ||||||||||||||||||
f CRC Escrow Issuer LLC / CRC Finco Inc., senior note, 144A, 5.25%, 10/15/25 | United States | 3,770,000 | (3,779,425 | ) | ||||||||||||||
|
| |||||||||||||||||
Independent Power & Renewable Electricity Producers (0.1)% | ||||||||||||||||||
Dynegy Inc., senior note, 7.625%, 11/01/24 | United States | 491,000 | (537,031 | ) | ||||||||||||||
|
| |||||||||||||||||
Internet Software & Services (0.2)% | ||||||||||||||||||
f Rackspace Hosting Inc., senior note, 144A, 8.625%, 11/15/24 | United States | 2,240,000 | (2,408,000 | ) | ||||||||||||||
|
| |||||||||||||||||
Oil, Gas & Consumable Fuels (0.2)% | ||||||||||||||||||
f California Resources Corp., secured note, second lien, 144A, 8.00%, 12/15/22 | United States | 2,306,000 | (1,715,088 | ) | ||||||||||||||
|
| |||||||||||||||||
Pharmaceuticals (0.3)% | ||||||||||||||||||
Mylan NV, senior note, 3.95%, 6/15/26 | United States | 1,063,000 | (1,061,675 | ) | ||||||||||||||
f Valeant Pharmaceuticals International Inc., senior bond, 144A, 6.125%, 4/15/25 | United States | 2,401,000 | (2,067,861 | ) | ||||||||||||||
|
| |||||||||||||||||
(3,129,536 | ) | |||||||||||||||||
|
| |||||||||||||||||
Tobacco (0.0)%† | ||||||||||||||||||
Alliance One International Inc., senior note, 9.875%, 7/15/21 | United States | 87,000 | (80,366 | ) | ||||||||||||||
|
| |||||||||||||||||
Total Corporate Bonds and Notes (Proceeds $21,239,149) | (21,513,953 | ) | ||||||||||||||||
|
| |||||||||||||||||
U.S. Government and Agency Securities (0.3)% | ||||||||||||||||||
U.S. Treasury Note, | ||||||||||||||||||
2.125%, 12/31/22 | United States | 523,000 | (522,203 | ) | ||||||||||||||
2.25%, 8/15/27 | United States | 2,267,000 | (2,231,578 | ) | ||||||||||||||
|
| |||||||||||||||||
Total U.S. Government and Agency Securities (Proceeds $2,802,081) | (2,753,781) | |||||||||||||||||
|
| |||||||||||||||||
Total Securities Sold Short (Proceeds $206,365,192) | $ (220,393,416) | |||||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 57 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
See Abbreviations on page 90.
* The principal/notional amount is stated in U.S. dollars unless otherwise indicated.
† Rounds to less than 0.1% of net assets.
a 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 open written option contracts. At November 30, 2017, the aggregate value of these securities and/or cash pledged amounted to $448,689,871, representing 41.4% of net assets.
b Non-income producing.
c Contingent distributions represent the right to receive additional distributions, if any, during the reorganization of the underlying company.
d Fair valued using significant unobservable inputs. See Note 11 regarding fair value measurements.
e A portion or all of the security is held in connection with written option contracts open at period end.
f 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. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At November 30, 2017, the net value of these securities was $134,079,903, representing 12.4% 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. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At November 30, 2017, the aggregate value of these securities was $22,289,195, representing 2.1% of net assets.
h Defaulted security or security for which income has been deemed uncollectible.
i The coupon rate shown represents the rate at period end.
j 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.
k A portion or all of the security purchased on a delayed delivery basis. See Note 1(d).
l Income may be received in additional securities and/or cash.
m Perpetual security with no stated maturity date.
n See Note 1(i) regarding senior floating rate interests.
o See Note 8 regarding unfunded loan commitments.
p Principal amount is stated in 100 Mexican Peso Units.
q The coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
r The rate shown is the annualized seven-day yield at period end.
s A portion or all of the security is owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(h).
t See Note 1(c) regarding joint repurchase agreement.
u The security was issued on a discount basis with no stated coupon rate.
v See Note 1(e) regarding written options.
w See Note 1(g) regarding securities sold short.
58 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
At November 30, 2017, 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 | | |||||||||||
Commodity Contractsa | ||||||||||||||||||||||||
Aluminum | Long | 63 | $ | 3,201,975 | 12/18/17 | $ (108,489 | ) | |||||||||||||||||
Aluminum | Short | 63 | 3,201,975 | 12/18/17 | 48,236 | |||||||||||||||||||
Aluminum | Long | 52 | 2,669,550 | 3/19/18 | (18,310 | ) | ||||||||||||||||||
Brent Crude Oil | Long | 110 | 6,889,300 | 12/28/17 | 71,263 | |||||||||||||||||||
Cocoa | Short | 33 | 667,203 | 3/14/18 | 47,216 | |||||||||||||||||||
Coffee | Short | 24 | 1,156,500 | 3/19/18 | (11,261 | ) | ||||||||||||||||||
Copper | Long | 34 | 5,728,575 | 12/18/17 | (62,280 | ) | ||||||||||||||||||
Copper | Short | 34 | 5,728,575 | 12/18/17 | (34,044 | ) | ||||||||||||||||||
Copper | Long | 22 | 3,724,325 | 3/19/18 | (9,386 | ) | ||||||||||||||||||
Corn | Short | 54 | 960,525 | 3/14/18 | 12,691 | |||||||||||||||||||
Cotton | Long | 1 | 36,405 | 3/07/18 | 502 | |||||||||||||||||||
Gold 100 Oz | Long | 50 | 6,383,500 | 2/26/18 | (49,931 | ) | ||||||||||||||||||
Low Sulphur Gas Oil | Long | 60 | 3,348,000 | 1/11/18 | (34,066 | ) | ||||||||||||||||||
Natural Gas | Short | 56 | 1,694,000 | 12/27/17 | 115,593 | |||||||||||||||||||
Natural Gas | Short | 3 | 90,960 | 1/29/18 | 943 | |||||||||||||||||||
NY Harbor ULSD | Long | 39 | 3,108,269 | 12/29/17 | (43,375 | ) | ||||||||||||||||||
RBOB Gasoline | Long | 36 | 2,615,760 | 12/29/17 | (73,064 | ) | ||||||||||||||||||
RBOB Gasoline | Long | 1 | 73,131 | 1/31/18 | (137 | ) | ||||||||||||||||||
Silver | Long | 2 | 164,740 | 3/27/18 | (4,639 | ) | ||||||||||||||||||
Soybean Meal | Short | 25 | 824,500 | 3/14/18 | 2,672 | |||||||||||||||||||
Soybean Oil | Long | 11 | 224,796 | 3/14/18 | (3,869 | ) | ||||||||||||||||||
Sugar | Short | 15 | 253,344 | 2/28/18 | (3,693 | ) | ||||||||||||||||||
Wheat | Short | 53 | 1,147,450 | 3/14/18 | 24,731 | |||||||||||||||||||
WTI Crude Oil | Long | 9 | 516,600 | 12/19/17 | 13,990 | |||||||||||||||||||
Zinc | Long | 45 | 3,563,156 | 12/18/17 | 18,645 | |||||||||||||||||||
Zinc | Short | 45 | 3,563,156 | 12/18/17 | 707 | |||||||||||||||||||
Zinc | Long | 33 | 2,603,081 | 3/19/18 | (2,678 | ) | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||
64,139,351 | (102,033 | ) | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Equity Contracts | ||||||||||||||||||||||||
Amsterdam Index | Short | 4 | 514,283 | 12/15/17 | 8,432 | |||||||||||||||||||
CAC 40 10 Euro Indexa | Short | 10 | 638,866 | 12/15/17 | (10,287 | ) | ||||||||||||||||||
DAX Indexa | Long | 14 | 5,437,506 | 12/15/17 | 159,223 | |||||||||||||||||||
DJIA Mini E-CBOT Indexa | Long | 5 | 606,850 | 12/15/17 | 62,565 | |||||||||||||||||||
E-Mini Russell 2000 Indexa | Long | 102 | 7,881,540 | 12/15/17 | 60,457 | |||||||||||||||||||
EURO STOXX 50 Indexa | Long | 146 | 6,209,032 | 12/15/17 | 53,946 | |||||||||||||||||||
EURO STOXX 50 Index | Short | 284 | 12,077,842 | 12/15/17 | (182,867 | ) | ||||||||||||||||||
FTSE 100 Indexa | Long | 52 | 5,154,078 | 12/15/17 | (22,071 | ) | ||||||||||||||||||
FTSE 100 Index | Short | 105 | 10,407,273 | 12/15/17 | 36,030 | |||||||||||||||||||
Hang Seng Indexa | Long | 33 | 6,194,036 | 12/28/17 | (120,261 | ) | ||||||||||||||||||
Nasdaq 100 E-Mini Indexa | Long | 17 | 2,165,460 | 12/15/17 | 93,582 | |||||||||||||||||||
Nikkei 225 Indexa | Long | 9 | 1,820,072 | 12/07/17 | 281,692 | |||||||||||||||||||
S&P 500 E-Mini Indexa | Long | 114 | 15,093,030 | 12/15/17 | 898,499 | |||||||||||||||||||
S&P 500 E-Mini Index | Short | 61 | 8,076,095 | 12/15/17 | (472,121 | ) | ||||||||||||||||||
STOXX 600 Bank Index | Short | 165 | 1,793,051 | 12/15/17 | 30 | |||||||||||||||||||
TOPIX Indexa | Long | 40 | 6,386,779 | 12/07/17 | 781,660 | |||||||||||||||||||
|
|
|
| |||||||||||||||||||||
90,455,793 | 1,628,509 | |||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Interest Rate Contracts | ||||||||||||||||||||||||
3 Month Euribora | Long | 375 | 111,876,012 | 12/17/18 | 26,031 | |||||||||||||||||||
3 Month Euribora | Long | 8 | 2,383,594 | 6/17/19 | (216 | ) | ||||||||||||||||||
90 Day Eurodollara | Short | 751 | 183,854,187 | 12/17/18 | 255,191 | |||||||||||||||||||
90 Day Eurodollara | Short | 16 | 3,912,800 | 6/17/19 | 2,694 | |||||||||||||||||||
90 Day Sterlinga | Long | 105 | 17,590,407 | 12/19/18 | (24,362 | ) |
franklintempleton.com | Semiannual Report | 59 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Futures Contracts (continued)
Description | Type | Number of Contracts | Notional Amount* | Expiration Date | Value/Unrealized Appreciation (Depreciation) | |||||||||||||||
Interest Rate Contracts (continued) | ||||||||||||||||||||
Australian 10 Yr. Bonda | Short | 2 | $ | 197,766 | 12/15/17 | $ | (1,869 | ) | ||||||||||||
Canada 10 Yr. Bonda | Short | 47 | 4,979,964 | 3/20/18 | 450 | |||||||||||||||
Euro BOBL | Short | 16 | 2,504,475 | 12/07/17 | 3,019 | |||||||||||||||
Euro-BOBL | Short | 12 | 1,887,212 | 3/08/18 | 4,095 | |||||||||||||||
Euro-Bund | Short | 30 | 5,810,321 | 12/07/17 | (17,423 | ) | ||||||||||||||
Euro-Buxl 30 Yr. Bond | Short | 9 | 1,790,445 | 12/07/17 | 570 | |||||||||||||||
Long Gilt | Short | 15 | 2,507,337 | 3/27/18 | 15,831 | |||||||||||||||
U.S. Treasury 2 Yr. Note | Long | 108 | 23,155,875 | 3/29/18 | (5,006 | ) | ||||||||||||||
U.S. Treasury 5 Yr. Note | Short | 21 | 2,448,141 | 12/29/17 | 45,757 | |||||||||||||||
U.S. Treasury 5 Yr. Note | Short | 53 | 6,166,219 | 3/29/18 | 24,206 | |||||||||||||||
U.S. Treasury 10 Yr. Note | Long | 3 | 372,141 | 3/20/18 | (2,189 | ) | ||||||||||||||
U.S. Treasury 10 Yr. Note | Short | 77 | 9,551,609 | 3/20/18 | 58,277 | |||||||||||||||
U.S. Treasury Ultra 10 Yr. Note | Short | 80 | 10,653,750 | 3/20/18 | 23,487 | |||||||||||||||
U.S. Treasury Ultra Bond | Short | 16 | 2,638,000 | 3/20/18 | 11,655 | |||||||||||||||
|
|
|
| |||||||||||||||||
394,280,255 | 420,198 | |||||||||||||||||||
|
|
|
| |||||||||||||||||
Total Futures Contracts | $ | 1,946,674 | ||||||||||||||||||
|
|
*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(h).
At November 30, 2017, 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 | JPHQ | Buy | 3,623,261 | 1,108,234 | 12/04/17 | $ | — | $ | (1,863 | ) | ||||||||||||||||||
Brazilian Real | JPHQ | Sell | 3,623,261 | 1,102,080 | 12/04/17 | — | (4,291 | ) | ||||||||||||||||||||
Brazilian Real | MSCS | Buy | 3,125,000 | 970,859 | 12/04/17 | — | (16,633 | ) | ||||||||||||||||||||
Brazilian Real | MSCS | Sell | 3,125,000 | 957,444 | 12/04/17 | 3,218 | — | |||||||||||||||||||||
Euro | MSCO | Sell | 7,301 | 8,678 | 12/04/17 | — | (15 | ) | ||||||||||||||||||||
Norwegian Krone | MSCO | Sell | 36,165 | 4,351 | 12/04/17 | 3 | — | |||||||||||||||||||||
Swedish Krona | MSCO | Sell | 47,634 | 5,685 | 12/04/17 | — | (8 | ) | ||||||||||||||||||||
Euro | MSCS | Buy | 777,480 | 917,249 | 12/05/17 | 8,495 | — | |||||||||||||||||||||
Euro | MSCS | Sell | 730,000 | 870,715 | 12/05/17 | 1,505 | — | |||||||||||||||||||||
Euro | UBSW | Sell | 730,000 | 669,381 | GBP | 12/05/17 | 36,262 | — | ||||||||||||||||||||
Euro | UBSW | Sell | 709,414 | 2,975,000 | TRY | 12/05/17 | 669 | (86,865 | ) | |||||||||||||||||||
Russian Ruble | MSCS | Buy | 50,065,000 | 854,060 | 12/05/17 | 1,529 | — | |||||||||||||||||||||
Russian Ruble | MSCS | Sell | 50,065,000 | 829,083 | 12/05/17 | — | (26,506 | ) | ||||||||||||||||||||
Turkish Lira | UBSW | Sell | 2,975,000 | 661,935 | EUR | 12/05/17 | 29,662 | — | ||||||||||||||||||||
Euro | DBAB | Sell | 730,000 | 15,722,813 | MXN | 12/06/17 | 1,083 | (27,564 | ) | |||||||||||||||||||
Mexican Peso | MSCS | Buy | 19,205,000 | 1,004,708 | 12/06/17 | 24,744 | — | |||||||||||||||||||||
Polish Zloty | MSCS | Buy | 3,040,000 | 861,967 | 12/06/17 | — | (592 | ) | ||||||||||||||||||||
Polish Zloty | MSCS | Sell | 12,715,000 | 3,506,029 | 12/06/17 | — | (96,730 | ) | ||||||||||||||||||||
British Pound | BOFA | Sell | 450,000 | 590,031 | 12/11/17 | — | (18,851 | ) | ||||||||||||||||||||
Euro | MSCS | Sell | 725,000 | 875,999 | 12/12/17 | 12,286 | — | |||||||||||||||||||||
Euro | BOFA | Sell | 225,000 | 261,581 | 12/13/17 | — | (6,488 | ) | ||||||||||||||||||||
British Pound | BNYM | Sell | 3,547,591 | 4,686,898 | 12/15/17 | — | (114,121 | ) | ||||||||||||||||||||
Euro | BNYM | Sell | 12,230,408 | 14,420,020 | 12/15/17 | — | (153,714 | ) | ||||||||||||||||||||
Euro | JPHQ | Buy | 32,094 | 27,738 | 12/15/17 | 148 | — | |||||||||||||||||||||
Euro | JPHQ | Sell | 3,977,368 | 103,676,190 | CZK | 12/15/17 | 329,761 | (224,526 | ) | |||||||||||||||||||
Czech Koruna | JPHQ | Sell | 103,676,190 | 3,949,631 | EUR | 12/15/17 | 240,250 | (378,535 | ) | |||||||||||||||||||
Swiss Franc | BNYM | Sell | 127,093 | 128,379 | 12/15/17 | — | (1,005 | ) | ||||||||||||||||||||
British Pound | MSCS | Sell | 100,000 | 131,086 | 12/18/17 | — | (4,264 | ) |
60 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
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) |
| |||||||||||||||||||||||||||
Indian Rupee | JPHQ | Sell | 89,522,129 | 1,359,589 | 12/18/17 | $ | — | $ (25,917) | ||||||||||||||||||||
Australian Dollar | DBAB | Buy | 20,000 | 15,164 | 12/20/17 | — | (38 | ) | ||||||||||||||||||||
Australian Dollar | DBAB | Sell | 909,000 | 692,188 | 12/20/17 | 4,685 | — | |||||||||||||||||||||
Brazilian Real | BOFA | Sell | 275,000 | 83,371 | 12/20/17 | — | (452 | ) | ||||||||||||||||||||
British Pound | BNYM | Buy | 217,841 | 290,617 | 12/20/17 | 4,258 | — | |||||||||||||||||||||
British Pound | BNYM | Sell | 447,993 | 605,848 | 12/20/17 | 176 | (743 | ) | ||||||||||||||||||||
British Pound | DBAB | Buy | 983,000 | 1,298,466 | 12/20/17 | 32,186 | (34 | ) | ||||||||||||||||||||
British Pound | DBAB | Sell | 1,585,000 | 2,119,470 | 12/20/17 | 1 | (26,036 | ) | ||||||||||||||||||||
Canadian Dollar | BNYM | Sell | 2,415,000 | 1,983,801 | 12/20/17 | 111,238 | — | |||||||||||||||||||||
Canadian Dollar | DBAB | Buy | 4,000 | 3,196 | 12/20/17 | — | (95 | ) | ||||||||||||||||||||
Canadian Dollar | DBAB | Sell | 4,000 | 3,160 | 12/20/17 | 58 | — | |||||||||||||||||||||
Chinese Yuan | JPHQ | Sell | 9,749,006 | 1,474,999 | 12/20/17 | 2,612 | — | |||||||||||||||||||||
Euro | BNYM | Buy | 8,000 | 9,619 | 12/20/17 | — | (83 | ) | ||||||||||||||||||||
Euro | BNYM | Sell | 5,099,655 | 6,064,111 | 12/20/17 | 18,622 | (33,544 | ) | ||||||||||||||||||||
Euro | DBAB | Buy | 3,056,000 | 3,567,098 | 12/20/17 | 75,799 | — | |||||||||||||||||||||
Euro | DBAB | Sell | 5,785,000 | 6,855,486 | 12/20/17 | 4,346 | (44,852 | ) | ||||||||||||||||||||
Euro | JPHQ | Buy | 5,041,985 | 5,994,780 | 12/20/17 | 33,790 | (18,281 | ) | ||||||||||||||||||||
Euro | JPHQ | Sell | 8,786,415 | 10,542,999 | 12/20/17 | 76,812 | (7,643 | ) | ||||||||||||||||||||
Indian Rupee | JPHQ | Buy | 50,591,630 | 776,183 | 12/20/17 | 6,628 | — | |||||||||||||||||||||
Indian Rupee | JPHQ | Sell | 50,591,630 | 782,002 | 12/20/17 | — | (809 | ) | ||||||||||||||||||||
Japanese Yen | BNYM | Sell | 256,966,000 | 2,317,164 | 12/20/17 | 31,037 | — | |||||||||||||||||||||
Mexican Peso | JPHQ | Buy | 88,185,731 | 4,630,792 | 12/20/17 | 92,303 | (8,127 | ) | ||||||||||||||||||||
Mexican Peso | JPHQ | Sell | 100,601,023 | 5,509,937 | 12/20/17 | 154,649 | (23,480 | ) | ||||||||||||||||||||
Russian Ruble | JPHQ | Buy | 469,340,023 | 8,029,408 | 12/20/17 | 10,138 | (41,464 | ) | ||||||||||||||||||||
Russian Ruble | JPHQ | Sell | 518,118,365 | 8,850,886 | 12/20/17 | 34,691 | (13,125 | ) | ||||||||||||||||||||
South African Rand | JPHQ | Buy | 61,440,070 | 4,382,197 | 12/20/17 | 83,163 | (585 | ) | ||||||||||||||||||||
South African Rand | JPHQ | Sell | 73,035,715 | 5,320,504 | 12/20/17 | 60,707 | (47,619 | ) | ||||||||||||||||||||
South Korean Won | JPHQ | Sell | 2,830,115,162 | 2,513,467 | 12/20/17 | 2,731 | (90,276 | ) | ||||||||||||||||||||
Swiss Franc | BNYM | Sell | 1,942,902 | 2,019,207 | 12/20/17 | 43,076 | (2,771 | ) | ||||||||||||||||||||
Turkish Lira | JPHQ | Buy | 19,396,436 | 5,127,495 | 12/20/17 | 10,804 | (216,877 | ) | ||||||||||||||||||||
Turkish Lira | JPHQ | Sell | 19,396,436 | 5,110,895 | 12/20/17 | 190,738 | (1,266 | ) | ||||||||||||||||||||
Indonesian Rupiah | JPHQ | Buy | 11,139,997,223 | 822,747 | 12/21/17 | — | (715 | ) | ||||||||||||||||||||
Australian Dollar | BNYM | Sell | 60,000 | 46,428 | 12/22/17 | 1,049 | — | |||||||||||||||||||||
Australian Dollarb | MSCO | Buy | 18,382,000 | 14,628,487 | 12/22/17 | — | (725,787 | ) | ||||||||||||||||||||
Australian Dollarb | MSCO | Sell | 28,750,000 | 21,944,837 | 12/22/17 | 204,786 | (4,182 | ) | ||||||||||||||||||||
British Poundb | MSCO | Buy | 14,711,000 | 19,699,994 | 12/22/17 | 239,596 | (24,580 | ) | ||||||||||||||||||||
British Poundb | MSCO | Sell | 5,566,000 | 7,328,526 | 12/22/17 | 366 | (206,810 | ) | ||||||||||||||||||||
Canadian Dollar | BNYM | Sell | 555,100 | 449,328 | 12/22/17 | 18,894 | — | |||||||||||||||||||||
Canadian Dollarb | MSCO | Buy | 21,671,000 | 17,670,088 | 12/22/17 | — | (866,034 | ) | ||||||||||||||||||||
Canadian Dollarb | MSCO | Sell | 6,120,000 | 4,819,659 | 12/22/17 | 74,108 | — | |||||||||||||||||||||
Euro | BNYM | Sell | 3,008,096 | 3,548,036 | 12/22/17 | — | (38,300 | )�� | ||||||||||||||||||||
Eurob | MSCO | Buy | 16,071,000 | 19,127,667 | 12/22/17 | 93,680 | (61,051 | ) | ||||||||||||||||||||
Eurob | MSCO | Sell | 3,156,000 | 3,743,579 | 12/22/17 | 2,159 | (21,250 | ) | ||||||||||||||||||||
Hong Kong Dollar | BNYM | Sell | 165,555 | 21,239 | 12/22/17 | 36 | — | |||||||||||||||||||||
Japanese Yenb | MSCO | Buy | 2,275,148,000 | 20,495,158 | 12/22/17 | 18,368 | (269,846 | ) | ||||||||||||||||||||
Japanese Yenb | MSCO | Sell | 3,640,292,000 | 32,414,991 | 12/22/17 | 158,390 | (133,781 | ) | ||||||||||||||||||||
Mexican Pesob | MSCO | Buy | 88,053,000 | 4,829,401 | 12/22/17 | 16,819 | (140,072 | ) | ||||||||||||||||||||
Mexican Pesob | MSCO | Sell | 42,669,000 | 2,279,156 | 12/22/17 | 17,422 | (18,786 | ) | ||||||||||||||||||||
New Zealand Dollarb | MSCO | Buy | 8,464,000 | 6,114,116 | 12/22/17 | 6 | (330,842 | ) | ||||||||||||||||||||
New Zealand Dollarb | MSCO | Sell | 17,314,000 | 12,002,408 | 12/22/17 | 174,451 | (2,352 | ) | ||||||||||||||||||||
Singapore Dollar | BNYM | Sell | 345,237 | 254,204 | 12/22/17 | — | (1,815 | ) | ||||||||||||||||||||
Swiss Franc | BNYM | Sell | 391,000 | 393,875 | 12/22/17 | — | (4,448 | ) | ||||||||||||||||||||
Swiss Francb | MSCO | Buy | 10,372,000 | 10,770,577 | 12/22/17 | 9,330 | (213,640 | ) | ||||||||||||||||||||
Swiss Francb | MSCO | Sell | 20,459,000 | 20,851,761 | 12/22/17 | 118,906 | (109,344 | ) | ||||||||||||||||||||
Euro | DBAB | Sell | 183,000 | 215,171 | 12/27/17 | — | (3,089 | ) | ||||||||||||||||||||
South African Rand | MSCS | Sell | 25,755,000 | 1,829,515 | 12/27/17 | — | (39,869 | ) | ||||||||||||||||||||
Swedish Krona | MSCS | Buy | 13,525,000 | 1,604,974 | 12/27/17 | 14,821 | — |
franklintempleton.com | Semiannual Report | 61 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
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) |
| |||||||||||||||||||||||||||
British Pound | MSCO | Buy | 213,270 | 281,785 | 12/28/17 | $ | 7,008 | $ | — | |||||||||||||||||||
British Pound | MSCO | Sell | 546,624 | 720,926 | 12/28/17 | — | (19,268 | ) | ||||||||||||||||||||
Canadian Dollar | MSCO | Buy | 1,335,587 | 1,044,572 | 12/28/17 | — | (8,823 | ) | ||||||||||||||||||||
Canadian Dollar | MSCO | Sell | 10,474,441 | 8,295,093 | 12/28/17 | 172,330 | (186 | ) | ||||||||||||||||||||
Euro | DBAB | Sell | 230,000 | 271,736 | 12/28/17 | — | (2,601 | ) | ||||||||||||||||||||
Euro | MSCO | Buy | 271,140 | 318,043 | 12/28/17 | 5,364 | — | |||||||||||||||||||||
Euro | MSCO | Sell | 1,591,895 | 1,883,271 | 12/28/17 | — | (15,490 | ) | ||||||||||||||||||||
Japanese Yen | MSCO | Sell | 45,423,541 | 403,092 | 12/28/17 | 790 | (2,019 | ) | ||||||||||||||||||||
Norwegian Krone | MSCO | Buy | 4,371,726 | 538,804 | 12/28/17 | — | (12,741 | ) | ||||||||||||||||||||
Swedish Krona | MSCO | Buy | 7,440,364 | 903,459 | 12/28/17 | 130 | (12,425 | ) | ||||||||||||||||||||
Swedish Krona | MSCO | Sell | 2,439,491 | 291,957 | 12/28/17 | 27 | (258 | ) | ||||||||||||||||||||
Swiss Franc | MSCO | Buy | 182,770 | 185,123 | 12/28/17 | 1,181 | — | |||||||||||||||||||||
Swiss Franc | MSCO | Sell | 533,380 | 541,362 | 12/28/17 | 607 | (2,937 | ) | ||||||||||||||||||||
Euro | BOFA | Sell | 3,360,000 | 3,999,206 | 12/29/17 | — | (8,795 | ) | ||||||||||||||||||||
Norwegian Krone | MSCS | Buy | 12,480,000 | 1,519,378 | 12/29/17 | — | (17,563 | ) | ||||||||||||||||||||
Brazilian Real | MSCS | Sell | 3,125,000 | 967,717 | 1/02/18 | 16,602 | — | |||||||||||||||||||||
Brazilian Real | JPHQ | Buy | 2,751,149 | 840,302 | 1/03/18 | — | (3,074 | ) | ||||||||||||||||||||
Czech Koruna | JPHQ | Sell | 18,995,258 | 718,701 | EUR | 1/10/18 | 81,515 | (113,772 | ) | |||||||||||||||||||
Euro | JPHQ | Sell | 714,860 | 18,995,258 | CZK | 1/10/18 | 97,514 | (60,672 | ) | |||||||||||||||||||
Euro | JPHQ | Sell | 3,841 | 4,257 | 1/10/18 | — | (328 | ) | ||||||||||||||||||||
Colombian Peso | MSCS | Sell | 780,000,000 | 259,007 | 1/30/18 | 1,831 | — | |||||||||||||||||||||
Mexican Peso | MSCO | Buy | 8,931,000 | 458,565 | 2/28/18 | 13,162 | — | |||||||||||||||||||||
Mexican Peso | MSCO | Sell | 20,000,000 | 1,057,548 | 2/28/18 | 1,166 | — | |||||||||||||||||||||
Philippine Peso | BOFA | Buy | 145,790,000 | 2,861,433 | 5/21/18 | 11,936 | — | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total Forward Exchange Contracts |
| $ | 3,349,213 | $ | (5,264,233 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Net unrealized appreciation (depreciation) |
| $ | (1,915,020 | ) | ||||||||||||||||||||||||
|
|
*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(h).
At November 30, 2017, the Fund had the following credit default swap contracts outstanding. See Note 1(e).
Credit Default Swap Contracts
Description | Periodic Payment Rate Received (Paid) | Payment Frequency | Maturity Date | Notional Amounta | Value | Unamortized Upfront Payments (Receipts) | Unrealized (Depreciation) | Ratingb | ||||||||||||||||||||||||
Centrally Cleared Swap Contracts | ||||||||||||||||||||||||||||||||
Contracts to Buy Protectionc | ||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||
Government of Mexico | (1.00 | %) | Quarterly | 12/20/21 | 1,810,000 | $ | (16,560 | ) | $ 51,249 | $ (67,809 | ) | |||||||||||||||||||||
Government of South Africa | (1.00 | %) | Quarterly | 12/20/21 | 2,644,000 | 45,088 | 181,272 | (136,184 | ) | |||||||||||||||||||||||
Government of South Africa | (1.00 | %) | Quarterly | 6/20/22 | 1,495,000 | 40,679 | 77,628 | (36,949 | ) | |||||||||||||||||||||||
Government of South Korea | (1.00 | %) | Quarterly | 12/20/21 | 1,947,567 | (37,767 | ) | (56,447 | ) | 18,680 | ||||||||||||||||||||||
Government of South Korea | (1.00 | %) | Quarterly | 12/20/22 | 262,074 | (5,205 | ) | (6,260 | ) | 1,055 | ||||||||||||||||||||||
Government of Turkey | (1.00 | %) | Quarterly | 9/20/20 | 1,976,000 | 13,687 | 157,717 | (144,030 | ) | |||||||||||||||||||||||
Government of Turkey | (1.00 | %) | Quarterly | 12/20/20 | 1,723,000 | 15,784 | 104,521 | (88,737 | ) | |||||||||||||||||||||||
Government of Turkey | (1.00 | %) | Quarterly | 12/20/21 | 429,000 | 10,436 | 26,236 | (15,800 | ) | |||||||||||||||||||||||
Traded Index | ||||||||||||||||||||||||||||||||
CDX.NA.HY.29 | (5.00 | %) | Quarterly | 12/20/22 | 2,350,000 | (185,847 | ) | (191,231 | ) | 5,384 | ||||||||||||||||||||||
CDX.NA.IG.29 | (1.00 | %) | Quarterly | 12/20/22 | 850,000 | (19,298 | ) | (18,147 | ) | (1,151 | ) |
62 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Credit Default Swap Contracts (continued)
Description | Periodic Payment Rate Received (Paid) | Payment Frequency | Maturity Date | Notional Amounta | Value | Unamortized Upfront Payments (Receipts) | Unrealized (Depreciation) | Ratingb | ||||||||||||||||||||||||||||
Centrally Cleared Swap Contracts (continued) |
| |||||||||||||||||||||||||||||||||||
Contracts to Sell Protectionc,d |
| |||||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||||||
Government of Russia | 1.00 | % | Quarterly | 9/20/20 | 2,800,131 | $ 25,244 | $(339,144 | ) | $364,388 | BB+ | ||||||||||||||||||||||||||
Government of Russia | 1.00 | % | Quarterly | 6/20/21 | 413,000 | 1,835 | (30,563 | ) | 32,398 | BB+ | ||||||||||||||||||||||||||
Government of Russia | 1.00 | % | Quarterly | 12/20/21 | 374,000 | 116 | (13,889 | ) | 14,005 | BB+ | ||||||||||||||||||||||||||
Government of Turkey | 1.00 | % | Quarterly | 12/20/22 | 952,000 | (43,123 | ) | (43,050 | ) | (73 | ) | BB+ | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Total Centrally Cleared Swap Contracts | $(154,931 | ) | $(100,108 | ) | $ (54,823 | ) | ||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||||||||||||||||||
Contracts to Buy Protectionc | Counterparty | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||||||
Enel SpA | (1.00 | %) | Quarterly | BZWS | 12/20/22 | 900,000 | EUR | (24,100 | ) | (15,337 | ) | (8,763 | ) | |||||||||||||||||||||||
Government of China | (1.00 | %) | Quarterly | MSCS | 12/20/22 | 500,000 | (11,267 | ) | (9,185 | ) | (2,082 | ) | ||||||||||||||||||||||||
Government of South Korea | (1.00 | %) | Quarterly | MSCS | 12/20/22 | 440,000 | (9,618 | ) | (5,569 | ) | (4,049 | ) | ||||||||||||||||||||||||
Government of Turkey | (1.00 | %) | Quarterly | MSCS | 12/20/22 | 65,605 | 2,841 | 3,245 | (404 | ) | ||||||||||||||||||||||||||
Government of Turkey | (1.00 | %) | Quarterly | MSCS | 12/20/22 | 460,000 | 19,917 | 16,841 | 3,076 | |||||||||||||||||||||||||||
Government of Turkey | (1.00 | %) | Quarterly | BOFA | 12/20/22 | 409,395 | 17,726 | 20,248 | (2,522 | ) | ||||||||||||||||||||||||||
Intesa Sanpaolo SpA | (1.00 | %) | Quarterly | BZWS | 12/20/22 | 300,000 | EUR | (7,319 | ) | (2,990 | ) | (4,329 | ) | |||||||||||||||||||||||
iTraxx Asia Ex Japan | (1.00 | %) | Quarterly | MSCS | 12/20/22 | 945,000 | (13,536 | ) | (9,131 | ) | (4,405 | ) | ||||||||||||||||||||||||
Traded Index | ||||||||||||||||||||||||||||||||||||
CDX.EM.28 | (1.00 | %) | Quarterly | BOFA | 12/20/22 | 1,140,000 | 40,204 | 48,301 | (8,097 | ) | ||||||||||||||||||||||||||
CMBX.NA.BBB-.S6 | (3.00 | %) | Monthly | MSCS | 5/11/63 | 51,000 | 8,075 | 5,430 | 2,645 | |||||||||||||||||||||||||||
CMBX.NA.BBB-.S6 | (3.00 | %) | Monthly | MSCS | 5/11/63 | 104,000 | 16,466 | 15,051 | 1,415 | |||||||||||||||||||||||||||
CMBX.NA.BBB-.S6 | (3.00 | %) | Monthly | �� | MSCS | 5/11/63 | 154,000 | 24,383 | 16,065 | 8,318 | ||||||||||||||||||||||||||
Total OTC Swap Contracts |
| $ 63,772 | $ 82,969 | $ (19,197 | ) | |||||||||||||||||||||||||||||||
Total Credit Default Swap Contracts |
| $ (91,159 | ) | $ (17,139 | ) | $ (74,020 | ) |
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 November 30, 2017, the Fund had the following cross-currency swap contracts outstanding. See Note 1(e).
Cross-Currency Swap Contracts
Description | Payment Frequency | Counterparty | Maturity Date | Notional Amount | Value/Unrealized Appreciation | |||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||
Receive Fixed 10.33% | Quarterly | BOFA | 12/20/22 | 3,781,032 | TRY | $ (66,042) | ||||||||||||||
Pay Floating 3 Month USD-LIBOR | 1,081,840 | USD | ||||||||||||||||||
Receive Fixed 10.92% | Quarterly | BOFA | 12/20/22 | 1,803,687 | TRY | (21,453) | ||||||||||||||
Pay Floating 3 Month USD-LIBOR | 493,350 | USD | ||||||||||||||||||
Receive Fixed 10.32% | Quarterly | DBAB | 12/20/22 | 6,448,505 | TRY | (113,415) | ||||||||||||||
Pay Floating 3 Month USD-LIBOR | 1,861,578 | USD | ||||||||||||||||||
|
| |||||||||||||||||||
Total Cross-Currency Swap Contracts | $(200,910) | |||||||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 63 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
At November 30, 2017, 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 rate 2.07% | ||||||||||||||||||||
Pay Floating rate 3 Month CABA | Semi-Annually | 9/20/21 | 5,360,000 CAD | $25,500 | ||||||||||||||||
Receive Fixed rate 2.10% | ||||||||||||||||||||
Pay Floating rate 3 Month CABA | Semi-Annually | 9/14/21 | 2,900,000 CAD | 16,262 | ||||||||||||||||
Receive Fixed rate 2.11% | ||||||||||||||||||||
Pay Floating rate 3 Month CABA | Semi-Annually | 9/15/21 | 7,000,000 CAD | 42,455 | ||||||||||||||||
Receive Fixed rate 2.12% | ||||||||||||||||||||
Pay Floating rate 3 Month CABA | Semi-Annually | 9/15/21 | 7,000,000 CAD | 43,562 | ||||||||||||||||
Receive Fixed rate 2.12% | ||||||||||||||||||||
Pay Floating rate 3 Month CABA | Semi-Annually | 9/20/21 | 7,000,000 CAD | 44,359 | ||||||||||||||||
Receive Fixed rate 8.37% | ||||||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/02/20 | 5,607,583 BRL | — | ||||||||||||||||
Receive Fixed rate 8.38% | ||||||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/02/20 | 5,607,583 BRL | — | ||||||||||||||||
Receive Fixed rate 8.79% | ||||||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/04/21 | 4,073,299 BRL | (13,141 | ) | |||||||||||||||
Receive Fixed rate 9.38% | ||||||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/04/21 | 6,883,499 BRL | 15,411 | ||||||||||||||||
Receive Fixed rate 9.94% | ||||||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/04/21 | 7,428,212 BRL | 47,938 | ||||||||||||||||
Receive Floating rate 3 Month CABA | ||||||||||||||||||||
Pay Fixed rate 2.35% | Semi-Annually | 9/14/27 | 1,200,000 CAD | (12,422 | ) | |||||||||||||||
Receive Floating rate 3 Month CABA | ||||||||||||||||||||
Pay Fixed rate 2.37% | Semi-Annually | 9/15/27 | 2,800,000 CAD | (31,824 | ) | |||||||||||||||
Receive Floating rate 3 Month CABA | ||||||||||||||||||||
Pay Fixed rate 2.37% | Semi-Annually | 9/15/27 | 2,800,000 CAD | (30,762 | ) | |||||||||||||||
Receive Floating rate 3 Month CABA | ||||||||||||||||||||
Pay Fixed rate 2.39% | Semi-Annually | 9/20/27 | 2,800,000 CAD | (35,961 | ) | |||||||||||||||
Receive Floating rate 3 Month CABA | ||||||||||||||||||||
Pay Fixed rate 2.36% | Semi-Annually | 9/20/27 | 2,290,000 CAD | (25,380 | ) | |||||||||||||||
Receive Floating rate 3 Month USD-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.41% | Semi-Annually | 7/18/26 | 1,663,200 | 118,083 | ||||||||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.41% | Semi-Annually | 8/04/67 | 133,000 GBP | 3,430 | ||||||||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.60% | Semi-Annually | 12/03/46 | 399,138 GBP | 721 | ||||||||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.56% | Semi-Annually | 11/29/46 | 761,018 GBP | 10,367 | ||||||||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.37% | Semi-Annually | 1/05/67 | 800,000 GBP | 38,675 | ||||||||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.44% | Semi-Annually | 1/07/47 | 688,548 GBP | 32,920 | ||||||||||||||||
|
| |||||||||||||||||||
Total Interest Rate Swap Contracts | $290,193 | |||||||||||||||||||
|
|
*In U.S. dollars unless otherwise indicated.
64 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
At November 30, 2017, the Fund had the following total return swap contracts outstanding. See Note 1(e).
Total Return Swap Contracts
Underlying Instrument | Financing Rate | Payment Frequency | Counter- party | Maturity Date | Notional Value* | Value/Unrealized (Depreciation) | ||||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||||
Equity Contracts - Longa | ||||||||||||||||||||||
Abertis Infraestructuras SA | 1-Day EONIA + 0.65% | Monthly | MSCS | 9/04/19 | 3,290,894 EUR | $ 254,609 | ||||||||||||||||
Accor SA | 1-Month EURIBOR + 0.50% | Monthly | MSCS | 1/10/18 | 832,564 EUR | 112,355 | ||||||||||||||||
Air China Ltd. | 1-Day HONIX + 0.95% | Monthly | MSCS | 7/09/19 | 3,887,922 HKD | 103,417 | ||||||||||||||||
Air France-KLM | 1-Month EURIBOR + 0.50% | Monthly | MSCS | 1/10/18 | 507,428 EUR | (29,676 | ) | |||||||||||||||
Akzo Nobel NV | 1-Day EONIA + 0.65% | Monthly | MSCS | 9/04/19 | 1,480,320 EUR | (28,968 | ) | |||||||||||||||
Aldermore Group PLC | 1-Month LIBOR + 0.45% | Monthly | DBAB | 7/03/18 | 374,189 GBP | 1,449 | ||||||||||||||||
Alphabet Inc. | 1-Month LIBOR + 0.50% | Monthly | MSCS | 9/20/18 | 1,434,043 | 359,738 | ||||||||||||||||
Altaba Inc. | 1-Day FEDEF + 0.40% | Monthly | MSCS | 12/20/18 | 2,684,157 | 2,147,875 | ||||||||||||||||
Anima Holding SpA | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 50,563 EUR | (3,328 | ) | |||||||||||||||
Antofagasta PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 1/18/18 | 367,607 GBP | 165,877 | ||||||||||||||||
Barclays PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 795,949 GBP | 85,724 | ||||||||||||||||
BNP Paribas SA | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 2,144,333 EUR | (46,628 | ) | |||||||||||||||
Booker Group PLC | 1-Month LIBOR + 0.45% | Monthly | DBAB | 7/03/18 | 2,735,179 GBP | 199,497 | ||||||||||||||||
Booker Group PLC | 1-Day SONIA + 0.65% | Monthly | MSCS | 9/04/19 | 1,635,529 GBP | 205,726 | ||||||||||||||||
CalAtlantic Group Inc. | 1-Day FEDEF + 0.40% | Monthly | MSCS | 12/21/17 | 1,061,880 | 89,098 | ||||||||||||||||
Caterpillar Inc. | 1-Month LIBOR + 0.50% | Monthly | MSCS | 9/20/18 | 1,698,492 | 724,641 | ||||||||||||||||
CECONOMY AG | 1-Day EONIA + 0.65% | Monthly | MSCS | 11/02/18 | 733,714 EUR | 167,816 | ||||||||||||||||
Celesio AG | 1-Day EONIA + 0.65% | Monthly | MSCS | 11/02/18 | 2,349,449 EUR | 16,645 | ||||||||||||||||
Christian Dior SE | 1-Day EONIA + 0.65% | Monthly | MSCS | 9/04/19 | 570,753 EUR | 98,426 | ||||||||||||||||
Clariant AG | 1-Day TOIS + 0.65% | Monthly | MSCS | 9/24/19 | 2,179,290 CHF | 203,944 | ||||||||||||||||
CR Bard Inc. | 1-Day FEDEF + 0.40% | Monthly | MSCS | 12/21/17 | 337,492 | 15,494 | ||||||||||||||||
Croda International PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 318,543 GBP | 9,174 | ||||||||||||||||
Danone SA | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 3,073,133 EUR | 103,787 | ||||||||||||||||
Delta Air Lines Inc. | 1-Month LIBOR + 0.50% | Monthly | MSCS | 9/20/18 | 1,663,191 | 106,665 | ||||||||||||||||
easyJet PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 1/18/18 | 131,085 GBP | 19,269 | ||||||||||||||||
EDP Renovaveis SA | 1-Day EONIA + 0.65% | Monthly | MSCS | 9/04/19 | 620,900 EUR | (3,369 | ) | |||||||||||||||
Euler Hermes Group | 1-Month LIBOR + 0.45% | Monthly | DBAB | 12/03/18 | 572,805 EUR | 1,617 | ||||||||||||||||
FirstEnergy Corp. | 1-Day FEDEF + 0.40% | Monthly | MSCS | 12/20/18 | 2,554,312 | 5,411 | ||||||||||||||||
Frontier Communications Corp. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 178,305 | 36,427 | ||||||||||||||||
GKN PLC | 1-Day SONIA + 0.65% | Monthly | MSCS | 2/06/18 | 830,467 GBP | (48,428 | ) | |||||||||||||||
Global Logistic Properties Ltd. | 1-Month SIBOR + 0.65% | Monthly | MSCS | 1/15/19 | 5,792,198 SGD | 102,332 | ||||||||||||||||
Hikma Pharmaceuticals PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 413,386 GBP | 21,156 | ||||||||||||||||
Iliad SA | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 3,998,301 EUR | (254,620 | ) | |||||||||||||||
International Consolidated Airlines Group SA | 1-Month LIBOR + 0.50% | Monthly | MSCS | 1/18/18 | 408,382 GBP | 138,675 | ||||||||||||||||
ITV PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 1,884,515 GBP | 49,205 | ||||||||||||||||
Kering | 1-Month EURIBOR + 0.50% | Monthly | MSCS | 1/10/18 | 197,219 EUR | 121,058 | ||||||||||||||||
Knight-Swift Transportation Holdings Inc. | 1-Month LIBOR + 0.50% | Monthly | MSCS | 9/20/18 | 1,274,283 | 509,259 | ||||||||||||||||
Ladbrokes Coral Group PLC | 1-Day SONIA + 0.65% | Monthly | MSCS | 2/06/18 | 221,035 GBP | 6,351 | ||||||||||||||||
LafargeHolcim Ltd. | 1-Month LIBOR + 0.50% | Monthly | MSCS | 7/26/18 | 3,498,761 CHF | (178,446 | ) | |||||||||||||||
Las Vegas Sands Corp. | 1-Month LIBOR + 0.50% | Monthly | MSCS | 9/20/18 | 1,697,803 | 246,019 | ||||||||||||||||
Monster Beverage Corp. | 1-Month LIBOR + 0.50% | Monthly | MSCS | 9/20/18 | 960,224 | 264,391 | ||||||||||||||||
Nestle SA | 1-Month LIBOR + 0.50% | Monthly | MSCS | 7/26/18 | 3,696,418 CHF | 36,529 | ||||||||||||||||
Nets A/S | 1-Week CIBOR + 0.65% | Monthly | MSCS | 9/23/19 | 7,728,730 DKK | 5,506 | ||||||||||||||||
NVR Inc. | 1-Month LIBOR + 0.50% | Monthly | MSCS | 9/20/18 | 2,876,948 | 3,322,130 | ||||||||||||||||
Paysafe Group PLC | 1-Day SONIA + 0.65% | Monthly | MSCS | 2/06/18 | 1,442,127 GBP | 6,740 | ||||||||||||||||
Paysafe Group PLC | 1-Month LIBOR + 0.45% | Monthly | DBAB | 7/03/18 | 517,469 GBP | (254 | ) | |||||||||||||||
Plastic Omnium SA | 1-Month EURIBOR + 0.50% | Monthly | MSCS | 1/10/18 | 668,566 EUR | 186,282 | ||||||||||||||||
Premier Oil PLC | 1-Month LIBOR + 0.40% | Monthly | DBAB | 1/17/18 | 22,287 GBP | (15,329 | ) | |||||||||||||||
Premier Oil PLC | 1-Month LIBOR + 0.40% | Monthly | DBAB | 1/17/18 | 63,747 GBP | (43,844 | ) | |||||||||||||||
Remy Cointreau SA | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 382,478 EUR | 2,229 | ||||||||||||||||
Rio Tinto PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 1/18/18 | 612,455 GBP | 44,718 | ||||||||||||||||
Rio Tinto PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 9/20/18 | 2,955,965 | 479,377 | ||||||||||||||||
Rockwell Collins Inc. | 1-Day FEDEF + 0.40% | Monthly | MSCS | 12/21/17 | 1,167,138 | 15,771 |
franklintempleton.com | Semiannual Report | 65 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Total Return Swap Contracts (continued)
Underlying Instrument | Financing Rate | Payment Frequency | Counter- party | Maturity Date | Notional Value* | Value/Unrealized Appreciation (Depreciation) | |||||||||||||||
OTC Swap Contracts (continued) | |||||||||||||||||||||
Equity Contracts - Longa (continued) | |||||||||||||||||||||
RSA Insurance Group PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 1,108,279 | GBP | $ | (4,380 | ) | ||||||||||||
Sky PLC | 1-Day SONIA + 0.65% | Monthly | MSCS | 2/06/18 | 2,267,040 | GBP | 65,359 | ||||||||||||||
Smith & Nephew PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 1,080,814 | GBP | (32,335 | ) | |||||||||||||
Smiths Group PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 1,112,876 | GBP | (35,399 | ) | |||||||||||||
Smurfit Kappa Group PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 1/18/18 | 742,179 | GBP | 65,428 | ||||||||||||||
Societe Generale SA | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 1,937,461 | EUR | (75,248 | ) | |||||||||||||
Sports Direct International PLC | 1-Month LIBOR + 0.50% | Monthly | MSCS | 4/12/18 | 890,398 | GBP | (8,774 | ) | |||||||||||||
Suzuki Motor Corp. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 11/16/18 | 73,775,400 | JPY | 4,496 | ||||||||||||||
Take-Two Interactive Software Inc. | 1-Month LIBOR + 0.50% | Monthly | MSCS | 9/20/18 | 2,174,144 | 2,458,146 | |||||||||||||||
Tatts Group Ltd. | 1-Day RBACR + 0.50% | Monthly | MSCS | 9/04/19 | 1,436,445 | AUD | 51,431 | ||||||||||||||
Tencent Holdings Ltd. | 1-Day HONIX + 0.95% | Monthly | MSCS | 7/09/19 | 2,797,440 | HKD | 49,199 | ||||||||||||||
Thyssenkrupp AG | 1-Day EONIA + 0.65% | Monthly | MSCS | 11/02/18 | 892,703 | EUR | (54,931 | ) | |||||||||||||
Toshiba Corp. | 1-Month LIBOR + 0.55% | Monthly | MSCS | 9/26/19 | 32,037,727 | JPY | (38,928 | ) | |||||||||||||
Tribune Media Co. | 1-Day FEDEF + 0.40% | Monthly | MSCS | 12/21/17 | 346,709 | 13,329 | |||||||||||||||
Unilever PLC | 1-Day SONIA + 0.65% | Monthly | MSCS | 2/06/18 | 154,918 | GBP | (3,883 | ) | |||||||||||||
Vivendi SA | 1-Day EONIA + 0.65% | Monthly | MSCS | 10/30/18 | 1,063,769 | EUR | 173,464 | ||||||||||||||
Vodafone Group PLC | 1-Day SONIA + 0.65% | Monthly | MSCS | 2/06/18 | 1,139,583 | GBP | 46,940 | ||||||||||||||
Welltower Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 370,313 | 2,408 | |||||||||||||||
Worldpay Group PLC | 1-Day SONIA + 0.65% | Monthly | MSCS | 9/04/19 | 1,427,866 | GBP | 65,647 | ||||||||||||||
Zodiac Aerospace | 1-Month LIBOR + 0.45% | Monthly | DBAB | 12/03/18 | 1,773,268 | EUR | 6,243 | ||||||||||||||
|
| ||||||||||||||||||||
12,887,731 | |||||||||||||||||||||
|
| ||||||||||||||||||||
Equity Contracts - Shortb | |||||||||||||||||||||
Ablynx NV | 1-Month EURIBOR - 3.00% | Monthly | BNPP | 11/28/18 | 254,679 | EUR | (6,085 | ) | |||||||||||||
Adidas AG | 1-Day EONIA - 0.35% | Monthly | MSCS | 4/12/18 | 1,569,270 | EUR | 59,182 | ||||||||||||||
Akorn Inc. | 1-Day FEDEF - 0.35% | Monthly | MSCS | 5/21/19 | 304,976 | 5,214 | |||||||||||||||
Alibaba Group Holding Ltd. | 1-Day FEDEF - 0.35% | Monthly | MSCS | 12/20/18 | 2,257,352 | (1,074,870 | ) | ||||||||||||||
Alstria Office REIT-AG | 1-Month LIBOR - 0.40% | Monthly | DBAB | 7/19/18 | 3,046,207 | EUR | (100,685 | ) | |||||||||||||
AMAG Pharmaceuticals Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 449,018 | 8,061 | |||||||||||||||
Apollo Commercial Real Estate Finance Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 15,560 | (362 | ) | ||||||||||||||
ASM Pacific Technology Ltd. | 1-Month HIBOR - 0.75% | Monthly | BNPP | 4/27/18 | 14,427,790 | HKD | 55,912 | ||||||||||||||
ASM Pacific Technology Ltd. | 1-Month LIBOR - 0.43% | Monthly | DBAB | 7/19/18 | 10,320,420 | HKD | 139,093 | ||||||||||||||
Ayala Land Inc. | 1-Month LIBOR - 4.00% | Monthly | BNPP | 12/28/17 | 780,557 | 20,493 | |||||||||||||||
Ayala Land Inc. | 1-Month LIBOR - 2.20% | Monthly | DBAB | 7/20/18 | 438,867 | (13,271 | ) | ||||||||||||||
BASF SE | 1-Day EONIA - 0.40% | Monthly | MSCS | 9/04/19 | 139,364 | EUR | (8,291 | ) | |||||||||||||
BE Semiconductor Industries NV | 1-Month EURIBOR - 0.35% | Monthly | BNPP | 12/04/18 | 406,636 | EUR | 2,860 | ||||||||||||||
Becton Dickinson and Co. | 1-Day FEDEF - 0.35% | Monthly | MSCS | 2/06/19 | 106,501 | (15,293 | ) | ||||||||||||||
Celanese Corp., A | 1-Day FEDEF - 0.35% | Monthly | MSCS | 2/06/19 | 169,544 | (5,812 | ) | ||||||||||||||
Chugoku Electric Power Co. Inc. | 1-Month LIBOR - 0.40% | Monthly | BNPP | 8/29/18 | 5,054,410 | JPY | (1,421 | ) | |||||||||||||
Consumer Discretionary Select Sector SPDR ETF | 1-Day FEDEF | Monthly | MSCS | 11/08/19 | 1,993,630 | (85,443 | ) | ||||||||||||||
Consumer Staples Select Sector SPDR ETF | 1-Day FEDEF - 0.15% | Monthly | MSCS | 11/08/19 | 1,962,791 | (108,544 | ) | ||||||||||||||
CP All PCL | 1-Month LIBOR - 1.00% | Monthly | DBAB | 2/06/18 | 262,568 | (5,627 | ) | ||||||||||||||
Croda International PLC | 1-Day SONIA - 0.35% | Monthly | MSCS | 2/06/18 | 143,072 | GBP | (17,888 | ) | |||||||||||||
Ctrip.com International Ltd. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 2,987,880 | (12,738 | ) | ||||||||||||||
DCM Holdings Co. Ltd. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 11/16/18 | 138,345,500 | JPY | (77,208 | ) | |||||||||||||
DHT Holdings Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 368,143 | (10,913 | ) | ||||||||||||||
DISH Network Corp. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 1,157,856 | (547 | ) | ||||||||||||||
Eastman Chemical Co. | 1-Day FEDEF - 0.35% | Monthly | MSCS | 2/06/19 | 165,699 | (8,517 | ) | ||||||||||||||
EDION Corp. | 1-Month LIBOR - 3.50% | Monthly | DBAB | 11/16/18 | 106,814,615 | JPY | (32,618 | ) | |||||||||||||
EI Group PLC | 1-Month LIBOR - 0.40% | Monthly | DBAB | 1/17/18 | 267,913 | GBP | (41,767 | ) | |||||||||||||
Emergent BioSolutions Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 3,123,372 | (444,494 | ) | ||||||||||||||
ENN Energy Holdings Ltd. | 1-Month LIBOR - 0.43% | Monthly | DBAB | 7/19/18 | 280,775 | HKD | (478 | ) | |||||||||||||
ENN Energy Holdings Ltd. | 1-Month HIBOR - 0.40% | Monthly | BNPP | 8/29/18 | 1,709,400 | HKD | 3,039 | ||||||||||||||
Envestnet Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 273,461 | 14,576 | |||||||||||||||
Euronet Worldwide Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 1,238,277 | (69,167 | ) |
66 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Total Return Swap Contracts (continued)
Underlying Instrument | Financing Rate | Payment Frequency | Counter- party | Maturity Date | Notional Value* | Value/Unrealized Appreciation (Depreciation) | ||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||
Equity Contracts - Shortb (continued) | ||||||||||||||||||
Evonik Industries AG | 1-Day EONIA - 0.40% | Monthly | MSCS | 9/04/19 | 141,569 | EUR | $ | (5,444 | ) | |||||||||
Fresenius SE & Co. KGaA | 1-Month LIBOR - 0.40% | Monthly | DBAB | 7/19/18 | 572,584 | EUR | 57,430 | |||||||||||
Fresenius SE & Co. KGaA | 1-Month LIBOR - 0.35% | Monthly | BNPP | 10/29/18 | 534,968 | EUR | 8,372 | |||||||||||
Frontier Communications Corp. | 1-Month LIBOR - 17.00% | Monthly | DBAB | 6/15/19 | 123,103 | (34,769 | ) | |||||||||||
Golar LNG Ltd. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 1,132,551 | (91,412 | ) | |||||||||||
Great Portland Estates PLC | 1-Month LIBOR - 0.40% | Monthly | DBAB | 1/17/18 | 339,669 | GBP | 1,119 | |||||||||||
Haitian International Holdings Ltd. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 7/19/18 | 6,525,000 | HKD | 71,974 | |||||||||||
Haitian International Holdings Ltd. | 1-Month HIBOR - 0.40% | Monthly | BNPP | 9/28/18 | 1,106,300 | HKD | 7,073 | |||||||||||
Hannon Armstrong Sustainable Infrastructure Capital Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 208,733 | (2,873 | ) | |||||||||||
Hazama Ando Corp. | 1-Month LIBOR - 0.40% | Monthly | BNPP | 12/27/18 | 135,408,800 | JPY | (13,747 | ) | ||||||||||
HubSpot Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 411,525 | (18,171 | ) | |||||||||||
Hurricane Energy PLC | 1-Month LIBOR - 0.55% | Monthly | BNPP | 11/28/18 | 143,664 | (3,482 | ) | |||||||||||
Iberdrola SA | 1-Month LIBOR - 0.40% | Monthly | DBAB | 7/19/18 | 2,064,058 | EUR | (51,499 | ) | ||||||||||
IHH Healthcare Bhd | 1-Month LIBOR - 3.11% | Monthly | DBAB | 9/20/18 | 366,014 | SGD | (4,305 | ) | ||||||||||
Inmarsat PLC | 1-Month LIBOR - 0.40% | Monthly | DBAB | 4/03/18 | 80,385 | 32 | ||||||||||||
Insulet Corp. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 1,246,456 | (61,099 | ) | |||||||||||
InterDigital Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 1,464,554 | (103,634 | ) | |||||||||||
Invacare Corp. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 499,815 | (4,152 | ) | |||||||||||
iShares STOXX Europe 600 UCITS ETF DE | 1-Day EONIA - 0.63% | Monthly | MSCS | 1/10/18 | 16,928 | EUR | (184 | ) | ||||||||||
J Sainsbury PLC | 1-Month LIBOR - 0.40% | Monthly | BNPP | 12/29/17 | 304,288 | GBP | (15,602 | ) | ||||||||||
J Sainsbury PLC | 1-Month LIBOR - 0.50% | Monthly | DBAB | 1/17/18 | 14,993 | GBP | (741 | ) | ||||||||||
j2 Global Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 1,539,142 | (64,545 | ) | |||||||||||
Japan Tobacco Inc. | 1-Day MUTSCALM - 0.40% | Monthly | MSCS | 11/28/19 | 228,724 | JPY | (50 | ) | ||||||||||
JD Sports Fashion PLC | 1-Day SONIA - 0.30% | Monthly | MSCS | 4/12/18 | 170,493 | GBP | 12,086 | |||||||||||
K’s Holdings Corp. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 11/16/18 | 306,209,700 | JPY | (248,688 | ) | ||||||||||
Larsen & Toubro Ltd. | 1-Month LIBOR - 2.50% | Monthly | DBAB | 3/17/18 | 174,160 | (2,445 | ) | |||||||||||
LendingTree Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 800,700 | (88,895 | ) | |||||||||||
Lennar Corp., A | 1-Day FEDEF - 0.35% | Monthly | MSCS | 12/20/18 | 943,560 | (75,291 | ) | |||||||||||
Lennar Corp., B | 1-Day FEDEF - 0.35% | Monthly | MSCS | 12/20/18 | 15,786 | (886 | ) | |||||||||||
Liberty Braves Group | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 62,734 | (2,821 | ) | |||||||||||
Liberty Media Corp. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 226,351 | (1,766 | ) | |||||||||||
Liberty Media Corp.-Liberty SiriusXM | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 1,078,649 | 1,397 | ||||||||||||
Ligand Pharmaceuticals Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 1,508,602 | 131,144 | ||||||||||||
Live Nation Entertainment Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 404,300 | (408 | ) | |||||||||||
LVMH Moet Hennessy Louis Vuitton SE | 1-Day EONIA - 0.40% | Monthly | MSCS | 4/12/18 | 1,729,809 | EUR | 32,402 | |||||||||||
LVMH Moet Hennessy Louis Vuitton SE | 1-Day EONIA - 0.40% | Monthly | MSCS | 10/30/18 | 559,773 | EUR | (63,124 | ) | ||||||||||
Marine Harvest ASA | 1-Month EURIBOR - 0.65% | Monthly | BNPP | 12/31/18 | 832,386 | EUR | 11,446 | |||||||||||
Molina Healthcare Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 1,818,530 | (47,205 | ) | |||||||||||
Nagoya Railroad Co. Ltd. | 1-Month LIBOR - 0.40% | Monthly | BNPP | 12/27/18 | 180,272,100 | JPY | (100,654 | ) | ||||||||||
NASDAQ-100 Total Return Index | 1-Day FEDEF - 0.15% | Monthly | MSCS | 11/08/19 | 1,979,046 | (22,581 | ) | |||||||||||
National Grid PLC | 1-Month LIBOR - 0.40% | Monthly | BNPP | 3/28/18 | 94,047 | GBP | (3,287 | ) | ||||||||||
National Health Investors Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 467,728 | (3,351 | ) | |||||||||||
Nice Ltd. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 504,049 | (17,649 | ) | |||||||||||
Nuance Communications Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 712,089 | (48,523 | ) | |||||||||||
Nyrstar NV | 1-Month LIBOR - 7.50% | Monthly | DBAB | 1/15/18 | 135,024 | EUR | 7,617 | |||||||||||
Nyrstar NV | 1-Month EURIBOR - 11.00% | Monthly | BNPP | 4/27/18 | 140,220 | EUR | 5,976 | |||||||||||
OCI NV | 1-Month LIBOR - 2.00% | Monthly | DBAB | 7/19/18 | 94,326 | EUR | (3,330 | ) | ||||||||||
Oita Bank Ltd. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 11/16/18 | 1,002,960 | (16,894 | ) | |||||||||||
Pacific Basin Shipping Ltd. | 1-Month LIBOR - 1.30% | Monthly | DBAB | 7/19/18 | 1,192,633 | HKD | (1,837 | ) | ||||||||||
Palo Alto Networks Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 1,767,109 | (81,151 | ) | |||||||||||
Pattern Energy Group Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 74,418 | (3,794 | ) | |||||||||||
Playtech PLC | 1-Month LIBOR - 0.40% | Monthly | DBAB | 7/19/18 | 329,433 | EUR | (26,951 | ) | ||||||||||
Playtech PLC | 1-Month LIBOR - 0.40% | Monthly | BNPP | 12/31/18 | 154,648 | EUR | (3,582 | ) | ||||||||||
Premier Oil PLC | 1-Month LIBOR - 11.50% | Monthly | DBAB | 1/17/18 | 47,785 | GBP | 647 | |||||||||||
Premier Oil PLC | 1-Month LIBOR - 11.50% | Monthly | DBAB | 4/03/18 | 479,422 | (7,877 | ) |
franklintempleton.com | Semiannual Report | 67 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Total Return Swap Contracts (continued)
Underlying Instrument | Financing Rate | Payment Frequency | Counter- party | Maturity Date | Notional Value* | Value/Unrealized Appreciation (Depreciation) | ||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||
Equity Contracts - Shortb (continued) | ||||||||||||||||||
Primary Health Properties PLC | 1-Month LIBOR - 4.50% | Monthly | DBAB | 1/17/18 | 254,548 | GBP | $ (8,981 | ) | ||||||||||
Primary Health Properties PLC | 1-Month LIBOR - 2.75% | Monthly | BNPP | 1/29/18 | 17,035 | GBP | (359 | ) | ||||||||||
QIAGEN NV | 1-Month LIBOR - 0.35% | Monthly | BNPP | 10/29/18 | 1,366,569 | 8,563 | ||||||||||||
Red Hat Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 2,829,039 | (66,281 | ) | |||||||||||
Richter Gideon Nyrt | 1-Month LIBOR - 0.50% | Monthly | BNPP | 12/29/17 | 1,012,419 | EUR | 40,633 | |||||||||||
Richter Gideon Nyrt | 1-Month LIBOR - 0.40% | Monthly | DBAB | 1/17/18 | 2,187,853 | EUR | 56,258 | |||||||||||
S&P 500 Total Return Index | 1-Day FEDEF - 0.20% | Monthly | MSCS | 11/08/19 | 1,978,596 | (49,417 | ) | |||||||||||
Sankyo Co. Ltd. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 11/16/18 | 8,388,000 | JPY | (5,116 | ) | ||||||||||
SAS AB | 1-Month LIBOR - 3.50% | Monthly | DBAB | 11/05/18 | 1,179,435 | SEK | (9,531 | ) | ||||||||||
SAS AB | 1-Week STIBOR - 3.25% | Monthly | BNPP | 1/02/19 | 526,856 | SEK | (1,511 | ) | ||||||||||
Seino Holdings Co. Ltd. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 11/16/18 | 25,616,000 | JPY | (24,481 | ) | ||||||||||
Shionogi & Co. Ltd. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 11/16/18 | 86,788,200 | JPY | (335 | ) | ||||||||||
Ship Finance International Ltd. | 1-Month LIBOR - 0.57% | Monthly | DBAB | 6/15/19 | 2,300,201 | (87,822 | ) | |||||||||||
Sibanye Gold Ltd. | 1-Month LIBOR - 1.00% | Monthly | DBAB | 12/10/18 | 714,041 | (11,796 | ) | |||||||||||
Siliconware Precision Industries Co. Ltd. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 97,194 | (4,790 | ) | |||||||||||
Sinclair Broadcast Group Inc. | 1-Day FEDEF - 0.35% | Monthly | MSCS | 5/21/19 | 60,254 | (8,791 | ) | |||||||||||
SKF AB | 1-Week STIBOR - 0.50% | Monthly | MSCS | 8/20/19 | 45,806 | SEK | (1,041 | ) | ||||||||||
Sogefi SpA | 1-Month LIBOR - 3.00% | Monthly | DBAB | 6/11/18 | 59,260 | EUR | (11,515 | ) | ||||||||||
Solvay SA | 1-Day EONIA - 0.50% | Monthly | MSCS | 11/02/18 | 135,993 | EUR | 6,318 | |||||||||||
St. Modwen Properties PLC | 1-Month LIBOR - 0.40% | Monthly | DBAB | 1/17/18 | 8,649 | GBP | 80 | |||||||||||
Starwood Property Trust Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 107,477 | (696 | ) | |||||||||||
STMicroelectronics NV | 1-Month LIBOR - 0.35% | Monthly | BNPP | 12/31/18 | 174,590 | 10,298 | ||||||||||||
Suzuki Motor Corp. | 1-Month LIBOR - 0.40% | Monthly | BNPP | 1/29/18 | 88,156,800 | JPY | 10,473 | |||||||||||
Tabcorp Holdings Ltd. | 1-Day RBACR - 0.64% | Monthly | MSCS | 12/05/17 | 170,538 | AUD | (22,993 | ) | ||||||||||
Teijin Ltd. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 11/16/18 | 37,916,258 | JPY | (10,460 | ) | ||||||||||
Tesco PLC | 1-Day SONIA - 0.35% | Monthly | MSCS | 2/06/18 | 1,276,145 | GBP | (122,307 | ) | ||||||||||
Tesco PLC | 1-Month LIBOR - 0.40% | Monthly | DBAB | 7/03/18 | 2,083,555 | GBP | (157,350 | ) | ||||||||||
The Medicines Co. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 795,118 | 39,186 | ||||||||||||
Toho Holdings Co. Ltd. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 11/16/18 | 53,907,000 | JPY | (16,905 | ) | ||||||||||
Tohoku Electric Power Co. Inc. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 11/16/18 | 4,981,000 | JPY | (4,198 | ) | ||||||||||
Unilever NV. | 1-Day EONIA - 0.35% | Monthly | MSCS | 4/12/18 | 1,422,714 | EUR | 1,950 | |||||||||||
Unilever NV. | 1-Day SONIA - 0.40% | Monthly | MSCS | 9/04/19 | 158,174 | GBP | 3,539 | |||||||||||
United Technologies Corp. | 1-Day FEDEF - 0.35% | Monthly | MSCS | 2/06/19 | 252,112 | (20,484 | ) | |||||||||||
Utilities Select Sector SPDR Fund | 1-Day FEDEF - 0.41% | Monthly | MSCS | 2/06/19 | 2,021,659 | (39,487 | ) | |||||||||||
Utilities Select Sector SPDR Fund | 1-Day FEDEF - 0.15% | Monthly | MSCS | 11/08/19 | 1,974,536 | (48,689 | ) | |||||||||||
Vantiv Inc., Class A | 1-Day SONIA - 0.35% | Monthly | MSCS | 8/20/19 | 1,254,879 | GBP | (66,554 | ) | ||||||||||
Volvo AB | 1-Week STIBOR - 0.50% | Monthly | MSCS | 8/20/19 | 50,382 | SEK | (890 | ) | ||||||||||
Welltower Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 265,609 | 1,181 | ||||||||||||
Workday Inc. | 1-Month LIBOR - 0.30% | Monthly | BNPP | 11/28/18 | 73,217 | 7,612 | ||||||||||||
Workday Inc. | 1-Month LIBOR - 0.35% | Monthly | DBAB | 6/15/19 | 1,480,573 | 56,751 | ||||||||||||
Yamada Denki Co. Ltd. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 11/16/18 | 196,798,840 | JPY | (79,770 | ) | ||||||||||
Yamagata Bank Ltd. | 1-Month LIBOR - 1.50% | Monthly | DBAB | 11/16/18 | 858,623 | 4,051 | ||||||||||||
Yamaguchi Financial Group Inc. | 1-Month LIBOR - 0.40% | Monthly | DBAB | 11/16/18 | 2,542,439 | (66,296 | ) | |||||||||||
Yuexiu Transport Infrastructure Ltd. | 1-Month LIBOR - 1.88% | Monthly | DBAB | 7/19/18 | 4,298,795 | HKD | 2,674 | |||||||||||
|
| |||||||||||||||||
(3,532,872 | ) | |||||||||||||||||
|
| |||||||||||||||||
Fixed Income Contracts - Longa | ||||||||||||||||||
Ablynx NV | 1-Month EURIBOR + 0.80% | Monthly | BNPP | 11/28/18 | 308,602 | EUR | 2,931 | |||||||||||
ACS Actividades Finance BV | 1-Month LIBOR + 0.90% | Monthly | DBAB | 2/09/18 | 2,287,075 | EUR | 56,866 | |||||||||||
Alstria Office REIT-AG | 1-Month LIBOR + 0.90% | Monthly | DBAB | 6/14/18 | 3,091,734 | EUR | 99,644 | |||||||||||
AMAG Pharmaceuticals Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 1,338,882 | 1,276 | ||||||||||||
Apollo Commercial Real Estate Finance Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 3/15/19 | 67,041 | 857 | ||||||||||||
Asia View Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 8/20/18 | 1,100,375 | (2,344 | ) | |||||||||||
ASM Pacific Technology Ltd. | 1-Month HIBOR + 0.90% | Monthly | BNPP | 4/27/18 | 15,229,775 | HKD | (31,928 | ) | ||||||||||
ASM Pacific Technology Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 5/18/18 | 16,034,667 | HKD | (136,115 | ) |
68 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Total Return Swap Contracts (continued)
Underlying Instrument | Financing Rate | Payment Frequency | Counter- party | Maturity Date | Notional Value* | Value/Unrealized Appreciation (Depreciation) | ||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||
Fixed Income Contracts - Longa (continued) | ||||||||||||||||||
AYC Finance Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 5/12/18 | 645,125 | $ 12,324 | ||||||||||||
AYC Finance Ltd. | 1-Month LIBOR + 1.00% | Monthly | BNPP | 11/29/18 | 1,173,000 | (15,087 | ) | |||||||||||
Banco Central de la Republica Argentina SA | 3-Month LIBOR + 1.25% | Annually | JPHQ | 5/16/18 | 585,290 | 20,104 | ||||||||||||
Banco Central de la Republica Argentina SA | 3-Month LIBOR + 1.25% | Monthly | JPHQ | 6/21/18 | 387,610 | 8,379 | ||||||||||||
BE Semiconductor Industries NV | 1-Month EURIBOR + 0.80% | Monthly | BNPP | 12/04/18 | 525,102 | EUR | (2,621 | ) | ||||||||||
Carillion Finance White 2015 Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 7/19/18 | 1,276,611 | GBP | (950,115 | ) | ||||||||||
Chugoku Electric Power Co. Inc. | 1-Month LIBOR + 0.75% | Monthly | BNPP | 3/23/18 | 39,998,800 | JPY | (4 | ) | ||||||||||
Chugoku Electric Power Co. Inc. | 1-Month LIBOR + 0.75% | Monthly | BNPP | 5/29/18 | 119,263,680 | JPY | (431 | ) | ||||||||||
CP Foods Holdings Ltd. | 1-Month LIBOR + 0.75% | Monthly | BNPP | 1/29/18 | 219,236 | (1,320 | ) | |||||||||||
CP Foods Holdings Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 8/20/18 | 645,458 | 7,823 | ||||||||||||
Ctrip.com International Ltd. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 5/18/18 | 2,547,756 | 9,299 | ||||||||||||
Ctrip.com International Ltd. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 2,483,325 | 7,211 | ||||||||||||
Dana Gas Sukuk Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 1/17/18 | 127,715 | 9,117 | ||||||||||||
DCM Holdings Co. Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 11/16/18 | 255,360,000 | JPY | 92,931 | |||||||||||
DHT Holdings Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 2,157,110 | 6,211 | ||||||||||||
DISH Network Corp. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 2,419,292 | 57,632 | ||||||||||||
EDION Corp. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 11/16/18 | 110,800,000 | JPY | 26,324 | |||||||||||
Emergent BioSolutions Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 3,144,024 | 387,366 | ||||||||||||
ENN Energy Holdings Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 2/26/18 | 299,308 | (1,303 | ) | |||||||||||
Enterprise Funding Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 2/17/18 | 905,435 | GBP | 47,227 | |||||||||||
Envestnet Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 593,497 | (8,815 | ) | |||||||||||
Euronet Worldwide Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 1,697,957 | 75,834 | ||||||||||||
Fresenius SE & Co. KGaA | 1-Month LIBOR + 0.90% | Monthly | DBAB | 7/19/18 | 682,500 | EUR | (51,214 | ) | ||||||||||
Fresenius SE & Co. KGaA | 1-Month EURIBOR + 0.80% | Monthly | BNPP | 10/29/18 | 644,230 | EUR | (5,523 | ) | ||||||||||
Golar LNG Ltd. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 3,147,730 | 103,996 | ||||||||||||
Golden Ocean Group Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 10/12/18 | 964,252 | 2,866 | ||||||||||||
Great Portland Estates Capital Jersey Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 7/19/18 | 1,510,130 | GBP | 12,625 | |||||||||||
Green Plains Inc. | 1-Month LIBOR + 1.00% | Monthly | DBAB | 10/01/18 | 290,973 | (11,056 | ) | |||||||||||
Gulf Keystone Petroleum Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 7/19/18 | 198,577 | 895 | ||||||||||||
Haitian International Holdings Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 5/12/18 | 2,105,639 | (147,851 | ) | |||||||||||
Hannon Armstrong Sustainable Infrastructure Capital Inc. | 1-Month LIBOR + 0.40% | Monthly | DBAB | 6/15/19 | 746,486 | 9,804 | ||||||||||||
Hazama Ando Corp. | 1-Month LIBOR + 0.75% | Monthly | BNPP | 12/27/18 | 152,331,070 | JPY | 18,218 | |||||||||||
HubSpot Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 777,570 | 20,358 | ||||||||||||
Hurricane Energy PLC | 1-Month LIBOR + 0.80% | Monthly | BNPP | 11/28/18 | 409,845 | 1,190 | ||||||||||||
Indah Capital Ltd. | 1-Month LIBOR + 1.00% | Monthly | DBAB | 9/19/18 | 1,537,500 | SGD | 7,947 | |||||||||||
Inmarsat PLC | 1-Month LIBOR + 1.00% | Monthly | DBAB | 7/02/18 | 807,856 | 3,494 | ||||||||||||
Insulet Corp. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 1,802,903 | 79,474 | ||||||||||||
InterDigital Inc./PA | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 2,794,742 | 117,132 | ||||||||||||
Invacare Corp. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 872,352 | 8,247 | ||||||||||||
J Sainsbury PLC | 1-Month LIBOR + 0.80% | Monthly | BNPP | 12/29/17 | 1,913,312 | GBP | 2,714 | |||||||||||
J Sainsbury PLC | 1-Month LIBOR + 0.90% | Monthly | DBAB | 1/15/18 | 302,882 | GBP | (818 | ) | ||||||||||
j2 Global Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 2,514,881 | 70,529 | ||||||||||||
K’s Holdings Corp. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 11/16/18 | 310,445,940 | JPY | 221,462 | |||||||||||
Larsen & Toubro Ltd. | 1-Month LIBOR + 1.50% | Monthly | DBAB | 2/20/18 | 659,088 | 4,919 | ||||||||||||
LendingTree Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 1,128,035 | 103,330 | ||||||||||||
Liberty Media Corp. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 1,806,274 | 19,000 | ||||||||||||
Ligand Pharmaceuticals Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 1,582,674 | (130,315 | ) | |||||||||||
Live Nation Entertainment Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 5/15/19 | 523,971 | 2,454 | ||||||||||||
Magyar Nemzeti Vagyonkezelo ZRT | 1-Month EURIBOR + 0.80% | Monthly | BNPP | 12/29/17 | 1,356,222 | EUR | (21,661 | ) | ||||||||||
Magyar Nemzeti Vagyonkezelo ZRT | 1-Month LIBOR + 0.90% | Monthly | DBAB | 1/17/18 | 3,418,724 | EUR | (15,987 | ) | ||||||||||
Marine Harvest ASA | 1-Month EURIBOR + 0.80% | Monthly | BNPP | 12/31/18 | 1,412,742 | EUR | (9,125 | ) | ||||||||||
Molina Healthcare Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 1,981,926 | 50,124 | ||||||||||||
Nagoya Railroad Co. Ltd. | 1-Month LIBOR + 0.75% | Monthly | BNPP | 12/27/18 | 196,252,800 | JPY | 147,068 | |||||||||||
National Grid North America Inc. | 1-Month LIBOR + 0.80% | Monthly | BNPP | 3/28/18 | 1,490,072 | GBP | 6,429 | |||||||||||
National Health Investors Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 814,988 | 5,272 |
franklintempleton.com | Semiannual Report | 69 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Total Return Swap Contracts (continued)
Underlying Instrument | Financing Rate | Payment Frequency | Counter- party | Maturity Date | Notional Value* | Value/Unrealized Appreciation (Depreciation) | |||||||||||||||
OTC Swap Contracts (continued) | |||||||||||||||||||||
Fixed Income Contracts - Longa (continued) | |||||||||||||||||||||
Nice Systems Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 770,893 | $ 22,220 | |||||||||||||||
Nuance Communications Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 1,568,197 | 102,395 | |||||||||||||||
Nyrstar NV | 1-Month LIBOR + 0.90% | Monthly | DBAB | 1/15/18 | 446,386 EUR | (13,046 | ) | ||||||||||||||
Nyrstar NV | 1-Month EURIBOR + 0.80% | Monthly | BNPP | 4/27/18 | 872,462 EUR | (1,737 | ) | ||||||||||||||
OCI NV | 1-Month LIBOR + 0.90% | Monthly | DBAB | 2/09/18 | 2,386,050 EUR | 5,607 | |||||||||||||||
Oita Bank Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 12/19/17 | 2,463,875 | (65,325 | ) | ||||||||||||||
Palo Alto Networks Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 2,214,075 | 98,387 | |||||||||||||||
Pattern Energy Group Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 302,972 | 4,177 | |||||||||||||||
PB Issuer No. 4 Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 8/20/18 | 1,012,097 | (5,089 | ) | ||||||||||||||
PHP Finance Jersey Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 7/19/18 | 470,438 GBP | 3,826 | |||||||||||||||
PT Jersey Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 2/19/18 | 685,927 EUR | 19,090 | |||||||||||||||
PT Jersey Ltd. | 1-Month EURIBOR + 0.80% | Monthly | BNPP | 12/31/18 | 231,897 EUR | 2,536 | |||||||||||||||
QIAGEN NV | 1-Month LIBOR + 0.80% | Monthly | BNPP | 10/29/18 | 1,985,298 | (12,334 | ) | ||||||||||||||
Red Hat Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 2,997,785 | 69,026 | |||||||||||||||
Sacyr SA | 1-Month LIBOR + 0.90% | Monthly | DBAB | 4/12/18 | 99,764 EUR | 705 | |||||||||||||||
Sacyr SA | 1-Month EURIBOR + 0.80% | Monthly | BNPP | 11/29/18 | 200,767 EUR | (30 | ) | ||||||||||||||
Sankyo Co. Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 11/16/18 | 110,110,000 JPY | 8,222 | |||||||||||||||
SAS AB | 1-Month LIBOR + 0.90% | Monthly | DBAB | 11/05/18 | 1,137,132 SEK | 5,817 | |||||||||||||||
SAS AB | 1-Week STIBOR + 0.80% | Monthly | BNPP | 1/02/19 | 2,350,481 SEK | 2,576 | |||||||||||||||
Seino Holdings Co. Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 10/01/18 | 33,450,000 JPY | 31,220 | |||||||||||||||
Shionogi & Co. Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 11/16/18 | 90,905,580 JPY | (1,655 | ) | ||||||||||||||
Ship Finance International Ltd. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 2/01/18 | 1,371,031 | 31,535 | |||||||||||||||
Ship Finance International Ltd. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 1,825,287 | 33,835 | |||||||||||||||
Sibanye Gold Ltd. | 1-Month LIBOR + 1.00% | Monthly | DBAB | 12/10/18 | 1,454,250 | 12,548 | |||||||||||||||
Sogefi SpA | 1-Month LIBOR + 0.90% | Monthly | DBAB | 6/11/18 | 204,023 EUR | 9,281 | |||||||||||||||
St. Modwen Properties Securities Jersey Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 7/19/18 | 301,585 GBP | 3,959 | |||||||||||||||
Starwood Property Trust Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 795,405 | 7,237 | |||||||||||||||
STMicroelectronics NV | 1-Month LIBOR + 0.80% | Monthly | BNPP | 12/28/18 | 259,955 | (9,580 | ) | ||||||||||||||
Suzuki Motor Corp. | 1-Month LIBOR + 0.75% | Monthly | BNPP | 1/29/18 | 15,113,080 JPY | (1,565 | ) | ||||||||||||||
Teijin Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 11/16/18 | 62,205,000 JPY | 7,813 | |||||||||||||||
The Medicines Co. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 1,511,860 | (20,389 | ) | ||||||||||||||
Toho Holdings Co. Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 11/16/18 | 124,850,000 JPY | 13,065 | |||||||||||||||
Tohoku Electric Power Co. Inc. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 11/16/18 | 50,537,500 JPY | (485 | ) | ||||||||||||||
Tohoku Electric Power Co. Inc. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 11/16/18 | 209,265,000 JPY | (3,425 | ) | ||||||||||||||
Workday Inc. | 1-Month LIBOR + 0.75% | Monthly | BNPP | 11/28/18 | 179,834 | (6,743 | ) | ||||||||||||||
Workday Inc. | 1-Month LIBOR + 0.75% | Monthly | DBAB | 6/15/19 | 1,940,327 | (49,464 | ) | ||||||||||||||
Yamada Denki Co. Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 11/16/18 | 269,636,400 JPY | 94,387 | |||||||||||||||
Yamagata Bank Ltd. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 12/19/17 | 2,803,500 | 15,139 | |||||||||||||||
Yamaguchi Financial Group Inc. | 1-Month LIBOR + 0.90% | Monthly | DBAB | 12/19/17 | 3,827,550 | 107,276 | |||||||||||||||
|
| ||||||||||||||||||||
926,282 | |||||||||||||||||||||
|
| ||||||||||||||||||||
Fixed Income Contracts - Shortb | |||||||||||||||||||||
iBoxx USD Liquid High Yield Index | 1-Month LIBOR | Quarterly | JPHQ | 12/20/17 | 3,920,000 | (24,293 | ) | ||||||||||||||
iBoxx USD Liquid High Yield Index | 1-Month LIBOR | Quarterly | JPHQ | 12/20/17 | 2,815,000 | (7,066 | ) | ||||||||||||||
iBoxx USD Liquid High Yield Index | 1-Month LIBOR | Quarterly | JPHQ | 12/20/17 | 7,850,000 | (51,623 | ) | ||||||||||||||
iBoxx USD Liquid High Yield Index | 1-Month LIBOR | Quarterly | JPHQ | 12/20/17 | 3,920,000 | (25,036 | ) | ||||||||||||||
|
| ||||||||||||||||||||
(108,018 | ) | ||||||||||||||||||||
|
| ||||||||||||||||||||
Total Return Swap Contracts | $ | 10,173,123 | |||||||||||||||||||
|
|
*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 Abbreviations on page 90.
70 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Financial Statements
Consolidated Statement of Assets and Liabilities
November 30, 2017 (unaudited)
Franklin K2 Alternative Strategies Fund
Assets: | ||||
Investments in securities: | ||||
Cost - Unaffiliated issuers | $ | 864,023,633 | ||
Cost - Unaffiliated repurchase agreements | 19,665,720 | |||
|
| |||
Value - Unaffiliated issuers | $ | 979,441,926 | ||
Value - Unaffiliated repurchase agreements | 19,665,720 | |||
Cash | 38,718,917 | |||
Foreign currency, at value (cost $425,656) | 459,097 | |||
Receivables: | ||||
Investment securities sold | 17,957,327 | |||
Capital shares sold | 2,256,348 | |||
Dividends and interest | 3,437,002 | |||
Deposits with brokers for: | ||||
Securities sold short | 208,114,915 | |||
Exchange traded options written | 117,441 | |||
OTC derivative contracts | 36,626,844 | |||
Futures contracts | 7,478,366 | |||
Centrally cleared swap contracts | 4,574,440 | |||
Due from brokers | 1,013,562 | |||
Variation margin on futures contracts | 246,812 | |||
Variation margin on centrally cleared swap contracts | 4,679 | |||
OTC swap contracts (upfront payments $128,357) | 125,181 | |||
Unrealized appreciation on OTC forward exchange contracts | 3,349,213 | |||
Unrealized appreciation on OTC swap contracts | 17,377,447 | |||
Unrealized appreciation on unfunded loan commitments (Note 8) | 2,270 | |||
|
| |||
Total assets | 1,340,967,507 | |||
|
| |||
Liabilities: | ||||
Payables: | ||||
Investment securities purchased | 18,211,582 | |||
Capital shares redeemed | 2,092,090 | |||
Management fees | 1,511,744 | |||
Distribution fees | 68,109 | |||
Transfer agent fees | 112,889 | |||
OTC swap contracts (upfront receipts $43,770) | 42,212 | |||
Options written, at value (premiums received $546,001) | 507,956 | |||
Securities sold short, at value (proceeds $ 206,365,192) | 220,393,416 | |||
Due to brokers | 2,018,548 | |||
Unrealized depreciation on OTC forward exchange contracts | 5,264,233 | |||
Unrealized depreciation on OTC swap contracts | 7,424,431 | |||
Accrued expenses and other liabilities | 426,719 | |||
|
| |||
Total liabilities | 258,073,929 | |||
|
| |||
Net assets, at value | $ | 1,082,893,578 | ||
|
| |||
Net assets consist of: | ||||
Paid-in capital | $ | 1,007,491,210 | ||
Undistributed net investment income | 7,383,698 | |||
Net unrealized appreciation (depreciation) | 111,694,423 | |||
Accumulated net realized gain (loss) | (43,675,753 | ) | ||
|
| |||
Net assets, at value | $ | 1,082,893,578 | ||
|
|
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 71 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Assets and Liabilities (continued)
November 30, 2017 (unaudited)
Franklin K2 Alternative Strategies Fund
Class A: | ||||
Net assets, at value | $ | 118,839,430 | ||
|
| |||
Shares outstanding | 10,437,763 | |||
|
| |||
Net asset value per sharea | $ | 11.39 | ||
|
| |||
Maximum offering price per share (net asset value per share ÷ 94.25%) | $ | 12.07 | ||
|
| |||
Class C: | ||||
Net assets, at value | $ | 52,524,412 | ||
|
| |||
Shares outstanding | 4,687,850 | |||
|
| |||
Net asset value and maximum offering price per sharea | $ | 11.20 | ||
|
| |||
Class R: | ||||
Net assets, at value | $ | 553,009 | ||
|
| |||
Shares outstanding | 48,501 | |||
|
| |||
Net asset value and maximum offering price per share | $ | 11.40 | ||
|
| |||
Class R6: | ||||
Net assets, at value | $ | 153,281,516 | ||
|
| |||
Shares outstanding | 13,401,799 | |||
|
| |||
Net asset value and maximum offering price per share | $ | 11.44 | ||
|
| |||
Advisor Class: | ||||
Net assets, at value | $ | 757,695,211 | ||
|
| |||
Shares outstanding | 66,346,640 | |||
|
| |||
Net asset value and maximum offering price per share | $ | 11.42 | ||
|
|
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
72 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations
for the six months ended November 30, 2017 (unaudited)
Franklin K2 Alternative Strategies Fund
Investment income: | ||||
Dividends: | ||||
Unaffiliated issuers | $ | 2,631,459 | ||
Interest: | ||||
Unaffiliated issuers | 11,409,430 | |||
|
| |||
Total investment income | 14,040,889 | |||
|
| |||
Expenses: | ||||
Management fees (Note 3a) | 10,557,257 | |||
Distribution fees: (Note 3c) | ||||
Class A | 149,788 | |||
Class C | 267,871 | |||
Class R | 1,476 | |||
Transfer agent fees: (Note 3e) | ||||
Class A | 55,928 | |||
Class C | 24,989 | |||
Class R | 275 | |||
Class R6 | 2,495 | |||
Advisor Class | 330,299 | |||
Custodian fees (Note 4) | 55,175 | |||
Reports to shareholders | 33,222 | |||
Registration and filing fees | 100,632 | |||
Professional fees | 208,718 | |||
Trustees fees and expenses | 177,592 | |||
Dividends and interest on securities sold short | 2,095,493 | |||
Other | 98,234 | |||
|
| |||
Total expenses | 14,159,444 | |||
Expense reductions (Note 4) | (124,384 | ) | ||
Expenses waived/paid by affiliates (Note 3f) | (1,304,915 | ) | ||
|
| |||
Net expenses | 12,730,145 | |||
|
| |||
Net investment income | 1,310,744 | |||
|
| |||
Realized and unrealized gains (losses): | ||||
Net realized gain (loss) from: | ||||
Investments: | ||||
Unaffiliated issuers | 27,175,377 | |||
Written options | 568,678 | |||
Foreign currency transactions | 312,604 | |||
Forward exchange contracts | (5,799,686 | ) | ||
Futures contracts | (11,110,343 | ) | ||
Securities sold short | (14,869,933 | ) | ||
Swap contracts | 305,733 | |||
|
| |||
Net realized gain (loss) | (3,417,570 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments: | ||||
Unaffiliated issuers | 23,020,752 | |||
Translation of other assets and liabilities denominated in foreign currencies | (83,377 | ) | ||
Forward exchange contracts | 1,916,940 | |||
Written options | (66,351 | ) | ||
Futures contracts | 4,613,845 | |||
Securities sold short | (7,527,774 | ) | ||
Swap contracts | 4,309,067 | |||
|
| |||
Net change in unrealized appreciation (depreciation) | 26,183,102 | |||
|
| |||
Net realized and unrealized gain (loss) | 22,765,532 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 24,076,276 | ||
|
|
franklintempleton.com | �� | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 73 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Net Assets
Franklin K2 Alternative Strategies Fund
Six Months Ended | ||||||||
November 30, 2017 | Year Ended | |||||||
(unaudited) | May 31, 2017 | |||||||
Increase (decrease) in net assets: | ||||||||
Operations: | ||||||||
Net investment income | $ 1,310,744 | $ 3,232,356 | ||||||
Net realized gain (loss) | (3,417,570 | ) | 26,907,437 | |||||
Net change in unrealized appreciation (depreciation) | 26,183,102 | 39,080,717 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 24,076,276 | 69,220,510 | ||||||
|
| |||||||
Distributions to shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | — | (630,342 | ) | |||||
Class R | — | (2,647 | ) | |||||
Class R6 | — | (2,240,746 | ) | |||||
Advisor Class | — | (4,861,190 | ) | |||||
|
| |||||||
Total distributions to shareholders | — | (7,734,925 | ) | |||||
|
| |||||||
Capital share transactions: (Note 2) | ||||||||
Class A | (3,147,091 | ) | (65,872,266 | ) | ||||
Class C | (3,932,520 | ) | (18,888,454 | ) | ||||
Class R | (56,218 | ) | 231,379 | |||||
Class R6 | (115,951,550 | ) | (14,356,196 | ) | ||||
Advisor Class | 66,351,554 | (83,686,963 | ) | |||||
|
| |||||||
Total capital share transactions | (56,735,825 | ) | (182,572,500 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | (32,659,549 | ) | (121,086,915 | ) | ||||
Net assets: | ||||||||
Beginning of period | 1,115,553,127 | 1,236,640,042 | ||||||
|
| |||||||
End of period | $1,082,893,578 | $1,115,553,127 | ||||||
|
| |||||||
Undistributed net investment income included in net assets: | ||||||||
End of period | $ 7,383,698 | $ 6,072,954 | ||||||
|
|
74 | Semiannual Report | The accompanying notes are an integral part of these 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 four 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. 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 as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. 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 VC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Equity securities, exchange traded funds, exchange traded notes and derivative financial instruments (derivatives) 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 derivatives 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 VC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VC 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
franklintempleton.com | Semiannual Report | 75 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
1. Organization and Significant Accounting Policies (continued)
a. Financial Instrument Valuation (continued)
valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
Trading in securities on foreign securities stock exchanges and OTC markets may be completed before 4 p.m. Eastern time. In addition, trading in certain foreign markets may not take place on every Fund’s business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.
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
76 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
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 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 period end, as indicated in the Consolidated Statement of Investments, had been entered into on November 30, 2017.
d. Securities Purchased on a Delayed Delivery Basis
The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.
e. Derivative Financial Instruments
The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown 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,
franklintempleton.com | Semiannual Report | 77 |
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)
interest rate, certain foreign currencies and equity price risk. A futures contract is an agreement between the Fund and a coun-terparty to buy or sell an asset at a specified price on a future date. Required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities.
The Fund entered into OTC forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.
The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (OTC credit default swaps) or may be executed in a multilateral trade facility platform, such as a registered exchange (centrally cleared credit default swaps). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, a basket of issuers or indices, or a tranche of a credit index or basket of issuers or indices. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. For centrally cleared credit default swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Upfront payments and receipts are reflected in the Consolidated Statement of Assets and Liabilities and represent compensating factors between stated terms of the credit default
swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments and receipts are amortized over the term of the contract as a realized gain or loss in the Consolidated Statement of Operations.
The Fund entered into OTC cross currency swap contracts primarily to manage and/or gain exposure to certain foreign currencies. A cross currency swap is an agreement between the Fund and a counterparty to exchange cash flows (determined using either a fixed or floating rate) based on the notional amounts of two different currencies. The notional amounts are typically determined based on the spot exchange rates at the opening of the contract. Cross currency swaps may require the exchange of notional amounts at the opening and/or closing of the contract. 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. Upfront payments and receipts, if any, are reflected in the Consolidated Statement of Assets and Liabilities and represent compensating factors between stated terms of the cross currency swap contract and prevailing market conditions (interest rate 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 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
78 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
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 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 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 9 regarding other derivative information.
f. Exchange Traded Notes
The Fund purchases exchange traded notes. Exchange traded notes are senior, unsecured, unsubordinated debt securities issued by an underwriting bank. Exchange traded notes are designed to provide investors access to the returns of various market benchmarks and intended to replicate the economic effects that would apply had the Fund directly purchased the underlying referenced asset or basket of assets. The risks of exchange traded notes include the credit risk of the issuer, counterparty risk, and the potential inability of the Fund to dispose of the exchange traded note in the normal course of business.
g. 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.
h. 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 November 30, 2017, 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. The financial statements have been consolidated and include the accounts of the Fund and the K2 Subsidiary. All inter-company 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 November 30, 2017, the net assets of the K2 Subsidiary were $20,063,004, representing 1.9% of the Fund’s consolidated net assets. The Fund’s investment in the K2 Subsidiary is limited to 25% of consolidated assets.
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
franklintempleton.com | Semiannual Report | 79 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
1. Organization and Significant Accounting Policies (continued)
i. Senior Floating Rate Interests (continued)
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 November 30, 2017, 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.
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. 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. 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.
80 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
2. Shares of Beneficial Interest
At November 30, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
Six Months Ended November 30, 2017 | Year Ended May 31, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares: | ||||||||||||||||
Shares sold | 1,531,387 | $ | 17,217,662 | 2,844,434 | $ | 30,795,994 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 55,946 | 603,102 | ||||||||||||
Shares redeemed | (1,810,263 | ) | (20,364,753 | ) | (8,995,275 | ) | (97,271,362 | ) | ||||||||
Net increase (decrease) | (278,876 | ) | $ | (3,147,091 | ) | (6,094,895 | ) | $ | (65,872,266 | ) | ||||||
Class C Shares: | ||||||||||||||||
Shares sold | 488,782 | $ | 5,421,736 | 930,313 | $ | 9,991,199 | ||||||||||
Shares redeemed | (844,162 | ) | (9,354,256 | ) | (2,694,807 | ) | (28,879,653 | ) | ||||||||
Net increase (decrease) | (355,380 | ) | $ | (3,932,520 | ) | (1,764,494 | ) | $ | (18,888,454 | ) | ||||||
Class R Shares: | ||||||||||||||||
Shares sold | 6,075 | $ | 68,192 | 23,673 | $ | 256,901 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 245 | 2,647 | ||||||||||||
Shares redeemed | (11,024 | ) | (124,410 | ) | (2,617 | ) | (28,169 | ) | ||||||||
Net increase (decrease) | (4,949 | ) | $ | (56,218 | ) | 21,301 | $ | 231,379 | ||||||||
Class R6 Shares: | ||||||||||||||||
Shares sold | 430,798 | $ | 4,863,363 | 819,703 | $ | 8,933,673 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 207,304 | 2,236,814 | ||||||||||||
Shares redeemed | (10,780,782 | ) | (120,814,913 | ) | (2,353,888 | ) | (25,526,683 | ) | ||||||||
Net increase (decrease) | (10,349,984 | ) | $ | (115,951,550 | ) | (1,326,881 | ) | $ | (14,356,196 | ) | ||||||
Advisor Class Shares: | ||||||||||||||||
Shares sold | 12,897,585 | $ | 145,365,285 | 20,997,587 | $ | 228,852,167 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 340,700 | 3,676,152 | ||||||||||||
Shares redeemed | (7,019,537 | ) | (79,013,731 | ) | (29,140,039 | ) | (316,215,282 | ) | ||||||||
Net increase (decrease) | 5,878,048 | $ | 66,351,554 | (7,801,752 | ) | $ | (83,686,963 | ) |
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
Subsidiary | Affiliation | |
K2/D&S Management Co., L.L.C. (K2 Advisors) | Investment manager | |
Franklin Templeton Services, LLC (FT Services) | Administrative manager | |
Franklin Templeton Distributors, Inc. (Distributors) | Principal underwriter | |
Franklin Templeton Investor Services, LLC (Investor Services) | Transfer agent |
a. Management Fees
The Fund and K2 Subsidiary pay an investment management fee to K2 Advisors of 1.90% per year of the average daily net assets of the Fund and K2 Subsidiary. Management fees paid by the Fund are reduced on assets invested in the K2 Subsidiary, in an amount not to exceed the management fees paid by the K2 Subsidiary.
franklintempleton.com | Semiannual Report | 81 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
3. Transactions with Affiliates (continued)
a. Management Fees (continued)
Prior to October 1, 2017, the Fund and K2 Subsidiary paid fees to K2 Advisors of 2.05% per year of the average daily net assets of the Fund and K2 Subsidiary.
Under each subadvisory agreement, the below entities provide subadvisory services to the Fund or K2 Subsidiary. The subadvisory fees are 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.
Subadvisors |
Basso Capital Management, L.P. |
Chatham Asset Management, LLC |
Chilton Investment Company, LLC |
Emso Asset Management Limited |
Graham Capital Management, L.P. |
Halcyon Arbitrage IC Management LP |
Impala Asset Management, LLC |
Jennison Associates, LLC |
Lazard Asset Management, LLC |
Loomis Sayles & Company, L.P. |
P. Schoenfeld Asset Management L.P. |
Portland Hill Capital LLP |
Wellington Management Company, LLP |
b. Administrative Fees
Under an agreement with K2 Advisors, FT Services provides administrative services to the Fund and K2 Subsidiary. The fee is paid by K2 Advisors based on the Fund and K2 Subsidiary average daily net assets, and is not an additional expense of the Fund or K2 Subsidiary.
c. Distribution Fees
The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s Class A reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Fund’s Class C and R compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate for each class. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31.
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
Class A | 0.30% | |
Class C | 1.00% | |
Class R | 0.50% |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the period:
Sales charges retained net of commissions paid to unaffiliated broker/dealers | $21,316 | |
CDSC retained | $ 2,718 |
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. 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 period ended November 30, 2017, the Fund paid transfer agent fees of $413,986, of which $113,015 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 its own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses, and expenses related to securities sold short) for each class of the Fund do not exceed 1.95%, and Class R6 does not exceed 1.85% based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until September 30, 2018. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end. Prior to October 1, 2017, expenses for Class R6 were limited to 1.86%.
g. Other Affiliated Transactions
At November 30, 2017, the shares of the Fund were owned by the following entities:
Percentage of Outstanding | ||||||
Shares | Sharesa | |||||
Franklin Moderate Allocation Fund | 4,757,795 | 5.0% | ||||
Franklin Conservative Allocation Fund | 3,022,216 | 3.2% | ||||
Franklin Growth Allocation Fund | 2,920,915 | 3.1% | ||||
Franklin NextStep Moderate Fund | 27,295 | —%b | ||||
Franklin NextStep Growth Fund | 13,226 | —%b | ||||
10,741,447 | 11.3% |
aInvestment activities of significant shareholders could have a material impact on the Fund.
bRounds to less than 0.1%.
franklintempleton.com | Semiannual Report | 83 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended November 30, 2017, 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, if any. At May 31, 2017, the capital loss carryforwards were as follows:
Capital loss carryforwards: | ||||||
Short term | $15,442,373 | |||||
Long term | 4,135,682 | |||||
|
| |||||
Total capital loss carryforwards | $19,578,055 | |||||
|
|
At November 30, 2017, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
Cost of investments | $701,965,610 | |||||
|
| |||||
Unrealized appreciation | $128,624,804 | |||||
Unrealized depreciation | (41,786,552) | |||||
|
| |||||
Net unrealized appreciation (depreciation) | $ 86,838,252 | |||||
|
|
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, swaps, investments in the K2 Subsidiary and wash sales.
6. Investment Transactions
Purchases and sales of investments and securities sold short (excluding short term securities) for the period ended November 30, 2017, aggregated $1,021,297,819 and $1,099,993,318, respectively.
7. Credit Risk and Defaulted Securities
The Fund may purchase the pre-default or defaulted debt of distressed companies. Distressed companies are financially troubled and could be or are already involved in financial restructuring or bankruptcy. Risks associated with purchasing these securities include the possibility that the bankruptcy or other restructuring process takes longer than expected, or that distributions in restructuring are less than anticipated, either or both of which may result in unfavorable consequences to the Fund. If it becomes probable that the income on debt securities, including those of distressed companies, will not be collected, the Fund discontinues accruing income and recognizes an adjustment for uncollectible interest.
At November 30, 2017, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $4,218,173, representing 0.4% of the Fund’s net assets. For information as to specific securities, see the accompanying Consolidated Statement of Investments.
8. 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. Funded portions of credit agreements are presented in the Consolidated Statements of Investments.
84 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
At November 30, 2017, unfunded commitments were as follows:
Unfunded | |||||
Borrower | Commitment | ||||
Altice Financing SA, Term Loan B, 3.75%, (LIBOR + 2.75%), 1/06/26 | $ | 115,000 | |||
California Resources Corp., Term Loan L, (LIBOR + 4.75%), 5.75%, 1/03/23 | 123,000 | ||||
Duravant LLC, Term Loan, 4.583%, (LIBOR + 3.25%), 7/19/24 | 2,029 | ||||
Radiate Holdco LLC, Term Loan B, 4.00%, (LIBOR + 3.00%), 2/01/24 | 238,387 | ||||
Weight Watchers International Inc., Term Loan B, 5.75%, (LIBOR + 4.75%), 11/20/24 | 450,000 | ||||
|
| ||||
$ | 928,416 | ||||
|
|
9. Other Derivative Information
At November 30, 2017, the Fund’s 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 | 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 | $ | 471,263 | a | Variation margin on futures contracts | $ | 51,065 | a | ||||
Variation margin on centrally cleared swap contracts | 439,683 | a | Variation margin on centrally cleared swap contracts | 149,490 | a | |||||||
Unrealized appreciation on OTC swap contracts | 2,660,782 | Unrealized depreciation on OTC swap contracts | 1,734,500 | |||||||||
Foreign exchange contracts | Investments in securities, at value | 45,077 | b | |||||||||
Unrealized appreciation on OTC forward exchange contracts | 3,349,213 | Unrealized depreciation on OTC forward exchange contracts | 5,264,233 | |||||||||
Unrealized depreciation on OTC swap contracts | 200,910 | |||||||||||
Credit contracts | Variation margin on centrally cleared swap contracts | 435,910 | a | Variation margin on centrally cleared swap contracts | 490,733 | a | ||||||
OTC swap contracts (upfront payments) | 125,181 | OTC swap contracts (upfront receipts) | 42,212 | |||||||||
Unrealized appreciation on OTC swap contracts | 15,454 | Unrealized depreciation on OTC swap contracts | 142,669 | |||||||||
Equity contracts | Investments in securities, at value | 2,599,344 | b | Options written, at value | 507,956 | |||||||
Variation margin on futures contracts | 2,436,116 | a | Variation margin on futures contracts | 807,607 | a | |||||||
Unrealized appreciation on OTC swap contracts | 14,701,211 | Unrealized depreciation on OTC swap contracts | 5,346,352 | |||||||||
Commodity contracts | Variation margin on futures contracts | 357,189 | a | Variation margin on futures contracts | 459,222 | a | ||||||
|
|
|
| |||||||||
Totals | $ | 27,636,423 | $ | 15,196,949 | ||||||||
|
|
|
|
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 period 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.
franklintempleton.com | Semiannual Report | 85 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
9. Other Derivative Information (continued)
For the period ended November 30, 2017, the effect of derivative contracts in the Fund’s Consolidated Statement of Operations was as follows:
Derivative Contracts Not Accounted for as Hedging Instruments | Consolidated Statement of Operations Location | Net Realized for the Period | Consolidated Statement of Operations Location | Net Change in Unrealized Appreciation (Depreciation) for the Period | ||||||||||
Net realized gain (loss) from: | Net change in unrealized appreciation (depreciation) on: | |||||||||||||
Interest rate contracts | Futures contracts | $ (1,997,957 | ) | Futures contracts | $ 59,097 | |||||||||
Swap contracts | 3,289,908 | Swap contracts | 1,778,885 | |||||||||||
Foreign exchange contracts | Investments | (91,838 | )a | Investments | 55,105 | a | ||||||||
Forward exchange contracts | (5,799,686 | ) | Forward exchange contracts | 1,916,940 | ||||||||||
Swap contracts | (16,839 | ) | Swap contracts | (246,852 | ) | |||||||||
Credit contracts | Swap contracts | (893,938 | ) | Swap contracts | 361,633 | |||||||||
Equity contracts | Investments | (4,337,077 | )a | Investments | (22,388 | )a | ||||||||
Written options | 568,678 | Written options | (66,351 | ) | ||||||||||
Futures contracts | (9,472,175 | ) | Futures contracts | 4,832,216 | ||||||||||
Swap contracts | (2,073,398 | ) | Swap contracts | 2,415,401 | ||||||||||
Commodity contracts | Futures contracts | 359,789 | Futures contracts | (277,468 | ) | |||||||||
|
|
|
| |||||||||||
Totals | $(20,464,533 | ) | $10,806,218 | |||||||||||
|
|
|
|
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.
For the period ended November 30, 2017, the average month end notional amount of futures contracts, options and swap contracts represented $652,690,998, $7,731,156 and $449,821,019, respectively. The average month end contract value of forward exchange contracts was $327,057,855.
At November 30, 2017, the Fund’s 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 | $ | 3,349,213 | $ | 5,264,233 | ||||
Options Purchased | 45,077 | — | ||||||
Swap Contracts | 17,502,628 | 7,466,643 | ||||||
|
|
|
| |||||
Total | $ | 20,896,918 | $ | 12,730,876 | ||||
|
|
|
|
a 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.
86 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
At November 30, 2017, the Fund’s OTC derivative assets, which may be offset against the Fund’s 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 | Financials Instruments Collateral Received | Cash Collateral Receiveda | Net Amount (Not less than zero) | ||||||||||||||||||||
Counterparty | ||||||||||||||||||||||||
BNPP | $ 376,412 | $ (269,419) | $ — | $ — | $ 106,993 | |||||||||||||||||||
BNYM | 228,386 | (228,386) | — | — | — | |||||||||||||||||||
BOFA | 125,562 | (125,562) | — | — | — | |||||||||||||||||||
BZWS | — | — | — | — | — | |||||||||||||||||||
DBAB | 3,412,203 | (3,412,203) | — | — | — | |||||||||||||||||||
JPHQ | 1,537,437 | (1,391,263) | — | — | 146,174 | |||||||||||||||||||
MSCO | 201,768 | (74,170) | — | — | 127,598 | |||||||||||||||||||
MSCOC | 1,128,387 | (1,128,387) | — | — | — | |||||||||||||||||||
MSCS | 13,820,170 | (2,957,194) | — | — | 10,862,976 | |||||||||||||||||||
UBSW | 66,593 | (66,593) | — | — | — | |||||||||||||||||||
|
| |||||||||||||||||||||||
Total | $20,896,918 | $(9,653,177) | $ — | $ — | $11,243,741 | |||||||||||||||||||
|
|
At November 30, 2017, the Fund’s OTC derivative liabilities, which may be offset against the Fund’s 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 | Financial Instruments Available for Offset | Financials Instruments Collateral Pledgedb | Cash Collateral Pledgeda | Net Amount (Not less than zero) | ||||||||||||||||||||
Counterparty | ||||||||||||||||||||||||
BNPP | $ 269,419 | $ (269,419) | $ — | $ — | $ — | |||||||||||||||||||
BNYM | 350,544 | (228,386) | — | — | 122,158 | |||||||||||||||||||
BOFA | 132,700 | (125,562) | — | (7,138) | — | |||||||||||||||||||
BZWS | 31,419 | — | — | — | 31,419 | |||||||||||||||||||
DBAB | 4,308,945 | (3,412,203) | — | (896,742) | — | |||||||||||||||||||
JPHQ | 1,391,263 | (1,391,263) | — | — | — | |||||||||||||||||||
MSCO | 74,170 | (74,170) | — | — | — | |||||||||||||||||||
MSCOC | 3,128,357 | (1,128,387) | — | (1,999,970) | — | |||||||||||||||||||
MSCS | 2,957,194 | (2,957,194) | — | — | — | |||||||||||||||||||
UBSW | 86,865 | (66,593) | — | — | 20,272 | |||||||||||||||||||
|
| |||||||||||||||||||||||
Total | $12,730,876 | $(9,653,177) | $ — | $(2,903,850) | $173,849 | |||||||||||||||||||
|
|
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 overcollateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.
b See the accompanying Consolidated Statement of Investments for securities pledged as collateral for derivatives.
c Represents derivatives owned by the K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(h).
See Note 1(e) regarding derivative financial instruments.
See Abbreviations on page 90.
franklintempleton.com | Semiannual Report | 87 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
10. Credit Facility
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 9, 2018. 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 period ended November 30, 2017, the Fund did not use the Global Credit Facility.
11. Fair Value Measurements
The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:
• | Level 1 – quoted prices in active markets for identical financial instruments |
• | Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.) |
• | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments) |
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
A summary of inputs used as of November 30, 2017, 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 | ||||||||||||||||
Common Stocks and Other Equity Interests | $428,600,900 | $ 404,656 | $2,410,988 | b | $431,416,544 | |||||||||||
Exchange Traded Funds | 660,233 | — | — | 660,233 | ||||||||||||
Convertible Preferred Stocks | 1,317,013 | 1,505,458 | — | 2,822,471 | ||||||||||||
Preferred Stocks | 739,235 | — | 3,261,810 | 4,001,045 | ||||||||||||
Convertible Bonds | — | 101,982,237 | — | 101,982,237 | ||||||||||||
Convertible Bonds in Reorganization | — | 9,180 | 134,040 | 143,220 | ||||||||||||
Corporate Bonds and Notes | — | 160,417,069 | — | 160,417,069 | ||||||||||||
Corporate Bonds and Notes in Reorganization | — | 4,074,953 | — | 4,074,953 | ||||||||||||
Senior Floating Rate Interests | — | 8,480,302 | — | 8,480,302 | ||||||||||||
Foreign Government and Agency Securities | — | 21,695,225 | — | 21,695,225 | ||||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed | — | 24,038,402 | — | 24,038,402 | ||||||||||||
Options Purchased | 2,599,344 | 45,077 | — | 2,644,421 | ||||||||||||
Short Term Investments | 217,065,804 | 19,665,720 | — | 236,731,524 | ||||||||||||
|
| |||||||||||||||
Total Investments in Securities | $650,982,529 | $342,318,279 | $5,806,838 | $999,107,646 | ||||||||||||
|
|
88 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: (continued) | ||||||||||||||||
Other Financial Instruments: | ||||||||||||||||
Futures Contracts | $ | 3,264,568 | $ | — | $ — | $ | 3,264,568 | |||||||||
Forward Exchange Contracts | — | 3,349,213 | — | 3,349,213 | ||||||||||||
Swap Contracts | — | 18,134,957 | — | 18,134,957 | ||||||||||||
Unfunded Loan Commitments | — | 2,270 | — | 2,270 | ||||||||||||
|
| |||||||||||||||
Total Other Financial Instruments | $ | 3,264,568 | $ | 21,486,440 | $ — | $ | 24,751,008 | |||||||||
|
| |||||||||||||||
Liabilities: | ||||||||||||||||
Other Financial Instruments: | ||||||||||||||||
Options Written | $ | 507,956 | $ | — | $ — | $ | 507,956 | |||||||||
Securities Sold Short | 194,542,845 | 25,850,571 | — | 220,393,416 | ||||||||||||
Futures Contracts | 1,317,894 | — | — | 1,317,894 | ||||||||||||
Forward Exchange Contracts | — | 5,264,233 | — | 5,264,233 | ||||||||||||
Swap Contracts | — | 7,946,571 | — | 7,946,571 | ||||||||||||
|
| |||||||||||||||
Total Other Financial Instruments | $ | 196,368,695 | $ | 39,061,375 | $ — | $ | 235,430,070 | |||||||||
|
|
a For detailed categories, see the accompanying Consolidated Statement of Investments.
b Includes securities determined to have no value at November 30, 2017.
A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the beginning and/or end of the period.
12. New Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in the ASU shorten the amortization period for certain callable debt securities acquired at a premium, to be amortized to the earliest call date. The ASU does not require an accounting change for securities acquired at a discount; which continues to be amortized to maturity. The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Management is currently evaluating the impact, if any, of applying this provision.
13. 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.
franklintempleton.com | Semiannual Report | 89 |
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, N.A. | BRL | Brazilian Real | ARPP7DRR | Argentina Central Bank 7 Day Repo | |||||
Rate | ||||||||||
BZWS | Barclays Bank PLC | CAD | Canadian Dollar | BADLAR | Argentina Deposit Rates Badlar Private | |||||
Banks ARS | ||||||||||
DBAB | Deutsche Bank A.G. | CHF | Swiss Franc | BRLCDI | Brazil Cetip Di Interbank Deposit Rate | |||||
JPHQ | JP Morgan Chase Bank, N.A. | COP | Colombian Peso | CABA | Canada Banker’s Acceptance | |||||
MSCO | Morgan Stanley & Co., LLC | CZK | Czech Koruna | CAC | Cotation Assistée en Continu | |||||
MSCS | Morgan Stanley Capital Services LLC | DKK | Danish Krone | CIBOR | Copenhagen Interbank Offered Rate | |||||
UBSW | UBS AG | EGP | Egyptian Pound | EONIA | Euro OverNight Index Average | |||||
EUR | Euro | ETF | Exchange Traded Fund | |||||||
Index | GBP | British Pound | EURIBOR | Euro Interbank Offered Rate | ||||||
CDX.EM | CDX Emerging Markets Index | HKD | Hong Kong Dollar | FEDEF | Federal Funds Effective Rate | |||||
CDX.NA.HY | CDX North America High Yield Index | INR | Indian Rupee | FRN | Floating Rate Note | |||||
CDX.NA.IG | CDX North America Investment | JPY | Japanese Yen | FTSE | Financial Times Stock Exchange | |||||
Grade Index | ||||||||||
CMBX.NA | Commercial Mortgage Backed North | MXN | Mexican Peso | HIBOR | Hong Kong Interbank Offer Rate | |||||
America Index | ||||||||||
MYR | Malaysian Ringgit | HONIX | Hong Kong Overnight Index Rate | |||||||
PHP | Philippine Peso | LIBOR | London InterBank Offered Rate | |||||||
PLN | Polish Zloty | MSCI | Morgan Stanley Capital International PLC | |||||||
RUB | Russian Ruble | MUTSCALM | Bank of Japan Estimate Unsecured | |||||||
Overnight Call Rate | ||||||||||
SEK | Swedish Krona | PIK | Payment In-Kind | |||||||
SGD | Singapore Dollar | PRIME | United States prime rate | |||||||
TRY | Turkish Lira | RBACR | Reserve Bank of Australia Cash Rate | |||||||
USD | United States Dollar | REIT | Real Estate Investment Trust | |||||||
ZAR | South African Rand | SIBOR | Singapore Interbank Offered Rate | |||||||
SONIA | Sterling Overnight Index Average | |||||||||
SPDR | Standard & Poor’s Depositary Receipt | |||||||||
STIBOR | Stockholm Interbank Offered Rate | |||||||||
TOIS | Swiss Tomorrow-Overnight Index Swap | |||||||||
Rate | ||||||||||
TOPIX | Tokyo Price Index | |||||||||
ULSD | Ultra-Low Sulfur Diesel |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 ALTERNATIVE STRATEGIES 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 US 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 consolidated statement of investments with the US Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
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![]() | Semiannual Report and Shareholder Letter Franklin K2 Alternative Strategies Fund | |
Investment Manager K2/D&S Management Co., L.L.C. | ||
Distributor | ||
Franklin Templeton Distributors, Inc. franklintempleton.com | ||
Shareholder Services | ||
(800) 632-2301 |
Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
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© 2017-2018 Franklin Templeton Investments. All rights reserved. | 068 S 01/18 |
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Semiannual Report and Shareholder Letter November 30, 2017 |
Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Dear Fellow Shareholder:
During the six months ended November 30, 2017, generally upbeat economic data, encouraging corporate earnings and a supportive monetary policy were positives for US securities markets. At its June meeting, the US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% to 1.00%–1.25% amid signs of a growing US economy. The
10-year US Treasury yield began the period at 2.21% and ended the period at 2.42%. Commodities, as measured by the Bloomberg Commodity Index, posted a +4.04% total return during the six-month period, aided by a weak US dollar and strong global growth.1
A couple of weeks after the end of the reporting period, the Fed raised its target range a quarter point to 1.25%–1.50% amid ongoing labor market strength and rising economic activity in the US. The Fed’s inflation outlook remained essentially the same.
We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.
We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.
On the following pages, the Fund’s portfolio management team reviews investment decisions made during the past six 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.
Sincerely,
Madison S. Gulley, CFA
President and Chief Executive Officer –
Investment Management
Franklin Alternative Strategies Funds
This letter reflects our analysis and opinions as of November 30, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
CFA® is a trademark owned by CFA Institute.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
Not FDIC Insured | | May Lose Value | | No Bank Guarantee |
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3 | ||||
7 | ||||
9 | ||||
Consolidated Financial Highlights and Consolidated Statement of Investments | 10 | |||
18 | ||||
22 | ||||
32 |
Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.
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Franklin Pelagos Commodities Strategy Fund
We are pleased to bring you Franklin Pelagos Commodities Strategy Fund’s semiannual report for the period ended November 30, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks long-term total return by providing exposure to the commodities markets. It invests mainly in commodity-linked derivative instruments and securities of the US government, its agencies and instrumentalities and other fixed income securities.
Performance Overview
The Fund’s Class A shares delivered a +4.58% cumulative total return for the six months under review. In comparison, the benchmark Bloomberg Commodity Index, which measures performance of exchange-traded futures contracts on physical commodities, posted a +4.04% total return for the same period.1 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.
What is a futures contract?
A futures contract is an agreement between the Fund and a counterparty made through a US or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date. |
Economic and Market Overview
The US economy grew during the six months under review. The economy strengthened in 2017’s third quarter compared to the second quarter largely due to growth in consumer spending across goods and services, business and inventory investment,
as well as net exports due to lower imports. The manufacturing and services sectors expanded during the period. The unemployment rate declined from 4.3% in May 2017, as reported at the beginning of the six-month period, to 4.1% at period-end.2 Monthly retail sales were volatile but positive on average during the period. Annual inflation, as measured by the Consumer Price Index, increased from 1.9% in May 2017, as reported at the beginning of the period, to 2.2% at period-end.2
At its June meeting, the US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% to 1.00%–1.25%, amid signs of a growing US economy, strengthening labor market and improving business spending. At its subsequent meetings, the Fed kept its target range unchanged. However, minutes of its October 31–November 1 meeting indicated that the Fed continued to maintain a positive outlook for the US economy and signaled the possibility of a third rate hike in 2017, though concerns about the ongoing softness in inflation remained.
US equity markets rose during the period, benefiting from mostly upbeat economic data and better US corporate earnings. The markets were also supported by investor optimism arising from the US Fed chair’s comments indicating optimism about the US economy and the likelihood of gradual rate hikes. Furthermore, the Senate’s approval of a budget plan in October and its subsequent vote near period-end to begin debate on a tax reform bill raised expectations for reforms and aided equity markets. However, tensions between the US and North Korea and uncertainty surrounding US health care and tax reform plans curbed market sentiment at times. Nevertheless, the broad US stock market, as measured by the Standard & Poor’s® 500 Index, generated a +10.89% total return for the period.1
Commodity prices, as measured by the Bloomberg Commodity Index, delivered a positive return during the period, aided by a weak US dollar and strong global growth. Despite some volatility, oil prices rose, helped by positive global demand trends and geopolitical tensions surrounding the Middle East.
1. Source: Morningstar.
The index is unmanaged and includes reinvestment of any income or distributions. It does 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.
2. Source: Bureau of Labor Statistics.
See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of Investments (SOI). The Consolidated SOI begins on page 15.
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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
Oil prices were also aided by the extension of previously agreed-upon supply curtailments through the end of 2018 by the Organization of the Petroleum Exporting Countries (OPEC) and its partners, including Russia. Gold prices rose marginally as concerns surrounding North Korea’s missile program were partially offset by growing expectations for a Fed rate hike in December 2017. Metal prices generally rose, buoyed by favorable global economic conditions. Among agricultural commodities, prices of soybeans and sugar rose, while those of corn and wheat declined.
Investment Strategy
We utilize an actively managed fundamental and quantitative investment process to provide exposure to a variety of commodity sectors and indexes by investing in commodity-linked derivative instruments including commodity-linked total return swaps, commodity futures, commodity index futures and options on commodity futures and commodity index futures, which may provide exposure to foreign and emerging markets. By investing in these derivative instruments, we seek to gain exposure to the returns of real assets that trade in the commodities markets without direct investment in physical commodities. Real assets include such things as industrial and precious metals, gas, oil, livestock, agricultural or meat products and other items.
What is a swap agreement?
A swap agreement, such as a commodity-linked total return swap, is a contract between the Fund and a counterparty to exchange on a future date the returns, or differentials in return, that would have been earned or realized if a notional amount were invested in specific instruments. |
What is an option?
An option is a contract to buy or sell a specific financial product known as the option’s underlying instrument at a specific price. The buyer of an option has the right, but not the obligation, to buy or sell the underlying instrument at or until a specified expiration date. Conversely, the seller (“writer”) of an option who opens a transaction is obligated to buy or sell the underlying instrument should the option holder exercise that right. |
Manager’s Discussion
During its semiannual period, the Fund obtained its commodities exposure through swaps on commodity indexes and through commodities futures and options on commodities futures. The asset coverage for this exposure was met by the
Portfolio Composition*
11/30/17
% of Consolidated Net Assets | ||
U.S. Treasury Bill | 83.5% | |
FFCB | 9.0% | |
FHLMC | 7.7% | |
Institutional Fiduciary Trust Money Market Portfolio | 4.4% | |
Other Assets, less Liabilities** | -4.6% |
See Abbreviations on page 31.
*Portfolio composition figures are stated as a percentage of total and may not equal 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors.
**Includes unrealized appreciation/depreciation on open commodity futures and swap contracts, as well as other assets and liabilities. See supplementary commodity exposure tables on page 5 for additional information related to the Fund’s economic exposure to commodities.
Fund’s investments in US Treasury bills and other fixed income securities.
During the period, the Fund had positive contributions to performance from oil and oil products, industrial metals, and soybean products. Performance benefited from the returns of these economically sensitive commodities. Crude oil and oil products such as gasoline and diesel traded higher as OPEC and non-OPEC producers kept some production off the market. Industrial metals were stronger as a group due to Chinese and global demand growth expectations as well as anticipation for slower supply growth. The soybean complex (soybeans, soybean meal and soybean oil) was stronger due to improved processing margins in China and strong US exports of soybeans. Additionally, the US dollar moved lower against most foreign currencies over the period. The Fund outperformed its benchmark, the Bloomberg Commodity Index, during the period primarily due to active management in energy, agriculture and livestock.
In the energy sector, crude oil prices moved higher over the period as compliance to the supply reduction pact among OPEC and non-OPEC countries remained strong. US inventories of crude oil declined more than their expected seasonal pace, even with withdrawals from the Strategic Petroleum Reserve. Oil products traded stronger, helped by US refinery disruptions due to a powerful Atlantic hurricane season. US inventory levels of gasoline and distillate fuels declined at a strong pace. Returns from US natural gas were negative despite inventories moving from a surplus to their historical seasonal average to a deficit. US production of natural gas increased, as the Appalachian region continued to be dominant and other shale natural gas sources demonstrated strong production growth. Demand for natural gas slipped due to cooler summer weather and hurricane disruption, and heating
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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
demand had a slower-than-average start. Relative to its benchmark, the Fund’s returns from crude oil and natural gas fueled energy outperformance.
In metals, returns of industrial metals were positive, while returns from precious metals were negative over the period. Nickel returns were highest among the industrial metals in the Fund’s benchmark, followed by zinc, copper and aluminum. Strong stainless steel prices helped nickel returns, as stainless steel represents a major share of nickel demand, and the supply/demand balance of zinc continued to be in a global deficit due to production curtailments. Industrial metals were buffeted by strong Chinese growth expectations as well as strong industrial production growth in the eurozone and the US. Additionally, global purchasing manager indexes continued to signal expansionary conditions. However, inflation indicators underwhelmed market consensus over most of the period, which created a headwind to precious metals returns. Gold holdings of exchanged-traded funds increased modestly, whereas silver holdings decreased modestly, underscoring the lower returns of silver. Relative to its benchmark, the Fund’s returns from metals lagged due to positioning in industrial metals.
In agriculture and livestock, positive returns came from the soybean complex. Other agricultural and livestock commodities generated negative returns over the period. China soybean processing margins rose to seasonal levels and above, which encouraged imports of soybeans. Strong exports were the primary reason for the US Department of Agriculture’s (USDA’s) tighter projected US supply of soybeans than was projected in May 2017. The USDA’s US corn yield estimates increased almost five percentage points since May and the resulting higher production forecast was the primary reason for a higher supply forecast for the 2017–2018 US corn crop. Wheat prices struggled against the backdrop of strong Russian production and exports. Relative to its benchmark, the Fund’s agriculture and livestock holdings outperformed, driven by positioning in corn and live cattle.
Fund Exposure to Commodities
The following table summarizes the Fund’s economic exposure to commodities derived through its investment in commodity-linked total return swap contracts. At November 30, 2017, the Fund’s exposure based on notional value represented 80.6% of consolidated net assets.
Commodity-Linked Total Return Swap Exposure*
% of Consolidated Net Assets Long | ||
Gold | 11.8% | |
Corn | 9.7% | |
Copper | 8.8% | |
Soybeans | 5.6% | |
Aluminum | 5.3% | |
Natural Gas | 5.2% | |
Live Cattle | 5.0% | |
Unleaded Gasoline | 3.8% | |
Nickel | 3.7% | |
WTI Crude Oil | 3.2% | |
Zinc | 3.1% | |
Soybean Meal | 2.9% | |
Soybean Oil | 2.6% | |
Sugar | 2.3% | |
Heating Oil | 2.2% | |
Coffee | 2.0% | |
Silver | 2.0% | |
Cotton | 1.4% |
*Figures are stated as a percentage of total and may not equal 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors. The Fund’s exposure was calculated using the commodity sector weightings of the FP Custom Master Index multiplied by the Fund’s percentage notional exposure.
The following table summarizes the Fund’s economic exposure to commodities derived through its investment in futures contracts. At November 30, 2017, the Fund’s exposure based on notional value represented 19.7% of consolidated net assets.
Commodity Futures Exposure*
% of Consolidated Net Assets Long | ||
Brent Crude Oil | 8.2% | |
Corn | 2.5% | |
Natural Gas | 1.9% | |
RBOB Gasoline | 1.9% | |
Gold 100 Oz | 1.9% | |
Live Cattle | 1.3% | |
Cotton | 1.0% | |
Sugar | 1.0% |
*Figures are stated as a percentage of total and may not equal 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors.
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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
Thank you for your participation in Franklin Pelagos Commodities Strategy Fund. We look forward to continuing to serve your financial needs.
![]() |
Stephen P. Burke | |||
![]() |
John C. Pickart, CFA | |||
![]() |
Wayne D. Ryan, CAIA | |||
Portfolio Management Team |
The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2017, 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.
Stephen P. Burke is an executive vice president and co-founder of Franklin Alternative Strategies Advisers, LLC., formerly known as Pelagos Capital Management, LLC (“Pelagos”). Mr. Burke has over 30 years of investment experience across multiple asset classes and has been managing multi-alternative and commodity strategies since 2008. Prior to founding Pelagos, Mr. Burke worked at State Street Global Advisors for 10 years during which time he was the senior global strategist, head of global strategic asset allocation, and head of taxable fixed income. Mr. Burke earned a B.S. from the Carroll School of Management at Boston College. |
John C. Pickart is an executive vice president, chief financial officer and co-founder of Franklin Alternative Strategies Advisers, LLC., formerly known as Pelagos Capital Management, LLC. Mr. Pickart has over 29 years of investment experience across multiple alternative and commodity strategies since 2008. Prior to founding Pelagos, Mr. Pickart worked at State Street Global Advisors for six years during which time he managed small-cap and mid-cap equity portfolios. Mr. Pickart earned an M.B.A. from the University of Chicago Booth School of Business and a B.S. from the University of Tampa. He is a Chartered Financial Analyst (CFA) charterholder. |
Wayne D. Ryan is a research analyst and portfolio manager of Franklin Alternative Strategies Advisers, LLC, formerly known as Pelagos Capital Management, LLC (“Pelagos”). Mr. Ryan has over 15 years of investment and trading experience across multiple asset classes and has been managing multi-alternative and commodity strategies since 2008. He has been a member of the Pelagos team since January 2006. Prior to joining Pelagos, Mr. Ryan’s experience was highlighted by eight years of proprietary equity trading. Mr. Ryan earned an M.B.A. from the Carroll School of Management at Boston College and an A.B. from Harvard College. Mr. Ryan holds the Chartered Alternative Investment Analyst designation. He is a Chartered Financial Analyst (CFA) charterholder. |
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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
Performance Summary as of November 30, 2017
The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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 11/30/171
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 5.75% and the minimum is 0%. Class A: 5.75% 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 | ||
A | ||||
6-Month | +4.58% | -1.39% | ||
1-Year | -0.31% | -6.02% | ||
3-Year | -20.10% | -9.03% | ||
Since Inception (1/10/14) | -27.93% | -9.46% | ||
Advisor | ||||
6-Month | +4.63% | +4.63% | ||
1-Year | 0.00% | 0.00% | ||
5-Year | -36.28% | -8.62% | ||
Since Inception (12/7/11) | -34.50% | -6.83% |
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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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
PERFORMANCE SUMMARY
Total Annual Operating Expenses4
Share Class | With Waiver | Without Waiver | ||
A | 1.20% | 1.91% | ||
Advisor | 0.95% | 1.66% |
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. Investing in physical commodities, either directly or through derivative instruments such as commodity-linked total return swaps, commodity futures, commodity index futures and options on commodity futures and commodities index futures, presents unique risks, is speculative and can be extremely volatile. Market prices of commodities may fluctuate rapidly based on numerous factors, including: changes in supply and demand relationships; weather; agriculture; trade; domestic and foreign political and economic events and policies; diseases; pestilence; technological developments; currency exchange rate fluctuations; and monetary and other governmental policies, action and inaction. Derivative instruments involve costs and can create leverage in the Fund’s portfolio, which may result in significant volatility and cause the Fund to participate in losses (as well as gains) in an amount that significantly exceeds the Fund’s initial investment. The Fund may not achieve the anticipated benefits and may realize losses, which could be significant. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility and political, social and economic instability, risks which are heightened in less developed or emerging market countries. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has an expense reduction contractually guaranteed through 9/30/18 and a fee waiver related to the management fee paid by a subsidiary. The Fund also has a fee waiver associated with any investments it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund. Fund investment results reflect the expense reduction and fee waivers; 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. 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.
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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
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 6/1/17 | Ending Account |
Expenses Paid During Period 6/1/17–11/30/171,2 | Ending Account |
Expenses | Net Annualized Ratio2 | ||||||||||||
A | $1,000 | $1,045.80 | $6.15 | $1,019.05 | $6.07 | 1.20% | ||||||||||||
C | $1,000 | $1,040.20 | $9.97 | $1,015.29 | $9.85 | 1.95% | ||||||||||||
R | $1,000 | $1,044.40 | $7.23 | $1,018.00 | $7.13 | 1.41% | ||||||||||||
R6 | $1,000 | $1,048.30 | $3.39 | $1,021.76 | $3.35 | 0.66% | ||||||||||||
Advisor | $1,000 | $1,046.30 | $4.87 | $1,020.31 | $4.81 | 0.95% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 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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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Financial Highlights
Franklin Pelagos Commodities Strategy Fund
Six Months Ended (unaudited) | Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014a | |||||||||||||||||
Class A | ||||||||||||||||||||
Per share operating performance | ||||||||||||||||||||
(for a share outstanding throughout the period) | ||||||||||||||||||||
Net asset value, beginning of period |
| $6.12
|
|
| $6.47
|
|
| $7.12
|
|
| $9.44
|
|
| $8.88
|
| |||||
Income from investment operationsb: | ||||||||||||||||||||
Net investment income (loss)c | (0.01) | (0.04) | (0.08) | (0.09) | (0.08) | |||||||||||||||
Net realized and unrealized gains (losses) | 0.29 | (0.31) | (0.57) | (2.23) | 0.64 | |||||||||||||||
Total from investment operations | 0.28 | (0.35) | (0.65) | (2.32) | 0.56 | |||||||||||||||
Net asset value, end of period |
| $6.40
|
|
| $6.12
|
|
| $6.47
|
|
| $7.12
|
|
| $9.44
|
| |||||
Total returnd | 4.58% | (5.41)% | (9.13)% | (24.58)% | 6.31% | |||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||
Expenses before waiver and payments by affiliates and expense reduction | 1.72% | 1.71% | 2.14% | 2.05% | 3.38% | |||||||||||||||
Expenses net of waiver and payments by affiliates and expense reductionf | 1.20% | 1.20% | 1.21% | 1.25% | 1.25% | |||||||||||||||
Net investment income (loss) | (0.31)% | (0.61)% | (0.79)% | (0.94)% | (0.94)% | |||||||||||||||
Supplemental data | ||||||||||||||||||||
Net assets, end of period (000’s) | $5,191 | $4,846 | $3,814 | $2,080 | $601 | |||||||||||||||
Portfolio turnover rate | —% | 42.22% | 28.03% | 62.10% | 34.28% |
aFor the period January 10, 2014 (commencement of operations) to May 31, 2014.
bThe 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.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
10 | Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Pelagos Commodities Strategy Fund (continued)
Six Months Ended (unaudited) | Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014a | |||||||||||||||||
Class C | �� | |||||||||||||||||||
Per share operating performance | ||||||||||||||||||||
(for a share outstanding throughout the period) | ||||||||||||||||||||
Net asset value, beginning of period |
| $5.97
|
|
| $6.36
|
|
| $7.05
|
|
| $9.41
|
|
| $8.88
|
| |||||
Income from investment operationsb: | ||||||||||||||||||||
Net investment income (loss)c | (0.03) | (0.10) | (0.16) | (0.15) | (0.09) | |||||||||||||||
Net realized and unrealized gains (losses) | 0.27 | (0.29) | (0.53) | (2.21) | 0.62 | |||||||||||||||
Total from investment operations | 0.24 | (0.39) | (0.69) | (2.36) | 0.53 | |||||||||||||||
Net asset value, end of period |
| $6.21
|
|
| $5.97
|
|
| $6.36
|
|
| $7.05
|
|
| $9.41
|
| |||||
Total returnd | 4.02% | (6.13)% | (9.79)% | (25.08)% | 5.97% | |||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||
Expenses before waiver and payments by affiliates and expense reduction | 2.47% | 2.46% | 2.88% | 2.75% | 4.08% | |||||||||||||||
Expenses net of waiver and payments by affiliates and expense reductionf | 1.95% | 1.95% | 1.95% | 1.95% | 1.95% | |||||||||||||||
Net investment income (loss) | (1.06)% | (1.36)% | (1.53)% | (1.64)% | (1.64)% | |||||||||||||||
Supplemental data | ||||||||||||||||||||
Net assets, end of period (000’s) | $981 | $963 | $862 | $377 | $60 | |||||||||||||||
Portfolio turnover rate | —% | 42.22% | 28.03% | 62.10% | 34.28% |
aFor the period January 10, 2014 (commencement of operations) to May 31, 2014.
bThe 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.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 11 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Pelagos Commodities Strategy Fund (continued)
Six Months Ended (unaudited) | Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014a | |||||||||||||||||
Class R | ||||||||||||||||||||
Per share operating performance | ||||||||||||||||||||
(for a share outstanding throughout the period) | ||||||||||||||||||||
Net asset value, beginning of period | $ 6.08 | $ 6.44 | $ 7.10 | $ 9.44 | $ 8.88 | |||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||
Net investment income (loss)c | (0.02) | (0.05) | (0.06) | (0.10) | (0.06) | |||||||||||||||
Net realized and unrealized gains (losses) | 0.29 | (0.31) | (0.60) | (2.24) | 0.62 | |||||||||||||||
Total from investment operations | 0.27 | (0.36) | (0.66) | (2.34) | 0.56 | |||||||||||||||
Net asset value, end of period | $ 6.35 | $ 6.08 | $ 6.44 | $ 7.10 | $ 9.44 | |||||||||||||||
Total returnd | 4.44% | (5.59)% | (9.30)% | (24.79)% | 6.31% | |||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||
Expenses before waiver and payments by affiliates and expense reduction | 1.93% | 1.85% | 2.34% | 2.27% | 3.58% | |||||||||||||||
Expenses net of waiver and payments by affiliates and expense reductionf | 1.41% | 1.34% | 1.41% | 1.47% | 1.45% | |||||||||||||||
Net investment income (loss) | (0.52)% | (0.75)% | (0.99)% | (1.16)% | (1.14)% | |||||||||||||||
Supplemental data | ||||||||||||||||||||
Net assets, end of period (000’s) | $24 | $23 | $9 | $4 | $5 | |||||||||||||||
Portfolio turnover rate | —% | 42.22% | 28.03% | 62.10% | 34.28% |
aFor the period January 10, 2014 (commencement of operations) to May 31, 2014.
bThe 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.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
12 | Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Pelagos Commodities Strategy Fund (continued)
Six Months Ended (unaudited) | Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014a | |||||||||||||||||
Class R6 | ||||||||||||||||||||
Per share operating performance | ||||||||||||||||||||
(for a share outstanding throughout the period) | ||||||||||||||||||||
Net asset value, beginning of period | $6.21 | $6.53 | $7.16 | $9.46 | $8.88 | |||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||
Net investment income (loss)c | 0.01 | (0.01) | (0.02) | (0.04) | (0.03) | |||||||||||||||
Net realized and unrealized gains (losses) | 0.29 | (0.31) | (0.61) | (2.26) | 0.61 | |||||||||||||||
Total from investment operations | 0.30 | (0.32) | (0.63) | (2.30) | 0.58 | |||||||||||||||
Net asset value, end of period | $6.51 | $6.21 | $6.53 | $7.16 | $9.46 | |||||||||||||||
Total returnd | 4.83% | (4.90)% | (8.80)% | (24.31)% | 6.53% | |||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||
Expenses before waiver and payments by affiliates and expense reduction | 1.03% | 1.02% | 1.10% | 1.53% | 1.58% | |||||||||||||||
Expenses net of waiver and payments by affiliates and expense reductionf | 0.66% | 0.70% | 0.76% | 0.86% | 0.86% | |||||||||||||||
Net investment income (loss) | 0.23% | (0.11)% | (0.34)% | (0.55)% | (0.55)% | |||||||||||||||
Supplemental data | ||||||||||||||||||||
Net assets, end of period (000’s) | $122,163 | $118,839 | $131,500 | $53,068 | $67,732 | |||||||||||||||
Portfolio turnover rate | —% | 42.22% | 28.03% | 62.10% | 34.28% |
aFor the period January 10, 2014 (commencement of operations) to May 31, 2014.
bThe 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.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 13 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Pelagos Commodities Strategy Fund (continued)
Six Months Ended (unaudited) | Year Ended May 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Per share operating performance | ||||||||||||||||||||||||
(for a share outstanding throughout the period) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ 6.26 | $ 6.60 | $ 7.25 | $ 9.58 | $ 9.43 | $ 9.15 | ||||||||||||||||||
Income from investment operationsa: | ||||||||||||||||||||||||
Net investment income (loss)b | (0.01) | (0.03) | (0.09) | (0.07) | (0.05) | (0.08) | ||||||||||||||||||
Net realized and unrealized gains (losses) | 0.30 | (0.31) | (0.56) | (2.26) | 0.20 | 0.36 | ||||||||||||||||||
Total from investment operations | 0.29 | (0.34) | (0.65) | (2.33) | 0.15 | 0.28 | ||||||||||||||||||
Less distributions from net investment income. | — | — | — | — | — | (—) | c | |||||||||||||||||
Net asset value, end of period | $ 6.55 | $ 6.26 | $ 6.60 | $ 7.25 | $ 9.58 | $ 9.43 | ||||||||||||||||||
Total returnd | 4.63% | (5.15)% | (8.97)% | (24.32)% | 1.59% | 3.06% | ||||||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||||||
Expenses before waiver and payments by affiliates and expense reduction | 1.47% | 1.46% | 1.88% | 1.75% | 1.88% | 1.14% | ||||||||||||||||||
Expenses net of waiver and payments by affiliates and expense reduction | 0.95% | f | 0.95% | f | 0.95% | f | 0.95% | f | 1.04% | f | 1.10% | |||||||||||||
Net investment income (loss) | (0.06)% | (0.36)% | (0.53)% | (0.64)% | (0.70)% | (0.76)% | ||||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $881 | $2,062 | $675 | $248 | $126 | $107,853 | ||||||||||||||||||
Portfolio turnover rate | —% | 42.22% | 28.03% | 62.10% | 34.28% | 21.47% |
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 per share.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fBenefit of expense reduction rounds to less than 0.01%.
14 | Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Statement of Investments, November 30, 2017 (unaudited)
Franklin Pelagos Commodities Strategy Fund
Principal Amount | Value | |||||||||||
U.S. Government and Agency Securities 15.4% | ||||||||||||
FFCB, 0.96%, 7/27/18 | $ | 10,000,000 | $ | 9,961,440 | ||||||||
FHLMC, 1.25%, 7/26/19 | 10,000,000 | 9,905,960 | ||||||||||
|
| |||||||||||
Total U.S. Government and Agency Securities (Cost $20,000,000) | 19,867,400 | |||||||||||
|
| |||||||||||
Short Term Investments 89.2% | ||||||||||||
U.S. Government and Agency Securities 84.8% | ||||||||||||
a,b FFCB, 12/01/17 | 1,675,000 | 1,675,000 | ||||||||||
b U.S. Treasury Bill, | ||||||||||||
a,c 1/04/18 | 13,000,000 | 12,986,525 | ||||||||||
a4/12/18 | 13,000,000 | 12,927,369 | ||||||||||
5/24/18 | 11,100,000 | 11,025,024 | ||||||||||
7/19/18 | 19,900,000 | 19,716,126 | ||||||||||
8/16/18 | 9,500,000 | 9,398,556 | ||||||||||
10/11/18 | 42,500,000 | 41,922,180 | ||||||||||
|
| |||||||||||
Total U.S. Government and Agency Securities (Cost $109,783,571) | 109,650,780 | |||||||||||
|
| |||||||||||
Total Investments before Money Market Funds | 129,518,180 | |||||||||||
|
|
Shares
| ||||||||||||
Money Market Funds (Cost $5,615,709) 4.4% | ||||||||||||
d,e Institutional Fiduciary Trust Money Market Portfolio, 0.75% | 5,615,709 | 5,615,709 | ||||||||||
|
| |||||||||||
Total Investments (Cost $135,399,280) 104.6% | 135,133,889 | |||||||||||
f Other Assets, less Liabilities (4.6)% | (5,893,576 | ) | ||||||||||
|
| |||||||||||
Net Assets 100.0% | $129,240,313 | |||||||||||
|
|
aA portion or all of the security is owned by FPC Holdings Corp., a wholly-owned subsidiary of the Fund. See Note 1(c).
bThe security was issued on a discount basis with no stated coupon rate.
cA portion or all of the security has been segregated as collateral for open futures contracts. At November 30, 2017, the value of this security and/or cash pledged amounted to $1,548,393, representing 1.2% of net assets.
dSee Note 3(f) regarding investments in affiliated management investment companies.
eThe rate shown is the annualized seven-day yield at period end.
fIncludes unrealized appreciation/depreciation on open commodity futures and swap contracts, as well as other assets and liabilities.
franklintempleton.com | Semiannual Report | 15 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
At November 30, 2017, the Fund had the following futures contracts outstanding. See Note 1(b).
Futures Contractsa
Description | Type | Number of Contracts | Notional Amount* | Expiration Date | Value/ Unrealized Appreciation (Depreciation) | |||||||||||||||
Commodity Contracts | ||||||||||||||||||||
Brent Crude Oil | Long | 169 | $10,584,470 | 12/28/17 | $(62,951) | |||||||||||||||
Corn | Long | 182 | 3,237,325 | 3/14/18 | 19,838 | |||||||||||||||
Cotton | Long | 36 | 1,310,580 | 3/07/18 | (11,468) | |||||||||||||||
Gold 100 Oz | Long | 19 | 2,425,730 | 2/26/18 | (18,109) | |||||||||||||||
Live Cattle | Long | 34 | 1,699,660 | 2/28/18 | (22,219) | |||||||||||||||
Natural Gas | Long | 82 | 2,480,500 | 12/27/17 | (126,538) | |||||||||||||||
RBOB Gasoline | Long | 34 | 2,470,440 | 12/29/17 | (5,676) | |||||||||||||||
Sugar | Long | 75 | 1,266,720 | 2/28/18 | 574 | |||||||||||||||
|
| |||||||||||||||||||
Total Futures Contracts | $(226,549) | |||||||||||||||||||
|
|
*As of period end.
At November 30, 2017, the Fund had the following commodity-linked total return swap contracts outstanding. See Note 1(b).
Commodity-Linked Total Return Swap Contractsa
Underlying Instruments | Pay Fixed Rate | Payment Frequency | Counterparty | Maturity Date | Notional Value | Value/ Unrealized Appreciation (Depreciation) | ||||||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||||||
Longb | ||||||||||||||||||||||||
FP Custom Master Indexc | 0.22 | % | At maturity | MSCS | 1/05/18 | $ | 104,172,595 | $(927,405) | ||||||||||||||||
|
|
aA portion or all of the contract is owned by FPC Holdings Corp., a wholly-owned subsidiary of the Fund. See Note 1(c).
bThe Fund receives the total return on the underlying instrument and pays a fixed financing rate.
cRepresents a custom index comprised of a basket of underlying instruments. Additional information regarding the underlying instruments and their respective values including fees are as follows:
Underlying Instruments | Notional Valued | Percentage of Notional Valuee | Value/ Unrealized Appreciation (Depreciation) | |||||||||
Bloomberg Commodity Aluminum Subindex | $ 6,875,391 | 6.6 | % | $ (70,731) | ||||||||
Bloomberg Commodity Coffee Subindex | 2,604,315 | 2.5 | % | (73,547) | ||||||||
Bloomberg Commodity Copper Subindex | 11,354,813 | 10.9 | % | (16,868) | ||||||||
Bloomberg Commodity Corn Subindex | 12,604,884 | 12.1 | % | 80,833 | ||||||||
Bloomberg Commodity Cotton Subindex | 1,770,934 | 1.7 | % | (15,097) | ||||||||
Bloomberg Commodity Gold Subindex | 15,209,199 | 14.6 | % | (113,422) | ||||||||
Bloomberg Commodity Heating Oil Subindex | 2,812,660 | 2.7 | % | (38,661) | ||||||||
Bloomberg Commodity Live Cattle Subindex | 6,458,701 | 6.2 | % | (83,675) | ||||||||
Bloomberg Commodity Natural Gas Subindex | 6,771,219 | 6.5 | % | (330,771) | ||||||||
Bloomberg Commodity Nickel Subindex | 4,791,939 | 4.6 | % | (172,961) |
16 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
Commodity-Linked Total Return Swap Contractsa (continued)
Underlying Instruments | Notional Valued | Percentage of Notional Valuee | Value/ Unrealized Appreciation (Depreciation) | |||||||||
Bloomberg Commodity Silver Subindex | $ 2,604,315 | 2.5 | % | $ (13,818) | ||||||||
Bloomberg Commodity Soybean Meal Subindex 3 Month Forward | 3,750,213 | 3.6 | % | (7,973) | ||||||||
Bloomberg Commodity Soybean Oil Subindex 3 Month Forward | 3,333,523 | 3.2 | % | (23,415) | ||||||||
Bloomberg Commodity Soybeans Subindex 3 Month Forward | 7,187,909 | 6.9 | % | (42,929) | ||||||||
Bloomberg Commodity Sugar Subindex | 3,021,005 | 2.9 | % | 2,005 | ||||||||
Bloomberg Commodity Unleaded Gasoline Subindex | 4,896,112 | 4.7 | % | (11,139) | ||||||||
Bloomberg Commodity WTI Crude Oil Subindex | 4,166,904 | 4.0 | % | 7,316 | ||||||||
Bloomberg Commodity Zinc Subindex | 3,958,559 | 3.8 | % | (2,552) | ||||||||
|
| |||||||||||
Total | $104,172,595 | 100.0 | % | $(927,405) | ||||||||
|
|
dNotional value represents the fair value at period end of each underlying instrument (including the financing rate fee which is calculated based on the swap contract’s original notional value of $105,100,000, allocated to each underlying instrument on a pro-rata basis).
eRepresents the weighting of the component in the custom index.
See Abbreviations on page 31.
franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 17 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Financial Statements
Consolidated Statement of Assets and Liabilities
November 30, 2017 (unaudited)
Franklin Pelagos Commodities Strategy Fund
Assets: | ||||
Investments in securities: | ||||
Cost - Unaffiliated issuers | $ | 129,783,571 | ||
Cost - Non-controlled affiliates (Note 3f) | 5,615,709 | |||
|
| |||
Value - Unaffiliated issuers | $ | 129,518,180 | ||
Value - Non-controlled affiliates (Note 3f) | 5,615,709 | |||
Receivables: | ||||
Capital shares sold | 8,741 | |||
Interest. | 75,856 | |||
Affiliates | 2,212 | |||
Other assets | 22 | |||
|
| |||
Total assets | 135,220,720 | |||
|
| |||
Liabilities: | ||||
Payables: | ||||
Capital shares redeemed | 6,121 | |||
Management fees | 46,261 | |||
Distribution fees | 1,918 | |||
Variation margin on futures contracts | 144,944 | |||
Due to brokers | 675,347 | |||
Funds advanced by custodian. | 4,122,955 | |||
Unrealized depreciation on OTC swap contracts | 927,405 | |||
Accrued expenses and other liabilities | 55,456 | |||
|
| |||
Total liabilities | 5,980,407 | |||
|
| |||
Net assets, at value | $ | 129,240,313 | ||
|
| |||
Net assets consist of: | ||||
Paid-in capital | $ | 124,507,305 | ||
Undistributed net investment income | 23,770 | |||
Net unrealized appreciation (depreciation) | (1,419,345 | ) | ||
Accumulated net realized gain (loss) | 6,128,583 | |||
|
| |||
Net assets, at value | $ | 129,240,313 | ||
|
|
18 | Semiannual 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 (continued)
November 30, 2017 (unaudited)
Franklin Pelagos Commodities Strategy Fund
Class A: | ||||
Net assets, at value | $ | 5,191,476 | ||
|
| |||
Shares outstanding | 811,740 | |||
|
| |||
Net asset value per sharea | $6.40 | |||
|
| |||
Maximum offering price per share (net asset value per share ÷ 94.25%) | $6.79 | |||
|
| |||
Class C: | ||||
Net assets, at value | $ | 980,915 | ||
|
| |||
Shares outstanding | 157,865 | |||
|
| |||
Net asset value and maximum offering price per sharea | $6.21 | |||
|
| |||
Class R: | ||||
Net assets, at value | $ | 24,159 | ||
|
| |||
Shares outstanding | 3,806 | |||
|
| |||
Net asset value and maximum offering price per share | $6.35 | |||
|
| |||
Class R6: | ||||
Net assets, at value | $ | 122,163,232 | ||
|
| |||
Shares outstanding | 18,770,181 | |||
|
| |||
Net asset value and maximum offering price per share | $6.51 | |||
|
| |||
Advisor Class: | ||||
Net assets, at value | $ | 880,531 | ||
|
| |||
Shares outstanding | 134,498 | |||
|
| |||
Net asset value and maximum offering price per share | $6.55 | |||
|
|
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 19 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations
for the six months ended November 30, 2017 (unaudited)
Franklin Pelagos Commodities Strategy Fund
Investment income: | ||||
Dividends: | ||||
Non-controlled affiliates (Note 3f) | $ | 2,271 | ||
Interest: | ||||
Unaffiliated issuers | 573,381 | |||
|
| |||
Total investment income | 575,652 | |||
|
| |||
Expenses: | ||||
Management fees (Note 3a) | 548,211 | |||
Distribution fees: (Note 3c) | ||||
Class A | 6,240 | |||
Class C | 4,856 | |||
Class R | 54 | |||
Transfer agent fees: (Note 3e) | ||||
Class A | 10,922 | |||
Class C | 2,122 | |||
Class R | 51 | |||
Class R6 | 2,112 | |||
Advisor Class | 4,583 | |||
Custodian fees (Note 4) | 492 | |||
Reports to shareholders | 11,802 | |||
Registration and filing fees | 44,332 | |||
Professional fees | 29,527 | |||
Trustees’ fees and expenses | 21,669 | |||
Other | 8,255 | |||
|
| |||
Total expenses | 695,228 | |||
Expense reductions (Note 4) | (551 | ) | ||
Expenses waived/paid by affiliates (Note 3f and 3g) | (244,283 | ) | ||
|
| |||
Net expenses | 450,394 | |||
|
| |||
Net investment income | 125,258 | |||
|
| |||
Realized and unrealized gains (losses): | ||||
Net realized gain (loss) from: | ||||
Investments: | ||||
Unaffiliated issuers | 189,284 | |||
Written options | 317,682 | |||
Futures contracts | 2,901,516 | |||
Swap contracts | 2,894,319 | |||
|
| |||
Net realized gain (loss) | 6,302,801 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments: | ||||
Unaffiliated issuers | 15,625 | |||
Written options | (140,832 | ) | ||
Futures contracts | 616,369 | |||
Swap contracts | (927,405 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) | (436,243 | ) | ||
|
| |||
Net realized and unrealized gain (loss) | 5,866,558 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 5,991,816 | ||
|
|
20 | Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Net Assets
Franklin Pelagos Commodities Strategy Fund
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, 2017 | |||||||
Increase (decrease) in net assets: | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 125,258 | $ | (179,958 | ) | |||
Net realized gain (loss) | 6,302,801 | (5,709,788 | ) | |||||
Net change in unrealized appreciation (depreciation) | (436,243 | ) | (785,460 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 5,991,816 | (6,675,206 | ) | |||||
|
| |||||||
Capital share transactions: (Note 2) | ||||||||
Class A | 129,514 | 1,308,813 | ||||||
Class C | (20,876 | ) | 170,718 | |||||
Class R | 106 | 15,801 | ||||||
Class R6 | (2,265,177 | ) | (6,433,256 | ) | ||||
Advisor Class | (1,327,188 | ) | 1,486,143 | |||||
|
| |||||||
Total capital share transactions | (3,483,621 | ) | (3,451,781 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | 2,508,195 | (10,126,987 | ) | |||||
Net assets: | ||||||||
Beginning of period | 126,732,118 | 136,859,105 | ||||||
|
| |||||||
End of period | $ | 129,240,313 | $ | 126,732,118 | ||||
|
| |||||||
Undistributed net investment income included in net assets: | ||||||||
End of period | $ | 23,770 | $ | — | ||||
|
| |||||||
Accumulated net investment loss included in net assets: | ||||||||
End of period | $ | — | $ | (101,488 | ) | |||
|
|
franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 21 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Notes to Consolidated Financial Statements (unaudited)
Franklin Pelagos Commodities Strategy 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 four separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin Pelagos Commodities Strategy 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. 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 as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. 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 VC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Debt securities generally trade in the over-the-counter (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.
Investments in open-end mutual funds are valued at the closing NAV.
Derivative financial instruments listed on an exchange are valued at the official closing price of the day. 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 VC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
b. 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
22 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
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 counter-parties. 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. At November 30, 2017, the Fund had OTC derivatives in a net liability position of $927,405.
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 gain exposure to commodity price risk. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset at a specified price on a future date. Required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities.
The Fund entered into OTC commodity-linked total return swap contracts primarily to gain exposure to commodity price 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 option contracts primarily to manage and/or gain exposure to commodity 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.
franklintempleton.com | Semiannual Report | 23 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
1. Organization and Significant Accounting Policies (continued)
b. Derivative Financial Instruments (continued)
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 7 regarding other derivative information.
c. Investments in FPC Holdings Corp. (FP Subsidiary)
The Fund invests in certain financial instruments and commodity-linked derivative investments through its investment in the FP Subsidiary. The FP 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 November 30, 2017, the FP Subsidiary’s investments as well as any other assets and liabilities of the FP Subsidiary are reflected in the Fund’s Consolidated Statement of Investments and Consolidated Statement of Assets and Liabilities. The financial statements have been consolidated and include the accounts of the Fund and the FP Subsidiary. 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 FP Subsidiary’s income. Net losses incurred by the FP Subsidiary cannot offset income earned by the Fund and cannot be carried back or forward by the FP Subsidiary to offset income from prior or future years. At November 30, 2017, the net assets of the FP Subsidiary were $26,648,146, representing 20.6% of the Fund’s consolidated net assets. The Fund’s investment in the FP Subsidiary is limited to 25% of consolidated assets.
d. Income 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 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 November 30, 2017, 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.
e. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income is recorded on the ex-dividend date. 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. 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.
f. 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.
24 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
g. Guarantees and Indemnifications
Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the 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 November 30, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
Six Months Ended November 30, 2017 | Year Ended May 31, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares: | ||||||||||||||||
Shares sold | 114,991 | $ | 718,751 | 468,367 | $ | 3,019,447 | ||||||||||
Shares redeemed | (94,540 | ) | (589,237 | ) | (266,214 | ) | (1,710,634 | ) | ||||||||
|
| |||||||||||||||
Net increase (decrease) | 20,451 | $ | 129,514 | 202,153 | $ | 1,308,813 | ||||||||||
|
| |||||||||||||||
Class C Shares: | ||||||||||||||||
Shares sold | 18,947 | $ | 114,732 | 86,217 | $ | 545,742 | ||||||||||
Shares redeemed | (22,386 | ) | (135,608 | ) | (60,610 | ) | (375,024 | ) | ||||||||
|
| |||||||||||||||
Net increase (decrease) | (3,439 | ) | $ | (20,876 | ) | 25,607 | $ | 170,718 | ||||||||
|
| |||||||||||||||
Class R Shares: | ||||||||||||||||
Shares sold | 17 | $ | 109 | 3,232 | $ | 20,979 | ||||||||||
Shares redeemed | — | (3 | ) | (798 | ) | (5,178 | ) | |||||||||
|
| |||||||||||||||
Net increase (decrease) | 17 | $ | 106 | 2,434 | $ | 15,801 | ||||||||||
|
| |||||||||||||||
Class R6 Shares: | ||||||||||||||||
Shares sold | 635,300 | $ | 4,115,449 | 282,587 | $ | 1,822,567 | ||||||||||
Shares redeemed | (992,044 | ) | (6,380,626 | ) | (1,279,804 | ) | (8,255,823 | ) | ||||||||
|
| |||||||||||||||
Net increase (decrease) | (356,744 | ) | $ | (2,265,177 | ) | (997,217 | ) | $ | (6,433,256 | ) | ||||||
|
| |||||||||||||||
Advisor Class Shares: | ||||||||||||||||
Shares sold | 96,450 | $ | 607,351 | 286,725 | $ | 1,872,420 | ||||||||||
Shares redeemed | (291,282 | ) | (1,934,539 | ) | (59,539 | ) | (386,277 | ) | ||||||||
|
| |||||||||||||||
Net increase (decrease) | (194,832 | ) | $ | (1,327,188 | ) | 227,186 | $ | 1,486,143 | ||||||||
|
|
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
Subsidiary | Affiliation | |||
FT AlphaParity, LLC (FTAP) | ||||
(formerly Franklin Alternative Strategies Advisers, LLC) | Investment manager | |||
Franklin Templeton Services, LLC (FT Services) | Administrative manager | |||
Franklin Templeton Distributors, Inc. (Distributors) | Principal underwriter | |||
Franklin Templeton Investor Services, LLC (Investor Services) | Transfer agent |
franklintempleton.com | Semiannual Report | 25 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
3. Transactions with Affiliates (continued)
a. Management Fees
The Fund and FP Subsidiary pay an investment management fee to FTAP of 0.85% per year of the average daily net assets of the Fund and FP Subsidiary. Management fees paid by the Fund are reduced on assets invested in the FP Subsidiary, in an amount not to exceed the management fees paid by the FP Subsidiary.
b. Administrative Fees
Under an agreement with FTAP, FT Services provides administrative services to the Fund and FP Subsidiary. The fee is paid by FTAP based on the Fund and FP Subsidiary average daily net assets, and is not an additional expense of the Fund or FP 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.
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the period:
Sales charges retained net of commissions paid to unaffiliated brokers/dealers | $ | 2,203 | ||
CDSC retained | $ | 83 |
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. 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 period ended November 30, 2017, the Fund paid transfer agent fees of $19,790, of which $9,595 was retained by Investor Services.
26 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
f. Investments in Affiliated Management Investment Companies
The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Consolidated Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. Prior to June 1, 2013, the waiver was accounted for as a reduction to management fees. During the period ended November 30, 2017, the Fund held investments in affiliated management investment companies as follows:
Number of Shares Held at Beginning of Period | Gross Additions | Gross Reductions | Number of Shares Held at End of Period | Value at End of Period | Dividend Income | Realized Gain (Loss) | Net Change Unrealized | |||||||||||||||||||||||||
Non-Controlled Affiliates | ||||||||||||||||||||||||||||||||
Institutional Fiduciary Trust Money Market Portfolio, 0.75% | — | 29,597,802 | (23,982,093 | ) | 5,615,709 | $ | 5,615,709 | $2,271 | $ — | $ — |
g. Waiver and Expense Reimbursements
FTAP has contractually agreed in advance to waive or limit its fees and to assume as its own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses) for each class of the Fund do not exceed 0.95% and Class R6 does not exceed 0.63% based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until September 30, 2018. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end. Prior to October 1, 2017, expenses for Class R6 were limited to 0.68%.
h. Other Affiliated Transactions
At November 30, 2017, the shares of the Fund were owned by the following entities:
Shares | Percentage of Outstanding Sharesa | |||||||
Franklin Moderate Allocation Fund | 7,511,606 | 37.8% | ||||||
Franklin Conservative Allocation Fund | 4,767,023 | 24.0% | ||||||
Franklin Growth Allocation Fund | 4,616,319 | 23.2% | ||||||
Franklin LifeSmart 2025 Retirement Target Fund | 440,343 | 2.2% | ||||||
Franklin LifeSmart 2035 Retirement Target Fund | 392,187 | 2.0% | ||||||
Franklin LifeSmart 2045 Retirement Target Fund | 270,463 | 1.4% | ||||||
Franklin LifeSmart 2030 Retirement Target Fund | 155,309 | 0.8% | ||||||
Franklin LifeSmart 2020 Retirement Target Fund | 124,325 | 0.6% | ||||||
Franklin LifeSmart 2040 Retirement Target Fund | 124,002 | 0.6% | ||||||
Franklin LifeSmart 2050 Retirement Target Fund | 105,034 | 0.5% | ||||||
Franklin LifeSmart 2055 Retirement Target Fund | 31,039 | 0.2% | ||||||
Franklin Resources, Inc. | 563 | —%b | ||||||
|
| |||||||
18,538,213 | 93.3% | |||||||
|
|
aInvestment activities of significant shareholders could have a material impact on the Fund.
bRounds to less than 0.01%.
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended November 30, 2017, the custodian fees were reduced as noted in the Consolidated Statement of Operations.
franklintempleton.com | Semiannual Report | 27 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains, if any. At May 31, 2017, the Fund had long-term capital loss carryforwards of $174,215.
At November 30, 2017, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
Cost of investments | $ | 135,401,275 | ||
|
| |||
Unrealized appreciation | $ | 21,074 | ||
Unrealized depreciation | (1,440,419 | ) | ||
|
| |||
Net unrealized appreciation (depreciation) | $ | (1,419,345 | ) | |
|
|
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatment of investments in the FP Subsidiary.
6. Investment Transactions
Purchases of investments (excluding short term securities) for the period ended November 30, 2017, totaled $22,999,981. There were no sales of investments (other than short term securities).
7. Other Derivative Information
At November 30, 2017, the Fund’s 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 | ||||||||
Commodity contracts | Variation margin on futures contracts | $ | 20,412 | a | Variation margin on futures contracts | $ | 246,961 | a | ||||
Unrealized appreciation on OTC swap contracts | — | Unrealized depreciation on OTC swap contracts | 927,405 | |||||||||
|
|
|
| |||||||||
Totals | $ | 20,412 | $ | 1,174,366 | ||||||||
|
|
|
|
aThis amount reflects the cumulative appreciation (depreciation) of futures contracts as reported in the Consolidated Statement of Investments. Only the variation margin receivable/payable at period end is separately reported within the Consolidated Statement of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.
28 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
For the period ended November 30, 2017, the effect of derivative contracts in the Fund’s 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 Period | Consolidated Statement of Operations Location | Net Change in Unrealized Appreciation (Depreciation) for the Period | ||||||
Net realized gain (loss) from: | Net change in unrealized appreciation (depreciation) on: | |||||||||
Commodity contracts | Investments | $ 149,719a | Investments | $96,279a | ||||||
Written options | 317,682 | Written options | (140,832) | |||||||
Futures contracts | 2,901,516 | Futures contracts | 616,369 | |||||||
Swap contracts | 2,894,319 | Swap contracts | (927,405) | |||||||
|
|
| ||||||||
Totals | $6,263,236 | $(355,589) | ||||||||
|
|
|
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. |
For the period ended November 30, 2017, the average month end notional amount of futures contracts, options and swap contracts represented $25,568,697, $131,000 and $102,642,857, respectively.
See Note 1(b) regarding derivative financial instruments.
8. Credit Facility
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 9, 2018. 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 period ended November 30, 2017, the Fund did not use the Global Credit Facility.
9. 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.
franklintempleton.com | Semiannual Report | 29 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
9. Fair Value Measurements (continued)
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
A summary of inputs used as of November 30, 2017, 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: | ||||||||||||||||
U.S. Government and Agency Securities | $ | — | $ | 19,867,400 | $ | — | $ | 19,867,400 | ||||||||
Short Term Investments | 113,591,489 | 1,675,000 | — | 115,266,489 | ||||||||||||
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| |||||||||||||||
Total Investments in Securities | $ | 113,591,489 | $ | 21,542,400 | $ | — | $ | 135,133,889 | ||||||||
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| |||||||||||||||
Other Financial Instruments: | ||||||||||||||||
Futures Contracts | $ | 20,412 | $ | — | $ | — | $ | 20,412 | ||||||||
|
| |||||||||||||||
Liabilities: | ||||||||||||||||
Other Financial Instruments: | ||||||||||||||||
Futures Contracts | $ | 246,961 | $ | — | $ | — | $ | 246,961 | ||||||||
Swap Contracts | — | 927,405 | — | 927,405 | ||||||||||||
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Total Other Financial Instruments | $ | 246,961 | $ | 927,405 | $ | — | $ | 1,174,366 | ||||||||
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10. 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.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
Abbreviations
Counterparty | Selected Portfolio | |||
MSCS Morgan Stanley Capital Services LLC | FFCB | Federal Farm Credit Bank | ||
FHLMC | Federal Home Loan Mortgage Corp. |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN PELAGOS COMMODITIES STRATEGY 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 US 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 consolidated statement of investments with the US Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
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Semiannual Report and Shareholder Letter Franklin Pelagos Commodities Strategy Fund
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Investment Manager FT AlphaParity, LLC
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Distributor Franklin Templeton Distributors, Inc. (800) DIAL BEN® / 342-5236 franklintempleton.com
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Shareholder Services (800) 632-2301 |
Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
© 2017-2018 Franklin Templeton Investments. All rights reserved. | 995 S 01/18 |
![]() | Semiannual Report and Shareholder Letter November 30, 2017 |
Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Dear Fellow Shareholder:
During the six months ended November 30, 2017, the global economy generally expanded amid improved commodity prices, generally upbeat economic data, encouraging corporate earnings and the European Central Bank’s (ECB’s) extension of its monetary easing time frame. The ECB kept its benchmark interest rate unchanged, while the US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% to 1.00%–1.25% amid signs of a growing US economy. In this environment, global developed stock markets, as measured by the MSCI World Index, posted a +9.81% total return for the period.1 Global emerging market stocks, as measured by the MSCI Emerging Markets Index, generated a +13.27% total return.1 Global government bonds, as measured by the Citigroup World Government Bond Index, posted a +2.57% total return.1
A couple of weeks after the end of the reporting period, the Fed raised its target range a quarter point to 1.25%–1.50% amid ongoing labor market strength and rising economic activity in the US. The Fed’s inflation outlook remained essentially the same.
We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.
We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic
conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.
On the following pages, the Fund’s portfolio management team reviews investment decisions made during the past six 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.
Sincerely,
Madison S. Gulley, CFA
President and Chief Executive Officer – Investment Management
Franklin Alternative Strategies Funds
This letter reflects our analysis and opinions as of November 30, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
CFA® is a trademark owned by CFA Institute.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
Not FDIC Insured | | May Lose Value | | No Bank Guarantee |
franklintempleton.com | Not part of the semiannual report | 1 |
Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.
2 | Semiannual Report | franklintempleton.com |
Franklin K2 Long Short Credit Fund
We are pleased to bring you Franklin K2 Long Short Credit Fund’s semiannual report for the period ended November 30, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks total return through a combination of current income, capital preservation and capital appreciation. The Fund seeks to achieve its investment goal by allocating its assets across multiple non-traditional or “alternative” strategies, 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), US 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 delivered a +2.57% cumulative total return for the six months under review. For comparison, the Fund’s new primary and old secondary benchmark, the HFRX Fixed Income-Credit Index, which measures performance of strategies with exposure to credit across a broad continuum of credit substrategies, generated a +1.34% total return for the same period.2 As the investment manager believes the composition of the HFRX Fixed Income-Credit Index more accurately reflects the Fund’s holdings, it has replaced the ICE BofA Merrill Lynch 3-Month US Treasury Bill Index as the Fund’s
Portfolio Composition*
Based on Total Investments as of 11/30/17
*Figures represent the net Fund exposure and include certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of any derivatives or other factors.
primary benchmark. Also for comparison, the Fund’s new secondary and old primary benchmark, the ICE BofA Merrill Lynch 3-Month US Treasury Bill Index, which is an index of short-term US government securities with a remaining term to final maturity of less than three months, posted a +0.52% total return for the same period.1 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
The global economy generally expanded during the six-month period under review. In this environment, global developed and emerging market stocks, as measured by the MSCI All Country World Index, generated a +10.19% total return. Global government bonds, as measured by the Citigroup World Government Bond Index, posted a +2.57% total return. Global markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions, the European Central
1. Source: FactSet. Hedge Fund Research, Inc. – www.hedgefundresearch.com. The HFRX Fixed Income-Credit Index is being used under license from Hedge Fund Research, Inc., which does not endorse or approve of any of the contents of this report.
2. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Unlike most asset class indexes, HFR Index returns reflect fees and expenses.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 15.
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FRANKLIN K2 LONG SHORT CREDIT FUND
Bank’s (ECB’s) extension of its monetary easing program, and encouraging corporate earnings reports. The US Senate’s approval of a budget plan in October and its subsequent vote near period-end to begin debate on a tax bill, which raised expectations for reforms, also aided global markets.
However, global markets reflected investor concerns about the terms of the UK’s exit from the European Union (also known as “Brexit”), geopolitical tensions in the Korean peninsula and other regions, comments from key central bankers around the world about potentially raising interest rates and uncertainty about the US government’s ability to implement a tax reform plan.
The US economy strengthened in 2017’s third quarter compared to the second quarter largely due to growth in consumer spending across goods and services, business and inventory investment, as well as net exports due to lower imports. The unemployment rate declined from 4.3% in May 2017, as reported at the beginning of the six-month period, to 4.1% at period-end.3 Annual inflation, as measured by the Consumer Price Index, increased from 1.9% in May 2017, as reported at the beginning of the six-month period, to 2.2% at period-end.3 At its June meeting, the US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% to 1.00%–1.25%, amid signs of a growing US economy, strengthening labor market and improving business spending. At its subsequent meetings, the Fed kept its target range unchanged. However, minutes of its October 31–November 1 meeting indicated that the Fed continued to maintain a positive outlook for the US economy and signaled the possibility of a third rate hike in 2017, though concerns about the ongoing softness in inflation remained.
In Europe, the UK’s economic growth accelerated in 2017’s third quarter over the previous quarter, largely due to growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The euro-zone’s growth, however, moderated in 2017’s third quarter over the previous quarter. The bloc’s annual inflation rate, while low, ended higher than it was at the start of the period. The ECB kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.
In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017
growth was lower than the previous quarter. At its October 2017 meeting, the Bank of Japan left its benchmark interest rate unchanged and continued its monetary stimulus measures, while reducing its fiscal 2017 inflation forecast.
In emerging markets, Brazil’s GDP grew for the third consecutive quarter, although third-quarter growth slowed from the previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s third quarter compared to the prior-year period, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017’s third quarter compared to the prior-year period. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose substantially during the period.
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: 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.
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 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 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)
3. Source: US Bureau of Labor Statistics
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN K2 LONG SHORT CREDIT FUND
purposes. Such derivative investments may include currency forward contracts; futures contracts; put and call options on currencies, securities, indexes and exchange-traded funds; and swaps. The Fund may engage in active and frequent trading as part of its investment strategies.
What is a currency forward contract?
A currency forward contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency in exchange for another currency at a specific exchange rate on a future date. Currency forward contracts are privately traded in the interbank market, not on a centralized exchange.
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What is a futures contract?
A futures contract is an agreement between the Fund and a counterparty made through a US or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.
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What is an option?
An option is a contract to buy or sell a specific financial product known as the option’s underlying instrument at a specific price. The buyer of an option has the right, but not the obligation, to buy or sell the underlying instrument at or until a specified expiration date. Conversely, the seller (“writer”) of an option who opens a transaction is obligated to buy or sell the underlying instrument should the option holder exercise that right.
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What are swap agreements?
Swap agreements, such as interest rate, currency and credit default swaps, are contracts between the Fund and another party (the swap counterparty). In a basic swap transaction, the Fund agrees with the swap counterparty to exchange the returns (or differentials in rates of return) earned or realized on a particular “notional amount” of underlying instruments. The notional amount is the set amount selected by the parties as the basis on which to calculate the obligations that they have agreed to exchange. The parties typically do not actually exchange the notional amount. Instead, they agree to exchange the returns that would be earned or realized if the notional amount were invested in given instruments or at given interest rates.
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Manager’s Discussion
The Fund’s subadvisors for the review period were Apollo Credit Management, Candlewood Investment Group, Chatham Asset Management, Ellington Global Asset Management and Emso Asset Management Limited. All subadvisors contributed to the Fund’s positive performance. Ellington was the top performer in terms of contribution to aggregate gains, followed by Chatham, Apollo, Emso and Candlewood, respectively.
Subadvisors
11/30/17
Credit Long Short |
Apollo Credit Management LLC |
Chatham Asset Management, LLC |
Structured Credit |
Candlewood Investment Group, L.P. |
Ellington Global Asset Management, L.L.C. |
Emerging Markets Fixed Income |
Emso Asset Management Limited |
In terms of strategy performance, the largest contributor to the Fund’s performance was credit long short followed by structured credit and emerging markets fixed income. No strategy weighed on results.
By asset class, the top contributors to the Fund’s aggregate performance were credit and interest rates, while equity detracted.
In terms of aggregate sector exposures, the top performance drivers for the Fund were MBS, consumer discretionary and ABS. In contrast, equity index hedges weighed on absolute performance.
Credit long short subadvisors benefited from credit selection and generated gains in both long and short positions. The Fund’s allocations of long and short positions are listed in the Portfolio Composition table on page 3. Toward period-end, credit market volatility picked up with several sectors underperforming (e.g., telecommunication services and health care), amid strong performance from other industries (e.g., financials, energy and utilities). Investors appeared more sensitive to weaker fundamentals, and a number of issuers traded lower meaningfully in late October and early November in response to disappointing earnings.
Structured credit subadvisors benefited from strong fundamentals during the review period. From our perspective, fundamentals were particularly healthy in mortgage-related securities and consumer ABS, with increased certainty surrounding cash flows.
Turning to emerging markets fixed income, positive developments in countries such as Argentina and Greece supported the manager’s long positioning in sovereign government debt. Conversely, equity indexes used as hedges detracted from results in all three of the Fund’s strategies. Global equity markets were boosted by continued signs of synchronized global economic growth.
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FRANKLIN K2 LONG SHORT CREDIT FUND
Thank you for your participation in Franklin K2 Long Short Credit Fund. We look forward to continuing to serve your investment needs.
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Charmaine Chin
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Jeff Schmidt
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Robert Christian
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David C. Saunders | ||
Portfolio Management Team |
The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2017, 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.
David C. Saunders is the founding managing director of K2 Advisors, which he co-founded in 1994. He has worked at Tucker Anthony & R.L. Day as an equity trader; First Boston Corp. as vice president on the equity block trading desk; WaterStreet Capital, a hedge fund, as head trader; Tiger Management, as head trader; WorldSec Securities as president and ABN Amro Inc. as a senior managing director. Mr. Saunders graduated from the University of Maryland, College Park, with a B.S. degree in Business.
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Jeff Schmidt joined K2 Advisors in July 2013 and is managing director of portfolio construction. Prior to joining K2, Mr. Schmidt was the head of client solutions, North America for InfraHedge Limited, a subsidiary of State Street Corporation. Other previous positions he held include senior vice president and head of business development for WR Platform Advisors, LP; director of Merrill Lynch’s hedge fund development and management group; and managing director and chief operations officer of Marathon Capital Growth Partners, LLC. Mr. Schmidt graduated from Tulane University in 1980 with a B.A. in economics as well as an M.B.A. in economics and finance in 1982.
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Robert Christian is a senior managing director and head of investment research for K2 Advisors, which he joined in 2010. Mr. Christian worked at Graham Capital Management LP from 1998 to 2003 as a portfolio manager and researcher of quantitative-based trading strategies. At Julius Baer Investment Management from 2003 to 2005, he was the head of macro strategies. From 2005 to 2010, he worked at FRM Americas LLC where he was the global head of directional trading strategies and portfolio advisor to numerous funds. Mr. Christian holds a B.A.S. in biology and economics from Stanford University (1985) and an M.B.A. in finance from Leonard N. Stern School of Business — New York University (1990).
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Charmaine Chin is a managing director at K2 Advisors, which she joined in March 2008. She heads K2’s credit, relative value and event driven manager research team and leads the evaluation and selection of hedge fund subadvisors in these strategies. She also oversees manager selection and monitoring for K2’s Asian hedge fund exposure. Before joining K2, Ms. Chin worked at Goldman, Sachs & Co. in the special situations group and in the financial institutions group. Ms. Chin received a B.A. in Economics at Harvard University where she graduated magna cum laude and Phi Beta Kappa.
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FRANKLIN K2 LONG SHORT CREDIT FUND
Performance Summary as of November 30, 2017
The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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 11/30/171
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 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
Cumulative | Average Annual | |||||||
Share Class | Total Return2 | Total Return3 | ||||||
A | ||||||||
6-Month | +2.57% | -3.32% | ||||||
1-Year | +5.77% | -0.34% | ||||||
Since Inception (9/8/15) | +13.76% | +3.18% | ||||||
Advisor | ||||||||
6-Month | +2.67% | +2.67% | ||||||
1-Year | +5.78% | +5.78% | ||||||
Since Inception (9/8/15) | +13.87% | +6.01% |
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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FRANKLIN K2 LONG SHORT CREDIT FUND
PERFORMANCE SUMMARY
Total Annual Operating Expenses4
Share Class | With Waiver | Without Waiver | ||||||
A | 2.99% | 3.57% | ||||||
Advisor | 2.74% | 3.32% |
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’ve 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. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has an expense reduction contractually guaranteed through 9/30/18. 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. 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.
8 | Semiannual Report | franklintempleton.com |
FRANKLIN K2 LONG SHORT CREDIT FUND
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 × $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 | Hypothetical | |||||||||||
(actual return after expenses) | (5% annual return before expenses) | |||||||||||
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Expenses Paid During Period | Expenses Paid During Period | Net Annualized Expense | ||||||||||
Beginning Account | Ending Account | Ending Account | ||||||||||
Share Class | ||||||||||||
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| |||||||||
A | $1,000 | $1,025.70 | $14.27 | $1,010.98 | $14.17 | 2.81% | ||||||
C | $1,000 | $1,020.30 | $18.49 | $1,006.77 | $18.36 | 3.65% | ||||||
R | $1,000 | $1,024.00 | $15.68 | $1,009.58 | $15.57 | 3.09% | ||||||
R6 | $1,000 | $1,026.70 | $13.41 | $1,011.83 | $13.31 | 2.64% | ||||||
Advisor | $1,000 | $1,026.70 | $13.46 | $1,011.78 | $13.36 | 2.65% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
franklintempleton.com | Semiannual Report | 9 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Franklin K2 Long Short Credit Fund
Six Months Ended | Year Ended May 31, | |||||||||||
| November 30, 2017 (unaudited) |
| 2017 | 2016a | ||||||||
Class A | ||||||||||||
Per share operating performance | ||||||||||||
(for a share outstanding throughout the period) | ||||||||||||
Net asset value, beginning of period | $10.49 | $10.15 | $10.00 | |||||||||
Income from investment operationsb: | ||||||||||||
Net investment incomec | 0.14 | 0.23 | 0.21 | |||||||||
Net realized and unrealized gains (losses) | 0.13 | 0.53 | 0.08 | |||||||||
Total from investment operations | 0.27 | 0.76 | 0.29 | |||||||||
Less distributions from: | ||||||||||||
Net investment income | — | (0.32 | ) | (0.08 | ) | |||||||
Net realized gains | — | (0.10) | (0.06) | |||||||||
Total distributions | — | (0.42) | (0.14) | |||||||||
Net asset value, end of period | $10.76 | $10.49 | $10.15 | |||||||||
Total returnd | 2.57% | 7.58% | 2.99% | |||||||||
Ratios to average net assetse | ||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.28% | 3.50% | 3.37% | |||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.81%g | 2.75% | 2.30%g | |||||||||
Expenses incurred in connection with securities sold short | 0.70% | 0.76% | 0.40% | |||||||||
Net investment income | 2.62% | 2.24% | 2.85% | |||||||||
Supplemental data | ||||||||||||
Net assets, end of period (000’s) | $42,271 | $41,001 | $28,198 | |||||||||
Portfolio turnover rate | 135.94% | 317.70% | 511.62% |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(f).
gBenefit of expense reduction rounds to less than 0.01%.
10 | Semiannual 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)
Six Months Ended | Year Ended May 31, | |||||||||||
November 30, 2017 (unaudited) | 2017 | 2016a | ||||||||||
Class C | ||||||||||||
Per share operating performance | ||||||||||||
(for a share outstanding throughout the period) | ||||||||||||
Net asset value, beginning of period | $10.35 | $10.07 | $10.00 | |||||||||
Income from investment operationsb: | ||||||||||||
Net investment incomec | 0.09 | 0.14 | 0.09 | |||||||||
Net realized and unrealized gains (losses) | 0.12 | 0.52 | 0.12 | |||||||||
Total from investment operations | 0.21 | 0.66 | 0.21 | |||||||||
Less distributions from: | ||||||||||||
Net investment income | — | (0.28 | ) | (0.08 | ) | |||||||
Net realized gains | — | (0.10) | (0.06) | |||||||||
Total distributions | — | (0.38) | (0.14) | |||||||||
Net asset value, end of period | $10.56 | $10.35 | $10.07 | |||||||||
Total returnd | 2.03% | 6.56% | 2.20% | |||||||||
Ratios to average net assetse | ||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 4.12% | 4.44% | 3.62% | |||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 3.65%g | 3.69% | 2.55% | g | ||||||||
Expenses incurred in connection with securities sold short | 0.70% | 0.76% | 0.40% | |||||||||
Net investment income | 1.78% | 1.30% | 2.60% | |||||||||
Supplemental data | ||||||||||||
Net assets, end of period (000’s) | $1,687 | $1,507 | $270 | |||||||||
Portfolio turnover rate | 135.94% | 317.70% | 511.62% |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(f).
gBenefit of expense reduction rounds to less than 0.01%.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 11 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL HIGHLIGHTS
Franklin K2 Long Short Credit Fund (continued)
Six Months Ended | Year Ended May 31, | |||||||||||
November 30, 2017 (unaudited) | 2017 | 2016a | ||||||||||
Class R | ||||||||||||
Per share operating performance | ||||||||||||
(for a share outstanding throughout the period) | ||||||||||||
Net asset value, beginning of period | $10.41 | $10.10 | $10.00 | |||||||||
Income from investment operationsb: | ||||||||||||
Net investment incomec | 0.12 | 0.20 | 0.08 | |||||||||
Net realized and unrealized gains (losses) | 0.13 | 0.53 | 0.16 | |||||||||
Total from investment operations | 0.25 | 0.73 | 0.24 | |||||||||
Less distributions from: | ||||||||||||
Net investment income | — | (0.32 | ) | (0.08 | ) | |||||||
Net realized gains | — | (0.10 | ) | (0.06 | ) | |||||||
Total distributions | — | (0.42 | ) | (0.14 | ) | |||||||
Net asset value, end of period | $10.66 | $10.41 | $10.10 | |||||||||
Total returnd | 2.40% | 7.29% | 2.48% | |||||||||
Ratios to average net assetse | ||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.56% | 3.83% | 3.37% | |||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 3.09%g | 3.08% | 2.30%g | |||||||||
Expenses incurred in connection with securities sold short | 0.70% | 0.76% | 0.40% | |||||||||
Net investment income | 2.34% | 1.91% | 2.85% | |||||||||
Supplemental data | ||||||||||||
Net assets, end of period (000’s) | $161 | $127 | $12 | |||||||||
Portfolio turnover rate | 135.94% | 317.70% | 511.62% |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(f).
gBenefit of expense reduction rounds to less than 0.01%.
12 | Semiannual 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)
Six Months Ended | Year Ended May 31, | |||||||||||
November 30, 2017 (unaudited) | 2017 | 2016a | ||||||||||
Class R6 | ||||||||||||
Per share operating performance | ||||||||||||
(for a share outstanding throughout the period) | ||||||||||||
Net asset value, beginning of period | $10.50 | $10.15 | $10.00 | |||||||||
Income from investment operationsb: | ||||||||||||
Net investment incomec | 0.15 | 0.24 | 0.23 | |||||||||
Net realized and unrealized gains (losses) | 0.13 | 0.53 | 0.06 | |||||||||
Total from investment operations | 0.28 | 0.77 | 0.29 | |||||||||
Less distributions from: | ||||||||||||
Net investment income | — | (0.32 | ) | (0.08 | ) | |||||||
Net realized gains | — | (0.10 | ) | (0.06 | ) | |||||||
Total distributions | — | (0.42 | ) | (0.14 | ) | |||||||
Net asset value, end of period | $10.78 | $10.50 | �� | $10.15 | ||||||||
Total returnd | 2.67% | 7.71% | 3.01% | |||||||||
Ratios to average net assetse | ||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.11% | 3.43% | 3.35% | |||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.64%g | 2.68% | 2.28%g | |||||||||
Expenses incurred in connection with securities sold short | 0.70% | 0.76% | 0.40% | |||||||||
Net investment income | 2.79% | 2.31% | 2.87% | |||||||||
Supplemental data | ||||||||||||
Net assets, end of period (000’s) | $11,838 | $13,052 | $12,384 | |||||||||
Portfolio turnover rate | 135.94% | 317.70% | 511.62% |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(f).
gBenefit of expense reduction rounds to less than 0.01%.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 13 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL HIGHLIGHTS
Franklin K2 Long Short Credit Fund (continued)
Six Months Ended | Year Ended May 31, | |||||||||||
November 30, 2017 (unaudited) | 2017 | 2016a | ||||||||||
Advisor Class | ||||||||||||
Per share operating performance | ||||||||||||
(for a share outstanding throughout the period) | ||||||||||||
Net asset value, beginning of period | $10.50 | $10.15 | $10.00 | |||||||||
Income from investment operationsb: | ||||||||||||
Net investment incomec | 0.15 | 0.24 | 0.20 | |||||||||
Net realized and unrealized gains (losses) | 0.13 | 0.53 | 0.09 | |||||||||
Total from investment operations | 0.28 | 0.77 | 0.29 | |||||||||
Less distributions from: | ||||||||||||
Net investment income | — | (0.32 | ) | (0.08 | ) | |||||||
Net realized gains | — | (0.10 | ) | (0.06 | ) | |||||||
Total distributions | — | (0.42 | ) | (0.14 | ) | |||||||
Net asset value, end of period | $10.78 | $10.50 | $10.15 | |||||||||
Total returnd | 2.67% | 7.70% | 2.99% | |||||||||
Ratios to average net assetse | ||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.12% | 3.44% | 3.36% | |||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.65%g | 2.69% | 2.29%g | |||||||||
Expenses incurred in connection with securities sold short | 0.70% | 0.76% | 0.40% | |||||||||
Net investment income | 2.78% | 2.30% | 2.86% | |||||||||
Supplemental data | ||||||||||||
Net assets, end of period (000’s) | $29,408 | $25,125 | $23,058 | |||||||||
Portfolio turnover rate | 135.94% | 317.70% | 511.62% |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(f).
gBenefit of expense reduction rounds to less than 0.01%.
14 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Statement of Investments, November 30, 2017 (unaudited)
Franklin K2 Long Short Credit Fund
Country | Shares/Rights | Value | ||||||||||
Common Stocks and Other Equity Interests 1.9% | ||||||||||||
Consumer Finance 0.3% | ||||||||||||
a,b iPayment Inc. | United States | 466,839 | $ | 256,761 | ||||||||
|
| |||||||||||
Equity Real Estate Investment Trusts (REITs) 0.2% | ||||||||||||
a iStar Inc. | United States | 3,186 | 36,639 | |||||||||
c The Macerich Co. | United States | 1,142 | 73,945 | |||||||||
Uniti Group Inc. | United States | 3,750 | 60,375 | |||||||||
|
| |||||||||||
170,959 | ||||||||||||
|
| |||||||||||
Independent Power & Renewable Electricity Producers 1.2% | ||||||||||||
NRG Yield Inc., A | United States | 33,948 | 638,562 | |||||||||
c NRG Yield Inc., C | United States | 20,086 | 382,638 | |||||||||
|
| |||||||||||
1,021,200 | ||||||||||||
|
| |||||||||||
Media 0.1% | ||||||||||||
a,d Postmedia Network Canada Corp. | Canada | 56,068 | 86,917 | |||||||||
|
| |||||||||||
Multiline Retail 0.1% | ||||||||||||
Hudson’s Bay Co. | Canada | 3,685 | 32,304 | |||||||||
|
| |||||||||||
Pharmaceuticals 0.0%† | ||||||||||||
a Sanofi, Contingent Value, rts., 12/31/20 | France | 26,594 | 9,840 | |||||||||
|
| |||||||||||
Road & Rail 0.0%† | ||||||||||||
a Hertz Global Holdings Inc. | United States | 1,356 | 25,696 | |||||||||
|
| |||||||||||
Total Common Stocks and Other Equity Interests | ||||||||||||
(Cost $1,386,220) |
| 1,603,677 | ||||||||||
|
| |||||||||||
Convertible Preferred Stocks (Cost $158,563) 0.2% | ||||||||||||
Independent Power & Renewable Electricity Producers 0.2% | ||||||||||||
a,d Dynegy Inc., 7.00%, cvt. pfd | United States | 2,582 | 212,628 | |||||||||
|
| |||||||||||
Preferred Stocks 0.4% | ||||||||||||
Consumer Finance 0.3% | ||||||||||||
a,b iPayment Inc., pfd | United States | 2,989 | 298,900 | |||||||||
|
| |||||||||||
Thrifts & Mortgage Finance 0.1% | ||||||||||||
a FHLMC, 8.375%, pfd., Z | United States | 7,884 | 52,429 | |||||||||
a FNMA, 8.25%, pfd., S | United States | 4,600 | 30,774 | |||||||||
|
| |||||||||||
|
83,203
|
| ||||||||||
|
| |||||||||||
Total Preferred Stocks (Cost $384,709) |
|
382,103
|
| |||||||||
|
| |||||||||||
Principal Amount* | ||||||||||||
Convertible Bonds 1.9% | ||||||||||||
Energy Equipment & Services 0.5% | ||||||||||||
d Weatherford International Ltd., senior note, 5.875%, 7/01/21 | United States | 405,000 | 406,772 | |||||||||
|
| |||||||||||
Equity Real Estate Investment Trusts (REITs) 0.5% | ||||||||||||
e iStar Inc., senior note, 144A, 3.125%, 9/15/22 | United States | 456,000 | 458,565 | |||||||||
|
| |||||||||||
Independent Power & Renewable Electricity Producers 0.5% | ||||||||||||
e NRG Yield Inc., senior note, 144A, 3.50%, 2/01/19 | United States | 217,000 | 220,933 | |||||||||
d Pattern Energy Group Inc., senior note, 4.00%, 7/15/20 | United States | 204,000 | 209,482 | |||||||||
|
| |||||||||||
|
430,415 |
| ||||||||||
|
| |||||||||||
Pharmaceuticals 0.2% | ||||||||||||
Teva Pharmaceutical Finance Co. LLC, senior bond, 0.25%, 2/01/26 | Israel | 202,000 | 175,109 | |||||||||
|
|
franklintempleton.com | Semiannual Report | 15 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||
| ||||||||||||
Convertible Bonds (continued) | ||||||||||||
Semiconductors & Semiconductor Equipment 0.2% | ||||||||||||
Sunpower Corp., senior note, 4.00%, 1/15/23 | United States | 156,000 | $ | 134,355 | ||||||||
|
| |||||||||||
Total Convertible Bonds (Cost $1,625,352) | 1,605,216 | |||||||||||
|
| |||||||||||
Corporate Bonds and Notes 34.5% | ||||||||||||
Banks 0.3% | ||||||||||||
d JPMorgan Chase & Co., senior bond, 3.782% to 2/01/27, FRN thereafter, 2/01/28 | United States | 276,000 | 284,319 | |||||||||
|
| |||||||||||
Capital Markets 0.3% | ||||||||||||
Deutsche Bank AG, zero cpn., 2/15/18 | Egypt | 3,950,000 | EGP | 215,820 | ||||||||
|
| |||||||||||
Commercial Services & Supplies 2.5% | ||||||||||||
e Harland Clarke Holdings Corp., senior note, 144A, 9.25%, 3/01/21 | United States | 1,346,000 | 1,371,238 | |||||||||
R.R. Donnelley & Sons Co., | ||||||||||||
senior bond, 6.50%, 11/15/23 | United States | 346,000 | 333,890 | |||||||||
d senior bond, 6.00%, 4/01/24 | United States | 221,000 | 207,187 | |||||||||
senior bond, 6.625%, 4/15/29 | United States | 20,000 | 18,400 | |||||||||
d senior note, 7.00%, 2/15/22 | United States | 231,000 | 240,529 | |||||||||
|
| |||||||||||
|
2,171,244 |
| ||||||||||
|
| |||||||||||
Communications Equipment 0.2% | ||||||||||||
e Riverbed Technology Inc., senior note, 144A, 8.875%, 3/01/23 | United States | 184,000 | 173,880 | |||||||||
|
| |||||||||||
Construction & Engineering 0.1% | ||||||||||||
Engility Corp., senior note, 8.875%, 9/01/24 | United States | 91,000 | 98,166 | |||||||||
Great Lakes Dredge & Dock Corp., senior note, 8.00%, 5/15/22 | United States | 21,000 | 22,208 | |||||||||
|
| |||||||||||
120,374 | ||||||||||||
|
| |||||||||||
Construction Materials 0.4% | ||||||||||||
d,e Standard Industries Inc., senior note, 144A, 5.50%, 2/15/23 | United States | 313,000 | 329,433 | |||||||||
|
| |||||||||||
Consumer Finance 1.5% | ||||||||||||
e,f Everi Payments Inc., senior note, 144A, 7.50%, 12/15/25 | United States | 716,000 | 717,575 | |||||||||
e iPayment Inc., second lien, 144A, 10.75%, 4/15/24 | United States | 470,000 | 534,038 | |||||||||
|
| |||||||||||
1,251,613 | ||||||||||||
|
| |||||||||||
Containers & Packaging 1.3% | ||||||||||||
e Coveris Holdings SA, senior note, 144A, 7.875%, 11/01/19 | Luxembourg | 574,000 | 578,305 | |||||||||
d Reynolds Group Issuer Inc. / Reynolds Group Issuer LLC / Reynolds Group Issuer | ||||||||||||
Luxembourg SA, senior secured note, first lien, 6.875%, 2/15/21 | United States | 486,102 | 496,735 | |||||||||
|
| |||||||||||
1,075,040 | ||||||||||||
|
| |||||||||||
Diversified Financial Services 2.3% | ||||||||||||
g Citigroup Global Markets Holdings Inc., senior note, Reg S, zero cpn., 3/15/18 | Egypt | 9,342,693 | EGP | 503,819 | ||||||||
g Garfunkelux Holdco 3 SA, senior secured note, first lien, Reg S, 8.50%, 11/01/22 | Luxembourg | 100,000 | GBP | 143,973 | ||||||||
e Opal Acquisition Inc., 144A, | ||||||||||||
second lien, 10.00%, 10/01/24 | United States | 676,000 | 584,740 | |||||||||
senior secured note, first lien, 7.50%, 7/01/24 | United States | 788,000 | 760,420 | |||||||||
|
| |||||||||||
|
1,992,952 |
| ||||||||||
|
| |||||||||||
Diversified Telecommunication Services 2.1% | ||||||||||||
Frontier Communications Corp., senior note, 11.00%, 9/15/25 | United States | 226,000 | 174,585 | |||||||||
d,e Intelsat Jackson Holdings SA, senior secured note, first lien, 144A, | ||||||||||||
9.50%, 9/30/22 | Luxembourg | 709,000 | 820,668 | |||||||||
8.00%, 2/15/24 | Luxembourg | 113,000 | 119,780 | |||||||||
e,f Telenet Finance Luxembourg Notes Sarl, senior secured bond, 144A, 5.50%, 3/01/28 | Belgium | 111,000 | 110,918 |
16 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||
Diversified Telecommunication Services (continued) e Windstream Corp., senior note, 144A, 8.625%, 10/31/25 | United States | 610,000 | $ | 596,287 | ||||||||
|
| |||||||||||
|
1,822,238 |
| ||||||||||
|
| |||||||||||
Electric Utilities 0.3% | ||||||||||||
e Talen Energy Supply LLC, senior note, 144A, 10.50%, 1/15/26 | United States | 207,000 | 209,070 | |||||||||
|
| |||||||||||
Energy Equipment & Services 1.3% | ||||||||||||
e,h FTS International Inc., senior secured note, first lien, 144A, FRN, 8.82%, | ||||||||||||
(3-Month USD LIBOR + 7.50%), 6/15/20 | United States | 199,000 | 202,980 | |||||||||
e Transocean Inc., senior note, 144A, | ||||||||||||
d 9.00%, 7/15/23 | United States | 107,000 | 115,961 | |||||||||
7.50%, 1/15/26 | United States | 563,000 | 579,890 | |||||||||
Weatherford International Ltd., senior bond, 9.625%, 3/01/19 | United States | 88,000 | 94,160 | |||||||||
senior note, 5.125%, 9/15/20 | United States | 147,000 | 147,000 | |||||||||
|
| |||||||||||
|
1,139,991 |
| ||||||||||
|
| |||||||||||
Equity Real Estate Investment Trusts (REITs) 0.4% | ||||||||||||
Communications Sales & Leasing Inc., senior note, 8.25%, 10/15/23 | United States | 150,000 | 144,375 | |||||||||
e Uniti Group LP / Uniti Fiber Holdings Inc. / CSL Capital LLC, senior note, 144A, 7.125%, 12/15/24 | United States | 173,000 | 157,862 | |||||||||
|
| |||||||||||
|
302,237 |
| ||||||||||
|
| |||||||||||
Food & Staples Retailing 0.2% | ||||||||||||
g ESAL GmbH, senior note, Reg S, 6.25%, 2/05/23 | Brazil | 111,000 | 106,665 | |||||||||
g JBS Investments GmbH, senior note, Reg S, 7.25%, 4/03/24 | Brazil | 46,000 | 45,814 | |||||||||
|
| |||||||||||
|
152,479 |
| ||||||||||
|
| |||||||||||
Health Care Providers & Services 0.5% | ||||||||||||
d HCA Inc., senior secured bond, first lien, 5.25%, 4/15/25 | United States | 153,000 | 163,327 | |||||||||
Kindred Healthcare Inc., senior note, 8.75%, 1/15/23 | United States | 282,000 | 283,410 | |||||||||
|
| |||||||||||
|
446,737 |
| ||||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure 2.1% | ||||||||||||
e Golden Nugget Inc., senior note, 144A, 8.75%, 10/01/25 | United States | 417,000 | 434,722 | |||||||||
d,e Jack Ohio Finance LLC / Jack Ohio Finance 1 Corp., senior secured note, second lien, 144A, 10.25%, 11/15/22 | United States | 634,000 | 698,193 | |||||||||
e Mohegan Gaming & Entertainment, senior note, 144A, 7.875%, 10/15/24 | United States | 590,000 | 623,925 | |||||||||
|
| |||||||||||
|
1,756,840 |
| ||||||||||
|
| |||||||||||
Household Durables 1.3% | ||||||||||||
e K Hovnanian Enterprises Inc., 144A, secured note, 10.00%, 7/15/22 | United States | 273,000 | 298,935 | |||||||||
secured note, second lien, 10.50%, 7/15/24 | United States | 693,000 | 770,962 | |||||||||
senior note, 8.00%, 11/01/19 | United States | 48,000 | 51,240 | |||||||||
|
| |||||||||||
|
1,121,137 |
| ||||||||||
|
| |||||||||||
Household Products 0.3% | ||||||||||||
e Kronos Acquisition Holdings Inc., senior note, 144A, 9.00%, 8/15/23 | Canada | 224,000 | 211,120 | |||||||||
|
| |||||||||||
Independent Power & Renewable Electricity Producers 0.4% | ||||||||||||
d,e Atlantica Yield PLC, senior note, 144A, 7.00%, 11/15/19 | Spain | 351,000 | 377,325 | |||||||||
|
|
franklintempleton.com | Semiannual Report | 17 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||
Machinery 0.3% | ||||||||||||
e Navistar International Corp., senior note, 144A, 6.625%, 11/01/25 | United States | 189,000 | $ | 196,207 | ||||||||
e Titan International Inc., senior secured note, 144A, 6.50%, 11/30/23 | United States | 66,000 | 65,815 | |||||||||
|
| |||||||||||
|
262,022 |
| ||||||||||
|
| |||||||||||
Media 5.8% | ||||||||||||
e American Media Inc., 144A, secured note, second lien, 5.50%, 9/01/21 | United States | 205,232 | 232,682 | |||||||||
sub. note, zero cpn., 3/01/22 | United States | 2,417,010 | 2,175,309 | |||||||||
e Lee Enterprises Inc., senior secured note, first lien, 144A, 9.50%, 3/15/22 | United States | 470,000 | 486,450 | |||||||||
The McClatchy Co., senior bond, 7.15%, 11/01/27 | United States | 124,000 | 129,890 | |||||||||
senior bond, 6.875%, 3/15/29 | United States | 524,000 | 483,390 | |||||||||
senior secured note, first lien, 9.00%, 12/15/22 | United States | 97,000 | 101,426 | |||||||||
d,e,i Postmedia Network Inc., secured note, second lien, 144A, PIK, 10.25%, 7/15/23 | Canada | 482,711 | 552,101 | |||||||||
e Time Inc., senior note, 144A, | United States | 658,000 | 690,077 | |||||||||
7.50%, 10/15/25 | United States | 95,000 | 111,625 | |||||||||
|
| |||||||||||
|
4,962,950 |
| ||||||||||
|
| |||||||||||
Mortgage Real Estate Investment Trusts (REITs) 0.9% | ||||||||||||
g JP Morgan Structured Products BV, senior note, Reg S, zero cpn., 1/18/18 | Egypt | 13,837,000 | EGP | 765,530 | ||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels 5.1% | ||||||||||||
Calumet Specialty Products Partners LP / Calumet Finance Corp., senior note, 7.625%, 1/15/22 | United States | 107,000 | 107,802 | |||||||||
e Cheniere Corpus Christi Holdings LLC, secured bond, 144A, 5.125%, 6/30/27 | United States | 153,000 | 158,546 | |||||||||
e CONSOL Mining Corp., secured note, second lien, 144A, 11.00%, 11/15/25 | United States | 140,000 | 141,050 | |||||||||
e Endeavor Energy Resources LP / EER Finance Inc., senior note, 144A, 5.50%, 1/30/26 | United States | 38,000 | 38,522 | |||||||||
g,h EP PetroEcuador via Noble Sovereign Funding I Ltd., FRN, Reg S, 6.961%, (3-Month USD LIBOR + 5.63%), 9/24/19 | Ecuador | 105,263 | 107,895 | |||||||||
Petrobras Global Finance BV, senior note, | Brazil | 102,000 | 106,335 | |||||||||
8.375%, 5/23/21 | Brazil | 298,000 | 339,273 | |||||||||
6.125%, 1/17/22 | Brazil | 377,000 | 402,447 | |||||||||
6.25%, 3/17/24 | Brazil | 168,000 | 179,063 | |||||||||
Petroleos Mexicanos, senior note, 6.375%, 2/04/21 | Mexico | 108,000 | 118,260 | |||||||||
6.875%, 8/04/26 | Mexico | 59,000 | 67,360 | |||||||||
g,h FRN, Reg S, 4.967%, (3-Month USD LIBOR + 3.65%), 3/11/22 | Mexico | 66,000 | 72,534 | |||||||||
g Reg S, 5.375%, 3/13/22 | Mexico | 75,000 | 80,363 | |||||||||
g Reg S, 1.875%, 4/21/22 | Mexico | 200,000 | EUR | 244,729 | ||||||||
g Reg S, 3.75%, 2/21/24 | Mexico | 100,000 | EUR | 128,266 | ||||||||
d,e Sable Permian Resources Land LLC, senior secured note, first lien, 144A, | ||||||||||||
13.00%, 11/30/20 | United States | 1,255,000 | 1,471,488 | |||||||||
d Whiting Petroleum Corp., senior note, 5.00%, 3/15/19 | United States | 542,000 | 548,775 | |||||||||
|
| |||||||||||
|
4,312,708 |
| ||||||||||
|
| |||||||||||
Paper & Forest Products 2.4% | ||||||||||||
d Resolute Forest Products Inc., senior note, 5.875%, 5/15/23 | United States | 1,965,000 | 2,038,687 | |||||||||
|
| |||||||||||
Personal Products 0.2% | ||||||||||||
e Avon International Operations Inc., senior secured note, first lien, 144A, 7.875%, 8/15/22 | United Kingdom | 189,000 | 192,249 | |||||||||
|
|
18 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||
| ||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||
Semiconductors & Semiconductor Equipment 0.4% | ||||||||||||
e Broadcom Corp. / Broadcom Cayman Finance Ltd., senior bond, 144A, 3.50%, 1/15/28 | United States | 355,000 | $ | 337,214 | ||||||||
|
| |||||||||||
Specialty Retail 1.3% | ||||||||||||
e PetSmart Inc., 144A, | ||||||||||||
senior note, 7.125%, 3/15/23 | United States | 17,000 | 12,452 | |||||||||
senior note, 8.875%, 6/02/25 | United States | 420,000 | 317,100 | |||||||||
d senior secured note, first lien, 5.875%, 6/01/25 | United States | 890,000 | 769,850 | |||||||||
|
| |||||||||||
|
1,099,402 |
| ||||||||||
|
| |||||||||||
Trading Companies & Distributors 0.0%† | ||||||||||||
g Noble Group Ltd., senior note, Reg S, | ||||||||||||
3.625%, 3/20/18 | Hong Kong | 17,000 | 8,585 | |||||||||
8.75%, 3/09/22 | Hong Kong | 34,000 | 14,010 | |||||||||
|
| |||||||||||
|
22,595 |
| ||||||||||
|
| |||||||||||
Wireless Telecommunication Services 0.3% | ||||||||||||
Digicel Group Ltd., | ||||||||||||
g Reg S, 8.25%, 9/30/20 | Bermuda | 150,000 | 144,902 | |||||||||
e senior note, 144A, 8.25%, 9/30/20 | Bermuda | 132,000 | 127,513 | |||||||||
|
| |||||||||||
272,415 | ||||||||||||
|
| |||||||||||
Total Corporate Bonds and Notes (Cost $27,137,860) |
|
29,419,621 |
| |||||||||
|
| |||||||||||
Foreign Government and Agency Securities 3.3% | ||||||||||||
g Africa Finance Corp., senior note, Reg S, 3.875%, 4/13/24 | Supranational | 200,000 | 202,057 | |||||||||
Banco Central de la República Argentina SA, zero cpn., 6/13/18 | Argentina | 7,282,561 ARS | 361,599 | |||||||||
g Eastern and Southern African Trade and Development Bank, senior note, Reg S, 5.375%, 3/14/22 | Supranational | 200,000 | 210,561 | |||||||||
Government of Argentina, 7.82%, 12/31/33 | Argentina | 276,597 EUR | 377,503 | |||||||||
2.26% to 3/31/19, 4.74% thereafter, 12/31/38 | Argentina | 328,282 EUR | 279,117 | |||||||||
h senior note, FRN, 27.493%, (ARPP7DRR), 6/21/20 | Argentina | 862,341 ARS | 53,442 | |||||||||
g senior note, Reg S, 3.875%, 1/15/22 | Argentina | 200,000 EUR | 248,922 | |||||||||
senior note, 5.625%, 1/26/22 | Argentina | 131,000 | 137,812 | |||||||||
g Government of Ecuador, senior note, Reg S, 10.75%, 3/28/22 | Ecuador | 200,000 | 231,500 | |||||||||
g Government of Paraguay, senior note, Reg S, 4.625%, 1/25/23 | Paraguay | 200,000 | 211,450 | |||||||||
Government of Russia, 7.40%, 12/07/22 | Russia | 9,315,000 RUB | 161,889 | |||||||||
g National Highways Authority of India, senior note, Reg S, 7.30%, 5/18/22 | India | 20,000,000 INR | 316,089 | |||||||||
|
| |||||||||||
Total Foreign Government and Agency Securities | ||||||||||||
(Cost $2,555,967) | 2,791,941 | |||||||||||
|
| |||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed | ||||||||||||
Diversified Financial Services 8.0% | ||||||||||||
e Club Credit 2017-NP1 Trust, B, 144A, 3.17%, 4/17/23 | United States | 250,000 | 250,530 | |||||||||
k Equity One Mortgage Pass-Through 2002-2 Trust, AV1, FRN, 1.798%, (1-Month | ||||||||||||
USD LIBOR + 0.28%), 10/25/32 | United States | 370,263 | 332,767 | |||||||||
k GSAMP 2004-HE2 Trust, M2, FRN, 2.979%, (1-Month USD LIBOR + 1.65%), 9/25/34 | United States | 151,063 | 147,036 | |||||||||
e,k Katonah Ltd 2008-IA Trust, B1L, 144A, FRN, 4.363%, (3-Month USD LIBOR + 3.00%), 4/23/22 | United States | 1,000,000 | 1,002,655 | |||||||||
k National Collegiate Student Loan 2007-4 Trust, A3A2, FRN, 4.828%, (28 Day T-Bill), 3/25/38 | United States | 1,000,000 | 953,602 | |||||||||
e,k Palmer Square CLO Ltd. 2017-1A, 144A, FRN, 4.816%, (3-Month USD LIBOR + 3.50%), 5/21/29 | United States | 1,000,000 | 1,021,169 |
franklintempleton.com | Semiannual Report | 19 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed | ||||||||||||
Diversified Financial Services (continued) | ||||||||||||
e Prosper Marketplace Issuance 2017-2A Trust, B, 144A, 3.48%, 9/15/23 | United States | 200,000 | $ | 201,143 | ||||||||
k RAAC Series Trust, FRN, | ||||||||||||
2005-SP3, M3, 3.829%, (1-Month USD LIBOR + 2.50%), 12/25/35 | United States | 800,000 | 808,002 | |||||||||
2007-SP1, M1, 1.808%, (1-Month USD LIBOR + 0.57%), 3/25/37 | United States | 100,000 | 98,857 | |||||||||
e S-Jets Ltd. 2017-1, A, 144A, 3.967%, 8/15/42 | Bermuda | 983,333 | 989,654 | |||||||||
e VOLT LVII LLC 2017-NPL4, A1, 144A, 3.375%, 4/25/47 | United States | 407,116 | 410,425 | |||||||||
e,k Westchester CLO Ltd. 2007-1A, E, 144A, FRN, 5.677%, (3-Month USD LIBOR + 4.30%), 8/01/22 | United States | 595,616 | 597,386 | |||||||||
|
| |||||||||||
|
6,813,226 |
| ||||||||||
|
| |||||||||||
Mortgage Real Estate Investment Trusts (REITs) 26.1% | ||||||||||||
j American Home Mortgage Assets 2005-1 Trust, 1A1, FRN, 3.647%, 11/25/35 | United States | 229,432 | 205,089 | |||||||||
e,k BAMLL Commercial Mortgage Securities 2015-ASHF Trust, E, 144A, FRN, 5.25%, (1-Month USD LIBOR + 4.00%), 1/15/28 | United States | 1,000,000 | 1,005,259 | |||||||||
j Banc of America Mortgage 2005-L Trust, 3A1, FRN, 3.429%, 1/25/36 | United States | 544,597 | 510,666 | |||||||||
e,j BCAP LLC Trust, 144A, FRN, | ||||||||||||
2009-RR6, 3A1, 3.523%, 12/26/37 | United States | 568,807 | 569,742 | |||||||||
2010-RR1, 1A4, 3.466%, 3/26/37 | United States | 495,867 | 430,440 | |||||||||
j Bear Stearns ARM 2006-2 Trust, 4A1, FRN, 3.512%, 7/25/36 | United States | 88,779 | 83,966 | |||||||||
e,k BX 2017-APPL Trust, E, 144A, FRN, 4.40%, (1-Month USD LIBOR + 3.15%), 7/15/34 | United States | 1,750,000 | 1,761,801 | |||||||||
j Chase Mortgage Finance Series 2007-A2 Trust, 2A2, FRN, 3.577%, 7/25/37 | United States | 424,254 | 427,297 | |||||||||
Citigroup Mortgage Loan Trust, | ||||||||||||
j 2006-AR7, 2A4A, FRN, 3.355%, 11/25/36 | United States | 630,398 | 540,292 | |||||||||
e,k 2008-RR1, A1A1, 144A, FRN, 1.398%, (1-Month USD LIBOR + 0.07%), 1/25/37 | United States | 929,262 | 742,739 | |||||||||
e 2009-8, 2A2, 144A, 6.10%, 4/25/37 | United States | 437,178 | 332,246 | |||||||||
COMM Mortgage 2006-C8 Trust, AJ, 5.377%, 12/10/46 | United States | 1,590,825 | 1,602,904 | |||||||||
Countrywide Alternative Loan Trust, | ||||||||||||
2005-73CB, 1A2, 6.25%, 1/25/36 | United States | 251,158 | 255,585 | |||||||||
k 2005-IM1, A1, FRN, 1.629%, (1-Month USD LIBOR + 0.30%), 1/25/36 | United States | 216,209 | 207,587 | |||||||||
2006-4CB, 2A3, 5.50%, 4/25/36 | United States | 114,803 | 109,833 | |||||||||
Credit Suisse First Boston Mortgage Securities Corp. 2002-9, 1A2, 7.50%, 3/25/32 | United States | 565,658 | 642,595 | |||||||||
CSMC Mortgage-Backed 2006-4 Trust, 9A1, 6.50%, 5/25/36 | United States | 884,666 | 557,514 | |||||||||
k DSLA Mortgage Loan 2006-AR1 Trust, 2A1A, FRN, 1.884%, (12-Month Treasury | ||||||||||||
Average + 0.94%), 4/19/47 | United States | 1,160,880 | 1,125,741 | |||||||||
e,j FHLM Seasoned Credit Risk Transfer 2017-2 Trust, M1, 144A, FRN, | United States | 400,000 | 392,250 | |||||||||
j GSAA Home Equity 2006-18 Trust, AF2A, FRN, 5.629%, 11/25/36 | United States | 370,417 | 205,602 | |||||||||
Home Equity Mortgage 2004-6 Trust, M2, 5.821%, 4/25/35 | United States | 233,323 | 235,941 | |||||||||
e,k Hyatt Hotel Portfolio 2017-HYT2 Trust, F, 144A, FRN, 4.302%, (1-Month USD LIBOR + 3.05%), 8/09/32 | United States | 475,000 | 476,314 | |||||||||
k Impac CMB Trust, FRN, | ||||||||||||
2004-8, 3B, 3.863%, (1-Month USD LIBOR + 2.63%), 8/25/34 | United States | 186,641 | 180,200 | |||||||||
2004-9, 1A2, 2.112%, (1-Month USD LIBOR + 0.88%), 1/25/35 | United States | 890,191 | 839,803 | |||||||||
2005-2, 2B, 3.707%, (1-Month USD LIBOR + 2.48%), 4/25/35 | United States | 216,392 | 206,575 | |||||||||
2005-4, 2B1, 3.713%, (1-Month USD LIBOR + 2.48%), 5/25/35 | United States | 202,782 | 194,842 | |||||||||
k IndyMac Home Equity Loan Asset-Backed 2001-A Trust, AV, FRN, 1.849%, (1-Month USD LIBOR + 0.52%), 3/25/31 | United States | 754,344 | 731,041 | |||||||||
IndyMac INDX Mortgage Loan Trust, FRN, | ||||||||||||
k 2004-AR14, 2A1A, 2.049%, (1-Month USD LIBOR + 0.72%), 1/25/35 | United States | 795,005 | 659,203 | |||||||||
k 2005-16IP, A1, 1.969%, (1-Month USD LIBOR + 0.64%), 7/25/45 | United States | 326,244 | 316,049 | |||||||||
k 2006-AR29, A2, 1.409%, (1-Month USD LIBOR + 0.08%), 11/25/36 | United States | 233,342 | 218,027 | |||||||||
j 2007-AR15, 2A1, 3.537%, 8/25/37 | United States | 496,480 | 436,696 |
20 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||
| ||||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed | ||||||||||||
Mortgage Real Estate Investment Trusts (REITs) (continued) | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Trust, | ||||||||||||
2006-LDP9, AM, 5.372%, 5/15/47 | United States | 247,202 | $ | 248,900 | ||||||||
j 2007-LD11, AM, FRN, 5.99%, 6/15/49 | United States | 241,354 | 245,855 | |||||||||
j JPMorgan Mortgage Trust, FRN, | ||||||||||||
2006-A5, 6A1, 3.221%, 8/25/36 | United States | 528,222 | 452,033 | |||||||||
2007-A2, 2A1, 3.575%, 4/25/37 | United States | 353,949 | 347,055 | |||||||||
j MASTR Seasoned Securitization 2004-1 Trust, 4A1, FRN, 3.573%, 10/25/32 | United States | 83,563 | 84,705 | |||||||||
j Merrill Lynch Mortgage Investors MLMI Series 2003-A2 Trust, 1M1, FRN, 3.107%, 3/25/33 | United States | 309,827 | 219,127 | |||||||||
e,k Motel 6 2017-MTL6 Trust, E, 144A, FRN, 4.496%, (1-Month USD LIBOR + 3.25%), 8/15/34 | United States | 398,488 | 401,506 | |||||||||
j Provident Funding Mortgage Loan 2003-1 Trust, B1, FRN, 3.288%, 8/25/33 | United States | 96,644 | 91,107 | |||||||||
k Securitized Asset Backed Receivables LLC 2004-OP2 Trust, A2, FRN, 2.029%, | United States | 199,024 | 182,517 | |||||||||
k Sequoia Mortgage 2004-5 Trust, B1, FRN, 2.003%, (1-Month USD LIBOR + 0.72%), 6/20/34 | United States | 348,116 | 320,378 | |||||||||
j Structured Adjustable Rate Mortgage Loan Series 2004-4 Trust, B1, FRN, 3.509%, 4/25/34 | United States | 472,758 | 396,595 | |||||||||
j Wachovia Bank Commercial Mortgage Series 2007-C31 Trust, AJ, FRN, 5.66%, 4/15/47 | United States | 1,656,407 | 1,683,804 | |||||||||
k WAMU Asset-Backed Certificates 2007-HE2 Trust, 2A4, FRN, 1.689%, (1-Month USD LIBOR + 0.36%), 4/25/37 | United States | 362,823 | 208,542 | |||||||||
k WaMu Mortgage Pass-Through Certificates 2007-OA3 Trust, 2A1A, FRN, 1.761%, (1 Year CMT + 0.76%), 4/25/47 | United States | 83,583 | 83,284 | |||||||||
k Washington Mutual Mortgage Pass-Through Certificates 2006-4, 3A2B, FRN, 1.317%, (1-Month USD LIBOR + 0.08%), 5/25/36 | United States | 425,471 | 299,042 | |||||||||
j Washington Mutual MSC Mortgage Pass-Through Certificates Series Trust, FRN, | ||||||||||||
2003-AR2, M, 2.847%, 5/25/33 | United States | 182,308 | 159,481 | |||||||||
2003-AR3, B1, 3.354%, 6/25/33 | United States | 416,352 | 370,888 | |||||||||
j Wells Fargo Mortgage Backed Securities 2004-G Trust, B1, FRN, 3.355%, 6/25/34 | United States | 282,633 | 261,173 | |||||||||
|
| |||||||||||
|
22,259,831 |
| ||||||||||
|
| |||||||||||
Total Asset-Backed Securities and Commercial Mortgage-Backed | 29,073,057 | |||||||||||
|
|
Country | Number of Contracts | Notional Amount* | ||||||||||||||
|
|
|
|
|
| |||||||||||
Options Purchased 0.1% | ||||||||||||||||
Calls – Exchange-Traded 0.0%† | ||||||||||||||||
AMC Entertainment Holdings Inc., December Strike Price $17.00, Expires 12/15/17 | United States | 19 | 1,900 | 437 | ||||||||||||
Frontier Communications Corp., January Strike Price $12.00, Expires 1/19/18 | United States | 37 | 3,700 | 370 | ||||||||||||
The Macerich Co., December Strike Price $70.00, Expires 12/15/17 | United States | 32 | 3,200 | 1,472 | ||||||||||||
The Macerich Co., March Strike Price $65.00, Expires 3/16/18 | United States | 16 | 1,600 | 6,400 | ||||||||||||
Sinclair Broadcast Group Inc., December Strike Price $35.00, Expires 12/15/17 | United States | 179 | 17,900 | 10,919 | ||||||||||||
SunPower Corp., January Strike Price $9.00, Expires 1/19/18 | United States | 75 | 7,500 | 2,850 | ||||||||||||
|
| |||||||||||||||
|
22,448 |
| ||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 21 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Number of Contracts | Notional Amount* | Value | |||||||||||||
Options Purchased (continued) | ||||||||||||||||
Calls – Over-the-Counter 0.0%† | ||||||||||||||||
Interest Rate Swaptions 0.0%† | ||||||||||||||||
Receive fixed 2.05%, Counterparty GSCO, pay float 3-month USD LIBOR, Expires 4/13/18 | United States | 1 | 1,188,000 | $ | 2,500 | |||||||||||
|
| |||||||||||||||
Puts – Exchange-Traded 0.1% | ||||||||||||||||
American Axle & Manufacturing Holdings Inc., January Strike Price $15.00, Expires 1/18/19 | United States | 29 | 2,900 | 4,857 | ||||||||||||
Express Scripts Holding Co., May Strike Price $50.00, Expires 5/18/18 | United States | 59 | 5,900 | 5,251 | ||||||||||||
GameStop Corp., January Strike Price $10.00, Expires 1/18/19 | United States | 93 | 9,300 | 7,347 | ||||||||||||
Hertz Global Holdings Inc., January Strike Price $20.00, Expires 1/18/19 | United States | 27 | 2,700 | 14,040 | ||||||||||||
Horizon Pharma PLC, February Strike Price $10.00, Expires 2/16/18 | United States | 101 | 10,100 | 1,263 | ||||||||||||
iShares Russell 2000 ETF, December Strike Price $145.00, | United States | 57 | 5,700 | 57 | ||||||||||||
Mallinckrodt PLC, January Strike Price $20.00, Expires 1/18/19 | United States | 38 | 3,800 | 14,402 | ||||||||||||
PG&E Corp., December Strike Price $45.00, Expires 12/15/17 | United States | 19 | 1,900 | 133 | ||||||||||||
S&P 500 Index, December Strike Price $2,450.00, Expires 12/15/17 | United States | 18 | 1,800 | 2,160 | ||||||||||||
S&P 500 Index, December Strike Price $2,500.00, Expires 12/29/17 | United States | 79 | 7,900 | 34,760 | ||||||||||||
SPDR S&P 500 ETF Trust, December Strike Price $255.00, Expires 12/22/17 | United States | 94 | 9,400 | 5,170 | ||||||||||||
Tesla Inc., January Strike Price $250.00, Expires 1/19/18 | United States | 1 | 100 | 215 | ||||||||||||
|
| |||||||||||||||
|
89,655 |
| ||||||||||||||
|
| |||||||||||||||
Puts – Over-the-Counter 0.0%† | ||||||||||||||||
Currency Options 0.0%† | ||||||||||||||||
SAR/USD, January Strike Price 3.78 SAR, Counterparty GSCO, Expires 1/23/18 | Saudi Arabia | 1 | 2,390,525 | SAR | 588 | |||||||||||
|
| |||||||||||||||
Total Options Purchased (Cost $198,352) | 115,191 | |||||||||||||||
|
| |||||||||||||||
Country | Principal Amount* | |||||||||||||||
|
|
| ||||||||||||||
U.S. Government and Agency Securities 1.3% | ||||||||||||||||
U.S. Treasury Bond, 3.00%, 5/15/47 | United States | 295,800 | 305,223 | |||||||||||||
U.S. Treasury Note, 1.875%, 9/30/22 | United States | 690,000 | 681,671 | |||||||||||||
2.25%, 8/15/27 | United States | 106,000 | 104,344 | |||||||||||||
|
| |||||||||||||||
Total U.S. Government and Agency Securities | 1,091,238 | |||||||||||||||
|
| |||||||||||||||
Total Investments before Short Term Investments | 66,294,672 | |||||||||||||||
|
| |||||||||||||||
Short Term Investments 18.8% | ||||||||||||||||
Foreign Government and Agency Securities | ||||||||||||||||
l Egypt Treasury Bills, 3/06/18 | Egypt | 2,500,000 | EGP | 135,412 | ||||||||||||
|
|
22 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Shares | Value | ||||||||||||
Short-Tem Investments (continued) | ||||||||||||||
Money Market Funds (Cost $13,328,844) 15.6% | ||||||||||||||
m Fidelity Investments Money Market Funds, 0.97% | United States | 13,328,844 | $ | 13,328,844 | ||||||||||
|
| |||||||||||||
Principal Amount* | ||||||||||||||
| ||||||||||||||
Repurchase Agreements (Cost $2,609,960) 3.1% | ||||||||||||||
n Joint Repurchase Agreement, 1.029%, 12/01/17 | ||||||||||||||
(Maturity Value $2,610,035) | United States | 2,609,960 | 2,609,960 | |||||||||||
BNP Paribas Securities Corp. (Maturity Value $2,206,759) | ||||||||||||||
Deutsche Bank Securities Inc. (Maturity Value $116,381) | ||||||||||||||
HSBC Securities (USA) Inc. (Maturity Value $275,855) | ||||||||||||||
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $11,040) | ||||||||||||||
Collateralized by U.S. Government Agency Securities, 1.875%, 9/18/18; iU.S. Treasury Bill, 4/19/18 - 5/31/18; and U.S. Treasury Note, 1.50% - 2.00%, 6/15/20 - 10/31/22 (valued at $2,662,511) | ||||||||||||||
Total Investments (Cost $78,810,426) 96.5% | 82,368,888 | |||||||||||||
Options Written (0.1)% | (37,521 | ) | ||||||||||||
Securities Sold Short (11.7)% | (10,019,865 | ) | ||||||||||||
Other Assets, less Liabilities 15.3% | 13,053,021 | |||||||||||||
|
| |||||||||||||
Net Assets 100.0% | $ | 85,364,523 | ||||||||||||
|
| |||||||||||||
Country | Number of Contracts | Notional Amount* | ||||||||||||
|
|
|
|
| ||||||||||
o Options Written (0.1)% | ||||||||||||||
Calls – Exchange-Traded (0.1)% | ||||||||||||||
The Macerich Co., March Strike Price $75.00, Expires 3/16/18 | United States | 16 | 1,600 | (1,600 | ) | |||||||||
NRG Yield Inc., C, February Strike Price $17.50, Expires 2/16/18 | United States | 71 | 7,100 | (14,378 | ) | |||||||||
NRG Yield Inc., C, February Strike Price $20.00, Expires 2/16/18 | United States | 71 | 7,100 | (3,408 | ) | |||||||||
|
| |||||||||||||
|
(19,386 |
) | ||||||||||||
|
| |||||||||||||
Puts – Exchange-Traded (0.0)%† | ||||||||||||||
NRG Yield Inc., C, June Strike Price $20.00, Expires 6/15/18 | United States | 78 | 7,800 | (18,135 | ) | |||||||||
|
| |||||||||||||
Total Options Written | (37,521 | ) | ||||||||||||
|
| |||||||||||||
Country | Shares | |||||||||||||
|
|
| ||||||||||||
p Securities Sold Short (11.7)% | ||||||||||||||
Common Stocks (0.7)% | ||||||||||||||
Energy Equipment & Services (0.1)% | ||||||||||||||
Weatherford International PLC | United States | 15,052 | (49,671 | ) | ||||||||||
|
| |||||||||||||
Equity Real Estate Investment Trusts (REITs) (0.3)% | ||||||||||||||
Seritage Growth Properties, A | United States | 6,061 | (246,683 | ) | ||||||||||
|
| |||||||||||||
Independent Power & Renewable Electricity Producers (0.3)% | ||||||||||||||
NRG Yield Inc., C | United States | 14,000 | (266,700 | ) | ||||||||||
|
| |||||||||||||
Internet Software & Services (0.0)%† | ||||||||||||||
CoStar Group Inc. | United States | 107 | (32,632 | ) | ||||||||||
|
| |||||||||||||
Oil, Gas & Consumable Fuels (0.0)%† | ||||||||||||||
CONSOL Mining Corp. | United States | 2,000 | (44,000 | ) | ||||||||||
|
| |||||||||||||
Total Common Stocks (Proceeds $667,380) | (639,686 | ) | ||||||||||||
|
|
franklintempleton.com | Semiannual Report | 23 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||||
p Securities Sold Short (continued) | ||||||||||||||
Corporate Bonds and Notes (11.0)% | ||||||||||||||
Air Freight & Logistics (0.2)% | ||||||||||||||
g Autostrade per l’italia SpA E, senior bond, Reg S, 1.75%, 2/01/27 | Italy | 137,000 | EUR | $ | (169,838 | ) | ||||||||
|
| |||||||||||||
Auto Components (0.1)% | ||||||||||||||
e American Axle & Manufacturing Inc., 144A, | United States | 40,000 | (41,400 | ) | ||||||||||
senior note, 6.25%, 4/01/25 | United States | 68,000 | (70,040 | ) | ||||||||||
|
| |||||||||||||
|
(111,440 |
) | ||||||||||||
|
| |||||||||||||
Automobiles (0.3)% | ||||||||||||||
Ford Motor Co., senior bond, 4.346%, 12/08/26 | United States | 210,000 | (218,980 | ) | ||||||||||
|
| |||||||||||||
Chemicals (0.7)% | ||||||||||||||
e CVR Partners LP / CVR Nitrogen Finance Corp., | United States | 273,000 | (290,404 | ) | ||||||||||
g K+S AG, Reg S, | ||||||||||||||
senior bond, 3.00%, 6/20/22 | Germany | 83,000 | EUR | (105,946 | ) | |||||||||
senior note, 2.625%, 4/06/23 | Germany | 134,000 | EUR | (168,272 | ) | |||||||||
|
| |||||||||||||
|
(564,622 |
) | ||||||||||||
|
| |||||||||||||
Commercial Services & Supplies (0.6)% | ||||||||||||||
e Olympus Merger Sub Inc., senior note, 144A, 8.50%, 10/15/25 | United States | 433,000 | (423,799 | ) | ||||||||||
Quad/Graphics Inc., senior note, 7.00%, 5/01/22 | United States | 108,000 | (111,240 | ) | ||||||||||
|
| |||||||||||||
|
(535,039 |
) | ||||||||||||
|
| |||||||||||||
Construction & Engineering (0.0)%† | ||||||||||||||
g Astaldi SpA, senior note, Reg S, 7.125%, 12/01/20 | Italy | 26,000 | EUR | (21,271 | ) | |||||||||
|
| |||||||||||||
Diversified Financial Services (0.2)% | ||||||||||||||
g Garfunkelux Holdco 2 SA, second lien, Reg S, 11.00%, 11/01/23 | Luxembourg | 100,000 | GBP | (147,911 | ) | |||||||||
|
| |||||||||||||
Diversified Telecommunication Services (0.3)% | ||||||||||||||
g Telefonica Emisiones SAU G, senior bond, Reg S, 3.987%, 1/23/23 | Spain | 200,000 | EUR | (279,739 | ) | |||||||||
|
| |||||||||||||
Electric Utilities (0.5)% | ||||||||||||||
g Enel Finance International NV, senior bond, Reg S, 1.375%, 6/01/26 | Italy | 148,000 | EUR | (180,980 | ) | |||||||||
e Talen Energy Supply LLC, senior note, 144A, 9.50%, 7/15/22 | United States | 210,000 | (219,450 | ) | ||||||||||
|
| |||||||||||||
|
(400,430 |
) | ||||||||||||
|
| |||||||||||||
Energy Equipment & Services (0.1)% | ||||||||||||||
e Precision Drilling Corp., senior note, 144A, 7.125%, 1/15/26 | Canada | 109,000 | (110,091 | ) | ||||||||||
|
| |||||||||||||
Equity Real Estate Investment Trusts (REITs) (0.0)%† | ||||||||||||||
e Rayonier AM Products Inc., senior bond, 144A, 5.50%, 6/01/24 | United States | 22,000 | (21,815 | ) | ||||||||||
|
| |||||||||||||
Food & Staples Retailing (0.4)% | ||||||||||||||
e Rite Aid Corp., senior note, 144A, 6.125%, 4/01/23 | United States | 350,000 | (325,062 | ) | ||||||||||
|
| |||||||||||||
Health Care Providers & Services (0.8)% | ||||||||||||||
e Mallinckrodt International Finance SA / Mallinckrodt CB LLC, senior note, 144A, | United States | 615,000 | (570,412 | ) | ||||||||||
5.625%, 10/15/23 | United States | 41,000 | (36,183 | ) | ||||||||||
e West Street Merger Sub Inc., senior note, 144A, 6.375%, 9/01/25 | United States | 109,000 | (110,635 | ) | ||||||||||
|
| |||||||||||||
|
(717,230 |
) | ||||||||||||
|
| |||||||||||||
Hotels, Restaurants & Leisure (0.6)% | ||||||||||||||
e CRC Escrow Issuer LLC / CRC Finco Inc., senior note, 144A, 5.25%, 10/15/25 | United States | 514,000 | (515,285 | ) | ||||||||||
|
|
24 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||
p Securities Sold Short (continued) | ||||||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||||||
Independent Power and Renewable Electricity Producers (0.2)% | ||||||||||||||||
Calpine Corp., senior bond, 5.75%, 1/15/25 | United States | 152,000 | $ | (147,060 | ) | |||||||||||
|
| |||||||||||||||
Internet Software & Services (0.4)% | ||||||||||||||||
e Rackspace Hosting Inc., senior note, 144A, 8.625%, 11/15/24 | United States | 305,000 | (327,875 | ) | ||||||||||||
|
| |||||||||||||||
Machinery (0.4)% | ||||||||||||||||
g Galapagos Holding SA, senior secured note, first lien, Reg S, 7.00%, 6/15/22 | Luxembourg | 117,000 | EUR | (122,661 | ) | |||||||||||
John Deere Capital Corp., senior note, 2.80%, 3/06/23 | United States | 179,000 | (180,479 | ) | ||||||||||||
|
| |||||||||||||||
(303,140 | ) | |||||||||||||||
|
| |||||||||||||||
Media (0.5)% | ||||||||||||||||
e Altice Financing SA, senior secured note, first lien, 144A, 6.50%, 1/15/22 | Luxembourg | 47,000 | (48,645 | ) | ||||||||||||
AMC Entertainment Holdings Inc., senior note, 5.75%, 6/15/25 | United States | 200,000 | (195,750 | ) | ||||||||||||
DISH DBS Corp., senior note, 7.75%, 7/01/26 | United States | 194,000 | (210,005 | ) | ||||||||||||
|
| |||||||||||||||
(454,400 | ) | |||||||||||||||
|
| |||||||||||||||
Multiline Retail (0.5)% | ||||||||||||||||
Kohl’s Corp., senior bond, 4.25%, 7/17/25 | United States | 89,000 | (90,281 | ) | ||||||||||||
Target Corp., senior bond, 3.625%, 4/15/46 | United States | 322,000 | (304,299 | ) | ||||||||||||
|
| |||||||||||||||
(394,580 | ) | |||||||||||||||
|
| |||||||||||||||
Oil, Gas & Consumable Fuels (0.9)% | ||||||||||||||||
e California Resources Corp., secured note, second lien, 144A, 8.00%, 12/15/22 | United States | 308,000 | (229,075 | ) | ||||||||||||
e Denbury Resources Inc., secured note, 144A, 9.00%, 5/15/21 | United States | 151,000 | (146,470 | ) | ||||||||||||
Whiting Petroleum Corp., senior note, | United States | 310,000 | (312,325 | ) | ||||||||||||
6.25%, 4/01/23 | United States | 99,000 | (99,495 | ) | ||||||||||||
|
| |||||||||||||||
(787,365 | ) | |||||||||||||||
|
| |||||||||||||||
Pharmaceuticals (1.3)% | ||||||||||||||||
Actavis Funding SCS, senior bond, 3.80%, 3/15/25 | United States | 403,000 | (406,195 | ) | ||||||||||||
e Horizon Pharma Inc. / Horizon Pharma USA Inc., senior note, 144A, 8.75%, 11/01/24 | United States | 101,000 | (107,313 | ) | ||||||||||||
Mylan NV, senior note, 3.95%, 6/15/26 | United States | 145,000 | (144,819 | ) | ||||||||||||
Teva Pharmaceutical Finance Netherlands III BV, senior note, 2.20%, 7/21/21 | Israel | 202,000 | (185,779 | ) | ||||||||||||
e Valeant Pharmaceuticals International Inc., senior bond, 144A, 6.125%, 4/15/25 | United States | 344,000 | (296,270 | ) | ||||||||||||
|
| |||||||||||||||
(1,140,376 | ) | |||||||||||||||
|
| |||||||||||||||
Road & Rail (0.1)% | ||||||||||||||||
The Hertz Corp., senior note, 7.375%, 1/15/21 | United States | 67,000 | (67,503 | ) | ||||||||||||
|
| |||||||||||||||
Semiconductors & Semiconductor Equipment (0.2)% | ||||||||||||||||
QUALCOMM Inc., senior bond, 3.45%, 5/20/25 | United States | 206,000 | (205,009 | ) | ||||||||||||
|
| |||||||||||||||
Specialty Retail (0.1)% | ||||||||||||||||
e Gamestop Corp., senior note, 144A, 6.75%, 3/15/21 | United States | 95,000 | (99,512 | ) | ||||||||||||
|
| |||||||||||||||
Technology Hardware, Storage & Peripherals (0.4)% | ||||||||||||||||
e Dell International LLC / EMC Corp., senior note, 144A, 7.125%, 6/15/24 | United States | 270,000 | (293,064 | ) | ||||||||||||
|
| |||||||||||||||
Tobacco (0.0)%† | ||||||||||||||||
Alliance One International Inc., senior note, 9.875%, 7/15/21 | United States | 12,000 | (11,085 | ) | ||||||||||||
|
|
franklintempleton.com | Semiannual Report | 25 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||
p Securities Sold Short (continued) | ||||||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||||||
Trading Companies & Distributors (0.9)% | ||||||||||||||||
GATX Corp., senior bond, 4.85%, 6/01/21 | United States | 576,000 | $ | (618,126 | ) | |||||||||||
g Noble Group Ltd., senior bond, Reg S, 6.75%, 1/29/20 | Hong Kong | 327,000 | (136,523 | ) | ||||||||||||
|
| |||||||||||||||
|
(754,649 |
) | ||||||||||||||
|
| |||||||||||||||
Wireless Telecommunication Services (0.3)% | ||||||||||||||||
g Digicel Group Ltd., senior note, Reg S, 7.125%, 4/01/22 | Bermuda | 282,000 | (255,808 | ) | ||||||||||||
|
| |||||||||||||||
Total Corporate Bonds and Notes (Proceeds $9,196,187) | (9,380,179 | ) | ||||||||||||||
|
| |||||||||||||||
Total Securities Sold Short (Proceeds $9,863,567) | $ | (10,019,865 | ) | |||||||||||||
|
|
See Abbreviations on page 49.
†Rounds to less than 0.1% of net assets.
*The principal/notional amount is stated in U.S. dollars unless otherwise indicated.
aNon-income producing.
bFair valued using significant unobservable inputs. See Note 10 regarding fair value measurements.
cA portion or all of the security is held in connection with written option contracts open at period end.
dA portion or all of the security has been segregated as collateral for securities sold short, open swap contracts, open forward exchange contracts, open futures contracts and open written option contracts. At November 30, 2017, the aggregate value of these securities and/or cash pledged amounted to $19,148,108, representing 22.4% of net assets.
eSecurity 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. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At November 30, 2017, the net value of these securities was $26,487,674, representing 31.0% of net assets.
fA portion or all of the security purchased on a delayed delivery basis. See Note 1(d).
gSecurity 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. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At November 30, 2017, the net value of these securities was $2,197,815, representing 2.6% of net assets.
hThe coupon rate shown represents the rate at period end.
iIncome may be received in additional securities and/or cash.
jAdjustable 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.
kThe coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
lThe security was issued on a discount basis with no stated coupon rate.
mThe rate shown is the annualized seven-day yield at period end.
nSee Note 1(c) regarding joint repurchase agreement.
oSee Note 1(e) regarding written options.
pSee Note 1(f) regarding securities sold short.
26 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
At November 30, 2017, 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 | $264,790 | 12/15/17 | $(16,213 | ) | |||||||||||||||||||
Interest Rate Contracts | |||||||||||||||||||||||||
Euro BOBL | Short | 4 | 626,119 | 12/07/17 | 754 | ||||||||||||||||||||
Euro-Bund | Short | 3 | 581,032 | 12/07/17 | (759 | ) | |||||||||||||||||||
Euro-Buxl 30 Yr. Bond | Short | 2 | 397,877 | 12/07/17 | 127 | ||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
|
1,605,028 |
| 122 | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Futures Contracts | $(16,091 | ) | |||||||||||||||||||||||
|
|
*As of period end.
At November 30, 2017, 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 | JPHQ | Buy | 742,376 | 227,068 | 12/04/17 | $ | — | $ | (382 | ) | ||||||||||||||||||||||
Brazilian Real | JPHQ | Sell | 742,376 | 225,815 | 12/04/17 | — | (871 | ) | ||||||||||||||||||||||||
Czech Koruna | JPHQ | Sell | 16,176,151 | 619,100 | EUR | 12/15/17 | 32,154 | (50,328 | ) | |||||||||||||||||||||||
Euro | JPHQ | Buy | 676 | 802 | 12/15/17 | 3 | — | |||||||||||||||||||||||||
Euro | JPHQ | Sell | 619,775 | 16,176,151 | CZK | 12/15/17 | 54,052 | (36,683 | ) | |||||||||||||||||||||||
Indian Rupee | JPHQ | Sell | 17,633,512 | 267,803 | 12/18/17 | — | (5,105 | ) | ||||||||||||||||||||||||
Chinese Yuan | JPHQ | Sell | 2,034,377 | 307,796 | 12/20/17 | 545 | — | |||||||||||||||||||||||||
Euro | JPHQ | Buy | 1,006,254 | 1,196,646 | 12/20/17 | 5,946 | (3,089 | ) | ||||||||||||||||||||||||
Euro | JPHQ | Sell | 1,823,436 | 2,188,206 | 12/20/17 | 16,068 | (1,485 | ) | ||||||||||||||||||||||||
Indian Rupee | JPHQ | Buy | 10,118,326 | 155,237 | 12/20/17 | 1,325 | — | |||||||||||||||||||||||||
Indian Rupee | JPHQ | Sell | 10,118,326 | 156,400 | 12/20/17 | — | (162 | ) | ||||||||||||||||||||||||
Mexican Peso | JPHQ | Buy | 17,614,088 | 925,130 | 12/20/17 | 18,291 | (1,661 | ) | ||||||||||||||||||||||||
Mexican Peso | JPHQ | Sell | 20,150,807 | 1,103,237 | 12/20/17 | 30,659 | (4,812 | ) | ||||||||||||||||||||||||
Russian Ruble | JPHQ | Buy | 89,469,567 | 1,530,686 | 12/20/17 | 1,927 | (7,951 | ) | ||||||||||||||||||||||||
Russian Ruble | JPHQ | Sell | 99,076,313 | 1,692,300 | 12/20/17 | 6,513 | (2,585 | ) | ||||||||||||||||||||||||
South African Rand | JPHQ | Buy | 12,596,605 | 898,780 | 12/20/17 | 16,823 | (222 | ) | ||||||||||||||||||||||||
South African Rand | JPHQ | Sell | 14,821,389 | 1,080,071 | 12/20/17 | 12,663 | (9,645 | ) | ||||||||||||||||||||||||
South Korean Won | JPHQ | Sell | 543,417,301 | 480,478 | 12/20/17 | 78 | (19,027 | ) | ||||||||||||||||||||||||
Turkish Lira | JPHQ | Buy | 3,918,335 | 1,036,470 | 12/20/17 | 2,135 | (44,412 | ) | ||||||||||||||||||||||||
Turkish Lira | JPHQ | Sell | 3,918,335 | 1,032,923 | 12/20/17 | 38,981 | (249 | ) | ||||||||||||||||||||||||
Indonesian Rupiah | JPHQ | Buy | 2,193,969,742 | 162,036 | 12/21/17 | — | (141 | ) | ||||||||||||||||||||||||
Brazilian Real | JPHQ | Buy | 527,934 | 161,250 | 1/03/18 | — | (589 | ) | ||||||||||||||||||||||||
Czech Koruna | JPHQ | Sell | 3,530,738 | 133,588 | EUR | 1/10/18 | 15,151 | (21,147 | ) | |||||||||||||||||||||||
Euro | JPHQ | Sell | 132,874 | 3,530,738 | CZK | 1/10/18 | 18,125 | (11,277 | ) | |||||||||||||||||||||||
Euro | JPHQ | Sell | 714 | 791 | 1/10/18 | — | (61 | ) | ||||||||||||||||||||||||
British Pound | JPHQ | Sell | 990,000 | 1,343,541 | 1/31/18 | 1,440 | — | |||||||||||||||||||||||||
Euro | JPHQ | Sell | 730,000 | 866,336 | 1/31/18 | — | (6,245 | ) | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Total Forward Exchange Contracts |
| $272,879 | $ | (228,129 | ) | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Net unrealized appreciation (depreciation) |
| $ 44,750 | ||||||||||||||||||||||||||||||
|
|
*In U.S. dollars unless otherwise indicated.
aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
franklintempleton.com | Semiannual Report | 27 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
At November 30, 2017, the Fund had the following credit default swap contracts outstanding. See Note 1(e).
Credit Default Swap Contracts
Description | Periodic 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 | 12/20/21 | 301,000 | $ | (2,754) | $ | 8,522 | $ | (11,276) | ||||||||||||||||||||||||||||||
Government of Mexico | (1.00%) | Quarterly | 12/20/22 | 23,000 | 21 | 166 | (145) | |||||||||||||||||||||||||||||||||
Government of South Africa | (1.00%) | Quarterly | 12/20/21 | 394,000 | 6,719 | 26,965 | (20,246) | |||||||||||||||||||||||||||||||||
Government of South Africa | (1.00%) | Quarterly | 6/20/22 | 376,000 | 10,231 | 19,788 | (9,557) | |||||||||||||||||||||||||||||||||
Government of South Africa | (1.00%) | Quarterly | 12/20/22 | 60,000 | 2,224 | 2,064 | 160 | |||||||||||||||||||||||||||||||||
Government of South Korea | (1.00%) | Quarterly | 12/20/21 | 355,184 | (6,888) | (10,020) | 3,132 | |||||||||||||||||||||||||||||||||
Government of South Korea | (1.00%) | Quarterly | 12/20/22 | 50,290 | (999) | (1,201) | 202 | |||||||||||||||||||||||||||||||||
Government of Turkey | (1.00%) | Quarterly | 12/20/20 | 503,000 | 4,608 | 41,382 | (36,774) | |||||||||||||||||||||||||||||||||
Government of Turkey | (1.00%) | Quarterly | 6/20/21 | 159,000 | 2,677 | 10,950 | (8,273) | |||||||||||||||||||||||||||||||||
Government of Turkey | (1.00%) | Quarterly | 12/20/21 | 98,000 | 2,384 | 5,993 | (3,609) | |||||||||||||||||||||||||||||||||
Government of Turkey | (1.00%) | Quarterly | 6/20/22 | 6,000 | 210 | 316 | (106) | |||||||||||||||||||||||||||||||||
Traded Index | ||||||||||||||||||||||||||||||||||||||||
CDX.NA.HY.25 | (5.00%) | Quarterly | 12/20/20 | 1,416,200 | (95,100) | 14,162 | (109,262) | |||||||||||||||||||||||||||||||||
CDX.NA.HY.28 | (5.00%) | Quarterly | 6/20/22 | 891,000 | (75,492) | (65,793) | (9,699) | |||||||||||||||||||||||||||||||||
Contracts to Sell Protectionc,d |
| |||||||||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||||||||||
Government of Russia | 1.00% | Quarterly | 6/20/21 | 457,000 | 2,031 | (33,432) | 35,463 | BB+ | ||||||||||||||||||||||||||||||||
Government of Russia | 1.00% | Quarterly | 12/20/21 | 189,000 | 58 | (7,019) | 7,077 | BB+ | ||||||||||||||||||||||||||||||||
Government of Turkey | 1.00% | Quarterly | 12/20/22 | 136,000 | (6,160) | (6,150) | (10) | BB+ | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
Total Centrally Cleared Swap Contracts |
| $ | (156,230) | $ 6,693 | $ (162,923) | |||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
OTC Swap Contracts |
| |||||||||||||||||||||||||||||||||||||||
Contracts to Buy Protectionc |
| |||||||||||||||||||||||||||||||||||||||
Single Name | Counterparty | |||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
American Axle & Manufacturing Holdings Inc. | (5.00%) | Quarterly | JPHQ | 12/20/21 | 226,000 | (30,529) | (18,927) | (11,602) | ||||||||||||||||||||||||||||||||
American Axle & Manufacturing Holdings Inc. | (5.00%) | Quarterly | BZWS | 6/20/22 | (30,000) | (3,953) | (1,621) | (2,332) | ||||||||||||||||||||||||||||||||
American Axle & Manufacturing Holdings Inc. | (5.00%) | Quarterly | JPHQ | 6/20/22 | 76,000 | (10,015) | (3,592) | (6,423) | ||||||||||||||||||||||||||||||||
Astaldi SpA | (5.00%) | Quarterly | BZWS | 6/20/18 | 54,000 | EUR | 15,680 | (72) | 15,752 | |||||||||||||||||||||||||||||||
Boparan Finance PLC | (5.00%) | Quarterly | JPHQ | 12/20/19 | 100,000 | EUR | (2,092) | (4,368) | 2,276 | |||||||||||||||||||||||||||||||
Caterpillar Financial Services Corp. | (1.00%) | Quarterly | JPHQ | 6/20/21 | 618,000 | (17,394) | 1,861 | (19,255) | ||||||||||||||||||||||||||||||||
Ford Motor Co. | (5.00%) | Quarterly | GSCO | 12/20/21 | 182,000 | (33,477) | (24,937) | (8,540) | ||||||||||||||||||||||||||||||||
Ford Motor Co. | (5.00%) | Quarterly | GSCO | 12/20/21 | 189,000 | (34,765) | (24,504) | (10,261) | ||||||||||||||||||||||||||||||||
Ford Motor Credit Company LLC | (5.00%) | Quarterly | GSCO | 12/20/21 | 189,000 | (34,628) | (25,066) | (9,562) | ||||||||||||||||||||||||||||||||
Frontier Communications Corp. | (5.00%) | Quarterly | GSCO | 12/20/19 | 115,000 | 13,670 | 10,613 | 3,057 | ||||||||||||||||||||||||||||||||
Galapagos Holding SA | (5.00%) | Quarterly | BZWS | 6/20/18 | 71,000 | EUR | (1,995) | (821) | (1,174) | |||||||||||||||||||||||||||||||
Galapagos Holding SA | (5.00%) | Quarterly | GSCO | 12/20/19 | 20,000 | EUR | (108) | 1,400 | (1,508) | |||||||||||||||||||||||||||||||
Galapagos Holding SA | (5.00%) | Quarterly | BZWS | 12/20/19 | 33,000 | EUR | (177) | 2,692 | (2,869) | |||||||||||||||||||||||||||||||
Glencore International AG | (5.00%) | Quarterly | JPHQ | 12/20/22 | 196,000 | EUR | (45,418) | (43,016) | (2,402) | |||||||||||||||||||||||||||||||
Glencore International AG | (5.00%) | Quarterly | JPHQ | 12/20/22 | 196,000 | EUR | (45,418) | (42,655) | (2,763) | |||||||||||||||||||||||||||||||
Honeywell International Inc. | (1.00%) | Quarterly | MSCO | 12/20/22 | 403,000 | (14,908) | (14,156) | (752) | ||||||||||||||||||||||||||||||||
Itochu Corp. | (1.00%) | Quarterly | GSCO | 6/20/22 | 17,300,000 | JPY | (5,158) | (4,691) | (467) | |||||||||||||||||||||||||||||||
Itochu Corp. | (1.00%) | Quarterly | JPHQ | 6/20/22 | 4,307,000 | JPY | (1,284) | (1,205) | (79) | |||||||||||||||||||||||||||||||
JFE Holdings, Inc. | (1.00%) | Quarterly | GSCO | 6/20/22 | 5,746,000 | JPY | (1,539) | (1,607) | 68 | |||||||||||||||||||||||||||||||
JFE Holdings, Inc. | (1.00%) | Quarterly | JPHQ | 6/20/22 | 3,802,000 | JPY | (1,019) | (1,080) | 61 |
28 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Credit Default Swap Contracts (continued) | ||||||||||||||||||||||||||||||||||||||
Description | Periodic 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) |
| |||||||||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 30,000 | $ | 9,995 | $ | 5,482 | $ | 4,513 | ||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 101,000 | 33,651 | 25,019 | 8,632 | |||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 104,000 | 34,650 | 26,278 | 8,372 | |||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00 | %) | Quarterly | BZWS | 12/20/22 | 190,000 | 63,304 | 48,008 | 15,296 | |||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 213,000 | 70,967 | 66,590 | 4,377 | |||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 227,000 | 75,631 | 73,259 | 2,372 | |||||||||||||||||||||||||||||
Lloyds Bank PLC | (1.00 | %) | Quarterly | JPHQ | 12/20/22 | 196,000 | EUR | (4,121 | ) | (2,656 | ) | (1,465 | ) | |||||||||||||||||||||||||
Lloyds Bank PLC | (1.00 | %) | Quarterly | BOFA | 12/20/22 | 196,000 | EUR | (4,121 | ) | (2,435 | ) | (1,686 | ) | |||||||||||||||||||||||||
Macy’s Retail Holdings Inc. | (1.00 | %) | Quarterly | JPHQ | 12/20/21 | 86,000 | 2,982 | 4,791 | (1,809 | ) | ||||||||||||||||||||||||||||
Macy’s Retail Holdings Inc. | (1.00 | %) | Quarterly | JPHQ | 12/20/21 | 172,000 | 5,963 | 10,218 | (4,255 | ) | ||||||||||||||||||||||||||||
Marubeni Corp. | (1.00 | %) | Quarterly | GSCO | 6/20/22 | 27,269,000 | JPY | (7,034 | ) | (6,117 | ) | (917 | ) | |||||||||||||||||||||||||
Marubeni Corp. | (1.00 | %) | Quarterly | JPHQ | 6/20/22 | 6,291,000 | JPY | (1,623 | ) | (1,491 | ) | (132 | ) | |||||||||||||||||||||||||
MBIA Inc. | (5.00 | %) | Quarterly | GSCO | 12/20/20 | 28,000 | 3,729 | 1,991 | 1,738 | |||||||||||||||||||||||||||||
MBIA Inc. | (5.00 | %) | Quarterly | GSCO | 12/20/20 | 99,000 | 13,186 | 4,010 | 9,176 | |||||||||||||||||||||||||||||
Mitsui O.S.K. Lines Ltd. | (1.00 | %) | Quarterly | JPHQ | 6/20/22 | 9,678,000 | JPY | (790 | ) | (674 | ) | (116 | ) | |||||||||||||||||||||||||
Mitsui O.S.K. Lines Ltd. | (1.00 | %) | Quarterly | JPHQ | 6/20/22 | 3,618,000 | JPY | (295 | ) | (252 | ) | (43 | ) | |||||||||||||||||||||||||
Pitney Bowes Inc. | (1.00 | %) | Quarterly | JPHQ | 12/20/21 | 159,500 | 12,769 | 6,345 | 6,424 | |||||||||||||||||||||||||||||
R. R. Donnelley & Sons Co. | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 13,000 | 616 | 277 | 339 | |||||||||||||||||||||||||||||
R. R. Donnelley & Sons Co. | (5.00 | %) | Quarterly | JPHQ | 12/20/22 | 40,000 | 1,895 | 624 | 1,271 | |||||||||||||||||||||||||||||
R. R. Donnelley & Sons Co. | (5.00 | %) | Quarterly | JPHQ | 12/20/22 | 40,000 | 1,895 | 1,172 | 723 | |||||||||||||||||||||||||||||
R. R. Donnelley & Sons Co. | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 26,000 | 1,231 | 2,575 | (1,344 | ) | ||||||||||||||||||||||||||||
R. R. Donnelley & Sons Co. | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 34,000 | 1,610 | 2,686 | (1,076 | ) | ||||||||||||||||||||||||||||
Rallye SA | (5.00 | %) | Quarterly | BZWS | 6/20/19 | 71,000 | EUR | (4,255 | ) | 4,009 | (8,264 | ) | ||||||||||||||||||||||||||
Rallye SA | (5.00 | %) | Quarterly | JPHQ | 6/20/19 | 175,000 | EUR | (10.488 | ) | 10,551 | (21,039 | ) | ||||||||||||||||||||||||||
Rallye SA | (5.00 | %) | Quarterly | GSCO | 12/20/19 | 10,000 | EUR | (634 | ) | 480 | (1,114 | ) | ||||||||||||||||||||||||||
Rallye SA | (5.00 | %) | Quarterly | GSCO | 12/20/21 | 27,000 | EUR | (83 | ) | 1,072 | (1,155 | ) | ||||||||||||||||||||||||||
Rallye SA | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 49,000 | EUR | 1,832 | 614 | 1,218 | ||||||||||||||||||||||||||||
Sharp Corp. | (1.00 | %) | Quarterly | JPHQ | 12/20/18 | 4,914,000 | JPY | (167 | ) | 392 | (559 | ) | ||||||||||||||||||||||||||
The Hertz Corp. | (5.00 | %) | Quarterly | MSCO | 6/20/22 | 22,000 | 1,939 | 3,927 | (1,988 | ) | ||||||||||||||||||||||||||||
The Hertz Corp. | (5.00 | %) | Quarterly | GSCO | 6/20/22 | 69,000 | 6,080 | 5,440 | 640 | |||||||||||||||||||||||||||||
The Hertz Corp. | (5.00 | %) | Quarterly | GSCO | 6/20/22 | 42,000 | 3,701 | 5,636 | (1,935 | ) | ||||||||||||||||||||||||||||
The Hertz Corp. | (5.00 | %) | Quarterly | BZWS | 6/20/22 | 102,000 | 8,989 | 13,694 | (4,705 | ) | ||||||||||||||||||||||||||||
Transocean Inc. | (5.00 | %) | Quarterly | BZWS | 6/20/22 | 2,000 | (131 | ) | 71 | (202 | ) | |||||||||||||||||||||||||||
Transocean Inc. | (5.00 | %) | Quarterly | GSCO | 6/20/22 | 43,000 | (2,818 | ) | 1,920 | (4,738 | ) | |||||||||||||||||||||||||||
Windstream Services LLC | (5.00 | %) | Quarterly | BZWS | 12/20/22 | 25,000 | 8,367 | 7,211 | 1,156 | |||||||||||||||||||||||||||||
Windstream Services LLC | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 84,000 | 28,113 | 25,637 | 2,476 | |||||||||||||||||||||||||||||
Windstream Services LLC | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 84,000 | 28,113 | 27,323 | 790 | |||||||||||||||||||||||||||||
Windstream Services LLC | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 126,000 | 42,169 | 38,191 | 3,978 | |||||||||||||||||||||||||||||
Windstream Services LLC | (5.00 | %) | Quarterly | GSCO | 12/20/22 | 120,000 | 40,161 | 42,668 | (2,507 | ) | ||||||||||||||||||||||||||||
Contracts to Sell Protectionc,d |
| |||||||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||||||||
Boparan Finance PLC | 5.00 | % | Quarterly | JPHQ | 12/20/22 | 100,000 | EUR | (5,070 | ) | (5,719 | ) | 649 | B- | |||||||||||||||||||||||||
Centurylink Inc. | 1.00 | % | Quarterly | BZWS | 12/20/22 | 93,000 | (17,610 | ) | (18,335 | ) | 725 | B+ | ||||||||||||||||||||||||||
Centurylink Inc. | 1.00 | % | Quarterly | BZWS | 12/20/22 | 56,000 | (10,604 | ) | (10,870 | ) | 266 | B+ | ||||||||||||||||||||||||||
Centurylink Inc. | 1.00 | % | Quarterly | GSCO | 12/20/22 | 37,000 | (7,006 | ) | (7,120 | ) | 114 | B+ | ||||||||||||||||||||||||||
Frontier Communications Corp. | 5.00 | % | Quarterly | BZWS | 12/20/22 | 14,000 | (4,075 | ) | (4,010 | ) | (65 | ) | B | |||||||||||||||||||||||||
Galapagos Holding SA | 5.00 | % | Quarterly | JPHQ | 12/20/22 | 50,000 | EUR | (5,961 | ) | (10,619 | ) | 4,658 | CCC+ | |||||||||||||||||||||||||
Galapagos Holding SA | 5.00 | % | Quarterly | BZWS | 12/20/22 | 33,000 | EUR | (3,724 | ) | (6,806 | ) | 3,082 | CCC+ | |||||||||||||||||||||||||
Galapagos Holding SA | 5.00 | % | Quarterly | GSCO | 12/20/22 | 20,000 | EUR | (2,384 | ) | (4,106 | ) | 1,722 | CCC+ | |||||||||||||||||||||||||
Galapagos Holding SA | 5.00 | % | Quarterly | GSCO | 12/20/22 | 20,000 | EUR | (2,257 | ) | (2,191 | ) | (66 | ) | CCC+ |
franklintempleton.com | Semiannual Report | 29 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Credit Default Swap Contracts (continued) | ||||||||||||||||||||||||||||||||||
Description | Periodic (Paid) | Payment Frequency | Counterparty | Maturity Date | Notional Amounta | Value | Unamortized Upfront Payments (Receipts) | Unrealized (Depreciation) | Ratingb | |||||||||||||||||||||||||
OTC Swap Contracts (continued) |
| |||||||||||||||||||||||||||||||||
Contracts to Sell Protectionc,d (continued) |
| |||||||||||||||||||||||||||||||||
Single Name (continued) |
| |||||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | 5.00 | % | Quarterly | GSCO | 12/20/18 | 97,000 | $ (23,158) | $(22,217) | $ (941) | BB | ||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | 5.00 | % | Quarterly | GSCO | 6/20/19 | 389,000 | (97,530 | ) | (91,739 | ) | (5,791 | ) | BB | |||||||||||||||||||||
K. Hovnanian Enterprises Inc. | 5.00 | % | Quarterly | BZWS | 12/20/19 | 177,000 | (46,355 | ) | (20,557 | ) | (25,798 | ) | BB | |||||||||||||||||||||
K. Hovnanian Enterprises Inc. | 5.00 | % | Quarterly | GSCO | 12/20/19 | 96,000 | (25,142 | ) | (10,621 | ) | (14,521 | ) | BB | |||||||||||||||||||||
Windstream Services LLC | 5.00 | % | Quarterly | BZWS | 12/20/18 | 84,000 | (6,351 | ) | (8,832 | ) | 2,481 | BB | ||||||||||||||||||||||
Windstream Services LLC | 5.00 | % | Quarterly | GSCO | 12/20/18 | 84,000 | (6,351 | ) | (8,728 | ) | 2,377 | BB | ||||||||||||||||||||||
Windstream Services LLC | 5.00 | % | Quarterly | BZWS | 12/20/18 | 126,000 | (9,527 | ) | (8,661 | ) | (866 | ) | BB | |||||||||||||||||||||
Windstream Services LLC | 5.00 | % | Quarterly | GSCO | 12/20/18 | 84,000 | (6,351 | ) | (6,428 | ) | 77 | BB | ||||||||||||||||||||||
Windstream Services LLC | 5.00 | % | Quarterly | BZWS | 12/20/18 | 28,000 | (1,137 | ) | (2,944 | ) | 1,807 | BB | ||||||||||||||||||||||
Windstream Services LLC | 5.00 | % | Quarterly | JPHQ | 12/20/18 | 33,000 | (2,495 | ) | (1,841 | ) | (654 | ) | BB | |||||||||||||||||||||
Windstream Services LLC | 5.00 | % | Quarterly | BZWS | 12/20/18 | 13,000 | (983 | ) | (904 | ) | (79 | ) | BB | |||||||||||||||||||||
Windstream Services LLC | 5.00 | % | Quarterly | JPHQ | 12/20/18 | 5,000 | (378 | ) | (549 | ) | 171 | BB | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||
Total OTC Swap Contracts | $ (71,998 | ) | $ 4,987 | $ (76,985 | ) | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||
Total Credit Default Swap Contracts | $(228,228 | ) | $ 11,680 | $(239,908 | ) | |||||||||||||||||||||||||||||
|
|
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 November 30, 2017, the Fund had the following cross-currency swap contracts outstanding. See Note 1(e).
Cross-Currency Swap Contracts
Description | Payment Frequency | Counterparty | Maturity Date | Notional Amount | Value/Unrealized Appreciation (Depreciation) | |||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||
Receive Fixed 10.33% | BOFA | 12/20/22 | 702,632 | TRY | $(12,273 | ) | ||||||||||||||
Pay Floating 3 Month USD-LIBOR | Quarterly | 201,039 | USD | |||||||||||||||||
Receive Fixed 10.92% | BOFA | 12/20/22 | 582,237 | TRY | (6,924 | ) | ||||||||||||||
Pay Floating 3 Month USD-LIBOR | Quarterly | 159,255 | USD | |||||||||||||||||
Receive Fixed 10.32% | DBAB | 12/20/22 | 1,196,946 | TRY | (21,052 | ) | ||||||||||||||
Pay Floating 3 Month USD-LIBOR | Quarterly | 345,539 | USD | |||||||||||||||||
|
| |||||||||||||||||||
Total Cross-Currency Swap Contracts | $(40,249) | |||||||||||||||||||
|
|
At November 30, 2017, 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 rate 8.37% | ||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/02/20 | 1,076,072 | BRL | $— | |||||||||||
Receive Fixed rate 8.38% | ||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/02/20 | 1,076,072 | BRL | — |
30 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Interest Rate Swap Contracts (continued)
Description | Payment Frequency | Maturity Date | Notional Amount* | Value/Unrealized Appreciation (Depreciation) | ||||||||||||||||
Centrally Cleared Swap Contracts (continued)
| ||||||||||||||||||||
Receive Fixed rate 8.79% | ||||||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/04/21 | 847,095 BRL | $ (2,733) | ||||||||||||||||
Receive Fixed rate 9.38% | ||||||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/04/21 | 1,719,770 BRL | 3,850 | ||||||||||||||||
Receive Fixed rate 9.94% | ||||||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/04/21 | 1,203,978 BRL | 7,770 | ||||||||||||||||
Receive Floating rate 3 Month USD-LIBOR | ||||||||||||||||||||
Pay Fixed rate 2.00% | Semi-Annually | 12/20/19 | 1,000,000 | 2,612 | ||||||||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.29% | Semi-Annually | 2/28/67 | 21,000 GBP | 1,797 | ||||||||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.41% | Semi-Annually | 8/04/67 | 108,000 GBP | 2,785 | ||||||||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.60% | Semi-Annually | 12/03/46 | 82,713 GBP | 149 | ||||||||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.56% | Semi-Annually | 11/29/46 | 112,459 GBP | 1,532 | ||||||||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.37% | Semi-Annually | 1/05/67 | 100,000 GBP | 4,851 | ||||||||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||||||
Pay Fixed rate 1.44% | Semi-Annually | 1/07/47 | 156,995 GBP | 7,506 | ||||||||||||||||
|
| |||||||||||||||||||
Total Interest Rate Swap Contracts | $30,119 | |||||||||||||||||||
|
|
*In U.S. dollars unless otherwise indicated.
At November 30, 2017, the Fund had the following total return swap contracts outstanding. See Note 1(e).
Total Return Swap Contracts
Underlying Instrument | Financing Rate | Payment Frequency | Counter- party | Maturity Date | Notional Value* | Value/ Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||||||||||||
Equity Contracts - Longa |
| |||||||||||||||||||||||||||||
JBS SA | 1-Day BRLCDI + 0.75 | % | Quarterly | GSCO | 8/02/18 | 618,883 BRL | $ | 8,763 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Equity Contracts - Shortb |
| |||||||||||||||||||||||||||||
NRG Yield Inc., A | 1-Month LIBOR - 0.40 | % | Quarterly | GSCO | 7/25/18 | 14,703 | (865 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Fixed Income Contracts - Longa |
| |||||||||||||||||||||||||||||
Banco Central de la Republica Argentina SA | 3-Month LIBOR + 1.25 | % | Annually | JPHQ | 5/16/18 | 107,120 | 3,680 | |||||||||||||||||||||||
Banco Central de la Republica Argentina SA | 3-Month LIBOR + 1.25 | % | Monthly | JPHQ | 6/21/18 | 79,191 | 1,712 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
|
5,392 |
| ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Fixed Income Contracts - Shortb |
| |||||||||||||||||||||||||||||
iBoxx USD Liquid High Yield Index | 1-Month LIBOR | Quarterly | JPHQ | 12/20/17 | 280,000 | (1,735 | ) | |||||||||||||||||||||||
iBoxx USD Liquid High Yield Index | 1-Month LIBOR | Quarterly | JPHQ | 12/20/17 | 405,000 | (1,017 | ) | |||||||||||||||||||||||
iBoxx USD Liquid High Yield Index | 1-Month LIBOR | Quarterly | JPHQ | 12/20/17 | 280,000 | (1,789 | ) | |||||||||||||||||||||||
iBoxx USD Liquid High Yield Index | 1-Month LIBOR | Quarterly | JPHQ | 12/20/17 | 1,219,000 | (7,785 | ) | |||||||||||||||||||||||
iBoxx USD Liquid High Yield Index | 1-Month LIBOR | Quarterly | JPHQ | 12/20/17 | 570,000 | (3,748 | ) | |||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
|
(16,074 |
) | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Total Return Swap Contracts | $ | (2,784 | ) | |||||||||||||||||||||||||||
|
|
*In U.S. dollars unless otherwise indicated. a The 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 Abbreviations on page 49. |
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 31 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Statement of Assets and Liabilities
November 30, 2017 (unaudited)
Franklin K2 Long Short Credit Fund
Assets: | ||||
Investments in securities: | ||||
Cost - Unaffiliated issuers | $ | 76,200,466 | ||
Cost - Unaffiliated repurchase agreements | 2,609,960 | |||
|
| |||
Value - Unaffiliated issuers | $ | 79,758,928 | ||
Value - Unaffiliated repurchase agreements | 2,609,960 | |||
Cash | 761,768 | |||
Foreign currency, at value (cost $1,804,996) | 2,069,623 | |||
Receivables: | ||||
Investment securities sold | 2,602,403 | |||
Capital shares sold | 1,736 | |||
Dividends and interest | 396,989 | |||
Affiliates | 5,489 | |||
Deposits with brokers for: | ||||
Securities sold short | 9,698,698 | |||
OTC derivative contracts | 390,000 | |||
Futures contracts | 9,000 | |||
Centrally cleared swap contracts | 843,192 | |||
Due from brokers | 74,636 | |||
Variation margin on centrally cleared swap contracts | 2,495 | |||
OTC swap contracts (upfront payments $511,844) | 484,727 | |||
Unrealized appreciation on OTC forward exchange contracts | 272,879 | |||
Unrealized appreciation on OTC swap contracts | 126,989 | |||
Other assets | 208 | |||
|
| |||
Total assets |
|
100,109,720 |
| |
|
| |||
Liabilities: | ||||
Payables: | ||||
Investment securities purchased | 3,528,002 | |||
Capital shares redeemed | 5,343 | |||
Management fees | 109,954 | |||
Distribution fees | 5,815 | |||
Variation margin on futures contracts | 5,041 | |||
OTC swap contracts (upfront receipts $517,153) | 479,740 | |||
Options written, at value (premiums received $30,593) | 37,521 | |||
Securities sold short, at value (proceeds $9,863,567) | 10,019,865 | |||
Due to brokers | 63,587 | |||
Unrealized depreciation on OTC forward exchange contracts | 228,129 | |||
Unrealized depreciation on OTC swap contracts | 247,007 | |||
Accrued expenses and other liabilities | 15,193 | |||
|
| |||
Total liabilities |
|
14,745,197 |
| |
|
| |||
Net assets, at value |
$ |
85,364,523 |
| |
|
| |||
Net assets consist of: | ||||
Paid-in capital | $ | 79,417,667 | ||
Undistributed net investment income | 1,394,041 | |||
Net unrealized appreciation (depreciation) | 3,435,466 | |||
Accumulated net realized gain (loss) | 1,117,349 | |||
|
| |||
Net assets, at value |
$ |
85,364,523 |
| |
|
|
32 | Semiannual 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 (continued)
November 30, 2017 (unaudited)
Franklin K2 Long Short Credit Fund
Class A: | ||||
Net assets, at value | $ | 42,271,383 | ||
|
| |||
Shares outstanding | 3,927,488 | |||
|
| |||
Net asset value per sharea | $ | 10.76 | ||
|
| |||
Maximum offering price per share (net asset value per share ÷ 94.25%) | $ | 11.42 | ||
|
| |||
Class C: | ||||
Net assets, at value | $ | 1,686,749 | ||
|
| |||
Shares outstanding | 159,696 | |||
|
| |||
Net asset value and maximum offering price per sharea | $ | 10.56 | ||
|
| |||
Class R: | ||||
Net assets, at value | $ | 161,021 | ||
|
| |||
Shares outstanding | 15,103 | |||
|
| |||
Net asset value and maximum offering price per share | $ | 10.66 | ||
|
| |||
Class R6: | ||||
Net assets, at value | $ | 11,837,513 | ||
|
| |||
Shares outstanding | 1,098,237 | |||
|
| |||
Net asset value and maximum offering price per share | $ | 10.78 | ||
|
| |||
Advisor Class: | ||||
Net assets, at value | $ | 29,407,857 | ||
|
| |||
Shares outstanding | 2,727,823 | |||
|
| |||
Net asset value and maximum offering price per share | $ | 10.78 | ||
|
|
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 33 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS
Statement of Operations
for the six months ended November 30, 2017 (unaudited)
Franklin K2 Long Short Credit Fund
Investment income: | ||||
Dividends: | ||||
Unaffiliated issuers | $ | 108,203 | ||
Interest: | ||||
Unaffiliated issuers: | ||||
Paydown gain (loss) | 219,901 | |||
Paid in cash | 1,924,828 | |||
|
| |||
Total investment income | 2,252,932 | |||
|
| |||
Expenses: | ||||
Management fees (Note 3a) | 829,195 | |||
Distribution fees: (Note 3c) | ||||
Class A | 33,266 | |||
Class C | 8,321 | |||
Class R | 342 | |||
Transfer agent fees: (Note 3e) | ||||
Class A | 2,695 | |||
Class C | 112 | |||
Class R | 10 | |||
Class R6 | 207 | |||
Advisor Class | 1,850 | |||
Custodian fees (Note 4) | 42,403 | |||
Reports to shareholders | 4,738 | |||
Registration and filing fees | 41,631 | |||
Professional fees | 55,351 | |||
Trustees fees and expenses | 14,115 | |||
Dividends and interest on securities sold short | 238,207 | |||
Security borrowing fees | 51,747 | |||
Other | 13,201 | |||
|
| |||
Total expenses | 1,337,391 | |||
Expense reductions (Note 4) | (2,903 | ) | ||
Expenses waived/paid by affiliates (Note 3f) | (193,745 | ) | ||
|
| |||
Net expenses | 1,140,743 | |||
|
| |||
Net investment income | 1,112,189 | |||
|
| |||
Realized and unrealized gains (losses): | ||||
Net realized gain (loss) from: | ||||
Investments: | ||||
Unaffiliated issuers | 151,180 | |||
Written options | 21,519 | |||
Foreign currency transactions | 45,223 | |||
Forward exchange contracts | (280,555 | ) | ||
Futures contracts | (32,863 | ) | ||
Securities sold short | (33,480 | ) | ||
Swap contracts | 99,995 | |||
|
| |||
Net realized gain (loss) | (28,981 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments: | ||||
Unaffiliated issuers | 552,500 | |||
Translation of other assets and liabilities denominated in foreign currencies | 95,110 | |||
Forward exchange contracts | 191,152 | |||
Written options | (4,891 | ) | ||
Futures contracts | (7,318 | ) | ||
Securities sold short | 166,088 | |||
Swap contracts | 56,242 | |||
|
| |||
Net change in unrealized appreciation (depreciation) | 1,048,883 | |||
|
| |||
Net realized and unrealized gain (loss) | 1,019,902 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 2,132,091 | ||
|
|
34 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
Franklin K2 Long Short Credit Fund
Six Months Ended | ||||||||
November 30, 2017 (unaudited) | Year Ended May 31, 2017 | |||||||
Increase (decrease) in net assets: | ||||||||
Operations: | ||||||||
Net investment income | $ | 1,112,189 | $ | 1,655,358 | ||||
Net realized gain (loss) | (28,981 | ) | 2,240,829 | |||||
Net change in unrealized appreciation (depreciation) | 1,048,883 | 1,375,722 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 2,132,091 | 5,271,909 | ||||||
|
| |||||||
Distributions to shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | — | (1,140,497 | ) | |||||
Class C | — | (31,012 | ) | |||||
Class R | — | (2,328 | ) | |||||
Class R6 | — | (380,096 | ) | |||||
Advisor Class | — | (755,488 | ) | |||||
Net realized gains: | ||||||||
Class A | — | (368,226 | ) | |||||
Class C | — | (11,313 | ) | |||||
Class R | — | (758 | ) | |||||
Class R6 | — | (121,801 | ) | |||||
Advisor Class | — | (242,776 | ) | |||||
|
| |||||||
Total distributions to shareholders | — | (3,054,295 | ) | |||||
|
| |||||||
Capital share transactions: (Note 2) | ||||||||
Class A | 248,639 | 11,826,722 | ||||||
Class C | 145,268 | 1,228,788 | ||||||
Class R | 30,030 | 115,130 | ||||||
Class R6 | (1,561,322 | ) | 231,683 | |||||
Advisor Class | 3,556,600 | 1,271,511 | ||||||
|
| |||||||
Total capital share transactions | 2,419,215 | 14,673,834 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 4,551,306 | 16,891,448 | ||||||
|
| |||||||
Net assets: | ||||||||
Beginning of period | 80,813,217 | 63,921,769 | ||||||
|
| |||||||
End of period | $ | 85,364,523 | $ | 80,813,217 | ||||
|
| |||||||
Undistributed net investment income included in net assets: | ||||||||
End of period | $ | 1,394,041 | $ | 281,852 | ||||
|
|
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 35 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Franklin K2 Long Short Credit 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 four 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. 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 as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. 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 VC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Equity securities, exchange traded funds and derivative financial instruments (derivatives) 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 derivatives 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 VC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VC 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
36 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
Trading in securities on foreign securities stock exchanges and OTC markets may be completed before 4 p.m. Eastern time. In addition, trading in certain foreign markets may not take place on every Fund’s business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.
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
franklintempleton.com | Semiannual Report | 37 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
1. Organization and Significant Accounting Policies (continued)
c. Joint Repurchase Agreement (continued)
agreements. In the event of default by either the seller or the Fund, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Fund may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any other amounts owed by the seller to the Fund in the event of default by the seller. This could involve costs or delays in addition to a loss on the securities if their value falls below the repurchase price owed by the seller. The joint repurchase agreement held by the Fund at period end, as indicated in the Statement of Investments, had been entered into on November 30, 2017.
d. Securities Purchased on a Delayed Delivery Basis
The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.
e. Derivative Financial Instruments
The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown 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
38 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
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.
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 OTC cross currency swap contracts primarily to manage and/or gain exposure to certain foreign currencies. A cross currency swap is an agreement between the
Fund and a counterparty to exchange cash flows (determined using either a fixed or floating rate) based on the notional amounts of two different currencies. The notional amounts are typically determined based on the spot exchange rates at the opening of the contract. Cross currency swaps may require the exchange of notional amounts at the opening and/or closing of the contract. 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. Upfront payments and receipts, if any, are reflected in the Statement of Assets and Liabilities and represent compensating factors between stated terms of the cross currency swap contract and prevailing market conditions (interest rate 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
franklintempleton.com | Semiannual Report | 39 |
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)
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 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 8 regarding other derivative information.
f. 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.
g. 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 November 30, 2017, the Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.
h. 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. Paydown gains and losses are recorded as an adjustment to interest income separately in the Statement of Operations. 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.
40 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
Common expenses incurred by the Trust are allocated among the Funds based on the ratio of net assets of each Fund to the combined net assets of the Trust. Fund specific expenses are charged directly to the Fund that incurred the expense.
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.
i. 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.
j. 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 November 30, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
Six Months Ended November 30, 2017 | Year Ended May 31, 2017 | |||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||
Class A Shares: | ||||||||||||||||||||
Shares sold | 421,355 | $ | 4,481,288 | 1,264,686 | $ | 13,252,348 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 34,170 | 351,266 | ||||||||||||||||
Shares redeemed | (401,070 | ) | (4,232,649 | ) | (169,475 | ) | (1,776,892 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | 20,285 | $ | 248,639 | 1,129,381 | $ | 11,826,722 | ||||||||||||||
|
| |||||||||||||||||||
Class C Shares: | ||||||||||||||||||||
Shares sold | 45,397 | $ | 472,290 | 188,527 | $ | 1,949,434 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 4,162 | 42,325 | ||||||||||||||||
Shares redeemed | (31,354 | ) | (327,022 | ) | (73,843 | ) | (762,971 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | 14,043 | $ | 145,268 | 118,846 | $ | 1,228,788 | ||||||||||||||
|
| |||||||||||||||||||
Class R Shares: | ||||||||||||||||||||
Shares sold | 2,882 | $ | 30,030 | 10,774 | $ | 112,554 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 253 | 2,586 | ||||||||||||||||
Shares redeemed | — | — | (1 | ) | (10 | ) | ||||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | 2,882 | $ | 30,030 | 11,026 | $ | 115,130 | ||||||||||||||
|
| |||||||||||||||||||
Class R6 Shares: | ||||||||||||||||||||
Shares sold | 86,073 | $ | 910,612 | 111,147 | $ | 1,158,073 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 48,773 | 501,391 | ||||||||||||||||
Shares redeemed | (230,935 | ) | (2,471,934 | ) | (136,747 | ) | (1,427,781 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | (144,862 | ) | $ | (1,561,322 | ) | 23,173 | $ | 231,683 | ||||||||||||
|
| |||||||||||||||||||
Advisor Class Shares: | ||||||||||||||||||||
Shares sold | 368,459 | $ | 3,907,832 | 150,611 | $ | 1,573,709 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 4,635 | 47,694 | ||||||||||||||||
Shares redeemed | (33,055 | ) | (351,232 | ) | (33,736 | ) | (349,892 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | 335,404 | $ | 3,556,600 | 121,510 | $ | 1,271,511 | ||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 41 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
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 pays an investment management fee to K2 Advisors of 1.90% per year of the average daily net assets of the Fund.
Prior to October 1, 2017, the Fund paid fees to K2 Advisors of 2.05% 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 based on the Fund’s average daily net assets, and is not an additional expense of the Fund.
Subadvisors |
Apollo Credit Management LLC |
Candlewood Investment Group, L.P. |
Chatham Asset Management, LLC |
Ellington Global Asset Management, L.L.C. |
Emso Asset Management Limited |
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% |
42 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (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 period:
Sales charges retained net of commissions paid to unaffiliated broker/dealers | $ | 1,794 | ||
CDSC retained | $ | 185 |
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. 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 period ended November 30, 2017, the Fund paid transfer agent fees of $4,874, of which $4,772 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 its own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses, and expenses related to securities sold short) for each class of the Fund do not exceed 1.95%, and Class R6 does not exceed 1.94% based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until September 30, 2018. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.
g. Other Affiliated Transactions
At November 30, 2017, the shares of the Fund were owned by the following entities:
Shares | Percentage of Outstanding Sharesa | |||||
Franklin Resources, Inc. | 4,999,195 | 63.1% | ||||
Franklin LifeSmart 2025 Retirement Target Fund | 294,144 | 3.7% | ||||
Franklin LifeSmart 2035 Retirement Target Fund | 261,652 | 3.3% | ||||
Franklin LifeSmart 2045 Retirement Target Fund | 180,311 | 2.3% | ||||
Franklin LifeSmart 2030 Retirement Target Fund | 104,309 | 1.3% | ||||
Franklin LifeSmart 2020 Retirement Target Fund | 83,109 | 1.0% | ||||
Franklin LifeSmart 2040 Retirement Target Fund | 82,756 | 1.0% | ||||
Franklin LifeSmart 2050 Retirement Target Fund | 70,043 | 0.9% | ||||
Franklin LifeSmart 2055 Retirement Target Fund | 20,718 | 0.3% | ||||
6,096,237 | 76.9% | |||||
|
|
aInvestment activities of significant shareholders could have a material impact on the Fund.
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended November 30, 2017, the custodian fees were reduced as noted in the Statement of Operations.
franklintempleton.com | Semiannual Report | 43 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
5. Income Taxes
At November 30, 2017, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
Cost of investments | $ | 69,234,625 | ||
|
| |||
Unrealized appreciation | $ | 4,269,828 | ||
Unrealized depreciation | (1,382,559) | |||
|
| |||
Net unrealized appreciation (depreciation) | $ | 2,887,269 | ||
|
|
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of bond discounts and premiums, foreign currency transactions, paydown losses, swaps, offering costs and wash sales.
6. Investment Transactions
Purchases and sales of investments and securities sold short (excluding short term securities) for the period ended November 30, 2017, aggregated $98,573,182 and $94,710,698, respectively.
7. Credit Risk
At November 30, 2017, the Fund had 21.9% of its portfolio invested in high yield and other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.
8. Other Derivative Information
At November 30, 2017, the Fund’s 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 futures contracts | $ | 881 | a | Variation margin on futures contracts | $ | 759 | a | ||||
Variation margin on centrally cleared swap contracts | 32,852 | a | Variation margin on centrally cleared swap contracts | 2,733 | a | |||||||
Investments in securities, at value | 2,500 | b | ||||||||||
Unrealized appreciation on OTC swap contracts | 5,392 | |||||||||||
Foreign exchange contracts | Investments in securities, at value | 588 | b | Unrealized depreciation on OTC swap contracts | 40,249 | |||||||
Unrealized appreciation on OTC forward exchange contracts | 272,879 | Unrealized depreciation on OTC forward exchange contracts | 228,129 | |||||||||
Credit contracts | Variation margin on centrally cleared swap contracts | 46,034 | a | Variation margin on centrally cleared swap contracts | 208,957 | a | ||||||
OTC swap contracts (upfront payments) | 484,727 | OTC swap contracts (upfront receipts) | 479,740 | |||||||||
Unrealized appreciation on OTC swap contracts | 112,834 | Unrealized depreciation on OTC swap contracts | 205,893 |
44 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
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 | ||||||||
| ||||||||||||
Equity contracts | Investments in securities, at value | $ | 112,103 | b | Options written, at value | $ | 37,521 | |||||
Unrealized appreciation on OTC swap contracts | 8,763 | Unrealized depreciation on OTC swap contracts | 865 | |||||||||
Variation margin on futures contracts | 16,213 | a | ||||||||||
|
|
|
| |||||||||
Totals |
$ |
1,079,553 |
|
$ |
1,221,059 |
| ||||||
|
|
|
|
aThis 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 period end is separately reported within the Statement of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.
bPurchased option contracts are included in investments in securities, at value in the Statement of Assets and Liabilities.
For the period ended November 30, 2017, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:
Derivative Contracts Not Accounted for as Hedging Instruments | Statement of Operations Location | Net Realized Gain (Loss) for the Period | Statement of Operations Location | Net Change in Unrealized Appreciation (Depreciation) for the Period | ||||||||
| ||||||||||||
Net realized gain (loss) from: | Net change in unrealized appreciation (depreciation) on: | |||||||||||
Interest rate contracts | Futures contracts | $ | (20,407 | ) | Investments | $
| (6,410
| )a
| ||||
Swap contracts | 29,105 | Futures contracts |
| 4,392
|
| |||||||
Swap contracts |
| 53,799
|
| |||||||||
Foreign exchange contracts | Forward exchange contracts | (280,555 | ) | Investments |
| (2,007
| )a
| |||||
Swap contracts | (4,515 | ) | Forward exchange contracts |
| 191,152
|
| ||||||
Swap contracts |
| (48,783
| )
| |||||||||
Credit contracts | Swap contracts | 67,996 | Swap contracts |
| 43,328
|
| ||||||
Equity contracts | Investments | (431,641 | )a | Investments |
| (2,778
| )a
| |||||
Written options | 21,519 | Written options |
| (4,891
| )
| |||||||
Futures contracts | (12,456 | ) | Futures contracts |
| (11,710
| )
| ||||||
Swap contracts | 7,409 | Swap contracts | 7,898 | |||||||||
|
|
|
| |||||||||
Totals |
$ |
(623,545 |
) |
$ |
223,990 |
| ||||||
|
|
|
|
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 period ended November 30, 2017, the average month end notional amount of futures contracts, options and swap contracts represented $2,152,011, $1,158,950 and $19,025,590, respectively. The average month end contract value of forward exchange contracts was $11,757,046.
franklintempleton.com | Semiannual Report | 45 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
8. Other Derivative Information (continued)
At November 30, 2017, the Fund’s 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 | $272,879 | $228,129 | ||||||
Options Purchased | 3,088 | — | ||||||
Swap Contracts | 611,716 | 726,747 | ||||||
|
| |||||||
Total | $887,683 | $954,876 | ||||||
|
|
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.
At November 30, 2017, the Fund’s OTC derivative assets, which may be offset against the Fund’s 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 | Cash Collateral Received | Net Amount (Not less than zero) | ||||||||||||||||
Counterparty | ||||||||||||||||||||
BOFA | $ — | $ — | $ — | $ — | $ — | |||||||||||||||
BZWS | 116,250 | (116,250 | ) | — | — | — | ||||||||||||||
DBAB | — | — | — | — | — | |||||||||||||||
GSCO | 437,048 | (307,380 | ) | — | — | 129,668 | ||||||||||||||
JPHQ | 330,458 | (330,458 | ) | — | — | — | ||||||||||||||
MSCO | 3,927 | (3,927 | ) | — | — | — | ||||||||||||||
|
| |||||||||||||||||||
Total | $887,683 | $(758,015 | ) | $ — | $ — | $129,668 | ||||||||||||||
|
|
At November 30, 2017, the Fund’s OTC derivative liabilities, which may be offset against the Fund’s 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 | Cash Collateral Pledgedb | Net Amount (Not less than zero) | ||||||||||||||||
Counterparty | ||||||||||||||||||||
BOFA | $ 20,883 | $ — | $ — | $ — | $20,883 | |||||||||||||||
BZWS | 129,166 | (116,250 | ) | — | — | 12,916 | ||||||||||||||
DBAB | 21,052 | — | — | — | 21,052 | |||||||||||||||
GSCO | 307,380 | (307,380 | ) | — | — | — | ||||||||||||||
JPHQ | 459,499 | (330,458 | ) | — | (110,000 | ) | 19,041 | |||||||||||||
MSCO | 16,896 | (3,927 | ) | — | — | 12,969 | ||||||||||||||
|
| |||||||||||||||||||
Total | $954,876 | $(758,015 | ) | $ — | $(110,000 | ) | $86,861 | |||||||||||||
|
|
aSee the accompanying Statement of Investments for securities pledged as collateral for derivatives.
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.
46 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
See Note 1(e) regarding derivative financial instruments.
See Abbreviations on page 49.
9. Credit Facility
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 9, 2018. 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 period ended November 30, 2017, the Fund did not use the Global Credit Facility.
10. 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.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
A summary of inputs used as of November 30, 2017, 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 | ||||||||||||||||
Common Stocks and Other Equity Interests | $ | 1,346,916 | $ | — | $ | 256,761 | $ | 1,603,677 | ||||||||
Convertible Preferred Stocks | 212,628 | — | — | 212,628 | ||||||||||||
Preferred Stocks | 83,203 | — | 298,900 | 382,103 | ||||||||||||
Convertible Bonds | — | 1,605,216 | — | 1,605,216 | ||||||||||||
Corporate Bonds and Notes | — | 29,419,621 | — | 29,419,621 | ||||||||||||
Foreign Government and Agency Securities | — | 2,791,941 | — | 2,791,941 | ||||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed | ||||||||||||||||
Securities | — | 29,073,057 | — | 29,073,057 | ||||||||||||
Options Purchased | 112,103 | 3,088 | — | 115,191 | ||||||||||||
U.S. Government and Agency Securities | — | 1,091,238 | — | 1,091,238 | ||||||||||||
Short Term Investments | 13,328,844 | 2,745,372 | — | 16,074,216 | ||||||||||||
|
| |||||||||||||||
Total Investments in Securities | $ | 15,083,694 | $ | 66,729,533 | $ | 555,661 |
$ |
82,368,888 |
| |||||||
|
|
franklintempleton.com | Semiannual Report | 47 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
10. Fair Value Measurements (continued)
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: (continued) | ||||||||||||||||
Other Financial Instruments: | ||||||||||||||||
Futures Contracts | $ | 881 | $ | — | $ | — | $ | 881 | ||||||||
Forward Exchange Contracts | — | 272,879 | — | 272,879 | ||||||||||||
Swap Contracts | — | 205,875 | — | 205,875 | ||||||||||||
|
| |||||||||||||||
Total Other Financial Instruments | $ | 881 | $ | 478,754 | $ | — | $ | 479,635 | ||||||||
|
| |||||||||||||||
Liabilities: | ||||||||||||||||
Other Financial Instruments: | ||||||||||||||||
Options Written | $ | 37,521 | $ | — | $ | — | $ | 37,521 | ||||||||
Securities Sold Shorta | 639,686 | 9,380,179 | — | 10,019,865 | ||||||||||||
Futures Contracts | 16,972 | — | — | 16,972 | ||||||||||||
Forward Exchange Contracts | — | 228,129 | — | 228,129 | ||||||||||||
Swap Contracts | — | 458,697 | — | 458,697 | ||||||||||||
|
| |||||||||||||||
Total Other Financial Instruments | $ | 694,179 | $ | 10,067,005 | $ | — | $ | 10,761,184 | ||||||||
|
|
aFor detailed categories, see the accompanying Statement of Investments.
A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the beginning and/or end of the period.
11. New Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in the ASU shorten the amortization period for certain callable debt securities acquired at a premium, to be amortized to the earliest call date. The ASU does not require an accounting change for securities acquired at a discount; which continues to be amortized to maturity. The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Management is currently evaluating the impact, if any, of applying this provision.
12. 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.
48 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
Abbreviations
Counterparty | Currency | Selected Portfolio | Index | |||||||||||
| ||||||||||||||
BOFA | Bank of America, N.A. | ARS | Argentine Peso | ARM | Adjustable Rate Mortgage | CDX.NA.HY | CDX North America High Yield | |||||||
BZWS | Barclays Bank PLC | BRL | Brazilian Real | ARPP7DRR | Argentina Central Bank 7 Day Repo Rate | |||||||||
DBAB | Deutsche Bank, A.G. | CZK | Czech Koruna | BRLCDI | Brazil Cetip Di Interbank Deposit Rate | |||||||||
GSCO | Goldman Sachs International | EGP | Egyptian Pound | CLO | Collateralized Loan Obligation | |||||||||
CMT | Constant Maturity Treasury Index | |||||||||||||
JPHQ | JP Morgan Chase Bank, N.A. | EUR | Euro | ETF | Exchange Traded Fund | |||||||||
MSCO | Morgan Stanley & Co., LLC | GBP | British Pound | FHLMC | Federal Home Loan Mortgage Corp. | |||||||||
INR | Indian Rupee | FNMA | Federal National | |||||||||||
Mortgage Association | ||||||||||||||
JPY | Japanese Yen | FRN | Floating Rate Note | |||||||||||
RUB | Russian Ruble | LIBOR | London InterBank Offered Rate | |||||||||||
SAR | Saudi Riyal | PIK | Payment In-Kind | |||||||||||
TRY | Turkish Lira | REIT | Real Estate Investment Trust | |||||||||||
USD | United States Dollar | SPDR | Standard & Poor Depositary Receipt |
franklintempleton.com | Semiannual Report | 49 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 LONG SHORT CREDIT 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 US Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.
Quarterly Statement of Investments
The Trust, on behalf of the Fund, files a complete statement of investments with the US Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
50 | Semiannual Report | franklintempleton.com |
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![]() | Semiannual Report and Shareholder Letter Franklin K2 Long Short Credit Fund | |||
Investment Manager K2/D&S Management Co., L.L.C. | ||||
Distributor Franklin Templeton Distributors, Inc. (800) DIAL BEN® / 342-5236 franklintempleton.com | ||||
Shareholder Services (800) 632-2301 |
Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
© 2017-2018 Franklin Templeton Investments. All rights reserved. | 948 S 01/18 |
![]() | Semiannual Report and Shareholder Letter | |||
November 30, 2017 |
Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Dear Fellow Shareholder:
During the six months ended November 30, 2017, the global economy generally expanded amid improved commodity prices, generally upbeat economic data, encouraging corporate earnings and the European Central Bank’s (ECB’s) extension of its monetary easing time frame. The ECB kept its benchmark interest rate unchanged, while the US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% to 1.00%–1.25% amid signs of a growing US economy. In this environment, global developed stock markets, as measured by the MSCI World Index, posted a +9.81% total return for the period.1 Global emerging market stocks, as measured by the MSCI Emerging Markets Index, generated a +13.27% total return.1 Global government bonds, as measured by the Citigroup World Government Bond Index, posted a +2.57% total return.1
A couple of weeks after the end of the reporting period, the Fed raised its target range a quarter point to 1.25%–1.50% amid ongoing labor market strength and rising economic activity in the US. The Fed’s inflation outlook remained essentially the same.
We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.
We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue
to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.
On the following pages, the Fund’s portfolio management team reviews investment decisions made during the past six 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.
Sincerely,
Madison S. Gulley, CFA
President and Chief Executive Officer – Investment Management Franklin Alternative Strategies Funds
This letter reflects our analysis and opinions as of November 30, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
CFA® is a trademark owned by CFA Institute.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
Not FDIC Insured | | May Lose Value | | No Bank Guarantee |
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Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.
2 | Semiannual Report | franklintempleton.com |
Franklin K2 Global Macro Opportunities Fund
This semiannual report for Franklin K2 Global Macro Opportunities Fund covers the period ended November 30, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks capital appreciation over a full business and economic cycle, which may include periods of rising and declining interest rates. The Fund seeks to achieve this goal by allocating its assets across global macro-focused investment strategies, which are “non-traditional” or “alternative” strategies that generally focus on macroeconomic opportunities across numerous markets and investments. Macroeconomic refers to economic factors such as changes in unemployment, national income, gross domestic product, and inflation and price levels. 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. The Fund’s principal investments include both US and foreign (including emerging markets) securities and exchange-traded and over-the-counter (OTC) derivative instruments, and may include asset classes such as equities, fixed income, interest rates, currencies or commodities. The Fund invests primarily in a wide range of derivative instruments that provide the Fund with broad exposure, either long or short, to these various asset classes. 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.
Performance Overview
The Fund’s Class A shares delivered a +0.44% cumulative total return for the six-month period under review. For comparison, the Fund’s new primary and old secondary benchmark, the HFRX Macro/CTA Index, which measures performance of global macro strategies with exposure to equity, fixed income, hard currency and commodity markets, produced a +2.02% total return for the same period.1 As the investment manager believes the composition of the HFRX Macro/CTA Index more accurately reflects the Fund’s holdings, it has replaced the ICE BofA Merrill Lynch 3-Month US Treasury Bill Index as the Fund’s primary benchmark. Also for comparison, the ICE BofA Merrill Lynch
Portfolio Composition*
Based on Total Investments as of 11/30/17
*Figures represent the net Fund exposure and include certain derivatives held in the portfolio (or their underlying reference assets) or unsettled trades and may not total 100% or may be negative due to rounding, use of any derivatives or other factors.
3-Month US Treasury Bill Index, the Fund’s new secondary and old primary benchmark, which is an index of short-term US government securities with a remaining term to final maturity of less than three months, posted a +0.52% 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
The global economy generally expanded during the six-month period under review. In this environment, global developed and emerging market stocks, as measured by the MSCI All Country World Index, generated a +10.19% total return. Global markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions, the European Central Bank’s (ECB’s) extension of its monetary easing program, and encouraging corporate earnings reports. The US Senate’s approval of a budget plan in October and its subsequent vote near period-end to begin debate on a tax bill, which raised expectations for reforms, also aided global markets.
1. Source: FactSet. Hedge Fund Research, Inc. – www.hedgefundresearch.com. The HFRX Macro/CTA Index is being used under license from Hedge Fund Research, Inc., which does not endorse or approve of any of the contents of this report.
2. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Unlike most asset class indexes, HFR Index returns reflect fees and expenses.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of Investments (SOI). The Consolidated SOI begins on page 15.
franklintempleton.com | Semiannual Report | 3 |
FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND
However, global markets reflected investor concerns about the terms of the UK’s exit from the European Union (also known as “Brexit”), geopolitical tensions in the Korean peninsula and other regions, comments from key central bankers around the world about potentially raising interest rates, and uncertainty about the US government’s ability to implement a tax reform plan.
The US economy strengthened in 2017’s third quarter compared to the second quarter largely due to growth in consumer spending across goods and services, business and inventory investment, as well as net exports due to lower imports. The unemployment rate declined from 4.3% in May 2017, as reported at the beginning of the six-month period, to 4.1% at period-end.3 Annual inflation, as measured by the Consumer Price Index, increased from 1.9% in May 2017, as reported at the beginning of the period, to 2.2% at period-end.3 At its June meeting, the US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% to 1.00%–1.25%, amid signs of a growing US economy, strengthening labor market and improving business spending. At its subsequent meetings, the Fed kept its target range unchanged. However, minutes of its October 31–November 1 meeting indicated that the Fed continued to maintain a positive outlook for the US economy and signaled the possibility of a third rate hike in 2017, though concerns about the ongoing softness in inflation remained.
In Europe, the UK’s economic growth accelerated in 2017’s third quarter over the previous quarter, largely due to growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The euro-zone’s growth, however, moderated in 2017’s third quarter over the previous quarter. The bloc’s annual inflation rate, while low, ended higher than it was at the start of the period. The ECB kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.
In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017 growth was lower than the previous quarter. At its October 2017 meeting, the Bank of Japan left its benchmark interest rate unchanged and continued its monetary stimulus measures, while reducing its fiscal 2017 inflation forecast.
In emerging markets, Brazil’s GDP grew for the third consecutive quarter, although third-quarter growth slowed from the
previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s third quarter compared to the prior-year period, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017’s third quarter compared to the prior-year period. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose substantially during the period.
Investment Strategy
We manage the Fund using a multi-manager approach. We have overall responsibility for the Fund’s investments and principally allocate assets among multiple subadvisors, each of whom independently manages a separate portion of the Fund’s portfolio in accordance with discretionary and systematic focused global macro strategies. 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, and availability of various subadvisors and other investment options, among other things.
Discretionary global macro strategies seek to profit by tactically investing across different asset classes, markets (including emerging markets) and investment opportunities through a combination of fundamental market analysis and quantitative modeling. Systematic global macro strategies seek to profit by utilizing quantitative models to identify investment opportunities across different asset classes and markets in order to construct a portfolio of investments. Quantitative trading models are proprietary systems that rely on mathematical computations to identify trading opportunities. Subadvisors may use strategies which include a combination of discretionary and systematic focused strategies.
The Fund may invest in equities and various debt instruments, such as securities of the US government, its agencies and instrumentalities and sovereign, quasi-sovereign and corporate bonds. Such debt instruments may have variable or fixed interest rates, may be of any maturity, duration or credit rating and may include 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). The Fund will use a variety of derivatives to implement its investment strategies, which may include futures contracts, swaps, currency forward contracts and options. The Fund may engage in active and frequent trading as part of its investment strategies.
3. Source: US Bureau of Labor Statistics.
See www.franklintempletondatasources.com for additional data provider information.
4 | Semiannual Report | franklintempleton.com |
FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND
What is a futures contract? A futures contract is an agreement between the Fund and a counterparty made through a US or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.
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What are swap agreements? Swap agreements, such as interest rate, currency and credit default swaps, are contracts between the Fund and another party (the swap counterparty). In a basic swap transaction, the Fund agrees with the swap counterparty to exchange the returns (or differentials in rates of return) earned or realized on a particular “notional amount” of underlying instruments. The notional amount is the set amount selected by the parties as the basis on which to calculate the obligations that they have agreed to exchange. The parties typically do not actually exchange the notional amount. Instead, they agree to exchange the returns that would be earned or realized if the notional amount were invested in given instruments or at given interest rates.
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What is a currency forward contract? A currency forward contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency in exchange for another currency at a specific exchange rate on a future date. Currency forward contracts are privately traded in the interbank market, not on a centralized exchange.
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What is an option? An option is a contract to buy or sell a specific financial product known as the option’s underlying instrument at a specific price. The buyer of an option has the right, but not the obligation, to buy or sell the underlying instrument at or until a specified expiration date. Conversely, the seller (“writer”) of an option who opens a transaction is obligated to buy or sell the underlying instrument should the option holder exercise that right.
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Manager’s Discussion
The Fund’s subadvisors for the period under review were P/E GLOBAL, Aspect Capital Limited, Graham Capital Management and Emso Asset Management Limited. Positive
Subadvisors
11/30/17
Discretionary Macro
Emso Asset Management Limited
Systematic Macro
Aspect Capital Limited
Graham Capital Management, L.P.
P/E GLOBAL LLC
performance for two underlying subadvisors, Aspect Capital and Emso Asset Management, helped the Fund deliver gains for the review period. In contrast, declines for two subadvisors, Graham Capital Management and P/E GLOBAL, weakened returns.
In terms of the Fund’s aggregate asset class exposure, leading contributors to positive performance included equity, credit and commodity exposures, while currencies and interest-rate exposures were the leading detractors.
With regard to aggregate sector/industry and security exposure, the top contributors to performance were equity indexes, particularly in Asia; financials; base metals; and energy. Conversely, government bonds were the top detractors, as interest rates generally increased over the period.
In terms of geographic exposures, Hong Kong, Japan and Argentina contributed the most to performance. In contrast, exposures to the US, Canada and Germany detracted.
Broadly speaking, systematic subadvisors benefited from a rebound phase that began in July, driven by stronger trends in a number of markets, lower cross-asset correlations and periods of modestly higher volatility across a number of markets, including currencies. The emerging-markets focused discretionary subadvisor’s results were supported by positive capital flows as well as what we viewed as attractive relative value opportunities across a number of markets.
franklintempleton.com | Semiannual Report | 5 |
FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND
Thank you for your participation in Franklin K2 Global Macro Opportunities Fund. We look forward to continuing to serve your investment needs.
![]() |
Robert Christian | |
![]() |
Brooks Ritchey | |
![]() |
Anthony Zanolla, CFA | |
Portfolio Management Team |
The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2017, 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.
Robert Christian is a senior managing director and head of investment research for K2 Advisors, which he joined in 2010. Mr. Christian worked at Graham Capital Management, L.P., from 1998 to 2003 as a portfolio manager and researcher of quantitative-based trading strategies. At Julius Baer Investment Management from 2003 to 2005, he was the head of macro strategies. From 2005 to 2010, he worked at FRM Americas LLC where he was the global head of directional trading strategies and portfolio advisor to numerous funds. Mr. Christian holds a B.A.S. in biology and economics from Stanford University (1985) and an M.B.A. in finance from Leonard N. Stern School of Business -New York University (1990). |
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Brooks Ritchey is a senior managing director and head of portfolio construction for K2 Advisors. He is also a senior vice president and director of investment solutions for the Franklin Templeton Multi-Asset Solutions division. Since 1987, Mr. Ritchey has managed multi-asset mutual fund and hedge fund portfolios during his employment with organizations including Steinhardt Partners, Citibank, Finch Asset Management, Paribas, AIG and ING. Mr. Ritchey joined K2 Advisors in 2005. Mr. Ritchey graduated from Franklin & Marshall College in 1982. |
|
Anthony Zanolla joined K2 Advisors in October 2014 and serves as senior vice president and portfolio manager. Mr. Zanolla began his investment career in 1994 at Bankers Trust and worked on the business risk team for senior management. Mr. Zanolla joined Citibank in 1996 as portfolio manager of global equity and balanced investment mandates. In 2000, he joined Scudder Kemper Investments as vice president of venture capital. In 2001, Mr. Zanolla joined former Citigroup colleagues as a founding partner and equity analyst at Norquest Capital, a hedge fund. He joined Allianz Hedge Fund Partners in 2002 as an investment committee member and strategy head responsible for global long-short equity, event driven, distressed and commodity trading advisors. After joining the Hedge Fund group of Northern Trust in October 2005 as co-portfolio manager, in 2007 Mr. Zanolla was promoted to senior vice president and portfolio manager responsible for fund of funds and custom portfolios. Mr. Zanola graduated from Bernard M. Baruch College in January 1994 with a B.B.A. in Accounting. He earned the CFA designation in 1999 and holds an NFA Series 3 license. |
6 | Semiannual Report | franklintempleton.com |
FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND
Performance Summary as of November 30, 2017
The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. 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 11/30/171
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 5.75% and the minimum is 0%. Class A: 5.75% 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 | ||
A
| ||||
6-Month | +0.44% | -5.33% | ||
1-Year | -2.96% | -8.51% | ||
Since Inception (7/11/16) | -7.13% | -9.15% | ||
Advisor
| ||||
6-Month | +0.65% | +0.65% | ||
1-Year | -2.74% | -2.74% | ||
Since Inception (7/11/16) | -6.92% | -5.03% |
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.
franklintempleton.com | Semiannual Report | 7 |
FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND
PERFORMANCE SUMMARY
Total Annual Operating Expenses4
Share Class | With Waiver | Without Waiver | ||||||
| ||||||||
A | 2.26% | 4.58% | ||||||
| ||||||||
Advisor | 2.01% | 4.33% | ||||||
|
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 Fund is actively managed and could experience losses if the investment manager’s or subadvisors’ judgment about particular investments made for the Fund prove to be incorrect. 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 market values of securities owned by the Fund will go up or down, sometimes rapidly or unpredictably. Liquidity risk may exist when securities have become more difficult to sell, or are unable to be sold, at the price at which they have been valued. The subadvisors may not be successful in maintaining effective and operational trading models used to implement systematic strategies. An issuer of debt securities may fail to make interest payments or repay principal when due. Lower rated or high yield debt securities involve greater credit risk, including the possibility of default or bankruptcy. When interest rates rise, debt security prices tend to fall. Foreign investments are subject to greater investment risk such as political, economic, credit, information and currency fluctuation risks. Investments in emerging markets are subject to the risks of foreign investing and have additional heightened risks. Commodity and commodity-linked investments present unique risks, are speculative and can be extremely volatile. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has an expense reduction contractually guaranteed through 9/30/18 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. 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.
8 | Semiannual Report | franklintempleton.com |
FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND
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 6/1/17 | Ending Account Value 11/30/17 | Expenses Paid During Period 6/1/17–11/30/171,2 | Ending Account Value 11/30/17 | Expenses 6/1/17–11/30/171,2 | Net Annualized Expense Ratio2 | ||||||||||||
A | $1,000 | $1,004.40 | $11.10 | $1,013.99 | $11.16 | 2.21% | ||||||||||||
C | $1,000 | $1,001.10 | $14.80 | $1,010.28 | $14.87 | 2.95% | ||||||||||||
R | $1,000 | $1,004.40 | $11.15 | $1,013.94 | $11.21 | 2.22% | ||||||||||||
R6 | $1,000 | $1,005.40 | $ 9.75 | $1,015.34 | $ 9.80 | 1.94% | ||||||||||||
Advisor | $1,000 | $1,006.50 | $ 9.81 | $1,015.29 | $ 9.85 | 1.95% |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
franklintempleton.com | Semiannual Report | 9 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Financial Highlights
Franklin K2 Global Macro Opportunities Fund
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, 2017a | |||||||
Class A | ||||||||
Per share operating performance | ||||||||
(for a share outstanding throughout the period) | ||||||||
Net asset value, beginning of period | $9.19 | $10.00 | ||||||
Income from investment operationsb: | ||||||||
Net investment income (loss)c | (— | )d | (0.09 | ) | ||||
Net realized and unrealized gains (losses) | 0.04 | (0.66 | ) | |||||
Total from investment operations | 0.04 | (0.75 | ) | |||||
Less distributions from net investment income | — | (0.06 | ) | |||||
Net asset value, end of period | $9.23 | $ 9.19 | ||||||
Total returne | 0.44% | (7.64)% | ||||||
Ratios to average net assetsf | ||||||||
Expenses before waiver, payments by affiliates and expense reduction | 3.52% | 4.22% | ||||||
Expenses net of waiver, payments by affiliates and expense reductiong | 2.21% | 2.16% | ||||||
Net investment income (loss) | (0.05)% | (1.04)% | ||||||
Supplemental data | ||||||||
Net assets, end of period (000’s) | $122 | $90 | ||||||
Portfolio turnover rate | 69.75% | 239.84% |
aFor the period July 11, 2016 (commencement of operations) to May 31, 2017.
bThe 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 Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dAmount rounds to less than $0.01 per share.
eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
fRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
gBenefit of expense reduction rounds to less than 0.01%.
10 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Global Macro Opportunities Fund (continued)
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, 2017a | |||||||
Class C | ||||||||
Per share operating performance | ||||||||
(for a share outstanding throughout the period) | ||||||||
Net asset value, beginning of period | $9.13 | $10.00 | ||||||
Income from investment operationsb: | ||||||||
Net investment income (loss)c | (0.04 | ) | (0.15 | ) | ||||
Net realized and unrealized gains (losses) | 0.05 | (0.68 | ) | |||||
Total from investment operations | 0.01 | (0.83 | ) | |||||
Less distributions from net investment income | — | (0.04 | ) | |||||
Net asset value, end of period | $9.14 | $ 9.13 | ||||||
Total returnd | 0.11% | (8.27)% | ||||||
Ratios to average net assetse | ||||||||
Expenses before waiver, payments by affiliates and expense reduction | 4.26% | 4.98% | ||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.95% | 2.92% | ||||||
Net investment income (loss) | (0.79)% | (1.80)% | ||||||
Supplemental data | ||||||||
Net assets, end of period (000’s) | $143 | $188 | ||||||
Portfolio turnover rate | 69.75% | 239.84% |
aFor the period July 11, 2016 (commencement of operations) to May 31, 2017.
bThe 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 Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 11 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Global Macro Opportunities Fund (continued)
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, 2017a | |||||||
Class R | ||||||||
Per share operating performance | ||||||||
(for a share outstanding throughout the period) | ||||||||
Net asset value, beginning of period | $9.18 | $10.00 | ||||||
Income from investment operationsb: | ||||||||
Net investment income (loss)c | (— | )d | (0.08 | ) | ||||
Net realized and unrealized gains (losses) | 0.04 | (0.68 | ) | |||||
Total from investment operations | 0.04 | (0.76 | ) | |||||
Less distributions from net investment income | — | (0.06 | ) | |||||
Net asset value, end of period | $9.22 | $ 9.18 | ||||||
Total returne | 0.44% | (7.63)% | ||||||
Ratios to average net assetsf | ||||||||
Expenses before waiver, payments by affiliates and expense reduction | 3.53% | 4.18% | ||||||
Expenses net of waiver, payments by affiliates and expense reductiong | 2.22% | 2.12% | ||||||
Net investment income (loss) | (0.06)% | (1.00)% | ||||||
Supplemental data | ||||||||
Net assets, end of period (000’s) | $9 | $9 | ||||||
Portfolio turnover rate | 69.75% | 239.84% |
aFor the period July 11, 2016 (commencement of operations) to May 31, 2017.
bThe 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 Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dAmount rounds to less than $0.01 per share.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
gBenefit of expense reduction rounds to less than 0.01%.
12 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Global Macro Opportunities Fund (continued)
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, 2017a | |||||||
Class R6 | ||||||||
Per share operating performance | ||||||||
(for a share outstanding throughout the period) | ||||||||
Net asset value, beginning of period | $9.19 | $10.00 | ||||||
Income from investment operationsb: | ||||||||
Net investment income (loss)c | 0.01 | (0.07 | ) | |||||
Net realized and unrealized gains (losses) | 0.04 | (0.68 | ) | |||||
Total from investment operations | 0.05 | (0.75 | ) | |||||
Less distributions from net investment income | — | (0.06 | ) | |||||
Net asset value, end of period | $9.24 | $ 9.19 | ||||||
Total returnd | 0.54% | (7.52)% | ||||||
Ratios to average net assetse | ||||||||
Expenses before waiver, payments by affiliates and expense reduction | 3.25% | 4.30% | ||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 1.94% | 1.94% | ||||||
Net investment income (loss) | 0.23% | (0.82)% | ||||||
Supplemental data | ||||||||
Net assets, end of period (000’s) | $9 | $9 | ||||||
Portfolio turnover rate | 69.75% | 239.84% |
aFor the period July 11, 2016 (commencement of operations) to May 31, 2017.
bThe 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 Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 13 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Global Macro Opportunities Fund (continued)
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, 2017a | |||||||
Advisor Class | ||||||||
Per share operating performance | ||||||||
(for a share outstanding throughout the period) | ||||||||
Net asset value, beginning of period | $9.19 | $10.00 | ||||||
Income from investment operationsb: | ||||||||
Net investment income (loss)c | 0.01 | (0.07 | ) | |||||
Net realized and unrealized gains (losses) | 0.05 | (0.68 | ) | |||||
Total from investment operations | 0.06 | (0.75 | ) | |||||
Less distributions from net investment income | — | (0.06 | ) | |||||
Net asset value, end of period | $9.25 | $ 9.19 | ||||||
Total returnd | 0.65% | (7.42)% | ||||||
Ratios to average net assetse | ||||||||
Expenses before waiver, payments by affiliates and expense reduction | 3.26% | 3.99% | ||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 1.95% | 1.93% | ||||||
Net investment income (loss) | 0.21% | (0.81)% | ||||||
Supplemental data | ||||||||
Net assets, end of period (000’s) | $23,155 | $22,975 | ||||||
Portfolio turnover rate | 69.75% | 239.84% |
aFor the period July 11, 2016 (commencement of operations) to May 31, 2017.
bThe 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 Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fBenefit of expense reduction rounds to less than 0.01%.
14 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Statement of Investments, November 30, 2017 (unaudited)
Franklin K2 Global Macro Opportunities Fund
Country | Principal Amount* | Value | ||||||||||
Corporate Bonds and Notes 6.5% | ||||||||||||
Mortgage Real Estate Investment Trusts (REITs) 2.4% | ||||||||||||
a JP Morgan Structured Products BV, senior note, Reg S, zero cpn., 1/18/18 | Egypt | 10,265,000 EGP | $ | 567,909 | ||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels 4.1% | ||||||||||||
Petrobras Global Finance BV, senior note, | Brazil | 156,000 | 162,630 | |||||||||
8.375%, 5/23/21 | Brazil | 109,000 | 124,097 | |||||||||
6.125%, 1/17/22 | Brazil | 186,000 | 198,555 | |||||||||
6.25%, 3/17/24 | Brazil | 93,000 | 99,124 | |||||||||
Petroleos Mexicanos, senior note, | Mexico | 139,000 | 148,417 | |||||||||
6.375%, 2/04/21 | Mexico | 126,000 | 137,970 | |||||||||
a,bFRN, Reg S, 4.967%, (3-Month USD LIBOR + 3.65%), 3/11/22 | Mexico | 42,000 | 46,158 | |||||||||
aReg S, 5.375%, 3/13/22 | Mexico | 40,000 | 42,860 | |||||||||
|
| |||||||||||
959,811 | ||||||||||||
�� |
|
| ||||||||||
Total Corporate Bonds and Notes (Cost $1,487,531) |
| 1,527,720 |
| |||||||||
|
| |||||||||||
Foreign Government and Agency Securities 4.5% | ||||||||||||
Banco Central de la República Argentina SA, zero cpn., 6/13/18 | Argentina | 4,013,070 ARS | 199,260 | |||||||||
Government of Argentina, | Argentina | 119,721 EUR | 163,397 | |||||||||
2.26% to 3/31/19, 4.74% thereafter, 12/31/38 | Argentina | 228,585 EUR | 194,350 | |||||||||
bsenior note, FRN, 27.493%, (ARPP7DRR), 6/21/20 | Argentina | 538,849 ARS | 33,394 | |||||||||
asenior note, Reg S, 3.875%, 1/15/22 | Argentina | 100,000 EUR | 124,461 | |||||||||
senior note, 5.625%, 1/26/22 | Argentina | 92,000 | 96,784 | |||||||||
Government of Russia, 7.40%, 12/07/22 | Russia | 5,054,000 RUB | 87,836 | |||||||||
a National Highways Authority of India, senior note, Reg S, 7.30%, 5/18/22 | India | 10,000,000 INR | 158,044 | |||||||||
|
| |||||||||||
Total Foreign Government and Agency Securities | 1,057,526 | |||||||||||
|
| |||||||||||
Total Investments before Short Term Investments | 2,585,246 | |||||||||||
|
| |||||||||||
Short Term Investments 81.5% | ||||||||||||
Foreign Government and Agency Securities | ||||||||||||
e Egypt Treasury Bills, 3/06/18 | Egypt | 9,625,000 EGP | 521,333 | |||||||||
|
| |||||||||||
Shares | ||||||||||||
Money Market Funds 77.0% | ||||||||||||
c,d Dreyfus Government Cash Management, Institutional Shares, 0.96% | United States | 4,730,172 | 4,730,172 | |||||||||
cFidelity Investments Money Market Funds, 0.97% | United States | 13,325,385 | 13,325,385 | |||||||||
|
| |||||||||||
Total Money Market Funds (Cost $18,055,557) | 18,055,557 | |||||||||||
|
|
franklintempleton.com | Semiannual Report | 15 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Global Macro Opportunities Fund (continued)
Country | Principal Amount* | Value | ||||||||||
Repurchase Agreements (Cost $522,655) 2.2% | ||||||||||||
f Joint Repurchase Agreement, 1.029%, 12/01/17 | ||||||||||||
(Maturity Value $522,670) | United States | 522,655 | $ | 522,655 | ||||||||
BNP Paribas Securities Corp. (Maturity Value $441,912) | ||||||||||||
Deutsche Bank Securities Inc. (Maturity Value $23,306) | ||||||||||||
HSBC Securities (USA) Inc. (Maturity Value $55,241) | ||||||||||||
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $2,211) | ||||||||||||
Collateralized by U.S. Government Agency Securities, 1.875%, 9/18/18; eU.S. Treasury Bill, 4/19/18 - 5/31/18; and | ||||||||||||
U.S. Treasury Note, 1.50% - 2.00%, 6/15/20 - 10/31/22 | ||||||||||||
(valued at $533,178) | ||||||||||||
|
| |||||||||||
Total Investments (Cost $21,554,997) 92.5% | 21,684,791 | |||||||||||
Other Assets, less Liabilities 7.5% | 1,753,634 | |||||||||||
|
| |||||||||||
Net Assets 100.0% | $ | 23,438,425 | ||||||||||
|
|
See abbreviations on page 37.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
aSecurity 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. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At November 30, 2017, the aggregate value of these securities was $939,432, representing 4.0% of net assets.
bThe coupon rate shown represents the rate at period end.
cThe rate shown is the annualized seven-day yield at period end.
dA portion or all of the security is owned by K2 GMOF Holdings Corp., a wholly-owned subsidiary of the Fund. See Note 1(e).
eThe security was issued on a discount basis with no stated coupon rate
fSee Note 1(c) regarding joint repurchase agreement.
At November 30, 2017, the Fund had the following futures contracts outstanding. See Note 1(d).
Futures Contracts
Description | Type | Number of Contracts | Notional Amount* | Expiration Date | Value/Unrealized Appreciation (Depreciation) | |||||||||||||||
Commodity Contractsa | ||||||||||||||||||||
Aluminum | Long | 7 | $355,775 | 12/18/17 | $(12,705 | ) | ||||||||||||||
Aluminum | Short | 7 | 355,775 | 12/18/17 | 5,164 | |||||||||||||||
Aluminum | Long | 5 | 256,687 | 3/19/18 | (1,623 | ) | ||||||||||||||
Brent Crude Oil | Long | 10 | 626,300 | 12/28/17 | 11,874 | |||||||||||||||
Brent Crude Oil | Long | 1 | 62,340 | 1/31/18 | (592 | ) | ||||||||||||||
Cocoa | Short | 4 | 80,873 | 3/14/18 | 5,822 | |||||||||||||||
Coffee | Short | 2 | 96,375 | 3/19/18 | (981 | ) | ||||||||||||||
Copper | Long | 5 | 842,438 | 12/18/17 | (11,277 | ) | ||||||||||||||
Copper | Short | 5 | 842,438 | 12/18/17 | (6,114 | ) | ||||||||||||||
Copper | Long | 5 | 846,438 | 3/19/18 | (5,143 | ) | ||||||||||||||
Copper | Long | 1 | 76,600 | 3/27/18 | (1,503 | ) | ||||||||||||||
Corn | Short | 12 | 213,450 | 3/14/18 | 2,480 | |||||||||||||||
Gold 100 Oz | Long | 6 | 766,020 | 2/26/18 | (6,233 | ) | ||||||||||||||
Kansas City Wheat | Short | 5 | 107,875 | 3/14/18 | 3,772 | |||||||||||||||
Low Sulphur Gas Oil | Long | 7 | 390,600 | 1/11/18 | (736 | ) | ||||||||||||||
Low Sulphur Gas Oil | Long | 1 | 55,975 | 2/12/18 | (477 | ) | ||||||||||||||
Natural Gas | Short | 8 | 242,000 | 12/27/17 | 15,762 | |||||||||||||||
Nickel | Long | 1 | 66,342 | 12/18/17 | (4,532 | ) | ||||||||||||||
Nickel | Short | 1 | 66,342 | 12/18/17 | 3,555 | |||||||||||||||
Nickel | Long | 1 | 66,762 | 3/19/18 | (3,563 | ) | ||||||||||||||
NY Harbor ULSD | Long | 8 | 637,593 | 12/29/17 | (8,271 | ) |
16 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Global Macro Opportunities Fund (continued)
Futures Contracts (continued)
Description | Type | Number of Contracts | Notional Amount* | Expiration Date | Value/Unrealized Appreciation (Depreciation) | ||||||||||||||||||||
Commodity Contractsa (continued) | |||||||||||||||||||||||||
RBOB Gasoline | Long | 6 | $ | 435,960 | 12/29/17 | $ | (7,292 | ) | |||||||||||||||||
Soybean Meal | Short | 1 | 32,650 | 1/12/18 | (873 | ) | |||||||||||||||||||
Soybean Meal | Short | 3 | 98,940 | 3/14/18 | (3,008 | ) | |||||||||||||||||||
Sugar | Short | 6 | 101,338 | 2/28/18 | (476 | ) | |||||||||||||||||||
Wheat | Short | 13 | 281,450 | 3/14/18 | 6,988 | ||||||||||||||||||||
WTI Crude Oil | Long | 4 | 229,600 | 12/19/17 | 4,721 | ||||||||||||||||||||
WTI Crude Oil | Long | 3 | 172,350 | 1/22/18 | 893 | ||||||||||||||||||||
WTI Crude Oil | Long | 1 | 57,400 | 2/20/18 | (892 | ) | |||||||||||||||||||
Zinc | Long | 4 | 316,725 | 12/18/17 | 338 | ||||||||||||||||||||
Zinc | Short | 4 | 316,725 | 12/18/17 | 57 | ||||||||||||||||||||
Zinc | Long | 2 | 157,762 | 3/19/18 | (162 | ) | |||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
9,255,898 | (15,027 | ) | |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Currency Contracts | |||||||||||||||||||||||||
AUD/USD | Short | 13 | 983,450 | 12/18/17 | 40,562 | ||||||||||||||||||||
CAD/USD | Short | 2 | 155,040 | 12/19/17 | 2,625 | ||||||||||||||||||||
CHF/USD | Short | 8 | 1,017,100 | 12/18/17 | 20,988 | ||||||||||||||||||||
EUR/USD | Long | 9 | 1,339,650 | 12/18/17 | (1,084 | ) | |||||||||||||||||||
EUR/USD | Short | 26 | 3,870,100 | 12/18/17 | 36,028 | ||||||||||||||||||||
GBP/USD | Long | 1 | 84,562 | 12/18/17 | 404 | ||||||||||||||||||||
GBP/USD | Short | 1 | 84,563 | 12/18/17 | (1,361 | ) | |||||||||||||||||||
JPY/USD | Short | 6 | 666,900 | 12/18/17 | 14,067 | ||||||||||||||||||||
MXN/USD | Long | 2 | 53,490 | 12/18/17 | (225 | ) | |||||||||||||||||||
NZD/USD | Short | 10 | 683,300 | 12/18/17 | 12,136 | ||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
8,938,155 | 124,140 | ||||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Equity Contracts | |||||||||||||||||||||||||
Amsterdam Index | Long | 1 | 128,571 | 12/15/17 | 1,188 | ||||||||||||||||||||
CAC 40 10 Euro Index | Long | 1 | 63,887 | 12/15/17 | 840 | ||||||||||||||||||||
DAX Index | Long | 1 | 388,393 | 12/15/17 | 1,121 | ||||||||||||||||||||
DJIA Mini E-CBOT Index | Long | 2 | 242,740 | 12/15/17 | 24,996 | ||||||||||||||||||||
DJIA Mini E-CBOT Index | Short | 4 | 485,480 | 12/15/17 | (17,588 | ) | |||||||||||||||||||
E-Mini Russell 2000 Index | Long | 1 | 77,270 | 12/15/17 | 6,063 | ||||||||||||||||||||
EURO STOXX 50 Index | Long | 5 | 212,638 | 12/15/17 | 468 | ||||||||||||||||||||
FTSE 100 Index | Long | 6 | 594,701 | 12/15/17 | (3,040 | ) | |||||||||||||||||||
FTSE/JSE Top 40 Index | Long | 5 | 195,060 | 12/21/17 | 8,100 | ||||||||||||||||||||
Hang Seng China Enterprises Index | Long | 1 | 73,757 | 12/28/17 | (1,373 | ) | |||||||||||||||||||
Hang Seng Index | Long | 4 | 750,792 | 12/28/17 | (12,237 | ) | |||||||||||||||||||
Mini MSCI EAFE Index | Long | 1 | 100,960 | 12/15/17 | 3,358 | ||||||||||||||||||||
Mini MSCI Emerging Market Index | Long | 3 | 168,000 | 12/15/17 | 5,269 | ||||||||||||||||||||
Nasdaq 100 E-Mini Index | Long | 1 | 127,380 | 12/15/17 | 8,450 | ||||||||||||||||||||
Nasdaq 100 E-Mini Index | Short | 6 | 764,280 | 12/15/17 | (14,261 | ) | |||||||||||||||||||
Nikkei 225 Index | Long | 3 | 417,634 | 12/07/17 | 50,309 | ||||||||||||||||||||
OMX Stockholm 30 Index | Long | 3 | 57,700 | 12/15/17 | (206 | ) | |||||||||||||||||||
S&P 500 E-Mini Index | Long | 1 | 132,395 | 12/15/17 | 9,496 | ||||||||||||||||||||
S&P 500 E-Mini Index | Short | 1 | 132,395 | 12/15/17 | (8,107 | ) | |||||||||||||||||||
S&P Midcap 400 E-Mini Index | Long | 1 | 190,000 | 12/15/17 | 15,038 | ||||||||||||||||||||
S&P/TSX 60 Index | Long | 1 | 147,456 | 12/14/17 | 11,789 | ||||||||||||||||||||
SPI 200 Index | Long | 2 | 226,391 | 12/21/17 | 3,718 | ||||||||||||||||||||
TOPIX Index | Long | 1 | 159,669 | 12/07/17 | 17,179 | ||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
5,837,549 | 110,570 | ||||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Interest Rate Contracts | |||||||||||||||||||||||||
3 Month Euribor | Long | 1 | 297,503 | 12/16/19 | 247 | ||||||||||||||||||||
3 Month Euribor | Long | 1 | 297,294 | 3/16/20 | (80 | ) | |||||||||||||||||||
10 Yr. Mini Japan Government Bond | Long | 6 | 804,318 | 12/12/17 | 211 |
franklintempleton.com | Semiannual Report | 17 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Global Macro Opportunities Fund (continued)
Futures Contracts (continued)
Description | Type | Number of Contracts | Notional Amount* | Expiration Date | Value/Unrealized Appreciation (Depreciation) | ||||||||||||||||||||
Interest Rate Contracts (continued) | |||||||||||||||||||||||||
90 Day Bank Bill | Long | 5 | $ | 3,765,386 | 6/07/18 | $ 1,001 | |||||||||||||||||||
90 Day Bank Bill | Long | 4 | 3,011,939 | 9/13/18 | 893 | ||||||||||||||||||||
90 Day Bank Bill | Long | 3 | 2,258,566 | 12/13/18 | 425 | ||||||||||||||||||||
90 Day Eurodollar | Short | 1 | 245,637 | 3/19/18 | 373 | ||||||||||||||||||||
90 Day Eurodollar | Short | 4 | 981,050 | 6/18/18 | 1,855 | ||||||||||||||||||||
90 Day Eurodollar | Short | 6 | 1,470,150 | 9/17/18 | 2,313 | ||||||||||||||||||||
90 Day Eurodollar | Short | 20 | 4,896,250 | 12/17/18 | 4,561 | ||||||||||||||||||||
90 Day Eurodollar | Short | 4 | 978,700 | 3/18/19 | 1,317 | ||||||||||||||||||||
90 Day Eurodollar | Short | 8 | 1,956,400 | 6/17/19 | 1,721 | ||||||||||||||||||||
90 Day Eurodollar | Short | 1 | 244,450 | 9/16/19 | 573 | ||||||||||||||||||||
90 Day Eurodollar | Short | 1 | 244,337 | 12/16/19 | 136 | ||||||||||||||||||||
90 Day Eurodollar | Short | 1 | 244,287 | 3/16/20 | 148 | ||||||||||||||||||||
90 Day Sterling | Long | 1 | 167,646 | 9/19/18 | (51 | ) | |||||||||||||||||||
90 Day Sterling | Long | 1 | 167,528 | 12/19/18 | (68 | ) | |||||||||||||||||||
90 Day Sterling | Long | 1 | 167,426 | 3/20/19 | (86 | ) | |||||||||||||||||||
90 Day Sterling | Long | 1 | 167,325 | 6/19/19 | (85 | ) | |||||||||||||||||||
90 Day Sterling | Long | 1 | 167,240 | 9/18/19 | (102 | ) | |||||||||||||||||||
90 Day Sterling | Long | 1 | 167,156 | 12/18/19 | (102 | ) | |||||||||||||||||||
Australian 3 Yr. Bond | Long | 7 | 592,312 | 12/15/17 | 317 | ||||||||||||||||||||
Australian 10 Yr. Bond | Long | 3 | 296,649 | 12/15/17 | 1,552 | ||||||||||||||||||||
Canada 10 Yr. Bond | Long | 5 | 529,784 | 3/20/18 | 272 | ||||||||||||||||||||
Canada 10 Yr. Bond | Short | 1 | 105,957 | 3/20/18 | 99 | ||||||||||||||||||||
Euro BOBL | Long | 4 | 626,119 | 12/07/17 | 199 | ||||||||||||||||||||
Euro BOBL | Short | 1 | 156,530 | 12/07/17 | 189 | ||||||||||||||||||||
Euro BOBL | Long | 1 | 157,268 | 3/08/18 | 130 | ||||||||||||||||||||
Euro OAT | Long | 2 | 377,618 | 12/07/17 | 5,975 | ||||||||||||||||||||
Euro Schatz | Long | 2 | 267,068 | 12/07/17 | 42 | ||||||||||||||||||||
Euro-BTP Italian Government Bond | Long | 5 | 838,352 | 12/07/17 | 25,334 | ||||||||||||||||||||
Euro-Bund | Long | 4 | 774,710 | 12/07/17 | 1,146 | ||||||||||||||||||||
Euro-Bund | Short | 2 | 387,355 | 12/07/17 | (506 | ) | |||||||||||||||||||
Euro-Buxl 30 Yr. Bond | Long | 1 | 198,938 | 12/07/17 | 74 | ||||||||||||||||||||
Euro-Buxl 30 Yr. Bond | Short | 1 | 198,938 | 12/07/17 | 64 | ||||||||||||||||||||
Long Gilt | Long | 5 | 835,779 | 3/27/18 | (3,862 | ) | |||||||||||||||||||
U.S. Treasury 2 Yr. Note | Short | 16 | 3,430,500 | 3/29/18 | 1,916 | ||||||||||||||||||||
U.S. Treasury 5 Yr. Note | Short | 17 | 1,977,844 | 3/29/18 | 5,226 | ||||||||||||||||||||
U.S. Treasury Long Bond | Long | 1 | 151,719 | 3/20/18 | (1,314 | ) | |||||||||||||||||||
U.S. Treasury Ultra Bond | Long | 1 | 164,875 | 3/20/18 | (752 | ) | |||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
34,768,903 | 51,301 | ||||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Futures Contracts | $ | 270,984 | |||||||||||||||||||||||
|
|
*As of period end.
aA portion or all of the contracts are owned by K2 GMOF Holdings Corp., a wholly-owned subsidiary of the Fund. See Note 1(e).
At November 30, 2017, the Fund had the following forward exchange contracts outstanding. See Note 1(d).
Forward Exchange Contracts
Currency | Counterpartya | Type | Quantity | Contract Amount* | Settlement Date | Unrealized Appreciation | Unrealized Depreciation | |||||||||||||||||||||
OTC Forward Exchange Contracts |
| |||||||||||||||||||||||||||
Brazilian Real | JPHQ | Buy | 402,958 | 123,251 | 12/04/17 | $ — | $ (207 | ) | ||||||||||||||||||||
Brazilian Real | JPHQ | Sell | 402,958 | 122,571 | 12/04/17 | — | (473 | ) | ||||||||||||||||||||
Czech Koruna | JPHQ | Sell | 10,725,397 | 408,927 | EUR | 12/15/17 | 24,230 | (38,137 | ) | |||||||||||||||||||
Euro | JPHQ | Sell | 2,497 | 2,963 | 12/15/17 | 13 | — | |||||||||||||||||||||
Euro | JPHQ | Sell | 411,425 | 10,725,397 | CZK | 12/15/17 | 34,237 | (23,305 | ) |
18 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Global Macro Opportunities Fund (continued)
Forward Exchange Contracts (continued)
Currency | Counterpartya | Type | Quantity | Contract Amount* | Settlement Date | Unrealized Appreciation | Unrealized Depreciation | ||||||||||||||||||||||
OTC Forward Exchange Contracts (continued) | |||||||||||||||||||||||||||||
Indian Rupee | JPHQ | Sell | 9,570,448 | 145,348 | 12/18/17 | $ | — | $ | (2,771 | ) | |||||||||||||||||||
Brazilian Real | JPHQ | Buy | 946,719 | 300,000 | 12/20/17 | — | (11,432 | ) | |||||||||||||||||||||
Brazilian Real | JPHQ | Sell | 488,908 | 150,000 | 12/20/17 | 1,451 | (474 | ) | |||||||||||||||||||||
Chilean Peso | JPHQ | Buy | 248,004,090 | 400,000 | 12/20/17 | — | (16,868 | ) | |||||||||||||||||||||
Chilean Peso | JPHQ | Sell | 95,398,865 | 150,000 | 12/20/17 | 2,622 | — | ||||||||||||||||||||||
Chinese Yuan | JPHQ | Buy | 1,650,118 | 250,000 | 12/20/17 | 232 | (1,016 | ) | |||||||||||||||||||||
Chinese Yuan | JPHQ | Sell | 2,491,643 | 375,607 | 12/20/17 | 365 | (1,068 | ) | |||||||||||||||||||||
Euro | JPHQ | Buy | 593,811 | 704,943 | 12/20/17 | 4,781 | (1,873 | ) | |||||||||||||||||||||
Euro | JPHQ | Sell | 855,825 | 1,026,696 | 12/20/17 | 7,369 | (856 | ) | |||||||||||||||||||||
Euro | JPHQ | Sell | 300,000 | 92,199,476 | HUF | 12/20/17 | 1,838 | (8,374 | ) | ||||||||||||||||||||
Euro | JPHQ | Sell | 550,000 | 5,280,662 | NOK | 12/20/17 | 2,662 | (23,051 | ) | ||||||||||||||||||||
Euro | JPHQ | Sell | 200,000 | 850,119 | PLN | 12/20/17 | 5,295 | (2,776 | ) | ||||||||||||||||||||
Euro | JPHQ | Sell | 500,000 | 4,920,923 | SEK | 12/20/17 | 442 | (7,507 | ) | ||||||||||||||||||||
Hungarian Forint | JPHQ | Sell | 93,360,982 | 300,000 | EUR | 12/20/17 | 5,910 | (3,796 | ) | ||||||||||||||||||||
Indian Rupee | JPHQ | Buy | 36,031,310 | 555,237 | 12/20/17 | 2,280 | — | ||||||||||||||||||||||
Indian Rupee | JPHQ | Sell | 26,428,890 | 406,400 | 12/20/17 | 125 | (2,662 | ) | |||||||||||||||||||||
Mexican Peso | JPHQ | Buy | 9,775,244 | 513,321 | 12/20/17 | 10,240 | (914 | ) | |||||||||||||||||||||
Mexican Peso | JPHQ | Sell | 11,171,660 | 611,859 | 12/20/17 | 17,162 | (2,611 | ) | |||||||||||||||||||||
New Israeli Shekel | JPHQ | Buy | 1,402,423 | 400,000 | 12/20/17 | 1,575 | (24 | ) | |||||||||||||||||||||
New Israeli Shekel | JPHQ | Sell | 704,188 | 200,000 | 12/20/17 | — | (1,628 | ) | |||||||||||||||||||||
Norwegian Krone | JPHQ | Sell | 5,240,612 | 550,000 | EUR | 12/20/17 | 26,675 | (1,468 | ) | ||||||||||||||||||||
Philippine Peso | JPHQ | Buy | 2,540,250 | 50,000 | 12/20/17 | 481 | — | ||||||||||||||||||||||
Polish Zloty | JPHQ | Sell | 841,453 | 200,000 | EUR | 12/20/17 | 478 | (541 | ) | ||||||||||||||||||||
Russian Ruble | JPHQ | Buy | 65,443,186 | 1,117,753 | 12/20/17 | 2,499 | (5,027 | ) | |||||||||||||||||||||
Russian Ruble | JPHQ | Sell | 61,838,070 | 1,055,387 | 12/20/17 | 3,881 | (2,283 | ) | |||||||||||||||||||||
Singapore Dollar | JPHQ | Buy | 134,288 | 100,000 | 12/20/17 | — | (416 | ) | |||||||||||||||||||||
Singapore Dollar | JPHQ | Sell | 68,241 | 50,000 | 12/20/17 | — | (605 | ) | |||||||||||||||||||||
South African Rand | JPHQ | Buy | 9,698,917 | 699,349 | 12/20/17 | 10,406 | (4,949 | ) | |||||||||||||||||||||
South African Rand | JPHQ | Sell | 11,018,879 | 798,030 | 12/20/17 | 8,086 | (10,785 | ) | |||||||||||||||||||||
South Korean Won | JPHQ | Buy | 169,012,641 | 150,000 | 12/20/17 | 5,331 | — | ||||||||||||||||||||||
South Korean Won | JPHQ | Sell | 464,410,294 | 411,760 | 12/20/17 | 8 | (15,063 | ) | |||||||||||||||||||||
Swedish Krona | JPHQ | Sell | 7,824,792 | 800,000 | EUR | 12/20/17 | 19,916 | (2,785 | ) | ||||||||||||||||||||
Taiwan Dollar | JPHQ | Buy | 4,514,377 | 150,000 | 12/20/17 | 667 | — | ||||||||||||||||||||||
Taiwan Dollar | JPHQ | Sell | 7,527,108 | 250,000 | 12/20/17 | 336 | (1,552 | ) | |||||||||||||||||||||
Thai Baht | JPHQ | Buy | 11,570,078 | 350,000 | 12/20/17 | 4,421 | — | ||||||||||||||||||||||
Thai Baht | JPHQ | Sell | 6,581,467 | 200,000 | 12/20/17 | 119 | (1,726 | ) | |||||||||||||||||||||
Turkish Lira | JPHQ | Buy | 2,844,912 | 765,868 | 12/20/17 | 1,159 | (45,193 | ) | |||||||||||||||||||||
Turkish Lira | JPHQ | Sell | 2,878,135 | 763,753 | 12/20/17 | 33,624 | (135 | ) | |||||||||||||||||||||
Indonesian Rupiah | JPHQ | Buy | 1,190,522,914 | 87,926 | 12/21/17 | — | (76 | ) | |||||||||||||||||||||
Australian Dollar | MSCO | Buy | 1,552,000 | 1,234,698 | 12/22/17 | — | (60,886 | ) | |||||||||||||||||||||
Australian Dollar | MSCO | Sell | 2,239,000 | 1,714,162 | 12/22/17 | 20,922 | (162 | ) | |||||||||||||||||||||
British Pound | MSCO | Buy | 1,174,000 | 1,572,490 | 12/22/17 | 19,328 | (2,515 | ) | |||||||||||||||||||||
British Pound | MSCO | Sell | 569,000 | 750,007 | 12/22/17 | — | (20,276 | ) | |||||||||||||||||||||
Canadian Dollar | MSCO | Buy | 1,835,000 | 1,489,481 | 12/22/17 | — | (66,593 | ) | |||||||||||||||||||||
Canadian Dollar | MSCO | Sell | 1,034,000 | 811,309 | 12/22/17 | 9,528 | — | ||||||||||||||||||||||
Euro | MSCO | Buy | 1,302,000 | 1,552,989 | 12/22/17 | 5,420 | (6,130 | ) | |||||||||||||||||||||
Euro | MSCO | Sell | 708,000 | 835,637 | 12/22/17 | 43 | (8,502 | ) | |||||||||||||||||||||
Japanese Yen | MSCO | Buy | 186,186,000 | 1,670,508 | 12/22/17 | 2,674 | (16,547 | ) | |||||||||||||||||||||
Japanese Yen | MSCO | Sell | 203,746,000 | 1,815,713 | 12/22/17 | 11,560 | (8,725 | ) | |||||||||||||||||||||
Mexican Peso | MSCO | Buy | 9,031,000 | 496,337 | 12/22/17 | 1,635 | (15,295 | ) | |||||||||||||||||||||
Mexican Peso | MSCO | Sell | 5,449,000 | 295,650 | 12/22/17 | 6,260 | (1,840 | ) | |||||||||||||||||||||
New Zealand Dollar | MSCO | Buy | 863,000 | 616,769 | 12/22/17 | — | (27,098 | ) | |||||||||||||||||||||
New Zealand Dollar | MSCO | Sell | 1,465,000 | 1,018,691 | 12/22/17 | 17,802 | (118 | ) | |||||||||||||||||||||
Swiss Franc | MSCO | Buy | 842,000 | 873,745 | 12/22/17 | 755 | (16,730 | ) | |||||||||||||||||||||
Swiss Franc | MSCO | Sell | 1,069,000 | 1,096,374 | 12/22/17 | 13,306 | (5,953 | ) | |||||||||||||||||||||
Brazilian Real | JPHQ | Buy | 286,363 | 87,466 | 1/03/18 | — | (320 | ) | |||||||||||||||||||||
Euro | JPHQ | Sell | 76,449 | 2,031,397 | CZK | 1/10/18 | 10,429 | (6,488 | ) |
franklintempleton.com | Semiannual Report | 19 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Global Macro Opportunities Fund (continued)
Forward Exchange Contracts (continued)
Contract | Settlement | Unrealized | Unrealized | ||||||||||||||||||||||||||
Currency | Counterpartya | Type | Quantity | Amount* | Date | Appreciation | Depreciation | ||||||||||||||||||||||
OTC Forward Exchange Contracts (continued) | |||||||||||||||||||||||||||||
Czech Koruna | JPHQ | Sell | 2,031,397 | 76,860 | EUR | 1/10/18 | $ 8,718 | $ (12,167) | |||||||||||||||||||||
Euro | JPHQ | Sell | 411 | 455 | 1/10/18 | — | (35 | ) | |||||||||||||||||||||
Euro | JPHQ | Sell | 200,000 | 845,695 | PLN | 3/21/18 | 624 | (589 | ) | ||||||||||||||||||||
Euro | JPHQ | Sell | 100,000 | 990,968 | SEK | 3/21/18 | — | (562 | ) | ||||||||||||||||||||
Norwegian Krone | JPHQ | Sell | 2,938,776 | 300,000 | EUR | 3/21/18 | 5,193 | — | |||||||||||||||||||||
Polish Zloty | JPHQ | Sell | 211,357 | 50,000 | EUR | 3/21/18 | 245 | (235 | ) | ||||||||||||||||||||
South Korean Won | JPHQ | Buy | 54,367,714 | 50,000 | 3/21/18 | — | (3 | ) | |||||||||||||||||||||
Swedish Krona | JPHQ | Sell | 2,973,223 | 300,000 | EUR | 3/21/18 | 1,645 | — | |||||||||||||||||||||
South African Rand | JPHQ | Sell | 697,985 | 50,000 | 3/22/18 | 23 | — | ||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
Total Forward Exchange Contracts | $377,026 | $(522,196 | ) | ||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
Net unrealized appreciation (depreciation) | $(145,170 | ) | |||||||||||||||||||||||||||
|
|
*In U.S. dollars unless otherwise indicated.
aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
At November 30, 2017, the Fund had the following credit default swap contracts outstanding. See Note 1(d).
Credit Default Swap Contracts
Description | Periodic 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 | 12/20/21 | $ | 191,000 | $ (1,747 | ) | $ 5,408 | $ (7,155) | ||||||||||||||||||||||
Government of South Africa | (1.00 | %) | Quarterly | 12/20/21 | 275,000 | 4,690 | 18,824 | (14,134 | ) | |||||||||||||||||||||||
Government of South Africa | (1.00 | %) | Quarterly | 6/20/22 | 168,000 | 4,571 | 8,826 | (4,255 | ) | |||||||||||||||||||||||
Government of South Africa | (1.00 | %) | Quarterly | 12/20/22 | 7,000 | 259 | 241 | 18 | ||||||||||||||||||||||||
Government of South Korea | (1.00 | %) | Quarterly | 12/20/21 | 207,885 | (4,031 | ) | (5,982 | ) | 1,951 | ||||||||||||||||||||||
Government of South Korea | (1.00 | %) | Quarterly | 12/20/22 | 27,280 | (542 | ) | (652 | ) | 110 | ||||||||||||||||||||||
Government of Turkey | (1.00 | %) | Quarterly | 6/20/21 | 405,000 | 6,819 | 24,334 | (17,515 | ) | |||||||||||||||||||||||
Government of Turkey | (1.00 | %) | Quarterly | 12/20/21 | 43,000 | 1,046 | 2,630 | (1,584 | ) | |||||||||||||||||||||||
Contracts to Sell Protectionc,d | ||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||
Government of Russia | 1.00 | % | Quarterly | 12/20/21 | 393,000 | 122 | (14,594 | ) | 14,716 | BB+ | ||||||||||||||||||||||
Government of Turkey | 1.00 | % | Quarterly | 12/20/22 | 105,000 | (4,756 | ) | (4,748 | ) | (8 | ) | BB+ | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Total Credit Default Swap Contracts | $ 6,431 | $34,287 | $ (27,856 | ) | ||||||||||||||||||||||||||||
|
|
aFor 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.
dThe Fund enters contracts to sell protection to create a long credit position.
20 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Global Macro Opportunities Fund (continued)
At November 30, 2017, the Fund had the following cross-currency swap contracts outstanding. See Note 1(d).
Cross-Currency Swap Contracts
Description | Payment Frequency | Counterparty | Maturity Date | Notional Amount | Value/Unrealized Appreciation (Depreciation) | |||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||
Receive Fixed 10.33% | Quarterly | BOFA | 12/20/22 | 1,010,032 | TRY | $(17,642) | ||||||||||||||
Pay Floating 3 Month USD-LIBOR | 288,993 | USD | ||||||||||||||||||
Receive Fixed 10.92% | Quarterly | BOFA | 12/20/22 | 338,285 | TRY | (4,023) | ||||||||||||||
Pay Floating 3 Month USD-LIBOR | 92,529 | USD | ||||||||||||||||||
|
| |||||||||||||||||||
Total Cross-Currency Swap Contracts | $(21,665) | |||||||||||||||||||
|
|
At November 30, 2017, the Fund had the following interest rate swap contracts outstanding. See Note 1(d).
Interest Rate Swap Contracts
Description | Payment Frequency | Maturity Date | Notional Amount | Value/Unrealized Appreciation (Depreciation) | ||||||||||||
Centrally Cleared Swap Contracts | ||||||||||||||||
Receive Fixed rate 8.37% | ||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/02/20 | 583,685 | BRL | $— | |||||||||||
Receive Fixed rate 8.38% | ||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/02/20 | 583,686 | BRL | — | |||||||||||
Receive Fixed rate 8.79% | ||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/04/21 | 436,229 | BRL | (1,407) | |||||||||||
Receive Fixed rate 9.38% | ||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/04/21 | 971,485 | BRL | 2,174 | |||||||||||
Receive Fixed rate 9.94% | ||||||||||||||||
Pay Floating rate BRL-BRLCDI | Annually | 1/04/21 | 639,696 | BRL | 4,129 | |||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||
Pay Fixed rate 1.29% | Semi-Annually | 2/28/67 | 71,000 | GBP | 6,076 | |||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||
Pay Fixed rate 1.41% | Semi-Annually | 8/04/67 | 60,000 | GBP | 1,547 | |||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||
Pay Fixed rate 1.60% | Semi-Annually | 12/03/46 | 38,267 | GBP | 69 | |||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||
Pay Fixed rate 1.56% | Semi-Annually | 11/29/46 | 78,445 | GBP | 1,069 | |||||||||||
Receive Floating rate 6 Month GBP-LIBOR | ||||||||||||||||
Pay Fixed rate 1.44% | Semi-Annually | 1/07/47 | 85,166 | GBP | 4,072 | |||||||||||
|
| |||||||||||||||
Total Interest Rate Swap Contracts | $17,729 | |||||||||||||||
|
|
At November 30, 2017, the Fund had the following total return swap contracts outstanding. See Note 1(d).
Total Return Swap Contracts
Underlying Instrument | Financing Rate | Payment Frequency | Counterparty | Maturity Date | Notional Value | Value/Unrealized Appreciation (Depreciation) | ||||||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||||||
Fixed Income Contracts - Longa | ||||||||||||||||||||||||
Banco Central de la Republica | ||||||||||||||||||||||||
Argentina SA | 3-Month LIBOR + 1.25 | % | Annually | JPHQ | 5/16/18 | $ | 50,190 | $1,724 | ||||||||||||||||
Banco Central de la Republica | ||||||||||||||||||||||||
Argentina SA | 3-Month LIBOR + 1.25 | % | Monthly | JPHQ | 6/21/18 | 43,660 | 944 | |||||||||||||||||
|
| |||||||||||||||||||||||
Total Return Swap Contracts | $2,668 | |||||||||||||||||||||||
|
|
a The Fund receives the total return on the underlying instrument and pays a variable financing rate.
See Abbreviations on page 37.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 21 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Financial Statements
Consolidated Statement of Assets and Liabilities
November 30, 2017 (unaudited)
Franklin K2 Global Macro Opportunities Fund
Assets: | ||||
Investments in securities: | ||||
Cost - Unaffiliated issuers | $21,032,342 | |||
Cost - Unaffiliated repurchase agreements | 522,655 | |||
|
| |||
Value - Unaffiliated issuers | $21,162,136 | |||
Value - Unaffiliated repurchase agreements | 522,655 | |||
Foreign currency, at value (cost $1,327) | 1,370 | |||
Receivables: | ||||
Investment securities sold | 170,638 | |||
Interest | 42,291 | |||
Affiliates | 47,664 | |||
Deposits with brokers for: | ||||
OTC derivative contracts | 380,000 | |||
Futures contracts | 857,452 | |||
Centrally cleared swap contracts | 464,673 | |||
Due from brokers | 57,065 | |||
Unrealized appreciation on OTC forward exchange contracts | 377,026 | |||
Unrealized appreciation on OTC swap contracts | 2,668 | |||
Other assets | 4 | |||
|
| |||
Total assets | 24,085,642 | |||
|
| |||
Liabilities: | ||||
Payables: | ||||
Investment securities purchased | 24,215 | |||
Distribution fees | 143 | |||
Transfer agent fees | 1,401 | |||
Trustees fees and expenses | 5 | |||
Variation margin on futures contracts | 11,987 | |||
Variation margin on centrally cleared swap contracts | 234 | |||
Due to brokers | 61,356 | |||
Unrealized depreciation on OTC forward exchange contracts | 522,196 | |||
Unrealized depreciation on OTC swap contracts | 21,665 | |||
Accrued expenses and other liabilities | 4,015 | |||
|
| |||
Total liabilities | 647,217 | |||
|
| |||
Net assets, at value | $23,438,425 | |||
|
| |||
Net assets consist of: | ||||
Paid-in capital | $24,160,401 | |||
Undistributed net investment income | 180,587 | |||
Net unrealized appreciation (depreciation) | 226,912 | |||
Accumulated net realized gain (loss) | (1,129,475 | ) | ||
|
| |||
Net assets, at value | $23,438,425 | |||
|
|
22 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Assets and Liabilities (continued)
November 30, 2017 (unaudited)
Franklin K2 Global Macro Opportunities Fund
Class A: | ||||
Net assets, at value | $ | 121,736 | ||
|
| |||
Shares outstanding | 13,190 | |||
|
| |||
Net asset value per sharea | $9.23 | |||
|
| |||
Maximum offering price per share (net asset value per share ÷ 94.25%) | $9.79 | |||
|
| |||
Class C: | ||||
Net assets, at value | $ | 143,371 | ||
|
| |||
Shares outstanding | 15,694 | |||
|
| |||
Net asset value and maximum offering price per sharea | $9.14 | |||
|
| |||
Class R: | ||||
Net assets, at value | $ | 9,219 | ||
|
| |||
Shares outstanding | 1,000 | |||
|
| |||
Net asset value and maximum offering price per share | $9.22 | |||
|
| |||
Class R6: | ||||
Net assets, at value | $ | 9,243 | ||
|
| |||
Shares outstanding | 1,000 | |||
|
| |||
Net asset value and maximum offering price per share | $9.24 | |||
|
| |||
Advisor Class: | ||||
Net assets, at value | $ | 23,154,856 | ||
|
| |||
Shares outstanding | 2,504,436 | |||
|
| |||
Net asset value and maximum offering price per share | $9.25 | |||
|
|
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 23 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations
for the six months ended November 30, 2017 (unaudited)
Franklin K2 Global Macro Opportunities Fund
Investment income: | ||||
Dividends: | ||||
Unaffiliated issuers | $ | 72,998 | ||
Interest: | ||||
Unaffiliated issuers | 179,164 | |||
|
| |||
Total investment income | 252,162 | |||
|
| |||
Expenses: | ||||
Management fees (Note 3a) | 233,429 | |||
Distribution fees: (Note 3c) | ||||
Class A | 132 | |||
Class C | 787 | |||
Class R | 12 | |||
Transfer agent fees: (Note 3e) | ||||
Class A | 9 | |||
Class C | 13 | |||
Class R | 1 | |||
Advisor Class | 1,916 | |||
Custodian fees (Note 4) | 32,455 | |||
Reports to shareholders | 5,844 | |||
Registration and filing fees | 34,574 | |||
Professional fees | 48,215 | |||
Amortization of offering costs | 38,861 | |||
Other | 3,993 | |||
|
| |||
Total expenses | 400,241 | |||
Expense reductions (Note 4) | (12 | ) | ||
Expenses waived/paid by affiliates (Note 3f) | (171,679 | ) | ||
|
| |||
Net expenses | 228,550 | |||
|
| |||
Net investment income | 23,612 | |||
|
| |||
Realized and unrealized gains (losses): | ||||
Net realized gain (loss) from: | ||||
Investments: | ||||
Unaffiliated issuers | (14,633 | ) | ||
Foreign currency transactions | (1,037 | ) | ||
Forward exchange contracts | (190,310 | ) | ||
Futures contracts | (179,098 | ) | ||
Swap contracts | (8,385 | ) | ||
|
| |||
Net realized gain (loss) | (393,463 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments: | ||||
Unaffiliated issuers | 73,838 | |||
Translation of other assets and liabilities denominated in foreign currencies | 56 | |||
Forward exchange contracts | 135,271 | |||
Futures contracts | 288,205 | |||
Swap contracts | 2,592 | |||
|
| |||
Net change in unrealized appreciation (depreciation) | 499,962 | |||
|
| |||
Net realized and unrealized gain (loss) | 106,499 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 130,111 | ||
|
|
24 | Semiannual Report | The accompanying notes are an integral part of these financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Net Assets
Franklin K2 Global Macro Opportunities Fund
Six Months Ended November 30, 2017 (unaudited) | Year Ended May 31, 2017a | |||||||
Increase (decrease) in net assets: | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ 23,612 | $ (175,068 | ) | |||||
Net realized gain (loss) | (393,463 | ) | (1,433,043 | ) | ||||
Net change in unrealized appreciation (depreciation) | 499,962 | (273,050 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 130,111 | (1,881,161 | ) | |||||
|
| |||||||
Distributions to shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | — | (183 | ) | |||||
Class C | — | (661 | ) | |||||
Class R | — | (60 | ) | |||||
Class R6 | — | (60 | ) | |||||
Advisor Class | — | (148,675 | ) | |||||
|
| |||||||
Total distributions to shareholders | — | (149,639 | ) | |||||
|
| |||||||
Capital share transactions: (Note 2) | ||||||||
Class A | 31,643 | 91,676 | ||||||
Class C | (44,741 | ) | 200,616 | |||||
Class R | — | 10,000 | ||||||
Class R6 | — | 10,000 | ||||||
Advisor Class | 50,100 | 24,989,820 | ||||||
|
| |||||||
Total capital share transactions | 37,002 | 25,302,112 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 167,113 | 23,271,312 | ||||||
Net assets: | ||||||||
Beginning of period | 23,271,312 | — | ||||||
|
| |||||||
End of period | $23,438,425 | $23,271,312 | ||||||
|
| |||||||
Undistributed net investment income included in net assets: | ||||||||
End of period | $ 180,587 | $ 156,975 | ||||||
|
|
aFor the period July 11, 2016 (commencement of operations) to May 31, 2017.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 25 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Notes to Consolidated Financial Statements
Franklin K2 Global Macro Opportunities 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 four separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin K2 Global Macro Opportunities 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. 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 as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. 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 VC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Debt securities generally trade in the over-the-counter (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.
Derivative financial instruments (derivatives) listed on an exchange are valued at the official closing price of the day. Certain derivatives 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 VC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
b. Foreign Currency Translation
Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on
26 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Global Macro Opportunities Fund (continued)
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 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 period end, as indicated in the Consolidated Statement of Investments, had been entered into on November 30, 2017.
d. Derivative Financial Instruments
The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown 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
franklintempleton.com | Semiannual Report | 27 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Global Macro Opportunities Fund (continued)
1. Organization and Significant Accounting
Policies (continued)
d. Derivative Financial Instruments (continued)
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, certain foreign currencies and equity price risk. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset at a specified price on a future date. Required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities.
The Fund entered into OTC forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.
The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (OTC credit default swaps) or may be executed in a multilateral trade facility platform, such as a registered exchange (centrally cleared credit default swaps). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, a basket of issuers or indices, or a tranche of a credit index or basket of issuers or indices. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. For centrally cleared credit default swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Upfront payments and receipts are reflected in the Consolidated Statement of Assets and Liabilities and represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments and receipts are amortized over the term of the contract as a realized gain or loss in the Consolidated Statement of Operations.
The Fund entered into OTC cross currency swap contracts primarily to manage and/or gain exposure to certain foreign currencies. A cross currency swap is an agreement between the Fund and a counterparty to exchange cash flows (determined using either a fixed or floating rate) based on the notional amounts of two different currencies. The notional amounts are typically determined based on the spot exchange rates at the
28 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Global Macro Opportunities Fund (continued)
opening of the contract. Cross currency swaps may require the exchange of notional amounts at the opening and/or closing of the contract. 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. Upfront payments and receipts, if any, are reflected in the Consolidated Statement of Assets and Liabilities and represent compensating factors between stated terms of the cross currency swap contract and prevailing market conditions (interest rate 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 risk. 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.
See Note 7 regarding other derivative information.
e. Investments in K2 GMOF Holdings 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 November 30, 2017, 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. The financial statements have been consolidated and include the accounts of the Fund and the K2 Subsidiary. All inter-company 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 November 30, 2017, the net assets of the K2 Subsidiary were $5,041,857, representing 21.5% of the Fund’s consolidated net assets. The Fund’s investment in the K2 Subsidiary is limited to 25% of consolidated assets.
f. 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 November 30, 2017, 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.
franklintempleton.com | Semiannual Report | 29 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Global Macro Opportunities Fund (continued)
1. Organization and Significant Accounting
Policies (continued)
g. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividend income is recorded on the ex-dividend date. 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. 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.
h. Offering Costs
Offering costs are amortized on a straight line basis over the first twelve months of operations.
i. 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.
j. 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 November 30, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
Six Months Ended November 30, 2017 | Year Ended May 31, 2017a | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares: | ||||||||||||||||
Shares sold | 3,548 | $ | 32,643 | 9,921 | $ | 93,309 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 13 | 125 | ||||||||||||
Shares redeemed | (110 | ) | (1,000 | ) | (182 | ) | (1,758 | ) | ||||||||
Net increase (decrease) | 3,438 | $ | 31,643 | 9,752 | $ | 91,676 | ||||||||||
Class C Shares: | ||||||||||||||||
Shares sold | 2,352 | $ | 21,404 | 20,588 | $ | 200,170 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 65 | 617 | ||||||||||||
Shares redeemed | (7,293 | ) | (66,145 | ) | (18 | ) | (171 | ) | ||||||||
Net increase (decrease) | (4,941 | ) | $ | (44,741 | ) | 20,635 | $ | 200,616 |
30 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Global Macro Opportunities Fund (continued)
Six Months Ended November 30, 2017 | Year Ended May 31, 2017a | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
| ||||||||||||||||
Class R Shares: | ||||||||||||||||
Shares sold | — | $ | — | 1,001 | $ | 10,010 | ||||||||||
Shares redeemed | — | — | (1 | ) | (10 | ) | ||||||||||
|
| |||||||||||||||
Net increase (decrease) | — | $ | — | 1,000 | $ | 10,000 | ||||||||||
|
| |||||||||||||||
Class R6 Shares: | ||||||||||||||||
Shares sold | — | $ | — | 1,001 | $ | 10,010 | ||||||||||
Shares redeemed | — | — | (1 | ) | (10 | ) | ||||||||||
|
| |||||||||||||||
Net increase (decrease) | — | $ | — | 1,000 | $ | 10,000 | ||||||||||
|
| |||||||||||||||
Advisor Class Shares: | ||||||||||||||||
Shares sold | 5,971 | $ | 55,200 | 2,499,776 | $ | 24,996,798 | ||||||||||
Shares issued in reinvestment of distributions | — | — | 17 | 163 | ||||||||||||
Shares redeemed | (554 | ) | (5,100 | ) | (774 | ) | (7,141 | ) | ||||||||
|
| |||||||||||||||
Net increase (decrease) | 5,417 | $ | 50,100 | 2,499,019 | $ | 24,989,820 | ||||||||||
|
|
aFor the period July 11, 2016 (commencement of operations) to May 31, 2017.
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
Subsidiary | Affiliation | |
| ||
K2/D&S Management Co., L.L.C. (K2 Advisors) | Investment manager | |
| ||
Franklin Templeton Services, LLC (FT Services) | Administrative manager | |
| ||
Franklin Templeton Distributors, Inc. (Distributors) | Principal underwriter | |
| ||
Franklin Templeton Investor Services, LLC (Investor Services) | Transfer agent | |
|
a. Management Fees
The Fund and K2 Subsidiary pay an investment management fee to K2 Advisors of 1.90% per year of the average daily net assets of the Fund and K2 Subsidiary. Management fees paid by the Fund are reduced on assets invested in the K2 Subsidiary, in an amount not to exceed the management fees paid by the K2 Subsidiary.
Prior to October 1, 2017, the Fund and K2 Subsidiary paid fees to K2 Advisors of 2.05% per year of the average daily net assets of the Fund and K2 Subsidiary.
Under each subadvisory agreement, the below entities provide subadvisory services to the Fund or K2 Subsidiary. The subadvisory fees are 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.
Subadvisors |
|
Aspect Capital Limited |
|
Emso Asset Management Limited |
|
Graham Capital Management L.P. |
|
P/E GLOBAL LLC |
|
franklintempleton.com | Semiannual Report | 31 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Global Macro Opportunities Fund (continued)
3. Transactions with Affiliates (continued)
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 | 0.25 | % | ||
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 period:
Sales charges retained net of commissions paid to unaffiliated broker/dealers | $ | 100 | ||
CDSC retained | $ | 41 |
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. 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 period ended November 30, 2017, the Fund paid transfer agent fees of $1,939, of which $403 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 its own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses, and expenses related to securities sold short) for each class of the Fund do not exceed 1.95% based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until September 30, 2018. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end. Prior to October 1, 2017, expenses for Class R6 were limited to 1.94%.
32 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Global Macro Opportunities Fund (continued)
g. Other Affiliated Transactions
At November 30, 2017, Franklin Resources, Inc. owned 98.6% of the Fund’s outstanding shares. Investment activities of this shareholder could have a material impact on the Fund.
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended November 30, 2017, 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, if any. At May 31, 2017, the capital loss carryforwards were as follows:
Capital loss carryforwards: | ||||
Short term | $ | 297,021 | ||
Long term | 503,314 | |||
|
| |||
Total capital loss carryforwards | $ | 800,335 | ||
|
|
At November 30, 2017, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
Cost of investments | $ | 21,598,451 | ||
|
| |||
Unrealized appreciation | $ | 953,187 | ||
Unrealized depreciation | (735,224) | |||
|
| |||
Net unrealized appreciation (depreciation) | $ | 217,963 | ||
|
|
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, investments in the K2 Subsidiary and offering costs.
6. Investment Transactions
Purchases and sales of investments (excluding short term securities) for the period ended November 30, 2017, aggregated $1,948,813 and $2,868,559, respectively.
franklintempleton.com | Semiannual Report | 33 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Global Macro Opportunities Fund (continued)
7. Other Derivative Information
At November 30, 2017, the Fund’s 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 contract | $ | 58,309 | a | Variation margin on futures contract | $ | 7,008 | a | ||||
Variation margin on centrally cleared swap contracts | 19,136 | a | Variation margin on centrally cleared swap contracts | 1,407 | a | |||||||
Unrealized appreciation on OTC swap contracts | 2,668 | |||||||||||
Foreign exchange contracts | Variation margin on futures contracts | 126,810 | a | Variation margin on futures contracts | 2,670 | a | ||||||
Unrealized depreciation on OTC swap contracts | 21,665 | |||||||||||
Unrealized appreciation on OTC forward exchange contracts | 377,026 | Unrealized depreciation on OTC forward exchange contracts | 522,196 | |||||||||
Credit contracts | Variation margin on centrally | 16,795 | a | Variation margin on centrally | 44,651 | a | ||||||
cleared swap contracts | cleared swap contracts | |||||||||||
Equity contracts | Variation margin on futures contracts | 167,382 | a | Variation margin on futures contracts | 56,812 | a | ||||||
Commodity contracts | Variation margin on futures contracts | 61,426 | a | Variation margin on futures contracts | 76,453 | a | ||||||
|
|
|
| |||||||||
Totals | $829,552 | $732,862 | ||||||||||
|
|
|
|
aThis 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 period end is separately reported within the Consolidated Statement of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.
For the period ended November 30, 2017, the effect of derivative contracts in the Fund’s Consolidated Statement of Operations was as follows:
Derivative Contracts Not Accounted for as | Consolidated Statement of Operations Location | Net Realized Gain (Loss) for the Period | Consolidated Statement of Operations Location | Net Change in Unrealized Appreciation (Depreciation) for the Period | ||||||
Net realized gain (loss) from: | Net change in unrealized appreciation (depreciation) on: | |||||||||
Interest rate contracts | Futures contracts | $(202,252 | ) | Futures contracts | $ (2,608) | |||||
Swap contracts | 14,727 | Swap contracts | 28,463 | |||||||
Foreign exchange contracts | Forward exchange contracts | (190,310 | ) | Forward exchange contracts | 135,271 | |||||
Futures contracts | (353,783 | ) | Futures contracts | 305,374 | ||||||
Swap contracts | (8,029 | ) | Swap contracts | (21,665) | ||||||
Credit contracts | Swap contracts | (15,083 | ) | Swap contracts | (4,206) | |||||
Equity contracts | Futures contracts | 292,681 | Futures contracts | 7,971 | ||||||
Commodity contracts | Futures contracts | 84,256 | Futures contracts | (22,532) | ||||||
|
|
| ||||||||
Totals | $(377,793 | ) | $426,068 | |||||||
|
|
|
34 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Global Macro Opportunities Fund (continued)
For the period ended November 30, 2017, the average month end notional amount of futures contracts and swap contracts represented $46,417,239 and $4,008,136, respectively. The average month end contract value of forward exchange contracts was $25,805,155.
At November 30, 2017, the Fund’s 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 | $377,026 | $522,196 | ||||||
Swap Contracts | 2,668 | 21,665 | ||||||
|
| |||||||
Total | $379,694 | $543,861 | ||||||
|
|
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 November 30, 2017, the Fund’s OTC derivative assets, which may be offset against the Fund’s 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 | Financials Instruments Collateral Received | Cash Collateral Received | Net Amount (Not Less than Zero) | ||||||||||||||||
| ||||||||||||||||||||
Counterparty | ||||||||||||||||||||
BOFA | $ — | $ — | $ — | $ — | $ — | |||||||||||||||
JPHQ | 270,461 | (264,826 | ) | — | — | 5,635 | ||||||||||||||
MSCO | 109,233 | (109,233 | ) | — | — | — | ||||||||||||||
|
| |||||||||||||||||||
Total | $379,694 | $(374,059 | ) | $ — | $ — | $5,635 | ||||||||||||||
|
|
At November 30, 2017, the Fund’s OTC derivative liabilities, which may be offset against the Fund’s 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 | Financials Instruments Collateral Pledged | Cash Collateral Pledgeda | Net Amount (Not Less than Zero) | ||||||||||||||||
| ||||||||||||||||||||
Counterparty | ||||||||||||||||||||
BOFA | $ 21,665 | $ — | $ — | $ — | $21,665 | |||||||||||||||
JPHQ | 264,826 | (264,826 | ) | — | — | — | ||||||||||||||
MSCO | 257,370 | (109,233 | ) | — | (148,137 | ) | — | |||||||||||||
|
| |||||||||||||||||||
Total | $543,861 | $(374,059 | ) | $ — | $(148,137 | ) | $21,665 | |||||||||||||
|
|
aIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit collateral amounts to avoid the effect of overcollateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.
See Note 1(d) regarding derivative financial instruments.
See Abbreviations on page 37.
franklintempleton.com | Semiannual Report | 35 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Global Macro Opportunities Fund (continued)
8. Credit Facility
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 9, 2018. 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 period ended November 30, 2017, the Fund did not use the Global Credit Facility.
9. 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.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
A summary of inputs used as of November 30, 2017, 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 | ||||||||||||||||
Corporate Bonds and Notes | $ | — | $ | 1,527,720 | $ | — | $ | 1,527,720 | ||||||||
Foreign Government and Agency Securities | — | 1,057,526 | — | 1,057,526 | ||||||||||||
Short Term Investments | 18,055,557 | 1,043,988 | — | 19,099,545 | ||||||||||||
|
| |||||||||||||||
Total Investments in Securities | $ | 18,055,557 | $ | 3,629,234 | $ | — | $ | 21,684,791 | ||||||||
|
| |||||||||||||||
Other Financial Instruments: | ||||||||||||||||
Futures Contracts | $ | 413,927 | $ | — | $ | — | $ | 413,927 | ||||||||
Forward Exchange Contracts | — | 377,026 | — | 377,026 | ||||||||||||
Swap Contracts | — | 38,599 | — | 38,599 | ||||||||||||
|
| |||||||||||||||
Total Other Financial Instruments | $ | 413,927 | $ | 415,625 | $ | — | $ | 829,552 | ||||||||
|
|
36 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Global Macro Opportunities Fund (continued)
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| ||||||||||||||||
Liabilities: | ||||||||||||||||
Other Financial Instruments: | ||||||||||||||||
Futures Contracts | $ | 142,943 | $ | — | $ | — | $ | 142,943 | ||||||||
Forward Exchange Contracts | — | 522,196 | — | 522,196 | ||||||||||||
Swap Contracts | — | 67,723 | — | 67,723 | ||||||||||||
|
| |||||||||||||||
Total Other Financial Instruments | $ | 142,943 | $ | 589,919 | $ | — | $ | 732,862 | ||||||||
|
|
aFor detailed categories, see the accompanying Consolidated Statement of Investments.
10. 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.
Abbreviations
Counterparty | Currency | Selected Portfolio | ||||||||
| ||||||||||
BOFA | Bank of America, N.A. | ARS | Argentine Peso | ARPP7DRR | Argentina Central Bank 7 Day Repo Rate | |||||
JPHQ | JP Morgan Chase Bank, N.A. | AUD | Australian Dollar | BRLCDI | Brazil Cetip Di Interbank Deposit Rate | |||||
MSCO | Morgan Stanley & Co., LLC | BRL | Brazilian Real | EAFE | Europe, Australasia & Far East | |||||
CAD | Canadian Dollar | FRN | Floating Rate Note | |||||||
CHF | Swiss Franc | FTSE | Financial Times Stock Exchange | |||||||
CZK | Czech Koruna | JSE | Johannesburg Stock Exchange Index | |||||||
EGP | Egyptian Pound | LIBOR | London InterBank Offered Rate | |||||||
EUR | Euro | MSCI | Morgan Stanley Capital International PLC | |||||||
GBP | British Pound | OAT | Obligations Assimilables du Tresor | |||||||
HUF | Hungarian Forint | OMX | Stockholm Stock Exchange | |||||||
INR | Indian Rupee | REIT | Real Estate Investment Trust | |||||||
JPY | Japanese Yen | TOPIX | Tokyo Price Index | |||||||
MXN | Mexican Peso | TSX | Toronto Stock Exchange | |||||||
NOK | Norwegian Krone | ULSD | Ultra-Low Sulfur Diesel | |||||||
NZD | New Zealand Dollar | |||||||||
PLN | Polish Zloty | |||||||||
RUB | Russian Ruble | |||||||||
SEK | Swedish Krona | |||||||||
USD | United States Dollar |
franklintempleton.com | Semiannual Report | 37 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES 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 US 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 consolidated statement of investments with the US Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
38 | Semiannual Report | franklintempleton.com |
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![]() | Semiannual Report and Shareholder Letter Franklin K2 Global Macro Opportunities Fund | |
Investment Manager K2/D&S Management Co., L.L.C. | ||
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Shareholder Services (800) 632-2301 |
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© 2017-2018 Franklin Templeton Investments. All rights reserved. | 973 S 01/18 |
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 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.
Item 3. | Audit Committee Financial Expert. |
(a)(1) The Registrant has an audit committee financial expert serving on its audit committee.
(2) The audit committee financial expert is Ann Torre Bates and she is “independent” as defined under the relevant Securities and Exchange Commission Rules and Releases.
Item 4. | Principal Accountant Fees and Services. N/A |
Item 5. | Audit Committee of Listed Registrants. N/A |
Item 6. | Schedule of Investments. N/A |
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. N/A |
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. N/A |
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. N/A |
Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees that would require disclosure herein.
Item 11. | Controls and Procedures. |
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There have been no changes in the Registrant’s internal controls or in other factors that could materially affect the internal controls over financial reporting
subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR.
Item 12. | Exhibits. |
(a) (1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer – Finance and Administration, and Robert G. Kubilis, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer – Finance and Administration, and Robert G. Kubilis, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN ALTERATIVE STRATEGIES FUNDS | ||
By | /s/ MATTHEW T. HINKLE | |
Matthew T. Hinkle Chief Executive Officer – Finance and Administration | ||
Date January 25, 2018 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By | /s/ MATTHEW T. HINKLE | |
Matthew T. Hinkle Chief Executive Officer – Finance and Administration | ||
Date January 25, 2018 |
By | /s/ ROBERT G. KUBILIS | |
Robert G. Kubilis Chief Financial Officer and Chief Accounting Officer | ||
Date January 25, 2018 |