UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 94403-1096
(Name and address of agent for service)
Registrant’s telephone number, including area code: 650-312-2000
Date of fiscal year end: May 31
Date of reporting period: November 30, 2020
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
A Series of Franklin Alternative Strategies Funds
November 30, 2020
Sign up for electronic delivery at franklintempleton.com/edelivery
SHAREHOLDER LETTER
Dear Fellow Shareholder:
During the six months ended November 30, 2020, global economic growth weakened significantly, especially in the early part of the period, as a result of the novel coronavirus (COVID-19) pandemic and subsequent economic lockdowns imposed by many governments worldwide. Global stocks advanced during the period, however, amid the reopening of many economies and investor optimism about the development of COVID-19 treatments and vaccines. Many central banks, including the U.S. Federal Reserve and the European Central Bank, maintained low benchmark interest rates and continued their monetary stimulus programs to bolster economic growth.
In this environment, global developed market stocks, as measured by the MSCI World Index (USD), posted a +21.38% total return for the period.1 Global emerging market stocks, as measured by the MSCI Emerging Markets Index (USD), posted a +31.40% total return.1 Global government bonds, as measured by the FTSE World Government Bond Index (USD), posted a +5.04% total return.1
We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous analysis of Fund subadvisors and markets with a strong emphasis on investment risk management.
We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well-positioned for the years ahead.
CFA® is a trademark owned by CFA Institute.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
On the following pages, the Fund’s portfolio management team reviews investment decisions that pertain to performance 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 in the future.
As part of Franklin Templeton’s recent organizational changes, I have resigned as President and Chief Investment Officer – Investment Management of the Trust, effective December 4, 2020. Brooks Ritchey, a co-lead portfolio manager for the Fund, has been appointed to this office effective December 4, 2020.
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, 2020, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
Not FDIC Insured | | | May Lose Value | | | No Bank Guarantee |
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SEMIANNUAL REPORT
Franklin K2 Alternative Strategies Fund
This semiannual report for Franklin K2 Alternative Strategies Fund covers the period ended November 30, 2020.
Your Fund’s Goal and Main Investments
The Fund seeks capital appreciation with lower volatility relative to the broad equity markets. The Fund seeks to achieve its investment goal by allocating its assets across multiple non-traditional or alternative strategies, including, but not limited to, some or all of the following strategies: long short equity, relative value, event driven and global macro. The Fund is structured as a multi-manager fund, meaning the Fund’s assets are independently managed by multiple subadvisors, while the Fund’s investment manager retains overall responsibility for the Fund’s investments. The Fund may invest in a wide range of securities and other investments including, but not limited to: equity securities including common stocks, preferred stocks, convertible securities, rights and warrants, private and registered investment vehicles and exchange-traded funds (ETFs); debt securities including bonds, notes, debentures, banker’s acceptances and commercial paper; loans and loan participations; and mortgage-backed or other asset-backed securities, including collateralized debt obligations; as well as derivatives, commodities and currencies.
Performance Overview
The Fund’s Class A shares posted a +7.77% cumulative total return for the six months under review. For comparison, the Fund’s primary benchmark, the HFRX Global Hedge Fund Index, which is designed to be representative of the overall composition of the hedge fund universe, posted a +7.25% total return for the same period.1 Also for comparison, the Fund’s secondary benchmark, the ICE BofA U.S. 3-Month Treasury Bill Index, which tracks the performance of short-term U.S. government securities with a remaining term to final maturity of less than three months, posted a +0.07% total return for the same period.2 You can find more of the Fund’s performance data in the Performance Summary beginning on page 7.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Economic and Market Overview
Global developed and emerging market equities, as measured by the MSCI All Country World Index, posted a +22.55% total return during the six months ended November 30, 2020.2 Equities in all major regions of the world posted sizable gains despite a significant global recession following the implementation of stringent social distancing measures to slow the spread of the novel coronavirus (COVID-19). Government stimulus measures and a gradual easing of restrictions drove a resumption of economic activity, leading stocks higher throughout most of the period. Optimism about the development of treatments and vaccines for COVID-19 further supported the recovery in equity prices. In particular, news late in the period that several different vaccine trials had shown effectiveness rates of at least 90% boosted stocks across the globe.
In the U.S., pandemic-related restrictions caused stiff economic headwinds that included mass layoffs. According to the National Bureau of Economic Research, the U.S. economy slipped into a deep recession in February 2020, and second-quarter gross domestic product (GDP) declined at a record annualized rate. Optimism about an economic rebound amid the government’s fiscal and monetary stimulus, along with rising retail sales and resilient consumer spending, drove a sharp equity rally during the summer. Improving economic activity led third-quarter GDP to expand at a record annualized pace, while declining jobless claims drove the unemployment rate from a pandemic high of 14.7% in April to 6.7% in November.3 Late in the period, the results of the U.S. presidential election and the avoidance of prolonged uncertainty about the election outcome also buoyed markets.
1. Source: FactSet. Hedge Fund Research, Inc. – www.hedgefundresearch.com. The HFRX Global Hedge Fund Index is being used under license from Hedge Fund Research, Inc., which does not endorse or approve of any of the contents of this report.
2. Source: Morningstar.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. Unlike most asset class indexes, HFR Index returns reflect fees and expenses.
3. Source: U.S. Bureau of Labor Statistics.
See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of Investments (SOI). The Consolidated SOI begins on page 15.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
The U.S. Federal Reserve (Fed) maintained the federal funds target rate at a range of 0.00%–0.25% and continued its program of open-ended purchasing of government bond and corporate bonds as necessary to help keep markets functioning, significantly expanding its balance sheet. Furthermore, the Fed signaled that interest rates would potentially remain low, even if inflation moderately exceeded the Fed’s 2% target for some time.
In the eurozone, economic growth resumed in the third quarter of 2020 compared to the previous quarter, following two consecutive quarters of contraction. European developed market equities, as measured by the MSCI Europe Index, posted a +20.26% total return during the period amid stimulus measures to mitigate the economic impact of the pandemic and relaxation of some social distancing restrictions.2 Although stock prices declined in September and October as rising infection rates heightened concerns that the nascent economic revival could stall, positive vaccine trials in November led to a rebound, and European developed market equities ended the period with strong gains.
Asian developed and emerging market equities posted a +27.32% total return, as measured by the MSCI All Country Asia Index.2 China’s second- and third-quarter 2020 economic recovery, a key driver of the region’s economic activity, supported the stock market rebound. Government stimulus measures and continued economic reopening also buoyed investor sentiment. Renewed geopolitical tensions in the region pressured Asian stocks in October, but stocks rebounded sharply in November following positive news about vaccine development.
Global emerging market stocks, as measured by the MSCI Emerging Markets Index, posted a +31.40% total return.2 Improving economic activity, stabilizing oil prices and U.S. dollar weakness led emerging market equities higher. Despite rising COVID-19 cases in some countries, emerging market stocks rallied in November 2020 amid hopes that the new U.S. presidential administration would improve trade relations.
Investment Strategy
We manage the Fund using a multi-manager approach. While we are responsible for the Fund’s overall investments, we allocate assets to multiple subadvisors, each of whom independently manages a separate portion of the Fund’s portfolio in accordance with some or all of the following strategies: long short equity, relative value, event driven and global macro. We allocate the Fund’s assets among these strategies utilizing a top-down approach, generating the Fund’s strategy weightings by taking into account market
conditions, risk factors, diversification, liquidity, transparency, and availability of various subadvisors and other investment options, among other things. We allocate the Fund’s assets to specific subadvisors utilizing a bottom-up approach, selecting subadvisors and their weighting within the Fund’s portfolio by taking into account their correlations to various markets and to each other, their risk profiles and their return expectations. Long short equity strategies generally seek to produce returns from investments in the equity markets by taking long and short positions in stocks and stock indexes (through the use of derivatives or through a position in an ETF). Relative value strategies encompass a wide range of investment techniques that are intended to profit from pricing inefficiencies. Event driven strategies generally invest in securities of companies undergoing significant corporate events. Global macro strategies generally focus on broad-based economic opportunities across numerous markets and investments. In addition, the debt securities in which the Fund may invest may have variable or fixed interest rates, may be of any maturity or credit rating, and may include sovereign debt, high yield (“junk”) bonds and distressed debt securities (securities of companies that are, or are about to be, involved in reorganizations, financial restructurings, or bankruptcy) and securities that are in default.
The Fund may take long and/or short positions in a wide range of asset classes, including equities, fixed income, commodities and currencies, among others. Long positions benefit from an increase in the price of the underlying instrument or asset class, while short positions benefit from a decrease in that price. The Fund may use derivatives for hedging and non-hedging (investment) purposes, although no subadvisor is required to hedge any of the Fund’s positions or to use derivatives. Such derivative investments may include futures contracts, swaps, options and currency forward contracts. As a result of the Fund’s use of derivatives, the Fund may have economic leverage, which means the sum of the Fund’s investment exposures through its use of derivatives may significantly exceed the amount of assets invested in the Fund, although these exposures may vary over time. The Fund may engage in active and frequent trading as part of its investment strategies.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
Strategy Allocation* | ||||||||
Based on Total Net Assets as of 11/30/20 | ||||||||
Strategy | Long Positions | Short Positions | ||||||
Long Short Equity | 36.9% | -21.1% | ||||||
Relative Value | 35.4% | -12.0% | ||||||
Event Driven | 19.0% | -7.9% | ||||||
Global Macro | 127.6% | -11.1% | ||||||
Total | 218.9% | -52.1% |
*Figures include the effect of gross notional exposure of derivatives.
Subadvisors | ||||
11/30/20 | ||||
Long Short Equity | ||||
Chilton Investment Company, LLC | ||||
Electron Capital Partners, LLC | ||||
Jennison Associates, LLC | ||||
Portland Hill Asset Management Limited | ||||
Wellington Management Company, LLP | ||||
Relative Value | ||||
Apollo Credit Management LLC | ||||
Chatham Asset Management, LLC | ||||
Ellington Global Asset Management, LLC | ||||
Lazard Asset Management, LLC | ||||
Loomis Sayles & Company, L.P. | ||||
Event Driven | ||||
Bardin Hill Arbitrage IC Management LP | ||||
P. Schoenfeld Asset Management L.P. | ||||
Global Macro | ||||
Emso Asset Management Limited | ||||
Graham Capital Management, L.P. | ||||
Grantham, Mayo, Van Otterloo & Co. LLC |
Manager’s Discussion
During the six months under review, all of the four underlying strategies in which the Fund allocated assets—long short equity, relative value, event driven and global macro—and all of the subadvisors in which the Fund allocated assets delivered absolute gains. The allocation percentages for each strategy are listed in the Strategy Allocation table on this page. A conditional risk overlay (CRO), which was implemented to help mitigate downside risk, detracted from results for the six-month period. The CRO was deactivated at the end of September 2020.
The Fund added a new long short equity strategy subadvisor in September 2020, Electron Capital Partners, which specializes in global utilities and infrastructure firms. The Fund’s other long short equity strategy subadvisors during the period
were Chilton Investment, Impala Asset Management (see below), Jennison Associates, Portland Hill Asset Management and Wellington Management. Electron and Chilton were leading performance contributors, as five long short equity strategy subadvisors ranked among the top six positive performance contributors overall. In asset class terms, the top performance driver for the strategy was equity exposure, while currency exposure detracted from performance over the period. In sector terms, consumer discretionary, health care and industrials were leading positive contributors to returns, while equity index hedges detracted from returns.
The Fund’s relative value strategy subadvisors during the period were Apollo Credit Management, Chatham Asset Management, Ellington Global Asset Management, Lazard Asset Management and Loomis Sayles & Company. Lazard was responsible for the majority of the strategy’s positive contribution, as the subadvisor benefited in part from an ongoing investment theme focused on convertible bond exchanges. In asset class terms, credit exposure was the key positive performance driver, while equity exposure detracted from performance. In sector terms, health care, information technology and asset-backed securities were leading positive contributors to returns, while currency exposure hindered returns.
The Fund’s event driven strategy subadvisors during the period were Bardin Hill Arbitrage IC Management and P. Schoenfeld Asset Management. Both subadvisors benefited performance, bolstered by the continued tightening of merger arbitrage spreads on a range of strategic acquisitions. A long position in an Italian American automaker, which traded higher after amending the terms of its merger with a French competitor, bolstered returns, while a short position in the French company detracted from performance.
The Fund’s global macro strategy subadvisors were Emso Asset Management; Graham Capital Management; Grantham, Mayo, Van Otterloo & Co. (GMO); and H2O AM (see below). Emso and GMO were the leading contributors to positive performance. In asset class terms, currency and credit exposures contributed to positive returns, while commodities exposure slightly weakened returns. In sector terms, positive contributors to performance included long exposure to interest-rate derivatives and equity indexes.
In addition to adding Electron Capital Partners as a new long short equity strategy subadvisor, the Fund increased its allocation to the relative value strategy (to subadvisors Apollo Credit Management and Ellington Global Asset Management) during the six-month period. Toward period-end, the Fund completed a full redemption of two subadvisors, long short equity subadvisor Impala Asset Management and global macro strategy subadvisor H2O AM.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
Thank you for your participation in Franklin K2 Alternative Strategies Fund. We look forward to continuing to serve your investment needs.
Brooks Ritchey
Co-Lead Portfolio Manager
Robert Christian
Co-Lead Portfolio Manager
Anthony Zanolla, CFA
Portfolio Manager
The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2020, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
Performance Summary as of November 30, 2020
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 11/30/201
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
Share Class | Cumulative Total Return2 | Average Annual Total Return3 | ||||||
A4 | ||||||||
6-Month | +7.77% | +1.86% | ||||||
1-Year | +5.46% | -0.34% | ||||||
5-Year | +17.79% | +2.18% | ||||||
Since Inception (10/11/13) | +29.81% | +2.91% | ||||||
Advisor | ||||||||
6-Month | +8.01% | +8.01% | ||||||
1-Year | +5.79% | +5.79% | ||||||
5-Year | +19.27% | +3.59% | ||||||
Since Inception (10/11/13) | +32.24% | +3.99% |
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 Expenses5
Share Class | With Fee Waiver | Without Fee Waiver | ||||||
A | 2.43% | 2.64% | ||||||
Advisor | 2.18% | 2.39% |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. The market values of securities owned by the Fund will go up or down, sometimes rapidly or unpredictably. The Fund’s performance depends on the manager’s skill in selecting, overseeing and allocating Fund assets to the subadvisors. The Fund is actively managed and could experience losses if the investment manager’s and subadvisors’ judgment about particular investments made for the Fund’s portfolio prove to be incorrect. Some subadvisors may have little or no experience managing the assets of a registered investment company. Foreign investments are subject to greater investment risk such as political, economic, credit and information risks as well as risk of currency fluctuations. Investments in derivatives involve costs and create economic leverage, which may result in significant volatility and cause the Fund to participate in losses (as well as gains) that significantly exceed the Fund’s initial investment. Lower-rated or high-yield debt securities involve greater credit risk, including the possibility of default or bankruptcy. Currency management strategies could result in losses to the Fund if currencies do not perform as the investment manager or subadvisor expects. The Fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. Merger arbitrage investments risk loss if a proposed reorganization in which the Fund invests is renegotiated or terminated. Liquidity risk exists when securities have become more difficult to sell, or are unable to be sold, at the price at which they have been valued. Unexpected events and their aftermaths, such as the spread of deadly diseases; natural, environmental or man-made disasters; financial, political or social disruptions; terrorism and war; and other tragedies or catastrophes, can cause investor fear and panic, which can adversely affect the economies of many companies, sectors, nations, regions and the market in general, in ways that cannot necessarily be foreseen. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has an expense reduction contractually guaranteed through 9/30/21 and a fee waiver related to the management fee paid by a subsidiary. Fund investment results reflect the expense reduction and fee waiver; without these reductions, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
4. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 5.50%.
5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Consolidated Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
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 | Beginning Account Value 6/1/20 | Ending Account Value 11/30/20 | Expenses Paid During Period 6/1/20–11/30/201,2 | Ending Account Value 11/30/20 | Expenses Paid During Period 6/1/20–11/30/201,2 | Net Annualized Expense Ratio2 | ||||||||||||||||||
A | $ | 1,000 | $ | 1,077.70 | $ | 13.65 | $ | 1,011.93 | $ | 13.21 | 2.62 | % | ||||||||||||
C | $ | 1,000 | $ | 1,074.00 | $ | 17.37 | $ | 1,008.32 | $ | 16.82 | 3.34 | % | ||||||||||||
R | $ | 1,000 | $ | 1,076.80 | $ | 14.89 | $ | 1,010.73 | $ | 14.42 | 2.86 | % | ||||||||||||
R6 | $ | 1,000 | $ | 1,080.00 | $ | 11.94 | $ | 1,013.59 | $ | 11.56 | 2.29 | % | ||||||||||||
Advisor | $ | 1,000 | $ | 1,080.10 | $ | 12.36 | $ | 1,013.19 | $ | 11.96 | 2.37 | % |
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 K2 Alternative Strategies Fund
Six Months Ended November 30, 2020 (unaudited) | Year Ended May 31, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Per share operating performance (for a share outstanding throughout the period) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.19 | $ | 11.28 | $ | 11.38 | $ | 11.14 | $ | 10.55 | $ | 11.16 | ||||||||||||
|
| |||||||||||||||||||||||
Income from investment operationsa: | ||||||||||||||||||||||||
Net investment income (loss)b | (0.04 | ) | (0.03 | ) | 0.04 | 0.01 | 0.03 | (0.05 | ) | |||||||||||||||
Net realized and unrealized gains (losses) | 0.91 | 0.02 | 0.11 | 0.38 | 0.61 | (0.38 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
Total from investment operations | 0.87 | (0.01 | ) | 0.15 | 0.39 | 0.64 | (0.43 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.07 | ) | — | (0.15 | ) | (0.05 | ) | (0.14 | ) | ||||||||||||||
Net realized gains | — | (0.01 | ) | (0.25 | ) | — | — | (0.04 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.08 | ) | (0.25 | ) | (0.15 | ) | (0.05 | ) | (0.18 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 12.06 | $ | 11.19 | $ | 11.28 | $ | 11.38 | $ | 11.14 | $ | 10.55 | ||||||||||||
|
| |||||||||||||||||||||||
Total returnc | 7.77% | (0.15)% | 1.35% | 3.57% | 6.07% | (3.89)% | ||||||||||||||||||
Ratios to average net assetsd | ||||||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductione | 2.81% | 2.58% | 2.73% | 2.81% | 3.07% | 3.22% | ||||||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductione | 2.62% | 2.40% | 2.56% | 2.59% | 2.73% | 2.88% | f | |||||||||||||||||
Expenses incurred in connection with securities sold short | 0.42% | 0.20% | 0.36% | 0.39% | 0.53% | 0.67% | ||||||||||||||||||
Net investment income (loss) | (0.66)% | (0.25)% | 0.36% | 0.06% | 0.10% | (0.44)% | ||||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $95,097 | $90,205 | $104,452 | $119,214 | $119,385 | $177,412 | ||||||||||||||||||
Portfolio turnover rate | 116.85% | 271.51% | 235.47% | 234.77% | 209.45% | 229.90% |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
fBenefit of expense reduction rounds to less than 0.01%.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Alternative Strategies Fund (continued)
Six Months Ended November 30, 2020 (unaudited) | Year Ended May 31, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Per share operating performance (for a share outstanding throughout the period) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.95 | $ | 11.05 | $ | 11.25 | $ | 11.00 | $ | 10.45 | $ | 11.09 | ||||||||||||
|
| |||||||||||||||||||||||
Income from investment operationsa: | ||||||||||||||||||||||||
Net investment income (loss)b | (0.08 | ) | (0.11 | ) | (0.05 | ) | (0.08 | ) | (0.04 | ) | (0.12 | ) | ||||||||||||
Net realized and unrealized gains (losses) | 0.89 | 0.02 | 0.10 | 0.39 | 0.59 | (0.39 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
Total from investment operations | 0.81 | (0.09 | ) | 0.05 | 0.31 | 0.55 | (0.51 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | — | — | — | (0.06 | ) | — | (0.09 | ) | ||||||||||||||||
Net realized gains | — | (0.01 | ) | (0.25 | ) | — | — | (0.04 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.01 | ) | (0.25 | ) | (0.06 | ) | — | (0.13 | ) | ||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 11.76 | $ | 10.95 | $ | 11.05 | $ | 11.25 | $ | 11.00 | $ | 10.45 | ||||||||||||
|
| |||||||||||||||||||||||
Total returnc | 7.40% | (0.85)% | 0.56% | 2.82% | 5.26% | (4.62)% | ||||||||||||||||||
Ratios to average net assetsd | ||||||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductione | 3.53% | 3.33% | 3.48% | 3.56% | 3.79% | 3.96% | ||||||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductione | 3.34% | 3.15% | 3.31% | 3.34% | 3.45% | 3.62% | f | |||||||||||||||||
Expenses incurred in connection with securities sold short | 0.42% | 0.20% | 0.36% | 0.39% | 0.53% | 0.67% | ||||||||||||||||||
Net investment income (loss) | (1.38)% | (1.00)% | (0.39)% | (0.69)% | (0.62)% | (1.18)% | ||||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $33,086 | $36,043 | $44,897 | $53,196 | $55,496 | $71,154 | ||||||||||||||||||
Portfolio turnover rate | 116.85% | 271.51% | 235.47% | 234.77% | 209.45% | 229.90% |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
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 K2 Alternative Strategies Fund (continued)
Six Months Ended November 30, 2020 (unaudited) | Year Ended May 31, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Per share operating performance (for a share outstanding throughout the period) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.20 | $ | 11.28 | $ | 11.42 | $ | 11.17 | $ | 10.61 | $ | 11.15 | ||||||||||||
|
| |||||||||||||||||||||||
Income from investment operationsa: | ||||||||||||||||||||||||
Net investment income (loss)b | (0.05 | ) | (0.06 | ) | 0.02 | (0.02 | ) | (0.25 | ) | (0.10 | ) | |||||||||||||
Net realized and unrealized gains (losses) | 0.91 | 0.02 | 0.09 | 0.39 | 0.86 | (0.40 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
Total from investment operations | 0.86 | (0.04 | ) | 0.11 | 0.37 | 0.61 | (0.50 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.03 | ) | — | (0.12 | ) | (0.05 | ) | — | |||||||||||||||
Net realized gains | — | (0.01 | ) | (0.25 | ) | — | — | (0.04 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.04 | ) | (0.25 | ) | (0.12 | ) | (0.05 | ) | (0.04 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 12.06 | $ | 11.20 | $ | 11.28 | $ | 11.42 | $ | 11.17 | $ | 10.61 | ||||||||||||
|
| |||||||||||||||||||||||
Total returnc | 7.68% | (0.39)% | 1.08% | 3.28% | 5.79% | (4.51)% | ||||||||||||||||||
Ratios to average net assetsd | ||||||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductione | 3.05% | 2.83% | 2.98% | 3.06% | 3.32% | 3.46% | ||||||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductione | 2.86% | 2.65% | 2.81% | 2.84% | 2.98% | 3.12% | f | |||||||||||||||||
Expenses incurred in connection with securities sold short | 0.42% | 0.20% | 0.36% | 0.39% | 0.53% | 0.67% | ||||||||||||||||||
Net investment income (loss) | (0.90)% | (0.50)% | 0.11% | (0.19)% | (0.15)% | (0.68)% | ||||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $806 | $884 | $844 | $648 | $597 | $341 | ||||||||||||||||||
Portfolio turnover rate | 116.85% | 271.51% | 235.47% | 234.77% | 209.45% | 229.90% |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
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 K2 Alternative Strategies Fund (continued)
Six Months Ended November 30, 2020 (unaudited) | Year Ended May 31, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||
Class R6 | ||||||||||||||||||||||||
Per share operating performance (for a share outstanding throughout the period) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.25 | $ | 11.34 | $ | 11.41 | $ | 11.17 | $ | 10.59 | $ | 11.18 | ||||||||||||
|
| |||||||||||||||||||||||
Income from investment operationsa: | ||||||||||||||||||||||||
Net investment income (loss)b | (0.02 | ) | 0.01 | 0.08 | 0.03 | 0.02 | (0.01 | ) | ||||||||||||||||
Net realized and unrealized gains (losses) | 0.92 | 0.02 | 0.10 | 0.40 | 0.65 | (0.37 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
Total from investment operations | 0.90 | 0.03 | 0.18 | 0.43 | 0.67 | (0.38 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.11 | ) | — | (0.19 | ) | (0.09 | ) | (0.17 | ) | ||||||||||||||
Net realized gains | — | (0.01 | ) | (0.25 | ) | — | — | (0.04 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.12 | ) | (0.25 | ) | (0.19 | ) | (0.09 | ) | (0.21 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 12.15 | $ | 11.25 | $ | 11.34 | $ | 11.41 | $ | 11.17 | $ | 10.59 | ||||||||||||
|
| |||||||||||||||||||||||
Total returnc | 8.00% | 0.27% | 1.70% | 3.83% | 6.40% | (3.45)% | ||||||||||||||||||
Ratios to average net assetsd | ||||||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductione | 2.48% | 2.26% | 2.41% | 2.46% | 2.73% | 2.87% | ||||||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductione | 2.29% | 2.07% | 2.23% | 2.24% | 2.39% | 2.53% | f | |||||||||||||||||
Expenses incurred in connection with securities sold short | 0.42% | 0.20% | 0.36% | 0.39% | 0.53% | 0.67% | ||||||||||||||||||
Net investment income (loss) | (0.33)% | 0.08% | 0.69% | 0.41% | 0.44% | (0.09)% | ||||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $28,333 | $15,537 | $42,842 | $31,805 | $265,247 | $265,517 | ||||||||||||||||||
Portfolio turnover rate | 116.85% | 271.51% | 235.47% | 234.77% | 209.45% | 229.90% |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cTotal return is not annualized for periods less than one year.
dRatios are annualized for periods less than one year.
eIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
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 K2 Alternative Strategies Fund (continued)
Six Months Ended November 30, 2020 (unaudited) | Year Ended May 31, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Per share operating performance (for a share outstanding throughout the period) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.23 | $ | 11.33 | $ | 11.40 | $ | 11.16 | $ | 10.58 | $ | 11.18 | ||||||||||||
|
| |||||||||||||||||||||||
Income from investment operationsa: | ||||||||||||||||||||||||
Net investment income (loss)b | (0.02 | ) | — | c | 0.07 | 0.04 | 0.04 | (0.02 | ) | |||||||||||||||
Net realized and unrealized gains (losses) | 0.92 | 0.01 | 0.11 | 0.38 | 0.62 | (0.38 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
Total from investment operations | 0.90 | 0.01 | 0.18 | 0.42 | 0.66 | (0.40 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.10 | ) | — | (0.18 | ) | (0.08 | ) | (0.16 | ) | ||||||||||||||
Net realized gains | — | (0.01 | ) | (0.25 | ) | — | — | (0.04 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.11 | ) | (0.25 | ) | (0.18 | ) | (0.08 | ) | (0.20 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 12.13 | $ | 11.23 | $ | 11.33 | $ | 11.40 | $ | 11.16 | $ | 10.58 | ||||||||||||
|
| |||||||||||||||||||||||
Total returnd | 8.01% | 0.19% | 1.61% | 3.75% | 6.29% | (3.58)% | ||||||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 2.56% | 2.33% | 2.48% | 2.56% | 2.82% | 2.96% | ||||||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.37% | 2.15% | 2.31% | 2.34% | 2.48% | 2.62% | g | |||||||||||||||||
Expenses incurred in connection with securities sold short | 0.42% | 0.20% | 0.36% | 0.39% | 0.53% | 0.67% | ||||||||||||||||||
Net investment income (loss) | (0.41)% | — | h | 0.61% | 0.31% | 0.35% | (0.18)% | |||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $1,056,461 | $977,094 | $1,046,252 | $896,278 | $674,828 | $722,216 | ||||||||||||||||||
Portfolio turnover rate | 116.85% | 271.51% | 235.47% | 234.77% | 209.45% | 229.90% |
aThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
bBased on average daily shares outstanding.
cAmount rounds to less than $0.01.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
gBenefit of expense reduction rounds to less than 0.01%.
hAmount 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, 2020 (unaudited)
Franklin K2 Alternative Strategies Fund
Country | Shares/ Warrants/ Rights | Value | ||||||||||||||||
Common Stocks and Other Equity Interests 43.2% | ||||||||||||||||||
Aerospace & Defense 0.0%† | ||||||||||||||||||
a,b | Bombardier Inc., B | Canada | 609,589 | $ | 248,774 | |||||||||||||
Lockheed Martin Corp. | United States | 47 | 17,155 | |||||||||||||||
|
| |||||||||||||||||
265,929 | ||||||||||||||||||
|
| |||||||||||||||||
Air Freight & Logistics 0.3% | ||||||||||||||||||
Expeditors International of Washington Inc. | United States | 1,456 | 130,123 | |||||||||||||||
United Parcel Service Inc., B | United States | 113 | 19,331 | |||||||||||||||
a | XPO Logistics Inc. | United States | 27,861 | 2,972,211 | ||||||||||||||
|
| |||||||||||||||||
3,121,665 | ||||||||||||||||||
|
| |||||||||||||||||
Airlines 0.3% | ||||||||||||||||||
Allegiant Travel Co., A | United States | 1,761 | 299,705 | |||||||||||||||
Delta Air Lines Inc. | United States | 14,086 | 566,961 | |||||||||||||||
a | Japan Airlines Co. Ltd. | Japan | 74,662 | 1,407,658 | ||||||||||||||
Southwest Airlines Co. | United States | 6,047 | 280,218 | |||||||||||||||
a | United Airlines Holdings Inc. | United States | 12,352 | 556,458 | ||||||||||||||
|
| |||||||||||||||||
3,111,000 | ||||||||||||||||||
|
| |||||||||||||||||
Automobiles 0.2% | ||||||||||||||||||
a | Li Auto Inc., ADR | China | 20,646 | 743,050 | ||||||||||||||
a | NIO Inc., ADR | China | 35,274 | 1,782,395 | ||||||||||||||
|
| |||||||||||||||||
2,525,445 | ||||||||||||||||||
|
| |||||||||||||||||
Banks 0.0%† | ||||||||||||||||||
a | Barclays PLC | United Kingdom | 108,406 | 192,395 | ||||||||||||||
Citigroup Inc. | United States | 421 | 23,184 | |||||||||||||||
Hope Bancorp Inc. | United States | 5,024 | 47,628 | |||||||||||||||
|
| |||||||||||||||||
263,207 | ||||||||||||||||||
|
| |||||||||||||||||
Beverages 0.4% | ||||||||||||||||||
The Coca-Cola Co. | United States | 3,367 | 173,737 | |||||||||||||||
Davide Campari-Milano NV | Italy | 278,370 | 3,240,019 | |||||||||||||||
Primo Water Corp. | United States | 90,399 | 1,358,697 | |||||||||||||||
|
| |||||||||||||||||
4,772,453 | ||||||||||||||||||
|
| |||||||||||||||||
Biotechnology 2.3% | ||||||||||||||||||
a | Acadia Pharmaceuticals Inc. | United States | 14,770 | 836,868 | ||||||||||||||
a,c,d | Alder Biopharmaceuticals Inc., Contingent Value, rts., 12/31/24 | United States | 50,624 | 44,549 | ||||||||||||||
a | Alexion Pharmaceuticals Inc. | United States | 2,983 | 364,254 | ||||||||||||||
Amgen Inc. | United States | 77 | 17,097 | |||||||||||||||
a | Amicus Therapeutics Inc. | United States | 56,310 | 1,288,936 | ||||||||||||||
a | Apellis Pharmaceuticals Inc. | United States | 49,293 | 2,323,672 | ||||||||||||||
a | Argenx SE, ADR | Netherlands | 5,437 | 1,559,440 | ||||||||||||||
a | Biogen Inc. | United States | 1,837 | 441,192 | ||||||||||||||
a | BioMarin Pharmaceutical Inc. | United States | 10,875 | 855,863 | ||||||||||||||
a,d | Black Diamond Therapeutics Inc. | United States | 10,447 | 348,303 | ||||||||||||||
a | Burning Rock Biotech Ltd., ADR | China | 25,042 | 714,448 | ||||||||||||||
a,d | C4 Therapeutics Inc. | United States | 4,362 | 149,180 | ||||||||||||||
a | Constellation Pharmaceuticals Inc. | United States | 14,459 | 366,391 | ||||||||||||||
a,d | CRISPR Therapeutics AG | Switzerland | 6,271 | 795,915 | ||||||||||||||
a | CytoDyn Inc. | United States | 2,742 | 7,321 | ||||||||||||||
a,d | Denali Therapeutics Inc. | United States | 9,053 | 551,961 | ||||||||||||||
a | Fate Therapeutics Inc. | United States | 25,207 | 1,473,727 | ||||||||||||||
a,d | Genetron Holdings Ltd., ADR | China | 37,376 | 511,304 | ||||||||||||||
a | Genmab A/S, ADR | Denmark | 13,614 | 525,637 | ||||||||||||||
a | Gossamer Bio Inc. | United States | 36,904 | 326,231 | ||||||||||||||
a | Immatics NV, wts., 12/31/25 | Germany | 10,049 | 28,539 |
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) | ||||||||||||||||||
a,e | Innovent Biologics Inc., 144A | China | 73,859 | $ | 485,111 | |||||||||||||
a,d | Iovance Biotherapeutics Inc. | United States | 14,756 | 572,680 | ||||||||||||||
a | Kymera Therapeutics Inc. | United States | 1,770 | 82,553 | ||||||||||||||
a | Legend Biotech Corp., ADR | United States | 3,426 | 101,855 | ||||||||||||||
a,f | Natera Inc. | United States | 32,055 | 2,829,495 | ||||||||||||||
a,d | Novavax Inc. | United States | 5,274 | 735,723 | ||||||||||||||
a | Nurix Therapeutics Inc. | United States | 5,051 | 215,274 | ||||||||||||||
a | ORIC Pharmaceuticals Inc. | United States | 12,301 | 417,127 | ||||||||||||||
a | PMV Pharmaceuticals Inc. | United States | 3,721 | 131,128 | ||||||||||||||
a,d | Praxis Precision Medicines Inc. | United States | 5,008 | 207,632 | ||||||||||||||
a,d | ProQR Therapeutics NV | Netherlands | 46,914 | 184,841 | ||||||||||||||
a | Regeneron Pharmaceuticals Inc. | United States | 1,316 | 679,096 | ||||||||||||||
a | Sage Therapeutics Inc. | United States | 13,385 | 991,695 | ||||||||||||||
a,f | Sarepta Therapeutics Inc. | United States | 14,561 | 2,051,062 | ||||||||||||||
a | Seagen Inc. | United States | 3,054 | 520,127 | ||||||||||||||
a,d | Turning Point Therapeutics Inc. | United States | 12,359 | 1,316,234 | ||||||||||||||
a,f | Vertex Pharmaceuticals Inc. | United States | 7,941 | 1,808,563 | ||||||||||||||
a | Zai Lab Ltd., ADR | China | 5,100 | 564,978 | ||||||||||||||
|
| |||||||||||||||||
27,426,002 | ||||||||||||||||||
|
| |||||||||||||||||
Building Products 0.1% | ||||||||||||||||||
Carrier Global Corp. | United States | 29,575 | 1,125,920 | |||||||||||||||
b | Masco Corp. | United States | 320 | 17,175 | ||||||||||||||
|
| |||||||||||||||||
1,143,095 | ||||||||||||||||||
|
| |||||||||||||||||
Capital Markets 0.7% | ||||||||||||||||||
a,e | Amundi SA, 144A | France | 25,204 | 2,004,528 | ||||||||||||||
e | Anima Holding SpA, 144A | Italy | 102,616 | 451,896 | ||||||||||||||
BlackRock Inc., A | United States | 28 | 19,554 | |||||||||||||||
a,d | Capstar Special Purpose Acquisition Corp., A | United States | 13,782 | 136,166 | ||||||||||||||
a | Capstar Special Purpose Acquisition Corp., wts., 7/9/27 | United States | 6,891 | 8,062 | ||||||||||||||
a | Churchill Capital Corp. IV | United States | 19,403 | 195,582 | ||||||||||||||
a,d | Churchill Capital Corp. IV, A | United States | 29,176 | 288,259 | ||||||||||||||
a | Churchill Capital Corp. IV, wts., 8/4/25 | United States | 7,856 | 9,113 | ||||||||||||||
a | CITIC Capital Acquisition Corp., A | China | 6,957 | 72,701 | ||||||||||||||
a | Colonnade Acquisition Corp. | United States | 10,866 | 107,194 | ||||||||||||||
a | Colonnade Acquisition Corp., wts., 8/31/27 | United States | 5,044 | 3,228 | ||||||||||||||
a,f | E.Merge Technology Acquisition Corp., A | United States | 28,002 | 277,220 | ||||||||||||||
a,f | E.Merge Technology Acquisition Corp., wts., 7/30/25 | United States | 9,334 | 9,614 | ||||||||||||||
a,d | Foley Trasimene Acquisition Corp., A | United States | 8,086 | 82,477 | ||||||||||||||
a | Foley Trasimene Acquisition Corp. II | United States | 19,901 | 208,760 | ||||||||||||||
a | Foley Trasimene Acquisition Corp. II, wts., 8/11/25 | United States | 43,081 | 75,736 | ||||||||||||||
a | Foley Trasimene Acquisition Corp., wts., 5/26/25 | United States | 4,894 | 8,173 | ||||||||||||||
a,d | Fortress Value Acquisition Corp. II | United States | 4,360 | 46,260 | ||||||||||||||
a,d | Fusion Acquisition Corp., A | United States | 22,614 | 225,009 | ||||||||||||||
a | Fusion Acquisition Corp., wts., 6/1/27 | United States | 21,802 | 25,072 | ||||||||||||||
a,d | Gores Holdings V Inc. | United States | 27,368 | 280,522 | ||||||||||||||
a,f | GS Acquisition Holdings Corp. II, A | United States | 35,932 | 375,489 | ||||||||||||||
a,f | GS Acquisition Holdings Corp. II, wts., 8/30/25 | United States | 8,983 | 17,068 | ||||||||||||||
a | Hudson Executive Investment Corp., A | United States | 37,101 | 368,413 | ||||||||||||||
a | Hudson Executive Investment Corp., wts., 6/21/25 | United States | 28,108 | 28,670 | ||||||||||||||
f | Moody’s Corp. | United States | 9,897 | 2,794,319 | ||||||||||||||
b | Morgan Stanley | United States | 356 | 22,012 | ||||||||||||||
a | Open Lending Corp., A | United States | 5,337 | 150,076 | ||||||||||||||
S&P Global Inc. | United States | 53 | 18,644 | |||||||||||||||
a,d | SCVX Corp., A | United States | 6,958 | 70,276 |
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) | ||||||||||||||||||
Capital Markets (continued) | ||||||||||||||||||
T Rowe Price Group Inc. | United States | 127 | $ | 18,213 | ||||||||||||||
Virtu Financial Inc., A | United States | 390 | 8,888 | |||||||||||||||
|
| |||||||||||||||||
8,407,194 | ||||||||||||||||||
|
| |||||||||||||||||
Chemicals 0.9% | ||||||||||||||||||
Advanced Emissions Solutions Inc. | United States | 11,946 | 67,495 | |||||||||||||||
Ecolab Inc., W | United States | 8,796 | 1,954,031 | |||||||||||||||
FMC Corp. | United States | 3,016 | 349,886 | |||||||||||||||
The Sherwin-Williams Co. | United States | 11,931 | 8,919,974 | |||||||||||||||
|
| |||||||||||||||||
11,291,386 | ||||||||||||||||||
|
| |||||||||||||||||
Commercial Services & Supplies 0.7% | ||||||||||||||||||
f | Cintas Corp. | United States | 14,623 | 5,195,552 | ||||||||||||||
Covanta Holding Corp. | United States | 8,456 | 104,854 | |||||||||||||||
GFL Environmental Inc. | Canada | 5,251 | 142,460 | |||||||||||||||
Republic Services Inc., A | United States | 33,639 | 3,253,564 | |||||||||||||||
|
| |||||||||||||||||
8,696,430 | ||||||||||||||||||
|
| |||||||||||||||||
Communications Equipment 0.0%† | ||||||||||||||||||
a,b | Acacia Communications Inc. | United States | 817 | 56,928 | ||||||||||||||
Cisco Systems Inc. | United States | 431 | 18,542 | |||||||||||||||
|
| |||||||||||||||||
75,470 | ||||||||||||||||||
|
| |||||||||||||||||
Construction & Engineering 0.2% | ||||||||||||||||||
a | AECOM | United States | 15,445 | 801,441 | ||||||||||||||
Quanta Services Inc. | United States | 23,024 | 1,573,460 | |||||||||||||||
|
| |||||||||||||||||
2,374,901 | ||||||||||||||||||
|
| |||||||||||||||||
Construction Materials 0.7% | ||||||||||||||||||
Cemex SAB de CV, ADR | Mexico | 624,940 | 2,874,724 | |||||||||||||||
LafargeHolcim Ltd., B | Switzerland | 60,292 | 3,164,542 | |||||||||||||||
Martin Marietta Materials Inc. | United States | 3,156 | 838,328 | |||||||||||||||
Vulcan Materials Co. | United States | 9,298 | 1,298,466 | |||||||||||||||
|
| |||||||||||||||||
8,176,060 | ||||||||||||||||||
|
| |||||||||||||||||
Containers & Packaging 1.0% | ||||||||||||||||||
f | Ball Corp. | United States | 100,464 | 9,645,548 | ||||||||||||||
a | Crown Holdings Inc. | United States | 27,203 | 2,563,883 | ||||||||||||||
|
| |||||||||||||||||
12,209,431 | ||||||||||||||||||
|
| |||||||||||||||||
Distributors 0.2% | ||||||||||||||||||
Pool Corp. | United States | 7,684 | 2,659,509 | |||||||||||||||
|
| |||||||||||||||||
Diversified Financial Services 0.9% | ||||||||||||||||||
a | ACE Convergence Acquisition Corp. | United States | 12,220 | 120,367 | ||||||||||||||
a | ACE Convergence Acquisition Corp., wts., 7/28/27 | United States | 9,842 | 12,989 | ||||||||||||||
a | ACE Convergence Acquisition Corp., wts., 9/30/27 | United States | 6,110 | 4,949 | ||||||||||||||
a | Aequi Acquisition Corp. | United States | 25,184 | 251,840 | ||||||||||||||
a,d | Ajax I | United States | 75,659 | 807,282 | ||||||||||||||
a | Altimeter Growth Corp. | United States | 8,464 | 103,176 | ||||||||||||||
a | Apex Technology Acquisition Corp., wts., 9/30/26 | United States | 6,458 | 23,701 | ||||||||||||||
a | Ascendant Digital Acquisition Corp. | United States | 19,684 | 195,856 | ||||||||||||||
a | Atlantic Avenue Acquisition Corp. | United States | 8,680 | 86,887 | ||||||||||||||
a | Avanti Acquisition Corp. | Cayman Islands | 16,939 | 172,100 | ||||||||||||||
a | Bluescape Opportunities Acquisition Corp. | United States | 26,901 | 269,548 | ||||||||||||||
a,d | BowX Acquisition Corp. | United States | 12,175 | 125,159 | ||||||||||||||
a | Bridgetown Holdings Ltd. | Hong Kong | 13,143 | 136,687 |
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) | ||||||||||||||||||
Diversified Financial Services (continued) | ||||||||||||||||||
a | Burgundy Technology Acquisition Corp. | United States | 26,419 | $ | 265,314 | |||||||||||||
a | Burgundy Technology Acquisition Corp., wts., 10/5/25 | United States | 14,869 | 11,449 | ||||||||||||||
a,d | CC Neuberger Principal Holdings I | United States | 6,824 | 70,492 | ||||||||||||||
a | CC Neuberger Principal Holdings II | United States | 39,672 | 396,720 | ||||||||||||||
a | CC Neuberger Principal Holdings II, wts., 7/29/25 | United States | 9,918 | 12,100 | ||||||||||||||
a | CF Finance Acquisition Corp. II | United States | 31,159 | 327,170 | ||||||||||||||
a | CF Finance Acquisition Corp. III | United States | 29,367 | 301,012 | ||||||||||||||
a | Consonance-HFW Acquisition Corp. | United States | 2,546 | 25,619 | ||||||||||||||
a | dMY Technology Group Inc. II, wts., 7/29/27 | United States | 34,710 | 68,726 | ||||||||||||||
a,d | dMY Technology Group Inc. III | United States | 28,528 | 294,409 | ||||||||||||||
a | Dragoneer Growth Opportunities Corp. | United States | 1,778 | 22,758 | ||||||||||||||
a | Dragoneer Growth Opportunities Corp. II | United States | 5,156 | 56,201 | ||||||||||||||
a | Dragoneer Growth Opportunities Corp., wts., 8/18/27 | United States | 1,227 | 4,012 | ||||||||||||||
a | Executive Network Partnering Corp. | United States | 14,215 | 355,375 | ||||||||||||||
a | Falcon Capital Acquisition Corp. | United States | 7,250 | 75,980 | ||||||||||||||
a | Fast Acquisition Corp. | United States | 6,064 | 62,762 | ||||||||||||||
a | FinServ Acquisition Corp., A | United States | 1,034 | 10,361 | ||||||||||||||
a | FinServ Acquisition Corp., wts., 12/31/26 | United States | 1,107 | 1,118 | ||||||||||||||
a | Flying Eagle Acquisition Corp. | United States | 2,100 | 32,550 | ||||||||||||||
a | Flying Eagle Acquisition Corp., wts., 2/26/27 | United States | 8,765 | 35,235 | ||||||||||||||
a | Forest Road Acquisition Corp. | United States | 19,894 | 202,521 | ||||||||||||||
a,d | Forum Merger III Corp., A | United States | 23,943 | 287,795 | ||||||||||||||
a | Forum Merger III Corp., wts., 8/24/27 | United States | 7,981 | 19,713 | ||||||||||||||
a | FTAC Olympus Acquisition Corp. | United States | 7,003 | 71,431 | ||||||||||||||
a | GO Acquisition Corp. | United States | 5,935 | 60,240 | ||||||||||||||
a,d | GO Acquisition Corp., A | United States | 12,171 | 119,884 | ||||||||||||||
a | GO Acquisition Corp., wts., 8/31/27 | United States | 4,057 | 4,057 | ||||||||||||||
a | Health Assurance Acquisition Corp. | United States | 6,380 | 66,926 | ||||||||||||||
a | Insu Acquisition Corp. II | United States | 22,128 | 305,366 | ||||||||||||||
a | Interprivate Acquisition Corp. | United States | 7,720 | 85,306 | ||||||||||||||
a | Interprivate Acquisition Corp., wts., 10/29/24 | United States | 28,168 | 56,336 | ||||||||||||||
a | Investindustrial Acquisition Corp. | United Kingdom | 9,548 | 96,339 | ||||||||||||||
a | Jaws Acquisition Corp., wts., 7/6/25 | United States | 19,472 | 41,086 | ||||||||||||||
a | Landcadia Holdings III Inc. | United States | 22,532 | 228,249 | ||||||||||||||
a | Longview Acquisition Corp., wts., 6/29/25 | United States | 6,833 | 23,266 | ||||||||||||||
a | Montes Archimedes Acquisition Corp. | United States | 6,095 | 61,194 | ||||||||||||||
a | NextGen Acquisition Corp. | United States | 6,771 | 67,778 | ||||||||||||||
a | Northern Star Acquisition Corp. | United States | 6,375 | 64,069 | ||||||||||||||
a | Oaktree Acquisition Corp II | United States | 17,512 | 178,447 | ||||||||||||||
a | One, A | United States | 24,116 | 252,012 | ||||||||||||||
a | One, wts., 8/17/25 | United States | 6,029 | 11,335 | ||||||||||||||
a,c,g | One Call Corp. | United States | 4,965 | 517,597 | ||||||||||||||
a | Osprey Technology Acquisition Corp., A | United States | 17,190 | 175,854 | ||||||||||||||
a | Peridot Acquisition Corp. | United States | 19,762 | 204,537 | ||||||||||||||
a,b | Pershing Square Tontine Holdings Ltd., A | United States | 6,711 | 174,553 | ||||||||||||||
a | Pershing Square Tontine Holdings Ltd., wts., 7/24/21 | United States | 1 | 10 | ||||||||||||||
a | Pine Island Acquisition Corp. | United States | 12,737 | 128,644 | ||||||||||||||
a,d | PMV Consumer Acquisition Corp. | United States | 4,933 | 49,725 | ||||||||||||||
a | Population Health Investment Co. Inc. | United States | 4,453 | 45,376 | ||||||||||||||
a | Prime Impact Acquisition I | United States | 15,978 | 160,478 | ||||||||||||||
a | Property Solutions Acquisition Corp., wts., 8/28/27 | United States | 19,217 | 13,068 | ||||||||||||||
a | RedBall Acquisition Corp. | United States | 24,120 | 249,883 | ||||||||||||||
a | RedBall Acquisition Corp., wts., 8/17/22 | United States | 8,040 | 14,954 | ||||||||||||||
a | Reinvent Technology Partners | United States | 14,367 | 162,332 | ||||||||||||||
a,d | Rice Acquisition Corp. | United States | 8,926 | 92,473 |
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) | ||||||||||||||||||
Diversified Financial Services (continued) | ||||||||||||||||||
a | Social Capital Hedosophia Holdings Corp II, wts., 12/31/25 | United States | 11,384 | $ | 88,681 | |||||||||||||
a,d | Social Capital Hedosophia Holdings Corp III | United States | 10,820 | 112,420 | ||||||||||||||
a | Social Capital Hedosophia Holdings Corp III, wts., 12/31/25 | United States | 4,361 | 7,872 | ||||||||||||||
a | Social Capital Hedosophia Holdings Corp V | United States | 8,928 | 97,762 | ||||||||||||||
a | Social Capital Hedosophia Holdings Corp VI | United States | 8,928 | 95,887 | ||||||||||||||
a | South Mountain Merger Corp., wts., 6/20/24 | United States | 5,670 | 15,876 | ||||||||||||||
a | Stable Road Acquisition Corp., wts., 5/15/26 | United States | 10,530 | 33,485 | ||||||||||||||
a | Star Peak Energy Transition Corp. | United States | 10,047 | 105,946 | ||||||||||||||
a | Starboard Value Acquisition Corp., A | United States | 7,428 | 75,914 | ||||||||||||||
a | Supernova Partners Acquisition Co. Inc. | United States | 28,220 | 294,335 | ||||||||||||||
a,d | Tailwind Acquisition Corp. | United States | 16,038 | 163,588 | ||||||||||||||
a | Tekkorp Digital Acquisition Corp. | United States | 10,087 | 102,383 | ||||||||||||||
a | Thunder Bridge Acquisition II Ltd. | United States | 8,169 | 83,977 | ||||||||||||||
a | TPG Pace Beneficial Finance Corp. | United States | 4,740 | 49,343 | ||||||||||||||
a | TPG Pace Tech Opportunities Corp. | United States | 8,126 | 85,321 | ||||||||||||||
a | Triterras Inc., wts., 2/2/21 | United States | 14,974 | 36,237 | ||||||||||||||
a | TWC Tech Holdings II Corp. | United States | 7,451 | 76,149 | ||||||||||||||
a | VPC Impact Acquisition Holdings | United States | 19,768 | 199,855 | ||||||||||||||
a | Yucaipa Acquisition Corp. | United States | 5,406 | 54,492 | ||||||||||||||
a | Yucaipa Acquisition Corp., wts., 9/6/25 | United States | 3,720 | 4,278 | ||||||||||||||
|
| |||||||||||||||||
10,816,539 | ||||||||||||||||||
|
| |||||||||||||||||
Diversified Telecommunication Services 0.1% | ||||||||||||||||||
AT&T Inc. | United States | 21,983 | 632,011 | |||||||||||||||
e | China Tower Corp. Ltd., H, 144A | China | 2,980,850 | 467,422 | ||||||||||||||
Telecom Italia SpA | Italy | 411,734 | 194,042 | |||||||||||||||
Telecom Italia SpA, RSP | Italy | 99,275 | 50,778 | |||||||||||||||
Verizon Communications Inc. | United States | 301 | 18,183 | |||||||||||||||
|
| |||||||||||||||||
1,362,436 | ||||||||||||||||||
|
| |||||||||||||||||
Electric Utilities 0.9% | ||||||||||||||||||
Duke Energy Corp. | United States | 2,117 | 196,161 | |||||||||||||||
a,f | Energy Harbor Corp. | United States | 82,474 | 1,743,500 | ||||||||||||||
f | FirstEnergy Corp. | United States | 64,391 | 1,710,225 | ||||||||||||||
NRG Energy Inc. | United States | 30,594 | 1,001,954 | |||||||||||||||
a | PG&E Corp. | United States | 268,788 | 3,413,607 | ||||||||||||||
PPL Corp. | United States | 114,802 | 3,262,673 | |||||||||||||||
|
| |||||||||||||||||
11,328,120 | ||||||||||||||||||
|
| |||||||||||||||||
Electrical Equipment 0.1% | ||||||||||||||||||
Vestas Wind Systems A/S | Denmark | 5,895 | 1,201,481 | |||||||||||||||
|
| |||||||||||||||||
Electronic Equipment, Instruments & Components 0.4% | ||||||||||||||||||
a | Fitbit Inc., A | United States | 659,322 | 4,733,932 | ||||||||||||||
|
| |||||||||||||||||
Entertainment 0.3% | ||||||||||||||||||
b | Activision Blizzard Inc. | United States | 220 | 17,485 | ||||||||||||||
Electronic Arts Inc. | United States | 13,245 | 1,692,049 | |||||||||||||||
a | Netflix Inc. | United States | 3,243 | 1,591,340 | ||||||||||||||
|
| |||||||||||||||||
3,300,874 | ||||||||||||||||||
|
| |||||||||||||||||
Equity Real Estate Investment Trusts (REITs) 0.1% | ||||||||||||||||||
American Tower Corp. | United States | 74 | 17,109 | |||||||||||||||
d | Iron Mountain Inc. | United States | 661 | 18,177 | ||||||||||||||
b | Taubman Centers Inc.. | United States | 1,800 | 76,896 | ||||||||||||||
VICI Properties Inc. | United States | 31,000 | 783,990 | |||||||||||||||
|
| |||||||||||||||||
896,172 | ||||||||||||||||||
|
|
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) | ||||||||||||||||||
Food & Staples Retailing 0.4% | ||||||||||||||||||
Costco Wholesale Corp. | United States | 12,498 | $ | 4,896,342 | ||||||||||||||
b | The Kroger Co. | United States | 505 | 16,665 | ||||||||||||||
Wal-Mart Stores Inc. | United States | 1,332 | 203,516 | |||||||||||||||
|
| |||||||||||||||||
5,116,523 | ||||||||||||||||||
|
| |||||||||||||||||
Food Products 0.2% | ||||||||||||||||||
COFCO Joycome Foods Ltd. | China | 1,720,786 | 579,697 | |||||||||||||||
a | Darling Ingredients Inc. | United States | 26,582 | 1,283,379 | ||||||||||||||
|
| |||||||||||||||||
1,863,076 | ||||||||||||||||||
|
| |||||||||||||||||
Health Care Equipment & Supplies 2.7% | ||||||||||||||||||
f | Abbott Laboratories | United States | 20,076 | 2,172,624 | ||||||||||||||
a | Alcon Inc. | Switzerland | 6,799 | 436,632 | ||||||||||||||
a | Boston Scientific Corp. | United States | 44,647 | 1,480,048 | ||||||||||||||
Danaher Corp., W | United States | 10,007 | 2,247,872 | |||||||||||||||
a | DexCom Inc. | United States | 5,244 | 1,676,402 | ||||||||||||||
a | Edwards Lifesciences Corp. | United States | 14,942 | 1,253,484 | ||||||||||||||
a | Insulet Corp. | United States | 2,464 | 634,998 | ||||||||||||||
a,f | Intuitive Surgical Inc. | United States | 2,062 | 1,497,115 | ||||||||||||||
a | Nevro Corp. | United States | 3,908 | 630,165 | ||||||||||||||
a,d | Outset Medical Inc. | United States | 2,058 | 131,712 | ||||||||||||||
a | Shockwave Medical Inc. | United States | 13,067 | 1,278,345 | ||||||||||||||
a | Silk Road Medical Inc. | United States | 13,567 | 777,389 | ||||||||||||||
a | Tandem Diabetes Care Inc. | United States | 7,588 | 712,362 | ||||||||||||||
Teleflex Inc. | United States | 1,033 | 395,381 | |||||||||||||||
a,f | Varian Medical Systems Inc. | United States | 91,448 | 15,910,123 | ||||||||||||||
Zimmer Biomet Holdings Inc. | United States | 7,224 | 1,077,243 | |||||||||||||||
|
| |||||||||||||||||
32,311,895 | ||||||||||||||||||
|
| |||||||||||||||||
Health Care Providers & Services 1.1% | ||||||||||||||||||
Anthem Inc. | United States | 4,241 | 1,321,156 | |||||||||||||||
a | Centene Corp. | United States | 16,030 | 988,249 | ||||||||||||||
Cigna Corp. | United States | 6,309 | 1,319,464 | |||||||||||||||
CVS Health Corp. | United States | 2,976 | 201,743 | |||||||||||||||
a,f | Guardant Health Inc. | United States | 10,655 | 1,290,534 | ||||||||||||||
Humana Inc. | United States | 5,077 | 2,033,440 | |||||||||||||||
UnitedHealth Group Inc. | United States | 19,340 | 6,504,816 | |||||||||||||||
|
| |||||||||||||||||
13,659,402 | ||||||||||||||||||
|
| |||||||||||||||||
Health Care Technology 0.2% | ||||||||||||||||||
a,d | Accolade Inc. | United States | 7,667 | 397,994 | ||||||||||||||
a | Multiplan Corp., wts., 3/1/27 | United States | 17,287 | 20,051 | ||||||||||||||
a | Phreesia Inc. | United States | 15,252 | 673,528 | ||||||||||||||
a,f | Teladoc Health Inc. | United States | 5,014 | 996,633 | ||||||||||||||
|
| |||||||||||||||||
2,088,206 | ||||||||||||||||||
|
| |||||||||||||||||
Hotels, Restaurants & Leisure 1.2% | ||||||||||||||||||
Carnival PLC | United States | 21,603 | 374,476 | |||||||||||||||
Domino’s Pizza Inc. | United States | 6,864 | 2,694,601 | |||||||||||||||
Dunkin’ Brands Group Inc. | United States | 42,733 | 4,544,227 | |||||||||||||||
McDonald’s Corp. | United States | 985 | 214,179 | |||||||||||||||
Netent AB | Sweden | 613,889 | 6,120,815 | |||||||||||||||
Starbucks Corp. | United States | 1,560 | 152,911 | |||||||||||||||
Wingstop Inc. | United States | 19 | 2,419 | |||||||||||||||
Yum! Brands Inc. | United States | 174 | 18,409 | |||||||||||||||
|
| |||||||||||||||||
14,122,037 | ||||||||||||||||||
|
|
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) | ||||||||||||||||||
Household Durables 0.0%† | ||||||||||||||||||
D.R. Horton Inc. | United States | 167 | $ | 12,441 | ||||||||||||||
PulteGroup Inc. | United States | 50 | 2,182 | |||||||||||||||
|
| |||||||||||||||||
14,623 | ||||||||||||||||||
|
| |||||||||||||||||
Household Products 0.0%† | ||||||||||||||||||
Kimberly-Clark Corp. | United States | 97 | 13,513 | |||||||||||||||
The Procter & Gamble Co. | United States | 1,511 | 209,833 | |||||||||||||||
|
| |||||||||||||||||
223,346 | ||||||||||||||||||
|
| |||||||||||||||||
Independent Power & Renewable Electricity Producers 1.1% | ||||||||||||||||||
The AES Corp. | United States | 249,261 | 5,094,895 | |||||||||||||||
a | Array Technologies Inc. | United States | 12,086 | 550,880 | ||||||||||||||
Clearway Energy Inc., C | United States | 65,252 | 1,909,926 | |||||||||||||||
NextEra Energy Partners LP | United States | 34,759 | 2,206,154 | |||||||||||||||
a | Sunnova Energy International Inc. | United States | 76,830 | 3,112,383 | ||||||||||||||
Vistra Corp. | United States | 131 | 2,447 | |||||||||||||||
|
| |||||||||||||||||
12,876,685 | ||||||||||||||||||
|
| |||||||||||||||||
Industrial Conglomerates 0.0%† | ||||||||||||||||||
Smiths Group PLC | United Kingdom | 17,888 | 343,706 | |||||||||||||||
|
| |||||||||||||||||
Insurance 0.9% | ||||||||||||||||||
a,d | eHealth Inc. | United States | 8,670 | 658,833 | ||||||||||||||
b | MetLife Inc. | United States | 444 | 20,500 | ||||||||||||||
The Progressive Corp. | United States | 196 | 17,074 | |||||||||||||||
a,d | Selectquote Inc. | United States | 15,278 | 327,713 | ||||||||||||||
a | Trupanion Inc. | United States | 18,524 | 1,877,963 | ||||||||||||||
a | Willis Towers Watson PLC | United States | 37,853 | 7,880,616 | ||||||||||||||
|
| |||||||||||||||||
10,782,699 | ||||||||||||||||||
|
| |||||||||||||||||
Interactive Media & Services 2.5% | ||||||||||||||||||
a,f | Alphabet Inc., A | United States | 2,951 | 5,177,235 | ||||||||||||||
a,f | Alphabet Inc., C | United States | 1,628 | 2,866,485 | ||||||||||||||
a,f | Facebook Inc., A | United States | 20,322 | 5,628,584 | ||||||||||||||
a | Match Group Inc. | United States | 25,374 | 3,532,314 | ||||||||||||||
a | Snap Inc., A | United States | 98,253 | 4,364,398 | ||||||||||||||
Tencent Holdings Ltd. | China | 100,550 | 7,329,869 | |||||||||||||||
a | Twitter Inc. | United States | 25,199 | 1,172,005 | ||||||||||||||
|
| |||||||||||||||||
30,070,890 | ||||||||||||||||||
|
| |||||||||||||||||
Internet & Direct Marketing Retail 1.6% | ||||||||||||||||||
a,f | Alibaba Group Holding Ltd., ADR | China | 22,541 | 5,936,398 | ||||||||||||||
a | Amazon.com Inc. | United States | 1,351 | 4,280,022 | ||||||||||||||
a | Booking Holdings Inc. | United States | 129 | 261,670 | ||||||||||||||
b,f | eBay Inc. | United States | 33,407 | 1,684,715 | ||||||||||||||
a | Grubhub Inc. | United States | 74,741 | 5,257,282 | ||||||||||||||
a | MercadoLibre Inc. | Argentina | 1,292 | 2,006,902 | ||||||||||||||
|
| |||||||||||||||||
19,426,989 | ||||||||||||||||||
|
| |||||||||||||||||
IT Services 4.5% | ||||||||||||||||||
a | 21vianet Group Inc., ADR | China | 32,928 | 933,180 | ||||||||||||||
Accenture PLC, A | United States | 77 | 19,180 | |||||||||||||||
a | Cardtronics PLC, A | United States | 3,570 | 86,680 | ||||||||||||||
Cognizant Technology Solutions Corp., A | United States | 40,359 | 3,153,249 | |||||||||||||||
Edenred | France | 17,325 | 990,037 | |||||||||||||||
Fidelity National Information Services Inc. | United States | 128 | 18,996 | |||||||||||||||
a | FleetCor Technologies Inc. | United States | 12,087 | 3,205,593 |
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) | ||||||||||||||||||
IT Services (continued) | ||||||||||||||||||
Genpact Ltd. | United States | 100,024 | $ | 4,065,976 | ||||||||||||||
Global Payments Inc. | United States | 39,933 | 7,794,523 | |||||||||||||||
a | GoDaddy Inc., A | United States | 40,362 | 3,210,393 | ||||||||||||||
International Business Machines Corp. | United States | 2,072 | 255,933 | |||||||||||||||
MasterCard Inc., A | United States | 27,183 | 9,147,351 | |||||||||||||||
a,d | MongoDB Inc., A | United States | 4,800 | 1,379,088 | ||||||||||||||
a,f | PayPal Holdings Inc. | United States | 24,101 | 5,160,506 | ||||||||||||||
a | Repay Holdings Corp., A | United States | 55,915 | 1,349,229 | ||||||||||||||
a | StoneCo. Ltd. | Brazil | 44,366 | 3,248,479 | ||||||||||||||
a | VeriSign Inc. | United States | 8,913 | 1,789,017 | ||||||||||||||
a | Virtusa Corp. | United States | 126,599 | 6,340,078 | ||||||||||||||
Visa Inc., A | United States | 6,895 | 1,450,363 | |||||||||||||||
a | WEX Inc. | United States | 8,637 | 1,496,274 | ||||||||||||||
|
| |||||||||||||||||
55,094,125 | ||||||||||||||||||
|
| |||||||||||||||||
Life Sciences Tools & Services 1.7% | ||||||||||||||||||
a | 10x Genomics Inc., A | United States | 3,928 | 601,416 | ||||||||||||||
a | Adaptive Biotechnologies Corp. | United States | 8,919 | 430,074 | ||||||||||||||
a | Avantor Inc. | United States | 25,108 | 684,946 | ||||||||||||||
a,d | Berkeley Lights Inc. | United States | 1,070 | 88,660 | ||||||||||||||
a | Eurofins Scientific SE | Luxembourg | 24,910 | 2,037,692 | ||||||||||||||
Gerresheimer AG | Germany | 9,835 | 1,147,599 | |||||||||||||||
a | Illumina Inc. | United States | 2,833 | 912,481 | ||||||||||||||
a | IQVIA Holdings Inc. | United States | 6,752 | 1,141,021 | ||||||||||||||
a | Maravai Lifesciences Holdings Inc., A | United States | 6,782 | 190,913 | ||||||||||||||
a | Mettler-Toledo International Inc. | United States | 3,910 | 4,496,656 | ||||||||||||||
a | PPD Inc. | United States | 16,234 | 568,190 | ||||||||||||||
a | QIAGEN NV | Germany | 33,197 | 1,600,194 | ||||||||||||||
a | Repligen Corp. | United States | 5,221 | 990,267 | ||||||||||||||
Thermo Fisher Scientific Inc. | United States | 8,703 | 4,046,721 | |||||||||||||||
a,e | Wuxi Biologics Cayman Inc., 144A | China | 127,425 | 1,264,214 | ||||||||||||||
|
| |||||||||||||||||
20,201,044 | ||||||||||||||||||
|
| |||||||||||||||||
Machinery 0.5% | ||||||||||||||||||
a | Navistar International Corp. | United States | 104,014 | 4,603,660 | ||||||||||||||
Neles OYJ | Finland | 9,584 | 123,581 | |||||||||||||||
The Toro Co. | United States | 14,096 | 1,278,648 | |||||||||||||||
|
| |||||||||||||||||
6,005,889 | ||||||||||||||||||
|
| |||||||||||||||||
Media 0.2% | ||||||||||||||||||
a,d | Cardlytics Inc. | United States | 7,041 | 835,626 | ||||||||||||||
b | Comcast Corp., A | United States | 441 | 22,156 | ||||||||||||||
a | ITV PLC | United Kingdom | 293,248 | 364,934 | ||||||||||||||
b | Nexstar Media Group Inc., A | United States | 198 | 20,840 | ||||||||||||||
a | Postmedia Network Canada Corp., B | Canada | 666,338 | 826,060 | ||||||||||||||
Stroeer SE & Co. KGaA | Germany | 1,613 | 144,101 | |||||||||||||||
d | ViacomCBS Inc., B | United States | 100 | 3,528 | ||||||||||||||
|
| |||||||||||||||||
2,217,245 | ||||||||||||||||||
|
| |||||||||||||||||
Metals & Mining 0.0%† | ||||||||||||||||||
b | Newmont Corp. | United States | 290 | 17,058 | ||||||||||||||
|
| |||||||||||||||||
Multiline Retail 0.0%† | �� | |||||||||||||||||
Dollar General Corp. | United States | 65 | 14,208 | |||||||||||||||
Target Corp. | United States | 116 | 20,825 | |||||||||||||||
|
| |||||||||||||||||
35,033 | ||||||||||||||||||
|
|
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) | ||||||||||||||||||
Multi-Utilities 0.0%† | ||||||||||||||||||
Northwestern Corp. | United States | 2,777 | $ | 161,066 | ||||||||||||||
|
| |||||||||||||||||
Oil, Gas & Consumable Fuels 0.0%† | ||||||||||||||||||
a | Battalion Oil Corp. | United States | 3,790 | 29,031 | ||||||||||||||
a | California Resources Corp. | United States | 13,692 | 298,760 | ||||||||||||||
Chevron Corp. | United States | 251 | 21,882 | |||||||||||||||
b | Enterprise Products Partners LP | United States | 614 | 11,912 | ||||||||||||||
b | EOG Resources Inc. | United States | 377 | 17,674 | ||||||||||||||
a | Whiting Petroleum Corp. | United States | 7,860 | 177,950 | ||||||||||||||
|
| |||||||||||||||||
557,209 | ||||||||||||||||||
|
| |||||||||||||||||
Paper & Forest Products 0.0%† | ||||||||||||||||||
a,c | Topco Associates LLC | United Kingdom | 144,632 | — | ||||||||||||||
|
| |||||||||||||||||
Personal Products 0.0%† | ||||||||||||||||||
The Estee Lauder Cos. Inc., A | United States | 311 | 76,295 | |||||||||||||||
a | Unilever PLC | United Kingdom | 7,199 | 436,407 | ||||||||||||||
|
| |||||||||||||||||
512,702 | ||||||||||||||||||
|
| |||||||||||||||||
Pharmaceuticals 1.4% | ||||||||||||||||||
f | AstraZeneca PLC, ADR | United Kingdom | 41,505 | 2,197,275 | ||||||||||||||
b | Bristol-Myers Squibb Co. | United States | 18,383 | 1,147,099 | ||||||||||||||
a | Bristol-Myers Squibb Co., Contingent Value, rts., 1/23/65 | United States | 36,327 | 42,866 | ||||||||||||||
a | Catalent Inc. | United States | 4,288 | 412,248 | ||||||||||||||
Eli Lilly & Co., W | United States | 12,989 | 1,891,848 | |||||||||||||||
Hikma Pharmaceuticals PLC | Jordan | 15,834 | 546,943 | |||||||||||||||
a | Horizon Therapeutics PLC | United States | 5,394 | 379,899 | ||||||||||||||
Johnson & Johnson | United States | 1,298 | 187,795 | |||||||||||||||
Merck & Co. Inc. | United States | 225 | 18,088 | |||||||||||||||
f | Novo Nordisk AS, ADR | Denmark | 23,489 | 1,576,816 | ||||||||||||||
a | Revance Therapeutics Inc. | United States | 20,163 | 486,735 | ||||||||||||||
Roche Holding AG | Switzerland | 36,791 | 4,938,952 | |||||||||||||||
Zoetis Inc., A | United States | 22,959 | 3,682,164 | |||||||||||||||
|
| |||||||||||||||||
17,508,728 | ||||||||||||||||||
|
| |||||||||||||||||
Professional Services 1.7% | ||||||||||||||||||
f | CoreLogic Inc. | United States | 94,140 | 7,295,850 | ||||||||||||||
a | CoStar Group Inc. | United States | 1,927 | 1,754,668 | ||||||||||||||
Experian PLC | United Kingdom | 22,558 | 799,231 | |||||||||||||||
a,e | Intertrust NV, 144A | Netherlands | 283,677 | 4,867,862 | ||||||||||||||
SGS SA | Switzerland | 180 | 514,022 | |||||||||||||||
TransUnion | United States | 20,047 | 1,826,081 | |||||||||||||||
a | TriNet Group Inc. | United States | 46,747 | 3,506,025 | ||||||||||||||
|
| |||||||||||||||||
20,563,739 | ||||||||||||||||||
|
| |||||||||||||||||
Road & Rail 0.9% | ||||||||||||||||||
b | CSX Corp. | United States | 34,043 | 3,065,572 | ||||||||||||||
Kansas City Southern | United States | 18,695 | 3,480,448 | |||||||||||||||
f | Union Pacific Corp. | United States | 23,802 | 4,857,512 | ||||||||||||||
|
| |||||||||||||||||
11,403,532 | ||||||||||||||||||
|
| |||||||||||||||||
Semiconductors & Semiconductor Equipment 2.0% | ||||||||||||||||||
a | Advanced Micro Devices Inc. | United States | 19,661 | 1,821,788 | ||||||||||||||
b | Applied Materials Inc. | United States | 292 | 24,084 | ||||||||||||||
ASML Holding NV, N.Y. shares, G | Netherlands | 4,398 | 1,925,137 | |||||||||||||||
a | Enphase Energy Inc. | United States | 8,849 | 1,208,508 | ||||||||||||||
a | Inphi Corp. | United States | 10,120 | 1,569,916 | ||||||||||||||
b | Intel Corp. | United States | 367 | 17,744 |
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) | ||||||||||||||||||
Semiconductors & Semiconductor Equipment (continued) | ||||||||||||||||||
KLA Corp. | United States | 621 | $ | 156,473 | ||||||||||||||
LAM Research Corp. | United States | 53 | 23,991 | |||||||||||||||
Marvell Technology Group Ltd. | Bermuda | 68,634 | 3,177,068 | |||||||||||||||
Maxim Integrated Products Inc. | United States | 65,762 | 5,460,876 | |||||||||||||||
MediaTek Inc. | Taiwan | 58,000 | 1,432,307 | |||||||||||||||
a,f | Micron Technology Inc. | United States | 31,400 | 2,012,426 | ||||||||||||||
NVIDIA Corp. | United States | 32 | 17,154 | |||||||||||||||
QUALCOMM Inc. | United States | 653 | 96,102 | |||||||||||||||
a | Silicon Laboratories Inc. | United States | 433 | 50,752 | ||||||||||||||
Siltronic AG | Germany | 1,000 | 145,790 | |||||||||||||||
Skyworks Solutions Inc. | United States | 3,300 | 465,861 | |||||||||||||||
a,c,e,h | SunEdison Inc., Contingent Distribution, 144A | United States | 35,000 | 700 | ||||||||||||||
Teradyne Inc. | United States | 140 | 15,448 | |||||||||||||||
Texas Instruments Inc. | United States | 132 | 21,285 | |||||||||||||||
Xilinx Inc. | United States | 31,439 | 4,575,946 | |||||||||||||||
|
| |||||||||||||||||
24,219,356 | ||||||||||||||||||
|
| |||||||||||||||||
Software 4.0% | ||||||||||||||||||
a | Adobe Inc. | United States | 5,391 | 2,579,432 | ||||||||||||||
a | Atlassian Corp. PLC, A | United States | 8,195 | 1,844,285 | ||||||||||||||
a | Avalara Inc. | United States | 15,621 | 2,682,907 | ||||||||||||||
a | Ceridian HCM Holding Inc. | United States | 25,359 | 2,445,115 | ||||||||||||||
a | Guidewire Software Inc. | United States | 15,962 | 1,955,026 | ||||||||||||||
a | HubSpot Inc. | United States | 5,119 | 2,018,575 | ||||||||||||||
Intuit Inc. | United States | 13,442 | 4,731,852 | |||||||||||||||
f | Microsoft Corp. | United States | 33,635 | 7,200,244 | ||||||||||||||
NortonLifeLock Inc. | United States | 806 | 14,693 | |||||||||||||||
b | Oracle Corp. | United States | 321 | 18,528 | ||||||||||||||
a | Pluralsight Inc., A | United States | 12,645 | 207,125 | ||||||||||||||
a | Salesforce.com Inc. | United States | 16,294 | 4,005,065 | ||||||||||||||
SAP SE | Germany | 39,020 | 4,710,342 | |||||||||||||||
a,f | ServiceNow Inc. | United States | 8,050 | 4,303,128 | ||||||||||||||
a,b | Slack Technologies Inc., A | United States | 22,575 | 968,016 | ||||||||||||||
a,f | Splunk Inc. | United States | 12,817 | 2,616,975 | ||||||||||||||
a,d | VMware Inc., A | United States | 10,753 | 1,504,237 | ||||||||||||||
a | Workday Inc., A | United States | 20,562 | 4,622,132 | ||||||||||||||
a | Zscaler Inc. | United States | 4,418 | 688,104 | ||||||||||||||
|
| |||||||||||||||||
49,115,781 | ||||||||||||||||||
|
| |||||||||||||||||
Specialty Retail 1.9% | ||||||||||||||||||
Best Buy Co. Inc. | United States | 163 | 17,734 | |||||||||||||||
a | Five Below Inc. | United States | 18,257 | 2,855,395 | ||||||||||||||
a | Frasers Group PLC | United Kingdom | 180,900 | 1,009,558 | ||||||||||||||
a,e | GrandVision NV, 144A | Netherlands | 21,813 | 675,208 | ||||||||||||||
The Home Depot Inc. | United States | 27,162 | 7,535,011 | |||||||||||||||
Lowe’s Cos. Inc. | United States | 115 | 17,919 | |||||||||||||||
b | Tiffany & Co. | United States | 74,193 | 9,754,896 | ||||||||||||||
a | Ulta Beauty Inc. | United States | 2,365 | 651,321 | ||||||||||||||
a,d | Vroom Inc. | United States | 13,830 | 495,944 | ||||||||||||||
|
| |||||||||||||||||
23,012,986 | ||||||||||||||||||
|
| |||||||||||||||||
Technology Hardware, Storage & Peripherals 0.0%† | ||||||||||||||||||
Apple Inc. | United States | 1,557 | 185,361 | |||||||||||||||
a | Dell Technologies Inc., C | United States | 3,792 | 261,762 | ||||||||||||||
|
| |||||||||||||||||
447,123 | ||||||||||||||||||
|
|
24 | 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) | ||||||||||||||||||
Textiles, Apparel & Luxury Goods 0.6% | ||||||||||||||||||
a | Adidas AG | Germany | 13,073 | $ | 4,172,157 | |||||||||||||
a | Capri Holdings Ltd. | United States | 40,575 | 1,435,543 | ||||||||||||||
LVMH Moet Hennessy Louis Vuitton SE | France | 267 | 153,363 | |||||||||||||||
Nike Inc., B | United States | 640 | 86,208 | |||||||||||||||
f | Tapestry Inc. | United States | 37,765 | 1,069,505 | ||||||||||||||
|
| |||||||||||||||||
6,916,776 | ||||||||||||||||||
|
| |||||||||||||||||
Tobacco 0.0%† | ||||||||||||||||||
Altria Group Inc. | United States | 462 | 18,401 | |||||||||||||||
b | Philip Morris International Inc. | United States | 220 | 16,665 | ||||||||||||||
|
| |||||||||||||||||
35,066 | ||||||||||||||||||
|
| |||||||||||||||||
Trading Companies & Distributors 0.7% | ||||||||||||||||||
Brenntag AG | Germany | 45,255 | 3,465,545 | |||||||||||||||
a | HD Supply Holdings Inc. | United States | 83,425 | 4,653,446 | ||||||||||||||
IMCD Group NV | Netherlands | 2,228 | 277,631 | |||||||||||||||
a | WESCO International Inc. | United States | 9,966 | 649,982 | ||||||||||||||
|
| |||||||||||||||||
9,046,604 | ||||||||||||||||||
|
| |||||||||||||||||
Transportation Infrastructure 0.1% | ||||||||||||||||||
a | Atlantia SpA | Italy | 51,861 | 949,886 | ||||||||||||||
|
| |||||||||||||||||
Water Utilities 0.1% | ||||||||||||||||||
Guangdong Investment Ltd. | China | 571,824 | 948,141 | |||||||||||||||
|
| |||||||||||||||||
Wireless Telecommunication Services 0.2% | ||||||||||||||||||
a | T-Mobile USA Inc. | United States | 13,632 | 1,812,238 | ||||||||||||||
f | Vodafone Group PLC, ADR | United Kingdom | 49,788 | 825,485 | ||||||||||||||
|
| |||||||||||||||||
2,637,723 | ||||||||||||||||||
|
| |||||||||||||||||
Total Common Stocks and Other Equity Interests | 524,665,620 | |||||||||||||||||
|
| |||||||||||||||||
Exchange Traded Funds 0.3% | ||||||||||||||||||
iShares MSCI Brazil Capped ETF | Brazil | 48,885 | 1,625,426 | |||||||||||||||
US Global Jets ETF | United States | 75,645 | 1,666,459 | |||||||||||||||
|
| |||||||||||||||||
Total Exchange Traded Funds | 3,291,885 | |||||||||||||||||
|
| |||||||||||||||||
Convertible Preferred Stocks 0.4% | ||||||||||||||||||
Banks 0.0%† | ||||||||||||||||||
Bank of America Corp., 7.25%, cvt. pfd. | United States | 70 | 103,819 | |||||||||||||||
Wells Fargo & Co., 7.50%, cvt. pfd.cvt. | United States | 156 | 219,180 | |||||||||||||||
|
| |||||||||||||||||
322,999 | ||||||||||||||||||
|
| |||||||||||||||||
Diversified Financial Services 0.3% | ||||||||||||||||||
a,c,g | One Call Corp., cvt. pfd. | United States | 33,337 | 3,475,376 | ||||||||||||||
|
| |||||||||||||||||
Food Products 0.1% | ||||||||||||||||||
Bunge Ltd., 4.875%, cvt. pfd. | United States | 4,895 | 528,513 | |||||||||||||||
|
| |||||||||||||||||
Gas Utilities 0.0%† | ||||||||||||||||||
El Paso Energy Capital Trust I, 4.75%, cvt. pfd. | United States | 114 | 5,800 | |||||||||||||||
|
| |||||||||||||||||
Health Care Equipment & Supplies 0.0%† | ||||||||||||||||||
Boston Scientific Corp., 5.50%, cvt. pfd. | United States | 1,270 | 129,312 | |||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 25 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares/ Warrants/ Rights | Value | ||||||||||||||||
Convertible Preferred Stocks (continued) | ||||||||||||||||||
Oil, Gas & Consumable Fuels 0.0%† | ||||||||||||||||||
Chesapeake Energy Corp., 5.75%, cvt. pfd. | United States | 139 | $ | 229 | ||||||||||||||
|
| |||||||||||||||||
Total Convertible Preferred Stocks | 4,462,229 | |||||||||||||||||
|
| |||||||||||||||||
Preferred Stocks 0.2% | ||||||||||||||||||
Electric Utilities 0.1% | ||||||||||||||||||
SCE Trust II, 5.10%, pfd. | United States | 5,734 | 141,056 | |||||||||||||||
SCE Trust III, 5.75%, pfd., H | United States | 10,235 | 248,711 | |||||||||||||||
SCE Trust IV, 5.375%, pfd., J | United States | 3,529 | 84,696 | |||||||||||||||
SCE Trust VI, 5.00%, pfd. | United States | 4,649 | 109,716 | |||||||||||||||
|
| |||||||||||||||||
584,179 | ||||||||||||||||||
|
| |||||||||||||||||
Trading Companies & Distributors 0.1% | ||||||||||||||||||
WESCO International Inc., 10.625%, pfd., A | United States | 41,717 | 1,279,878 | |||||||||||||||
|
| |||||||||||||||||
Total Preferred Stocks (Cost $1,655,837) | 1,864,057 | |||||||||||||||||
|
| |||||||||||||||||
Principal Amount* | ||||||||||||||||||
Convertible Bonds 17.3% | ||||||||||||||||||
Aerospace & Defense 0.1% | ||||||||||||||||||
f | Kaman Corp., senior note, 3.25%, 5/01/24 | United States | 1,424,000 | 1,573,349 | ||||||||||||||
|
| |||||||||||||||||
Air Freight & Logistics 0.4% | ||||||||||||||||||
f | Air Transport Services Group Inc., senior note, 1.125%, 10/15/24 | United States | 1,318,000 | 1,536,422 | ||||||||||||||
Atlas Air Worldwide Holdings Inc., senior note, | ||||||||||||||||||
2.25%, 6/01/22 | United States | 1,353,000 | 1,430,798 | |||||||||||||||
f 1.875%, 6/01/24 | United States | 1,167,000 | 1,355,908 | |||||||||||||||
|
| |||||||||||||||||
4,323,128 | ||||||||||||||||||
|
| |||||||||||||||||
Airlines 0.4% | ||||||||||||||||||
e | Air Canada, senior note, 144A, 4.00%, 7/01/25 | Canada | 518,000 | 776,203 | ||||||||||||||
f | American Airlines Group Inc., senior note, 6.50%, 7/01/25 | United States | 1,422,000 | 1,555,384 | ||||||||||||||
e,f | Copa Holdings SA, senior note, 144A, 4.50%, 4/15/25 | Panama | 1,214,000 | 2,101,112 | ||||||||||||||
e | GOL Equity Finance SA, senior note, 144A, 3.75%, 7/15/24 | Brazil | 646,000 | 537,623 | ||||||||||||||
|
| |||||||||||||||||
4,970,322 | ||||||||||||||||||
|
| |||||||||||||||||
Automobiles 0.1% | ||||||||||||||||||
f | Winnebago Industries Inc., senior note, 1.50%, 4/01/25 | United States | 1,037,000 | 1,143,447 | ||||||||||||||
|
| |||||||||||||||||
Banks 0.2% | ||||||||||||||||||
f | Hope Bancorp Inc., senior bond, 2.00%, 5/15/38 | United States | 1,554,000 | 1,415,707 | ||||||||||||||
e | JPMorgan Chase Financial Co. LLC, senior note, 144A, 0.25%, 5/01/23 | United States | 777,000 | 830,419 | ||||||||||||||
|
| |||||||||||||||||
2,246,126 | ||||||||||||||||||
|
| |||||||||||||||||
Biotechnology 1.4% | ||||||||||||||||||
d | Apellis Pharmaceuticals Inc., senior note, 3.50%, 9/15/26 | United States | 1,034,000 | 1,491,895 | ||||||||||||||
BioMarin Pharmaceutical Inc., senior sub. note, | ||||||||||||||||||
f 0.599%, 8/01/24 | United States | 1,344,000 | 1,402,265 | |||||||||||||||
e 144A, 1.25%, 5/15/27 | United States | 745,000 | 740,073 | |||||||||||||||
e,f | Bridgebio Pharma Inc., senior note, 144A, 2.50%, 3/15/27 | United States | 1,036,000 | 1,444,967 | ||||||||||||||
e,f | Coherus Biosciences Inc., senior sub. note, 144A, 1.50%, 4/15/26 | United States | 1,037,000 | 1,235,603 | ||||||||||||||
Flexion Therapeutics Inc., senior note, 3.375%, 5/01/24 | United States | 1,552,000 | 1,323,350 | |||||||||||||||
Gossamer Bio Inc., senior note, 5.00%, 6/01/27 | United States | 648,000 | 538,682 | |||||||||||||||
Insmed Inc., senior note, 1.75%, 1/15/25 | United States | 974,000 | 1,176,705 | |||||||||||||||
Intercept Pharmaceuticals Inc., senior note, | ||||||||||||||||||
3.25%, 7/01/23 | United States | 1,062,000 | 819,301 | |||||||||||||||
2.00%, 5/15/26 | United States | 1,063,000 | 683,242 |
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) | ||||||||||||||||||
Biotechnology (continued) | ||||||||||||||||||
Ironwood Pharmaceuticals Inc., senior note, | ||||||||||||||||||
2.25%, 6/15/22 | United States | 933,000 | $ | 1,012,379 | ||||||||||||||
1.50%, 6/15/26 | United States | 1,165,000 | 1,317,863 | |||||||||||||||
f | Karyopharm Therapeutics Inc., senior note, 3.00%, 10/15/25 | United States | 1,038,000 | 1,372,062 | ||||||||||||||
Ligand Pharmaceuticals Inc., senior note, 0.75%, 5/15/23 | United States | 1,137,000 | 1,058,831 | |||||||||||||||
Neurocrine Biosciences Inc., senior note, 2.25%, 5/15/24 | United States | 95,000 | 131,753 | |||||||||||||||
i | Pharming Group NV, senior note, Reg S, 3.00%, 1/21/25 | Netherlands | 700,000 | EUR | 721,434 | |||||||||||||
Radius Health Inc., senior note, 3.00%, 9/01/24 | United States | 777,000 | 669,809 | |||||||||||||||
|
| |||||||||||||||||
17,140,214 | ||||||||||||||||||
|
| |||||||||||||||||
Building Products 0.1% | ||||||||||||||||||
f | Patrick Industries Inc., senior note, 1.00%, 2/01/23 | United States | 1,684,000 | 1,741,887 | ||||||||||||||
|
| |||||||||||||||||
Communications Equipment 0.0%† | ||||||||||||||||||
e | Lumentum Holdings Inc., senior note, 144A, 0.50%, 12/15/26 | United States | 55,000 | 63,366 | ||||||||||||||
|
| |||||||||||||||||
Consumer Finance 0.7% | ||||||||||||||||||
f | Encore Capital Group Inc., senior note, | |||||||||||||||||
2.875%, 3/15/21 | United States | 1,703,000 | 1,697,512 | |||||||||||||||
3.25%, 3/15/22 | United States | 2,106,000 | 2,182,010 | |||||||||||||||
3.25%, 10/01/25 | United States | 1,292,000 | 1,405,986 | |||||||||||||||
EZCORP Inc., senior note, 2.875%, 7/01/24 | United States | 648,000 | 596,116 | |||||||||||||||
e | LendingTree Inc., senior note, 144A, 0.50%, 7/15/25 | United States | 1,036,000 | 959,056 | ||||||||||||||
f | PRA Group Inc., senior note, 3.50%, 6/01/23 | United States | 1,357,000 | 1,508,929 | ||||||||||||||
|
| |||||||||||||||||
8,349,609 | ||||||||||||||||||
|
| |||||||||||||||||
Diversified Consumer Services 0.2% | ||||||||||||||||||
e | Chegg Inc., senior note, 144A, zero cpn., 9/01/26 | United States | 1,074,000 | 1,117,540 | ||||||||||||||
e | K12 Inc., senior note, 144A, 1.125%, 9/01/27 | United States | 862,000 | 713,947 | ||||||||||||||
|
| |||||||||||||||||
1,831,487 | ||||||||||||||||||
|
| |||||||||||||||||
Diversified Financial Services 0.1% | ||||||||||||||||||
Element Fleet Management Corp., sub. note, 4.25%, 6/30/24 | Canada | 1,166,000 | CAD | 1,168,559 | ||||||||||||||
|
| |||||||||||||||||
Diversified Telecommunication Services 0.1% | ||||||||||||||||||
Liberty Latin America Ltd., senior note, 2.00%, 7/15/24 | Chile | 1,341,000 | 1,236,044 | |||||||||||||||
i | Telecom Italia SpA, senior note, Reg S, 1.125%, 3/26/22 | Italy | 100,000 | EUR | 119,157 | |||||||||||||
|
| |||||||||||||||||
1,355,201 | ||||||||||||||||||
|
| |||||||||||||||||
Electronic Equipment, Instruments & Components 0.7% | ||||||||||||||||||
II-VI Inc., senior note, 0.25%, 9/01/22 | United States | 1,555,000 | 2,372,347 | |||||||||||||||
Knowles Corp., senior note, 3.25%, 11/01/21 | United States | 1,036,000 | 1,151,065 | |||||||||||||||
f | OSI Systems Inc., senior note, 1.25%, 9/01/22 | United States | 1,321,000 | 1,391,681 | ||||||||||||||
f | TTM Technologies Inc., senior note, 1.75%, 12/15/20 | United States | 1,381,000 | 1,807,384 | ||||||||||||||
Vishay Intertechnology Inc., senior note, 2.25%, 6/15/25 | United States | 1,551,000 | 1,581,542 | |||||||||||||||
|
| |||||||||||||||||
8,304,019 | ||||||||||||||||||
|
| |||||||||||||||||
Energy Equipment & Services 0.1% | ||||||||||||||||||
Helix Energy Solutions Group Inc., senior note, 6.75%, 2/15/26 | United States | 1,168,000 | 1,138,536 | |||||||||||||||
|
| |||||||||||||||||
Entertainment 0.5% | ||||||||||||||||||
e,f | Cinemark Holdings Inc., senior note, 144A, 4.50%, 8/15/25 | United States | 1,551,000 | 2,044,638 | ||||||||||||||
Live Nation Entertainment Inc., senior note, | ||||||||||||||||||
f2.50%, 3/15/23 | United States | 1,549,000 | 1,860,331 | |||||||||||||||
e144A, 2.00%, 2/15/25 | United States | 1,086,000 | 1,074,285 | |||||||||||||||
e | The Marcus Corp., senior note, 144A, 5.00%, 9/15/25 | United States | 580,000 | 767,144 | ||||||||||||||
|
| |||||||||||||||||
5,746,398 | ||||||||||||||||||
|
| |||||||||||||||||
Equity Real Estate Investment Trusts (REITs) 0.3% | ||||||||||||||||||
e,f | IIP Operating Partnership LP, senior note, 144A, 3.75%, 2/21/24 | United States | 1,260,000 | 3,022,362 | ||||||||||||||
|
|
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) | ||||||||||||||||||
Food & Staples Retailing 0.1% | ||||||||||||||||||
e | The Chefs’ Warehouse Inc., senior note, 144A, 1.875%, 12/01/24 | United States | 1,166,000 | $ | 1,099,543 | |||||||||||||
|
| |||||||||||||||||
Health Care Equipment & Supplies 0.9% | ||||||||||||||||||
CONMED Corp., senior note, 2.625%, 2/01/24 | United States | 1,037,000 | 1,360,036 | |||||||||||||||
e,f | Cryoport Inc., senior note, 144A, 3.00%, 6/01/25 | United States | 780,000 | 1,690,483 | ||||||||||||||
e,f | Envista Holdings Corp., senior note, 144A, 2.375%, 6/01/25 | United States | 1,580,000 | 2,501,625 | ||||||||||||||
e | Integra Lifesciences Holdings Corp., senior note, 144A, 0.50%, 8/15/25 | United States | 1,037,000 | 1,049,314 | ||||||||||||||
e | LivaNova USA Inc., senior note, 144A, 3.00%, 12/15/25 | United States | 350,000 | 403,689 | ||||||||||||||
Mesa Laboratories Inc., senior note, 1.375%, 8/15/25 | United States | 518,000 | 602,857 | |||||||||||||||
Nevro Corp., senior note, 2.75%, 4/01/25 | United States | 775,000 | 1,333,973 | |||||||||||||||
e | NuVasive Inc., senior note, 144A, | |||||||||||||||||
f1.00%, 6/01/23 | United States | 1,512,000 | 1,475,259 | |||||||||||||||
0.375%, 3/15/25 | United States | 88,000 | 79,038 | |||||||||||||||
e | Varex Imaging Corp., senior note, 144A, 4.00%, 6/01/25 | United States | 679,000 | 723,984 | ||||||||||||||
|
| |||||||||||||||||
11,220,258 | ||||||||||||||||||
|
| |||||||||||||||||
Health Care Providers & Services 0.3% | ||||||||||||||||||
e | 1life Healthcare Inc., senior note, 144A, 3.00%, 6/15/25 | United States | 1,039,000 | 1,134,523 | ||||||||||||||
e | Guardant Health Inc., senior note, 144A, zero cpn., 11/15/27 | United States | 1,382,000 | 1,535,748 | ||||||||||||||
e,f | PetIQ Inc., senior note, 144A, 4.00%, 6/01/26 | United States | 1,089,000 | 1,357,874 | ||||||||||||||
|
| |||||||||||||||||
4,028,145 | ||||||||||||||||||
|
| |||||||||||||||||
Health Care Technology 0.2% | ||||||||||||||||||
e | Health Catalyst Inc., senior note, 144A, 2.50%, 4/15/25 | United States | 1,014,000 | 1,400,660 | ||||||||||||||
e | Tabula Rasa Healthcare Inc., senior sub. note, 144A, 1.75%, 2/15/26 | United States | 1,037,000 | 887,283 | ||||||||||||||
e | Teladoc Health Inc., senior note, 144A, 1.25%, 6/01/27 | United States | 180,000 | 213,278 | ||||||||||||||
|
| |||||||||||||||||
2,501,221 | ||||||||||||||||||
|
| |||||||||||||||||
Hotels, Restaurants & Leisure 0.6% | ||||||||||||||||||
e,f | Bloomin’ Brands Inc., senior note, 144A, 5.00%, 5/01/25 | United States | 1,146,000 | 1,929,015 | ||||||||||||||
f | Marriott Vacations Worldwide Corp., senior note, 1.50%, 9/15/22 | United States | 2,072,000 | 2,284,449 | ||||||||||||||
e,f | NCL Corp. Ltd., senior note, 144A, 6.00%, 5/15/24 | United States | 1,036,000 | 1,995,336 | ||||||||||||||
e,f | Royal Caribbean Cruises Ltd., senior note, 144A, 2.875%, 11/15/23 | United States | 1,291,000 | 1,597,613 | ||||||||||||||
|
| |||||||||||||||||
7,806,413 | ||||||||||||||||||
|
| |||||||||||||||||
Interactive Media & Services 0.3% | ||||||||||||||||||
e,f | Snap Inc., senior note, 144A, 0.25%, 5/01/25 | United States | 905,000 | 1,922,772 | ||||||||||||||
f | Zillow Group Inc., senior note, 1.50%, 7/01/23 | United States | 1,284,000 | 1,903,580 | ||||||||||||||
|
| |||||||||||||||||
3,826,352 | ||||||||||||||||||
|
| |||||||||||||||||
Internet & Direct Marketing Retail 0.2% | ||||||||||||||||||
e | Fiverr International Ltd., senior note, 144A, zero cpn., 11/01/25 | Israel | 518,000 | 629,370 | ||||||||||||||
Pinduoduo Inc., senior note, zero cpn., 12/01/25 | China | 584,000 | 623,423 | |||||||||||||||
e,f | Wayfair Inc., senior note, 144A, 0.625%, 10/01/25 | United States | 1,294,000 | 1,266,289 | ||||||||||||||
|
| |||||||||||||||||
2,519,082 | ||||||||||||||||||
|
| |||||||||||||||||
IT Services 0.9% | ||||||||||||||||||
CSG Systems International Inc., senior bond, 4.25%, 3/15/36 | United States | 1,945,000 | 2,049,297 | |||||||||||||||
f | KBR Inc., senior note, 2.50%, 11/01/23 | United States | 1,737,000 | 2,219,086 | ||||||||||||||
e,f | MongoDB Inc., senior note, 144A, 0.25%, 1/15/26 | United States | 1,143,000 | 1,740,487 | ||||||||||||||
e | Okta Inc., senior note, 144A, 0.375%, 6/15/26 | United States | 1,037,000 | 1,292,433 | ||||||||||||||
e | Perficient Inc., senior note, 144A, 1.25%, 8/01/25 | United States | 1,424,000 | 1,585,224 | ||||||||||||||
Shopify Inc., senior note, 0.125%, 11/01/25 | Canada | 1,551,000 | 1,777,834 | |||||||||||||||
e | Square Inc., senior note, 144A, | |||||||||||||||||
0.25%, 11/01/27 | United States | 258,000 | 280,372 | |||||||||||||||
zero cpn., 5/01/26 | United States | 194,000 | 208,004 | |||||||||||||||
|
| |||||||||||||||||
11,152,737 | ||||||||||||||||||
|
|
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) | ||||||||||||||||||
Life Sciences Tools & Services 0.1% | ||||||||||||||||||
Illumina Inc., senior note, zero cpn., 8/15/23 | United States | 1,038,000 | $ | 1,117,076 | ||||||||||||||
|
| |||||||||||||||||
Machinery 0.4% | ||||||||||||||||||
e,f | Chart Industries Inc., senior sub. note, 144A, 1.00%, 11/15/24 | United States | 909,000 | 1,699,262 | ||||||||||||||
Fortive Corp., senior note, 0.875%, 2/15/22 | United States | 649,000 | 658,606 | |||||||||||||||
The Greenbrier Cos. Inc., senior note, 2.875%, 2/01/24 | United States | 824,000 | 813,587 | |||||||||||||||
e | The Middleby Corp., senior note, 144A, 1.00%, 9/01/25 | United States | 1,036,000 | 1,306,008 | ||||||||||||||
|
| |||||||||||||||||
4,477,463 | ||||||||||||||||||
|
| |||||||||||||||||
Marine 0.0%† | ||||||||||||||||||
SEACOR Holdings Inc., senior bond, 3.25%, 5/15/30 | United States | 245,000 | 190,977 | |||||||||||||||
|
| |||||||||||||||||
Media 1.2% | ||||||||||||||||||
e | Cardlytics Inc., senior note, 144A, 1.00%, 9/15/25 | United States | 647,000 | 1,016,241 | ||||||||||||||
DISH Network Corp., senior bond, 3.375%, 8/15/26 | United States | 1,175,000 | 1,174,295 | |||||||||||||||
e | Liberty Broadband Corp., senior bond, 144A, 1.25%, 9/30/50 | United States | 2,069,000 | 2,109,345 | ||||||||||||||
Liberty Interactive LLC, | ||||||||||||||||||
senior bond, 4.00%, 11/15/29 | United States | 1,659,000 | 1,267,061 | |||||||||||||||
senior note, 3.75%, 2/15/30 | United States | 642,000 | 490,327 | |||||||||||||||
Liberty Media Corp., | ||||||||||||||||||
e,f senior bond, 144A, 2.125%, 3/31/48 | United States | 1,555,000 | 1,626,997 | |||||||||||||||
e,f senior bond, 144A, 2.25%, 12/01/48 | United States | 2,335,000 | 2,696,495 | |||||||||||||||
e senior bond, 144A, 2.75%, 12/01/49 | United States | 1,425,000 | 1,499,100 | |||||||||||||||
e senior bond, 144A, 0.50%, 12/01/50 | United States | 967,000 | 980,060 | |||||||||||||||
senior note, 1.00%, 1/30/23 | United States | 1,036,000 | 1,336,233 | |||||||||||||||
|
| |||||||||||||||||
14,196,154 | ||||||||||||||||||
|
| |||||||||||||||||
Metals & Mining 0.1% | ||||||||||||||||||
f | Pretium Resources Inc., senior sub. note, 2.25%, 3/15/22 | Canada | 1,011,000 | 1,051,945 | ||||||||||||||
|
| |||||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) 0.6% | ||||||||||||||||||
f | Arbor Realty Trust Inc., senior note, 4.75%, 11/01/22 | United States | 1,762,000 | 1,733,297 | ||||||||||||||
Hannon Armstrong Sustainable Infrastructure Capital Inc., senior note, zero cpn., 8/15/23 | United States | 1,038,000 | 1,275,494 | |||||||||||||||
f | PennyMac Corp., senior note, 5.50%, 11/01/24 | United States | 1,744,000 | 1,682,960 | ||||||||||||||
Redwood Trust Inc., senior note, | ||||||||||||||||||
4.75%, 8/15/23 | United States | 2,335,000 | 2,163,880 | |||||||||||||||
5.625%, 7/15/24 | United States | 259,000 | 243,657 | |||||||||||||||
|
| |||||||||||||||||
7,099,288 | ||||||||||||||||||
|
| |||||||||||||||||
Oil, Gas & Consumable Fuels 0.2% | ||||||||||||||||||
e | Arch Resources Inc., senior note, 144A, 5.25%, 11/15/25 | United States | 711,000 | 815,632 | ||||||||||||||
f | SFL Corp. Ltd., senior note, 5.75%, 10/15/21 | Norway | 1,889,000 | 1,857,051 | ||||||||||||||
|
| |||||||||||||||||
2,672,683 | ||||||||||||||||||
|
| |||||||||||||||||
Personal Products 0.2% | ||||||||||||||||||
Herbalife Nutrition Ltd., senior note, 2.625%, 3/15/24 | United States | 2,326,000 | 2,452,313 | |||||||||||||||
|
| |||||||||||||||||
Pharmaceuticals 1.3% | ||||||||||||||||||
Aerie Pharmaceuticals Inc., senior note, 1.50%, 10/01/24 | United States | 764,000 | 684,482 | |||||||||||||||
e,f | Aphria Inc., senior note, 144A, 5.25%, 6/01/24 | Canada | 2,803,000 | 3,125,345 | ||||||||||||||
f | Aurora Cannabis Inc., senior note, 5.50%, 2/28/24 | Canada | 3,261,000 | 2,356,072 | ||||||||||||||
e,f | Avadel Finance Cayman Ltd., senior note, 144A, 4.50%, 2/01/23 | United States | 1,298,000 | 1,328,610 | ||||||||||||||
e | Canopy Growth Corp., senior note, 144A, 4.25%, 7/15/23 | Canada | 2,165,000 | CAD | 1,750,404 | |||||||||||||
Collegium Pharmaceutical Inc., senior note, 2.625%, 2/15/26 | United States | 1,039,000 | 976,011 | |||||||||||||||
f | Innoviva Inc., sub. note, 2.125%, 1/15/23 | United States | 1,788,000 | 1,744,418 | ||||||||||||||
e,f | Jazz Investments I Ltd., senior note, 144A, 2.00%, 6/15/26 | United States | 1,033,000 | 1,231,343 | ||||||||||||||
Omeros Corp., senior note, 5.25%, 2/15/26 | United States | 402,000 | 356,948 | |||||||||||||||
e | Revance Therapeutics Inc., senior note, 144A, 1.75%, 2/15/27 | United States | 1,036,000 | 1,065,981 | ||||||||||||||
e | Zogenix Inc., senior note, 144A, 2.75%, 10/01/27 | United States | 907,000 | 1,037,948 | ||||||||||||||
|
| |||||||||||||||||
15,657,562 | ||||||||||||||||||
|
|
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) | ||||||||||||||||||
Professional Services 0.1% | ||||||||||||||||||
f | FTI Consulting Inc., senior note, 2.00%, 8/15/23 | United States | 1,036,000 | $ | 1,268,064 | |||||||||||||
|
| |||||||||||||||||
Real Estate Management & Development 0.3% | ||||||||||||||||||
d,e | Colliers International Group Inc., senior sub. note, 144A, 4.00%, 6/01/25 | Canada | 1,037,000 | 1,793,362 | ||||||||||||||
e | Redfin Corp., senior note, 144A, zero cpn., 10/15/25 | United States | 1,037,000 | 1,033,526 | ||||||||||||||
e | Tricon Residential Inc., senior sub. note, 144A, 5.75%, 3/31/22 | Canada | 1,141,000 | 1,158,343 | ||||||||||||||
|
| |||||||||||||||||
3,985,231 | ||||||||||||||||||
|
| |||||||||||||||||
Semiconductors & Semiconductor Equipment 0.6% | ||||||||||||||||||
e | Canadian Solar Inc., senior note, 144A, 2.50%, 10/01/25 | Canada | 777,000 | 1,062,848 | ||||||||||||||
e | Impinj Inc., senior note, 144A, 2.00%, 12/15/26 | United States | 909,000 | 1,267,653 | ||||||||||||||
f | Rambus Inc., senior note, 1.375%, 2/01/23 | United States | 1,296,000 | 1,397,218 | ||||||||||||||
e | SMART Global Holdings Inc., senior note, 144A, 2.25%, 2/15/26 | United States | 1,295,000 | 1,273,956 | ||||||||||||||
e | SolarEdge Technologies Inc., senior note, 144A, zero cpn., 9/15/25 | United States | 648,000 | 825,337 | ||||||||||||||
f | Synaptics Inc., senior note, 0.50%, 6/15/22 | United States | 1,559,000 | 1,905,878 | ||||||||||||||
|
| |||||||||||||||||
7,732,890 | ||||||||||||||||||
|
| |||||||||||||||||
Software 2.5% | ||||||||||||||||||
8x8 Inc., senior note, 0.50%, 2/01/24 | United States | 1,291,000 | 1,331,712 | |||||||||||||||
f | Alteryx Inc., senior note, 0.50%, 8/01/24 | United States | 1,036,000 | 1,075,530 | ||||||||||||||
Avaya Holdings Corp., senior note, 2.25%, 6/15/23 | United States | 1,296,000 | 1,334,978 | |||||||||||||||
e | Bill.Com Holdings Inc., senior note, 144A, zero cpn., 12/01/25 | United States | 349,000 | 372,309 | ||||||||||||||
e,f | Coupa Software Inc., senior note, 144A, 0.375%, 6/15/26 | United States | 1,036,000 | 1,375,647 | ||||||||||||||
CyberArk Software Ltd., senior note, zero cpn., 11/15/24 | United States | 648,000 | 663,876 | |||||||||||||||
f | Envestnet Inc., senior note, 1.75%, 6/01/23 | United States | 1,035,000 | 1,362,720 | ||||||||||||||
e,f | Everbridge Inc., senior note, 144A, 0.125%, 12/15/24 | United States | 1,163,000 | 1,538,999 | ||||||||||||||
FireEye Inc., senior note, 0.875%, 6/01/24 | United States | 648,000 | 658,125 | |||||||||||||||
e,f | Five9 Inc., senior note, 144A, 0.50%, 6/01/25 | United States | 1,037,000 | 1,393,609 | ||||||||||||||
e | i3 Verticals LLC, senior note, 144A, 1.00%, 2/15/25 | United States | 1,167,000 | 1,104,228 | ||||||||||||||
e | J2 Global Inc., senior note, 144A, 1.75%, 11/01/26 | United States | 778,000 | 769,247 | ||||||||||||||
f | LivePerson Inc., senior note, 0.75%, 3/01/24 | United States | 1,037,000 | 1,741,665 | ||||||||||||||
f | Nuance Communications Inc., senior bond, 1.00%, 12/15/35 | United States | 1,048,000 | 1,920,042 | ||||||||||||||
f | Nutanix Inc., senior note, zero cpn., 1/15/23 | United States | 1,551,000 | 1,518,041 | ||||||||||||||
e | Palo Alto Networks Inc., senior note, 144A, 0.375%, 6/01/25 | United States | 1,565,000 | 1,836,537 | ||||||||||||||
Pluralsight Inc., senior note, 0.375%, 3/01/24 | United States | 1,067,000 | 969,683 | |||||||||||||||
PROS Holdings Inc., senior note, | ||||||||||||||||||
1.00%, 5/15/24 | United States | 778,000 | 784,806 | |||||||||||||||
e 144A, 2.25%, 9/15/27 | United States | 580,000 | 725,916 | |||||||||||||||
e | Q2 Holdings Inc., senior note, 144A, 0.125%, 11/15/25 | United States | 1,036,000 | 1,086,557 | ||||||||||||||
f | Sailpoint Technologies Holdings Inc., senior note, 0.125%, 9/15/24 | United States | 1,168,000 | 2,037,612 | ||||||||||||||
e,f | Slack Technologies Inc., senior note, 144A, 0.50%, 4/15/25 | United States | 905,000 | 1,351,167 | ||||||||||||||
Workiva Inc., senior note, 1.125%, 8/15/26 | United States | 648,000 | 771,735 | |||||||||||||||
e,f | Zscaler Inc., senior note, 144A, 0.125%, 7/01/25 | United States | 1,577,000 | 1,998,022 | ||||||||||||||
|
| |||||||||||||||||
29,722,763 | ||||||||||||||||||
�� |
|
| ||||||||||||||||
Specialty Retail 0.4% | ||||||||||||||||||
Guess? Inc., senior note, 2.00%, 4/15/24 | United States | 775,000 | 747,875 | |||||||||||||||
e,f | National Vision Holdings Inc., senior note, 144A, 2.50%, 5/15/25 | United States | 1,191,000 | 1,846,050 | ||||||||||||||
e,f | RH, senior note, 144A, zero cpn., 9/15/24 | United States | 978,000 | 2,159,522 | ||||||||||||||
|
| |||||||||||||||||
4,753,447 | ||||||||||||||||||
|
| |||||||||||||||||
Technology Hardware, Storage & Peripherals 0.2% | ||||||||||||||||||
f | Pure Storage Inc., senior note, 0.125%, 4/15/23 | United States | 1,783,000 | 1,812,519 | ||||||||||||||
|
| |||||||||||||||||
Textiles, Apparel & Luxury Goods 0.1% | ||||||||||||||||||
e,f | Under Armour Inc., senior note, 144A, 1.50%, 6/01/24 | United States | 778,000 | 1,267,654 | ||||||||||||||
|
|
30 | 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) | ||||||||||||||||||
Tobacco 0.1% | ||||||||||||||||||
f | Turning Point Brands Inc., senior note, 2.50%, 7/15/24 | United States | 1,705,000 | $ | 1,729,884 | |||||||||||||
|
| |||||||||||||||||
Total Convertible Bonds (Cost $182,463,825) | 209,459,674 | |||||||||||||||||
|
| |||||||||||||||||
Corporate Bonds and Notes 8.2% | ||||||||||||||||||
Aerospace & Defense 0.6% | ||||||||||||||||||
The Boeing Co., | ||||||||||||||||||
senior bond, 2.25%, 6/15/26 | United States | 115,000 | 115,446 | |||||||||||||||
senior bond, 2.95%, 2/01/30 | United States | 50,000 | 50,460 | |||||||||||||||
senior bond, 3.25%, 2/01/35 | United States | 25,000 | 24,512 | |||||||||||||||
senior bond, 3.55%, 3/01/38 | United States | 5,000 | 4,958 | |||||||||||||||
senior bond, 3.50%, 3/01/39 | United States | 5,000 | 4,940 | |||||||||||||||
senior bond, 5.705%, 5/01/40 | United States | 80,000 | 101,299 | |||||||||||||||
senior bond, 3.375%, 6/15/46 | United States | 90,000 | 83,472 | |||||||||||||||
senior bond, 3.65%, 3/01/47 | United States | 20,000 | 19,239 | |||||||||||||||
senior bond, 3.625%, 3/01/48 | United States | 25,000 | 23,855 | |||||||||||||||
senior bond, 3.90%, 5/01/49 | United States | 100,000 | 101,851 | |||||||||||||||
senior bond, 3.75%, 2/01/50 | United States | 130,000 | 131,739 | |||||||||||||||
senior bond, 5.805%, 5/01/50 | United States | 610,000 | 807,783 | |||||||||||||||
senior bond, 3.825%, 3/01/59 | United States | 25,000 | 24,751 | |||||||||||||||
senior bond, 3.95%, 8/01/59 | United States | 115,000 | 118,015 | |||||||||||||||
senior bond, 5.93%, 5/01/60 | United States | 110,000 | 149,974 | |||||||||||||||
senior note, 5.15%, 5/01/30 | United States | 230,000 | 270,504 | |||||||||||||||
e | Bombardier Inc., 144A, | |||||||||||||||||
senior bond, 5.75%, 3/15/22 | Canada | 102,000 | 101,077 | |||||||||||||||
f senior bond, 6.125%, 1/15/23 | Canada | 1,816,000 | 1,696,144 | |||||||||||||||
senior bond, 7.50%, 3/15/25 | Canada | 190,000 | 164,112 | |||||||||||||||
senior note, 6.00%, 10/15/22 | Canada | 1,034,000 | 985,738 | |||||||||||||||
Embraer Netherlands Finance BV, senior bond, 5.05%, 6/15/25 | Brazil | 60,000 | 63,936 | |||||||||||||||
e | Leonardo US Holdings Inc., senior bond, 144A, 6.25%, 1/15/40 | Italy | 236,000 | 273,760 | ||||||||||||||
Spirit Aerosystems Inc., | ||||||||||||||||||
senior bond, 4.60%, 6/15/28 | United States | 20,000 | 19,318 | |||||||||||||||
e secured note, 144A, 7.50%, 4/15/25 | United States | 380,000 | 408,736 | |||||||||||||||
e senior secured note, 144A, 5.50%, 1/15/25 | United States | 376,000 | 399,970 | |||||||||||||||
e | TransDigm Inc., senior secured note, 144A, 6.25%, 3/15/26 | United States | 280,000 | 297,151 | ||||||||||||||
Triumph Group Inc., | ||||||||||||||||||
senior note, 7.75%, 8/15/25 | United States | 71,000 | 62,569 | |||||||||||||||
e senior secured note, 144A, 8.875%, 6/01/24 | United States | 725,000 | 800,672 | |||||||||||||||
|
| |||||||||||||||||
7,305,981 | ||||||||||||||||||
|
| |||||||||||||||||
Airlines 0.1% | ||||||||||||||||||
American Airlines 2013-2 Class A Pass-Through Trust, 4.95%, 1/15/23 | United States | 45,596 | 41,447 | |||||||||||||||
e | Delta Air Lines Inc. / Skymiles IP Ltd., senior secured note, 144A, | |||||||||||||||||
4.50%, 10/20/25 | United States | 377,000 | 398,312 | |||||||||||||||
4.75%, 10/20/28 | United States | 381,000 | 410,715 | |||||||||||||||
e | Mileage Plus Holdings LLC / Mileage Plus Intellectual Property Assets Ltd., senior secured note, 144A, 6.50%, 6/20/27 | United States | 203,000 | 220,509 | ||||||||||||||
United Airlines Pass-Through Trust, 2019-2, B, 3.50%, 5/01/28 | United States | 391,954 | 335,285 | |||||||||||||||
|
| |||||||||||||||||
1,406,268 | ||||||||||||||||||
|
| |||||||||||||||||
Auto Components 0.1% | ||||||||||||||||||
e,f | BorgWarner Inc., senior note, 144A, 5.00%, 10/01/25 | United States | 242,000 | 283,977 | ||||||||||||||
Lear Corp., senior bond, 5.25%, 5/15/49 | United States | 265,000 | 319,319 | |||||||||||||||
|
| |||||||||||||||||
603,296 | ||||||||||||||||||
|
| |||||||||||||||||
Automobiles 0.2% | ||||||||||||||||||
e | Allison Transmission Inc., senior bond, 144A, 3.75%, 1/30/31 | United States | 245,000 | 247,450 |
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) | ||||||||||||||||||
Automobiles (continued) | ||||||||||||||||||
Aston Martin Capital Holdings Ltd., | ||||||||||||||||||
i senior note, Reg S, 6.50%, 4/15/22 | United Kingdom | 232,000 | $ | 235,638 | ||||||||||||||
i senior secured note, Reg S, 5.75%, 4/15/22 | United Kingdom | 200,000 | GBP | 270,742 | ||||||||||||||
e senior secured note, 144A, 6.50%, 4/15/22 | United Kingdom | 134,000 | 136,101 | |||||||||||||||
e senior secured note, 144A, 10.50%, 11/30/25 | United Kingdom | 292,000 | 304,228 | |||||||||||||||
Ford Motor Co., | ||||||||||||||||||
d senior bond, 9.625%, 4/22/30 | United States | 55,000 | 76,653 | |||||||||||||||
senior note, 8.50%, 4/21/23 | United States | 220,000 | 247,165 | |||||||||||||||
senior note, 9.00%, 4/22/25 | United States | 260,000 | 316,294 | |||||||||||||||
Ford Motor Credit Co. LLC, senior note, 1.514%, 2/17/23 | United States | 110,000 | EUR | 131,109 | ||||||||||||||
General Motors Co., senior bond, | ||||||||||||||||||
5.40%, 4/01/48 | United States | 140,000 | 176,854 | |||||||||||||||
5.95%, 4/01/49 | United States | 525,000 | 710,544 | |||||||||||||||
|
| |||||||||||||||||
2,852,778 | ||||||||||||||||||
|
| |||||||||||||||||
Banks 0.2% | ||||||||||||||||||
e,j,k | Banco Hipotecario SA, senior note, 144A, FRN, 33.625%, (ARS BADLAR + 4.00%), 11/07/22 | Argentina | 3,160,000 | ARS | 19,880 | |||||||||||||
e,k | Banco Macro SA, senior note, 144A, 17.50%, 5/08/22 | Argentina | 1,740,000 | ARS | 7,969 | |||||||||||||
Barclays PLC, sub. bond, 3.564%, 9/23/35 | United Kingdom | 325,000 | 339,609 | |||||||||||||||
Deutsche Bank AG, senior bond, 3.547%, 9/18/31 | Germany | 150,000 | 161,149 | |||||||||||||||
e | Societe Generale SA, sub. bond, 144A, 3.653%, 7/08/35 | France | 200,000 | 210,433 | ||||||||||||||
e | Standard Chartered PLC, 144A, | |||||||||||||||||
senior bond, 4.644%, 4/01/31 | United Kingdom | 200,000 | 240,893 | |||||||||||||||
sub. bond, 3.265%, 2/18/36 | United Kingdom | 255,000 | 258,735 | |||||||||||||||
i,l | VTB Bank OJSC Via VTB Capital SA, loan participation, sub. senior note, Reg S, 6.95%, 10/17/22 | Russia | 759,000 | 813,334 | ||||||||||||||
|
| |||||||||||||||||
2,052,002 | ||||||||||||||||||
|
| |||||||||||||||||
Beverages 0.0%† | ||||||||||||||||||
Fomento Economico Mexicano SAB de CV, senior bond, 3.50%, 1/16/50 | Mexico | 244,000 | 268,412 | |||||||||||||||
|
| |||||||||||||||||
Building Products 0.0%† | ||||||||||||||||||
e | Builders FirstSource Inc., senior secured note, 144A, 6.75%, 6/01/27 | United States | 205,000 | 221,913 | ||||||||||||||
|
| |||||||||||||||||
Capital Markets 0.1% | ||||||||||||||||||
Brixmor Operating Partnership LP, senior bond, 4.05%, 7/01/30 | United States | 415,000 | 468,962 | |||||||||||||||
eG Global Finance PLC, senior secured note, | ||||||||||||||||||
e 144A, 4.375%, 2/07/25 | United Kingdom | 100,000 | EUR | 117,296 | ||||||||||||||
e 144A, 6.25%, 10/30/25 | United Kingdom | 144,000 | EUR | 176,627 | ||||||||||||||
i Reg S, 6.25%, 10/30/25 | United Kingdom | 518,000 | EUR | 635,366 | ||||||||||||||
e | MSCI Inc., senior bond, 144A, 3.625%, 9/01/30 | United States | 215,000 | 223,970 | ||||||||||||||
|
| |||||||||||||||||
1,622,221 | ||||||||||||||||||
|
| |||||||||||||||||
Chemicals 0.0%† | ||||||||||||||||||
e | Braskem Netherlands Finance BV, senior bond, 144A, 4.50%, 1/31/30 | Brazil | 200,000 | 202,360 | ||||||||||||||
e | Nutrition & Biosciences Inc., senior bond, 144A, 2.30%, 11/01/30 | United States | 165,000 | 169,779 | ||||||||||||||
|
| |||||||||||||||||
372,139 | ||||||||||||||||||
|
| |||||||||||||||||
Commercial Services & Supplies 0.1% | ||||||||||||||||||
United Rentals North America Inc., senior bond, 4.00%, 7/15/30 | United States | 715,000 | 756,113 | |||||||||||||||
|
| |||||||||||||||||
Communications Equipment 0.1% | ||||||||||||||||||
e | CommScope Inc., 144A, | |||||||||||||||||
senior note, 7.125%, 7/01/28 | United States | 430,000 | 458,995 | |||||||||||||||
senior secured note, 6.00%, 3/01/26 | United States | 190,000 | 200,700 |
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) | ||||||||||||||||||
Communications Equipment (continued) | ||||||||||||||||||
e | CommScope Technologies LLC, senior bond, 144A, 5.00%, 3/15/27 | United States | 165,000 | $ | 164,484 | |||||||||||||
e | HTA Group Ltd., senior note, 144A, 7.00%, 12/18/25 | | Democratic Republic of the Congo | | 435,000 | 468,939 | ||||||||||||
i | Nokia OYJ, E, senior note, Reg S, 2.00%, 3/11/26 | Finland | 100,000 | EUR | 123,772 | |||||||||||||
e | Riverbed Technology Inc., senior note, 144A, 8.875%, 3/01/23 | United States | 519,000 | 363,300 | ||||||||||||||
|
| |||||||||||||||||
1,780,190 | ||||||||||||||||||
|
| |||||||||||||||||
Construction & Engineering 0.0%† | ||||||||||||||||||
i | GMR Hyderabad International Airport Ltd., senior secured note, Reg S, 5.375%, 4/10/24 | India | 200,000 | 201,239 | ||||||||||||||
|
| |||||||||||||||||
Construction Materials 0.1% | ||||||||||||||||||
e | Cemex SAB de CV, senior secured bond, 144A, | |||||||||||||||||
5.45%, 11/19/29 | Mexico | 200,000 | 219,250 | |||||||||||||||
5.20%, 9/17/30 | Mexico | 245,000 | 267,356 | |||||||||||||||
e | Standard Industries Inc., senior bond, 144A, 4.375%, 7/15/30 | United States | 300,000 | 317,711 | ||||||||||||||
|
| |||||||||||||||||
804,317 | ||||||||||||||||||
|
| |||||||||||||||||
Consumer Finance 0.0%† | ||||||||||||||||||
OneMain Finance Corp., senior note, 8.875%, 6/01/25 | United States | 220,000 | 246,257 | |||||||||||||||
|
| |||||||||||||||||
Diversified Consumer Services 0.0%† | ||||||||||||||||||
e | Sabre GLBL Inc., senior secured note, 144A, 9.25%, 4/15/25 | United States | 35,000 | 40,976 | ||||||||||||||
|
| |||||||||||||||||
Diversified Financial Services 0.4% | ||||||||||||||||||
AerCap Ireland Capital DAC/AerCap Global Aviation Trust, senior note, | ||||||||||||||||||
4.50%, 9/15/23 | Ireland | 320,000 | 342,817 | |||||||||||||||
6.50%, 7/15/25 | Ireland | 150,000 | 173,549 | |||||||||||||||
e | Financiera de Desarrollo Territorial SA Findeter, senior bond, 144A, 7.875%, 8/12/24 | Colombia | 393,000,000 | COP | 118,735 | |||||||||||||
e | Ladder Capital Finance Holdings LLLP / Ladder Capital Finance Corp., senior note, 144A, | |||||||||||||||||
5.25%, 3/15/22 | United States | 45,000 | 44,972 | |||||||||||||||
5.25%, 10/01/25 | United States | 120,000 | 115,725 | |||||||||||||||
4.25%, 2/01/27 | United States | 345,000 | 319,556 | |||||||||||||||
i | MDC-GMTN BV, senior bond, Reg S, 4.50%, 11/07/28 | United Arab Emirates | 261,000 | 313,222 | ||||||||||||||
e | Quicken Loans Inc., senior bond, 144A, 5.25%, 1/15/28 | United States | 520,000 | 552,175 | ||||||||||||||
e | Quicken Loans LLC / Quicken Loans Co.-Issuer Inc., 144A, | |||||||||||||||||
senior bond, 3.875%, 3/01/31 | United States | 380,000 | 385,700 | |||||||||||||||
senior note, 3.625%, 3/01/29 | United States | 355,000 | 353,496 | |||||||||||||||
e,f | Refinitiv U.S. Holdings Inc., senior note, 144A, 8.25%, 11/15/26 | United States | 2,348,000 | 2,562,255 | ||||||||||||||
|
| |||||||||||||||||
5,282,202 | ||||||||||||||||||
|
| |||||||||||||||||
Diversified Telecommunication Services 0.9% | ||||||||||||||||||
e | Cincinnati Bell Inc., senior note, 144A, 8.00%, 10/15/25 | United States | 5,243,000 | 5,623,511 | ||||||||||||||
e | Consolidated Communications Inc., senior secured note, 144A, 6.50%, 10/01/28 | United States | 414,000 | 449,368 | ||||||||||||||
e | Frontier Communications Corp., senior secured note, 144A, | |||||||||||||||||
5.875%, 10/15/27 | United States | 465,000 | 489,703 | |||||||||||||||
5.00%, 5/01/28 | United States | 219,000 | 222,832 | |||||||||||||||
e | Kenbourne Invest SA, senior note, 144A, 6.875%, 11/26/24 | Chile | 200,000 | 213,250 | ||||||||||||||
e,m | Ligado Networks LLC, 144A, PIK, | |||||||||||||||||
d secured note, 17.50%, 5/01/24 | United States | 440,000 | 333,300 | |||||||||||||||
senior secured note, 15.50%, 11/01/23 | United States | 3,050,000 | 2,958,500 | |||||||||||||||
e | ORBCOMM Inc., senior secured note, 144A, 8.00%, 4/01/24 | United States | 512,000 | 532,480 | ||||||||||||||
|
| |||||||||||||||||
10,822,944 | ||||||||||||||||||
|
|
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) | ||||||||||||||||||
Electric Utilities 0.7% | ||||||||||||||||||
c,f | Bruce Mansfield Escrow, senior bond, zero cpn., 6/01/34 | United States | 6,394,000 | $ | 23,977 | |||||||||||||
Edison International, | ||||||||||||||||||
senior bond, 4.125%, 3/15/28 | United States | 625,000 | 684,716 | |||||||||||||||
senior note, 5.75%, 6/15/27 | United States | 625,000 | 732,139 | |||||||||||||||
e | Enel SpA, sub. bond, 144A, 8.75% to 9/24/23, FRN thereafter, 9/24/73 | Italy | 200,000 | 234,440 | ||||||||||||||
i | Eskom Holdings SOC Ltd., senior bond, Reg S, | |||||||||||||||||
5.75%, 1/26/21 | South Africa | 1,117,000 | 1,113,225 | |||||||||||||||
8.45%, 8/10/28 | South Africa | 1,334,000 | 1,439,053 | |||||||||||||||
e | IPALCO Enterprises Inc., senior secured bond, 144A, 4.25%, 5/01/30 | United States | 30,000 | 34,809 | ||||||||||||||
Pacific Gas and Electric Co., | ||||||||||||||||||
secured bond, 4.50%, 7/01/40 | United States | 1,106,000 | 1,244,662 | |||||||||||||||
secured bond, 4.95%, 7/01/50 | United States | 55,000 | 64,985 | |||||||||||||||
d secured bond, 3.50%, 8/01/50 | United States | 200,000 | 200,947 | |||||||||||||||
f senior bond, 4.75%, 2/15/44 | United States | 420,000 | 473,464 | |||||||||||||||
senior bond, 4.30%, 3/15/45 | United States | 95,000 | 102,748 | |||||||||||||||
secured note, 3.15%, 1/01/26 | United States | 874,000 | 924,455 | |||||||||||||||
Southern California Edison Co., | ||||||||||||||||||
secured bond, 3.65%, 2/01/50 | United States | 490,000 | 569,563 | |||||||||||||||
senior bond, 4.00%, 4/01/47 | United States | 10,000 | 11,923 | |||||||||||||||
senior bond, C, 4.125%, 3/01/48 | United States | 15,000 | 18,232 | |||||||||||||||
e | Vistra Operations Co. LLC, senior secured note, 144A, 3.70%, 1/30/27 | United States | 680,000 | 745,491 | ||||||||||||||
|
| |||||||||||||||||
8,618,829 | ||||||||||||||||||
|
| |||||||||||||||||
Energy Equipment & Services 0.0%† | ||||||||||||||||||
e | Transocean Inc., senior note, 144A, | |||||||||||||||||
7.50%, 1/15/26 | United States | 1,345,000 | 383,325 | |||||||||||||||
8.00%, 2/01/27 | United States | 100,000 | 37,500 | |||||||||||||||
|
| |||||||||||||||||
420,825 | ||||||||||||||||||
|
| |||||||||||||||||
Entertainment 0.0%† | ||||||||||||||||||
Netflix Inc., senior bond, | ||||||||||||||||||
4.875%, 4/15/28 | United States | 55,000 | 63,065 | |||||||||||||||
d,e 144A, 4.875%, 6/15/30 | United States | 85,000 | 98,440 | |||||||||||||||
|
| |||||||||||||||||
161,505 | ||||||||||||||||||
|
| |||||||||||||||||
Equity Real Estate Investment Trusts (REITs) 0.2% | ||||||||||||||||||
American Tower Corp., senior bond, 2.10%, 6/15/30 | United States | 175,000 | 180,234 | |||||||||||||||
Equinix Inc., senior bond, 3.20%, 11/18/29 | United States | 50,000 | 55,301 | |||||||||||||||
e | Iron Mountain Inc., 144A, | |||||||||||||||||
senior bond, 5.25%, 7/15/30 | United States | 210,000 | 222,862 | |||||||||||||||
senior note, 5.00%, 7/15/28 | United States | 210,000 | 218,140 | |||||||||||||||
f | Uniti Group LP / Uniti Group Finance Inc. / CSL Capital LLC, senior note, 8.25%, 10/15/23 | United States | 1,720,000 | 1,725,375 | ||||||||||||||
|
| |||||||||||||||||
2,401,912 | ||||||||||||||||||
|
| |||||||||||||||||
Food & Staples Retailing 0.0%† | ||||||||||||||||||
i,n | Casino Guichard Perrachon SA, E, junior sub. bond, Reg S, 3.992%, Perpetual | France | 500,000 | EUR | 256,108 | |||||||||||||
e | Smithfield Foods Inc., senior bond, 144A, 3.00%, 10/15/30 | United States | 30,000 | 31,268 | ||||||||||||||
|
| |||||||||||||||||
287,376 | ||||||||||||||||||
|
| |||||||||||||||||
Food Products 0.0%† | ||||||||||||||||||
Kraft Heinz Foods Co., senior bond, | ||||||||||||||||||
5.00%, 6/04/42 | United States | 45,000 | 51,579 | |||||||||||||||
4.375%, 6/01/46 | United States | 95,000 | 101,482 | |||||||||||||||
e144A, 4.875%, 10/01/49 | United States | 150,000 | 169,218 |
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) | ||||||||||||||||||
Food Products† (continued) | ||||||||||||||||||
e | Lamb Weston Holdings Inc., senior note, 144A, 4.875%, 5/15/28 | United States | 50,000 | $ | 55,594 | |||||||||||||
e | Post Holdings Inc., senior bond, 144A, 5.75%, 3/01/27 | United States | 80,000 | 84,400 | ||||||||||||||
|
| |||||||||||||||||
462,273 | ||||||||||||||||||
|
| |||||||||||||||||
Health Care Equipment & Supplies 0.1% | ||||||||||||||||||
e | Hologic Inc., senior note, 144A, 3.25%, 2/15/29 | United States | 585,000 | 595,603 | ||||||||||||||
|
| |||||||||||||||||
Health Care Providers & Services 0.1% | ||||||||||||||||||
e | Centene Escrow I Corp., senior note, 144A, 5.375%, 6/01/26 | United States | 1,000,000 | 1,052,500 | ||||||||||||||
Tenet Healthcare Corp., | ||||||||||||||||||
secured note, 5.125%, 5/01/25 | United States | 20,000 | 20,224 | |||||||||||||||
e secured note, 144A, 6.25%, 2/01/27 | United States | 35,000 | 36,711 | |||||||||||||||
e senior note, 144A, 6.125%, 10/01/28 | United States | 45,000 | 45,703 | |||||||||||||||
e senior secured note, 144A, 4.875%, 1/01/26 | United States | 45,000 | 46,406 | |||||||||||||||
e senior secured note, 144A, 4.625%, 6/15/28 | United States | 130,000 | 134,469 | |||||||||||||||
|
| |||||||||||||||||
1,336,013 | ||||||||||||||||||
|
| |||||||||||||||||
Hotels, Restaurants & Leisure 0.3% | ||||||||||||||||||
e | 1011778 BC ULC/New Red Finance Inc., 144A, | |||||||||||||||||
secured bond, 4.00%, 10/15/30 | Canada | 70,000 | 69,912 | |||||||||||||||
secured note, 4.375%, 1/15/28 | Canada | 345,000 | 356,796 | |||||||||||||||
e,f | Golden Nugget Inc., senior note, 144A, 6.75%, 10/15/24 | United States | 841,000 | 823,129 | ||||||||||||||
e,o | Hilton Domestic Operating Co. Inc., senior bond, 144A, 4.00%, 5/01/31 | United States | 290,000 | 305,587 | ||||||||||||||
Hyatt Hotels Corp., | ||||||||||||||||||
senior bond, 5.75%, 4/23/30 | United States | 95,000 | 113,208 | |||||||||||||||
senior note, 5.375%, 4/23/25 | United States | 50,000 | 55,969 | |||||||||||||||
Marriott International Inc., | ||||||||||||||||||
senior bond, 4.625%, 6/15/30 | United States | 75,000 | 86,729 | |||||||||||||||
senior note, EE, 5.75%, 5/01/25 | United States | 45,000 | 52,215 | |||||||||||||||
e | Royal Caribbean Cruises Ltd., 144A, | |||||||||||||||||
senior note, 9.125%, 6/15/23 | United States | 699,000 | 757,541 | |||||||||||||||
senior secured note, 11.50%, 6/01/25 | United States | 641,000 | 753,976 | |||||||||||||||
e | Wyndham Destinations Inc., senior secured note, 144A, 6.625%, 7/31/26 | United States | 110,000 | 123,613 | ||||||||||||||
Yum! Brands Inc., senior bond, 3.625%, 3/15/31 | United States | 155,000 | 154,806 | |||||||||||||||
|
| |||||||||||||||||
3,653,481 | ||||||||||||||||||
|
| |||||||||||||||||
Household Durables 0.2% | ||||||||||||||||||
e | K. Hovnanian Enterprises Inc., senior secured note, 144A, | |||||||||||||||||
10.00%, 11/15/25 | United States | 703,000 | 567,673 | |||||||||||||||
7.75%, 2/15/26 | United States | 1,628,000 | 1,725,680 | |||||||||||||||
|
| |||||||||||||||||
2,293,353 | ||||||||||||||||||
|
| |||||||||||||||||
Independent Power & Renewable Electricity Producers 0.0%† | ||||||||||||||||||
e | The AES Corp., senior secured bond, 144A, 3.95%, 7/15/30 | United States | 75,000 | 85,182 | ||||||||||||||
e | Calpine Corp., senior note, 144A, 5.125%, 3/15/28 | United States | 85,000 | 89,472 | ||||||||||||||
|
| |||||||||||||||||
174,654 | ||||||||||||||||||
|
| |||||||||||||||||
Industrial Conglomerates 0.1% | ||||||||||||||||||
General Electric Co., senior bond, | ||||||||||||||||||
3.625%, 5/01/30 | United States | 110,000 | 123,449 | |||||||||||||||
4.35%, 5/01/50 | United States | 50,000 | 58,800 | |||||||||||||||
Icahn Enterprises LP/Icahn Enterprises Finance Corp., senior note, |
| |||||||||||||||||
4.75%, 9/15/24 | United States | 445,000 | 459,046 | |||||||||||||||
6.25%, 5/15/26 | United States | 85,000 | 89,019 | |||||||||||||||
5.25%, 5/15/27 | United States | 265,000 | 279,078 | |||||||||||||||
|
| |||||||||||||||||
1,009,392 | ||||||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 35 |
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% | ||||||||||||||||||
American International Group Inc., senior bond, 4.375%, 6/30/50 | United States | 375,000 | $ | 488,100 | ||||||||||||||
Athene Holding Ltd., senior bond, 3.50%, 1/15/31 | United States | 110,000 | 116,533 | |||||||||||||||
f,j | Genworth Holdings Inc., senior bond, FRN, 2.283%, (3-Month USD LIBOR + 2.00%), 11/15/36 | United States | 1,623,000 | 697,890 | ||||||||||||||
e | Global Atlantic Finance Co., senior bond, 144A, 4.40%, 10/15/29 | United States | 165,000 | 177,676 | ||||||||||||||
|
| |||||||||||||||||
1,480,199 | ||||||||||||||||||
|
| |||||||||||||||||
Internet & Direct Marketing Retail 0.1% | ||||||||||||||||||
Booking Holdings Inc., senior bond, 4.625%, 4/13/30 | United States | 230,000 | 282,900 | |||||||||||||||
eBay Inc., senior bond, 4.00%, 7/15/42 | United States | 15,000 | 17,282 | |||||||||||||||
Expedia Group Inc., senior note, | ||||||||||||||||||
3.25%, 2/15/30 | United States | 415,000 | 421,251 | |||||||||||||||
e 144A, 6.25%, 5/01/25 | United States | 315,000 | 360,222 | |||||||||||||||
e 144A, 7.00%, 5/01/25 | United States | 160,000 | 175,318 | |||||||||||||||
e 144A, 4.625%, 8/01/27 | United States | 115,000 | 126,741 | |||||||||||||||
|
| |||||||||||||||||
1,383,714 | ||||||||||||||||||
|
| |||||||||||||||||
IT Services 0.1% | ||||||||||||||||||
e | Gartner Inc., senior bond, 144A, 3.75%, 10/01/30 | United States | 195,000 | 203,106 | ||||||||||||||
e | GTT Communications Inc., senior note, 144A, 7.875%, 12/31/24 | United States | 1,304,000 | 476,156 | ||||||||||||||
|
| |||||||||||||||||
679,262 | ||||||||||||||||||
|
| |||||||||||||||||
Marine 0.0%† | ||||||||||||||||||
e | Stena International SA, senior secured bond, 144A, 5.75%, 3/01/24 | Sweden | 299,000 | 300,090 | ||||||||||||||
|
| |||||||||||||||||
Media 0.4% | ||||||||||||||||||
e | CCO Holdings LLC / CCO Holdings Capital Corp., senior bond, 144A, | |||||||||||||||||
4.50%, 8/15/30 | United States | 130,000 | 137,232 | |||||||||||||||
4.25%, 2/01/31 | United States | 850,000 | 882,853 | |||||||||||||||
Charter Communications Operating LLC / Charter Communications Operating Capital, senior secured bond, | ||||||||||||||||||
2.80%, 4/01/31 | United States | 310,000 | 328,201 | |||||||||||||||
6.484%, 10/23/45 | United States | 60,000 | 85,733 | |||||||||||||||
5.375%, 5/01/47 | United States | 60,000 | 76,185 | |||||||||||||||
5.75%, 4/01/48 | United States | 150,000 | 199,104 | |||||||||||||||
o 3.70%, 4/01/51 | United States | 250,000 | 262,921 | |||||||||||||||
e | Clear Channel Worldwide Holdings Inc., senior secured note, 144A, | United States | 195,000 | 197,194 | ||||||||||||||
e | CSC Holdings LLC, senior bond, 144A, | |||||||||||||||||
4.125%, 12/01/30 | United States | 305,000 | 315,919 | |||||||||||||||
d 4.625%, 12/01/30 | United States | 610,000 | 625,302 | |||||||||||||||
e | Diamond Sports Group LLC / Diamond Sports Finance Co., 144A, | |||||||||||||||||
senior note, 6.625%, 8/15/27 | United States | 136,000 | 78,159 | |||||||||||||||
senior secured note, 5.375%, 8/15/26 | United States | 79,000 | 61,373 | |||||||||||||||
e | GE Capital Funding LLC, senior note, 144A, 4.40%, 5/15/30 | United States | 415,000 | 478,412 | ||||||||||||||
iHeartCommunications Inc., | ||||||||||||||||||
senior note, 8.375%, 5/01/27 | United States | 760,000 | 808,879 | |||||||||||||||
senior secured note, 6.375%, 5/01/26 | United States | 40,000 | 42,425 | |||||||||||||||
e senior secured note, 144A, 5.25%, 8/15/27 | United States | 90,000 | 92,402 | |||||||||||||||
e senior secured note, 144A, 4.75%, 1/15/28 | United States | 175,000 | 177,154 | |||||||||||||||
e | Outfront Media Capital LLC / Outfront Media Capital Corp., senior bond, 144A, 4.625%, 3/15/30 | United States | 65,000 | 64,431 | ||||||||||||||
e | Sirius XM Radio Inc., 144A, | |||||||||||||||||
senior bond, 5.00%, 8/01/27 | United States | 145,000 | 152,784 | |||||||||||||||
senior bond, 5.50%, 7/01/29 | United States | 15,000 | 16,453 | |||||||||||||||
senior note, 4.625%, 7/15/24 | United States | 35,000 | 36,293 |
36 | 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) | ||||||||||||||||||
Media (continued) | ||||||||||||||||||
e | Virgin Media Secured Finance PLC, senior secured bond, 144A, | United Kingdom | 200,000 | $ | 209,601 | |||||||||||||
|
| |||||||||||||||||
5,329,010 | ||||||||||||||||||
|
| |||||||||||||||||
Metals & Mining 0.2% | ||||||||||||||||||
e | CSN Inova Ventures, senior note, 144A, 6.75%, 1/28/28 | Brazil | 414,000 | 434,597 | ||||||||||||||
e | First Quantum Minerals Ltd., senior note, 144A, | |||||||||||||||||
6.875%, 3/01/26 | Zambia | 200,000 | 207,000 | |||||||||||||||
6.875%, 10/15/27 | Zambia | 620,000 | 649,450 | |||||||||||||||
Freeport-McMoRan Inc., | ||||||||||||||||||
senior bond, 4.625%, 8/01/30 | United States | 95,000 | 105,619 | |||||||||||||||
senior bond, 5.40%, 11/14/34 | United States | 95,000 | 117,859 | |||||||||||||||
senior bond, 5.45%, 3/15/43 | United States | 15,000 | 18,778 | |||||||||||||||
senior note, 4.375%, 8/01/28 | United States | 135,000 | 144,507 | |||||||||||||||
e | Newcrest Finance Pty Ltd., senior bond, 144A, 3.25%, 5/13/30 | Australia | 85,000 | 93,799 | ||||||||||||||
e | Novelis Corp., senior bond, 144A, 4.75%, 1/30/30 | United States | 90,000 | 95,702 | ||||||||||||||
Reliance Steel & Aluminum Co., senior bond, 2.15%, 8/15/30 | United States | 25,000 | 25,574 | |||||||||||||||
e | U.S. Steel Corp., senior secured note, 144A, 12.00%, 6/01/25 | United States | 334,000 | 381,926 | ||||||||||||||
|
| |||||||||||||||||
2,274,811 | ||||||||||||||||||
|
| |||||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) 0.1% | ||||||||||||||||||
e | MGM Growth Properties Operating Partnership LP / Mgp Finance Co.-Issuer Inc., senior note, 144A, 3.875%, 2/15/29 | United States | 370,000 | 374,394 | ||||||||||||||
e | Scentre Group Trust 2, senior bond, 144A, 5.125%, 9/24/80 | Australia | 440,000 | 461,704 | ||||||||||||||
|
| |||||||||||||||||
836,098 | ||||||||||||||||||
|
| |||||||||||||||||
Multiline Retail 0.1% | ||||||||||||||||||
Kohl’s Corp., | ||||||||||||||||||
senior bond, 5.55%, 7/17/45 | United States | 508,000 | 498,729 | |||||||||||||||
senior note, 9.50%, 5/15/25 | United States | 271,000 | 340,607 | |||||||||||||||
|
| |||||||||||||||||
839,336 | ||||||||||||||||||
|
| |||||||||||||||||
Oil, Gas & Consumable Fuels 1.0% | ||||||||||||||||||
e | Aker BP ASA, senior bond, 144A, | |||||||||||||||||
3.75%, 1/15/30 | Norway | 350,000 | 356,257 | |||||||||||||||
4.00%, 1/15/31 | Norway | 150,000 | 151,707 | |||||||||||||||
Cheniere Corpus Christi Holdings LLC, senior secured note, 3.70%, 11/15/29 | United States | 335,000 | 367,988 | |||||||||||||||
Energy Transfer Operating LP, senior bond, | ||||||||||||||||||
5.30%, 4/15/47 | United States | 128,000 | 135,341 | |||||||||||||||
6.25%, 4/15/49 | United States | 256,000 | 299,586 | |||||||||||||||
Equities Corp., senior note, 5.00%, 1/15/29 | United States | 10,000 | 10,575 | |||||||||||||||
e | Gray Oak Pipeline LLC, senior note, 144A, 3.45%, 10/15/27 | United States | 20,000 | 20,596 | ||||||||||||||
Hurricane Finance PLC, senior note, 8.00%, 10/15/25 | United Kingdom | 158,000 | 227,858 | |||||||||||||||
Kinder Morgan Inc., senior bond, 5.05%, 2/15/46 | United States | 40,000 | 48,223 | |||||||||||||||
e,i | Leviathan Bond Ltd., senior note, 144A, Reg S, | |||||||||||||||||
6.125%, 6/30/25 | Israel | 135,000 | 145,969 | |||||||||||||||
6.50%, 6/30/27 | Israel | 100,000 | 110,000 | |||||||||||||||
e | Moss Creek Resources Holdings Inc., senior note, 144A, | |||||||||||||||||
7.50%, 1/15/26 | United States | 8,000 | 5,460 | |||||||||||||||
10.50%, 5/15/27 | United States | 496,000 | 345,960 | |||||||||||||||
Petrobras Global Finance BV, senior bond, | ||||||||||||||||||
6.90%, 3/19/49 | Brazil | 797,000 | 970,347 | |||||||||||||||
6.75%, 6/03/50 | Brazil | 590,000 | 696,716 | |||||||||||||||
Petroleos Mexicanos, | ||||||||||||||||||
senior bond, 5.95%, 1/28/31 | Mexico | 1,204,000 | 1,121,225 | |||||||||||||||
senior bond, 6.625%, 6/15/35 | Mexico | 380,000 | 351,616 |
franklintempleton.com | Semiannual Report | 37 |
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) | ||||||||||||||||||
Petroleos Mexicanos, (continued) | ||||||||||||||||||
senior bond, 6.375%, 1/23/45 | Mexico | 1,018,000 | $ | 855,120 | ||||||||||||||
senior bond, 6.75%, 9/21/47 | Mexico | 1,710,000 | 1,473,345 | |||||||||||||||
senior bond, 6.35%, 2/12/48 | Mexico | 1,489,000 | 1,248,378 | |||||||||||||||
senior bond, 6.95%, 1/28/60 | Mexico | 415,000 | 357,938 | |||||||||||||||
senior note, 3.50%, 1/30/23 | Mexico | 959,000 | 957,370 | |||||||||||||||
e senior note, 144A, 6.875%, 10/16/25 | Mexico | 297,000 | 310,813 | |||||||||||||||
senior note, 4.50%, 1/23/26 | Mexico | 288,000 | 271,967 | |||||||||||||||
QEP Resources Inc., | ||||||||||||||||||
senior bond, 5.375%, 10/01/22 | United States | 166,000 | 151,371 | |||||||||||||||
senior bond, 5.25%, 5/01/23 | United States | 367,000 | 314,336 | |||||||||||||||
senior note, 5.625%, 3/01/26 | United States | 112,000 | 80,304 | |||||||||||||||
e | Sabine Pass Liquefaction LLC, senior secured bond, 144A, 4.50%, 5/15/30 | United States | 270,000 | 315,489 | ||||||||||||||
e | Saudi Arabian Oil Co., senior bond, 144A, 3.25%, 11/24/50 | Saudi Arabia | 285,000 | 286,404 | ||||||||||||||
Sunoco Logistics Partners Operations LP, senior bond, | United States | 119,000 | 124,978 | |||||||||||||||
5.35%, 5/15/45 | United States | 96,000 | 100,962 | |||||||||||||||
e | YPF Sociedad Anonima, senior bond, 144A, 6.95%, 7/21/27 | Argentina | 105,000 | 69,694 | ||||||||||||||
|
| |||||||||||||||||
12,283,893 | ||||||||||||||||||
|
| |||||||||||||||||
Paper & Forest Products 0.0%† | ||||||||||||||||||
e | Paper Industries Intermediate Financing SARL, senior secured note, 144A, 6.00%, 3/01/25 | Luxembourg | 76,000 | 69,352 | ||||||||||||||
Suzano Austria GMBH, senior bond, 3.75%, 1/15/31 | Brazil | 160,000 | 168,840 | |||||||||||||||
|
| |||||||||||||||||
238,192 | ||||||||||||||||||
|
| |||||||||||||||||
Pharmaceuticals 0.2% | ||||||||||||||||||
Teva Pharmaceutical Finance Netherlands II BV, senior note, 6.00%, 1/31/25 | Israel | 335,000 | EUR | 433,578 | ||||||||||||||
Teva Pharmaceutical Finance Netherlands III BV, | Israel | 220,000 | 208,862 | |||||||||||||||
senior bond, 4.10%, 10/01/46 | Israel | 1,145,000 | 996,150 | |||||||||||||||
senior note, 7.125%, 1/31/25 | Israel | 200,000 | 218,948 | |||||||||||||||
e | Viatris Inc., senior bond, 144A, 4.00%, 6/22/50 | United States | 284,000 | 324,699 | ||||||||||||||
|
| |||||||||||||||||
2,182,237 | ||||||||||||||||||
|
| |||||||||||||||||
Road & Rail 0.2% | ||||||||||||||||||
e | Aviation Capital Group LLC, senior note, 144A, 5.50%, 12/15/24 | United States | 165,000 | 176,798 | ||||||||||||||
e | Uber Technologies Inc., senior note, 144A, | United States | 295,000 | 315,293 | ||||||||||||||
8.00%, 11/01/26 | United States | 1,085,000 | 1,171,122 | |||||||||||||||
7.50%, 9/15/27 | United States | 290,000 | 316,825 | |||||||||||||||
6.25%, 1/15/28 | United States | 125,000 | 132,656 | |||||||||||||||
|
| |||||||||||||||||
2,112,694 | ||||||||||||||||||
|
| |||||||||||||||||
Semiconductors & Semiconductor Equipment 0.2% | ||||||||||||||||||
Broadcom Inc., | United States | 10,000 | 11,623 | |||||||||||||||
senior bond, 4.30%, 11/15/32 | United States | 490,000 | 585,871 | |||||||||||||||
senior note, 4.75%, 4/15/29 | United States | 405,000 | 482,425 | |||||||||||||||
senior note, 5.00%, 4/15/30 | United States | 135,000 | 163,574 | |||||||||||||||
Micron Technology Inc., senior bond, | United States | 385,000 | 471,861 | |||||||||||||||
4.663%, 2/15/30 | United States | 140,000 | �� | 169,850 | ||||||||||||||
e | NXP BV / NXP Funding LLC / NXP USA Inc., 144A, | Netherlands | 25,000 | 28,221 | ||||||||||||||
senior note, 3.15%, 5/01/27 | Netherlands | 40,000 | 43,695 | |||||||||||||||
|
| |||||||||||||||||
1,957,120 | ||||||||||||||||||
|
|
38 | 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) | ||||||||||||||||||
Software 0.1% | ||||||||||||||||||
e | Veritas U.S. Inc. / Veritas Bermuda Ltd., senior secured note, 144A, 7.50%, 9/01/25 | United States | 576,000 | $ | 582,301 | |||||||||||||
|
| |||||||||||||||||
Specialty Retail 0.6% | ||||||||||||||||||
AutoNation Inc., senior bond, 4.75%, 6/01/30 | United States | 40,000 | 48,161 | |||||||||||||||
e | Carvana Co., senior note, 144A, | United States | 407,000 | 409,544 | ||||||||||||||
5.875%, 10/01/28 | United States | 503,000 | 511,174 | |||||||||||||||
L Brands Inc., | United States | 639,000 | 703,299 | |||||||||||||||
f senior bond, 6.875%, 11/01/35 | United States | 1,324,000 | 1,443,988 | |||||||||||||||
f senior note, 7.50%, 6/15/29 | United States | 554,000 | 611,926 | |||||||||||||||
e | Lithia Motors Inc., senior bond, 144A, 4.375%, 1/15/31 | United States | 30,000 | 31,894 | ||||||||||||||
e | PetSmart Inc., senior note, first lien, 144A, 5.875%, 6/01/25 | United States | 2,950,000 | 2,989,456 | ||||||||||||||
|
| |||||||||||||||||
6,749,442 | ||||||||||||||||||
|
| |||||||||||||||||
Trading Companies & Distributors 0.1% | ||||||||||||||||||
Air Lease Corp., | United States | 360,000 | 365,058 | |||||||||||||||
senior note, 3.375%, 7/01/25 | United States | 210,000 | 221,710 | |||||||||||||||
Aircastle Ltd., senior note, 4.25%, 6/15/26 | United States | 310,000 | 316,258 | |||||||||||||||
|
| |||||||||||||||||
903,026 | ||||||||||||||||||
|
| |||||||||||||||||
Transportation Infrastructure 0.0%† | ||||||||||||||||||
e | Adani Ports & Special Economic Zone Ltd., senior note, 144A, 4.20%, 8/04/27 | India | 200,000 | 213,206 | ||||||||||||||
|
| |||||||||||||||||
Wireless Telecommunication Services 0.1% | ||||||||||||||||||
e | T-Mobile USA Inc., 144A, | United States | 1,050,000 | 1,205,547 | ||||||||||||||
senior secured note, 3.75%, 4/15/27 | United States | 150,000 | 169,965 | |||||||||||||||
senior secured note, 2.05%, 2/15/28 | United States | 100,000 | 103,012 | |||||||||||||||
|
| |||||||||||||||||
1,478,524 | ||||||||||||||||||
|
| |||||||||||||||||
Total Corporate Bonds and Notes | 99,877,619 | |||||||||||||||||
|
| |||||||||||||||||
Corporate Bonds and Notes in Reorganization 0.3% | ||||||||||||||||||
Auto Components 0.0%† | ||||||||||||||||||
e,p | Garrett LX I Sarl/Garrett Borrowing LLC, senior note, 144A, 5.125%, 10/15/26 | Switzerland | 400,000 | EUR | 479,334 | |||||||||||||
|
| |||||||||||||||||
Diversified Telecommunication Services 0.2% | ||||||||||||||||||
p | Frontier Communications Corp., senior bond, | United States | 70,000 | 32,331 | ||||||||||||||
6.875%, 1/15/25 | United States | 33,000 | 15,366 | |||||||||||||||
9.00%, 8/15/31 | United States | 276,000 | 128,340 | |||||||||||||||
e,p | Intelsat Jackson Holdings SA, senior secured note, first lien, 144A, 9.50%, 9/30/22 | Luxembourg | 2,151,000 | 2,382,738 | ||||||||||||||
|
| |||||||||||||||||
2,558,775 | ||||||||||||||||||
|
| |||||||||||||||||
Oil, Gas & Consumable Fuels 0.0%† | ||||||||||||||||||
e,p | Lonestar Resources America Inc., senior note, 144A, 11.25%, 1/01/23 | United States | 80,000 | 6,400 | ||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 39 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||
Corporate Bonds and Notes in Reorganization (continued) | ||||||||||||||||||
Road & Rail 0.1% | ||||||||||||||||||
p | The Hertz Corp., senior note, | United States | 986,000 | $ | 433,840 | |||||||||||||
e,f 144A, 5.50%, 10/15/24 | United States | 1,234,000 | 548,359 | |||||||||||||||
e 144A, 6.00%, 1/15/28 | United States | 462,000 | 206,456 | |||||||||||||||
|
| |||||||||||||||||
1,188,655 | ||||||||||||||||||
|
| |||||||||||||||||
Total Corporate Bonds and Notes in Reorganization | 4,233,164 | |||||||||||||||||
|
| |||||||||||||||||
j,q | Senior Floating Rate Interests 0.1% | |||||||||||||||||
Building Products 0.0%† | ||||||||||||||||||
American Bath Group LLC, Term Loan B, 5.25%, (1-Month USD LIBOR + 4.50%), 11/23/27 | United States | 95,000 | 95,024 | |||||||||||||||
|
| |||||||||||||||||
Diversified Telecommunication Services 0.0%† | ||||||||||||||||||
Frontier Communications Corp., Term Loan DIP, 5.75%, (1-Month USD LIBOR + 4.75%), 10/08/21 | United States | 260,381 | 261,195 | |||||||||||||||
|
| |||||||||||||||||
Hotels, Restaurants & Leisure 0.0%† | ||||||||||||||||||
Golden Nugget Inc., Term Loan B, 3.25%, (1-Month USD LIBOR + 2.50%), 10/04/23 | United States | 225,000 | 215,277 | |||||||||||||||
|
| |||||||||||||||||
Household Durables 0.0%† | ||||||||||||||||||
Weber-Stephen Products LLC, Term Loan B, 4.00%, (1-Month USD LIBOR + 3.25%), 10/30/27 | United States | 85,000 | 84,809 | |||||||||||||||
|
| |||||||||||||||||
Independent Power & Renewable Electricity Producers 0.1% | ||||||||||||||||||
r | Array Technologies Inc., Term Loan B, 5.00%, (1-Month USD LIBOR + 4.00%), 10/14/27 | United States | 420,622 | 419,570 | ||||||||||||||
|
| |||||||||||||||||
Media 0.0%† | ||||||||||||||||||
Ziggo BV, Term Loan H, 3.00%, (3-Month EURIBOR + 3.00%), 1/31/29 | United States | 115,000 | 137,190 | |||||||||||||||
|
| |||||||||||||||||
Total Senior Floating Rate Interests | 1,213,065 | |||||||||||||||||
|
| |||||||||||||||||
j,q | Senior Floating Rate Interests in Reorganization (Cost $197,759) 0.0%† | |||||||||||||||||
Oil, Gas & Consumable Fuels 0.0%† | ||||||||||||||||||
c,p | Gavilan Resources LLC, Initial Term Loan, second lien, 10.25%, (1-Month USD LIBOR + 8.00%), 3/01/24 | United States | 200,000 | — | ||||||||||||||
|
| |||||||||||||||||
Foreign Government and Agency Securities 2.1% | ||||||||||||||||||
i | Government of Angola, senior bond, Reg S, 8.00%, 11/26/29 | Angola | 454,000 | 398,603 | ||||||||||||||
Government of Argentina, | Argentina | 1,633,480 | 579,069 | |||||||||||||||
senior bond, 0.125%, 7/09/46 | Argentina | 1,089,478 | 392,212 | |||||||||||||||
senior note, 1.00%, 7/09/29 | Argentina | 133,787 | 57,462 | |||||||||||||||
e | Government of Bahamas, senior bond, 144A, 8.95%, 10/15/32 | Bahamas | 721,000 | 783,907 | ||||||||||||||
i | Government of Bahrain, senior bond, Reg S, 7.00%, 1/26/26 | Bahrain | 467,000 | 541,053 | ||||||||||||||
Government of Egypt, senior bond, | Egypt | 215,000 | 225,105 | |||||||||||||||
e 144A, 8.875%, 5/29/50 | Egypt | 1,426,000 | 1,590,625 | |||||||||||||||
i Reg S, 8.875%, 5/29/50 | Egypt | 489,000 | 545,453 | |||||||||||||||
i Reg S, 8.70%, 3/01/49 | Egypt | 822,000 | 904,231 | |||||||||||||||
Government of Italy, senior note, 2.375%, 10/17/24 | Italy | 350,000 | 368,224 | |||||||||||||||
e | Government of Jordan, 144A, | Jordan | 386,000 | 413,246 | ||||||||||||||
senior note, 4.95%, 7/07/25 | Jordan | 578,000 | 604,781 |
40 | 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 Mexico, senior bond, | Mexico | 540,000 | $ | 639,900 | ||||||||||||||
5.00%, 4/27/51 | Mexico | 558,000 | 672,669 | |||||||||||||||
3.771%, 5/24/61 | Mexico | 745,000 | 745,000 | |||||||||||||||
i | Government of Nigeria, senior note, Reg S, 7.625%, 11/21/25 | Nigeria | 1,760,000 | 1,987,793 | ||||||||||||||
i | Government of Paraguay, senior bond, Reg S, 4.625%, 1/25/23 | Paraguay | 2,414,000 | 2,570,934 | ||||||||||||||
Government of Russia, | Russia | 800,000 | 1,088,648 | |||||||||||||||
senior note, 6227, 7.40%, 7/17/24 | Russia | 180,207,000 | RUB | 2,550,497 | ||||||||||||||
senior note, 6229, 7.15%, 11/12/25 | Russia | 240,745,000 | RUB | 3,429,939 | ||||||||||||||
senior note, 6232, 6.00%, 10/06/27 | Russia | 155,262,000 | RUB | 2,091,118 | ||||||||||||||
Government of Saudi Arabia, senior bond, | Saudi Arabia | 910,000 | 960,089 | |||||||||||||||
e 144A, 3.75%, 1/21/55 | Saudi Arabia | 354,000 | 395,117 | |||||||||||||||
i Reg S, 2.75%, 2/03/32 | Saudi Arabia | 302,000 | 318,623 | |||||||||||||||
Government of Turkey, senior note, 6.375%, 10/14/25 | Turkey | 675,000 | 709,519 | |||||||||||||||
j,k | Provincia de Buenos Aires, FRN, | Argentina | 18,295,000 | ARS | 99,765 | |||||||||||||
e,i 144A, Reg S, 33.313%, (ARS BADLAR + 3.75%), 4/12/25 | Argentina | 3,670,000 | ARS | 15,545 | ||||||||||||||
|
| |||||||||||||||||
Total Foreign Government and Agency Securities | 25,679,127 | |||||||||||||||||
|
| |||||||||||||||||
U.S. Government and Agency Securities 0.0%† | ||||||||||||||||||
U.S. Treasury Bond, 1.375%, 11/15/40 | United States | 246,000 | 246,154 | |||||||||||||||
U.S. Treasury Note, 0.25%, 10/31/25 | United States | 7,000 | 6,964 | |||||||||||||||
|
| |||||||||||||||||
Total U.S. Government and Agency Securities | 253,118 | |||||||||||||||||
|
| |||||||||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed Securities 7.4% | ||||||||||||||||||
Diversified Financial Services 5.7% | ||||||||||||||||||
e | Accelerated Assets LLC, 2018-1, B, 144A, 4.51%, 12/02/33 | United States | 58,904 | 60,147 | ||||||||||||||
s | Accredited Mortgage Loan Trust, 2006-2, M2, FRN, 0.465%, (1-Month USD LIBOR + 0.29%), 9/25/36 | United States | 2,790,000 | 2,119,160 | ||||||||||||||
s | ACE Securities Corp. Home Equity Loan Trust Series, 2003-FM1, M1, FRN, 1.465%, (1-Month USD LIBOR + 1.29%), 11/25/32 | United States | 1,548,209 | 1,555,998 | ||||||||||||||
e | Adams Outdoor Advertising LP, 2018-1, A, 144A, 4.81%, 11/15/48 | United States | 182,527 | 192,965 | ||||||||||||||
e,s | AGL CLO 3 Ltd., 2020-3A, C, 144A, FRN, 2.425%, (3-Month USD LIBOR + 2.15%), 1/15/33 | United States | 285,000 | 280,760 | ||||||||||||||
e | AIM Aviation Finance Ltd., 2015-1A, B1, 144A, 5.072%, 2/15/40 | United States | 170,624 | 68,349 | ||||||||||||||
e,s | Allegro CLO VI Ltd., 2018-2A, D, 144A, FRN, 3.023%, (3-Month USD LIBOR + 2.75%), 1/17/31 | United States | 250,000 | 229,782 | ||||||||||||||
e | American Credit Acceptance Receivables Trust, 144A, | United States | 200,000 | 204,161 | ||||||||||||||
2020-4, D, 1.77%, 12/14/26 | United States | 185,000 | 185,904 | |||||||||||||||
AmeriCredit Automobile Receivables Trust, | United States | 110,000 | 112,596 | |||||||||||||||
2020-3, D, 1.49%, 9/18/26 | United States | 305,000 | 306,016 | |||||||||||||||
e | AMSR Trust, 2020-SFR5, F, 144A, 2.686%, 11/17/37 | United States | 2,000,000 | 1,942,488 | ||||||||||||||
e,s | Anchorage Capital CLO 9 Ltd., 2019-9A, DR, 144A, FRN, 4.275%, (3-Month USD LIBOR + 4.00%), 7/15/32 | United States | 450,000 | 448,444 | ||||||||||||||
e | Arbys Funding LLC, 2020-1A, A2, 144A, 3.237%, 7/30/50 | United States | 99,750 | 102,596 | ||||||||||||||
s | Argent Securities Inc., 2004-W3, M4, FRN, 4.092%, (1-Month USD LIBOR + 4.58%), 2/25/34 | United States | 258,604 | 259,657 | ||||||||||||||
e | Ascentium Equipment Receivables Trust, 2017-2A, C, 144A, 2.87%, 8/10/22 | United States | 25,000 | 25,450 |
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) | ||||||||||||||||||
Diversified Financial Services (continued) | ||||||||||||||||||
e | Avis Budget Rental Car Funding AESOP LLC, 2020-2A, B, 144A, 2.96%, 2/20/27 | United States | 100,000 | $ | 102,187 | |||||||||||||
e,t,u | BANK, 2019-BN21, XF, 144A, IO, FRN, 1.052%, 10/17/52 | United States | 11,400,000 | 555,522 | ||||||||||||||
e,s | Barings CLO Ltd., 2019-4A, C, 144A, FRN, 3.075%, (3-Month USD LIBOR + 2.80%), 1/15/33 | United States | 400,000 | 401,242 | ||||||||||||||
Barings Euro CLO, 2014-1, BV, 1.90%, 7/15/31 | Netherlands | 500,000 | 577,608 | |||||||||||||||
e,s | Battalion CLO XIV Ltd., 2019-14A, E, 144A, FRN, 6.898%, (3-Month USD LIBOR + 6.68%), 4/20/32 | United States | 250,000 | 241,424 | ||||||||||||||
e | Bayview Opportunity Master Fund V Trust, 2020-RN3, A1, 144A, 3.228%, 9/25/35 | United States | 115,335 | 115,589 | ||||||||||||||
t | Bear Stearns ALT-A Trust, 2006-3, 21A1, FRN, 3.492%, 5/25/36 | United States | 1,289,550 | 1,094,584 | ||||||||||||||
e | Blackbird Capital Aircraft Lease Securitization Ltd., 2016-1A, A, 144A, 4.213%, 12/16/41 | United States | 193,906 | 185,278 | ||||||||||||||
e,s | BX Commercial Mortgage Trust, 2019-XL, E, 144A, FRN, 1.962%, (1-Month USD LIBOR + 1.80%), 10/15/36 | United States | 1,234,087 | 1,230,793 | ||||||||||||||
California Republic Auto Receivables Trust, 2018-1, D, 4.33%, 4/15/25 | United States | 115,000 | 119,522 | |||||||||||||||
e,s | Canyon Capital CLO, 2019-2A, E, 144A, FRN, 7.425%, (3-Month USD LIBOR + 7.15%), 10/15/32 | United States | 250,000 | 240,964 | ||||||||||||||
Carmax Auto Owner Trust, 2018-4, D, 4.15%, 4/15/25 | United States | 60,000 | 62,767 | |||||||||||||||
e,s | Catamaran CLO Ltd., 144A, FRN, | |||||||||||||||||
2014-2, 3.718%, (3-Month USD LIBOR + 3.50%), 10/18/26 | United States | 2,030,000 | 1,999,613 | |||||||||||||||
2017-1A, CR, 2.045%, (3-Month USD LIBOR + 1.80%), 1/27/28 | United States | 250,000 | 241,524 | |||||||||||||||
e | Chesapeake Funding II LLC, 144A, | |||||||||||||||||
s 2017-4A, A2, FRN, 0.472%, (1-Month USD LIBOR + 0.31%), 11/15/29 | Canada | 37,679 | 37,728 | |||||||||||||||
2018-1A, D, 3.92%, 4/15/30 | Canada | 115,000 | 117,586 | |||||||||||||||
CHL Mortgage Pass-Through Trust, | ||||||||||||||||||
s 2003-15, 1A1, FRN, 0.675%, (1-Month USD LIBOR + 0.50%), 6/25/42 | United States | 100,108 | 96,239 | |||||||||||||||
2004-4, M, 5.50%, 5/25/34 | United States | 1,206,176 | 848,201 | |||||||||||||||
2006-21, A8, 5.75%, 2/25/37 | United States | 412,239 | 309,756 | |||||||||||||||
t 2006-HYB4, 3B, FRN, 4.038%, 6/20/36 | United States | 1,961,638 | 1,682,543 | |||||||||||||||
e | Coinstar Funding LLC, 2017-1A, A2, 144A, 5.216%, 4/25/47 | United States | 188,175 | 181,594 | ||||||||||||||
e,s | Connecticut Avenue Securities Trust, 2020-R01, 1M2, 144A, FRN, 2.225%, (1-Month USD LIBOR + 2.05%), 1/25/40 | United States | 85,000 | 84,456 | ||||||||||||||
e | CoreVest American Finance Trust, 2019-2, B, 144A, 3.424%, 6/15/52 | United States | 100,000 | 107,876 | ||||||||||||||
e,t | CSMC Trust, 144A, FRN, | |||||||||||||||||
2018-RPL8, A2, 4.167%, 7/25/58 | United States | 280,000 | 280,263 | |||||||||||||||
2019-RP10, A1, 3.116%, 12/26/59 | United States | 158,760 | 159,437 | |||||||||||||||
2020-RPL3, A1, 2.691%, 3/25/60 | United States | 132,312 | 132,554 | |||||||||||||||
e | DB Master Finance LLC, 2019-1A, A23, 144A, 4.352%, 5/20/49 | United States | 49,375 | 53,647 | ||||||||||||||
e,t | DBUBS Mortgage Trust, 2017-BRBK, D, 144A, FRN, 3.648%, 10/10/34 | United States | 100,000 | 103,438 | ||||||||||||||
e | Domino’s Pizza Master Issuer LLC, 144A, | |||||||||||||||||
2017-1A, A23, 4.118%, 7/25/47 | United States | 164,900 | 177,424 | |||||||||||||||
2018-1A, A2II, 4.328%, 7/25/48 | United States | 78,200 | 84,937 | |||||||||||||||
2019-1A, A2, 3.668%, 10/25/49 | United States | 168,300 | 179,394 | |||||||||||||||
Drive Auto Receivables Trust, 2018-3, D, 4.30%, 9/16/24 | United States | 25,000 | 25,943 | |||||||||||||||
e | DT Auto Owner Trust, 2020-3A, D, 144A, 1.84%, 6/15/26 | United States | 80,000 | 80,862 | ||||||||||||||
e | Education Funding Trust Trust, 2020-A, A, 144A, 2.79%, 7/25/41 | United States | 155,282 | 159,371 | ||||||||||||||
Exeter Automobile Receivables Trust, | ||||||||||||||||||
e 2020-2A, D, 144A, 4.73%, 4/15/26 | United States | 90,000 | 97,443 | |||||||||||||||
2020-3A, C, 1.32%, 7/15/25 | United States | 145,000 | 145,761 | |||||||||||||||
e | Fairstone Financial Issuance Trust I, 2019-1A, A, 144A, 3.948%, 3/21/33 | Canada | 150,000 | CAD | 116,700 | |||||||||||||
t | FNMA, 2004-T5, AB7, FRN, 0.672%, 5/28/35 | United States | 352,477 | 335,656 |
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) | ||||||||||||||||||
Diversified Financial Services (continued) | ||||||||||||||||||
e | First Investors Auto Owner Trust, 2019-2A, D, 144A, 2.80%, 12/15/25 | United States | 40,000 | $ | 41,250 | |||||||||||||
e | FirstKey Homes Trust, 2020-SFR1, F1, 144A, 3.638%, 9/17/25 | United States | 225,000 | 230,679 | ||||||||||||||
e | Flagship Credit Auto Trust, 144A, | |||||||||||||||||
2019-4, D, 3.12%, 1/15/26 | United States | 90,000 | 94,044 | |||||||||||||||
2020-1, D, 2.48%, 3/16/26 | United States | 140,000 | 143,424 | |||||||||||||||
2020-3, C, 1.73%, 9/15/26 | United States | 305,000 | 310,513 | |||||||||||||||
e,s | Galaxy XXVI CLO Ltd., 2018-26A, E, 144A, FRN, 6.106%, (3-Month USD LIBOR + 5.85%), 11/22/31 | United States | 260,000 | 248,136 | ||||||||||||||
e | GCAT LLC, 2020-1, A1, 144A, 2.981%, 1/26/60 | United States | 226,041 | 226,396 | ||||||||||||||
e | GLS Auto Receivables Trust, 144A, | |||||||||||||||||
2018-3A, B, 3.78%, 8/15/23 | United States | 70,000 | 71,063 | |||||||||||||||
2020-1A, C, 2.72%, 11/17/25 | United States | 150,000 | 153,650 | |||||||||||||||
2020-3A, C, 1.92%, 5/15/25 | United States | 330,000 | 335,300 | |||||||||||||||
e,s | GPMT Ltd., 144A, FRN, | |||||||||||||||||
2018-FL1, C, 2.321%, (1-Month USD LIBOR + 2.15%), 11/19/35 | United States | 1,400,000 | 1,352,694 | |||||||||||||||
2019-FL2, D, 3.097%, (1-Month USD LIBOR + 2.95%), 2/22/36 | United States | 1,000,000 | 958,800 | |||||||||||||||
e,s | Grand Avenue Cre Ltd., 2020-FL2, C, 144A, FRN, 3.802%, (1-Month USD LIBOR + 3.62%), 3/15/35 | United States | 1,310,000 | 1,306,408 | ||||||||||||||
i,s | Great Hall Mortgages No 1 PLC, 2006-1, DA, FRN, Reg S, 0.992%, (3-Month GBP LIBOR + 0.82%), 6/18/38 | United Kingdom | 1,330,000 | GBP | 1,582,227 | |||||||||||||
s | GSAMP Trust, 2006-NC1, M2, FRN, 0.555%, (1-Month USD LIBOR + 0.38%), 2/25/36 | United States | 2,500,957 | 2,588,508 | ||||||||||||||
e,s | GSRPM Mortgage Loan Trust, 2002-1A, M1, 144A, FRN, 2.125%, (1-Month USD LIBOR + 1.95%), 11/25/31 | United States | 989,878 | 991,505 | ||||||||||||||
e,s | Halcyon Loan Advisors Funding Ltd., 2014-1A, D, 144A, FRN, 3.772%, (3-Month USD LIBOR + 3.50%), 4/18/26 | United States | 1,490,000 | 1,427,832 | ||||||||||||||
e,o | Hardee’s Funding LLC, 2020-1A, A2, 144A, 3.981%, 12/20/50 | United States | 100,000 | 100,489 | ||||||||||||||
e,s | Hayfin Kingsland XI Ltd., 2019-2A, E, 144A, FRN, 7.118%, (3-Month USD LIBOR + 6.90%), 7/20/32 | United States | 70,000 | 68,057 | ||||||||||||||
e | Horizon Aircraft Finance I Ltd., 2018-1, A, 144A, 4.458%, 12/15/38 | United States | 235,223 | 225,467 | ||||||||||||||
e | HPEFS Equipment Trust, 2020-2A, D, 144A, 2.79%, 7/22/30 | United States | 325,000 | 332,193 | ||||||||||||||
e,s | HPLY Trust, 2019-HIT, C, 144A, FRN, 1.762%, (1-Month USD LIBOR + 1.60%), 11/15/36 | United States | 85,421 | 82,519 | ||||||||||||||
s | IXIS Real Estate Capital Trust, 2006-HE2, A3, FRN, 0.335%, (1-Month USD LIBOR + 0.16%), 8/25/36 | United States | 2,629,269 | 1,032,098 | ||||||||||||||
e,s | JFIN CLO Ltd., 2017-1A, DR, 144A, FRN, 2.90%, (3-Month USD LIBOR + 2.65%), 3/15/26 | United States | 1,530,000 | 1,397,070 | ||||||||||||||
e | Kestrel Aircraft Funding Ltd., 2018-1A, A, 144A, 4.25%, 12/15/38 | United States | 213,968 | 198,675 | ||||||||||||||
e | Legacy Mortgage Asset Trust, 144A, | |||||||||||||||||
2019-GS3, A1, 3.75%, 4/25/59 | United States | 108,473 | 109,661 | |||||||||||||||
2020-GS1, A1, 2.882%, 10/25/59 | United States | 254,924 | 256,064 | |||||||||||||||
e,s | LoanCore Issuer Ltd., 2018-CRE1, D, 144A, FRN, 3.112%, (1-Month USD LIBOR + 2.95%), 5/15/28 | United States | 1,600,000 | 1,544,000 | ||||||||||||||
e | Marlette Funding Trust, 2019-4A, B, 144A, 2.95%, 12/17/29 | United States | 290,000 | 295,777 | ||||||||||||||
s | Merrill Lynch Mortgage Investors Trust Series, 2007-MLN1, A2D, FRN, 0.495%, (1-Month USD LIBOR + 0.32%), 3/25/37 | United States | 1,035,016 | 953,656 | ||||||||||||||
Morgan Stanley Mortgage Loan Trust, | ||||||||||||||||||
t 2004-11AR, 2A, FRN, 2.909%, 1/25/35 | United States | 377,224 | 369,548 | |||||||||||||||
2006-15XS, A3, 5.988%, 11/25/36 | United States | 2,298,063 | 853,643 | |||||||||||||||
s | Mortgageit Mortgage Loan Trust, 2006-1, 2A1B, FRN, 0.455%, (1-Month USD LIBOR + 0.28%), 4/25/36 | United States | 784,801 | 258,822 | ||||||||||||||
e,s | Mountain View CLO Ltd., 2018-1A, DRR, 144A, FRN, 3.887%, (3-Month USD LIBOR + 3.65%), 10/15/26 | United States | 2,000,000 | 1,882,789 | ||||||||||||||
e | MVW LLC, 2020-1A, C, 144A, 4.21%, 10/20/37 | United States | 287,330 | 303,761 | ||||||||||||||
e | MVW Owner Trust, 2019-1A, C, 144A, 3.33%, 11/20/36 | United States | 89,011 | 90,729 |
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) | ||||||||||||||||||
Diversified Financial Services (continued) | ||||||||||||||||||
e | Navient Private Education Refi Loan Trust, 144A, | |||||||||||||||||
2019-FA, B, 3.12%, 8/15/68 | United States | 210,000 | $ | 214,482 | ||||||||||||||
2019-GA, B, 3.08%, 10/15/68 | United States | 140,000 | 139,476 | |||||||||||||||
e,s | Neuberger Berman CLO XIV Ltd., 2020-14A, CR2, 144A, FRN, 2.147%, (3-Month USD LIBOR + 1.90%), 1/28/30 | United States | 410,000 | 401,344 | ||||||||||||||
e,s | Neuberger Berman Loan Advisers CLO 30 Ltd., 2019-30A, E, 144A, FRN, 7.022%, (3-Month USD LIBOR + 6.75%), 1/20/31 | United States | 565,000 | 566,407 | ||||||||||||||
s | Nomura Home Equity Loan Inc. Home Equity Loan Trust Series, 2006-WF1, M4, FRN, 0.545%, (1-Month USD LIBOR + 0.37%), 3/25/36 | United States | 1,306,831 | 1,215,105 | ||||||||||||||
e,s | Octagon Investment Partners XXII Ltd., 2018-1A, CRR, 144A, FRN, 2.158%, (3-Month USD LIBOR + 1.90%), 1/22/30 | United States | 250,000 | 244,016 | ||||||||||||||
e | OneMain Financial Issuance Trust, 144A, | |||||||||||||||||
2015-3A, B, 4.16%, 11/20/28 | United States | 155,000 | 155,269 | |||||||||||||||
2020-2A, C, 2.76%, 9/14/35 | United States | 100,000 | 101,947 | |||||||||||||||
e | Oxford Finance Funding LLC, 2019-1A, A2, 144A, 4.459%, 2/15/27 | United States | 50,000 | 51,641 | ||||||||||||||
e,s | OZLM XXIII Ltd., 2019-23A, E, 144A, FRN, 7.037%, (3-Month USD LIBOR + 6.80%), 4/15/32 | United States | 250,000 | 241,050 | ||||||||||||||
e,s | Pikes Peak CLO 3, 2019-3A, E, 144A, FRN, 7.075%, (3-Month USD LIBOR + 6.86%), 4/25/30 | United States | 250,000 | 246,191 | ||||||||||||||
e,s | Pikes Peak CLO 4, 2019-4A, E, 144A, FRN, 7.007%, (3-Month USD LIBOR + 6.77%), 7/15/32 | United States | 250,000 | 241,034 | ||||||||||||||
e | Planet Fitness Master Issuer LLC, 2019-1A, A2, 144A, 3.858%, 12/05/49 | United States | 148,875 | 141,209 | ||||||||||||||
e | Prestige Auto Receivables Trust, 2019-1A, E, 144A, 3.90%, 5/15/26 | United States | 100,000 | 102,635 | ||||||||||||||
e | Progress Residential Trust, 144A, | |||||||||||||||||
2018-SFR3, E, 4.873%, 10/17/35 | United States | 100,000 | 102,844 | |||||||||||||||
2019-SFR1, E, 4.466%, 8/17/35 | United States | 115,000 | 118,963 | |||||||||||||||
2019-SFR2, E, 4.142%, 5/17/36 | United States | 175,000 | 180,833 | |||||||||||||||
2020-SFR3, F, 2.796%, 10/17/27 | United States | 100,000 | 100,060 | |||||||||||||||
RALI Series Trust, 2007-QS2, AP, 1/25/37 | United States | 182,423 | 126,065 | |||||||||||||||
e,t | RBSSP Resecuritization Trust, 2009-12, 17A2, 144A, FRN, 3.581%, 10/25/35 | United States | 389,919 | 383,325 | ||||||||||||||
e | Republic Finance Issuance Trust, 2019-A, A, 144A, 3.43%, 11/22/27 | United States | 240,000 | 244,472 | ||||||||||||||
Santander Drive Auto Receivables Trust, | ||||||||||||||||||
2020-1, D, 5.35%, 3/15/28 | United States | 240,000 | 266,259 | |||||||||||||||
2020-2, D, 2.22%, 9/15/26 | United States | 100,000 | 102,220 | |||||||||||||||
2020-4, D, 1.48%, 1/15/27 | United States | 305,000 | 306,162 | |||||||||||||||
s | Saxon Asset Securities Trust, 2005-4, M4, FRN, 0.795%, (1-Month USD LIBOR + 0.62%), 11/25/37 | United States | 2,547,275 | 1,724,356 | ||||||||||||||
e | SCF Equipment Leasing LLC, 2018-1A, C, 144A, 4.21%, 4/20/27 | United States | 255,000 | 256,216 | ||||||||||||||
e,t | Security National Mortgage Loan Trust, 2004-1A, AF3, 144A, FRN, 6.42%, 6/25/32 | United States | 1,900,839 | 1,665,472 | ||||||||||||||
e,s | Silvermore CLO Ltd., 2014-1A, C, 144A, FRN, 3.73%, (3-Month USD LIBOR + 3.45%), 5/15/26 | United States | 1,250,000 | 1,178,095 | ||||||||||||||
e | S-Jets Ltd., 2017-1, A, 144A, 3.967%, 8/15/42 | Bermuda | 413,410 | 396,355 | ||||||||||||||
s | SLM Private Credit Student Loan Trust, FRN, | |||||||||||||||||
2003-B, A3, 1.657%, (28-Day T-Bill + 1.00%), 3/15/33 | United States | 250,000 | 240,153 | |||||||||||||||
2003-B, A4, 1.657%, (28-Day T-Bill + 1.00%), 3/15/33 | United States | 50,000 | 47,951 | |||||||||||||||
e,s | SMB Private Education Loan Trust, 2017-B, A2B, 144A, FRN, 0.912%, (1-Month USD LIBOR + 0.75%), 10/15/35 | United States | 69,422 | 69,392 | ||||||||||||||
e | SoFi Consumer Loan Program Trust, 144A, | |||||||||||||||||
2018-1, B, 3.65%, 2/25/27 | United States | 100,000 | 102,506 | |||||||||||||||
2019-4, C, 2.84%, 8/25/28 | United States | 130,000 | 132,494 | |||||||||||||||
e | SoFi Professional Loan Program LLC, 2016-A, B, 144A, 3.57%, 1/26/38 | United States | 43,819 | 44,569 |
44 | 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) | ||||||||||||||||||
s | Soundview Home Loan Trust, 2006-WF2, M3, FRN, 0.625%, (1-Month USD LIBOR + 0.45%), 12/25/36 | United States | 1,744,845 | $ | 1,819,991 | |||||||||||||
e | SpringCastle America Funding LLC, 2020-AA, A, 144A, 1.97%, 9/25/37 | United States | 281,370 | 283,824 | ||||||||||||||
e | Sprite Ltd., 2017-1, B, 144A, 5.75%, 12/15/37 | United States | 164,302 | 118,575 | ||||||||||||||
e | Stack Infrastructure Issuer LLC, 2019-1A, A2, 144A, 4.54%, 2/25/44 | United States | 122,813 | 132,001 | ||||||||||||||
e,s | Staniford Street CLO Ltd., 2014-1A, D, 144A, FRN, 3.75%, (3-Month USD LIBOR + 3.50%), 6/15/25 | United States | 1,650,000 | 1,654,878 | ||||||||||||||
e,s | Starwood Retail Property Trust, 2014-STAR, E, 144A, FRN, 4.562%, (1-Month USD LIBOR + 4.40%), 11/15/27 | United States | 200,000 | 4,375 | ||||||||||||||
e,s | TICP CLO II-2 Ltd., 2018-IIA, C, 144A, FRN, 3.195%, (3-Month USD LIBOR + 2.95%), 4/20/28 | United States | 1,020,000 | 968,042 | ||||||||||||||
e | Towd Point Mortgage Trust, 144A, FRN, | |||||||||||||||||
t 2015-2, 1A13, 2.50%, 11/25/60 | United States | 32,845 | 32,936 | |||||||||||||||
t 2018-5, M1, 3.25%, 7/25/58 | United States | 100,000 | 101,501 | |||||||||||||||
t 2019-2, M1, 3.75%, 12/25/58 | United States | 200,000 | 216,081 | |||||||||||||||
s 2019-HE1, M2, 1.90%, (1-Month USD LIBOR + 1.75%), 4/25/48 | United States | 1,481,000 | 1,477,472 | |||||||||||||||
e,s | TPG Real Estate Finance Issuer Ltd., 2018-FL2, C, 144A, FRN, 2.462%, (1-Month USD LIBOR + 2.30%), 11/15/37 | United States | 1,500,000 | 1,452,826 | ||||||||||||||
e | Tricon American Homes Trust, 2020-SFR2, E1, 144A, 2.73%, 11/17/39 | United States | 100,000 | 100,630 | ||||||||||||||
e,s | TRTX Issuer Ltd., 2019-FL3, B, 144A, FRN, 1.912%, (1-Month USD LIBOR + 1.75%), 10/15/34 | United States | 1,300,000 | 1,274,000 | ||||||||||||||
e,s | VERDE CLO Ltd., 2019-1A, E, 144A, FRN, 7.175%, (3-Month USD LIBOR + 6.90%), 4/15/32 | United States | 340,000 | 329,824 | ||||||||||||||
e | Vericrest Opportunity Loan Trust, 2019-NPL5, A1A, 144A, 3.352%, 9/25/49 | United States | 246,082 | 246,709 | ||||||||||||||
e,s | VMC Finance LLC, 2019-FL3, C, 144A, FRN, 2.212%, (1-Month USD LIBOR + 2.05%), 9/15/36 | United States | 549,585 | 527,602 | ||||||||||||||
e | VOLT LXXXIII LLC, 2019-NPL9, A1A, 144A, 3.327%, 11/26/49 | United States | 70,158 | 70,406 | ||||||||||||||
e | VOLT LXXXVII LLC, 2020-NPL3, A1A, 144A, 2.981%, 2/25/50 | United States | 155,627 | 155,888 | ||||||||||||||
e,t | WaMu Commercial Mortgage Securities Trust, 2007-SL2, G, 144A, FRN, 3.609%, 12/27/49 | United States | 2,866,082 | 2,342,716 | ||||||||||||||
t | Wells Fargo Mortgage Backed Securities Trust, 2007-AR6, A2, FRN, 3.561%, 10/25/37 | United States | 221,660 | 205,734 | ||||||||||||||
e | Wendy’s Funding LLC, 2018-1A, A2II, 144A, 3.884%, 3/15/48 | United States | 213,950 | 227,450 | ||||||||||||||
e | Westlake Automobile Receivables Trust, 2020-3A, D, 144A, 1.65%, 2/17/26 | United States | 120,000 | 120,889 | ||||||||||||||
World Financial Network Credit Card Master Trust, 2019-C, M, 2.71%, 7/15/26 | United States | 415,000 | 427,369 | |||||||||||||||
e,s | York CLO-6 Ltd., 2019-1A, D, 144A, FRN, 4.258%, (3-Month USD LIBOR + 4.00%), 7/22/32 | United States | 455,000 | 456,125 | ||||||||||||||
|
| |||||||||||||||||
69,877,758 | ||||||||||||||||||
�� |
|
| ||||||||||||||||
Equity Real Estate Investment Trusts (REITs) 0.1% | ||||||||||||||||||
e | American Homes 4 Rent, 144A, | United States | 250,000 | 278,820 | ||||||||||||||
2014-SFR3, E, 6.418%, 12/17/36 | United States | 100,000 | 112,656 | |||||||||||||||
2015-SFR1, E, 5.639%, 4/17/52 | United States | 210,000 | 231,765 | |||||||||||||||
e | Diamond Resorts Owner Trust, 144A, | United States | 24,923 | 25,425 | ||||||||||||||
2018-1, C, 4.53%, 1/21/31 | United States | 64,175 | 65,466 | |||||||||||||||
2019-1A, B, 3.53%, 2/20/32 | United States | 65,344 | 66,857 | |||||||||||||||
|
| |||||||||||||||||
780,989 | ||||||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 45 |
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) 1.6% | ||||||||||||||||||
e,t | Ajax Mortgage Loan Trust, 2017-B, A, 144A, FRN, 3.163%, 9/25/56 | United States | 84,178 | $ | 84,337 | |||||||||||||
s | American Home Mortgage Investment Trust, FRN, | United States | 187,088 | 170,654 | ||||||||||||||
2007-1, GA1A, 0.31%, (1-Month USD LIBOR + 0.16%), 5/25/47 | United States | 1,672,368 | 1,197,704 | |||||||||||||||
Banc of America Alternative Loan Trust, 2003-8, 1CB1, 5.50%, 10/25/33 | United States | 5,076 | 5,109 | |||||||||||||||
Banc of America Funding Trust, | United States | 236,440 | 170,714 | |||||||||||||||
2007-4, 5A1, 5.50%, 11/25/34 | United States | 53,530 | 53,729 | |||||||||||||||
t | Banc of America Mortgage Trust, 2005-A, 2A1, FRN, 3.711%, 2/25/35 | United States | 4,185 | 4,227 | ||||||||||||||
e,s | BBCMS Mortgage Trust, 2020-BID, B, 144A, FRN, 2.681%, (1-Month USD LIBOR + 2.54%), 10/15/37 | United States | 210,000 | 210,700 | ||||||||||||||
e,s | BCAP LLC Trust, 2012-RR4, 9A7, 144A, FRN, 0.252%, (1-Month USD LIBOR + 0.08%), 11/26/36 | United States | 494,436 | 474,858 | ||||||||||||||
t | Bear Stearns ARM Trust, 2007-4, 12A1, FRN, 4.024%, 5/25/37 | United States | 1,725,259 | 1,670,321 | ||||||||||||||
e | Citigroup Mortgage Loan Trust, 144A, | United States | 27,971 | 28,342 | ||||||||||||||
t 2018-A, A1, FRN, 4.00%, 1/25/68 | United States | 87,452 | 87,976 | |||||||||||||||
2018-C, A1, 4.125%, 3/25/59 | United States | 142,097 | 142,249 | |||||||||||||||
t 2019-B, A1, FRN, 3.258%, 4/25/66 | United States | 100,747 | 102,543 | |||||||||||||||
2019-E, A1, 3.228%, 11/25/70 | United States | 233,113 | 238,820 | |||||||||||||||
Countrywide Alternative Loan Trust, | United States | 34,021 | 35,494 | |||||||||||||||
2004-16CB, 1A1, 5.50%, 7/25/34 | United States | 20,581 | 21,317 | |||||||||||||||
2004-16CB, 3A1, 5.50%, 8/25/34 | United States | 21,394 | 22,183 | |||||||||||||||
2004-3T1, M, 6.00%, 5/25/34 | United States | 240,755 | 197,822 | |||||||||||||||
2004-J10, 2CB1, 6.00%, 9/25/34 | United States | 57,864 | 60,873 | |||||||||||||||
2005-J1, 2A1, 5.50%, 2/25/25 | United States | 2,911 | 2,978 | |||||||||||||||
2005-J14, A3, 5.50%, 12/25/35 | United States | 355,067 | 290,529 | |||||||||||||||
2006-6CB, 2A11, 5.50%, 5/25/36 | United States | 313,920 | 197,408 | |||||||||||||||
s | Countrywide Asset-Backed Certificates, 2005-15, M3, FRN, 0.695%, (1-Month USD LIBOR + 0.52%), 4/25/36 | United States | 2,340,000 | 2,101,710 | ||||||||||||||
t | Countrywide Home Loans Mortgage Pass-Through Trust, 2004-HYB4, 2A1, FRN, 2.919%, 9/20/34 | United States | 49,335 | 48,576 | ||||||||||||||
Credit Suisse First Boston Mortgage Securities Corp., | United States | 152,451 | 137,734 | |||||||||||||||
2003-27, 4A4, 5.75%, 11/25/33 | United States | 16,756 | 17,360 | |||||||||||||||
2005-8, 1A3, 5.25%, 9/25/35 | United States | 111,020 | 109,583 | |||||||||||||||
e | CSMC OA LLC, 144A, | United States | 150,000 | 153,762 | ||||||||||||||
2014-USA, E, 4.373%, 9/15/37 | United States | 400,000 | 295,835 | |||||||||||||||
s | DSLA Mortgage Loan Trust, 2005-AR5, 2A1A, FRN, 0.491%, (1-Month USD LIBOR + 0.33%), 9/19/45 | United States | 37,147 | 28,190 | ||||||||||||||
i,s | Dukinfield II PLC, 2016-2, A, FRN, Reg S, 1.432%, (3-Month GBP LIBOR + 1.25%), 12/20/52 | United Kingdom | 144,274 | GBP | 192,996 | |||||||||||||
s | FHLMC Structured Agency Credit Risk Debt Notes, 2015-DNA1, M3, FRN, 3.475%, (1-Month USD LIBOR + 3.30%), 10/25/27 | United States | 224,951 | 231,742 | ||||||||||||||
t | GS Mortgage Securities Trust, | United States | 195,000 | 163,284 | ||||||||||||||
2014-GC18, B, FRN, 4.885%, 1/10/47 | United States | 100,000 | 96,225 | |||||||||||||||
GSR Mortgage Loan Trust, | United States | 8,400 | 8,554 | |||||||||||||||
t 2005-AR6, 4A5, FRN, 3.258%, 9/25/35 | United States | 40,180 | 40,539 | |||||||||||||||
s | Harborview Mortgage Loan Trust, 2004-11, 2A2A, FRN, 0.801%, (1-Month USD LIBOR + 0.64%), 1/19/35 | United States | 86,963 | 81,832 |
46 | 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) | ||||||||||||||||||
IndyMac INDX Mortgage Loan Trust, FRN, | United States | 1,804,117 | $ | 1,504,951 | ||||||||||||||
s 2004-AR7, A5, 1.395%, (1-Month USD LIBOR + 1.22%), 9/25/34 | United States | 42,088 | 39,823 | |||||||||||||||
t 2005-AR11, A3, 3.244%, 8/25/35 | United States | 45,453 | 40,805 | |||||||||||||||
s 2006-AR2, 2A1, 0.385%, (1-Month USD LIBOR + 0.21%), 2/25/46 | United States | 201,964 | 163,223 | |||||||||||||||
t 2006-AR3, 3A1A, 3.29%, 4/25/36 | United States | 2,130,282 | 2,147,171 | |||||||||||||||
e,s | Invitation Homes Trust, 144A, FRN, | United States | 99,986 | 100,378 | ||||||||||||||
2018-SFR2, E, 2.162%, (1-Month USD LIBOR + 2.00%), 6/17/37 | United States | 200,000 | 201,108 | |||||||||||||||
t | JPMorgan Alternative Loan Trust, 2006-A2, 2A2, FRN, 3.701%, 5/25/36 | United States | 1,705,630 | 1,365,809 | ||||||||||||||
JPMorgan Mortgage Trust, | United States | 85,707 | 91,029 | |||||||||||||||
t 2007-A1, 4A2, FRN, 2.962%, 7/25/35 | United States | 2,010 | 2,007 | |||||||||||||||
s | Lehman XS Trust Series, 2006-2N, 1A1, FRN, 0.435%, (1-Month USD LIBOR + 0.26%), 2/25/46 | United States | 36,764 | 33,093 | ||||||||||||||
MASTR Alternative Loan Trust, | United States | 137,011 | 141,007 | |||||||||||||||
2004-8, 2A1, 6.00%, 9/25/34 | United States | 36,565 | 37,935 | |||||||||||||||
t | Merrill Lynch Mortgage Investors MLCC, 2006-2, 2A, FRN, 3.014%, 5/25/36 | United States | 2,785 | 2,795 | ||||||||||||||
e,t | Morgan Stanley Capital I Trust, 2011-C2, E, 144A, FRN, 5.661%, 6/15/44 | United States | 150,000 | 90,106 | ||||||||||||||
e,s | New Residential Mortgage Loan Trust, 2020-2A, B4, 144A, FRN, 3.899%, (1-Month USD LIBOR + 3.75%), 10/25/46 | United States | 968,685 | 982,755 | ||||||||||||||
e | PRPM LLC, 144A, | United States | 97,930 | 98,225 | ||||||||||||||
2020-3, A2, 5.071%, 9/25/25 | United States | 100,000 | 100,165 | |||||||||||||||
2020-5, A2, 5.437%, 11/25/25 | United States | 305,000 | 305,512 | |||||||||||||||
e | RCO V Mortgage LLC, 2020-1, A1, 144A, 3.105%, 9/25/25 | United States | 105,740 | 106,022 | ||||||||||||||
t | RFMSI Trust, 200tr5-SA1, 1A1, FRN, 4.539%, 3/25/35 | United States | 99,924 | 66,639 | ||||||||||||||
s | Securitized Asset Backed Receivables LLC Trust, 2006-WM4, A2C, FRN, 0.335%, (1-Month USD LIBOR + 0.16%), 11/25/36 | United States | 3,664,779 | 1,522,915 | ||||||||||||||
s | Structured ARM Loan Trust, 2005-14, A1, FRN, 0.485%, (1-Month USD LIBOR + 0.31%), 7/25/35 | United States | 224,508 | 164,588 | ||||||||||||||
e,t | Wells Fargo Commercial Mortgage Trust, 2019-JWDR, C, 144A, FRN, 3.139%, 9/15/31 | United States | 290,000 | 281,778 | ||||||||||||||
t | WFRBS Commercial Mortgage Trust, FRN, | United States | 35,000 | 34,910 | ||||||||||||||
e 2011-C3, D, 144A, 5.853%, 3/15/44 | United States | 200,000 | 95,639 | |||||||||||||||
e 2011-C4, E, 144A, 5.383%, 6/15/44 | United States | 120,000 | 76,305 | |||||||||||||||
2012-C10, C, 4.51%, 12/15/45 | United States | 155,000 | 92,958 | |||||||||||||||
e 2012-C6, D, 144A, 5.766%, 4/15/45 | United States | 150,000 | 151,134 | |||||||||||||||
2012-C7, C, 4.965%, 6/15/45 | United States | 25,000 | 19,113 | |||||||||||||||
e 2012-C7, E, 144A, 4.965%, 6/15/45 | United States | 75,000 | 30,172 | |||||||||||||||
|
| |||||||||||||||||
19,268,879 | ||||||||||||||||||
|
| |||||||||||||||||
Total Asset-Backed Securities and Commercial Mortgage-Backed Securities (Cost $90,579,126) | 89,927,626 | |||||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 47 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||
Municipal Bonds in Reorganization 0.5% | ||||||||||||||||||
Puerto Rico 0.5% | ||||||||||||||||||
p | Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series A, | United States | 715,000 | $ | 486,200 | |||||||||||||
5.00%, 7/01/41 | United States | 1,000,000 | 650,000 | |||||||||||||||
p | Puerto Rico Commonwealth GO, Refunding, Series A, 8.00%, 7/01/35 | United States | 7,155,000 | 4,686,525 | ||||||||||||||
|
| |||||||||||||||||
Total Municipal Bonds in Reorganization | 5,822,725 | |||||||||||||||||
|
| |||||||||||||||||
Number of Contracts | Notional Amount# | |||||||||||||||||
Options Purchased 0.1% | ||||||||||||||||||
Calls – Exchange-Traded 0.1% | ||||||||||||||||||
Acacia Communications Inc., August Strike Price $75.00, Expires 8/20/21 | 4 | 400 | 240 | |||||||||||||||
Energy Transfer LP, January Strike Price $7.00, Expires 1/15/21 | 366 | 36,600 | 7,320 | |||||||||||||||
HP Inc., December Strike Price $21.00, Expires 12/18/20 | 108 | 10,800 | 12,960 | |||||||||||||||
Integra Lifesciences Holdings Corp., December Strike Price $60.00, Expires 12/18/20 | 16 | 1,600 | 1,840 | |||||||||||||||
K12 Inc., December Strike Price $32.00, Expires 12/18/20 | 15 | 1,500 | 300 | |||||||||||||||
MongoDB Inc., December Strike Price $300.00, Expires 12/31/20 | 5 | 500 | 5,250 | |||||||||||||||
S&P 500 Index, January Strike Price $3,500.00, Expires 1/15/21 | 6 | 600 | 105,300 | |||||||||||||||
S&P 500 Index, January Strike Price $3,700.00, Expires 1/15/21 | 8 | 800 | 44,680 | |||||||||||||||
S&P 500 Index, March Strike Price $3,750.00, Expires 3/19/21 | 9 | 900 | 72,990 | |||||||||||||||
Slack Technologies Inc., December Strike Price $40.00, Expires 12/18/20 | 64 | 6,400 | 30,080 | |||||||||||||||
Taubman Centers Inc., December Strike Price $45.00, Expires 12/18/20 | 39 | 3,900 | 195 | |||||||||||||||
Tiffany & Co., January Strike Price $120.00, Expires 1/15/21 | 172 | 17,200 | 192,640 | |||||||||||||||
|
| |||||||||||||||||
473,795 | ||||||||||||||||||
|
| |||||||||||||||||
Puts – Exchange-Traded 0.0%† | ||||||||||||||||||
AMC Entertainment Holdings Inc., January Strike Price $2.00, Expires 1/15/21 | 144 | 14,400 | 2,016 | |||||||||||||||
American Airlines Group Inc., December Strike Price $10.00, Expires 12/18/20 | 39 | 3,900 | 156 | |||||||||||||||
Marvell Technology Group Ltd., February Strike Price $39.00, Expires 2/19/21 | 470 | 47,000 | 62,980 | |||||||||||||||
S&P 500 Index, December Strike Price $3,150.00, Expires 12/18/20 | 9 | 900 | 3,465 | |||||||||||||||
Salesforce.com Inc., March Strike Price $230.00, Expires 3/19/21 | 17 | 1,700 | 28,390 | |||||||||||||||
SPDR S&P 500 ETF Trust, January Strike Price $330.00, Expires 1/15/21 | 31 | 3,100 | 8,370 | |||||||||||||||
Tiffany & Co., January Strike Price $85.00, Expires 1/15/21 | 29 | 2,900 | 29 | |||||||||||||||
Tiffany & Co., January Strike Price $105.00, Expires 1/15/21 | 29 | 2,900 | 319 | |||||||||||||||
Vodafone Group PLC, January Strike Price 1.05 GBP, Expires 1/15/21 | 1,234 | 1,234,000 | 8,225 | |||||||||||||||
|
| |||||||||||||||||
113,950 | ||||||||||||||||||
|
| |||||||||||||||||
Puts – Over-the-Counter 0.0%† | ||||||||||||||||||
AMC Entertainment Holdings Inc., Counterparty JPHQ, January Strike Price $2.00, Expires 1/15/21 | 40 | 4,000 | 560 | |||||||||||||||
American Airlines Group Inc., Counterparty JPHQ, January Strike Price $15.00, Expires 1/15/21 | 65 | 6,500 | 12,675 | |||||||||||||||
B&G Foods Inc., Counterparty GSCO, May Strike Price $25.00, Expires 5/21/21 | 37 | 3,700 | 7,678 | |||||||||||||||
The Boeing Co., Counterparty GSCO, January Strike Price $150.00, Expires 1/15/21 | 22 | 2,200 | 1,980 |
48 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Number of Contracts | Notional Amount# | Value | ||||||||||||||||
Options Purchased (continued) | ||||||||||||||||||
Puts – Over-the-Counter† (continued) | ||||||||||||||||||
Casino Guichard-Perrachon SA, Counterparty BOFA, December Strike Price 20.00 EUR, Expires 12/18/20 | 27 | 2,700 | $ | 644 | ||||||||||||||
The Kroger Co., Counterparty JPHQ, April Strike Price $30.00, Expires 4/16/21 | 329 | 32,900 | 44,086 | |||||||||||||||
|
| |||||||||||||||||
67,623 | ||||||||||||||||||
|
| |||||||||||||||||
Total Options Purchased (Cost $903,929) | 655,368 | |||||||||||||||||
|
| |||||||||||||||||
Total Investments before Short Term Investments | 971,405,277 | |||||||||||||||||
|
| |||||||||||||||||
Country | Principal Amount* | |||||||||||||||||
Short Term Investments 16.7% | ||||||||||||||||||
Convertible Bonds 0.1% | ||||||||||||||||||
Health Care Equipment & Supplies 0.0%† | ||||||||||||||||||
f | NuVasive Inc., senior note, 2.25%, 3/15/21 | United States | 583,000 | 589,225 | ||||||||||||||
|
| |||||||||||||||||
Software 0.1% | ||||||||||||||||||
f | Verint Systems Inc., senior note, 1.50%, 6/01/21 | United States | 1,564,000 | 1,627,611 | ||||||||||||||
|
| |||||||||||||||||
Total Convertible Bonds (Cost $2,161,020) | 2,216,836 | |||||||||||||||||
|
| |||||||||||||||||
v | Credit-Linked Notes 0.3% |
| ||||||||||||||||
c,e | Citigroup Global Markets Holdings Inc., G, senior note, (Egypt), 144A, zero cpn., 4/22/21 | Egypt | 14,772,000 | EGP | 896,526 | |||||||||||||
e | HSBC Bank PLC, E, senior note, (Egypt), 144A, zero cpn., 1/14/21 | Egypt | 7,150,000 | EGP | 449,233 | |||||||||||||
c,e | ICBC Standard Bank PLC, EmTN, (Egypt), 144A, zero cpn., 3/04/21 | Egypt | 30,564,152 | EGP | 1,892,510 | |||||||||||||
|
| |||||||||||||||||
Total Credit-Linked Notes (Cost $3,214,960) | 3,238,269 | |||||||||||||||||
|
| |||||||||||||||||
Shares | ||||||||||||||||||
Money Market Funds 14.0% | ||||||||||||||||||
w,x | Dreyfus Government Cash Management, Institutional, 0.04% | United States | 25,117,389 | 25,117,389 | ||||||||||||||
w | Fidelity Investments Money Market Government Portfolio, Institutional, 0.01% | United States | 145,396,058 | 145,396,058 | ||||||||||||||
|
| |||||||||||||||||
Total Money Market Funds (Cost $170,513,447) | 170,513,447 | |||||||||||||||||
|
| |||||||||||||||||
Principal Amount* | ||||||||||||||||||
Repurchase Agreements (Cost $8,375,430) 0.7% | ||||||||||||||||||
y | Joint Repurchase Agreement, 0.070%, 12/01/20 (Maturity Value $8,375,446) | United States | 8,375,430 | 8,375,430 | ||||||||||||||
|
| |||||||||||||||||
BNP Paribas Securities Corp. (Maturity Value $3,458,305) Deutsche Bank Securities Inc. (Maturity Value $1,458,836) HSBC Securities (USA) Inc. (Maturity Value $3,458,305) | ||||||||||||||||||
Shares | ||||||||||||||||||
aa | Investments from Cash Collateral Received for Loaned Securities 0.4% | |||||||||||||||||
Money Market Funds 0.3% | ||||||||||||||||||
w,bb | Institutional Fiduciary Trust Money Market Portfolio, 0.00% | United States | 4,072,000 | 4,072,000 | ||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 49 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||
Short Term Investments (continued) | ||||||||||||||||||
aa | Investments from Cash Collateral Received for Loaned Securities (continued) | |||||||||||||||||
Repurchase Agreements 0.1% | ||||||||||||||||||
y | Joint Repurchase Agreement, 0.08%, 12/01/20 (Maturity Value $883,522) | United States | 883,520 | $ | 883,520 | |||||||||||||
|
| |||||||||||||||||
J.P. Morgan Securities LLC Collateralized by zU.S. Treasury Bills, 4/15/25 (valued at $901,991) | ||||||||||||||||||
Total Investments from Cash Collateral Received for Loaned Securities (Cost $4,955,520) | 4,955,520 | |||||||||||||||||
|
| |||||||||||||||||
U.S. Government and Agency Securities 1.2% | ||||||||||||||||||
z | U.S. Treasury Bill, | |||||||||||||||||
12/03/20 | United States | 850,000 | 849,998 | |||||||||||||||
12/17/20 | United States | 1,710,000 | 1,709,954 | |||||||||||||||
1/07/21 | United States | 640,000 | 639,956 | |||||||||||||||
f 4/22/21 | United States | 8,000,000 | 7,997,397 | |||||||||||||||
9/09/21 | United States | 1,310,000 | 1,309,025 | |||||||||||||||
10/07/21 | United States | 1,310,000 | 1,308,957 | |||||||||||||||
11/04/21 | United States | 435,000 | 434,592 | |||||||||||||||
|
| |||||||||||||||||
Total U.S. Government and Agency Securities | 14,249,879 | |||||||||||||||||
|
| |||||||||||||||||
Total Investments (Cost $977,462,859) 96.8% | 1,174,954,658 | |||||||||||||||||
Options Written (0.0)%† | (146,368 | ) | ||||||||||||||||
Securities Sold Short (25.0)% | (301,991,375 | ) | ||||||||||||||||
Other Assets, less Liabilities 28.1% | 340,966,425 | |||||||||||||||||
|
| |||||||||||||||||
Net Assets 100.0% | $ | 1,213,783,340 | ||||||||||||||||
|
| |||||||||||||||||
Number of Contracts | Notional Amount# | |||||||||||||||||
cc | Options Written (0.0)%† | |||||||||||||||||
Calls – Exchange-Traded (0.0)%† | ||||||||||||||||||
Activision Blizzard Inc., December Strike Price $90.00, Expires 12/18/20 | 1 | 100 | (19 | ) | ||||||||||||||
Applied Materials Inc., December Strike Price $70.00, Expires 12/18/20 | 1 | 100 | (1,230 | ) | ||||||||||||||
Bristol-Myers Squibb Co., December Strike Price $65.00, Expires 12/18/20 | 1 | 100 | (49 | ) | ||||||||||||||
Comcast Corp., December Strike Price $47.50, Expires 12/18/20 | 2 | 200 | (814 | ) | ||||||||||||||
CSX Corp., December Strike Price $87.50, Expires 12/18/20 | 1 | 100 | (410 | ) | ||||||||||||||
eBay Inc., December Strike Price $60.00, Expires 12/18/20 | 1 | 100 | (7 | ) | ||||||||||||||
Enterprise Products Partners LP, December Strike Price $19.00, Expires 12/18/20 | 2 | 200 | (164 | ) | ||||||||||||||
EOG Resources Inc., December Strike Price $45.00, Expires 12/18/20 | 1 | 100 | (345 | ) | ||||||||||||||
Intel Corp., December Strike Price $60.00, Expires 12/18/20 | 1 | 100 | (2 | ) | ||||||||||||||
The Kroger Co., December Strike Price $38.00, Expires 12/18/20 | 2 | 200 | (26 | ) | ||||||||||||||
Masco Corp., December Strike Price $65.00, Expires 12/18/20 | 2 | 200 | (6 | ) | ||||||||||||||
MetLife Inc., December Strike Price $45.00, Expires 12/18/20 | 1 | 100 | (210 | ) | ||||||||||||||
Morgan Stanley, December Strike Price $55.00, Expires 12/18/20 | 1 | 100 | (713 | ) | ||||||||||||||
Multiplan Corp., January Strike Price $12.50, Expires 1/15/21 | 15 | 1,500 | (105 | ) | ||||||||||||||
Multiplan Corp., April Strike Price $12.50, Expires 4/16/21 | 75 | 7,500 | (2,625 | ) | ||||||||||||||
Newmont Corp., December Strike Price $70.00, Expires 12/18/20 | 1 | 100 | (8 | ) | ||||||||||||||
Nexstar Media Group Inc., December Strike Price $100.00, Expires 12/18/20 | 1 | 100 | (705 | ) | ||||||||||||||
Oracle Corp., December Strike Price $65.00, Expires 12/18/20 | 1 | 100 | (17 | ) | ||||||||||||||
Pershing Square Tontine Holdings Ltd., December Strike Price $30.00, Expires 12/18/20 | 67 | 6,700 | (7,370 | ) | ||||||||||||||
Philip Morris International Inc., December Strike Price $85.00, Expires 12/18/20 | 1 | 100 | (4 | ) | ||||||||||||||
S&P 500 Index, March Strike Price $4,050.00, Expires 3/19/21 | 9 | 900 | (12,915 | ) |
50 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Number of Contracts | Notional Amount# | Value | ||||||||||||||||
cc | Options Written (continued)† | |||||||||||||||||
Calls – Exchange-Traded (continued) | ||||||||||||||||||
Slack Technologies Inc., December Strike Price $45.00, Expires 12/18/20 | 64 | 6,400 | $ | (13,120 | ) | |||||||||||||
Slack Technologies Inc., December Strike Price $48.00, Expires 12/18/20 | 151 | 15,100 | (15,100 | ) | ||||||||||||||
|
| |||||||||||||||||
(55,964 | ) | |||||||||||||||||
|
| |||||||||||||||||
Puts – Exchange-Traded (0.0)%† | ||||||||||||||||||
Encore Capital Group Inc., December Strike Price $30.00, Expires 12/18/20 | 16 | 1,600 | (736 | ) | ||||||||||||||
Encore Capital Group Inc., December Strike Price $35.00, Expires 12/18/20 | 25 | 2,500 | (5,250 | ) | ||||||||||||||
Integra Lifesciences Holdings Corp., December Strike Price $50.00, Expires 12/18/20 | 16 | 1,600 | (3,480 | ) | ||||||||||||||
K12 Inc., December Strike Price $26.00, Expires 12/18/20 | 15 | 1,500 | (4,125 | ) | ||||||||||||||
Marvell Technology Group Ltd., February Strike Price $33.00, Expires 2/19/21 | 470 | 47,000 | (20,680 | ) | ||||||||||||||
MongoDB Inc., December Strike Price $220.00, Expires 12/31/20 | 8 | 800 | (1,760 | ) | ||||||||||||||
S&P 500 Index, December Strike Price $2,950.00, Expires 12/18/20 | 9 | 900 | (1,728 | ) | ||||||||||||||
S&P 500 Index, January Strike Price $2,900.00, Expires 1/15/21 | 6 | 600 | (3,840 | ) | ||||||||||||||
S&P 500 Index, March Strike Price $3,100.00, Expires 3/19/21 | 5 | 500 | (23,750 | ) | ||||||||||||||
S&P 500 Index, May Strike Price $3,100.00, Expires 5/21/21 | 3 | 300 | (23,532 | ) | ||||||||||||||
Taubman Centers Inc., December Strike Price $30.00, Expires 12/18/20 | 36 | 3,600 | (180 | ) | ||||||||||||||
Tiffany & Co., January Strike Price $90.00, Expires 1/15/21 | 29 | 2,900 | (189 | ) | ||||||||||||||
Tiffany & Co., January Strike Price $100.00, Expires 1/15/21 | 48 | 4,800 | (384 | ) | ||||||||||||||
Winnebago Industries Inc., December Strike Price $45.00, Expires 12/18/20 | 11 | 1,100 | (770 | ) | ||||||||||||||
|
| |||||||||||||||||
(90,404 | ) | |||||||||||||||||
|
| |||||||||||||||||
Total Options Written (Premiums Received $310,563) | (146,368 | ) | ||||||||||||||||
|
| |||||||||||||||||
Country | Shares | |||||||||||||||||
dd | Securities Sold Short (25.0)% | |||||||||||||||||
Common Stocks (11.3)% | ||||||||||||||||||
Aerospace & Defense (0.0)%† | ||||||||||||||||||
Kaman Corp. | United States | 9,468 | (495,082 | ) | ||||||||||||||
|
| |||||||||||||||||
Air Freight & Logistics (0.2)% | ||||||||||||||||||
Air Transport Services Group Inc. | United States | 29,175 | (896,839 | ) | ||||||||||||||
Atlas Air Worldwide Holdings Inc. | United States | 21,254 | (1,186,186 | ) | ||||||||||||||
|
| |||||||||||||||||
(2,083,025 | ) | |||||||||||||||||
|
| |||||||||||||||||
Airlines (0.3)% | ||||||||||||||||||
Air Canada, B | Canada | 28,794 | (547,634 | ) | ||||||||||||||
American Airlines Group Inc. | United States | 91,009 | (1,285,957 | ) | ||||||||||||||
Copa Holdings SA, A | Panama | 21,441 | (1,708,848 | ) | ||||||||||||||
GOL Linhas Aereas Inteligentes SA, ADR | Brazil | 22,929 | (202,463 | ) | ||||||||||||||
|
| |||||||||||||||||
(3,744,902 | ) | |||||||||||||||||
|
| |||||||||||||||||
Automobiles (0.0)%† | ||||||||||||||||||
Winnebago Industries Inc. | United States | 9,768 | (517,020 | ) | ||||||||||||||
|
| |||||||||||||||||
Biotechnology (0.5)% | ||||||||||||||||||
Apellis Pharmaceuticals Inc. | United States | 20,700 | (975,798 | ) | ||||||||||||||
BioMarin Pharmaceutical Inc. | United States | 2,372 | (186,676 | ) | ||||||||||||||
Bridgebio Pharma Inc. | United States | 20,569 | (1,033,386 | ) | ||||||||||||||
Coherus Biosciences Inc. | United States | 43,673 | (806,204 | ) | ||||||||||||||
Flexion Therapeutics Inc. | United States | 28,818 | (308,641 | ) |
franklintempleton.com | Semiannual Report | 51 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares | Value | ||||||||||||||||
dd | Securities Sold Short (continued) | |||||||||||||||||
Common Stocks (continued) | ||||||||||||||||||
Biotechnology (continued) | ||||||||||||||||||
Gossamer Bio Inc. | United States | 33,934 | $ | (299,977 | ) | |||||||||||||
Insmed Inc. | United States | 17,548 | (684,547 | ) | ||||||||||||||
Intercept Pharmaceuticals Inc. | United States | 8,673 | (307,978 | ) | ||||||||||||||
Ironwood Pharmaceuticals Inc., A | United States | 89,342 | (1,029,220 | ) | ||||||||||||||
Karyopharm Therapeutics Inc. | United States | 49,104 | (834,277 | ) | ||||||||||||||
Ligand Pharmaceuticals Inc. | United States | 635 | (53,575 | ) | ||||||||||||||
Radius Health Inc. | United States | 8,424 | (132,931 | ) | ||||||||||||||
|
| |||||||||||||||||
(6,653,210 | ) | |||||||||||||||||
|
| |||||||||||||||||
Building Products (0.0)%† | ||||||||||||||||||
Patrick Industries Inc. | United States | 8,164 | (514,659 | ) | ||||||||||||||
|
| |||||||||||||||||
Consumer Finance (0.2)% | ||||||||||||||||||
Encore Capital Group Inc. | United States | 49,688 | (1,696,348 | ) | ||||||||||||||
EZCORP Inc., A | United States | 28,838 | (146,786 | ) | ||||||||||||||
PRA Group Inc. | United States | 13,507 | (562,296 | ) | ||||||||||||||
|
| |||||||||||||||||
(2,405,430 | ) | |||||||||||||||||
|
| |||||||||||||||||
Diversified Consumer Services (0.0)%† | ||||||||||||||||||
Chegg Inc. | United States | 3,063 | (238,700 | ) | ||||||||||||||
K12 Inc. | United States | 8,952 | (208,850 | ) | ||||||||||||||
|
| |||||||||||||||||
(447,550 | ) | |||||||||||||||||
|
| |||||||||||||||||
Diversified Financial Services (0.1)% | ||||||||||||||||||
Element Fleet Management Corp. | Canada | 60,285 | (613,201 | ) | ||||||||||||||
Flying Eagle Acquisition Corp. | United States | 2,100 | (32,550 | ) | ||||||||||||||
Voya Financial Inc. | United States | 4,274 | (246,311 | ) | ||||||||||||||
|
| |||||||||||||||||
(892,062 | ) | |||||||||||||||||
|
| |||||||||||||||||
Diversified Telecommunication Services (0.0)%† | ||||||||||||||||||
Liberty Latin America Ltd., C | Chile | 30,119 | (340,646 | ) | ||||||||||||||
|
| |||||||||||||||||
Electric Utilities (0.3)% | ||||||||||||||||||
Eversource Energy | United States | 12,600 | (1,102,626 | ) | ||||||||||||||
Terna Rete Elettrica Nazionale SpA | Italy | 165,621 | (1,244,032 | ) | ||||||||||||||
Xcel Energy Inc. | United States | 15,976 | (1,076,143 | ) | ||||||||||||||
|
| |||||||||||||||||
(3,422,801 | ) | |||||||||||||||||
|
| |||||||||||||||||
Electronic Equipment, Instruments & Components (0.3)% | ||||||||||||||||||
II-VI Inc. | United States | 28,364 | (1,918,825 | ) | ||||||||||||||
Knowles Corp. | United States | 16,720 | (283,906 | ) | ||||||||||||||
OSI Systems Inc. | United States | 6,032 | (531,419 | ) | ||||||||||||||
TTM Technologies Inc. | United States | 39,525 | (516,196 | ) | ||||||||||||||
Vishay Intertechnology Inc. | United States | 4,857 | (94,031 | ) | ||||||||||||||
|
| |||||||||||||||||
(3,344,377 | ) | |||||||||||||||||
|
| |||||||||||||||||
Energy Equipment & Services (0.0)%† | ||||||||||||||||||
Helix Energy Solutions Group Inc. | United States | 130,861 | (492,037 | ) | ||||||||||||||
|
| |||||||||||||||||
Entertainment (0.4)% | ||||||||||||||||||
Cinemark Holdings Inc. | United States | 99,512 | (1,537,460 | ) | ||||||||||||||
Live Nation Entertainment Inc. | United States | 44,092 | (2,894,640 | ) | ||||||||||||||
The Marcus Corp. | United States | 44,993 | (528,218 | ) | ||||||||||||||
|
| |||||||||||||||||
(4,960,318 | ) | |||||||||||||||||
|
| |||||||||||||||||
Equity Real Estate Investment Trusts (REITs) (0.2)% | ||||||||||||||||||
Innovative Industrial Properties Inc., A | United States | 17,455 | (2,682,135 | ) | ||||||||||||||
|
|
52 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares | Value | ||||||||||||||||
dd | Securities Sold Short (continued) | |||||||||||||||||
Common Stocks (continued) | ||||||||||||||||||
Food & Staples Retailing (0.0)%† | ||||||||||||||||||
The Chefs’ Warehouse Inc. | United States | 10,045 | $ | (231,487 | ) | |||||||||||||
|
| |||||||||||||||||
Food Products (0.1)% | ||||||||||||||||||
Kellogg Co. | United States | 17,756 | (1,134,786 | ) | ||||||||||||||
|
| |||||||||||||||||
Health Care Equipment & Supplies (0.6)% | ||||||||||||||||||
CONMED Corp. | United States | 8,461 | (862,091 | ) | ||||||||||||||
Cryoport Inc. | United States | 29,445 | (1,432,499 | ) | ||||||||||||||
Envista Holdings Corp., W | United States | 64,745 | (1,924,869 | ) | ||||||||||||||
Integra Lifesciences Holdings Corp. | United States | 8,046 | (440,358 | ) | ||||||||||||||
LivaNova PLC | United States | 3,954 | (208,969 | ) | ||||||||||||||
Mesa Laboratories Inc. | United States | 1,446 | (392,965 | ) | ||||||||||||||
Nevro Corp. | United States | 6,414 | (1,034,257 | ) | ||||||||||||||
NuVasive Inc. | United States | 4,875 | (225,810 | ) | ||||||||||||||
Varex Imaging Corp. | United States | 24,685 | (411,746 | ) | ||||||||||||||
|
| |||||||||||||||||
(6,933,564 | ) | |||||||||||||||||
|
| |||||||||||||||||
Health Care Providers & Services (0.2)% | ||||||||||||||||||
1life Healthcare Inc. | United States | 16,281 | (535,156 | ) | ||||||||||||||
Guardant Health Inc. | United States | 7,221 | (874,608 | ) | ||||||||||||||
PetIQ Inc., A | United States | 28,038 | (806,934 | ) | ||||||||||||||
|
| |||||||||||||||||
(2,216,698 | ) | |||||||||||||||||
|
| |||||||||||||||||
Health Care Technology (0.1)% | ||||||||||||||||||
Health Catalyst Inc. | United States | 27,764 | (989,786 | ) | ||||||||||||||
Tabula Rasa HealthCare Inc. | United States | 8,091 | (278,816 | ) | ||||||||||||||
|
| |||||||||||||||||
(1,268,602 | ) | |||||||||||||||||
|
| |||||||||||||||||
Hotels, Restaurants & Leisure (1.0)% | ||||||||||||||||||
Bloomin’ Brands Inc. | United States | 86,219 | (1,508,833 | ) | ||||||||||||||
e | Evolution Gaming Group AB, 144A | Sweden | 80,172 | (6,821,607 | ) | |||||||||||||
Marriott Vacations Worldwide Corp. | United States | 8,452 | (1,076,193 | ) | ||||||||||||||
Norwegian Cruise Line Holdings Ltd. | United States | 69,669 | (1,593,330 | ) | ||||||||||||||
Royal Caribbean Cruises Ltd. | United States | 11,786 | (928,855 | ) | ||||||||||||||
|
| |||||||||||||||||
(11,928,818 | ) | |||||||||||||||||
|
| |||||||||||||||||
Insurance (0.7)% | ||||||||||||||||||
Aon PLC, A | United States | 40,881 | (8,376,108 | ) | ||||||||||||||
|
| |||||||||||||||||
Interactive Media & Services (0.3)% | ||||||||||||||||||
Snap Inc., A | United States | 38,091 | (1,692,002 | ) | ||||||||||||||
Zillow Group Inc., C | United States | 13,012 | (1,402,824 | ) | ||||||||||||||
|
| |||||||||||||||||
(3,094,826 | ) | |||||||||||||||||
|
| |||||||||||||||||
Internet & Direct Marketing Retail (0.5)% | ||||||||||||||||||
Fiverr International Ltd. | Israel | 1,758 | (352,180 | ) | ||||||||||||||
Pinduoduo Inc., ADR | China | 1,872 | (259,852 | ) | ||||||||||||||
e | Takeaway.com NV, 144A | Netherlands | 50,150 | (5,337,051 | ) | |||||||||||||
Wayfair Inc., A | United States | 1,935 | (492,187 | ) | ||||||||||||||
|
| |||||||||||||||||
(6,441,270 | ) | |||||||||||||||||
|
| |||||||||||||||||
IT Services (0.5)% | ||||||||||||||||||
CSG Systems International Inc. | United States | 8,623 | (374,066 | ) | ||||||||||||||
i3 Verticals Inc., A | United States | 19,972 | (557,219 | ) | ||||||||||||||
KBR Inc. | United States | 50,277 | (1,396,192 | ) | ||||||||||||||
MongoDB Inc., A | United States | 4,228 | (1,214,747 | ) | ||||||||||||||
Okta Inc., A | United States | 3,203 | (784,863 | ) | ||||||||||||||
Perficient Inc. | United States | 20,184 | (918,977 | ) |
franklintempleton.com | Semiannual Report | 53 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares | Value | ||||||||||||||||
dd | Securities Sold Short (continued) | |||||||||||||||||
Common Stocks (continued) | ||||||||||||||||||
IT Services (continued) | ||||||||||||||||||
Shopify Inc., A | Canada | 405 | $ | (441,604 | ) | |||||||||||||
|
| |||||||||||||||||
(5,687,668 | ) | |||||||||||||||||
|
| |||||||||||||||||
Life Sciences Tools & Services (0.0)%† | ||||||||||||||||||
Illumina Inc. | United States | 609 | (196,153 | ) | ||||||||||||||
|
| |||||||||||||||||
Machinery (0.2)% | ||||||||||||||||||
Chart Industries Inc. | United States | 13,937 | (1,440,528 | ) | ||||||||||||||
The Greenbrier Cos. Inc. | United States | 3,335 | (111,289 | ) | ||||||||||||||
The Middleby Corp. | United States | 6,151 | (836,475 | ) | ||||||||||||||
|
| |||||||||||||||||
(2,388,292 | ) | |||||||||||||||||
|
| |||||||||||||||||
Marine (0.0)%† | ||||||||||||||||||
SEACOR Holdings Inc. | United States | 1,616 | (53,684 | ) | ||||||||||||||
|
| |||||||||||||||||
Media (0.4)% | ||||||||||||||||||
Cardlytics Inc. | United States | 6,463 | (767,029 | ) | ||||||||||||||
Charter Communications Inc., A | United States | 245 | (159,737 | ) | ||||||||||||||
Liberty Media Corp., C | United States | 20,465 | (855,028 | ) | ||||||||||||||
Liberty SiriusXM Group | United States | 34,229 | (1,401,335 | ) | ||||||||||||||
Sirius XM Holdings Inc. | United States | 162,502 | (1,054,638 | ) | ||||||||||||||
|
| |||||||||||||||||
(4,237,767 | ) | |||||||||||||||||
|
| |||||||||||||||||
Metals & Mining (0.0)%† | ||||||||||||||||||
Pretium Resources Inc. | Canada | 18,956 | (208,137 | ) | ||||||||||||||
|
| |||||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) (0.1)% | ||||||||||||||||||
Arbor Realty Trust Inc. | United States | 27,613 | (367,805 | ) | ||||||||||||||
Hannon Armstrong Sustainable Infrastructure Capital Inc. | United States | 12,878 | (703,911 | ) | ||||||||||||||
PennyMac Mortgage Investment Trust | United States | 16,575 | (283,433 | ) | ||||||||||||||
Redwood Trust Inc. | United States | 14,006 | (121,152 | ) | ||||||||||||||
|
| |||||||||||||||||
(1,476,301 | ) | |||||||||||||||||
|
| |||||||||||||||||
Multi-Utilities (0.2)% | ||||||||||||||||||
CMS Energy Corp. | United States | 18,278 | (1,124,828 | ) | ||||||||||||||
WEC Energy Group Inc. | United States | 11,746 | (1,115,283 | ) | ||||||||||||||
|
| |||||||||||||||||
(2,240,111 | ) | |||||||||||||||||
|
| |||||||||||||||||
Oil, Gas & Consumable Fuels (0.1)% | ||||||||||||||||||
Arch Resources Inc. | United States | 16,108 | (538,652 | ) | ||||||||||||||
SFL Corp. Ltd. | Norway | 11,600 | (78,532 | ) | ||||||||||||||
|
| |||||||||||||||||
(617,184 | ) | |||||||||||||||||
|
| |||||||||||||||||
Personal Products (0.1)% | ||||||||||||||||||
Herbalife Nutrition Ltd. | United States | 19,773 | (947,324 | ) | ||||||||||||||
|
| |||||||||||||||||
Pharmaceuticals (0.5)% | ||||||||||||||||||
Aerie Pharmaceuticals Inc. | United States | 15,141 | (187,900 | ) | ||||||||||||||
Aphria Inc. | Canada | 193,481 | (1,621,371 | ) | ||||||||||||||
Avadel Pharmaceuticals PLC, ADR | United States | 57,770 | (414,788 | ) | ||||||||||||||
Canopy Growth Corp. | Canada | 26,964 | (774,849 | ) | ||||||||||||||
Collegium Pharmaceutical Inc. | United States | 25,438 | (470,349 | ) | ||||||||||||||
Innoviva Inc. | United States | 8,408 | (87,906 | ) | ||||||||||||||
Jazz Pharmaceuticals PLC | United States | 4,483 | (630,803 | ) | ||||||||||||||
Omeros Corp. | United States | 19,570 | (226,816 | ) | ||||||||||||||
Revance Therapeutics Inc. | United States | 26,014 | (627,978 | ) | ||||||||||||||
Zogenix Inc. | United States | 31,331 | (671,423 | ) | ||||||||||||||
|
| |||||||||||||||||
(5,714,183 | ) | |||||||||||||||||
|
|
54 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares | Value | ||||||||||||||||
dd | Securities Sold Short (continued) | |||||||||||||||||
Common Stocks (continued) | ||||||||||||||||||
Professional Services (0.1)% | ||||||||||||||||||
FTI Consulting Inc. | United States | 6,643 | $ | (697,648 | ) | |||||||||||||
|
| |||||||||||||||||
Real Estate Management & Development (0.1)% | ||||||||||||||||||
Colliers International Group Inc. | Canada | 15,601 | (1,391,453 | ) | ||||||||||||||
Redfin Corp. | United States | 5,994 | (287,053 | ) | ||||||||||||||
|
| |||||||||||||||||
(1,678,506 | ) | |||||||||||||||||
|
| |||||||||||||||||
Semiconductors & Semiconductor Equipment (1.2)% | ||||||||||||||||||
Advanced Micro Devices Inc. | United States | 54,180 | (5,020,319 | ) | ||||||||||||||
Analog Devices Inc. | United States | 41,426 | (5,761,528 | ) | ||||||||||||||
Canadian Solar Inc. | Canada | 17,231 | (736,797 | ) | ||||||||||||||
Impinj Inc. | United States | 23,395 | (977,677 | ) | ||||||||||||||
Rambus Inc. | United States | 26,276 | (413,059 | ) | ||||||||||||||
SMART Global Holdings Inc. | United States | 25,017 | (767,772 | ) | ||||||||||||||
SolarEdge Technologies Inc. | United States | 1,702 | (473,122 | ) | ||||||||||||||
Synaptics Inc. | United States | 12,560 | (976,791 | ) | ||||||||||||||
|
| |||||||||||||||||
(15,127,065 | ) | |||||||||||||||||
|
| |||||||||||||||||
Software (1.3)% | ||||||||||||||||||
8x8 Inc. | United States | 32,266 | (637,899 | ) | ||||||||||||||
Alteryx Inc., A | United States | 1,260 | (150,998 | ) | ||||||||||||||
Avaya Holdings Corp. | United States | 20,360 | (378,899 | ) | ||||||||||||||
Coupa Software Inc. | United States | 2,489 | (818,657 | ) | ||||||||||||||
CyberArk Software Ltd. | United States | 2,470 | (283,729 | ) | ||||||||||||||
Envestnet Inc. | United States | 10,091 | (809,904 | ) | ||||||||||||||
Everbridge Inc. | United States | 8,071 | (1,024,533 | ) | ||||||||||||||
FireEye Inc. | United States | 13,582 | (204,137 | ) | ||||||||||||||
Five9 Inc. | United States | 5,750 | (892,400 | ) | ||||||||||||||
J2 Global Inc. | United States | 4,139 | (370,896 | ) | ||||||||||||||
LivePerson Inc. | United States | 23,056 | (1,346,931 | ) | ||||||||||||||
Nuance Communications Inc. | United States | 40,200 | (1,733,826 | ) | ||||||||||||||
Nutanix Inc., A | United States | 3,194 | (87,484 | ) | ||||||||||||||
Palo Alto Networks Inc. | United States | 2,741 | (805,635 | ) | ||||||||||||||
Pluralsight Inc., A | United States | 7,480 | (122,522 | ) | ||||||||||||||
PROS Holdings Inc. | United States | 18,720 | (802,901 | ) | ||||||||||||||
Q2 Holdings Inc. | United States | 3,327 | (377,182 | ) | ||||||||||||||
SailPoint Technologies Holding Inc. | United States | 36,537 | (1,701,163 | ) | ||||||||||||||
Slack Technologies Inc., A | United States | 16,985 | (728,317 | ) | ||||||||||||||
Verint Systems Inc. | United States | 6,860 | (390,745 | ) | ||||||||||||||
VMware Inc., A | United States | 1,737 | (242,989 | ) | ||||||||||||||
Workiva Inc., A | United States | 6,225 | (466,813 | ) | ||||||||||||||
Zscaler Inc. | United States | 7,400 | (1,152,550 | ) | ||||||||||||||
|
| |||||||||||||||||
(15,531,110 | ) | |||||||||||||||||
|
| |||||||||||||||||
Specialty Retail (0.3)% | ||||||||||||||||||
Guess? Inc. | United States | 19,786 | (332,207 | ) | ||||||||||||||
National Vision Holdings Inc. | United States | 34,116 | (1,460,506 | ) | ||||||||||||||
RH | United States | 4,278 | (1,938,618 | ) | ||||||||||||||
|
| |||||||||||||||||
(3,731,331 | ) | |||||||||||||||||
|
| |||||||||||||||||
Technology Hardware, Storage & Peripherals (0.0)%† | ||||||||||||||||||
Pure Storage Inc., A | United States | 25,279 | (461,847 | ) | ||||||||||||||
|
| |||||||||||||||||
Textiles, Apparel & Luxury Goods (0.1)% | ||||||||||||||||||
Under Armour Inc., C | United States | 69,099 | (1,005,390 | ) | ||||||||||||||
|
| |||||||||||||||||
Tobacco (0.1)% | ||||||||||||||||||
Turning Point Brands Inc. | United States | 19,728 | (769,787 | ) | ||||||||||||||
|
| |||||||||||||||||
Total Common Stocks (Proceeds $120,982,063) | (137,390,901) | |||||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 55 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Shares | Value | ||||||||||||||||
dd | Securities Sold Short (continued) | |||||||||||||||||
Exchange Traded Funds (12.2)% | ||||||||||||||||||
Health Care Select Sector SPDR Fund | United States | 158,105 | $ | (17,350,443 | ) | |||||||||||||
Invesco QQQ Series 1 ETF | United States | 2,970 | (889,871 | ) | ||||||||||||||
iShares Nasdaq Biotechnology ETF | United States | 68,923 | (9,992,456 | ) | ||||||||||||||
iShares North American Tech-Software ETF | United States | 43,159 | (14,575,226 | ) | ||||||||||||||
iShares Russell 2000 Growth ETF | United States | 92,796 | (24,367,302 | ) | ||||||||||||||
iShares Russell Mid-Cap Growth ETF | United States | 153,899 | (30,187,289 | ) | ||||||||||||||
SPDR S&P 500 ETF Trust | United States | 138,967 | (50,314,392 | ) | ||||||||||||||
|
| |||||||||||||||||
Total Exchange Traded Funds (Proceeds $133,328,856) | (147,676,979 | ) | ||||||||||||||||
|
| |||||||||||||||||
Principal Amount* | ||||||||||||||||||
Corporate Bonds and Notes (1.1)% | ||||||||||||||||||
Aerospace & Defense (0.1)% | ||||||||||||||||||
e | Spirit Aerosystems Inc., secured note, 144A, 7.50%, 4/15/25 | United States | 273,000 | (293,644 | ) | |||||||||||||
Triumph Group Inc., senior note, 5.25%, 6/01/22 | United States | 400,000 | (369,000 | ) | ||||||||||||||
|
| |||||||||||||||||
(662,644 | ) | |||||||||||||||||
|
| |||||||||||||||||
Airlines (0.1)% | ||||||||||||||||||
e | American Airlines Inc., senior secured note, 144A, 11.75%, 7/15/25 | United States | 994,000 | (1,100,855 | ) | |||||||||||||
|
| |||||||||||||||||
Construction & Engineering (0.1)% | ||||||||||||||||||
e | Tutor Perini Corp., senior note, 144A, 6.875%, 5/01/25 | United States | 646,000 | (648,494 | ) | |||||||||||||
i | Webuild SpA, senior note, Reg S, | |||||||||||||||||
1.75%, 10/26/24 | Italy | 68,000 | EUR | (76,804 | ) | |||||||||||||
3.625%, 1/28/27 | Italy | 100,000 | EUR | (111,782 | ) | |||||||||||||
|
| |||||||||||||||||
(837,080 | ) | |||||||||||||||||
|
| |||||||||||||||||
Diversified Consumer Services (0.1)% | ||||||||||||||||||
e | MPH Acquisition Holdings LLC, senior note, 144A, 5.75%, 11/01/28 | United States | 983,000 | (964,569 | ) | |||||||||||||
|
| |||||||||||||||||
Diversified Financial Services (0.2)% | ||||||||||||||||||
AerCap Ireland Capital DAC/AerCap Global Aviation Trust, senior bond, 3.65%, 7/21/27 | Ireland | 2,000,000 | (2,070,288 | ) | ||||||||||||||
|
| |||||||||||||||||
Diversified Telecommunication Services (0.0)%† | ||||||||||||||||||
i | DKT Finance ApS, senior secured note, Reg S, 7.00%, 6/17/23 | Denmark | 358,000 | EUR | (441,147 | ) | ||||||||||||
|
| |||||||||||||||||
Electric Utilities (0.0)%† | ||||||||||||||||||
Southern California Edison Co., secured bond, 3.65%, 2/01/50 | United States | 46,000 | (53,469 | ) | ||||||||||||||
|
| |||||||||||||||||
Energy Equipment & Services (0.0)%† | ||||||||||||||||||
i | Saipem Finance International BV, E, senior note, Reg S, 3.375%, 7/15/26 | Italy | 300,000 | EUR | (367,463 | ) | ||||||||||||
|
| |||||||||||||||||
Equity Real Estate Investment Trusts (REITs) (0.1)% | ||||||||||||||||||
e | Iron Mountain Inc., senior bond, 144A, 5.25%, 3/15/28 | United States | 500,000 | (524,062 | ) | |||||||||||||
Simon Property Group LP, senior bond, 2.65%, 7/15/30 | United States | 350,000 | (367,369 | ) | ||||||||||||||
|
| |||||||||||||||||
(891,431 | ) | |||||||||||||||||
|
| |||||||||||||||||
Food & Staples Retailing (0.2)% | ||||||||||||||||||
i | Casino Guichard Perrachon SA, E, senior bond, Reg S, 4.561%, 1/25/23 | France | 200,000 | EUR | (237,602 | ) | ||||||||||||
Koninklijke Ahold Delhaize NV, senior bond, 5.70%, 10/01/40 | Netherlands | 603,000 | (883,123 | ) | ||||||||||||||
The Kroger Co., senior bond, | ||||||||||||||||||
5.40%, 1/15/49 | United States | 241,000 | (351,061 | ) | ||||||||||||||
3.95%, 1/15/50 | United States | 15,000 | (18,407 | ) | ||||||||||||||
e | Seg Holding LLC / Seg Finance Corp., senior secured note, 144A, 5.625%, 10/15/28 | United States | 473,000 | (496,650 | ) | |||||||||||||
|
| |||||||||||||||||
(1,986,843 | ) | |||||||||||||||||
|
|
56 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||
dd | Securities Sold Short (continued) | |||||||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||||||||
Food Products (0.0)%† | ||||||||||||||||||
B&G Foods Inc., senior note, 5.25%, 9/15/27 | United States | 361,000 | $ | (377,808 | ) | |||||||||||||
|
| |||||||||||||||||
Hotels, Restaurants & Leisure (0.1)% | ||||||||||||||||||
e | Golden Nugget Inc., senior note, 144A, 8.75%, 10/01/25 | United States | 500,000 | (504,687 | ) | |||||||||||||
RHP Hotel Properties LP / RHP Finance Corp., senior note, 4.75%, 10/15/27 | United States | 221,000 | (219,716 | ) | ||||||||||||||
|
| |||||||||||||||||
(724,403 | ) | |||||||||||||||||
|
| |||||||||||||||||
Oil, Gas & Consumable Fuels (0.0)%† | ||||||||||||||||||
Continental Resources Inc., senior note, | ||||||||||||||||||
3.80%, 6/01/24 | United States | 86,000 | (87,151 | ) | ||||||||||||||
4.375%, 1/15/28 | United States | 173,000 | (172,517 | ) | ||||||||||||||
Newfield Exploration Co., senior bond, 5.375%, 1/01/26 | United States | 86,000 | (90,181 | ) | ||||||||||||||
Ovintiv Inc., senior bond, 6.50%, 8/15/34 | United States | 86,000 | (92,421 | ) | ||||||||||||||
e | SM Energy Co., secured note, 144A, 10.00%, 1/15/25 | United States | 172,000 | (175,763 | ) | |||||||||||||
|
| |||||||||||||||||
(618,033 | ) | |||||||||||||||||
|
| |||||||||||||||||
Personal Products (0.0)%† | ||||||||||||||||||
Sally Holdings LLC / Sally Capital Inc., senior note, 5.625%, 12/01/25 | United States | 83,000 | (85,179 | ) | ||||||||||||||
|
| |||||||||||||||||
Software (0.0)%† | ||||||||||||||||||
e | Veritas U.S. Inc. / Veritas Bermuda Ltd., senior note, 144A, 10.50%, 2/01/24 | United States | 404,000 | (406,482 | ) | |||||||||||||
|
| |||||||||||||||||
Specialty Retail (0.1)% | ||||||||||||||||||
e | Dave & Buster’s Inc., senior secured note, 144A, 7.625%, 11/01/25 | United States | 394,000 | (409,760 | ) | |||||||||||||
i | Stonegate Pub Co. Financing 2019 PLC, senior secured note, Reg S, 8.25%, 7/31/25 | United Kingdom | 400,000 | GBP | (548,244 | ) | ||||||||||||
|
| |||||||||||||||||
(958,004 | ) | |||||||||||||||||
|
| |||||||||||||||||
Textiles, Apparel & Luxury Goods (0.0)%† | ||||||||||||||||||
e | Hanesbrands Inc., senior bond, 144A, 4.875%, 5/15/26 | United States | 169,000 | (181,886 | ) | |||||||||||||
|
| |||||||||||||||||
Total Corporate Bonds and Notes (Proceeds $11,799,838) | (12,727,584) | |||||||||||||||||
|
| |||||||||||||||||
Foreign Government and Agency Securities (Proceeds $149,795) (0.0)%† | ||||||||||||||||||
e,i | Government of Italy, senior bond, 144A, Reg S, 5.00%, 3/01/25 | Italy | 106,000 | EUR | (154,020 | ) | ||||||||||||
|
| |||||||||||||||||
U.S. Government and Agency Securities (0.4)% | ||||||||||||||||||
U.S. Treasury Bond, | ||||||||||||||||||
1.125%, 8/15/40 | United States | 240,000 | (230,063 | ) | ||||||||||||||
1.375%, 8/15/50 | United States | 1,158,000 | (1,100,552 | ) | ||||||||||||||
U.S. Treasury Note, | ||||||||||||||||||
0.625%, 5/15/30 | United States | 1,238,000 | (1,216,335 | ) | ||||||||||||||
0.625%, 8/15/30 | United States | 790,000 | (774,200 | ) | ||||||||||||||
0.875%, 11/15/30 | United States | 719,000 | (720,741 | ) | ||||||||||||||
|
| |||||||||||||||||
Total U.S. Government and Agency Securities | (4,041,891 | ) | ||||||||||||||||
|
| |||||||||||||||||
Total Securities Sold Short (Proceeds $270,316,400) | $ | (301,991,375 | ) | |||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 57 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
†Rounds to less than 0.1% of net assets.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
#Notional amount is the number of units specified in the contract, and can include currency units, bushels, shares, pounds, barrels or other units. Currency units are stated in U.S. dollars unless otherwise indicated.
aNon-income producing.
bA portion or all of the security is held in connection with written option contracts open at period end.
cFair valued using significant unobservable inputs. See Note 14 regarding fair value measurements.
dA portion or all of the security is on loan at November 30, 2020. See Note 1(j).
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. At November 30, 2020, the net value of these securities was $209,829,051, representing 17.3% of net assets.
fA portion or all of the security has been segregated as collateral for securities sold short, open swap contracts, open forward exchange contracts, open futures contracts and/or open written option contracts. At November 30, 2020, the aggregate value of these securities and/or cash pledged amounted to $270,590,207, representing 22.3% of net assets.
gSee Note 10 regarding restricted securities.
hContingent distributions represent the right to receive additional distributions, if any, during the reorganization of the underlying company.
iSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. At November 30, 2020, the net value of these securities was $14,707,303, representing 1.2% of net assets.
jThe coupon rate shown represents the rate at period end.
kSecurities denominated in Argentine Peso have been designated as Level 3 investments. See Note 14 regarding fair value measurements.
lSee Note 1(g) regarding loan participation notes.
mIncome may be received in additional securities and/or cash.
nPerpetual security with no stated maturity date.
oA portion or all of the security purchased on a delayed delivery basis. See Note 1(d).
pSee Note 7 regarding defaulted securities.
qSee Note 1(l) regarding senior floating rate interests.
rSee Note 11 regarding unfunded loan commitments.
sThe coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
tAdjustable 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.
uInvestment in an interest-only security entitles holders to receive only the interest payment on the underlying instruments. The principal amount shown is the notional amount of the underlying instruments.
vSee Note 1(h) regarding credit-linked notes.
wThe rate shown is the annualized seven-day effective yield at period end.
xA portion or all of the security is owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(k).
ySee Note 1(c) regarding joint repurchase agreement.
zThe security was issued on a discount basis with no stated coupon rate.
aaSee Note 1(j) regarding securities on loan.
bbSee Note 3(f) regarding investments in affiliated management investment companies.
ccSee Note 1(e) regarding written options.
ddSee Note 1(i) regarding securities sold short.
At November 30, 2020, the Fund had the following futures contracts outstanding. See Note 1(e).
Futures Contracts | ||||||||||||||||||||
Description | Type | Number of Contracts | Notional Amount* | Expiration Date | Value/Unrealized Appreciation (Depreciation) | |||||||||||||||
Commodity Contractsa | ||||||||||||||||||||
Aluminum | Long | 8 | $ | 408,450 | 12/14/20 | $ | 48,462 | |||||||||||||
Aluminum | Short | 8 | 408,450 | 12/14/20 | (44,515 | ) | ||||||||||||||
Aluminum | Long | 14 | 716,100 | 3/15/21 | 21,019 | |||||||||||||||
Brent Crude Oil | Short | 37 | 1,771,560 | 12/30/20 | (130,726 | ) | ||||||||||||||
Cocoa | Long | 3 | 74,310 | 3/16/21 | 287 | |||||||||||||||
Coffee | Short | 10 | 462,375 | 3/19/21 | (49,659 | ) | ||||||||||||||
Copper | Long | 25 | 4,733,594 | 12/14/20 | 665,988 | |||||||||||||||
Copper | Short | 25 | 4,733,594 | 12/14/20 | (514,835 | ) | ||||||||||||||
Copper | Long | 18 | 3,412,800 | 3/15/21 | 325,000 | |||||||||||||||
Copper | Short | 1 | 189,600 | 3/15/21 | 1,497 |
58 | Semiannual Report | franklintempleton.com |
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) | |||||||||||||||
Commodity Contractsa (continued) | ||||||||||||||||||||
Corn | Long | 62 | $ | 1,320,600 | 3/12/21 | $ | 10,281 | |||||||||||||
Cotton | Long | 5 | 180,375 | 3/09/21 | (2,519 | ) | ||||||||||||||
Gold 100 Oz | Long | 3 | 534,270 | 2/24/21 | (8,677 | ) | ||||||||||||||
Hard Red Winter Wheat | Long | 24 | 656,400 | 3/12/21 | (26,490 | ) | ||||||||||||||
Low Sulphur Gas Oil | Short | 26 | 1,014,000 | 1/12/21 | (70,015 | ) | ||||||||||||||
Natural Gas | Short | 36 | 1,037,520 | 12/29/20 | (291 | ) | ||||||||||||||
NY Harbor | Short | 7 | 403,192 | 12/31/20 | (35,312 | ) | ||||||||||||||
Silver | Long | 3 | 338,895 | 3/29/21 | (11,692 | ) | ||||||||||||||
Soybean Meal | Long | 8 | 311,360 | 3/12/21 | (1,982 | ) | ||||||||||||||
Soybeans | Long | 37 | 2,163,575 | 3/12/21 | 214,711 | |||||||||||||||
Sugar | Long | 39 | 633,797 | 2/26/21 | 40,804 | |||||||||||||||
Wheat | Long | 21 | 614,250 | 3/12/21 | (18,906 | ) | ||||||||||||||
Zinc | Long | 19 | 1,319,407 | 12/14/20 | 148,155 | |||||||||||||||
Zinc | Short | 19 | 1,319,407 | 12/14/20 | (107,451 | ) | ||||||||||||||
Zinc | Long | 16 | 1,117,680 | 3/15/21 | 80,679 | |||||||||||||||
Zinc | Short | 1 | 69,855 | 3/15/21 | 1,117 | |||||||||||||||
|
| |||||||||||||||||||
534,930 | ||||||||||||||||||||
|
| |||||||||||||||||||
Equity Contracts | ||||||||||||||||||||
CAC 40 10 Euro Index | Long | 7 | 459,998 | 12/18/20 | 2,074 | |||||||||||||||
CAC 40 10 Euro Indexa | Short | 15 | 985,710 | 12/18/20 | 790 | |||||||||||||||
DAX Indexa | Short | 2 | 795,152 | 12/18/20 | (9,105 | ) | ||||||||||||||
DJ EURO STOXX 50 Indexa | Short | 605 | 25,294,633 | 12/18/20 | (1,372,827 | ) | ||||||||||||||
DJIA Mini E-CBOT Indexa | Long | 30 | 4,444,350 | 12/18/20 | 263,921 | |||||||||||||||
E-Mini Russell 2000a | Long | 48 | 4,368,240 | 12/18/20 | 215,836 | |||||||||||||||
E-Mini Russell 2000 | Short | 13 | 1,183,065 | 12/18/20 | (93,508 | ) | ||||||||||||||
FTSE 100 Indexa | Short | 121 | 10,150,546 | 12/18/20 | (220,492 | ) | ||||||||||||||
FTSE China A50 Index | Long | 77 | 1,287,209 | 12/30/20 | 5,669 | |||||||||||||||
FTSE/JSE Top 40 Index | Short | 19 | 643,457 | 12/17/20 | (8,566 | ) | ||||||||||||||
FTSE/MIB Index | Short | 3 | 394,624 | 12/18/20 | (37,454 | ) | ||||||||||||||
Hang Seng Index | Long | 4 | 682,024 | 12/30/20 | (4,370 | ) | ||||||||||||||
Hang Seng Indexa | Short | 4 | 682,024 | 12/30/20 | 9,530 | |||||||||||||||
HSCEI Index | Long | 8 | 545,887 | 12/30/20 | (1,321 | ) | ||||||||||||||
Mini TOPIX Index | Long | 44 | 739,866 | 12/10/20 | 50,903 | |||||||||||||||
MSCI Emerging Market Index | Long | 79 | 4,749,085 | 12/18/20 | 414,009 | |||||||||||||||
NASDAQ 100 E-Mini Indexa | Long | 9 | 2,209,860 | 12/18/20 | 60,197 | |||||||||||||||
Nikkei 225 Indexa | Long | 25 | 6,336,207 | 12/10/20 | 634,131 | |||||||||||||||
S&P 500 E-Mini Indexa | Long | 43 | 7,789,880 | 12/18/20 | 322,362 | |||||||||||||||
S&P 500 E-Mini Index | Short | 66 | 11,956,560 | 12/18/20 | (588,520 | ) | ||||||||||||||
S&P/TSX 60 Index | Long | 3 | 472,165 | 12/17/20 | 26,244 | |||||||||||||||
SPI 200 Futures | Short | 6 | 718,889 | 12/17/20 | (38,137 | ) | ||||||||||||||
STOXX 600 Banks Index | Short | 106 | 688,476 | 12/18/20 | (119,277 | ) | ||||||||||||||
TOPIX Indexa | Long | 15 | 2,522,270 | 12/10/20 | 173,627 | |||||||||||||||
TOPIX Index | Short | 1 | 168,151 | 12/10/20 | (3,339 | ) | ||||||||||||||
|
| |||||||||||||||||||
(317,623 | ) | |||||||||||||||||||
|
| |||||||||||||||||||
Interest Rate Contracts | ||||||||||||||||||||
3 Month EURIBORa | Long | 322 | 96,552,372 | 12/13/21 | 40,341 | |||||||||||||||
90 Day Eurodollara | Long | 645 | 160,863,000 | 12/13/21 | (8,889 | ) | ||||||||||||||
90 Day Sterlinga | Long | 381 | 63,494,709 | 12/15/21 | 52,129 | |||||||||||||||
Australian 10 Yr. Bonda | Long | 22 | 2,402,653 | 12/15/20 | 8,736 | |||||||||||||||
Canadian 10 Yr. Bonda | Long | 48 | 5,501,132 | 3/22/21 | 6,636 | |||||||||||||||
Euro-Bunda | Long | 33 | 6,898,537 | 12/08/20 | 1,159 | |||||||||||||||
Euro-Bund | Short | 33 | 6,898,536 | 12/08/20 | 8,153 | |||||||||||||||
Japan 10 Yr. Bond | Short | 2 | 2,912,452 | 12/14/20 | 1,459 | |||||||||||||||
Long Gilta | Long | 49 | 8,765,911 | 3/29/21 | 5,997 |
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) | ||||||||||||||||||||
Long Gilt | Short | 3 | $ | 536,688 | 3/29/21 | $ | (333 | ) | ||||||||||||
U.S. Treasury 10 Yr. Note | Long | 38 | 5,250,531 | 3/22/21 | 9,418 | |||||||||||||||
U.S. Treasury Long Bonda | Long | 18 | 3,148,313 | 3/22/21 | 3,582 | |||||||||||||||
U.S. Treasury Long Bond | Short | 2 | 349,813 | 3/22/21 | (1,830 | ) | ||||||||||||||
U.S. Treasury Ultra Bond | Short | 11 | 2,376,344 | 3/22/21 | (411 | ) | ||||||||||||||
|
| |||||||||||||||||||
126,147 | ||||||||||||||||||||
|
| |||||||||||||||||||
Total Futures Contracts |
| $ | 343,454 | |||||||||||||||||
|
|
*As of period end.
aA portion or all of the contracts are owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(k).
At November 30, 2020, the Fund had the following forward exchange contracts outstanding. See Note 1(e).
Forward Exchange Contracts | ||||||||||||||||||||||||||||
Currency | Counterpartya | Type | Quantity | Contract Amount | Settlement Date | Unrealized Appreciation | Unrealized Depreciation | |||||||||||||||||||||
OTC Forward Exchange Contracts | ||||||||||||||||||||||||||||
Brazilian Real | JPHQ | Buy | 2,280,860 | $ | 396,495 | 12/02/20 | $ | 29,245 | $ | — | ||||||||||||||||||
Brazilian Real | JPHQ | Sell | 2,280,860 | 425,296 | 12/02/20 | — | (444 | ) | ||||||||||||||||||||
Canadian Dollar | GSCO | Buy | 135,599 | 103,614 | 12/02/20 | 797 | — | |||||||||||||||||||||
Canadian Dollar | MSCI | Buy | 160,224 | 122,320 | 12/02/20 | 1,052 | — | |||||||||||||||||||||
Canadian Dollar | SSBT | Buy | 1,687,244 | 1,269,594 | 12/02/20 | 29,585 | — | |||||||||||||||||||||
Japanese Yen | MSCI | Buy | 183,122,641 | 1,749,757 | 12/10/20 | 6,348 | (1,576 | ) | ||||||||||||||||||||
Japanese Yen | SSBT | Buy | 306,602,053 | 2,896,461 | 12/10/20 | 41,144 | — | |||||||||||||||||||||
British Pound | MSCO | Sell | 454,000 | 572,552 | 12/15/20 | — | (32,886 | ) | ||||||||||||||||||||
British Pound | MSCS | Sell | 1,133,766 | 1,449,921 | 12/16/20 | — | (62,060 | ) | ||||||||||||||||||||
Euro | BNYM | Buy | 204,880 | 239,109 | 12/16/20 | 5,431 | — | |||||||||||||||||||||
Euro | BNYM | Sell | 2,874,448 | 3,413,735 | 12/16/20 | — | (17,140 | ) | ||||||||||||||||||||
Euro | MSCS | Sell | 665,705 | 792,523 | 12/16/20 | — | (2,047 | ) | ||||||||||||||||||||
Euro | MSCS | Buy | 270,000 | 320,415 | 12/16/20 | 1,851 | — | |||||||||||||||||||||
Euro | MSCS | Sell | 270,000 | 321,414 | 12/16/20 | — | (852 | ) | ||||||||||||||||||||
Indonesian Rupiah | JPHQ | Buy | 25,193,915,753 | 1,784,524 | 12/16/20 | — | (3,365 | ) | ||||||||||||||||||||
Indonesian Rupiah | JPHQ | Sell | 74,305,619,465 | 5,000,082 | 12/16/20 | 481 | (253,658 | ) | ||||||||||||||||||||
Russian Ruble | JPHQ | Buy | 214,252,620 | 2,722,231 | 12/16/20 | 78,762 | — | |||||||||||||||||||||
Russian Ruble | JPHQ | Sell | 779,253,030 | 10,108,614 | 12/16/20 | — | (78,808 | ) | ||||||||||||||||||||
Swiss Franc | BNYM | Buy | 245,781 | 271,552 | 12/16/20 | — | (888 | ) | ||||||||||||||||||||
Swiss Franc | BNYM | Sell | 245,781 | 271,808 | 12/16/20 | 1,144 | — | |||||||||||||||||||||
Turkish Lira | JPHQ | Buy | 6,751,852 | 864,503 | 12/16/20 | — | (6,600 | ) | ||||||||||||||||||||
Australian Dollar | GSCO | Sell | 176,733 | 129,398 | 12/17/20 | — | (360 | ) | ||||||||||||||||||||
Australian Dollar | SSBT | Sell | 1,820,039 | 1,327,383 | 12/17/20 | — | (8,901 | ) | ||||||||||||||||||||
Australian Dollar | UBSW | Sell | 260,878 | 190,255 | 12/17/20 | — | (1,283 | ) | ||||||||||||||||||||
New Zealand Dollar | UBSW | Buy | 123,215 | 85,066 | 12/17/20 | 1,336 | — | |||||||||||||||||||||
New Zealand Dollar | UBSW | Sell | 1,496,079 | 1,018,897 | 12/17/20 | — | (30,197 | ) | ||||||||||||||||||||
South African Rand | JPHQ | Buy | 44,800,283 | 2,709,665 | 12/17/20 | 176,123 | — | |||||||||||||||||||||
South African Rand | JPHQ | Sell | 15,409,951 | 954,147 | 12/17/20 | — | (38,477 | ) | ||||||||||||||||||||
Australian Dollarb | MSCO | Buy | 19,088,000 | 13,795,843 | 12/18/20 | 218,864 | — | |||||||||||||||||||||
Australian Dollarb | MSCO | Sell | 9,490,000 | 6,789,899 | 12/18/20 | 1,785 | (179,591 | ) | ||||||||||||||||||||
British Pound | BNYM | Buy | 217,575 | 289,880 | 12/18/20 | 288 | — | |||||||||||||||||||||
British Pound | BNYM | Sell | 1,811,651 | 2,399,561 | 12/18/20 | — | (16,541 | ) | ||||||||||||||||||||
British Pound | BZWS | Buy | 1,144,000 | 1,495,867 | 12/18/20 | 29,958 | (129 | ) | ||||||||||||||||||||
British Pound | BZWS | Sell | 1,644,000 | 2,155,475 | 12/18/20 | 47 | (37,089 | ) | ||||||||||||||||||||
British Poundb | MSCO | Buy | 12,770,000 | 16,709,906 | 12/18/20 | 324,575 | (3,814 | ) | ||||||||||||||||||||
British Poundb | MSCO | Sell | 6,523,000 | 8,460,348 | 12/18/20 | 97 | (239,123 | ) | ||||||||||||||||||||
Canadian Dollarb | MSCO | Buy | 6,136,000 | 4,660,482 | 12/18/20 | 65,051 | — |
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) | ||||||||||||||||||||||||||||
Canadian Dollarb | MSCO | Sell | 8,562,000 | $ | 6,484,268 | 12/18/20 | $ | — | $ | (109,610 | ) | |||||||||||||||||
Euro | BNYM | Buy | 387,330 | 461,871 | 12/18/20 | 473 | — | |||||||||||||||||||||
Euro | BNYM | Sell | 20,386,650 | 24,121,485 | 12/18/20 | — | (213,411 | ) | ||||||||||||||||||||
Euro | BZWS | Buy | 10,764,000 | 12,647,872 | 12/18/20 | 200,797 | (27 | ) | ||||||||||||||||||||
Euro | BZWS | Sell | 13,989,000 | 16,555,943 | 12/18/20 | 86 | (142,365 | ) | ||||||||||||||||||||
Eurob | MSCO | Buy | 17,241,000 | 20,387,804 | 12/18/20 | 196,024 | (3,794 | ) | ||||||||||||||||||||
Eurob | MSCO | Sell | 11,974,000 | 14,114,967 | 12/18/20 | — | (178,019 | ) | ||||||||||||||||||||
Hong Kong Dollar | BNYM | Buy | 260,550 | 33,619 | 12/18/20 | — | (3 | ) | ||||||||||||||||||||
Hong Kong Dollar | BNYM | Sell | 25,617,325 | 3,304,546 | 12/18/20 | — | (580 | ) | ||||||||||||||||||||
Japanese Yenb | MSCO | Buy | 2,973,008,000 | 28,375,242 | 12/18/20 | 138,287 | (22,410 | ) | ||||||||||||||||||||
Japanese Yenb | MSCO | Sell | 1,701,268,000 | 16,209,399 | 12/18/20 | 3,166 | (97,466 | ) | ||||||||||||||||||||
Mexican Pesob | MSCO | Buy | 74,808,000 | 3,487,098 | 12/18/20 | 209,384 | (2,413 | ) | ||||||||||||||||||||
Mexican Pesob | MSCO | Sell | 36,071,000 | 1,672,039 | 12/18/20 | — | (109,174 | ) | ||||||||||||||||||||
New Zealand Dollarb | MSCO | Buy | 8,664,000 | 5,867,995 | 12/18/20 | 207,472 | (2 | ) | ||||||||||||||||||||
New Zealand Dollarb | MSCO | Sell | 3,842,000 | 2,566,323 | 12/18/20 | — | (127,804 | ) | ||||||||||||||||||||
Norwegian Krone | BZWS | Buy | 867,000 | 97,671 | 12/18/20 | — | (197 | ) | ||||||||||||||||||||
Norwegian Krone | BZWS | Sell | 867,000 | 97,993 | 12/18/20 | 519 | — | |||||||||||||||||||||
Swiss Franc | BNYM | Sell | 6,864,870 | 7,521,249 | 12/18/20 | — | (39,334 | ) | ||||||||||||||||||||
Swiss Franc | BZWS | Sell | 6,780,000 | 7,471,727 | 12/18/20 | 11,873 | (7,258 | ) | ||||||||||||||||||||
Swiss Francb | MSCO | Buy | 10,572,000 | 11,598,011 | 12/18/20 | 51,499 | (6,103 | ) | ||||||||||||||||||||
Swiss Francb | MSCO | Sell | 7,859,000 | 8,615,267 | 12/18/20 | 1,570 | (41,764 | ) | ||||||||||||||||||||
Australian Dollar | BNYM | Buy | 500,000 | 353,654 | 12/23/20 | 13,477 | — | |||||||||||||||||||||
British Pound | BNYM | Sell | 189,000 | 242,635 | 12/23/20 | — | (9,450 | ) | ||||||||||||||||||||
Canadian Dollar | BNYM | Sell | 3,956,000 | 2,998,370 | 12/23/20 | — | (48,419 | ) | ||||||||||||||||||||
Euro | BNYM | Sell | 1,150,000 | 1,356,720 | 12/23/20 | — | (16,261 | ) | ||||||||||||||||||||
Euro | MSCS | Sell | 90,000 | 105,257 | 12/31/20 | — | (2,225 | ) | ||||||||||||||||||||
Euro | HSBC | Buy | 567,000 | 662,190 | 1/04/21 | �� | 15,004 | — | ||||||||||||||||||||
Euro | HSBC | Sell | 675,000 | 791,242 | 1/04/21 | — | (14,942 | ) | ||||||||||||||||||||
Colombian Peso | MSCS | Buy | 355,143,000 | 92,969 | 1/08/21 | 5,612 | — | |||||||||||||||||||||
Colombian Peso | MSCS | Sell | 780,000,000 | 202,135 | 1/08/21 | — | (14,377 | ) | ||||||||||||||||||||
Euro | UBSW | Buy | 4,732,994 | 5,597,712 | 1/13/21 | 56,235 | — | |||||||||||||||||||||
Canadian Dollar | BOFA | Sell | 145,000 | 110,710 | 1/25/21 | — | (980 | ) | ||||||||||||||||||||
Euro | BOFA | Sell | 340,000 | 404,757 | 1/25/21 | — | (1,507 | ) | ||||||||||||||||||||
Euro | BZWS | Sell | 115,000 | 136,932 | 1/25/21 | — | (481 | ) | ||||||||||||||||||||
British Pound | DBAB | Sell | 166,000 | 215,488 | 1/29/21 | — | (5,984 | ) | ||||||||||||||||||||
British Pound | JPHQ | Sell | 720,000 | 926,274 | 1/29/21 | — | (34,328 | ) | ||||||||||||||||||||
Euro | JPHQ | Buy | 590,000 | 698,443 | 1/29/21 | 6,607 | — | |||||||||||||||||||||
Euro | JPHQ | Sell | 2,000,000 | 2,342,560 | 1/29/21 | — | (47,440 | ) | ||||||||||||||||||||
Canadian Dollar | SSBT | Buy | 1,983,067 | 1,527,105 | 2/01/21 | 433 | — | |||||||||||||||||||||
Japanese Yen | MSCI | Buy | 34,236,741 | 330,137 | 2/10/21 | — | (1,766 | ) | ||||||||||||||||||||
Japanese Yen | SSBT | Buy | 111,751,674 | 1,078,212 | 2/10/21 | 1,319 | (7,700 | ) | ||||||||||||||||||||
Euro | BZWS | Buy | 151,470 | 179,851 | 2/16/21 | 1,222 | — | |||||||||||||||||||||
Euro | GSCO | Buy | 4,000,000 | 4,727,912 | 2/16/21 | 53,837 | — | |||||||||||||||||||||
Euro | HSBC | Sell | 125,000 | 147,924 | 2/16/21 | — | (1,506 | ) | ||||||||||||||||||||
Euro | JPHQ | Buy | 35,939 | 42,657 | 2/16/21 | 306 | — | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total Forward Exchange Contracts |
| $ | 2,189,166 | $ | (2,324,929 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Net unrealized appreciation (depreciation) |
| $ | (135,763 | ) | ||||||||||||||||||||||||
|
|
aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
bA portion or all of the contracts are owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(k).
franklintempleton.com | Semiannual Report | 61 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
At November 30, 2020, the Fund had the following credit default swap contracts outstanding. See Note 1(e).
Credit Default Swap Contracts | ||||||||||||||||||||||||||||||||||||
Description | Annual Payment Rate Received (Paid) | Payment Frequency | Maturity Date | Notional Amounta | Value | Unamortized Upfront Payments (Receipts) | Unrealized Appreciation (Depreciation) | Ratingb | ||||||||||||||||||||||||||||
Centrally Cleared Swap Contracts | ||||||||||||||||||||||||||||||||||||
Contracts to Buy Protectionc | ||||||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||||||
Government of Malaysia | (1.00)% | Quarterly | 12/20/24 | 1,796,000 | $ | (53,166 | ) | $ | (47,585 | ) | $ | (5,581 | ) | |||||||||||||||||||||||
Government of Mexico | (1.00)% | Quarterly | 12/20/23 | 61,000 | (1,038 | ) | (945 | ) | (93 | ) | ||||||||||||||||||||||||||
Government of Mexico | (1.00)% | Quarterly | 6/20/23 | 1,763,000 | (27,738 | ) | (441 | ) | (27,297 | ) | ||||||||||||||||||||||||||
Government of Mexico | (1.00)% | Quarterly | 12/20/23 | 4,066,000 | (69,189 | ) | (11,463 | ) | (57,726 | ) | ||||||||||||||||||||||||||
Government of South Africa | (1.00)% | Quarterly | 12/20/24 | 4,478,000 | 171,841 | 132,619 | 39,222 | |||||||||||||||||||||||||||||
Government of South Africa | (1.00)% | Quarterly | 12/20/24 | 3,065,000 | 117,618 | 90,737 | 26,881 | |||||||||||||||||||||||||||||
Government of South Africa | (1.00)% | Quarterly | 12/20/24 | 748,000 | 28,704 | 70,156 | (41,452 | ) | ||||||||||||||||||||||||||||
Government of Turkey | (1.00)% | Quarterly | 6/20/25 | 909,000 | 103,186 | 206,196 | (103,010 | ) | ||||||||||||||||||||||||||||
Government of Turkey | (1.00)% | Quarterly | 6/20/24 | 141,000 | 11,900 | 14,153 | (2,253 | ) | ||||||||||||||||||||||||||||
L Brands Inc. | (1.00)% | Quarterly | 12/20/20 | 385,000 | (80 | ) | 9,625 | (9,705 | ) | |||||||||||||||||||||||||||
Simon Property Group LP | (1.00)% | Quarterly | 6/20/25 | 270,000 | (603 | ) | 23,201 | (23,804 | ) | |||||||||||||||||||||||||||
Traded Index | ||||||||||||||||||||||||||||||||||||
CDX.NA.IG.34 | (1.00)% | Quarterly | 6/20/25 | 854,000 | (13,951 | ) | 3,466 | (17,417 | ) | |||||||||||||||||||||||||||
Contracts to Sell Protectionc,d | ||||||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||||||
Government of South Africa | 1.00% | Quarterly | 12/20/24 | 2,847,000 | (109,252 | ) | (221,735 | ) | 112,483 | BB- | ||||||||||||||||||||||||||
Government of South Africa | 1.00% | Quarterly | 12/20/24 | 874,000 | (33,539 | ) | (25,494 | ) | (8,045 | ) | BB- | |||||||||||||||||||||||||
Government of Turkey | 1.00% | Quarterly | 12/20/22 | 826,000 | (36,293 | ) | (37,352 | ) | 1,059 | B+ | ||||||||||||||||||||||||||
Traded Index | ||||||||||||||||||||||||||||||||||||
CDX.NA.HY.35 | 5.00% | Quarterly | 12/20/25 | 8,030,000 | 718,231 | 366,251 | 351,980 | | Non- Investment Grade | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Total Centrally Cleared Swap Contracts |
| $ | 806,631 | $ | 571,389 | $ | 235,242 | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||||||||||||||||||
Contracts to Buy Protectionc | ||||||||||||||||||||||||||||||||||||
Single Name | Counterparty | |||||||||||||||||||||||||||||||||||
American Airlines Inc. | (5.00)% | Quarterly | BZWS | 12/20/21 | 73,000 | 8,198 | 11,074 | (2,876 | ) | |||||||||||||||||||||||||||
American Airlines Inc. | (5.00)% | Quarterly | CITI | 12/20/21 | 44,000 | 4,941 | 5,632 | (691 | ) | |||||||||||||||||||||||||||
American Airlines Inc. | (5.00)% | Quarterly | GSCO | 12/20/21 | 73,000 | 8,198 | 12,377 | (4,179 | ) | |||||||||||||||||||||||||||
American Airlines Inc. | (5.00)% | Quarterly | JPHQ | 12/20/21 | 29,000 | 3,257 | 3,865 | (608 | ) | |||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | BZWS | 6/20/23 | 41,000 | 3,498 | 9,343 | (5,845 | ) | |||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | BZWS | 6/20/23 | 41,000 | 3,498 | 9,534 | (6,036 | ) | |||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | CITI | 6/20/23 | 20,000 | 1,707 | 4,639 | (2,932 | ) |
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 | Annual Payment Rate Received (Paid) | Payment Frequency | Counterparty | Maturity Date | Notional Amounta | Value | Unamortized Upfront Payments (Receipts) | Unrealized Appreciation (Depreciation) | Ratingb | |||||||||||||||||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||||||||||||||||||||
Contracts to Buy Protectionc (continued) | ||||||||||||||||||||||||||||||||||||
Single Name (continued) | ||||||||||||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | CITI | 6/20/25 | 15,000 | $ | 2,334 | $ | 4,077 | $ | (1,743 | ) | ||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | FBCO | 6/20/23 | 20,000 | 1,707 | 4,577 | (2,870 | ) | |||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | GSCO | 12/20/20 | 16,000 | (23 | ) | 152 | (175 | ) | ||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | GSCO | 6/20/23 | 41,000 | 3,498 | 8,925 | (5,427 | ) | |||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | GSCO | 6/20/23 | 41,000 | 3,498 | 9,384 | (5,886 | ) | |||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | JPHQ | 12/20/20 | 13,000 | (19 | ) | 66 | (85 | ) | ||||||||||||||||||||||||||
Dell Technologies Inc. | (1.00)% | Quarterly | BNPP | 12/20/25 | 29,000 | 1,104 | 2,024 | (920 | ) | |||||||||||||||||||||||||||
Dell Technologies Inc. | (1.00)% | Quarterly | BNPP | 12/20/25 | 316,000 | 12,025 | 16,838 | (4,813 | ) | |||||||||||||||||||||||||||
Dell Technologies Inc. | (1.00)% | Quarterly | CITI | 12/20/25 | 37,000 | 1,408 | 2,134 | (726 | ) | |||||||||||||||||||||||||||
Dell Technologies Inc. | (1.00)% | Quarterly | CITI | 12/20/25 | 59,000 | 2,245 | 3,913 | (1,668 | ) | |||||||||||||||||||||||||||
Dell Technologies Inc. | (1.00)% | Quarterly | JPHQ | 12/20/25 | 190,000 | 7,230 | 8,867 | (1,637 | ) | |||||||||||||||||||||||||||
Diamond Sports Group LLC | (5.00)% | Quarterly | BZWS | 12/20/25 | 31,000 | 10,501 | 15,955 | (5,454 | ) | |||||||||||||||||||||||||||
Diamond Sports Group LLC | (5.00)% | Quarterly | BZWS | 12/20/25 | 44,000 | 14,904 | 22,670 | (7,766 | ) | |||||||||||||||||||||||||||
Diamond Sports Group LLC | (5.00)% | Quarterly | GSCO | 6/20/25 | 31,000 | 10,104 | 16,870 | (6,766 | ) | |||||||||||||||||||||||||||
Diamond Sports Group LLC | (5.00)% | Quarterly | GSCO | 12/20/25 | 17,000 | 5,758 | 7,705 | (1,947 | ) | |||||||||||||||||||||||||||
Diamond Sports Group LLC | (5.00)% | Quarterly | GSCO | 12/20/25 | 17,000 | 5,758 | 7,705 | (1,947 | ) | |||||||||||||||||||||||||||
Diamond Sports Group LLC | (5.00)% | Quarterly | GSCO | 12/20/25 | 17,000 | 5,758 | 7,709 | (1,951 | ) | |||||||||||||||||||||||||||
Diamond Sports Group LLC | (5.00)% | Quarterly | GSCO | 12/20/25 | 29,000 | 9,823 | 10,924 | (1,101 | ) | |||||||||||||||||||||||||||
Diamond Sports Group LLC | (5.00)% | Quarterly | GSCO | 12/20/25 | 33,000 | 11,178 | 14,313 | (3,135 | ) | |||||||||||||||||||||||||||
Dow Inc. | (1.00)% | Quarterly | GSCO | 6/20/25 | 78,000 | (1,732 | ) | (518 | ) | (1,214 | ) | |||||||||||||||||||||||||
Dow Inc. | (1.00)% | Quarterly | GSCO | 6/20/25 | 78,000 | (1,732 | ) | (483 | ) | (1,249 | ) | |||||||||||||||||||||||||
Dow Inc. | (1.00)% | Quarterly | GSCO | 6/20/25 | 78,000 | (1,732 | ) | (345 | ) | (1,387 | ) | |||||||||||||||||||||||||
Dow Inc. | (1.00)% | Quarterly | JPHQ | 6/20/25 | 625,000 | (13,875 | ) | (7,804 | ) | (6,071 | ) | |||||||||||||||||||||||||
Dow Inc. | (1.00)% | Quarterly | JPHQ | 6/20/25 | 39,000 | (866 | ) | (172 | ) | (694 | ) | |||||||||||||||||||||||||
GE Capital Funding LLC | (1.00)% | Quarterly | GSCO | 12/20/25 | 147,000 | 329 | 5,196 | (4,867 | ) | |||||||||||||||||||||||||||
GE Capital Funding LLC | (1.00)% | Quarterly | GSCO | 12/20/25 | 221,000 | 494 | 8,814 | (8,320 | ) | |||||||||||||||||||||||||||
GE Capital Funding LLC | (1.00)% | Quarterly | JPHQ | 12/20/25 | 148,000 | 331 | 4,893 | (4,562 | ) | |||||||||||||||||||||||||||
GE Capital Funding LLC | (1.00)% | Quarterly | JPHQ | 12/20/25 | 221,000 | 494 | 9,113 | (8,619 | ) | |||||||||||||||||||||||||||
Government of Brazil | (1.00)% | Quarterly | BZWS | 6/20/25 | 201,000 | 4,355 | 21,324 | (16,969 | ) | |||||||||||||||||||||||||||
Government of China | (1.00)% | Quarterly | BZWS | 12/20/25 | 1,510,000 | (12,182 | ) | 22,837 | (35,019 | ) | ||||||||||||||||||||||||||
Government of Italy | (1.00)% | Quarterly | BOFA | 6/20/24 | 132,000 | (1,101 | ) | 2,208 | (3,309 | ) | ||||||||||||||||||||||||||
Government of Italy | (1.00)% | Quarterly | JPHQ | 6/20/24 | 218,000 | (1,818 | ) | 1,697 | (3,515 | ) | ||||||||||||||||||||||||||
Groupe Casino | (5.00)% | Quarterly | BZWS | 12/20/24 | 21,000 | EUR | 1,574 | 1,610 | (36 | ) | ||||||||||||||||||||||||||
Groupe Casino | (5.00)% | Quarterly | BZWS | 12/20/24 | 30,000 | EUR | 2,248 | 1,844 | 404 | |||||||||||||||||||||||||||
Groupe Casino | (5.00)% | Quarterly | BZWS | 12/20/24 | 35,000 | EUR | 2,623 | 2,152 | 471 | |||||||||||||||||||||||||||
HeidelbergCement AG | (5.00)% | Quarterly | JPHQ | 12/20/25 | 165,000 | EUR | (43,955 | ) | (41,342 | ) | (2,613 | ) | ||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | BZWS | 12/20/24 | 121,000 | 17,213 | 21,307 | (4,094 | ) | |||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | BZWS | 12/20/24 | 121,000 | 17,213 | 22,298 | (5,085 | ) | |||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | BZWS | 12/20/24 | 360,000 | 51,211 | 83,475 | (32,264 | ) | |||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | BZWS | 6/20/25 | 21,000 | 3,348 | 8,253 | (4,905 | ) |
franklintempleton.com | Semiannual Report | 63 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
Credit Default Swap Contracts (continued) | ||||||||||||||||||||||||||||||||||||
Description | Annual Payment Rate Received (Paid) | Payment Frequency | Counterparty | Maturity Date | Notional Amounta | Value | Unamortized Upfront Payments (Receipts) | Unrealized Appreciation (Depreciation) | Ratingb | |||||||||||||||||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||||||||||||||||||||
Contracts to Buy Protectionc (continued) | ||||||||||||||||||||||||||||||||||||
Single Name (continued) | ||||||||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | JPHQ | 6/20/25 | 4,000 | $ | 638 | $ | 1,788 | $ | (1,150 | ) | ||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | JPHQ | 6/20/25 | 4,000 | 638 | 2,252 | (1,614 | ) | |||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | MSCS | 6/20/25 | 6,000 | 957 | 3,391 | (2,434 | ) | |||||||||||||||||||||||||||
Kimco Realty Corp. | (1.00)% | Quarterly | JPHQ | 6/20/24 | 122,000 | (1,310 | ) | — | (1,310 | ) | ||||||||||||||||||||||||||
Kimco Realty Corp. | (1.00)% | Quarterly | JPHQ | 6/20/25 | 121,000 | (257 | ) | 1,818 | (2,075 | ) | ||||||||||||||||||||||||||
Kohl’s Corp. | (1.00)% | Quarterly | GSCO | 12/20/25 | 899,000 | 40,099 | 82,283 | (42,184 | ) | |||||||||||||||||||||||||||
Kohl’s Corp. | (1.00)% | Quarterly | MSCS | 12/20/25 | 455,000 | 20,295 | 42,215 | (21,920 | ) | |||||||||||||||||||||||||||
Lloyds Bank PLC | (1.00)% | Quarterly | JPHQ | 12/20/24 | 540,000 | EUR | (5,152 | ) | 1,891 | (7,043 | ) | |||||||||||||||||||||||||
MBIA Inc. | (5.00)% | Quarterly | BZWS | 6/20/22 | 24,000 | (717 | ) | (440 | ) | (277 | ) | |||||||||||||||||||||||||
MBIA Inc. | (5.00)% | Quarterly | CITI | 6/20/21 | 340,000 | (7,974 | ) | (8,560 | ) | 586 | ||||||||||||||||||||||||||
MBIA Inc. | (5.00)% | Quarterly | CITI | 6/20/22 | 40,000 | (1,196 | ) | (2,034 | ) | 838 | ||||||||||||||||||||||||||
MBIA Inc. | (5.00)% | Quarterly | CITI | 12/20/24 | 112,000 | (2,951 | ) | (15,968 | ) | 13,017 | ||||||||||||||||||||||||||
MBIA Inc. | (5.00)% | Quarterly | GSCO | 6/20/22 | 25,000 | (747 | ) | (1,006 | ) | 259 | ||||||||||||||||||||||||||
MBIA Inc. | (5.00)% | Quarterly | GSCO | 12/20/24 | 244,000 | (6,429 | ) | (32,729 | ) | 26,300 | ||||||||||||||||||||||||||
Simon Property Group LP | (1.00)% | Quarterly | BZWS | 12/20/25 | 625,000 | 183 | 11,966 | (11,783 | ) | |||||||||||||||||||||||||||
Simon Property Group LP | (1.00)% | Quarterly | JPHQ | 12/20/25 | 291,000 | 85 | 6,254 | (6,169 | ) | |||||||||||||||||||||||||||
Simon Property Group LP | (1.00)% | Quarterly | MSCS | 12/20/25 | 531,000 | 155 | 11,412 | (11,257 | ) | |||||||||||||||||||||||||||
Stena AB | (5.00)% | Quarterly | GSCO | 6/20/24 | 113,000 | EUR | 195 | 7,232 | (7,037 | ) | ||||||||||||||||||||||||||
Stena AB | (5.00)% | Quarterly | GSCO | 6/20/24 | 186,000 | EUR | 321 | 11,650 | (11,329 | ) | ||||||||||||||||||||||||||
Stena AB | (5.00)% | Quarterly | GSCO | 12/20/25 | 75,000 | EUR | 2,159 | 5,953 | (3,794 | ) | ||||||||||||||||||||||||||
Telecom Italia SpA | (1.00)% | Quarterly | BZWS | 12/20/25 | 238,000 | EUR | 11,117 | 10,747 | 370 | |||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | BZWS | 12/20/25 | 75,000 | 52,385 | 63,155 | (10,770 | ) | |||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | FBCO | 12/20/24 | 281,000 | 192,494 | 146,732 | 45,762 | ||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | FBCO | 6/20/25 | 52,000 | 35,985 | 30,180 | 5,805 | ||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | GSCO | 12/20/24 | 84,000 | 57,543 | 3,087 | 54,456 | ||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | GSCO | 12/20/24 | 125,000 | 85,629 | 8,879 | 76,750 | ||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | GSCO | 12/20/24 | 185,000 | 126,731 | 22,668 | 104,063 | ||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | GSCO | 12/20/25 | 504,000 | 352,029 | 398,589 | (46,560 | ) | |||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | JPHQ | 12/20/24 | 100,000 | 68,503 | 49,404 | 19,099 | ||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | JPHQ | 12/20/24 | 434,000 | 297,304 | 58,992 | 238,312 | ||||||||||||||||||||||||||||
Transocean Inc. | (1.00)% | Quarterly | JPHQ | 12/20/25 | 52,000 | 40,383 | 41,697 | (1,314 | ) | |||||||||||||||||||||||||||
Transocean Inc. | (1.00)% | Quarterly | MSCS | 12/20/25 | 90,000 | 69,894 | 68,123 | 1,771 | ||||||||||||||||||||||||||||
Transocean Inc. | (1.00)% | Quarterly | MSCS | 12/20/25 | 180,000 | 139,788 | 144,985 | (5,197 | ) | |||||||||||||||||||||||||||
Transocean Inc. | (1.00)% | Quarterly | MSCS | 12/20/25 | 270,000 | 209,682 | 216,198 | (6,516 | ) | |||||||||||||||||||||||||||
Transocean Inc. | (1.00)% | Quarterly | MSCS | 12/20/25 | 270,000 | 209,682 | 216,503 | (6,821 | ) | |||||||||||||||||||||||||||
Unisys Corp. | (5.00)% | Quarterly | GSCO | 12/20/25 | 44,000 | (5,694 | ) | (6,272 | ) | 578 | ||||||||||||||||||||||||||
US Steel Corp. | (5.00)% | Quarterly | JPHQ | 6/20/25 | 16,000 | 431 | 4,600 | (4,169 | ) | |||||||||||||||||||||||||||
US Steel Corp. | (5.00)% | Quarterly | JPHQ | 6/20/25 | 42,000 | 1,132 | 8,768 | (7,636 | ) | |||||||||||||||||||||||||||
US Steel Corp. | (5.00)% | Quarterly | JPHQ | 6/20/25 | 42,000 | 1,132 | 9,710 | (8,578 | ) | |||||||||||||||||||||||||||
US Steel Corp. | (5.00)% | Quarterly | JPHQ | 6/20/25 | 68,000 | 1,832 | 16,908 | (15,076 | ) | |||||||||||||||||||||||||||
US Steel Corp. | (5.00)% | Quarterly | MSCS | 6/20/25 | 41,000 | 1,105 | 9,868 | (8,763 | ) | |||||||||||||||||||||||||||
Contracts to Sell Protectionc,d | ||||||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | BZWS | 12/20/24 | 180,000 | (136,356 | ) | (125,375 | ) | (10,981 | ) | CCC- | ||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | BZWS | 12/20/24 | 73,000 | (55,300 | ) | (51,936 | ) | (3,364 | ) | CCC- | ||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | BZWS | 12/20/24 | 37,000 | (28,029 | ) | (27,068 | ) | (961 | ) | CCC- | ||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | JPHQ | 6/20/25 | 52,000 | (39,907 | ) | (40,635 | ) | 728 | CCC- |
64 | 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 | Annual Payment Rate Received (Paid) | Payment Frequency | Counterparty | Maturity Date | Notional Amounta | Value | Unamortized Upfront Payments (Receipts) | Unrealized Appreciation (Depreciation) | Ratingb | |||||||||||||||||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||||||||||||||||||||
Contracts to Sell Protectionc,d (continued) | ||||||||||||||||||||||||||||||||||||
Single Name (continued) | ||||||||||||||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | MSCS | 12/20/24 | 270,000 | $ | (204,533 | ) | $ | (199,547 | ) | $ | (4,986 | ) | CCC- | |||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | MSCS | 12/20/24 | 180,000 | (136,356 | ) | (133,032 | ) | (3,324 | ) | CCC- | ||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | MSCS | 12/20/24 | 90,000 | (68,178 | ) | (62,608 | ) | (5,570 | ) | CCC- | ||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | MSCS | 12/20/24 | 270,000 | (204,533 | ) | (203,382 | ) | (1,151 | ) | CCC- | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Total OTC Swap Contracts |
| $ | 1,279,415 | $ | 1,196,935 | $ | 82,480 | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Total Credit Default Swap Contracts |
| $ | 2,086,046 | $ | 1,768,324 | $ | 317,722 | |||||||||||||||||||||||||||||
|
|
aIn U.S. dollars unless otherwise indicated. For contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse provisions have been entered into in association with the contracts.
bBased on Standard and Poor’s (S&P) Rating for single name swaps and internal ratings for index swaps. Internal ratings based on mapping into equivalent ratings from external vendors.
cPerformance triggers for settlement of contract include default, bankruptcy or restructuring for single name swaps and failure to pay or bankruptcy of the underlying securities for traded index swaps.
dThe Fund enters contracts to sell protection to create a long credit position.
At November 30, 2020, the Fund had the following interest rate swap contracts outstanding. See Note 1(e).
Interest Rate Swap Contracts | ||||||||||||||||
Description | Payment Frequency | Maturity Date | Notional Amount | Value/Unrealized Appreciation (Depreciation) | ||||||||||||
Centrally Cleared Swap Contracts | ||||||||||||||||
Receive Fixed 4.48% | Monthly | 12/14/22 | 46,963,026 | MXN | $ | 1,796 | ||||||||||
Receive Fixed 4.08% | Annually | 1/02/23 | 7,426,995 | BRL | (14,869 | ) | ||||||||||
Receive Fixed 4.54% | Annually | 1/02/23 | 9,992,500 | BRL | (6,773 | ) | ||||||||||
Receive Fixed 5.07% | Monthly | 12/10/25 | 38,840,816 | MXN | 10,375 | |||||||||||
Receive Fixed 2.78% | Quarterly | 12/16/25 | 18,258,030 | CNY | (2,090 | ) | ||||||||||
Receive Fixed 5.81% | Monthly | 12/04/30 | 45,551,983 | MXN | 45,208 | |||||||||||
Receive Floating rate 6 Month-WIBOR | Semi-Annually | 12/16/30 | 3,096,085 | PLN | 2,201 | |||||||||||
Receive Floating rate 6 Month-WIBOR | Semi-Annually | 12/16/30 | 3,362,125 | PLN | (206 | ) | ||||||||||
Receive Floating rate 6 Month-WIBOR | Semi-Annually | 3/17/31 | 3,182,079 | PLN | 1,103 | |||||||||||
Receive Floating rate 6 Month-WIBOR | Semi-Annually | 3/17/31 | 3,183,559 | PLN | (1,758 | ) | ||||||||||
|
| |||||||||||||||
Total Interest Rate Swap Contracts |
| $ | 34,987 | |||||||||||||
|
|
franklintempleton.com | Semiannual Report | 65 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
At November 30, 2020, the Fund had the following total return swap contracts outstanding. See Note 1(e).
Total Return Swap Contracts | ||||||||||||||||||||||
Underlying Instrument | Financing Rate | Payment Frequency | Counterparty | Maturity Date | Notional Value* | Value/Unrealized Appreciation (Depreciation) | ||||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||||
Commodity Contracts – Longa | ||||||||||||||||||||||
Bloomberg Commodity Indexb | 1-Month BCOM + 0.15% | Monthly | MSCS | 8/20/21 | 569,432 | $ | 1,736 | |||||||||||||||
|
| |||||||||||||||||||||
Equity Contracts – Longa | ||||||||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 11/01/21 | 430 | 151 | ||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.50% | Monthly | GSCO | 11/02/21 | 4,907 | 1,538 | ||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.50% | Monthly | GSCO | 11/03/21 | 2,468 | 673 | ||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.50% | Monthly | GSCO | 11/04/21 | 1,243 | 310 | ||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 11/08/21 | 974 | 241 | ||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.50% | Monthly | GSCO | 11/09/21 | 41 | 10 | ||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.50% | Monthly | GSCO | 11/10/21 | 27 | 7 | ||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.50% | Monthly | GSCO | 11/24/21 | 903 | 30 | ||||||||||||||||
Amundi SA | 1-Day EONIA + 0.40% | Monthly | MSCS | 3/14/25 | 266,038 | EUR | 125,770 | |||||||||||||||
Anima Holding SpA | 1-Month EURIBOR + 0.40% | Monthly | MSCS | 12/21/20 | 873,066 | EUR | 23,858 | |||||||||||||||
Barclays PLC | 1-Month LIBOR + 0.40% | Monthly | MSCS | 4/16/21 | 617,456 | GBP | 790 | |||||||||||||||
BNP Paribas SA | 1-Month LIBOR + 0.40% | Monthly | MSCS | 3/14/25 | 1,067,115 | EUR | 469,003 | |||||||||||||||
Bureau Veritas SA | 1-Month EURIBOR + 0.40% | Monthly | GSCO | 12/21/20 | 156,093 | EUR | 3,519 | |||||||||||||||
Bureau Veritas SA | 1-Month EURIBOR + 0.40% | Monthly | MSCS | 3/14/25 | 758,186 | EUR | 207,919 | |||||||||||||||
China Jushi Co. Ltd. | 1-Day FEDEF + 0.30% | Monthly | MSCS | 9/28/22 | 795,680 | (49,292 | ) | |||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 3/04/21 | 27,591 | 10,544 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 4/01/21 | 3,351 | 1,143 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 4/28/21 | 7,393 | 3,319 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 4/29/21 | 9,932 | 3,333 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 4/29/21 | 9,918 | 4,246 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/03/21 | 15,061 | 6,418 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/04/21 | 6,489 | 3,348 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/04/21 | 9,554 | 4,476 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/05/21 | 3,655 | 1,853 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/06/21 | 8,218 | 3,729 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/07/21 | 1,807 | 878 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/10/21 | 3,024 | 1,360 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/11/21 | 5,404 | 2,269 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/18/21 | 9,318 | 4,138 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/19/21 | 6,999 | 2,757 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/20/21 | 19,267 | 7,644 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/21/21 | 19,120 | 7,791 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/24/21 | 2,396 | 948 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/27/21 | 3,220 | 1,219 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/31/21 | 9,835 | 3,429 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 7/06/21 | 39,797 | 23,324 | ||||||||||||||||
Croda International PLC | 1-Month LIBOR + 0.40% | Monthly | MSCS | 4/16/21 | 800,665 | GBP | (113,077 | ) | ||||||||||||||
Danone SA | 1-Month EURIBOR + 0.40% | Monthly | MSCO | 12/21/20 | 1,875,612 | EUR | (8,127 | ) | ||||||||||||||
Danone SA | 1-Month LIBOR + 0.40% | Monthly | MSCS | 3/14/25 | 3,053,835 | EUR | 31,976 | |||||||||||||||
Electricite de France SA | 1-Day EONIA + 0.40% | Monthly | MSCS | 9/23/22 | 2,576,955 | EUR | 316,003 | |||||||||||||||
Elisa OYJ | 1-Month EURIBOR + 0.40% | Monthly | MSCO | 12/21/20 | 213,805 | EUR | 11,114 | |||||||||||||||
Elisa OYJ | 1-Month EURIBOR + 0.40% | Monthly | MSCS | 3/14/25 | 282,271 | EUR | 81,728 | |||||||||||||||
Energy Transfer Operating LP | 1-Month LIBOR + 0.90% | Monthly | GSCO | 11/05/21 | 107,568 | 14,870 | ||||||||||||||||
Energy Transfer Operating LP | 1-Month LIBOR + 0.40% | Monthly | BOFA | 11/09/21 | 86,050 | 9,130 | ||||||||||||||||
Energy Transfer Operating LP | 1-Month LIBOR + 0.65% | Monthly | GSCO | 11/29/21 | 161,848 | 8,318 | ||||||||||||||||
Engie SA | 1-Day EONIA + 0.40% | Monthly | MSCS | 9/23/22 | 2,977,528 | EUR | (5,641 | ) | ||||||||||||||
Enterprise Products Partners LP | 1-Month LIBOR + 0.90% | Monthly | GSCO | 11/16/21 | 124,171 | 9,927 | ||||||||||||||||
Ferguson PLC | 1-Day EONIA + 0.65% | Monthly | MSCO | 9/23/22 | 825,839 | 127,855 | ||||||||||||||||
Fiat Chrysler Automobiles NV | 1-Month LIBOR + 0.08% | Monthly | BZWS | 3/08/21 | 7,789,912 | EUR | (15,584 | ) | ||||||||||||||
Fiat Chrysler Automobiles NV | 1-Day EONIA + 0.65% | Monthly | MSCO | 9/06/21 | 1,906,397 | EUR | 696,740 |
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 | Counterparty | Maturity Date | Notional Value* | Value/Unrealized Appreciation (Depreciation) | ||||||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||||||
Equity Contracts – Longa (continued) | ||||||||||||||||||||||
Frasers Group PLC | 1-Month LIBOR + 0.40% | Monthly | MSCS | 4/16/21 | 669,068 | GBP | $ | (72,853 | ) | |||||||||||||
G4S PLC | 1-Day SONIA + 0.65% | Monthly | GSCO | 2/08/21 | 1,233,160 | GBP | 81,199 | |||||||||||||||
G4S PLC | 1-Month LIBOR + 0.40% | Monthly | BZWS | 10/14/21 | 3,437,697 | GBP | (194,653 | ) | ||||||||||||||
GrandVision NV | 1-Month LIBOR + 0.05% | Monthly | BZWS | 5/11/21 | 4,847,131 | EUR | (55,156 | ) | ||||||||||||||
GrandVision NV | 1-Day EONIA + 0.65% | Monthly | MSCS | 9/06/21 | 1,486,180 | EUR | (3,526 | ) | ||||||||||||||
HeidelbergCement AG | 1-Month EURIBOR + 0.40% | Monthly | MSCS | 12/21/20 | 1,678,909 | EUR | 41,328 | |||||||||||||||
Hermes International | 1-Month EURIBOR + 0.40% | Monthly | MSCO | 12/21/20 | 346,528 | EUR | (7,713 | ) | ||||||||||||||
Hikma Pharmaceuticals PLC | 1-Month LIBOR + 0.40% | Monthly | MSCS | 4/16/21 | 116,049 | GBP | 7,101 | |||||||||||||||
HP Inc. | 1-Month LIBOR + 0.52% | Monthly | BZWS | 5/26/21 | 1,141,225 | (16,428 | ) | |||||||||||||||
Iliad SA | 1-Month LIBOR + 0.40% | Monthly | MSCS | 3/14/25 | 120,001 | EUR | 77,137 | |||||||||||||||
ITV PLC | 1-Month LIBOR + 0.40% | Monthly | MSCS | 4/16/21 | 1,019,846 | GBP | 85,412 | |||||||||||||||
Kering SA | 1-Month EURIBOR + 0.40% | Monthly | MSCO | 12/21/20 | 771,693 | EUR | (8,977 | ) | ||||||||||||||
Kering SA | 1-Month EURIBOR + 0.40% | Monthly | MSCS | 3/14/25 | 1,035,973 | EUR | 569,866 | |||||||||||||||
LVMH Moet Hennessy Louis Vuitton SE | 1-Day EONIA + 0.40% | Monthly | MSCS | 3/14/25 | 264,546 | EUR | 171,754 | |||||||||||||||
Maxim Integrated Products Inc. | 1-Day FEDEF + 0.40% | Monthly | MSCO | 2/04/21 | 990,723 | 28,926 | ||||||||||||||||
McKesson Europe AG | 1-Day EONIA + 0.65% | Monthly | MSCS | 11/04/20 | 3,563,710 | EUR | (67,257 | ) | ||||||||||||||
Rolls-Royce Holdings PLC | 1-Day SONIA + 0.40% | Monthly | MSCS | 9/26/22 | 804,505 | GBP | (30,826 | ) | ||||||||||||||
RSA Insurance Group PLC | 1-Day SONIA + 0.65% | Monthly | MSCO | 2/08/21 | 480,681 | GBP | (1,084 | ) | ||||||||||||||
RSA Insurance Group PLC | 1-Month LIBOR + 0.40% | Monthly | BZWS | 9/07/21 | 5,351,198 | GBP | 46,179 | |||||||||||||||
Ryanair Holdings PLC | 1-Month EURIBOR + 0.40% | Monthly | MSCS | 12/21/20 | 622,458 | EUR | (3,337 | ) | ||||||||||||||
Smith & Nephew PLC | 1-Month LIBOR + 0.40% | Monthly | MSCO | 4/16/21 | 2,063,862 | GBP | (122,604 | ) | ||||||||||||||
Smiths Group PLC | 1-Month LIBOR + 0.40% | Monthly | MSCS | 4/16/21 | 865,232 | GBP | (62,354 | ) | ||||||||||||||
Societe Generale SA | 1-Month LIBOR + 0.40% | Monthly | MSCS | 3/14/25 | 673,759 | EUR | 72,618 | |||||||||||||||
Stroeer SE & Co. KGaA | 1-Month EURIBOR + 0.40% | Monthly | MSCS | 12/21/20 | 1,380,540 | EUR | 187,160 | |||||||||||||||
Suez SA | 1-Month EURIBOR + 0.40% | Monthly | BZWS | 9/02/21 | 1,497,658 | EUR | (7,161 | ) | ||||||||||||||
Suez SA | 1-Day EONIA + 0.65% | Monthly | MSCO | 9/06/21 | 679,040 | EUR | (2,789 | ) | ||||||||||||||
Sun Art Retail Group Ltd. | 1-Month HIBOR + 0.55% | Monthly | MSCO | 11/24/21 | 1,430,291 | HKD | (396 | ) | ||||||||||||||
Taubman Centers Inc. | 1-Month LIBOR + 0.35% | Monthly | BZWS | 6/15/21 | 661,780 | (782 | ) | |||||||||||||||
Vodafone Group PLC | 1-Day SONIA + 0.65% | Monthly | MSCS | 2/08/21 | 1,399,952 | GBP | 99,100 | |||||||||||||||
William Hill PLC | 1-Day SONIA + 0.65% | Monthly | MSCO | 2/08/21 | 459,219 | GBP | (14,609 | ) | ||||||||||||||
William Hill PLC | 1-Month LIBOR + 0.40% | Monthly | BZWS | 9/28/21 | 4,361,794 | GBP | 4,269 | |||||||||||||||
|
| |||||||||||||||||||||
2,847,469 | ||||||||||||||||||||||
|
| |||||||||||||||||||||
Equity Contracts – Shortc | ||||||||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR - 0.40% | Monthly | MSCS | 11/10/21 | 80,085 | (7,398 | ) | |||||||||||||||
AGL Energy Ltd. | 1-Day RBACR - 0.50% | Monthly | MSCS | 9/26/22 | 1,562,344 | AUD | (36,119 | ) | ||||||||||||||
Analog Devices Inc. | 1-Day FEDEF - 0.35% | Monthly | MSCO | 11/20/21 | 1,047,065 | (28,858 | ) | |||||||||||||||
Avis Budget Group Inc. | 1-Day FEDEF - 0.35% | Monthly | MSCS | 2/04/21 | 130,974 | (38,018 | ) | |||||||||||||||
Carnival Corp. | 1-Month LIBOR - 0.40% | Monthly | MSCS | 11/09/21 | 10,442 | (4,645 | ) | |||||||||||||||
Carnival Corp. | 1-Month LIBOR - 0.40% | Monthly | MSCS | 9/20/22 | 230,646 | (98,470 | ) | |||||||||||||||
Colruyt SA | 1-Day EONIA - 0.40% | Monthly | MSCS | 3/14/25 | 1,373,519 | EUR | (361,956 | ) | ||||||||||||||
Danone SA | 1-Day EONIA - 0.40% | Monthly | MSCS | 9/23/22 | 983,087 | EUR | 20,167 | |||||||||||||||
DJ EURO STOXX 50 Index | 1-Day EONIA - 0.45% | Monthly | MSCO | 3/22/22 | 307,887 | EUR | (157,663 | ) | ||||||||||||||
Elisa OYJ | 1-Day EONIA - 0.40% | Monthly | MSCS | 3/14/25 | 333,205 | EUR | (2,664 | ) | ||||||||||||||
Hannover Rueck SE | 1-Day EONIA - 0.35% | Monthly | MSCS | 3/14/25 | 466,090 | EUR | (108,779 | ) | ||||||||||||||
Hennes & Mauritz AB | 1-Week STIBOR - 0.40% | Monthly | MSCS | 3/14/25 | 4,638,427 | SEK | (189,593 | ) | ||||||||||||||
iShares Russell Mid-Cap Growth ETF | 1-Month LIBOR | Monthly | BOFA | 10/04/21 | 4,168,972 | — | ||||||||||||||||
JD Sports Fashion PLC | 1-Day SONIA - 0.30% | Monthly | MSCS | 4/16/21 | 161,019 | GBP | 5,678 | |||||||||||||||
L’Oreal SA | 1-Day EONIA - 0.35% | Monthly | MSCS | 3/14/25 | 455,260 | EUR | (217,436 | ) | ||||||||||||||
Marks & Spencer Group PLC | 1-Day SONIA - 0.30% | Monthly | MSCS | 4/16/21 | 153,226 | GBP | (9,016 | ) | ||||||||||||||
Morgan Stanley MSPSCCK2 Index | 1-Day FEDEF - 0.32% | Monthly | MSCO | 9/21/22 | 1,534,874 | (9,879 | ) | |||||||||||||||
Morgan Stanley MSPSDARH Index | 1-Day FEDEF - 0.35% | Monthly | MSCO | 9/21/22 | 359,690 | (47,547 | ) | |||||||||||||||
Morgan Stanley MSPSFERL Index | 1-Day FEDEF - 0.35% | Monthly | MSCO | 9/22/20 | 279,045 | (19,539 | ) |
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 | Counterparty | Maturity Date | Notional Value* | Value/Unrealized Appreciation (Depreciation) | ||||||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||||||
Equity Contracts – Shortc (continued) | ||||||||||||||||||||||
Morgan Stanley MSPSPRMW Index | 1-Day FEDEF - 0.55% | Monthly | MSCO | 9/21/22 | 606,436 | $ | (19,980 | ) | ||||||||||||||
Morgan Stanley MSPSVOD Index | 1-Day FEDEF - 0.39% | Monthly | MSCO | 9/22/20 | 799,023 | 4,868 | ||||||||||||||||
Morgan Stanley MSPSXLU Index | 1-Day FEDEF - 0.35% | Monthly | MSCO | 9/22/20 | 763,833 | (4,820 | ) | |||||||||||||||
Morgan Stanley MSPSXPOH Index | 1-Day FEDEF - 0.35% | Monthly | MSCO | 9/21/22 | 836,313 | (31,667 | ) | |||||||||||||||
MSCI World Utilities Sector Gross Index | 1-Day FEDEF - 0.55% | Monthly | MSCS | 9/28/22 | 6,117,282 | 104,404 | ||||||||||||||||
Nestle SA | 1-Day SARON - 0.40% | Monthly | MSCS | 3/14/25 | 718,967 | CHF | (97,023 | ) | ||||||||||||||
Next PLC | 1-Day SONIA - 0.30% | Monthly | MSCS | 4/16/21 | 487,725 | GBP | 19,731 | |||||||||||||||
Nike Inc. | 1-Day FEDEF - 0.35% | Monthly | MSCO | 3/15/21 | 855,657 | (46,953 | ) | |||||||||||||||
Peugeot SA | 1-Month LIBOR - 0.76% | Monthly | BZWS | 3/08/21 | 6,753,681 | EUR | (172 | ) | ||||||||||||||
Peugeot SA | 1-Day EONIA - 0.40% | Monthly | MSCO | 9/06/21 | 1,624,776 | EUR | (644,498 | ) | ||||||||||||||
Severn Trent PLC | 1-Day SONIA - 0.35% | Monthly | MSCS | 9/26/22 | 896,010 | GBP | 43,241 | |||||||||||||||
Swisscom AG | 1-Day SARON - 0.35% | Monthly | MSCS | 3/14/25 | 639,878 | CHF | (15,827 | ) | ||||||||||||||
United Utilities Group PLC | 1-Day SONIA - 0.35% | Monthly | MSCS | 9/26/22 | 933,035 | GBP | 20,786 | |||||||||||||||
Valmet OYJ | 1-Month EONIA - 0.30% | Monthly | BZWS | 3/08/21 | 70,978 | EUR | 1,527 | |||||||||||||||
|
| |||||||||||||||||||||
(1,978,118 | ) | |||||||||||||||||||||
|
| |||||||||||||||||||||
Interest Rate Contracts – Longa | ||||||||||||||||||||||
Government of Egypt | 1-Day FEDEF | Monthly | CITI | 1/12/21 | 440,533 | 7,492 | ||||||||||||||||
Government of Indonesia | 3-Month LIBOR + 1.00% | Monthly | BOFA | 5/18/21 | 2,047,666 | 246,857 | ||||||||||||||||
Government of Indonesia | 3-Month LIBOR + 0.60% | Monthly | DBAB | 6/15/32 | 1,044,850 | 81,512 | ||||||||||||||||
|
| |||||||||||||||||||||
335,861 | ||||||||||||||||||||||
|
| |||||||||||||||||||||
Total - Total Return Swap Contracts |
| $ | 1,206,948 | |||||||||||||||||||
|
|
*In U.S. dollars unless otherwise indicated.
aThe Fund receives the total return on the underlying instrument and pays a variable financing rate.
bA portion or all of the contracts are owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(k).
cThe Fund receives the variable financing rate and pays the total return on the underlying instrument.
See Note 12 regarding other derivative information.
See Abbreviations on page 90.
68 | 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
November 30, 2020 (unaudited)
Franklin K2 Alternative Strategies Fund
Assets: | ||||
Investments in securities: | ||||
Cost – Unaffiliated issuers | $ | 964,131,909 | ||
Cost – Non-controlled affiliates (Note 3f) | 4,072,000 | |||
Cost – Unaffiliated repurchase agreements | 9,258,950 | |||
|
| |||
Value – Unaffiliated issuers† | $ | 1,161,623,708 | ||
Value – Non-controlled affiliates (Note 3f) | 4,072,000 | |||
Value – Unaffiliated repurchase agreements | 9,258,950 | |||
Cash | 79,825,400 | |||
Restricted cash for OTC derivatives (Note 1f) | 980,000 | |||
Foreign currency, at value (cost $8,065,866) | 8,290,206 | |||
Receivables: | ||||
Investment securities sold | 12,364,581 | |||
Capital shares sold | 17,588,879 | |||
Dividends and interest | 3,433,096 | |||
Deposits with brokers for: | ||||
Exchange traded options written | 21,527 | |||
Securities sold short | 214,700,632 | |||
OTC derivative contracts | 21,617,326 | |||
Futures contracts | 10,251,801 | |||
Centrally cleared swap contracts | 1,806,997 | |||
Due from brokers | 13,718,806 | |||
Variation margin on futures contracts | 34,081 | |||
OTC swap contracts (upfront payments $2,345,735) | 2,158,191 | |||
Unrealized appreciation on OTC forward exchange contracts | 2,189,166 | |||
Unrealized appreciation on OTC swap contracts | 4,859,263 | |||
Unrealized appreciation on unfunded loan commitments (Note 11) | 57,277 | |||
Other assets | 7,300 | |||
|
| |||
Total assets | 1,568,859,187 | |||
|
| |||
Liabilities: | ||||
Payables: | ||||
Investment securities purchased | 13,059,307 | |||
Capital shares redeemed | 17,157,656 | |||
Management fees | 1,671,112 | |||
Distribution fees | 36,554 | |||
Transfer agent fees | 224,334 | |||
Variation margin on centrally cleared swap contracts | 3,500 | |||
Deposits from brokers for: | ||||
OTC derivative contracts | 980,000 | |||
Due to brokers | 7,659,138 | |||
OTC swap contracts (upfront receipts $1,047,137) | 961,256 | |||
Options written, at value (premiums received $310,563) | 146,368 | |||
Securities sold short, at value (proceeds $270,316,400) | 301,991,375 | |||
Payable upon return of securities loaned (Note 1j) | 4,955,520 | |||
Unrealized depreciation on OTC forward exchange contracts | 2,324,929 | |||
Unrealized depreciation on OTC swap contracts | 3,569,835 | |||
Accrued expenses and other liabilities | 334,963 | |||
|
| |||
Total liabilities | 355,075,847 | |||
|
| |||
Net assets, at value | $ | 1,213,783,340 | ||
|
| |||
Net assets consist of: | ||||
Paid-in capital | $ | 1,070,275,861 | ||
Total distributable earnings (loss) | 143,507,479 | |||
|
| |||
Net assets, at value | $ | 1,213,783,340 | ||
|
| |||
†Includes securities loaned | $ | 11,768,681 |
franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 69 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Assets and Liabilities (continued)
November 30, 2020 (unaudited)
Franklin K2 Alternative Strategies Fund
Class A: | ||||
Net assets, at value | $95,097,091 | |||
|
| |||
Shares outstanding | 7,883,392 | |||
|
| |||
Net asset value per sharea | $12.06 | |||
|
| |||
Maximum offering price per share (net asset value per share ÷ 94.50%) | $12.76 | |||
|
| |||
Class C: | ||||
Net assets, at value | $33,085,817 | |||
|
| |||
Shares outstanding | 2,812,507 | |||
|
| |||
Net asset value and maximum offering price per sharea | $11.76 | |||
|
| |||
Class R: | ||||
Net assets, at value | $805,972 | |||
|
| |||
Shares outstanding | 66,829 | |||
|
| |||
Net asset value and maximum offering price per share | $12.06 | |||
|
| |||
Class R6: | ||||
Net assets, at value | $28,333,099 | |||
|
| |||
Shares outstanding | 2,330,987 | |||
|
| |||
Net asset value and maximum offering price per share | $12.15 | |||
|
| |||
Advisor Class: | ||||
Net assets, at value | $1,056,461,361 | |||
|
| |||
Shares outstanding | 87,095,715 | |||
|
| |||
Net asset value and maximum offering price per share | $12.13 | |||
|
|
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
70 | 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 Operations
for the six months ended November 30, 2020 (unaudited)
Franklin K2 Alternative Strategies Fund
Investment income: | ||||
Dividends: | ||||
Unaffiliated issuers | $ | 1,785,388 | ||
Interest: (net of foreign taxes)~ | ||||
Unaffiliated issuers | 9,554,924 | |||
Income from securities loaned: | ||||
Unaffiliated entities (net of fees and rebates) | 161,123 | |||
|
| |||
Total investment income | 11,501,435 | |||
|
| |||
Expenses: | ||||
Management fees (Note 3a) | 11,093,929 | |||
Distribution fees: (Note 3c) | ||||
Class A | 114,675 | |||
Class C | 161,394 | |||
Class R | 2,118 | |||
Transfer agent fees: (Note 3e) | ||||
Class A | 48,825 | |||
Class C | 18,189 | |||
Class R | 466 | |||
Class R6 | 3,874 | |||
Advisor Class | 538,568 | |||
Custodian fees (Note 4) . | 135,491 | |||
Reports to shareholders | 55,281 | |||
Registration and filing fees | 67,721 | |||
Professional fees | 315,963 | |||
Trustees’ fees and expenses | 188,001 | |||
Dividends and interest on securities sold short | 1,203,879 | |||
Security borrowing fees | 1,261,576 | |||
Other | 79,197 | |||
|
| |||
Total expenses | 15,289,147 | |||
Expenses waived/paid by affiliates (Note 3f and 3g) | (1,125,217 | ) | ||
|
| |||
Net expenses | 14,163,930 | |||
|
| |||
Net investment income (loss) | (2,662,495 | ) | ||
|
| |||
Realized and unrealized gains (losses): | ||||
Net realized gain (loss) from: | ||||
Investments: | ||||
Unaffiliated issuers | 77,371,886 | |||
Written options | 705,744 | |||
Foreign currency transactions | 313,370 | |||
Forward exchange contracts | (934,422 | ) | ||
Futures contracts | (18,145,068 | ) | ||
Securities sold short | (46,776,532 | ) | ||
Swap contracts | 15,647,015 | |||
|
| |||
Net realized gain (loss) | 28,181,993 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments: | ||||
Unaffiliated issuers | 76,867,655 | |||
Translation of other assets and liabilities denominated in foreign currencies | 92,680 | |||
Forward exchange contracts | (542,949 | ) | ||
Written options | 757,295 | |||
Futures contracts | 7,682,854 | |||
Securities sold short | (16,969,473 | ) | ||
Swap contracts | (3,701,946 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) | 64,186,116 | |||
|
| |||
Net realized and unrealized gain (loss) | 92,368,109 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 89,705,614 | ||
|
| |||
~ Foreign taxes withheld on interest | $ | 1,717 |
franklintempleton.com | The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 71 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Net Assets
Franklin K2 Alternative Strategies Fund
Six Months Ended November 30, 2020 (unaudited) | Year Ended May 31, 2020 | |||||||
Increase (decrease) in net assets: | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (2,662,495 | ) | $ | (583,298 | ) | ||
Net realized gain (loss) | 28,181,993 | 450,460 | ||||||
Net change in unrealized appreciation (depreciation) | 64,186,116 | (2,651,894 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets resulting from operations | 89,705,614 | (2,784,732 | ) | |||||
|
|
|
| |||||
Distributions to shareholders: | ||||||||
Class A | — | (679,196 | ) | |||||
Class C | — | (21,557 | ) | |||||
Class R | — | (3,120 | ) | |||||
Class R6 | — | (410,046 | ) | |||||
Advisor Class | — | (9,695,842 | ) | |||||
|
|
|
| |||||
Total distributions to shareholders | — | (10,809,761 | ) | |||||
|
|
|
| |||||
Capital share transactions: (Note 2) | ||||||||
Class A | (2,095,963 | ) | (13,345,502 | ) | ||||
Class C | (5,425,607 | ) | (8,451,161 | ) | ||||
Class R | (141,529 | ) | 55,826 | |||||
Class R6 | 11,062,535 | (27,551,565 | ) | |||||
Advisor Class | 915,005 | (56,636,996 | ) | |||||
|
|
|
| |||||
Total capital share transactions | 4,314,441 | (105,929,398 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets | 94,020,055 | (119,523,891 | ) | |||||
Net assets: | ||||||||
Beginning of period | 1,119,763,285 | 1,239,287,176 | ||||||
|
|
|
| |||||
End of period | $ | 1,213,783,340 | $ | 1,119,763,285 | ||||
|
|
|
|
72 | Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Notes to Consolidated Financial Statements
Franklin K2 Alternative Strategies Fund
1. Organization and Significant Accounting Policies
Franklin Alternative Strategies Funds (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of two separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin K2 Alternative Strategies Fund (Fund) is included in this report. The Fund offers five classes of shares: Class A, Class C, Class R, Class R6 and Advisor Class. Class C shares automatically convert to Class A shares after they have been held for 10 years. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees due to differing arrangements for distribution and transfer agent fees.
The following summarizes the Fund’s significant accounting policies.
a. Financial Instrument Valuation
The Fund’s investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Fund calculates the net asset value (NAV) per share each business day as of 4 p.m. Eastern time or the regularly scheduled close of the New York Stock Exchange (NYSE), whichever is earlier. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Equity securities, exchange traded funds and derivative financial instruments listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded or as of 4 p.m. Eastern time. The
value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the day that the value of the security is determined. Over-the-counter (OTC) securities are valued within the range of the
most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities.
Debt securities generally trade in the OTC market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the date that the values of the foreign debt securities are determined.
Investments in open-end mutual funds are valued at the closing NAV. Investments in repurchase agreements are valued at cost, which approximates fair value.
Certain derivative financial instruments are centrally cleared or trade in the OTC market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair value of the contract, is included in net assets.
The Fund has procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on
franklintempleton.com | Semiannual Report | 73 |
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)
the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.
Trading in securities on foreign securities stock exchanges and OTC markets may be completed before 4 p.m. Eastern time. In addition, trading in certain foreign markets may not take place on every Fund’s business day. Events can occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at 4 p.m. Eastern time. In order to minimize the potential for these differences, an independent pricing service may be used to adjust the value of the Funds’ portfolio securities to the latest indications of fair value at 4 p.m. Eastern time. At November 30, 2020, certain securities may have been fair valued using these procedures, in which case the securities were categorized as Level 2 inputs within the fair value hierarchy. See the Fair Value Measurements note for more information.
When the last day of the reporting period is a non-business day, certain foreign markets may be open on those days that the Fund’s NAV is not calculated, which could result in differences between the value of the Fund’s portfolio securities on the last business day and the last calendar day of the reporting period. Any significant security valuation changes due to an open foreign market are adjusted and reflected by the Fund for financial reporting purposes.
b. Foreign Currency Translation
Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and
assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Board.
The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on
securities held. Such changes are included in net realized and unrealized gain or loss from investments in the Consolidated Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.
c. Joint Repurchase Agreement
The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is used to invest in one or more repurchase agreements. The value and face amount of the joint repurchase agreement are allocated to the funds based on their pro-rata interest. A repurchase agreement is accounted for as a loan by the Fund to the seller, collateralized by securities which are delivered to the Fund’s custodian. The fair value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. Repurchase agreements are subject to the terms of Master Repurchase Agreements (MRAs) with approved counterparties (sellers). The MRAs contain various provisions, including but not limited to events of default and maintenance of collateral for repurchase agreements. In the event of default by either the seller or the Fund, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Fund may sell securities it holds as collateral and apply
74 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
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, 2020.
d. Securities Purchased on a Delayed Delivery Basis
The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.
e. Derivative Financial Instruments
The Fund invested in derivative financial instruments in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown in the Consolidated Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Consolidated Statement of Operations.
Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counterparties. The Fund attempts to reduce its exposure to counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to
the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement.
Collateral requirements differ by type of derivative. Collateral or initial margin requirements are set by the broker or exchange clearing house for exchange traded and centrally cleared derivatives. Initial margin deposited is held at the exchange and can be in the form of cash and/or securities.
For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the Fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of Fund business each day and any additional collateral required due to changes in derivative values may be delivered by the Fund or the counterparty the next business day, or within a few business days. Collateral pledged and/or received by the Fund for OTC derivatives, if any, is held in segregated accounts with the Fund’s custodian/counterparty broker and can be in the form of cash and/or securities. Unrestricted cash may be invested according to the Fund’s investment objectives. To the extent that the amounts due to the Fund from its counterparties are not subject to collateralization or are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance.
The Fund entered into exchange traded futures contracts primarily to manage and/or gain exposure to commodity price, interest rate 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
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)
e. Derivative Financial Instruments (continued)
in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities.
The Fund entered into OTC forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.
The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (OTC credit default swaps) or may be executed in a multilateral trade facility platform, such as a registered exchange (centrally cleared credit default swaps). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, a basket of issuers or indices, or a tranche of a credit index or basket of issuers or indices. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. For centrally cleared credit default swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Upfront payments and receipts are reflected in the Consolidated Statement of Assets and Liabilities and represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments and receipts are
amortized over the term of the contract as a realized gain or loss in the Consolidated Statement of Operations.
The Fund entered into interest rate swap contracts primarily to manage interest rate risk. An interest rate swap is an agreement between the Fund and a counterparty to exchange cash flows based on the difference between two interest rates, applied to a notional amount. These agreements may be privately negotiated in the over-the-counter market (OTC interest rate swaps) or may be executed on a registered exchange (centrally cleared interest rate swaps). For centrally cleared interest rate swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities. Over the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized.
The Fund entered into OTC total return swap contracts primarily to manage and/or gain exposure to interest rate, equity price, commodity price and credit risk of an underlying instrument such as a stock, bond, index or basket of securities or indices. A total return swap is an agreement between the Fund and a counterparty to exchange a return linked to an underlying instrument for a floating or fixed rate payment, both based upon a notional amount. Over the term of the contract, contractually required payments to be paid or received are accrued daily and recorded as unrealized appreciation or depreciation until the payments are made, at which time they are recognized as realized gain or loss.
The Fund purchased or wrote exchange traded and/or OTC option contracts primarily to manage and/or gain exposure to interest rate, equity price and foreign exchange rate risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. When an option is purchased or written, an amount equal to the premium paid or received is recorded as an asset or liability, respectively. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss. Upon closing an option other than through expiration 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.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
See Note 12 regarding other derivative information.
f. Restricted Cash
At November 30, 2020, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian/counterparty broker and is reflected in the Consolidated Statement of Assets and Liabilities.
g. Loan Participation Notes
The Fund invests in loan participation notes (Participations). Participations are loans originally issued to a borrower by one or more financial institutions (the Lender) and subsequently sold to other investors, such as the Fund. Participations typically result in the Fund having a contractual relationship only with the Lender and not with the borrower. The Fund has the right to receive from the Lender any payments of principal, interest and fees which the Lender received from the borrower. The Fund generally has no rights to either enforce compliance by the borrower with the terms of the loan agreement or to any collateral relating to the original loan. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. The Participations may also involve interest rate risk and liquidity risk, including the potential default or insolvency of the borrower and/or the Lender.
h. Credit-Linked Notes
The Fund purchases credit-linked notes. Credit-linked notes are intended to replicate the economic effects that would apply had the Fund directly purchased the underlying reference asset. The risks of credit-linked notes include the potential default of the underlying reference asset, the movement in the value of the currency of the underlying reference asset relative to the credit-linked note, the potential inability of the Fund to dispose of the credit-linked note in the normal course of business, and the possible inability of the counterparties to fulfill their obligations under the contracts.
i. Securities Sold Short
The Fund is engaged in selling securities short, which obligates the Fund to replace a borrowed security with the same security at current fair value. The Fund incurs a loss if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed
security. The Fund realizes a gain if the price of the security declines between those dates. Gains are limited to the price at which the Fund sold the security short, while losses are potentially unlimited in size.
The Fund is required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale to the extent necessary to meet margin requirements until the short position is closed out. A deposit must also be maintained with the Fund’s custodian/counterparty broker consisting of cash and/or securities having a value equal to a specified percentage of the value of the securities sold short. The Fund is obligated to pay fees for borrowing the securities sold short and is required to pay the counterparty any dividends and/or interest due on securities sold short. Such dividends and/or interest and any security borrowing fees are recorded as an expense to the Fund.
j. Securities Lending
The Fund participates in an agency based securities lending program to earn additional income. The Fund receives collateral in the form of cash and/or U.S. Government and Agency Securities against the loaned securities in an amount equal to at least 102% of the fair value of the loaned securities. Collateral is maintained over the life of the loan in an amount not less than 100% of the fair value of loaned securities, as determined at the close of Fund business each day; any additional collateral required due to changes in security values is delivered to the Fund on the next business day. Any cash collateral received is deposited into a joint cash account with other funds and is used to invest in a money market fund managed by Franklin Advisers, Inc., an affiliate of the Fund, and/or a joint repurchase agreement. Additionally, the Fund received $7,008,140 in U.S. Government and Agency Securities as collateral. The Fund may receive income from the investment of cash collateral, in addition to lending fees and rebates paid by the borrower. Income from securities loaned, net of fees paid to the securities lending agent and/or third party vendor, is reported separately in the Consolidated Statement of Operations. The Fund bears the market risk with respect to any cash collateral investment, securities loaned, and the risk that the agent may default on its obligation to the Fund. If the borrower defaults on its obligations to return the securities loaned, the Fund has the right to repurchase the securities in the open market using the collateral received. The securities lending agent has agreed to indemnify the Fund in the event of default by a third party borrower.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
1. Organization and Significant Accounting Policies (continued)
k. Investments in K2 Holdings Investment Corp. (K2 Subsidiary)
The Fund invests in certain financial instruments and commodity-linked derivative investments through its investment in the K2 Subsidiary. The K2 Subsidiary is a Cayman Islands exempted company with limited liability, is a wholly-owned subsidiary of the Fund, and is able to invest in certain financial instruments and commodity-linked derivative investments consistent with the investment objective of the Fund. At November 30, 2020, the K2 Subsidiary’s investments, as well as any other assets and liabilities of the K2 Subsidiary, are reflected in the Fund’s Consolidated Statement of Investments and Consolidated Statement of Assets and Liabilities. All intercompany transactions and balances have been eliminated. For tax purposes, the Fund is required to increase its taxable income by its share of the K2 Subsidiary’s income. Net losses incurred by the K2 Subsidiary cannot offset income earned by the Fund and cannot be carried back or forward by the K2 Subsidiary to offset income from prior or future years. At November 30, 2020, the net assets of the K2 Subsidiary were $20,788,355 representing 1.7% of the Fund’s consolidated net assets. The Fund’s investment in the K2 Subsidiary is limited to 25% of consolidated assets.
l. Senior Floating Rate Interests
The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity. Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to certain restrictions on resale.
m. Income and Deferred Taxes
It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply, the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.
The Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of November 30, 2020, the Fund has determined that no tax liability is required in its consolidated financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.
n. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except for certain dividends from securities where the dividend rate is not available. In such cases, the dividend is recorded as soon as the information is received by the Fund. Distributions to shareholders are recorded on the ex-dividend date. Distributable earnings are determined according to income tax regulations (tax basis) and may differ from earnings recorded in accordance with 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
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
Fund to the combined net assets of the Trust or based on the ratio of number of shareholders of each Fund to the combined number of shareholders of the Trust. Fund specific expenses are charged directly to the Fund that incurred the expense.
Realized and unrealized gains and losses and net investment income, excluding class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions by class are generally due to differences in class specific expenses.
o. Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
p. Guarantees and Indemnifications
Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.
2. Shares of Beneficial Interest
At November 30, 2020, 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, 2020 | Year Ended May 31, 2020 | |||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||
Class A Shares: | ||||||||||||||||||||
Shares solda | 879,946 | $ | 10,190,305 | 1,834,464 | $ | 20,825,586 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 55,183 | 634,600 | ||||||||||||||||
Shares redeemed | (1,061,166 | ) | (12,286,268 | ) | (3,087,523 | ) | (34,805,688 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | (181,220 | ) | $ | (2,095,963 | ) | (1,197,876 | ) | $ | (13,345,502 | ) | ||||||||||
|
| |||||||||||||||||||
Class C Shares: | ||||||||||||||||||||
Shares sold | 159,923 | $ | 1,801,081 | 436,592 | $ | 4,835,910 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 1,688 | 19,060 | ||||||||||||||||
Shares redeemeda | (640,373 | ) | (7,226,688 | ) | (1,207,657 | ) | (13,306,131 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | (480,450 | ) | $ | (5,425,607 | ) | (769,377 | ) | $ | (8,451,161 | ) | ||||||||||
|
| |||||||||||||||||||
Class R Shares: | ||||||||||||||||||||
Shares sold | 5,371 | $ | 61,413 | 20,353 | $ | 232,838 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 271 | 3,120 | ||||||||||||||||
Shares redeemed | (17,457 | ) | (202,942 | ) | (16,509 | ) | (180,132 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | (12,086 | ) | $ | (141,529 | ) | 4,115 | $ | 55,826 | ||||||||||||
|
| |||||||||||||||||||
Class R6 Shares: | ||||||||||||||||||||
Shares sold | 1,169,144 | $ | 13,626,166 | 423,043 | $ | 4,803,618 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 33,385 | 385,596 | ||||||||||||||||
Shares redeemed | (218,915 | ) | (2,563,631 | ) | (2,852,217 | ) | (32,740,779 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | 950,229 | $ | 11,062,535 | (2,395,789 | ) | $ | (27,551,565 | ) | ||||||||||||
|
|
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
2. Shares of Beneficial Interest (continued)
Six Months Ended November 30, 2020 | Year Ended May 31, 2020 | |||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||
Advisor Class Shares: | ||||||||||||||||||||
Shares sold | 12,294,833 | $ | 142,905,497 | 26,636,798 | $ | 304,127,350 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 596,749 | 6,880,518 | ||||||||||||||||
Shares redeemed | (12,180,106 | ) | (141,990,492 | ) | (32,633,640 | ) | (367,644,864 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | 114,727 | $ | 915,005 | (5,400,093 | ) | $ | (56,636,996 | ) | ||||||||||||
|
|
aMay include a portion of Class C shares that were automatically converted to Class A.
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
Subsidiary | Affiliation | |
K2/D&S Management Co., L.L.C. (K2 Advisors) | Investment manager | |
Franklin Templeton Services, LLC (FT Services) | Administrative manager | |
Franklin Templeton Distributors, Inc. (Distributors) | Principal underwriter | |
Franklin Templeton Investor Services, LLC (Investor Services) | Transfer agent |
a. Management Fees
The Fund and K2 Subsidiary pay an investment management fee to K2 Advisors based on the average daily net assets of the Fund and K2 Subsidiary as follows:
Annualized Fee Rate | Net Assets | |
1.90% | Up to and including $1 billion | |
1.85% | Over $1 billion, up to and including $1.5 billion | |
1.80% | Over $1.5 billion, up to and including $3 billion | |
1.75% | In excess of $3 billion |
For the period ended November 30, 2020, the annualized gross effective management fee rate was 1.89% of the Fund’s average daily net assets.
Management fees paid by the Fund are reduced on assets invested in the K2 Subsidiary, in an amount equal to the management fees paid by the K2 Subsidiary.
Prior to June 1, 2020, the Fund and K2 Subsidiary paid an investment management fee to K2 Advisors of 1.90% per year of the average daily net assets of the Fund and K2 Subsidiary.
Under each subadvisory agreement, the below entities provide subadvisory services to the Fund or K2 Subsidiary. The subadvisory fees are paid by K2 Advisors and are not an additional expense of the Fund or K2 Subsidiary. Each subadvisor is compensated for managing its respective portion of the average daily net assets of the Fund or K2 Subsidiary.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
Subadvisors |
Apollo Credit Management LLC |
Bardin Hill Arbitrage IC Management LP |
Chatham Asset Management, LLC |
Chilton Investment Company, LLC |
Electron Capital Partners, LLC |
Ellington Global Asset Management, LLC |
Emso Asset Management Limited |
Graham Capital Management, L.P. |
Grantham, Mayo, Van Otterloo & Co. LLC |
Jennison Associates, LLC |
Lazard Asset Management, LLC |
Loomis Sayles & Company, L.P. |
P. Schoenfeld Asset Management L.P. |
Portland Hill Asset Management Limited |
Wellington Management Company, LLP |
b. Administrative Fees
Under an agreement with K2 Advisors, FT Services provides administrative services to the Fund and K2 Subsidiary. The fee is paid by K2 Advisors based on the Fund and K2 Subsidiary average daily net assets, and is not an additional expense of the Fund or K2 Subsidiary.
c. Distribution Fees
The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s Class A reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Fund’s Class C and R compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate for each class. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31.
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
Class A | 0.30% | |||
Class C | 1.00% | |||
Class R | 0.50% |
The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.
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 | $ | 5,199 | ||
CDSC retained | $ | 3,739 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
3. Transactions with Affiliates (continued)
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the period ended November 30, 2020, the Fund paid transfer agent fees of $609,922, of which $190,064 was retained by Investor Services.
f. Investments in Affiliated Management Investment Companies
The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Consolidated Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. During the period ended November 30, 2020, the Fund held investments in affiliated management investment companies as follows:
Value at Beginning of Period | Purchases | Sales | Realized Gain (Loss) | Net Change in Unrealized Appreciation (Depreciation) | Value at End of Period | Number of Shares Held at End of Period | Income from Securities Loaned | |||||||||||||||||||||||||
Non-Controlled Affiliates | ||||||||||||||||||||||||||||||||
Institutional Fiduciary Trust Money Market Portfolio, 0.00% | $ | 1,731,000 | $ | 36,121,000 | $ | (33,780,000 | ) | $ | — | $ | — | $ | 4,072,000 | 4,072,000 | $ | — | ||||||||||||||||
|
|
g. Waiver and Expense Reimbursements
K2 Advisors has contractually agreed in advance to waive or limit its fees and to assume as their own expense certain expenses otherwise payable by the Fund so that the operating expenses (excluding distribution fees, acquired fund fees and expenses, expenses related to securities sold short and certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations and liquidations) for each class of the Fund do not exceed 1.95 based on the average net assets of each class until September 30, 2021. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.
Investor Services has contractually agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.03% based on the average net assets of the class until September 30, 2021. Prior to October 1, 2020, the Class R6 transfer agent fees were limited to 0.02%.
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended November 30, 2020, there were no credits earned.
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains, if any. At May 31, 2020, the Fund had shortterm capital loss carryforwards of $8,025,560, not subject to expiration.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Income Taxes (continued)
For tax purposes, the Fund may elect to defer any portion of a post-October capital loss or late-year ordinary loss to the first day of the following fiscal year. At May 31, 2020, the Fund deferred late-year ordinary losses of $9,759,745.
At November 30, 2020, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
Cost of investments | $ | 735,860,088 | ||
|
| |||
Unrealized appreciation | $ | 199,306,414 | ||
Unrealized depreciation | (58,811,834 | ) | ||
|
| |||
Net unrealized appreciation (depreciation) | $ | 140,494,580 | ||
|
|
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions, wash sales and investments in the K2 Subsidiary.
6. Investment Transactions
Purchases and sales of investments and securities sold short (excluding short term securities) for the period ended November 30, 2020, aggregated $1,362,728,896 and $1,340,672,791, respectively.
At November 30, 2020, in connection with securities lending transactions, the Fund loaned equity investments and corporate bonds and notes and received $4,955,520 of cash collateral. The gross amounts of recognized liability for such transactions is included in payable upon return of securities loaned in the Consolidated Statement of Assets and Liabilities. The agreements can be terminated at any time.
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, 2020, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $10,055,889 representing 0.8% of the Fund’s net assets. For information as to specific securities, see the accompanying Consolidated Statement of Investments.
8. Concentration of Risk
Investments in issuers domiciled or with significant operations in developing or emerging market countries may be subject to higher risks than investments in developed countries. These risks include fluctuating currency values, underdeveloped legal or business systems, and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities. Currencies of developing or emerging market countries may be subject to significantly greater risks than currencies of developed countries, including the potential inability to repatriate those currencies into U.S. dollars.
At November 30, 2020, the Fund had less than 0.1% of its net assets denominated in Argentine Pesos. Argentina has restricted currency repatriation since September 2019, and had restructured certain issues of its debt. Political and economic conditions in Argentina could continue to affect the value of the Fund’s holdings.
franklintempleton.com | Semiannual Report | 83 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
9. Novel Coronavirus Pandemic
The global outbreak of the novel coronavirus disease, known as COVID-19, has caused adverse effects on many companies, sectors, nations, regions and the markets in general, and may continue for an unpredictable duration. The effects of this pandemic may materially impact the value and performance of the Fund, its ability to buy and sell fund investments at appropriate valuations and its ability to achieve its investment objectives.
10. Restricted Securities
The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Fund may have registration rights for restricted securities. The issuer generally incurs all registration costs.
At November 30, 2020, investments in restricted securities, excluding securities exempt from registration under the 1933 Act, were as follows:
Shares | Issuer | Acquisition Date | Cost | Value | ||||||||||||
4,965 | One Call Corp. | 10/28/19 | $ | 595,597 | $ | 517,597 | ||||||||||
33,337 | One Call Corp., cvt. pfd. | 10/28/19 | 3,999,099 | 3,475,376 | ||||||||||||
|
| |||||||||||||||
Total Restricted Securities (Value is 0.3% of Net Assets) | $ | 4,594,696 | $ | 3,992,973 | ||||||||||||
|
|
11. Unfunded Loan Commitments
The Fund enters into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrowers’ discretion. Unfunded loan commitments and funded portions of credit agreements are marked to market daily and any unrealized appreciation or depreciation is included in the Consolidated Statement of Assets and Liabilities and the Consolidated Statement of Operations. Funded portions of credit agreements are presented in the Consolidated Statement of Investments.
At November 30, 2020, unfunded commitments were as follows:
Borrower | Unfunded Commitment | |||
Array Technologies Inc., Term Loan B | $ | 24,650 | ||
Creed, Term Loan B | 341,625 | |||
Delta Air Lines Inc., Term Loan B | 160,343 | |||
Douglas Holding AG, Term Loan B1 | 1,212,850 | |||
Inspire Brands Inc., Term Loan B | 95,000 | |||
Intelsat Jackson Holdings SA, Term Loan B4 | 2,000,000 | |||
Intelsat Jackson Holdings SA, Term Loan DIP | 137,001 | |||
Playa Hotels & Resorts NV, Term Loan B1 | 568,538 | |||
Riverbed Technology Inc., Term Loan B | 1,266,649 | |||
|
| |||
$ | 5,806,656 | |||
|
|
84 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
12. Other Derivative Information
At November 30, 2020, the investments in derivative contracts are reflected in the Consolidated Statement of Assets and Liabilities as follows:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Contracts Not Accounted for as | 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 | $ | 137,610 | a | Variation margin on futures contracts | $ | 11,463 | a | ||||
Variation margin on centrally cleared swap contracts | 60,683 | a | Variation margin on centrally cleared swap contracts | 25,696 | a | |||||||
Unrealized appreciation on OTC swap contracts | 335,861 | |||||||||||
Foreign exchange contracts | Unrealized appreciation on OTC forward exchange contracts | 2,189,166 | Unrealized depreciation on OTC forward exchange contracts | 2,324,929 | ||||||||
Credit contracts | Variation margin on centrally cleared swap contracts | 531,625 | a | Variation margin on centrally cleared swap contracts | 296,383 | a | ||||||
OTC swap contracts (upfront payments) | 2,158,191 | OTC swap contracts (upfront receipts) | 961,256 | |||||||||
Unrealized appreciation on OTC swap contracts | 589,569 | Unrealized depreciation on OTC swap contracts | 507,089 | |||||||||
Equity contracts | Investments in securities, at value | 655,368 | b | Options written, at value | 146,368 | |||||||
Variation margin on futures contracts | 2,179,293 | a | Variation margin on futures contracts | 2,496,916 | a | |||||||
Unrealized appreciation on OTC swap contracts | 3,932,097 | Unrealized depreciation on OTC swap contracts | 3,062,746 | |||||||||
Commodity contracts | Variation margin on futures contracts | 1,558,000 | a | Variation margin on futures contracts | 1,023,070 | a | ||||||
Unrealized appreciation on OTC swap contracts | 1,736 | |||||||||||
|
|
|
| |||||||||
Totals | $ | 14,329,199 | $ | 10,855,916 | ||||||||
|
|
|
|
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.
bPurchased 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)
12. Other Derivative Information (continued)
For the period ended November 30, 2020, the effect of derivative contracts in the Consolidated Statement of Operations was as follows:
Derivative Contracts Not Accounted for as Hedging Instruments | Consolidated Statement of Operations Location | Net Realized Gain (Loss) for the 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 | Investments | $ | (67,003 | )a | Investments | $ | 965 | a | ||||
Written options | 57,694 | Written options | (1,217 | ) | ||||||||
Futures contracts | 1,146,148 | Futures contracts | (681,249 | ) | ||||||||
Swap contracts | 419,541 | Swap contracts | 507,130 | |||||||||
Foreign exchange contracts | Investments | (233,987 | )a | Investments | 22,364 | a | ||||||
Written options | 175,540 | Written options | 94,433 | |||||||||
Forward exchange contracts | (934,422 | ) | Forward exchange contracts | (542,949 | ) | |||||||
Futures contracts | (6,612 | ) | ||||||||||
Credit contracts | Swap contracts | 2,599,129 | Swap contracts | (2,356,689 | ) | |||||||
Equity contracts | Investments | (944,293 | )a | Investments | (399,142 | )a | ||||||
Written options | 472,510 | Written options | 664,079 | |||||||||
Futures contracts | (18,514,930 | ) | Futures contracts | 7,732,327 | ||||||||
Swap contracts | 12,609,003 | Swap contracts | (1,854,123 | ) | ||||||||
Commodity contracts | Futures contracts | (769,674 | ) | Futures contracts | 631,776 | |||||||
Swap contracts | 19,342 | Swap contracts | 1,736 | |||||||||
|
|
|
| |||||||||
Totals | $ | (3,972,014 | ) | $ | 3,819,441 | |||||||
|
|
|
|
aPurchased option contracts are included in net realized gain (loss) from investments and net change in unrealized appreciation (depreciation) on investments in the Consolidated Statement of Operations.
For the period ended November 30, 2020, the average month end notional amount of options, futures contracts and swap contracts represented 13,347,546 shares/units, $498,150,634 and $185,719,356, respectively. The average month end contract value of forward exchange contracts was $290,703,580.
At November 30, 2020, OTC derivative assets and liabilities are as follows:
Gross Amounts of Assets and Liabilities Presented in the Consolidated Statement of Assets and Liabilities | ||||||||
Assetsa | Liabilitiesa | |||||||
Derivatives | ||||||||
Forward Exchange Contracts | $ | 2,189,166 | $ | 2,324,929 | ||||
Options Purchased | 67,623 | — | ||||||
Swap Contracts | 7,017,454 | 4,531,091 | ||||||
|
| |||||||
Total | $ | 9,274,243 | $ | 6,856,020 | ||||
|
|
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.
86 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
At November 30, 2020, OTC derivative assets, which may be offset against OTC derivative liabilities and collateral received from the counterparty, are as follows:
Amounts Not Offset in the Consolidated Statement of Assets and Liabilities | ||||||||||||||||||||
Gross Amounts of Assets Presented in the Consolidated Statement of Assets and Liabilities | Financial Instruments Available for Offset | Financial Instruments Collateral Receiveda | Cash Collateral Receivedb | Net Amount (Not less than zero) | ||||||||||||||||
Counterparty | ||||||||||||||||||||
BNPP | $ | 18,862 | $ | (5,733 | ) | $ | — | $ | — | $ | 13,129 | |||||||||
BNYM | 20,813 | (20,813 | ) | — | — | — | ||||||||||||||
BOFA | 258,839 | (5,796 | ) | — | — | 253,043 | ||||||||||||||
BZWS | 637,266 | (637,266 | ) | — | — | — | ||||||||||||||
CITI | 42,328 | (34,322 | ) | — | — | 8,006 | ||||||||||||||
DBAB | 81,512 | (5,984 | ) | — | — | 75,528 | ||||||||||||||
FBCO | 233,056 | (2,870 | ) | — | — | 230,186 | ||||||||||||||
GSCO | 1,097,906 | (202,168 | ) | — | (895,738 | ) | — | |||||||||||||
HSBC | 15,004 | (15,004 | ) | — | — | — | ||||||||||||||
JPHQ | 653,122 | (256,259 | ) | (68,858 | ) | — | 328,005 | |||||||||||||
JPHQc | 284,611 | — | — | — | 284,611 | |||||||||||||||
MSCI | 7,400 | (3,342 | ) | — | — | 4,058 | ||||||||||||||
MSCO | 869,503 | (869,503 | ) | — | — | — | ||||||||||||||
MSCOd | 1,417,774 | (1,121,087 | ) | — | — | 296,687 | ||||||||||||||
MSCS | 1,226,531 | (990,460 | ) | — | — | 236,071 | ||||||||||||||
MSCSc | 2,277,928 | — | — | — | 2,277,928 | |||||||||||||||
MSCSd | 1,736 | — | — | — | 1,736 | |||||||||||||||
SSBT | 72,481 | (16,601 | ) | — | — | 55,880 | ||||||||||||||
UBSW | 57,571 | (31,480 | ) | — | — | 26,091 | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | 9,274,243 | $ | (4,218,688 | ) | $ | (68,858 | ) | $ | (895,738 | ) | $ | 4,090,959 | |||||||
|
|
At November 30, 2020, OTC derivative liabilities, which may be offset against OTC derivative assets and collateral pledged to the counterparty, are as follows:
Amounts Not Offset in the Consolidated Statement of Assets and Liabilities | ||||||||||||||||||||
Gross Amounts of Liabilities Presented in the Consolidated Statement of Assets and Liabilities | Financial Instruments Available for Offset | Financial Instruments Collateral Pledged | Cash Collateral Pledgedb | Net Amount (Not less than zero) | ||||||||||||||||
Counterparty | ||||||||||||||||||||
BNPP | $ | 5,733 | $ | (5,733 | ) | $ | — | $ | — | $ | — | |||||||||
BNYM | 362,027 | (20,813 | ) | — | (340,000 | ) | 1,214 | |||||||||||||
BOFA | 5,796 | (5,796 | ) | — | — | — | ||||||||||||||
BZWS | 846,786 | (637,266 | ) | — | (209,520 | ) | — | |||||||||||||
CITI | 34,322 | (34,322 | ) | — | — | — | ||||||||||||||
DBAB | 5,984 | (5,984 | ) | — | — | — | ||||||||||||||
FBCO | 2,870 | (2,870 | ) | — | — | — | ||||||||||||||
GSCO | 202,168 | (202,168 | ) | — | — | — | ||||||||||||||
HSBC | 16,448 | (15,004 | ) | — | — | 1,444 | ||||||||||||||
JPHQ | 256,259 | (256,259 | ) | — | — | — | ||||||||||||||
JPHQc | 381,352 | — | — | — | 381,352 |
franklintempleton.com | Semiannual Report | 87 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
12. Other Derivative Information (continued)
Amounts Not Offset in the Consolidated Statement of Assets and Liabilities | ||||||||||||||||||||
Gross Amounts of Liabilities Presented in the Consolidated Statement of Assets and Liabilities | Financial Instruments Available for Offset | Financial Instruments Collateral Pledged | Cash Collateral Pledgedb | Net Amount (Not less than zero) | ||||||||||||||||
Counterparty (continued) | ||||||||||||||||||||
MSCI | $ | 3,342 | $ | (3,342 | ) | $ | — | $ | — | $ | — | |||||||||
MSCO | 1,210,589 | (869,503 | ) | — | — | 341,086 | ||||||||||||||
MSCOd | 1,121,087 | (1,121,087 | ) | — | — | — | ||||||||||||||
MSCS | 990,460 | (990,460 | ) | — | — | — | ||||||||||||||
MSCSc | 1,362,716 | — | — | — | 1,362,716 | |||||||||||||||
MSCSd | — | — | — | — | — | |||||||||||||||
SSBT | 16,601 | (16,601 | ) | — | — | — | ||||||||||||||
UBSW | 31,480 | (31,480 | ) | — | — | — | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | 6,856,020 | $ | (4,218,688 | ) | $ | — | $ | (549,520 | ) | $ | 2,087,812 | ||||||||
|
|
a At November 30, 2020, the Fund received U.S. Treasury Bonds and Notes 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.
cRepresents derivatives not subject to an ISDA master agreement.
dRepresents derivatives owned by the K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(k).
See Note 1(e) regarding derivative financial instruments.
See Abbreviations on page 90.
13. Credit Facility
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 5, 2021. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.
Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Consolidated Statement of Operations. During the period ended November 30, 2020, the Fund did not use the Global Credit Facility.
14. 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) |
88 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
A summary of inputs used as of November 30, 2020, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments in Securities:a | ||||||||||||||||
Equity Investmentsb | $ | 470,057,263 | $ | 60,188,306 | $ | 4,038,222 | c | $ | 534,283,791 | |||||||
Convertible Bonds | — | 209,459,674 | — | 209,459,674 | ||||||||||||
Corporate Bonds and Notes | — | 99,825,793 | 51,826 | 99,877,619 | ||||||||||||
Corporate Bonds and Notes in Reorganization | — | 4,233,164 | — | 4,233,164 | ||||||||||||
Senior Floating Rate Interests | — | 1,213,065 | — | 1,213,065 | ||||||||||||
Senior Floating Rate Interests in Reorganization | — | — | — | c | — | |||||||||||
Foreign Government and Agency Securities | — | 25,563,817 | 115,310 | 25,679,127 | ||||||||||||
U.S. Government and Agency Securities | — | 253,118 | — | 253,118 | ||||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed Securities | — | 89,927,626 | — | 89,927,626 | ||||||||||||
Municipal Bonds in Reorganization | — | 5,822,725 | — | 5,822,725 | ||||||||||||
Options Purchased | 655,368 | — | — | 655,368 | ||||||||||||
Short Term Investments | 188,835,326 | 11,925,019 | 2,789,036 | 203,549,381 | ||||||||||||
|
| |||||||||||||||
Total Investments in Securities | $ | 659,547,957 | $ | 508,412,307 | $ | 6,994,394 | $ | 1,174,954,658 | ||||||||
|
| |||||||||||||||
Other Financial Instruments: | ||||||||||||||||
Futures Contracts | $ | 3,874,903 | $ | — | $ | — | $ | 3,874,903 | ||||||||
Forward Exchange Contracts | — | 2,189,166 | — | 2,189,166 | ||||||||||||
Swap Contracts | — | 5,451,571 | — | 5,451,571 | ||||||||||||
Unfunded Loan Commitments | — | 57,277 | — | 57,277 | ||||||||||||
|
| |||||||||||||||
Total Other Financial Instruments | $ | 3,874,903 | $ | 7,698,014 | $ | — | $ | 11,572,917 | ||||||||
|
| |||||||||||||||
Liabilities: |
| |||||||||||||||
Other Financial Instruments: |
| |||||||||||||||
Options Written | $ | 146,368 | $ | — | $ | — | $ | 146,368 | ||||||||
Securities Sold Shorta | 271,665,190 | 30,326,185 | — | 301,991,375 | ||||||||||||
Futures Contracts | 3,531,449 | — | — | 3,531,449 | ||||||||||||
Forward Exchange Contracts | — | 2,324,929 | — | 2,324,929 | ||||||||||||
Swap Contracts | — | 3,891,914 | — | 3,891,914 | ||||||||||||
|
| |||||||||||||||
Total Other Financial Instruments | $ | 275,343,007 | $ | 36,543,028 | $ | — | $ | 311,886,035 | ||||||||
|
|
aFor detailed categories, see the accompanying Consolidated Statement of Investments.
bIncludes common, preferred and convertible preferred stocks and exchange traded funds as well as other equity interests.
cIncludes securities determined to have no value at November 30, 2020.
A reconciliation in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 assets and/or liabilities at the beginning and/or end of the period.
15. New Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in the ASU provides optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered based reference rates as of the end of 2021. The ASU is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has reviewed the requirements and believes the adoption of this ASU will not have a material impact on the consolidated financial statements.
franklintempleton.com | Semiannual Report | 89 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franklin K2 Alternative Strategies Fund (continued)
16. Subsequent Events
The Fund has evaluated subsequent events through the issuance of the consolidated financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the consolidated financial statements.
Counterparty | Currency | Selected Portfolio | ||||||||
BNPP | BNP Paribas | ARS | Argentine Peso | ADR | American Depositary Receipt | |||||
BNYM | The Bank of New York Mellon Corp. | AUD | Australian Dollar | ARM | Adjustable Rate Mortgage | |||||
BOFA | Bank of America Corp. | BRL | Brazilian Real | BADLAR | Argentina Deposit Rates BADLAR Private Banks ARS | |||||
BZWS | Barclays Bank PLC | CAD | Canadian Dollar | BCOM | Bloomberg Commodity Index | |||||
CITI | Citigroup, Inc. | CHF | Swiss Franc | CAC | Cotation Assistee en Continu | |||||
DBAB | Deutsche Bank, AG | CNY | Chinese Yuan | CLO | Collateralized Loan Obligation | |||||
FBCO | Credit Suisse Group AG | COP | Colombian Peso | DAX | Deutscher Aktienindex | |||||
GSCO | The Goldman Sachs Group, Inc. | EGP | Egyptian Pound | DIP | Debtor-In-Possession | |||||
HSBC | HSBC Bank USA, N.A. | EUR | Euro | DJIA | Dow Jones Industrial Average | |||||
JPHQ | JP Morgan Chase & Co. | GBP | British Pound | EONIA | Euro OverNight Index Average | |||||
MSCI | Morgan Stanley Capital International PLC | HKD | Hong Kong Dollar | ETF | Exchange Traded Fund | |||||
MSCO | Morgan Stanley & Co. LLC | MXN | Mexican Peso | EURIBOR | Euro Interbank Offered Rate | |||||
MSCS | Morgan Stanley Capital Services LLC | PLN | Polish Zloty | FEDEF | Federal Funds Effective Rate | |||||
SSBT | State Street Bank and Trust Co., N.A. | RUB | Russian Ruble | FHLMC | Federal Home Loan Mortgage Corp. | |||||
UBSW | UBS AG | SEK | Swedish Krona | FNMA | Federal National Mortgage Association | |||||
USD | United States Dollar | FRN | Floating Rate Note | |||||||
FTSE | Financial Times Stock Exchange | |||||||||
GO | General Obligation | |||||||||
Index
| HIBOR | Hong Kong Interbank Offer Rate | ||||||||
HSCEI | Hang Seng China Enterprises Index | |||||||||
CDX.NA.HY | CDX North America High Yield Index | IO | Interest Only | |||||||
CDX.NA.IG | CDX North America Investment Grade Index | JSE | Johannesburg Stock Exchange Index | |||||||
LIBOR | London InterBank Offered Rate | |||||||||
MIB | Milano Italia Borsa | |||||||||
MSCI | Morgan Stanley Capital International | |||||||||
PIK | Payment In-Kind | |||||||||
RBACR | Reserve Bank of Australia Cash Rate | |||||||||
REIT | Real Estate Investment Trust | |||||||||
SARON | Swiss Average Rate Overnight | |||||||||
SONIA | Sterling Overnight Index Average | |||||||||
SPDR | Standard & Poor’s Depositary Receipt | |||||||||
SPI | Swiss Performance Index | |||||||||
STIBOR | Stockholm Interbank Offered Rate | |||||||||
TOPIX | Tokyo Price Index | |||||||||
TSX | Toronto Stock Exchange | |||||||||
WIBOR | Warsaw Interbank Offered Rate |
90 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Board Approval of Sub-Advisory Agreement
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Franklin K2 Alternative Strategies Fund
(Fund)
The Board of Trustees (Board) of Franklin Alternative Strategies Funds (the Trust), including a majority of trustees that are not “interested persons” as such term is defined in section 2(a)(19) of the Investment Company Act of 1940 (hereinafter referred to as “independent trustees”), at a meeting held on July 14, 2020, unanimously approved a sub-advisory agreement (the “New Sub-Advisory Agreement”) with K2/D&S Management Co., L.L.C., the Fund’s investment manager (“K2 Advisors”), and Brigade Capital Management, LP (the “Sub-Advisor”).
In approving the New Sub-Advisory Agreement, the Board, including the independent trustees, determined that fees to be paid under the New Sub-Advisory Agreement were fair and reasonable and that approval of the New Sub-Advisory Agreement was in the interest of the Fund and its shareholders. In making the foregoing approvals, the independent trustees received assistance and advice from their independent counsel and, in addition to the materials provided at prior meetings, considered various matters related to the New Sub-Advisory Agreement including: (1) the proposed form of New Sub-Advisory Agreement; (2) information describing the nature, quality and extent of services that the Sub-Advisor would provide to the Fund, and the proposed sub-advisory fees payable to the Sub-Advisor; (3) a report (written or oral) from K2 Advisors on the diligence conducted on the Sub-Advisor and the reasons for recommending the Sub-Advisor for the Fund, including, but not limited to, the Sub-Advisor’s background, experience, personnel, operations, policies, procedures and compliance functions; and (4) a report (written or oral) from the Trust’s Interim Chief Compliance Officer regarding the Sub-Advisor’s compliance program and capabilities, including the Sub-Advisor’s policies and procedures in place to address potential conflicts of interest, and the diligence undertaken by the Trust’s Interim Chief Compliance Officer with respect thereto. The Board noted that the terms of the New Sub-Advisory Agreement were substantially similar to the terms of the sub-advisory agreements with the Fund’s existing sub-advisors.
The Board’s consideration of whether to approve the New Sub-Advisory Agreement on behalf of the Fund took into account several factors including, but not limited to, the following: (1) the nature and quality of the services to be
provided by the Sub-Advisor to the Fund under the respective New Sub-Advisory Agreement; (2) the Sub-Advisor’s experience as a manager of other accounts; (3) the Sub-Advisor’s strength and reputation within the industry; (4) the fairness of the compensation under the New Sub-Advisory Agreement; (5) the personnel, operations, financial condition, and investment management capabilities, methodologies and resources of the Sub-Advisor; (6) profitability matters; (7) reports (written or oral) from K2 Advisors on the diligence conducted on the Sub-Advisor and the reasons for recommending the Sub-Advisor as a sub-advisor for the Fund, including, but not limited to, the Sub-Advisor’s background, experience, personnel, operations, policies, procedures and compliance functions; and (8) a report (written or oral) from the Trust’s Interim Chief Compliance Officer regarding each compliance program and capabilities, including the Sub-Advisor’s policies and procedures in place to address potential conflicts of interest, and the diligence undertaken by the Trust’s Interim Chief Compliance Officer with respect thereto. Particular attention was given to the due diligence and risk management procedures of K2 Advisors with respect to selecting and overseeing sub-advisors of the Fund, as well as the Sub-Advisor’s risk management program and to derivatives and other complex instruments that are expected to be held by the Fund and how such instruments are expected to be used to pursue the Fund’s investment goals.
The following discussion relates to certain primary factors relevant to the Board’s decision to approve the New Sub-Advisory Agreement. This discussion of the information and factors considered by the Board (including the information and factors discussed above) is not intended to be exhaustive, but rather summarizes certain factors considered by the Board. In view of the wide variety of factors considered, the Board did not, unless otherwise noted, find it practicable to quantify or otherwise assign relative weights to the following factors. In addition, individual trustees may have assigned different weights to various factors.
NATURE, EXTENT AND QUALITY OF SERVICES. The trustees reviewed the nature, extent and quality of the services to be provided by the Sub-Advisor. In this regard, they reviewed the Fund’s investment goal and the Sub-Advisor’s proposed investment strategy, and the Sub-Advisor’s ability to implement such investment goal and/or investment strategy, including, but not limited to, the Sub-Advisor’s trading practices and investment decision processes.
With respect to the sub-advisory services to be provided by the Sub-Advisor, the Board noted the responsibilities that the
franklintempleton.com | Semiannual Report | 91 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
SHAREHOLDER INFORMATION
Sub-Advisor would have with respect to the Fund’s assets to be allocated to the Sub-Advisor by K2-Advisors (the “Sub-Advised Portion”), including, among others, implementing the investment strategies with respect to the Sub-Advised Portion and ensuring compliance with the investment strategies, policies, and limitations of the Sub-Advised Portion. The trustees considered the successful performance of the Sub-Advisor in managing other investment products with investment strategies similar to the investment strategies of the Sub-Advised Portion of the Fund.
The trustees reviewed the portfolio management team at the Sub-Advisor that would be responsible for managing the Sub-Advised Portion, including the team’s performance, staffing, skills and compensation program. The trustees considered various other products, portfolios and entities that are advised by the Sub-Advisor, their relative fees and reasons for differences with respect thereto and any potential conflicts. The Board also considered a report (written or oral) from the Trust’s Interim Chief Compliance Officer regarding the Sub-Advisor’s compliance program as such policies relate to the operations of the Fund. The Board considered the selection and due diligence process employed by K2 Advisors in proposing the Sub-Advisor as a sub-advisor to the Fund, including the due diligence undertaken with respect to the Sub-Advisor’s compliance capabilities.
Based on their review, the trustees were satisfied with the nature and quality of the overall services to be provided by the Sub-Advisor to the Fund and its shareholders and were confident in the abilities of the Sub-Advisor to implement its proposed investment strategy, and to provide quality services to the Fund and its shareholders.
INVESTMENT PERFORMANCE. The Board noted that, as the Sub-Advisor had not provided any services to the Fund, there was no investment performance of the Sub-Advisor with respect to the Fund. The Board considered the investment performance of the Sub-Advisor in managing other investment products with similar investment strategies to the investment strategies of the Sub-Advised Portion. The Board also considered the performance benchmarks for the Fund and how such benchmarks would be utilized to measure the performance of the Sub-Advisor in managing the Sub-Advised Portion.
COMPARATIVE EXPENSES AND PROFITABILITY. The Board considered the cost of the services to be provided by the Sub-Advisor. The Board also noted that it could not evaluate the Sub-Advisor’s profitability with respect to the Fund since no assets had yet been allocated to the Sub-Advisor.
The Board noted that the sub-advisory fees would be paid by K2 Advisors to the Sub-Advisor and would not be additional fees to be borne by the Fund. The Board also noted that the sub-advisory fees to be paid by K2 Advisors to the Sub-Advisor were the product of arms-length negotiations between K2 Advisors and the Sub-Advisor and the Board considered the allocation of the investment management fee charged to the Fund between K2 Advisors and the Sub-Advisor in light of the nature, extent and quality of the investment management services expected to be provided by K2 Advisors and the Sub-Advisor. The trustees considered various other products, portfolios and entities that are advised by the Sub-Advisor, and the allocation of assets and expenses among and within them, as well as their relative fees and reasons for differences with respect thereto and any potential conflicts. The Board considered the extent to which the Sub-Advisor may derive ancillary benefits from the Fund’s operations.
With respect to the impact on K2 Advisors’ and its affiliates’ profitability as a result of hiring the Sub-Advisor as a sub-advisor to the Fund, the Board considered the following: (1) the fee waiver and expense limitation arrangements in effect, and the amount of Fund expenses that were absorbed since the inception of the Fund by K2 Advisors through such arrangements, (2) the sub-advisory fees to be paid to the Sub-Advisor, which are lower than some of the Fund’s existing Sub-Advisors, and (3) K2 Advisors’ belief that the hiring of the Sub-Advisor as a sub-advisor will not have a material impact on K2 Advisors’ profitability.
Based upon its consideration of all these factors, the Board determined that the sub-advisory fee structure for the Sub-Advisor was fair and reasonable.
ECONOMIES OF SCALE. The Board considered economies of scale that may be realized by the Sub-Advisor as the Fund grows larger and the extent to which such economies of scale may be shared with Fund shareholders, as for example, in the level of the sub-advisory fees charged, in the quality and efficiency of services rendered and in increased capital commitments benefiting the Fund directly or indirectly. The trustees noted that benefits of economies of scale will, depending on the fee waiver and expense limitation arrangement in effect at the time, potentially be shared with Fund shareholders due to the decline in the effective investment management fee rate as breakpoints are achieved by the Fund. The Board concluded that economies of scale were deemed not to be a significant factor at that time in light of, among other matters, the fee waiver and expense limitation arrangement in effect.
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CONCLUSION. After consideration of the foregoing factors, and such other matters as were deemed relevant, and with no single factor being determinative to their decision, the trustees—including a majority of the independent trustees—with the assistance of independent counsel approved the New Sub-Advisory Agreement, including the fees payable thereunder, with the Sub-Advisor for the Fund.
Board Approval of Sub-Advisory Agreement
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Franklin K2 Alternative Strategies Fund
(Fund)
The Board of Trustees (Board) of Franklin Alternative Strategies Funds (the Trust), including a majority of trustees that are not “interested persons” as such term is defined in section 2(a)(19) of the Investment Company Act of 1940 (hereinafter referred to as “independent trustees”), at a meeting held on October 20, 2020, unanimously approved the sub-advisory agreement (the “New Sub-Advisory Agreement”) with RV Capital Management Private, Ltd. (“RV Capital”).
In approving the New Sub-Advisory Agreement, the Board, including the independent trustees, determined that fees to be paid under the New Sub-Advisory Agreement were fair and reasonable and that approval of the New Sub-Advisory Agreement was in the interests of the Fund and its shareholders. As part of the approval process, the trustees considered the process undertaken and information provided during their consideration and approval on May 14, 2020 of the investment management agreement between K2/D&S Management Co., L.L.C., the Fund’s investment manager (“K2 Advisors”), and the Trust, on behalf of the Fund, and the sub-advisory agreements between K2 Advisors and each of the Fund’s existing sub-advisors. The trustees also considered that RV Capital had served as a sub-advisor for Franklin K2 Global Macro Opportunities Fund before the fund was liquidated on September 11, 2019.
In making the foregoing approvals, the independent trustees received assistance and advice from their independent counsel and, in addition to the materials provided at prior meetings, considered various materials related to the New Sub-Advisory Agreement including: (1) a copy of the proposed form of New Sub-Advisory Agreement for RV Capital; (2) information describing the nature, quality and extent of services that RV Capital would provide to the Fund, and the proposed sub-advisory fees payable to RV Capital; (3) a
report from K2 Advisors on the diligence conducted on RV Capital and the reasons for recommending RV Capital as a sub-advisor for the Fund, including, but not limited to, RV Capital’s background, experience, personnel, operations, policies, procedures and compliance functions and plans for the integration of such operations, policies, procedures and compliance functions with those of K2 Advisors; and (4) a report from the Fund’s Chief Compliance Officer regarding RV Capital’s compliance program and capabilities, including RV Capital’s policies and procedures in place to address potential conflicts of interest, and the diligence undertaken by the Fund’s Chief Compliance Officer with respect thereto. The Board noted that the terms of the New Sub-Advisory Agreement were substantially similar to the terms of the sub-advisory agreements with the Fund’s existing sub-advisors.
The Board’s consideration of whether to approve the New Sub-Advisory Agreement on behalf of the Fund took into account several factors including, but not limited to, the following: (1) the nature and quality of the services to be provided by RV Capital to the Fund under the New Sub-Advisory Agreement; (2) RV Capital’s experience as a manager of other accounts and its experience as a sub-adviser to the Franklin K2 Global Macro Opportunities Fund; (3) RV Capital’s strength and reputation within the industry; (4) the fairness of the compensation under the New Sub-Advisory Agreement; (5) the personnel, operations, financial condition, and investment management capabilities, methodologies and resources of RV Capital; (6) profitability matters; (7) reports from K2 Advisors on the diligence conducted on RV Capital and the reasons for recommending RV Capital as a sub-advisor for the Fund, including, but not limited to, RV Capital’s background, experience, personnel, operations, policies, procedures and compliance functions and plans for the integration of such operations, policies, procedures and compliance functions with those of K2 Advisors; and (8) a report from the Trust’s Chief Compliance Officer regarding RV Capital’s compliance program and capabilities, including RV Capital’s policies and procedures in place to address potential conflicts of interest, and the diligence undertaken by the Trust’s Chief Compliance Officer with respect thereto. Particular attention was given to the due diligence and risk management procedures of K2 Advisors with respect to selecting and overseeing sub-advisors of the Fund, as well as RV Capital’s risk management program and to derivatives and other complex instruments that are expected to be held by the Fund and how such instruments are expected to be used to pursue the Fund’s investment goals.
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The following discussion relates to certain primary factors relevant to the Board’s decision to approve the New Sub-Advisory Agreement. This discussion of the information and factors considered by the Board (including the information and factors discussed above) is not intended to be exhaustive, but rather summarizes certain factors considered by the Board. In view of the wide variety of factors considered, the Board did not, unless otherwise noted, find it practicable to quantify or otherwise assign relative weights to the following factors. In addition, individual trustees may have assigned different weights to various factors.
NATURE, EXTENT AND QUALITY OF SERVICES. The trustees reviewed the nature, extent and quality of the services to be provided by RV Capital. In this regard, they reviewed the Fund’s investment goal and RV Capital’s proposed investment strategy, and RV Capital’s ability to implement such investment goal and/or investment strategy, including, but not limited to, RV Capital’s trading practices and investment decision processes.
With respect to the sub-advisory services to be provided by RV Capital, the Board noted the responsibilities that RV Capital would have with respect to the Fund’s assets to be allocated to RV Capital by K2-Advisors (the “Sub-Advised Portion”), including, among others, implementing the investment strategies with respect to the Sub-Advised Portion and ensuring compliance with the investment strategies, policies, and limitations of the Sub-Advised Portion. The trustees considered the successful performance of RV Capital in managing other investment products with investment strategies similar to the investment strategies of the Sub-Advised Portion of the Fund.
The trustees reviewed the portfolio management team at RV Capital that would be responsible for managing the Sub-Advised Portion, including the team’s performance, staffing, skills and compensation program. The trustees considered various other products, portfolios and entities that are advised by RV Capital, their relative fees and reasons for differences with respect thereto and any potential conflicts. The Board also considered a report from the Trust’s Chief Compliance Officer regarding RV Capital’s compliance program as such policies relate to the operations of the Fund. The Board considered the selection and due diligence process employed by K2 Advisors in proposing RV Capital as a sub-advisor to the Fund, including the due diligence undertaken with respect to RV Capital’s compliance capabilities, and efforts to integrate RV Capital’s operations, policies, procedures and compliance functions with those of K2 Advisors.
Based on their review, the trustees were satisfied with the nature and quality of the overall services to be provided by RV Capital to the Fund and its shareholders and were confident in the abilities of RV Capital to implement its proposed investment strategy, and to provide quality services to the Fund and its shareholders.
INVESTMENT PERFORMANCE. The Board noted that, as RV Capital had not provided any services to the Fund, there was no investment performance of RV Capital with respect to the Fund. The Board considered the investment performance of RV Capital in managing other investment products with similar investment strategies to the investment strategies of the Sub-Advised Portion, including RV Capital’s performance in managing the Franklin K2 Global Macro Opportunities Fund. The Board also considered the performance benchmarks for the Fund and how such benchmarks would be utilized to measure the performance of RV Capital in managing the Sub-Advised Portion.
COMPARATIVE EXPENSES AND PROFITABILITY. The Board considered the cost of the services to be provided by RV Capital. The Board also noted that it could not evaluate RV Capital’s profitability with respect to the Fund since no assets had yet been allocated to RV Capital.
The Board noted that the sub-advisory fees would be paid by K2 Advisors to RV Capital and would not be additional fees to be borne by the Fund. The Board also noted that the sub-advisory fees to be paid by K2 Advisors to RV Capital were the product of arms-length negotiations between K2 Advisors and RV Capital and the Board considered the allocation of the investment management fee charged to the Fund between K2 Advisors and RV Capital in light of the nature, extent and quality of the investment management services expected to be provided by K2 Advisors and RV Capital. The trustees considered various other products, portfolios and entities that are advised by RV Capital and the allocation of assets and expenses among and within them, as well as their relative fees and reasons for differences with respect thereto and any potential conflicts. The Board considered the extent to which RV Capital may derive ancillary benefits from the Fund’s operations.
With respect to the impact on K2 Advisors’ and its affiliates’ profitability as a result of hiring RV Capital as a sub-advisor to the Fund, the Board considered the following: (1) the fee waiver and expense limitation arrangements in effect, and the amount of Fund expenses that were absorbed since the inception of the Fund by K2 Advisors through such arrangements, (2) the level of sub-advisory fees to be paid to
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RV Capital, and (3) K2 Advisors’ belief that the hiring of RV Capital as a sub-advisor will not have any demonstrable impact on K2 Advisors’ profitability.
Based upon its consideration of all these factors, the Board determined that the sub-advisory fee structure for RV Capital was fair and reasonable.
ECONOMIES OF SCALE. The Board considered economies of scale that may be realized by RV Capital as the Fund grows larger and the extent to which such economies of scale may be shared with Fund shareholders, as for example, in the level of the sub-advisory fees charged, in the quality and efficiency of services rendered and in increased capital commitments benefiting the Fund directly or indirectly. The Board concluded that economies of scale were deemed not to be a significant factor at that time in light of, among other matters, the fee waiver and expense limitation arrangement in effect
CONCLUSION. After consideration of the foregoing factors, and such other matters as were deemed relevant, and with no single factor being determinative to their decision, the trustees—including a majority of the independent trustees—with the assistance of independent counsel approved the New Sub-Advisory Agreement, including the fees payable thereunder, with RV Capital for the Fund.
Board Approval of Sub-Advisory Agreement
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Franklin K2 Alternative Strategies Fund
(Fund)
The Board of Trustees (Board) of Franklin Alternative Strategies Funds (the Trust), including a majority of trustees that are not “interested persons” as such term is defined in section 2(a)(19) of the Investment Company Act of 1940 (hereinafter referred to as “independent trustees”), at a meeting held on November 20, 2020, approved the sub-advisory agreement (the “New Sub-Advisory Agreement”) with One River Asset Management, LLC (“One River”).
In approving the New Sub-Advisory Agreement, the Board, including the independent trustees, determined that fees to be paid under the New Sub-Advisory Agreement were fair and reasonable and that approval of the New Sub-Advisory Agreement was in the interests of the Fund and its shareholders. As part of the approval process, the trustees considered the process undertaken and information provided
during their consideration and approval on May 14, 2020 of the investment management agreement between K2/D&S Management Co., L.L.C., the Fund’s investment manager (“K2 Advisors”), and the Trust, on behalf of the Fund, and the sub-advisory agreements between K2 Advisors and each of the Fund’s existing sub-advisors.
In making the foregoing approvals, the independent trustees received assistance and advice from their independent counsel and, in addition to the materials provided at prior meetings, considered various materials related to the New Sub-Advisory Agreement including: (1) a copy of the proposed form of New Sub-Advisory Agreement for One River; (2) information describing the nature, quality and extent of services that One River would provide to the Fund, and the proposed sub-advisory fees payable to One River; (3) a report from K2 Advisors on the diligence conducted on One River and the reasons for recommending One River as a sub-advisor for the Fund, including, but not limited to, One River’s background, experience, personnel, operations, policies, procedures and compliance functions and plans for the integration of such operations, policies, procedures and compliance functions with those of K2 Advisors; and (4) a report from the Fund’s Chief Compliance Officer regarding One River’s compliance program and capabilities, including One River’s policies and procedures in place to address potential conflicts of interest, and the diligence undertaken by the Fund’s Chief Compliance Officer with respect thereto. The Board noted that the terms of the New Sub-Advisory Agreement were substantially similar to the terms of the sub-advisory agreements with the Fund’s existing sub-advisors.
The Board’s consideration of whether to approve the New Sub-Advisory Agreement on behalf of the Fund took into account several factors including, but not limited to, the following: (1) the nature and quality of the services to be provided by One River to the Fund under the New Sub-Advisory Agreement; (2) One River’s experience as a manager of other accounts; (3) One River’s strength and reputation within the industry; (4) the fairness of the compensation under the New Sub-Advisory Agreement; (5) the personnel, operations, financial condition, and investment management capabilities, methodologies and resources of One River; (6) profitability matters; (7) reports from K2 Advisors on the diligence conducted on One River and the reasons for recommending One River as a sub-advisor for the Fund, including, but not limited to, One River’s background, experience, personnel, operations, policies, procedures and compliance functions and plans for
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the integration of such operations, policies, procedures and compliance functions with those of K2 Advisors; and (8) a report from the Trust’s Chief Compliance Officer regarding One River’s compliance program and capabilities, including One River’s policies and procedures in place to address potential conflicts of interest, and the diligence undertaken by the Trust’s Chief Compliance Officer with respect thereto. Particular attention was given to the due diligence and risk management procedures of K2 Advisors with respect to selecting and overseeing sub-advisors of the Fund, as well as One River’s risk management program and to derivatives and other complex instruments that are expected to be held by the Fund and how such instruments are expected to be used to pursue the Fund’s investment goals.
The following discussion relates to certain primary factors relevant to the Board’s decision to approve the New Sub-Advisory Agreement. This discussion of the information and factors considered by the Board (including the information and factors discussed above) is not intended to be exhaustive, but rather summarizes certain factors considered by the Board. In view of the wide variety of factors considered, the Board did not, unless otherwise noted, find it practicable to quantify or otherwise assign relative weights to the following factors. In addition, individual trustees may have assigned different weights to various factors.
NATURE, EXTENT AND QUALITY OF SERVICES. The trustees reviewed the nature, extent and quality of the services to be provided by One River. In this regard, they reviewed the Fund’s investment goal and One River’s proposed investment strategy, and One River’s ability to implement such investment goal and/or investment strategy, including, but not limited to, One River’s trading practices and investment decision processes.
With respect to the sub-advisory services to be provided by One River, the Board noted the responsibilities that One River would have with respect to the Fund’s assets to be allocated to One River by K2-Advisors (the “Sub-Advised Portion”), including, among others, implementing the investment strategies with respect to the Sub-Advised Portion and ensuring compliance with the investment strategies, policies, and limitations of the Sub-Advised Portion. The trustees considered the successful performance of One River in managing other investment products with investment strategies similar to the investment strategies of the Sub-Advised Portion of the Fund.
The trustees reviewed the portfolio management team at One River that would be responsible for managing the Sub-Advised Portion, including the team’s performance, staffing, skills and compensation program. The trustees considered various other products, portfolios and entities that are advised by One River, their relative fees and reasons for differences with respect thereto and any potential conflicts. The Board also considered a report from the Trust’s Chief Compliance Officer regarding One River’s compliance program as such policies relate to the operations of the Fund. The Board considered the selection and due diligence process employed by K2 Advisors in proposing One River as a sub-advisor to the Fund, including the due diligence undertaken with respect to One River’s compliance capabilities, and efforts to integrate One River’s operations, policies, procedures and compliance functions with those of K2 Advisors.
Based on their review, the trustees were satisfied with the nature and quality of the overall services to be provided by One River to the Fund and its shareholders and were confident in the abilities of One River to implement its proposed investment strategy, and to provide quality services to the Fund and its shareholders.
INVESTMENT PERFORMANCE. The Board noted that, as One River had not provided any services to the Fund, there was no investment performance of One River with respect to the Fund. The Board considered the investment performance of One River in managing other investment products with similar investment strategies to the investment strategies of the Sub-Advised Portion. The Board also considered the performance benchmarks for the Fund and how such benchmarks would be utilized to measure the performance of One River in managing the Sub-Advised Portion.
COMPARATIVE EXPENSES AND PROFITABILITY. The Board considered the cost of the services to be provided by One River. The Board also noted that it could not evaluate One River’s profitability with respect to the Fund since no assets had yet been allocated to One River.
The Board noted that the sub-advisory fees would be paid by K2 Advisors to One River and would not be additional fees to be borne by the Fund. The Board also noted that the sub-advisory fees to be paid by K2 Advisors to One River were the product of arms-length negotiations between K2 Advisors and One River and the Board considered the allocation of the investment management fee charged to the Fund between K2 Advisors and One River in light of the nature, extent and quality of the investment management services expected to be provided by K2 Advisors and One River. The
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trustees considered various other products, portfolios and entities that are advised by One River and the allocation of assets and expenses among and within them, as well as their relative fees and reasons for differences with respect thereto and any potential conflicts. The Board considered the extent to which One River may derive ancillary benefits from the Fund’s operations.
With respect to the impact on K2 Advisors’ and its affiliates’ profitability as a result of hiring One River as a sub-advisor to the Fund, the Board considered the following: (1) the fee waiver and expense limitation arrangements in effect, and the amount of Fund expenses that were absorbed since the inception of the Fund by K2 Advisors through such arrangements, (2) the level of sub-advisory fees to be paid to One River, and (3) K2 Advisors’ belief that the hiring of One River as a sub-advisor will not have any material mpact on K2 Advisors’ profitability.
Based upon its consideration of all these factors, the Board determined that the sub-advisory fee structure for One River was fair and reasonable.
ECONOMIES OF SCALE. The Board considered economies of scale that may be realized by One River as the Fund grows larger and the extent to which such economies of scale may be shared with Fund shareholders, as for example, in the level of the sub-advisory fees charged, in the quality and efficiency of services rendered and in increased capital commitments benefiting the Fund directly or indirectly. The Board concluded that economies of scale were deemed not to be a significant factor at that time in light of, among other matters, the fee waiver and expense limitation arrangement in effect
CONCLUSION. After consideration of the foregoing factors, and such other matters as were deemed relevant, and with no single factor being determinative to their decision, the trustees—including a majority of the independent trustees—with the assistance of independent counsel approved the New Sub-Advisory Agreement, including the fees payable thereunder, with One River for the Fund.
Proxy Voting Policies and Procedures
The Fund’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the
Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Fund’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.
Quarterly Consolidated Statement of Investments
The Trust, on behalf of the Fund, files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year as an exhibit to its report on Form N-PORT. Shareholders may view the filed Form N-PORT by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
Householding of Reports and Prospectuses
You will receive, or receive notice of the availability of, the Fund’s financial reports every six months. In addition, you will receive an annual updated summary prospectus (detail prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports (to the extent received by mail) and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.
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Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
Semiannual Report and Shareholder Letter Franklin K2 Alternative Strategies Fund | ||||||
Investment Manager | Distributor | Shareholder Services | ||||
K2/D&S Management Co., L.L.C. | Franklin Templeton Distributors, Inc. (800) DIAL BEN®/342-5236 franklintempleton.com | (800) 632-2301 | ||||
© 2021 Franklin Templeton Investments. All rights reserved. | 068 S 01/21 |
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN K2 LONG SHORT CREDIT FUND
A Series of Franklin Alternative Strategies Funds
November 30, 2020
Sign up for electronic delivery at franklintempleton.com/edelivery
SHAREHOLDER LETTER
Dear Fellow Shareholder:
During the six months ended November 30, 2020, global economic growth weakened significantly, especially in the early part of the period, as a result of the novel coronavirus (COVID-19) pandemic and subsequent economic lockdowns imposed by many governments worldwide. Global stocks advanced during the period, however, amid the reopening of many economies and investor optimism about the development of COVID-19 treatments and vaccines. Many central banks, including the U.S. Federal Reserve and the European Central Bank, maintained low benchmark interest rates and continued their monetary stimulus programs to bolster economic growth.
In this environment, global developed market stocks, as measured by the MSCI World Index (USD), posted a +21.38% total return for the period.1 Global emerging market stocks, as measured by the MSCI Emerging Markets Index (USD), posted a +31.40% total return.1 Global government bonds, as measured by the FTSE World Government Bond Index (USD), posted a +5.04% total return.1
We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous analysis of Fund subadvisors and markets with a strong emphasis on investment risk management.
We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors
CFA® is a trademark owned by CFA Institute.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook should be well-positioned for the years ahead.
On the following pages, the Fund’s portfolio management team reviews investment decisions that pertain to performance during the past 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 in the future.
As part of Franklin Templeton’s recent organizational changes, I have resigned as President and Chief Investment Officer – Investment Management of the Trust, effective December 4, 2020. Brooks Ritchey, a co-lead portfolio manager for the Fund, has been appointed to this office effective December 4, 2020.
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, 2020, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
Not FDIC Insured | | | May Lose Value | | | No Bank Guarantee |
franklintempleton.com | Not part of the semiannual report | 1 |
Contents | ||||
Semiannual Report | ||||
Franklin K2 Long Short Credit Fund | 3 | |||
Performance Summary | 6 | |||
Your Fund’s Expenses | 8 | |||
Financial Highlights and Statement of Investments | 9 | |||
Financial Statements | 36 | |||
Notes to Financial Statements | 40 | |||
Shareholder Information | 56 |
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SEMIANNUAL REPORT
Franklin K2 Long Short Credit Fund
This semiannual report for Franklin K2 Long Short Credit Fund covers the period ended November 30, 2020.
Your Fund’s Goal and Main Investments
The Fund seeks total return through a combination of current income, capital preservation and capital appreciation. The Fund seeks to achieve its investment goal by allocating its assets across multiple alternative strategies in the fixed income and credit areas, including, but not limited to, some or all of the following: credit long short, structured credit and emerging market fixed income. The Fund is structured as a multi-manager fund, meaning the Fund’s assets are managed by multiple subadvisors, and the Fund’s investment manager has overall responsibility for the Fund’s investments.
Under normal market conditions, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in credit-related investments. The Fund invests in a wide range of securities and other investments including, but not limited to: corporate bonds, mortgage-backed securities (MBS) and asset-backed securities (ABS), U.S. government and agency securities, collateralized debt and loan obligations, foreign government and supranational debt securities, loans and loan participations and derivatives with similar economic characteristics. The Fund may also invest in repurchase agreements, reverse repurchase agreements, mortgage real estate investment trusts (REITs) and other similar transactions.
Performance Overview
The Fund’s Class A shares posted a +8.72% cumulative total return for the six months under review. For comparison, the Fund’s primary benchmark, the HFRX Fixed Income - Credit Index, which measures performance of strategies with exposure to credit across a broad continuum of credit substrategies, posted a +9.94% total return for the same period.1 Also for comparison, the Fund’s secondary benchmark, the ICE BofA U.S. 3-Month Treasury Bill Index, which is an index of short-term U.S. government securities with a remaining term to final maturity of less than three months,
Portfolio Composition* | ||
11/30/20 | ||
% of Total Net Assets | ||
Long Positions | 80.5% | |
Short Positions | -6.7% | |
Short-Term Investments | 13.9% | |
Other Assets, less Liabilities | 12.3% |
*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.
posted a +0.07% total return.2 You can find more of the Fund’s performance data in the Performance Summary beginning on page 6.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Economic and Market Overview
Global developed and emerging market equities, as measured by the MSCI All Country World Index, posted a +22.55% total return during the six months ended November 30, 2020.2 Equities in all major regions of the world posted sizable gains despite a significant global recession following the implementation of stringent social distancing measures to slow the spread of the novel coronavirus (COVID-19). Government stimulus measures and a gradual easing of restrictions drove a resumption of economic activity, leading stocks higher throughout most of the period. Optimism about the development of treatments and vaccines for COVID-19 further supported the recovery in equity prices. In particular, news late in the period that several different vaccine trials had shown effectiveness rates of at least 90% boosted stocks across the globe.
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 14.
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FRANKLIN K2 LONG SHORT CREDIT FUND
In the U.S., pandemic-related restrictions caused stiff economic headwinds that included mass layoffs. According to the National Bureau of Economic Research, the U.S. economy slipped into a deep recession in February 2020, and second-quarter gross domestic product (GDP) declined at a record annualized rate. Optimism about an economic rebound amid the government’s fiscal and monetary stimulus, along with rising retail sales and resilient consumer spending, drove a sharp equity rally during the summer. Improving economic activity led third-quarter GDP to expand at a record annualized pace, while declining jobless claims drove the unemployment rate from a pandemic high of 14.7% in April to 6.7% in November.3 Late in the period, the results of the U.S. presidential election and the avoidance of prolonged uncertainty about the election outcome also buoyed markets.
The U.S. Federal Reserve (Fed) maintained the federal funds target rate at a range of 0.00%–0.25% and continued its program of open-ended purchasing of government bond and corporate bonds as necessary to help keep markets functioning, significantly expanding its balance sheet. Furthermore, the Fed signaled that interest rates would potentially remain low, even if inflation moderately exceeded the Fed’s 2% target for some time.
In the eurozone, economic growth resumed in the third quarter of 2020 compared to the previous quarter, following two consecutive quarters of contraction. European developed market equities, as measured by the MSCI Europe Index, posted a +20.26% total return during the period amid stimulus measures to mitigate the economic impact of the pandemic and relaxation of some social distancing restrictions.2 Although stock prices declined in September and October as rising infection rates heightened concerns that the nascent economic revival could stall, positive vaccine trials in November led to a rebound, and European developed market equities ended the period with strong gains.
Asian developed and emerging market equities posted a +27.32% total return, as measured by the MSCI All Country Asia Index.2 China’s second- and third-quarter 2020 economic recovery, a key driver of the region’s economic activity, supported the stock market rebound. Government stimulus measures and continued economic reopening also buoyed investor sentiment. Renewed geopolitical tensions in the region pressured Asian stocks in October, but stocks rebounded sharply in November following positive news about vaccine development.
Global emerging market stocks, as measured by the MSCI Emerging Markets Index, posted a +31.40% total return.2 Improving economic activity, stabilizing oil prices and U.S. dollar weakness led emerging market equities higher. Despite rising COVID-19 cases in some countries, emerging market stocks rallied in November 2020 amid hopes that the new U.S. presidential administration would improve trade relations.
Investment Strategy
We manage the Fund using a multi-manager approach. While we have overall responsibility for the Fund’s investments, we allocate the Fund’s assets to multiple subadvisors, each of whom independently manages a separate portion of the Fund’s portfolio in accordance with some or all of the following strategies: credit long short, structured credit and emerging market fixed income. We allocate the Fund’s assets among these strategies utilizing a top-down approach, generating the Fund’s strategy and subadvisor weightings by taking into account market conditions, risk factors, diversification, liquidity, transparency, and other investment options, among other things. We allocate the Fund’s assets to specific subadvisors utilizing a bottom-up approach, selecting subadvisors and their weighting within the Fund’s portfolio by taking into account their correlation to various markets and to each other, risk profiles and their return expectations.
Credit long short strategies seek to isolate issuer-specific exposure, while limiting general market risks, by taking long and/or short positions in debt securities and other related instruments. Structured credit strategies aim to profit from trading in interest-rate sensitive securities such as residential and commercial MBS, REITs, credit default swaps on various indexes, collateralized loan obligations (CLOs) and ABS. Emerging market fixed income strategies invest in corporate and/or sovereign securities in emerging markets countries with a focus on fixed income. The Fund may invest in debt securities of any credit quality or rating, including high-yield (“junk”) bonds, distressed debt securities (securities of companies that are, or are about to be, involved in reorganizations, financial restructurings, or bankruptcy) and securities that are in default. The Fund may engage in active and frequent trading as part of its investment strategies.
The Fund takes long and/or short positions in a wide range of asset classes, including credit, fixed income, equities and currencies, among others. The Fund may gain long or short exposure to select instruments by utilizing derivatives,
3. Source: U.S. Bureau of Labor Statistics.
See www.franklintempletondatasources.com for additional data provider information.
4 | Semiannual Report | franklintempleton.com |
FRANKLIN K2 LONG SHORT CREDIT FUND
engaging in short sales or entering into a series of purchase and sale contracts or repurchase agreements. Long positions benefit from an increase in the price of the underlying instrument, while short positions benefit from a decrease in that price. The Fund may also use derivatives for hedging and nonhedging (investment) purposes, although no subadvisor is required to hedge any of the Fund’s positions or to use derivatives. Such derivative investments may include currency forward contracts; futures contracts; put and call
options on currencies, securities, indexes and exchange-traded funds; and swaps.
Subadvisors | ||||
11/30/20 | ||||
Credit Long Short | ||||
Apollo Credit Management LLC | ||||
Benefit Street Partners L.L.C. | ||||
Chatham Asset Management, LLC | ||||
Structured Credit | ||||
Ellington Global Asset Management, LLC | ||||
Medalist Partners, LP | ||||
Emerging Market Fixed Income | ||||
Emso Asset Management Limited |
Manager’s Discussion
The Fund’s subadvisors for the six months under review were Apollo Credit Management, Benefit Street Partners (added in September), Chatham Asset Management, Ellington Global Asset Management, Emso Asset Management and Medalist Partners. These subadvisors are also listed in the Subadvisors table on this page. All six subadvisors posted gains for the period.
All of the Fund’s three strategies strengthened performance for the six-month period: credit long short, structured credit and emerging markets fixed income. By asset class, the top positive contributors to the Fund’s aggregate returns were credit and interest rates. Conversely, our exposures to equity and currencies (net short position versus the U.S. dollar) detracted from performance.
In terms of aggregate sector exposures, the top positive drivers of performance for the Fund were MBS, ABS and Utilities. In contrast, credit index and equity index hedges, as well as currencies, hindered returns.
The credit long short strategy benefited from long positions in the utilities, communication services and consumer discretionary sectors. Conversely, net short currency positions versus the U.S. dollar, long energy positions and equity index hedges were net detractors from strategy results.
In the structured credit strategy, MBS and ABS led positive performance contributors. In contrast, credit index hedges detracted from strategy results.
In the emerging markets fixed income strategy, positive performance contributors included long positions in Puerto Rico municipal bonds, which benefited from investor optimism about debt restructuring discussions. Conversely, short positions in U.S. bond index futures negatively affected strategy results. Long positions in Russian sovereign bonds also detracted from strategy results, as the local rates and foreign exchange came under pressure amid weaker investor risk sentiment, lower oil prices and potentially heightened possibility of sanctions related to political and geopolitical tensions. However, this loss was partially offset by short positions in Russian currency forwards.
Thank you for your participation in Franklin K2 Long Short Credit Fund. We look forward to continuing to serve your future investment needs.
Robert Christian |
Co-Lead Portfolio Manager |
Brooks Ritchey |
Co-Lead Portfolio Manager |
Art Vinokur |
Portfolio Manager |
The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2020, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
franklintempleton.com | Semiannual Report | 5 |
FRANKLIN K2 LONG SHORT CREDIT FUND
Performance Summary as of November 30, 2020
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 11/30/201
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.50% and the minimum is 0%. Class A: 5.50% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
Share Class | Cumulative Total Return2 | Average Annual Total Return3 | ||||||
A4 | ||||||||
6-Month | +8.72% | +2.78% | ||||||
1-Year | +4.16% | -1.61% | ||||||
5-Year | +24.34% | +3.27% | ||||||
Since Inception (9/8/15) | +25.34% | +3.29% | ||||||
Advisor | ||||||||
6-Month | +8.81% | +8.81% | ||||||
1-Year | +4.47% | +4.47% | ||||||
5-Year | +25.21% | +4.60% | ||||||
Since Inception (9/8/15) | +26.34% | +4.57% |
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 7 for Performance Summary footnotes.
6 | Semiannual Report | franklintempleton.com |
FRANKLIN K2 LONG SHORT CREDIT FUND
PERFORMANCE SUMMARY
Total Annual Operating Expenses5
Share Class | With Fee Waiver | Without Fee Waiver | ||||||
A | 2.32% | 2.82% | ||||||
Advisor | 2.07% | 2.57% |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. The market values of securities owned by the Fund will go up or down, sometimes rapidly or unpredictably. The Fund’s performance depends on the manager’s skill in selecting, overseeing and allocating Fund assets to the subadvisors. The Fund is actively managed and could experience losses if the manager’s and subadvisors’ judgment about particular Fund portfolio investments prove to be incorrect. Some subadvisors may have little or no experience managing the assets of a registered investment company. Bond prices generally move in the opposite direction of interest rates. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. Lower-rated or high-yield debt securities (junk bonds) involve greater credit risk, including the possibility of default or bankruptcy. Liquidity risk exists when securities become more difficult to sell, or are unable to be sold, at the price at which they have been valued. Investments in derivatives involve costs and create economic leverage, which may result in significant volatility and cause the Fund to participate in losses (as well as gains) that significantly exceed the Fund’s initial investment. The Fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. Unexpected events and their aftermaths, such as the spread of deadly diseases; natural, environmental or man-made disasters; financial, political or social disruptions; terrorism and war; and other tragedies or catastrophes, can cause investor fear and panic, which can adversely affect the economies of many companies, sectors, nations, regions and the market in general, in ways that cannot necessarily be foreseen. The Fund’s prospectus also includes a description of the main investment risks, including the risks of foreign investments.
1. The Fund has an expense reduction contractually guaranteed through 9/30/21. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.
4. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%, thus actual returns (with sales charges) would have differed. Average annual total returns (with sales charges) have been restated to reflect the current maximum initial sales charge of 5.50%.
5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
franklintempleton.com | Semiannual Report | 7 |
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 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 | Beginning Account Value 6/1/20 | Ending Account Value 11/30/20 | Expenses Paid During Period 6/1/20–11/30/201,2 | Ending Account Value 11/30/20 | Expenses Paid During Period 6/1/20–11/30/201,2 | Net Annualized Expense Ratio2 | ||||||||||||||||||
A | $ | 1,000 | $ | 1,087.20 | $ | 11.99 | $ | 1,013.58 | $ | 11.57 | 2.29 | % | ||||||||||||
C | $ | 1,000 | $ | 1,082.60 | $ | 16.19 | $ | 1,009.52 | $ | 15.62 | 3.10 | % | ||||||||||||
R | $ | 1,000 | $ | 1,085.00 | $ | 13.65 | $ | 1,011.98 | $ | 13.17 | 2.61 | % | ||||||||||||
R6 | $ | 1,000 | $ | 1,088.10 | $ | 10.62 | $ | 1,014.89 | $ | 10.25 | 2.03 | % | ||||||||||||
Advisor | $ | 1,000 | $ | 1,088.10 | $ | 11.05 | $ | 1,014.49 | $ | 10.66 | 2.11 | % |
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.
8 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Franklin K2 Long Short Credit Fund
Six Months Ended November 30, 2020 (unaudited) | Year Ended May 31, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016a | ||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Per share operating performance (for a share outstanding throughout the period) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.86 | $ | 10.45 | $ | 10.50 | $ | 10.49 | $ | 10.15 | $ | 10.00 | ||||||||||||
|
| |||||||||||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||||||
Net investment incomec | 0.14 | 0.23 | 0.37 | 0.29 | 0.23 | 0.21 | ||||||||||||||||||
Net realized and unrealized gains (losses) | 0.72 | (0.53 | ) | (0.02 | ) | 0.08 | 0.53 | 0.08 | ||||||||||||||||
|
| |||||||||||||||||||||||
Total from investment operations | 0.86 | (0.30 | ) | 0.35 | 0.37 | 0.76 | 0.29 | |||||||||||||||||
|
| |||||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.25 | ) | (0.31 | ) | (0.19 | ) | (0.32 | ) | (0.08 | ) | |||||||||||||
Net realized gains | — | (0.04 | ) | (0.09 | ) | (0.17 | ) | (0.10 | ) | (0.06 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.29 | ) | (0.40 | ) | (0.36 | ) | (0.42 | ) | (0.14 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.72 | $ | 9.86 | $ | 10.45 | $ | 10.50 | $ | 10.49 | $ | 10.15 | ||||||||||||
|
| |||||||||||||||||||||||
Total returnd | 8.72% | (2.92)% | 3.42% | 3.63% | 7.58% | 2.99% | ||||||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 2.89% | 3.24% | 3.15% | 3.51% | 3.50% | 3.37% | ||||||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.29% | 2.74% | 2.69% | 2.98% | g | 2.75% | 2.30% | g | ||||||||||||||||
Expenses incurred in connection with securities sold short | 0.46% | 0.58% | 0.62% | 0.89% | 0.76% | 0.40% | ||||||||||||||||||
Net investment income | 2.72% | 2.24% | 3.49% | 2.71% | 2.24% | 2.85% | ||||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $22,543 | $20,212 | $27,870 | $45,088 | $41,001 | $28,198 | ||||||||||||||||||
Portfolio turnover rate | 111.10% | 205.14% | 158.66% | 251.81% | 317.70% | 511.62% |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
gBenefit of expense reduction rounds to less than 0.01%.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 9 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL HIGHLIGHTS
Franklin K2 Long Short Credit Fund (continued)
Six Months Ended November 30, 2020 (unaudited) | Year Ended May 31, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016a | ||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Per share operating performance (for a share outstanding throughout the period) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.69 | $ | 10.26 | $ | 10.34 | $ | 10.35 | $ | 10.07 | $ | 10.00 | ||||||||||||
|
| |||||||||||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||||||
Net investment incomec | 0.10 | 0.15 | 0.27 | 0.19 | 0.14 | 0.09 | ||||||||||||||||||
Net realized and unrealized gains (losses) | 0.70 | (0.52 | ) | (0.01 | ) | 0.07 | 0.52 | 0.12 | ||||||||||||||||
|
| |||||||||||||||||||||||
Total from investment operations | 0.80 | (0.37 | ) | 0.26 | 0.26 | 0.66 | 0.21 | |||||||||||||||||
|
| |||||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.16 | ) | (0.25 | ) | (0.10 | ) | (0.28 | ) | (0.08 | ) | |||||||||||||
Net realized gains | — | (0.04 | ) | (0.09 | ) | (0.17 | ) | (0.10 | ) | (0.06 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.20 | ) | (0.34 | ) | (0.27 | ) | (0.38 | ) | (0.14 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.49 | $ | 9.69 | $ | 10.26 | $ | 10.34 | $ | 10.35 | $ | 10.07 | ||||||||||||
|
| |||||||||||||||||||||||
Total returnd | 8.26% | (3.66)% | 2.61% | 2.70% | 6.56% | 2.20% | ||||||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.70% | 3.96% | 4.03% | 4.37% | 4.44% | 3.62% | ||||||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 3.10% | 3.46% | 3.57% | 3.84% | g | 3.69% | 2.55% | g | ||||||||||||||||
Expenses incurred in connection with securities sold short | 0.46% | 0.58% | 0.62% | 0.89% | 0.76% | 0.40% | ||||||||||||||||||
Net investment income | 1.91% | 1.52% | 2.61% | 1.85% | 1.30% | 2.60% | ||||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $2,886 | $2,882 | $2,893 | $2,503 | $1,507 | $270 | ||||||||||||||||||
Portfolio turnover rate | 111.10% | 205.14% | 158.66% | 251.81% | 317.70% | 511.62% |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
gBenefit of expense reduction rounds to less than 0.01%.
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 November 30, 2020 (unaudited) | Year Ended May 31, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016a | ||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Per share operating performance (for a share outstanding throughout the period) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.77 | $ | 10.36 | $ | 10.41 | $ | 10.41 | $ | 10.10 | $ | 10.00 | ||||||||||||
|
| |||||||||||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||||||
Net investment incomec | 0.12 | 0.21 | 0.33 | 0.25 | 0.20 | 0.08 | ||||||||||||||||||
Net realized and unrealized gains (losses) | 0.71 | (0.53 | ) | (0.01 | ) | 0.09 | 0.53 | 0.16 | ||||||||||||||||
|
| |||||||||||||||||||||||
Total from investment operations | 0.83 | (0.32 | ) | 0.32 | 0.34 | 0.73 | 0.24 | |||||||||||||||||
|
| |||||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.23 | ) | (0.28 | ) | (0.17 | ) | (0.32 | ) | (0.08 | ) | |||||||||||||
Net realized gains | — | (0.04 | ) | (0.09 | ) | (0.17 | ) | (0.10 | ) | (0.06 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.27 | ) | (0.37 | ) | (0.34 | ) | (0.42 | ) | (0.14 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.60 | $ | 9.77 | $ | 10.36 | $ | 10.41 | $ | 10.41 | $ | 10.10 | ||||||||||||
|
| |||||||||||||||||||||||
Total returnd | 8.50% | (3.13)% | 3.12% | 3.29% | 7.29% | 2.48% | ||||||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.21% | 3.46% | 3.50% | 3.82% | 3.83% | 3.37% | ||||||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.61% | 2.96% | 3.04% | 3.29% | g | 3.08% | 2.30% | g | ||||||||||||||||
Expenses incurred in connection with securities sold short | 0.46% | 0.58% | 0.62% | 0.89% | 0.76% | 0.40% | ||||||||||||||||||
Net investment income | 2.40% | 2.02% | 3.14% | 2.40% | 1.91% | 2.85% | ||||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $184 | $169 | $166 | $162 | $127 | $12 | ||||||||||||||||||
Portfolio turnover rate | 111.10% | 205.14% | 158.66% | 251.81% | 317.70% | 511.62% |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
gBenefit of expense reduction rounds to less than 0.01%.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 11 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL HIGHLIGHTS
Franklin K2 Long Short Credit Fund (continued)
Six Months Ended November 30, 2020 (unaudited) | Year Ended May 31, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016a | ||||||||||||||||||||
Class R6 | ||||||||||||||||||||||||
Per share operating performance (for a share outstanding throughout the period) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.87 | $ | 10.45 | $ | 10.51 | $ | 10.50 | $ | 10.15 | $ | 10.00 | ||||||||||||
|
| |||||||||||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||||||
Net investment incomec | 0.15 | 0.26 | 0.36 | 0.31 | 0.24 | 0.23 | ||||||||||||||||||
Net realized and unrealized gains (losses) | 0.72 | (0.53 | ) | — | d | 0.08 | 0.53 | 0.06 | ||||||||||||||||
|
| |||||||||||||||||||||||
Total from investment operations | 0.87 | (0.27 | ) | 0.36 | 0.39 | 0.77 | 0.29 | |||||||||||||||||
|
| |||||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.27 | ) | (0.33 | ) | (0.21 | ) | (0.32 | ) | (0.08 | ) | |||||||||||||
Net realized gains | — | (0.04 | ) | (0.09 | ) | (0.17 | ) | (0.10 | ) | (0.06 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.31 | ) | (0.42 | ) | (0.38 | ) | (0.42 | ) | (0.14 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.74 | $ | 9.87 | $ | 10.45 | $ | 10.51 | $ | 10.50 | $ | 10.15 | ||||||||||||
|
| |||||||||||||||||||||||
Total returne | 8.81% | (2.58)% | 3.53% | 3.76% | 7.71% | 3.01% | ||||||||||||||||||
Ratios to average net assetsf | ||||||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductiong | 3.32% | 2.95% | 3.10% | 3.35% | 3.43% | 3.35% | ||||||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductiong | 2.03% | 2.41% | 2.55% | 2.83% | h | 2.68% | 2.28% | h | ||||||||||||||||
Expenses incurred in connection with securities sold short | 0.46% | 0.58% | 0.62% | 0.89% | 0.76% | 0.40% | ||||||||||||||||||
Net investment income | 2.98% | 2.57% | 3.63% | 2.86% | 2.31% | 2.87% | ||||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $6 | $5 | $233 | $13 | $13,052 | $12,384 | ||||||||||||||||||
Portfolio turnover rate | 111.10% | 205.14% | 158.66% | 251.81% | 317.70% | 511.62% |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dAmount rounds to less than $0.01 per share.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
hBenefit of expense reduction rounds to less than 0.01%.
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 November 30, 2020 (unaudited) | Year Ended May 31, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016a | ||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Per share operating performance (for a share outstanding throughout the period) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.88 | $ | 10.46 | $ | 10.51 | $ | 10.50 | $ | 10.15 | $ | 10.00 | ||||||||||||
|
| |||||||||||||||||||||||
Income from investment operationsb: | ||||||||||||||||||||||||
Net investment incomec | 0.15 | 0.26 | 0.38 | 0.30 | 0.24 | 0.20 | ||||||||||||||||||
Net realized and unrealized gains (losses) | 0.72 | (0.53 | ) | (0.01 | ) | 0.09 | 0.53 | 0.09 | ||||||||||||||||
|
| |||||||||||||||||||||||
Total from investment operations | 0.87 | (0.27 | ) | 0.37 | 0.39 | 0.77 | 0.29 | |||||||||||||||||
|
| |||||||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | — | (0.27 | ) | (0.33 | ) | (0.21 | ) | (0.32 | ) | (0.08 | ) | |||||||||||||
Net realized gains | — | (0.04 | ) | (0.09 | ) | (0.17 | ) | (0.10 | ) | (0.06 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Total distributions | — | (0.31 | ) | (0.42 | ) | (0.38 | ) | (0.42 | ) | (0.14 | ) | |||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.75 | $ | 9.88 | $ | 10.46 | $ | 10.51 | $ | 10.50 | $ | 10.15 | ||||||||||||
|
| |||||||||||||||||||||||
Total returnd | 8.81% | (2.61)% | 3.60% | 3.75% | 7.70% | 2.99% | ||||||||||||||||||
Ratios to average net assetse | ||||||||||||||||||||||||
Expenses before waiver, payments by affiliates and expense reductionf | 2.71% | 2.96% | 3.03% | 3.37% | 3.44% | 3.36% | ||||||||||||||||||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.11% | 2.46% | 2.57% | 2.84% | g | 2.69% | 2.29% | g | ||||||||||||||||
Expenses incurred in connection with securities sold short | 0.46% | 0.58% | 0.62% | 0.89% | 0.76% | 0.40% | ||||||||||||||||||
Net investment income | 2.90% | 2.52% | 3.61% | 2.85% | 2.30% | 2.86% | ||||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $69,435 | $73,047 | $86,868 | $45,514 | $25,125 | $23,058 | ||||||||||||||||||
Portfolio turnover rate | 111.10% | 205.14% | 158.66% | 251.81% | 317.70% | 511.62% |
aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return is not annualized for periods less than one year.
eRatios are annualized for periods less than one year.
fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the periods presented. See Note 1(i).
gBenefit of expense reduction rounds to less than 0.01%.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 13 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Statement of Investments, November 30, 2020 (unaudited)
Franklin K2 Long Short Credit Fund
Country | Shares | Value | ||||||||||||||||
Common Stocks and Other Equity Interests 3.0% | ||||||||||||||||||
Biotechnology 0.0%† | ||||||||||||||||||
a | CytoDyn Inc. | United States | 2,389 | $ | 6,379 | |||||||||||||
|
| |||||||||||||||||
Capital Markets 0.1% | ||||||||||||||||||
a,b | Churchill Capital Corp. IV | United States | 7,537 | 75,973 | ||||||||||||||
a | Gores Holdings V Inc. | United States | 1,885 | 19,321 | ||||||||||||||
a | Open Lending Corp., A | United States | 1,723 | 48,451 | ||||||||||||||
|
| |||||||||||||||||
143,745 | ||||||||||||||||||
|
| |||||||||||||||||
Chemicals 0.0%† | ||||||||||||||||||
Advanced Emissions Solutions Inc. | United States | 4,557 | 25,747 | |||||||||||||||
|
| |||||||||||||||||
Commercial Services & Supplies 0.0%† | ||||||||||||||||||
Covanta Holding Corp. | United States | 2,532 | 31,397 | |||||||||||||||
|
| |||||||||||||||||
Diversified Financial Services 1.2% | ||||||||||||||||||
a | Aequi Acquisition Corp. | United States | 7,529 | 75,290 | ||||||||||||||
a | Ajax I | United States | 6,643 | 70,881 | ||||||||||||||
a | Altimeter Growth Corp. | United States | 2,513 | 30,633 | ||||||||||||||
a | Avanti Acquisition Corp. | Cayman Islands | 5,477 | 55,646 | ||||||||||||||
a | Bluescape Opportunities Acquisition Corp. | United States | 6,643 | 66,563 | ||||||||||||||
a | Bridgetown Holdings Ltd. | Hong Kong | 4,293 | 44,647 | ||||||||||||||
a | Burgundy Technology Acquisition Corp. | United States | 5,645 | 57,579 | ||||||||||||||
a | Consonance-HFW Acquisition Corp. | United States | 687 | 6,913 | ||||||||||||||
a | Dragoneer Growth Opportunities Corp. II | United States | 1,140 | 12,426 | ||||||||||||||
a,b | Executive Network Partnering Corp. | United States | 4,539 | 113,475 | ||||||||||||||
a | Falcon Capital Acquisition Corp. | United States | 2,819 | 29,543 | ||||||||||||||
a | Fast Acquisition Corp. | United States | 1,355 | 14,024 | ||||||||||||||
a | FTAC Olympus Acquisition Corp. | United States | 1,720 | 17,544 | ||||||||||||||
a | GO Acquisition Corp. | United States | 1,285 | 13,043 | ||||||||||||||
a | Health Assurance Acquisition Corp. | United States | 2,084 | 21,861 | ||||||||||||||
a | Investindustrial Acquisition Corp. | United Kingdom | 2,577 | 26,002 | ||||||||||||||
a | Landcadia Holdings III Inc. | United States | 7,368 | 74,638 | ||||||||||||||
a | Montes Archimedes Acquisition Corp. | United States | 1,984 | 19,919 | ||||||||||||||
a | NextGen Acquisition Corp. | United States | 2,204 | 22,062 | ||||||||||||||
a | Northern Star Acquisition Corp. | United States | 2,080 | 20,904 | ||||||||||||||
a,c,d | One Call Corp. | United States | 947 | 98,676 | ||||||||||||||
a | Pine Island Acquisition Corp. | United States | 3,802 | 38,400 | ||||||||||||||
a | Population Health Investment Co. Inc. | United States | 1,330 | 13,553 | ||||||||||||||
a | Starboard Value Acquisition Corp., A | United States | 1,885 | 19,265 | ||||||||||||||
a | Supernova Partners Acquisition Co. Inc. | United States | 2,694 | 28,098 | ||||||||||||||
a | Tekkorp Digital Acquisition Corp. | United States | 3,289 | 33,383 | ||||||||||||||
a | Thunder Bridge Acquisition II Ltd. | United States | 3,174 | 32,629 | ||||||||||||||
a | TPG Pace Beneficial Finance Corp. | United States | 1,543 | 16,063 | ||||||||||||||
a | TPG Pace Tech Opportunities Corp. | United States | 2,645 | 27,772 | ||||||||||||||
a | TWC Tech Holdings II Corp. | United States | 2,887 | 29,505 | ||||||||||||||
|
| |||||||||||||||||
1,130,937 | ||||||||||||||||||
|
| |||||||||||||||||
Diversified Telecommunication Services 0.3% | ||||||||||||||||||
a | Liberty Global PLC, C | United Kingdom | 6,944 | 150,268 | ||||||||||||||
Telecom Italia SpA | Italy | 266,225 | 125,466 | |||||||||||||||
Telecom Italia SpA, RSP | Italy | 32,273 | 16,508 | |||||||||||||||
|
| |||||||||||||||||
292,242 | ||||||||||||||||||
|
| |||||||||||||||||
Electric Utilities 0.0%† | ||||||||||||||||||
a,b | PG&E Corp. | United States | 4,010 | 50,927 | ||||||||||||||
|
| |||||||||||||||||
Equity Real Estate Investment Trusts (REITs) 0.2% | ||||||||||||||||||
b | VICI Properties Inc. | United States | 9,186 | 232,314 | ||||||||||||||
|
|
14 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Shares | Value | ||||||||||||||||
Common Stocks and Other Equity Interests (continued) | ||||||||||||||||||
Hotels, Restaurants & Leisure 0.2% | ||||||||||||||||||
Carnival PLC | United States | 8,777 | $ | 152,144 | ||||||||||||||
|
| |||||||||||||||||
Independent Power & Renewable Electricity Producers 0.5% | ||||||||||||||||||
Clearway Energy Inc., A | United States | 17,917 | 486,267 | |||||||||||||||
b | Clearway Energy Inc., C | United States | 133 | 3,893 | ||||||||||||||
|
| |||||||||||||||||
490,160 | ||||||||||||||||||
|
| |||||||||||||||||
Media 0.1% | ||||||||||||||||||
a | Postmedia Network Canada Corp., B | Canada | 56,068 | 69,508 | ||||||||||||||
|
| |||||||||||||||||
Multi-Utilities 0.1% | ||||||||||||||||||
b | Northwestern Corp. | United States | 1,076 | 62,408 | ||||||||||||||
|
| |||||||||||||||||
Paper & Forest Products 0.0%† | ||||||||||||||||||
a,c | Topco Associates LLC | United Kingdom | 100,439 | — | ||||||||||||||
|
| |||||||||||||||||
Professional Services 0.0%† | ||||||||||||||||||
a,c,d | Acosta Inc. | United States | 923 | 8,150 | ||||||||||||||
|
| |||||||||||||||||
Software 0.1% | ||||||||||||||||||
a | Pluralsight Inc., A | United States | 4,133 | 67,698 | ||||||||||||||
|
| |||||||||||||||||
Technology Hardware, Storage & Peripherals 0.1% | ||||||||||||||||||
a,b | Dell Technologies Inc., C | United States | 1,234 | 85,183 | ||||||||||||||
|
| |||||||||||||||||
Textiles, Apparel & Luxury Goods 0.1% | ||||||||||||||||||
Tapestry Inc. | United States | 1,855 | 52,534 | |||||||||||||||
|
| |||||||||||||||||
Total Common Stocks and Other Equity Interests | 2,901,473 | |||||||||||||||||
|
| |||||||||||||||||
Convertible Preferred Stocks 0.5% | ||||||||||||||||||
Diversified Financial Services 0.4% | ||||||||||||||||||
a,c,d | One Call Corp., cvt. pfd. | United States | 3,821 | 398,316 | ||||||||||||||
|
| |||||||||||||||||
Professional Services 0.1% | ||||||||||||||||||
a,c,d | Acosta Inc., cvt. pfd. | United States | 745 | 50,087 | ||||||||||||||
|
| |||||||||||||||||
Total Convertible Preferred Stocks | 448,403 | |||||||||||||||||
|
| |||||||||||||||||
Preferred Stocks 0.7% | ||||||||||||||||||
Electric Utilities 0.3% | ||||||||||||||||||
SCE Trust II, 5.10%, pfd. | United States | 1,490 | 36,654 | |||||||||||||||
SCE Trust III, 5.75%, pfd., H | United States | 1,342 | 32,611 | |||||||||||||||
SCE Trust IV, 5.375%, pfd., J | United States | 3,837 | 92,088 | |||||||||||||||
SCE Trust V, 5.45%, pfd., K | United States | 1,605 | 39,002 | |||||||||||||||
b | SCE Trust VI, 5.00%, pfd. | United States | 3,404 | 80,334 | ||||||||||||||
|
| |||||||||||||||||
280,689 | ||||||||||||||||||
|
| |||||||||||||||||
Internet & Direct Marketing Retail 0.4% | ||||||||||||||||||
Qurate Retail Inc., 8.00%, pfd. | United States | 3,445 | 338,402 | |||||||||||||||
|
| |||||||||||||||||
Trading Companies & Distributors 0.0%† | ||||||||||||||||||
WESCO International Inc., 10.625%, pfd., A | United States | 791 | 24,268 | |||||||||||||||
|
| |||||||||||||||||
Total Preferred Stocks (Cost $599,867) | 643,359 | |||||||||||||||||
|
| |||||||||||||||||
Principal Amount* | ||||||||||||||||||
Convertible Bonds 0.9% | ||||||||||||||||||
Diversified Telecommunication Services 0.1% | ||||||||||||||||||
e | Telecom Italia SpA, senior note, Reg S, 1.125%, 3/26/22 | Italy | 100,000 | EUR | 119,157 | |||||||||||||
|
|
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) | ||||||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) 0.8% | ||||||||||||||||||
Apollo Commercial Real Estate Finance Inc., senior note, 4.75%, 8/23/22 | United States | 360,000 | $ | 340,068 | ||||||||||||||
Blackstone Mortgage Trust Inc., senior note, 4.375%, 5/05/22 | United States | 360,000 | 358,884 | |||||||||||||||
|
| |||||||||||||||||
698,952 | ||||||||||||||||||
|
| |||||||||||||||||
Software 0.0%† | ||||||||||||||||||
Pluralsight Inc., senior note, 0.375%, 3/01/24 | United States | 10,000 | 9,088 | |||||||||||||||
|
| |||||||||||||||||
Total Convertible Bonds (Cost $807,325) | 827,197 | |||||||||||||||||
|
| |||||||||||||||||
Corporate Bonds and Notes 28.3% | ||||||||||||||||||
Aerospace & Defense 1.8% | ||||||||||||||||||
The Boeing Co., senior bond, | ||||||||||||||||||
3.625%, 2/01/31 | United States | 62,000 | 65,576 | |||||||||||||||
5.805%, 5/01/50 | United States | 300,000 | 397,271 | |||||||||||||||
f | Bombardier Inc., 144A, | |||||||||||||||||
senior bond, 5.75%, 3/15/22 | Canada | 360,000 | 356,742 | |||||||||||||||
senior note, 6.00%, 10/15/22 | Canada | 100,000 | 95,333 | |||||||||||||||
Spirit Aerosystems Inc., | ||||||||||||||||||
senior note, 3.95%, 6/15/23 | United States | 400,000 | 386,750 | |||||||||||||||
f senior secured note, 144A, 5.50%, 1/15/25 | United States | 118,000 | 125,522 | |||||||||||||||
Triumph Group Inc., | ||||||||||||||||||
senior note, 7.75%, 8/15/25 | United States | 33,000 | 29,081 | |||||||||||||||
f senior secured note, 144A, 8.875%, 6/01/24 | United States | 239,000 | 263,946 | |||||||||||||||
|
| |||||||||||||||||
1,720,221 | ||||||||||||||||||
|
| |||||||||||||||||
Airlines 1.0% | ||||||||||||||||||
American Airlines 2013-2 Class A Pass-Through Trust, 4.95%, 1/15/23 | United States | 13,411 | 12,190 | |||||||||||||||
f | American Airlines Group Inc., senior note, 144A, 3.75%, 3/01/25 | United States | 300,000 | 197,766 | ||||||||||||||
f | Delta Air Lines Inc. / Skymiles IP Ltd., senior secured note, 144A, | |||||||||||||||||
4.50%, 10/20/25 | United States | 473,000 | 499,738 | |||||||||||||||
b 4.75%, 10/20/28 | United States | 134,000 | 144,451 | |||||||||||||||
f | Mileage Plus Holdings LLC / Mileage Plus Intellectual Property Assets Ltd., senior secured note, 144A, 6.50%, 6/20/27 | United States | 55,000 | 59,744 | ||||||||||||||
|
| |||||||||||||||||
913,889 | ||||||||||||||||||
|
| |||||||||||||||||
Auto Components 0.1% | ||||||||||||||||||
b | Lear Corp., senior bond, 5.25%, 5/15/49 | United States | 69,000 | 83,144 | ||||||||||||||
|
| |||||||||||||||||
Automobiles 0.5% | ||||||||||||||||||
Aston Martin Capital Holdings Ltd., | ||||||||||||||||||
e senior note, Reg S, 6.50%, 4/15/22 | United Kingdom | 100,000 | 101,568 | |||||||||||||||
e senior secured note, Reg S, 5.75%, 4/15/22 | United Kingdom | 100,000 | GBP | 135,371 | ||||||||||||||
f senior secured note, 144A, 6.50%, 4/15/22 | United Kingdom | 100,000 | 101,569 | |||||||||||||||
f senior secured note, 144A, 10.50%, 11/30/25 | United Kingdom | 96,000 | 100,020 | |||||||||||||||
|
| |||||||||||||||||
438,528 | ||||||||||||||||||
|
| |||||||||||||||||
Banks 0.6% | ||||||||||||||||||
g,h | JPMorgan Chase & Co., II, junior sub. bond, FRN, 4.00%, (SOFR + 2.75%), Perpetual | United States | 360,000 | 359,982 | ||||||||||||||
e,i | VTB Bank OJSC Via VTB Capital SA, loan participation, sub. senior note, Reg S, 6.95%, 10/17/22 | Russia | 200,000 | 214,317 | ||||||||||||||
|
| |||||||||||||||||
574,299 | ||||||||||||||||||
|
| |||||||||||||||||
Capital Markets 0.4% | ||||||||||||||||||
f | eG Global Finance PLC, senior secured note, 144A, | |||||||||||||||||
4.375%, 2/07/25 | United Kingdom | 192,000 | EUR | 225,208 | ||||||||||||||
6.25%, 10/30/25 | United Kingdom | 161,000 | EUR | 197,478 | ||||||||||||||
|
| |||||||||||||||||
422,686 | ||||||||||||||||||
|
|
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) | ||||||||||||||||||
Communications Equipment 1.5% | ||||||||||||||||||
f | CommScope Finance LLC, senior note, 144A, 8.25%, 3/01/27 | United States | 360,000 | $ | 388,352 | |||||||||||||
f | Entercom Media Corp., senior note, 144A, 7.25%, 11/01/24 | United States | 400,000 | 385,250 | ||||||||||||||
f | Plantronics Inc., senior note, 144A, 5.50%, 5/31/23 | United States | 360,000 | 362,021 | ||||||||||||||
b,f | Riverbed Technology Inc., senior note, 144A, 8.875%, 3/01/23 | United States | 344,000 | 240,800 | ||||||||||||||
|
| |||||||||||||||||
1,376,423 | ||||||||||||||||||
|
| |||||||||||||||||
Construction & Engineering 0.1% | ||||||||||||||||||
Fluor Corp., | ||||||||||||||||||
senior bond, 4.25%, 9/15/28 | United States | 28,000 | 27,518 | |||||||||||||||
senior note, 1.75%, 3/21/23 | United States | 100,000 | EUR | 111,368 | ||||||||||||||
|
| |||||||||||||||||
138,886 | ||||||||||||||||||
|
| |||||||||||||||||
Construction Materials 0.2% | ||||||||||||||||||
f | CP Atlas Buyer Inc., senior note, 144A, 7.00%, 12/01/28 | United States | 182,000 | 188,711 | ||||||||||||||
|
| |||||||||||||||||
Diversified Consumer Services 0.4% | ||||||||||||||||||
f | AMN Healthcare Inc., senior note, 144A, 4.00%, 4/15/29 | United States | 360,000 | 369,450 | ||||||||||||||
|
| |||||||||||||||||
Diversified Financial Services 0.4% | ||||||||||||||||||
f | Advisor Group Holdings Inc., senior note, 144A, 10.75%, 8/01/27 | United States | 360,000 | 389,407 | ||||||||||||||
|
| |||||||||||||||||
Diversified Telecommunication Services 0.7% | ||||||||||||||||||
f | Consolidated Communications Inc., senior secured note, 144A, 6.50%, 10/01/28 | United States | 96,000 | 104,201 | ||||||||||||||
f | Frontier Communications Corp., 144A, | |||||||||||||||||
secured note, 6.75%, 5/01/29 | United States | 156,000 | 161,850 | |||||||||||||||
senior secured note, 5.875%, 10/15/27 | United States | 125,000 | 131,641 | |||||||||||||||
senior secured note, 5.00%, 5/01/28 | United States | 282,000 | 286,935 | |||||||||||||||
|
| |||||||||||||||||
684,627 | ||||||||||||||||||
|
| |||||||||||||||||
Electric Utilities 2.4% | ||||||||||||||||||
Edison International, | ||||||||||||||||||
senior bond, 4.125%, 3/15/28 | United States | 168,000 | 184,052 | |||||||||||||||
b senior note, 5.75%, 6/15/27 | United States | 167,000 | 195,627 | |||||||||||||||
e | Eskom Holdings SOC Ltd., senior bond, Reg S, | |||||||||||||||||
5.75%, 1/26/21 | South Africa | 222,000 | 221,250 | |||||||||||||||
8.45%, 8/10/28 | South Africa | 200,000 | 215,750 | |||||||||||||||
f,j | NRG Energy Inc., 144A, | |||||||||||||||||
senior bond, 3.625%, 2/15/31 | United States | 182,000 | 189,166 | |||||||||||||||
senior note, 3.375%, 2/15/29 | United States | 182,000 | 186,322 | |||||||||||||||
Pacific Gas and Electric Co., | ||||||||||||||||||
secured bond, 4.55%, 7/01/30 | United States | 30,000 | 34,314 | |||||||||||||||
b secured bond, 4.50%, 7/01/40 | United States | 320,617 | 360,814 | |||||||||||||||
b secured bond, 4.95%, 7/01/50 | United States | 60,000 | 70,893 | |||||||||||||||
secured note, 3.15%, 1/01/26 | United States | 200,720 | 212,307 | |||||||||||||||
PG&E Corp., senior secured bond, 5.25%, 7/01/30 | United States | 360,000 | 392,850 | |||||||||||||||
Southern California Edison Co., | ||||||||||||||||||
b secured bond, 3.65%, 2/01/50 | United States | 29,000 | 33,709 | |||||||||||||||
senior bond, C, 4.125%, 3/01/48 | United States | 13,000 | 15,801 | |||||||||||||||
|
| |||||||||||||||||
2,312,855 | ||||||||||||||||||
|
| |||||||||||||||||
Energy Equipment & Services 0.3% | ||||||||||||||||||
f | Transocean Inc., senior note, 144A, | |||||||||||||||||
7.50%, 1/15/26 | United States | 797,000 | 227,145 | |||||||||||||||
8.00%, 2/01/27 | United States | 100,000 | 37,500 | |||||||||||||||
|
| |||||||||||||||||
264,645 | ||||||||||||||||||
|
|
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) | ||||||||||||||||||
Equity Real Estate Investment Trusts (REITs) 0.9% | ||||||||||||||||||
iStar Inc., senior note, 5.50%, 2/15/26 | United States | 375,000 | $ | 376,641 | ||||||||||||||
f | Uniti Group LP / Uniti Group Finance Inc. / CSL Capital LLC, senior secured note, 144A, 6.00%, 4/15/23 | United States | 500,000 | 511,562 | ||||||||||||||
|
| |||||||||||||||||
888,203 | ||||||||||||||||||
|
| |||||||||||||||||
Food & Staples Retailing 0.6% | ||||||||||||||||||
e,h | Casino Guichard Perrachon SA, E, junior sub. bond, Reg S, 3.992%, Perpetual | France | 500,000 | EUR | 256,108 | |||||||||||||
f | The Fresh Market Inc., senior note, first lien, 144A, 9.75%, 5/01/23 | United States | 360,000 | 353,475 | ||||||||||||||
|
| |||||||||||||||||
609,583 | ||||||||||||||||||
|
| |||||||||||||||||
Health Care Providers & Services 0.2% | ||||||||||||||||||
f | LifePoint Health, Inc., senior note, 144A, 5.375%, 1/15/29 | United States | 187,000 | 187,000 | ||||||||||||||
|
| |||||||||||||||||
Hotels, Restaurants & Leisure 1.5% | ||||||||||||||||||
Carnival PLC, senior bond, 1.00%, 10/28/29 | United States | 100,000 | EUR | 86,596 | ||||||||||||||
b,f | Golden Nugget Inc., senior note, 144A, 6.75%, 10/15/24 | United States | 193,000 | 188,899 | ||||||||||||||
Royal Caribbean Cruises Ltd., | ||||||||||||||||||
senior bond, 5.25%, 11/15/22 | United States | 360,000 | 355,219 | |||||||||||||||
b,f senior note, 144A, 9.125%, 6/15/23 | United States | 193,000 | 209,164 | |||||||||||||||
f senior secured note, 144A, 11.50%, 6/01/25 | United States | 169,000 | 198,786 | |||||||||||||||
f | Scientific Games International Inc., senior note, 144A, 7.00%, 5/15/28 | United States | 400,000 | 417,324 | ||||||||||||||
|
| |||||||||||||||||
1,455,988 | ||||||||||||||||||
|
| |||||||||||||||||
Household Durables 1.2% | ||||||||||||||||||
f | K. Hovnanian Enterprises Inc., senior secured note, 144A, | |||||||||||||||||
10.00%, 11/15/25 | United States | 559,000 | 451,393 | |||||||||||||||
7.75%, 2/15/26 | United States | 626,000 | 663,560 | |||||||||||||||
|
| |||||||||||||||||
1,114,953 | ||||||||||||||||||
|
| |||||||||||||||||
Household Products 0.4% | ||||||||||||||||||
Central Garden & Pet Co., senior note, 4.125%, 10/15/30 | United States | 360,000 | 379,818 | |||||||||||||||
|
| |||||||||||||||||
Insurance 0.4% | ||||||||||||||||||
f,g | Ambac LSNI LLC, senior secured note, 144A, FRN, 6.00%, (3-Month USD LIBOR + 5.00%), 2/12/23 | Cayman Islands | 7 | 7 | ||||||||||||||
Genworth Holdings Inc., senior note, 4.90%, 8/15/23 | United States | 400,000 | 385,730 | |||||||||||||||
|
| |||||||||||||||||
385,737 | ||||||||||||||||||
|
| |||||||||||||||||
Internet & Direct Marketing Retail 0.3% | ||||||||||||||||||
f | Arches Buyer Inc., senior note, 144A, 6.125%, 12/01/28 | United States | 252,000 | 259,245 | ||||||||||||||
|
| |||||||||||||||||
Marine 0.1% | ||||||||||||||||||
b,f | Stena International SA, senior secured bond, 144A, 5.75%, 3/01/24 | Sweden | 100,000 | 100,365 | ||||||||||||||
|
| |||||||||||||||||
Media 3.2% | ||||||||||||||||||
Charter Communications Operating LLC / Charter Communications Operating Capital, senior secured bond, | ||||||||||||||||||
6.484%, 10/23/45 | United States | 18,000 | 25,720 | |||||||||||||||
5.375%, 5/01/47 | United States | 19,000 | 24,125 | |||||||||||||||
b 5.75%, 4/01/48 | United States | 37,000 | 49,112 | |||||||||||||||
5.125%, 7/01/49 | United States | 14,000 | 17,204 | |||||||||||||||
3.70%, 4/01/51 | United States | 31,000 | 32,602 | |||||||||||||||
Clear Channel Worldwide Holdings Inc., senior note, 9.25%, 2/15/24 | United States | 360,000 | 360,488 | |||||||||||||||
f | Cumulus Media New Holdings Inc., senior secured note, 144A, 6.75%, 7/01/26 | United States | 360,000 | 351,617 | ||||||||||||||
f | Diamond Sports Group LLC / Diamond Sports Finance Co., 144A, | |||||||||||||||||
senior note, 6.625%, 8/15/27 | United States | 46,000 | 26,436 | |||||||||||||||
senior secured note, 5.375%, 8/15/26 | United States | 27,000 | 20,976 | |||||||||||||||
f | Gray Television Inc., senior note, 144A, 4.75%, 10/15/30 | United States | 360,000 | 365,850 |
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) | ||||||||||||||||||
Media (continued) | ||||||||||||||||||
iHeartCommunications Inc., senior note, 8.375%, 5/01/27 | United States | 400,000 | $ | 425,726 | ||||||||||||||
Liberty Interactive LLC, senior bond, 8.25%, 2/01/30 | United States | 360,000 | 396,526 | |||||||||||||||
f | Radiate Holdco LLC / Radiate Finance Inc., senior note, 144A, 6.50%, 9/15/28 | United States | 360,000 | 383,364 | ||||||||||||||
f | Terrier Media Buyer Inc., senior note, 144A, 8.875%, 12/15/27 | United States | 360,000 | 389,475 | ||||||||||||||
f | Univision Communications Inc., senior secured note, 144A, 6.625%, 6/01/27 | United States | 187,000 | 199,973 | ||||||||||||||
|
| |||||||||||||||||
3,069,194 | ||||||||||||||||||
|
| |||||||||||||||||
Metals & Mining 1.3% | ||||||||||||||||||
f | CSN Inova Ventures, senior note, 144A, 6.75%, 1/28/28 | Brazil | 200,000 | 209,950 | ||||||||||||||
f | First Quantum Minerals Ltd., senior note, 144A, | |||||||||||||||||
7.25%, 4/01/23 | Zambia | 200,000 | 205,195 | |||||||||||||||
6.875%, 10/15/27 | Zambia | 300,000 | 314,250 | |||||||||||||||
f | Taseko Mines Ltd., senior secured note, 144A, 8.75%, 6/15/22 | Canada | 300,000 | 297,304 | ||||||||||||||
b,f | U.S. Steel Corp., senior secured note, 144A, 12.00%, 6/01/25 | United States | 185,000 | 211,546 | ||||||||||||||
|
| |||||||||||||||||
1,238,245 | ||||||||||||||||||
|
| |||||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) 1.2% | ||||||||||||||||||
f | Brookfield Property REIT Inc. / BPR Cumulus LLC / BPR Nimbus LLC / GGSI Sellco LLC, senior secured note, 144A, 5.75%, 5/15/26 | United States | 425,000 | 391,797 | ||||||||||||||
f | New Residential Investment Corp., senior note, 144A, 6.25%, 10/15/25 | United States | 720,000 | 706,950 | ||||||||||||||
|
| |||||||||||||||||
1,098,747 | ||||||||||||||||||
|
| |||||||||||||||||
Multiline Retail 0.4% | ||||||||||||||||||
Kohl’s Corp., | ||||||||||||||||||
b senior bond, 5.55%, 7/17/45 | United States | 183,000 | 179,660 | |||||||||||||||
senior note, 9.50%, 5/15/25 | United States | 136,000 | 170,932 | |||||||||||||||
|
| |||||||||||||||||
350,592 | ||||||||||||||||||
|
| |||||||||||||||||
Oil, Gas & Consumable Fuels 2.8% | ||||||||||||||||||
Cheniere Energy Partners LP, senior note, 4.50%, 10/01/29 | United States | 360,000 | 375,664 | |||||||||||||||
Energy Transfer Operating LP, senior bond, | ||||||||||||||||||
5.30%, 4/15/47 | United States | 32,000 | 33,835 | |||||||||||||||
6.25%, 4/15/49 | United States | 69,000 | 80,748 | |||||||||||||||
Hurricane Finance PLC, senior note, 8.00%, 10/15/25 | United Kingdom | 134,000 | 193,247 | |||||||||||||||
f | Moss Creek Resources Holdings Inc., senior note, 144A, | |||||||||||||||||
7.50%, 1/15/26 | United States | 6,000 | 4,095 | |||||||||||||||
b 10.50%, 5/15/27 | United States | 169,000 | 117,878 | |||||||||||||||
Occidental Petroleum Corp., senior note, 2.70%, 8/15/22 | United States | 387,000 | 381,892 | |||||||||||||||
Petrobras Global Finance BV, senior bond, | ||||||||||||||||||
6.90%, 3/19/49 | Brazil | 153,000 | 186,277 | |||||||||||||||
6.75%, 6/03/50 | Brazil | 67,000 | 79,119 | |||||||||||||||
Petroleos Mexicanos, | ||||||||||||||||||
senior bond, 5.95%, 1/28/31 | Mexico | 87,000 | 81,019 | |||||||||||||||
senior bond, 6.375%, 1/23/45 | Mexico | 152,000 | 127,680 | |||||||||||||||
senior bond, 6.75%, 9/21/47 | Mexico | 316,000 | 272,267 | |||||||||||||||
senior bond, 6.35%, 2/12/48 | Mexico | 151,000 | 126,598 | |||||||||||||||
senior bond, 6.95%, 1/28/60 | Mexico | 101,000 | 87,113 | |||||||||||||||
senior note, 3.50%, 1/30/23 | Mexico | 135,000 | 134,771 | |||||||||||||||
f senior note, 144A, 6.875%, 10/16/25 | Mexico | 47,000 | 49,186 | |||||||||||||||
senior note, 4.50%, 1/23/26 | Mexico | 53,000 | 50,049 | |||||||||||||||
b | QEP Resources Inc., senior bond, | |||||||||||||||||
5.375%, 10/01/22 | United States | 39,000 | 35,563 | |||||||||||||||
5.25%, 5/01/23 | United States | 88,000 | 75,372 | |||||||||||||||
Sunoco Logistics Partners Operations LP, senior bond, | ||||||||||||||||||
5.30%, 4/01/44 | United States | 39,000 | 40,959 | |||||||||||||||
5.35%, 5/15/45 | United States | 31,000 | 32,602 |
franklintempleton.com | Semiannual Report | 19 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||||||||
f | Tallgrass Energy Partners LP / Tallgrass Energy Finance Corp., senior note, 144A, | |||||||||||||||||
4.75%, 10/01/23 | United States | 11,000 | $ | 10,827 | ||||||||||||||
7.50%, 10/01/25 | United States | 60,000 | 61,913 | |||||||||||||||
|
| |||||||||||||||||
2,638,674 | ||||||||||||||||||
|
| |||||||||||||||||
Paper & Forest Products 0.1% | ||||||||||||||||||
f | Paper Industries Intermediate Financing SARL, senior secured note, 144A, 6.00%, 3/01/25 | Luxembourg | 52,666 | 48,059 | ||||||||||||||
|
| |||||||||||||||||
Pharmaceuticals 0.0%† | ||||||||||||||||||
f | Viatris Inc., senior bond, 144A, 4.00%, 6/22/50 | United States | 24,000 | 27,439 | ||||||||||||||
|
| |||||||||||||||||
Real Estate Management & Development 0.4% | ||||||||||||||||||
f | Realogy Group LLC / Realogy Co.-Issuer Corp., senior note, 144A, 9.375%, 4/01/27 | United States | 344,000 | 377,402 | ||||||||||||||
|
| |||||||||||||||||
Road & Rail 0.4% | ||||||||||||||||||
f | Uber Technologies Inc., senior note, 144A, 6.25%, 1/15/28 | United States | 350,000 | 371,438 | ||||||||||||||
|
| |||||||||||||||||
Software 0.2% | ||||||||||||||||||
b,f | Veritas U.S. Inc. / Veritas Bermuda Ltd., senior secured note, 144A, 7.50%, 9/01/25 | United States | 163,000 | 164,783 | ||||||||||||||
|
| |||||||||||||||||
Specialty Retail 1.5% | ||||||||||||||||||
f | Carvana Co., senior note, 144A, | |||||||||||||||||
b 5.625%, 10/01/25 | United States | 73,000 | 73,457 | |||||||||||||||
5.875%, 10/01/28 | United States | 81,000 | 82,316 | |||||||||||||||
f | IRB Holding Corp., senior note, 144A, 6.75%, 2/15/26 | United States | 360,000 | 373,050 | ||||||||||||||
b,f | L Brands Inc., senior bond, 144A, 6.625%, 10/01/30 | United States | 162,000 | 178,301 | ||||||||||||||
f | PetSmart Inc., senior note, first lien, 144A, 5.875%, 6/01/25 | United States | 360,000 | 364,815 | ||||||||||||||
f | Staples Inc., senior note, 144A, 10.75%, 4/15/27 | United States | 400,000 | 376,500 | ||||||||||||||
|
| |||||||||||||||||
1,448,439 | ||||||||||||||||||
|
| |||||||||||||||||
Thrifts & Mortgage Finance 0.8% | ||||||||||||||||||
Radian Group Inc., senior note, 4.875%, 3/15/27 | United States | 720,000 | 766,800 | |||||||||||||||
|
| |||||||||||||||||
Total Corporate Bonds and Notes | 26,858,475 | |||||||||||||||||
|
| |||||||||||||||||
Corporate Bonds and Notes in Reorganization 0.7% | ||||||||||||||||||
Diversified Telecommunication Services 0.7% | ||||||||||||||||||
k | Frontier Communications Corp., senior bond, | |||||||||||||||||
7.125%, 1/15/23 | United States | 49,000 | 22,632 | |||||||||||||||
6.875%, 1/15/25 | United States | 24,000 | 11,175 | |||||||||||||||
9.00%, 8/15/31 | United States | 141,000 | 65,565 | |||||||||||||||
f,k | Intelsat Jackson Holdings SA, senior secured note, first lien, 144A, 9.50%, 9/30/22 | Luxembourg | 454,000 | 502,911 | ||||||||||||||
|
| |||||||||||||||||
602,283 | ||||||||||||||||||
|
| |||||||||||||||||
Oil, Gas & Consumable Fuels 0.0%† | ||||||||||||||||||
f,k | American Energy- Permian Basin LLC, senior secured note, 144A, 12.00%, 10/01/24 | United States | 962,000 | 24,050 | ||||||||||||||
|
| |||||||||||||||||
Total Corporate Bonds and Notes in Reorganization | 626,333 | |||||||||||||||||
|
|
20 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||
g,l | Senior Floating Rate Interests 3.1% | |||||||||||||||||
Airlines 0.1% | ||||||||||||||||||
Delta Air Lines Inc., Term Loan B, 4.75%, (3-Month USD LIBOR + 3.75%), 10/20/27 | United States | 46,606 | $ | 47,748 | ||||||||||||||
|
| |||||||||||||||||
Communications Equipment 0.4% | ||||||||||||||||||
Riverbed Technology Inc., Term Loan B, 4.25%, (1-Month USD LIBOR + 3.25%), 4/24/22 | United States | 411,411 | 373,400 | |||||||||||||||
|
| |||||||||||||||||
Diversified Telecommunication Services 1.1% | ||||||||||||||||||
Frontier Communications Corp., Term Loan DIP, 5.75%, (1-Month USD LIBOR + 4.75%), 10/08/21 | United States | 84,122 | 84,385 | |||||||||||||||
Intelsat Jackson Holdings SA, | ||||||||||||||||||
m Term Loan DIP, 6.50%, (1-Month USD LIBOR + 5.50%), 7/13/22 | United States | 333,953 | 342,198 | |||||||||||||||
Term Loan B3, 8.00%, (6-Month USD LIBOR + 3.75%), 11/27/23 | United States | 281,120 | 285,572 | |||||||||||||||
Term Loan B4, 8.75%, (1-Month USD LIBOR + 4.50%), 1/02/24 | United States | 16,979 | 17,267 | |||||||||||||||
Term Loan B5, 8.625%, (6-Month USD LIBOR + 6.63%), 1/02/24 | United States | 329,824 | 335,949 | |||||||||||||||
|
| |||||||||||||||||
1,065,371 | ||||||||||||||||||
|
| |||||||||||||||||
Hotels, Restaurants & Leisure 0.2% | ||||||||||||||||||
Golden Nugget Inc., Term Loan B, 3.25%, (1-Month USD LIBOR + 2.50%), 10/04/23 | United States | 73,471 | 70,296 | |||||||||||||||
m | Playa Hotels & Resorts NV, Term Loan B1, 3.75%, (1-Month USD LIBOR + 2.75%), 4/29/24 | United States | 174,012 | 159,991 | ||||||||||||||
|
| |||||||||||||||||
230,287 | ||||||||||||||||||
|
| |||||||||||||||||
Independent Power & Renewable Electricity Producers 0.1% | ||||||||||||||||||
Array Technologies Inc., Term Loan B, 5.00%, (1-Month USD LIBOR + 4.00%), 10/14/27 | United States | 120,613 | 120,312 | |||||||||||||||
|
| |||||||||||||||||
Personal Products 0.1% | ||||||||||||||||||
Creed, Term Loan BE, 5.00%, (6-Month EURIBOR + 5.00%), 5/28/27 | United Kingdom | 111,326 | 123,499 | |||||||||||||||
|
| |||||||||||||||||
Specialty Retail 1.1% | ||||||||||||||||||
Douglas Holding AG, Term Loan B1, 3.50%, (3-Month EURIBOR + 3.50%), 8/12/22 | Germany | 373,007 | 399,149 | |||||||||||||||
PETCO Animal Supplies Inc., Term Loan B1, 4.25%, (3-Month USD LIBOR + 3.25%), 1/26/23 | United States | 372,527 | 352,735 | |||||||||||||||
m | PetSmart Inc., Term Loan B2, 4.50%, (1-Month USD LIBOR + 4.00%), 3/11/22 | United States | 312,956 | 311,815 | ||||||||||||||
|
| |||||||||||||||||
1,063,699 | ||||||||||||||||||
|
| |||||||||||||||||
Total Senior Floating Rate Interests | 3,024,316 | |||||||||||||||||
|
| |||||||||||||||||
Foreign Government and Agency Securities 5.2% | ||||||||||||||||||
Government of Argentina, | ||||||||||||||||||
senior bond, 0.125%, 7/09/35 | Argentina | 298,760 | 105,910 | |||||||||||||||
senior bond, 0.125%, 7/09/46 | Argentina | 173,271 | 62,378 | |||||||||||||||
senior note, 1.00%, 7/09/29 | Argentina | 24,417 | 10,487 | |||||||||||||||
f | Government of Bahamas, senior bond, 144A, 8.95%, 10/15/32 | Bahamas | 200,000 | 217,450 | ||||||||||||||
e | Government of Bahrain, senior bond, Reg S, 7.00%, 1/26/26 | Bahrain | 200,000 | 231,715 | ||||||||||||||
Government of Egypt, senior bond, | ||||||||||||||||||
f 144A, 8.875%, 5/29/50 | Egypt | 200,000 | 223,089 | |||||||||||||||
e Reg S, 8.70%, 3/01/49 | Egypt | 200,000 | 220,008 | |||||||||||||||
e | Government of Germany, senior bond, Reg S, 0.50%, 2/15/25 | Germany | 94,000 | EUR | 118,271 | |||||||||||||
b | Government of Italy, senior note, 2.375%, 10/17/24 | Italy | 373,000 | 392,422 | ||||||||||||||
f | Government of Jordan, senior note, 144A, 4.95%, 7/07/25 | Jordan | 200,000 | 209,267 | ||||||||||||||
Government of Mexico, senior bond, | ||||||||||||||||||
4.75%, 4/27/32 | Mexico | 200,000 | 237,000 | |||||||||||||||
5.00%, 4/27/51 | Mexico | 200,000 | 241,100 | |||||||||||||||
e | Government of Nigeria, senior note, Reg S, 7.625%, 11/21/25 | Nigeria | 200,000 | 225,886 |
franklintempleton.com | Semiannual Report | 21 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||
Foreign Government and Agency Securities (continued) | ||||||||||||||||||
e | Government of Paraguay, senior bond, Reg S, 4.625%, 1/25/23 | Paraguay | 421,000 | $ | 448,369 | |||||||||||||
Government of Russia, | ||||||||||||||||||
e senior bond, Reg S, 5.25%, 6/23/47 | Russia | 200,000 | 272,162 | |||||||||||||||
senior note, 6227, 7.40%, 7/17/24 | Russia | 19,022,000 | RUB | 269,221 | ||||||||||||||
senior note, 6229, 7.15%, 11/12/25 | Russia | 43,267,000 | RUB | 616,433 | ||||||||||||||
senior note, 6232, 6.00%, 10/06/27 | Russia | 29,540,000 | RUB | 397,854 | ||||||||||||||
f | Government of Saudi Arabia, senior bond, 144A, 2.75%, 2/03/32 | Saudi Arabia | 221,000 | 233,164 | ||||||||||||||
Government of Turkey, senior note, 6.375%, 10/14/25 | Turkey | 200,000 | 210,228 | |||||||||||||||
|
| |||||||||||||||||
Total Foreign Government and Agency Securities | 4,942,414 | |||||||||||||||||
|
| |||||||||||||||||
U.S. Government and Agency Securities 0.2% | ||||||||||||||||||
U.S. Treasury Bond, | ||||||||||||||||||
1.125%, 8/15/40 | United States | 40,000 | 38,344 | |||||||||||||||
1.375%, 11/15/40 | United States | 82,000 | 82,051 | |||||||||||||||
U.S. Treasury Note, 0.50%, 10/31/27 | United States | 75,000 | 74,426 | |||||||||||||||
|
| |||||||||||||||||
Total U.S. Government and Agency Securities | 194,821 | |||||||||||||||||
|
| |||||||||||||||||
Asset-Backed Securities and Commercial Mortgage- Backed Securities 36.7% | ||||||||||||||||||
Diversified Financial Services 20.8% | ||||||||||||||||||
f,n | ACIS CLO Ltd., 2014-5A, D, 144A, FRN, 4.554%, (3-Month USD LIBOR + 4.34%), 11/01/26 | United States | 1,120,000 | 1,131,621 | ||||||||||||||
f | AMSR Trust, 144A, | |||||||||||||||||
2019-SFR1, H, 6.04%, 1/19/39 | United States | 750,000 | 754,510 | |||||||||||||||
2019-SFR1, I, 8.976%, 1/19/39 | United States | 750,000 | 761,874 | |||||||||||||||
o | CD Mortgage Trust, 2019-CD8, C, FRN, 3.719%, 8/15/57 | United States | 384,000 | 389,417 | ||||||||||||||
f,n | CIFC Funding 2015-IV Ltd., 2019-4A, CR, 144A, FRN, 4.218%, (3-Month USD LIBOR + 4.00%), 10/20/27 | United States | 1,500,000 | 1,499,620 | ||||||||||||||
CitiMortgage Alternative Loan Trust, 2007-A1, 2A1, 5.50%, 1/25/22 | United States | 23,672 | 23,214 | |||||||||||||||
f,n | Cutwater 2014-II Ltd., 2017-2A, CR, 144A, FRN, 3.987%, (3-Month USD LIBOR + 3.75%), 1/15/27 | United States | 1,000,000 | 985,097 | ||||||||||||||
f,n | CVP Cascade CLO-2 Ltd., 2014-2A, C, 144A, FRN, 4.018%, (3-Month USD LIBOR + 3.80%), 7/18/26 | United States | 700,000 | 708,338 | ||||||||||||||
Delta Funding Home Equity Loan Trust, 2000-2, M2, 8.86%, 8/15/30 | United States | 290,535 | 262,398 | |||||||||||||||
f,n | Goldentree Loan Management US CLO 6 Ltd., 2019-6A, C, 144A, FRN, 2.818%, (3-Month USD LIBOR + 2.60%), 1/20/33 | United States | 1,000,000 | 1,003,328 | ||||||||||||||
f,n | GPMT Ltd., 2019-FL2, D, 144A, FRN, 3.097%, (1-Month USD LIBOR + 2.95%), 2/22/36 | United States | 1,000,000 | 958,800 | ||||||||||||||
GSAA Trust, 2006-7, AF3, 6.22%, 3/25/46 | United States | 244,488 | 148,433 | |||||||||||||||
f | GSMSC Pass-Through Trust, 144A, FRN, | |||||||||||||||||
n 2009-4R, 2A3, 0.599%, (1-Month USD LIBOR + 0.45%), 12/26/36 | United States | 748,480 | 493,508 | |||||||||||||||
o 2009-5R, 3A2, 5.50%, 10/26/35 | United States | 164,963 | 164,103 | |||||||||||||||
f,n | Hull Street CLO Ltd., 2014-1A, D, 144A, FRN, 3.818%, (3-Month USD LIBOR + 3.60%), 10/18/26 | United States | 1,130,000 | 926,092 | ||||||||||||||
f,n | JFIN CLO Ltd., 2017-1A, DR, 144A, FRN, 2.90%, (3-Month USD LIBOR + 2.65%), 3/15/26 | United States | 650,000 | 593,527 | ||||||||||||||
f,n | KREF Ltd., 2018-FL1, D, 144A, FRN, 2.694%, (1-Month USD LIBOR + 2.55%), 6/15/36 | United States | 300,000 | 289,890 | ||||||||||||||
MASTR Adjustable Rate Mortgages Trust, FRN, | ||||||||||||||||||
o 2004-10, B1, 3.188%, 10/25/34 | United States | 531,183 | 478,730 | |||||||||||||||
n 2006-OA1, 1A1, 0.36%, (1-Month USD LIBOR + 0.21%), 4/25/46 | United States | 273,547 | 247,778 | |||||||||||||||
f,n | Mountain View CLO Ltd., 2018-1A, DRR, 144A, FRN, 3.887%, (3-Month USD LIBOR + 3.65%), 10/15/26 | United States | 1,290,000 | 1,214,399 | ||||||||||||||
f,n | OHA Credit Funding 4 Ltd., 2019-4A, C, 144A, FRN, 2.866%, (3-Month USD LIBOR + 2.65%), 10/22/32 | United States | 1,000,000 | 1,000,207 |
22 | 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 Securities (continued) | ||||||||||||||||||
Diversified Financial Services (continued) | ||||||||||||||||||
f | S-Jets Ltd., 2017-1, A, 144A, 3.967%, 8/15/42 | Bermuda | 772,730 | $ | 740,850 | |||||||||||||
f,n | Staniford Street CLO Ltd., 2014-1A, D, 144A, FRN, 3.75%, (3-Month USD LIBOR + 3.50%), 6/15/25 | United States | 1,160,000 | 1,163,429 | ||||||||||||||
o | STARM Mortgage Loan Trust, 2007-2, 4A1, FRN, 3.858%, 4/25/37 | United States | 78,788 | 60,032 | ||||||||||||||
n | Suntrust Alternative Loan Trust, 2005-1F, 1A1, FRN, 0.80%, (1-Month USD LIBOR + 0.65%), 12/25/35 | United States | 202,639 | 168,297 | ||||||||||||||
n | Terwin Mortgage Trust, 2003-6HE, M2, FRN, 2.775%, (1-Month USD LIBOR + 2.63%), 11/25/33 | United States | 144,756 | 142,649 | ||||||||||||||
f | Thunderbolt II Aircraft Lease Ltd., 2018-A, A, 144A, 4.147%, 9/15/38 | United States | 2,657,400 | 2,546,058 | ||||||||||||||
Wells Fargo Alternative Loan Trust, 2007-PA3, 2A2, 6.00%, 7/25/37 | United States | 137,946 | 137,860 | |||||||||||||||
f,n | Westchester CLO Ltd., 2007-1A, E, 144A, FRN, 4.514%, (3-Month USD LIBOR + 4.30%), 8/01/22 | United States | 321,136 | 322,000 | ||||||||||||||
f,n | ZAIS CLO 1 Ltd., 2018-1A, CR, 144A, FRN, 3.647%, (3-Month USD LIBOR + 3.41%), 4/15/28 | United States | 517,379 | 449,126 | ||||||||||||||
|
| |||||||||||||||||
19,765,185 | ||||||||||||||||||
|
| |||||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) 15.9% | ||||||||||||||||||
o | American Home Mortgage Assets Trust, 2005-1, 1A1, FRN, 3.044%, 11/25/35 | United States | 115,726 | 99,384 | ||||||||||||||
o | Banc of America Mortgage Trust, FRN, | |||||||||||||||||
2005-K, 2A1, 3.045%, 12/25/35 | United States | 203,219 | 194,085 | |||||||||||||||
2005-L, 1A1, 3.749%, 1/25/36 | United States | 133,540 | 126,837 | |||||||||||||||
2005-L, 3A1, 4.124%, 1/25/36 | United States | 284,608 | 263,514 | |||||||||||||||
f,o | BCAP LLC Trust, 2010-RR1, 1A4, 144A, FRN, 3.688%, 3/26/37 | United States | 268,035 | 231,521 | ||||||||||||||
o | Bear Stearns ARM Trust, FRN, | |||||||||||||||||
2002-11, 1A2, 3.75%, 2/25/33 | United States | 4,530 | 4,150 | |||||||||||||||
2006-2, 4A1, 3.673%, 7/25/36 | United States | 47,273 | 43,807 | |||||||||||||||
f,o | Citigroup Commercial Mortgage Trust, 2014-GC19, D, 144A, FRN, 5.262%, 3/10/47 | United States | 1,200,000 | 1,174,557 | ||||||||||||||
o | Citigroup Mortgage Loan Trust, 2007-AR5, 2A1A, FRN, 4.025%, 4/25/37 | United States | 102,919 | 99,308 | ||||||||||||||
Countrywide Alternative Loan Trust, | ||||||||||||||||||
2005-73CB, 1A2, 6.25%, 1/25/36 | United States | 162,848 | 168,277 | |||||||||||||||
n 2005-IM1, A1, FRN, 0.75%, (1-Month USD LIBOR + 0.60%), 1/25/36 | United States | 139,223 | 130,867 | |||||||||||||||
2005-J10, 2A4, 6.00%, 10/25/35 | United States | 431,564 | 307,730 | |||||||||||||||
2006-4CB, 2A3, 5.50%, 4/25/36 | United States | 68,755 | 65,801 | |||||||||||||||
o | Credit Suisse First Boston Mortgage Securities Corp., 2004-AR3, CB2, FRN, 3.306%, 4/25/34 | United States | 123,917 | 107,690 | ||||||||||||||
CSMC Mortgage-Backed Trust, 2006-4, 9A1, 6.50%, 5/25/36 | United States | 811,946 | 435,040 | |||||||||||||||
f | FHLMC Structured Agency Credit Risk Debt Notes, 144A, FRN, | |||||||||||||||||
o 2017-SPI1, M2, 4.001%, 9/25/47 | United States | 595,367 | 594,194 | |||||||||||||||
n 2018-HRP1, B2, 11.90%, (1-Month USD LIBOR + 11.75%), 5/25/43 | United States | 3,018,047 | 3,247,331 | |||||||||||||||
o 2018-SPI2, M2, 3.81%, 5/25/48 | United States | 516,127 | 515,271 | |||||||||||||||
n 2020-DNA4, M2, 3.90%, (1-Month USD LIBOR + 3.75%), 8/25/50 | United States | 1,000,000 | 1,018,959 | |||||||||||||||
o | First Horizon Alternative Mortgage Securities Trust, 2004-AA2, 2A1, FRN, 2.748%, 8/25/34 | United States | 205,642 | 207,067 | ||||||||||||||
GSR Mortgage Loan Trust, 2004-6F, 2A4, 5.50%, 5/25/34 | United States | 165,465 | 172,318 | |||||||||||||||
Impac CMB Trust, | ||||||||||||||||||
2004-4, 2A2, 4.979%, 9/25/34 | United States | 157,453 | 167,741 | |||||||||||||||
n 2004-8, 3B, FRN, 2.775%, (1-Month USD LIBOR + 2.63%), 8/25/34 | United States | 126,626 | 124,771 | |||||||||||||||
n 2005-2, 2B, FRN, 2.625%, (1-Month USD LIBOR + 2.48%), 4/25/35 | United States | 93,754 | 89,925 | |||||||||||||||
n 2005-4, 2B1, FRN, 2.625%, (1-Month USD LIBOR + 2.48%), 5/25/35 | United States | 139,182 | 136,313 | |||||||||||||||
n 2005-4, 2M1, FRN, 0.90%, (1-Month USD LIBOR + 0.75%), 5/25/35 | United States | 162,379 | 151,783 | |||||||||||||||
n 2005-8, 2B, FRN, 2.40%, (1-Month USD LIBOR + 2.25%), 2/25/36 | United States | 116,043 | 114,233 | |||||||||||||||
n | IndyMac INDX Mortgage Loan Trust, FRN, | |||||||||||||||||
2006-AR12, A1, 0.34%, (1-Month USD LIBOR + 0.19%), 9/25/46 | United States | 107,100 | 98,207 | |||||||||||||||
2006-AR29, A2, 0.23%, (1-Month USD LIBOR + 0.08%), 11/25/36 | United States | 141,445 | 134,182 |
franklintempleton.com | Semiannual Report | 23 |
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 Securities (continued) | ||||||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) (continued) | ||||||||||||||||||
o | JPMBB Commercial Mortgage Securities Trust, 2015-C28, C, FRN, 4.29%, 10/15/48 | United States | 496,426 | $ | 468,520 | |||||||||||||
o | JPMorgan Mortgage Trust, FRN, | |||||||||||||||||
2006-A5, 6A1, 3.457%, 8/25/36 | United States | 257,341 | 229,499 | |||||||||||||||
2006-A7, 2A3, 3.206%, 1/25/37 | United States | 119,374 | 111,531 | |||||||||||||||
2007-A2, 2A1, 3.587%, 4/25/37 | United States | 171,836 | 156,870 | |||||||||||||||
Lehman Mortgage Trust, 2005-3, 2A3, 5.50%, 1/25/36 | United States | 72,905 | 77,768 | |||||||||||||||
o | MASTR Alternative Loan Trust, 2007-HF1, 3A1, FRN, 2.675%, 10/25/47 | United States | 666,716 | 481,492 | ||||||||||||||
o | MASTR Seasoned Securitization Trust, 2004-1, 4A1, FRN, 2.693%, 10/25/32 | United States | 45,615 | 46,204 | ||||||||||||||
n | New Century Home Equity Loan Trust, 2003-4, M1, FRN, 1.275%, (1-Month USD LIBOR + 1.13%), 10/25/33 | United States | 491,035 | 487,333 | ||||||||||||||
f | PRPM LLC, 2020-3, A2, 144A, 5.071%, 9/25/25 | United States | 500,000 | 500,823 | ||||||||||||||
o | RFMSI Trust, 2007-SA2, 3A, FRN, 5.493%, 4/25/37 | United States | 964,262 | 397,537 | ||||||||||||||
n | Securitized Asset Backed Receivables LLC Trust, 2004-OP2, A2, FRN, 0.85%, (1-Month USD LIBOR + 0.70%), 8/25/34 | United States | 199,024 | 185,230 | ||||||||||||||
o | Structured ARM Loan Trust, 2004-4, B1, FRN, 2.88%, 4/25/34 | United States | 436,210 | 403,084 | ||||||||||||||
o | Wachovia Mortgage Loan Trust LLC, 2005-B, 1A1, FRN, 2.693%, 10/20/35 | United States | 366,029 | 353,056 | ||||||||||||||
n | Washington Mutual Mortgage Pass-Through Certificates, 2006-4, 3A2B, FRN, 0.23%, (1-Month USD LIBOR + 0.08%), 5/25/36 | United States | 263,282 | 202,865 | ||||||||||||||
o | Washington Mutual MSC Mortgage Pass-Through Certificates Series Trust, 2003-AR3, B1, FRN, 3.24%, 6/25/33 | United States | 243,713 | 229,052 | ||||||||||||||
f | Wells Fargo Commercial Mortgage Trust, 2017-C38, D, 144A, 3.00%, 7/15/50 | United States | 750,000 | 609,122 | ||||||||||||||
|
| |||||||||||||||||
15,164,849 | ||||||||||||||||||
|
| |||||||||||||||||
Total Asset-Backed Securities and Commercial Mortgage-Backed Securities | 34,930,034 | |||||||||||||||||
|
| |||||||||||||||||
Municipal Bonds in Reorganization 1.2% | ||||||||||||||||||
Puerto Rico 1.2% | ||||||||||||||||||
k | Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series A, |
| ||||||||||||||||
5.50%, 7/01/39 | United States | 155,000 | 105,400 | |||||||||||||||
5.00%, 7/01/41 | United States | 225,000 | 146,250 | |||||||||||||||
k | Puerto Rico Commonwealth GO, Refunding, Series A, 8.00%, 7/01/35 | United States | 1,330,000 | 871,150 | ||||||||||||||
|
| |||||||||||||||||
Total Municipal Bonds in Reorganization | 1,122,800 | |||||||||||||||||
|
| |||||||||||||||||
Number of Contracts | Notional Amount# | |||||||||||||||||
Options Purchased 0.0%† | ||||||||||||||||||
Calls – Exchange-Traded 0.0%† | ||||||||||||||||||
Energy Transfer LP, January Strike Price $7.00, Expires 1/15/21 | 118 | 11,800 | 2,360 | |||||||||||||||
|
| |||||||||||||||||
Puts – Exchange-Traded 0.0%† | ||||||||||||||||||
AMC Entertainment Holdings Inc., January Strike Price $2.00, Expires 1/15/21 | 47 | 4,700 | 658 | |||||||||||||||
Bed Bath & Beyond Inc., January Strike Price $4.00, Expires 1/15/21 | 112 | 11,200 | 224 | |||||||||||||||
The Boeing Co., January Strike Price $150.00, Expires 1/15/21 | 11 | 1,100 | 990 | |||||||||||||||
Dow Inc., January Strike Price $35.00, Expires 1/15/21 | 26 | 2,600 | 364 | |||||||||||||||
SPDR S&P 500 ETF Trust, January Strike Price $330.00, Expires 1/15/21 | 10 | 1,000 | 2,700 | |||||||||||||||
|
| |||||||||||||||||
4,936 | ||||||||||||||||||
|
|
24 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Number of Contracts | Notional Amount# | Value | ||||||||||||||||
Options Purchased (continued)† | ||||||||||||||||||
Puts – Over-the-Counter 0.0%† | ||||||||||||||||||
AMC Entertainment Holdings Inc., Counterparty JPHQ, January Strike Price $2.00, Expires 1/15/21 | 13 | 1,300 | $ | 182 | ||||||||||||||
American Airlines Group Inc., Counterparty JPHQ, January Strike Price $15.00, Expires 1/15/21 | 40 | 4,000 | 7,800 | |||||||||||||||
B&G Foods Inc., Counterparty GSCO, May Strike Price $25.00, Expires 5/21/21 | 37 | 3,700 | 7,678 | |||||||||||||||
Casino Guichard-Perrachon SA, Counterparty BOFA, December Strike Price 20.00 EUR, Expires 12/18/20 | 18 | 1,800 | 429 | |||||||||||||||
The Kroger Co., Counterparty JPHQ, April Strike Price $30.00, Expires 4/16/21 | 107 | 10,700 | 14,338 | |||||||||||||||
|
| |||||||||||||||||
30,427 | ||||||||||||||||||
|
| |||||||||||||||||
Total Options Purchased (Cost $105,127) | 37,723 | |||||||||||||||||
|
| |||||||||||||||||
Total Investments before Short Term Investments | 76,557,348 | |||||||||||||||||
|
| |||||||||||||||||
Country | Principal Amount* | |||||||||||||||||
Short Term Investments 13.9% | ||||||||||||||||||
p | Credit-Linked Notes 0.5% | |||||||||||||||||
c,f | Citigroup Global Markets Holdings Inc., G, senior note, (Egypt), 144A, zero cpn., 4/22/21 | Egypt | 2,684,000 | EGP | 162,894 | |||||||||||||
f | HSBC Bank PLC, E, senior note, (Egypt), 144A, zero cpn., 1/14/21 | Egypt | 1,300,000 | EGP | 81,679 | |||||||||||||
c,f | ICBC Standard Bank PLC, EmTN, (Egypt), 144A, zero cpn., 3/04/21 | Egypt | 4,800,000 | EGP | 297,213 | |||||||||||||
|
| |||||||||||||||||
Total Credit-Linked Notes (Cost $538,058) | 541,786 | |||||||||||||||||
|
| |||||||||||||||||
Shares | ||||||||||||||||||
Money Market Funds (Cost $8,281,488) 8.7% | ||||||||||||||||||
q | Fidelity Investments Money Market Government Portfolio, Institutional, 0.01% | United States | 8,281,488 | 8,281,488 | ||||||||||||||
|
| |||||||||||||||||
Principal Amount* | ||||||||||||||||||
Repurchase Agreements (Cost $4,425,822) 4.7% | ||||||||||||||||||
r | Joint Repurchase Agreement, 0.070%, 12/01/20 | United States | 4,425,822 | 4,425,822 | ||||||||||||||
|
| |||||||||||||||||
BNP Paribas Securities Corp. (Maturity Value $1,827,470) | ||||||||||||||||||
Total Investments (Cost $88,978,784) 94.4% | 89,806,444 | |||||||||||||||||
Options Written (0.0)%† | (130 | ) | ||||||||||||||||
Securities Sold Short (6.7)% | (6,368,276 | ) | ||||||||||||||||
Other Assets, less Liabilities 12.3% | 11,615,728 | |||||||||||||||||
|
| |||||||||||||||||
Net Assets 100.0% | $ | 95,053,766 | ||||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 25 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Number of Contracts | Notional Amount# | Value | ||||||||||||||||
t | Options Written (Proceeds $1,559) (0.0)%† | |||||||||||||||||
Puts – Exchange-Traded (0.0)%† | ||||||||||||||||||
Dow Inc., January Strike Price $27.50, Expires 1/15/21 | 26 | 2,600 | $ | (130 | ) | |||||||||||||
|
| |||||||||||||||||
Country | Shares | |||||||||||||||||
u | Securities Sold Short (6.7)% | |||||||||||||||||
Common Stocks (0.4)% | ||||||||||||||||||
Airlines (0.1)% | ||||||||||||||||||
American Airlines Group Inc. | United States | 6,500 | (91,845 | ) | ||||||||||||||
|
| |||||||||||||||||
Hotels, Restaurants & Leisure (0.2)% | ||||||||||||||||||
Carnival Corp. | United States | 8,470 | (169,230 | ) | ||||||||||||||
|
| |||||||||||||||||
Software (0.1)% | ||||||||||||||||||
VMware Inc., A | United States | 565 | (79,038 | ) | ||||||||||||||
|
| |||||||||||||||||
Total Common Stocks (Proceeds $278,600) | (340,113 | ) | ||||||||||||||||
|
| |||||||||||||||||
Principal Amount* | ||||||||||||||||||
Corporate Bonds and Notes (5.3)% | ||||||||||||||||||
Aerospace & Defense (0.2)% | ||||||||||||||||||
f | Spirit Aerosystems Inc., secured note, 144A, 7.50%, 4/15/25 | United States | 87,000 | (93,579 | ) | |||||||||||||
Triumph Group Inc., senior note, 5.25%, 6/01/22 | United States | 138,000 | (127,305 | ) | ||||||||||||||
|
| |||||||||||||||||
(220,884 | ) | |||||||||||||||||
|
| |||||||||||||||||
Airlines (0.4)% | ||||||||||||||||||
f | American Airlines Inc., senior secured note, 144A, 11.75%, 7/15/25 | United States | 310,000 | (343,325 | ) | |||||||||||||
|
| |||||||||||||||||
Banks (0.1)% | ||||||||||||||||||
e,g,h | China Zheshang Bank Co. Ltd., junior sub. bond, FRN, Reg S, 5.45%, (US 5 Year CMT T-Note + 3.52%), Perpetual | China | 72,000 | (73,265 | ) | |||||||||||||
|
| |||||||||||||||||
Chemicals (0.2)% | ||||||||||||||||||
The Dow Chemical Co., | ||||||||||||||||||
senior bond, 4.80%, 5/15/49 | United States | 79,000 | (103,053 | ) | ||||||||||||||
senior note, 4.80%, 11/30/28 | United States | 68,000 | (83,707 | ) | ||||||||||||||
|
| |||||||||||||||||
(186,760 | ) | |||||||||||||||||
|
| |||||||||||||||||
Construction & Engineering (0.5)% | ||||||||||||||||||
Fluor Corp., senior bond, 3.50%, 12/15/24 | United States | 191,000 | (187,180 | ) | ||||||||||||||
f | Tutor Perini Corp., senior note, 144A, 6.875%, 5/01/25 | United States | 199,000 | (199,768 | ) | |||||||||||||
e | Webuild SpA, senior note, Reg S, | |||||||||||||||||
1.75%, 10/26/24 | Italy | 56,000 | EUR | (63,251 | ) | |||||||||||||
3.625%, 1/28/27 | Italy | 26,000 | EUR | (29,063 | ) | |||||||||||||
|
| |||||||||||||||||
(479,262 | ) | |||||||||||||||||
|
| |||||||||||||||||
Containers & Packaging (0.0)%† | ||||||||||||||||||
f | Flex Acquisition Co. Inc., senior note, 144A, 7.875%, 7/15/26 | United States | 8,000 | (8,440 | ) | |||||||||||||
|
| |||||||||||||||||
Diversified Consumer Services (0.3)% | ||||||||||||||||||
f | MPH Acquisition Holdings LLC, senior note, 144A, 5.75%, 11/01/28 | United States | 294,000 | (288,488 | ) | |||||||||||||
|
| |||||||||||||||||
Diversified Financial Services (0.6)% | ||||||||||||||||||
AerCap Ireland Capital DAC/AerCap Global Aviation Trust, | ||||||||||||||||||
senior bond, 3.875%, 1/23/28 | Ireland | 207,000 | (211,330 | ) | ||||||||||||||
senior note, 4.875%, 1/16/24 | Ireland | 174,000 | (187,511 | ) | ||||||||||||||
senior note, 6.50%, 7/15/25 | Ireland | 171,000 | (197,845 | ) | ||||||||||||||
|
| |||||||||||||||||
(596,686 | ) | |||||||||||||||||
|
| |||||||||||||||||
Diversified Telecommunication Services (0.2)% | ||||||||||||||||||
e | DKT Finance ApS, senior secured note, Reg S, 7.00%, 6/17/23 | Denmark | 156,000 | EUR | (192,232 | ) | ||||||||||||
|
|
26 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||
u | Securities Sold Short (continued) | |||||||||||||||||
Corporate Bonds and Notes (continued) | ||||||||||||||||||
Energy Equipment & Services (0.1)% | ||||||||||||||||||
e | Saipem Finance International BV, E, senior note, Reg S, 2.625%, 1/07/25 | Italy | 89,000 | EUR | $ | (108,871 | ) | |||||||||||
|
| |||||||||||||||||
Equity Real Estate Investment Trusts (REITs) (0.4)% | ||||||||||||||||||
f | Iron Mountain Inc., senior bond, 144A, 5.25%, 3/15/28 | United States | 149,000 | (156,170 | ) | |||||||||||||
Kimco Realty Corp., senior note, 1.90%, 3/01/28 | United States | 60,000 | (60,379 | ) | ||||||||||||||
Simon Property Group LP, senior bond, 2.65%, 7/15/30 | United States | 115,000 | (120,707 | ) | ||||||||||||||
|
| |||||||||||||||||
(337,256 | ) | |||||||||||||||||
|
| |||||||||||||||||
Food & Staples Retailing (0.9)% | ||||||||||||||||||
e | Casino Guichard Perrachon SA, E, senior bond, Reg S, 4.561%, 1/25/23 | France | 200,000 | EUR | (237,602 | ) | ||||||||||||
Koninklijke Ahold Delhaize NV, senior bond, 5.70%, 10/01/40 | Netherlands | 196,000 | (287,052 | ) | ||||||||||||||
The Kroger Co., senior bond, | ||||||||||||||||||
5.40%, 1/15/49 | United States | 78,000 | (113,621 | ) | ||||||||||||||
3.95%, 1/15/50 | United States | 4,000 | (4,909 | ) | ||||||||||||||
f | Seg Holding LLC / Seg Finance Corp., senior secured note, 144A, 5.625%, 10/15/28 | United States | 149,000 | (156,450 | ) | |||||||||||||
|
| |||||||||||||||||
(799,634 | ) | |||||||||||||||||
|
| |||||||||||||||||
Food Products (0.1)% | ||||||||||||||||||
B&G Foods Inc., senior note, 5.25%, 9/15/27 | United States | 115,000 | (120,354 | ) | ||||||||||||||
|
| |||||||||||||||||
Hotels, Restaurants & Leisure (0.3)% | ||||||||||||||||||
f | Golden Nugget Inc., senior note, 144A, 8.75%, 10/01/25 | United States | 188,000 | (189,763 | ) | |||||||||||||
RHP Hotel Properties LP / RHP Finance Corp., senior note, 4.75%, 10/15/27 | United States | 71,000 | (70,587 | ) | ||||||||||||||
|
| |||||||||||||||||
(260,350 | ) | |||||||||||||||||
|
| |||||||||||||||||
Multiline Retail (0.1)% | ||||||||||||||||||
f | Macy’s Inc., senior secured note, 144A, 8.375%, 6/15/25 | United States | 101,000 | (110,230 | ) | |||||||||||||
|
| |||||||||||||||||
Oil, Gas & Consumable Fuels (0.4)% | ||||||||||||||||||
Continental Resources Inc., senior note, | ||||||||||||||||||
3.80%, 6/01/24 | United States | 27,000 | (27,361 | ) | ||||||||||||||
4.375%, 1/15/28 | United States | 55,000 | (54,847 | ) | ||||||||||||||
Newfield Exploration Co., senior bond, 5.375%, 1/01/26 | United States | 27,000 | (28,312 | ) | ||||||||||||||
Ovintiv Inc., senior bond, 6.50%, 8/15/34 | United States | 27,000 | (29,016 | ) | ||||||||||||||
f | SM Energy Co., secured note, 144A, 10.00%, 1/15/25 | United States | 54,000 | (55,181 | ) | |||||||||||||
f | Tallgrass Energy Partners LP / Tallgrass Energy Finance Corp., senior bond, 144A, 5.50%, 1/15/28 | United States | 202,000 | (192,992 | ) | |||||||||||||
|
| |||||||||||||||||
(387,709 | ) | |||||||||||||||||
|
| |||||||||||||||||
Professional Services (0.1)% | ||||||||||||||||||
e | Teleperformance, senior note, Reg S, 1.875%, 7/02/25 | France | 100,000 | EUR | (128,586 | ) | ||||||||||||
|
| |||||||||||||||||
Software (0.1)% | ||||||||||||||||||
f | Veritas U.S. Inc. / Veritas Bermuda Ltd., senior note, 144A, 10.50%, 2/01/24 | United States | 129,000 | (129,793 | ) | |||||||||||||
|
| |||||||||||||||||
Specialty Retail (0.2)% | ||||||||||||||||||
f | Dave & Buster’s Inc., senior secured note, 144A, 7.625%, 11/01/25 | United States | 130,000 | (135,200 | ) | |||||||||||||
f | PetSmart Inc., senior note, 144A, 8.875%, 6/01/25 | United States | 69,000 | (69,604 | ) | |||||||||||||
|
| |||||||||||||||||
(204,804 | ) | |||||||||||||||||
|
| |||||||||||||||||
Wireless Telecommunication Services (0.1)% | ||||||||||||||||||
e | Softbank Group Corp., senior bond, Reg S, 5.125%, 9/19/27 | Japan | 100,000 | (104,988 | ) | |||||||||||||
|
| |||||||||||||||||
Total Corporate Bonds and Notes | (5,081,917 | ) | ||||||||||||||||
|
|
franklintempleton.com | Semiannual Report | 27 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Country | Principal Amount* | Value | ||||||||||||||||
u | Securities Sold Short (continued) | |||||||||||||||||
Foreign Government and Agency Securities (0.2)% | ||||||||||||||||||
Government of Italy, senior bond, | ||||||||||||||||||
e,f 144A, Reg S, 5.00%, 3/01/25 | Italy | 88,000 | EUR | $ | (127,865 | ) | ||||||||||||
5.25%, 11/01/29 | Italy | 63,000 | EUR | (106,585 | ) | |||||||||||||
|
| |||||||||||||||||
Total Foreign Government and Agency Securities (Proceeds $202,782) | (234,450 | ) | ||||||||||||||||
|
| |||||||||||||||||
U.S. Government and Agency Securities (0.8)% | ||||||||||||||||||
U.S. Treasury Bond, | ||||||||||||||||||
1.125%, 5/15/40 | United States | 121,000 | (116,302 | ) | ||||||||||||||
1.375%, 8/15/50 | United States | 201,000 | (191,029 | ) | ||||||||||||||
U.S. Treasury Note, | ||||||||||||||||||
0.25%, 10/31/25 | United States | 200,000 | (198,969 | ) | ||||||||||||||
0.875%, 11/15/30 | United States | 205,000 | (205,496 | ) | ||||||||||||||
|
| |||||||||||||||||
Total U.S. Government and Agency Securities | (711,796 | ) | ||||||||||||||||
|
| |||||||||||||||||
Total Securities Sold Short (Proceeds $5,881,532) | $ | (6,368,276 | ) | |||||||||||||||
|
|
†Rounds to less than 0.1% of net assets.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
#Notional amount is the number of units specified in the contract, and can include currency units, bushels, shares, pounds, barrels or other units. Currency units are stated in U.S. dollars unless otherwise indicated.
aNon-income producing.
bA portion or all of the security has been segregated as collateral for securities sold short, open swap contracts, open forward exchange contracts, open futures contracts and/or open written option contracts. At November 30, 2020, the aggregate value of these securities and/or cash pledged amounted to $4,713,893, representing 5.0% of net assets.
cFair valued using significant unobservable inputs. See Note 13 regarding fair value measurements.
dSee Note 9 regarding restricted securities.
eSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States. Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. At November 30, 2020, the net value of these securities was $1,714,209, representing 1.8% of net assets.
fSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in public offering registered under the Securities Act of 1933. At November 30, 2020, the net value of these securities was $41,606,214, representing 43.8% of net assets.
gThe coupon rate shown represents the rate at period end.
hPerpetual security with no stated maturity date.
iSee Note 1(g) regarding loan participation notes.
jA portion or all of the security purchased on a delayed delivery basis. See Note 1(d).
kSee Note 7 regarding defaulted securities.
lSee Note 1(j) regarding senior floating rate interests.
mSee Note 10 regarding unfunded loan commitments.
nThe coupon rate shown represents the rate inclusive of any caps or floors, if applicable, in effect at period end.
oAdjustable 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.
pSee Note 1(h) regarding credit-linked notes.
qThe rate shown is the annualized seven-day effective yield at period end.
rSee Note 1(c) regarding joint repurchase agreement.
sThe security was issued on a discount basis with no stated coupon rate.
tSee Note 1(e) regarding written options.
uSee Note 1(i) regarding securities sold short.
28 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
At November 30, 2020, the Fund had the following futures contracts outstanding. See Note 1(e).
Futures Contracts | ||||||||||||||||||||
Description | Type | Number of Contracts | Notional Amount* | Expiration Date | Value/Unrealized Appreciation (Depreciation) | |||||||||||||||
Equity Contracts | ||||||||||||||||||||
CBOE VIX Futures | Long | 8 | $ | 179,000 | 12/16/20 | $ | (25,008 | ) | ||||||||||||
CBOE VIX Futures | Long | 7 | 175,525 | 3/17/21 | (13,782 | ) | ||||||||||||||
S&P 500 E-Mini Index | Short | 14 | 2,536,240 | 12/18/20 | (164,224 | ) | ||||||||||||||
|
| |||||||||||||||||||
Total Futures Contracts |
| $ | (203,014 | ) | ||||||||||||||||
|
|
*As of period end.
At November 30, 2020, the Fund had the following forward exchange contracts outstanding. See Note 1(e).
Forward Exchange Contracts | ||||||||||||||||||||||||||||
Currency | Counterpartya | Type | Quantity | Contract Amount | Settlement Date | Unrealized Appreciation | Unrealized Depreciation | |||||||||||||||||||||
OTC Forward Exchange Contracts | ||||||||||||||||||||||||||||
Brazilian Real | JPHQ | Buy | 362,726 | $ | 63,055 | 12/02/20 | $ | 4,651 | $ | — | ||||||||||||||||||
Brazilian Real | JPHQ | Sell | 362,726 | 67,635 | 12/02/20 | — | (71 | ) | ||||||||||||||||||||
Indonesian Rupiah | JPHQ | Buy | 8,424,923,778 | 596,751 | 12/16/20 | — | (1,126 | ) | ||||||||||||||||||||
Indonesian Rupiah | JPHQ | Sell | 16,221,287,077 | 1,091,547 | 12/16/20 | 106 | (55,371 | ) | ||||||||||||||||||||
Russian Ruble | JPHQ | Buy | 60,349,834 | 769,116 | 12/16/20 | 19,857 | — | |||||||||||||||||||||
Russian Ruble | JPHQ | Sell | 148,660,041 | 1,927,534 | 12/16/20 | — | (15,946 | ) | ||||||||||||||||||||
Turkish Lira | JPHQ | Buy | 1,073,486 | 137,448 | 12/16/20 | — | (1,049 | ) | ||||||||||||||||||||
South African Rand | JPHQ | Buy | 7,116,435 | 430,838 | 12/17/20 | 27,564 | — | |||||||||||||||||||||
South African Rand | JPHQ | Sell | 2,442,843 | 151,255 | 12/17/20 | — | (6,100 | ) | ||||||||||||||||||||
British Pound | JPHQ | Sell | 480,000 | 614,048 | 1/29/21 | — | (26,354 | ) | ||||||||||||||||||||
Euro | JPHQ | Buy | 510,000 | 603,739 | 1/29/21 | 5,711 | — | |||||||||||||||||||||
Euro | JPHQ | Sell | 2,240,000 | 2,625,656 | 1/29/21 | — | (51,144 | ) | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total Forward Exchange Contracts |
| $ | 57,889 | $ | (157,161 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Net unrealized appreciation (depreciation) |
| $ | (99,272 | ) | ||||||||||||||||||||||||
|
|
aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
At November 30, 2020, the Fund had the following credit default swap contracts outstanding. See Note 1(e).
Credit Default Swap Contracts | ||||||||||||||||||||||||||||||||||||||||||||
Description | Annual Payment Rate Received (Paid) | Payment Frequency | Maturity Date | Notional Amounta | Value | Unamortized Upfront Payments (Receipts) | Unrealized Appreciation (Depreciation) | Ratingb | ||||||||||||||||||||||||||||||||||||
Centrally Cleared Swap Contracts | ||||||||||||||||||||||||||||||||||||||||||||
Contracts to Buy Protectionc | ||||||||||||||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||||||||||||||
Government of Malaysia | (1.00)% | Quarterly | 12/20/24 | 435,000 | $ | (12,877 | ) | $ | (11,525 | ) | $ | (1,352 | ) | |||||||||||||||||||||||||||||||
Government of Mexico | (1.00)% | Quarterly | 12/20/23 | 15,000 | (255 | ) | (232 | ) | (23 | ) | ||||||||||||||||||||||||||||||||||
Government of Mexico | (1.00)% | Quarterly | 6/20/23 | 186,000 | (2,926 | ) | (26 | ) | (2,900 | ) | ||||||||||||||||||||||||||||||||||
Government of Mexico | (1.00)% | Quarterly | 12/20/23 | 966,000 | (16,438 | ) | (3,881 | ) | (12,557 | ) | ||||||||||||||||||||||||||||||||||
Government of South Africa | (1.00)% | Quarterly | 12/20/24 | 900,000 | 34,537 | 26,654 | 7,883 | |||||||||||||||||||||||||||||||||||||
Government of South Africa | (1.00)% | Quarterly | 12/20/24 | 903,000 | 34,652 | 26,642 | 8,010 | |||||||||||||||||||||||||||||||||||||
Government of Turkey | (1.00)% | Quarterly | 6/20/22 | 6,000 | 187 | 316 | (129 | ) | ||||||||||||||||||||||||||||||||||||
Government of Turkey | (1.00)% | Quarterly | 6/20/24 | 462,000 | 38,991 | 46,375 | (7,384 | ) | ||||||||||||||||||||||||||||||||||||
Traded Index | ||||||||||||||||||||||||||||||||||||||||||||
CDX.NA.HY.25 | (5.00)% | Quarterly | 12/20/20 | 1,241,000 | (3,185 | ) | 24,992 | (28,177 | ) | |||||||||||||||||||||||||||||||||||
CDX.NA.HY.34 | (5.00)% | Quarterly | 6/20/25 | 3,450,000 | (301,347 | ) | 17,346 | (318,693 | ) |
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 | Annual Payment Rate Received (Paid) | Payment Frequency | Maturity Date | Notional Amounta | Value | Unamortized Upfront Payments (Receipts) | Unrealized Appreciation (Depreciation) | Ratingb | ||||||||||||||||||||||||||||||||
Contracts to Sell Protectionc,d | ||||||||||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||||||||||
Government of South Africa | 1.00% | Quarterly | 12/20/24 | 786,000 | $ | (30,162 | ) | $ | (61,216 | ) | $ | 31,054 | BB- | |||||||||||||||||||||||||||
Government of South Africa | 1.00% | Quarterly | 12/20/24 | 184,000 | (7,061 | ) | (5,367 | ) | (1,694 | ) | BB- | |||||||||||||||||||||||||||||
Government of Turkey | 1.00% | Quarterly | 12/20/22 | 136,000 | (5,976 | ) | (6,150 | ) | 174 | B+ | ||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
Total Centrally Cleared Swap Contracts |
| $ | (271,860 | ) | $ | 53,928 | $ | (325,788 | ) | |||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||||||||||||||||||||||
Contracts to Buy Protectionc | ||||||||||||||||||||||||||||||||||||||||
Single Name | Counterparty | |||||||||||||||||||||||||||||||||||||||
American Airlines Group Inc. | (5.00)% | Quarterly | BZWS | 12/20/21 | 24,000 | 2,695 | 3,641 | (946 | ) | |||||||||||||||||||||||||||||||
American Airlines Group Inc. | (5.00)% | Quarterly | CITI | 12/20/21 | 14,000 | 1,572 | 1,792 | (220 | ) | |||||||||||||||||||||||||||||||
American Airlines Group Inc. | (5.00)% | Quarterly | GSCO | 12/20/21 | 24,000 | 2,695 | 4,069 | (1,374 | ) | |||||||||||||||||||||||||||||||
American Airlines Group Inc. | (5.00)% | Quarterly | JPHQ | 12/20/21 | 10,000 | 1,123 | 1,333 | (210 | ) | |||||||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | BZWS | 6/20/23 | 35,000 | 2,986 | 8,139 | (5,153 | ) | |||||||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | BZWS | 6/20/23 | 36,000 | 3,072 | 8,203 | (5,131 | ) | |||||||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | BZWS | 6/20/25 | 100,000 | 15,562 | 26,013 | (10,451 | ) | |||||||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | CITI | 6/20/23 | 18,000 | 1,536 | 4,175 | (2,639 | ) | |||||||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | CITI | 6/20/25 | 13,000 | 2,023 | 3,533 | (1,510 | ) | |||||||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | FBCO | 6/20/23 | 18,000 | 1,536 | 4,120 | (2,584 | ) | |||||||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | GSCO | 12/20/20 | 14,000 | (20 | ) | 154 | (174 | ) | ||||||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | GSCO | 6/20/23 | 36,000 | 3,072 | 7,837 | (4,765 | ) | |||||||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | GSCO | 6/20/23 | 36,000 | 3,072 | 8,239 | (5,167 | ) | |||||||||||||||||||||||||||||||
Carnival Corp. | (1.00)% | Quarterly | JPHQ | 12/20/20 | 11,000 | (16 | ) | 56 | (72 | ) | ||||||||||||||||||||||||||||||
Dell Inc. | (1.00)% | Quarterly | BNPP | 12/20/25 | 12,000 | 457 | 838 | (381 | ) | |||||||||||||||||||||||||||||||
Dell Inc. | (1.00)% | Quarterly | BNPP | 12/20/25 | 133,000 | 5,061 | 7,087 | (2,026 | ) | |||||||||||||||||||||||||||||||
Dell Inc. | (1.00)% | Quarterly | CITI | 12/20/25 | 15,000 | 571 | 865 | (294 | ) | |||||||||||||||||||||||||||||||
Dell Inc. | (1.00)% | Quarterly | CITI | 12/20/25 | 19,000 | 723 | 1,260 | (537 | ) | |||||||||||||||||||||||||||||||
Dell Inc. | (1.00)% | Quarterly | JPHQ | 12/20/25 | 62,000 | 2,359 | 2,893 | (534 | ) | |||||||||||||||||||||||||||||||
Diamond Sports Group LLC / Diamond Sports Finance Co. | (5.00)% | Quarterly | BZWS | 12/20/25 | 14,000 | 4,742 | 7,213 | (2,471 | ) | |||||||||||||||||||||||||||||||
Diamond Sports Group LLC / Diamond Sports Finance Co. | (5.00)% | Quarterly | BZWS | 12/20/25 | 11,000 | 3,726 | 5,662 | (1,936 | ) | |||||||||||||||||||||||||||||||
Diamond Sports Group LLC / Diamond Sports Finance Co. | (5.00)% | Quarterly | GSCO | 6/20/25 | 11,000 | 3,585 | 5,986 | (2,401 | ) | |||||||||||||||||||||||||||||||
Diamond Sports Group LLC / Diamond Sports Finance Co. | (5.00)% | Quarterly | GSCO | 12/20/25 | 6,000 | 2,032 | 2,719 | (687 | ) | |||||||||||||||||||||||||||||||
Diamond Sports Group LLC / Diamond Sports Finance Co. | (5.00)% | Quarterly | GSCO | 12/20/25 | 6,000 | 2,032 | 2,719 | (687 | ) | |||||||||||||||||||||||||||||||
Diamond Sports Group LLC / Diamond Sports Finance Co. | (5.00)% | Quarterly | GSCO | 12/20/25 | 6,000 | 2,032 | 2,720 | (688 | ) | |||||||||||||||||||||||||||||||
Diamond Sports Group LLC / Diamond Sports Finance Co. | (5.00)% | Quarterly | GSCO | 12/20/25 | 10,000 | 3,387 | 3,767 | (380 | ) |
30 | 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 | Annual Payment Rate Received (Paid) | Payment Frequency | Counterparty | Maturity Date | Notional Amounta | Value | Unamortized Upfront Payments (Receipts) | Unrealized Appreciation (Depreciation) | Ratingb | |||||||||||||||||||||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||||||||||||||||||||||||
Contracts to Buy Protectionc (continued) | ||||||||||||||||||||||||||||||||||||||||
Single Name (continued) |
| |||||||||||||||||||||||||||||||||||||||
Diamond Sports Group LLC / Diamond Sports Finance Co. | (5.00)% | Quarterly | GSCO | 12/20/25 | 12,000 | $ | 4,065 | $ | 5,205 | $ | (1,140 | ) | ||||||||||||||||||||||||||||
Dow Inc. | (1.00)% | Quarterly | GSCO | 6/20/25 | 66,000 | (1,465 | ) | (438 | ) | (1,027 | ) | |||||||||||||||||||||||||||||
Dow Inc. | (1.00)% | Quarterly | GSCO | 6/20/25 | 66,000 | (1,465 | ) | (409 | ) | (1,056 | ) | |||||||||||||||||||||||||||||
Dow Inc. | (1.00)% | Quarterly | GSCO | 6/20/25 | 66,000 | (1,465 | ) | (291 | ) | (1,174 | ) | |||||||||||||||||||||||||||||
Dow Inc. | (1.00)% | Quarterly | JPHQ | 6/20/25 | 33,000 | (733 | ) | (146 | ) | (587 | ) | |||||||||||||||||||||||||||||
GE Capital Funding LLC | (1.00)% | Quarterly | GSCO | 12/20/25 | 48,000 | 107 | 1,696 | (1,589 | ) | |||||||||||||||||||||||||||||||
GE Capital Funding LLC | (1.00)% | Quarterly | GSCO | 12/20/25 | 72,000 | 161 | 2,871 | (2,710 | ) | |||||||||||||||||||||||||||||||
GE Capital Funding LLC | (1.00)% | Quarterly | JPHQ | 12/20/25 | 48,000 | 107 | 1,586 | (1,479 | ) | |||||||||||||||||||||||||||||||
GE Capital Funding LLC | (1.00)% | Quarterly | JPHQ | 12/20/25 | 72,000 | 161 | 2,969 | (2,808 | ) | |||||||||||||||||||||||||||||||
Government of Brazil | (1.00)% | Quarterly | BZWS | 6/20/25 | 182,000 | 3,944 | 19,309 | (15,365 | ) | |||||||||||||||||||||||||||||||
Government of Italy | (1.00)% | Quarterly | BOFA | 6/20/24 | 233,000 | (1,943 | ) | 1,736 | (3,679 | ) | ||||||||||||||||||||||||||||||
Government of Italy | (1.00)% | Quarterly | BOFA | 6/20/24 | 140,000 | (1,168 | ) | 2,341 | (3,509 | ) | ||||||||||||||||||||||||||||||
Groupe Casino | (5.00)% | Quarterly | JPHQ | 12/20/24 | 54,000 | EUR | 4,046 | 3,703 | 343 | |||||||||||||||||||||||||||||||
Heidelbergcement AG | (5.00)% | Quarterly | JPHQ | 12/20/25 | 140,000 | EUR | (37,295 | ) | (35,079 | ) | (2,216 | ) | ||||||||||||||||||||||||||||
Intrum Justitia AS | (5.00)% | Quarterly | MSCS | 12/20/25 | 24,000 | EUR | (1,468 | ) | 118 | (1,586 | ) | |||||||||||||||||||||||||||||
Intrum Justitia AS | (5.00)% | Quarterly | MSCO | 12/20/25 | 31,000 | EUR | (1,897 | ) | — | (1,897 | ) | |||||||||||||||||||||||||||||
Intrum Justitia AS | (5.00)% | Quarterly | MSCO | 12/20/25 | 19,000 | EUR | (1,163 | ) | 92 | (1,255 | ) | |||||||||||||||||||||||||||||
Intrum Justitia AS | (5.00)% | Quarterly | MSCO | 12/20/25 | 28,000 | EUR | (1,713 | ) | 96 | (1,809 | ) | |||||||||||||||||||||||||||||
Intrum Justitia AS | (5.00)% | Quarterly | MSCO | 12/20/25 | 28,000 | EUR | (1,713 | ) | 136 | (1,849 | ) | |||||||||||||||||||||||||||||
Intrum Justitia AS | (5.00)% | Quarterly | MSCS | 12/20/25 | 23,000 | EUR | (1,407 | ) | (57 | ) | (1,350 | ) | ||||||||||||||||||||||||||||
Itochu Corp. | (1.00)% | Quarterly | GSCO | 6/20/22 | 12,107,000 | JPY | (1,935 | ) | (1,113 | ) | (822 | ) | ||||||||||||||||||||||||||||
JFE Holdings Inc. | (1.00)% | Quarterly | GSCO | 6/20/22 | 5,348,000 | JPY | (791 | ) | (507 | ) | (284 | ) | ||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | BZWS | 6/20/24 | 38,000 | 4,484 | 11,462 | (6,978 | ) | |||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | BZWS | 12/20/24 | 96,000 | 13,656 | 16,905 | (3,249 | ) | |||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | BZWS | 12/20/24 | 96,000 | 13,656 | 17,691 | (4,035 | ) | |||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | BZWS | 12/20/24 | 113,000 | 16,075 | 30,330 | (14,255 | ) | |||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | BZWS | 6/20/25 | 18,000 | 2,870 | 7,075 | (4,205 | ) | |||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | GSCO | 9/20/24 | 68,000 | 8,874 | 19,324 | (10,450 | ) | |||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | GSCO | 12/20/24 | 57,000 | 8,108 | 15,299 | (7,191 | ) | |||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | JPHQ | 6/20/25 | 4,000 | 638 | 1,788 | (1,150 | ) | |||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | JPHQ | 6/20/25 | 4,000 | 638 | 2,252 | (1,614 | ) | |||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | MSCO | 12/20/24 | 34,000 | 4,837 | 10,064 | (5,227 | ) | |||||||||||||||||||||||||||||||
K. Hovnanian Enterprises Inc. | (5.00)% | Quarterly | MSCO | 6/20/25 | 5,000 | 797 | 2,826 | (2,029 | ) | |||||||||||||||||||||||||||||||
Kimco Realty Corp. | (1.00)% | Quarterly | JPHQ | 6/20/24 | 121,000 | (1,299 | ) | 196 | (1,495 | ) | ||||||||||||||||||||||||||||||
Kimco Realty Corp. | (1.00)% | Quarterly | JPHQ | 6/20/25 | 109,000 | (232 | ) | 1,637 | (1,869 | ) | ||||||||||||||||||||||||||||||
Kohl’s Corp. | (1.00)% | Quarterly | CITI | 12/20/25 | 207,000 | 9,233 | 19,205 | (9,972 | ) | |||||||||||||||||||||||||||||||
Kohl’s Corp. | (1.00)% | Quarterly | GSCO | 12/20/25 | 154,000 | 6,869 | 14,095 | (7,226 | ) | |||||||||||||||||||||||||||||||
Kohl’s Corp. | (1.00)% | Quarterly | MSCO | 12/20/25 | 221,000 | 9,858 | 20,505 | (10,647 | ) |
franklintempleton.com | Semiannual Report | 31 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Credit Default Swap Contracts (continued) | ||||||||||||||||||||||||||||||||||||||||
Description | Annual Payment Rate Received (Paid) | Payment Frequency | Counterparty | Maturity Date | Notional Amounta | Value | Unamortized Upfront Payments (Receipts) | Unrealized Appreciation (Depreciation) | Ratingb | |||||||||||||||||||||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||||||||||||||||||||||||
Contracts to Buy Protectionc (continued) | ||||||||||||||||||||||||||||||||||||||||
Single Name (continued) |
| |||||||||||||||||||||||||||||||||||||||
Lloyds Bank PLC | (1.00)% | Quarterly | BOFA | 12/20/22 | 196,000 | EUR | $ | (3,862 | ) | $ | (1,034 | ) | $ | (2,828 | ) | |||||||||||||||||||||||||
Lloyds Bank PLC | (1.00)% | Quarterly | GSCO | 12/20/23 | 100,000 | EUR | (2,692 | ) | 104 | (2,796 | ) | |||||||||||||||||||||||||||||
Lloyds Bank PLC | (1.00)% | Quarterly | GSCO | 6/20/24 | 127,000 | EUR | (4,326 | ) | 705 | (5,031 | ) | |||||||||||||||||||||||||||||
Lloyds Bank PLC | (1.00)% | Quarterly | JPHQ | 12/20/22 | 4,000 | EUR | (531 | ) | (23 | ) | (508 | ) | ||||||||||||||||||||||||||||
Lloyds Bank PLC | (1.00)% | Quarterly | JPHQ | 12/20/24 | 121,000 | EUR | (1,154 | ) | 2,928 | (4,082 | ) | |||||||||||||||||||||||||||||
Marubeni Corp. | (1.00)% | Quarterly | CITI | 6/20/25 | 3,711,000 | JPY | (1,165 | ) | 999 | (2,164 | ) | |||||||||||||||||||||||||||||
Marubeni Corp. | (1.00)% | Quarterly | GSCO | 6/20/22 | 18,860,000 | JPY | (2,866 | ) | (1,434 | ) | (1,432 | ) | ||||||||||||||||||||||||||||
MBIA Inc. | (5.00)% | Quarterly | BZWS | 6/20/22 | 23,000 | (687 | ) | (421 | ) | (266 | ) | |||||||||||||||||||||||||||||
MBIA Inc. | (5.00)% | Quarterly | CITI | 6/20/22 | 36,000 | (1,076 | ) | (1,831 | ) | 755 | ||||||||||||||||||||||||||||||
MBIA Inc. | (5.00)% | Quarterly | GSCO | 6/20/22 | 21,000 | (628 | ) | (845 | ) | 217 | ||||||||||||||||||||||||||||||
MBIA Inc. | (5.00)% | Quarterly | JPHQ | 6/20/21 | 269,000 | (6,309 | ) | (4,711 | ) | (1,598 | ) | |||||||||||||||||||||||||||||
MBIA Inc. | (5.00)% | Quarterly | JPHQ | 12/20/24 | 97,000 | (2,556 | ) | (11,087 | ) | 8,531 | ||||||||||||||||||||||||||||||
Mitsui O.S.K. Lines Ltd. | (1.00)% | Quarterly | JPHQ | 6/20/22 | 3,878,000 | JPY | (491 | ) | (92 | ) | (399 | ) | ||||||||||||||||||||||||||||
Mitsui O.S.K. Lines Ltd. | (1.00)% | Quarterly | JPHQ | 6/20/22 | 3,618,000 | JPY | (458 | ) | (86 | ) | (372 | ) | ||||||||||||||||||||||||||||
Simon Property Group LP | (1.00)% | Quarterly | JPHQ | 12/20/25 | 434,000 | 127 | 9,328 | (9,201 | ) | |||||||||||||||||||||||||||||||
Simon Property Group LP | (1.00)% | Quarterly | MSCO | 12/20/25 | 340,000 | 99 | 7,307 | (7,208 | ) | |||||||||||||||||||||||||||||||
Softbank Group Corp. | (1.00)% | Quarterly | BZWS | 6/20/24 | 6,394,000 | JPY | 2,140 | 1,761 | 379 | |||||||||||||||||||||||||||||||
Softbank Group Corp. | (1.00)% | Quarterly | BZWS | 6/20/24 | 9,987,000 | JPY | 3,342 | 2,247 | 1,095 | |||||||||||||||||||||||||||||||
Stena AB | (5.00)% | Quarterly | GSCO | 6/20/24 | 100,000 | EUR | 173 | 6,277 | (6,104 | ) | ||||||||||||||||||||||||||||||
Stena AB | (5.00)% | Quarterly | GSCO | 12/20/25 | 32,000 | EUR | 921 | 2,540 | (1,619 | ) | ||||||||||||||||||||||||||||||
Telecom Italia SpA | (1.00)% | Quarterly | BZWS | 12/20/25 | 196,000 | EUR | 9,155 | 8,850 | 305 | |||||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | BZWS | 12/20/25 | 25,000 | 17,462 | 21,052 | (3,590 | ) | |||||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | FBCO | 12/20/24 | 121,000 | 82,889 | 63,183 | 19,706 | ||||||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | GSCO | 12/20/24 | 71,000 | 48,637 | 4,923 | 43,714 | ||||||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | GSCO | 12/20/24 | 48,000 | 32,882 | 5,882 | 27,000 | ||||||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | GSCO | 12/20/25 | 455,000 | 317,804 | 359,838 | (42,034 | ) | |||||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | JPHQ | 12/20/24 | 4,000 | 2,740 | 543 | 2,197 | ||||||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | JPHQ | 12/20/24 | 138,000 | 94,535 | 18,758 | 75,777 | ||||||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | JPHQ | 12/20/24 | 100,000 | 68,503 | 49,404 | 19,099 | ||||||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | JPHQ | 6/20/25 | 155,000 | 107,262 | 98,913 | 8,349 | ||||||||||||||||||||||||||||||||
Transocean Inc. | (1.00)% | Quarterly | JPHQ | 12/20/25 | 155,000 | 120,373 | 124,289 | (3,916 | ) | |||||||||||||||||||||||||||||||
Transocean Inc. | (5.00)% | Quarterly | MSCO | 12/20/24 | 20,000 | 13,701 | 2,562 | 11,139 | ||||||||||||||||||||||||||||||||
Transocean Inc. | (1.00)% | Quarterly | MSCO | 12/20/25 | 37,000 | 28,734 | 28,006 | 728 | ||||||||||||||||||||||||||||||||
Transocean Inc. | (1.00)% | Quarterly | MSCO | 12/20/25 | 74,000 | 57,468 | 59,604 | (2,136 | ) | |||||||||||||||||||||||||||||||
Transocean Inc. | (1.00)% | Quarterly | MSCO | 12/20/25 | 111,000 | 86,203 | 88,882 | (2,679 | ) | |||||||||||||||||||||||||||||||
Transocean Inc. | (1.00)% | Quarterly | MSCS | 12/20/25 | 111,000 | 86,203 | 89,007 | (2,804 | ) | |||||||||||||||||||||||||||||||
Unisys Corp. | (5.00)% | Quarterly | GSCO | 12/20/25 | 17,000 | (2,200 | ) | (2,423 | ) | 223 | ||||||||||||||||||||||||||||||
US Steel Corp. | (5.00)% | Quarterly | JPHQ | 6/20/25 | 23,000 | 620 | 4,802 | (4,182 | ) | |||||||||||||||||||||||||||||||
US Steel Corp. | (5.00)% | Quarterly | JPHQ | 6/20/25 | 25,000 | 674 | 5,780 | (5,106 | ) | |||||||||||||||||||||||||||||||
US Steel Corp. | (5.00)% | Quarterly | MSCO | 6/20/25 | 14,000 | 377 | 4,515 | (4,138 | ) | |||||||||||||||||||||||||||||||
US Steel Corp. | (5.00)% | Quarterly | MSCO | 6/20/25 | 36,000 | 970 | 8,664 | (7,694 | ) | |||||||||||||||||||||||||||||||
Contracts to Sell Protectionc,d | ||||||||||||||||||||||||||||||||||||||||
Single Name | ||||||||||||||||||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | BZWS | 12/20/24 | 74,000 | (56,057 | ) | (51,543 | ) | (4,514 | ) | CCC- | ||||||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | BZWS | 12/20/24 | 65,000 | (49,240 | ) | (46,245 | ) | (2,995 | ) | CCC- | ||||||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | BZWS | 12/20/24 | 33,000 | (24,999 | ) | (24,142 | ) | (857 | ) | CCC- | ||||||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | JPHQ | 6/20/25 | 155,000 | (118,953 | ) | (121,124 | ) | 2,171 | CCC- | |||||||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | MSCO | 12/20/24 | 111,000 | (84,086 | ) | (82,036 | ) | (2,050 | ) | CCC- | ||||||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | MSCO | 12/20/24 | 74,000 | (56,057 | ) | (54,690 | ) | (1,367 | ) | CCC- | ||||||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | MSCO | 12/20/24 | 37,000 | (28,029 | ) | (25,739 | ) | (2,290 | ) | CCC- | ||||||||||||||||||||||||||||
Transocean Inc. | 1.00% | Quarterly | MSCS | 12/20/24 | 482,000 | (365,130 | ) | (363,074 | ) | (2,056 | ) | CCC- | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
Total OTC Swap Contracts |
| $ | 496,089 | $ | 608,578 | $ | (112,489 | ) | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
Total Credit Default Swap Contracts |
| $ | 224,229 | $ | 662,506 | $ | (438,277 | ) | ||||||||||||||||||||||||||||||||
|
|
32 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
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, 2020, the Fund had the following interest rate swap contracts outstanding. See Note 1(e).
Interest Rate Swap Contracts | ||||||||||||||||
Description | Payment Frequency | Maturity Date | Notional Amount* | Value/Unrealized Appreciation (Depreciation) | ||||||||||||
Centrally Cleared Swap Contracts |
| |||||||||||||||
Receive Floating rate 3 Month USD-LIBOR | Quarterly | 9/18/21 | 1,500,000 | $ | (15,919 | ) | ||||||||||
Receive Floating rate 3 Month USD-LIBOR | Quarterly | 3/18/22 | 1,100,000 | (20,186 | ) | |||||||||||
Receive Fixed 4.48% | Monthly | 12/14/22 | 8,580,586 | MXN | 328 | |||||||||||
Receive Fixed 4.08% | Annually | 1/02/23 | 1,477,995 | BRL | (2,959 | ) | ||||||||||
Receive Fixed 4.54% | Annually | 1/02/23 | 1,289,337 | BRL | (874 | ) | ||||||||||
Receive Fixed 5.07% | Monthly | 12/10/25 | 7,593,358 | MXN | 2,028 | |||||||||||
Receive Fixed 2.78% | Quarterly | 12/16/25 | 3,331,608 | CNY | (381 | ) | ||||||||||
Receive Floating rate 3 Month USD-LIBOR | Quarterly | 6/20/28 | 1,100,000 | (205,796 | ) | |||||||||||
Receive Fixed 5.81% | Monthly | 12/04/30 | 7,237,477 | MXN | 7,183 | |||||||||||
Receive Floating rate 6 Month-WIBOR | Semi-Annually | 12/16/30 | 492,252 | PLN | 350 | |||||||||||
Receive Floating rate 6 Month-WIBOR | Semi-Annually | 12/16/30 | 534,939 | PLN | (33 | ) | ||||||||||
Receive Floating rate 6 Month-WIBOR | Semi-Annually | 3/17/31 | 506,032 | PLN | 176 | |||||||||||
Receive Floating rate 6 Month-WIBOR | Semi-Annually | 3/17/31 | 506,177 | PLN | (280 | ) | ||||||||||
|
| |||||||||||||||
Total Interest Rate Swap Contracts |
| $ | (236,363 | ) | ||||||||||||
|
|
*In U.S. dollars unless otherwise indicated.
At November 30, 2020, the Fund had the following total return swap contracts outstanding. See Note 1(e).
Total Return Swap Contracts | ||||||||||||||||||||||||
Underlying Instrument | Financing Rate | Payment Frequency | Counterparty | Maturity Date | Notional Value | Value/Unrealized Appreciation (Depreciation) | ||||||||||||||||||
OTC Swap Contracts | ||||||||||||||||||||||||
Equity Contracts – Longa | ||||||||||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 11/01/21 | $ | 167 | $ | 59 | ||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.50% | Monthly | GSCO | 11/02/21 | 1,600 | 501 | ||||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.50% | Monthly | GSCO | 11/03/21 | 941 | 257 | ||||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.50% | Monthly | GSCO | 11/04/21 | 479 | 120 | ||||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 11/08/21 | 313 | 77 | ||||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.50% | Monthly | GSCO | 11/09/21 | 18 | 5 | ||||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.50% | Monthly | GSCO | 11/10/21 | 9 | 2 | ||||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 11/24/21 | 345 | 11 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | BZWS | 2/17/21 | 3,210 | 1,020 |
franklintempleton.com | Semiannual Report | 33 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Total Return Swap Contracts (continued) | ||||||||||||||||||||||||
Underlying Instrument | Financing Rate | Payment Frequency | Counterparty | Maturity Date | Notional Value | Value/Unrealized Appreciation (Depreciation) | ||||||||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||||||||
Equity Contracts – Longa (continued) | ||||||||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | BZWS | 2/17/21 | $ | 1,897 | $ | 666 | ||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | BZWS | 2/22/21 | 227 | 73 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 3/04/21 | 7,036 | 2,676 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 3/05/21 | 15,291 | 5,832 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 3/10/21 | 8,467 | 3,174 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 3/11/21 | 13,131 | 4,410 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 3/11/21 | 27,315 | 10,387 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 3/12/21 | 14,066 | 4,626 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 3/12/21 | 33,991 | 12,464 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 3/15/21 | 1,246 | 425 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 3/15/21 | 8,540 | 4,461 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 4/28/21 | 2,779 | 1,247 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 4/29/21 | 3,714 | 1,247 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 4/29/21 | 3,722 | 1,594 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/03/21 | 5,648 | 2,407 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/04/21 | 2,440 | 1,260 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/05/21 | 1,364 | 691 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/06/21 | 3,072 | 1,395 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/07/21 | 682 | 332 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/10/21 | 1,134 | 509 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/11/21 | 2,026 | 850 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/18/21 | 3,492 | 1,550 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/19/21 | 2,615 | 1,029 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/20/21 | 7,220 | 2,864 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/21/21 | 7,165 | 2,920 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/24/21 | 903 | 358 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/27/21 | 1,212 | 459 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 5/31/21 | 3,678 | 1,283 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 7/06/21 | 34,272 | 20,085 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.35% | Monthly | JPHQ | 7/06/21 | 3,583 | 1,678 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/07/21 | 9,101 | 368 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/12/21 | 1,205 | (2 | ) | |||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/14/21 | 2,734 | (83 | ) | |||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/14/21 | 536 | (16 | ) | |||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/14/21 | 3,749 | (111 | ) | |||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/19/21 | 2,135 | (1 | ) | |||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/20/21 | 19,742 | (42 | ) | |||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/21/21 | 1,870 | 18 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/21/21 | 3,225 | 30 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/25/21 | 1,418 | 5 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/26/21 | 522 | — | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/27/21 | 2,234 | (45 | ) | |||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 10/28/21 | 2,680 | 1 | ||||||||||||||||||
Clearway Energy Inc. | 1-Month LIBOR + 0.40% | Monthly | GSCO | 11/03/21 | 28,490 | 1,255 | ||||||||||||||||||
Energy Transfer Operating LP | 1-Month LIBOR + 0.90% | Monthly | GSCO | 11/05/21 | 34,965 | 4,833 | ||||||||||||||||||
Energy Transfer Operating LP | 1-Month LIBOR + 0.40% | Monthly | BOFA | 11/09/21 | 28,045 | 2,976 | ||||||||||||||||||
Energy Transfer Operating LP | 1-Month LIBOR + 0.65% | Monthly | GSCO | 11/29/21 | 43,287 | 2,402 | ||||||||||||||||||
Enterprise Products Partners LP | 1-Month LIBOR + 0.90% | Monthly | GSCO | 11/16/21 | 40,564 | 3,243 | ||||||||||||||||||
|
| |||||||||||||||||||||||
109,835 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||
Equity Contracts – Shortb |
| |||||||||||||||||||||||
Advanced Emissions Solutions Inc. | 1-Month LIBOR - 0.40% | Monthly | MSCO | 11/10/21 | 5,616 | (519 | ) | |||||||||||||||||
|
|
34 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Long Short Credit Fund (continued)
Total Return Swap Contracts (continued) | ||||||||||||||||||||||||
Underlying Instrument | Financing Rate | Payment Frequency | Counterparty | Maturity Date | Notional Value | Value/Unrealized Appreciation (Depreciation) | ||||||||||||||||||
OTC Swap Contracts (continued) | ||||||||||||||||||||||||
Interest Rate Contracts – Longa |
| |||||||||||||||||||||||
Government of Egypt | 1-Day FEDEF | Monthly | CITI | 1/12/21 | $ | 80,248 | $ | 1,365 | ||||||||||||||||
Government of Indonesia | 3-Month LIBOR + 1.00% | Monthly | BOFA | 5/18/21 | 384,829 | 46,394 | ||||||||||||||||||
Government of Indonesia | 3-Month LIBOR + 0.60% | Monthly | DBAB | 6/15/32 | 103,643 | 8,085 | ||||||||||||||||||
|
| |||||||||||||||||||||||
55,844 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total – Total Return Swap Contracts |
| $ | 165,160 | |||||||||||||||||||||
|
|
aThe Fund receives the total return on the underlying instrument and pays a variable financing rate.
bThe Fund receives the variable financing rate and pays the total return on the underlying instrument.
See Note 11 regarding other derivative information.
See Abbreviations on page 55.
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 35 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Statement of Assets and Liabilities
November 30, 2020 (unaudited)
Franklin K2 Long Short Credit Fund
Assets: | ||||
Investments in securities: | ||||
Cost – Unaffiliated issuers | $ | 84,552,961 | ||
Cost – Unaffiliated repurchase agreements | 4,425,822 | |||
|
| |||
Value – Unaffiliated issuers | $ | 85,380,622 | ||
Value – Unaffiliated repurchase agreements | 4,425,822 | |||
Cash | 2,145,362 | |||
Restricted cash for OTC derivatives (Note 1f) | 280,000 | |||
Foreign currency, at value (cost $474,484) | 571,844 | |||
Receivables: | ||||
Investment securities sold | 1,931,810 | |||
Capital shares sold | 185,820 | |||
Dividends and interest | 525,519 | |||
Deposits with brokers for: | ||||
Securities sold short | 6,293,305 | |||
OTC derivative contracts | 710,000 | |||
Futures contracts | 307,550 | |||
Centrally cleared swap contracts | 454,096 | |||
Due from brokers | 144,165 | |||
Variation margin on futures contracts | 3,960 | |||
OTC swap contracts (upfront payments $1,573,594) | 1,439,198 | |||
Unrealized appreciation on OTC forward exchange contracts | 57,889 | |||
Unrealized appreciation on OTC swap contracts | 387,707 | |||
Unrealized appreciation on unfunded loan commitments (Note 10) | 13,965 | |||
Other assets | 35 | |||
|
| |||
Total assets | 105,258,669 | |||
|
| |||
Liabilities: | ||||
Payables: | ||||
Investment securities purchased | 1,957,986 | |||
Capital shares redeemed | 79,487 | |||
Management fees | 11,535 | |||
Distribution fees | 4,781 | |||
Variation margin on centrally cleared swap contracts | 7,121 | |||
Transfer agent fees | 16,183 | |||
Deposits from brokers for: | ||||
OTC derivative contracts | 280,000 | |||
Due to brokers | 65,459 | |||
OTC swap contracts (upfront receipts $909,257) | 830,620 | |||
Options written, at value (premiums received $1,559) | 130 | |||
Securities sold short, at value (proceeds $5,881,532) | 6,368,276 | |||
Unrealized depreciation on OTC forward exchange contracts | 157,161 | |||
Unrealized depreciation on OTC swap contracts | 335,036 | |||
Accrued expenses and other liabilities | 91,128 | |||
|
| |||
Total liabilities | 10,204,903 | |||
|
| |||
Net assets, at value | $ | 95,053,766 | ||
|
| |||
Net assets consist of: | ||||
Paid-in capital | $ | 92,931,952 | ||
Total distributable earnings (loss) | 2,121,814 | |||
|
| |||
Net assets, at value | $ | 95,053,766 | ||
|
|
36 | 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, 2020 (unaudited)
Franklin K2 Long Short Credit Fund
Class A: | ||||
Net assets, at value | $22,543,046 | |||
|
| |||
Shares outstanding | 2,102,373 | |||
|
| |||
Net asset value per sharea | $10.72 | |||
|
| |||
Maximum offering price per share (net asset value per share ÷ 94.50%) | $11.34 | |||
|
| |||
Class C: | ||||
Net assets, at value | $2,886,446 | |||
|
| |||
Shares outstanding | 275,064 | |||
|
| |||
Net asset value and maximum offering price per sharea | $10.49 | |||
|
| |||
Class R: | ||||
Net assets, at value | $183,665 | |||
|
| |||
Shares outstanding | 17,325 | |||
|
| |||
Net asset value and maximum offering price per share | $10.60 | |||
|
| |||
Class R6: | ||||
Net assets, at value | $5,701 | |||
|
| |||
Shares outstanding | 531 | |||
|
| |||
Net asset value and maximum offering price per share | $10.74 | |||
|
| |||
Advisor Class: | ||||
Net assets, at value | $69,434,908 | |||
|
| |||
Shares outstanding | 6,461,572 | |||
|
| |||
Net asset value and maximum offering price per share | $10.75 | |||
|
|
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 | 37 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS
Statement of Operations
for the six months ended November 30, 2020 (unaudited)
Franklin K2 Long Short Credit Fund
Investment income: | ||||
Dividends: | ||||
Unaffiliated issuers | $ | 46,158 | ||
Interest: (net of foreign taxes)~ | ||||
Unaffiliated issuers: | ||||
Paydown gain (loss) | 208,107 | |||
Paid in cash | 2,192,708 | |||
|
| |||
Total investment income | 2,446,973 | |||
|
| |||
Expenses: | ||||
Management fees (Note 3a) | 780,960 | |||
Distribution fees: (Note 3c) | ||||
Class A | 19,252 | |||
Class C | 14,206 | |||
Class R | 438 | |||
Transfer agent fees: (Note 3e) | ||||
Class A | 13,232 | |||
Class C | 1,791 | |||
Class R | 110 | |||
Class R6 | 20 | |||
Advisor Class | 45,223 | |||
Custodian fees (Note 4) . | 44,953 | |||
Reports to shareholders | 18,369 | |||
Registration and filing fees | 43,614 | |||
Professional fees | 99,520 | |||
Trustees’ fees and expenses | 17,571 | |||
Dividends and interest on securities sold short | 184,220 | |||
Security borrowing fees | 41,175 | |||
Other | 36,284 | |||
|
| |||
Total expenses | 1,360,938 | |||
Expenses waived/paid by affiliates (Note 3f) | (296,281 | ) | ||
|
| |||
Net expenses | 1,064,657 | |||
|
| |||
Net investment income | 1,382,316 | |||
|
| |||
Realized and unrealized gains (losses): | ||||
Net realized gain (loss) from: | ||||
Investments: | ||||
Unaffiliated issuers | 2,834,493 | |||
Written options | (30,838 | ) | ||
Foreign currency transactions | 19,655 | |||
Forward exchange contracts | 216,133 | |||
Futures contracts | (87,843 | ) | ||
Securities sold short | (2,420,520 | ) | ||
Swap contracts | 209,098 | |||
|
| |||
Net realized gain (loss) | 740,178 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments: | ||||
Unaffiliated issuers | 7,513,283 | |||
Translation of other assets and liabilities denominated in foreign currencies | 60,768 | |||
Forward exchange contracts | (291,803 | ) | ||
Written options | 15,197 | |||
Futures contracts | (107,181 | ) | ||
Securities sold short | (95,711 | ) | ||
Swap contracts | (942,351 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) | 6,152,202 | |||
|
| |||
Net realized and unrealized gain (loss) | 6,892,380 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 8,274,696 | ||
|
| |||
~ Foreign taxes withheld on interest | $ | 296 |
38 | 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, 2020 (unaudited) | Year Ended May 31, 2020 | |||||||
Increase (decrease) in net assets: | ||||||||
Operations: | ||||||||
Net investment income | $ | 1,382,316 | $ | 2,928,080 | ||||
Net realized gain (loss) | 740,178 | 1,170,424 | ||||||
Net change in unrealized appreciation (depreciation) | 6,152,202 | (9,029,939 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 8,274,696 | (4,931,435 | ) | |||||
|
| |||||||
Distributions to shareholders: | ||||||||
Class A | — | (849,841 | ) | |||||
Class C | — | (56,967 | ) | |||||
Class R | — | (5,574 | ) | |||||
Class R6 | — | (14,013 | ) | |||||
Advisor Class | — | (2,791,426 | ) | |||||
|
| |||||||
Total distributions to shareholders | — | (3,717,821 | ) | |||||
|
| |||||||
Capital share transactions: (Note 2) | ||||||||
Class A | 562,639 | (6,100,444 | ) | |||||
Class C | (226,462 | ) | 170,969 | |||||
Class R | — | 17,268 | ||||||
Class R6 | — | (180,366 | ) | |||||
Advisor Class | (9,872,727 | ) | (6,973,581 | ) | ||||
|
| |||||||
Total capital share transactions | (9,536,550 | ) | (13,066,154 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | (1,261,854 | ) | (21,715,410 | ) | ||||
Net assets: | ||||||||
Beginning of period | 96,315,620 | 118,031,030 | ||||||
|
| |||||||
End of period | $ | 95,053,766 | $ | 96,315,620 | ||||
|
|
franklintempleton.com | The accompanying notes are an integral part of these financial statements. | Semiannual Report | 39 |
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 two separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin K2 Long Short Credit Fund (Fund) is included in this report. The Fund offers five classes of shares: Class A, Class C, Class R, Class R6 and Advisor Class. Class C shares automatically convert to Class A shares after they have been held for 10 years. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees due to differing arrangements for distribution and transfer agent fees.
The following summarizes the Fund’s significant accounting policies.
a. Financial Instrument Valuation
The Fund’s investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Fund calculates the net asset value (NAV) per share each business day as of 4 p.m. Eastern time or the regularly scheduled close of the New York Stock Exchange (NYSE), whichever is earlier. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Equity securities and derivative financial instruments listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded or as of 4 p.m. Eastern time. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the day that the value of the security is determined. Over-the-counter (OTC) securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple
exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities.
Debt securities generally trade in the OTC market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the date that the values of the foreign debt securities are determined.
Investments in open-end mutual funds are valued at the closing NAV. Investments in repurchase agreements are valued at cost, which approximates fair value.
Certain derivative financial instruments are centrally cleared or trade in the OTC market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair value of the contract, is included in net assets.
The Fund has procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may
40 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
differ significantly from the values that would have been used had an active market existed.
Trading in securities on foreign securities stock exchanges and OTC markets may be completed before 4 p.m. Eastern time. In addition, trading in certain foreign markets may not take place on every Fund’s business day. Events can occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at 4 p.m. Eastern time. In order to minimize the potential for these differences, an independent pricing service may be used to adjust the value of the Funds’ portfolio securities to the latest indications of fair value at 4 p.m. Eastern time. At November 30, 2020, certain securities may have been fair valued using these procedures, in which case the securities were categorized as Level 2 inputs within the fair value hierarchy. See the Fair Value Measurements note for more information.
When the last day of the reporting period is a non-business day, certain foreign markets may be open on those days that the Fund’s NAV is not calculated, which could result in differences between the value of the Fund’s portfolio securities on the last business day and the last calendar day of the reporting period. Any significant security valuation changes due to an open foreign market are adjusted and reflected by the Fund for financial reporting purposes.
b. Foreign Currency Translation
Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Board.
The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments in the Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.
c. Joint Repurchase Agreement
The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is used to invest in one or more repurchase agreements. The value and face amount of the joint repurchase agreement are allocated to the funds based on their pro-rata interest. A repurchase agreement is accounted for as a loan by the Fund to the seller, collateralized by securities which are delivered to the Fund’s custodian. The fair value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. Repurchase agreements are subject to the terms of Master Repurchase Agreements (MRAs) with approved counterparties (sellers). The MRAs contain various provisions, including but not limited to events of default and maintenance of collateral for repurchase agreements. In the event of default by either the seller or the Fund, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Fund may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any 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, 2020.
franklintempleton.com | Semiannual Report | 41 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
1. Organization and Significant Accounting Policies (continued)
d. Securities Purchased on a Delayed Delivery Basis
The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.
e. Derivative Financial Instruments
The Fund invested in derivative financial instruments in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown in the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.
Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counterparties. The Fund attempts to reduce its exposure to counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether
or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement.
Collateral requirements differ by type of derivative. Collateral or initial margin requirements are set by the broker or exchange clearing house for exchange traded and centrally cleared derivatives. Initial margin deposited is held at the exchange and can be in the form of cash and/or securities.
For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the Fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of Fund business each day and any additional collateral required due to changes in derivative values may be delivered by the Fund or the counterparty the next business day, or within a few business days. Collateral pledged and/or received by the Fund for OTC derivatives, if any, is held in segregated accounts with the Fund’s custodian/counterparty broker and can be in the form of cash and/or securities. Unrestricted cash may be invested according to the Fund’s investment objectives. To the extent that the amounts due to the Fund from its counterparties are not subject to collateralization or are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance.
The Fund entered into exchange traded futures contracts primarily to manage and/or gain exposure to equity price risk. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset at a specified price on a future date. Required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statement of Assets and Liabilities.
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.
42 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (OTC credit default swaps) or may be executed in a multilateral trade facility platform, such as a registered exchange (centrally cleared credit default swaps). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, a basket of issuers or indices, or a tranche of a credit index or basket of issuers or indices. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. For centrally cleared credit default swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statement of Assets and Liabilities. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Upfront payments and receipts are reflected in the Statement of Assets and Liabilities and represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments and receipts are amortized over the term of the contract as a realized gain or loss in the Statement of Operations.
The Fund entered into interest rate swap contracts primarily to manage interest rate risk. An interest rate swap is an agreement between the Fund and a counterparty to exchange cash flows based on the difference between two interest rates, applied to a notional amount. These agreements may be privately negotiated in the over-the-counter market (OTC interest rate swaps) or may be executed on a registered exchange (centrally cleared interest rate swaps). For centrally cleared interest rate swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statement of Assets and Liabilities. Over
the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized.
The Fund entered into OTC total return swap contracts primarily to manage and/or gain exposure to interest rate, equity price and credit risk of an underlying instrument such as a stock, bond, index or basket of securities or indices. A total return swap is an agreement between the Fund and a counterparty to exchange a return linked to an underlying instrument for a floating or fixed rate payment, both based upon a notional amount. Over the term of the contract, contractually required payments to be paid or received are accrued daily and recorded as unrealized appreciation or depreciation until the payments are made, at which time they are recognized as realized gain or loss.
The Fund purchased or wrote exchange traded and/or OTC option contracts primarily to manage and/or gain exposure to equity price risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. When an option is purchased or written, an amount equal to the premium paid or received is recorded as an asset or liability, respectively. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss. Upon closing an option other than through expiration or exercise, the difference between the premium received or paid and the cost to close the position is recorded as a realized gain or loss.
See Note 11 regarding other derivative information.
f. Restricted Cash
At November 30, 2020, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian/counterparty broker and is reflected in the Statement of Assets and Liabilities.
g. Loan Participation Notes
The Fund invests in loan participation notes (Participations). Participations are loans originally issued to a borrower by one or more financial institutions (the Lender) and subsequently sold to other investors, such as the Fund.
franklintempleton.com | Semiannual Report | 43 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
1. Organization and Significant Accounting Policies (continued)
g. Loan Participation Notes (continued)
Participations typically result in the Fund having a contractual relationship only with the Lender and not with the borrower. The Fund has the right to receive from the Lender any payments of principal, interest and fees which the Lender received from the borrower. The Fund generally has no rights to either enforce compliance by the borrower with the terms of the loan agreement or to any collateral relating to the original loan. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. The Participations may also involve interest rate risk and liquidity risk, including the potential default or insolvency of the borrower and/or the Lender.
h. Credit-Linked Notes
The Fund purchases credit-linked notes. Credit-linked notes are intended to replicate the economic effects that would apply had the Fund directly purchased the underlying reference asset. The risks of credit-linked notes include the potential default of the underlying reference asset, the movement in the value of the currency of the underlying reference asset relative to the credit-linked note, the potential inability of the Fund to dispose of the credit-linked note in the normal course of business, and the possible inability of the counterparties to fulfill their obligations under the contracts.
i. Securities Sold Short
The Fund is engaged in selling securities short, which obligates the Fund to replace a borrowed security with the same security at current fair value. The Fund incurs a loss if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund realizes a gain if the price of the security declines between those dates. Gains are limited to the price at which the Fund sold the security short, while losses are potentially unlimited in size.
The Fund is required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale to the extent necessary to meet margin requirements until the short position is closed out. A deposit must also be maintained with the Fund’s custodian/counterparty broker consisting of cash and/or securities having a value equal to a specified percentage of the value of the securities sold short.
The Fund is obligated to pay fees for borrowing the securities sold short and is required to pay the counterparty any dividends and/or interest due on securities sold short. Such dividends and/or interest and any security borrowing fees are recorded as an expense to the Fund.
j. Senior Floating Rate Interests
The Fund invests in senior secured corporate loans that pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity. Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to certain restrictions on resale.
k. Income and Deferred Taxes
It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
The Fund may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests. When a capital gain tax is determined to apply, the Fund records an estimated deferred tax liability in an amount that would be payable if the securities were disposed of on the valuation date.
The Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain 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, 2020, the Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on the statute of limitations in each jurisdiction in which the Fund invests.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
l. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except for certain dividends from securities where the dividend rate is not available. In such cases, the dividend is recorded as soon as the information is received by the Fund. Distributions to shareholders are recorded on the ex-dividend date. Distributable earnings are determined according to income tax regulations (tax basis) and may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.
Common expenses incurred by the Trust are allocated among the Funds based on the ratio of net assets of each Fund to the combined net assets of the Trust or based on the ratio of number of shareholders of each Fund to the combined number of shareholders of the Trust. Fund specific expenses are charged directly to the Fund that incurred the expense.
Realized and unrealized gains and losses and net investment income, excluding class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions by class are generally due to differences in class specific expenses.
m. Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
n. Guarantees and Indemnifications
Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.
2. Shares of Beneficial Interest
At November 30, 2020, 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, 2020 | Year Ended May 31, 2020 | |||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||
Class A Shares: | ||||||||||||||||||||
Shares solda | 247,544 | $ | 2,585,704 | 1,136,532 | $ | 11,916,755 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 40,491 | 420,700 | ||||||||||||||||
Shares redeemed | (194,549 | ) | (2,023,065 | ) | (1,793,471 | ) | (18,437,899 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | 52,995 | $ | 562,639 | (616,448 | ) | $ | (6,100,444 | ) | ||||||||||||
|
|
franklintempleton.com | Semiannual Report | 45 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
2. Shares of Beneficial Interest (continued)
Six Months Ended November 30, 2020 | Year Ended May 31, 2020 | |||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||
Class C Shares: | ||||||||||||||||||||
Shares sold | 20,349 | $ | 209,515 | 97,563 | $ | 996,165 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 5,569 | 56,967 | ||||||||||||||||
Shares redeemeda | (42,647 | ) | (435,977 | ) | (87,629 | ) | (882,163 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | (22,298 | ) | $ | (226,462 | ) | 15,503 | $ | 170,969 | ||||||||||||
|
| |||||||||||||||||||
Class R Shares: | ||||||||||||||||||||
Shares sold | — | $ | — | 5,832 | $ | 60,909 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 483 | 4,975 | ||||||||||||||||
Shares redeemed | — | — | (5,065 | ) | (48,616 | ) | ||||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | — | $ | — | 1,250 | $ | 17,268 | ||||||||||||||
|
| |||||||||||||||||||
Class R6 Shares: | ||||||||||||||||||||
Shares sold | — | $ | — | 23,094 | $ | 242,849 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 1,350 | 14,013 | ||||||||||||||||
Shares redeemed | — | — | (46,241 | ) | (437,228 | ) | ||||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | — | $ | — | (21,797 | ) | $ | (180,366 | ) | ||||||||||||
|
| |||||||||||||||||||
Advisor Class Shares: | ||||||||||||||||||||
Shares sold | 2,062,061 | $ | 21,392,440 | 5,690,910 | $ | 58,760,489 | ||||||||||||||
Shares issued in reinvestment of distributions | — | — | 198,394 | 2,061,319 | ||||||||||||||||
Shares redeemed | (2,996,858 | ) | (31,265,167 | ) | (6,798,288 | ) | (67,795,389 | ) | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) | (934,797 | ) | $ | (9,872,727 | ) | (908,984 | ) | $ | (6,973,581 | ) | ||||||||||
|
|
aMay include a portion of Class C shares that were automatically converted to Class A.
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
Subsidiary | Affiliation | |
K2/D&S Management Co., L.L.C. (K2 Advisors) | Investment manager | |
Franklin Templeton Services, LLC (FT Services) | Administrative manager | |
Franklin Templeton Distributors, Inc. (Distributors) | Principal underwriter | |
Franklin Templeton Investor Services, LLC (Investor Services) | Transfer agent |
a. Management Fees
The Fund pays an investment management fee to K2 Advisors of 1.60% per year of the average daily net assets of the Fund.
Under each subadvisory agreement, the below entities provide subadvisory services to the Fund. The subadvisory fees are paid by K2 Advisors and are not an additional expense of the Fund. Each subadvisor is compensated for managing its respective portion of the average daily net assets of the Fund.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
Subadvisors |
Apollo Credit Management LLC |
Benefit Street Partners L.L.C. |
Chatham Asset Management, LLC |
Ellington Global Asset Management, LLC |
Emso Asset Management Limited |
Medalist Partners, LP |
b. Administrative Fees
Under an agreement with K2 Advisors, FT Services provides administrative services to the Fund. The fee is paid by K2 Advisors based on the Fund’s average daily net assets, and is not an additional expense of the Fund.
c. Distribution Fees
The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s Class A reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Fund’s Class C and R compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate for each class. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31.
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
Class A | 0.25% | |||
Class C | 1.00% | |||
Class R | 0.50% |
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the period:
Sales charges retained net of commissions paid to unaffiliated brokers/dealers | $ | 1,654 | ||
CDSC retained | $ | 2,754 |
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. The fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.
For the period ended November 30, 2020, the Fund paid transfer agent fees of $60,376 of which $17,665 was retained by Investor Services.
franklintempleton.com | Semiannual Report | 47 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
3. Transactions with Affiliates (continued)
f. Waiver and Expense Reimbursements
K2 Advisors has contractually agreed in advance to waive or limit its fees and to assume as their own expense certain expenses otherwise payable by the Fund so that the operating expenses (excluding distribution fees, acquired fund fees and expenses, expenses related to securities sold short, and certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) for each class of the Fund do not exceed 1.65% based on the average net assets of each class until September 30, 2021. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.
Investor Services has contractually agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.03% based on the average net assets of the class until September 30, 2021. Prior to October 1, 2020, the Class R6 transfer agent fees were limited to 0.02%.
g. Other Affiliated Transactions
At November 30, 2020, Franklin Resources, Inc. owned 22.0% of the Fund’s outstanding shares.
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended November 30, 2020, there were no credits earned.
5. Income Taxes
At November 30, 2020, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
Cost of investments | $ | 83,858,074 | ||
|
| |||
Unrealized appreciation | $ | 3,921,560 | ||
Unrealized depreciation | (4,490,826 | ) | ||
|
| |||
Net unrealized appreciation (depreciation) | $ | (569,266 | ) | |
|
|
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of foreign currency transactions and wash sales.
6. Investment Transactions
Purchases and sales of investments and securities sold short (excluding short term securities) for the period ended November 30, 2020, aggregated $96,579,072 and 106,466,593, respectively.
7. Credit Risk and Defaulted Securities
At November 30, 2020, the Fund had 23.6% of its portfolio invested in high yield, senior secured floating rate loans, or other securities rated below investment grade and unrated securities. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.
The Fund may purchase the pre-default or defaulted debt of distressed companies. Distressed companies are financially troubled and could be or are already involved in financial restructuring or bankruptcy. Risks associated with purchasing these securities include the possibility that the bankruptcy or other restructuring process takes longer than expected, or that
48 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
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, 2020, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $1,749,133, representing 1.9% of the Fund’s net assets. For information as to specific securities, see the accompanying Statement of Investments.
8. Novel Coronavirus Pandemic
The global outbreak of the novel coronavirus disease, known as COVID-19, has caused adverse effects on many companies, sectors, nations, regions and the markets in general, and may continue for an unpredictable duration. The effects of this pandemic may materially impact the value and performance of the Fund, its ability to buy and sell fund investments at appropriate valuations and its ability to achieve its investment objectives.
9. Restricted Securities
The Fund invests in securities that are restricted under the Securities Act of 1933 (1933 Act). Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Fund may have registration rights for restricted securities. The issuer generally incurs all registration costs.
At November 30, 2020, investments in restricted securities, excluding securities exempt from registration under the 1933 Act, were as follows:
Shares | Issuer | Acquisition Date | Cost | Value | ||||||||||||
923 | Acosta Inc. | 12/31/19 | $ | 8,144 | $ | 8,150 | ||||||||||
745 | Acosta Inc., cvt. pfd. | 12/31/19 | 50,262 | 50,087 | ||||||||||||
947 | One Call Corp. | 10/28/19 | 113,545 | 98,676 | ||||||||||||
3,821 | One Call Corp., cvt. pfd. | 10/28/19 | 458,341 | 398,316 | ||||||||||||
|
| |||||||||||||||
Total Restricted Securities (Value is 0.6% of Net Assets) | $ | 630,292 | $ | 555,229 | ||||||||||||
|
|
10. Unfunded Loan Commitments
The Fund enters into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrowers’ discretion. Unfunded loan commitments and funded portions of credit agreements are marked to market daily and any unrealized appreciation or depreciation is included in the Statement of Assets and Liabilities and the Statement of Operations. Funded portions of credit agreements are presented in the Statement of Investments.
At November 30, 2020, unfunded commitments were as follows:
Borrower | Unfunded Commitment | |||
Intelsat Jackson Holdings SA, Term Loan DIP | $ | 363,246 | ||
PetSmart Inc., Term Loan B2 | 16,852 | |||
Playa Hotels & Resorts NV, Term Loan B1 | 9,840 | |||
|
| |||
$ | 389,938 | |||
|
|
franklintempleton.com | Semiannual Report | 49 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
11. Other Derivative Information
At November 30, 2020, the investments in derivative contracts are reflected in the Statement of Assets and Liabilities as follows:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Contracts Not Accounted for as Hedging Instruments | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Interest rate contracts | Variation margin on centrally cleared swap contracts | $ | 10,065 | a | Variation margin on centrally cleared swap contracts | $ | 246,428 | a | ||||
Unrealized appreciation on OTC swap contracts | 55,844 | |||||||||||
Foreign exchange contracts | Unrealized appreciation on OTC forward exchange contracts | 57,889 | Unrealized depreciation on OTC forward exchange contracts | 157,161 | ||||||||
Credit contracts | Variation margin on centrally cleared swap contracts | 47,121 | a | Variation margin on centrally cleared swap contracts | 372,909 | a | ||||||
OTC swap contracts (upfront payments) | 1,439,198 | OTC swap contracts (upfront receipts) | 830,620 | |||||||||
Unrealized appreciation on OTC swap contracts | 221,729 | Unrealized depreciation on OTC swap contracts | 334,218 | |||||||||
Equity contracts | Investments in securities, at value | 37,723 | b | Options written, at value | 130 | |||||||
Unrealized appreciation on OTC swap contracts | 110,134 | Unrealized depreciation on OTC swap contracts | 818 | |||||||||
Variation margin on futures contracts | 203,014 | a | ||||||||||
|
|
|
| |||||||||
Totals | $ | 1,979,703 | $ | 2,145,298 | ||||||||
|
|
|
|
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, 2020, the effect of derivative contracts in the Statement of Operations was as follows:
Derivative Contracts Not Accounted for as Hedging Instruments | Statement of Operations Location | Net Realized Gain (Loss) for the 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 | Swap contracts | $ | 36,773 | Swap contracts | $ | 179,437 | ||||||
Foreign exchange contracts | Forward exchange contracts | 216,133 | Forward exchange contracts | (291,803 | ) | |||||||
Credit contracts | Swap contracts | 96,797 | Swap contracts | (1,201,954 | ) | |||||||
Equity contracts | Investments | 12,949 | a | Investments | (70,998 | )a | ||||||
Written options | (30,838 | ) | Written options | 15,197 | ||||||||
Futures contracts | (87,843 | ) | Futures contracts | (107,181 | ) | |||||||
Swap contracts | 75,528 | Swap contracts | 80,166 | |||||||||
|
|
|
| |||||||||
Totals | $ | 319,499 | $ | (1,397,136 | ) | |||||||
|
|
|
|
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.
50 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
For the period ended November 30, 2020, the average month end notional amount of options, futures contracts and swap contracts represented 24,717 shares, $596,395 and $34,283,738, respectively. The average month end contract value of forward exchange contracts was $3,368,767.
At November 30, 2020, OTC derivative assets and liabilities are as follows:
Gross Amounts of Assets and Liabilities Presented in the Statement of Assets and Liabilities | ||||||||
Assetsa | Liabilitiesa | |||||||
Derivatives | ||||||||
Forward Exchange Contracts | $ | 57,889 | $ | 157,161 | ||||
Options Purchased | 30,427 | — | ||||||
Swap Contracts | 1,826,905 | 1,165,656 | ||||||
|
| |||||||
Total | $ | 1,915,221 | $ | 1,322,817 | ||||
|
|
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, 2020, OTC derivative assets, which may be offset against OTC derivative liabilities and collateral received from the counterparty, are as follows:
Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||
Gross Amounts of Assets Presented in the Statement of Assets and Liabilities | Financial Instruments Available for Offset | Financial Instruments Collateral Received | Cash Collateral Received | Net Amount (Not less than zero) | ||||||||||||||||
Counterparty | ||||||||||||||||||||
BNPP | $ | 7,925 | $ | (2,407 | ) | $ | — | $ | — | $ | 5,518 | |||||||||
BOFA | 53,876 | (11,050 | ) | — | — | 42,826 | ||||||||||||||
BZWS | 199,091 | (199,091 | ) | — | — | — | ||||||||||||||
CITI | 33,949 | (19,167 | ) | — | — | 14,782 | ||||||||||||||
DBAB | 8,085 | — | — | — | 8,085 | |||||||||||||||
FBCO | 87,009 | (2,584 | ) | — | — | 84,425 | ||||||||||||||
GSCO | 612,557 | (117,768 | ) | — | (280,000 | ) | 214,789 | |||||||||||||
JPHQ | 526,300 | (293,244 | ) | — | — | 233,056 | ||||||||||||||
JPHQa | 52,178 | — | — | — | 52,178 | |||||||||||||||
MSCO | 245,126 | (216,740 | ) | — | — | 28,386 | ||||||||||||||
MSCS | 89,125 | (89,125 | ) | — | — | — | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | 1,915,221 | $ | (951,176 | ) | $ | — | $ | (280,000 | ) | $ | 684,045 | ||||||||
|
|
franklintempleton.com | Semiannual Report | 51 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
11. Other Derivative Information (continued)
At November 30, 2020, OTC derivative liabilities, which may be offset against OTC derivative assets and collateral pledged to the counterparty, are as follows:
Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||
Gross Amounts of Liabilities Presented in the Statement of Assets and Liabilities | Financial Instruments Available for Offset | Financial Instruments Collateral Pledged | Cash Collateral Pledgedb | Net Amount (Not less than zero) | ||||||||||||||||
Counterparty | ||||||||||||||||||||
BNPP | $ | 2,407 | $ | (2,407 | ) | $ | — | $ | — | $ | — | |||||||||
BOFA | 11,050 | (11,050 | ) | — | — | — | ||||||||||||||
BZWS | 208,748 | (199,091 | ) | — | (9,657 | ) | — | |||||||||||||
CITI | 19,167 | (19,167 | ) | — | — | — | ||||||||||||||
DBAB | — | — | — | — | — | |||||||||||||||
FBCO | 2,584 | (2,584 | ) | — | — | — | ||||||||||||||
GSCO | 117,768 | (117,768 | ) | — | — | — | ||||||||||||||
JPHQ | 293,244 | (293,244 | ) | — | — | — | ||||||||||||||
JPHQa | 79,663 | — | — | — | 79,663 | |||||||||||||||
MSCO | 216,740 | (216,740 | ) | — | — | — | ||||||||||||||
MSCS | 371,446 | (89,125 | ) | — | (282,321 | ) | — | |||||||||||||
|
| |||||||||||||||||||
Total | $ | 1,322,817 | $ | (951,176 | ) | $ | — | $ | (291,978 | ) | $ | 79,663 | ||||||||
|
|
aRepresents derivatives not subject to an ISDA master agreement.
bIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit the collateral amounts to avoid the effect of over collateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.
See Note 1(e) regarding derivative financial instruments.
See Abbreviations on page 55.
12. Credit Facility
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 5, 2021. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.
Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statement of Operations. During the period ended November 30, 2020, the Fund did not use the Global Credit Facility.
52 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
13. Fair Value Measurements
The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:
• | Level 1 – quoted prices in active markets for identical financial instruments |
• | Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.) |
• | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments) |
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
A summary of inputs used as of November 30, 2020, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Investments in Securities:a | ||||||||||||||||
Equity Investmentsb | $ | 3,143,888 | $ | 294,118 | $ | 555,229 | c | $ | 3,993,235 | |||||||
Convertible Bonds | — | 827,197 | — | 827,197 | ||||||||||||
Corporate Bonds and Notes | — | 26,858,475 | — | 26,858,475 | ||||||||||||
Corporate Bonds and Notes in Reorganization | — | 626,333 | — | 626,333 | ||||||||||||
Senior Floating Rate Interests | — | 3,024,316 | — | 3,024,316 | ||||||||||||
Foreign Government and Agency Securities | — | 4,942,414 | — | 4,942,414 | ||||||||||||
U.S. Government and Agency Securities | — | 194,821 | — | 194,821 | ||||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed Securities | — | 34,930,034 | — | 34,930,034 | ||||||||||||
Municipal Bonds in Reorganization | — | 1,122,800 | — | 1,122,800 | ||||||||||||
Options Purchased | 37,723 | — | — | 37,723 | ||||||||||||
Credit-Linked Notes | — | 81,679 | 460,107 | 541,786 | ||||||||||||
Short Term Investments | 8,281,488 | 4,425,822 | — | 12,707,310 | ||||||||||||
|
| |||||||||||||||
Total Investments in Securities | $ | 11,463,099 | $ | 77,328,009 | $ | 1,015,336 | $ | 89,806,444 | ||||||||
|
| |||||||||||||||
Other Financial Instruments: | ||||||||||||||||
Forward Exchange Contracts | $ | — | $ | 57,889 | $ | — | $ | 57,889 | ||||||||
Swap Contracts | — | 444,893 | — | 444,893 | ||||||||||||
Unfunded Loan Commitments | — | 13,965 | — | 13,965 | ||||||||||||
|
| |||||||||||||||
Total Other Financial Instruments | $ | — | $ | 516,747 | $ | — | $ | 516,747 | ||||||||
|
| |||||||||||||||
Liabilities: | ||||||||||||||||
Other Financial Instruments: | ||||||||||||||||
Options Written | $ | 130 | $ | — | $ | — | $ | 130 | ||||||||
Securities Sold Shorta | 340,113 | 6,028,163 | — | 6,368,276 | ||||||||||||
Futures Contracts | 203,014 | — | — | 203,014 | ||||||||||||
Forward Exchange Contracts | — | 157,161 | — | 157,161 | ||||||||||||
Swap Contracts | — | 954,373 | — | 954,373 | ||||||||||||
|
| |||||||||||||||
Total Other Financial Instruments | $ | 543,257 | $ | 7,139,697 | $ | — | $ | 7,682,954 | ||||||||
|
|
aFor detailed categories, see the accompanying Statement of Investments.
bIncludes common, preferred and convertible preferred stocks as well as other equity interests.
cIncludes securities determined to have no value at November 30, 2020.
franklintempleton.com | Semiannual Report | 53 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
13. Fair Value Measurements (continued)
A reconciliation in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 assets and/or liabilities at the beginning and/or end of the period. At November 30, 2020, the reconciliation is as follows:
Balance at Beginning of Period | Purchases | Sales | Transfer Into (Out of) Level 3a | Cost Basis Adjustments | Net Realized Gain (Loss) | Net Unrealized Appreciation (Depreciation) | Balance at End of Period | Net Change in Unrealized Appreciation (Depreciation) on Assets Held at Period End | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Investments in Securities: | ||||||||||||||||||||||||||||||||||||
Equity Investmentsb | $ | 592,344 | c | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (37,115 | ) | $ | 555,229 | c | $ | (37,115 | ) | ||||||||||||||
Asset-Backed Securities and Commercial Mortgage-Backed Securities | 462,124 | — | (10,995 | ) | (487,123 | ) | — | 5,326 | 30,668 | — | — | |||||||||||||||||||||||||
Short Term Investments | — | 446,402 | — | — | — | — | 13,705 | 460,107 | 13,705 | |||||||||||||||||||||||||||
Total Investments in Securities | $ | 1,054,468 | $ | 446,402 | $ | (10,995 | ) | $ | (487,123 | ) | $ | — | $ | 5,326 | $ | 7,258 | $ | 1,015,336 | $ | (23,410 | ) |
aThe investment was transferred out of Level 3 as a result of the availability of other significant observable valuation inputs.
bIncludes common and convertible preferred stocks.
cIncludes securities determined to have no value at November 30, 2020.
Significant unobservable valuation inputs for material Level 3 assets and/or liabilities and impact to fair value as a result of changes in unobservable valuation inputs as of November 30, 2020, are as follows:
Description | Fair Value at End of Period | Valuation Technique | Unobservable Inputs | Amount/ Range | Impact to Fair Value if Input Increasesa | |||||||||||
Assets: | ||||||||||||||||
Investments in Securities: | ||||||||||||||||
Equity Investments:b | $ | 398,316 | Discounted cash flow | Discount rate | 9.0%–11.0% | Decrease | c | |||||||||
Exit multiple | 10.0x–12.0x | Increase | c | |||||||||||||
Market comparables | EV / Revenue multiple | 1.5x–2.0x | Increase | c | ||||||||||||
EV / EBITDA multiple | 12.0x–14.0x | Increase | c | |||||||||||||
Market transaction | EV / EBITDA multiple | 11.5x–13.5x | Increase | c | ||||||||||||
All Other Investments | 617,020 | d,e | ||||||||||||||
Total | $ | 1,015,336 |
aRepresents the directional change in the fair value that would result from a significant and reasonable increase in the corresponding input. A significant and reasonable decrease in the input would have the opposite effect. Significant impacts, if any, to fair value and/or net assets have been indicated.
bIncludes common and convertible preferred stocks.
cRepresents a significant impact to fair value and net assets.
dIncludes fair value of immaterial financial instruments developed using various valuation techniques and unobservable inputs. May also include financial instruments with values derived using private transaction prices or non-public third party pricing information which is unobservable.
eIncludes securities determined to have no value at November 30, 2020.
Abbreviations List
EBITDA | Earnings before interest, taxes, depreciation and amortization | |
EV | Enterprise value |
54 | Semiannual Report | franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS
Franklin K2 Long Short Credit Fund (continued)
14. New Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in the ASU provides optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered based reference rates as of the end of 2021. The ASU is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has reviewed the requirements and believes the adoption of this ASU will not have a material impact on the financial statements.
15. Subsequent Events
The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.
Counterparty | Currency | Selected Portfolio | Index | |||||||||||
BNPP | BNP Paribas | BRL | Brazilian Real | ARM | Adjustable Rate Mortgage | CDX.NA.HY | CDX North America High Yield Index | |||||||
BOFA | Bank of America Corp. | CNY | Chinese Yuan | BZDIOVRA | Brazil Interbank Deposit Rate | |||||||||
BZWS | Barclays Bank PLC | EGP | Egyptian Pound | CFETS | China Foreign Exchange Trade System | |||||||||
CITI | Citigroup, Inc. | EUR | Euro | |||||||||||
DBAB | Deutsche Bank AG | GBP | British Pound | CLO | Collateralized Loan Obligation | |||||||||
FBCO | Credit Suisse Group AG | JPY | Japanese Yen | CMT | Constant Maturity Treasury Index | |||||||||
GSCO | The Goldman Sachs Group, Inc. | MXN | Mexican Peso | DIP | Debtor-In-Possession | |||||||||
JPHQ | JP Morgan Chase & Co. | PLN | Polish Zloty | ETF | Exchange Traded Fund | |||||||||
MSCO | Morgan Stanley & Co. LLC | RUB | Russian Ruble | EURIBOR | Euro Interbank Offered Rate | |||||||||
MSCS | Morgan Stanley Capital Services LLC | USD | United States Dollar | FEDEF | Federal Funds Effective Rate | |||||||||
FHLMC | Federal Home Loan Mortgage Corp. | |||||||||||||
FRN | Floating Rate Note | |||||||||||||
GO | General Obligation | |||||||||||||
LIBOR | London InterBank Offered Rate | |||||||||||||
REIT | Real Estate Investment Trust | |||||||||||||
SFR | Single Family Revenue | |||||||||||||
WIBOR | Warsaw Interbank Offered Rate |
franklintempleton.com | Semiannual Report | 55 |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Proxy Voting Policies and Procedures
The Fund’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Fund’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.
Quarterly Statement of Investments
The Trust, on behalf of the Fund, files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year as an exhibit to its report on Form N-PORT. Shareholders may view the filed Form N-PORT by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
Householding of Reports and Prospectuses
You will receive, or receive notice of the availability of, the Fund’s financial reports every six months. In addition, you will receive an annual updated summary prospectus (detail prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports (to the extent received by mail) and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.
56 | Semiannual Report | franklintempleton.com |
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.
Semiannual Report and Shareholder Letter Franklin K2 Long Short Credit Fund | ||||||
Investment Manager | Distributor | Shareholder Services | ||||
K2/D&S Management Co., L.L.C. | Franklin Templeton Distributors, Inc. (800) DIAL BEN®/342-5236 franklintempleton.com | (800) 632-2301 | ||||
© 2021 Franklin Templeton Investments. All rights reserved. | 948 S 01/21 |
Item 2. Code of Ethics.
(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 13(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.
Item 3. Audit Committee Financial Expert.
(a)(1) The Registrant has an audit committee financial expert serving on its audit committee.
(2) The audit committee financial expert is Ann Torre Bates and David W. Niemiec they are “independent” as defined under the relevant Securities and Exchange Commission Rules and Releases.
Item 4. Principal Accountant Fees and Services.
Not Applicable.
Item 5. Audit Committee of Listed Registrants.
Not Applicable.
Item 6. Investments.
Not applicable.
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees that would require disclosure herein.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a)(1) | Not Applicable. | |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. | |
(a)(3) | Not Applicable. | |
(a)(4) | Not Applicable. | |
(b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
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.
(Registrant) Franklin Alternative Strategies Funds | ||||||
By (Signature and Title) | /s/ Matthew T. Hinkle | |||||
Matthew T. Hinkle, Chief Executive Officer – Finance and Administration | ||||||
Date 1/27/2021 | ||||||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | ||||||
By (Signature and Title) | /s/ Matthew T. Hinkle | |||||
Matthew T. Hinkle, Chief Executive Officer – Finance and Administration | ||||||
Date 1/27/2021 | ||||||
By (Signature and Title) | /s/ Robert G. Kubilis | |||||
Robert G. Kubilis, Chief Financial Officer and Chief Accounting Officer | ||||||
Date 1/27/2021 |