UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number_811-22641
__Franklin Alternative Strategies Funds
(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) (Zip code)
Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
(Name and address of agent for service)
Registrant's telephone number, including area code: 650 312-2000
Date of fiscal year end: 5/31
Date of reporting period: 11/30/14
Item 1. Reports to Stockholders.
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Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Focus on Investment Excellence
At the core of our firm, you’ll find multiple independent investment teams—each with a focused area of expertise—from traditional to alternative strategies and multi-asset solutions. And because our portfolio groups operate autonomously, their strategies can be combined to deliver true style and asset class diversification.
All of our investment teams share a common commitment to excellence grounded in rigorous, fundamental research and robust, disciplined risk management. Decade after decade, our consistent, research-driven processes have helped Franklin Templeton earn an impressive record of strong, long-term results.
Global Perspective Shaped by Local Expertise
In today’s complex and interconnected world, smart investing demands a global perspective. Franklin Templeton pioneered international investing over 60 years ago, and our expertise in emerging markets spans more than a quarter of a century. Today, our investment professionals are on the ground across the globe, spotting investment ideas and potential risks firsthand. These locally based teams bring in-depth understanding of local companies, economies and cultural nuances, and share their best thinking across our global research network.
Strength and Experience
Franklin Templeton is a global leader in asset management serving clients in over 150 countries.1 We run our business with the same prudence we apply to asset management, staying focused on delivering relevant investment solutions, strong long-term results and reliable, personal service. This approach, focused on putting clients first, has helped us to become one of the most trusted names in financial services.
1. As of 12/31/13. Clients are represented by the total number of shareholder accounts.
Not FDIC Insured | May Lose Value | No Bank Guarantee
Contents | |
Shareholder Letter | 1 |
Semiannual Report | |
Franklin K2 Alternative Strategies Fund | 3 |
Performance Summary | 7 |
Your Fund’s Expenses | 10 |
Consolidated Financial Highlights and | |
Consolidated Statement of Investments | 12 |
Consolidated Financial Statements | 68 |
Notes to Consolidated Financial | |
Statements | 72 |
Shareholder Information | 87 |
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Semiannual Report
Franklin K2 Alternative Strategies Fund
We are pleased to bring you Franklin K2 Alternative Strategies Fund’s semiannual report for the period ended November 30, 2014.
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 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 investment managers (subadvisors), while the Fund’s investment manager retains overall responsibility for the Fund’s investments. The Fund may invest in a wide range of securities and other investments including, but not limited to: equity securities including common stocks, preferred stocks, convertible securities, rights and warrants, private and registered investment vehicles and exchange-traded funds (ETFs); and debt securities including bonds, notes, debentures, banker’s acceptances and commercial paper; loans and loan participations; and mortgage-backed or other asset-backed securities, including collateralized debt obligations; as well as derivatives, commodities and currencies.
Performance Overview
For the six months under review, the Fund’s Class A shares delivered a +2.63% cumulative total return. For comparison, the Fund’s primary benchmark, the BofA Merrill Lynch 3 Month U.S. 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, produced a +0.02% total return.1 Also for comparison, the Fund’s secondary benchmark, the HFRX Global Hedge Fund Index, which is designed to be representative of the overall composition of the hedge fund universe, had a -0.65% total return.2 You can find more of the Fund’s performance data in the Performance Summary beginning on page 7.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. Please visit franklintempleton.com or call (800) 342-5236 for most recent month-end performance.
Strategy Allocation
Based on Total Investments as of 11/30/14
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Economic and Market Overview
The global economy grew moderately during the six months under review as many developed markets continued to recover and many emerging markets continued to expand. U.S. economic growth trends were generally encouraging during the period. Economic activity improved in the third quarter of 2014, resulting largely from increased consumer spending, business investments, federal defense spending and a narrower trade deficit. The U.S. Federal Reserve Board (Fed) ended its asset purchase program in October, after gradually reducing its purchases during the six-month period, based on its view that underlying economic strength could support ongoing progress in labor market conditions. The Fed reaffirmed it would maintain its near-zero interest rate policy for a “considerable time” and stated its actions to normalize monetary policy remained dependent on economic performance.
Outside the U.S., the U.K. economy grew relatively well, supported by the services and manufacturing sectors. U.K. gross domestic product (GDP) continued to expand in the third
1. Source: Morningstar
2. Source: FactSet. Hedge Fund Research, Inc. – www.hedgefundresearch.com. The HFRX Global Hedge Fund Index is being used under license from Hedge Fund
Research, Inc., which does not endorse or approve of any of the contents of this report.
The 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 17.
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quarter. In the eurozone, economic growth remained subdued as concerns persisted about the potential negative effects on growth from fundamental economic and labor market issues, as well as the crisis in Ukraine. In June, the European Central Bank (ECB) reduced its main interest rate and for the first time set a negative deposit rate; the ECB reduced both rates again in September. The ECB broadened its monetary easing stance by implementing an asset purchase program to prevent deflation and stimulate the economy.
In Japan, second- and third-quarter GDP contractions indicated the economy was in a recession. However, private consumption and exports improved in the third quarter. In October, the Bank of Japan expanded its stimulus measures amid weak domestic demand following a sales tax hike and as substantially lower crude oil prices exerted further downward pressure on inflation. In November, Prime Minister Shinzo Abe called an early parliamentary election and postponed a second sales tax increase scheduled for October 2015, as he sought to expand the mandate for his economic policies.
In several emerging markets, economic growth moderated in the third quarter. However, Brazil exited recession as government spending prior to presidential elections drove third-quarter GDP growth. Emerging market equities, as measured by the MSCI Emerging Markets Index, ended the six-month period relatively flat, amid headwinds such as soft domestic demand and weak exports in several countries, as well as concerns about the timing of U.S. interest rate increases and geopolitical tensions in certain regions. Many emerging market currencies depreciated against the U.S. dollar, leading central banks in several countries to raise interest rates in an effort to curb inflation and support their currencies. Several other central banks lowered interest rates to promote economic growth. After implementing monetary stimulus measures to support specific sectors, China’s central bank increased its efforts to bolster the economy by cutting its benchmark interest rates for the first time since July 2012.
As measured by the MSCI World Index, stocks in global developed markets advanced overall during the six-month period amid a generally accommodative monetary policy environment, continued strength in corporate earnings and signs of an economic recovery. Global government and corporate bonds performed well in local currency terms as interest rates in many developed market countries remained at historical lows. However, the U.S.
dollar’s appreciation against most currencies led these bonds to post losses in U.S. dollar terms. Commodity prices overall ended lower for the period, as measured by the Bloomberg Commodity Index, driven by steep declines in crude oil prices resulting from weak global demand growth and strong world supply.3 Gold prices declined amid benign global inflation and a strong U.S. dollar.
Subadvisors |
11/30/14 |
Long Short Equity |
Chilton Investment Company, LLC |
Impala Asset Management, LLC |
Independence Capital Asset Partners, LLC |
Jennison Associates, LLC |
Wellington Management Company, LLP |
Event Driven |
P. Schoenfeld Asset Management L.P. |
York Registered Holdings, L.P. |
Relative Value |
Basso Capital Management, L.P. |
Chatham Asset Management, LLC |
Lazard Asset Management, LLC |
Loomis Sayles & Company, L.P. |
Global Macro |
Graham Capital Management, L.P. |
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 sub-advisors and other investment options, among other things. The allocations to specific subadvisors may change from time to time based upon our assessment of their correlations to various markets and to each other, their risk profiles and return expectations. Long short equity strategies generally seek to produce returns from investments in the global equity markets by taking
3. Prior to 7/1/14, the index was known as the Dow Jones-UBS Commodity Index.
The indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, and an index is not representative of the
Fund’s portfolio.
See www.franklintempletondatasources.com for additional data provider information
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long and short positions in stocks and common stock indexes (through the use of derivatives or through a short 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 corporate events. Global macro strategies generally focus on broad-based economic opportunities across numerous markets and investments.
The Fund may take long and/or short positions in a wide range of asset classes, including equities, fixed income, commodities and currencies, among others. Long positions benefit from an increase in the price of the underlying instrument or asset class, while short positions benefit from a decrease in that price. The Fund may use derivatives for hedging and nonhedging (investment) purposes. Such derivative investments may include futures contracts, swaps, options and currency forward contracts. The Fund may engage in active and frequent trading as part of its investment strategies.
What is a futures contract?
A futures contract, or a future, is an agreement between the Fund and a counterparty made through a U.S. or foreign futures exchange to buy or sell an asset at a specific price on a future date.
What is a swap agreement?
A swap agreement, such as an equity total return swap, is a contract between the Fund and a counterparty to exchange on a future date the returns, or differentials in rates of return, that would have been earned or realized if a notional amount were invested in specific instruments.
A credit default swap, or CDS, is an agreement between two parties whereby the buyer receives credit protection from the seller. The buyer makes periodic payments over the term of the agreement in return for a payment by the seller in the event of a default or other credit event.
What is an option?
An option is a contract to buy or sell a specific financial product known as the option’s underlying instrument at a specific price. The buyer of an option has the right, but not the obligation, to buy or sell the underlying instrument at or until a specified expiration date. Conversely, the seller (writer) of an option who opens a transaction is obligated to buy or sell the underlying instrument should the option holder exercise that right.
What is a currency forward contract?
A currency forward contract, or a currency forward, 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.
Manager’s Discussion
Three of the four strategies in which the Fund’s assets were allocated contributed to absolute performance for the period, led by long short equity and global macro. The event driven strategy allocation also showed a gain. In contrast, The Fund’s relative value investments declined modestly.
The Fund’s long short equity strategy managers were Chilton Investment Co., Impala Asset Management, Independence Capital Asset Partners, Jennison Associates and Wellington Management Co. All five subadvisors contributed positive performance for the period, led by the health care specialist and technology-focused managers. Performance drivers for the strategy included exposure to biotechnology, pharmaceutical, chemical, commercial and retail stocks. Meaningful detractors from performance included consumer non-cyclical (e.g., food processing and personal products) equities, as well as equity index hedges through positions in ETFs. Net and gross exposures within the long short strategy remained relatively unchanged as managers were optimistic about the longer term performance potential for equity markets despite shorter term macroeconomic and geopolitical concerns.
Our global macro strategy manager was Graham Capital Management. The manager performed positively over the period, as a rally in the U.S. dollar benefited its trend-following strategy. Key contributors included short exposures to the euro and the Japanese yen achieved through currency forwards. Strong trends in currency price moves contributed to aggressive selling in currencies other than the U.S. dollar. In commodities-related trades, the strengthening U.S. dollar and other market factors, such as oversupply, led to declines for many commodities during 2014’s third quarter. Graham Capital implemented trades that sought to exploit these trends, which resulted in strong gains. Losses arose primarily from equity and fixed income exposures.
The Fund’s event driven strategy managers were P. Schoenfeld Asset Management and York Registered Holdings. A variety of event-driven company catalysts benefited performance for both subadvisors during the period, particularly in the technology, media and telecommunications sectors, where consolidation and significant levels of corporate activity continued. Starting in the fall, a rise in broad market volatility, falling energy prices, and increased political scrutiny related to so-called tax inversion strategies contributed to a significant widening of deal spreads and several notable announced mergers and acquisitions deals that failed to reach completion, which served to pare some of the managers’ earlier gains. In a tax inversion, a U.S. company seeks to acquire a non-U.S. company so it can move its
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headquarters abroad to a lower tax nation. Portfolio hedges were also a detractor for the period, given the overall rising equity markets.
Our relative value strategy managers were Basso Capital Management, Chatham Asset Management, Lazard Asset Management and Loomis Sayles & Co. In aggregate, the strategy declined for the period, with three of the four subadvisors posting losses. Overall, hedged bond positions supported performance, given that credit markets were broadly weaker because of increasing concerns about the timing of possible U.S. interest rate hikes. Other key contributors included gains from structured credit, distressed and currency-focused trading strategies. In contrast, the strategy’s investments in investment-grade corporate bonds, government sponsored enterprises and high yield corporate bonds detracted.
Thank you for your participation in Franklin K2 Alternative Strategies Fund. We look forward to continuing to serve your investment needs.
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The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2014, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
David C. Saunders has been involved in the investment and trading of financial instruments since 1983. He has worked at Tucker Anthony & R.L. Day as an equity trader; First Boston Corp. as Vice President on the equity block trading desk; WaterStreet Capital, a hedge fund, as Head Trader; Tiger Management, as Head Trader; WorldSec Securities as President and ABN Amro Inc. as a Senior Managing Director. He co-founded K2 Advisors in 1994.
William A. Douglass III began his career at Donaldson, Lufkin and Jenrette Securities, where he worked in equity sales. In 1991, Mr. Douglass joined Tiedemann International Research, Ltd. (“TIR”) (Tokyo) as Director of Sales. He returned to the U.S. in 1992 to become Director of Sales for TIR’s North American operation, where he co-managed the firm’s U.S. business until April 1994. He co-founded K2 Advisors in 1994.
Brooks Ritchey is a senior managing director and head of portfolio construction for K2 Advisors. He is also a senior vice president and director of investment solutions for the Franklin Templeton Solutions division. Since 1987, Mr. Ritchey has successfully managed multi-asset mutual fund and hedge fund portfolios during his employment with organizations including Steinhardt Partners, Citibank, Finch Asset Management, Paribas, AIG and ING. Mr. Ritchey joined K2 Advisors in 2005.
Robert Christian is a senior managing director and head of research for K2 Advisors, which he joined in 2010.
Mr. Christian worked at Graham Capital Management, L.P., from 1998 to 2003 as a portfolio manager and researcher of quantitative-based trading strategies. At Julius Baer Investment Management from 2003 to 2005, he was the head of Macro Strategies. From 2005 to 2010, he worked at FRM Americas LLC where he was the Global Head of Directional Trading Strategies and portfolio advisor to numerous funds.
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Performance Summary as of November 30, 2014
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. 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.
Net Asset Value1 | ||||||
Share Class (Symbol) | 11/30/14 | 5/31/14 | Change | |||
A (FAAAX) | $ | 10.92 | $ | 10.64 | +$ | 0.28 |
C (FASCX) | $ | 10.85 | $ | 10.60 | +$ | 0.25 |
R (FSKKX) | $ | 10.90 | $ | 10.62 | +$ | 0.28 |
R6 (FASRX) | $ | 10.96 | $ | 10.66 | +$ | 0.30 |
Advisor (FABZX) | $ | 10.95 | $ | 10.65 | +$ | 0.30 |
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PERFORMANCE SUMMARY
Performance as of 11/30/142
Cumulative total return excludes sales charges. Average annual total returns and value of $10,000 investment include maximum sales charges. Class A: 5.75% maximum initial sales charge; Class C: 1% contingent deferred sales charge in first year only;
Class R/R6/Advisor Class: no sales charges.
Average Annual | Total Annual Operating Expenses7 | ||||||||||||||
Cumulative | Average Annual | Value of $10,000 | Total Return | ||||||||||||
Share Class | Total Return3 | Total Return4 | Investment5 | (12/31/14 | )6 | (with waiver) | (without waiver) | ||||||||
A | 2.82 | % | 3.71 | % | |||||||||||
6-Month | +2.63 | % 1 | -3.28 | % | $9,672 | ||||||||||
1-Year | +7.16 | % | +1.04 | % | $10,104 | +-1.12 | % | ||||||||
Since Inception (10/11/13) | +9.63 | % | +2.92 | % | $10,333 | 2.46 | % | ||||||||
C | 3.52 | % | 4.41 | % | |||||||||||
6-Month | +2.36 | %1 | +1.36 | % | $10,136 | ||||||||||
1-Year | +6.48 | % | 5.48 | % | $10,548 | +3.20 | % | ||||||||
Since Inception (10/11/13) | +8.93 | % | +7.81 | % | $10,893 | +6.89 | % | ||||||||
R | 3.02 | % | 3.91 | % | |||||||||||
6-Month | +2.64 | %1 | +2.64 | % | $10,264 | ||||||||||
1-Year | +6.97 | % | +6.97 | % | $10,697 | +4.63 | % | ||||||||
Since Inception (10/11/13) | +9.43 | % | +8.25 | % | $10,943 | +7.33 | % | ||||||||
R6 | 2.45 | % | 3.34 | % | |||||||||||
6-Month | +2.81 | %1 | +2.81 | % | $10,281 | ||||||||||
1-Year | +7.56 | % | +7.56 | % | $10,756 | +5.25 | % | ||||||||
Since Inception (10/11/13) | +10.03 | % | +8.77 | % | $11,003 | +7.86 | % | ||||||||
Advisor | 2.52 | % | 3.41 | % | |||||||||||
6-Month | +2.82 | %1 | +2.82 | % | $10,282 | ||||||||||
1-Year | +7.46 | % | +7.46 | % | $10,746 | +5.23 | % | ||||||||
Since Inception (10/11/13) | +9.93 | % | +8.68 | % | $10,993 | +7.84 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
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PERFORMANCE SUMMARY
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. The Fund is actively managed and could experience losses if the investment manager’s and subadvisors’ judgments about particular investments made for the Fund’s portfolio prove to be incorrect. Some subadvisors may have little or no experience managing the asset 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. 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 at the price they have been valued. The Fund may invest in investment funds, which may be more costly than investing in the underlying securities directly. The Fund’s prospectus also includes a description of the main investment risks.
Class C: | These shares have higher annual fees and expenses than Class A shares. |
Class R: | Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. |
Class R6: | Shares are available to certain eligible investors as described in the prospectus. |
Advisor Class: | Shares are available to certain eligible investors as described in the prospectus. |
1. Price and total return information is based on net asset values calculated for shareholder transactions. Certain adjustments were made to the net assets of the Fund at 11/30/14 for financial reporting purposes, and as a result, the net asset values for shareholder transactions and the total returns based on those net asset values differ from the adjusted net asset values and total returns reported in the Financial Highlights.
2. The Fund has an expense reduction contractually guaranteed through at least 9/30/15 and a fee waiver related to the management fee paid by a subsidiary. Fund investment results reflect the expense reduction and fee waiver, to the extent applicable; without these reductions, the results would have been lower.
3. Cumulative total return represents the change in value of an investment over the periods indicated.
4. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized. 5. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
6. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.
7. Figures are as stated in the Fund’s current prospectus. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
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Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs:
- Transaction costs, including sales charges (loads) on Fund purchases; and
- 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 following table 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 first line (Actual) for each share class listed in the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6.
2. Multiply the result by the number under the heading “Expenses Paid During Period.”
If Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical “Ending Account Value” is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Expenses Paid During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transaction costs, such as sales charges. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
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YOUR FUND’S EXPENSES | ||||||
Beginning Account | Ending Account | Expenses Paid During | ||||
Share Class | Value 6/1/14 | Value 11/30/14 | Period* 6/1/14–11/30/14 | |||
A | ||||||
Actual | $ | 1,000 | $ | 1,026.40 | $ | 15.95 |
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,009.33 | $ | 15.82 |
C | ||||||
Actual | $ | 1,000 | $ | 1,023.60 | $ | 18.92 |
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,006.37 | $ | 18.76 |
R | ||||||
Actual | $ | 1,000 | $ | 1,026.40 | $ | 16.66 |
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,008.62 | $ | 16.52 |
R6 | ||||||
Actual | $ | 1,000 | $ | 1,028.10 | $ | 13.93 |
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,011.33 | $ | 13.82 |
Advisor | ||||||
Actual | $ | 1,000 | $ | 1,028.20 | $ | 14.13 |
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,011.13 | $ | 14.02 |
*Expenses are calculated using the most recent six-month expense ratio, net of expense waivers, annualized for each class (A: 3.14%; C: 3.73%; R: 3.28%; R6: 2.74% and Advisor: 2.78%), multiplied by the average account value over the period, multiplied by 183/365 to reflect the one-half year period.
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Consolidated Financial Highlights | ||||||
Franklin K2 Alternative Strategies Fund | ||||||
Period Ended | ||||||
November 30, 2014 | Period Ended | |||||
(unaudited) | May 31, 2014a | |||||
Class A | ||||||
Per share operating performance | ||||||
(for a share outstanding throughout the period) | ||||||
Net asset value, beginning of period | $ | 10.64 | $ | 10.00 | ||
Income from investment operationsb: | ||||||
Net investment income (loss)c | (0.06 | ) | (0.02 | ) | ||
Net realized and unrealized gains (losses) | 0.33 | 0.70 | ||||
Total from investment operations | 0.27 | 0.68 | ||||
Less distributions from net investment income | — | (0.04 | ) | |||
Net asset value, end of period | $ | 10.91 | $ | 10.64 | ||
Total returnd | 2.54 | % | 6.82 | % | ||
Ratios to average net assetse | ||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.52 | %g,h | 3.33 | % | ||
Expenses net of waiver, payments by affiliates and expense reductionf | 3.14 | %g,h | 2.83 | % | ||
Expenses incurred in connection with securities sold short | 0.70 | % | 0.56 | % | ||
Net investment income (loss) | (1.17 | )%g | (0.35 | )% | ||
Supplemental data | ||||||
Net assets, end of period (000’s) | $ | 96,189 | $ | 96,889 | ||
Portfolio turnover rate | 154.61 | % | 181.06 | % |
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of Fund 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 interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
gRatios are adjusted to exclude the effects of annualization for non-recurring expenses.
hBenefit 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) | ||||||
Period Ended | ||||||
November 30, 2014 | Period Ended | |||||
(unaudited) | May 31, 2014a | |||||
Class C | ||||||
Per share operating performance | ||||||
(for a share outstanding throughout the period) | ||||||
Net asset value, beginning of period | $ | 10.60 | $ | 10.00 | ||
Income from investment operationsb: | ||||||
Net investment income (loss)c | (0.09 | ) | (0.08 | ) | ||
Net realized and unrealized gains (losses) | 0.32 | 0.72 | ||||
Total from investment operations | 0.23 | 0.64 | ||||
Less distributions from net investment income | — | (0.04 | ) | |||
Net asset value, end of period | $ | 10.83 | $ | 10.60 | ||
Total returnd | 2.17 | % | 6.42 | % | ||
Ratios to average net assetse | ||||||
Expenses before waiver, payments by affiliates and expense reductionf | 4.11 | %g,h | 4.03 | % | ||
Expenses net of waiver, payments by affiliates and expense reductionf | 3.73 | %g,h | 3.53 | % | ||
Expenses incurred in connection with securities sold short | 0.70 | % | 0.56 | % | ||
Net investment income (loss) | (1.76 | )%g | (1.05 | )% | ||
Supplemental data | ||||||
Net assets, end of period (000’s) | $ | 25,351 | $ | 16,618 | ||
Portfolio turnover rate | 154.61 | % | 181.06 | % |
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of Fund 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 interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
gRatios are adjusted to exclude the effects of annualization for non-recurring expenses.
hBenefit 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) | ||||||
Period Ended | ||||||
November 30, 2014 | Period Ended | |||||
(unaudited) | May 31, 2014a | |||||
Class R | ||||||
Per share operating performance | ||||||
(for a share outstanding throughout the period) | ||||||
Net asset value, beginning of period | $ | 10.62 | $ | 10.00 | ||
Income from investment operationsb: | ||||||
Net investment income (loss)c | (0.07 | ) | (0.05 | ) | ||
Net realized and unrealized gains (losses) | 0.33 | 0.71 | ||||
Total from investment operations | 0.26 | 0.66 | ||||
Less distributions from net investment income | — | (0.04 | ) | |||
Net asset value, end of period | $ | 10.88 | $ | 10.62 | ||
Total returnd | 2.45 | % | 6.62 | % | ||
Ratios to average net assetse | ||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.66 | %g,h | 3.63 | % | ||
Expenses net of waiver, payments by affiliates and expense reductionf | 3.28 | %g,h | 3.13 | % | ||
Expenses incurred in connection with securities sold short | 0.70 | % | 0.56 | % | ||
Net investment income (loss) | (1.31 | )%g | (0.65 | )% | ||
Supplemental data | ||||||
Net assets, end of period (000’s) | $ | 12,197 | $ | 11,660 | ||
Portfolio turnover rate | 154.61 | % | 181.06 | % |
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of Fund 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 interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
gRatios are adjusted to exclude the effects of annualization for non-recurring expenses.
hBenefit of expense reduction rounds to less than 0.01%.
14 Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. franklintempleton.com
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Alternative Strategies Fund (continued) | ||||||
Period Ended | ||||||
November 30, 2014 | Period Ended | |||||
(unaudited) | May 31, 2014a | |||||
Class R6 | ||||||
Per share operating performance | ||||||
(for a share outstanding throughout the period) | ||||||
Net asset value, beginning of period | $ | 10.66 | $ | 10.00 | ||
Income from investment operationsb: | ||||||
Net investment income (loss)c | (0.04 | ) | (0.01 | ) | ||
Net realized and unrealized gains (losses) | 0.32 | 0.71 | ||||
Total from investment operations | 0.28 | 0.70 | ||||
Less distributions from net investment income | — | (0.04 | ) | |||
Net asset value, end of period | $ | 10.94 | $ | 10.66 | ||
Total returnd | 2.63 | % | 7.02 | % | ||
Ratios to average net assetse | ||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.12 | %g,h | 3.19 | % | ||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.74 | %g,h | 2.69 | % | ||
Expenses incurred in connection with securities sold short | 0.70 | % | 0.56 | % | ||
Net investment income (loss) | (0.77 | )%g | (0.21 | )% | ||
Supplemental data | ||||||
Net assets, end of period (000’s) | $ | 221,474 | $ | 215,526 | ||
Portfolio turnover rate | 154.61 | % | 181.06 | % |
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of Fund 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 interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
gRatios are adjusted to exclude the effects of annualization for non-recurring expenses.
hBenefit 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 15
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin K2 Alternative Strategies Fund (continued) | ||||||
Period Ended | ||||||
November 30, 2014 | Period Ended | |||||
(unaudited) | May 31, 2014a | |||||
Advisor Class | ||||||
Per share operating performance | ||||||
(for a share outstanding throughout the period) | ||||||
Net asset value, beginning of period | $ | 10.65 | $ | 10.00 | ||
Income from investment operationsb: | ||||||
Net investment income (loss)c | (0.04 | ) | (0.02 | ) | ||
Net realized and unrealized gains (losses) | 0.33 | 0.71 | ||||
Total from investment operations | 0.29 | 0.69 | ||||
Less distributions from net investment income | — | (0.04 | ) | |||
Net asset value, end of period | $ | 10.94 | $ | 10.65 | ||
Total returnd | 2.72 | % | 6.92 | % | ||
Ratios to average net assetse | ||||||
Expenses before waiver, payments by affiliates and expense reductionf | 3.16 | %g,h | 3.21 | % | ||
Expenses net of waiver, payments by affiliates and expense reductionf | 2.78 | %g,h | 2.71 | % | ||
Expenses incurred in connection with securities sold short | 0.70 | % | 0.56 | % | ||
Net investment income (loss) | (0.81 | )%g | (0.23 | )% | ||
Supplemental data | ||||||
Net assets, end of period (000’s) | $ | 143,434 | $ | 54,593 | ||
Portfolio turnover rate | 154.61 | % | 181.06 | % |
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of Fund 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 interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
gRatios are adjusted to exclude the effects of annualization for non-recurring expenses.
hBenefit of expense reduction rounds to less than 0.01%.
16 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, 2014 (unaudited) | ||||
Franklin K2 Alternative Strategies Fund | ||||
Country | Shares | Value | ||
Common Stocks and Other Equity Interests 50.5% | ||||
Aerospace & Defense 0.8% | ||||
AAR Corp | United States | 500 | $ | 12,815 |
a,bB/E Aerospace Inc | United States | 15,811 | 1,231,202 | |
aThe Boeing Co | United States | 3,867 | 519,570 | |
bFinmeccanica SpA | Italy | 20,987 | 203,723 | |
General Dynamics Corp | United States | 6,310 | 917,222 | |
aTransDigm Group Inc | United States | 5,613 | 1,110,195 | |
3,994,727 | ||||
Air Freight & Logistics 0.5% | ||||
aFedEx Corp | United States | 9,799 | 1,745,986 | |
aUnited Parcel Service Inc., B | United States | 8,992 | 988,400 | |
2,734,386 | ||||
Airlines 1.8% | ||||
bAir Canada, B | Canada | 7,986 | 78,093 | |
bAir France-KLM | France | 13,094 | 138,121 | |
aAmerican Airlines Group Inc | United States | 63,932 | 3,102,620 | |
b,c,dAMR Corp., Contingent Distribution | United States | 3,268 | — | |
aDelta Air Lines Inc | United States | 55,754 | 2,602,039 | |
bInternational Consolidated Airlines Group SA | United Kingdom | 114,836 | 821,712 | |
bSpirit Airlines Inc | United States | 4,050 | 334,894 | |
bUnited Continental Holdings Inc | United States | 34,595 | 2,118,252 | |
9,195,731 | ||||
Auto Components 0.3% | ||||
bTRW Automotive Holdings Corp | United States | 12,245 | 1,266,133 | |
Automobiles 0.6% | ||||
Ford Motor Co | United States | 122,436 | 1,925,918 | |
General Motors Co | United States | 6,838 | 228,594 | |
aHarley-Davidson Inc | United States | 10,028 | 698,751 | |
bTesla Motors Inc | United States | 1,295 | 316,654 | |
3,169,917 | ||||
Banks 0.6% | ||||
bBanca Popolare dell’Emilia Romagna Societa Cooperativa | Italy | 20,849 | 147,895 | |
bBanca Popolare di Milano Scarl | Italy | 171,178 | 125,262 | |
bBanco Popolare Societa Cooperativa | Italy | 8,981 | 123,951 | |
aCitigroup Inc | United States | 2,676 | 144,424 | |
b,eCommerzbank AG | Germany | 53,164 | 814,131 | |
HSBC Holdings PLC, ADR | United Kingdom | 146 | 7,264 | |
aWells Fargo & Co | United States | 27,010 | 1,471,505 | |
2,834,432 | ||||
Beverages 1.2% | ||||
aAnheuser-Busch InBev NV, ADR | Belgium | 23,723 | 2,775,354 | |
aBrown-Forman Corp., B | United States | 10,566 | 1,025,430 | |
a,bConstellation Brands Inc., A | United States | 11,286 | 1,087,971 | |
Cott Corp | Canada | 10,924 | 71,552 | |
Molson Coors Brewing Co., B | United States | 16,074 | 1,243,324 | |
6,203,631 | ||||
Biotechnology 3.1% | ||||
bACADIA Pharmaceuticals Inc | United States | 9,858 | 294,458 | |
bAcceleron Pharma Inc | United States | 4,208 | 163,018 |
franklintempleton.com
Semiannual Report
17
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Country | Shares | Value | ||
Common Stocks and Other Equity Interests (continued) | ||||
Biotechnology (continued) | ||||
bAcorda Therapeutics Inc | United States | 2,895 | $ | 105,523 |
a,bAgios Pharmaceuticals Inc | United States | 1,367 | 137,807 | |
bAlder Biopharmaceuticals Inc | United States | 8,553 | 139,585 | |
a,bAlexion Pharmaceuticals Inc | United States | 7,221 | 1,407,373 | |
a,bAlnylam Pharmaceuticals Inc | United States | 8,391 | 843,715 | |
bAmicus Therapeutics Inc | United States | 6,326 | 50,165 | |
bApplied Genetic Technologies Corp | United States | 7,102 | 143,389 | |
bAtara Biotherapeutics Inc | United States | 2,576 | 69,552 | |
bAuspex Pharmaceuticals Inc | United States | 2,306 | 55,874 | |
bAvalanche Biotechnologies Inc | United States | 847 | 33,448 | |
a,bBiogen Idec Inc | United States | 2,572 | 791,379 | |
a,bBioMarin Pharmaceutical Inc | United States | 19,415 | 1,741,914 | |
bBluebird Bio Inc | United States | 4,887 | 201,491 | |
bCalithera Biosciences Inc | United States | 4,721 | 50,373 | |
bCara Therapeutics Inc | United States | 2,414 | 22,305 | |
a,bCelgene Corp | United States | 11,959 | 1,359,619 | |
a,bCelldex Therapeutics Inc | United States | 16,729 | 339,264 | |
bChimerix Inc | United States | 4,173 | 147,057 | |
bDyax Corp | United States | 13,953 | 195,900 | |
bEagle Pharmaceuticals Inc | United States | 5,481 | 69,115 | |
bFibrocell Science Inc | United States | 18,623 | 50,282 | |
bFlexion Therapeutics Inc | United States | 908 | 15,572 | |
a,bGilead Sciences Inc | United States | 6,970 | 699,230 | |
a,bIncyte Corp. Ltd | United States | 17,378 | 1,312,908 | |
bInsmed Inc | United States | 5,544 | 78,226 | |
a,bIntercept Pharmaceuticals Inc | United States | 4,179 | 600,648 | |
a,bIsis Pharmaceuticals Inc | United States | 16,004 | 828,847 | |
bKindred Biosciences Inc | United States | 16,117 | 155,046 | |
bKite Pharma Inc | United States | 844 | 35,431 | |
a,bKYTHERA Biopharmaceuticals Inc | United States | 1,961 | 75,008 | |
bMacroGenics Inc | United States | 976 | 27,582 | |
bMedgenics Inc | United States | 7,179 | 29,649 | |
bOtonomy Inc | United States | 9,748 | 234,049 | |
a,bOvaScience Inc | United States | 10,135 | 256,010 | |
bPortola Pharmaceuticals Inc | United States | 7,034 | 197,796 | |
bProQR Therapeutics NV | Netherlands | 3,191 | 48,407 | |
bProthena Corp. PLC | Ireland | 5,141 | 124,618 | |
bReceptos Inc | United States | 3,045 | 411,989 | |
bRegeneron Pharmaceuticals Inc | United States | 619 | 257,572 | |
bRegulus Therapeutics Inc | United States | 4,353 | 81,575 | |
bRetrophin Inc | United States | 3,467 | 35,017 | |
a,bSangamo BioSciences Inc | United States | 14,594 | 176,296 | |
a,bSynta Pharmaceuticals Corp | United States | 28,797 | 91,287 | |
bTG Therapeutics Inc | United States | 4,487 | 66,946 | |
bUltragenyx Pharmaceutical Inc | United States | 6,070 | 264,591 | |
bVascular Biogenics Ltd | Israel | 5,673 | 35,428 | |
bVerastem Inc | United States | 4,253 | 39,553 | |
a,bVertex Pharmaceuticals Inc | United States | 8,121 | 957,304 | |
bZafgen Inc | United States | 1,687 | 39,830 | |
15,589,021 |
18 Semiannual Report
franklintempleton.com
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Country | Shares | Value | ||
Common Stocks and Other Equity Interests (continued) | ||||
Building Products 0.4% | ||||
aFortune Brands Home & Security Inc | United States | 34,439 | $ | 1,547,000 |
Sanitec Corp | Finland | 20,961 | 269,855 | |
1,816,855 | ||||
Capital Markets 0.3% | ||||
Lazard Ltd., A | United States | 14,637 | 754,098 | |
aNorthStar Asset Management Group Inc | United States | 36,372 | 761,994 | |
SEI Investments Co | United States | 3,000 | 118,890 | |
1,634,982 | ||||
Chemicals 2.5% | ||||
aAir Products & Chemicals Inc | United States | 17,189 | 2,472,294 | |
Akzo Nobel NV | Netherlands | 31,303 | 2,164,427 | |
The Dow Chemical Co | United States | 30,032 | 1,461,657 | |
aEcolab Inc | United States | 11,584 | 1,262,077 | |
aFMC Corp | United States | 8,897 | 483,997 | |
Rockwood Holdings Inc | United States | 5,118 | 398,948 | |
aThe Sherwin-Williams Co | United States | 5,887 | 1,441,491 | |
Tronox Ltd., A | United States | 500 | 11,275 | |
a,bWR Grace & Co | United States | 30,056 | 2,887,480 | |
12,583,646 | ||||
Commercial Services & Supplies 0.6% | ||||
bAtento SA | Luxembourg | 13,600 | 150,008 | |
Edenred | France | 21,822 | 629,782 | |
bMetalico Inc | United States | 114,883 | 43,943 | |
Mitie Group PLC | United Kingdom | 70,328 | 308,210 | |
Tyco International Ltd | United States | 36,831 | 1,580,050 | |
West Corp | United States | 1,670 | 52,171 | |
2,764,164 | ||||
Communications Equipment 0.4% | ||||
bAruba Networks Inc | United States | 6,850 | 128,164 | |
aCisco Systems Inc | United States | 24,259 | 670,519 | |
a,bF5 Networks Inc | United States | 1,065 | 137,587 | |
QUALCOMM Inc | United States | 4,220 | 307,638 | |
bRuckus Wireless Inc | United States | 11,500 | 131,790 | |
bSonus Networks Inc | United States | 152,700 | 564,990 | |
1,940,688 | ||||
Construction & Engineering 0.1% | ||||
Chicago Bridge & Iron Co. NV | United States | 2,693 | 134,731 | |
Fluor Corp | United States | 9,412 | 583,450 | |
718,181 | ||||
Construction Materials 0.1% | ||||
aVulcan Materials Co | United States | 5,131 | 339,159 | |
Consumer Finance 0.0%† | ||||
bAlly Financial Inc | United States | 1,737 | 41,306 | |
Containers & Packaging 0.1% | ||||
a,bCrown Holdings Inc | United States | 7,345 | 363,577 | |
bGraphic Packaging Holding Co | United States | 9,095 | 113,233 | |
476,810 |
franklintempleton.com
Semiannual Report
19
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Country | Shares | Value | ||
Common Stocks and Other Equity Interests (continued) | ||||
Diversified Consumer Services 0.1% | ||||
bCambian Group PLC | United Kingdom | 6,702 | $ | 25,157 |
Sotheby’s | United States | 7,231 | 292,205 | |
317,362 | ||||
Diversified Financial Services 0.5% | ||||
aCME Group Inc | United States | 6,011 | 508,771 | |
aMoody’s Corp | United States | 13,283 | 1,341,716 | |
aMSCI Inc | United States | 9,810 | 474,411 | |
Voya Financial Inc | United States | 4,660 | 195,161 | |
2,520,059 | ||||
Diversified Telecommunication Services 0.5% | ||||
Koninklijke KPN NV | Netherlands | 312,598 | 1,038,705 | |
a,bLevel 3 Communications Inc | United States | 19,110 | 955,500 | |
bTelecom Italia SpA | Italy | 147,192 | 165,962 | |
Telecom Italia SpA | Italy | 137,677 | 122,079 | |
2,282,246 | ||||
Electrical Equipment 0.1% | ||||
aRockwell Automation Inc | United States | 2,333 | 269,252 | |
Electronic Equipment, Instruments & Components 0.1% | ||||
bInvenSense Inc | United States | 3,400 | 49,266 | |
TE Connectivity Ltd | United States | 7,400 | 475,080 | |
bTTM Technologies Inc | United States | 3,368 | 22,768 | |
547,114 | ||||
Energy Equipment & Services 0.4% | ||||
Amec Foster Wheeler PLC, ADR | United Kingdom | 12,208 | 176,657 | |
Baker Hughes Inc | United States | 5,183 | 295,431 | |
a,bDresser-Rand Group Inc | United States | 13,652 | 1,107,314 | |
bFMSA Holdings Inc | United States | 2,528 | 24,168 | |
Schlumberger Ltd | United States | 4,472 | 384,368 | |
1,987,938 | ||||
Food & Staples Retailing 1.0% | ||||
aCostco Wholesale Corp | United States | 19,800 | 2,813,976 | |
CVS Caremark Corp | United States | 593 | 54,176 | |
The Kroger Co | United States | 16,187 | 968,630 | |
aSafeway Inc | United States | 34,665 | 1,207,729 | |
Wal-Mart Stores Inc | United States | 405 | 35,454 | |
Whole Foods Market Inc | United States | 281 | 13,777 | |
5,093,742 | ||||
Food Products 0.6% | ||||
Cranswick PLC | United Kingdom | 9,128 | 210,438 | |
bDiamond Foods Inc | United States | 5,845 | 174,123 | |
Greencore Group PLC | Ireland | 28,973 | 133,227 | |
Lindt & Spruengli AG | Switzerland | 23 | 1,374,641 | |
Mead Johnson Nutrition Co., A | United States | 9,312 | 966,958 | |
2,859,387 |
20 Semiannual Report
franklintempleton.com
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Country | Shares | Value | ||
Common Stocks and Other Equity Interests (continued) | ||||
Health Care Equipment & Supplies 2.0% | ||||
aBecton Dickinson and Co | United States | 13,454 | $ | 1,888,000 |
a,bCareFusion Corp | United States | 11,966 | 708,028 | |
The Cooper Cos. Inc | United States | 680 | 114,852 | |
Covidien PLC | United States | 48,968 | 4,945,768 | |
bDBV Technologies SA, ADR | France | 3,229 | 81,888 | |
a,bDerma Sciences Inc | United States | 10,080 | 82,757 | |
bGenMark Diagnostics Inc | United States | 19,684 | 223,610 | |
bInnocoll AG, ADR | Germany | 2,953 | 22,915 | |
bInspireMD Inc | United Kingdom | 17,279 | 16,588 | |
aMedtronic Inc | United States | 22,509 | 1,662,740 | |
bNevro Corp | United States | 471 | 12,712 | |
bNovadaq Technologies Inc | Canada | 9,870 | 141,635 | |
bTandem Diabetes Care Inc | United States | 486 | 6,867 | |
bTornier NV | United States | 2,247 | 59,972 | |
9,968,332 | ||||
Health Care Providers & Services 1.3% | ||||
bAcadia Healthcare Co. Inc | United States | 5,892 | 365,363 | |
Celesio AG | Germany | 39,660 | 1,322,764 | |
a,bCentene Corp | United States | 5,495 | 542,741 | |
aCigna Corp | United States | 3,653 | 375,857 | |
bCommunity Health Systems Inc | United States | 27,875 | 836 | |
bEnvision Healthcare Holdings Inc | United States | 6,854 | 242,357 | |
a,bHCA Holdings Inc | United States | 21,736 | 1,514,782 | |
McKesson Corp | United States | 3,072 | 647,455 | |
bMolina Healthcare Inc | United States | 3,610 | 184,543 | |
Omnicare Inc | United States | 9,658 | 679,151 | |
a,bPremier Inc., A | United States | 2,184 | 74,300 | |
aUnitedHealth Group Inc | United States | 2,407 | 237,402 | |
aUniversal Health Services Inc., B | United States | 3,685 | 385,525 | |
6,573,076 | ||||
Health Care Technology 0.1% | ||||
bCastlight Health Inc | United States | 2,233 | 27,756 | |
bCerner Corp | United States | 2,406 | 154,947 | |
bIMS Health Holdings Inc | United States | 7,220 | 180,500 | |
363,203 | ||||
Hotels, Restaurants & Leisure 2.9% | ||||
bBloomin’ Brands Inc | United States | 23,406 | 532,955 | |
Brinker International Inc | United States | 10,386 | 585,043 | |
a,bBuffalo Wild Wings Inc | United States | 5,311 | 903,985 | |
Carnival Corp | United States | 19,261 | 850,566 | |
Cracker Barrel Old Country Store Inc | United States | 4,890 | 625,969 | |
aDomino’s Pizza Inc | United States | 16,402 | 1,539,328 | |
Extended Stay America Inc | United States | 10,457 | 194,500 | |
aInternational Game Technology | United States | 50,975 | 868,104 | |
Jack in the Box Inc | United States | 1,833 | 136,559 | |
a,bLife Time Fitness Inc | United States | 11,115 | 615,549 | |
Marriott International Inc., A | United States | 20,722 | 1,632,686 | |
bMultimedia Games Holding Co. Inc | United States | 9,953 | 361,194 | |
Sonic Corp | United States | 11,732 | 318,993 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Country | Shares | Value | ||
Common Stocks and Other Equity Interests (continued) | ||||
Hotels, Restaurants & Leisure (continued) | ||||
Starbucks Corp | United States | 2,372 | $ | 192,630 |
Starwood Hotels & Resorts Worldwide Inc | United States | 1,663 | 131,377 | |
Tim Hortons Inc | United States | 2,952 | 249,739 | |
Vail Resorts Inc | United States | 2,851 | 249,862 | |
aWyndham Worldwide Corp | United States | 33,561 | 2,797,645 | |
Wynn Macau Ltd | China | 65,300 | 213,038 | |
aWynn Resorts Ltd | United States | 5,937 | 1,060,408 | |
aYum! Brands Inc | United States | 5,623 | 434,377 | |
bZoe’s Kitchen Inc | United States | 1,808 | 57,187 | |
14,551,694 | ||||
Household Durables 1.1% | ||||
biRobot Corp | United States | 4,400 | 160,248 | |
Lennar Corp., A | United States | 31,194 | 1,473,605 | |
MDC Holdings Inc | United States | 4,892 | 128,709 | |
bMeritage Homes Corp | United States | 8,170 | 320,427 | |
a,bNVR Inc | United States | 981 | 1,234,755 | |
PulteGroup Inc | United States | 26,034 | 563,115 | |
aThe Ryland Group Inc | United States | 29,829 | 1,167,209 | |
a,bTempur Sealy International Inc | United States | 6,084 | 347,092 | |
bWilliam Lyon Homes, A | United States | 1,866 | 38,402 | |
5,433,562 | ||||
Household Products 0.2% | ||||
Church & Dwight Co. Inc | United States | 10,087 | 773,774 | |
Industrial Conglomerates 0.3% | ||||
aDanaher Corp | United States | 18,606 | 1,554,717 | |
Insurance 0.1% | ||||
aAmerican International Group Inc | United States | 7,588 | 415,822 | |
Internet & Catalog Retail 0.5% | ||||
a,bAmazon.com Inc | United States | 1,505 | 509,653 | |
Expedia Inc | United States | 1,900 | 165,509 | |
a,bHomeAway Inc | United States | 13,025 | 408,464 | |
a,bLiberty Ventures, A | United States | 12,066 | 442,098 | |
b,eNetflix Inc | United States | 370 | 128,239 | |
Travelport Worldwide Ltd | Bermuda | 36,100 | 626,335 | |
a,bTripAdvisor Inc | United States | 4,886 | 359,854 | |
2,640,152 | ||||
Internet Software & Services 2.2% | ||||
a,bAkamai Technologies Inc | United States | 7,420 | 479,406 | |
bAlibaba Group Holding Ltd., ADR | China | 24,286 | 2,711,289 | |
bBaidu Inc., ADR | China | 4,082 | 1,000,539 | |
bBankrate Inc | United States | 19,415 | 226,961 | |
bBenefitfocus Inc | United States | 8,500 | 230,265 | |
bCoStar Group Inc | United States | 2,000 | 340,520 | |
a,beBay Inc | United States | 9,315 | 511,207 | |
aEquifax Inc | United States | 10,885 | 865,902 | |
Equinix Inc | United States | 2,686 | 610,179 | |
a,bGoogle Inc., A | United States | 365 | 200,414 | |
a,bGoogle Inc., C | United States | 465 | 251,951 |
22 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Country | Shares | Value | ||
Common Stocks and Other Equity Interests (continued) | ||||
Internet Software & Services (continued) | ||||
bJust Eat PLC | United Kingdom | 18,749 | $ | 102,606 |
bMarketo Inc | United States | 5,800 | 185,368 | |
bQihoo 360 Technology Co. Ltd., ADR | China | 1,000 | 74,330 | |
bVeriSign Inc | United States | 5,140 | 308,914 | |
bWeb.com Group Inc | United States | 6,970 | 118,281 | |
bXoom Corp | United States | 14,900 | 208,749 | |
bYahoo! Inc | United States | 46,760 | 2,419,362 | |
bYelp Inc | United States | 5,695 | 325,128 | |
11,171,371 | ||||
IT Services 2.7% | ||||
Accenture PLC, A | United States | 9,060 | 782,150 | |
a,bAlliance Data Systems Corp | United States | 1,745 | 498,843 | |
aAutomatic Data Processing Inc | United States | 10,585 | 906,499 | |
a,bCardtronics Inc | United States | 14,420 | 564,687 | |
a,bCognizant Technology Solutions Corp., A | United States | 11,805 | 637,352 | |
a,bEPAM Systems Inc | United States | 6,010 | 306,690 | |
bEuronet Worldwide Inc | United States | 600 | 34,842 | |
EVERTEC Inc | United States | 20,865 | 459,865 | |
a,bExlService Holdings Inc | United States | 32,885 | 921,767 | |
bFleetCor Technologies Inc | United States | 8,892 | 1,350,606 | |
aForrester Research Inc | United States | 8,300 | 329,593 | |
bGartner Inc | United States | 1,225 | 104,713 | |
bGenpact Ltd | United States | 58,190 | 1,048,584 | |
aGlobal Payments Inc | United States | 6,400 | 552,704 | |
aHeartland Payment Systems Inc | United States | 17,235 | 939,652 | |
aMasterCard Inc., A | United States | 13,894 | 1,212,807 | |
QIWI PLC, ADR | Russia | 7,225 | 201,144 | |
a,bVantiv Inc., A | United States | 16,025 | 540,683 | |
bVeriFone Systems Inc | United States | 10,445 | 372,469 | |
aVisa Inc., A | United States | 2,445 | 631,275 | |
a,bWEX Inc | United States | 8,267 | 934,832 | |
13,331,757 | ||||
Leisure Equipment & Products 0.3% | ||||
Brunswick Corp | United States | 11,966 | 594,471 | |
aPolaris Industries Inc | United States | 4,489 | 703,471 | |
1,297,942 | ||||
Life Sciences Tools & Services 0.5% | ||||
bFluidigm Corp | United States | 7,411 | 228,481 | |
bGenfit | France | 3,102 | 153,838 | |
a,bIllumina Inc | United States | 3,620 | 691,022 | |
aThermo Fisher Scientific Inc | United States | 7,176 | 927,785 | |
a,bWuXi Pharmatech Cayman Inc., ADR | China | 7,171 | 246,037 | |
2,247,163 | ||||
Machinery 0.6% | ||||
Airtac International Group | Taiwan | 19,000 | 171,290 | |
MAN SE | Germany | 470 | 53,607 | |
aPall Corp | United States | 14,145 | 1,359,476 | |
aThe Timken Co | United States | 21,585 | 923,622 |
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Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Country | Shares | Value | ||
Common Stocks and Other Equity Interests (continued) | ||||
Machinery (continued) | ||||
aThe Toro Co | United States | 9,056 | $ | 594,798 |
3,102,793 | ||||
Marine 0.2% | ||||
American Shipping ASA | Norway | 8,218 | 49,306 | |
Irish Continental Group PLC | Ireland | 219,470 | 846,704 | |
896,010 | ||||
Media 4.1% | ||||
aCBS Corp., B | United States | 29,035 | 1,593,441 | |
bCharter Communications Inc., A | United States | 2,262 | 383,861 | |
aComcast Corp., A | United States | 25,878 | 1,476,081 | |
a,bDIRECTV | United States | 28,033 | 2,458,774 | |
a,bDISH Network Corp., A | United States | 34,929 | 2,773,712 | |
bImax Corp | Canada | 21,125 | 662,903 | |
bLiberty Broadband Corp., A | United States | 4,217 | 231,260 | |
a,bLiberty Broadband Corp., C | United States | 7,123 | 387,491 | |
bLiberty Global PLC, A | United Kingdom | 33,572 | 1,745,408 | |
bLiberty Global PLC, C | United Kingdom | 14,480 | 722,842 | |
a,bLiberty Media Corp., A | United States | 27,102 | 996,541 | |
a,bLiberty Media Corp., C | United States | 31,055 | 1,134,439 | |
bThe Madison Square Garden Co., A | United States | 1,704 | 124,460 | |
bMarkit Ltd | United States | 13,900 | 353,477 | |
aTime Warner Cable Inc | United States | 17,433 | 2,602,398 | |
aTime Warner Inc | United States | 9,272 | 789,233 | |
Twenty-First Century Fox Inc., A | United States | 8,600 | 316,480 | |
aThe Walt Disney Co | United States | 21,113 | 1,953,164 | |
20,705,965 | ||||
Metals & Mining 0.4% | ||||
a,bAk Steel Holding Corp | United States | 50,411 | 298,433 | |
bB2Gold Corp | Canada | 55,310 | 89,049 | |
bImpala Platinum Holdings Ltd | South Africa | 18,953 | 137,985 | |
Newmont Mining Corp | United States | 11,984 | 220,506 | |
bStillwater Mining Co | United States | 3,378 | 44,353 | |
bThompson Creek Metals Co. Inc | United States | 68,241 | 115,327 | |
ThyssenKrupp AG | Germany | 36,895 | 976,859 | |
1,882,512 | ||||
Multiline Retail 1.1% | ||||
b,eDollar General Corp | United States | 31,776 | 2,120,730 | |
aFamily Dollar Stores Inc | United States | 26,425 | 2,088,896 | |
aMacy’s Inc | United States | 19,241 | 1,248,934 | |
5,458,560 | ||||
Oil, Gas & Consumable Fuels 0.6% | ||||
b,eCheniere Energy Inc | United States | 12,198 | 804,946 | |
Exxon Mobil Corp | United States | 318 | 28,792 | |
bForest Oil Corp | United States | 67,300 | 38,361 | |
Kinder Morgan Inc | United States | 3,622 | 149,770 | |
Marathon Petroleum Corp | United States | 11,064 | 996,756 | |
aOccidental Petroleum Corp | United States | 3,712 | 296,106 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Country | Shares | Value | ||
Common Stocks and Other Equity Interests (continued) | ||||
Oil, Gas & Consumable Fuels (continued) | ||||
Statoil ASA, ADR | Norway | 354 | $ | 6,765 |
aThe Williams Cos. Inc | United States | 10,962 | 567,283 | |
2,888,779 | ||||
Paper & Forest Products 0.4% | ||||
bCanfor Corp | Canada | 35,586 | 855,334 | |
bLouisiana-Pacific Corp | United States | 76,644 | 1,168,054 | |
2,023,388 | ||||
Pharmaceuticals 4.2% | ||||
AbbVie Inc | United States | 4,613 | 319,220 | |
bActavis PLC | United States | 21,670 | 5,864,119 | |
bAerie Pharmaceuticals Inc | United States | 14,432 | 380,572 | |
aAllergan Inc | United States | 27,062 | 5,788,291 | |
a,bAratana Therapeutics Inc | United States | 15,549 | 206,024 | |
bAssembly Biosciences Inc | United States | 4,828 | 40,072 | |
AstraZeneca PLC, ADR | United Kingdom | 8,356 | 619,765 | |
bAvanir Pharmaceuticals Inc | United States | 8,394 | 125,238 | |
a,bBioDelivery Sciences International Inc | United States | 15,217 | 233,581 | |
aBristol-Myers Squibb Co | United States | 10,780 | 636,559 | |
bDermira Inc | United States | 2,584 | 44,574 | |
Eli Lilly & Co | United States | 4,792 | 326,431 | |
bEndo International PLC | Ireland | 8,024 | 587,116 | |
bFlamel Technologies SA, ADR | France | 7,729 | 110,447 | |
bFoamix Pharmaceuticals Ltd | Israel | 5,318 | 28,292 | |
GlaxoSmithKline PLC, ADR | United Kingdom | 1,097 | 50,956 | |
bGW Pharmaceuticals PLC, ADR | United Kingdom | 1,912 | 148,046 | |
bIntersect ENT Inc | United States | 296 | 5,121 | |
bJazz Pharmaceuticals PLC | United States | 1,885 | 333,815 | |
Johnson & Johnson | United States | 443 | 47,955 | |
a,bThe Medicines Co | United States | 9,657 | 258,904 | |
bMediwound Ltd | Israel | 1,897 | 11,211 | |
Novo Nordisk AS, ADR | Denmark | 5,304 | 241,120 | |
a,bPacira Pharmaceuticals Inc | United States | 8,956 | 841,237 | |
Perrigo Co. PLC | United States | 3,041 | 487,138 | |
Pfizer Inc | United States | 1,000 | 31,150 | |
bRevance Therapeutics Inc | United States | 827 | 13,596 | |
Roche Holding AG | Switzerland | 3,103 | 929,856 | |
bSalix Pharmaceuticals Ltd | United States | 5,417 | 556,272 | |
Shire PLC, ADR | Ireland | 2,964 | 633,110 | |
bTetraphase Pharmaceuticals Inc | United States | 9,882 | 260,885 | |
bValeant Pharmaceuticals International Inc | United States | 3,245 | 471,985 | |
a,bXenoPort Inc | United States | 4,799 | 42,711 | |
Zoetis Inc | United States | 11,008 | 494,589 | |
bZS Pharma Inc | United States | 1,055 | 45,323 | |
21,215,281 | ||||
Professional Services 0.8% | ||||
Experian PLC | United Kingdom | 31,398 | 497,465 | |
a,bHuron Consulting Group Inc | United States | 11,535 | 797,761 | |
aManpowerGroup Inc | United States | 7,920 | 529,531 |
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Semiannual Report
25
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Country | Shares | Value | ||
Common Stocks and Other Equity Interests (continued) | ||||
Professional Services (continued) | ||||
Nielsen NV | United States | 14,883 | $ | 621,663 |
aRobert Half International Inc | United States | 8,860 | 503,159 | |
SThree PLC | United Kingdom | 80,547 | 392,111 | |
bVerisk Analytics Inc., A | United States | 2,335 | 144,723 | |
bWageWorks Inc | United States | 7,550 | 441,071 | |
3,927,484 | ||||
Real Estate Investment Trusts (REITs) 0.8% | ||||
Columbia Property Trust Inc | United States | 6,565 | 165,438 | |
bEquity Commonwealth | United States | 4,967 | 126,311 | |
The Macerich Co | United States | 1,152 | 91,100 | |
aMid-America Apartment Communities Inc | United States | 14,464 | 1,065,418 | |
aNorthStar Realty Finance Corp | United States | 32,846 | 600,096 | |
aRyman Hospitality Properties Inc | United States | 6,133 | 319,407 | |
aSpirit Realty Capital Inc | United States | 69,901 | 818,541 | |
Sunstone Hotel Investors Inc | United States | 6,457 | 103,377 | |
aTanger Factory Outlet Centers Inc | United States | 7,242 | 264,912 | |
Ventas Inc | United States | 1,170 | 83,714 | |
aWP Carey Inc | United States | 1,788 | 121,834 | |
3,760,148 | ||||
Real Estate Management & Development 0.2% | ||||
bRealogy Holdings Corp | United States | 24,343 | 1,120,265 | |
Road & Rail 1.3% | ||||
Canadian Pacific Railway Ltd | Canada | 1,725 | 333,201 | |
aCSX Corp | United States | 29,312 | 1,069,595 | |
a,bHertz Global Holdings Inc | United States | 50,235 | 1,192,579 | |
Ryder System Inc | United States | 6,027 | 575,699 | |
aUnion Pacific Corp | United States | 27,990 | 3,268,392 | |
6,439,466 | ||||
Semiconductors & Semiconductor Equipment 1.0% | ||||
Applied Materials Inc | United States | 14,200 | 341,510 | |
bApplied Micro Circuits Corp | United States | 21,215 | 125,381 | |
ARM Holdings PLC | United Kingdom | 20,078 | 287,180 | |
bFreescale Semiconductor Ltd | United States | 25,000 | 542,250 | |
Intel Corp | United States | 8,400 | 312,900 | |
bMicron Technology Inc | United States | 17,966 | 645,878 | |
bNXP Semiconductors NV | Netherlands | 24,802 | 1,929,844 | |
bSK Hynix Inc | South Korea | 10,505 | 453,477 | |
Sumco Corp | Japan | 15,900 | 202,685 | |
Texas Instruments Inc | United States | 396 | 21,550 | |
4,862,655 | ||||
Software 0.7% | ||||
aActivision Blizzard Inc | United States | 21,855 | 473,161 | |
bAdobe Systems Inc | United States | 2,830 | 208,514 | |
aCDK Global Inc | United States | 3,594 | 136,824 | |
a,bCitrix Systems Inc | United States | 810 | 53,711 | |
FactSet Research Systems Inc | United States | 1,100 | 150,766 | |
bFleetMatics Group PLC | United States | 7,900 | 278,001 |
26 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Country | Shares | Value | ||
Common Stocks and Other Equity Interests (continued) | ||||
Software (continued) | ||||
bGuidewire Software Inc | United States | 2,320 | $ | 117,090 |
bHubSpot Inc | United States | 1,700 | 60,163 | |
aIntuit Inc | United States | 6,380 | 598,891 | |
Microsoft Corp | United States | 8,940 | 427,421 | |
bRed Hat Inc | United States | 3,360 | 208,824 | |
bSalesforce.com Inc | United States | 2,850 | 170,629 | |
Solera Holdings Inc | United States | 1,310 | 68,998 | |
a,bVerint Systems Inc | United States | 6,020 | 362,344 | |
bVMware Inc., A | United States | 705 | 62,012 | |
3,377,349 | ||||
Specialty Retail 1.3% | ||||
a,bAutozone Inc | United States | 2,076 | 1,199,326 | |
a,eBest Buy Co. Inc | United States | 54,907 | 2,163,885 | |
bThe Container Store Group Inc | United States | 7,199 | 156,794 | |
aThe Home Depot Inc | United States | 13,340 | 1,325,996 | |
Lowe’s Cos. Inc | United States | 1,389 | 88,660 | |
Signet Jewelers Ltd | United States | 6,111 | 800,296 | |
aTiffany & Co | United States | 7,440 | 802,925 | |
6,537,882 | ||||
Technology Hardware, Storage & Peripherals 1.0% | ||||
aApple Inc | United States | 13,714 | 1,631,006 | |
EMC Corp | United States | 44,292 | 1,344,262 | |
aHewlett-Packard Co | United States | 8,300 | 324,198 | |
Lenovo Group Ltd | China | 152,000 | 213,254 | |
bNimble Storage Inc | United States | 8,000 | 210,960 | |
Nokia Corp., ADR | Finland | 49,914 | 411,291 | |
Nokia OYJ, A | Finland | 89,084 | 741,687 | |
Western Digital Corp | United States | 3,100 | 320,137 | |
5,196,795 | ||||
Textiles, Apparel & Luxury Goods 0.1% | ||||
bLululemon Athletica Inc | United States | 2,297 | 110,693 | |
bSkechers U.S.A. Inc., A | United States | 9,186 | 564,112 | |
674,805 | ||||
Thrifts & Mortgage Finance 0.1% | ||||
bEssent Group Ltd | United States | 14,698 | 370,390 | |
Tobacco 0.0%† | ||||
Altria Group Inc | United States | 538 | 27,040 | |
Trading Companies & Distributors 0.1% | ||||
Air Lease Corp | United States | 9,992 | 379,996 | |
Transportation Infrastructure 0.0%† | ||||
BBA Aviation PLC | United Kingdom | 41,551 | 223,038 | |
Wireless Telecommunication Services 0.6% | ||||
a,bSBA Communications Corp., A | United States | 15,059 | 1,832,228 | |
a,bT-Mobile US Inc | United States | 24,643 | 719,329 | |
TIM Participacoes SA, ADR | Brazil | 25,822 | 628,766 |
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Semiannual Report
27
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||
Country | Shares | Value | ||||
Common Stocks and Other Equity Interests (continued) | ||||||
Wireless Telecommunication Services (continued) | ||||||
Vodafone Group PLC, ADR | United Kingdom | 576 | $ | 21,053 | ||
3,201,376 | ||||||
Total Common Stocks and Other Equity Interests | ||||||
(Cost $223,636,790) | 251,775,411 | |||||
Exchange Traded Funds 0.1% | ||||||
iShares China Large-Cap ETF | China | 3,702 | 150,301 | |||
iShares Core S&P Mid-Cap ETF | United States | 505 | 72,852 | |||
Total Exchange Traded Funds (Cost $225,070) | 223,153 | |||||
Convertible Preferred Stocks 1.6% | ||||||
Diversified Telecommunication Services 0.0%† | ||||||
Iridium Communications Inc., cvt. pfd., Series B, 6.75% | United States | 350 | 124,635 | |||
Electric Utilities 0.1% | ||||||
aNextEra Energy Inc., cvt. pfd., 5.889% | United States | 10,000 | 658,200 | |||
Food Products 0.4% | ||||||
Bunge Ltd., cvt. pfd., 4.875% | United States | 3,755 | 418,532 | |||
Post Holdings Inc., cvt. pfd., | ||||||
f 144A, 2.50% | United States | 9,847 | 805,608 | |||
f 144A, 3.75% | United States | 3,850 | 364,826 | |||
a 5.25% | United States | 4,510 | 390,183 | |||
Tyson Foods Inc., cvt. pfd., 4.75% | United States | 2,723 | 142,957 | |||
2,122,106 | ||||||
Health Care Providers & Services 0.1% | ||||||
Amsurg Corp., cvt. pfd., Series A-1, 5.25% | United States | 1,994 | 216,519 | |||
Kindred Healthcare Inc., cvt. pfd., 7.50% | United States | 218 | 221,588 | |||
438,107 | ||||||
Metals & Mining 0.0%† | ||||||
Alcoa Inc., cvt. pfd., Series 1, 5.375% | United States | 568 | 30,274 | |||
ArcelorMittal, cvt. pfd., 6.00% | Luxembourg | 825 | 16,104 | |||
46,378 | ||||||
Multi-Utilities 0.1% | ||||||
Dominion Resources Inc., cvt. pfd., | ||||||
6.375% | United States | 1,155 | 59,771 | |||
Series A, 6.125% | United States | 137 | 7,993 | |||
aSeries B, 6.00% | United States | 8,750 | 511,350 | |||
579,114 | ||||||
Oil, Gas & Consumable Fuels 0.4% | ||||||
fChesapeake Energy Corp., cvt. pfd., 144A, 5.75% | United States | 17 | 18,094 | |||
aPetroQuest Energy Inc., cvt. pfd., Series B, 6.875% | United States | 11,430 | 465,773 | |||
aRex Energy Corp., cvt. pfd., 6.00% | United States | 4,060 | 264,022 | |||
aSanchez Energy Corp., cvt. pfd., Series B, 6.50% | United States | 14,667 | 722,936 | |||
aSandRidge Energy Inc., cvt. pfd., 7.00% | United States | 5,200 | 360,425 | |||
1,831,250 |
28 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Country | Shares | Value | ||
Convertible Preferred Stocks (continued) | ||||
Real Estate Investment Trusts (REITs) 0.2% | ||||
Crown Castle International Corp., cvt. pfd., Series A, 4.50% | United States | 828 | $ | 87,768 |
Health Care REIT Inc., cvt. pfd., Series I, 6.50% | United States | 330 | 21,559 | |
iStar Financial Inc., cvt. pfd., Series J, 4.50% | United States | 915 | 56,382 | |
Ramco-Gershenson Properties Trust, cvt. pfd., Series D, 7.25% | United States | 7,460 | 486,168 | |
Weyerhaeuser Co., cvt. pfd., Series A, 6.375% | United States | 2,210 | 129,727 | |
781,604 | ||||
Specialty Retail 0.1% | ||||
fBarnes & Noble Inc., cvt. pfd., 144A, Series J, 7.75% | United States | 285 | 416,545 | |
Tobacco 0.2% | ||||
aUniversal Corp., cvt. pfd., 6.75% | United States | 705 | 707,468 | |
Total Convertible Preferred Stocks (Cost $8,393,849) | 7,705,407 | |||
Preferred Stocks 0.2% | ||||
Banks 0.0%† | ||||
bNational Bank of Greece SA, pfd., Series A, 9.00% | Greece | 1,363 | 23,021 | |
Consumer Finance 0.0%† | ||||
fAlly Financial Inc., pfd., 144A, Series G, 7.00% | United States | 105 | 105,922 | |
Machinery 0.1% | ||||
MAN SE, pfd., zero cpn | Germany | 3,542 | 401,174 | |
Thrifts & Mortgage Finance 0.1% | ||||
a,bFederal Home Loan Mortgage Corp., pfd., Series Z, 8.375% | United States | 27,577 | 119,960 | |
a,bFederal National Mortgage Association, pfd., Series S, 8.25% | United States | 12,240 | 52,877 | |
172,837 | ||||
Total Preferred Stocks (Cost $895,392) | 702,954 | |||
Principal | ||||
Amount* | ||||
Convertible Bonds 12.8% | ||||
Aerospace & Defense 0.1% | ||||
aAAR Corp., senior note, Series B, 2.25%, 3/01/16 | United States | 565,000 | 576,300 | |
Airlines 0.2% | ||||
aHawaiian Holdings Inc., senior note, 5.00%, 3/15/16 | United States | 465,000 | 1,209,000 | |
Biotechnology 0.7% | ||||
Acorda Therapeutics Inc., senior note, 1.75%, 6/15/21 | United States | 478,000 | 517,435 | |
AMAG Pharmaceuticals Inc., senior note, 2.50%, 2/15/19 | United States | 390,000 | 587,681 | |
fAnacor Pharmaceuticals Inc., senior note, 144A, 2.00%, 10/15/21 | United States | 140,000 | 180,338 | |
BioMarin Pharmaceutical Inc., senior sub. note, | ||||
0.75%, 10/15/18 | United States | 8,000 | 9,510 | |
1.50%, 10/15/20 | United States | 48,000 | 59,100 | |
fEmergent Biosolutions Inc., senior note, 144A, 2.875%, 1/15/21 | United States | 30,000 | 32,250 | |
Gilead Sciences Inc., senior note, Series D, 1.625%, 5/01/16 | United States | 18,000 | 79,335 | |
fIsis Pharmaceuticals Inc., senior note, 144A, 1.00%, 11/15/21 | United States | 280,000 | 282,800 | |
fLexicon Pharmaceuticals Inc., senior note, 144A, 5.25%, 12/01/21 | United States | 150,000 | 150,585 | |
Sequenom Inc., senior note, 5.00%, 10/01/17 | United States | 470,000 | 444,738 | |
a,fSpectrum Pharmaceuticals Inc., senior note, 144A, 2.75%, 12/15/18 | United States | 580,000 | 565,862 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Principal | |||||
Country | Amount* | Value | |||
Convertible Bonds (continued) | |||||
Biotechnology (continued) | |||||
fSynergy Pharmaceuticals Inc., senior note, 144A, 7.50%, 11/01/19 | United States | 90,000 | $ | 86,119 | |
Tesaro Inc., senior note, 3.00%, 10/01/21 | United States | 430,000 | 517,075 | ||
3,512,828 | |||||
Building Products 0.1% | |||||
a,fGriffon Corp., sub. note, 144A, 4.00%, 1/15/17 | United States | 505,000 | 558,341 | ||
Capital Markets 0.6% | |||||
gThe Bank of New York Mellon Luxembourg SA, FRN, junior sub. bond, Series PRX, | |||||
0.00%, 12/15/50 | Luxembourg | 100,000 EUR | 78,951 | ||
h senior bond, Series BMPS, Reg S, 4.332%, 12/30/99 | Luxembourg | 200,000 EUR | 85,870 | ||
a,fCowen Group Inc., senior note, 144A, 3.00%, 3/15/19 | United States | 585,000 | 602,550 | ||
aFXCM Inc., senior note, 2.25%, 6/15/18 | United States | 615,000 | 641,522 | ||
a,fNew Mountain Finance Corp., senior note, 144A, 5.00%, 6/15/19 | United States | 625,000 | 642,969 | ||
fProspect Capital Corp., senior note, 144A, 4.75%, 4/15/20 | United States | 1,135,000 | 1,095,275 | ||
3,147,137 | |||||
Commercial Services & Supplies 0.3% | |||||
aAscent Capital Group Inc., senior note, 4.00%, 7/15/20 | United States | 685,000 | 570,690 | ||
Cenveo Corp., senior note, 7.00%, 5/15/17 | United States | 665,000 | 646,297 | ||
1,216,987 | |||||
Communications Equipment 0.1% | |||||
fCiena Corp., senior note, 144A, 3.75%, 10/15/18 | United States | 29,000 | 33,549 | ||
fFinisar Corp., senior bond, 144A, 0.50%, 12/15/33 | United States | 25,000 | 23,125 | ||
JDS Uniphase Corp., senior bond, 0.625%, 8/15/33 | United States | 150,000 | 155,719 | ||
fPalo Alto Networks Inc., senior note, 144A, zero cpn., 7/01/19 | United States | 65,000 | 83,809 | ||
hTelecom Italia Finance SA, sub. note, Series TIT, Reg S, 6.125%, 11/15/16 | Italy | 100,000 EUR | 149,807 | ||
446,009 | |||||
Construction & Engineering 0.1% | |||||
hFomento de Construcciones y Contratas SA, sub. note, Reg S, 6.50%, 10/30/20 | Spain | 450,000 EUR | 557,961 | ||
Construction Materials 0.2% | |||||
Cemex SAB de CV, sub. note, 4.875%, 3/15/15 | Mexico | 960,000 | 1,100,400 | ||
Consumer Finance 0.1% | |||||
fEzcorp Inc., senior note, 144A, 2.125%, 6/15/19 | United States | 475,000 | 429,578 | ||
Diversified Consumer Services 0.1% | |||||
a,fCarriage Services Inc., sub. note, 144A, 2.75%, 3/15/21 | United States | 475,000 | 499,049 | ||
Diversified Financial Services 0.2% | |||||
hChina Overseas Finance Investment Cayman IV Ltd., senior note, Series COLI, | |||||
Reg S, zero cpn., 2/04/21 | Hong Kong | 200,000 | 216,000 | ||
fElement Financial Corp., sub. note, 144A, 5.125%, 6/30/19 | Canada | 470,000 CAD | 462,518 | ||
fEncore Capital Group Inc., senior note, 144A, 2.875%, 3/15/21 | United States | 410,000 | 391,294 | ||
1,069,812 | |||||
Electrical Equipment 0.1% | |||||
aSolarCity Corp., senior note, 2.75%, 11/01/18 | United States | 405,000 | 459,422 | ||
Electronic Equipment, Instruments & Components 0.5% | |||||
InvenSense Inc., senior note, 1.75%, 11/01/18 | United States | 340,000 | 313,863 | ||
TTM Technologies Inc., senior note, 1.75%, 12/15/20 | United States | 515,000 | 482,491 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Principal | ||||
Country | Amount* | Value | ||
Convertible Bonds (continued) | ||||
Electronic Equipment, Instruments & Components (continued) | ||||
fVishay Intertechnology Inc., senior bond, 144A, | ||||
a 2.25%, 11/15/40 | United States | 1,235,000 | $ | 1,355,412 |
2.25%, 5/15/41 | United States | 380,000 | 340,337 | |
2,492,103 | ||||
Energy Equipment & Services 0.0%† | ||||
SEACOR Holdings Inc., senior bond, 3.00%, 11/15/28 | United States | 210,000 | 195,562 | |
Food Products 0.2% | ||||
Chiquita Brands International Inc., senior note, 4.25%, 8/15/16 | United States | 475,000 | 477,375 | |
hOlam International Ltd., senior note, Reg S, 6.00%, 10/15/16 | Singapore | 500,000 | 533,125 | |
1,010,500 | ||||
Health Care Equipment & Supplies 0.6% | ||||
Accuray Inc., senior note, 3.75%, 8/01/16 | United States | 325,000 | 333,328 | |
Alere Inc., senior sub. note, 3.00%, 5/15/16 | United States | 510,000 | 546,338 | |
Hologic Inc., senior bond, 2.00%, 12/15/37 | United States | 262,000 | 330,939 | |
Insulet Corp., senior note, 2.00%, 6/15/19 | United States | 480,000 | 576,000 | |
aIntegra LifeSciences Holdings Corp., senior note, 1.625%, 12/15/16 | United States | 425,000 | 448,109 | |
aNuVasive Inc., senior note, 2.75%, 7/01/17 | United States | 680,000 | 835,550 | |
3,070,264 | ||||
Health Care Providers & Services 0.8% | ||||
aHealthways Inc., senior note, 1.50%, 7/01/18 | United States | 430,000 | 443,169 | |
aMolina Healthcare Inc., senior note, 1.125%, 1/15/20 | United States | 1,090,000 | 1,466,731 | |
Omnicare Inc., senior sub. bond, 3.75%, 4/01/42 | United States | 630,000 | 1,102,894 | |
WellPoint Inc., senior bond, 2.75%, 10/15/42 | United States | 602,000 | 1,059,896 | |
4,072,690 | ||||
Health Care Technology 0.1% | ||||
Allscripts Healthcare Solutions Inc., senior note, 1.25%, 7/01/20 | United States | 340,000 | 326,612 | |
Home Builders 0.0%† | ||||
fLGI Homes Inc., sub. note, 144A, 4.25%, 11/15/19 | United States | 120,000 | 121,656 | |
Household Durables 0.4% | ||||
Jarden Corp., | ||||
f senior sub. bond, 144A, 1.125%, 3/15/34 | United States | 45,000 | 47,869 | |
senior sub. note, 1.875%, 9/15/18 | United States | 1,190,000 | 1,758,225 | |
fLennar Corp., senior note, 144A, 3.25%, 11/15/21 | United States | 15,000 | 30,628 | |
1,836,722 | ||||
Insurance 0.0%† | ||||
fHCI Group Inc., senior note, 144A, 3.875%, 3/15/19 | United States | 50,000 | 47,375 | |
Internet & Catalog Retail 0.2% | ||||
Priceline Group Inc., senior note, | ||||
a 1.00%, 3/15/18 | United States | 675,000 | 913,360 | |
0.35%, 6/15/20 | United States | 25,000 | 28,078 | |
f 144A, 0.90%, 9/15/21 | United States | 100,000 | 95,500 | |
1,036,938 | ||||
Internet Software & Services 0.5% | ||||
fAkamai Technologies Inc., senior note, zero cpn., 144A, 2/15/19 | United States | 340,000 | 350,627 | |
aBlucora Inc., senior note, 4.25%, 4/01/19 | United States | 655,000 | 638,216 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Principal | ||||
Country | Amount* | Value | ||
Convertible Bonds (continued) | ||||
Internet Software & Services (continued) | ||||
fLinkedIn Corp., senior note, 144A, 0.50%, 11/01/19 | United States | 60,000 | $ | 62,663 |
a,fMercadoLibre Inc., senior note, 144A, 2.25%, 7/01/19 | Argentina | 805,000 | 1,028,387 | |
fMonster Worldwide Inc., senior note, 144A, 3.50%, 10/15/19 | United States | 134,000 | 140,365 | |
aSINA Corp., senior note, 1.00%, 12/01/18 | China | 180,000 | 168,300 | |
fYahoo! Inc., senior note, zero cpn., 144A, 12/01/18 | United States | 210,000 | 241,631 | |
2,630,189 | ||||
IT Services 0.1% | ||||
fEuronet Worldwide Inc., senior bond, 144A, 1.50%, 10/01/44 | United States | 210,000 | 220,500 | |
Leisure Equipment & Products 0.1% | ||||
fJAKKS Pacific Inc., senior note, 144A, 4.875%, 6/01/20 | United States | 350,000 | 314,125 | |
Machinery 0.1% | ||||
Altra Industrial Motion Corp., senior bond, 2.75%, 3/01/31 | United States | 195,000 | 244,725 | |
fNavistar International Corp., senior sub. note, 144A, 4.75%, 4/15/19 | United States | 460,000 | 461,150 | |
705,875 | ||||
Metals & Mining 0.5% | ||||
Horsehead Holding Corp., senior note, 3.80%, 7/01/17 | United States | 701,000 | 849,962 | |
hPaladin Energy Ltd., senior note, Reg S, 3.625%, 11/04/15 | United States | 400,000 | 395,000 | |
aStillwater Mining Co., senior bond, 1.75%, 10/15/32 | United States | 375,000 | 435,938 | |
hVedanta Resources Jersey Ltd., senior note, Reg S, 5.50%, 7/13/16 | India | 1,000,000 | 995,000 | |
2,675,900 | ||||
Oil, Gas & Consumable Fuels 0.9% | ||||
a,fAlon USA Energy Inc., senior note, 144A, 3.00%, 9/15/18 | United States | 460,000 | 535,037 | |
aAlpha Natural Resources Inc., senior note, 4.875%, 12/15/20 | United States | 660,000 | 318,450 | |
a,fAmyris Inc., senior note, 144A, 6.50%, 5/15/19 | United States | 470,000 | 410,369 | |
Cobalt International Energy Inc., senior bond, 3.125%, 5/15/24 | United States | 255,000 | 186,947 | |
aPeabody Energy Corp., junior sub. bond, 4.75%, 12/15/66 | United States | 700,000 | 430,063 | |
Renewable Energy Group Inc., senior note, 2.75%, 6/15/19 | United States | 480,000 | 463,500 | |
fScorpio Tankers Inc., senior note, 144A, 2.375%, 7/01/19 | United States | 1,095,000 | 1,042,987 | |
hShip Finance International Ltd., senior note, Reg S, 3.75%, 2/10/16 | Norway | 500,000 | 527,000 | |
aSolazyme Inc., senior sub. note, 5.00%, 10/01/19 | United States | 1,020,000 | 504,263 | |
4,418,616 | ||||
Pharmaceuticals 0.2% | ||||
aDepomed Inc., senior note, 2.50%, 9/01/21 | United States | 640,000 | 686,800 | |
Mylan Inc., senior note, 3.75%, 9/15/15 | United States | 67,000 | 295,051 | |
981,851 | ||||
Professional Services 0.1% | ||||
f51job Inc., senior note, 144A, 3.25%, 4/15/19 | China | 505,000 | 538,456 | |
fCBIZ Inc., senior sub. note, 144A, 4.875%, 10/01/15 | United States | 100,000 | 123,563 | |
662,019 | ||||
Real Estate Investment Trusts (REITs) 1.6% | ||||
fAmerican Residential Properties Inc., senior note, 144A, 3.25%, 11/15/18 | United States | 360,000 | 373,050 | |
aAnnaly Capital Management Inc., senior note, 5.00%, 5/15/15 | United States | 835,000 | 842,306 | |
Apollo Commercial Real Estate Finance Inc., senior note, 5.50%, 3/15/19 | United States | 435,000 | 429,837 | |
a,fCampus Crest Communities Operating Partnership LP, senior note, 144A, | ||||
4.75%, 10/15/18 | United States | 495,000 | 473,344 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Principal | ||||
Country | Amount* | Value | ||
Convertible Bonds (continued) | ||||
Real Estate Investment Trusts (REITs) (continued) | ||||
Colony Financial Inc., senior bond, 5.00%, 4/15/23 | United States | 340,000 | $ | 369,750 |
fGPT Property Trust LP, senior note, 144A, 3.75%, 3/15/19 | United States | 910,000 | 982,231 | |
fIAS Operating Partnership LP, 144A, 5.00%, 3/15/18 | United States | 510,000 | 487,050 | |
a,fiStar Financial Inc., senior note, 144A, 1.50%, 11/15/16 | United States | 625,000 | 649,609 | |
National Health Investors Inc., senior note, 3.25%, 4/01/21 | United States | 375,000 | 382,031 | |
Redwood Trust Inc., senior note, 4.625%, 4/15/18 | United States | 470,000 | 473,231 | |
aResource Capital Corp., senior note, 6.00%, 12/01/18 | United States | 385,000 | 378,744 | |
fRWT Holdings Inc., senior note, 144A, 5.625%, 11/15/19 | United States | 35,000 | 35,422 | |
Spirit Realty Capital Inc., senior note, | ||||
a 2.875%, 5/15/19 | United States | 403,000 | 393,683 | |
3.75%, 5/15/21 | United States | 330,000 | 323,195 | |
Starwood Property Trust Inc., senior note, 4.00%, 1/15/19 | United States | 885,000 | 997,284 | |
a,fStarwood Waypoint Residential Trust, senior note, 144A, 3.00%, 7/01/19 | United States | 545,000 | 525,247 | |
8,116,014 | ||||
Real Estate Management & Development 0.1% | ||||
aForest City Enterprises Inc., senior note, 3.625%, 8/15/20 | United States | 500,000 | 536,875 | |
Semiconductors & Semiconductor Equipment 1.1% | ||||
fCanadian Solar Inc., senior note, 144A, 4.25%, 2/15/19 | United States | 150,000 | 137,344 | |
Intel Corp., junior sub. bond, 2.95%, 12/15/35 | United States | 340,000 | 452,200 | |
aLam Research Corp., senior note, 1.25%, 5/15/18 | United States | 675,000 | 983,812 | |
Novellus Systems Inc., senior bond, 2.625%, 5/15/41 | United States | 15,000 | 35,728 | |
aNVIDIA Corp., senior note, 1.00%, 12/01/18 | United States | 1,295,000 | 1,520,816 | |
fNXP Semiconductors NV, senior note, 144A, 1.00%, 12/01/19 | Netherlands | 620,000 | 636,662 | |
Photronics Inc., senior note, 3.25%, 4/01/16 | United States | 450,000 | 484,875 | |
a,fRudolph Technologies Inc., senior note, 144A, 3.75%, 7/15/16 | United States | 360,000 | 366,300 | |
a,fSunEdison Inc., senior note, 144A, 0.25%, 1/15/20 | United States | 690,000 | 719,325 | |
5,337,062 | ||||
Software 0.8% | ||||
Electronic Arts Inc., senior note, 0.75%, 7/15/16 | United States | 365,000 | 522,862 | |
fEnerNOC Inc., senior note, 144A, 2.25%, 8/15/19 | United States | 144,000 | 121,950 | |
NetSuite Inc., senior note, 0.25%, 6/01/18 | United States | 52,000 | 57,525 | |
Nuance Communications Inc., senior bond, 2.75%, 11/01/31 | United States | 12,000 | 11,827 | |
fRed Hat Inc., senior note, 144A, 0.25%, 10/01/19 | United States | 340,000 | 375,700 | |
Take-Two Interactive Software Inc., senior note, | ||||
1.75%, 12/01/16 | United States | 866,000 | 1,309,284 | |
1.00%, 7/01/18 | United States | 368,000 | 514,510 | |
fTiVo Inc., senior note,144A, | ||||
4.00%, 3/15/16 | United States | 270,000 | 329,569 | |
2.00%, 10/01/21 | United States | 625,000 | 599,219 | |
3,842,446 | ||||
Technology Hardware, Storage & Peripherals 0.4% | ||||
a,fElectronics For Imaging Inc., senior note, 144A, 0.75%, 9/01/19 | United States | 830,000 | 865,275 | |
SanDisk Corp., senior note, 0.50%, 10/15/20 | United States | 405,000 | 506,250 | |
fViolin Memory Inc., senior note, 144A, 4.25%, 10/01/19 | United States | 440,000 | 490,875 | |
1,862,400 | ||||
Textiles, Apparel & Luxury Goods 0.4% | ||||
aIconix Brand Group Inc., senior sub. note, 1.50%, 3/15/18 | United States | 1,375,000 | 1,871,719 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Principal | ||||
Country | Amount* | Value | ||
Convertible Bonds (continued) | ||||
Tobacco 0.1% | ||||
Vector Group Ltd., senior note, 1.75%, 4/15/20 | United States | 435,000 | $ | 464,091 |
Trading Companies & Distributors 0.1% | ||||
fKaman Corp., senior note, 144A, 3.25%, 11/15/17 | United States | 220,000 | 276,650 | |
Total Convertible Bonds (Cost $63,050,908) | 63,909,578 | |||
Corporate Bonds and Notes 9.7% | ||||
Aerospace & Defense 0.4% | ||||
fHuntington Ingalls Industries Inc., senior note, 144A, 5.00%, 12/15/21 | United States | 20,000 | 20,350 | |
fKLX Inc., senior note, 144A, 5.875%, 12/01/22 | United States | 1,490,000 | 1,519,800 | |
fMeccanica Holdings USA Inc., senior bond, 144A, 6.25%, 1/15/40 | Italy | 100,000 | 96,825 | |
fMoog Inc., senior note, 144A, 5.25%, 12/01/22 | United States | 170,000 | 173,400 | |
gRockwell Collins Inc., senior note, FRN, 0.584%, 12/15/16 | United States | 40,000 | 40,077 | |
Textron Inc., senior bond, 3.875%, 3/01/25 | United States | 23,000 | 23,262 | |
1,873,714 | ||||
Auto Components 0.3% | ||||
fNexteer Automotive Group Ltd., senior note, 144A, 5.875%, 11/15/21 | Hong Kong | 300,000 | 306,750 | |
f,iSchaeffler Holding Finance BV, secured note, PIK, 144A, 6.75%, 11/15/22 | Germany | 990,000 | 1,049,400 | |
1,356,150 | ||||
Automobiles 0.1% | ||||
f,gDaimler Finance North America LLC, senior note, 144A, FRN, 0.584%, 3/10/17 | Germany | 150,000 | 150,220 | |
General Motors Co., senior bond, 5.20%, 4/01/45 | United States | 120,000 | 123,648 | |
f,gNissan Motor Acceptance Corp., senior note, 144A, FRN, 0.785%, 3/03/17 | Japan | 105,000 | 105,316 | |
gToyota Motor Credit Corp., senior note, FRN, 0.618%, 1/17/19 | Japan | 40,000 | 40,073 | |
419,257 | ||||
Banks 0.2% | ||||
Bank of America Corp., | ||||
g senior note, FRN, 1.271%, 1/15/19 | United States | 20,000 | 20,262 | |
sub. bond, 4.20%, 8/26/24 | United States | 135,000 | 138,161 | |
fDresdner Funding Trust I, junior sub. bond, 144A, 8.151%, 6/30/31 | Germany | 178,000 | 212,710 | |
fIntesa Sanpaolo SpA, sub. bond, 144A, 5.017%, 6/26/24 | Italy | 200,000 | 199,982 | |
Royal Bank of Scotland Group PLC, sub. bond, 6.125%, 12/15/22 | United Kingdom | 215,000 | 235,784 | |
fSociete Generale SA, sub. bond, 144A, 5.00%, 1/17/24 | France | 200,000 | 207,135 | |
1,014,034 | ||||
Beverages 0.1% | ||||
gAnheuser-Busch InBev Finance Inc., senior note, FRN, 0.424%, 1/27/17 | Belgium | 45,000 | 45,015 | |
gThe Coca-Cola Co., senior note, FRN, 0.332%, 11/01/16 | United States | 80,000 | 80,115 | |
a,fCott Beverages Inc., senior note, 144A, 5.375%, 7/01/22 | United States | 272,000 | 259,080 | |
384,210 | ||||
Biotechnology 0.0%† | ||||
gAmgen Inc., senior note, FRN, 0.613%, 5/22/17 | United States | 125,000 | 125,198 | |
Building Products 0.1% | ||||
Griffon Corp., senior note, 5.25%, 3/01/22 | United States | 480,000 | 460,800 | |
Owens Corning, senior bond, 4.20%, 12/01/24 | United States | 40,000 | 39,941 | |
500,741 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Principal | |||||
Country | Amount* | Value | |||
Corporate Bonds and Notes (continued) | |||||
Capital Markets 0.2% | |||||
E*TRADE Financial Corp., senior note, 5.375%, 11/15/22 | United States | 600,000 | $ | 607,500 | |
Morgan Stanley, sub. bond, Series GMTN, 4.35%, 9/08/26 | United States | 150,000 | 152,583 | ||
760,083 | |||||
Chemicals 0.0%† | |||||
Albemarle Corp., senior bond, 4.15%, 12/01/24 | United States | 56,000 | 57,320 | ||
Commercial Services & Supplies 0.3% | |||||
a,fAltegrity Inc., secured, first lien note, 144A, 9.50%, 7/01/19 | United States | 552,000 | 528,540 | ||
RR Donnelley & Sons Co., senior bond, 6.00%, 4/01/24 | United States | 800,000 | 806,000 | ||
The ServiceMaster Co., senior note, 7.00%, 8/15/20 | United States | 123,000 | 130,072 | ||
1,464,612 | |||||
Communications Equipment 0.2% | |||||
fAvaya Inc., first lien bond, 144A, 9.00%, 4/01/19 | United States | 640,000 | 658,400 | ||
gCisco Systems Inc., senior note, FRN, 0.515%, 3/03/17 | United States | 100,000 | 100,145 | ||
758,545 | |||||
Construction Materials 0.1% | |||||
fAtrium Windows & Doors Inc., secured note, 144A, 7.75%, 5/01/19 | United States | 75,000 | 72,000 | ||
fBuilding Materials Corp. of America, senior bond, 144A, 5.375%, 11/15/24 | United States | 320,000 | 321,600 | ||
393,600 | |||||
Consumer Durables & Apparel 0.1% | |||||
aVisant Corp., senior note, 10.00%, 10/01/17 | United States | 765,000 | 688,500 | ||
Consumer Finance 0.1% | |||||
Springleaf Finance Corp., senior note, 5.25%, 12/15/19 | United States | 360,000 | 361,800 | ||
Cosmetic and Personal Care 0.0%† | |||||
gThe Procter & Gamble Co., senior note, FRN, 0.312%, 11/04/16 | United States | 80,000 | 80,008 | ||
Diversified Financial Services 1.0% | |||||
gCaterpillar Financial Services Corp., senior note, FRN, 0.465%, 3/03/17 | United States | 110,000 | 110,209 | ||
fCorp. Financiera de Desarrollo SA,144A, | |||||
senior note, 3.25%, 7/15/19 | Peru | 200,000 | 201,100 | ||
sub. bond, 5.25% to 7/15/24, FRN thereafter, 7/15/29 | Peru | 200,000 | 207,100 | ||
fFinanciera de Desarrollo Territorial SA Findeter, senior bond, 144A, | |||||
7.875%, 8/12/24 | Colombia | 795,000,000 | COP | 368,992 | |
gFord Motor Credit Co. LLC, senior note, FRN, 1.008%, 1/17/17 | United States | 40,000 | 40,215 | ||
General Electric Capital Corp., | |||||
j junior sub. bond, Series A, 7.125% to 6/15/22, FRN thereafter, Perpetual | United States | 100,000 | 117,125 | ||
g senior note, FRN, 0.46%, 1/14/16 | United States | 20,000 | 20,035 | ||
f,gHyundai Capital Services Inc., senior note, 144A, FRN, 1.034%, 3/18/17 | South Korea | 200,000 | 200,384 | ||
fLadder Capital Finance Holdings LLP, senior note, 144A, 5.875%, 8/01/21 | United States | 245,000 | 242,550 | ||
fMSCI Inc., senior note, 144A, 5.25%, 11/15/24 | United States | 1,025,000 | 1,066,000 | ||
a,fROC Finance LLC/ROC Finance 1 Corp., secured, second lien note, 144A, | |||||
12.125%, 9/01/18 | United States | 2,385,000 | 2,510,213 | ||
5,083,923 | |||||
Diversified Telecommunication Services 0.5% | |||||
Frontier Communications Corp., senior bond, 6.875%, 1/15/25 | United States | 800,000 | 806,000 | ||
Intelsat Jackson Holdings SA, senior bond, 5.50%, 8/01/23 | Luxembourg | 800,000 | 791,000 | ||
fLevel 3 Communications Inc., senior note, 144A, 5.75%, 12/01/22 | United States | 65,000 | 65,650 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||
Principal | ||||||
Country | Amount* | Value | ||||
Corporate Bonds and Notes (continued) | ||||||
Diversified Telecommunication Services (continued) | ||||||
Oi SA, | ||||||
h senior bond, Reg S, 5.75%, 2/10/22 | Brazil | 200,000 | $ | 192,250 | ||
f senior note, 144A, 9.75%, 9/15/16 | Brazil | 300,000 | BRL | 108,444 | ||
tw telecom Inc., senior note | ||||||
5.375%, 10/01/22 | United States | 56,000 | 63,629 | |||
6.375%, 9/01/23 | United States | 90,000 | 102,825 | |||
gVerizon Communications Inc., senior note, FRN, 0.632%, 6/09/17 | United States | 125,000 | 125,047 | |||
2,254,845 | ||||||
Electric Utilities 0.1% | ||||||
gDuke Energy Corp., senior note, FRN, 0.613%, 4/03/17 | United States | 100,000 | 100,313 | |||
gDuke Energy Progress Inc., secured note, FRN, 0.433%, 3/06/17 | United States | 50,000 | 49,994 | |||
fEDP Finance BV, senior note, 144A, 4.125%, 1/15/20 | Portugal | 250,000 | 253,999 | |||
404,306 | ||||||
Electronic Equipment, Instruments & Components 0.1% | ||||||
fKeysight Technologies Inc., senior bond, 144A, 4.55%, 10/30/24 | United States | 235,000 | 235,946 | |||
fSanmina Corp., secured, first lien note, 144A, 4.375%, 6/01/19 | United States | 110,000 | 109,175 | |||
345,121 | ||||||
Energy 0.0%† | ||||||
fEnel SpA, sub. bond, 144A, 8.75% to 9/24/23, FRN thereafter, 9/24/73 | Italy | 200,000 | 234,104 | |||
Energy Equipment & Services 0.0%† | ||||||
Oceaneering International Inc., senior note, 4.65%, 11/15/24 | United States | 210,000 | 214,319 | |||
Food & Staples Retailing 0.1% | ||||||
SUPERVALU Inc., senior note, 7.75%, 11/15/22 | United States | 620,000 | 618,450 | |||
Food Products 0.0%† | ||||||
fBI-LO LLC/BI-LO Finance Corp.,144A, | ||||||
i senior note, PIK, 8.625%, 9/15/18 | United States | 23,000 | 16,905 | |||
secured, first lien note, 9.25%, 2/15/19 | United States | 78,000 | 72,150 | |||
89,055 | ||||||
Health Care Providers & Services 0.3% | �� | |||||
fEnvision Healthcare Corp., senior note, 144A, 5.125%, 7/01/22 | United States | 465,000 | 470,812 | |||
fFresenius Medical Care U.S. Finance II Inc., senior note, 144A, 4.75%, 10/15/24 | Germany | 90,000 | 90,675 | |||
HCA Inc., secured, first lien note, 4.25%, 10/15/19 | United States | 100,000 | 100,625 | |||
Omnicare Inc., | ||||||
senior note, 4.75%, 12/01/22 | United States | 5,000 | 5,100 | |||
senior bond, 5.00%, 12/01/24 | United States | 10,000 | 10,250 | |||
Tenet Healthcare Corp., secured, first lien note, 4.375%, 10/01/21 | United States | 800,000 | 786,000 | |||
1,463,462 | ||||||
Hotels, Restaurants & Leisure 0.3% | ||||||
a,fCaesars Entertainment Resort Properties, secured, second lien note, 144A, | ||||||
11.00%, 10/01/21 | United States | 1,135,000 | 1,042,781 | |||
Choice Hotels International Inc., senior bond, 5.70%, 8/28/20 | United States | 125,000 | 135,625 | |||
MGM Resorts International, senior note, 6.00%, 3/15/23 | United States | 150,000 | 153,000 | |||
1,331,406 |
36 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Principal | |||||
Country | Amount* | Value | |||
Corporate Bonds and Notes (continued) | |||||
Household Durables 0.2% | |||||
Sharp Corp., senior note, Series 26, 1.604%, 9/13/19 | Japan | 100,000,000 | JPY | $ | 814,776 |
Insurance 0.1% | |||||
hAssicurazioni Generali SpA, senior sub. bond, Reg S, 7.75% to 12/12/22, FRN | |||||
thereafter, 12/12/42 | Italy | 300,000 | EUR | 473,910 | |
Genworth Holdings Inc., senior bond, | |||||
4.90%, 8/15/23 | United States | 10,000 | 8,849 | ||
4.80%, 2/15/24 | United States | 35,000 | 30,830 | ||
Old Republic International Corp., senior bond, 4.875%, 10/01/24 | United States | 225,000 | 235,881 | ||
749,470 | |||||
Internet Software & Services 0.2% | |||||
Equinix Inc., senior note, 5.375%, 1/01/22 | United States | 925,000 | 934,250 | ||
Leisure Equipment & Products 0.1% | |||||
f24 Hour Holdings III LLC, senior note, 144A, 8.00%, 6/01/22 | United States | 35,000 | 31,763 | ||
fNCL Corp. Ltd., senior note, 144A, 5.25%, 11/15/19 | United States | 480,000 | 486,000 | ||
517,763 | |||||
Machinery 0.0%† | |||||
gJohn Deere Capital Corp., senior note, FRN, 0.354%, 12/10/15 | United States | 80,000 | 80,069 | ||
Media 1.8% | |||||
fAltice SA, secured note, 144A, 7.25%, 5/15/22 | Luxembourg | 130,000 | EUR | 168,863 | |
American Media Inc., secured, first lien note, 11.50%, 12/15/17 | United States | 1,950,000 | 1,993,875 | ||
CCOH Safari LLC, | |||||
senior bond, 5.75%, 12/01/24 | United States | 1,675,000 | 1,689,656 | ||
senior note, 5.50%, 12/01/22 | United States | 150,000 | 152,063 | ||
DISH DBS Corp., senior note, | |||||
5.125%, 5/01/20 | United States | 800,000 | 811,500 | ||
f 144A, 5.875%, 11/15/24 | United States | 445,000 | 449,450 | ||
iiHeartCommunications Inc., senior note, PIK, 14.00%, 2/01/21 | United States | 94,000 | 77,433 | ||
Knight Ridder Inc., senior bond, | |||||
7.15%, 11/01/27 | United States | 6,000 | 5,220 | ||
6.875%, 3/15/29 | United States | 588,000 | 423,360 | ||
Postmedia Network Inc., secured, second lien note, 12.50%, 7/15/18 | Canada | 2,725,000 | 2,861,250 | ||
Time Warner Cable Inc., senior bond, 4.50%, 9/15/42 | United States | 130,000 | 131,442 | ||
fUnitymedia KabelBW GmbH, senior bond, 144A, 6.125%, 1/15/25 | Germany | 235,000 | 246,456 | ||
9,010,568 | |||||
Metals & Mining 0.1% | |||||
fEssar Steel Algoma Inc., secured note, 144A, 9.50%, 11/15/19 | Canada | 270,000 | 276,750 | ||
Oil, Gas & Consumable Fuels 1.1% | |||||
fAntero Resources Corp., senior note, 144A, 5.125%, 12/01/22 | United States | 5,000 | 4,856 | ||
Atlas Energy Holdings Operating Co. LLC/Atlas Resource Finance Corp., | |||||
senior note, 7.75%, 1/15/21 | United States | 993,000 | 868,875 | ||
fBaytex Energy Corp., senior note, 144A, | |||||
5.125%, 6/01/21 | Canada | 10,000 | 9,250 | ||
5.625%, 6/01/24 | Canada | 5,000 | 4,494 | ||
gBP Capital Markets PLC, senior note, FRN, 0.652%, 11/07/16 | United Kingdom | 80,000 | 80,192 | ||
fCalifornia Resources Corp., senior bond, 144A, 6.00%, 11/15/24 | United States | 110,000 | 98,656 | ||
gCanadian Natural Resources Ltd., senior note, FRN, 0.608%, 3/30/16 | Canada | 100,000 | 100,105 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Principal | ||||
Country | Amount* | Value | ||
Corporate Bonds and Notes (continued) | ||||
Oil, Gas & Consumable Fuels (continued) | ||||
Chesapeake Energy Corp., | ||||
senior bond, 6.625%, 8/15/20 | United States | 5,000 | $ | 5,538 |
senior note, 4.875%, 4/15/22 | United States | 50,000 | 49,750 | |
gChevron Corp., senior note, FRN, 0.402%, 11/15/17 | United States | 145,000 | 145,190 | |
Cimarex Energy Co., senior bond, 4.375%, 6/01/24 | United States | 20,000 | 19,800 | |
Dynagas LNG Partners LP/Dynagas Finance Inc., senior note, 6.25%, 10/30/19 | Greece | 309,000 | 298,185 | |
gExxon Mobil Corp., senior note, FRN, 0.274%, 3/15/17 | United States | 110,000 | 110,137 | |
Forest Oil Corp., | ||||
a senior bond, 7.25%, 6/15/19 | United States | 716,000 | 714,210 | |
senior note, 7.50%, 9/15/20 | United States | 377,000 | 371,345 | |
fMEG Energy Corp., senior bond,144A, | ||||
6.375%, 1/30/23 | Canada | 30,000 | 26,625 | |
7.00%, 3/31/24 | Canada | 15,000 | 13,650 | |
Oasis Petroleum Inc., senior note, 6.875%, 3/15/22 | United States | 25,000 | 23,625 | |
Petrobras Global Finance BV, senior bond, 5.625%, 5/20/43 | Brazil | 280,000 | 243,905 | |
hPetroleos de Venezuela SA, senior bond, Reg S, 5.50%, 4/12/37 | Venezuela | 260,000 | 112,840 | |
QEP Resources Inc., senior bond, 5.25%, 5/01/23 | United States | 70,000 | 66,150 | |
aQR Energy LP/QRE Finance Corp. LLC, senior note, 9.25%, 8/01/20 | United States | 906,000 | 1,042,987 | |
Rosetta Resources Inc., senior bond, 5.875%, 6/01/24 | United States | 5,000 | 4,725 | |
fRSP Permian Inc., senior note, 144A, 6.625%, 10/01/22 | United States | 30,000 | 29,213 | |
gShell International Finance BV, senior note, FRN, 0.442%, 11/15/16 | Netherlands | 80,000 | 80,242 | |
SM Energy Co., senior note, | ||||
5.00%, 1/15/24 | United States | 15,000 | 13,838 | |
f 144A, 6.125%, 11/15/22 | United States | 633,000 | 637,747 | |
Targa Resources Partners LP/Targa Resources Partners Finance Corp., | ||||
senior bond, 6.375%, 8/01/22 | United States | 25,000 | 26,625 | |
senior bond, 5.25%, 5/01/23 | United States | 15,000 | 15,375 | |
senior bond, 4.25%, 11/15/23 | United States | 5,000 | 4,800 | |
f senior note, 144A, 4.125%, 11/15/19 | United States | 125,000 | 125,625 | |
fTesoro Logistics LP/Tesoro Logistics Finance Corp., senior note, 144A, | ||||
6.25%, 10/15/22 | United States | 160,000 | 164,000 | |
fUltra Petroleum Corp., senior bond, 144A, 6.125%, 10/01/24 | United States | 10,000 | 9,150 | |
Whiting Petroleum Corp., senior note, | ||||
5.00%, 3/15/19 | United States | 10,000 | 9,775 | |
5.75%, 3/15/21 | United States | 100,000 | 101,250 | |
5,632,730 | ||||
Packaging & Containers 0.1% | ||||
fOwens-Brockway Glass Container Inc.,144A, | ||||
senior bond, 5.375%, 1/15/25 | United States | 170,000 | 172,337 | |
senior note, 5.00%, 1/15/22 | United States | 170,000 | 172,338 | |
fSealed Air Corp., senior bond, 144A, 5.125%, 12/01/24 | United States | 400,000 | 402,000 | |
746,675 | ||||
Pharmaceuticals 0.2% | ||||
fBioScrip Inc., senior note, 144A, 8.875%, 2/15/21 | United States | 30,000 | 27,937 | |
fEndo Finance LLC & Endo Finco Inc., senior note, 144A, 5.375%, 1/15/23 | United States | 800,000 | 783,496 | |
gJohnson & Johnson, senior note, FRN, 0.306%, 11/28/16 | United States | 20,000 | 20,038 | |
fValeant Pharmaceuticals International Inc., senior note, 144A, 6.375%, 10/15/20 | United States | 70,000 | 72,888 | |
904,359 |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Principal | |||||
Country | Amount* | Value | |||
Corporate Bonds and Notes (continued) | |||||
Professional Services 0.1% | |||||
fIHS Inc., senior note, 144A, 5.00%, 11/01/22 | United States | 370,000 | $ | 377,400 | |
Real Estate 0.0%† | |||||
fRialto Holdings LLC/Rialto Corp., senior note, 144A, 7.00%, 12/01/18 | United States | 203,000 | 207,948 | ||
Real Estate Investment Trusts (REITs) 0.1% | |||||
iStar Financial Inc., senior note, 4.00%, 11/01/17 | United States | 385,000 | 381,150 | ||
Real Estate Management & Development 0.1% | |||||
Kennedy-Wilson Inc., senior bond, 5.875%, 4/01/24 | United States | 600,000 | 603,000 | ||
fRealogy Group LLC / Realogy Co-Issuer Corp., senior note, 144A, 5.25%, | |||||
12/01/21 | United States | 65,000 | 64,919 | ||
667,919 | |||||
Retailing 0.4% | |||||
fGroup 1 Automotive Inc., senior note, 144A, 5.00%, 6/01/22 | United States | 900,000 | 893,250 | ||
New Albertsons Inc., senior bond, | |||||
7.45%, 8/01/29 | United States | 817,000 | 743,470 | ||
8.00%, 5/01/31 | United States | 305,000 | 286,700 | ||
1,923,420 | |||||
Semiconductors & Semiconductor Equipment 0.0%† | |||||
KLA-Tencor Corp., senior note, 4.65%, 11/01/24 | United States | 173,000 | 176,818 | ||
Software 0.1% | |||||
gOracle Corp., senior note, FRN, 0.432%, 7/07/17 | United States | 135,000 | 135,156 | ||
fRolta Americas LLC, senior note, 144A, 8.875%, 7/24/19 | India | 260,000 | 255,450 | ||
390,606 | |||||
Specialty Retail 0.1% | |||||
fMichaels Stores Inc., senior sub. note, 144A, 5.875%, 12/15/20 | United States | 480,000 | 486,000 | ||
Technology Hardware, Storage & Peripherals 0.1% | |||||
CDW LLC / CDW Finance Corp., senior bond, 5.50%, 12/01/24 | United States | 540,000 | 540,000 | ||
Textiles, Apparel & Luxury Goods 0.1% | |||||
fEmpire Today LLC / Empire Today Finance Corp., secured, first lien note, 144A, | |||||
11.375%, 2/01/17 | United States | 925,000 | 675,250 | ||
Trading Companies & Distributors 0.1% | |||||
Air Lease Corp., senior bond, 4.25%, 9/15/24 | United States | 170,000 | 170,638 | ||
fHD Supply Inc., secured, first lien note, 144A, 5.25%, 12/15/21 | United States | 360,000 | 368,550 | ||
539,188 | |||||
Transportation 0.0%† | |||||
gCanadian National Railway Co., senior note, FRN, 0.432%, 11/06/15 | Canada | 80,000 | 80,078 | ||
Total Corporate Bonds and Notes (Cost $48,784,061) | 48,389,950 | ||||
Corporate Notes in Reorganization (Cost $1,644,500) 0.3% | |||||
Electric Utilities 0.3% | |||||
f,kEnergy Future Intermediate Holding Co./EFIH Finance Inc., senior note, 144A, | |||||
11.25%, 12/01/18 | United States | 1,424,000 | 1,626,920 |
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39
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Principal | ||||
Country | Amount* | Value | ||
g,lSenior Floating Rate Interests 0.8% | ||||
Aerospace & Defense 0.1% | ||||
Accudyne Industries Borrower SCA, Refinancing Term Loan, senior secured, first lien, | ||||
4.00%, 12/13/19 | Luxembourg | 38,944 | $ | 38,157 |
Awas Aviation, Term Loan, 3.50%, 7/16/18 | United States | 18,127 | 18,029 | |
TransDigm Group Inc., | ||||
Term Loan D, 3.75%, 6/04/21 | United States | 127,230 | 126,378 | |
Tranche C Term Loan, senior secured, first lien guaranteed, 3.75%, 2/28/20 | United States | 45,173 | 44,878 | |
227,442 | ||||
Air Freight & Logistics 0.0%† | ||||
Goodpack Ltd., Term Loan, first lien, 4.75%, 8/04/21 | United States | 50,043 | 49,928 | |
Auto Components 0.0%† | ||||
American Tire Inc., Initial Term Loan, 5.75%, 6/01/18 | United States | 13,679 | 13,731 | |
mVisteon Corp., Term Loan B, 3.50%, 4/08/21 | United States | 29,925 | 29,700 | |
43,431 | ||||
Biotechnology 0.0%† | ||||
Grifols Worldwide Operations Ltd., Tranche B Term Loan, 3.156%, 3/06/21 | United States | 54,725 | 54,278 | |
Building Materials 0.0%† | ||||
Quikrete Holdings Inc., Term Loan, first lien, 4.00%, 9/28/20 | United States | 74,753 | 74,333 | |
Building Products 0.0%† | ||||
Continental Building Products Inc., Term Loan, first lien, 4.00%, 8/15/20 | United States | 59,739 | 58,993 | |
Capital Markets 0.0%† | ||||
American Beacon Advisors Inc., Initial Term Loan, 4.75%, 11/20/19 | United States | 14,315 | 14,315 | |
Chemicals 0.0%† | ||||
Axalta Coating Systems Dutch Holding B B.V. (Axalta Coating Systems U.S. Holdings | ||||
Inc.), Refinanced Term Loan B, 3.75%, 2/01/20 | United States | 10,274 | 10,163 | |
Emerald Performance Materials LLC, Term Loan, first lien, 4.50%, 7/18/21 | United States | 32,000 | 31,847 | |
42,010 | ||||
Commercial Services & Supplies 0.1% | ||||
Garda World Security Corp., | ||||
Delayed Draw Term Loan B, 4.00%, 11/04/20 | United States | 4,033 | 3,986 | |
Term Loan B, 4.00%, 11/06/20 | United States | 15,767 | 15,583 | |
Harland Clarke Holdings Corp. (Clarke American Corp.), Tranche B-3 Term Loan, | ||||
7.00%, 5/22/18 | United States | 19,497 | 19,735 | |
Interactive Data Corp., Term Loan, 4.50%, 4/21/21 | United States | 21,825 | 21,955 | |
Onsite Rental Group Ltd., Term Loan B, 5.50%, 7/23/21 | United States | 118,987 | 118,243 | |
Midas Intermediate Holdco II LLC, | ||||
4.75%, 8/18/21 | United States | 1,924 | 1,931 | |
Term Loan B, 4.75%, 8/18/21 | United States | 17,070 | 17,134 | |
The ServiceMaster Co., Term Loan, 4.25%, 7/01/21 | United States | 112,291 | 111,842 | |
310,409 | ||||
Communications Equipment 0.0%† | ||||
LTS Buyer LLC, senior secured, Term Loan B, first lien guaranteed, 4.00%, | ||||
4/13/20 | United States | 33,201 | 32,889 | |
Containers & Packaging 0.0%† | ||||
Ardagh Holdings USA Inc. (Ardagh Packaging Finance S.A), New Term Loan, | ||||
4.00%, 12/17/19 | United States | 79,975 | 79,875 | |
FPC Holdings Inc., Initial Term Loan, senior secured, first lien, 5.25%, 11/27/19 | United States | 6,901 | 6,789 | |
86,664 |
40 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Principal | |||||
Country | Amount* | Value | |||
g,lSenior Floating Rate Interests (continued) | |||||
Diversified Financial Services 0.0%† | |||||
Duff & Phelps LLC, Initial Term Loan, senior secured, first lien, 4.50%, 4/23/20 | United States | 39,599 | $ | 39,525 | |
HarbourVest Partners L.P., New Term Loan, 3.25%, 2/03/21 | United States | 9,532 | 9,342 | ||
Vat Holdings, Initial Term Loan, 4.75%, 1/28/21 | United States | 12,381 | 12,373 | ||
61,240 | |||||
Diversified Telecommunication Services 0.0%† | |||||
Level 3 Financing Inc., Term Loan B, 4.50%, 1/31/22 | United States | 48,413 | 48,672 | ||
Electrical Equipment 0.0%† | |||||
Generac Power Systems Inc., Term Loan B, 3.25%, 5/31/20 | United States | 50,464 | 49,392 | ||
Electronic Equipment, Instruments & Components 0.0%† | |||||
Zebra Technologies Corp., Term Loan B, 4.75%, 9/30/21 | United States | 72,782 | 73,492 | ||
Food Products 0.1% | |||||
ARAMARK Corp., Term Loan F, senior secured, first lien guaranteed, 3.25%, | |||||
2/24/21 | United States | 89,550 | 88,520 | ||
Big Heart Pet Brands (Del Monte Corporation), Initial Term Loan, 3.50%, 2/21/20 | United States | 99,500 | 96,278 | ||
Reddy Ice Corp., Term Loan B, first lien, 6.75%, 4/01/19 | United States | 6,267 | 5,893 | ||
190,691 | |||||
Health Care Equipment & Supplies 0.0%† | |||||
Ortho-Clinical Diagnostics Inc., Term Loan B, 4.75%, 5/07/21 | United States | 55,860 | 55,429 | ||
Health Care Providers & Services 0.1% | |||||
Amsurg Corp., Term Loan B, 5.25%, 7/16/21 | United States | 42,799 | 42,750 | ||
DaVita HealthCare Partners Inc., Term Loan B, 3.50%, 6/18/21 | United States | 133,183 | 132,672 | ||
Millennium Labs LLC, Tranche B Term Loan, 5.25%, 4/15/21 | United States | 114,277 | 114,704 | ||
290,126 | |||||
Health Care Technology 0.0%† | |||||
IMS Health Holdings Inc., Dollar B Term Loan, 3.50%, 3/07/21 | United States | 16,915 | 16,873 | ||
Hotels, Restaurants & Leisure 0.1% | |||||
Burger King Worldwide Inc., Term Loan B, 4.50%, 9/25/21 | United States | 157,352 | 157,956 | ||
Hilton Worldwide Finance LLC, senior secured, first lien guaranteed, 3.50%, | |||||
10/26/20 | United States | 125,437 | 124,418 | ||
Las Vegas Sands Corp., Term Loan, 4.75%, 3/25/21 | United States | 51,691 | 51,659 | ||
334,033 | |||||
Household Durables 0.0%† | |||||
Tempur Sealy International Inc., New Term Loan B, senior secured, first lien | |||||
guaranteed, 3.50%, 3/18/20 | United States | 32,145 | 31,843 | ||
Household Products 0.0%† | |||||
Libbey Glass Inc., Initial Term Loan, 3.75%, 4/07/21 | United States | 7,696 | 7,667 | ||
Wilsonart International Holding LLC, Initial Term Loan, senior secured, first lien, | |||||
4.00%, 10/31/19 | United States | 19,799 | 19,501 | ||
27,168 | |||||
Independent Power Producers & Energy Traders 0.0%† | |||||
Calpine Construction Finance Co. LP, | |||||
Delayed Term Loan, 4.00%, 10/21/20 | United States | 6,616 | 6,593 | ||
senior secured, first lien guaranteed, 3.00%, 5/03/20 | United States | 20,789 | 20,391 | ||
Term Loan B, 4.00%, 10/09/19 | United States | 71,997 | 71,783 | ||
98,767 |
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41
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Principal | ||||
Country | Amount* | Value | ||
g,lSenior Floating Rate Interests (continued) | ||||
Industrial Conglomerates 0.0%† | ||||
Crosby U.S. Acquisition Corp., 3.75%, 11/07/20 | United States | 19,850 | $ | 19,453 |
Insurance 0.0%† | ||||
Asurion LLC, senior secured, first lien, Incremental Tranche B-1 Term Loan, | ||||
5.00%, 5/24/19 | United States | 69,295 | 69,116 | |
Sedgwick Claims Management Services Inc., Initial Term Loan, first lien, | ||||
3.75%, 2/10/21 | United States | 50,447 | 49,474 | |
118,590 | ||||
Internet Software & Services 0.0%† | ||||
Dealertrack Technologies Inc., Term Loan, 3.50%, 2/25/21 | United States | 15,826 | 15,684 | |
Zayo Group, LLC (Zayo Capital Inc.), Term Loan, 4.00%, 7/02/19 | United States | 57,089 | 57,083 | |
72,767 | ||||
Investment Companies 0.0%† | ||||
Grosvenor Capital Management Holdings LLP, Initial Term Loan, 3.75%, | ||||
11/25/20 | United States | 9,925 | 9,776 | |
IT Services 0.0%† | ||||
Aptean Inc., Term Loan, 5.25%, 2/05/20 | United States | 49,750 | 48,879 | |
Leisure Equipment & Products 0.0%† | ||||
Bauer Performance Sports Ltd., Initial Term Loan, 4.00%, 4/02/21 | United States | 11,580 | 11,503 | |
SRAM LLC, Term Loan, senior secured, first lien guaranteed, 5.25%, 4/10/20 | United States | 36,359 | 35,813 | |
47,316 | ||||
Life Sciences Tools & Services 0.0%† | ||||
mQuintiles Transnational Corp., Term Loan B-3, 3.75%, 6/08/18 | United States | 111,798 | 111,424 | |
Machinery 0.0%† | ||||
Dematic, New Incremental Term Loan, 4.25%, 12/18/19 | United States | 3,391 | 3,370 | |
North American Lifting Holdings Inc., Initial Term Loan, first lien, 5.50%, | ||||
11/26/20 | United States | 15,897 | 15,897 | |
Signode Industrial Group, Initial Term Loan B, 3.75%, 4/09/21 | United States | 29,556 | 29,232 | |
48,499 | ||||
Media 0.1% | ||||
Charter Communications Inc., Term Loan G, 4.25%, 8/12/21 | United States | 22,739 | 22,929 | |
Sinclair Television Group Inc., New Tranche B Term Loan, 3.00%, 4/15/20 | United States | 20,930 | 20,551 | |
Springer Science + Business Media GmbH, Term Loan B-3, 4.75%, 8/16/21 | United States | 19,800 | 19,782 | |
Time Inc., Term Loan B, 4.25%, 4/17/21 | United States | 34,913 | 34,978 | |
Tribune Co., Initial Term Loan, 4.00%, 11/21/20 | United States | 18,442 | 18,396 | |
Virgin Media, Term Loan, 3.50%, 6/07/20 | United Kingdom | 40,000 | 39,671 | |
William Morris Endeavor Entertainment LLC, Term Loan, first lien, 5.25%, | ||||
3/12/21 | United States | 52,868 | 51,942 | |
208,249 | ||||
Metals & Mining 0.0%† | ||||
ABC Supply, Term Loan B, 3.50%, 4/16/20 | United States | 64,836 | 63,742 | |
Doncasters Finance U.S. Finance LLC, (Doncasters U.S. LLC), Term Loan B, | ||||
4.50%, 4/10/20 | United States | 11,241 | 11,175 | |
Metal Services, LLC, New Term Loan, 6.00%, 6/30/17 | United States | 16,858 | 16,837 | |
91,754 |
42 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Principal | ||||
Country | Amount* | Value | ||
g,lSenior Floating Rate Interests (continued) | ||||
Miscellaneous Manufacturing 0.0%† | ||||
Gates Global Inc., Term Loan B, 4.25%, 6/12/21 | United States | 34,000 | $ | 33,715 |
Oil, Gas & Consumable Fuels 0.0%† | ||||
Power Buyer LLC senior secured, first lien, | ||||
Delayed Draw Term Loan, 4.25%, 5/06/20 | United States | 3,417 | 3,340 | |
Initial Term Loan, 4.25%, 5/06/20 | United States | 64,157 | 62,713 | |
66,053 | ||||
Pharmaceuticals 0.1% | ||||
Amneal Pharmaceuticals LLC, Term Loan B, senior secured, first lien guaranteed, | ||||
4.75%, 11/01/19 | United States | 19,800 | 19,804 | |
JLL/Delta Dutch Newco B.V., Initial Dollar Term Loan, 4.25%, 1/23/21 | United States | 9,975 | 9,773 | |
Mallinckrodt International Finance S.A., Initial Term Loan, 3.50%, 3/19/21 | United States | 86,715 | 86,101 | |
PRA Holdings Inc., Initial Term Loan, senior secured, first lien, 4.50%, 9/23/20 | United States | 32,764 | 32,703 | |
148,381 | ||||
Pipelines 0.0%† | ||||
Energy Transfer Equity L.P., Term Loan, 3.25%, 12/02/19 | United States | 40,000 | 39,572 | |
Professional Services 0.0%† | ||||
iQor Inc., Term Loan B, first lien, 6.00%, 4/01/21 | United States | 69,455 | 66,156 | |
Real Estate Management & Development 0.0%† | ||||
The Brickman Group Ltd. LLC, Initial Term Loan, first lien, 4.00%, 12/11/20 | United States | 6,948 | 6,885 | |
Retailing 0.0%† | ||||
The Hillman Group, Term Loan B, 4.50%, 6/30/21 | United States | 41,641 | 41,745 | |
Talbots Inc., Term Loan, first lien, 4.75%, 3/14/20 | United States | 68,358 | 66,650 | |
108,395 | ||||
Semiconductors & Semiconductor Equipment 0.0%† | ||||
Entegris Inc., Tranche B Term Loan, 3.50%, 3/25/21 | United States | 18,863 | 18,722 | |
M/A-COM Technology Solutions Holdings Inc., Initial Term Loan, 4.50%, 4/30/21 | United States | 32,292 | 32,292 | |
Microsemi, Term Loan, 3.50%, 2/19/20 | United States | 6,887 | 6,835 | |
NXP BV, Tranche D Loan, 3.25%, 1/22/20 | Netherlands | 9,900 | 9,850 | |
67,699 | ||||
Software 0.1% | ||||
BMC Software Finance Inc., senior secured, Term Loan, first lien guaranteed, | ||||
5.00%, 9/10/20 | United States | 94,753 | 93,439 | |
Infor (US) Inc. (Lawson Software Inc.), Tranche B-5 Term Loan, 3.75%, 6/03/20 | United States | 64,845 | 64,116 | |
Micro Focus International PLC, Term Loan B, 5.25%, 10/07/21 | United Kingdom | 79,895 | 78,272 | |
Renaissance Learning Inc., Initial Term Loan, first lien, 4.50%, 3/31/21 | United States | 31,246 | 30,855 | |
Verint Systems Inc., Tranche B Incremental Term Loan, 3.50%, 9/06/19 | United States | 4,358 | 4,358 | |
Vertafore Inc., Term Loan B, 4.25%, 10/03/19 | United States | 74,425 | 74,348 | |
345,388 | ||||
Specialty Retail 0.0%† | ||||
The Men’s Warehouse Inc., Term Loan, 4.50%, 4/15/21 | United States | 73,923 | 74,084 | |
Transportation 0.0%† | ||||
OSG Bulk Ships, Term Loan, 5.25%, 6/26/19 | United States | 10,990 | 10,990 | |
Wireless Telecommunication Services 0.0%† | ||||
SBA Finance, Incremental Term Loan, 3.25%, 2/05/21 | United States | 49,875 | 49,236 | |
Total Senior Floating Rate Interests (Cost $4,069,665) | 4,065,679 |
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43
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||
Principal | ||||||
Country | Amount* | Value | ||||
Foreign Government and Agency Securities 0.4% | ||||||
hGovernment of Hellenic Republic, senior, Series PSI, Reg S, 2.00%, | ||||||
2/24/23-2/24/42 | Greece | 1,436,000 | EUR $ | 1,032,745 | ||
Mexico Bonos, | ||||||
Series M, senior note, 4.75%, 6/14/18 | Mexico | 40,000 | n | MXN | 290,191 | |
Series M 10, senior note, 8.50%, 12/13/18 | Mexico | 5,000 | n | MXN | 41,087 | |
Series M, senior bond, 6.50%, 6/10/21 | Mexico | 75,100 | n | MXN | 574,390 | |
Series M, 7.75%, 11/13/42 | Mexico | 5,000 | n | MXN | 40,651 | |
Total Foreign Government and Agency Securities | ||||||
(Cost $2,150,232) | 1,979,064 | |||||
Asset-Backed Securities and Commercial Mortgage-Backed Securities 1.4% | ||||||
Automobiles 0.1% | ||||||
BMW Vehicle Owner Trust, 2014-A, 0.97%, 11/26/18 | United States | 75,000 | 75,195 | |||
Honda Auto Receivables 2013-4 Owner Trust, A3, 0.69%, 9/18/17 | United States | 40,000 | 40,046 | |||
Honda Auto Receivables 2014 Owner Trust, A3, 0.77%, 3/19/18 | United States | 90,000 | 90,010 | |||
Honda Auto Receivables 2014-A3 Owner Trust, 0.99%, 9/17/18 | United States | 55,000 | 54,990 | |||
Honda Auto Receivables 2014-3 Owner Trust, | ||||||
A3, 0.88%, 6/15/18 | United States | 45,000 | 45,053 | |||
A4, 1.31%, 10/15/20 | United States | 30,000 | 30,056 | |||
Hyundai Auto Receivables Trust, A3, 0.79%, 7/16/18 | United States | 110,000 | 110,099 | |||
Nissan Auto Lease Trust, 2014-B, 1.12%, 9/15/17 | United States | 45,000 | 45,140 | |||
Nissan Auto Receivables 2013-C Owner Trust, A3, 0.67%, 8/15/18 | United States | 30,000 | 30,018 | |||
Toyota Auto Receivables 2014-C Owner Trust, A3, 0.93%, 7/16/18 | United States | 40,000 | 40,138 | |||
USAA Auto Owner Trust, A4, 0.57%, 8/15/17 | United States | 20,000 | 20,005 | |||
580,750 | ||||||
Commercial Mortgage-Backed Securities 0.1% | ||||||
f,gBLCP Hotel Trust 2014-CLRN, 2014-E, 144A, FRN, 3.825%, 8/15/29 | United States | 100,000 | 100,160 | |||
f,gCOMM 2014-SAVA Mortgage Trust, 2014-C, 144A, FRN, 2.555%, 6/15/34 | United States | 100,000 | 100,067 | |||
gGovernment National Mortgage Association, IO, FRN, 1.047%, 6/16/52 | United States | 237,642 | 16,068 | |||
f,gGP Portfolio Trust 2014-GGP, A, 144A, FRN, 1.105%, 2/15/27 | United States | 100,000 | 100,002 | |||
fHilton USA Trust 2013-HLT, CFX, 144A, 3.714%, 11/05/30 | United States | 100,000 | 101,889 | |||
f,gSCG Trust 2013-SRP1 FRN,144A, | ||||||
A, 1.555%, 11/15/26 | United States | 100,000 | 100,226 | |||
C, 3.405%, 11/15/26 | United States | 100,000 | 100,532 | |||
618,944 | ||||||
Consumer Finance 0.1% | ||||||
Ford Credit Auto Owner Trust, | ||||||
2014-B, Series 2014-A3, 0.90%, 10/15/18 | United States | 120,000 | 120,229 | |||
Series 2014-A3, 1.06%, 5/15/19 | United States | 55,000 | 55,069 | |||
f 2014-2A, 144A, 2.31%, 4/15/26 | United States | 100,000 | 100,909 | |||
276,207 | ||||||
Credit Cards 0.5% | ||||||
American Express Credit Account Master Trust, | ||||||
0.98%, 5/15/19 | United States | 100,000 | 100,335 | |||
g FRN, 0.425%, 1/15/20 | United States | 100,000 | 99,981 | |||
Series 2014-A, 1.26%, 1/15/20 | United States | 100,000 | 100,349 | |||
g Series 2014-A, FRN, 0.444%, 5/15/20 | United States | 100,000 | 100,050 | |||
Series 2014-3, 1.49%, 4/15/20 | United States | 100,000 | 100,613 |
44 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued) | |||||
Principal | |||||
Country | Amount* | Value | |||
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | |||||
Credit Cards (continued) | |||||
gBA Credit Card Trust, FRN, | |||||
A, 0.425%, 9/16/19 | United States | 120,000 | $ | 120,045 | |
A, 0.535%, 6/15/21 | United States | 100,000 | 100,027 | ||
A3, 0.445%, 1/15/20 | United States | 100,000 | 100,074 | ||
Capital One Multi-Asset Execution Trust, | |||||
A2, 1.26%, 1/15/20 | United States | 40,000 | 40,178 | ||
A3, 0.96%, 9/16/19 | United States | 100,000 | 100,214 | ||
A5, 1.48% 7/15/20 | United States | 90,000 | 90,628 | ||
Chase Issuance Trust, | |||||
g A3, FRN, 0.355%, 5/15/18 | United States | 110,000 | 109,986 | ||
g A5, FRN, 0.525%, 4/15/21 | United States | 120,000 | 120,351 | ||
A8, 1.01%, 10/15/18 | United States | 100,000 | 100,363 | ||
g Series 2014-A, FRN, 0.404%, 11/15/18 | United States | 85,000 | 85,041 | ||
Series 2014-A6, 1.26%, 7/15/19 | United States | 100,000 | 100,173 | ||
Citibank Credit Card Issuance Trust, | |||||
g 2013-A2, FRN, 0.435%, 5/26/20 | United States | 125,000 | 124,796 | ||
g 2014-A7, FRN, 0.355%, 8/24/18 | United States | 100,000 | 100,013 | ||
2014-A8, 1.73%, 4/09/20 | United States | 100,000 | 100,708 | ||
A2, 1.02%, 2/22/19 | United States | 100,000 | 100,040 | ||
g A3, FRN, 0.356%, 5/09/18 | United States | 100,000 | 100,031 | ||
A4, 1.23%, 4/24/19 | United States | 100,000 | 100,310 | ||
g A7, FRN, 0.586%, 9/10/20 | United States | 200,000 | 200,579 | ||
A10, 0.73%, 2/07/18 | United States | 100,000 | 100,185 | ||
2,495,070 | |||||
Other ABS 0.2% | |||||
gAlly Master Owner Trust, FRN, | |||||
1A1, 0.625%, 1/15/19 | United States | 100,000 | 100,170 | ||
2A, 0.525%, 1/16/18 | United States | 135,000 | 135,019 | ||
Citicorp Mortgage Securities 2006-4 Trust, 1A2, 6.00%, 8/25/36 | United States | 40,344 | 41,439 | ||
fCLI Funding LLC, 2014-2A, 144A, 3.38%, 10/18/29 | United States | 99,167 | 100,033 | ||
f,gInvitation Homes Trust, B, 144A, FRN, 1.655%, 6/17/31 | United States | 100,000 | 98,709 | ||
fOneMain Financial Issuance Trust, 2014-2, Series 2014-A, 144A, 2.47%, 9/18/24 | United States | 150,000 | 150,047 | ||
fSierra Timeshare 2013-3 Receivables Funding LLC, A, 144A, 2.20%, 10/20/30 | United States | 110,060 | 110,095 | ||
fTAL Advantage V LLC, A, 144A, 3.55%, 11/20/38 | United States | 90,000 | 91,539 | ||
827,051 | |||||
Whole Loan Collateral CMO 0.4% | |||||
gAdjustable Rate Mortgage 2004-4 Trust, 3A1, FRN, 2.677%, 3/25/35 | United States | 72,252 | 70,608 | ||
gAdjustable Rate Mortgage 2004-5 Trust, FRN, | |||||
5A1, 2.582%, 4/25/35 | United States | 19,630 | 19,255 | ||
6A1, 2.547%, 4/25/35 | United States | 12,962 | 12,895 | ||
Alternative Loan 2003-9T1 Trust, A7, 5.50%, 7/25/33 | United States | 33,758 | 34,549 | ||
Alternative Loan 2003-20CB Trust, 2A1, 5.75%, 10/25/33 | United States | 32,671 | 33,898 | ||
Alternative Loan 2004-28CB Trust, 5A1, 5.75%, 1/25/35 | United States | 13,559 | 13,907 | ||
Alternative Loan 2004-J3 Trust, 1A1, 5.50%, 4/25/34 | United States | 68,788 | 73,264 | ||
Alternative Loan 2005-J1 Trust, 2A1, 5.50%, 2/25/25 | United States | 16,964 | 17,352 | ||
Bank of America Alternative Loan 2003-8 Trust, 1CB1, 5.50%, 10/25/33 | United States | 16,585 | 17,170 | ||
Bank of America Alternative Loan 2004-9 Trust, 2CB1, 6.00%, 10/25/34 | United States | 17,250 | 17,922 | ||
Bank of America Alternative Loan 2005-6 Trust, CB7, 5.25%, 7/25/35 | United States | 34,234 | 31,060 | ||
Bank of America Funding 2005-5 Trust, 2005-1A1, 5.50%, 9/25/35 | United States | 28,558 | 30,009 |
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45
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Principal | ||||
Country | Amount* | Value | ||
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | ||||
Whole Loan Collateral CMO (continued) | ||||
gBank of America Mortgage 2005-A Trust, 2A1, FRN, 2.706%, 2/25/35 | United States | 18,369 | $ | 18,079 |
gBear Stearns ARM 2004-6 Trust, 2A1, FRN, 2.661%, 9/25/34 | United States | 56,285 | 53,835 | |
gBear Stearns ARM 2004-9 Trust, 12A3, FRN, 2.78%, 11/25/34 | United States | 22,060 | 21,827 | |
gBear Stearns ARM 2005-12 Trust, 11A1, FRN, 2.555%, 2/25/36 | United States | 35,377 | 27,872 | |
gChase Mortgage Finance 2007-A1 Trust, 3A1, FRN, 2.541%, 2/25/37 | United States | 65,011 | 64,210 | |
CHL Mortgage Pass-Through 2003-57 Trust, A11, 5.50%, 1/25/34 | United States | 18,039 | 18,945 | |
gCHL Mortgage Pass-Through 2004-12 Trust, 8A1, FRN, 2.582%, 8/25/34 | United States | 26,091 | 24,526 | |
gCHL Mortgage Pass-Through 2004-HYB4 Trust, 2A1, FRN, 2.396%, 9/20/34 | United States | 65,147 | 64,285 | |
CHL Mortgage Pass-Through 2005-21 Trust, A17, 5.50%, 10/25/35 | United States | 27,685 | 26,141 | |
gCitigroup Mortgage Loan 2005-11 Trust, A2A, FRN, 2.561%, 10/25/35 | United States | 57,711 | 57,210 | |
f,gCitigroup Mortgage Loan 2009-10 Trust, 6A2, 144A, FRN, 2.666%, 9/25/34 | United States | 120,000 | 108,872 | |
gCitigroup Mortgage Loan Trust Inc., 1A4, FRN, 2.597%, 5/25/35 | United States | 33,987 | 33,572 | |
CitiMortgage Alternative Loan 2007-A6 Trust, 1A11, 6.00%, 6/25/37 | United States | 21,594 | 18,011 | |
Credit Suisse First Boston Mortgage Securities Corp., | ||||
g 3A1, FRN, 2.574%, 5/25/34 | United States | 31,273 | 30,906 | |
g 4A1, FRN, 2.519%, 12/25/33 | United States | 8,488 | 8,259 | |
4A4, 5.75%, 11/25/33 | United States | 4,707 | 4,984 | |
g 7A1, FRN, 2.515%, 11/25/33 | United States | 11,139 | 10,783 | |
Deutsche Alt-A Securities Inc. Mortgage Loan 2005-3 Trust, 4A4, 5.25%, 6/25/35 | United States | 11,562 | 11,745 | |
gDeutsche Alt-A Securities Inc. Mortgage Loan 2005-5 Trust, 1A4, FRN, 5.50%, | ||||
11/25/35 | United States | 18,334 | 17,471 | |
fFDIC 2013-N1 Trust, A, 144A, 4.50%, 10/25/18 | United States | 10,748 | 10,870 | |
GMACM Mortgage Loan Trust 2003-J7, Series 2003-A7, 5.00%, 11/25/33 | United States | 68,053 | 70,597 | |
GSR Mortgage Loan Trust 2005-4F, 6A1, 6.50%, 2/25/35 | United States | 64,471 | 65,484 | |
gGSR Mortgage Loan Trust 2005-AR6, 4A5, FRN, 2.686%, 9/25/35 | United States | 60,029 | 60,458 | |
gHarborview Mortgage Loan Trust, 1A, FRN, 0.524%, 10/19/33 | United States | 27,327 | 26,360 | |
gJP Morgan Alternative Loan Trust, 3A1, FRN, 2.547%, 3/25/36 | United States | 101,459 | 88,910 | |
gJP Morgan Mortgage 2003-A2 Trust, 3A1, FRN, 1.99%, 11/25/33 | United States | 26,683 | 26,644 | |
gJP Morgan Mortgage 2006-A1 Trust, 1A2, FRN, 2.408%, 2/25/36 | United States | 68,996 | 61,957 | |
gJP Morgan Mortgage 2006-A7 Trust, 2A4, FRN, 2.775%, 1/25/37 | United States | 50,492 | 45,195 | |
gJP Morgan Mortgage 2007-A1 Trust, 4A2, FRN, 2.489%, 7/25/35 | United States | 15,211 | 15,376 | |
JP Morgan Mortgage 2007-S1 Trust, 2A22, 5.75%, 3/25/37 | United States | 82,603 | 71,218 | |
gJP Morgan Mortgage Trust 2005-A3, 4A1, FRN, 2.632%, 6/25/35 | United States | 21,061 | 21,358 | |
gJP Morgan Mortgage Trust 2005-A5, Series 2005-1A2, FRN, 2.654%, 8/25/35 | United States | 22,234 | 22,192 | |
gMASTR Adjustable Rate Mortgages 2004-7 Trust, 3A1, FRN, 2.494%, 7/25/34 | United States | 88,860 | 89,296 | |
MASTR Alternative Loan Trust 2004-12, 6A2, 5.25%, 12/25/34 | United States | 25,415 | 25,547 | |
gMerrill Lynch Mortgage Investors MLCC 2006-2 Trust, 2A, FRN, 2.12%, 5/25/36 | United States | 20,312 | 20,231 | |
gNew York Mortgage 2006-1 Trust, 2A2, FRN, 2.625%, 5/25/36 | United States | 49,399 | 44,989 | |
gProvident Funding Mortgage Loan 2005-2 Trust, 2A1A, FRN, 2.395%, 10/25/35 | United States | 15,352 | 15,021 | |
RALI 2004-QS2 Trust, AI1, 5.50%, 2/25/34 | United States | 29,383 | 29,637 | |
gStructured Adjustable Rate Mortgage Loan Trust, 1A, FRN, 2.358%, 6/25/34 | United States | 40,412 | 40,055 | |
Structured Asset Securities Corp. Trust 2005-1, 7A7, 5.50%, 2/25/35 | United States | 32,653 | 33,527 | |
gWaMu Mortgage Pass-Through Certificates Series 2005-AR7 Trust, A3, FRN, | ||||
2.362%, 8/25/35 | United States | 150,000 | 147,722 | |
gWells Fargo Mortgage Backed Securities 2003-J Trust, 1A9, FRN, 2.612%, | ||||
10/25/33 | United States | 60,386 | 60,741 | |
gWells Fargo Mortgage Backed Securities 2004-A Trust, A1, FRN, 2.637%, 2/25/34 | United States | 52,831 | 53,524 | |
Wells Fargo Mortgage Backed Securities 2005-16 Trust, A18, 6.00%, 1/25/36 | United States | 13,870 | 13,774 |
46 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Principal | ||||
Country | Amount* | Value | ||
Asset-Backed Securities and Commercial Mortgage-Backed Securities (continued) | ||||
Whole Loan Collateral CMO (continued) | ||||
gWells Fargo Mortgage Backed Securities 2005-AR10 Trust, FRN, | ||||
2A2, 2.614%, 6/25/35 | United States | 70,685 | $ | 72,087 |
2A4, 2.614%, 6/25/35 | United States | 31,415 | 31,601 | |
2,257,793 | ||||
Total Asset-Backed Securities and Commercial Mortgage- | ||||
Backed Securities (Cost $7,009,142) | 7,055,815 | |||
Number of | ||||
Contracts | ||||
Options Purchased 0.2% | ||||
Calls – Exchange-Traded | ||||
Airlines 0.0%† | ||||
Delta Air Lines Inc., January Strike Price, $40.00, Expires 1/17/15 | United States | 43 | 30,530 | |
Automobiles 0.0%† | ||||
Ford Motor Co., January Strike Price, $15.00, Expires 1/17/15 | United States | 229 | 22,900 | |
Banks 0.0%† | ||||
Citigroup Inc., January Strike Price, $50.00, Expires 1/17/15 | United States | 139 | 59,770 | |
Citigroup Inc., January Strike Price, $52.50, Expires 1/17/15 | United States | 28 | 6,524 | |
Citigroup Inc., January Strike Price, $55.00, Expires 1/17/15 | United States | 94 | 8,836 | |
75,130 | ||||
Chemicals 0.0%† | ||||
The Dow Chemical Co., January Strike Price, $50.00, Expires 1/17/15 | United States | 38 | 3,876 | |
Consumer Finance 0.0%† | ||||
Ally Financial Inc., December Strike Price, $26.00, Expires 12/20/14 | United States | 42 | 630 | |
Diversified Telecommunication Services 0.0%† | ||||
Vivendi SA, December Strike Price, 21.00 EUR, Expires 12/19/14 | France | 247 | 3,166 | |
Vivendi SA, February Strike Price, 20.00 EUR, Expires 2/20/15 | France | 196 | 21,465 | |
24,631 | ||||
Electrical Equipment 0.0%† | ||||
Alstom SA, March Strike Price, 27.00 EUR, Expires 3/20/15 | France | 20 | 4,854 | |
Hotels Restaurants & Leisure 0.0%† | ||||
McDonald’s Corp., January Strike Price, $95.00, Expires 1/17/15 | United States | 92 | 29,900 | |
Internet Software & Services 0.0%† | ||||
Pandora Media Inc., March Strike Price, $25.00, Expires 3/20/15 | United States | 79 | 6,873 | |
Machinery 0.0%† | ||||
Terex Corp., January Strike Price, $32.00, Expires 1/17/15 | United States | 35 | 1,435 | |
Marine 0.0%† | ||||
DryShips Inc., December Strike Price, $4.00, Expires 12/20/14 | United States | 110 | 110 | |
Media 0.1% | ||||
Grupo Televisa SAB ADR, January Strike Price, $40.00, Expires 1/17/15 | Mexico | 138 | 6,210 | |
Time Warner Cable Inc., January Strike Price, $145.00, Expires 1/17/15 | United States | 84 | 74,760 | |
Time Warner Cable Inc., April Strike Price, $145.00, Expires 4/17/15 | United States | 92 | 128,800 | |
Time Warner Cable Inc., January Strike Price, $155.00, Expires 1/15/16 | United States | 7 | 9,380 |
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Semiannual Report
47
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||
Number of | ||||||
Country | Contracts | Value | ||||
Options Purchased (continued) | ||||||
Calls – Exchange-Traded (continued) | ||||||
Media (continued) | ||||||
Time Warner Inc., January Strike Price, $90.00, | ||||||
Expires 1/17/15 | United States | 13 | $ | 728 | ||
219,878 | ||||||
Multiline Retail 0.0%† | ||||||
Dollar General Corp., February Strike Price, $65.00, | ||||||
Expires 2/20/15 | United States | 26 | 15,340 | |||
Oil, Gas & Consumable Fuels 0.0%† | ||||||
Alpha Natural Resources Inc., January Strike Price, $4.50, | ||||||
Expires 1/17/15 | United States | 230 | 690 | |||
Cheniere Energy Inc., December Strike Price, $70.00, | ||||||
Expires 12/20/14 | United States | 67 | 6,030 | |||
Encana Corp., January Strike Price, $20.00, Expires 1/17/15 | Canada | 201 | 1,206 | |||
Peabody Energy Corp., January Strike Price, $18.00, | ||||||
Expires 1/17/15 | United States | 55 | 193 | |||
8,119 | ||||||
Pharmaceuticals 0.0%† | ||||||
Valeant Pharmaceuticals International Inc., December Strike | ||||||
Price, $135.00, Expires 12/20/14 | United States | 35 | 39,375 | |||
Specialty Retail 0.0%† | ||||||
Best Buy Co. Inc., December Strike Price, $31.00, | ||||||
Expires 12/20/14 | United States | 19 | 16,435 | |||
PetSmart Inc., December Strike Price, $75.00, | ||||||
Expires 12/20/14 | United States | 15 | 6,555 | |||
22,990 | ||||||
Technology Hardware, Storage & Peripherals 0.0%† | ||||||
Hewlett-Packard Co., February Strike Price, $39.00, | ||||||
Expires 2/20/15 | United States | 35 | 5,460 | |||
Nokia OYJ, A, March Strike Price, 6.80 EUR, Expires 3/20/15 | Finland | 98 | 4,390 | |||
Nokia OYJ, A, March Strike Price, 7.00 EUR, Expires 3/20/15 | Finland | 229 | 8,265 | |||
18,115 | ||||||
Wireless Telecommunication Services 0.0%† | ||||||
T-Mobile US Inc., January Strike Price, $31.00, | ||||||
Expires 1/17/15 | United States | 129 | 8,643 | |||
Notional | ||||||
Counterparty | Amount* | |||||
Receiver Swaptions – Over-the-Counter | ||||||
Interest Rate 0.0%† | ||||||
Receive fixed 1 year 4.26%, pay floating 28 Day TIIE, | ||||||
Expires 10/24/16 | Mexico | BOFA | 27,000,000 | MXN | 8,366 |
48 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||
Number of | ||||
Country | Contracts | Value | ||
Options Purchased (continued) | ||||
Puts – Exchange-Traded | ||||
Biotechnology 0.0%† | ||||
Synergy Pharmaceuticals Inc., April Strike Price, $2.50, Expires 4/17/15 | United States | 46 | $ | 1,725 |
Capital Markets 0.0%† | ||||
Prospect Capital Corp., February Strike Price, $7.50, Expires 2/20/15 | United States | 105 | 1,575 | |
Diversified Financial Services 0.1% | ||||
Euro STOXX 50 Index, December Strike Price, 2,800.00 EUR, Expires | ||||
12/19/14 | Germany | 10 | 237 | |
Euro STOXX 50 Index, December Strike Price, 2,850.00 EUR, Expires | ||||
12/19/14 | Germany | 7 | 209 | |
Euro STOXX 50 Index, December Strike Price, 3,000.00 EUR, Expires | ||||
12/19/14 | Germany | 10 | 697 | |
Euro STOXX 50 Index, December Strike Price, 3,050.00 EUR, Expires | ||||
12/19/14 | Germany | 10 | 1,008 | |
Euro STOXX 50 Index, February Strike Price, 3,050.00 EUR, Expires | ||||
2/20/15 | Germany | 71 | 38,348 | |
S&P 500 Index, December Strike Price, $1,850.00, Expires 12/20/14 | United States | 9 | 1,170 | |
S&P 500 Index, December Strike Price, $2,025.00, Expires 12/20/14 | United States | 35 | 35,000 | |
S&P 500 Index, December Strike Price, $1,800.00, Expires 12/31/14 | United States | 85 | 14,450 | |
S&P 500 Index, December Strike Price, $1,900.00, Expires 12/31/14 | United States | 83 | 31,540 | |
S&P 500 Index, January Strike Price, $1,925.00, Expires 1/17/15 | United States | 19 | 16,682 | |
S&P 500 Index, February Strike Price, $1,925.00, Expires 2/20/15 | United States | 15 | 26,250 | |
S&P 500 Index, February Strike Price, $1,950.00, Expires 2/20/15 | United States | 16 | 36,160 | |
201,751 | ||||
Diversified Telecommunication Services 0.0%† | ||||
AT&T Inc., June Strike Price, $35.00, Expires 6/19/15 | United States | 224 | 43,904 | |
Energy Equipment & Services 0.0%† | ||||
McDermott International Inc., January Strike Price, $3.00, Expires 1/17/15 | United States | 55 | 550 | |
Exchange Traded Funds 0.0%† | ||||
SPDR S&P 500 ETF Trust, December Strike Price, $180.00, | ||||
Expires 12/31/14 | United States | 8 | 112 | |
SPDR S&P Retail ETF, December Strike Price, $80.00, Expires 12/20/14 | United States | 19 | 152 | |
SPDR S&P Retail ETF, January Strike Price, $75.00, Expires 1/17/15 | United States | 14 | 175 | |
SPDR S&P Retail ETF, January Strike Price, $80.00, Expires 1/17/15 | United States | 44 | 814 | |
SPDR S&P Retail ETF, January Strike Price, $85.00, Expires 1/17/15 | United States | 14 | 406 | |
SPDR S&P Retail ETF, March Strike Price, $87.00, Expires 3/20/15 | United States | 27 | 3,537 | |
5,196 | ||||
Food Products 0.0%† | ||||
Post Holdings Inc., December Strike Price, $30.00, Expires 12/20/14 | United States | 13 | 104 | |
Health Care Equipment & Supplies 0.0%† | ||||
Covidien PLC, January Strike Price, $85.00, Expires 1/17/15 | United States | 132 | 15,180 | |
Hotels, Restaurants & Leisure 0.0%† | ||||
Burger King Worldwide Inc., January Strike Price, $40.00, Expires 1/17/15 | United States | 13 | 6,500 | |
Metals & Mining 0.0%† | ||||
Horsehead Holding Corp., December Strike Price, $12.50, Expires 12/20/14 | United States | 110 | 1,650 | |
Oil, Gas & Consumable Fuels 0.0%† | ||||
Forest Oil Corp., January Strike Price, $1.50, Expires 1/17/15 | United States | 138 | 11,385 |
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49
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||
Number of | ||||||
Country | Contracts | Value | ||||
Options Purchased (continued) | ||||||
Puts – Exchange-Traded (continued) | ||||||
Oil, Gas & Consumable Fuels (continued) | ||||||
Forest Oil Corp., January Strike Price, $2.00, | ||||||
Expires 1/17/15 | United States | 397 | $ | 51,610 | ||
Forest Oil Corp., January Strike Price, $2.50, | ||||||
Expires 1/17/15 | United States | 138 | 24,150 | |||
Sanchez Energy Corp., December Strike Price, $11.00, | ||||||
Expires 12/20/14 | United States | 55 | 3,850 | |||
Scorpio Tankers Inc., January Strike Price, $7.50, | ||||||
Expires 1/17/15 | United States | 50 | 750 | |||
91,745 | ||||||
Real Estate Investment Trusts (REITs) 0.0%† | ||||||
Gramercy Property Trust Inc., February Strike Price, $5.00, | ||||||
Expires 2/20/15 | United States | 45 | 675 | |||
Health Care REIT Inc., December Strike Price, $52.50, | ||||||
Expires 12/20/14 | United States | 30 | 675 | |||
Spirit Realty Capital Inc., January Strike Price, $10.00, | ||||||
Expires 1/17/15 | United States | 43 | 430 | |||
1,780 | ||||||
Software 0.0%† | ||||||
VMware Inc., A, January Strike Price, $80.00, | ||||||
Expires 1/17/15 | United States | 56 | 3,640 | |||
VMware Inc., A, January Strike Price, $85.00, | ||||||
Expires 1/17/15 | United States | 9 | 1,611 | |||
5,251 | ||||||
Specialty Retail 0.0%† | ||||||
PetSmart Inc., January Strike Price, $67.50, Expires 1/17/15 | United States | 20 | 60 | |||
Technology Hardware, Storage & Peripherals 0.0%† | ||||||
Nokia OYJ, A, December Strike Price, 6.20 EUR, | ||||||
Expires 12/19/14 | Finland | 574 | 2,143 | |||
Notional | ||||||
Counterparty | Amount* | |||||
Puts – Over-the-Counter | ||||||
Currency Options 0.0%† | ||||||
CNY/USD, February Strike Price, 6.20 CNY, | ||||||
Expires 2/03/15 | China | DBFX | 6,200,000 | CNY | 4,670 | |
COP/USD, January Strike Price, 2,122.00 COP, | ||||||
Expires 1/08/15 | Colombia | CITI | 1,061,000,000 | COP | 23,743 | |
JPY/USD, January Strike Price, 114.85 JPY, | ||||||
Expires 1/08/15 | Japan | BOFA | 172,275,000 | JPY | 51,813 | |
KRW/USD, January Strike Price, 1,095.00 KRW, | ||||||
Expires 1/08/15 | South Korea | DBFX | 876,000,000 | KRW | 16,673 | |
KRW/USD, January Strike Price, 1,175.00 KRW, | ||||||
Expires 1/08/15 | South Korea | DBFX | 940,000,000 | KRW | 1,054 | |
ZAR/USD, January Strike Price, 11.39 ZAR, Expires 1/08/15 | South Africa | DBFX | 5,695,000 | ZAR | 3,663 | |
101,616 | ||||||
Total Options Purchased (Cost $1,625,515) | 1,022,425 | |||||
Total Investments before Short Term | ||||||
Investments (Cost $361,485,124) | 388,456,356 |
50 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||||
Principal | |||||||
Country | Amount* | Value | |||||
Short Term Investments 0.0%† | |||||||
U.S. Government and Agency Securities (Cost $139,980) 0.0%† | |||||||
oU.S. Treasury Bills, 4/09/15 | United States | 140,000 | $ | 139,979 | |||
Total Investments before Money Market Funds and Repurchase | |||||||
Agreements (Cost $361,625,104) | 388,596,335 | ||||||
Shares | |||||||
Money Market Funds (Cost $43,868,326) 8.8% | |||||||
p,qDreyfus Government Cash Management, Institutional Shares, 0.01% | United States | 43,868,326 | 43,868,326 | ||||
Principal | |||||||
Amount* | |||||||
Repurchase Agreement (Cost $19,644,487) 3.9% | |||||||
rJoint Repurchase Agreement, 0.069%, 12/01/14 | |||||||
(Maturity Value $19,644,599), | United States | 19,644,487 | 19,644,487 | ||||
BNP Paribas Securities Corp. (Maturity Value $4,293,916) | |||||||
Credit Suisse Securities (USA) LLC (Maturity Value $2,146,958) | |||||||
HSBC Securities (USA) Inc. (Maturity Value $9,017,264) | |||||||
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $4,186,461) | |||||||
Collateralized by U.S. Government Agency Securities, | |||||||
0.102% - 1.50%, 1/20/15 - 6/05/17; U.S. Government Agency Securities, zero | |||||||
cpn., 10/09/17; U.S. Government Agency Securities, Strips, 6/01/17; U.S. | |||||||
Treasury Bonds, 3.625%, 2/15/44; U.S. Treasury Notes, 1.50% - 3.625%, | |||||||
9/30/16 - 11/15/22; and U.S. Treasury Notes, Index Linked, 0.125%, 7/15/22 | |||||||
(valued at $20,046,262). | |||||||
Total Investments (Cost $425,137,917) 90.7% | 452,109,148 | ||||||
Options Written (0.0)%† | (167,865 | ) | |||||
Securities Sold Short (27.8)% | (138,604,420 | ) | |||||
Other Assets, less Liabilities 37.1% | 185,309,936 | ||||||
Net Assets 100.0% | $ | 498,646,799 | |||||
Number of | |||||||
Contracts | |||||||
sOptions Written (0.0)%† | |||||||
Calls – Exchange-Traded | |||||||
Banks(0.0)%† | |||||||
Commerzbank AG, December Strike Price, 13.50 EUR, Expires 12/19/14 | Germany | 9 | $ | (79 | ) | ||
Diversified Telecommunication Services (0.0)%† | |||||||
AT&T Inc., June Strike Price, $37.00, Expires 6/19/15 | United States | 102 | (6,834 | ) | |||
Electrical Equipment (0.0)%† | |||||||
Alstom SA, March Strike Price, 30.00 EUR, Expires 3/20/15 | France | 41 | (2,908 | ) | |||
Hotels, Restaurants & Leisure (0.0)%† | |||||||
Bally Technologies Inc., January Strike Price, $80.00, Expires 1/17/15 | United States | 35 | (11,550 | ) | |||
Burger King Worldwide Inc., January Strike Price, $40.00, Expires 1/17/15 | United States | 13 | (442 | ) | |||
(11,992 | ) |
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51
FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Number of | |||||
Country | Contracts | Value | |||
sOptions Written (continued) | |||||
Calls – Exchange-Traded (continued) | |||||
Internet & Catalog Retail (0.0)%† | |||||
Netflix Inc., January Strike Price, $350.00, Expires 1/17/15 | United States | 4 | $ | (6,440 | ) |
Multiline Retail (0.0)%† | |||||
Dollar General Corp., February Strike Price, $70.00, Expires 2/20/15 | United States | 26 | (8,060 | ) | |
Oil, Gas & Consumable Fuels (0.0)%† | |||||
Cheniere Energy Inc., December Strike Price, $85.00, Expires 12/20/14 | United States | 50 | (50 | ) | |
Specialty Retail (0.0)%† | |||||
Best Buy Co. Inc., February Strike Price, $41.00, Expires 2/20/15 | United States | 98 | (18,130 | ) | |
PetSmart Inc., January Strike Price, $77.50, Expires 1/17/15 | United States | 10 | (2,980 | ) | |
(21,110 | ) | ||||
Puts – Exchange-Traded | |||||
Diversified Financial Services (0.0)%† | |||||
S&P 500 Index, December Strike Price, $1,750.00, Expires 12/20/14 | United States | 9 | (630 | ) | |
S&P 500 Index, December Strike Price, $1,750.00, Expires 12/31/14 | United States | 10 | (1,150 | ) | |
S&P 500 Index, December Strike Price, $1,850.00, Expires 12/31/14 | United States | 170 | (41,650 | ) | |
(43,430 | ) | ||||
Health Care Equipment & Supplies (0.0)%† | |||||
Covidien PLC, January Strike Price, $72.50, Expires 1/17/15 | United States | 264 | (6,600 | ) | |
Machinery (0.0)%† | |||||
Terex Corp., January Strike Price, $25.00, Expires 1/17/15 | United States | 35 | (1,050 | ) | |
Media (0.0)%† | |||||
Time Warner Cable Inc., January Strike Price, $115.00, Expires 1/17/15 | United States | 14 | (770 | ) | |
Time Warner Cable Inc., January Strike Price, $120.00, Expires 1/17/15 | United States | 74 | (7,030 | ) | |
Time Warner Cable Inc., April Strike Price, $120.00, Expires 4/17/15 | United States | 85 | (27,625 | ) | |
(35,425 | ) | ||||
Multiline Retail (0.0)%† | |||||
Dollar General Corp., February Strike Price, $55.00, Expires 2/20/15 | United States | 26 | (2,470 | ) | |
Technology Hardware, Storage & Peripherals (0.0)%† | |||||
Hewlett-Packard Co., February Strike Price, $34.00, Expires 2/20/15 | United States | 35 | (875 | ) | |
Nokia OYJ, A, March Strike Price, 6.00 EUR, Expires 3/20/15 | Finland | 98 | (1,951 | ) | |
Nokia OYJ, A, March Strike Price, 6.20 EUR, Expires 3/20/15 | Finland | 229 | (5,985 | ) | |
(8,811 | ) | ||||
Wireless Telecommunication Services (0.0)%† | |||||
T-Mobile US Inc., January Strike Price, $27.00, Expires 1/17/15 | United States | 129 | (7,611 | ) |
52 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||
Notional | ||||||
Country | Counterparty | Amount* | Value | |||
sOptions Written (continued) | ||||||
Puts – Over-the-Counter | ||||||
Currency Options (0.0)%† | ||||||
KRW/USD, January Strike Price, 1,150.00 KRW, | ||||||
Expires 1/08/15 | South Korea | DBFX | 1,840,000,000 KRW | $ | (4,995 | ) |
Total Options Written | ||||||
(Premiums Received $723,720) | (167,865 | ) | ||||
Shares | ||||||
tSecurities Sold Short (27.8)% | ||||||
Common Stocks (10.8)% | ||||||
Aerospace & Defense (0.1)% | ||||||
B/E Aerospace Inc | United States | 1,722 | (134,092 | ) | ||
Bombardier Inc., B | Canada | 94,133 | (358,978 | ) | ||
Digitalglobe Inc | United States | 4,146 | (111,984 | ) | ||
(605,054 | ) | |||||
Airlines (0.4)% | ||||||
Copa Holdings SA, A | Panama | 1,293 | (144,700 | ) | ||
Delta Air Lines Inc | United States | 1,379 | (64,358 | ) | ||
Hawaiian Holdings Inc | United States | 58,376 | (1,184,449 | ) | ||
Norwegian Air Shuttle AS | Norway | 8,074 | (303,854 | ) | ||
Virgin America Inc | United States | 3,067 | (115,564 | ) | ||
(1,812,925 | ) | |||||
Banks (0.0)%† | ||||||
Zions Bancorporation | United States | 5,916 | (166,003 | ) | ||
Beverages (0.0)%† | ||||||
PepsiCo Inc | United States | 975 | (97,597 | ) | ||
Biotechnology (0.3)% | ||||||
Acorda Therapeutics Inc | United States | 7,166 | (261,201 | ) | ||
Aegerion Pharmaceuticals Inc | United States | 7,650 | (161,186 | ) | ||
AMAG Pharmaceuticals Inc | United States | 11,230 | (417,756 | ) | ||
Anacor Pharmaceuticals Inc | United States | 3,112 | (107,302 | ) | ||
Mannkind Corp | United States | 7,183 | (44,175 | ) | ||
Tesaro Inc | United States | 7,095 | (244,848 | ) | ||
Vertex Pharmaceuticals Inc | United States | 1,106 | (130,375 | ) | ||
(1,366,843 | ) | |||||
Building Products (0.0)%† | ||||||
Griffon Corp | United States | 17,693 | (220,278 | ) | ||
Capital Markets (0.1)% | ||||||
FXCM Inc., A | United States | 13,619 | (219,266 | ) | ||
Prospect Capital Corp | United States | 11,625 | (109,624 | ) | ||
(328,890 | ) | |||||
Chemicals (0.1)% | ||||||
Albemarle Corp | United States | 2,459 | (145,180 | ) | ||
Ecolab Inc | United States | 2,097 | (228,468 | ) | ||
(373,648 | ) |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Country | Shares | Value | |||
tSecurities Sold Short (continued) | |||||
Common Stocks (continued) | |||||
Communications Equipment (0.0)%† | |||||
Alcatel-Lucent | France | 10,188 | $ | (36,300 | ) |
Construction & Engineering (0.1)% | |||||
Chicago Bridge & Iron Co. NV | United States | 2,611 | (130,628 | ) | |
Fluor Corp | United States | 6,503 | (403,121 | ) | |
(533,749 | ) | ||||
Construction Materials (0.1)% | |||||
Cemex SAB de CV, ADR | Mexico | 20,070 | (251,076 | ) | |
Consumer Finance (0.0)%† | |||||
Ezcorp Inc., A | United States | 11,158 | (121,511 | ) | |
Diversified Telecommunication Services (0.4)% | |||||
AT&T Inc | United States | 35,962 | (1,272,336 | ) | |
Iridium Communications Inc | United States | 10,245 | (97,840 | ) | |
Telecom Italia SpA | Italy | 104,114 | (117,390 | ) | |
Verizon Communications Inc | United States | 6,284 | (317,907 | ) | |
(1,805,473 | ) | ||||
Electric Utilities (0.2)% | |||||
NextEra Energy Inc | United States | 7,140 | (745,345 | ) | |
Pepco Holdings Inc | United States | 12,271 | (337,452 | ) | |
(1,082,797 | ) | ||||
Electrical Equipment (0.1)% | |||||
Ametek Inc | United States | 5,238 | (266,928 | ) | |
Eaton Corp. PLC | United States | 2,055 | (139,391 | ) | |
(406,319 | ) | ||||
Electronic Equipment, Instruments & Components (0.2)% | |||||
Trimble Navigation Ltd | United States | 2,871 | (80,747 | ) | |
Vishay Intertechnology Inc | United States | 84,634 | (1,173,873 | ) | |
(1,254,620 | ) | ||||
Energy Equipment & Services (0.2)% | |||||
Carbo Ceramics Inc | United States | 2,708 | (103,012 | ) | |
Core Laboratories NV | United States | 3,305 | (425,783 | ) | |
Diamond Offshore Drilling | United States | 4,195 | (123,207 | ) | |
Halliburton Co | United States | 5,805 | (244,971 | ) | |
SEACOR Holdings Inc | United States | 660 | (46,953 | ) | |
U.S. Silica Holdings Inc | United States | 1,817 | (57,090 | ) | |
(1,001,016 | ) | ||||
Food & Staples Retailing (0.2)% | |||||
Sysco Corp | United States | 8,905 | (358,515 | ) | |
Whole Foods Market Inc | United States | 8,662 | (424,698 | ) | |
(783,213 | ) | ||||
Food Products (0.3)% | |||||
Bunge Ltd | United States | 1,740 | (157,940 | ) | |
Mondelez International Inc., A | United States | 3,930 | (154,056 | ) |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Country | Shares | Value | |||
tSecurities Sold Short (continued) | |||||
Common Stocks (continued) | |||||
Food Products (continued) | |||||
Post Holdings Inc | United States | 36,216 | $ | (1,448,640 | ) |
(1,760,636 | ) | ||||
Health Care Equipment & Supplies (0.5)% | |||||
Alere Inc | United States | 4,981 | (198,692 | ) | |
Becton Dickinson and Co | United States | 930 | (130,507 | ) | |
Hologic Inc | United States | 7,804 | (209,147 | ) | |
Insulet Corp | United States | 3,353 | (156,216 | ) | |
Medtronic Inc | United States | 22,919 | (1,693,027 | ) | |
NuVasive Inc | United States | 7,167 | (314,846 | ) | |
(2,702,435 | ) | ||||
Health Care Providers & Services (0.7)% | |||||
Air Methods Corp | United States | 2,172 | (96,393 | ) | |
Amsurg Corp | United States | 2,993 | (154,349 | ) | |
Community Health Systems Inc | United States | 4,509 | (212,284 | ) | |
Kindred Healthcare Inc | United States | 7,980 | (158,722 | ) | |
Molina Healthcare Inc | United States | 21,366 | (1,092,230 | ) | |
Omnicare Inc | United States | 10,642 | (748,345 | ) | |
Universal Health Services Inc., B | United States | 2,188 | (228,909 | ) | |
WellPoint Inc | United States | 7,228 | (924,534 | ) | |
(3,615,766 | ) | ||||
Hotels, Restaurants & Leisure (0.4)% | |||||
500.com Ltd., A, ADR | China | 3,461 | (73,027 | ) | |
Burger King Worldwide Inc | United States | 1,056 | (38,375 | ) | |
Marriott International Inc., A | United States | 4,094 | (322,566 | ) | |
McDonald’s Corp | United States | 1,608 | (155,671 | ) | |
MGM Resorts International | United States | 8,645 | (197,193 | ) | |
Panera Bread Company, A | United States | 1,871 | (313,205 | ) | |
Penn National Gaming Inc | United States | 27,781 | (394,490 | ) | |
Starbucks Corp | United States | 7,206 | (585,199 | ) | |
(2,079,726 | ) | ||||
Household Durables (0.4)% | |||||
DR Horton Inc | United States | 7,650 | (194,999 | ) | |
Jarden Corp | United States | 30,586 | (1,350,372 | ) | |
PulteGroup Inc | United States | 11,969 | (258,889 | ) | |
(1,804,260 | ) | ||||
Industrial Conglomerates (0.1)% | |||||
General Electric Co | United States | 12,581 | (333,271 | ) | |
Internet & Catalog Retail (0.1)% | |||||
Amazon.com Inc | United States | 604 | (204,539 | ) | |
Orbitz Worldwide Inc | United States | 1,236 | (9,443 | ) | |
Priceline Group Inc | United States | 163 | (189,111 | ) | |
(403,093 | ) | ||||
Internet Software & Services (0.3)% | |||||
21vianet Group Inc., ADR | China | 677 | (12,741 | ) | |
58.com Inc., ADR | China | 1,020 | (49,766 | ) |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Country | Shares | Value | |||
tSecurities Sold Short (continued) | |||||
Common Stocks (continued) | |||||
Internet Software & Services (continued) | |||||
Akamai Technologies Inc | United States | 909 | $ | (58,730 | ) |
ebay Inc | United States | 3,984 | (218,642 | ) | |
Linkedin Corp., A | United States | 114 | (25,795 | ) | |
MercadoLibre Inc | Argentina | 4,396 | (619,572 | ) | |
Monster Worldwide Inc | United States | 12,577 | (54,710 | ) | |
Pandora Media Inc | United States | 8,678 | (170,609 | ) | |
SINA Corp | China | 229 | (8,691 | ) | |
Yahoo! Inc | United States | 2,554 | (132,144 | ) | |
Yelp Inc | United States | 5,197 | (296,697 | ) | |
(1,648,097 | ) | ||||
IT Services (0.2)% | |||||
Euronet Worldwide Inc | United States | 1,776 | (103,132 | ) | |
International Business Machines Corp | United States | 6,631 | (1,075,349 | ) | |
Sabre Corp | United States | 3,489 | (65,384 | ) | |
(1,243,865 | ) | ||||
Leisure Equipment & Products (0.1)% | |||||
Mattel Inc | United States | 9,668 | (305,025 | ) | |
Machinery (0.1)% | |||||
Altra Industrial Motion Corp | United States | 5,442 | (166,689 | ) | |
Caterpillar Inc | United States | 1,787 | (179,772 | ) | |
Trinity Industries Inc | United States | 6,291 | (201,689 | ) | |
(548,150 | ) | ||||
Media (0.9)% | |||||
Charter Communications Inc., A | United States | 1,651 | (280,175 | ) | |
Comcast Corp., A | United States | 48,966 | (2,793,020 | ) | |
Sirius XM Holdings Inc | United States | 448,697 | (1,628,770 | ) | |
(4,701,965 | ) | ||||
Metals & Mining (0.2)% | |||||
Alcoa Inc | United States | 420 | (7,262 | ) | |
Freeport-McMoRan Copper & Gold Inc | United States | 8,383 | (225,084 | ) | |
Horsehead Holding Corp | United States | 35,912 | (560,945 | ) | |
(793,291 | ) | ||||
Multi-Utilities (0.1)% | |||||
Dominion Resources Inc | United States | 4,976 | (361,009 | ) | |
Multiline Retail (0.1)% | |||||
Kohl’s Corp | United States | 5,477 | (326,539 | ) | |
Macy’s Inc | United States | 1,287 | (83,539 | ) | |
(410,078 | ) | ||||
Oil, Gas & Consumable Fuels (0.5)% | |||||
Alon USA Energy Inc | United States | 8,291 | (115,742 | ) | |
Alpha Natural Resources Inc | United States | 4,108 | (8,545 | ) | |
Amyris Inc | United States | 2,305 | (6,362 | ) | |
Cheniere Energy Inc | United States | 1,773 | (117,000 | ) | |
Chevron Corp | United States | 4,194 | (456,601 | ) |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Country | Shares | Value | |||
tSecurities Sold Short (continued) | |||||
Common Stocks (continued) | |||||
Oil, Gas & Consumable Fuels (continued) | |||||
Cobalt International Energy Inc | United States | 7,740 | $ | (69,660 | ) |
Enterprise Products Partners | United States | 5,234 | (195,437 | ) | |
EOG Resources Inc | United States | 1,191 | (103,283 | ) | |
Green Plains Inc | United States | 5,903 | (177,149 | ) | |
Kinder Morgan Inc | United States | 4,165 | (172,223 | ) | |
Oneok Inc | United States | 6,023 | (326,206 | ) | |
Pioneer Natural Resources Co | United States | 886 | (126,902 | ) | |
Rice Energy Inc | United States | 2,097 | (52,215 | ) | |
Sanchez Energy Corp | United States | 29,454 | (332,536 | ) | |
Scorpio Tankers Inc | United States | 24,948 | (205,821 | ) | |
Ship Finance International Ltd | Norway | 9,923 | (164,722 | ) | |
(2,630,404 | ) | ||||
Pharmaceuticals (0.3)% | |||||
Actavis PLC | United States | 4,144 | (1,121,408 | ) | |
Depomed Inc | United States | 18,255 | (282,770 | ) | |
Nektar Therapeutics | United States | 2,974 | (49,576 | ) | |
(1,453,754 | ) | ||||
Professional Services (0.1)% | |||||
51job Inc., ADR | China | 7,592 | (279,006 | ) | |
CBIZ Inc | United States | 15,167 | (131,195 | ) | |
(410,201 | ) | ||||
Real Estate Investment Trusts (REITs) (1.5)% | |||||
Boston Properties Inc | United States | 417 | (54,060 | ) | |
Brandywine Realty Trust | United States | 7,453 | (115,223 | ) | |
Digital Realty Trust Inc | United States | 3,646 | (256,204 | ) | |
Duke Realty Corp | United States | 9,606 | (186,741 | ) | |
Equity One Inc | United States | 6,301 | (152,673 | ) | |
Equity Residential | United States | 3,893 | (275,780 | ) | |
Federal Realty Investment Trust | United States | 814 | (107,985 | ) | |
General Growth Properties Inc | United States | 2,184 | (58,444 | ) | |
Government Properties Income Trust | United States | 17,808 | (404,598 | ) | |
Gramercy Property Trust Inc | United States | 42,735 | (252,137 | ) | |
HCP Inc | United States | 15,720 | (704,256 | ) | |
Health Care REIT Inc | United States | 11,625 | (856,298 | ) | |
Highwoods Properties Inc | United States | 5,352 | (230,992 | ) | |
Host Hotels & Resorts Inc | United States | 12,886 | (299,471 | ) | |
Kimco Realty Corp | United States | 14,535 | (369,916 | ) | |
National Health Investors Inc | United States | 2,318 | (153,637 | ) | |
National Retail Properties | United States | 7,577 | (291,942 | ) | |
Piedmont Office Realty Trust Inc., A | United States | 10,556 | (198,453 | ) | |
Ramco-Gershenson Properties Trust | United States | 11,006 | (197,007 | ) | |
Realty Income Corp | United States | 6,843 | (317,926 | ) | |
Regency Centers Corp | United States | 127 | (7,808 | ) | |
Senior Housing Prop Trust | United States | 6,691 | (150,748 | ) | |
Spirit Realty Capital Inc | United States | 24,798 | (290,385 | ) | |
Starwood Property Trust Inc | United States | 27,908 | (671,466 | ) | |
UDR Inc | United States | 9,378 | (288,655 | ) |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Country | Shares | Value | |||
tSecurities Sold Short (continued) | |||||
Common Stocks (continued) | |||||
Real Estate Investment Trusts (REITs) (continued) | |||||
Weingarten Realty Investors | United States | 12,096 | $ | (440,294 | ) |
(7,333,099 | ) | ||||
Road & Rail (0.2)% | |||||
Avis Budget Group Inc | United States | 3,052 | (183,578 | ) | |
Canadian Pacific Railway Ltd | Canada | 3,145 | (607,488 | ) | |
(791,066 | ) | ||||
Semiconductors & Semiconductor Equipment (0.3)% | |||||
Canadian Solar Inc | United States | 1,900 | (46,151 | ) | |
Intel Corp | United States | 2,486 | (92,604 | ) | |
Lam Research Corp | United States | 2,660 | (219,822 | ) | |
NVIDIA Corp | United States | 34,152 | (716,167 | ) | |
NXP Semiconductors NV | Netherlands | 368 | (28,634 | ) | |
Photronics Inc | United States | 12,727 | (114,798 | ) | |
Rudolph Technologies Inc | United States | 8,258 | (75,808 | ) | |
(1,293,984 | ) | ||||
Software (0.4)% | |||||
Electronic Arts Inc | United States | 5,823 | (255,804 | ) | |
NetSuite Inc | United States | 570 | (60,278 | ) | |
Take-Two Interactive Software Inc | United States | 49,956 | (1,381,783 | ) | |
TiVo Inc | United States | 29,706 | (361,819 | ) | |
(2,059,684 | ) | ||||
Specialty Retail (0.1)% | |||||
Barnes & Noble Inc | United States | 11,111 | (259,553 | ) | |
Dick’s Sporting Goods Inc | United States | 3,019 | (152,792 | ) | |
PetSmart Inc | United States | 1,500 | (118,140 | ) | |
(530,485 | ) | ||||
Technology Hardware, Storage & Peripherals (0.1)% | |||||
Electronics For Imaging Inc | United States | 8,002 | (355,689 | ) | |
SanDisk Corp | United States | 1,000 | (103,460 | ) | |
Violin Memory Inc | United States | 32,265 | (169,068 | ) | |
(628,217 | ) | ||||
Textiles, Apparel & Luxury Goods (0.3)% | |||||
Iconix Brand Group Inc | United States | 36,141 | (1,460,458 | ) | |
Tobacco (0.0)%† | |||||
Universal Corp | United States | 5,047 | (201,830 | ) | |
Trading Companies & Distributors (0.0)%† | |||||
Kaman Corp | United States | 5,142 | (202,286 | ) | |
Transportation Infrastructure (0.0)%† | |||||
Atlantia SpA | Italy | 2,554 | (64,459 | ) | |
Total Common Stocks (Proceeds $52,404,813) | (54,017,906 | ) |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Principal | |||||
Country | Amount* | Value | |||
tSecurities Sold Short (continued) | |||||
Exchange Traded Funds (15.5)% | |||||
Consumer Discretionary Select Sector SPDR Fund | United States | 5,247 | $ | (376,787 | ) |
Consumer Staples Select Sector SPDR Fund | United States | 44,630 | (2,200,259 | ) | |
Energy Select Sector SPDR Fund | United States | 6,528 | (521,065 | ) | |
Health Care Select Sector SPDR Fund | United States | 56,194 | (3,910,540 | ) | |
iShares 20+ Year Treasury Bond ETF | United States | 4,155 | (508,946 | ) | |
iShares Core S&P Small-Cap ETF | United States | 24,400 | (2,715,720 | ) | |
iShares Global Utilities ETF | United States | 8,445 | (422,588 | ) | |
iShares MSCI Canada ETF | Canada | 17,250 | (516,465 | ) | |
iShares MSCI Emerging Markets ETF | United States | 11,054 | (458,741 | ) | |
iShares MSCI India ETF | India | 6,844 | (218,803 | ) | |
iShares MSCI South Korea Capped ETF | South Korea | 10,620 | (604,066 | ) | |
iShares MSCI Sweden ETF | Sweden | 6,950 | (233,033 | ) | |
iShares MSCI Taiwan ETF | Taiwan | 36,995 | (584,891 | ) | |
iShares MSCI Finland Capped ETF | Finland | 28,000 | (933,800 | ) | |
iShares Nasdaq Biotechnology ETF | United States | 11,700 | (3,555,630 | ) | |
iShares North American Tech ETF | United States | 4,465 | (462,435 | ) | |
iShares North American Tech-Software ETF | United States | 16,095 | (1,495,869 | ) | |
iShares PHLX Semiconductor ETF | United States | 24,195 | (2,260,781 | ) | |
iShares Russell 2000 ETF | United States | 131,704 | (15,379,076 | ) | |
iShares Russell 2000 Growth ETF | United States | 19,845 | (2,751,906 | ) | |
iShares Russell Mid-Cap Growth ETF | United States | 1,300 | (122,005 | ) | |
iShares S&P Small-Cap 600 Growth ETF | United States | 1,700 | (202,674 | ) | |
iShares U.S. Consumer Goods ETF | United States | 3,900 | (417,495 | ) | |
iShares U.S. Real Estate ETF | United States | 139 | (10,706 | ) | |
Market Vectors Russia ETF | Russia | 11,231 | (219,566 | ) | |
PowerShares Dynamic Retail Portfolio | United States | 22,360 | (833,505 | ) | |
PowerShares Nasdaq Internet Portfolio | United States | 8,600 | (595,378 | ) | |
PowerShares QQQ Trust Series 1 | United States | 13,158 | (1,394,879 | ) | |
SPDR S&P 500 ETF Trust | United States | 151,090 | (31,305,848 | ) | |
SPDR S&P Retail ETF | United States | 2,332 | (219,931 | ) | |
SPDR S&P Transportation ETF | United States | 4,400 | (469,304 | ) | |
Utilities Select Sector SPDR Fund | United States | 7,030 | (323,380 | ) | |
Vanguard Consumer Staples ETF | United States | 5,610 | (719,258 | ) | |
Vanguard REIT ETF | United States | 1,782 | (143,576 | ) | |
Vanguard Small-Cap Growth ETF | United States | 1,000 | (126,260 | ) | |
Total Exchange Traded Funds (Proceeds $72,963,985) | (77,215,166 | ) | |||
Corporate Notes (0.8)% | |||||
Apparel (0.0)%† | |||||
The William Carter Co., 5.25%, 8/15/21 | United States | 150,000 | (156,375 | ) | |
Diversified Financial Services (0.1)% | |||||
fAmerican Achievement Corp., 144A, 10.875%, 4/15/16 | United States | 515,000 | (505,344 | ) | |
Entertainment (0.2)% | |||||
fScientific Games International Inc., 144A, 10.00%, 12/01/22 | United States | 920,000 | (864,800 | ) | |
Food & Staples Retailing (0.0)%† | |||||
Safeway Inc., 7.25%, 2/01/31 | United States | 206,000 | (205,637 | ) | |
Hotels Restaurants & Leisure (0.5)% | |||||
f1011778 BC ULC/New Red Finance Inc., 144A, 6.00%, 4/01/22 | Canada | 2,180,000 | (2,245,400 | ) | |
Total Corporate Notes (Proceeds $3,848,860) | (3,977,556 | ) |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||
Principal | |||||
Country | Amount* | Value | |||
tSecurities Sold Short (continued) | |||||
U.S. Government and Agency Securities (0.7)% | |||||
U.S. Treasury Notes, | |||||
1.50%, 10/31/19 | United States | 2,653,000 | $ | (2,655,695 | ) |
2.25%, 11/15/24 | United States | 733,000 | (738,097 | ) | |
Total U.S. Government and Agency Securities | |||||
(Proceeds $3,365,723) | (3,393,792 | ) | |||
Total Securities Sold Short (Proceeds $132,583,381) | $ | (138,604,420 | ) |
†Rounds to less than 0.1% of net assets.
*The principal/notional amount is stated in U.S. dollars unless otherwise indicated.
aSecurity or a portion of the security has been pledged as collateral for securities sold short, open futures, forward, swap and written options contracts. At November 30, 2014,
the aggregate value of these securities and/or cash pledged as collateral was $238,297,786, representing 47.79% of net assets.
bNon-income producing.
cSecurity has been deemed illiquid because it may not be able to be sold within seven days.
dContingent distributions represent the right to receive additional distributions, if any, during the reorganization of the underlying company.
eA portion or all of the security is held in connection with written option contracts at period end.
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. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At
November 30, 2014, the net value of these securities was $44,290,590, representing 8.89% of net assets.
gThe coupon rate shown represents the rate at period end.
hSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States.
Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption
from registration. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At November 30, 2014, the aggregate value of these
securities was $5,271,508, representing 1.06% of net assets.
iIncome may be received in additional securities and/or cash.
jPerpetual security with no stated maturity date.
kSee Note 7 regarding credit risk and defaulted securities.
lSee Note 1(h) regarding senior floating rate interests.
mSee Note 8 regarding unfunded loan commitments.
nPrincipal amount is stated in 100 Mexican Peso Units.
oThe security is traded on a discount basis with no stated coupon rate.
pThe rate shown is the annualized seven-day yield at period end.
qA portion or all of the security is owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(g).
rSee Note 1(c) regarding joint repurchase agreement.
sSee Note 1(d) regarding written options.
tSee Note 1(f) regarding securities sold short.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||||||
At November 30, 2014, the Fund had the following futures contracts outstanding. See Note 1(d). | ||||||||||
Futures Contracts | ||||||||||
Number of | Notional | Expiration | Unrealized | Unrealized | ||||||
Description | Type | Contracts | Value | Date | Appreciation | Depreciation | ||||
Commodity Contractsa | ||||||||||
Aluminum | Short | 32 | $ | 1,607,600 | 12/15/14 | $ | — | $ | (8,135 | ) |
Aluminum | Long | 32 | 1,607,600 | 12/15/14 | — | (59,596 | ) | |||
Brent Crude Oil | Short | 55 | 3,858,250 | 12/16/14 | 858,536 | — | ||||
Cocoa | Long | 40 | 1,186,176 | 3/16/15 | 9,365 | — | ||||
Coffee | Long | 11 | 773,231 | 3/19/15 | — | (22,080 | ) | |||
Copper | Long | 10 | 1,602,250 | 12/15/14 | — | (146,421 | ) | |||
Copper | Short | 10 | 1,602,250 | 12/15/14 | 116,012 | — | ||||
Corn | Short | 34 | 660,875 | 3/13/15 | — | (12,730 | ) | |||
Natural Gas | Long | 1 | 40,880 | 12/29/14 | — | (1,632 | ) | |||
Silver | Short | 32 | 2,488,960 | 3/27/15 | 126,971 | — | ||||
Soybean Meal | Short | 2 | 70,220 | 3/13/15 | 1,035 | — | ||||
Soybean Oil | Short | 16 | 311,136 | 3/13/15 | 10,324 | — | ||||
Soybeans | Short | 19 | 971,375 | 3/13/15 | — | (7,014 | ) | |||
Sugar | Short | 4 | 69,843 | 2/27/15 | 818 | — | ||||
Wheat | Short | 12 | 347,100 | 3/13/15 | — | (20,182 | ) | |||
WTI Crude Oil | Short | 10 | 661,500 | 12/19/14 | 112,018 | — | ||||
17,859,246 | 1,235,079 | (277,790 | ) | |||||||
Equity Contracts | ||||||||||
CAC40 10 Euroa | Long | 20 | 1,090,929 | 12/19/14 | 15,797 | — | ||||
DAX Index | Short | 1 | 310,332 | 12/19/14 | — | (22,844 | ) | |||
DJIA Mini E-CBOT Indexa | Long | 105 | 9,351,300 | 12/19/14 | 403,449 | — | ||||
Euro STOXX 50 Indexa | Long | 87 | 3,512,327 | 12/19/14 | 119,604 | — | ||||
Euro STOXX 50 Index | Short | 2 | 80,743 | 12/19/14 | — | (8,755 | ) | |||
Euro STOXX Bank Index | Short | 21 | 188,691 | 12/19/14 | — | (9,015 | ) | |||
FTSE 100 Indexa | Short | 21 | 2,210,800 | 12/19/14 | — | (32,391 | ) | |||
Hang Seng Indexa | Long | 16 | 2,473,791 | 12/30/14 | — | (1,168 | ) | |||
NASDAQ 100 E-Mini Indexa | Long | 62 | 5,379,430 | 12/19/14 | 420,082 | — | ||||
Nikkei 225 Indexa | Long | 69 | 5,069,340 | 12/11/14 | 561,162 | — | ||||
Russell 2000 Mini Indexa | Long | 22 | 2,577,520 | 12/19/14 | 91,009 | — | ||||
S&P 500 E-Mini Indexa | Long | 28 | 2,892,820 | 12/19/14 | 156,429 | — | ||||
S&P 500 E-Mini Index | Short | 31 | 3,202,765 | 12/19/14 | — | (154,487 | ) | |||
TOPIX Indexa | Long | 42 | 4,991,238 | 12/11/14 | 293,822 | — | ||||
43,332,026 | 2,061,354 | (228,660 | ) | |||||||
Interest Rate Contracts | ||||||||||
3 Month Euribora | Long | 274 | 85,158,735 | 3/14/16 | 44,991 | — | ||||
90 Day Eurodollara | Long | 550 | 136,159,375 | 3/14/16 | 320,001 | — | ||||
90 Day Sterlinga | Long | 412 | 79,735,040 | 3/16/16 | 436,480 | — | ||||
Australian 10 Yr. Bonda | Long | 87 | 9,277,251 | 12/15/14 | 358,577 | — | ||||
Euro-Bunda | Long | 8 | 1,521,774 | 12/08/14 | — | (1,203 | ) | |||
JBG 10 Yr. Minia | Long | 130 | 16,094,195 | 12/10/14 | 130,996 | — | ||||
Long Gilta | Long | 22 | 4,044,446 | 3/27/15 | 39,052 | — | ||||
U.S. Long Bonda | Long | 114 | 16,259,250 | 3/20/15 | 234,096 | — | ||||
U.S. Long Bond | Short | 2 | 285,250 | 3/20/15 | — | (3,986 | ) | |||
U.S. Treasury 5 Yr. Note | Short | 10 | 1,194,922 | 3/31/15 | — | (5,097 | ) | |||
U.S. Treasury 10 Yr. Note | Short | 9 | 1,143,422 | 3/20/15 | — | (8,243 | ) | |||
350,873,660 | 1,564,193 | (18,529 | ) | |||||||
Total | $ | 412,064,932 | 4,860,626 | (524,979 | ) | |||||
Net unrealized appreciation (depreciation) | $ | 4,335,647 | ||||||||
aA portion or all of the contract is owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(g). |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||||||||
At November 30, 2014, the Fund had the following forward exchange contracts outstanding. See Note 1(d). | |||||||||||
Forward Exchange Contracts | |||||||||||
Contract | Settlement | Unrealized | Unrealized | ||||||||
Currency | Counterpartya Type | Quantity | Amount | Date | Appreciation | Depreciation | |||||
Australian Dollar | BNYM | Sell | 41,924 | $ | 35,811 | 12/01/14 | $ | 120 | $ | — | |
Euro | DBFX | Sell | 100,000 | 127,100 | 12/01/14 | 2,650 | — | ||||
Euro | CSFB | Sell | 130,000 | 165,694 | 12/01/14 | 3,909 | — | ||||
Euro | DBFX | Buy | 100,000 | 125,110 | 12/01/14 | — | (660 | ) | |||
Euro | CSFB | Buy | 130,000 | 162,606 | 12/01/14 | — | (821 | ) | |||
British Pound | BOFA | Sell | 4,858 | 7,641 | 12/01/14 | 43 | — | ||||
British Pound | BNYM | Buy | 86,651 | 135,462 | 12/01/14 | 65 | — | ||||
Hong Kong Dollar | BNYM | Sell | 9,120 | 1,175 | 12/01/14 | — | (1 | ) | |||
Japanese Yen | BNYM | Sell | 213,300 | 1,796 | 12/01/14 | — | (1 | ) | |||
Mexican Peso | CSFB | Sell | 13,310,000 | 990,095 | 12/01/14 | 34,003 | — | ||||
Mexican Peso | CSFB | Buy | 13,310,000 | 971,228 | 12/01/14 | — | (15,136 | ) | |||
Euro | DBFX | Sell | 99,044 | 123,419 | 12/02/14 | 158 | — | ||||
Euro | BNYM | Buy | 110,641 | 137,726 | 12/02/14 | — | (33 | ) | |||
Canadian Dollar | MSCO | Sell | 91,583 | 80,090 | 12/03/14 | — | (14 | ) | |||
Malaysian Ringgit | CSFB | Sell | 970,000 | 290,376 | 12/05/14 | 3,742 | — | ||||
Taiwan Dollar | MLCO | Sell | 8,825,000 | 288,965 | 12/05/14 | 4,292 | — | ||||
Singapore Dollar | CSFB | Sell | 375,000 | 290,387 | 12/05/14 | 2,671 | — | ||||
South Korean Won | BZWS | Sell | 628,000,000 | 579,550 | 12/05/14 | 15,505 | — | ||||
Australian Dollar | CSFB | Buy | 647,000 | 554,016 | 12/08/14 | — | (3,542 | ) | |||
New Zealand Dollar | CSFB | Sell | 715,000 | 549,181 | 12/08/14 | — | (10,883 | ) | |||
Euro | CSFB | Sell | 70,000 | 87,051 | 12/10/14 | — | (69 | ) | |||
Turkish Lira | CSFB | Sell | 1,150,000 | 506,668 | 12/10/14 | — | (10,455 | ) | |||
Turkish Lira | MLCO | Sell | 445,000 | 195,863 | 12/10/14 | — | (4,241 | ) | |||
Swiss Franc | CSFB | Sell | 35,900 | 38,484 | 12/11/14 | 1,305 | — | ||||
Swiss Franc | CSFB | Buy | 35,900 | 37,662 | 12/11/14 | — | (483 | ) | |||
Colombian Peso | MLCO | Sell | 780,000,000 | 369,589 | 12/15/14 | 18,306 | — | ||||
Euro | MLCO | Sell | 100,000 | 124,681 | 12/15/14 | 221 | — | ||||
Euro | MLCO | Buy | 100,000 | 125,392 | 12/15/14 | — | (932 | ) | |||
Canadian Dollar | BNYM | Sell | 1,070,000 | 966,545 | 12/17/14 | 31,044 | — | ||||
Canadian Dollar | BNYM | Buy | 1,070,000 | 965,965 | 12/17/14 | — | (30,466 | ) | |||
Danish Krone | BNYM | Sell | 5,610,000 | 975,535 | 12/17/14 | 37,496 | — | ||||
Danish Krone | BNYM | Buy | 5,610,000 | 960,463 | 12/17/14 | — | (22,423 | ) | |||
Euro | BNYM | Sell | 2,982,206 | 3,859,269 | 12/17/14 | 147,573 | — | ||||
Euro | BNYM | Buy | 326,206 | 410,896 | 12/17/14 | — | (4,894 | ) | |||
British Pound | BNYM | Sell | 699,583 | 1,130,626 | 12/17/14 | 36,555 | (11 | ) | |||
British Pound | BNYM | Buy | 547,896 | 889,089 | 12/17/14 | — | (32,232 | ) | |||
Japanese Yen | BNYM | Sell | 18,740,000 | 175,439 | 12/17/14 | 17,495 | — | ||||
Swedish Krona | BNYM | Buy | 8,135,000 | 1,111,872 | 12/17/14 | — | (20,874 | ) | |||
Swedish Krona | BNYM | Sell | 8,135,000 | 1,141,949 | 12/17/14 | 50,951 | — | ||||
Swiss Franc | BNYM | Sell | 3,070,147 | 3,268,947 | 12/17/14 | 89,248 | (142 | ) | |||
Swiss Franc | BNYM | Buy | 1,732,697 | 1,826,341 | 12/17/14 | — | (31,736 | ) | |||
Australian Dollarb | MSCO | Sell | 12,906,723 | 11,421,348 | 12/19/14 | 449,040 | (161 | ) | |||
Australian Dollarb | MSCO | Buy | 11,686,723 | 10,420,007 | 12/19/14 | — | (484,706 | ) | |||
Canadian Dollarb | MSCO | Sell | 12,849,847 | 11,418,155 | 12/19/14 | 186,322 | (2,217 | ) | |||
Canadian Dollarb | MSCO | Buy | 4,123,847 | 3,654,551 | 12/19/14 | — | (49,251 | ) | |||
Eurob | MSCO | Sell | 16,296,971 | 20,904,087 | 12/19/14 | 621,795 | (1,377 | ) | |||
Eurob | MSCO | Buy | 11,630,971 | 14,696,062 | 12/19/14 | 1,560 | (221,389 | ) | |||
British Poundb | MSCO | Sell | 11,263,088 | 18,014,032 | 12/19/14 | 399,809 | — | ||||
British Poundb | MSCO | Buy | 7,263,088 | 11,556,641 | 12/19/14 | 936 | (198,916 | ) | |||
Japanese Yenb | MSCO | Sell | 1,250,872,400 | 11,601,071 | 12/19/14 | 1,058,038 | — | ||||
Japanese Yenb | MSCO | Buy | 1,645,368,400 | 14,896,020 | 12/19/14 | — | (1,027,951 | ) | |||
Mexican Pesob | MSCO | Buy | 55,189,920 | 4,149,400 | 12/19/14 | — | (189,869 | ) | |||
Mexican Pesob | MSCO | Sell | 59,101,920 | 4,359,505 | 12/19/14 | 119,310 | — | ||||
New Zealand Dollarb | MSCO | Buy | 3,754,792 | 2,940,559 | 12/19/14 | 9,824 | (12,814 | ) | |||
New Zealand Dollarb | MSCO | Sell | 4,877,792 | 3,888,555 | 12/19/14 | 76,149 | (3,753 | ) |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||||||||
Forward Exchange Contracts (continued) | |||||||||||
Contract | Settlement | Unrealized | Unrealized | ||||||||
Currency | Counterpartya | Type | Quantity | Amount | Date | Appreciation | Depreciation | ||||
Swiss Francb | MSCO | Sell | 11,778,639 | $ | 12,531,397 | 12/19/14 | $ | 331,556 | $ | — | |
Swiss Francb | MSCO | Buy | 5,306,639 | 5,515,858 | 12/19/14 | 6,394 | (25,844 | ) | |||
Euro | CSFB | Sell | 385,000 | 482,807 | 12/22/14 | 3,618 | — | ||||
Mexican Peso | CSFB | Sell | 102,600 | 7,526 | 12/22/14 | 166 | — | ||||
Brazilian Real | MLCO | Sell | 280,000 | 106,797 | 12/24/14 | — | (1,591 | ) | |||
Euro | CSFB | Sell | 690,000 | 860,323 | 12/29/14 | 1,483 | — | ||||
Canadian Dollar | MSCO | Sell | 983,953 | 873,645 | 12/30/14 | 13,649 | — | ||||
Canadian Dollar | MSCO | Buy | 416,470 | 369,128 | 12/30/14 | 3 | (5,127 | ) | |||
Danish Krone | BNYM | Buy | 219,585 | 280,630 | 12/30/14 | 7,312 | — | ||||
Euro | MSCO | Sell | 758,885 | 960,766 | 12/30/14 | 16,326 | (144 | ) | |||
Euro | BNYM | Sell | 6,641,000 | 8,305,899 | 12/30/14 | 39,833 | — | ||||
Euro | MSCO | Buy | 643,015 | 816,661 | 12/30/14 | 20 | (16,319 | ) | |||
British Pound | MSCO | Sell | 525,375 | 839,194 | 12/30/14 | 17,732 | (118 | ) | |||
Japanese Yen | BNYM | Sell | 96,759,000 | 822,221 | 12/30/14 | 6,502 | — | ||||
Norwegian Krone | MSCO | Buy | 2,593,828 | 390,448 | 12/30/14 | — | (22,072 | ) | |||
Norwegian Krone | BNYM | Sell | 355,000 | 52,032 | 12/30/14 | 1,615 | — | ||||
Norwegian Krone | MSCO | Sell | 591,476 | 89,273 | 12/30/14 | 5,271 | — | ||||
South African Rand | MSCO | Sell | 1,533,298 | 138,164 | 12/30/14 | 672 | (145 | ) | |||
Swedish Krona | BNYM | Sell | 1,987,000 | 268,750 | 12/30/14 | 2,261 | — | ||||
Euro | CSFB | Sell | 130,000 | 162,633 | 1/02/15 | 818 | — | ||||
Euro | DBFX | Sell | 100,000 | 125,130 | 1/02/15 | 657 | — | ||||
Euro | DBFX | Buy | 100,000 | 124,631 | 1/02/15 | — | (157 | ) | |||
Mexican Peso | CSFB | Sell | 13,310,000 | 969,064 | 1/02/15 | 15,005 | — | ||||
Canadian Dollar | BNYM | Sell | 193,356 | 177,047 | 1/15/15 | 8,115 | — | ||||
Euro | BOFA | Sell | 466,000 | 583,613 | 3/18/15 | 3,205 | — | ||||
Unrealized appreciation (depreciation) | 3,902,348 | (2,453,970 | ) | ||||||||
Net unrealized appreciation (depreciation) | $ | 1,448,378 |
aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
bA portion or all of the contract is owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(g).
At November 30, 2014, the Fund had the following credit default swap contracts outstanding. See Note 1(d).
Credit Default Swap Contracts | ||||||||||||||||||
Upfront | ||||||||||||||||||
Periodic | Premiums | |||||||||||||||||
Counterparty/ | Notional | Payment | Expiration | Paid | Unrealized | Unrealized | ||||||||||||
Description | Exchange | Amounta | Rate | Date | (Received) | Appreciation | Depreciation | Value | Ratingb | |||||||||
Centrally Cleared Swaps | ||||||||||||||||||
Contracts to Buy Protection | ||||||||||||||||||
Traded Index | �� | |||||||||||||||||
CDX 23 HY | ICE | $ | 1,262,000 | 5.00 | % | 12/20/19 | $ | (83,230 | ) | $ | — | $ | (8,890 | ) | $ | (92,120 | ) | |
iTraxx Europe Crossover | ICE | 1,104,000 | 5.00 | % | 12/20/19 | (80,860 | ) | — | (30,356 | ) | (111,216 | ) | ||||||
Contracts to Sell Protectionc | ||||||||||||||||||
Traded Index | ||||||||||||||||||
CDX North America | CME | 500,000 | 1.00 | % | 6/20/19 | 8,631 | 1,643 | — | 10,274 | Investment | ||||||||
Grade | ||||||||||||||||||
Centrally Cleared Swaps unrealized appreciation (depreciation) | 1,643 | (39,246 | ) |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||||||||||||||
Credit Default Swap Contracts (continued) | ||||||||||||||||||
Upfront | ||||||||||||||||||
Periodic | Premiums | |||||||||||||||||
Counterparty/ | Notional Payment | Expiration | Paid | Unrealized | Unrealized | |||||||||||||
Description | Exchange | Amounta | Rate | Date (Received) | Appreciation | Depreciation | Value | Ratingb | ||||||||||
OTC Swaps | ||||||||||||||||||
Contracts to Buy Protection | ||||||||||||||||||
Single Name | ||||||||||||||||||
Government of Brazil | BOFA | $ | 110,000 | 1.00 | % | 12/20/19 | $ | 3,704 | $ | — | $ | (1,120 | ) | $ | 2,584 | |||
Government of Brazil | BOFA | 40,000 | 1.00 | % | 12/20/19 | 1,402 | — | (462 | ) | 940 | ||||||||
Government of Brazil | CITI | 80,000 | 1.00 | % | 12/20/19 | 2,329 | — | (450 | ) | 1,879 | ||||||||
Government of Brazil | BOFA | 50,000 | 1.00 | % | 12/20/19 | 1,387 | — | (213 | ) | 1,174 | ||||||||
Government of Venezuela | BOFA | 130,000 | 5.00 | % | 9/20/19 | 28,793 | 26,197 | — | 54,990 | |||||||||
Southwest Airlines Co | DBFX | 500,000 | 1.00 | % | 6/20/19 | (6,971 | ) | — | (7,090 | ) | (14,061 | ) | ||||||
Contracts to Sell Protectionc | ||||||||||||||||||
Single Name | ||||||||||||||||||
Transocean Ltd | MSCS | 150,000 | 1.00 | % | 12/20/19 | (21,642 | ) | — | (3,890 | ) | (25,532 | ) | BBB- | |||||
Transocean Ltd | DBFX | 100,000 | 1.00 | % | 12/20/19 | (13,860 | ) | — | (3,161 | ) | (17,021 | ) | BBB- | |||||
Transocean Ltd | BOFA | 75,000 | 1.00 | % | 12/20/19 | (9,446 | ) | — | (3,320 | ) | (12,766 | ) | BBB- | |||||
TOYS R US Inc | MSCS | 187,000 | 5.00 | % | 12/20/16 | (17,188 | ) | — | (1,801 | ) | (18,989 | ) | B- | |||||
TOYS R US Inc | MSCS | 111,000 | 5.00 | % | 12/20/16 | (10,627 | ) | — | (645 | ) | (11,272 | ) | B- | |||||
TOYS R US Inc | MSCS | 74,000 | 5.00 | % | 12/20/16 | (7,603 | ) | 88 | — | (7,515 | ) | B- | ||||||
OTC Swaps unrealized appreciation (depreciation) | 26,285 | (22,152 | ) | |||||||||||||||
Total Credit Default Swaps unrealized appreciation (depreciation) | 27,928 | (61,398 | ) | |||||||||||||||
Net unrealized appreciation (depreciation) | $ | (33,470 | ) |
See Note 9 regarding other derivative information.
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.
cThe Fund enters contracts to sell protection to create a long credit position. Performance triggers include default, bankruptcy or restructuring for single name swaps and
failure to pay or bankruptcy of the underlying securities for traded index swaps.
At November 30, 2014, the Fund had the following interest rate swap contracts outstanding. See Note 1(d). | ||||||||||||
Interest Rate Swap Contracts | ||||||||||||
Counterparty/ | Expiration | Notional | Unrealized | Unrealized | ||||||||
Description | Exchange | Date | Amount | Appreciation Depreciation | ||||||||
Centrally Cleared Swaps | ||||||||||||
Receive Floating rate 3-month LIBOR Pay Fixed rate 0.63% | CME | 10/21/16 | $ | 5,300,000 | $ | — | $ | (939 | ) | |||
Net unrealized appreciation (depreciation) | $ | (939 | ) | |||||||||
At November 30, 2014, the Fund had the following total return swap contracts outstanding. See Note 1(d). | ||||||||||||
Total Return Swap Contracts | ||||||||||||
Expiration | Unrealized | Unrealized | ||||||||||
Counterparty | Underlying Instrument | Financing Rate Notional Valuea | Date | Appreciation | Depreciation | |||||||
Fund Pays Total Return on Underlying Instrument | ||||||||||||
DBFX | Drillsearch Energy Ltd | LIBOR - 200 BPS | 35,392 | 4/20/15 | $ | 6,441 | $ | — | ||||
DBFX | Alcoa Inc | LIBOR - 35 BPS | 222,156 | 6/30/15 | — | (6,084 | ) | |||||
DBFX | Amsurg Corp | LIBOR - 35 BPS | 190,126 | 6/30/15 | — | (3,267 | ) | |||||
DBFX | Health Care REIT Inc | LIBOR - 35 BPS | 623,910 | 6/30/15 | — | (12,916 | ) | |||||
DBFX | NextEra Energy Inc | LIBOR - 35 BPS | 945,752 | 6/30/15 | — | (17,154 | ) |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||||||
Total Return Swap Contracts (continued) | ||||||||||
Expiration | Unrealized | Unrealized | ||||||||
Counterparty | Underlying Instrument | Financing Rate | Notional Valuea | Date Appreciation | Depreciation | |||||
Fund Pays Total Return on Underlying Instrument (continued) | ||||||||||
DBFX | Pegatron Corp | LIBOR - 150 BPS | 1,317,694 | 7/14/15 | $ | — | $ | (102,213 | ) | |
DBFX | ISA Internationale Inc | LIBOR - 40 BPS | 35,197 | 7/15/15 | — | (2,078 | ) | |||
DBFX | Richter Gedeon Nyrt | EURIB - 40 BPS | 234,555 | EUR | 7/15/15 | — | (2,639 | ) | ||
DBFX | Vedanta Resources PLC | LIBOR - 200 BPS | 1,075,424 | 7/15/15 | 3,803 | — | ||||
DBFX | ASM Pacific Technology Ltd | HKDIB - 52 BPS | 1,608,205 | HKD | 7/17/15 | 3,599 | — | |||
DBFX | China Hongqiao Group Ltd | HKDIB - 150 BPS | 1,435,530 | HKD | 7/17/15 | — | (4,878 | ) | ||
DBFX | Deutsche Wohnen AG | EURIB - 40 BPS | 119,801 | EUR | 7/17/15 | — | (7,903 | ) | ||
DBFX | Drillisch AG | EURIB - 40 BPS | 701,245 | EUR | 7/17/15 | — | (81,475 | ) | ||
DBFX | Evonik Industries AG | EURIB - 40 BPS | 13,564 | EUR | 7/17/15 | — | (750 | ) | ||
DBFX | Fosun International Ltd | HKDIB - 67 BPS | 4,464,200 | HKD | 7/17/15 | — | (41,089 | ) | ||
DBFX | GAGFAH S.A | EURIB - 40 BPS | 244,240 | EUR | 7/17/15 | — | (4,810 | ) | ||
DBFX | Grand City Properties SA | EURIB - 450 BPS | 480,465 | EUR | 7/17/15 | — | (42,098 | ) | ||
DBFX | LOTTE Himart Co. Ltd | LIBOR - 150 BPS | 67,021 | 7/17/15 | 1,973 | — | ||||
DBFX | Pacific Basin Shipping Ltd | HKDIB - 50 BPS | 1,303,463 | HKD | 7/17/15 | — | (2,313 | ) | ||
DBFX | Alcatel-Lucent | EURIB - 40 BPS | 597,928 | EUR | 7/20/15 | — | (90,049 | ) | ||
DBFX | BW LPG Ltd | LIBOR - 40 BPS | 120,360 | 7/20/15 | 32,262 | — | ||||
DBFX | Hansteen Holdings PLC | EURIB - 40 BPS | 754,025 | EUR | 7/20/15 | — | (5,845 | ) | ||
DBFX | YTL E-Solutions BHD | LIBOR - 350 BPS | 86,001 | 7/22/15 | 2,688 | — | ||||
DBFX | Marine Harvest ASA | EURIB - 40 BPS | 781,217 | EUR | 10/05/15 | 61,722 | — | |||
MSCS | AT&T Inc | LIBOR - 35 BPS | 614,210 | 10/14/15 | — | (8,762 | ) | |||
MSCS | Laboratory Corp. of America Holdings | LIBOR - 35 BPS | 193,371 | 10/14/15 | — | (8,488 | ) | |||
MSCS | Reynolds American Inc | LIBOR - 35 BPS | 208,675 | 10/14/15 | — | (33,227 | ) | |||
DBFX | Olam International Ltd | SIBOR - 300 BPS | 88,560 | SGD | 10/20/15 | — | (40 | ) | ||
MSCS | Amadeus IT Holding SA | EONIA - 50 BPS | 46,038 | EUR | 10/26/15 | — | — | |||
MSCS | iShares FTSE 100 UCITS ETF | SONIA - 62 BPS | 35,390 | GBP | 10/26/15 | — | (569 | ) | ||
MSCS | Lyxor UCITS ETF CAC 40 DR | EURIB - 129 BPS | 193,476 | EUR | 10/26/15 | — | (315 | ) | ||
DBFX | JetBlue Airways Corp | EURIB - 40 BPS | 571,311 | EUR | 11/16/15 | — | (131,840 | ) | ||
DBFX | Resorttrust Inc | LIBOR - 40 BPS | 49,982,828 | JPY | 11/18/15 | — | (19,133 | ) | ||
DBFX | Yamaguchi Financial Group Inc | LIBOR - 40 BPS | 108,981 | 11/18/15 | — | (1,334 | ) | |||
DBFX | IHH Healthcare BHD | SIBOR - 50 BPS | 191,414 | SGD | 11/24/15 | — | (3,565 | ) | ||
MSCS | MSCI Pan Euro Index | EURIB - 45 BPS | 749,661 | EUR | 12/30/15 | — | (28,511 | ) | ||
MSCS | MSCI Pan Euro Index | FEDEF - 35 BPS | 118,135 | 1/27/16 | 42,618 | — | ||||
MSCS | MSCI Pan Euro Index | FEDEF - 30 BPS | 548,969 | 2/05/16 | — | (89 | ) | |||
MSCS | MSCI Pan Euro Index | EONIA - 55 BPS | 286,709 | EUR | 8/08/16 | 136 | — | |||
MSCS | Kinder Morgan Inc | FEDEF - 408 BPS | 121,445 | 8/11/16 | — | — | ||||
MSCS | America Movil SAB de CV | MXNIB - 50 BPS | 2,873,116 | MXN | 11/14/16 | — | (897 | ) | ||
Fund Receives Total Return on Underlying Instrument | ||||||||||
DBFX | Accuray Inc | LIBOR + 70 BPS | 106,760 | 12/26/14 | — | (3,006 | ) | |||
DBFX | American Residential Properties Inc | LIBOR + 70 BPS | 103,585 | 12/26/14 | 128 | — | ||||
DBFX | Ascent Capital Group Inc | LIBOR + 70 BPS | 106,183 | 12/26/14 | — | (21,418 | ) | |||
DBFX | Bunge Ltd | LIBOR + 70 BPS | 73,500 | 12/26/14 | 5,334 | — | ||||
DBFX | CBIZ Inc | LIBOR + 70 BPS | 333,750 | 12/26/14 | — | (22,995 | ) | |||
DBFX | Colony Financial Inc | LIBOR + 70 BPS | 102,767 | 12/26/14 | 6,565 | — | ||||
DBFX | Green Plains Inc | LIBOR + 70 BPS | 283,695 | 12/26/14 | 101,703 | — | ||||
DBFX | NetSuite Inc | LIBOR + 70 BPS | 56,150 | 12/26/14 | — | (806 | ) | |||
DBFX | Redwood Trust Inc | LIBOR + 70 BPS | 102,561 | 12/26/14 | — | (1,339 | ) | |||
DBFX | Resource Capital Corp | LIBOR + 70 BPS | 100,212 | 12/26/14 | 1,108 | — | ||||
MSCS | American Airlines Group Inc | LIBOR + 50 BPS | 125,785 | 1/26/15 | 26,937 | — | ||||
MSCS | American International Group Inc | LIBOR + 50 BPS | 199,438 | 1/26/15 | 6,308 | — | ||||
MSCS | BioDelivery Sciences International | |||||||||
Inc | LIBOR + 50 BPS | 262,243 | 1/26/15 | — | (10,764 | ) | ||||
MSCS | Celgene Corp | LIBOR + 50 BPS | 191,461 | 1/26/15 | 41,978 | — | ||||
MSCS | Cerner Corp | LIBOR + 50 BPS | 333,470 | 1/26/15 | 50,472 | — |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||||||
Total Return Swap Contracts (continued) | ||||||||||
Expiration | Unrealized | Unrealized | ||||||||
Counterparty | Underlying Instrument | Financing Rate | Notional Valuea | Date | Appreciation | Depreciation | ||||
Fund Receives Total Return on Underlying Instrument (continued) | ||||||||||
MSCS | Charter Communications Inc | LIBOR + 50 BPS | 630,396 | 1/26/15 | $ | 81,742 | $ | — | ||
MSCS | Chicago Bridge & Iron Co. NV | LIBOR + 50 BPS | 5,219 | 1/26/15 | — | (185 | ) | |||
MSCS | CME Group Inc | LIBOR + 50 BPS | 81,994 | 1/26/15 | 5,319 | — | ||||
MSCS | Diamond Foods Inc | LIBOR + 50 BPS | 2,193 | 1/26/15 | 70 | — | ||||
MSCS | DISH Network Corp | LIBOR + 50 BPS | 419,688 | 1/26/15 | 56,653 | — | ||||
MSCS | Essent Group Ltd | LIBOR + 50 BPS | 64,021 | 1/26/15 | 12,207 | — | ||||
MSCS | FMSA Holdings Inc | LIBOR + 50 BPS | 15,167 | 1/26/15 | — | (4,744 | ) | |||
MSCS | HCA Holdings Inc | LIBOR + 50 BPS | 16,238 | 1/26/15 | 4,871 | — | ||||
MSCS | Level 3 Communications Inc | LIBOR + 50 BPS | 109,906 | 1/26/15 | 17,198 | — | ||||
MSCS | Liberty Broadband Corp | LIBOR + 50 BPS | 60,881 | 1/26/15 | 7,375 | — | ||||
MSCS | Liberty Global PLC | LIBOR + 50 BPS | 7,612 | 1/26/15 | 1,431 | — | ||||
MSCS | Liberty Media Corp | LIBOR + 50 BPS | 42,932 | 1/26/15 | 4,855 | — | ||||
MSCS | Liberty Ventures | LIBOR + 50 BPS | 302,740 | 1/26/15 | 41,770 | — | ||||
MSCS | Life Time Fitness Inc | LIBOR + 50 BPS | 192,916 | 1/26/15 | 22,265 | — | ||||
MSCS | Lululemon Athletica Inc | LIBOR + 50 BPS | 187,078 | 1/26/15 | 19,317 | — | ||||
MSCS | Marathon Petroleum Corp | LIBOR + 50 BPS | 407,530 | 1/26/15 | — | (6,640 | ) | |||
MSCS | Micron Technology Inc | LIBOR + 50 BPS | 182,036 | 1/26/15 | 12,132 | — | ||||
MSCS | NorthStar Asset Management Group | |||||||||
Inc | LIBOR + 50 BPS | 85,740 | 1/26/15 | 5,076 | — | |||||
MSCS | NorthStar Realty Finance Corp | LIBOR + 50 BPS | 19,219 | 1/26/15 | — | (442 | ) | |||
MSCS | Salix Pharmaceuticals Ltd | LIBOR + 50 BPS | 665,199 | 1/26/15 | 65,977 | — | ||||
MSCS | Sotheby’s | LIBOR + 50 BPS | 339,176 | 1/26/15 | — | (3,606 | ) | |||
MSCS | Tempur Sealy International Inc | LIBOR + 50 BPS | 11,548 | 1/26/15 | — | (86 | ) | |||
MSCS | The Container Store Group Inc | LIBOR + 50 BPS | 130,235 | 1/26/15 | — | (1,262 | ) | |||
MSCS | The Madison Square Garden Co | LIBOR + 50 BPS | 469,391 | 1/26/15 | — | (232 | ) | |||
MSCS | The Williams Cos. Inc | LIBOR + 50 BPS | 44,601 | 1/26/15 | 6,199 | — | ||||
MSCS | Time Warner Inc | LIBOR + 50 BPS | 204,750 | 1/26/15 | 22,185 | — | ||||
MSCS | TripAdvisor Inc | LIBOR + 50 BPS | 302,034 | 1/26/15 | 15,064 | — | ||||
MSCS | Vail Resorts Inc | LIBOR + 50 BPS | 56,808 | 1/26/15 | 2,588 | — | ||||
MSCS | Vulcan Materials Co | LIBOR + 50 BPS | 139,635 | 1/26/15 | 11,087 | — | ||||
MSCS | Whole Foods Market Inc | LIBOR + 50 BPS | 407,391 | 1/26/15 | 19,303 | — | ||||
MSCS | Yahoo! Inc | LIBOR + 50 BPS | 573,331 | 1/26/15 | 113,237 | — | ||||
MSCS | Zoetis Inc | LIBOR + 50 BPS | 405,420 | 1/26/15 | 7,473 | — | ||||
DBFX | Alcoa Inc | LIBOR + 75 BPS | 312,665 | 6/30/15 | 7,072 | — | ||||
DBFX | Amsurg Corp | LIBOR + 75 BPS | 257,672 | 6/30/15 | 2,906 | — | ||||
DBFX | Health Care REIT Inc | LIBOR + 75 BPS | 996,742 | 6/30/15 | 20,899 | — | ||||
DBFX | NextEra Energy Inc | LIBOR + 75 BPS | 1,176,582 | 6/30/15 | 19,864 | — | ||||
DBFX | Pegatron Corp | LIBOR + 100 BPS | 1,344,800 | 7/14/15 | 89,012 | — | ||||
DBFX | Drillsearch Financial Ltd | LIBOR + 75 BPS | 206,315 | 7/15/15 | — | (6,423 | ) | |||
DBFX | Eni SpA | EURIB + 75 BPS | 100,323 | EUR | 7/15/15 | — | (573 | ) | ||
DBFX | GAGFAH S.A | EURIB + 75 BPS | 449,910 | EUR | 7/15/15 | 4,963 | — | |||
DBFX | Grand City Properties SA | EURIB + 75 BPS | 839,157 | EUR | 7/15/15 | 54,981 | — | |||
DBFX | Santa Isabel SA | LIBOR + 75 BPS | 272,625 | 7/15/15 | 3,960 | — | ||||
DBFX | Solidium OY | EURIB + 75 BPS | 301,114 | EUR | 7/15/15 | 732 | — | |||
DBFX | ASM Pacific Technology Ltd | HKDIB + 100 BPS | 4,282,941 | HKD | 7/17/15 | — | (3,900 | ) | ||
DBFX | China Hongqiao Group Ltd | LIBOR + 100 BPS | 470,494 | 7/17/15 | 10,568 | — | ||||
DBFX | Drillisch AG | EURIB + 75 BPS | 926,769 | EUR | 7/17/15 | 72,149 | — | |||
DBFX | Duetsche Wohnen AG | EURIB + 75 BPS | 224,211 | EUR | 7/17/15 | 7,805 | — | |||
DBFX | Helical Bar Jersey Ltd | GBPIB + 75 BPS | 199,873 | GBP | 7/17/15 | — | (934 | ) | ||
DBFX | Logo Star Ltd | HKDIB + 100 BPS | 10,811,250 | HKD | 7/17/15 | 29,235 | — | |||
DBFX | Lotte Shopping Co. Ltd | LIBOR + 90 BPS | 367,740 | 7/17/15 | — | (6,599 | ) | |||
DBFX | Magyar Nemzeti Vagyonkezelo Zrt | EURIB + 75 BPS | 1,565,626 | EUR | 7/17/15 | — | (621 | ) | ||
DBFX | RAG Stiftung | EURIB + 75 BPS | 198,409 | EUR | 7/17/15 | 67 | — | |||
DBFX | Alcatel-Lucent | EURIB + 75 BPS | 825,858 | EUR | 7/20/15 | 99,891 | — | |||
DBFX | BW Group Ltd | LIBOR + 75 BPS | 367,138 | 7/20/15 | — | (13,358 | ) |
66 Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||||||
Total Return Swap Contracts (continued) | ||||||||||
Expiration | Unrealized | Unrealized | ||||||||
Counterparty | Underlying Instrument | Financing Rate | Notional Valuea | Date Appreciation | Depreciation | |||||
Fund Receives Total Return on Underlying Instrument (continued) | ||||||||||
DBFX | PB Issuer No. 3 Ltd | LIBOR + 75 BPS | 622,031 | 7/20/15 | $ | 3,063 | $ | — | ||
DBFX | YTL Land & Development Bhd | LIBOR + 100 BPS | 206,998 | 7/22/15 | — | (4,791 | ) | |||
DBFX | Hansteen Jersey Securities Ltd | EURIB + 75 BPS | 1,227,679 | EUR | 7/30/15 | 13,439 | — | |||
DBFX | Marine Harvest ASA | EURIB + 75 BPS | 1,006,434 | EUR | 9/17/15 | — | (57,963 | ) | ||
MSCS | MAN SE | EONIA + 65 BPS | 777,192 | EUR | 10/14/15 | — | — | |||
MSCS | Advanced Computers Software Group | |||||||||
PLC | SONIA + 65 BPS | 39,808 | GBP | 10/26/15 | — | — | ||||
MSCS | Alstom SA | EONIA + 65 BPS | 602,634 | EUR | 10/26/15 | — | — | |||
MSCS | Amec Foster Wheeler PLC | SONIA + 65 BPS | 9,018 | GBP | 10/26/15 | — | — | |||
MSCS | Bollore SA | EONIA + 65 BPS | 15,086 | EUR | 10/26/15 | — | — | |||
MSCS | Fomento de Construcciones y Contratas | |||||||||
SA | EONIA + 65 BPS | 35,630 | EUR | 10/26/15 | — | — | ||||
MSCS | Inmarsat PLC | SONIA + 65 BPS | 612,377 | GBP | 10/26/15 | — | — | |||
MSCS | Jazztel PLC | EONIA + 65 BPS | 72,166 | EUR | 10/26/15 | — | — | |||
MSCS | Smith & Nephew PLC | SONIA + 65 BPS | 192,874 | GBP | 10/26/15 | — | — | |||
MSCS | Vivendi SA | EONIA + 65 BPS | 1,947,177 | EUR | 10/26/15 | — | — | |||
MSCS | Ryanair Holdings PLC | EURIB + 50 BPS | 491,607 | EUR | 11/02/15 | 142,664 | — | |||
DBFX | Resorttrust Inc | LIBOR + 85 BPS | 71,366,760 | JPY | 11/17/15 | 15,901 | — | |||
DBFX | Deutsche Lufthansa AG | EURIB + 75 BPS | 602,309 | EUR | 11/18/15 | 144,993 | — | |||
DBFX | Indah Capital Ltd | SIBOR + 100 BPS | 525,160 | SGD | 11/23/15 | 4,543 | — | |||
MSCS | CareTrust REIT Inc | FEDEF + 40 BPS | 34,943 | 12/17/15 | — | — | ||||
MSCS | Kinder Morgan Energy Partners LP | FEDEF + 100 BPS | 136,618 | 12/17/15 | — | — | ||||
MSCS | Lamar Advertising Co | FEDEF + 40 BPS | 345,159 | 12/17/15 | — | — | ||||
MSCS | Spirit Realty Capital Inc | FEDEF + 40 BPS | 303,219 | 12/17/15 | — | — | ||||
DBFX | Yamaguchi Financial Group Inc | LIBOR + 85 BPS | 212,958 | 12/18/15 | — | (1,506 | ) | |||
MSCS | Covance Inc | LIBOR + 35 BPS | 722,927 | 7/29/16 | 13,906 | — | ||||
MSCS | DIRECTV | LIBOR + 35 BPS | 1,376,606 | 7/29/16 | 14,087 | — | ||||
MSCS | Lorillard Inc | LIBOR + 35 BPS | 765,467 | 7/29/16 | 38,684 | — | ||||
Unrealized appreciation (depreciation) | 1,766,553 | (838,524 | ) | |||||||
Net unrealized appreciation (depreciation) | $ | 928,029 | ||||||||
aIn U.S. dollars unless otherwise indicated. | ||||||||||
See Abbreviations on page 86. |
franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report 67
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Financial Statements
Consolidated Statement of Assets and Liabilities
November 30, 2014 (unaudited)
Franklin K2 Alternative Strategies Fund | |||
Assets: | |||
Investments in securities: | |||
Cost - Unaffiliated issuers | $ | 405,493,430 | |
Cost - Repurchase agreements | 19,644,487 | ||
Total cost of investments | $ | 425,137,917 | |
Value - Unaffiliated issuers | $ | 432,464,661 | |
Value - Repurchase agreements | 19,644,487 | ||
Total value of investments | 452,109,148 | ||
Cash | 62,139,962 | ||
Restricted Cash (Note 1e) | 22,168 | ||
Foreign currency, at value (cost $2,676,914) | 2,633,446 | ||
Receivables: | |||
Investment securities sold | 12,819,198 | ||
Capital shares sold | 520,530 | ||
Dividends and interest | 1,987,366 | ||
Affiliates | 2,176 | ||
Due from brokers | 115,098,394 | ||
Variation margin | 936,763 | ||
OTC Swaps (premiums paid $39,116) | 37,615 | ||
Unrealized appreciation on forward exchange contracts | 3,902,348 | ||
Unrealized appreciation on OTC swap contracts | 1,792,838 | ||
Unrealized appreciation on unfunded loan commitments (Note 8) | 1,419 | ||
Total assets | 654,003,371 | ||
Liabilities: | |||
Payables: | |||
Investment securities purchased | 12,140,746 | ||
Capital shares redeemed | 99,995 | ||
Management fees | 392,683 | ||
Distribution fees | 48,250 | ||
Trustees’ fees and expenses | 25,111 | ||
OTC Swaps (premiums received $91,420) | 87,337 | ||
Options written, at value (premiums received $723,720) | 167,865 | ||
Securities sold short, at value (proceeds $132,583,381) | 138,604,420 | ||
Due to brokers | 354,255 | ||
Unrealized depreciation on forward exchange contracts | 2,453,970 | ||
Unrealized depreciation on OTC swap contracts | 860,676 | ||
Accrued expenses and other liabilities | 121,264 | ||
Total liabilities | 155,356,572 | ||
Net assets, at value | $ | 498,646,799 | |
Net assets consist of: | |||
Paid-in capital | $ | 475,979,707 | |
Undistributed net investment income | 786,088 | ||
Net unrealized appreciation (depreciation) | 28,136,016 | ||
Accumulated net realized gain (loss) | (6,255,012 | ) | |
Net assets, at value | $ | 498,646,799 |
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 (continued) | ||
November 30, 2014 (unaudited) | ||
Class A: | ||
Net assets, at value | $ | 96,189,359 |
Shares outstanding | 8,818,512 | |
Net asset value per sharea | $ | 10.91 |
Maximum offering price per share (net asset value per share ÷ 94.25%) | $ | 11.58 |
Class C: | ||
Net assets, at value | $ | 25,351,324 |
Shares outstanding | 2,339,854 | |
Net asset value and maximum offering price per sharea | $ | 10.83 |
Class R: | ||
Net assets, at value | $ | 12,197,373 |
Shares outstanding | 1,120,929 | |
Net asset value and maximum offering price per share | $ | 10.88 |
Class R6: | ||
Net assets, at value | $ | 221,474,313 |
Shares outstanding | 20,237,338 | |
Net asset value and maximum offering price per share | $ | 10.94 |
Advisor Class: | ||
Net assets, at value | $ | 143,434,430 |
Shares outstanding | 13,115,099 | |
Net asset value and maximum offering price per share | $ | 10.94 |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable. |
franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report 69
FRANKLIN ALTERNATIVE STRATEGIES FUNDS | |||
CONSOLIDATED FINANCIAL STATEMENTS | |||
Consolidated Statement of Operations | |||
for the period ended November 30, 2014 (unaudited) | |||
Franklin K2 Alternative Strategies Fund | |||
Investment income: | |||
Dividends | $ | 1,461,763 | |
Interest | 2,939,593 | ||
Total investment income | 4,401,356 | ||
Expenses: | |||
Management fees (Note 3a) | 4,577,848 | ||
Distribution fees: (Note 3c) | |||
Class A | 176,282 | ||
Class C | 98,713 | ||
Class R | 29,630 | ||
Transfer agent fees: (Note 3e) | |||
Class A | 23,567 | ||
Class C | 5,390 | ||
Class R | 2,952 | ||
Class R6 | 5,528 | ||
Advisor Class | 27,367 | ||
Custodian fees (Note 4) | 91,754 | ||
Reports to shareholders | 35,839 | ||
Registration and filing fees | 118,437 | ||
Professional fees | 172,324 | ||
Trustees’ fees and expenses | 273,921 | ||
Offering costs | 88,573 | ||
Dividends and interest on securities sold short | 1,020,030 | ||
Security borrowing fees | 548,336 | ||
Other | 56,484 | ||
Total expenses | 7,352,975 | ||
Expense reductions (Note 4) | (16,004 | ) | |
Expenses waived/paid by affiliates (Note 3f) | (859,956 | ) | |
Net expenses | 6,477,015 | ||
Net investment income (loss) | (2,075,659 | ) | |
Realized and unrealized gains (losses): | |||
Net realized gain (loss) from: | |||
Investments | (2,357,997 | ) | |
Written options | 599,959 | ||
Foreign currency transactions | 1,488,904 | ||
Futures contracts | 2,787,552 | ||
Securities sold short | (3,981,483 | ) | |
Swap contracts | (808,683 | ) | |
Net realized gain (loss) | (2,271,748 | ) | |
Net change in unrealized appreciation (depreciation) on: | |||
Investments | 11,437,512 | ||
Translation of other assets and liabilities denominated in foreign currencies | 1,551,007 | ||
Futures contracts | 3,230,926 | ||
Swap contracts | 450,857 | ||
Net change in unrealized appreciation (depreciation) | 16,670,302 | ||
Net realized and unrealized gain (loss) | 14,398,554 | ||
Net increase (decrease) in net assets resulting from operations | $ | 12,322,895 |
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 Statements of Changes in Net Assets | ||||||
Franklin K2 Alternative Strategies Fund | ||||||
Period Ended | ||||||
November 30, 2014 | Period Ended | |||||
(unaudited) | May 31, 2014a | |||||
Increase (decrease) in net assets: | ||||||
Operations: | ||||||
Net investment income (loss) | $ | (2,075,659 | ) | $ | (459,321 | ) |
Net realized gain (loss) from investments, written options, foreign currency transactions, futures | ||||||
contracts, securities sold short and swap contracts | (2,271,748 | ) | (1,124,386 | ) | ||
Net change in unrealized appreciation (depreciation) on investments, translation of other assets | ||||||
and liabilities denominated in foreign currencies, futures contracts and swap contracts | 16,670,302 | 11,465,714 | ||||
Net increase (decrease) in net assets resulting from operations | 12,322,895 | 9,882,007 | ||||
Distributions to shareholders from net investment income: | ||||||
Class A | — | (138,800 | ) | |||
Class C | — | (45,687 | ) | |||
Class R | — | (44,557 | ) | |||
Class R6 | — | (44,777 | ) | |||
Advisor Class | — | (141,968 | ) | |||
Total distributions to shareholders | — | (415,789 | ) | |||
Capital share transactions: (Note 2) | ||||||
Class A | (3,126,141 | ) | 94,320,579 | |||
Class C | 8,214,423 | 15,942,860 | ||||
Class R | 250,150 | 11,001,000 | ||||
Class R6 | 154,868 | 212,200,195 | ||||
Advisor Class | 85,543,949 | 52,355,803 | ||||
Total capital share transactions | 91,037,249 | 385,820,437 | ||||
Net increase (decrease) in net assets | 103,360,144 | 395,286,655 | ||||
Net assets: | ||||||
Beginning of period | 395,286,655 | — | ||||
End of period | $ | 498,646,799 | $ | 395,286,655 | ||
Undistributed net investment income included in net assets: | ||||||
End of period | $ | 786,088 | $ | 2,861,747 | ||
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014. |
franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report 71
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Notes to Consolidated Financial Statements (unaudited)
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, as amended, (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). The Franklin K2 Alternative Strategies Fund (Fund) is included in this report. The financial statements of the remaining fund in the Trust is presented separately. The Fund offers five classes of shares: Class A, Class C, Class R, Class R6 and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees primarily 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 at the close of the New York Stock Exchange (NYSE), generally at 4 p.m. Eastern time (NYSE close) on each day the NYSE is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Equity securities, exchange traded funds and derivative financial instruments (derivatives) listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded or as of the NYSE close, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign
exchange rate in effect at the NYSE close 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. Investments in open-end mutual funds are valued at the closing NAV.
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 the NYSE close on the date that the values of the foreign debt securities are determined. Repurchase agreements are valued at cost, which approximates fair value.
Certain derivatives 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 VLOC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VLOC 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
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued)
investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
Trading in securities on foreign securities stock exchanges and OTC markets may be completed before the daily NYSE close. In addition, trading in certain foreign markets may not take place on every NYSE business day. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE 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 the close of the NYSE. In order to minimize the potential for these differences, the VLOC monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.
Also, when the last day of the reporting period is a non-business day, certain foreign markets may be open on those days that the NYSE is closed, 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 on 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 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
franklintempleton.com
Semiannual Report
73
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
1. Organization and Significant Accounting
Policies (continued)
c. Joint Repurchase Agreement (continued)
the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. Repurchase agreements are subject to the terms of Master Repurchase Agreements (MRAs) with approved counterparties (sellers). The MRAs contain various provisions, including but not limited to events of default and maintenance of collateral for repurchase agreements. In the event of default by either the seller or the Fund, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Fund may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any other amounts owed by the seller to the Fund in the event of default by the seller. This could involve costs or delays in addition to a loss on the securities if their value falls below the repurchase price owed by the seller. The joint repurchase agreement held by the Fund at period end, as indicated in the Consolidated Statement of Investments, had been entered into on November 28, 2014.
d. Derivative Financial Instruments
The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown on 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 coun-terparty 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 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.
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 for 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 on the Consolidated Statement of Assets and Liabilities.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued)
The Fund entered into OTC forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.
The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (“OTC credit default swaps”) or may be executed in a multilateral trade facility platform, such as a registered exchange (“centrally cleared credit default swaps”). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, or a tranche of a credit index. 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 on 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. Payments received or paid to initiate a credit default swap contract are reflected on 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 are amortized over the term of the contract as a realized gain or loss on 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 on 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 equity price and credit risk of an underlying instrument. 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. The underlying instrument can be a stock or bond, a basket of stocks or bonds, a stock index, or credit index. Over the term of the contract, contractually required payments to be paid or received are accrued daily and recorded as unrealized appreciation or depreciation until the payments are made, at which time they are recognized as realized gain or loss.
The Fund purchased or wrote exchange traded and/or OTC option contracts primarily to manage and/or gain exposure to equity price and interest rate risk and foreign exchange rate. 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. Options purchased are recorded as an asset while options written are recorded as a liability. 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 and the cost to close the position is recorded as a realized gain or loss.
See Notes 6 and 9 regarding investment transactions and other derivative information, respectively.
e. Restricted Cash
At November 30, 2014, the Fund received restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian and is reflected in the Consolidated Statement of Assets and Liabilities.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin K2 Alternative Strategies Fund (continued)
1. Organization and Significant Accounting
Policies (continued)
f. Securities Sold Short
The Fund is engaged in selling securities short, which obligates the Fund to replace a borrowed security with the same security at current fair value. The Fund incurs a loss if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund realizes a gain if the price of the security declines between those dates. Gains are limited to the price at which the Fund sold the security short, while losses are potentially unlimited in size.
The Fund is required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale to the extent necessary to meet margin requirements until the short position is closed out. A deposit must also be maintained with the Fund’s custodian/counterparty broker consisting of cash and/or securities having a value equal to a specified percentage of the value of the securities sold short. The Fund is obligated to pay fees for borrowing the securities sold short and is required to pay the counterparty any dividends and/or interest due on securities sold short. Such dividends and/ or interest and any security borrowing fees are recorded as an expense to the Fund.
g. Investment 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, 2014, the K2 Subsidiary’s investments, as well as any other assets and liabilities of the K2 Subsidiary, are reflected in the Fund’s Consolidated Statement of Investments and Consolidated Statement of Assets and Liabilities. The financial statements have been consolidated and include the accounts of the Fund and the K2 Subsidiary. All intercompany transactions and balances have been eliminated. At November 30, 2014, the net assets of the K2 Subsidiary were $47,581,503, representing 9.54% of the Fund’s consolidated net assets. The Fund’s investment in the K2 Subsidiary is limited to 25% of consolidated assets.
h. 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.
i. 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 recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of November 30, 2014, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s consolidated financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.
j. 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
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued)
accretion of discount on debt securities are included in interest income. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.
Common expenses incurred by the Trust are allocated among the funds based on the ratio of net assets of each fund to the combined net assets of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.
Realized and unrealized gains and losses and net investment income, not including 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.
k. Offering Costs
Offering costs are amortized on a straight line basis over twelve months.
l. Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
m. Guarantees and Indemnifications
Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.
2. Shares of Beneficial Interest
At November 30, 2014, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
Six Months Ended | Year Ended | ||||||||||
November 30, 2014 | May 31, 2014a | ||||||||||
Shares | Amount | Shares | Amount | ||||||||
Class A Shares: | |||||||||||
Shares sold | 4,625,449 | $ | 49,433,943 | 9,202,567 | $ | 95,380,808 | |||||
Shares issued in reinvestment of distributions | — | — | 304 | 3,150 | |||||||
Shares redeemed | (4,909,322 | ) | (52,560,084 | ) | (100,486 | ) | (1,063,379 | ) | |||
Net increase (decrease) | (283,873 | ) | $ | (3,126,141 | ) | 9,102,385 | $ | 94,320,579 | |||
Class C Shares: | |||||||||||
Shares sold | 828,828 | $ | 8,816,763 | 1,574,229 | $ | 16,010,580 | |||||
Shares issued in reinvestment of distributions | — | — | 109 | 1,130 | |||||||
Shares redeemed | (56,803 | ) | (602,340 | ) | (6,509 | ) | (68,850 | ) | |||
Net increase (decrease) | 772,025 | $ | 8,214,423 | 1,567,829 | $ | 15,942,860 |
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FRANKLIN | ALTERNATIVE STRATEGIES | FUNDS |
NOTES TO | CONSOLIDATED FINANCIAL | STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | |||||||||||
2. Shares of Beneficial Interest (continued) | |||||||||||
Six Months Ended | Year Ended | ||||||||||
November 30, 2014 | May 31, 2014a | ||||||||||
Shares | Amount | Shares | Amount | ||||||||
Class R Shares: | |||||||||||
Shares sold | 23,368 | $ | 250,150 | 1,097,561 | $ | 11,001,000 | |||||
Class R6 Shares: | |||||||||||
Shares sold | 259,003 | $ | 2,780,869 | 20,233,382 | $ | 212,310,195 | |||||
Shares redeemed | (244,571 | ) | (2,626,001 | ) | (10,476 | ) | (110,000 | ) | |||
Net increase (decrease) | 14,432 | $ | 154,868 | 20,222,906 | $ | 212,200,195 | |||||
Advisor Class Shares: | |||||||||||
Shares sold | 10,774,883 | $ | 115,377,072 | 5,176,524 | $ | 52,893,512 | |||||
Shares issued in reinvestment of distributions | — | — | 610 | 6,315 | |||||||
Shares redeemed | (2,785,500 | ) | (29,833,123 | ) | (51,418 | ) | (544,024 | ) | |||
Net increase (decrease) | 7,989,383 | $ | 85,543,949 | 5,125,716 | $ | 52,355,803 | |||||
aFor the period October 11, 2013 (commencement of operations) to May 31, 2014. |
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
Subsidiary | Affiliation | |
K2/D&S Management Co., L.L.C. (K2 Advisors) | Investment manager | |
Franklin Templeton Services, LLC (FT Services) | Administrative manager | |
Franklin Templeton Distributors, Inc. (Distributors) | Principal underwriter | |
Franklin Templeton Investor Services, LLC (Investor Services) | Transfer agent |
a. Management Fees
The Fund and K2 Subsidiary pay an investment management fee to K2 Advisors of 2.05% per year of the average daily net assets of the Fund and K2 Subsidiary. Management fees paid by the Fund are reduced on assets invested in the K2 Subsidiary, in an amount not to exceed the management fees paid by the K2 Subsidiary.
Under each subadvisory agreement, the below entities provide subadvisory services to the Fund or K2 Subsidiary. The subadvisory fees are paid by K2 Advisors based on the Fund and K2 Subsidiary average daily net assets, and is not an additional expense of the Fund or K2 Subsidiary.
Subadvisors |
Basso Capital Management, L.P. |
Chatham Asset Management, LLC |
Chilton Investment Company, LLC |
Graham Capital Management, L.P. |
Impala Asset Management, LLC |
Independence Capital Asset Partners, LLC |
Jennison Associates, LLC |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) |
Subadvisors (continued) |
Lazard Asset Management, LLC |
Loomis Sayles & Company, L.P. |
P. Schoenfeld Asset Management L.P. |
Wellington Management Company, LLP |
York Registered Holdings, L.P. |
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.
Under a sub-administrative agreement between FT Services and BNY Mellon Investment Servicing (US) Inc. (BNY Mellon), BNY Mellon provides sub-administrative services to the Fund and K2 Subsidiary. The sub-administrative fee is paid by FT Services based on the average daily net assets of the Fund and K2 Subsidiary, 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. Distribution fees are not charged on shares held by affiliates. 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 for each fund.
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 | % |
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the period:
Sales charges retained net of commissions paid to unaffiliated broker/dealers | $ | 54,238 |
CDSC retained | $ | 1,540 |
e. Transfer Agent Fees
Each class of shares, except for Class R6, pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations and reimburses Investor Services for out of pocket expenses incurred, including shareholding 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.
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FRANKLIN | ALTERNATIVE STRATEGIES | FUNDS |
NOTES TO | CONSOLIDATED FINANCIAL | STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued)
3. Transactions with Affiliates (continued)
e. Transfer Agent Fees (continued)
For the period ended November 30, 2014, the Fund paid transfer agent fees of $64,804, of which $23,856 was retained by Investor Services.
f. Waiver and Expense Reimbursements
K2 Advisors has contractually agreed in advance to waive or limit its fees and to assume as its own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses, and expenses on securities sold short) for each class of the Fund do not exceed 1.95%, and Class R6 does not exceed 1.88% based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until September 30, 2015. Prior to October 1, 2014, expenses were limited to 2.15%.
g. Other Affiliated Transactions | |||
At November 30, 2014, the shares of the Fund were owned by the following entities: | |||
Percentage of | |||
Consolidated | |||
Outstanding | |||
Shares | Shares | ||
Franklin Resources, Inc. | 5,307,251 | 11.63 | % |
Franklin Moderate Allocation Fund | 8,367,007 | 18.34 | % |
Franklin Conservative Allocation Fund | 5,157,034 | 11.30 | % |
Franklin Growth Allocation Fund | 4,335,456 | 9.50 | % |
Franklin Multi-Asset Real Return Fund | 320,606 | 0.70 | % |
Franklin LifeSmart 2025 Retirement Target Fund | 264,968 | 0.58 | % |
Franklin LifeSmart 2035 Retirement Target Fund | 227,281 | 0.50 | % |
Franklin LifeSmart 2015 Retirement Target Fund | 175,215 | 0.38 | % |
Franklin LifeSmart 2045 Retirement Target Fund | 127,994 | 0.28 | % |
Franklin LifeSmart 2030 Retirement Target Fund | 54,476 | 0.12 | % |
Franklin LifeSmart 2020 Retirement Target Fund | 46,964 | 0.10 | % |
Franklin LifeSmart 2040 Retirement Target Fund | 35,306 | 0.08 | % |
Franklin LifeSmart 2050 Retirement Target Fund | 27,093 | 0.06 | % |
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, 2014, the custodian fees were reduced as noted in the Consolidated Statement of Operations.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued)
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains, if any. At May 31, 2014, the capital loss carryforwards were as follows:
Capital loss carryforwards: | ||
Short term | $ | 161,663 |
Long term | 859,461 | |
Total capital loss carryforwards | $ | 1,021,124 |
At November 30, 2014, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
Cost of investments | $ | 431,683,026 | |
Unrealized appreciation | $ | 29,101,912 | |
Unrealized depreciation | (8,675,790 | ) | |
Net unrealized appreciation (depreciation) | $ | 20,426,122 |
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, bond discounts and premiums, certain dividends on securities sold short, swaps, commodity-based derivatives, non-deductible expenses, offering costs and futures.
6. Investment Transactions
Purchases and sales of investments and securities sold short (excluding short term securities) for the period ended November 30, 2014, aggregated $662,616,909 and $627,924,000, respectively.
Transactions in options written during the period ended November 30, 2014, were as follows:
Number of | Notional | ||||||
Contracts | Amount | Premiums | |||||
Options outstanding at May 31, 2014 | 1,802 | — | $ | 303,652 | |||
Options written | 6,590 | 1,840,000,000 | KRW | 1,935,160 | |||
Options expired | (1,310 | ) | — | (169,615 | ) | ||
Options exercised | (108 | ) | — | (10,946 | ) | ||
Options closed | (5,408 | ) | — | (1,334,531 | ) | ||
Options outstanding at November 30, 2014 | 1,566 | 1,840,000,000 | KRW | $ | 723,720 |
See Notes 1(d) and 9 regarding derivative financial instruments and other derivative information, respectively.
7. Credit Risk and Defaulted Securities
The Fund may purchase the pre-default or defaulted debt of distressed companies. Distressed companies are financially troubled and are about to 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.
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FRANKLIN | ALTERNATIVE STRATEGIES | FUNDS |
NOTES TO | CONSOLIDATED FINANCIAL | STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued)
7. Credit Risk and Defaulted Securities (continued)
At November 30, 2014, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $1,626,920, representing 0.33% of the Fund’s net assets. For information as to specific securities, see the accompanying Consolidated Statement of Investments.
8. Unfunded Loan Commitments
The Fund enters into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrowers’ discretion. Funded portions of credit agreements are presented on the Consolidated Statement of Investments.
At November 30, 2014, unfunded commitments were as follows: | ||
Unfunded | ||
Borrower | Commitment | |
B/E Aerospace Inc., Term Loan B, 3.75%, 11/21/21 | $ | 60,000 |
Cable & Wireless Communications PLC, Term Loan B, 5.50%, 11/6/16 | 95,000 | |
Quintiles Transnational Corp., Term Loan B-3, 3.75%, 6/08/18 | 29,523 | |
Visteon Corp., Term Loan B, 3.50%, 4/08/21 | 45,169 | |
$ | 229,692 |
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.
9. Other Derivative Information
At November 30, 2014, the Fund’s investments in derivative contracts are reflected on the Consolidated Statement of Assets and Liabilities as follows:
Asset Derivatives | Liability Derivatives | |||||
Derivative Contracts | Consolidated Statement | Consolidated Statement | ||||
Not Accounted for as | of Assets and | of Assets and | ||||
Hedging Instruments | Liabilities Location | Fair Valuea | Liabilities Location | Fair Valuea | ||
Commodity contracts | Net assets consist of – net | $ | 1,235,079 | Net assets consist of – net | $ | 277,790 |
unrealized appreciation | unrealized appreciation | |||||
(depreciation) | (depreciation) | |||||
Credit contracts | Unrealized appreciation on swap | 27,928 | Unrealized depreciation on swap | 61,398 | ||
contracts / Net assets consist of | contracts / Net assets consist | |||||
– net unrealized appreciation | of – net unrealized | |||||
(depreciation) | appreciation (depreciation) | |||||
Equity contracts | Investments, at value / Unrealized | 4,740,350 | Options written, at value / | 1,230,054 | ||
appreciation on swap contracts / | Unrealized depreciation on | |||||
Net assets consist of – net | swap contracts / Net assets | |||||
unrealized appreciation | consist of – net unrealized | |||||
(depreciation) | appreciation (depreciation) | |||||
Foreign exchange contracts | Investments, at value / Unrealized | 4,003,964 | Options written, at value / | 2,458,965 | ||
appreciation on forward | Unrealized depreciation on | |||||
exchange contracts | forward exchange contracts | |||||
Interest rate contracts | Investments, at value / Net assets | 1,572,559 | Net assets consist of – net | 19,468 | ||
consist of – net unrealized | unrealized appreciation | |||||
appreciation (depreciation) | (depreciation) |
aIncludes cumulative appreciation (depreciation) of futures contracts and centrally cleared swaps as reported in the Consolidated Statement of Investments. Only current day’s variation margin is separately reported within the Consolidated Statement of Assets and Liabilities.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued)
For the period ended November 30, 2014, the effect of derivative contracts on the Fund’s Consolidated Statement of Operations was as follows:
Change in | ||||||
Unrealized | ||||||
Derivative Contracts | Realized | Appreciation | ||||
Not Accounted for as | Gain (Loss) | (Depreciation) | ||||
Hedging Instruments | Consolidated Statement of Operations Locations | for the Period | for the Period | |||
Commodity contracts | Net realized gain (loss) from futures contracts / Net change | $ | 825,477 | $ | 987,912 | |
in unrealized appreciation (depreciation) on futures | ||||||
contracts | ||||||
Credit contracts | Net realized gain (loss) from swap contracts / Net change in | (285,452 | ) | 117,087 | ||
unrealized appreciation (depreciation) on swap contracts | ||||||
Equity contracts | Net realized gain (loss) from investments, written options, | (837,093 | ) | 1,933,086 | ||
futures and swap contracts / Net change in unrealized | ||||||
appreciation (depreciation) on investments, futures and | ||||||
swap contracts | ||||||
Foreign exchange contracts | Net realized gain (loss) from investments, written options | 2,354,158 | 1,641,282 | |||
and foreign currency transactions / Net change in | ||||||
unrealized appreciation (depreciation) on investments | ||||||
and translation of other assets and liabilities denominated | ||||||
in foreign currencies | ||||||
Interest rate contracts | Net realized gain (loss) from investments and futures | 1,491,237 | 892,512 | |||
contracts / Net change in unrealized appreciation | ||||||
(depreciation) on investments and futures contracts |
For the period ended November 30, 2014, the average month end fair value of derivatives represented 2.16% of average month end net assets. The average month end number of open derivative contracts for the period was 636.
At November 30, 2014, the Fund’s OTC derivative assets and liabilities are as follows:
Gross and Net Amounts | ||||
of Assets and Liabilities | ||||
Presented in the | ||||
Consolidated Statement of | ||||
Assets and Liabilities | ||||
Assetsa | Liabilitiesa | |||
Derivatives | ||||
Forward Exchange Contracts | $ | 3,902,348 | $ | 2,453,970 |
Options Purchased | 109,982 | — | ||
Options Written | — | 4,995 | ||
Swap Contracts | 1,830,453 | 948,013 | ||
Total | $ | 5,842,783 | $ | 3,406,978 |
aAbsent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and Liabilities.
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FRANKLIN | ALTERNATIVE STRATEGIES | FUNDS |
NOTES TO | CONSOLIDATED FINANCIAL | STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued)
9. Other Derivative Information (continued)
At November 30, 2014, the Fund’s OTC derivative assets which may be offset against the Fund’s OTC derivative liabilities, and collateral received from the counterparty, is as follows:
Amounts Not Offset in the Consolidated | |||||||||||||
Statement of Assets and Liabilities | |||||||||||||
Gross and Net | |||||||||||||
Amounts of Assets | Financial | ||||||||||||
Presented in the | Financial | Instruments | Cash | ||||||||||
Consolidated Statement of | Instruments | Collateral | Collateral | Net Amount (Not | |||||||||
Assets and Liabilities | Available for Offset | Receiveda | Received | less than zero) | |||||||||
Counterparty | |||||||||||||
BNYM | $ | 476,185 | $ | — | $ | — | $ | — | $ | 476,185 | |||
BOFA | 124,910 | (14,561 | ) | (105,117 | ) | — | 5,232 | ||||||
BZWS | 15,505 | — | — | — | 15,505 | ||||||||
CITI | 26,072 | (450 | ) | — | — | 25,622 | |||||||
CSFB | 66,720 | — | — | — | 66,720 | ||||||||
DBFX | 862,894 | (766,599 | ) | — | — | 96,295 | |||||||
MLCO | 22,819 | — | — | — | 22,819 | ||||||||
MSCS | 933,272 | (172,215 | ) | — | — | 761,057 | |||||||
MSCO | 53,673 | (43,940 | ) | — | — | 9,733 | |||||||
MSCOc | 3,260,733 | (2,218,247 | ) | — | — | 1,042,486 | |||||||
Total | $ | 5,842,783 | $ | (3,216,012 | ) | $ | (105,117 | ) | $ | — | $ | 2,521,654 |
At November 30, 2014, the Fund’s OTC derivative liabilities which may be offset against the Fund’s OTC derivative assets, and collateral pledged to the counterparty, is as follows:
Amounts Not Offset in the Consolidated | |||||||||||
Statement of Assets and Liabilities | |||||||||||
Gross and Net | |||||||||||
Amounts of Liabilities | Financial | ||||||||||
Presented in the | Financial | Instruments | Cash | ||||||||
Consolidated Statement of | Instruments | Collateral | Collateral | Net Amount (Not | |||||||
Assets and Liabilities | Available for Offset | Pledgeda,b | Pledgeda | less than zero) | |||||||
Counterparty | |||||||||||
BNYM | $ | 142,813 | $ | — | $ | — | $ | — | $ | 142,813 | |
BOFA | 14,561 | (14,561 | ) | — | — | — | |||||
BZWS | — | — | — | — | — | ||||||
CITI | 450 | (450 | ) | — | — | — | |||||
CSFB | 41,389 | — | — | — | 41,389 | ||||||
DBFX | 766,599 | (766,599 | ) | — | — | — | |||||
MLCO | 6,764 | — | — | — | 6,764 | ||||||
MSCS | 172,215 | (172,215 | ) | — | — | — | |||||
MSCO | 43,940 | (43,940 | ) | — | — | — | |||||
MSCOc | 2,218,247 | (2,218,247 | ) | — | — | — | |||||
Total | $ | 3,406,978 | $ | (3,216,012 | ) | $ | — | $ | — | $ | 190,966 |
aIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit collateral amounts to avoid the effect of over-
collateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.
bSee the accompanying Consolidated Statement of Investments for securities pledged as collateral for derivatives.
cRepresents derivatives owned by the K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(g).
See abbreviations on page 86.
See Notes 1(d) and 6 regarding derivative financial instruments and investment transactions, respectively.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued)
10. Fair Value Measurements
The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:
- Level 1 – quoted prices in active markets for identical financial instruments
- Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepay- ment speed, credit risk, etc.)
- Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments)
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
A summary of inputs used as of November 30, 2014, 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: | ||||||||
Common Stocks and Other Equity Interestsa | $ | 251,775,411 | $ | — | $ | —b | $ | 251,775,411 |
Exchange Traded Funds | 223,153 | — | — | 223,153 | ||||
Convertible Preferred Stocks | 3,920,848 | 3,784,559 | — | 7,705,407 | ||||
Preferred Stocks | 597,032 | 105,922 | — | 702,954 | ||||
Convertible Bonds | — | 63,909,578 | — | 63,909,578 | ||||
Corporate Bonds and Notes | — | 48,389,950 | — | 48,389,950 | ||||
Corporate Notes in Reorganization | — | 1,626,920 | — | 1,626,920 | ||||
Senior Floating Rate Interests | — | 4,065,679 | — | 4,065,679 | ||||
Foreign Government and Agency Securities | — | 1,979,064 | — | 1,979,064 | ||||
Asset-Backed Securities and Commercial Mortgage-Backed | ||||||||
Securities | — | 7,055,815 | — | 7,055,815 | ||||
Options Purchased | 912,443 | 109,982 | — | 1,022,425 | ||||
Short Term Investments | 44,008,305 | 19,644,487 | — | 63,652,792 | ||||
Total Investments in Securities | $ | 301,437,192 | $ | 150,671,956 | $ | — | $ | 452,109,148 |
Other Financial Instruments | ||||||||
Futures Contracts | $ | 4,860,626 | $ | — | $ | — | $ | 4,860,626 |
Forward Exchange Contracts | — | 3,902,348 | — | 3,902,348 | ||||
Swap Contracts | — | 1,794,481 | — | 1,794,481 | ||||
Unfunded Loan Commitments | — | 1,419 | — | 1,419 | ||||
Total Other Financial Instruments | $ | 4,860,626 | $ | 5,698,248 | $ | — | $ | 10,558,874 |
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FRANKLIN | ALTERNATIVE STRATEGIES | FUNDS |
NOTES TO | CONSOLIDATED FINANCIAL | STATEMENTS (UNAUDITED) |
Franklin K2 Alternative Strategies Fund (continued) | ||||||||
10. Fair Value Measurements (continued) | ||||||||
Level 1 | Level 2 | Level 3 | Total | |||||
Liabilities: | ||||||||
Other Financial Instruments | ||||||||
Options Written | $ | 162,870 | $ | 4,995 | $ | — | $ | 167,865 |
Securities Sold Shorta | 131,233,072 | 7,371,348 | — | 138,604,420 | ||||
Futures Contracts | 524,979 | — | — | 524,979 | ||||
Forward Exchange Contracts | — | 2,453,970 | — | 2,453,970 | ||||
Swap Contracts | — | 900,861 | — | 900,861 | ||||
Total Other Financial Instruments | $ | 131,920,921 | $ | 10,731,174 | $ | — | $ | 142,652,095 |
aFor detailed categories, see the accompanying Consolidated Statement of Investments.
bIncludes securities determined to have no value at November 30, 2014.
A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3
financial investments at the end of the period.
11. New Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860), Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The ASU changes the accounting for certain repurchase agreements and expands disclosure requirements related to repurchase agreements, securities lending, repurchase-to-maturity and similar transactions. The ASU is effective for interim and annual reporting periods beginning after December 15, 2014. Management is currently evaluating the impact, if any, of applying this provision.
12. Subsequent Events
The Fund has evaluated subsequent events through the issuance of the consolidated financial statements and determined that no events have occurred that require disclosure.
Abbreviations | |||||
Counterparty/Exchange | Currency | Selected Portfolio | |||
BNYM | The Bank of New York Mellon | BRL | Brazilian Real | ABS | Asset Backed Security |
BOFA | Bank of America Corp | CAD | Canadian Dollar | ADR | American Depositary Receipt |
BZWS | Barclays Bank PLC | CNY | Chinese Yuan | ARM | Adjustable Rate Mortgage |
CITI | Cititgroup, Inc. | COP | Colombian Peso | CMO | Collateralized Mortgage Obligation |
CME | Chicago Mercantile Exchange | EUR | Euro | ETF | Exchange Traded Fund |
CSFB | Credit Suisse First Boston | GBP | British Pound | FDIC | Federal Deposit Insurance Corporation |
DBFX | Deutsche Bank AG | HKD | Hong Kong Dollar | FRN | Floating Rate Note |
FTSE | Financial Times Stock Exchange | JPY | Japanese Yen | PIK | Payment In-Kind |
HSBC | HSBC Bank USA, N.A. | KRW | Korean Won | REIT | Real Estate Investment Trust |
ICE | Intercontinental Exchange, Inc. | MXN | Mexican Peso | SPDR | Standard & Poor’s Depository Receipt |
JPHQ | JP Morgan Chase & Co. | SGD | Singapore Dollar | ||
MLCO | Merrill Lynch & Co., Inc. | USD | United States Dollar | ||
MSCO | Morgan Stanley & Co., Inc. | ZAR | South African Rand | ||
MSCS | Morgan Stanley Capital Services |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 ALTERNATIVE STRATEGIES FUND
Shareholder Information
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 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 on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
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Semiannual Report
and Shareholder Letter
November 30, 2014
Franklin Pelagos Commodities Strategy Fund
A SERIES OF FRANKLIN ALTERNATIVE STRATEGIES FUNDS
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Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Focus on Investment Excellence
At the core of our firm, you’ll find multiple independent investment teams—each with a focused area of expertise—from traditional to alternative strategies and multi-asset solutions. And because our portfolio groups operate autonomously, their strategies can be combined to deliver true style and asset class diversification.
All of our investment teams share a common commitment to excellence grounded in rigorous, fundamental research and robust, disciplined risk management. Decade after decade, our consistent, research-driven processes have helped Franklin Templeton earn an impressive record of strong, long-term results.
Global Perspective Shaped by Local Expertise
In today’s complex and interconnected world, smart investing demands a global perspective. Franklin Templeton pioneered international investing over 60 years ago, and our expertise in emerging markets spans more than a quarter of a century. Today, our investment professionals are on the ground across the globe, spotting investment ideas and potential risks firsthand. These locally based teams bring in-depth understanding of local companies, economies and cultural nuances, and share their best thinking across our global research network.
Strength and Experience
Franklin Templeton is a global leader in asset management serving clients in over 150 countries.1 We run our business with the same prudence we apply to asset management, staying focused on delivering relevant investment solutions, strong long-term results and reliable, personal service. This approach, focused on putting clients first, has helped us to become one of the most trusted names in financial services.
1. As of 12/31/13. Clients are represented by the total number of shareholder accounts.
Not FDIC Insured | May Lose Value | No Bank Guarantee
Contents | |
Shareholder Letter | 1 |
Semiannual Report | |
Franklin Pelagos Commodities | |
Strategy Fund | 3 |
Performance Summary | 7 |
Your Fund’s Expenses | 10 |
Consolidated Financial Highlights and | |
Consolidated Statement of | |
Investments | 12 |
Consolidated Financial Statements | 19 |
Notes to Consolidated | |
Financial Statements | 23 |
Shareholder Information | 33 |
franklintempleton.com |
Semiannual Report
Franklin Pelagos Commodities Strategy Fund
This semiannual report for Franklin Pelagos Commodities Strategy Fund covers the period ended November 30, 2014.
Your Fund’s Goal and Main Investments
The Fund seeks long-term total return. It invests mainly in commodity-linked derivative instruments and securities of the U.S. government, its agencies and instrumentalities and other fixed income securities.
Performance Overview
The Fund’s Class A shares had a -15.15% cumulative total return for the six months under review. In comparison, its benchmark, the Bloomberg Commodity Index, which measures performance of exchange-traded futures contracts on physical commodities, posted a -15.60% total return for the same period.1,2 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. Please visit franklintempleton.com or call (800) 342-5236 for most recent month-end performance.
Economic and Market Overview
U.S. economic growth trends were generally encouraging during the period. Economic activity improved in the third quarter of 2014, resulting largely from increased consumer spending, business investments, federal defense spending and a narrower trade deficit. The U.S. Federal Reserve Board (Fed) ended its asset purchase program in October, after gradually reducing its purchases during the six-month period, based on its view that underlying economic strength could support ongoing progress in
labor market conditions. The Fed reaffirmed it would maintain its near-zero interest rate policy for a “considerable time” and stated its actions to normalize monetary policy remained dependent on economic performance.
U.S. stocks generated strong returns for the six months under review as measured by the Standard & Poor’s® 500 Index and the Dow Jones Industrial Average. Commodity prices overall ended lower for the period, as measured by the Bloomberg Commodity Index, largely due to steep declines in crude oil prices resulting from weak global demand growth and strong world supply. Gold prices declined amid benign global inflation and a strong U.S. dollar.
Investment Strategy
We utilize an actively managed fundamental and quantitative investment process to provide exposure to the commodities markets by investing in commodity-linked derivative instruments including commodity-linked total return swaps, commodity futures, commodity index futures and options on commodities and commodity index futures, which may provide exposure to foreign and emerging markets. By investing in these derivative instruments, we seek to gain exposure to the returns of real assets that trade in the commodities markets without direct investment in physical commodities. Real assets include such things as industrial and precious metals, gas, oil, livestock, agricultural or meat products and other items.
What is a swap agreement?
A swap agreement, such as a commodity-linked total return swap, is a contract between the Fund and a counterparty to exchange on a future date the returns, or differentials in rates of return, that would have been earned or realized if a notional amount were invested in specific instruments.
1. Source: Morningstar.
2. Prior to 7/1/14, the index was known as the Dow Jones-UBS Commodity Index.
The index is unmanaged and includes reinvested dividends. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio. See www.franklintempletondatasources.com for additional data provider information.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of Investments (SOI).
The Consolidated SOI begins on page 17.
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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
What is a futures contract?
A futures contract, or a future, is an agreement between the Fund and a counterparty made through a U.S. or foreign futures exchange to buy or sell an asset at a specific price on a future date.
What is an option?
An option is a contract to buy or sell a specific financial product known as the option’s underlying instrument at a specific price. The buyer of an option has the right, but not the obligation, to buy or sell the underlying instrument at or until a specified expiration date. Conversely, the seller (“writer”) of an option who opens a transaction is obligated to buy or sell the underlying instrument should the option holder exercise that right.
Portfolio Breakdown*
11/30/14
% of Consolidated
Net Assets
U.S. Treasury Bills | 54.3 | % |
Federal Farm Credit Bank | 29.5 | % |
U.S. Treasury Notes | 18.0 | % |
Institutional Fiduciary Trust Money Market Portfolio | 1.6 | % |
Federal Home Loan Bank | 1.5 | % |
Other Assets, less Liabilities** | -4.9 | % |
*Portfolio breakdown figures are stated as a percentage of total and may not equal
100% or may be negative due to rounding, use of any derivatives, unsettled trades
or other factors.
**Includes unrealized appreciation/depreciation on open futures and swap
contracts, as well as other assets and liabilities. See supplementary commodity
exposure tables on page 5 for additional information related to the Fund’s economic
exposure to commodities.
Manager’s Discussion
During its semiannual period, the Fund obtained its commodities exposure through swaps on commodity indexes and through commodities futures. These exposures were supported with U.S. Treasury bills and other fixed income securities.
During the period under review, overall energy positioning detracted significantly from absolute returns. Other sectors that detracted from absolute performance were agriculture, precious
metals and industrial metals. Conversely, the livestock sector contributed to returns. The Fund’s relative performance also benefited from its positioning in agriculture, particularly corn and soybeans; industrial metals, notably zinc; and livestock over the period. In energy, positioning in refined petroleum products benefited relative performance.
Within the energy sector, crude oil was the largest detractor from returns. U.S. production growth of crude oil and the return of some Libyan production weighed on the global crude oil supply and demand balance. The resulting U.S. commercial stockpiles of crude oil trended above seasonal averages in spite of high refinery utilization rates and low stockpile levels at the oil hub of Cushing, Oklahoma. Although natural gas detracted from absolute returns, a slight underweighting contributed to relative results. Over the period, U.S. natural gas inventories built up strongly through the storage season, as summer cooling demand was below average in peak months.
In the agriculture sector, wheat was a notable detractor from returns as estimates for world production rose to a record high, lessening the demand for U.S. exports. Although concerns arose about European wheat quality due to rain, and exports from former Soviet Union areas, overall wheat prices declined resulting partly from the northern hemisphere’s large harvest. Positive contributions from our corn and soybean positioning helped lessen the negative effects of wheat positioning. Sugar detracted as drought in Brazil, the world’s top producer, was not enough to offset the global surplus, and India, the world’s second-largest producer, experienced ample rainfall and plantings. In the precious metals sector, gold and silver detracted from returns. In the industrial metals sector, aluminum and nickel also weighed on returns. Zinc and copper also hurt returns, but positioning aided relative results. A rising U.S. dollar provided a headwind to metal prices over the period.
In the livestock sector, live cattle and lean hogs contributed to absolute performance. A shrinking U.S. domestic cattle herd and feedlot dynamics supported cattle prices. However, an underweighting hurt relative results. The outbreak of disease in pigs started to be controlled over the period, which pressured lean hog prices, and an underweighting supported relative performance.
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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
Fund Exposure to Commodities
The following table summarizes the Fund’s economic exposure to commodities derived through its investment in commodity-linked total return swap contracts. At 11/30/14, the Fund’s exposure based on notional value represented 78.1% of consolidated net assets.
Commodity-Linked Total Return Swap Exposure* | ||
% of Consolidated Net Assets | ||
Brent Crude Oil | 17.4 | % |
Soybeans | 14.4 | % |
Silver | 9.5 | % |
Aluminum | 8.8 | % |
Zinc | 8.8 | % |
Coffee | 7.6 | % |
Natural Gas | 5.1 | % |
Live Cattle | 3.3 | % |
Lean Hogs | 1.7 | % |
Kansas Wheat | 1.5 | % |
*Figures are stated as a percentage of total and may not equal 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors. The | ||
Fund’s exposure was calculated using the commodity sector weightings of the FP Custom Commodity Index multiplied by the Fund’s percentage notional exposure. |
The following table summarizes the Fund’s economic exposure to commodities derived through its investment in futures contracts.
At 11/30/14, the Fund’s exposure based on notional value represented 20.4% of consolidated net assets.
Commodity Futures Exposure* | ||
% of Consolidated Net Assets | ||
Long | ||
Natural Gas | 4.6 | % |
Soybeans | 3.9 | % |
Brent Crude Oil | 3.2 | % |
Aluminum | 2.4 | % |
Zinc | 2.3 | % |
Coffee | 2.1 | % |
Live Cattle | 0.9 | % |
Lean Hogs | 0.5 | % |
Kansas Wheat | 0.5 | % |
*Figures are stated as a percentage of total and may not equal 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors.
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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
As fellow shareholders, we were disappointed with the Fund’s absolute performance in the recent challenging environment for commodities. However, we remain committed to our active investment process and long-term perspective, keeping in mind that volatility is not uncommon for commodities markets. Thank you for your participation in Franklin Pelagos Commodities Strategy Fund. We look forward to continuing to serve your financial needs.
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The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2014, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
CFA® is a trademark owned by CFA Institute.
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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
Performance Summary as of November 30, 2014
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. 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.
Net Asset Value | ||||||
Share Class (Symbol) | 11/30/14 | 5/31/14 | Change | |||
A (N/A) | $ | 8.01 | $ | 9.44 | -$ | 1.43 |
C (N/A) | $ | 7.95 | $ | 9.41 | -$ | 1.46 |
R (N/A) | $ | 8.00 | $ | 9.44 | -$ | 1.44 |
R6 (FPELX) | $ | 8.04 | $ | 9.46 | -$ | 1.42 |
Advisor (N/A) | $ | 8.14 | $ | 9.58 | -$ | 1.44 |
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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
PERFORMANCE SUMMARY
Performance as of 11/30/141
Cumulative total return excludes sales charges. Average annual total return and value of $10,000 investment include maximum sales charges. Class A: 5.75% maximum initial sales charge; Class C: 1% contingent deferred sales charge in first year only;
Class R/R6/Advisor Class: no sales charges.
Value of | Average Annual | Total Annual Operating Expenses6 | ||||||||||
Cumulative | Average Annual | $ | 10,000 | Total Return | ||||||||
Share Class | Total Return2 | Total Return3 | Investment4 | (12/31/14 | )5 | (with waiver) | (without waiver) | |||||
A | 1.25 | % | 3.58 | % | ||||||||
6-Month | -15.15 | % | -20.06 | % | $ | 7,997 | ||||||
Since Inception (1/10/14) | -9.80 | % | -14.97 | % | $ | 8,503 | -21.34 | % | ||||
C | 1.95 | % | 4.28 | % | ||||||||
6-Month | -15.52 | % | -16.36 | % | $ | 8,364 | ||||||
Since Inception (1/10/14) | -10.47 | % | -11.37 | % | $ | 8,863 | -18.06 | % | ||||
R | 1.45 | % | 3.78 | % | ||||||||
6-Month | -15.25 | % | -15.27 | % | $ | 8,475 | ||||||
Since Inception (1/10/14) | -9.91 | % | - 9.91 | % | $ | 9,009 | -16.78 | % | ||||
R6 | 0.86 | % | 1.78 | % | ||||||||
6-Month | -15.01 | % | -15.01 | % | $ | 8,499 | ||||||
Since Inception (1/10/14) | -9.46 | % | -9.46 | % | $ | 9,054 | -16.33 | % | ||||
Advisor | 0.95 | % | 3.28 | % | ||||||||
6-Month | -15.03 | % | -15.03 | % | $ | 8,497 | ||||||
1-Year | -9.05 | % | -9.05 | % | $ | 9,095 | -16.98 | % | ||||
Since Inception (12/7/11) | -18.60 | % | -6.67 | % | $ | 8,140 | -8.84 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
PERFORMANCE SUMMARY
All investments involve risks, including possible loss of principal. Investing in physical commodities, either directly or through complex instruments such as commodity-linked total return swaps, commodity futures, commodity index futures and options on commodities and commodities index futures, presents unique risks, is speculative and can be extremely volatile. Market prices of commodities may fluctuate rapidly based on numerous factors, including: changes in supply and demand relationships; weather; agriculture; trade; domestic and foreign political and economic events and policies; diseases; pestilence; technological developments; and monetary and other governmental policies, action and inaction. Derivatives involve costs and can create leverage in the Fund’s portfolio, which may result in significant volatility and cause the Fund to participate in losses (as well as gains) in an amount that exceeds the Fund’s initial investment. The Fund may not achieve the anticipated benefits and may realize losses when a counterparty fails to perform as promised. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility and political or social instability, risks that are heightened in developing countries. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
Class C: Class R: Class R6: Advisor Class: | These shares have higher annual fees and expenses than Class A shares. Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. Shares are available to certain eligible investors as described in the prospectus. Shares are available to certain eligible investors as described in the prospectus. |
1. The Fund has an expense reduction contractually guaranteed through at least 9/30/15, a fee waiver related to the management fee paid by a subsidiary, and a fee waiver
associated with its investments in a Franklin Templeton money fund, contractually guaranteed through at least its current fiscal year-end. Fund investment results reflect the
expense reduction and fee waivers, to the extent applicable; 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. Six-month return has not been annualized.
4. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated.
5. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter.
6. Figures are as stated in the Fund’s current prospectus. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to
become higher than the figures shown.
franklintempleton.com
Semiannual Report | 9
FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs:
- Transaction costs, including sales charges (loads) on Fund purchases; and
- Ongoing Fund costs, including management fees, distribu- tion and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses.
The following table 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 first line (Actual) for each share class listed in the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of Fund expenses.
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:
1. | Divide your account value by $1,000. |
If an account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6. | |
2. | Multiply the result by the number under the heading “Expenses Paid During Period.” |
If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50. |
In this illustration, the estimated expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical “Ending Account Value” is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Expenses Paid During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transaction costs, such as sales charges. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
10 | Semiannual Report
franklintempleton.com
FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
YOUR FUND’S EXPENSES
Beginning Account | Ending Account | Expenses Paid During | ||||
Share Class | Value 6/1/14 | Value 11/30/14 | Period* 6/1/14–11/30/14 | |||
A | ||||||
Actual | $ | 1,000 | $ | 848.50 | $ | 5.79 |
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,018.80 | $ | 6.33 |
C | ||||||
Actual | $ | 1,000 | $ | 844.80 | $ | 9.02 |
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,015.29 | $ | 9.85 |
R | ||||||
Actual | $ | 1,000 | $ | 847.50 | $ | 6.72 |
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,017.80 | $ | 7.33 |
R6 | ||||||
Actual | $ | 1,000 | $ | 849.90 | $ | 3.99 |
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,020.76 | $ | 4.36 |
Advisor | ||||||
Actual | $ | 1,000 | $ | 849.70 | $ | 4.41 |
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,020.31 | $ | 4.81 |
*Expenses are calculated using the most recent six-month expense ratio, net of expense waivers, annualized for each class (A: 1.25%; C: 1.95%; R: 1.45%; R6: 0.86%; and Advisor: 0.95%), multiplied by the average account value over the period, multiplied by 183/365 to reflect the one-half year period.
franklintempleton.com
Semiannual Report | 11
FRANKLIN ALTERNATIVE STRATEGIES FUNDS | ||||||
�� | ||||||
Consolidated Financial Highlights | ||||||
Franklin Pelagos Commodities Strategy Fund | ||||||
Six Months Ended | ||||||
November 30, 2014 | Period Ended | |||||
(unaudited) | May 31, 2014a | |||||
Class A | ||||||
Per share operating performance | ||||||
(for a share outstanding throughout the period) | ||||||
Net asset value, beginning of period | $ | 9.44 | $ | 8.88 | ||
Income from investment operationsb: | ||||||
Net investment income (loss)c | (0.05 | ) | (0.08 | ) | ||
Net realized and unrealized gains (losses) | (1.38 | ) | 0.64 | |||
Total from investment operations | (1.43 | ) | 0.56 | |||
Net asset value, end of period | $ | 8.01 | $ | 9.44 | ||
Total returnd | (15.15 | )% | 6.31 | % | ||
Ratios to average net assetse | ||||||
Expenses before waiver, payments by affiliates and expense reduction | 1.92 | %f | 3.38 | % | ||
Expenses net of waiver, payments by affiliates and expense reductiong | 1.25 | %f | 1.25 | % | ||
Net investment income (loss) | (0.96 | )%f | (0.94 | )% | ||
Supplemental data | ||||||
Net assets, end of period (000’s) | $ | 1,164 | $ | 601 | ||
Portfolio turnover rate | —%h | 34.28 | % |
aFor the period January 10, 2014 (commencement of operations) to May 31, 2014.
bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund 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.
fRatios are adjusted to exclude the effects of annualization for non-recurring expenses.
gBenefit of expense reduction rounds to less than 0.01%.
hFor the period there were no purchases or sales of investments (other than short term securities).
12 | | Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS | ||||||
CONSOLIDATED FINANCIAL HIGHLIGHTS | ||||||
Franklin Pelagos Commodities Strategy Fund (continued) | ||||||
Six Months Ended | ||||||
November 30, 2014 | Period Ended | |||||
(unaudited) | May 31, 2014a | |||||
Class C | ||||||
Per share operating performance | ||||||
(for a share outstanding throughout the period) | ||||||
Net asset value, beginning of period | $ | 9.41 | $ | 8.88 | ||
Income from investment operationsb: | ||||||
Net investment income (loss)c | (0.07 | ) | (0.09 | ) | ||
Net realized and unrealized gains (losses) | (1.39 | ) | 0.62 | |||
Total from investment operations | (1.46 | ) | 0.53 | |||
Net asset value, end of period | $ | 7.95 | $ | 9.41 | ||
Total returnd | (15.52 | )% | 5.97 | % | ||
Ratios to average net assetse | ||||||
Expenses before waiver, payments by affiliates and expense reduction | 2.62 | %f | 4.08 | % | ||
Expenses net of waiver, payments by affiliates and expense reductiong | 1.95 | %f | 1.95 | % | ||
Net investment income (loss) | (1.66) | %f | (1.64 | )% | ||
Supplemental data | ||||||
Net assets, end of period (000’s) | $ | 141 | $ | 60 | ||
Portfolio turnover rate | —%h | 34.28 | % |
aFor the period January 10, 2014 (commencement of operations) to May 31, 2014.
bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund 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.
fRatios are adjusted to exclude the effects of annualization for non-recurring expenses.
gBenefit of expense reduction rounds to less than 0.01%.
hFor the period there were no purchases or sales of investments (other than short term securities).
franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 13
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS
Franklin Pelagos Commodities Strategy Fund (continued) | ||||||
Six Months Ended | ||||||
November 30, 2014 | Period Ended | |||||
(unaudited) | May 31, 2014a | |||||
Class R | ||||||
Per share operating performance | ||||||
(for a share outstanding throughout the period) | ||||||
Net asset value, beginning of period | $ | 9.44 | $ | 8.88 | ||
Income from investment operationsb: | ||||||
Net investment income (loss)c | (0.05 | ) | (0.06 | ) | ||
Net realized and unrealized gains (losses) | (1.39 | ) | 0.62 | |||
Total from investment operations | (1.44 | ) | 0.56 | |||
Net asset value, end of period | $ | 8.00 | $ | 9.44 | ||
Total returnd | (15.25 | )% | 6.31 | % | ||
Ratios to average net assetse | ||||||
Expenses before waiver, payments by affiliates and expense reduction | 2.12 | %f | 3.58 | % | ||
Expenses net of waiver, payments by affiliates and expense reductiong | 1.45 | %f | 1.45 | % | ||
Net investment income (loss) | (1.16) | %f | (1.14 | )% | ||
Supplemental data | ||||||
Net assets, end of period (000’s) | $ | 5 | $ | 5 | ||
Portfolio turnover rate | —%h | 34.28 | % |
aFor the period January 10, 2014 (commencement of operations) to May 31, 2014.
bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund 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.
fRatios are adjusted to exclude the effects of annualization for non-recurring expenses.
gBenefit of expense reduction rounds to less than 0.01%.
hFor the period there were no purchases or sales of investments (other than short term securities).
14 | | Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS | ||||||
CONSOLIDATED FINANCIAL HIGHLIGHTS | ||||||
Franklin Pelagos Commodities Strategy Fund (continued) | ||||||
Six Months Ended | ||||||
November 30, 2014 | Period Ended | |||||
(unaudited) | May 31, 2014a | |||||
Class R6 | ||||||
Per share operating performance | ||||||
(for a share outstanding throughout the period) | ||||||
Net asset value, beginning of period | $ | 9.46 | $ | 8.88 | ||
Income from investment operationsb: | ||||||
Net investment income (loss)c | (0.03 | ) | (0.03 | ) | ||
Net realized and unrealized gains (losses) | (1.39 | ) | 0.61 | |||
Total from investment operations | (1.42 | ) | 0.58 | |||
Net asset value, end of period | $ | 8.04 | $ | 9.46 | ||
Total returnd | (15.01 | )% | 6.53 | % | ||
Ratios to average net assetse | ||||||
Expenses before waiver, payments by affiliates and expense reduction | 1.53 | %f | 1.58 | % | ||
Expenses net of waiver, payments by affiliates and expense reductiong | 0.86 | %f | 0.86 | % | ||
Net investment income (loss) | (0.57) | %f | (0.55 | )% | ||
Supplemental data | ||||||
Net assets, end of period (000’s) | $ | 59,695 | $ | 67,732 | ||
Portfolio turnover rate | —%h | 34.28 | % |
aFor the period January 10, 2014 (commencement of operations) to May 31, 2014.
bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund 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.
fRatios are adjusted to exclude the effects of annualization for non-recurring expenses.
gBenefit of expense reduction rounds to less than 0.01%.
hFor the period there were no purchases or sales of investments (other than short term securities).
franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 15
FRANKLIN ALTERNATIVE STRATEGIES FUNDS | ||||||||||||
CONSOLIDATED FINANCIAL HIGHLIGHTS | ||||||||||||
Franklin Pelagos Commodities Strategy Fund (continued) | ||||||||||||
Six Months Ended | ||||||||||||
November 30, 2014 | Year Ended May 31, | |||||||||||
(unaudited) | 2014 | 2013 | 2012 | a | ||||||||
Advisor Class | ||||||||||||
Per share operating performance | ||||||||||||
(for a share outstanding throughout the period) | ||||||||||||
Net asset value, beginning of period | $ | 9.58 | $ | 9.43 | $ | 9.15 | $ | 10.00 | ||||
Income from investment operationsb: | ||||||||||||
Net investment income (loss)c | (0.03 | ) | (0.05 | ) | (0.08 | ) | (0.05 | ) | ||||
Net realized and unrealized gains (losses) | (1.41 | ) | 0.20 | 0.36 | (0.80 | ) | ||||||
Total from investment operations | (1.44 | ) | 0.15 | 0.28 | (0.85 | ) | ||||||
Less distributions from net investment income | — | — | (—)d | — | ||||||||
Net asset value, end of period | $ | 8.14 | $ | 9.58 | $ | 9.43 | $ | 9.15 | ||||
Total returne | (15.03 | )% | 1.59 | % | 3.06 | % | (8.50 | )% | ||||
Ratios to average net assetsf | ||||||||||||
Expenses before waiver, payments by affiliates and expense reduction | 1.62 | %g | 1.88 | % | 1.14 | % | 5.08 | % | ||||
Expenses net of waiver, payments by affiliates and expense reduction | 0.95 | %g,h | 1.04 | %h | 1.10 | % | 1.10 | % | ||||
Net investment income (loss) | (0.66 | )%g | (0.70 | )% | (0.76 | )% | (1.07 | )% | ||||
Supplemental data | ||||||||||||
Net assets, end of period (000’s) | $ | 122 | $ | 126 | $ | 107,853 | $ | 14,374 | ||||
Portfolio turnover rate | —%i | 34.28 | % | 21.47 | % | —%i |
aFor the period December 7, 2011 (commencement of operations) to May 31, 2012.
bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund 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.
gRatios are adjusted to exclude the effects of annualization for non-recurring expenses.
hBenefit of expense reduction rounds to less than 0.01%.
iFor the period there were no purchases or sales of investments (other than short term securities).
16 | | 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, 2014 (unaudited) | |||||
Franklin Pelagos Commodities Strategy Fund | |||||
Principal | |||||
Amount | Value | ||||
U.S. Government and Agency Securities 47.5% | |||||
FFCB, 0.68%, 9/26/16 | $ | 18,000,000 | $ | 18,004,158 | |
U.S. Treasury Notes, 0.25%, 2/29/16 | 11,000,000 | 11,020,437 | |||
Total U.S. Government and Agency Securities (Cost $28,989,871) | 29,024,595 | ||||
Short Term Investments 57.4% | |||||
U.S. Government and Agency Securities 55.8% | |||||
a,bFHLB, 12/01/14 | 925,000 | 925,000 | |||
bU.S. Treasury Bills, | |||||
a,c6/25/15 | 13,900,000 | 13,893,634 | |||
7/23/15 | 19,300,000 | 19,289,018 | |||
Total U.S. Government and Agency Securities (Cost $34,106,597) | 34,107,652 | ||||
Shares | |||||
Money Market Funds (Cost $979,339) 1.6% | |||||
d,eInstitutional Fiduciary Trust Money Market Portfolio | 979,339 | 979,339 | |||
Total Investments (Cost $64,075,807) 104.9% | 64,111,586 | ||||
fOther Assets, less Liabilities (4.9)% | (2,983,972 | ) | |||
Net Assets 100.0% | $ | 61,127,614 |
aA portion or all of the security is owned by FPC Holdings Corp., a wholly-owned subsidiary of the Fund. See Note 1(c).
bThe security is traded on a discount basis with no stated coupon rate.
cSecurity or a portion of the security has been pledged as collateral for open futures and swap contracts. At November 30, 2014, the value of this security and/or cash
pledged as collateral was $2,111,058, representing 3.45% of net assets.
dNon-income producing.
eSee Note 3(f) regarding investments in Institutional Fiduciary Trust Money Market Portfolio.
fIncludes unrealized appreciation/depreciation on open commodity futures and swap contracts, as well as other assets and liabilities.
franklintempleton.com
Semiannual Report | 17
FRANKLIN ALTERNATIVE STRATEGIES FUNDS | ||||||||||
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED) | ||||||||||
Franklin Pelagos Commodities Strategy Fund (continued) | ||||||||||
At November 30, 2014, the Fund had the following futures contracts outstanding. See Note 1(b). | ||||||||||
Futures Contractsa | ||||||||||
Number of | Notional | Expiration | Unrealized | Unrealized | ||||||
Description | Type | Contracts | Value | Date | Appreciation | Depreciation | ||||
Commodity Contracts | ||||||||||
Aluminum | Long | 29 | $ | 1,456,888 | 12/15/14 | $ | — | $ | (43,080 | ) |
Brent Crude Oil | Long | 28 | 1,991,920 | 2/12/15 | — | (326,350 | ) | |||
Coffee | Long | 18 | 1,265,288 | 3/19/15 | — | (52,046 | ) | |||
Kansas Wheat | Long | 9 | 288,000 | 3/13/15 | 10,768 | — | ||||
Lean Hogs | Long | 8 | 289,040 | 12/12/14 | 7,418 | — | ||||
Live Cattle | Long | 8 | 540,400 | 12/31/14 | 9,178 | — | ||||
Natural Gas | Long | 69 | 2,820,720 | 12/29/14 | — | (27,971 | ) | |||
Soybeans | Long | 47 | 2,387,600 | 1/14/15 | — | (55,265 | ) | |||
Zinc | Long | 26 | 1,437,312 | 12/15/14 | — | (67,110 | ) | |||
Total | $ | 12,477,168 | 27,364 | (571,822 | ) | |||||
Net unrealized appreciation (depreciation) | $ | (544,458 | ) |
At November 30, 2014, the Fund had the following commodity-linked total return swap contracts outstanding. See Note 1(b).
Commodity-Linked Total Return Swap Contractsa | |||||||||||
Fund | Notional | Expiration | Unrealized | Unrealized | |||||||
Counterparty | Fund Receives | Pays | Value | Date | Appreciation | Depreciation | |||||
MSCS | Return of the FP Custom Commodity Indexb 0.22% | $ | 47,761,736 | 12/05/14 | $ — | $ | (2,938,264 | ) | |||
Net unrealized appreciation (depreciation) | $ | (2,938,264 | ) | ||||||||
aA portion or all of the contract is owned by FPC Holdings Corp., a wholly-owned subsidiary of the Fund. See Note 1(c). | |||||||||||
bThe following table provides additional detail for each custom swap: | |||||||||||
Description | Notional Value | Unrealized Appreciation | Unrealized Depreciation | ||||||||
Bloomberg Commodity Aluminum Subindex | $ | 5,349,314 | $ | — | $ | (110,567 | ) | ||||
Bloomberg Commodity Brent Crude Oil Subindex | 10,650,867 | — | (2,134,654 | ) | |||||||
Bloomberg Commodity Coffee Subindex | 4,632,889 | — | (127,564 | ) | |||||||
Bloomberg Commodity Kansas Wheat Subindex | 955,235 | 75,009 | — | ||||||||
Bloomberg Commodity Lean Hogs Subindex | 1,050,758 | 4,361 | — | ||||||||
Bloomberg Commodity Live Cattle Subindex | 2,053,755 | 22,064 | — | ||||||||
Bloomberg Commodity Natural Gas Subindex | 3,104,513 | 106,937 | — | ||||||||
Bloomberg Commodity Silver Subindex | 5,826,932 | — | (231,778 | ) | |||||||
Bloomberg Commodity Soybeans Subindex | 8,788,159 | — | (297,262 | ) | |||||||
Bloomberg Commodity Zinc Subindex | 5,349,314 | — | (244,810 | ) | |||||||
Total | $ | 47,761,736 | 208,371 | (3,146,635 | ) | ||||||
Net unrealized appreciation (depreciation) | $ | (2,938,264 | ) |
See Abbreviations on page 32.
18 | | Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
Consolidated Financial Statements
Consolidated Statement of Assets and Liabilities
November 30, 2014 (unaudited)
Franklin Pelagos Commodities Strategy Fund | |||
Assets: | |||
Investments in securities: | |||
Cost - Unaffiliated issuers | $ | 63,096,468 | |
Cost - Sweep Money Fund (Note 3f) | 979,339 | ||
Total cost of investments | $ | 64,075,807 | |
Value - Unaffiliated issuers | $ | 63,132,247 | |
Value - Sweep Money Fund (Note 3f) | 979,339 | ||
Total value of investments | 64,111,586 | ||
Cash | 331,263 | ||
Receivables: | |||
Capital shares sold | 447 | ||
Interest | 28,673 | ||
Affiliates | 101,674 | ||
Offering costs | 31,026 | ||
Other assets | 10 | ||
Total assets | 64,604,679 | ||
Liabilities: | |||
Payables: | |||
Distribution fees | 396 | ||
Transfer agent fees | 1,292 | ||
Variation margin | 474,813 | ||
Trustees’ fees and expenses | 39,873 | ||
Unrealized depreciation on OTC swap contracts | 2,938,264 | ||
Accrued expenses and other liabilities | 22,427 | ||
Total liabilities | 3,477,065 | ||
Net assets, at value | $ | 61,127,614 | |
Net assets consist of: | |||
Paid-in capital | $ | 73,027,348 | |
Accumulated net investment loss | (864,545 | ) | |
Net unrealized appreciation (depreciation) | (3,446,943 | ) | |
Accumulated net realized gain (loss) | (7,588,246 | ) | |
Net assets, at value | $ | 61,127,614 |
franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 19
FRANKLIN ALTERNATIVE STRATEGIES FUNDS | |||
CONSOLIDATED FINANCIAL STATEMENTS | |||
Consolidated Statement of Assets and Liabilities (continued) | |||
November 30, 2014 (unaudited) | |||
Franklin Pelagos Commodities Strategy Fund | |||
Class A: | |||
Net assets, at value | $ | 1,164,109 | |
Shares outstanding | 145,326 | ||
Net asset value per sharea | $ | 8.01 | |
Maximum offering price per share (net asset value per share ÷ 94.25%) | $ | 8.50 | |
Class C: | |||
Net assets, at value | $ | 141,230 | |
Shares outstanding | 17,761 | ||
Net asset value and maximum offering price per sharea | $ | 7.95 | |
Class R: | |||
Net assets, at value | $ | 4,503 | |
Shares outstanding | 563 | ||
Net asset value and maximum offering price per share | $ | 8.00 | |
Class R6: | |||
Net assets, at value | $ | 59,695,405 | |
Shares outstanding | 7,428,453 | ||
Net asset value and maximum offering price per share | $ | 8.04 | |
Advisor Class: | |||
Net assets, at value | $ | 122,367 | |
Shares outstanding | 15,039 | ||
Net asset value and maximum offering price per share | $ | 8.14 |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
20 | | Semiannual Report | The accompanying notes are an integral part of these consolidated financial statements. franklintempleton.com |
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations
for the six months ended November 30, 2014 (unaudited)
Franklin Pelagos Commodities Strategy Fund | |||
Investment income: | |||
Interest | $ | 95,250 | |
Expenses: | |||
Management fees (Note 3a) | 280,132 | ||
Distribution fees: (Note 3c) | |||
Class A | 1,269 | ||
Class C | 584 | ||
Class R | 13 | ||
Transfer agent fees: (Note 3e) | |||
Class A | 340 | ||
Class C | 47 | ||
Class R | 2 | ||
Class R6 | 2,081 | ||
Advisor Class | 58 | ||
Custodian fees (Note 4) | 452 | ||
Reports to shareholders | 5,296 | ||
Registration and filing fees | 29,410 | ||
Professional fees | 36,552 | ||
Trustees’ fees and expenses | 82,096 | ||
Amortization of offering costs | 137,389 | ||
Other | 3,646 | ||
Total expenses | 579,367 | ||
Expense reductions (Note 4) | (73 | ) | |
Expenses waived/paid by affiliates (Notes 3f and 3g) | (289,397 | ) | |
Net expenses | 289,897 | ||
Net investment income (loss) | (194,647 | ) | |
Realized and unrealized gains (losses): | |||
Net realized gain (loss) from: | |||
Investments | 1,018 | ||
Futures contracts | (1,392,432 | ) | |
Swap contracts | (6,001,884 | ) | |
Net realized gain (loss) | (7,393,298 | ) | |
Net change in unrealized appreciation (depreciation) on: | |||
Investments | 42,173 | ||
Futures contracts | (469,154 | ) | |
Swap contracts | (2,566,296 | ) | |
Net change in unrealized appreciation (depreciation) | (2,993,277 | ) | |
Net realized and unrealized gain (loss) | (10,386,575 | ) | |
Net increase (decrease) in net assets resulting from operations | $ | (10,581,222 | ) |
franklintempleton.com The accompanying notes are an integral part of these consolidated financial statements. | Semiannual Report | 21
FRANKLIN ALTERNATIVE STRATEGIES FUNDS | ||||||
CONSOLIDATED FINANCIAL STATEMENTS | ||||||
Consolidated Statements of Changes in Net Assets | ||||||
Franklin Pelagos Commodities Strategy Fund | ||||||
Six Months Ended | ||||||
November 30, 2014 | Year Ended | |||||
(unaudited) | May 31, 2014 | |||||
Increase (decrease) in net assets: | ||||||
Operations: | ||||||
Net investment income (loss) | $ | (194,647 | ) | $ | (607,541 | ) |
Net realized gain (loss) from investments, written options, futures and swap contracts | (7,393,298 | ) | (1,896,955 | ) | ||
Net change in unrealized appreciation (depreciation) on investments, futures and swap | ||||||
contracts | (2,993,277 | ) | 812,201 | |||
Net increase (decrease) in net assets resulting from operations | (10,581,222 | ) | (1,692,295 | ) | ||
Capital share transactions: (Note 2) | ||||||
Class A | 715,451 | 603,708 | ||||
Class C | 102,642 | 60,381 | ||||
Class R | — | 5,000 | ||||
Class R6 | 2,343,800 | 63,196,459 | ||||
Advisor Class | 22,503 | (101,501,673 | ) | |||
Total capital share transactions | 3,184,396 | (37,636,125 | ) | |||
Net increase (decrease) in net assets | (7,396,826 | ) | (39,328,420 | ) | ||
Net assets: | ||||||
Beginning of period | 68,524,440 | 107,852,860 | ||||
End of period | $ | 61,127,614 | $ | 68,524,440 | ||
Accumulated net investment loss included in net assets: | ||||||
End of period | $ | (864,545 | ) | $ | (669,898 | ) |
22 | | 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 (unaudited)
Franklin Pelagos Commodities Strategy Fund
1. Organization and Significant Accounting Policies
Franklin Alternative Strategies Funds (Trust) is registered under the Investment Company Act of 1940, as amended, (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). The Franklin Pelagos Commodities Strategy Fund (Fund) is included in this report. The financial statements of the remaining fund in the Trust is presented separately. The Fund offers five classes of shares: Class A, Class C, Class R, Class R6 and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees primarily 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 at the close of the New York Stock Exchange (NYSE), generally at 4 p.m. Eastern time (NYSE close) on each day the NYSE is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Debt securities generally trade in the over-the-counter (OTC) market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not
exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Investments in open-end mutual funds are valued at the closing NAV.
Derivative financial instruments (derivatives) listed on an exchange are valued at the official closing price of the day. Certain derivatives 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 VLOC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VLOC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
b. Derivative Financial Instruments
The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to
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Semiannual Report | 23
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
1. Organization and Significant Accounting
Policies (continued)
b. Derivative Financial Instruments (continued)
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 on 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 counterpar-ties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counter-party 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 coun-terparty 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 coun-terparty 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.
The Fund entered into exchange traded futures contracts primarily to gain exposure to commodity price risk. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset for 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 on the Consolidated Statement of Assets and Liabilities.
The Fund entered into OTC commodity-linked total return swap contracts primarily to gain exposure to commodity price risk of an underlying instrument or index. A commodity-linked total return swap is an agreement between the Fund and a counterparty to exchange a market linked return for a floating or fixed rate payment, both based upon a notional amount. Over the term of the contract, contractually required payments to be paid or received are accrued daily and recorded as unrealized appreciation or depreciation until the payments are made, at which time they are recognized as realized gain or loss.
The Fund purchased or wrote exchange traded option contracts primarily to manage and/or gain exposure to commodity price risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. Options purchased are recorded as an asset while options written are recorded as a liability. 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
24 | Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
through expiration or exercise, the difference between the premium and the cost to close the position is recorded as a realized gain or loss.
See Note 7 regarding other derivative information.
c. Investments in FPC Holdings Corp. (FP Subsidiary)
The Fund invests in certain financial instruments and commodity-linked derivative investments through its investment in the FP Subsidiary. The FP Subsidiary is a Cayman Islands exempted company with limited liability, is a wholly-owned subsidiary of the Fund, and is able to invest in certain financial instruments and commodity-linked derivative investments consistent with the investment objective of the Fund. At November 30, 2014, the FP Subsidiary’s investments, as well as any other assets and liabilities of the FP Subsidiary are reflected in the Fund’s Consolidated Statement of Investments and Consolidated Statement of Assets and Liabilities. The financial statements have been consolidated and include the accounts of the Fund and the FP Subsidiary. All intercompany transactions and balances have been eliminated. At November 30, 2014, the net assets of the FP Subsidiary were $11,728,712, representing 19.19% of the Fund’s consolidated net assets. The Fund’s investment in the FP subsidiary is limited to 25% of consolidated assets.
d. Income Taxes
It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. As of November 30, 2014, and for all open tax years, the Fund has determined that no liability for unrecognized tax benefits is required in the Fund’s consolidated financial statements related to uncertain tax positions taken on a tax return (or expected to be taken on future tax returns). Open tax years are those that remain subject to
examination and are based on each tax jurisdiction statute of limitation.
e. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.
Common expenses incurred by the Trust are allocated among the funds based on the ratio of net assets of each fund to the combined net assets of the Trust. Fund specific expenses are charged directly to the fund that incurred the expense.
Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.
f. Offering Costs
Offering costs are amortized on a straight line basis over twelve months.
g. 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.
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Semiannual Report | 25
FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
1. Organization and Significant Accounting
Policies (continued)
h. 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, 2014, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
Six Months Ended | Year Ended | |||||||||||
November 30, 2014 | May 31, 2014 | |||||||||||
Shares | Amount | Shares | Amount | |||||||||
Class A Sharesa: | ||||||||||||
Shares sold | 123,982 | $ | 1,096,815 | 75,514 | $ | 718,445 | ||||||
Shares redeemed | (42,256 | ) | (381,364 | ) | (11,914 | ) | (114,737 | ) | ||||
Net increase (decrease) | 81,726 | $ | 715,451 | 63,600 | $ | 603,708 | ||||||
Class C Sharesa: | ||||||||||||
Shares sold | 12,386 | $ | 112,004 | 8,075 | $ | 76,224 | ||||||
Shares redeemed | (1,046 | ) | (9,362 | ) | (1,654 | ) | (15,843 | ) | ||||
Net increase (decrease) | 11,340 | $ | 102,642 | 6,421 | $ | 60,381 | ||||||
Class R Sharesa: | ||||||||||||
Shares sold | 564 | $ | 5,009 | |||||||||
Shares redeemed | (1 | ) | (9 | ) | ||||||||
Net increase (decrease) | 563 | $ | 5,000 | |||||||||
Class R6 Sharesa: | ||||||||||||
Shares soldb | 289,493 | $ | 2,543,800 | 11,748,644 | $ | 104,424,968 | ||||||
Shares redeemed | (23,725 | ) | (200,000 | ) | (4,585,959 | ) | (41,228,509 | ) | ||||
Net increase (decrease) | 265,768 | $ | 2,343,800 | 7,162,685 | $ | 63,196,459 | ||||||
Advisor Class Shares: | ||||||||||||
Shares sold | 12,204 | $ | 112,264 | 2,392,658 | $ | 21,918,861 | ||||||
Shares redeemedb | (10,328 | ) | (89,761 | ) | (13,817,865 | ) | (123,420,534 | ) | ||||
Net increase (decrease) | 1,876 | $ | 22,503 | (11,425,207 | ) | $ | (101,501,673 | ) | ||||
aFor the period January 10, 2014 (commencement of operations) to May 31, 2014. | ||||||||||||
bEffective January 10, 2014 a portion of Advisor Class shares were exchanged into Class R6. |
26 | Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
Subsidiary | Affiliation |
Franklin Alternative Strategies Advisers, LLC (FASA) | |
(formerly Pelagos Capital Management, LLC) | Investment manager |
Franklin Templeton Services, LLC (FT Services) | Administrative manager |
Franklin Templeton Distributors, Inc. (Distributors) | Principal underwriter |
Franklin Templeton Investor Services, LLC (Investor Services) | Transfer agent |
a. Management Fees
The Fund and FP Subsidiary pay an investment management fee to FASA of 0.85% per year of the average daily net assets of the Fund and FP Subsidiary. Management fees paid by the Fund are reduced on assets invested in the FP Subsidiary, in an amount not to exceed the management fees paid by the FP Subsidiary.
b. Administrative Fees
Under an agreement with FASA, FT Services provides administrative services to the Fund and FP Subsidiary. The fee is paid by FASA based on the Fund and FP Subsidiary average daily net assets, and is not an additional expense of the Fund or FP Subsidiary.
c. Distribution Fees
The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are not charged on shares held by affiliates. 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 for each fund.
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 | % |
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the period:
Sales charges retained net of commissions paid to unaffiliated broker/dealers | $ | 1,670 |
CDSC retained | $ | — |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
3. Transactions with Affiliates (continued)
e. Transfer Agent Fees
Each class of shares, except for Class R6, pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations and reimburses Investor Services for out of pocket expenses incurred, including shareholding 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, 2014, the Fund paid transfer agent fees of $2,528, of which $1,745 was retained by Investor Services.
f. Investments in Institutional Fiduciary Trust Money Market Portfolio
The Fund invests in Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an affiliated open-end management investment company. Management fees paid by the Fund are waived on assets invested in the Sweep Money Fund, as noted on the Consolidated Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by the Sweep Money Fund. Prior to June 1, 2013, the waiver was accounted for as a reduction to management fees.
g. Waiver and Expense Reimbursements
FASA has contractually agreed in advance to waive or limit its fees and to assume as its own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses) for each class of the Fund do not exceed 0.95%, and Class R6 does not exceed 0.86% based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until September 30, 2015.
h. Other Affiliated Transactions
At November 30, 2014, the shares of the Fund were owned by the following entities:
Percentage of Consolidated | |||
Shares | Outstanding Shares | ||
Franklin Moderate Allocation Fund | 3,091,053 | 40.63 | % |
Franklin Conservative Allocation Fund | 1,849,064 | 24.31 | % |
Franklin Growth Allocation Fund | 1,700,201 | 22.35 | % |
Franklin Multi-Asset Real Return Fund | 336,711 | 4.43 | % |
Franklin LifeSmart 2025 Retirement Target Fund | 126,611 | 1.66 | % |
Franklin LifeSmart 2035 Retirement Target Fund | 102,696 | 1.35 | % |
Franklin LifeSmart 2015 Retirement Target Fund | 89,402 | 1.18 | % |
Franklin LifeSmart 2045 Retirement Target Fund | 68,634 | 0.90 | % |
Franklin LifeSmart 2030 Retirement Target Fund | 21,427 | 0.28 | % |
Franklin LifeSmart 2020 Retirement Target Fund | 18,693 | 0.25 | % |
Franklin LifeSmart 2040 Retirement Target Fund | 13,310 | 0.17 | % |
Franklin LifeSmart 2050 Retirement Target Fund | 10,088 | 0.13 | % |
Franklin Resources, Inc. | 1,689 | 0.02 | % |
28 | Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
4. Expense Offset Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. During the period ended November 30, 2014, the custodian fees were reduced as noted in the Consolidated Statement of Operations.
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains, if any. At May 31, 2014, the Fund had long-term capital loss carryforwards of $194,949 not subject to expiration.
For tax purposes, the Fund may elect to defer any portion of a late-year ordinary loss to the first day of the following fiscal year. At May 31, 2014, the Fund deferred late-year ordinary losses of $598,418.
At November 30, 2014, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
Cost of investments | $ | 64,068,280 | |
Unrealized appreciation | $ | 44,183 | |
Unrealized depreciation | (877 | ) | |
Net unrealized appreciation (depreciation) | $ | 43,306 |
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of bond discounts and premiums and non-deductible expenses.
6. Investment Transactions
There were no purchases or sales of investments (other than short term securities) for the period ended November 30, 2014.
7. Other Derivative Information
At November 30, 2014, the Fund’s investments in derivative contracts are reflected on the Consolidated Statement of Assets and Liabilities as follows:
Asset Derivatives | Liability Derivatives | |||||
Derivative Contracts | ||||||
Not Accounted for as | Consolidated Statement of Assets | Consolidated Statement of Assets | ||||
Hedging Instruments | and Liabilities Location | Fair Valuea | and Liabilities Location | Fair Value | ||
Commodity contracts | Net assets consist of - net | $ | 27,364 | Unrealized depreciation on | $ | 3,510,086 |
unrealized appreciation | swap contracts / Net assets | |||||
(depreciation) | consist of - net unrealized | |||||
appreciation (depreciation) |
aIncludes cumulative appreciation (depreciation) of futures contracts as reported in the Consolidated Statement of Investments. Only current day’s variation margin is separately reported within the Consolidated Statement of Assets and Liabilities.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
7. Other Derivative Information (continued)
For the period ended November 30, 2014, the effect of derivative contracts on the Fund’s Consolidated Statement of Operations was as follows:
Change in | |||||||
Unrealized | |||||||
Derivative Contracts | Realized Gain | Appreciation | |||||
Not Accounted for as | Consolidated | (Loss) for | (Depreciation) | ||||
Hedging Instruments | Statement of Operations Locations | the Period | for the Period | ||||
Commodity contracts | Net realized gain (loss) from futures and swap contracts / | $ | (7,394,316 | ) | $ | (3,035,450 | ) |
Net change in unrealized appreciation (depreciation) on | |||||||
futures and swap contracts |
For the period ended November 30, 2014, the average month end fair value of derivatives represented 6.08% of average month end net assets. The average month end number of open derivative contracts for the period was 10.
At November 30, 2014, the Fund’s OTC derivative assets and liabilities, are as follows:
Gross and Net Amounts of Assets and Liabilities Presented | |||
in the Consolidated Statement of Assets and Liabilities | |||
Assetsa | Liabilitiesa | ||
Derivatives | |||
Swap Contracts | $ — | $2,938,264 |
aAbsent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and Liabilities.
At November 30, 2014, the Fund’s OTC derivative assets which may be offset against the Fund’s OTC derivative liabilities and collateral received from the counterparty, is as follows:
Amounts Not Offset in the Consolidated | |||||
Statement of Assets and Liabilities | |||||
Gross and | |||||
Net Amounts of | Financial | Financial | |||
Assets Presented in the | Instruments | Instruments | Cash | Net Amount | |
Consolidated Statement of | Available for | Collateral | Collateral | (Not less | |
Assets and Liabilities | Offset | Received | Received | than zero) | |
Counterparty | |||||
MSCS | $ — | $ — | $ — | $ — | $ — |
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
At November 30, 2014, the Fund’s OTC derivative liabilities which may be offset against the Fund’s OTC derivative assets and collateral pledged to the counterparty, is as follows:
Amounts Not Offset in the Consolidated | |||||||||
Statement of Assets and Liabilities | |||||||||
Gross and | |||||||||
Net Amounts of | Financial | Financial | |||||||
Liabilities Presented in the | Instruments | Instruments | Cash | Net Amount | |||||
Consolidated Statement of | Available for | Collateral | Collateral | (Not less | |||||
Assets and Liabilities | Offset | Pledgeda | Pledged | than zero) | |||||
Counterparty | |||||||||
MSCS | $ | 2,938,264 | $ — | $ | (446,821 | ) | $ — | $ | 2,491,443 |
aSee the accompanying Consolidated Statement of Investments for securities pledged as collateral for derivatives. |
See Note 1(b) regarding derivative financial instruments.
See Abbreviations on page 32.
8. Credit Facility
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $1.5 billion (Global Credit Facility) which, after an extension of the original terms, matures on February 13, 2015. 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 0.07% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses on the Consolidated Statement of Operations. During the period ended November 30, 2014, the Fund did not use the Global Credit Facility.
9. Fair Value Measurements
The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:
- Level 1 – quoted prices in active markets for identical financial instruments
- Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.)
- Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments)
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Franklin Pelagos Commodities Strategy Fund (continued)
9. Fair Value Measurements (continued)
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
A summary of inputs used as of November 30, 2014, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:
Level 1 | Level 2 | Level 3 | Total | |||||
Assets: | ||||||||
Investments in Securities: | ||||||||
U.S. Government and Agency Securities | $ | — | $ | 29,024,595 | $ | — | $ | 29,024,595 |
Short Term Investments | 34,161,991 | 925,000 | — | 35,086,991 | ||||
Total Investments in Securities | $ | 34,161,991 | $ | 29,949,595 | $ | — | $ | 64,111,586 |
Other Financial Instruments | ||||||||
Futures Contracts | $ | 27,364 | $ | — | $ | — | $ | 27,364 |
Liabilities: | ||||||||
Other Financial Instruments | ||||||||
Futures Contracts | $ | 571,822 | $ | — | $ | — | $ | 571,822 |
Swap Contracts | — | 2,938,264 | — | 2,938,264 | ||||
Total Other Financial Instruments | $ | 571,822 | $ | 2,938,264 | $ | — | $ | 3,510,086 |
A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the end of the period.
10. New Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860), Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The ASU changes the accounting for certain repurchase agreements and expands disclosure requirements related to repurchase agreements, securities lending, repurchase-to-maturity and similar transactions. The ASU is effective for interim and annual reporting periods beginning after December 15, 2014. Management is currently evaluating the impact, if any, of applying this provision.
11. Subsequent Events
The Fund has evaluated subsequent events through the issuance of the consolidated financial statements and determined that no events have occurred that require disclosure.
Abbreviations | ||
Counterparty | Selected Portfolio | |
MSCS Morgan Stanley Capital Services, LLC | FFCB | Federal Farm Credit Bank |
FHLB | Federal Home Loan Bank |
32 | Semiannual Report
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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN PELAGOS COMMODITIES STRATEGY FUND
Shareholder Information
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. 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 posted on the U.S. Securities and Exchange Commission’s web-site at sec.gov and reflect the most recent 12-month period ended June 30.
Quarterly Statement of Investments
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 on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
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![](https://capedge.com/proxy/N-CSRS/0001535538-15-000010/s01151x40x1.jpg)
Item 2. Code of Ethics.
(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.
Item 3. Audit Committee Financial Expert.
(a)(1) The Registrant has an audit committee financial expert serving on its audit committee.
(2) The audit committee financial expert is Ann Torre Bates and she is “independent” as defined under the relevant Securities and Exchange Commission Rules and Releases.
Item 4. Principal Accountant Fees and Services. N/A
Item 5. Audit Committee of Listed Registrants. N/A
Item 6. Schedule of Investments. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. N/A
Item 8. Portfolio Managers of Closed-End Management Investment Companies. N/A
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. N/A
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein.
Item 11. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There have been no changes in the Registrant’s internal controls or in other factors that could materially affect the internal controls over financial reporting subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR.
Item 12. Exhibits.
(a) (1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gary P. Watson, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gary P. Watson, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN ALTERATIVE STRATEGIES FUNDS
By /s/ Laura F. Fergerson
Laura F. Fergerson
Chief Executive Officer – Finance and Administration
Date January 27, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/ Laura F. Fergerson
Laura F. Fergerson
Chief Executive Officer – Finance and Administration
Date January 27, 2015
By /s/ Gary P. Watson
Gary P. Watson
Chief Financial Officer and Chief Accounting Officer
Date January 27, 2015