Franklin K2 Alternative Strategies Fund NCSRS Certified semi-annual shareholder report (management investment company)

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: 11/30/16

Item 1. Reports to Stockholders.


Contents
Semiannual Report
Franklin K2 Alternative Strategies Fund	3
Performance Summary	7
Your Fund’s Expenses	9
Consolidated Financial Highlights and Consolidated
Statement of Investments	10
Consolidated Financial Statements	72
Notes to Consolidated Financial Statements	76
Shareholder Information	92

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

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Semiannual Report

Franklin K2 Alternative Strategies Fund

This semiannual report for Franklin K2 Alternative Strategies Fund covers the period ended November 30, 2016.

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 relative value, long short equity, global macro and event driven. The Fund is structured as a multi-manager fund, meaning the Fund’s assets are independently managed by multiple 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

The Fund’s Class A shares delivered a +1.90% cumulative total return for the six months under review. For comparison, the Fund’s primary benchmark, the BofA Merrill Lynch 3-Month U.S. Treasury Bill (T-Bill) Index, which tracks the performance of short-term U.S. government securities with a remaining term to final maturity of less than three months, posted a +0.18% total return for the same period.¹Also 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, generated a +2.68% total return for the same period.²You can find more of the Fund’s performance data in the Performance Summary beginning on page 7.

*Figures represent the net Fund exposure and include certain derivatives held in the portfolio (or their underlying reference assets) or unsettled trades and may not total 100% or may be negative due to rounding, use of any derivatives or other factors.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Economic and Market Overview

The global economy expanded during the six months under review. In this environment, global developed and emerging market stocks, as measured by the MSCI All Country World Index, rose. Global markets were aided by accommodative monetary policies of various central banks, an improvement in commodity prices, generally encouraging economic data across regions, expectations of higher interest rates and inflation in the U.S. driven by hopes of expansionary fiscal policies under the new U.S. President Donald Trump, and an Organization of the Petroleum Exporting Countries deal to curb oil production. However, the impact of these factors was partially offset by global economic concerns, the U.K.’s historic referendum to leave the European Union (also known as “Brexit”), uncertainty

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 indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an
index, and an index is not representative of the Fund’s portfolio. Unlike most asset class indexes, HFR Index returns reflect fees and expenses.
See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of Investments (SOI).
The Consolidated SOI begins on page 15.

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about the U.S. Federal Reserve’s (Fed’s) timing for raising interest rates and worries about the health of European banks.

The U.S. economy strengthened during the six months under review. The economy grew at a faster pace in 2016’s third quarter compared to the second quarter, mainly due to personal consumption expenditure, exports, private inventory investment, federal government spending and nonresidential fixed investment. Although the Fed kept its target interest rate unchanged during the review period, and lowered its forecast for 2016 U.S. economic growth at the September meeting, it maintained its stance that the case for a U.S. interest rate increase had strengthened. Further, the Fed Chair Janet Yellen, at her testimony to the Congress’ Joint Economic Committee in November, set the stage for an interest rate hike in December, as long as data continued to provide evidence of economic resilience.

In Europe, the U.K.’s economy moderated in the third quarter, supported by growth in services. Immediate effects of the Brexit vote in June materialized as U.K. stocks initially declined, the pound sterling hit a three-decade low amid intensified selling and the U.K.’s credit rating was downgraded. In the eurozone, despite investors’ concerns about banking sector weakness, low corporate earnings and post-Brexit political repercussions, some regions benefited due to rising consumer spending, resulting from a cheaper euro, low inflation and signs of sustained economic growth. The eurozone’s economic growth held steady in the third quarter from the second quarter, while the region’s annual inflation rate rose to its highest level since April 2014 toward period-end. The European Central Bank cut its benchmark interest rate and expanded its massive bond-buying program in August 2016 to boost the region’s growth.

In Asia, Japan’s economic growth slowed in the second quarter compared to the first quarter, amid falling exports and weak corporate investment. However, the Japanese economy grew significantly in the third quarter, largely due to a rise in exports. After announcing additional monetary easing measures in July, the Bank of Japan, at its September meeting, overhauled its monetary stimulus program to adjust Japanese government bond purchases with the aim of keeping the 10-year rate near the current level of 0%.

In emerging markets, economic growth generally moderated during the review period. Although the pace of contraction in Brazil’s economy had slowed in 2016’s second quarter, third-quarter gross domestic product declined faster than in the second quarter, despite improved business sentiment near the end of August with the expected impeachment of President Dilma Rousseff. Russia’s economic contraction continued to ease in 2016’s third quarter. The Bank of Russia reduced its key interest rates in June and September in an attempt to revive its economy. China’s economy grew at a stable rate in 2016’s third quarter, and remained within the government’s targeted range. The People’s Bank of China weakened its currency during the review period as the U.S. dollar strengthened. Elsewhere, India’s economic growth marginally increased from July to September due to slower private consumption growth and increasing government spending. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose for the review period.

Investment Strategy

We manage the Fund using a multi-manager approach. While we are responsible for the Fund’s overall investments, we allocate assets to multiple subadvisors, each of whom independently manages a separate portion of the Fund’s portfolio in accordance with some or all of the following strategies: long short equity, relative value, event driven and global macro. We allocate the Fund’s assets among these strategies utilizing a top-down approach, generating the Fund’s strategy weightings by taking into account market conditions, risk factors, diversification, liquidity, transparency, and availability of various subadvisors and other investment options, among other things. The allocations to specific subadvisors may change from time to time based upon our assessment of their correlations to various markets and to each other, their risk profiles and return expectations. Long short equity strategies generally seek to produce returns from investments in the equity markets by taking long and short positions in stocks and common stock indexes (through the use of derivatives or ETFs). Relative value strategies encompass a wide range of investment techniques that are intended to profit from pricing inefficiencies. Event driven strategies generally invest in securities of companies undergoing significant corporate events. Global macro strategies generally focus on broad-based economic opportunities across numerous markets and investments.

The Fund may take long and/or short positions in a wide range of asset classes, including equities, fixed income, commodities and currencies, among others. Long positions benefit from an increase in the price of the underlying instrument or asset class, while short positions benefit from a decrease in that price. The Fund may use derivatives for hedging and nonhedging (investment) purposes. Such derivative investments may include futures contracts, swaps, options and currency forward contracts. The Fund may engage in active and frequent trading as part of its investment strategies.

What is a futures contract?

A futures contract is an agreement between the Fund and a counterparty made through a U.S. or foreign futures exchange to buy or sell an underlying instrument or asset at a specific price on a future date.

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What are swap agreements?

Swap agreements, such as interest rate, currency and credit default swaps, are contracts between the Fund and another party (the swap counterparty). In a basic swap transaction, the Fund agrees with the swap counterparty to exchange the returns (or differentials in rates of return) earned or realized on a particular “notional amount” of underlying instruments. The notional amount is the set amount selected by the parties as the basis on which to calculate the obligations that they have agreed to exchange. The parties typically do not actually exchange the notional amount. Instead, they agree to exchange the returns that would be earned or realized if the notional amount were invested in given instruments or at given interest rates.

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 is an agreement between the Fund and a counterparty to buy or sell a foreign currency in exchange for another currency at a specific exchange rate on a future date.

Manager’s Discussion

The Fund generated fairly consistent positive performance for the six-month review period, with October the only month showing a performance decline. Among the four underlying strategies, relative value delivered the most robust performance. The event driven and long short equity strategies also contributed positively to returns, while the global macro strategy modestly detracted from Fund performance. A conditional risk overlay was active during the review period, and it hindered the Fund’s results as financial markets trended up amid increased investor risk appetite.

What is a conditional risk overlay (CRO) strategy?

From time to time, the Fund’s Investment Manager may implement its CRO Strategy, which seeks to neutralize certain market sensitivities that may exist in the Fund. The CRO Strategy involves investing in derivatives or other instruments in an effort to provide a hedge against negative market events. When implemented, the strategy will reduce the Fund’s ability to benefit from positive market movements

The Fund’s long short equity strategy subadvisors were Chilton Investment, Impala Asset Management, Jennison Associates, Portland Hill Capital and Wellington Management. Impala, a subadvisor focused on global cyclical equities, provided the

largest positive contribution to returns. Jennison and Portland Hill modestly benefited results. In contrast, Chilton, a U.S.-focused subadvisor, hindered performance, as did technology-focused Wellington to a lesser extent. Overall, basic materials, industrials and technology positions benefited performance, while equity indexes detracted from results.

A significant individual contributor was a long position in a Canada-based metals and mining company. Rising metallurgical coal prices in parts of the review period supported the company’s stock price. In addition, an analyst report highlighted improved pricing dynamics for the company’s steelmaking coal business, and the company’s chief financial officer noted that the company would seek to reduce its debt load, with the goal of securing an investment-grade credit rating. Conversely, short positions in equity indexes such as the Standard & Poor’s 500^®Index (S&P 500^®) impaired results as equities generally rallied during the review period.

All relative value strategy subadvisors delivered positive returns, with the largest contribution to performance provided by a subadvisor focused on high yield credit. Communications, basic materials and energy positions aided performance. In contrast, hedges in the form of equity indexes, including the S&P 500, detracted from relative performance.

Looking at individual positions, a U.S. newspaper and magazine publisher aided results as the company completed a debt exchange in August that substantially reduced interest expenses, benefiting the company’s capital structure. A bond issued by a

Subadvisors

11/30/16

Long Short Equity

Chilton Investment Company, LLC

Impala Asset Management LLC

Jennison Associates, LLC

Portland Hill Capital LLP

Wellington Management Company, LLP

Relative Value

Basso Capital Management, L.P.

Chatham Asset Management, LLC

Lazard Asset Management, LLC

Loomis Sayles & Company, L.P.

Event Driven

Halcyon Arbitrage IC Management LP

P. Schoenfeld Asset Management L.P.

York Registered Holdings, L.P.

Global Macro

Emso Asset Management Limited

Graham Capital Management, L.P.

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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND

steel company also strengthened returns after the company announced healthy earnings and a larger-than-expected equity offering that would further deleverage the company’s capital structure. The underlying subadvisor believed there was persistent performance potential and increased its long position in the issuer. Conversely, equity index positions tended to weigh on performance. For example, S&P 500 Index options hindered returns as U.S. equities advanced for the review period.

In June, we allocated to Halcyon Arbitrage IC Management, a new event driven subadvisor. This adjustment provided the event-driven strategy with more exposure to merger and acquisition activity. Contributors tended to come from the technology, consumer cyclical and health care sectors, while hedges through equity indexes dampened returns as risk assets generally gained over the period.

A position in a biopharmaceuticals company, which specializes in treating serious diseases, gained after a large global pharmaceutical company announced that it would acquire the company for an amount exceeding industry expectations. A communications company also strengthened performance after announcing plans for a wireless product. The subadvisor holding the position continued to believe this company would benefit from its larger footprint and secular shifts toward broadband adoption. In contrast, a long position in a global pharmaceuticals company detracted from returns amid investor concerns over potential controls on drug pricing power and focus from politicians during the U.S. election cycle.

Graham Capital Management and Emso Asset Management represented our global macro exposure. Graham, which follows a quantitative, trend-following model, experienced negative results in the review period, and the global macro strategy overall modestly detracted from performance. However, the other strategy subadvisor, emerging-markets focused Emso, delivered gains.

Energy positions for systematic subadvisor Graham Capital Management hindered performance, particularly long positions in Brent crude oil and gas when oil prices waned during parts of the review period. In the agricultural space, returns were weakened by long positions in soy beans and soy meal. In contrast, emerging markets-focused discretionary subadvisor Emso Asset Management’s long positions in a quasi-sovereign oil producer’s credit in Brazil contributed positively to results. For systematic subadvisor Graham Capital Management, a long position in a U.S. small-capitalization stock index benefited returns as the equity space rallied following the election of Donald Trump as president, as the markets anticipate large tax cuts and infrastructure spending, which may boost U.S. growth and inflation. Short positioning in the British pound and subadvisor positioning in interest-rate derivatives also contributed positively to results.

Thank you for your participation in Franklin K2 Alternative Strategies Fund. We look forward to continuing to serve your investment needs.

The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2016, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

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Performance Summary as of November 30, 2016

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.

Performance as of 11/30/16¹

Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.


	Cumulative		Average Annual
Share Class	Total Return²		Total Return³
A
6-Month	+1.90	%	-3.93	%
1-Year	+0.17	%	-5.62	%
3-Year	+7.91	%	+0.58	%
Since Inception (10/11/13)	+10.39	%	+1.27	%
Advisor
6-Month	+1.98	%	+1.98	%
1-Year	+0.40	%	+0.40	%
3-Year	+8.81	%	+2.85	%
Since Inception (10/11/13)	+11.31	%	+3.48	%

See page 8 for Performance Summary footnotes.

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PERFORMANCE SUMMARY


Total Annual Operating Expenses⁴
Share Class	With Waiver		Without Waiver
A	2.88	%	3.40	%
Advisor	2.63	%	3.15	%

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

All investments involve risks, including possible loss of principal. The market values of securities owned by the Fund will go up or down, sometimes rapidly or
unpredictably. The Fund’s performance depends on the manager’s skill in selecting, overseeing, and allocating Fund assets to the subadvisors. The Fund is
actively managed and could experience losses if the investment manager’s and subadvisors’ judgment about particular investments made for the Fund’s portfo-
lio prove to be incorrect. Some subadvisors may have little or no experience managing the assets of a registered investment company. Foreign investments are
subject to greater investment risk such as political, economic, credit and information risks as well as risk of currency fluctuations. Investments in derivatives
involve costs and create economic leverage, which may result in significant volatility and cause the Fund to participate in losses (as well as gains) that signifi-
cantly exceed the Fund’s initial investment. Lower rated or high yield debt securities involve greater credit risk, including the possibility of default or bankruptcy.
Currency management strategies could result in losses to the Fund if currencies do not perform as the investment manager or subadvisor expects. The Fund
may make short sales of securities, which involves the risk that losses may exceed the original amount invested. Merger arbitrage investments risk loss if a pro-
posed reorganization in which the Fund invests is renegotiated or terminated. Liquidity risk exists when securities have become more difficult to sell, or are
unable to be sold, at the price at which they have been valued. The Fund’s prospectus also includes a description of the main investment risks.

1. The Fund has an expense reduction contractually guaranteed through 9/30/17 and a fee waiver related to the management fee paid by a subsidiary. Fund investment
results reflect the expense reduction and fee waiver; without these reductions, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not
been annualized.
4. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Consolidated Financial Highlights
sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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FRANKLIN K2 ALTERNATIVE STRATEGIES FUND

Your Fund’s Expenses

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.


						Actual		Hypothetical
				(actual return after expenses)				(5% annual return before expenses)
						Expenses				Expenses	Net
		Beginning		Ending		Paid During		Ending		Paid During	Annualized
Share		Account		Account		Period		Account		Period	Expense
Class		Value 6/1/16		Value 11/30/16		6/1/16–11/30/16^1,2		Value 11/30/16		6/1/16–11/30/16^1,2	Ratio²
A	$	1,000	$	1,019.00	$	13.92	$	1,011.28	$	13.87	2.75	%
C	$	1,000	$	1,015.30	$	17.43	$	1,007.77	$	17.36	3.45	%
R	$	1,000	$	1,017.90	$	15.18	$	1,010.03	$	15.12	3.00	%
R6	$	1,000	$	1,019.80	$	12.20	$	1,012.99	$	12.16	2.41	%
Advisor	$	1,000	$	1,019.80	$	12.66	$	1,012.53	$	12.61	2.50	%

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value over
the period indicated, and then multiplied by 183/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS


Consolidated Financial Highlights
Franklin K2 Alternative Strategies Fund
		Six Months Ended			Year Ended May 31,
		November 30, 2016
		(unaudited)			2016			2015			2014	^a
Class A
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.55		$	11.16		$	10.64		$	10.00
Income from investment operations^b:
Net investment income (loss)^c		(0.01	)		(0.05	)		(0.11	)		(0.02	)
Net realized and unrealized gains (losses)		0.21			(0.38	)		0.70			0.70
Total from investment operations		0.20			(0.43	)		0.59			0.68
Less distributions from:
Net investment income		—			(0.14	)		(0.07	)		(0.04	)
Net realized gains		—			(0.04	)		—			—
Total distributions		—			(0.18	)		(0.07	)		(0.04	)
Net asset value, end of period	$	10.75		$	10.55		$	11.16		$	10.64

Total return^d		1.90	%		(3.89	)%		5.53	%		6.82	%

Ratios to average net assets^e
Expenses before waiver, payments by affiliates and expense
reduction^f		3.09	%		3.22	%		3.40	%		3.33	%
Expenses net of waiver, payments by affiliates and expense
reduction^f		2.75	%^g		2.88	%^g		2.99	%^g		2.83	%
Expenses incurred in connection with securities
sold short		0.55	%		0.67	%		0.65	%		0.56	%
Net investment income (loss)		(0.10	)%		(0.44	)%		(0.95	)%		(0.35	)%

Supplemental data
Net assets, end of period (000’s)	$	142,705		$	177,412		$	148,991		$	96,889
Portfolio turnover rate		105.92	%		229.90	%		295.81	%		181.06	%

^aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year.
^fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
^gBenefit of expense reduction rounds to less than 0.01%.

10 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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CONSOLIDATED FINANCIAL HIGHLIGHTS


Franklin K2 Alternative Strategies Fund (continued)
		Six Months Ended			Year Ended May 31,
		November 30, 2016
		(unaudited)			2016			2015			2014	^a
Class C
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.45		$	11.09		$	10.60		$	10.00
Income from investment operations^b:
Net investment income (loss)^c		(0.04	)		(0.12	)		(0.17	)		(0.08	)
Net realized and unrealized gains (losses)		0.20			(0.39	)		0.69			0.72
Total from investment operations		0.16			(0.51	)		0.52			0.64
Less distributions from:
Net investment income		—			(0.09	)		(0.03	)		(0.04	)
Net realized gains		—			(0.04	)		—			—
Total distributions		—			(0.13	)		(0.03	)		(0.04	)
Net asset value, end of period	$	10.61		$	10.45		$	11.09		$	10.60

Total return^d		1.53	%		(4.62	)%		4.87	%		6.42	%

Ratios to average net assets^e
Expenses before waiver, payments by affiliates and expense reduction^f		3.79	%		3.96	%		4.04	%		4.03	%
Expenses net of waiver, payments by affiliates and expense reduction^f		3.45	%^g		3.62	%^g		3.63	%^g		3.53	%
Expenses incurred in connection with securities sold short		0.55	%		0.67	%		0.65	%		0.56	%
Net investment income (loss)		(0.80	)%		(1.18	)%		(1.59	)%		(1.05	)%

Supplemental data
Net assets, end of period (000’s)	$	61,465		$	71,154		$	37,937		$	16,618
Portfolio turnover rate		105.92	%		229.90	%		295.81	%		181.06	%

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS


Franklin K2 Alternative Strategies Fund (continued)
		Six Months Ended			Year Ended May 31,
		November 30, 2016
		(unaudited)			2016			2015			2014	^a
Class R
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.61		$	11.15		$	10.62		$	10.00
Income from investment operations^b:
Net investment income (loss)^c		(0.02	)		(0.10	)		(0.16	)		(0.05	)
Net realized and unrealized gains (losses)		0.21			(0.40	)		0.73			0.71
Total from investment operations		0.19			(0.50	)		0.57			0.66
Less distributions from:
Net investment income		—			—			(0.04	)		(0.04	)
Net realized gains		—			(0.04	)		—			—
Total distributions		—			(0.04	)		(0.04	)		(0.04	)
Net asset value, end of period	$	10.80		$	10.61		$	11.15		$	10.62

Total return^d		1.79	%		(4.51	)%		5.39	%		6.62	%

Ratios to average net assets^e
Expenses before waiver, payments by affiliates and expense reduction^f		3.34	%		3.46	%		3.57	%		3.63	%
Expenses net of waiver, payments by affiliates and expense reduction^f		3.00	%^g		3.12	%^g		3.16	%^g		3.13	%
Expenses incurred in connection with securities sold short		0.55	%		0.67	%		0.65	%		0.56	%
Net investment income (loss)		(0.35	)%		(0.68	)%		(1.12	)%		(0.65	)%

Supplemental data
Net assets, end of period (000’s)	$	495		$	341		$	9,173		$	11,660
Portfolio turnover rate		105.92	%		229.90	%		295.81	%		181.06	%

^aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year.
^fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
^gBenefit of expense reduction rounds to less than 0.01%.

12 Semiannual Report | The accompanying notes are an integral part of these financial statements.

franklintempleton.com

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS


Franklin K2 Alternative Strategies Fund (continued)
		Six Months Ended						Year Ended May 31,
		November 30, 2016
		(unaudited)			2016			2015			2014	^a
Class R6
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.59		$	11.18		$	10.66		$	10.00
Income from investment operations^b:
Net investment income (loss)^c		0.01			(0.01	)		(0.08	)		(0.01	)
Net realized and unrealized gains (losses)		0.20			(0.37	)		0.70			0.71
Total from investment operations		0.21			(0.38	)		0.62			0.70
Less distributions from:
Net investment income		—			(0.17	)		(0.10	)		(0.04	)
Net realized gains		—			(0.04	)		—			—
Total distributions		—			(0.21	)		(0.10	)		(0.04	)
Net asset value, end of period	$	10.80		$	10.59		$	11.18		$	10.66

Total return^d		1.98	%		(3.45	)%		5.80	%		7.02	%

Ratios to average net assets^e
Expenses before waiver, payments by affiliates and expense
reduction^f		2.75	%		2.87	%		2.98	%		3.19	%
Expenses net of waiver, payments by affiliates and expense
reduction^f		2.41	%^g		2.53	%^g		2.60	%^g		2.69	%
Expenses incurred in connection with securities sold short		0.55	%		0.67	%		0.65	%		0.56	%
Net investment income (loss)		0.24	%		(0.09	)%		(0.56	)%		(0.21	)%

Supplemental data
Net assets, end of period (000’s)	$	257,955		$	265,517		$	239,754		$	215,526
Portfolio turnover rate		105.92	%		229.90	%		295.81	%		181.06	%

^aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year.
^fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
^gBenefit of expense reduction rounds to less than 0.01%.

franklintempleton.com

The accompanying notes are an integral part of these financial statements. | Semiannual Report 13

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS


Franklin K2 Alternative Strategies Fund (continued)
		Six Months Ended			Year Ended May 31,
		November 30, 2016
		(unaudited)			2016			2015			2014	^a
Advisor Class
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.58		$	11.18		$	10.65		$	10.00
Income from investment operations^b:
Net investment income (loss)^c		0.01			(0.02	)		(0.02	)		(0.02	)
Net realized and unrealized gains (losses)		0.20			(0.38	)		0.64			0.71
Total from investment operations		0.21			(0.40	)		0.62			0.69
Less distributions from:
Net investment income		—			(0.16	)		(0.09	)		(0.04	)
Net realized gains		—			(0.04	)		—			—
Total distributions		—			(0.20	)		(0.09	)		(0.04	)
Net asset value, end of period	$	10.79		$	10.58		$	11.18		$	10.65

Total return^d		1.98	%		(3.58	)%		5.88	%		6.92	%

Ratios to average net assets^e
Expenses before waiver, payments by affiliates and expense reduction^f		2.84	%		2.96	%		3.07	%		3.21	%
Expenses net of waiver, payments by affiliates and expense reduction^f		2.50	%^g		2.62	%^g		2.66	%^g		2.71	%
Expenses incurred in connection with securities sold short		0.55	%		0.67	%		0.65	%		0.56	%
Net investment income (loss)		0.15	%		(0.18	)%		(0.62	)%		(0.23	)%

Supplemental data
Net assets, end of period (000’s)	$	648,675		$	722,216		$	329,139		$	54,593
Portfolio turnover rate		105.92	%		229.90	%		295.81	%		181.06	%

^aFor the period October 11, 2013 (commencement of operations) to May 31, 2014.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year.
^fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
^gBenefit of expense reduction rounds to less than 0.01%.

14 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS

Consolidated Statement of Investments, November 30, 2016 (unaudited)


Franklin K2 Alternative Strategies Fund
	Country	Shares/Warrants		Value
Common Stocks and Other Equity Interests 32.5%
Aerospace & Defense 0.1%
B/E Aerospace Inc	United States	21,029	$	1,262,581
United Technologies Corp	United States	729		78,528
				1,341,109
Air Freight & Logistics 0.2%
^aFedEx Corp	United States	13,662		2,618,596
Airlines 0.4%
Copa Holdings SA	Panama	3,036		269,810
^aDelta Air Lines Inc	United States	36,249		1,746,477
^a,bHawaiian Holdings Inc	United States	5,338		274,106
^a,bLatam Airlines, ADR	Chile	23,337		202,565
Southwest Airlines Co	United States	21,651		1,009,153
^bUnited Continental Holdings Inc	United States	12,940		892,213
^bVirgin America Inc	United States	2,400		135,600
				4,529,924
Auto Components 0.1%
Adient PLC	United States	28,713		1,537,868
Delphi Automotive PLC	United Kingdom	476		30,464
				1,568,332
Automobiles 0.2%
General Motors Co	United States	1,544		53,314
^aHarley-Davidson Inc	United States	19,656		1,196,854
^bPeugeot SA	France	20,062		295,977
^bTesla Motors Inc	United States	4,028		762,816
				2,308,961
Banks 0.1%
Barclays PLC, ADR	United Kingdom	108,406		292,910
BB&T Corp	United States	1,399		63,305
^bIsrael Discount Bank Ltd	Israel	64,119		130,872
JPMorgan Chase & Co	United States	2,656		212,932
PNC Financial Services Group Inc	United States	794		87,769
US Bancorp	United States	1,400		69,468
Wells Fargo & Co	United States	3,534		187,019
				1,044,275
Beverages 0.8%
^aAnheuser-Busch InBev SA/NV, ADR	Belgium	24,130		2,491,905
^aBrown-Forman Corp., B	United States	48,078		2,180,337
Coca-Cola Co	United States	3,433		138,522
Constellation Brands Inc., A	United States	319		48,214
Davide Campari-Milano SpA	Italy	189,757		1,830,136
Heineken NV	Netherlands	11,205		839,844
Molson Coors Brewing Co	United States	11,842		1,160,871
PepsiCo Inc	United States	1,266		126,727
				8,816,556
Biotechnology 2.4%
^bACADIA Pharmaceuticals Inc	United States	32,494		877,013
^bAeglea BioTherapeutics Inc	United States	13,829		71,496
^a,bAgios Pharmaceuticals Inc	United States	2,859		166,422
^a,bAlexion Pharmaceuticals Inc	United States	12,919		1,583,740

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Semiannual Report 15

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares/Warrants		Value
Common Stocks and Other Equity Interests (continued)
Biotechnology (continued)
^bAmicus Therapeutics Inc	United States	79,676	$	476,463
^bARIAD Pharmaceuticals Inc	United States	27,941		376,645
^bAudentes Therapeutics Inc	United States	5,590		91,844
^bAvexis Inc	United States	3,345		197,756
^bBioCryst Pharmaceuticals Inc	United States	19,513		109,078
^bBiogen Inc	United States	5,786		1,701,489
^bBioMarin Pharmaceutical Inc	United States	36,544		3,129,263
^bBluebird Bio Inc	United States	16,058		969,100
^bCelgene Corp	United States	24,700		2,927,197
^bClovis Oncology Inc	United States	12,173		417,169
^bCorvus Pharmaceuticals Inc	United States	4,562		70,392
^bDBV Technologies SA, ADR	France	8,052		294,059
^bEpizyme Inc	United States	32,473		360,450
^bExelixis Inc	United States	26,863		454,522
^a,bIncyte Corp. Ltd	United States	20,357		2,082,318
^bInotek Pharmaceuticals Corp	United States	25,253		161,619
^bInsmed Inc	United States	18,832		257,057
^bKite Pharma Inc	United States	10,484		533,950
^bMacroGenics Inc	United States	4,141		107,376
^bMast Therapeutics Inc., wts., 6/14/18	United States	68,920		138
^bMedgenics Inc	United States	26,026		133,774
^bNatera Inc	United States	11,086		133,032
^bNeurocrine Biosciences Inc	United States	6,544		303,969
^bOtonomy Inc	United States	20,111		341,887
^bOvaScience Inc	United States	33,867		113,454
^bProQR Therapeutics NV	Netherlands	37,569		159,668
^bProteostasis Therapeutics Inc	United States	36,072		379,838
^bProthena Corp. PLC	Ireland	8,682		512,412
^bRa Pharmaceuticals Inc	United States	3,379		44,231
^bRadius Health Inc	United States	4,274		227,462
^bRegeneron Pharmaceuticals Inc	United States	3,442		1,305,344
^bREGENXBIO Inc	United States	2,716		60,431
^bRetrophin Inc	United States	12,435		254,544
^bSage Therapeutics Inc	United States	14,259		714,519
^a,bSarepta Therapeutics Inc	United States	10,290		352,535
^aShire PLC, ADR	United States	12,955		2,261,943
^bSyndax Pharmaceuticals Inc	United States	2,165		20,957
^bTesaro Inc	United States	5,354		726,484
^bTrevena Inc	United States	10,717		58,729
^bUltragenyx Pharmaceutical Inc	United States	9,639		754,637
^bVertex Pharmaceuticals Inc	United States	3,649		297,795
				26,574,201
Building Products 0.0%^†
^aAO Smith Corp	United States	6,172		300,144
Johnson Controls International PLC	United States	2,103		94,593
				394,737
Capital Markets 0.3%
^aMoody’s Corp	United States	23,172		2,328,786
^aSEI Investments Co	United States	29,367		1,385,535
				3,714,321

16 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares/Warrants		Value
Common Stocks and Other Equity Interests (continued)
Chemicals 1.1%
Axalta Coating Systems Ltd	United States	11,216	$	296,327
Croda International PLC	United Kingdom	21,384		872,772
E. I. du Pont de Nemours & Co	United States	941		69,267
^bIngevity Corp	United States	32,929		1,724,492
PPG Industries Inc	United States	344		33,000
^aSherwin-Williams Co	United States	21,516		5,780,704
^aSyngenta AG, ADR	Switzerland	23,169		1,770,575
Trinseo SA	United States	23,791		1,392,963
				11,940,100
Commercial Services & Supplies 0.4%
^bAtento SA	Spain	81,572		693,362
Edenred	France	30,138		635,481
G&K Services Inc., A	United States	7,570		726,115
^bGategroup Holding AG	Switzerland	36,384		1,823,673
West Corp	United States	18,356		437,974
				4,316,605
Communications Equipment 0.3%
^bArista Networks Inc	United States	9,040		857,083
^bCiena Corp	United States	32,152		689,660
^bOclaro Inc	United States	128,070		1,144,946
^bQuantenna Communications Inc	United States	7,700		146,223
				2,837,912
Construction & Engineering 0.1%
^aFluor Corp	United States	10,997		588,449
Construction Materials 0.3%
Buzzi Unicem SpA	Italy	20,495		435,519
HeidelbergCement AG	Germany	7,994		716,853
^aMartin Marietta Materials Inc	United States	6,096		1,337,767
^bSummit Materials Inc., A	United States	16,740		397,910
				2,888,049
Containers & Packaging 0.1%
Ball Corp	United States	17,085		1,282,400
International Paper Co	United States	891		43,409
WestRock Co	United States	528		27,034
				1,352,843
Diversified Consumer Services 0.1%
^bLifeLock Inc	United States	25,543		608,179
Sotheby’s	United States	5,074		198,190
				806,369
Diversified Financial Services 0.0%^†
^bECN Capital Corp	Canada	16,284		36,610
Diversified Telecommunication Services 0.6%
AT&T Inc	United States	1,688		65,207
CenturyLink Inc	United States	8,848		208,105
^bLevel 3 Communications Inc	United States	48,924		2,694,245
^bORBCOMM Inc	United States	17,540		147,511

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Semiannual Report 17

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares/Warrants		Value
Common Stocks and Other Equity Interests (continued)
Diversified Telecommunication Services (continued)
SFR Group SA	France	45,273	$	1,143,905
Telecom Italia SpA	Italy	3,776,043		2,357,201
Verizon Communications Inc	United States	3,009		150,149
				6,766,323
Electric Utilities 0.0%^†
Exelon Corp	United States	1,932		62,809
NextEra Energy Inc	United States	949		108,404
PG&E Corp	United States	2,093		123,069
				294,282
Electronic Equipment, Instruments & Components 0.7%
^bCoherent Inc	United States	3,443		449,311
Ingram Micro Inc., A	United States	106,586		3,990,580
^bItron Inc	United States	10,530		676,026
Largan Precision Co. Ltd	Taiwan	2,650		306,796
Tongda Group Holdings Ltd	Hong Kong	1,170,000		343,918
^a,bVeriFone Systems Inc	United States	92,216		1,557,528
				7,324,159
Energy Equipment & Services 0.4%
^bFMC Technologies Inc	United States	135,214		4,632,431
Halliburton Co	United States	1,876		99,597
				4,732,028
Food & Staples Retailing 0.7%
^aCasey’s General Stores Inc	United States	33,546		4,040,616
Costco Wholesale Corp	United States	17,327		2,600,956
CVS Health Corp	United States	646		49,671
Kroger Co	United States	1,675		54,102
^a,b,dRite Aid Corp	United States	86,884		691,597
				7,436,942
Food Products 0.6%
The Hershey Co	United States	16,281		1,573,396
Lindt & Spruengli AG	Switzerland	63		3,662,762
Mead Johnson Nutrition Co	United States	618		44,551
^a,bThe WhiteWave Foods Co	United States	33,812		1,862,703
				7,143,412
Health Care Equipment & Supplies 1.2%
^bAlere Inc	United States	10,104		401,331
^aBecton Dickinson and Co	United States	13,842		2,340,682
^bBoston Scientific Corp	United States	32,213		659,078
DENTSPLY SIRONA Inc	United States	13,167		766,056
^bDerma Sciences Inc	United States	15,810		75,888
^bDexCom Inc	United States	9,788		639,059
^bEdwards Lifesciences Corp	United States	1,497		124,026
^bGenMark Diagnostics Inc	United States	27,031		314,100
^a,bIDEXX Laboratories Inc	United States	17,940		2,110,641
^biRhythm Technologies Inc	United States	1,485		45,293
Medtronic PLC	United States	309		22,560
Smith & Nephew PLC	United Kingdom	72,763		1,026,036

18 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares/Warrants		Value
Common Stocks and Other Equity Interests (continued)
Health Care Equipment & Supplies (continued)
^aSt. Jude Medical Inc	United States	64,738	$	5,127,250
^bTearLab Corp	United States	56,223		30,360
				13,682,360
Health Care Providers & Services 1.2%
^bAcadia Healthcare Co. Inc	United States	10,301		391,541
^aAetna Inc	United States	16,373		2,142,243
Celesio AG	Germany	61,856		1,661,897
^bCentene Corp	United States	13,078		753,685
Cigna Corp	United States	8,876		1,195,952
^bEnvision Healthcare Holdings Inc	United States	28,049		637,273
^aHumana Inc	United States	14,599		3,104,332
^aUnitedHealth Group Inc	United States	16,758		2,653,127
Universal Health Services Inc., B	United States	2,346		288,605
				12,828,655
Health Care Technology 0.0%^†
^bTabula Rasa HealthCare Inc	United States	4,863		67,498
Hotels, Restaurants & Leisure 0.6%
Carnival Corp	United States	26,863		1,381,027
^aDomino’s Pizza Inc	United States	12,047		2,024,378
Hilton Worldwide Holdings Inc	United States	2,693		67,513
McDonald’s Corp	United States	718		85,636
^aSonic Corp	United States	43,947		1,147,017
Wynn Resorts Ltd	United States	2,645		269,764
Yum! Brands Inc	United States	21,824		1,383,423
				6,358,758
Household Durables 0.1%
^aCalAtlantic Group Inc	United States	23,441		782,695
Harman International Industries Inc	United States	5,583		610,612
Whirlpool Corp	United States	213		34,600
				1,427,907
Independent Power & Renewable Electricity Producers 0.0%^†
TerraForm Global Inc., A	United States	92,129		350,090
Industrial Conglomerates 0.1%
General Electric Co	United States	4,562		140,327
Honeywell International Inc	United States	662		75,428
Roper Technologies Inc	United States	550		99,610
Smiths Group PLC	United Kingdom	17,888		315,804
				631,169
Insurance 0.4%
Chubb Ltd	United States	487		62,336
Delta Lloyd NV	Netherlands	157,293		905,719
Endurance Specialty Holdings	United States	20,266		1,868,525
MetLife Inc	United States	1,240		68,213
RSA Insurance Group PLC	United Kingdom	44,331		299,800
^aW.R. Berkley Corp	United States	20,475		1,265,150
				4,469,743

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Semiannual Report 19

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares/Warrants		Value
Common Stocks and Other Equity Interests (continued)
Internet & Direct Marketing Retail 0.8%
^a,bAmazon.com Inc	United States	2,329	$	1,748,078
^aExpedia Inc	United States	12,826		1,591,065
^a,bNetflix Inc	United States	7,890		923,130
^bThe Priceline Group Inc	United States	724		1,088,664
^a,bTripAdvisor Inc	United States	15,751		760,458
^a,bWayfair Inc., A	United States	61,446		2,239,707
				8,351,102
Internet Software & Services 2.4%
^bAkamai Technologies Inc	United States	14,218		948,340
^a,bAlibaba Group Holding Ltd., ADR	China	16,552		1,556,219
^a,bAlphabet Inc., A	United States	1,284		996,230
^a,bAlphabet Inc., C	United States	1,306		990,000
^bBaidu Inc., ADR	China	2,300		383,985
^bBenefitfocus Inc	United States	11,353		309,937
^a,beBay Inc	United States	37,281		1,036,785
^a,bFacebook Inc	United States	37,309		4,418,132
^bGrubHub Inc	United States	17,100		633,213
j2 Global Inc	United States	10,688		785,675
^bJust Eat PLC	United Kingdom	93,564		685,431
^a,bLinkedIn Corp., A	United States	47,074		9,190,728
Tencent Holdings Ltd	China	17,600		439,518
^bVeriSign Inc	United States	11,079		873,579
^a,bYahoo! Inc	United States	74,499		3,055,949
^bZillow Group Inc., A	United States	8,017		281,797
^bZillow Group Inc., C	United States	17,102		614,304
				27,199,822
IT Services 3.2%
Accenture PLC, A	United States	8,972		1,071,526
^aAlliance Data Systems Corp	United States	14,062		3,217,104
^aAutomatic Data Processing Inc	United States	25,230		2,422,585
^bBlackhawk Network Holdings Inc	United States	9,800		352,800
^aCardtronics PLC, A	United States	19,967		987,767
^a,bCognizant Technology Solutions Corp., A	United States	23,186		1,277,085
^aComputer Sciences Corp	United States	17		1,031
^a,bEPAM Systems Inc	United States	15,489		1,020,725
^a,bExlService Holdings Inc	United States	55,867		2,657,035
^bFleetCor Technologies Inc	United States	11,700		1,747,278
^bGenpact Ltd	United States	106,065		2,538,135
^aGlobal Payments Inc	United States	52,238		3,580,915
^aMasterCard Inc., A	United States	33,266		3,399,785
^b,eNets AS, 144A	Denmark	25,555		436,816
^a,bPayPal Holdings Inc	United States	63,675		2,501,154
Total System Services Inc	United States	26,000		1,279,720
^a,bVantiv Inc., A	United States	20,986		1,184,240
Visa Inc., A	United States	29,356		2,269,806
^a,bWEX Inc	United States	24,187		2,672,905
^eWorldpay Group PLC, 144A	United Kingdom	112,257		378,109
				34,996,521

20 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares/Warrants		Value
Common Stocks and Other Equity Interests (continued)
Life Sciences Tools & Services 0.6%
Gerresheimer AG	Germany	23,577	$	1,720,429
^bIllumina Inc	United States	7,574		1,008,402
^a,bMettler-Toledo International Inc	United States	1,732		713,619
^bNanoString Technologies Inc	United States	5,354		117,788
Thermo Fisher Scientific Inc	United States	20,432		2,862,728
				6,422,966
Machinery 0.2%
^aCaterpillar Inc	United States	10,249		979,395
Dover Corp	United States	735		53,368
^bKUKA AG	Germany	5,169		577,967
^bManitowoc Foodservice Inc	United States	7,180		127,373
Trinity Industries Inc	United States	17,228		478,766
				2,216,869
Marine 0.2%
Irish Continental Group PLC	Ireland	410,345		1,817,899
Media 1.3%
^a,bCarmike Cinemas Inc	United States	63,881		2,159,178
^aCBS Corp., B	United States	16,258		987,186
^a,bCharter Communications Inc., A	United States	3,698		1,018,096
Comcast Corp., A	United States	938		65,200
^a,bDish Network Corp., A	United States	37,297		2,142,713
Entertainment One Ltd	Canada	112,518		309,019
ITV PLC	United Kingdom	293,248		616,414
^bLiberty Global PLC LiLAC, A	United Kingdom	11,067		238,826
^bLiberty Global PLC LiLAC, C	United Kingdom	3,003		63,574
^bLiberty Global PLC, A	United Kingdom	32,966		1,032,495
^bLiberty Global PLC, C	United Kingdom	24,352		741,518
^bLive Nation Entertainment Inc	United States	4,173		115,509
^bPostmedia Network Canada Corp	Canada	666,338		327,390
Stroeer SE & Co. KGaA	Germany	44,132		1,673,548
Time Warner Inc	United States	4,798		440,552
Walt Disney Co	United States	22,400		2,220,288
				14,151,506
Metals & Mining 1.4%
Boliden AB	Sweden	38,793		1,001,918
First Quantum Minerals Ltd	Canada	60,371		689,415
^aFreeport-McMoRan Inc	United States	114,823		1,762,533
^aNewmont Mining Corp	United States	49,258		1,597,930
Teck Resources Ltd	Canada	247,226		6,264,707
ThyssenKrupp AG	Germany	51,931		1,178,937
^aUnited States Steel Corp	United States	72,509		2,344,941
Voestalpine AG	Austria	21,316		807,768
				15,648,149
Multi-Utilities 0.0%^†
Sempra Energy	United States	1,098		109,580
Oil, Gas & Consumable Fuels 0.6%
Chevron Corp	United States	1,001		111,672
DHT Holdings Inc	United States	55,300		196,315

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Semiannual Report 21

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares/Warrants		Value
Common Stocks and Other Equity Interests (continued)
Oil, Gas & Consumable Fuels (continued)
Encana Corp	Canada	4,163	$	52,454
EQT Corp	United States	406		28,452
Exxon Mobil Corp	United States	2,622		228,901
Golar LNG Ltd	Bermuda	1,384		33,770
^bHalcon Resources Corp	United States	7,948		75,586
^bHalcon Resources Corp., wts., 9/09/20	United States	2,159		5,376
Hess Corp	United States	10,920		611,083
^bInterOil Corp	Singapore	24,093		1,170,920
Kinder Morgan Inc	United States	2,467		54,767
^a,bKinder Morgan Inc., wts., 5/25/17	United States	52,317		340
^bPacific Exploration and Production Corp	Colombia	4,655		183,144
^bPDC Energy Inc	United States	407		30,301
SM Energy Co	United States	4,547		181,243
^aSpectra Energy Corp	United States	29,112		1,192,136
TonenGeneral Sekiyu K.K	Japan	120,264		1,144,771
Valero Energy Corp	United States	322		19,822
Western Refining Inc	United States	32,730		1,174,025
^bWhiting Petroleum Corp	United States	18,987		232,021
				6,727,099
Paper & Forest Products 0.3%
^bCanfor Corp	Canada	188,794		2,064,605
West Fraser Timber Co. Ltd	Canada	39,190		1,397,163
				3,461,768
Pharmaceuticals 1.1%
^bAerie Pharmaceuticals Inc	United States	41,896		1,556,436
^bAllergan PLC	United States	21,559		4,188,914
^bAssembly Biosciences Inc	United States	29,400		377,790
AstraZeneca PLC, ADR	United Kingdom	18,988		496,346
^aBristol-Myers Squibb Co	United States	26,998		1,523,767
^b,eCassiopea SpA, 144A	Italy	4,184		119,343
^bDermira Inc	United States	16,370		523,513
Eli Lilly & Co	United States	24,924		1,672,899
^a,bFlex Pharma Inc	United States	3,355		20,633
^bGW Pharmaceuticals PLC, ADR	United Kingdom	2,409		268,965
Hikma Pharmaceuticals PLC	United Kingdom	10,168		216,405
^bIntra-Cellular Therapies Inc	United States	22,475		313,302
Johnson & Johnson	United States	2,146		238,850
^bOcular Therapeutix Inc	United States	42,865		398,216
Pfizer Inc	United States	4,507		144,855
^bSteadymed Ltd	Israel	7,603		25,850
				12,086,084
Professional Services 0.8%
^aEquifax Inc	United States	9,951		1,138,892
Experian PLC	Ireland	61,716		1,166,012
^bHuron Consulting Group Inc	United States	21,939		1,157,282
^aManpowerGroup Inc	United States	6,503		555,421
^aRobert Half International Inc	United States	24,817		1,113,539
^a,bTransUnion	United States	38,184		1,139,029
^bTriNet Group Inc	United States	50,415		1,271,970

22 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares/Warrants		Value
Common Stocks and Other Equity Interests (continued)
Professional Services (continued)
^a,bWageWorks Inc	United States	20,007	$	1,477,517
				9,019,662
Real Estate Management & Development 0.1%
^bCBRE Group Inc., A	United States	27,744		805,686
Grand City Properties SA	Germany	32,078		535,806
				1,341,492
Road & Rail 0.7%
^aCSX Corp	United States	63,216		2,263,765
^aKansas City Southern	United States	23,829		2,113,871
^bOld Dominion Freight Line Inc	United States	15,253		1,331,587
^aUnion Pacific Corp	United States	21,535		2,182,141
				7,891,364
Semiconductors & Semiconductor Equipment 0.9%
^bAdvanced Process Systems Corp	South Korea	441		9,072
Advanced Semiconductor Engineering Inc	Taiwan	170,000		182,678
Analog Devices Inc	United States	10,207		757,768
Broadcom Ltd	Singapore	3,565		607,797
^bCavium Inc	United States	13,896		792,489
Cypress Semiconductor Corp	United States	5,483		61,684
Intel Corp	United States	1,498		51,981
^bMaxLinear Inc., A	United States	9,900		202,257
^aMicrochip Technology Inc	United States	10,231		677,087
^bMicron Technology Inc	United States	30,717		599,903
^aNVIDIA Corp	United States	10,612		978,426
^bNXP Semiconductors NV	Netherlands	21,560		2,137,674
QUALCOMM Inc	United States	15,705		1,069,982
^bSemiconductor Manufacturing International Corp	China	4,195,000		567,878
^bSiltronic AG	Germany	1,871		75,066
^aTaiwan Semiconductor Manufacturing Co. Ltd., ADR	Taiwan	20,159		598,521
Win Semiconductors Corp	Taiwan	85,471		243,222
				9,613,485
Software 1.1%
Activision Blizzard Inc	United States	24,963		913,895
^a,bAdobe Systems Inc	United States	5,910		607,607
Atlassian Corp. PLC	Australia	12,900		350,106
Blackbaud Inc	United States	6,600		414,348
^bBroadSoft Inc	United States	4,934		204,761
^bGuidewire Software Inc	United States	14,561		811,193
^bHubSpot Inc	United States	9,266		519,823
^aIntuit Inc	United States	5,700		647,976
Mentor Graphics Corp	United States	22,456		820,767
Microsoft Corp	United States	77,573		4,674,549
Mobileye NV	Israel	6,706		249,664
Oracle Corp	United States	2,280		91,633
^bPaylocity Holding Corp	United States	8,400		278,124
^bProofpoint Inc	United States	2,860		220,249
^bRed Hat Inc	United States	2,223		175,862
^a,bSalesforce.com Inc	United States	11,579		833,688
^bServiceNow Inc	United States	2,987		248,369

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Semiannual Report 23

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares/Warrants		Value
Common Stocks and Other Equity Interests (continued)
Software (continued)
Square Enix Holdings Co. Ltd	Japan	11,638	$	293,277
				12,355,891
Specialty Retail 1.9%
^a,bAutoNation Inc	United States	116,791		5,215,886
^a,bAutozone Inc	United States	6,331		4,958,313
^bCabela’s Inc	United States	51,086		3,179,593
CST Brands Inc	United States	8,135		390,724
^aFoot Locker Inc	United States	15,255		1,093,326
Home Depot Inc	United States	41,343		5,349,784
^a,bMarineMax Inc	United States	42,883		806,200
^bSports Direct International PLC	United Kingdom	155,760		615,845
				21,609,671
Technology Hardware, Storage & Peripherals 0.6%
Apple Inc	United States	6,394		706,665
^aHewlett Packard Enterprise Co	United States	55,891		1,330,206
^bPure Storage Inc., A	United States	101,117		1,410,582
Samsung Electronics Co. Ltd	South Korea	686		1,024,555
Seagate Technology PLC	United States	45,193		1,812,239
Western Digital Corp	United States	9,615		612,091
				6,896,338
Textiles, Apparel & Luxury Goods 0.2%
Michael Kors Holdings Ltd	United States	19,385		901,209
Moncler SpA	Italy	23,079		375,221
^aNIKE Inc., B	United States	13,178		659,822
				1,936,252
Tobacco 0.5%
Altria Group Inc	United States	787		50,313
Philip Morris International Inc	United States	692		61,090
Reynolds American Inc	United States	95,365		5,159,246
				5,270,649
Trading Companies & Distributors 0.0%^†
Air Lease Corp	United States	4,692		168,255
Brenntag AG	Germany	386		20,318
^bHerc Holdings Inc	United States	7,920		314,741
				503,314
Wireless Telecommunication Services 0.0%^†
NTT DoCoMo Inc	Japan	16,700		383,032
Total Common Stocks and Other Equity Interests
(Cost $326,256,862)				361,201,790
Exchange Traded Funds (Cost $364,552) 0.0%^†
SPDR S&P Bank ETF	United States	9,954		409,607
Convertible Preferred Stocks 0.7%
Electric Utilities 0.0%^†
^bGreat Plains Energy Inc., cvt. pfd., 7.00%	United States	692		33,908

24 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares/Warrants			Value
Convertible Preferred Stocks (continued)
Electronic Equipment, Instruments & Components 0.2%
^b,cBelden Inc., cvt. pfd., 5.92%	United States	4,338		$	464,383
^bMTS Systems Corp., cvt. pfd., 8.75%	United States	13,715			1,700,249
					2,164,632
Equity Real Estate Investment Trusts (REITs) 0.0%^†
^bEPR Properties, cvt. pfd., C, 5.75%	United States	1,859			51,494
Welltower Inc., cvt. pfd., I, 6.50%	United States	2,088			121,501
					172,995
Food Products 0.2%
^aPost Holdings Inc., cvt. pfd., 2.50%	United States	14,400			2,091,600
Household Durables 0.0%^†
^bWilliam Lyon Homes, cvt. pfd., 6.50%	United States	2,862			280,247
Internet Software & Services 0.3%
^a,eMandatory Exchangeable Trust, cvt. pfd., 144A, 5.75%	China	27,286			3,153,852
Tobacco 0.0%^†
Universal Corp., cvt. pfd., 6.75%	United States	330			409,076
Total Convertible Preferred Stocks (Cost $7,151,098)					8,306,310
Preferred Stocks 0.3%
Food Products 0.1%
Bunge Ltd., pfd., 4.875%	United States	8,598			857,651
Machinery 0.0%^†
MAN SE, pfd., 3.30%	Germany	3,186			312,005
Pharmaceuticals 0.2%
Allergan PLC, pfd., 5.50%	United States	2,057			1,474,869
Teva Pharmaceutical Industries Ltd., pfd., 7.00%	Israel	698			456,492
					1,931,361
Total Preferred Stocks (Cost $3,758,491)					3,101,017

		Principal
		Amount*
Convertible Bonds 17.3%
Automobiles 0.0%^†
Tesla Motors Inc., senior note, 0.25%, 3/01/19	United States	477,000			432,579
Biotechnology 0.8%
^fAblynx NV, senior note, Reg S, 3.25%, 5/27/20	Belgium	200,000	EUR		220,714
^aAcorda Therapeutics Inc., senior note, 1.75%, 6/15/21	United States	1,995,000			1,574,803
^aAMAG Pharmaceuticals Inc., senior note, 2.50%, 2/15/19	United States	917,000			1,251,705
^aBioMarin Pharmaceutical Inc., senior sub. note, 1.50%, 10/15/20	United States	1,052,000			1,272,263
Clovis Oncology Inc., senior note, 2.50%, 9/15/21	United States	409,000			365,799
^aEmergent BioSolutions Inc., senior note, 2.875%, 1/15/21	United States	817,000			930,869
Intercept Pharmaceuticals Inc., senior note, 3.25%, 7/01/23	United States	630,000			566,606
Ionis Pharmaceuticals Inc., senior note, 1.00%, 11/15/21	United States	420,000			412,388
Ligand Pharmaceuticals Inc., senior note, 0.75%, 8/15/19	United States	823,000			1,220,612
PDL BioPharma Inc., senior note, 2.75%, 12/01/21	United States	960,000			792,000
PTC Therapeutics Inc., senior note, 3.00%, 8/15/22	United States	623,000			363,287
					8,971,046

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Semiannual Report 25

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

		Principal
	Country	Amount*			Value
Convertible Bonds (continued)
Building Products 0.1%
^a,eGriffon Corp., sub. note, 144A, 4.00%, 1/15/17	United States	805,000	$		1,341,331
Capital Markets 0.2%
Ares Capital Corp., senior note, 4.75%, 1/15/18	United States	947,000			976,002
^aCowen Group Inc., senior note, 3.00%, 3/15/19	United States	1,274,000			1,243,742
FXCM Inc., senior note, 2.25%, 6/15/18	United States	700,000			308,000
					2,527,744
Chemicals 0.1%
^aSolazyme Inc., senior sub. note, 5.00%, 10/01/19	United States	1,390,000			569,900
Commercial Services & Supplies 0.0%^†
RWT Holdings Inc., senior note, 5.625%, 11/15/19	United States	530,000			537,950
Communications Equipment 0.6%
CalAmp Corp., senior note, 1.625%, 5/15/20	United States	40,000			38,400
Ciena Corp., senior note, 4.00%, 12/15/20	United States	307,000			406,583
^aInterDigital Inc., senior note, 1.50%, 3/01/20	United States	778,000			945,756
Palo Alto Networks Inc., senior note, zero cpn., 7/01/19	United States	3,395,000			4,549,300
Viavi Solutions Inc., senior bond, 0.625%, 8/15/33	United States	576,000			587,160
					6,527,199
Construction & Engineering 0.0%^†
Dycom Industries Inc., senior note, 0.75%, 9/15/21	United States	479,000			503,549
Construction Materials 0.3%
Cemex SAB de CV, sub. note,
^a3.75%, 3/15/18	Mexico	1,764,000			1,974,577
3.72%, 3/15/20	Mexico	1,101,000			1,159,491
					3,134,068
Consumer Finance 0.2%
Encore Capital Group Inc., senior note,
3.00%, 11/27/17	United States	941,000			1,000,401
^a2.875%, 3/15/21	United States	371,000			317,901
^aPRA Group Inc., senior note, 3.00%, 8/01/20	United States	845,000			774,759
					2,093,061
Diversified Consumer Services 0.4%
Ascent Capital Group Inc., senior note, 4.00%, 7/15/20	United States	396,000			292,545
^aCarriage Services Inc., sub. note, 2.75%, 3/15/21	United States	945,000			1,213,144
TAL Education Group, senior note, 2.50%, 5/15/19	China	828,000			2,413,102
					3,918,791
Diversified Financial Services 0.2%
^eElement Financial Corp., sub. note, 144A,
5.125%, 6/30/19	Canada	821,000		CAD	667,104
4.25%, 6/30/20	Canada	1,628,000		CAD	1,236,180
					1,903,284
Electrical Equipment 0.1%
^aGeneral Cable Corp., sub. bond, 4.50%, 11/15/29	United States	745,000			570,391
Electronic Equipment, Instruments & Components 0.4%
^a,eKnowles Corp., senior note, 144A, 3.25%, 11/01/21	United States	1,022,000			1,163,803
TTM Technologies Inc., senior note, 1.75%, 12/15/20	United States	911,000			1,388,706

26 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
Convertible Bonds (continued)
Electronic Equipment, Instruments & Components (continued)
^aVishay Intertechnology Inc., senior bond, 2.25%, 11/15/40	United States	1,930,000		$	2,323,237
					4,875,746
Energy Equipment & Services 0.2%
Hornbeck Offshore Services Inc., senior note, 1.50%, 9/01/19	United States	634,000			378,815
SEACOR Holdings Inc., senior bond, 3.00%, 11/15/28	United States	1,192,000			1,014,690
Weatherford International Ltd., senior note, 5.875%, 7/01/21	United States	953,000			1,034,005
					2,427,510
Equity Real Estate Investment Trusts (REITs) 0.9%
^a,eAmerican Residential Properties Inc., senior note, 144A, 3.25%, 11/15/18	United States	1,042,000			1,294,034
^aColony Starwood Homes, senior note, 4.50%, 10/15/17	United States	1,447,000			1,606,170
^aForest City Enterprises Inc., senior note, 3.625%, 8/15/20	United States	1,453,000			1,443,919
Forest City Realty Trust Inc., senior note, 4.25%, 8/15/18	United States	624,000			660,660
^eGPT Property Trust LP, senior note, 144A, 3.75%, 3/15/19	United States	1,582,000			1,941,905
^aNational Health Investors Inc., senior note, 3.25%, 4/01/21	United States	1,030,000			1,131,069
^aStarwood Waypoint Residential Trust, senior note, 3.00%, 7/01/19	United States	1,044,000			1,182,982
VEREIT Inc., senior note, 3.00%, 8/01/18	United States	1,269,000			1,270,586
					10,531,325
Health Care Equipment & Supplies 0.5%
^aHologic Inc., senior bond, zero cpn., 12/15/43	United States	1,052,000			1,288,700
^eInsulet Corp., senior note, 144A, 1.25%, 9/15/21	United States	585,000			528,694
^fNipro Corp., senior note, Reg S, zero cpn., 1/29/21	Japan	40,000,000	JPY		379,354
^a,eNuVasive Inc., senior note, 144A, 2.25%, 3/15/21	United States	736,000			913,560
Quidel Corp., senior note, 3.25%, 12/15/20	United States	418,000			424,792
^aWright Medical Group Inc., senior note, 2.00%, 2/15/20	United States	1,195,000			1,246,534
^eWright Medical Group NV, senior note, 144A, 2.25%, 11/15/21	United States	997,000			1,249,989
					6,031,623
Health Care Providers & Services 0.8%
Aceto Corp., senior note, 2.00%, 11/01/20	United States	914,000			857,446
Brookdale Senior Living Inc., senior note, 2.75%, 6/15/18	United States	900,000			874,688
^aHealthSouth Corp., senior sub. bond, 2.00%, 12/01/43	United States	2,604,000			3,106,897
Healthways Inc., senior note, 1.50%, 7/01/18	United States	1,148,000			1,495,988
^aMolina Healthcare Inc., senior note, 1.125%, 1/15/20	United States	1,500,000			2,119,687
					8,454,706
Health Care Technology 0.0%^†
^aAllscripts Healthcare Solutions Inc., senior note, 1.25%, 7/01/20	United States	285,000			275,559
^eEvolent Health Inc., senior note, 144A, 2.00%, 12/01/21	United States	50,000			50,000
					325,559
Household Durables 0.7%
^aCalAtlantic Group Inc.,
senior bond, 1.25%, 8/01/32	United States	1,430,000			1,492,562
senior note, 0.25%, 6/01/19	United States	1,706,000			1,595,110
LGI Homes Inc., sub. note, 4.25%, 11/15/19	United States	639,000			1,016,809
M/I Homes Inc., senior sub. note, 3.25%, 9/15/17	United States	844,000			928,400
Meritage Homes Corp., senior bond, 1.875%, 9/15/32	United States	1,240,000			1,253,175
Toll Brothers Finance Corp., senior bond, 0.50%, 9/15/32	United States	1,244,000			1,226,118
					7,512,174

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Semiannual Report 27

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

		Principal
	Country	Amount*		Value
Convertible Bonds (continued)
Independent Power & Renewable Electricity Producers 0.1%
^aPattern Energy Group Inc., senior note, 4.00%, 7/15/20	United States	681,000	$	666,954
Insurance 0.1%
AmTrust Financial Services Inc., senior bond, 2.75%, 12/15/44	United States	1,246,000		1,032,623
Internet & Direct Marketing Retail 1.4%
Ctrip.com International Ltd., senior note,
1.25%, 10/15/18	China	3,565,000		4,487,444
^e144A, 1.25%, 9/15/22	China	635,000		637,381
The Priceline Group Inc., senior note,
^a1.00%, 3/15/18	United States	4,200,000		6,790,875
0.90%, 9/15/21	United States	472,000		507,695
^aShutterfly Inc., senior note, 0.25%, 5/15/18	United States	3,103,000		3,135,969
				15,559,364
Internet Software & Services 2.1%
^aBlucora Inc., senior note, 4.25%, 4/01/19	United States	851,000		843,554
^aCornerstone OnDemand Inc., senior note, 1.50%, 7/01/18	United States	822,000		836,385
j2 Global Inc., senior bond, 3.25%, 6/15/29	United States	1,507,000		1,863,029
LinkedIn Corp., senior note, 0.50%, 11/01/19	United States	1,271,000		1,268,617
^aMercadoLibre Inc., senior note, 2.25%, 7/01/19	Argentina	1,031,000		1,435,667
^ePandora Media Inc., senior note, 144A, 1.75%, 12/01/20	United States	257,000		250,254
SINA Corp., senior note, 1.00%, 12/01/18	China	3,000,000		3,000,000
Twitter Inc., senior note,
0.25%, 9/15/19	United States	1,332,000		1,254,577
^a1.00%, 9/15/21	United States	291,000		270,812
VeriSign Inc., junior sub. bond, 4.485%, 8/15/37	United States	3,424,000		7,911,580
WebMD Health Corp., senior note, 1.50%, 12/01/20	United States	484,000		583,523
^aYahoo! Inc., senior note, zero cpn., 12/01/18	United States	3,824,000		3,874,190
				23,392,188
IT Services 0.4%
^eBlackhawk Network Holdings Inc., senior note, 144A, 1.50%, 1/15/22	United States	654,000		670,350
Cardtronics Inc., senior note, 1.00%, 12/01/20	United States	748,000		832,150
^a,eCSG Systems International Inc., senior bond, 144A, 4.25%, 3/15/36	United States	1,243,000		1,370,407
Euronet Worldwide Inc., senior bond, 1.50%, 10/01/44	United States	1,062,000		1,230,593
				4,103,500
Leisure Products 0.0%^†
^eJAKKS Pacific Inc., senior note, 144A, 4.25%, 8/01/18	United States	253,000		255,056
Life Sciences Tools & Services 0.1%
Albany Molecular Research Inc., senior note, 2.25%, 11/15/18	United States	457,000		559,254
Fluidigm Corp., senior bond, 2.75%, 2/01/34	United States	771,000		478,502
				1,037,756
Machinery 0.6%
^aAltra Industrial Motion Corp., senior bond, 2.75%, 3/01/31	United States	810,000		1,110,713
Greenbrier Cos Inc., senior note, 3.50%, 4/01/18	United States	1,071,000		1,277,837
^fHyundai Heavy Industries Co. Ltd., senior note, Reg S, zero cpn., 6/29/20	South Korea	1,000,000		960,000
Navistar International Corp., senior sub. note, 4.75%, 4/15/19	United States	1,426,000		1,375,199
^aTrinity Industries Inc., senior sub. bond, 3.875%, 6/01/36	United States	1,087,000		1,400,871
Wabash National Corp., senior note, 3.375%, 5/01/18	United States	522,000		675,011
				6,799,631

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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)
Media 0.6%
^a,eDish Network Corp., A, senior bond, 144A, 3.375%, 8/15/26	United States	3,044,000	$	3,416,890
Liberty Interactive LLC, senior bond, 4.00%, 11/15/29	United States	1,122,000		673,200
Liberty Media Corp., senior bond,
^a1.375%, 10/15/23	United States	1,354,000		1,485,169
^e144A, 2.25%, 9/30/46	United States	80,000		83,200
Live Nation Entertainment Inc., senior note, 2.50%, 5/15/19	United States	629,000		680,499
				6,338,958
Metals & Mining 0.3%
^aAK Steel Corp., senior note, 5.00%, 11/15/19	United States	1,264,000		2,366,050
RTI International Metals Inc., senior note, 1.625%, 10/15/19	United States	629,000		660,843
				3,026,893
Mortgage Real Estate Investment Trusts (REITs) 0.7%
Apollo Commercial Real Estate Finance Inc., senior note, 5.50%, 3/15/19	United States	329,000		346,686
^aColony Capital Inc., senior note, 3.875%, 1/15/21	United States	1,544,000		1,546,895
^aRedwood Trust Inc., senior note, 4.625%, 4/15/18	United States	1,269,000		1,271,379
^aStarwood Property Trust Inc., senior note,
3.75%, 10/15/17	United States	4,308,000		4,448,010
4.55%, 3/01/18	United States	447,000		489,744
				8,102,714
Oil, Gas & Consumable Fuels 1.0%
^aAegean Marine Petroleum Network Inc., senior note, 4.00%, 11/01/18	Greece	1,510,000		1,581,725
^eChesapeake Energy Corp., senior note, 144A, 5.50%, 9/15/26	United States	1,412,000		1,500,250
^fGolar LNG Ltd., secured note, Reg S, 3.75%, 3/07/17	Bermuda	1,200,000		1,198,500
Green Plains Inc., senior note,
^a3.25%, 10/01/18	United States	753,000		1,061,259
^e144A, 4.125%, 9/01/22	United States	913,000		1,065,928
^eRenewable Energy Group Inc., senior bond, 144A, 4.00%, 6/15/36	United States	472,000		502,975
^eScorpio Tankers Inc., senior note, 144A, 2.375%, 7/01/19	Monaco	48,000		37,410
Ship Finance International Ltd., senior note, 5.75%, 10/15/21	Norway	2,769,000		2,729,196
SM Energy Co., senior note, 1.50%, 7/01/21	United States	1,084,000		1,334,675
Whiting Petroleum Corp., senior note, 1.25%, 6/05/20	United States	411,000		533,786
				11,545,704
Pharmaceuticals 0.4%
Depomed Inc., senior note, 2.50%, 9/01/21	United States	510,000		609,450
Impax Laboratories Inc., senior note, 2.00%, 6/15/22	United States	295,000		237,106
Medicines Co., senior note,
^a2.50%, 1/15/22	United States	1,776,000		2,192,250
^e144A, 2.75%, 7/15/23	United States	769,000		757,946
Theravance Inc., senior note, 2.125%, 1/15/23	United States	985,000		827,400
				4,624,152
Professional Services 0.1%
51job Inc., senior note, 3.25%, 4/15/19	China	222,000		238,234
Huron Consulting Group Inc., senior note, 1.25%, 10/01/19	United States	783,000		771,744
				1,009,978
Real Estate Management & Development 0.1%
^fAYC Finance Ltd., senior note, Reg S, 0.50%, 5/02/19	Philippines	200,000		206,500
^fCosmos Boom Investment Ltd., senior note, Reg S, 0.50%, 6/23/20	China	400,000		390,000
				596,500

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Semiannual Report 29

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

		Principal
	Country	Amount*		Value
Convertible Bonds (continued)
Semiconductors & Semiconductor Equipment 1.0%
^aAdvanced Micro Devices Inc., senior note, 2.125%, 9/01/26	United States	1,683,000	$	2,188,952
^eCypress Semiconductor Corp., senior note, 144A, 4.50%, 1/15/22	United States	863,000		968,178
^eInphi Corp., senior note, 144A, 0.75%, 9/01/21	United States	510,000		551,756
^aIntel Corp., junior sub. bond, 3.25%, 8/01/39	United States	616,000		1,049,898
^aMicrochip Technology Inc., junior sub. bond, 2.125%, 12/15/37	United States	775,000		2,151,594
^aNVIDIA Corp., senior note, 1.00%, 12/01/18	United States	879,000		4,060,980
^aON Semiconductor Corp., senior sub. bond, Series B, 2.625%, 12/15/26	United States	508,000		571,183
				11,542,541
Software 1.3%
Bottomline Technologies de Inc., senior note, 1.50%, 12/01/17	United States	858,000		890,711
BroadSoft Inc., senior note, 1.00%, 9/01/22	United States	1,119,000		1,372,873
FireEye Inc., senior bond, 1.625%, 6/01/35	United States	275,000		248,703
Nuance Communications Inc., senior bond, 2.75%, 11/01/31	United States	1,279,000		1,289,392
Proofpoint Inc., senior note, 0.75%, 6/15/20	United States	246,000		292,433
Rovi Corp., senior note, 0.50%, 3/01/20	United States	610,000		619,150
Salesforce.com Inc., senior note, 0.25%, 4/01/18	United States	2,756,000		3,288,252
ServiceNow Inc., senior note, zero cpn., 11/01/18	United States	681,000		859,337
^aTake-Two Interactive Software Inc., senior note, 1.00%, 7/01/18	United States	2,385,000		5,469,103
				14,329,954
Specialty Retail 0.0%^†
^eVitamin Shoppe Inc., senior note, 144A, 2.25%, 12/01/20	United States	401,000		376,188
Textiles, Apparel & Luxury Goods 0.2%
^aIconix Brand Group Inc., senior sub. note, 1.50%, 3/15/18	United States	1,856,000		1,698,240
Trading Companies & Distributors 0.1%
^eKaman Corp., senior note, 144A, 3.25%, 11/15/17	United States	497,000		728,726
Transportation Infrastructure 0.2%
^fDP World Ltd., senior bond, Reg S, 1.75%, 6/19/24	United Arab Emirates	1,800,000		1,766,250
Total Convertible Bonds (Cost $177,911,159)				191,723,406
Convertible Bonds in Reorganization 0.0%^†
Semiconductors & Semiconductor Equipment 0.0%^†
^gSunEdison Inc., senior note,
^e144A, 0.25%, 1/15/20	United States	126,000		4,599
2.375%, 4/15/22	United States	247,000		9,016
Total Convertible Bonds in Reorganization
(Cost $337,664)				13,615
Corporate Bonds and Notes 18.2%
Aerospace & Defense 0.3%
^eBombardier Inc., senior note, 144A, 8.75%, 12/01/21	Canada	2,605,000		2,591,975
Embraer Netherlands Finance BV, senior bond, 5.05%, 6/15/25	Brazil	95,000		93,765
^eEmbraer Overseas Ltd., senior bond, 144A, 5.696%, 9/16/23	Brazil	90,000		94,275
^eMeccanica Holdings USA Inc., senior bond, 144A, 6.25%, 1/15/40	Italy	555,000		556,388
^hRockwell Collins Inc., senior note, FRN, 1.20%, 12/15/16	United States	40,000		40,004
				3,376,407

30 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)
Auto Components 0.0%^†
^eMidas Intermediate Holdco II LLC / Midas Intermediate Holdco II Finance Inc.,
senior note, 144A, 7.875%, 10/01/22	United States	170,000	$	171,700
Automobiles 0.1%
^e,hBMW U.S. Capital LLC, senior note, 144A, FRN, 1.26%, 9/13/19	Germany	520,000		519,799
^e,hDaimler Finance North America LLC, senior note, 144A, FRN, 1.195%, 3/10/17	Germany	150,000		150,105
^hFord Motor Credit Co. LLC, senior note, FRN, 1.66%, 1/17/17	United States	40,000		40,031
^e,hNissan Motor Acceptance Corp., senior note, 144A, FRN, 1.484%, 3/03/17	Japan	105,000		105,112
				815,047
Banks 0.1%
^hBank of America Corp., senior note, FRN, 1.92%, 1/15/19	United States	20,000		20,169
^hCitigroup Inc., senior note, FRN, 1.63%, 11/24/17	United States	403,000		404,053
^hToyota Motor Credit Corp., senior note, FRN,
1.27%, 1/17/19	United States	40,000		40,046
1.322%, 10/18/19	United States	255,000		256,402
^hWells Fargo & Co., senior note, FRN, 1.234%, 6/02/17	United States	115,000		115,034
				835,704
Beverages 0.0%^†
^hAnheuser-Busch InBev Finance Inc., senior note, FRN, 1.076%, 1/27/17	Belgium	45,000		45,014
^hPepsiCo Inc., senior note, FRN, 1.134%, 10/04/19	United States	260,000		260,314
				305,328
Biotechnology 0.0%^†
^hAmgen Inc., senior note, FRN, 1.296%, 5/22/17	United States	125,000		125,143
Capital Markets 0.0%^†
^eDonnelley Financial Solutions Inc., senior note, 144A, 8.25%, 10/15/24	United States	295,000		300,900
Commercial Services & Supplies 0.4%
RR Donnelley & Sons Co.,
senior bond, 6.50%, 11/15/23	United States	840,000		798,000
^asenior bond, 6.00%, 4/01/24	United States	4,073,000		3,696,247
senior bond, 6.625%, 4/15/29	United States	110,000		94,600
senior note, 7.00%, 2/15/22	United States	43,000		41,710
				4,630,557
Communications Equipment 0.4%
Alcatel-Lucent USA Inc., senior bond,
6.50%, 1/15/28	France	150,000		157,500
6.45%, 3/15/29	France	495,000		520,987
^a,eAvaya Inc., senior note, first lien, 144A, 7.00%, 4/01/19	United States	3,368,000		2,947,000
^hCisco Systems Inc., senior note, FRN,
1.214%, 3/03/17	United States	100,000		100,077
1.197%, 9/20/19	United States	510,000		511,559
				4,237,123
Construction & Engineering 0.4%
^eEngility Corp., senior note, 144A, 8.875%, 9/01/24	United States	4,440,000		4,578,750

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Semiannual Report 31

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

		Principal
	Country	Amount*				Value

Corporate Bonds and Notes (continued)
Construction Materials 0.1%
^eCemex SAB de CV, senior secured bond, 144A,
7.75%, 4/16/26	Mexico	300,000		$		321,000
first lien, 6.125%, 5/05/25	Mexico	365,000				360,438
						681,438
Consumer Finance 0.0%^†
^eUnifin Financiera SAB de CV SOFOM ENR, senior note, 144A,
7.25%, 9/27/23	Mexico	320,000				303,200
Diversified Financial Services 2.1%
Ally Financial Inc.,
senior note, 4.25%, 4/15/21	United States	200,000				197,500
sub. bond, 5.75%, 11/20/25	United States	245,000				242,856
^hAmerican Honda Finance Corp., senior note, FRN, 1.307%, 9/20/17	United States	180,000				180,584
^e,hBanco Hipotecario SA, senior note, 144A, FRN, 24.729%, 1/12/20	Argentina	3,890,000	ARS			248,872
^e,hBank of Tokyo-Mitsubishi UFJ Ltd., senior note, 144A, FRN,
1.876%, 9/14/18	Japan	335,000				337,316
Everi Payments Inc., senior note, 10.00%, 1/15/22	United States	6,275,000				6,024,000
^eFinanciera de Desarrollo Territorial SA Findeter, senior bond, 144A,
7.875%, 8/12/24	Colombia	795,000,000			COP	240,690
^e,hHyundai Capital Services Inc., senior note, 144A, FRN, 1.657%, 3/18/17	South Korea	200,000				200,146
^eiPayment Inc., secured note, second lien, 144A, 9.50%, 12/15/19	United States	9,898,166				10,182,738
^hJPMorgan Chase Bank NA, senior note, FRN, 1.453%, 9/23/19	United States	515,000				516,144
^eLadder Capital Finance Holdings LLP, senior note, 144A, 5.875%, 8/01/21	United States	225,000				213,469
^eOpal Acquisition Inc., senior note, 144A, 8.875%, 12/15/21	United States	4,310,000				3,404,900
^eQuicken Loans Inc., senior note, 144A, 5.75%, 5/01/25	United States	505,000				487,325
^hShell International Finance BV, senior note, FRN, 1.202%, 5/10/17	Netherlands	390,000				390,442
						22,866,982
Diversified Telecommunication Services 0.8%
Frontier Communications Corp., senior note,
10.50%, 9/15/22	United States	869,000				898,329
11.00%, 9/15/25	United States	5,457,000				5,491,106
^aIntelsat Jackson Holdings SA, senior note, 7.25%, 4/01/19	Luxembourg	684,000				540,360
Intelsat Luxembourg SA, senior note,
^a6.75%, 6/01/18	Luxembourg	1,684,000				1,229,320
7.75%, 6/01/21	Luxembourg	1,392,000				488,940
^hVerizon Communications Inc., senior note, FRN, 1.234%, 6/09/17	United States	125,000				125,160
						8,773,215
Electric Utilities 0.2%
^hDuke Energy Corp., senior note, FRN, 1.226%, 4/03/17	United States	100,000				100,118
^hDuke Energy Progress Inc., secured note, FRN, 1.035%, 3/06/17	United States	50,000				50,031
^eEnel SpA, sub. bond, 144A, 8.75% to 9/24/23, FRN thereafter, 9/24/73	Italy	745,000				848,071
GenOn Americas Generation LLC, senior bond, 9.125%, 5/01/31	United States	407,000				335,775
^a,eTerraform Global Operating LLC, senior note, 144A, 13.75%, 8/15/22	United States	1,083,000				1,161,517
						2,495,512
Energy Equipment & Services 0.2%
Noble Holding International Ltd., senior bond,
5.25%, 3/15/42	United Kingdom	190,000				106,400
8.20%, 4/01/45	United Kingdom	270,000				181,237
Petroleos Mexicanos,
^fsenior bond, Reg S, 6.875%, 8/04/26	Mexico	327,000				338,118
senior note, 4.25%, 1/15/25	Mexico	581,000				518,136

32 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)
Energy Equipment & Services (continued)
Targa Resources Partners LP / Targa Resources Partners Finance Corp.,
senior bond, 6.375%, 8/01/22	United States	25,000	$	25,875
senior bond, 5.25%, 5/01/23	United States	15,000		15,113
senior bond, 4.25%, 11/15/23	United States	350,000		331,625
senior note, 6.75%, 3/15/24	United States	590,000		628,350
Western Refining Logistics LP / WNRL Finance Corp., senior note,
7.50%, 2/15/23	United States	80,000		86,400
				2,231,254
Equity Real Estate Investment Trusts (REITs) 0.0%^†
^eHilton Grand Vacations Borrower LLC/Hilton Grand Vacations Borrower Inc.,
senior note, 144A, 6.125%, 12/01/24	United States	120,000		123,900
Food & Staples Retailing 0.1%
^eBRF GmbH, senior bond, 144A, 4.35%, 9/29/26	Brazil	530,000		496,875
Food Products 0.2%
^eCosan Luxembourg SA, senior bond, 144A, 7.00%, 1/20/27	Brazil	545,000		543,638
^eJBS USA LLC / JBS USA Finance Inc., senior bond, 144A,
7.25%, 6/01/21	Brazil	10,000		10,375
5.75%, 6/15/25	Brazil	215,000		211,775
^aWhiteWave Foods Co., senior note, 5.375%, 10/01/22	United States	1,616,000		1,787,700
				2,553,488
Gas Utilities 0.1%
NGL Energy Partners LP / NGL Energy Finance Corp., senior note,
5.125%, 7/15/19	United States	230,000		225,400
6.875%, 10/15/21	United States	30,000		30,075
^e144A, 7.50%, 11/01/23	United States	825,000		827,063
				1,082,538
Health Care Equipment & Supplies 0.2%
Universal Hospital Services Inc., senior note, 7.625%, 8/15/20	United States	2,258,000		2,160,906
Health Care Providers & Services 0.2%
^hAetna Inc., senior note, FRN, 1.491%, 12/08/17	United States	475,000		476,861
Kindred Healthcare Inc., senior note, 8.75%, 1/15/23	United States	1,885,000		1,684,719
^e,iTenet Healthcare Corp., secured note, second lien, 144A, 7.50%, 1/01/22	United States	65,000		67,072
				2,228,652
Hotels, Restaurants & Leisure 0.9%
Choice Hotels International Inc., senior bond, 5.70%, 8/28/20	United States	125,000		137,500
^eDownstream Development Authority of the Quapaw Tribe of Oklahoma,
secured note, 144A, 10.50%, 7/01/19	United States	6,047,000		6,198,175
^eJack Ohio Finance LLC / Jack Ohio Finance 1 Corp., senior secured note, first lien,
144A, 6.75%, 11/15/21	United States	1,303,000		1,309,515
^eMohegan Tribal Gaming Authority, senior note, 144A, 7.875%, 10/15/24	United States	537,000		539,685
^eViking Cruises Ltd., 144A,
senior bond, 6.25%, 5/15/25	United States	652,000		591,690
senior note, 8.50%, 10/15/22	United States	1,273,000		1,301,642
				10,078,207
Household Durables 0.0%^†
PulteGroup Inc., senior bond, 5.00%, 1/15/27	United States	515,000		486,675

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Semiannual Report 33

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

		Principal
	Country	Amount*		Value
Corporate Bonds and Notes (continued)
Independent Power & Renewable Electricity Producers 0.1%
^aGenOn Energy Inc., senior note,
9.50%, 10/15/18	United States	406,000	$	285,215
9.875%, 10/15/20	United States	1,786,000		1,205,550
				1,490,765
Insurance 0.1%
^e,hMetropolitan Life Global Funding I, secured note, 144A, FRN, 1.19%, 9/14/18	United States	520,000		520,373
Machinery 0.9%
^hCaterpillar Financial Services Corp., senior note, FRN,
1.164%, 3/03/17	United States	110,000		110,052
1.004%, 6/09/17	United States	300,000		300,094
1.62%, 2/23/18	United States	505,000		508,201
Navistar International Corp., senior bond, 8.25%, 11/01/21	United States	9,025,000		9,070,125
				9,988,472
Media 3.8%
^eAmerican Media Inc., 144A,
secured note, second lien, 5.50%, 9/01/21	United States	3,355,845		3,070,598
sub. note, zero cpn., 3/01/22	United States	25,960,513		16,939,235
^eCablevision SA, senior note, 144A, 6.50%, 6/15/21	Argentina	150,000		152,625
Clear Channel Worldwide Holdings Inc., senior sub. note, B, 7.625%, 3/15/20	United States	1,095,000		1,084,050
^eCox Communications Inc., senior bond, 144A,
4.70%, 12/15/42	United States	120,000		103,609
4.50%, 6/30/43	United States	220,000		183,735
CSC Holdings LLC, senior bond, 7.625%, 7/15/18	United States	245,000		260,313
DISH DBS Corp., senior note,
5.875%, 11/15/24	United States	405,000		412,087
7.75%, 7/01/26	United States	250,000		276,562
^eLee Enterprises Inc., senior secured note, first lien, 144A, 9.50%, 3/15/22	United States	3,433,000		3,621,815
The McClatchy Co.,
^asenior bond, 7.15%, 11/01/27	United States	383,000		326,220
senior bond, 6.875%, 3/15/29	United States	4,471,000		3,688,575
senior secured note, first lien, 9.00%, 12/15/22	United States	1,158,000		1,227,480
^e,jPostmedia Network Inc., secured note, second lien, 144A, PIK, 10.25%, 7/15/23	Canada	5,001,000		5,276,055
^eTime Inc., senior note, 144A, 5.75%, 4/15/22	United States	5,542,000		5,611,275
Time Warner Cable Inc., senior bond, 4.50%, 9/15/42	United States	240,000		212,034
^eZiggo Secured Finance BV, secured bond, first lien, 144A, 5.50%, 1/15/27	Netherlands	250,000		240,625
				42,686,893
Metals & Mining 1.4%
AK Steel Corp.,
senior bond, 7.625%, 5/15/20	United States	7,555,000		7,762,762
senior bond, 8.375%, 4/01/22	United States	2,281,000		2,403,604
senior note, 7.625%, 10/01/21	United States	5,237,000		5,485,758
				15,652,124
Oil, Gas & Consumable Fuels 3.3%
Anadarko Petroleum Corp., senior bond, 4.50%, 7/15/44	United States	370,000		327,917
^eBaytex Energy Corp., senior note, 144A,
5.125%, 6/01/21	Canada	30,000		26,025
5.625%, 6/01/24	Canada	890,000		749,825
^eBellatrix Exploration Ltd., senior note, 144A, 8.50%, 5/15/20	Canada	150,000		143,250

34 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)
Oil, Gas & Consumable Fuels (continued)
Bonanza Creek Energy Inc., senior note,
6.75%, 4/15/21	United States	115,000	$	60,663
5.75%, 2/01/23	United States	415,000		217,875
^hBP Capital Markets PLC, senior note, FRN, 1.327%, 2/13/18	United Kingdom	105,000		105,165
California Resources Corp.,
^esecured note, second lien, 144A, 8.00%, 12/15/22	United States	4,920,000		3,985,200
senior note, 5.50%, 9/15/21	United States	9,000		5,850
senior note, 6.00%, 11/15/24	United States	112,000		69,440
^eCallon Petroleum Co., senior note, 144A, 6.125%, 10/01/24	United States	520,000		535,600
Calumet Specialty Products Partners LP / Calumet Finance Corp., senior note,
6.50%, 4/15/21	United States	1,436,000		1,181,110
Canadian Natural Resources Ltd., senior bond, 3.90%, 2/01/25	Canada	20,000		19,653
Chesapeake Energy Corp.,
^esecured note, second lien, 144A, 8.00%, 12/15/22	United States	125,000		129,687
senior bond, 6.625%, 8/15/20	United States	1,000		975
senior bond, 6.125%, 2/15/21	United States	3,000		2,768
senior note, 4.875%, 4/15/22	United States	20,000		17,150
^hChevron Corp., senior note, FRN, 1.076%, 11/15/17	United States	145,000		145,193
Concho Resources Inc., senior bond,
5.50%, 10/01/22	United States	75,000		78,094
5.50%, 4/01/23	United States	395,000		408,094
Continental Resources Inc.,
senior bond, 5.00%, 9/15/22	United States	1,535,000		1,536,919
senior bond, 4.90%, 6/01/44	United States	335,000		286,425
senior note, 4.50%, 4/15/23	United States	35,000		34,213
senior note, 3.80%, 6/01/24	United States	405,000		376,650
Crestwood Midstream Partners LP / Crestwood Midstream Finance Corp.,
senior note, 6.125%, 3/01/22	United States	415,000		421,225
Devon Energy Corp., senior bond,
5.85%, 12/15/25	United States	375,000		415,327
5.00%, 6/15/45	United States	427,000		398,592
Eclipse Resources Corp., senior note, 8.875%, 7/15/23	United States	545,000		553,175
Enable Midstream Partners LP, senior bond, 5.00%, 5/15/44	United States	400,000		324,266
Encana Corp., senior bond, 3.90%, 11/15/21	Canada	565,000		560,113
Energy Transfer Equity LP, secured bond, first lien, 7.50%, 10/15/20	United States	200,000		224,500
Energy Transfer Partners LP, senior bond,
5.15%, 3/15/45	United States	230,000		206,751
6.125%, 12/15/45	United States	540,000		545,135
EnLink Midstream Partners LP, senior bond,
4.85%, 7/15/26	United States	210,000		206,622
5.60%, 4/01/44	United States	145,000		131,180
5.05%, 4/01/45	United States	245,000		207,381
^f,hEP PetroEcuador via Noble Sovereign Funding I Ltd., secured note, FRN, Reg S,
6.487%, 9/24/19	Ecuador	509,685		507,442
^hExxon Mobil Corp., senior note, FRN, 0.89%, 3/15/17	United States	110,000		110,033
^eHalcon Resources Corp., secured note, second lien, 144A, 8.625%, 2/01/20	United States	505,000		520,402
^eHilcorp Energy I LP / Hilcorp Finance Co., senior bond, 144A, 5.00%, 12/01/24	United States	590,000		598,850
Kinder Morgan Energy Partners LP, senior bond,
5.625%, 9/01/41	United States	130,000		124,072
5.00%, 8/15/42	United States	300,000		273,424
4.70%, 11/01/42	United States	150,000		130,956
5.00%, 3/01/43	United States	145,000		132,959

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Semiannual Report 35

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)
Marathon Oil Corp., senior bond, 5.20%, 6/01/45	United States	345,000		$	304,153
Matador Resources Co., senior note, 6.875%, 4/15/23	United States	497,000			529,305
^eMEG Energy Corp., 144A,
senior bond, 6.375%, 1/30/23	Canada	180,000			159,750
senior bond, 7.00%, 3/31/24	Canada	665,000			583,537
senior note, 6.50%, 3/15/21	Canada	230,000			208,150
MPLX LP,
senior bond, 4.00%, 2/15/25	United States	30,000			28,559
senior note, 4.50%, 7/15/23	United States	55,000			55,081
senior note, 4.875%, 12/01/24	United States	960,000			970,916
Oasis Petroleum Inc.,
senior bond, 6.875%, 1/15/23	United States	70,000			72,100
senior note, 6.875%, 3/15/22	United States	725,000			750,375
^eParsley Energy LLC / Parsley Finance Corp., senior note, 144A,
7.50%, 2/15/22	United States	45,000			47,869
6.25%, 6/01/24	United States	270,000			280,800
^ePDC Energy Inc., senior note, 144A, 6.125%, 9/15/24	United States	130,000			133,575
Petrobras Global Finance BV,
senior bond, 5.75%, 1/20/20	Brazil	372,000			373,860
senior bond, 5.625%, 5/20/43	Brazil	80,000			57,200
senior note, 3.00%, 1/15/19	Brazil	1,521,000			1,484,420
^fsenior note, Reg S, 3.25%, 4/01/19	Brazil	353,000	EUR		375,898
senior note, 4.875%, 3/17/20	Brazil	3,069,000			3,009,768
senior note, 5.375%, 1/27/21	Brazil	745,000			727,120
senior note, 8.375%, 5/23/21	Brazil	1,023,000			1,099,725
senior note, 8.75%, 5/23/26	Brazil	75,000			80,662
^fPetroleos de Venezuela SA, Reg S,
senior bond, 6.00%, 11/15/26	Venezuela	3,104,000			1,149,101
senior note, 6.00%, 5/16/24	Venezuela	1,459,777			549,387
Rice Energy Inc., senior note, 6.25%, 5/01/22	United States	815,000			837,412
Rose Rock Midstream LP / Rose Rock Finance Corp., senior note,
5.625%, 11/15/23	United States	285,000			272,175
RSP Permian Inc., senior note, 6.625%, 10/01/22	United States	1,250,000			1,318,125
Sabine Pass Liquefaction LLC, senior secured note, first lien, 5.625%, 3/01/25	United States	455,000			476,044
SM Energy Co.,
senior bond, 6.50%, 1/01/23	United States	85,000			85,850
senior bond, 5.625%, 6/01/25	United States	10,000			9,650
senior bond, 6.75%, 9/15/26	United States	90,000			92,644
senior note, 6.50%, 11/15/21	United States	10,000			10,138
senior note, 6.125%, 11/15/22	United States	220,000			221,650
senior note, 5.00%, 1/15/24	United States	230,000			217,925
^eTransocean Proteus Ltd., senior note, 144A, 6.25%, 12/01/24	United States	340,000			340,850
^eUltrapar International SA, senior bond, 144A, 5.25%, 10/06/26	Brazil	260,000			257,075
Whiting Petroleum Corp., senior note,
6.50%, 10/01/18	United States	145,000			145,544
5.00%, 3/15/19	United States	25,000			24,813
5.75%, 3/15/21	United States	790,000			782,100
Williams Partners LP, senior bond,
3.90%, 1/15/25	United States	355,000			341,502

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)
Oil, Gas & Consumable Fuels (continued)
Williams Partners LP, senior bond,
4.00%, 9/15/25	United States	125,000	$		120,641
6.30%, 4/15/40	United States	535,000			541,819
5.10%, 9/15/45	United States	615,000			558,424
^e,hYPF SA, senior note, 144A, FRN, 26.333%, 7/07/20	Argentina	245,000			281,750
					37,003,588
Paper & Forest Products 0.8%
Resolute Forest Products Inc., senior note, 5.875%, 5/15/23	United States	10,628,000			8,289,840
Pharmaceuticals 0.2%
^hMerck & Co. Inc., senior note, FRN, 1.007%, 2/10/17	United States	165,000			165,020
^eValeant Pharmaceuticals International Inc., 144A,
^asenior bond, 6.125%, 4/15/25	United States	983,000			729,878
senior note, 5.875%, 5/15/23	United States	1,620,000			1,205,887
					2,100,785
Professional Services 0.2%
^a,eAltegrity Inc., senior note, first lien, 144A, 9.50%, 7/01/19	United States	2,073,000			2,130,008
Real Estate Management & Development 0.0%^†
^eRialto Holdings LLC / Rialto Corp., senior note, 144A, 7.00%, 12/01/18	United States	178,000			181,115
Software 0.1%
^eOpen Text Corp., senior bond, 144A, 5.875%, 6/01/26	Canada	1,110,000			1,157,175
^hOracle Corp., senior note, FRN, 1.068%, 7/07/17	United States	135,000			135,186
					1,292,361
Specialty Retail 0.3%
^aCST Brands Inc., senior note, 5.00%, 5/01/23	United States	1,915,000			1,991,600
^a,eGuitar Center Inc., senior secured note, first lien, 144A, 6.50%, 4/15/19	United States	1,069,000			948,738
^hLowe’s Cos. Inc., senior note, FRN, 1.456%, 9/14/18	United States	255,000			257,227
					3,197,565
Technology Hardware, Storage & Peripherals 0.1%
^eDiamond 1 Finance Corp. / Diamond 2 Finance Corp., senior secured bond, first
lien, 144A, 6.02%, 6/15/26	United States	1,170,000			1,227,273
Thrifts & Mortgage Finance 0.0%^†
Santander Holdings USA Inc., senior bond, 4.50%, 7/17/25	United States	475,000			466,241
Wireless Telecommunication Services 0.1%
^fGTH Finance BV, senior note, Reg S, 6.25%, 4/26/20	Netherlands	511,000			531,721
Total Corporate Bonds and Notes (Cost $182,004,689)					202,698,625
Corporate Bonds and Notes in Reorganization 0.2%
Diversified Telecommunication Services 0.0%^†
^e,gOi SA, senior note, 144A, 9.75%, 9/15/16	Brazil	300,000		BRL	16,410
Energy Equipment & Services 0.1%
^a,e,gParagon Offshore PLC, 144A,
senior bond, 7.25%, 8/15/24	United States	387,000			75,465
senior note, 6.75%, 7/15/22	United States	3,081,000			600,795
					676,260

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Semiannual Report 37

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

		Principal
	Country	Amount*		Value
Corporate Bonds and Notes in Reorganization (continued)
Oil, Gas & Consumable Fuels 0.1%
^gLinn Energy LLC / Linn Energy Finance Corp.,
senior bond, 8.625%, 4/15/20	United States	3,062,000	$	1,018,115
^asenior bond, 7.75%, 2/01/21	United States	1,501,000		500,959
senior note, 6.50%, 5/15/19	United States	257,000		82,883
^gPeabody Energy Corp., senior note, 6.00%, 11/15/18	United States	236,000		151,040
				1,752,997
Total Corporate Bonds and Notes in Reorganization
(Cost $1,952,334)				2,445,667
^h,kSenior Floating Rate Interests 0.5%
Aerospace & Defense 0.0%^†
^sTransDigm Inc., Term Loan F, 3.75%, 6/09/23	United States	170,000		170,468
Auto Components 0.0%^†
Gates Global Inc., Term Loan B, 4.25%, 7/06/21	United States	178,437		177,483
Building Products 0.0%^†
Ply Gem Holdings Inc., Term Loan, 4.00%, 2/01/21	United States	27,461		27,624
Capital Markets 0.0%^†
Donnelley Financial Solutions Inc., Term Loan B, 5.00%, 9/29/23	United States	115,000		116,150
Thomson Reuters, Term Loan B, 4.75%, 10/03/23	Canada	131,300		131,874
				248,024
Commercial Services & Supplies 0.0%^†
GFL Environmental, Term Loan B, 3.75%, 9/29/23	Canada	70,000		69,956
Communications Equipment 0.0%^†
Presidio Holdings, Term Loan B, 5.25%, 2/02/22	United States	187,150		187,715
Construction & Engineering 0.0%^†
Engility Corp., Term Loan B2, 7.25%, 8/14/23	United States	104,477		105,832
Construction Materials 0.0%^†
Headwaters Inc., Term Loan B, 4.00%, 3/24/22	United States	189,520		190,468
Diversified Financial Services 0.0%^†
Harbor Frieght Tools USA Inc., Term Loan B, 4.137%, 8/18/23	United States	118,871		119,943
Serta Simmons Holdings LLC, Term Loan, second lien, 9.00%, 10/21/24	United States	199,727		200,393
				320,336
Diversified Telecommunication Services 0.0%^†
Integra Telecom, Term Loan, 5.25%, 8/14/20	United States	222,120		222,009
Electric Utilities 0.0%^†
Power Buyer LLC, Delayed Draw, Term Loan, 4.25%, 5/06/20	United States	66,274		66,191
Health Care Providers & Services 0.1%
Inventiv Health Inc., Term Loan, 4.75%, 11/09/23	United States	485,000		484,280
Universal Services, Delayed Draw, Term Loan B, 4.75%, 7/28/22	United States	119,100		119,398
				603,678
Hotels, Restaurants & Leisure 0.0%^†
Boyd Gaming Corp., Term Loan B, 3.61%, 9/15/23	United States	65,223		65,712
Insurance 0.1%
Asurion LLC, Term Loan, 10.00%, 8/31/21	United States	525,000		529,594

38 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
^h,kSenior Floating Rate Interests (continued)
Insurance (continued)
Hyperion Insurance Group Ltd., Term Loan B, 5.50%, 4/29/22	United States	44,325	$		43,937
					573,531
Internet Software & Services 0.1%
Rackspace Hosting Inc., Term Loan B, 5.00%, 11/03/23	United States	85,000			85,751
Uber Technologies Inc., Term Loan, 5.00%, 7/13/23	United States	260,000			261,393
					347,144
IT Services 0.0%^†
Aptean Inc., Term Loan, first lien, 5.25%, 2/26/20	United States	48,750			48,781
Machinery 0.0%^†
North American Lifting Holdings Inc., Initial Term Loan, 5.50%, 11/27/20	United States	15,577			13,367
Media 0.0%^†
Cablevision SA, Term Loan B, 3.876%, 10/11/24	Argentina	35,000			35,131
CBS Radio Inc., Term Loan B, 4.50%, 10/17/23	United States	95,755			96,443
Cequel/SuddenLink, Term Loan, 3.882%, 1/15/25	United States	24,299			24,421
Ziggo BV,
Term Loan B-1, 3.50%, 1/15/22	Netherlands	145,145			145,236
Term Loan B-2, 3.50%, 1/15/22	Netherlands	27,875			27,892
Term Loan B-3, 3.701%, 1/15/22	Netherlands	8,180			8,185
					337,308
Oil, Gas & Consumable Fuels 0.1%
California Resources Corp., Term Loan L, 11.375%, 12/31/21	United States	635,000			676,275
Chesapeake Energy Corp., Term Loan, 8.50%, 8/23/21	United States	468,445			498,191
Energy Transfer Equity LP, Term Loan 2013, 3.387%, 12/02/19	United States	33,128			33,011
Energy Transfer Partners LP, Term Loan C, 4.137%, 12/02/19	United States	39,998			40,109
OSG Bulk Ships, Term Loan B, 5.25%, 8/05/19	United States	9,079			8,863
Southcross Energy Partners LP, senior secured, Term Loan B, first lien
guaranteed, 5.25%, 8/04/21	United States	29,472			23,087
					1,279,536
Retailing 0.0%^†
Talbots Inc., Initial Term Loan, first lien, 5.50%, 3/19/20	United States	66,882			65,572
Semiconductors & Semiconductor Equipment 0.0%^†
Cavium Inc., Term Loan B, 3.75%, 8/16/22	United States	75,000			75,045
NXP BV, Term Loan F, 3.405%, 12/07/20	Netherlands	25,000			25,113
					100,158
Specialty Retail 0.0%^†
PetSmart Inc., Term Loan B, 4.00%, 3/11/22	United States	244,380			245,366
Technology Hardware, Storage & Peripherals 0.1%
Western Digital Co., Term Loan B, 4.50%, 4/29/23	United States	335,982			340,332
Trading Companies & Distributors 0.0%^†
HD Supply Inc., Term Loan B, 3.63%, 10/17/23	United States	145,000			145,793
Total Senior Floating Rate Interests (Cost $5,843,513)					5,952,384
Foreign Government and Agency Securities 2.2%
Argentine Bonos del Tesoro,
senior note, 16.00%, 10/17/23	Argentina	23,373,724		ARS	1,423,383
senior note, 15.50%, 10/17/26	Argentina	5,727,486		ARS	349,690

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Semiannual Report 39

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

		Principal
	Country	Amount*		Value
Foreign Government and Agency Securities (continued)
Government of Argentina,
^fReg S, 5.00%, 1/15/27	Argentina	811,000	EUR	$	753,170
7.82%, 12/31/33	Argentina	1,801,320	EUR	1,887,173
2.26% to 3/31/19, 3.38% to 3/31/29, 4.74% thereafter, 12/31/38	Argentina	2,313,071	EUR	1,383,263
senior note, 8.75%, 6/02/17	Argentina	2,083,173		2,160,250
^fsenior note, Reg S, 3.875%, 1/15/22	Argentina	470,000	EUR	469,920
Government of Brazil, senior note, 10.00%, 1/01/17	Brazil	3,300,000	BRL	972,630
^fGovernment of Cyprus, senior note, Reg S, 3.875%, 5/06/22	Cyprus	423,000	EUR	464,819
Government of Hellenic Republic,
^fsenior bond, Reg S, 3.00% to 2/24/20, 3.65% to 2/24/21, 4.30%
thereafter, 2/24/42	Greece	2,430,460	EUR	1,867,948
^esenior note, 144A, 4.75%, 4/17/19	Greece	385,000	EUR	392,807
^fGovernment of Iraq, senior bond, Reg S, 5.80%, 1/15/28	Iraq	814,000		649,165
^fGovernment of Pakistan, senior note, Reg S, 6.75%, 12/03/19	Pakistan	648,000		681,056
^fGovernment of Paraguay, senior note, Reg S, 4.625%, 1/25/23	Paraguay	945,000		945,576
Government of Poland, 4.75%, 4/25/17	Poland	3,900,000	PLN	940,040
Government of Russia,
6.40%, 5/27/20	Russia	107,072,000	RUB	1,564,545
^fReg S, 4.75%, 5/27/26	Russia	2,000,000		2,041,120
^fGovernment of Ukraine, senior note, Reg S, 7.75%, 9/01/19	Ukraine	1,030,000		999,898
Letras del Banco Central de la Republica Argentina, Strip, 1/11/17 - 1/25/17	Argentina	37,094,511 ^l	ARS	2,264,421
Mexican Bonos, senior bond, Series M, 5.75%, 3/05/26	Mexico	100,000	MXN	436,365
Mexico Cetes, senior note, zero cpn., 1/05/17	Mexico	1,985,000	MXN	959,323
Mexico City Airport Trust, senior bond, 5.50%, 10/31/46	Mexico	600,000		528,180
^eProvincia de Buenos Aires/Argentina, senior note, 144A, 5.75%, 6/15/19	Argentina	250,000		250,313
Total Foreign Government and Agency Securities
(Cost $23,616,049)				24,385,055
Asset-Backed Securities and Commercial Mortgage-
Backed Securities 2.3%
Airlines 0.1%
^eAir Canada 2015-2 Class B Pass Through Trust, third lien note, 144A,
5.00%, 6/15/25	Canada	505,000		506,894
Latam Airlines 2015-1 Pass Through Trust B, secured note, 4.50%, 8/15/25	Chile	750,345		735,338
				1,242,232
Banks 0.0%^†
Capital One Multi-Asset Execution Trust,
2014-A2, 1.26%, 1/15/20	United States	40,000		40,026
2014-A5, 1.48%, 7/15/20	United States	90,000		90,240
^hWells Fargo Mortgage Backed Securities 2003-M Trust, A1, FRN,
2.992%, 12/25/33	United States	30,649		30,761
^hWells Fargo Mortgage Backed Securities 2004-0 Trust, A1, FRN,
3.176%, 8/25/34	United States	12,183		12,384
Wells Fargo Mortgage Backed Securities 2005-16 Trust, A18,
6.00%, 1/25/36	United States	6,232		6,181
^hWells Fargo Mortgage Backed Securities 2005-AR10 Trust, 2A4, FRN,
2.987%, 6/25/35	United States	19,217		19,849
				199,441
Commercial Services & Supplies 0.0%^†
^eShenton Aircraft Investment I Ltd., 2015-A, 144A, 4.75%, 10/15/42	Cayman Islands	320,503		316,230

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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)
Consumer Finance 0.1%
American Express Credit Account Master Trust,
^h2012-A, FRN, 0.808%, 1/15/20	United States	100,000	$	100,091
^h2012-4A, FRN, 0.778%, 5/15/20	United States	355,000		355,429
2014-A, 1.26%, 1/15/20	United States	100,000		100,105
2014-A, 1.49%, 4/15/20	United States	100,000		100,275
^h2014-A, FRN, 0.828%, 5/15/20	United States	100,000		100,143
^hBank of America Credit Card Trust, FRN,
A, 0.808%, 9/16/19	United States	120,000		120,086
A, 0.918%, 6/15/21	United States	100,000		100,310
A, 0.928%, 10/15/21	United States	85,000		85,312
A3, 0.828%, 1/15/20	United States	100,000		100,119
				1,161,870
Diversified Financial Services 1.9%
^eAIM Aviation Finance Ltd., 2015-B1, 144A, 5.072%, 2/15/40	Cayman Islands	328,125		315,820
^eAjax Mortgage Loan 2016-B Trust, A, 144A, 4.00%, 9/25/65	United States	169,052		169,125
^eAjax Mortgage Loan 2016-C Trust, Series 2016-A, 144A, 4.00%, 10/25/57, C	United States	154,367		155,015
^hAlliance Bancorp 2007-OA1 Trust, A1, FRN, 0.832%, 7/25/37	United States	342,646		249,372
Ally Auto Receivables 2016-3 Trust, A3, 1.44%, 8/17/20	United States	180,000		180,262
^hAmerican Express Issuance Trust II, 2013-A, FRN, 0.968%, 8/15/19	United States	240,000		241,048
^hAmerican Home Mortgage Investment 2005-2 Trust, 1A1, FRN,
0.834%, 9/25/45	United States	96,013		79,819
^hAmerican Home Mortgage Investment 2006-1 Trust, 11A1, FRN,
0.814%, 3/25/46	United States	337,558		279,566
Banc of America Alternative Loan 2003-8 Trust, 1CB1, 5.50%, 10/25/33	United States	10,871		11,123
Banc of America Alternative Loan 2004-6 Trust, 2A1, 6.00%, 7/25/34	United States	267,942		282,610
Banc of America Alternative Loan 2004-9 Trust, 2CB1, 6.00%, 10/25/34	United States	11,894		12,141
Banc of America Alternative Loan 2005-6 Trust, CB7, 5.25%, 7/25/35	United States	21,175		19,482
^hBanc of America Funding 2004-B Trust, 1A2, FRN, 2.981%, 12/20/34	United States	63,418		59,043
Banc of America Funding 2005-5 Trust, 1A1, 5.50%, 9/25/35	United States	17,586		18,301
Banc of America Funding 2007-4 Trust, 5A1, 5.50%, 11/25/34	United States	196,354		195,155
^hBanc of America Mortgage 2005-A Trust, 2A1, FRN, 2.961%, 2/25/35	United States	12,062		12,050
^eBayview Opportunity Master Fund 2016-LT1 Trust, Series 2016-A1, 144A,
3.475%, 10/28/31	United States	166,941		166,947
^eBayview Opportunity Master Fund IIA 2016-RPL3 Trust, A1, 144A,
3.475%, 7/28/31	United States	81,398		81,299
^eBayview Opportunity Master Fund IIIA 2016-RN3 Trust, Series 2016-A1, 144A,
3.598%, 9/29/31	United States	95,239		95,222
BCAP LLC 2007-AA2 Trust, 22A1, 6.00%, 3/25/22	United States	217,429		215,554
^hBear Stearns ARM 2004-6 Trust, 2A1, FRN, 3.321%, 9/25/34	United States	80,168		74,050
^hBear Stearns ARM 2005-12 Trust, 11A1, FRN, 3.577%, 2/25/36	United States	24,113		20,519
^eBlackbird Capital Aircraft Lease Securitization Ltd., 2016-1, A, 144A,
4.213%, 12/16/41	United States	255,000		256,680
^e,hBLCP Hotel 2014-CLRN Trust, E, 144A, FRN, 4.208%, 8/15/29	United States	100,000		99,295
BMW Vehicle Owner Trust, 2014-A3, 0.97%, 11/26/18	United States	35,302		35,292
BXHT 2015-DRMZ Mortgage Trust, 8.738%, 7/15/29	United States	239,031		232,286
^eCAM Mortgage 2016-1 Trust, 144A,
A, 4.00%, 1/15/56	United States	67,535		67,376
^hM, FRN, 5.00%, 1/15/56	United States	150,000		145,003

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Semiannual Report 41

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)
Diversified Financial Services (continued)
^eCAM Mortgage LLC, 144A,
^h2015-1, M, FRN, 4.75%, 7/15/64	United States	100,000		$	99,081
2015-A, 3.50%, 7/15/64	United States	13,497			13,531
^e,hCCRESG Commercial Mortgage 2016-HEAT Trust, D, 144A, FRN,
5.671%, 4/10/29	United States	100,000			98,824
Chase Issuance Trust,
^h2007-A12, FRN, 0.588%, 8/15/19	United States	330,000			329,741
2014-A6, 1.26%, 7/15/19	United States	100,000			100,115
^h2015-A1, FRN, 0.858%, 2/18/20	United States	110,000			110,230
2015-A2, 1.59%, 2/18/20	United States	135,000			135,512
2015-A7, 1.62%, 7/15/20	United States	300,000			301,231
2016-A, 1.37%, 6/15/21	United States	260,000			258,137
2016-A5, 1.27%, 7/15/21	United States	250,000			247,593
^hA5, FRN, 0.908%, 4/15/21	United States	120,000			120,561
^eCLI Funding LLC, 2014-2A, 144A, 3.38%, 10/18/29	United States	79,000			75,914
^eColony American Homes, 144A,
^h2014-2, FRN, 3.77%, 7/17/31	United States	100,000			101,200
2015-1, D, 5.649%, 10/15/47	United States	115,000			113,214
^e,hCOMM 2016-SAVA Mortgage Trust, Series 2016-C, 144A, FRN,
3.539%, 10/15/34	United States	155,000			155,603
Countrywide Alternative Loan Trust,
2003-1A1, 5.75%, 12/25/33	United States	70,234			72,167
2003-2A1, 5.75%, 10/25/33	United States	22,173			22,942
2003-A7, 5.50%, 7/25/33	United States	23,603			23,427
2004-1A1, 5.50%, 4/25/34	United States	52,399			53,398
2004-5A1, 5.75%, 1/25/35	United States	9,310			9,395
2004-J10, 6.00%, 9/25/34	United States	128,212			132,642
2005-2A1, 5.50%, 2/25/25	United States	10,277			10,511
^h2005-2A1, FRN, 0.802%, 5/25/35	United States	53,947			45,107
^hCountrywide Home Loans Mortgage Pass-Through 2004-12 Trust, 8A1, FRN,
3.223%, 8/25/34	United States	14,948			12,956
^hCountrywide Home Loans Mortgage Pass-Through 2004-HYB4 Trust, 2A1, FRN,
3.056%, 9/20/34	United States	126,249			121,989
Countrywide Home Loans Mortgage Pass-Through 2005-21 Trust, A17,
5.50%, 10/25/35	United States	16,266			14,718
^eCPS Auto Receivables 2014-B Trust, D, 144A, 4.62%, 5/15/20	United States	110,000			109,329
^eCPS Auto Receivables 2016-B Trust, E, 144A, 8.14%, 5/15/23	United States	500,000			522,465
^e,hCredit Suisse Mortgage Capital Certificates, 2015-A, 144A, FRN,
1.788%, 3/15/17	United States	110,000			110,111
^hDeutsche Alt-A Securities Inc. Mortgage Loan 2005-5 Trust, 1A4, FRN,
5.50%, 11/25/35	United States	11,819			11,265
^hDeutsche Mortgage Securities Inc. Mortgage Loan 2004-7 Trust, AR1, FRN,
0.942%, 6/25/34	United States	101,498			92,982
^hDSLA Mortgage Loan 2005-AR5 Trust, 2A1A, FRN, 0.892%, 9/19/45	United States	64,860			48,724
^eDT Auto Owner 2014-3 Trust, D, 144A, 4.47%, 11/15/21	United States	50,000			51,104
^eDT Auto Owner 2016-1 Trust, D, 144A, 4.66%, 12/15/22	United States	180,000			183,338
^eDT Auto Owner 2016-2 Trust, D, 144A, 5.43%, 11/15/22	United States	240,000			248,945
^f,hDukinfield 2 PLC, FRN, Reg S, 1.612%, 12/20/52	United Kingdom	245,000	GBP		307,457
^f,hEurosail-UK 2007-2np PLC, Series 2007-A3C, FRN, Reg S, 0.529%, 3/13/45	United Kingdom	73,464	GBP		88,957
^eFirst Investors Auto Owner 2016-1 Trust, D, 144A, 4.70%, 4/18/22	United States	110,000			113,579

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
Asset-Backed Securities and Commercial Mortgage-Backed
Securities (continued)
Diversified Financial Services (continued)
Ford Credit Auto Owner Trust,
^e2014-A, 144A, 2.31%, 4/15/26	United States	100,000		$	101,197
2014-A3, 0.90%, 10/15/18	United States	42,926			42,908
2014-A3, 1.06%, 5/15/19	United States	36,698			36,692
2015-A3, 1.28%, 9/15/19	United States	79,172			79,236
2015-B, A3, 1.16%, 11/15/19	United States	170,000			169,993
^hFreddie Mac Structured Agency Credit Risk Debt Notes, FRN,
2013-M2, 4.842%, 11/25/23	United States	250,000			263,837
2015-M2, 2.442%, 10/25/27	United States	250,000			252,937
2015-M3, 3.892%, 10/25/27	United States	250,000			258,418
^hGMACM Mortgage Loan 2005-AR4 Trust, 3A1, FRN, 3.557%, 7/19/35	United States	202,543			183,877
^e,hGP Portfolio 2014-GGP Trust, A, 144A, FRN, 1.488%, 2/15/27	United States	72,789			72,921
GSR Mortgage Loan 2005-4F Trust, 6A1, 6.50%, 2/25/35	United States	30,966			31,137
^hGSR Mortgage Loan 2005-AR6 Trust, 4A5, FRN, 3.076%, 9/25/35	United States	178,597			179,171
^hHarborview Mortgage Loan 2003-2 Trust, 1A, FRN, 1.302%, 10/19/33	United States	127,626			120,091
^hHarborview Mortgage Loan 2004-11 Trust, 2A2A, FRN, 1.202%, 1/19/35	United States	160,749			137,303
^hHarborview Mortgage Loan 2004-2 Trust, 1A1, FRN, 1.082%, 6/19/34	United States	165,504			151,095
^hHarborview Mortgage Loan 2006-7 Trust, 2A1A, FRN, 0.762%, 9/19/46	United States	44,383			32,289
Honda Auto Receivables 2014-2 Owner Trust, A3, 0.77%, 3/19/18	United States	28,323			28,295
Honda Auto Receivables 2014-3 Owner Trust,
A3, 0.88%, 6/15/18	United States	19,869			19,859
A4, 1.31%, 10/15/20	United States	30,000			30,033
Honda Auto Receivables 2014-4 Owner Trust, A3, 0.99%, 9/17/18	United States	31,463			31,447
Honda Auto Receivables 2015-1 Owner Trust, A3, 1.05%, 10/15/18	United States	48,162			48,137
Honda Auto Receivables 2015-3 Owner Trust, A3, 1.27%, 4/18/19	United States	135,000			135,098
Honda Auto Receivables 2016-2 Owner Trust, A3, 1.39%, 4/15/20	United States	180,000			179,987
Hyundai Auto Receivables 2014-4 Owner Trust, A3, 0.79%, 7/16/18	United States	22,448			22,439
Hyundai Auto Receivables 2015-A Owner Trust, A3, 1.05%, 4/15/19	United States	42,566			42,550
Hyundai Auto Receivables 2015-B Owner Trust, A3, 1.12%, 11/15/19	United States	230,000			229,810
^hIndyMac Index Mortgage Loan 2004-AR12 Trust, A1, FRN, 1.372%, 12/25/34	United States	110,435			93,191
^hIndyMac Index Mortgage Loan 2006-AR2 Trust, 2A1, FRN, 0.802%, 2/25/46	United States	366,889			290,663
^hIndyMac Mortgage Loan 2005-AR11 Trust, A3, FRN, 2.956%, 8/25/35	United States	88,804			73,804
^hJP Morgan Alternative Loan 2006-A1 Trust, 3A1, FRN, 2.832%, 3/25/36	United States	257,741			214,494
^hJP Morgan Chase Commercial Mortgage Securities 2007-LDP10 Trust, AM, FRN,
5.464%, 1/15/49	United States	80,000			78,694
^e,hJP Morgan Chase Commercial Mortgage Securities 2015-SGP Trust, D, 144A,
FRN, 5.038%, 7/15/36	United States	180,000			181,570
^hJP Morgan Mortgage 2003-A2 Trust, 3A1, FRN, 2.77%, 11/25/33	United States	15,293			14,615
JP Morgan Mortgage 2004-S1 Trust, 2A1, 6.00%, 9/25/34	United States	173,779			176,127
^hJP Morgan Mortgage 2005-A1 Trust, 6T1, FRN, 3.147%, 2/25/35	United States	25,038			24,715
^hJP Morgan Mortgage 2005-A3 Trust, 4A1, FRN, 3.048%, 6/25/35	United States	12,632			12,709
^hJP Morgan Mortgage 2006-A1 Trust, 1A2, FRN, 3.091%, 2/25/36	United States	47,678			42,391
^hJP Morgan Mortgage 2006-A7 Trust, 2A4, FRN, 3.136%, 1/25/37	United States	37,805			34,023
^hJP Morgan Mortgage 2007-A1 Trust, 4A2, FRN, 3.184%, 7/25/35	United States	8,957			8,972
^hLehman XS Trust Series 2006-2N, Series 2006-1A1, FRN, 0.852%, 2/25/46	United States	74,314			55,375
^f,hLudgate Funding PLC, FRN, Reg S,
2007-A2B, 1/01/61, 0.00%	United Kingdom	38,491	EUR		38,229
2008-A1, 0.983%, 1/01/61	United Kingdom	187,215	GBP		222,587
^hMASTR Adjustable Rate Mortgages 2004-7 Trust, 3A1, FRN, 2.855%, 7/25/34	United States	49,200			47,773
MASTR Alternative Loan 2004-2 Trust, 8A4, 5.50%, 3/25/34	United States	245,000			250,548

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Semiannual Report 43

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)
Diversified Financial Services (continued)
MASTR Alternative Loan 2004-8 Trust, 2A1, 6.00%, 9/25/34	United States	93,520		$	99,883
^hMerrill Lynch Mortgage Investors MLCC, FRN,
2006-1A, 2.986%, 2/25/36	United States	130,560			121,130
2006-2A, 2.689%, 5/25/36	United States	12,946			12,558
^e,hMorgan Stanley Capital I 2011-C2 Trust, E, 144A, FRN, 5.655%, 6/15/44	United States	150,000			153,620
^eMotel 6 2015-M6MZ Trust, M, 144A, 8.23%, 2/05/20	United States	994,613			1,002,381
National City Mortgage Capital 2008-1 Trust, 2A1, 6.00%, 3/25/38	United States	57,740			60,258
^hNew York Mortgage 2006-1 Trust, 2A2, FRN, 3.045%, 5/25/36	United States	33,096			30,030
^f,hNewgate Fund PLC, 2007-A2B, FRN, Reg S, 0.298%, 12/15/50	United Kingdom	83,256	EUR		84,847
Nissan Auto Lease 2014-B Trust, A3, 1.12%, 9/15/17	United States	21,353			21,353
Nissan Auto Receivables 2013-C Owner Trust, A3, 0.67%, 8/15/18	United States	5,005			4,994
Nissan Auto Receivables 2016-C Owner Trust, A3, 1.18%, 1/15/21	United States	85,000			84,547
^eOak Hill Advisors Residential Loan Trust, 2015-NPL2, A1, 144A,
3.721%, 7/25/55	United States	149,311			150,067
^eOneMain Financial Issuance 2014-A Trust, 144A, 3.19%, 3/18/26	United States	150,000			151,355
^eOneMain Financial Issuance 2015-3 Trust, B, 144A, 4.16%, 11/20/28	United States	155,000			150,080
^eOneMain Financial Issuance 2015-D Trust, 144A, 5.64%, 7/18/25	United States	285,000			282,877
^eOneMain Financial Issuance 2016-2 Trust, B, 144A, 5.94%, 3/20/28	United States	235,000			248,774
^ePrestige Auto Receivables 2016-1 Trust, E, 144A, 7.69%, 3/15/23	United States	200,000			210,026
^hRALI 2006-QO4 Trust, 2A1, FRN, 0.782%, 4/25/46	United States	98,895			80,382
^hRALI 2006-QO7 Trust, 3A2, FRN, 0.797%, 9/25/46	United States	47,011			35,034
^hRALI 2007-QO4 Trust, A1A, FRN, 0.782%, 5/25/47	United States	80,008			67,208
^e,hRCO Depositor II LLC 2015-2A Trust, FRN, 144A,
A, 4.50%, 11/25/45	United States	106,591			106,743
M, 5.00%, 11/25/45	United States	213,000			204,767
^hRFMSI 2005-SA1 Trust, FRN, 3.947%, 3/25/35	United States	140,807			114,428
^f,hRMAC Securities PLC, FRN, Reg S,
2005-A2C, 0.056%, 6/12/43	United Kingdom	22,758	EUR		22,857
2006-A2C, zero cpn., 6/12/44	United Kingdom	53,961	EUR		53,835
^e,hSCG Trust 2013-SRP1, FRN, 144A,
A, 1.938%, 11/15/26	United States	100,000			99,722
B, 3.038%, 11/15/26	United States	100,000			96,827
C, 3.788%, 11/15/26	United States	100,000			97,356
D, 3.882%, 11/15/26	United States	245,000			235,000
^eSierra Timeshare 2013-3 Receivables Funding LLC, A, 144A, 2.20%, 10/20/30	United States	42,236			42,260
^eSofi Professional Loan Program 2016-A LLC, B, 144A, 3.57%, 1/26/38	United States	230,000			231,353
^hStructured Adjustable Rate Mortgage Loan Trust, FRN,
1A, 2.993%, 6/25/34	United States	18,829			18,644
7A3, 3.165%, 9/25/34	United States	37,995			37,872
2005-A1, 0.902%, 7/25/35	United States	349,469			258,955
Structured Asset Securities Corp. 2005-1 Trust, 7A7, 5.50%, 2/25/35	United States	19,259			19,584
^eTAL Advantage V LLC, A, 144A, 3.55%, 11/20/38	United States	70,000			68,058
^f,hTowd Point Mortgage Funding 2016-Granite1 PLC, 2016-B, FRN, Reg S,
1.802%, 7/20/46	United Kingdom	100,000	GBP		125,486
Toyota Auto Receivables 2014-C Owner Trust, A3, 0.93%, 7/16/18	United States	20,459			20,451
Toyota Auto Receivables 2015-B Owner Trust, A3, 1.27%, 5/15/19	United States	255,000			255,177
Toyota Auto Receivables 2015-C Owner Trust, A3, 1.34%, 6/17/19	United States	135,000			135,201
Toyota Auto Receivables 2016-C Owner Trust, A3, 1.14%, 8/17/20	United States	70,000			69,663
^hToyota Auto Receivables 2016-D Owner Trust, A2B, FRN, 0.668%, 5/15/19	United States	165,000			165,034
^eUS Residential Opportunity Fund III 2016-1 Trust, A, 144A, 3.475%, 7/27/36	United States	96,202			96,256

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)
Diversified Financial Services (continued)
USAA Auto Owner 2015-1 Trust, A3, 1.20%, 6/17/19	United States	150,000	$	150,132
USAA Auto Owner 2016-1 Trust, A3, 1.20%, 6/15/20	United States	120,000		119,699
^eVOLT LLC, 2015-NPL2 A1, 144A, 3.375%, 2/25/55	United States	93,899		94,376
^eVOLT XL LLC, 2015-A2, 144A, 4.875%, 11/27/45	United States	140,000		134,816
^eVOLT XLVIII LLC, 2016-A1, 144A, 3.50%, 7/25/46	United States	95,473		95,487
^eVOLT XXVI LLC, 2014-A1, 144A, 3.125%, 9/25/43	United States	250,550		250,682
^eVOLT XXXIII LLC, 2015-A1, 144A, 3.50%, 3/25/55	United States	109,515		110,133
^eVOLT XXXV, 2016-A1, 144A, 3.50%, 9/25/46	United States	97,673		97,838
^hWaMu Mortgage Pass-Through Certificates, 2007-HY5 Trust, 2A3, FRN,
2.354%, 5/25/37	United States	147,497		123,470
^e,hWedgewood Real Estate 2016-1 Trust, A2, 144A, FRN, 5.00%, 7/15/46	United States	100,000		99,862
^hWells Fargo Bank, N.A., Adjustable Rate Mortgage 2004-4 Trust, 3A1, FRN,
3.238%, 3/25/35	United States	52,678		51,000
^e,hWF-RBS Commercial Mortgage 2012-C6 Trust, D, 144A, FRN, 5.776%, 4/15/45	United States	150,000		151,006
^hWorld Financial Network Credit Card Master Trust, 2015-A, FRN, 1.018%, 2/15/22	United States	120,000		120,277
				20,404,398
Equity Real Estate Investment Trusts (REITs) 0.1%
^eAmerican Homes 4 Rent, 144A,
^h2014-E, FRN, 3.05%, 6/17/31	United States	100,000		99,474
2014-E, 6.231%, 10/17/36	United States	250,000		266,629
2014-E, 6.418%, 12/17/36	United States	100,000		107,915
2015-E, 5.639%, 4/17/52	United States	210,000		215,227
				689,245
Mortgage Real Estate Investment Trusts (REITs) 0.0%^†
^hCitigroup Mortgage Loan 2005-2 Trust, 1A4, FRN, 2.972%, 5/25/35	United States	22,426		21,036
^e,hCitigroup Mortgage Loan 2009-10 Trust, 6A2, 144A, FRN, 3.189%, 9/25/34	United States	107,113		101,354
^e,hCitigroup Mortgage Loan 2015-2 Trust, 1A1, 144A, FRN, 0.734%, 6/25/47	United States	86,133		75,243
^hCitigroup Mortgage Loan Trust Inc., FRN,
^e2A1, 144A, 0.674%, 8/25/36	United States	76,288		69,521
2A3, 2.999%, 8/25/35	United States	109,685		95,198
				362,352
Thrifts & Mortgage Finance 0.1%
Citibank Credit Card Issuance Trust,
^h2013-A2, FRN, 0.872%, 5/26/20	United States	125,000		125,258
^h2013-A7, FRN, 0.967%, 9/10/20	United States	200,000		200,816
2014-A2, 1.02%, 2/22/19	United States	100,000		100,022
2014-A4, 1.23%, 4/24/19	United States	100,000		100,072
2014-A8, 1.73%, 4/09/20	United States	100,000		100,574
Credit Suisse First Boston Mortgage Securities Corp.,
^h2003-4A1, FRN, 3.253%, 12/25/33	United States	6,296		6,218
2003-4A4, 5.75%, 11/25/33	United States	28,014		29,457
^h2003-7A1, FRN, 3.136%, 11/25/33	United States	9,258		8,972
^h2004-3A1, FRN, 3.085%, 5/25/34	United States	23,200		21,942
2005-2A1, 5.25%, 11/25/20	United States	53,537		52,719
^hGS Mortgage Securities 2007-GG10 Trust, AM, FRN, 5.988%, 8/10/45	United States	510,000		494,570
				1,240,620
Total Asset-Backed Securities and Commercial
Mortgage-Backed Securities (Cost $25,335,462)				25,616,388

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Semiannual Report 45

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

		Number of
	Country	Contracts		Value

Options Purchased 0.2%
Calls – Exchange-Traded
Building Products 0.0%^†
Johnson Controls International PLC, January Strike Price $46.00,
Expires 1/20/17	United States	623	$	311,500
Capital Markets 0.0%^†
Deutsche Bank AG, January Strike Price $13.00, Expires 1/20/17	Germany	133		39,900
Construction Materials 0.0%^†
Cemex SAB de CV, ADR, January Strike Price $9.00, Expires 1/20/17	Mexico	332		4,316
Diversified Telecommunication Services 0.0%^†
Frontier Communications Corp., February Strike Price $3.50, Expires 2/17/17	United States	380		11,400
Frontier Communications Corp., May Strike Price $4.50, Expires 5/19/17	United States	251		2,510
				13,910
Household Durables 0.0%^†
CalAtlantic Group Inc., March Strike Price $35.00, Expires 3/17/17	United States	23		3,680
Internet & Direct Marketing Retail 0.0%^†
Netflix Inc., December Strike Price $130.00, Expires 12/16/16	United States	145		3,335
Machinery 0.0%^†
Trinity Industries Inc., January Strike Price $35.00, Expires 1/20/17	United States	64		320
Media 0.1%
Charter Communications Inc., January Strike Price $300.00, Expires 1/20/17	United States	1		430
Charter Communications Inc., March Strike Price $275.00, Expires 3/17/17	United States	234		451,620
Charter Communications Inc., January Strike Price $300.00, Expires 1/19/18	United States	54		148,500
DISH Network Corp., January Strike Price $62.50, Expires 1/20/17	United States	95		11,875
Vivendi SA, September Strike Price 22.00 EUR, Expires 9/15/17	France	189		4,206
				616,631
Metals & Mining 0.0%^†
AK Steel Holding Corp., December Strike Price $6.00, Expires 12/16/16	United States	223		76,043
Freeport-McMoRan Inc., January Strike Price $12.00, Expires 1/20/17	United States	73		25,550
Freeport-McMoRan Inc., January Strike Price $13.00, Expires 1/20/17	United States	439		117,652
Freeport-McMoRan Inc., January Strike Price $14.00, Expires 1/20/17	United States	240		46,080
Teck Resources Ltd., January Strike Price $23.00, Expires 1/20/17	Canada	64		23,360
Teck Resources Ltd., February Strike Price $26.00, Expires 2/17/17	Canada	49		12,397
				301,082
Oil, Gas & Consumable Fuels 0.0%^†
Chesapeake Energy Corp., December Strike Price $6.50, Expires 12/02/16	United States	64		3,456
Green Plains Inc., January Strike Price $27.00, Expires 1/20/17	United States	100		14,600
The Williams Cos Inc., January Strike Price $32.00, Expires 1/20/17	United States	294		29,400
				47,456
Pharmaceuticals 0.0%^†
Allergan PLC, January Strike Price $225.00, Expires 1/20/17	United States	49		5,757
Allergan PLC, May Strike Price $220.00, Expires 5/19/17	United States	14		10,430
Allergan PLC, May Strike Price $250.00, Expires 5/19/17	United States	40		9,600
				25,787
Semiconductors & Semiconductor Equipment 0.0%^†
Cypress Semiconductor Corp., December Strike Price $13.00, Expires 12/16/16	United States	48		240
Cypress Semiconductor Corp., January Strike Price $12.00, Expires 1/20/17	United States	162		7,290
				7,530

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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)
Calls – Exchange-Traded (continued)
Textiles, Apparel & Luxury Goods 0.0%^†
Cie Financiere Richemont SA, March Strike Price 64.00
CHF, Expires 3/17/17	Switzerland		118	$	58,263
Wireless Telecommunication Services 0.0%^†
Vodafone Group PLC, ADR, January Strike Price $40.00,
Expires 1/20/17	United Kingdom		79		79
Vodafone Group PLC, ADR, January Strike Price $40.00,
Expires 1/19/18	United Kingdom		36		180
					259

			Notional
		Counterparty	Amount*
Calls – Over-the-Counter
Currency Options 0.0%^†
USD/TWD, January Strike Price $31.78, Expires 1/17/17	Taiwan	MSCO	3,465,000		46,966

			Number of
			Contracts
Puts – Exchange-Traded
Diversified Financial Services 0.1%
CAC 40 Index, January Strike Price 4,250.00 EUR,
Expires 1/20/17	France		40		16,394
Deutsche Boerse AG German Stock Index DAX, December
Strike Price 10,000.00 EUR, Expires 12/16/16	Germany		54		8,299
EURO STOXX 50 Price EUR, December Strike Price
2,850.00 EUR, Expires 12/16/16	Germany		135		12,162
EURO STOXX Utilities Price EUR, December Strike Price
225.00 EUR, Expires 12/16/16	Germany		148		22,744
S&P 500 E-Mini Index, December Strike Price $2,100.00,
Expires 12/16/16	United States		8		1,440
S&P 500 E-Mini Index, December Strike Price $2,120.00,
Expires 12/16/16	United States		8		1,960
S&P 500 Index, December Strike Price $2,000.00,
Expires 12/02/16	United States		118		590
S&P 500 Index, December Strike Price $2,050.00,
Expires 12/16/16	United States		504		93,240
S&P 500 Index, December Strike Price $2,075.00,
Expires 12/16/16	United States		162		37,908
S&P 500 Index, December Strike Price $2,080.00,
Expires 12/16/16	United States		7		1,785
S&P 500 Index, December Strike Price $2,100.00,
Expires 12/16/16	United States		98		34,790
S&P 500 Index, December Strike Price $2,075.00,
Expires 12/30/16	United States		87		48,720
S&P 500 Index, December Strike Price $2,100.00,
Expires 12/30/16	United States		199		151,240
S&P 500 Index, January Strike Price $2,150.00,
Expires 1/20/17	United States		43		97,610
					528,882

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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)
Puts – Exchange-Traded (continued)
Diversified Telecommunication Services 0.0%^†
Telecom Italia SpA, January Strike Price 0.66 EUR,
Expires 1/20/17	Italy		3,760	$		89,265

Equity Real Estate Investment Trusts (REITs) 0.0%^†
Spirit Realty Capital Inc., January Strike Price $10.00,
Expires 1/20/17	United States		127			5,398

Exchange Traded Funds 0.0%^†
Financial Select Sector SPDR Fund, December Strike Price
$21.00, Expires 12/16/16	United States		254			1,270
Industrial Select Sector SPDR ETF, December Strike Price
$55.00, Expires 12/16/16	United States		163			489
iShares iBoxx High Yield Corporate Bond ETF, January
Strike Price $84.00, Expires 1/20/17	United States		621			50,922
iShares Russell 2000 ETF, February Strike Price $125.00,
Expires 2/17/17	United States		110			26,620
SPDR S&P 500 ETF Trust, December Strike Price $208.00,
Expires 12/16/16	United States		164			5,576
SPDR S&P Oil & Gas Exploration & Production ETF, December
Strike Price $36.00, Expires 12/16/16	United States		131			1,572
SPDR S&P Oil & Gas Exploration & Production ETF, January
Strike Price $36.00, Expires 1/20/17	United States		131			5,764
SPDR S&P Oil & Gas Exploration & Production ETF, January
Strike Price $37.00, Expires 1/20/17	United States		271			15,718

						107,931

Independent Power & Renewable Electricity
Producers 0.0%^†
Pattern Energy Group Inc., December Strike Price $17.50,
Expires 12/16/16	United States		60			900

Independent Power Producers & Energy Traders 0.0%^†
Dynegy Inc., December Strike Price $7.50, Expires 12/16/16	United States		34			510

Media 0.0%^†
Liberty Global PLC, April Strike Price $30.00, Expires 4/21/17	United Kingdom		329			64,155

Metals & Mining 0.0%^†
ThyssenKrupp AG, December Strike Price 20.00 EUR,
Expires 12/16/16	Germany		483			8,190

Oil, Gas & Consumable Fuels 0.0%^†
Scorpio Tankers Inc., April Strike Price $2.50, Expires 4/21/17	Monaco		157			1,570
WPX Energy Inc., February Strike Price $9.00, Expires 2/17/17	United States		64			1,920

						3,490

Pharmaceuticals 0.0%^†
Teva Pharmaceutical Industries Ltd., ADR, January Strike Price
$32.50, Expires 1/20/17	Israel		26			663

			Notional
		Counterparty	Amount*

Puts – Over-the-Counter
Currency Options 0.0%^†
EUR/TRY, January Strike Price 3.40 EUR, Expires 1/20/17	Turkey	DBAB	3,588,000		EUR	2,230

Total Options Purchased (Cost $8,731,625)						2,292,549

Total Investments before Short Term Investments
(Cost $763,263,498)						828,146,413

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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 25.0%
U.S. Government and Agency Securities 1.5%
^a,mU.S. Treasury Bill,
12/29/16	United States	15,500,000	$	15,495,536
4/06/17	United States	600,000		598,934
Total U.S. Government and Agency Securities
(Cost $16,095,108)				16,094,470

		Shares
Money Market Funds 20.5%
^n,oDreyfus Government Cash Management, Institutional Shares, 0.28%	United States	94,914,214		94,914,214
^oFidelity Investments Money Market Funds, 0.268%	United States	133,148,114		133,148,114
Total Money Market Funds (Cost $228,062,328)				228,062,328

		Principal
		Amount*
Repurchase Agreements (Cost $32,842,067) 3.0%
^pJoint Repurchase Agreement, 0.265%, 12/01/16
(Maturity Value $32,842,309)	United States	32,842,067		32,842,067
BNP Paribas Securities Corp. (Maturity Value $15,899,947)
Deutsche Bank Securities Inc. (Maturity Value $645,023)
HSBC Securities (USA) Inc. (Maturity Value $15,899,947)
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $397,392)
Collateralized by U.S. Government Agency Securities, 0.476%, 8/03/17;
^mU.S. Treasury Bill, 4/27/17; U.S. Treasury Note, 0.689% - 1.625%,
7/31/18 - 11/30/20; and U.S. Treasury Note, Index Linked, 2.625%, 7/15/17
(valued at $33,499,350)
Total Investments (Cost $1,040,263,001) 99.4%				1,105,145,278
Options Written (0.0)%^†				(221,653	)
Securities Sold Short (24.7)%				(274,134,512	)
Other Assets, less Liabilities 25.3%				280,506,206
Net Assets 100.0%			$	1,111,295,319

		Number of
		Contracts
^qOptions Written (0.0)%^†
Calls – Exchange-Traded
Food & Staples Retailing (0.0)%^†
Rite Aid Corp., January Strike Price $8.00, Expires 1/20/17	United States	869		(45,188	)
Oil, Gas & Consumable Fuels (0.0)%^†
Ship Finance International Ltd., January Strike Price $15.00, Expires 1/20/17	Norway	84		(1,680	)
Puts – Exchange-Traded
Construction Materials (0.0)%^†
Cemex SAB de CV, January Strike Price $8.00, Expires 1/20/17	Mexico	332		(18,924	)
Diversified Financial Services (0.0)%^†
CAC 40 Index, January Strike Price 3,900.00 EUR, Expires 1/20/17	France	40		(4,295	)
S&P 500 Index, January Strike Price $2,050.00, Expires 1/20/17	United States	43		(38,270	)
				(42,565	)

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Semiannual Report 49

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

		Number of
	Country	Contracts		Value
^qOptions Written (continued)
Puts – Exchange-Traded
Exchange Traded Funds (0.0)%^†
Industrial Select Sector SPDR ETF, December Strike Price $51.00, Expires 12/16/16	United States	165	$	(495	)
iShares iBoxx High Yield Corporate Bond ETF, January Strike Price $81.00,
Expires 1/20/17	United States	621		(16,146	)
iShares Russell 2000 ETF, February Strike Price $115.00, Expires 2/17/17	United States	110		(9,350	)
SPDR S&P Oil & Gas Exploration & Production ETF, January Strike Price $32.00,
Expires 1/20/17	United States	131		(1,572	)
SPDR S&P Oil & Gas Exploration & Production ETF, January Strike Price $34.00,
Expires 1/20/17	United States	271		(6,233	)
				(33,796	)
Household Durables (0.0)%^†
CalAtlantic Group Inc., March Strike Price $31.00, Expires 3/17/17	United States	23		(2,990	)
Toll Brothers Inc., December Strike Price $28.50, Expires 12/23/16	United States	14		(770	)
				(3,760	)
Media (0.0)%^†
DISH Network Corp., January Strike Price $52.50, Expires 1/20/17	United States	95		(9,975	)
Metals & Mining (0.0)%^†
Teck Resources Ltd., January Strike Price $18.00, Expires 1/20/17	Canada	64		(1,728	)
Teck Resources Ltd., February Strike Price $21.00, Expires 2/17/17	Canada	49		(5,145	)
				(6,873	)
Oil, Gas & Consumable Fuels (0.0)%^†
Green Plains Inc., January Strike Price $25.00, Expires 1/20/17	United States	100		(10,100	)
Real Estate Management & Development (0.0)%^†
Vonovia SE, March Strike Price 32.00 EUR, Expires 3/17/17	Germany	74		(19,372	)
Vonovia SE, March Strike Price 33.00 EUR, Expires 3/17/17	Germany	74		(24,940	)
				(44,312	)
Semiconductors & Semiconductor Equipment (0.0)%^†
Cypress Semiconductor Corp., January Strike Price $10.00, Expires 1/20/17	United States	32		(800	)
Software (0.0)%^†
Workday Inc., December Strike Price $80.00, Expires 12/16/16	United States	16		(3,680	)
Total Options Written (Premiums Received $325,311)				(221,653	)

		Shares
^rSecurities Sold Short (24.7)%
Common Stocks (12.0)%
Aerospace & Defense (0.0)%^†
Arconic Inc	United States	5,002		(96,438	)
Rockwell Collins Inc	United States	3,154		(292,439	)
				(388,877	)
Air Freight & Logistics (0.1)%
CH Robinson Worldwide Inc	United States	19,527		(1,461,596	)
XPO Logistics Inc	United States	3,180		(141,605	)
				(1,603,201	)

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares		Value
^rSecurities Sold Short (continued)
Common Stocks (continued)
Airlines (0.1)%
Allegiant Travel Co	United States	1,566	$	(255,884	)
Deutsche Lufthansa AG	Germany	25,387		(328,931	)
				(584,815	)
Auto Components (0.0)%^†
Lear Corp	United States	1,753		(227,031	)
Magna International Inc	Canada	2,508		(101,449	)
				(328,480	)
Automobiles (0.1)%
Fiat Chrysler Automobiles NV	United Kingdom	69,019		(533,262	)
Tesla Motors Inc	United States	5,829		(1,104,012	)
				(1,637,274	)
Beverages (0.0)%^†
Brown-Forman Corp., B	United States	4,680		(212,238	)
Biotechnology (0.4)%
Ablynx NV	Belgium	9,105		(95,003	)
Acorda Therapeutics Inc	United States	25,627		(533,042	)
AMAG Pharmaceuticals Inc	United States	24,995		(829,834	)
BioMarin Pharmaceutical Inc	United States	4,910		(420,443	)
Clovis Oncology Inc	United States	4,622		(158,396	)
Emergent BioSolutions Inc	United States	17,984		(481,252	)
Intercept Pharmaceuticals Inc	United States	2,284		(230,958	)
Ligand Pharmaceuticals Inc	United States	9,126		(952,754	)
PDL BioPharma Inc	United States	73,732		(161,473	)
PTC Therapeutics Inc	United States	11,376		(126,729	)
				(3,989,884	)
Building Products (0.1)%
Griffon Corp	United States	42,654		(1,019,431	)
Capital Markets (0.0)%^†
Cowen Group Inc., A	United States	123,781		(451,801	)
Chemicals (0.1)%
Albemarle Corp	United States	5,256		(461,371	)
Mosaic Co	United States	3,645		(103,518	)
TerraVia Holdings Inc	United States	75,622		(102,090	)
				(666,979	)
Communications Equipment (0.4)%
ARRIS International PLC	United States	7,788		(223,438	)
Ciena Corp	United States	8,286		(177,734	)
InterDigital Inc	United States	5,981		(473,695	)
Palo Alto Networks Inc	United States	23,832		(3,202,306	)
Viavi Solutions Inc	United States	7,114		(55,845	)
				(4,133,018	)
Construction & Engineering (0.0)%^†
Dycom Industries Inc	United States	3,157		(231,187	)
Construction Materials (0.1)%
Cemex SAB de CV, ADR	Mexico	152,397		(1,190,221	)

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Semiannual Report 51

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares		Value
^rSecurities Sold Short (continued)
Common Stocks (continued)
Construction Materials (continued)
Vulcan Materials Co	United States	1,566	$	(196,768	)
				(1,386,989	)
Consumer Finance (0.1)%
Encore Capital Group Inc	United States	14,732		(404,393	)
PRA Group Inc	United States	4,007		(144,052	)
				(548,445	)
Containers & Packaging (0.0)%^†
International Paper Co	United States	8,286		(403,694	)
Diversified Consumer Services (0.4)%
Ascent Capital Group Inc	United States	4,815		(87,007	)
Carriage Services Inc	United States	33,826		(918,038	)
ServiceMaster Global Holdings Inc	United States	21,200		(810,264	)
TAL Education Group, ADR	China	31,517		(2,411,996	)
				(4,227,305	)
Diversified Financial Services (0.0)%^†
Element Financial Corp	Canada	38,949		(324,744	)
Diversified Telecommunication Services (0.2)%
AT&T Inc	United States	4,798		(185,347	)
CenturyLink Inc	United States	69,890		(1,643,813	)
Verizon Communications Inc	United States	5,165		(257,733	)
				(2,086,893	)
Electric Utilities (0.0)%^†
Great Plains Energy Inc	United States	793		(20,927	)
Electrical Equipment (0.0)%^†
General Cable Corp	United States	19,646		(368,363	)
Electronic Equipment, Instruments & Components (0.5)%
Knowles Corp	United States	40,172		(643,957	)
MTS Systems Corp	United States	25,198		(1,356,912	)
TTM Technologies Inc	United States	79,515		(1,079,019	)
Vishay Intertechnology Inc	United States	127,640		(1,933,746	)
				(5,013,634	)
Energy Equipment & Services (0.1)%
Hornbeck Offshore Services Inc	United States	4,681		(23,920	)
SEACOR Holdings Inc	United States	4,559		(282,612	)
Weatherford International PLC	United States	92,304		(471,674	)
				(778,206	)
Equity Real Estate Investment Trusts (REITs) (0.5)%
American Homes 4 Rent	United States	36,931		(778,134	)
Colony Starwood Homes	United States	30,360		(927,498	)
EPR Properties	United States	609		(42,350	)
Forest City Realty Trust Inc	United States	36,945		(683,113	)
Gramercy Property Trust	United States	149,539		(1,306,969	)
National Health Investors Inc	United States	7,586		(536,785	)
Omega Healthcare Investors Inc	United States	16,335		(481,229	)
VEREIT Inc	United States	1,822		(15,104	)

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares		Value
^rSecurities Sold Short (continued)
Common Stocks (continued)
Equity Real Estate Investment Trusts (REITs) (continued)
Welltower Inc	United States	3,307	$	(207,614	)
				(4,978,796	)
Food Products (0.2)%
Bunge Ltd	United States	4,722		(322,418	)
Post Holdings Inc	United States	25,245		(1,926,951	)
				(2,249,369	)
Health Care Equipment & Supplies (0.4)%
Abbott Laboratories	United States	56,378		(2,146,311	)
Hologic Inc	United States	5,997		(229,565	)
Insulet Corp	United States	6,477		(217,951	)
Nipro Corp	Japan	10,500		(115,458	)
NuVasive Inc	United States	7,409		(480,844	)
Quidel Corp	United States	7,603		(174,337	)
Varian Medical Systems Inc	United States	2,035		(182,804	)
Wright Medical Group NV	United States	57,758		(1,330,744	)
				(4,878,014	)
Health Care Providers & Services (0.6)%
Aceto Corp	United States	13,160		(268,859	)
Aetna Inc	United States	5,289		(692,013	)
Amsurg Corp	United States	9,368		(638,148	)
Brookdale Senior Living Inc	United States	3,920		(45,589	)
HealthSouth Corp	United States	45,800		(1,908,486	)
Healthways Inc	United States	43,409		(1,007,089	)
Molina Healthcare Inc	United States	29,051		(1,535,636	)
				(6,095,820	)
Health Care Technology (0.0)%^†
Allscripts Healthcare Solutions Inc	United States	2,795		(30,689	)
Hotels, Restaurants & Leisure (0.2)%
Brinker International Inc	United States	11,212		(595,469	)
Chipotle Mexican Grill Inc	United States	560		(221,945	)
Hilton Worldwide Holdings Inc	United States	23,357		(585,560	)
Wyndham Worldwide Corp	United States	3,589		(258,372	)
				(1,661,346	)
Household Durables (0.2)%
CalAtlantic Group Inc	United States	10,771		(359,644	)
LGI Homes Inc	United States	25,929		(846,582	)
M/I Homes Inc	United States	17,017		(397,517	)
Newell Brands Inc	United States	8,254		(388,020	)
Toll Brothers Inc	United States	1,336		(39,626	)
William Lyon Homes, A	United States	8,394		(166,201	)
				(2,197,590	)
Independent Power & Renewable Electricity Producers (0.0)%^†
Pattern Energy Group Inc	United States	10,186		(199,951	)
Insurance (0.0)%^†
AmTrust Financial Services Inc	United States	16,943		(431,369	)

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Semiannual Report 53

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares		Value
^rSecurities Sold Short (continued)
Common Stocks (continued)
Internet & Direct Marketing Retail (1.1)%
Ctrip.com International Ltd., ADR	China	70,326	$	(3,180,845	)
Netflix Inc	United States	14,484		(1,694,628	)
The Priceline Group Inc	United States	4,316		(6,489,883	)
Shutterfly Inc	United States	14,007		(709,735	)
				(12,075,091	)
Internet Software & Services (1.5)%
Alibaba Group Holding Ltd., ADR	China	51,747		(4,865,253	)
Blucora Inc	United States	5,880		(83,202	)
Cornerstone OnDemand Inc	United States	3,034		(108,951	)
j2 Global Inc	United States	16,227		(1,192,847	)
MercadoLibre Inc	Argentina	6,714		(1,059,604	)
Pandora Media Inc	United States	8,620		(100,164	)
VeriSign Inc	United States	99,465		(7,842,815	)
WebMD Health Corp	United States	6,320		(337,109	)
Yahoo! Inc	United States	19,011		(779,831	)
				(16,369,776	)
IT Services (0.2)%
Blackhawk Network Holdings Inc	United States	7,250		(261,000	)
Cardtronics PLC	United States	9,986		(494,008	)
CSG Systems International Inc	United States	9,596		(427,022	)
Euronet Worldwide Inc	United States	10,239		(734,341	)
International Business Machines Corp	United States	1,656		(268,636	)
The Western Union Co	United States	19,109		(401,862	)
				(2,586,869	)
Leisure Products (0.0)%^†
JAKKS Pacific Inc	United States	17,920		(126,336	)
Polaris Industries Inc	United States	1,497		(130,029	)
				(256,365	)
Life Sciences Tools & Services (0.0)%^†
Albany Molecular Research Inc	United States	20,467		(344,869	)
Fluidigm Corp	United States	2,306		(14,828	)
				(359,697	)
Machinery (0.4)%
Altra Industrial Motion Corp	United States	28,611		(1,001,385	)
Cummins Inc	United States	3,300		(467,874	)
Donaldson Co. Inc	United States	4,861		(197,162	)
Greenbrier Cos Inc	United States	17,701		(686,799	)
Navistar International Corp	United States	13,187		(405,633	)
Trinity Industries Inc	United States	29,422		(817,637	)
Wabash National Corp	United States	26,619		(367,076	)
				(3,943,566	)
Media (0.5)%
Altice NV	Netherlands	72,437		(1,247,551	)
AMC Entertainment Holdings Inc., A	United States	20,734		(703,919	)
Dish Network Corp., A	United States	42,004		(2,413,130	)
Liberty Braves Group	United States	1,471		(29,641	)

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares		Value
^rSecurities Sold Short (continued)
Common Stocks (continued)
Media (continued)
Liberty Media Group	United States	3,898	$	(121,969	)
Liberty SiriusXM Group	United States	16,118		(585,083	)
Live Nation Entertainment Inc	United States	6,530		(180,750	)
Regal Entertainment Group, A	United States	10,444		(239,272	)
Walt Disney Co	United States	2,878		(285,267	)
				(5,806,582	)
Metals & Mining (0.2)%
AK Steel Holding Corp	United States	224,719		(2,051,684	)
Mortgage Real Estate Investment Trusts (REITs) (0.1)%
Apollo Commercial Real Estate Finance Inc	United States	5,738		(98,464	)
Colony Capital Inc	United States	19,267		(395,166	)
Redwood Trust Inc	United States	2,347		(35,722	)
Starwood Property Trust Inc	United States	48,562		(1,091,188	)
				(1,620,540	)
Oil, Gas & Consumable Fuels (0.7)%
Aegean Marine Petroleum Network Inc	Greece	55,574		(625,207	)
Chesapeake Energy Corp	United States	135,513		(948,591	)
Enbridge Inc	Canada	28,646		(1,204,278	)
Golar LNG Ltd	Bermuda	500		(12,200	)
Green Plains Inc	United States	69,673		(1,888,138	)
JX Holdings Inc	Japan	304,200		(1,160,377	)
Renewable Energy Group Inc	United States	38,029		(370,783	)
Scorpio Tankers Inc	Monaco	9,342		(39,517	)
SM Energy Co	United States	21,321		(849,855	)
Tesoro Corp	United States	12,814		(1,042,419	)
				(8,141,365	)
Paper & Forest Products (0.1)%
Domtar Corp	United States	20,171		(792,115	)
Pharmaceuticals (0.3)%
Allergan PLC	United States	87		(16,904	)
Depomed Inc	United States	21,432		(409,351	)
Innoviva Inc	United States	31,820		(329,019	)
Medicines Co	United States	49,823		(1,748,787	)
Teva Pharmaceutical Industries Ltd., ADR	Israel	6,612		(249,273	)
				(2,753,334	)
Professional Services (0.0)%^†
51job Inc., ADR	China	2,625		(92,846	)
Huron Consulting Group Inc	United States	3,486		(183,887	)
				(276,733	)
Road & Rail (0.1)%
Ryder System Inc	United States	3,364		(263,401	)
Werner Enterprises Inc	United States	11,043		(298,713	)
				(562,114	)
Semiconductors & Semiconductor Equipment (0.9)%
Advanced Micro Devices Inc	United States	181,502		(1,617,183	)

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Semiannual Report 55

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares		Value
^rSecurities Sold Short (continued)
Common Stocks (continued)
Semiconductors & Semiconductor Equipment (continued)
Cypress Semiconductor Corp	United States	22,051	$	(248,073	)
Inphi Corp	United States	5,558		(251,055	)
Intel Corp	United States	24,844		(862,087	)
Intersil Corp	United States	28,103		(622,481	)
Microchip Technology Inc	United States	32,482		(2,149,659	)
NVIDIA Corp	United States	43,809		(4,039,190	)
ON Semiconductor Corp	United States	43,631		(513,973	)
				(10,303,701	)
Software (0.9)%
Bottomline Technologies de Inc	United States	9,105		(228,171	)
BroadSoft Inc	United States	23,009		(954,874	)
Electronic Arts Inc	United States	2,373		(188,037	)
FireEye Inc	United States	1,873		(24,049	)
Proofpoint Inc	United States	2,013		(155,021	)
Salesforce.com Inc	United States	28,822		(2,075,184	)
ServiceNow Inc	United States	6,549		(544,549	)
Take-Two Interactive Software Inc	United States	107,519		(5,293,161	)
TiVo Corp	United States	7,576		(153,414	)
				(9,616,460	)
Specialty Retail (0.0)%^†
Vitamin Shoppe Inc	United States	6,041		(150,119	)
Textiles, Apparel & Luxury Goods (0.0)%^†
Iconix Brand Group Inc	United States	17,344		(155,576	)
Tobacco (0.1)%
British American Tobacco PLC, ADR	United Kingdom	6,530		(712,031	)
Universal Corp	United States	6,820		(375,441	)
				(1,087,472	)
Trading Companies & Distributors (0.1)%
Kaman Corp	United States	14,394		(701,276	)
WW Grainger Inc	United States	622		(143,414	)
				(844,690	)
Wireless Telecommunication Services (0.0)%^†
T-Mobile U.S. Inc	United States	140		(7,589	)
Total Common Stocks (Proceeds $125,618,221)				(132,890,767	)
Exchange Traded Funds (11.1)%
Consumer Discretionary Select Sector SPDR ETF	United States	40,695		(3,330,886	)
Consumer Staples Select Sector SPDR ETF	United States	10,189		(515,360	)
Health Care Select Sector SPDR Fund	United States	120,799		(8,304,931	)
Industrial Select Sector SPDR ETF	United States	20,694		(1,291,513	)
iShares 20+ Year Treasury Bond ETF	United States	2,260		(271,742	)
iShares Core S&P Small-Cap ETF	United States	27,016		(3,607,446	)
iShares Edge MSCI USA Momentum Factor ETF	United States	47,083		(3,551,000	)
iShares MSCI Japan ETF	Japan	15,813		(788,911	)
iShares Nasdaq Biotechnology ETF	United States	37,176		(10,188,826	)
iShares North American Tech ETF	United States	35,209		(4,327,890	)
iShares North American Tech-Multimedia Networking ETF	United States	53,201		(2,294,559	)

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

	Country	Shares		Value
^rSecurities Sold Short (continued)
Exchange Traded Funds (continued)
iShares North American Tech-Software ETF	United States	13,815	$	(1,544,655	)
iShares PHLX Semiconductor ETF	United States	27,068		(3,231,378	)
iShares Russell 2000 ETF	United States	43,222		(5,688,447	)
iShares Russell 2000 Growth ETF	United States	23,126		(3,522,321	)
iShares Russell Mid-Cap Growth ETF	United States	13,072		(1,273,866	)
iShares S&P Small-Cap 600 Growth ETF	United States	11,549		(1,678,878	)
iShares STOXX Europe 600 UCITS ETF	Germany	21,543		(782,921	)
iShares Transportation Average ETF	United States	3,739		(605,344	)
iShares U.S. Consumer Goods ETF	United States	14,893		(1,619,018	)
iShares U.S. Telecommunications ETF	United States	40,001		(1,278,032	)
Powershares QQQ Trust Series 1	United States	6,300		(740,250	)
PureFunds ISE Cyber Security ETF	United States	148,371		(4,017,887	)
SPDR S&P 500 ETF Trust	United States	225,957		(49,796,404	)
SPDR S&P MidCap 400 ETF Trust	United States	8,188		(2,427,169	)
SPDR S&P Retail ETF	United States	8,397		(383,827	)
SPDR S&P Transportation ETF	United States	16,834		(906,343	)
Utilities Select Sector SPDR Fund	United States	19,295		(902,041	)
Vanguard Consumer Staples ETF	United States	8,901		(1,163,450	)
Vanguard Small-Cap Growth ETF	United States	26,076		(3,463,154	)
Total Exchange Traded Funds (Proceeds $120,781,015)				(123,498,449	)

		Principal
		Amount*

Convertible Bonds and Notes (0.2)%
Internet & Direct Marketing Retail (0.1)%
The Priceline Group Inc., senior note, 0.90%, 9/15/21	United States	617,000		(663,661	)
Machinery (0.0)%^†
Trinity Industries Inc., sub. bond, 3.875%, 6/01/36	United States	315,000		(405,956	)
Media (0.0)%^†
Live Nation Entertainment Inc., senior note, 2.50%, 5/15/19	United States	322,000		(348,364	)
Oil, Gas & Consumable Fuels (0.0)%^†
SM Energy Co., senior note, 1.50%, 7/01/21	United States	246,000		(302,887	)
Software (0.1)%
Proofpoint Inc., senior note, 0.75%, 6/15/20	United States	400,000		(475,500	)
Red Hat Inc., senior note, 0.25%, 10/01/19	United States	267,000		(335,586	)
				(811,086	)
Trading Companies & Distributors (0.0)%^†
Air Lease Corp., senior note, 3.875%, 12/01/18	United States	188,000		(261,555	)
Total Convertible Bonds and Notes (Proceeds $2,701,381)				(2,793,509	)
Corporate Bonds and Notes (1.1)%
Chemicals (0.4)%
^eCVR Partners LP / CVR Nitrogen Finance Corp., senior note, 144A, 9.25%, 6/15/23	United States	3,755,000		(3,731,531	)
Electronic Equipment, Instruments & Components (0.1)%
^eInception Merger Sub Inc. / Rackspace Hosting Inc., senior note, 144A,
8.625%, 11/15/24	United States	1,385,000		(1,388,463	)
Equity Real Estate Investment Trusts (REITs) (0.1)%
Communications Sales & Leasing Inc., 8.25%, 10/15/23	United States	374,000		(393,635	)

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Semiannual Report 57

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)
		Principal
	Country	Amount*		Value
^rSecurities Sold Short (continued)
Corporate Bonds and Notes (continued)
Health Care Providers & Services (0.1)%
Centene Corp., senior note, 4.75%, 1/15/25	United States	1,332,000	$	(1,278,720	)
Hotels, Restaurants & Leisure (0.0)%^†
^eWynn Macau Ltd., senior note, 144A, 5.25%, 10/15/21	Monaco	267,000		(269,670	)
Media (0.0)%^†
^eCCO Holdings LLC / CCO Holdings Capital Corp., senior note, 144A, 5.875%, 4/01/24	United States	334,000		(354,457	)
Multiline Retail (0.2)%
Dollar Tree Inc., senior note, 5.75%, 3/01/23	United States	1,167,000		(1,245,773	)
Kohl’s Corp., senior bond, 4.25%, 7/17/25	United States	786,000		(792,218	)
Nordstrom Inc., senior bond, 5.00%, 1/15/44	United States	337,000		(335,116	)
				(2,373,107	)
Oil, Gas & Consumable Fuels (0.0)%^†
WPX Energy Inc., senior note, 6.00%, 1/15/22	United States	107,000		(110,177	)
Utilities (0.0)%^†
Talen Energy Supply LLC, senior note,
^e144A, 4.625%, 7/15/19	United States	182,000		(174,037	)
6.50%, 6/01/25	United States	116,000		(92,220	)
				(266,257	)
Wireless Telecommunication Services (0.2)%
T-Mobile U.S. Inc., senior bond, 6.50%, 1/15/26	United States	1,596,000		(1,727,670	)
Total Corporate Bonds and Notes (Proceeds $11,917,092)				(11,893,687	)
U.S. Government & Agency Securities (0.3)%
U.S. Treasury Note,
0.75%, 4/30/18	United States	1,915,000		(1,908,529	)
1.75%, 9/30/22	United States	1,170,000		(1,149,571	)
Total U.S. Government and Agency Securities
(Proceeds $3,111,057)				(3,058,100	)
Total Securities Sold Short (Proceeds $264,128,766)			$	(274,134,512	)

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)

Franklin K2 Alternative Strategies Fund (continued)

See Abbreviations on page 91.
^†Rounds to less than 0.1% of net assets.
* The principal/notional amount is stated in U.S. dollars unless otherwise indicated.
^aA portion or all of the security has been segregated as collateral for securities sold short, open swap, forward, futures and written options contracts. At November 30, 2016,
the aggregate value of these securities and/or cash pledged amounted to $466,492,199, representing 42.0% of net assets.
^bNon-income producing.
^cVariable rate security. The rate shown represents the yield at period end.
^dA portion or all of the security is held in connection with written option contracts open at period end.
^eSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers
or in public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At
November 30, 2016, the net value of these securities was $128,223,068, representing 11.5% of net assets.
^fSecurity 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, 2016, the aggregate value of these
securities was $18,389,912, representing 1.7% of net assets.
^gSee Note 7 regarding credit risk and defaulted securities.
^hThe coupon rate shown represents the rate at period end.
ⁱA portion or all of the security purchased on a delayed delivery basis. See Note 1(d).
^jIncome may be received in additional securities and/or cash.
^kSee Note 1(h) regarding senior floating rate interests.
^lPrincipal amount is stated in 1,000 Argentine Peso Units.
^mThe security was issued on a discount basis with no stated coupon rate.
ⁿA portion or all of the security is owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(g).
^oThe rate shown is the annualized seven-day yield at period end.
^pSee Note 1(c) regarding joint repurchase agreement.
^qSee Note 1(e) regarding written options.
^rSee Note 1(f) regarding securities sold short.
^sSee Note 8 regarding unfunded loan commitments.

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The accompanying notes are an integral part of these financial statements. | Semiannual Report 59

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


At November 30, 2016, the Fund had the following futures contracts outstanding. See Note 1(e).

Futures Contracts
		Number of		Notional	Expiration		Unrealized		Unrealized
Description	Type	Contracts		Value	Date		Appreciation		Depreciation
Commodity Contracts^a
Aluminum	Long	78	$	3,379,837	12/19/16	$	134,299	$	—
Aluminum	Short	78		3,379,838	12/19/16		—		(53,670	)
Aluminum	Long	95		4,115,281	3/13/17		40,652		—
Brent Crude Oil	Short	130		6,739,200	12/29/16		—		(490,228	)
Cocoa	Short	21		513,945	3/16/17		312		—
Coffee	Long	35		1,976,625	3/21/17		—		(223,014	)
Copper	Long	104		15,117,050	12/19/16		1,692,792		—
Copper	Short	104		15,117,050	12/19/16		—		(2,956,984	)
Copper	Long	55		8,011,781	3/13/17		220,265		—
Corn	Short	96		1,672,800	3/14/17		29,114		—
Cotton	Long	34		1,216,860	3/09/17		29,393		—
Gold 100 Oz	Short	28		3,286,920	2/24/17		122,509		—
Kansas City Wheat	Short	43		882,038	3/14/17		37,196		—
Low Sulphur Diesel	Short	15		993,069	12/30/16		—		(78,656	)
Low Sulphur Gas Oil	Long	21		949,200	1/12/17		64,168		—
Natural Gas	Short	34		1,139,680	12/28/16		—		(140,753	)
RBOB Gasoline	Long	35		2,179,275	12/30/16		180,999		—
Silver	Long	3		247,230	3/29/17		—		(1,176	)
Soybean Meal	Short	40		1,284,400	3/14/17		—		(25,046	)
Soybean Oil	Long	19		424,650	3/14/17		8,030		—
Soybeans	Long	77		4,008,812	3/14/17		13,141		—
Sugar	Long	73		1,619,666	2/28/17		—		(28,915	)
Wheat	Short	96		1,933,200	3/14/17		113,239		—
WTI Crude Oil	Short	102		5,042,880	12/20/16		—		(445,282	)
Zinc	Long	88		5,920,200	12/19/16		848,382		—
Zinc	Short	88		5,920,200	12/19/16		—		(525,068	)
Zinc	Long	63		4,261,950	3/13/17		235,549		—
				101,333,637			3,770,040		(4,968,792	)
Equity Contracts
CAC 40 10 Euro Index^a	Long	99		4,801,373	12/16/16		75,425		—
CBOE Volatility Index	Long	14		241,850	2/15/17		—		(4,388	)
DAX Index^a	Long	7		1,972,976	12/16/16		48,913		—
DJIA Mini E-CBOT Index^a	Long	99		9,470,340	12/16/16		79,109		—
EURO STOXX 50 Price EUR	Short	127		4,106,674	12/16/16		—		(79,003	)
FTSE 100 Index^a	Long	109		9,248,696	12/16/16		77,920		—
FTSE 100 Index	Short	52		4,412,222	12/16/16		—		(89,989	)
Hang Seng Index^a	Long	75		11,033,649	12/29/16		93,492		—
Nasdaq 100 E-Mini Index^a	Long	105		10,113,600	12/16/16		101,496		—
Nikkei 225 Index^a	Long	7		1,124,601	12/08/16		47,458		—
Russell 2000 Mini Index^a	Long	39		5,156,970	12/16/16		458,092		—
Russell 2000 Mini Index	Short	4		528,920	12/16/16		—		(11,130	)
S&P 500 E-Mini Index^a	Short	266		29,244,040	12/16/16		—		(905,246	)
STOXX 600 Bank Index	Short	81		679,915	12/16/16		—		(63,771	)
TOPIX Index^a	Long	10		1,288,405	12/08/16		3,995		—
				93,424,231			985,900		(1,153,527	)
Interest Rate Contracts
3 Month Euribor^a	Long	726		192,872,484	12/18/17		—		(66,341	)
10 Yr. Mini Japan Government Bond^a	Long	13		1,710,266	12/12/16		—		(7,106	)
90 Day Eurodollar^a	Short	1,470		362,373,375	12/18/17		722,856		—
90 Day Sterling^a	Short	333		51,800,139	12/20/17		1,600		—
90 Day Sterling^a	Short	109		16,936,849	6/20/18		1,995		—
Australian 10 Yr. Bond^a	Short	68		6,470,293	12/15/16		108,663		—
Canadian 10 Yr. Bond^a	Long	32		3,308,390	3/22/17		—		(8,541	)
Euro BOBL	Short	13		1,830,827	3/08/17		807		—
Euro-BTP Italian Government Bond	Short	4		573,718	12/08/16		37,848		—

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Futures Contracts (continued)
			Number of		Notional	Expiration			Unrealized		Unrealized
Description		Type	Contracts		Value	Date			Appreciation		Depreciation
Interest Rate Contracts (continued)
Euro-Bund^a		Long	49	$	8,364,270	12/08/16	$		—	$	(101,606	)
Euro-Buxl 30 Yr. Bond		Short	9		1,672,697	12/08/16			33,398		—
Japanese 10 Yr. Bond^a		Long	4		5,264,106	12/13/16			—		(15,809	)
Long Gilt^a		Short	51		7,871,139	3/29/17			—		(42,855	)
U.S. Treasury 5 Yr. Note^a		Short	37		4,360,219	3/31/17			—		(169	)
U.S. Treasury 10 Yr. Note^a		Short	92		11,455,437	3/22/17			34,914		(70	)
U.S. Treasury Long Bond^a		Short	68		10,287,125	3/22/17			47,006		—
U.S. Treasury Ultra 10 Yr. Note		Short	21		2,823,187	3/22/17			12,300		—
U.S. Treasury Ultra Bond		Short	7		1,129,844	3/22/17			7,466		—
					691,104,365				1,008,853		(242,497	)
Total Futures Contracts				$	885,862,233		$		5,764,793	$	(6,364,816	)
Net unrealized appreciation (depreciation)										$	(600,023	)

^aA portion or all of the contracts are owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(g).

At November 30, 2016, the Fund had the following forward exchange contracts outstanding. See Note 1(e).

Forward Exchange Contracts
					Contract	Settlement			Unrealized		Unrealized
Currency	Counterparty^aType		Quantity		Amount*	Date			Appreciation		Depreciation
OTC Forward Exchange Contracts
South Korean Won	BOFA	Sell	893,198,985		780,086	12/05/16		$	16,054	$	—
Euro	BOFA	Sell	1,395,000		1,550,403	12/07/16			71,279		—
Hungarian Forint	BOFA	Buy	433,500,000		1,565,717	12/07/16			—		(96,737	)
British Pound	DBAB	Sell	481,000		593,804	12/12/16			—		(8,288	)
Swiss Franc	DBAB	Sell	1,928,000		1,964,884	12/13/16			66,494		—
Brazilian Real	BOFA	Sell	275,000		85,179	12/14/16			4,215		—
New Zealand Dollar	CBOA	Sell	1,300,000		948,773	12/14/16			28,562		—
New Zealand Dollar	DBAB	Sell	805,000		587,650	12/14/16			17,827		—
South Korean Won	BOFA	Sell	1,710,000,000		1,505,653	12/14/16			42,956		—
South Korean Won	MSCO	Sell	864,462,439		740,439	12/14/16			997		—
Swedish Krona	MSCS	Buy	13,100,000		1,441,208	12/14/16			—		(19,375	)
Taiwan Dollar	BNYM	Buy	132,103,000		4,159,414	12/15/16			—		(12,664	)
Taiwan Dollar	BNYM	Sell	132,103,000		4,130,478	12/15/16			10,220		(26,495	)
British Pound	BNYM	Sell	2,305,000		2,898,876	12/16/16			18,986		(5,811	)
Euro	BNYM	Sell	5,022,000		5,440,655	12/16/16			112,875		—
Euro	DBAB	Sell	183,000		196,747	12/16/16			2,604		—
Swiss Franc	BNYM	Sell	56,000		56,760	12/16/16			1,606		—
British Pound	DBAB	Buy	201,000		251,383	12/20/16			2,967		(2,676	)
British Pound	DBAB	Sell	486,000		618,060	12/20/16			12,112		(2,577	)
Euro	DBAB	Buy	2,664,000		2,897,125	12/20/16			460		(70,685	)
Euro	DBAB	Sell	8,622,000		9,586,703	12/20/16			438,392		(903	)
Canadian Dollar	BNYM	Sell	2,875,000		2,178,024	12/21/16			37,226		—
Chinese Yuan	MSCO	Sell	21,245,970		3,154,561	12/21/16			89,842		—
Euro	BNYM	Buy	480,275		525,525	12/21/16			—		(15,850	)
Euro	BNYM	Sell	3,359,844		3,747,806	12/21/16			182,298		—
Euro	DBAB	Buy	1,254,636		1,351,025	12/21/16			—		(19,591	)
Euro	DBAB	Sell	292,522		312,476	12/21/16			2,163		(116	)
Euro	MSCO	Buy	4,319,877		4,776,839	12/21/16			1,542		(194,069	)
Euro	MSCO	Sell	12,885,364		14,452,184	12/21/16			778,072		—
Israeli Shekel	BNYM	Buy	208,800		54,540	12/21/16			—		(14	)
Israeli Shekel	BNYM	Sell	707,886		183,740	12/21/16			—		(1,119	)
Japanese Yen	BNYM	Buy	49,000,000		452,892	12/21/16			—		(23,974	)
Japanese Yen	BNYM	Sell	110,000,000		1,078,474	12/21/16			115,596		—
Japanese Yen	MSCO	Buy	144,037,030		1,335,531	12/21/16			—		(74,712	)
Japanese Yen	MSCO	Sell	144,037,030		1,422,531	12/21/16			161,712		—

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Semiannual Report 61

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Forward Exchange Contracts (continued)
				Contract	Settlement		Unrealized		Unrealized
Currency	Counterparty^aType		Quantity	Amount*	Date		Appreciation		Depreciation
OTC Forward Exchange Contracts (continued)
Mexican Peso	BOFA	Buy	44,849,783	2,271,863	12/21/16	$	—	$	(97,869	)
Mexican Peso	BOFA	Sell	44,849,783	2,289,570	12/21/16		121,169		(5,595	)
Mexican Peso	MSCO	Buy	44,573,783	2,244,994	12/21/16		—		(84,377	)
Mexican Peso	MSCO	Sell	44,573,783	2,204,074	12/21/16		43,458		—
Russian Ruble	BOFA	Buy	48,156,915	741,223	12/21/16		5,436		—
Russian Ruble	MSCO	Buy	215,612,525	3,305,897	12/21/16		50,506		(13,391	)
Russian Ruble	MSCO	Sell	116,047,952	1,765,928	12/21/16		—		(33,363	)
South African Rand	MSCO	Sell	10,761,201	757,767	12/21/16		—		(3,212	)
Swiss Franc	BNYM	Buy	612,770	619,943	12/21/16		—		(16,181	)
Swiss Franc	BNYM	Sell	4,409,780	4,523,872	12/21/16		178,922		—
Turkish Lira	BOFA	Sell	5,297,622	1,747,519	12/21/16		213,364		—
Turkish Lira	MSCO	Buy	2,931,835	915,197	12/21/16		—		(66,158	)
Japanese Yen^b	MSCO	Buy	2,694,257,000	26,373,944	12/22/16		—		(2,788,332	)
Japanese Yen^b	MSCO	Sell	3,067,165,000	28,342,937	12/22/16		1,492,877		—
Australian Dollar^b	MSCO	Buy	33,265,000	25,259,866	12/23/16		—		(710,652	)
Australian Dollar^b	MSCO	Sell	13,230,000	9,864,788	12/23/16		114,436		(13,246	)
British Pound^b	MSCO	Buy	7,598,000	9,580,567	12/23/16		91,635		(157,611	)
British Pound^b	MSCO	Sell	23,814,000	30,899,632	12/23/16		1,176,801		(98,242	)
Canadian Dollar^b	MSCO	Buy	9,669,000	7,309,423	12/23/16		3,506		(112,968	)
Canadian Dollar^b	MSCO	Sell	38,667,000	29,341,211	12/23/16		552,487		(4,409	)
Euro^b	MSCO	Buy	28,938,000	32,365,767	12/23/16		—		(1,652,646	)
Euro^b	MSCO	Sell	53,689,000	59,367,230	12/23/16		2,384,821		—
Mexican Peso^b	MSCO	Buy	27,171,000	1,413,860	12/23/16		1,938		(99,073	)
Mexican Peso^b	MSCO	Sell	151,014,000	7,716,440	12/23/16		398,445		(248	)
New Zealand Dollar^b	MSCO	Buy	17,749,000	12,842,117	12/23/16		5,450		(287,809	)
New Zealand Dollar^b	MSCO	Sell	2,855,000	2,064,691	12/23/16		44,402		—
Swiss Franc^b	MSCO	Buy	4,765,000	4,902,151	12/23/16		—		(206,421	)
Swiss Franc^b	MSCO	Sell	20,240,000	20,856,860	12/23/16		911,091		—
South Korean Won	BOFA	Sell	887,324,377	753,247	12/27/16		—		(5,738	)
Canadian Dollar	MSCS	Sell	2,600,000	1,937,609	12/28/16		1,418		—
Euro	BOFA	Sell	2,800,000	2,976,456	12/28/16		3,789		—
Mexican Peso	MSCS	Buy	36,800,000	1,793,311	12/28/16		—		(11,075	)
Norwegian Krone	MSCS	Buy	20,300,000	2,365,940	12/29/16		18,872		—
British Pound	BNYM	Sell	264,000	342,575	12/30/16		12,036		(139	)
British Pound	MSCO	Buy	630,435	787,530	12/30/16		3,325		(1,192	)
British Pound	MSCO	Sell	1,564,871	1,930,947	12/30/16		178		(29,338	)
Canadian Dollar	MSCO	Buy	838,721	626,463	12/30/16		229		(2,091	)
Canadian Dollar	MSCO	Sell	6,403,462	4,839,000	12/30/16		71,804		(1,508	)
Canadian Dollar	MSCS	Sell	3,150,000	2,348,888	12/30/16		3,061		—
Danish Krone	BNYM	Buy	391,500	57,702	12/30/16		—		(1,831	)
Danish Krone	BNYM	Sell	391,500	59,377	12/30/16		3,507		—
Euro	BNYM	Buy	267,000	294,234	12/30/16		—		(10,734	)
Euro	BNYM	Sell	5,858,000	6,516,613	12/30/16		298,850		(2,241	)
Euro	MSCO	Buy	1,137,785	1,218,665	12/30/16		638		(11,208	)
Euro	MSCO	Sell	1,363,313	1,489,259	12/30/16		41,699		—
Japanese Yen	BNYM	Buy	87,163,000	842,236	12/30/16		—		(78,791	)
Japanese Yen	BNYM	Sell	87,163,000	870,238	12/30/16		106,793		—
Japanese Yen	MSCO	Buy	34,257,730	324,442	12/30/16		—		(24,385	)
Japanese Yen	MSCO	Sell	70,510,100	679,432	12/30/16		61,847		—
Mexican Peso	MSCS	Sell	335,125	16,272	12/30/16		46		—
Norwegian Krone	MSCS	Buy	12,600,000	1,566,147	12/30/16		—		(85,910	)
South African Rand	MSCO	Buy	4,802,046	339,406	12/30/16		—		(488	)
South African Rand	MSCO	Sell	4,802,046	339,950	12/30/16		1,032		—
Swedish Krona	MSCO	Buy	426,723	46,552	12/30/16		—		(183	)
Swedish Krona	MSCO	Sell	9,651,698	1,086,107	12/30/16		37,763		(431	)
Swiss Franc	MSCO	Buy	336,021	340,377	12/30/16		—		(9,047	)
Swiss Franc	MSCO	Sell	336,021	341,445	12/30/16		10,116		—
Brazilian Real	MSCS	Sell	3,350,000	995,542	1/05/17		15,854		—

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CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Forward Exchange Contracts (continued)
				Contract		Settlement		Unrealized		Unrealized
Currency	Counterparty^aType		Quantity	Amount*		Date		Appreciation		Depreciation
OTC Forward Exchange Contracts (continued)
Mexican Peso	MSCS	Sell	19,600,000	1,014,239		1/09/17	$	66,427	$	—
South African Rand	MSCO	Buy	13,022,466	3,454,235		1/19/17		14,738		—
South African Rand	MSCO	Sell	13,022,466	3,391,267		1/19/17		—		(77,706	)
Colombian Peso	CSFB	Sell	780,000,000	243,807		1/27/17		—		(7,394	)
British Pound	MSCS	Sell	100,000	124,106		2/09/17		—		(1,254	)
Indonesian Rupiah	CSFB	Sell	11,300,000,000	818,544		2/23/17		—		(3,373	)
Indonesian Rupiah	MSCS	Sell	1,500,000,000	108,853		2/23/17		—		(251	)
Czech Koruna	JPHQ	Sell	51,064,109	1,893,297	EUR	2/28/17		714		—
Polish Zloty	DBAB	Sell	4,000,000	1,038,354		4/28/17		88,261		—
Chinese Yuan	BOFA	Sell	11,100,000	1,616,780		9/19/17		46,422		—
Chinese Yuan	MSCS	Sell	4,300,000	627,234		9/19/17		18,897		—
Euro	JPHQ	Sell	1,893,297	50,638,117	CZK	11/29/17		31,820		(32,413	)
Total Forward Exchange Contracts							$	10,967,937	$	(7,426,180	)
Net unrealized appreciation (depreciation)							$	3,541,757


*In U.S. dollars unless otherwise indicated.
^aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.
^bA portion or all of the contracts are owned by K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See 1(g).

At November 30, 2016, the Fund had the following credit default swap contracts outstanding. See Note 1(e).

Credit Default Swap Contracts

								Unamortized
Periodic								Upfront
Payment			Counterparty/	Notional		Expiration		Payments			Unrealized			Unrealized
Description	Rate		Exchange	Amount^a		Date		(Receipts)			Appreciation			Depreciation			Value		Rating^b
Centrally Cleared Swap Contracts
Contracts to Buy Protection
Single Name
Government of South Africa	1.00	%	ICE	2,667,000		12/20/21	$	182,890			$	—	$	(13,305	)	$	169,585
Government of South Korea	1.00	%	ICE	1,947,567		12/20/21		(56,447	)			9,070		—			(47,377	)
Government of Turkey	1.00	%	ICE	1,976,000		9/20/20		157,717				—		(62,913	)		94,804
Government of Turkey	1.00	%	ICE	3,068,000		12/20/20		209,737				—		(44,417	)		165,320
Government of Turkey	1.00	%	ICE	739,000		6/20/21		48,577				2,845		—			51,422
Traded Index
CDX.NA.HY.27	5.00	%	ICE	5,100,000		12/20/21		(204,000	)			—		(40,959	)		(244,959	)
CDX.NA.HY.27	5.00	%	ICE	2,000,000		12/20/21		(80,000	)			—		(16,062	)		(96,062	)
CDX.NA.HY.27	5.00	%	ICE	6,300,000		12/20/21		(252,000	)			—		(50,596	)		(302,596	)
iTraxx Europe Crossover	5.00	%	ICE	350,374	EUR	12/20/20		(22,263	)			—		(8,502	)		(30,765	)
Contracts to Sell Protection^c
Single Name
Government of Brazil	1.00	%	ICE	3,993,000		6/20/21		(384,549	)			101,369		—			(283,180	)	BB
Government of Russia	1.00	%	ICE	2,800,131		9/20/20		(339,145	)			261,520		—			(77,625	)	BB+
Government of Russia	1.00	%	ICE	413,000		6/20/21		(30,563	)			11,902		—			(18,661	)	BB+
Total Centrally Cleared Swap Contracts							$	(770,046	)	$	386,706		$	(236,754	)	$	(620,094	)

OTC Swap Contracts
Contracts to Buy Protection
Single Name
Enel SpA	1.00	%	BZWS	450,000	EUR	12/20/21		2,105				—		(1,634	)		471
Enel SpA	1.00	%	BZWS	450,000	EUR	12/20/21		2,570				—		—			2,570
Government of Argentina	5.00	%	MSCO	2,137,000		6/20/17		(45,502	)			—		(23,598	)		(69,100	)
Government of China	1.00	%	DBAB	500,000		6/20/21		2,365				—		(1,893	)		472

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Semiannual Report 63

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Credit Default Swap Contracts (continued)
								Unamortized
	Periodic							Upfront
	Payment		Counterparty/	Notional		Expiration		Payments			Unrealized		Unrealized
Description	Rate		Exchange	Amount^a		Date		(Receipts)			Appreciation		Depreciation			Value Rating^b
OTC Swap Contracts (continued)
Contracts to Buy Protection (continued)
Single Name (continued)
Government of Turkey	1.00	%	BOFA	1,050,000		12/20/21	$	81,822		$	4,988	$	—		$	86,810
Intesa Sanpaolo SpA	1.00	%	BZWS	450,000	EUR	12/20/21		15,733			—		—			15,733
Intesa Sanpaolo SpA	1.00	%	BZWS	450,000	EUR	12/20/21		16,847			—		(1,978	)		14,869
Traded Index
iTraxx Asia Ex Japan	1.00	%	BZWS	310,000		6/20/21		5,496			—		(4,826	)		670
iTraxx Asia Ex Japan	1.00	%	MSCS	635,000		6/20/21		11,652			—		(10,281	)		1,371
Total OTC Swap Contracts							$	93,088		$	4,988	$	(44,210	)	$	53,866
Total Credit Default Swap Contracts							$	(676,958	)	$	391,694	$	(280,964	)	$	(566,228	)
Net unrealized appreciation (depreciation)										$	110,730


^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.
^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 fail-
ure to pay or bankruptcy of the underlying securities for traded index swaps.

See Notes 1(e) and 9 regarding derivative financial instruments and other derivative information, respectively.

At November 30, 2016, the Fund had the following interest rate swap contracts outstanding. See Note 1(e).

Interest Rate Swap Contracts

Counterparty/		Notional		Expiration		Unrealized			Unrealized
Description	Exchange	Amount*		Date		Appreciation			Depreciation
Centrally Cleared Swap Contracts
Receive Fixed rate 0.50%
Pay Floating rate 6 Month GBP-LIBOR	CME	5,700,000	GBP	7/22/18		$	—	$	(15,145	)
Receive Floating rate 6 Month GBP-LIBOR
Pay Fixed rate 0.59%	CME	1,900,000	GBP	7/22/21			35,440		—
Receive Fixed rate 0.86%
Pay Floating rate 3 Month USD-LIBOR	CME	29,900,000		7/18/18			—		(120,002	)
Receive Floating rate 3 Month USD-LIBOR
Pay Fixed rate 1.08%	CME	11,270,000		7/18/21			309,110		—
Receive Fixed rate 0.53%
Pay Floating rate 6 Month GBP-LIBOR	CME	5,700,000	GBP	7/21/18			—		(11,166	)
Receive Floating rate 6 Month GBP-LIBOR
Pay Fixed rate 0.62%	CME	1,900,000	GBP	7/21/21			31,684		—
Receive Floating rate 3 Month USD-LIBOR
Pay Fixed rate 1.41%	CME	1,663,200		7/18/26			106,453		—
Receive Floating rate 6 Month GBP-LIBOR
Pay Fixed rate 1.56%	CME	761,018	GBP	11/29/46			3,749		—
Receive Floating rate 6 Month GBP-LIBOR
Pay Fixed rate 1.55%	CME	758,289	GBP	11/28/46			3,991		—
Total Centrally Cleared Swap Contracts					$	490,427		$	(146,313	)

OTC Swap Contracts
Receive Fixed rate 0.32%
Pay Floating rate 6 Month CZK-PRIBOR	BOFA	151,000,000	CZK	7/29/18			—		(6,877	)
Receive Fixed rate 0.30%
Pay Floating rate 6 Month CZK-PRIBOR	BOFA	249,000,000	CZK	8/03/18			—		(15,427	)
Receive Floating rate 6 Month CZK-PRIBOR
Pay Fixed rate 0.35%	BOFA	75,000,000	CZK	8/03/21			29,668		—
Receive Fixed rate 0.31%
Pay Floating rate 6 Month CZK-PRIBOR	BOFA	30,000,000	CZK	8/04/18			—		(1,736	)

64 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Interest Rate Swap Contracts (continued)
		Counterparty/	Notional		Expiration		Unrealized		Unrealized
Description		Exchange	Amount*		Date		Appreciation		Depreciation
OTC Swap Contracts (continued)
Receive Floating rate 6 Month CZK-PRIBOR
Pay Fixed rate 0.35%		BOFA	12,500,000	CZK	8/04/21	$	4,821	$	—
Receive Fixed rate 0.33%
Pay Floating rate 6 Month CZK-PRIBOR		DBAB	148,000,000	CZK	7/29/18		—		(6,138	)
Receive Floating rate 6 Month CZK-PRIBOR
Pay Fixed rate 0.38%		DBAB	58,000,000	CZK	7/29/21		19,780		—
Receive Fixed rate 6.14%
Pay Floating rate 1 Month MXN TIIE		DBAB	9,000,000	MXN	7/03/26		—		(45,533	)
Receive Fixed rate 6.13%
Pay Floating rate 1 Month MXN TIIE		BOFA	28,653,000	MXN	7/03/26		—		(145,473	)
Receive Floating rate 3 Month ZAR-JIBAR-SAFEX
Pay Fixed rate 7.95%		BZWS	12,500,000	ZAR	5/05/25		25,451		—
Receive Floating rate 6 Month CZK-PRIBOR
Pay Fixed rate 0.37%		BOFA	60,000,000	CZK	7/29/21		21,080		—
Receive Fixed rate 11.27%
Pay Floating rate BRL-Brazil Cetip DI Interbank
Deposit Rate		BOFA	2,455,036	BRL	1/02/20		—		(5,157	)
Receive Fixed rate 11.30%
Pay Floating rate BRL-Brazil Cetip DI Interbank
Deposit Rate		BOFA	2,574,345	BRL	1/02/20		—		(4,880	)
Receive Fixed rate 12.05%
Pay Floating rate BRL-Brazil Cetip DI Interbank
Deposit Rate		MSCO	5,268,000	BRL	1/02/20		13,602		—
Total OTC Swap Contracts						$	114,402	$	(231,221	)
Total Interest Rate Swap Contracts						$	604,829	$	(377,534	)
Net unrealized appreciation (depreciation)						$	227,295

*In U.S. dollars unless otherwise indicated.

At November 30, 2016, the Fund had the following total return swap contracts outstanding. See Note 1(e).

Total Return Swap Contracts
		Counter-	Notional		Expiration		Unrealized		Unrealized
Underlying Instrument	Financing Rate	Party	Value*		Date		Appreciation		Depreciation
OTC Swap Contracts
Equity Contracts - Long
Anglo American PLC	LIBOR + 50	MSCS	634,633	GBP	1/18/17	$	557,813	$	—
Antofagasta PLC	LIBOR + 50	MSCS	494,872	GBP	1/18/17		345,721		—
International Consolidated Airlines
Group SA	LIBOR + 50	MSCS	474,092	GBP	1/18/17		20,560		—
Rio Tinto PLC	LIBOR + 50	MSCS	615,910	GBP	1/18/17		324,687		—
Wizz Air Holdings PLC	LIBOR + 50	MSCS	282,584	GBP	1/18/17		—		(11,105	)
Coach Inc	LIBOR + 50	MSCS	662,465		4/17/17		—		(6,240	)
Mead Johnson Nutrition Co	LIBOR + 50	MSCS	656,710		4/17/17		12,722		—
Valeo SA	LIBOR + 100	DBAB	231,325	EUR	4/18/17		4,314		—
Anima Holding SpA	LIBOR + 50	MSCS	33,944	EUR	4/18/17		4,421		—
Barclays PLC	LIBOR + 50	MSCS	327,005	GBP	4/18/17		30,068		—
BNP Paribas SA	LIBOR + 50	MSCS	1,081,437	EUR	4/18/17		—		(13,096	)
Croda International PLC	LIBOR + 50	MSCS	732,835	GBP	4/18/17		34,087		—
Hikma Pharmaceuticals PLC	LIBOR + 50	MSCS	258,352	GBP	4/18/17		1,221		—
Iliad SA	LIBOR + 50	MSCS	1,632,050	EUR	4/18/17		66,450		—
ITV PLC	LIBOR + 50	MSCS	739,427	GBP	4/18/17		—		(880	)
Remy Cointreau SA	LIBOR + 50	MSCS	883,789	EUR	4/18/17		120,134		—
RSA Insurance Group PLC	LIBOR + 50	MSCS	358,413	GBP	4/18/17		1,088		—
Smith & Nephew PLC	LIBOR + 50	MSCS	68,510	GBP	4/18/17		4,116		—
Smiths Group PLC	LIBOR + 50	MSCS	387,991	GBP	4/18/17		—		(11,923	)
Societe Generale SA	LIBOR + 50	MSCS	1,154,607	EUR	4/18/17		11,497		—
Sports Direct International PLC	LIBOR + 50	MSCS	727,318	GBP	4/18/17		13,416		—

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Semiannual Report 65

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Total Return Swap Contracts (continued)
		Counter-			Expiration		Unrealized		Unrealized
Underlying Instrument	Financing Rate	Party	Notional Value*		Date		Appreciation		Depreciation
OTC Swap Contracts (continued)
Equity Contracts - Long (continued)
Alphabet Inc	LIBOR + 50	MSCS	1,377,347		5/25/17	$	—	$	(47,002	)
Brunswick Corp	LIBOR + 50	MSCS	1,856,704		5/25/17		169,001		—
Constellation Brands Inc	LIBOR + 50	MSCS	1,210,783		5/25/17		35,488		—
Continental Resources Inc	LIBOR + 50	MSCS	516,459		5/25/17		129,663		—
Monster Beverage Corp	LIBOR + 50	MSCS	2,008,741		5/25/17		—		(210,682	)
Newfield Exploration Co	LIBOR + 50	MSCS	1,372,667		5/25/17		59,475		—
NVR Inc	LIBOR + 50	MSCS	3,277,859		5/25/17		236,582		—
Rio Tinto PLC	LIBOR + 50	MSCS	1,351,831		5/25/17		134,941		—
Swift Transportation Co	LIBOR + 50	MSCS	1,497,311		5/25/17		287,860		—
Take-Two Interactive
Software Inc	LIBOR + 50	MSCS	2,251,583		5/25/17		279,708		—
Lavendon Group PLC	LIBOR + 45	DBAB	421,035	GBP	7/03/17		52,192		—
Spire Healthcare Group PLC	LIBOR + 45	DBAB	140,451	GBP	7/03/17		—		(4,949	)
Weichai Power Co Ltd	HONIX + 95	MSCS	2,417,263	HKD	7/13/17		69,675		—
Evonik Industries AG	LIBOR + 40	DBAB	21,125	EUR	7/19/17		85		—
Actelion Ltd	TOIS + 65	MSCS	701,288	CHF	7/19/17		—		—
LafargeHolcim Ltd	LIBOR + 50	MSCS	1,724,674	CHF	7/26/17		—		(92,113	)
Syngenta AG	LIBOR + 50	MSCS	1,398,167	CHF	7/26/17		26,123		—
Allergan PLC	LIBOR + 75	DBAB	439,419		7/31/17		20,841		—
Belden Inc	LIBOR + 75	DBAB	528,495		7/31/17		28,237		—
Black Hills Corp	LIBOR + 75	DBAB	3,118,875		7/31/17		68,471		—
EPR Properties	LIBOR + 75	DBAB	362,188		7/31/17		12,705		—
Frontier Communications Corp	LIBOR + 75	DBAB	2,436,902		7/31/17		217,424		—
Great Plains Energy Inc	LIBOR + 75	DBAB	1,730,989		7/31/17		—		(32,727	)
Hess Corp	LIBOR + 75	DBAB	3,464,987		7/31/17		420,801		—
Siliconware Precision Industries
Co. Ltd	LIBOR + 40	DBAB	71,243		7/31/17		3,453		—
T-Mobile U.S. Inc	LIBOR + 75	DBAB	712,290		7/31/17		17,907		—
Welltower Inc	LIBOR + 75	DBAB	2,932,608		7/31/17		—		(4,678	)
WPX Energy Inc	LIBOR + 75	DBAB	378,321		7/31/17		68,016		—
Air France	EURIBOR + 50	MSCS	244,386	EUR	8/23/17		—		(12,757	)
Peugeot SA	EURIBOR + 50	MSCS	368,031	EUR	8/23/17		6,614		—
Plastic Omnium SA	EURIBOR + 50	MSCS	645,141	EUR	8/23/17		—		(202	)
Conwert Immobilien Invest SE	EONIA + 65	MSCS	898,793	EUR	10/30/17		—		(154	)
Vivendi SA	EONIA + 65	MSCS	2,181,144	EUR	10/30/17		—		(597	)
Celesio AG	EONIA + 65	MSCS	586,853	EUR	11/02/17		—		(158	)
E. ON SE	EONIA + 65	MSCS	1,354,179	EUR	11/02/17		—		(303	)
KUKA AG	EONIA + 65	MSCS	197,074	EUR	11/02/17		—		(15	)
ThyssenKrupp AG	EONIA + 65	MSCS	1,873,436	EUR	11/02/17		—		(493	)
SunCoke Energy Partners LP	LIBOR + 85	DBAB	197,413		11/06/17		—		(15,699	)
Hess Corp	LIBOR + 75	BNPP	267,981		11/30/17		13,760		—
Tatts Group Ltd	RBACR + 50	MSCS	352,589	AUD	12/05/17		—		(335	)
FMC Technologies Inc	FEDEF + 40	MSCS	1,507,783		12/21/17		—		(915	)
Yahoo! Inc	FEDEF + 40	MSCS	209,489		12/21/17		—		(137	)
Siemens AG	EURIBOR + 80	BNPP	240,400	EUR	12/29/17		—		(29,322	)
Moncler SpA	EURIBOR + 50	MSCS	72,516	EUR	1/10/18		10,818		—
Calsonic Kansei Corp	MUTSCALM + 55	MSCS	86,181,036	JPY	11/01/18		—		(10	)
TonenGeneral Sekiyu KK	MUTSCALM + 55	MSCS	150,357,141	JPY	11/01/18		—		(174	)
							3,922,155		(496,666	)

OTC Swap Contracts
Equity Contracts - Short
British Land Co. PLC	LIBOR - 40	DBAB	290,241	GBP	1/18/17		8,962		—
Carillion PLC	LIBOR - 125	DBAB	286,000	GBP	1/18/17		18,032		—
Enterprise Inns PLC	LIBOR - 40	DBAB	53,408	GBP	1/18/17		—		(3,761	)
Great Portland Estates PLC	LIBOR - 40	DBAB	591,563	GBP	1/18/17		23,185		—
Helical Bar PLC	LIBOR - 40	DBAB	2,788	GBP	1/18/17		—		(456	)
Mediclinic International PLC	LIBOR - 40	DBAB	111,451	GBP	1/18/17		6,457		—
Mol Hungarian Oil And Gas	LIBOR - 40	DBAB	401,797	EUR	1/18/17		3,803		—

66 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Total Return Swap Contracts (continued)
		Counter-			Expiration		Unrealized		Unrealized
Underlying Instrument	Financing Rate	Party	Notional Value*		Date		Appreciation		Depreciation
OTC Swap Contracts (continued)
Equity Contracts - Short (continued)
Primary Health Properties PLC	LIBOR - 250	DBAB	296,081	GBP	1/18/17	$	—	$	(3,476	)
Richter Gedeon Nyrt	LIBOR - 40	DBAB	770,038	EUR	1/18/17		25,831		—
St. Modwen Properties PLC	LIBOR - 40	DBAB	9,068	GBP	1/18/17		—		(178	)
UNITE Group PLC	LIBOR - 40	DBAB	1,273,725	GBP	1/18/17		—		(23,224	)
Burberry Group PLC	SONIA - 35	MSCS	297,283	GBP	1/18/17		—		(53,726	)
Thomas Cook Group PLC	SONIA - 35	MSCS	76,800	GBP	1/18/17		—		(21,888	)
APERAM SA	LIBOR - 40	DBAB	128,427		2/01/17		3,145		—
Larsen & Toubro Ltd	LIBOR - 200	DBAB	32,495		3/17/17		—		(249	)
Adidas AG	EONIA - 35	MSCS	559,988	EUR	4/18/17		—		(33,099	)
JD Sports Fashion PLC	SONIA - 30	MSCS	154,193	GBP	4/18/17		—		(11,024	)
Industrivarden AB	LIBOR - 40	DBAB	293,291	EUR	4/21/17		—		(2,726	)
Galp Energia SGPS SA	LIBOR - 40	DBAB	91,897	EUR	6/06/17		—		(5,980	)
Alstria office REIT-AG	LIBOR - 40	DBAB	1,686,475	EUR	7/19/17		—		(36,245	)
Aroundtown Property Holdings PLC	LIBOR - 450	DBAB	293,164	EUR	7/19/17		—		(13,612	)
Aurubis AG	LIBOR - 40	DBAB	246,251	EUR	7/19/17		5,718		—
Deutsche EuroShop AG	LIBOR - 40	DBAB	501,831	EUR	7/19/17		—		(1,904	)
Deutsche Post AG	LIBOR - 35	DBAB	971,486	EUR	7/19/17		—		(20,779	)
Deutsche Wohnen AG	LIBOR - 40	DBAB	1,725,169	EUR	7/19/17		—		(56,488	)
Drillisch AG	LIBOR - 400	DBAB	3,197,401	EUR	7/19/17		209,452		—
ENN Energy Holdings Ltd	LIBOR - 41	DBAB	345,000	HKD	7/19/17		—		(1,548	)
Fonciere Des Regions	LIBOR - 40	DBAB	1,223,545	EUR	7/19/17		9,893		—
Fresenius SE & Co KGaA	LIBOR - 40	DBAB	742,948	EUR	7/19/17		—		(5,476	)
Hansteen Holdings PLC	LIBOR - 100	DBAB	920,057	EUR	7/19/17		—		(30,012	)
Kloeckner & Co. SE	LIBOR - 40	DBAB	252,913	EUR	7/19/17		6,505		—
Koninklijke KPN NV	LIBOR - 40	DBAB	185,284	EUR	7/19/17		—		(7,716	)
OCI NV	LIBOR - 40	DBAB	79,395	EUR	7/19/17		—		(2,070	)
Playtech PLC	LIBOR - 40	DBAB	886,996	EUR	7/19/17		32,936		—
Shenzhou International Group
Holdings Ltd	LIBOR - 47	DBAB	22,548,070	HKD	7/19/17		—		(21,604	)
Siemens AG	LIBOR - 40	DBAB	1,184,720	EUR	7/19/17		20,691		—
Steinhoff International Holdings NV	LIBOR - 75	DBAB	541,136	EUR	7/19/17		—		(11,204	)
Yuexiu Transport Infrastructure Ltd	LIBOR - 150	DBAB	712,080	HKD	7/19/17		—		(2,175	)
Cie Financiere Richemont SA	TOIS - 40	MSCS	784,110	CHF	7/19/17		—		(539	)
Iberdrola SA	LIBOR - 40	DBAB	820,054	EUR	7/20/17		—		(3,886	)
NH Hotel Group SA	LIBOR - 40	DBAB	253,223	EUR	7/20/17		16,434		—
Ayala Land Inc	LIBOR - 500	DBAB	102,491		7/21/17		—		(3,525	)
Advanced Semiconductor
Engineering Inc	LIBOR - 35	DBAB	412,379		7/31/17		—		(8,615	)
Allergan PLC	LIBOR - 35	DBAB	313,685		7/31/17		3,399		—
Apollo Commercial Real Estate
Finance Inc	LIBOR - 35	DBAB	98,803		7/31/17		—		(276	)
Belden Inc	LIBOR - 35	DBAB	413,504		7/31/17		—		(9,786	)
Black Hills Corp	LIBOR - 35	DBAB	2,713,125		7/31/17		—		(21,181	)
Colony Starwood Homes	LIBOR - 35	DBAB	383,934		7/31/17		—		(9,787	)
DHT Holdings Inc	LIBOR - 35	DBAB	1,043,204		7/31/17		39,603		—
EPR Properties	LIBOR - 35	DBAB	254,666		7/31/17		—		(6,884	)
Frontier Communications Corp	LIBOR - 35	DBAB	1,926,068		7/31/17		—		(194,951	)
General Cable Corp	LIBOR - 35	DBAB	57,358		7/31/17		—		(3,747	)
Great Plains Energy Inc	LIBOR - 35	DBAB	1,216,159		7/31/17		31,352		—
Hess Corp	LIBOR - 35	DBAB	3,033,794		7/31/17		—		(280,100	)
Intel Corp	LIBOR - 35	DBAB	716,428		7/31/17		2,771		—
Pattern Energy Group Inc	LIBOR - 35	DBAB	89,700		7/31/17		—		(596	)
Scorpio Tankers Inc	LIBOR - 35	DBAB	57,889		7/31/17		—		(4,512	)
Ship Finance International Ltd	LIBOR - 90	DBAB	1,697,441		7/31/17		—		(88,926	)
Spirit Realty Capital Inc	LIBOR - 35	DBAB	91,932		7/31/17		—		(1,733	)
T-Mobile U.S. Inc	LIBOR - 35	DBAB	683,379		7/31/17		—		(9,572	)
Welltower Inc	LIBOR - 35	DBAB	1,962,138		7/31/17		—		(1,327	)
WPX Energy Inc	LIBOR - 35	DBAB	321,031		7/31/17		—		(65,475	)
Technip SA	LIBOR - 50	DBAB	4,466,794	EUR	8/15/17		48,872		—

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Semiannual Report 67

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Total Return Swap Contracts (continued)
		Counter-				Expiration		Unrealized		Unrealized
Underlying Instrument	Financing Rate	Party	Notional Value*			Date		Appreciation		Depreciation
OTC Swap Contracts (continued)
Equity Contracts - Short (continued)
Advanced Semiconductor
Engineering Inc	LIBOR - 125	DBAB	1,329,005			9/19/17	$	—	$	(36,205
IHH Healthcare Bhd	LIBOR - 311	DBAB		573,584	SGD	�� 9/20/17		—		(11,530)
Gramercy Property Trust	LIBOR - 35	DBAB	343,138			9/27/17		—		(11,769
Outokumpu OYJ	LIBOR - 175	DBAB	748,221		EUR	10/02/17		8,576		—
Marine Harvest ASA	LIBOR - 40	DBAB	6,576,038		EUR	10/19/17		—		(305,556)
SubseaSA	LIBOR - 75	DBAB	3,558,737		EUR	10/19/17		9,574		—
Tenaga Nasional Bhd	LIBOR - 50	DBAB	357,293			10/19/17		13,308		—
Airbus Group SE	EONIA - 40	MSCS	239,754		EUR	10/30/17		—		(70)
Fiat Chrysler Automobiles NV	EONIA - 50	MSCS	297,490		EUR	10/30/17		—		(194)
Kone OYJ	EONIA - 50	MSCS	1,171,036		EUR	10/30/17		—		(844)
Proximus SADP	EONIA - 50	MSCS	142,845		EUR	11/02/17		—		(100)
Volkswagen AG	EONIA - 40	MSCS	146,647		EUR	11/02/17		—		(95)
Vonovia SE	EONIA - 40	MSCS	448,934		EUR	11/02/17		—		(298)
SunCoke Energy Inc	LIBOR - 35	DBAB	189,080			11/06/17		15,786		—
Advantest Corp	LIBOR - 40	DBAB	34,040,400		JPY	11/17/17		—		(14,197)
Bank of Nagoya Ltd	LIBOR - 150	DBAB	140,360			11/17/17		2,875		—
DCM Holdings Co. Ltd	LIBOR - 40	DBAB	50,596,384		JPY	11/17/17		—		(42,673)
Ebara Corp	LIBOR - 40	DBAB	187,699,600		JPY	11/17/17		—		(28,173)
EDION Corp	LIBOR - 350	DBAB	96,882,016		JPY	11/17/17		—		(85,511)
Japan Airport Terminal Co. Ltd	LIBOR - 600	DBAB	15,432,874		JPY	11/17/17		—		(79)
K’s Holdings Corp	LIBOR - 40	DBAB	358,051,505		JPY	11/17/17		—		(246,074)
Kansai Paint Co. Ltd	LIBOR - 40	DBAB	28,135,219		JPY	11/17/17		—		(6,410)
LIXIL Group Corp	LIBOR - 40	DBAB	11,097,240		JPY	11/17/17		—		(5,304)
Maeda Corp	LIBOR - 40	DBAB	179,756,111		JPY	11/17/17		—		(160,423)
Nagoya Railroad Co. Ltd	LIBOR - 40	DBAB	14,622,854		JPY	11/17/17		—		(8,524)
Nippon Ceramic Co. Ltd	LIBOR - 650	DBAB	22,594,800		JPY	11/17/17		—		(12,916)
Nippon Light Metal Holdings Co. Ltd	LIBOR - 40	DBAB	636,487,041		JPY	11/17/17		—		(261,640)
Oita Bank Ltd	LIBOR - 40	DBAB	864,865			11/17/17		9,007		—
OSG Corp	LIBOR - 125	DBAB	137,416,500		JPY	11/17/17		30,123		—
Resorttrust Inc	LIBOR - 40	DBAB	1,665,600		JPY	11/17/17		—		(1,093)
Sankyo Co. Ltd	LIBOR - 40	DBAB	20,024,456		JPY	11/17/17		—		(5,158)
SBI Holdings Inc	LIBOR - 40	DBAB	5,810,027		JPY	11/17/17		—		(3,281)
Shionogi & Co. Ltd	LIBOR - 40	DBAB	58,588,777		JPY	11/17/17		—		(6,672)
Suzuki Motor Corp	LIBOR - 40	DBAB	30,568,900		JPY	11/17/17		173		—
Teijin Ltd	LIBOR - 40	DBAB	128,592,232		JPY	11/17/17		—		(83,768)
Terumo Corp	LIBOR - 40	DBAB	83,245,934		JPY	11/17/17		—		(32,152)
Toho Holdings Co. Ltd	LIBOR - 40	DBAB	69,087,534		JPY	11/17/17		—		(39,462)
Tohoku Electric Power Co. Inc	LIBOR - 40	DBAB	51,139,799		JPY	11/17/17		—		(36,723)
Toppan Printing Co. Ltd	LIBOR - 40	DBAB	41,154,315		JPY	11/17/17		—		(18,296)
Transcosmos Inc	LIBOR - 40	DBAB	261,400		JPY	11/17/17		—		(146)
Unicharm Corp	LIBOR - 40	DBAB	57,667,115		JPY	11/17/17		—		(15,238)
Yamada Denki Co. Ltd	LIBOR - 40	DBAB	435,183,406		JPY	11/17/17		—		(389,113)
Yamagata Bank Ltd	LIBOR - 150	DBAB	703,267			11/17/17		12,855		—
Yamaguchi Financial Group Inc	LIBOR - 40	DBAB	2,286,256			11/17/17		18,825		—
British American Tobacco PLC	LIBOR - 40	DBAB	1,976,988			11/27/17		—		(51,084)
British Land Co. PLC	LIBOR - 35	BNPP	147,995		GBP	11/29/17		312		—
Enterprise Inns PLC	LIBOR - 40	BNPP	21,055		GBP	11/29/17		—		(818)
Evonik Industries AG	LIBOR - 35	BNPP	179,618		EUR	11/29/17		—		(1,319)
Fresenius SE & Co. KGaA	LIBOR - 35	BNPP	385,672		EUR	11/29/17		—		(3,853)
General Cable Corp	LIBOR - 30	BNPP	98,454			11/30/17		523		—
Hess Corp	LIBOR - 30	BNPP	213,831			11/30/17		—		(21,255)
Lam Research Corp	LIBOR - 30	BNPP	973,452			11/30/17		13,766		—
Terumo Corp	LIBOR - 40	BNPP	41,740,988		JPY	11/30/17		2,468		—
Suzuki Motor Corp	LIBOR - 40	BNPP	89,394,800		JPY	12/02/17		2,961		—
Tabcorp Holdings Ltd	RBACR - 150	MSCS	315,731		AUD	12/05/17		—		(33)
Takashimaya Co. Ltd	LIBOR - 40	BNPP	5,754,000		JPY	12/27/17		523		—
Toray Industries Inc	LIBOR - 40	BNPP	21,237,220		JPY	12/27/17		2,030		—
Ayala Land Inc	LIBOR - 400	BNPP	247,900			12/28/17		—		(4,867)

68 Semiannual Report

franklintempleton.com

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Total Return Swap Contracts (continued)
		Counter-			Expiration		Unrealized		Unrealized
Underlying Instrument	Financing Rate	Party	Notional Value*		Date		Appreciation		Depreciation
OTC Swap Contracts (continued)
Equity Contracts - Short (continued)
CapitaLand Ltd	SIBOR - 40	BNPP	134,088	SGD	12/28/17	$	—	$	(1,857	)
Nippon Light Metal Holdings Co. Ltd	LIBOR - 40	BNPP	28,194,000	JPY	12/28/17		—		(977	)
Senko Co. Ltd	LIBOR - 75	BNPP	54,377,036	JPY	12/28/17		—		(7,800	)
Deutsche Post AG	LIBOR - 35	BNPP	480,825	EUR	12/29/17		—		(3,063	)
Elekta AB	STIBOR - 50	BNPP	486,675	SEK	12/29/17		1,706		—
Galp Energia SGPS SA	LIBOR - 40	BNPP	93,043	EUR	12/29/17		—		(979	)
J Sainsbury PLC	LIBOR - 35	BNPP	65,490	GBP	12/29/17		1,736		—
Koninklijke KPN NV	LIBOR - 50	BNPP	5,023	EUR	12/29/17		—		(72	)
Outokumpu OYJ	LIBOR - 50	BNPP	11,084	EUR	12/29/17		381		—	��
Richter Gideon Nyrt	LIBOR - 50	BNPP	198,622	EUR	12/29/17		2,130		—
Siemens AG	LIBOR - 35	BNPP	337,506	EUR	12/29/17		2,144		—
Rolls-Royce Holdings PLC	SONIA - 35	MSCS	1,282	GBP	2/06/18		—		—
SPDR S&P 500 ETF Trust	FEDEF - 35	MSCS	4,526,482		2/27/18		—		(123,578	)
Janus Capital Group Inc	LIBOR - 30	CITI	529,322		5/29/18		—		(29,748	)
Technip SA	FEDEF - 40	MSCS	1,521,900		8/10/18		—		(3,742	)
Alibaba Group Holding Ltd	FEDEF - 35	MSCS	152,971		8/16/18		2		—
JX Holdings Inc	MUTSCALM - 40	MSCS	154,680,671	JPY	11/01/18		—		(163	)
							668,825		(3,210,933	)

OTC Swap Contracts
Fixed Income Contracts - Long
Bank of Nagoya Ltd	LIBOR + 90	DBAB	307,875		12/19/16		3,576		—
Oita Bank Ltd	LIBOR + 90	DBAB	2,357,500		12/19/16		10,171		—
Toppan Printing Co. Ltd	LIBOR + 90	DBAB	29,952,999	JPY	12/19/16		739		—
Yamagata Bank Ltd	LIBOR + 90	DBAB	2,852,500		12/19/16		—		(5,109	)
Yamaguchi Financial Group Inc	LIBOR + 90	DBAB	4,291,950		12/19/16		34,630		—
APERAM SA	LIBOR + 90	DBAB	249,271		1/18/17		—		(2,915	)
CEZ MH BV	LIBOR + 90	DBAB	834,490	EUR	1/18/17		4,177		—
Dana Gas Sukuk Ltd	LIBOR + 90	DBAB	119,236		1/18/17		2,932		—
Magyar Nemzeti Vagyonkezelo ZRT	LIBOR + 90	DBAB	1,757,985	EUR	1/18/17		—		(20,428	)
ACS Actividades Finance BV	LIBOR + 90	DBAB	1,661,272	EUR	2/09/17		12,885		—
Green Plains Inc	LIBOR + 100	DBAB	290,973		2/09/17		69,450		—
OCI NV	LIBOR + 90	DBAB	1,502,281	EUR	2/09/17		63,855		—
DP World Ltd	LIBOR + 90	DBAB	199,939		2/17/17		—		(2,227	)
Shenzhou International Group
Holdings Ltd	LIBOR + 90	DBAB	31,699,667	HKD	2/17/17		10,213		—
Larsen & Toubro Ltd	LIBOR + 150	DBAB	141,896		2/20/17		—		(1,794	)
Industrivarden AB	LIBOR + 90	DBAB	3,051,224	EUR	2/27/17		—		(5,264	)
PT Jersey Ltd	LIBOR + 90	DBAB	1,481,517	EUR	2/27/17		—		(39,341	)
Golar LNG Ltd	LIBOR + 80	BNPP	303,560		3/07/17		—		(1,339	)
Golar LNG Ltd	LIBOR + 90	DBAB	1,799,630		3/07/17		12,894		—
Fonciere Des Regions	LIBOR + 90	DBAB	1,246,774	EUR	3/15/17		—		(21,421	)
Premier Oil Finance Jersey Ltd	LIBOR + 90	DBAB	485,560		3/17/17		14,179		—
Elekta AB	STIBOR + 50	BNPP	13,866,159	SEK	4/25/17		—		(5,312	)
NH Hotel Group SA	LIBOR + 90	DBAB	988,180	EUR	4/25/17		—		(21,176	)
AYC Finance Ltd	LIBOR + 90	DBAB	401,083		5/17/17		11,852		—
ENN Energy Holdings Ltd	LIBOR + 90	DBAB	256,133		5/17/17		1,535		—
Parpublica-Participacoes Publicas
SGPS SA	LIBOR + 90	DBAB	577,935	EUR	6/06/17		2,449		—
Resorttrust Inc	LIBOR + 90	DBAB	10,317,500	JPY	6/19/17		2,112		—
Siem Industries Inc	LIBOR + 90	DBAB	4,686,264	EUR	6/19/17		45,549		—
Aabar Investments PJSC	LIBOR + 90	DBAB	481,387	EUR	7/19/17		—		(10,541	)
Aabar Investments PJSC	LIBOR + 90	DBAB	501,340	EUR	7/19/17		—		(408	)
Alstria Office REIT AG	LIBOR + 90	DBAB	2,247,003	EUR	7/19/17		72,122		—
Aroundtown Property Holdings PLC	LIBOR + 90	DBAB	490,974	EUR	7/19/17		24,789		—
British Land Jersey Ltd	LIBOR + 90	DBAB	1,227,681	GBP	7/19/17		4,316		—
Carillion Finance White 2015 Ltd	LIBOR + 90	DBAB	1,078,306	GBP	7/19/17		393		—
Deutsche EuroShop AG	LIBOR + 90	DBAB	617,529	EUR	7/19/17		384		—
Deutsche Post AG	LIBOR + 90	DBAB	1,266,952	EUR	7/19/17		28,052		—

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Semiannual Report 69

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Total Return Swap Contracts (continued)
		Counter-			Expiration		Unrealized		Unrealized
Underlying Instrument	Financing Rate	Party	Notional Value*		Date		Appreciation		Depreciation
OTC Swap Contracts (continued)
Fixed Income Contracts - Long (continued)
Deutsche Wohnen AG	LIBOR + 90	DBAB	1,897,718	EUR	7/19/17	$	149,403	$	—
Drillisch AG	LIBOR + 90	DBAB	3,448,952	EUR	7/19/17		—		(82,724	)
Enterprise Funding Corp	LIBOR + 90	DBAB	170,333	GBP	7/19/17		12,472		—
Fresenius SE & Co KGaA	LIBOR + 90	DBAB	968,450	EUR	7/19/17		17,969		—
Great Portland Estates Capital
Jersey Ltd	LIBOR + 90	DBAB	1,579,693	GBP	7/19/17		—		(5,316	)
Hansteen Jersey Securities Ltd	LIBOR + 90	DBAB	1,519,163	EUR	7/19/17		123,018		—
Helical Bar Jersey Ltd	LIBOR + 90	DBAB	283,266	GBP	7/19/17		10,551		—
PHP Finance Jersey Ltd	LIBOR + 90	DBAB	578,698	GBP	7/19/17		—		(5,388	)
Remgro Jersey GBP Ltd	LIBOR + 90	DBAB	493,418	GBP	7/19/17		—		(2,424	)
Salzgitter Finance BV	LIBOR + 90	DBAB	463,080	EUR	7/19/17		—		(5,586	)
St. Modwen Properties Securities
Jersey Ltd	LIBOR + 90	DBAB	191,769	GBP	7/19/17		—		(1,111	)
Steinhoff Finance Holding GmbH	LIBOR + 90	DBAB	1,081,888	EUR	7/19/17		10,014		—
Unite Jersey Issuer Ltd	LIBOR + 90	DBAB	2,281,159	GBP	7/19/17		—		(4,929	)
Gulf Keystone Petroleum Ltd	LIBOR + 90	DBAB	192,500		7/20/17		—		(4,970	)
America Movil SAB de CV	LIBOR + 90	DBAB	3,268,829	EUR	7/25/17		25,711		—
Klockner & Co. Financial
Services SA	LIBOR + 90	DBAB	587,620	EUR	7/25/17		—		(1,924	)
Apollo Commercial Real Estate
Finance Inc	LIBOR + 75	DBAB	361,103		7/31/17		5,230		—
Colony Starwood Homes	LIBOR + 75	DBAB	680,051		7/31/17		15,857		—
DHT Holdings Inc	LIBOR + 75	DBAB	3,827,904		7/31/17		119,464		—
General Cable Corp	LIBOR + 75	DBAB	95,038		7/31/17		6,244		—
GPT Property Trust LP	LIBOR + 75	DBAB	523,717		7/31/17		15,913		—
Intel Corp	LIBOR + 75	DBAB	880,280		7/31/17		—		(4,141	)
Pattern Energy Group Inc	LIBOR + 75	DBAB	254,610		7/31/17		2,842		—
Scorpio Tankers Inc	LIBOR + 75	DBAB	437,884		7/31/17		15,740		—
Ship Finance International Ltd	LIBOR + 75	DBAB	1,097,216		7/31/17		40,543		—
Spirit Realty Capital Inc	LIBOR + 75	DBAB	378,682		7/31/17		5,009		—
CEZ MH BV	EURIBOR + 50	BNPP	104,525	EUR	8/04/17		317		—
Cahaya Capital Ltd	LIBOR + 100	DBAB	1,947,500		8/17/17		—		(21,674	)
Asia View Ltd	LIBOR + 90	DBAB	264,614		8/18/17		2,361		—
British Land Jersey Ltd	LIBOR + 80	BNPP	719,240	GBP	9/10/17		—		(1,005	)
Advanced Semiconductor
Engineering Inc	LIBOR + 100	DBAB	2,952,300		9/19/17		64,845		—
Indah Capital Ltd	LIBOR + 100	DBAB	821,813	SGD	9/19/17		10,403		—
Marine Harvest ASA	LIBOR + 90	DBAB	6,540,167	EUR	9/19/17		437,325		—
Siliconware Precision Industries
Co. Ltd	LIBOR + 100	DBAB	3,416,563		9/19/17		10,128		—
Parpublica-Participacoes Publicas
SGPS SA	EURIBOR + 80	BNPP	688,507	EUR	9/28/17		—		(2,798	)
Outokumpu OYJ	LIBOR + 90	DBAB	1,377,107	EUR	10/02/17		—		(1,474	)
SBI Holdings Inc	LIBOR + 90	DBAB	21,236,660	JPY	11/02/17		5,300		—
Golden Ocean Group Ltd	LIBOR + 90	DBAB	759,252		11/07/17		20,749		—
Advantest Corp	LIBOR + 90	DBAB	89,170,000	JPY	11/17/17		15,741		—
DCM Holdings Co. Ltd	LIBOR + 90	DBAB	93,345,000	JPY	11/17/17		48,376		—
Ebara Corp	LIBOR + 90	DBAB	192,180,000	JPY	11/17/17		—		(21,789	)
EDION Corp	LIBOR + 90	DBAB	139,710,000	JPY	11/17/17		89,944		—
Japan Airport Terminal Co. Ltd	LIBOR + 90	DBAB	201,700,000	JPY	11/17/17		4,231		—
K’s Holdings Corp	LIBOR + 90	DBAB	555,006,080	JPY	11/17/17		208,023		—
Kansai Paint Co. Ltd	LIBOR + 90	DBAB	133,098,290	JPY	11/17/17		378		—
LIXIL Group Corp	LIBOR + 90	DBAB	61,537,500	JPY	11/17/17		6,052		—
Maeda Corp	LIBOR + 90	DBAB	204,435,000	JPY	11/17/17		188,573		—
Nagoya Railroad Co. Ltd	LIBOR + 90	DBAB	33,357,720	JPY	11/17/17		7,595		—
Nippon Ceramic Co. Ltd	LIBOR + 90	DBAB	29,092,200	JPY	11/17/17		23,422		—
Nippon Light Metal Holdings
Co. Ltd	LIBOR + 90	DBAB	697,906,250	JPY	11/17/17		276,430		—
OSG Corp	LIBOR + 90	DBAB	176,130,000	JPY	11/17/17		—		(41,673	)

70 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Total Return Swap Contracts (continued)
		Counter-			Expiration		Unrealized		Unrealized
Underlying Instrument	Financing Rate	Party	Notional Value*		Date		Appreciation		Depreciation
OTC Swap Contracts (continued)
Fixed Income Contracts - Long (continued)
Sankyo Co. Ltd	LIBOR + 90	DBAB	110,000,000	JPY	11/17/17	$	7,378	$	—
Shionogi & Co. Ltd	LIBOR + 90	DBAB	82,050,000	JPY	11/17/17		8,288		—
Suzuki Motor Corp	LIBOR + 90	DBAB	69,079,980	JPY	11/17/17		—		(2,208	)
Teijin Ltd	LIBOR + 90	DBAB	270,595,000	JPY	11/17/17		82,426		—
Terumo Corp	LIBOR + 90	DBAB	153,681,710	JPY	11/17/17		25,507		—
Toho Holdings Co. Ltd	LIBOR + 90	DBAB	146,412,500	JPY	11/17/17		36,512		—
Tohoku Electric Power Co. Inc	LIBOR + 90	DBAB	209,335,833	JPY	11/17/17		18,654		—
Tohoku Electric Power Co. Inc	LIBOR + 90	DBAB	210,044,310	JPY	11/17/17		31,136		—
Toppan Printing Co. Ltd	LIBOR + 90	DBAB	97,200,000	JPY	11/17/17		22,929		—
Unicharm Corp	LIBOR + 90	DBAB	116,390,000	JPY	11/17/17		15,926		—
Yamada Denki Co. Ltd	LIBOR + 90	DBAB	717,176,250	JPY	11/17/17		413,023		—
AYC Finance Ltd	LIBOR + 100	BNPP	1,209,450		11/29/17		29,925		—
Enterprise Funding Ltd	LIBOR + 80	BNPP	89,456	GBP	11/29/17		909		—
Fresenius SE & Co. KGaA	EURIBOR + 80	BNPP	418,381	EUR	11/29/17		4,249		—
RAG-Stiftung	EURIBOR + 80	BNPP	1,214,080	EUR	11/29/17		—		(1,599	)
Sacyr SA	EURIBOR + 50	BNPP	247,023	EUR	11/29/17		—		(132	)
ENN Energy Holdings Ltd	LIBOR + 90	BNPP	255,625		11/30/17		2,187		—
General Cable Corp	LIBOR + 75	BNPP	147,653		11/30/17		1,255		—
Lam Research Corp	LIBOR + 75	BNPP	1,036,773		11/30/17		—		(11,844	)
Terumo Corp	LIBOR + 75	BNPP	35,998,890	JPY	11/30/17		—		(6,230	)
Suzuki Motor Corp	LIBOR + 75	BNPP	206,730,000	JPY	12/01/17		—		(1,573	)
Takashimaya Co. Ltd	LIBOR + 75	BNPP	31,716,210	JPY	12/27/17		—		(589	)
Toray Industries Inc	LIBOR + 75	BNPP	37,475,490	JPY	12/27/17		—		(2,552	)
CapitaLand Ltd	SIBOR + 90	BNPP	1,492,359	SGD	12/28/17		1,478		—
Senko Co. Ltd	LIBOR + 75	BNPP	69,754,685	JPY	12/28/17		11,978		—
Terumo Corp	LIBOR + 75	BNPP	36,815,640	JPY	12/28/17		—		(5,830	)
America Movil SAB de CV	EURIBOR + 80	BNPP	192,660	EUR	12/29/17		1,150		—
Deutsche Post AG	EURIBOR + 80	BNPP	286,220	EUR	12/29/17		1,332		—
J Sainsbury PLC	LIBOR + 80	BNPP	303,923	GBP	12/29/17		—		(1,873	)
Magyar Nemzeti Vagyonkezelo ZRT	EURIBOR + 80	BNPP	581,980	EUR	12/29/17		—		(2,423	)
DP World Ltd	LIBOR + 80	BNPP	198,802		1/29/18		—		(992	)
Janus Capital Group Inc	LIBOR + 75	CITI	708,205		5/29/18		32,319		—
							3,177,988		(384,046	)

OTC Swap Contracts
Fixed Income Contracts - Short
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ	3,028,000		12/20/16		87,878		—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ	2,850,000		12/20/16		77,577		—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ	3,028,000		12/20/16		83,716		—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ	1,304,000		3/20/17		3,021		—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ	3,028,000		3/20/17		87,878		—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ	3,028,000		3/20/17		83,716		—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ	1,514,000		3/20/17		37,335		—
iBoxx USD Liquid Investment Grade Index	LIBOR	MSCS	1,491,000		3/20/17		17,501		—
iBoxx USD Liquid Investment Grade Index	LIBOR	MSCS	2,850,000		3/20/17		78,795		—
iBoxx USD Liquid Investment Grade Index	LIBOR	MSCS	1,491,000		3/20/17		14,720		—
							572,137		—
Total Return Swap Contracts						$	8,341,105	$	(4,091,645	)
Net unrealized appreciation (depreciation)						$	4,249,460

*In U.S. dollars unless otherwise indicated.

See Abbreviations on page 91.

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Semiannual Report 71

FRANKLIN ALTERNATIVE STRATEGIES FUNDS

Consolidated Financial Statements

Consolidated Statement of Assets and Liabilities
November 30, 2016 (unaudited)


Franklin K2 Alternative Strategies Fund

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	1,007,420,934
Cost - Repurchase agreements		32,842,067
Total cost of investments	$	1,040,263,001
Value - Unaffiliated issuers	$	1,072,303,211
Value - Repurchase agreements		32,842,067
Total value of investments		1,105,145,278
Cash		52,950,722
Foreign currency, at value (cost $1,052,824)		1,010,021
Receivables:
Investment securities sold		26,859,280
Capital shares sold		2,216,153
Dividends and interest		5,242,866
Due from brokers		224,558,707
OTC swap contracts (upfront payments $142,158)		138,590
Unrealized appreciation on OTC forward exchange contracts		10,967,937
Unrealized appreciation on OTC swap contracts		8,460,495
Unrealized appreciation on unfunded loan commitments (Note 8)		12,345
Other assets		316
Total assets		1,437,562,710
Liabilities:
Payables:
Investment securities purchased		22,618,835
Capital shares redeemed		11,197,378
Management fees		1,578,893
Distribution fees		71,697
Transfer agent fees		94,403
Trustees’ fees and expenses		53,704
Variation margin		412,327
OTC swap contracts (upfront receipts $65,649)		45,502
Options written, at value (premiums received $325,311)		221,653
Securities sold short, at value (proceeds $264,128,766)		274,134,512
Due to brokers		3,717,957
Unrealized depreciation on OTC forward exchange contracts		7,426,180
Unrealized depreciation on OTC swap contracts		4,367,076
Accrued expenses and other liabilities		327,274
Total liabilities		326,267,391
Net assets, at value	$	1,111,295,319
Net assets consist of:
Paid-in capital	$	1,100,387,050
Undistributed net investment income		3,461,654
Net unrealized appreciation (depreciation)		62,475,178
Accumulated net realized gain (loss)		(55,028,563	)
Net assets, at value	$	1,111,295,319

72 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Assets and Liabilities (continued)
November 30, 2016 (unaudited)


Franklin K2 Alternative Strategies Fund

Class A:
Net assets, at value	$	142,705,095
Shares outstanding		13,275,902
Net asset value per share^a	$	10.75
Maximum offering price per share (net asset value per share ÷ 94.25%)	$	11.41
Class C:
Net assets, at value	$	61,465,341
Shares outstanding		5,793,560
Net asset value and maximum offering price per share^a	$	10.61
Class R:
Net assets, at value	$	495,084
Shares outstanding		45,861
Net asset value and maximum offering price per share	$	10.80
Class R6:
Net assets, at value	$	257,954,795
Shares outstanding		23,879,436
Net asset value and maximum offering price per share	$	10.80
Advisor Class:
Net assets, at value	$	648,675,004
Shares outstanding		60,124,472
Net asset value and maximum offering price per share	$	10.79

^aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.

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The accompanying notes are an integral part of these financial statements. | Semiannual Report 73

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Statement of Operations
for the six months ended November 30, 2016 (unaudited)

Franklin K2 Alternative Strategies Fund

Investment income:
Dividends	$	2,010,121
Interest		13,743,522
Total investment income		15,753,643
Expenses:
Management fees (Note 3a)		12,148,416
Distribution fees: (Note 3c)
Class A		196,042
Class C		320,863
Class R		876
Transfer agent fees: (Note 3e)
Class A		70,722
Class C		30,493
Class R		158
Class R6		530
Advisor Class		311,795
Custodian fees (Note 4)		99,659
Reports to shareholders		51,641
Registration and filing fees		123,612
Professional fees		218,005
Trustees’ fees and expenses		265,038
Dividends and/or interest on securities sold short		2,022,939
Security borrowing fees		1,230,651
Other		167,731
Total expenses		17,259,171
Expense reductions (Note 4)		(100,208	)
Expenses waived/paid by affiliates (Note 3f)		(1,919,253	)
Net expenses		15,239,710
Net investment income		513,933
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		23,866,237
Written options		1,645,354
Foreign currency transactions		1,457,380
Futures contracts		(5,639,569	)
Securities sold short		(14,104,520	)
Swap contracts		(147,876	)
Net realized gain (loss)		7,077,006
Net change in unrealized appreciation (depreciation) on:
Investments		10,905,731
Translation of other assets and liabilities denominated in foreign currencies		3,494,612
Written options		(135,917	)
Futures contracts		(988,191	)
Swap contracts		2,768,339
Net change in unrealized appreciation (depreciation)		16,044,574
Net realized and unrealized gain (loss)		23,121,580
Net increase (decrease) in net assets resulting from operations	$	23,635,513

74 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Statements of Changes in Net Assets

Franklin K2 Alternative Strategies Fund

		Six Months Ended
		November 30, 2016			Year Ended
		(unaudited)			May 31, 2016
Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	513,933		$	(2,799,208	)
Net realized gain (loss)		7,077,006			(53,359,785	)
Net change in unrealized appreciation (depreciation)		16,044,574			18,801,300
Net increase (decrease) in net assets resulting from operations		23,635,513			(37,357,693	)
Distributions to shareholders from:
Class A		—			(2,592,416	)
Class C		—			(644,384	)
Class R6		—			(4,016,413	)
Advisor Class		—			(10,110,090	)
Net realized gains:
Class A		—			(696,387	)
Class C		—			(262,371	)
Class R		—			(1,174	)
Class R6		—			(894,391	)
Advisor Class		—			(2,315,995	)
Total distributions to shareholders		—			(21,533,621	)
Capital share transactions: (Note 2)
Class A		(37,815,538	)		38,612,258
Class C		(10,747,452	)		37,013,071
Class R		148,393			(8,810,100	)
Class R6		(12,932,373	)		39,418,868
Advisor Class		(87,633,266	)		424,302,558
Total capital share transactions		(148,980,236	)		530,536,655
Net increase (decrease) in net assets		(125,344,723	)		471,645,341
Net assets:
Beginning of period		1,236,640,042			764,994,701
End of period	$	1,111,295,319		$	1,236,640,042
Undistributed net investment income included in net assets:
End of period	$	3,461,654		$	2,947,721

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The accompanying notes are an integral part of these financial statements. | Semiannual Report 75

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 (1940 Act) as an open-end management investment company, consisting of four separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin K2 Alternative Strategies Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are 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 as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The VC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities, exchange traded funds and derivative financial instruments (derivatives) listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded or as of 4 p.m. Eastern time. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the day that the value of the security is determined. Over-the-counter (OTC) securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities.

Debt securities generally trade in the OTC market rather than on a securities exchange. The Fund’s pricing services use multi ple 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 mar ket interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the date that the values of the foreign debt securities are determined.

Investments in open-end mutual funds are valued at the closing NAV. Investments in repurchase agreements are valued at cost, which approximates fair value.

Certain derivatives 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.

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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 VC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

Trading in securities on foreign securities stock exchanges and OTC markets may be completed before 4 p.m. Eastern time. In addition, trading in certain foreign markets may not take place on every Fund’s business day. Occasionally, events occur between the time at which trading in a foreign security is completed and 4 p.m. Eastern time that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at 4 p.m. Eastern time. In order to minimize the potential for these differences, the VC monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

When the last day of the reporting period is a non-business day, certain foreign markets may be open on those days that the Fund’s NAV is not calculated, which could result in differences between the value of the Fund’s portfolio securities on the last business day and the last calendar day of the reporting period. Any significant security valuation changes due to an open foreign market are adjusted and reflected by the Fund for financial reporting purposes.

b. Foreign Currency Translation

Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. The Fund may enter into foreign currency exchange contracts to facilitate transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Board.

The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments in the Consolidated Statement of Operations.

Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.

c. Joint Repurchase Agreement

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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 MRAs contain various provisions, including but not limited to events of default and maintenance of collateral for repurchase agreements. In the event of default by either the seller or the Fund, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Fund may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any other amounts owed by the seller to the Fund in the event of default by the seller. This could involve costs or delays in addition to a loss on the securities if their value falls below the repurchase price owed by the seller. The joint repurchase agreement held by the Fund at period end, as indicated in the Consolidated Statement of Investments, had been entered into on November 30, 2016.

d. Securities Purchased on a Delayed Delivery Basis

The Fund purchases securities on a delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.

e. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk and/or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown in the Consolidated Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Consolidated Statement of Operations.

Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counterparties.

The Fund attempts to reduce its exposure to counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement.

Collateral requirements differ by type of derivative. Collateral or initial margin requirements are set by the broker or exchange clearing house for exchange traded and centrally cleared derivatives. Initial margin deposited is held at the exchange and can be in the form of cash and/or securities. For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the Fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of Fund business each day and any additional collateral required due to changes in derivative values may be delivered by the Fund or the 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. To the extent that the amounts due to the Fund from its counterparties are not subject to collateralization or are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance.

The Fund entered into exchange traded futures contracts primarily to manage and/or gain exposure to commodity price,

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Franklin K2 Alternative Strategies Fund (continued)

interest rate, certain foreign currencies and equity price risk. A futures contract is an agreement between the Fund and a coun-terparty to buy or sell an asset at a specified price on a future date. Required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities.

The Fund entered into OTC forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency at a specific exchange rate on a future date.

The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (OTC credit default swaps) or may be executed in a multilateral trade facility platform, such as a registered exchange (centrally cleared credit default swaps). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, a basket of issuers or indices, or a tranche of a credit index or basket of issuers or indices. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. For centrally cleared credit default swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Upfront payments and receipts are reflected in the Consolidated Statement of Assets and Liabilities and represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments and receipts are amortized over the term of the contract as a realized gain or loss in the Consolidated Statement of Operations.

The Fund entered into interest rate swap contracts primarily to manage interest rate risk. An interest rate swap is an agreement between the Fund and a counterparty to exchange cash flows based on the difference between two interest rates, applied to a notional amount. These agreements may be privately negotiated in the over-the-counter market (OTC interest rate swaps) or may be executed on a registered exchange (centrally cleared interest rate swaps). For centrally cleared interest rate swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities. Over the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized.

The Fund entered into OTC total return swap contracts primarily to manage and/or gain exposure to interest rate, equity price and credit risk of an underlying instrument such as a stock, bond, index or basket of securities or indices. A total return swap is an agreement between the Fund and a counterparty to exchange a return linked to an underlying instrument for a floating or fixed rate payment, both based upon a notional amount. Over the term of the contract, contractually required payments to be paid or received are accrued daily and recorded as unrealized appreciation or depreciation until the payments are made, at which time they are recognized as realized gain or loss.

The Fund purchased or wrote exchange traded and/or OTC option contracts primarily to manage and/or gain exposure to equity price, interest rate and foreign exchange rate risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. When an option is purchased or written, an amount equal to the premium paid or received is recorded as an asset or liability, respectively. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss. Upon closing an option other than through expiration or exercise, the difference between the premium received or paid and the cost to close the position is recorded as a realized gain or loss.

See Notes 6 and 9 regarding investment transactions and other derivative information, respectively.

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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. Investments in K2 Holdings Investment Corp. (K2 Subsidiary)

The Fund invests in certain financial instruments and commodity-linked derivative investments through its investment in the K2 Subsidiary. The K2 Subsidiary is a Cayman Islands exempted company with limited liability, is a wholly-owned subsidiary of the Fund, and is able to invest in certain financial instruments and commodity-linked derivative investments consistent with the investment objective of the Fund. At November 30, 2016, the K2 Subsidiary’s investments, as well as any other assets and liabilities of the K2 Subsidiary, are reflected in the Fund’s Consolidated Statement of Investments and Consolidated Statement of Assets and Liabilities. The financial statements have been consolidated and include the accounts of the Fund and the K2 Subsidiary. All inter-company transactions and balances have been eliminated. At November 30, 2016, the net assets of the K2 Subsidiary were $19,108,506, representing 1.7% of the Fund’s consolidated net assets. The Fund’s investment in the K2 Subsidiary is limited to 25% of consolidated assets.

The results from operations of the K2 Subsidiary, for the six months ended November 30, 2016, were as follows:


Net investment income (loss)	$	(654,696	)
Net realized gain (loss)		(3,066,189	)
Net change in unrealized appreciation (depreciation)		237,746
Net increase (decrease) in net assets resulting from operations	$	(3,483,139	)

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 may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of November 30, 2016, the Fund has determined that no tax liability is required in its consolidated financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on each tax jurisdiction’s statute of limitation.

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Franklin K2 Alternative Strategies Fund (continued)

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 accretion of discount on debt securities are included in interest income. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except for certain dividends from securities where the dividend rate is not available. In such cases, the dividend is recorded as soon as the information is received by the Fund. Distributions to shareholders are recorded on the ex-dividend date 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. 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.

l. 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, 2016, 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, 2016						May 31, 2016
	Shares			Amount			Shares			Amount

Class A Shares:
Shares sold	1,581,025		$	16,950,993			13,295,280		$	143,673,278
Shares issued in reinvestment of distributions	—				—		298,189			3,172,727
Shares redeemed	(5,116,657	)		(54,766,531		)	(10,133,166	)		(108,233,747	)
Net increase (decrease)	(3,535,632	)	$	(37,815,538		)	3,460,303		$	38,612,258
Class C Shares:
Shares sold	370,319			$	3,924,311		5,119,256		$	55,145,221
Shares issued in reinvestment of distributions	—				—		79,128			836,381
Shares redeemed	(1,384,483	)		(14,671,763		)	(1,811,936	)		(18,968,531	)
Net increase (decrease)	(1,014,164	)	$	(10,747,452		)	3,386,448		$	37,013,071
Class R Shares:
Shares sold	16,228			$	175,444		13,984		$	149,262
Shares issued in reinvestment of distributions	—				—		106			1,140
Shares redeemed	(2,516	)			(27,051	)	(804,855	)		(8,960,502	)
Net increase (decrease)	13,712			$	148,393		(790,765	)	$	(8,810,100	)

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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, 2016					May 31, 2016

	Shares			Amount		Shares			Amount
Class R6 Shares:
Shares sold	475,077		$	5,115,242		5,337,514		$	57,004,431
Shares issued in reinvestment of distributions	—			—		459,924			4,902,787
Shares redeemed	(1,674,305	)		(18,047,615	)	(2,155,223	)		(22,488,350	)
Net increase (decrease)	(1,199,228	)	$	(12,932,373	)	3,642,215		$	39,418,868
Advisor Class Shares:
Shares sold	8,864,618		$	95,367,258		64,566,684		$	695,799,599
Shares issued in reinvestment of distributions	—			—		966,546			10,303,451
Shares redeemed	(17,010,490	)		(183,000,524	)	(26,703,118	)		(281,800,492	)
Net increase	(8,145,872	)	$	(87,633,266	)	38,830,112		$	424,302,558

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 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

Emso Asset Management Limited

Graham Capital Management, L.P.

Halcyon Arbitrage IC Management LP

Impala Asset Management, LLC

Jennison Associates, LLC

Lazard Asset Management, LLC

Loomis Sayles & Company, L.P.

P. Schoenfeld Asset Management L.P.

Portland Hill Capital LLP

Wellington Management Company, LLP

York Registered Holdings, L.P.

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Franklin K2 Alternative Strategies Fund (continued)

b. Administrative Fees

Under an agreement with K2 Advisors, FT Services provides administrative services to the Fund and K2 Subsidiary. The fee is paid by K2 Advisors based on the Fund and K2 Subsidiary average daily net assets, and is not an additional expense of the Fund or K2 Subsidiary.

c. Distribution Fees

The Board has adopted distribution plans for each share class, with the exception of Class R6 and Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund’s Class A reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Fund’s Class C and R compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund’s shares up to the maximum annual plan rate for each class. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 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	%

The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.

d. Sales Charges/Underwriting Agreements

Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the period:


Sales charges retained net of commissions paid to unaffiliated broker/dealers	$	25,394
CDSC retained	$	9,861

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 shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets. Class R6 pays Investor Services transfer agent fees specific to that class.

For the period ended November 30, 2016, the Fund paid transfer agent fees of $413,698, of which $129,828 was retained by Investor Services.

f. Waiver and Expense Reimbursements

K2 Advisors has contractually agreed in advance to waive or limit its fees and to assume as its own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses, and expenses related to securities sold short) for each class of the Fund do not exceed 1.95%, and Class R6 does not exceed 1.86% 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, 2017. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

3. Transactions with Affiliates (continued)
g. Other Affiliated Transactions
At November 30, 2016, the shares of the Fund were owned by the following entities:
		Percentage of
		Outstanding
	Shares	Shares
Franklin Moderate Allocation Fund	8,982,455	8.64	%
Franklin Conservative Allocation Fund	5,804,848	5.58	%
Franklin Growth Allocation Fund	5,244,565	5.04	%
Franklin LifeSmart 2025 Retirement Target Fund	325,848	0.31	%
Franklin LifeSmart 2035 Retirement Target Fund	274,251	0.26	%
Franklin LifeSmart 2045 Retirement Target Fund	189,439	0.18	%
Franklin LifeSmart 2030 Retirement Target Fund	98,990	0.10	%
Franklin LifeSmart 2020 Retirement Target Fund	81,812	0.08	%
Franklin LifeSmart 2040 Retirement Target Fund	81,812	0.08	%
Franklin LifeSmart 2050 Retirement Target Fund	62,255	0.06	%
Franklin NextStep Moderate Fund	38,953	0.04	%
Franklin NextStep Growth Fund	14,846	0.01	%
Franklin LifeSmart 2055 Retirement Target Fund	12,709	0.01	%
	21,212,783	20.39	%

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, 2016, 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, 2016, the capital loss carryfor-wards were as follows:


Capital loss carryforwards:
Short term	$	35,428,734
Long term		6,268,117
Total capital loss carryforwards	$	41,696,851

At November 30, 2016, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:


Cost of investments	$	1,064,213,789
Unrealized appreciation	$	65,511,672
Unrealized depreciation		(24,580,183	)
Net unrealized appreciation (depreciation)	$	40,931,489

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, passive foreign investment company shares, bond discounts and premiums, commodity-based derivatives, investments in the K2 Subsidiary and wash sales.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Alternative Strategies Fund (continued)

6. Investment Transactions

Purchases and sales of investments and securities sold short (excluding short term securities) for the period ended November 30, 2016, aggregated $1,167,938,785 and $1,271,648,683, respectively.


Transactions in options written during the period ended November 30, 2016, were as follows:

	Number of			Notional
	Contracts			Amount In $			Premiums
Options outstanding at May 31, 2016	8,966		$	6,200,000		$	1,021,236
Options written	19,438			—			4,293,356
Options expired	(3,535	)		(6,200,000	)		(376,729	)
Options exercised	(314	)		—			(45,985	)
Options closed	(21,348	)		—			(4,566,567	)
Options outstanding at November 30, 2016	3,207		$	—		$	325,311

The Fund sold certain long positions held in the portfolio and simultaneously entered into total return swaps on the positions, retaining substantially all of the exposure to the economic return and the related risks on the long positions. At November 30, 2016, the transfers of financial assets accounted for as sales were as follows:


							At Period Ended
		At Original Transactions Dates					November 30, 2016

				Gross		Fair Value of	Gross		Gross
		Cost Basis		Cash Received		Transferred	Derivative Assets		Derivative Liabilities
		of Positions Sold		for Positions Sold		Assets^a	Recorded^b		Recorded^b
Sales and total return swaps	$	2,398,800	$	3,043,396	$	306,579	$3,349,975	$	3,043,396

^a$306,579 of gross derivative assets is included as unrealized appreciation on OTC swap contracts in the Consolidated Statement of Assets and Liabilities. See Note 9 regard-
ing other derivative information.
^bBalances are presented on a gross basis, based on each leg of the swap contract, before the application of counterparty and cash collateral offsetting.

See Notes 1(e) and 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 could be or are already involved in financial restructuring or bankruptcy. Risks associated with purchasing these securities include the possibility that the bankruptcy or other restructuring process takes longer than expected, or that distributions in restructuring are less than anticipated, either or both of which may result in unfavorable consequences to the Fund. If it becomes probable that the income on debt securities, including those of distressed companies, will not be collected, the Fund discontinues accruing income and recognizes an adjustment for uncollectible interest.

At November 30, 2016, the aggregate long value of distressed company securities for which interest recognition has been discontinued was $2,459,282, representing 0.2% of the Fund’s net assets. For information as to specific securities, see the accompanying Consolidated Statement of Investments.

8. Unfunded Loan Commitments

The Fund enters into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrowers’ discretion. Unfunded loan commitments and funded portions of credit agreements are marked to market daily. Funded portions of credit agreements are presented in the Consolidated Statements of Investments.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

8. Unfunded Loan Commitments (continued)

At November 30, 2016, unfunded commitments were as follows:

		Unfunded
Borrower		Commitment
AMC Entertainment Holdings Inc., Term Loan B, 2.75%, 12/15/23	$	25,000
Bass Pro Group LLC, Term Loan B, 5.00%, 11/04/23		210,000
Envision Healthcare Holdings Inc., Term Loan B, 3.00%, 11/17/23		75,000
The Men’s Wearhouse Inc., Term Loan B, 4.50%, 6/18/21		99,886
Quikrete Holdings Inc., Term Loan B, 3.25%, 11/15/23		180,000
TransDigm Inc., Term Loan E, 2.75%, 5/14/22		29,240
TransDigm Inc., Term Loan F, 3.75%, 6/09/23		36,456
Xerox Business Services LLC, Term Loan B, 6.25%, 11/22/23		330,000
	$	985,582

9. Other Derivative Information

At November 30, 2016, the Fund’s investments in derivative contracts are reflected in the Consolidated Statement of Assets and Liabilities as follows:


	Asset Derivatives				Liability Derivatives
Derivative Contracts	Consolidated Statement				Consolidated Statement
Not Accounted for as	of Assets and				of Assets and
Hedging Instruments	Liabilities Location		Fair Value		Liabilities Location		Fair Value
Interest rate contracts	Variation margin	$	1,499,280	^a	Variation margin	$	388,810	^a
	Unrealized appreciation on		3,292,390		Unrealized depreciation on		615,267
	OTC swap contracts				OTC swap contracts
Foreign exchange contracts	Investments in securities,		49,196	^b
	at value
	Unrealized appreciation on		10,967,937		Unrealized depreciation on		7,426,180
	OTC forward exchange				OTC forward exchange
	contracts				contracts
Credit contracts	Variation margin		386,706	^a	Variation margin		236,754	^a
	OTC swap contracts (upfront		138,590		OTC swap contracts		45,502
	payments)				(upfront receipts)
	Unrealized appreciation on		577,125		Unrealized depreciation on		44,210
	OTC swap contracts				OTC swap contracts
Equity contracts	Investments in securities,		2,243,353	^b	Options written, at value		221,653
	at value
	Variation margin		985,900	^a	Variation margin		1,153,527	^a
	Unrealized appreciation on		4,590,980		Unrealized depreciation on		3,707,599
	OTC swap contracts				OTC swap contracts
Commodity contracts	Variation margin		3,770,040	^a	Variation margin		4,968,792	^a
Totals		$	28,501,497			$	18,808,294

^aThis amount reflects the cumulative appreciation (depreciation) of futures contracts and centrally cleared swap contracts as reported in the Consolidated Statement of Invest-
ments. Only the variation margin receivable/payable at period end is separately reported within the Consolidated Statement of Assets and Liabilities. Prior variation margin
movements were recorded to cash upon receipt or payment.
^bPurchased option contracts are included in investments in securities, at value in the Consolidated Statement of Assets and Liabilities.

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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, 2016, the effect of derivative contracts in the Fund’s Consolidated Statement of Operations was as follows:


							Net Change in
							Unrealized
Derivative Contracts			Net Realized				Appreciation
Not Accounted for as	Consolidated Statement of		Gain (Loss)		Consolidated Statement of		(Depreciation)
Hedging Instruments	Operations Location		for the Period		Operations Location		for the Period
	Net realized gain (loss) from:				Net change in unrealized
					appreciation (depreciation) on:
Interest rate contracts	Investments	$	(284,464	)^a	Investments	$	207,393	^a
	Written options		84,940		Written options		(84,468	)
	Futures contracts		1,378,914		Futures contracts		(27,348	)
	Swap contracts		914,796		Swap contracts		1,108,475
Foreign exchange contracts	Investments		(17,960	)^a	Investments		(79,089	)^a
	Foreign currency transactions		1,554,403	^b	Translation of other assets and		3,547,457	^b
					liabilities denominated in
					foreign currencies
	Futures contracts		20,028
Credit contracts	Swap contracts		(327,429	)	Swap contracts		561,028
Equity contracts	Investments		(4,517,786	)^a	Investments		(3,472,524	)^a
	Written options		1,560,414		Written options		(51,449	)
	Futures contracts		(381,733	)	Futures contracts		(274,947	)
	Swap contracts		(735,243	)	Swap contracts		1,098,836
Commodity contracts	Futures contracts		(6,656,778	)	Futures contracts		(685,896	)
Totals		$	(7,407,898	)		$	1,847,468

^aPurchased option contracts are included in net realized gain (loss) from investments and net change in unrealized appreciation (depreciation) on investments in the Consoli-
dated Statement of Operations.
^bForward exchange contracts are included in net realized gain (loss) from foreign currency transactions and net change in unrealized appreciation (depreciation) translation of
other assets and liabilities denominated in foreign currencies in the Consolidated Statement of Operations.

For the period ended November 30, 2016, the average month end fair value of derivatives represented 2.9% of average month end
net assets. The average month end number of open derivative contracts for the period was 1,025.

At November 30, 2016, the Fund’s OTC derivative assets and liabilities are as follows:


		Gross Amounts of Assets
		and Liabilities Presented in
		the Consolidated Statement
		of Assets and Liabilities

		Assets^a		Liabilities^a
Derivatives
Forward Exchange Contracts	$	10,967,937	$	7,426,180
Options Purchased		49,196		—
Swap Contracts		8,599,085		4,412,578
Total	$	19,616,218	$	11,838,758

^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, 2016, the Fund’s OTC derivative assets, which may be offset against the Fund’s OTC derivative liabilities and collateral received from the counterparty, are as follows:


				Amounts Not Offset in the Consolidated
				Statement of Assets and Liabilities

		Gross Amounts of Assets					Financials
		Presented in the		Financial			Instruments						Cash
		Consolidated Statement of		Instruments			Collateral					Collateral				Net Amount (Not
		Assets and Liabilities		Available for Offset			Received^a					Received^a				Less than Zero)
Counterparty
BNPP	$	99,220	$	(99,220	)		$		—			$	—			$			—
BNYM		1,078,915		(195,844	)				(286,283	)		(351,000		)				245,788
BOFA		667,063		(385,489	)				—			(245,000		)					36,574
BZWS		68,202		(8,438	)				—				—						59,764
CBOA		28,562		—					—				—						28,562
CITI		32,319		(29,748	)				—				—						2,571
CSFB		—		—					—				—						—
DBAB		5,299,133		(3,439,340	)				—				(60,000	)				1,799,793
JPHQ		493,655		(32,413	)				—				—					461,242
MSCO		1,430,066		(695,959	)				—				—					734,107
MSCO^b		7,177,889		(6,131,657	)				—				—					1,046,232
MSCS		3,241,194		(786,830	)				—				—					2,454,364
Total	$	19,616,218	$	(11,804,938	)	$	(286,283			)	$	(656,000		)	$	6,868,997

At November 30, 2016, the Fund’s OTC derivative liabilities, which may be offset against the Fund’s OTC derivative assets and
collateral pledged to the counterparty, are as follows:

				Amounts Not Offset in the Consolidated
				Statement of Assets and Liabilities

		Gross Amounts of Liabilities					Financials
		Presented in the		Financial			Instruments						Cash
		Consolidated Statement of		Instruments			Collateral					Collateral				Net Amount (Not
		Assets and Liabilities		Available for Offset					Pledged^a			Pledged^a				Less than Zero)
Counterparty
BNPP	$	122,273	$	(99,220	)			$	—		$	(23,053		)				$	—
BNYM		195,844		(195,844	)				—				—						—
BOFA		385,489		(385,489	)				—				—						—
BZWS		8,438		(8,438	)				—				—						—
CBOA		—		—					—				—						—
CITI		29,748		(29,748	)				—				—						—
CSFB		10,767		—					—				—						10,767
DBAB		3,439,340		(3,439,340	)				—				—						—
JPHQ		32,413		(32,413	)				—				—						—
MSCO		695,959		(695,959	)				—				—						—
MSCO^b		6,131,657		(6,131,657	)				—				—						—
MSCS		786,830		(786,830	)				—				—						—
Total	$	11,838,758	$	(11,804,938	)			$	—		$	(23,053		)			$	10,767

^aIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit the collateral amounts to avoid the effect of
overcollateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.
^bRepresents derivatives owned by the K2 Holdings Investment Corp., a wholly-owned subsidiary of the Fund. See Note 1(g).

See Notes 1(e) and 6 regarding derivative financial instruments and investment transactions, respectively.

See Abbreviations on page 91.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Alternative Strategies Fund (continued)

10. Credit Facility

The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 10, 2017. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Consolidated Statement of Operations. During the period ended November 30, 2016, the Fund did not use the Global Credit Facility.

11. Fair Value Measurements

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:

Level 1 – quoted prices in active markets for identical financial instruments
Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, 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.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Alternative Strategies Fund (continued)

11. Fair Value Measurements (continued)

A summary of inputs used as of November 30, 2016, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:


		Level 1		Level 2		Level 3		Total

Assets:
Investments in Securities:^a
Common Stocks and Other Equity Interests	$	361,201,652	$	138	$	—	$	361,201,790
Exchange Traded Funds		409,607		—		—		409,607
Convertible Preferred Stocks		6,214,710		2,091,600		—		8,306,310
Preferred Stocks		3,101,017		—		—		3,101,017
Convertible Bonds		—		191,723,406		—		191,723,406
Convertible Bonds in Reorganization		—		13,615		—		13,615
Corporate Bonds and Notes		—		202,698,625		—		202,698,625
Corporate Bonds and Notes in Reorganization		—		2,445,667		—		2,445,667
Senior Floating Rate Interests		—		5,952,384		—		5,952,384
Foreign Government and Agency Securities		—		24,385,055		—		24,385,055
Asset-Backed Securities and Commercial Mortgage-Backed
Securities		—		25,616,388		—		25,616,388
Options Purchased		2,243,353		49,196		—		2,292,549
Short Term Investments		244,156,798		32,842,067		—		276,998,865
Total Investments in Securities	$	617,327,137	$	487,818,141	$	—	$	1,105,145,278
Other Financial Instruments:
Futures Contracts	$	5,764,793	$	—	$	—	$	5,764,793
Forward Exchange Contracts		—		10,967,937		—		10,967,937
Swap Contracts		—		9,337,628		—		9,337,628
Unfunded Loan Commitments		—		12,345		—		12,345
Total Other Financial Instruments	$	5,764,793	$	20,317,910	$	—	$	26,082,703

Liabilities:
Other Financial Instruments:
Options Written	$	221,653	$	—	$	—	$	221,653
Securities Sold Short		256,389,216		17,745,296		—		274,134,512
Futures Contracts		6,364,816		—		—		6,364,816
Forward Exchange Contracts		—		7,426,180		—		7,426,180
Swap Contracts		—		4,750,143		—		4,750,143
Total Other Financial Instruments	$	262,975,685	$	29,921,619	$	—	$	292,897,304

^aFor detailed categories, see the accompanying Consolidated Statement of Investments.

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the end of the period.

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.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Franklin K2 Alternative Strategies Fund (continued)

Abbreviations
Counterparty/Exchange		Currency		Selected Portfolio		Index
BNPP	BNP Paribas	ARS	Argentine Peso	ADR	American Depositary Receipt	CDX.NA.HY	CDX North
							America
							High Yield
							Index
BNYM	The Bank of New York	AUD	Australian Dollar	ARM	Adjustable Rate Mortgage
	Mellon Corp.
BOFA	Bank of America, N.A.	BRL	Brazilian Real	EONIA	Euro Overnight Index Average
BZWS	Barclays Bank PLC	CAD	Canadian Dollar	ETF	Exchange Traded Fund
CBOA	Commonwealth Bank of	CHF	Swiss Franc	EURIBOR	Euro Interbank Offered Rate
	Australia
CITI	Citigroup, Inc.	COP	Colombian Peso	FEDEF	Federal Funds Effective Rate
CME	Chicago Mercantile	CZK	Czech Koruna	FRN	Floating Rate Note
	Exchange
CSFB	Credit Suisse First	EUR	Euro	HONIX	Hong Kong Overnight Index
	Boston				Rate
DBAB	Deutsche Bank, AG	GBP	British Pound	IDR	International Depositary
					Receipt
ICE	Intercontinental	HKD	Hong Kong Dollar	JIBAR	Johannesburg Interbank
	Exchange, Inc.				Agreed Rate
JPHQ	JP Morgan Chase & Co.	JPY	Japanese Yen	LIBOR	London InterBank Offered Rate
MSCO	Morgan Stanley & Co.,	MXN	Mexican Peso	MUTSCALM	Bank of Japan Unsecured
	LLC				Overnight Call Rate
MSCS	Morgan Stanley Capital	PLN	Polish Zloty	PIK	Payment In-Kind
	Services LLC
		RUB	Russian Ruble	PRIBOR	Prague Interbank Offered Rate
		SEK	Swedish Krona	RBACR	Reserve Bank of Australia
					Cash Rate
		SGD	Singapore Dollar	REIT	Real Estate Investment Trust
		TRY	Turkish Lira	SAFEX	South African Futures
					Exchange
		TWD	Taiwan Dollar	SIBOR	Singapore Interbank Offered
					Rate
		USD	United States Dollar	SONIA	Sterling Overnight Index
					Average
		ZAR	South African Rand	SPDR	Standard & Poor’s Depositary
					Receipt
				STIBOR	Stockholm Interbank Offered
					Rate
				TOIS	Swiss Tomorrow-Overnight
					Index Swap Rate

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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 Trust, on behalf of the Fund, files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year 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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Contents

Semiannual Report
Franklin Pelagos Commodities Strategy Fund	3
Performance Summary	7
Your Fund’s Expenses	9
Consolidated Financial Highlights and Consolidated
Statement of Investments	10
Consolidated Financial Statements	17
Notes to Consolidated Financial Statements	21
Shareholder Information	32

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

2 Semiannual Report

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Semiannual Report

Franklin Pelagos Commodities Strategy Fund

This semiannual report for Franklin Pelagos Commodities Strategy Fund covers the period ended November 30, 2016.

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 -0.77% cumulative total return for the six months under review. In comparison, the benchmark Bloomberg Commodity Index, which measures performance of exchange-traded futures contracts on physical commodities, posted a +0.95% total return for the same period.¹You can find more of the Fund’s performance data in the Performance Summary beginning on page 7.

What is a futures contract?

Economic and Market Overview

The U.S. economy expanded during the six months under review. The economy grew at a faster pace in 2016’s third quarter than in the second quarter, mainly due to personal consumption expenditures, exports, private inventory investment, federal government spending and nonresidential fixed investment. Manufacturing conditions remained volatile but generally expanded, and the services sector continued to grow. The unemployment rate decreased slightly from 4.7% in May to 4.6% at period-end.²Monthly retail sales were volatile but grew during most of the review period. Inflation, as measured by the Consumer Price Index, remained relatively subdued but rose during the second half of the period.

The U.S. Federal Reserve (Fed) kept its target interest rate at 0.25–0.50% at its November meeting, while setting the stage for an interest rate hike in December. The Fed members generally agreed that it would be appropriate to raise the federal funds rate in the near term, as long as data continued to provide evidence of economic resilience.

U.S. equity markets rose during the review period, benefiting from mostly upbeat economic data and better corporate earnings in the U.S., signs of improvement in the Chinese and European economies, and ongoing expansionary monetary policies from key central banks. A rally in crude oil prices and the Fed’s decision to keep interest rates unchanged at its November meeting further boosted investor confidence. However, the U.K.’s historic vote to leave the European Union (also known as “Brexit”) and global growth concerns weighed on market sentiment. The broad U.S. stock market ended the six-month period higher, as measured by the Standard & Poor’s^®500 Index.

Commodity prices, as measured by the Bloomberg Commodity Index, delivered a slight positive return during the period. Oil prices were low for much of the period, but bounced back near period-end after members of the Organization of the Petroleum Exporting Countries (OPEC) reached a consensus on reductions in crude output in an effort to ease record inventories and stabilize the market. In addition, gold and metal prices fell during the period as orderly U.S. election results and expectations of an interest rate hike led investors to rotate out of safe haven assets in favor of investments typically geared for a cyclical upswing in economic activity. Among agricultural

1. Source: Morningstar.
The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an
index, and an index is not representative of the Fund’s portfolio.
2. Source: Bureau of Labor Statistics.
See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of
Investments (SOI). The Consolidated SOI begins on page 15.

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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND

commodities, corn, soybeans and wheat rose in value, while sugar declined.

Investment Strategy

We utilize an actively managed fundamental and quantitative investment process to provide exposure to a variety of commodity sectors and indexes by investing in commodity-linked derivative instruments including commodity-linked total return swaps, commodity futures, commodity index futures and options on commodity futures and commodity index futures, which may provide exposure to foreign and emerging markets. By investing in these derivative instruments, we seek to gain exposure to the returns of real assets that trade in the commodities markets without direct investment in physical commodities. Real assets include such things as industrial and precious metals, gas, oil, livestock, agricultural or meat products and other items.

What is a swap agreement?

A swap agreement, such as a commodity-linked total return swap, is a contract between the Fund and a counterparty to exchange on a future date the returns, or differentials in return, that would have been earned or realized if a notional amount were invested in specific instruments.

What is an option?

Manager’s Discussion

During its semiannual period, the Fund obtained its commodities exposure through swaps on commodity indexes and through commodities futures and options on commodities futures. These exposures were supported with U.S. Treasury bills and other fixed income securities.

During the period, the Fund had positive contributions to performance from natural gas, industrial metals and some agriculture commodities affected by El Niño weather patterns. Among the positive contributors to Fund returns, a common theme was tightening of supply. Relative to the benchmark Bloomberg Commodity Index, the Fund underperformed primarily due to positioning outside the energy sector in the third quarter of 2016. U.S. grain prices were lower during the summer months due to near-optimal growing conditions and increased crop yield projections, whereas some agricultural commodities posted positive returns. The Fund’s positioning in agriculture detracted during the summer months, as did positioning in precious metals and crude oil. Fund returns from precious metals also lagged those of its benchmark over the period.

In the energy sector, natural gas returns were strong over the period as U.S. production showed sustained year-over-year declines for the first time since the winter of 2010. Furthermore, the summer months of 2016 were among the hottest recorded for the lower 48 states, according to the National Oceanic and Atmospheric Administration. The Fund’s natural gas positioning benefited performance over the period, while the petroleum sector had negative returns and was volatile with several large price swings. In May, shortly before the period began, crude oil experienced the highest level of unplanned global supply disruptions since at least 2011, according to the U.S. Department of Energy. From the end of May through period-end, West Texas Intermediate crude oil futures fluctuated slightly higher and substantially lower. As the bulk of disruptions eased, oil markets were driven by news about potential OPEC cuts around an extraordinary September 28 meeting in Algeria as well as the scheduled November 30 meeting in Vienna. U.S. commercial crude oil stockpiles grew seasonally and gasoline and diesel inventories remained high.

In metals, industrial metals posted strong returns, while returns for gold were lower. Zinc, nickel and copper all posted strong returns during the period. Tightness in zinc and nickel mine supply supported prices, while aluminum lagged behind with more modest returns. Silver returns were higher, in part due to its industrial use. Gold prices were supported for the first half of the period as total known exchange-traded fund holdings


Portfolio Composition*
11/30/16
	% of Consolidated
	Net Assets
U.S. Treasury Bill	61.7	%
U.S. Treasury Note	17.4	%
FFCB	10.7	%
FHLMC	7.5	%
Other Assets, less Liabilities**	2.7	%

See Abbreviations on page 32.
*Portfolio composition figures are stated as a percentage of total and may not equal
100% or may be negative due to rounding, use of any derivatives, unsettled trades
or other factors.
**Includes unrealized appreciation/depreciation on open 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.

4 Semiannual Report

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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND

rose, but in November holdings fell by the highest percentage since June 2014, and gold’s price fell in tandem. The results of the U.S. elections hindered gold prices over the remainder of November and helped industrial metals prices as the London Metal Exchange Metals Index rose. Over the period, Fund returns from metals fell short of those of its benchmark due to positioning in both precious and industrial metals.

In agriculture, the U.S. produced record amounts of corn and soybeans, pushing global production to record levels as well. Global production of wheat also stood at record levels. The U.S. had near-ideal weather for growing corn and soybeans and saw yields strongly above trend for the new crop. Grain returns were negative over the period; however, positive returns in soybean oil, which benefited from weather-impacted palm oil production in Asia, fueled soybean outperformance versus corn and wheat. The returns of some agricultural commodities were positive as weather conditions impacted world sugar and coffee production, especially in Southeast Asia where El Niño conditions hit hard. Over the semiannual period, the Fund returns from agriculture outpaced those of the benchmark due to positioning in row crops. Positioning in soft commodities detracted from relative performance over the semiannual period.

Fund Exposure to Commodities

The following table summarizes the Fund’s economic exposure to commodities derived through its investment in commodity-linked total return swap contracts. At November 30, 2016, the Fund’s exposure based on notional value represented 82.7% of consolidated net assets.

Commodity-Linked Total Return Swap Exposure*


	% of Consolidated Net Assets
Soybeans	9.8	%
Brent Crude Oil	9.4	%
Unleaded Gasoline	8.7	%
Natural Gas	7.4	%
Copper	6.7	%
Gold	6.7	%
Sugar	4.8	%
Aluminum	4.5	%
Zinc	3.3	%
Corn	3.1	%
Soybean Meal	3.0	%
Soybean Oil	2.8	%
Coffee	2.6	%
Wheat	2.5	%
Nickel	2.4	%
Live Cattle	2.3	%
Cotton	1.4	%
Lean Hogs	1.3	%

*Figures are stated as a percentage of total and may not equal 100% or may be
negative due to rounding, use of any derivatives, unsettled trades or other factors.
The Fund’s exposure was calculated using the commodity sector weightings of the
FP Custom Master Index multiplied by the Fund’s percentage notional exposure.

The following table summarizes the Fund’s economic exposure to commodities derived through its investment in futures contracts. At November 30, 2016, the Fund’s exposure based on notional value represented 17.2% of consolidated net assets.


Commodity Futures Exposure*
	% of Consolidated Net Assets
	Long
WTI Crude Oil	8.2	%
Silver	3.8	%
Gold	3.5	%
Natural Gas	1.7	%

*Figures are stated as a percentage of total and may not equal 100% or may be
negative due to rounding, use of any derivatives, unsettled trades or other factors.

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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND

Thank you for your continued participation in Franklin Pelagos Commodities Strategy Fund. We look forward to continuing to serve your financial needs.

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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND

Performance Summary as of November 30, 2016

Performance as of 11/30/16¹


	Cumulative		Average Annual
Share Class	Total Return²		Total Return³
A
6-Month	-0.77	%	-6.41	%
1-Year	+9.18	%	+2.88	%
Since Inception (1/10/14)	-27.70	%	-12.43	%
Advisor
6-Month	-0.76	%	-0.76	%
1-Year	+9.17	%	+9.17	%
3-Year	-26.82	%	-9.88	%
Since Inception (12/7/11)	-34.50	%	-8.14	%

See page 8 for Performance Summary footnotes.

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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND

PERFORMANCE SUMMARY


Total Annual Operating Expenses⁴
Share Class	With Waiver		Without Waiver
A	1.20	%	2.34	%
Advisor	0.95	%	2.09	%

All investments involve risks, including possible loss of principal. Investing in physical commodities, either directly or through derivative instruments such as
commodity-linked total return swaps, commodity futures, commodity index futures and options on commodity futures and commodities index futures, presents
unique risks, is speculative and can be extremely volatile. Market prices of commodities may fluctuate rapidly based on numerous factors, including: changes in
supply and demand relationships; weather; agriculture; trade; domestic and foreign political and economic events and policies; diseases; pestilence;
technological developments; currency exchange rate fluctuations; and monetary and other governmental policies, action and inaction. Derivative instruments
involve costs and can create leverage in the Fund’s portfolio, which may result in significant volatility and cause the Fund to participate in losses (as well as
gains) in an amount that significantly exceeds the Fund’s initial investment. The Fund may not achieve the anticipated benefits and may realize losses, which
could be significant. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates,
the Fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility and political, social and economic instability,
risks which are heightened in less developed or emerging market countries. The Fund is actively managed but there is no guarantee that the manager’s
investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.

1. The Fund has an expense reduction contractually guaranteed through 9/30/17 and a fee waiver related to the management fee paid by a subsidiary. The Fund alsohasafee
waiver associated with any investments it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through its current fiscal
year-end. Fund investment results reflect the expense reduction and fee waivers; without these reductions, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Consolidated Financial Highlights
sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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FRANKLIN PELAGOS COMMODITIES STRATEGY FUND

Your Fund’s Expenses

Actual Fund Expenses

Hypothetical Example for Comparison with Other Funds


						Actual		Hypothetical
				(actual return after expenses)				(5% annual return before expenses)
						Expenses				Expenses	Net
		Beginning		Ending		Paid During		Ending		Paid During	Annualized
Share		Account		Account		Period		Account		Period	Expense
Class		Value 6/1/16		Value 11/30/16		6/1/16–11/30/16^1,2		Value 11/30/16		6/1/16–11/30/16^1,2	Ratio²
A	$	1,000	$	992.30	$	5.99	$	1,019.05	$	6.07	1.20	%
C	$	1,000	$	987.40	$	9.72	$	1,015.29	$	9.85	1.95	%
R	$	1,000	$	990.70	$	6.34	$	1,018.70	$	6.43	1.27	%
R6	$	1,000	$	995.40	$	3.60	$	1,021.46	$	3.65	0.72	%
Advisor	$	1,000	$	992.40	$	4.74	$	1,020.31	$	4.81	0.95	%

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS


Consolidated Financial Highlights
Franklin Pelagos Commodities Strategy Fund
		Six Months Ended
		November 30, 2016			Year Ended May 31,
		(unaudited)			2016			2015			2014	^a
Class A
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	6.47		$	7.12		$	9.44		$	8.88
Income from investment operations^b:
Net investment income (loss)^c		(0.03	)		(0.08	)		(0.09	)		(0.08	)
Net realized and unrealized gains (losses)		(0.02	)		(0.57	)		(2.23	)		0.64
Total from investment operations		(0.05	)		(0.65	)		(2.32	)		0.56
Net asset value, end of period	$	6.42		$	6.47		$	7.12		$	9.44

Total return^d		(0.77	)%		(9.13	)%		(24.58	)%		6.31	%

Ratios to average net assets^e
Expenses before waiver and payments by affiliates and expense reduction .		1.73	%		2.14	%		2.05	%		3.38	%
Expenses net of waiver and payments by affiliates and expense reduction^f.		1.20	%		1.21	%		1.25	%		1.25	%
Net investment income (loss)		(0.69	)%		(0.79	)%		(0.94	)%		(0.94	)%

Supplemental data
Net assets, end of period (000’s)	$	4,504		$	3,814		$	2,080		$	601
Portfolio turnover rate		42.43	%		28.03	%		62.10	%		34.28	%

^aFor the period January 10, 2014 (commencement of operations) to May 31, 2014.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year.
^fBenefit of expense reduction rounds to less than 0.01%.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS


Franklin Pelagos Commodities Strategy Fund (continued)
		Six Months Ended
		November 30, 2016			Year Ended May 31,
		(unaudited)			2016			2015			2014	^a
Class C
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	6.36		$	7.05		$	9.41		$	8.88
Income from investment operations^b:
Net investment income (loss)^c		(0.06	)		(0.16	)		(0.15	)		(0.09	)
Net realized and unrealized gains (losses)		(0.02	)		(0.53	)		(2.21	)		0.62
Total from investment operations		(0.08	)		(0.69	)		(2.36	)		0.53
Net asset value, end of period	$	6.28		$	6.36		$	7.05		$	9.41

Total return^d		(1.26	)%		(9.79	)%		(25.08	)%		5.97	%

Ratios to average net assets^e
Expenses before waiver and payments by affiliates and expense reduction .		2.48	%		2.88	%		2.75	%		4.08	%
Expenses net of waiver and payments by affiliates and expense reduction^f.		1.95	%		1.95	%		1.95	%		1.95	%
Net investment income (loss)		(1.44	)%		(1.53	)%		(1.64	)%		(1.64	)%

Supplemental data
Net assets, end of period (000’s)	$	1,033		$	862		$	377		$	60
Portfolio turnover rate		42.43	%		28.03	%		62.10	%		34.28	%

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS


Franklin Pelagos Commodities Strategy Fund (continued)
		Six Months Ended
		November 30, 2016			Year Ended May 31,
		(unaudited)			2016			2015			2014	^a
Class R
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	6.44		$	7.10		$	9.44		$	8.88
Income from investment operations^b:
Net investment income (loss)^c		(0.02	)		(0.06	)		(0.10	)		(0.06	)
Net realized and unrealized gains (losses)		(0.04	)		(0.60	)		(2.24	)		0.62
Total from investment operations		(0.06	)		(0.66	)		(2.34	)		0.56
Net asset value, end of period	$	6.38		$	6.44		$	7.10		$	9.44

Total return^d		(0.93	)%		(9.30	)%		(24.79	)%		6.31	%

Ratios to average net assets^e
Expenses before waiver and payments by affiliates and expense reduction .		1.80	%		2.34	%		2.27	%		3.58	%
Expenses net of waiver and payments by affiliates and expense reduction^f.		1.27	%		1.41	%		1.47	%		1.45	%
Net investment income (loss)		(0.76	)%		(0.99	)%		(1.16	)%		(1.14	)%

Supplemental data
Net assets, end of period (000’s)	$	9		$	9		$	4		$	5
Portfolio turnover rate		42.43	%		28.03	%		62.10	%		34.28	%

^aFor the period January 10, 2014 (commencement of operations) to May 31, 2014.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year.
^fBenefit of expense reduction rounds to less than 0.01%.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS


Franklin Pelagos Commodities Strategy Fund (continued)
		Six Months Ended
		November 30, 2016			Year Ended May 31,
		(unaudited)			2016			2015			2014	^a
Class R6
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	6.53		$	7.16		$	9.46		$	8.88
Income from investment operations^b:
Net investment income (loss)^c		(0.01	)		(0.02	)		(0.04	)		(0.03	)
Net realized and unrealized gains (losses)		(0.02	)		(0.61	)		(2.26	)		0.61
Total from investment operations		(0.03	)		(0.63	)		(2.30	)		0.58
Net asset value, end of period	$	6.50		$	6.53		$	7.16		$	9.46

Total return^d		(0.46	)%		(8.80	)%		(24.31	)%		6.53	%

Ratios to average net assets^e
Expenses before waiver and payments by affiliates and expense reduction .		1.02	%		1.10	%		1.53	%		1.58	%
Expenses net of waiver and payments by affiliates and expense reduction^f.		0.72	%		0.76	%		0.86	%		0.86	%
Net investment income (loss)		(0.21	)%		(0.34	)%		(0.55	)%		(0.55	)%

Supplemental data
Net assets, end of period (000’s)	$	125,564		$	131,500		$	53,068		$	67,732
Portfolio turnover rate		42.43	%		28.03	%		62.10	%		34.28	%

^aFor the period January 10, 2014 (commencement of operations) to May 31, 2014.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year.
^fBenefit of expense reduction rounds to less than 0.01%.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS


Franklin Pelagos Commodities Strategy Fund (continued)
		Six Months Ended
		November 30, 2016						Year Ended May 31,
		(unaudited)			2016			2015			2014			2013			2012	^a
Advisor Class
Per share operating performance
(for a share outstanding throughout the
period)
Net asset value, beginning of period	$	6.60		$	7.25		$	9.58		$	9.43		$	9.15		$	10.00
Income from investment operations^b:
Net investment income (loss)^c		(0.02	)		(0.09	)		(0.07	)		(0.05	)		(0.08	)		(0.05	)
Net realized and unrealized gains (losses)		(0.03	)		(0.56	)		(2.26	)		0.20			0.36			(0.80	)
Total from investment operations		(0.05	)		(0.65	)		(2.33	)		0.15			0.28			(0.85	)
Less distributions from net investment income.		—			—			—			—			(—)^d			—
Net asset value, end of period	$	6.55		$	6.60		$	7.25		$	9.58		$	9.43		$	9.15

Total return^e		(0.76	)%		(8.97	)%		(24.32	)%		1.59	%		3.06	%		(8.50	)%

Ratios to average net assets^f
Expenses before waiver and payments by
affiliates and expense reduction		1.48	%		1.88	%		1.75	%		1.88	%		1.14	%		5.08	%
Expenses net of waiver and payments by
affiliates and expense reduction		0.95	%^g		0.95	%^g		0.95	%^g		1.04	%^g		1.10	%		1.10	%
Net investment income (loss)		(0.44	)%		(0.53	)%		(0.64	)%		(0.70	)%		(0.76	)%		(1.07	)%

Supplemental data
Net assets, end of period (000’s)	$	1,294		$	675		$	248		$	126		$	107,853		$	14,374
Portfolio turnover rate.		42.43	%		28.03	%		62.10	%		34.28	%		21.47	%		—%^h

^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’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dAmount rounds to less than $0.01 per share.
^eTotal return is not annualized for periods less than one year.
^fRatios are annualized for periods less than one year.
^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).

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS


Consolidated Statement of Investments, November 30, 2016 (unaudited)
Franklin Pelagos Commodities Strategy Fund
		Principal
		Amount		Value

U.S. Government and Agency Securities 32.4%
FFCB, 0.96%, 7/27/18	$	10,000,000	$	9,945,080
FHLMC, 1.25%, 7/26/19		10,000,000		9,949,960
U.S. Treasury Note, 0.75%, 10/31/17		23,000,000		22,982,037
Total U.S. Government and Agency Securities (Cost $43,021,607)				42,877,077

Short Term Investments 64.9%
U.S. Government and Agency Securities 64.9%
^aFFCB, 12/01/16		4,175,000		4,175,000
^bU.S. Treasury Bill,
^a,c1/05/17		13,000,000		12,996,165
^a4/13/17		12,000,000		11,977,248
5/25/17		12,550,000		12,514,383
7/20/17		23,000,000		22,924,923
10/12/17		21,500,000		21,365,346
Total U.S. Government and Agency Securities (Cost $85,964,430)				85,953,065
Total Investments (Cost $128,986,037) 97.3%				128,830,142
^dOther Assets, less Liabilities 2.7%				3,573,588
Net Assets 100.0%.			$	132,403,730

^aA portion or all of the security is owned by FPC Holdings Corp., a wholly-owned subsidiary of the Fund. See Note 1(d).
^bThe security was issued on a discount basis with no stated coupon rate.
^cA portion or all of the security has been segregated as collateral for open futures contracts. At November 30, 2016, the value of this security and/or cash pledged amounted
to $1,899,422, representing 1.4% of net assets.
^dIncludes unrealized appreciation/depreciation on open commodity futures and swap contracts, as well as other assets and liabilities.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin Pelagos Commodities Strategy Fund (continued)


At November 30, 2016, the Fund had the following futures contracts outstanding. See Note 1(b).

Futures Contracts^a

				Number of		Notional	Expiration		Unrealized		Unrealized
Description			Type	Contracts		Value	Date		Appreciation		Depreciation
Commodity Contracts
Gold			Long	40	$	4,695,600	2/24/17	$	—			$	(346,377	)
Natural Gas			Long	66		2,212,320	12/28/16		58,496				—
Silver			Long	61		5,027,010	3/29/17		—				(291,720	)
WTI Crude Oil			Long	211		10,805,310	2/21/17		44,825				—
Total Futures Contracts					$	22,740,240		$	103,321			$	(638,097	)
Net unrealized appreciation (depreciation)												$	(534,776	)

At November 30, 2016, the Fund had the following commodity-linked total return swap contracts outstanding. See Note 1(b).

Commodity-Linked Total Return Swap Contracts^a
	Pay					Notional	Expiration		Unrealized		Unrealized
Underlying Instruments	Fixed Rate		Counterparty			Value	Date		Appreciation		Depreciation
OTC Swap Contracts
Long
FP Custom Master Index^b	0.22	%	MSCS		$	109,501,148	12/02/16	$	1,401,148			$	—
Net unrealized appreciation (depreciation)								$	1,401,148


^aA portion or all of the contracts are owned by FPC Holdings Corp., a wholly-owned subsidiary of the Fund. See Note 1(d).
^bRepresents a custom index comprised of a basket of underlying instruments. Additional information regarding the custom basket’s underlying instruments and their
respective values including fees are as follows:
									Unrealized		Unrealized
Underlying Instruments						Notional Value^c			Appreciation		Depreciation
Bloomberg Commodity Aluminum Subindex					$	5,913,062		$	29,310		$		—
Bloomberg Commodity Brent Crude Oil Subindex 1 Month Forward						12,483,131			139,764				—
Bloomberg Commodity Coffee Subindex						3,504,037			—				(380,425	)
Bloomberg Commodity Copper Subindex						8,869,593			1,707,427				—
Bloomberg Commodity Corn Subindex						4,161,044			—				(175,883	)
Bloomberg Commodity Cotton Subindex						1,861,520			3,073				—
Bloomberg Commodity Gold Subindex						8,869,593			—				(729,729	)
Bloomberg Commodity Lean Hogs Subindex 3 Month Forward						1,752,018			—				(4,575	)
Bloomberg Commodity Live Cattle Subindex 3 Month Forward						3,066,032			216,386				—
Bloomberg Commodity Natural Gas Subindex						9,745,602			261,817				—
Bloomberg Commodity Nickel Subindex						3,175,533			239,157				—
Bloomberg Commodity Soybean Meal Subindex						3,942,041			—				(9,366	)
Bloomberg Commodity Soybean Oil Subindex						3,723,039			139,511				—
Bloomberg Commodity Soybeans Subindex						12,921,135			252,535				—
Bloomberg Commodity Sugar Subindex						6,351,067			—				(666,226	)
Bloomberg Commodity Unleaded Gasoline Subindex 3 Month Forward						11,497,621			22,261				—
Bloomberg Commodity Wheat Subindex						3,285,034			—				(179,584	)
Bloomberg Commodity Zinc Subindex.						4,380,046			535,695				—
Total custom index					$	109,501,148		$	3,546,936	$	(2,145,788			)
Net unrealized appreciation (depreciation)								$	1,401,148

^cNotional value represents the fair value of each underlying instrument (including the financing rate fee which is calculated based on the custom swap contract’s original
notional value of $108,100,000, allocated to each underlying instrument on a pro-rata basis).

See Abbreviations on page 31.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS

Consolidated Financial Statements

Consolidated Statement of Assets and Liabilities
November 30, 2016 (unaudited)


Franklin Pelagos Commodities Strategy Fund

Assets:
Investments in securities:
Cost.	$	128,986,037
Value	$	128,830,142
Cash		1,409,197
Restricted Cash (Note 1c)		2,073,000
Receivables:
Capital shares sold		36,163
Interest.		90,151
Affiliates		2,352
Variation margin		744,939
Unrealized appreciation on OTC swap contracts		1,401,148
Other assets		14
Total assets		134,587,106
Liabilities:
Payables:
Capital shares redeemed		6,198
Management fees		55,153
Distribution fees		1,722
Professional fees		40,040
Due to brokers		2,073,000
Accrued expenses and other liabilities		7,263
Total liabilities		2,183,376
Net assets, at value	$	132,403,730
Net assets consist of:
Paid-in capital	$	133,808,983
Accumulated net investment loss		(304,910	)
Net unrealized appreciation (depreciation)		710,477
Accumulated net realized gain (loss)		(1,810,820	)
Net assets, at value	$	132,403,730

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Assets and Liabilities (continued) November 30, 2016 (unaudited)


Franklin Pelagos Commodities Strategy Fund

Class A:
Net assets, at value	$	4,503,893
Shares outstanding		701,527
Net asset value per share^a	$	6.42
Maximum offering price per share (net asset value per share ÷ 94.25%)	$	6.81
Class C:
Net assets, at value	$	1,032,544
Shares outstanding		164,399
Net asset value and maximum offering price per share^a	$	6.28
Class R:
Net assets, at value	$	9,193
Shares outstanding		1,440
Net asset value and maximum offering price per share	$	6.38
Class R6:
Net assets, at value	$	125,564,430
Shares outstanding		19,327,137
Net asset value and maximum offering price per share	$	6.50
Advisor Class:
Net assets, at value	$	1,293,670
Shares outstanding		197,406
Net asset value and maximum offering price per share	$	6.55

^aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Operations
for the six months ended November 30, 2016 (unaudited)


Franklin Pelagos Commodities Strategy Fund

Investment income:
Interest	$	349,856
Expenses:
Management fees (Note 3a)		575,663
Distribution fees: (Note 3c)
Class A		5,334
Class C		5,124
Class R		15
Transfer agent fees: (Note 3e)
Class A		9,918
Class C		2,383
Class R		21
Class R6		32
Advisor Class.		2,133
Custodian fees (Note 4)		498
Reports to shareholders		5,759
Registration and filing fees		40,580
Professional fees		44,287
Trustees’ fees and expenses		19,017
Other		5,014
Total expenses.		715,778
Expense reductions (Note 4)		(575	)
Expenses waived/paid by affiliates (Note 3f and 3g)		(214,340	)
Net expenses.		500,863
Net investment income (loss)		(151,007	)
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		(271,406	)
Written options		256,385
Futures contracts		1,388,573
Swap contracts		(3,008,592	)
Net realized gain (loss)		(1,635,040	)
Net change in unrealized appreciation (depreciation) on:
Investments		(55,583	)
Futures contracts		(784,344	)
Swap contracts		1,748,046
Net change in unrealized appreciation (depreciation)		908,119
Net realized and unrealized gain (loss)		(726,921	)
Net increase (decrease) in net assets resulting from operations	$	(877,928	)

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Statements of Changes in Net Assets

Franklin Pelagos Commodities Strategy Fund

		Six Months Ended
		November 30, 2016			Year Ended
		(unaudited)			May 31, 2016
Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	(151,007	)	$	(347,124	)
Net realized gain (loss)		(1,635,040	)		(1,003,848	)
Net change in unrealized appreciation (depreciation)		908,119			(646,629	)
Net increase (decrease) in net assets resulting from operations		(877,928	)		(1,997,601	)
Capital share transactions: (Note 2)
Class A		735,909			1,805,061
Class C		188,278			495,022
Class R		669			4,615
Class R6		(5,122,792	)		80,347,873
Advisor Class.		620,489			427,868
Total capital share transactions		(3,577,447	)		83,080,439
Net increase (decrease) in net assets		(4,455,375	)		81,082,838
Net assets:
Beginning of period		136,859,105			55,776,267
End of period	$	132,403,730		$	136,859,105
Accumulated net investment loss included in net assets:
End of period	$	(304,910	)	$	(153,903	)

20 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 (1940 Act) as an open-end management investment company, consisting of four separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin Pelagos Commodities Strategy Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are 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 per share as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The VC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Debt securities generally trade in the over-the-counter (OTC) market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value.

Derivative financial instruments listed on an exchange are valued at the official closing price of the day. Certain derivative financial instruments trade in the OTC market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair value of the contract, is included in net assets.

The Fund has procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

b. Derivative Financial Instruments

The Fund invested in derivative financial instruments in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or 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

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Semiannual Report 21

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)

risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown in the Consolidated Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Consolidated Statement of Operations.

Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counterparties The Fund attempts to reduce its exposure to counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement.

Collateral requirements differ by type of derivative. Collateral or initial margin requirements are set by the broker or exchange clearing house for exchange traded and centrally cleared derivatives. Initial margin deposited is held at the exchange and can be in the form of cash and/or securities. For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the Fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of Fund business each day and any additional collateral required due to changes in derivative values may be delivered by the Fund or the counterparty within a few business days. Collateral pledged and/or received by the Fund for OTC derivatives, if any, is held in segregated accounts with the Fund’s custodian/counterparty broker and can be in the form of cash and/or securities. Unrestricted cash may be invested according to the Fund’s investment objectives. To the extent that the amounts due to the Fund from its counterparties are not subject to collateralization or are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance.

The Fund entered into exchange traded futures contracts primarily to gain exposure to commodity price risk. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset at a specified price on a future date. Required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities.

The Fund entered into OTC commodity-linked total return swap contracts primarily to gain exposure to commodity price risk of an underlying instrument such as a stock, bond, index or basket of securities or indices. A total return swap is an agreement between the Fund and a counterparty to exchange a return linked to an underlying instrument for a floating or fixed rate payment, both based upon a notional amount. Over the term of the contract, contractually required payments to be paid or received are accrued daily and recorded as unrealized appreciation or depreciation until the payments are made, at which time they are recognized as realized gain or loss.

The Fund purchased or wrote exchange traded option contracts primarily to manage and/or gain exposure to commodity price risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. When an option is purchased or written, an amount equal to the premium paid or received is recorded as an asset or liability, respectively. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin Pelagos Commodities Strategy Fund (continued)

Upon closing an option other than through expiration or exercise, the difference between the premium received or paid and the cost to close the position is recorded as a realized gain or loss.

See Notes 6 and 7 regarding investment transactions and other derivative information, respectively.

c. Restricted Cash

At November 30, 2016, the Fund held restricted cash in connection with investments in certain derivative securities. Restricted cash is held in a segregated account with the Fund’s custodian and is reflected in the Consolidated Statement of Assets and Liabilities.

d. 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, 2016, 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, 2016, the net assets of the FP Subsidiary were $30,584,203, representing 23.1% of the Fund’s consolidated net assets. The Fund’s investment in the FP Subsidiary is limited to 25% of consolidated assets.

The results from operations of the FP Subsidiary for the six months ended November 30, 2016, were as follows:


Net investment income (loss)	$	(98,234	)
Net realized gain (loss)		(1,636,934	)
Net change in unrealized appreciation (depre-
ciation)		948,456
Net increase (decrease) in net assets resulting
from operations	$	(786,712	)

e. Income Taxes

f. Security Transactions, Investment Income, Expenses and Distributions

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

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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)

f. Security Transactions, Investment Income, Expenses and Distributions (continued)

of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.

g. Accounting Estimates

h. Guarantees and Indemnifications

2. Shares of Beneficial Interest

At November 30, 2016, 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, 2016						May 31, 2016
	Shares			Amount			Shares			Amount
Class A Shares:
Shares sold	207,902		$	1,350,392			410,630		$	2,517,563
Shares redeemed	(95,511	)		(614,483		)	(113,450	)		(712,502		)
Net increase (decrease)	112,391			$	735,909		297,180		$	1,805,061
Class C Shares:
Shares sold	63,872			$	405,937		97,440			$	584,239
Shares redeemed	(35,170	)		(217,659		)	(15,208	)			(89,217	)
Net increase (decrease)	28,702			$	188,278		82,232			$	495,022
Class R Shares:
Shares sold	150			$	1,104		792			$	4,615
Shares redeemed	(65	)			(435	)	—				—
Net increase (decrease)	85			$	669		792			$	4,615
Class R6 Shares:
Shares sold	144,150			$	937,239		14,259,716		$	89,857,489
Shares redeemed	(941,155	)		(6,060,031		)	(1,547,056	)		(9,509,616		)
Net increase (decrease)	(797,005	)	$	(5,122,792		)	12,712,660		$	80,347,873
Advisor Class Shares:
Shares sold	121,106			$	787,376		75,153			$	475,789
Shares redeemed	(25,844	)		(166,887		)	(7,203	)			(47,921	)
Net increase (decrease)	95,262			$	620,489		67,950			$	427,868

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin Pelagos Commodities Strategy Fund (continued)

3. Transactions with Affiliates


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 maximum annual plan rates, based on the average daily net assets, for each class, are as follows:


Class A	0.30	%
Class C	1.00	%
Class R	0.50	%

The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.

d. Sales Charges/Underwriting Agreements


Sales charges retained net of commissions paid to unaffiliated
broker/dealers.	$	2,831
CDSC retained	$	45

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Semiannual Report 25

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

For the period ended November 30, 2016, the Fund paid transfer agent fees of $14,487, of which $7,406 was retained by Investor Services.

f. Investments in Affiliated Management Investment Companies

The Fund invests in one or more affiliated management investment companies for purposes other than exercising a controlling influence over the management or policies. Management fees paid by the Fund are waived on assets invested in the affiliated management investment companies, as noted in the Consolidated Statement of Operations, in an amount not to exceed the management and administrative fees paid directly or indirectly by each affiliate. Prior to June 1, 2013, the waiver was accounted for as a reduction to management fees. During the period ended November 30, 2016, the Fund held investments in affiliated management investment companies as follows:


									% of
									Affiliated
	Number of				Number of				Fund Shares
	Shares Held				Shares	Value			Outstanding
	at Beginning	Gross	Gross		Held at End	at End	Investment	Realized	Held at End
	of Period	Additions	Reductions		of Period	of Period	Income	Gain (Loss)	of Period

Non-Controlled Affiliates
Institutional Fiduciary Trust Money Market
Portfolio	836,916	12,847,178	(13,684,094	)	–	$–	$–	$–	–%


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 0.68% 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, 2017. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end. Prior to October 1, 2016, expenses for Class R6 were limited to 0.73%.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Franklin Pelagos Commodities Strategy Fund (continued)

h. Other Affiliated Transactions

At November 30, 2016, the shares of the Fund were owned by the following entities:

		Percentage of
	Shares	Outstanding Shares^a
Franklin Moderate Allocation Fund	8,105,013	39.8	%
Franklin Conservative Allocation Fund	5,230,885	25.7	%
Franklin Growth Allocation Fund	4,669,018	22.9	%
Franklin LifeSmart 2025 Retirement Target Fund	391,806	1.9	%
Franklin LifeSmart 2035 Retirement Target Fund	314,819	1.5	%
Franklin LifeSmart 2045 Retirement Target Fund	224,286	1.1	%
Franklin LifeSmart 2030 Retirement Target Fund	109,357	0.5	%
Franklin LifeSmart 2020 Retirement Target Fund	106,510	0.5	%
Franklin LifeSmart 2040 Retirement Target Fund	89,669	0.4	%
Franklin LifeSmart 2050 Retirement Target Fund	70,691	0.4	%
Franklin LifeSmart 2055 Retirement Target Fund	15,083	0.1	%
Franklin Resources, Inc	563	—%^b
	19,327,700	94.8	%

^aInvestment activities of significant shareholders could have a material impact on the Fund.
^bRounds to less than 0.01%.

4. Expense Offset Arrangement

5. Income Taxes

For tax purposes, capital losses may be carried over to offset future capital gains, if any. At May 31, 2016, the Fund had long-term capital loss carryforwards of $175,775.

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, 2016, the Fund deferred late-year ordinary losses of $72,053.

At November 30, 2016, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:


Cost of investments	$	129,012,047

Unrealized appreciation	$	20,779
Unrealized depreciation		(202,684	)
Net unrealized appreciation (depreciation)	$	(181,905	)

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, investments in the FP Subsidiary and non-deductible expenses.

6. Investment Transactions

Purchases and sales of investments (excluding short term securities) for the period ended November 30, 2016, aggregated $20,000,000 and $18,000,000, respectively.

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Semiannual Report 27


FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



Franklin Pelagos Commodities Strategy Fund (continued)

6. Investment Transactions (continued)
Transactions in options written during the period ended November 30, 2016, were as follows:
	Number of
	Contracts			Premiums
Options outstanding at May 31, 2016.	—		$	—
Options written	492			256,385
Options expired.	(492	)		(256,385	)
Options exercised	—			—
Options closed	—			—
Options outstanding at November 30, 2016	—		$	—

See Notes 1(b) and 7 regarding derivative financial instruments and other derivative information, respectively.

7. Other Derivative Information

At November 30, 2016, the Fund’s investments in derivative contracts are reflected in the Consolidated Statement of Assets and Liabilities as follows:


	Asset Derivatives				Liability Derivatives
Derivative Contracts	Consolidated Statement of				Consolidated Statement of
Not Accounted for as	Assets and Liabilities				Assets and Liabilities
Hedging Instruments	Location		Fair Value		Location		Fair Value
Commodity contracts	Variation margin	$	103,321	^a	Variation margin	$	638,097	^a
	Unrealized appreciation on OTC		1,401,148		Unrealized depreciation on OTC		—
	swap contracts				swap contracts
Totals		$	1,504,469			$	638,097

^aThis amount reflects the cumulative appreciation (depreciation) of futures contracts as reported in the Consolidated Statement of Investments. Only the variation margin receivable/payable at period end is separately reported within the Consolidated Statement of Assets and Liabilities. Prior variation margin movements were recorded to cash upon receipt or payment.

For the period ended November 30, 2016, the effect of derivative contracts in the Fund’s Consolidated Statement of Operations was as follows:


							Net Change in
							Unrealized
Derivative Contracts			Net Realized				Appreciation
Not Accounted for as	Consolidated Statement of		Gain (Loss) for		Consolidated Statement of		(Depreciation)
Hedging Instruments	Operations Location		the Period		Operations Location		for the Period
	Net realized gain (loss) from:				Net change in unrealized
					appreciation (depreciation) on:
Commodity contracts	Investments	$	(272,959	)^a
	Written options		256,385
	Futures contracts		1,388,573		Futures contracts	$	(784,344	)
	Swap contracts		(3,008,592	)	Swap contracts		1,748,046
Totals		$	(1,636,593	)		$	963,702

^aPurchased option contracts are included in net realized gain (loss) from investments in the Consolidated Statement of Operations.

For the period ended November 30, 2016, the average month end fair value of derivatives represented 1.4% of average month end net assets. The average month end number of open derivative contracts for the period was 6.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin Pelagos Commodities Strategy Fund (continued)

At November 30, 2016, the Fund’s OTC derivative assets and liabilities are as follows:


		Gross Amounts of
		Assets and Liabilities Presented
		in the Consolidated Statement of Assets and Liabilities
		Assets^a	Liabilities^a
Derivatives
Swap contracts	$	1,401,148	$ —

^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, 2016, the Fund’s OTC derivative assets, which may be offset against the Fund’s OTC derivative liabilities and collateral received from the counterparty, are as follows:


			Amounts Not Offset in the
			Consolidated Statement of Assets and Liabilities

		Gross
		Amounts of	Financial	Financial
		Assets Presented in	Instruments	Instruments		Cash		Net Amount
		the Consolidated Statement of	Available for	Collateral		Collateral		(Not less
		Assets and Liabilities	Offset^a	Received		Received^b		than zero)

Counterparty
MSCS	$	1,401,148	$ —	$ —	$	(1,401,148	)	$ —

^aAs of November 30, 2016, the Fund had no OTC derivative liabilities.
^bIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit the collateral amounts to avoid the effect of over
collateralization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.

See Notes 1(b) and 6 regarding derivative financial instruments and investment transactions, respectively.

See Abbreviations on page 31.

8. Credit Facility

9. Fair Value Measurements

Level 1 – quoted prices in active markets for identical financial instruments

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Semiannual Report 29

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin Pelagos Commodities Strategy Fund (continued)

9.	Fair Value Measurements (continued)
		Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.)
		Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments)

The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

A summary of inputs used as of November 30, 2016, 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	$	—	$	42,877,077	$	—	$	42,877,077
Short Term Investments		81,778,065		4,175,000		—		85,953,065
Total Investments in Securities	$	81,778,065	$	47,052,077	$	—	$	128,830,142

Other Financial Instruments:
Futures Contracts	$	103,321	$	—	$	—	$	103,321
Swap Contracts.		—		1,401,148		—		1,401,148
Total Other Financial Instruments	$	103,321	$	1,401,148	$	—	$	1,504,469

Liabilities:
Other Financial Instruments:
Futures Contracts	$	638,097	$	—	$	—	$	638,097

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. Subsequent Events

The Fund has evaluated subsequent events through the issuance of the consolidated financial statements and determined that no events have occurred that require disclosure.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin Pelagos Commodities Strategy Fund (continued)


Abbreviations
Counterparty	Selected Portfolio
MSCS Morgan Stanley Capital Services, LLC	FFCB	Federal Farm Credit Bank
	FHLMC	Federal Home Loan Mortgage Corp.

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Semiannual Report 31

FRANKLIN ALTERNATIVE STRATEGIES FUNDS FRANKLIN PELAGOS COMMODITIES STRATEGY FUND

Shareholder Information

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

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Contents
Semiannual Report
Franklin K2 Long Short Credit Fund	3
Performance Summary	7
Your Fund’s Expenses	9
Financial Highlights and Statement of Investments	10
Financial Statements	28
Notes to Financial Statements	32
Shareholder Information	45

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

2 Semiannual Report

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Semiannual Report

Franklin K2 Long Short Credit Fund

We are pleased to bring you Franklin K2 Long Short Credit Fund’s semiannual report for the period ended November 30, 2016.

Your Fund’s Goal and Main Investments

The Fund seeks total return through a combination of current income, capital preservation and capital appreciation. The Fund seeks to achieve its investment goal by allocating its assets across multiple non-traditional or “alternative” strategies, including but not limited to credit long short, structured credit and emerging market fixed income. The Fund is structured as a multi-manager fund, meaning the Fund’s assets are managed by multiple investment advisors (subadvisors), while the Fund’s investment manager has overall responsibility for the Fund’s investments.

Under normal market conditions, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in credit-related investments. The Fund invests in a wide range of securities and other investments including, but not limited to: corporate bonds, mortgage-backed securities and asset-backed securities, U.S. government and agency securities, collateralized debt and loan obligations, foreign government and supranational debt securities, loans and loan participations and derivatives with similar economic characteristics. The Fund may also invest in mortgage dollar rolls, repurchase agreements, reverse repurchase agreements, mortgage real estate investment trusts (REITs) and other similar transactions.

What is a mortgage dollar roll?

A mortgage dollar roll is a type of repurchase transaction in the mortgage pass-through securities market in which the buy side trade counterparty of a “to be announced” (TBA) trade agrees to a sell off the same TBA trade in the current month and to a buy back the same trade in a future month at a lower price. In a dollar roll, the buy side trade counterparty gets to invest the funds that otherwise would have been required to settle the buy trade in the current month until the agreed upon future buy-back. The sell side trade counterparty benefits by not having to deliver the pass-through securities (which they might otherwise have shorted or committed to another trade) in the current month.

*Figures represent the net Fund exposure and include certain derivatives held in the
portfolio (or their underlying reference assets) or unsettled trades and may not total
100% or may be negative due to rounding, use of any derivatives or other factors.

Performance Overview

The Fund’s Class A shares delivered a +4.43% cumulative total return for the six months under review. For comparison, the Fund’s primary benchmark, the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index, which is an index of short-term U.S. government securities with a remaining term to final maturity of less than three months, posted a +0.18% total return for the same period.¹Also for comparison, the Fund’s secondary benchmark, the HFRX Fixed Income-Credit Index, which measures performance of strategies with exposure to credit across a broad continuum of credit substrategies, generated a +3.27% total return for the same period.²You can find more of the Fund’s performance data in the Performance Summary beginning on page 7.

1. Source: Morningstar.
2. Source: FactSet. Hedge Fund Research, Inc. — www.hedgefundresearch.com. The HFRX Fixed Income-Credit Index is being used under license from Hedge Fund
Research, Inc., which does not endorse or approve of any of the contents of this report.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an
index, and an index is not representative of the Fund’s portfolio. Unlike most asset class indexes, HFR Index returns reflect fees and expenses.
See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI
begins on page 15.

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FRANKLIN K2 LONG SHORT CREDIT FUND

Economic and Market Overview

In Europe, the U.K.’s economy moderated in the third quarter, supported by growth in services. Immediate effects of the Brexit vote in June materialized as U.K. stocks declined significantly, the pound sterling hit a three-decade low amid intensified selling and the U.K.’s credit rating was downgraded. In the eurozone, despite investors’ concerns about banking sector weakness, low corporate earnings and post-Brexit political repercussions, some regions benefited due to rising consumer spending, resulting from a cheaper euro, low inflation and signs of sustained economic growth. The eurozone’s economic growth held steady in the third quarter from the second quarter, while the region’s annual inflation rate rose to its highest level since April 2014 toward period-end. The European Central Bank cut its benchmark interest rate and expanded its massive bond-buying program in August 2016 to boost the region’s growth.

After announcing additional monetary easing measures in July, the Bank of Japan, at its September meeting, overhauled its monetary stimulus program to adjust Japanese government bond purchases with the aim of keeping the 10-year rate near the current level of 0%.

Investment Strategy

Credit long short strategies seek to isolate issuer-specific exposure, while limiting general market risks, by taking long and/or short positions in debt securities and other related instruments. Structured credit strategies aim to profit from trading in interest-rate sensitive securities such as residential and commercial mortgage-backed securities, real estate investment trusts, credit default swaps on various indexes, collateralized loan obligations and asset-backed securities. Emerging market fixed income strategies invest in corporate and/or sovereign securities in emerging markets countries with a focus on fixed income.

The Fund takes long and/or short positions in a wide range of asset classes, including credit, fixed income, equities and

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FRANKLIN K2 LONG SHORT CREDIT FUND

currencies, among others. The Fund may gain long or short exposure to select instruments by utilizing derivatives, engaging in short sales or entering into a series of purchase and sale contracts or repurchase agreements. Long positions benefit from an increase in the price of the underlying instrument, while short positions benefit from a decrease in that price. The Fund may also use derivatives for hedging and nonhedging (investment) purposes. Such derivative investments may include currency forward contracts; futures contracts; put and call options on currencies, securities, indexes and exchange-traded funds; and swaps. The Fund may engage in active and frequent trading as part of its investment strategies.

What is a currency forward contract?

A currency forward contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency in exchange for another currency at a specific exchange rate on a future date.

What is a futures contract?

What is an option?

What are swap agreements?

Manager’s Discussion

The Fund’s subadvisors for the review period were Apollo Credit Management, Chatham Asset Management, Candlewood Investment Group, Ellington Global Asset Management and Emso Asset Management. These subadvisors use credit long short, structured credit or emerging markets fixed income investment strategies, as shown in the table on this page.

All strategies of these five subadvisors strengthened absolute performance for the six-month review period, led by the credit long short strategy. We were encouraged that all five subadvi-sors, including those in the structured credit and emerging market fixed income strategies, delivered positive returns. Despite economic concerns that arose over the period—Brexit, the U.S. presidential election and global growth—overall, a risk-on environment persisted in high-yield credit markets until November, as evidenced by the Credit Suisse High Yield Index returning +7.38% over the review period. In contrast, investment-grade corporate credits experienced lackluster results as investors began to anticipate higher interest rates.

As we approach 2017, we believe we are at the end of a decades-long bull market in fixed income and the “low for longer” search for yield. Although interest rates have recently spiked, overall, yields were still near historical lows at period-end. We also believe, credit strategies that can be nimble and take both long and short positions in credit have healthy performance potential in 2017.

Both credit long short strategy subadvisors delivered positive performance in the review period. On a sector level, communications, basic materials, technology and currency positioning benefited returns. Looking at individual positions, a long position in a U.S. newspaper and magazine publisher’s bonds aided results as the company completed a debt exchange that substantially reduced interest expenses, strengthening the company’s capital structure. Second-lien bonds for a Canadian media publisher also contributed positively based on news that the company planned to exchange most of its equity for the second-lien debt in order to deleverage the company’s capital structure. Bonds issued by a steel company also contributed positively, as the company announced strong earnings.

Subadvisors
11/30/16

Credit Long Short

Apollo Credit Management LLC
Chatham Asset Management, LLC

Structured Credit

Candlewood Investment Group, L.P.
Ellington Global Asset Management, L.L.C.

Emerging Markets Fixed Income

Emso Asset Management Limited

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FRANKLIN K2 LONG SHORT CREDIT FUND

Conversely, hedges in the form of put options on equity indexes, including the Standard &Poor’s 500^®Index, detracted from relative performance in the credit long short strategy as equities rose over the review period. Cash and cash-equivalent positions also detracted from returns amid a risk-on investment environment.

In structured credit, subadvisor positioning, along with strength in the asset-backed security and residential and commercial mortgage-backed security (MBS) markets over the review period, helped both structured credit strategy subadvisors register positive returns. Residential MBS markets received a boost in August following a settlement payout from a bank regarding loans made by one of its divisions prior to its being acquired, as investors looked to reinvest cash received from the payout.

Conversely, a short position in a high yield credit index that was used as a portfolio hedge hindered performance, as the bond sector had healthy returns during the review period.

In emerging markets fixed income, the energy sector, currency positioning and sovereign emerging-market government bonds contributed positively to overall results. For example, a long position in a quasi-sovereign oil producer’s credit in Brazil, as well as sovereign government bonds in Argentina and Greece, contributed positively to gains. A short position in the euro versus the U.S. dollar also helped returns, as the euro weakened amid robust monetary accommodation from the European Central Bank.

Conversely, a detractor at the country level was Turkey. Short exposure to the country’s sovereign government bonds detracted from performance as the political environment calmed and investors focused on the government’s commitment to financial stability following a failed military coup.

Thank you for your participation in Franklin K2 Long Short Credit Fund. We look forward to continuing to serve your investment needs.

6 Semiannual Report

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FRANKLIN K2 LONG SHORT CREDIT FUND

Performance Summary as of November 30, 2016

Performance as of 11/30/16¹


	Cumulative		Average Annual
Share Class	Total Return²		Total Return³
A
6-Month	+4.43	%	-1.49	%
1-Year	+6.70	%	+0.61	%
Since Inception (9/8/15)	+7.55	%	+1.11	%
Advisor
6-Month	+4.53	%	+4.53	%
1-Year	+6.70	%	+6.70	%
Since Inception (9/8/15)	+7.66	%	+6.19	%

See page 8 for Performance Summary footnotes.

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FRANKLIN K2 LONG SHORT CREDIT FUND
PERFORMANCE SUMMARY


Total Annual Operating Expenses⁴
Share Class	With Waiver		Without Waiver
A	2.60	%	3.61	%
Advisor	2.35	%	3.36	%

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

All investments involve risks, including possible loss of principal. The market values of securities owned by the Fund will go up or down, sometimes rapidly or
unpredictably. The Fund’s performance depends on the manager’s skill in selecting, overseeing, and allocating Fund assets to the subadvisors. The Fund is
actively managed and could experience losses if the manager’s and subadvisors’ judgment about particular Fund portfolio investments prove to be incorrect.
Some subadvisors may have little or no experience managing the assets of a registered investment company. Bond prices generally move in the opposite direc-
tion of interest rates. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. Lower rated or high yield debt securities
(junk bonds) involve greater credit risk, including the possibility of default or bankruptcy. Liquidity risk exists when securities become more difficult to sell, or
are unable to be sold, at the price at which they’ve been valued. Investments in derivatives involve costs and create economic leverage, which may result in sig-
nificant volatility and cause the Fund to participate in losses (as well as gains) that significantly exceed the Fund’s initial investment. The Fund may make short
sales of securities, which involves the risk that losses may exceed the original amount invested. The Fund’s prospectus also includes a description of the main
investment risks.

1. The Fund has an expense reduction contractually guaranteed through 9/30/17. Fund investment results reflect the expense reduction; without this reduction, the results
would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not
been annualized.
4. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in
this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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FRANKLIN K2 LONG SHORT CREDIT FUND

Your Fund’s Expenses

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 =$64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds


						Actual		Hypothetical
				(actual return after expenses)				(5% annual return before expenses)
						Expenses				Expenses	Net
		Beginning		Ending		Paid During		Ending		Paid During	Annualized
Share		Account		Account		Period		Account		Period	Expense
Class		Value 6/1/16		Value 11/30/16		6/1/16–11/30/16^1,2		Value 11/30/16		6/1/16–11/30/16^1,2	Ratio²
A	$	1,000	$	1,045.30	$	12.77	$	1,012.58	$	12.56	2.49	%
C	$	1,000	$	1,039.70	$	17.69	$	1,007.72	$	17.41	3.46	%
R	$	1,000	$	1,043.60	$	12.60	$	1,012.73	$	12.41	2.46	%
R6	$	1,000	$	1,045.30	$	12.56	$	1,012.78	$	12.36	2.45	%
Advisor	$	1,000	$	1,045.30	$	12.61	$	1,012.73	$	12.41	2.46	%

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value
over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

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Semiannual Report 9


Financial Highlights
Franklin K2 Long Short Credit Fund
		Six Months Ended
		November 30, 2016			Period Ended
		(unaudited)			May 31, 2016^a
Class A
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.15		$	10.00
Income from investment operations^b:
Net investment income^c		0.11			0.21
Net realized and unrealized gains (losses)		0.35			0.08
Total from investment operations		0.46			0.29
Less distributions from:
Net investment income		—			(0.08	)
Net realized gains		—			(0.06	)
Total distributions		—			(0.14	)
Net asset value, end of period	$	10.61		$	10.15

Total return^d		4.53	%		2.99	%

Ratios to average net assets^e
Expenses before waiver, payments by affiliates and expense reduction^f		3.31	%		3.37	%
Expenses net of waiver, payments by affiliates and expense reduction^f		2.49	%		2.30	%^g
Expenses incurred in connection with securities sold short		0.55	%		0.40	%
Net investment income		2.39	%		2.85	%

Supplemental data
Net assets, end of period (000’s)	$	37,392		$	28,198
Portfolio turnover rate		169.41	%		511.62	%

^aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
^fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
^gBenefit of expense reduction rounds to less than 0.01%.

10 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL H IGHLIGHTS


Franklin K2 Long Short Credit Fund (continued)
		Six Months Ended
		November 30, 2016			Period Ended
		(unaudited)			May 31, 2016^a
Class C
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.07		$	10.00
Income from investment operations^b:
Net investment income^c		0.04			0.09
Net realized and unrealized gains (losses)		0.36			0.12
Total from investment operations		0.40			0.21
Less distributions from:
Net investment income		—			(0.08	)
Net realized gains		—			(0.06	)
Total distributions		—			(0.14	)
Net asset value, end of period	$	10.47		$	10.07

Total return^d		3.97	%		2.20	%

Ratios to average net assets^e
Expenses before waiver, payments by affiliates and expense reduction^f		4.28	%		3.62	%
Expenses net of waiver, payments by affiliates and expense reduction^f		3.46	%		2.55	%^g
Expenses incurred in connection with securities sold short		0.55	%		0.40	%
Net investment income		1.42	%		2.60	%

Supplemental data
Net assets, end of period (000’s)	$	925		$	270
Portfolio turnover rate		169.41	%		511.62	%

^aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
^fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
^gBenefit of expense reduction rounds to less than 0.01%.

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The accompanying notes are an integral part of these financial statements. | Semiannual Report 11


Franklin K2 Long Short Credit Fund (continued)

		Six Months Ended
		November 30, 2016			Period Ended
		(unaudited)			May 31, 2016^a
Class R
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.10		$	10.00
Income from investment operations^b:
Net investment income^c		0.11			0.08
Net realized and unrealized gains (losses)		0.33			0.16
Total from investment operations		0.44			0.24
Less distributions from:
Net investment income		—			(0.08	)
Net realized gains		—			(0.06	)
Total distributions		—			(0.14	)
Net asset value, end of period	$	10.54		$	10.10

Total return^d		4.36	%		2.48	%

Ratios to average net assets^e
Expenses before waiver, payments by affiliates and expense reduction^f		3.28	%		3.37	%
Expenses net of waiver, payments by affiliates and expense reduction^f		2.46	%		2.30	%^g
Expenses incurred in connection with securities sold short		0.55	%		0.40	%
Net investment income		2.42	%		2.85	%

Supplemental data
Net assets, end of period (000’s)	$	48		$	12
Portfolio turnover rate		169.41	%		511.62	%

^aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
^fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
^gBenefit of expense reduction rounds to less than 0.01%.

12 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL H IGHLIGHTS


Franklin K2 Long Short Credit Fund (continued)

		Six Months Ended
		November 30, 2016			Period Ended
		(unaudited)			May 31, 2016^a
Class R6
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.15		$	10.00
Income from investment operations^b:
Net investment income^c		0.11			0.23
Net realized and unrealized gains (losses)		0.35			0.06
Total from investment operations		0.46			0.29
Less distributions from:
Net investment income		—			(0.08	)
Net realized gains		—			(0.06	)
Total distributions		—			(0.14	)
Net asset value, end of period	$	10.61		$	10.15

Total return^d		4.53	%		3.01	%

Ratios to average net assets^e
Expenses before waiver, payments by affiliates and expense reduction^f		3.27	%		3.35	%
Expenses net of waiver, payments by affiliates and expense reduction^f		2.45	%		2.28	%^g
Expenses incurred in connection with securities sold short		0.55	%		0.40	%
Net investment income		2.43	%		2.87	%

Supplemental data
Net assets, end of period (000’s)	$	12,637		$	12,384
Portfolio turnover rate		169.41	%		511.62	%

^aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
^fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
^gBenefit of expense reduction rounds to less than 0.01%.

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The accompanying notes are an integral part of these financial statements. | Semiannual Report 13


Franklin K2 Long Short Credit Fund (continued)

		Six Months Ended
		November 30, 2016			Period Ended
		(unaudited)			May 31, 2016^a
Advisor Class
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.15		$	10.00
Income from investment operations^b:
Net investment income^c		0.11			0.20
Net realized and unrealized gains (losses)		0.35			0.09
Total from investment operations		0.46			0.29
Less distributions from:
Net investment income		—			(0.08	)
Net realized gains		—			(0.06	)
Total distributions		—			(0.14	)
Net asset value, end of period	$	10.61		$	10.15

Total return^d		4.53	%		2.99	%

Ratios to average net assets^e
Expenses before waiver, payments by affiliates and expense reduction^f		3.28	%		3.36	%
Expenses net of waiver, payments by affiliates and expense reduction^f		2.46	%		2.29	%^g
Expenses incurred in connection with securities sold short		0.55	%		0.40	%
Net investment income		2.42	%		2.86	%

Supplemental data
Net assets, end of period (000’s)	$	25,063		$	23,058
Portfolio turnover rate		169.41	%		511.62	%

^aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases
of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
^fIncludes dividend and/or interest expense on securities sold short and security borrowing fees, if any. See below for the ratios of such expenses to average net assets for the
periods presented. See Note 1(f).
^gBenefit of expense reduction rounds to less than 0.01%.

14 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL H IGHLIGHTS

FRANKLIN ALTERNATIVE STRATEGIES FUNDS


Statement of Investments, November 30, 2016 (unaudited)
Franklin K2 Long Short Credit Fund
	Country	Shares/Rights		Value
Common Stocks and Other Equity Interests 1.1%
Diversified Telecommunication Services 0.1%
CenturyLink Inc	United States	1,877	$	44,147
^aLevel 3 Communications Inc	United States	362		19,935
				64,082
Equity Real Estate Investment Trusts (REITs) 0.2%
^a,biStar Inc	United States	13,256		161,988
Independent Power & Renewable Electricity Producers 0.8%
Atlantica Yield PLC	Spain	671		12,159
^cNRG Yield Inc., A	United States	23,033		336,052
Pattern Energy Group Inc	United States	5,956		116,916
^a,bTerraForm Power Inc., A	United States	7,788		98,362
				563,489
Media 0.0%^†
^c,aPostmedia Network Canada Corp	Canada	56,068		27,548
Pharmaceuticals 0.0%^†
^aSanofi, Contingent Value, rts., 12/31/20	France	26,594		9,335
Total Common Stocks and Other Equity Interests
(Cost $865,145)				826,442
Management Investment Companies 0.6%
Diversified Financial Services 0.6%
^cBlackRock Corporate High Yield Fund Inc	United States	17,617		184,626
BlackRock Credit Allocation Income Trust	United States	4,359		54,008
First Trust High Income Long / Short Fund	United States	3,577		56,230
MFS Multimarket Income Trust	United States	8,622		51,128
Prudential Global Short Duration High Yield Fund Inc	United States	4,088		60,176
Wells Fargo Income Opportunities Fund	United States	6,279		50,860
Total Management Investment Companies (Cost $465,516)				457,028
Convertible Preferred Stocks (Cost $126,723) 0.2%
Independent Power & Renewable Electricity Producers 0.2%
Dynegy Inc., 7.00%, cvt. pfd	United States	2,000		130,580
Preferred Stocks (Cost $2,633) 0.0%^†
Thrifts & Mortgage Finance 0.0%^†
^aFNMA, 6.75%, pfd., Q	United States	585		4,387

		Principal
		Amount*
Convertible Bonds 1.1%
Energy Equipment & Services 0.2%
Weatherford International Ltd., senior note, 5.875%, 7/01/21	United States	117,000		126,945
Independent Power & Renewable Electricity Producers 0.4%
^c,eNRG Yield Inc., senior note, 144A, 3.50%, 2/01/19	United States	175,000		175,547
Pattern Energy Group Inc., senior note, 4.00%, 7/15/20	United States	114,000		111,649
				287,196
Wireless Telecommunication Services 0.5%
^c,eClearwire Communications LLC / Clearwire Finance Inc., senior bond, 144A,
8.25%, 12/01/40	United States	376,000		394,800
Total Convertible Bonds (Cost $785,604)				808,941

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Semiannual Report 15

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)

		Principal
	Country	Amount*		Value

Corporate Bonds and Notes 28.2%
Aerospace & Defense 0.3%
^eBombardier Inc., senior note, 144A, 8.75%, 12/01/21	Canada	225,000	$	223,875
Capital Markets 0.3%
^eDonnelley Financial Solutions Inc., senior note, 144A, 8.25%, 10/15/24	United States	197,000		200,940
Commercial Services & Supplies 0.5%
RR Donnelley & Sons Co.,
senior bond, 6.50%, 11/15/23	United States	67,000		63,650
senior bond, 6.00%, 4/01/24	United States	327,000		296,752
senior bond, 6.625%, 4/15/29	United States	8,000		6,880
^csenior note, 7.00%, 2/15/22	United States	4,000		3,880
				371,162
Communications Equipment 0.0%^†
^eAvaya Inc., senior note, first lien, 144A, 7.00%, 4/01/19	United States	25,000		21,875
Construction & Engineering 0.5%
^eEngility Corp., senior note, 144A, 8.875%, 9/01/24	United States	375,000		386,719
Construction Materials 0.4%
^c,eStandard Industries Inc., senior note, 144A, 5.125%, 2/15/21	United States	286,000		298,870
Containers & Packaging 0.7%
^cReynolds Group Issuer Inc. / Reynolds Group Issuer LLC / Reynolds Group Issuer
Luxembourg SA, senior secured note, first lien, 6.875%, 2/15/21	United States	486,102		500,686
Diversified Financial Services 2.0%
^cEveri Payments Inc., senior note, 10.00%, 1/15/22	United States	544,000		522,240
^eiPayment Inc., secured note, second lien, 144A, 9.50%, 12/15/19	United States	697,594		717,650
^eOpal Acquisition Inc., senior note, 144A, 8.875%, 12/15/21	United States	383,000		302,570
				1,542,460
Diversified Telecommunication Services 2.2%
Frontier Communications Corp., senior note,
10.50%, 9/15/22	United States	75,000		77,531
11.00%, 9/15/25	United States	531,000		534,319
^eIntelsat Jackson Holdings SA, senior secured note, first lien, 144A, 8.00%, 2/15/24	Luxembourg	182,000		184,275
^c,eSprint Spectrum Co. LLC / Sprint Spectrum Co. II LLC, 144A, 3.36%, 9/20/21	United States	663,000		666,315
^eTelesat Canada / Telesat LLC, senior note, 144A, 8.875%, 11/15/24	Canada	219,000		224,201
				1,686,641
Energy Equipment & Services 0.6%
^fPetroleos Mexicanos, senior bond, Reg S, 6.875%, 8/04/26	Mexico	114,000		117,876
^c,eTransocean Inc., senior note, 144A, 9.00%, 7/15/23	United States	343,000		348,145
				466,021
Equity Real Estate Investment Trusts (REITs) 1.0%
^c,eCommunications Sales & Leasing Inc., first lien, 144A, 6.00%, 4/15/23	United States	271,000		281,840
^ciStar Inc., senior note, 5.00%, 7/01/19	United States	453,000		446,771
				728,611
Health Care Equipment & Supplies 0.2%
Universal Hospital Services Inc., senior note, 7.625%, 8/15/20	United States	195,000		186,615
Health Care Providers & Services 1.0%
CHS / Community Health Systems Inc.,
senior note, 8.00%, 11/15/19	United States	133,000		105,403
senior secured, first lien note, 5.125%, 8/15/18	United States	387,000		377,364

16 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)

		Principal
	Country	Amount*		Value
Corporate Bonds and Notes (continued)
Health Care Providers & Services (continued)
HCA Inc., senior secured bond, first lien, 5.25%, 4/15/25	United States	153,000	$	154,530
Kindred Healthcare Inc., senior note, 8.75%, 1/15/23	United States	158,000		141,212
				778,509
Hotels, Restaurants & Leisure 3.1%
^c,eDownstream Development Authority of the Quapaw Tribe of Oklahoma,
secured note, 144A, 10.50%, 7/01/19	United States	525,000		538,125
^c,eJack Ohio Finance LLC / Jack Ohio Finance 1 Corp., senior secured note, first lien,
144A, 6.75%, 11/15/21	United States	401,000		403,005
^eMohegan Tribal Gaming Authority, senior note, 144A, 7.875%, 10/15/24	United States	45,000		45,225
^ePizzaexpress Financing 2 PLC, senior secured note, first lien, 144A,
6.625%, 8/01/21	United Kingdom	543,000 GBP		681,033
^cScientific Games International Inc., senior note, 10.00%, 12/01/22	United States	607,000		572,097
^eViking Cruises Ltd., 144A,
senior bond, 6.25%, 5/15/25	United States	50,000		45,375
senior note, 8.50%, 10/15/22	United States	107,000		109,408
				2,394,268
Independent Power & Renewable Electricity Producers 0.3%
^c,eAtlantica Yield PLC, senior note, 144A, 7.00%, 11/15/19	Spain	143,000		145,860
^eTerraForm Power Operating LLC, senior note, 144A,
6.375%, 2/01/23	United States	30,000		30,834
6.125%, 6/15/25	United States	16,000		16,680
				193,374
Machinery 1.0%
Navistar International Corp., senior bond, 8.25%, 11/01/21	United States	778,000		781,890
Media 5.2%
^eAmerican Media Inc., 144A,
secured note, second lien, 5.50%, 9/01/21	United States	325,232		297,587
sub. note, zero cpn., 3/01/22	United States	2,452,010		1,599,937
^eLee Enterprises Inc., senior secured note, first lien, 144A, 9.50%, 3/15/22	United States	303,000		319,665
The McClatchy Co.,
senior bond, 7.15%, 11/01/27	United States	33,000		28,108
senior bond, 6.875%, 3/15/29	United States	377,000		311,025
senior secured note, first lien, 9.00%, 12/15/22	United States	98,000		103,880
^c,e,gPostmedia Network Inc., secured, second lien note, 144A, PIK, 10.25%, 7/15/23	Canada	448,000		472,640
^eTime Inc., senior note, 144A, 5.75%, 4/15/22	United States	654,000		662,175
^eUnivision Communications Inc., senior secured note, first lien, 144A,
5.125%, 2/15/25	United States	180,000		171,225
				3,966,242
Metals & Mining 2.1%
AK Steel Corp.,
^csenior bond, 7.625%, 5/15/20	United States	651,000		668,902
senior bond, 8.375%, 4/01/22	United States	222,000		233,932
senior note, 7.625%, 10/01/21	United States	462,000		483,945
CSN Islands XI Corp., senior note, 6.875%, 9/21/19	Brazil	234,000		193,050
CSN Resources SA, senior note, 6.50%, 7/21/20	Brazil	13,000		10,238
				1,590,067

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Semiannual Report 17

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)

		Principal
	Country	Amount*		Value
Corporate Bonds and Notes (continued)
Oil, Gas & Consumable Fuels 4.6%
^eCalifornia Resources Corp., secured note, second lien, 144A, 8.00%, 12/15/22	United States	451,000	$	365,310
Freeport-McMoran Oil & Gas LLC / FCX Oil & Gas Inc., senior bond,
6.75%, 2/01/22	United States	36,000		37,508
^c6.875%, 2/15/23	United States	329,000		353,675
^c,eNGPL PipeCo LLC, 144A,
secured note, 7.119%, 12/15/17	United States	633,000		659,902
senior secured note, 9.625%, 6/01/19	United States	745,000		782,250
^c,ePermian Resources LLC, senior secured note, first lien, 144A, 13.00%, 11/30/20	United States	21,000		24,465
Petrobras Global Finance BV,
senior bond, 5.75%, 1/20/20	Brazil	36,000		36,180
senior note, 3.00%, 1/15/19	Brazil	164,000		160,056
senior note, 4.875%, 3/17/20	Brazil	498,000		488,389
senior note, 8.375%, 5/23/21	Brazil	142,000		152,650
^fPetroleos de Venezuela SA, Reg S,
senior bond, 6.00%, 11/15/26	Venezuela	484,000		179,177
senior note, 6.00%, 5/16/24	Venezuela	246,272		92,684
^eSeven Generations Energy Ltd., senior note, 144A, 8.25%, 5/15/20	Canada	143,000		152,831
				3,485,077
Paper & Forest Products 1.1%
Resolute Forest Products Inc., senior note, 5.875%, 5/15/23	United States	1,034,000		806,520
Road & Rail 0.0%^†
^eFlorida East Coast Holdings Corp., senior secured note, first lien, 144A,
6.75%, 5/01/19	United States	24,000		24,840
Software 0.6%
^c,eOpen Text Corp., senior bond, 144A, 5.875%, 6/01/26	Canada	425,000		443,062
Specialty Retail 0.5%
^e,hConduent Finance Inc. / Xerox Business Services LLC, senior note, 144A,
10.50%, 12/15/24	United States	326,000		339,855
^eGuitar Center Inc., senior secured note, first lien, 144A, 6.50%, 4/15/19	United States	90,000		79,875
				419,730
Total Corporate Bonds and Notes (Cost $20,017,005)				21,498,054
Foreign Government and Agency Securities 3.8%
Argentine Bonos del Tesoro,
16.00%, 10/17/23	Argentina	3,383,803	ARS	206,063
senior note, 15.50%, 10/17/26	Argentina	846,221	ARS	51,666
Government of Argentina,
^fReg S, 5.00%, 1/15/27	Argentina	100,000	EUR	92,869
7.82%, 12/31/33	Argentina	250,451	EUR	262,388
2.26% to 3/31/19, 3.38% to 3/31/29, 4.74% thereafter, 12/31/38	Argentina	328,282	EUR	196,320
senior note, 8.75%, 6/02/17	Argentina	300,000		311,100
^fsenior note, Reg S, 3.875%, 1/15/22	Argentina	100,000	EUR	99,983
^fGovernment of Cyprus, Reg S, 3.875%, 5/06/22	Cyprus	62,000	EUR	68,130
Government of Hellenic Republic,
^fsenior bond, Reg S, 3.00% to 2/24/20, 3.65% to 2/24/21,
4.30% thereafter, 2/24/42	Greece	354,580	EUR	274,575
^esenior note, 144A, 4.75%, 4/17/19	Greece	57,000	EUR	58,156
^fGovernment of Iraq, senior bond, Reg S, 5.80%, 1/15/28	Iraq	250,000		199,375
^fGovernment of Paraguay, senior note, Reg S, 4.625%, 1/25/23	Paraguay	200,000		200,122

18 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)

			Principal
	Country	Amount*			Value

Foreign Government and Agency Securities (continued)
Government of Russia,
6.40%, 5/27/20	Russia	15,197,000		RUB	$ 222,060
^fReg S, 4.75%, 5/27/26	Russia	200,000			204,112
^fGovernment of Ukraine, senior note, Reg S, 7.75%, 9/01/19	Ukraine	149,000			144,645
Letras del Banco Central de la Republica Argentina,
Strip, 1/11/17 - 1/25/17	Argentina	5,448,234		ⁱARS	332,617
Total Foreign Government and Agency Securities
(Cost $2,916,960)					2,924,181

Asset-Backed Securities and Commercial Mortgage-Backed
Securities 31.2%
Banks 7.0%
^jWachovia Bank Commercial Mortgage 2007-C30 Trust, AJ, FRN,
5.413%, 12/15/43	United States	1,750,000			1,756,389
^jWachovia Bank Commercial Mortgage 2007-C31 Trust, AJ, FRN,
5.66%, 4/15/47	United States	2,715,000			2,746,539
^eWachovia Bank Commercial Mortgage 2007-C32 Trust, AMFX, 144A,
5.703%, 6/15/49	United States	495,000			500,825
^jWashington Mutual Mortgage Pass-Through Certificates, 2006-4, 3A2B, FRN,
0.672%, 5/25/36	United States	499,782			277,420
					5,281,173
Consumer Finance 1.2%
^jImpac CMB 2004-9 Trust, 1A2, FRN, 1.472%, 1/25/35	United States	1,037,679			892,679
Diversified Financial Services 19.5%
^jAmerican Home Mortgage Assets 2005-1 Trust, 1A1, FRN, 3.393%, 11/25/35	United States	307,379			264,334
^jAmerican Home Mortgage Assets 2006-4 Trust, 1A11, FRN, 0.774%, 10/25/46	United States	357,206			239,522
^eAvant Loans Funding 2016-B Trust, A, 144A, 3.92%, 8/15/19	United States	619,082			622,054
^eAvant Loans Funding 2016-C Trust, A, 144A, 2.96%, 9/16/19	United States	215,922			216,129
^jBanc of America Funding 2006-G Trust, M1, FRN, 0.862%, 7/20/36	United States	3,500,000			2,328,394
^jBanc of America Mortgage 2005-L Trust, 3A1, FRN, 2.788%, 1/25/36	United States	678,548			637,129
^e,jBCAP LLC 2010-RR1 Trust, 1A4, 144A, FRN, 2.944%, 3/26/37	United States	745,768			640,367
^jBear Stearns ARM 2006-2 Trust, 4A1, FRN, 3.231%, 7/25/36	United States	116,030			101,746
^jBear Stearns ARM 2007-4 Trust, 22A1, FRN, 4.637%, 6/25/47	United States	107,659			98,722
^e,jCarlyle Global Market Strategies CLO 2014-3A Ltd., C1, 144A, FRN,
4.586%, 7/27/26	Cayman Islands	500,000			503,092
^e,jCornerstone CLO Ltd. 2007-C Trust, 144A, FRN, 3.28%, 7/15/21	United States	1,000,000			973,954
^jCountrywide Alternative Loan 2005-IM1 Trust, A1, FRN, 0.892%, 1/25/36	United States	284,813			250,440
Credit Suisse First Boston Mortgage Securities Corp., 1A2, 7.50%, 3/25/32	United States	652,070			701,257
CSMC Mortgage-Backed 2006-4 Trust, 9A1, 6.50%, 5/25/36	United States	1,007,900			661,731
^jDSLA Mortgage Loan 2006-AR1 Trust, 2A1A, FRN, 1.463%, 4/19/47	United States	1,063,962			920,781
^jGreenPoint Mortgage Loan 2004-1 Trust, A, FRN, 1.167%, 10/25/34	United States	307,689			271,458
^jHome Equity Mortgage Loan Asset-Backed 2001-A Trust, AV, FRN,
1.112%, 3/25/31	United States	107,794			96,950
JP Morgan Chase Commercial Mortgage Securities 2006-LDP9 Trust, AM,
5.372%, 5/15/47	United States	500,000			499,829
^jJP Morgan Mortgage 2006-A5 Trust, 6A1, FRN, 2.708%, 8/25/36	United States	667,536			544,119
^jJP Morgan Mortgage 2007-A2 Trust, 2A1, FRN, 3.022%, 4/25/37	United States	460,591			409,633
^e,jKatonah Ltd. 2007-B1L Trust, 144A, FRN, 3.882%, 4/23/22	United States	1,000,000			999,977
^jMASTR Seasoned Securitization 2004-1 Trust, 4A1, FRN, 3.05%, 10/25/32	United States	99,478			99,737
^jNational Collegiate Student Loan 2007-1 Trust, A3, FRN, 0.824%, 7/25/30	United States	473,799			458,428
^jNational Collegiate Student Loan 2007-4 Trust, A3A2, FRN, 4.092%, 3/25/38	United States	1,250,000			1,162,788
^jWaMu Mortgage Pass-Through Certificates 2007-OA3 Trust, 2A1A, FRN,
1.302%, 4/25/47	United States	94,801			85,654

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Semiannual Report 19

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)

		Principal
	Country	Amount*		Value

Asset-Backed Securities and Commercial Mortgage-Backed
Securities (continued)
Diversified Financial Services (continued)
^eWillis Engine Securitization Trust II, Series 2012-A, 144A, 5.50%, 9/15/37, A	United States	1,081,605	$	1,072,141
				14,860,366
Thrifts & Mortgage Finance 3.5%
^jIndyMac INDX Mortgage Loan 2004-AR14 Trust, 2A1A, FRN, 1.312%, 1/25/35	United States	815,006		616,231
^jIndyMac INDX Mortgage Loan 2005-AR13 Trust, 4A1, FRN, 2.941%, 8/25/35	United States	543,956		475,100
^jIndyMac INDX Mortgage Loan 2005-AR16IP Trust, A1, FRN, 1.232%, 7/25/45	United States	399,474		336,966
^jIndyMac INDX Mortgage Loan 2006-AR29 Trust, A2, FRN, 0.672%, 11/25/36	United States	279,615		231,797
^jLB-UBS Commercial Mortgage 2007-C2 Trust, AM, FRN, 5.493%, 2/15/40	United States	1,000,000		1,011,144
				2,671,238
Total Asset-Backed Securities and Commercial
Mortgage-Backed Securities
(Cost $23,073,063)				23,705,456

		Number of
		Contracts

Options Purchased 0.1%
Calls – Exchange-Traded
Auto Components 0.0%^†
American Axle & Manufacturing Inc., January Strike Price $15.00, Expires 1/20/17	United States	72		9,288
Diversified Financial Services 0.0%^†
Chicago Board Options Exchange SPX Volatility Index, December Strike Price
$16.00, Expires 12/21/16	United States	34		2,686
Diversified Telecommunication Services 0.0%^†
Globalstar Inc., December Strike Price $1.50, Expires 12/16/16	United States	66		330
Energy Equipment & Services 0.0%^†
Ocean Rig UDW Inc., March Strike Price $2.00, Expires 3/17/17	Cyprus	45		1,687
Exchange Traded Funds 0.0%^†
iShares 20+ Year Treasury Bond ETF, December Strike Price $125.00,
Expires 12/16/16	United States	54		1,242
Household Durables 0.0%^†
Beazer Homes USA Inc., May Strike Price $12.00, Expires 5/19/17	United States	26		7,085
Puts – Exchange-Traded
Diversified Financial Services 0.0%^†
S&P 500 E-Mini Index, December Strike Price $2,100.00, Expires 12/16/16	United States	1		180
S&P 500 E-Mini Index, December Strike Price $2,120.00, Expires 12/16/16	United States	1		245
S&P 500 Index, December Strike Price $2,000.00, Expires 12/02/16	United States	10		50
S&P 500 Index, December Strike Price $2,075.00, Expires 12/16/16	United States	12		2,808
S&P 500 Index, December Strike Price $2,075.00, Expires 12/30/16	United States	7		3,920
S&P 500 Index, December Strike Price $2,100.00, Expires 12/30/16	United States	17		12,920
				20,123
Energy Equipment & Services 0.0%^†
Weatherford International PLC, December Strike Price $4.00, Expires 12/16/16	United States	180		720
Exchange Traded Funds 0.0%^†
iShares Russell 2000 ETF, January Strike Price $125.00, Expires 1/20/17	United States	34		5,542
SPDR S&P 500 ETF Trust, December Strike Price $205.00, Expires 12/16/16	United States	25		525
				6,067

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)

		Number of
	Country	Contracts		Value
Options Purchased (continued)
Puts – Exchange-Traded (continued)
Metals & Mining 0.0%^†
Cia Siderurgica Nacional SA, March Strike Price $3.00, Expires 3/17/17	Brazil	29	$	943
Multiline Retail 0.1%
Sears Holdings Corp., January Strike Price $10.00, Expires 1/19/18	United States	77		30,569
Semiconductors & Semiconductor Equipment 0.0%^†
Advanced Micro Devices Inc., January Strike Price $5.00, Expires 1/20/17	United States	99		396
Specialty Retail 0.0%^†
Tiffany & Co., February Strike Price $70.00, Expires 2/17/17	United States	18		1,386
Total Options Purchased
(Cost $118,306)				82,522

		Principal
		Amount*
U.S. Government and Agency Securities 2.7%
^cU.S. Treasury Note,
1.125%, 8/31/21	United States	538,000		520,420
1.625%, 10/31/23	United States	160,000		154,241
1.50%, 8/15/26	United States	1,466,000		1,351,699
Total U.S. Government and Agency Securities
(Cost $2,143,182)				2,026,360
Total Investments before Short Term Investments
(Cost $50,514,137)				52,463,951

		Shares
Short Term Investments 30.9%
Money Market Funds (Cost $19,371,048) 25.5%
^kFidelity Investments Money Market Funds, 0.268%	United States	19,371,048		19,371,048

		Principal
		Amount*
Repurchase Agreements (Cost $4,129,573) 5.4%
^lJoint Repurchase Agreement, 0.265%, 12/01/16
(Maturity Value $4,129,603)	United States	4,129,573		4,129,573
BNP Paribas Securities Corp. (Maturity Value $1,999,265)
Deutsche Bank Securities Inc. (Maturity Value $81,105)
HSBC Securities (USA) Inc. (Maturity Value $1,999,265)
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $49,968)
Collateralized by U.S. Government Agency Securities, 0.476%, 8/03/17,
^mU.S. Treasury Bill, 4/27/17; U.S. Treasury Note, 0.689% - 1.625%,
7/31/18 - 11/30/20; and U.S. Treasury Note, Index Linked, 2.625%, 7/15/17
(valued at $4,212,220)
Total Investments (Cost $74,014,758) 99.9%				75,964,572
Options Written (0.0)%^†				(3,735	)
Securities Sold Short (8.3)%				(6,315,529	)
Other Assets, less Liabilities 8.4%				6,419,684
Net Assets 100.0%			$	76,064,992

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Semiannual Report 21

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)

		Number of
	Country	Contracts			Value
ⁿOptions Written (0.0)%^†
Calls – Exchange-Traded
Equity Real Estate Investment Trusts (REITs) (0.0)%^†
iStar Inc., December Strike Price $12.00, Expires 12/16/16	United States	17	$		(1,020	)
iStar Inc., January Strike Price $12.00, Expires 1/20/17	United States	13			(975	)
iStar Inc., January Strike Price $13.00, Expires 1/20/17	United States	15			(450	)
					(2,445	)
Independent Power & Renewable Electricity Producers (0.0)%^†
TerraForm Power Inc., A, December Strike Price $15.00, Expires 12/16/16	United States	38			(950	)
Puts – Exchange-Traded
Independent Power & Renewable Electricity Producers (0.0)%^†
TerraForm Power Inc., A, December Strike Price $10.00, Expires 12/16/16	United States	10			(100	)
TerraForm Power Inc., A, December Strike Price $11.00, Expires 12/16/16	United States	16			(240	)
					(340	)
Total Options Written
(Premiums Received $5,136)					(3,735	)

		Shares
^oSecurities Sold Short (8.3)%
Common Stocks (0.2)%
Capital Markets (0.0)%^†
Donnelley Financial Solutions Inc	United States	863			(16,458	)
Equity Real Estate Investment Trusts (REITs) (0.1)%
iStar Inc	United States	541			(6,611	)
Seritage Growth Properties	United States	900			(42,876	)
					(49,487	)
Independent Power & Renewable Electricity Producers (0.1)%
Pattern Energy Group Inc	United States	3,521			(69,117	)
Total Common Stocks
(Proceeds $136,514)					(135,062	)

		Principal
		Amount*
Corporate Bonds and Notes (8.0)%
Auto Components (0.3)%
American Axle & Manufacturing Inc., senior bond, 6.625%, 10/15/22	United States	245,000			(247,450	)
Banks (0.1)%
^d,jBBVA International Preferred SAU, junior sub. bond, FRN, 5.919%, Perpetual	Spain	87,000			(85,804	)
Chemicals (2.7)%
CF Industries Inc., senior bond, 3.45%, 6/01/23	United States	221,000			(200,668	)
^eCVR Partners LP / CVR Nitrogen Finance Corp., 144A, 9.25%, 6/15/23	United States	317,000			(315,019	)
^fK+S AG, senior note, Reg S,
4.125%, 12/06/21	Germany	206,000		EUR	(241,489	)
3.00%, 6/20/22	Germany	294,000		EUR	(320,230	)
Mosaic Co., senior bond, 4.25%, 11/15/23	United States	500,000			(499,087	)
Potash Corp. of Saskatchewan Inc., senior bond, 3.00%, 4/01/25	Canada	500,000			(469,654	)
					(2,046,147	)
Commercial Services & Supplies (0.4)%
Quad/Graphics Inc., senior note, 7.00%, 5/01/22	United States	151,000			(144,583	)

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)

		Principal
	Country	Amount*			Value

^oSecurities Sold Short (continued)
Corporate Bonds and Notes (continued)
Commercial Services & Supplies (continued)
United Rentals North America Inc., senior bond, 5.50%, 5/15/27	United States	140,000	$		(139,650	)
					(284,233	)
Diversified Telecommunication Services (0.1)%
Windstream Services LLC, senior bond, 7.75%, 10/01/21	United States	86,000			(86,000	)
Electronic Equipment, Instruments & Components (0.2)%
^eInception Merger Sub Inc. / Rackspace Hosting Inc., senior note, 144A,
8.625%, 11/15/24	United States	117,000			(117,292	)
Energy Equipment & Services (0.4)%
Transocean Inc., senior bond,
8.125%, 12/15/21	United States	27,000			(26,865	)
5.55%, 10/15/22	United States	342,000			(303,525	)
					(330,390	)
Equity Real Estate Investment Trusts (REITs) (0.0)%^†
Communications Sales & Leasing Inc., 8.25%, 10/15/23	United States	32,000			(33,680	)
Food & Staples Retailing (0.1)%
^f,jIglo Foods BondCo PLC, senior secured note, first lien, FRN, Reg S,
4.198%, 6/15/20	United Kingdom	71,000		EUR	(76,160	)
Food Products (0.4)%
^fBoparan Finance PLC, senior secured note, first lien, Reg S, 5.50%, 7/15/21	United Kingdom	269,000		GBP	(317,221	)
Health Care Providers & Services (0.3)%
Centene Corp., senior note, 4.75%, 1/15/25	United States	115,000			(110,400	)
CHS / Community Health Systems Inc., senior note, 6.875%, 2/01/22	United States	133,000			(89,442	)
					(199,842	)
Hotels, Restaurants & Leisure (0.3)%
Scientific Games International Inc., senior sub. note, 6.625%, 5/15/21	United States	242,000			(196,020	)
Independent Power & Renewable Electricity Producers (0.3)%
Dynegy Inc., senior note,
7.625%, 11/01/24	United States	52,000			(48,100	)
^e144A, 8.00%, 1/15/25	United States	219,000			(202,028	)
					(250,128	)
Machinery (0.5)%
John Deere Capital Corp., senior note, 2.80%, 3/06/23	United States	179,000			(178,243	)
^fSelecta Group BV, senior secured note, first lien, Reg S, 6.50%, 6/15/20	Switzerland	212,000		EUR	(188,293	)
					(366,536	)
Media (0.0)%^†
^eCCO Holdings LLC / CCO Holdings Capital Corp., senior note, 144A,
5.875%, 4/01/24	United States	22,000			(23,347	)
Metals & Mining (0.6)%
Freeport-McMoRan Inc., senior note,
3.55%, 3/01/22	United States	419,000			(399,056	)
3.875%, 3/15/23	United States	41,000			(38,514	)
					(437,570	)
Multiline Retail (0.3)%
Dollar Tree Inc., senior note, 5.75%, 3/01/23	United States	114,000			(121,695	)
Kohl’s Corp., senior bond, 4.25%, 7/17/25	United States	66,000			(66,522	)

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Semiannual Report 23

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)
		Principal
	Country	Amount*		Value
^oSecurities Sold Short (continued)
Corporate Bonds and Notes (continued)
Multiline Retail (continued)
Nordstrom Inc., senior bond, 5.00%, 1/15/44	United States	28,000	$	(27,844	)
				(216,061	)
Trading Companies & Distributors (0.8)%
GATX Corp., senior bond, 4.85%, 6/01/21	United States	576,000		(620,148	)
Wireless Telecommunication Services (0.2)%
T-Mobile U.S. Inc., senior bond, 6.50%, 1/15/26	United States	138,000		(149,385	)
Total Corporate Bonds and Notes (Proceeds $6,149,046)				(6,083,414	)
Foreign Government and Agency Securities (0.1)% (Proceeds $110,028)
Italy Treasury Bond, 1.60%, 6/01/26	Italy	94,000		(97,053	)
Total Securities Sold Short (Proceeds $6,395,588)			$	(6,315,529	)

See Abbreviations on page 44.
^†Rounds to less than 0.1% of net assets.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
^aNon-income producing.
^bA portion or all of the security is held in connection with written option contracts open at period end.
^cA portion or all of the security has been segregated as collateral for securities sold short, open swap, forward, futures and written option contracts. At November 30, 2016, the
aggregate value of these securities and/or cash pledged amounted to $14,715,367, representing 19.3% of net assets.
^dPerpetual security with no stated maturity date.
^eSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers
or in public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At
November 30, 2016, the net value of these securities was $17,767,795, representing 23.4% of net assets.
^fSecurity 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, 2016, the net value of these securi-
ties was $530,155, representing 0.7% of net assets.
^gIncome may be received in additional securities and/or cash.
^hA portion or all of the security purchased on a delayed delivery basis. See Note 1(d).
ⁱPrincipal amount is stated in 1,000 Argentine Peso Units.
^jThe coupon rate shown represents the rate at period end.
^kThe rate shown is the annualized seven-day yield at period end.
^lSee Note 1(c) regarding joint repurchase agreement.
^mThe security was issued on a discount basis with no stated coupon rate.
ⁿSee Note 1(e) regarding written options.
^oSee Note 1(f) regarding securities sold short.

At November 30, 2016, the Fund had the following futures contracts outstanding. See Note 1(e).


Futures Contracts
		Number of		Notional	Expiration		Unrealized		Unrealized
Description	Type	Contracts		Value	Date		Appreciation		Depreciation
Equity Contracts
S&P 500 E-Mini Index	Short	3	$	329,820	12/16/16	$	—	$	(4,595	)
Interest Rate Contracts
90 Day Eurodollar	Short	2		493,025	12/18/17		746		—
Euro-BTP Italian Government Bond	Short	1		143,429	12/08/16		9,462		—
Euro-Buxl 30 Yr. Bond	Short	1		185,855	12/08/16		2,564		—
U.S. Treasury 10 Yr. Note	Short	3		373,547	3/22/17		766		—
U.S. Treasury Long Bond	Short	2		302,563	3/22/17		1,621		—
				1,498,419			15,159		—
Total Futures Contracts			$	1,828,239		$	15,159	$	(4,595	)
Net unrealized appreciation (depreciation)						$	10,564

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)
At November 30, 2016, the Fund had the following forward exchange contracts outstanding. See Note 1(e).

Forward Exchange Contracts
				Contract	Settlement			Unrealized		Unrealized
Currency	Counterparty^aType		Quantity	Amount*	Date			Appreciation		Depreciation
OTC Forward Exchange Contracts
South Korean Won	BOFA	Sell	129,151,374	112,796	12/05/16		$	2,321	$	—
South Korean Won	MSCO	Sell	130,205,694	111,525	12/14/16			150		—
Chinese Yuan	MSCO	Sell	5,321,200	790,082	12/21/16			22,502		—
Euro	DBAB	Buy	152,399	164,111	12/21/16			—		(2,383	)
Euro	DBAB	Sell	119,970	127,555	12/21/16			327		(87	)
Euro	MSCO	Buy	587,637	649,085	12/21/16			227		(25,703	)
Euro	MSCO	Sell	1,679,748	1,884,502	12/21/16			101,931		—
Japanese Yen	MSCO	Buy	19,964,793	185,116	12/21/16			—		(10,356	)
Japanese Yen	MSCO	Sell	19,964,793	197,175	12/21/16			22,415		—
Mexican Peso	BOFA	Buy	6,449,066	327,122	12/21/16			—		(14,517	)
Mexican Peso	BOFA	Sell	6,449,065	329,329	12/21/16			17,511		(786	)
Mexican Peso	MSCO	Buy	6,234,286	313,979	12/21/16			—		(11,786	)
Mexican Peso	MSCO	Sell	6,234,286	308,302	12/21/16			6,108		—
Russian Ruble	BOFA	Buy	7,263,002	111,791	12/21/16			820		—
Russian Ruble	MSCO	Buy	32,469,448	498,309	12/21/16			7,059		(1,938	)
Russian Ruble	MSCO	Sell	16,089,776	244,842	12/21/16			—		(4,626	)
South African Rand	MSCO	Sell	1,589,915	111,956	12/21/16			—		(475	)
Turkish Lira	BOFA	Sell	735,434	242,596	12/21/16			29,620		—
Turkish Lira	MSCO	Buy	393,240	122,753	12/21/16			—		(8,874	)
South Korean Won	BOFA	Sell	131,426,644	111,568	12/27/16			—		(850	)
British Pound	JPHQ	Sell	940,000	1,221,013	1/31/17			42,832		—
Euro	JPHQ	Sell	130,000	144,236	1/31/17			5,993		—
Czech Koruna	JPHQ	Sell	7,545,458	279,962	EUR	2/28/17		106		—
Euro	JPHQ	Sell	279,762	7,482,512	CZK	11/29/17		4,702		(4,789	)
Total Forward Exchange Contracts							$	264,624	$	(87,170	)
Net unrealized appreciation (depreciation)							$	177,454

*In U.S. dollars unless otherwise indicated.
^aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.


At November 30, 2016, the Fund had the following credit default swap contracts outstanding. See Note 1(e).

Credit Default Swap Contracts
							Unamortized
	Periodic						Upfront
	Payment		Counterparty/	Notional	Expiration		Payments			Unrealized			Unrealized
Description	Rate		Exchange	Amount^a	Date		(Receipts)			Appreciation			Depreciation		Value		Rating^b
Centrally Cleared Swap Contracts
Contracts to Buy Protection
Traded Index
CDX.NA.HY.25	5.00	%	ICE	1,445,400	12/20/20	$	14,454			$	—	$	(101,148)		$(86,694)
Single Name
Government of Turkey	1.00	%	ICE	504,000	12/20/20		41,464				—		(14,306	)	27,158
Government of Turkey	1.00	%	ICE	303,000	6/20/21		22,054				—		(971	)	21,083
Government of South Africa	1.00	%	ICE	394,000	12/20/21		26,977				—		(1,924	)	25,053
Government of South Korea	1.00	%	ICE	281,931	12/20/21		(8,171	)			1,313		—		(6,858	)
Contracts to Sell Protection^c
Single Name
Government of Brazil	1.00	%	ICE	567,000	6/20/21		(52,982	)			12,771		—		(40,211	)	BB
Government of Russia	1.00	%	ICE	457,000	6/20/21		(33,432	)			12,782		—		(20,650	)	BB+
Total Centrally Cleared Swap Contracts						$	10,364		$	26,866		$	(118,349) $(81,119)

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Semiannual Report 25

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)

Credit Default Swap Contracts (continued)
										Unamortized
Periodic											Upfront
Payment			Counterparty/	Notional	Expiration					Payments				Unrealized		Unrealized
Description	Rate		Exchange	Amount^a				Date		(Receipts)				Appreciation		Depreciation				Value			Rating^b
OTC Swap Contracts
Contracts to Buy Protection
Single Name
American Axle & Manufacturing Inc	5.00	%	JPHQ	565,000			12/20/21		$	(58,987		)	$	13,817		$	— $	(45,170			)
Catepillar Financial Services Corp	1.00	%	JPHQ	882,000			6/20/21				3,403			—		(17,494			)	(14,091	)
Galapagos Holding SA	5.00	%	JPHQ	141,000		EUR	6/20/21				19,944			4,325				—		24,269
Government of Argentina	5.00	%	MSCO	308,000			6/20/17				(6,558	)		—				(3,401	)	(9,959	)
Itochu Corp	1.00	%	GSCO	20,022,000		JPY	6/20/21				(3,903	)		—				(1,694	)	(5,597	)
Marubeni Corp	1.00	%	GSCO	62,079,000		JPY	6/20/21				3,481			—		(18,810			)	(15,329	)
Pizzaexpress Financing 1 PLC	5.00	%	JPHQ	543,000		EUR	6/20/21				(25,410	)		40,187				—		14,777
Rallye SA	5.00	%	BZWS	71,000		EUR	6/20/19				6,678			—				(3,850	)	2,828
Rallye SA	5.00	%	JPHQ	175,000		EUR	6/20/19				17,487			—		(10,518			)	6,969
Rallye SA	5.00	%	GSCO	10,000		EUR	12/20/19				734			—				(106	)	628
Tesco PLC	1.00	%	JPHQ	95,000		EUR	12/20/21				5,352			—				(365	)	4,987

Contracts to Sell Protection^c
Single Name
Windstream Services LLC	5.00	%	BZWS	86,000			12/20/21				(4,612	)		2,691				—		(1,921	)		B+
Total OTC Swap Contracts									$	(42,391		)	$	61,020	$	(56,238) $ (37,609)
Total Credit Default Swap Contracts									$	(32,027		)	$	87,886	$	(174,587) $ (118,728)
Net unrealized appreciation (depreciation)															$	(86,701			)

^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.
^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 fail-
ure to pay or bankruptcy of the underlying securities for traded index swaps.
See Notes 1(e) and 8 regarding derivative financial instruments and other derivative information, respectively.

At November 30, 2016, the Fund had the following interest rate swap contracts outstanding. See Note 1(e).

Interest Rate Swap Contracts
				Counterparty/				Notional Expiration								Unrealized				Unrealized
Description				Exchange							Amount			Date		Appreciation				Depreciation
Centrally Cleared Swap Contracts
Receive Floating rate 6 Month GBP-LIBOR
Pay Fixed rate 1.56%					CME			112,459				GBP		11/29/46			$	554					$	—
Receive Floating rate 6 Month GBP-LIBOR
Pay Fixed rate 1.55%					CME			112,047				GBP		11/28/46				590						—
Total Centrally Cleared Swap Contracts																	$	1,144					$	—
OTC Swap Contracts
Receive Fixed rate 11.27%
Pay Floating rate BRL-Brazil Cetip DI Interbank Deposit Rate					BOFA			369,132				BRL		1/02/20			$	—					$	(775	)
Receive Fixed rate 11.30%
Pay Floating rate BRL-Brazil Cetip DI Interbank Deposit Rate					BOFA			372,377				BRL		1/02/20				—						(706	)
Receive Fixed rate 12.05%
Pay Floating rate BRL-Brazil Cetip DI Interbank Deposit Rate					MSCO			748,000				BRL		1/02/20				1,931						—
Total OTC Swap Contracts																	$	1,931				$	(1,481		)
Total Interest Rate Swap Contracts																	$	3,075				$	(1,481		)
Net unrealized appreciation (depreciation)																	$	1,594

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)
At November 30, 2016, the Fund had the following total return swap contracts outstanding. See Note 1(e).

Total Return Swap Contracts
				Notional	Expiration		Unrealized		Unrealized
Underlying Instrument	Financing Rate	Counterparty		Value	Date		Appreciation		Depreciation
OTC Swap Contracts
Fixed Income Contracts - Short
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ	$	256,000	12/20/16	$	7,430	$	—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ		241,000	12/20/16		6,560		—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ		255,000	12/20/16		7,050		—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ		112,000	3/20/17		259		—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ		256,000	3/20/17		7,430		—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ		255,000	3/20/17		7,050		—
iBoxx USD Liquid Investment Grade Index	LIBOR	JPHQ		128,000	3/20/17		3,157		—
iBoxx USD Liquid Investment Grade Index	LIBOR	MSCO		128,000	3/20/17		1,502		—
iBoxx USD Liquid Investment Grade Index	LIBOR	MSCO		240,000	3/20/17		6,635		—
iBoxx USD Liquid Investment Grade Index	LIBOR	MSCO		128,000	3/20/17		1,264		—
Total Return Swap Contracts						$	48,337	$	—
Net unrealized appreciation (depreciation)						$	48,337

See Abbreviations on page 44.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS

Financial Statements

Statement of Assets and Liabilities
November 30, 2016 (unaudited)


Franklin K2 Long Short Credit Fund

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	69,885,185
Cost - Repurchase agreements		4,129,573
Total cost of investments	$	74,014,758
Value - Unaffiliated issuers	$	71,834,999
Value - Repurchase agreements		4,129,573
Total value of investments		75,964,572
Cash		1,264,923
Foreign currency, at value (cost $576,526)		511,197
Receivables:
Investment securities sold		1,154,068
Capital shares sold		341,404
Dividends and interest		456,155
Due from brokers		4,824,690
Variation margin		6,221
OTC swap contracts (upfront payments $58,327)		57,079
Unrealized appreciation on OTC forward exchange contracts		264,624
Unrealized appreciation on OTC swap contracts		111,288
Other assets		48
Total assets		84,956,269
Liabilities:
Payables:
Investment securities purchased		2,199,003
Management fees		40,801
Distribution fees		3,548
Transfer agent fees		1,837
OTC swap contracts (upfront receipts $105,595)		99,470
Options written, at value (premiums received $5,136)		3,735
Securities sold short, at value (proceeds $6,395,588)		6,315,529
Due to brokers		18,243
Unrealized depreciation on OTC forward exchange contracts		87,170
Unrealized depreciation on OTC swap contracts		57,719
Accrued expenses and other liabilities		64,222
Total liabilities		8,891,277
Net assets, at value	$	76,064,992
Net assets consist of:
Paid-in capital	$	71,773,651
Undistributed net investment income		1,322,749
Net unrealized appreciation (depreciation)		2,116,912
Accumulated net realized gain (loss)		851,680
Net assets, at value	$	76,064,992

28 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS

Statement of Assets and Liabilities (continued)
November 30, 2016 (unaudited)


Franklin K2 Long Short Credit Fund

Class A:
Net assets, at value	$	37,392,173
Shares outstanding		3,525,006
Net asset value per share^a	$	10.61
Maximum offering price per share (net asset value per share ÷ 94.25%)	$	11.26
Class C:
Net assets, at value	$	925,369
Shares outstanding		88,358
Net asset value and maximum offering price per share^a	$	10.47
Class R:
Net assets, at value	$	47,872
Shares outstanding		4,544
Net asset value and maximum offering price per share	$	10.54
Class R6:
Net assets, at value	$	12,636,765
Shares outstanding		1,190,887
Net asset value and maximum offering price per share	$	10.61
Advisor Class:
Net assets, at value	$	25,062,813
Shares outstanding		2,361,624
Net asset value and maximum offering price per share	$	10.61

^aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS


Statement of Operations
for the six months ended November 30, 2016 (unaudited)

Franklin K2 Long Short Credit Fund

Investment income:
Dividends	$	26,875
Interest		1,518,395
Paydown gain (loss)		129,578
Total investment income		1,674,848
Expenses:
Management fees (Note 3a)		702,801
Distribution fees: (Note 3c)
Class A		4,244
Class C		2,522
Transfer agent fees: (Note 3e)
Class A		1,567
Class C		25
Class R		1
Class R6		28
Advisor Class		1,205
Custodian fees (Note 4)		49,856
Reports to shareholders		8,660
Registration and filing fees		41,745
Professional fees		52,539
Trustees’ fees and expenses		11,072
Amortization of offering costs		116,489
Dividends and/or interest on securities sold short		148,999
Security borrowing fees		39,886
Other		9,526
Total expenses		1,191,165
Expense reductions (Note 4)		(17,962	)
Expenses waived/paid by affiliates (Note 3f)		(322,128	)
Net expenses		851,075
Net investment income		823,773
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		1,073,523
Written options		57,015
Foreign currency transactions		78,878
Futures contracts		21,704
Securities sold short		140,836
Swap contracts		(314,998	)
Net realized gain (loss)		1,056,958
Net change in unrealized appreciation (depreciation) on:
Investments		882,367
Translation of other assets and liabilities denominated in foreign currencies		90,186
Written options		2,461
Futures contracts		23,606
Swap contracts		107,431
Net change in unrealized appreciation (depreciation)		1,106,051
Net realized and unrealized gain (loss)		2,163,009
Net increase (decrease) in net assets resulting from operations	$	2,986,782

30 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FINANCIAL STATEMENTS


Statements of Changes in Net Assets

Franklin K2 Long Short Credit Fund

		Six Months Ended
		November 30, 2016			Period Ended
		(unaudited)			May 31, 2016^a
Increase (decrease) in net assets:
Operations:
Net investment income	$	823,773		$	1,204,284
Net realized gain (loss)		1,056,958			(258,648	)
Net change in unrealized appreciation (depreciation)		1,106,051			1,010,861
Net increase (decrease) in net assets resulting from operations		2,986,782			1,956,497
Distributions to shareholders from:
Net investment income:
Class A		—			(223,550	)
Class C		—			(748	)
Class R		—			(97	)
Class R6		—			(99	)
Advisor Class		—			(199,097	)
Net realized gains:
Class A		—			(175,371	)
Class C		—			(576	)
Class R		—			(76	)
Class R6		—			(76	)
Advisor Class		—			(155,996	)
Total distributions to shareholders		—			(755,686	)
Capital share transactions: (Note 2)
Class A		7,839,144			27,777,884
Class C		638,384			262,842
Class R		35,030			10,000
Class R6		(303,948	)		11,915,470
Advisor Class		947,831			22,754,762
Total capital share transactions		9,156,441			62,720,958
Net increase (decrease) in net assets		12,143,223			63,921,769
Net assets:
Beginning of period		63,921,769			—
End of period	$	76,064,992		$	63,921,769
Undistributed net investment income included in net assets:
End of period	$	1,322,749		$	498,976

^aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.

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The accompanying notes are an integral part of these financial statements. | Semiannual Report 31

FRANKLIN ALTERNATIVE STRATEGIES FUNDS

Notes to Financial Statements (unaudited)

Franklin K2 Long Short Credit Fund

1. Organization and Significant Accounting Policies

Franklin Alternative Strategies Funds (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of four separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin K2 Long Short Credit Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are 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

Debt securities generally trade in the OTC market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the date that the values of the foreign debt securities are determined.

Investments in open-end mutual funds are valued at the closing NAV. Investments in repurchase agreements are valued at cost, which approximates fair value.

32 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Long Short Credit Fund (continued)

determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

b. Foreign Currency Translation

c. Joint Repurchase Agreement

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Semiannual Report 33

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Long Short Credit Fund (continued)

1. Organization and Significant Accounting

Policies (continued)

c. Joint Repurchase Agreement (continued)

Fund, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Fund may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any other amounts owed by the seller to the Fund in the event of default by the seller. This could involve costs or delays in addition to a loss on the securities if their value falls below the repurchase price owed by the seller. The joint repurchase agreement held by the Fund at period end, as indicated in the Statement of Investments, had been entered into on November 30, 2016.

d. Securities Purchased on a Delayed Delivery Basis

e. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown in the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.

Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counterpar-ties. The Fund attempts to reduce its exposure to counterparty credit risk on OTC derivatives, whenever possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. However, absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement.

The Fund entered into exchange traded futures contracts primarily to manage and/or gain exposure to interest rate and equity price risk. A futures contract is an agreement between the Fund and a counterparty to buy or sell an asset at a specified price on a future date. Required initial margins are pledged by

34 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Long Short Credit Fund (continued)

the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statement of Assets and Liabilities.

The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (OTC credit default swaps) or may be executed in a multilateral trade facility platform, such as a registered exchange (centrally cleared credit default swaps). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, a basket of issuers or indices, or a tranche of a credit index or basket of issuers or indices. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. For centrally cleared credit default swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statement of Assets and Liabilities. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Upfront payments and receipts are reflected in the Statement of Assets and Liabilities and represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments and receipts are amortized over the term of the contract as a realized gain or loss in the Statement of Operations.

notional amount. These agreements may be privately negotiated in the over-the-counter market (OTC interest rate swaps) or may be executed on a registered exchange (centrally cleared interest rate swaps). For centrally cleared interest rate swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Statement of Assets and Liabilities. Over the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized.

The Fund entered into OTC total return swap contracts primarily to manage and/or gain exposure to credit risk of an underlying instrument such as a stock, bond, index or basket of securities or indices. A total return swap is an agreement between the Fund and a counterparty to exchange a return linked to an underlying instrument for a floating or fixed rate payment, both based upon a notional amount. Over the term of the contract, contractually required payments to be paid or received are accrued daily and recorded as unrealized appreciation or depreciation until the payments are made, at which time they are recognized as realized gain or loss.

The Fund purchased or wrote exchange traded and/or OTC option contracts primarily to manage and/or gain exposure to equity price and interest rate risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. When an option is purchased or written, an amount equal to the premium paid or received is recorded as an asset or liability, respectively. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss. Upon closing an option other than through expiration or exercise, the difference between the premium received or paid and the cost to close the position is recorded as a realized gain or loss.

See Notes 6 and 8 regarding investment transactions and other derivative information, respectively.

f. Securities Sold Short

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Semiannual Report 35


FRANKLIN NOTES TO	ALTERNATIVE STRATEGIES FUNDS FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Long Short Credit Fund (continued)

1. Organization and Significant Accounting

Policies (continued)

f. Securities Sold Short (continued)

on which the Fund replaces the borrowed security. The Fund realizes a gain if the price of the security declines between those dates. Gains are limited to the price at which the Fund sold the security short, while losses are potentially unlimited in size.

The Fund is required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale to the extent necessary to meet margin requirements until the short position is closed out. A deposit must also be maintained with the Fund’s custodian/counterparty broker consisting of cash and/ or securities having a value equal to a specified percentage of the value of the securities sold short. The Fund is obligated to pay fees for borrowing the securities sold short and is required to pay the counterparty any dividends and/or interest due on securities sold short. Such dividends and/or interest and any security borrowing fees are recorded as an expense to the Fund.

g. Income and Deferred Taxes

The Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of November 30, 2016, the Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are

those that remain subject to examination and are based on each jurisdiction’s statute of limitation.

h. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Paydown gains and losses are recorded as an adjustment to interest income separately in the Statement of Operations. Dividend income and dividends declared on securities sold short are recorded on the ex-dividend date except for certain dividends from securities where the dividend rate is not available. In such cases, the dividend is recorded as soon as the information is received by the Fund. Distributions to shareholders are recorded on the ex-dividend date 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.

i. Offering Costs

Offering costs are amortized on a straight line basis over twelve months.

j. 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

36 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Long Short Credit Fund (continued)

the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

k. 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, 2016, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:


	Six Months Ended						Period Ended
	November 30, 2016						May 31, 2016^a
	Shares			Amount			Shares			Amount

Class A Shares:
Shares sold	794,918		$	8,337,469			2,783,146		$	27,833,801
Shares issued in reinvestment of distributions	—				—		74			736
Shares redeemed	(47,734	)		(498,325		)	(5,398	)		(56,653	)
Net increase (decrease)	747,184		$	7,839,144			2,777,822		$	27,777,884
Class C Shares:
Shares sold	73,157		$	759,359			526,223		$	5,258,893
Shares issued in reinvestment of distributions	—				—		117			1,149
Shares redeemed	(11,606	)		(120,975		)	(499,533	)		(4,997,200	)
Net increase (decrease)	61,551		$	638,384			26,807		$	262,842
Class R Shares:
Shares sold	3,349			$	35,030		500,001		$	5,000,010
Shares redeemed	—				—		(498,806	)		(4,990,010	)
Net increase (decrease)	3,349			$	35,030		1,195		$	10,000
Class R6 Shares:
Shares sold	41,390		$	430,605			1,993,087		$	19,659,680
Shares redeemed	(70,429	)		(734,553		)	(773,161	)		(7,744,210	)
Net increase (decrease)	(29,039	)	$	(303,948		)	1,219,926		$	11,915,470
Advisor Class Shares:
Shares sold	92,802		$	969,683			2,506,772		$	25,097,674
Shares issued in reinvestment of distributions	—				—		2,934			29,016
Shares redeemed	(2,087	)			(21,852	)	(238,797	)		(2,371,928	)
Net increase (decrease)	90,715		$	947,831			2,270,909		$	22,754,762

^aFor the period September 8, 2015 (commencement of operations) to May 31, 2016.

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Semiannual Report 37


FRANKLIN NOTES TO	ALTERNATIVE STRATEGIES FUNDS FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Long Short Credit Fund (continued)

3. Transactions with Affiliates


Subsidiary		Affiliation
K2/D&S Management Co., L.L.C. (		Investment manager
Franklin Templeton Services, LLC (FT Services)		Administrative manager
Franklin Templeton Distributors, Inc. (Distributors)		Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services)		Transfer agent

a. Management Fees

The Fund pays an investment management fee to K2 Advisors of 2.05% per year of the average daily net assets of the Fund.

Under each subadvisory agreement, the below entities provide subadvisory services to the Fund. The subadvisory fees are paid by

K2 Advisors based on the Fund’s average daily net assets, and is not an additional expense of the Fund.

Subadvisors

Apollo Credit Management LLC

Candlewood Investment Group, L.P.

Chatham Asset Management, LLC

Ellington Global Asset Management, L.L.C.

Emso Asset Management Limited

b. Administrative Fees

Under an agreement with K2 Advisors, FT Services provides administrative services to the Fund. The fee is paid by K2 Advisors based on the Fund’s average daily net assets, and is not an additional expense of the Fund.

c. Distribution Fees

The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:


Class A	0.25	%
Class C	1.00	%
Class R	0.50	%

d. Sales Charges/Underwriting Agreements

38 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Long Short Credit Fund (continued)

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	$	857
CDSC retained	$	20

e. Transfer Agent Fees

For the period ended November 30, 2016, the Fund paid transfer agent fees of $2,826, of which $1,332 was retained by Investor Services.

f. Waiver and Expense Reimbursements

K2 Advisors has contractually agreed in advance to waive or limit its fees and to assume as its own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses, and expenses related to securities sold short) for each class of the Fund do not exceed 1.95%, and Class R6 does not exceed 1.94% based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until September 30, 2017. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end. Prior to October 1, 2016, expenses for Class R6 were limited to 1.89%.


g. Other Affiliated Transactions
At November 30, 2016, the shares of the Fund were owned by the following entities:
		Percentage of
		Outstanding
	Shares	Shares^a
Franklin Resources, Inc.	4,999,195	69.75	%
Franklin LifeSmart 2025 Retirement Target Fund	339,829	4.74	%
Franklin LifeSmart 2035 Retirement Target Fund	287,455	4.01	%
Franklin LifeSmart 2045 Retirement Target Fund	197,564	2.76	%
Franklin LifeSmart 2030 Retirement Target Fund	104,956	1.46	%
Franklin LifeSmart 2020 Retirement Target Fund	95,278	1.33	%
Franklin LifeSmart 2040 Retirement Target Fund	86,714	1.21	%
Franklin LifeSmart 2050 Retirement Target Fund	64,648	0.90	%
Franklin LifeSmart 2055 Retirement Target Fund	13,248	0.18	%
	6,188,887	86.34	%
^aInvestment activities of significant shareholders could have a material impact on the Fund.

4. Expense Offset Arrangement

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Semiannual Report 39

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Long Short Credit Fund (continued)

5. Income Taxes

For tax purposes, capital losses may be carried over to offset future capital gains, if any. At May 31, 2016, the capital loss carryfor-wards were as follows:


Capital loss carryforwards:
Short term	$	52,924
Long term		9,129
Total capital loss carryforwards	$	62,053

At November 30, 2016, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:


Cost of investments	$	74,245,003
Unrealized appreciation	$	2,276,990
Unrealized depreciation		(557,421	)
Net unrealized appreciation (depreciation)	$	1,719,569

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, swaps, offering costs and wash sales.

6. Investment Transactions

Purchases and sales of investments and securities sold short (excluding short term securities) for the period ended November 30, 2016, aggregated $97,730,515 and $100,555,818, respectively.

Transactions in options written during the period ended November 30, 2016, were as follows:


	Number of
	Contracts			Premiums
Options outstanding at May 31, 2016	170		$	9,583
Options written	964			84,715
Options expired	(464	)		(23,090	)
Options exercised	(29	)		(1,725	)
Options closed	(532	)		(64,347	)
Options outstanding at November 30, 2016	109		$	5,136

See Notes 1(e) and 8 regarding derivative financial instruments and other derivative information, respectively.

7. Credit Risk

At November 30, 2016, the Fund had 27.2% of its portfolio invested in high yield and other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities.

40 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Long Short Credit Fund (continued)

8. Other Derivative Information

At November 30, 2016, the Fund’s investments in derivative contracts are reflected in the Statement of Assets and Liabilities as follows:


	Asset Derivatives				Liability Derivatives
Derivative Contracts
Not Accounted for as	Statement of Assets and				Statement of Assets and
Hedging Instruments	Liabilities Location		Fair Value		Liabilities Location		Fair Value
Interest rate contracts	Variation margin	$	16,303	^a	Unrealized depreciation on	$	1,481
					OTC swap contracts
	Unrealized appreciation on		1,931
	OTC swap contracts
Foreign exchange contracts	Unrealized appreciation on		264,624		Unrealized depreciation on		87,170
	OTC forward exchange				OTC forward exchange
	contracts				contracts
Credit contracts	Variation margin		26,866	^a	Variation margin		118,349	^a
	OTC swap contracts		57,079		OTC swap contracts (upfront		99,470
	(upfront payments)				receipts)
	Unrealized appreciation on		109,357		Unrealized depreciation on		56,238
	OTC swap contracts				OTC swap contracts
Equity contracts	Investments in securities, at		82,522	^b	Options written, at value		3,735
	value
					Variation margin		4,595	^a
Totals		$	558,682			$	371,038

^aThis amount reflects the cumulative appreciation (depreciation) of futures contracts and centrally cleared swap contracts as reported in the Statement of Investments. Only
the variation margin receivable/payable at period end is separately reported within the Statement of Assets and Liabilities. Prior variation margin movements were recorded to
cash upon receipt or payment.
^bPurchased option contracts are included in investments in securities, at value in the Statement of Assets and Liabilities.

For the period ended November 30, 2016, the effect of derivative contracts in the Fund’s Statement of Operations was as follows:


							Net Change in
							Unrealized
Derivative Contracts			Net Realized				Appreciation
Not Accounted for as	Statement of		Gain (Loss)		Statement of		(Depreciation)
Hedging Instruments	Operations Location		for the Period		Operations Location		for the Period
	Net realized gain (loss)				Net change in unrealized
	from:				appreciation (depreciation) on:
Interest rate contracts	Investments		$ (18,175)^a Investments			$	4,096	^a
	Futures contracts		31,130		Futures contracts		19,607
					Swap contracts		1,594
Foreign exchange contracts	Foreign currency		112,423	^b	Translation of other assets and		154,055	^b
	transactions				liabilities denominated in
					foreign currencies
Credit contracts	Swap contracts		(314,998	)	Swap contracts		105,837
Equity contracts	Investments		(183,897)^aInvestments				(19,319	)^a
	Written options		57,015		Written options		2,461
	Futures contracts		(9,426	)	Futures contracts		3,999
Totals		$	(325,928	)		$	272,330

^aPurchased option contracts are included in net realized gain (loss) from investments and net change in unrealized appreciation (depreciation) on investments in the Statement
of Operations.
^bForward exchange contracts are included in net realized gain (loss) from foreign currency transactions and net change in unrealized appreciation (depreciation) translation of
other assets and liabilities denominated in foreign currencies in the Statement of Operations.

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Semiannual Report 41

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Long Short Credit Fund (continued)

8. Other Derivative Information (continued)

For the period ended November 30, 2016, the average month end fair value of derivatives represented 0.9% of average month end net assets. The average month end number of open derivative contracts for the period was 80.

At November 30, 2016, the Fund’s OTC derivative assets and liabilities are as follows:


		Gross Amounts
		of Assets and Liabilities
		Presented in the
		Statement of
		Assets and Liabilities

		Assets^a		Liabilities^a
Derivatives
Forward Exchange Contracts	$	264,624	$	87,170
Swap Contracts		168,367		157,189
Total	$	432,991	$	244,359

^aAbsent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.

At November 30, 2016, the Fund’s OTC derivative assets, which may be offset against the Fund’s OTC derivative liabilities and collateral received from the counterparty, are as follows:


				Amounts Not Offset in the
				Statement of Assets and Liabilities

						Financial
		Gross Amounts of Assets		Financial		Instruments		Cash
		Presented in the Statement		Instruments		Collateral		Collateral			Net Amount (Not
		of Assets and Liabilities		Available for Offset		Received		Received			less than zero)
Counterparty
BOFA	$	50,272	$	(17,634	)	$	—	$	—	$	32,638
BZWS		9,369		(8,462	)		—		—		907
DBAB		327		(327	)		—		—
GSCO		4,215		(4,215	)		—		—
JPHQ		197,084		(117,563	)		—		—		79,521
MSCO		171,724		(73,717	)		—		—		98,007
Total	$	432,991	$	(221,918	)	$	—	$	—	$	211,073

At November 30, 2016, the Fund’s OTC derivative liabilities, which may be offset against the Fund’s OTC derivative assets and collateral pledged to the counterparty, are as follows:


				Amounts Not Offset in the
				Statement of Assets and Liabilities

						Financial
		Gross Amounts of Liabilities		Financial		Instruments		Cash
		Presented in the Statement		Instruments		Collateral		Collateral			Net Amount (Not
		of Assets and Liabilities		Available for Offset		Pledged^a,b		Pledged^a			less than zero)
Counterparty
BOFA	$	17,634	$	(17,634	)	$	—	$	—	$	—
BZWS		8,462		(8,462	)		—		—		—
DBAB		2,470		(327	)		—		—		2,143
GSCO		24,513		(4,215	)		—		—		20,298
JPHQ		117,563		(117,563	)		—		—		—
MSCO		73,717		(73,717	)		—		—		—
Total	$	244,359	$	(221,918	)	$	—	$	—	$	22,441

^aIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to limit the collateral amounts to avoid the effect of over collater-
alization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.
^bSee the accompanying Statement of Investments for securities pledged as collateral for derivatives.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Long Short Credit Fund (continued)

See Notes 1(e) and 6 regarding derivative financial instruments and investment transactions, respectively.

See Abbreviations on page 44.

9. Credit Facility

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statement of Operations. During the period ended November 30, 2016, the Fund did not use the Global Credit Facility.

10. Fair Value Measurements

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, 2016, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:


		Level 1		Level 2		Level 3		Total

Assets:
Investments in Securities:^a
Common Stocks and Other Equity Interests	$	826,442	$	—	$	—	$	826,442
Management Investment Companies		457,028		—		—		457,028
Convertible Preferred Stocks		130,580		—		—		130,580
Preferred Stocks		4,387		—		—		4,387
Convertible Bonds		—		808,941		—		808,941
Corporate Bonds and Notes		—		21,498,054		—		21,498,054
Foreign Government and Agency Securities		—		2,924,181		—		2,924,181
Asset-Backed Securities and Commercial Mortgage-Backed
Securities		—		23,705,456		—		23,705,456
Options Purchased		82,522		—		—		82,522
U.S. Government and Agency Securities		—		2,026,360		—		2,026,360
Short Term Investments		19,371,048		4,129,573		—		23,500,621
Total Investments in Securities	$	20,872,007	$	55,092,565	$	—	$	75,964,572

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)


Franklin K2 Long Short Credit Fund (continued)

10. Fair Value Measurements (continued)

		Level 1		Level 2		Level 3		Total

Assets: (continued)
Other Financial Instruments:
Futures Contracts	$	15,159	$	—	$	—	$	15,159
Forward Exchange Contracts		—		264,624		—		264,624
Swap Contracts		—		139,298		—		139,298
Total Other Financial Instruments	$	15,159	$	403,922	$	—	$	419,081

Liabilities:
Other Financial Instruments:
Options Written	$	3,735	$	—	$	—	$	3,735
Securities Sold Short		135,062		6,180,467		—		6,315,529
Futures Contracts		4,595		—		—		4,595
Forward Exchange Contracts		—		87,170		—		87,170
Swap Contracts		—		176,068		—		176,068
Total Other Financial Instruments	$	143,392	$	6,443,705	$	—	$	6,587,097

^aFor detailed categories, see the accompanying Statement of Investments.

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the end of the period.

11. Subsequent Events

The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.


Abbreviations
Counterparty/Exchange		Currency		Selected Portfolio		Index
BOFA	Bank of America, N.A.	ARS	Argentine Peso	ARM	Adjustable Rate	CDX.NA.HY	CDX North America High
					Mortgage		Yield
BZWS	Barclays Bank PLC	BRL	Brazilian Real	CLO	Collateralized Loan
					Obligation
CME	Chicago Mercantile	CZK	Czech Koruna	FNMA	Federal National
	Exchange				Mortgage Association
DBAB	Deutsche Bank, A.G.	EUR	Euro	FRN	Floating Rate Note
GSCO	Goldman Sachs	GBP	British Pound	LIBOR	London InterBank
	Banks US				Offered Rate
ICE	Intercontinental	JPY	Japanese Yen	PIK	Payment-In-Kind
	Exchange, Inc.
JPHQ	JP Morgan Chase	RUB	Russian Ruble	REIT	Real Estate Investment
	Bank, N.A.				Trust
MSCO	Morgan Stanley &	USD	United States Dollar	SPDR	Standard & Poor’s
	Co., LLC				Depositary Receipt

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 LONG SHORT CREDIT 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 deter-
mine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund’s complete Policies online at
franklintempleton.com. Alternatively, shareholders may request
copies of the Policies free of charge by calling the Proxy Group
collect at (954) 527-7678 or by sending a written request to:
Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort
Lauderdale, FL 33301, Attention: Proxy Group. Copies of the
Fund’s proxy voting records are also made available online at
franklintempleton.com and posted on the U.S. Securities and
Exchange Commission’s website at sec.gov and reflect the most
recent 12-month period ended June 30.

Quarterly Statement of Investments

The Trust, on behalf of the Fund, files a complete statement of
investments with the U.S. Securities and Exchange Commission
for the first and third quarters for each fiscal year on Form N-Q.
Shareholders may view the filed Form N-Q by visiting the
Commission’s website at sec.gov. The filed form may also be
viewed and copied at the Commission’s Public Reference
Room in Washington, DC. Information regarding the operations
of the Public Reference Room may be obtained by calling
(800) SEC-0330.

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Semiannual Report and Shareholder Letter
Franklin K2 Long Short Credit Fund

Investment Manager
K2/D&S Management Co., L.L.C.

Distributor
Franklin Templeton Distributors, Inc.
(800) DIAL BEN^®/ 342-5236
franklintempleton.com

Shareholder Services
(800) 632-2301

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.


© 2016-2017 Franklin Templeton Investments. All rights reserved.	948 S 01/17


Contents
Semiannual Report
Franklin K2 Global Macro Opportunities Fund	3
Performance Summary	7
Your Fund’s Expenses	9
Consolidated Financial Highlights and
Consolidated Statement of Investments	10
Consolidated Financial Statements	21
Notes to Consolidated Financial Statements	25
Shareholder Information	36

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

2 Not part of the semiannual report

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Semiannual Report

Franklin K2 Global Macro Opportunities Fund

This semiannual report for Franklin K2 Global Macro Opportunities Fund covers the period since the Fund’s inception on July 11, 2016, through November 30, 2016.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation over a full business and economic cycle, which may include periods of rising and declining interest rates. The Fund seeks to achieve its investment goal by allocating its assets across global macro-focused investment strategies, which are “non-traditional” or “alternative” strategies that generally focus on macro-economic opportunities across numerous markets and investments. The Fund is structured as a multi-manager fund, meaning the Fund’s assets are managed by multiple investment advisors (subadvi-sors), while the Fund’s investment manager has overall responsibility for the Fund’s investments. The Fund’s principal investments include both U.S. and foreign (including emerging markets) securities and exchange traded and over-the-counter (“OTC”) derivative instruments, and may include asset classes such as equities, fixed income, interest rates, currencies or commodities. The Fund invests primarily in a wide range of derivative instruments that provide the Fund with broad exposure, either long or short, to these various asset classes. Long positions benefit from an increase in the price of the underlying instrument or asset class, while short positions benefit from a decrease in that price.

Performance Overview

The Fund’s Class A shares had a -4.30% cumulative total return for the period since the Fund’s inception through period-end. For comparison, the Fund’s primary benchmark, the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index, which is an index of short-term U.S. government securities with a remaining term to final maturity of less than three months, produced a +0.13% total return for the same period.¹Also for comparison, the Fund’s secondary benchmark, the HFRX Macro/CTA Index, which measures performance of global macro strategies with exposure to equity, fixed income, hard currency and commodity markets, had a -3.18% total return for the same period.²You can find more of the Fund’s performance data in the Performance Summary beginning on page 7.

Economic and Market Overview

The global economy expanded during the period under review. In this environment, global developed and emerging market stocks, as measured by the MSCI All Country World Index, rose. Global markets were aided by accommodative monetary policies of various central banks, an improvement in commodity prices, generally encouraging economic data across regions, expectations of higher interest rates and inflation in the U.S. driven by hopes of expansionary fiscal policies under the new U.S. President Donald Trump, and an Organization of the Petroleum Exporting Countries deal to curb oil production. However, the impact of these factors was partially offset by global economic concerns, the U.K.’s historic referendum to leave the European Union (also known as “Brexit”), uncertainty about the U.S. Federal Reserve’s (Fed’s) timing for raising interest rates and worries about the health of European banks.

1. Source: Morningstar.
2. Source: FactSet. Hedge Fund Research, Inc. – www.hedgefundresearch.com. The HFRX Macro/CTA Index is being used under license from Hedge Fund Research, Inc.,
which does not endorse or approve of any of the contents of this report.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. One cannot invest directly in an
index, and an index is not representative of the Fund’s portfolio. Unlike most asset class indexes, HFR Index returns reflect fees and expenses.
See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Consolidated Statement of Investments (SOI).
The Consolidated SOI begins on page 15.

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Semiannual Report 3

FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND

The U.S. economy strengthened during the period under review. The economy grew at a faster pace in 2016’s third quarter compared to the second quarter, mainly due to personal consumption expenditure, exports, private inventory investment, federal government spending and nonresidential fixed investment. Although the Fed kept its target interest rate unchanged during the review period, and lowered its forecast for 2016 U.S. economic growth at the September meeting, it maintained its stance that the case for a U.S. interest rate increase had strengthened. Further, the Fed Chair Janet Yellen, at her testimony to the Congress’ Joint Economic Committee in November, set the stage for an interest rate hike in December, as long as data continued to provide evidence of economic resilience.

Investment Strategy

Discretionary global macro strategies seek to profit by tactically investing across different asset classes, markets (including emerging markets) and investment opportunities through a combination of fundamental market analysis and quantitative modeling, whereas systematic global macro strategies seek to profit by utilizing quantitative models to identify investment opportunities across different asset classes and markets in order to construct a portfolio of investments. Quantitative trading models are proprietary systems that rely on mathematical computations to identify trading opportunities. Subadvisors may use strategies which include a combination of discretionary and systematic focused strategies.

The Fund may invest in equities and various debt instruments, such as securities of the U.S. government, its agencies and instrumentalities and sovereign, quasi-sovereign and corporate bonds. Such debt instruments may have variable or fixed interest rates, may be of any maturity, duration or credit rating and may include high yield (junk) bonds and distressed debt securities (securities of companies that are, or are about to be, involved in reorganizations, financial restructurings, or bankruptcy). The Fund will use a variety of derivatives to implement its investment strategies, which may include futures contracts, swaps, currency forward contracts, and options. The Fund may engage in active and frequent trading as part of its investment strategies.

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FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND

What is a futures contract?

What are swap agreements?

What is a currency forward contract?

A currency forward contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency in exchange for another currency at a specific exchange rate on a future date.

What is an option?

Manager’s Discussion

The Fund’s subadvisors for the review period covering July 11, 2016, to November 30, 2016, were Emso Asset Management, Aspect Capital and Graham Capital Management. These sub-advisors use systematic or discretionary investment strategies, as shown in the table on this page.

The Fund’s two systematic macro subadvisors, Aspect Capital and Graham Capital Management, experienced negative performance. This global macro strategy faced headwinds in the review period, including an unsure outlook for growth in developed markets, concerns over the effectiveness of unconventional monetary policy and the long-term impact of Brexit. However, conditions were generally more favorable in emerging markets, aside from a setback in November following the U.S. elections, as fundamental and technical conditions appeared supportive. As a result, Emso Asset Management, the discretionary macro subadvisor delivered positive returns.

Subadvisors

11/30/16

Discretionary Macro

Emso Asset Management Limited

Systematic Macro

Aspect Capital Limited

Graham Capital Management, L.P.

Performance for the two systematic subadvisors was hampered by timing surrounding trend reversals in commodities. Short positioning in energy commodities, particularly crude oil and crude oil products, detracted from returns. Also weighing on performance in commodities was a short position in copper and a long position in silver. However, the systematic macro sub-advisors experienced gains due to long positioning in equity indexes, particularly those representing U.S. small-capitalization and Hong Kong stocks due to increased risk appetite following Brexit and, subsequently, the anticipation of higher growth and inflation in the U.S. considering President-elect Donald Trump’s likely policy mix. The continuance of a weakening British pound, in the wake of Brexit, and the euro, amid policy differences of central banks in the eurozone and the U.S., contributed positively to gains from short positioning in the currencies.

Quasi-sovereign credit and currencies strengthened performance for the discretionary macro subadvisor. A long position in Brazilian quasi-sovereign credit performed strongly. Positions in Brazil continued to benefit from broad emerging-market rallies and strong investor demand for most of the review period, particularly with the prospect of economic improvements under President Michel Temer. Long positions in Argentine sovereign bonds and local rates also contributed positively to performance as political progress, led by President Mauricio Macri, continued to aid results following the country’s return to international capital markets in the second quarter, and amid the prospect of increased creditwor-thiness. Also supporting the subadvisor’s returns were long positions in Venezuelan sovereign government bonds and Venezuela credit default swaps. A long position in Venezuelan quasi-sovereign credit performed strongly at the end of the period as a state-owned company announced a swap deal on debt maturing in 2017 for a later maturity in exchange for a higher premium to be paid to investors at the later maturity date. This positively influenced the bonds’ prices across maturities, as the swap deal effectively limited near-term default risk. Long exposure to the U.S. dollar against the euro and the Turkish lira also benefited performance. None of this sub-advisor’s positions meaningfully detracted from returns.

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Semiannual Report 5

FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND

Thank you for your participation in Franklin K2 Global Macro Opportunities Fund. We look forward to continuing to serve your investment needs.

Robert Christian 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.

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 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.

Anthony Zanolla joined K2 Advisors in October 2014 and serves as senior vice president and portfolio manager.

Mr. Zanolla began his investment career in 1994 at Bankers Trust and worked on the business risk team for senior management. Mr. Zanolla joined Citibank in 1996 as portfolio manager of global equity and balanced investment mandates. In 2000 he joined Scudder Kemper Investments as vice president of venture capital. In 2001 Mr. Zanolla joined former Citigroup colleagues as a founding partner and equity analyst at Norquest Capital, a hedge fund. He joined Allianz Hedge Fund Partners in 2002 as an investment committee member and strategy head responsible for global long-short equity, event driven, distressed and commodity trading advisors. After joining the Hedge Fund group of Northern Trust in October 2005 as co-portfolio manager, in 2007 Mr. Zanolla was promoted to senior vice president and portfolio manager responsible for fund of funds and custom portfolios.

6 Semiannual Report

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FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND

Performance Summary as of November 30, 2016

Performance as of 11/30/16¹

Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.


	Cumulative		Average Annual
Share Class	Total Return²		Total Return³

A
Since Inception (7/11/16)	-4.30	%	-9.80	%

Advisor
Since Inception (7/11/16)	-4.20	%	-4.20	%

See page 8 for Performance Summary footnotes.

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FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND
PERFORMANCE SUMMARY


Total Annual Operating Expenses⁴
Share Class	With Waiver		Without Waiver
A	2.25	%	4.90	%
Advisor	2.00	%	4.65	%

Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.

All investments involve risks, including possible loss of principal. The Fund is actively managed and could experience losses if the investment manager’s or
subadvisors’ judgment about particular investments made for the Fund prove to be incorrect. Investments in derivatives involve costs and create economic
leverage, which may result in significant volatility and cause the Fund to participate in losses (as well as gains) that significantly exceed the Fund’s initial invest-
ment. The market values of securities owned by the Fund will go up or down, sometimes rapidly or unpredictably. Liquidity risk may exist when securities have
become more difficult to sell, or are unable to be sold, at the price at which they have been valued. The subadvisors may not be successful in maintaining effec-
tive and operational trading models used to implement systematic strategies. An issuer of debt securities may fail to make interest payments or repay principal
when due. Lower rated or high yield debt securities involve greater credit risk, including the possibility of default or bankruptcy. When interest rates rise, debt
security prices tend to fall. Foreign investments are subject to greater investment risk such as political, economic, credit, information and currency fluctuation
risks. Investments in emerging markets are subject to the risks of foreign investing and have additional heightened risks. Commodity and commodity-linked
investments present unique risks, are speculative and can be extremely volatile. The Fund’s prospectus also includes a description of the main investment risks.

1. The Fund has an expense reduction contractually guaranteed through 9/30/17 and a fee waiver related to the management fee paid by a subsidiary. Fund investment
results reflect the expense reduction and fee waiver; without these reductions, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been
annualized.
4. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Consolidated Financial Highlights
sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

8 Semiannual Report

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FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND

Your Fund’s Expenses

Actual Fund Expenses

Hypothetical Example for Comparison with Other Funds


						Actual			Hypothetical
				(actual return after expenses)					(5% annual return before expenses)

						Expenses					Expenses	Net
		Beginning		Ending		Paid During			Ending		Paid During	Annualized
Share		Account		Account		Period			Account		Period	Expense
Class		Value¹		Value 11/30/16		7/11/16–11/30/16^2,3Value 11/30/16					6/1/16–11/30/16^2,3	Ratio³

A	$	1,000	$	957.00		$	8.15	$	1,014.34	$	10.81	2.14	%
C	$	1,000	$	954.00	$	11.14		$	1,010.38	$	14.77	2.93	%
R	$	1,000	$	957.00		$	8.22	$	1,014.24	$	10.91	2.16	%
R6	$	1,000	$	957.00		$	7.39	$	1,015.34	$	9.80	1.94	%
Advisor	$	1,000	$	958.00		$	7.43	$	1,015.29	$	9.85	1.95	%

1. 7/11/16 for Actual; 6/1/16 for Hypothetical.
2. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value
over the period indicated, and then multiplied by 183/365 to reflect the one-half year period for Hypothetical expenses. For Actual expenses, the multiplier is 142/365 to reflect
the number of days since inception.
3. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

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Semiannual Report 9

FRANKLIN ALTERNATIVE STRATEGIES FUNDS


Consolidated Financial Highlights
Franklin K2 Global Macro Opportunities Fund
		Period Ended
		November 30, 2016^a
		(unaudited)
Class A
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.00
Income from investment operations ^b:
Net investment income (loss)^c		(0.02	)
Net realized and unrealized gains (losses)		(0.41	)
Total from investment operations		(0.43	)
Net asset value, end of period	$	9.57

Total return^d		(4.30	)%

Ratios to average net assets^e
Expenses before waiver and payments by affiliates		3.63	%
Expenses net of waiver and payments by affiliates		2.14	%
Net investment income (loss)		(1.02	)%

Supplemental data
Net assets, end of period (000’s)	$	19
Portfolio turnover rate		54.87	%

^aFor the period July 11, 2016 (commencement of operations) to November 30, 2016.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.

10 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS


Franklin K2 Global Macro Opportunities Fund (continued)
		Period Ended
		November 30, 2016^a
		(unaudited)
Class C
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.00
Income from investment operations ^b:
Net investment income (loss)^c		(0.05	)
Net realized and unrealized gains (losses)		(0.41	)
Total from investment operations		(0.46	)
Net asset value, end of period	$	9.54

Total return^d		(4.60	)%

Ratios to average net assets^e
Expenses before waiver and payments by affiliates		4.42	%
Expenses net of waiver and payments by affiliates		2.93	%
Net investment income (loss)		(1.81	)%

Supplemental data
Net assets, end of period (000’s)	$	143
Portfolio turnover rate		54.87	%

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The accompanying notes are an integral part of these financial statements. | Semiannual Report 11

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS


Franklin K2 Global Macro Opportunities Fund (continued)
		Period Ended
		November 30, 2016^a
		(unaudited)
Class R
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.00
Income from investment operations^b:
Net investment income (loss)^c		(0.02	)
Net realized and unrealized gains (losses)		(0.41	)
Total from investment operations		(0.43	)
Net asset value, end of period	$	9.57

Total return^d		(4.30	)%

Ratios to average net assets^e
Expenses before waiver and payments by affiliates		3.65	%
Expenses net of waiver and payments by affiliates		2.16	%
Net investment income (loss)		(1.04	)%

Supplemental data
Net assets, end of period (000’s)	$	10
Portfolio turnover rate		54.87	%

^aFor the period July 11, 2016 (commencement of operations) to November 30, 2016.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.

12 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS


Franklin K2 Global Macro Opportunities Fund (continued)
		Period Ended
		November 30, 2016^a
		(unaudited)
Class R6
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.00
Income from investment operations^b:
Net investment income (loss)^c		(0.02	)
Net realized and unrealized gains (losses)		(0.41	)
Total from investment operations		(0.43	)
Net asset value, end of period	$	9.57

Total return^d		(4.30	)%

Ratios to average net assets^e
Expenses before waiver and payments by affiliates		3.43	%
Expenses net of waiver and payments by affiliates		1.94	%
Net investment income (loss)		(0.82	)%

Supplemental data
Net assets, end of period (000’s)	$	10
Portfolio turnover rate		54.87	%

^aFor the period July 11, 2016 (commencement of operations) to November 30, 2016.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.

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The accompanying notes are an integral part of these financial statements. | Semiannual Report 13

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL HIGHLIGHTS


Franklin K2 Global Macro Opportunities Fund (continued)
		Period Ended
		November 30, 2016^a
		(unaudited)
Advisor Class
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period	$	10.00
Income from investment operations^b:
Net investment income (loss)^c		(0.02	)
Net realized and unrealized gains (losses)		(0.40	)
Total from investment operations		(0.42	)
Net asset value, end of period	$	9.58

Total return^d		(4.20	)%

Ratios to average net assets^e
Expenses before waiver and payments by affiliates		3.44	%
Expenses net of waiver and payments by affiliates		1.95	%
Net investment income (loss)		(0.83	)%

Supplemental data
Net assets, end of period (000’s)	$	23,930
Portfolio turnover rate		54.87	%

^aFor the period July 11, 2016 (commencement of operations) to November 30, 2016.
^bThe amount shown for a share outstanding throughout the period may not correlate with the Consolidated Statement of Operations for the period due to the timing of sales
and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
^cBased on average daily shares outstanding.
^dTotal return is not annualized for periods less than one year.
^eRatios are annualized for periods less than one year, except for non-recurring expenses, if any.

14 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS


Consolidated Statement of Investments, November 30, 2016 (unaudited)
Franklin K2 Global Macro Opportunities Fund
		Principal
	Country	Amount*			Value
Corporate Bonds and Notes 3.8%
Oil, Gas & Consumable Fuels 3.8%
Petrobras Global Finance BV,
senior bond, 5.75%, 1/20/20	Brazil	26,000	$		26,130
senior note, 4.875%, 3/17/20	Brazil	500,000			490,350
senior note, 5.375%, 1/27/21	Brazil	84,000			81,984
^aPetroleos de Venezuela SA, Reg S,
senior bond, 6.00%, 11/15/26	Venezuela	141,000			52,198
senior note, 6.00%, 5/16/24	Venezuela	319,304			120,170
Petroleos Mexicanos, senior note, 6.00%, 3/05/20	Mexico	139,000			145,255
Total Corporate Bonds and Notes (Cost $907,235)					916,087
Foreign Government and Agency Securities 6.7%
Argentine Bonos del Tesoro,
16.00%, 10/17/23	Argentina	2,354,358		ARS	143,373
senior note, 15.50%, 10/17/26	Argentina	590,669		ARS	36,063
Government of Argentina,
^aReg S, 5.00%, 1/15/27	Argentina	100,000		EUR	92,869
7.82%, 12/31/33	Argentina	233,938		EUR	245,087
2.26% to 3/31/19, 3.38% to 3/31/29, 4.74% thereafter, 12/31/38	Argentina	228,585		EUR	136,699
^aGovernment of Cyprus, Reg S, 3.875%, 5/06/22	Cyprus	44,000		EUR	48,350
Government of Hellenic Republic,
^asenior bond, Reg S, 3.00% to 2/24/20, 3.65% to 2/24/21, 4.30% thereafter,
2/24/42	Greece	225,040		EUR	174,264
^bsenior note, 144A, 4.75%, 4/17/19	Greece	40,000		EUR	40,811
Government of Russia,
6.40%, 5/27/20	Russia	10,603,000		RUB	154,932
^aReg S, 4.75%, 5/27/26	Russia	200,000			204,112
^aGovernment of Ukraine, Reg S, 7.75%, 9/01/19	Ukraine	107,000			103,873
Letras del Banco Central de la Republica Argentina,
Strip, 1/11/17 - 1/25/17	Argentina	3,764,056		^cARS	229,794
Total Foreign Government and Agency Securities
(Cost $1,696,128)					1,610,227

		Number of
		Contracts
Options Purchased 0.0%^†
Puts – Exchange-Traded
Diversified Financial Services 0.0%^†
S&P 500 E-Mini Index, December Strike Price $2,100.00, Expires 12/16/16	United States	1			180
S&P 500 E-Mini Index, December Strike Price $2,120.00, Expires 12/16/16	United States	1			245
Total Options Purchased (Cost $1,880)					425
Total Investments before Short Term Investments
(Cost $2,605,243)					2,526,739

		Shares
Short Term Investments 59.0%
Money Market Funds (Cost $10,087,860) 41.9%
^dFidelity Investments Money Market Funds, 0.268%	United States	10,087,860			10,087,860

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Semiannual Report 15

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Global Macro Opportunities Fund (continued)

		Principal
	Country	Amount*		Value
Repurchase Agreements (Cost $4,131,059) 17.1%
^eJoint Repurchase Agreement, 0.265%, 12/01/16
(Maturity Value $4,131,089)	United States	4,131,059	$	4,131,059
BNP Paribas Securities Corp. (Maturity Value $1,999,985)
Deutsche Bank Securities Inc. (Maturity Value $81,134)
HSBC Securities (USA) Inc. (Maturity Value $1,999,985)
Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $49,985)
Collateralized by U.S. Government Agency Securities, 0.476%, 8/03/17,
^fU.S. Treasury Bill, 4/27/17; U.S. Treasury Note, 0.689% - 1.625%,
7/31/18 - 11/30/20; and U.S. Treasury Note, Index Linked, 2.625%,
7/15/17 (valued at $4,213,736)
Total Investments (Cost $16,824,162) 69.5%				16,745,658
Other Assets, less Liabilities 30.5%				7,365,165
Net Assets 100.0%			$	24,110,823

See Abbreviations on page 35.
*The principal amount is stated in U.S. dollars unless otherwise indicated.
^†Rounds to less than 0.1% of net assets.
^aSecurity was purchased pursuant to Regulation S under the Securities Act of 1933, which exempts from registration securities offered and sold outside of the United States.
Such a security cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption
from registration. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At November 30, 2016, the aggregate value of these
securities was $795,836, representing 3.3% of net assets.
^bSecurity 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. This security has been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At
November 30, 2016, the value of this security was $40,811, representing 0.2% of net assets.
^cPrincipal amount is stated in 1,000 Argentine Peso Units.
^dThe rate shown is the annualized seven-day yield at period end.
^eSee Note 1(c) regarding joint repurchase agreement.
^fThe security was issued on a discount basis with no stated coupon rate.


At November 30, 2016, 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 Contracts^a
Aluminum	Long	7	$	303,319	12/19/16	$	10,554	$	—
Aluminum	Short	7		303,319	12/19/16		—		(2,317	)
Aluminum	Long	4		173,275	3/13/17		—		(743	)
Brent Crude Oil	Short	7		362,880	12/29/16		—		(18,081	)
Cocoa	Long	3		73,421	3/16/17		—		(2,144	)
Coffee	Long	3		169,425	3/21/17		—		(18,703	)
Copper	Long	8		1,162,850	12/19/16		100,911		—
Copper	Short	7		1,017,494	12/19/16		—		(204,033	)
Copper	Long	3		437,006	3/13/17		3,341		—
Copper	Long	2		131,650	3/29/17		3,632		—
Corn	Short	7		121,975	3/14/17		2,118		—
Cotton	Long	2		71,580	3/09/17		2,120		—
Gold 100 Oz	Short	5		586,950	2/24/17		23,029		—
Kansas City Wheat	Short	6		123,075	3/14/17		5,157		—
Low Sulphur Gas Oil	Long	1		45,200	1/12/17		3,123		—
Natural Gas	Short	1		33,520	12/28/16		—		(2,012	)
Nickel	Long	5		336,307	12/19/16		28,965		—
Nickel	Short	5		336,307	12/19/16		—		(28,742	)
Nickel	Long	1		67,536	3/13/17		773		—
RBOB Gasoline	Long	2		124,530	12/30/16		10,307		—
Soybean Oil	Short	2		44,700	3/14/17		—		(2,417	)

16 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Global Macro Opportunities Fund (continued)

Futures Contracts (continued)
		Number of		Notional	Expiration		Unrealized		Unrealized
Description	Type	Contracts		Value	Date		Appreciation		Depreciation
Commodity Contracts^a(continued)
Soybeans	Long	2	$	103,225	1/13/17	$	2,982	$	—
Soybeans	Long	2		104,125	3/14/17		95		—
Sugar	Long	5		110,936	2/28/17		—		(2,063	)
Wheat	Short	10		201,375	3/14/17		12,810		—
WTI Crude Oil	Short	7		346,080	12/20/16		—		(30,965	)
Zinc	Long	5		336,375	12/19/16		50,573		—
Zinc	Short	5		336,375	12/19/16		—		(17,390	)
Zinc	Long	5		338,250	3/13/17		17,861		—
				7,903,060			278,351		(329,610	)
Currency Contracts
AUD/USD	Long	11		812,460	12/19/16		—		(15,976	)
CAD/USD	Short	8		596,040	12/20/16		—		(384	)
CHF/USD	Short	11		1,353,550	12/19/16		19,405		—
EUR/USD	Short	4		530,225	12/19/16		866		—
GBP/USD	Short	4		312,750	12/19/16		19,591		—
JPY/USD	Short	9		984,769	12/19/16		43,547		—
NZD/USD	Long	3		212,250	12/19/16		—		(4,817	)
				4,802,044			83,409		(21,177	)
Equity Contracts
CAC 40 10 Euro	Long	1		48,499	12/16/16		576		—
DJIA Mini E-CBOT Index	Long	2		191,320	12/16/16		5,451		—
DJIA Mini E-CBOT Index	Short	3		286,980	12/16/16		—		(14,136	)
EURO STOXX 50 Index	Long	2		64,672	12/16/16		1,998		—
EURO STOXX 50 Index	Short	3		97,008	12/16/16		—		(907	)
FTSE 100 Index	Long	3		254,551	12/16/16		—		(3,531	)
FTSE/JSE Africa Top 40 Index	Short	4		124,536	12/15/16		4,259		—
H-Shares Index	Long	2		127,519	12/29/16		1,740		—
Hang Seng Index	Long	6		882,692	12/29/16		6,107		—
Mini MSCI Emerging Market Index	Long	3		129,450	12/16/16		—		(6,301	)
Nasdaq 100 E-Mini Index	Long	1		96,320	12/16/16		1,044		—
Nikkei 225 Index	Long	2		173,407	12/08/16		10,539		—
Nikkei 225 Index	Short	2		321,314	12/08/16		—		(21,128	)
OMX Stockholm 30 Index	Long	4		64,102	12/16/16		566		—
Russell 2000 Mini Index	Long	3		396,690	12/16/16		22,529		—
S&P 500 E-Mini Index	Long	1		109,940	12/16/16		2,348		—
S&P 500 E-Mini Index	Short	2		219,880	12/16/16		—		(2,804	)
S&P MidCap 400 E-Mini Index	Long	2		325,380	12/16/16		5,611		—
S&P/TSX 60 Index	Long	3		396,278	12/15/16		11,759		—
SPI 200 Index	Long	2		200,932	12/15/16		3,137		—
TOPIX Index	Long	2		257,681	12/08/16		11,943		—
TOPIX Index	Short	4		515,362	12/08/16		—		(53,876	)
				5,284,513			89,607		(102,683	)
Interest Rate Contracts
90 Day Bank Bill	Short	2		1,470,480	3/09/17		125		—
90 Day Bank Bill	Short	4		2,940,888	6/08/17		231		—
90 Day Bank Bill	Short	4		2,940,527	9/07/17		393		—
90 Day Bank Bill	Short	4		2,940,021	12/07/17		741		—
90 Day Bank Bill	Short	1		734,879	3/08/18		236		—
90 Day Eurodollar	Short	1		247,088	6/19/17		961		—
90 Day Eurodollar	Short	5		1,234,250	9/18/17		1,377		—
90 Day Eurodollar	Short	17		4,190,712	12/18/17		10,703		—
90 Day Eurodollar	Short	1		246,288	3/19/18		223		—
90 Day Eurodollar	Short	2		492,000	6/18/18		183		—
90 Day Eurodollar	Short	2		491,450	9/17/18		83		—

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Semiannual Report 17

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Global Macro Opportunities Fund (continued)

Futures Contracts (continued)
		Number of		Notional	Expiration		Unrealized		Unrealized
Description	Type	Contracts		Value	Date		Appreciation		Depreciation
Interest Rate Contracts (continued)
90 Day Eurodollar	Short	1	$	245,425	12/17/18	$	236	$	—
90 Day Eurodollar	Short	1		245,238	3/18/19		186		—
90 Day Eurodollar	Short	1		245,025	6/17/19		48		—
90 Day Sterling	Short	1		155,681	6/21/17		76		—
90 Day Sterling	Short	3		466,856	9/20/17		277		—
90 Day Sterling	Short	4		622,224	12/20/17		353		—
90 Day Sterling	Short	4		621,911	3/21/18		370		—
90 Day Sterling	Short	4		621,536	6/20/18		138		—
90 Day Sterling	Short	5		776,450	9/19/18		449		—
90 Day Sterling	Short	3		465,542	12/19/18		185		—
90 Day Sterling	Short	4		620,347	3/20/19		137		—
3 Month Euribor	Short	1		265,426	12/17/18		58		—
3 Month Euribor	Short	1		265,320	3/18/19		86		—
10 Yr. Mini Japan Government Bond	Long	1		131,559	12/12/16		—		(644	)
Australian 3 Yr. Bond	Short	12		991,567	12/15/16		4,065		—
Australian 10 Yr. Bond	Long	2		190,303	12/15/16		—		(1,013	)
Australian 10 Yr. Bond	Short	4		380,605	12/15/16		8,033		—
Euro Schatz	Long	2		238,032	12/08/16		557		—
Euro BOBL	Long	3		417,888	12/08/16		18		—
Euro-BTP Italian Government Bond	Short	2		286,859	12/08/16		6,856		—
Euro-Bund	Long	3		512,098	12/08/16		—		(4,814	)
Euro-Buxl 30 Yr. Bond	Short	1		185,855	12/08/16		4,914		—
Long Gilt	Long	1		154,336	3/29/17		868		—
Long Gilt	Short	2		308,672	3/29/17		—		(817	)
U.S. Treasury 2 Yr. Note	Short	1		216,813	3/31/17		—		(158	)
U.S. Treasury 5 Yr. Note	Short	40		4,713,750	3/31/17		2,803		—
U.S. Treasury 10 Yr. Note	Short	7		871,609	3/22/17		2,933		—
U.S. Treasury Long Bond	Short	5		756,406	3/22/17		2,843		—
				33,901,916			51,745		(7,446	)
Total Futures Contracts			$	51,891,533		$	503,112	$	(460,916	)
Net unrealized appreciation (depreciation)						$	42,196

^aA portion or all of the contracts are owned by K2 GMOF Holdings Corp., a wholly-owned subsidiary of the Fund. See Note 1(e).


At November 30, 2016, the Fund had the following forward exchange contracts outstanding. See Note 1(d).

Forward Exchange Contracts
				Contract	Settlement		Unrealized		Unrealized
Currency	Counterparty^aType		Quantity	Amount*	Date		Appreciation		Depreciation
OTC Forward Exchange Contracts
South Korean Won	BOFA	Sell	90,009,366	78,611	12/05/16	$	1,618	$	—
South Korean Won	MSCO	Sell	90,504,133	77,520	12/14/16		104		—
Chinese Yuan	MSCO	Sell	2,103,394	312,308	12/21/16		8,895		—
Euro	DBAB	Buy	104,746	112,793	12/21/16		—		(1,634	)
Euro	DBAB	Sell	240,148	261,559	12/21/16		6,711		—
Euro	MSCO	Buy	371,606	411,991	12/21/16		160		(17,799	)
Euro	MSCO	Sell	992,267	1,110,932	12/21/16		57,925		—
Mexican Peso	BOFA	Buy	5,838,563	297,741	12/21/16		—		(14,730	)
Mexican Peso	BOFA	Sell	5,838,564	295,609	12/21/16		13,139		(542	)
Mexican Peso	MSCO	Buy	1,586,864	79,448	12/21/16		—		(2,527	)
Mexican Peso	MSCO	Sell	1,586,865	79,433	12/21/16		2,513		—
Russian Ruble	BOFA	Buy	5,087,011	78,298	12/21/16		574		—
Russian Ruble	MSCO	Buy	21,374,014	327,760	12/21/16		4,986		(1,347	)
Russian Ruble	MSCO	Sell	11,455,920	174,327	12/21/16		—		(3,294	)
South African Rand	MSCO	Sell	1,109,430	78,122	12/21/16		—		(331	)

18 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Global Macro Opportunities Fund (continued)

Forward Exchange Contracts (continued)
				Contract	Settlement			Unrealized		Unrealized
Currency	Counterparty^aType		Quantity	Amount*	Date			Appreciation		Depreciation
OTC Forward Exchange Contracts (continued)
Turkish Lira	BOFA	Sell	483,259	159,412	12/21/16		$	19,463	$	—
Turkish Lira	MSCO	Buy	245,220	76,548	12/21/16			—		(5,533	)
Japanese Yen	MSCO	Buy	164,210,000	1,604,199	12/22/16			—		(166,699	)
Japanese Yen	MSCO	Sell	226,338,000	2,100,670	12/22/16			119,299		—
Australian Dollar	MSCO	Buy	2,207,000	1,660,752	12/23/16			—		(32,010	)
Australian Dollar	MSCO	Sell	2,161,000	1,613,647	12/23/16			19,572		(717	)
British Pound	MSCO	Buy	584,000	737,563	12/23/16			7,459		(13,706	)
British Pound	MSCO	Sell	1,630,000	2,108,143	12/23/16			75,877		(8,901	)
Canadian Dollar	MSCO	Buy	398,000	300,430	12/23/16			133		(4,196	)
Canadian Dollar	MSCO	Sell	1,961,000	1,484,329	12/23/16			24,455		(372	)
Euro	MSCO	Buy	535,000	596,763	12/23/16			—		(28,945	)
Euro	MSCO	Sell	1,746,000	1,930,750	12/23/16			77,645		—
Mexican Peso	MSCO	Buy	2,030,000	107,936	12/23/16			34		(9,596	)
Mexican Peso	MSCO	Sell	7,761,000	390,823	12/23/16			14,721		(2	)
New Zealand Dollar	MSCO	Buy	817,000	593,542	12/23/16			21		(15,426	)
New Zealand Dollar	MSCO	Sell	407,000	291,421	12/23/16			4,643		(1,227	)
Swiss Franc	MSCO	Buy	1,067,000	1,093,571	12/23/16			—		(42,084	)
Swiss Franc	MSCO	Sell	1,888,000	1,930,785	12/23/16			70,231		—
South Korean Won	BOFA	Sell	92,172,315	78,245	12/27/16			—		(596	)
Czech Koruna	JPHQ	Sell	5,262,698	195,124	EUR	2/28/17		73		—
Euro	JPHQ	Sell	195,124	5,218,795	CZK	11/29/17		3,280		(3,341	)
Total Forward Exchange Contracts							$	533,531	$	(375,555	)
Net unrealized appreciation (depreciation)							$	157,976

*In U.S. dollars unless otherwise indicated.
^aMay be comprised of multiple contracts with the same counterparty, currency and settlement date.


At November 30, 2016, the Fund had the following credit default swap contracts outstanding. See Note 1(d).
Credit Default Swap Contracts
								Unamortized
	Periodic							Upfront
	Payment		Counterparty/		Notional	Expiration		Payments			Unrealized		Unrealized
Description	Rate		Exchange		Amount^a	Date		(Receipts)			Appreciation		Depreciation			Value		Rating^b
Centrally Cleared Swap Contracts
Contracts to Buy Protection
Single Name
Government of Turkey	1.00	%	ICE	$	583,000	6/20/21	$	38,013		$	2,553	$	—		$	40,566
Government of South Africa	1.00	%	ICE		275,000	12/20/21		18,824			—		(1,337	)		17,487
Government of South Korea	1.00	%	ICE		196,232	12/20/21		(5,688	)		914		—			(4,774	)
Contracts to Sell Protection^c
Single Name
Government of Brazil	1.00	%	ICE		396,000	6/20/21		(24,929	)		—		(3,155	)		(28,084	)	BB
Total Credit Default Swap Contracts				$	1,450,232		$	26,220		$	3,467	$	(4,492	)	$	25,195
Net unrealized appreciation (depreciation)												$	(1,025	)

^aFor contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse provisions have been entered into in
association with the contracts.
^bBased on Standard and Poor’s (S&P) Rating for single name swaps.
^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 fail-
ure to pay or bankruptcy of the underlying securities for traded index swaps.
See Notes 1(d) and 7 regarding derivative financial instruments and other derivative information, respectively.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)


Franklin K2 Global Macro Opportunities Fund (continued)
At November 30, 2016, the Fund had the following interest rate swap contracts outstanding. See Note 1(d).

Interest Rate Swap Contracts
		Counterparty/	Notional	Expiration				Unrealized		Unrealized
Description	Exchange		Amount			Date		Appreciation		Depreciation
Centrally Cleared Swap Contracts
Receive Floating rate 6 Month GBP-LIBOR
Pay Fixed rate 1.55%	CME		78,170		GBP	11/28/46	$	411	$	—
Receive Floating rate 6 Month GBP-LIBOR
Pay Fixed rate 1.56%	CME		78,445		GBP	11/29/46		387		—
Total Centrally Cleared Swap Contracts							$	798	$	—

OTC Swap Contracts
Receive Fixed rate 11.27%
Pay Floating rate BRL-Brazil Cetip DI Interbank Deposit Rate	BOFA		255,661		BRL	1/02/20	$	—	$	(537	)
Receive Fixed rate 11.30%
Pay Floating rate BRL-Brazil Cetip DI Interbank Deposit Rate	BOFA		259,220		BRL	1/02/20		—		(491	)
Receive Fixed rate 12.05%
Pay Floating rate BRL-Brazil Cetip DI Interbank Deposit Rate	MSCO		522,000		BRL	1/02/20		1,348		—
Total OTC Swap Contracts							$	1,348	$	(1,028	)
Total Interest Rate Swap Contracts							$	2,146	$	(1,028	)
Net unrealized appreciation (depreciation)							$	1,118

See Abbreviations on page 35.

20 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS

Consolidated Financial Statements

Consolidated Statement of Assets and Liabilities
November 30, 2016 (unaudited)


Franklin K2 Global Macro Opportunities Fund

Assets:
Investments in securities:
Cost - Unaffiliated issuers	$	12,693,103
Cost - Repurchase agreements		4,131,059
Total cost of investments	$	16,824,162
Value - Unaffiliated issuers	$	12,614,599
Value - Repurchase agreements		4,131,059
Total value of investments		16,745,658
Cash		5,418,428
Foreign currency, at value (cost $5,445)		5,807
Receivables:
Investment securities sold		65,973
Interest		34,671
Affiliates		70,811
Due from brokers		1,579,499
Variation margin		11,832
Offering costs		235,646
Unrealized appreciation on OTC forward exchange contracts		533,531
Unrealized appreciation on OTC swap contracts		1,348
Total assets		24,703,204
Liabilities:
Payables:
Investment securities purchased		35,649
Distribution fees		106
Transfer agent fees		1,860
Trustees’ fees and expenses		1,383
Due to brokers		134,252
Unrealized depreciation on OTC forward exchange contracts		375,555
Unrealized depreciation on OTC swap contracts		1,028
Accrued expenses and other liabilities		42,548
Total liabilities		592,381
Net assets, at value	$	24,110,823
Net assets consist of:
Paid-in capital	$	25,173,994
Accumulated net investment loss		(79,873	)
Net unrealized appreciation (depreciation)		120,838
Accumulated net realized gain (loss)		(1,104,136	)
Net assets, at value	$	24,110,823

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Statement of Assets and Liabilities (continued)
November 30, 2016 (unaudited)

Franklin K2 Global Macro Opportunities Fund

Class A:
Net assets, at value	$	18,961
Shares outstanding		1,981
Net asset value per share^a	$	9.57
Maximum offering price per share (net asset value per share ÷ 94.25%)	$	10.15
Class C:
Net assets, at value	$	143,062
Shares outstanding		14,993
Net asset value and maximum offering price per share^a	$	9.54
Class R:
Net assets, at value	$	9,570
Shares outstanding		1,000
Net asset value and maximum offering price per share	$	9.57
Class R6:
Net assets, at value	$	9,572
Shares outstanding		1,000
Net asset value and maximum offering price per share	$	9.57
Advisor Class:
Net assets, at value	$	23,929,658
Shares outstanding		2,498,745
Net asset value and maximum offering price per share	$	9.58

^aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.

22 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Operations
for the period ended November 30, 2016^a(unaudited)


Franklin K2 Global Macro Opportunities Fund

Investment income:
Interest	$	107,087
Expenses:
Management fees (Note 3a)		195,891
Distribution fees: (Note 3c)
Class A		10
Class C		314
Class R		8
Transfer agent fees: (Note 3d)
Class A		1
Class C		6
Class R		1
Class R6		5
Advisor Class		1,902
Custodian fees (Note 4)		23,816
Reports to shareholders		2,052
Registration and filing fees		1,252
Professional fees		40,687
Trustees’ fees and expenses		3,395
Amortization of offering costs		150,054
Other		1,664
Total expenses		421,058
Expenses waived/paid by affiliates (Note 3e)		(234,098	)
Net expenses		186,960
Net investment income (loss)		(79,873	)
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments		37,960
Foreign currency transactions		(27,825	)
Futures contracts		(1,110,467	)
Swap contracts		(3,804	)
Net realized gain (loss)		(1,104,136	)
Net change in unrealized appreciation (depreciation) on:
Investments		(78,504	)
Translation of other assets and liabilities denominated in foreign currencies		157,053
Futures contracts		42,196
Swap contracts		93
Net change in unrealized appreciation (depreciation)		120,838
Net realized and unrealized gain (loss)		(983,298	)
Net increase (decrease) in net assets resulting from operations	$	(1,063,171	)

^aFor the period July 11, 2016 (commencement of operations) to November 30, 2016.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Statement of Changes in Net Assets

Franklin K2 Global Macro Opportunities Fund

		Period Ended
		November 30, 2016^a
		(unaudited)
Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	(79,873	)
Net realized gain (loss)		(1,104,136	)
Net change in unrealized appreciation (depreciation)		120,838
Net increase (decrease) in net assets resulting from operations		(1,063,171	)
Capital share transactions: (Note 2)
Class A		19,536
Class C		147,371
Class R		10,000
Class R6		10,000
Advisor Class		24,987,087
Total capital share transactions		25,173,994
Net increase (decrease) in net assets		24,110,823
Net assets:
End of period	$	24,110,823
Accumulated net investment loss included in net assets:
End of period	$	(79,873	)

^aFor the period July 11, 2016 (commencement of operations) to November 30, 2016.

24 Semiannual Report | The accompanying notes are an integral part of these financial statements.

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS

Notes to Consolidated Financial Statements (unaudited)

Franklin K2 Global Macro Opportunities Fund

1. Organization and Significant Accounting Policies

Franklin Alternative Strategies Funds (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of four separate funds and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). Franklin K2 Global Macro Opportunities Fund (Fund) is included in this report. The financial statements of the remaining funds in the Trust are presented separately. The Fund commenced operations on July 11, 2016, with five classes of shares: Class A, Class C, Class R, Class R6 and Advisor Class. Effective August 1, 2016, the Fund began publicly offering its shares. 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

Debt securities generally trade in the OTC market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at 4 p.m. Eastern time on the date that the values of the foreign

debt securities are determined.

Investments in open-end mutual funds are valued at the closing NAV. Investments in repurchase agreements are valued at cost, which approximates fair value.

Derivative financial instruments (derivatives) listed on an exchange are valued at the official closing price of the day. Certain derivative financial instruments 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.

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Semiannual Report 25

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Global Macro Opportunities Fund (continued)

1. Organization and Significant Accounting

Policies (continued)

b. Foreign Currency Translation

c. Joint Repurchase Agreement

The Fund enters into a joint repurchase agreement whereby its uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is used to invest in one or more repurchase agreements. The value and face amount of the joint repurchase agreement are allocated to the funds based on their pro-rata interest. A repurchase agreement is accounted for as a loan by the Fund to the seller, collateralized by securities which are delivered to the Fund’s custodian. The fair value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. Repurchase agreements are subject to the terms of Master Repurchase Agreements (MRAs) with approved counterparties (sellers). The MRAs contain various provisions, including but not limited to events of default and maintenance of collateral for repurchase agreements. In the event of default by either the seller or the Fund, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Fund may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any other amounts owed by the seller to the Fund in the event of default by the seller. This could involve costs or delays in addition to a loss on the securities if their value falls below the repurchase price owed by the seller. The joint repurchase agreement held by the Fund at period end, as indicated in the Consolidated Statement of Investments, had been entered into on November 30, 2016.

d. Derivative Financial Instruments

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown in the Consolidated Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Consolidated Statement of Operations.

26 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Global Macro Opportunities Fund (continued)

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.

The Fund entered into exchange traded futures contracts primarily to manage and/or gain exposure to commodity price, interest rate, certain foreign currencies and equity price risk. A futures contract is an agreement between the Fund and a coun-terparty to buy or sell an asset at a specified price on a future date. Required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities.

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Semiannual Report 27

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Global Macro Opportunities Fund (continued)

1. Organization and Significant Accounting

Policies (continued)

d. Derivative Financial Instruments (continued)

interest rate swaps). For centrally cleared interest rate swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable in the Consolidated Statement of Assets and Liabilities. Over the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized.

The Fund purchased or wrote exchange traded option contracts primarily to manage and/or gain exposure to equity price risk. An option is a contract entitling the holder to purchase or sell a specific amount of shares or units of an asset or notional amount of a swap (swaption), at a specified price. When an option is purchased or written, an amount equal to the premium paid or received is recorded as an asset or liability, respectively. Upon exercise of an option, the acquisition cost or sales proceeds of the underlying investment is adjusted by any premium received or paid. Upon expiration of an option, any premium received or paid is recorded as a realized gain or loss. Upon closing an option other than through expiration or exercise, the difference between the premium received or paid and the cost to close the position is recorded as a realized gain or loss.

See Note 7 regarding other derivative information.

e. Investments in K2 GMOF Holdings Corp. (K2 Subsidiary)

The Fund invests in certain financial instruments and commodity-linked derivative investments through its investment in the K2 Subsidiary. The K2 Subsidiary is a Cayman Islands exempted company with limited liability, is a wholly owned subsidiary of the Fund, and is able to invest in certain financial instruments and commodity-linked derivative investments consistent with the investment objective of the Fund. At November 30, 2016, 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, 2016, the net assets of the K2 Subsidiary were $5,624,260, representing 23.3% of the Fund’s consolidated net assets. The Fund’s investment in the K2 Subsidiary is limited to 25% of consolidated assets.

The results from operations of the K2 Subsidiary for the period ended November 30, 2016, were as follows:


Net investment income (loss)	$	(43,391	)
Net realized gain (loss)		(481,086	)
Net change in unrealized appreciation
(depreciation)		(51,263	)
Net increase (decrease) in net assets resulting
from operations	$	(575,740	)

f. Income and Deferred Taxes

g. Security Transactions, Investment Income, Expenses and Distributions

28 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Global Macro Opportunities Fund (continued)

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.

h. Offering Costs

Offering costs are amortized on a straight line basis over twelve months.

2. Shares of Beneficial Interest

i. Accounting Estimates

j. Guarantees and Indemnifications

At November 30, 2016, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:


	Period Ended
	November 30, 2016^a
	Shares			Amount

Class A Shares:
Shares sold	2,163		$	21,294
Shares redeemed	(182	)		(1,758	)
Net increase (decrease)	1,981		$	19,536
Class C Shares:
Shares sold	14,994		$	147,381
Shares redeemed	(1	)		(10	)
Net increase (decrease)	14,993		$	147,371
Class R Shares:
Shares sold	1,001		$	10,010
Shares redeemed	(1	)		(10	)
Net increase (decrease)	1,000		$	10,000

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Franklin K2 Global Macro Opportunities Fund (continued)

2. Shares of Beneficial Interest (continued)
	Period Ended
	November 30, 2016^a
	Shares			Amount
Class R6 Shares:
Shares sold	1,001			$	10,010
Shares redeemed	(1	)			(10	)
Net increase (decrease)	1,000			$	10,000
Advisor Class Shares:
Shares sold	2,498,746		$	24,987,097
Shares redeemed	(1	)			(10	)
Net increase (decrease)	2,498,745		$	24,987,087
^aFor the period July 11, 2016 (commencement of operations) to November 30, 2016.

3. Transactions with Affiliates


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

Subadvisors

Aspect Capital Limited

Emso Asset Management Limited

Graham Capital Management L.P.

b. Administrative Fees

c. Distribution Fees

30 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Global Macro Opportunities Fund (continued)

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	0.25	%
Class C	1.00	%
Class R	0.50	%

d. Transfer Agent Fees

For the period ended November 30, 2016, the Fund paid transfer agent fees of $1,915, of which $74 was retained by Investor Services.

e. Waiver and Expense Reimbursements

K2 Advisors has contractually agreed in advance to waive or limit its fees and to assume as its own expense certain expenses otherwise payable by the Fund so that the expenses (excluding distribution fees, acquired fund fees and expenses, and expenses related to securities sold short) for each class of the Fund do not exceed 1.95%, and Class R6 does not exceed 1.94% based on the average net assets of each class (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until September 30, 2017. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end.

f. Other Affiliated Transactions

At November 30, 2016, Franklin Resources Inc. owned 99.3% of the Fund’s outstanding shares. Investment activities of this shareholder could have a material impact on the Fund.

4. Expense Offset Arrangement

5. Income Taxes

At November 30, 2016, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:


Cost of investments	$	16,825,597
Unrealized appreciation	$	31,578
Unrealized depreciation		(111,517	)
Net unrealized appreciation (depreciation)	$	(79,939	)

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Semiannual Report 31

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Global Macro Opportunities Fund (continued)

5. Income Taxes (continued)

Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of bond discounts and premiums.

6. Investment Transactions

Purchases and sales of investments (excluding short term securities) for the period ended November 30, 2016, aggregated $4,557,786 and $2,249,382, respectively.

7. Other Derivative Information

At November 30, 2016, the Fund’s investments in derivative contracts are reflected in the Consolidated Statement of Assets and Liabilities as follows:


	Asset Derivatives				Liability Derivatives
Derivative Contracts	Consolidated Statement of				Consolidated Statement of
Not Accounted for as	Assets and Liabilities				Assets and Liabilities
Hedging Instruments	Location		Fair Value		Location		Fair Value
Interest rate contracts	Variation margin	$	52,543	^a	Variation margin	$	7,446	^a
	Unrealized appreciation on		1,348		Unrealized depreciation on		1,028
	OTC swap contracts				OTC swap contracts
Foreign exchange contracts	Variation margin		83,409	^a	Variation margin		21,177	^a
	Unrealized appreciation on		533,531		Unrealized depreciation on		375,555
	OTC forward exchange				OTC forward exchange
	contracts				contracts
Credit contracts	Variation margin		3,467	^a	Variation margin		4,492	^a
Equity contracts	Investments in securities, at		425	^b
	value
	Variation margin		89,607	^a	Variation margin		102,683	^a
Commodity contracts	Variation margin		278,351	^a	Variation margin		329,610	^a
Totals		$	1,042,681			$	841,991

32 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Global Macro Opportunities Fund (continued)

For the period ended November 30, 2016, the effect of derivative contracts in the Fund’s Consolidated Statement of Operations was as follows:


							Net Change
							in Unrealized
Derivative Contracts			Net Realized				Appreciation
Not Accounted for as	Consolidated Statement of		Gain (Loss)		Consolidated Statement of		(Depreciation)
Hedging Instruments	Operations Location		for the Period		Operations Location		for the Period
	Net realized gain (loss) from:				Net change in unrealized
					appreciation (depreciation) on:
Interest rate contracts	Futures contracts	$	(418,562	)	Futures contracts	$	44,299
					Swap contracts		1,118
Foreign exchange contracts	Foreign currency transactions		(26,588	)^a	Translation of other assets and		157,976	^a
					liabilities denominated in
					foreign currencies
	Futures contracts		(160,351	)	Futures contracts		62,231
Credit contracts	Swap contracts		(3,804	)	Swap contracts		(1,025	)
Equity contracts					Investments		(1,455	)^b
	Futures contracts		(50,528	)	Futures contracts		(13,075	)
Commodity contracts	Futures contracts		(481,026	)	Futures contracts		(51,259	)
Totals		$	(1,140,859	)		$	198,810

^aForward exchange contracts are included in net realized gain (loss) from foreign currency transactions and net change in unrealized appreciation (depreciation) translation of
other assets and liabilities denominated in foreign currencies in the Consolidated Statement of Operations.
^bPurchased option contracts are included in net change in unrealized appreciation (depreciation) on investments in the Consolidated Statement of Operations.

For the period ended November 30, 2016, the average month end fair value of derivatives represented 3.4% of average month end net assets. The average month end number of open derivative contracts for the period was 293.

At November 30, 2016, the Fund’s OTC derivative assets and liabilities are as follows:


		Gross Amounts
		of Assets and Liabilities
		Presented in the
		Consolidated Statement of
		Assets and Liabilities

		Assets^a		Liabilities^a
Derivatives
Forward Exchange Contracts	$	533,531	$	375,555
Swap Contracts		1,348		1,028
Total	$	534,879	$	376,583

^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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Semiannual Report 33

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Global Macro Opportunities Fund (continued)

7. Other Derivative Information (continued)

At November 30, 2016, the Fund’s OTC derivative assets, which may be offset against the Fund’s OTC derivative liabilities and collateral received from the counterparty, are as follows:


				Amounts Not Offset in the Consolidated
				Statement of Assets and Liabilities

		Gross Amounts of Assets					Financials
		Presented in the		Financial			Instruments		Cash
		Consolidated Statement of		Instruments			Collateral		Collateral		Net Amount (Not
		Assets and Liabilities		Available for Offset			Received		Received		Less than Zero)
Counterparty
BOFA	$	34,794	$	(16,896	)	$	—	$	—	$	17,898
DBAB		6,711		(1,634	)		—		—		5,077
JPHQ		3,353		(3,341	)		—		—		12
MSCO		490,021		(354,712	)		—		—		135,309
Total	$	534,879	$	(376,583	)	$	—	$	—	$	158,296

At November 30, 2016, the Fund’s OTC derivative liabilities, which may be offset against the Fund’s OTC derivative assets and collateral pledged to the counterparty, are as follows:


				Amounts Not Offset in the Consolidated
				Statement of Assets and Liabilities

		Gross Amounts of Liabilities					Financials
		Presented in the		Financial			Instruments		Cash
		Consolidated Statement of		Instruments			Collateral		Collateral		Net Amount (Not
		Assets and Liabilities		Available for Offset			Pledged		Pledged^a		Less than Zero)
Counterparty
BOFA	$	16,896	$	(16,896	)	$	—	$	—	$	—
DBAB		1,634		(1,634	)		—		—		—
JPHQ		3,341		(3,341	)		—		—		—
MSCO		354,712		(354,712	)		—		—		—
Total	$	376,583	$	(376,583	)	$	—	$	—	$	—

^aIn some instances, the collateral amounts disclosed in the table above were adjusted due to the requirement to the limit collateral amounts to avoid the effect of overcollateral-
ization. Actual collateral received and/or pledged may be more than the amounts disclosed herein.

See Note 1(d) regarding derivative financial instruments.

See Abbreviations on page 35.

8. Fair Value Measurements

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)

34 Semiannual Report

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FRANKLIN ALTERNATIVE STRATEGIES FUNDS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Franklin K2 Global Macro Opportunities Fund (continued)

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, 2016, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:


		Level 1		Level 2		Level 3		Total

Assets:
Investments in Securities:^a
Corporate Bonds and Notes	$	—	$	916,087	$	—	$	916,087
Foreign Government and Agency Securities		—		1,610,227		—		1,610,227
Options Purchased		425		—		—		425
Short Term Investments		10,087,860		4,131,059		—		14,218,919
Total Investments in Securities	$	10,088,285	$	6,657,373	$	—	$	16,745,658
Other Financial Instruments:
Futures Contracts	$	503,112	$	—	$	—	$	503,112
Forward Exchange Contracts		—		533,551		—		533,551
Swap Contracts		—		5,613		—		5,613
Total Other Financial Instruments	$	503,112	$	539,164	$	—	$	1,042,276

Liabilities:
Other Financial Instruments:
Futures Contracts	$	460,916	$	—	$	—	$	460,916
Forward Exchange Contracts		—		375,555		—		375,555
Swap Contracts		—		5,520		—		5,520
Total Other Financial Instruments	$	460,916	$	381,075	$	—	$	841,991

^aFor detailed categories, see the accompanying Consolidated Statement of Investments.

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the end of the period.

9. 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
BOFA	Bank of America, N.A.	ARS	Argentine Peso	LIBOR London InterBank Offered Rate
CME	Chicago Mercantile Exchange	AUD	Australian Dollar
DBAB	Deutsche Bank AG	BRL	Brazilian Real
ICE	Intercontinental Exchange, Inc.	CAD	Canadian Dollar
JPHQ	JP Morgan Chase Bank, N.A.	CHF	Swiss Franc
MSCO	Morgan Stanley & Co., LLC	CZK	Czech Koruna
		EUR	Euro
		GBP	British Pound
		JPY	Japanese Yen
		NZD	New Zealand Dollar
		RUB	Russian Ruble
		USD	United States Dollar

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Semiannual Report 35

FRANKLIN ALTERNATIVE STRATEGIES FUNDS
FRANKLIN K2 GLOBAL MACRO OPPORTUNITIES FUND

Shareholder Information

Proxy Voting Policies and Procedures

Quarterly Statement of Investments

36 Semiannual Report

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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.

(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 Robert G. Kubilis, 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 Robert G. Kubilis, Chief Financial Officer and Chief Accounting Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FRANKLIN ALTERATIVE STRATEGIES FUNDS

By _/s/ Laura F. Fergerson

Laura F. Fergerson

Chief Executive Officer –

Finance and Administration

Date January 26, 2017

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 26, 2017

By _/s/ Robert G. Kubilis

Robert G. Kubilis

Chief Financial Officer and

Chief Accounting Officer

Date January 26, 2017

Franklin K2 Alternative Strategies Fund (FABZX) N-CSRSCertified semi-annual shareholder report (management investment company)