Not
FDIC
Insured
May
Lose
Value
No
Bank
Guarantee
357-Q3PH
1
Statement
of
Investments
(unaudited)
Franklin
Strategic
Mortgage
Portfolio
2
Notes
to
Statement
of
Investments
8
Franklin
Strategic
Mortgage
Portfolio
Statement
of
Investments
(unaudited),
June
30,
2021
Quarterly
Statement
of
Investments
See
Notes
to
Statement
of
Investments.
2
a
a
Principal
Amount
a
Value
a
a
a
a
a
Corporate
Bonds
0.2%
Equity
Real
Estate
Investment
Trusts
(REITs)
0.2%
American
Homes
4
Rent
LP
,
Senior
Note
,
4.25
%
,
2/15/28
.....................
$
100,000
$
112,481
Insurance
0.0%
†
a,b
Ambac
Assurance
Corp.
,
Sub.
Bond
,
144A,
5.1
%
,
Perpetual
...................
237
333
b,c
Ambac
LSNI
LLC
,
Senior
Note
,
144A,
FRN
,
6
%
,
(
3-month
USD
LIBOR
+
5
%
),
2/12/23
861
862
1,195
Total
Corporate
Bonds
(Cost
$100,702)
........................................
113,676
U.S.
Government
and
Agency
Securities
0.8%
U.S.
Treasury
Bonds
,
4.75%,
2/15/37
...................................................
225,000
319,465
4.25%,
11/15/40
...................................................
131,000
180,749
Total
U.S.
Government
and
Agency
Securities
(Cost
$465,422)
....................
500,214
Asset-Backed
Securities
4.5%
Diversified
Financial
Services
4.2%
b
American
Homes
4
Rent
Trust
,
2015-SFR1
,
A
,
144A,
3.467
%
,
4/17/52
...........
142,663
151,500
b
CF
Hippolyta
LLC
,
2020-1,
A1,
144A,
1.69%,
7/15/60
.....................................
114,525
116,483
2021-1A,
A1,
144A,
1.53%,
3/15/61
....................................
100,000
100,778
d
CWABS,
Inc.
,
2004-1
,
M1
,
FRN
,
0.842
%
,
(
1-month
USD
LIBOR
+
0.75
%
),
3/25/34
..
18,666
18,634
b
FirstKey
Homes
Trust
,
2020-SFR2
,
A
,
144A,
1.266
%
,
10/19/37
.................
149,669
149,586
b,d
Invitation
Homes
Trust
,
2018-SFR4
,
A
,
144A,
FRN
,
1.182
%
,
(
1-month
USD
LIBOR
+
1.1
%
),
1/17/38
....................................................
176,256
177,063
b,e
Mill
City
Mortgage
Loan
Trust
,
2016-1,
A1,
144A,
FRN,
2.5%,
4/25/57
..................................
21,413
21,536
2018-2,
A1,
144A,
FRN,
3.5%,
5/25/58
..................................
99,703
101,962
2018-1,
A1,
144A,
FRN,
3.25%,
5/25/62
.................................
74,802
76,816
2018-4,
A1B,
144A,
FRN,
3.5%,
4/25/66
.................................
141,465
147,730
b
Progress
Residential
Trust
,
2018-SFR2
,
A
,
144A,
3.712
%
,
8/17/35
..............
200,000
200,336
b
Towd
Point
Mortgage
Trust
,
e
2016-1,
A1,
144A,
FRN,
3.5%,
2/25/55
..................................
17,003
17,072
e
2016-3,
A1,
144A,
FRN,
2.25%,
4/25/56
.................................
38,254
38,432
e
2016-4,
A1,
144A,
FRN,
2.25%,
7/25/56
.................................
69,619
70,175
e
2016-5,
A1,
144A,
FRN,
2.5%,
10/25/56
.................................
165,676
168,460
e
2017-1,
A1,
144A,
FRN,
2.75%,
10/25/56
................................
118,788
120,665
d
2017-5,
A1,
144A,
FRN,
0.691%,
(1-month
USD
LIBOR
+
0.6%),
2/25/57
........
35,452
35,471
e
2017-2,
A1,
144A,
FRN,
2.75%,
4/25/57
.................................
31,444
31,922
e
2017-4,
A1,
144A,
FRN,
2.75%,
6/25/57
.................................
165,222
170,213
e
2018-1,
A1,
144A,
FRN,
3%,
1/25/58
...................................
44,503
45,735
e
2018-2,
A1,
144A,
FRN,
3.25%,
3/25/58
.................................
101,903
105,706
e
2019-1,
A1,
144A,
FRN,
3.722%,
3/25/58
................................
181,980
192,262
e
2018-6,
A1A,
144A,
FRN,
3.75%,
3/25/58
................................
78,755
81,524
e
2017-1,
A2,
144A,
FRN,
3.5%,
10/25/56
.................................
165,000
173,466
2,513,527
a
a
a
a
a
Thrifts
&
Mortgage
Finance
0.3%
e
Conseco
Finance
Corp.
,
1998-4,
A7,
FRN,
6.87%,
4/01/30
......................................
8,896
8,995
1998-6,
A8,
FRN,
6.66%,
6/01/30
......................................
418
419
Franklin
Strategic
Mortgage
Portfolio
Statement
of
Investments
(unaudited)
See
Notes
to
Statement
of
Investments.
Quarterly
Statement
of
Investments
3
a
a
Principal
Amount
a
Value
a
a
a
a
a
Asset-Backed
Securities
(continued)
Thrifts
&
Mortgage
Finance
(continued)
e
Conseco
Finance
Securitizations
Corp.
,
2002-2
,
M1
,
FRN
,
7.424
%
,
3/01/33
.......
$
166,759
$
175,181
184,595
a
a
a
a
a
Total
Asset-Backed
Securities
(Cost
$2,646,646)
................................
2,698,122
Commercial
Mortgage-Backed
Securities
1.6%
Diversified
Financial
Services
1.5%
b,f
Anthracite
Ltd.
,
2004-HY1A
,
E
,
144A,
7.147
%
,
6/20/41
.......................
1,598,000
24
b,d
BX
Commercial
Mortgage
Trust
,
2020-FOX,
A,
144A,
FRN,
1.073%,
(1-month
USD
LIBOR
+
1%),
11/15/32
.......
162,098
162,848
2018-IND,
A,
144A,
FRN,
0.823%,
(1-month
USD
LIBOR
+
0.75%),
11/15/35
.....
41,038
41,098
2019-XL,
A,
144A,
FRN,
0.993%,
(1-month
USD
LIBOR
+
0.92%),
10/15/36
......
153,895
154,272
2020-BXLP,
A,
144A,
FRN,
0.873%,
(1-month
USD
LIBOR
+
0.8%),
12/15/36
.....
194,098
194,573
b,d
Cold
Storage
Trust
,
2020-ICE5
,
A
,
144A,
FRN
,
0.973
%
,
(
1-month
USD
LIBOR
+
0.9
%
),
11/15/37
........................................................
324,387
326,551
e
Commercial
Mortgage
Trust
,
2006-GG7
,
AJ
,
FRN
,
6.214
%
,
7/10/38
..............
39,434
35,500
914,866
a
a
a
a
a
Thrifts
&
Mortgage
Finance
0.1%
d
FNMA
,
2007-1
,
NF
,
FRN
,
0.341
%
,
(
1-month
USD
LIBOR
+
0.25
%
),
2/25/37
........
49,379
49,473
Total
Commercial
Mortgage-Backed
Securities
(Cost
$1,008,933)
.................
964,339
Mortgage-Backed
Securities
77.3%
Federal
Home
Loan
Mortgage
Corp.
(FHLMC)
Fixed
Rate
14.2%
FHLMC
Gold
Pools,
30
Year,
4.5%,
4/01/40
................................
286,019
319,391
FHLMC
Gold
Pools,
30
Year,
4.5%,
1/01/49
................................
510,687
564,527
FHLMC
Gold
Pools,
30
Year,
5%,
10/01/33
-
2/01/39
.........................
172,646
196,912
FHLMC
Gold
Pools,
30
Year,
5.5%,
9/01/33
................................
19,047
21,806
FHLMC
Gold
Pools,
30
Year,
6%,
7/01/28
-
11/01/36
.........................
57,728
67,045
FHLMC
Gold
Pools,
30
Year,
6.5%,
11/01/27
-
7/01/32
........................
27,731
31,098
FHLMC
Gold
Pools,
30
Year,
7.5%,
1/01/26
-
3/01/32
........................
53,837
56,629
FHLMC
Gold
Pools,
30
Year,
8%,
7/01/24
-
5/01/30
..........................
76,348
80,092
FHLMC
Gold
Pools,
30
Year,
9%,
9/01/30
.................................
6,028
6,055
FHLMC
Pool,
30
Year,
2.5%,
10/01/50
....................................
1,993,822
2,067,756
FHLMC
Pool,
30
Year,
3%,
2/01/50
......................................
426,142
451,762
FHLMC
Pool,
30
Year,
3%,
5/01/50
......................................
1,124,956
1,193,514
FHLMC
Pool,
30
Year,
3%,
8/01/50
......................................
843,356
898,559
FHLMC
Pool,
30
Year,
3.5%,
7/01/49
.....................................
1,436,654
1,539,370
FHLMC
Pool,
30
Year,
4%,
5/01/50
......................................
121,355
131,959
FHLMC
Pool,
30
Year,
4.5%,
10/01/48
....................................
782,098
866,305
8,492,780
g
Federal
National
Mortgage
Association
(FNMA)
Adjustable
Rate
0.9%
FNMA,
1.365%
-
4.75%,
(6-month
USD
LIBOR
+/-
MBS
Margin),
3/01/22
-
7/01/38
..
533,766
536,913
FNMA,
2.31%,
(6-month
H15BDI
+/-
MBS
Margin),
7/01/25
....................
2,021
2,025
538,938
Federal
National
Mortgage
Association
(FNMA)
Fixed
Rate
55.8%
FNMA,
3.5%,
7/01/56
................................................
708,212
770,632
FNMA,
15
Year,
2.5%,
3/01/29
.........................................
384,549
403,344
FNMA,
30
Year,
2.5%,
9/01/50
.........................................
2,107,931
2,204,742
FNMA,
30
Year,
2.5%,
9/01/50
.........................................
2,101,811
2,197,409
FNMA,
30
Year,
2.5%,
10/01/50
.........................................
849,695
880,776
FNMA,
30
Year,
3%,
11/01/48
..........................................
2,094,945
2,209,267
Franklin
Strategic
Mortgage
Portfolio
Statement
of
Investments
(unaudited)
Quarterly
Statement
of
Investments
See
Notes
to
Statement
of
Investments.
4
a
a
Principal
Amount
a
Value
a
a
a
a
a
Mortgage-Backed
Securities
(continued)
Federal
National
Mortgage
Association
(FNMA)
Fixed
Rate
(continued)
FNMA,
30
Year,
3%,
9/01/49
...........................................
$
365,114
$
385,254
FNMA,
30
Year,
3%,
9/01/49
...........................................
373,860
395,660
FNMA,
30
Year,
3%,
3/01/50
...........................................
499,351
525,261
FNMA,
30
Year,
3%,
7/01/50
...........................................
509,360
532,087
FNMA,
30
Year,
3%,
7/01/50
...........................................
1,177,036
1,254,208
FNMA,
30
Year,
3%,
8/01/50
...........................................
673,780
713,232
FNMA,
30
Year,
3%,
9/01/50
...........................................
685,026
726,050
FNMA,
30
Year,
3%,
9/01/50
...........................................
675,484
718,461
FNMA,
30
Year,
3.5%,
11/01/46
.........................................
504,591
545,941
FNMA,
30
Year,
3.5%,
8/01/49
.........................................
1,608,885
1,721,736
FNMA,
30
Year,
3.5%,
8/01/49
.........................................
509,296
545,076
FNMA,
30
Year,
3.5%,
9/01/49
.........................................
1,462,879
1,561,516
FNMA,
30
Year,
3.5%,
1/01/50
.........................................
378,019
408,296
FNMA,
30
Year,
3.5%,
2/01/50
.........................................
329,042
351,891
FNMA,
30
Year,
3.5%,
4/01/50
.........................................
497,303
537,983
FNMA,
30
Year,
3.5%,
11/01/50
.........................................
325,281
347,430
FNMA,
30
Year,
4%,
11/01/45
..........................................
2,700,343
2,926,953
FNMA,
30
Year,
4%,
9/01/49
...........................................
917,922
996,921
FNMA,
30
Year,
4.5%,
11/01/47
.........................................
730,218
801,942
FNMA,
30
Year,
5%,
4/01/34
...........................................
70,026
77,433
FNMA,
30
Year,
5.5%,
9/01/33
-
11/01/35
.................................
567,747
643,374
FNMA,
30
Year,
6%,
10/01/34
..........................................
263,720
312,937
FNMA,
30
Year,
6%,
12/01/23
-
8/01/35
...................................
354,559
405,310
FNMA,
30
Year,
6.5%,
12/01/27
-
8/01/32
.................................
267,594
301,805
FNMA,
30
Year,
7.5%,
8/01/25
-
5/01/32
..................................
12,318
14,379
FNMA,
30
Year,
8%,
1/01/25
-
7/01/31
....................................
19,589
22,545
FNMA,
30
Year,
9%,
8/01/24
-
4/01/25
....................................
562
606
FNMA,
30
Year,
9.5%,
11/01/29
-
4/01/30
.................................
22,222
22,636
h
FNMA,
Single-family,
15
Year,
2%,
7/25/36
................................
4,656,000
4,802,682
h
FNMA,
Single-family,
30
Year,
2%,
7/25/51
................................
2,207,000
2,228,553
33,494,328
Government
National
Mortgage
Association
(GNMA)
Fixed
Rate
6.4%
GNMA
I,
30
Year,
7%,
11/15/29
.........................................
1,752
2,047
GNMA
I,
30
Year,
8%,
11/15/25
-
12/15/26
.................................
5,709
6,153
GNMA
I,
Single-family,
30
Year,
6.5%,
1/15/24
-
9/15/32
......................
58,986
65,771
GNMA
I,
Single-family,
30
Year,
7%,
6/15/23
-
2/15/32
........................
12,961
13,334
GNMA
I,
Single-family,
30
Year,
7.5%,
10/15/23
-
10/15/29
.....................
17,151
17,927
GNMA
I,
Single-family,
30
Year,
8%,
1/15/22
-
9/15/27
........................
2,902
2,967
GNMA
I,
Single-family,
30
Year,
8.5%,
7/15/24
..............................
45
45
h
GNMA
II,
Single-family,
30
Year,
2%,
7/15/51
...............................
1,098,000
1,118,330
GNMA
II,
Single-family,
30
Year,
2.5%,
6/20/51
.............................
945,143
980,694
h
GNMA
II,
Single-family,
30
Year,
2.5%,
7/15/51
.............................
1,441,000
1,491,322
GNMA
II,
Single-family,
30
Year,
6.5%,
1/20/26
-
1/20/33
......................
87,067
101,032
GNMA
II,
Single-family,
30
Year,
7.5%,
11/20/22
-
7/20/32
.....................
48,083
55,894
GNMA
II,
Single-family,
30
Year,
8%,
8/20/26
...............................
41
45
GNMA
II,
Single-family,
30
Year,
9%,
9/20/24
-
3/20/25
.......................
213
217
3,855,778
Total
Mortgage-Backed
Securities
(Cost
$45,963,241)
............................
46,381,824
Residential
Mortgage-Backed
Securities
12.6%
Capital
Markets
0.1%
d
Merrill
Lynch
Mortgage
Investors
Trust
,
2003-A
,
1A
,
FRN
,
0.831
%
,
(
1-month
USD
LIBOR
+
0.74
%
),
3/25/28
............................................
52,246
52,405
Franklin
Strategic
Mortgage
Portfolio
Statement
of
Investments
(unaudited)
See
Notes
to
Statement
of
Investments.
Quarterly
Statement
of
Investments
5
a
a
Principal
Amount
a
Value
a
a
a
a
a
Residential
Mortgage-Backed
Securities
(continued)
Diversified
Financial
Services
5.4%
d
American
Home
Mortgage
Investment
Trust
,
2005-1
,
6A
,
FRN
,
2.179
%
,
(
6-month
USD
LIBOR
+
2
%
),
6/25/45
..............................................
$
47,240
$
48,538
b
BRAVO
Residential
Funding
Trust
,
2019-1,
A1C,
144A,
3.5%,
3/25/58
.....................................
54,890
56,339
e
2019-2,
A3,
144A,
FRN,
3.5%,
10/25/44
.................................
86,164
89,990
b
CIM
Trust
,
e
2019-INV1,
A1,
144A,
FRN,
4%,
2/25/49
................................
42,248
42,900
d
2019-INV2,
A11,
144A,
FRN,
1.042%,
(1-month
USD
LIBOR
+
0.95%),
5/25/49
...
118,483
118,665
e
2019-INV2,
A3,
144A,
FRN,
4%,
5/25/49
................................
74,645
75,891
e
2018-INV1,
A4,
144A,
FRN,
4%,
8/25/48
................................
43,558
44,286
b,e
Citigroup
Mortgage
Loan
Trust
,
2013-A
,
A
,
144A,
FRN
,
3
%
,
5/25/42
.............
7,277
7,305
b,d
Connecticut
Avenue
Securities
Trust
,
2019-R02,
1M2,
144A,
FRN,
2.392%,
(1-month
USD
LIBOR
+
2.3%),
8/25/31
....
156,762
157,956
2019-R03,
1M2,
144A,
FRN,
2.242%,
(1-month
USD
LIBOR
+
2.15%),
9/25/31
...
136,977
138,054
b,e
CSMC
Trust
,
2014-OAK1
,
1A1
,
144A,
FRN
,
3
%
,
11/25/29
.....................
51,693
52,911
b,d
FHLMC
STACR
REMIC
Trust
,
2020-DNA1,
M2,
144A,
FRN,
1.792%,
(1-month
USD
LIBOR
+
1.7%),
1/25/50
....
180,331
181,363
2020-HQA3,
M2,
144A,
FRN,
3.692%,
(1-month
USD
LIBOR
+
3.6%),
7/25/50
....
264,963
268,443
b,d
FHLMC
STACR
Trust
,
2019-DNA4
,
M2
,
144A,
FRN
,
2.041
%
,
(
1-month
USD
LIBOR
+
1.95
%
),
10/25/49
..................................................
343,118
345,220
b,e
Flagstar
Mortgage
Trust
,
i
2021-4,
A5,
144A,
FRN,
2.5%,
6/01/51
..................................
200,000
205,063
2021-2,
A6,
144A,
FRN,
2.5%,
4/25/51
..................................
229,594
235,886
b,e,i
GS
Mortgage-Backed
Securities
Trust
,
2021-PJ6
,
A8
,
144A,
FRN
,
2.5
%
,
11/25/51
...
250,000
256,055
b,e
J.P.
Morgan
Mortgage
Trust
,
2013-3,
A3,
144A,
FRN,
3.389%,
7/25/43
................................
92,833
95,459
2021-6,
A4,
144A,
FRN,
2.5%,
10/25/51
.................................
331,463
339,986
b
OBX
Trust
,
d
2018-1,
A2,
144A,
FRN,
0.741%,
(1-month
USD
LIBOR
+
0.65%),
6/25/57
.......
51,068
51,171
e
2021-J1,
A4,
144A,
FRN,
2.5%,
5/25/51
.................................
206,493
212,085
b,e
Provident
Funding
Mortgage
Trust
,
2019-1,
A3,
144A,
FRN,
3%,
12/25/49
..................................
4,450
4,458
2020-1,
A3,
144A,
FRN,
3%,
2/25/50
...................................
12,944
12,983
b,e
Sequoia
Mortgage
Trust
,
2021-1
,
A1
,
144A,
FRN
,
2.5
%
,
3/25/51
................
196,605
199,856
b,e
Wells
Fargo
Mortgage
Backed
Securities
Trust
,
2018-1
,
A3
,
144A,
FRN
,
3.5
%
,
7/25/47
1,881
1,882
3,242,745
a
a
a
a
a
Thrifts
&
Mortgage
Finance
7.1%
d
FHLMC
Structured
Agency
Credit
Risk
Debt
Notes
,
2013-DN2,
M2,
FRN,
4.341%,
(1-month
USD
LIBOR
+
4.25%),
11/25/23
........
123,683
127,161
2017-DNA1,
M2,
FRN,
3.341%,
(1-month
USD
LIBOR
+
3.25%),
7/25/29
........
235,454
244,169
2017-HQA1,
M2,
FRN,
3.642%,
(1-month
USD
LIBOR
+
3.55%),
8/25/29
........
209,114
216,574
2017-DNA2,
M2,
FRN,
3.542%,
(1-month
USD
LIBOR
+
3.45%),
10/25/29
.......
250,000
261,466
2017-DNA3,
M2,
FRN,
2.591%,
(1-month
USD
LIBOR
+
2.5%),
3/25/30
.........
250,000
255,849
2017-HQA3,
M2,
FRN,
2.441%,
(1-month
USD
LIBOR
+
2.35%),
4/25/30
........
179,311
183,537
2014-DN2,
M3,
FRN,
3.692%,
(1-month
USD
LIBOR
+
3.6%),
4/25/24
..........
194,370
197,477
2014-DN3,
M3,
FRN,
4.092%,
(1-month
USD
LIBOR
+
4%),
8/25/24
...........
69,720
71,186
2014-HQ1,
M3,
FRN,
4.192%,
(1-month
USD
LIBOR
+
4.1%),
8/25/24
..........
44,264
44,791
2014-DN4,
M3,
FRN,
4.642%,
(1-month
USD
LIBOR
+
4.55%),
10/25/24
........
121,599
123,890
2014-HQ3,
M3,
FRN,
4.841%,
(1-month
USD
LIBOR
+
4.75%),
10/25/24
........
28,383
28,617
2015-HQ2,
M3,
FRN,
3.341%,
(1-month
USD
LIBOR
+
3.25%),
5/25/25
.........
146,169
148,439
2016-DNA2,
M3,
FRN,
4.741%,
(1-month
USD
LIBOR
+
4.65%),
10/25/28
.......
170,708
178,488
2016-HQA2,
M3,
FRN,
5.241%,
(1-month
USD
LIBOR
+
5.15%),
11/25/28
.......
210,754
220,996
2016-DNA4,
M3,
FRN,
3.891%,
(1-month
USD
LIBOR
+
3.8%),
3/25/29
.........
234,161
242,747
Franklin
Strategic
Mortgage
Portfolio
Statement
of
Investments
(unaudited)
Quarterly
Statement
of
Investments
See
Notes
to
Statement
of
Investments.
6
a
a
Principal
Amount
a
Value
a
a
a
a
a
Residential
Mortgage-Backed
Securities
(continued)
Thrifts
&
Mortgage
Finance
(continued)
d
FNMA
Connecticut
Avenue
Securities
,
2014-C04,
1M2,
FRN,
4.992%,
(1-month
USD
LIBOR
+
4.9%),
11/25/24
.........
$
119,540
$
123,748
2015-C01,
1M2,
FRN,
4.391%,
(1-month
USD
LIBOR
+
4.3%),
2/25/25
.........
154,213
158,014
2016-C04,
1M2,
FRN,
4.341%,
(1-month
USD
LIBOR
+
4.25%),
1/25/29
........
202,761
211,841
2017-C05,
1M2,
FRN,
2.292%,
(1-month
USD
LIBOR
+
2.2%),
1/25/30
.........
178,690
181,726
2017-C06,
1M2,
FRN,
2.742%,
(1-month
USD
LIBOR
+
2.65%),
2/25/30
........
182,627
185,733
2014-C02,
2M2,
FRN,
2.692%,
(1-month
USD
LIBOR
+
2.6%),
5/25/24
.........
132,325
133,752
2014-C03,
2M2,
FRN,
2.991%,
(1-month
USD
LIBOR
+
2.9%),
7/25/24
.........
61,321
61,989
2015-C01,
2M2,
FRN,
4.642%,
(1-month
USD
LIBOR
+
4.55%),
2/25/25
........
8,750
8,803
2016-C05,
2M2,
FRN,
4.542%,
(1-month
USD
LIBOR
+
4.45%),
1/25/29
........
96,504
101,136
2017-C02,
2M2,
FRN,
3.742%,
(1-month
USD
LIBOR
+
3.65%),
9/25/29
........
184,212
191,057
2013-C01,
M2,
FRN,
5.342%,
(1-month
USD
LIBOR
+
5.25%),
10/25/23
........
125,683
131,573
2014-C01,
M2,
FRN,
4.492%,
(1-month
USD
LIBOR
+
4.4%),
1/25/24
..........
125,490
129,858
b
Virginia
Housing
Development
Authority
,
2020-A
,
A
,
144A,
2.85
%
,
12/25/49
........
74,014
75,819
4,240,436
a
a
a
a
a
Total
Residential
Mortgage-Backed
Securities
(Cost
$7,592,417)
..................
7,535,586
Total
Long
Term
Investments
(Cost
$57,777,361)
................................
58,193,761
a
a
a
a
a
Short
Term
Investments
18.9%
U.S.
Government
and
Agency
Securities
9.1%
j
U.S.
Treasury
Bills
,
7/01/21
.........................................................
4,250,000
4,250,000
7/22/21
.........................................................
1,200,000
1,199,970
5,449,970
Total
U.S.
Government
and
Agency
Securities
(Cost
$5,449,998)
..................
5,449,970
Shares
a
Money
Market
Funds
5.0%
k,l
Institutional
Fiduciary
Trust
-
Money
Market
Portfolio,
0.01%
...................
2,999,388
2,999,388
Total
Money
Market
Funds
(Cost
$2,999,388)
...................................
2,999,388
Principal
Amount
Repurchase
Agreements
4.8%
m
Joint
Repurchase
Agreement,
0.033%,
7/01/21
(Maturity
Value
$2,873,246)
BNP
Paribas
Securities
Corp.
(Maturity
Value
$2,096,723)
Deutsche
Bank
Securities,
Inc.
(Maturity
Value
$319,045)
HSBC
Securities
(USA),
Inc.
(Maturity
Value
$457,478)
Collateralized
by
U.S.
Government
Agency
Securities,
2.5%
-
5%,
6/20/47
-
3/20/51;
U.S.
Treasury
Bond,
Index
Linked,
2.38%,
1/15/25;
and
U.S.
Treasury
Note,
1.88%,
4/30/22
(valued
at
$2,932,749)
........................................
2,873,244
2,873,244
Total
Repurchase
Agreements
(Cost
$2,873,244)
................................
2,873,244
Total
Short
Term
Investments
(Cost
$11,322,630
)
................................
11,322,602
a
Total
Investments
(Cost
$69,099,991)
115.9%
...................................
$69,516,363
Other
Assets,
less
Liabilities
(15.9)%
..........................................
(9,525,271)
Net
Assets
100.0%
...........................................................
$59,991,092
Franklin
Strategic
Mortgage
Portfolio
Statement
of
Investments
(unaudited)
See
Notes
to
Statement
of
Investments.
Quarterly
Statement
of
Investments
7
TO
At
June
30,
2021,
the
Fund
had
the
following futures
contracts
outstanding.
See
Note
3.
See
A
bbreviations
on
page
12.
†
Rounds
to
less
than
0.1%
of
net
assets.
a
Perpetual
security
with
no
stated
maturity
date.
b
Security
was
purchased
pursuant
to
Rule
144A
or
Regulation
S
under
the
Securities
Act
of
1933.
144A
securities
may
be
sold
in
transactions
exempt
from
registration
only
to
qualified
institutional
buyers
or
in
a
public
offering
registered
under
the
Securities
Act
of
1933.
Regulation
S
securities
cannot
be
sold
in
the
United
States
without
either
an
effective
registration
statement
filed
pursuant
to
the
Securities
Act
of
1933,
or
pursuant
to
an
exemption
from
registration.
At
June
30,
2021,
the
aggregate
value
of
these
securities
was
$6,645,480,
representing
11.1%
of
net
assets.
c
The
coupon
rate
shown
represents
the
rate
at
period
end.
d
The
coupon
rate
shown
represents
the
rate
inclusive
of
any
caps
or
floors,
if
applicable,
in
effect
at
period
end.
e
Adjustable
rate
security
with
an
interest
rate
that
is
not
based
on
a
published
reference
index
and
spread. The
rate
is
based
on
the
structure
of
the
agreement
and
current
market
conditions.
The
coupon
rate
shown
represents
the
rate
at
period
end.
f
Defaulted
security
or
security
for
which
income
has
been
deemed
uncollectible.
g
Adjustable
Rate
Mortgage-Backed
Security
(ARM);
the
rate
shown
is
the
effective
rate
at
period
end.
ARM
rates
are
not
based
on
a
published
reference
rate
and
spread,
but
instead
pass-through
weighted
average
interest
income
inclusive
of
any
caps
or
floors,
if
applicable,
from
the
underlying
mortgage
loans
in
which
the
majority
of
mortgages
pay
interest
based
on
the
index
shown
at
their
designated
reset
dates
plus
a
spread,
less
the
applicable
servicing
and
guaranty
fee
(MBS
margin).
h
Security
purchased
on
a
to-be-announced
(TBA)
basis.
i
Fair
valued
using
significant
unobservable
inputs.
See
Note
7
regarding
fair
value
measurements.
j
The
security
was
issued
on
a
discount
basis
with
no
stated
coupon
rate.
k
See
Note
6
regarding
investments
in
affiliated
management
investment
companies.
l
The
rate
shown
is
the
annualized
seven-day
effective
yield
at
period
end.
m
Investment
is
through
participation
in
a
joint
account
with
other
funds
managed
by
the
investment
manager
or
an
affiliate
of
the
investment
manager.
At
June
30,
2021,
all
repurchase
agreements
had
been
entered
into
on
that
date.
Futures
Contracts
Description
Type
Number
of
Contracts
Notional
Amount
*
Expiration
Date
Value/
Unrealized
Appreciation
(Depreciation)
Interest
rate
contracts
U.S.
Treasury
10
Year
Notes
....................
Short
13
$
1,722,500
9/21/21
$
(5,203)
U.S.
Treasury
10
Year
Ultra
Note
s
................
Long
10
1,472,031
9/21/21
19,830
U.S.
Treasury
2
Year
Notes
.....................
Long
1
220,320
9/30/21
(376)
U.S.
Treasury
5
Year
Notes
.....................
Long
32
3,949,750
9/30/21
(14,314)
U.S.
Treasury
Long
Bonds
.....................
Long
9
1,446,750
9/21/21
24,300
U.S.
Treasury
Ultra
Bonds
......................
Short
1
192,688
9/21/21
(6,970)
Total
Futures
Contracts
......................................................................
$17,267
*
As
of
period
end.
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Statement
of
Investments
(unaudited)
8
Quarterly
Statement
of
Investments
1.
Organization
Franklin
Strategic
Mortgage
Portfolio (Trust)
is
registered
under
the
Investment
Company
Act
of
1940
(1940
Act)
as
an
open-
end
management
investment
company,
consisting
of
one
fund,
Franklin
Strategic
Mortgage
Portfolio
(Fund)
and
applies
the
specialized
accounting
and
reporting
guidance
in
U.S.
Generally
Accepted
Accounting
Principles
(U.S.
GAAP).
2. Financial
Instrument
Valuation
The
Fund's investments
in
financial
instruments
are
carried
at
fair
value
daily.
Fair
value
is
the
price
that
would
be
received
to
sell
an
asset
or
paid
to
transfer
a
liability
in
an
orderly
transaction
between
market
participants
on
the
measurement
date.
The
Fund
calculates the
net
asset
value
(NAV)
per
share
each
business
day
as
of
4
p.m.
Eastern
time
or
the
regularly
scheduled
close
of
the
New
York
Stock
Exchange
(NYSE),
whichever
is
earlier.
Under
compliance
policies
and
procedures
approved
by
the
Fund’s
Board
of
Trustees
(the
Board),
the
Fund’s
administrator
has
responsibility
for
oversight
of
valuation,
including
leading
the
cross-functional
Valuation
Committee
(VC).
The
Fund
may
utilize
independent
pricing
services,
quotations
from
securities
and
financial
instrument
dealers,
and
other
market
sources
to
determine
fair
value.
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.
The
Fund
has procedures
to
determine
the
fair
value
of
financial
instruments
for
which
market
prices
are
not
reliable
or
readily
available.
Under
these
procedures,
the
Fund
primarily employs
a
market-based
approach
which
may
use
related
or
comparable
assets
or
liabilities,
recent
transactions,
market
multiples,
book
values,
and
other
relevant
information
for
the
investment
to
determine
the
fair
value
of
the
investment.
An
income-based
valuation
approach
may
also
be
used
in
which
the
anticipated
future
cash
flows
of
the
investment
are
discounted
to
calculate
fair
value.
Discounts
may
also
be
applied
due
to
the
nature
or
duration
of
any
restrictions
on
the
disposition
of
the
investments.
Due
to
the
inherent
uncertainty
of
valuations
of
such
investments,
the
fair
values
may
differ
significantly
from
the
values
that
would
have
been
used
had
an
active
market
existed.
3.
Derivative
Financial
Instruments
The
Fund
invested
in
derivative
financial
instruments
in
order
to
manage
risk
or
gain
exposure
to
various
other
investments
or
markets.
Derivatives
are
financial
contracts
based
on
an
underlying
or
notional
amount,
require
no
initial
investment
or
an
initial
net
investment
that
is
smaller
than
would
normally
be
required
to
have
a
similar
response
to
changes
in
market
factors,
and
require
or
permit
net
settlement.
Derivatives
contain
various
risks
including
the
potential
inability
of
the
counterparty
to
fulfill
their
obligations
under
the
terms
of
the
contract,
the
potential
for
an
illiquid
secondary
market,
and/or
the
potential
for
market
movements.
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.
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Statement
of
Investments
(unaudited)
9
Quarterly
Statement
of
Investments
The
Fund
entered
into
exchange
traded
futures
contracts
primarily
to
manage
and/or
gain
exposure
to
interest
rate
risk.
A
futures
contract
is
an
agreement
between
the
Fund
and
a
counterparty
to
buy
or
sell
an
asset
at
a
specified
price
on
a
future
date.
Required
initial
margins
are
pledged
by
the
Fund,
and
the
daily
change
in
fair
value
is
accounted
for
as
a
variation
margin
payable
or
receivable.
4.
Mortgage
Dollar
Rolls
The
Fund
enters
into
mortgage
dollar
rolls,
typically
on
a
to-be-announced
basis.
Mortgage
dollar
rolls
are
agreements
between
the
Fund
and
a
financial
institution
where
the
Fund
sells
(or
buys)
mortgage-backed
securities
for
delivery
on
a
specified
date
and
simultaneously
contracts
to
repurchase
(or
sell)
substantially
similar
(same
type,
coupon,
and
maturity)
securities
at
a
future
date
and
at
a
predetermined
price.
Gains
or
losses
are
realized
on
the
initial
sale,
and
the
difference
between
the
repurchase
price
and
the
sale
price
is
recorded
as
an
unrealized
gain
or
loss
to
the
Fund
upon
entering
into
the
mortgage
dollar
roll.
In
addition,
the
Fund
may
invest
the
cash
proceeds
that
are
received
from
the
initial
sale.
During
the
period
between
the
sale
and
repurchase,
the
Fund
is
not
entitled
to
principal
and
interest
paid
on
the
mortgage
backed
securities.
Transactions
in
mortgage
dollar
rolls
are
accounted
for
as
purchases
and
sales
and
may
result
in
an
increase
to
the
Fund’s
portfolio
turnover
rate.
The
risks
of
mortgage
dollar
roll
transactions
include
the
potential
inability
of
the
counterparty
to
fulfill
its
obligations.
5.
Novel
Coronavirus
Pandemic
The
global
outbreak
of
the
novel
coronavirus
disease,
known
as
COVID-19, has
caused
adverse
effects
on
many
companies,
sectors,
nations,
regions
and
the
markets
in
general, and
may
continue for
an unpredictable duration.
The
effects
of
this
pandemic
may
materially
impact
the
value
and
performance
of
the Fund, its ability
to
buy
and
sell
fund
investments
at
appropriate
valuations
and its ability
to
achieve its investment
objectives.
6.
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.
During
the
period
ended
June
30,
2021,
the
Fund
held
investments
in
affiliated
management
investment
companies
as
follows:
7. 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
aa
Value
at
Beginning
of
Period
Purchases
Sales
Realized
Gain
(Loss)
Net
Change
in
Unrealized
Appreciation
(Depreciation)
Value
at
End
of
Period
Number
of
Shares
Held
at
End
of
Period
Investment
Income
a
a
a
a
a
a
a
a
Franklin
Strategic
Mortgage
Portfolio
Non-Controlled
Affiliates
Dividends
Institutional
Fiduciary
Trust
-
Money
Market
Portfolio,
0.01%
.......
$2,589,379
$14,104,653
$(13,694,644)
$—
$—
$2,999,388
2,999,388
$74
Total
Affiliated
Securities
....
$2,589,379
$14,104,653
$(13,694,644)
$—
$—
$2,999,388
$74
3.
Derivative
Financial
Instruments
(continued)
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Statement
of
Investments
(unaudited)
10
Quarterly
Statement
of
Investments
Level
2
–
other
significant
observable
inputs
(including
quoted
prices
for
similar
financial
instruments,
interest
rates,
prepayment
speed,
credit
risk,
etc.)
Level
3
–
significant
unobservable
inputs
(including
the
Fund's
own
assumptions
in
determining
the
fair
value
of
financial
instruments)
The
input
levels
are
not
necessarily
an
indication
of
the
risk
or
liquidity
associated
with
financial
instruments
at
that
level.
A
summary
of
inputs
used
as
of
June
30,
2021,
in
valuing
the
Fund's
assets
and
liabilities
carried
at
fair
value,
is
as
follows:
a
For
detailed
categories,
see
the
accompanying
Statement
of
Investments.
A
reconciliation
in
which
Level
3
inputs
are
used
in
determining
fair
value
is
presented
when
there
are
significant
Level
3
assets
and/or
liabilities
at
the
beginning
and/or
end
of
the
period.
8.
Subsequent
Events
The Fund
has
evaluated
subsequent
events
through
the
issuance
of
the
Statement
of
Investments
and
determined
that
no
events
have
occurred
that
require
disclosure.
Level
1
Level
2
Level
3
Total
Franklin
Strategic
Mortgage
Portfolio
Assets:
Investments
in
Securities:
a
Corporate
Bonds
........................
$
—
$
113,676
$
—
$
113,676
U.S.
Government
and
Agency
Securities
.......
—
500,214
—
500,214
Asset-Backed
Securities
..................
—
2,698,122
—
2,698,122
Commercial
Mortgage-Backed
Securities
......
—
964,339
—
964,339
Mortgage-Backed
Securities
................
—
46,381,824
—
46,381,824
Residential
Mortgage-Backed
Securities
:
Capital
Markets
........................
—
52,405
—
52,405
Diversified
Financial
Services
.............
—
2,781,627
461,118
3,242,745
Thrifts
&
Mortgage
Finance
...............
—
4,240,436
—
4,240,436
Short
Term
Investments
...................
8,449,358
2,873,244
—
11,322,602
Total
Investments
in
Securities
...........
$8,449,358
$60,605,887
$461,118
$69,516,363
Other
Financial
Instruments:
Futures
contracts
........................
$
44,130
$
—
$
—
$
44,130
Total
Other
Financial
Instruments
.........
$44,130
$—
$—
$44,130
Liabilities:
Other
Financial
Instruments:
Futures
contracts
........................
$
26,863
$
—
$
—
$
26,863
$—
$—
$—
$—
7. Fair
Value
Measurements
(continued)
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Statement
of
Investments
(unaudited)
11
Quarterly
Statement
of
Investments
Abbreviations
Cu
r
rency
USD
United
States
Dollar
Selected
Portfolio
FHLMC
Federal
Home
Loan
Mortgage
Corp.
FNMA
Federal
National
Mortgage
Association
FRN
Floating
Rate
Note
GNMA
Government
National
Mortgage
Association
H15BDI
U.S.
Treasury
Bill
Auction
High
Discount
Rate
LIBOR
London
Inter-Bank
Offered
Rate
MBS
Mortgage-Backed
Security
For
additional
information
on
the
Fund's
significant
accounting
policies,
please
refer
to
the Fund's
most
recent
semiannual
or
annual
shareholder
report.