Not
FDIC
Insured
May
Lose
Value
No
Bank
Guarantee
357-Q3PH
1
Schedule
of
Investments
(unaudited)
Franklin
Strategic
Mortgage
Portfolio
2
Notes
to
Schedule
of
Investments
8
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited),
June
30,
2022
Quarterly
Schedule
of
Investments
See
Notes
to
Schedule
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
Bond
,
4.25
%
,
2/15/28
.....................
$
100,000
$
92,640
Insurance
0.0%
†
a,b
Ambac
Assurance
Corp.
,
Sub.
Bond
,
144A,
5.1
%
,
Perpetual
...................
237
332
Total
Corporate
Bonds
(Cost
$99,921)
.........................................
92,972
Asset-Backed
Securities
3.0%
Diversified
Financial
Services
2.8%
b
American
Homes
4
Rent
Trust
,
2015-SFR1
,
A
,
144A,
3.467
%
,
4/17/52
...........
138,024
131,529
b
CF
Hippolyta
Issuer
LLC
,
2020-1,
A1,
144A,
1.69%,
7/15/60
.....................................
108,996
97,409
2021-1A,
A1,
144A,
1.53%,
3/15/61
....................................
95,172
82,423
c
CWABS,
Inc.
,
2004-1
,
M1
,
FRN
,
5.139
%
,
(
1-month
USD
LIBOR
+
0.75
%
),
3/25/34
..
11,072
10,800
b
FirstKey
Homes
Trust
,
2020-SFR2
,
A
,
144A,
1.266
%
,
10/19/37
.................
148,332
131,554
b
Home
Partners
of
America
Trust
,
2021-2,
B,
144A,
2.302%,
12/17/26
....................................
165,279
141,505
2021-3,
B,
144A,
2.649%,
1/17/41
.....................................
56,078
46,989
b,c
Invitation
Homes
Trust
,
2018-SFR4
,
A
,
144A,
FRN
,
5.439
%
,
(
1-month
USD
LIBOR
+
1.1
%
),
1/17/38
....................................................
172,011
170,940
b
New
Economy
Assets
Phase
1
Sponsor
LLC
,
2021-1
,
A1
,
144A,
1.91
%
,
10/20/61
...
270,000
228,635
1,041,784
a
a
a
a
a
Thrifts
&
Mortgage
Finance
0.2%
d
Conseco
Finance
Securitizations
Corp.
,
2002-2
,
M1
,
FRN
,
7.424
%
,
3/01/33
.......
63,428
63,340
Total
Asset-Backed
Securities
(Cost
$1,228,433)
................................
1,105,124
Commercial
Mortgage-Backed
Securities
4.8%
Diversified
Financial
Services
4.7%
b,e
Anthracite
Ltd.
,
2004-HY1A
,
E
,
144A,
7.147
%
,
6/20/41
.......................
1,598,000
24
BANK
,
2021-BN34,
A5,
2.438%,
6/15/63
......................................
125,000
101,641
2021-BN33,
A5,
2.556%,
5/15/64
......................................
90,000
74,575
b,c
BX
Commercial
Mortgage
Trust
,
2021-VOLT,
A,
144A,
FRN,
5.018%,
(1-month
USD
LIBOR
+
0.7%),
9/15/36
......
100,000
96,471
2019-XL,
A,
144A,
FRN,
5.37%,
(1-month
SOFR
+
1.034%),
10/15/36
..........
127,952
126,462
2022-LP2,
A,
144A,
FRN,
5.349%,
(1-month
SOFR
+
1.013%),
2/15/39
.........
83,555
80,656
b,c
BX
Mortgage
Trust
,
2021-PAC
,
A
,
144A,
FRN
,
5.007
%
,
(
1-month
USD
LIBOR
+
0.689
%
),
10/15/36
.................................................
200,000
192,279
b
BX
Trust
,
2022-CLS,
A,
144A,
5.76%,
10/13/27
...................................
200,000
196,210
c
2022-IND,
A,
144A,
FRN,
5.817%,
(1-month
SOFR
+
1.491%),
4/15/37
.........
158,710
155,627
b,c
Cold
Storage
Trust
,
2020-ICE5
,
A
,
144A,
FRN
,
5.218
%
,
(
1-month
USD
LIBOR
+
0.9
%
),
11/15/37
........................................................
324,387
315,829
d
Commercial
Mortgage
Trust
,
2006-GG7
,
AJ
,
FRN
,
6.012
%
,
7/10/38
..............
39,434
26,078
b,c
DBCG
Mortgage
Trust
,
2017-BBG
,
A
,
144A,
FRN
,
5.018
%
,
(
1-month
USD
LIBOR
+
0.7
%
),
6/15/34
....................................................
240,000
235,948
b,c
GS
Mortgage
Securities
Corp.
Trust
,
2022-SHIP
,
A
,
144A,
FRN
,
5.067
%
,
(
1-month
SOFR
+
0.731
%
),
8/15/36
...........................................
100,000
98,673
1,700,473
a
a
a
a
a
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited)
See
Notes
to
Schedule
of
Investments.
Quarterly
Schedule
of
Investments
3
a
a
Principal
Amount
a
Value
a
a
a
a
a
Commercial
Mortgage-Backed
Securities
(continued)
Thrifts
&
Mortgage
Finance
0.1%
c
FNMA
,
2007-1
,
NF
,
FRN
,
4.639
%
,
(
1-month
USD
LIBOR
+
0.25
%
),
2/25/37
........
$
29,855
$
29,457
Total
Commercial
Mortgage-Backed
Securities
(Cost
$1,846,922)
.................
1,729,930
Mortgage-Backed
Securities
76.1%
Federal
Home
Loan
Mortgage
Corp.
(FHLMC)
Fixed
Rate
33.7%
FHLMC
Gold
Pool,
30
Year,
4.5%,
4/01/40
................................
178,620
177,438
FHLMC
Gold
Pool,
30
Year,
4.5%,
1/01/49
................................
314,811
311,159
FHLMC
Gold
Pool,
30
Year,
5%,
10/01/33
-
2/01/39
..........................
116,357
118,636
FHLMC
Gold
Pool,
30
Year,
5.5%,
9/01/33
................................
14,852
15,221
FHLMC
Gold
Pool,
30
Year,
6%,
12/01/32
-
11/01/36
.........................
39,393
40,376
FHLMC
Gold
Pool,
30
Year,
6.5%,
11/01/27
-
7/01/32
........................
17,989
18,474
FHLMC
Gold
Pool,
30
Year,
7.5%,
1/01/26
-
3/01/32
.........................
47,666
47,924
FHLMC
Gold
Pool,
30
Year,
8%,
7/01/24
-
5/01/30
...........................
65,142
65,677
FHLMC
Gold
Pool,
30
Year,
9%,
9/01/30
..................................
3,292
3,290
FHLMC
Pool,
15
Year,
2%,
4/01/37
......................................
1,180,905
1,054,612
FHLMC
Pool,
15
Year,
2.5%,
5/01/37
.....................................
202,858
185,932
FHLMC
Pool,
15
Year,
4%,
11/01/37
.....................................
480,962
469,854
FHLMC
Pool,
30
Year,
2%,
2/01/52
......................................
2,109,164
1,721,098
FHLMC
Pool,
30
Year,
2%,
3/01/52
......................................
2,533,145
2,065,611
FHLMC
Pool,
30
Year,
2%,
4/01/52
......................................
283,553
231,206
FHLMC
Pool,
30
Year,
2.5%,
11/01/51
....................................
846,430
719,333
FHLMC
Pool,
30
Year,
2.5%,
2/01/52
.....................................
1,186,022
1,006,767
FHLMC
Pool,
30
Year,
2.5%,
4/01/52
.....................................
1,201,379
1,019,066
FHLMC
Pool,
30
Year,
2.5%,
5/01/52
.....................................
1,024,810
869,029
FHLMC
Pool,
30
Year,
3%,
5/01/50
......................................
793,161
708,190
FHLMC
Pool,
30
Year,
3.5%,
7/01/49
.....................................
882,848
815,345
FHLMC
Pool,
30
Year,
4%,
5/01/50
......................................
72,177
68,934
FHLMC
Pool,
30
Year,
4.5%,
10/01/48
....................................
493,461
486,921
12,220,093
f
Federal
National
Mortgage
Association
(FNMA)
Adjustable
Rate
0.9%
FNMA,
2.375%
-
2.605%,
(3-year
CMT
T-Note
+/-
MBS
Margin),
12/01/24
-
5/01/30
..
33,885
33,191
FNMA,
3.98%,
(6-month
H15BDI
+/-
MBS
Margin),
7/01/25
....................
59
58
FNMA,
2.315%
-
4%,
(12-month
USD
LIBOR
+/-
MBS
Margin),
9/01/33
-
4/01/37
....
157,665
154,539
FNMA,
2.357%
-
4.562%,
(1-year
CMT
T-Note
+/-
MBS
Margin),
3/01/23
-
7/01/38
...
143,056
140,740
FNMA,
3.839%
-
5.215%,
(6-month
USD
LIBOR
+/-
MBS
Margin),
4/01/31
-
4/01/37
.
18,594
18,757
347,285
Federal
National
Mortgage
Association
(FNMA)
Fixed
Rate
35.3%
FNMA,
3.5%,
7/01/56
................................................
521,648
477,254
FNMA,
15
Year,
2%,
5/01/37
...........................................
1,000,119
890,687
FNMA,
15
Year,
2.5%,
3/01/29
.........................................
230,319
220,252
FNMA,
15
Year,
2.5%,
6/01/32
.........................................
131,999
122,284
FNMA,
30
Year,
2%,
5/01/51
...........................................
426,328
348,423
FNMA,
30
Year,
2%,
1/01/52
...........................................
1,205,511
983,224
FNMA,
30
Year,
2.5%,
4/01/52
.........................................
1,202,855
1,020,318
FNMA,
30
Year,
3%,
10/01/46
..........................................
1,113,033
997,397
FNMA,
30
Year,
3%,
11/01/48
..........................................
1,402,784
1,250,246
FNMA,
30
Year,
3%,
9/01/49
...........................................
254,664
227,803
FNMA,
30
Year,
3%,
9/01/49
...........................................
254,256
227,027
FNMA,
30
Year,
3%,
9/01/50
...........................................
479,140
426,605
FNMA,
30
Year,
3.5%,
6/01/49
.........................................
199,278
184,845
FNMA,
30
Year,
3.5%,
8/01/49
.........................................
972,110
897,227
FNMA,
30
Year,
3.5%,
9/01/49
.........................................
890,899
819,567
FNMA,
30
Year,
3.5%,
2/01/50
.........................................
204,268
188,370
FNMA,
30
Year,
3.5%,
4/01/50
.........................................
340,265
316,622
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited)
Quarterly
Schedule
of
Investments
See
Notes
to
Schedule
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,
4%,
11/01/45
..........................................
$
1,757,181
$
1,682,610
FNMA,
30
Year,
4.5%,
11/01/47
.........................................
413,500
408,082
FNMA,
30
Year,
5%,
4/01/34
...........................................
56,503
56,649
FNMA,
30
Year,
5.5%,
9/01/33
-
11/01/35
.................................
368,236
372,612
FNMA,
30
Year,
6%,
10/01/34
..........................................
196,494
203,273
FNMA,
30
Year,
6%,
12/01/23
-
8/01/35
...................................
270,379
275,992
FNMA,
30
Year,
6.5%,
12/01/27
-
8/01/32
.................................
166,907
171,639
FNMA,
30
Year,
7.5%,
8/01/25
-
5/01/32
..................................
5,245
5,346
FNMA,
30
Year,
8%,
1/01/25
-
7/01/31
....................................
14,419
14,979
FNMA,
30
Year,
9%,
8/01/24
-
4/01/25
....................................
233
236
FNMA,
30
Year,
9.5%,
11/01/29
-
4/01/30
.................................
16,954
16,952
12,806,521
Government
National
Mortgage
Association
(GNMA)
Fixed
Rate
6.2%
GNMA
I,
30
Year,
7%,
11/15/29
.........................................
1,231
1,284
GNMA
I,
30
Year,
8%,
11/15/25
-
12/15/26
.................................
2,174
2,198
GNMA
I,
Single-family,
30
Year,
6.5%,
1/15/24
-
9/15/32
......................
49,026
50,454
GNMA
I,
Single-family,
30
Year,
7%,
1/15/26
-
2/15/32
........................
6,330
6,349
GNMA
I,
Single-family,
30
Year,
7.5%,
10/15/23
-
5/15/28
......................
9,932
9,980
GNMA
I,
Single-family,
30
Year,
8%,
9/15/27
...............................
972
974
GNMA
I,
Single-family,
30
Year,
8.5%,
7/15/24
..............................
19
19
GNMA
II,
Single-family,
30
Year,
2%,
1/20/52
...............................
1,238,648
1,039,455
GNMA
II,
Single-family,
30
Year,
2.5%,
10/20/51
............................
1,193,251
1,036,771
GNMA
II,
Single-family,
30
Year,
6.5%,
1/20/26
-
1/20/33
......................
56,222
57,366
GNMA
II,
Single-family,
30
Year,
7.5%,
10/20/23
-
7/20/32
.....................
31,796
33,095
GNMA
II,
Single-family,
30
Year,
8%,
8/20/26
...............................
27
28
GNMA
II,
Single-family,
30
Year,
9%,
9/20/24
-
3/20/25
.......................
104
103
2,238,076
Total
Mortgage-Backed
Securities
(Cost
$30,872,563)
............................
27,611,975
Residential
Mortgage-Backed
Securities
12.9%
Capital
Markets
0.1%
c
Merrill
Lynch
Mortgage
Investors
Trust
,
2003-A
,
1A
,
FRN
,
5.129
%
,
(
1-month
USD
LIBOR
+
0.74
%
),
3/25/28
............................................
35,505
33,605
Diversified
Financial
Services
9.7%
c
American
Home
Mortgage
Investment
Trust
,
2005-1
,
6A
,
FRN
,
7.162
%
,
(
6-month
USD
LIBOR
+
2
%
),
6/25/45
..............................................
22,868
22,531
b
BRAVO
Residential
Funding
Trust
,
2019-1,
A1C,
144A,
3.5%,
3/25/58
.....................................
16,008
15,610
d
2019-2,
A3,
144A,
FRN,
3.5%,
10/25/44
.................................
51,843
48,222
b
CIM
Trust
,
d
2019-INV1,
A1,
144A,
FRN,
4%,
2/25/49
................................
12,933
12,151
c
2019-INV2,
A11,
144A,
FRN,
4.966%,
(1-month
USD
LIBOR
+
0.95%),
5/25/49
...
44,220
43,272
d
2019-INV2,
A3,
144A,
FRN,
4%,
5/25/49
................................
27,859
26,241
d
2018-INV1,
A4,
144A,
FRN,
4%,
8/25/48
................................
17,746
16,641
b,d
Citigroup
Mortgage
Loan
Trust
,
2013-A
,
A
,
144A,
FRN
,
3
%
,
5/25/42
.............
5,062
4,842
b,d
COLT
Mortgage
Loan
Trust
,
2022-4
,
A1
,
144A,
FRN
,
4.301
%
,
3/25/67
............
93,616
89,797
b,c
Connecticut
Avenue
Securities
Trust
,
2019-R02,
1M2,
144A,
FRN,
6.689%,
(1-month
USD
LIBOR
+
2.3%),
8/25/31
....
16,741
16,722
2019-R03,
1M2,
144A,
FRN,
6.539%,
(1-month
USD
LIBOR
+
2.15%),
9/25/31
...
17,389
17,350
b,d
CSMC
Trust
,
2014-OAK1
,
1A1
,
144A,
FRN
,
3
%
,
11/25/29
.....................
26,371
24,359
b,c
FHLMC
STACR
REMIC
Trust
,
2022-DNA1,
M1A,
144A,
FRN,
4.928%,
(30-day
SOFR
Average
+
1%),
1/25/42
...
248,319
242,072
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited)
See
Notes
to
Schedule
of
Investments.
Quarterly
Schedule
of
Investments
5
a
a
Principal
Amount
a
Value
a
a
a
a
a
Residential
Mortgage-Backed
Securities
(continued)
Diversified
Financial
Services
(continued)
b,c
FHLMC
STACR
REMIC
Trust,
(continued)
2022-DNA3,
M1A,
144A,
FRN,
5.928%,
(30-day
SOFR
Average
+
2%),
4/25/42
...
$
66,867
$
66,564
2020-DNA1,
M2,
144A,
FRN,
6.089%,
(1-month
USD
LIBOR
+
1.7%),
1/25/50
....
46,884
46,756
b,c
FHLMC
STACR
Trust
,
2019-DNA4
,
M2
,
144A,
FRN
,
6.339
%
,
(
1-month
USD
LIBOR
+
1.95
%
),
10/25/49
..................................................
47,285
47,294
b,d
Flagstar
Mortgage
Trust
,
2021-4,
A5,
144A,
FRN,
2.5%,
6/01/51
..................................
170,772
147,460
2021-2,
A6,
144A,
FRN,
2.5%,
4/25/51
..................................
191,063
164,695
b,d
GS
Mortgage-Backed
Securities
Trust
,
2021-PJ6
,
A8
,
144A,
FRN
,
2.5
%
,
11/25/51
...
208,293
179,547
b,d
J.P.
Morgan
Mortgage
Trust
,
2013-3,
A3,
144A,
FRN,
3.349%,
7/25/43
................................
52,007
47,238
2021-6,
A4,
144A,
FRN,
2.5%,
10/25/51
.................................
261,696
225,580
2021-13,
A4,
144A,
FRN,
2.5%,
4/25/52
.................................
178,787
154,327
2021-15,
A4,
144A,
FRN,
2.5%,
6/25/52
.................................
52,539
45,288
2022-1,
A4,
144A,
FRN,
2.5%,
7/25/52
..................................
272,746
235,105
b,d
Mill
City
Mortgage
Loan
Trust
,
2018-2,
A1,
144A,
FRN,
3.5%,
5/25/58
..................................
36,456
35,795
2018-1,
A1,
144A,
FRN,
3.25%,
5/25/62
.................................
34,870
33,647
2018-4,
A1B,
144A,
FRN,
3.485%,
4/25/66
...............................
85,903
81,760
b
OBX
Trust
,
c
2018-1,
A2,
144A,
FRN,
5.039%,
(1-month
USD
LIBOR
+
0.65%),
6/25/57
.......
30,843
29,147
d
2021-J1,
A4,
144A,
FRN,
2.5%,
5/25/51
.................................
163,113
140,602
d
2021-J3,
A4,
144A,
FRN,
2.5%,
10/25/51
................................
82,704
71,393
b,d
Provident
Funding
Associates
LLP
,
2021-J1
,
A3
,
144A,
FRN
,
2.5
%
,
2/20/49
........
130,840
112,783
b,d
PSMC
Trust
,
2021-3
,
A3
,
144A,
FRN
,
2.5
%
,
8/25/51
.........................
236,966
204,853
b,d
Sequoia
Mortgage
Trust
,
2021-1,
A1,
144A,
FRN,
2.5%,
3/25/51
..................................
163,369
132,127
2021-6,
A4,
144A,
FRN,
2.5%,
10/25/51
.................................
221,106
188,168
b
Towd
Point
Mortgage
Trust
,
d
2016-5,
A1,
144A,
FRN,
2.5%,
10/25/56
.................................
39,733
39,129
d
2017-1,
A1,
144A,
FRN,
2.75%,
10/25/56
................................
28,599
28,163
c
2017-5,
A1,
144A,
FRN,
3.773%,
(1-month
USD
LIBOR
+
0.6%),
2/25/57
........
15,171
15,022
d
2017-2,
A1,
144A,
FRN,
2.75%,
4/25/57
.................................
7,513
7,426
d
2017-4,
A1,
144A,
FRN,
2.75%,
6/25/57
.................................
88,745
84,570
d
2018-1,
A1,
144A,
FRN,
3%,
1/25/58
...................................
21,108
20,421
d
2018-2,
A1,
144A,
FRN,
3.25%,
3/25/58
.................................
55,587
53,263
d
2019-1,
A1,
144A,
FRN,
3.722%,
3/25/58
................................
118,859
112,381
d
2018-6,
A1A,
144A,
FRN,
3.75%,
3/25/58
................................
35,536
34,585
d
2017-1,
A2,
144A,
FRN,
3.5%,
10/25/56
.................................
165,000
158,620
3,523,519
a
a
a
a
a
Thrifts
&
Mortgage
Finance
3.1%
c
FHLMC
STACR
Debt
Notes
,
2013-DN2,
M2,
FRN,
8.639%,
(1-month
USD
LIBOR
+
4.25%),
11/25/23
........
87,412
88,480
2014-DN2,
M3,
FRN,
7.989%,
(1-month
USD
LIBOR
+
3.6%),
4/25/24
..........
130,532
132,117
2016-DNA2,
M3,
FRN,
9.039%,
(1-month
USD
LIBOR
+
4.65%),
10/25/28
.......
90,774
93,463
2016-HQA2,
M3,
FRN,
9.539%,
(1-month
USD
LIBOR
+
5.15%),
11/25/28
.......
104,911
108,557
c
FNMA
Connecticut
Avenue
Securities
,
2014-C04,
1M2,
FRN,
9.289%,
(1-month
USD
LIBOR
+
4.9%),
11/25/24
.........
69,874
71,738
2015-C01,
1M2,
FRN,
8.689%,
(1-month
USD
LIBOR
+
4.3%),
2/25/25
.........
66,422
67,618
2016-C01,
1M2,
FRN,
11.139%,
(1-month
USD
LIBOR
+
6.75%),
8/25/28
........
123,923
129,467
2016-C03,
1M2,
FRN,
9.689%,
(1-month
USD
LIBOR
+
5.3%),
10/25/28
........
134,100
138,748
2014-C02,
2M2,
FRN,
6.989%,
(1-month
USD
LIBOR
+
2.6%),
5/25/24
.........
62,210
62,171
2014-C03,
2M2,
FRN,
7.289%,
(1-month
USD
LIBOR
+
2.9%),
7/25/24
.........
25,449
25,460
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited)
Quarterly
Schedule
of
Investments
See
Notes
to
Schedule
of
Investments.
6
a
a
Principal
Amount
a
Value
a
a
a
a
a
Residential
Mortgage-Backed
Securities
(continued)
Thrifts
&
Mortgage
Finance
(continued)
c
FNMA
Connecticut
Avenue
Securities,
(continued)
2013-C01,
M2,
FRN,
9.639%,
(1-month
USD
LIBOR
+
5.25%),
10/25/23
........
$
72,698
$
73,929
2014-C01,
M2,
FRN,
8.789%,
(1-month
USD
LIBOR
+
4.4%),
1/25/24
..........
77,734
79,823
b
Virginia
Housing
Development
Authority
,
2020-A
,
A
,
144A,
2.85
%
,
12/25/49
........
52,768
47,914
1,119,485
a
a
a
a
a
Total
Residential
Mortgage-Backed
Securities
(Cost
$5,148,492)
..................
4,676,609
Total
Long
Term
Investments
(Cost
$39,196,331)
................................
35,216,610
a
a
a
a
a
Short
Term
Investments
3.3%
Shares
a
Money
Market
Funds
3.3%
g,h
Institutional
Fiduciary
Trust
-
Money
Market
Portfolio,
3.782%
..................
1,180,612
1,180,612
Total
Money
Market
Funds
(Cost
$1,180,612)
...................................
1,180,612
Total
Short
Term
Investments
(Cost
$1,180,612
)
.................................
1,180,612
a
Total
Investments
(Cost
$40,376,943)
100.3%
...................................
$36,397,222
Other
Assets,
less
Liabilities
(0.3)%
...........................................
(105,645)
Net
Assets
100.0%
...........................................................
$36,291,577
†
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
December
31,
2022,
the
aggregate
value
of
these
securities
was
$6,078,397,
representing
16.7%
of
net
assets.
c
The
coupon
rate
shown
represents
the
rate
inclusive
of
any
caps
or
floors,
if
applicable,
in
effect
at
period
end.
d
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.
e
Defaulted
security
or
security
for
which
income
has
been
deemed
uncollectible.
f
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).
g
See
Note
3
regarding
investments
in
affiliated
management
investment
companies.
h
The
rate
shown
is
the
annualized
seven-day
effective
yield
at
period
end.
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited)
See
Notes
to
Schedule
of
Investments.
Quarterly
Schedule
of
Investments
7
At
December
31,
2022,
the
Fund
had
the
following futures
contracts
outstanding.
See
A
bbreviations
on
page
10
.
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
12
$
1,347,562
3/22/23
$
13,296
U.S.
Treasury
10
Year
Ultra
Notes
................
Long
10
1,182,812
3/22/23
(10,326)
U.S.
Treasury
2
Year
Notes
.....................
Short
3
615,234
3/31/23
137
U.S.
Treasury
5
Year
Notes
.....................
Long
24
2,590,313
3/31/23
(6,145)
U.S.
Treasury
Long
Bonds
.....................
Long
15
1,880,156
3/22/23
(27,912)
Total
Futures
Contracts
......................................................................
$(30,950)
*
As
of
period
end.
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Schedule
of
Investments
(unaudited)
8
Quarterly
Schedule
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.
Derivative
financial
instruments
listed
on
an
exchange
are
valued
at
the
official
closing
price
of
the
day.
Investments
in
open-end
mutual
funds
are
valued
at
the
closing
NAV.
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.
Investments
in
Affiliated
Management
Investment
Companies
The
Fund
invests
in
one
or
more
affiliated
management
investment
companies.
As
defined
in
the
1940
Act,
an
investment
is
deemed
to
be
a
“Controlled
Affiliate”
of
a
fund
when
a
fund
owns,
either
directly
or
indirectly,
25%
or
more
of
the
affiliated
fund’s
outstanding
shares
or
has
the
power
to
exercise
control
over
management
or
policies
of
such
fund.
The
Fund
does
not
invest for
purposes
of
exercising
a
controlling
influence
over
the
management
or
policies.
During
the
period
ended
June
30,
2022,
the
Fund
held
investments
in
affiliated
management
investment
companies
as
follows:
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Schedule
of
Investments
(unaudited)
9
Quarterly
Schedule
of
Investments
4. Fair
Value
Measurements
The
Fund
follows
a
fair
value
hierarchy
that
distinguishes
between
market
data
obtained
from
independent
sources
(observable
inputs)
and
the Fund's
own
market
assumptions
(unobservable
inputs).
These
inputs
are
used
in
determining
the
value
of
the
Fund's financial
instruments
and
are
summarized
in
the
following
fair
value
hierarchy:
Level
1
–
quoted
prices
in
active
markets
for
identical
financial
instruments
Level
2
–
other
significant
observable
inputs
(including
quoted
prices
for
similar
financial
instruments,
interest
rates,
prepayment
speed,
credit
risk,
etc.)
Level
3
–
significant
unobservable
inputs
(including
the
Fund's
own
assumptions
in
determining
the
fair
value
of
financial
instruments)
The
input
levels
are
not
necessarily
an
indication
of
the
risk
or
liquidity
associated
with
financial
instruments
at
that
level.
A
summary
of
inputs
used
as
of
June
30,
2022,
in
valuing
the
Fund's
assets
and
liabilities
carried
at
fair
value,
is
as
follows:
a
For
detailed
categories,
see
the
accompanying
Schedule
of
Investments.
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,
3.782%
$
839,449
$
2,636,422
$
(2,295,259)
$
—
$
—
$
1,180,612
1,180,612
$
6,377
Total
Affiliated
Securities
...
$839,449
$2,636,422
$(2,295,259)
$—
$—
$1,180,612
$6,377
Level
1
Level
2
Level
3
Total
Franklin
Strategic
Mortgage
Portfolio
Assets:
Investments
in
Securities:
a
Corporate
Bonds
........................
$
—
$
92,972
$
—
$
92,972
Asset-Backed
Securities
...................
—
1,105,124
—
1,105,124
Commercial
Mortgage-Backed
Securities
......
—
1,729,930
—
1,729,930
Mortgage-Backed
Securities
................
—
27,611,975
—
27,611,975
Residential
Mortgage-Backed
Securities
.......
—
4,676,609
—
4,676,609
Short
Term
Investments
...................
1,180,612
—
—
1,180,612
Total
Investments
in
Securities
...........
$1,180,612
$35,216,610
$—
$36,397,222
Other
Financial
Instruments:
Futures
contracts
........................
$
13,433
$
—
$
—
$
13,433
Total
Other
Financial
Instruments
.........
$13,433
$—
$—
$13,433
Liabilities:
Other
Financial
Instruments:
Futures
contracts
........................
$
44,383
$
—
$
—
$
44,383
Total
Other
Financial
Instruments
.........
$44,383
$—
$—
$44,383
3.
Investments
in
Affiliated
Management
Investment
Companies
(continued)
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Schedule
of
Investments
(unaudited)
10
Quarterly
Schedule
of
Investments
Abbreviations
Currency
USD
United
States
Dollar
Selected
Portfolio
CMT
Constant
Monthly
U.S.
Treasury
Securities
Yield
Curve
Rate
Index
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
SOFR
Secured
Overnight
Financing
Rate
T-Note
Treasury
Note
For
additional
information
on
the
Fund's
significant
accounting
policies,
please
refer
to
the Fund's
most
recent
semiannual
or
annual
shareholder
report.