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
7
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited),
June
30,
2023
Quarterly
Schedule
of
Investments
See
Notes
to
Schedule
of
Investments.
2
a
a
Principal
Amount
a
Value
a
a
a
a
a
Corporate
Bonds
0.3%
Insurance
0.0%
†
a,b
Ambac
Assurance
Corp.
,
Sub.
Bond
,
144A,
5.1
%
,
Perpetual
...................
$
237
$
345
Residential
REITs
0.3%
American
Homes
4
Rent
LP
,
Senior
Bond
,
4.25
%
,
2/15/28
.....................
100,000
94,223
Total
Corporate
Bonds
(Cost
$99,949)
.........................................
94,568
Asset-Backed
Securities
3.1%
Financial
Services
3.1%
b
American
Homes
4
Rent
Trust
,
2015-SFR1
,
A
,
144A,
3.467
%
,
4/17/52
...........
136,085
130,228
b,c
Anthracite
Ltd.
,
2004-HY1A
,
E
,
144A,
7.147
%
,
6/20/41
.......................
1,598,000
24
b
CF
Hippolyta
Issuer
LLC
,
2020-1,
A1,
144A,
1.69%,
7/15/60
.....................................
107,934
96,969
2021-1A,
A1,
144A,
1.53%,
3/15/61
....................................
94,245
81,777
d
Conseco
Finance
Securitizations
Corp.
,
2002-2
,
M1
,
FRN
,
7.424
%
,
3/01/33
.......
39,175
39,005
e
CWABS,
Inc.
,
2004-1
,
M1
,
FRN
,
5.9
%
,
(
1-month
USD
LIBOR
+
0.75
%
),
3/25/34
....
10,525
10,252
b
FirstKey
Homes
Trust
,
2020-SFR2
,
A
,
144A,
1.266
%
,
10/19/37
.................
147,773
132,750
b
Home
Partners
of
America
Trust
,
2021-2,
B,
144A,
2.302%,
12/17/26
....................................
163,947
144,716
2021-3,
B,
144A,
2.649%,
1/17/41
.....................................
55,461
47,661
b,e
Invitation
Homes
Trust
,
2018-SFR4
,
A
,
144A,
FRN
,
6.246
%
,
(
1-month
USD
LIBOR
+
1.1
%
),
1/17/38
....................................................
169,345
169,298
b
New
Economy
Assets
Phase
1
Sponsor
LLC
,
2021-1
,
A1
,
144A,
1.91
%
,
10/20/61
...
270,000
230,417
1,083,097
a
a
a
a
a
Total
Asset-Backed
Securities
(Cost
$1,240,328)
................................
1,083,097
Commercial
Mortgage-Backed
Securities
4.9%
Financial
Services
4.9%
BANK
,
2021-BN34,
A5,
2.438%,
6/15/63
......................................
125,000
99,862
2021-BN33,
A5,
2.556%,
5/15/64
......................................
90,000
74,252
b,e
BLP
Commercial
Mortgage
Trust
,
2023-IND
,
A
,
144A,
FRN
,
6.839
%
,
(
1-month
SOFR
+
1.692
%
),
3/15/40
..................................................
100,000
98,709
b,e
BX
Commercial
Mortgage
Trust
,
2021-VOLT,
A,
144A,
FRN,
5.893%,
(1-month
USD
LIBOR
+
0.7%),
9/15/36
......
100,000
96,888
2022-LP2,
A,
144A,
FRN,
6.16%,
(1-month
SOFR
+
1.013%),
2/15/39
..........
83,555
81,124
b,e
BX
Mortgage
Trust
,
2021-PAC
,
A
,
144A,
FRN
,
5.883
%
,
(
1-month
USD
LIBOR
+
0.689
%
),
10/15/36
.................................................
200,000
194,222
b
BX
Trust
,
2022-CLS,
A,
144A,
5.76%,
10/13/27
...................................
200,000
193,001
e
2022-IND,
A,
144A,
FRN,
6.638%,
(1-month
SOFR
+
1.491%),
4/15/37
.........
155,658
153,523
b,e
Cold
Storage
Trust
,
2020-ICE5
,
A
,
144A,
FRN
,
6.093
%
,
(
1-month
USD
LIBOR
+
0.9
%
),
11/15/37
........................................................
324,387
319,173
d
Commercial
Mortgage
Trust
,
2006-GG7
,
AJ
,
FRN
,
6.214
%
,
7/10/38
..............
39,434
24,390
b,e
DBCG
Mortgage
Trust
,
2017-BBG
,
A
,
144A,
FRN
,
5.893
%
,
(
1-month
USD
LIBOR
+
0.7
%
),
6/15/34
....................................................
240,000
237,011
e
FNMA
,
2007-1
,
NF
,
FRN
,
5.4
%
,
(
1-month
USD
LIBOR
+
0.25
%
),
2/25/37
.........
26,665
26,305
b,e
GS
Mortgage
Securities
Corp.
Trust
,
2022-SHIP
,
A
,
144A,
FRN
,
5.878
%
,
(
1-month
SOFR
+
0.731
%
),
8/15/36
...........................................
100,000
99,361
1,697,821
a
a
a
a
a
Total
Commercial
Mortgage-Backed
Securities
(Cost
$1,764,543)
.................
1,697,821
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
Mortgage-Backed
Securities
77.9%
Federal
Home
Loan
Mortgage
Corp.
(FHLMC)
Fixed
Rate
36.1%
FHLMC
Gold
Pool,
30
Year,
4.5%,
4/01/40
................................
$
165,652
$
163,877
FHLMC
Gold
Pool,
30
Year,
4.5%,
1/01/49
................................
298,331
293,018
FHLMC
Gold
Pool,
30
Year,
5%,
10/01/33
-
2/01/39
..........................
110,096
110,911
FHLMC
Gold
Pool,
30
Year,
5.5%,
9/01/33
................................
12,060
12,193
FHLMC
Gold
Pool,
30
Year,
6%,
12/01/32
-
11/01/36
.........................
36,803
37,494
FHLMC
Gold
Pool,
30
Year,
6.5%,
11/01/27
-
7/01/32
........................
14,183
14,511
FHLMC
Gold
Pool,
30
Year,
7.5%,
1/01/26
-
3/01/32
.........................
45,444
45,449
FHLMC
Gold
Pool,
30
Year,
8%,
7/01/24
-
5/01/30
...........................
61,214
61,399
FHLMC
Gold
Pool,
30
Year,
9%,
9/01/30
..................................
2,291
2,288
FHLMC
Pool,
15
Year,
2%,
4/01/37
......................................
1,126,960
1,000,046
FHLMC
Pool,
15
Year,
4%,
11/01/37
.....................................
447,689
432,668
FHLMC
Pool,
30
Year,
2%,
2/01/52
......................................
2,058,913
1,681,413
FHLMC
Pool,
30
Year,
2%,
3/01/52
......................................
2,472,763
2,021,633
FHLMC
Pool,
30
Year,
2%,
4/01/52
......................................
277,436
226,606
FHLMC
Pool,
30
Year,
2.5%,
11/01/51
....................................
821,312
698,337
FHLMC
Pool,
30
Year,
2.5%,
12/01/51
....................................
1,112,782
945,930
FHLMC
Pool,
30
Year,
2.5%,
2/01/52
.....................................
1,154,466
981,276
FHLMC
Pool,
30
Year,
2.5%,
4/01/52
.....................................
1,171,200
994,526
FHLMC
Pool,
30
Year,
2.5%,
5/01/52
.....................................
1,003,602
852,209
FHLMC
Pool,
30
Year,
3%,
5/01/50
......................................
764,837
684,276
FHLMC
Pool,
30
Year,
3.5%,
7/01/49
.....................................
834,435
775,333
FHLMC
Pool,
30
Year,
4%,
5/01/50
......................................
68,204
65,161
FHLMC
Pool,
30
Year,
4.5%,
10/01/48
....................................
464,178
455,916
12,556,470
f
Federal
National
Mortgage
Association
(FNMA)
Adjustable
Rate
0.9%
FNMA,
2.375%
-
2.555%,
(3-year
CMT
T-Note
+/-
MBS
Margin),
12/01/24
-
5/01/30
..
30,718
29,924
FNMA,
4.2%
-
5.7%,
(1-year
CMT
T-Note
+/-
MBS
Margin),
12/01/23
-
7/01/38
.....
121,875
119,754
FNMA,
3.867%
-
5.864%,
(12-month
USD
LIBOR
+/-
MBS
Margin),
9/01/33
-
4/01/37
140,554
137,381
FNMA,
5.832%
-
6.93%,
(6-month
USD
LIBOR
+/-
MBS
Margin),
4/01/31
-
4/01/37
..
16,407
16,533
303,592
Federal
National
Mortgage
Association
(FNMA)
Fixed
Rate
35.5%
FNMA,
3.5%,
7/01/56
................................................
501,201
459,889
FNMA,
30
Year,
1.5%,
10/01/51
.........................................
342,593
265,270
FNMA,
30
Year,
2%,
5/01/51
...........................................
415,073
340,111
FNMA,
30
Year,
2%,
11/01/51
..........................................
505,476
413,333
FNMA,
30
Year,
2%,
1/01/52
...........................................
1,175,663
960,715
FNMA,
30
Year,
2.5%,
4/01/52
.........................................
1,173,388
996,384
FNMA,
30
Year,
3%,
10/01/46
..........................................
1,067,659
956,495
FNMA,
30
Year,
3%,
11/01/48
..........................................
1,338,142
1,194,501
FNMA,
30
Year,
3%,
9/01/49
...........................................
244,852
218,069
FNMA,
30
Year,
3%,
9/01/49
...........................................
243,108
217,519
FNMA,
30
Year,
3%,
9/01/50
...........................................
461,888
410,417
FNMA,
30
Year,
3.5%,
6/01/49
.........................................
189,966
175,456
FNMA,
30
Year,
3.5%,
8/01/49
.........................................
925,716
858,041
FNMA,
30
Year,
3.5%,
9/01/49
.........................................
836,615
771,979
FNMA,
30
Year,
3.5%,
2/01/50
.........................................
198,224
183,604
FNMA,
30
Year,
3.5%,
4/01/50
.........................................
324,519
300,254
FNMA,
30
Year,
4%,
11/01/45
..........................................
1,670,001
1,598,793
FNMA,
30
Year,
4%,
10/01/52
..........................................
386,736
363,259
FNMA,
30
Year,
4.5%,
11/01/47
.........................................
391,338
385,766
FNMA,
30
Year,
5%,
4/01/34
...........................................
49,330
48,880
FNMA,
30
Year,
5.5%,
9/01/33
-
11/01/35
.................................
339,726
340,637
FNMA,
30
Year,
5.5%,
5/01/53
.........................................
355,312
353,806
FNMA,
30
Year,
6%,
12/01/23
-
8/01/35
...................................
371,173
377,091
FNMA,
30
Year,
6.5%,
12/01/27
-
8/01/32
.................................
144,452
147,940
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,
7.5%,
8/01/25
-
5/01/32
..................................
$
4,055
$
4,106
FNMA,
30
Year,
8%,
1/01/25
-
7/01/31
....................................
8,027
8,051
FNMA,
30
Year,
9%,
8/01/24
-
4/01/25
....................................
149
150
FNMA,
30
Year,
9.5%,
11/01/29
-
4/01/30
.................................
15,233
15,200
12,365,716
Government
National
Mortgage
Association
(GNMA)
Fixed
Rate
5.4%
GNMA
I,
30
Year,
7%,
11/15/29
.........................................
1,083
1,116
GNMA
I,
30
Year,
8%,
11/15/25
-
12/15/26
.................................
1,581
1,585
GNMA
I,
Single-family,
30
Year,
6.5%,
6/15/28
-
9/15/32
......................
46,158
47,094
GNMA
I,
Single-family,
30
Year,
7%,
1/15/26
-
2/15/32
........................
5,567
5,543
GNMA
I,
Single-family,
30
Year,
7.5%,
10/15/23
-
5/15/28
......................
8,633
8,636
GNMA
I,
Single-family,
30
Year,
8%,
9/15/27
...............................
587
586
GNMA
I,
Single-family,
30
Year,
8.5%,
7/15/24
..............................
9
9
GNMA
II,
Single-family,
30
Year,
2%,
1/20/52
...............................
882,214
742,318
GNMA
II,
Single-family,
30
Year,
2.5%,
10/20/51
............................
1,146,526
994,396
GNMA
II,
Single-family,
30
Year,
6.5%,
1/20/26
-
1/20/33
......................
50,561
51,643
GNMA
II,
Single-family,
30
Year,
7.5%,
10/20/23
-
7/20/32
.....................
27,293
28,025
GNMA
II,
Single-family,
30
Year,
8%,
8/20/26
...............................
23
23
GNMA
II,
Single-family,
30
Year,
9%,
9/20/24
-
3/20/25
.......................
73
73
1,881,047
Total
Mortgage-Backed
Securities
(Cost
$30,173,862)
............................
27,106,825
Residential
Mortgage-Backed
Securities
11.6%
Capital
Markets
0.1%
e
Merrill
Lynch
Mortgage
Investors
Trust
,
2003-A
,
1A
,
FRN
,
5.89
%
,
(
1-month
USD
LIBOR
+
0.74
%
),
3/25/28
............................................
25,384
23,716
Financial
Services
11.5%
e
American
Home
Mortgage
Investment
Trust
,
2005-1
,
6A
,
FRN
,
7.504
%
,
(
6-month
USD
LIBOR
+
2
%
),
6/25/45
..............................................
17,717
17,585
b
BRAVO
Residential
Funding
Trust
,
2019-1,
A1C,
144A,
3.5%,
3/25/58
.....................................
12,624
12,346
d
2019-2,
A3,
144A,
FRN,
3.5%,
10/25/44
.................................
45,974
43,050
b
CIM
Trust
,
d
2019-INV1,
A1,
144A,
FRN,
4%,
2/25/49
................................
11,090
10,385
e
2019-INV2,
A11,
144A,
FRN,
6.088%,
(1-month
USD
LIBOR
+
0.95%),
5/25/49
...
42,530
41,158
d
2019-INV2,
A3,
144A,
FRN,
4%,
5/25/49
................................
26,794
24,803
d
2018-INV1,
A4,
144A,
FRN,
4%,
8/25/48
................................
16,128
14,923
b,d
Citigroup
Mortgage
Loan
Trust
,
2013-A
,
A
,
144A,
FRN
,
3
%
,
5/25/42
.............
4,557
4,348
b,d
COLT
Mortgage
Loan
Trust
,
2022-4
,
A1
,
144A,
FRN
,
4.301
%
,
3/25/67
............
88,289
84,181
b,e
Connecticut
Avenue
Securities
Trust
,
2019-R02,
1M2,
144A,
FRN,
7.45%,
(1-month
USD
LIBOR
+
2.3%),
8/25/31
.....
4,092
4,092
2019-R03,
1M2,
144A,
FRN,
7.3%,
(1-month
USD
LIBOR
+
2.15%),
9/25/31
.....
6,421
6,429
b,d
CSMC
Trust
,
2014-OAK1
,
1A1
,
144A,
FRN
,
3
%
,
11/25/29
.....................
23,840
22,368
e
FHLMC
STACR
Debt
Notes
,
2016-DNA2,
M3,
FRN,
9.8%,
(1-month
USD
LIBOR
+
4.65%),
10/25/28
.........
81,870
85,811
2016-HQA2,
M3,
FRN,
10.3%,
(1-month
USD
LIBOR
+
5.15%),
11/25/28
........
94,468
100,778
b,e
FHLMC
STACR
REMIC
Trust
,
2022-DNA1,
M1A,
144A,
FRN,
6.067%,
(30-day
SOFR
Average
+
1%),
1/25/42
...
225,421
221,608
2022-DNA3,
M1A,
144A,
FRN,
7.067%,
(30-day
SOFR
Average
+
2%),
4/25/42
...
59,832
60,025
2020-DNA1,
M2,
144A,
FRN,
6.85%,
(1-month
USD
LIBOR
+
1.7%),
1/25/50
.....
37,032
37,045
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)
Financial
Services
(continued)
b,e
FHLMC
STACR
Trust
,
2019-DNA4
,
M2
,
144A,
FRN
,
7.1
%
,
(
1-month
USD
LIBOR
+
1.95
%
),
10/25/49
..................................................
$
25,648
$
25,683
b,d
Flagstar
Mortgage
Trust
,
2021-4,
A5,
144A,
FRN,
2.5%,
6/01/51
..................................
164,968
140,264
2021-2,
A6,
144A,
FRN,
2.5%,
4/25/51
..................................
185,396
158,930
e
FNMA
Connecticut
Avenue
Securities
,
2015-C01,
1M2,
FRN,
9.45%,
(1-month
USD
LIBOR
+
4.3%),
2/25/25
..........
57,363
59,328
2016-C01,
1M2,
FRN,
11.9%,
(1-month
USD
LIBOR
+
6.75%),
8/25/28
.........
106,730
114,254
2016-C03,
1M2,
FRN,
10.45%,
(1-month
USD
LIBOR
+
5.3%),
10/25/28
........
117,515
125,023
2014-C02,
2M2,
FRN,
7.75%,
(1-month
USD
LIBOR
+
2.6%),
5/25/24
..........
54,582
55,076
2014-C03,
2M2,
FRN,
8.05%,
(1-month
USD
LIBOR
+
2.9%),
7/25/24
..........
21,766
21,990
2013-C01,
M2,
FRN,
10.4%,
(1-month
USD
LIBOR
+
5.25%),
10/25/23
.........
67,309
68,075
2014-C01,
M2,
FRN,
9.55%,
(1-month
USD
LIBOR
+
4.4%),
1/25/24
...........
73,176
74,473
b,d
GS
Mortgage-Backed
Securities
Trust
,
2021-PJ6
,
A8
,
144A,
FRN
,
2.5
%
,
11/25/51
...
200,166
170,700
b,d
J.P.
Morgan
Mortgage
Trust
,
2013-3,
A3,
144A,
FRN,
3.352%,
7/25/43
................................
51,001
45,858
2021-6,
A4,
144A,
FRN,
2.5%,
10/25/51
.................................
253,436
218,601
2021-13,
A4,
144A,
FRN,
2.5%,
4/25/52
.................................
169,892
146,310
2021-15,
A4,
144A,
FRN,
2.5%,
6/25/52
.................................
50,591
43,369
2022-1,
A4,
144A,
FRN,
2.5%,
7/25/52
..................................
264,166
225,572
b,d
Mill
City
Mortgage
Loan
Trust
,
2018-2,
A1,
144A,
FRN,
3.5%,
5/25/58
..................................
29,219
28,464
2018-1,
A1,
144A,
FRN,
3.25%,
5/25/62
.................................
28,190
27,112
2018-4,
A1B,
144A,
FRN,
3.5%,
4/25/66
.................................
78,596
74,879
b
OBX
Trust
,
e
2018-1,
A2,
144A,
FRN,
5.8%,
(1-month
USD
LIBOR
+
0.65%),
6/25/57
.........
28,267
26,812
d
2021-J1,
A4,
144A,
FRN,
2.5%,
5/25/51
.................................
158,124
136,531
d
2021-J3,
A4,
144A,
FRN,
2.5%,
10/25/51
................................
78,866
67,688
b,d
Provident
Funding
Associates
LLP
,
2021-J1
,
A3
,
144A,
FRN
,
2.5
%
,
2/20/49
........
125,952
107,972
b,d
PSMC
Trust
,
2021-3
,
A3
,
144A,
FRN
,
2.5
%
,
8/25/51
.........................
228,354
197,388
b,d
Sequoia
Mortgage
Trust
,
2021-1,
A1,
144A,
FRN,
2.5%,
3/25/51
..................................
158,236
128,172
2021-6,
A4,
144A,
FRN,
2.5%,
10/25/51
.................................
215,399
183,941
b
Towd
Point
Mortgage
Trust
,
d
2016-5,
A1,
144A,
FRN,
2.5%,
10/25/56
.................................
24,679
24,323
d
2017-1,
A1,
144A,
FRN,
2.75%,
10/25/56
................................
16,678
16,455
e
2017-5,
A1,
144A,
FRN,
4.604%,
(1-month
USD
LIBOR
+
0.6%),
2/25/57
........
11,857
11,846
d
2017-2,
A1,
144A,
FRN,
2.75%,
4/25/57
.................................
3,914
3,874
d
2017-4,
A1,
144A,
FRN,
2.75%,
6/25/57
.................................
79,000
74,532
d
2018-1,
A1,
144A,
FRN,
3%,
1/25/58
...................................
18,089
17,385
d
2018-2,
A1,
144A,
FRN,
3.25%,
3/25/58
.................................
47,628
45,423
d
2019-1,
A1,
144A,
FRN,
3.75%,
3/25/58
.................................
109,739
103,193
d
2018-6,
A1A,
144A,
FRN,
3.75%,
3/25/58
................................
30,796
29,830
d
2017-1,
A2,
144A,
FRN,
3.5%,
10/25/56
.................................
165,000
158,665
Virginia
Housing
Development
Authority
,
2020-A
,
A
,
2.85
%
,
12/25/49
.............
50,758
44,193
3,993,119
a
a
a
a
a
Total
Residential
Mortgage-Backed
Securities
(Cost
$4,468,166)
..................
4,016,835
Total
Long
Term
Investments
(Cost
$37,746,848)
................................
33,999,146
a
a
a
a
a
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited)
Quarterly
Schedule
of
Investments
See
Notes
to
Schedule
of
Investments.
6
At
June
30,
2023,
the
Fund
had
the
following futures
contracts
outstanding.
See
A
bbreviations
on
page
9
.
Short
Term
Investments
2.0%
a
a
Shares
a
Value
a
Money
Market
Funds
2.0%
g,h
Institutional
Fiduciary
Trust
-
Money
Market
Portfolio,
4.699%
..................
705,156
$
705,156
Total
Money
Market
Funds
(Cost
$705,156)
.....................................
705,156
Total
Short
Term
Investments
(Cost
$705,156
)
..................................
705,156
a
Total
Investments
(Cost
$38,452,004)
99.8%
....................................
$34,704,302
Other
Assets,
less
Liabilities
0.2%
.............................................
76,243
Net
Assets
100.0%
...........................................................
$34,780,545
†
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,
2023,
the
aggregate
value
of
these
securities
was
$5,733,730,
representing
16.5%
of
net
assets.
c
Defaulted
security
or
security
for
which
income
has
been
deemed
uncollectible.
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
The
coupon
rate
shown
represents
the
rate
inclusive
of
any
caps
or
floors,
if
applicable,
in
effect
at
period
end.
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.
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
10
$
1,122,656
9/20/23
$
13,892
U.S.
Treasury
10
Year
Ultra
Notes
................
Long
11
1,302,812
9/20/23
(12,992)
U.S.
Treasury
5
Year
Notes
.....................
Long
19
2,034,781
9/29/23
(40,399)
U.S.
Treasury
Long
Bonds
.....................
Long
8
1,015,250
9/20/23
738
Total
Futures
Contracts
......................................................................
$(38,761)
*
As
of
period
end.
Franklin
Strategic
Mortgage
Portfolio
7
Quarterly
Schedule
of
Investments
Notes
to
Schedule
of
Investments
(unaudited)
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).
The
Trust
follows
the
accounting
and
reporting
guidance
in
Financial
Accounting
Standards
Board
(FASB)
Accounting
Standards
Codification
Topic
946,
Financial
Services
–
Investment
Companies
(ASC
946)
and
applies
the
specialized
accounting
and
reporting
guidance
in
U.S.
Generally
Accepted
Accounting
Principles
(U.S.
GAAP),
including,
but
not
limited
to,
ASC
946.
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
Board
has
designated
the
Fund’s
investment
manager
as
the
valuation
designee
and
has
responsibility
for
oversight
of
valuation.
The
investment
manager
is
assisted
by
the
Fund’s
administrator
in
performing
this
responsibility,
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,
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.
Derivative
financial
instruments
listed
on
an
exchange
are
valued
at
the
official
closing
price
of
the
day.
Certain
derivative
financial
instruments
are
centrally
cleared
or
trade
in
the
OTC
market.
The Fund’s
pricing
services
use
various
techniques
including
industry
standard
option
pricing
models
and
proprietary
discounted
cash
flow
models
to
determine
the
fair
value
of
those
instruments.
The Fund’s
net
benefit
or
obligation
under
the
derivative
contract,
as
measured
by
the
fair
value
of
the
contract,
is
included
in
net
assets.
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,
2023,
the
Fund
held
investments
in
affiliated
management
investment
companies
as
follows:
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Schedule
of
Investments
(unaudited)
8
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,
2023,
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,
4.699%
$
839,449
$
6,879,701
$
(7,013,994)
$
—
$
—
$
705,156
705,156
$
25,824
Total
Affiliated
Securities
...
$839,449
$6,879,701
$(7,013,994)
$—
$—
$705,156
$25,824
Level
1
Level
2
Level
3
Total
Franklin
Strategic
Mortgage
Portfolio
Assets:
Investments
in
Securities:
a
Corporate
Bonds
........................
$
—
$
94,568
$
—
$
94,568
Asset-Backed
Securities
...................
—
1,083,097
—
1,083,097
Commercial
Mortgage-Backed
Securities
......
—
1,697,821
—
1,697,821
Mortgage-Backed
Securities
................
—
27,106,825
—
27,106,825
Residential
Mortgage-Backed
Securities
.......
—
4,016,835
—
4,016,835
Short
Term
Investments
...................
705,156
—
—
705,156
Total
Investments
in
Securities
...........
$705,156
$33,999,146
$—
$34,704,302
Other
Financial
Instruments:
Futures
contracts
........................
$
14,630
$
—
$
—
$
14,630
Total
Other
Financial
Instruments
.........
$14,630
$—
$—
$14,630
Liabilities:
Other
Financial
Instruments:
Futures
contracts
........................
$
53,391
$
—
$
—
$
53,391
Total
Other
Financial
Instruments
.........
$53,391
$—
$—
$53,391
3.
Investments
in
Affiliated
Management
Investment
Companies
(continued)
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Schedule
of
Investments
(unaudited)
9
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
LIBOR
London
Interbank
Offered
Rate
MBS
Mortgage-Backed
Security
REIT
Real
Estate
Inv
estment
Trust
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.