Not
FDIC
Insured
May
Lose
Value
No
Bank
Guarantee
357-Q1PH
1
Schedule
of
Investments
(unaudited)
Franklin
Strategic
Mortgage
Portfolio
2
Notes
to
Schedule
of
Investments
7
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited),
December
31,
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
$
310
Residential
REITs
0.3%
American
Homes
4
Rent
LP
,
Senior
Bond
,
4.25
%
,
2/15/28
.....................
100,000
97,170
Total
Corporate
Bonds
(Cost
$99,978)
.........................................
97,480
Asset-Backed
Securities
3.3%
Financial
Services
3.3%
b
American
Homes
4
Rent
Trust
,
2015-SFR1
,
A
,
144A,
3.467
%
,
4/17/52
...........
134,586
130,871
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
99,840
2021-1A,
A1,
144A,
1.53%,
3/15/61
....................................
94,245
84,351
d
Conseco
Finance
Securitizations
Corp.
,
2002-2
,
M1
,
FRN
,
7.424
%
,
3/01/33
.......
14,683
14,701
e
CWABS,
Inc.
,
2004-1
,
M1
,
FRN
,
6.22
%
,
(
1-month
SOFR
+
0.864
%
),
3/25/34
.......
9,998
9,929
b
FirstKey
Homes
Trust
,
2020-SFR2
,
A
,
144A,
1.266
%
,
10/19/37
.................
146,931
136,257
b
Home
Partners
of
America
Trust
,
2021-2,
B,
144A,
2.302%,
12/17/26
....................................
163,581
148,212
2021-3,
B,
144A,
2.649%,
1/17/41
.....................................
55,117
48,187
b,e
Invitation
Homes
Trust
,
2018-SFR4
,
A
,
144A,
FRN
,
6.573
%
,
(
1-month
SOFR
+
1.214
%
),
1/17/38
..................................................
165,158
165,179
b
New
Economy
Assets
Phase
1
Sponsor
LLC
,
2021-1
,
A1
,
144A,
1.91
%
,
10/20/61
...
270,000
236,709
1,074,260
a
a
a
a
a
Total
Asset-Backed
Securities
(Cost
$1,205,906)
................................
1,074,260
Commercial
Mortgage-Backed
Securities
4.8%
Financial
Services
4.8%
BANK
,
2021-BN34,
A5,
2.438%,
6/15/63
......................................
125,000
100,386
2021-BN33,
A5,
2.556%,
5/15/64
......................................
90,000
76,253
b,e
BLP
Commercial
Mortgage
Trust
,
2023-IND
,
A
,
144A,
FRN
,
7.054
%
,
(
1-month
SOFR
+
1.692
%
),
3/15/40
..................................................
100,000
99,573
b,e
BX
Commercial
Mortgage
Trust
,
2021-VOLT,
A,
144A,
FRN,
6.176%,
(1-month
SOFR
+
0.814%),
9/15/36
........
100,000
97,538
2022-LP2,
A,
144A,
FRN,
6.375%,
(1-month
SOFR
+
1.013%),
2/15/39
.........
72,906
71,665
b,e
BX
Mortgage
Trust
,
2021-PAC
,
A
,
144A,
FRN
,
6.166
%
,
(
1-month
SOFR
+
0.804
%
),
10/15/36
........................................................
200,000
196,002
b
BX
Trust
,
2022-CLS,
A,
144A,
5.76%,
10/13/27
...................................
200,000
200,418
e
2022-IND,
A,
144A,
FRN,
6.853%,
(1-month
SOFR
+
1.491%),
4/15/37
.........
131,417
130,597
b,e
Cold
Storage
Trust
,
2020-ICE5
,
A
,
144A,
FRN
,
6.372
%
,
(
1-month
SOFR
+
1.014
%
),
11/15/37
........................................................
324,387
323,038
d
Commercial
Mortgage
Trust
,
2006-GG7
,
AJ
,
FRN
,
6.012
%
,
7/10/38
..............
39,434
9,937
b,e
DBCG
Mortgage
Trust
,
2017-BBG
,
A
,
144A,
FRN
,
8.5
%
,
(
PRIME
+
0.7
%
),
6/15/34
..
240,000
239,505
e
FNMA
,
2007-1
,
NF
,
FRN
,
5.702
%
,
(
30-day
SOFR
Average
+
0.364
%
),
2/25/37
.....
22,470
22,275
1,567,187
a
a
a
a
a
Total
Commercial
Mortgage-Backed
Securities
(Cost
$1,627,622)
.................
1,567,187
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
77.5%
Federal
Home
Loan
Mortgage
Corp.
(FHLMC)
Fixed
Rate
28.6%
FHLMC
Gold
Pool,
30
Year,
4.5%,
4/01/40
................................
$
158,575
$
158,658
FHLMC
Gold
Pool,
30
Year,
4.5%,
1/01/49
................................
283,069
280,856
FHLMC
Gold
Pool,
30
Year,
5%,
10/01/33
-
2/01/39
..........................
103,229
105,089
FHLMC
Gold
Pool,
30
Year,
5.5%,
9/01/33
................................
8,006
8,218
FHLMC
Gold
Pool,
30
Year,
6%,
12/01/32
-
11/01/36
.........................
34,001
35,369
FHLMC
Gold
Pool,
30
Year,
6.5%,
11/01/27
-
7/01/32
........................
11,264
11,727
FHLMC
Gold
Pool,
30
Year,
7.5%,
1/01/26
................................
17
17
FHLMC
Gold
Pool,
30
Year,
8%,
7/01/24
-
5/01/30
...........................
57,485
57,894
FHLMC
Gold
Pool,
30
Year,
9%,
9/01/30
..................................
1,243
1,241
FHLMC
Pool,
15
Year,
2%,
4/01/37
......................................
1,072,266
961,573
FHLMC
Pool,
30
Year,
2%,
2/01/52
......................................
1,171,634
958,189
FHLMC
Pool,
30
Year,
2%,
3/01/52
......................................
1,768,978
1,446,500
FHLMC
Pool,
30
Year,
2%,
4/01/52
......................................
270,935
221,615
FHLMC
Pool,
30
Year,
2.5%,
11/01/51
....................................
793,143
675,433
FHLMC
Pool,
30
Year,
2.5%,
12/01/51
....................................
1,074,856
915,305
FHLMC
Pool,
30
Year,
2.5%,
1/01/52
.....................................
463,620
399,372
FHLMC
Pool,
30
Year,
2.5%,
2/01/52
.....................................
1,119,310
953,098
FHLMC
Pool,
30
Year,
3.5%,
7/01/49
.....................................
789,751
740,235
FHLMC
Pool,
30
Year,
4%,
5/01/50
......................................
64,406
62,280
FHLMC
Pool,
30
Year,
4.5%,
10/01/48
....................................
440,511
435,080
FHLMC
Pool,
30
Year,
5%,
6/01/53
......................................
259,138
260,731
FHLMC
Pool,
30
Year,
5%,
8/01/53
......................................
254,519
257,264
FHLMC
Pool,
30
Year,
5.5%,
2/01/53
.....................................
336,587
343,611
9,289,355
f
Federal
National
Mortgage
Association
(FNMA)
Adjustable
Rate
0.8%
FNMA,
4.37%,
(3-year
CMT
T-Note
+/-
MBS
Margin),
5/01/30
..................
28,090
27,573
FNMA,
4.315%
-
6%,
(1-year
Refinitiv
USD
IBOR
Consumer
Cash
Fallbacks
+/-
MBS
Margin),
9/01/33
-
4/01/37
...........................................
134,899
134,207
FNMA,
4.534%
-
6.564%,
(1-year
CMT
T-Note
+/-
MBS
Margin),
1/01/24
-
7/01/38
...
102,793
102,293
FNMA,
7%
-
7.46%,
(6-month
Refinitiv
USD
IBOR
Consumer
Cash
Fallbacks
+/-
MBS
Margin),
4/01/31
-
4/01/37
...........................................
15,240
15,358
279,431
Federal
National
Mortgage
Association
(FNMA)
Fixed
Rate
39.0%
FNMA,
3.5%,
7/01/56
................................................
486,318
441,774
FNMA,
15
Year,
2.5%,
7/01/37
.........................................
575,143
531,499
FNMA,
15
Year,
3%,
9/01/37
...........................................
564,568
534,599
FNMA,
30
Year,
1.5%,
10/01/51
.........................................
334,838
261,026
FNMA,
30
Year,
2%,
5/01/51
...........................................
401,900
329,688
FNMA,
30
Year,
2%,
11/01/51
..........................................
490,624
401,857
FNMA,
30
Year,
2%,
1/01/52
...........................................
1,143,157
936,148
FNMA,
30
Year,
2.5%,
4/01/51
.........................................
564,328
483,259
FNMA,
30
Year,
2.5%,
4/01/52
.........................................
556,668
474,031
FNMA,
30
Year,
3%,
10/01/46
..........................................
1,018,467
926,272
FNMA,
30
Year,
3%,
11/01/48
..........................................
1,281,699
1,159,195
FNMA,
30
Year,
3%,
9/01/49
...........................................
234,782
211,287
FNMA,
30
Year,
3%,
9/01/50
...........................................
442,683
396,928
FNMA,
30
Year,
3.5%,
8/01/49
.........................................
882,494
827,197
FNMA,
30
Year,
3.5%,
9/01/49
.........................................
792,387
737,834
FNMA,
30
Year,
3.5%,
4/01/50
.........................................
306,719
286,608
FNMA,
30
Year,
3.5%,
6/01/49
.........................................
180,780
168,438
FNMA,
30
Year,
4%,
11/01/45
..........................................
1,597,075
1,540,320
FNMA,
30
Year,
4%,
6/01/52
...........................................
367,193
351,630
FNMA,
30
Year,
4.5%,
11/01/47
.........................................
372,264
369,898
FNMA,
30
Year,
5%,
4/01/34
...........................................
38,674
39,271
FNMA,
30
Year,
5%,
8/01/53
...........................................
175,287
173,454
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,
5.5%,
9/01/33
-
11/01/35
.................................
$
321,118
$
330,120
FNMA,
30
Year,
6%,
9/01/32
-
8/01/35
....................................
319,041
331,310
FNMA,
30
Year,
6%,
9/01/53
...........................................
242,221
245,999
FNMA,
30
Year,
6.5%,
12/01/27
-
8/01/32
.................................
121,489
126,462
FNMA,
30
Year,
7.5%,
8/01/25
-
5/01/32
..................................
2,891
2,937
FNMA,
30
Year,
8%,
1/01/25
-
7/01/31
....................................
7,467
7,545
FNMA,
30
Year,
9%,
8/01/24
-
4/01/25
....................................
82
82
FNMA,
30
Year,
9.5%,
11/01/29
-
4/01/30
.................................
13,562
13,528
12,640,196
Government
National
Mortgage
Association
(GNMA)
Fixed
Rate
9.1%
GNMA
I,
30
Year,
7%,
11/15/29
.........................................
953
990
GNMA
I,
30
Year,
8%,
11/15/25
-
12/15/26
.................................
916
915
GNMA
I,
Single-family,
30
Year,
6.5%,
6/15/28
-
9/15/32
......................
43,065
44,528
GNMA
I,
Single-family,
30
Year,
7%,
1/15/26
-
2/15/32
........................
4,604
4,619
GNMA
I,
Single-family,
30
Year,
7.5%,
9/15/25
-
5/15/28
......................
7,153
7,185
GNMA
I,
Single-family,
30
Year,
8%,
9/15/27
...............................
427
426
GNMA
II,
Single-family,
30
Year,
2%,
1/20/52
...............................
848,110
717,986
GNMA
II,
Single-family,
30
Year,
2.5%,
10/20/51
............................
1,098,657
961,258
GNMA
II,
Single-family,
30
Year,
3.5%,
10/20/47
-
3/20/51
.....................
215,836
203,215
GNMA
II,
Single-family,
30
Year,
4%,
2/20/49
...............................
178,184
172,407
GNMA
II,
Single-family,
30
Year,
5%,
4/20/53
...............................
126,973
126,168
GNMA
II,
Single-family,
30
Year,
5.5%,
5/20/53
.............................
627,789
632,557
GNMA
II,
Single-family,
30
Year,
6.5%,
1/20/26
-
1/20/33
......................
44,726
46,069
GNMA
II,
Single-family,
30
Year,
7.5%,
9/20/30
-
7/20/32
......................
24,106
25,000
GNMA
II,
Single-family,
30
Year,
8%,
8/20/26
...............................
17
17
GNMA
II,
Single-family,
30
Year,
9%,
9/20/24
-
3/20/25
.......................
39
39
2,943,379
Total
Mortgage-Backed
Securities
(Cost
$27,123,667)
............................
25,152,361
Residential
Mortgage-Backed
Securities
10.9%
Capital
Markets
0.1%
e
Merrill
Lynch
Mortgage
Investors
Trust
,
2003-A
,
1A
,
FRN
,
6.21
%
,
(
1-month
SOFR
+
0.854
%
),
3/25/28
..................................................
20,188
19,081
Financial
Services
10.8%
e
American
Home
Mortgage
Investment
Trust
,
2005-1
,
6A
,
FRN
,
7.805
%
,
(
6-month
SOFR
+
2.428
%
),
6/25/45
...........................................
14,937
14,817
b
BRAVO
Residential
Funding
Trust
,
2019-1,
A1C,
144A,
3.5%,
3/25/58
.....................................
9,458
9,297
d
2019-2,
A3,
144A,
FRN,
3.5%,
10/25/44
.................................
40,824
38,735
b
CIM
Trust
,
d
2019-INV1,
A1,
144A,
FRN,
4%,
2/25/49
................................
9,485
8,896
e
2019-INV2,
A11,
144A,
FRN,
6.402%,
(30-day
SOFR
Average
+
1.064%),
5/25/49
.
37,725
36,570
d
2019-INV2,
A3,
144A,
FRN,
4%,
5/25/49
................................
23,767
22,241
d
2018-INV1,
A4,
144A,
FRN,
4%,
8/25/48
................................
15,597
14,339
b,d
Citigroup
Mortgage
Loan
Trust
,
2013-A
,
A
,
144A,
FRN
,
3
%
,
5/25/42
.............
4,401
4,054
b,d
COLT
Mortgage
Loan
Trust
,
2022-4
,
A1
,
144A,
FRN
,
4.301
%
,
3/25/67
............
84,572
81,964
b,e
Connecticut
Avenue
Securities
Trust
,
2023-R08
,
1M1
,
144A,
FRN
,
6.837
%
,
(
30-day
SOFR
Average
+
1.5
%
),
10/25/43
.....................................
28,770
28,851
b,d
CSMC
Trust
,
2014-OAK1
,
1A1
,
144A,
FRN
,
3
%
,
11/25/29
.....................
19,377
18,463
e
FHLMC
STACR
Debt
Notes
,
2016-DNA2,
M3,
FRN,
10.102%,
(30-day
SOFR
Average
+
4.764%),
10/25/28
....
72,707
76,405
2016-HQA2,
M3,
FRN,
10.602%,
(30-day
SOFR
Average
+
5.264%),
11/25/28
....
83,484
88,559
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
REMIC
Trust
,
2022-DNA1,
M1A,
144A,
FRN,
6.337%,
(30-day
SOFR
Average
+
1%),
1/25/42
...
$
199,420
$
198,875
2022-DNA3,
M1A,
144A,
FRN,
7.337%,
(30-day
SOFR
Average
+
2%),
4/25/42
...
52,163
52,658
b,e
FHLMC
STACR
Trust
,
2019-DNA4
,
M2
,
144A,
FRN
,
7.402
%
,
(
30-day
SOFR
Average
+
2.064
%
),
10/25/49
.................................................
3,998
4,001
b,d
Flagstar
Mortgage
Trust
,
2021-4,
A5,
144A,
FRN,
2.5%,
6/01/51
..................................
159,104
138,832
2021-2,
A6,
144A,
FRN,
2.5%,
4/25/51
..................................
179,281
156,817
e
FNMA
Connecticut
Avenue
Securities
,
2015-C01,
1M2,
FRN,
9.752%,
(30-day
SOFR
Average
+
4.414%),
2/25/25
......
48,555
50,019
2016-C01,
1M2,
FRN,
12.202%,
(30-day
SOFR
Average
+
6.864%),
8/25/28
.....
88,340
94,409
2014-C02,
2M2,
FRN,
8.052%,
(30-day
SOFR
Average
+
2.714%),
5/25/24
......
46,801
47,115
2014-C03,
2M2,
FRN,
8.352%,
(30-day
SOFR
Average
+
3.014%),
7/25/24
......
17,935
18,090
2014-C01,
M2,
FRN,
9.852%,
(30-day
SOFR
Average
+
4.514%),
1/25/24
.......
67,919
68,110
b,d
GS
Mortgage-Backed
Securities
Trust
,
2021-PJ6
,
A8
,
144A,
FRN
,
2.5
%
,
11/25/51
...
192,822
168,409
b,d
J.P.
Morgan
Mortgage
Trust
,
2013-3,
A3,
144A,
FRN,
3.358%,
7/25/43
................................
48,882
44,333
2021-6,
A4,
144A,
FRN,
2.5%,
10/25/51
.................................
244,822
214,841
2021-13,
A4,
144A,
FRN,
2.5%,
4/25/52
.................................
162,292
142,064
2021-15,
A4,
144A,
FRN,
2.5%,
6/25/52
.................................
48,280
42,047
2022-1,
A4,
144A,
FRN,
2.5%,
7/25/52
..................................
251,155
218,253
b,d
Mill
City
Mortgage
Loan
Trust
,
2018-2,
A1,
144A,
FRN,
3.5%,
5/25/58
..................................
21,850
21,509
2018-1,
A1,
144A,
FRN,
3.25%,
5/25/62
.................................
23,444
22,882
2018-4,
A1B,
144A,
FRN,
3.5%,
4/25/66
.................................
67,247
65,192
b
OBX
Trust
,
e
2018-1,
A2,
144A,
FRN,
6.12%,
(1-month
SOFR
+
0.764%),
6/25/57
...........
25,471
24,354
d
2021-J1,
A4,
144A,
FRN,
2.5%,
5/25/51
.................................
149,786
131,352
d
2021-J3,
A4,
144A,
FRN,
2.5%,
10/25/51
................................
75,828
66,233
b,d
Provident
Funding
Associates
LLP
,
2021-J1
,
A3
,
144A,
FRN
,
2.5
%
,
2/20/49
........
121,918
106,101
b,d
PSMC
Trust
,
2021-3
,
A3
,
144A,
FRN
,
2.5
%
,
8/25/51
.........................
217,644
191,858
b,d
Sequoia
Mortgage
Trust
,
2021-1,
A1,
144A,
FRN,
2.5%,
3/25/51
..................................
153,671
127,014
2021-6,
A4,
144A,
FRN,
2.5%,
10/25/51
.................................
204,756
177,951
b
Towd
Point
Mortgage
Trust
,
d
2016-5,
A1,
144A,
FRN,
2.5%,
10/25/56
.................................
10,601
10,523
d
2017-1,
A1,
144A,
FRN,
2.75%,
10/25/56
................................
5,497
5,466
e
2017-5,
A1,
144A,
FRN,
5.755%,
(1-month
SOFR
+
0.714%),
2/25/57
..........
8,894
8,987
d
2017-4,
A1,
144A,
FRN,
2.75%,
6/25/57
.................................
68,147
65,569
d
2018-1,
A1,
144A,
FRN,
3%,
1/25/58
...................................
14,634
14,248
d
2018-2,
A1,
144A,
FRN,
3.25%,
3/25/58
.................................
40,723
39,550
d
2019-1,
A1,
144A,
FRN,
3.75%,
3/25/58
.................................
102,870
98,596
d
2018-6,
A1A,
144A,
FRN,
3.75%,
3/25/58
................................
25,551
25,025
d
2017-1,
A2,
144A,
FRN,
3.5%,
10/25/56
.................................
165,000
161,381
Virginia
Housing
Development
Authority
,
2020-A
,
A
,
2.85
%
,
12/25/49
.............
48,654
43,521
3,509,376
a
a
a
a
a
Total
Residential
Mortgage-Backed
Securities
(Cost
$3,903,538)
..................
3,528,457
Total
Long
Term
Investments
(Cost
$33,960,711)
................................
31,419,745
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
December
31,
2023,
the
Fund
had
the
following futures
contracts
outstanding.
See
A
bbreviations
on
page
9
.
Short
Term
Investments
3.1%
a
a
Shares
a
Value
a
Money
Market
Funds
3.1%
g,h
Institutional
Fiduciary
Trust
-
Money
Market
Portfolio,
5.034%
..................
1,010,911
$
1,010,911
Total
Money
Market
Funds
(Cost
$1,010,911)
...................................
1,010,911
Total
Short
Term
Investments
(Cost
$1,010,911
)
.................................
1,010,911
a
Total
Investments
(Cost
$34,971,622)
99.9%
....................................
$32,430,656
Other
Assets,
less
Liabilities
0.1%
.............................................
37,053
Net
Assets
100.0%
...........................................................
$32,467,709
†
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,
2023,
the
aggregate
value
of
these
securities
was
$5,416,607,
representing
16.7%
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
6
$
677,344
3/19/24
$
(18,712)
U.S.
Treasury
10
Year
Ultra
Notes
................
Long
8
944,125
3/19/24
36,731
U.S.
Treasury
2
Year
Notes
.....................
Short
2
411,828
3/28/24
(127)
U.S.
Treasury
5
Year
Notes
.....................
Long
15
1,631,602
3/28/24
37,481
U.S.
Treasury
Long
Bonds
.....................
Long
8
999,500
3/19/24
74,113
U.S.
Treasury
Ultra
Bonds
......................
Long
2
267,188
3/19/24
(378)
Total
Futures
Contracts
......................................................................
$129,108
*
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
Fund
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
December
31,
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
December
31,
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,
5.034%
$427,588
$2,640,766
$(2,057,443)
$—
$—
$1,010,911
1,010,911
$7,537
Total
Affiliated
Securities
...
$427,588
$2,640,766
$(2,057,443)
$—
$—
$1,010,911
$7,537
Level
1
Level
2
Level
3
Total
Franklin
Strategic
Mortgage
Portfolio
Assets:
Investments
in
Securities:
a
Corporate
Bonds
........................
$
—
$
97,480
$
—
$
97,480
Asset-Backed
Securities
...................
—
1,074,260
—
1,074,260
Commercial
Mortgage-Backed
Securities
......
—
1,567,187
—
1,567,187
Mortgage-Backed
Securities
................
—
25,152,361
—
25,152,361
Residential
Mortgage-Backed
Securities
.......
—
3,528,457
—
3,528,457
Short
Term
Investments
...................
1,010,911
—
—
1,010,911
Total
Investments
in
Securities
...........
$1,010,911
$31,419,745
$—
$32,430,656
Other
Financial
Instruments:
Futures
contracts
........................
$148,325
$—
$—
$148,325
Total
Other
Financial
Instruments
.........
$148,325
$—
$—
$148,325
Liabilities:
Other
Financial
Instruments:
Futures
contracts
........................
19,217
—
—
19,217
Total
Other
Financial
Instruments
.........
$19,217
$—
$—
$19,217
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
IBOR
Interbank
Offered
Rate
MBS
Mortgage-Backed
Security
REIT
Real
Estate
Investment
Trust
REMICs
Real
Estate
Mortgage
Investment
Conduits
SOFR
Secured
Overnight
Financing
Rate
STACR
®
Structured
Agency
Credit
Risk
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.