N-CSRS 1 primary-document.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM N-CSRS
 
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
 
Investment Company Act file number 811-07288
 
Franklin Strategic Mortgage Portfolio

(Exact name of registrant as specified in charter)
 
One Franklin Parkway, San Mateo, CA  94403-1906

(Address of principal executive offices) (Zip code)
 
Alison Baur, One Franklin Parkway, San Mateo, CA  94403-1906

(Name and address of agent for service)
 
Registrant's telephone number, including area code: 650 312-2000
 
Date of fiscal year end: 9/30
 
Date of reporting period: 3/31/24
 
Item 1. Reports to Stockholders.
 
a.)
 
The following is a copy of the report transmitted to shareholders pursuant to Rule30e-1 under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30e-1.)


b.)
 
A copy of the notice transmitted to shareholders in reliance on Rule 30e-3 under the 1940 Act that contains disclosures specified by paragraph (c)(3) of that rule is included in the Annual Report.
Not Applicable
.
 
Semiannual
Report
Franklin
Strategic
Mortgage
Portfolio
March
31,
2024
Not
FDIC
Insured
May
Lose
Value
No
Bank
Guarantee
.
The
Securities
and
Exchange
Commission
has
adopted
new
regulations
that
will
result
in
changes
to
the
design
and
delivery
of
annual
and
semiannual
shareholder
reports
beginning
in
July
2024.
If
you
have
previously
elected
to
receive
shareholder
reports
electronically,
you
will
continue
to
do
so
and
need
not
take
any
action.
Otherwise,
paper
copies
of
the
Fund’s
shareholder
reports
will
be
mailed
to
you
beginning
in
July
2024.
If
you
would
like
to
receive
shareholder
reports
and
other
communications
from
the
Fund
electronically
instead
of
by
mail,
you
may
make
that
request
at
any
time
by
contacting
your
financial
intermediary
(such
as
a
broker-dealer
or
bank)
or,
if
you
are
a
direct
investor,
enrolling
at
franklintempleton.com.
You
may
access
franklintempleton.com
by
scanning
the
code
below.
franklintempleton.com
Semiannual
Report
1
Contents
Fund
Overview
2
Performance
Summary
3
Your
Fund’s
Expenses
5
Financial
Highlights
and
Schedule
of
Investments
6
Financial
Statements
17
Notes
to
Financial
Statements
21
Shareholder
Information
30
Visit
franklintempleton.com
for
fund
updates,
to
access
your
account,
or
to
find
helpful
financial
planning
tools.
2
franklintempleton.com
Semiannual
Report
Franklin
Strategic
Mortgage
Portfolio
This
semiannual
report
for
Franklin
Strategic
Mortgage
Portfolio
covers
the
period
ended
March
31,
2024
.
Fund
Overview
Your
Fund’s
Goal
and
Main
Investments
The
Fund
seeks
high
total
return
(a
combination
of
high
current
income
and
capital
appreciation)
relative
to
the
performance
of
the
general
mortgage
securities
market
by
investing
at
least
80%
of
its
net
assets
in
a
portfolio
of
mortgage
securities.
The
Fund
normally
invests
significantly
in
mortgage
securities
that
are
issued
or
guaranteed
by
the
U.S.
government,
its
agencies
or
instrumentalities,
which
include
mortgage
pass-through
securities
representing
interests
in
“pools”
of
mortgage
loans
issued
or
guaranteed
by
Ginnie
Mae,
Fannie
Mae
and
Freddie
Mac.
1
Performance
Overview
For
the
six
months
ended
March
31,
2024,
the
Fund’s
Class
A
shares
posted
a
+5.66%
cumulative
total
return.
In
comparison,
the
Fund’s
primary
benchmark,
the
Bloomberg
U.S.
Mortgage-Backed
Securities
(MBS)
Fixed
Rate
Index,
which
measures
the
performance
of
investment-grade
fixed-rate
mortgage-backed
pass-through
securities
of
Ginnie
Mae,
Fannie
Mae
and
Freddie
Mac,
posted
a
+6.36%
cumulative
total
return.
2
In
comparison,
the
Fund’s
secondary
benchmark,
the
FTSE
U.S.
Broad
Investment-Grade
(USBIG)
Mortgage
Index,
which
tracks
the
performance
of
30-
and
15-year
Ginnie
Mae,
Fannie
Mae
and
Freddie
Mac
securities,
as
well
as
Fannie
Mae
and
Freddie
Mac
balloon
mortgages,
posted
a
+6.38%
cumulative
total
return.
2
You
can
find
the
Fund’s
long-term
performance
data
in
the
Performance
Summary
beginning
on
page
3
.
Performance
data
represent
past
performance,
which
does
not
guarantee
future
results.
Investment
return
and
principal
value
will
fluctuate,
and
you
may
have
a
gain
or
loss
when
you
sell
your
shares.
Current
performance
may
differ
from
figures
shown.
For
most
recent
month-end
performance,
go
to
franklintempleton.com
or
call
(800)
342-5236
.
Thank
you
for
your
continued
participation
in
Franklin
Strategic
Mortgage
Portfolio.
We
look
forward
to
serving
your
future
investment
needs.
Neil
Dhruv
Paul
Varunok
Portfolio
Management
Team
Portfolio
Composition
3/31/24
%
of
Total
Net
Assets
Mortgage-Backed
Securities
76.0%
Residential
Mortgage-Backed
Securities
10.9%
Commercial
Mortgage-Backed
Securities
5.1%
Asset-Backed
Securities
*
3.4%
Other
†
0.3%
Short-Term
Investments
&
Other
Net
Assets
4.3%
*
Includes
non-agency
residential
mortgage
backed
securities,
collateralized
loan
obligations
and
consumer
loan
certificates.
†
Categories
within
the
Other
category
are
listed
in
full
in
the
Fund’s
Schedule
of
Investments
(SOI),
which
can
be
found
later
in
this
report.
1.
Guarantees
of
timely
payment
of
principal
and
interest
do
not
apply
to
the
market
prices
and
yield
of
the
security
or
to
the
net
asset
value
or
performance
of
the
Fund.
Ginnie
Mae
pass-through
securities
are
backed
by
the
full
faith
and
credit
of
the
U.S.
government.
Although
U.S.
government-sponsored
entities,
such
as
Fannie
Mae
and
Freddie
Mac,
may
be
chartered
or
sponsored
by
acts
of
Congress,
their
securities
are
neither
insured
nor
guaranteed
by
the
U.S.
Treasury.
Please
refer
to
the
Fund’s
pro-
spectus
for
a
detailed
discussion
regarding
various
levels
of
credit
support
for
government
agency
or
instrumentality
securities.
2.
Source:
Morningstar.
Treasuries,
if
held
to
maturity,
offer
a
fixed
rate
of
return
and
a
fixed
principal
value;
their
interest
payments
and
principal
are
guaranteed.
The
indexes
are
unmanaged
and
include
reinvestment
of
any
income
or
distributions.
They
do
not
reflect
any
fees,
expenses
or
sales
charges.
One
cannot
invest
directly
in
an
index,
and
an
index
is
not
representative
of
the
Fund’s
portfolio.
Important
data
provider
notices
and
terms
available
at
www.franklintempletondatasources.com.
The
dollar
value,
number
of
shares
or
principal
amount,
and
names
of
all
portfolio
holdings
are
listed
in
the
Fund’s
Schedule
of
Investments
(SOI).
The
SOI
begins
on
page
11
.
Performance
Summary
as
of
March
31,
2024
Franklin
Strategic
Mortgage
Portfolio
3
franklintempleton.com
Semiannual
Report
The
performance
tables
do
not
reflect
any
taxes
that
a
shareholder
would
pay
on
Fund
dividends,
capital
gain
distributions,
if
any,
or
any
realized
gains
on
the
sale
of
Fund
shares.
Total
return
reflects
reinvestment
of
the
Fund’s
dividends
and
capital
gain
distributions,
if
any,
and
any
unrealized
gains
or
losses.
Your
dividend
income
will
vary
depending
on
dividends
or
interest
paid
by
securities
in
the
Fund’s
portfolio,
adjusted
for
operating
expenses
of
each
class.
Capital
gain
distributions
are
net
profits
realized
from
the
sale
of
portfolio
securities.
Performance
as
of
3/31/24
1
Cumulative
total
return
excludes
sales
charges.
Average
annual
total
return
includes
maximum
sales
charges.
Sales
charges
will
vary
depending
on
the
size
of
the
investment
and
the
class
of
share
purchased.
The
maximum
is
3.75%
and
the
minimum
is
0%.
Class
A:
3.75%
maximum
initial
sales
charge;
Advisor
Class:
no
sales
charges.
For
other
share
classes,
visit
franklintempleton.com.
Performance
data
represent
past
performance,
which
does
not
guarantee
future
results.
Investment
return
and
principal
value
will
fluctuate,
and
you
may
have
a
gain
or
loss
when
you
sell
your
shares.
Current
performance
may
differ
from
figures
shown.
For
most
recent
month-end
performance,
go
to
franklintempleton.com
or
call
(800)
342-5236
.
Share
Class
Cumulative
Total
Return
2
Average
Annual
Total
Return
3
–
A
4
6-Month
+5.66%
+1.69%
1-Year
+0.58%
-3.21%
5-Year
-4.67%
-1.72%
10-Year
+6.74%
+0.27%
Advisor
6-Month
+5.79%
+5.79%
1-Year
+0.83%
+0.83%
5-Year
-3.49%
-0.71%
10-Year
+9.29%
+0.89%
30-Day
Standardized
Yield
6
Share
Class
Distribution
Rate
5
(with
fee
waiver)
(without
fee
waiver)
A
3.04%
2.83%
2.40%
Advisor
3.41%
3.19%
2.75%
See
page
4
for
Performance
Summary
footnotes.
Franklin
Strategic
Mortgage
Portfolio
Performance
Summary
4
franklintempleton.com
Semiannual
Report
Each
class
of
shares
is
available
to
certain
eligible
investors
and
has
different
annual
fees
and
expenses,
as
described
in
the
prospectus.
Events
such
as
the
spread
of
deadly
diseases,
disasters,
and
financial,
political
or
social
disruptions,
may
heighten
risks
and
adversely
affect
performance.
All
investments
involve
risks,
including
possible
loss
of
principal.
Fixed
income
securities
involve
interest
rate,
credit,
inflation
and
reinvestment
risks,
and
possible
loss
of
principal.
As
interest
rates
rise,
the
value
of
fixed
income
securities
falls.
Asset-backed,
mortgage-backed
or
mortgage-related
securities
are
subject
to
prepay-
ment
and
extension
risks.
Changes
in
the
credit
rating
of
a
bond,
or
in
the
credit
rating
or
financial
strength
of
a
bond’s
issuer,
insurer
or
guarantor,
may
affect
the
bond’s
value.
Active
management
does
not
ensure
gains
or
protect
against
market
declines.
These
and
other
risks
are
discussed
in
the
Fund’s
prospectus.
1.
Gross
expenses
are
the
Fund’s
total
annual
operating
expenses
as
of
the
Fund's
prospectus
available
at
the
time
of
publication.
Actual
expenses
may
be
higher
and
may
impact
portfolio
returns.
Net
expenses
reflect
contractual
fee
waivers,
expense
caps
and/or
reimbursements,
which
cannot
be
terminated
prior
to
1/31/25
without
Board
consent.
Additional
amounts
may
be
voluntarily
waived
and/or
reimbursed
and
may
be
modified
or
discontinued
at
any
time
without
notice.
2.
Cumulative
total
return
represents
the
change
in
value
of
an
investment
over
the
periods
indicated.
3.
Average
annual
total
return
represents
the
average
annual
change
in
value
of
an
investment
over
the
periods
indicated.
Return
for
less
than
one
year,
if
any,
has
not
been
annualized.
4.
Prior
to
3/1/19,
these
shares
were
offered
at
a
higher
initial
sales
charge
of
4.25%,
thus
actual
returns
(with
sales
charges)
would
have
differed.
Average
annual
total
returns
(with
sales
charges)
have
been
restated
to
reflect
the
current
maximum
initial
sales
charge
of
3.75%.
5.
Distribution
Rate
is
calculated
by
annualizing
the
most
recent
distribution
amount
paid,
divided
by
the
NAV
as
of
the
date
indicated.
The
Distribution
Rate
calculation
includes
income
and
return
of
capital,
and
includes
a
prorated
special
distribution
in
the
month
it
is
paid.
The
Distribution
Rate
is
not
guaranteed,
subject
to
change,
and
is
not
a
quotation
of
Fund
performance.
6.
The
Fund’s
30-day
standardized
yield
is
calculated
over
a
trailing
30-day
period
using
the
yield
to
maturity
on
bonds
and/or
the
dividends
accrued
on
stocks.
It
may
not
equal
the
Fund’s
actual
income
distribution
rate,
which
reflects
the
Fund’s
past
dividends
paid
to
shareholders.
7.
Figures
are
as
stated
in
the
Fund’s
current
prospectus
and
may
differ
from
the
expense
ratios
disclosed
in
the
Your
Fund’s
Expenses
and
Financial
Highlights
sections
in
this
report.
In
periods
of
market
volatility,
assets
may
decline
significantly,
causing
total
annual
Fund
operating
expenses
to
become
higher
than
the
figures
shown.
Important
data
provider
notices
and
terms
available
at
www.franklintempletondatasources.com.
Distributions
(10/1/23–3/31/24)
Share
Class
Net
Investment
Income
A
$0.118939
A1
$0.128411
C
$0.103714
R6
$0.130209
Advisor
$0.128394
Total
Annual
Operating
Expenses
7
Share
Class
With
Fee
Waiver
Without
Fee
Waiver
A
1.01%
1.36%
Advisor
0.76%
1.12%
Your
Fund’s
Expenses
Franklin
Strategic
Mortgage
Portfolio
5
franklintempleton.com
Semiannual
Report
As
a
Fund
shareholder,
you
can
incur
two
types
of
costs:
(1)
transaction
costs,
including
sales
charges
(loads)
on
Fund
purchases
and
redemptions;
and
(2)
ongoing
Fund
costs,
including
management
fees,
distribution
and
service
(12b-1)
fees,
and
other
Fund
expenses.
All
mutual
funds
have
ongoing
costs,
sometimes
referred
to
as
operating
expenses.
The
table
below
shows
ongoing
costs
of
investing
in
the
Fund
and
can
help
you
understand
these
costs
and
compare
them
with
those
of
other
mutual
funds.
The
table
assumes
a
$1,000
investment
held
for
the
six
months
indicated.
Actual
Fund
Expenses
The
table
below
provides
information
about
actual
account
values
and
actual
expenses
in
the
columns
under
the
heading
“Actual.”
In
these
columns
the
Fund’s
actual
return,
which
includes
the
effect
of
Fund
expenses,
is
used
to
calculate
the
“Ending
Account
Value”
for
each
class
of
shares.
You
can
estimate
the
expenses
you
paid
during
the
period
by
following
these
steps
(
of
course,
your
account
value
and
expenses
will
differ
from
those
in
this
illustration
):
Divide
your
account
value
by
$1,000
(
if
your
account
had
an
$8,600
value,
then
$8,600
÷
$1,000
=
8.6
).
Then
multiply
the
result
by
the
number
in
the
row
for
your
class
of
shares
under
the
headings
“Actual”
and
“Expenses
Paid
During
Period”
(
if
Actual
Expenses
Paid
During
Period
were
$7.50,
then
8.6
x
$7.50
=
$64.50
).
In
this
illustration,
the
actual
expenses
paid
this
period
are
$64.50.
Hypothetical
Example
for
Comparison
with
Other
Funds
Under
the
heading
“Hypothetical”
in
the
table,
information
is
provided
about
hypothetical
account
values
and
hypothetical
expenses
based
on
the
Fund’s
actual
expense
ratio
and
an
assumed
rate
of
return
of
5%
per
year
before
expenses,
which
is
not
the
Fund’s
actual
return.
This
information
may
not
be
used
to
estimate
the
actual
ending
account
balance
or
expenses
you
paid
for
the
period,
but
it
can
help
you
compare
ongoing
costs
of
investing
in
the
Fund
with
those
of
other
funds.
To
do
so,
compare
this
5%
hypothetical
example
for
the
class
of
shares
you
hold
with
the
5%
hypothetical
examples
that
appear
in
the
shareholder
reports
of
other
funds.
Please
note
that
expenses
shown
in
the
table
are
meant
to
highlight
ongoing
costs
and
do
not
reflect
any
transactional
costs.
Therefore,
information
under
the
heading
“Hypothetical”
is
useful
in
comparing
ongoing
costs
only,
and
will
not
help
you
compare
total
costs
of
owning
different
funds.
In
addition,
if
transactional
costs
were
included,
your
total
costs
would
have
been
higher.
1.
Expenses
are
equal
to
the
annualized
expense
ratio
for
the
six-month
period
as
indicated
above—in
the
far
right
column—multiplied
by
the
simple
average
account
value
over
the
period
indicated,
and
then
multiplied
by
183/366
to
reflect
the
one-half
year
period.
2.
Reflects
expenses
after
fee
waivers
and
expense
reimbursements.
Does
not
include
acquired
fund
fees
and
expenses.
Actual
(actual
return
after
expenses)
Hypothetical
(5%
annual
return
before
expenses)
Share
Class
Beginning
Account
Value
10/1/23
Ending
Account
Value
3/31/24
Expenses
Paid
During
Period
10/1/23–3/31/24
1,2
Ending
Account
Value
3/31/24
Expenses
Paid
During
Period
10/1/23–3/31/24
1,2
a
Net
Annualized
Expense
Ratio
2
A
$1,000
$1,056.60
$5.14
$1,020.00
$5.05
1.00%
A1
$1,000
$1,056.40
$3.86
$1,021.25
$3.79
0.75%
C
$1,000
$1,054.50
$7.18
$1,018.01
$7.05
1.40%
R6
$1,000
$1,058.20
$3.70
$1,021.40
$3.64
0.72%
Advisor
$1,000
$1,057.90
$3.87
$1,021.24
$3.80
0.75%
Franklin
Strategic
Mortgage
Portfolio
Financial
Highlights
franklintempleton.com
Semiannual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
6
a
Six
Months
Ended
March
31,
2024
(unaudited)
Year
Ended
September
30,
2023
2022
2021
2020
2019
Class
A
Per
share
operating
performance
(for
a
share
outstanding
throughout
the
period)
Net
asset
value,
beginning
of
period
.....
$7.44
$7.73
$9.13
$9.31
$9.25
$8.93
Income
from
investment
operations
a
:
Net
investment
income
..............
0.103
b
0.197
b
0.010
b
0.025
b
0.188
0.267
Net
realized
and
unrealized
gains
(losses)
0.316
(0.268)
(1.257)
(0.063)
0.090
0.355
Total
from
investment
operations
........
0.419
(0.071)
(1.247)
(0.038)
0.278
0.622
Less
distributions
from:
Net
investment
income
..............
(0.119)
(0.219)
(0.149)
(0.142)
(0.218)
(0.302)
Tax
return
of
capital
................
—
—
(0.004)
—
—
—
Total
distributions
...................
(0.119)
(0.219)
(0.153)
(0.142)
(0.218)
(0.302)
Net
asset
value,
end
of
period
..........
$7.74
$7.44
$7.73
$9.13
$9.31
$9.25
Total
return
c
.......................
5.66%
(1.01)%
(13.78)%
(0.41)%
3.05%
7.08%
Ratios
to
average
net
assets
d
Expenses
before
waiver
and
payments
by
affiliates
..........................
1.51%
1.35%
1.33%
1.27%
1.31%
1.24%
Expenses
net
of
waiver
and
payments
by
affiliates
..........................
1.00%
1.00%
e
1.00%
e
0.99%
e
1.00%
e
1.00%
e
Net
investment
income
...............
2.71%
2.52%
0.12%
0.27%
1.85%
2.93%
Supplemental
data
Net
assets,
end
of
period
(000’s)
........
$10,756
$10,912
$13,575
$21,801
$24,153
$18,313
Portfolio
turnover
rate
................
25.82%
18.01%
329.20%
278.91%
249.94%
223.36%
Portfolio
turnover
rate
excluding
mortgage
dollar
rolls
f
........................
25.82%
18.01%
141.97%
85.26%
187.45%
139.83%
a
The
amount
shown
for
a
share
outstanding
throughout
the
period
may
not
correlate
with
the
Statement
of
Operations
for
the
period
due
to
the
timing
of
sales
and
repurchas-
es
of
the
Fund’s
shares
in
relation
to
income
earned
and/or
fluctuating
fair
value
of
the
investments
of
the
Fund.
b
Based
on
average
daily
shares
outstanding.
c
Total
return
does
not
reflect
sales
commissions
or
contingent
deferred
sales
charges,
if
applicable,
and
is
not
annualized
for
periods
less
than
one
year.
d
Ratios
are
annualized
for
periods
less
than
one
year.
e
Benefit
of
expense
reduction
rounds
to
less
than
0.01%.
f
See
Note
1(c)
regarding
mortgage
dollar
rolls.
Franklin
Strategic
Mortgage
Portfolio
Financial
Highlights
franklintempleton.com
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Semiannual
Report
7
Six
Months
Ended
March
31,
2024
(unaudited)
Year
Ended
September
30,
2023
2022
2021
2020
2019
Class
A1
Per
share
operating
performance
(for
a
share
outstanding
throughout
the
period)
Net
asset
value,
beginning
of
period
.....
$7.45
$7.74
$9.13
$9.31
$9.25
$8.94
Income
from
investment
operations
a
:
Net
investment
income
..............
0.113
b
0.217
b
0.033
b
0.048
b
0.191
0.285
Net
realized
and
unrealized
gains
(losses)
0.305
(0.268)
(1.249)
(0.063)
0.110
0.349
Total
from
investment
operations
........
0.418
(0.051)
(1.216)
(0.015)
0.301
0.634
Less
distributions
from:
Net
investment
income
..............
(0.128)
(0.239)
(0.169)
(0.165)
(0.241)
(0.324)
Tax
return
of
capital
................
—
—
(0.005)
—
—
—
Total
distributions
...................
(0.128)
(0.239)
(0.174)
(0.165)
(0.241)
(0.324)
Net
asset
value,
end
of
period
..........
$7.74
$7.45
$7.74
$9.13
$9.31
$9.25
Total
return
c
.......................
5.64%
(0.76)%
(13.45)%
(0.16)%
3.30%
7.22%
Ratios
to
average
net
assets
d
Expenses
before
waiver
and
payments
by
affiliates
..........................
1.27%
1.10%
1.09%
1.02%
1.05%
0.99%
Expenses
net
of
waiver
and
payments
by
affiliates
..........................
0.75%
0.75%
e
0.75%
e
0.74%
e
0.75%
e
0.75%
e
Net
investment
income
...............
2.95%
2.77%
0.38%
0.52%
2.14%
3.18%
Supplemental
data
Net
assets,
end
of
period
(000’s)
........
$14,260
$14,893
$17,618
$24,192
$27,530
$29,286
Portfolio
turnover
rate
................
25.82%
18.01%
329.20%
278.91%
249.94%
223.36%
Portfolio
turnover
rate
excluding
mortgage
dollar
rolls
f
........................
25.82%
18.01%
141.97%
85.26%
187.45%
139.83%
a
The
amount
shown
for
a
share
outstanding
throughout
the
period
may
not
correlate
with
the
Statement
of
Operations
for
the
period
due
to
the
timing
of
sales
and
repurchas-
es
of
the
Fund’s
shares
in
relation
to
income
earned
and/or
fluctuating
fair
value
of
the
investments
of
the
Fund.
b
Based
on
average
daily
shares
outstanding.
c
Total
return
does
not
reflect
sales
commissions
or
contingent
deferred
sales
charges,
if
applicable,
and
is
not
annualized
for
periods
less
than
one
year.
d
Ratios
are
annualized
for
periods
less
than
one
year.
e
Benefit
of
expense
reduction
rounds
to
less
than
0.01%.
f
See
Note
1(c)
regarding
mortgage
dollar
rolls.
Franklin
Strategic
Mortgage
Portfolio
Financial
Highlights
franklintempleton.com
Semiannual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
8
a
Six
Months
Ended
March
31,
2024
(unaudited)
Year
Ended
September
30,
2023
2022
2021
2020
2019
Class
C
Per
share
operating
performance
(for
a
share
outstanding
throughout
the
period)
Net
asset
value,
beginning
of
period
.....
$7.44
$7.74
$9.13
$9.31
$9.25
$8.93
Income
from
investment
operations
a
:
Net
investment
income
(loss)
.........
0.088
b
0.166
b
(0.025)
b
(0.013)
b
0.138
0.230
Net
realized
and
unrealized
gains
(losses)
0.316
(0.278)
(1.245)
(0.062)
0.103
0.355
Total
from
investment
operations
........
0.404
(0.112)
(1.270)
(0.075)
0.241
0.585
Less
distributions
from:
Net
investment
income
..............
(0.104)
(0.188)
(0.117)
(0.105)
(0.181)
(0.265)
Tax
return
of
capital
................
—
—
(0.003)
—
—
—
Total
distributions
...................
(0.104)
(0.188)
(0.120)
(0.105)
(0.181)
(0.265)
Net
asset
value,
end
of
period
..........
$7.74
$7.44
$7.74
$9.13
$9.31
$9.25
Total
return
c
.......................
5.45%
(1.53)%
(14.01)%
(0.81)%
2.64%
6.65%
Ratios
to
average
net
assets
d
Expenses
before
waiver
and
payments
by
affiliates
..........................
1.92%
1.75%
1.73%
1.66%
1.70%
1.64%
Expenses
net
of
waiver
and
payments
by
affiliates
..........................
1.40%
1.40%
e
1.39%
e
1.39%
e
1.40%
e
1.40%
e
Net
investment
income
(loss)
..........
2.30%
2.12%
(0.29)%
(0.14)%
1.47%
2.53%
Supplemental
data
Net
assets,
end
of
period
(000’s)
........
$757
$974
$1,372
$2,322
$3,960
$3,843
Portfolio
turnover
rate
................
25.82%
18.01%
329.20%
278.91%
249.94%
223.36%
Portfolio
turnover
rate
excluding
mortgage
dollar
rolls
f
........................
25.82%
18.01%
141.97%
85.26%
187.45%
139.83%
a
The
amount
shown
for
a
share
outstanding
throughout
the
period
may
not
correlate
with
the
Statement
of
Operations
for
the
period
due
to
the
timing
of
sales
and
repurchas-
es
of
the
Fund’s
shares
in
relation
to
income
earned
and/or
fluctuating
fair
value
of
the
investments
of
the
Fund.
b
Based
on
average
daily
shares
outstanding.
c
Total
return
does
not
reflect
sales
commissions
or
contingent
deferred
sales
charges,
if
applicable,
and
is
not
annualized
for
periods
less
than
one
year.
d
Ratios
are
annualized
for
periods
less
than
one
year.
e
Benefit
of
expense
reduction
rounds
to
less
than
0.01%.
f
See
Note
1(c)
regarding
mortgage
dollar
rolls.
Franklin
Strategic
Mortgage
Portfolio
Financial
Highlights
franklintempleton.com
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Semiannual
Report
9
a
Six
Months
Ended
March
31,
2024
(unaudited)
Year
Ended
September
30,
2023
2022
2021
2020
2019
Class
R6
Per
share
operating
performance
(for
a
share
outstanding
throughout
the
period)
Net
asset
value,
beginning
of
period
.....
$7.43
$7.73
$9.12
$9.29
$9.24
$8.92
Income
from
investment
operations
a
:
Net
investment
income
..............
0.114
b
0.219
b
0.034
b
0.059
b
0.222
0.296
Net
realized
and
unrealized
gains
(losses)
0.316
(0.277)
(1.248)
(0.054)
0.081
0.360
Total
from
investment
operations
........
0.430
(0.058)
(1.214)
0.005
0.303
0.656
Less
distributions
from:
Net
investment
income
..............
(0.130)
(0.242)
(0.171)
(0.175)
(0.253)
(0.336)
Tax
return
of
capital
................
—
—
(0.005)
—
—
—
Total
distributions
...................
(0.130)
(0.242)
(0.176)
(0.175)
(0.253)
(0.336)
Net
asset
value,
end
of
period
..........
$7.73
$7.43
$7.73
$9.12
$9.29
$9.24
Total
return
c
.......................
5.82%
(0.85)%
(13.47)%
0.05%
3.33%
7.49%
Ratios
to
average
net
assets
d
Expenses
before
waiver
and
payments
by
affiliates
..........................
1.24%
1.07%
1.05%
1.03%
1.07%
1.00%
Expenses
net
of
waiver
and
payments
by
affiliates
..........................
0.72%
0.72%
e
0.72%
e
0.61%
e
0.62%
e
0.62%
e
Net
investment
income
...............
2.99%
2.81%
0.39%
0.64%
2.17%
3.31%
Supplemental
data
Net
assets,
end
of
period
(000’s)
........
$279
$283
$273
$569
$559
$383
Portfolio
turnover
rate
................
25.82%
18.01%
329.20%
278.91%
249.94%
223.36%
Portfolio
turnover
rate
excluding
mortgage
dollar
rolls
f
........................
25.82%
18.01%
141.97%
85.26%
187.45%
139.83%
a
The
amount
shown
for
a
share
outstanding
throughout
the
period
may
not
correlate
with
the
Statement
of
Operations
for
the
period
due
to
the
timing
of
sales
and
repurchas-
es
of
the
Fund’s
shares
in
relation
to
income
earned
and/or
fluctuating
fair
value
of
the
investments
of
the
Fund.
b
Based
on
average
daily
shares
outstanding.
c
Total
return
is
not
annualized
for
periods
less
than
one
year.
d
Ratios
are
annualized
for
periods
less
than
one
year.
e
Benefit
of
expense
reduction
rounds
to
less
than
0.01%.
f
See
Note
1(c)
regarding
mortgage
dollar
rolls.
Franklin
Strategic
Mortgage
Portfolio
Financial
Highlights
franklintempleton.com
Semiannual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
10
a
Six
Months
Ended
March
31,
2024
(unaudited)
Year
Ended
September
30,
2023
2022
2021
2020
2019
Advisor
Class
Per
share
operating
performance
(for
a
share
outstanding
throughout
the
period)
Net
asset
value,
beginning
of
period
.....
$7.43
$7.73
$9.12
$9.30
$9.24
$8.93
Income
from
investment
operations
a
:
Net
investment
income
..............
0.113
b
0.217
b
0.032
b
0.048
b
0.192
0.284
Net
realized
and
unrealized
gains
(losses)
0.315
(0.278)
(1.247)
(0.063)
0.109
0.350
Total
from
investment
operations
........
0.428
(0.061)
(1.215)
(0.015)
0.301
0.634
Less
distributions
from:
Net
investment
income
..............
(0.128)
(0.239)
(0.170)
(0.165)
(0.241)
(0.324)
Tax
return
of
capital
................
—
—
(0.005)
—
—
—
Total
distributions
...................
(0.128)
(0.239)
(0.175)
(0.165)
(0.241)
(0.324)
Net
asset
value,
end
of
period
..........
$7.73
$7.43
$7.73
$9.12
$9.30
$9.24
Total
return
c
.......................
5.79%
(0.89)%
(13.47)%
(0.16)%
3.30%
7.23%
Ratios
to
average
net
assets
d
Expenses
before
waiver
and
payments
by
affiliates
..........................
1.27%
1.11%
1.09%
1.03%
1.05%
0.99%
Expenses
net
of
waiver
and
payments
by
affiliates
..........................
0.75%
0.75%
e
0.75%
e
0.74%
e
0.75%
e
0.75%
e
Net
investment
income
...............
2.96%
2.78%
0.37%
0.52%
2.14%
3.18%
Supplemental
data
Net
assets,
end
of
period
(000’s)
........
$4,994
$4,682
$5,083
$7,982
$9,609
$10,907
Portfolio
turnover
rate
................
25.82%
18.01%
329.20%
278.91%
249.94%
223.36%
Portfolio
turnover
rate
excluding
mortgage
dollar
rolls
f
........................
25.82%
18.01%
141.97%
85.26%
187.45%
139.83%
a
The
amount
shown
for
a
share
outstanding
throughout
the
period
may
not
correlate
with
the
Statement
of
Operations
for
the
period
due
to
the
timing
of
sales
and
repurchas-
es
of
the
Fund’s
shares
in
relation
to
income
earned
and/or
fluctuating
fair
value
of
the
investments
of
the
Fund.
b
Based
on
average
daily
shares
outstanding.
c
Total
return
is
not
annualized
for
periods
less
than
one
year.
d
Ratios
are
annualized
for
periods
less
than
one
year.
e
Benefit
of
expense
reduction
rounds
to
less
than
0.01%.
f
See
Note
1(c)
regarding
mortgage
dollar
rolls.
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited),
March
31,
2024
franklintempleton.com
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Semiannual
Report
11
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
$
346
Residential
REITs
0.3%
American
Homes
4
Rent
LP
,
Senior
Bond
,
4.25
%
,
2/15/28
.....................
100,000
96,075
Total
Corporate
Bonds
(Cost
$
99,992
)
.........................................
96,421
Asset-Backed
Securities
3.4%
Financial
Services
3.4%
b
American
Homes
4
Rent
Trust
,
2015-SFR1
,
A
,
144A,
3.467
%
,
4/17/52
...........
133,779
130,891
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
100,977
2021-1A
,
A1
,
144A,
1.53
%
,
3/15/61
....................................
94,245
85,310
d
Conseco
Finance
Securitizations
Corp.
,
2002-2
,
M1
,
FRN
,
7.424
%
,
3/01/33
.......
3,823
3,827
e
CWABS,
Inc.
,
2004-1
,
M1
,
FRN
,
6.194
%
,
(
1-month
SOFR
+
0.864
%
),
3/25/34
......
9,842
9,812
b
FirstKey
Homes
Trust
,
2020-SFR2
,
A
,
144A,
1.266
%
,
10/19/37
.................
142,892
133,767
b
Home
Partners
of
America
Trust
,
2021-2
,
B
,
144A,
2.302
%
,
12/17/26
....................................
163,445
149,405
2021-3
,
B
,
144A,
2.649
%
,
1/17/41
.....................................
54,922
48,799
b
,e
Invitation
Homes
Trust
,
2018-SFR4
,
A
,
144A,
FRN
,
6.541
%
,
(
1-month
SOFR
+
1.214
%
),
1/17/38
..................................................
163,358
163,916
b
New
Economy
Assets
Phase
1
Sponsor
LLC
,
2021-1
,
A1
,
144A,
1.91
%
,
10/20/61
...
270,000
236,847
1,063,575
a
a
a
a
a
Total
Asset-Backed
Securities
(Cost
$
1,186,942
)
................................
1,063,575
Commercial
Mortgage-Backed
Securities
5.1%
Financial
Services
5.1%
BANK
,
2021-BN34
,
A5
,
2.438
%
,
6/15/63
......................................
125,000
101,686
2021-BN33
,
A5
,
2.556
%
,
5/15/64
......................................
90,000
76,462
b
,e
BLP
Commercial
Mortgage
Trust
,
2023-IND
,
A
,
144A,
FRN
,
7.017
%
,
(
1-month
SOFR
+
1.692
%
),
3/15/40
..................................................
100,000
100,327
b
,e
BX
Commercial
Mortgage
Trust
,
2021-VOLT
,
A
,
144A,
FRN
,
6.14
%
,
(
1-month
SOFR
+
0.814
%
),
9/15/36
.........
100,000
99,323
2022-LP2
,
A
,
144A,
FRN
,
6.338
%
,
(
1-month
SOFR
+
1.013
%
),
2/15/39
.........
72,457
72,152
b
,e
BX
Mortgage
Trust
,
2021-PAC
,
A
,
144A,
FRN
,
6.129
%
,
(
1-month
SOFR
+
0.804
%
),
10/15/36
........................................................
200,000
198,386
b
BX
Trust
,
2022-CLS
,
A
,
144A,
5.76
%
,
10/13/27
...................................
200,000
200,855
e
2022-IND
,
A
,
144A,
FRN
,
6.816
%
,
(
1-month
SOFR
+
1.491
%
),
4/15/37
.........
130,135
130,428
b
,e
Cold
Storage
Trust
,
2020-ICE5
,
A
,
144A,
FRN
,
6.332
%
,
(
1-month
SOFR
+
1.014
%
),
11/15/37
........................................................
324,387
323,821
b
,e
DBCG
Mortgage
Trust
,
2017-BBG
,
A
,
144A,
FRN
,
8.5
%
,
(
PRIME
),
6/15/34
........
240,000
240,603
e
FNMA
,
2007-1
,
NF
,
FRN
,
5.685
%
,
(
30-day
SOFR
Average
+
0.364
%
),
2/25/37
.....
20,755
20,583
1,564,626
a
a
a
a
a
Total
Commercial
Mortgage-Backed
Securities
(Cost
$
1,588,099
)
.................
1,564,626
Mortgage-Backed
Securities
76.0%
Federal
Home
Loan
Mortgage
Corp.
(FHLMC)
Fixed
Rate
27.9%
FHLMC
Gold
Pool,
30
Year
,
4.5
%,
4/01/40
................................
147,932
145,320
FHLMC
Gold
Pool,
30
Year
,
4.5
%,
1/01/49
................................
275,802
268,934
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited)
franklintempleton.com
Semiannual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
12
a
a
Principal
Amount
a
Value
a
a
a
a
a
Mortgage-Backed
Securities
(continued)
Federal
Home
Loan
Mortgage
Corp.
(FHLMC)
Fixed
Rate
(continued)
FHLMC
Gold
Pool,
30
Year
,
5
%,
10/01/33
-
2/01/39
..........................
$
100,193
$
100,885
FHLMC
Gold
Pool,
30
Year
,
5.5
%,
9/01/33
................................
7,841
8,017
FHLMC
Gold
Pool,
30
Year
,
6
%,
12/01/32
-
11/01/36
.........................
32,865
33,783
FHLMC
Gold
Pool,
30
Year
,
6.5
%,
11/01/27
-
7/01/32
........................
10,401
10,701
FHLMC
Gold
Pool,
30
Year
,
7.5
%,
1/01/26
................................
12
12
FHLMC
Gold
Pool,
30
Year
,
8
%,
7/01/24
-
5/01/30
...........................
55,535
55,797
FHLMC
Gold
Pool,
30
Year
,
9
%,
9/01/30
..................................
700
700
FHLMC
Pool,
15
Year
,
2
%,
4/01/37
......................................
310,129
275,153
FHLMC
Pool,
30
Year
,
2
%,
2/01/52
......................................
1,157,569
917,201
FHLMC
Pool,
30
Year
,
2
%,
3/01/52
......................................
1,748,517
1,385,809
FHLMC
Pool,
30
Year
,
2
%,
6/01/51
-
3/01/52
...............................
303,101
240,031
FHLMC
Pool,
30
Year
,
2
%,
5/01/52
......................................
406,144
323,396
FHLMC
Pool,
30
Year
,
2.5
%,
11/01/51
....................................
781,051
648,065
FHLMC
Pool,
30
Year
,
2.5
%,
12/01/51
....................................
1,058,316
877,926
FHLMC
Pool,
30
Year
,
2.5
%,
1/01/52
.....................................
455,506
382,320
FHLMC
Pool,
30
Year
,
2.5
%,
2/01/52
.....................................
375,703
311,378
FHLMC
Pool,
30
Year
,
2.5
%,
9/01/51
-
1/01/52
.............................
357,738
295,966
FHLMC
Pool,
30
Year
,
3
%,
10/01/51
-
7/01/52
..............................
107,431
92,493
FHLMC
Pool,
30
Year
,
3.5
%,
7/01/49
.....................................
769,821
700,785
FHLMC
Pool,
30
Year
,
4
%,
5/01/50
......................................
63,073
59,762
FHLMC
Pool,
30
Year
,
4.5
%,
10/01/48
....................................
430,813
418,757
FHLMC
Pool,
30
Year
,
5
%,
6/01/53
......................................
254,914
252,588
FHLMC
Pool,
30
Year
,
5
%,
8/01/53
......................................
249,286
249,007
FHLMC
Pool,
30
Year
,
5
%,
4/01/54
......................................
91,000
88,799
FHLMC
Pool,
30
Year
,
5.5
%,
2/01/53
.....................................
329,039
331,536
FHLMC
Pool,
30
Year
,
6.5
%,
11/01/53
-
3/01/54
............................
191,441
195,658
8,670,779
f
Federal
National
Mortgage
Association
(FNMA)
Adjustable
Rate
0.8%
FNMA
,
4.37
%,
(
3-year
CMT
T-Note
+/-
MBS
Margin),
5/01/30
..................
27,029
26,406
FNMA
,
4.975
%
-
6.5
%,
(
1-year
Refinitiv
USD
IBOR
Consumer
Cash
Fallbacks
+/-
MBS
Margin),
9/01/33
-
4/01/37
...........................................
129,851
129,350
FNMA
,
5.225
%
-
6.692
%,
(
1-year
CMT
T-Note
+/-
MBS
Margin),
9/01/24
-
7/01/38
...
94,467
94,143
FNMA
,
6.957
%
-
7.46
%,
(
6-month
Refinitiv
USD
IBOR
Consumer
Cash
Fallbacks
+/-
MBS
Margin),
4/01/31
-
4/01/37
.......................................
14,587
14,691
264,590
Federal
National
Mortgage
Association
(FNMA)
Fixed
Rate
38.0%
FNMA
,
3.5
%,
7/01/56
................................................
480,285
426,866
FNMA,
15
Year
,
2.5
%,
7/01/37
.........................................
555,595
507,239
FNMA,
15
Year
,
5.5
%,
4/01/38
.........................................
97,077
97,875
FNMA,
30
Year
,
1.5
%,
10/01/51
.........................................
330,666
249,513
FNMA,
30
Year
,
2
%,
5/01/51
...........................................
396,000
314,941
FNMA,
30
Year
,
2
%,
11/01/51
..........................................
484,496
384,471
FNMA,
30
Year
,
2
%,
1/01/52
...........................................
1,129,253
896,373
FNMA,
30
Year
,
2
%,
6/01/51
-
2/01/52
....................................
196,967
156,028
FNMA,
30
Year
,
2.5
%,
4/01/51
.........................................
556,298
462,889
FNMA,
30
Year
,
2.5
%,
1/01/52
-
7/01/52
..................................
667,260
552,245
FNMA,
30
Year
,
3
%,
10/01/46
..........................................
1,000,944
883,001
FNMA,
30
Year
,
3
%,
11/01/48
..........................................
1,261,713
1,111,467
FNMA,
30
Year
,
3
%,
9/01/49
...........................................
229,810
201,604
FNMA,
30
Year
,
3
%,
9/01/50
...........................................
435,872
380,296
FNMA,
30
Year
,
3.5
%,
8/01/49
.........................................
863,345
790,199
FNMA,
30
Year
,
3.5
%,
9/01/49
.........................................
239,224
217,475
FNMA,
30
Year
,
3.5
%,
4/01/50
.........................................
300,581
274,742
FNMA,
30
Year
,
3.5
%,
6/01/49
.........................................
177,175
161,633
FNMA,
30
Year
,
4
%,
11/01/45
..........................................
1,574,808
1,494,155
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited)
franklintempleton.com
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Semiannual
Report
13
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
%,
6/01/52
...........................................
$
361,419
$
339,089
FNMA,
30
Year
,
4.5
%,
11/01/47
.........................................
365,488
355,412
FNMA,
30
Year
,
5
%,
4/01/34
...........................................
37,814
37,949
FNMA,
30
Year
,
5
%,
8/01/53
...........................................
173,194
169,040
FNMA,
30
Year
,
5.5
%,
9/01/33
-
11/01/35
.................................
313,224
319,105
FNMA,
30
Year
,
6
%,
9/01/32
-
8/01/35
....................................
310,634
318,970
FNMA,
30
Year
,
6
%,
9/01/53
...........................................
237,209
239,408
FNMA,
30
Year
,
6.5
%,
12/01/27
-
12/01/53
................................
395,205
404,602
FNMA,
30
Year
,
7.5
%,
8/01/25
-
5/01/32
..................................
2,790
2,806
FNMA,
30
Year
,
8
%,
1/01/25
-
7/01/31
....................................
7,196
7,249
FNMA,
30
Year
,
9
%,
8/01/24
-
4/01/25
....................................
56
56
FNMA,
30
Year
,
9.5
%,
11/01/29
-
4/01/30
.................................
12,738
12,772
11,769,470
Government
National
Mortgage
Association
(GNMA)
Fixed
Rate
9.3%
GNMA
I,
30
Year
,
7
%,
11/15/29
.........................................
887
913
GNMA
I,
30
Year
,
8
%,
11/15/25
-
12/15/26
.................................
713
713
GNMA
I,
Single-family,
30
Year
,
6.5
%,
6/15/28
-
9/15/32
......................
41,643
42,945
GNMA
I,
Single-family,
30
Year
,
7
%,
1/15/26
-
2/15/32
........................
4,228
4,224
GNMA
I,
Single-family,
30
Year
,
7.5
%,
9/15/25
-
5/15/28
......................
6,583
6,595
GNMA
I,
Single-family,
30
Year
,
8
%,
9/15/27
...............................
347
347
GNMA
II,
Single-family,
30
Year
,
2
%,
1/20/52
...............................
833,951
683,943
GNMA
II,
Single-family,
30
Year
,
2.5
%,
10/20/51
............................
1,077,928
918,714
GNMA
II,
Single-family,
30
Year
,
3.5
%,
10/20/47
-
3/20/51
.....................
210,503
193,688
GNMA
II,
Single-family,
30
Year
,
4
%,
2/20/49
...............................
172,827
163,789
GNMA
II,
Single-family,
30
Year
,
5
%,
4/20/53
...............................
124,971
122,895
GNMA
II,
Single-family,
30
Year
,
5.5
%,
5/20/53
.............................
613,662
613,499
GNMA
II,
Single-family,
30
Year
,
6.5
%,
1/20/26
-
12/20/53
.....................
114,291
116,507
GNMA
II,
Single-family,
30
Year
,
7.5
%,
9/20/30
-
7/20/32
......................
23,253
24,083
GNMA
II,
Single-family,
30
Year
,
8
%,
8/20/26
...............................
14
15
GNMA
II,
Single-family,
30
Year
,
9
%,
3/20/25
...............................
21
21
2,892,891
Total
Mortgage-Backed
Securities
(Cost
$
25,787,186
)
............................
23,597,730
Residential
Mortgage-Backed
Securities
10.9%
Capital
Markets
0.0%
†
e
Merrill
Lynch
Mortgage
Investors
Trust
,
2003-A
,
1A
,
FRN
,
6.184
%
,
(
1-month
SOFR
+
0.854
%
),
3/25/28
..................................................
18,061
17,010
Financial
Services
10.9%
e
American
Home
Mortgage
Investment
Trust
,
2005-1
,
6A
,
FRN
,
7.681
%
,
(
6-month
SOFR
+
2.428
%
),
6/25/45
...........................................
13,417
13,274
b
BRAVO
Residential
Funding
Trust
,
2019-1
,
A1C
,
144A,
3.5
%
,
3/25/58
.....................................
7,386
7,276
d
2019-2
,
A3
,
144A,
FRN
,
3.5
%
,
10/25/44
.................................
38,594
36,359
b
CIM
Trust
,
d
2019-INV1
,
A1
,
144A,
FRN
,
4
%
,
2/25/49
................................
8,972
8,380
e
2019-INV2
,
A11
,
144A,
FRN
,
6.385
%
,
(
30-day
SOFR
Average
+
1.064
%
),
5/25/49
.
36,108
35,031
d
2019-INV2
,
A3
,
144A,
FRN
,
4
%
,
5/25/49
................................
22,748
20,956
d
2018-INV1
,
A4
,
144A,
FRN
,
4
%
,
8/25/48
................................
14,948
13,726
b
,d
Citigroup
Mortgage
Loan
Trust
,
2013-A
,
A
,
144A,
FRN
,
3
%
,
5/25/42
.............
4,323
4,035
b
,d
COLT
Mortgage
Loan
Trust
,
2022-4
,
A1
,
144A,
FRN
,
4.301
%
,
3/25/67
............
83,679
81,650
b
,e
Connecticut
Avenue
Securities
Trust
,
2023-R08
,
1M1
,
144A,
FRN
,
6.82
%
,
(
30-day
SOFR
Average
+
1.5
%
),
10/25/43
...
27,136
27,270
2024-R02
,
1M1
,
144A,
FRN
,
6.42
%
,
(
30-day
SOFR
Average
+
1.1
%
),
2/25/44
....
68,451
68,507
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited)
franklintempleton.com
Semiannual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
14
a
a
Principal
Amount
a
Value
a
a
a
a
a
Residential
Mortgage-Backed
Securities
(continued)
Financial
Services
(continued)
b
,d
CSMC
Trust
,
2014-OAK1
,
1A1
,
144A,
FRN
,
3
%
,
11/25/29
.....................
$
18,291
$
17,387
e
FHLMC
STACR
Debt
Notes
,
2016-DNA2
,
M3
,
FRN
,
10.085
%
,
(
30-day
SOFR
Average
+
4.764
%
),
10/25/28
....
69,071
72,606
2016-HQA2
,
M3
,
FRN
,
10.585
%
,
(
30-day
SOFR
Average
+
5.264
%
),
11/25/28
....
79,414
84,263
b
,e
FHLMC
STACR
REMIC
Trust
,
2022-DNA1
,
M1A
,
144A,
FRN
,
6.32
%
,
(
30-day
SOFR
Average
+
1
%
),
1/25/42
....
189,203
189,253
2022-DNA3
,
M1A
,
144A,
FRN
,
7.32
%
,
(
30-day
SOFR
Average
+
2
%
),
4/25/42
....
49,072
49,725
b
,d
Flagstar
Mortgage
Trust
,
2021-4
,
A5
,
144A,
FRN
,
2.5
%
,
6/01/51
..................................
156,494
136,338
2021-2
,
A6
,
144A,
FRN
,
2.5
%
,
4/25/51
..................................
176,771
154,337
e
FNMA
Connecticut
Avenue
Securities
,
2015-C01
,
1M2
,
FRN
,
9.735
%
,
(
30-day
SOFR
Average
+
4.414
%
),
2/25/25
......
44,931
45,954
2016-C01
,
1M2
,
FRN
,
12.185
%
,
(
30-day
SOFR
Average
+
6.864
%
),
8/25/28
.....
81,207
86,212
2014-C02
,
2M2
,
FRN
,
8.035
%
,
(
30-day
SOFR
Average
+
2.714
%
),
5/25/24
......
44,210
44,271
2014-C03
,
2M2
,
FRN
,
8.335
%
,
(
30-day
SOFR
Average
+
3.014
%
),
7/25/24
......
16,448
16,532
b
,d
GS
Mortgage-Backed
Securities
Trust
,
2021-PJ6
,
A8
,
144A,
FRN
,
2.5
%
,
11/25/51
...
189,068
164,892
b
,d
J.P.
Morgan
Mortgage
Trust
,
2013-3
,
A3
,
144A,
FRN
,
3.357
%
,
7/25/43
................................
48,331
43,954
2021-6
,
A4
,
144A,
FRN
,
2.5
%
,
10/25/51
.................................
240,358
210,980
2021-13
,
A4
,
144A,
FRN
,
2.5
%
,
4/25/52
.................................
159,199
139,125
2021-15
,
A4
,
144A,
FRN
,
2.5
%
,
6/25/52
.................................
47,445
41,225
2022-1
,
A4
,
144A,
FRN
,
2.5
%
,
7/25/52
..................................
247,840
214,117
b
,d
Mill
City
Mortgage
Loan
Trust
,
2018-2
,
A1
,
144A,
FRN
,
3.5
%
,
5/25/58
..................................
17,627
17,371
2018-1
,
A1
,
144A,
FRN
,
3.25
%
,
5/25/62
.................................
21,147
20,645
2018-4
,
A1B
,
144A,
FRN
,
3.5
%
,
4/25/66
.................................
63,912
61,749
b
OBX
Trust
,
e
2018-1
,
A2
,
144A,
FRN
,
6.094
%
,
(
1-month
SOFR
+
0.764
%
),
6/25/57
..........
24,105
23,242
d
2021-J1
,
A4
,
144A,
FRN
,
2.5
%
,
5/25/51
.................................
147,623
129,205
d
2021-J3
,
A4
,
144A,
FRN
,
2.5
%
,
10/25/51
................................
74,523
64,996
b
,d
Provident
Funding
Associates
LLP
,
2021-J1
,
A3
,
144A,
FRN
,
2.5
%
,
2/20/49
........
120,649
104,799
b
,d
PSMC
Trust
,
2021-3
,
A3
,
144A,
FRN
,
2.5
%
,
8/25/51
.........................
213,872
188,142
b
,d
Sequoia
Mortgage
Trust
,
2021-1
,
A1
,
144A,
FRN
,
2.5
%
,
3/25/51
..................................
152,351
122,795
2021-6
,
A4
,
144A,
FRN
,
2.5
%
,
10/25/51
.................................
201,915
175,130
b
Towd
Point
Mortgage
Trust
,
d
2016-5
,
A1
,
144A,
FRN
,
2.5
%
,
10/25/56
.................................
2,797
2,788
d
2017-1
,
A1
,
144A,
FRN
,
2.75
%
,
10/25/56
................................
975
972
e
2017-5
,
A1
,
144A,
FRN
,
6.044
%
,
(
1-month
SOFR
+
0.714
%
),
2/25/57
..........
7,430
7,554
d
2017-4
,
A1
,
144A,
FRN
,
2.75
%
,
6/25/57
.................................
63,807
61,319
d
2018-1
,
A1
,
144A,
FRN
,
3
%
,
1/25/58
...................................
13,486
13,141
d
2018-2
,
A1
,
144A,
FRN
,
3.25
%
,
3/25/58
.................................
37,923
36,778
d
2019-1
,
A1
,
144A,
FRN
,
3.75
%
,
3/25/58
.................................
98,516
93,926
d
2018-6
,
A1A
,
144A,
FRN
,
3.75
%
,
3/25/58
................................
23,115
22,629
d
2017-1
,
A2
,
144A,
FRN
,
3.5
%
,
10/25/56
.................................
165,000
161,685
Virginia
Housing
Development
Authority
,
2020-A
,
A
,
2.85
%
,
12/25/49
.............
47,431
41,845
3,378,346
a
a
a
a
a
Total
Residential
Mortgage-Backed
Securities
(Cost
$
3,763,953
)
..................
3,395,356
Total
Long
Term
Investments
(Cost
$
32,426,172
)
................................
29,717,708
a
a
a
a
a
Franklin
Strategic
Mortgage
Portfolio
Schedule
of
Investments
(unaudited)
franklintempleton.com
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Semiannual
Report
15
Short
Term
Investments
4.2%
a
a
Shares
a
Value
a
Money
Market
Funds
4.2%
g,h
Institutional
Fiduciary
Trust
-
Money
Market
Portfolio
,
4.997
%
..................
1,308,127
$
1,308,127
Total
Money
Market
Funds
(Cost
$
1,308,127
)
...................................
1,308,127
Total
Short
Term
Investments
(Cost
$
1,308,127
)
.................................
1,308,127
a
Total
Investments
(Cost
$
33,734,299
)
99.9
%
....................................
$31,025,835
Other
Assets,
less
Liabilities
0.1
%
.............................................
20,066
Net
Assets
100.0%
...........................................................
$31,045,901
†
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
March
31,
2024,
the
aggregate
value
of
these
securities
was
$5,389,566,
representing
17.4%
of
net
assets.
c
Defaulted
security
or
security
for
which
income
has
been
deemed
uncollectible.
See
Note
6
.
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
(
f
)
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)
franklintempleton.com
Semiannual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
16
At
March
31,
2024
,
the
Fund
had
the
following futures
contracts
outstanding.
See
Note
1
(
b
). 
See
Note 7 regarding
other
derivative
information.
See
Abbreviations
on
page
29
.
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
5
$
553,984
6/18/24
$
(
2,937
)
U.S.
Treasury
10
Year
Ultra
Notes
................
Long
12
1,375,312
6/18/24
9,358
U.S.
Treasury
2
Year
Notes
.....................
Short
2
408,969
6/28/24
263
U.S.
Treasury
5
Year
Notes
.....................
Long
21
2,247,328
6/28/24
4,731
U.S.
Treasury
Long
Bonds
.....................
Long
9
1,083,938
6/18/24
14,542
U.S.
Treasury
Ultra
Bonds
......................
Long
1
129,000
6/18/24
2,061
Total
Futures
Contracts
......................................................................
$28,018
*
As
of
period
end.
Franklin
Strategic
Mortgage
Portfolio
Financial
Statements
Statement
of
Assets
and
Liabilities
March
31,
2024
(unaudited)
franklintempleton.com
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Semiannual
Report
17
Franklin
Strategic
Mortgage
Portfolio
Assets:
Investments
in
securities:
Cost
-
Unaffiliated
issuers
...................................................................
$32,426,172
Cost
-
Non-controlled
affiliates
(Note
3f)
........................................................
1,308,127
Value
-
Unaffiliated
issuers
..................................................................
$29,717,708
Value
-
Non-controlled
affiliates
(Note
3f)
........................................................
1,308,127
Cash
....................................................................................
2,363
Receivables:
Investment
securities
sold
...................................................................
1,746
Capital
shares
sold
........................................................................
914
Dividends
and
interest
.....................................................................
91,082
Affiliates
................................................................................
1,186
Deposits
with
brokers
for:
Futures
contracts
........................................................................
97,282
Variation
margin
on
futures
contracts
...........................................................
1,342
Total
assets
..........................................................................
31,221,750
Liabilities:
Payables:
Capital
shares
redeemed
...................................................................
40,237
Distribution
fees
..........................................................................
2,878
Transfer
agent
fees
........................................................................
12,381
Registration
and
filing
fees
..................................................................
47,469
Professional
fees
.........................................................................
28,917
Trustees'
fees
and
expenses
.................................................................
135
Pricing
fees
.............................................................................
23,818
Distributions
to
shareholders
.................................................................
4,444
Accrued
expenses
and
other
liabilities
...........................................................
15,570
Total
liabilities
.........................................................................
175,849
Net
assets,
at
value
.................................................................
$31,045,901
Net
assets
consist
of:
Paid-in
capital
.............................................................................
$42,253,346
Total
distributable
earnings
(losses)
.............................................................
(11,207,445)
Net
assets,
at
value
.................................................................
$31,045,901
Franklin
Strategic
Mortgage
Portfolio
Financial
Statements
Statement
of
Assets
and
Liabilities
(continued)
March
31,
2024
(unaudited)
franklintempleton.com
Semiannual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
18
Franklin
Strategic
Mortgage
Portfolio
Class
A:
Net
assets,
at
value
.......................................................................
$10,756,040
Shares
outstanding
........................................................................
1,389,925
Net
asset
value
per
share
a,b
..................................................................
$7.74
Maximum
offering
price
per
share
(net
asset
value
per
share
÷
96.25%)
b
................................
$8.04
Class
A1:
Net
assets,
at
value
.......................................................................
$14,259,994
Shares
outstanding
........................................................................
1,841,802
Net
asset
value
per
share
a,b
..................................................................
$7.74
Maximum
offering
price
per
share
(net
asset
value
per
share
÷
96.25%)
b
................................
$8.04
Class
C:
Net
assets,
at
value
.......................................................................
$756,825
Shares
outstanding
........................................................................
97,806
Net
asset
value
and
maximum
offering
price
per
share
a,b
............................................
$7.74
Class
R6:
Net
assets,
at
value
.......................................................................
$279,413
Shares
outstanding
........................................................................
36,152
Net
asset
value
and
maximum
offering
price
per
share
b
.............................................
$7.73
Advisor
Class:
Net
assets,
at
value
.......................................................................
$4,993,629
Shares
outstanding
........................................................................
645,908
Net
asset
value
and
maximum
offering
price
per
share
b
.............................................
$7.73
a
Redemption
price
is
equal
to
net
asset
value
less
contingent
deferred
sales
charges,
if
applicable.
b
Net
asset
value
per
share
may
not
recalculate
due
to
rounding.
Franklin
Strategic
Mortgage
Portfolio
Financial
Statements
Statement
of
Operations
for
the
six
months
ended
March
31,
2024
(unaudited)
franklintempleton.com
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
Semiannual
Report
19
Franklin
Strategic
Mortgage
Portfolio
Investment
income:
Dividends:
Non-controlled
affiliates
(Note
3f)
.............................................................
$17,555
Interest:
Unaffiliated
issuers
........................................................................
573,708
Total
investment
income
...................................................................
591,263
Expenses:
Management
fees
(Note
3
a
)
...................................................................
63,847
Distribution
fees:
(Note
3c
)
    Class
A
................................................................................
13,957
    Class
C
................................................................................
2,774
Transfer
agent
fees:
(Note
3e
)
    Class
A
................................................................................
9,341
Class
A1
...............................................................................
12,510
    Class
C
................................................................................
722
    Class
R6
...............................................................................
199
    Advisor
Class
............................................................................
3,993
Custodian
fees
.............................................................................
1,199
Reports
to
shareholders
fees
..................................................................
3,623
Registration
and
filing
fees
....................................................................
45,668
Professional
fees
...........................................................................
30,639
Trustees'
fees
and
expenses
..................................................................
320
Pricing
fees
...............................................................................
22,165
Other
....................................................................................
7,957
Total
expenses
.........................................................................
218,914
Expenses
waived/paid
by
affiliates
(Note
3f
and
3g)
..............................................
(82,513)
Net
expenses
.........................................................................
136,401
Net
investment
income
................................................................
454,862
Realized
and
unrealized
gains
(losses):
Net
realized
gain
(loss)
from:
Investments:
Unaffiliated
issuers
......................................................................
(1,004,491)
Futures
contracts
.........................................................................
(3,013)
TBA
sale
commitments
.....................................................................
3,972
Net
realized
gain
(loss)
..................................................................
(1,003,532)
Net
change
in
unrealized
appreciation
(depreciation)
on:
Investments:
Unaffiliated
issuers
......................................................................
2,174,876
Futures
contracts
.........................................................................
105,989
Net
change
in
unrealized
appreciation
(depreciation)
............................................
2,280,865
Net
realized
and
unrealized
gain
(loss)
............................................................
1,277,333
Net
increase
(decrease)
in
net
assets
resulting
from
operations
..........................................
$1,732,195
Franklin
Strategic
Mortgage
Portfolio
Financial
Statements
Statements
of
Changes
in
Net
Assets
franklintempleton.com
Semiannual
Report
The
accompanying
notes
are
an
integral
part
of
these
financial
statements.
20
Franklin
Strategic
Mortgage
Portfolio
Six
Months
Ended
March
31,
2024
(unaudited)
Year
Ended
September
30,
2023
Increase
(decrease)
in
net
assets:
Operations:
Net
investment
income
.................................................
$454,862
$951,455
Net
realized
gain
(loss)
.................................................
(1,003,532)
(872,428)
Net
change
in
unrealized
appreciation
(depreciation)
...........................
2,280,865
(259,058)
Net
increase
(decrease)
in
net
assets
resulting
from
operations
................
1,732,195
(180,031)
Distributions
to
shareholders:
Class
A
.............................................................
(174,779)
(349,077)
Class
A1
............................................................
(250,672)
(513,584)
Class
C
.............................................................
(11,618)
(29,542)
Class
R6
............................................................
(4,840)
(9,621)
Advisor
Class
........................................................
(80,552)
(151,668)
Total
distributions
to
shareholders
..........................................
(522,461)
(1,053,492)
Capital
share
transactions:
(Note
2
)
Class
A
.............................................................
(545,480)
(2,233,033)
Class
A1
............................................................
(1,224,437)
(2,156,673)
Class
C
.............................................................
(252,959)
(363,743)
Class
R6
............................................................
(14,331)
23,168
Advisor
Class
........................................................
129,218
(212,851)
Total
capital
share
transactions
............................................
(1,907,989)
(4,943,132)
Net
increase
(decrease)
in
net
assets
...................................
(698,255)
(6,176,655)
Net
assets:
Beginning
of
period
.....................................................
31,744,156
37,920,811
End
of
period
..........................................................
$31,045,901
$31,744,156
Franklin
Strategic
Mortgage
Portfolio
21
franklintempleton.com
Semiannual
Report
Notes
to
Financial
Statements
(unaudited)
1.
Organization
and
Significant
Accounting
Policies
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.
The
Fund
offers five
classes
of
shares:
Class
A,
Class
A1,
Class
C,
Class
R6
and
Advisor
Class. Class
C
shares
automatically
convert
to
Class
A
shares
on
a
monthly
basis,
after
they
have
been
held
for
8
years.
Each
class
of
shares
may
differ
by
its
initial
sales
load,
contingent
deferred
sales
charges,
voting
rights
on
matters
affecting
a
single
class,
its
exchange
privilege
and
fees
due
to
differing
arrangements
for
distribution
and
transfer
agent
fees. 
The
following
summarizes
the Fund's
significant
accounting
policies.
a.
Financial
Instrument
Valuation
The
Fund's
investments
in
financial
instruments
are
carried
at
fair
value
daily.
Fair
value
is
the
price
that
would
be
received
to
sell
an
asset
or
paid
to
transfer
a
liability
in
an
orderly
transaction
between
market
participants
on
the
measurement
date.
The
Fund
calculates
the
net
asset
value
(NAV)
per
share
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 over-the-counter
(OTC)
market
rather
than
on
a
securities
exchange.
The
Fund's
pricing
services
use
multiple
valuation
techniques
to
determine
fair
value.
In
instances
where
sufficient
market
activity
exists,
the
pricing
services
may
utilize
a
market-based
approach
through
which
quotes
from
market
makers
are
used
to
determine
fair
value.
In
instances
where
sufficient
market
activity
may
not
exist
or
is
limited,
the
pricing
services
also
utilize
proprietary
valuation
models
which
may
consider
market
characteristics
such
as
benchmark
yield
curves,
credit
spreads,
estimated
default
rates,
anticipated
market
interest
rate
volatility,
coupon
rates,
anticipated
timing
of
principal
repayments,
underlying
collateral,
and
other
unique
security
features
in
order
to
estimate
the
relevant
cash
flows,
which
are
then
discounted
to
calculate
the
fair
value.
Derivative
financial
instruments
listed
on
an
exchange
are
valued
at
the
official
closing
price
of
the
day.
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.
b.
Derivative
Financial
Instruments
The
Fund invested
in
derivative
financial
instruments
in
order
to
manage
risk
or
gain
exposure
to
various
other
investments
or
markets.
Derivatives
are
financial
contracts
based
on
an
underlying
or
notional
amount,
require
no
initial
investment
or
an
initial
net
investment
that
is
smaller
than
would
normally
be
required
to
have
a
similar
response
to
changes
in
market
factors,
and
require
or
permit
net
settlement.
Derivatives
contain
various
risks
including
the
potential
inability
of
the
counterparty
to
fulfill
their
obligations
under
the
terms
of
the
contract,
the
potential
for
an
illiquid
secondary
market,
and/or
the
potential
for
market
movements
which
expose
the
Fund
to
gains
or
losses
in
excess
of
the
amounts
shown
in
the
Statement
of
Assets
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Financial
Statements
(unaudited)
22
franklintempleton.com
Semiannual
Report
and
Liabilities.
Realized
gain
and
loss
and
unrealized
appreciation
and
depreciation
on
these
contracts
for
the
period
are
included
in
the
Statement
of
Operations.
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.
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
in
the
Statement
of
Assets
and
Liabilities.
See
Note
7 regarding
other
derivative
information.
c.
Mortgage
Dollar
Rolls
The
Fund
enters
into
mortgage
dollar
rolls,
typically
on
a
TBA
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.
d.
Income
Taxes
It
is the Fund's
policy
to
qualify
as
a
regulated
investment
company
under
the
Internal
Revenue
Code. The Fund
intends
to
distribute
to
shareholders
substantially
all
of
its
taxable
income
and
net
realized
gains
to
relieve
it
from
federal
income
and
excise
taxes.
As
a
result,
no
provision
for
U.S.
federal
income
taxes
is
required.
The
Fund
may
recognize
an
income
tax
liability
related
to
its
uncertain
tax
positions
under
U.S.
GAAP
when
the
uncertain
tax
position
has
a
less
than
50%
probability
that
it
will
be
sustained
upon
examination
by
the
tax
authorities
based
on
its
technical
merits.
As
of
March
31,
2024, the
Fund
has
determined
that
no
tax
liability
is
required
in
its
financial
statements
related
to
uncertain
tax
positions
for
any
open
tax
years
(or
expected
to
be
taken
in
future
tax
years).
Open
tax
years
are
those
that
remain
subject
to
examination
and
are
based
on
the
statute
of
limitations
in
each
jurisdiction
in
which
the
Fund
invests.
e.
Security
Transactions,
Investment
Income,
Expenses
and
Distributions
Security
transactions
are
accounted
for
on
trade
date.
Realized
gains
and
losses
on
security
transactions
are
determined
on
a
specific
identification
basis.
Interest
income
(including
interest
income
from
payment-in-kind
securities,
if
any)
and
estimated
expenses
are
accrued
daily.
Amortization
of
premium
and
accretion
of
discount
on
debt
securities
are
included
in
interest
income.
Paydown
gains
and
losses
are
recorded
as
an
adjustment
to
interest
income.
Dividends
from
net
investment
income
are
normally
declared
daily;
these
dividends
may
be
reinvested
or
paid
monthly
to
shareholders.
Distributions
from
realized
capital
gains
and
other
distributions,
if
any,
are
recorded
on
the
ex-dividend
date.
Distributable
earnings
are
determined
according
to
income
tax
regulations
(tax
basis)
and
may
differ
from
earnings
recorded
in
accordance
with
U.S.
GAAP.
These
differences
may
be
permanent
or
temporary.
Permanent
differences
are
reclassified
among
capital
accounts
to
reflect
their
tax
character.
These
reclassifications
have
no
impact
on
net
assets
or
the
results
of
operations.
Temporary
differences
are
not
reclassified,
as
they
may
reverse
in
subsequent
periods.
Net
investment
income,
excluding
class
specific
expenses,
is
allocated
daily
to
each
class
of
shares
based
upon
the
relative
value
of
the
settled
shares
of
each
class.
Realized
and
unrealized
gains
and
losses
are
allocated
daily
to
each
1.
Organization
and
Significant
Accounting
Policies
(continued)
b.
Derivative
Financial
Instruments
(continued)
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Financial
Statements
(unaudited)
23
franklintempleton.com
Semiannual
Report
class
of
shares
based
upon
the
relative
proportion
of
net
assets
of
each
class.
Differences
in
per
share
distributions
by
class
are
generally
due
to
differences
in
class
specific
expenses.
f.
Accounting
Estimates
The
preparation
of
financial
statements
in
accordance
with
U.S.
GAAP
requires
management
to
make
estimates
and
assumptions
that
affect
the
reported
amounts
of
assets
and
liabilities
at
the
date
of
the
financial
statements
and
the
amounts
of
income
and
expenses
during
the
reporting
period.
Actual
results
could
differ
from
those
estimates.
g.
Guarantees
and
Indemnifications
Under
the Fund's
organizational
documents,
its
officers
and trustees
are
indemnified
by
the
Fund against
certain
liabilities
arising
out
of
the
performance
of
their
duties
to
the
Fund.
Additionally,
in
the
normal
course
of
business,
the
Fund
enters
into
contracts
with
service
providers
that
contain
general
indemnification
clauses.
The Fund's
maximum
exposure
under
these
arrangements
is
unknown
as
this
would
involve
future
claims
that
may
be
made
against
the Fund
that
have
not
yet
occurred.
Currently,
the Fund
expects
the
risk
of
loss
to
be
remote.
2.
Shares
of
Beneficial
Interest
At
March
31,
2024,
there
were
an
unlimited
number
of
shares
authorized
(without
par
value).
Transactions
in
the
Fund's
shares
were
as
follows:
Six
Months
Ended
March
31,
2024
Year
Ended
September
30,
2023
Shares
Amount
Shares
Amount
Class
A
Shares:
Shares
sold
a
...................................
288,241
$2,234,429
182,902
$1,435,164
Shares
issued
in
reinvestment
of
distributions
..........
22,127
169,713
43,699
340,396
Shares
redeemed
...............................
(386,879)
(2,949,622)
(515,431)
(4,008,593)
Net
increase
(decrease)
..........................
(76,511)
$(545,480)
(288,830)
$(2,233,033)
Class
A1
Shares:
Shares
sold
...................................
23,517
$178,331
72,796
$567,355
Shares
issued
in
reinvestment
of
distributions
..........
31,164
239,046
63,041
491,362
Shares
redeemed
...............................
(213,180)
(1,641,814)
(412,231)
(3,215,390)
Net
increase
(decrease)
..........................
(158,499)
$(1,224,437)
(276,394)
$(2,156,673)
Class
C
Shares:
Shares
sold
...................................
3,753
$28,901
39,860
$309,806
Shares
issued
in
reinvestment
of
distributions
..........
1,491
11,412
3,749
29,218
Shares
redeemed
a
..............................
(38,375)
(293,272)
(89,969)
(702,767)
Net
increase
(decrease)
..........................
(33,131)
$(252,959)
(46,360)
$(363,743)
Class
R6
Shares:
Shares
sold
...................................
6,055
$46,400
22,417
$176,018
Shares
issued
in
reinvestment
of
distributions
..........
629
4,815
1,229
9,566
Shares
redeemed
...............................
(8,561)
(65,546)
(20,913)
(162,416)
Net
increase
(decrease)
..........................
(1,877)
$(14,331)
2,733
$23,168
1.
Organization
and
Significant
Accounting
Policies
(continued)
e.
Security
Transactions,
Investment
Income,
Expenses
and
Distributions
(continued)
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Financial
Statements
(unaudited)
24
franklintempleton.com
Semiannual
Report
3
.
Transactions
with
Affiliates
Franklin
Resources,
Inc.
is
the
holding
company
for
various
subsidiaries
that
together
are
referred
to
as
Franklin
Templeton.
Certain
officers
and
trustees
of
the Fund are
also
officers
and/or
directors
of
the
following
subsidiaries:
a.
Management
Fees
The
Fund
pays
an
investment
management fee,
calculated
daily and
paid
monthly,
to
Advisers based
on the
average
daily
net
assets
of
the
Fund
as
follows:
For
the
period
ended
March
31,
2024,
the
annualized
gross
effective
investment
management
fee
rate
was 0.400%
of
the
Fund’s
average daily
net
assets. 
b.
Administrative
Fees
Under
an
agreement
with
Advisers,
FT
Services
provides
administrative
services
to
the
Fund.
The
fee
is
paid
by
Advisers
based
on
the
Fund's
average
daily
net
assets,
and
is
not
an
additional
expense
of
the
Fund.
c.
Distribution
Fees
The
Board
has
adopted
distribution
plans
for
Class
A
and
Class
C
shares,
pursuant
to
Rule
12b-1
under
the
1940
Act.
Under
the
Fund’s
Class
A
reimbursement
distribution
plan,
the
Fund
reimburses
Distributors
for
costs
incurred
in
connection
with
the
servicing,
sale
and
distribution
of
the
Fund's
shares
up
to
the
maximum
annual
plan
rate.
Under
the
Class
A
reimbursement
distribution
plan,
costs
exceeding
the
maximum
for
the
current
plan
year
cannot
be
reimbursed
in
subsequent
periods.
In
addition,
under
the
Fund’s
Class
C
compensation
distribution
plan,
the
Fund
pays
Distributors
for
costs
incurred
in
connection
with
the
servicing,
sale
and
distribution
of
the
Fund's
shares
up
to
the
maximum
annual
plan
rate.
The
plan
year,
for
purposes
of
monitoring
compliance
with
the
maximum
annual
plan
rates,
is
February
1
through
January
31.
Six
Months
Ended
March
31,
2024
Year
Ended
September
30,
2023
Shares
Amount
Shares
Amount
Advisor
Class
Shares:
Shares
sold
...................................
52,183
$403,377
75,627
$591,801
Shares
issued
in
reinvestment
of
distributions
..........
8,850
67,799
16,501
128,353
Shares
redeemed
...............................
(44,811)
(341,958)
(120,131)
(933,005)
Net
increase
(decrease)
..........................
16,222
$129,218
(28,003)
$(212,851)
a
May
include
a
portion
of
Class
C
shares
that
were
automatically
converted
to
Class
A.
Subsidiary
Affiliation
Franklin
Advisers,
Inc.
(Advisers)
Investment
manager
Franklin
Templeton
Services,
LLC
(FT
Services)
Administrative
manager
Franklin
Distributors,
LLC
(Distributors)
Principal
underwriter
Franklin
Templeton
Investor
Services,
LLC
(Investor
Services)
Transfer
agent
Annualized
Fee
Rate
Net
Assets
0.400%
First
$250
million
0.380%
Over
$250
million,
up
to
and
including
$500
million
0.360%
In
excess
of
$500
million
2.
Shares
of
Beneficial
Interest
(continued)
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Financial
Statements
(unaudited)
25
franklintempleton.com
Semiannual
Report
The
maximum
annual
plan
rates,
based
on
the average
daily
net
assets,
for
each
class,
are
as
follows:
d.
Sales
Charges/Underwriting
Agreements
Front-end
sales
charges
and
contingent
deferred
sales
charges
(CDSC)
do
not
represent
expenses
of
the
Fund.
These
charges
are
deducted
from
the
proceeds
of
sales
of
fund
shares
prior
to
investment
or
from
redemption
proceeds
prior
to
remittance,
as
applicable.
Distributors
has
advised
the
Fund
of
the
following
commission
transactions
related
to
the
sales
and
redemptions
of
the
Fund's
shares
for
the
period:
e.
Transfer
Agent
Fees
Each
class
of
shares pays
transfer
agent
fees,
calculated
monthly
and
paid
monthly, to
Investor
Services
for
its
performance
of
shareholder
servicing
obligations. The
fees
are based
on
a
fixed
margin
earned
by
Investor
Services
and
are allocated
to
the Fund
based
upon
relative
assets
and
relative
transactions. In
addition,
each
class reimburses
Investor
Services
for
out
of
pocket
expenses
incurred
and,
except
for
Class
R6, reimburses
shareholder
servicing
fees
paid
to
third
parties.
These
fees
paid
to
third
parties
are
accrued
and
allocated
daily
based
upon
their
relative
proportion
of
such
classes'
aggregate
net
assets.
Class
R6
pays
Investor
Services
transfer
agent
fees
allocated
specifically
to
that
class
based
upon
its
relative
assets
and
relative
transactions.
For
the
period
ended
March
31,
2024,
the Fund
paid
transfer
agent
fees
as
noted
in
the
Statement of
Operations,
of
which
$12,345
was
retained
by
Investor
Services.
f.
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.
Management
fees
paid
by
the
Fund
are
waived
on
assets
invested
in
the
affiliated
management
investment
companies,
as
noted
in
the
Statement
of
Operations,
in
an
amount
not
to
exceed
the
management
and
administrative
fees
paid
directly
or
indirectly
by
each
affiliate.
During
the
period
ended
March
31,
2024,
the
Fund
held
investments
in
affiliated
management
investment
companies
as
follows:
Class
A
....................................................................................
0.25%
Class
C
....................................................................................
0.65%
Sales
charges
retained
net
of
commissions
paid
to
unaffiliated
brokers/dealers
..............................
$144
CDSC
retained
..............................................................................
$22
    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,
4.997%
$427,588
$6,493,945
$(5,613,406)
$—
$—
$1,308,127
1,308,127
$17,555
Total
Affiliated
Securities
...
$427,588
$6,493,945
$(5,613,406)
$—
$—
$1,308,127
$17,555
3
.
Transactions
with
Affiliates
(continued)
c.
Distribution
Fees
(continued)
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Financial
Statements
(unaudited)
26
franklintempleton.com
Semiannual
Report
g.
Waiver
and
Expense
Reimbursements
Advisers
has contractually
agreed
in
advance
to
waive
or
limit
its fees
and
to
assume
as
its
own
expense
certain
expenses
otherwise
payable
by
the
Fund
so
that
the
operating expenses
(excluding
interest
expense, distribution
fees,
acquired
fund
fees
and
expenses
and
certain
non-routine
expenses
or
costs,
including
those
relating
to
litigation,
indemnification,
reorganizations,
and
liquidations)
for
each
class
of
the
Fund
does
not
exceed 0.75%
based
on
the
average
net
assets
of
each
class
until January
31,
2025.
Total
expenses
waived
or
paid
are
not
subject
to
recapture
subsequent
to
the
Fund's
fiscal
year
end.
Transfer
agent
fees
on
Class
R6
shares
of
the
Fund have
been
capped
so
that
transfer
agent
fees
for
that
class
do
not
exceed
0.03%
based
on
the
average
net
assets
of
the
class
until January 31,
2025.
4.
Income
Taxes
For
tax
purposes,
capital
losses
may
be
carried
over
to
offset
future
capital
gains.
At
September
30,
2023,
the
capital
loss
carryforwards
were
as
follows:
At
March
31,
2024,
the
cost
of
investments
and
net
unrealized
appreciation
(depreciation)
for
income
tax
purposes
were
as
follows:
Differences
between
income
and/or
capital
gains
as
determined
on
a
book
basis
and
a
tax
basis
are
primarily
due
to
differing
treatments
of
paydown
losses
and
derivative
financial
instruments.
5.
Investment
Transactions
Purchases
and
sales
of
investments (excluding
short
term
securities) for
the
period
ended
March
31,
2024,
aggregated
$7,963,719 and
$10,343,288,
respectively. 
6.
Defaulted
Securities
The
Fund held
a defaulted
security
and/or
other
securities
for
which
the
income
has
been
deemed
uncollectible.
At
March
31,
2024,
the
value
of
this
security represents less
than
0.1%
of
the
Fund's net
assets.
The
Fund
discontinues
accruing
income
on
securities
for
which
income
has
been
deemed
uncollectible
and
provides
an
estimate
for
losses
on
interest
receivable.
The
security
has
been
identified
in
the
accompanying
Schedule
of
Investments.
Capital
loss
carryforwards
not
subject
to
expiration:
Short
term
................................................................................
$4,691,531
Long
term
................................................................................
2,844,138
Total
capital
loss
carryforwards
...............................................................
$7,535,669
Cost
of
investments
..........................................................................
$33,656,091
Unrealized
appreciation
........................................................................
$300,971
Unrealized
depreciation
........................................................................
(2,903,209)
Net
unrealized
appreciation
(depreciation)
..........................................................
$(2,602,238)
3
.
Transactions
with
Affiliates
(continued)
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Financial
Statements
(unaudited)
27
franklintempleton.com
Semiannual
Report
7.
Other
Derivative
Information
At
March
31,
2024,
investments
in
derivative
contracts
are
reflected
in
the Statement of
Assets
and
Liabilities
as
follows:
For
the
period
ended
March
31,
2024,
the
effect
of
derivative
contracts
in
the Statement
of
Operations
was
as
follows:
For
the
period
ended
March
31,
2024,
the
average
month
end
notional
amount
of
futures
contracts
represented
$5,258,013.
See
Note
1(b) regarding
derivative
financial
instruments. 
8.
Credit
Facility
The
Fund,
together
with
other
U.S.
registered
and
foreign
investment
funds
(collectively,
Borrowers),
managed
by
Franklin
Templeton,
are
borrowers
in
a
joint
syndicated
senior
unsecured
credit
facility
totaling
$2.675
billion
(Global
Credit
Facility)
which
matures
on
January
31,
2025.
This
Global
Credit
Facility
provides
a
source
of
funds
to
the
Borrowers
for
temporary
and
emergency
purposes,
including
the
ability
to
meet
future
unanticipated
or
unusually
large
redemption
requests.
Under
the
terms
of
the
Global
Credit
Facility,
the
Fund
shall,
in
addition
to
interest
charged
on
any
borrowings
made
by
the
Fund
and
other
costs
incurred
by
the
Fund,
pay
its
share
of
fees
and
expenses
incurred
in
connection
with
the
implementation
and
maintenance
of
the
Global
Credit
Facility,
based
upon
its
relative
share
of
the
aggregate
net
assets
of
all
of
the
Borrowers,
including
an
annual
commitment
fee
of
0.15%
based
upon
the
unused
portion
of
the
Global
Credit
Facility.
These
fees
are
reflected
in
other
expenses
in
the
Statement
of
Operations.
During
the
period
ended
March
31,
2024,
the Fund
did
not
use
the
Global
Credit
Facility.
Asset
Derivatives
Liability
Derivatives
Derivative
Contracts
Not
Accounted
for
as
Hedging
Instruments
Statement
of
Assets
and
Liabilities
Location
Fair
Value
Statement
of
Assets
and
Liabilities
Location
Fair
Value
Franklin
Strategic
Mortgage
Portfolio
Interest
rate
contracts
.......
Variation
margin
on
futures
contracts
$
30,955
a
Variation
margin
on
futures
contracts
$
2,937
a
Total
....................
$30,955
$2,937
a
This
amount
reflects
the
cumulative
appreciation
(depreciation)
of
futures
contracts
as
reported
in
the
Schedule
of
Investments.
Only
the
variation
margin
receivable/payable
at
period
end
is
separately
reported
within
the
Statement
of
Assets
and
Liabilities.
Prior
variation
margin
movements
were
recorded
to
cash
upon
receipt
or
payment.
Derivative
Contracts
Not
Accounted
for
as
Hedging
Instruments
Statement
of
Operations
Location
Net
Realized
Gain
(Loss)
for
the
Period
Statement
of
Operations
Location
Net
Change
in
Unrealized
Appreciation
(Depreciation)
for
the
Period
Franklin
Strategic
Mortgage
Portfolio
Net
realized
gain
(loss)
from:
Net
change
in
unrealized
  appreciation
(depreciation)
on:
Interest
rate
contracts
..........
Futures
contracts
$(3,013)
Futures
contracts
$105,989
Total
.......................
$(3,013)
$105,989
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Financial
Statements
(unaudited)
28
franklintempleton.com
Semiannual
Report
9.
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
March
31,
2024,
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.
10.
Subsequent
Events
The
Fund
has
evaluated
subsequent
events
through
the
issuance
of
the financial
statements
and
determined
that
no
events
have
occurred
that
require
disclosure.
Level
1
Level
2
Level
3
Total
Franklin
Strategic
Mortgage
Portfolio
Assets:
Investments
in
Securities:
a
Corporate
Bonds
........................
$
—
$
96,421
$
—
$
96,421
Asset-Backed
Securities
...................
—
1,063,575
—
1,063,575
Commercial
Mortgage-Backed
Securities
......
—
1,564,626
—
1,564,626
Mortgage-Backed
Securities
................
—
23,597,730
—
23,597,730
Residential
Mortgage-Backed
Securities
.......
—
3,395,356
—
3,395,356
Short
Term
Investments
...................
1,308,127
—
—
1,308,127
Total
Investments
in
Securities
...........
$1,308,127
$29,717,708
$—
$31,025,835
Other
Financial
Instruments:
Futures
contracts
........................
$30,955
$—
$—
$30,955
Total
Other
Financial
Instruments
.........
$30,955
$—
$—
$30,955
Liabilities:
Other
Financial
Instruments:
Futures
contracts
........................
$2,937
$—
$—
$2,937
Total
Other
Financial
Instruments
.........
$2,937
$—
$—
$2,937
Franklin
Strategic
Mortgage
Portfolio
Notes
to
Financial
Statements
(unaudited)
29
franklintempleton.com
Semiannual
Report
Abbreviations
Cu
r
rency
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
Rates
MBS
Mortgage-Backed
Security
REIT
Real
Estate
Investment
Trust
REMIC
Real
Estate
Mortgage
Investment
Conduit
SOFR
Secured
Overnight
Financing
Rate
STACR
Structured
Agency
Credit
Risk
T-Note
Treasury
Note
Franklin
Strategic
Mortgage
Portfolio
Shareholder
Information
30
franklintempleton.com
Semiannual
Report
Proxy
Voting
Policies
and
Procedures
The
Fund’s
investment
manager
has
established
Proxy
Voting
Policies
and
Procedures
(Policies)
that
the
Fund
uses
to
determine
how
to
vote
proxies
relating
to
portfolio
securities.
Shareholders
may
view
the
Fund’s
complete
Policies
online
at
franklintempleton.com.
Alternatively,
shareholders
may
request
copies
of
the
Policies
free
of
charge
by
calling
the
Proxy
Group
collect
at
(954)
527-
7678
or
by
sending
a
written
request
to:
Franklin
Templeton
Companies,
LLC,
300
S.E.
2nd
Street,
Fort
Lauderdale,
FL
33301,
Attention:
Proxy
Group.
Copies
of
the
Fund’s
proxy
voting
records
are
also
made
available
online
at
franklintempleton.com
and
posted
on
the
U.S.
Securities
and
Exchange
Commission’s
website
at
sec.gov
and
reflect
the
most
recent
12-month
period
ended
June
30.
Quarterly
Schedule
of
Investments
The
Fund
files
a
complete
schedule
of
investments
with
the
U.S.
Securities
and
Exchange
Commission
for
the
first
and
third
quarters
for
each
fiscal
year
as
an
exhibit
to
its
report
on
Form
N-PORT.
Shareholders
may
view
the
filed
Form
N-PORT
by
visiting
the
Commission’s
website
at
sec.
gov.
The
filed
form
may
also
be
viewed
and
copied
at
the
Commission’s
Public
Reference
Room
in
Washington,
DC.
Information
regarding
the
operations
of
the
Public
Reference
Room
may
be
obtained
by
calling
(800)
SEC-0330.
Householding
of
Reports
and
Prospectuses
You
will
receive,
or
receive
notice
of
the
availability
of,
the
Fund’s
financial
reports
every
six
months.
In
addition,
you
will
receive
an
annual
updated
summary
prospectus
(detail
prospectus
available
upon
request).
To
reduce
Fund
expenses,
we
try
to
identify
related
shareholders
in
a
household
and
send
only
one
copy
of
the
financial
reports
(to
the
extent
received
by
mail)
and
summary
prospectus.
This
process,
called
“householding,”
will
continue
indefinitely
unless
you
instruct
us
otherwise.
If
you
prefer
not
to
have
these
documents
householded,
please
call
us
at
(800)
632-2301.
At
any
time
you
may
view
current
prospectuses/
summary
prospectuses
and
financial
reports
on
our
website.
If
you
choose,
you
may
receive
these
documents
through
electronic
delivery.
357
S
05/24
©
2024
Franklin
Templeton
Investments.
All
rights
reserved.
Authorized
for
distribution
only
when
accompanied
or
preceded
by
a
summary
prospectus
and/or
prospectus.
Investors
should
carefully
consider
a
fund’s
investment
goals,
risks,
charges
and
expenses
before
investing.
A
prospectus
contains
this
and
other
information;
please
read
it
carefully
before
investing.
To
help
ensure
we
provide
you
with
quality
service,
all
calls
to
and
from
our
service
areas
are
monitored
and/or
recorded.
Semiannual
Report
Franklin
Strategic
Mortgage
Portfolio
Investment
Manager
Distributor
Shareholder
Services
Franklin
Advisers,
Inc.
Franklin
Distributors,
LLC
(800)
DIAL
BEN
®
/
342-5236
franklintempleton.com
(800)
632-2301
Item 2. Code of Ethics.
 
(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer. 
 
(c) N/A
 
(d) N/A
 
(f) Pursuant to Item 13(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.
 
 
Item 3. Audit Committee Financial Expert.
 
(a)(1) The Registrant has an audit committee financial expert serving on its audit committee.
 
(2) The audit committee financial expert is Mary C. Choksi and she is "independent" as defined under the relevant Securities and Exchange Commission Rules and Releases.
 
 
Item 4.
Principal Accountant Fees and Services.
                                            
N/A
 
 
Item 5. Audit Committee
 
of Listed Registrants.                   N/A
 
 
Item 6. Schedule of Investments.                                  N/A
 
 
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.                    N/A
 
 
Item 8. Portfolio Managers of Closed-End Management Investment Companies.                                              N/A
 
 
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and
Affiliated Purchasers.             N/A
 
 
Item 10. Submission of Matters to a Vote of Security Holders.
 
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein.
 
 
Item 11. Controls and Procedures.
 
(a) Evaluation of Disclosure Controls and Procedures
. The Registrant maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.

(b) Changes in Internal Controls
. There have been no changes in the Registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected or is reasonably likely to materially affect the internal control over financial reporting.


Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Company.                 N/A
 
 
Item 13. Recovery of Erroneously Awarded Compensation.
 
(a) N/A


(b) N/A
 
 
Item 14. Exhibits.
 
(a)(1) Code of Ethics
 
 
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Christopher Kings, Chief Executive Officer - Finance and Administration, and Jeffrey White, Chief Financial Officer, Chief Accounting Officer and Treasurer
 
 
(a)(2)(1) There were no written solicitations to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the Registrant to 10 or more persons.
 
(a)(2)(2) There was no change in the Registrant’s independent public accountant during the period covered by the report.
 
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Christopher Kings, Chief Executive Officer - Finance and Administration, and Jeffrey White, Chief Financial Officer, Chief Accounting Officer and Treasurer
 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
 
 
 
By S\CHRISTOPHER KINGS _________________
Christopher Kings
      Chief Executive Officer - Finance and Administration
Date  May 28, 2024


Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
 
By S\CHRISTOPHER KINGS _________________
Christopher Kings
      Chief Executive Officer - Finance and Administration
Date  May 28, 2024
 
 
By S\JEFFREY WHITE______________________
      Jeffrey White
      Chief Financial Officer, Chief Accounting Officer and Treasurer
Date  May 28, 2024