Not

FDIC

Insured

May

Lose

Value

No

Bank

Guarantee

357-Q3PH

1

Schedule

of

Investments

(unaudited)

Franklin

Strategic

Mortgage

Portfolio

2

Notes

to

Schedule

of

Investments

7

Franklin

Strategic

Mortgage

Portfolio

Schedule

of

Investments

(unaudited),

June

30,

2023

Quarterly

Schedule

of

Investments

See

Notes

to

Schedule

of

Investments.

2

a

a

Principal

Amount

a

Value

a

a

a

a

a

Corporate

Bonds

0.3%

Insurance

0.0%

†

a,b

Ambac

Assurance

Corp.

,

Sub.

Bond

,

144A,

5.1

%

,

Perpetual

...................

$

237

$

345

Residential

REITs

0.3%

American

Homes

4

Rent

LP

,

Senior

Bond

,

4.25

%

,

2/15/28

.....................

100,000

94,223

Total

Corporate

Bonds

(Cost

$99,949)

.........................................

94,568

Asset-Backed

Securities

3.1%

Financial

Services

3.1%

b

American

Homes

4

Rent

Trust

,

2015-SFR1

,

A

,

144A,

3.467

%

,

4/17/52

...........

136,085

130,228

b,c

Anthracite

Ltd.

,

2004-HY1A

,

E

,

144A,

7.147

%

,

6/20/41

.......................

1,598,000

24

b

CF

Hippolyta

Issuer

LLC

,

2020-1,

A1,

144A,

1.69%,

7/15/60

.....................................

107,934

96,969

2021-1A,

A1,

144A,

1.53%,

3/15/61

....................................

94,245

81,777

d

Conseco

Finance

Securitizations

Corp.

,

2002-2

,

M1

,

FRN

,

7.424

%

,

3/01/33

.......

39,175

39,005

e

CWABS,

Inc.

,

2004-1

,

M1

,

FRN

,

5.9

%

,

(

1-month

USD

LIBOR

+

0.75

%

),

3/25/34

....

10,525

10,252

b

FirstKey

Homes

Trust

,

2020-SFR2

,

A

,

144A,

1.266

%

,

10/19/37

.................

147,773

132,750

b

Home

Partners

of

America

Trust

,

2021-2,

B,

144A,

2.302%,

12/17/26

....................................

163,947

144,716

2021-3,

B,

144A,

2.649%,

1/17/41

.....................................

55,461

47,661

b,e

Invitation

Homes

Trust

,

2018-SFR4

,

A

,

144A,

FRN

,

6.246

%

,

(

1-month

USD

LIBOR

+

1.1

%

),

1/17/38

....................................................

169,345

169,298

b

New

Economy

Assets

Phase

1

Sponsor

LLC

,

2021-1

,

A1

,

144A,

1.91

%

,

10/20/61

...

270,000

230,417

1,083,097

a

a

a

a

a

Total

Asset-Backed

Securities

(Cost

$1,240,328)

................................

1,083,097

Commercial

Mortgage-Backed

Securities

4.9%

Financial

Services

4.9%

BANK

,

2021-BN34,

A5,

2.438%,

6/15/63

......................................

125,000

99,862

2021-BN33,

A5,

2.556%,

5/15/64

......................................

90,000

74,252

b,e

BLP

Commercial

Mortgage

Trust

,

2023-IND

,

A

,

144A,

FRN

,

6.839

%

,

(

1-month

SOFR

+

1.692

%

),

3/15/40

..................................................

100,000

98,709

b,e

BX

Commercial

Mortgage

Trust

,

2021-VOLT,

A,

144A,

FRN,

5.893%,

(1-month

USD

LIBOR

+

0.7%),

9/15/36

......

100,000

96,888

2022-LP2,

A,

144A,

FRN,

6.16%,

(1-month

SOFR

+

1.013%),

2/15/39

..........

83,555

81,124

b,e

BX

Mortgage

Trust

,

2021-PAC

,

A

,

144A,

FRN

,

5.883

%

,

(

1-month

USD

LIBOR

+

0.689

%

),

10/15/36

.................................................

200,000

194,222

b

BX

Trust

,

2022-CLS,

A,

144A,

5.76%,

10/13/27

...................................

200,000

193,001

e

2022-IND,

A,

144A,

FRN,

6.638%,

(1-month

SOFR

+

1.491%),

4/15/37

.........

155,658

153,523

b,e

Cold

Storage

Trust

,

2020-ICE5

,

A

,

144A,

FRN

,

6.093

%

,

(

1-month

USD

LIBOR

+

0.9

%

),

11/15/37

........................................................

324,387

319,173

d

Commercial

Mortgage

Trust

,

2006-GG7

,

AJ

,

FRN

,

6.214

%

,

7/10/38

..............

39,434

24,390

b,e

DBCG

Mortgage

Trust

,

2017-BBG

,

A

,

144A,

FRN

,

5.893

%

,

(

1-month

USD

LIBOR

+

0.7

%

),

6/15/34

....................................................

240,000

237,011

e

FNMA

,

2007-1

,

NF

,

FRN

,

5.4

%

,

(

1-month

USD

LIBOR

+

0.25

%

),

2/25/37

.........

26,665

26,305

b,e

GS

Mortgage

Securities

Corp.

Trust

,

2022-SHIP

,

A

,

144A,

FRN

,

5.878

%

,

(

1-month

SOFR

+

0.731

%

),

8/15/36

...........................................

100,000

99,361

1,697,821

a

a

a

a

a

Total

Commercial

Mortgage-Backed

Securities

(Cost

$1,764,543)

.................

1,697,821

Franklin

Strategic

Mortgage

Portfolio

Schedule

of

Investments

(unaudited)

See

Notes

to

Schedule

of

Investments.

Quarterly

Schedule

of

Investments

3

a

a

Principal

Amount

a

Value

a

a

a

a

a

Mortgage-Backed

Securities

77.9%

Federal

Home

Loan

Mortgage

Corp.

(FHLMC)

Fixed

Rate

36.1%

FHLMC

Gold

Pool,

30

Year,

4.5%,

4/01/40

................................

$

165,652

$

163,877

FHLMC

Gold

Pool,

30

Year,

4.5%,

1/01/49

................................

298,331

293,018

FHLMC

Gold

Pool,

30

Year,

5%,

10/01/33

-

2/01/39

..........................

110,096

110,911

FHLMC

Gold

Pool,

30

Year,

5.5%,

9/01/33

................................

12,060

12,193

FHLMC

Gold

Pool,

30

Year,

6%,

12/01/32

-

11/01/36

.........................

36,803

37,494

FHLMC

Gold

Pool,

30

Year,

6.5%,

11/01/27

-

7/01/32

........................

14,183

14,511

FHLMC

Gold

Pool,

30

Year,

7.5%,

1/01/26

-

3/01/32

.........................

45,444

45,449

FHLMC

Gold

Pool,

30

Year,

8%,

7/01/24

-

5/01/30

...........................

61,214

61,399

FHLMC

Gold

Pool,

30

Year,

9%,

9/01/30

..................................

2,291

2,288

FHLMC

Pool,

15

Year,

2%,

4/01/37

......................................

1,126,960

1,000,046

FHLMC

Pool,

15

Year,

4%,

11/01/37

.....................................

447,689

432,668

FHLMC

Pool,

30

Year,

2%,

2/01/52

......................................

2,058,913

1,681,413

FHLMC

Pool,

30

Year,

2%,

3/01/52

......................................

2,472,763

2,021,633

FHLMC

Pool,

30

Year,

2%,

4/01/52

......................................

277,436

226,606

FHLMC

Pool,

30

Year,

2.5%,

11/01/51

....................................

821,312

698,337

FHLMC

Pool,

30

Year,

2.5%,

12/01/51

....................................

1,112,782

945,930

FHLMC

Pool,

30

Year,

2.5%,

2/01/52

.....................................

1,154,466

981,276

FHLMC

Pool,

30

Year,

2.5%,

4/01/52

.....................................

1,171,200

994,526

FHLMC

Pool,

30

Year,

2.5%,

5/01/52

.....................................

1,003,602

852,209

FHLMC

Pool,

30

Year,

3%,

5/01/50

......................................

764,837

684,276

FHLMC

Pool,

30

Year,

3.5%,

7/01/49

.....................................

834,435

775,333

FHLMC

Pool,

30

Year,

4%,

5/01/50

......................................

68,204

65,161

FHLMC

Pool,

30

Year,

4.5%,

10/01/48

....................................

464,178

455,916

12,556,470

f

Federal

National

Mortgage

Association

(FNMA)

Adjustable

Rate

0.9%

FNMA,

2.375%

-

2.555%,

(3-year

CMT

T-Note

+/-

MBS

Margin),

12/01/24

-

5/01/30

..

30,718

29,924

FNMA,

4.2%

-

5.7%,

(1-year

CMT

T-Note

+/-

MBS

Margin),

12/01/23

-

7/01/38

.....

121,875

119,754

FNMA,

3.867%

-

5.864%,

(12-month

USD

LIBOR

+/-

MBS

Margin),

9/01/33

-

4/01/37

140,554

137,381

FNMA,

5.832%

-

6.93%,

(6-month

USD

LIBOR

+/-

MBS

Margin),

4/01/31

-

4/01/37

..

16,407

16,533

303,592

Federal

National

Mortgage

Association

(FNMA)

Fixed

Rate

35.5%

FNMA,

3.5%,

7/01/56

................................................

501,201

459,889

FNMA,

30

Year,

1.5%,

10/01/51

.........................................

342,593

265,270

FNMA,

30

Year,

2%,

5/01/51

...........................................

415,073

340,111

FNMA,

30

Year,

2%,

11/01/51

..........................................

505,476

413,333

FNMA,

30

Year,

2%,

1/01/52

...........................................

1,175,663

960,715

FNMA,

30

Year,

2.5%,

4/01/52

.........................................

1,173,388

996,384

FNMA,

30

Year,

3%,

10/01/46

..........................................

1,067,659

956,495

FNMA,

30

Year,

3%,

11/01/48

..........................................

1,338,142

1,194,501

FNMA,

30

Year,

3%,

9/01/49

...........................................

244,852

218,069

FNMA,

30

Year,

3%,

9/01/49

...........................................

243,108

217,519

FNMA,

30

Year,

3%,

9/01/50

...........................................

461,888

410,417

FNMA,

30

Year,

3.5%,

6/01/49

.........................................

189,966

175,456

FNMA,

30

Year,

3.5%,

8/01/49

.........................................

925,716

858,041

FNMA,

30

Year,

3.5%,

9/01/49

.........................................

836,615

771,979

FNMA,

30

Year,

3.5%,

2/01/50

.........................................

198,224

183,604

FNMA,

30

Year,

3.5%,

4/01/50

.........................................

324,519

300,254

FNMA,

30

Year,

4%,

11/01/45

..........................................

1,670,001

1,598,793

FNMA,

30

Year,

4%,

10/01/52

..........................................

386,736

363,259

FNMA,

30

Year,

4.5%,

11/01/47

.........................................

391,338

385,766

FNMA,

30

Year,

5%,

4/01/34

...........................................

49,330

48,880

FNMA,

30

Year,

5.5%,

9/01/33

-

11/01/35

.................................

339,726

340,637

FNMA,

30

Year,

5.5%,

5/01/53

.........................................

355,312

353,806

FNMA,

30

Year,

6%,

12/01/23

-

8/01/35

...................................

371,173

377,091

FNMA,

30

Year,

6.5%,

12/01/27

-

8/01/32

.................................

144,452

147,940

Franklin

Strategic

Mortgage

Portfolio

Schedule

of

Investments

(unaudited)

Quarterly

Schedule

of

Investments

See

Notes

to

Schedule

of

Investments.

4

a

a

Principal

Amount

a

Value

a

a

a

a

a

Mortgage-Backed

Securities

(continued)

Federal

National

Mortgage

Association

(FNMA)

Fixed

Rate

(continued)

FNMA,

30

Year,

7.5%,

8/01/25

-

5/01/32

..................................

$

4,055

$

4,106

FNMA,

30

Year,

8%,

1/01/25

-

7/01/31

....................................

8,027

8,051

FNMA,

30

Year,

9%,

8/01/24

-

4/01/25

....................................

149

150

FNMA,

30

Year,

9.5%,

11/01/29

-

4/01/30

.................................

15,233

15,200

12,365,716

Government

National

Mortgage

Association

(GNMA)

Fixed

Rate

5.4%

GNMA

I,

30

Year,

7%,

11/15/29

.........................................

1,083

1,116

GNMA

I,

30

Year,

8%,

11/15/25

-

12/15/26

.................................

1,581

1,585

GNMA

I,

Single-family,

30

Year,

6.5%,

6/15/28

-

9/15/32

......................

46,158

47,094

GNMA

I,

Single-family,

30

Year,

7%,

1/15/26

-

2/15/32

........................

5,567

5,543

GNMA

I,

Single-family,

30

Year,

7.5%,

10/15/23

-

5/15/28

......................

8,633

8,636

GNMA

I,

Single-family,

30

Year,

8%,

9/15/27

...............................

587

586

GNMA

I,

Single-family,

30

Year,

8.5%,

7/15/24

..............................

9

9

GNMA

II,

Single-family,

30

Year,

2%,

1/20/52

...............................

882,214

742,318

GNMA

II,

Single-family,

30

Year,

2.5%,

10/20/51

............................

1,146,526

994,396

GNMA

II,

Single-family,

30

Year,

6.5%,

1/20/26

-

1/20/33

......................

50,561

51,643

GNMA

II,

Single-family,

30

Year,

7.5%,

10/20/23

-

7/20/32

.....................

27,293

28,025

GNMA

II,

Single-family,

30

Year,

8%,

8/20/26

...............................

23

23

GNMA

II,

Single-family,

30

Year,

9%,

9/20/24

-

3/20/25

.......................

73

73

1,881,047

Total

Mortgage-Backed

Securities

(Cost

$30,173,862)

............................

27,106,825

Residential

Mortgage-Backed

Securities

11.6%

Capital

Markets

0.1%

e

Merrill

Lynch

Mortgage

Investors

Trust

,

2003-A

,

1A

,

FRN

,

5.89

%

,

(

1-month

USD

LIBOR

+

0.74

%

),

3/25/28

............................................

25,384

23,716

Financial

Services

11.5%

e

American

Home

Mortgage

Investment

Trust

,

2005-1

,

6A

,

FRN

,

7.504

%

,

(

6-month

USD

LIBOR

+

2

%

),

6/25/45

..............................................

17,717

17,585

b

BRAVO

Residential

Funding

Trust

,

2019-1,

A1C,

144A,

3.5%,

3/25/58

.....................................

12,624

12,346

d

2019-2,

A3,

144A,

FRN,

3.5%,

10/25/44

.................................

45,974

43,050

b

CIM

Trust

,

d

2019-INV1,

A1,

144A,

FRN,

4%,

2/25/49

................................

11,090

10,385

e

2019-INV2,

A11,

144A,

FRN,

6.088%,

(1-month

USD

LIBOR

+

0.95%),

5/25/49

...

42,530

41,158

d

2019-INV2,

A3,

144A,

FRN,

4%,

5/25/49

................................

26,794

24,803

d

2018-INV1,

A4,

144A,

FRN,

4%,

8/25/48

................................

16,128

14,923

b,d

Citigroup

Mortgage

Loan

Trust

,

2013-A

,

A

,

144A,

FRN

,

3

%

,

5/25/42

.............

4,557

4,348

b,d

COLT

Mortgage

Loan

Trust

,

2022-4

,

A1

,

144A,

FRN

,

4.301

%

,

3/25/67

............

88,289

84,181

b,e

Connecticut

Avenue

Securities

Trust

,

2019-R02,

1M2,

144A,

FRN,

7.45%,

(1-month

USD

LIBOR

+

2.3%),

8/25/31

.....

4,092

4,092

2019-R03,

1M2,

144A,

FRN,

7.3%,

(1-month

USD

LIBOR

+

2.15%),

9/25/31

.....

6,421

6,429

b,d

CSMC

Trust

,

2014-OAK1

,

1A1

,

144A,

FRN

,

3

%

,

11/25/29

.....................

23,840

22,368

e

FHLMC

STACR

Debt

Notes

,

2016-DNA2,

M3,

FRN,

9.8%,

(1-month

USD

LIBOR

+

4.65%),

10/25/28

.........

81,870

85,811

2016-HQA2,

M3,

FRN,

10.3%,

(1-month

USD

LIBOR

+

5.15%),

11/25/28

........

94,468

100,778

b,e

FHLMC

STACR

REMIC

Trust

,

2022-DNA1,

M1A,

144A,

FRN,

6.067%,

(30-day

SOFR

Average

+

1%),

1/25/42

...

225,421

221,608

2022-DNA3,

M1A,

144A,

FRN,

7.067%,

(30-day

SOFR

Average

+

2%),

4/25/42

...

59,832

60,025

2020-DNA1,

M2,

144A,

FRN,

6.85%,

(1-month

USD

LIBOR

+

1.7%),

1/25/50

.....

37,032

37,045

Franklin

Strategic

Mortgage

Portfolio

Schedule

of

Investments

(unaudited)

See

Notes

to

Schedule

of

Investments.

Quarterly

Schedule

of

Investments

5

a

a

Principal

Amount

a

Value

a

a

a

a

a

Residential

Mortgage-Backed

Securities

(continued)

Financial

Services

(continued)

b,e

FHLMC

STACR

Trust

,

2019-DNA4

,

M2

,

144A,

FRN

,

7.1

%

,

(

1-month

USD

LIBOR

+

1.95

%

),

10/25/49

..................................................

$

25,648

$

25,683

b,d

Flagstar

Mortgage

Trust

,

2021-4,

A5,

144A,

FRN,

2.5%,

6/01/51

..................................

164,968

140,264

2021-2,

A6,

144A,

FRN,

2.5%,

4/25/51

..................................

185,396

158,930

e

FNMA

Connecticut

Avenue

Securities

,

2015-C01,

1M2,

FRN,

9.45%,

(1-month

USD

LIBOR

+

4.3%),

2/25/25

..........

57,363

59,328

2016-C01,

1M2,

FRN,

11.9%,

(1-month

USD

LIBOR

+

6.75%),

8/25/28

.........

106,730

114,254

2016-C03,

1M2,

FRN,

10.45%,

(1-month

USD

LIBOR

+

5.3%),

10/25/28

........

117,515

125,023

2014-C02,

2M2,

FRN,

7.75%,

(1-month

USD

LIBOR

+

2.6%),

5/25/24

..........

54,582

55,076

2014-C03,

2M2,

FRN,

8.05%,

(1-month

USD

LIBOR

+

2.9%),

7/25/24

..........

21,766

21,990

2013-C01,

M2,

FRN,

10.4%,

(1-month

USD

LIBOR

+

5.25%),

10/25/23

.........

67,309

68,075

2014-C01,

M2,

FRN,

9.55%,

(1-month

USD

LIBOR

+

4.4%),

1/25/24

...........

73,176

74,473

b,d

GS

Mortgage-Backed

Securities

Trust

,

2021-PJ6

,

A8

,

144A,

FRN

,

2.5

%

,

11/25/51

...

200,166

170,700

b,d

J.P.

Morgan

Mortgage

Trust

,

2013-3,

A3,

144A,

FRN,

3.352%,

7/25/43

................................

51,001

45,858

2021-6,

A4,

144A,

FRN,

2.5%,

10/25/51

.................................

253,436

218,601

2021-13,

A4,

144A,

FRN,

2.5%,

4/25/52

.................................

169,892

146,310

2021-15,

A4,

144A,

FRN,

2.5%,

6/25/52

.................................

50,591

43,369

2022-1,

A4,

144A,

FRN,

2.5%,

7/25/52

..................................

264,166

225,572

b,d

Mill

City

Mortgage

Loan

Trust

,

2018-2,

A1,

144A,

FRN,

3.5%,

5/25/58

..................................

29,219

28,464

2018-1,

A1,

144A,

FRN,

3.25%,

5/25/62

.................................

28,190

27,112

2018-4,

A1B,

144A,

FRN,

3.5%,

4/25/66

.................................

78,596

74,879

b

OBX

Trust

,

e

2018-1,

A2,

144A,

FRN,

5.8%,

(1-month

USD

LIBOR

+

0.65%),

6/25/57

.........

28,267

26,812

d

2021-J1,

A4,

144A,

FRN,

2.5%,

5/25/51

.................................

158,124

136,531

d

2021-J3,

A4,

144A,

FRN,

2.5%,

10/25/51

................................

78,866

67,688

b,d

Provident

Funding

Associates

LLP

,

2021-J1

,

A3

,

144A,

FRN

,

2.5

%

,

2/20/49

........

125,952

107,972

b,d

PSMC

Trust

,

2021-3

,

A3

,

144A,

FRN

,

2.5

%

,

8/25/51

.........................

228,354

197,388

b,d

Sequoia

Mortgage

Trust

,

2021-1,

A1,

144A,

FRN,

2.5%,

3/25/51

..................................

158,236

128,172

2021-6,

A4,

144A,

FRN,

2.5%,

10/25/51

.................................

215,399

183,941

b

Towd

Point

Mortgage

Trust

,

d

2016-5,

A1,

144A,

FRN,

2.5%,

10/25/56

.................................

24,679

24,323

d

2017-1,

A1,

144A,

FRN,

2.75%,

10/25/56

................................

16,678

16,455

e

2017-5,

A1,

144A,

FRN,

4.604%,

(1-month

USD

LIBOR

+

0.6%),

2/25/57

........

11,857

11,846

d

2017-2,

A1,

144A,

FRN,

2.75%,

4/25/57

.................................

3,914

3,874

d

2017-4,

A1,

144A,

FRN,

2.75%,

6/25/57

.................................

79,000

74,532

d

2018-1,

A1,

144A,

FRN,

3%,

1/25/58

...................................

18,089

17,385

d

2018-2,

A1,

144A,

FRN,

3.25%,

3/25/58

.................................

47,628

45,423

d

2019-1,

A1,

144A,

FRN,

3.75%,

3/25/58

.................................

109,739

103,193

d

2018-6,

A1A,

144A,

FRN,

3.75%,

3/25/58

................................

30,796

29,830

d

2017-1,

A2,

144A,

FRN,

3.5%,

10/25/56

.................................

165,000

158,665

Virginia

Housing

Development

Authority

,

2020-A

,

A

,

2.85

%

,

12/25/49

.............

50,758

44,193

3,993,119

a

a

a

a

a

Total

Residential

Mortgage-Backed

Securities

(Cost

$4,468,166)

..................

4,016,835

Total

Long

Term

Investments

(Cost

$37,746,848)

................................

33,999,146

a

a

a

a

a

Franklin

Strategic

Mortgage

Portfolio

Schedule

of

Investments

(unaudited)

Quarterly

Schedule

of

Investments

See

Notes

to

Schedule

of

Investments.

6

At

June

30,

2023,

the

Fund

had

the

following futures

contracts

outstanding.

See

A

bbreviations

on

page

9

.

Short

Term

Investments

2.0%

a

a

Shares

a

Value

a

Money

Market

Funds

2.0%

g,h

Institutional

Fiduciary

Trust

-

Money

Market

Portfolio,

4.699%

..................

705,156

$

705,156

Total

Money

Market

Funds

(Cost

$705,156)

.....................................

705,156

Total

Short

Term

Investments

(Cost

$705,156

)

..................................

705,156

a

Total

Investments

(Cost

$38,452,004)

99.8%

....................................

$34,704,302

Other

Assets,

less

Liabilities

0.2%

.............................................

76,243

Net

Assets

100.0%

...........................................................

$34,780,545

†

Rounds

to

less

than

0.1%

of

net

assets.

a

Perpetual

security

with

no

stated

maturity

date.

b

Security

was

purchased

pursuant

to

Rule

144A

or

Regulation

S

under

the

Securities

Act

of

1933.

144A

securities

may

be

sold

in

transactions

exempt

from

registration

only

to

qualified

institutional

buyers

or

in

a

public

offering

registered

under

the

Securities

Act

of

1933.

Regulation

S

securities

cannot

be

sold

in

the

United

States

without

either

an

effective

registration

statement

filed

pursuant

to

the

Securities

Act

of

1933,

or

pursuant

to

an

exemption

from

registration.

At

June

30,

2023,

the

aggregate

value

of

these

securities

was

$5,733,730,

representing

16.5%

of

net

assets.

c

Defaulted

security

or

security

for

which

income

has

been

deemed

uncollectible.

d

Adjustable

rate

security

with

an

interest

rate

that

is

not

based

on

a

published

reference

index

and

spread.

The

rate

is

based

on

the

structure

of

the

agreement

and

current

market

conditions.

The

coupon

rate

shown

represents

the

rate

at

period

end.

e

The

coupon

rate

shown

represents

the

rate

inclusive

of

any

caps

or

floors,

if

applicable,

in

effect

at

period

end.

f

Adjustable

Rate

Mortgage-Backed

Security

(ARM);

the

rate

shown

is

the

effective

rate

at

period

end.

ARM

rates

are

not

based

on

a

published

reference

rate

and

spread,

but

instead

pass-through

weighted

average

interest

income

inclusive

of

any

caps

or

floors,

if

applicable,

from

the

underlying

mortgage

loans

in

which

the

majority

of

mortgages

pay

interest

based

on

the

index

shown

at

their

designated

reset

dates

plus

a

spread,

less

the

applicable

servicing

and

guaranty

fee

(MBS

margin).

g

See

Note

3

regarding

investments

in

affiliated

management

investment

companies.

h

The

rate

shown

is

the

annualized

seven-day

effective

yield

at

period

end.

Futures

Contracts

Description

Type

Number

of

Contracts

Notional

Amount

*

Expiration

Date

Value/

Unrealized

Appreciation

(Depreciation)

Interest

rate

contracts

U.S.

Treasury

10

Year

Notes

....................

Short

10

$

1,122,656

9/20/23

$

13,892

U.S.

Treasury

10

Year

Ultra

Notes

................

Long

11

1,302,812

9/20/23

(12,992)

U.S.

Treasury

5

Year

Notes

.....................

Long

19

2,034,781

9/29/23

(40,399)

U.S.

Treasury

Long

Bonds

.....................

Long

8

1,015,250

9/20/23

738

Total

Futures

Contracts

......................................................................

$(38,761)

*

As

of

period

end.

Franklin

Strategic

Mortgage

Portfolio

7

Quarterly

Schedule

of

Investments

Notes

to

Schedule

of

Investments

(unaudited)

1.

Organization

Franklin

Strategic

Mortgage

Portfolio (Trust)

is

registered

under

the

Investment

Company

Act

of

1940

(1940

Act)

as

an

open-

end

management

investment

company,

consisting

of

one

fund,

Franklin

Strategic

Mortgage

Portfolio

(Fund).

The

Trust

follows

the

accounting

and

reporting

guidance

in

Financial

Accounting

Standards

Board

(FASB)

Accounting

Standards

Codification

Topic

946,

Financial

Services

–

Investment

Companies

(ASC

946)

and

applies

the

specialized

accounting

and

reporting

guidance

in

U.S.

Generally

Accepted

Accounting

Principles

(U.S.

GAAP),

including,

but

not

limited

to,

ASC

946. 

2. Financial

Instrument

Valuation

The

Fund's investments

in

financial

instruments

are

carried

at

fair

value

daily.

Fair

value

is

the

price

that

would

be

received

to

sell

an

asset

or

paid

to

transfer

a

liability

in

an

orderly

transaction

between

market

participants

on

the

measurement

date.

The

Fund

calculates the

net

asset

value

(NAV)

per

share

each

business

day

as

of

4

p.m.

Eastern

time

or

the

regularly

scheduled

close

of

the

New

York

Stock

Exchange

(NYSE),

whichever

is

earlier.

Under

compliance

policies

and

procedures

approved

by

the

Fund’s

Board

of

Trustees

(the

Board),

the

Board

has

designated

the

Fund’s

investment

manager

as

the

valuation

designee

and

has

responsibility

for

oversight

of

valuation.

The

investment

manager

is

assisted

by

the

Fund’s

administrator

in

performing

this

responsibility,

including

leading

the

cross-functional

Valuation

Committee

(VC).

The

Fund

may

utilize

independent

pricing

services,

quotations

from

securities

and

financial

instrument

dealers,

and

other

market

sources

to

determine

fair

value. 

Debt

securities

generally

trade

in

the

OTC

market

rather

than

on

a

securities

exchange.

The Fund's

pricing

services

use

multiple

valuation

techniques

to

determine

fair

value.

In

instances

where

sufficient

market

activity

exists,

the

pricing

services

may

utilize

a

market-based

approach

through

which

quotes

from

market

makers

are

used

to

determine

fair

value.

In

instances

where

sufficient

market

activity

may

not

exist

or

is

limited,

the

pricing

services

also

utilize

proprietary

valuation

models

which

may

consider

market

characteristics

such

as

benchmark

yield

curves,

credit

spreads,

estimated

default

rates,

anticipated

market

interest

rate

volatility,

coupon

rates,

anticipated

timing

of

principal

repayments,

underlying

collateral,

and

other

unique

security

features

in

order

to

estimate

the

relevant

cash

flows,

which

are

then

discounted

to

calculate

the

fair

value.

Derivative

financial

instruments

listed

on

an

exchange

are

valued

at

the

official

closing

price

of

the

day. 

Investments

in

open-end

mutual

funds

are

valued

at

the

closing

NAV.

The

Fund

has procedures

to

determine

the

fair

value

of

financial

instruments

for

which

market

prices

are

not

reliable

or

readily

available.

Under

these

procedures,

the

Fund

primarily employs

a

market-based

approach

which

may

use

related

or

comparable

assets

or

liabilities,

recent

transactions,

market

multiples,

and

other

relevant

information

for

the

investment

to

determine

the

fair

value

of

the

investment.

An

income-based

valuation

approach

may

also

be

used

in

which

the

anticipated

future

cash

flows

of

the

investment

are

discounted

to

calculate

fair

value.

Discounts

may

also

be

applied

due

to

the

nature

or

duration

of

any

restrictions

on

the

disposition

of

the

investments.

Due

to

the

inherent

uncertainty

of

valuations

of

such

investments,

the

fair

values

may

differ

significantly

from

the

values

that

would

have

been

used

had

an

active

market

existed. 

Derivative

financial

instruments

listed

on

an

exchange

are

valued

at

the

official

closing

price

of

the

day.

Certain

derivative

financial

instruments

are

centrally

cleared

or

trade

in

the

OTC

market.

The Fund’s

pricing

services

use

various

techniques

including

industry

standard

option

pricing

models

and

proprietary

discounted

cash

flow

models

to

determine

the

fair

value

of

those

instruments.

The Fund’s

net

benefit

or

obligation

under

the

derivative

contract,

as

measured

by

the

fair

value

of

the

contract,

is

included

in

net

assets. 

3.

Investments

in

Affiliated

Management

Investment

Companies 

The

Fund

invests

in

one

or

more

affiliated

management

investment

companies.

As

defined

in

the

1940

Act,

an

investment

is

deemed

to

be

a

"Controlled

Affiliate"

of

a

fund

when

a

fund

owns,

either

directly

or

indirectly,

25%

or

more

of

the

affiliated

fund's

outstanding

shares

or

has

the

power

to

exercise

control

over

management

or

policies

of

such

fund.

The

Fund

does

not

invest

for

purposes

of

exercising

a

controlling

influence

over

the

management

or

policies.

During

the

period

ended

June

30,

2023,

the

Fund

held

investments

in

affiliated

management

investment

companies

as

follows:

Franklin

Strategic

Mortgage

Portfolio

Notes

to

Schedule

of

Investments

(unaudited)

8

Quarterly

Schedule

of

Investments

4. Fair

Value

Measurements 

The

Fund

follows

a

fair

value

hierarchy

that

distinguishes

between

market

data

obtained

from

independent

sources

(observable

inputs)

and

the Fund's

own

market

assumptions

(unobservable

inputs).

These

inputs

are

used

in

determining

the

value

of

the

Fund's financial

instruments

and

are

summarized

in

the

following

fair

value

hierarchy:

Level

1

–

quoted

prices

in

active

markets

for

identical

financial

instruments

Level

2

–

other

significant

observable

inputs

(including

quoted

prices

for

similar

financial

instruments,

interest

rates,

prepayment

speed,

credit

risk,

etc.)

Level

3

–

significant

unobservable

inputs

(including

the

Fund's

own

assumptions

in

determining

the

fair

value

of

financial

instruments)

The

input

levels

are

not

necessarily

an

indication

of

the

risk

or

liquidity

associated

with

financial

instruments

at

that

level.

A

summary

of

inputs

used

as

of

June

30,

2023,

in

valuing

the

Fund's

assets

and

liabilities

carried

at

fair

value,

is

as

follows:

a

For

detailed

categories,

see

the

accompanying

Schedule

of

Investments.

    aa

Value

at

Beginning

of

Period

Purchases

Sales

Realized

Gain

(Loss)

Net

Change

in

Unrealized

Appreciation

(Depreciation)

Value

at

End

of

Period

Number

of

Shares

Held

at

End

of

Period

Investment

Income

a      

a  

a  

a  

a  

a  

a  

a  

Franklin

Strategic

Mortgage

Portfolio

Non-Controlled

Affiliates

Dividends

Institutional

Fiduciary

Trust

-

Money

Market

Portfolio,

4.699%

$

839,449

$

6,879,701

$

(7,013,994)

$

—

$

—

$

705,156

705,156

$

25,824

Total

Affiliated

Securities

...

$839,449

$6,879,701

$(7,013,994)

$—

$—

$705,156

$25,824

Level

1

Level

2

Level

3

Total

Franklin

Strategic

Mortgage

Portfolio

Assets:

Investments

in

Securities:

a

Corporate

Bonds

........................

$

—

$

94,568

$

—

$

94,568

Asset-Backed

Securities

...................

—

1,083,097

—

1,083,097

Commercial

Mortgage-Backed

Securities

......

—

1,697,821

—

1,697,821

Mortgage-Backed

Securities

................

—

27,106,825

—

27,106,825

Residential

Mortgage-Backed

Securities

.......

—

4,016,835

—

4,016,835

Short

Term

Investments

...................

705,156

—

—

705,156

Total

Investments

in

Securities

...........

$705,156

$33,999,146

$—

$34,704,302

Other

Financial

Instruments:

Futures

contracts

........................

$

14,630

$

—

$

—

$

14,630

Total

Other

Financial

Instruments

.........

$14,630

$—

$—

$14,630

Liabilities:

Other

Financial

Instruments:

Futures

contracts

........................

$

53,391

$

—

$

—

$

53,391

Total

Other

Financial

Instruments

.........

$53,391

$—

$—

$53,391

3.

Investments

in

Affiliated

Management

Investment

Companies 

(continued)

Franklin

Strategic

Mortgage

Portfolio

Notes

to

Schedule

of

Investments

(unaudited)

9

Quarterly

Schedule

of

Investments

Abbreviations

Currency

USD

United

States

Dollar

Selected

Portfolio

CMT

Constant

Monthly

U.S.

Treasury

Securities

Yield

Curve

Rate

Index

FHLMC

Federal

Home

Loan

Mortgage

Corp.

FNMA

Federal

National

Mortgage

Association

FRN

Floating

Rate

Note

GNMA

Government

National

Mortgage

Association

LIBOR

London

Interbank

Offered

Rate

MBS

Mortgage-Backed

Security

REIT

Real

Estate

Inv

estment

Trust

SOFR

Secured

Overnight

Financing

Rate

T-Note

Treasury

Note

For

additional

information

on

the

Fund's

significant

accounting

policies,

please

refer

to

the Fund's

most

recent

semiannual

or

annual

shareholder

report.