Form DEF 14C Franklin Alternative For: Jan 06

Franklin K2
Alternative Strategies Fund

A SERIES OF Franklin Alternative Strategies Funds

One Franklin Parkway

San Mateo, California 94403-1906

INFORMATION STATEMENT

This Information Statement describes recent
changes involving the investment management of the Franklin K2 Alternative
Strategies Fund (the “Fund”), a series of Franklin Alternative Strategies Funds
(the “Trust”).  At meetings held on July 12, 2022 and October 25, 2022, the
Trust’s Board of Trustees (the “Board” or the “Trustees”), on behalf of the
Fund, approved a new sub-advisory agreement between K2/D&S Management Co.,
L.L.C. (“K2 Advisors”) and Capital Fund Management S.A. (“CFM”), pursuant to
which CFM will begin managing an allocated portion of the Fund’s assets.  At a
meeting held on October 25, 2022, the Trust’s Board, on behalf of the Fund,
approved a new sub-advisory agreement between K2 Advisors and DLD Asset
Management, LP (“DLD”), pursuant to which DLD will begin managing an allocated
portion of the Fund’s assets.  CFM and DLD are collectively referred to herein
as the “New Sub-Advisors,” and each, a “New Sub-Advisor.”  The Fund seeks to
achieve its investment goal by allocating its assets across multiple non-traditional
or “alternative” strategies.  K2 Advisors has the ultimate responsibility,
subject to oversight by the Board, to oversee the Fund’s sub-advisors and recommend
their hiring, termination and replacement.  K2 Advisors principally allocates
the Fund’s assets among multiple sub-advisors which, from time to time, may
include sub-advisors that are unaffiliated and affiliated with K2 Advisors and
who will implement one or more non-traditional or alternative investment
strategies.  The Fund is structured as a multi-manager fund.  Under an
exemptive order from the U.S. Securities and Exchange Commission (the “SEC”),
K2 Advisors is permitted to appoint and replace both wholly owned and
unaffiliated sub-advisors, and enter into, amend and terminate sub-advisory agreements
without obtaining prior shareholder approval, but subject to the approval of
the Board (the “Manager of Managers Order”).

This Information Statement
is being made available via the internet beginning on or about January 6, 2023
to all shareholders of record of the Fund as of December 19, 2022 (the “Record
Date”).  The Information Statement will be available online at https://franklintempletonprod.widen.net/s/dhx9gfcztq/068_stmt_1222
until at
least April 6, 2023.  A paper or e-mail copy of this Information Statement may
be obtained, without charge, by contacting the Fund at (800) DIAL BEN/(800)
342-5236. 

WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.

This Information Statement is being
furnished to you by the Board to inform shareholders of recent changes in the
investment management of the Fund.  The Board, upon the recommendation of K2
Advisors, has approved two new sub-advisory agreements between K2 Advisors and
each of CFM and DLD (each, a “New Sub-Advisory Agreement” and together, the
“New Sub-Advisory Agreements”).  This Information Statement provides details
regarding the New Sub-Advisors, the New Sub-Advisory Agreements, and the
reasons the Board appointed each New Sub-Advisor. 

What is the Manager of Managers Structure?

The Fund is structured as a multi-manager
fund and K2 Advisors has the ultimate responsibility, subject to oversight by
the Board, to oversee sub-advisors and recommend their hiring, termination and
replacement. K2 Advisors also, subject to the review and approval of the Board:
sets the Fund’s overall investment strategy; evaluates, selects and recommends
sub-advisors to manage all or a portion of the Fund’s assets; and implements
procedures reasonably designed to ensure that each sub-advisor complies with
the Fund’s investment goal, policies and restrictions.  Subject to review by
the Board, K2 Advisors allocates and, when appropriate, reallocates the Fund’s
assets among sub-advisors and monitors and evaluates the sub-advisors’
performance.  Each of the sub-advisors is responsible for selecting investments for
that portion of the Fund’s portfolio allocated to it.  As part of the Fund’s
multi-manager structure, the Trust has received the Manager of Managers
Order.  

The Fund, however, must comply with certain
conditions when relying on the Manager of Managers Order.  One condition is
that the Fund, by providing this Information Statement, inform shareholders of
the hiring of any new wholly owned or unaffiliated sub-advisor within ninety
(90) days after the hiring. 

APPOINTMENT OF the new sub-advisors TO THE FUND

Why were the New Sub-Advisors appointed?

K2 Advisors recommended, and the Board
approved, the appointment of the New Sub-Advisors to the Fund to manage a
portion of the Fund’s assets using the below strategies:

Has the addition of the New Sub-Advisors
increased the Fund’s fees and expenses?

No.  The
addition of the New
Sub-Advisors to the Fund has
had no impact on the investment management fees charged to the Fund or the fees
paid by Fund shareholders, because the fees paid by K2 Advisors to the Fund’s
sub-advisors are deducted from the fees paid by the Fund to K2 Advisors.  The
addition of the New Sub-Advisors to the Fund has not materially changed the
manner in which the Fund seeks to achieve its investment goal or the level of
services that are provided to the Fund.

CFM

CFM is an SEC-Registered investment adviser
with its principal office and place of business located at 23 Rue de
L’Universié Paris, France 75007.  CFM is a corporation organized under the
laws of France.  CFM is owned 71% by its Board Members, 17% by other senior
employees, and 12% by NGI Strategic Australia PTY Ltd, a fully owned subsidiary
in Navigator Global Investments Limited’s group and located at Toowong Tower,
Level 3, 9 Sherwood Road, Toowong, Queensland, 4066, Australia.  CFM has $6.6
billion in regulatory assets under management as of March 30, 2022.

The names and principal occupations of the
principal executive officers and directors of CFM, as of the Record Date, are
set forth below.  The business address of each person is 23 Rue de L’Universié,
Paris, France 75007.

DLD

DLD is an SEC-registered investment
adviser. Its principal office and place of business is located at 150 East 52nd
Street, Suite 27001, New York, NY 10022.  DLD is a limited partnership organized
under the laws of Delaware.  DLD Asset GP, LLC, a Delaware limited liability
company, is the general partner of DLD.  Mark Friedman is the principal owner
of DLD and the managing member of DLD Asset GP, LLC.  TriGran Ventures, LLC is
a limited partner of and owns a minority interest in
DLD.  DLD has approximately $4.0 billion in regulatory assets under management
as of December 31, 2021.

The names and principal occupations of the
principal executive officers and directors of DLD, as of the Record Date, are
set forth below.  The business address of each person is 150 East 52nd Street,
Suite 27001, New York, NY 10022.

material terms of the New
sub-advisory agreementS

Services.  Subject to the overall policies, direction and
review of the Board and to the instructions and supervision of K2 Advisors,
each New Sub-Advisor provides certain investment advisory services for a
portion of the Fund as agreed upon from time to time by K2 Advisors and the
respective New Sub-Advisor, including the formulation and implementation of a
continuous investment program for that portion of the Fund’s assets allocated
to the New Sub-Advisor by K2 Advisors from time to time (the “Sub-Advised
Portion”) and determining in its discretion the securities, cash and other
financial instruments to be purchased, retained, sold, or exchanged for the
Sub-Advised Portion in a manner consistent with the Fund’s investment
strategy.   

            Management Fees.  K2 Advisors compensates each New Sub-Advisor for providing investment advice and analysis and for managing its
respective Sub-Advised Portion.  K2 Advisors pays each New Sub-Advisor for its services from the investment management fees it
receives from the Fund. 

Payment of Expenses. During the term of the New Sub-Advisory
Agreement, the respective New Sub-Advisor will pay its own expenses incurred by
it in connection with the activities to be provided by the New Sub-Advisor
under the New Sub-Advisory Agreement other than the costs of financial instruments
(including brokerage commissions, if any) acquired and disposed for the
Sub-Advised Portion.  K2 Advisors and the Fund will be responsible for all of
their respective expenses.

Continuance.  Each New Sub-Advisory Agreement will remain in
effect for two years after its effective date, unless earlier terminated.  The
effective date of each New Sub-Advisory Agreement is October 25, 2022.  As
provided therein, each New Sub-Advisory Agreement is thereafter
renewable annually (i) by a vote of the Board or (ii) by a vote of a majority
of the outstanding voting securities of the Fund, as defined in the Investment
Company Act of 1940 (the “1940 Act”), provided that in either event the
continuance is also approved by a vote of the majority of the Board who are not
parties to the New Sub-Advisory Agreement or “interested persons,” as defined in the
1940 Act, of any party to the New Sub-Advisory Agreement or the Fund
(“Independent Trustees”), by a vote cast at a meeting called for the purpose of
voting on such approval.

            Termination.  Each New Sub-Advisory Agreement may be terminated at
any time, without payment of any penalty, (i) by the Board or by vote of a
majority of the outstanding voting securities of the Fund, upon sixty (60)
days’ written notice to K2 Advisors and the respective New Sub-Advisor, (ii) by
K2 Advisors or the respective New Sub-Advisor upon at least sixty (60) days’
written notice to the other party, and (iii) by K2 Advisors or the Fund upon a
material breach by the respective New Sub-Advisor of any of the New
Sub-Advisor’s obligations or representations under the New Sub-Advisory
Agreement if such breach is not corrected by the New Sub-Advisor within five
(5) business days after notice thereof by K2 Advisors or the Fund. Each New
Sub-Advisory Agreement shall terminate automatically in the event of any
assignment thereof, as defined in the 1940 Act, and upon any termination of the
investment management agreement between K2 Advisors and the Fund. In the event that there is a proposed
reorganization or change in control of either New Sub-Advisor that, in Trust
counsel’s judgment, would act to terminate the Sub-Advisory Agreement, the
respective Sub-Advisor agrees to assume all reasonable costs and expenses
(including the costs of printing and mailing) associated with the preparation
of a proxy statement or information statement, as may be needed, related to the
continuation or replacement of the Sub-Advisory Agreement with the respective
Sub-Advisor.

Standard of Care.  Under each New Sub-Advisory Agreement, the New
Sub-Advisor and its directors, officers or employees shall not be held liable
to K2 Advisors, the Fund, or to any shareholder of the Fund in the absence of
the New Sub-Advisor’s material breach of the New Sub-Advisory Agreement,
willful misfeasance, bad faith, gross negligence, or reckless disregard of its
duties, or untrue statement of material fact (or omission of such statement)
pertaining to the Sub-Advised Portion or the New Sub-Advisor to the extent that
such statement was reasonably made in reliance on information furnished to the
Fund and K2 by the Sub-Adviser or any director, officer, agent or employee of
the Sub-Advisor for use therein. Each New Sub-Advisor is required to indemnify
and hold harmless the Fund, K2 Advisors and each of its affiliates, officers,
directors, trustees, and employees for any losses, damages, costs and expenses
incurred by them with respect to the New Sub-Advisor’s material breach of the
New Sub-Advisory Agreement, willful misfeasance, bad faith, gross negligence,
or reckless disregard of its obligations or duties under the New Sub-Advisory
Agreement, or any untrue statement of a material fact (or omission of such
statement) pertaining to the Sub-Advised Portion or the New Sub-Advisor to the
extent that such statement was reasonably made in reliance on information
furnished to the Fund and K2 by the Sub-Adviser or any director, officer, agent
or employee of the Sub-Adviser for use therein, together with all legal and
other expenses reasonably incurred by any affiliates, officers, directors,
trustees, and employees of the respective Sub-Advisor in connection with such
liability. The New Sub-Advisory Agreements contain similar provisions pursuant
to which K2 Advisors is required to indemnify the New Sub-Advisors.

What
factors did the Board consider when approving the New Sub-Advisory Agreements?

In approving each New Sub-Advisory
Agreement, the Board, including the Independent Trustees, determined that fees
to be paid under each New Sub-Advisory Agreement were fair and reasonable and
that approval of each New Sub-Advisory Agreement was in the best interests of
the Fund and its shareholders. As part of the approval process, the Trustees
considered the process undertaken and information provided during their
consideration and approval on May 24, 2022 of the investment management
agreement between K2 Advisors, and the Trust, on behalf of the Fund, and the
sub-advisory agreements between K2 Advisors and the Fund’s existing
sub-advisors.

In making the foregoing approvals, the
Independent Trustees received assistance and advice from their independent
counsel and, in addition to the materials provided at prior meetings,
considered various materials related to each New Sub-Advisory Agreement including:
(1) a copy of the proposed form of New Sub-Advisory Agreement for each New
Sub-Advisor; (2) information describing the nature, quality and extent of services
that each New Sub-Advisor would provide to the Fund, and the proposed
sub-advisory fees payable to the New Sub-Advisor; (3) a report  from K2
Advisors on the diligence conducted on each New Sub-Advisor and the reasons for
recommending each New Sub-Advisor as a sub-advisor for the Fund, including, but
not limited to, each New Sub-Advisor’s background, experience, personnel,
operations, policies, procedures and compliance functions and plans for the
integration of such operations, policies, procedures and compliance functions
with those of K2 Advisors; and (4) a report from the Trust’s Chief Compliance
Officer regarding each New Sub-Advisor’s compliance program and capabilities,
including each New Sub-Advisor’s policies and procedures in place to address potential
conflicts of interest, and the diligence undertaken by the Trust’s Chief
Compliance Officer with respect thereto. The Board noted that the terms of each
New Sub-Advisory Agreement were substantially similar to the terms of the
sub-advisory agreements with the Fund’s existing sub-advisors.

The Board’s consideration of whether to
approve each New Sub-Advisory Agreement on behalf of the Fund took into account
several factors including, but not limited to, the following: (1) the nature
and quality of the services to be provided by each New Sub-Advisor to the Fund
under the respective New Sub-Advisory Agreement; (2) each New Sub-Advisor’s
experience as a manager of other accounts; (3) each New Sub-Advisor’s strength
and reputation within the industry; (4) the fairness of the compensation under
each New Sub-Advisory Agreement; (5) the personnel, operations, financial
condition, and investment management capabilities, methodologies and resources
of each New Sub-Advisor; (6) profitability matters; (7) reports from K2
Advisors on the diligence conducted on each New Sub-Advisor and the reasons for
recommending each New Sub-Advisor as a sub-advisor for the Fund, including, but
not limited to, each New Sub-Advisor’s background, experience, personnel,
operations, policies, procedures and compliance functions and plans for the
integration of such operations, policies, procedures and compliance functions
with those of K2 Advisors; and (8) a report from the Trust’s Chief Compliance
Officer regarding each compliance program and capabilities, including each New
Sub-Advisor’s policies and procedures in place to address potential conflicts
of interest, and the diligence undertaken by the Trust’s Chief Compliance
Officer with respect thereto. Particular attention was given to the due
diligence and risk management procedures of K2 Advisors with respect
to selecting and overseeing sub-advisors of the Fund, as well as each New
Sub-Advisor’s risk management program and to derivatives and other complex
instruments that are expected to be held by the Fund and how such instruments
are expected to be used to pursue the Fund’s investment goal.

The following discussion relates to certain
primary factors relevant to the Board’s decision to approve each New
Sub-Advisory Agreement. This discussion of the information and factors
considered by the Board (including the information and factors discussed above)
is not intended to be exhaustive, but rather summarizes certain factors
considered by the Board. In view of the wide variety of factors considered, the
Board did not, unless otherwise noted, find it practicable to quantify or
otherwise assign relative weights to the following factors. In addition,
individual Trustees may have assigned different weights to various factors.

NATURE, EXTENT AND QUALITY OF SERVICES.  The Trustees reviewed the nature, extent
and quality of the services to be provided by each New Sub-Advisor. In this
regard, they reviewed the Fund’s investment goal and each New Sub-Advisor’s
proposed investment strategy, and each New Sub-Advisor’s ability to implement
such investment goal and/or investment strategy, including, but not limited to,
each New Sub-Advisor’s trading practices and investment decision processes. 
With respect to the New Sub-Advisory Agreement with CFM, the Board also
considered the investment management services that the investment manager will
provide to the Cayman Islands-based company, which is wholly owned by the Fund
(the “Cayman Subsidiary”).

With respect to the sub-advisory services
to be provided by each New Sub-Advisor, the Board noted the responsibilities
that each New Sub-Advisor would have with respect to the Sub-Advised Portion,
including, among others, implementing the investment strategies with respect to
the Sub-Advised Portion and ensuring compliance with the investment strategies,
policies, and limitations of the
Sub-Advised Portion. The Trustees considered the successful performance of each
New Sub-Advisor in managing other investment products with investment strategies
similar to the investment strategies of the Sub-Advised Portion.

The Trustees reviewed the portfolio
management team at each New Sub-Advisor that would be responsible for managing
the Sub-Advised Portion, including the team’s performance, staffing, skills and
compensation program. The Trustees considered various other products,
portfolios and entities that are advised by each New Sub-Advisor, their
relative fees and reasons for differences with respect thereto and any
potential conflicts. The Board also considered a report from the Trust’s Chief
Compliance Officer regarding each New Sub-Advisor’s compliance program as such
policies relate to the operations of the Fund. The Board considered the
selection and due diligence process employed by K2 Advisors in proposing each
New Sub-Advisor as a sub-advisor to the Fund, including the due diligence
undertaken with respect to each New Sub-Advisor’s compliance capabilities and
efforts to integrate each Sub-Advisor’s operations, policies, procedures and
compliance functions with those of K2 Advisors.

Based on their review, the Trustees were
satisfied with the nature and quality of the overall services to be provided by
each New Sub-Advisor to the Fund and its shareholders and were confident in the
abilities of each New Sub-Advisor to implement its proposed investment strategies,
and to provide quality services to the Fund and its shareholders.

INVESTMENT
PERFORMANCE.  The Board
noted that, as each New Sub-Advisor had not provided any services to the Fund,
there was no investment performance of each New Sub-Advisor with respect to the
Fund. The Board considered the investment performance of each New Sub-Advisor
in managing other investment products with similar investment strategies to the
investment strategies of the Sub-Advised Portion. The Board also considered the
performance benchmarks for the Fund and how such benchmarks would be utilized
to measure the performance of each New Sub-Advisor in managing the Sub-Advised
Portion.

COMPARATIVE EXPENSES AND PROFITABILITY.  The Board considered the cost of the
services to be provided by each New Sub-Advisor. The Board also noted that it
could not evaluate each New Sub-Advisor’s profitability with respect to the Fund
since no assets had yet been allocated to each New Sub-Advisor.

The Board noted that the sub-advisory fees
would be paid by K2 Advisors to each New Sub-Advisor and would not be
additional fees to be borne by the Fund. The Board also noted that the sub-advisory
fees to be paid by K2 Advisors to each New Sub-Advisor were the product of
negotiations between K2 Advisors and each New Sub-Advisor and the Board
considered the allocation of the investment management fee charged to the Fund
between K2 Advisors and each New Sub-Advisor in light of the nature, extent and
quality of the investment management services expected to be provided by K2
Advisors and each New Sub-Advisor. The Trustees considered various other
products, portfolios and entities that are advised by each New Sub-Advisor, and
the allocation of assets and expenses among and within them, as well as their
relative fees and reasons for differences with respect thereto and any
potential conflicts. The Board considered the extent to which each New Sub-Advisor
may derive ancillary benefits from the Fund’s operations.

With respect to the impact on K2 Advisors’
and its affiliates’ profitability as a result of hiring each New Sub-Advisor as
a sub-advisor to the Fund, the Board considered the following: (1) the fee
waiver and expense limitation arrangements in effect, and the amount of Fund
expenses that were absorbed since the inception of the Fund by K2 Advisors
through such arrangements, (2) the level of sub-advisory fees to be paid to
each New Sub-Advisor, and (3) K2 Advisors’ belief that hiring of each New Sub-Advisor
will not have any material impact on K2 Advisors’ profitability.  With respect
to the New Sub-Advisory Agreement with CFM, the Board also considered the
investment management services that the investment manager will provide to the
Cayman Subsidiary and the related fee waivers that were in place.

Based upon its consideration of all these
factors, the Board determined that the sub-advisory fee structure for each New
Sub-Advisor was fair and reasonable.

ECONOMIES OF SCALE.  The Board considered economies of scale
that may be realized by each New Sub-Advisor as the Fund grows larger and the
extent to which such economies of scale may be shared with Fund shareholders,
as for example, in the level of the sub-advisory fees charged, in the quality
and efficiency of services rendered and in increased capital commitments
benefiting the Fund directly or indirectly. The Board concluded that economies
of scale were deemed not to be a significant factor at that time in light of,
among other matters, the fee waiver and expense limitation arrangement in
effect.

CONCLUSION.  After consideration of the foregoing
factors, and such other matters as were deemed relevant, and with no single
factor being determinative to their decision, the Trustees—including a majority
of the Independent Trustees—with the assistance of independent counsel approved
each New Sub-Advisory Agreement, including the fees payable thereunder, with
each New Sub-Advisor for the Fund. 

ADDITIONAL INFORMATION ABOUT THE TRUST

K2 Advisors currently serves as the Fund’s
investment manager pursuant to an amended and restated investment management
agreement dated October 1, 2017, between the Trust, on behalf of the Fund, and
K2 Advisors (the “Management Agreement”).  The Management Agreement was most
recently approved and renewed by the Board, including the Independent Trustees,
on May 24, 2022.  K2 Advisors’ principal offices are located at 300 Atlantic
Street, 12th Floor, Stamford, Connecticut 06901. Together, K2 Advisors and its
affiliates manage, as of November 30, 2022, $1.41 trillion in assets. K2
Advisors has been in the investment management business since 1994.  K2
Advisors is a wholly owned subsidiary of Franklin Resources, Inc.
(“Resources”).  Resources is a publicly owned holding company with its
principal offices located at One Franklin Parkway, San Mateo, California
94403-1906. The principal stockholders of Resources are Charles B. Johnson and
Rupert H. Johnson, Jr., who owned approximately 20% and 21%, respectively, of
its outstanding shares as of October 31, 2022.  The shares deemed to be
beneficially owned by Charles B. Johnson include certain shares held by three
private charitable foundations for which he is a trustee, of which he disclaims
beneficial ownership.  The shares deemed to be beneficially owned by
Rupert H. Johnson, Jr. include certain shares held by a private charitable
foundation for which he is a trustee or by his spouse, of which he disclaims
beneficial ownership.

 The Trustees who are interested
persons of K2 Advisors or its affiliates and certain officers of the Trust who
are shareholders of Resources are not compensated by the Trust or the Fund for
their services, but may receive indirect remuneration due to their
participation in management, advisory and other fees received by K2 Advisors
and its affiliates from the Fund.

The Trust employs K2 Advisors to manage the
investment and reinvestment of the Fund’s assets, to administer its affairs and
to provide or procure, as applicable, administrative and other services,
subject to the oversight of the Board.  Under the Management Agreement,  K2
Advisors has the authority to supervise and direct the Fund’s investments and
has the discretion to determine from time to time what securities and other
investments will be purchased or sold by the Fund and what portion of its
assets will be invested or held uninvested as cash. K2 Advisors also may place
orders with or through such brokers, dealers or futures commissions merchants
as it may select.  In addition, K2 Advisors has the authority and discretion to
delegate its investment management responsibilities through the appointment of
one or more sub-advisors. In allocating the Fund’s assets, K2 Advisors has discretion
to not allocate any assets to one or more sub-advisors at any time.

The Fund pays K2 Advisors a fee equal to an annual rate based on the
Fund’s average

daily value of its net assets for managing the Fund’s assets, including
investment advisory services and Fund administration services, as listed below:

·       1.90% of the value of net
assets up to and including $1 billion;

·       1.85% of the value of net
assets over $1 billion up to and including $1.5 billion;

·       1.80% of the value of net
assets over $1.5 billion up to and including $3 billion; and

·       1.75% of the value of net
assets in excess of $3 billion.

The fee is calculated daily and paid monthly according
to the terms of the Management Agreement. Each class of the Fund’s shares pays
its proportionate share of the fee.  K2 Advisors has contractually agreed to
waive the investment management fee it receives from the Fund in an amount
equal to the investment management fee paid by a Cayman Islands-based company
that is wholly owned by the Fund (the “Subsidiary”).  This waiver may not be
terminated and will remain in effect for as long as K2 Advisors’ contract with
the Subsidiary is in place.  In addition, K2 Advisors has contractually agreed
to waive or assume certain expenses so that total annual Fund operating
expenses (excluding Rule 12b-1 fees; acquired fund fees and expenses; expenses
related to securities sold short; and certain non-routine expenses) for the
Fund do not exceed 1.95% until September 30, 2023.  With respect to Class R6,
the transfer agent has contractually agreed to cap transfer agent fees for
Class R6 shares of the Fund so that transfer agent fees for that class do not
exceed 0.03% until September 30, 2023.  The investment management fees, as a
percentage of the Fund’s net assets, before and after such waiver for the
fiscal year ended May 31, 2022 were 1.89% and 1.74%, respectively.  For the
fiscal year ended May 31, 2022, the aggregate amount of the investment
management fees paid by the Fund to K2 Advisors was $23,740,853 (after fee
waivers).  Investment management fees before waivers totaled $25,831,040. 

            K2 Advisors compensates each
sub-advisor for providing investment advice and analysis and for managing its
respective portion of the assets allocated to it from time to time.  K2 Advisors
pays each of the sub-advisors for their services from the investment management
fees it receives from the Fund.  During the fiscal year ended May 31, 2022, K2
Advisors paid the unaffiliated sub-advisors a fee, in the aggregate, equal to
the annual rate of 0.86%.  For the last fiscal year ended May 31, 2022, the
aggregate amount of sub-advisory fees paid by K2 Advisors to the unaffiliated
sub-advisors was $12,014,344.  During the fiscal year ended May 31, 2022, in
the aggregate, K2 Advisors retained, or paid to wholly-owned sub-advisors,
$13,816,696, equal to an annual rate of 0.99% (which amounted to 0.84% or
$11,726,509 after waivers). 

The Fund’s current sub-advisors and their
associated strategies are listed below.

In order to gain exposure to commodities, the Fund has established the
Subsidiary to invest in commodity-linked derivatives, including swaps, certain
commodity-linked notes, options, futures and options on futures.  The Fund must
meet certain requirements under the Internal Revenue Code for favorable tax
treatment as a regulated investment company, relating to sources of its income
and diversification of its assets.  The Fund intends to treat the income from
its investment in the Subsidiary as qualifying income realized in connection
with its investment in the stock of the Subsidiary.  The tax treatment of
commodity-linked derivative instruments may be
adversely affected by changes in legislation, regulations or other legally
binding authority which may, in turn, affect the Fund’s investment in the
Subsidiary.

The Administrator

The Administrator for the Fund is Franklin Templeton Services, LLC (“FT
Services”), with offices at One Franklin Parkway, San Mateo, California
94403-1906.  FT Services is an indirect, wholly owned subsidiary of Resources
and an affiliate of K2 Advisors and the Fund’s principal underwriter.  The Bank
of New York Mellon, Mutual Funds Division, 100 Church Street, New York, New
York 10286, has an agreement with FT Services to provide certain sub-administrative
services for the Fund.  The administrative services The Bank of New York Mellon
provides include, but are not limited to, certain fund accounting, financial
reporting, tax, corporate governance treasury and compliance and legal administration
services.

The Transfer Agent

The transfer agent and shareholder
servicing agent for the Fund is Franklin Templeton Investor Services, LLC,
located at 3344 Quality Drive, Rancho Cordova, California 95670-7313. 

The Fund’s audited financial statements and
annual report for its last completed fiscal year, and any subsequent
semi-annual report to shareholders, are available free of charge.  To obtain a
copy, please call (800) DIAL BEN/ (800) 342-5236 or send a written request to
Franklin Templeton Investor Services, LLC, P.O. Box 33030, St. Petersburg,
Florida 33733-8030.

The outstanding shares and classes of the
Fund as of December 19, 2022, are set forth in Exhibit A.

From time to
time, the number of shares held in “street name” accounts of various securities
dealers for the benefit of their clients may exceed 5% of the total shares
outstanding of any class of the Fund.  To the knowledge of the Fund’s
management, as of December 19, 2022, there were no other entities, except as
set forth in Exhibit A, owning beneficially more than 5% of the outstanding
shares of any class of the Fund.

In addition, to the knowledge of the
Trust’s management, as of December 19, 2022, no Trustee of the Trust owned 1%
or more of the outstanding shares of any class of the Fund.  The Trustees and
officers, as a group, of the Trust owned less than 1% of the outstanding shares
of each class of shares of the Fund.

If a shareholder wishes to
send a communication to the Board, such correspondence should be in writing and
addressed to the Board at the Trust’s offices, One Franklin Parkway, San Mateo,
California 94403-1906, Attention:  Secretary. The correspondence will be given
to the Board for review and consideration.

EXHIBIT A

OUTSTANDING SHARES OF THE Franklin K2 Alternative Strategies Fund
AS OF DECEMBER 19, 2022

5% SHAREHOLDERS

Entities Owning Beneficially more than Five
Percent (5%) of the Outstanding Shares of any Class of Franklin K2 Alternative
Strategies Fund as of December 19, 2022

* For the benefit
of its customer(s).

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STMT 12/22