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Form N-CSR Legg Mason Global Asset For: Dec 31

February 22, 2024 10:23 AM EST

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-22338

 

 

Legg Mason Global Asset Management Trust

(Exact name of registrant as specified in charter)

 

 

100 International Drive, Baltimore, MD, 21202

(Address of principal executive offices) (Zip code)

 

 

Marc A. De Oliveira

Franklin Templeton

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 877-6LM-FUND/656-3863

Date of fiscal year end: December 31

Date of reporting period: December 31, 2023

 

 

 


ITEM 1.

REPORT TO STOCKHOLDERS

The Annual Report to Stockholders is filed herewith.


LOGO

 

Annual Report   December 31, 2023

 

 

FRANKLIN

U.S. SMALL CAP EQUITY FUND

 

 

 

The Securities and Exchange Commission has adopted new regulations that will result in changes to the design and delivery of annual and semi-annual 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.

 

LOGO

 

 INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE


What’s inside      
Letter from the president     III  
Fund overview     1  
Fund at a glance     6  
Fund expenses     7  
Fund performance     9  
Schedule of investments     11  
Statement of assets and liabilities     24  
Statement of operations     25  
Statements of changes in net assets     26  
Financial highlights     27  
Notes to financial statements     32  
Report of independent registered public accounting firm     42  
Additional information     43  
Important tax information     49  

Fund objective

The Fund seeks long-term capital appreciation.

 

II    Franklin U.S. Small Cap Equity Fund


Letter from the president

 

LOGO

 

Dear Shareholder,

We are pleased to provide the annual report of Franklin U.S. Small Cap Equity Fund for the twelve-month reporting period ended December 31, 2023. Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.

Special shareholder notice

Effective September 1, 2023, Sundaram Chettiappan, CFA and Chandra Seethamraju, PhD joined the Fund’s portfolio management team and Joseph Giroux ceased to be a member of the Fund’s portfolio management team. For more information, please see the Fund’s prospectus supplement dated September 1, 2023.

As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.franklintempleton.com. Here you can gain immediate access to market and investment information, including:

 

 

Fund prices and performance,

 

 

Market insights and commentaries from our portfolio managers, and

 

 

A host of educational resources.

We look forward to helping you meet your financial goals.

Sincerely,

 

 

LOGO

Jane Trust, CFA

President and Chief Executive Officer

January 31, 2024

 

Franklin U.S. Small Cap Equity Fund   III


Fund overview

 

Q. What is the Fund’s investment strategy?

A. The Fund’s investment objective is long-term capital appreciation. Under normal market conditions, the Fund will invest at least 80% of net assets, plus any borrowings for investment purposes, in equity securities of companies with small market capitalizations domiciled, or having their principal activities, in the United States, at the time of investment or other investments with similar economic characteristics. The Fund normally intends to hold a portfolio that is generally comparable to, but not the same as, the Russell 2000 Indexi in terms of economic sector weightings and market capitalization but may depart from this if we believe it to be in the best interests of the Fund. The Fund may also invest in securities of foreign companies in the form of American Depositary Receipts (“ADRs”).

At Franklin Advisers, Inc., the Fund’s subadviser, we use a bottom-up, quantitative stock selection process. The cornerstone of this process is a proprietary stock selection model that ranks the stocks in the Fund’s investable universe by our determination of their relative attractiveness.

Q. What were the overall market conditions during the Fund’s reporting period?

A. The U.S. small cap equity performance as measured by the Russell 2000 Index advanced for the twelve-month reporting period ending December 31, 2023, returning 16.93%. Virtually all sectors posted positive returns, most in double digits. The consumer discretionary, information technology, and industrials sectors were the best performing while only the utilities sector and the banks portion of the financials sector posted negative returns.

Key U.S. equity indexes ended the first quarter of 2023 with gains despite a bout of heightened financial market volatility in March due to turmoil in the banking industry. Two mid-sized U.S. banks collapsed, and a Swiss bank was forced into a merger. However, quick intervention by the authorities helped to calm these fears, while better-than-feared corporate earnings reports and smaller interest-rate increases from the U.S. Federal Reserve Board (the “Fed”) also supported investor sentiment.

Key measures of U.S. stocks rose during the second quarter of 2023, driven by better-than-expected first-quarter corporate earnings reports, the suspension of the debt ceiling, subsiding concerns about U.S. regional banks, resilient economic growth, and hopes for an end to the Fed’s campaign of interest-rate hikes. Investor enthusiasm for artificial intelligence bolstered technology-related stocks in the information technology (“IT”), consumer discretionary and communication services sectors.

The first-half 2023 rally in U.S. equities initially stretched into July, but Fitch Ratings downgraded the country’s credit rating to AA+ from AAA early in August, and U.S. stocks fell during August and September amid a significant rise in U.S. Treasury yields as the Fed indicated it would keep interest rates higher for longer than investors had previously expected. Stock market losses for the third calendar quarter of 2023 were broad-based as nearly all sectors of a key U.S. index declined. The Fed raised the federal funds target rate

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     1


Fund overview (cont’d)

 

in July to the highest level since 2001 but paused in September. In August, the core personal consumption expenditures price index — which excludes food and energy prices and is the Fed preferred inflation gauge — reached the lowest level since May 2021 but remained significantly higher than the Fed 2.0% long-run inflation target.

U.S. stocks surged in November and December, rebounding from three consecutive monthly declines, and ended 2023’s fourth quarter and full year with strong gains. Moderating inflation and a softening but resilient job market led to investor optimism that the Fed has concluded its rate-hiking cycle and can maneuver the U.S. economy into a soft landing. A drop in U.S. Treasury yields (with the yield on the 10-year Treasury note retreating substantially from the 5% level reached in October), better-than-expected earnings from some companies, and the Fed’s indication following its December meeting that it is considering more 2024 rate cuts than it previously forecasted further bolstered investor sentiment.

Q. How did we respond to these changing market conditions?

A. We believe that fundamentals, the very basis of our investment process, will continue to be the primary driver of long-term returns. As a result, we continue to adhere to our investment philosophy while continuing to enhance our process to address sustainable market shifts. We also believe that integrated risk management is an important element of portfolio construction and our investment process will continue to reflect these long-held views. We strongly believe, particularly during times of extreme market volatility, in the value of a broadly diversified, rules-based, risk-controlled process.

Much of our research continues to be focused on developing tools to enhance performance regardless of market environment. This includes both individual factor research as well as factor allocation strategies.

Performance review

For the twelve months ended December 31, 2023, Class I shares of Franklin U.S. Small Cap Equity Fund returned 18.81%. The Fund’s unmanaged benchmark, the Russell 2000 Index, returned 16.93% for the same period.

 

Performance Snapshot as of December 31, 2023

(unaudited)

           
(excluding sales charges)   6 months     12 months  
Franklin U.S. Small Cap Equity Fund:    

Class A

    12.91     18.54

Class C

    12.42     17.68

Class FI

    12.89     18.47

Class I

    12.98     18.81

Class IS

    13.09     18.95
Russell 2000 Index     8.18     16.93

 

2     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.franklintempleton.com.

All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all Fund expenses. Returns have not been adjusted to include sales charges that may apply or the deduction of taxes that a shareholder would pay on Fund distributions. If sales charges were reflected, the performance quoted would be lower. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.

Fund performance figures reflect fee waivers and/or expense reimbursements, without which the performance would have been lower.

 

 Total Annual Operating Expenses (unaudited)

As of the Fund’s current prospectus dated May 1, 2023, the gross total annual fund operating expense ratios for Class A, Class C, Class FI, Class I and Class IS shares were 1.36%, 2.11%, 1.78%, 1.11% and 0.88%, respectively.

Actual expenses may be higher. For example, expenses may be higher than those shown if average net assets decrease. Net assets are more likely to decrease and Fund expense ratios are more likely to increase when markets are volatile.

As a result of expense limitation arrangements, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, dividend expense on short sales, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets will not exceed 1.30% for Class A shares, 2.05% for Class C shares, 1.30% for Class FI shares, 1.00% for Class I shares and 0.75% for Class IS shares. In addition, the ratio of total annual fund operating expenses for Class IS shares will not exceed the ratio of total annual fund operating expenses for Class I shares. These expense limitation arrangements cannot be terminated prior to December 31, 2025 without the Board of Trustees’ consent.

The manager has also agreed to voluntarily waive fees and/or reimburse operating expenses, other than interest, brokerage commissions, dividend expense on short sales, taxes, extraordinary expenses and acquired fund fees and expenses, so that annual fund operating expenses will not exceed 1.20% for Class A shares, 1.95% for Class C shares, 1.20% for Class FI shares and 0.90% for Class I shares. These arrangements are expected to continue until December 31, 2025 but may be terminated at any time by the manager.

The manager is permitted to recapture amounts waived and/or reimbursed to a class within three years after the fiscal year in which the manager earned the fee or incurred the expense if the class’ total annual fund operating expenses have fallen to a level below the expense limitation (“expense cap”) in effect at the time the fees were earned or the expenses incurred. In no case will the manager recapture any amount that would result, on any particular business day of the Fund, in the class’ total annual operating expenses exceeding the expense cap or any other lower limit then in effect.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     3


Fund overview (cont’d)

 

Q. What were the leading contributors to performance?

A. Stock selection was the leading contributor to performance for the year, adding value in most sectors. Selection was especially strong in the consumer discretionary, IT and utilities sectors and added meaningful value in the communication services and consumer staples sectors. An overweight to the industrials sector was also a contributor.

At the security level, the leading contributor was an overweight to thermal management company Modine Manufacturing, which returned over 200% for the year. Overweights to Beazer Homes USA and Consolidated Water. were also strong contributors as the securities returned 165% and 144% respectively in the portfolio.

Q. What were the leading detractors from performance?

A. Stock selection in the materials, industrials and energy sectors was the leading detractor from relative return for the period. Sector allocation decisions were also a detractor, specifically an overweight to communication services and an underweight to information technology.

First Horizon, which is not in the Russell 2000 Index, was the leading detractor at the security level; in May, Canada’s TD Bank called off its $13.4 billion takeover, triggering a near 40% fall in its regional bank’s shares. Rayonier Advanced Materials, a chemical company specializing in cellulose-based products which reported a net loss from continuing operations, and Hanmi Financial, a holding company for Hanmi Bank which experienced declining earnings and lower revenues, were also leading detractors. All had double-digit negative returns in a positive return environment.

Thank you for your investment in the Franklin U.S. Small Cap Equity Fund. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.

Sincerely,

Franklin Advisers, Inc.

January 11, 2024

RISKS: Equity securities are subject to market and price fluctuations. Investments in small-cap companies may involve greater risks and volatility than investments in larger, more established companies. Small-cap companies may have limited product lines, operating histories, markets or financial resources. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and may have a potentially large impact on Fund performance. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market conditions, overall economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political developments, armed conflicts, economic sanctions and countermeasures in response to sanctions, major cybersecurity events, investor sentiment, the global and domestic effects of a

 

4     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


pandemic, and other factors that may or may not be related to the issuer of the security or other asset. Pease see the Fund’s prospectus for a more complete discussion of these and other risks and the Fund’s investment strategies.

Portfolio holdings and breakdowns are as of December 31, 2023 and are subject to change and may not be representative of the portfolio managers’ current or future investments. The Fund’s top ten holdings (as a percentage of net assets) as of December 31, 2023 were: Super Micro Computer Inc. (1.1%), Modine Manufacturing Co. (1.0%), Consolidated Water Co. Ltd. (0.9%), Coca-Cola Consolidated Inc. (0.9%), Ensign Group Inc. (0.9%), Meritage Homes Corp. (0.9%), Beazer Homes USA Inc. (0.8%), Radian Group Inc. (0.8%), Qualys Inc. (0.8%) and M/I Homes Inc. (0.8%). Please refer to pages 11 through 23 for a list and percentage breakdown of the Fund’s holdings.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. The Fund’s top five sector holdings (as a percentage of net assets) as of December 31, 2023 were: industrials (17.3%), financials (16.9%), health care (14.8%), information technology (12.7%) and consumer discretionary (11.8%). The Fund’s portfolio composition is subject to change at any time.

All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.

 

i 

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the U.S. equity market.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     5


Fund at a glance (unaudited)

 

Investment breakdown (%) as a percent of total investments

 

LOGO

 

The bar graph above represents the composition of the Fund’s investments as of December 31, 2023 and December 31, 2022. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.

 

6     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


Fund expenses (unaudited)

 

Example

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested on July 1, 2023 and held for the six months ended December 31, 2023.

Actual expenses

The table below titled “Based on actual total return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.

Hypothetical example for comparison purposes

The table below titled “Based on hypothetical total return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

 Based on actual total return1                 Based on hypothetical total return1  
    

Actual

Total Return

Without

Sales

Charge2

   

Beginning

Account

Value

   

Ending

Account

Value

   

Annualized

Expense

Ratio

   

Expenses

Paid During

the Period3

              

Hypothetical

Annualized

Total Return

   

Beginning

Account

Value

   

Ending

Account

Value

   

Annualized

Expense

Ratio

   

Expenses

Paid During

the Period3

 
Class A     12.91   $ 1,000.00     $ 1,129.10       1.20   $ 6.44       Class A     5.00   $ 1,000.00     $ 1,019.16       1.20   $ 6.11  
Class C     12.42       1,000.00       1,124.20       1.95       10.44       Class C     5.00       1,000.00       1,015.38       1.95       9.91  
Class FI     12.89       1,000.00       1,128.90       1.20       6.44       Class FI     5.00       1,000.00       1,019.16       1.20       6.11  
Class I     12.98       1,000.00       1,129.80       0.90       4.83       Class I     5.00       1,000.00       1,020.67       0.90       4.58  
Class IS     13.09       1,000.00       1,130.90       0.75       4.03       Class IS     5.00       1,000.00       1,021.42       0.75       3.82  

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     7


Fund expenses (unaudited) (cont’d)

 

1 

For the six months ended December 31, 2023.

 

2 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class C shares. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

3 

Expenses (net of compensating balance arrangements, fee waivers and/or expense reimbursements) are equal to each class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 365.

 

8     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


Fund performance (unaudited)

 

Average annual total returns  
Without sales charges1    Class A      Class C      Class FI      Class I      Class IS  
Twelve Months Ended 12/31/23      18.54      17.68      18.47      18.81      18.95
Five Years Ended 12/31/23      11.75        10.88        11.71        12.03        12.20  
Ten Years Ended 12/31/23      7.06        6.25        7.01        7.37        7.50  
With sales charges2    Class A      Class C      Class FI      Class I      Class IS  
Twelve Months Ended 12/31/23      12.04      16.68      18.47      18.81      18.95
Five Years Ended 12/31/23      10.43        10.88        11.71        12.03        12.20  
Ten Years Ended 12/31/23      6.43        6.25        7.01        7.37        7.50  

 

 Cumulative total returns       
Without sales charges1        
Class A (12/31/13 through 12/31/23)      97.78
Class C (12/31/13 through 12/31/23)      83.34  
Class FI (12/31/13 through 12/31/23)      96.93  
Class I (12/31/13 through 12/31/23)      103.58  
Class IS (12/31/13 through 12/31/23)      106.16  

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

 

1 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class C shares.

 

2 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. In addition, Class A shares reflect the deduction of the maximum initial sales charge of 5.75% on purchases made prior to August 15, 2022. Purchases made on or after August 15, 2022 incur a maximum initial sales charge of 5.50%. Class C shares reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed within one year from purchase payment.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     9


Fund performance (unaudited) (cont’d)

 

Historical performance

Value of $1,000,000 invested in

Class I Shares of Franklin U.S. Small Cap Equity Fund vs. Russell 2000 Index† — December 2013 - December 2023

 

LOGO

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

 

Hypothetical illustration of $1,000,000 invested in Class I shares of Franklin U.S. Small Cap Equity Fund on December 31, 2013, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through December 31, 2023. The hypothetical illustration also assumes a $1,000,000 investment in the Russell 2000 Index. The Russell 2000 Index (the “Index”) measures the performance of the small-cap segment of the U.S. equity universe. The Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the U.S. equity market. The Index is unmanaged and is not subject to the same management and trading expenses as a mutual fund. Please note that an investor cannot invest directly in an index. The performance of the Fund’s other classes may be greater or less than the Class I shares’ performance indicated on this chart, depending on whether greater or lesser sales charges and fees were incurred by shareholders investing in the other classes.

 

10     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


Schedule of investments

December 31, 2023

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security   Shares     Value  
Common Stocks — 99.0%                
Communication Services — 3.0%                

Diversified Telecommunication Services — 0.2%

               

EchoStar Corp., Class A Shares

    10,986       $182,038  * 

Entertainment — 0.3%

               

Marcus Corp.

    14,879       216,936  

Skillz Inc.

    10,869       67,823  * 

Total Entertainment

            284,759  

Interactive Media & Services — 1.3%

               

Angi Inc.

    40,340       100,447  * 

Cargurus Inc.

    9,416       227,491  * 

EverQuote Inc., Class A Shares

    3,073       37,613  * 

TrueCar Inc.

    57,551       199,126  * 

Yelp Inc.

    13,602       643,919  * 

Total Interactive Media & Services

            1,208,596  

Media — 0.5%

               

Gannett Co. Inc.

    41,855       96,266  * 

Perion Network Ltd.

    13,079       403,749  * 

Total Media

            500,015  

Wireless Telecommunication Services — 0.7%

               

Spok Holdings Inc.

    18,000       278,640  

Telephone and Data Systems Inc.

    6,173       113,274  

United States Cellular Corp.

    5,516       229,135  * 

Total Wireless Telecommunication Services

            621,049  

Total Communication Services

            2,796,457  
Consumer Discretionary — 11.8%                

Automobile Components — 1.8%

               

Goodyear Tire & Rubber Co.

    29,758       426,135  * 

Modine Manufacturing Co.

    15,493       924,932  * 

Patrick Industries Inc.

    3,140       315,099  

Total Automobile Components

            1,666,166  

Automobiles — 0.2%

               

Winnebago Industries Inc.

    3,191       232,560  

Broadline Retail — 0.2%

               

Macy’s Inc.

    10,463       210,515  

Diversified Consumer Services — 1.5%

               

2U Inc.

    27,956       34,386  * 

American Public Education Inc.

    13,312       128,461  * 

Chegg Inc.

    12,529       142,329  * 

Duolingo Inc.

    2,300       521,755  * 

 

See Notes to Financial Statements.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     11


Schedule of investments (cont’d)

December 31, 2023

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security   Shares     Value  

Diversified Consumer Services — continued

               

Graham Holdings Co., Class B Shares

    510       $355,225  

Perdoceo Education Corp.

    14,649       257,237  

Total Diversified Consumer Services

            1,439,393  

Hotels, Restaurants & Leisure — 1.9%

               

BJ’s Restaurants Inc.

    7,596       273,532  * 

Carrols Restaurant Group Inc.

    45,000       354,600  

Cracker Barrel Old Country Store Inc.

    629       48,483  

International Game Technology PLC

    15,662       429,296  

Penn Entertainment Inc.

    3,138       81,651  * 

Playa Hotels & Resorts NV

    34,456       298,044  * 

Red Robin Gourmet Burgers Inc.

    2,929       36,525  * 

SeaWorld Entertainment Inc.

    4,698       248,195  * 

Total Hotels, Restaurants & Leisure

            1,770,326  

Household Durables — 3.0%

               

Beazer Homes USA Inc.

    23,803       804,303  * 

Ethan Allen Interiors Inc.

    9,939       317,253  

M/I Homes Inc.

    5,442       749,581  * 

MDC Holdings Inc.

    3,661       202,270  

Meritage Homes Corp.

    4,710       820,482  

Total Household Durables

            2,893,889  

Leisure Products — 0.5%

               

JAKKS Pacific Inc.

    13,312       473,242

Specialty Retail — 2.1%

               

American Eagle Outfitters Inc.

    21,600       457,056  

Dick’s Sporting Goods Inc.

    3,140       461,423  

Genesco Inc.

    3,244       114,221  * 

Signet Jewelers Ltd.

    6,802       729,583  

Stitch Fix Inc., Class A Shares

    55,000       196,350  * 

Total Specialty Retail

            1,958,633  

Textiles, Apparel & Luxury Goods — 0.6%

               

G-III Apparel Group Ltd.

    10,000       339,800  * 

Movado Group Inc.

    7,324       220,818  

Total Textiles, Apparel & Luxury Goods

            560,618  

Total Consumer Discretionary

            11,205,342  
Consumer Staples — 4.5%                

Beverages — 0.9%

               

Coca-Cola Consolidated Inc.

    943       875,481  

 

See Notes to Financial Statements.

 

12     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security   Shares     Value  

Consumer Staples Distribution & Retail — 0.9%

               

Andersons Inc.

    5,873       $337,932  

Sprouts Farmers Market Inc.

    10,180       489,760  * 

Total Consumer Staples Distribution & Retail

            827,692  

Food Products — 0.8%

               

Cal-Maine Foods Inc.

    1,488       85,396  

John B Sanfilippo & Son Inc.

    3,140       323,546  

Simply Good Foods Co.

    8,893       352,163  * 

Total Food Products

            761,105  

Personal Care Products — 1.3%

               

e.l.f. Beauty Inc.

    4,400       635,096  * 

Edgewell Personal Care Co.

    6,656       243,809  

Nature’s Sunshine Products Inc.

    8,998       155,576  * 

USANA Health Sciences Inc.

    3,800       203,680  * 

Total Personal Care Products

            1,238,161  

Tobacco — 0.6%

               

Turning Point Brands Inc.

    5,755       151,472  

Vector Group Ltd.

    34,530       389,498  

Total Tobacco

            540,970  

Total Consumer Staples

            4,243,409  
Energy — 6.4%                

Energy Equipment & Services — 1.5%

               

Helmerich & Payne Inc.

    8,065       292,114  

Nabors Industries Ltd.

    1,567       127,914  * 

Newpark Resources Inc.

    42,000       278,880  * 

RPC Inc.

    25,059       182,430  

Weatherford International PLC

    5,800       567,414  * 

Total Energy Equipment & Services

            1,448,752  

Oil, Gas & Consumable Fuels — 4.9%

               

California Resources Corp.

    8,614       471,014  

DHT Holdings Inc.

    31,324       307,288  

Gulfport Energy Corp.

    2,000       266,400  * 

Murphy Oil Corp.

    15,695       669,549  

Par Pacific Holdings Inc.

    8,500       309,145  * 

PBF Energy Inc., Class A Shares

    9,397       413,092  

Peabody Energy Corp.

    14,100       342,912  

SandRidge Energy Inc.

    32,849       449,046  

Scorpio Tankers Inc.

    4,698       285,638  

 

See Notes to Financial Statements.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     13


Schedule of investments (cont’d)

December 31, 2023

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security   Shares     Value  

Oil, Gas & Consumable Fuels — continued

               

SM Energy Co.

    18,311       $709,002  

Teekay Tankers Ltd., Class A Shares

    8,927       446,082  

Total Oil, Gas & Consumable Fuels

            4,669,168  

Total Energy

            6,117,920  
Financials — 16.9%                

Banks — 8.9%

               

Associated Banc-Corp.

    14,879       318,262  

Bancorp Inc.

    7,000       269,920  * 

BankUnited Inc.

    12,529       406,315  

Berkshire Hills Bancorp Inc.

    14,649       363,735  

Carter Bankshares Inc.

    23,510       351,945  * 

Central Pacific Financial Corp.

    8,998       177,081  

Columbia Banking System Inc.

    7,481       199,593  

CrossFirst Bankshares Inc.

    15,662       212,690  * 

Customers Bancorp Inc.

    8,065       464,705  * 

Eagle Bancorp Inc.

    8,100       244,134  

Equity Bancshares Inc., Class A Shares

    7,481       253,606  

Financial Institutions Inc.

    7,847       167,141  

First BanCorp

    42,880       705,376  

First Commonwealth Financial Corp.

    17,079       263,700  

First Financial Corp.

    5,179       222,852  

First Horizon Corp.

    20,927       296,326  

First Internet Bancorp

    4,708       113,886  

Flushing Financial Corp.

    15,695       258,654  

Hanmi Financial Corp.

    23,919       464,029  

HarborOne Bancorp Inc.

    12,000       143,760  

Heartland Financial USA Inc.

    2,877       108,204  

Heritage Financial Corp.

    6,801       145,473  

HomeStreet Inc.

    5,755       59,276  

HomeTrust Bancshares Inc.

    6,278       169,004  

Hope Bancorp Inc.

    25,270       305,262  

Independent Bank Corp.

    6,000       156,120  

Midland States Bancorp Inc.

    11,136       306,908  

New York Community Bancorp Inc.

    31,508       322,327  

Northeast Community Bancorp Inc.

    14,000       248,360  

OFG Bancorp

    14,461       541,998  

WaFd Inc.

    7,831       258,110  

Total Banks

            8,518,752  

 

See Notes to Financial Statements.

 

14     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security   Shares     Value  

Capital Markets — 0.4%

               

CION Investment Corp.

    17,463       $197,507  

Evercore Inc., Class A Shares

    1,047       179,089  

Total Capital Markets

            376,596  

Consumer Finance — 1.1%

               

Bread Financial Holdings Inc.

    2,877       94,768  

Enova International Inc.

    12,529       693,606  * 

Navient Corp.

    12,529       233,290  

Total Consumer Finance

            1,021,664  

Financial Services — 4.5%

               

A-Mark Precious Metals Inc.

    6,656       201,344  

Essent Group Ltd.

    8,000       421,920  

International Money Express Inc.

    14,095       311,358  * 

Jackson Financial Inc., Class A Shares

    11,746       601,395  

MGIC Investment Corp.

    35,054       676,192  

Mr. Cooper Group Inc.

    6,801       442,881  * 

NMI Holdings Inc., Class A Shares

    10,463       310,542  * 

Radian Group Inc.

    27,476       784,440  

StoneCo Ltd., Class A Shares

    28,974       522,401  * 

Total Financial Services

            4,272,473  

Insurance — 1.7%

               

Ambac Financial Group Inc.

    18,794       309,725  * 

Employers Holdings Inc.

    6,264       246,802  

Enstar Group Ltd.

    1,253       368,820  * 

Genworth Financial Inc., Class A Shares

    78,479       524,240  * 

Greenlight Capital Re Ltd., Class A Shares

    15,000       171,300  * 

Total Insurance

            1,620,887  

Mortgage Real Estate Investment Trusts (REITs) — 0.3%

               

Ladder Capital Corp.

    22,710       261,392  

Total Financials

            16,071,764  
Health Care — 14.8%                

Biotechnology — 6.9%

               

2seventy bio Inc.

    9,397       40,125  * 

Abeona Therapeutics Inc.

    6,696       33,547  * 

ACADIA Pharmaceuticals Inc.

    14,252       446,230  * 

Achillion Pharmaceuticals Inc., CVR

    89,796       0  *(a)(b)(c)  

Aeglea BioTherapeutics Inc., CVR

    30,064       0  *(a)(b)(c)  

Agios Pharmaceuticals Inc.

    6,051       134,756  * 

Akebia Therapeutics Inc.

    62,783       77,851  * 

Alaunos Therapeutics Inc.

    100,850       7,130  * 

Alkermes PLC

    12,529       347,554  * 

 

See Notes to Financial Statements.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     15


Schedule of investments (cont’d)

December 31, 2023

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security   Shares     Value  

Biotechnology — continued

               

Anika Therapeutics Inc.

    3,923       $88,895  * 

Aptevo Therapeutics Inc.

    10,288       1,862  * 

Arcturus Therapeutics Holdings Inc.

    5,873       185,176  * 

Ardelyx Inc.

    115,116       713,719  * 

Arrowhead Pharmaceuticals Inc.

    1,307       39,994  * 

Assembly Biosciences Inc.

    62,292       51,086  * 

Atara Biotherapeutics Inc.

    21,926       11,244  * 

Aurinia Pharmaceuticals Inc.

    18,794       168,958  * 

Beyondspring Inc.

    12,092       10,738  * 

Bluebird Bio Inc.

    18,011       24,855  * 

Blueprint Medicines Corp.

    3,400       313,616  * 

CareDx Inc.

    9,000       108,000  * 

Caribou Biosciences Inc.

    10,986       62,950  * 

CASI Pharmaceuticals Holdings Inc.

    18,577       135,055  * 

Catalyst Pharmaceuticals Inc.

    9,000       151,290  * 

Chimerix Inc.

    21,137       20,344  * 

CytomX Therapeutics Inc.

    26,159       40,546  * 

Deciphera Pharmaceuticals Inc.

    6,801       109,700  * 

Dynavax Technologies Corp.

    9,000       125,820  * 

Eagle Pharmaceuticals Inc.

    4,287       22,421  * 

Editas Medicine Inc.

    6,264       63,454  * 

Enanta Pharmaceuticals Inc.

    2,271       21,370  * 

Entrada Therapeutics Inc.

    4,000       60,360  * 

Fate Therapeutics Inc.

    14,879       55,647  * 

GlycoMimetics Inc.

    90,941       214,621  * 

Halozyme Therapeutics Inc.

    8,500       314,160  * 

Heron Therapeutics Inc.

    21,926       37,274  * 

Homology Medicines Inc.

    39,155       23,806  * 

Infinity Pharmaceuticals Inc.

    120,000       300  * 

Inovio Pharmaceuticals Inc.

    93,972       47,926  * 

Ironwood Pharmaceuticals Inc.

    11,746       134,374  * 

Kiniksa Pharmaceuticals Ltd., Class A Shares

    9,788       171,682  * 

MacroGenics Inc.

    25,059       241,068  * 

MiMedx Group Inc.

    12,000       105,240  * 

NextCure Inc.

    18,311       20,875  * 

PDL BioPharma Inc.

    152,500       24,791  *(a)(b) 

Poseida Therapeutics Inc.

    37,000       124,320  * 

Precigen Inc.

    26,159       35,053  * 

Precision BioSciences Inc.

    53,786       19,632  * 

Protagonist Therapeutics Inc.

    5,000       114,650  * 

 

See Notes to Financial Statements.

 

16     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security   Shares     Value  

Biotechnology — continued

               

Protalix BioTherapeutics Inc.

    30,000       $53,400  * 

Puma Biotechnology Inc.

    18,311       79,287  * 

REGENXBIO Inc.

    4,289       76,988  * 

Rigel Pharmaceuticals Inc.

    66,563       96,516  * 

Sangamo Therapeutics Inc.

    20,360       11,062  * 

Sio Gene Therapies Inc.

    41,855       15,486  * 

Surface Oncology Inc., CVR

    43,029       4,800  *(a)(b) 

Sutro Biopharma Inc.

    16,807       72,102  * 

Twist Bioscience Corp.

    4,100       151,126  * 

Vanda Pharmaceuticals Inc.

    14,649       61,819  * 

Vaxcyte Inc.

    939       58,969  * 

Vericel Corp.

    3,500       124,635  * 

Vir Biotechnology Inc.

    5,755       57,895  * 

Voyager Therapeutics Inc.

    13,446       113,484  * 

Xencor Inc.

    3,452       73,286  * 

Y-mAbs Therapeutics Inc.

    14,879       101,475  * 

Zymeworks Inc.

    12,000       124,680  * 

Total Biotechnology

            6,581,075  

Health Care Equipment & Supplies — 2.1%

               

Avanos Medical Inc.

    4,656       104,434  * 

Electromed Inc.

    22,649       247,101  * 

Haemonetics Corp.

    4,300       367,693  * 

iRadimed Corp.

    3,295       156,414  

Lantheus Holdings Inc.

    2,350       145,700  * 

Masimo Corp.

    1,492       174,877  * 

Semler Scientific Inc.

    6,734       298,249  * 

Varex Imaging Corp.

    9,416       193,028  * 

Zynex Inc.

    25,059       272,892  * 

Total Health Care Equipment & Supplies

            1,960,388  

Health Care Providers & Services — 3.4%

               

Addus HomeCare Corp.

    2,878       267,222  * 

Alignment Healthcare Inc.

    14,722       126,756  * 

AMN Healthcare Services Inc.

    3,663       274,285  * 

Cross Country Healthcare Inc.

    10,180       230,475  * 

Ensign Group Inc.

    7,539       845,951  

InfuSystem Holdings Inc.

    9,416       99,245  * 

Joint Corp.

    7,847       75,410  * 

ModivCare Inc.

    2,584       113,670  * 

Owens & Minor Inc.

    15,000       289,050  * 

 

See Notes to Financial Statements.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     17


Schedule of investments (cont’d)

December 31, 2023

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security   Shares     Value  

Health Care Providers & Services — continued

               

PetIQ Inc.

    23,493       $463,987  * 

Tenet Healthcare Corp.

    6,278       474,429  * 

Total Health Care Providers & Services

            3,260,480  

Health Care Technology — 0.1%

               

Veradigm Inc.

    9,788       102,676  * 

Life Sciences Tools & Services — 0.4%

               

Adaptive Biotechnologies Corp.

    14,095       69,066  * 

Codexis Inc.

    27,408       83,594  * 

Harvard Bioscience Inc.

    14,000       74,900  * 

Quanterix Corp.

    5,481       149,851  * 

Total Life Sciences Tools & Services

            377,411  

Pharmaceuticals — 1.9%

               

Amneal Pharmaceuticals Inc.

    21,000       127,470  * 

Amphastar Pharmaceuticals Inc.

    6,801       420,642  * 

Assertio Holdings Inc.

    50,433       53,963  * 

Assertio Holdings Inc., CVR

    62,783       0  *(a)(b)(c)  

Cara Therapeutics Inc.

    10,463       7,774  * 

Collegium Pharmaceutical Inc.

    4,000       123,120  * 

Corcept Therapeutics Inc.

    6,264       203,455  * 

EyePoint Pharmaceuticals Inc.

    9,000       207,990  * 

Harmony Biosciences Holdings Inc.

    7,000       226,100  * 

Ligand Pharmaceuticals Inc.

    3,500       249,970  * 

SIGA Technologies Inc.

    9,867       55,255  

Theravance Biopharma Inc.

    7,847       88,200  * 

VYNE Therapeutics Inc.

    5,196       12,107  * 

Total Pharmaceuticals

            1,776,046  

Total Health Care

            14,058,076  
Industrials — 17.3%                

Aerospace & Defense — 0.5%

               

AAR Corp.

    7,847       489,653  * 

Building Products — 1.3%

               

Alpha Pro Tech Ltd.

    16,543       87,512  * 

Apogee Enterprises Inc.

    5,716       305,292  

JELD-WEN Holding Inc.

    13,800       260,544  * 

Masonite International Corp.

    6,907       584,747  * 

Total Building Products

            1,238,095  

Commercial Services & Supplies — 0.6%

               

CoreCivic Inc.

    26,996       392,252  * 

GEO Group Inc.

    18,311       198,308  * 

Total Commercial Services & Supplies

            590,560  

 

See Notes to Financial Statements.

 

18     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security   Shares     Value  

Construction & Engineering — 1.9%

               

Argan Inc.

    6,639       $310,639  

Dycom Industries Inc.

    4,186       481,767  * 

Granite Construction Inc.

    7,439       378,347  

Limbach Holdings Inc.

    6,900       313,743  * 

MYR Group Inc.

    2,355       340,604  * 

Total Construction & Engineering

            1,825,100  

Electrical Equipment — 0.9%

               

Atkore Inc.

    1,958       313,280  * 

Encore Wire Corp.

    2,350       501,960  

Total Electrical Equipment

            815,240  

Ground Transportation — 1.1%

               

ArcBest Corp.

    4,186       503,199  

Covenant Logistics Group Inc.

    12,033       553,999  

Total Ground Transportation

            1,057,198  

Machinery — 2.7%

               

Blue Bird Corp.

    12,000       323,520  * 

Briggs & Stratton Corp.

    158,200       0  *(a)(b)(c)  

Commercial Vehicle Group Inc.

    23,300       163,333  * 

Greenbrier Cos. Inc.

    8,736       385,956  

Manitowoc Co. Inc.

    18,311       305,611  * 

Terex Corp.

    9,416       541,043  

Titan International Inc.

    40,611       604,292  * 

Wabash National Corp.

    9,397       240,751  

Total Machinery

            2,564,506  

Marine Transportation — 0.5%

               

Matson Inc.

    4,000       438,400  

Passenger Airlines — 0.3%

               

SkyWest Inc.

    5,700       297,540

Professional Services — 3.8%

               

Barrett Business Services Inc.

    3,290       380,982  

CRA International Inc.

    3,663       362,088  

ExlService Holdings Inc.

    19,625       605,431  * 

Heidrick & Struggles International Inc.

    5,755       169,945  

IBEX Holdings Ltd.

    9,397       178,637  * 

Insperity Inc.

    5,651       662,410  

Kforce Inc.

    9,417       636,212  

TriNet Group Inc.

    3,916       465,730  * 

TrueBlue Inc.

    10,437       160,104  * 

Total Professional Services

            3,621,539  

 

See Notes to Financial Statements.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     19


Schedule of investments (cont’d)

December 31, 2023

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security    Shares      Value  

Trading Companies & Distributors — 3.7%

                 

BlueLinx Holdings Inc.

     5,952        $674,421  * 

Boise Cascade Co.

     4,186        541,501  

Herc Holdings Inc.

     4,186        623,254  

MRC Global Inc.

     36,623        403,219  * 

NOW Inc.

     52,319        592,251  * 

Rush Enterprises Inc., Class A Shares

     13,339        670,952  

Total Trading Companies & Distributors

              3,505,598  

Total Industrials

              16,443,429  
Information Technology — 12.7%                  

Communications Equipment — 1.0%

                 

Extreme Networks Inc.

     23,543        415,298  * 

Infinera Corp.

     46,986        223,183  * 

NETGEAR Inc.

     11,746        171,257  * 

NetScout Systems Inc.

     7,585        166,491  * 

Total Communications Equipment

              976,229  

Electronic Equipment, Instruments & Components — 1.4%

                 

Arlo Technologies Inc.

     35,210        335,199  * 

Avnet Inc.

     3,138        158,155  

Bel Fuse Inc., Class B Shares

     5,000        333,850  

Sanmina Corp.

     6,278        322,501  * 

Vishay Intertechnology Inc.

     6,278        150,484  

Total Electronic Equipment, Instruments & Components

              1,300,189  

IT Services — 0.8%

                 

Couchbase Inc.

     19,577        440,874  * 

DigitalOcean Holdings Inc.

     9,553        350,500  * 

Total IT Services

              791,374  

Semiconductors & Semiconductor Equipment — 2.6%

                 

Alpha & Omega Semiconductor Ltd.

     7,047        183,645  * 

Amkor Technology Inc.

     20,360        677,377  

Axcelis Technologies Inc.

     3,916        507,866  * 

Kulicke & Soffa Industries Inc.

     7,831        428,512  

Photronics Inc.

     20,927        656,480  * 

Total Semiconductors & Semiconductor Equipment

              2,453,880  

Software — 5.1%

                 

8x8 Inc.

     38,372        145,046  * 

A10 Networks Inc.

     26,891        354,154  

Alarm.com Holdings Inc.

     3,924        253,569  * 

Appfolio Inc., Class A Shares

     1,000        173,240  * 

Box Inc., Class A Shares

     12,529        320,868  * 

Cleanspark Inc.

     27,000        297,810  * 

 

See Notes to Financial Statements.

 

20     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security   Shares     Value  

Software — continued

               

CommVault Systems Inc.

    6,610     $ 527,808  * 

Domo Inc., Class B Shares

    3,138       32,290  * 

eGain Corp.

    16,166       134,663  * 

InterDigital Inc.

    3,446       374,029  

LiveRamp Holdings Inc.

    9,880       374,254  * 

Matterport Inc.

    55,365       148,932  * 

Qualys Inc.

    3,977       780,606  * 

Varonis Systems Inc.

    10,571       478,655  * 

Weave Communications Inc.

    26,000       298,220  * 

Yext Inc.

    31,324       184,498  * 

Total Software

            4,878,642  

Technology Hardware, Storage & Peripherals — 1.8%

               

Immersion Corp.

    30,000       211,800  

Stratasys Ltd.

    9,416       134,461  * 

Super Micro Computer Inc.

    3,681       1,046,361  * 

Xerox Holdings Corp.

    16,600       304,278  

Total Technology Hardware, Storage & Peripherals

            1,696,900  

Total Information Technology

            12,097,214  
Materials — 3.7%                

Chemicals — 1.2%

               

AdvanSix Inc.

    9,416       282,103  

American Vanguard Corp.

    10,044       110,183  

Core Molding Technologies Inc.

    8,000       148,240  * 

Ecovyst Inc.

    21,143       206,567  * 

Rayonier Advanced Materials Inc.

    33,307       134,893  * 

Tronox Holdings PLC

    20,169       285,593  

Total Chemicals

            1,167,579  

Containers & Packaging — 0.3%

               

O-I Glass Inc.

    14,095       230,876  * 

Metals & Mining — 1.6%

               

Kaiser Aluminum Corp.

    2,897       206,237  

Olympic Steel Inc.

    4,698       313,357  

Ryerson Holding Corp.

    7,831       271,579  

SunCoke Energy Inc.

    66,847       717,937  

Total Metals & Mining

            1,509,110  

Paper & Forest Products — 0.6%

               

Clearwater Paper Corp.

    8,605       310,813  * 

Sylvamo Corp.

    5,873       288,423  

Total Paper & Forest Products

            599,236  

Total Materials

            3,506,801  

 

See Notes to Financial Statements.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     21


Schedule of investments (cont’d)

December 31, 2023

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security   Shares     Value  
Real Estate — 5.5%                

Health Care REITs — 1.2%

               

Diversified Healthcare Trust

    107,000       $400,180  

National Health Investors Inc.

    5,794       323,595  

Sabra Health Care REIT Inc.

    30,000       428,100  

Total Health Care REITs

            1,151,875  

Hotel & Resort REITs — 2.7%

               

Apple Hospitality REIT Inc.

    26,159       434,501  

Chatham Lodging Trust

    19,463       208,643  

DiamondRock Hospitality Co.

    51,435       482,975  

Park Hotels & Resorts Inc.

    10,571       161,736  

Pebblebrook Hotel Trust

    13,602       217,360  

RLJ Lodging Trust

    22,024       258,121  

Ryman Hospitality Properties Inc.

    1,958       215,498  

Service Properties Trust

    30,541       260,820  

Summit Hotel Properties Inc.

    45,000       302,400  

Total Hotel & Resort REITs

            2,542,054  

Industrial REITs — 0.2%

               

Innovative Industrial Properties Inc.

    2,084       210,109  

Office REITs — 0.4%

               

Brandywine Realty Trust

    45,200       244,080  

Piedmont Office Realty Trust Inc., Class A Shares

    18,572       132,047  

Total Office REITs

            376,127  

Real Estate Management & Development — 0.4%

               

Forestar Group Inc.

    8,700       287,709  * 

RE/MAX Holdings Inc., Class A Shares

    10,180       135,699  

Total Real Estate Management & Development

            423,408  

Residential REITs — 0.2%

               

Apartment Investment and Management Co., Class A Shares

    19,577       153,288  * 

Retail REITs — 0.4%

               

Tanger Inc.

    12,500       346,500  

Total Real Estate

            5,203,361  
Utilities — 2.4%                

Electric Utilities — 1.0%

               

ALLETE Inc.

    5,755       351,976  

Portland General Electric Co.

    13,340       578,156  

Total Electric Utilities

            930,132  

Gas Utilities — 0.4%

               

National Fuel Gas Co.

    3,819       191,599  

Northwest Natural Holding Co.

    5,441       211,873  

Total Gas Utilities

            403,472  

 

See Notes to Financial Statements.

 

22     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

 

Franklin U.S. Small Cap Equity Fund

(Percentages shown based on Fund net assets)

 

Security          Shares     Value  

Water Utilities — 1.0%

                       

Consolidated Water Co. Ltd.

            25,059     $ 892,100  

Total Utilities

                    2,225,704  

Total Investments before Short-Term Investments (Cost — $79,121,991)

 

    93,969,477  
     Rate                
Short-Term Investments — 1.1%                        

Invesco Treasury Portfolio, Institutional Class (Cost — $1,056,066)

    5.622     1,056,066       1,056,066 (d)  

Total Investments — 100.1% (Cost — $80,178,057)

                    95,025,543  

Liabilities in Excess of Other Assets — (0.1)%

                    (50,118

Total Net Assets — 100.0%

                  $ 94,975,425  

 

*

Non-income producing security.

 

(a) 

Security is fair valued in accordance with procedures approved by the Board of Trustees (Note 1).

 

(b) 

Security is valued using significant unobservable inputs (Note 1).

 

(c) 

Value is less than $1.

 

(d) 

Rate shown is one-day yield as of the end of the reporting period.

 

 

Abbreviation(s) used in this schedule:

CVR   — Contingent Value Rights
REIT   — Real Estate Investment Trust

 

See Notes to Financial Statements.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     23


Statement of assets and liabilities

December 31, 2023

 

Assets:         

Investments, at value (Cost — $80,178,057)

   $ 95,025,543  

Dividends receivable

     91,681  

Receivable for Fund shares sold

     17,794  

Other assets

     133,085  

Prepaid expenses

     4,414  

Total Assets

     95,272,517  
Liabilities:         

Trustees’ fees payable

     134,802  

Investment management fee payable

     41,254  

Audit and tax fees payable

     39,126  

Fund accounting fees payable

     27,536  

Transfer agent fees payable

     22,318  

Service and/or distribution fees payable

     13,572  

Payable for Fund shares repurchased

     9,154  

Accrued expenses

     9,330  

Total Liabilities

     297,092  
Total Net Assets    $ 94,975,425  
Net Assets:         

Par value (Note 7)

   $ 75  

Paid-in capital in excess of par value

     80,435,167  

Total distributable earnings (loss)

     14,540,183  
Total Net Assets    $ 94,975,425  
Net Assets:         

Class A

   $ 64,794,001  

Class C

   $ 477,692  

Class FI

   $ 20,089  

Class I

   $ 2,124,748  

Class IS

   $ 27,558,895  
Shares Outstanding:         

Class A

     5,147,193  

Class C

     43,997  

Class FI

     1,710  

Class I

     162,537  

Class IS

     2,191,957  
Net Asset Value:         

Class A (and redemption price)

   $ 12.59  

Class C*

   $ 10.86  

Class FI (and redemption price)

   $ 11.75  

Class I (and redemption price)

   $ 13.07  

Class IS (and redemption price)

   $ 12.57  
Maximum Public Offering Price Per Share:         

Class A (based on maximum initial sales charge of 5.50%)

   $ 13.32  

 

*

Redemption price per share is NAV of Class C shares reduced by a 1.00% CDSC if shares are redeemed within one year from purchase payment (Note 2).

 

See Notes to Financial Statements.

 

24     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


Statement of operations

For the Year Ended December 31, 2023

 

Investment Income:         

Dividends

   $ 1,480,953  

Less: Foreign taxes withheld

     (4,329)  

Total Investment Income

     1,476,624  
Expenses:         

Investment management fee (Note 2)

     664,772  

Service and/or distribution fees (Notes 2 and 5)

     146,705  

Transfer agent fees (Notes 2 and 5)

     136,770  

Registration fees

     73,379  

Fund accounting fees

     66,325  

Audit and tax fees

     39,126  

Legal fees

     30,664  

Shareholder reports

     13,449  

Trustees’ fees

     6,662  

Commitment fees (Note 8)

     808  

Insurance

     688  

Custody fees

     86  

Fees recaptured by investment manager (Note 2)

     68  

Miscellaneous expenses

     6,278  

Total Expenses

     1,185,780  

Less: Fee waivers and/or expense reimbursements (Notes 2 and 5)

     (209,241)  

Net Expenses

     976,539  
Net Investment Income      500,085  
Realized and Unrealized Gain on Investments and Foreign Currency Transactions (Notes 1, 3 and 9):

 

Net Realized Gain From:

        

Investment transactions

     2,232,348  

Foreign currency transactions

     1  

Net Realized Gain

     2,232,349  

Change in Net Unrealized Appreciation (Depreciation) From Investments

     14,514,425  
Net Gain on Investments and Foreign Currency Transactions      16,746,774  
Increase in Net Assets From Operations    $ 17,246,859  

 

See Notes to Financial Statements.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     25


Statements of changes in net assets

 

 

For the Years Ended December 31,    2023      2022  
Operations:                  

Net investment income

   $ 500,085      $ 325,459  

Net realized gain

     2,232,349        10,445,934  

Change in net unrealized appreciation (depreciation)

     14,514,425        (37,624,863)  

Increase (Decrease) in Net Assets From Operations

     17,246,859        (26,853,470)  
Distributions to Shareholders From (Notes 1 and 6):                  

Total distributable earnings

     (3,663,371)        (5,718,112)  

Decrease in Net Assets From Distributions to Shareholders

     (3,663,371)        (5,718,112)  
Fund Share Transactions (Note 7):                  

Net proceeds from sale of shares

     10,409,204        10,186,124  

Reinvestment of distributions

     3,653,575        5,705,292  

Cost of shares repurchased

     (33,873,019)        (34,407,097)  

Shares redeemed in-kind (Note 9)

            (37,396,485)  

Decrease in Net Assets From Fund Share Transactions

     (19,810,240)        (55,912,166)  

Decrease in Net Assets

     (6,226,752)        (88,483,748)  
Net Assets:                  

Beginning of year

     101,202,177        189,685,925  

End of year

   $ 94,975,425      $ 101,202,177  

 

See Notes to Financial Statements.

 

26     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


Financial highlights

 

 For a share of each class of beneficial interest outstanding throughout each year ended December 31:  
Class A Shares1   2023     2022     2021     2020     2019  
Net asset value, beginning of year     $11.02       $13.71       $13.09       $12.22       $10.29  
Income (loss) from operations:          

Net investment income

    0.04       0.01       0.04       0.04       0.04  

Net realized and unrealized gain (loss)

    1.98       (2.14)       3.84       1.29       2.05  

Total income (loss) from operations

    2.02       (2.13)       3.88       1.33       2.09  
Less distributions from:          

Net investment income

    (0.01)       (0.04)       (0.00) 2       (0.10)       (0.02)  

Net realized gains

    (0.44)       (0.52)       (3.26)       (0.36)       (0.14)  

Total distributions

    (0.45)       (0.56)       (3.26)       (0.46)       (0.16)  
Net asset value, end of year     $12.59       $11.02       $13.71       $13.09       $12.22  

Total return3

    18.54     (15.42)     30.03     10.99     20.43
Net assets, end of year (000s)     $64,794       $56,113       $68,716       $12,128       $13,223  
Ratios to average net assets:          

Gross expenses

    1.44     1.36     1.32     1.27     1.24

Net expenses4,5

    1.20       1.20       1.19       1.14       1.12  

Net investment income

    0.37       0.08       0.23       0.37       0.38  
Portfolio turnover rate     34     31 %6       39     37     51

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

Amount represents less than $0.005 or greater than $(0.005) per share.

 

3 

Performance figures, exclusive of sales charges, may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

4 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses to average net assets of Class A shares did not exceed 1.30%. This expense limitation arrangement cannot be terminated prior to December 31, 2025 without the Board of Trustees’ consent. The manager currently intends to voluntarily waive fees and/or reimburse expenses so that total annual fund operating expenses do not exceed 1.20%. This arrangement is expected to continue until December 31, 2025, but may be terminated at any time by the manager. These expense limitation arrangements do not include interest, brokerage commissions, dividend expense on short sales, taxes, extraordinary expenses and acquired fund fees and expenses.

 

5 

Reflects fee waivers and/or expense reimbursements.

 

6 

Excludes securities delivered as a result of a redemption in-kind.

 

See Notes to Financial Statements.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     27


Financial highlights (cont’d)

 

For a share of each class of beneficial interest outstanding throughout each year ended December 31:  
Class C Shares1   2023     2022     2021     2020     2019  
Net asset value, beginning of year     $9.62       $12.10       $11.95       $11.17       $9.47  
Income (loss) from operations:          

Net investment loss

    (0.04)       (0.07)       (0.12)       (0.04)       (0.05)  

Net realized and unrealized gain (loss)

    1.72       (1.89)       3.53       1.18       1.89  

Total income (loss) from operations

    1.68       (1.96)       3.41       1.14       1.84  
Less distributions from:          

Net realized gains

    (0.44)       (0.52)       (3.26)       (0.36)       (0.14)  

Total distributions

    (0.44)       (0.52)       (3.26)       (0.36)       (0.14)  
Net asset value, end of year     $10.86       $9.62       $12.10       $11.95       $11.17  

Total return2

    17.68     (16.08)     28.92     10.16     19.52
Net assets, end of year (000s)     $478       $366       $326       $640       $1,125  
Ratios to average net assets:          

Gross expenses

    2.14     2.11     2.04     2.05     2.04 %3 

Net expenses4,5

    1.95       1.95       1.95       1.91       1.93 3  

Net investment loss

    (0.38)       (0.64)       (0.84)       (0.42)       (0.42)  
Portfolio turnover rate     34     31 %6       39     37     51

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

Performance figures, exclusive of CDSC, may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

3 

Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years.

 

4 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses to average net assets of Class C shares did not exceed 2.05%. This expense limitation arrangement cannot be terminated prior to December 31, 2025 without the Board of Trustees’ consent. The manager currently intends to voluntarily waive fees and/or reimburse expenses so that total annual fund operating expenses do not exceed 1.95%. This arrangement is expected to continue until December 31, 2025, but may be terminated at any time by the manager. These expense limitation arrangements do not include interest, brokerage commissions, dividend expense on short sales, taxes, extraordinary expenses and acquired fund fees and expenses.

 

5 

Reflects fee waivers and/or expense reimbursements.

 

6 

Excludes securities delivered as a result of a redemption in-kind.

 

See Notes to Financial Statements.

 

28     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

For a share of each class of beneficial interest outstanding throughout each year ended December 31:  
Class FI Shares1   2023     2022     2021     2020     2019  
Net asset value, beginning of year     $10.32       $12.86       $12.45       $11.61       $9.78  
Income (loss) from operations:          

Net investment income

    0.04       0.01       0.00 2       0.02       0.04  

Net realized and unrealized gain (loss)

    1.84       (2.00)       3.67       1.24       1.95  

Total income (loss) from operations

    1.88       (1.99)       3.67       1.26       1.99  
Less distributions from:          

Net investment income

    (0.01)       (0.03)             (0.06)       (0.02)  

Net realized gains

    (0.44)       (0.52)       (3.26)       (0.36)       (0.14)  

Total distributions

    (0.45)       (0.55)       (3.26)       (0.42)       (0.16)  
Net asset value, end of year     $11.75       $10.32       $12.86       $12.45       $11.61  

Total return3

    18.47     (15.37)     29.85     10.94     20.42
Net assets, end of year (000s)     $20       $18       $23       $18       $150  
Ratios to average net assets:          

Gross expenses

    1.67     1.78     1.77     1.72     1.41 %4 

Net expenses5,6

    1.20       1.20       1.20       1.20       1.20 4  

Net investment income

    0.37       0.09       0.03       0.24       0.33  
Portfolio turnover rate     34     31 %7       39     37     51

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

Amount represents less than $0.005 or greater than $(0.005) per share.

 

3 

Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

4 

Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years.

 

5 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses to average net assets of Class FI shares did not exceed 1.30%. This expense limitation arrangement cannot be terminated prior to December 31, 2025 without the Board of Trustees’ consent. The manager currently intends to voluntarily waive fees and/or reimburse expenses so that total annual fund operating expenses do not exceed 1.20%. This arrangement is expected to continue until December 31, 2025, but may be terminated at any time by the manager. These expense limitation arrangements do not include interest, brokerage commissions, dividend expense on short sales, taxes, extraordinary expenses and acquired fund fees and expenses.

 

6 

Reflects fee waivers and/or expense reimbursements.

 

7 

Excludes securities delivered as a result of a redemption in-kind.

 

See Notes to Financial Statements.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     29


Financial highlights (cont’d)

 

For a share of each class of beneficial interest outstanding throughout each year ended December 31:  
Class I Shares1   2023     2022     2021     2020     2019  
Net asset value, beginning of year     $11.43       $14.18       $13.43       $12.52       $10.53  
Income (loss) from operations:          

Net investment income

    0.08       0.05       0.04       0.07       0.07  

Net realized and unrealized gain (loss)

    2.05       (2.21)       3.97       1.33       2.11  

Total income (loss) from operations

    2.13       (2.16)       4.01       1.40       2.18  
Less distributions from:          

Net investment income

    (0.05)       (0.07)       (0.00) 2       (0.13)       (0.05)  

Net realized gains

    (0.44)       (0.52)       (3.26)       (0.36)       (0.14)  

Total distributions

    (0.49)       (0.59)       (3.26)       (0.49)       (0.19)  
Net asset value, end of year     $13.07       $11.43       $14.18       $13.43       $12.52  

Total return3

    18.81     (15.10)     30.22     11.26     20.74
Net assets, end of year (000s)     $2,125       $1,555       $2,274       $3,718       $4,257  
Ratios to average net assets:          

Gross expenses

    1.15     1.11     1.03     1.06     1.05 %4 

Net expenses5,6

    0.90       0.90       0.90       0.90       0.90 4  

Net investment income

    0.67       0.37       0.27       0.60       0.58  
Portfolio turnover rate     34     31 %7       39     37     51

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

Amount represents less than $0.005 or greater than $(0.005) per share.

 

3 

Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

4 

Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years.

 

5 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses to average net assets of Class I shares did not exceed 1.00%. This expense limitation arrangement cannot be terminated prior to December 31, 2025 without the Board of Trustees’ consent. The manager currently intends to voluntarily waive fees and/or reimburse expenses so that total annual fund operating expenses do not exceed 0.90%. This arrangement is expected to continue until December 31, 2025, but may be terminated at any time by the manager. These expense limitation arrangements do not include interest, brokerage commissions, dividend expense on short sales, taxes, extraordinary expenses and acquired fund fees and expenses.

 

6 

Reflects fee waivers and/or expense reimbursements.

 

7 

Excludes securities delivered as a result of a redemption in-kind.

 

See Notes to Financial Statements.

 

30     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

 For a share of each class of beneficial interest outstanding throughout each year ended December 31:  
Class IS Shares1   2023     2022     2021     2020     2019  
Net asset value, beginning of year     $11.01       $13.73       $13.07       $12.19       $10.26  
Income (loss) from operations:          

Net investment income

    0.09       0.05       0.07       0.08       0.09  

Net realized and unrealized gain (loss)

    1.97       (2.12)       3.85       1.30       2.05  

Total income (loss) from operations

    2.06       (2.07)       3.92       1.38       2.14  
Less distributions from:          

Net investment income

    (0.06)       (0.13)       (0.00)2       (0.14)       (0.07)  

Net realized gains

    (0.44)       (0.52)       (3.26)       (0.36)       (0.14)  

Total distributions

    (0.50)       (0.65)       (3.26)       (0.50)       (0.21)  
Net asset value, end of year     $12.57       $11.01       $13.73       $13.07       $12.19  

Total return3

    18.95     (14.92 )%      30.38     11.47     20.92
Net assets, end of year (000s)     $27,559       $43,150       $118,348       $122,658       $126,394  
Ratios to average net assets:          

Gross expenses

    0.94%       0.88%       0.84%       0.89%       0.86%4  

Net expenses5,6

    0.75       0.75       0.75       0.75       0.754  

Net investment income

    0.78       0.39       0.46       0.76       0.77  
Portfolio turnover rate     34     31 %7       39     37     51

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

Amount represents less than $0.005 or greater than $(0.005) per share.

 

3 

Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

4 

Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years.

 

5 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses to average net assets of Class IS shares did not exceed 0.75%. In addition, the ratio of total annual fund operating expenses for Class IS shares did not exceed the ratio of total annual fund operating expenses for Class I shares. These expense limitation arrangements cannot be terminated prior to December 31, 2025 without the Board of Trustees’ consent. These expense limitation arrangements do not include interest, brokerage commissions, dividend expense on short sales, taxes, extraordinary expenses and acquired fund fees and expenses.

 

6 

Reflects fee waivers and/or expense reimbursements.

 

7 

Excludes securities delivered as a result of a redemption in-kind.

 

See Notes to Financial Statements.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     31


Notes to financial statements

 

1. Organization and significant accounting policies

Franklin U.S. Small Cap Equity Fund (the “Fund”) is a separate diversified investment series of Legg Mason Global Asset Management Trust (the “Trust”). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.

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”). The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”), including, but not limited to, ASC 946. Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.

(a) Investment valuation. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services typically use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Trustees.

Pursuant to policies adopted by the Board of Trustees, the Fund’s manager has been designated as the valuation designee and is responsible for the oversight of the daily valuation process. The Fund’s manager is assisted by the Global Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee is responsible for making fair value

 

32     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Fund’s manager and the Board of Trustees. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.

The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.

For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Trustees, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Trustees quarterly.

The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.

GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:

 

 

Level 1 — unadjusted quoted prices in active markets for identical investments

 

 

Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

 

 

Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     33


Notes to financial statements (cont’d)

 

The following is a summary of the inputs used in valuing the Fund’s assets carried at fair value:

 

     ASSETS                
Description  

Quoted Prices

(Level 1)

   

Other Significant

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

    Total  
Long-Term Investments†:                                

Common Stocks:

                               

Health Care

  $ 14,028,485           $ 29,591     $ 14,058,076  

Industrials

    16,443,429             0     16,443,429  

Other Common Stocks

    63,467,972                   63,467,972  
Total Long-Term Investments     93,939,886             29,591       93,969,477  
Short-Term Investments†     1,056,066                   1,056,066  
Total Investments   $ 94,995,952           $ 29,591     $ 95,025,543  

 

See Schedule of Investments for additional detailed categorizations.

 

*

Amount represents less than $1.

(b) Foreign investment risks. The Fund’s investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or may pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.

(c) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities) is recorded on the accrual basis. Amortization of premiums and accretion of discounts on debt securities are recorded to interest income over the lives of the respective securities, except for premiums on certain callable debt securities, which are amortized to the earliest call date. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.

(d) REIT distributions. The character of distributions received from Real Estate Investment Trusts (‘‘REITs’’) held by the Fund is generally comprised of net investment income, capital gains, and return of capital. It is the policy of the Fund to estimate the character of distributions received from underlying REITs based on historical data provided by the REITs. After each calendar year end, REITs report the actual tax character of these distributions.

 

34     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

Differences between the estimated and actual amounts reported by the REITs are reflected in the Fund’s records in the year in which they are reported by the REITs by adjusting related investment cost basis, capital gains and income, as necessary.

(e) Distributions to shareholders. Distributions from net investment income and distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.

(f) Share class accounting. Investment income, common expenses and realized/ unrealized gains (losses) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Fees relating to a specific class are charged directly to that share class.

(g) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Fund’s cash on deposit with the bank.

(h) Federal and other taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the “Code”), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Fund’s financial statements.

Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of December 31, 2023, no provision for income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates.

(i) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current year, the following reclassifications have been made:

 

       

Total Distributable

Earnings (Loss)

      

Paid-in

Capital

 
(a)      $ (339,708)        $ 339,708  

 

(a) 

Reclassifications are due to distributions paid in connection with the redemption of Fund shares.

2. Investment management agreement and other transactions with affiliates

Franklin Templeton Fund Adviser, LLC (“FTFA”) (formerly known as Legg Mason Partners Fund Advisor, LLC (“LMPFA”) prior to November 30, 2023) is the Fund’s investment manager.

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     35


Notes to financial statements (cont’d)

 

Franklin Advisers, Inc. (“Franklin Advisers”) is the Fund’s subadviser. Western Asset Management Company, LLC (“Western Asset”) manages the portion of the Fund’s cash and short-term instruments allocated to it. FTFA, Franklin Advisers and Western Asset are wholly-owned subsidiaries of Franklin Resources, Inc. (“Franklin Resources”).

Under the investment management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.70% of the Fund’s average daily net assets.

FTFA provides administrative and certain oversight services to the Fund. FTFA delegates to the subadviser the day-to-day portfolio management of the Fund, except for the management of the portion of the cash and short-term instruments allocated to Western Asset. To the extent FTFA receives a management fee after taking into account its contractual obligation to limit expenses as discussed below, FTFA pays Franklin Advisers monthly the entire management fee it receives from the Fund, net of any fees paid to Western Asset. For Western Asset’s services to the Fund, FTFA pays Western Asset monthly 0.02% of the portion of the Fund’s average daily net assets that are allocated to Western Asset by FTFA.

As a result of expense limitation arrangements between the Fund and FTFA, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, dividend expense on short sales, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class A, Class C, Class FI, Class I and Class IS shares did not exceed 1.30%, 2.05%, 1.30%, 1.00% and 0.75%, respectively. In addition, the ratio of total annual fund operating expenses for Class IS shares did not exceed the ratio of total annual fund operating expenses for Class I shares. These expense limitation arrangements cannot be terminated prior to December 31, 2025 without the Board of Trustees’ consent.

As a result of voluntary expense limitation arrangements, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, dividend expense on short sales, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets did not exceed 1.20%, 1.95%, 1.20% and 0.90% for Class A, Class C, Class FI and Class I shares, respectively. These arrangements are expected to continue until December 31, 2025, but may be terminated at any time by FTFA.

During the year ended December 31, 2023, fees waived and/or expenses reimbursed amounted to $209,241.

FTFA is permitted to recapture amounts waived and/or reimbursed to a class within three years after the fiscal year in which FTFA earned the fee or incurred the expense if the class’ total annual fund operating expenses have fallen to a level below the expense limitation (“expense cap”) in effect at the time the fees were earned or the expenses incurred. In no case will FTFA recapture any amount that would result, on any particular business day of the Fund, in the class’ total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.

 

36     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

Pursuant to these arrangements, at December 31, 2023, the Fund had remaining fee waivers and/or expense reimbursements subject to recapture by FTFA and respective dates of expiration as follows:

 

      Class A      Class C      Class FI      Class I      Class IS  
Expires December 31, 2024    $ 48,505      $ 463      $ 119      $ 4,886      $ 109,106  
Expires December 31, 2025      95,430        428        109        3,753        93,420  
Expires December 31, 2026      134,801        747        84        4,198        69,411  
Total fee waivers/expense
reimbursements subject to recapture
   $ 278,736      $ 1,638      $ 312      $ 12,837      $ 271,937  

For the year ended December 31, 2023, fee waivers and/or expense reimbursements recaptured by FTFA were as follows:

 

        Class C  
FTFA recaptured      $ 68  

Franklin Distributors, LLC (“Franklin Distributors”) serves as the Fund’s sole and exclusive distributor. Franklin Distributors is an indirect, wholly-owned broker-dealer subsidiary of Franklin Resources. Franklin Templeton Investor Services, LLC (“Investor Services”) serves as the Fund’s shareholder servicing agent and acts as the Fund’s transfer agent and dividend-paying agent. Investor Services is an indirect, wholly-owned subsidiary of Franklin Resources. Each class of shares of the Fund pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Investor Services charges account-based fees based on the number of individual shareholder accounts, as well as a fixed percentage fee based on the total account-based fees charged. In addition, each class reimburses Investor Services for out of pocket expenses incurred. For the year ended December 31, 2023, the Fund incurred transfer agent fees as reported on the Statement of Operations, of which $3,950 was earned by Investor Services.

There is a maximum initial sales charge of 5.50% for Class A shares. There is a contingent deferred sales charge (“CDSC”) of 1.00% on Class C shares, which applies if redemption occurs within 12 months from purchase payment. In certain cases, Class A shares have a 1.00% CDSC, which applies if redemption occurs within 18 months from purchase payment. This CDSC only applies to those purchases of Class A shares, which, when combined with current holdings of other shares of funds sold by Franklin Distributors, equal or exceed $1,000,000 in the aggregate. These purchases do not incur an initial sales charge.

For the year ended December 31, 2023, sales charges retained by and CDSCs paid to Franklin Distributors and its affiliates, if any, were as follows:

 

        Class A  
Sales charges      $ 13,134  
CDSCs        139  

Under a Deferred Compensation Plan (the “Plan”), Trustees may have elected to defer receipt of all or a specified portion of their compensation. A participating Trustee selected one or more funds managed by FTFA or an affiliate of FTFA in which his or her deferred

 

Franklin U.S. Small Cap Equity Fund 2023 Annual Report     37


Notes to financial statements (cont’d)

 

trustee’s fees were deemed to be invested. Until distributed in accordance with the Plan, deferred amounts remain in the Fund and are included in Trustees’ fee payable on the Statement of Assets and Liabilities. In May 2015, the Board of Trustees approved an amendment to the Plan so that effective January 1, 2016, no compensation earned after that date may be deferred under the Plan.

All officers and one Trustee of the Trust are employees of Franklin Resources or its affiliates and do not receive compensation from the Trust.

As of December 31, 2023, Franklin Resources and its affiliates owned 28% of the Fund.

3. Investments

During the year ended December 31, 2023, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:

 

Purchases      $ 31,480,289  
Sales        54,089,143  

At December 31, 2023, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:

 

      Cost     

Gross

Unrealized

Appreciation

    

Gross

Unrealized

Depreciation

    

Net

Unrealized

Appreciation

 
Securities    $ 80,508,964      $ 27,552,483      $ (13,035,904)      $ 14,516,579  

4. Derivative instruments and hedging activities

During the year ended December 31, 2023, the Fund did not invest in derivative instruments.

5. Class specific expenses, waivers and/or expense reimbursements

The Fund has adopted a Rule 12b-1 shareholder services and distribution plan and under that plan the Fund pays service and/or distribution fees with respect to its Class A, Class C and Class FI shares calculated at the annual rate of 0.25%, 1.00% and 0.25% of the average daily net assets of each class, respectively. Service and/or distribution fees are accrued daily and paid monthly.

For the year ended December 31, 2023, class specific expenses were as follows:

 

       

Service and/or

Distribution Fees

      

Transfer Agent

Fees

 
Class A      $ 142,797        $ 132,534  
Class C        3,864          665  
Class FI        44          85  
Class I                 3,238  
Class IS                 248  
Total      $ 146,705        $ 136,770  

 

38     Franklin U.S. Small Cap Equity Fund 2023 Annual Report


 

For the year ended December 31, 2023, waivers and/or expense reimbursements by class were as follows:

 

       

Waivers/Expense

Reimbursements

 
Class A      $ 134,801  
Class C        747  
Class FI        84  
Class I        4,198  
Class IS        69,411  
Total      $ 209,241  

6. Distributions to shareholders by class

 

       

Year Ended

December 31, 2023

      

Year Ended

December 31, 2022

 
Net Investment Income:                      
Class A      $ 58,954        $ 196,777  
Class C                  
Class FI        23          48  
Class I        7,563          10,333  
Class IS        133,467          582,848  
Total      $ 200,007        $ 790,006  
Net Realized Gains:                      
Class A      $ 2,183,808        $ 2,566,693  
Class C        15,994          18,416  
Class FI        724          848  
Class I        65,686