We are pleased to present the semi-annual report for Franklin BSP Private Credit Fund (“FBSPX” or the “Fund”) for the period ended June 30, 2026. The Fund began 2026 on a strong footing, with Advisor Class shares generating a cumulative total return of 8.16% year to date as of June 30, 2026, bringing the annualized return since inception to 10.30%. As of June 30, 2026, the Fund had $173.16 million of managed assets across 175 holdings, with 75.10% of the portfolio invested in floating-rate instruments. Please find below an update on portfolio positioning and our market outlook.

The Fund offers broad exposure across credit-focused strategies, utilizing BSP’s experience deploying capital through multiple business cycles. The Fund seeks to generate attractive risk-adjusted returns with consistent current income by investing primarily in private credit investments of U.S. middle-market companies, typically those with annual revenues up to $1 billion, including privately offered secured and unsecured debt, special situations, commercial real estate debt, structured credit, broadly syndicated corporate loans, and high yield corporate bonds.

BSP’s multi-strategy credit platform provides the Fund with flexibility to invest across the capital structure and dynamically allocate capital as relative value changes. FBSPX pairs a core allocation to direct lending and illiquid loans with allocations to mezzanine debt, commercial real estate debt, structured credit, distressed debt and special situations, and a liquidity allocation that can include broadly syndicated loans and high yield bonds.

The first half of 2026 was defined by a noisy private-credit backdrop, with several distinct concerns often grouped into the same market discussion. Fraud-related incidents in complex asset-backed finance, elevated tender activity and proration across certain non-traded BDCs and unlisted closed-end funds, bank exposure to private credit, and AI disruption in software all drew attention, but they did not carry the same credit implications. In our view, that distinction matters: we believe that many of these events were idiosyncratic or structural, while AI risk is more fundamental because it can affect borrower revenue durability, pricing power, and refinancing outcomes over time.

On the surface, private-credit fundamentals remained broadly stable. Elevated base rates continued to support floating-rate lenders, labor-market data remained resilient, and default pressure appeared more tied to borrower-specific issues, vintage, and workout execution than to a broad macro credit cycle.

Beneath that stability, however, capital was becoming more selective. Redemption pressure in some evergreen structures drew attention, and the approaching maturity wall reinforced the importance of underwriting discipline and liquidity management. In our view, this retrenchment may help to restore negotiating leverage to disciplined lenders and create a healthier opportunity set for managers with the patience to be selective.

Within liquid credit markets, dispersion was the clearest expression of that selectivity. AI disruption has not led to broad-based weakness across the broadly syndicated loan market; rather, it has created a sharper divergence between software borrowers perceived to be exposed to AI disruption and those viewed as beneficiaries or more insulated from that risk. Software and technology loans became clear outliers, while most other sectors traded closer to normal ranges. Unlike prior risk-off periods, such as COVID-19 or the 2022 rate shock, this was not a synchronized spread-widening event; it was a market beginning to separate business models, sectors, and managers more aggressively. In our view, this is not simply a transient spread spike that should be underwritten as automatic mean reversion. Rather, it is a repricing of business-model durability. Some borrowers may recover as the market distinguishes durable platforms from exposed tools; others may not, because AI is changing product economics and competitive positioning, not just investor sentiment. That makes name-level research central to the opportunity: identifying the winners and losers as the market adjusts to a more fundamental shift.

With respect to the Fund, performance has been supported by the Fund's core direct lending allocation, which continues to benefit from the elevated interest rate environment, and by our ability to capitalize on dispersion through strong security selection and active repositioning within the liquid opportunistic sleeve. In the fourth quarter of 2025, we reduced software exposure in the liquid portfolio and rotated into semiconductor-related exposure to better capture the AI-related investment opportunity. We believe this repositioning contributed meaningfully to alpha generation year to date, as software credits sold off while semiconductor-related names rallied.

Looking ahead, the same dispersion that creates risk may also create opportunity. We believe FBSPX’s multi-strategy approach remains important in this environment: the core direct lending allocation can provide current income, while the Fund's liquid and opportunistic allocations provide flexibility to adjust as relative value changes. We will continue to underwrite borrower by borrower, use liquidity where it is valuable, and focus on credit quality, downside protection, and attractive risk-adjusted returns for shareholders.

On behalf of everyone at Franklin Templeton and Benefit Street Partners, thank you for your continued partnership and trust. Please do not hesitate to reach out to our team with any questions.

Sincerely,

 

Richard J. Byrne

Chief Executive Officer and President