Franklin Templeton Investments Corp. et al.
Headnote
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from NI 41-101 to funds offering exchange-traded and conventional mutual fund series under a single simplified prospectus -- subject to conditions -- Technical relief granted from Parts 9, 10 and 14 of NI 81-102 to permit each fund to treat its exchange-traded and conventional mutual fund series as if each such series was a separate fund for the purpose of compliance with Parts 9, 10 and 14 of NI 81-102 -- subject to conditions.
Applicable Legislative Provisions
National Instrument 41-101 General Prospectus Requirements, ss. 3.1(2) and 19.1(1).
National Instrument 81-102 Investment Funds, Parts 9, 10 and 14 and s. 19.1(1).
March 23, 2023
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF FRANKLIN TEMPLETON INVESTMENTS CORP. (the Filer) AND IN THE MATTER OF FRANKLIN BISSETT ULTRA SHORT BOND ACTIVE ETF (the Converting ETF) AND IN THE MATTER OF THE FUNDS LISTED IN SCHEDULE A (the Continuing Funds) AND IN THE MATTER OF FRANKLIN GLOBAL AGGREGATE BOND ACTIVE ETF (CAD-HEDGED) (the Continuing ETF)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the Converting ETF and the Continuing ETF, each being a mutual fund that offers ETF Securities (as defined below) and intends to offer Mutual Fund Securities (as defined below), to the Continuing Funds, each being a mutual fund that offers Mutual Fund Securities and intends to offer ETF Securities, and to such other mutual funds as are managed or may be managed by the Filer now or in the future that offer ETF Securities and Mutual Fund Securities (together with the Converting ETF, the Continuing ETF and the Continuing Funds, the Funds, and each, a Fund) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that grants exemptive relief to the Filer and each Fund as set forth below (collectively, the Exemption Sought):
(a) an exemption from the requirement to prepare and file a long form prospectus for the ETF Securities in the form prescribed by Form 41-101F2 Information Required in an Investment Fund Prospectus (Form 41-101F2), provided that the Filer files a simplified prospectus for the ETF Securities in the form prescribed by Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1) in accordance with the provisions of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the ETF Securities (the ETF Prospectus Form Relief); and
(b) an exemption from the provisions of Parts 9, 10 and 14 of National Instrument 81-102 Investment Funds (NI 81-102) (the Sales and Redemptions Requirements) to permit the Filer and each Fund to treat the ETF Securities and the Mutual Fund Securities as if such securities were separate funds for the purposes of compliance with the provisions of the Sales and Redemptions Requirements (the Sales and Redemptions Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filer and the Funds in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Québec, Saskatchewan and Yukon (together with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Authorized Dealer means a registered dealer that has entered, or intends to enter, into an agreement with the manager of a Fund authorizing the dealer to subscribe for, purchase and redeem Creation Units from one or more Funds on a continuous basis from time to time.
Basket of Securities means, in relation to the ETF Securities of a Fund, a group of securities or assets representing the constituents of the Fund.
Designated Broker means a registered dealer that has entered, or intends to enter, into an agreement with the Filer or an affiliate of the Filer on behalf of a Fund to perform certain duties in relation to the ETF Securities of the Fund, including the posting of a liquid two-way market for the trading of the Fund's ETF Securities on the TSX or another Marketplace.
ETF Facts means a prescribed summary disclosure document required pursuant to NI 41-101 in respect of one or more classes or series of ETF Securities being distributed under a prospectus.
ETF Securities means securities of an exchange-traded class or series of a Fund that are listed or will be listed on the TSX or another Marketplace and that will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1.
Fund Facts means a prescribed summary disclosure document required pursuant to NI 81-101 in respect of one or more classes or series of Mutual Fund Securities being distributed under a prospectus.
Marketplace means a "marketplace" as defined in National Instrument 21-101 Marketplace Operation that is located in Canada.
Mutual Fund Securities means securities of a non-exchange-traded class or series of a Fund that are or will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1.
NI 41-101 means National Instrument 41-101 General Prospectus Requirements.
Other Dealer means a registered dealer that is not an Authorized Dealer or Designated Broker.
Prescribed Number of ETF Securities means, in relation to a Fund, the number of ETF Securities of the Fund determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.
Prospectus Delivery Requirement means the requirement that a dealer, not acting as agent of the purchaser, who receives an order or subscription for a security offered in a distribution to which the prospectus requirement of the Legislation applies, send or deliver to the purchaser or its agent, unless the dealer has previously done so, the latest prospectus and any amendment either before entering into an agreement of purchase and sale resulting from the order or subscription, or not later than midnight on the second business day after entering into that agreement.
Securityholders means beneficial or registered holders of ETF Securities or Mutual Fund Securities of a Fund, as applicable.
TSX means the Toronto Stock Exchange.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation amalgamated under the laws of Ontario, having its head office in Toronto, Ontario.
2. The Filer is registered as an investment fund manager in British Columbia, Alberta, Manitoba, Ontario, Québec, Nova Scotia and Newfoundland and Labrador, as a mutual fund dealer, portfolio manager and exempt market dealer in each province of Canada and the Yukon, and as a commodity trading manager in Ontario.
3. The Filer is, or will be, the investment fund manager of each Fund. The Filer or an affiliate of the Filer is, or will be, the portfolio manager of the Funds.
4. The Filer is not in default of securities legislation in any of the Jurisdictions.
The Funds
5. Each Fund is, or will be, a mutual fund established under the laws of a Jurisdiction. Each Fund is, or will be, a reporting issuer in the Jurisdictions in which its securities are distributed.
6. Each Fund that relies on the Exemption Sought will offer ETF Securities and Mutual Fund Securities.
7. Subject to any exemptions therefrom that have been, or may be, granted by the applicable securities regulatory authorities, each Fund is, or will be, subject to NI 81-102.
8. Securities of the Converting ETF, each fund listed in Schedule B (collectively, the Terminating ETFs) and the Continuing ETF are listed on the TSX and are qualified for sale in each of the Jurisdictions under a long form prospectus and ETF Facts dated May 17, 2022 or August 29, 2022, as applicable, as amended, each of which has been prepared in accordance with NI 41-101.
9. Securities of Franklin Global Aggregate Bond Fund (the Terminating Fund) and each Continuing Fund are qualified for sale under a simplified prospectus, annual information form and Fund Facts dated May 27, 2022, as amended, each of which has been prepared in accordance with NI 81-101.
10. Each Terminating ETF currently invests all or substantially all of its assets in securities of its corresponding Continuing Fund.
11. The Terminating Fund currently invests all or substantially all of its assets in securities of the Continuing ETF.
12. The Converting ETF, the Terminating Fund, the Continuing ETF, each Terminating ETF and each Continuing Fund follows the standard investment restrictions and practices established under NI 81-102, except pursuant to the terms of any exemption that has been obtained.
13. When the simplified prospectus of the Continuing Funds is renewed on or about May 17, 2023, the Filer expects to file a preliminary and pro forma simplified prospectus in the form prescribed by Form 81-101F1 offering securities of the Converting ETF, the Continuing Funds and the Continuing ETF (the 2023 Mutual Fund Prospectus). Pursuant to the 2023 Mutual Fund Prospectus, the Filer will qualify for distribution Mutual Fund Securities of the Converting ETF and the Continuing ETF as well as ETF Securities of each Continuing Fund and will continue to offer ETF Securities of the Converting ETF and the Continuing ETF as well as Mutual Fund Securities of each Continuing Fund, resulting in the Converting ETF, the Continuing Funds and the Continuing ETF offering both Mutual Fund Securities and ETF Securities. At this time, the Filer will also file Fund Facts in the form prescribed by Form 81-101F3 Contents of Fund Facts Document for each series of Mutual Fund Securities and ETF Facts in the form prescribed by Form 41-101F4 Information Required in an ETF Facts Document for each series of ETF Securities.
14. The Filer will apply to list any ETF Securities of the Funds on the TSX or another Marketplace. Listing is subject to the approval of the TSX or other Marketplace, in accordance with its applicable listing requirements.
15. None of the Converting ETF, the Terminating Fund, the Continuing ETF, the Terminating ETFs or the Continuing Funds are in default of securities legislation in any of the Jurisdictions.
16. Mutual Fund Securities may be subscribed for or purchased directly from a Fund through appropriately registered dealers.
17. ETF Securities will be distributed on a continuous basis in one or more of the Jurisdictions under a simplified prospectus. ETF Securities may generally only be subscribed for or purchased directly from the Funds (Creation Units) by Authorized Dealers or Designated Brokers. Generally, subscriptions or purchases may only be placed for a Prescribed Number of ETF Securities (or a multiple thereof) on any day when there is a trading session on the TSX or another Marketplace. Authorized Dealers or Designated Brokers subscribe for Creation Units for the purpose of facilitating investor purchases of ETF Securities on the TSX or another Marketplace.
18. In addition to subscribing for and re-selling their Creation Units, Authorized Dealers and Designated Brokers will also generally be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market. Other Dealers may also be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market despite not being an Authorized Dealer or Designated Broker.
19. Each Designated Broker or Authorized Dealer that subscribes for Creation Units must deliver, in respect of each Prescribed Number of ETF Securities to be issued, a Basket of Securities and/or cash in an amount sufficient so that the value of the Basket of Securities and/or cash delivered is equal to the net asset value of the Prescribed Number of ETF Securities next determined following the receipt of the subscription order. In the discretion of the Filer, the Funds may also accept subscriptions for Creation Units in cash only, in securities other than Baskets of Securities and/or in a combination of cash and securities other than Baskets of Securities, in an amount equal to the net asset value of the Prescribed Number of ETF Securities next determined following the receipt of the subscription order.
20. The Designated Brokers and Authorized Dealers will not receive any fees or commissions in connection with the issuance of Creation Units to them. On the issuance of Creation Units, the Filer or the Fund may, in the Filer's discretion, charge a fee to a Designated Broker or an Authorized Dealer to offset the expenses incurred in issuing the Creation Units.
21. Each Fund will appoint a Designated Broker to perform certain other functions, which include standing in the market with a bid and ask price for ETF Securities for the purpose of maintaining liquidity for the ETF Securities.
22. Except for Authorized Dealer and Designated Broker subscriptions for Creation Units, as described above, and other distributions that are exempt from the Prospectus Delivery Requirement, ETF Securities generally will not be able to be purchased directly from a Fund. Investors are generally expected to purchase and sell ETF Securities, directly or indirectly, through dealers executing trades through the facilities of the TSX or another Marketplace. ETF Securities may also be issued directly to Securityholders upon a reinvestment of distributions of income or capital gains.
23. Securityholders that are not Designated Brokers or Authorized Dealers that wish to dispose of their ETF Securities may generally do so by selling their ETF Securities on the TSX or another Marketplace, through a registered dealer, subject only to customary brokerage commissions. A Securityholder that holds a Prescribed Number of ETF Securities or a multiple thereof may exchange such ETF Securities for Baskets of Securities or other securities and/or cash in the discretion of the Filer. Securityholders may also redeem ETF Securities for cash at a redemption price equal to 95% of the closing price of the ETF Securities on the TSX or other Marketplace on the date of redemption, subject to a maximum redemption price of the applicable net asset value per ETF Security.
ETF Prospectus Form Relief
24. The Filer believes it is more efficient and expedient to include all of the series of each Fund, including ETF Securities and Mutual Fund Securities of a Fund, in one prospectus form instead of two different prospectus forms, and that this presentation will assist in providing full, true and plain disclosure of all material facts relating to all classes and series of securities of a Fund.
25. The Filer will ensure that any additional disclosure included in the simplified prospectus of the Funds relating to the ETF Securities will not interfere with an investor's ability to differentiate between the Mutual Fund Securities and the ETF Securities and their respective attributes.
26. The Funds will comply with the provisions of NI 81-101 when filing any prospectus or amendment thereto.
27. The Funds will comply with Part 3B of NI 41-101 when preparing, filing and delivering ETF Facts for the ETF Securities of the Funds.
Sales and Redemptions Relief
28. Parts 9, 10 and 14 of NI 81-102 do not contemplate both ETF Securities and Mutual Fund Securities being offered in a single fund structure. Accordingly, without the Exemption Sought, the Filer and the Funds would not be able to technically comply with those parts of NI 81-102.
29. The Exemption Sought will permit the Filer and the Funds to treat the ETF Securities and the Mutual Fund Securities as if such securities were separate funds in connection with their compliance with Parts 9, 10 and 14 of NI 81-102. The Exemption Sought will enable each of the ETF Securities and Mutual Fund Securities to comply with Parts 9, 10 and 14 of NI 81-102, as appropriate, for the type of security being offered.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
1. The decision of the principal regulator is that the ETF Prospectus Form Relief is granted, provided that the Filer will be in compliance with the following conditions:
(a) the Filer files a simplified prospectus in respect of the ETF Securities in accordance with the requirements of NI 81-101 and Form 81-101F1, other than the requirements pertaining to the filing of a fund facts document;
(b) the Filer includes disclosure required pursuant to Form 41-101F2 (that is not contemplated by Form 81-101F1) in respect of the ETF Securities, in each Fund's simplified prospectus; and
(c) the Filer includes disclosure regarding this decision under the heading "Additional Information" in each Fund's simplified prospectus.
2. The decision of the principal regulator is that the Sales and Redemptions Relief is granted, provided that the Filer and each Fund will be in compliance with the following conditions:
(a) with respect to its Mutual Fund Securities, each Fund complies with the provisions of Parts 9, 10 and 14 of NI 81-102 that apply to mutual funds that are not exchange-traded mutual funds; and
(b) with respect to its ETF Securities, each Fund complies with the provisions of Parts 9 and 10 of NI 81-102 that apply to exchange-traded mutual funds.
"Darren McKall"
Investment Funds & Structured Products
Ontario Securities Commission
Application File #: 2023/0064
SEDAR File #: 3488507
SCHEDULE "A"
The Continuing Funds
Franklin Bissett Core Plus Bond Fund
Franklin Bissett Corporate Bond Fund
Franklin Bissett Short Duration Bond Fund
Franklin Brandywine Global Sustainable Income Optimiser Fund
Franklin ClearBridge Sustainable Global Infrastructure Income Fund
Franklin ClearBridge Sustainable International Growth Fund
Franklin Global Growth Fund
Franklin Innovation Fund
Franklin Western Asset Core Plus Bond Fund
SCHEDULE "B"
The Terminating ETFs
Franklin Bissett Core Plus Bond Active ETF
Franklin Bissett Corporate Bond Active ETF
Franklin Bissett Short Duration Bond Active ETF
Franklin Brandywine Global Sustainable Income Optimiser Active ETF
Franklin ClearBridge Sustainable Global Infrastructure Income Active ETF
Franklin ClearBridge Sustainable International Growth Active ETF
Franklin Global Growth Active ETF
Franklin Innovation Active ETF
Franklin Western Asset Core Plus Bond Active ETF