Notification of changes to the underlying funds of various Franklin Templeton funds
13 July 2020
J60 Templeton Emerging Markets (the “Mirror Fund 1”)
J72 Templeton Global (the “Mirror Fund 2”)
L03 Templeton Global Total Return (EUR) (the “Mirror Fund 3”)
L04 Templeton Global Total Return (USD) (the “Mirror Fund 4”)
L05 Templeton Global Bond (EUR) (the “Mirror Fund 5”)
L06 Templeton Global Bond (USD) (the “Mirror Fund 6”)
L13 Templeton Emerging Markets Bond (the “Mirror Fund 7”)
L39 Franklin Biotechnology Discovery (the “Mirror Fund 8”)
M84 Franklin US Government (the “Mirror Fund 9”)
P51 Franklin Mutual European (the “Mirror Fund 10”)
P52 Templeton Latin America (the “Mirror Fund 11”)
P58 Templeton BRIC (the “Mirror Fund 12”)
R97 Templeton Asian Bond (the “Mirror Fund 13”)
(together the “Mirror Funds 1-13”)
We have been notified by Franklin Templeton Investment Funds (the “Company”), of the following changes to the underlying funds of the Mirror Funds 1-13. These changes have taken effect from 29 May 2020 (the “Effective Date”).
Elaboration of the investment policies of the underlying funds of the Mirror Funds 1, 5, 6, 7, 12 & 13
The Company have confirmed that, with effect from the Effective Date, the investment policies of the underlying funds of the Mirror Funds 1, 5, 6, 7, 12 & 13 have been updated to include the following:
“The Fund may also invest up to 10% of its net assets in units of UCITS and other UCIs”
Enhancement of disclosures on the investment policies of the underlying funds of the Mirror Funds 3 -6
The Company have confirmed that, with effect from the Effective Date, the investment policies of the underlying funds of the Mirror Funds 3-6 have been enhanced to set out that the expected level of the underlying funds of the Mirror Funds 3-6’s exposure to total return swaps (unfunded) are (i) 3% of the underlying funds of the Mirror Funds 3-6’s net assets (subject to a maximum of 5%) and (ii) 5% of the underlying funds of the Mirror Funds 3-6’s net assets (subject to a maximum of 10%), retrospectively.
Enhancement of disclosures on the swing pricing mechanism of the underlying funds of the Mirror Funds 1-13
Please see the below extract, which has been taken from the Shareholder Circular of the underlying funds of the Mirror Funds 1-13:
The disclosures on the swing pricing mechanism shall be enhanced as follows:-
“A Fund may suffer reduction of the Net Asset Value per Share due to investors purchasing, redeeming and/or switching in and out of the Fund at a price that does not reflect the dealing and other costs associated with the Fund’s portfolio trades undertaken by the Investment Manager to accommodate such purchasing, redeeming and/or switching activity cash inflows or outflows. Such reduction in the Net Asset Value per Share as a result of the dealing costs associated with the Fund’s portfolio trades is known as “dilution".
To counter this dilution impact and to protect Shareholders’ interests, a swing pricing mechanism may be adopted by the Company as part of its valuation policy.
The Fund operates a swing pricing mechanism which is applied when the total capital activity (aggregate of inflows and outflows) at a Fund level exceeds a pre-determined threshold (which may be close to, or at zero), as determined as a percentage of the net assets of that Fund for the Valuation Day. Funds can operate a full swing pricing mechanism where the threshold is set to zero or a partial swing pricing mechanism where the threshold is greater than zero.
Typically, such adjustment will increase the Net Asset Value per Share when there are net inflows into the Fund and decrease the Net Asset Value per Share when there are net outflows. The Net Asset Value per Share of each share class in a Fund will be calculated separately but any adjustment will, in percentage terms, affect the Net Asset Value per Share of each share class in a Fund identically. Swing pricing does not address the specific circumstances of each individual investor transaction.
The adjustments will seek to reflect the anticipated prices at which the Fund will be buying and selling assets as well as estimated transaction costs.
Investors are advised that the volatility of the Fund’s Net Asset Value might not reflect the true portfolio performance as a consequence of the application of swing pricing.
The size of the adjustment impact is determined by factors such as the volume of transactions, the purchase or sale prices of the underlying investments and the valuation method adopted to calculate the value of such underlying investments of the Fund.
The swing pricing mechanism may be applied across all Funds of the Company. The extent of the price adjustment will be reset by the Company on a periodic basis to reflect an approximation of current dealing and other costs. Such adjustment may vary from Fund to Fund and under normal conditions will not exceed 2% of the original Net Asset Value per Share. The Board of Directors can approve an increase of this limit in case of exceptional circumstances, unusually large Shareholders trading activities, and if it is deemed to be in the best interest of Shareholders.
The Management Company mandates authority to the Swing Pricing Oversight Committee to implement and on a periodic basis review, the operational decisions associated with swing pricing. This committee is responsible for decisions relating to swing pricing and the ongoing approval of swing factors which form the basis of pre-determined standing instructions.
The price adjustment information is available on request from the office of the Hong Kong Representative.
On certain share classes, the Management Company may be entitled to a performance fee, where applicable, this will be based on the unswung NAV.”
There will be no material changes in the overall risk profile of any of the underlying funds of the Mirror Funds 1-13. Further, other than as stated, there will no change in the operation and/or the manner in which the underlying funds of the Mirror Funds 1-13 are being managed.
Should you have any questions regarding these changes, please contact International Funds & Investments.