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| | SUMMARY
PROSPECTUS | | | |
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| | FRANKLIN SHORT DURATION U.S. GOVERNMENT ETF | |
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| | Franklin ETF Trust | |
| | August 1, 2023 | |
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Ticker: | Exchange: |
FTSD | NYSE Arca, Inc. |
Before you invest, you
may want to review the Fund’s prospectus, which contains more information about the Fund and its risks.
You can find the Fund’s prospectus, statement of additional information, reports to shareholders and
other information about the Fund online at www.franklintempleton.com/prospectus. You can also get this
information at no cost by calling (800) DIAL BEN/342-5236 or by sending an e-mail request to prospectus@franklintempleton.com.
The Fund’s prospectus and statement of additional information, both dated August 1, 2023, as may be
supplemented, are all incorporated by reference into this Summary Prospectus.
FRANKLIN
SHORT DURATION U.S. GOVERNMENT ETF
SUMMARY PROSPECTUS
Fund Summary
Investment
Goal
A
high level of current income as is consistent with prudent investing, while seeking preservation of capital.
Fees
and Expenses of the Fund
The following table describes the fees and expenses that you will incur if you
buy, hold and sell shares of the Fund. You may also incur other fees, such as usual and customary brokerage
commissions and other fees to financial intermediaries, which are not reflected in the table and the
Example that follows.
Annual Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your investment)
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Management fees | | 0.25% |
Distribution and service (12b-1) fees | | None |
Other expenses | | None |
Total annual Fund operating
expenses | | 0.25% |
Example
This
Example is intended to help you compare the cost of investing in the Fund with the cost of investing
in other funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated
and then sell all of your shares at the end of the period. The Example also assumes that your investment
has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
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| | | 1
Year | | 3
Years | | 5
Years | | 10
Years |
Franklin Short Duration U.S. Government ETF | | $26 | | $81 | | $141 | | $318 |
Portfolio
Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities
(or "turns over" its portfolio). A higher portfolio turnover rate may indicate higher transaction costs
and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are
not reflected in annual Fund operating expenses or in the Example, affect the Fund's performance. During
the most recent
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2 | Summary
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FRANKLIN
SHORT DURATION U.S. GOVERNMENT ETF
SUMMARY PROSPECTUS
fiscal
year, the Fund's portfolio turnover rate was 196.59% of the average value of its portfolio.
Principal
Investment Strategies
Under normal market conditions, the Fund invests at least 80% of its net assets
in securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities. The Fund
currently targets an estimated portfolio duration of three (3) years or less. The Fund generally invests
50-80% of its assets in mortgage securities issued or guaranteed by the U.S. government, its agencies,
or instrumentalities, including adjustable rate mortgage securities (ARMs) and collateralized mortgage
obligations (CMOs), but the Fund also invests in direct obligations of the U.S. government (such as Treasury
bonds, bills and notes) and in securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, including government sponsored entities. All of the Fund’s principal investments
are debt securities, including bonds, notes and debentures.
In comparison to maturity (which is the date
on which a debt instrument ceases and the issuer is obligated to repay the principal amount), duration
is a measure of the expected price volatility of a debt instrument as a result of changes in market rates
of interest, based on the weighted average timing of the instrument’s expected principal and interest
payments and other factors. For purposes of calculating the Fund’s portfolio duration, the Fund includes
the effect of interest rate/bond futures contracts and options on interest rate/bond futures contracts
held by the Fund.
Mortgage securities represent an interest in a pool of mortgage loans made by
banks and other financial institutions to finance purchases of homes, commercial buildings and other
real estate. As the underlying mortgage loans are paid off, investors receive periodic principal and
interest payments as well as any unscheduled principal prepayments on the underlying mortgage loans.
The mortgage securities purchased by the Fund include, but are not limited to, bonds and notes issued
or guaranteed by the Government National Mortgage Association (Ginnie Mae) and U.S. government-sponsored
entities, such as the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage
Corporation (Freddie Mac).
Government agency or instrumentality issues have different levels of credit support.
Ginnie Mae pass-through mortgage certificates are backed by the full faith and credit of the U.S. government.
U.S. government-sponsored entities, such as Fannie Mae and Freddie Mac, may be chartered by Acts of Congress,
but their securities are neither issued nor guaranteed by the U.S. government. Although the U.S. government
has provided financial support to Fannie Mae and Freddie Mac, no assurance can be given that the U.S.
government will continue to do so. The Fund may invest in obligations of other U.S. government-sponsored
entities, which may
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franklintempleton.com | Summary Prospectus | 3 |
FRANKLIN
SHORT DURATION U.S. GOVERNMENT ETF
SUMMARY PROSPECTUS
be
supported only by the credit of the issuing agency or instrumentality, such as securities issued by members
of the Farm Credit System.
The Fund may invest in mortgage dollar rolls. In a mortgage dollar roll, the Fund
sells (or buys) mortgage securities for delivery on a specified date and simultaneously contracts to
repurchase (or sell) substantially similar (same type, coupon, and maturity) securities on a future date.
The Fund may also purchase or sell mortgage securities on a delayed delivery or forward commitment basis
through the "to-be-announced" (TBA) market. With TBA transactions, the particular securities to be delivered
must meet specified terms and standards. The Fund will invest only in covered mortgage dollar rolls or
TBA transactions, meaning that the Fund designates liquid securities in its portfolio equal in value
to the securities it will repurchase.
The Fund invests in investment grade securities and investments
or in unrated securities and investments that the Fund’s investment manager determines are of comparable
quality. The Fund may invest in U.S. inflation-indexed securities issued by the U.S. government.
To
pursue its investment goal, the Fund may invest in certain interest rate-related derivative transactions,
principally U.S. Treasury futures contracts and options on interest rate/bond futures. The use of these
derivative transactions may allow the Fund to obtain net long or short exposures to selected interest
rates or durations. These derivatives may be used to hedge risks associated with the Fund’s other portfolio
investments and to manage the duration of the Fund’s portfolio.
Principal
Risks
You
could lose money by investing in the Fund. ETF shares are not deposits or obligations of, or guaranteed
or endorsed by, any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency of the U.S. government. The Fund is subject to the principal risks
noted below, any of which may adversely affect the Fund’s net asset value (NAV), trading price, yield,
total return and ability to meet its investment goal. Unlike many ETFs, the Fund is not an index-based
ETF.
Interest
Rate
When interest rates rise, debt security prices generally fall. The opposite is also generally true:
debt security prices rise when interest rates fall. Interest rate changes are influenced by a number
of factors, including government policy, monetary policy, inflation expectations, perceptions of risk,
and supply of and demand for bonds. In general, securities with longer maturities or durations are more
sensitive to interest rate changes.
Mortgage Securities Mortgage securities
differ from conventional debt securities because principal is paid back periodically over the life of
the security rather than at
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FRANKLIN
SHORT DURATION U.S. GOVERNMENT ETF
SUMMARY PROSPECTUS
maturity.
The Fund may receive unscheduled payments of principal due to voluntary prepayments, refinancings or
foreclosures on the underlying mortgage loans. Because of prepayments, mortgage securities may be less
effective than some other types of debt securities as a means of "locking in" long-term interest rates
and may have less potential for capital appreciation during periods of falling interest rates. A reduction
in the anticipated rate of principal prepayments, especially during periods of rising interest rates,
may increase or extend the effective maturity and duration of mortgage securities, making them more sensitive
to interest rate changes, subject to greater price volatility, and more susceptible than some other debt
securities to a decline in market value when interest rates rise.
Mortgage securities purchased on a delayed
delivery or forward commitment basis through the to-be-announced market (TBA) are subject to the risk
that the actual securities received by the Fund may be less favorable than anticipated, or that a counterparty
will fail to deliver the security. Entering into a when-issued, delayed delivery or TBA transaction may
be viewed as a form of leverage and will result in associated risks for the Fund. Sales of debt securities
on a when-issued or delayed delivery basis are also subject to the risk that the Fund is unable to purchase
securities for delivery at the settlement date with the characteristics agreed upon at the time of the
transaction, which may subject the Fund to market losses or other penalties.
Prepayment
Prepayment risk occurs when a debt security can be repaid in whole or in part prior to the security's
maturity and the Fund must reinvest the proceeds it receives, during periods of declining interest rates,
in securities that pay a lower rate of interest. Also, if a security has been purchased at a premium,
the value of the premium would be lost in the event of prepayment. Prepayments generally increase when
interest rates fall.
Variable Rate Securities Because changes in
interest rates on variable rate securities (including floating rate securities) may lag behind changes
in market rates, the value of such securities may decline during periods of rising interest rates until
their interest rates reset to market rates. During periods of declining interest rates, because the interest
rates on variable rate securities generally reset downward, their market value is unlikely to rise to
the same extent as the value of comparable fixed rate securities.
Income
The Fund's distributions to shareholders may decline when prevailing interest rates fall, when the Fund
experiences defaults on debt securities it holds or when the Fund realizes a loss upon the sale of a
debt security.
Extension Some debt securities, particularly mortgage-backed
securities, are subject to the risk that the debt security’s effective maturity is extended because
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franklintempleton.com | Summary Prospectus | 5 |
FRANKLIN
SHORT DURATION U.S. GOVERNMENT ETF
SUMMARY PROSPECTUS
calls
or prepayments are less or slower than anticipated, particularly when interest rates rise. The market
value of such security may then decline and become more interest rate sensitive.
Inflation-Indexed
Securities Inflation-indexed securities have a tendency to react to changes in real interest
rates. Real interest rates represent nominal (stated) interest rates lowered by the anticipated effect
of inflation. In general, the price of an inflation-indexed security decreases when real interest rates
increase, and increases when real interest rates decrease. Interest payments on inflation-indexed securities
will fluctuate as the principal and/or interest is adjusted for inflation and can be unpredictable.
Market
The
market values of securities or other investments owned by the Fund will go up or down, sometimes rapidly
or unpredictably. The market value of a security or other investment may be reduced by market activity
or other results of supply and demand unrelated to the issuer. This is a basic risk associated with all
investments. When there are more sellers than buyers, prices tend to fall. Likewise, when there are more
buyers than sellers, prices tend to rise.
The global outbreak of the novel strain of coronavirus, COVID-19
and its subsequent variants, has resulted in market closures and dislocations, extreme volatility, liquidity
constraints and increased trading costs. The long-term impact on economies, markets, industries and individual
issuers is not known. Some sectors of the economy and individual issuers have experienced or may experience
particularly large losses. Periods of extreme volatility in the financial markets; reduced liquidity
of many instruments; and disruptions to supply chains, consumer demand and employee availability, may
continue for some time.
Mortgage Dollar Rolls In a mortgage dollar roll, the Fund takes
the risk that: the market price of the mortgage-backed securities will drop below their future repurchase
price; the securities that it repurchases at a later date will have less favorable market characteristics;
the other party to the agreement will not be able to perform; the roll adds leverage to the Fund's portfolio;
and, it increases the Fund's sensitivity to interest rate changes. In addition, investment in mortgage
dollar rolls may increase the portfolio turnover rate for the Fund.
Portfolio
Turnover The investment manager will sell a security when it believes it is appropriate
to do so, regardless of how long the Fund has held the security. The Fund's portfolio turnover rate may
exceed 100% per year because of the anticipated use of certain investment strategies. The rate of portfolio
turnover will not be a limiting factor for the investment manager in making decisions on when to buy
or sell securities, including entering into mortgage dollar rolls. High turnover will increase the Fund's
transaction costs and may increase your tax liability if the transactions result in capital gains.
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FRANKLIN
SHORT DURATION U.S. GOVERNMENT ETF
SUMMARY PROSPECTUS
Derivative
Instruments The performance of derivative instruments depends largely on the performance
of an underlying instrument, such as a security, interest rate or index, and such instruments often have
risks similar to their underlying instrument, in addition to other risks. Derivative instruments involve
costs and can create economic leverage in the Fund's portfolio, which may result in significant volatility
and cause the Fund to participate in losses (as well as gains) in an amount that exceeds the Fund's initial
investment. Other risks include illiquidity, mispricing or improper valuation of the derivative instrument,
and imperfect correlation between the value of the derivative and the underlying instrument so that the
Fund may not realize the intended benefits. When a derivative is used for hedging, the change in value
of the derivative may also not correlate specifically with the security, interest rate, index or other
risk being hedged. With over-the-counter derivatives, there is the risk that the other party to the transaction
will fail to perform.
Management The Fund is subject to management risk
because it is an actively managed ETF. The Fund's investment manager applies investment techniques and
risk analyses in making investment decisions for the Fund, but there can be no guarantee that these decisions
will produce the desired results.
Credit An issuer of debt securities may fail
to make interest payments or repay principal when due, in whole or in part. Changes in an issuer's financial
strength or in a security's or government's credit rating may affect a security's value. While securities
issued by Ginnie Mae are backed by the full faith and credit of the U.S. government, not all securities
of the various U.S. government agencies are, including those of Fannie Mae and Freddie Mac. Accordingly,
securities issued by Fannie Mae and Freddie Mac may involve a risk of non-payment of principal and interest.
U.S.
government guarantees of timely repayment of principal and interest on government securities do not apply
to the market prices and yields of the securities or to the NAV, trading price or performance of the
Fund. Irrespective of such U.S. government guarantees, the market prices and yields of the securities
and, consequently, the NAV, trading price and performance of the Fund, will vary with changes in interest
rates and other market conditions. Any downgrade of the credit rating of the securities issued by the
U.S. government may result in a downgrade of securities issued by its agencies or instrumentalities,
including government-sponsored entities.
Market Trading The Fund faces numerous
market trading risks, including the potential lack of an active market for Fund shares, losses from trading
in secondary markets, periods of high volatility and disruption in the creation/redemption process of
the Fund. Any of these factors, among others, may lead to the Fund’s shares
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franklintempleton.com | Summary Prospectus | 7 |
FRANKLIN
SHORT DURATION U.S. GOVERNMENT ETF
SUMMARY PROSPECTUS
trading
at a premium or discount to NAV. Thus, you may pay more (or less) than NAV when you buy shares of the
Fund in the secondary market, and you may receive less (or more) than NAV when you sell those shares
in the secondary market. The investment manager cannot predict whether shares will trade above (premium),
below (discount) or at NAV.
Authorized Participant Concentration Only an authorized
participant (Authorized Participant) may engage in creation or redemption transactions directly with
the Fund. The Fund has a limited number of institutions that act as Authorized Participants. To the extent
that these institutions exit the business or are unable to proceed with creation and/or redemption orders
with respect to the Fund and no other Authorized Participant is able to step forward to create or redeem
Creation Units (as defined below), Fund shares may trade at a discount to NAV and possibly face trading
halts and/or delisting. This risk may be more pronounced in volatile markets, potentially where there
are significant redemptions in ETFs generally.
Cash Transactions
Unlike certain ETFs, the Fund expects to generally effect its creations and redemptions entirely for
cash, rather than for in-kind securities. Therefore, it may be required to sell portfolio securities
and subsequently recognize gains on such sales that the Fund might not have recognized if it were to
distribute portfolio securities in-kind. As such, investments in Fund shares may be less tax-efficient
than an investment in an ETF that distributes portfolio securities entirely in-kind.
Large Shareholder
Certain shareholders, including other funds or accounts advised by the investment manager or an affiliate
of the investment manager, may from time to time own a substantial amount of the Fund’s shares. In
addition, a third-party investor, the investment manager or an affiliate of the investment manager, an
authorized participant, a lead market maker, or another entity may invest in the Fund and hold its investment
for a limited period of time solely to facilitate commencement of the Fund or to facilitate the Fund’s
achieving a specified size or scale. There can be no assurance that any large shareholder would not redeem
its investment, that the size of the Fund would be maintained at such levels or that the Fund would continue
to meet applicable listing requirements. Redemptions by large shareholders could have a significant negative
impact on the Fund. In addition, transactions by large shareholders may account for a large percentage
of the trading volume on the listing exchange and may, therefore, have a material upward or downward
effect on the market price of the shares.
Cybersecurity Cybersecurity incidents,
both intentional and unintentional, may allow an unauthorized party to gain access to Fund assets, Fund
or customer data (including private shareholder information), or proprietary information, cause the Fund,
the investment manager, authorized participants, or index providers (as
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FRANKLIN
SHORT DURATION U.S. GOVERNMENT ETF
SUMMARY PROSPECTUS
applicable)
and listing exchanges, and/or their service providers (including, but not limited to, Fund accountants,
custodians, sub-custodians, transfer agents and financial intermediaries) to suffer data breaches, data
corruption or loss of operational functionality or prevent Fund investors from purchasing, redeeming
shares or receiving distributions. The investment manager has limited ability to prevent or mitigate
cybersecurity incidents affecting third party service providers, and such third party service providers
may have limited indemnification obligations to the Fund or the investment manager. Cybersecurity incidents
may result in financial losses to the Fund and its shareholders, and substantial costs may be incurred
in an effort to prevent or mitigate future cybersecurity incidents. Issuers of securities in which the
Fund invests are also subject to cybersecurity risks, and the value of these securities could decline
if the issuers experience cybersecurity incidents.
Because technology is frequently changing, new ways to carry
out cyber attacks are always developing. Therefore, there is a chance that some risks have not been identified
or prepared for, or that an attack may not be detected, which puts limitations on the Fund's ability
to plan for or respond to a cyber attack. Like other funds and business enterprises, the Fund, the investment
manager, and their service providers are subject to the risk of cyber incidents occurring from time to
time.
Performance
The
following bar chart and table provide some indication of the risks of investing in the Fund. The bar
chart shows changes in the Fund's performance from year to year. The table shows how the Fund's average
annual returns for 1 year, 5 years, 10 years or since inception, as applicable, compared with those of
a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily
an indication of how the Fund will perform in the future. You can obtain updated performance information
at franklintempleton.com or by calling (800) DIAL BEN/342-5236.
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franklintempleton.com | Summary Prospectus | 9 |
FRANKLIN
SHORT DURATION U.S. GOVERNMENT ETF
SUMMARY PROSPECTUS
Annual Total Returns
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Best Quarter: | 2020, Q2 | 1.25% |
Worst Quarter: | 2022, Q1 | -1.80% |
|
As of June 30, 2023, the
Fund’s year-to-date return was 1.50%. |
Average Annual Total Returns
For periods ended December
31, 2022
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| | 1 Year | | 5
Years | | Since
Inception | |
Franklin
Short Duration U.S. Government ETF | | | | | | | |
| Return before taxes | | -3.13% | | 0.61% | |
0.71% | 1 |
| Return after taxes on distributions | | -3.79% | |
-0.19% | | -0.10% | 1 |
| Return
after taxes on distributions and sale of Fund shares | |
-1.84% | | 0.14% | | 0.19% | 1 |
Bloomberg US Government
Index: 1-3 Year Component (index reflects no deduction for fees, expenses or taxes) | | -3.81% | |
0.74% | | 0.68% | 1 |
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1. | Since inception November 4, 2013. |
The
after-tax returns are calculated using the historical highest individual federal marginal income tax
rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's
tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold
their Fund shares through tax-advantaged arrangements, such as 401(k) plans or individual retirement
accounts.
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10 | Summary
Prospectus | franklintempleton.com |
FRANKLIN
SHORT DURATION U.S. GOVERNMENT ETF
SUMMARY PROSPECTUS
Investment
Manager
Franklin
Advisers, Inc. (Advisers or investment manager)
Portfolio
Managers
Patrick Klein, Ph.D.
Senior Vice President of Advisers and portfolio
manager of the Fund since inception (2013).
Paul Varunok
Senior Vice President
of Advisers and portfolio manager of the Fund since 2019.
Neil Dhruv
Vice President of Advisers
and portfolio manager of the Fund since 2021.
Purchase
and Sale of Fund Shares
The Fund is an ETF. Fund shares may only be purchased and sold on a national securities
exchange through a broker-dealer. The price of Fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may trade at a price greater than NAV (a premium)
or less than NAV (a discount). The Fund issues or redeems shares that have been aggregated into blocks
of 25,000 shares or multiples thereof (Creation Units) to Authorized Participants who have entered into
agreements with the Fund’s distributor, Franklin Distributors, LLC (Distributors). The Fund will generally
issue or redeem Creation Units in exchange for a basket of cash and/or securities that the Fund specifies
each day.
An
investor may incur costs attributable to the difference between the highest price a buyer is willing
to pay to purchase shares of the Fund (bid) and the lowest price a seller is willing to accept for shares
of the Fund (ask) when buying or selling shares in the secondary market (the “bid-ask spread”). Recent
information, including information on the Fund’s NAV, market price, premiums and discounts, and bid-ask
spreads is available on the Fund’s website at https://www.franklintempleton.com/investor/investments-and-solutions/investment-options/etfs/.
Taxes
The Fund’s distributions
are generally taxable to you as ordinary income, capital gains, or some combination of both, unless you
are investing through a tax-advantaged arrangement, such as a 401(k) plan or an individual retirement
account, in which case your distributions would generally be taxed when withdrawn from the tax-advantaged
account.
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franklintempleton.com | Summary Prospectus | 11 |
FRANKLIN
SHORT DURATION U.S. GOVERNMENT ETF
SUMMARY PROSPECTUS
Payments
to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the Fund through
a broker-dealer or other financial intermediary (such as a bank), the investment manager or other related
companies may pay the intermediary for certain Fund-related activities, including those that are designed
to make the intermediary more knowledgeable about exchange traded products, such as the Fund, as well
as for marketing, education or other initiatives related to the sale or promotion of Fund shares. These
payments may create a conflict of interest by influencing the broker-dealer or other intermediary and
your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial
intermediary’s website for more information.
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12 | Summary
Prospectus | franklintempleton.com |
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| Franklin
Distributors, LLC One Franklin Parkway San Mateo, CA 94403-1906 franklintempleton.com Franklin
Short Duration U.S. Government ETF |
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Investment Company Act
file #811-22801 © 2023 Franklin Templeton. All rights reserved.
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