What should I know before investing?
All investments involve risk, including the loss of principal. Certain Accounts will invest in cryptocurrencies, such as, but not limited to, Bitcoin or Ethereum, as may include but are not limited to any decentralized application tokens and well as other digital representations of value or rights (including for investment, finance or idle cash purposes). Such assets or investments may be transferred and stored electronically, using distributed ledger technology or other technology, and blockchain-based tokens and other digital assets, or instruments for the purchase of such, including but not limited to token rights agreements, token warrants and other instruments (together with cryptocurrencies, “Digital Assets”). Investments in Digital Assets are subject to many specialized risks and considerations, including but not limited to risks relating to (i) immature and rapidly developing technology underlying Digital Assets, (ii) security vulnerabilities of this technology, (iii) credit risk of Digital Asset exchanges that may hold an Account’s Digital Assets in custody, (iv) regulatory uncertainty around the rules governing Digital Assets, Digital Asset exchanges and other aspects and parties involved with Digital Asset transactions, (v) high volatility in the value/price of Digital Assets, (vi) unclear acceptance of some or all Digital Assets by users and global marketplaces, and (vii) manipulation or fraud resulting from the pseudo-anonymous manner in which ownership of Digital Assets is recorded and managed.
Additional risks applicable to Digital Assets Strategies include:
Asset allocation risk: The portfolio manager’s ability to achieve the investment goal(s) may depend upon their skill in determining a portfolio’s asset allocation mix and/or selecting sub-advisers. There is the possibility that their evaluations and assumptions regarding asset classes and the selected sub-advisers will not be successful in view of actual market trends.
Concentration risk: Concentrating investments in a particular country, region, market, industry, or asset class means that performance will be more susceptible to loss due to adverse occurrences affecting that country, region, market, industry or asset class. A portfolio concentrating in a single state or jurisdiction is subject to greater risk of adverse economic, market, political or social conditions and regulatory changes than a portfolio with broader geographical diversification.
Cybersecurity risk: Portfolio manager(s), service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio manager(s) and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.
Liquidity risk: Liquidity risk exists when the markets for particular securities or types of securities are or become relatively illiquid so that it is or becomes more difficult to sell the security, partially or in full, at the price at which the security was valued. Illiquidity may result from political, economic, or issuer-specific events; changes in a specific market’s size or structure, including the number of participants; or overall market disruptions. Securities with reduced liquidity or that become illiquid involve greater risk than securities with more liquid markets.
Market risk: The market value of securities or other investments will go up and down, sometimes rapidly or unpredictably. Investments may decline in value due to factors that affect an individual issuer (such as the result of supply and demand) or a particular industry or sector. A security’s or other investment’s market value may also go up and down due to general market activity or other results of supply and demand unrelated to the issuer, such as real or perceived adverse economic conditions, changes in interest rates or exchange rates, or adverse investor sentiment generally.
Non-diversification risk: Non-diversification of investments means a portfolio may invest a large percentage of its assets in securities issued by or representing a small number of issuers. As a result, the portfolio’s performance may depend on the performance of a smaller number of issuers, and it may be more sensitive to a single economic, business, political, regulatory, or other occurrence than a more diversified portfolio might be.
New strategy risk: The Franklin Templeton Digital Assets Core Capped strategy has no operating history and is being first offered to client accounts during the third quarter of 2022.
Volatility risk: Trading prices for Digital Assets have historically been highly volatile. The value of the Digital Assets held by an account could decline rapidly, including to zero. Digital Assets have not been in existence long enough to assess the volatility of market cycles with any precision and an investment in an account may turn out to be substantially worthless. Investors should be prepared for volatile market swings and prolonged bear markets.
Unlisted securities risk: Unlisted securities (i.e., securities not listed on a stock exchange or other markets and for which no liquid secondary trading market exists) may involve a high degree of business and financial risk and may result in substantial losses. The companies underlying such securities may have relatively limited operating and profit histories. Many of these companies may also need substantial additional capital to support expansion or to achieve or maintain a competitive position and there is no assurance that capital will be available to finance such needs. In the absence of a liquid trading market for unlisted securities, they will be
difficult to value. It is also possible that such investments will be difficult to liquidate when desired, which may limit the ability to realize their full value. Although it is generally desirable that unlisted securities become listed in due course, there can be no assurance that this will be the case, or that sufficient liquidity for substantial shareholdings will be available following listing.
Valuation: The strategy may directly or indirectly invest in securities for which reliable market quotations are not available. The process of valuing such securities is based on inherent uncertainties, and the resulting values may differ from values that would have been determined had readily available market quotations been available. As a result, the values placed on such securities by the Advisers may differ from values placed on such securitiesbyother investors or a client’s custodian and from prices at which such securities may ultimately be sold.
For complete details on the strategy’s risk factors, refer to Form ADV Part 2A.
Important Legal Information
It is intended to be of general interest only and not construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.
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