What are the risks?
All investments involve risks, including possible loss of principal. Tax management practices may impact performance, portfolio characteristics and holdings; and may not result in favorable outcomes.
Footnotes
1. Illustration depicts potential difference in growth between tax-managed and non-tax managed versions of the same strategy assuming no withdrawal or contributions.
Important information
CANVAS® is an interactive web-based investment tool developed by O’Shaughnessy Asset Management, L.L.C. (“OSAM”) that permits an investment professional to select a desired investment strategy for the professional’s client.
Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account.
Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.
Tax management: Franklin Templeton, its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
Separately Managed Accounts (SMAs) are investment services provided by O’Shaughnessy Asset Management, LLC (OSAM), a federally registered investment adviser. Client portfolios are managed based on investment instructions or advice provided by OSAM. Management is implemented by OSAM, or, in the case of certain programs, the program sponsor or its designee.
These materials are being provided for illustrative and informational purposes only. The information contained herein is obtained from multiple sources that are believed to be reliable. However, such information has not been verified, and may be different from the information included in documents and materials created by the sponsor firm in whose investment program a client participates. Some sponsor firms may require that these materials be preceded or accompanied by investment profiles or other documents or materials prepared by such sponsor firms, which will be provided upon a client’s request. For additional information, documents and/or materials, please contact Franklin Templeton.
S&P 500® (a registered trademark of S&P® Global or its affiliates, an affiliate and third-party licensor of S&P®), S&P MidCap 400® (also known as the S&P 400® index, a registered trademark of S&P® Global or its affiliates, an affiliate and third-party licensor of S&P®), S&P SmallCap 600® (also known as the S&P 600® index, a registered trademark of S&P® Global or its affiliates, an affiliate and third-party licensor of S&P®), S&P Composite 1500® (also known as the S&P 1500® index, a registered trademark of S&P® Global or its affiliates, an affiliate and third-party licensor of S&P®), S&P® Global BMI, S&P® ADR, S&P®/TSX® Composite (S&P® a registered trademark of S&P® Global or its affiliates, an affiliate and third-party licensor of S&P®, and TSX® a registered trademark of TSX®, Inc., a third-party licensor of S&P®) are products of S&P® Dow Jones® Indices LLC or its affiliates (“SPDJI”) and have been licensed for use by Franklin Templeton. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P®”); Dow Jones® is a registered trademark of Dow Jones® Trademark Holdings LLC (“Dow Jones®”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Franklin Templeton. S&P 500®, S&P MidCap 400® (also known as the S&P 400® index), S&P SmallCap 600® (also known as the S&P 600® index), S&P Composite 1500® (also known as the S&P 1500® index), S&P® Global BMI, S&P® ADR, S&P®/TSX® Composite are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones®, S&P®, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the previously disclosed Indices above.
Additionally, please note, where applicable, funds and/or strategies have been developed solely by FRI or its affiliates. The funds and/or strategies are not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies. All rights in the “FTSE Russell Index” (the “Index”) vest in the relevant LSE Group company which owns the Index. “FTSE®” “Russell®”, “FTSE Russell®”, “FTSE4Good®”, “ICB®”, and/or “The Yield Book®,” are a trademark(s) of the relevant LSE Group company and are used by any other LSE Group company under license. The Index is calculated by or on behalf of FTSE International Limited, FTSE Fixed Income, LLC, and/or its affiliate, agent, or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on, or any error in the Index or (b) investment in or operation of the funds and/or strategies. The LSE Group makes no claim, prediction, warranty, or representation either as to the results to be obtained from the funds and/or strategies or the suitability of the Index for the purpose to which it is being put by FRI.
Please also note, where applicable, certain funds and/or strategies described herein are indexed to an MSCI index. In addition, MSCI hereby grants to Licensee a temporary, non-sublicensable (except as provided in its Agreement), a non-transferable, non-exclusive license to hyperlink to MSCI’s website, www.msci.com, from any Licensee web page containing MSCI data or information. Further, Licensee hereby grants MSCI a temporary non-sub licensable, non-transferable, non-exclusive license to list Licensee as a licensee of MSCI data and to hyperlink to Licensee's website. For the avoidance of doubt, nothing herein shall confer any rights to MSCI in the Informational Materials where the Marks and MSCI logos may appear. Each of these licenses may be revoked at any time by MSCI or Licensee without notice without affecting any of the other rights granted hereunder.
Franklin Managed Options Strategies are provided by Franklin Managed Options Strategies, LLC, an affiliate of Franklin Templeton, and an investment advisor registered under the United States Securities and Exchange Commission Investment Advisers Act of 1940.
Franklin Managed Options Strategies may rely on the investment objectives described in the relevant investment management agreement and communicated to the client until such time as it shall receive written notice of the modification, alteration, or amendment of such investment objective.
When determining which options to sell and/or repurchase, Franklin Managed Options Strategies will consider factors including (but not limited to) option liquidity, maturity, volatility, interest rates, underlying dividends, and time to maturity.
Fees: The fee paid to Franklin Managed Options Strategies is separate from and does not include the costs of stock and option commissions, clearing member trade agreement fees, exchange fees, dealer spreads (which are embedded in pricing) and other costs associated with the purchase or sale of securities, custodian fees, interest, taxes, and other portfolio expenses, which shall be the sole responsibility of client and shall be paid to parties other than Franklin Managed Options Strategies. The custodian of the client account will debit the account for payments of any such fees payable to other parties. Management fees will reduce the rate of return on any account or portfolio.
Tax implications: Buying or selling options, and any potential asset sales required to satisfy option obligations, if any, may result in tax consequences for the investors. Investors are encouraged to seek the guidance of their own independent tax advisor prior to implementing any option program. Under no circumstance is Franklin Managed Options Strategies offering tax advice.
Franklin Templeton, its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
WHAT ARE THE RISKS?
All investments are subject to risk, including possible loss of principal. There is no guarantee or assurance that any option strategy will achieve its investment objective.
Leverage increases the volatility of investment returns and subjects investments to magnified losses and a decline in value.
Short selling is a speculative strategy. Unlike the possible loss on a security that is purchased, there is no limit on the amount of loss on an appreciating security that is sold short.
Risk of loss/opportunity cost: The gain to an investor selling an option is limited to the premium received for the sale of that option.
The loss to an investor buying an option is limited to the premium paid for the purchase of that option.
The loss to an investor selling a put option is limited to the strike price of that option, less the premium received for the sale of that option.
No guarantee of performance: Regardless of the appreciation or depreciation of the strategy’s underlying security or securities, the option strategy may underperform a portfolio that is otherwise identical to the underlying securities or equities owned by the client but did not engage in the option strategy. There is no guarantee that the option strategy will be profitable on a gross or net of fees basis.
Liquidity: There is no guarantee a secondary market in options will be liquid. If Franklin Managed Option Strategies is unable to close positions prior to expiry the risk management techniques described herein may not be implemented as described resulting in outsized losses or resulting in the sale of collateral shares.
Not a hedge: Investors selling call options have a maximum profit limited to the value of the premium received. Beyond the premium received, investors retain all the risk of the underlying portfolios and could suffer a loss of 100% of their equity holdings.
Unlimited loss: Investors selling call options accept the potential for unlimited loss as call options have no maximum value, or the risk of their shares being called away. For investors selling covered calls, their loss may be realized in the form of opportunity cost, with the possibility of their shares or ETFs being called away (and sold) at prices far below the market price of those shares or ETFs at the time of exercise.
Options and derivatives risk: Franklin Managed Options Strategies offers no guarantee that any of the strategies illustrated herein, will be successful or meet their intended objectives. Market movements or events, both foreseen and unforeseen, may render any strategy unsuccessful and may result in unforeseen losses.
Options are not suitable for all investors and carry additional risks. Investors must ensure that they have read and understood the current options risk disclosure document before entering any options transactions. In addition, investors should consult with a tax, legal and/or financial advisor prior to contemplating any derivative transactions. The options risk disclosure document, “Characteristics and Risks of Standardized Options”, can be accessed at the following web address: https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document
