IPS CUSTOM STRUCTURED NOTES

Defined Outcome Investments are an innovative investment strategy that allows investors to define the exact exposure they desire for a variety of underlying assets. Defined Outcome Investments allow investors to increase the probability of achieving their return targets by defining their risk today for tomorrow.

A Defined Outcome Investment can be structured to provide investors with any of the following exposures to achieve their desired outcomes:

Directional ExposureInvestment Goal
LongAsymmetric Equity Exposure
ShortPortfolio Hedge
NeutralGenerate Income

Defined Outcome Investments attempt to provide investors with the benefits of securitized structured products of index annuities without exorbitant fee structures and opaque risk profiles. Defined Outcome Investments can be built directly in a separately managed account using exchange traded options and debt instruments, offering highly customizable and liquid solutions for financial advisors and high net worth individuals at a fraction of the cost.

Types of Structures:

Buffered + Uncapped

Buffered + Capped

Buffered + Enhanced

Provides investors with uncapped upside exposure to the underlying asset with a defined downside buffer

Provides investors with capped upside exposure to the underlying asset with a defined downside buffer

Provides investors with enhanced upside exposure to the underlying asset up to a cap with a defined downside buffer

The Buffered + Uncapped structure provides participation in the upside of the underlying asset with no upside cap. Generally, the participation rate is between 65-75% of the performance of the underlying asset over the outcome period. The downside is buffered meaning that the structure does not participate in the downside unless the underlying asset is below the buffer level at the end of the outcome period.

Characteristics:

  • Directional Bias: Bullish
  • Upside: Uncapped
  • Downside: Buffered
  • Upside Participation: 65-75%
  • Downside Participation Below Buffer: 100%

The Buffered + Capped structure provides participation in the upside of the underlying asset up to a designated cap. Generally, the participation rate up to the cap is 100% of the underlying gain over the outcome period. The downside is buffered meaning the structure does not participate in the downside unless the underlying asset is below the buffer level at the end of the outcome period.

Characteristics:

  • Directional Bias: Bullish
  • Upside: Capped
  • Downside: Buffered
  • Upside Participation: 100% (up to cap)
  • Downside Participation Below Buffer: 100%

The Buffered + Enhanced structure provides enhanced participation in the upside of the underlying asset up to a designated cap. Generally, the enhanced upside participation rate if between 150-200% of the underlying gain over the outcome period. The downside is buffered meaning the structure does not participate in the downside unless the underlying asset is below the buffer level at the end of the outcome period.

Characteristics:

  • Directional Bias: Bullish
  • Upside: Enhanced + Capped
  • Downside: Buffered
  • Upside Participation: 150-200% (up to cap)
  • Downside Participation Below Buffer: 100%

Fully Protected

Defined Income

Defined Hedge

Provides investors with capped upside exposure to the underlying asset with a defined “floor”

Provides investors with enhanced income if the underlying asset remains range bound over the outcome period

Provides investors with a hedge against the underlying asset. The hedge is capped at a defined level on the downside and designed to have zero cost if the underlying asset increases in price

The Floored structure provides participation in the upside of the underlying asset up to a designated cap. Generally, the upside participation rate is 100% of the underlying gain over the outcome period. The downside is “floored” meaning that the structure will not participate in any of the downside of the underlying asset.

Characteristics:

  • Directional Bias: Bullish
  • Upside: Capped
  • Downside: Floored
  • Upside Participation: 100% (up to cap)
  • Downside Participation: None

The Defined Income structure provides enhanced income meant to take advantage of range bound market environments. If the underlying asset remains within the “outcome range” over the outcome period, the structure achieves maximum profitability. If the underlying asset finishes outside of the outcome range, the structure is generally designed to return the full principal invested.

Characteristics:

  • Directional Bias: Neutral
  • Downside: Defined
  • Outcome Range: A defined range in underlying where structure achieves max profitability
  • Buffer Zone: A small range where note fails to achieve max profitability but does not return zero

The Defined Hedge structure provides a defined payout intended to benefit from market declines. The Defined Hedge structure generally aims to capture between 100%-200% of the downside in the underlying asset up to a defined cap. Should the market decline further than the amount of the downside cap, the structure will attain is maximum profitability. The Defined Hedge structure is generally designed to offer zero carry cost if the underlying asset is flat to up over the outcome period.

Characteristics:

  • Directional Bias: Bearish
  • Downside Participation: 100-200% (up to cap)
  • Cost of Carry: Zero

Disclaimer

Please note that the above information is simply for illustrative purposes and is purely hypothetical. This information provided is for informational purposes only and should not be construed as a solicitation to buy or sell securities or any financial instruments. The above illustration involves exchange-traded options contracts. Prior to buying or selling an option, investors must read a copy of the Characteristics & Risks of Standardized Options. Put options give the purchases the right, not the obligation, to sell a specified number of shares of the underlying security at a specific date in the future. The seller of a put option has the obligation, not the right, to have a number of shares delivered to them at a specified price at a specified date in the future in exchange for receiving a premium upfront for this risk. The buyer of a call option has the right, not the obligation, to purchase shares of the underlying security at a specific date in the future. The seller of a call option has the obligation, not the right, to deliver shares of the underlying at a specific date in the future. Please consult a financial adviser before making any decisions to buy or sell securities. Past performance is not indicative of future results.

Disclaimer

Please note that this is a hypothetical example intended to illustrate one of the potential outcomes for the Structured Custom Investment program. The value of the treasury bill and S&P 500 ETF (SPY) options are based on the closing prices as of 1/28/19 but are not indicative of the future outcome of said Structured Custom Investment. While minimal, there is default risk in the U.S. Treasury bill as well as counterparty risk of facing the OCC in the exchange-traded options on the S&P 500 ETF (SPY). The value of the Structured Custom Investment can fluctuate between the inception and maturity dates. Past performance is not necessarily indicative of future performance. This example is not an offer to sell nor a solicitation to buy any investment securities and is purely a hypothetical example intended to demonstrate the concept of the Structure Custom Investment program. This is not investment advice; please call your financial advisor before making any investment decisions. Options trading involves a substantial risk of loss and is not suitable for every investor. The valuation of futures, stocks, and options may fluctuate, and, as a result, clients may lose more than their original investment. If you buy an options contract, it grants you the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date. A call option gives the holder the right to buy stock and a put option gives the holder the right to sell the stock. Please refer to the Characteristics and Risks of Standardized Options before buying or selling any options contracts. 

Disclaimer 

* IPS Defined Outcome Investments use a diversified basket of defined maturity coupon bonds where the coupon is reinvested in the bond pool on a monthly basis.  This means the yield to maturity (YTM) and the discount rate is not 100% accurate and may cause a tracking error in the notes.  Although Defined Outcome Investments contain a diversified portfolio of bonds, they also contain default risk as well as risk to changes in the discount rate.
Any statistics regarding the performance of Defined Outcome Investments are hypothetical.  The hypothetical payoff profile is assuming that the investor holds the product for the full duration.  If the Defined Outcome Investment is liquidated early, results may vary.  The hypothetical performance measures are obtained using the best available information at the time of designing the Defined Outcome Investments.  This is neither an offer to sell nor a solicitation to buy any securities.  The exact payoff profile of any product will depend on market conditions when purchasing or selling the underlying assets in the Defined Outcome Investments.  Please consult an investment advisor before making any investment decisions.
IPS Defined Outcome Investments invest in exchange-listed options to gain equity market exposure.  Options can be highly volatile investments, one should consult a professional before investing in options.  The IPS Defined Outcome Investments invest in a basket of highly diversified high-yield corporate bonds.  The hypothetical payoff profile of the Defined Outcome Investment is assuming that none of the debt held defaults.  While diversifying the debt has been shown historically to help mitigate default risk, past performance is not a guarantee of future results.  If one or more of the companies held in the basket of high yield corporate debt defaults, the performance of the Defined Outcome Investments may vary. 

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