RISKS AND CONSIDERATIONS

SELECTED RISKS & CONSIDERATIONS ASSOCIATED WITH THE INDICES

Risks relating to the Indices: no assurance can be given that the strategy used to construct the indices will achieve its intended results or that the indices will be successful.
No assurance can be given that the investment strategy on which the Indices are based will be successful or that the Indices will outperform any alternative strategy that might be employed with respect to the Indices Components. The Indices have been developed based on predetermined rules that may not prove to be advantageous or successful, and that will not be adjusted for market conditions.

The Indices are subject to risks associated with significant leverage.

At times, the Indices will use significant leverage to achieve its target volatility. When the Indices employ leverage, any declines in the Indices will be magnified, resulting in accelerated losses.

The Indices may not be fully invested.

On a weekly rebalancing day, the Indices’ exposure to the S&P 500 Index (the “SPX” or “Underlying Index”) or the Nasdaq-100 Index (the “NDX” or “Underlying Index”) will be less than 100% when the implied volatility is greater than the volatility target. If the exposure to the Underlying Index is less than 100%, the Indices will not be fully invested, and any uninvested portion will earn no return.

The Indices may not approximate its target volatility.

No assurance can be given that the Indices will maintain a realized volatility that approximates its target volatility. The actual realized volatility may be greater than or less than the target volatility, which may adversely affect the performance of the Indices.

The volatility target mechanism may cause the Indices to perform poorly in adverse market conditions and to underperform in rising markets.

Because the amount of leverage to be applied is determined only at the weekly rebalancing, the Indices may not meaningfully reduce its leverage during adverse market conditions, and, because of the delayed application, by the time reduced exposure takes effect, market conditions may have already recovered. Similarly, when markets rise rapidly, the volatility target mechanism will reduce the Indices’ leverage.

The Indices are excess return indices that does not reflect “Total Returns”.
The values tracked by the Indices only reflect changes in the prices or levels of the relevant Indices Components. The level of the Indices will not benefit from any collateral return on any futures contracts or any dividends or other distributions on any Indices Components.

The daily level of the Indices is calculated based on performance measured from the preceding weekly rebalancing date, which could adversely affect the level of the Indices.
The level of the Indices on each day that is not a rebalancing day will be calculated based on the performance of the Underlying Indices from the preceding rebalancing day and by reference to the level of the Indices as of the prior rebalancing day. The level of the Indices may be more favorable if such calculations were done over a different time-horizon – i.e., if such calculations were made based on the levels on the prior trading day rather than the prior rebalancing day or if such calculations were made based on less frequent rebalancing days.

The Indices fee embedded in the calculation of the indices will adversely affect the performance of the indices.

The Indices include a decrement feature whereby 6% per annum is deducted daily from the level of the Indices. The level of the Indices may decline even if the level of the Underlying Indices increases. Because of the deduction of the decrement, the Indices will underperform a similar Indices which does not include such a decrement feature.