Exchange Traded Funds (ETFs) are subject to market risk, including the possible loss of principal. The value of the portfolio will fluctuate with the value of the underlying securities. ETFs trade like a stock, and there will be brokerage commissions associated with buying and selling exchange traded funds unless trading occurs in a fee-based account. ETFs may trade for less than their net asset value.

Investors should consider an ETF’s investment objective, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other important information, is available from your Financial Advisor and should be read carefully before investing.

Diversification does not ensure a profit and may not protect against loss in declining markets. Investors should refer to the individual ETF prospectus for a more detailed discussion of the specific risks and considerations for an individual ETF.

ETFs may have underlying investment strategy risks similar to investing in commodities, bonds, real estate, international markets or currencies, emerging growth companies, or specific sectors. When investing in bonds and interest rate-sensitive securities, it is important to note that as interest rates rise, prices will fall. Due to their narrow focus, sector-based investments typically exhibit greater volatility. There are special considerations associated with international investing, including the risk of currency fluctuations and political and economic events. Investing in emerging markets may involve greater risk and volatility than investing in more developed countries. When investing in real estate companies, property values can fall due to environmental, economic, or other reasons, and changes in interest rates can negatively impact the performance. The risk of loss in trading commodities and futures can be substantial. The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. You should therefore carefully consider whether such trading in ETFs is suitable for you in light of your financial condition.

ETFs are one form of Exchange Traded Product, not to be confused with other forms, as more fully explained below.

Exchange Traded Products (ETPs) are types of securities that derive their value from a basket of securities such as stocks, bonds, commodities, or indices, and trade intra-day on a national securities exchange. Generally, ETPs take the form of Exchange Traded Funds (ETFs) or Exchange Traded Notes (ETNs).

• ETFs are open-end investment companies or unit investment trusts (UITs) whose shares represent an interest in a portfolio of securities.
• ETNs are senior unsecured debt obligations of an issuer, typically a bank or another financial institution; however, ETNs are not categorized as typical fixed income products.

Non-Traditional ETPs

Non-traditional ETPs employ sophisticated financial strategies and instruments, such as leverage, futures, and derivatives, in pursuit of their investment objectives. Leveraged and inverse ETPs are considered risky. The use of leverage and inverse strategies by a fund increases the risk to the fund and magnifies gains or losses on the investment. You could incur significant losses even if the long-term performance of the underlying index showed a gain. Typically, these products have one-day investment objectives, and investors should monitor such funds on a daily basis. Non-traditional ETPs are generally categorized as leveraged, inverse, or leveraged-inverse:

• Leveraged — Uses financial derivatives and debt to multiply the returns of an underlying index, commodity, currency, or basket of assets. Leveraged ETPs may include the terms “double,” “ultra,” “triple,” or similar language in their security name/description.
• Inverse — Uses various derivatives to seek to profit from the decline in the value of an underlying index, commodity, currency, or basket of assets; used typically to hedge exposure to downward markets. Inverse ETPs may include the term “contra,” “short,” or similar language in their security name/description.
• Leveraged-Inverse — Uses swaps, futures contracts, options, and other derivative instruments to seek to achieve a return that is a multiple of the opposite performance of the underlying benchmark or index. Leveraged-inverse ETPs may include a combination of leveraged and inverse terms such as “ultra short” in their security name/description.
• The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) seek to warn retail investors of the risks associated with investing in non-traditional ETFs and issued an Investor Alert entitled “Leveraged and Inverse ETFs: Specialized Products With Extra Risks for Buy-and-Hold Investors,” which is available on FINRA‘s and the SEC‘s websites.

Investors who choose to invest in non-traditional ETPs should be aware of the risks, some of which are outlined below:

• Non-traditional ETPs are complex products that have the potential for significant loss of principal and are not appropriate for all investors. Investors should consider their financial ability to afford the potential for a significant loss.
• Non-traditional ETPs seek investment results for a single day only. The effect of compounding and market volatility could have a significant impact upon the investment returns. Investors may lose a significant amount of principal rapidly in these securities.
• Non-traditional ETPs may be volatile under certain market conditions. Investors holding non-traditional ETPs over longer periods of time should monitor those positions closely due to the risk of volatility.
• Non-traditional ETPs are focused on daily investment returns, and their performance over longer periods of time can differ significantly from their stated daily objective. Investors may incur a significant loss even if the index shows a gain over the long term.
• Non-traditional ETPs use a variety of derivative products in order to seek their performance objectives. The use of leverage in ETPs can magnify any price movements, resulting in high volatility and potentially significant loss of principal.
• Non-traditional ETPs may suffer losses even though the benchmark currency, commodity, or index has increased in value. Investment returns of non-traditional ETPs may not correlate to price movements in the benchmark currency, commodity, or index the ETP seeks to track.
• Some non-traditional ETPs may have a low trading volume, which could impact an investor’s ability to sell shares quickly.
• Non-traditional ETPs may be less tax efficient than other ETPs. As with any potential investment, an investor should consult with his or her tax advisor and carefully read the prospectus to understand the tax consequences of non-traditional ETPs.

The specific risks associated with a particular ETP are detailed in the fund’s prospectus. Additional risks may include adverse market condition risks, investment strategy risk, aggressive investment techniques risk, concentration risk, correlation risk, counterparty risk, credit risk and lower-quality debt securities risk, energy securities risk, equity securities risk, financial services companies risks, interest rate risk, inverse correlation risk, leverage risk, market risk, non-diversification risk, shorting risk, small and mid cap company risk, tracking error risk, and special risks of exchange traded funds, among others. Investors should refer to the ETP’s prospectus to obtain a complete discussion of the risks involved in that ETP before investing.

Complex Exchange Traded Products

Complex Exchange Traded products are products that have strategies and risks that 申博菲律宾app defines as unique and atypical. These products have been classified by the firm internally and may require additional account minimum requirements in order to be purchased. Descriptions and risks of product types that fall under the complex products classification are listed under Complex Product Types below.

Definitions

Short Sale — A short sale is a transaction in which a fund sells a security or other instrument (such as an option, forward, futures, or other derivative contract) that it does not own with the anticipation of purchasing the security for a lower market price in the future. Short selling allows a fund to profit from a decline in market price of the security sold short.

Call Option — A call option gives the purchaser of the option the right, but not the obligation, to purchase shares of the underlying reference asset at a specified price (“strike price”) until a specified date (“expiration date”). Like all options, call options have a purchaser (“buyer”) and seller (“writer”) of the option. The seller/writer of the option is obligated to sell the shares of the underlying reference asset if the purchaser of the call option exercises their right to purchase the shares. The seller/writer of the call option receives a premium payment for selling the option.

Put Option — A put option gives the purchaser of the option the right, but not the obligation, to sell shares of the underlying reference asset at a specified price (“strike price”) until a specified date (“expiration date”). Put options have a purchaser (“buyer”) and seller (“writer”) of the option. The seller/writer of the option is obligated to purchase the shares of the underlying reference asset if the purchaser of the put option exercises their right to sell the shares. The seller/writer of the put option receives a premium payment for selling the option.

Complex Product Types

Active Semi-Transparent ETFs

Active Semi-Transparent ETFs are ETFs that operate under an SEC exemptive order from SEC Rule 6c-11 and do not operate with daily portfolio transparency. Their unique structures enable them to avoid publishing their actual portfolio holdings and only reveal their underlying portfolio holdings on a monthly or quarterly basis. Active semi-transparent ETFs were created in order to shield the investment strategy of the active manager managing the ETF’s portfolio.

Investment Risks

Active Semi-Transparent ETFs have a number of risks specific to their unique structures. One of the primary investment risks associated with these products is the concern related to Spread Risk. Trading costs represent one of the most important costs of an ETF to the end investor. These costs manifest themselves in the bid-ask spread by which ETF shares are purchased and sold in the secondary market. The primary drivers of ETF spreads include the liquidity of the ETF’s underlying investments, pricing uncertainty for those investments, and fixed creation/redemption costs. Due to a third-party market-maker, known as an Authorized Participant, not knowing the underlying holdings of an Active Semi-Transparent ETF’s portfolio, uncertainty may lead to higher spreads for end investors. Additionally, these Authorized Participants may have fewer opportunities to create and redeem ETF shares, leading to an ETF share price that trades at a premium or a discount to the ETF’s Net Asset Value.

Market Neutral Long/Short ETFs

Market neutral ETFs have investment strategies that are designed to profit from both increasing and decreasing prices in one or more markets. These strategies take both long and short positions and are designed to help reduce systematic (market) risk by creating a product with a market beta at or near zero. Market neutral ETFs resemble traditional long/short ETFs but have positions created to maintain long and short holdings that are roughly equal (e.g., 50% long, 50% short exposure).

Investment Risks

Market neutral investment strategies are created in order to reduce the systematic risk of an exchange traded product (“ETP”) and achieve a market beta at or near zero. During a “bull” market when most equity securities and long-only ETPs and mutual funds are increasing in value, an ETF with a market neutral investment strategy is likely to underperform the equity market due to its short positions. A fund may incur a loss from a short sale if the price of the security increases between the date of the short sale and the date the fund repurchases the security sold short. The amount a fund can lose on a short sale is unlimited because the security does not have a maximum price ceiling and may increase in price perpetually. In addition, all funds registered under the Investment Company Act of 1940 must segregate liquid assets, or engage in measures to “cover” open short positions with respect to short sales. In certain situations, fund assets used as collateral to cover a short sale may decrease while the short position is held. This will result in the fund being forced to post more collateral to cover the short position, potentially affecting returns. As a result, market neutral long/short ETFs are subject to short sale risk and market neutral style risk and may be subject to additional risks depending on their underlying investments. Investors should consult the ETF’s prospectus for a full list of risks associated with an investment in a particular market neutral long/short ETF.

Long/Short ETFs

Long/short ETFs have investment strategies designed to take long positions in securities expected to appreciate in value and short positions in securities expected to decline in value. While similar to market neutral long/short ETFs, long/short ETFs differ in that they do not seek to maintain an equal ratio of long and short positions and will allow the value of their long and short positons to appreciate/depreciate in value. In addition, long/short ETFs will often take a relative long bias in securities held (e.g., 130% long, 30% short exposure). Long/short ETFs that take a relative long bias will often invest the proceeds of the fund’s short sale to purchase additional shares of securities.

Investment Risks

Long/short ETFs often take a relative long bias by investing the proceeds of the fund’s short sale to purchase additional shares of securities (e.g., 130% long, 30% short exposure). This may have the ability to amplify the price changes to the ETF’s net asset value per share (“NAV”) because it increases exposure to certain securities. In addition, all funds registered under the Investment Company Act of 1940 must segregate liquid assets, or engage in measures to “cover” open short positions with respect to short sales. In certain situations, fund assets used as collateral to cover a short sale may decrease while the short position is held. This will result in the fund being forced to post more collateral to cover the short position, potentially affecting returns.

Short Sale ETFs

Short sale ETFs seek returns through actively or systematically employing a principal investment strategy based on selling securities and/or other instruments short. Short sale ETFs, classified as Tier 1 Complex ETPs, are intended for a holding period longer than one day, do not have a daily reset unlike inverse ETFs, and therefore are not subject to the UNEP Form procedures that are required for inverse ETFs.

Investment Risks

ETFs with principal investment strategies based on short sales are subject to the risks of short selling securities and other instruments. In order to close out a short position, a fund must replace the security it borrowed and sold short by purchasing the security at its then-current market price. If the security’s market price has increased between the date of the short sale and the date the fund purchases the security sold short, the fund may incur a loss. The amount a fund can lose on a short sale is unlimited because a security does not have a maximum price ceiling and may increase in price perpetually.

Hedge Fund Replication Strategy ETFs

ETFs that replicate popular hedge fund strategies include long/short ETFs (see above) and merger arbitrage ETFs. These ETFs are often classified under the asset class “Liquid Alternatives” and employ event-driven investment strategies to seek to achieve their investment objectives. A merger arbitrage strategy is a strategy whereby a fund seeks to capitalize off of pricing differences in the acquisition of a publicly traded company by another publicly traded company. To take advantage of pricing differences, funds employing a merger arbitrage strategy will often purchase shares of a target company and sell short shares of an acquiring company. This strategy is built off the idea that, in an M&A transaction, acquiring companies’ share prices will decline while target companies’ share prices will rise. The merger arbitrage strategy therefore focuses on the terms and the probability of a merger/acquisition and not the performance of the overall stock market.

Investment Risks

Risks of hedge fund replication strategies will vary based on the complexity of the strategy utilized by the fund. See above for the risks of long/short ETFs. Merger arbitrage ETFs are subject to the risks associated with the proposed or expected transaction not being completed as originally expected. If a transaction is not completed, or is completed with different terms than anticipated, it may have the ability to affect the share prices of the acquiring and target companies. Merger arbitrage ETFs often utilize short sales and, as a result, have an unlimited loss potential as a result of adverse upward movements in securities that have been sold short. As a result, hedge fund replication strategy ETFs are subject to political, cultural, regulatory, legal, tax, and short sale risks, among other risks.

Index Tracking Securitized Debt and Mortgage-Backed Securities ETFs

Passively managed/index tracking ETFs with principal investment strategies based on investing in mortgage-backed securities and other securitized debt securities are considered Tier 1 Complex ETFs. Securitization is the process of converting a group of different debt securities into a single marketable and exchange traded security. Securitization is able to transform illiquid assets into a liquid exchange-traded security by packaging the assets into a single security. Both mortgage-backed and asset-backed securities are created through the process of securitization. An asset-backed security is a bond or note collateralized by a pool of assets including loans, leases, credit card debt, royalties, or receivables. A mortgage-backed security is collateralized by a bundle of mortgage loans. All securitized debt and mortgage-backed securities are made up of income-generating assets, and funds investing in them often have income as their primary investment objective.

Investment Risks

Mortgage-backed securities are subject to interest rate, prepayment, default, and extension risks. Mortgage-backed securities react differently to changes in interest rates than other fixed income securities and are associated with negative convexity. Negatively convex securities have a yield curve that is concave in shape. Generally a bond’s market price will increase as interest rates decrease and decrease as interest rates increase. Negatively convex securities have market prices that decline by a greater amount than bonds as interest rates rise and rise by a lesser amount than bonds as interest rates fall. This occurs in mortgage-backed securities because changing interest rates signal changes in the expected maturity of the security. The underlying mortgages that comprise a mortgage-backed security typically have an initial term (e.g., 15 years or 30 years) during which mortgage payments and interest are paid. This initial term could be shortened or changed in the event the mortgage is refinanced. A mortgage is often refinanced when borrowers believe they can receive potential savings on debt payments through a new mortgage. The primary driver of mortgage refinancing is the interest rate environment. In a low interest rate environment, borrowers may be able to refinance and pay less interest on their new mortgage than their current mortgage. When a mortgage is refinanced, a new mortgage is created, typically with a shorter term and more favorable interest rates. As a result, an underlying mortgage with a shorter term reduces the expected maturity of the mortgage-backed security of which it is a part. When interest rates rise, borrowers have less motivation to refinance and the expected maturity of the mortgage and mortgage-backed security will rise, causing the price of the security to decrease by a larger amount than traditional bonds. As a result, ETFs that are heavily invested in mortgage-backed securities may see changes in returns due to small movements in interest rates. Additionally, ETFs invested in mortgage-backed securities are also subject to the risk of default on the underlying mortgage loans their mortgage-backed securities hold. This risk is particularly prevalent during periods of economic downturn. Other asset-backed security ETFs are also subject to prepayment risk and default risk.

Collateralized Loan Obligation ETFs

Collateralized Loan Obligation (“CLOs”) ETFs are ETFs with a principal investment strategy based on investing in CLOs. A CLO is a trust collateralized by a pool of credit-related assets. CLOs represent single securities and are created through the securitization of corporate loans and/or leveraged buyout loans. An ETF investing in CLOs would receive scheduled payments from the underlying loans that were securitized to create the CLO. CLOs are sold in tranches, which help to dictate who will be paid first when the underlying loan payments are made. Investors invested in senior tranches will receive loan payments first before junior tranche payments are made. Due to the tranche structure, investors in junior tranches are subject to higher default risk and receive higher interest payments than investors in senior tranches. Senior tranches pay the lowest interest rates but are generally safer than more junior tranches because, should there be any default, senior tranches are typically paid first. CLO ETFs that are deemed Tier 1 Complex ETPs must have a principal investment strategy (investing 80% or more in) based on investing in AAA-rated CLOs.

Investment Risks

CLOs are as risky as the underlying securitized debt they are comprised of. An ETF investing in CLOs would be subject to the default risk of the CLO’s underlying loans. If the borrowers default on the loans included in a CLO, a CLO ETF’s return will be affected as a result. Senior CLO tranches will have lower default risk because investors in these tranches will receive the underlying loan payments before junior tranches. As an ETF invested in securitized debt securities, CLO ETFs are also subject to interest rate and prepayment risks and may be subject to additional risks depending on their underlying investments. Investors should consult an ETF’s prospectus for a full list of risks associated with an investment in a CLO ETF.

Cash-Secured Put Option ETFs

ETFs with principal investment strategies based on selling/writing cash-secured put options are Tier 1 Complex ETFs. An ETF utilizing this strategy will write at-the-money or out-of-the money put options while simultaneously setting aside enough cash to buy the underlying security. This strategy is often used as a stock acquisition strategy by those who believe the market price of an underlying security will fall in the short term and appreciate over the longer term. A fund may also utilize this strategy to further ensure it is able to absorb maximum losses in the event the market price of an underlying security in a written put option falls to zero.

Investment Risks

Writing put options does not come without risks, and ETFs with principal investment strategies based on selling/writing cash-secured put options may see their returns affected as a result. The maximum loss of a cash-secured put option is equal to the strike price minus the premium received for selling the option. A put option writer will incur a loss if the put option is exercised when the market price of the underlying security is below the option’s strike price minus the premium received for selling the option. While the maximum loss of cash-secured put options is not unlimited, it may be substantial when a fund’s principal investment strategy is based on writing these options.

Fund of Fund ETFs

ETFs with principal investment strategies based on investing in closed-end funds and/or business development companies (“BDCs”) are considered Tier 1 Complex ETPs. Closed-end funds are publicly traded pooled investment companies that issue a fixed number of shares to the public through an initial public offering (“IPO”). Closed-end funds are actively managed and have exchange-traded shares that have the ability to trade at premiums or discounts to their NAV. BDCs are investment companies that invest in small and mid-sized companies. BDCs are often very similar to closed-end funds, and they typically have shares that are publicly traded on major stock exchanges. Due to their tendency to invest in small cap and distressed companies, BDCs are often relatively high-risk investments. Fund of Fund ETFs are often used to invest in closed-end funds and BDCs due to their attractive yield potential, and may often be structured as income ETFs.

Investment Risks

The performance of a Fund of Funds ETF is dependent on the performance of the underlying closed-end funds and BDCs in which the ETF invests. Additionally, Fund of Fund ETFs bear the fees and expenses of the acquired funds in their expense ratio. The costs associated with closed-end funds and BDCs are described in Fund of Funds ETFs’ prospectuses as acquired funds’ fees/expenses. Due to the acquired fund fees/expenses as well as management fees, Fund of Fund ETFs often have the potential to have some of the highest expense ratios in the ETF universe.

Uncovered Options ETFs

Uncovered options ETFs have principal investment strategies based on selling/writing uncovered call or put options. Uncovered options are sold/written options where the seller of the option does not own the underlying security. Sold/written options come with the obligation for the seller to buy or sell the underlying security at the strike price in the event the purchaser exercises the option. Due to the outstanding obligation sellers/writers of options have, many often invest in the underlying security to cover the option in the event it’s exercised. Fund managers sometimes use uncovered options to generate additional short-term income for a fund. Uncovered call option positions allow a fund to profit off short-term neutral to bearish price movements on the option’s underlying security or index. Uncovered put option positions allow a fund to profit from short-term neutral to bullish price movement on the option’s underlying security or index. The maximum gain a fund may earn on uncovered put or call options equals the premium earned for selling or writing those options.

Investment Risks

Funds that utilize uncovered call or put options may be subject to certain risks not experienced by funds utilizing covered options positions. A covered option is when a fund purchases or sells short the security or underlying reference asset from which the option is derived. This long or short position in the underlying reference asset helps protect the fund from a certain measure of loss in the event the option positions sold/written are exercised by the options purchaser. Since the seller/writer of an uncovered put option is obligated to purchase the underlying reference asset when the option is exercised, the writer’s maximum potential loss for an uncovered put option position is equal to the strike price minus the premium earned for selling the option. In other words, the purchaser of the option may exercise the option and sell the reference asset to the writer of the option for the option’s strike price even if the reference asset is worthless. The maximum potential loss for the writer of an uncovered call option position is unlimited. Due to there being no maximum price cap for the option’s underlying reference asset, the writer of an uncovered call option may be obligated to sell the underlying asset to the purchaser when the asset’s price is higher than the option’s strike price. In addition to the above risks associated with uncovered options positions, all options are subject to additional risks that may not be seen in traditional non-derivative investments. The success of options positions depends on future price fluctuations and the degree of correlation between options and the securities markets. Options have expiration dates and are therefore very time-sensitive investments subject to time decay. In addition, the price of an option contract will fluctuate with its underlying assets. Due to the variety of options contracts available in the market, there can be no assurance that a liquid market exists when a fund seeks to close out an option position by buying or selling the options contract. Investors should consult an ETF’s prospectus for a full list of risks associated with an investment in an uncovered option ETF.

Exchange Traded Notes

Exchange Traded Notes (“ETNs”) are unsecured debt securities that seek to track an underlying index of securities and trade on a major exchange. ETNs are typically issued by large financial institutions and have a set maturity date. In addition to a set maturity date, ETNs may have an early redemption date subject to block volume requirements, a call date, and/or an acceleration date. The call date is the date in which an ETN issuer exercises the right to call their issued ETNs by redeeming them. Not all ETN issuers include call rights in the ETN’s prospectus, and an investor in an ETN subject to an issuer’s call right will receive the call settlement amount outlined in the ETN’s prospectus. The acceleration date is the date in which investors in an accelerated ETN will receive the closing indicative value of the ETN. An accelerated ETN is an ETN with an accelerated maturity option that has been exercised by the issuing financial institution. The issuing financial institution will be responsible for making a cash payment for the return earned by the underlying index the ETN tracks (less applicable fees and costs) at the time of the ETN’s maturity, early redemption, call, or acceleration. While ETNs are debt securities, they do not pay interest, and an investor in an ETN may lose some or all of their principal investment. The performance of an ETN will generally depend on the return of its underlying index less applicable fees and costs. ETNs typically will charge an expense ratio between .75% and 1.5%. As an exchange traded product, ETNs have a market value that fluctuates based on supply and demand factors. The closing indicative value and intraday indicative value of an ETN may also be calculated in order to best represent the economic value of the ETN.

Investment Risks

ETNs differ from ETFs in that they are unsecured debt securities issued by financial institutions. For this reason, ETNs are exposed to credit risk in the event the issuing financial institution is unable to make payments and defaults on its outstanding debt obligations. ETN performance is based on the performance of the underlying index in which it is linked less applicable fees and costs. There is no minimum limit to the level of an ETN’s underlying index, and an investor in an ETN may lose their entire principal investment as a result. Some ETNs provide the issuer with a call right that enables the issuer to redeem the ETN without consent on any redemption date prior to the note’s maturity. Investors in ETNs exposed to call risk may receive a lower payment amount than they would have potentially received at the ETN’s maturity. Exchange Traded Notes have terms and conditions that vary across issuers, and investors should consult an ETN’s prospectus for a full list of terms and risks associated with an investment in a particular ETN.

Fund of Fund ETFs

Fund of Funds ETFs classified as Tier 2 Complex ETPs will have prospectus language indicating that they may invest in other ETPs, including: leveraged, inverse, and leveraged inverse ETFs as well as ETNs. Fund of Fund ETFs may incur the fees and expenses of their acquired funds in their expenses. The costs associated with the acquired ETFs are described in the Fund of Funds ETFs’ prospectuses as acquired funds’ fees/expenses. Due to the acquired fund fees/expenses as well as management fees, Fund of Fund ETFs often have the potential to have high expense ratios, which may diminish investors’ returns.

Investment Risks

A Fund of Funds ETF’s performance depends on the performance of the underlying funds in which the ETF invests. Fund of Funds ETFs that invest in complex products, including leveraged, inverse, and leveraged-inverse ETFs or ETNs, may bear additional risks associated with these products. Fund of Funds ETFs that invest in underlying ETFs/ETNs that utilize derivatives in order to achieve leveraged, inverse, or leveraged-inverse investment strategies will be subject to leveraging risk. Leveraging risk will cause the fund to be more volatile than a fund that does not invest in leveraged products. The greater the investment into leveraged ETPs, the more this leverage will magnify the gains or losses of the Fund of Funds ETF. In addition, Fund of Funds ETFs bear the fees and expenses of their acquired funds in their expenses and may have high expenses as a result.

Other Derivative-Based ETF Strategies

All ETFs that invest more than 50% of their assets in derivatives or any other high risk securities deemed complex by 申博菲律宾app will be designated as Tier 2 Complex ETPs. Derivatives included in the 50% rule may include the following:

• Forward Contracts — Customized over-the-counter (“OTC”) derivative contracts between two parties to buy or sell an underlying asset at a specified price on a future date. Forward contracts are often used for hedging and/or speculation purposes and are subject to counterparty risk. Counterparty risk is the risk that one party may not fulfill its contractual obligation to the other party. Either party can default in a forward contract, but only one party can default at a particular time.
  
  
• Swap Contracts — Customized OTC derivative contracts in which two parties agree to exchange a series of cash flows. In a swap contract, one party pays a variable series that will be determined by the underlying asset or rate and the other party pays either a variable series, determined by a different underlying asset or rate, or a fixed series. Swaps also contain specific payment dates and procedures. The money owed in a swap contract is based on the net amount owed by one party to the other. Swap contracts are also subject to counterparty risk, as either party can default on its contractual obligations.