valuation
of the Underlying ETFs' holdings due to reduced availability of reliable
objective pricing data. Consequently, while such determinations
may be made in good faith, it may nevertheless be more difficult for the
Underlying ETFs to accurately assign a daily value. Under those circumstances,
the value of the FLEX Options will require more reliance on the investment
adviser’s judgment than that required for securities for which there is an
active trading market. This creates a risk of mispricing or improper valuation
of the FLEX Options which could impact the value paid for shares of the
Underlying ETFs.
INDEX
OR MODEL CONSTITUENT RISK. The Fund may be a
constituent of one or more indices or ETF models. As a result, the Fund may be
included in one or more index-tracking exchange-traded funds or mutual funds.
Being a component security of such a vehicle could greatly affect the trading
activity involving the Fund’s shares, the size of the Fund and the market
volatility of the Fund. Inclusion in an index could increase demand for the Fund
and removal from an index could result in outsized selling activity in a
relatively short period of time. As a result, the Fund’s net asset value could
be negatively impacted and the Fund’s market price may be below the Fund’s net
asset value during certain periods. In addition, index rebalances may
potentially result in increased trading activity in the Fund's
shares.
INFORMATION
TECHNOLOGY COMPANIES RISK. SPY invests
significantly in information technology companies. Information technology
companies produce and provide hardware, software and information technology
systems and services. These companies may be adversely affected by rapidly
changing technologies, short product life cycles, fierce competition, aggressive
pricing and reduced profit margins, the loss of patent, copyright and trademark
protections, cyclical market patterns, evolving industry standards and frequent
new product introductions. In addition, information technology companies are
particularly vulnerable to federal, state and local government regulation, and
competition and consolidation, both domestically and internationally, including
competition from foreign competitors with lower production costs. Information
technology companies also heavily rely on intellectual property rights and may
be adversely affected by the loss or impairment of those
rights.
LARGE
CAPITALIZATION COMPANIES RISK. SPY invests in the
securities of large capitalization companies. Large capitalization companies may
grow at a slower rate and be less able to adapt to changing market conditions
than smaller capitalization companies. Thus, the return on investment in
securities of large capitalization companies may be less than the return on
investment in securities of small and/or mid capitalization companies. The
performance of large capitalization companies also tends to trail the overall
market during different market cycles.
MANAGEMENT
RISK.
The Fund is subject to management risk because it is an actively managed
portfolio. In managing the Fund’s investment portfolio, the portfolio managers
will apply investment techniques and risk analyses that may not produce the
desired result. There can be no guarantee that the Fund will meet its investment
objective.
MARKET
FLUCTUATION TAX RISK. The Fund is
acquiring shares of the Underlying ETFs in the open market. When the Fund sells
shares of the Underlying ETFs in the open market, the Fund will recognize gain
or loss on the disposition of the shares, which could have a negative impact on
Fund returns. In addition, note that the Fund may, under certain circumstances,
effect a portion of its creations and redemptions for cash rather than in-kind.
If the Fund effects redemptions for cash, it may be required to sell shares of
the Underlying ETFs in order to obtain the cash needed to distribute redemption
proceeds. Any recognized gain on these sales by the Fund will generally cause
the Fund to recognize a gain it might not otherwise have recognized, or to
recognize such gain sooner than would otherwise be required if it were to
distribute such shares only in-kind. The Fund intends to distribute these gains
to shareholders to avoid being taxed on this gain at the fund level and
otherwise comply with the special tax rules that apply to it. This strategy may
cause shareholders to be subject to tax on gains they would not otherwise be
subject to, or at an earlier date than if they had made an investment in a
different ETF. Moreover, cash transactions may have to be carried out over
several days if the securities market is relatively illiquid and may involve
considerable brokerage fees and taxes. These brokerage fees and taxes, which
will be higher than if the Fund sold and redeemed its shares entirely in-kind,
will be passed on to those purchasing and redeeming Creation Units in the form
of creation and redemption transaction fees. In addition, these factors may
result in wider spreads between the bid and the offered prices of the Fund’s
shares than for ETFs that distribute portfolio securities in-kind. The Fund’s
use of cash for creations and redemptions could also result in dilution to the
Fund and increased transaction costs, which could negatively impact the Fund’s
ability to achieve its investment objective.
MARKET
RISK.
Market risk is the risk that a particular investment, or shares of the Fund in
general, may fall in value. Securities are subject to market fluctuations caused
by real or perceived adverse economic, political, and regulatory factors or
market developments, changes in interest rates and perceived trends in
securities prices. Shares of the Fund could decline in value or underperform
other investments. In addition, local, regional or global events such as war,
acts of terrorism, market manipulation, government defaults, government
shutdowns, regulatory actions, political changes, diplomatic developments, the
imposition of sanctions and other similar measures, spread of infectious
diseases or other public health issues, recessions, natural disasters, or other
events could have a significant negative impact on the Fund and its investments.
Any of such