Company: SVIX
Filing Date: 2025-08-13
Form Type: 10-Q
Source: 0001213900-25-075845
Chunk: 340

Company: VS Trust
Filing Date: 2025-08-13
Form: 10-Q
Item: Part II, Item 8
Chunk 340
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 with their underlying benchmarks, the Funds seek to rebalance their portfolios daily to keep exposure consistent
with their investment objectives. Being materially under- or over-exposed to the benchmark may prevent such Funds from achieving a high
degree of correlation with such benchmark. Market disruptions or closure, large amounts of assets into or out of the Funds, regulatory
restrictions, extreme market volatility, and other factors will adversely affect such Funds’ ability to adjust exposure to requisite
levels. The target amount of portfolio exposure is impacted dynamically by the benchmarks’ movements during each day. Other things
being equal, more significant movement in the value of its benchmark up or down will require more significant adjustments to a Fund’s
portfolio. Because of this, it is unlikely that the Funds will be perfectly exposed (i.e., --1x, -2x, as applicable) to its benchmark
at the end of each day, and the likelihood of being materially under- or over-exposed is higher on days when the benchmark levels are
volatile near the close of the trading day.

Each Fund seeks to rebalance its portfolio on a
daily basis. The time and manner in which a Fund rebalances its portfolio may vary from day to day depending upon market conditions and
other circumstances at the discretion of the Sponsor. Unlike other funds that do not rebalance their portfolios as frequently, each Fund
may be subject to increased trading costs associated with daily portfolio rebalancing in order to maintain appropriate exposure to the
underlying benchmarks.

Counterparty Risk

Each Fund may use derivatives such as swap agreements
and forward contracts (collectively referred to herein as “derivatives”) in the manner described herein as a means to achieve
their respective investment objectives. The use of derivatives by a Fund exposes the Fund to counterparty risks.

F-31

Regulatory Treatment

Derivatives are generally traded in OTC markets
and have only recently become subject to comprehensive regulation in the United States. Cash-settled forwards are generally regulated
as “swaps”, whereas physically settled forwards are generally not subject to regulation (in the case of commodities other
than currencies) or subject to the federal securities laws (in the case of securities). Title VII of the Dodd-Frank Act (“Title
VII”) created a regulatory regime for derivatives, with the CFTC responsible for the regulation of swaps and the SEC responsible
for the regulation of “security-based swaps.” The SEC requirements have largely yet to be made effective, but the CFTC requirements
are largely in