Company: SVIX
Filing Date: 2025-08-13
Form Type: 10-Q
Source: 0001213900-25-075845
Chunk: 101

Company: VS Trust
Filing Date: 2025-08-13
Form: 10-Q
Item: Part I, Item 2
Chunk 101
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 for which significant market liquidity does not exist are generally not able to be cleared.

In a standard swap transaction, the parties agree
to exchange the returns on, among other things, a particular predetermined security, commodity, interest rate, or index for a fixed or
floating rate of return (the “interest rate leg,” which will also include the cost of borrowing for short swaps) in respect
of a predetermined notional amount. The notional amount of the swap reflects the extent of a Fund’s total investment exposure under
the swap.

In the case of futures contracts-based indexes, such as those used
by a Fund, the reference interest rate typically is zero, although a financing spread or fee is generally still applied. Transaction
or commission costs are reflected in the benchmark level at which the transaction is entered into. The gross returns to be exchanged
are calculated with respect to the notional amount and the benchmark returns to which the swap is linked. Swaps are usually closed out
on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date specified in the agreement,
with the parties receiving or paying, as the case may be, only the net amount of the two payments. Thus, while the notional amount reflects
a Fund’s total investment exposure under the swap (i.e., the entire face amount or principal of a swap), the net amount
is the Fund’s current obligations (or rights) under the swap. That is the amount to be paid or received under the agreement based
on the relative values of the positions held by each party to the agreement on any given termination date.

Swaps may also expose a Fund to liquidity risk.
Although a Fund may have the ability to terminate a swap at any time, doing so may subject the Fund to certain early termination charges.
In addition, there may not be a liquid market within which to dispose of an outstanding swap even if a permitted disposal might avoid
an early termination charge. Uncleared swaps generally are not assignable except by agreement between the parties to the swap, and generally
no party or purchaser has any obligation to permit such assignments.

Swaps involve, to varying degrees, elements of
market risk and exposure to loss in excess of the amount which would be reflected on a Fund’s Statement of Financial Condition.
In addition to market risk and other risks, the use of swaps also comes with counterparty credit risk — i.e., the inability
of a counterparty to a swap to perform its obligations. A Fund that invest