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Invest Disclosures

Exchange Traded Products Disclosure - Including Leverage, Volatility and Other Risks

Exchange Traded Products

Exchange Traded Products (ETPs) are types of securities that derive their value from a basket of securities (e.g., assets) such as stocks, bonds, commodities, or indices, and trade intraday on a national securities exchange. Generally, ETPs take the form of Exchange-Traded Funds (ETFs) or Exchange-Traded Notes (ETNs). Both ETFs and ETNs have risks that all investors should consider before they make their investment decision.

All ETPs have an issuer, or a financial institution which established and administers the ETP.

ETPs may have counterparty risk in situations of insolvency or default (e.g., swap transactions with multiple financial institutions). Investors are encouraged to thoroughly review each ETP’s prospectus and consider an ETP’s investment objectives, risks, charges, and expenses carefully before making an investment decision. An ETP’s prospectus contains this and other information and can be obtained by emailing support@invest.ally.com .

The Difference between an ETF and an ETN

ETFs and ETNs are not the same, each having characteristics and risks which are different from the other.

An ETF is a basket of securities such as stocks, bonds, or commodities. It's similar in many ways to a mutual fund, but it trades on an exchange like a stock. An important characteristic of ETFs and mutual funds is that they are legally separate from the company that manages them.

ETNs are complex products subject to significant risks and may not be suitable for all investors. ETNs have no principal protection as they are unsecured, unsubordinated debt obligations of the issuer. Although an ETN's performance is contractually tied to the market index it is designed to track, ETNs do not hold any assets. Therefore, unlike investors in exchange-traded funds (ETFs), which hold assets that could be liquidated in the event of a failure of the ETF issuer, ETN investors would only have an unsecured claim for payment against the ETN issuer in the event of the issuer's failure.

Important information to know about ETFs

Exchange Traded Funds (ETFs) are subject to market risks, 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 may 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.

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.

Important information to know about ETNs

Credit risk

ETNs are senior unsecured promissory obligations, typically issued by a bank or another financial institution; however, ETNs are not categorized as typical fixed income products. ETN investors are directly exposed to the issuer's credit or default risk. If the issuer defaults, an ETN’s investors may receive only pennies on the dollar or nothing at all, and investors should remember that credit risk can change quickly.

Liquidity risk

The trading activity of ETNs varies widely. For ETNs with very low trading volume, bid-ask spreads can be exceptionally wide, which may impact pricing you receive when buying or selling shares.

Issuance risk (aka volatile premiums)

Unlike ETFs where the supply of shares outstanding fluctuates in response to investor demand, the supply of ETN shares is controlled entirely by their issuers. This can include risks of the issuer halting the issue of new shares, or issuing new shares, which may affect supply and demand.

Fund closure risk

An issuer may “call” the note before it matures. The process, known as “accelerated redemption,” allows the issuer to buy back the note early, returning the value of the note, less fees, to the ETN investor.  Issuers may also delist the note from national exchanges and suspend new issuance.  When this happens, ETN investors can either hold the note until it matures, which could be up to 40 years away, or trade the ETN in the over-the-counter market (OTC), where spreads can be even wider than on national exchanges.

Non-Traditional ETPs

Non-traditional ETPs employ sophisticated financial strategies and instruments in pursuit of their investment objectives, such as leverage, futures, and derivatives. Leverage and inverse strategies increase risk and magnify losses or gains 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 closely. Non-traditional ETPs are generally categorized as leveraged, inverse, or leveraged-inverse.

Leveraged ETPs

Leveraged ETPs are highly complex financial instruments designed to achieve their investment objective on a daily basis and are not designed to, and will not necessarily, track the underlying index or benchmark over a longer period of time. Due to the effects of compounding, their performance over time can differ significantly from their stated daily objective. ETPs that are reset daily may not be suitable for investors who plan to hold them for longer than one trading session, particularly in volatile markets.

Leveraged ETPs use financial derivatives and debt to multiply the returns of an underlying index, commodity, currency, or basket of assets. They may include the terms "double," "ultra," "triple," or similar language in their security name/description.

Inverse ETPs

Inverse ETPs employ various derivatives to seek to profit from the decline in the value of the underlying assets. Inverse ETPs may include the term "contra," "short," or similar language in their security name/description.

Like traditional ETPs, some inverse ETPs track broad indices, some are sector-specific, and still others are linked to commodities or currencies. Inverse ETPs are often marketed as a way for investors to profit from, or at least hedge their exposure to, downward-moving markets.

Some ETPs are both short and leveraged, meaning that they seek to achieve a return that is a multiple of the inverse performance of the underlying index.

Volatility-Linked ETPs

Volatility-Linked ETPs pose special risks that can significantly impact the pricing of the product and your ability to trade them.

Investors who invest in non-traditional ETPs should be especially aware of the following risks:

  • Investors may rapidly lose a significant amount of principal in these securities.

  • Investors should consider their financial ability to afford potential significant loss.

  • Investors should consider the credit worthiness of an ETN issuer.

  • Investors holding non-traditional ETPs over time should monitor those positions closely due to the risk of volatility.

  • Investors may incur a significant loss even if the index shows a gain over the long term.

  • The use of leverage can magnify price movements, resulting in high volatility and potentially significant loss of principal.

  • 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, resulting in possible losses.

  • 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.

This disclosure is intended to summarize some of the risks associated with trading in certain ETPs. The specific risks associated with a particular ETP are detailed in the fund's prospectus. Investors should refer to the ETP's prospectus to obtain a complete discussion of the risks involved in that ETP before investing.

Exchange Traded Products Disclosure – Including Leverage, Volatility, and Other Risks v2

Revised 20250612