The Fund employs a “passive management” – or indexing – investment approach designed to track the performance of the Index. The Fund generally uses a representative sampling strategy to achieve its investment objective, meaning it generally will invest in a sample of the securities in the Index whose risk, return and other characteristics resemble the risk, return and other characteristics of the Index as a whole. Under normal circumstances, the Fund invests at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in U.S. Treasuries that have a remaining maturity of one to three years and investments that have economic characteristics (i.e., risk and return characteristics) that are substantially similar to the economic characteristics of such Treasuries. The Index is composed of fixed-rate coupon U.S. Treasury securities maturing in one to three years or with remaining maturities between one and three years.

The Index, which was created and is maintained by Bloomberg Index Services Limited (the “Index Provider”), is designed to measure the performance of a portfolio composed of public obligations of the U.S. Treasury that have a nominal fixed rate coupon and remaining maturities of one to three years (the “maturity range”), excluding amounts held by the Federal Reserve system. Treasury bills, inflation-linked bonds, floating rate bonds, Separate Trading of Registered Interest and Principal of Securities (“STRIPS”), and state and local government series bonds are excluded from the Index. The Index employs a “laddering” approach to select its constituents. Each month the Index selects one Treasury security maturing in each month represented in the maturity range. If there are two or more Treasury securities within a given maturity month, then the most recently issued security is selected for inclusion in the Index. As a result, the Index generally will be composed of 24 constituent securities at each rebalance date (unless there are no eligible securities for a given maturity month). The constituent securities are equally weighted at the time of selection and at each reconstitution. The Index is reconstituted and rebalanced on a monthly basis. On each monthly reconstitution date, the constituent securities with the shortest amount of time to maturity (i.e., less than one year) are removed from the Index and new securities with a longer amount of time to maturity (i.e., three years) are added to the Index. Additionally, the most recently issued two-year Treasury note is likely to replace a more seasoned note at the two-year maturity point of the Index.