The GoodCONTENTS

THE GOOD, BAD, UGLYSwan DRS 2014 composite performance through Q3:4.1% (Premier) and 4.9% (Institutional), net of fees vs.8.3% for the S&P 500 totalreturn index.

PAGE 3HOW MUCH SHOULD BE IN THE DRS?How much should someoneinvest in the DRS?

PAGE 4SWAN GOES GLOBALSwan Wealth Advisors is now Swan Global Investments

PAGE 5SWAN’S MISSIONThe future and direction of Swan

PAGE 6Staff Directory

PAGE 4NEW WEBSITESwan launches a new andimproved website

PAGE 4NEW TEAM MEMBERJosé Ledesma-Fuentes joins Swan

Issue #14 - Q3, 2014

Performance in the S&P 500 and the Defined Risk Strategy (“DRS”) has been respectable year to date, especially in light of last year’s returns.The S&P 500 has returned approximately 8.34%, whereas the Institutional and Premier trading groups have returned 4.89% and 4.08% respectively (net-of-fees, as of Sept. 30th). The upside capture ratio is as expected with an average of 58%.

Based upon our targeted return band, we expect on average to have a 50% upside/downside market capture ratio in the first 10% up or down move. The upside capture increases the higher the stock market advances (i.e., higher delta) and the downside capture decreases the lower the stock market declines. It is important to note that these expectations are averages and based upon option pricing models and our historical experience and should not be considered a guarantee of future performance.

At this point in the year, I would rather the market hold up through the end of the year with some additional income from our monthly option income strategies. Any income earned between now and end of year should increase our upside capture ratio while setting up nicely for a re-hedge at higher levels in the market, locking in DRS gains. The DRS, as always, will be positioned for a market decline next year if the market so chooses. This is one of the main benefits of the DRS, as it has an unlimited amount of patience to wait for the inevitable bear market.

Some DRS investors often find it humorous when we joke about wishing for market declines, but we always remind them that bear markets are required for the DRS to outperform over an entire investment cycle. Notwithstanding the possibility of some short-term losses in the DRS due to a market sell-off, the DRS anticipates and flourishes by big movements (up and down) over a several year period.

Rising market volatility is good for the DRS and the market has complied. Since most of the hedge positions this year were done at historically low levels, this is especially good. The increase in volatility has two benefits: (1) greater income potential and (2) potential for lower hedging costs. Rising volatility is in contrast to what has happened since 2009 when volatility started at over 40 on the VIX. In other words, we believe the declining volatility cycle could be over or nearly over.

We have experienced several long-term cycles of increasing and decreasing volatility. The DRS relies and expects these trends to average out over time and it is designed to offset volatility risks between the strategy’s components.

The Good, the Bad, and the UglyQuarterly Update of the Swan Defined Risk Strategy

A look at the world of managed finance from Durango, CO and elsewhere...

From the Desk of Randy Swan

Swan Global Investments 277 East 3rd Avenue Unit A Durango, CO 81301 970.382.8901 www.swanglobalinvestments.com 1

The Bad

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Our income component YTD has returned less than normal but not unexpectedly given the low volatility we have seen most of the year. It is also important to note that we have had a disproportionate number of large moves (i.e., those that require adjustments in our proprietary income trades) this year as a result of the lower volatility. With respect to Basket II and III, we typically have to make our pre-determined adjustments about 50% and 30% of the time, respectively. This number has been closer to 80% and 50% year-to-date. This is exactly the type of environment where the proprietary income trades often struggle since the trades need a narrow range to take advantage of time decay and/or a decline in volatility.

The DRS income trades may also experience some short-term pain in the transition period from low to high volatility. As discussed, the DRS is perfectly positioned to take advantage of increasing volatility for future trades.

The utility sector (XLU) in our equal-weight strategy cannot seem to make up its mind (utilities are overweight compared to their allotment in the cap-weighted SPY). Thus for now, XLU performance drives much of the outperformance/underperformance of the equal-weight strategy. We had a spectacular first six months of the year in the never ending equal-weight vs. cap-weight battle, only to give up the outperformance in the third quarter. It also did not help that the two best performing sectors in the third quarter, health care (5.4%) and technology (4.5%), are under-weight in the equal-weight strategy by approximately 2% and 10%. A sneak preview of October shows a potential reverse of the 3rd quarter in terms of performance. We are monitoring this battle on a weekly basis. Ultimately, we believe that utilities should outperform the other sectors in the next bear market and thus could potentially lead to outperformance vs. cap-weighted.

The Ugly There always remains potential for a large market decline.

I was asked by some to give my market prediction for 2014 at the beginning of the year. Although I usually try to avoid such predictions, I succumbed and predicted a flat to declining market but with increasing volatility (a market similar to 2007). As many of you will remember, 2007 witnessed all-time highs in the stock market only to return to higher volatility in the latter half of the year. This year so far has been no different as the market hit all-time highs in September with a subsequent market decline and increase in volatility. We will have to see if the corollary continues.

Although the market has gone higher than I expected, the similarities are eerily similar to 2007. At this point, I am not predicting an almost 60% decline similar to 2007-2009 but I am not dismissing it either since I believe the Federal Reserve has done nothing but put off the problems that existed prior to their intervention (notice on page 3’s table the market performance during non-QE time periods).

I would like to remind readers that since 1900 the stock market has experienced on average at least one to three bear markets every decade with an average loss of 35%. As discussed in the “Hypothetical Sell-Off” section of Issue No. 11 of the GB&U from earlier this year, the DRS only needed a 25% sell-off from the Dec. 31, 2013 close to match the market’s performance since 2009. This analysis

assumes average income in our proprietary income trades along the way as the market declines. Regardless, realizing that only a 25% decline could close the gap when the average bear market is 35% and the last two bear markets have been much higher (37% and 58%) should make every

DRS investor confident in our ability to once again prove that the DRS can outperform over an investment cycle. Fundamentally, we believe that the DRS has a structural advantage versus a traditional buy and hold approach due to an advantageous upside/downside capture ratio.

Issue #14 - Q3, 2014

Swan Global Investments 277 East 3rd Avenue Unit A Durango, CO 81301 970.382.8901 www.swanglobalinvestments.com 2

There always remains potential for a large market decline.

I was asked by some to give my market prediction for 2014 at the beginning of the year. Although I usually try to avoid such predictions, I succumbed and predicted a flat to declining market but with increasing volatility (a market similar to 2007). As many of you will remember, 2007 witnessed all-time highs in the stock market only to return to higher volatility in the latter half of the year. This year so far has been no different as the market hit all-time highs in September with a subsequent market decline and increase in volatility. We will have to see if the corollary continues.

We are often asked what size allocation would be appropriate for the DRS. I answer by telling a story that my dentist relayed to me about one of his patients who asked which teeth he should floss .The dentist replied,“Only the ones you want to keep.” I thought that was funny and profound. Why would someone only floss some of their teeth or even ask which teeth are more important? The deeper analysis is that all of your teeth are important. I would say the same thing about all of the assets in someone’s portfolio. ALL ASSETS ARE IMPORTANT; PROTECT THEM ALL! I have started using that joke when people ask about the proper allocation or where we fit within a portfolio, but for obvious reasons, we cannot recommend a client placing all of their assets in the DRS. If you could only choose one asset then we believe a compelling case could be made for the DRS. The strategy was designed to replace a traditional 60/40 portfolio. Morningstar even agreed with our assessment in a write-up on the DRS. We believe it is even more valid now that interest rates are at historical levels.

We believe the reasons are obvious and part of the design of the strategy. We have historically outperformed the stock market on an absolute and risk-adjusted basis. Furthermore, we have outperformed the Russell Balanced (a traditional 60/40 portfolio) and probably most diversified portfolios since inception.

Although the market has gone higher than I expected, the similarities are eerily similar to 2007. At this point, I am not predicting an almost 60% decline similar to 2007-2009 but I am not dismissing it either since I believe the Federal Reserve has done nothing but put off the problems that existed prior to their intervention (notice on page 3’s table the market performance during non-QE time periods).

I would like to remind readers that since 1900 the stock market has experienced on average at least one to three bear markets every decade with an average loss of 35%. As discussed in the “Hypothetical Sell-Off” section of Issue No. 11 of the GB&U from earlier this year, the DRS only needed a 25% sell-off from the Dec. 31, 2013 close to match the market’s performance since 2009. This analysis

However, the most important aspect is not that the DRS has outperformed those benchmarks, but how it has outperformed those benchmarks. The DRS has done it directly and with simplicity. We have always argued that the DRS hedges market risk directly, whereas modern portfolio theory uses an indirect approach, and as a result, often an imperfect approach. It is a fact that market risk is undiversifiable. The DRS is also simple in its design and often over-looked or discounted by those who try to make the portfolio creation process more complicated than it is in reality. As stated in 1997, which I will re-state here:

The bottom line is that diversification doesn’t always work (2007-2009) and is inefficient as evidenced by most portfolio returns.

“The great claim of asset allocation is that risk can be reduced by diversifying over several broad asset classes (i.e., stocks, bonds, cash and real estate) without a similar reduction in return. This risk reduction is, however, strictly theoretical (typically based upon relationships that existed over a particular period). There is no guarantee that these same relationships will continue in the future. This is the crux of where asset allocation or modern portfolio theory breaks down. Risk is not defined; instead it is merely expressed in historical standards.”

How much of my portfolio should I place in the DRS?

assumes average income in our proprietary income trades along the way as the market declines. Regardless, realizing that only a 25% decline could close the gap when the average bear market is 35% and the last two bear markets have been much higher (37% and 58%) should make every

DRS investor confident in our ability to once again prove that the DRS can outperform over an investment cycle. Fundamentally, we believe that the DRS has a structural advantage versus a traditional buy and hold approach due to an advantageous upside/downside capture ratio.

Issue #14 - Q3, 2014

Swan Global Investments 277 East 3rd Avenue Unit A Durango, CO 81301 970.382.8901 www.swanglobalinvestments.com 3

Sources: Yahoo! Finance, Swan Global Investments, and the history of Federal Open Market Committee action at wikipedia.org.

The S&P 500 Index is an unmanaged index, and cannot be invested into directly. Return is from first day’s open price to last day’s

closing price. Past performance is no guarantee of future results.

2014 will go down as a big year of change for Swan. We have increased our staff from 7 to 14 this year. We also expect to increase to approximately 20 by next summer. There are three primary reasons for the growth. First, Swan is committed to applying the DRS to other assets. Second, Swan has gone global with its Puerto Rico office and Bermuda based reinsurance company, Swan Re. Third, Swan expects new products to be offered internationally in the near future.

Along those lines, we are excited to announce that we have changed our name to Swan Global Investments. This change is in name only and does not change in any way how or what we do. Previously, our name has caused some confusion in the industry since most wealth advisors are not money managers, but advisors to

Swan Wealth Advisors Becomes Swan Global Investmentsindividuals. We often appeared, in name, as competition to our potential clients. Swan Wealth Advisors was appropriate in our earlier years when we offered advisory services to clients, but we have changed our focus over the past few years to work with advisors and institutions almost exclusively. Furthermore, our new name better incorporates our vision as we expand into non-U.S. markets and begin to offer a defined risk strategy for international equity.

Also, we are very excited to announce our new website at www.swanglobalinvestments.com. We believe the new website will be a great tool and resource for advisors and their clients to learn about the DRS and an improved avenue for us to provide thought leadership on options and market risk. We welcome comments and feedback on how we can better use our website to serve you and your clients.

New Team Member José Ledesma-Fuentes, CFA, joins Swan’s Puerto Rico office to develop business opportunities in the Spanish-speaking markets of Puerto Rico and Latin America. Prior to joining Swan, José operated a trading and consulting company providing advisory services and distributing products between Puerto Rico, Latin America and Asia. José has also provided support to economic development initiatives in Puerto Rico, organizing the first trade missions between China and Puerto Rico. He raised nearly a million dollars to benefit coffee farmers and producers in Puerto Rico.

Previously, José worked four years in Merrill Lynch’s Structured Finance Group’s ABS Quantitative Analytics department as a senior structurer in charge of developing

mathematical and financial models to structure, price, and obtain favorable ratings for new products and to model emerging asset classes.

Before working with Merrill, from 1993 to 1999, José developed software systems to be used in portfolio management, asset allocation, and automated quarterly reporting for a branch of Smith Barney Shearson’s Consulting Group (now merged with Citigroup). These systems were used to manage $1.4 billion dollars of institutional accounts, such as university endowments, corporate pension plans and investment accounts. José is a CFA charterholder and earned a Bachelor’s degree in Finance from Boston College.

Issue #14 - Q3, 2014

Swan’s Mission and Philosophy

Swan Global Investments 277 East 3rd Avenue Unit A Durango, CO 81301 970.382.8901 www.swanglobalinvestments.com 4

Swan’s mission has always been to:

The DRS was specifically built to compensate for some of the inherent weaknesses in stock selection, marketing timing and asset allocation. Swan’s thought leadership has allowed us to expand our offering in the

past several years to include a mutual fund, option overlay program and a reinsurance company, allowing investors more opportunities to access our flagship product based upon the S&P 500.

Along those lines, we are looking to expand even further to other assets. Our firm belief is that the DRS and its proprietary investment process that uses options to define risk and generate income, is an engine that can be applied to almost any asset. Swan believes a combination of such assets that offer non-correlated, absolute and risk-adjusted returns should improve the overall results of any diversified

Provide risk-based investment solutions that seek to help investors reach their goals by protecting and growing their wealth

Bring to market alternative investment products that seek to generate positive returns on an absolute and risk-adjusted basis over a full market cycle

Swan’s Mission and Philosophy (continued)

José Ledesma-Fuentes, CFA, joins Swan’s Puerto Rico office to develop business opportunities in the Spanish-speaking markets of Puerto Rico and Latin America. Prior to joining Swan, José operated a trading and consulting company providing advisory services and distributing products between Puerto Rico, Latin America and Asia. José has also provided support to economic development initiatives in Puerto Rico, organizing the first trade missions between China and Puerto Rico. He raised nearly a million dollars to benefit coffee farmers and producers in Puerto Rico.

Previously, José worked four years in Merrill Lynch’s Structured Finance Group’s ABS Quantitative Analytics department as a senior structurer in charge of developing

mathematical and financial models to structure, price, and obtain favorable ratings for new products and to model emerging asset classes.

Before working with Merrill, from 1993 to 1999, José developed software systems to be used in portfolio management, asset allocation, and automated quarterly reporting for a branch of Smith Barney Shearson’s Consulting Group (now merged with Citigroup). These systems were used to manage $1.4 billion dollars of institutional accounts, such as university endowments, corporate pension plans and investment accounts. José is a CFA charterholder and earned a Bachelor’s degree in Finance from Boston College.

results of any diversified portfolio over an entire investment cycle. In other words, the DRS engine can be used to “drive” other vehicles/assets (e.g., international equity, gold, small capstocks, etc.), provided there is sufficient liquidity in the options market for that asset.

Besides our actual historical performance in the S&P 500 and actual experience in several other assets, there is academic research that validates this belief (see the OIC’s white paper entitled Option-Based Risk Management in a Multi-Asset World). This study examined a basic options-based risk management strategy on 17 various asset classes including foreign stocks, real estate stocks, currencies, and gold, from 2007-2011, and showed noticeable improvement in return (11 out of 17) and volatility (17 out of 17). Some of the benefits to considering hedged equity+option income with other assets include the following:

Potential for increased return and lower volatility 4.

Non-correlated absolute returns can improve and smooth out the timing of returns in a portfolio

Providing investors choices beyond U. S. equity

Diversification

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Swan’s ultimate vision for the future is to be the leader in hedged alternative investments by truly innovating or changing the marketplace. By seeking to offer products that are superior in performance, tax efficiency and transparency, Swan can become this leader by establishing itself as the best choice for investors. Our goals are driven by the desire to help people invest how we would want to invest personally. To this end and in line with our new name, we are excited to extend the DRS to international equity in the 4th quarter of this year.

The principles of the DRS will remain exactly the same; equity exposure hedged at all times, with no aspirations of market timing or predictions and an options income strategy built on defined risk. Following the same time-tested rules and strategy of our current mutual fund, we have back-tested an emerging markets-based DRS from 2007 (when historical options data improves for emerging market ETFs) through 2013. Here are the hypothetical results compared to the MSCI Emerging Markets Index:

Issue #14 - Q3, 2014

Swan Global Investments 277 East 3rd Avenue Unit A Durango, CO 81301 970.382.8901 www.swanglobalinvestments.com 5

We will be sending out more information regarding this strategy and how it will be available to investors shortly after the end of this month. With Thanksgiving just a few weeks away now, we are reminded of the many things we have to be grateful for, including the support, trust, and faith you have put in Swan. From all of us at Swan, thank you. We are excited and hopeful of what the future may bring and look forward to doing the very best we can at assisting you in helping your investors reach their goals.

Important Disclosure: The performance in this material is not actual performance history. The Swan Defined Risk Emerging Markets Strategy has not been applied in a real world setting. All the performance information provided herein represents back-tested data, with the assumption that the DRS was applied. The Defined Risk Emerging Markets Strategy and the benchmark were based on NAV returns (net of ETF expenses) and the Defined Risk Emerging Markets Strategy is net of a 1.00% management fee and was rebalanced annually. Actual results may materially vary and differ significantly from the performance suggested by back-tested data. This is not a guarantee or indication of future performance.

Staff Directory

Accounting & Reportingcommissions@swanglobalinvestments.com Ethan BatesOperationsoperations@swanglobalinvestments.com Justin Starnes Justin BatesSales sales@swanglobalinvestments.com Sean McCaffrey Jamie Atkinson J.P. Raflo José Ledesma

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Main Telephone: 970.382.8901Email: first.last@swanglobalinvestments.comManagement Randy Swan Rob SwanTrading Pat Stiefel Chris Gilman Micah WakefieldCompliance and Contracts Jim Engelken

President COO

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Disclosures: Performance results are presented in U.S. dollars, gross of management fees, and include reinvestment of dividends and capital gains. Fees may vary based on account size, custodial relationship and other factors. No current or prospective client should assume future performance of any specific investment strategy will be profitable or equal to past performance. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may cause client portfolio performance results to differ from the composite. Different types of investments involve different degrees of risk; we make no assurance that a specific investment will be suitable or profitable for a client’s portfolio. Historical performance results for market indices and categories do not reflect the deduction of transaction fees, custodial charges, or management fees, the incurrence of which would have the effect of diminishing historical performance. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurance that it will match or outperform any particular benchmark. Swan Global Investments, Inc. (“Swan”) is an independent Investment Advisory headquartered in Durango, Colo. registered with the U.S. Securites and Exchange Commission under the Investment Advisers Act or 1940. Being an SEC-registered advisor implies no special qualification or training. Swan offers and manages its Defined Risk Strategy to individuals, institutions and other advisory firms. There are three Defined Risk Strategy composites offered: 1) The Defined Risk Strategy Composite which includes all accounts. 2) The Defined Risk Strategy IRA Composite which includes IRA assets under management. 3) The Defined Risk Strategy Select Composite which includes all non-qualified accounts. Additional information regarding Swan’s policies and procedures for calculating and reporting performance returns is available upon request. Swan claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with GIPS standard. Swan investment performance has been independentlyverified from its inception on July 1, 1997 through December 31, 2012 by The Spaulding Group. A copy of the verification report is available upon request. To receive copies of the report please call 970.382.8901 or email Ethan Bates. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. The Defined Risk Strategy Select Composite demonstrates the performance of all non-qualified assets managed by Swan Global Investments, Inc. since inception. It includes discretionary individual accounts whose account holders seek the upside potential of owing stock, and the desire to eliminate most of the risk associated with owning stock. The composite relies on LEAPS and other options to manage this risk. Individual account own S&P 500 exchange-traged funds, LEAPS associated with the ETFs, as well as option strategies based on other widely traded indices. The Defined Risk Strategy Select Composite includes all non-qualified discretionary accounts which are solely invested in the Defined Risk Strategy. The Defined Risk Strategy was designed to protect investors from substantial market declines, provide income in flat or choppy markets, and to benefit from market appreciation. Stock and options are the primary components of the strategy. The performance benchmark used for the Defined Risk Strategy is the S&P 500 Index comprised of 500 large-capitalization stocks, and which does not charge fees. (One cannot invest directly in an index.)

One Year

9.33%

19.73%

9.94%

22.99%

6.55%

15.70%

8.46%

8.11%

9.16%

6.69%

Swan DRSSelect Net-of-Fees

S&P 500 TR

Three Year Five Year Ten Year Since Inception

Annualized Returns as of September 30, 2014

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Swan Global Investments 277 East 3rd Avenue Unit A Durango, CO 81301 970.382.8901 www.swanglobalinvestments.com 6