communications
to the holders of such receipts, or to pass through to them any voting rights
with respect to the deposited
securities.
Issuers of unsponsored depositary receipts are not contractually obligated to
disclose material information in the U.S.
and,
therefore, such information may not correlate to the market value of the
unsponsored depositary receipt. The underlying
securities
of the ADRs and GDRs in the Fund’s portfolio are usually denominated or quoted
in currencies other than the U.S.
Dollar.
As a result, changes in foreign currency exchange rates may affect the value of
the Fund’s portfolio. In addition, because
the
underlying securities of ADRs and GDRs trade on foreign exchanges at times when
the U.S. markets are not open for trading,
the
value of the securities underlying the ADRs and GDRs may change materially at
times when the U.S. markets are not open for
trading,
regardless of whether there is an active U.S. market for Shares.
•Derivatives
Risk.
The
Fund may invest in derivatives, including in particular options contracts, to
pursue its investment
objective.
The use of derivatives may expose the Fund to risks in addition to and greater
than those associated with investing
directly
in the instruments underlying those derivatives, including risks relating to
leverage, correlation (imperfect correlations
with
underlying instruments or the Fund’s other portfolio holdings), high price
volatility, lack of availability, counterparty credit,
liquidity,
valuation and legal restrictions. The use of derivatives also may expose the
Fund to the performance of securities that
the
Fund does not own. To the extent the Fund engages in derivatives in an attempt
to hedge certain exposures or risks, there can
be
no assurance that the Fund’s hedging investments or transactions will be
effective. In addition, hedging investments or
transactions
involve costs and may reduce gains or result in losses, which may adversely
affect the Fund. The skills necessary to
successfully
execute derivatives strategies may be different from those for more traditional
portfolio management techniques, and
if
the Adviser is incorrect about its expectations of market conditions, the use of
derivatives also could result in a loss, which in
some
cases may be unlimited. Use of derivatives also may cause the Fund to be subject
to additional regulations, which may
generate
additional Fund expenses. These practices also entail transactional expenses and
may cause the Fund to realize higher
amounts
of short-term capital gains than if the Fund had not engaged in such
transactions. Certain of the derivatives in which the
Fund
invests may trade (and privately negotiated) in the OTC market. OTC derivatives
are complex and often valued subjectively,
which
exposes the Fund to heightened liquidity, mispricing and valuation risks.
Improper valuations can result in increased cash
payment
requirements to counterparties or a loss of value to the Fund. In addition, OTC
derivative instruments are often highly
customized
and tailored to meet the needs of the Fund and its trading counterparties. If a
derivative transaction is particularly
large
or if the relevant market is illiquid, it may not be possible to initiate a
transaction or liquidate a position at an advantageous
time
or price. As a result and similar to other privately negotiated contracts, the
Fund is subject to counterparty credit risk with
respect
to such derivative contracts. Certain derivatives are subject to mandatory
exchange trading and/or clearing, which exposes
the
Fund to the credit risk of the clearing broker or clearinghouse. While exchange
trading and central clearing are intended to
reduce
counterparty credit risk and to increase liquidity, they do not make derivatives
transactions risk-free.
◦Options
Risk.
Selling (writing) and buying options are speculative activities and entail
greater than ordinary investment risks.
A
Fund’s use of put options can lead to losses because of adverse movements in the
price or value of the underlying asset,
which
may be magnified by certain features of the options. When selling a put option,
a Fund will receive a premium;
however,
this premium may not be enough to offset a loss incurred by such Fund if the
price of the underlying asset is below
the
strike price by an amount equal to or greater than the premium. Purchasing of
put options involves the payment of
premiums,
which may adversely affect a Fund’s performance. Purchasing a put option gives
the purchaser of the option the
right
to sell a specified quantity of an underlying asset at a fixed exercise price
over a defined period of time. Purchased put
options
may expire worthless resulting in a Fund’s loss of the premium it paid for the
option.
The
value of an option may be adversely affected if the market for the option
becomes less liquid or smaller, and will be affected
by
changes in the value or yield of the option’s underlying asset, an increase in
interest rates, a change in the actual or perceived
volatility
of the stock market or the underlying asset and the remaining time to
expiration. Additionally, the value of an option
does
not increase or decrease at the same rate as the underlying asset. A Fund’s use
of options may reduce such Fund’s ability to
profit
from increases in the value of the underlying asset. If the price of the
underlying asset of an option is above the strike price
of
a written put option, the value of the option, and consequently of a Fund, may
decline significantly more than if such Fund
invested
directly in the underlying asset instead of using options. When the Fund sells
an option, it gains the amount of the
premium
it receives, but also incurs a liability representing the value of the option it
has sold until the option is either exercised
and
finishes “in the money,” meaning it has value and can be sold, or the option
expires worthless, or the expiration of the option
is
“rolled,” or extended forward. The value of the options in which the Fund
invests is based partly on the volatility used by
market
participants to price such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options
will
cause the value of such options to increase (even if the prices of the options’
underlying stocks do not change), which will
result
in a corresponding increase in the liabilities of the Fund under such options
and thus decrease the Fund’s NAV.
The
Fund is subject to the risk that a change in U.S. law and related regulations
will affect the way the Fund operates, increase the
particular
costs of the Fund’s operation and/or change the competitive landscape. The SEC
recently adopted and implemented a
new
rule governing a fund’s use of derivatives. The new rule, among other things,
generally requires a fund to adopt a derivatives
risk
management program, appoint a derivatives risk manager to oversee the program
and comply with an outer limit on fund
leverage
risk based on value at risk, or “VaR.” The new rule has significantly changed
the regulatory framework applicable to the
Fund’s
use of derivatives, including by replacing the prior asset segregation
regulatory framework in its entirety. Complying with
the
new rule may adversely affect the Fund’s performance and may increase costs
related to the Fund’s use of derivatives.
