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As with all mutual funds, investing in the Fund involves certain risks. You may lose money if you invest in the Fund. Your investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person.
Principal Risks of Investing
You should consider the risks described below and the information set forth in the SAI before you decide to invest in the Fund.
General Risks of Investing in Mutual Funds:
The following risks are common to all mutual funds:
- Market Risk. The market value of a security may go up or down, sometimes rapidly and unpredictably. These fluctuations may cause a security to be worth less than it was at the time of purchase. Market risk applies to individual securities, a particular sector, the entire market and the economies upon which each market relies.
- Management Risk. The Fund’s success depends largely on the Advisor’s ability to select favorable investments. Different types of investments shift in and out of favor depending on market and economic conditions. In addition, there is a risk that the strategies, research or analytical techniques used by the Advisor and/or its security selection may fail to produce intended results.
The following risk is common to all mutual funds that trade actively:
- Portfolio Turnover Risk. The Fund may trade actively and frequently to achieve its objective. This may result in higher capital gains distributions, which would increase your tax liability. Frequent trading may also increase the Fund’s costs which would affect the Fund’s performance over time.
Risk of Investing in Foreign Securities
The Fund’s return and net asset value may be significantly affected by political or economic conditions and regulatory requirements in a particular country. Foreign equity securities, in general, may involve additional risks related to political, economic or regulatory condition. Information may not be readily available about non-U.S. companies. Furthermore, some non-U.S. companies are not subject to the same accounting, auditing and financial reporting standards or to regulatory practices and requirements observed by companies in the United States. Emerging market economies and political systems may be less stable than in the United States. Moreover, changes in currency exchange rates may affect the value of the Fund’s foreign assets. Laws and accounting standards in emerging markets typically are not as comprehensive as in the United States and there may be less publicly available information on emerging market companies. In addition, emerging market securities may be less liquid and have fewer transactions than in U.S. securities markets. Investments in emerging market countries could be affected by potential difficulties in enforcing contractual obligations and could be subject to extended settlement delays or restrictions affecting repatriation of capital to the United States.
- China Specific Risk. The Chinese government has been reforming economic and market practices and providing a larger sphere for private ownership of property for over 25 years. While these reforms are currently contributing to growth and prosperity, they could be altered or discontinued at any time. Military conflicts, either in response to internal social unrest or conflicts with other countries, could disrupt economic development. China’s long-running conflict over Taiwan remains unresolved, while territorial border disputes persist with several neighboring countries. While economic relations with Japan have deepened, the political relationship between the two countries has become more strained in recent years, which could weaken economic ties. Development of the Chinese economy is also vulnerable to developments on the Korean peninsula. Should political tension increase or military actions be precipitated, it could adversely affect the economy and destabilize the region as a whole. There is also a greater risk involved in currency fluctuations, currency convertibility, interest rate fluctuations and higher rates of inflation. The Chinese government also sometimes takes actions intended to increase or decrease the values of Chinese stocks. The emergence of a domestic consumer class is still at an early stage, making China’s economic health dependent on exports. China’s growing trade surplus with the United States has increased the risk of trade disputes, which could potentially have adverse effects on the country’s management of its currency, as well as on some export-dependent sectors. Social cohesion in China is being tested by growing income inequality and larger scale environmental degradation. Social instability could threaten China’s political system and economic growth, which could decrease the value of the Fund’s investments.
- Currency Risk. Foreign securities that trade in, and receive revenues in, foreign currencies are subject to the risk that those currencies will decline in value relative to the U.S. Dollar or, in the case of hedging positions, that the U.S. Dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time due to the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in non-U.S. Dollar-denominated securities and currencies may reduce the returns of the Fund.
Risks of Investing in Small or Mid-Cap Companies
As a general rule, investments in the stock of small or mid-cap companies are more risky than investments in the stock of larger companies for the following reasons, among others:
- Early Development Stage. Small or mid-cap companies may be in early stages of developing their products or implementing new business plans, or may not otherwise be developed enough to be financially self-sustaining or to become public;
- Limited Product Line. Small or mid-cap companies tend to have less diversified product lines and business activities, which make them more susceptible to setbacks, downturns or competitive threats;
- Illiquidity. The stock of small or mid-cap companies may be traded less frequently or in limited volume compared to that of larger companies, which may affect the Fund’s ability to promptly liquidate a position if the need arises, or to realize gains or avoid losses in periods of rapid market activity;
- Lack of Proven Track Record. Due to their often limited operating history, small and mid-cap companies may lack proven track records;
- Limited Resources. Small or mid-cap companies may have limited financial resources or may depend on small groups of key managers; and
- Volatility. The stock price of small or mid-cap companies may suffer severe price declines during periods of generally declining stock prices and tend to be more adversely affected by poor economic and market conditions.
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