markets. In addition, companies operating in emerging markets may be subject to lower trading volume and greater price
fluctuations than companies in more developed markets. Such countries’ economies may be more
dependent on relatively few industries or investors that may be highly vulnerable to local and global changes. Companies in emerging market countries generally may be subject to less stringent regulatory, disclosure, financial reporting, accounting, auditing
and recordkeeping standards than companies in more developed countries. As a result, information, including
financial information, about such companies may be less available and reliable, which can impede an
underlying fund’s ability to evaluate such companies. Securities law and the enforcement of systems of taxation in many emerging market countries may change quickly and unpredictably, and the ability to bring and enforce actions
(including bankruptcy, confiscatory taxation, expropriation, nationalization of a company’s assets,
restrictions on foreign ownership of local companies, restrictions on withdrawing assets from the country,
protectionist measures and practices such as share blocking), or to obtain information needed to pursue or
enforce such actions, may be limited. In addition, the ability of foreign entities to participate in
privatization programs of certain developing or emerging market countries may be limited by local law. Investments in emerging market securities may be subject to additional transaction costs, delays in settlement procedures, unexpected
market closures, and lack of timely information.
Geographic Focus Risk. An underlying fund may from time to time have a substantial amount of its assets invested in securities of issuers
located in a single country or a limited number of countries. Adverse economic, political or social
conditions in those countries may therefore have a significant negative impact on an underlying fund’s investment performance.
European Investment Risk.
The Economic and Monetary Union (the “EMU”) of the European Union (the “EU”)
requires compliance with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal
and monetary controls, each of which may significantly affect every country in Europe. Decreasing imports
or exports, changes in governmental or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU member country on its sovereign debt, and recessions in an EU member country may have
significant adverse effects on the economies of EU member countries. Responses to financial problems by EU
countries may not produce the desired results, may limit future growth and economic recovery, or may result in social unrest or have other unintended consequences. Further defaults or restructurings by governments and other entities of their debt could have
additional adverse effects on economies, financial markets, and asset valuations around the world. A number
of countries in Eastern Europe remain relatively undeveloped and can be particularly sensitive to political and economic developments. Separately, the EU faces issues involving its membership, structure, procedures and policies. The exit of
one or more member states from the EU, such as the recent departure of the United Kingdom (known as
“Brexit”), would place its currency and banking system in jeopardy. The exit by the United
Kingdom or other member states will likely result in increased volatility, illiquidity and potentially lower economic growth in the affected markets, which will adversely affect an underlying fund’s investments.
Asia Pacific Region Risk (including Japan). The level of development of
the economies of countries in the Asia Pacific region varies greatly. Furthermore, since the economies of the countries in the region are largely intertwined, if an economic recession is experienced by any of these countries, it will likely adversely impact
the economic performance of other countries in the region. Certain economies in the region may be adversely
affected by increased competition, high inflation rates, undeveloped financial services sectors, currency
fluctuations or restrictions, political and social instability and increased economic volatility.
The underlying fund’s Japanese investments may be adversely affected by
protectionist trade policies, slow economic activity worldwide, dependence on exports and international trade, increasing competition from
Asia’s other low-cost
emerging economies, political and social instability, regional and global conflicts and natural disasters, as well as by commodity markets fluctuations related to Japan’s limited natural resource supply. The Japanese economy also faces several
other concerns, including a financial system with large levels of nonperforming loans, over-leveraged corporate balance sheets, extensive cross-ownership by major corporations, a changing corporate governance structure, and large
government deficits.
Investments in companies located or operating in Greater China
(normally considered to be the geographical area that includes mainland China, Hong Kong, Macau and Taiwan)
involve risks and considerations not typically associated with investments in the U.S. and other Western nations, such as greater government control over the economy; political, legal and regulatory uncertainty; nationalization,
expropriation, or confiscation of property; difficulty in obtaining information necessary for investigations into and/or litigation against Chinese companies, as well as in obtaining and/or enforcing judgments; limited legal remedies
for shareholders; alteration or discontinuation of economic reforms; military conflicts, either internal or
with other countries; inflation, currency fluctuations and fluctuations in inflation and interest rates
that may have negative effects on the economy and securities markets of Greater China; and Greater China’s dependency on the economies of other Asian countries, many of which are developing countries. Events in any one country within
Greater China may impact the other countries in the region or Greater China as a whole. Export growth
continues to be a major driver of China’s rapid economic growth. As a result, a reduction in spending
on Chinese products and services, the institution of additional tariffs or other trade barriers (or the threat thereof), including as a result of trade tensions between China and the United States, or a downturn in any of the economies of
China’s key trading partners may have an adverse impact on the Chinese economy. In addition, actions by the U.S. government, such as delisting of certain Chinese companies from U.S. securities exchanges or otherwise restricting
their operations in the U.S., may negatively impact the value of such securities held by the underlying
fund. Further, health events, such as the recent coronavirus outbreak, may cause uncertainty and volatility
in the Chinese economy, especially in the consumer discretionary (leisure, retail, gaming, tourism), industrials, and commodities sectors. Additionally, any difficulties of the Public Company Accounting Oversight Board
(“PCAOB”) to inspect audit work papers and practices of PCAOB-registered accounting firms in China with respect to their audit work of U.S. reporting companies may impose significant additional risks associated with investments in
China.
Investments in Chinese companies may be made through a special
structure known as a variable interest entity (“VIE”) that is designed to provide foreign
investors, such as the underlying fund, with exposure to Chinese companies that operate in certain sectors in which China restricts or prohibits foreign investments. Investments in VIEs may pose additional risks because the investment is made through
an intermediary shell company that has entered into service and other contracts with the underlying Chinese
operating company in order to provide investors with exposure to the operating company, and therefore does not represent equity ownership in the operating company. The value of the shell company is derived from its ability to consolidate the VIE
into its financials pursuant to contractual arrangements that allow the shell company to exert a degree of
control over, and obtain economic benefits arising from, the VIE without formal legal ownership. The
contractual arrangements between the shell company and the operating company may not be as effective in providing operational control as direct equity ownership, and a foreign investor’s (such as the underlying fund’s)
rights may be limited, including by actions of the Chinese government which could determine that the underlying contractual arrangements are invalid. While VIEs are a longstanding industry practice and are well known by Chinese officials and
regulators, historically the structure has not been formally recognized under Chinese law and it is
uncertain whether Chinese officials or regulators will withdraw their acceptance of the structure.