Commodity and hedge fund-linked derivative instruments have substantial risks, including risk of loss of a significant portion of their principal value. They may be more volatile and less liquid than the underlying instruments and their value will be affected by the performance of the commodity markets or underlying hedge funds, as well as economic and other regulatory or political developments, overall market movements and other factors. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or sectors affecting a particular industry or commodity. The hedge funds comprising a hedge fund index invest in and may actively trade securities and other financial instruments using a variety of strategies and investment techniques that may involve significant risk.
Futures instruments and other derivatives involve a degree of leverage, which can result in a loss substantially greater than the amount invested in the futures or other derivative itself. If futures and other derivatives are used for leverage, the investment will tend to be more volatile, resulting in larger gains or losses in response to price fluctuations.
Investments that provide exposure to foreign markets involve special risks, such as currency fluctuations, differing financial reporting and regulatory standards, and economic and political instability. These risks are highlighted when the issuer is in an emerging market. Fixed income securities and currency and fixed income futures are subject to changes in their value when prevailing interest rates change. Adverse changes in currency exchange rates (relative to the U.S. dollar) may erode or reverse any potential gains from futures instruments that are tied to foreign instruments or currencies. Emerging market exposure generally has a higher level of currency risk. Credit risk (i.e., the risk that an issuer might not pay interest when due or repay principal at maturity of the obligation) could affect the value of investments in fixed income securities. Active trading may result in high portfolio turnover and correspondingly greater brokerage commissions and other transaction costs, which will affect performance.