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Ticker | ||
Share
Class |
Y |
R5 |
Investor |
American
Beacon EAM International Small Cap Fund |
TOVYX |
TOVIX |
TIVFX |
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Bank
Deposit Notes.
Bank deposit notes are obligations of a bank that provide an alternative
to certificates of deposit. Similar to certificates of deposit,
deposit notes represent bank level investment and, therefore, are senior
to all holding company corporate debt. Bank deposit notes rank
junior
to domestic deposit liabilities of the bank and pari passu with other
senior, unsecured obligations of the bank. Typically, bank deposit notes
are not
insured by the Federal Deposit Insurance Corporation or any other
insurer. |
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Bankers’
Acceptances.
Bankers’ acceptances are short-term credit instruments designed to enable
businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by
an exporter or an importer to obtain a stated amount of funds to
pay for specific merchandise. The draft is then “accepted” by a bank that,
in effect, unconditionally guarantees to pay the face value of the
instrument
on its maturity date. The acceptance may then be held by the accepting
bank as an earning asset or it may be sold in the secondary market
at the going rate of discount for a specific maturity. Most acceptances
have maturities of six months or less. Bankers’ acceptances rank junior
to
domestic deposit liabilities of the bank and pari passu with other senior,
unsecured obligations of the bank.
|
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Bearer
Deposit
Notes.
Bearer deposit notes, or bearer bonds, are bonds or debt securities that
entitle the holder of the document to ownership or title
in the deposit. Such notes are typically unregistered, and whoever
physically holds the bond is presumed to be the owner of the instrument.
Recovery
of the value of a bearer bond in the event of its loss or destruction
usually is impossible. Interest is typically paid upon presentment of an
interest
coupon for payment. |
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CDs.
CDs are negotiable certificates issued against funds deposited in an
eligible bank (including its domestic and foreign branches, subsidiaries
and agencies)
for a definite period of time and earning a specified rate of return. U.S.
dollar denominated CDs issued by banks abroad are known as Eurodollar
CDs. CDs issued by foreign branches of U.S. banks are known as Yankee
CDs. |
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Commercial
Paper.
Commercial paper is a short-term debt security issued by a corporation,
bank, municipality, or other issuer, usually for purposes such
as financing current operations. The Fund may invest in commercial paper
that cannot be resold to the public without an effective registration
statement
under the Securities Act. While some restricted commercial paper normally
is deemed illiquid, in certain cases it may be deemed
liquid. |
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Government
Money Market Funds. The
Fund may invest cash balances in money market funds that are registered as
investment companies |
under
the Investment Company Act, including money market funds that are advised
by the Manager. Money market funds invest in highly-liquid, short-term
instruments, which include cash and cash equivalents, and debt securities
with high credit ratings and short-term maturities, such as U.S.
Treasuries.
A “government money market fund” is required to invest at least 99.5% of
its total assets in cash, U.S. government securities, and/or repurchase
agreements that are fully collateralized by government securities or cash.
Government securities include any security issued or guaranteed
as to principal or interest by the U.S. government and its agencies or
instrumentalities. By investing in a money market fund, the Fund
becomes
a shareholder of that money market fund. As a result, Fund shareholders
indirectly bear their proportionate share of the expenses of the
money
market funds in which the Fund invests in addition to any fees and
expenses Fund shareholders directly bear in connection with the Fund’s
own
operations. These expenses may include, for example, advisory and
administrative fees, including advisory fees charged by the Manager to any
applicable
money market funds advised by the Manager. These other fees and expenses
are reflected in the Fees and Expenses Table for the Fund in its
Prospectus, if applicable. Shareholders also would be exposed to the risks
associated with money market funds and the portfolio investments of
such
money market funds, including that a money market fund’s yield will be
lower than the return that the Fund would have derived from other
investments
that would provide liquidity. Although a money market fund is designed to
be a relatively low risk investment, it is not free of risk. Despite
the short maturities and high credit quality of a money market fund’s
investments, increases in interest rates and deteriorations in the credit
quality
of the instruments the money market fund has purchased can cause the price
of a money market security to decrease and may reduce the money
market fund’s yield. In addition, a money market fund is subject to the
risk that the value of an investment may be eroded over time by
inflation.
Factors that could adversely affect the value of a money market fund’s
shares include, among other things, a sharp rise in interest rates, an
illiquid
market for the securities held by the money market fund, a high volume of
redemption activity in a money market fund’s shares, and a credit
event
or credit rating downgrade affecting one or more of the issuers of
securities held by the money market fund. There can be no assurance that a
money
market fund will maintain a $1.00 per share net asset value (“NAV”) at all
times. The
failure of an unrelated money market fund to maintain a
stable NAV could create a widespread risk of increased redemption
pressures on all money market funds, potentially jeopardizing the
stability of their
NAVs. Certain money market funds have in the past failed to maintain
stable NAVs, and there can be no assurance that such failures and
resulting
redemption pressures will not impact money market funds in the future.
In
the event of negative gross yields as a result of persistent negative
interest rates, government money market funds may consider various options
including but not limited to (1) the implementation of a reverse
distribution or share cancellation mechanism (that would periodically
reduce the number of the fund’s outstanding shares) to maintain a
stable
net asset value per share or (2) the potential conversion to a floating
net asset value per share money market fund. Certain
money market funds
may impose a fee upon sale of shares or may temporarily suspend the
ability to sell shares of the money market fund if the money market
fund’s
liquidity falls below required minimums because of market conditions or
other factors, at the determination of the money market fund’s
board.
Such a determination may conflict with the interest of the Fund.
Government money market funds are generally not permitted to impose
liquidity
fees or temporarily suspend redemptions. However, government money market
funds typically offer materially lower yields than other money
market funds. Money market funds and the securities they invest in are
subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of
current laws, may affect the manner of operation, performance and/or
yield of money market funds. An
investment in a money market fund is not a bank deposit and is not insured
or guaranteed by any bank, the FDIC
or any other government agency. |
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Government
Obligations.
Government obligations may include U.S. Treasury securities, Treasury
inflation-protected securities, and other debt instruments
backed by the full faith and credit of the United States, or debt
obligations of U.S. Government-sponsored
entities. |
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Repurchase
Agreements.
Repurchase agreements are agreements pursuant to which the Fund purchases
securities from a bank that is a member of
the Federal Reserve System (or a foreign bank or U.S. branch or agency of
a foreign bank), or from a securities dealer, that agrees to repurchase
the
securities from the Fund at a higher price on a designated future date.
Repurchase agreements generally are for a short period of time, usually
less
than a week. Costs, delays, or losses could result if the selling party to
a repurchase agreement becomes bankrupt or otherwise
defaults. |
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Short-term
Corporate
Debt Securities.
Short-term corporate debt securities are securities and bonds issued by
corporations with shorter terms to maturity.
Corporate securities generally bear a higher risk than U.S. government
bonds. |
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Time
Deposits.
Time deposits, also referred to as “fixed time deposits,” are
non-negotiable deposits maintained at a banking institution for a
specified
period of time at a specified interest rate. Time deposits may be
withdrawn on demand by the investor, but may be subject to early
withdrawal
penalties which vary depending upon market conditions and the remaining
maturity of the obligation. There are no contractual restrictions
on the right to transfer a beneficial interest in a time deposit to a
third party, although there is no market for such
deposits. |
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Forward
Contracts. The
Fund may enter into forward contracts. Forward contracts are a type of
derivative instrument that obligate the purchaser to
take delivery of, or cash settle a specific amount of, a commodity,
security or obligation underlying the contract at a specified time in the
future for
a specified price. Likewise, the seller incurs an obligation to deliver
the specified amount of the underlying asset against receipt of the
specified price.
Generally, forward contracts are traded through financial institutions
acting as market-makers, on certain securities exchanges, or over-the-counter,
and the protections afforded to investors may vary depending on the
trading environment. This is distinguishable from futures contracts,
which are traded on U.S. and foreign commodities
exchanges. Forward contracts are often negotiated on an individual basis and are not standardized. The market for forward contracts is substantially unregulated, as there is no limit on daily price movements and speculative position limits are not applicable. The principals who deal in certain forward contract markets are not required to continue to make markets in the underlying reference assets in which they trade and these markets can experience periods of illiquidity, sometimes of significant duration. There have been periods during which certain participants in forward contract markets have refused to quote prices for certain underlying references or have quoted prices with an unusually wide spread between the price at which they were prepared to buy and that at which they were prepared to sell. At or prior to maturity of a forward contract, the Fund may enter into an offsetting contract and may incur a loss to the extent there has been adverse movement in forward contract prices. The liquidity of the markets for forward contracts depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants make or take delivery, liquidity in the market for forwards could be reduced. A relatively small price movement in a forward contract may result in substantial losses to the Fund, exceeding the amount of the margin paid. Forward contracts can increase the Fund’s risk exposure to underlying reference assets and their attendant risks. The Fund bears the risk of loss of the amount expected to be received under a forward contract in the event of the default or bankruptcy of a counterparty. If such a default occurs, the Fund may have contractual remedies pursuant to the forward contract, but such remedies may be subject to bankruptcy and insolvency laws which could affect the Fund’s rights as a creditor. |
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Forward
Foreign Currency Contracts. The
Fund may enter into forward foreign currency contracts (“forward currency
contracts”), which are a type
of derivative instrument, for a variety of reasons. A forward
currency contract involves an obligation to purchase or sell a specified
currency at a future
date, which may be any fixed number of days from the date of the contract
agreed upon by the parties at a price set at the time of the contract.
Because these forward currency contracts normally are settled through an
exchange of currencies, they are traded in the interbank market
directly
between currency traders (usually large commercial banks) and their
customers. |
Forward
currency contracts may serve as long hedges. For example, the Fund may
purchase a forward currency contract to lock in the U.S. dollar
price
of a security denominated in a foreign currency that it intends to
acquire. Forward currency contract transactions also may serve as short
hedges.
For example, the Fund may sell a forward currency contract to lock in the
U.S. dollar equivalent of the proceeds from the anticipated sale of
a
security or from a dividend or interest payment on a security denominated
in a foreign currency. |
The Fund
may enter into forward currency contracts to sell a foreign currency for a
fixed U.S. dollar amount approximating the value of some or all
of
its respective portfolio securities denominated in such foreign currency.
In addition, the Fund may use forward currency contracts when the
sub-advisor
wishes to “lock in” the U.S. dollar price of a security when the Fund is
purchasing or selling a security denominated in a foreign currency
or
anticipates receiving a dividend or interest payment denominated in a
foreign currency. |
The Fund
may enter into forward currency contracts for the purchase or sale of a
specified currency at a specified future date either with respect to
specific
transactions or with respect to portfolio positions in order to minimize
the risk to the Fund from adverse changes in the relationship
between the
U.S. dollar and foreign currencies. |
The Fund
may use forward currency contracts to seek to hedge against, or profit
from, changes in the value of a particular currency by using forward
currency
contracts on another foreign currency or a basket of currencies, the value
of which the sub-advisor believes will have a positive correlation
to
the values of the currency being hedged. When hedging, use of a different
foreign currency magnifies the risk that movements in the price of the
forward
contract will not correlate or will correlate unfavorably with the foreign
currency being hedged. |
In
addition, the Fund may use forward currency contracts to shift exposure to
foreign currency fluctuations from one country to another. For
example,
if the Fund owned securities denominated in a foreign currency that the
sub-advisor believed would decline relative to another currency, it
might
enter into a forward currency contract to sell an appropriate amount of
the first foreign currency, with payment to be made in the second
currency.
Transactions that involve two foreign currencies are sometimes referred to
as “cross hedging.” Use of a different foreign currency magnifies
the Fund’s exposure to foreign currency exchange rate
fluctuations. |
The
Fund also may enter into forward currency contracts for non-hedging
purposes if a foreign currency is anticipated to appreciate or depreciate
in value,
but securities denominated in that currency do not present attractive
investment opportunities and are not held in the Fund’s investment
portfolio. |
The
cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period
and
the market conditions then prevailing. Because forward currency contracts
usually are entered into on a principal basis, no fees or commissions
are
involved. When the Fund enters into a forward currency contract, it relies
on the counterparty to make or take delivery of the underlying
currency
at the maturity of the contract. Failure by the counterparty to do so
would result in the loss of any expected benefit of the
transaction. |
Sellers
or purchasers of forward currency contracts can enter into offsetting
closing transactions, similar to closing transactions on futures, by
purchasing
or selling, respectively, an instrument identical to the instrument sold
or bought, respectively. Secondary markets generally do not exist
for
forward currency contracts, however, with the result that closing
transactions generally can be made for forward currency contracts only by
negotiating
directly with the counterparty. Thus, there can be no assurance that the
Fund will in fact be able to close out a forward currency contract
at
a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, the Fund might be unable to close out a
forward currency
contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position,
and
would continue to be required to maintain a position in the securities or
currencies that are the subject of the hedge or to maintain cash or
securities. |
The
precise matching of forward currency contract amounts and the value of
securities whose U.S. dollar value is being hedged by those contracts
involved
generally will not be possible because the value of such securities,
measured in the foreign currency, will change after the forward currency
contract
has been established. Thus, the Fund might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies
are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful
execution
of a short-term hedging strategy is highly
uncertain. |
The Fund
bears the risk of loss of the amount expected to be received under a
forward currency contract in the event of the default or bankruptcy of
a
counterparty. If such a default occurs, the Fund may have contractual
remedies pursuant to the forward currency contract, but such remedies may
be
subject to bankruptcy and insolvency laws which could affect the Fund’s
rights as a creditor. |
At
the maturity of a forward contract, the Fund may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and
either extend the maturity of the forward contract (by “rolling” that
contract forward) or may initiate a new forward contract. If the Fund
retains
the portfolio security and engages in an offsetting transaction, the Fund
will incur a gain or a loss (as described below) to the extent that
there
has been movement in forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward
contract
to sell the foreign currency. |
Should
forward prices decline during the period between the Fund’s entering into
a forward contract for the sale of a foreign currency and the date
it
enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the
currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund will suffer a loss to the extent
the price
of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. |
Forward
currency contracts in which the Fund may engage include foreign exchange
forwards. The consummation of a foreign exchange forward requires
the actual exchange of the principal amounts of the two currencies in the
contract (i.e., settlement on a physical basis). Because foreign
exchange
forwards are physically settled through an exchange of currencies, they
are traded in the interbank market directly between currency traders
(usually large commercial banks) and their customers. A foreign exchange
forward generally has no deposit requirement, and no commissions
are charged at any stage for trades; foreign exchange dealers realize a
profit based on the difference (the spread) between the prices at
which
they are buying and the prices at which they are selling various
currencies. When the Fund enters into a foreign exchange forward, it
relies on the
counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would
result
in the loss of any expected benefit of the
transaction. |
The
Fund may be required to obtain the currency that it must deliver under the
foreign exchange forward through the sale of portfolio securities
denominated
in such currency or through conversion of other assets of the Fund into
such currency. When the Fund engages in foreign currency
transactions
for hedging purposes, it will not enter into foreign exchange forwards to
sell currency or maintain a net exposure to such contracts if their
consummation would obligate the Fund to deliver an amount of foreign
currency materially in excess of the value of its portfolio securities or
other
assets denominated in that currency. |
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Futures
Contracts. The
Fund may enter into futures contracts. Futures contracts are a type of
derivative instrument that obligate the purchaser to take
delivery of, or cash settle a specific amount of, a commodity, security or
other obligation underlying the contract at a specified time in the
future
for a specified price. Likewise, the seller incurs an obligation to
deliver the specified amount of the underlying obligation against receipt
of the specified
price. Futures are traded on both U.S. and foreign commodities exchanges.
The purchase of futures can serve as a long hedge, and the sale
of
futures can serve as a short hedge. No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract, the Fund is required to deposit “initial margin” consisting of cash, U.S. Government securities, suitable money market instruments, or liquid, high-grade debt securities in an amount set by the exchange on which the contract is traded and varying based on the volatility of the underlying asset. Margin must also be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to the Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Fund may be required by a futures exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action. Subsequent “variation margin” payments (sometimes referred to as “maintenance margin” payments) are made to and from the futures broker daily as the value of the futures position varies, a process known as “marking-to-market.” Variation margin does not involve borrowing, but rather represents a daily settlement of the Fund’s obligations to or from a futures broker. When the Fund purchases or sells a futures contract, it is subject to daily, or even intraday, variation margin calls that could be substantial in the event of adverse price movements. If the Fund has insufficient cash to meet daily or intraday variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous. Purchasers and sellers of futures contracts can enter into offsetting closing transactions, by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Positions in futures contracts may be closed only on a futures exchange or board of trade that trades that contract. The Fund intends to enter into futures contracts only on exchanges or boards of trade where there appears to be a liquid secondary market. However, there can be no assurance that such a market will exist for a particular contract at a particular time. In such event, it may not be possible to close a futures contract. |
Although
many futures contracts by their terms call for the actual delivery or
acquisition of the underlying asset, in most cases the contractual
obligation
is fulfilled before the date of the contract without having to make or
take delivery of the securities or currency. The offsetting of a
contractual
obligation is accomplished by buying (or selling, as appropriate) on a
commodities exchange an identical futures contract calling for
delivery
in the same month. Such a transaction, which is effected through a member
of an exchange, cancels the obligation to make or take delivery
of
the securities or currency. Since all transactions in the futures market
are made, offset or fulfilled through a clearinghouse associated with the
exchange
on which the contracts are traded, the Fund will incur brokerage fees when
it purchases or sells futures contracts. If an offsetting purchase
price
is less than the original sale price, the Fund realizes a capital gain, or
if it is more, the Fund realizes a capital loss. Conversely, if an
offsetting sell price
is more than the original purchase price, the Fund realizes a capital
gain, or if it is less, the Fund realizes a capital loss.
The Fund has no current intent
to accept physical delivery in connection with the settlement of futures
contracts. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions. If the Fund were unable to liquidate a futures contract due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, the Fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the futures contract or option thereon or to maintain cash or securities in a segregated account. The ordinary spreads between prices in the cash and futures markets, due to differences in the nature of those markets, are subject to distortions. First, all participants in the futures market are subject to initial deposit and variation margin requirements. Rather than meeting additional variation margin deposit requirements, investors may close futures contracts through offsetting transactions that could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the margin deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of securities price or currency exchange rate trends by the sub-advisor may still not result in a successful transaction. Futures contracts also entail other risks. Although the use of such contracts may benefit the Fund, if investment judgment about the general direction of, for example, an index is incorrect, the Fund’s overall performance would be worse than if it had not entered into any such contract. There are differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given transaction not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures, including technical influences in futures trading, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. |
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Warrants.
Warrants are options to purchase an issuer’s securities at a stated price
during a stated term, usually at a price below the initial offering
price
of the securities and before the securities are offered to the general
public. If the market price of the underlying common stock does not
exceed
the warrant’s exercise price during the life of the warrant, the warrant
will expire worthless. As a result, warrants may be considered more
speculative
than certain other types of investments. Warrants usually have no voting
rights, pay no dividends and have no rights with respect to the
assets
of the corporation issuing them. The percentage increase or decrease in
the value of a warrant may be greater than the percentage increase
or
decrease in the value of the underlying common stock. Warrants may be
purchased with values that vary depending on the change in value of
one
or more specified indices (“index warrants”). Index warrants are generally
issued by banks or other financial institutions and give the holder the
right,
at any time during the term of the warrant, to receive upon exercise of
the warrant a cash payment from the issuer based on the value of the
underlying
index at the time of the exercise. Warrants
may also be linked to the performance of oil and/or the GDP of specific
frontier and emerging markets.
Warrants are usually freely transferable, but may not be as liquid as
exchange-traded options, and the market for warrants may be very
limited
and it may be difficult to sell them promptly at an acceptable
price. |
■ |
Common
Stock.
Common stock generally takes the form of shares in a corporation which
represent an ownership interest. It ranks below preferred stock
and debt securities in claims for dividends and for assets of the company
in a liquidation or bankruptcy. The value of a company’s common
stock
may fall as a result of factors directly relating to that company, such as
decisions made by its management or decreased demand for the company’s
products or services. A stock’s value may also decline because of factors
affecting not just the company, but also companies in the same
industry
or sector. The price of a company’s stock may also be affected by changes
in financial markets that are relatively unrelated to the company,
such
as changes in interest rates, currency exchange rates or industry
regulation. Companies that elect to pay dividends on their common stock
generally
only do so after they invest in their own business and make required
payments to bondholders and on other debt and preferred stock.
Therefore,
the value of a company’s common stock will usually be more volatile than
its bonds, other debt and preferred stock. Common stock may be
exchange-traded or traded over-the-counter. OTC stock may be less liquid
than exchange-traded stock. |
■ |
Depositary
Receipts. The
Fund may invest in depositary receipts, which represent ownership
interests in securities of foreign companies (an “underlying
issuer”) that have been deposited with a bank or trust and that trade on
an exchange or OTC. Depositary receipts may not be denominated
in the same currency as the securities into which they may be converted,
and they are subject to the risk of fluctuation in the currency
exchange
rate. Investing in depositary receipts entails substantially the same
risks as direct investment in foreign securities. There is generally less
publicly
available information about foreign companies and there may be less
governmental regulation and supervision of foreign stock exchanges,
brokers,
and listed companies. In addition, such companies may use different
accounting and financial standards (and certain currencies may become
unavailable
for transfer from a foreign currency), resulting in the Fund’s possible
inability to convert immediately into U.S. currency proceeds realized
upon
the sale of portfolio securities of the affected foreign companies. In
addition, the issuers of unsponsored depositary receipts are not obligated
|
to
disclose material information about the underlying securities to investors
in the United States. Ownership of unsponsored depositary receipts may
not
entitle the Fund to the same benefits and rights as ownership of a
sponsored depositary receipt or the underlying security. Please see
“Foreign Securities”
below for a description of the risks associated with investments in
foreign securities. The Fund may invest in the following type of
depositary
receipts: |
■ |
ADRs.
ADRs are depositary receipts for foreign issuers in registered form,
typically issued by a U.S. financial institution, traded in U.S.
securities markets. |
■ |
EDRs.
EDRs, which are sometimes called Continental Depositary Receipts, are
issued in Europe in bearer form and are traded in European securities
markets. |
■ |
GDRs.
GDRs are in bearer form and traded in both the U.S. and European
securities markets. |
■ |
NVDRs.
NVDRs represent financial interests in an issuer but the holder is not
entitled to any voting rights. |
■ |
Income
Deposit Securities.
The
Fund may purchase IDSs. Each IDS represents two separate securities,
shares of common stock and subordinated notes
issued by the same company, that are combined into one unit that trades
like a stock on an exchange. Holders of IDSs receive dividends on the
common
shares and interest at a fixed rate on the subordinated notes to produce a
blended yield. An IDS is typically listed on a stock exchange, but
the
underlying securities typically are not listed on the exchange until a
period of time after the listing of the IDS or upon the occurrence of
certain events
(e.g., a change of control of the issuer of the IDS). When the underlying
securities are listed, the holders of IDSs generally have the right to
separate
the components of the IDSs and trade them
separately. |
There
may be a thinner and less active market for IDSs than that available for
other securities. The value of an IDS will be affected by factors
generally
affecting common stock and subordinated debt securities, including the
issuer’s actual or perceived ability to pay interest and principal on
the
notes and pay dividends on the stock. |
The
federal income tax treatment of IDSs is not entirely clear and there is no
authority that directly addresses the tax treatment of securities with
terms
substantially similar to IDSs. Among other things, although it is expected
that the subordinated notes portion of an IDS will be treated as debt,
if
it is characterized as equity rather than debt, then interest paid on the
notes could be treated as dividends (to the extent paid out of the
issuer’s earnings
and profits). |
■ |
Income
Trusts. The
Fund may invest in shares of income trusts, including Canadian royalty
trusts. An income trust is an investment trust which holds income-producing
assets and generally distributes the income generated by such assets on to
its security holders. Income trusts also may include royalty
trusts, a particular type of income trust whose securities are listed on a
stock exchange and which controls an underlying company whose business
relates to, without limitation, the acquisition, exploitation, production
and sale of oil and natural gas. The main attraction of an income
trust
is its ability to generate constant cash flows. Income trusts have the
potential to deliver higher yields than bonds. During periods of low
interest rates,
income trusts may achieve higher yields compared with cash investments.
During periods of increasing rates, the opposite may be true. Income
trusts
may experience losses during periods of both low and high interest
rates. |
Income
trusts generally are structured to avoid income taxes at the entity level.
In a traditional corporate tax structure, net income is taxed at the
corporate
level and again when distributed as dividends to its shareholders. Under
current law, an income trust, if properly structured, should not be
subject
to federal income tax. This flow-through structure means that the
distributions to income trust investors are generally higher than
dividends from
an equivalent corporate entity. |
Despite
the potential for attractive regular payments, income trusts are equity
investments, not fixed-income securities, and they share many of the
risks
inherent in stock ownership, including operating risk based on the income
trusts’ underlying assets and their respective businesses. Such risks
may
include lack of, or limited, operating histories. In addition, an income
trust may lack diversification and potential growth may be sacrificed
because
revenue is passed on to security holders, rather than reinvested in the
business. Because income trusts may pay out more than their net
income,
the unitholder equity (capital) may decline over time. Income trusts often
grow through acquisition of additional assets, funded through the
issuance
of additional equity or, where the trust is able, additional debt. Income
trusts do not guarantee minimum distributions or even return of
capital;
therefore, if the business of a trust starts to lose money, the trust can
reduce or even eliminate distributions. The tax structure of income
trusts
described above, which would allow income to flow through to investors and
be taxed only at the investor level, could be challenged under
existing
law, or the tax laws could change. Royalty trusts and income trusts
frequently are found in Canada, and an investment in a Canadian trust
will
be subject to certain additional risks of investing in foreign
securities. |
■ |
Initial
Public Offerings. The
Fund can invest in IPOs. By definition, securities issued in IPOs have not
traded publicly until the time of their offerings. Special
risks associated with IPOs may include, among others, the fact that there
may only be a limited number of shares available for trading. The
market
for those securities may be unseasoned. The issuer may have a limited
operating history. These factors may contribute to price volatility. The
limited
number of shares available for trading in some IPOs may also make it more
difficult for the Fund to buy or sell significant amounts of shares
without
an unfavorable impact on prevailing prices. In addition, some companies
initially offering their shares publicly are involved in relatively new
industries
or lines of business, which may not be widely understood by investors.
Some of the companies involved in new industries may be regarded
as
developmental state companies, without revenues or operating income, or
the near-term prospects of them. Many IPOs are by small- or micro-cap
companies
that are undercapitalized. IPOs may adversely impact the Fund’s
performance. However, the impact of IPOs on the Fund’s performance
will
likely decrease as the Fund’s asset size
increases. |
■ |
Master
Limited Partnerships. The
Fund may invest in publicly traded partnerships such as MLPs. MLPs issue
units that are registered with the SEC and
are freely tradable on a securities exchange or in the OTC market. An MLP
may have one or more general partners, who conduct the business,
and
one or more limited partners, who contribute capital. The general partner
or partners are jointly and severally responsible for the liabilities of
the MLP.
An MLP also may be an entity similar to a limited partnership, such as an
LLC, which has one or more managers or managing members and non-managing
members (who are like limited partners). The Fund will invest in an MLP as
a limited partner, and normally would not be liable for the debts
of an MLP beyond the amount that the Fund has invested therein. However,
as a limited partner, the Fund would not be shielded to the same
extent
that a stockholder of a corporation would be. In certain instances,
creditors of an MLP would have the right to seek a return of capital that
|
had
been distributed to a limited partner. This right of an MLP’s creditors
would continue even after the Fund had sold its investment in the
partnership.
Holders of MLP units have more limited rights to vote on matters affecting
the partnership than owners of common stock. MLPs typically
invest in real estate and oil and gas equipment leasing assets, but they
also finance entertainment, research and development, and other
projects. |
■ |
African
Securities.
The Fund may invest in securities of issuers in African countries that
involve heightened risks of political instability, civil war, armed
conflict, social instability as a result of religious, ethnic and/or
socio-economic unrest, authoritarian and/or military involvement in
governmental
decision-making, corruption, expropriation and/or nationalization of
assets, confiscatory taxation, genocidal warfare in certain countries,
and other risks. Many under-developed African countries have less
developed capital markets that do not contain the safeguards inherent
in
those of developed countries and, consequently, the risks of investing in
foreign securities are magnified in such countries. Risks of investing in
such
markets include heightened volatility, smaller investor base, fewer
brokerage firms, heightened counterparty risk, inconsistent and rapidly
changing
regulation, lower market capitalization and trading volume, illiquidity,
inflation, uncertainty regarding the existence of trading markets,
governmental
control and heavy regulation of labor and industry, and the risk that
trading on African securities markets may be suspended altogether.
Some markets of the countries in Africa in which the Fund may invest are
in only the earliest stages of development with less liquidity,
fewer
and less well capitalized securities brokers, fewer issuers and more
capital market restrictions than developed markets. To the extent the Fund
effects
securities transactions through these brokerage firms, the Fund is subject
to the risk that these brokerage firms will not be able to fulfill their
obligations
to the Fund (i.e., counterparty risk). This risk is magnified to the
extent that the Fund effects securities transactions through a single
brokerage
firm or a small number of brokerage firms. In addition, there may be no
single centralized securities exchange on which securities are
traded
in certain countries in Africa. There may be less financial and other
information publicly available to investors, and the information that is
provided
may lack integrity. Uniform accounting, auditing and financial reporting
standards may not exist. In addition, the governments of certain countries may exercise substantial influence over many aspects of the private sector, including ownership or control of companies. Government actions in the future could have a significant economic impact. In particular, changes in investment policies or shifts in the prevailing political climate could result in the introduction of changes to government regulations with respect to price controls, export and import controls, income and other taxes, foreign ownership restrictions, foreign exchange and currency controls and labor and welfare benefit policies. Unexpected changes in these policies or regulations could lead to increased investment, operating or compliance expenses. Investments in certain countries may require the Fund to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to the Fund. Certain African countries may unpredictably restrict or control the extent to which foreign investors may invest in securities of issuers located in those countries, and governments may limit the repatriation of investment proceeds to foreign countries. Regulation may require governmental approval or special licenses for foreign investors and limitations could be placed on investment practices regarding share-class ownership, shareholder rights and title to securities. A delay in obtaining a government approval or a license would delay investments in a particular country, and, as a result, the Fund may not be able to invest in certain securities while approval is pending. The government of a particular country may also withdraw or decline to renew a license that enables the Fund to invest in such country. A Fund could be adversely affected by delays in, or a refusal to grant required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investment. Additionally, withholding or other taxes may be levied on foreign investors, and while portions of these taxes may be recoverable, any non-recovered portions will reduce the income received from investments in such countries. During periods of instability or upheaval, a country’s government may act in a detrimental or hostile manner toward private enterprise or foreign investment. Securities laws in many countries in Africa are relatively new and unsettled and, consequently, there is a risk of rapid and unpredictable change in laws regarding foreign investment, securities regulation, title to securities and shareholder rights. Accordingly, foreign investors may be adversely affected by new or amended laws and regulations. In addition, the systems of corporate governance to which issuers located in countries in Africa are subject may be less advanced than those systems to which issuers located in more developed countries are subject, and, therefore, shareholders of issuers located in such countries may not receive many of the protections available to shareholders of issuers located in more developed countries. The legal systems, and the unpredictability thereof, in certain countries in the region also may have an adverse impact on the Fund and may expose the Fund to significant liabilities. Even in circumstances where adequate laws and shareholder rights exist, it may not be possible to obtain timely and |
equitable
enforcement of the law. African countries historically have suffered from underdeveloped infrastructure, high unemployment rates, a comparatively unskilled labor force, and inconsistent access to capital, which have contributed to economic instability and stifled economic growth in the region. Many countries in Africa are heavily dependent on international trade and are subject to trade barriers, embargoes, exchange controls, currency valuation adjustments and other protectionist measures. These countries also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. A primary source of revenue for these countries is the export of commodities including precious minerals and metals such as gold, silver, copper and diamonds, agricultural products and energy products, such as oil. The countries are, therefore, more vulnerable to changes in commodity prices, interest rates, or sectors affecting a particular commodity, such as drought, floods, weather, embargoes, tariffs, international economic, political and regulatory developments, and any weakening in global demand for these products. Certain African countries have currencies pegged to the U.S. dollar or euro rather than free-floating exchange rates determined by market forces. Although intended to stabilize the currencies, these pegs, if abandoned, may cause sudden and significant currency adjustments, which may adversely impact investment returns. Certain issuers located in countries in Africa in which the Fund may invest may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the U.S. government as state sponsors of terrorism. As a result, an issuer may sustain financial penalties and damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. The Fund, as an investor in such issuers, will be indirectly subject to those risks. In addition, disease epidemics are more likely to affect trade practices and international dealings with certain African countries. Political instability and protests in North Africa and the Middle East have caused significant disruptions to many industries. Political and social unrest can spread quickly through the region, and developments in one country can influence the political events in neighboring countries. Protests may turn violent, and civil war and political reconstruction in certain countries pose a risk to investments in the region. Continued political and social unrest, including ongoing warfare and terrorist activities in the Middle East and Africa, may negatively affect the value of an investment in the Fund. Although geographically remote from the conflict in Ukraine, African countries are subject to the adverse effect Russia’s invasion of Ukraine brought to the global economy. Surging oil and food prices are straining the external and fiscal balances of commodity-importing countries and have increased food security problems in these regions. These economic disruptions may undermine a Fund’s investment in these countries. All of these risks, among others, could adversely affect the Fund’s investments in African countries. Any particular country in Africa may be subject to the foregoing risks in greater or lesser degrees relative to other countries in Africa, and as a result, circumstances that may positively affect a country in Africa in which the Fund is not invested may not have a corresponding positive effect on other countries in Africa in which the Fund is invested. |
■ |
Chinese
Company Securities.
Investing in China, Hong Kong and Taiwan involves a high degree of risk
and special considerations not typically associated
with investing in other more established economies or securities markets.
Such risks may include: (a) the risk of nationalization or expropriation
of assets, or confiscatory taxation; (b) greater social, economic and
political uncertainty (including the risk of war); (c) dependency on
exports
and the corresponding importance of international trade; (d) increasing
competition from Asia’s other low-cost emerging economies; (e)
greater
price volatility, substantially less liquidity and significantly smaller
market capitalization of securities markets, particularly in China; (f)
currency exchange
rate fluctuations and the lack of available currency hedging instruments;
(g) higher rates of inflation; (h) controls on foreign investment
and
limitations on repatriation of invested capital and on the Fund’s ability
to exchange local currencies for U.S. dollars; (i) greater governmental
involvement
in and control over the economy, and greater intervention in the Chinese
financial markets, such as the imposition of trading restrictions;
(j) the risk that the Chinese government may decide not to continue to
support economic reform programs currently in place and could return
to the completely centrally planned economy that was in place prior to
1978; (k) the fact that Chinese companies, particularly those located in
China,
may be smaller, less seasoned and newly-organized; (l) the difference in,
or lack of, auditing and financial reporting standards that may result
in
unavailability of material information about issuers, particularly in
China; (m) the fact that statistical information regarding the Chinese
economy may
be inaccurate or not comparable to statistical information regarding the
U.S. or other economies; (n) the less extensive, and still developing,
regulation
of the securities markets, business entities and commercial transactions;
(o) the fact that the settlement period of securities transactions in
foreign
markets may be longer; (p) uncertainty surrounding the willingness and
ability of the Chinese government to support the Chinese and Hong
Kong
economies and markets; (q) the risk that it may be more difficult or
impossible, to obtain and/or enforce a judgment than in other countries;
(r) the
rapidity and erratic nature of growth, particularly in China, resulting in
inefficiencies and dislocations; (s)
more
frequent (and potentially widespread)
trading suspensions and government interventions with respect to Chinese
issuers; (t) limitations on the use of brokers (or action by the
Chinese
government that discourages brokers from serving international clients);
and (u) the
risk that, because of the degree of interconnectivity between
the economies and financial markets of China, Hong Kong and Taiwan, any
sizable reduction in the demand for goods from China, or an economic
downturn in China could negatively affect the economies and financial
markets of Hong Kong and Taiwan, as well.
In addition, the China Securities
Regulatory Commission recently met with local law firms and asked them to
tone down negative descriptions of China’s policies in prospectuses
of companies going public outside the mainland in markets such as Hong
Kong and the United States. Comments in IPO listing documents
that misrepresent or disparage laws and policies, the business environment
and judicial situation of China are now barred. Such new listing
regime would inevitably deny approval for offshore listing applications
and further dampen the stock market sentiment, which in turn negatively
affects markets and the value of the Fund’s investments.
China’s
economy has transitioned from a rigidly central-planned state-run
economy
to one that has been only partially reformed by more market-oriented
policies. Although the Chinese government has implemented economic
reform measures, reduced state ownership of companies and established
better corporate governance practices, a substantial portion of
productive
assets in China are still owned by the Chinese government. The government
continues to exercise significant control in regulating industrial
development and, ultimately, control over China’s economic growth through
the allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment
to particular industries or companies. The
Chinese government
has from time to time taken actions that influence the prices at which
certain goods may be sold, encourage companies to invest or concentrate
in particular industries, induce mergers between companies in certain
industries and induce private companies to publicly offer their
securities
to increase or continue the rate of economic growth, control the rate of
inflation or otherwise regulate economic expansion. Investments
in
China involve risk of a total loss due to government action or inaction.
China
continues to limit direct foreign investments generally in industries
deemed
important to national interests. Foreign investment in domestic securities
are also subject to substantial restrictions. Some believe that
China’s
currency is undervalued. Currency fluctuations could significantly affect
China and its trading partners. China continues to exercise control
|
over
the value of its currency, rather than allowing the value of the currency
to be determined by market forces. This type of currency regime may
experience
sudden and significant currency adjustments, which may adversely impact
investment returns. For decades, a state of hostility has existed between Taiwan and the People’s Republic of China. Beijing has long deemed Taiwan a part of the “one China” and has made a nationalist cause of recovering it. This situation poses a threat to Taiwan’s economy and could negatively affect its stock market. By treaty, China has committed to preserve Hong Kong’s autonomy and its economic, political and social freedoms until 2047. However, if China would exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected, which in turn could negatively affect markets and business performance. In addition, the Hong Kong dollar trades within a fixed trading bond rate to (or is “pegged” to) the U.S. dollar. This fixed exchange rate has contributed to the growth and stability of the Hong Kong economy. However, some market participants have questioned the continued viability of the currency peg. It is uncertain what affect any discontinuation of the currency peg and the establishment of an alternative exchange rate system would have on capital markets generally and the Hong Kong economy. As demonstrated by protests in Hong Kong in 2019 and 2020 over political, economic, and legal freedoms, and the Chinese government’s response to the protests, there continues to be a great deal of political unrest, which may result in economic disruption. China could be affected by military events on the Korean peninsula or internal instability within North Korea. North Korea and South Korea each have substantial military capabilities, and historical tensions between the two countries present the risk of war. Any outbreak of hostilities between the two countries could have a severe adverse effect on the South Korean economy and securities market. These situations may cause uncertainty in the Chinese market and may adversely affect performance of the Chinese economy. In addition, China has strained international relations with Japan, India, Russia and other neighbors due to territorial disputes, historical animosities and other defense concerns. China is also alleged to have participated in state-sponsored cyberattacks against foreign companies and foreign governments. Actual and threatened responses to such activity and strained international relations, including purchasing restrictions, sanctions, tariffs or cyberattacks on the Chinese government or Chinese companies, may impact China’s economy and Chinese issuers of securities in which the Fund invests. Investment in China, Hong Kong and Taiwan is subject to certain political risks. The current political climate has intensified concerns about trade tariffs and a potential trade war between China and the United States, despite the United States signing a partial trade agreement with China that reduced some U.S. tariffs on Chinese goods while boosting Chinese purchases of American goods. However, this agreement left in place a number of existing tariffs, and it is unclear whether further trade agreements may be reached in the future. The ability and willingness of China to comply with the trade deal may determine to some degree the extent to which its economy will be adversely affected, which cannot be predicted at the present time. Future tariffs imposed by China and the United States on the other country’s products, or other escalating actions, may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial price reductions of goods and possible failure of individual companies and/or large segments of China’s export industry with a potentially negative impact to the Fund. On June 3, 2021, President Biden issued an executive order prohibiting U.S. persons from entering into transactions in publicly traded securities, as well as derivatives and securities designed to provide investment exposure to, any securities of any issuers designated “Chinese Military-Industrial Complex Companies,” as designated by the Department of the Treasury’s Office of Foreign Assets Control. This executive order superseded a prior similar order from then-President Trump. Continued ownership of such securities by U.S. persons is prohibited after June 3, 2022, following a one-year divestment period. A number of Chinese issuers have been designated under this program and more could be added. Certain implementation matters related to the scope of, and compliance with, the executive order have not yet been resolved, and the ultimate application and enforcement of the executive order may change. Under current guidance, U.S. investors may purchase interests in an investment fund that does not make any new purchases of designated securities and is “seeking to” divest its holdings of such securities during the divestment period. As a result, the executive order and related guidance may significantly reduce the liquidity of such securities, force the Fund to sell certain positions at inopportune times or for unfavorable prices, and restrict future investments by the Fund. U.S. investment advisers are permitted to advise non-U.S. funds and non-U.S. persons that purchase and sell such prohibited securities, provided this activity does not indirectly expose U.S. persons to such companies. The Holding Foreign Companies Accountable Act (“HFCAA”), requires the SEC to identify reporting public companies that use public accounting firms with a branch or office located in a foreign jurisdiction that the Public Company Accounting Oversight Board (“PCAOB”) determines that it is unable to inspect or investigate completely because of a position taken by a governmental entity in that jurisdiction (“Commission-Identified Issuers”). If an issuer is identified as a Commission-Identified Issuer for three consecutive years, the issuer’s shares will be prohibited in U.S. exchange and over-the-counter markets. On March 8, 2022, pursuant to the implementing regulations established by the SEC as required by the HFCAA, the SEC began to identify companies as provisional Commission-Identified Issuers. On August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China (“PRC”), which marked the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely in accordance with U.S. law. However, as this development is relatively recent, the implementation of the Statement of Protocol remains to be tested. Audits performed by PCAOB registered accounting firms in mainland China and Hong Kong may be less reliable than those performed by firms subject to PCAOB inspection. Accordingly, information about the Chinese securities in which the Fund invest may be less reliable or complete. Listing and other regulatory requirements applicable to foreign issuers, including Chinese issuers, is evolving and any future legislation, regulations or rules may require the Fund to change its investment process, which could result in substantial investment losses. China has often restricted U.S. regulators’ access to information and limited regulators’ ability to investigate or pursue remedies with respect to China-based issuers, generally citing to state secrecy and national security laws, blocking statutes, or other laws or regulations. In addition, according to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator can directly conduct investigations or evidence collection activities within China and no entity or individual in China may provide documents and information relating to securities business activities to overseas regulators without Chinese government approval. The SEC, U.S. Department of Justice, and other U.S. authorities face substantial challenges in bringing and enforcing actions against China-based issuers and their officers and directors. As a result, the Fund may not benefit from a regulatory environment that fosters effective enforcement of U.S. federal securities laws. From time to time and in recent years, China has experienced outbreaks of infectious illnesses and the country may be subject to other public health threats, infectious illnesses, diseases or similar issues in the future. Any spread of an infectious illness, public health threat or similar issue, or the government response thereto, could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the Chinese or global economy, which in turn could adversely affect the Fund’s investments. |
For
purposes of raising capital offshore on exchanges outside of China,
including on U.S. exchanges, many Chinese-based operating companies are
structured
as Variable Interest Entities (“VIEs”). In this structure, the
Chinese-based operating company is the VIE and establishes an entity,
which is typically
offshore in a foreign jurisdiction, such as the Cayman Islands. The
offshore entity lists on a foreign exchange and enters into contractual
arrangements
(“VIE Agreements”) with the VIE. This structure allows Chinese companies,
in particular those in which the government restricts foreign
ownership to raise capital from foreign investors. While the offshore
entity has no equity ownership of the VIE, these VIE Agreements permit
the
offshore entity to consolidate the VIE’s financial statements with its own
for accounting purposes and provide for economic exposure to the
performance
of the underlying Chinese-based operating company. Therefore, an investor
in the listed offshore entity, such as the Fund, will have exposure
to the Chinese-based operating company only through contractual
arrangements and has no ownership in the Chinese-based operating
company.
Furthermore, because the offshore entity only has specific rights provided
for in these VIE Agreements with the VIE, its abilities to control
the
activities at the Chinese-based operating company are limited and the
Chinese-based operating company may engage in activities that negatively
impact
investment value. While the VIE structure has been widely adopted, it is
not formally recognized under Chinese law and therefore there is a
risk
that the Chinese government could prohibit the existence of such
structures or negatively impact the VIE’s contractual arrangements with
the listed
offshore entity by making them invalid. If these VIE Agreements were found
to be unenforceable under Chinese law, investors in the listed
offshore
entity, such as the Fund, may suffer significant losses with little or no
recourse available. If the Chinese government determines that the VIE
Agreements
establishing the VIE structures do not comply with Chinese law and
regulations, including those related to restrictions on foreign
ownership,
it could subject a Chinese-based issuer to penalties, revocation of
business and operating licenses, or forfeiture of ownership interest.
Any
change in the operations of entities in a VIE structure, the status of VIE
contractual arrangements or the legal or regulatory environment in
China
or in the U.S. could result in significant losses to the Fund. The listed
offshore entity’s control over a VIE may also be jeopardized if a natural
person
who holds the equity interest in the VIE breaches the terms of the VIE
Agreement, is subject to legal proceedings or if any physical instruments
for authenticating documentation, such as chops and seals, are used
without the Chinese-based issuer’s authorization to enter into
contractual
arrangements in China. Chops and seals, which are carved stamps used to
sign documents, represent a legally binding commitment by the
company. Moreover, any future regulatory action may affect the ability of
the offshore entity to receive the economic benefits of the Chinese-based
operating company, which may cause the value of the Fund’s investment in
the listed offshore entity to suffer a significant loss. For example,
in 2021, the Chinese government placed various restrictions on
after-school tutoring companies. Such restrictions adversely affected the
financial
performance of those listed offshore entities associated with a
Chinese-based operating company in the after-school tutoring industry.
There
is no guarantee that the Chinese government will not place similar
restrictions on other industries and therefore jeopardize the financial
performance
of the corresponding listed offshore
entities. |
■ |
Eastern
European and Russian Securities.
In addition to the risks listed under “Foreign Securities - Frontier
and
Emerging Market Securities, “ investing
in Russian and other Eastern European issuers presents additional risks.
Investing in the securities of Eastern European and Russian issuers is
highly
speculative and involves risks not usually associated with investing in
the more developed markets of Western Europe, the U.S. or other
developed
countries. Political and economic reforms have not yet established a
definite trend away from centrally planned economies and state-owned
industries. Investments in Eastern European countries may involve risks of
nationalization, expropriation, and confiscatory taxation. Many
Eastern European countries continue to move towards market economies at
different paces with different characteristics. Most Eastern European
markets suffer from thin trading activity and less reliable investor
protections. Additionally, because of less stringent auditing and
financial reporting
standards as compared to U.S. companies, there may be little reliable
corporate information available to investors. As a result, it may be
difficult
to assess the value or prospects of an investment in Eastern European and
Russian companies. Further, information and transaction costs,
differential
taxes, and sometimes political or transfer risk give a comparative
advantage to the domestic investor rather than the foreign investor. In
addition,
these markets are particularly sensitive to social, political, economic,
and currency events in Western Europe and Russia and may suffer
heavy
losses as a result of their trading and investment links to these
economies and currencies. Additionally, Russia may continue to attempt to
assert
its influence in the region through economic or even military measures, as
evidenced by its invasion of Ukraine in February 2022 and the ongoing
conflict in that region. The United States and the EU historically have imposed economic sanctions on certain Russian individuals and companies, including certain financial institutions, and have limited certain exports and imports to and from Russia. Sanctions, or even the threat of further sanctions, may result in the decline of the value and liquidity of Russian securities, a weakening of the ruble or other adverse consequences to the Russian economy. These sanctions could also result in the immediate freeze of Russian securities, either by issuer, sector or the Russian markets as a whole, impairing the ability of the Fund to buy, sell, receive or deliver those securities. In such circumstances, the Fund may be forced to liquidate non-restricted assets in order to satisfy shareholder redemptions. Such liquidation of Fund assets could result in the Fund receiving substantially lower prices for its securities. Sanctions could also result in Russia taking counter measures or retaliatory actions which may further impair the value and liquidity of Russian securities. As a result, the Fund’s performance may be adversely affected. The potential impact of sanctions imposed in response to Russia’s invasion of Ukraine in February 2022 are discussed below. In some of the countries of Eastern Europe, there is no stock exchange or formal market for securities. Such countries may also have government exchange controls, currencies with no recognizable market value relative to the established currencies of Western market economies, little or no experience in trading in securities, no accounting or financial reporting standards, a lack of banking and securities infrastructure to handle such trading and a legal tradition that does not recognize rights in private property. Credit and debt issues and other economic difficulties affecting Western Europe and its financial institutions can negatively affect Eastern European countries. Eastern European economies may also be particularly susceptible to the volatility of the international credit market due to their reliance on bank related inflows of foreign capital, and their continued dependence on the Western European zone for credit and trade. Accordingly, the European crisis may present serious risks for Eastern European economies, which may have a negative effect on the Fund’s investments in the region. Compared to most national stock markets, the Russian securities market suffers from a variety of problems not encountered in more developed markets. There is little long-term historical data on the Russian securities market because it is relatively new and a substantial proportion of securities transactions in Russia are privately negotiated outside of stock exchanges. The inexperience of the Russian securities market and the limited volume of trading in securities in the market may make obtaining accurate prices on portfolio securities from independent sources more difficult than in more developed markets. Poor accounting standards, inept management, pervasive corruption, insider trading and crime, and inadequate regulatory |
protection
for the rights of all investors all may pose additional risks, including
to foreign investors. Because of the relatively recent formation of the Russian securities market as well as the underdeveloped state of the banking and telecommunications systems, settlement, clearing and registration of securities transactions are subject to significant risks not normally associated with securities transactions in the United States and other more developed markets. Prior to 2013, there was no central registration system for equity share registration in Russia and registration was carried out by either the issuers themselves or by registrars located throughout Russia. Such registrars were not necessarily subject to effective state supervision nor were they licensed with any governmental entity, thereby increasing the risk that the Fund could lose ownership of its securities through fraud, negligence, or even mere oversight. With the implementation of the National Settlement Depository (“NSD”) in Russia as a recognized central securities depository, title to Russian equities is now based on the records of the NSD and not the registrars. Although the implementation of the NSD is generally expected to decrease the risk of loss in connection with recording and transferring title to securities, issues resulting in loss still might occur. In addition, issuers and registrars are still prominent in the validation and approval of documentation requirements for corporate action processing in Russia. Because the documentation requirements and approval criteria vary between registrars and/or issuers, there remain unclear and inconsistent market standards in the Russian market with respect to the completion and submission of corporate action elections. Significant delays or problems may occur in registering the transfer of securities, which could cause the Fund to incur losses due to a counterparty’s failure to pay for securities the Fund has delivered or the Fund’s inability to complete its contractual obligations because of theft or other reasons. To the extent that the Fund suffers a loss relating to title or corporate actions relating to its portfolio securities, it may be difficult for the Fund to enforce its rights or otherwise remedy the loss. In addition, there is the risk that the Russian tax system will not be reformed to prevent inconsistent, retroactive, and/or exorbitant taxation, or, in the alternative, the risk that a reformed tax system may result in the inconsistent and unpredictable enforcement of the new tax laws. |
The
Russian economy is heavily dependent upon the export of a range of
commodities including most industrial metals, forestry products, oil, and
gas.
Accordingly, it is strongly affected by international commodity prices and
is particularly vulnerable to any weakening in global demand for these
products.
Decreases in the price of commodities, which have in the past pushed the
whole economy into recession, have demonstrated the sensitivity
of the Russian economy to such price volatility. Russia continues to face
significant economic challenges, including weak levels of investment
and a sluggish recovery in external demand. Over the long-term, Russia
faces challenges including a shrinking workforce, a high level of
corruption,
and difficulty in accessing capital for smaller, non-energy companies and
poor infrastructure in need of large
investments. |
Foreign
investors also face a high degree of currency risk when investing in
Russian securities and a lack of available currency hedging instruments.
In the
past, the Russian ruble has been subject to significant devaluation
pressure as a result of the imposition of sanctions by the United States
and the European
Union and the decline in commodity prices and the value of Russian
exports. Although the Russian Central Bank has spent a significant
amount
of its foreign exchange reserves in an attempt to maintain the ruble’s
value, there is a risk of significant future devaluation. In addition,
there is
the risk that the Russian government may impose capital controls on
foreign portfolio investments in the event of extreme financial or
political crisis.
Such capital controls may prevent the sale of a portfolio of foreign
assets and the repatriation of investment income and capital. These risks
may
cause flight from the ruble into U.S. dollars and other
currencies. |
In
February 2022, Russia launched a large-scale invasion of Ukraine. The
outbreak of hostilities between the two countries could result in more
widespread
conflict and could have a severe adverse effect on the regional and the
global financial markets and economies (including in Europe and
the
U.S.), companies in other countries (including those that have done
business in Russia), and various sectors, industries and markets for
securities and
commodities. Actual and threatened responses to such military action have
impacted, and may continue to impact, the markets for certain Russian
commodities, such as oil and natural gas. In addition, tensions have
increased between Russia’s neighbors and Western countries, which may
adversely
affect the region’s economic growth. Moreover, disruptions caused by
Russian military action or other actions (including cyberattacks and
espionage)
or resulting actual and threatened responses to such activity, including
purchasing and financing restrictions, boycotts or changes in consumer
or purchaser preferences, sanctions, tariffs or cyberattacks on the
Russian government, Russian companies or Russian individuals, including
politicians,
may impact Russia’s economy and Russian issuers of securities in which the
Fund invests. The extent and duration of the military action, the
resulting sanctions or other punitive actions, and the resulting future
market disruptions, are impossible to predict but have been and could
continue
to be significant. Russia’s actions have induced the United States and other countries (collectively, the “Sanctioning Bodies”) to impose economic sanctions on Russia, Russian individuals, and Russian corporate and banking entities, which can consist of prohibiting certain securities trades and private transactions in the energy sector, asset freezes and prohibition of all business with such persons and entities. The sanctions have included a commitment by certain countries and the EU to remove selected Russian banks from the Society for Worldwide Interbank Financial Telecommunications, commonly called “SWIFT,” the electronic network that connects banks globally, and the imposition of restrictive measures to prevent the Russian Central Bank from undermining the impact of the sanctions. A number of large corporations and U.S. states have also divested or announced plans to divest interests or otherwise curtail business dealings with certain Russian businesses. The Sanctioning Bodies may impose additional sanctions in the future. Such sanctions, or even the threat of further sanctions, may impact many sectors of the Russian economy and related markets. Current and potential future sanctions, or the threat of sanctions, and Russia’s response, as discussed below, may cause any of the following: (a) a decline in the value and liquidity of Russian securities; (b) a weakening or devaluation of the ruble; (c) a downgrade in Russia’s credit rating and/or its default on sovereign obligations; (d) increased volatility of Russian securities; (e) the immediate freeze of Russian securities and/or funds invested in prohibited assets; or (f) additional counter measures or retaliatory actions. In response to the sanctions, the Russian Central Bank raised its interest rates, suspended the sales of Russian securities by non-residents of Russia on its local stock exchange, prohibited the repatriation of Russian assets by foreign investors, and barred Russian issuers from participating in depositary receipt programs. Russia may take additional countermeasures or retaliatory actions in the future, including, for example, restricting gas exports to other countries, seizing U.S. and European residents’ assets, imposing capital controls to restrict movements of capital entering and existing the country, or undertaking or provoking other military conflict elsewhere in Europe. The Russian invasion, sanctions in response, and any related events may adversely and significantly affect the performance of the Fund and its ability |
to
achieve its investment objectives by restricting or prohibiting the Fund’s
ability to gain exposure to Russian issuers or other affected issuers. To
the extent
that the Fund has direct exposure to Russian or Eastern European issuers,
these events may also make it difficult for the Fund to sell, receive or
deliver
securities or assets to realize the value of that
exposure. |
■ |
European
Securities.
The Fund’s performance may be affected by political, social and economic
conditions in Europe, such as growth of economic output
(the gross national product
of the countries in the region),
the rate of inflation, the rate at which capital is reinvested into
European economies,
the success of governmental actions to reduce budget deficits, the
resource self-sufficiency of European countries,
interest rates in European
countries, monetary exchange rates between European countries,
and conflict between European countries. Most developed countries in
Western
Europe are members of the European Union (“EU”), and many are also members
of the European Economic and Monetary Union (“EMU” or
“Eurozone”). The EMU is comprised of EU members that have adopted the
Euro
currency. As part of EMU membership, member
states relinquish control
of their own monetary policies
to the European Central Bank.
The EMU requires Eurozone countries to comply with restrictions on
interest rates,
deficits, debt levels, and inflation rates; fiscal and monetary controls;
and other factors.
Although the EMU has adopted a common currency and
central bank, there is no fiscal union; therefore, money does not
automatically flow from countries with surpluses to those with deficits.
These restrictions
and characteristics may limit the ability of EMU member countries to
implement monetary policy to address regional economic conditions
and
significantly impact every European country and their economic partners,
including those countries that are not members of the EMU. In
addition,
those EU member states that are not currently in the Eurozone (except
Denmark) are required to seek to comply with convergence criteria
to
permit entry to the Eurozone. The economies and markets of European
countries are often closely connected and interdependent, and events in
one
country in Europe can have an adverse impact on other European countries.
Changes
in imports or exports, changes in governmental or European
regulations on trade, changes in the exchange rate of the Euro
,
the threat of default or actual default by one or more European
countries
on
its sovereign debt, and/or an economic recession in one or more
European
countries
may have a significant adverse effect on the economies of other
European
countries
and their trading partners. The European financial markets have experienced and may continue to experience volatility and adverse trends due to concerns relating to economic downturns; national unemployment; ageing populations; rising government debt levels and the possible default on government debt in several European countries; public health crises; political unrest; economic sanctions; inflation; energy crises; the future of the Euro as a common currency; and war and military conflict, such as the Russian invasion of Ukraine. These events have affected the exchange rate of the Euro and may continue to significantly affect European countries. Responses to financial problems by European governments, central banks, and others, including austerity measures and other reforms, may not produce the desired results, may result in social unrest and may limit future growth and economic recovery or may have unintended consequences. In order to prevent further economic deterioration, certain countries, without prior warning, can institute “capital controls.” Countries may use these controls to restrict volatile movements of capital entering and exiting their country. Such controls may negatively affect the Fund’s investments. In addition, one or more countries may abandon the Euro and/or withdraw from the EU. The impact of these actions, especially if they occur in a disorderly fashion, could be significant and far-reaching. Many European nations are susceptible to economic risks associated with high levels of debt. Non-governmental issuers, and even certain governments, have defaulted on, or been forced to restructure, their debts, and other issuers have faced difficulties obtaining credit or refinancing existing obligations. A default or debt restructuring by any European country could adversely impact holders of that country’s debt and sellers of credit default swaps linked to that country’s creditworthiness, which may be located in other countries. Such a default or debt restructuring could affect exposures to other European countries and their companies as well. Further defaults on, or restructurings of, the debt of governments or other entities could have additional adverse effects on economies, financial markets and asset valuations around the world. In addition, issuers have faced difficulties obtaining credit or refinancing existing obligations; financial institutions have in some cases required government or central bank support, have needed to raise capital and/or have been impaired in their ability to extend credit; and financial markets in Europe and elsewhere have experienced extreme volatility and declines in asset values and liquidity. Furthermore, certain European countries have had to accept assistance from supranational agencies such as the International Monetary Fund, the European Stability Mechanism or others. The European Central Bank has also intervened to purchase Eurozone debt in an attempt to stabilize markets and reduce borrowing costs. There can be no assurance that any creditors or supranational agencies will continue to intervene or provide further assistance, and markets may react adversely to any expected reduction in the financial support provided by these creditors. Certain European countries have experienced negative interest rates on certain fixed-income instruments. A negative interest rate is an unconventional central bank monetary policy tool where nominal target interest rates are set with a negative value (i.e., below zero percent) intended to help create self-sustaining growth in the local economy. Negative interest rates may result in heightened market volatility and may detract from the Fund’s performance to the extent the Fund is exposed to such interest rates. Certain European countries have also developed increasingly strained relationships with the U.S., and if these relationships were to worsen, they could adversely affect European issuers that rely on the U.S. for trade. In addition, the national politics of European countries have been unpredictable and subject to influence by disruptive political groups and ideologies. Secessionist movements, as well as government or other responses to such movements, may create instability and uncertainty in a country or region. European governments may be subject to change and such countries may experience social and political unrest. Unanticipated or sudden political or social developments may result in sudden and significant investment losses. The occurrence of terrorist incidents throughout Europe also could impact financial markets, as could military conflicts. The impact of these or other events is not clear but could be significant and far-reaching and materially impact the value and liquidity of the Fund’s investments. Russia’s war with Ukraine has negatively impacted European economic activity. The Russia/Ukraine war and Russia’s response to sanctions imposed by the U.S., EU, UK and others have and could continue to severely impact the performance of the economies of European and other countries, including adverse effects to global financial and energy markets, global supply chains and global growth, and inflation. Certain countries have applied to become new member countries of the EU, and these candidate countries’ accessions may become more controversial to the existing EU members. Some member states may repudiate certain candidate countries joining the EU due to concerns about the possible economic, immigration and cultural implications. Also, Russia may be opposed to the expansion of the EU to members of the former Eastern Bloc (i.e. ex-Soviet Union-controlled countries in Europe) and may, at times, take actions that could negatively impact European economic activity. The United Kingdom withdrew from the European Union on January 31, 2020 and entered into a transition period, which ended on December 31, |
2020.
The longer term economic, legal, and political framework between the
United Kingdom and the EU is still developing and may lead to ongoing
political and economic uncertainly and periods of increased volatility in
the United Kingdom, Europe, and the global market. Investments in
companies
with significant operations and/or assets in the United Kingdom could be
adversely impacted by the new legal, political, and regulatory
environment,
whether by increased costs or impediments to the implementation of
business plans. The uncertainty resulting from any further exits
from
the EU, or the possibility of such exits, would also be likely to cause
market disruption in the EU and more broadly across the global economy,
as
well as introduce further legal, political, and regulatory uncertainty in
Europe. |
■ |
Frontier
and Emerging Market Investments. The
Fund may invest in frontier and emerging market securities. The Fund may
consider a country to be
a frontier or emerging market country based on a number of factors
including, but not limited to, if the country is classified as an emerging
or developing
economy by any supranational organization such as the World Bank,
International Finance Corporation or the United Nations, or related
entities,
or if the country is considered an emerging market country for purposes of
constructing emerging markets indices. Investments in frontier
and
emerging market country securities involve special risks. The economies,
markets and political structures of a number of the frontier and
emerging
market countries in which the Fund can invest do not compare favorably
with the United States and other mature economies in terms of wealth
and stability. Therefore, investments in these countries may be riskier,
and will be subject to erratic and abrupt price movements. These risks
are
discussed below. Economies. The economies of frontier and emerging market countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, reliable access to capital, capital reinvestment, resource self-sufficiency and balance of payments and trade difficulties. Some economies are less well developed and less diverse (for example, Latin America, Eastern Europe and certain Asian countries), and may be heavily dependent upon international trade, as well as the economic conditions in the countries with which they trade. Such economies accordingly have been, and may continue to be, adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist or retaliatory measures imposed or negotiated by the countries with which they trade. Similarly, many of these countries have historically experienced, and may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of national and external debt, severe recession, and extreme poverty and unemployment. Emerging market countries may also experience a higher level of exposure and vulnerability to the adverse effects of climate change. This may be attributed to both the geographic location of emerging market countries and/or a country’s lack of access to technology or resources to adjust and adapt to its effects. An increased occurrence and severity of natural disasters and extreme weather events such as droughts and decreased crop yields, heat waves, flooding and rising sea levels, and increased spread of disease, could cause harmful effects to the performance of affected economies. The economies of frontier and emerging market countries may be based predominately on only a few industries or may be dependent on revenues from participating commodities or on international aid or developmental assistance. Frontier and emerging market economies may develop unevenly or may never fully develop. Investments in countries that have recently begun moving away from central planning and state-owned industries toward free markets, such as the Eastern European, Russian or Chinese economies, should be regarded as speculative. Governments. Frontier and emerging markets may have uncertain national policies and social, political and economic instability. While government involvement in the private sector varies in degree among emerging market countries, such involvement may in some cases include government ownership of companies in certain sectors, wage and price controls or imposition of trade barriers and other protectionist measures. In the past, governments of such nations have expropriated substantial amounts of private property, and most claims of the property owners have never been fully settled. There is no assurance that such expropriations will not reoccur. In addition, there is no guarantee that some future economic or political crisis will not lead to price controls, forced mergers of companies, confiscatory taxation or creation of government monopolies to the possible detriment of the Fund’s investments. In such event, it is possible that the Fund could lose the entire value of its investments in the affected markets. Frontier and emerging market countries may have national policies that limit the Fund’s investment opportunities such as restrictions on investment in issuers or industries deemed sensitive to national interests. Repatriation of investment income, capital and the proceeds of sales by foreign investors may require governmental registration and/or approval in some frontier and emerging market countries. In addition, if the Fund invests in a market where restrictions are considered acceptable, a country could impose new or additional repatriation restrictions after investment that are unacceptable. This might require, among other things, applying to the appropriate authorities for a waiver of the restrictions or engaging in transactions in other markets designed to offset the risks of decline in that country. Further, some attractive securities may not be available, or may require a premium for purchase, due to foreign shareholders already holding the maximum amount legally permissible. In addition to withholding taxes on investment income, some countries with frontier and emerging capital markets may impose differential capital gain taxes on foreign investors. An issuer or governmental authority that controls the repayment of a frontier or emerging market country’s debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A debtor’s willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, and, in the case of a government debtor, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole and the political constraints to which a government debtor may be subject. Government debtors may default on their debt and may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. Holders of government debt may be requested to participate in the rescheduling of such debt and to extend further loans to government debtors. There may be limited legal recourse against the issuer and/or guarantor. Remedies must, in some cases, be pursued in the courts of the defaulting party itself, and the ability of the holder of foreign government fixed-income securities to obtain recourse may be subject to the political climate in the relevant country. In addition, no assurance can be given that the holders of commercial bank debt will not contest payments to the holders of other foreign government debt obligations in the event of default under their commercial bank loan agreements. Capital Markets. The capital markets in frontier and emerging market countries may be underdeveloped. They may have low or non-existent trading volume, resulting in a lack of liquidity and increased volatility in prices for such securities, as compared to securities from more developed capital markets. Frontier and emerging market securities may be substantially less liquid and more volatile than those of mature markets, and securities may be held by a limited number of investors. This may adversely affect the timing and pricing of the Fund’s acquisition or disposal of securities. There may be less publicly available information about issuers in frontier and emerging market countries than would be available in more developed |
capital
markets, and such issuers may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those
to which U.S. companies are subject. In certain countries with emerging
capital markets, reporting standards vary widely. As a result,
traditional
investment measurements used in the U.S., may not be applicable. Investing
in certain countries with emerging capital markets may entail purchasing
securities issued by or on behalf of entities that are insolvent,
bankrupt, in default or otherwise engaged in an attempt to reorganize or
reschedule
their obligations, and in entities that have little or no proven credit
rating or credit history. In any such case, the issuer’s poor or
deteriorating
financial condition may increase the likelihood that the investing Fund
will experience losses or diminution in available gains due to
bankruptcy,
insolvency or fraud. There may also be custodial restrictions or other
non-U.S. or U.S. governmental laws or restrictions applicable to
investments
in frontier or emerging market countries. Practices in relation to the clearing or settlement of securities transactions in frontier and emerging markets involve higher risks than those in developed markets, in part because the Fund may use brokers and counterparties that are less well capitalized, and custody and registration of assets in some countries may be unreliable. Supervisory authorities also may be unable to apply standards comparable to those in developed markets. Thus, there may be risks that settlement may be delayed and that cash or securities belonging to the Fund may be in jeopardy because of failures of or defects in the systems. In particular, market practice may require that payment be made before receipt of the security being purchased or that delivery of a security be made before payment is received. In such cases, default by a broker or bank (the “counterparty”) through whom the transaction is effected might cause the Fund to suffer a loss. There can be no certainty that the Fund will be successful in eliminating counterparty risk, particularly as counterparties operating in frontier and emerging market countries frequently lack the substance or financial resources of those in developed countries. There may also be a danger that, because of uncertainties in the operation of settlement systems in individual markets, competing claims may arise with respect to securities held by or to be transferred to the Fund. |
■ |
Latin
American Securities. Investments
in securities of Latin American issuers involve risks that are specific to
Latin America, including certain legal, regulatory,
political and economic risks. Most Latin American countries have
experienced, at one time or another, severe and persistent levels of
inflation,
including, in some cases, hyperinflation, as well as high interest rates.
This has at time led to extreme government measures to keep inflation
in check, and a generally debilitating effect on economic growth. Although
inflation in many countries has lessened, there is no guarantee
it
will remain at lower levels. Political Instability. Certain Latin American countries have historically suffered from social, political, and economic instability and volatility, currency devaluations, government defaults and high unemployment rates. For investors, this has meant additional risk caused by periods of regional conflict, political corruption, totalitarianism, protectionist measures, nationalization, hyperinflation, debt crises, sudden and large currency devaluation, and intervention by the military in civilian and economic spheres. However, in some Latin American countries, a move to sustainable democracy and a more mature and accountable political environment is under way. Domestic economies have been deregulated, privatization of state-owned companies is almost completed and foreign trade restrictions have been relaxed. Nonetheless, there can be no guarantee that such trends will continue or that the desired outcomes of these developments will be successful. In addition, to the extent that events such as those listed above continue in the future, they could reverse favorable trends toward market and economic reform, privatization, and removal of trade barriers, and result in significant disruption in securities markets in the region. Investors in the region continue to face a number of potential risks. Governments of many Latin American countries have exercised and continue to exercise substantial influence over many aspects of the private sector. Governmental actions in the future could have a significant effect on economic conditions in Latin American countries, which could affect the companies in which the Fund invests and, therefore, the value of Fund shares. Additionally, an investment in Latin America is subject to certain risks stemming from political and economic corruption, which may negatively affect the country or the reputation of companies domiciled in a certain country. For certain countries in Latin America, political risks have created significant uncertainty in the financial markets and may further limit the economic recovery in the region. Dependence on Exports and Economic Risk. Certain Latin American countries depend heavily on exports to the U.S., investments from a small number of countries, and trading relationships with key trading partners, including the U.S., Europe, Asia and other Latin American countries. Accordingly, these countries may be sensitive to fluctuations in demand, protectionist trade policies, exchange rates and changes in market conditions associated with those countries. Additionally, in Mexico, the long-term implications of the United States-Mexico-Canada Agreement, the 2020 successor to NAFTA, are yet to be determined. This uncertainty may have an adverse impact on Mexico’s economic outlook and the value of Fund investments in Mexico. |
The
economic growth of most Latin American countries is highly dependent on
commodity exports and the economies of certain Latin American countries,
particularly Mexico and Venezuela, are highly dependent on oil exports. As
a result, these economies are particularly susceptible to fluctuations
in the price of oil and other commodities and currency
fluctuations. |
The
prices of oil and other commodities experienced volatility driven, in
part, by a continued slowdown of growth in China and the effects of the
COVID-19
pandemic. If growth in China remains slow, or if global economic
conditions worsen, prices for Latin American commodities may experience
increased volatility and demand may continue to decrease. Although certain
of these countries have recently shown signs of recovery, such
recovery, if sustained, may be gradual. In addition, prolonged economic
difficulties may have negative effects on the transition to a more stable
democracy
in some Latin American countries. |
Trade
Agreements. Certain Latin American countries have entered into regional
trade agreements that are designed to, among other things, reduce
trade
barriers between countries, increase competition among companies, and
reduce government subsidies in certain industries. No assurance can
be
given that these changes will be successful in the long term, or that
these changes will result in the economic stability intended. There is a
possibility
that these trade arrangements will not be fully implemented, or will be
partially or completely unwound. It is also possible that a significant
participant could choose to abandon a trade agreement, which could
diminish its credibility and influence. Any of these occurrences could
have
adverse effects on the markets of both participating and non-participating
countries, including sharp appreciation or depreciation of participants’
national currencies and a significant increase in exchange rate
volatility, a resurgence in economic protectionism, an undermining of
confidence
in the Latin American markets, an undermining of Latin American economic
stability, the collapse or slowdown of the drive towards Latin
|
American
economic unity, and/or reversion of the attempts to lower government debt
and inflation rates that were introduced in anticipation of such
trade agreements. Such developments could have an adverse impact on the
Fund’s investments in Latin America generally or in specific countries
participating in such trade agreements. |
Sovereign
Debt. Latin American economies generally are heavily dependent upon
foreign credit and loans, and may be more vulnerable to diplomatic
developments,
the imposition of economic sanctions against a particular country or
countries, changes in international trading patterns, trade barriers,
and other protectionist or retaliatory measures. In addition to risk of
default, debt repayment may be restructured or rescheduled, which
may
impair economic activity. Moreover, the debt may be susceptible to high
interest rates and may reach levels that would adversely affect Latin
American
economies. In addition, certain Latin American economies have been
influenced by changing supply and demand for a particular currency,
monetary
policies of governments (including exchange control programs, restrictions
on local exchanges or markets and limitations on foreign investment
in a country or on investment by residents of a country in other
countries), and currency devaluations and revaluations. A relatively small
number
of Latin American companies represents a large portion of Latin America’s
total market and thus may be more sensitive to adverse political
or
economic circumstances and market movements. A number of Latin American
countries are among the largest debtors of developing countries
and
have a history of reliance on foreign debt and default. The majority of
the region’s economies have become dependent upon foreign credit and
loans
from external sources to fund government economic plans. Historically,
these plans have frequently resulted in little benefit accruing to the
economy.
Most countries have been forced to restructure their loans or risk default
on their debt obligations. In addition, interest on the debt is
subject
to market conditions and may reach levels that would impair economic
activity and create a difficult and costly environment for borrowers.
Accordingly,
these governments may be forced to reschedule or freeze their debt
repayment, which could negatively affect local markets. While the
region
has recently had mixed levels of economic growth, recovery from past
economic downturns in Latin America has historically been slow, and
such
growth, if sustained, may be gradual. The ongoing effects of the European
debt crisis, the effects of the COVID-19 pandemic, and persistent
low
growth in the global economy may reduce demand for exports from Latin
America and limit the availability of foreign credit for some countries
in
the region. As a result, the Fund’s investments in Latin American
securities could be harmed if economic recovery in the region is
limited. |
■ |
Middle
East Securities.
Many Middle Eastern countries are prone to political turbulence, and the
political and legal systems in such countries may have
an adverse impact on the Fund. Certain economies in the Middle East are
highly reliant on income from the exports of primary commodities,
such
as oil, or trade with countries involved in the sale of oil, and their
economies are therefore vulnerable to changes in the market for oil and
foreign
currency values. As global demand for oil fluctuates, many Middle Eastern
economies may be significantly impacted. Additionally, the economies
of many Middle Eastern countries are largely dependent on, and linked
together by, certain commodities (such as gold, silver, copper,
diamonds,
and oil). As a result, Middle Eastern economies are vulnerable to changes
in commodity prices, and fluctuations in demand for these commodities
could significantly impact economies in these regions. A downturn in one
country’s economy could have a disproportionally large effect on
others in the region. Many Middle Eastern governments have exercised and continue to exercise substantial influence over many aspects of the private sector. In certain cases, a Middle Eastern country’s government may own or control many companies, including some of the largest companies in the country. Accordingly, governmental actions in the future could have a significant effect on economic conditions in Middle Eastern countries, and a country’s government may act in a detrimental or hostile manner toward private enterprise or foreign investment. This could affect private sector companies and the Fund, as well as the value of securities in the Fund’s portfolio. Certain Middle Eastern markets are in the earliest stages of development and may be considered “frontier markets.” Financial markets in the Middle East generally are less liquid and more volatile than other markets, including markets in developed and other emerging economies. As a result, there may be a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries. Brokers in Middle Eastern countries typically are fewer in number and less well-capitalized than brokers in the United States. Since the Fund may need to effect securities transactions through these brokers, the Fund is subject to the risk that these brokers will not be able to fulfill their obligations to the Fund (i.e., counterparty risk). This risk is magnified to the extent that the Fund effects securities transactions through a single broker or a small number of brokers. In addition, securities may have limited marketability and be subject to erratic price movements. The legal systems in certain Middle Eastern countries also may have an adverse impact on the Fund. For example, the potential liability of a shareholder in a U.S. corporation with respect to acts of the corporation generally is limited to the amount of the shareholder’s investment. However, the concept of limited liability is less clear in certain Middle Eastern countries. The Fund therefore may be liable in certain Middle Eastern countries for the acts of a corporation in which it invests for an amount greater than its actual investment in that corporation. Similarly, the rights of investors in Middle Eastern issuers may be more limited than those of shareholders of a U.S. corporation. It may be difficult or impossible to obtain or enforce a legal judgment in a Middle Eastern country. Some Middle Eastern countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the Fund. For example, certain countries may require governmental approval prior to investment by foreign persons or limit the amount of investment by foreign persons in a particular issuer. Certain Middle Eastern countries may also limit the investment by foreign persons to a specific class of securities of an issuer that may have less advantageous terms (including price) than securities of the issuer available for purchase by nationals of the relevant Middle Eastern country. The manner in which foreign investors may invest in issuers in certain Middle Eastern countries, as well as limitations on those investments, may have an adverse impact on the operations of the Fund. For example, in certain of these countries, the Fund may be required to invest initially through a local broker or other entity and then have the shares that were purchased re-registered in the name of the Fund. Re-registration in some instances may not be possible on a timely basis. This may result in a delay during which the Fund may be denied certain of its rights as an investor, including rights as to dividends or to be made aware of certain corporate actions. There also may be instances where the Fund places a purchase order but is subsequently informed, at the time of re-registration, that the permissible allocation of the investment to foreign investors has been filled and, consequently, the Fund may not be able to invest in the relevant company. Substantial limitations may exist in certain Middle Eastern countries with respect to the Fund’s ability to repatriate investment income or capital gains. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investment. Certain Middle Eastern countries may be heavily dependent upon international trade and, consequently, have been and may continue to be negatively affected by trade barriers, exchange controls, managed adjustments in relative |
currency
values and other protectionist measures imposed or negotiated by the
countries with which they trade. These countries also have been and
may
continue to be adversely impacted by economic conditions in the countries
with which they trade. In addition, certain issuers located in Middle
Eastern
countries in which the Fund invests may operate in, or have dealings with,
countries subject to sanctions and/or embargoes imposed by the
U.S.
government and the United Nations, and/or countries identified by the U.S.
government as state sponsors of terrorism. As a result, an issuer
may
sustain damage to its reputation if it is identified as an issuer which
operates in, or has dealings with, such countries. The Fund, as an
investor in such
issuers, will be indirectly subject to those risks. Certain Middle Eastern countries have strained relations with other Middle Eastern countries due to territorial and sovereignty disputes, historical animosities, international alliances, religious tensions or defense concerns, which may periodically become violent and may adversely affect the economies of these countries. Certain Middle Eastern countries experience significant unemployment as well as widespread underemployment. Many Middle Eastern countries periodically have experienced political, economic and social unrest as protestors have called for widespread reform. Some of these protests have resulted in a governmental regime change, internal conflict or civil war. In some instances where pro-democracy movements successfully toppled regimes, the stability of successor regimes has at times proven weak, as evidenced, for example, in Egypt. In other instances, these changes have devolved into armed conflict involving local factions, regional allies or international forces, and even protracted civil wars. If further regime change were to occur, internal conflicts were to intensify, or a civil war were to continue in any of these countries, such instability could adversely affect the economies of these Middle Eastern countries in which the Fund invests and could decrease the value of the Fund’s investments. Middle Eastern economies may be subject to acts of terrorism, political strife, religious, ethnic or socioeconomic unrest, conflict and violence and sudden outbreaks of hostilities with neighboring countries. There has been an increase in recruitment efforts and an aggressive push for territorial control by terrorist groups in the region, which has led to an outbreak of warfare and hostilities. Such hostilities may continue into the future or may escalate at any time due to ethnic, racial, political, religious or ideological tensions between groups in the region or foreign intervention or lack of intervention, among other factors. These developments could adversely affect the Fund. |
■ |
Pacific
Basin Securities.
Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the case in the U.S.
and Western European countries. Such instability may result from, among
other things, (i) authoritarian governments or military involvement in
political
and economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with
demands
for improved political, economic and social conditions; (iii) internal
insurgencies; (iv) hostile relations with neighboring countries; and (v)
ethnic,
religious and racial disaffection. In addition, the Asia-Pacific
geographic region has historically been prone to natural disasters. The
occurrence of
a natural disaster in the region, including the subsequent recovery, could
negatively impact the economy of any country in the region. The
existence
of overburdened infrastructure and obsolete financial systems also
presents risks in certain Asian countries, as do environmental
problems. The economies of most of the Asian countries are heavily dependent on international trade and are accordingly affected by protective trade barriers and the economic conditions of their trading partners, principally, the U.S., Japan, China and the EU. The enactment by the U.S. or other principal trading partners of protectionist trade legislation, reduction of foreign investment in the local economies and general declines in the international securities markets could have a significant adverse effect upon the securities markets of the Asian countries. The economies of certain Asian countries may depend to a significant degree upon only a few industries and/or exports of primary commodities and, therefore, are vulnerable to changes in commodity prices that, in turn, may be affected by a variety of factors. In addition, certain developing Asian countries, such as the Philippines and India, are especially large debtors to commercial banks and foreign governments. Many of the Pacific Basin economies may be intertwined, so an economic downturn in one country may result in, or be accompanied by, an economic downturn in other countries in the region. Furthermore, many of the Pacific Basin economies are characterized by high inflation, underdeveloped financial services sectors, heavy reliance on international trade, frequent currency fluctuations, devaluations, or restrictions, political and social instability, and less efficient markets. The securities markets in Asia are substantially smaller, less liquid and more volatile than the major securities markets in the U.S., and some of the stock exchanges in the region are in the early stages of their development, as compared to the stock exchanges in the U.S. Equity securities of many companies in the region may be less liquid and more volatile than equity securities of U.S. companies of comparable size. Additionally, many companies traded on stock exchanges in the region are smaller and less seasoned than companies whose securities are traded on stock exchanges in the U.S. A high proportion of the shares of many issuers may be held by a limited number of persons and financial institutions, which may limit the number of shares available for investment by the Fund. In some countries, there is no established secondary market for securities. Therefore, liquidity of securities may be generally low and transaction costs generally high. Similarly, volume and liquidity in the bond markets in Asia are less than in the U.S. and, at times, price volatility can be greater than in the U.S. A limited number of issuers in Asian securities markets may represent a disproportionately large percentage of market capitalization and trading value. The limited liquidity of securities markets in Asia may also affect the Fund’s ability to acquire or dispose of securities at the price and time it wishes to do so. In addition, the Asian securities markets are susceptible to being influenced by large investors trading significant blocks of securities. |
The
legal systems in certain developing market Pacific Basin countries also
may have an adverse impact on the Fund. For example, while the potential
liability
of a shareholder in a U.S. corporation with respect to acts of the
corporation is generally limited to the amount of the shareholder’s
investment,
the notion of limited liability is less clear in certain Pacific Basin
countries. Similarly, the rights of investors in Pacific Basin companies
may be
more limited than those of shareholders of U.S. corporations. It may be
difficult or impossible to obtain and/or enforce a judgment in a Pacific
Basin
country. |
Many
stock markets are undergoing a period of growth and change which may
result in trading volatility and difficulties in the settlement and
recording
of transactions, and in interpreting and applying the relevant law and
regulations. With respect to investments in the currencies of Asian
countries,
changes in the value of those currencies against the U.S. dollar will
result in corresponding changes in the U.S. dollar value of the Fund’s
assets
denominated in those currencies. Certain developing economies in the
Asia-Pacific region have experienced currency fluctuations, devaluations,
and restrictions; unstable employment rates; rapid fluctuation in, among
other things, inflation and reliance on exports; and less efficient
markets. Currency fluctuations or devaluations in any one country can have
a significant effect on the entire Asia Pacific region. Holding
securities
in currencies that are devalued (or in companies whose revenues are
substantially in currencies that are devalued) will likely decrease the
value
of the Fund’s investments. Some developing Asian countries prohibit or
impose substantial restrictions on investments in their capital markets,
|
particularly
their equity markets, by foreign entities such as the Fund. For example,
certain countries may require governmental approval prior to investments
by foreign persons or limit the amount of investment by foreign persons in
a particular company or limit the investment by foreign persons
to only a specific class of securities of a company which may have less
advantageous terms (including price and shareholder rights) than
securities
of the company available for purchase by nationals of the relevant
country. There can be no assurance that the Fund will be able to obtain
required
governmental approvals in a timely manner. In addition, changes to
restrictions on foreign ownership of securities subsequent to the Fund’s
purchase
of such securities may have an adverse effect on the value of such shares.
Certain countries may restrict investment opportunities in issuers
or
industries deemed important to national
interests. |
■ |
BDCs.
BDCs are a specialized form of closed-end fund that invest generally in
small developing companies and financially troubled businesses. The
Investment
Company Act imposes certain restraints upon the operation of a BDC. For
example, BDCs are required to invest at least 70% of their total
assets primarily in securities of private companies or thinly traded U.S.
public companies, cash, cash equivalents, U.S. government securities and
high
quality debt investments that mature in one year or less. As a result,
BDCs generally invest in private companies and thinly traded securities of
public
companies, including debt instruments. Generally, little public
information exists for private and thinly traded companies and there is a
risk that
investors may not be able to make fully informed investment decisions.
Many debt investments in which a BDC may invest will not be rated by a
credit
rating agency and will be below investment grade quality. Risks faced by
BDCs include competition for limited BDC investment opportunities;
the
liquidity of a BDC’s private investments; uncertainty as to the value of a
BDC’s private investments; risks associated with access to capital and
leverage;
and reliance on the management of a BDC. The Fund’s investments in BDCs
are similar and include portfolio company risk, leverage risk,
market
and valuation risk, price volatility risk and liquidity risk.
Historically, shares of BDCs have frequently traded at a discount to their
net asset value,
which discounts have, on occasion, been substantial and lasted for
sustained periods of time. |
■ |
ETFs. The
Fund may purchase shares of ETFs. ETFs trade like a common stock and
passive ETFs usually represent a fixed portfolio of securities
designed
to track the performance and dividend yield of a particular domestic or
foreign market index. Typically, the Fund would purchase passive
ETF
shares to obtain exposure to all or a portion of the stock or bond market.
As a shareholder of an ETF, the Fund would be subject to its ratable
share
of the ETF’s expenses, including its advisory and administration expenses.
An investment in an ETF generally presents the same primary risks as
an
investment in a conventional mutual fund (i.e., one that is not exchange
traded) that has the same investment objective, strategies, and policies.
The
price of an ETF can fluctuate within a wide range, and the Fund
could lose money investing in an ETF if the prices of the securities owned
by the ETF
decline in value. In addition, ETFs are subject to the following risks
that do not apply to conventional mutual funds: (1) the market price of
the |
ETF’s
shares may trade at a discount or premium to their NAV per share; (2) an
active trading market for an ETF’s shares may not develop or be
maintained;
or (3) trading of an ETF’s shares may be halted if the listing exchange’s
officials deem such action appropriate, the shares are de-listed
from
the exchange, or the activation of market-wide “circuit breakers” (which
are tied to large decreases in stock prices) halts stock trading
generally. |
■ |
Money
Market Funds. The
Fund can invest free cash balances in registered open-end investment
companies regulated as money market funds under
the Investment Company Act, to provide liquidity or for defensive
purposes. The Fund would invest in money market funds rather
than purchasing
individual short-term investments. Although a money market fund is
designed to be a relatively low risk investment, it is not free of risk.
Despite
the short maturities and high credit quality of a money market fund’s
investments, increases in interest rates and deteriorations in the credit
quality
of the instruments the money market fund has purchased may reduce the
money market fund’s yield and can cause the price of a money market
security to decrease. In addition, a money market fund is subject to the
risk that the value of an investment may be eroded over time by
inflation.
If the liquidity of a money market fund’s portfolio deteriorates below
certain levels, the money market fund may suspend redemptions (i.e.,
impose
a redemption gate) and thereby prevent the Fund from selling its
investment in the money market fund, or impose a fee of up to 2% on
amounts
redeemed from the money market fund. |
1 | Engage in dollar rolls or purchase or sell securities on a when-issued or forward commitment basis. The purchase or sale of when-issued securities enables an investor to hedge against anticipated changes in interest rates and prices by locking in an attractive price or yield. The price of |
when-issued securities is fixed at the time the commitment to purchase or sell is made, but delivery and payment for the when-issued securities takes place at a later date, normally one to two months after the date of purchase. During the period between purchase and settlement, no payment is made by the purchaser to the issuer and no interest accrues to the purchaser. Such transactions therefore involve a risk of loss if the value of the security to be purchased declines prior to the settlement date or if the value of the security to be sold increases prior to the settlement date. A sale of a when-issued security also involves the risk that the other party will be unable to settle the transaction. Dollar rolls are a type of forward commitment transaction. Purchases and sales of securities on a forward commitment basis involve a commitment to purchase or sell securities with payment and delivery to take place at some future date, normally one to two months after the date of the transaction. As with when-issued securities, these transactions involve certain risks, but they also enable an investor to hedge against anticipated changes in interest rates and prices. Forward commitment transactions are executed for existing obligations, whereas in a when-issued transaction, the obligations have not yet been issued. |
2 | Invest in other investment companies (including affiliated investment companies) to the extent permitted by the Investment Company Act, or exemptive relief granted by the SEC. |
3 | Loan securities to broker-dealers or other institutional investors. Securities loans will not be made if, as a result, the aggregate amount of all outstanding securities loans by the Fund exceeds 33¹/3% of its total assets (including the market value of collateral received). For purposes of complying with the Fund’s investment policies and restrictions, collateral received in connection with securities loans is deemed an asset of the Fund to the extent required by law. |
4 | Enter into repurchase agreements. A repurchase agreement is an agreement under which securities are acquired by the Fund from a securities dealer or bank subject to resale at an agreed upon price on a later date. The acquiring Fund bears a risk of loss in the event that the other party to a repurchase agreement defaults on its obligations and the Fund is delayed or prevented from exercising its rights to dispose of the collateral securities. However, the Manager or the sub-advisor, as applicable, attempts to minimize this risk by entering into repurchase agreements only with financial institutions that are deemed to be of good financial standing. |
5 | Purchase securities sold in private placement offerings made in reliance on the “private placement” exemption from registration afforded by Section 4(a)(2) of the Securities Act and resold to qualified institutional buyers under Rule 144A under the Securities Act. The Fund will not invest more than 15% of its net assets in Section 4(a)(2) securities and illiquid securities unless the Manager or the sub-advisor, as applicable, determines that any Section 4(a)(2) securities held by the Fund in excess of this level are liquid. |
1 | Purchase or sell real estate or real estate limited partnership interests, provided, however, that the Fund may invest in securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein when consistent with the other policies and limitations described in the Fund’s Prospectus. |
2 | Invest in physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling foreign currency, options, futures contracts, options on futures contracts, forward contracts, swaps, caps, floors, collars, securities on a forward-commitment or delayed-delivery basis, and other similar financial instruments). |
3 | Engage in the business of underwriting securities issued by others, except to the extent that, in connection with the disposition of securities, the Fund may be deemed an underwriter under federal securities law. |
4 | Lend any security or make any other loan except (i) as otherwise permitted under the Investment Company Act, (ii) pursuant to a rule, order or interpretation issued by the SEC or its staff, (iii) through the purchase of a portion of an issue of debt securities in accordance with the Fund’s investment objective, policies and limitations, or (iv) by engaging in repurchase agreements with respect to portfolio securities. |
5 | Issue any senior security except as otherwise permitted (i) under the Investment Company Act or (ii) pursuant to a rule, order or interpretation issued by the SEC or its staff. |
6 | Borrow money, except as otherwise permitted under the Investment Company Act or pursuant to a rule, order or interpretation issued by the SEC or its staff, including (i) as a temporary measure, (ii) by entering into reverse repurchase agreements, and (iii) by lending portfolio securities as collateral. For purposes of this investment limitation, the purchase or sale of options, futures contracts, options on futures contracts, forward contracts, swaps, caps, floors, collars and other similar financial instruments shall not constitute borrowing. |
7 | Invest more than 5% of its total assets (taken at market value) in securities of any one issuer, other than obligations issued by the U.S. Government, its agencies and instrumentalities, or purchase more than 10% of the voting securities of any one issuer, with respect to 75% of the Fund’s total assets. |
8 | Invest more than 25% of its assets in the securities of companies primarily engaged in any particular industry or group of industries provided that this limitation does not apply to: (i) obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities; and (ii) tax-exempt securities issued by municipalities and their agencies and authorities. |
1 | Invest more than 15% of its net assets in illiquid securities, including time deposits and repurchase agreements that mature in more than seven days; or |
2 | Purchase securities on margin or effect short sales, except that the Fund may obtain such short-term credits as may be necessary for the clearance of purchases or sales of securities. |
1 | a complete list of holdings for the Fund on an annual and semi-annual basis in the reports to shareholders within sixty days of the end of each fiscal semi-annual period and in publicly available filings of Form N-CSR with the SEC within ten days thereafter (available on the SEC’s website at www.sec.gov); |
2 | a complete list of holdings for the Fund as of the end of each fiscal quarter in publicly available filings of Form N-PORT with the SEC within sixty days of the end of the fiscal quarter (available on the SEC’s website at www.sec.gov); |
3 | a complete list of holdings for the Fund as of the end of each calendar quarter on the Fund’s website (www.americanbeaconfunds.com) approximately sixty days after the end of the calendar quarter; and |
4 | ten largest holdings for the Fund as of the end of each calendar quarter on the Fund’s website (www.americanbeaconfunds.com) and in sales materials approximately fifteen days after the end of the calendar quarter. |
Service
Provider |
Service |
Holdings
Access |
Manager |
Investment
management and administrator |
Complete
list on intraday basis with no lag |
Sub-Advisor |
Investment
management |
Holdings
under sub-advisor’s management on intraday
basis with no lag |
State
Street Bank and Trust Co. (“State Street”) and
its designated foreign sub-custodians |
Securities
lending agent for Funds that participate
in securities lending, Fund’s custodian and
foreign custody manager, and foreign sub-custodians |
Complete
list on intraday basis with no lag |
Chicago
Clearing |
Class
Action Services to sub-advisor |
Complete
list quarterly with no lag |
PricewaterhouseCoopers
LLP |
Fund’s
independent registered public accounting firm |
Complete
list on annual basis with no lag |
FactSet
Research Systems, Inc. |
Performance
and portfolio analytics reporting for the
Manager and sub-advisor |
Complete
list on daily basis with no lag |
KPMG
International |
Service
provider to State Street |
Complete
list on annual basis with lag |
Institutional
Shareholder Services Inc. |
Proxy
voting research provider to sub-advisor |
Complete
list on daily basis with no lag |
The
Northern Trust Company |
Service
provider to the sub-advisor |
Complete
list on a daily basis with no lag |
1 | Recipients of portfolio holdings information must agree in writing to keep the information confidential until it has been posted to the Fund’s website and not to trade based on the information; |
2 | Holdings may only be disclosed as of a month-end date; |
3 | No compensation may be paid to the Fund, the Manager or any other party in connection with the disclosure of information about portfolio securities; and |
4 | A member of the Manager’s Compliance staff must approve requests for nonpublic holdings information. |
Name
and Year of
Birth*
|
Position
and Length
of Time Served
on the American
Beacon Funds
and American
Beacon Select
Funds |
Position
and Length
of Time Served
on the American
Beacon Institutional
Funds
Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
INTERESTED
TRUSTEE |
|||
Eugene
J. Duffy (1954)** |
Trustee
since 2008 |
Trustee
since 2017 |
Managing
Director, Global Investment Management Distribution, Mesirow Financial
Administrative
Corporation (2016-Present); Managing Director, Institutional Services,
Intercontinental
Real Estate Corporation (2014-2016); Trustee, American Beacon Sound
Point
Enhanced Income Fund (2018-2021); Trustee, American Beacon Apollo Total
Return Fund
(2018-2021). |
NON-INTERESTED
TRUSTEES |
|||
Gilbert
G. Alvarado (1969) |
Trustee
since 2015 |
Trustee
since 2017 |
Chief
Financial Officer, The Conrad Prebys Foundation (2022-Present); President,
SJVIIF, LLC, Impact
Investment Fund (2018-2022); Director, Kura MD, Inc. (local telehealth
organization) (2015-2017);
Senior Vice President/CFO, Sierra Health Foundation (health conversion
private
foundation) (2006-2022); Senior Vice President/CFO, Sierra Health
Foundation: Center
for Health Program Management (California public benefit corporation)
(2012-2022);
Director, Sacramento Regional Technology Alliance (2011-2016); Director,
Valley
Healthcare Staffing (2017–2018); Trustee, American Beacon Sound Point
Enhanced Income
Fund (2018-2021); Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
Joseph
B. Armes (1962) |
Trustee
since 2015 |
Trustee
since 2017 |
Director,
Switchback Energy Acquisition (2019-2021); Chairman & CEO, CSW
Industrials f/k/a
Capital Southwest Corporation (investment company) (2015-Present);
Chairman of the Board
of Capital Southwest Corporation, predecessor to CSW Industrials, Inc.
(investment company)
(2014-2017); President & CEO, JBA Investment Partners (family
investment vehicle)
(2010-Present); Director and Chair of Audit Committee, RSP Permian (oil
and gas producer)
(2013-2018); Trustee, American Beacon Sound Point Enhanced Income Fund
(2018-2021);
Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
Gerard
J. Arpey (1958) |
Trustee
since 2012 |
Trustee
since 2017 |
Partner,
Emerald Creek Group (private equity firm) (2011-Present); Director, S.C.
Johnson & Son,
Inc. (privately held company) (2008-Present); Director, The Home Depot,
Inc. (NYSE: HD)
(2015-Present); Trustee, American Beacon Sound Point Enhanced Income Fund
(2018-2021);
Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
Brenda
A. Cline (1960) |
Chair
since 2019
Vice
Chair 2018
Trustee
since 2004 |
Chair
since 2019
Vice
Chair 2018
Trustee
since 2017 |
Chief
Financial Officer, Treasurer and Secretary, Kimbell Art Foundation
(1993-Present); Director,
Tyler Technologies, Inc. (public sector software solutions company)
(2014-Present); Director,
Range Resources Corporation (oil and natural gas company) (2015-Present);
Trustee,
Cushing Closed-End (2) and Open-End Funds (3) (2017-2021); Chair, American
Beacon
Sound Point Enhanced Income Fund (2019-2021), Vice Chair (2018), Trustee
(2018-2021);
Chair, American Beacon Apollo Total Return Fund (2019-2021), Vice Chair
(2018),
Trustee (2018-2021). |
Claudia
A. Holz (1957) |
Trustee
since 2018 |
Trustee
since 2018 |
Independent
Director, Blue Owl Capital Inc. (2021-Present); Partner, KPMG LLP
(1990-2017);
Trustee, American Beacon Sound Point Enhanced Income Fund (2018-2021);
Trustee,
American Beacon Apollo Total Return Fund (2018-2021). |
Douglas
A. Lindgren (1961) |
Trustee
since 2018 |
Trustee
since 2018 |
Director,
JLL Income Property Trust (2022-Present); CEO North America, Carne Global
Financial
Services (2016-2017); Consultant, Carne Financial Services (2017-2019);
Managing
Director, IPS Investment Management and Global Head, Content Management,
UBS
Wealth Management (2010-2016); Trustee, American Beacon Sound Point
Enhanced Income
Fund (2018-2021); Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
Name
and Year of
Birth* |
Position
and Length
of Time Served
on the American
Beacon Funds
and American
Beacon Select
Funds |
Position
and Length
of Time Served
on the American
Beacon Institutional
Funds
Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
Barbara
J. McKenna (1963) |
Trustee
since 2012 |
Trustee
since 2017 |
President/Managing
Principal, Longfellow Investment Management Company (2005-Present,
President since 2009); Member, External Diversity Council of the Federal
Reserve
Bank of Boston (2021-Present); Member, Federal Reserve Bank of Boston CEO
Roundtable
(2021-Present); Board Advisor, United States Tennis Association
(2021-Present); Trustee,
American Beacon Sound Point Enhanced Income Fund (2018-2021); Trustee,
American
Beacon Apollo Total Return Fund
(2018-2021). |
* | The Board has adopted a retirement policy that requires Trustees to retire no later than the last day of the calendar year in which they reach the age of 75. |
** | Mr. Duffy is deemed to be an “interested person” of the Trust, as defined by the Investment Company Act of 1940, as amended, by virtue of his position with Mesirow |
Financial, Inc., a broker-dealer. |
INTERESTED
TRUSTEE | |
American
Beacon Fund |
Duffy |
Aggregate
Dollar Range of Equity Securities in all
Trusts (27 Funds as of December 31, 2023) |
Over
$100,000 |
NON-INTERESTED
TRUSTEES | |||||||
American
Beacon Fund |
Alvarado |
Armes |
Arpey |
Cline |
Holz |
Lindgren |
McKenna |
Aggregate
Dollar Range of Equity Securities in all
Trusts (27 Funds as of December 31, 2023) |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
The
following table shows total compensation (excluding reimbursements) paid
by the Trusts to each Trustee for the fiscal year ended October 31,
2023. | ||
Name
of Trustee |
Aggregate
Compensation from the Trust |
Total
Compensation from the Trusts |
INTERESTED
TRUSTEE |
||
Eugene
J. Duffy |
$189,994 |
$201,000 |
NON-INTERESTED
TRUSTEES |
||
Gilbert
G. Alvarado |
$209,135 |
$221,250 |
Joseph
B. Armes |
$202,282 |
$214,000 |
Gerard
J. Arpey |
$201,337 |
$213,000 |
Brenda
A. Cline1
|
$250,490 |
$265,000 |
Claudia
A. Holz |
$218,115 |
$230,750 |
Douglas
A. Lindgren |
$218,115 |
$230,750 |
Barbara
J. McKenna |
$209,135 |
$221,250 |
1 | Upon her retirement from the Board, Ms. Cline is eligible for flight benefits afforded to Eligible Trustees who served on the Boards prior to September 12, 2008 as described below. |
Name
and Year of
Birth |
Position
and Length
of Time Served
on the American
Beacon Funds
and American
Beacon Select
Funds |
Position
and Length
of Time Served
on the American
Beacon Institutional
Funds
Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
OFFICERS |
|||
Jeffrey
K. Ringdahl (1975) |
President
since April 2022 Vice
President 2010-2022 |
President
since April 2022 Vice
President 2017-2022 |
Director
(2015-Present), President (2018-Present), Chief Executive Officer
(2022-Present), Chief
Operating Officer (2010-2022), American Beacon Advisors, Inc.; Director
(2015-Present),
President (2018-Present), Resolute Investment Holdings, LLC; Director
(2015-Present),
President (2018-Present), Resolute Topco, Inc.; Director
(2015-Present), President
(2018-Present), Resolute Acquisition, Inc.; Director (2015-Present),
President (2018-Present),
Chief Executive Officer (2022-Present), Chief Operating Officer
(2018-2022),
Resolute Investment Managers, Inc.; Director (2017-Present), President and
Chief
Executive Officer (2022-Present), Executive Vice President (2017-2022),
Resolute Investment
Distributors, Inc.; Director (2017-Present), President (2018-Present),
Chief Executive
Officer (2022-Present), Chief Operating Officer (2018-2022), Resolute
Investment Services,
Inc.; President (2022-Present), Senior Vice President (2017-2022), Manager
(2015-Present),
American Private Equity Management, L.L.C.; Trustee, American Beacon
NextShares
Trust (2015-2020); Director and Executive Vice President & Chief
Operating Officer,
Alpha Quant Advisors, LLC (2016-2020); Director, Shapiro Capital
Management, LLC
(2017-Present); Director and Executive Vice President, Continuous Capital,
LLC (2018-2022);
Director, RSW Investments Holdings, LLC (2019-Present); Manager, SSI
Investment
Management, LLC (2019-Present); Director, National Investment Services of
America,
LLC (2019-Present); Director (2014-Present), President (2022-Present) and
Vice President
(2014-2022), American Beacon Cayman Managed Futures Strategy Fund, Ltd.;
Director
(2018-Present) and, President (2022-Present), Vice President (2018-2022),
American
Beacon Cayman TargetRisk Company, Ltd.; Director and President,
American Beacon
Cayman Multi-Alternatives Company, Ltd. (2023-Present); Director and
President, American
Beacon Cayman Trend Company, Ltd. (2023-Present); Vice President, American
Beacon
Sound Point Enhanced Income Fund (2018-2021); Vice President, American
Beacon Apollo
Total Return Fund (2018-2021). |
Rosemary
K. Behan (1959) |
Vice
President, Secretary
and Chief
Legal Officer since 2006 |
Vice
President, Secretary
and Chief
Legal Officer since 2017 |
Senior
Vice President (2021-Present), Vice President (2006-2021), Secretary and
General Counsel
(2006-Present), American Beacon Advisors, Inc.; Secretary, Resolute
Investment Holdings,
LLC (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present);
Secretary, Resolute
Acquisition, Inc. (2015-Present); Senior Vice President (2021-Present),
Vice President
(2015-2021), Secretary and General Counsel (2015-Present), Resolute
Investment Managers,
Inc.; Secretary, Resolute Investment Distributors, Inc. (2017-Present);
Senior Vice President
(2021-Present), Vice President (2017-2021), Secretary and General Counsel
(2017-Present),
Resolute Investment Services, Inc.; Secretary, American Private Equity
Management,
LLC (2008-Present); Secretary and General Counsel, Alpha Quant Advisors,
LLC
(2016-2020); Vice President and Secretary, Continuous Capital, LLC
(2018-2022); Secretary,
Green Harvest Asset Management, LLC (2019-2021); Secretary,
American Beacon
Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Secretary,
American Beacon
Cayman TargetRisk Company, Ltd (2018-Present); Secretary, American Beacon
Cayman
Multi-Alternatives Company, Ltd. (2023-Present); Secretary, American
Beacon Cayman
Trend Company, Ltd. (2023-Present); Vice President, Secretary, and Chief
Legal Officer,
American Beacon Sound Point Enhanced Income Fund (2018-2021); Vice
President, Secretary,
and Chief Legal Officer, American Beacon Apollo Total Return Fund
(2018-2021). |
Paul
B. Cavazos (1969) |
Vice
President since 2016 |
Vice
President since 2017 |
Chief
Investment Officer and Senior Vice President, American Beacon Advisors,
Inc. (2016-Present);
Vice President, American Private Equity Management, L.L.C. (2017-Present);
Vice
President, American Beacon Sound Point Enhanced Income Fund (2018-2021);
Vice President,
American Beacon Apollo Total Return Fund (2018-2021). |
Erica
B. Duncan (1970) |
Vice
President since 2011 |
Vice
President since 2017 |
Vice
President, American Beacon Advisors, Inc. (2011-Present); Vice President,
Resolute Investment
Managers, Inc. (2018-Present); Vice President, Resolute Investment
Services, Inc. (2018-Present);
Vice President, American Beacon Sound Point Enhanced Income Fund
(2018-2021);
Vice President, American Beacon Apollo Total Return Fund
(2018-2021). |
Name
and Year of
Birth |
Position
and Length
of Time Served
on the American
Beacon Funds
and American
Beacon Select
Funds |
Position
and Length
of Time Served
on the American
Beacon Institutional
Funds
Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
Rebecca
L. Harris (1966) |
Vice
President Since 2022 |
Vice
President Since 2022 |
Senior
Vice President (2021-Present), Vice President (2011-2021), American Beacon
Advisors,
Inc.; Senior Vice President (2021-Present), Vice President (2017-2021),
Resolute Investment
Managers, Inc.; Senior Vice President (2021-Present), Vice President
(2017-2021),
Resolute Investment Services, Inc.; Vice President, Alpha Quant Advisors,
LLC (2016-2020);
Vice President (2018-2022), Director (2022) Continuous Capital, LLC;
Director (2022-Present)
National Investment Services of America, LLC; Director (2022-Present) RSW
Investments
Holdings LLC; Director (2022-Present) Shapiro Capital Management LLC;
Director
(2022-Present) SSI Investment Management LLC; Assistant Secretary,
American Beacon
Sound Point Enhanced Income Fund (2018-2021); Assistant Secretary,
American Beacon
Apollo Total Return Fund (2018-2021); Assistant Secretary, American Beacon
Funds (2010
– 2022); Assistant Secretary, American Beacon Select Funds (2010 – 2022);
Assistant Secretary,
American Beacon Institutional Funds Trust (2017 –
2022). |
Terri
L. McKinney (1963) |
Vice
President since 2010 |
Vice
President since 2017 |
Senior
Vice President, (2021-Present) Vice President, (2009-2021), American
Beacon Advisors,
Inc.; Senior Vice President (2021-Present), Vice President (2017-2021),
Resolute Investment
Managers, Inc.; Senior Vice President (2021-Present), Vice President
(2018-2021),
Resolute Investment Services, Inc.; Vice President, Alpha Quant Advisors,
LLC (2016-2020);
Vice President, Continuous Capital, LLC (2018-2022); Vice President,
American
Beacon Sound Point Enhanced Income Fund (2018-2021); Vice President,
American
Beacon Apollo Total Return Fund (2018-2021). |
Samuel
J. Silver (1963) |
Vice
President since 2011 |
Vice
President since 2017 |
Vice
President (2011-Present), Chief Fixed Income Officer (2016-Present),
American Beacon Advisors,
Inc.; Vice President, American Beacon Sound Point Enhanced Income Fund
(2018-2021);
Vice President, American Beacon Apollo Total Return Fund
(2018-2021). |
Melinda
G. Heika (1961) |
Vice
President since 2021 |
Vice
President since 2021 |
Senior
Vice President (2021-Present), Treasurer and CFO (2010-Present), American
Beacon Advisors,
Inc.; Treasurer, Resolute Topco, Inc. (2015-Present); Treasurer, Resolute
Investment Holdings,
LLC (2015-Present); Treasurer, Resolute Acquisition, Inc. (2015-Present);
Senior Vice
President (2021-Present), Treasurer and CFO (2017-Present), Resolute
Investment Managers,
Inc.; Senior Vice President (2021-Present), Treasurer and CFO
(2017-Present), Resolute
Investment Services, Inc.; Treasurer, American Private Equity Management,
L.L.C. (2012-Present);
Treasurer and CFO, Alpha Quant Advisors, LLC (2016-2020); Treasurer,
Continuous
Capital, LLC (2018-2022); Director (2014-Present), Vice President
(2022-Present)
and Treasurer (2014-2022), American Beacon Cayman Managed Futures
Strategy
Fund, Ltd.; Director and Vice President (2022-Present), and Treasurer
(2018-2022), American
Beacon Cayman TargetRisk Company, Ltd.; Director and Vice President,
American Beacon
Cayman Multi-Alternatives Company, Ltd. (2023-Present); Director and Vice
President,
American Beacon Cayman Trend Company, Ltd. (2023-Present); Principal
Accounting
Officer and Treasurer, American Beacon Funds (2010-2021); Principal
Accounting
Officer and Treasurer, American Beacon Select Funds (2010-2021); Principal
Accounting
Officer and Treasurer, American Beacon Institutional Funds Trust
(2017-2021); Principal
Accounting Officer and Treasurer (2018-2021), Vice President (2021),
American Beacon
Sound Point Enhanced Income Fund; Principal Accounting Officer and
Treasurer (2018-2021),
Vice President (2021), American Beacon Apollo Total Return Fund
(2018-2021). |
Gregory
Stumm (1981) |
Vice
President since 2022 |
Vice
President since 2022 |
Senior
Vice President, American Beacon Advisors, Inc. (2022-Present); Senior Vice
President, Resolute
Investment Managers, Inc. (2022-Present); Senior Vice
President, Resolute Investment
Services, Inc. (2022-Present); Director and Senior Vice President,
Resolute Investment
Distributors, Inc. (2022-Present). |
Sonia
L. Bates (1956) |
Principal
Accounting
Officer
and Treasurer since 2021 |
Principal
Accounting
Officer
and Treasurer since 2021 |
Assistant
Treasurer, American Beacon Advisors, Inc. (2023-Present); Vice President,
Fund and Tax
Reporting (2023-Present), Director, Fund and Tax Reporting (2011-2023),
Resolute Investment
Services, Inc; Assistant Treasurer, American Private Equity Management,
L.L.C. (2012-Present);
Treasurer, American Beacon Cayman Managed Futures Strategy Fund, Ltd.
(2022-Present);
Treasurer (2022-Present) and Assistant Treasurer (2018-2022), American
Beacon
Cayman TargetRisk Company, Ltd.; Treasurer, American Beacon Cayman
Multi-Alternatives
Company, Ltd. (2023-Present); Treasurer, American Beacon Cayman
Trend
Company, Ltd. (2023-Present); Assistant Treasurer (2018-2021), Principal
Accounting Officer
and Treasurer (2021), American Beacon Sound Point Enhanced Income Fund;
Assistant
Treasurer (2019-2021), Principal Accounting Officer and Treasurer (2021),
American
Beacon Apollo Total Return Fund; Assistant Treasurer, American Beacon
Funds (2011-2021);
Assistant Treasurer, American Beacon Select Funds (2011-2021); Assistant
Treasurer,
American Beacon Institutional Funds Trust
(2017-2021). |
Name
and Year of
Birth |
Position
and Length
of Time Served
on the American
Beacon Funds
and American
Beacon Select
Funds |
Position
and Length
of Time Served
on the American
Beacon Institutional
Funds
Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
Christina
E. Sears (1971) |
Chief
Compliance
Officer since 2004 Assistant Secretary since 1999 |
Chief
Compliance
Officer
and Assistant
Secretary since 2017 |
Chief
Compliance Officer (2004-Present), Vice President (2019-Present), American
Beacon Advisors,
Inc.; Vice President, Resolute Investment Managers, Inc. (2017-Present);
Vice President,
Resolute Investment Distributors, Inc. (2017-Present); Vice President,
Resolute Investment
Services, Inc. (2019-Present); Chief Compliance Officer, American Private
Equity Management,
LLC (2012-Present); Chief Compliance Officer, Green Harvest Asset
Management,
LLC (2019-2021); Chief Compliance Officer, RSW Investments Holdings, LLC
(2019-Present);
Chief Compliance Officer (2016-2019), Vice President (2016-2020), Alpha
Quant
Advisors, LLC; Chief Compliance Officer (2018-2019), Vice President
(2018-2022), Continuous
Capital, LLC.; Chief Compliance Officer and Assistant Secretary, American
Beacon
Sound Point Enhanced Income Fund (2018-2021); Chief Compliance Officer and
Assistant
Secretary, American Beacon Apollo Total Return Fund
(2018-2021). |
Shelley
L. Dyson (1969) |
Assistant
Treasurer since 2021 |
Assistant
Treasurer since 2021 |
Director
Fund Tax (2024-Present), Fund Tax Manager (2020-2024), Manager, Tax
(2014-2020),
Resolute Investment Services, Inc.; Assistant Treasurer, American Beacon
Cayman
Managed Futures Strategy Fund, Ltd. (2022-Present); Assistant Treasurer,
American Beacon
Cayman TargetRisk Company, Ltd (2022-Present); Assistant Treasurer,
American Beacon
Cayman Multi-Alternatives Company, Ltd. (2023-Present); Assistant
Treasurer, American
Beacon Cayman Trend Company, Ltd. (2023-Present); Assistant Treasurer,
American
Beacon Sound Point Enhanced Income Fund (2021); Assistant Treasurer,
American Beacon
Apollo Total Return Fund (2021). |
Shelley
D. Abrahams (1974) |
Assistant
Secretary since 2008 |
Assistant
Secretary since 2017 |
Corporate
Governance Manager (2023-Present), Senior Corporate Governance &
Regulatory
Specialist (2020-2023), Corporate Governance & Regulatory Specialist
(2017-2020),
Resolute Investment Services, Inc.; Assistant Secretary, American Beacon
Cayman
Managed Futures Strategy Fund, Ltd. (2022-Present); Assistant Secretary,
American Beacon
Cayman TargetRisk Company, Ltd (2022-Present); Assistant Secretary,
American Beacon
Cayman Multi-Alternatives Company, Ltd. (2023-Present); Assistant
Secretary, American
Beacon Cayman Trend Company, Ltd. (2023-Present); Assistant Secretary,
American
Beacon Sound Point Enhanced Income Fund (2018-2021); Assistant Secretary,
American
Beacon Apollo Total Return Fund (2018-2021). |
Teresa
A. Oxford (1958) |
Assistant
Secretary since 2015 |
Assistant
Secretary since 2017 |
Deputy
General Counsel (2024-Present), Assistant Secretary (2015-Present),
Associate General
Counsel (2015-2024), American Beacon Advisors, Inc.; Assistant Secretary
(2018-2021),
Resolute Investment Distributors, Inc.; Deputy General Counsel
(2024-Present),
Assistant Secretary (2017-Present), Associate General Counsel (2017-2024),
Resolute
Investment Managers, Inc.; Deputy General Counsel (2024-Present),
Assistant Secretary
(2018-Present), Associate General Counsel (2018-2024), Resolute Investment
Services,
Inc.; Assistant Secretary (2016-2020), Alpha Quant Advisors, LLC;
Assistant Secretary
(2020-2022), Continuous Capital, LLC.; Assistant Secretary, American
Beacon Sound
Point Enhanced Income Fund (2018-2021); Assistant Secretary, American
Beacon Apollo
Total Return Fund (2018-2021). |
Shareholder
Address |
Fund
Percentage (listed
if over 25%) |
Y
CLASS |
R5
CLASS |
Investor
CLASS |
AMERICAN
ENTERPRISE INV SVCS*
|
16.42% |
|||
707
2ND AVE S |
||||
MINNEAPOLIS
MN 55402-2405 |
||||
CHARLES
SCHWAB & CO INC* |
8.91% |
21.85% | ||
SPECIAL
CUST A/C |
||||
EXCLUSIVE
BENEFIT OF CUSTOMERS |
||||
ATTN
MUTUAL FUNDS |
||||
211
MAIN ST |
||||
SAN
FRANCISCO CA 94105-1901 |
||||
MERRILL
LYNCH PIERCE FENNER &* |
25.91% |
|||
SMITH
INC (HOUSE ACCOUNT) |
||||
THE
AMERICAN BEACON FUNDS |
||||
4800
DEER LAKE DR EAST |
||||
JACKSONVILLE
FL 32246-6484 |
||||
MORGAN
STANLEY SMITH BARNEY LLC* |
9.60% | |||
FOR
THE EXCLUSIVE BENE OF ITS CUST |
||||
1
NEW YORK PLZ FL 12 |
||||
NEW
YORK NY 10004-1965 |
||||
NATIONAL
FINANCIAL SERVICES LLC* |
28.80% |
24.33% |
36.62% | |
FOR
EXCLUSIVE BENEFIT OF |
||||
OUR
CUSTOMERS |
||||
ATTN
MUTUAL FUNDS DEPT 4TH FLOOR |
||||
499
WASHINGTON BLVD |
||||
JERSEY
CITY NJ 07310-1995 |
||||
PERSHING
LLC* |
16.25% |
6.18% | ||
1
PERSHING PLZ |
||||
JERSEY
CITY NJ 07399-0001 |
||||
FIRST
STATE TRUST COMPANY FBO NBT 3 |
7.92% | |||
2
RIGHTER PARKWAY |
||||
WILMINGTON
DE 19803-1532 |
||||
RELIANCE
TRUST CO FBO |
6.31% |
|||
COMERICA
EB R/R |
||||
PO
BOX 570788 |
||||
ATLANTA
GA 30357-3114 |
||||
UMB
AS CUSTODIAN FOR E-VALUATOR |
8.79% |
|||
928
GRAND BOULEVARD |
||||
10TH
FLOOR |
||||
MAIL
STOP 1011001 |
||||
KANSAS
CITY MO 64106-2008 |
* | Denotes record owner of Fund shares only |
EAM
Global Investors LLC (“EAM”) | ||
Controlling
Person/Entity |
Basis
of Control |
Nature
of Controlling Person/Entity Business |
Travis
T. Prentice |
EAM
Employee/Owner |
Managing
Director of the Board of Managers, CEO |
Montie
L. Weisenberger |
EAM
Employee/Owner |
Director
on the Board of Managers |
Frank
P. Hurst |
EAM
Employee/Owner |
Director
on the Board of Managers, President |
Byron
Roth |
Owner |
Director
on the Board of Managers |
Gordon
Roth |
Director |
Director
on the Board of Managers |
Derek
J. Gaertner |
Officer |
Chief
Operating Officer |
EAM
Investors, LLC |
Direct
Majority Owner |
Financial
Services |
WACO
Limited, LLC |
Indirect
Majority Owner |
Financial
Services |
CR
Financial Holdings, Inc. |
Parent
Company |
Financial
Services |
Controlling
Person/Entity |
Basis
of Control |
Nature
of Controlling Person/Entity’s Business |
Resolute
Topco, Inc. |
Parent
Company |
Holding
Company – Founded in 2015 |
First
$5 billion |
0.35% |
Next
$5 billion |
0.325% |
Next
$10 billion |
0.30% |
Over
$20 billion |
0.275% |
■ |
complying
with reporting requirements; |
■ |
corresponding
with shareholders; |
■ |
maintaining
internal bookkeeping, accounting and auditing services and
records; |
■ |
supervising
the provision of services to the Trust by third parties;
and |
■ |
administering
the Fund’s
interfund
lending facility and lines of credit, if
applicable. |
Management
Fees Paid to American Beacon Advisors, Inc. (Gross) |
|||
Fund |
2021 |
2022 |
2023 |
American
Beacon EAM International Small Cap Fund |
$1,382,514 |
$951,334 |
$578,819 |
Sub-Advisor
Fees (Gross) |
|||
2021 |
2022 |
2023 | |
American
Beacon EAM International Small Cap Fund |
$1,496,658 |
$1,078,047 |
$649,238 |
0.40% |
0.40% |
0.40% |
Management
Fees (Waived)/Recouped |
|||
2021 |
2022 |
2023 | |
American
Beacon EAM International Small Cap Fund |
$0 |
$0 |
($19,760) |
Sub-Advisor
Fees (Waived) |
|||
2021 |
2022 |
2023 | |
American
Beacon EAM International Small Cap Fund |
$0 |
$0 |
$0 |
Service
Plan Fees |
|||
2021 |
2022 |
2023 | |
Investor
Class |
$699,268 |
$391,337 |
$206,196 |
Securities
Lending Fees |
2021 |
2022 |
2023 |
$72,989 |
$5,208 |
$10,846 |
American
Beacon
EAM International
Small
Cap Fund | |
Gross
income earned by the fund from securities lending
activities |
$160,596 |
Fees
and/or compensation paid by the fund for securities lending activities and
related services: |
|
Fees
paid to securities lending agent from a revenue split |
$10,846 |
Fees
paid for any cash collateral management service (including fees deducted
from a pooled cash collateral reinvestment vehicle) that
are not included in the revenue split |
$1,527 |
Administrative
fees not included in revenue split |
$0 |
Indemnification
fee not included in revenue split |
$0 |
Rebate
(paid to borrower) |
$51,562 |
Other
fees not included in revenue split (administrative and oversight functions
provided by the Manager) |
$10,846 |
Aggregate
fees/compensation paid by the fund for securities lending
activities |
$74,781 |
Net
income from securities lending activities |
$85,815 |
Number
of Other Accounts Managed and Assets by Account
Type |
Number
of Accounts and Assets for Which Advisory Fee is Performance-Based | |||||
Name
of Investment Advisor and
Portfolio Managers |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
EAM
Global Investors LLC (“EAM”) | ||||||
Josh
Moss |
None |
3
($337 mil) |
9
($313 mil) |
None |
None |
None |
John
Scripp |
None |
3
($337 mil) |
9
($313 mil) |
None |
None |
None |
Travis
Prentice*
|
5
($282.5 mil) |
8
($1.1 bil) |
17
($723.5 mil) |
None |
None |
None |
* | As of December 31, 2023. |
Name
of Investment Advisor and Portfolio Managers |
American
Beacon EAM
International
Small
Cap Fund |
EAM
Global Investors LLC | |
Josh
Moss |
None |
John
Scripp |
$100-001-$500,000 |
Travis
Prentice*
|
None |
* | As of December 31, 2023. |
American
Beacon Fund |
Amounts
Directed |
Amounts
Paid in Commissions |
American
Beacon EAM International Small Cap Fund |
$0 |
$0 |
American
Beacon Fund |
2021 |
2022 |
2023 |
American
Beacon EAM International Small Cap Fund |
$428,404 |
$279,541 |
$539,122 |
■ |
Derive
at least 90% of its gross income each taxable year from (1) dividends,
interest, payments with respect to securities loans and gains from the
sale
or other disposition of securities or foreign currencies (together with
Qualifying Other Income (as defined below), “Qualifying Income”), or other
income,
including gains from options, futures or forward contracts, derived with
respect to its business of investing in securities or those currencies
(“Qualifying
Other Income”) and (2) net income derived from an interest in a “qualified
publicly traded partnership” (“QPTP”) (“Gross Income Requirement”).
A QPTP is a “publicly traded partnership” (that is, a partnership the
interests in which are “traded on an established securities market”
or “readily tradable on a secondary market (or the substantial equivalent
thereof”) (a “PTP”)) that meets certain qualifying income requirements
other than a partnership at least 90% of the gross income of which is
Qualifying Income; |
■ |
Diversify
its investments so that, at the close of each quarter of its taxable year,
(1) at least 50% of the value of its total assets is represented by cash
and
cash items, Government securities, securities of other RICs, and other
securities, with those other securities limited, in respect of any one
issuer, to
an amount that does not exceed 5% of the value of the Fund’s total assets
and that does not represent more than 10% of the issuer’s outstanding
voting securities (equity securities of QPTPs being considered voting
securities for these purposes), and (2) not more than 25% of the
value
of its total assets is invested in (a) the securities (other than
Government securities or securities of other RICs) of any one issuer, (b)
the securities
(other than securities of other RICs) of two or more issuers the Fund
controls (by owning 20% or more of their voting power) that are
determined
to be engaged in the same, similar or related trades or businesses, or (c)
the securities of one or more QPTPs (“Diversification Requirements”);
and |
■ |
Distribute
annually to its shareholders at least the sum of 90% of its investment
company taxable income (generally, net investment income, the excess
(if any) of net short-term capital gain over net long-term capital loss,
and net gains (if any) from certain foreign currency transactions, all
determined
without regard to any deduction for dividends paid) and 90% of its net
exempt interest income (“Distribution
Requirement”). |
■ |
EAM
subscribes to the services of an unaffiliated third-party proxy vendor
that provides in-depth analysis of shareholder meeting agendas and vote
recommendations.
The proxy vendor maintains written guidelines to reflect their current
vote recommendations. EAM has provided the proxy vendor with
instructions on when the proxy vendor should vote proxies according to
their written guidelines and when the proxy vendor must contact EAM
for
a vote decision. EAM may, in some cases, vote a proxy contrary to the
proxy vendor’s guidelines if we determine that this action is in the best
interests
of clients. |
■ |
In
cases where sole proxy voting authority rests with EAM for plans governed
by ERISA, EAM will vote or direct the proxy vendor to vote proxies in
accordance
with their guidelines unless outlined otherwise in the plan’s governing
documents and subject to the fiduciary responsibility standards of
ERISA. |
■ |
If
the person(s) responsible for voting proxies becomes aware of any type of
potential or actual conflict of interest relating to a proxy proposal,
they will
promptly report the conflict to our Chief Compliance Officer and Chief
Investment Officer. Conflicts will be handled in a number of ways
depending
on the type and materiality. The method selected by EAM will depend upon
the facts and circumstances of each situation and the requirements
of applicable laws and will always be handled in the client’s best
interest. |
■ |
EAM
may also choose not to vote proxies in certain situations or for certain
accounts, for example, where a client has retained the right to vote the
proxies
or where a proxy is received for a client account that has been
terminated. |
■ |
Clients
may direct the vote of their proxy regarding particular solicitations. To
do so, the client must contact EAM at our office with specific voting
instructions
in advance of the proxy voting deadline so that we have sufficient time to
contact the third party with the instruction. If the client does
not
provide adequate advance notice, we may not be able to accommodate the
vote request. |
ADRs |
American
Depositary Receipts |
American
Beacon or the Manager |
American
Beacon Advisors, Inc. |
Beacon
Funds |
American
Beacon Funds |
Board |
Board
of Trustees |
Brexit |
The
United Kingdom’s departure from the European Union |
CCO |
Chief
Compliance Officer |
CD |
Certificate
of Deposit |
CFTC |
Commodity
Futures Trading Commission |
Covered
Shares |
Fund
shares that the shareholder acquired or acquires after
2011 |
CPO |
Commodity
Pool Operator |
Denial
of Services |
A
cybersecurity incident that results in customers or employees being unable
to access electronic systems |
Dividends |
Distributions
of most or all of the Fund’s net investment income |
Dodd-Frank
Act |
Dodd-Frank
Wall Street Reform and Consumer Protection Act |
DRD |
Dividends-received
deduction |
ETF |
Exchange-Traded
Fund |
EU |
European
Union |
FINRA |
Financial
Industry Regulatory Authority, Inc. |
Forwards |
Forward
Currency Contracts |
Holdings
Policy |
Policies
and Procedures for Disclosure of Portfolio Holdings |
Internal
Revenue Code |
Internal
Revenue Code of 1986, as amended |
Investment
Company Act |
Investment
Company Act of 1940, as amended |
IPO |
Initial
Public Offering |
IRS |
Internal
Revenue Service |
ISS |
Institutional
Shareholder Services |
Junk
Bonds |
High
yield, non-investment grade bonds |
Management
Agreement |
The
Fund’s Management Agreement with the Manager |
Moody’s |
Moody’s
Investors Service, Inc. |
NAV |
Net
asset value |
NDF |
Non-deliverable
forward contracts |
NYSE |
New
York Stock Exchange |
OTC |
Over-the-Counter |
PCAOB |
Public
Company Accounting Oversight Board |
Proxy
Policy |
Proxy
Voting Policy and Procedures |
QDI |
Qualified
Dividend Income |
REIT |
Real
Estate Investment Trust |
RIC |
Regulated
Investment Company |
S&P
Global |
S&P
Global Ratings |
SAI |
Statement
of Additional Information |
SEC |
Securities
and Exchange Commission |
Securities
Act |
Securities
Act of 1933, as amended |
State
Street |
State
Street Bank and Trust Company |
Trust |
American
Beacon Funds |
Trustee
Retirement Plan |
Trustee
Retirement and Trustee Emeritus and Retirement
Plan |
|
|
UK |
United
Kingdom |