Commodity
Pool Regulatory Risk. Each
Fund is deemed to be a commodity pool due to its investment exposure to
commodity futures contracts and is subject to regulation under the CEA and CFTC
rules as well as the regulatory scheme applicable to registered investment
companies. The Advisor is registered as a CPO and the Sub-Advisor is registered
as a CTA. Registration as a CPO and CTA imposes additional compliance
obligations on the Advisor, the Sub-Advisor, and each Fund related to additional
laws, regulations, and enforcement policies, which could increase compliance
costs and may affect the operations and financial performance of the Fund. These
requirements are also subject to change at any time.
Commodity
Price Risk. The NAV
of a Fund will be affected by movements in commodity prices generally and by the
way in which those prices and other factors affect the prices of the commodity
futures contracts as explained in “Roll Yield” below. Commodity prices generally
may fluctuate widely and may be affected by numerous factors, including:
•
global
or regional political, economic or financial events and situations, particularly
war, terrorism, expropriation and other activities which might lead to
disruptions to supply from countries that are major commodity producers;
•
investment trading, hedging or other activities
conducted by large trading houses, producers, users, hedge funds, commodities
funds, governments or other speculators which could impact global supply or
demand;
•
the
weather, which can affect short-term demand or supply for some
commodities;
•
the
future rates of economic activity and inflation, particularly in countries which
are major consumers of commodities;
•
major
discoveries of sources of commodities; and
•
disruptions to the infrastructure or means by which
commodities are produced, distributed and stored, which are capable of causing
substantial price movements in a short period of time.
Prices
of commodity futures contracts fluctuate widely and have in the past experienced
periods of extreme volatility and this may be affected by:
•
commodity prices generally;
•
trading
activities on the exchanges upon which they trade, which might be impacted by
the liquidity in the futures contracts; and
•
trading
activity specific to particular futures contract(s) and maturities.
Commodity
Sector Risks. The
daily performance of the current or “spot” price of certain commodities has a
direct impact on Fund performance. To the extent a Fund has significant exposure
to a particular commodity sector, the Fund may be more susceptible to loss due
to adverse occurrences affecting that sector, including a decline in the price
of commodities in such sector.
Agricultural
Sector Investment Risk. The
daily performance of the spot price of certain agricultural commodities,
including coffee, corn, cotton, soybeans, soybean meal, soybean oil, sugar,
wheat and HRW wheat, has a direct impact on Fund performance. Investments in the
agriculture sector may be highly volatile and the market values of such
commodities can change quickly and unpredictably due to a number of factors,
such as the supply of, and demand for, each commodity, the strength of the
domestic and global economy, legislative or regulatory developments relating to
food safety, as well as other significant events, including public health,
political, legal, financial, accounting and tax matters that are beyond a Fund’s
control. In addition, increased competition caused by economic recession, labor
difficulties and changing consumer tastes and spending can impact the demand for
agricultur al
products and, in turn, the value of s uch
inve stments.
Energy
Sector Investment Risk. The
daily performance of the spot price of certain energy-related commodities,
including Brent Crude Oil, gas oil, heating oil, low sulfur gas oil, natural
gas, RBOB gasoline, ULS diesel and WTI crude oil, has a direct impact on Fund
performance. Energy commodities’ market values are significantly impacted by a
number of factors, such as the supply of, and demand for, each commodity, the
strength of the domestic and global economy, significant world events, capital
expenditures on exploration and production, energy conservation efforts,
government regulation and subsidization and technological advances. Investments
in the energy sector may be cyclical and/or highly volatile and subject to swift
price fluctuations. In addition, significant declines in the price of oil may
contribute to significant market volatility, which may