The long-term
consequences to the U.S. economy of the continued expansion of U.S. government debt and deficits are not known. Also, raising the ceiling on U.S. government debt and periodic legislation to fund the government
have become increasingly politicized. Any failure to do either could lead to a default on
U.S. government obligations, with unpredictable consequences for the fund’s investments, and generally for economies and markets in the U.S. and elsewhere.
Fixed-Income Securities – Risks of fixed-income securities
include credit risk, interest rate risk, counterparty risk, prepayment risk, extension
risk, valuation risk, and liquidity risk. The value of fixed-income securities may go up or down, sometimes rapidly and unpredictably, due to general market conditions, such as real or perceived adverse economic or
political conditions, tariffs and trade disruptions, wars, social unrest, inflation, changes in interest rates, lack of liquidity in the bond markets or adverse investor sentiment. In addition, the value of a
fixed-income security may decline if the issuer or other obligor of the security fails to pay
principal and/or interest, otherwise defaults or has its credit rating downgraded or is
perceived to be less creditworthy, or the credit quality or value of any underlying assets declines. If the value of fixed-income securities owned by the fund falls, the value of your investment will go down. The fund may
lose its entire investment in the fixed-income securities of an issuer.
Interest Rate –The value of fixed-income securities generally
goes down when interest rates rise. A rise in rates tends to have a greater impact on the
prices of longer term or duration securities. Changes in interest rates also may affect the liquidity of the fund’s investments. A variety of factors can impact interest rates, including central bank monetary policies
and inflation rates. A general rise in interest rates may cause investors to sell fixed-income securities on a large scale, which could adversely affect the price and liquidity of fixed-income securities
generally and could also result in increased redemptions from the fund. Increased redemptions could cause the fund to sell securities at inopportune times or depressed prices and result in further losses.
Recently, inflation and interest rates have been volatile and may increase in the future. Interest rate increases in the future may cause the value of fixed-income securities to decrease and, conversely,
interest rate reductions may cause the value of fixed-income securities to increase.
Credit – If an issuer or other obligor (such as a party
providing insurance or other credit enhancement) of a security held by the fund or a
counterparty to a financial contract with the fund is unable or unwilling to meet its financial obligations, or is downgraded or perceived to be less creditworthy (whether by market participants, ratings agencies, pricing
services or otherwise), or if the value of any underlying assets declines, the value of your
investment will typically decline. A decline may be rapid and/or significant, particularly
in certain market environments. In addition, the fund may incur costs and may be hindered or delayed in enforcing its rights against an issuer, obligor or counterparty.
Mortgage-Related and Asset-Backed Securities –
The value of mortgage-related and asset-backed securities will be influenced by factors affecting the housing market and the assets underlying such securities. As a result, during
periods of declining asset values, difficult or frozen credit markets, swings in interest rates, or deteriorating economic conditions, mortgage-related and asset-backed securities may decline in value, face valuation
difficulties, become
more volatile and/or become illiquid, which could negatively impact the
fund. Mortgage-backed securities represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Asset-backed securities represent
participations in, or are secured by and payable from, assets such as installment sales or loan contracts, leases, credit card receivables
and other categories of receivables. The value of mortgage-backed and asset-backed securities may be affected by changes in credit quality
or value of the mortgage loans or other assets that support the securities. Mortgage-backed and asset-backed securities are subject to prepayment or call and extension risks. Some of these
securities may receive little or no collateral protection from the
underlying assets.
Inflation – The value of assets or income from investment may be worth less in the future as inflation decreases the
value of money. As inflation increases, the real value of the fund’s assets can
decline as can the value of the fund’s distributions.
Liquidity – The fund may make investments that are illiquid or that become illiquid after purchase.
Illiquid investments can be difficult to value, may trade at a discount from comparable, more
liquid investments, and may be subject to wide fluctuations in value. Liquidity risk may be
magnified in rising interest rate or volatile environments. If the fund is forced to sell an illiquid investment to meet redemption requests or other cash needs, the fund may be forced to sell at a substantial loss
or may not be able to sell at all. Liquidity of particular investments, or even entire asset
classes, including U.S. Treasury securities, can deteriorate rapidly, particularly during
times of market turmoil, and those investments may be difficult or impossible for the fund to sell. This may prevent the fund from limiting losses.
Counterparty – The fund could lose money if the counterparties
to derivatives, repurchase agreements and/or other financial contracts entered into for the
fund do not fulfill their contractual obligations. In addition, the fund may incur costs and may be hindered or delayed in enforcing its rights against a counterparty. These risks may be greater to the
extent the fund has more contractual exposure to a counterparty.
Extension – When interest rates rise, payments of
fixed-income securities, including asset- and mortgage-backed securities, may occur more
slowly than anticipated, causing their market prices to decline.
Derivatives – The use of derivatives involves a variety of
risks, which may be different from, or greater than, the risks associated with investing in
traditional securities, such as stocks and bonds. Risks of derivatives include leverage risk, liquidity risk, interest rate risk, valuation risk, market risk, counterparty risk and credit risk. Use of derivatives can
increase fund losses, increase costs, reduce opportunities for gains, increase fund volatility, and not produce the result intended. Certain derivatives have the potential for unlimited loss, regardless of
the size of the initial investment. Even a small investment in derivatives can have a disproportionate impact on the fund. Derivatives may be difficult or impossible to sell, unwind or value, and the
counterparty (including, if applicable, the fund’s clearing broker, the derivatives exchange or the clearinghouse) may default on its obligations to the fund. In certain cases, the fund may incur costs
and may be hindered or delayed in enforcing its rights against or closing out derivatives instruments