operating expenses or in the example, affect the Fund’s performance.
During the most recent fiscal year, the Fund’s portfolio turnover rate was 84% of the average value of its portfolio.
Principal Investment Strategies
The Fund primarily invests in a diversified portfolio of U.S.
dollar denominated corporate obligations and other fixed income securities that are rated BBB-/Baa3 or better or unrated securities that the Fund’s Subadviser, Seix Investment Advisors LLC (“Seix” or the “Subadviser”),
believes are of comparable quality.
Under normal
circumstances, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in corporate bonds. The Fund may also invest in U.S. Treasury and agency obligations, floating rate loans, and below investment grade, high
yield debt obligations (sometimes referred to as “junk bonds”), including emerging market securities. The Fund may invest in U.S. dollar denominated obligations of U.S. and non-U.S. issuers. The Fund may invest a portion of its assets in
securities that are restricted as to resale.
A
security’s rating will be governed by the Barclays methodology as follows: when Standard & Poor’s Financial Services LLC, Moody’s Investors Service, Inc. and Fitch, Inc. provide a rating, Seix will use the middle rating of the
three; if only two of those three rating agencies rate the security, Seix will use the lowest rating; if only one rating agency assigns a rating, Seix will use that rating. If none of the three provide a rating, Seix may rely on a rating provided by
another nationally recognized statistical ratings organization (“NRSRO”). The Fund will maintain an overall credit quality of investment grade or better.
Buy and sell decisions are based on a wide number of factors
that determine the risk-reward profile of each security within the context of the broader portfolio. The Subadviser attempts to identify investment grade corporate bonds offering above-average total return. In selecting corporate debt investments
for purchase and sale, the Subadviser seeks out companies with good fundamentals and above-average return prospects that are currently priced at attractive levels. The primary basis for security selection is the potential income offered by the
security relative to the Subadviser’s assessment of the issuer’s ability to generate the cash flow required to meet its obligations. The Subadviser employs a “bottom-up” approach, identifying investment opportunities based on
the underlying financial and economic fundamentals of the specific issuer.
The Subadviser anticipates that the Fund’s
modified-adjusted-duration will mirror that of the Barclays U.S. Corporate Investment Grade Index, plus or minus 20%. For example, if the duration of the Barclays U.S. Corporate Investment Grade Index is 5 years, the Fund’s duration may be
4–6 years. As of July 1, 2016, the Barclays U.S. Corporate Investment Grade Index duration was 7.49 years. Duration measures a bond or Fund’s sensitivity to interest rate changes and is expressed as a number of years. The higher the
number, the greater the risk. Under normal circumstances, for example, if a portfolio has a duration of 5 years, its value will change by 5% if rates change by 1%. Shorter duration bonds result in lower expected volatility.
In addition, to implement its investment strategy, the Fund
may buy or sell derivative instruments (such as foreign currency forward contracts, swaps, including credit default swaps, futures, credit linked notes, options, inverse floaters and
warrants) to use as a substitute for a purchase or sale of a position in the
underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with corporate bond characteristics towards its policy to invest,
under normal circumstances, at least 80% of its net assets in corporate bonds.
While the Fund generally does not invest in equity
securities, equity securities may be obtained through a restructuring of a debt security held in the Fund and may be retained in the Fund if the Subadviser deems it to be in the Fund’s best interests.
Principal Investment Risks
You may lose money if you invest in the Fund. A Fund share is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Below Investment Grade Securities Risk: Securities that are rated below investment grade (sometimes referred to as “junk bonds”, including those bonds rated lower than “BBB-” by Standard & Poor’s Financial Services LLC and
Fitch, Inc. or “Baa3” by Moody’s Investors Service), or that are unrated but judged by the Subadviser to be of comparable quality at the time of purchase, involve greater risk of default or downgrade and are more volatile than
investment grade securities and are considered speculative.
These instruments have a higher degree of default risk and
may be less liquid than higher-rated bonds. These instruments may be subject to a greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of high yield investments generally,
and less secondary market liquidity. This potential lack of liquidity may make it more difficult for the Fund to value these instruments accurately.
Debt Securities Risk: Debt
securities, such as bonds, involve credit risk. Credit risk is the risk that the borrower will not make timely payments of principal or interest or will default. Changes in an issuer’s credit rating or the market’s perception of an
issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on the issuer’s financial condition and on the terms of the securities.
Debt securities are also subject to interest rate risk,
which is the risk that the value of a debt security may fall when interest rates rise. In general, the market price of debt securities with longer maturities will go up or down more in response to changes in interest rates than the market price of
shorter term securities.
Derivatives Risk: In the course of pursuing its investment strategies, the Fund may invest in certain types of derivatives including swaps, foreign currency forward contracts and futures. The Fund is exposed to additional volatility and
potential loss with these investments. Losses in these investments may exceed the Fund’s initial investment. Derivatives may be difficult to value, may become illiquid and may not correlate perfectly with the overall securities
market.
Floating Rate Loan Risk: The value of the collateral securing a floating rate loan can decline, be insufficient to meet the obligations of the borrower, or be difficult to liquidate. As a result, a floating rate loan may not be fully
collateralized and can decline significantly in value. Floating rate loans generally are subject to contractual restrictions on resale. The liquidity of