Credit Opportunities Strategy

Risk Definitions

Key principal investment risks include, but are not limited to:

• Management Risk: Reliance on proprietary investment processes and subjective asset evaluations may result in decisions that do not achieve intended outcomes.
• Models and Data Risk: Investment exposure relies heavily on proprietary quantitative models and third-party data. Incorrect or incomplete models and data can lead to suboptimal investment decisions. Predictive models carry inherent risks, such as incorrect forecasts and unexpected results in low-probability scenarios, potentially causing losses.
• High-Yield Bond Risk: High-yield or “junk” bonds are speculative, lower-quality securities with a higher risk of default. If they default or undergo reorganization, they may become worthless and are illiquid.
• Fixed-Income Securities Risk: Fixed-income securities face interest rate risk, credit risk, liquidity risk, prepayment risk, extension risk, and duration risk. These factors can cause volatility and impact performance.
• Business Development Company (“BDC”) Risk:  Exposure to Business Development Companies involves risks related to illiquid or thinly traded investments, limited public information, valuation uncertainty, and regulatory constraints on asset composition and leverage.
• Foreign Investment Risk: Foreign investments may be risker than US investments for many reasons, such as changes in currency exchange rates and unstable political, social, and economic conditions.
• Emerging Market Risk: Emerging markets are riskier than developed markets due to uneven development and the possibility of never fully developing. Investments in these markets may be considered speculative.
• Currency Risk: Exchange rate fluctuations may diminish gains or amplify losses on foreign investments, adversely affecting overall value.
• Geographic Focus Risk: Concentrated exposure to specific regions or countries may lead to increased volatility compared to more geographically diversified investments.
• Distribution Risk: Income from investments may fluctuate due to market conditions, limited income opportunities, valuation challenges, and counterparty risks. There is no guarantee of consistent or ongoing distributions.
• Loans Risk: The market for loans, including bank loans and loan participations, may be illiquid, making them difficult to sell. These investments expose investors to credit risk from both the financial institution and the borrower, with bank loans often settling on a delayed basis, potentially delaying sale proceeds.
• Market Risk: Investment market risks, influenced by economic growth, market conditions, interest rates, and political events, affect asset values. Unexpected events like war, terrorism, financial disruptions, natural disasters, pandemics, and recessions can significantly impact investments and market liquidity, causing investor fear and economic instability.
• Underlying Funds Risk: Investing in underlying funds may result in duplicated fees and added expenses. Each fund carries its own strategy-specific risks, and managers may not execute effectively. ETF shares may trade at premiums or discounts to NAV, and market liquidity or trading costs may impact performance and timing of liquidations.
• Derivatives Risk: Derivatives may involve leverage and imperfect market correlation, leading to losses that exceed initial investment. They carry risks related to liquidity, valuation, counterparty default, and market volatility. Specific instruments—such as futures, credit default swaps, and options—introduce additional complexities, including speculative exposure, margin requirements, and limited payout conditions.
• Valuation Risk: Certain assets may be valued above the price at which they can be sold, potentially resulting in losses if sold at a discount to their estimated value.
• Short Sale Risk: Short positions, including those in derivatives, may expose investors to unlimited losses if the underlying asset rises in value. These positions also incur transaction and financing costs that can reduce returns and increase losses.
• Convertible Securities Risk: Convertible securities carry both equity and debt risks, with sensitivity shifting based on the underlying stock’s price. Their value may fluctuate with equity markets, interest rates, and issuer credit quality, and they generally offer less volatility than stocks but more than traditional debt.
• Mortgage Securities and Asset-Backed Securities Risk: These securities are subject to prepayment and extension risks, which can affect interest rate sensitivity and price volatility. Unscheduled principal repayments may limit long-term yield potential, while slower prepayments during rising rates can extend duration. Asset-backed securities may also face enforcement challenges and inadequate credit support in the event of default.
• Securities Lending Risk: Lending securities involves risks such as borrower default, loss of collateral rights, and declines in collateral value. These events may lead to financial losses and potential adverse tax consequences.
• Equity Securities Risk: Equity securities can experience sudden, unpredictable drops or prolonged declines in value. This may result from general market factors or specific issues affecting industries, sectors, geographic markets, or individual companies.
• Tax Risk: Certain investments, such as commodity-linked derivatives, may generate non-qualifying income under Subchapter M of the Internal Revenue Code. To maintain regulated investment company status, income from such sources may be limited, which could affect portfolio construction and returns.
• Leverage Risk: Using derivatives to increase exposure can magnify both gains and losses. Losses may exceed invested assets, and leverage may heighten volatility.
• Non-Diversification Risk: Non-diversified investments may allocate more than 5% of total assets to one or more issuers, including non-diversified underlying funds. This can make performance more sensitive to single economic, business, political, or regulatory events compared to diversified investments.
• Turnover Risk: Higher portfolio turnover can lead to increased transactional and brokerage costs. Turnover rates may significantly exceed 100% annually.
• US Government Securities Risk: Investments in obligations issued by US government agencies or instrumentalities may not be backed by the US government. If the issuer defaults and the government chooses not to provide financial support, recovery of the investment may not be possible.
• Models and Data Risk: Investment exposure relies heavily on proprietary quantitative models and third-party data. Incorrect or incomplete models and data can lead to suboptimal investment decisions. Predictive models carry inherent risks, such as incorrect forecasts and unexpected results in low-probability scenarios, potentially causing losses.