This will lock in a below-market interest rate, increase the security s duration and reduce the value of the security. This is known as extension risk. The subadviser s judgment about the attractiveness, relative value or potential appreciation of particular sector, security or hedging strategy proves to be incorrect. Prices of foreign securities go down because of unfavorable foreign government actions, political, economic or market instability or the absence of accurate information about foreign issuers. Also, a decline in the value of foreign currencies relative to the U.S. dollar will reduce the unhedged value of securities denominated in those issuers.
Foreign securities are sometimes less liquid and harder to value than securities of U.S. issuers.
These risks are more severe for issuers in emerging market countries. Changes in the value of futures contracts do not correspond closely to changes in the fund s portfolio, which may not accurately hedge the fund s exposure. The price of securities sold short increases, causing the fund to pay more to replace the borrowed securities than the fund received on the sale of the securities. There is a greater risk that the fund will lose money due to prepayment and extension risks because the fund invests heavily at times in mortgage-related securities. Mortgage derivatives in the fund s portfolio may have especially volatile prices because of imbedded leverage or unusual interest rate reset terms.