non-fundamental and may be changed without shareholder approval.
Primary Investment Strategies
To achieve its objective, the Fund intends to invest in a portfolio of inflation-linked securities, such as U.S. Treasury Inflation Protected Securities (“TIPS”) and other investment grade fixed income securities. The Fund is actively managed and will have targeted exposure to commodities and commodity strategies. Using this approach, the Fund seeks (i) to take advantage of the potential inflation-protection benefits of inflation-linked bonds and commodity instruments and (ii) to provide income.
“TIPS” are bonds issued by the U.S. Treasury that are designed to protect against inflation. The principal amount and coupon payments of TIPS increase with inflation as measured by the Consumer Price Index (“CPI”). The principal amount and coupon payments on TIPS are decreased in response to deflation as measured by a decline in CPI. Upon maturity, TIPS pay out the adjusted principal or original principal, whichever is greater. While the inflation-linked portion of the Fund’s portfolio generally will be invested primarily in TIPS, the Fund may invest in other types of inflation-linked fixed income securities. For example, the Fund may invest in investment grade, floating-rate fixed income securities linked to U.S. inflation rates that are issued by the U.S. government, government agencies or corporations. The Fund may invest in inflation-linked swaps. An inflation-linked swap is an agreement between two parties to exchange payments at a future date based on the difference between a fixed payment and a payment linked to the inflation rate at future date. The Fund also may invest in securities linked to inflation rates outside the U.S., including securities or instruments linked to rates in emerging market countries. The Fund may invest a portion of its assets in fixed-income securities, such as U.S. government obligations, that are not linked to inflation. The Fund may use hedging and other strategies to mitigate the impact on Fund returns of protracted increases in interest rates that are not generated by inflation or inflation expectations. The Fund may invest in derivative instruments, such as swaps, futures, or options, to address or minimize this risk. While the Fund intends to invest primarily in investment grade securities, the Fund may invest up to 10% of its net assets in non-investment grade securities rated “BB” or lower by at least two nationally recognized statistical rating organizations (“NSROs”) or if unrated, deemed to be of equivalent quality.
The Fund may invest in securities with effective or final maturities of any length. The Fund will seek to keep the average effective duration of its portfolio between two and ten years. Effective duration is an indication of an investment’s interest rate risk or how sensitive an investment or a fund is to changes in interest rates. Generally, a fund or instrument with a longer effective duration is more sensitive to interest rate fluctuations and therefore more volatile, than a fund with a shorter effective duration. The Fund may adjust its portfolio holdings or average effective duration based on anticipated or realized changes in inflation, interest rates or credit quality.
The Fund intends to have targeted exposure to commodities across a number of sectors, such as energy, precious metals and agriculture. While the Fund seeks exposure to commodity markets, it generally does not expect to invest in commodities directly. The Fund intends to seek exposure to commodity markets primarily through its investments in the WisdomTree Real Return Investment Portfolio, Inc. (the “Subsidiary”), a wholly-owned subsidiary controlled by the Fund. In addition, the Fund may invest a more limited portion of its assets directly in commodity-linked instruments. The Fund and the Subsidiary may invest in swaps on commodities or commodity indexes, and may also invest in structured notes and exchange-traded products that provide commodity returns. A swap is an agreement between two parties to exchange one cash flow or a stream of cash flows for another according to defined terms. The Fund and Subsidiary may engage in commodity swaps or commodities index swaps in which fixed- or variable-rate payments on commodity returns or commodity index returns are exchanged. Structured notes are debt instruments, typically issued by a bank, that are designed to provide cash flows linked to the value of commodities, commodity indexes or the value of commodity futures and options contracts. They may be listed and traded on a securities exchange or traded over-the-counter. Exchange-traded products include funds and trusts that invest in commodities or provide exposure to commodities whose units or shares are traded on major securities exchanges in the U.S. or throughout the world.
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