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Determining Whether Your Investment Goals are Consistent With the Pool

Checklist for understanding investing risks

Prospective Pool members should know that there are risks that apply to all fixed-income securities, including obligations of the U.S. Government.

Here’s a quick review:

Credit risk

Credit risk is the possibility that the issuer of a bond or other security will fail to make timely payments of interest and principal.

The credit risk associated with each fund within the Pool, therefore, depends on the credit quality of the underlying debt instruments held by that fund. In the event of a payment default on a debt instrument held in a fund, the investment return on the fund within the Pool that owns the investment in default will be adversely affected and, in some cases, the fund could experience a loss of principal (i.e., a reduction in the asset value below par value). The pool attempts to manage this risk by purchasing securities issued by the U.S. Government, its agencies, and instrumentalities; fully collateralized repurchase agreements; highly rated no-load money market mutual funds regulated by the SEC; certificates of deposit; and commercial paper that is rated not less than A-1 or P-1 or an equivalent rating by a nationally recognized statistical rating organization.

Market risk

Market risk (or interest rate risk) is the potential for a decline in the market value of a debt instrument due to rising interest rates. For example, a bond or other security issued or backed by the U.S. Government is guaranteed only with regard to the timely payment of interest and principal; its market price is not guaranteed. Just like bonds issued by government entities and corporations, U.S. Government securities will fluctuate in market value as prevailing market interest rates change. In general, the market value of a bond varies inversely with interest rates: If interest rates rise, market prices generally fall; if interest rates fall, market prices generally rise. In addition, for a given change in interest rates, longer-maturity bonds fluctuate more in price (gaining or losing more in market value) than shorter-maturity bonds. To compensate investors for this risk, longer-maturity bonds generally offer higher yields than shorter-maturity bonds (all other factors, including credit quality, being equal).

Liquidity risk

Liquidity risk is the potential for there not to be a ready market for the securities in which the Pool invests. Lack of ready markets could prevent the Pool from selling securities to provide cash to meet liquidity needs, including amounts required for timely payment of withdrawals requested by participants.

Counterparty risk

Counterparty risk is the risk that a counterparty in a repurchase agreement could fail to honor the terms of its agreement. See also, Credit risk.

Our funds

All of our funds are expected to maintain a stable NAV of $1.00 per share; however, there is no guarantee that they will be able to do so. None of our funds are registered under the Investment Company Act of 1940 or regulated by the SEC.