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18.27. Over-the-Counter Option Risk

The Investment Compartments may write (sell) unlisted OTC options to a significant extent. Options written by any Investment Compartment with respect to non-U.S. securities, indices or sectors generally will be OTC options. OTC options differ from exchange-listed options in that they are two-party contracts, with exercise price, premium and other terms negotiated between buyer and seller, and generally do not have as much market liquidity as exchange-listed options. The counterparties to these transactions typically will be major international credit institutions, broker-dealers and financial institutions. The relevant Investment Compartment may be required to treat as illiquid securities being used to cover certain written OTC options. The OTC options written by the relevant Investment Compartment will not be issued, guaranteed or cleared by the Options Clearing Corporation. In addition, the relevant Investment Compartment’s ability to terminate the OTC options may be more limited than with exchange-traded options. Credit institutions, broker-dealers or other financial institutions participating in such transactions may fail to settle a transaction in accordance with the terms of the option as written. In the event of default or insolvency of the counterparty, the relevant Investment Compartment may be unable to liquidate an OTC option position.