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18.37. Restricted and Illiquid Securities Risk

The Investment Compartment may invest without limitation in illiquid or less liquid securities or securities in which no secondary market is readily available or which are otherwise illiquid, including private placement securities. The Investment Compartment may not be able to readily dispose of such securities at prices that approximate those at which the Investment Compartment could sell such securities if they were more widely-traded and, as a result of such illiquidity, the Investment Compartment may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its obligations. Limited liquidity can also affect the market price of securities, thereby adversely affecting the Investment Compartment’s NAV and ability to make dividend distributions. The financial markets in general, and certain segments of the mortgage related securities markets in particular, have in recent years experienced periods of extreme secondary market supply and demand imbalance, resulting in a loss of liquidity during which market prices were suddenly and substantially below traditional measures of intrinsic value. During such periods, some securities could be sold only at arbitrary prices and with substantial losses. Periods of such market dislocation may occur again at any time. Privately issued debt securities are often of below investment grade quality, frequently are unrated and present many of the same risks as investing in below investment grade public debt securities.

Restricted securities are securities that may not be sold to the public without an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), or that may be sold only in a privately negotiated transaction or pursuant to an exemption from registration. When registration is required to sell a security, the Investment Compartment may be obligated to pay all or part of the registration expenses and considerable time may pass before the Investment Compartment is permitted to sell a security under an effective registration statement. If adverse market conditions develop during this period, the Investment Compartment might obtain a less favorable price than the price that prevailed when the Investment Compartment decided to sell. The Investment Compartment may be unable to sell restricted and other illiquid securities at opportune times or prices.