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18.93. Equity-Linked Notes Risk

ELNs are hybrid securities with characteristics of both fixed income and equity securities. An ELN is a debt instrument, usually a bond, that pays interest based upon the performance of an underlying equity, which can be a single stock, basket of stocks or an equity index. The interest payment on an ELN may in some cases be leveraged so that, in percentage terms, it exceeds the relative performance of the market. ELNs generally are subject to the risks associated with the securities of equity issuers, default risk and counterparty risk. Additionally, because the Investment Compartment may use ELNs as an alternative or complement to its options strategy, the use of ELNs in this manner would expose the Investment Compartment to the risk that such ELNs will not perform as anticipated, and the risk that the use of ELNs will expose the Investment Compartment to different or additional default and counterparty risk as compared to a similar investment executed in an options strategy.