B-1 STATEMENT OF ADDITIONAL INFORMATION Dated May 1 ...

subordinate corporate loans, including loans that may be rated below investment grade or equivalentunrated loans. CDOs may charge management fees and administrative expenses.For both CBOs and CLOs, the cashflows from the trust are split into two and more portions,called tranches, varying in risk and yield. The riskiest portion is the “equity” tranche which bears thebulk of defaults from the bonds or loans in the trust and serves to protect the other, more seniortranches from default in all but the most severe circumstances. Since it is partially protected fromdefaults, a senior tranche from a CBO trust or CLO trust typically have higher ratings and loweryields than their underlying securities, and can be rated investment grade. Despite the protectionfrom the equity tranche, CBO or CLO tranches can experience substantial losses due to actualdefaults, increased sensitivity to defaults due to collateral default and disappearance of protectingtranches, market anticipation of defaults, as well as aversion to CBO or CLO securities as a class.The risks of an investment in a CDO depend largely on a type of the collateral securities and theclass of the CDO in which a Portfolio invests. Normally, CBOs, CLOs and other CDOs are privatelyoffered and sold, and thus, are not registered under the securities laws. As a result, investments inCDOs may be characterized by the Portfolios as illiquid securities; however, an active dealer marketmay exist for CDOs allowing a CDO to qualify for Rule 144A transactions. In addition to the normalrisks associated with fixed income securities discussed elsewhere in this SAI and the Portfolios’Prospectuses (e.g., interest rate risk and default risk), CDOs carry additional risks including, but notlimited to: (i) the possibility that distributions from collateral securities will not be adequate to makeinterest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) thePortfolios may invest in COs that are subordinate to other classes; and (iv) the complex structure ofthe security may not be fully understood at the time of investment and may produce disputes with theissuer or unexpected investment results.Other Asset-Backed Securities. Similar to mortgage-backed securities, other types of assetbackedsecurities may be issued by agencies or instrumentalities of the U.S. government (includingthose whose securities are neither guaranteed nor insured by the U.S. government), foreigngovernments (or their agencies or instrumentalities), or non-governmental issuers. These securitiesinclude securities backed by pools of automobile loans, educational loans, home equity loans, andcredit-card receivables. The underlying pools of assets are securitized through the use of trusts andspecial purpose entities. These securities may be subject to risks associated with changes in interestrates and prepayment of underlying obligations similar to the risks of investment in mortgage-backedsecurities described above.Payment of interest on asset-backed securities and repayment of principal largely depends on thecash flows generated by the underlying assets backing the securities and, in certain cases, may besupported by letters of credit, surety bonds, or other credit enhancements. The amount of market riskassociated with asset-backed securities depends on many factors, including the deal structure (i.e.;determinations as to the amount of underlying assets or other support needed to produce the cashflows necessary to service interest and make principal payments), the quality of the underlying assets,the level of credit support, if any, provided for the securities, and the credit quality of the creditsupportprovider, if any. Asset-backed securities involve risk of loss of principal if obligors of theunderlying obligations default and the amounts defaulted exceed the securities’ credit support.The value of an asset-backed security may be affected by the factors described above and otherfactors, such as the availability of information concerning the pool and its structure, thecreditworthiness of the servicing agent for the pool, the originator of the underlying assets, or theentities providing the credit enhancement. The value of asset-backed securities also can depend onthe ability of their servicers to service the underlying collateral and is, therefore, subject to risksassociated with servicers’ performance. In some circumstances, a servicer’s or originator’smishandling of documentation related to the underlying collateral (e.g.; failure to properly documenta security interest in the underlying collateral) may affect the rights of the security holders in and tothe underlying collateral. In addition, the insolvency of entities that generate receivables or thatB-28