AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 2004
1933 ACT FILE NO. 333-111756
FORM N-2
(CHECK APPROPRIATE BOXES)
[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 2
[ ] POST-EFFECTIVE AMENDMENT NO.
AND/OR
[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
[X] AMENDMENT NO. 3
|
CALAMOS STRATEGIC TOTAL RETURN FUND
Exact Name of Registrant as Specified in Charter
1111 East Warrenville Road, Naperville, Illinois 60563-1493
Address of Principal Executive Offices (Number, Street, City, State, ZIP Code)
(630) 245-7200
Registrant's Telephone Number, including Area Code
James S. Hamman, Jr.,
Secretary
Calamos Asset Management, Inc.
1111 East Warrenville Road
Naperville, Illinois 60563-1493
Name and Address (Number, Street, City, State, ZIP Code) of Agent for Service
COPIES OF COMMUNICATIONS TO:
David A. Sturms Cameron S. Avery Cynthia G. Cobden
Vedder, Price, Kaufman & Bell, Boyd & Lloyd, LLC Simpson Thacher & Bartlett LLP
Kammholz, P.C. 70 West Madison Street, Suite 425 Lexington Avenue
222 North LaSalle Street 3300 New York, New York 10017
Chicago, Illinois 60601-1003 Chicago, Illinois 60602-4207
|
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement
If any of the securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), other than securities offered in connection with a dividend or interest reinvestment plans, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate box)
[X] when declared effective pursuant to section 8(c).
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) FEE(2)
------------------------------------------------------------------------------------------------------------------
Common Shares (no par
value).................... 170,000,000 $15.00 $2,550,000,000 $323,085
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
|
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $7,602 of which has already been paid.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 24, 2004
PROSPECTUS
SHARES
PER SHARE TOTAL(2)
--------- --------
Public offering price $15.00 $
Sales load $ $
Estimated organizational expenses and offering costs $ $
Proceeds to the Fund(1) $ $
|
CITIGROUP MERRILL LYNCH & CO. UBS INVESTMENT BANK |
A.G. EDWARDS & SONS, INC. ADVEST, INC.
H&R BLOCK FINANCIAL ADVISORS, INC. FERRIS, BAKER WATTS
INCORPORATED
JANNEY MONTGOMERY SCOTT LLC LEGG MASON WOOD WALKER
INCORPORATED
MCDONALD INVESTMENTS INC. OPPENHEIMER
QUICK & REILLY, INC. RBC CAPITAL MARKETS
TD WATERHOUSE WEDBUSH MORGAN SECURITIES
WELLS FARGO SECURITIES, LLC
, 2004
|
(continued from previous page)
LEVERAGE. The Fund may, but is not required to, issue preferred shares, borrow money or issue debt securities. Those practices are known as leverage. The Fund currently anticipates that it will issue cumulative preferred shares, as soon as practicable after the closing of this offering, with an aggregate liquidation preference of up to approximately 33% of the Fund's total assets immediately after issuance. The use of preferred shares or borrowing to leverage the common shares creates risks. See "Risk Factors -- Leverage" beginning on page 27 of this prospectus.
You should read this prospectus, which contains important information about the Fund, before deciding whether to invest in the Fund's common shares, and retain it for future reference. A statement of additional information, dated , 2004, containing additional information about the Fund, has been filed with the Securities and Exchange Commission (the "Commission") and is incorporated by reference in its entirety into this prospectus. You may request a free copy of the statement of additional information, the table of contents of which is on page 46 of this prospectus, by calling 1-800-582-6959 or by writing to the Fund. You can review and copy documents the Fund has filed at the Commission's Public Reference Room in Washington, D.C. Call 1-202-942-8090 for information. The Commission charges a fee for copies. You can get the same information free from the Commission's EDGAR database on the Internet (http://www.sec.gov). You may also e-mail requests for these documents to publicinfo@sec.gov or make a request in writing to the Commission's Public Reference Section, Washington, D.C. 20549-0102.
The Fund's common shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
The underwriters may also purchase up to an additional common shares at the public offering price, less the sales load, within 45 days from the date of this prospectus to cover over-allotments.
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................... 1
Summary of Fund Expenses.................................... 14
The Fund.................................................... 15
Use of Proceeds............................................. 15
Investment Objective and Principal Investment Strategies.... 16
Leverage.................................................... 19
Interest Rate Transactions.................................. 22
Risk Factors................................................ 23
Management of the Fund...................................... 29
Dividends and Distributions; Automatic Dividend Reinvestment
Plan...................................................... 32
Closed-End Fund Structure................................... 35
U.S. Federal Income Tax Matters............................. 36
Net Asset Value............................................. 38
Description of Shares....................................... 38
Certain Provisions of the Agreement and Declaration of Trust
and By-Laws............................................... 40
Underwriting................................................ 42
Custodian, Transfer Agent and Dividend Disbursing Agent..... 45
Legal Opinions.............................................. 45
Table of Contents for Statement of Additional Information... 46
|
Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade the common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PROSPECTUS SUMMARY
This is only a summary. This summary may not contain all of the information that you should consider before investing in the Fund's common shares. You should review the more detailed information contained in this prospectus and in the statement of additional information, especially the information set forth under the heading "Risk Factors."
The Fund...................... Calamos Strategic Total Return Fund is a newly
organized, diversified, closed-end management
investment company. Throughout the prospectus,
we refer to Calamos Strategic Total Return Fund
as the "Fund" or as "we," "us," or "our." See
"The Fund."
The Offering.................. The Fund is offering common shares of
beneficial interest ("common shares") at an
initial offering price of $15.00 per share. The
common shares are being offered by a group of
underwriters led by Citigroup Global Markets
Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, UBS Securities LLC, A.G. Edwards
& Sons, Inc., Advest, Inc., H&R Block Financial
Advisors, Inc., Ferris, Baker Watts,
Incorporated, Janney Montgomery Scott LLC, Legg
Mason Wood Walker, Incorporated, McDonald
Investments Inc., a KeyCorp Company,
Oppenheimer & Co. Inc., Quick & Reilly, Inc. A
FleetBoston Financial Company, RBC Capital
Markets Corporation, TD Waterhouse Investor
Services, Inc., Wedbush Morgan Securities Inc.
and Wells Fargo Securities, LLC. You must
purchase at least 100 common shares ($1,500) in
order to participate in the offering. The Fund
has granted the underwriters the right to
purchase up to an additional common
shares at the public offering price, less the
sales load, within 45 days from the date of
this prospectus to cover over-allotments.
Calamos has agreed to pay organizational
expenses and offering costs (other than sales
load) that exceed $0.03 per share. See
"Underwriting."
Investment Objective.......... The Fund's investment objective is to provide
total return through a combination of capital
appreciation and current income. There can be
no assurance that the Fund will achieve its
investment objective. See "Investment Objective
and Principal Investment
Strategies -- Investment Objective."
Investment Policies........... PRIMARY INVESTMENTS. Under normal
circumstances, the Fund will invest primarily
in common and preferred stocks, convertible
securities and income producing securities such
as investment grade and below investment grade
(high yield/high risk) debt securities. The
Fund, under normal circumstances, will invest
at least 50% of its managed assets in equity
securities (including securities that are
convertible into equity securities). The Fund
may invest up to 35% of its managed assets in
securities of foreign issuers, including debt
and equity securities of corporate issuers and
debt securities of government issuers, in
developed and emerging markets. The Fund may
invest up to 15% of its managed assets in
securities of foreign issuers in emerging
markets. "Managed assets" means the total
assets of the Fund (including any assets
attributable to any leverage that may be
1
|
outstanding) minus the sum of accrued
liabilities (other than debt representing
financial leverage). For this purpose the
liquidation preference on any preferred shares
will not constitute a liability.
Calamos will dynamically allocate the Fund's
investments among multiple asset classes,
|
seeking to obtain an appropriate balance of risk and reward through all market cycles using multiple strategies and combining them to seek to achieve favorable risk adjusted returns. See "Investment Objective and Principal Investment Strategies -- Principal Investment Strategies."
EQUITY SECURITIES. Equity securities include common and preferred stocks, warrants, rights, and depository receipts. Under normal circumstances, the Fund will invest at least 50% of its managed assets in equity securities (including securities that are convertible into equity securities). An investment in the equity securities of a company represents a proportionate ownership interest in that company. Therefore, the Fund participates in the financial success or failure of any company in which it has an equity interest.
HIGH YIELD SECURITIES. The Fund may invest in high yield securities for either current income or capital appreciation or both. These securities are rated Ba or lower by Moody's or BB or lower by Standard & Poor's or are unrated securities of comparable quality as determined by Calamos, the Fund's investment adviser. The Fund may invest in high yield securities of any rating. Non-convertible debt securities rated below investment grade are commonly referred to as "junk bonds" and are considered speculative with respect to the issuer's capacity to pay interest and repay principal. They involve greater risk of loss, are subject to greater price volatility and are less liquid, especially during periods of economic uncertainty or change, than higher rated securities. See "Investment Objective and Principal Investment Strategies -- Principal Investment Strategies -- High Yield Securities."
FOREIGN ISSUERS. Although the Fund primarily invests in securities of U.S. issuers, the Fund may invest up to 35% of its managed assets in securities of foreign issuers, including debt and equity securities of corporate issuers and debt securities of government issuers, in developed and emerging markets. The Fund may invest up to 15% of its managed assets in securities of foreign issuers in emerging markets. A foreign issuer is a company organized under the laws of a foreign country that is principally traded in the financial markets of a foreign country. For purposes of these percentage limitations, foreign securities do not include securities represented by American Depository Receipts ("ADRs") or securities guaranteed by a U.S. person. See "Investment Objective and Principal Investment Strategies -- Principal Investment Strategies -- Foreign Securities."
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. A convertible security is a debt security or preferred
stock that is exchangeable for an equity security (typically of the same issuer) at a predetermined price (the "conversion price"). Depending upon the relationship of the conversion price to the market value of the underlying security, a convertible security may trade more like an equity security than a debt instrument. The Fund may invest in convertible securities of any rating. Securities that are convertible into equity securities are considered equity securities for purposes of the Fund's policy to invest at least 50% of its managed assets in equity securities. See "Investment Objective and Principal Investment Strategies -- Principal Investment Strategies -- Convertible Securities."
SYNTHETIC CONVERTIBLE SECURITIES. Calamos may also create a "synthetic" convertible security by combining separate securities that possess the two principal characteristics of a true convertible security, i.e., a fixed-income security ("fixed-income component") and the right to acquire an equity security ("convertible component"). The fixed-income component is achieved by investing in non-convertible, fixed-income securities such as bonds, preferred stocks and money market instruments. The convertible component is achieved by investing in warrants or options to buy common stock at a certain exercise price, or options on a stock index. The Fund may also purchase synthetic securities created by other parties, typically investment banks, including convertible structured notes. Different companies may issue the fixed-income and convertible components which may be purchased separately, and at different times. The Fund's holdings of synthetic convertible securities are considered equity securities for purposes of the Fund's policy to invest at least 50% of its managed assets in equity securities. See "Investment Objective and Principal Investment Strategies -- Principal Investment Strategies -- Synthetic Convertible Securities."
RULE 144A SECURITIES. The Fund may invest without limit in securities that have not been registered for public sale, but that are eligible for purchase and sale by certain qualified institutional buyers ("Rule 144A Securities"). Calamos, under the supervision of the Board of Trustees, will determine whether securities purchased under Rule 144A are illiquid (that is, not readily marketable) and thus subject to the Fund's limit on investing no more than 15% of its managed assets in illiquid securities. See "Investment Objective and Principal Investment Strategies -- Principal Investment Strategies -- Rule 144A Securities."
ZERO COUPON SECURITIES. The securities in which the Fund invests may include zero coupon securities, which are debt obligations that are issued or purchased at a significant discount from face value. The discount approximates the total amount of interest the security will accrue and compound over the period until maturity or the particular interest payment date at a rate of interest reflecting the market rate of the security at the time of issuance. Zero coupon securities do not require the periodic payment of interest. These investments benefit the issuer by mitigating its need for cash to meet debt service, but generally
require a higher rate of return to attract
investors who are willing to defer receipt of
cash. These investments may experience greater
volatility in market value than U.S. government
or other securities that make regular payments
of interest. The Fund accrues income on these
investments for tax and accounting purposes,
which is distributable to shareholders and
which, because no cash is received at the time
of accrual, may require the liquidation of
other portfolio securities to satisfy the
Fund's distribution obligations, in which case
the Fund will forgo the opportunity to purchase
additional income producing assets with the
liquidation proceeds. Zero coupon U.S.
government securities include STRIPS and CUBES,
which are issued by the U.S. Treasury as
component parts of U.S. Treasury bonds and
represent scheduled interest and principal
payments on the bonds. See "Investment
Objective and Principal Investment
Strategies -- Principal Investment
Strategies -- Zero Coupon Securities."
OTHER SECURITIES. The Fund may invest in other
securities of various types. Normally, the Fund
invests substantially all of its assets to meet
its investment objective. For temporary
defensive purposes, the Fund may depart from
its principal investment strategies and invest
part or all of its assets in securities with
remaining maturities of less than one year,
cash equivalents, or may hold cash. During such
periods, the Fund may not be able to achieve
its investment objective. See "Investment
Objective and Principal Investment
Strategies -- Principal Investment Strategies."
Use of Leverage by the Fund... The Fund may, but is not required to, use
leverage by issuing preferred shares, borrow
money or issue debt securities. The Fund
currently anticipates that it will issue
cumulative preferred shares, as soon as
practicable after the closing of this offering,
with an aggregate liquidation preference of up
to approximately 33% of the Fund's total assets
immediately after issuance. As a
non-fundamental policy, such preferred shares
or borrowing may not exceed 38% of the Fund's
total assets. However, the Board of Trustees
reserves the right to issue preferred shares or
borrow to the extent permitted by the
Investment Company Act of 1940 (the "1940
Act"). See "Leverage." The Fund may not be
leveraged at all times and the amount of
borrowing or leverage, if any, may vary
depending upon a variety of factors, including
Calamos' outlook for the market and the costs
that the Fund would incur as a result of such
leverage. Leverage involves greater risks. The
Fund's leveraging strategy may not be
successful. By leveraging its investment
portfolio, the Fund creates an opportunity for
increased net income or capital appreciation.
However, the use of leverage also involves
risks, which can be significant. These risks
include the possibility that the value of the
assets acquired with the proceeds of leverage
decreases although the Fund's liability to
holders of preferred shares or other types of
leverage is fixed, greater volatility in the
Fund's net asset value and the market price of
the Fund's common shares and higher expenses.
In addition, the rights of
4
|
lenders and the holders of preferred shares and
debt securities issued by the Fund will be
senior to the rights of the holders of common
shares with respect to the payment of dividends
or upon liquidation. Holders of preferred
shares will have voting rights in addition to
and separate from the voting rights of common
shareholders. See "Description of
Shares -- Preferred Shares" and "Certain
Provisions of the Agreement and Declaration of
Trust and By-Laws." The holders of preferred
shares, on the one hand, and the holders of the
common shares, on the other, may have interests
that conflict in certain situations. Since
Calamos' management fee is based upon a
percentage of the Fund's managed assets, which
include assets attributable to any outstanding
leverage, the investment management fee will be
higher if the Fund is leveraged and Calamos
will have an incentive to leverage the Fund.
Calamos intends to leverage the Fund only when
it believes that the potential return on
additional investments acquired with the
proceeds of leverage is likely to exceed the
costs incurred in connection with the borrowing
or issuance of preferred shares. The Fund will
pay and common shareholders will effectively
bear any costs and expenses relating to any
borrowings and to the issuance and ongoing
maintenance of preferred shares. Such costs and
expenses include the higher management fee
resulting from the use of any such leverage.
See "Leverage" and "Risk Factors -- Leverage."
Interest Rate Transactions.... In order to seek to reduce the interest rate
risk inherent in the Fund's underlying
investments and capital structure, the Fund, if
market conditions are deemed favorable, likely
will enter into interest rate swap or cap
transactions to attempt to protect itself from
increasing dividend or interest expenses on its
leverage. The use of interest rate swaps and
caps is a highly specialized activity that
involves investment techniques and risks
different from those associated with ordinary
portfolio security transactions.
In an interest rate swap, the Fund would agree
to pay to the other party to the interest rate
swap (which is known as the "counterparty") a
fixed rate payment in exchange for the
counterparty agreeing to pay to the Fund a
payment at a variable rate that is expected to
approximate the rate on any variable rate
payment obligation on the Fund's leverage. The
payment obligations would be based on the
notional amount of the swap.
In an interest rate cap, the Fund would pay a
premium to the counterparty to the interest
rate cap and, to the extent that a specified
variable rate index exceeds a predetermined
fixed rate, would receive from the counterparty
payments of the difference based on the
notional amount of such cap. Depending on the
state of interest rates in general, the Fund's
use of interest rate swap or cap transactions
could enhance or harm the overall performance
of the common shares. See "Interest Rate
Transactions."
Investment Adviser............ Calamos is the Fund's investment adviser.
Calamos is responsible on a day-to-day basis
for investment of the Fund's portfolio in
accordance with its investment objective and
policies. Calamos
5
|
makes all investment decisions for the Fund and
places purchase and sale orders for the Fund's
portfolio securities. As of January 31, 2004,
Calamos managed approximately $25.3 billion in
assets of individuals and institutions. Calamos
is a wholly-owned subsidiary of Calamos
Holdings, Inc. ("Holdings"). Holdings is
controlled by John P. Calamos, who has been
engaged in the investment advisory business
since 1977.
The Fund pays Calamos an annual fee, payable
monthly, for its investment management services
equal to 1.00% of the Fund's average weekly
managed assets. See "Management of the Fund."
Portfolio Manager............. John P. Calamos, Nick P. Calamos and John P.
Calamos, Jr. are responsible for managing the
portfolio of the Fund. During the past five
years, John P. Calamos has been a Chairman, CEO
and Co-Chief Investment Officer of Calamos;
Nick P. Calamos has been a Senior Executive
Vice President and Co-Chief Investment Officer
of Calamos; and John P. Calamos, Jr. has been
an Executive Vice President of Calamos.
Listing....................... The common shares have been authorized for
listing on the New York Stock Exchange under
the symbol "CSQ," subject to official notice of
issuance.
Custodian, Transfer Agent and
Dividend Disbursing Agent..... The Bank of New York will serve as the Fund's
custodian, transfer agent and dividend
disbursing agent. See "Custodian, Transfer
Agent and Dividend Disbursing Agent."
Fund Accountant............... State Street Bank and Trust Company ("State
Street") will provide fund accounting and
financial accounting services to the Fund.
Market Price of Common
Shares........................ Common shares of closed-end investment
companies frequently trade at prices lower than
their net asset value. The Fund's net asset
value will be reduced immediately following
this offering by the sales load and the amount
of the organization and offering expenses paid
by the Fund. See "Use of Proceeds." In addition
to net asset value, the market price of the
Fund's common shares may be affected by such
factors as the Fund's use of leverage, dividend
stability, portfolio credit quality, liquidity,
market supply and demand and the Fund's
dividends paid (which are, in turn, affected by
expenses), call protection for portfolio
securities and interest rate movements. See
"Leverage," "Risk Factors" and "Description of
Shares." The Fund's common shares are designed
primarily for long-term investors, and you
should not purchase common shares if you intend
to sell them shortly after purchase.
Distributions................. Subject to the discussion in the following
paragraph, commencing with the Fund's first
dividend, the Fund intends to distribute to
common shareholders all or a portion of its net
investment income monthly and net realized
capital gains, if any, at least annually. The
Fund expects to declare the initial monthly
dividend on the common shares within
approximately 60 days of the completion of this
offering and to pay that initial monthly
6
|
dividend approximately 90 days after the
completion of this offering. At times, in order
to maintain a stable level of distributions,
the Fund may pay out less than all of its net
investment income or pay out accumulated
undistributed income in addition to current net
investment income.
In January 2004, Calamos, on behalf of itself
and certain funds, filed an exemptive
application with the Commission seeking an
order under the 1940 Act facilitating the
implementation of a dividend policy calling for
monthly distributions of a fixed percentage of
its net asset value ("Managed Dividend
Policy"). The application included the Fund as
a party. If, and when, Calamos, on behalf of
itself and other parties, receives the
requested relief, the Fund may, subject to the
determination of its Board of Trustees,
implement a Managed Dividend Policy. Under a
Managed Dividend Policy, if, for any
distribution, net investment income and net
realized capital gains were less than the
amount of the distribution, the differences
would be distributed from the Fund's assets.
Pursuant to the Fund's Automatic Dividend
Reinvestment Plan, unless a shareholder is
ineligible or elects otherwise, all dividends
and capital gains distributions are
automatically reinvested in additional common
shares of the Fund. However, an investor can
choose to receive distributions in cash. Since
not all investors can participate in the
Automatic Dividend Reinvestment Plan, you
should contact your broker or nominee to
confirm that you are eligible to participate in
the plan. See "Dividends and Distributions;
Automatic Dividend Reinvestment Plan."
Risks......................... NO OPERATING HISTORY. The Fund is a newly
organized closed-end management investment
company and has no operating history or history
of public trading. See "Risk Factors -- No
Operating History."
MARKET PRICE OF SHARES. Shares of closed-end
funds frequently trade at a market price that
is below their net asset value. This is
commonly referred to as "trading at a
discount." This characteristic of shares of
closed-end funds is a risk separate and
distinct from the risk that the Fund's net
asset value may decrease. Investors who sell
their shares within a relatively short period
after completion of the public offering are
likely to be exposed to this risk. Accordingly,
the Fund is designed primarily for long-term
investors and should not be considered a
vehicle for trading purposes. Following the
offering, net asset value will be reduced by
the sales load and the amount of organizational
and offering expenses paid by the Fund.
Immediately following any offering of preferred
shares, net asset value will be reduced by the
costs of that offering paid by the Fund. See
"Risk Factors -- Market Price of Shares."
EQUITY SECURITIES. Equity investments are
subject to greater fluctuations in market value
than other asset classes as a result of such
factors as the issuer's business performance,
investor perceptions, stock market trends and
general economic
7
|
conditions. Equity securities are subordinated
to bonds and other debt instruments in a
company's capital structure in terms of
priority to corporate income and liquidation
payments.
HIGH YIELD SECURITIES. The Fund may invest in
high yield securities of any rating. Investment
in high yield securities involves substantial
risk of loss. Below investment grade
non-convertible debt securities or comparable
unrated securities are commonly referred to as
"junk bonds" and are considered predominantly
speculative with respect to the issuer's
ability to pay interest and principal and are
susceptible to default or decline in market
value due to adverse economic and business
developments. The market values for high yield
securities tend to be very volatile, and these
securities are less liquid than investment
grade debt securities. For these reasons, your
investment in the Fund is subject to the
following specific risks:
- increased price sensitivity to changing
interest rates and to a deteriorating
economic environment;
- greater risk of loss due to default or
declining credit quality;
- adverse company specific events are more
likely to render the issuer unable to make
interest and/or principal payments; and
- if a negative perception of the high yield
market develops, the price and liquidity of
high yield securities may be depressed. This
negative perception could last for a
significant period of time.
Adverse changes in economic conditions are more
likely to lead to a weakened capacity of a high
yield issuer to make principal payments and
interest payments than an investment grade
issuer. The principal amount of high yield
securities outstanding has proliferated in the
past decade as an increasing number of issuers
have used high yield securities for corporate
financing. An economic downturn could severely
affect the ability of highly leveraged issuers
to service their debt obligations or to repay
their obligations upon maturity.
The secondary market for high yield securities
may not be as liquid as the secondary market
for more highly rated securities, a factor
which may have an adverse effect on the Fund's
ability to dispose of a particular security.
There are fewer dealers in the market for high
yield securities than for investment grade
obligations. The prices quoted by different
dealers may vary significantly and the spread
between the bid and asked price is generally
much larger than for higher quality
instruments. Under adverse market or economic
conditions, the secondary market for high yield
securities could contract further, independent
of any specific adverse changes in the
condition of a particular issuer, and these
instruments may become illiquid. As a result,
the Fund could find it more difficult to sell
these securities or may be able to sell the
securities only at prices lower than if such
securities were widely traded. Prices realized
upon the sale of such lower rated or unrated
securities, under these
8
|
circumstances, may be less than the prices used
in calculating the Fund's net asset value. See
"Risk Factors -- High Yield Securities."
INTEREST RATE RISK. In addition to the risks
discussed above, debt securities, including
high yield securities, are subject to certain
risks, including:
- if interest rates go up, the value of debt
securities in the Fund's portfolio generally
will decline;
- during periods of declining interest rates,
the issuer of a security may exercise its
option to prepay principal earlier than
scheduled, forcing the Fund to reinvest in
lower yielding securities. This is known as
call or prepayment risk. Debt securities
frequently have call features that allow the
issuer to repurchase the security prior to
its stated maturity. An issuer may redeem an
obligation if the issuer can refinance the
debt at a lower cost due to declining
interest rates or an improvement in the
credit standing of the issuer;
- during periods of rising interest rates, the
average life of certain types of securities
may be extended because of slower than
expected principal payments. This may lock in
a below market interest rate, increase the
security's duration (the estimated period
until the security is paid in full) and
reduce the value of the security. This is
known as extension risk; and
- market interest rates currently are at
historically low levels. See "Risk
Factors -- Interest Rate Risks."
DEFAULT RISK. Default risk refers to the risk
that a company who issues a debt security will
be unable to fulfill its obligations to repay
principal and interest. The lower a debt
security is rated, the greater the default
risk.
ILLIQUID INVESTMENTS. The Fund may invest up
to 15% of its managed assets in securities
that, at the time of investment, are illiquid
(determined using the Commission's standard
applicable to investment companies, i.e.,
securities that cannot be disposed of within 7
days in the ordinary course of business at
approximately the value at which the Fund has
valued the securities). The Fund may also
invest without limit in securities that have
not been registered for public sale, but that
are eligible for purchase and sale by certain
qualified institutional buyers. Calamos, under
the supervision of the Board of Trustees, will
determine whether securities purchased under
Rule 144A are illiquid (that is, not readily
marketable) and thus subject to the Fund's
limit of investing no more than 15% of its
managed assets in illiquid securities.
Investments in Rule 144A Securities could have
the effect of increasing the amount of the
Fund's assets invested in illiquid securities
if qualified institutional buyers are unwilling
to purchase these Rule 144A Securities.
Illiquid securities may be difficult to dispose
of at a fair price at the times when the Fund
believes it is desirable to do so. Investment
of the Fund's assets in illiquid securities may
restrict the Fund's
9
|
ability to take advantage of other market
opportunities. The market price of illiquid
securities generally is more volatile than that
of more liquid securities, which may adversely
affect the price that the Fund pays for or
recovers upon the sale of illiquid securities.
Illiquid securities are also more difficult to
value and Calamos' judgment may play a greater
role in the valuation process. The risks
associated with illiquid securities may be
particularly acute in situations in which the
Fund's operations require cash and could result
in the Fund borrowing to meet its short-term
needs or incurring losses on the sale of
illiquid securities. See "Risk
Factors -- Illiquid Investments."
FOREIGN SECURITIES. Investments in non-U.S.
issuers may involve unique risks compared to
investing in securities of U.S. issuers. These
risks are more pronounced to the extent that
the Fund invests a significant portion of its
non-U.S. investments in one region or in the
securities of emerging market issuers. These
risks may include:
- less information about non-U.S. issuers or
markets may be available due to less rigorous
disclosure or accounting standards or
regulatory practices;
- many non-U.S. markets are smaller, less
liquid and more volatile. In a changing
market, Calamos may not be able to sell the
Fund's portfolio securities at times, in
amounts and at prices it considers
reasonable;
- an adverse effect of currency exchange rates
or controls on the value of the Fund's
investments;
- the economies of non-U.S. countries may grow
at slower rates than expected or may
experience a downturn or recession;
- economic, political and social developments
may adversely affect the securities markets,
including expropriation and nationalization;
- the difficulty in obtaining or enforcing a
court judgment in non-U.S. countries;
- restrictions on foreign investments in
non-U.S. jurisdictions;
- difficulties in effecting the repatriation of
capital invested in non-U.S. countries; and
- withholding and other non-U.S. taxes may
decrease the Fund's return.
|
See "Risk Factors -- Foreign Securities."
CURRENCY RISK. The value of the securities denominated or quoted in foreign currencies may be adversely affected by fluctuations in the relative currency exchange rates and by exchange control regulations. The Fund's investment performance may be negatively affected by a devaluation of a currency in which the Fund's investments are denominated or quoted. Further, the Fund's investment performance may be significantly affected, either positively or negatively, by currency exchange
rates because the U.S. dollar value of securities denominated or quoted in another currency will increase or decrease in response to changes in the value of such currency in relation to the U.S. dollar. See "Risk Factors -- Currency Risks."
CONVERTIBLE SECURITIES. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. The market values of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. However, the convertible's market value tends to reflect the market price of the common stock of the issuing company when that stock price is greater than the convertible's "conversion price." The conversion price is defined as the predetermined price at which the convertible could be exchanged for the associated stock. As the market price of the underlying common stock declines, the price of the convertible security tends to be influenced more by the yield of the convertible security. Thus, it may not decline in price to the same extent as the underlying common stock. In the event of a liquidation of the issuing company, holders of convertible securities would be paid before the company's common stockholders. Consequently, the issuer's convertible securities generally entail less risk than its common stock. See "Risk Factors -- Convertible Securities."
SYNTHETIC CONVERTIBLE SECURITIES. The value of a synthetic convertible security may respond differently to market fluctuations than a convertible security because a synthetic convertible is composed of two or more separate securities, each with its own market value. In addition, if the value of the underlying common stock or the level of the index involved in the convertible component falls below the exercise price of the warrant or option, the warrant or option may lose all value. See "Risk Factors -- Synthetic Convertible Securities."
LEVERAGE. The Fund may use leverage by issuing preferred shares, borrowing money or issuing debt securities. The Fund currently anticipates that it will issue cumulative preferred shares, as soon as practicable after the closing of this offering, with an aggregate liquidation preference of up to approximately 33% of the Fund's total assets immediately after issuance. As a non-fundamental policy, such preferred shares or borrowing may not exceed 38% of the Fund's total assets. Leverage creates risks which may adversely affect the return for the holders of common shares, including:
- the likelihood of greater volatility of net asset value and market price of the Fund's common shares;
- fluctuations in the dividend rates on any preferred shares or in interest rates on borrowings and short-term debt;
- increased operating costs, which are effectively borne by common shareholders, may reduce the Fund's total return; and
- the potential for a decline in the value of an investment acquired with borrowed funds, while the Fund's obligations under such borrowing remain fixed.
To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund's return will be greater than if leverage had not been used. Conversely, if the income or capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage or if the Fund incurs capital losses, the return of the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to common shareholders as dividends and other distributions will be reduced or potentially eliminated. Common shareholders bear the costs of any leverage.
Certain types of borrowings may result in the Fund being subject to covenants in credit agreements, including those relating to asset coverage, borrowing base and portfolio composition requirements and additional covenants that may affect the Fund's ability to pay dividends and distributions on common shares in certain instances and may affect the Fund's implementation of its investment strategy. The Fund may also be required to pledge its assets to the lenders in connection with certain types of borrowings. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more nationally recognized rating organizations which may issue ratings for the preferred shares or short-term debt instruments issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. See "Risk Factors -- Leverage."
INTEREST RATE TRANSACTIONS RISK. The Fund may
enter into an interest rate swap or cap
transaction to attempt to protect itself from
increasing dividend or interest expenses on its
leverage resulting from increasing short-term
interest rates. A decline in interest rates may
result in a decline in the value of the swap or
cap, which may result in a decline in the net
asset value of the Fund. See "Risk
Factors -- Interest Rate Transactions Risk."
TAX RISK. The Fund may invest in certain
securities, such as certain convertible
securities, for which the federal income tax
treatment may not be clear or may be subject to
recharacterization by the Internal Revenue
Service. It could be more difficult for the
Fund to comply with the tax requirements
applicable to regulated investment companies if
the tax characterization of the Fund's
investments or the tax treatment of the income
from such investments were successfully
challenged by the Internal Revenue Service. See
"U.S. Federal Income Tax Matters."
MANAGEMENT RISK. Calamos' judgment about the attractiveness, relative value or potential appreciation of a particular sector, security or investment strategy may prove to be incorrect. See "Risk Factors -- Management Risk."
ANTITAKEOVER PROVISIONS. The Fund's Agreement and Declaration of Trust and By-laws include provisions that could limit the ability of other entities or persons to acquire control of the Fund or to change the composition of its Board of Trustees. Such provisions could limit the ability of shareholders to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. These provisions include staggered terms of office for the Trustees, advance notice requirements for shareholder proposals, and super-majority voting requirements for certain transactions with affiliates, converting the Fund to an open-end investment company or a merger, asset sale or similar transaction. Holders of preferred shares will have voting rights in addition to and separate from the voting rights of common shareholders with respect to certain of these matters. See "Description of Shares -- Preferred Shares" and "Certain Provisions of the Agreement and Declaration of Trust and By-Laws." The holders of preferred shares, on the one hand, and the holders of the common shares, on the other, may have interests that conflict in these situations. See "Risk Factors -- Antitakeover Provisions."
MARKET DISRUPTION RISK. Certain events have a disruptive effect on the securities markets, such as terrorist attacks (including the terrorist attacks in the United States on September 11, 2001), war and other geopolitical events, earthquakes, storms and other disasters. The Fund cannot predict the effects of similar events in the future on the U.S. economy or any foreign economy.
SUMMARY OF FUND EXPENSES
The following table shows the Fund's expenses as a percentage of net assets attributable to common shares assuming the Fund issues preferred shares in an amount equal to 33% of the Fund's total assets immediately after issuance.
SHAREHOLDER TRANSACTION FEES Sales Load (as a percentage of offering price).............. 4.50% Offering Expenses of the Common Shares borne by the Fund (as a percentage of offering price)(1)........................ 0.20% Offering Expenses of the Preferred Shares expected to be borne by the Fund (as a percentage of offering price)(2)................................................. 0.60% Dividend Reinvestment Plan Fees............................. None(3) |
PERCENTAGE OF
NET ASSETS
ATTRIBUTABLE TO
COMMON
SHARES(4)
---------------
ANNUAL EXPENSES
Management Fee.............................................. 1.50%
Other Expenses.............................................. 0.31%
Interest Payments on Borrowed Funds(5)...................... None
----
Total Annual Expenses....................................... 1.81%
|
(2) If the Fund offers preferred shares, costs of that offering, estimated to be approximately 1.25% of the total amount of the preferred share offering, will effectively be borne by the common shareholders and will result in a reduction of the net asset value of the common shares. Assuming the issuance of preferred shares in the amount equal to 33% of the Fund's total assets immediately after issuance, those offering costs are estimated to be approximately $0.09 per common share (0.60% of the offering price of the common shares).
(3) A shareholder that directs the plan agent to sell shares held in a dividend reinvestment account will pay brokerage charges.
(4) If the Fund does not issue preferred shares, or otherwise use leverage, the Fund's expenses would be as set out in the table below:
PERCENTAGE OF
NET ASSETS
ATTRIBUTABLE TO
COMMON
SHARES
---------------
ANNUAL EXPENSES
Management Fee.............................................. 1.00%
Other Expenses.............................................. 0.15%
Interest Payments on Borrowed Funds(5)...................... None
----
Total Annual Expenses....................................... 1.15%
|
(5) In the event the Fund, as an alternative to issuing preferred shares, utilizes leverage through borrowings in an amount equal to 33% of the Fund's total assets (including the amount obtained from leverage), it is estimated that, as a percentage of net assets attributable to common shares, the "Management Fee" would be 1.50%, "Other Expenses" would be 0.18%, "Interest Payments on Borrowed Funds" (assuming an interest rate of 3.75%, which interest rate is subject to change based on prevailing market conditions) would be 1.88% and "Total Annual Expenses" would be 3.56%. Based on the "Total Annual Expenses" and in accordance with the example below, the expenses for years 1, 3, 5 and 10 would be $81, $151, $223 and $412, respectively.
The purpose of the table above is to help you understand all fees and expenses that you, as a common shareholder, would bear directly or indirectly. As of the date of this prospectus, the Fund has not commenced investment operations. The amount set forth under "Other Expenses" is based upon estimates for the current year, assuming no exercise of the over-allotment option granted to the underwriters. The table assumes that the Fund issues 20,000,000 common shares and issues preferred shares as a means of leverage. If the Fund issues fewer common shares, all other things being equal, these expenses, as a percentage of net assets, would increase. If the Fund leverages through borrowing, the Fund would incur interest expense. For additional information with respect to the Fund's expenses, see "Management of the Fund." Other expenses include custodial and transfer agency fees, legal and accounting expenses, and listing fees.
The following example illustrates the expenses (including the sales load of $45, estimated offering and organizational expenses of this offering of $2.00 and the estimated preferred share offering costs of $5.96, assuming preferred shares are issued representing 33% of the Fund's total assets) that you would pay on a $1,000 investment in common shares, assuming (1) net annual expenses of 1.81% of net assets attributable to common shares a 5% annual return and (2) the Fund issues preferred shares in an amount equal to 33% of the Fund's total assets:(1)
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Total Expenses Incurred(1).......................... $70 $107 $146 $255
|
THE FUND
Calamos Strategic Total Return Fund is a newly organized, diversified, closed-end management investment company. The Fund was organized under the laws of the state of Delaware on December 31, 2003, and has registered under the 1940 Act. As a recently organized entity, the Fund has no operating history. The Fund's principal office is located at 1111 East Warrenville Road, Naperville, Illinois 60563-1493, and its telephone number is 1-800-582-6959.
USE OF PROCEEDS
The net proceeds of this offering will be approximately $ (or approximately $ assuming the underwriters exercise the over-allotment option in full) after payment of organizational and offering costs estimated to be approximately $ and the deduction of the sales load. Calamos has agreed to pay organizational expenses and offering costs (other than sales load) that exceed $0.03 per share.
The Fund will invest the net proceeds of the offering in accordance with the Fund's investment objective and policies as stated below. It is presently anticipated that the Fund will invest substantially all of the net proceeds in securities that meet the investment objective and policies within three months after completion of this offering. Pending such investment, the Fund anticipates that all or a portion of the proceeds will be invested in U.S. government securities or high grade, short-term money market instruments. If necessary, the Fund may also purchase, as temporary investments, securities of other open-or closed-end investment companies that invest primarily in the types of securities in which the Fund may invest directly. See "Investment Objective and Principal Investment Strategies."
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide total return through a combination of capital appreciation and current income. The Fund's investment objective may be changed by the Board of Trustees without a shareholder vote, except that the Fund will give shareholders at least 60 days notice of any change to the Fund's investment objective. The Fund makes no assurance that it will realize its objective. An investment in the Fund may be speculative in that it involves a high degree of risk and should not constitute a complete investment program. See "Risk Factors."
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest primarily in common and preferred stocks, convertible securities and income producing securities such as investment grade and below investment grade (high yield/high risk) debt securities. The Fund, under normal circumstances, will invest at least 50% of its managed assets in equity securities (including securities that are convertible into equity securities). The Fund may invest up to 35% of its managed assets in securities of foreign issuers, including debt and equity securities of corporate issuers and debt securities of government issuers, in developed and emerging markets. The Fund may invest up to 15% of its managed assets in securities of foreign issuers in emerging markets.
Calamos will dynamically allocate the Fund's investments among multiple asset classes, seeking to obtain an appropriate balance of risk and reward through all market cycles using multiple strategies and combining them to seek to achieve favorable risk adjusted returns.
Calamos analyzes securities for the Fund's portfolio using an approach that focuses on assessing a total enterprise value before assessing the value of the securities issued by a company. Calamos seeks to assess the value of an issuer's total enterprise by studying its financial statements, including its balance sheet. Once enterprise value is determined, Calamos seeks to assess the value of the issuer's different types of securities, taking into account the business risk of the issuer, its competitive position and the seniority of each type of security relative to the rest of the issuer's capital structure. This approach serves as the basis for the Calamos research team's design and use of proprietary models which, along with risk management and portfolio construction techniques, assist in determining whether a given security presents an investment opportunity for the Fund.
EQUITY SECURITIES. Equity securities include common and preferred stocks, warrants, rights, and depository receipts. Under normal circumstances, the Fund will invest at least 50% of its managed assets in equity securities (including securities that are convertible into equity securities). An investment in the equity securities of a company represents a proportionate ownership interest in that company. Therefore, the Fund participates in the financial success or failure of any company in which it has a equity interest.
HIGH YIELD SECURITIES. The Fund may invest in high yield securities for either current income or capital appreciation or both. The high yield securities in which the Fund invests are rated Ba or lower by Moody's or BB or lower by Standard & Poor's or are unrated but determined by Calamos to be of comparable quality. The Fund may invest in high yield securities of any rating. Non-convertible debt securities rated below investment grade are commonly referred to as "junk bonds" and are considered speculative with respect to the issuer's capacity to pay interest and repay principal. Below investment grade non-convertible debt securities involve greater risk of loss, are subject to greater price volatility and are less liquid, especially during periods of economic uncertainty or change, than higher rated debt securities.
OTHER INCOME SECURITIES. The Fund may also invest in investment grade income securities. The Fund's investments in investment grade income securities may have fixed or variable principal payments and all types of interest rate and dividend payment and reset terms, including fixed rate, adjustable rate, zero coupon, contingent, deferred, payment in kind and auction rate features.
FOREIGN SECURITIES. Although the Fund primarily invests in securities of U.S. issuers, the Fund may invest up to 35% of its managed assets in securities of foreign issuers, including debt and equity securities
of corporate issuers and debt securities of government issuers, in developed and emerging markets. The Fund may invest up to 15% of its managed assets in securities of foreign issuers in emerging markets. A foreign issuer is a company organized under the laws of a foreign country that is principally traded in the financial markets of a foreign country. For purposes of these percentage limitations, foreign securities do not include securities represented by American Depository Receipts ("ADRs") or securities guaranteed by a U.S. person.
CONVERTIBLE SECURITIES. A convertible security is a debt security or preferred stock that is exchangeable for an equity security (typically of the same issuer) at a predetermined price. Depending upon the relationship of the conversion price to the market value of the underlying security, a convertible security may trade more like an equity security than a debt instrument. The Fund may invest in convertible securities of any rating. Securities that are convertible into equity securities are considered equity securities for purposes of the Fund's policy to invest at least 50% of its managed assets in equity securities.
SYNTHETIC CONVERTIBLE SECURITIES. Calamos may also create a "synthetic" convertible security by combining separate securities that possess the two principal characteristics of a true convertible security, i.e., a fixed-income security ("fixed-income component") and the right to acquire an equity security ("convertible component"). The fixed-income component is achieved by investing in non-convertible, fixed-income securities such as bonds, preferred stocks and money market instruments. The convertible component is achieved by investing in warrants or options to buy common stock at a certain exercise price, or options on a stock index. The Fund may also purchase synthetic securities created by other parties, typically investment banks, including convertible structured notes. Convertible structured notes are fixed income debentures linked to equity. Convertible structured notes have the attributes of a convertible security, however, the investment bank that issued the convertible note assumes the credit risk associated with the investment, rather than the issuer of the underlying common stock into which the note is convertible. Different companies may issue the fixed-income and convertible components, which may be purchased separately and at different times. The Fund's holdings of synthetic convertible securities are considered equity securities for purposes of the Fund's policy to invest at least 50% of its managed assets in equity securities.
RULE 144A SECURITIES. The Fund may invest without limit in securities that
have not been registered for public sale, but that are eligible for purchase and
sale by certain qualified institutional buyers ("Rule 144A Securities").
Calamos, under the supervision of the Board of Trustees, will consider whether
securities purchased under Rule 144A are illiquid and thus subject to the Fund's
limit of investing no more than 15% of its managed assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, Calamos will consider the
trading markets for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, Calamos could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market and (4) nature of a security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities will be monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the Fund's holdings of
illiquid securities would be reviewed to determine what, if any, steps are
required to assure that the Fund does not invest more than 15% of its assets in
illiquid securities. Investing in Rule 144A securities could have the effect of
increasing the amount of the portfolio's assets invested in illiquid securities
if qualified institutional buyers are unwilling to purchase such securities.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund
invests include debt obligations of varying maturities issued by the U.S.
Treasury or issued or guaranteed by an agency or instrumentality of the U.S.
government, including the Federal Housing Administration, Federal Financing
Bank, Farmers Home Administration, Export-Import Bank of the United States,
Small Business Administration, Government National Mortgage Association, General
Services Administration, Central Bank for Cooperatives, Federal Farm Credit
Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
National Mortgage Association ("FNMA"), Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board, Student Loan Marketing
Association,
Resolution Fund Corporation and various institutions that previously were or
currently are part of the Farm Credit System (which has been undergoing
reorganization since 1987). Some U.S. government securities, such as U.S.
Treasury bills, Treasury notes and Treasury bonds, which differ only in their
interest rates, maturities and times of issuance, are supported by the full
faith and credit of the United States. Others are supported by: (i) the right of
the issuer to borrow from the U.S. Treasury, such as securities of the Federal
Home Loan Banks; (ii) the discretionary authority of the U.S. government to
purchase the agency's obligations, such as securities of the FNMA; or (iii) only
the credit of the issuer. No assurance can be given that the U.S. government
will provide financial support in the future to U.S. government agencies,
authorities or instrumentalities that are not supported by the full faith and
credit of the United States. Securities guaranteed as to principal and interest
by the U.S. government, its agencies, authorities or instrumentalities include:
(i) securities for which the payment of principal and interest is backed by an
irrevocable letter of credit issued by the U.S. government or any of its
agencies, authorities or instrumentalities; and (ii) participations in loans
made to non-U.S. governments or other entities that are so guaranteed. The
secondary market for certain of these participations is limited and, therefore,
may be regarded as illiquid. U.S. government securities include STRIPS and
CUBES, which are issued by the U.S. Treasury as component parts of U.S. Treasury
bonds and represent scheduled interest and principal payments on the bonds.
ZERO COUPON SECURITIES. The securities in which the Fund invests may include zero coupon securities, which are debt obligations that are issued or purchased at a significant discount from face value. The discount approximates the total amount of interest the security will accrue and compound over the period until maturity or the particular interest payment date at a rate of interest reflecting the market rate of the security at the time of issuance. Zero coupon securities do not require the periodic payment of interest. These investments benefit the issuer by mitigating its need for cash to meet debt service, but generally require a higher rate of return to attract investors who are willing to defer receipt of cash. These investments may experience greater volatility in market value than U.S. government or other securities that make regular payments of interest. The Fund accrues income on these investments for tax and accounting purposes, which is distributable to shareholders and which, because no cash is received at the time of accrual, may require the liquidation of other portfolio securities to satisfy the Fund's distribution obligations, in which case the Fund will forgo the opportunity to purchase additional income producing assets with the liquidation proceeds. Zero coupon U.S. government securities include STRIPS and CUBES, which are issued by the U.S. Treasury as component parts of U.S. Treasury bonds and represent scheduled interest and principal payments on the bonds.
OTHER INVESTMENT COMPANIES. The Fund may invest in the securities of other investment companies to the extent that such investments are consistent with the Fund's investment objective and policies and are permissible under the 1940 Act. Under the 1940 Act, the Fund may not acquire the securities of other domestic or non-U.S. investment companies if, as a result, (1) more than 10% of the Fund's total assets would be invested in securities of other investment companies, (2) such purchase would result in more than 3% of the total outstanding voting securities of any one investment company being held by the Fund, or (3) more than 5% of the Fund's total assets would be invested in any one investment company. These limitations do not apply to the purchase of shares of any investment company in connection with a merger, consolidation, reorganization or acquisition of substantially all the assets of another investment company.
The Fund, as a holder of the securities of other investment companies, will bear its pro rata portion of the other investment companies' expenses, including advisory fees. These expenses are in addition to the direct expenses of the Fund's own operations.
TEMPORARY DEFENSIVE INVESTMENTS. Under unusual market or economic
conditions or for temporary defensive purposes, the Fund may invest up to 100%
of its total assets in securities issued or guaranteed by the U.S. government or
its instrumentalities or agencies, certificates of deposit, bankers' acceptances
and other bank obligations, commercial paper rated in the highest category by a
nationally recognized statistical rating organization or other fixed income
securities deemed by Calamos to be consistent with a defensive posture, or may
hold cash. The yield on such securities may be lower than the yield on lower
rated fixed income securities. During such periods, the Fund may not be able to
achieve its investment objective.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with broker-dealers, member banks of the Federal Reserve System and other financial institutions. Repurchase agreements are arrangements under which the Fund purchases securities and the seller agrees to repurchase the securities within a specific time and at a specific price. The repurchase price is generally higher than the Fund's purchase price, with the difference being income to the Fund. The counterparty's obligations under the repurchase agreement are collateralized with U.S. Treasury and/or agency obligations with a market value of not less than 100% of the obligations, valued daily. Collateral is held by the Fund's custodian in a segregated, safekeeping account for the benefit of the Fund. Repurchase agreements afford the Fund an opportunity to earn income on temporarily available cash at low risk. In the event of commencement of bankruptcy or insolvency proceedings with respect to the seller of the security before repurchase of the security under a repurchase agreement, the Fund may encounter delay and incur costs before being able to sell the security. Such a delay may involve loss of interest or a decline in price of the security. If the court characterizes the transaction as a loan and the Fund has not perfected a security interest in the security, the Fund may be required to return the security to the seller's estate and be treated as an unsecured creditor of the seller. As an unsecured creditor, the Fund would be at risk of losing some or all of the principal and interest involved in the transaction.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend portfolio securities to registered broker-dealers or other institutional investors deemed by Calamos to be of good standing under agreements which require that the loans be secured continuously by collateral in cash, cash equivalents or U.S. Treasury bills maintained on a current basis at an amount at least equal to the market value of the securities loaned. The Fund continues to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned as well as the benefit of an increase and the detriment of any decrease in the market value of the securities loaned and would also receive compensation based on investment of the collateral. The Fund would not, however, have the right to vote any securities having voting rights during the existence of the loan, but could call the loan in anticipation of an important vote to be taken among holders of the securities or of the giving or withholding of consent on a material matter affecting the investment.
As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. At no time would the value of the securities loaned exceed 33 1/3% of the value of the Fund's total assets.
PORTFOLIO TURNOVER. Although the Fund does not purchase securities with a view to rapid turnover, there are no limitations on the length of time that portfolio securities must be held. Portfolio turnover can occur for a number of reasons, including calls for redemption, general conditions in the securities markets, more favorable investment opportunities in other securities, or other factors relating to the desirability of holding or changing a portfolio investment. The portfolio turnover rates may vary greatly from year to year. A high rate of portfolio turnover in the Fund would result in increased transaction expense, which must be borne by the Fund. High portfolio turnover may also result in the realization of capital gains or losses and, to the extent net short-term capital gains are realized, any distributions resulting from such gains will be considered ordinary income for federal income tax purposes.
LEVERAGE
The Fund may issue preferred shares or borrow or issue short-term debt securities to increase its assets available for investment. The Fund currently anticipates that it will issue, as soon as practicable after the closing of this offering, cumulative preferred shares with an aggregate liquidation preference of up to approximately 33% of the Fund's total assets immediately after issuance. It is anticipated that the preferred shares will have a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends. As a non-fundamental policy, such preferred shares or borrowing may not exceed 38% of the Fund's total assets. However, the Board of Trustees reserves the right to issue preferred shares or borrow to the extent permitted by the 1940 Act. The Fund generally will not issue preferred shares or borrow unless Calamos expects that the Fund will achieve a greater return on such borrowed funds than the additional costs the Fund incurs as a result of such borrowing. The Fund also
may borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise might require untimely dispositions of the Fund's holdings. When the Fund leverages its assets, the fees paid to Calamos for investment management services will be higher than if the Fund did not borrow because Calamos' fees are calculated based on the Fund's managed assets, which include the proceeds of the issuance of preferred shares or any outstanding borrowings. Consequently, the Fund and Calamos may have differing interests in determining whether to leverage the Fund's assets.
The Fund's use of leverage is premised upon the expectation that the Fund's preferred share dividends or borrowing cost will be lower than the return the Fund achieves on its investments with the proceeds of the issuance of preferred shares or borrowing. Such difference in return may result from the Fund's higher credit rating or the short-term nature of its borrowing compared to the long-term nature of its investments. Since the total assets of the Fund (including the assets obtained from leverage) will be invested in the higher yielding portfolio investments or portfolio investments with the potential for capital appreciation, the holders of common shares will be the beneficiaries of the incremental return. Should the differential between the underlying assets and cost of leverage narrow, the incremental return "pick up" will be reduced. Furthermore, if long-term interest rates rise or the Fund otherwise incurs losses on its investments, the Fund's net asset value attributable to its common shares will reflect the decline in the value of portfolio holdings resulting therefrom.
Leverage creates risks which may adversely affect the return for the holders of common shares, including:
- the likelihood of greater volatility of net asset value and market price of common shares;
- fluctuations in the dividend rates on any preferred shares or in interest rates on borrowings and short-term debt;
- increased operating costs, which may reduce the Fund's total return; and
- the potential for a decline in the value of an investment acquired with borrowed funds, while the Fund's obligations under such borrowing remains fixed.
To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund's return will be greater than if leverage had not been used. Conversely, if the income or capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage or if the Fund incurs capital losses, the return of the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to common shareholders as dividends and other distributions will be reduced or potentially eliminated. Calamos may determine to maintain the Fund's leveraged position if it expects that the long-term benefits to the Fund's common shareholders of maintaining the leveraged position will outweigh the current reduced return. Capital raised through the issuance of preferred shares or borrowing will be subject to dividend payments or interest costs that may or may not exceed the income and appreciation on the assets purchased. The issuance of additional classes of preferred shares involves offering expenses and other costs and may limit the Fund's freedom to pay dividends on common shares or to engage in other activities. The Fund also may be required to maintain minimum average balances in connection with borrowings or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate. The Fund will pay (and common shareholders will bear) any costs and expenses relating to any borrowings and to the issuance and ongoing maintenance of preferred shares (for example, distribution related expenses such as a participation fee paid at what it expects will be an annual rate of 0.25% of preferred share liquidation preference to broker-dealers successfully participating in preferred share auctions). Net asset value will be reduced immediately following any offering of preferred shares by the costs of that offering paid by the Fund.
Under the 1940 Act, the Fund is not permitted to issue preferred shares
unless immediately after such issuance the net asset value of the Fund's
portfolio is at least 200% of the liquidation value of the outstanding preferred
shares (i.e., such liquidation value may not exceed 50% of the value of the
Fund's
total assets). In addition, the Fund is not permitted to declare any cash dividend or other distribution on its common shares unless, at the time of such declaration, the net asset value of the Fund's portfolio (determined after deducting the amount of such dividend or distribution) is at least 200% of such liquidation value. In the event preferred shares are issued, the Fund intends, to the extent possible, to purchase or redeem preferred shares from time to time to maintain coverage of any preferred shares of at least 200%. Under the 1940 Act, the Fund is not permitted to incur indebtedness unless immediately after such borrowing the Fund has an asset coverage of at least 300% of the aggregate outstanding principal balance of indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the value of the Fund's total assets). Additionally, under the 1940 Act, the Fund may not declare any dividend or other distribution upon any class of its shares, or purchase any such shares, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, an asset coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be.
The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more nationally recognized statistical rating organizations which may issue ratings for the preferred shares or short-term debt instruments issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. Certain types of borrowings may result in the Fund being subject to covenants in credit agreements, including those relating to asset coverage, borrowing base and portfolio composition requirements and additional covenants that may affect the Fund's ability to pay dividends and distributions on common shares in certain instances. The Fund may also be required to pledge its assets to the lenders in connection with certain types of borrowings. Calamos does not anticipate that these covenants or restrictions will adversely affect its ability to manage the Fund's portfolio in accordance with the Fund's investment objective and policies. Due to these covenants or restrictions, the Fund may be forced to liquidate investments at times and at prices that are not favorable to the Fund, or the Fund may be forced to forgo investments that Calamos otherwise views as favorable.
If and the extent to which the Fund employs leverage will depend on many factors, the most important of which are investment outlook, market conditions and interest rates. Successful use of a leveraging strategy depends on Calamos' ability to predict correctly interest rates and market movements. There is no assurance that a leveraging strategy will be successful during any period in which it is employed.
EFFECTS OF LEVERAGE
Assuming the Fund issues preferred shares with a liquidation preference equal to approximately 33% of the Fund's total assets and an annual dividend rate of 1.10% of such liquidation preference (which rate is approximately the current rate which Calamos expects the Fund to pay, based on market rates as of February 19, 2004), income generated by the Fund's portfolio (net of estimated expenses) would need to exceed 0.37% in order to cover such dividend payments on the preferred shares. Actual dividend rates may vary and may be significantly higher or lower than the rate estimated above.
The following table illustrates the hypothetical effect on the return to a holder of the Fund's common shares of the leverage obtained by issuing preferred shares with a liquidation value equal to 33% of the Fund's total assets, assuming hypothetical annual returns of the Fund's portfolio of minus 10% to plus 10% and dividends on preferred shares at an annual dividend rate of 1.10%. As the table shows, leverage generally increases the return to common shareholders when portfolio return is positive and greater than the cost of leverage and decreases the return when the portfolio return is negative or less than the cost of leverage. The figures appearing in the table are hypothetical and actual returns may be greater or less than those appearing in the table.
Assumed Portfolio Return (Net of Expenses)... (10)% (5)% 0% 5% 10% Corresponding Common Share Return............ (15.55)% (8.05)% (0.55)% 6.95% 14.45% |
Until the Fund issues preferred shares or borrows, the Fund's common shares will not be leveraged, and the risks and special considerations related to leverage described in this prospectus will not apply. Such leveraging of the common shares cannot be fully achieved until the proceeds resulting from the use of leverage have been invested in longer term debt instruments or equity securities in accordance with the Fund's investment objective and policies.
INTEREST RATE TRANSACTIONS
In order to seek to reduce the interest rate risk inherent in the Fund's underlying investments and capital structure, the Fund, if market conditions are deemed favorable, likely will enter into interest rate swap or cap transactions to attempt to protect itself from increasing dividend or interest expenses on its leverage. Interest rate swaps involve the Fund's agreement with the swap counterparty to pay a fixed rate payment in exchange for the counterparty agreeing to pay the Fund a payment at a variable rate that is expected to approximate the rate of any variable rate payment obligation on the Fund's leverage. The payment obligations would be based on the notional amount of the swap.
The Fund may use an interest rate cap, which would require it to pay a premium to the cap counterparty and would entitle it, to the extent that a specified variable rate index exceeds a predetermined fixed rate, to receive from the counterparty payment of the difference based on the notional amount of such cap. The Fund would use interest rate swaps or caps only with the intent to reduce or eliminate the risk that an increase in short-term interest rates could have on common share net earnings as a result of leverage.
The Fund will usually enter into swaps or caps on a net basis; that is, the two payment streams will be netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The Fund intends to maintain in a segregated account with its custodian cash or liquid securities having a value at least equal to the Fund's net payment obligations under any swap transaction, marked-to-market daily.
The use of interest rate swaps and caps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. Depending on the state of interest rates in general, the Fund's use of interest rate swaps or caps could enhance or harm the overall performance of the common shares. To the extent that there is a decline in interest rates for maturities equal to the remaining maturity on the Fund's fixed rate payment obligation under the interest rate swap or equal to the remaining term of the interest rate cap, the value of the swap or cap (which initially has a value of zero) could decline, and could result in a decline in the net asset value of the common shares. If, on the other hand, such rates were to increase, the value of the swap or cap could increase, and thereby increase the net asset value of the common shares. As interest rate swaps or caps approach their maturity, their positive or negative value due to interest rate changes will approach zero.
In addition, if the short-term interest rates effectively received by the
Fund during the term of an interest rate swap are lower than the Fund's fixed
rate of payment on the swap, the swap will increase the Fund's operating
expenses and reduce common share net earnings. For example, if the Fund were to
(A) issue preferred shares representing 33% of the Fund's total assets and (B)
enter into one or more interest rate swaps in a notional amount equal to 75% of
its outstanding preferred shares under which the Fund would receive a short-term
swap rate of 1.50% and pay a fixed swap rate of 3.50% over the term of the swap,
the swap would effectively increase Fund expenses and reduce Fund common share
net earnings by approximately 0.75% as a percentage of net assets attributable
to common shares and approximately 0.50% as a percentage of managed assets. If,
on the other hand, the short-term interest rates effectively received by the
Fund are higher than the Fund's fixed rate of payment on the interest rate swap,
the swap would enhance common share net earnings. In either case, the swap would
have the effect of reducing fluctuations in the Fund's cost of leverage due to
changes in short-term interest rates during the term of the swap. The example
above is purely for illustrative purposes and is not predictive of the actual
percentage of the Fund's leverage that will be hedged by a swap, the actual
fixed rates that the Fund will
pay under the swap (which will depend on market interest rates for the applicable maturities at the time the Fund enters into swaps) or the actual short-term rates that the Fund will receive on any swaps (which fluctuate frequently during the term of the swap, and may change significantly from initial levels), or the actual impact such swaps will have on the Fund's expenses and common share net earnings.
Buying interest rate caps could enhance the performance of the common shares by providing a maximum leverage expense. Buying interest rate caps could also increase the operating expenses of the Fund and decrease the net earnings of the common shares in the event that the premium paid by the Fund to the counterparty exceeds the additional amount the Fund would have been required to pay on its preferred shares due to increases in short-term interest rates during the term of the cap had it not entered into the cap agreement. The Fund has no current intention of selling an interest rate swap or cap. The Fund will monitor any interest rate swaps or caps with a view to ensuring that the Fund remains in compliance with all applicable tax requirements.
Interest rate swaps and caps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the counterparty defaults, the Fund would not be able to use the anticipated net receipts under the swap or cap to offset the dividend or interest payments on the Fund's leverage. Depending on whether the Fund would be entitled to receive net payments from the counterparty on the swap or cap, which in turn would depend on the general state of short-term interest rates at that point in time, such a default could negatively impact the performance of the common shares.
Although this will not guarantee that the counterparty does not default, the Fund will not enter into an interest rate swap or cap transaction with any counterparty that Calamos believes does not have the financial resources to honor its obligation under the interest rate swap or cap transaction. Further, Calamos will continually monitor the financial stability of a counterparty to an interest rate swap or cap transaction in an effort to proactively protect the Fund's investments.
In addition, at the time the interest rate swap or cap transaction reaches its scheduled termination date, there is a risk that the Fund will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable as on the expiring transaction. If this occurs, it could have a negative impact on the performance of the common shares.
The Fund may choose or be required to redeem some or all preferred shares or prepay any borrowings. This redemption would likely result in the Fund seeking to terminate early all or a portion of any swap or cap transaction. Such early termination of a swap could result in a termination payment by or to the Fund. An early termination of a cap could result in a termination payment to the Fund.
RISK FACTORS
GENERAL. The Fund is a newly organized, diversified, closed-end management investment company designed primarily as a long-term investment and not as a trading tool. The Fund invests in a diversified portfolio of common and preferred stocks and income producing securities such as investment grade and below investment grade debt securities. An investment in the Fund's common shares may be speculative and it involves a high degree of risk. The Fund should not constitute a complete investment program. Due to the uncertainty in all investments, there can be no assurance that the Fund will achieve its investment objective.
NO OPERATING HISTORY. The Fund has no operating history or history of public trading.
MARKET PRICE OF SHARES. Shares of closed-end funds frequently trade at a market price that is below their net asset value. This is commonly referred to as "trading at a discount." This characteristic of shares of closed-end funds is a risk separate and distinct from the risk that the Fund's net asset value may decrease. Investors who sell their shares within a relatively short period after completion of the public offering are likely to be exposed to this risk. Accordingly, the Fund is designed primarily for long-term
investors and should not be considered a vehicle for trading purposes. Net asset value will be reduced following the offering by the sales load and the amount of organizational and offering expenses paid by the Fund and immediately following any offering of preferred shares by the costs of that offering paid by the Fund.
Whether investors will realize a gain or loss upon the sale of the Fund's common shares will depend upon whether the market value of the shares at the time of sale is above or below the price the investor paid, taking into account transaction costs, for the shares and is not directly dependent upon the Fund's net asset value. Because the market value of the Fund's shares will be determined by factors such as the relative demand for and supply of the shares in the market, general market conditions and other factors beyond the control of the Fund, the Fund cannot predict whether its common shares will trade at, below or above net asset value, or below or above the initial offering price for the shares.
EQUITY SECURITIES. Equity investments are subject to greater fluctuations in market value than other asset classes as a result of such factors as the issuer's business performance, investor perceptions, stock market trends and general economic conditions. Equity securities are subordinated to bonds and other debt instruments in a company's capital structure in terms of priority to corporate income and liquidation payments.
HIGH YIELD SECURITIES. The Fund may invest in high yield securities of any rating. Investment in high yield securities involves substantial risk of loss. Below investment grade non-convertible debt securities or comparable unrated securities are commonly referred to as "junk bonds" and are considered predominantly speculative with respect to the issuer's ability to pay interest and principal and are susceptible to default or decline in market value due to adverse economic and business developments. The market values for high yield securities tend to be very volatile, and these securities are less liquid than investment grade debt securities. For these reasons, your investment in the Fund is subject to the following specific risks:
- increased price sensitivity to changing interest rates and to a deteriorating economic environment;
- greater risk of loss due to default or declining credit quality;
- adverse company specific events are more likely to render the issuer unable to make interest and/or principal payments; and
- if a negative perception of the high yield market develops, the price and liquidity of high yield securities may be depressed. This negative perception could last for a significant period of time.
Securities rated below investment grade are speculative with respect to the capacity to pay interest and repay principal in accordance with the terms of such securities. A rating of C from Moody's means that the issue so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Standard & Poor's assigns a rating of C to issues that are currently highly vulnerable to nonpayment, and the C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on the obligation are being continued (a C rating is also assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying). See the statement of additional information for a description of Moody's and Standard & Poor's ratings.
Adverse changes in economic conditions are more likely to lead to a weakened capacity of a high yield issuer to make principal payments and interest payments than an investment grade issuer. The principal amount of high yield securities outstanding has proliferated in the past decade as an increasing number of issuers have used high yield securities for corporate financing. An economic downturn could severely affect the ability of highly leveraged issuers to service their debt obligations or to repay their obligations upon maturity. Similarly, downturns in profitability in specific industries could adversely affect the ability of high yield issuers in those industries to meet their obligations. The market values of lower quality debt securities tend to reflect individual developments of the issuer to a greater extent than do higher quality securities, which react primarily to fluctuations in the general level of interest rates. Factors having an adverse impact on the market value of lower quality securities may have an adverse effect on
the Fund's net asset value and the market value of its common shares. In addition, the Fund may incur additional expenses to the extent it is required to seek recovery upon a default in payment of principal or interest on its portfolio holdings. In certain circumstances, the Fund may be required to foreclose on an issuer's assets and take possession of its property or operations. In such circumstances, the Fund would incur additional costs in disposing of such assets and potential liabilities from operating any business acquired.
The secondary market for high yield securities may not be as liquid as the secondary market for more highly rated securities, a factor which may have an adverse effect on the Fund's ability to dispose of a particular security. There are fewer dealers in the market for high yield securities than for investment grade obligations. The prices quoted by different dealers may vary significantly and the spread between the bid and asked price is generally much larger than for higher quality instruments. Under adverse market or economic conditions, the secondary market for high yield securities could contract further, independent of any specific adverse changes in the condition of a particular issuer, and these instruments may become illiquid. As a result, the Fund could find it more difficult to sell these securities or may be able to sell the securities only at prices lower than if such securities were widely traded. Prices realized upon the sale of such lower rated or unrated securities, under these circumstances, may be less than the prices used in calculating the Fund's net asset value.
Since investors generally perceive that there are greater risks associated with lower quality debt securities of the type in which the Fund may invest a portion of its assets, the yields and prices of such securities may tend to fluctuate more than those for higher rated securities. In the lower quality segments of the debt securities market, changes in perceptions of issuers' creditworthiness tend to occur more frequently and in a more pronounced manner than do changes in higher quality segments of the debt securities market, resulting in greater yield and price volatility.
If the Fund invests in high yield securities that are rated C or below, the Fund will incur significant risk in addition to the risks associated with investments in high yield securities and corporate loans. Distressed securities frequently do not produce income while they are outstanding. The Fund may purchase distressed securities that are in default or the issuers of which are in bankruptcy. The Fund may be required to bear certain extraordinary expenses in order to protect and recover its investment.
INTEREST RATE RISK. Fixed income securities, including high yield securities, are subject to certain common risks, including:
- if interest rates go up, the value of debt securities in the Fund's portfolio generally will decline;
- during periods of declining interest rates, the issuer of a security may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest in lower yielding securities. This is known as call or prepayment risk. Debt securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity. An issuer may redeem an obligation if the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer;
- during periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a below market interest rate, increase the security's duration (the estimated period until the security is paid in full) and reduce the value of the security. This is known as extension risk; and
- market interest rates currently are at historically low levels.
DEFAULT RISK. Default risk refers to the risk that a company who issues a debt security will be unable to fulfill its obligations to repay principal and interest. The lower a debt security is rated, the greater its default risk.
ILLIQUID INVESTMENTS. The Fund may invest up to 15% of its managed assets in securities that, at the time of investment, are illiquid (determined using the Commission's standard applicable to investment companies, i.e., securities that cannot be disposed of within 7 days in the ordinary course of business at
approximately the value at which the Fund has valued the securities). The Fund may also invest without limit in securities that have not been registered for public sale, but that are eligible for purchase and sale by certain qualified institutional buyers. Calamos, under the supervision of the Board of Trustees, will determine whether securities purchased under Rule 144A are illiquid (that is, not readily marketable) and thus subject to the Fund's limit of investing no more than 15% of its managed assets in illiquid securities. Investments in Rule 144A Securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase these Rule 144A Securities. Illiquid securities may be difficult to dispose of at a fair price at the times when the Fund believes it is desirable to do so. Investment of the Fund's assets in illiquid securities may restrict the Fund's ability to take advantage of market opportunities. The market price of illiquid securities generally is more volatile than that of more liquid securities, which may adversely affect the price that the Fund pays for or recovers upon the sale of illiquid securities. Illiquid securities are also more difficult to value and Calamos' judgment may play a greater role in the valuation process. The risks associated with illiquid securities may be particularly acute in situations in which the Fund's operations require cash and could result in the Fund borrowing to meet its short-term needs or incurring losses on the sale of illiquid securities.
FOREIGN SECURITIES. Investments in non-U.S. issuers may involve unique risks compared to investing in securities of U.S. issuers. These risks are more pronounced to the extent that the Fund invests a significant portion of its non-U.S. investments in one region or in the securities of emerging market issuers. These risks may include:
- less information about non-U.S. issuers or markets may be available due to less rigorous disclosure or accounting standards or regulatory practices;
- many non-U.S. markets are smaller, less liquid and more volatile. In a changing market, Calamos may not be able to sell the Fund's portfolio securities at times, in amounts and at prices it considers reasonable;
- the adverse effect of currency exchange rates or controls on the value of the Fund's investments;
- the economies of non-U.S. countries may grow at slower rates than expected or may experience a downturn or recession;
- economic, political and social developments may adversely affect the securities markets, including expropriation and nationalization;
- the difficulty in obtaining or enforcing a court judgment in non-U.S. countries;
- restrictions on foreign investments in non-U.S. jurisdictions;
- difficulties in effecting the repatriation of capital invested in non-U.S. countries; and
- withholding and other non-U.S. taxes may decrease the Fund's return.
There may be less publicly available information about non-U.S. markets and issuers than is available with respect to U.S. securities and issuers. Non-U.S. companies generally are not subject to accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies. The trading markets for most non-U.S. securities are generally less liquid and subject to greater price volatility than the markets for comparable securities in the United States. The markets for securities in certain emerging markets are in the earliest stages of their development. Even the markets for relatively widely traded securities in certain non-U.S. markets, including emerging market countries, may not be able to absorb, without price disruptions, a significant increase in trading volume or trades of a size customarily undertaken by institutional investors in the United States.
Additionally, market making and arbitrage activities are generally less extensive in such markets, which may contribute to increased volatility and reduced liquidity.
Economies and social and political conditions in individual countries may differ unfavorably from the United States. Non-U.S. economies may have less favorable rates of growth of gross domestic product, rates of inflation, currency valuation, capital reinvestment, resource self-sufficiency and balance of payments positions. Many countries have experienced substantial, and in some cases extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, very negative effects on the economies and securities markets of certain emerging market countries. Unanticipated political or social developments may also affect the values of the Fund's investments and the availability to the Fund of additional investments in such countries.
CURRENCY RISK. The value of the securities denominated or quoted in foreign currencies may be adversely affected by fluctuations in the relative currency exchange rates and by exchange control regulations. The Fund's investment performance may be negatively affected by a devaluation of a currency in which the Fund's investments are denominated or quoted. Further, the Fund's investment performance may be significantly affected, either positively or negatively, by currency exchange rates because the U.S. dollar value of securities denominated or quoted in another currency will increase or decrease in response to changes in the value of such currency in relation to the U.S. dollar.
CONVERTIBLE SECURITIES. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. The market values of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. However, the convertible's market value tends to reflect the market price of the common stock of the issuing company when that stock price is greater than the convertible's "conversion price." The conversion price is defined as the predetermined price at which the convertible could be exchanged for the associated stock. As the market price of the underlying common stock declines, the price of the convertible security tends to be influenced more by the yield of the convertible security. Thus, it may not decline in price to the same extent as the underlying common stock. In the event of a liquidation of the issuing company, holders of convertible securities would be paid before the company's common stockholders. Consequently, the issuer's convertible securities generally entail less risk than its common stock.
SYNTHETIC CONVERTIBLE SECURITIES. The value of a synthetic convertible security may respond differently to market fluctuations than a convertible security because a synthetic convertible is composed of two or more separate securities, each with its own market value. In addition, if the value of the underlying common stock or the level of the index involved in the convertible component falls below the exercise price of the warrant or option, the warrant or option may lose all value.
LEVERAGE. The Fund may issue preferred shares, borrow money or issue debt securities. The Fund currently anticipates that it will issue cumulative preferred shares, as soon as practicable after the closing of this offering, with an aggregate liquidation preference of up to approximately 33% of the Fund's total assets immediately after issuance. As a non-fundamental policy, such preferred shares, borrowing or debt securities may not exceed 38% of the Fund's total assets. However, the Board of Trustees reserves the right to issue preferred shares or borrow to the extent permitted by the 1940 Act.
Leverage creates risks which may adversely affect the return for the holders of common shares, including:
- the likelihood of greater volatility of net asset value and market price of common shares;
- fluctuations in the dividend rates on any preferred shares or in interest rates on borrowings and short-term debt;
- increased operating costs, which may reduce the Fund's total return; and
- the potential for a decline in the value of an investment acquired with borrowed funds, while the Fund's obligations under such borrowing remain fixed.
The Fund's use of leverage is premised upon the expectation that the Fund's preferred share dividends or borrowing cost will be lower than the return the Fund achieves on its investments with the proceeds of the issuance of preferred shares or borrowing. Such difference in return may result from the Fund's higher
credit rating or the short-term nature of its borrowing compared to the long-term nature of its investments. Since the total assets of the Fund (including the assets obtained from leverage) will be invested in the higher yielding portfolio investments or portfolio investments with the potential for capital appreciation, the holders of common shares will be the beneficiaries of the incremental return. Should the differential between the underlying assets and cost of leverage narrow, the incremental return "pick up" will be reduced. Furthermore, if long-term interest rates rise or the Fund otherwise incurs losses on its investments, the Fund's net asset value attributable to its common shares will reflect the decline in the value of portfolio holdings resulting therefrom.
To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund's return will be greater than if leverage had not been used. Conversely, if the income or capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage or if the Fund incurs capital losses, the return of the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to common shareholders as dividends and other distributions will be reduced or potentially eliminated. Common shareholders bear the cost of any leverage.
Certain types of borrowings may result in the Fund being subject to covenants in credit agreements, including those relating to asset coverage, borrowing base and portfolio composition requirements and additional covenants that may affect the Fund's ability to pay dividends and distributions on common shares in certain instances. The Fund may also be required to pledge its assets to the lenders in connection with certain types of borrowings. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more nationally recognized rating organizations which may issue ratings for the preferred shares or short-term debt instruments issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act.
If the Fund's ability to make distributions on its common shares is limited, such limitation could, under certain circumstances, impair the ability of the Fund to maintain its qualification for taxation as a regulated investment company, which would have adverse tax consequences for shareholders. To the extent that the Fund is required, in connection with maintaining 1940 Act asset coverage requirements or otherwise, or elects to redeem any preferred shares or prepay any borrowings, the Fund may need to liquidate investments to fund such redemptions or prepayments. Liquidation at times of adverse economic conditions may result in capital loss and reduce returns to common shareholders.
Since Calamos' investment management fee is a percentage of the Fund's managed assets, Calamos' fee will be higher if the Fund is leveraged and Calamos will have an incentive to be more aggressive and leverage the Fund.
INTEREST RATE TRANSACTIONS RISK. The Fund may enter into an interest rate swap or cap transaction to attempt to protect itself from increasing dividend or interest expenses on its preferred shares, debt securities or other borrowings resulting from increasing short-term interest rates. A decline in interest rates may result in a decline in the value of the swap or cap, which may result in a decline in the net asset value of the Fund.
Depending on the state of interest rates in general, the Fund's use of interest rate swap or cap transactions could enhance or harm the overall performance of the common shares. To the extent there is a decline in interest rates, the value of the interest rate swap or cap could decline, and could result in a decline in the net asset value of the common shares. In addition, if the counterparty to an interest rate swap or cap defaults, the Fund would not be able to use the anticipated net receipts under the swap or cap to offset the dividend or interest payments on the Fund's leverage.
Depending on whether the Fund would be entitled to receive net payments from the counterparty on the swap or cap, which in turn would depend on the general state of short-term interest rates at that point in time, such a default could negatively impact the performance of the common shares. In addition, at the time an interest rate swap or cap transaction reaches its scheduled termination date, there is a risk that the
Fund would not be able to obtain a replacement transaction or that the terms of the replacement would not be as favorable as on the expiring transaction. If either of these events occurs, it could have a negative impact on the performance of the common shares.
If the Fund fails to maintain a required 200% asset coverage of the liquidation value of the outstanding preferred shares or if the Fund loses its expected rating on its preferred shares or fails to maintain other covenants with respect to its preferred shares, the Fund may be required to redeem some or all of the preferred shares. Similarly, the Fund could be required to prepay the principal amount of any debt securities or other borrowings. Such redemption or prepayment would likely result in the Fund seeking to terminate early all or a portion of any swap or cap transaction. Early termination of a swap could result in a termination payment by or to the Fund. Early termination of a cap could result in a termination payment to the Fund. The Fund intends to maintain in a segregated account with its custodian cash or liquid securities having a value at least equal to the Fund's net payment obligations under any swap transaction, marked-to-market daily.
TAX RISK. The Fund may invest in certain securities, such as certain convertible securities, for which the federal income tax treatment may not be clear or may be subject to recharacterization by the Internal Revenue Service. It could be more difficult for the Fund to comply with the tax requirements applicable to regulated investment companies if the tax characterization of the Fund's investments or the tax treatment of the income from such investments were successfully challenged by the Internal Revenue Service. See "U.S. Federal Income Tax Matters."
MANAGEMENT RISK. Calamos' judgment about the attractiveness, relative value or potential appreciation of a particular sector, security or investment strategy may prove to be incorrect.
ANTITAKEOVER PROVISIONS. The Fund's Agreement and Declaration of Trust and By-laws include provisions that could limit the ability of other entities or persons to acquire control of the Fund or to change the composition of its Board of Trustees. Such provisions could limit the ability of shareholders to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. These provisions include staggered terms of office for the Trustees, advance notice requirements for shareholder proposals, and super-majority voting requirements for certain transactions with affiliates, converting the Fund to an open-end investment company or a merger, asset sale or similar transaction. Holders of preferred shares will have voting rights in addition to and separate from the voting rights of common shareholders with respect to certain of these matters. See "Description of Shares -- Preferred Shares" and "Certain Provisions of the Agreement and Declaration of Trust and By-Laws." The holders of preferred shares, on the one hand, and the holders of the common shares, on the other, may have interests that conflict in these situations.
MARKET DISRUPTION RISK. Certain events have a disruptive effect on the securities markets, such as terrorist attacks (including the terrorist attacks in the United States on September 11, 2001), war and other geopolitical events, earthquakes, storms and other disasters. The Fund cannot predict the effects of similar events in the future on the U.S. economy or any foreign economy.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. Currently, there are six Trustees of the Fund, three of whom are "interested persons" of the Trust (as defined in the 1940 Act) and three of whom are not "interested persons." The names and business addresses of the trustees and officers of the Fund and their principal occupations and other affiliations during the past five years are set forth under "Management of the Fund" in the statement of additional information.
INVESTMENT ADVISER
The Fund's investments are managed by Calamos, 1111 E. Warrenville Road, Naperville, IL. On January 31, 2004 Calamos managed approximately $25.3 billion in assets of individuals and institutions. Calamos is a wholly-owned subsidiary of Holdings. Holdings is controlled by John P. Calamos, who has been engaged in the investment advisory business since 1977.
INVESTMENT MANAGEMENT AGREEMENT
Subject to the overall authority of the Board of Trustees, Calamos
regularly provides the Fund with investment research, advice and supervision and
furnishes continuously an investment program for the Fund. In addition, Calamos
furnishes for use of the Fund such office space and facilities as the Fund may
require for its reasonable needs, supervises the business and affairs of the
Fund and provides the following other services on behalf of the Fund and not
provided by persons not a party to the investment management agreement: (a)
preparing or assisting in the preparation of reports to and meeting materials
for the Trustees; (b) supervising, negotiating contractual arrangements with, to
the extent appropriate, and monitoring the performance of, accounting agents,
custodians, depositories, transfer agents and pricing agents, accountants,
attorneys, printers, underwriters, brokers and dealers, insurers and other
persons in any capacity deemed to be necessary or desirable to Fund operations;
(c) assisting in the preparation and making of filings with the Commission and
other regulatory and self-regulatory organizations, including, but not limited
to, preliminary and definitive proxy materials, amendments to the Fund's
registration statement on Form N-2 and semi-annual reports on Form N-SAR and
Form N-CSR; (d) overseeing the tabulation of proxies by the Fund's transfer
agent; (e) assisting in the preparation and filing of the Fund's federal, state
and local tax returns; (f) assisting in the preparation and filing of the Fund's
federal excise tax return pursuant to Section 4982 of the Code; (g) providing
assistance with investor and public relations matters; (h) monitoring the
valuation of portfolio securities and the calculation of net asset value; (i)
monitoring the registration of shares of beneficial interest of the Fund under
applicable federal and state securities laws; (j) maintaining or causing to be
maintained for the Fund all books, records and reports and any other information
required under the 1940 Act, to the extent that such books, records and reports
and other information are not maintained by the Fund's custodian or other agents
of the Fund; (k) assisting in establishing the accounting policies of the Fund;
(l) assisting in the resolution of accounting issues that may arise with respect
to the Fund's operations and consulting with the Fund's independent accountants,
legal counsel and the Fund's other agents as necessary in connection therewith;
(m) reviewing the Fund's bills; (n) assisting the Fund in determining the amount
of dividends and distributions available to be paid by the Fund to its
shareholders, preparing and arranging for the printing of dividend notices to
shareholders, and providing the transfer and dividend paying agent, the
custodian, and the accounting agent with such information as is required for
such parties to effect the payment of dividends and distributions; and (o)
otherwise assisting the Fund as it may reasonably request in the conduct of the
Fund's business, subject to the direction and control of the Trustees.
Under the investment management agreement, the Fund will pay to Calamos a fee based on the average weekly managed assets that is accrued daily and paid on a monthly basis. The fee paid by the Fund is at the annual rate of 1.00% of managed assets. Because the fees paid to Calamos are determined on the basis of the Fund's managed assets, Calamos' interest in determining whether to leverage the Fund may differ from the interests of the Fund and its common shareholders.
Under the terms of its investment management agreement, except for the
services and facilities provided by Calamos as set forth therein, the Fund shall
assume and pay all expenses for all other Fund operations and activities and
shall reimburse Calamos for any such expenses incurred by Calamos. The expenses
borne by the Fund shall include, without limitation: (a) organization expenses
of the Fund (including out-of-pocket expenses, but not including Calamos'
overhead or employee costs); (b) fees payable to Calamos; (c) legal expenses;
(d) auditing and accounting expenses; (e) maintenance of books and records that
are required to be maintained by the Fund's custodian or other agents of the
Fund; (f) telephone, telex, facsimile, postage and other communications
expenses; (g) taxes and governmental fees; (h) fees, dues and expenses incurred
by the Fund in connection with membership in investment
company trade organizations and the expense of attendance at professional meetings of such organizations; (i) fees and expenses of accounting agents, custodians, subcustodians, transfer agents, dividend disbursing agents and registrars; (j) payment for portfolio pricing or valuation services to pricing agents, accountants, bankers and other specialists, if any; (k) expenses of preparing share certificates; (l) expenses in connection with the issuance, offering, distribution, sale, redemption or repurchase of securities issued by the Fund; (m) expenses relating to investor and public relations provided by parties other than Calamos; (n) expenses and fees of registering or qualifying shares of beneficial interest of the Fund for sale; (o) interest charges, bond premiums and other insurance expenses; (p) freight, insurance and other charges in connection with the shipment of the Fund's portfolio securities; (q) the compensation and all expenses (specifically including travel expenses relating to Fund business) of Trustees, officers and employees of the Fund who are not affiliated persons of Calamos; (r) brokerage commissions or other costs of acquiring or disposing of any portfolio securities of the Fund; (s) expenses of printing and distributing reports, notices and dividends to shareholders; (t) expenses of preparing and setting in type, printing and mailing prospectuses and statements of additional information of the Fund and supplements thereto; (u) costs of stationery; (v) any litigation expenses; (w) indemnification of Trustees and officers of the Fund; (x) costs of shareholders' and other meetings; (y) interest on borrowed money, if any; and (z) the fees and other expenses of listing the Fund's shares on the New York Stock Exchange or any other national stock exchange.
PORTFOLIO MANAGER
John P. Calamos, Nick P. Calamos and John P. Calamos, Jr. are responsible for managing the portfolio of the Fund. During the past five years, John P. Calamos has been a Chairman, CEO and Co-Chief Investment Officer of Calamos; Nick P. Calamos has been a Senior Executive Vice President and Co-Chief Investment Officer of Calamos; and John P. Calamos, Jr. has been an Executive Vice President of Calamos. For over 20 years, the Calamos management team has managed money for their clients in convertible, high yield and global strategies. Furthermore, Calamos has extensive experience investing in foreign markets through its convertible securities and high yield securities strategies. Such experience has included investments in established as well as emerging foreign markets.
FUND ACCOUNTANT
Under the arrangements with State Street to provide fund accounting services, State Street provides certain administrative and accounting services to the Fund and such other funds advised by Calamos that may be part of those arrangements (the Fund and such other funds are collectively referred to as the "Calamos Funds") as described more fully in the statement of additional information. For the services rendered to the Calamos Funds, State Street receives fees based on the combined managed assets of the Calamos Funds ("Combined Assets"). Each fund of the Calamos Funds pays its pro-rata share of the fees payable to State Street described below based on relative managed assets of each fund.
State Street receives a fee at the annual rate of 0.0225% for the first $3 billion of Combined Assets and 0.0150% for the Combined Assets in excess of $3 billion.
Calamos will provide the financial accounting services to the Calamos Funds described more fully in the statement of additional information, rather than State Street. For providing those services, Calamos will receive a fee at the annual rate of 0.0175% on the first $1 billion of Combined Assets; 0.0150% on the next $1 billion of Combined Assets; and 0.0110% on Combined Assets above $2 billion ("financial accounting service fee"). Each fund of the Calamos Funds will pay its pro-rata share of the financial accounting service fee to Calamos based on relative managed assets of each fund.
DIVIDENDS AND DISTRIBUTIONS; AUTOMATIC DIVIDEND REINVESTMENT PLAN
DIVIDENDS AND DISTRIBUTIONS
Subject to the determination of the Board of Trustees to implement a Managed Dividend Policy, as described below, commencing with the first dividend, the Fund intends to distribute all or a portion of its net investment income monthly to holders of common shares. The Fund expects to declare the initial monthly dividend on the common shares within approximately 60 days of the completion of this offering and to pay that initial monthly dividend approximately 90 days after the completion of this offering. Dividends and distributions may be payable in cash or common shares, with the option to receive cash in lieu of the shares. The Fund may at times, and in its discretion, pay out less than the entire amount of net investment income earned in any particular period and may at times pay out such accumulated undistributed income in addition to net investment income earned in other periods in order to permit the Fund to maintain a more stable level of distributions. As a result, the dividend paid by the Fund to holders of common shares for any particular period may be more or less than the amount of net investment income earned by the Fund during such period. The Fund is not required to maintain a stable level of distributions to shareholders. For federal income tax purposes, the Fund is required to distribute substantially all of its net investment income each year to both reduce its federal income tax liability and to avoid a potential excise tax. The Fund intends to distribute all realized capital gains, if any, at least annually.
In January 2004, Calamos, on behalf of itself and certain funds, filed an exemptive application with the Commission seeking an order under the 1940 Act facilitating the implementation of the Managed Dividend Policy. The application included the Fund as a party. If, and when, Calamos, on behalf of itself and other parties, receives the requested relief, the Fund may, subject to the determination of its Board of Trustees, implement a Managed Dividend Policy.
Under a Managed Dividend Policy, the Fund would intend to distribute a monthly fixed percentage of net asset value to common shareholders. Under a Managed Dividend Policy, if, for any distribution, net investment income and net realized capital gains were less than the amount of the distribution, the differences would be distributed from the Fund's assets. In addition, in order to make such distributions, the Fund might have to sell a portion of its investment portfolio at a time when independent investment judgment might not dictate such action. The Fund's final distribution for each calendar year would include any remaining net investment income and net realized capital gains, if any, undistributed during the year.
If, for any calendar year, the Fund's total distributions exceeded net investment income and net realized capital gains (the "Excess"), the Excess, distributed from the Fund's assets, would generally be treated as dividend income to the extent of the Fund's current and accumulated earnings and profits. Thereafter, such Excess would be treated as a tax-free return of capital up to the amount of the common shareholder's tax basis in his, her or its common shares, with any amounts exceeding such basis treated as gain from the sale of common shares. Pursuant to the requirements of the 1940 Act and other applicable laws, a notice would accompany each monthly distribution with respect to the estimated source of the distribution made.
In the event the Fund distributed the Excess, such distribution would decrease the Fund's total assets and, therefore, have the likely effect of increasing the Fund's expense ratio. There is a risk that the Fund would not eventually realize capital gains in an amount corresponding to a distribution of the Excess.
There is no guarantee that the Fund will receive an exemptive order facilitating the implementation of a Managed Dividend Policy or, if received, that the Board of Trustees will determine to implement a Managed Dividend Policy. The Board of Trustees reserves the right to change the dividend policy from time to time.
Under the 1940 Act, the Fund is not permitted to incur indebtedness unless
immediately after such incurrence the Fund has an asset coverage of at least
300% of the aggregate outstanding principal balance of indebtedness.
Additionally, under the 1940 Act, the Fund may not declare any dividend or other
distribution upon any class of its capital shares, or purchase any such capital
shares, unless the aggregate
indebtedness of the Fund has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, an asset coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be.
While any preferred shares are outstanding, the Fund may not declare any cash dividend or other distribution on its common shares, unless at the time of such declaration, (1) all accumulated preferred dividends have been paid and (2) the net asset value of the Fund's portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of the liquidation value of the outstanding preferred shares (expected to be equal to the original purchase price per share plus any accumulated and unpaid dividends thereon).
In addition to the limitations imposed by the 1940 Act described above, certain lenders may impose additional restrictions on the payment of dividends or distributions on the common shares in the event of a default on the Fund's borrowings. If the Fund's ability to make distributions on its common shares is limited, such limitation could, under certain circumstances, impair the ability of the Fund to maintain its qualification for taxation as a regulated investment company, which would have adverse tax consequences for shareholders. See "Leverage" and "U.S. Federal Income Tax Matters."
See -- "Automatic Dividend Reinvestment Plan" for information concerning the manner in which dividends and distributions to common shareholders may be automatically reinvested in common shares. Dividends and distributions may be taxable to shareholders whether they are reinvested in shares of the Fund or received in cash.
The yield on the Fund's common shares will vary from period to period depending on factors including, but not limited to, market conditions, the timing of the Fund's investment in portfolio securities, the securities comprising the Fund's portfolio, changes in interest rates including changes in the relationship between short-term rates and long-term rates, the amount and timing of the use of borrowings and other leverage by the Fund, the effects of leverage on the common shares discussed above under "Leverage," the timing of the investment of leverage proceeds in portfolio securities, the Fund's net assets and its operating expenses. Consequently, the Fund cannot guarantee any particular yield on its shares and the yield for any given period is not an indication or representation of future yields on the Fund's shares.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Automatic Dividend Reinvestment Plan ("Plan"), unless a shareholder is ineligible or elects otherwise, all dividend and capital gains distributions are automatically reinvested by The Bank of New York, as agent for shareholders in administering the Plan ("Plan Agent"), in additional common shares of the Fund. Shareholders who elect not to participate in the Plan will receive all dividends and distributions payable in cash paid by check mailed directly to the shareholder of record (or, if the shares are held in street or other nominee name, then to such nominee) by The Bank of New York, as dividend paying agent. Such shareholders may elect not to participate in the Plan and to receive all dividends and distributions in cash by sending written instructions to The Bank of New York, as dividend paying agent, at the address set forth below. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by giving notice in writing to the Plan Agent; such termination will be effective with respect to a particular dividend or distribution if notice is received prior to the record date for the applicable distribution.
Whenever the Fund declares a dividend or distribution payable either in shares or in cash, non-participants in the Plan will receive cash, and participants in the Plan will receive the equivalent in shares of common shares. The shares are acquired by the Plan Agent for the participant's account, depending upon the circumstances described below, either (i) through receipt of additional common shares from the Fund ("newly issued shares") or (ii) by purchase of outstanding common shares on the open market ("open-market purchases") on the New York Stock Exchange or elsewhere. If, on the payment date, the net asset value per share of the common shares is equal to or less than the market price per common share plus estimated brokerage commissions (such condition being referred to herein as "market premium"), the Plan Agent will receive newly issued shares from the Fund for each participant's account.
The number of newly issued common shares to be credited to the participant's account will be determined by dividing the dollar amount of the dividend or distribution by the greater of (i) the net asset value per common share on the payment date, or (ii) 95% of the market price per common share on the payment date.
If, on the payment date, the net asset value per common share exceeds the market price plus estimated brokerage commissions (such condition being referred to herein as "market discount"), the Plan Agent has until the last business day before the next date on which the shares trade on an "ex-dividend" basis or in no event more than 30 days after the payment date ("last purchase date") to invest the dividend or distribution amount in shares acquired in open-market purchases. It is contemplated that the Fund will pay monthly income dividends. Therefore, the period during which open-market purchases can be made will exist only from the payment date on the dividend through the date before the next ex-dividend date, which typically will be approximately ten days. The weighted average price (including brokerage commissions) of all common shares purchased by the Plan Agent as Plan Agent will be the price per common share allocable to each participant. If, before the Plan Agent has completed its open-market purchases, the market price of a common share exceeds the net asset value per share, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the Fund's shares, resulting in the acquisition of fewer shares than if the dividend had been paid in newly issued shares on the payment date. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent will cease making open-market purchases and will invest the uninvested portion of the dividend or distribution amount in newly issued shares at the close of business on the last purchase date.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes written confirmation of each acquisition made for the participant's account as soon as practicable, but in no event later than 60 days after the date thereof. Shares in the account of each Plan participant will be held by the Plan Agent in non-certificated form in the Plan Agent's name or that of its nominee, and each shareholder's proxy will include those shares purchased or received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held pursuant to the Plan first in accordance with the instructions of the participants then with respect to any proxies not returned by such participant, in the same proportion as the Plan Agent votes the proxies returned by the participants.
There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or distributions payable either in shares or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open-market purchases in connection with the reinvestment of dividends or distributions. If a participant elects to have the Plan Agent sell part or all of his or her common shares and remit the proceeds, such participant will be charged his or her pro rata share of brokerage commissions on the shares sold, plus a $15 transaction fee.
The automatic reinvestment of dividends and distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends. See "U.S. Federal Income Tax Matters."
Shareholders participating in the Plan may receive benefits not available to shareholders not participating in the Plan. If the market price plus commissions of the Fund's shares is higher than the net asset value, participants in the Plan will receive shares of the Fund at less than they could otherwise purchase them and will have shares with a cash value greater than the value of any cash distribution they would have received on their shares. If the market price plus commissions is below the net asset value, participants receive distributions of shares with a net asset value greater than the value of any cash distribution they would have received on their shares. However, there may be insufficient shares available in the market to make distributions in shares at prices below the net asset value. Also, since the Fund does not redeem its shares, the price on resale may be more or less than the net asset value. See "U.S. Federal Income Tax Matters" for a discussion of tax consequences of the Plan.
Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan if in the judgment of the Board of Trustees such a change is warranted. The Plan may be terminated by the Plan Agent or the Fund upon notice in writing mailed to each participant at least 60 days prior to the effective date of the termination. Upon any termination, the Plan Agent will cause a certificate or certificates to be issued for the full shares held by each participant under the Plan and cash adjustment for any fraction of a common share at the then current market value of the common shares to be delivered to him or her. If preferred, a participant may request the sale of all of the common shares held by the Plan Agent in his or her Plan account in order to terminate participation in the Plan. If such participant elects in advance of such termination to have the Plan Agent sell part or all of his shares, the Plan Agent is authorized to deduct from the proceeds a $15.00 fee plus the brokerage commissions incurred for the transaction. If a participant has terminated his or her participation in the Plan but continues to have common shares registered in his or her name, he or she may re-enroll in the Plan at any time by notifying the Plan Agent in writing at the address below. The terms and conditions of the Plan may be amended by the Plan Agent or the Fund at any time but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Commission or any other regulatory authority, only by mailing to each participant appropriate written notice at least 30 days prior to the effective date thereof. The amendment shall be deemed to be accepted by each participant unless, prior to the effective date thereof, the Plan Agent receives notice of the termination of the participant's account under the Plan. Any such amendment may include an appointment by the Plan Agent of a successor Plan Agent, subject to the prior written approval of the successor Plan Agent by the Fund. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at Dividend Reinvestment Department, P.O. Box 1958, Newark, NJ 07101-9774.
CLOSED-END FUND STRUCTURE
The Fund is a newly organized, diversified, closed-end management investment company (commonly referred to as a closed-end fund). Closed-end funds differ from open-end management investment companies (which are generally referred to as mutual funds) in that closed-end funds generally list their shares for trading on a stock exchange and do not redeem their shares at the request of the shareholder. This means that if you wish to sell your shares of a closed-end fund you must trade them on the market like any other stock at the prevailing market price at that time. In a mutual fund, if the shareholder wishes to sell shares of the fund, the mutual fund will redeem or buy back the shares at "net asset value." Also, mutual funds generally offer new shares on a continuous basis to new investors, and closed-end funds generally do not. The continuous inflows and outflows of assets in a mutual fund can make it difficult to manage the fund's investments. By comparison, closed-end funds are generally able to stay more fully invested in securities that are consistent with their investment objectives and also have greater flexibility to make certain types of investments and to use certain investment strategies, such as financial leverage and investments in illiquid securities.
Shares of closed-end funds frequently trade at a discount to their net
asset value. To the extent the common shares do trade at a discount, the Fund's
Board of Trustees may from time to time engage in open-market repurchases or
tender offers for shares after balancing the benefit to shareholders of the
increase in the net asset value per share resulting from such purchases against
the decrease in the assets of the Fund and potential increase in the expense
ratio of expenses to assets of the Fund. The Board of Trustees believes that in
addition to the beneficial effects described above, any such purchases or tender
offers may result in the temporary narrowing of any discount but will not have
any long-term effect on the level of any discount. We cannot guarantee or
assure, however, that the Fund's Board of Trustees will decide to engage in any
of these actions. Nor is there any guarantee or assurance that such actions, if
undertaken, would result in the shares trading at a price equal or close to net
asset value per share. The Board of Trustees might also consider converting the
Fund to an open-end mutual fund, which would also require a vote of the
shareholders of the Fund. Conversion of the Fund to an open-end mutual fund
would
require an amendment to the Fund's Declaration of Trust. Such an amendment would require the favorable vote of the holders of at least 75% of the Fund's outstanding shares (including any preferred shares) entitled to be voted on the matter, voting as a single class (or a majority of such shares if the amendment were previously approved, adopted or authorized by 75% of the total number of Trustees fixed in accordance with the By-laws), and, assuming preferred shares are issued, the affirmative vote of a majority of outstanding preferred shares, voting as a separate class.
U.S. FEDERAL INCOME TAX MATTERS
The following is a description of certain U.S. federal income tax consequences to a shareholder that acquires, holds and/or disposes of common shares of the Fund. The discussion reflects applicable tax laws of the United States as of the date of this prospectus, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service ("IRS") retroactively or prospectively. No attempt is made to present a detailed explanation of U.S. federal income tax concerns affecting the Fund and its shareholders, and the discussion set forth herein does not constitute tax advice. In addition, no attempt is made to present state, local or foreign tax concerns or tax concerns applicable to an investor with a special tax status such as a financial institution or non-U.S. investors. INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE TAX CONSEQUENCES TO THEM BEFORE INVESTING IN THE FUND.
The Fund intends to elect to be treated, and to qualify each year, as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), so that it will not pay U.S. federal income tax on income and capital gains distributed to shareholders. If the Fund qualifies as a regulated investment company and distributes to its shareholders at least 90% of the sum of (i) its "investment company taxable income" as that term is defined in the Code (which includes, among other things, dividends, taxable interest, the excess of any net short-term capital gains over net long-term capital losses and certain net foreign exchange gains as reduced by certain deductible expenses) without regard to the deduction for dividends paid and (ii) the excess of its gross tax-exempt interest, if any, over certain disallowed deductions, the Fund will be relieved of U.S. federal income tax on any income of the Fund, including long-term capital gains, distributed to shareholders. However, if the Fund retains any investment company taxable income or "net capital gain" (the excess of net long-term capital gain over net short-term capital loss), it will be subject to U.S. federal income tax at regular corporate rates (currently at the maximum rate of 35%) on the amount retained. The Fund intends to distribute at least annually all or substantially all of its investment company taxable income, net tax-exempt interest, and net capital gain. Under the Code, the Fund will generally be subject to a nondeductible 4% federal excise tax on the portion of its undistributed ordinary income and capital gains if it fails to meet certain distribution requirements with respect to each calendar year. The Fund intends to make distributions in a timely manner and accordingly does not expect to be subject to the excise tax.
If for any taxable year the Fund did not qualify as a regulated investment company for U.S. federal income tax purposes, it would be treated as a U.S. corporation subject to U.S. federal income tax and distributions to its shareholders would not be deducted by the Fund in computing its taxable income. In such event, the Fund's distributions, to the extent derived from the Fund's current or accumulated earnings and profits, would generally constitute ordinary dividends, which would generally be eligible for the dividends received deduction available to corporate shareholders, and noncorporate shareholders would generally be able to treat such distributions as "qualified dividend income" eligible for reduced rates of federal income taxation in taxable years beginning on or before December 31, 2008.
Unless a shareholder is ineligible to participate or elects otherwise, all distributions will be automatically reinvested in additional shares of common stock of the Fund pursuant to the Plan. For U.S. federal income tax purposes, all dividends are taxable whether a shareholder takes them in cash or they are reinvested pursuant to the Plan in additional shares of the Fund. Distributions of investment company taxable income are generally taxable as ordinary income. However, a portion of such distributions derived from certain corporate dividends may qualify for either the dividends received deduction available to corporate shareholders under Section 243 of the Code or the reduced rates of federal income taxation for
"qualified dividend income" currently available to noncorporate shareholders under Section 1(h)(11) of the Code, provided certain holding period and other requirements are met. Distributions of net capital gain, if any, are generally taxable as long-term capital gains for U.S. federal income tax purposes without regard to the length of time the shareholder has held shares of the Fund. A distribution of an amount in excess of the Fund's current and accumulated earnings and profits, if any, will be treated by a shareholder as a tax-free return of capital which is applied against and reduces the shareholder's basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder's basis in his or her shares, the excess will be treated by the shareholder as gain from the sale or exchange of shares. The U.S. federal income tax status of all distributions will be designated by the Fund and reported to the shareholders annually.
If the Fund retains any net capital gain, the Fund may designate the retained amount as undistributed capital gains in a notice to shareholders who, if subject to U.S. federal income tax on long-term capital gains, (i) will be required to include in income as long-term capital gain, their proportionate share of such undistributed amount, and (ii) will be entitled to credit their proportionate share of the tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds such liabilities. If such an event occurs, the tax basis of shares owned by a shareholder of the Fund will, for U.S. federal income tax purposes, generally be increased by the difference between the amount of undistributed net capital gain included in the shareholder's gross income and the tax deemed paid by the shareholders.
If a shareholder's distributions are automatically reinvested pursuant to the Plan and the Plan Agent invests the distribution in shares acquired on behalf of the shareholder in open-market purchases, for U.S. federal income tax purposes, the shareholder will be treated as having received a taxable distribution in the amount of the cash dividend that the shareholder would have received if the shareholder had elected to receive cash. If a shareholder's distributions are automatically reinvested pursuant to the Plan and the Plan Agent invests the distribution in newly issued shares of the Fund, the shareholder will be treated as receiving a taxable distribution equal to the fair market value of the stock the shareholder receives.
Sales and other dispositions of the Fund's shares are taxable events for shareholders that are subject to federal income tax. Shareholders should consult their own tax advisors with reference to their individual circumstances to determine whether any particular transaction in the Fund's shares is properly treated as a sale for tax purposes, as the following discussion assumes, and the tax treatment of any gains or losses recognized in such transactions. Any loss realized by a shareholder upon the sale or other disposition of shares with a tax holding period of six months or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain with respect to such shares. Losses on sales or other dispositions of shares may be disallowed under the "wash sale" rules in the event of other investments in the Fund (including those made pursuant to reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after a sale or other disposition of shares. In such a case, the disallowed portion of any loss generally would be included in the U.S. federal tax basis of the shares acquired in the other investments.
The Fund is required in certain circumstances to backup withhold at a current rate of 28% on reportable payments including dividends, capital gain distributions, and proceeds of sales or other dispositions of the Fund's shares paid to certain holders of the Fund's shares who do not furnish the Fund with their correct social security number or other taxpayer identification number and certain other certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to a shareholder may be refunded or credited against such shareholder's U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.
THE FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE PROVISIONS OF THE CODE AND THE TREASURY REGULATIONS THEREUNDER IN EFFECT AS THEY DIRECTLY GOVERN THE TAXATION OF THE FUND AND ITS SHAREHOLDERS. THESE PROVISIONS ARE SUBJECT TO CHANGE BY LEGISLATIVE OR ADMINISTRATIVE ACTION, AND ANY SUCH CHANGE MAY BE RETROACTIVE. A MORE COMPLETE DISCUSSION OF THE TAX RULES APPLICABLE TO THE FUND CAN BE FOUND IN THE
STATEMENT OF ADDITIONAL INFORMATION WHICH IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING SPECIFIC QUESTIONS AS TO U.S. FEDERAL, FOREIGN, STATE, AND LOCAL INCOME OR OTHER TAXES BEFORE MAKING AN INVESTMENT IN THE FUND.
NET ASSET VALUE
Net asset value per share is determined as of the close of regular session trading on the New York Stock Exchange (usually 4:00 p.m., Eastern time), on the last business day in each week. Net asset value is calculated by dividing the value of all of the securities and other assets of the Fund, less its liabilities (including accrued expenses and indebtedness) and the aggregate liquidation value of any outstanding preferred shares, by the total number of common shares outstanding. Currently, the net asset values of shares of publicly traded closed-end investment companies are published in Barron's, the Monday edition of The Wall Street Journal and the Monday and Saturday editions of The New York Times.
The values of the securities in the Fund are based on market prices from the primary market in which they are traded. As a general rule, equity securities listed on a U.S. securities exchange are valued at the last current reported sale price as of the time of valuation. Securities quoted on the NASDAQ National Market System are valued at the Nasdaq Official Closing Price ("NOCP"), as determined by Nasdaq, or lacking an NOCP, at the last current reported sale price as of the time of valuation. Bonds and other fixed-income securities that are traded over the counter and on an exchange will be valued according to the broadest and most representative market, and it is expected this will ordinarily be the over-the-counter market. The foreign securities held by a Fund are traded on exchanges throughout the world. Trading on these foreign securities exchanges is completed at various times throughout the day and often does not coincide with the close of trading on the New York Stock Exchange. The value of foreign securities is determined at the close of trading of the exchange on which the securities are traded or at the close of trading on the New York Stock Exchange, whichever is earlier. If market prices are not readily available or the Fund's valuation methods do not produce a value reflective of the fair value of the security, securities and other assets are priced at a fair value as determined by the Board of Trustees or a committee thereof.
DESCRIPTION OF SHARES
The Fund is authorized to issue an unlimited number of common shares, without par value. The Fund is also authorized to issue preferred shares. Upon the completion of this offering, the Fund will only have common shares outstanding. The Board of Trustees is authorized, however, to classify and reclassify any unissued shares into one or more additional classes or series of shares. The Board of Trustees may establish such series or class, including preferred shares, from time to time by setting or changing in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares and pursuant to such classification or reclassification to increase or decrease the number of authorized shares of any existing class or series. The Board of Trustees, without shareholder approval, is authorized to amend the Agreement and Declaration of Trust and By-laws to reflect the terms of any such class or series, including any class of preferred shares. The Fund currently anticipates that it will issue preferred shares as soon as practicable after the closing of this offering. See "Leverage." The Fund is also authorized to issue other securities, including debt securities.
COMMON SHARES
Common shares, when issued and outstanding, will be fully paid and non-assessable. Shareholders are entitled to share pro rata in the net assets of the Fund available for distribution to common shareholders upon liquidation of the Fund. Common shareholders are entitled to one vote for each share held.
In the event that the Fund issues preferred shares and so long as any shares of the Fund's preferred shares are outstanding, holders of common shares will not be entitled to receive any net income of or other
distributions from the Fund unless all accumulated dividends on preferred shares have been paid, and unless asset coverage (as defined in the 1940 Act) with respect to preferred shares would be at least 200% after giving effect to such distributions. See "Leverage."
The Fund will send unaudited reports at least semiannually and audited annual financial statements to all of its shareholders.
Calamos provided the initial capital for the Fund by purchasing 14,000 common shares of the Fund for $200,130. As of the date of this prospectus, Calamos owned 100% of the outstanding common shares. Calamos may be deemed to control the Fund until such time as it owns less than 25% of the outstanding shares of the Fund.
PREFERRED SHARES
The Fund currently anticipates issuing, as soon as practicable after the closing of this offering, cumulative preferred shares with an aggregate liquidation preference of up to approximately 33% of the Fund's total assets immediately after issuance. As a non-fundamental policy, the Fund may not issue preferred shares (or borrow money and issue debt securities) with an aggregate liquidation preference (or aggregate principal amount) exceeding 38% of the Fund's total assets. However, the Board of Trustees reserves the right to issue preferred shares to the extent permitted by the 1940 Act, which currently limits the aggregate liquidation preference of all outstanding preferred shares to 50% of the value of the Fund's total assets less the Fund's liabilities and indebtedness. Although the terms of any preferred shares, including dividend rate, liquidation preference and redemption provisions, will be determined by the Board of Trustees, subject to applicable law and the Agreement and Declaration of Trust, it is likely that the preferred shares will be structured to carry a relatively short-term dividend rate reflecting interest rates on short-term bonds by providing for the periodic redetermination of the dividend rate at relatively short intervals through an auction, remarketing or other procedure. The Fund also believes that it is likely that the liquidation preference, voting rights and redemption provisions of the preferred shares will be similar to those stated below.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Fund, the holders of preferred shares will be entitled to receive a preferential liquidating distribution, which is expected to equal the original purchase price per preferred share plus accumulated and unpaid dividends, whether or not declared, before any distribution of assets is made to holders of common shares. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of preferred shares will not be entitled to any further participation in any distribution of assets by the Fund.
The 1940 Act requires that the holders of any preferred shares, voting separately as a single class, have the right to elect at least two Trustees at all times. The remaining Trustees will be elected by holders of common shares and preferred shares, voting together as a single class. In addition, subject to the prior rights, if any, of the holders of any other class of senior securities outstanding, the holders of any preferred shares have the right to elect a majority of the Trustees at any time two years' accumulated dividends on any preferred shares are unpaid. The 1940 Act also requires that, in addition to any approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding preferred shares, voting separately as a class, would be required to (1) adopt any plan of reorganization that would adversely affect the preferred shares, and (2) take any action requiring a vote of security holders under Section 13(a) of the 1940 Act, including, among other things, changes in the Fund's subclassification as a closed-end investment company or changes in its fundamental investment restrictions. See "Certain Provisions of the Agreement and Declaration of Trust and By-Laws." As a result of these voting rights, the Fund's ability to take any such actions may be impeded to the extent that there are any preferred shares outstanding. The Board of Trustees presently intends that, except as otherwise indicated in this prospectus and except as otherwise required by applicable law, holders of preferred shares will have equal voting rights with holders of common shares (one vote per share, unless otherwise required by the 1940 Act) and will vote together with holders of common shares as a single class.
The affirmative vote of the holders of a majority of the outstanding preferred shares, voting as a separate class, will be required to amend, alter or repeal any of the preferences, rights or powers of holders of preferred shares so as to affect materially and adversely such preferences, rights or powers, or to increase or decrease the authorized number of preferred shares. The class vote of holders of preferred shares described above will in each case be in addition to any other vote required to authorize the action in question.
The terms of the preferred shares are expected to provide that (i) they are redeemable by the Fund in whole or in part at the original purchase price per share plus accrued dividends per share, (ii) the Fund may tender for or purchase preferred shares and (iii) the Fund may subsequently resell any shares so tendered for or purchased. Any redemption or purchase of preferred shares by the Fund will reduce the leverage applicable to the common shares, while any resale of shares by the Fund will increase that leverage.
The discussion above describes the possible offering of preferred shares by the Fund. If the Board of Trustees determines to proceed with such an offering, the terms of the preferred shares may be the same as, or different from, the terms described above, subject to applicable law and the Agreement and Declaration of Trust. The Board of Trustees, without the approval of the holders of common shares, may authorize an offering of preferred shares or may determine not to authorize such an offering, and may fix the terms of the preferred shares to be offered.
CERTAIN PROVISIONS OF THE AGREEMENT AND
DECLARATION OF TRUST AND BY-LAWS
The Fund's Agreement and Declaration of Trust includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund or to change the composition of its Board of Trustees and could have the effect of depriving shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. These provisions, however, have the advantage of potentially requiring persons seeking control of the Fund to negotiate with its management regarding the price to be paid and facilitating the continuity of the Fund's investment objective and policies. The Board of Trustees of the Fund has considered these provisions and concluded that they are in the best interests of the Fund.
The Board of Trustees is divided into three classes and the terms of the Trustees of the different classes are staggered. A Trustee may be removed from office with or without cause by a vote of at least a majority of the then Trustees if such removal is approved by the holders of at least 75% of the shares entitled to vote with respect to the election of such Trustee and present in person or by proxy at a meeting of shareholders called for such purpose.
In addition, the Agreement and Declaration of Trust requires the affirmative vote of at least 75% of the outstanding shares entitled to vote on the matter for the Trust to merge or consolidate with any other corporation, association, trust or other organization or to sell, lease or exchange all or substantially all of the Fund's assets; unless such action has been approved, adopted or authorized by the affirmative vote of at least 75% of the Trustees then in office, in which case, the affirmative vote of a majority of the outstanding shares entitled to vote on the matter is required.
In addition, conversion of the Fund to an open-end investment company would require an amendment to the Fund's Agreement and Declaration of Trust. Such an amendment would require the favorable vote of a majority of the then Trustees followed by a favorable vote of the holders of at least 75% of the shares entitled to vote on the matter, voting as separate classes or series (or a majority of such shares if the amendment was previously approved by 75% of the Trustees). Such a vote also would satisfy a separate requirement in the 1940 Act that the change be approved by the shareholders.
Shareholders of an open-end investment company may require the company to redeem their shares of common stock at any time (except in certain circumstances as authorized by or under the 1940 Act) at their net asset value, less such redemption charge, if any, as might be in effect at the time of a
redemption. If the Fund is converted to an open-end investment company, it could be required to liquidate portfolio securities to meet requests for redemption, and the common shares would no longer be listed on the New York Stock Exchange. Conversion to an open-end investment company would also require changes in certain of the Fund's investment policies and restrictions.
In addition, the Agreement and Declaration of Trust requires the affirmative vote or consent of a majority of the then Trustees followed by the affirmative vote or consent of the holders of at least 75% of the shares of each affected class or series of the Fund outstanding, voting separately as a class or series, to approve, adopt or authorize certain transactions with 5% or greater holders of a class or series of shares and their associates, unless the transaction has been approved by at least 75% of the Trustees, in which case a majority of the outstanding shares entitled to vote shall be required. For purposes of these provisions, a 5% or greater holder of a class or series of shares (a "Principal Shareholder") refers to any person who, whether directly or indirectly and whether alone or together with its affiliates and associates, beneficially owns 5% or more of the outstanding shares of any class or series of shares of beneficial interest of the Fund. The 5% holder transactions subject to these special approval requirements are:
- the merger or consolidation of the Fund or any subsidiary of the Fund with or into any Principal Shareholder;
- the issuance of any securities of the Fund to any Principal Shareholder for cash; or
- the sale, lease or exchange to the Fund or any subsidiary of the Fund in exchange for securities of the Fund, of any assets of any Principal Shareholder, except assets having an aggregate fair market value of less than $1,000,000, aggregating for the purpose of such computation all assets sold, leased or exchanged in any series of similar transactions within a 12-month period.
The Fund may be terminated by the affirmative vote of not less than 75% of the Trustees then in office by written notice to the shareholders.
The Agreement and Declaration of Trust and By-laws provide that the Board of Trustees has the power, to the exclusion of shareholders, to make, alter or repeal any of the By-laws (except for any By-law specified not to be amended or repealed by the Board), subject to the requirements of the 1940 Act. Neither this provision of the Agreement and Declaration of Trust, nor any of the foregoing provisions thereof requiring the affirmative vote of 75% of outstanding shares of the Fund, can be amended or repealed except by the vote of such required number of shares.
The Fund's By-laws generally require that advance notice be given to the Fund in the event a shareholder desires to nominate a person for election to the Board of Trustees or to transact any other business at an annual meeting of shareholders. With respect to an annual meeting following the first annual meeting of shareholders, notice of any such nomination or business must be delivered to or received at the principal executive offices of the Fund not less than 90 calendar days nor more than 120 calendar days prior to the anniversary date of the prior year's annual meeting (subject to certain exceptions). In the case of the first annual meeting of shareholders, the notice must be given no later than the tenth calendar day following public disclosure as specified in the By-laws of the date of the meeting. Any notice by a shareholder must be accompanied by certain information as provided in the By-laws.
UNDERWRITING
Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, A.G. Edwards & Sons, Inc., Advest, Inc., H&R Block Financial Advisors, Inc., Ferris, Baker Watts, Incorporated, Janney Montgomery Scott LLC, Legg Mason Wood Walker, Incorporated, McDonald Investments Inc., a KeyCorp Company, Oppenheimer & Co. Inc., Quick & Reilly, Inc. A FleetBoston Financial Company, RBC Capital Markets Corporation, TD Waterhouse Investor Services, Inc., Wedbush Morgan Securities Inc. and Wells Fargo Securities, LLC are acting as representatives of the underwriters named below. Subject to the terms and conditions stated in the Fund's underwriting agreement dated the date hereof, each underwriter named below has severally agreed to purchase, and the Fund has agreed to sell to such underwriter, the number of common shares set forth opposite the name of such underwriter.
NUMBER OF
UNDERWRITERS COMMON SHARES
------------ -------------
Citigroup Global Markets Inc. ..............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
UBS Securities LLC..........................................
A.G. Edwards & Sons, Inc. ..................................
Advest, Inc. ...............................................
H&R Block Financial Advisors, Inc. .........................
Ferris, Baker Watts, Incorporated...........................
Janney Montgomery Scott LLC.................................
Legg Mason Wood Walker, Incorporated........................
McDonald Investments Inc., a KeyCorp Company................
Oppenheimer & Co. Inc. .....................................
Quick & Reilly, Inc. A FleetBoston Financial Company........
RBC Capital Markets Corporation.............................
TD Waterhouse Investor Services, Inc. ......................
Wedbush Morgan Securities Inc. .............................
Wells Fargo Securities, LLC.................................
----------
Total................................................
==========
|
The underwriting agreement provides that the obligations of the underwriters to purchase the common shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the common shares (other than those covered by the over-allotment option described below) if they purchase any of the common shares.
The underwriters propose to offer some of the common shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the common shares to dealers at the public offering price less a concession not to exceed $ per common share. The sales load the Fund will pay of $ per common share is equal to % of the initial offering price. The underwriters may allow, and such dealers may reallow, a concession not to exceed $ per common share on sales to certain other dealers. If all of the common shares are not sold at the initial offering price, the representatives may change the public offering price and other selling terms. Investors must pay for any common shares purchased on or before , 2004. The representatives have advised the Fund that the underwriters do not intend to confirm any sales to any accounts over which they exercise discretionary authority.
Calamos (and not the Fund) has agreed to pay Merrill Lynch, Pierce, Fenner & Smith Incorporated a fee at an annual rate of 0.15% of the Fund's managed assets attributable to common shares sold by such underwriter. This fee will not exceed % of the total initial price to the public of the common shares offered hereby and will be payable in arrears at the end of each calendar quarter during the continuance of the investment management agreement or other advisory agreement between Calamos and the Fund. In return for such fee Merrill Lynch, Pierce, Fenner & Smith Incorporated has agreed (i) to provide services
related to the sale and distribution of the common shares, (ii) to provide certain after-market support services designed to maintain the visibility of the Fund on an ongoing basis, (iii) to provide relevant information, studies or reports regarding general trends in the closed-end investment company and asset management industries, if reasonably obtainable, and to consult with representatives of Calamos in connection therewith and (iv) to provide information to and consult with Calamos with respect to applicable strategies designed to address market value discounts, if any. Additionally, Calamos will pay to each of Citigroup Global Markets Inc. and UBS Securities LLC from its own resources a fee for advice relating to the structure and design of the Fund and the organization of the Fund as well as services related to the sale and distribution of the Fund's common shares in an amount equal to $3,000,000 per underwriter, which in the aggregate is % of the total initial price to the public of the common shares offered hereby. The sum of these fees, the amounts paid by the Fund to reimburse certain underwriter expenses and the sales load to be paid by the Fund will not exceed 9.00% of the total price to the public of the common shares offered hereby.
The Fund has granted to the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to additional common shares at the public offering price less the sales load. The underwriters may exercise such option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent such option is exercised, each underwriter will be obligated, subject to certain conditions, to purchase a number of additional common shares approximately proportionate to such underwriter's initial purchase commitment.
The Fund and Calamos have agreed that, for a period of 180 days from the date of this prospectus, they will not, without the prior written consent of Citigroup Global Markets Inc., on behalf of the underwriters, dispose of or hedge any common shares or any securities convertible into or exchangeable for common shares. Citigroup Global Markets Inc. in its sole discretion, may release any of the securities subject to these agreements at any time without notice.
Prior to the offering, there has been no public market for the common shares. Consequently, the initial public offering price for the common shares was determined by negotiation among the Fund, Calamos and the representatives. There can be no assurance, however, that the price at which the common shares will sell in the public market after this offering will not be lower than the price at which they are sold by the underwriters or that an active trading market in the common shares will develop and continue after this offering. The common shares have been authorized for listing on the New York Stock Exchange, subject to official notice of issuance.
The following table shows the sales load that the Fund will pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional common shares.
PAID BY FUND
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
Per share.................................................. $ $
Total...................................................... $ $
|
The Fund and Calamos have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
Calamos has agreed to pay organizational expenses and offering costs (other than sales load) that exceed $0.03 per share.
In addition, the Fund has agreed to reimburse the underwriters for certain expenses incurred by the underwriters in the offering.
In connection with the requirements for listing the common shares on the New York Stock Exchange, the underwriters have undertaken to sell lots of 100 or more common shares to a minimum of
2,000 beneficial owners in the United States. The minimum investment requirement is 100 common shares.
Certain underwriters may make a market in the common shares after trading in the common shares has commenced on the New York Stock Exchange. No underwriter is, however, obligated to conduct market-making activities and any such activities may be discontinued at any time without notice, at the sole discretion of the underwriter. No assurance can be given as to the liquidity of, or the trading market for, the common shares as a result of any market-making activities undertaken by any underwriter. This prospectus is to be used by any underwriter in connection with the offering and, during the period in which a prospectus must be delivered, with offers and sales of the common shares in market-making transactions in the over-the-counter market at negotiated prices related to prevailing market prices at the time of the sale.
The underwriters have advised the Fund that, pursuant to Regulation M under the Securities Exchange Act of 1934, as amended, certain persons participating in the offering may engage in transactions, including stabilizing bids, covering transactions or the imposition of penalty bids, which may have the effect of stabilizing or maintaining the market price of the common shares on the New York Stock Exchange at a level above that which might otherwise prevail in the open market. A "stabilizing bid" is a bid for or the purchase of the common shares on behalf of an underwriter for the purpose of fixing or maintaining the price of the common shares. A "covering transaction" is a bid for or purchase of the common shares on behalf of an underwriter to reduce a short position incurred by the underwriters in connection with the offering. A "penalty bid" is a contractual arrangement whereby if, during a specified period after the issuance of the common shares, the underwriters purchase common shares in the open market for the account of the underwriting syndicate and the common shares purchased can be traced to a particular underwriter or member of the selling group, the underwriting syndicate may require the underwriter or selling group member in question to purchase the common shares in question at the cost price to the syndicate or may recover from (or decline to pay to) the underwriter or selling group member in question any or all compensation (including, with respect to a representative, the applicable syndicate management fee) applicable to the common shares in question. As a result, an underwriter or selling group member and, in turn, brokers may lose the fees that they otherwise would have earned from a sale of the common shares if their customer resells the common shares while the penalty bid is in effect. The underwriters are not required to engage in any of these activities, and any such activities, if commenced, may be discontinued at any time.
The underwriting agreement provides that it may be terminated in the absolute discretion of the representatives, without liability on the part of any underwriter to the Fund or Calamos, by notice to the Fund or Calamos, if, prior to the delivery of and payment for the common shares, (i) trading in the common shares shall have been suspended by the Commission or the New York Stock Exchange or trading in securities generally on the New York Stock Exchange shall have been suspended or limited or minimum prices shall have been established on such exchange, (ii) a banking moratorium shall have been declared by either federal or New York state authorities, or (iii) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war, or other calamity or crisis the effect of which on financial markets is such as to make it, in the representatives' sole judgment, impracticable or inadvisable to proceed with the offering or delivery of the common shares as contemplated by this prospectus (exclusive of any supplement hereto).
A prospectus in electronic format may be available on the website maintained by one or more of the underwriters. The representatives may agree to allocate a number of common shares to the underwriters for sale to their online brokerage account holders. The representatives will allocate common shares to the underwriters that may make internet distributions on the same basis as other allocations. In addition, common shares may be sold by the underwriters to securities dealers who resell common shares to online brokerage account holders.
The Fund anticipates that from time to time certain of the underwriters may act as brokers or dealers in connection with the execution of the Fund's portfolio transactions after they have ceased to be underwriters and, subject to certain restrictions, may act as brokers while they are underwriters.
Certain underwriters have performed investment banking and advisory services for Calamos and its affiliates from time to time, for which they have received customary fees and expenses. Certain underwriters may, from time to time, engage in transactions with or perform services for Calamos in the ordinary course of business.
Prior to the public offering of common shares, Calamos will purchase common
shares from the Fund in an amount satisfying the net worth requirements of
Section 14(a) of the 1940 Act.
The principal business address of Citigroup Global Markets Inc. is 388 Greenwich Street, New York, New York 10013.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Fund's securities and cash are held under a custodian agreement with The Bank of New York, One Wall Street, New York, New York 10286. The transfer agent and dividend disbursing agent for the Fund's shares is also The Bank of New York.
LEGAL OPINIONS
Bell, Boyd & Lloyd LLC, Chicago, Illinois, serves as counsel to the Fund and to the non-interested Trustees. Vedder, Price, Kaufman & Kammholz, P.C. ("Vedder Price"), Chicago, Illinois, which is serving as special counsel to the Fund in connection with the offering, will pass on the legality of the shares offered hereby. Vedder Price is also counsel to Calamos. Certain matters will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, New York, New York. Vedder Price and Simpson Thacher & Bartlett LLP may rely on matters of Delaware law on the opinion of Morris, Nichols, Arsht & Tunnell, Wilmington, Delaware.
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION
Use of Proceeds............................................. S-1 Investment Objective and Policies........................... S-1 Investment Restrictions..................................... S-20 Management of the Fund...................................... S-22 Portfolio Transactions...................................... S-29 Repurchase of Common Shares................................. S-30 U.S. Federal Income Tax Matters............................. S-32 Experts..................................................... S-38 Additional Information...................................... S-38 Financial Statement and Report of Independent Auditors...... F-1 Appendix A -- Description of Ratings........................ A-1 |
SHARES
PROSPECTUS
, 2004
CITIGROUP
MERRILL LYNCH & CO.
UBS INVESTMENT BANK
A.G. EDWARDS & SONS, INC.
ADVEST, INC.
H&R BLOCK FINANCIAL ADVISORS, INC.
FERRIS, BAKER WATTS
INCORPORATED
JANNEY MONTGOMERY SCOTT LLC
LEGG MASON WOOD WALKER
INCORPORATED
MCDONALD INVESTMENTS INC.
OPPENHEIMER
QUICK & REILLY, INC.
RBC CAPITAL MARKETS
TD WATERHOUSE
WEDBUSH MORGAN SECURITIES
WELLS FARGO SECURITIES, LLC
SEC FILE NUMBER: 811-
333-
The information in this Statement of Additional Information is not complete and may be changed. We may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 24, 2004
CALAMOS STRATEGIC TOTAL RETURN FUND
STATEMENT OF ADDITIONAL INFORMATION
Calamos Strategic Total Return Fund (the "Fund") is a newly organized, diversified, closed-end management investment company. This Statement of Additional Information relating to common shares does not constitute a prospectus, but should be read in conjunction with the Prospectus relating thereto dated ________ __, 2004. This Statement of Additional Information does not include all information that a prospective investor should consider before purchasing common shares, and investors should obtain and read the Prospectus prior to purchasing such shares. A copy of the Prospectus may be obtained without charge by calling 1-800-582-6959. You may also obtain a copy of the Prospectus on the Securities and Exchange Commission's web site (http://www.sec.gov).
TABLE OF CONTENTS
Use of Proceeds...................................................S-1 Investment Objective and Policies.................................S-1 Investment Restrictions..........................................S-20 Management of the Fund...........................................S-22 Portfolio Transactions...........................................S-29 Repurchase of Common Shares......................................S-30 U.S. Federal Income Tax Matters..................................S-32 Experts ........................................................S-38 Additional Information...........................................S-38 Financial Statement and Report of Independent Auditors............F-1 Appendix A--Description of Ratings................................A-1 |
This Statement of Additional Information is dated _______ __, 2004.
USE OF PROCEEDS
The Fund will invest the net proceeds of the offering in accordance with the Fund's investment objective and policies as stated below and in the Prospectus. It is presently anticipated that the Fund will invest substantially all of the net proceeds in securities that meet the investment objective and policies within three months after completion of the offering. Pending such investment, the net proceeds may be invested in U.S. government securities and high grade, short-term money market instruments. If necessary, the Fund may also purchase, as temporary investments, securities of other open- or closed-end investment companies that invest primarily in the types of securities in which the Fund may invest directly.
INVESTMENT OBJECTIVE AND POLICIES
The prospectus presents the investment objective and the principal investment strategies and risks of the Fund. This section supplements the disclosure in the Fund's prospectus and provides additional information on the Fund's investment policies or restrictions. Restrictions or policies stated as a maximum percentage of the Fund's assets are only applied immediately after a portfolio investment to which the policy or restriction is applicable (other than the limitations on borrowing). Accordingly, any later increase or decrease resulting from a change in values, net assets or other circumstances will not be considered in determining whether the investment complies with the Fund's restrictions and policies.
PRIMARY INVESTMENTS. Under normal circumstances, the Fund will invest primarily in common and preferred stock, convertible securities and income producing securities such as investment grade and below investment grade debt securities. The Fund, under normal circumstances, will invest at least 50% of its managed assets in equity securities (including securities that are convertible into equity securities). The Fund may invest up to 35% of its managed assets in securities of foreign issuers, including debt and equity securities of corporate issuers and debt securities of government issuers in developed and emerging markets. The Fund may invest up to 15% of its managed assets in securities of foreign issuers in emerging markets. "Managed Assets" means the total assets of the Fund (including any assets attributable to any leverage that may be outstanding) minus the sum of accrued liabilities (other than debt representing financial leverage). For this purpose the liquidation preference on any preferred shares will not constitute a liability.
Calamos will dynamically allocate the Fund's investments among multiple asset classes, seeking to obtain an appropriate balance of risk and reward through all market cycles using multiple strategies and combining them to seek to achieve favorable risk adjusted returns.
Calamos analyzes securities for the Fund's portfolio using an approach that focuses on assessing a total enteprise value before assessing the value of the securities issued by a company. Calamos seeks to assess the value of an issuer's total enterprise by studying its financial statements, including its balance sheet. Once enterprise value is determined, Calamos seeks to assess the value of the issuer's different types of securities, taking into account the business risk of the issuer, its competitive position and the seniority of each type of security relative to the rest of the issuer's capital structure. This approach serves as the basis for the Calamos research team's design and use of proprietary models which, along with risk management and portfolio construction techniques, assist in determining whether a given security presents an investment opportunity for the Fund.
EQUITY SECURITIES. Equity securities include common and preferred stocks, warrants, rights, and depository receipts. Under normal circumstances, the Fund will invest at least 50% of its managed assets in equity securities (including securities that are convertible into equity securities). An investment in the equity securities of a company represents a proportionate ownership interest in that company. Therefore, the Fund participates in the financial success or failure of any company in which it has a equity interest. Equity investments are subject to greater fluctuations in market value than other asset classes as a result of such factors as a company's business performance, investor perceptions, stock market trends and general economic conditions. Equity securities are subordinated to bonds and other debt instruments in a company's capital structure in terms of priority to corporate income and liquidation payments.
Preferred stocks involve credit risk, which is the risk that a preferred stock in the Fund's portfolio will decline in price or fail to make dividend payments when due because the issuer of the security experiences a decline in its financial status. In addition to credit risk, investments in preferred stocks involve certain other risks. Certain preferred stocks contain provisions that allow an issuer under certain circumstances to skip distributions (in the case of "non-cumulative" preferred stocks) or defer distributions (in the case of "cumulative" preferred stocks). If the Fund owns a preferred stock that is deferring its distributions, the Fund may be required to report income for tax purposes while it is not receiving income from that stock. In certain varying circumstances, an issuer may redeem its preferred stock prior to a specified date in the event of certain tax or legal changes or at the issuer's call. In the
event of a redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return. Preferred stocks typically do not provide any voting rights, except incases when dividends are in arrears for a specified number of periods.
Equity securities of small company and mid cap companies historically have been subject to greater investment risk than those of large companies. The risks generally associated with small and medium-sized companies include more limited product lines, markets and financial resources, lack of management depth or experience, dependency on key personnel and vulnerability to adverse market and economic developments. Accordingly, the prices of small and medium-sized company equity securities tend to be more volatile than prices of large company stocks. Further, the prices of small and medium-sized company equity securities are often adversely affected by limited trading volumes and the lack of publicly available information.
HIGH YIELD SECURITIES. The high yield securities in which the Fund invests are rated Ba or lower by Moody's or BB or lower by Standard & Poor's or are unrated but determined by Calamos to be of comparable quality. Non-convertible debt securities rated below investment grade are commonly referred to as "junk bonds" and are considered speculative with respect to the issuer's capacity to pay interest and repay principal.
INVESTMENT IN HIGH YIELD SECURITIES INVOLVES SUBSTANTIAL RISK OF LOSS. Below investment grade non-convertible debt securities or comparable unrated securities are commonly referred to as "junk bonds" and are considered predominantly speculative with respect to the issuer's ability to pay interest and principal and are susceptible to default or decline in market value due to adverse economic and business developments. The market values for high yield securities tend to be very volatile, and these securities are less liquid than investment grade debt securities. For these reasons, your investment in the Fund is subject to the following specific risks:
o increased price sensitivity to changing interest rates and to a deteriorating economic environment;
o greater risk of loss due to default or declining credit quality;
o adverse company specific events are more likely to render the issuer unable to make interest and/or principal payments; and
o if a negative perception of the high yield market develops, the price and liquidity of high yield securities may be depressed. This negative perception could last for a significant period of time.
Securities rated below investment grade are speculative with respect to the capacity to pay interest and repay principal in accordance with the terms of such securities. A rating of C from Moody's means that the issue so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Standard & Poor's assigns a rating of C to issues that are currently highly vulnerable to nonpayment, and the C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on the obligation are being continued (a C rating is also assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying). See Appendix A to this statement of additional information for a description of Moody's and Standard & Poor's ratings.
Adverse changes in economic conditions are more likely to lead to a weakened capacity of a high yield issuer to make principal payments and interest payments than an investment grade issuer. The
principal amount of high yield securities outstanding has proliferated in the past decade as an increasing number of issuers have used high yield securities for corporate financing. An economic downturn could severely affect the ability of highly leveraged issuers to service their debt obligations or to repay their obligations upon maturity. Similarly, down-turns in profitability in specific industries could adversely affect the ability of high yield issuers in that industry to meet their obligations. The market values of lower quality debt securities tend to reflect individual developments of the issuer to a greater extent than do higher quality securities, which react primarily to fluctuations in the general level of interest rates. Factors having an adverse impact on the market value of lower quality securities may have an adverse effect on the Fund's net asset value and the market value of its common shares. In addition, the Fund may incur additional expenses to the extent it is required to seek recovery upon a default in payment of principal or interest on its portfolio holdings. In certain circumstances, the Fund may be required to foreclose on an issuer's assets and take possession of its property or operations. In such circumstances, the Fund would incur additional costs in disposing of such assets and potential liabilities from operating any business acquired.
The secondary market for high yield securities may not be as liquid as the secondary market for more highly rated securities, a factor which may have an adverse effect on the Fund's ability to dispose of a particular security when necessary to meet its liquidity needs. There are fewer dealers in the market for high yield securities than investment grade obligations. The prices quoted by different dealers may vary significantly and the spread between the bid and asked price is generally much larger than higher quality instruments. Under adverse market or economic conditions, the secondary market for high yield securities could contract further, independent of any specific adverse changes in the condition of a particular issuer, and these instruments may become illiquid. As a result, the Fund could find it more difficult to sell these securities or may be able to sell the securities only at prices lower than if such securities were widely traded. Prices realized upon the sale of such lower rated or unrated securities, under these circumstances, may be less than the prices used in calculating the Fund's net asset value.
Since investors generally perceive that there are greater risks associated with lower quality debt securities of the type in which the Fund may invest a portion of its assets, the yields and prices of such securities may tend to fluctuate more than those for higher rated securities. In the lower quality segments of the debt securities market, changes in perceptions of issuers' creditworthiness tend to occur more frequently and in a more pronounced manner than do changes in higher quality segments of the debt securities market, resulting in greater yield and price volatility.
If the Fund invests in high yield securities that are rated C or below, the Fund will incur significant risk in addition to the risks associated with investments in high yield securities and corporate loans. Distressed securities frequently do not produce income while they are outstanding. The Fund may purchase distressed securities that are in default or the issuers of which are in bankruptcy. The Fund may be required to bear certain extraordinary expenses in order to protect and recover its investment.
DISTRESSED SECURITIES. The Fund may, but currently does not intend to, invest up to 5% of its total assets in distressed securities, including corporate loans, which are the subject of bankruptcy proceedings or otherwise in default as to the repayment of principal and/or payment of interest at the time of acquisition by the Fund or are rated in the lower rating categories (Ca or lower by Moody's or CC or lower by Standard & Poor's) or which are unrated investments considered by Calamos to be of comparable quality. Investment in distressed securities is speculative and involves significant risk. Distressed securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to protect and recover its investment. Therefore, to the extent the Fund seeks capital appreciation through investment in distressed securities, the Fund's ability to achieve current income for its shareholders may be diminished. The Fund also will be subject to significant uncertainty as to when and in what manner and for what value the obligations evidenced by
the distressed securities will eventually be satisfied (e.g., through a liquidation of the obligor's assets, an exchange offer or plan of reorganization involving the distressed securities or a payment of some amount in satisfaction of the obligation). In addition, even if an exchange offer is made or a plan of reorganization is adopted with respect to distressed securities held by the Fund, there can be no assurance that the securities or other assets received by the Fund in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have been anticipated when the investment was made. Moreover, any securities received by the Fund upon completion of an exchange offer or plan of reorganization may be restricted as to resale. As a result of the Fund's participation in negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of distressed securities, the Fund may be restricted from disposing of such securities.
LOANS. The Fund may invest up to 5% of its total assets in loan participations and other direct claims against a borrower. The corporate loans in which the Fund invests primarily consist of direct obligations of a borrower and may include debtor in possession financings pursuant to Chapter 11 of the U.S. Bankruptcy Code, obligations of a borrower issued in connection with a restructuring pursuant to Chapter 11 of the U.S. Bankruptcy Code, leveraged buy-out loans, leveraged recapitalization loans, receivables purchase facilities, and privately placed notes. The Fund may invest in a corporate loan at origination as a co-lender or by acquiring in the secondary market participations in, assignments of or novations of a corporate loan. By purchasing a participation, the Fund acquires some or all of the interest of a bank or other lending institution in a loan to a corporate or government borrower. The participations typically will result in the Fund having a contractual relationship only with the lender not the borrower. The Fund will have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the participation and only upon receipt by the lender of the payments from the borrower. Many such loans are secured, although some may be unsecured. Such loans may be in default at the time of purchase. Loans that are fully secured offer the Fund more protection than an unsecured loan in the event of non-payment of scheduled interest or principal. However, there is no assurance that the liquidation of collateral from a secured loan would satisfy the corporate borrower's obligation, or that the collateral can be liquidated. Direct debt instruments may involve a risk of loss in case of default or insolvency of the borrower and may offer less legal protection to the Fund in the event of fraud or misrepresentation. In addition, loan participations involve a risk of insolvency of the lending bank or other financial intermediary. The markets in loans are not regulated by federal securities laws or the Securities and Exchange Commission (the "Commission").
As in the case of other high yield investments, such corporate loans may be rated in the lower rating categories of the established rating services (Ba or lower by Moody's or BB or lower by Standard & Poor's), or may be unrated investments considered by Calamos to be of comparable quality. As in the case of other high yield investments, such corporate loans can be expected to provide higher yields than lower yielding, higher rated fixed income securities, but may be subject to greater risk of loss of principal and income. There are, however, some significant differences between corporate loans and high yield bonds. Corporate loan obligations are frequently secured by pledges of liens and security interests in the assets of the borrower, and the holders of corporate loans are frequently the beneficiaries of debt service subordination provisions imposed on the borrower's bondholders. These arrangements are designed to give corporate loan investors preferential treatment over high yield investors in the event of a deterioration in the credit quality of the issuer. Even when these arrangements exist, however, there can be no assurance that the borrowers of the corporate loans will repay principal and/or pay interest in full. Corporate loans generally bear interest at rates set at a margin above a generally recognized base lending rate that may fluctuate on a day-to-day basis, in the case of the prime rate of a U.S. bank, or which may be adjusted on set dates, typically 30 days but generally not more than one year, in the case of the London Interbank Offered Rate. Consequently, the value of corporate loans held by the Fund may be expected to fluctuate significantly less than the value of other fixed rate high yield instruments as a result of changes in the interest rate environment. On the other hand, the secondary dealer market for certain corporate
loans may not be as well developed as the secondary dealer market for high yield bonds, and therefore presents increased market risk relating to liquidity and pricing concerns.
FOREIGN SECURITIES. The Fund may invest up to 35% of its managed assets in securities of foreign issuers. The Fund may invest up to 15% of its managed assets in securities of foreign issuers in emerging markets. For these purposes, foreign securities do not include American Depositary Receipts ("ADRs") or securities guaranteed by a United States person, but may include foreign securities in the form of European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or other securities representing underlying shares of foreign issuers. Positions in those securities are not necessarily denominated in the same currency as the common stocks into which they may be converted. ADRs are receipts typically issued by an American bank or trust company evidencing ownership of the underlying securities. EDRs are European receipts listed on the Luxembourg Stock Exchange evidencing a similar arrangement. GDRs are U.S. dollar-denominated receipts evidencing ownership of foreign securities. Generally, ADRs, in registered form, are designed for the U.S. securities markets and EDRs and GDRs, in bearer form, are designed for use in foreign securities markets. The Fund may invest in sponsored or unsponsored ADRs. In the case of an unsponsored ADR, the Fund is likely to bear its proportionate share of the expenses of the depository and it may have greater difficulty in receiving shareholder communications than it would have with a sponsored ADR. To the extent positions in portfolio securities are denominated in foreign currencies, the Fund's investment performance is affected by the strength or weakness of the U.S. dollar against those currencies. For example, if the dollar falls in value relative to the Japanese yen, the dollar value of a Japanese stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the Japanese stock will fall. (See discussion of transaction hedging and portfolio hedging below under "Currency Exchange Transactions.")
Investors should understand and consider carefully the risks involved in foreign investing. Investing in foreign securities, which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve certain considerations comprising both risks and opportunities not typically associated with investing in U.S. securities. These considerations include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; lack of uniform accounting, auditing and financial reporting standards; lack of uniform settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; possible imposition of foreign taxes; and sometimes less advantageous legal, operational and financial protections applicable to foreign sub-custodial arrangements.
Although the Fund intends to invest in companies and government securities of countries having stable political environments, there is the possibility of expropriation or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other adverse political, social or diplomatic developments that could affect investment in these nations.
The Fund may invest in the securities of emerging countries. The securities markets of emerging countries are substantially smaller, less developed, less liquid and more volatile than the securities markets of the U.S. and other more developed countries. Disclosure and regulatory standards in many respects are less stringent than in the U.S. and other major markets. There also may be a lower level of monitoring and regulation of emerging markets and the activities of investors in such markets, and enforcement of existing regulations has been extremely limited. Economies in individual emerging markets may differ
favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rates of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments positions. Many emerging market countries have experienced high rates of inflation for many years, which has had and may continue to have very negative effects on the economies and securities markets of those countries.
CURRENCY EXCHANGE TRANSACTIONS. Currency exchange transactions may be conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through forward currency exchange contracts ("forward contracts"). Forward contracts are contractual agreements to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks, foreign exchange dealers and broker-dealers, are not exchange traded, and are usually for less than one year, but may be renewed.
Forward currency exchange transactions may involve currencies of the different countries in which the Fund may invest and serve as hedges against possible variations in the exchange rate between these currencies. Currency exchange transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions, except to the extent described below under "Synthetic Foreign Money Market Positions." Transaction hedging is the purchase or sale of forward contracts with respect to specific receivables or payables of the Fund accruing in connection with the purchase and sale of its portfolio securities or the receipt of dividends or interest thereon. Portfolio hedging is the use of forward contracts with respect to portfolio security positions denominated or quoted in a particular foreign currency. Portfolio hedging allows the Fund to limit or reduce its exposure in a foreign currency by entering into a forward contract to sell such foreign currency (or another foreign currency that acts as a proxy for that currency) at a future date for a price payable in U.S. dollars so that the value of the foreign denominated portfolio securities can be approximately matched by a foreign denominated liability. The Fund may not engage in portfolio hedging with respect to the currency of a particular country to an extent greater than the aggregate market value (at the time of making such sale) of the securities held in its portfolio denominated or quoted in that particular currency, except that the Fund may hedge all or part of its foreign currency exposure through the use of a basket of currencies or a proxy currency where such currencies or currency act as an effective proxy for other currencies. In such a case, the Fund may enter into a forward contract where the amount of the foreign currency to be sold exceeds the value of the securities denominated in such currency. The use of this basket hedging technique may be more efficient and economical than entering into separate forward contracts for each currency held in the Fund. The Fund may not engage in "speculative" currency exchange transactions.
If the Fund enters into a forward contract, the Fund's custodian will segregate liquid assets of the Fund having a value equal to the Fund's commitment under such forward contract. At the maturity of the forward contract to deliver a particular currency, the Fund may either sell the portfolio security related to the contract and make delivery of the currency, or it may retain the security and either acquire the currency on the spot market or terminate its contractual obligation to deliver the currency by purchasing an offsetting contract with the same currency trader obligating it to purchase on the same maturity date the same amount of the currency. It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of a forward contract. Accordingly, it may be necessary for a Fund to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the sale of the portfolio security if its market value exceeds the amount of currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the currency. Should forward prices decline during the period between the Fund's entering into a forward contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. A default on the contract would deprive the Fund of unrealized profits or force the Fund to cover its commitments for purchase or sale of currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate fluctuations in the value of a portfolio security traded in that currency or prevent a loss if the value of the security declines. Hedging transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for a Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to the Fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the contract period, and prevailing market conditions. Because currency exchange transactions are usually conducted on a principal basis, no fees or commissions are involved.
SYNTHETIC FOREIGN MONEY MARKET POSITIONS. The Fund may invest in money market instruments denominated in foreign currencies. In addition to, or in lieu of, such direct investment, the Fund may construct a synthetic foreign money market position by (a) purchasing a money market instrument denominated in one currency, generally U.S. dollars, and (b) concurrently entering into a forward contract to deliver a corresponding amount of that currency in exchange for a different currency on a future date and at a specified rate of exchange. For example, a synthetic money market position in Japanese yen could be constructed by purchasing a U.S. dollar money market instrument, and entering concurrently into a forward contract to deliver a corresponding amount of U.S. dollars in exchange for Japanese yen on a specified date and at a specified rate of exchange. Because of the availability of a variety of highly liquid short-term U.S. dollar money market instruments, a synthetic money market position utilizing such U.S. dollar instruments may offer greater liquidity than direct investment in foreign currency and a concurrent construction of a synthetic position in such foreign currency, in terms of both income yield and gain or loss from changes in currency exchange rates, in general should be similar, but would not be identical because the components of the alternative investments would not be identical.
DEBT OBLIGATIONS OF NON-U.S. GOVERNMENTS. An investment in debt obligations of non-U.S. governments and their political subdivisions (sovereign debt) involves special risks that are not present in corporate debt obligations. The non-U.S. issuer of the sovereign debt or the non-U.S. governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due, and the Fund may have limited recourse in the event of a default. During periods of economic uncertainty, the market prices of sovereign debt may be more volatile than prices of debt obligations of U.S. issuers. In the past, certain non-U.S. countries have encountered difficulties in servicing their debt obligations, withheld payments of principal and interest and declared moratoria on the payment of principal and interest on their sovereign debt.
A sovereign debtor's willingness or ability to repay principal and pay interest in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign currency reserves, the availability of sufficient non-U.S. currency, the relative size of the debt service burden, the sovereign debtor's policy toward its principal international lenders and local political constraints.
Sovereign debtors may also be dependent on expected disbursements from non-U.S. governments, multilateral agencies and other entities to reduce principal and interest arrearages on their debt. The failure of a sovereign debtor to implement economic reforms, achieve specified levels of economic performance or repay principal or interest when due may result in the cancellation of third-party commitments to lend funds to the sovereign debtor, which may further impair such debtor's ability or willingness to service its debts.
EURODOLLAR INSTRUMENTS AND SAMURAI AND YANKEE BONDS. The Fund may invest in Eurodollar instruments and Samurai and Yankee bonds. Eurodollar instruments are bonds of corporate and government issuers that pay interest and principal in U.S. dollars but are issued in markets outside the United States, primarily in Europe. Samurai bonds are yen-denominated bonds sold in Japan by non-Japanese issuers. Yankee bonds are U.S. dollar-denominated bonds typically issued in the U.S. by non-U.S. governments and their agencies and non-U.S. banks and corporations. The Fund may also invest in Eurodollar Certificates of Deposit ("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee Certificates of Deposit ("Yankee CDs"). ECDs are U.S. dollar-denominated certificates of deposit issued by non-U.S. branches of domestic banks; ETDs are U.S. dollar-denominated deposits in a non-U.S. branch of a U.S. bank or in a non-U.S. bank; and Yankee CDs are U.S. dollar-denominated certificates of deposit issued by a U.S. branch of a non-U.S. bank and held in the U.S. These investments involve risks that are different from investments in securities issued by U.S. issuers, including potential unfavorable political and economic developments, non-U.S. withholding or other taxes, seizure of non-U.S. deposits, currency controls, interest limitations or other governmental restrictions which might affect payment of principal or interest.
CONVERTIBLE SECURITIES. Convertible securities include any corporate debt security or preferred stock that may be converted into underlying shares of common stock. The common stock underlying convertible securities may be issued by a different entity than the issuer of the convertible securities. Convertible securities entitle the holder to receive interest payments paid on corporate debt securities or the dividend preference on a preferred stock until such time as the convertible security matures or is redeemed or until the holder elects to exercise the conversion privilege. As a result of the conversion feature, however, the interest rate or dividend preference on a convertible security is generally less than would be the case if the securities were issued in non-convertible form.
The value of convertible securities is influenced by both the yield of non-convertible securities of comparable issuers and by the value of the underlying common stock. The value of a convertible security viewed without regard to its conversion feature (i.e., strictly on the basis of its yield) is sometimes referred to as its "investment value." The investment value of the convertible security typically will fluctuate inversely with changes in prevailing interest rates. However, at the same time, the convertible security will be influenced by its "conversion value," which is the market value of the underlying common stock that would be obtained if the convertible security were converted. Conversion value fluctuates directly with the price of the underlying common stock.
If, because of a low price of the common stock, the conversion value is substantially below the investment value of the convertible security, the price of the convertible security is governed principally by its investment value. If the conversion value of a convertible security increases to a point that approximates or exceeds its investment value, the value of the security will be principally influenced by its conversion value. A convertible security will sell at a premium over its conversion value to the extent investors place value on the right to acquire the underlying common stock while holding a fixed income security. Holders of convertible securities have a claim on the assets of the issuer prior to the common stockholders, but may be subordinated to holders of similar non-convertible securities of the same issuer.
SYNTHETIC CONVERTIBLE SECURITIES. Calamos Asset Management, Inc. ("Calamos") may create a "synthetic" convertible security by combining fixed income securities with the right to acquire equity securities. More flexibility is possible in the assembly of a synthetic convertible security than in the purchase of a convertible security. Although synthetic convertible securities may be selected where the two components are issued by a single issuer, thus making the synthetic convertible security similar to the true convertible security, the character of a synthetic convertible security allows the combination of components representing distinct issuers, when Calamos believes that such a combination would better promote the Fund's investment objective. A synthetic convertible security also is a more flexible investment in that its two components may be purchased separately. For example, the Fund may purchase a warrant for inclusion in a synthetic convertible security but temporarily hold short-term investments while postponing the purchase of a corresponding bond pending development of more favorable market conditions.
A holder of a synthetic convertible security faces the risk of a decline in the price of the security or the level of the index involved in the convertible component, causing a decline in the value of the call option or warrant purchased to create the synthetic convertible security. Should the price of the stock fall below the exercise price and remain there throughout the exercise period, the entire amount paid for the call option or warrant would be lost. Because a synthetic convertible security includes the fixed-income component as well, the holder of a synthetic convertible security also faces the risk that interest rates will rise, causing a decline in the value of the fixed-income instrument.
The Fund may also purchase synthetic convertible securities manufactured by other parties, including convertible structured notes. Convertible structured notes are fixed income debentures linked to equity, and are typically issued by investment banks. Convertible structured notes have the attributes of a convertible security, however, the investment bank that issued the convertible note assumes the credit risk associated with the investment, rather than the issuer of the underlying common stock into which the note is convertible.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to broker-dealers and banks. Any such loan must be continuously secured by collateral in cash or cash equivalents maintained on a current basis in an amount at least equal to the market value of the securities loaned by the Fund. The Fund would continue to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned, and would also receive an additional return that may be in the form of a fixed fee or a percentage of the collateral. The Fund may pay reasonable fees to persons unaffiliated with the Fund for services in arranging these loans. The Fund would have the right to call the loan and obtain the securities loaned at any time on notice of not more than five business days. The Fund would not have the right to vote the securities during the existence of the loan but would call the loan to permit voting of the securities, if, in Calamos' judgment, a material event requiring a shareholder vote would otherwise occur before the loan was repaid. In the event of bankruptcy or other default of the borrower, the Fund could experience both delays in liquidating the loan collateral or recovering the loaned securities and losses, including (a) possible decline in the value of the collateral or in the value of the securities loaned during the period while the Fund seeks to enforce its rights thereto, (b) possible subnormal levels of income and lack of access to income during this period, and (c) expenses of enforcing its rights.
OPTIONS ON SECURITIES, INDEXES AND CURRENCIES. The Fund may purchase and sell put options and call options on securities, indexes or foreign currencies. The Fund may purchase agreements, sometimes called cash puts, that may accompany the purchase of a new issue of bonds from a dealer.
A put option gives the purchaser of the option, upon payment of a premium, the right to sell, and the writer the obligation to buy, the underlying security, commodity, index, currency or other instrument at the exercise price. For instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar instrument) against a substantial decline in the market value by giving the Fund the right to sell such instrument at the option exercise price. A call option, upon payment of a premium, gives the purchaser of the option the right to buy, and the seller the obligation to sell, the underlying instrument at the exercise price. The Fund's purchase of a call option on a security, financial future, index, currency or other instrument might be intended to protect a fund against an increase in the price of the underlying instrument that it intends to purchase in the future by fixing the price at which it may purchase such instrument.
The Fund is authorized to purchase and sell exchange listed options and over-the-counter options ("OTC options"). Exchange listed options are issued by a regulated intermediary such as the Options Clearing Corporation ("OCC"), which guarantees the performance of the obligations of the parties to such options. The discussion below uses the OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle by physical delivery of the underlying security or currency, although in the future cash settlement may become available. Index options and Eurodollar instruments are cash settled for the net amount, if any, by which the option is "in-the-money" (i.e., where the value of the underlying instrument exceeds, in the case of a call option, or is less than, in the case of a put option, the exercise price of the option) at the time the option is exercised. Frequently, rather than taking or making delivery of the underlying instrument through the process of exercising the option, listed options are closed by entering into offsetting purchase or sale transactions that do not result in ownership of the new option.
OTC options are purchased from or sold to securities dealers, financial institutions or other parties ("Counterparties") through direct bilateral agreement with the Counterparty. In contrast to exchange listed options, which generally have standardized terms and performance mechanics, all the terms of an OTC option, including such terms as method of settlement, term, exercise price, premium, guarantees and security, are set by negotiation of the parties. The Fund may sell OTC options (other than OTC currency options) that are subject to a buy-back provision permitting the Fund to require the Counterparty to sell the option back to a fund at a formula price within seven days. The Fund expects generally to enter into OTC options that have cash settlement provisions, although it is not required to do so. The staff of the Commission currently takes the position that OTC options purchased by a fund, and portfolio securities "covering" the amount of a fund's obligation pursuant to an OTC option sold by it (or the amount of assets equal to the formula price for the repurchase of the option, if any, less the amount by which the option is in the money) are illiquid, and are subject to a fund's limitation on investing no more than 15% of its net assets in illiquid securities.
The Fund may also purchase and sell options on securities indices and other financial indices. Options on securities indices and other financial indices are similar to options on a security or other instrument except that, rather than settling by physical delivery of the underlying instrument, they settle by cash settlement, i.e., an option or an index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the index upon which the option is based exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option (except if, in the case of an OTC option, physical delivery is specified). This amount of cash is equal to the excess of the closing price of the index over the exercise price of the option, which also may be multiplied by a formula value. The seller of the option is obligated, in return for the premium received, to make delivery of this amount. The gain or loss on an option on an index depends on price movements in the instruments making upon the market, market segment, industry or other composite on which the underlying index is based, rather than price movements in individual securities, as is the case with respect to options on securities.
The Fund will write call options and put options only if they are "covered." For example, a call option written by the Fund will require the Fund to hold the securities subject to the call (or securities convertible into the needed securities without additional consideration) or to segregate cash or liquid assets sufficient to purchase and deliver the securities if the call is exercised. A call option sold by a fund on an index will require the Fund to own portfolio securities which correlate with the index or to segregate cash or liquid assets equal to the excess of the index value over the exercise price on a current basis. A put option written by the Fund requires the Fund to segregate cash or liquid assets equal to the exercise price.
OTC options entered into by the Fund and OCC issued and exchange listed index options will generally provide for cash settlement. As a result, when the Fund sells these instruments it will only segregate an amount of cash or liquid assets equal to its accrued net obligations, as there is no requirement for payment or delivery of amounts in excess of the net amount. These amounts will equal 100% of the exercise price in the case of a non cash-settled put, the same as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount plus any sell-back formula amount in the case of a cash-settled put or call. In addition, when the Fund sells a call option on an index at a time when the in-the-money amount exceeds the exercise price, the Fund will segregate, until the option expires or is closed out, cash or cash equivalents equal in value to such excess. OCC issued and exchange listed options sold by the Fund other than those above generally settle with physical delivery, or with an election of either physical delivery or cash settlement and the Fund will segregate an amount of cash or liquid assets equal to the full value of the option. OTC options settling with physical delivery, or with an election of either physical delivery or cash settlement, will be treated the same as other options settling with physical delivery.
If an option written by the Fund expires, the Fund realizes a capital gain equal to the premium received at the time the option was written. If an option purchased by the Fund expires, the Fund realizes a capital loss equal to the premium paid.
The Fund will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the Fund will realize a capital loss. If the premium received from a closing sale transaction is more than the premium paid to purchase the option, the Fund will realize a capital gain or, if it is less, the Fund will realize a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security or index in relation to the exercise price of the option, the volatility of the underlying security or index, and the time remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the Fund, valued initially at the premium paid for the option. The premium received for an option written by the Fund is recorded as a deferred credit. The value of an option purchased or written is marked-to-market daily and is valued at the closing price on the exchange on which it is traded or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked prices.
RISKS ASSOCIATED WITH OPTIONS. There are several risks associated with transactions in options. For example, there are significant differences between the securities markets, the currency markets and the options markets that could result in an imperfect correlation among these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. The ability of the Fund to utilize options successfully will depend on Calamos' ability to predict pertinent market investments, which cannot be assured.
The Fund's ability to close out its position as a purchaser or seller of an OCC or exchange listed put or call option is dependent, in part, upon the liquidity of the option market. Among the possible reasons for the absence of a liquid option market on an exchange are: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities including reaching daily price limits; (iv) interruption of the normal operations of the OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to handle current trading volume; or (vi) a decision by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which event the relevant market for that option on that exchange would cease to exist, although outstanding options on that exchange would generally continue to be exercisable in accordance with their terms. If the Fund were unable to close out an option that it has purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire and become worthless. If the Fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security until the option expired. As the writer of a covered call option on a security, the Fund foregoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the exercise price of the call. As the writer of a covered call option on a foreign currency, the Fund foregoes, during the option's life, the opportunity to profit from currency appreciation.
The hours of trading for listed options may not coincide with the hours during which the underlying financial instruments are traded. To the extent that the option markets close before the markets for the underlying financial instruments, significant price and rate movements can take place in the underlying markets that cannot be reflected in the option markets.
Unless the parties provide for it, there is no central clearing or guaranty function in an OTC option. As a result, if the Counterparty (as described above under "Options on Securities, Indexes and Currencies") fails to make or take delivery of the security, currency or other instrument underlying an OTC option it has entered into with a fund or fails to make a cash settlement payment due in accordance with the terms of that option, a fund will lose any premium it paid for the option as well as any anticipated benefit of the transaction. Accordingly, Calamos must assess the creditworthiness of each such Counterparty or any guarantor or credit enhancement of the Counterparty's credit to determine the likelihood that the terms of the OTC option will be satisfied. The Fund will engage in OTC option transactions only with U.S. government securities dealers recognized by the Federal Reserve Bank of New York as "primary dealers" or broker/dealers, domestic or foreign banks or other financial institutions which have received (or the guarantors of the obligation of which have received) a short-term credit rating of A-1 from S&P or P-1 from Moody's or an equivalent rating from any nationally recognized statistical rating organization ("NRSRO") or, in the case of OTC currency transactions, are determined to be of equivalent credit quality by Calamos.
The Fund may purchase and sell call options on securities indices and currencies. All calls sold by the Fund must be "covered." Even though the Fund will receive the option premium to help protect it against loss, a call sold by the Fund exposes the Fund during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or instrument and may require a fund to hold a security or instrument which it might otherwise have sold. The Fund may purchase and sell put options on securities indices and currencies. In selling put options, there is a risk that the Fund may be required to buy the underlying security at a disadvantageous price above the market price.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may use interest rate futures contracts, index futures contracts and foreign currency futures contracts. An interest rate, index or foreign currency futures contract provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or the cash value of an index(1) at a specified price and time. A public market exists in futures contracts covering a number of indexes (including, but not limited to: the Standard & Poor's 500 Index, the Russell 2000 Index, the Value Line Composite Index, and the New York Stock Exchange Composite Index) as well as financial instruments (including, but not limited to: U.S. Treasury bonds, U.S. Treasury notes, Eurodollar certificates of deposit and foreign currencies). Other index and financial instrument futures contracts are available and it is expected that additional futures contracts will be developed and traded.
The Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true. The Fund might, for example, use futures contracts to hedge
against or gain exposure to fluctuations in the general level of stock prices,
anticipated changes in interest rates or currency fluctuations that might
adversely affect either the value of the Fund's securities or the price of the
securities that the Fund intends to purchase. Although other techniques could be
used to reduce or increase the Fund's exposure to stock price, interest rate and
currency fluctuations, the Fund may be able to achieve its desired exposure more
effectively and perhaps at a lower cost by using futures contracts and futures
options.
The Fund will only enter into futures contracts and futures options that are standardized and traded on an exchange, board of trade or similar entity, or quoted on an automated quotation system.
The success of any futures transaction depends on the investment manager correctly predicting changes in the level and direction of stock prices, interest rates, currency exchange rates and other factors. Should those predictions be incorrect, the Fund's return might have been better had the transaction not been attempted; however, in the absence of the ability to use futures contracts, the investment manager might have taken portfolio actions in anticipation of the same market movements with similar investment results, but, presumably, at greater transaction costs. When a purchase or sale of a futures contract is made by the Fund, the Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or U.S. Government securities or other securities acceptable to the broker ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract, although the Fund's broker may require margin deposits in excess of the minimum required by the exchange. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract, which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. The Fund expects to earn interest income on its initial margin deposits. A futures contract held by the Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking-to-market." Variation margin paid or received by the Fund does not represent a borrowing or loan by the Fund but is instead settlement between the Fund and the broker of the amount one would owe the other if the futures contract had expired at the close of the previous day. In computing daily net asset value, the Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option and other futures positions held by the Fund. Although some futures contracts call for making or taking delivery of the underlying securities, usually these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, the Fund engaging in the transaction realizes a capital gain, or if it is more, the Fund realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Fund engaging in the transaction realizes a capital gain, or if it is less, the Fund realizes a capital loss. The transaction costs must also be included in these calculations.
RISKS ASSOCIATED WITH FUTURES. There are several risks associated with the use of futures contracts and futures options. A purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. In trying to increase or reduce market exposure, there can be no guarantee that there will be a correlation between price movements in the futures contract and in the portfolio exposure sought. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given transaction not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as: variations in speculative market demand for futures, futures options and the related securities, including technical influences in futures and futures options trading and differences between the securities markets and the securities underlying the standard contracts available for trading. For example, in the case of index futures contracts, the composition of the index, including the issuers and the weighing of each issue, may differ from the composition of the Fund's portfolio, and, in the case of interest rate futures contracts, the interest rate levels, maturities and creditworthiness of the issues underlying the futures contract may differ from the financial instruments held in the Fund's portfolio. A decision as to whether, when and how to use futures contracts involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected stock price or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Stock index futures contracts are not normally subject to such daily price change limitations.
There can be no assurance that a liquid market will exist at a time when the Fund seeks to close out a futures or futures option position. The Fund would be exposed to possible loss on the position during the interval of inability to close, and would continue to be required to meet margin requirements until the position is closed. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES. If other options, futures contracts or futures options of types other than those described herein are traded in the future, the Fund may also use those investment
vehicles, provided the Board of Trustees determines that their use is consistent with the Fund's investment objective.
When purchasing a futures contract or writing a put option on a futures contract, the Fund must maintain with its custodian (or broker, if legally permitted) cash or cash equivalents (including any margin) equal to the market value of such contract. When writing a call option on a futures contract, the Fund similarly will maintain with its custodian cash or cash equivalents (including any margin) equal to the amount by which such option is in-the-money until the option expires or is closed by the Fund.
The Fund may not maintain open short positions in futures contracts, call options written on futures contracts or call options written on indexes if, in the aggregate, the market value of all such open positions exceeds the current value of the securities in its portfolio, plus or minus unrealized gains and losses on the open positions, adjusted for the historical relative volatility of the relationship between the portfolio and the positions. For this purpose, to the extent the Fund has written call options on specific securities in its portfolio, the value of those securities will be deducted from the current market value of the securities portfolio.
The Fund has claimed an exclusion from registration as a commodity pool under the Commodity Exchange Act ("CEA") and, therefore, the Fund and its officers and trustees are not subject to the registration requirements of the CEA. The Fund reserves the right to engage in transactions involving futures and options thereon to the extent allowed by Commodity Future Trading Commission ("CFTC") regulations in effect from time to time and in accordance with the Fund's policies.
WARRANTS. The Fund may invest in warrants. A warrant is a right to purchase common stock at a specific price (usually at a premium above the market value of the underlying common stock at time of issuance) during a specified period of time. A warrant may have a life ranging from less than a year to twenty years or longer, but a warrant becomes worthless unless it is exercised or sold before expiration. In addition, if the market price of the common stock does not exceed the warrant's exercise price during the life of the warrant, the warrant will expire worthless. Warrants have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them. The percentage increase or decrease in the value of a warrant may be greater than the percentage increase or decrease in the value of the underlying common stock.
PORTFOLIO TURNOVER. Although the Fund does not purchase securities with a view to rapid turnover, there are no limitations on the length of time that portfolio securities must be held. Portfolio turnover can occur for a number of reasons, including calls for redemption, general conditions in the securities markets, more favorable investment opportunities in other securities, or other factors relating to the desirability of holding or changing a portfolio investment. The portfolio turnover rates may vary greatly from year to year. A high rate of portfolio turnover in the Fund would result in increased transaction expense, which must be borne by that Fund. High portfolio turnover may also result in the realization of capital gains or losses and, to the extent net short-term capital gains are realized, any distributions resulting from such gains will be considered ordinary income for federal income tax purposes.
SHORT SALES. The Fund may attempt to hedge against market risk and to enhance income by selling short "against the box," that is: (1) entering into short sales of securities that it currently has the right to acquire through the conversion or exchange of other securities that it owns, or to a lesser extent, entering into short sales of securities that it currently owns; and (2) entering into arrangements with the broker-dealers through which such securities are sold short to receive income with respect to the proceeds of short sales during the period the Fund's short positions remain open. The Fund may make short sales of securities only if at all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable for, without payment of any further consideration, securities of the same issue as, and equal in amount to, the securities sold short.
In a short sale against the box, the Fund does not deliver from its portfolio the securities sold and does not receive immediately the proceeds from the short sale. Instead, the Fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the Fund, to the purchaser of such securities. Such broker-dealer is entitled to retain the proceeds from the short sale until the Fund delivers to such broker-dealer the securities sold short. In addition, the Fund is required to pay to the broker-dealer the amount of any dividends paid on shares sold short. Finally, to secure its obligation to deliver to such broker-dealer the securities sold short, the Fund must deposit and continuously maintain in a separate account with the Fund's custodian an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities without the payment of additional consideration. The Fund is said to have a short position in the securities sold until it delivers to the broker-dealer the securities sold, at which time the Fund receives the proceeds of the sale. Because the Fund ordinarily will want to continue to hold securities in its portfolio that are sold short, the Fund will normally close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short, rather than by delivering portfolio securities.
A short sale works the same way, except that the Fund places in the segregated account cash or U.S. government securities equal in value to the difference between (i) the market value of the securities sold short at the time they were sold short and (ii) any cash or U.S. government securities required to be deposited with the broker as collateral. In addition, so long as the short position is open, the Fund must adjust daily the value of the segregated account so that the amount deposited in it, plus any amount deposited with the broker as collateral, will equal the current market value of the security sold short. However, the value of the segregated account may not be reduced below the point at which the segregated account, plus any amount deposited with the broker, is equal to the market value of the securities sold short at the time they were sold short.
Short sales may protect the Fund against the risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend upon the amount of securities sold short relative to the amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. Short sale transactions of the Fund involve certain risks. In particular, the imperfect correlation between the price movements of the convertible securities and the price movements of the underlying common stock being sold short creates the possibility that losses on the short sale hedge position may be greater than gains in the value of the portfolio securities being hedged. In addition, to the extent that the Fund pays a conversion premium for a convertible security, the Fund is generally unable to protect against a loss of such premium pursuant to a short sale hedge. In determining the number of shares to be sold short against the Fund's position in the convertible securities, the anticipated fluctuation in the conversion premiums is considered. The Fund will also incur transaction costs in connection with short sales. Certain provisions of the Internal Revenue Code of 1986, as amended (the "Code") (and related Treasury regulations thereunder) may limit the degree to which the Fund is able to enter into short sales and other transactions with similar effects without triggering adverse tax consequences, which limitations might impair the Fund's ability to achieve its investment objective. See "U.S. Federal Income Tax Matters."
In addition to enabling the Fund to hedge against market risk, short sales may afford the Fund an opportunity to earn additional current income to the extent the Fund is able to enter into arrangements
with broker-dealers through which the short sales are executed to receive income with respect to the proceeds of the short sales during the period the Fund's short positions remain open.
INTEREST RATE TRANSACTIONS. In order to seek to reduce the interest rate risk inherent in the Fund's underlying investments and capital structure, the Fund, if market conditions are deemed favorable, likely will enter into interest rate swap or cap transactions to attempt to protect itself from increasing dividend or interest expenses on its leverage. Interest rate swaps involve the Fund's agreement with the swap counterparty to pay a fixed rate payment in exchange for the counterparty agreeing to pay the Fund a payment at a variable rate that is expected to approximate the rate on any variable rate payment obligation on the Fund's leverage. The payment obligations would be based on the notional amount of the swap. The Fund may use an interest rate cap, which would require it to pay a premium to the cap counterparty and would entitle it, to the extent that a specified variable rate index exceeds a predetermined fixed rate, to receive from the counterparty payment of the difference based on the notional amount. The Fund would use interest rate swaps or caps only with the intent to reduce or eliminate the risk that an increase in short-term interest rates could have on common share net earnings as a result of leverage.
The Fund will usually enter into swaps or caps on a net basis; that is, the two payment streams will be netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The Fund intends to maintain in a segregated account with its custodian cash or liquid securities having a value at least equal to the Fund's net payment obligations under any swap transaction, marked-to-market daily.
The use of interest rate swaps and caps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. Depending on the state of interest rates in general, the Fund's use of interest rate swaps or caps could enhance or harm the overall performance on the common shares. To the extent there is a decline in interest rates, the value of the interest rate swap or cap could decline, and could result in a decline in the net asset value of the common shares. In addition, if short-term interest rates are lower than the Fund's fixed rate of payment on the interest rate swap, the swap will reduce common share net earnings. If, on the other hand, short-term interest rates are higher than the fixed rate of payment on the interest rate swap, the swap will enhance common share net earnings. Buying interest rate caps could enhance the performance of the common shares by providing a maximum leverage expense. Buying interest rate caps could also decrease the net earnings of the common shares in the event that the premium paid by the Fund to the counterparty exceeds the additional amount the Fund would have been required to pay had it not entered into the cap agreement. The Fund has no current intention of selling an interest rate swap or cap.
Interest rate swaps and caps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the counterparty defaults, the Fund would not be able to use the anticipated net receipts under the swap or cap to offset the dividend or interest payments on the Fund's leverage. Depending on whether the Fund would be entitled to receive net payments from the counterparty on the swap or cap, which in turn would depend on the general state of short-term interest rates at that point in time, such a default could negatively impact the performance of the common shares.
Although this will not guarantee that the counterparty does not default, the Fund will not enter into an interest rate swap or cap transaction with any counter-party that Calamos believes does not have the financial resources to honor its obligation under the interest rate swap or cap transaction. Further, Calamos will continually monitor the financial stability of a counterparty to an interest rate swap or cap transaction in an effort to proactively protect the Fund's investments.
In addition, at the time the interest rate swap or cap transaction reaches its scheduled termination date, there is a risk that the Fund would not be able to obtain a replacement transaction or that the terms of the replacement would not be as favorable as on the expiring transaction. If this occurs, it could have a negative impact on the performance of the Fund's common shares.
The Fund may choose or be required to redeem some or all of the preferred shares or prepay any borrowings. This redemption would likely result in the Fund seeking to terminate early all or a portion of any swap or cap transaction. Such early termination of a swap could result in termination payment by or to the Fund. An early termination of a cap could result in a termination payment to the Fund.
SWAPS, CAPS, FLOORS AND COLLARS. The Fund may enter into interest rate, currency, index and other swaps and the purchase or sale of related caps, floors and collars. The Fund expects to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. The Fund will not sell interest rate caps or floors where it does not own securities or other instruments providing the income stream the Fund may be obligated to pay. Interest rate swaps involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. A currency swap is an agreement to exchange cash flows on a notional amount of two or more currencies based on the relative value differential among them and an index swap is an agreement to swap cash flows on a notional amount based on changes in the values of the reference indices. The purchase of a cap entitles the purchaser to receive payments on a notional principal amount from the party selling such cap to the extent that a specified index exceeds a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on a notional principal amount from the party selling such floor to the extent that a specified index falls below a predetermined interest rate or amount. A collar is a combination of a cap and a floor that preserves a certain return within a predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Inasmuch as the Fund will segregate assets (or enter into offsetting positions) to cover its obligations under swaps, Calamos and the Fund believe such obligations do not constitute senior securities under the Investment Company Act of 1940 (the "1940 Act") and, accordingly, will not treat them as being subject to its borrowing restrictions. The Fund will not enter into any swap, cap, floor or collar transaction unless, at the time of entering into such transaction, the unsecured long-term debt of the Counterparty, combined with any credit enhancements, is rated at least A by S&P or Moody's or has an equivalent rating from a NRSRO or is determined to be of equivalent credit quality by Calamos. If there is a default by the Counterparty, the Fund may have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid, however, some swaps may be considered illiquid. Caps, floors and collars are more recent innovations for which standardized documentation has not yet been fully developed and, accordingly, they are less liquid than swaps.
STRUCTURED PRODUCTS. The Fund may invest in interests in entities organized and operated for the purpose of restructuring the investment characteristics of certain other investments. This type of restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments and the issuance by that entity of one or more classes of securities ("structured products") backed by, or representing interests in, the underlying instruments. The term "structured products" as used herein excludes synthetic convertibles and interest rate transactions. See "Investment Objective and Policies -- Synthetic Convertible Securities and Interest Rate Transactions". The cash flow on the underlying instruments may be apportioned among the newly issued structured products to create securities with different investment characteristics such as varying maturities, payment priorities and interest rate provisions, and the extent of the payments made with respect to structured products is dependent on the extent of the cash flow on the underlying instruments. The Fund may invest in structured products, which represent derived investment positions based on relationships among different markets or asset classes.
The Fund may also invest in other types of structured products, including, among others, baskets of credit default swaps referencing a portfolio of high-yield securities. A structured product may be considered to be leveraged to the extent its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate. Because they are linked to their underlying markets or securities, investments in structured products generally are subject to greater volatility than an investment directly in the underlying market or security. Total return on the structured product is derived by linking return to one or more characteristics of the underlying instrument. Because certain structured products of the type in which the Fund may invest may involve no credit enhancement, the credit risk of those structured products generally would be equivalent to that of the underlying instruments. The Fund may invest in a class of structured products that is either subordinated or unsubordinated to the right of payment of another class. Subordinated structured products typically have higher yields and present greater risks than unsubordinated structured products. Although the Fund's purchase of subordinated structured products would have similar economic effect to that of borrowing against the underlying securities, the purchase will not be deemed to be leverage for purposes of the Fund's limitations related to borrowing and leverage.
Certain issuers of structured products may be deemed to be "investment companies" as defined in the 1940 Act. As a result, the Fund's investments in these structured products may be limited by the restrictions contained in the 1940 Act. Structured products are typically sold in private placement transactions, and there currently may be active trading market for structured products. As a result, certain structured products in which the Fund invests may be deemed illiquid and subject to its limitation on illiquid investments.
"WHEN-ISSUED" AND DELAYED DELIVERY SECURITIES AND REVERSE REPURCHASE
AGREEMENTS. The Fund may purchase securities on a when-issued or delayed-delivery basis. Although the payment and interest terms of these securities are established at the time the Fund enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. The Fund makes such commitments only with the intention of actually acquiring the securities, but may sell the securities before settlement date if Calamos deems it advisable for investment reasons. The Fund may utilize spot and forward foreign currency exchange transactions to reduce the risk inherent in fluctuations in the exchange rate between one currency and another when securities are purchased or sold on a when-issued or delayed-delivery basis.
The Fund may enter into reverse repurchase agreements with banks and securities dealers. A reverse repurchase agreement is a repurchase agreement in which the Fund is the seller of, rather than the investor in, securities and agrees to repurchase them at an agreed-upon time and price. Use of a reverse repurchase agreement may be preferable to a regular sale and later repurchase of securities because it avoids certain market risks and transaction costs.
At the time when the Fund enters into a binding obligation to purchase securities on a when-issued basis or enters into a reverse repurchase agreement, liquid assets (cash, U.S. Government securities or other "high-grade" debt obligations) of the Fund having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Fund and held by the custodian throughout the period of the obligation. The use of these investment strategies may increase net asset value fluctuation.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its managed assets in securities that, at the time of investment, are illiquid (determined using the Commission's standard applicable to investment companies, i.e., securities that cannot be disposed of within 7 days in the ordinary course of business at approximately the value at which the Fund has valued the securities). The Fund may invest without limitation in securities that have not been registered for public sale, but that are eligible for purchase and sale by certain qualified institutional buyers. Calamos, under the supervision of the Board of Trustees, will determine whether securities purchased under Rule 144A are illiquid (that is, not readily marketable) and thus subject to the Fund's limit on investing no more than 15% of its managed assets in illiquid securities. Investments in Rule 144A Securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase these Rule 144A Securities. Illiquid securities may be difficult to dispose of at a fair price at the times when the Fund believes it is desirable to do so. The market price of illiquid securities generally is more volatile than that of more liquid securities, which may adversely affect the price that the Fund pays for or recovers upon the sale of illiquid securities. Illiquid securities are also more difficult to value and Calamos' judgment may play a greater role in the valuation process. Investment of the Fund's assets in illiquid securities may restrict the Fund's ability to take advantage of market opportunities. The risks associated with illiquid securities may be particularly acute in situations in which the Fund's operations require cash
and could result in the Fund borrowing to meet its short-term needs or incurring losses on the sale of illiquid securities.
The Fund may invest in bonds, corporate loans, convertible securities, preferred stocks and other securities that lack a secondary trading market or are otherwise considered illiquid. Liquidity of a security relates to the ability to easily dispose of the security and the price to be obtained upon disposition of the security, which may be less than would be obtained for a comparable more liquid security. Such investments may affect the Fund's ability to realize the net asset value in the event of a voluntary or involuntary liquidation of its assets.
TEMPORARY DEFENSIVE INVESTMENTS. The Fund may make temporary investments without limitation when Calamos determines that a defensive position is warranted. Such investments may be in money market instruments, consisting of obligations of, or guaranteed as to principal and interest by, the U.S. Government or its agencies or instrumentalities; certificates of deposit, bankers' acceptances and other obligations of domestic banks having total assets of at least $500 million and that are regulated by the U.S. Government, its agencies or instrumentalities; commercial paper rated in the highest category by a recognized rating agency; and repurchase agreements.
REPURCHASE AGREEMENTS. As part of its strategy for the temporary investment of cash, the Fund may enter into "repurchase agreements" with member banks of the Federal Reserve System or primary dealers (as designated by the Federal Reserve Bank of New York) in such securities. A repurchase agreement arises when the Fund purchases a security and simultaneously agrees to resell it to the vendor at an agreed upon future date. The resale price is greater than the purchase price, reflecting an agreed upon market rate of return that is effective for the period of time the Fund holds the security and that is not related to the coupon rate on the purchased security. Such agreements generally have maturities of no more than seven days and could be used to permit the Fund to earn interest on assets awaiting long term investment. The Fund requires continuous maintenance by the custodian for the Fund's account in the Federal Reserve/Treasury Book Entry System of collateral in an amount equal to, or in excess of, the market value of the securities that are the subject of a repurchase agreement. Repurchase agreements maturing in more than seven days are considered illiquid securities. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying security and losses, including: (a) possible decline in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights.
REAL ESTATE INVESTMENT FUNDS ("REITS") AND ASSOCIATED RISK FACTORS. REITs are pooled investment vehicles which invest primarily in income producing real estate or real estate related loans or interests. REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity REITs invest the majority of their assets directly in real property and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. REITs are not taxed on income distributed to shareholders provided they comply with the applicable requirements of the Code. The Fund will indirectly bear its proportionate share of any management and other expenses paid by REITs in which it invests in addition to the expenses paid by the Fund. Debt securities issued by REITs are, for the most part, general and unsecured obligations and are subject to risks associated with REITs.
Investing in REITs involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. An equity REIT may be affected by changes in the value of the underlying properties owned by the REIT. A mortgage REIT may be affected by changes in
interest rates and the ability of the issuers of its portfolio mortgages to repay their obligations. REITs are dependent upon the skills of their managers and are not diversified. REITs are generally dependent upon maintaining cash flows to repay borrowings and to make distributions to shareholders and are subject to the risk of default by lessees or borrowers. REITs whose underlying assets are concentrated in properties used by a particular industry, such as health care, are also subject to risks associated with such industry.
REITs (especially mortgage REITs) are also subject to interest rate risks. When interest rates decline, the value of a REIT's investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT's investment in fixed rate obligations can be expected to decline. If the REIT invests in adjustable rate mortgage loans the interest rates on which are reset periodically, yields on a REIT's investments in such loans will gradually align themselves to reflect changes in market interest rates. This causes the value of such investments to fluctuate less dramatically in response to interest rate fluctuations than would investments in fixed rate obligations.
REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger company securities. Historically REITs have been more volatile in price than the larger capitalization stocks included in Standard & Poor's 500 Stock Index.
OTHER INVESTMENT COMPANIES. The Fund may invest in the securities of other investment companies to the extent that such investments are consistent with the Fund's investment objective and policies and permissible under the 1940 Act. Under the 1940 Act, the Fund may not acquire the securities of other domestic or non-U.S. investment companies if, as a result, (i) more than 10% of the Fund's total assets would be invested in securities of other investment companies, (ii) such purchase would result in more than 3% of the total outstanding voting securities of any one investment company being held by the Fund, or (iii) more than 5% of the Fund's total assets would be invested in any one investment company. These limitations do not apply to the purchase of shares of any investment company in connection with a merger, consolidation, reorganization or acquisition of substantially all the assets of another investment company.
The Fund, as a holder of the securities of other investment companies, will bear its pro rata portion of the other investment companies' expenses, including advisory fees. These expenses are in addition to the direct expenses of the Fund's own operations.
INVESTMENT RESTRICTIONS
The following are the Fund's fundamental investment restrictions. These restrictions may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities (which for this purpose and under the 1940 Act means the lesser of (i) 67% of the common shares represented at a meeting at which more than 50% of the outstanding common shares are represented or (ii) more than 50% of the outstanding common shares). If the Fund were to issue a class of preferred shares, the investment restrictions could not be changed without the approval of a majority of the outstanding common and preferred shares, voting together as a class, and the approval of a majority of the outstanding preferred shares, voting separately by class.
The Fund may not:
(1) Issue senior securities, except as permitted by the 1940 Act and the rules and interpretive positions of the Commission thereunder.
(2) Borrow money, except as permitted by the 1940 Act and the rules and interpretive positions of the Commission thereunder.
(3) Invest in real estate, except that the Fund may invest in securities of issuers that invest in real estate or interests therein, securities that are secured by real estate or interests therein, securities of real estate investment funds and mortgage-backed securities.
(4) Make loans, except by the purchase of debt obligations, by entering into repurchase agreements or through the lending of portfolio securities and as otherwise permitted by the 1940 Act and the rules and interpretive positions of the Commission thereunder.
(5) Invest in physical commodities or contracts relating to physical commodities.
(6) Act as an underwriter, except as it may be deemed to be an underwriter in a sale of securities held in its portfolio.
(7) Make any investment inconsistent with the Fund's classification as a diversified investment company under the 1940 Act and the rules and interpretive positions of the Commission thereunder.
(8) Concentrate its investments in securities of companies in any particular industry as defined in the 1940 Act and the rules and interpretive positions of the Commission thereunder.
All other investment policies of the Fund are considered non-fundamental and may be changed by the Board of Trustees without prior approval of the Fund's outstanding voting shares.
Currently under the 1940 Act, the Fund is not permitted to issue preferred shares unless immediately after such issuance the net asset value of the Fund's portfolio is at least 200% of the liquidation value of the outstanding preferred shares (i.e., such liquidation value may not exceed 50% of the value of the Fund's total assets). In addition, currently under the 1940 Act, the Fund is not permitted to declare any cash dividend or other distribution on its common shares unless, at the time of such declaration, the net asset value of the Fund's portfolio (determined after deducting the amount of such dividend or distribution) is at least 200% of such liquidation value. Currently under the 1940 Act, the Fund is not permitted to incur indebtedness unless immediately after such borrowing the Fund has asset coverage of at least 300% of the aggregate outstanding principal balance of indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the value of the Fund's total assets). Additionally, currently under the 1940 Act, the Fund may not declare any dividend or other distribution upon any class of its shares, or purchase any such shares, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, an asset coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be.
Currently under the 1940 Act, the Fund is not permitted to lend money or property to any person, directly or indirectly, if such person controls or is under common control with the Fund, except for a loan from the Fund to a company which owns all of the outstanding securities of the Fund, except directors' qualifying shares. Currently, under interpretative positions of the Commission, the Fund may not have on loan at any given time securities representing more than one-third of its total assets.
Currently under the 1940 Act, a "senior security" does not include any promissory note or evidence of indebtedness where such loan is for temporary purposes only and in an amount not exceeding 5% of the value of the total assets of the issuer at the time the loan is made. A loan is presumed to be for temporary purposes if it is repaid within sixty days and is not extended or renewed.
Currently, the Fund would be deemed to "concentrate" in a particular industry if it invested 25% or more of its total assets in that industry. Currently under the 1940 Act, a "diversified company" means a management company which meets the following requirements: at least 75% of the value of its total assets is represented by cash and cash items (including receivables), government securities, securities of other investment companies, and other securities for the purposes of this calculation limited in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of such management company and not more than 10% of the outstanding voting securities of such issuer.
Under the 1940 Act, the Fund may invest up to 10% of its total assets in the aggregate in shares of other investment companies and up to 5% of its total assets in any one investment company, provided the investment does not represent more than 3% of the voting stock of the acquired investment company at the time such shares are purchased. As a shareholder in any investment company, the Fund will bear its ratable share of that investment company's expenses, and would remain subject to payment of the Fund's advisory fees and other expenses with respect to assets so invested. Holders of common shares would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to the same leverage risks described herein and in the Prospectus. As described in the prospectus in the section entitled "Risks," the net asset value and market value of leveraged shares will be more volatile and the yield to shareholders will tend to fluctuate more than the yield generated by unleveraged shares.
In addition, to comply with federal income tax requirements for qualification as a "regulated investment company," the Fund's investments will be limited by both an income and an asset test. See "U.S. Federal Income Tax Matters."
As a non-fundamental policy, the Fund may not issue preferred shares, borrow money or issue debt securities in an aggregate amount exceeding 38% of the Fund's total assets.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS. The Fund's Board of Trustees provides broad supervision over the Fund's affairs. The officers of the Fund are responsible for the Fund's operations. The Fund's Trustees and officers are listed below, together with their age, positions held with the Fund, term of office and length of service and principal occupations during the past five years. Asterisks indicates those Trustees who are interested persons of the Fund within the meaning of the 1940 Act, and they are referred to as Interested Trustees. Trustees who are not interested persons of the Fund are referred to as Independent Trustees. Each of the Trustees serves as a Trustee of other investment companies (11 U.S. registered investment portfolios) for which Calamos serves as investment adviser (collectively, the "Calamos Funds"). The address for all Independent and Interested Trustees and all officers of the Fund is 1111 East Warrenville Road, Naperville, Illinois 60563-1493.
POSITIONS TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE
NAME AND AGE AT HELD WITH AND LENGTH OF YEARS AND OTHER DIRECTORSHIPS HELD BY
MARCH 1, 2004 THE FUND SERVICE THE TRUSTEE
------------------------ ------------- ------------------------- ------------------------------------------
INTERESTED TRUSTEES:
*John P. Calamos (63) Trustee and Trustee since President and CEO, Calamos Holdings, Inc.,
President December 15, 2003. Term Calamos and Calamos Financial Services,
expires in 2005. Inc. ("CFS").
*Nick P. Calamos (42) Trustee Trustee since Senior Executive Vice President, Calamos
December 15, 2003. Term Holdings, Inc., Calamos and CFS.
expires in 2007.
+Weston W. Marsh (53) Trustee Trustee since Partner, Freeborn & Peters (law firm).
December 15, 2003. Term
expires in 2005.
INDEPENDENT TRUSTEES:
Joe F. Hanauer (66) Trustee Trustee since Director, MAF Bancorp (banking); Director,
December 15, 2003. Term Homestore.com, Inc., (Internet provider of
expires in 2006. real estate information and products);
Director, Combined Investments, L.P.
(investment management).
John E. Neal (53) Trustee Trustee since Managing Director, Bank One Capital Markets
December 15, 2003. Term (investment banking) (since 2000);
expires in 2006. Executive Vice President and Head of Real
Estate Department, Bank One (1998-2000);
Director, the Brickman Group, Ltd.
William R. Rybak (53) Trustee Trustee since Retired Private Investor; Executive Vice
December 15, 2003. Term President and CFO, Van Kampen Investments,
expires in 2005. Inc. (investment manager) prior thereto;
Director, Howe Barnes Investments; Director,
PrivateBancorp, Inc.
Stephen B. Timbers (58) Trustee Trustee since Director, President and Chief Executive
March 12, 2004. Term Officer, Northern Trust Investments, N.A.
expires in 2007. (formerly known and conducting business as
Northern Trust Investments, Inc.) (rehired
February 2002); President, Northern Trust Global
Investments, a division of Northern Trust
Corporation and Executive Vice President, The Northern
Trust Company (rehired February 2002); President, Chief
Officer and Director, Zurich Kemper Investments
Executive(a financial services company) (from 1996 to
1998); President and Director of Kemper Funds
( a registered investment company)
(from 1990 to 1998); Trustee, Northern Mutual Fund Complex
(registered investment companies); Director, USFreightways
Corporation.
|
+ Mr. Marsh is a partner at a law firm that has performed work for a number of underwriters and may be deemed to be an interested person for as long as those underwriters serve as principal underwriters to the Fund. In addition, Mr. Marsh's law firm has performed work for John P. Calamos, the chief executive and a controlling person of Calamos (such work was not with respect to 1940 Act or Investment Advisers Act of 1940 matters). Upon the advice of counsel to the Fund, the Fund does not believe that Mr. Marsh is an "interested person" of Calamos.
POSITIONS TERM OF OFFICE PRINCIPAL OCCUPATION DURING PAST FIVE
NAME AND AGE AT HELD WITH AND LENGTH OF YEARS AND OTHER DIRECTORSHIPS HELD BY
MARCH 1, 2004 THE FUND SERVICE THE TRUSTEE
---------------------- ------------- ------------------- ------------------------------------------
FUND OFFICERS:
Nimish S. Bhatt (40) Treasurer Since March 12, 2004. Senior Vice President and Director of
Serves at the Operations, Calamos (since 2004); Senior
discretion of the Vice President, Alternative Investments
Board. and Tax Services (1996-2004).
Patrick H. Dudasik (48) Vice President Since December 15, 2003. Executive Vice President, Chief Financial
Serves at the and Administrative Officer and Treasurer of
discretion of the Calamos Holdings, Inc., Calamos and CFS
Board. (since 2001); Chief Financial Officer,
David Gomez and Associates, Inc. (executive
search firm) (1998-2001).
James S. Hamman, Jr. (34) Secretary Since December 15, 2003. Executive Vice President and General
Serves at the Counsel, Calamos Holdings, Inc., Calamos
discretion of the and CFS (since 1998).
Board.
Jeff Lotito (32) Assistant Since December 15, 2003. Operations Supervisor, Calamos (since
Treasurer Serves at the 2000); Manager-Fund Administration, Van
discretion of the Kampen Investments, Inc. (investment
Board. management) (1999-2000);
Supervisor-Corporate Accounting,
Stein Roe and Farnham
(investment manager)(1998-1999).
Ian J. McPheron (32) Assistant Since December 15, 2003. Associate Counsel and Director of
Secretary Serves at the Compliance of Calamos and CFS (since 2002);
discretion of the Associate, Gardner, Carton & Douglas (law
Board. firm) (2002); Vice President, Associate
General Counsel and Assistant Secretary,
Van Kampen Investments, Inc. (2000-2002);
Associate, Wildman, Harrold, Allen & Dixon
(law firm) (1997-2000).
|
The Fund's Board of Trustees consists of six members. The term of one class expires each year commencing with the first annual meeting following this public offering and no term shall continue for more than three years after the applicable election. The terms of John P. Calamos, Weston W. Marsh and William Rybak expire at the first annual meeting following this public offering, the terms of Joe F. Hanauer and John E. Neal expire at the second annual meeting, and the term of Nick P. Calamos expires at the third annual meeting. Subsequently, each class of Trustees will stand for election at the conclusion of its respective term. Such classification may prevent replacement of a majority of the Trustees for up to a two-year period. Each officer serves until his or her successor is chosen and qualified or until his or her resignation or removal by the Board of Trustees.
COMMITTEES OF THE BOARD OF TRUSTEES. The Fund's Board of Trustees currently has three standing committees:
Executive Committee. Messrs. John Calamos and Nick Calamos are members of the Executive Committee, which has authority during intervals between meetings of the Board of Trustees to exercise the powers of the Board, with certain exceptions.
Audit Committee. Messrs. Hanauer, Neal, and Rybak, each a non-interested Trustee, serve on the Audit Committee. The Audit Committee approves the selection of the independent auditors to the Trustees, approves services to be rendered by the auditors, monitors the auditors' performance, reviews the results of the Fund's audit, determines whether to recommend to the Board that the Fund's audited financial statements be included in the Fund's annual report and responds to other matters deemed appropriate by the Board of Trustees.
Governance Committee. Messrs. Hanauer, Neal, and Rybak, each a non-interested Trustee, serve on the Governance Committee. The Governance Committee oversees the independence and effective functioning of the Board of Trustees and endeavors to be informed about good practices for fund boards. The members of the Governance Committee make recommendations to the Board of Trustees regarding candidates for election as non-interested Trustees. The Governance Committee will not consider shareholder recommendations regarding candidates for election as Trustees.
In addition to the above committees, there is a Board of Trustee directed pricing committee comprised of officers of the Fund and employees of Calamos. The Fund's Agreement and Declaration of Trust provides that the Fund will indemnify the Trustees and officers against liabilities and expenses incurred in connection with any claim in which they may be involved because of their offices with the Fund, unless it is determined in the manner specified in the Agreement and Declaration of Trust that they have not acted in good faith in the reasonable belief that their actions were in the best interests of the Fund or that such indemnification would relieve any officer or Trustee of any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties.
COMPENSATION OF OFFICERS AND TRUSTEES. The Fund pays no salaries or compensation to any of its officers or to the Trustees who are affiliated persons of Calamos. The following table sets forth certain information with respect to the compensation paid to each Trustee by the Fund and the Calamos Fund Complex as a group. Compensation from the Fund is for the current calendar year and is estimated. Total compensation from the Calamos Fund Complex as a group is for the calendar year ended December 31, 2003.
TOTAL COMPENSATION FROM
ESTIMATED AGGREGATE CALAMOS FUND
NAME OF TRUSTEE COMPENSATION FROM FUND COMPLEX(1)*
----------------------------------- ------------------------ -------------------------
John P. Calamos..................... $ 0 $ 0
Nick P. Calamos..................... 0 0
Richard J. Dowen(2)................. 646 45,000
Joe F. Hanauer...................... 646 45,000
Weston W. Marsh..................... 646 45,000
John E. Neal........................ 646 45,000
William Rybak....................... 646 45,000
|
(2) Mr. Dowen resigned effective January 1, 2004.
* The Calamos Fund Complex consists of five investment companies and each applicable series thereunder including the Fund, Calamos Investment Trust, Calamos Advisors Trust, Calamos Convertible Opportunities and Income Fund and Calamos Convertible and High Income Fund.
The Fund has adopted a deferred compensation plan (the "Plan"). Under the Plan, a Trustee who is not an "interested person" of Calamos and who has elected to participate in the Plan ("participating Trustees") may defer receipt of all or a portion of his compensation from Fund in order to defer payment of income taxes or for other reasons. The deferred compensation payable to the participating Trustee is credited to Trustee's deferral account as of the business day such compensation would have been paid to the Trustee. The value of a Trustee's deferred compensation account at any time is equal to what would be the value if the amounts credited to the account had instead been invested in shares of one or more of the portfolios of Calamos Investment Trust as designated by the Trustee. Thus, the value of the account increases with contributions to the account or with increases in the value of the measuring shares, and the value of the account decreases with withdrawals from the account or with declines in the value of the measuring shares. If a participating trustee retires, the Trustee may elect to receive payments under the plan in a lump sum or in equal installments over a period of five years. If a participating Trustee dies, any amount payable under the Plan will be paid to the Trustee's beneficiaries.
OWNERSHIP OF SHARES OF THE FUND AND OTHER CALAMOS FUNDS. The following table indicates the value of shares that each Trustee beneficially owns in the Fund and the Calamos Fund Complex in the aggregate. The value of shares of the Calamos Funds is determined on the basis of the net asset value of the class of shares held as of December 31, 2003. The value of the shares held are stated in ranges in accordance with the requirements of the Commission. The table reflects the Trustee's beneficial ownership of shares of the Calamos Fund Complex. Beneficial ownership is determined in accordance with the rules of the Commission.
AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY COMPANIES IN THE
NAME OF TRUSTEE SECURITIES IN THE FUND CALAMOS FUND COMPLEX
------------------------------------ ------------------------- -----------------------------
INTERESTED TRUSTEES:
John P. Calamos..................... None Over $100,000
Nick P. Calamos..................... None Over $100,000
Weston W. Marsh..................... None None
NON-INTERESTED TRUSTEES:
Joe F. Hanauer...................... None None
John E. Neal........................ None Over $100,000
William Rybak....................... None $50,001-100,000
|
CODE OF ETHICS. The Fund and Calamos have adopted a code of ethics under Rule 17j-1 of the 1940 Act which is applicable to officers, directors/Trustees and designated employees of Calamos and CFS. Employees of Calamos and CFS are permitted to make personal securities transactions, including transactions in securities that the Fund may purchase, sell or hold, subject to requirements and restrictions set forth in the code of ethics of Calamos and CFS. The code of ethics contains provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities of Calamos and CFS employees and the interests of investment advisory clients such as the Fund. Among other things, the code of ethics prohibits certain types of transactions absent prior approval, imposes time periods during which personal transactions may not be made in certain securities, and requires the submission of duplicate broker confirmations and statements and quarterly reporting of securities transactions. Additional restrictions apply to portfolio managers, traders, research analysts and others involved in the investment advisory process. Exceptions to these and other provisions of the code of ethics may be granted in particular circumstances after review by appropriate personnel. Text-only versions of the code of ethics can be viewed online or downloaded from the EDGAR Database on the Commission's internet web site at www.sec.gov. You may review and copy the code of ethics by visiting the Commission's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the Commission at 202-942-8090. In addition, copies of the code of ethics may be obtained, after mailing the appropriate duplicating fee, by writing to the Commission's Public Reference Section, 450 5th Street, N.W., Washington, DC 20549-0102 or by e-mail request at publicinfo@sec.gov.
PROXY VOTING PROCEDURES. The Fund has delegated proxy voting responsibilities to Calamos, subject to the Board of Trustees' general oversight. The Fund expects Calamos to vote proxies related to the Fund's portfolio securities for which the Fund has voting authority consistent with the Fund's best economic interests. Calamos has adopted its own Proxy Voting Policies and Procedures ("Policies"). The Policies address, among other things, conflicts of interest that may arise between the interests of the Fund, and the interests of the adviser and its affiliates.
The following is a summary of the Policies used by Calamos in voting proxies.
To assist it in voting proxies, Calamos has established a Committee comprised of members of its Portfolio Management and Research Departments. The Committee and/or its members will vote proxies using the following guidelines.
In general, if Calamos believes that a company's management and board have interests sufficiently aligned with the Fund's interest, Calamos will vote in favor of proposals recommended by a company's board. More specifically, Calamos seeks to ensure that the board of directors of a company is sufficiently aligned with security holders' interests and provides proper oversight of the company's management. In many cases this may be best accomplished by having a majority of independent board members. Although Calamos will examine board member elections on a case-by-case basis, it will generally vote for the election of directors that would result in a board comprised of a majority of independent directors.
Because of the enormous variety and complexity of transactions that are presented to shareholders, such as mergers, acquisitions, reincorporations, adoptions of anti-take over measures (including adoption of a shareholder rights plan, requiring supermajority voting on particular issues, adoption of fair price provisions, issuance of blank check preferred stocks and the creation of a separate class of stock with unequal voting rights), changes to capital structures (including authorizing additional shares, repurchasing stock or approving a stock split), executive compensation and option plans, that occur in a variety of industries, companies and market cycles, it is extremely difficult to foresee exactly what would be in the best interests of the Fund in all circumstances. Moreover, voting on such proposals involves considerations unique to each transaction. Accordingly, Calamos will vote on a case-by-case basis on proposals presenting these transactions.
Finally Calamos has established procedures to help resolve conflicts of interests that might arise when voting proxies for the Fund. These procedures provide that the Committee, along with Calamos' Legal and Compliance Departments, will examine conflicts of interests with the Fund of which Calamos is aware and seek to resolve such conflicts in the best interests of the Fund, irrespective of any such conflict. If a member of the Committee has a personal conflict of interest, that member will refrain from voting and the remainder of the Committee will determine how to vote the proxy solely on the investment merits of any proposal. The Committee will then memorialize the conflict and the procedures used to address the conflict.
You may obtain a copy a Calamos' Policies by calling (800) 582-6959, by visiting the Fund's website at www.calamos.com, by writing Calamos at: Calamos Investments, Attn: Client Services, 1111 East Warrenville Road, Naperville, IL 60563, and on the Commission's website at www.sec.gov.
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT. Subject to the overall authority of the board of trustees, Calamos provides the Fund with investment research, advice and supervision and furnishes continuously an investment program for the Fund. In addition, Calamos furnishes for use of the Fund such office space and facilities as the Fund may require for its reasonable needs and supervises the business and affairs of the Fund and provides the following other services on behalf of the Fund and not provided by persons not a party to the investment management agreement: (i) preparing or assisting in the preparation of reports to and meeting materials for the Trustees; (ii) supervising, negotiating contractual arrangements with, to the extent appropriate, and monitoring the performance of, accounting agents, custodians, depositories, transfer agents and pricing agents, accountants, attorneys, printers, underwriters, brokers and dealers, insurers and other persons in any capacity deemed to be necessary or desirable to Fund operations; (iii) assisting in the preparation and making of filings with the Commission and other regulatory and self-regulatory organizations, including, but not limited to, preliminary and definitive proxy materials, amendments to the Fund's registration statement on Form N-2 and semi-annual reports on Form N-SAR and Form N-CSR; (iv) overseeing the tabulation of proxies by the Fund's transfer agent; (v) assisting in the preparation and filing of the Fund's federal, state and local tax returns; (vi) assisting in the preparation and filing of the Fund's federal excise tax return pursuant to Section 4982 of the Code; (vii) providing assistance with investor and public relations matters; (viii) monitoring the valuation of portfolio securities and the calculation of net asset value; (ix) monitoring the registration of shares of beneficial interest of the Fund under applicable federal and state securities laws; (x) maintaining or causing to be maintained for the Fund all books, records and reports and any other information required under the 1940 Act, to the extent that such books, records and reports and other information are not maintained by the Fund's custodian or other agents of the Fund; (xi) assisting in establishing the accounting policies of the Fund; (xii) assisting in the resolution of accounting issues that may arise with respect to the Fund's operations and consulting with the Fund's independent accountants, legal counsel and the Fund's other agents as necessary in connection therewith; (xiii) reviewing the Fund's bills; (xiv) assisting the Fund in determining the amount of dividends and distributions available to be paid by the Fund to its shareholders, preparing and arranging for the printing of dividend notices to shareholders, and providing the transfer and dividend paying agent, the custodian, and the accounting agent with such information as is required for such parties to effect the payment of dividends and distributions; and (xv) otherwise assisting the Fund as it may reasonably request in the conduct of the Fund's business, subject to the direction and control of the Trustees.
Under the investment management agreement, the Fund pays to Calamos a fee based on the average weekly managed assets that is accrued daily and paid on a monthly basis. The fee paid by the Fund is at the annual rate of 1.00% of managed assets. Because the fees paid to Calamos are determined on the basis of the Fund's managed assets, Calamos' interest in determining whether to leverage the Fund may differ from the interests of the Fund.
Under the terms of its investment management agreement with the Fund, except for the services and facilities provided by Calamos as set forth therein, the Fund shall assume and pay all expenses for all other Fund operations and activities and shall reimburse Calamos for any such expenses incurred by Calamos. The expenses borne by the Fund shall include, without limitation: (a) organization expenses of the Fund (including out-of-pocket expenses, but not including the Manager's overhead or employee costs); (b) fees payable to Calamos; (c) legal expenses; (d) auditing and accounting expenses; (e) maintenance of books and records that are required to be maintained by the Fund's custodian or other agents of the Fund; (f) telephone, telex, facsimile, postage and other communications expenses; (g) taxes and governmental fees; (h) fees, dues and expenses incurred by the Fund in connection with membership in investment company trade organizations and the expense of attendance at professional meetings of such organizations; (i) fees and expenses of accounting agents, custodians, subcustodians, transfer agents, dividend disbursing agents and registrars; (j) payment for portfolio pricing or valuation services to pricing agents, accountants, bankers and other specialists, if any; (k) expenses of preparing share certificates;
(l) expenses in connection with the issuance, offering, distribution, sale, redemption or repurchase of securities issued by the Fund; (m) expenses relating to investor and public relations provided by parties other than Calamos; (n) expenses and fees of registering or qualifying shares of beneficial interest of the Fund for sale; (o) interest charges, bond premiums and other insurance expenses; (p) freight, insurance and other charges in connection with the shipment of the Fund's portfolio securities; (q) the compensation and all expenses (specifically including travel expenses relating to Fund business) of Trustees, officers and employees of the Fund who are not affiliated persons of Calamos; (r) brokerage commissions or other costs of acquiring or disposing of any portfolio securities of the Fund; (s) expenses of printing and distributing reports, notices and dividends to shareholders; (t) expenses of preparing and setting in type, printing and mailing prospectuses and statements of additional information of the Fund and supplements thereto; (u) costs of stationery; (v) any litigation expenses; (w) indemnification of Trustees and officers of the Fund; (x) costs of shareholders' and other meetings; (y) interest on borrowed money, if any; and (z) the fees and other expenses of listing the Fund's shares on the New York Stock Exchange or any other national stock exchange.
Unless earlier terminated as described below, the investment management agreement will remain in effect until August 1, 200_. The investment management agreement continues in effect from year to year so long as such continuation is approved at least annually by (1) the board of trustees or the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, and (2) a majority of the trustees who are not interested persons of any party to the investment management agreement, cast in person at a meeting called for the purpose of voting on such approval. The investment management agreement may be terminated at any time, without penalty, by either the Fund or Calamos upon 60 days' written notice, and is automatically terminated in the event of its assignment as defined in the 1940 Act.
FACTORS CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE INVESTMENT MANAGEMENT AGREEMENT. The Fund's investment management agreement is required to be approved before it is entered into, and may be continued annually beyond its initial term both by the Board of Trustees and by a majority of the Independent Trustees voting separately. The Independent Trustees have determined that the terms of the Fund's investment management agreement are fair and reasonable and that the agreement is in the Fund's best interests. The Independent Trustees believe that the investment management agreement will enable the Fund to enjoy high quality investment management services at a cost which they deem appropriate, reasonable and in the best interests of the Fund. In making such determinations, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees.
In evaluating the investment management agreement, the Independent Trustees reviewed materials furnished by Calamos, including information regarding Calamos, its affiliates and their personnel, operations and financial condition. The Independent Trustees discussed with representatives of Calamos the Fund's operations and Calamos' ability to provide advisory and other services to the Fund. The Independent Trustees also reviewed, among other things:
o the investment performance of other Calamos funds with similar investment strategies;
o the proposed fees to be charged by Calamos for investment management services;
o the Fund's projected total operating expenses;
o the investment performance, fees and total expenses of investment companies with similar objectives and strategies managed by other investment advisers; and
o the experience of the investment advisory and other personnel providing services to the Fund and the historical quality of the services provided by Calamos.
The independent trustees considered the following as relevant to their recommendations: (1) the favorable history, reputation, qualification, investment process and background of Calamos, as well as the qualifications of its personnel, resources available and its financial condition; (2) the magnitude of Calamos' fees and the estimated expense ratio of the Fund in relation to the nature and quality of services expected to be provided and the fees and expense ratios of comparable investment companies; (3) the relative performance of other funds managed by Calamos with similar objectives compared to the results of other comparable investment companies and unmanaged indices; and (4) other factors that the Independent Trustees deemed relevant. The independent trustees deemed each of these factors to be relevant to their consideration of the Agreement, and concluded that the terms of the Agreement and the services to be provided were reasonable and appropriate, and that the Agreement was in the best interests of the Funds.
The use of the name "Calamos" in the name of the Fund is pursuant to licenses granted by Calamos, and the Fund has agreed to change the names to remove those references if Calamos ceases to act as investment adviser to the Fund.
FUND ACCOUNTANT. Under the arrangements with State Street Bank and Trust Company ("State Street") to provide fund accounting services, State Street provides certain administrative and accounting services including providing daily reconciliation of cash, trades and positions; maintaining general ledger and capital stock accounts; preparing daily trial balance; calculating net asset value; providing selected general ledger reports; preferred share compliance; calculating total returns; and providing monthly distribution analysis to the Fund and such other funds advised by Calamos that may be part of those arrangements (the Fund and such other funds are collectively referred to as the "Calamos Funds"). For the services rendered to the Calamos Funds, State Street receives fees based on the combined managed assets of the Calamos Funds ("Combined Assets"). State Street receives a fee at the annual rate of 0.0225% for the first $3 billion of Combined Assets and 0.0150% for the Combined Assets in excess of $3 billion. Each fund of the Calamos Funds pays its pro-rata share of the fees payable to State Street based on relative managed assets of each fund.
Calamos will provide the following financial accounting services to Calamos Funds, rather than State Street: management of expenses and expense payment processing; monitor the calculation of expense accrual amounts for any fund and make any necessary modifications; coordinate any expense reimbursement calculations and payment; calculate yields on the funds in accordance with rules and regulations of the Commission; calculate net investment income dividends and capital gains distributions; calculate track and report tax adjustments on all assets of each fund, including but not limited to contingent debt and preferred trust obligations; prepare excise tax and fiscal year distributions schedules; prepare tax information required for financial statement footnotes; prepare state and federal income tax returns; prepare specialized calculations of amortization on convertible securities; prepare year-end dividend disclosure information; monitor trustee deferred compensation plan accruals and valuations; and prepare Form 1099 information statements for Board members and service providers. For providing those financial accounting services, will receive a fee payable monthly at the annual rate of 0.0175% on the first $1 billion of Combined Assets; 0.0150% on the next $1 billion of Combined Assets; and 0.0110% on Combined Assets above $2 billion ("financial accounting service fee"). Each fund of the Calamos Funds will pay its pro-rata share of the financial accounting service fee payable to Calamos based on relative managed assets of each fund.
PORTFOLIO TRANSACTIONS
Portfolio transactions on behalf of the Fund effected on stock exchanges involve the payment of negotiated brokerage commissions. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid by the Fund usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid by the Fund includes a disclosed, fixed commission or discount retained by the underwriter or dealer.
In executing portfolio transactions, Calamos uses its best efforts to obtain for the Fund the most favorable combination of price and execution available. In seeking the most favorable combination of price and execution, Calamos considers all factors it deems relevant, including price, the size of the transaction, the nature of the market for the security, the amount of commission, the timing of the
transaction taking into account market prices and trends, the execution capability of the broker-dealer and the quality of service rendered by the broker-dealer in other transactions.
The Trustees have determined that portfolio transactions for the Fund may be executed through CFS if, in the judgment of Calamos, the use of CFS is likely to result in prices and execution at least as favorable to the Funds as those available from other qualified brokers and if, in such transactions, CFS charges the Fund commission rates consistent with those charged by CFS to comparable unaffiliated customers in similar transactions. The Board of Trustees, including a majority of the Trustees who are not "interested" trustees, has adopted procedures that are reasonably designed to provide that any commissions, fees or other remuneration paid to CFS are consistent with the foregoing standard. The Fund will not effect principal transactions with CFS.
Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable combination of net price and execution available and such other policies as the Trustees may determine, Calamos may consider sales of shares of the Fund as a factor in the selection of broker-dealers to execute portfolio transactions for that Fund.
In allocating the Fund's portfolio brokerage transactions to unaffiliated broker-dealers, Calamos may take into consideration the research, analytical, statistical and other information and services provided by the broker-dealer, such as general economic reports and information, reports or analyses of particular companies or industry groups, market timing and technical information, and the availability of the brokerage firm's analysts for consultation. Although Calamos believes these services have substantial value, they are considered supplemental to Calamos' own efforts in the performance of its duties under the management agreement. As permitted by Section 28(e) of the Securities Exchange Act of 1934 ("1934 Act"), Calamos may pay a broker-dealer that provides brokerage and research services an amount of commission for effecting a securities transaction for the Fund in excess of the commission that another broker-dealer would have charged for effecting that transaction if the amount is believed by Calamos to be reasonable in relation to the value of the overall quality of the brokerage and research services provided. Other clients of Calamos may indirectly benefit from the provision of these services to Calamos, and the Fund may indirectly benefit from services provided to Calamos as a result of transactions for other clients.
REPURCHASE OF COMMON SHARES
The Fund is a closed-end investment company and as such its shareholders will not have the right to cause the Fund to redeem their shares. Instead, the Fund's common shares will trade in the open market at a price that will be a function of several factors, including dividend levels (which are in turn affected by expenses), net asset value, call protection, dividend stability, relative demand for and supply of such shares in the market, general market and economic conditions and other factors. Because shares of a closed-end investment company may frequently trade at prices lower than net asset value, the Fund's Board of Trustees may consider action that might be taken to reduce or eliminate any material discount from net asset value in respect of common shares, which may include the repurchase of such shares in the open market or in private transactions, the making of a tender offer for such shares, or the conversion of the Fund to an open-end investment company. The Board of Trustees may decide not to take any of these actions. In addition, there can be no assurance that share repurchases or tender offers, if undertaken, will reduce market discount.
Notwithstanding the foregoing, at any time when the Fund's preferred shares are outstanding, the Fund may not purchase, redeem or otherwise acquire any of its common shares unless (1) all accumulated preferred shares dividends have been paid and (2) at the time of such purchase, redemption or acquisition, the net asset value of the Fund's portfolio (determined after deducting the acquisition price of the
common shares) is at least 200% of the liquidation value of the outstanding preferred shares (expected to equal the original purchase price per share plus any accrued and unpaid dividends thereon). Any service fees incurred in connection with any tender offer made by the Fund will be borne by the Fund and will not reduce the stated consideration to be paid to tendering shareholders.
Subject to its investment restrictions, the Fund may borrow to finance the repurchase of shares or to make a tender offer. Interest on any borrowings to finance share repurchase transactions or the accumulation of cash by the Fund in anticipation of share repurchases or tenders will reduce the Fund's net income. Any share repurchase, tender offer or borrowing that might be approved by the Fund's Board of Trustees would have to comply with the Exchange Act, the 1940 Act and the rules and regulations thereunder.
Although the decision to take action in response to a discount from net asset value will be made by the Board of Trustees at the time it considers such issue, it is not currently anticipated that the Board of Trustees would authorize repurchases of common shares or a tender offer for such shares if: (1) such transactions, if consummated, would (a) result in the delisting of the common shares from the New York Stock Exchange, or (b) impair the Fund's status as a regulated investment company under the Code (which would make the Fund a taxable entity, causing the Fund's income to be taxed at the corporate level in addition to the taxation of shareholders who receive dividends from the Fund) or as a registered closed-end investment company under the 1940 Act; (2) the Fund would not be able to liquidate portfolio securities in an orderly manner and consistent with the Fund's investment objective and policies in order to repurchase shares; or (3) there is, in the board's judgment, any (a) material legal action or proceeding instituted or threatened challenging such transactions or otherwise materially adversely affecting the Fund, (b) general suspension of or limitation on prices for trading securities on the New York Stock Exchange, (c) declaration of a banking moratorium by federal or state authorities or any suspension of payment by United States or New York banks, (d) material limitation affecting the Fund or the issuers of its portfolio securities by federal or state authorities on the extension of credit by lending institutions or on the exchange of foreign currency, (e) commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States, or (f) other event or condition which would have a material adverse effect (including any adverse tax effect) on the Fund or its shareholders if shares were repurchased.
The repurchase by the Fund of its shares at prices below net asset value will result in an increase in the net asset value of those shares that remain outstanding. However, there can be no assurance that share repurchases or tender offers at or below net asset value will result in the Fund's shares trading at a price equal to their net asset value. Nevertheless, the fact that the Fund's shares may be the subject of repurchase or tender offers from time to time, or that the Fund may be converted to an open-end investment company, may reduce any spread between market price and net asset value that might otherwise exist.
In addition, a purchase by the Fund of its common shares will decrease the Fund's total managed assets which would likely have the effect of increasing the Fund's expense ratio. Any purchase by the Fund of its common shares at a time when preferred shares are outstanding will increase the leverage applicable to the outstanding common shares then remaining. Before deciding whether to take any action if the common shares trade below net asset value, the Fund's Board of Trustees would likely consider all relevant factors, including the extent and duration of the discount, the liquidity of the Fund's portfolio, the impact of any action that might be taken on the Fund or its shareholders and market considerations. Based on these considerations, even if the Fund's shares should trade at a discount, the Board of Trustees may determine that, in the interest of the Fund and its shareholders, no action should be taken.
U.S. FEDERAL INCOME TAX MATTERS
The following is a summary discussion of certain U.S. federal income tax consequences that may be relevant to a shareholder that acquires, holds and/or disposes of common shares of the Fund. This discussion only addresses U.S. federal income tax consequences applicable to U.S. shareholders who hold their shares as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant to particular shareholders in light of their individual circumstances. This discussion also does not address the tax consequences to shareholders who are subject to special rules, including, without limitation, financial institutions, insurance companies, dealers in securities or foreign currencies, foreign holders, persons who hold their shares as or in a hedge against currency risk, a constructive sale, or conversion transaction, holders who are subject to the alternative minimum tax, or tax-exempt or tax-deferred plans, accounts, or entities. In addition, the discussion does not address any state, local, or foreign tax consequences. The discussion reflects applicable tax laws of the United States as of the date hereof, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service ("IRS") retroactively or prospectively. No attempt is made to present a detailed explanation of all U.S. federal income tax concerns affecting the Fund and its shareholders, and the discussion set forth herein does not constitute tax advice. INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS BEFORE MAKING AN INVESTMENT IN THE FUND TO DETERMINE THE SPECIFIC TAX CONSEQUENCES TO THEM OF INVESTING IN THE FUND, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES AS WELL AS THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS.
The Fund intends to elect to be treated, and to qualify each year, as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") so that it will not pay U.S. federal income tax on income and capital gains distributed to shareholders. In order to qualify as a regulated investment company under Subchapter M of the Code, the Fund must, among other things, derive at least 90% of its gross income for each taxable year from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including gains from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the "90% income test"). For purposes of the 90% income test, the character of income earned by certain entities in which the Fund invests that are not treated as corporations (e.g., partnerships) for U.S. federal income tax purposes will generally pass through to the Fund. Consequently, the Fund may be required to limit its equity investments in such entities that earn fee income, rental income or other nonqualifying income. In addition to the 90% income test, the Fund must also diversify its holdings (commonly referred to as the "asset test") so that, at the end of each quarter of its taxable year (i) at least 50% of the market value of the Fund's total assets is represented by cash and cash items, U.S. government securities, securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater in value than 5% of the value of the Fund's total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. government securities or securities of other regulated investment companies) or of two or more issuers controlled by the Fund and engaged in the same, similar or related trades or businesses.
If a Fund qualifies as a regulated investment company and distributes to its shareholders at least 90% of the sum of (i) its "investment company taxable income" as that term is defined in the Code (which includes, among other things, dividends, taxable interest, and the excess of any net short-term capital gains over net long-term capital losses as reduced by certain deductible expenses) without regard to the deduction for dividends paid and (ii) the excess of its gross tax-exempt interest, if any, over certain disallowed deductions, the Fund will be relieved of U.S. federal income tax on any income of the Fund, including long-term capital gains, distributed to shareholders. However, if the Fund retains any investment company taxable income or "net capital gain" (i.e., the excess of net long-term capital gains
over net short-term capital losses), it will be subject to U.S. federal income tax at regular corporate rates (currently at a maximum rate of 35%) on the amount retained. The Fund intends to distribute at least annually, all or substantially all of its investment company taxable income, net tax-exempt interest, and net capital gain. Under the Code, the Fund will be subject to a nondeductible 4% federal excise tax on a portion of its undistributed ordinary income and capital gains for any calendar year if it fails to meet certain distribution requirements with respect to such calendar year. The Fund intends to make distributions in a timely manner and accordingly does not expect to be subject to this excise tax.
If for any taxable year the Fund does not qualify as a regulated investment company for U.S. federal income tax purposes, it would be treated as a U.S. corporation subject to U.S. federal income tax and distributions to its shareholders would not be deductible by the Fund in computing its taxable income. In such event, the Fund's distributions, to the extent derived from the Fund's current or accumulated earnings and profits, would generally constitute ordinary dividends, which would be eligible for the dividends received deduction available to corporate shareholders under Section 243 of the Code, and noncorporate shareholders of the Fund generally would be able to treat such distributions as "qualified dividend income" under Section 1(h)(11) of the Code as discussed below.
The Fund expects to declare the initial monthly dividend on the common shares within approximately 60 days of the completion of this offering and to pay that initial monthly dividend approximately 90 days after the completion of this offering. The Fund intends to distribute any net short- and long-term capital gains at least annually. Dividends from income and/or capital gains may also be paid at such other times as may be necessary for the Fund to avoid U.S. federal income or excise taxes.
Unless a shareholder is ineligible to participate or elects otherwise, all distributions will be automatically reinvested in additional common shares of the Fund pursuant to the Automatic Dividend Reinvestment Plan (the "Plan"). For U.S. federal income tax purposes, all dividends are generally taxable whether a shareholder takes them in cash or they are reinvested pursuant to the Plan in additional shares of the Fund. Distributions of investment company taxable income, which includes net investment income, net short-term capital gain in excess of net long-term capital loss and certain net foreign exchange gains, are generally taxable as ordinary income to the extent of the Fund's current and accumulated earnings and profits. Under Section 1(h)(11) of the Code, for taxable years beginning on or before December 31, 2008, qualified dividend income received by noncorporate shareholders is taxed at rates equivalent to long-term capital gain tax rates, which reach a maximum of 15%. "Qualified dividend income" generally includes dividends from domestic corporations and dividends from foreign corporations that meet certain specified criteria, although dividends paid by REITs will not generally be eligible to qualify as qualified dividend income. The Fund generally can pass the tax treatment of qualified dividend income it receives through to Fund shareholders. For the Fund to receive qualified dividend income, the Fund must meet certain holding period requirements for the stock on which the otherwise qualified dividend is paid. In addition, the Fund cannot be obligated to make payments (pursuant to a short sale or otherwise) with respect to substantially similar or related property. The same provisions, including the holding period requirements, apply to each shareholder's investment in the Fund. After December 31, 2008, "qualified dividend income" will no longer be taxed at the rates applicable to long-term capital gains, and the maximum noncorporate tax rate on long-term capital gains will increase to 20%, unless Congress enacts legislation providing otherwise. Distributions of net capital gain, if any, are taxable as long-term capital gains for U.S. federal income tax purposes without regard to the length of time the shareholder has held shares of the Fund. A distribution of an amount in excess of the Fund's current and accumulated earnings and profits, if any, will be treated by a shareholder as a tax-free return of capital which is applied against and reduces the shareholder's basis in his or her shares. To the extent that the amount of any such distribution exceeds the shareholder's basis in his or her shares, the excess will be treated by the shareholder as gain from the sale or exchange of shares. The U.S. federal income tax status of all distributions will be designated by the Fund and reported to the shareholders annually.
If a shareholder's distributions are automatically reinvested pursuant to the Plan and the Plan Agent invests the distribution in shares acquired on behalf of the shareholder in open-market purchases, for U.S. federal income tax purposes, the shareholder will be treated as having received a taxable distribution in the amount of the cash dividend that the shareholder would have received if the shareholder had elected to receive cash. If a shareholder's distributions are automatically reinvested pursuant to the Plan and the Plan Agent invests the distribution in newly issued shares of the Fund, the shareholder will be treated as receiving a taxable distribution equal to the fair market value of the stock the shareholder receives.
If the Fund retains any net capital gain, the Fund may designate the retained amount as undistributed capital gains in a notice to shareholders who, if subject to U.S. federal income tax on long-term capital gains, (i) will be required to include in income, as long-term capital gain, their proportionate share of such undistributed amount, and (ii) will be entitled to credit their proportionate share of the tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds such liabilities. For U.S. federal income tax purposes, the tax basis of shares owned by a shareholder of the Fund will be increased by the difference between the amount of undistributed net capital gain included in the shareholder's gross income and the tax deemed paid by the shareholders.
Any dividend declared by the Fund in October, November or December with a record date in such a month and paid during the following January will be treated for U.S. federal income tax purposes as paid by the Fund and received by shareholders on December 31 of the calendar year in which it is declared.
Foreign exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain options and futures contracts relating to foreign currency, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such gain and loss to be treated as ordinary income and loss and may affect the amount, timing and character of distributions to shareholders.
If the Fund acquires any equity interest (generally including not only stock but also an option to acquire stock such as is inherent in a convertible bond) in certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or that hold at least 50% of their assets in investments producing such passive income ("passive foreign investment companies"), the Fund could be subject to U.S. federal income tax and additional interest charges on "excess distributions" received from such companies or on gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. An election may generally be available that would ameliorate these adverse tax consequences, but any such election could require the Fund to recognize taxable income or gain (subject to tax distribution requirements) without the concurrent receipt of cash. These investments could also result in the treatment of associated capital gains as ordinary income. The Fund may limit and/or manage its holdings in passive foreign investment companies to limit its tax liability or maximize its return from these investments.
The Fund may invest to a significant extent in debt obligations that are in the lowest rating categories or are unrated, including debt obligations of issuers not currently paying interest or who are in default. Investments in debt obligations that are at risk of or in default present special tax issues for the Fund. Tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless securities and how payments received on obligations in default should be allocated between principal and income. These and other related issues will be addressed by the Fund when, as and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a regulated investment company and does not become subject to U.S. federal income or excise taxes.
If the Fund utilizes leverage through borrowing, asset coverage limitations imposed by the 1940 Act as well as additional restrictions that may be imposed by certain lenders on the payment of dividends or distributions could potentially limit or eliminate the Fund's ability to make distributions on its common
shares until the asset coverage is restored. These limitations could prevent the Fund from distributing at least 90% of its investment company taxable income as is required under the Code and therefore might jeopardize the Fund's qualification for the reduced rates of corporate tax applicable to regulated investment companies and/or might subject the Fund to the nondeductible 4% federal excise tax. Upon any failure to meet the asset coverage requirements imposed by the 1940 Act, the Fund may, in its sole discretion and to the extent permitted under the 1940 Act, purchase or redeem shares of preferred stock in order to maintain or restore the requisite asset coverage and avoid the adverse consequences to the Fund and its shareholders of failing to meet the distribution requirements. There can be no assurance, however, that any such action would achieve these objectives. The Fund will endeavor to avoid restrictions on its ability to distribute dividends.
If the Fund invests in certain pay-in-kind securities, zero coupon securities, deferred interest securities or, in general, any other securities with original issue discount (or with market discount if the Fund elects to include market discount in income currently), the Fund must accrue income on such investments for each taxable year, which generally will be prior to the receipt of the corresponding cash payments. However, the Fund must distribute, at least annually, all or substantially all of its net income, including such accrued income, to shareholders to avoid U.S. federal income and excise taxes. Therefore, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may have to leverage itself by borrowing the cash, to satisfy distribution requirements.
At the time of an investor's purchase of the Fund's shares, a portion of the purchase price may be attributable to realized or unrealized appreciation in the Fund's portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions by the Fund with respect to these shares from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares and the distributions economically represent a return of a portion of the investment. Sales and other dispositions of the Fund's shares are taxable events for shareholders that are subject to tax. Shareholders should consult their own tax advisors regarding their individual circumstances to determine whether any particular transaction in the Fund's shares is properly treated as a sale for tax purposes (as the following discussion assumes) and the tax treatment of any gains or losses recognized in such transactions. Any loss realized by a shareholder upon the sale or other disposition of shares with a tax holding period of six months or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain with respect to such shares. Losses on sales or other dispositions of shares may be disallowed under "wash sale" rules in the event a shareholder acquires other investments in the Fund (including those made pursuant to reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after a sale or other disposition of shares. In such a case, the disallowed portion of any loss generally would be included in the U.S. federal tax basis of the shares acquired.
The Fund may engage in various transactions utilizing options, futures contracts, forward contracts, hedge instruments, straddles, and other similar transactions. Such transactions may be subject to special provisions of the Code that, among other things, affect the character of any income realized by the Fund from such investments, accelerate recognition of income to the Fund, defer Fund losses, and affect the determination of whether capital gain and loss is characterized as long-term or short-term capital gain or loss. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions may also require the Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were closed out), which may cause the Fund to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the distribution requirements for avoiding U.S. federal income and excise taxes. The Fund will monitor its transactions, will make the appropriate tax elections, and will make the appropriate entries in its books and records when it acquires an option, futures contract, forward contract, hedge instrument or other
similar investment in order to mitigate the effect of these rules, prevent disqualification of the Fund as a regulated investment company and minimize the imposition of U.S. federal income and excise taxes.
Certain distributions by the Fund may qualify for the dividends received deduction available to corporate shareholders, subject to certain holding period and other requirements, but generally only to the extent the Fund earned dividend income from stock investments in U.S. domestic corporations (other than REITs).
The IRS has taken the position that if a regulated investment company has two classes of shares, it must designate distributions made to each class in any year as consisting of no more than such class's proportionate share of particular types of income (e.g., dividends qualifying for the dividends received deduction, "qualified dividend income," ordinary income and net capital gains). Consequently, if both common shares and preferred shares are outstanding, the Fund intends to designate distributions made to each class of particular types of income in accordance with each class' proportionate shares of such income. Thus, the Fund will designate dividends qualifying for the corporate dividends received deduction, "qualified dividend income," ordinary income and net capital gains in a manner that allocates such income between the holders of common shares and preferred shares in proportion to the total dividends made to each class during or for the taxable year, or otherwise as required by applicable law.
The Fund may invest in REITs that hold residual interests in real estate mortgage investment conduits ("REMICs"). Under Treasury regulations that have not yet been issued, but may apply retroactively, a portion of the Fund's income from a REIT that is attributable to the REIT's residual interest in a REMIC (referred to in the Code as an "excess inclusion") will be subject to federal income tax in all events. These regulations are also expected to provide that excess inclusion income of a regulated investment company, such as the Fund, will be allocated to shareholders of the regulated investment company in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related REMIC residual interest directly. In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on unrelated business income, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on such income, and (iii) in the case of a foreign shareholder, will not qualify for any reduction in U.S. federal withholding tax. In addition, if at any time during any taxable year a "disqualified organization" (as defined in the Code) is a record holder of a share in a regulated investment company, then the regulated investment company will be subject to a tax equal to that portion of its excess inclusion income for the taxable year that is allocable to the disqualified organization, multiplied by the highest federal income tax rate imposed on corporations. The Fund does not intend to invest in REITs in which a substantial portion of the assets will consist of residual interests in REMICs.
The Fund may be subject to withholding and other taxes imposed by foreign countries, including taxes on interest, dividends and capital gains with respect to its investments in those countries, which would, if imposed, reduce the yield on or return from those investments. Tax treaties between certain countries and the U.S. may reduce or eliminate such taxes in some cases. The Fund does not expect to satisfy the requirements for passing through to its shareholders their pro rata shares of qualified foreign taxes paid by the Fund, with the result that shareholders will not include such taxes in their gross incomes and will not be entitled to a tax deduction or credit for such taxes on their own tax returns.
Federal law requires that the Fund withhold, as "backup withholding," 28% of reportable payments, including dividends, capital gain distributions and the proceeds of sales or other dispositions of
the Fund's shares paid to shareholders who have not complied with IRS regulations. In order to avoid this withholding requirement, shareholders must certify on their Account Applications, or on a separate IRS Form W-9, that the Social Security Number or other Taxpayer Identification Number they provide is their correct number and that they are not currently subject to backup withholding, or that they are exempt from backup withholding. The Fund may nevertheless be required to withhold if it receives notice from the IRS or a broker that the number provided is incorrect or backup withholding is applicable as a result of previous underreporting of interest or dividend income.
Under recently promulgated Treasury regulations, if a shareholder recognizes a loss with respect to shares of $2 million or more in a single taxable year (or $4 million or more in any combination of taxable years) for an individual shareholder, S corporation or trust or $10 million or more in a single taxable year (or $20 million or more in any combination of years) for a shareholder who is a C corporation, such shareholder will generally be required to file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are generally excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
The description of certain federal income tax provisions above relates only to U.S. federal income tax consequences for shareholders who are U.S. persons (i.e., U.S. citizens or residents or U.S. corporations, partnerships, trusts or estates). Investors other than U.S. persons may be subject to different U.S. tax treatment, including a non-resident alien U.S. withholding tax at the rate of 30% or at a lower treaty rate on amounts treated as ordinary dividends from the Fund provided a valid and effective IRS Form W-8BEN is on file with the Fund. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS ON THESE MATTERS AND ON ANY SPECIFIC QUESTION OF U.S. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER APPLICABLE TAX LAWS BEFORE MAKING AN INVESTMENT IN THE FUND.
EXPERTS
The financial statements of the Fund as of March 15, 2004 appearing in this statement of additional information have been audited by Deloitte & Touche LLP, 2 Prudential Plaza, 180 N. Stetson, Chicago, Illinois, 60601, independent auditors, as set forth in their report thereon appearing elsewhere herein, and is included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments thereto, relating to the shares offered hereby, has been filed by the Fund with the Commission, Washington, D.C. The prospectus and this statement of additional information do not contain all of the information set forth in the Registration Statement, including any exhibits and schedules thereto. For further information with respect to the Fund and the shares offered hereby, reference is made to the Registration Statement. Statements contained in the prospectus and this statement of additional information as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement may be inspected without charge at the Commission's principal office in Washington, D.C., and copies of all or any part thereof may be obtained from the Commission upon the payment of certain fees prescribed by the Commission.
FINANCIAL STATEMENT AND REPORT OF INDEPENDENT AUDITORS
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Calamos Strategic Total Return Fund:
We have audited the accompanying statement of assets and liabilities of Calamos Strategic Total Return Fund (the "Fund"), as of March 15, 2004, and the related statement of operations for the period from December 31, 2003 (date of organization) through March 15, 2004. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 15, 2004, by correspondence with the Fund's custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Calamos Strategic Total Return Fund as of March 15, 2004 and the results of its operations for the period from December 31, 2003 (date of organization) through March 15, 2004 in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP /S/ Chicago, Illinois March 23, 2004 |
CALAMOS STRATEGIC TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 15,2004
Assets:
Cash ................................................................................................. $ 200,130
Deferred offering costs .............................................................................. 1,790,132
-----------
Total assets ......................................................................................... 1,990,262
-----------
LIABILITIES:
Accrued offering costs ............................................................................... 1,790,132
Accrued organizational expenses ...................................................................... 96,729
-----------
1,886,861
-----------
Net assets (14,000 shares of beneficial interest issued and outstanding;
unlimited shares authorized) ........................................................... $ 103,401
===========
Net asset value per share ............................................................................ $ 7.386
===========
------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 31, 2003 (DATE OF ORGANIZATION)
THROUGH MARCH 15, 2004
Investment income .................................................................................... $ --
-----------
Organizational expenses .............................................................................. 96,729
Less: reimbursement from investment advisor .......................................................... --
-----------
Net expenses ......................................................................................... 96,729
-----------
Net investment income ................................................................................ $ (96,729)
-----------
------------------------------------------------------------------------
|
NOTES
1. ORGANIZATION
Calamos Strategic Total Return Fund (the "Fund") is a diversified, closed-end management investment company, organized on December 31, 2003 which has had no operations other than the sale and issuance of 14,000 shares of beneficial interest at an aggregate purchase price of $200,130 to Calamos Asset Management, Inc. (the "Investment Adviser" or "Calamos"). The Investment Adviser has agreed to reimburse the amount by which the aggregate of all of the Fund's organizational expenses and all offering costs (other than the sales load) exceeds $0.03 per share. Accordingly, the Fund's share of offering costs will be recorded as a reduction of the proceeds from the sale of its Common Shares upon the commencement of the Fund's operations. Estimated offering costs to be borne by the Fund total $1,790,132. Estimated organizational costs of $96,729 are accrued and expensed in the accompanying financial statements. Additionally, if the Fund completes an offering of Preferred Shares, the Fund will also pay offering costs in connection with such offering.
2. ACCOUNTING POLICIES
The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from these estimates.
3. AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Calamos, which provides for payment of a monthly fee computed at the annual rate of 1.00% of the Fund's average weekly Total Managed Assets. "Total Managed Assets" means the total assets of the Fund (including any assets attributable to leverage) minus accrued liabilities (other than liabilities representing leverage). For purposes of calculating "Total Managed Assets," the liquidation preference of any preferred shares outstanding is not considered a liability.
The Fund and such other funds advised by Calamos that may be a part of these arrangements (the Fund and such other funds are collectively referred to as the "Calamos Funds") have entered into a Fund Accounting Servicing Agreement with State Street Bank & Trust Co. ("State Street"). The Calamos Funds will pay State Street a monthly fee based on combined managed assets of the Calamos Funds ("Combined Assets") at the annual rate of 0.0225% for the first $3 billion of Combined Assets and 0.0150% for the Combined Assets that exceed $3 billion.
The Calamos Funds (including the Fund) have also entered into a Financial Accounting Servicing Agreement with Calamos. The Calamos Funds will pay Calamos a monthly fee based on Combined Assets at the annual rate of 0.0175% on the first $1 billion of Combined Assets; 0.0150% on the next $1 billion of Combined Assets; and 0.0110% on Combined Assets that exceed $2 billion. Each fund of the Calamos Funds will pay its pro-rata share of the fees payable to State Street and Calamos based on relative managed assets of each fund.
4. FEDERAL INCOME TAXES
The Fund intends to qualify as a "regulated investment company" and as such (and by complying with the applicable provisions of the Internal Revenue Code of 1986, as amended) will not be subject to Federal income tax on taxable income (including realized capital gains) that is distributed to shareholders.
APPENDIX A--DESCRIPTION OF RATINGS(1)
MOODY'S PRIME RATING SYSTEM
Moody's short-term ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. Such obligations generally have an original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics:
Leading market positions in well-established industries. High rates of return on funds employed. Conservative capitalization structure with moderate reliance on debt and ample asset protection. Broad margins in earnings coverage of fixed financial charges and high internal cash generation. Well-established access to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation than is the case for Prime-2 securities. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt-protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating categories.
In addition, in certain countries the prime rating may be modified by the issuer's or guarantor's senior unsecured long-term debt rating.
MOODY'S DEBT RATINGS
AAA: Bonds and preferred stock which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
AA: Bonds and preferred stock which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities.
A: Bonds and preferred stock which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future.
BAA: Bonds and preferred stock which are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
BA: Bonds and preferred stock which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA: Bonds and preferred stock which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA: Bonds and preferred stock which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds and preferred stock which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Moody's assigns ratings to individual debt securities issued from medium-term note (MTN) programs, in addition to indicating ratings to MTN programs themselves. Notes issued under MTN programs with such indicated ratings are rated at issuance at the rating applicable to all pari passu notes issued under the same program, at the program's relevant indicated rating, provided such notes do not exhibit any of the characteristics listed below. For notes with any of the following characteristics, the rating of the individual note may differ from the indicated rating of the program:
1) Notes containing features which link the cash flow and/or market value to the credit performance of any third party or parties.
2) Notes allowing for negative coupons, or negative principal.
3) Notes containing any provision which could obligate the investor to make any additional payments.
Market participants must determine whether any particular note is rated, and if so, at what rating level.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS
A-1: A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B: A short-term obligation rated B is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
C: A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
STANDARD & POOR'S LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based, in varying degrees, on the following considerations:
o Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
o Nature of and provisions of the obligation;
o Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation applies when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.) Accordingly, in the case of junior debt, the rating may not conform exactly with the category definition.
AAA: An obligation rated AAA has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA: An obligation rated AA differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B: An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated C is CURRENTLY HIGHLY VULNERABLE to nonpayment. The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A C also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying.
D: An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also
PART C -- OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements:
The Registrant's statement of assets and liabilities (balance sheet) dated March 15, 2004, notes to that financial statement and report of independent public accountants thereon are filed herewith in the Statement of Additional Information.
2. Exhibits:
a.1. Agreement and Declaration of Trust. (*)
a.2. Certificate of Trust. (*)
b. By-laws. (*)
c. None.
d. Form of Share Certificate. (**)
e. Terms and Conditions of the Dividend Reinvestment
Plan. (**)
f. None.
g. Investment Management Agreement with Calamos Asset
Management, Inc. (**)
h.1. Form of Underwriting Agreement. (**)
h.2. Form of Master Selected Dealer Agreement. (**)
h.3. Form of Master Agreement Among Underwriters. (**)
h.4. Form of Additional Compensation Agreement (**)
h.5. Form of Structuring Fee Agreement (**)
i. None.
j.1. Custody Agreement. (**)
j.2. Foreign Custody Manager Agreement. (**)
k.1. Stock Transfer Agency Agreement. (**)
k.2. Form of Master Services Agreement (**)
k.3. Financial Accounting Services Agreement (**)
l.1. Opinion of Vedder, Price, Kaufman & Kammholz, P.C.
(**)
l.2. Opinion of Morris, Nichols, Arsht & Tunnell. (**)
m. None.
n. Consent of Auditors. (**)
o. Not applicable.
p. Subscription Agreement. (**)
q. None.
r.1 Code of Ethics. (**)
s. Powers of Attorney(**)
(*) Incorporated by reference to Registrant's Registration Statement as filed with the Commission via EDGAR on January 7, 2004.
(**) Filed herewith.
ITEM 25: MARKETING ARRANGEMENTS
Reference will be made to the underwriting agreement for the Registrant's shares of beneficial interest to be filed in an amendment to the Registrant's Registration Statement.
ITEM 26: OTHER EXPENSES AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration Statement:
Registration fees....................................... $ 161,800
New York Stock Exchange listing fee..................... 250,000
Printing (other than certificates)...................... 509,945
Engraving and printing certificates..................... 1,470
Legal fees and expenses................................. 170,000
NASD fee................................................ 30,000
Miscellaneous........................................... 666,917
-----------
Total................................................ $1,790,132
===========
-------------
|
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
As of March 1, 2004, the number or record holders of each class of securities of the Registrant was
TITLE OF CLASS NUMBER OF RECORD HOLDERS
--------------------------------- ------------------------
Common Shares (no par value)............. --
|
ITEM 29. INDEMNIFICATION
The Registrant's Agreement and Declaration of Trust (the "Declaration"), dated December 30, 2003, provides that every person who is, or has been, a Trustee or an officer, employee or agent of the Registrant (including any individual who serves at its request as director, officer, partner, employee, Trustee, agent or the like of another organization in which it has any interest as a shareholder, creditor or otherwise ("Covered Person") shall be indemnified by the Registrant or the appropriate series of the Registrant to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Covered Person and against amounts paid or incurred by him in the settlement thereof; provided that no indemnification shall be provided to a Covered Person (i) who shall have been adjudicated by a court or body before which the proceeding was brought (A) to be liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, or (B) not to have acted in good faith and in a manner the person reasonably believed to be or not opposed to the best interest of the Registrant; or (ii) in the event of a settlement, unless there has been a determination that such Covered Person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office; (A) by the court or other body approving the settlement; (B) by at least a majority of those Trustees who are neither Interested Persons of the Trust nor are parties to the matter based upon a review of readily available facts (as opposed to a full trial-type inquiry); (C) by written opinion of independent legal counsel based upon a review of readily available facts (as opposed to a full trial-type inquiry) or (D) by a vote of a majority of the Outstanding Shares entitled to vote (excluding any Outstanding Shares owned of record or beneficially by such individual).
The Declaration also provides that if any shareholder or former shareholder of any series of the Registrant shall be held personally liable solely by reason of his being or having been a shareholder and not because of his acts or omissions or for some other reason, the shareholder or former shareholder (or his heirs, executors, administrators or other legal representatives or in the case of any entity, its general successor) shall be entitled out of the assets belonging to the applicable series of the Registrant to be held harmless from and indemnified against all loss and expense arising from such liability. The Registrant, on behalf of its affected series, shall, upon request by such shareholder, assume the defense of any claim made against such shareholder for any act or obligation of the series and satisfy any judgment thereon from the assets of the series.
Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (the "1933 Act"), may be available to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant's expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The information in the Statement of Additional Information under the caption "Management--Trustees and Officers" is incorporated by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books, and other documents are maintained at the offices of the Registrant, at the offices of the Registrant's investment manager, Calamos Asset Management, Inc., 1111 East Warrenville Road, Naperville, Illinois 60563, at the offices of the custodian, 100 Church Street, New York, New York 10286 or at the offices of the transfer agent, 111 8th Avenue, New York, New York 10011-5201.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
1. The Registrant undertakes to suspend the offering of shares
until the prospectus is amended if (1) subsequent to the effective date of its
registration statement, the net asset value declines more than ten percent from
its net asset value as of the effective date of the registration statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or Investment Company Act of 1940, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in this City of Naperville and State of Illinois, on the 24th day of March, 2004.
Calamos Strategic Total Return Fund
By: /s/ John P. Calamos
---------------------------------------
John P. Calamos, Trustee and President
|
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date(s) indicated.
/s/ John P. Calamos Trustee and President (Principal March 24, 2004
------------------------------------ Executive Officer)
John P. Calamos
/s/ Patrick Dudasik Vice President (Principal Financial and March 24, 2004
------------------------------------ Accounting Officer)
Patrick Dudasik
Nick P. Calamos* Trustee By: /s/ James S. Hamman, Jr.
------------------------
Joe E. Hanauer* Trustee James S. Hamman, Jr.
Attorney-In-Fact
John E. Neal* Trustee March 24, 2004
Weston W. Marsh* Trustee
William Rybak* Trustee
|
* Original powers of attorney authorizing James S. Hamman, Jr. and John P. Calamos to execute this Registration Statement, and Amendments thereto, for each of the trustees on whose behalf this Registration Statement filed, have been executed and filed as exhibits herewith.
EXHIBIT INDEX
EXHIBIT DOCUMENT
d. Form of Share Certificate.
e. Terms and Conditions of the Dividend Reinvestment
Plan.
g. Investment Management Agreement with Calamos Asset
Management, Inc.
h.1. Form of Underwriting Agreement.
h.2. Form of Master Selected Dealer Agreement.
h.3. Form of Master Agreement Among Underwriters.
h.4. Form of Additional Compensation Agreement.
h.5. Form of Structuring Fee Agreement.
j.1. Custody Agreement.
j.2. Foreign Custody Manager Agreement.
k.1. Stock Transfer Agency Agreement.
k.2. Form of Master Services Agreement.
k.3. Financial Accounting Services Agreement.
1.1. Opinion of Vedder, Price, Kaufman & Kammholz, P.C.
1.2. Opinion of Morris, Nichols, Arsht & Tunnell.
n. Consent of Auditors.
p. Subscription Agreement.
r.1 Code of Ethics.
s. Powers of Attorney.
|
EXHIBIT d
CALAMOS STRATEGIC TOTAL RETURN FUND
A STATUTORY BUSINESS TRUST (THE "TRUST")
FORM OF SPECIMEN CERTIFICATE
NUMBER SHARES
------- ------
THIS CERTIFICATE IS TRANSFERABLE IN
NEW YORK
CUSIP NO. [____________]
SEE REVERSE FOR CERTAIN DEFINITIONS
|
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF BENEFICIAL INTEREST, NO PAR VALUE, OF
Calamos Strategic Total Return Fund, a series of the Trust, transferable on the books of the Trust by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be subject to all of the provisions of the Agreement and Declaration of Trust and By-Laws of the Trust, each as from time to time amended, to all of which the holder by acceptance hereof assents. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile signatures of its duly authorized officers
DATED:
________________________________ ___________________________________
James S. Hamman, Jr. John P. Calamos
Secretary President
COUNTERSIGNED AND REGISTERED;
THE BANK OF NEW YORK
TRANSFER AGENT AND REGISTRAR
BY _____________________________________
AUTHORIZED SIGNATURE
|
CALAMOS STRATEGIC TOTAL RETURN FUND
The following abbreviations, when used in the inscription on the face on this certificate, shall be construed as though they were written out in full according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT - _____ Custodian ______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
Act__________________________
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
|
Additional abbreviations may also be used though not in the above list.
For value received, _______________ hereby sell, assign and transfer unto
Dated:___________________________ ___________________________________
Signature
NOTICE: THE SIGNATURE(S)
TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT OR ENLARGEMENT,
OR ANY CHANGE WHATEVER.
|
Signature(s) Guaranteed:
By _____________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKHOLDERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17 AD-15.
EXHIBIT e
CALAMOS STRATEGIC TOTAL RETURN FUND
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
Registered holders ("Common Shareholders") of common shares of beneficial interest (the "Common Shares") of Calamos Strategic Total Return Fund (the "Trust") will automatically be enrolled (the "Participants") in its Dividend Reinvestment Plan (the "Plan") and are advised as follows:
1. THE PLAN AGENT. The Bank of New York (the "Agent") will act as agent for each Participant. The Agent will open an account for each Participant under the Plan in the same name in which his or her outstanding Common Shares are registered.
2. CASH OPTION. Pursuant to the Fund's Plan, unless a holder of Common Shares otherwise elects, all dividend and capital gains distributions will be automatically reinvested by the Agent in additional Common Shares of the Fund. Common Shareholders who elect not to participate in the Plan will receive all distributions in cash paid by check mailed directly to the shareholder of record (or, if the shares are held in street or other nominee name then to such nominee) by the Agent, as dividend paying agent. Such participants may elect not to participate in the Plan and to receive all distributions of dividends and capital gains in cash by sending written instructions to the Agent, as dividend paying agent, at the address set forth below. Please note that the Plan administrator may use BNY ESI & Co. for trading activity, relative to the Plan on behalf of Plan participants. BNY ESI & Co. Inc. receives a commission in connection with any such transactions it processes.
3. MARKET PREMIUM ISSUANCES. If on the payment date for a Distribution, the net asset value per Common Share is equal to or less than the market price per Common Share plus estimated brokerage commissions, the Agent shall receive newly issued Common Shares ("Additional Common Shares") from the Trust for each Participant's account. The number of Additional Common Shares to be credited shall be determined by dividing the dollar amount of the Distribution by the greater of (i) the net asset value per Common Share on the payment date, or (ii) 95% of the market price per Common Share on the payment date.
4. MARKET DISCOUNT PURCHASES. If the net asset value per Common Share exceeds the market price plus estimated brokerage commissions on the payment date for a Distribution, the Agent (or a broker-dealer selected by the Agent) shall endeavor to apply the amount of such Distribution on each Participant's Common Shares to purchase Common Shares on the open market. In the event of a market discount on the payment date, the Agent will have until the last business day before the next date on which the shares trade on an "ex-dividend" basis or in no event more than 30 days after the dividend payment date (the "last purchase date") to invest the dividend amount in shares acquired in open-market purchases. It is contemplated that the Trust will pay monthly income dividends. Therefore, the period during which open-market purchases can be made will exist only from the payment date of each dividend through the date before the next "ex-dividend" date, which typically will be approximately ten days. The weighted average price (including brokerage commissions) of all Common Shares purchased by the Agent as Agent shall be the price per Common Share allocable to each Participant. If, before the Agent has completed its purchases, the market price plus estimated brokerage commissions
exceeds the net asset value of the Common Shares as of the payment date, the purchase price paid by Agent may exceed the net asset value of the Common Shares, resulting in the acquisition of fewer Common Shares than if such Distribution had been paid in Common Shares issued by the Trust. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent may cease making open-market purchases and may invest the uninvested portion of the dividend amount in newly issued Common Shares at the net asset value per Common Share at the close of business on the last purchase date. Participants should note that they will not be able to instruct the Agent to purchase Common Shares at a specific time or at a specific price. Open-market purchases may be made on any securities exchange where Common Shares are traded, in the over-the-counter market or in negotiated transactions, and may be on such terms as to price, delivery and otherwise as the Agent shall determine. Each Participant's uninvested funds held by the Agent will not bear interest. The Agent shall have no liability in connection with any inability to purchase Common Shares within the time provided, or with the timing of any purchases effected. The Agent shall have no responsibility for the value of Common Shares acquired. The Agent may commingle Participants' funds to be used for open-market purchases of Trust shares and the price per share allocable to each Participant in connection with such purchases shall be the average price (including brokerage commissions and other related costs) of all Trust shares purchased by Agent.
5. VALUATION. The market price of Common Shares on a particular date shall be the last sales price on the securities exchange where the Common Shares are listed on that date (the "Exchange"), or, if there is no sale on such Exchange on that date, then the mean between the closing bid and asked quotations on such Exchange on such date will be used. The net asset value per Common Share on, a particular date shall be the amount calculated on that date (or if not calculated on such date, the amount most recently calculated) by or on behalf of the Trust in accordance with the Trust's current prospectus.
6. TAXATION. The automatic reinvestment of Distributions does not relieve Participants of any federal, state or local taxes which may be payable (or required to be withheld on Distributions. Participants will receive tax information annually for their personal records and to help them prepare their federal income tax return. For further information as to tax consequences of participation in the Plan, Participants should consult with their own tax advisors.
7. LIABILITY OF AGENT. The Agent shall at all times act in good faith and agree to use its best efforts within reasonable limits to ensure the accuracy of all services performed under this Agreement and to comply with applicable law, but assumes no responsibility and shall not be liable for loss or damage due to errors unless such error is caused by the Agent's negligence, bad faith, or willful misconduct or that of its employees.
8. RECORDKEEPING. The Agent may hold each Participant's Common Shares acquired pursuant to the Plan together with the Common Shares of other Common Shareholders of the Trust acquired pursuant to the Plan in non-certificated form in the Agent's name or that of the Agent's nominee. Each Participant will be sent a confirmation by the Agent of each acquisition made for his or her account as soon as practicable, but in no event later than 60 days,
after the date thereof. Upon a Participant's request, the Agent will deliver to the Participant, without charge, a certificate or certificates for the full Common Shares. Although each Participant may from time to time have an undivided fractional interest in a Common Share of the Trust, no certificates for a fractional share will be issued. Similarly, Participants may request to sell a portion of the Common Shares held by the Agent in their Plan accounts by calling the Agent, writing to the Agent, or completing and returning the transaction form attached to each Plan statement. The Agent will sell such Common Shares through a broker-dealer selected by the Agent within 5 business days of receipt of the request. The sale price will equal the weighted average price of all Common Shares sold through the Plan on the day of the sale, less brokerage commissions. Participants should note that the Agent is unable to accept instructions to sell on a specific date or at a specific price. Any share dividends or split shares distributed by the Trust on Common Shares held by the Agent for Participants will be credited to their accounts. In the event that the Trust makes available to its Common Shareholders rights to purchase additional Common Shares, the Common Shares held for each Participant under the Plan will be added to other Common Shares held by the Participant in calculating the number of rights to be issued to each Participant.
9. PROXY MATERIALS. The Agent will forward to each Participant any proxy solicitation material. The Agent will vote any Common Shares held for a Participant first in accordance with the instructions set forth on proxies returned by such Participant to the Trust, and then with respect to any proxies not returned by such Participant to the Trust, in the same proportion as the Agent votes the proxies returned by the Participants to the Trust.
10. FEES. The Agent's service fee for handling Distributions will be paid by the Trust. Each Participant will be charged his or her pro rata share of brokerage commissions on all open-market purchases. If a Participant elects to have the Agent sell part or all of his or her Common Shares and remit the proceeds, such Participant will be charged his or her pro rata share of brokerage commissions on the shares sold, plus a $15 transaction fee.
11. TERMINATION IN THE PLAN. Each registered Participant may terminate his or her account under the Plan by notifying the Agent in writing at P.O. Box 1958, Newark, New Jersey 07101-9774, or by calling the Agent at 1-800-432-8224, or using The Bank of New York's website: http://stockbny.com. Such termination will be effective with respect to a particular Distribution if the Participant's notice is received by the Agent prior to such Distribution record date. The Plan may be terminated by the Agent or the Trust upon notice in writing mailed to each Participant at least 60 days prior to the effective date of the termination. Upon any termination, the Agent will cause a certificate or certificates to be issued for the full shares held for each Participant under the Plan and cash adjustment for any fraction of a Common Share at the then current market value of the Common Shares to be delivered to him. If preferred, a Participant may request the sale of all of the Common Shares held by the Agent in his or her Plan account in order to terminate participation in the Plan. If any Participant elects in advance of such termination to have Agent sell part or all of his shares, Agent is authorized to deduct from the proceeds a $15.00 fee plus the brokerage commissions incurred for the transaction. If a Participant has terminated his or her participation in the Plan but continues to have Common Shares registered in his or her name, he or she may re-enroll in the Plan at any time by notifying the Agent in writing at the address above.
12. AMENDMENT OF THE PLAN. These terms and conditions may be amended by the Agent or the Trust at any time but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to each Participant appropriate written notice at least 30 days prior to the effective date thereof. The amendment shall be deemed to be accepted by each Participant unless, prior to the effective date thereof, the Agent receives notice of the termination of the Participant's account under the Plan. Any such amendment may include an appointment by the Agent of a successor Agent, subject to the prior written approval of the successor Agent by the Trust.
13. APPLICABLE LAW. These terms and conditions shall be governed by the laws of the State of New York.
EXHIBIT g
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 12th day of March, 2004 (the "Agreement"), between CALAMOS ASSET MANAGEMENT, INC., a corporation organized under the laws of the State of Illinois and having its principal office and place of business in Naperville, Illinois (the "Manager"), and CALAMOS STRATEGIC TOTAL RETURN FUND, a Delaware business trust having its principal office and place of business in Naperville, Illinois (the "Trust").
WHEREAS, the Trust is registered as a closed-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Manager is engaged principally in the business of rendering investment management services and is so registered under the Investment Advisers Act of 1940; and
WHEREAS, the Trust wishes to retain the Manager to provide certain investment advisory, management and administrative services; and
WHEREAS, the Manager is willing to furnish such services on the terms and conditions hereinafter set forth;
THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the parties as follows:
1. APPOINTMENT OF MANAGER. The Trust appoints the Manager to act as manager and investment adviser to the Trust for the period and on the terms herein set forth. The Manager accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided.
2. DUTIES OF MANAGER. The Manager, at its own expense, shall furnish the following services and facilities to the Trust:
(a) Portfolio Management Services. Subject to the overall supervision and review of the Board of Trustees of the Trust ("Trustees"), the Manager will regularly provide the Trust with investment research, advice and supervision and will furnish continuously an investment program for the Trust, consistent with the investment objectives and policies of the Trust. The Manager will determine from time to time what securities shall be purchased for the Trust, what securities shall be held or sold by the Trust and what portion of the Trust's assets shall be held uninvested as cash, subject always to the provisions of the Trust's Certificate of Trust, Agreement and Declaration of Trust, By-Laws and its registration statement under the 1940 Act and under the Securities Act of 1933 covering the Trust's shares, as filed with the Securities and Exchange Commission (the "Commission"), and to the investment objectives, policies and restrictions of the Trust, as each of the same shall be from time to time in effect, and subject, further, to such policies and instructions as the Trustees may from time to time establish. To carry out such determinations, the Manager will exercise full discretion and act for the Trust in the same manner and with the same force and effect as the Trust itself might or could do with respect to purchases, sales or other transactions, as well as with respect to all other things necessary or incidental to the furtherance or conduct of such purchases, sales or other transactions.
The Manager shall place all orders for the purchase and sale
of portfolio securities for the account of the Trust with brokers or dealers
selected by the Manager, although the Trust will pay the actual brokerage
commissions on portfolio transactions in accordance with Paragraph 3. In
executing portfolio transactions and selecting brokers or dealers, the Manager
will use its best efforts to seek on behalf of the Trust or any Fund thereof the
best overall terms available for any transaction. The Manager shall consider all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any (for the
specific transaction and on a continuing basis). In evaluating the best overall
terms available, and in selecting the broker or dealer to execute a particular
transaction, the Manager may also consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) provided to the Trust and/or other accounts over which the Manager or an
affiliate of the Manager exercises investment discretion. The Manager is
authorized to pay to a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for any Fund which
is in excess of the amount of "commission" (as that term is used in Section
28(c), and as identified by the Commission) another broker or dealer would have
charged for effecting that transaction if, but only if, the Manager determines
in good faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of that particular transaction or in terms of all of the accounts over
which investment discretion is so exercised.
Manager (or an affiliate of Manager) may act as broker for Trust in connection with the purchase or sale of securities by or to the Trust if and to the extent permitted by procedures adopted from time to time by the Trustees. Such brokerage services are not within the scope of the duties of Manager under this agreement, and, within the limits permitted by law and the Trustees, Manager (or an affiliate of Manager) may receive brokerage commissions, fees or other remuneration from the Trust for such services in addition to its fee for services as Manager. Within the limits permitted by law, Manager may receive compensation from the Trust for other services performed by it for the Trust which are not within the scope of the duties of Manager under this Agreement.
(b) Other Services. In addition to the portfolio management services specified above in Paragraph 2(a), the Manager shall furnish for use of the Trust such office space and facilities as the Trust may require for its reasonable needs and shall supervise the business and affairs of the Trust and shall provide the following other services on behalf of the Trust and not provided by persons not parties to this Agreement:
(i) preparing or assisting in the preparation of reports to and meeting materials for the Trustees;
(ii) supervising, negotiating contractual arrangements with, to the extent appropriate, and monitoring the performance of, accounting agents, custodians, depositories, transfer agents and pricing agents, accountants, attorneys, printers, underwriters, brokers and dealers, insurers and other persons in any capacity deemed to be necessary or desirable to Trust operations;
(iii) assisting in the preparation and making of filings with the Commission and other regulatory and self-regulatory organizations, including, but not limited to, preliminary and definitive proxy materials, amendments to the Trust's registration statement on Form N-2 and semi-annual reports on Form N-SAR and Form N-CSR;
(iv) overseeing the tabulation of proxies by the Trust's transfer agent;
(v) assisting in the preparation and filing of the Trust's federal, state and local tax returns;
(vi) assisting in the preparation and filing of the Trust's federal excise tax return pursuant to Section 4982 of the Code;
(vii) providing assistance with investor and public relations matters;
(viii) monitoring the valuation of portfolio securities and the calculation of net asset value;
(ix) monitoring the registration of shares of beneficial interest of the Trust under applicable federal and state securities laws;
(x) maintaining or causing to be maintained for the Trust all books, records and reports and any other information required under the 1940 Act, to the extent that such books, records and reports and other information are not maintained by the Trust's custodian or other agents of the Trust;
(xi) assisting in establishing the accounting policies of the Trust;
(xii) assisting in the resolution of accounting issues that may arise with respect to the Trust's operations and consulting with the Trust's independent accountants, legal counsel and the Trust's other agents as necessary in connection therewith;
(xiii) reviewing the Trust's bills;
(xiv) assisting the Trust in determining the amount of dividends and distributions available to be paid by the Trust to its shareholders, preparing and arranging for the printing of dividend notices to shareholders, and providing the transfer and dividend paying agent, the custodian, and the accounting agent with such information as is required for such parties to effect the payment of dividends and distributions; and
(xv) otherwise assisting the Trust as it may reasonably request in the conduct of the Trust's business, subject to the direction and control of the Trustees.
Nothing in this Agreement shall be deemed to shift to the Manager or diminish the obligations of any agent of the Trust or any other person not a party to this Agreement which is obligated to provide services to the Trust.
(c) Reports. The Manager shall furnish to the Trustees periodic reports on the investment performance of the Trust and on the performance of the Manager's obligations pursuant to this Agreement, and the Manager shall supply such additional reports and information as the Trust's officers or the Trustees shall reasonably request.
3. ALLOCATION OF EXPENSES. Except for the services and facilities to be provided by the Manager as set forth in Paragraph 2 above, the Trust assumes and shall pay all expenses for all other Trust operations and activities and shall reimburse the Manager for any such expenses incurred by the Manager. In addition, the Manager shall pay the compensation and expenses of all Trustees, officers and employees of the Trust who are affiliated persons of the Manager and the Manager shall make available, without expense to the Trust, the services of the Manager's directors, officers and employees as may be duly elected Trustees and officers of the Trust, subject to their individual consent to serve and to any limitations imposed by law. The expenses to be borne by the Trust shall include, without limitation:
(a) organization expenses of the Trust (including out-of-pocket expenses, but not including the Manager's overhead or employee costs);
(b) fees payable to the Manager;
(c) legal expenses;
(d) auditing and accounting expenses;
(e) maintenance of books and records that are required to be maintained by the Trust's custodian or other agents of the Trust;
(f) telephone, telex, facsimile, postage and other communications expenses;
(g) taxes and governmental fees;
(h) fees, dues and expenses incurred by the Trust in connection with membership in investment company trade organizations and the expense of attendance at professional meetings of such organizations;
(i) fees and expenses of accounting agents, custodians, subcustodians, transfer agents, dividend disbursing agents and registrars;
(j) payment for portfolio pricing or valuation services to pricing agents, accountants, bankers and other specialists, if any;
(k) expenses of preparing share certificates;
(l) expenses in connection with the issuance, offering, distribution, sale, redemption or repurchase of securities issued by the Trust;
(m) expenses relating to investor and public relations provided by parties other than the Manager;
(n) expenses and fees of registering or qualifying shares of beneficial interest of the Trust for sale;
(o) interest charges, bond premiums and other insurance expenses;
(p) freight, insurance and other charges in connection with the shipment of the Trust's portfolio securities;
(q) the compensation and all expenses (specifically including travel expenses relating to Trust business) of Trustees, officers and employees of the Trust who are not affiliated persons of the Manager;
(r) brokerage commissions or other costs of acquiring or disposing of any portfolio securities of the Trust;
(s) expenses of printing and distributing reports, notices and dividends to shareholders;
(t) expenses of preparing and setting in type, printing and mailing prospectuses and statements of additional information of the Trust and supplements thereto;
(u) costs of stationery;
(v) any litigation expenses;
(w) indemnification of Trustees and officers of the Trust;
(x) costs of shareholders' and other meetings;
(y) interest on borrowed money, if any; and
(z) the fees and other expenses of listing the Trust's shares on the New York Stock Exchange or any other national stock exchange.
4. MANAGEMENT FEE.
(a) The Trust shall pay to the Manager, as compensation
for the Manager's services performed, facilities furnished and expenses assumed
hereunder, a fee at the annual rate equal to [1.00%] of the Trust's average
weekly managed assets. "Managed assets" means the total assets of the Trust
(including any assets attributable to any leverage that may be outstanding)
minus the sum of accrued liabilities (other than debt representing financial
leverage).
(b) The management fee payable hereunder shall be computed weekly and paid monthly in arrears. In the event of termination of this Agreement, the fee shall be computed on the basis of the period ending on the last business day on which this Agreement is in effect subject to a pro rata adjustment based on the number of days elapsed in the current month as a percentage of the total number of days in such month.
(c) The Manager may from time to time agree not to impose all or a portion of its fee otherwise payable hereunder (in advance of the time such fee or a portion thereof would otherwise accrue) and/or undertake to pay or reimburse the Trust for all or a portion of its expenses not otherwise required to be borne or reimbursed by the Manager. Any such fee reduction or undertaking may be discontinued or modified by the Manager at any time.
5. RELATIONS WITH TRUST. Subject to and in accordance with the Declaration of Trust and Bylaws of the Trust and the Articles of Incorporation and Bylaws of the Manager, respectively, it is understood that the Trustees, officers, agents and shareholders of the Trust are or may be interested in the Manager (or any successor thereof) as directors, officers, or otherwise, that directors, officers, agents and shareholders of the Manager are or may be interested in the Trust as Trustees, officers, shareholders or otherwise, and that the effect of any such adverse interests shall be governed by said Declaration of Trust, Articles of Incorporation and Bylaws.
6. LIABILITY OF MANAGER AND OFFICERS AND TRUSTEES OF THE TRUST. No provision of this Agreement shall be deemed to protect the Manager against any liability to the Trust or its shareholders to which it might otherwise be subject by reason of any willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its obligations and duties under this Agreement. Nor shall any provision hereof be deemed to protect any Trustee or officer of the Trust against any such liability to which he might otherwise be subject by reason of any willful misfeasance, bad faith, gross negligence or reckless disregard of his obligations and duties.
7. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective on the date first written above. Unless terminated as herein provided, this Agreement shall remain in full force and effect until August 1, 2005 and shall continue in full force and effect for periods of one year thereafter so long as such continuance is approved at least annually (i) by either the Trustees or by vote of a majority of the outstanding voting shares (as defined in the 1940 Act) of the Trust, and (ii) in either event by the vote of a majority of the Trustees who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval.
(b) Termination. This Agreement may be terminated at any time, without payment of any penalty, by vote of the Trustees or by vote of a majority of the outstanding shares (as defined in the 1940 Act), or by the Manager on sixty (60) days' written notice to the other party.
(c) Automatic Termination. This Agreement shall automatically terminate in the event of its "assignment," as that term is defined in the 1940 Act.
8. NAME OF TRUST. It is understood that the name "Calamos", and any logo associated with that name, is the valuable property of Calamos Asset Management, Inc., and that the Trust has the right to include "Calamos" as a part of its name only so long as this Agreement shall continue. Upon termination of this Agreement the Trust shall forthwith cease to use the
"Calamos" name and logo and shall take such action as is necessary to change the name of the Trust and to amend its Declaration of Trust to change the Trust's name.
9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the terms of the State of Delaware.
10. SERVICES NOT EXCLUSIVE. The services of the Manager to the Trust hereunder are not to be deemed exclusive and the Manager shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
11. LIMITATION OF LIABILITY. It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but shall bind only the assets and property of the Trust as provided in the Declaration of Trust of the Trust. The execution and delivery of this Agreement have been authorized by the Trustees and shareholders of the Trust and signed by an authorized officer of the Trust, acting as such, and neither such authorization by the Trustees and shareholders nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the assets and property of the Trust as provided in its Declaration of Trust.
12. MISCELLANEOUS. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to the subject matter hereof. Should any part of this Agreement be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding and shall inure to the benefit of the parties hereto and their respective successors. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Investment Management Agreement has been executed for the Manager and the Trust by their duly authorized officers, as of the date first set forth above.
CALAMOS ASSET MANAGEMENT, INC.
By: /s/ Patrick Dudasik
------------------------------
Attest: /s/ James S. Hamman, Jr. Patrick Dudasik
----------------------------
James S. Hamman, Jr.
CALAMOS STRATEGIC TOTAL RETURN FUND
By: /s/ James S. Hamman, Jr.
------------------------------
Attest: /s/ Patrick Dudasik James S. Hamman, Jr.
----------------------------
Patrick Dudasik
|
Exhibit h.1
CALAMOS STRATEGIC TOTAL RETURN FUND
_____ COMMON SHARES OF BENEFICIAL INTEREST
(no par value)
UNDERWRITING AGREEMENT
New York, New York
March __, 2004
Citigroup Global Markets Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
UBS Securities LLC
A.G. Edwards & Sons, Inc.
Advest, Inc.
H&R Block Financial Advisors, Inc.
Ferris, Baker Watts, Incorporated
Janney Montgomery Scott LLC
Legg Mason Wood Walker, Incorporated
McDonald Investments Inc., a KeyCorp Company
Oppenheimer & Co. Inc.
Quick & Reilly, Inc. A FleetBoston Financial Company
RBC Capital Markets Corporation
TD Waterhouse Investor Services, Inc.
Wedbush Morgan Securities Inc.
Wells Fargo Securities, LLC
As Representatives of the several Underwriters
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
The undersigned, Calamos Strategic Total Return Fund, a Delaware statutory trust (the "Fund") and Calamos Asset Management, Inc., an Illinois corporation (the "Adviser"), address you as underwriters and as the representatives (the "Representatives") of each of the several underwriters named on Schedule I hereto (the "Underwriters"). The Fund proposes to sell to the Underwriters _____ shares (the "Underwritten Securities") of its common shares of beneficial interest, no par value per share (the "Common Shares"). The Fund also proposes to grant to the Underwriters an option to purchase up to ______ additional Common Shares to cover over-allotments (the "Option Securities"). The Underwritten Securities and the Option
Securities are hereinafter collectively referred to as the "Securities." Unless otherwise stated, the term "you" as used herein means Citigroup Global Markets Inc. individually on its own behalf and on behalf of the other Representatives. Certain terms used herein are defined in Section 18 hereof.
The Fund and the Adviser wish to confirm as follows their agreements with you and the other several Underwriters on whose behalf you are acting in connection with the several purchases of the Securities by the Underwriters.
The Fund has entered into an Investment Management Agreement with the Adviser dated as of _____, 2004, a Custodian Agreement with The Bank of New York dated as of _____, 2004, and a Shareholder Transfer Agency and Service Agreement with The Bank of New York dated as of _____, 2004 and a Fund Accounting Services Agreement with State Street Bank and Trust Company dated as of _____, 2004 and such agreements are herein referred to as the "Management Agreement," the "Custodian Agreement, " the "Transfer Agency Agreement" and the "Administration Agreement," respectively. Collectively, the Management Agreement, the Custodian Agreement, the Transfer Agency Agreement and the Administration Agreement are herein referred to as the "Fund Agreements." The Adviser has entered into a Structuring Fee Agreement with Citigroup Global Markets Inc. dated as of ______, 2004, a Structuring Fee Agreement with UBS Securities LLC dated as of ______, 2004 (collectively, the "Structuring Fee Agreements") and an Additional Compensation Agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated dated as of _____, 2004 (the "Additional Compensation Agreement"). In addition, the Fund has adopted a dividend reinvestment plan (the "Dividend Reinvestment Plan") pursuant to which holders of Common Shares shall have their dividends automatically reinvested in additional Common Shares of the Fund unless they elect to receive such dividends in cash.
1. Representations and Warranties of the Fund and the Adviser. The Fund and the Adviser, jointly and severally, represent and warrant to, and agree with, each Underwriter as set forth below in this Section 1.
(a) The Fund has prepared and filed with the Commission a registration statement (file numbers 333-111756 and 811-21484) on Form N-2, including a related preliminary prospectus (including the statement of additional information incorporated by reference therein), for registration under the Act and the 1940 Act of the offering and sale of the Securities. The Fund may have filed one or more amendments thereto, including a related preliminary prospectus (including the statement of additional information incorporated by reference therein), each of which has previously been furnished to you. The Fund will next file with the Commission one of the following: either (1) prior to the Effective Date of such registration statement, a further amendment to such registration statement (including the form of final prospectus (including the statement of additional information incorporated by reference therein)) or (2) after the Effective Date of such registration statement, a final prospectus (including the statement of additional information incorporated by reference therein) in accordance with Rules 430A and 497. In the case of clause (2), the Fund has included in such registration statement, as amended at the Effective Date, all information (other than Rule 430A Information) required by the Act and the 1940 Act and the Rules and Regulations to be included in
such registration statement and the Prospectus. As filed, such amendment and form of final prospectus (including the statement of additional information incorporated by reference therein), or such final prospectus (including the statement of additional information incorporated by reference therein), shall contain all Rule 430A Information, together with all other such required information, and, except to the extent the Representatives shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Fund has advised you, prior to the Execution Time, will be included or made therein.
(b) Each Preliminary Prospectus complied when filed with the Commission in all material respects with the provisions of the Act, the 1940 Act and the Rules and Regulations, except that this representation and warranty does not apply to statements in or omissions from the registration statement or the Preliminary Prospectus made in reliance upon and in conformity with information relating to any Underwriter furnished to the Fund in writing by or on behalf of any Underwriter through you expressly for use therein. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus.
(c) On the Effective Date, the Registration Statement did or will, and when the Prospectus (and any supplement thereto) is first filed (if required) in accordance with Rule 497 it will, and the 1940 Act Notification when originally filed with the Commission and any amendment or supplement thereto when filed with the Commission did or will, comply in all material respects with the applicable requirements of the Act, the 1940 Act and the Rules and Regulations and the Registration Statement on the Effective Date did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and, on the Effective Date, the Prospectus, if not filed pursuant to Rule 497, and on the date of any filing pursuant to Rule 497, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Fund makes no representations or warranties as to the information contained in or omitted from the Registration Statement, or the Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Fund by or on behalf of any Underwriter through the Representatives specifically for inclusion in the Registration Statement or the Prospectus (or any supplement thereto).
(d) The Fund has been duly formed and is validly existing in good standing as a statutory trust under the laws of the State of Delaware, with full power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them) and is duly registered and qualified to conduct business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or to qualify does not have a material, adverse effect on the condition (financial or other),
business, prospects, properties, net assets or results of operations of the Fund. The Fund has no subsidiaries.
(e) The Fund's authorized equity capitalization is as set forth in the Prospectus; the capital stock of the Fund conforms in all material respects to the description thereof contained in the Prospectus; all outstanding Common Shares have been duly and validly authorized and issued and are fully paid and, except as described in the Prospectus, nonassessable; the Securities have been duly and validly authorized, and, when issued and delivered to and paid for by the Underwriters pursuant to this Agreement, will be fully paid and, except as described in the Prospectus, nonassessable; the Securities are duly listed, and admitted and authorized for trading, subject to official notice of issuance and evidence of satisfactory distribution, on the New York Stock Exchange (the "NYSE"); the certificates for the Securities are in valid and sufficient form; the holders of outstanding Common Shares are not entitled to preemptive or other rights to subscribe for the Securities; and, except as set forth in the Prospectus, no options, warrants or other rights to purchase, agreements or other obligations to issue, or rights to convert any obligations into or exchange any securities for, shares of capital stock of or ownership interests in the Fund are outstanding.
(f) The Fund's registration statement on Form 8-A under the Exchange Act has become effective.
(g) The Fund, subject to the Registration Statement having been declared effective and the filing of the Prospectus under Rule 497, has taken all required action under the Act, the 1940 Act and the Rules and Regulations to make the public offering and consummate the sale of the Securities as contemplated by this Agreement.
(h) There are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus, or to be filed as an exhibit thereto, which are not described or filed as required; and the statements in the Registration Statement and Prospectus, insofar as they are descriptions of contracts, agreements or other legal documents or refer to statements of law or legal conclusions, are accurate and present fairly the information required to be shown.
(i) The execution and delivery of and the performance by the Fund of its obligations under this Agreement and the Fund Agreements have been duly and validly authorized by the Fund and this Agreement and the Fund Agreements have been duly executed and delivered by the Fund and constitute the valid and legally binding agreements of the Fund, enforceable against the Fund in accordance with their terms, except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws and subject to the qualification that the enforceability of the Fund's obligations hereunder and thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles.
(j) The Fund is duly registered under the 1940 Act as a closed-end, diversified management investment company and the 1940 Act Notification has been duly filed with
the Commission. The Fund has not received any notice from the Commission pursuant to Section 8(e) of the 1940 Act with respect to the 1940 Act Notification or the Registration Statement.
(k) No consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein or in the Fund Agreements, except such as have been made or obtained under the Act, the 1940 Act and the rules and regulations of the National Association of Securities Dealers, Inc. (the "NASD"), and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters in the manner contemplated herein and in the Prospectus.
(l) Neither the issuance and sale of the Securities, the execution, delivery or performance of this Agreement or any of the Fund Agreements by the Fund, nor the consummation by the Fund of the transactions contemplated hereby or thereby (i) conflicts or will conflict with or constitutes or will constitute a breach of the declaration of trust or by-laws of the Fund, (ii) conflicts or will conflict with or constitutes or will constitute a breach of or a default under, any material agreement, indenture, lease or other instrument to which the Fund is a party or by which it or any of its properties may be bound or (iii) materially violates or will materially violate any material statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Fund or any of its properties or will result in the creation or imposition of any material lien, charge or encumbrance upon any property or assets of the Fund pursuant to the terms of any agreement or instrument to which it is a party or by which it may be bound or to which any of the property or assets of the Fund is subject.
(m) No holders of securities of the Fund have rights to the registration of such securities under the Registration Statement.
(n) The financial statements, together with related schedules and notes, included in the Prospectus and the Registration Statement present fairly in all material respects the financial condition and results of operations of the Fund as of the dates and for the periods indicated, comply as to form with the applicable accounting requirements of the Act and the 1940 Act and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as otherwise noted therein).
(o) No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Fund or its property is pending or, to the knowledge of the Fund, threatened that (i) could reasonably be expected to have a material adverse effect on the performance of this Agreement or the consummation of any of the transactions contemplated hereby or (ii) could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Fund, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto).
(p) The Fund is not (i) in violation of its declaration of trust or by-laws, (ii) in breach or default in any material respect in the performance of the terms of any material indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which it is a party or bound or to which its property is subject or (iii) in material violation of any material law, ordinance, administrative or governmental rule or regulation applicable to the Fund, including, without limitation, the applicable provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, or of any material decree of the Commission, the NASD, any state securities commission, any national securities exchange, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative agency or any official having jurisdiction over the Fund.
(q) Since the date as of which information is given in the Prospectus, except as otherwise stated therein, (i) there has been no material, adverse change in the condition (financial or other), business, properties, net assets or results of operations of the Fund or business prospects (other than as a result of a change in the financial markets generally) of the Fund, whether or not arising in the ordinary course of business, (ii) there have been no transactions entered into by the Fund which are material to the Fund other than those in the ordinary course of its business as described in the Prospectus and (iii) there has been no dividend or distribution of any kind declared, paid or made by the Fund on any class of its Common Shares.
(r) Deloitte & Touche LLP, who have audited the Statement of Assets and Liabilities included in the Registration Statement and the Prospectus, are independent public accountants with respect to the Fund within the meaning of the Act, the 1940 Act and the Rules and Regulations.
(s) The Fund has not distributed and, prior to the later to occur of
(i) the Closing Date and (ii) completion of the distribution of the
Securities, will not distribute any offering material in connection with
the offering and sale of the Securities other than the Registration
Statement, the Preliminary Prospectus, the Prospectus or other materials
permitted by the Act, the 1940 Act or the Rules and Regulations.
(t) All advertising, sales literature or other promotional material (including "prospectus wrappers", "broker kits", "road show slides" and "road show scripts"), whether in printed or electronic form, authorized in writing by or prepared by the Fund or the Adviser for use in connection with the offering and sale of the Securities (collectively, "sales material") complied and comply in all material respects with the applicable requirements of the Act, the Act Rules and Regulations and the rules and interpretations of the NASD and if required to be filed with the NASD under the NASD's conduct rules were provided to Simpson Thacher & Bartlett LLP, counsel for the Underwriters, for filing. No sales material contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(u) The Fund's directors and officers/errors and omissions insurance policy and its fidelity bond required by Rule 17g-1 of the 1940 Act Rules and Regulations are in full force and effect; the Fund is in compliance with the terms of such policy and fidelity bond in all material respects; and there are no claims by the Fund under any such policy or fidelity bond as to which any insurance company is denying liability or defending under a reservation of rights clause; the Fund has not been refused any insurance coverage sought or applied for; and the Fund has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Fund, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto).
(v) The Fund has such licenses, permits, and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its property and to conduct its business in the manner described in the Prospectus, except where the failure to hold any such permit does not have a material, adverse effect on the condition (financial or other), business, prospects, properties, net assets or results of operations of the Fund; the Fund has fulfilled and performed all its material obligations with respect to such permits and no event has occurred which allows or, after notice or lapse of time, would allow, revocation or termination thereof or results in any other material impairment of the rights of the Fund under any such permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the Prospectus, none of such permits contains any restriction that is materially burdensome to the Fund.
(w) The Fund maintains and will maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization and with the investment objectives, policies and restrictions of the Fund and the applicable requirements of the 1940 Act, the 1940 Act Rules and Regulations and the Internal Revenue Code of 1986, as amended (the "Code"); (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles, to calculate net asset value, to maintain accountability for assets and to maintain material compliance with the books and records requirements under the 1940 Act and the 1940 Act Rules and Regulations; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(x) Except as stated in this Agreement and the Prospectus, the Fund has not taken, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Fund to facilitate the sale or resale of the Securities, and the Fund is not aware of any such action taken or to be taken by any affiliates of the Fund.
(y) This Agreement and each of the Fund Agreements complies in all material respects with all applicable provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act and the Advisers Act Rules and Regulations.
(z) The Fund intends to direct the investment of the proceeds of the offering of the Securities in such a manner as to comply with the requirements of Subchapter M of the Code.
(aa) The conduct by the Fund of its business (as described in the Prospectus) does not require it to be the owner, possessor or licensee of any patents, patent licenses, trademarks, service marks or trade names which it does not own, possess or license, except where the failure to own, possess or license any such patent, patent license, trademark, service mark or trade name does not have a material, adverse effect on the condition (financial or other), business, prospects, properties, net assets or results of operations of the Fund.
Any certificate signed by any officer of the Fund and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Securities shall be deemed a representation and warranty by the Fund, as to matters covered thereby, to each Underwriter.
2. Representations and Warranties of the Adviser. The Adviser represents and warrants to each Underwriter as follows:
(a) The Adviser has been duly formed and is validly existing in good standing as a corporation under the laws of the State of Illinois, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification, except where the failure to so qualify would not have a material, adverse effect on the condition (financial or other), business, prospects, properties, net assets or results of operations of the Adviser.
(b) The Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the 1940 Act, the Advisers Act Rules and Regulations or the 1940 Act Rules and Regulations from acting under the Management Agreement, the Structuring Fee Agreements or the Additional Compensation Agreement as contemplated by the Prospectus.
(c) The Adviser has full power and authority to enter into this Agreement, the Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement; the execution and delivery of, and the performance by the Adviser of its obligations under, this Agreement, the Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement have been duly and validly authorized by the Adviser; and this Agreement, the Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement have been duly executed and delivered by the Adviser and constitute the valid and legally binding
agreements of the Adviser, enforceable against the Adviser in accordance with their terms, except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws and subject to the qualification that the enforceability of the Adviser's obligations hereunder and thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equitable principles.
(d) The Adviser has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Prospectus and under this Agreement, the Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement.
(e) The description of the Adviser and its business, and the statements attributable to the Adviser, in the Prospectus complied and comply in all material respects with the provisions of the Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(f) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Adviser or its property is pending or, to the best knowledge of the
Adviser, threatened that (i) is required to be described in the Prospectus
that is not so described as required, (ii) could reasonably be expected to
have a material adverse effect on the ability of the Adviser to fulfill
its obligations hereunder or under the Management Agreement, the
Structuring Fee Agreements or the Additional Compensation Agreement or
(iii) could reasonably be expected to have a material adverse effect on
the condition (financial or otherwise), prospects, earnings, business or
properties of the Adviser, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto).
(g) Since the date as of which information is given in the Prospectus, except as otherwise stated therein, (i) there has been no material, adverse change in the condition (financial or other), business, properties, net assets or results of operations or business prospects of the Adviser, whether or not arising from the ordinary course of business and (ii) there have been no transactions entered into by the Adviser which are material to the Adviser other than those in the ordinary course of its business as described in the Prospectus.
(h) The Adviser has such licenses, permits and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its property and to conduct its business in the manner described in the Prospectus, except where the failure to hold any such permit does not have a material, adverse effect on the condition (financial or other), business, prospects, properties, net assets or results of operations of the Adviser or on the ability of the Adviser to perform its obligations under this Agreement, the Management Agreement, the Structuring Fee Agreements or the Additional Compensation Agreement;
the Adviser has fulfilled and performed all its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the Adviser under any such permit.
(i) This Agreement, the Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement comply in all material respects with all applicable provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act and the Advisers Act Rules and Regulations.
(j) No consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein or in the Management Agreement, the Structuring Fee Agreements or the Additional Compensation Agreement, except such as have been made or obtained under the Act and the 1940 Act and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters in the manner contemplated herein and in the Prospectus.
(k) Neither the execution, delivery or performance of this Agreement, the Management Agreement, the Structuring Fee Agreements or the Additional Compensation Agreement, nor the consummation by the Fund or the Adviser of the transactions contemplated hereby or thereby (i) conflicts or will conflict with or constitutes or will constitute a breach of the certificate of incorporation or by-laws of the Adviser, (ii) conflicts or will conflict with or constitutes or will constitute a breach of or a default under, any material agreement, indenture, lease or other instrument to which the Adviser is a party or by which it or any of its properties may be bound or (iii) materially violates or will materially violate any material statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Adviser or any of its properties or will result in the creation or imposition of any material lien, charge or encumbrance upon any property or assets of the Adviser pursuant to the terms of any agreement or instrument to which the Adviser is a party or by which the Adviser may be bound or to which any of the property or assets of the Adviser is subject.
(l) Except as stated in this Agreement and in the Prospectus, the Adviser has not taken and nor will it take, directly or indirectly, any action designed to or which should reasonably be expected to cause or result in or which will constitute, stabilization or manipulation of the price of the any security of the Fund in violation of federal securities laws and the Adviser is not aware of any such action taken or to be taken by any affiliates of the Adviser.
(m) In the event that the Fund or the Adviser makes available any promotional materials intended for use only by qualified broker-dealers and registered representatives thereof by means of an Internet web site or similar electronic means, the Adviser will install and maintain pre-qualification and password-protection or similar procedures which are reasonably designed to effectively prohibit access to such promotional materials by persons other than qualified broker-dealers and registered representatives thereof.
3. Purchase and Sale. (a) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Fund agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Fund, at a purchase price of $14.325 per share, the amount of the Underwritten Securities set forth opposite such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Fund hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to _____ Option Securities at the same purchase price per share as the Underwriters shall pay for the Underwritten Securities. Said option may be exercised only to cover over-allotments in the sale of the Underwritten Securities by the Underwriters. Said option may be exercised in whole or in part at any time and from time to time on or before the 45th day after the date of the Prospectus upon written or telegraphic notice by the Representatives to the Fund setting forth the number of shares of the Option Securities as to which the several Underwriters are exercising the option and the date on which the Option Securities are to be purchased, if such date is not the Closing Date (a "settlement date"). The number of Option Securities to be purchased by each Underwriter shall be the same percentage of the total number of shares of the Option Securities to be purchased by the several Underwriters as such Underwriter is purchasing of the Underwritten Securities, subject to such adjustments as you in your absolute discretion shall make to eliminate any fractional shares.
4. Delivery and Payment. Delivery of and payment for the
Underwritten Securities and the Option Securities (if the option provided for in
Section 3(b) hereof shall have been exercised on or before the third Business
Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
______, 2004 or at such time on such later date not more than three Business
Days after the foregoing date as the Representatives shall designate, which date
and time may be postponed by agreement between the Representatives and the Fund
or as provided in Section 10 hereof (such date and time of delivery and payment
for the Securities being herein called the "Closing Date"). Delivery of the
Securities shall be made to the Representatives for the respective accounts of
the several Underwriters against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the Fund
by wire transfer payable in same-day funds to an account specified by the Fund.
Delivery of the Underwritten Securities and the Option Securities shall be made
through the facilities of The Depository Trust Company unless the
Representatives shall otherwise instruct.
If the option provided for in Section 3(b) hereof is exercised after the third Business Day prior to the Closing Date, the Fund will deliver the Option Securities (at the expense of the Fund) to the Representatives, at 388 Greenwich St., New York, New York on the date specified by the Representatives (which shall be within three Business Days after exercise of said option) for the respective accounts of the several Underwriters, against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Fund by wire transfer payable in same-day funds to an account specified by the Fund. If settlement for the Option Securities occurs after the Closing Date, the Fund will deliver to the Representatives on the settlement date for the Option Securities, and the obligation of the Underwriters to purchase the Option Securities shall be conditioned upon receipt of,
supplemental opinions, certificates and letters confirming as of such date the
opinions, certificates and letters delivered on the Closing Date pursuant to
Section 7 hereof.
5. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Securities for sale to the public as set forth in the Prospectus.
6. Agreements of the Fund and the Adviser. The Fund and the Adviser, jointly and severally, agree with the several Underwriters as follows:
(a) The Fund will use its best efforts to cause the Registration Statement, if not effective at the Execution Time, and any amendment thereof, to become effective. Prior to the termination of the offering of the Securities, the Fund will not file any amendment of the Registration Statement or supplement to the Prospectus or any Rule 462(b) Registration Statement unless the Fund has furnished you a copy for your review prior to filing and will not file any such proposed amendment or supplement to which you reasonably object. Subject to the foregoing sentence, if the Registration Statement has become or becomes effective pursuant to Rule 430A, or filing of the Prospectus is otherwise required under Rule 497, the Fund will cause the Prospectus, properly completed, and any supplement thereto to be filed in a form approved by the Representatives with the Commission pursuant to Rule 497 within the time period prescribed and will provide evidence satisfactory to the Representatives of such timely filing. The Fund will promptly advise the Representatives (1) when the Registration Statement, if not effective at the Execution Time, shall have become effective, (2) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 497 or when any Rule 462(b) Registration Statement shall have been filed with the Commission, (3) when, prior to termination of the offering of the Securities, any amendment to the Registration Statement shall have been filed or become effective, (4) of any request by the Commission or its staff for any amendment of the Registration Statement, or any Rule 462(b) Registration Statement, or for any supplement to the Prospectus or for any additional information, (5) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (6) of the receipt by the Fund of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the institution or threatening of any proceeding for such purpose. The Fund will use its best efforts to prevent the issuance of any such stop order or the suspension of any such qualification and, if issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which, in the judgment of the Fund or in the reasonable opinion of counsel for the Underwriters, the Prospectus as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or if it shall be necessary to amend the Registration Statement or supplement the Prospectus to comply with the Act, the 1940 Act and the Rules and Regulations, the Fund promptly will (1) notify the Representatives of any such event; (2) prepare and file with the Commission, subject to the second
sentence of paragraph (a) of this Section 6, an amendment or supplement which will correct such statement or omission or effect such compliance; and (3) supply any supplemented Prospectus to you in such quantities as you may reasonably request.
(c) As soon as practicable, the Fund will make generally available to its security holders and to the Representatives an earnings statement or statements of the Fund which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Fund will furnish to the Representatives and counsel for the Underwriters signed copies of the Registration Statement (including exhibits thereto) and to each other Underwriter a copy of the Registration Statement (without exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act, as many copies of each Preliminary Prospectus and the Prospectus and any supplement thereto as the Representatives may reasonably request.
(e) The Fund will cooperate with you and with counsel for the Underwriters in connection with the registration or qualification of the Securities for offering and sale by the several Underwriters and by dealers with the NASD and under the securities or Blue Sky laws of such jurisdictions as you may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such registration or qualification; provided that in no event shall the Fund be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to service of process in suits, other than those arising out of the offering or sale of the Shares, in any jurisdiction where it is not now so subject.
(f) Except as provided in this Agreement or pursuant to any dividend reinvestment plan of the Fund in effect on the date hereof, the Fund will not sell, contract to sell or otherwise dispose of, any Common Shares or any securities convertible into or exercisable or exchangeable for Common Shares or grant any options or warrants to purchase Common Shares, for a period of 180 days after the date of the Prospectus, without the prior written consent of Citigroup Global Markets Inc.
(g) Except as stated in this Agreement and the Prospectus, neither the Fund nor the Adviser will take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Fund to facilitate the sale or resale of the Securities.
(h) The Fund agrees to pay the costs and expenses relating to the following matters: (i) the preparation, printing or reproduction and filing with the Commission of the Registration Statement (including financial statements and exhibits thereto), each Preliminary Prospectus, the Prospectus and the 1940 Act Notification and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Registration Statement, each Preliminary Prospectus, the Prospectus, any sales material and all amendments or supplements to any of them, as may, in each case, be reasonably requested for use in connection with the offering and sale of the Securities;
(iii) the preparation, printing, authentication, issuance and delivery of
certificates for the Securities, including any stamp or transfer taxes in
connection with the original issuance and sale of the Securities; (iv) the
printing (or reproduction) and delivery of this Agreement, any blue sky
memorandum, dealer agreements and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of
the Securities; (v) the registration of the Securities under the Exchange
Act and the listing of the Securities on the NYSE; (vi) any registration
or qualification of the Securities for offer and sale under the securities
or blue sky laws of the several states (including filing fees and the
reasonable fees and expenses of counsel for the Underwriters relating to
such registration and qualification); (vii) any filings required to be
made with the National Association of Securities Dealers, Inc. (including
filing fees and the reasonable fees and expenses of counsel for the
Underwriters relating to such filings); (viii) the transportation and
other expenses incurred by or on behalf of Fund representatives in
connection with presentations to prospective purchasers of the Securities;
(ix) the fees and expenses of the Fund's accountants and the fees and
expenses of counsel (including local and special counsel) for the Fund;
(x) all other costs and expenses incident to the performance by the Fund
of its obligations hereunder; and (xi) an amount equal to $.005 per Common
Share for each Common Share sold pursuant to this Agreement, payable no
later than 45 days from the date of this Agreement to the Underwriters in
partial reimbursement of their expenses (but not including reimbursement
for the cost of one tombstone advertisement in a newspaper that is
one-quarter of a newspaper page or less in size) in connection with the
offering. To the extent that the foregoing costs and expenses incidental
to the performance of the obligations of the Fund under this Agreement
exceed $0.03 per Common Share, the Adviser will pay all such costs and
expenses.
(i) The Fund will direct the investment of the net proceeds of the offering of the Securities in such a manner as to comply with the investment objectives, policies and restrictions of the Fund as described in the Prospectus.
(j) The Fund will comply with the requirements of Subchapter M of the Code to qualify as a regulated investment company under the Code.
(k) The Fund and the Adviser will use their reasonable best efforts to perform all of the agreements required of them by this Agreement and discharge all conditions of theirs to closing as set forth in this Agreement.
7. Conditions to the Obligations of the Underwriters. The obligations of the Underwriters to purchase the Underwritten Securities and the Option Securities, as the case may be, shall be subject to the accuracy of the representations and warranties on the part of the Fund and the Adviser contained herein as of the Execution Time, the Closing Date and any settlement date pursuant to Section 4 hereof, to the accuracy of the statements of the Fund made in any certificates pursuant to the provisions hereof, to the performance by the Fund or the Adviser of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to the Execution Time, unless the Representatives agree in writing to a later time, the Registration Statement will become effective not later than (i) 6:00 PM New York City time on the
date of determination of the public offering price, if such determination occurred at or prior to 3:00 PM New York City time on such date or (ii) 9:30 AM on the Business Day following the day on which the public offering price was determined, if such determination occurred after 3:00 PM New York City time on such date; if filing of the Prospectus, or any supplement thereto, is required pursuant to Rule 497, the Prospectus, and any such supplement, will be filed in the manner and within the time period required by Rule 497; and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened.
(b) You shall have received on the Closing Date an opinion of Vedder, Price, Kaufman & Kammholz, special counsel for the Fund, dated the Closing Date and addressed to the Representatives, in substantially the form attached as Exhibit A, which opinion may rely as to matters of Delaware law on the opinion of Morris, Nichols, Arsht & Tunnell, special Delaware counsel for the Fund, dated the Closing Date and addressed to the Representatives, in substantially the form attached as Exhibit B. The opinion of Morris, Nichols, Arsht & Tunnell shall state that Simpson Thacher & Bartlett LLP, counsel for the Underwriters, may rely on such opinion as to matters of Delaware law for the purposes of rendering its opinion referenced in Section 7(d).
(c) You shall have received on the Closing Date an opinion of Vedder, Price, Kaufman & Kammholz, special counsel for the Adviser, dated the Closing Date and addressed to the Representatives, in substantially the form attached as Exhibit C. The opinion of Vedder, Price, Kaufman & Kammholz shall state that Simpson Thacher & Bartlett LLP, counsel for the Underwriters, may rely on such opinion as to matters of Illinois law for the purposes of rendering its opinion referenced in Section 7(d).
(d) The Representatives shall have received from Simpson Thacher & Bartlett LLP, counsel for the Underwriters, such opinion or opinions, dated the Closing Date and addressed to the Representatives, with respect to the issuance and sale of the Securities, the Registration Statement, the Prospectus (together with any supplement thereto) and other related matters as the Representatives may reasonably require, and the Fund and the Adviser shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters.
(e) Each of the Fund and the Adviser shall have furnished to the Representatives a certificate, signed by the president, any managing director or any vice president and of the controller, treasurer or assistant treasurer of each of the Fund and the Adviser, dated the Closing Date, to the effect that the signers of such certificates have carefully examined the Registration Statement, the Prospectus, any supplements to the Prospectus and this Agreement and that:
(i) The representations and warranties of the Fund or the Adviser, as the case may be, in this Agreement are true and correct on and as of the Closing Date with the same effect as if made on the Closing Date and the Fund or the Adviser, as the case may be, have complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing
Date;
(ii) No stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Fund's or the Adviser's knowledge, as the case may be, threatened; and
(iii) Since the date of the most recent financial statements included in the Prospectus (exclusive of any supplement thereto) (with respect to the Fund), and since the date of the Prospectus (exclusive of any supplement thereto) (with respect to the Adviser), there has been no material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Fund or the Adviser, as the case may be, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto).
(f) The Fund shall have requested and caused Deloitte & Touche LLP to have furnished to the Representatives, at the Execution Time and at the Closing Date, letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance heretofore approved by the Representatives.
(g) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto), there shall not have been (i) any material change specified in the letter referred to in paragraph (f) of this Section 7 delivered on the Closing Date from the letter delivered at the Execution time or (ii) any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), earnings, business or properties of the Fund and the Adviser, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto) the effect of which, in any case referred to in clause (i) or (ii) above, is, in the sole judgment of the Representatives, so material and adverse as to make it impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto).
(h) The Securities shall have been listed and admitted and authorized for trading on the NYSE, and satisfactory evidence of such actions shall have been provided to the Representatives.
(i) Prior to the Closing Date, the Fund and the Adviser shall have furnished to the Representatives such further information, certificates and documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 7 shall not have been fulfilled when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Fund in writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 7 shall be delivered at the office of Simpson Thacher & Bartlett LLP, counsel for the Underwriters, at 425 Lexington Avenue, New York, New York, 10017, on the Closing Date.
8. Reimbursement of Underwriters' Expenses. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 7 hereof is not satisfied, because of any termination pursuant to Section 11 hereof or because of any refusal, inability or failure on the part of the Fund or the Adviser to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Underwriters, the Adviser will reimburse the Underwriters severally through Citigroup Global Markets Inc. on demand for all reasonable out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities.
9. Indemnification and Contribution. (a) The Fund and the Adviser, jointly and severally, agree to indemnify and hold harmless each of you and each other Underwriter, the directors, officers, employees and agents of each Underwriter and each person who controls any Underwriter within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several (including reasonable costs of investigation), to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Prospectus, any Preliminary Prospectus, any sales material (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Fund and Adviser will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Fund or Adviser by or on behalf of any Underwriter through the Representatives specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Fund and Adviser may otherwise have.
(b) Each Underwriter severally and not jointly agrees to indemnify and hold harmless each of the Fund and the Adviser, each of their directors, trustees, each officer who signs the Registration Statement, and each person who controls the Fund or the Adviser within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Fund and the Adviser to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Fund or the Adviser by or on behalf of such Underwriter through the Representatives specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any
liability which any Underwriter may otherwise have. The Fund and the Adviser
acknowledge that the statements set forth in the last paragraph of the cover
page regarding delivery of the Securities and, under the heading "Underwriting",
(i) the list of Underwriters and their respective participation in the sale of
the Securities, (ii) the sentences related to concessions and reallowances,
(iii) the paragraph related to stabilization, syndicate covering transactions
and penalty bids and (iv) the paragraph related to prospectuses in electronic
format in any Preliminary Prospectus and the Prospectus constitute the only
information furnished in writing by or on behalf of the several Underwriters for
inclusion in any Preliminary Prospectus or the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 9, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party.
(d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 9 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Fund, the Adviser and the Underwriters severally agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Fund, the Adviser and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) and by the Underwriters on the other from the offering of the Securities; provided, however, that in no case shall any Underwriter (except as may be provided in any agreement among underwriters relating to the offering of the Securities) be
responsible for any amount in excess of the underwriting discount or commission applicable to the Securities purchased by such Underwriter hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Fund, the Adviser and the Underwriters severally shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) and of the Underwriters on the other in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Fund and the Adviser (treated jointly for this purpose as one person) shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by it, and benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) or the Underwriters on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Fund, the Adviser and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9, each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Fund or the Adviser within the meaning of either the Act or the Exchange Act, each officer of the Fund and the Adviser who shall have signed the Registration Statement and each director of the Fund and the Adviser shall have the same rights to contribution as the Fund and the Adviser, subject in each case to the applicable terms and conditions of this paragraph (d).
(e) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability from claimants on claims that are the subject matter of such action, suit or proceeding.
(f) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Fund and the Adviser set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Fund, the Adviser or their shareholders,
trustees, directors, managers, members or officers or any person controlling the
Fund or the Adviser (control to be determined within the meaning of the Act or
the Exchange
Act), (ii) acceptance of any Securities and payment therefor hereunder and (iii) any termination of this Agreement. A successor to any Underwriter or to the Fund, the Adviser or their shareholders, trustees, directors, managers, members or officers or any person controlling any Underwriter, the Fund or the Adviser shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 9.
10. Default by an Underwriter. If any one or more Underwriters shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters or in
such other proportion as you may specify in accordance with the Citigroup Global
Markets Inc. Master Agreement Among Underwriters) the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase; provided,
however, that in the event that the aggregate amount of Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase shall
exceed 10% of the aggregate amount of Securities set forth in Schedule I hereto,
the remaining Underwriters shall have the right to purchase all, but shall not
be under any obligation to purchase any, of the Securities, and if such
nondefaulting Underwriters do not purchase all the Securities, this Agreement
will terminate without liability to any nondefaulting Underwriter, the Fund or
the Adviser. In the event of a default by any Underwriter as set forth in this
Section 10, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Fund and any nondefaulting Underwriter for damages occasioned by its default
hereunder.
11. Termination. This Agreement shall be subject to termination in the absolute discretion of the Representatives, without liability on the part of the Underwriters to the Fund or the Adviser, by notice given to the Fund or the Adviser prior to delivery of and payment for the Securities, if at any time prior to such time (i) trading in the Fund's Common Shares shall have been suspended by the Commission or the NYSE or trading in securities generally on the NYSE shall have been suspended or limited or minimum prices shall have been established on the NYSE, (ii) a banking moratorium shall have been declared either by Federal or New York State authorities or (iii) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war, or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Representatives, impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Prospectus (exclusive of any supplement thereto).
12. Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Fund and the Adviser or their officers and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Fund or the Adviser or any of the officers, trustees, directors, employees, agents or controlling persons referred to in Section 9 hereof, and will survive delivery of and payment for
the Securities. The provisions of Sections 8 and 9 hereof shall survive the termination or cancellation of this Agreement.
13. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed to the Citigroup Global Markets Inc. General Counsel (fax
no.: (212) 816-7912) and confirmed to the General Counsel, Citigroup Global
Markets Inc., at 388 Greenwich Street, New York, New York, 10013, Attention:
General Counsel; or, if sent to the Fund or the Adviser, will be mailed,
delivered or telefaxed to: c/o Calamos Asset Management, Inc. at 1111 E.
Warrenville Road, Naperville, Illinois 60563, Attention: General Counsel, (fax
no.: (630) 245-6343).
14. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers, trustees, directors, employees, agents and controlling persons referred to in Section 9 hereof, and no other person will have any right or obligation hereunder.
15. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York.
16. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement.
17. Headings. The section headings used herein are for convenience only and shall not affect the construction hereof.
18. Definitions. The terms which follow, when used in this Agreement, shall have the meanings indicated.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
"1940 Act Rules and Regulations" shall mean the rules and regulations of the Commission under the 1940 Act.
"1940 Act Notification" shall mean a notification of registration of the Fund as an investment company under the 1940 Act on Form N-8A, as the 1940 Act Notification may be amended from time to time.
"Act" shall mean the Securities Act of 1933, as amended.
"Act Rules and Regulations" shall mean the rules and regulations of the Commission under the Act.
"Advisers Act" shall mean the Investment Advisers Act of 1940, as amended.
"Advisers Act Rules and Regulations" shall mean the rules and regulations of the Commission under the Advisers Act.
"Business Day" shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.
"Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus (including the statement of additional information incorporated by reference therein) referred to in paragraph 1(a) above and any preliminary prospectus (including the statement of additional information incorporated by reference therein) included in the Registration Statement at the Effective Date that omits Rule 430A Information.
"Prospectus" shall mean the prospectus (including the statement of additional information incorporated by reference therein) relating to the Securities that is first filed pursuant to Rule 497 after the Execution Time or, if no filing pursuant to Rule 497 is required, shall mean the form of final prospectus (including the statement of additional information incorporated by reference therein) relating to the Securities included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement referred to in paragraph 1(a) above, including exhibits and financial statements, as amended at the Execution Time (or, if not effective at the Execution Time, in the form in which it shall become effective) and, in the event any post-effective amendment thereto or any Rule 462(b) Registration Statement becomes effective prior to the Closing Date, shall also mean such registration statement as so amended or such Rule 462(b) Registration Statement, as the case may be. Such term shall include any Rule 430A Information deemed to be included therein at the Effective Date as provided by Rule 430A.
"Rule 430A" and "Rule 462" refer to such rules under the Act.
"Rule 430A Information" shall mean information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration statement and any amendments thereto filed pursuant to Rule 462(b) relating to the offering covered by the registration statement referred to in Section 1(a) hereof.
"Rule 497" refers to Rule 497(c) or 497(h) under the Act, as applicable.
"Rules and Regulations" shall mean, collectively, the Act Rules and Regulations and the 1940 Act Rules and Regulations.
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Fund, the Adviser and the several Underwriters.
Very truly yours,
CALAMOS STRATEGIC TOTAL RETURN FUND
Title:
CALAMOS ASSET MANAGEMENT, INC.
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Citigroup Global Markets Inc.
By:
Name:
Title:
For itself and the other several
Underwriters named in Schedule I
to the foregoing Agreement.
SCHEDULE I
NUMBER OF UNDERWRITTEN
SECURITIES TO BE
UNDERWRITERS PURCHASED
------------ ---------
Citigroup Global Markets Inc.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
UBS Securities LLC
A.G. Edwards & Sons, Inc.
Advest, Inc.
H&R Block Financial Advisors, Inc.
Ferris, Baker Watts, Incorporated
Janney Montgomery Scott LLC
Legg Mason Wood Walker, Incorporated
McDonald Investments Inc., a KeyCorp Company
Oppenheimer & Co. Inc.
Quick & Reilly, Inc. A FleetBoston Financial
Company
RBC Capital Markets Corporation
TD Waterhouse Investor Services, Inc.
Wedbush Morgan Securities Inc.
Wells Fargo Securities, LLC
--------
Total............................ ========
|
EXHIBIT A
Opinions of Vedder, Price, Kaufman & Kammholz Regarding the Fund
1. The Fund has been duly formed and is validly existing in good standing as a statutory trust under the Delaware Act. The Fund has the statutory trust power and authority to own property and conduct its business as described in the Prospectus;
2. Under the Delaware Act and the Declaration, the execution and delivery of the Underwriting Agreement and each of the Fund Agreements by the Fund, and the performance by the Fund of its obligations thereunder, have been duly authorized by all requisite statutory trust action on the part of the Fund; the Underwriting Agreement and each of the Fund Agreements have been duly executed and delivered by the Fund; each of the Fund Agreements constitute the valid and binding agreement of the Fund enforceable against the Fund in accordance with its terms; and the Underwriting Agreement and each of the Fund Agreements comply with all applicable provisions of the 1940 Act and the 1940 Act Rules and Regulations and the Advisers Act and the Advisers Act Rules and Regulations;
3. To our knowledge, based solely on the Officer's Certificate (as that term is defined in the opinion of Morris, Nichols, Arsht and Tunnell), the ____ common shares of beneficial interest in the Fund purchased by the Adviser pursuant to the Subscription Agreement between the Fund and the Adviser dated ____, 2004 (the "Investment Adviser Shares") are the only common shares of beneficial interest in the Fund currently issued and outstanding other than any Shares issued and sold pursuant to the Underwriting Agreement. The Investment Adviser Shares have been duly authorized for issuance by the Fund, are validly issued and, subject to the qualifications below, fully paid and non-assessable beneficial interests in the Fund. The holder of the Investment Adviser Shares will be, subject to the terms of the Declaration, entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware; provided, however, that we express no opinion with respect to the liability of any holder of the Investment Adviser Shares who is, was or may become a named Trustee of the Fund;
4. The Shares have been duly authorized for issuance by the Fund and, when issued and delivered against payment therefor in accordance with the terms, conditions, requirements and procedures set forth in the Underwriting Agreement, will be validly issued and, subject to the qualifications below, fully paid and non-assessable beneficial interests in the Fund. The holders of Shares will be, subject to the terms of the Declaration, entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware; provided, however, that we express no opinion with respect to the liability of any holder of Shares who is, was or may become a named Trustee of the Fund;
5. Under the Declaration and the Delaware Act, the issuance of the Shares is not subject to preemptive rights;
6. The form of certificate evidencing the Shares complies with all applicable requirements of the Delaware Act and the NYSE;
7. The execution and delivery by the Fund of the Underwriting Agreement
and the Fund Agreements, the consummation by the Fund of the transactions
contemplated by the Underwriting Agreement and the Fund Agreements, the
performance by the Fund of its obligations thereunder, the issuance and sale by
the Fund of the Shares and the adoption of the Terms and Conditions of the
Automatic Dividend Reinvestment Plan of the Fund ("Automatic Dividend
Reinvestment Plan") will not violate (i) the Certificate or the Declaration or
(ii) any applicable Delaware law or administrative regulation;
8. None of the issuance and sale of the Shares by the Fund pursuant to the Underwriting Agreement, the execution and delivery of the Underwriting Agreement or any of the Fund Agreements by the Fund, or the performance by the Fund of its agreements under the Underwriting Agreement or any of the Fund Agreements or the adoption of the Automatic Dividend Reinvestment Plan (A) requires any consent, approval, authorization or other order of or registration or filing with, the Commission, the National Association of Securities Dealers, Inc., or any national securities exchange, or governmental body or agency, or arbitrator or court of the United States of America, or State of Illinois or State of Delaware or, based solely on the Docket Search, an order of any Delaware Court (as that term is defined in the opinion of Morris, Nichols, Arsht & Tunnell) (except (1) the absence of which, either individually or in the aggregate, would not have a material adverse effect on the Fund or the offering of the Shares as contemplated in the Underwriting Agreement; (2) such as may have been obtained prior to the date hereof; and (3) such as may be required for compliance with state securities or blue sky laws of various jurisdictions) or (B) violates or will violate or constitutes or will constitute a breach of any of the provisions of the Organizational Documents of the Fund or (C) violates or will violate or constitutes or will constitute a breach of, or a default under, any material agreement, indenture, lease or other instrument known to us to which the Fund is party or by which it or any of its properties may be bound, or violates any existing material United States of America or State of Illinois or State of Delaware statute, law or regulation (assuming compliance with all applicable state securities and blue sky laws, and except that, in the published opinion of the Commission, the indemnification provisions in the Underwriting Agreement and the Fund Agreements, insofar as they relate to indemnification for liabilities arising under the 1933 Act, are against public policy as expressed in the 1933 Act and therefore unenforceable), or violates any judgment, injunction, order or decree known to us to be applicable to the Fund or any of its properties, or will result in the creation or imposition of any material lien, charge or encumbrance upon any property or assets of the Fund pursuant to the terms of any agreement or instrument known to us to which the Fund is a party or by which any of its property or assets is bound. To the best of our knowledge, the Fund is not subject to any order of any court or of any arbitrator, governmental authority or administrative agency of the United States of America or the State of Illinois;
9. Based solely on the Docket Search, there is not any Delaware court action, suit or proceeding pending against the Fund.
10. The Registration Statement is effective under the 1933 Act and was filed under the 1940 Act; any required filing of the Prospectus pursuant to Rule 497 of the 1933 Act Rules and Regulations has been made within the time periods required by Rule 497; no stop-order suspending the effectiveness of the Registration Statement or order pursuant to Section 8(e) of
the 1940 Act has been issued and to the best of our knowledge, no proceeding for any such purpose has been instituted or is pending or threatened in writing by the Commission;
11. The Fund is registered under the 1940 Act as a closed-end diversified management investment company;
12. The description of the authorized shares of beneficial interest of the Fund contained in the first paragraph under the caption "Description of Shares" and under the caption "Description of Shares -- Common Shares" in the Prospectus conforms in all material respects as to legal matters to the terms thereof contained in the Fund's Declaration;
13. The statements made in the Prospectus under the captions "U.S. Federal Income Tax Matters," insofar as they constitute matters of law or legal conclusions, have been reviewed by us and constitute accurate statements of any such matters of law or legal conclusions;
14. The Registration Statement and the Prospectus and each amendment or supplement to the Registration Statement and the Prospectus as of their respective issue dates (except the financial statements and other financial data contained therein, as to which we express no opinion) comply as to form in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations;
15. To the best of our knowledge, there are no legal or governmental proceedings pending or threatened in writing against the Fund, or to which the Fund or any of its properties is subject, that are required to be described in the Registration Statement or the Prospectus, but are not described therein as required;
16. To the best of our knowledge, there are no material agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus, or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the 1933 Act, the 1940 Act or the Rules and Regulations; and
17. The Shares are duly authorized for listing, subject to official notice of issuance, on the NYSE and the Fund's registration statement on Form 8-A under the 1934 Act is effective.
We have participated in conferences with officers and employees of the Fund, Adviser, representatives of the independent auditors for the Fund, special Delaware counsel to the Fund, the Underwriters and counsel for the Underwriters at which the contents of the Registration Statement and the Prospectus and related matters were discussed and, although we are not passing upon, and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, except to the limited extent otherwise covered by paragraphs 12 and 13 hereof and have made no independent check or verification thereof, on the basis of the foregoing, no facts have come to our attention that would have led us to believe that (a) the Registration Statement, at the time it became effective, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (b) the Prospectus, as of its date and as of the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading, or (c) the
1940 Act Notification as of ___, 2004 contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading, except that in each case we express no belief with respect to the financial statements, schedules and other financial information and statistical data included therein or excluded therefrom or the exhibits to the Registration Statement.
EXHIBIT B
Opinions of Morris, Nichols, Arsht & Tunnell
1. The Fund has been duly formed and is validly existing in good standing as a statutory trust under the Delaware Act. The Fund has the statutory trust power and authority to own property and conduct its business as described in the Prospectus.
2. Under the Delaware Act and the Governing Instrument, the execution and delivery of the Underwriting Agreement and each of the Fund Agreements by the Fund, and the performance by the Fund of its obligations thereunder, have been duly authorized by all requisite statutory trust action on the part of the Fund.
3. To our knowledge, based solely on the Officer's Certificate, the Investment Advisor Shares are the only Shares currently issued and outstanding other than any Common Shares issued and sold pursuant to the Underwriting Agreement. The Investment Advisor Shares have been duly authorized for issuance by the Fund, are validly issued and, subject to the qualifications below, fully paid and non-assessable beneficial interests in the Series. The holder of the Investment Advisor Shares will be, subject to the terms of the Governing Instrument, entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware; provided, however, that we express no opinion with respect to the liability of any holder of the Investment Advisor Shares who is, was or may become a named Trustee of the Fund.
4. The Common Shares have been duly authorized for issuance by the Fund and, when issued and delivered against payment therefor in accordance with the terms, conditions, requirements and procedures set forth in the Underwriting Agreement, will be validly issued and, subject to the qualifications below, fully paid and non-assessable beneficial interests in the Series. The holders of Common Shares will be, subject to the terms of the Governing Instrument, entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware; provided, however, that we express no opinion with respect to the liability of any holder of Common Shares who is, was or may become a named Trustee of the Fund.
5. Under the Governing Instrument and the Delaware Act, the issuance of the Common Shares is not subject to preemptive rights.
6. The form of Common Shares Certificate complies with all applicable requirements of the Delaware Act.
7. No authorization, approval, consent or order of any governmental authority or agency of the State of Delaware or, based solely on the Docket Search, an order of any Delaware Court, is required to be obtained by the Fund solely as a result of the issuance and sale of the Common Shares, the consummation by the Fund of the transactions contemplated by the
Underwriting Agreement and the Fund Agreements or the performance by the Fund of its obligations thereunder, or the adoption of the Automatic Dividend Reinvestment Plan.
8. The execution and delivery by the Fund of the Underwriting Agreement and the Fund Agreements, the consummation by the Fund of the transactions contemplated by the Underwriting Agreement and the Fund Agreements, the performance by the Fund of its obligations thereunder, the issuance and sale by the Fund of the Common Shares and the adoption of the Automatic Dividend Reinvestment Plan will not violate (i) the Certificate or the Governing Instrument or (ii) any applicable Delaware law or administrative regulation.
9. Based solely on the Docket Search, there is not in any Delaware Court any action, suit or proceeding pending against the Fund.
With respect to the opinions expressed in paragraphs 3 and 4 above, we note that, pursuant to Section 2 of Article VIII of the Governing Instrument, the Trustees have the power to cause each Shareholder, or each Shareholder of any particular Series, to pay directly, in advance or arrears, for charges of the Fund's custodian or transfer, shareholder servicing or similar agent, an amount fixed from time to time by the Trustees, by setting off such charges due from such Shareholder from declared but unpaid dividends owed such Shareholder and/or by reducing the number of Shares in the account of such Shareholder by that number of full and/or fractional Shares which represents the outstanding amount of such charges due from such Shareholder.
EXHIBIT C
Opinions of Vedder, Price, Kaufman & Kammholz Regarding the Adviser
1. The Adviser is validly existing as a corporation in good standing under the laws of the State of Illinois.
2. The Adviser has full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Underwriting Agreement, the Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement.
3. The Adviser is registered with the Commission as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules and Regulations from acting under the Management Agreement, the Structuring Fee Agreements or the Additional Compensation Agreement as contemplated by the Prospectus.
4. The Underwriting Agreement, the Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement have been duly authorized by all requisite corporate action on the part of the Adviser, have each been duly executed and delivered on behalf of the Adviser, and each of the Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement constitutes a valid and binding obligation of the Adviser, enforceable against the Adviser in accordance with its terms.
5. To the best of our knowledge, there is not pending or threatened in writing any action, suit, proceeding, inquiry or investigation, to which the Adviser is a party, or to which the property of the Adviser is subject, before or brought by any court or governmental agency or body, which might reasonably be expected to (i) result in any material adverse change in the condition, financial or otherwise, earnings, business affairs or business prospects of the Adviser, (ii) materially and adversely affect the properties or assets of the Adviser or (iii) materially impair or adversely affect the ability of the Adviser to function as an investment adviser or perform its obligations under the Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement, or which is required to be disclosed in the Registration Statement or the Prospectus.
6. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency of the United States of America or the State of Illinois (other than (i) under the 1933 Act, the 1940 Act and the Rules and Regulations; (ii) such as have been obtained; and (iii) as may be required under the securities or blue sky laws of the various states, as to each of which we express no opinion) is necessary or required in connection with the performance by the Adviser of its obligations under the Underwriting Agreement, the
Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement.
7. The execution and delivery of the Underwriting Agreement, the Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement by the Adviser, and performance by the Adviser of its obligations thereunder do not and will not, whether with or without the giving of notice or lapse of time or both: (A) result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Adviser, or (B) violate or constitute a breach of, or default under any material contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other material agreement or instrument known to us and to which the Adviser is a party or by which it may be bound, or to which any of the property or assets of the Adviser is subject, or (C) violate any applicable federal or State of Illinois law, statute, rule, regulation, or any judgment, order, writ or decree, known to us, of any governmental authority or administrative agency of the United States of America or the State of Illinois (except in each case for such violations, breaches or defaults or liens, charges or encumbrances that would not have a material adverse effect on the ability of the Adviser to perform its obligations under the Management Agreement, the Structuring Fee Agreements and the Additional Compensation Agreement) nor will such action result in any violation of the provisions of the Organizational Documents of the Adviser.
EXHIBIT h.2
MASTER SELECTED DEALER AGREEMENT
July 1, 1999
Ladies and Gentlemen:
In connection with registered public offerings of securities for which we are acting as manager or co-manager of an underwriting syndicate or unregistered offerings of securities for which we are acting as manager or co-manager of the initial purchasers, you may be offered the right as a selected dealer to purchase as principal a portion of such securities. This will confirm our mutual agreement as to the general terms and conditions applicable to your participation in any such selected dealer group.
1. APPLICABILITY OF THIS AGREEMENT. The terms and conditions of this Agreement shall be applicable to any offering of securities ("Securities"), whether pursuant to a registration statement filed under the Securities Act of 1933, as amended (the "Securities Act"), or exempt from registration thereunder, in respect of which Salomon Smith Barney Inc. (acting for its own account or for the account of any underwriting or similar group or syndicate) is responsible for managing or otherwise implementing the sale of the Securities to selected dealers ("Selected Dealers") and has expressly informed you that such terms and conditions shall be applicable. Any such offering of Securities to you as a Selected Dealer is hereinafter called an "Offering". In the case of any Offering where we are acting for the account of any underwriting or similar group or syndicate ("Underwriters"), the terms and conditions of this Agreement shall be for the benefit of, and binding upon, such Underwriters, including, in the case of any Offering where we are acting with others as representatives of Underwriters, such other representatives.
2. CONDITIONS OF OFFERING; ACCEPTANCE AND PURCHASES. Any Offering will
be subject to delivery of the Securities and their acceptance by us and any
other Underwriters, may be subject to the approval of all legal matters by
counsel and the satisfaction of other conditions, and may be made on the basis
of reservation of Securities or an allotment against subscription. We will
advise you by telecopy, telex or other form of written communication ("Written
Communication", which term, in the case of any Offering described in Section
3(a) or 3(b) hereof, may include a prospectus or offering circular) of the
particular method and supplementary terms and conditions (including, without
limitation, the information as to prices and the offering date referred to in
Section 3(c) hereof) of any Offering in which you are invited to participate. To
the extent such supplementary terms and conditions are inconsistent with any
provision herein, such terms and conditions shall supersede any such provision.
Unless otherwise indicated in any such Written Communication, acceptances and
other communications by you with respect to an Offering should be sent to the
appropriate Syndicate Department of Salomon Smith Barney Inc. We may close the
subscription books at any time in our sole discretion without notice, and we
reserve the right to reject any acceptance in whole or in part.
Unless notified otherwise by us, Securities purchased by you shall be paid for on such date as we shall determine, on one day's prior notice to you, by wire transfer payable in immediately available funds to the order of Salomon Smith Barney Inc., in an amount equal to the Public Offering Price (as hereinafter defined) or, if we shall so advise you, at such Public Offering Price less the Concession (as hereinafter defined). If Securities are purchased and paid for at such Public Offering Price, such Concession will be paid after the termination of the provisions of Section 3(c) hereof with respect to such Securities. Unless notified otherwise by us, payment for and delivery of Securities purchased by you shall be made through the facilities of The Depository Trust Company, if you are a member, unless you have otherwise notified us prior to the date specified in a Written Communication to you from us or, if you are not a member, settlement may be made through a correspondent who is a member pursuant to instructions which you will send to us prior to such specified date.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) REGISTERED OFFERINGS. In the case of any Offering of Securities which are registered under the Securities Act ("Registered Offering"), we will make available to you as soon as practicable after sufficient copies are made available to us by the issuer of the Securities such number of copies of each preliminary prospectus and of the final prospectus relating thereto as you may reasonably request for the purposes contemplated by the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the applicable rules and regulations of the Securities and Exchange Commission thereunder.
You represent and warrant that you are familiar with Rule 15c2-8 under the Exchange Act relating to the distribution of preliminary and final prospectuses and agree that you will comply therewith. You agree to make a record of your distribution of each preliminary prospectus and when furnished with copies of any revised preliminary prospectus, you will promptly forward copies thereof to each person to whom you have theretofore distributed a preliminary prospectus.
You agree that in purchasing Securities in a Registered Offering you will rely upon no statement whatsoever, written or oral, other than the statements in the final prospectus delivered to you by us. You will not be authorized by the issuer or other seller of Securities offered pursuant to a prospectus or by any Underwriters to give any information or to make any representation not contained in the prospectus in connection with the sale of such Securities.
(b) OFFERINGS PURSUANT TO OFFERING CIRCULAR. In the case of any Offering of Securities, other than a Registered Offering, which is made pursuant to an offering circular or other document comparable to a prospectus in a Registered Offering, we will make available to you as soon as practicable after sufficient copies are made available to us by the issuer of the Securities such number of copies of each preliminary offering circular and of the final offering circular relating thereto as you may reasonably request. You agree that you will comply with applicable Federal, state and other laws, and the applicable rules and regulations of any regulatory body promulgated thereunder, governing the use and distribution of offering circulars by brokers or dealers.
You agree that in purchasing Securities pursuant to an offering circular you will rely upon no statements whatsoever, written or oral, other than the statements in the
final offering circular delivered to you by us. You will not be authorized by the issuer or other seller of Securities offered pursuant to an offering circular or by any Underwriters to give any information or to make any representation not contained in the offering circular in connection with the sale of such Securities.
(c) OFFER AND SALE TO THE PUBLIC. The Offering of Securities is made
subject to the conditions referred to the prospectus or offering circular
relating to the Offering and to the terms and conditions set forth in this
Agreement. With respect to any Offering of Securities, we will inform you by a
Written Communication of the public offering price, the selling concession, the
reallowance (if any) to dealers and the time when you may commence selling
Securities to the public. After such public offering has commenced, we may
change the public offering price, the selling concession and the reallowance to
dealers. The offering price, selling concession and reallowance (if any) to
dealers at any time in effect with respect to an Offering are hereinafter
referred to, respectively, as the "Public Offering Price", the "Concession" and
the "Reallowance". With respect to each Offering of Securities, until the
provisions of this Section 3(c) shall be terminated pursuant to Section 4
hereof, you agree to offer Securities to the public only at the Public Offering
Price, except that if a Reallowance is in effect, a Reallowance from the Public
Offering Price not in excess of such Reallowance may be allowed as consideration
for services rendered in distribution to dealers who are actually engaged in the
investment banking or securities business who are either members in good
standing of the NASD who agree to abide by the applicable rules of the NASD (see
Section 3(e) below) or foreign banks, dealers or institutions not eligible for
membership in the NASD who represent to you that they will promptly reoffer such
Securities at the Public Offering Price and will abide by the conditions with
respect to foreign banks, dealers and institutions set forth in Section 3(e)
hereof.
(d) OVER-ALLOTMENT; STABILIZATION; UNSOLD ALLOTMENTS. We may, with respect to any Offering, be authorized to over-allot in arranging sales to Selected Dealers, to purchase and sell Securities for long or short account and to stabilize or maintain the market price of the Securities. You agree that upon our request at any time and from time to time prior to the termination of the provisions of Section 3(c) hereof with respect to any Offering, you will report to us the amount of Securities purchased by you pursuant to such Offering which then remain unsold by you and will, upon our request at any such time, sell to us for our account or the account of one or more Underwriters such amount of such unsold Securities as we may designate at the Public Offering Price less an amount to be determined by us not in excess of the Concession. If, prior to the later of (a) the termination of the provisions of Section 3(c) hereof with respect to any Offering, or (b) the covering by us of any short position created by us in connection with such Offering for our account or the account of one or more Underwriters, we purchase or contract to purchase for our account or the account of one or more Underwriters in the open market or otherwise any Securities purchased by you under this Agreement as part of such Offering, you agree to pay us on demand for the account of the Underwriters an amount equal to the Concession with respect to such Securities (unless you shall have purchased such Securities pursuant to Section 2 hereof at the Public Offering Price and you have not received or been credited with any Concession, in which case we shall not be obligated to pay such Concession to you pursuant to Section 2) plus transfer taxes and broker's commissions or dealer's mark-up, if any, paid in connection with such purchase or contract to purchase.
(e) NASD. You represent and warrant that you are actually engaged in the
investment banking or securities business and either are a member in good standing of the NASD or, if you are not such a member, you are a foreign bank, dealer or institution not eligible for membership in the NASD which agrees to make no sales within the United State, its territories or its possessions or to persons who are citizens thereof or residents therein, and in making other sales to comply with the NASD's interpretation with respect to free-riding and withholding. You further represent, by your participation in an Offering, that you have provided to us all documents and other information required to be filed with respect to you, any related person or any person associated with you or any such related person pursuant to the supplementary requirements of the NASD's interpretation with respect to review of corporate financing as such requirements relate to such Offering.
You agree that, in connection with any purchase or sale of the Securities wherein a selling concession, discount or other allowance is received or granted, you will (a) if you are a member of the NASD, comply with all applicable interpretive material ("IM") and Conduct Rules of the NASD, including, without limitation, IM 2110-1 (relating to Free-Riding and Withholding) and Conduct Rule 2740 (relating to Selling Concessions, Discounts and Other Allowances) or (b) if you are a foreign bank or dealer or institution not eligible for such membership, comply with IM 2110-1 and with Conduct Rules 2730 (relating to Securities Taken in Trade), 2740 (relating to Selling Concessions) and 2750 (relating to Transactions With Related Persons) as though you were such a member and Conduct Rule 2420 (relating to Dealing with Non-Members) as it applies to a non-member broker or dealer in a foreign country.
You further agree that, in connection with any purchase of securities from us that is not otherwise covered by the terms of this Agreement (whether we are acting as manager, as member of an underwriting syndicate or a selling group or otherwise), if a selling concession, discount or other allowance is granted to you, clauses (a) and (b) of the preceding paragraph will be applicable.
(f) RELATIONSHIP AMONG UNDERWRITERS AND SELECTED DEALERS. We may buy Securities from or sell Securities to any Underwriter or Selected Dealer and, with our consent, the Underwriters (if any) and the Selected Dealers may purchase Securities from and sell Securities to each other at the Public Offering Price less all or any part of the Concession. We shall have full authority to take such action as we deem advisable in all matters pertaining to any Offering under this Agreement. You are not authorized to act as agent for us, any Underwriter or the issuer or other seller of any Securities in offering Securities to the public or otherwise. Neither we nor any Underwriter shall be under any obligation to you except for obligations assumed hereby or in any Written Communication from us in connection with any Offering. Nothing contained herein or in any Written Communication from us shall constitute the Selected Dealers an association or partners with us or any Underwriter or with one another. If the Selected Dealers, among themselves or with the Underwriters, should be deemed to constitute a partnership for Federal income tax purposes, then you elect to be excluded from the application of Subchapter K, Chapter 1, Subtitle A of the Internal Revenue Code of 1986 and agree not to take any position inconsistent with that election. You authorize us, in our discretion, to execute and file on your behalf such evidence of that election as may be required by the Internal Revenue Service. In connection with any Offering you shall be liable for your proportionate amount of any tax, claim, demand or liability that may be asserted against you alone or against one or more Selected Dealers participating in such Offering, or against us or the Underwriters, based upon the claim that the Selected
Dealers, or any of them constitute an association, an unincorporated business or other entity, including, in each case, your proportionate amount of any expense incurred in defending against any such tax, claim, demand or liability.
(g) BLUE SKY LAWS. Upon application to us, we shall inform you as to any advice we have received from counsel concerning the jurisdictions in which Securities have been qualified for sale or are exempt under the securities or blue sky laws of such jurisdictions, but we do not assume any obligation or responsibility as to your right to sell Securities in any such jurisdiction.
(h) COMPLIANCE WITH LAW. You agree that in selling Securities pursuant to any Offering (which agreement shall also be for the benefit of the issuer or other seller of such Securities), you will comply with all applicable laws, rules and regulations, including the applicable provisions of the Securities Act and the Exchange Act, the applicable rules and regulations of the Securities and Exchange Commission thereunder, the applicable rules and regulations of the NASD, the applicable rules and regulations of any securities exchange or other regulatory authority having jurisdiction over the Offering and the applicable laws, rules and regulations specified in Section 3(b) hereof. Without limiting the foregoing, (a) you agree that, at all times since you were invited to participate in an Offering of Securities, you have complied with the provisions of Regulation M applicable to such Offering, in each case after giving effect to any applicable exemptions and (b) you represent that your incurrence of obligations hereunder in connection with any Offering of Securities will not result in the violation by you of Rule 15c3-1 under the Exchange Act, if such requirements are applicable to you.
4. TERMINATION; SUPPLEMENTS AND AMENDMENTS. This Agreement shall
continue in full force and effect until terminated by a written instrument
executed by each of the parties hereto. This Agreement may be supplemented or
amended by us by written notice thereof to you, and any such supplement or
amendment to this Agreement shall be effective with respect to any Offering to
which this Agreement applies after the date of such supplement or amendment.
Each reference to "this Agreement" herein shall, as appropriate, be to this
Agreement as so amended and supplemented. The terms and conditions set forth in
Section 3(c) hereof with regard to any Offering will terminate at the close of
business on the 30th day after the commencement of the public offering of the
Securities to which such Offering relates, but in our discretion may be extended
by us for a further period not exceeding 30 days and in our discretion, whether
or not extended, may be terminated at any earlier time.
5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on, and
inure to the benefit of, the parties hereto and other persons specified in
Section 1 hereof, and the respective successors and assigns of each of them.
6. GOVERNING LAW. This Agreement and the terms and conditions set forth herein with respect to any Offering together with such supplementary terms and conditions with respect to such Offering as may be contained in any Written Communication from us to you in connection therewith shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed within the State of New York.
Please confirm by signing and returning to us the enclosed copy of this Agreement that your subscription to or your acceptance of any reservation of any Securities
pursuant to an Offering shall constitute (i) acceptance of and agreement to the
terms and conditions of this Agreement (as supplemented and amended pursuant to
Section 4 hereof; together with and subject to any supplementary terms and
conditions contained in any Written Communication from us in connection with
such Offering, all of which shall constitute a binding agreement between you and
us, individually or as representative of any Underwriters, (ii) confirmation
that your representations and warranties set forth in Section 3 hereof are true
and correct at that time, (iii) confirmation that your agreements set forth in
Sections 2 and 3 hereof have been and will be fully performed by you to the
extent and at the times required thereby and (iv) in the case of any Offering
described in Section 3(a) or 3(b) hereof, acknowledgment that you have requested
and received from us sufficient copies of the final prospectus or offering
circular, as the case may be, with respect to such Offering in order to comply
with your undertakings in Section 3(a) or 3(b) hereof.
Very truly yours,
SALOMON SMITH BARNEY INC.
By: ______________________________________
Name:
Title:
CONFIRMED:................................1999
..............................................
(Name of Dealer)
by:...........................................
Name:
Title:
Address: _____________________________________
Telephone:
Fax: _____________________________________
EXHIBIT h.3
MASTER AGREEMENT AMONG UNDERWRITERS
REGISTERED SEC OFFERINGS
(INCLUDING MULTIPLE SYNDICATE OFFERINGS),
STANDBY UNDERWRITINGS AND EXEMPT OFFERINGS
(OTHER THAN OFFERINGS OF MUNICIPAL SECURITIES)
July 1, 1999
Ladies and Gentlemen:
From time to time SALOMON SMITH BARNEY INC. ("SALOMON SMITH BARNEY") may invite you (and others) to participate on the terms set forth herein as an underwriter or an initial purchaser, or in a similar capacity, in connection with certain offerings of securities that are managed solely by us or with one or more other co-managers. If we invite you to participate in a specific offering and sale (an "OFFERING") to which this Master Agreement Among Underwriters (the "SALOMON SMITH BARNEY MASTER AAU") shall apply, we will send the information set forth below in Section 1.1 to you by one or more wires, telexes, facsimile or electronic data transmissions or other written communications (each a "WIRE" and collectively, an "AAU"). Each Wire will indicate that it is a Wire pursuant to the SALOMON SMITH BARNEY MASTER AAU. The Wire inviting you to participate in an Offering is referred to herein as the "INVITATION WIRE". You and we hereby agree that by the terms hereof the provisions of this SALOMON SMITH BARNEY MASTER AAU automatically shall be incorporated by reference in each AAU, EXCEPT THAT ANY SUCH AAU MAY ALSO EXCLUDE OR REVISE ANY PROVISION OF THIS SALOMON SMITH BARNEY MASTER AAU OR MAY CONTAIN SUCH ADDITIONAL PROVISIONS AS MAY BE SPECIFIED IN SUCH AAU.
I. GENERAL
1.1. TERMS OF AAU; CERTAIN DEFINITIONS; CONSTRUCTION. Each AAU shall relate to an Offering and shall identify (i) the securities to be offered in the Offering (the "SECURITIES"), their principal terms, the issuer or issuers (each an "ISSUER") and any guarantor (each a "GUARANTOR") thereof and, if different from the Issuer, the seller or sellers (each a "SELLER") of the Securities, (ii) the underwriting agreement, purchase agreement, standby underwriting agreement, distribution agreement or similar agreement (as identified in such AAU and as amended or supplemented, including a terms agreement or pricing agreement pursuant to any of the foregoing, collectively, the "UNDERWRITING AGREEMENT") providing for the purchase, on a several and not joint basis, of the Securities by the several underwriters, initial purchasers or others acting in a similar capacity on whose behalf the Manager (as defined below) executes the Underwriting Agreement (including the Manager and the Co-Managers (as defined below), the "UNDERWRITERS"), (iii) if applicable, that the Underwriting Agreement includes
an option (an "OVER-ALLOTMENT OPTION") to purchase Additional Securities (as defined below) to cover over-allotments, if any, (iv) if applicable, that the Offering is part of an offering that includes concurrent offerings by two or more syndicates (an "INTERNATIONAL OFFERING"), each of which will offer and sell Securities subject to such restrictions as shall be specified in any Intersyndicate Agreement (as defined below) referred to in such AAU, (v) the price at which the Securities are to be purchased by the several Underwriters from any Issuer or Seller thereof (the "PURCHASE PRICE"), (vi) the offering terms, including, if applicable, the price or prices at which the Securities initially will be offered by the Underwriters (the "OFFERING PRICE"), any selling concession to dealers (the "SELLING CONCESSION"), reallowance (the "REALLOWANCE"), management fee, global coordinators' fee, praecipium or other similar fees, discounts or commissions (collectively, the "FEES AND COMMISSIONS") with respect to the Securities, (vii) the proposed pricing date ("PRICING DATE") and settlement date (the "SETTLEMENT DATE"), (viii) any contractual restrictions on the offer and sale of the Securities pursuant to the Underwriting Agreement, Intersyndicate Agreement or otherwise, (ix) any co-managers for such Offering (the "CO-MANAGERS"), (x) your proposed participation in the Offering, (xi) if applicable, the trustee, fiscal agent or similar agent (the "TRUSTEE") for the indenture, trust agreement, fiscal agency agreement or similar agreement (the "INDENTURE") under which such Securities will be issued and (xii) any other principal terms of the Offering.
The term "MANAGER" means SALOMON SMITH BARNEY. The term "UNDERWRITERS" includes the Manager and the Co-Managers. The term "FIRM SECURITIES" means the number or amount of Securities that the several Underwriters are initially committed to purchase under the Underwriting Agreement (which may be expressed as a percentage of an aggregate number or amount of Securities to be purchased by the Underwriters as in the case of a standby Underwriting Agreement). The term "ADDITIONAL SECURITIES" means the Securities, if any, that the several Underwriters have an option to purchase under the Underwriting Agreement to cover over-allotments, if any. The number, amount or percentage of Firm Securities set forth opposite each Underwriter's name in the Underwriting Agreement plus any additional Firm Securities that such Underwriter has become obligated to purchase under the Underwriting Agreement or Article XI hereof is hereinafter referred to as the "ORIGINAL PURCHASE OBLIGATION" of such Underwriter and the ratio which such Original Purchase Obligation bears to the total of all Firm Securities set forth in the Underwriting Agreement (or, in the case of a standby Underwriting Agreement, to 100%) is hereinafter referred to as the "UNDERWRITING PERCENTAGE" of such Underwriter.
References herein to statutory sections, rules, regulations, forms and interpretive materials shall be deemed to include any successor provisions.
1.2. ACCEPTANCE OF AAU. You shall have accepted an AAU for an Offering if we receive your acceptance, prior to the time specified in the Invitation Wire for such Offering, by wire, telex, facsimile or electronic data transmission or other written communication (any such manner of communication being deemed "IN WRITING") (or orally, if promptly confirmed In Writing) in the manner specified in the Invitation Wire, of our invitation to participate in the Offering. If we receive your timely acceptance of the
invitation to participate, such AAU shall constitute a valid and binding contract between us. Your acceptance of the Invitation Wire shall also constitute acceptance by you of the terms of subsequent Wires to you relating to the Offering unless we receive In Writing, within the time and in the manner specified in such subsequent Wire, a notice from you to the effect that you do not accept the terms of such subsequent Wire, in which case you shall be deemed to have elected not to participate in the Offering.
1.3. UNDERWRITERS' QUESTIONNAIRE. Your acceptance of the Invitation Wire shall confirm that you have no exceptions to the Underwriters' Questionnaire attached as Exhibit A hereto (or to any other questions addressed to you in any Wires relating to the Offering previously sent to you), other than exceptions noted by you In Writing in connection with the Offering and received from you by us before the time specified in the Invitation Wire or any subsequent Wire.
II. OFFERING MATERIALS
2.1. REGISTERED OFFERINGS. In the case of an Offering that will be registered in whole or in part (a "REGISTERED OFFERING") under the United States Securities Act of 1933, as amended (the "1933 ACT"), you understand that the Issuer has filed with the Securities and Exchange Commission (the "COMMISSION") a registration statement including a prospectus relating to the Securities. The term "REGISTRATION STATEMENT" means such registration statement as amended or deemed to be amended to the effective date of the Underwriting Agreement and, in the event that the Issuer files an abbreviated registration statement to register additional Securities pursuant to Rule 462(b) under the 1933 Act, such abbreviated registration statement. The term "PROSPECTUS" means the prospectus, together with the final prospectus supplement, if any, relating to the Offering first used to confirm sales of Securities and, in the case of a Registered Offering that is an International Offering, the term "PROSPECTUS" shall mean, collectively, each prospectus or offering circular, together with each final prospectus supplement or final offering circular supplement, if any, relating to the Offering, in the respective forms first used or made available for use to confirm sales of Securities. The term "PRELIMINARY PROSPECTUS" means any preliminary prospectus relating to the Offering or any preliminary prospectus supplement together with a prospectus relating to the Offering and, in the case of a Registered Offering that is an International Offering, the term "PRELIMINARY PROSPECTUS" shall mean, collectively, each preliminary prospectus or preliminary offering circular relating to the Offering or each preliminary prospectus supplement or preliminary offering circular supplement, together with a prospectus or offering circular, respectively, relating to the Offering. As used herein the terms "REGISTRATION STATEMENT", "PROSPECTUS" and "PRELIMINARY PROSPECTUS" shall include in each case the material, if any, incorporated by reference therein. The Manager will furnish to you, or make arrangements for you to obtain, copies of each Prospectus and Preliminary Prospectus (but excluding for this purpose, unless otherwise required pursuant to regulations under the 1933 Act, documents incorporated therein by reference) as soon as practicable after sufficient quantities thereof have been made available by the Issuer.
2.2. UNREGISTERED OFFERINGS. In the case of an Offering other than a Registered Offering, you understand that no registration statement has been filed with the Commission. The term "OFFERING CIRCULAR" means an offering circular or memorandum, if any, or any other written materials authorized by the Issuer to be used in connection with an Offering that is not a Registered Offering. The term "PRELIMINARY OFFERING CIRCULAR" means any preliminary offering circular or memorandum, if any, or any other written preliminary materials authorized by the Issuer to be used in connection with such an Offering. As used herein, the terms "OFFERING CIRCULAR" and "PRELIMINARY OFFERING CIRCULAR" shall include the material, if any, incorporated by reference therein. We will either, as soon as practicable after the later of the date of the Invitation Wire or the date made available to us by the Issuer, furnish to you (or make available for your review in our office) a copy of any Preliminary Offering Circular or any proof or draft of the Offering Circular. In any event, in any Offering involving an Offering Circular, the Manager will furnish to you, or make arrangements for you to obtain, as soon as practicable after sufficient quantities thereof are made available by the Issuer, copies of the final Offering Circular, as amended or supplemented, if applicable (but excluding for this purpose documents incorporated therein by reference).
III. MANAGER'S AUTHORITY
3.1. AUTHORITY OF MANAGER TO DETERMINE FORM OF DOCUMENTS, TERMS OF
OFFERING, ETC. You authorize the Manager to act as lead manager of the Offering
of the Securities by the Underwriters (the "UNDERWRITERS' SECURITIES") or by the
Issuer or Seller pursuant to delayed delivery contracts (the "CONTRACT
SECURITIES"), if any, contemplated by the Underwriting Agreement. You authorize
the Manager, on your behalf, (a) to determine the form of the Underwriting
Agreement, (b) to execute and deliver the Underwriting Agreement to the Issuer,
Guarantor or Seller, (c) to determine the form of any agreement or agreements
between or among the syndicates participating in the International Offering of
which the Offering is a part (each an "INTERSYNDICATE AGREEMENT"), and (d) to
execute and deliver any such Intersyndicate Agreement. You authorize the Manager
(i) to exercise any Over-allotment Option for the purchase any of or all the
Additional Securities for the accounts of the several Underwriters pursuant to
the Underwriting Agreement, (ii) to agree, on your behalf and on behalf of the
Co-Managers, to any addition to, change in or waiver of any provision of, or the
termination of, the Underwriting Agreement or any Intersyndicate Agreement
(other than an increase in the Purchase Price or in your Original Purchase
Obligation to purchase Securities, in either case from that contemplated by the
applicable AAU), (iii) to add or remove prospective Underwriters to or from the
syndicate, (iv) to exercise, in the Manager's discretion, all the authority
vested in the Manager in the Underwriting Agreement and (v) except as described
below in this Section 3.1, to take any other action as may seem advisable to the
Manager in respect of the Offering (including, without limitation, actions and
communications with the Commission, the National Association of Securities
Dealers, Inc. (the "NASD"), state blue sky or securities commissions, stock
exchanges and other regulatory bodies or organizations). If, in accordance with
the terms of the applicable AAU, the Offering of the Securities is at varying
prices based on prevailing market
prices or prices related to prevailing market prices or at negotiated prices, you authorize the Manager to determine, on your behalf in the Manager's discretion, any Offering Price and the Fees and Commissions applicable to the Offering from time to time. You authorize the Manager on your behalf to arrange for any currency transactions (including forward and hedging currency transactions) as the Manager deems necessary to facilitate settlement of the purchase of the Securities, but you do not authorize the Manager on your behalf to engage in any other forward or hedging transactions in connection with the Offering unless such transactions are specified in an applicable AAU or are otherwise consented to by you. You further authorize the Manager, subject to the provisions of Section 1.2 hereof, (i) to vary the offering terms of the Securities in effect at any time, including, if applicable, the Offering Price and Fees and Commissions set forth in the applicable AAU, (ii) to determine, on your behalf, the Purchase Price and (iii) to increase or decrease the number, amount or percentage of Securities being offered. Notwithstanding the foregoing provisions of this Section 3.1, the Manager shall notify the Underwriters, prior to the signing of the Underwriting Agreement, of any provision in the Underwriting Agreement that could result in an increase in the amount or percentage of Firm Securities set forth opposite each Underwriter's name in the Underwriting Agreement by more than 25% (or such other percentage as shall have been specified in the applicable Invitation Wire or otherwise consented to by you) as a result of the failure or refusal of another Underwriter or Underwriters to perform its or their obligations thereunder.
3.2. OFFERING DATE. The Offering is to be made as soon after the Underwriting Agreement is entered into by the Issuer, Guarantor or Seller and the Manager as in the Manager's judgment is advisable, on the terms and conditions set forth in the Prospectus or the Offering Circular, as the case may be, and the applicable AAU. You agree not to sell any Securities prior to the time the Manager releases such Securities for sale to purchasers. The date on which such Securities are released for sale is referred to herein as the "OFFERING DATE".
3.3. ADVERTISING; SUPPLEMENTAL OFFERING MATERIAL. Any public advertisement of the Offering shall be made by the Manager on behalf of the Underwriters on such date as the Manager shall determine. You agree not to advertise the Offering prior to the date of the Manager's advertisement thereof without the Manager's consent. If the offering is made in whole or in part in reliance on Rule 144A (or upon another exemption from registration), you agree not to engage in any general solicitation and to abide by any other restrictions in the AAU or the Underwriting Agreement in connection therewith relating to any advertising or publicity. Any advertisement you may make of the Offering after such date will be your own responsibility and at your own expense and risk. In addition to your agreement to comply with restrictions on the Offering pursuant to Sections 10.10 and 10.11 hereof, you also agree that you will not, in connection with the offer and sale of the Securities in the Offering, without the consent of the Manager, give to any prospective purchaser of the Securities or other person not in your employ any written information concerning the Offering, the Issuer, the Guarantor or the Seller, other than information contained in any Preliminary Prospectus, Prospectus, Preliminary Offering Circular or Offering Circular or in any computational materials ("COMPUTATIONAL MATERIALS") or other offering materials
prepared by or with the consent of the Manager for use by the Underwriters in connection with the Offering and, in the case of a Registered Offering, filed with the Commission or the NASD, as applicable (the "SUPPLEMENTAL OFFERING MATERIALS"). You further agree to cease distribution of any COMPUTATIONAL MATERIALS on the Offering Date.
3.4. INSTITUTIONAL AND RETAIL SALES. You authorize the Manager to sell to institutions or retail purchasers such Securities purchased by you pursuant to the Underwriting Agreement as the Manager shall determine. The Selling Concession on any such sales shall be credited to the accounts of the Underwriters as the Manager shall determine.
3.5. SALES TO DEALERS. You authorize the Manager to sell to Dealers (as
defined below) such Securities purchased by you pursuant to the Underwriting
Agreement as the Manager shall determine. A "DEALER" shall be a person who is
(a) a broker or dealer (as defined in the By-Laws of the NASD) actually engaged
in the investment banking or securities business and (i) a member in good
standing of the NASD or (ii) a foreign bank, broker, dealer or other institution
not eligible for membership in the NASD that, in the case of either clause
(a)(i) or (a)(ii), makes the representations and agreements applicable to such
institutions contained in Section 10.6 hereof or (b) in the case of Offerings of
Securities that are exempt securities under Section 3(a)(12) of the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), and such other Securities as
from time to time may be sold by a "bank" (as defined in Section 3(a)(6) of the
1934 Act (a "BANK")), a Bank that is not a member of the NASD and that makes the
representations and agreements applicable to such institutions contained in
Section 10.6 hereof. If the price for any such sales by the Manager to Dealers
exceeds an amount equal to the Offering Price less the Selling Concession set
forth in the applicable AAU, the amount of such excess, if any, shall be
credited to the accounts of the Underwriters as the Manager shall determine.
3.6. DIRECT SALES. The Manager will advise you promptly, on the date of the Offering, as to the Securities purchased by you pursuant to the Underwriting Agreement that you shall retain for direct sale. At any time prior to the termination of the applicable AAU, any such Securities that are held by the Manager for sale but not sold, may, on your request and at the Manager's discretion, be released to you for direct sale, and Securities so released to you shall no longer be deemed held for sale by the Manager. You may allow, and Dealers may reallow, a discount on sales to Dealers in an amount not in excess of the Reallowance set forth in the applicable AAU. You may not purchase Securities from, or sell Securities to, any other Underwriter or Dealer at any discount or concession other than the Reallowance, except with the consent of the Manager.
3.7. RELEASE OF UNSOLD SECURITIES. From time to time prior to the termination of the applicable AAU, on the request of the Manager, you shall advise the Manager of the amount of Securities remaining unsold which were retained by or released to you for direct sale and of the amount of Securities and Other Securities (as defined below) purchased for your account remaining unsold which were delivered to
you pursuant to Article V hereof or pursuant to any Intersyndicate Agreement, and, on the request of the Manager, you shall release to the Manager any such Securities and Other Securities remaining unsold (i) for sale by the Manager to institutions, Dealers or retail purchasers, (ii) for sale by the Issuer or Seller pursuant to delayed delivery contracts or (iii) if, in the Manager's opinion, such Securities or Other Securities are needed to make delivery against sales made pursuant to Article V hereof or any Intersyndicate Agreement.
3.8. INTERNATIONAL OFFERINGS. In the case of an International Offering, you authorize the Manager (i) to make representations on your behalf as set forth in any Intersyndicate Agreement or Underwriting Agreement and (ii) to purchase or sell for your account pursuant to the Intersyndicate Agreement (a) Securities, (b) any other securities of the same class and series, or any securities into which the Securities may be converted or for which the Securities may be exchanged or exercised and (c) any other securities designated in the applicable AAU or applicable Intersyndicate Agreement (the securities referred to in clauses (b) and (c) above being referred to collectively as the "OTHER SECURITIES").
IV. DELAYED DELIVERY CONTRACTS
4.1. ARRANGEMENTS FOR SALES. You agree that arrangements for sales of Contract Securities will be made only through the Manager acting either directly or through Dealers (including Underwriters acting as Dealers), and you authorize the Manager to act on your behalf in making such arrangements. The aggregate amount of Securities to be purchased by the several Underwriters shall be reduced by the respective amounts of Contract Securities attributed to such Underwriters as hereinafter provided. Subject to the provisions of Section 4.2, the aggregate amount of Contract Securities shall be attributed to the Underwriters as nearly as practicable in their respective Underwriting Percentages, except that, as determined by the Manager in its discretion, (i) Contract Securities directed and allocated by a purchaser to specific Underwriters shall be attributed to such Underwriters and (ii) Contract Securities for which arrangements have been made for sale through Dealers shall be attributed to each Underwriter approximately in the proportion that Securities of such Underwriter held by the Manager for sales to Dealers bear to all Securities so held. The fee with respect to Contract Securities payable to the Manager for the accounts of the Underwriters pursuant to the Underwriting Agreement shall be credited to the accounts of the respective Underwriters in proportion to the Contract Securities attributed to such Underwriters pursuant to the provisions of this Section 4.1, less, in the case of each Underwriter, the concession to Dealers on Contract Securities sold through Dealers and attributed to such Underwriter.
4.2. EXCESS SALES. If the amount of Contract Securities attributable to an Underwriter pursuant to Section 4.1 would exceed such Underwriter's Original Purchase Obligation reduced by the amount of Underwriters' Securities sold by or on behalf of such Underwriter, such excess shall not be attributed to such Underwriter, and such Underwriter shall be regarded as having acted only as a Dealer with respect to, and shall receive only the concession to Dealers on, such excess.
V. PURCHASE AND SALE OF SECURITIES; FACILITATION OF DISTRIBUTION
5.1. PURCHASE AND SALE OF SECURITIES; FACILITATION OF DISTRIBUTION. In order to facilitate the distribution and sale of the Securities, you authorize the Manager to buy and sell Securities and any Other Securities, in addition to Securities sold pursuant to Article III hereof, in the open market or otherwise (including, without limitation, pursuant to any Intersyndicate Agreement), for long or short account, on such terms as it shall deem advisable, and to over-allot in arranging sales. Such purchases and sales and over-allotments shall be made for the accounts of the several Underwriters as nearly as practicable in their respective Underwriting Percentages or, in the case of an International Offering, such purchases and sales shall be for such accounts as set forth in the applicable Intersyndicate Agreement. Any securities which may have been purchased by the Manager for stabilizing purposes in connection with the Offering prior to the execution of the applicable AAU shall be treated as having been purchased pursuant to this Section 5.1 for the accounts of the several Underwriters or, in the case of an International Offering, for such accounts as are set forth in the applicable Intersyndicate Agreement. Your net commitment pursuant to the foregoing authorization shall not exceed at the close of business on any day an amount equal to 20% of your Underwriting Percentage of the aggregate initial Offering Price of the Firm Securities, it being understood that, in calculating such net commitment, the initial Offering Price shall be used with respect to the Securities so purchased or sold and, in the case of all Other Securities, shall be the purchase price thereof. Your net commitment for short account (i.e., "naked short") shall be calculated by assuming that all Securities that may be purchased upon exercise of any over-allotment option then exercisable are acquired (whether or not actually acquired) and, in the case of an International Offering, after giving effect to the purchase of any Securities or Other Securities that the Manager has agreed to purchase for your account pursuant to any applicable Intersyndicate Agreement. On demand you shall take up and pay for any Securities or Other Securities so purchased for your account and any Securities released to you pursuant to Section 3.7 hereof and you shall deliver to the Manager against payment any Securities or Other Securities so sold or over-allotted for your account or released to you. The Manager agrees to notify you if it engages in any stabilization transaction requiring reports to be filed pursuant to Rule 17a-2 under the 1934 Act and to notify you of the date of termination of stabilization. You agree not to stabilize or engage in any syndicate covering transaction (as defined in Rule 100 of Regulation M under the 1934 Act ("Regulation M")) in connection with the Offering without the prior consent of the Manager. You further agree to provide to Salomon Smith Barney any reports required of you pursuant to Rule 17a-2 not later than the date specified therein and you authorize Salomon Smith Barney to file on your behalf with the Commission any reports required by such Rule.
If the limitations of Rule 101 of Regulation M ("Rule 101") do not apply to you with respect to the Securities, Other Securities or other reference securities (as defined in Rule 100 of Regulation M) because they satisfy the exception for actively-traded
securities in subsection (c)(1) of Rule 101 or the exception for Rule 144A securities in subsection (b)(10) of Rule 101, you agree that promptly upon notice from the Manager (or, if later, at the time stated in the notice) you will comply with Rule 101 as though such exception were not available but the other provisions of Rule 101 (as interpreted by the Commission and after giving effect to any applicable exemptions) did apply. If the securities in question are NASDAQ securities (as defined in Rule 100 of Regulation M) you may engage in passive market making in accordance with Rule 103 of Regulation M (except that the daily net purchase volume limitation will not apply and the maximum displayed bid size shall be 5,000 shares excluding transactions effected in the SOES system) unless the notice from the Manager also states that passive market making is not permitted.
5.2. PENALTY WITH RESPECT TO SECURITIES REPURCHASED BY THE MANAGER. If pursuant to the provisions of Section 5.1 and prior to the termination of the Manager's authority to cover any short position incurred under the applicable AAU or such other date as the Manager shall specify in a Wire, either (A) the Manager purchases or contracts to purchase for the account of any Underwriter in the open market or otherwise any Securities which were retained by, or released to, you for direct sale or any Securities sold pursuant to Section 3.4 for which you received a portion of the Selling Concession set forth in the applicable AAU, or any Securities which may have been issued on transfer or in exchange for such Securities, and which Securities were therefore not effectively placed for investment or (B) if the Manager has advised you by Wire that trading in the Securities will be reported to the Manager pursuant to the "Initial Public Offering Tracking System" of The Depository Trust Company ("DTC") and the Manager determines, based on notices from DTC, that your customers sold an amount of Securities during any day that exceeds the amount previously notified to you by Wire, then you authorize the Manager either to charge your account with an amount equal to such portion of the Selling Concession set forth in the applicable AAU received by you with respect to such Securities or, in the case of clause (B), such Securities as exceed the amount specified in such Wire or to require you to repurchase such Securities or, in the case of clause (B), such Securities as exceed the amount specified in such Wire, at a price equal to the total cost of such purchase, including transfer taxes, accrued interest, dividends and commissions, if any.
5.3. COMPLIANCE WITH REGULATION M. You represent that, at all times since you were invited to participate in the Offering, you have complied with the provisions of Regulation M applicable to such Offering, in each case as interpreted by the Commission and after giving effect to any applicable exemptions. If you have been notified in a Wire that the Underwriters may conduct passive market making in compliance with Rule 103 of Regulation M in connection with the Offering, you represent that, at all times since your receipt of such Wire, you have complied with the provisions of such Rule applicable to such Offering, as interpreted by the Commission and after giving effect to any applicable exemptions.
5.4. STANDBY UNDERWRITINGS. You authorize the Manager in its discretion, at any time on, or from time to time prior to, the expiration of the conversion right of convertible securities identified in the applicable AAU in the case of securities
called for redemption, or the expiration of rights to acquire securities in the case of rights offerings, for which, in either case, standby underwriting arrangements have been made: (i) to purchase convertible securities or rights to acquire Securities for your account, in the open market or otherwise, on such terms as the Manager determines and to convert convertible securities or exercise rights so purchased; and (ii) to offer and sell the underlying common stock or depositary shares for your account, in the open market or otherwise, for long or short account (for purposes of such commitment, such common stock or depositary shares being considered the equivalent of convertible securities or rights), on such terms consistent with the terms of the Offering set forth in the Prospectus or Offering Circular as the Manager determines. On demand you shall take up and pay for any securities so purchased for your account or you shall deliver to the Manager against payment any securities so sold, as the case may be. During such period you may offer and sell the underlying common stock or depositary shares, but only at prices set by the Manager from time to time, and any such sales shall be subject to the Manager's right to sell to you the underlying common stock or depositary shares as above provided and to the Manager's right to reserve your Securities purchased, received or to be received upon conversion. You agree not to bid for, purchase, attempt to induce others to purchase, or sell, directly or indirectly, any convertible securities or rights or underlying common stock or depositary shares, provided, however, that no Underwriter shall be prohibited from (a) selling underlying common stock owned beneficially by such Underwriter on the day the convertible securities were first called for redemption, (b) converting convertible securities owned beneficially by such Underwriter on such date or selling underlying common stock issued upon conversion of convertible securities so owned, (c) exercising rights owned beneficially by such Underwriter on the record date for a rights offering or selling the underlying common stock or depositary shares issued upon exercise of rights so owned or (d) purchasing or selling convertible securities or rights or underlying common stock or depositary shares as a broker pursuant to unsolicited orders.
VI. PAYMENT AND SETTLEMENT
6.1. PAYMENT AND SETTLEMENT. You shall deliver to the Manager on the date and at the place and time specified in the applicable AAU (or on such later date and at such place and time as may be specified by the Manager in a subsequent Wire) the funds specified in the applicable AAU, payable to the order of Salomon Smith Barney Inc., for (i) an amount equal to the Offering Price plus (if not included in the Offering Price) accrued interest, amortization of original issue discount or dividends, if any, specified in the Prospectus or Offering Circular, less the applicable Selling Concession in respect of the Firm Securities to be purchased by you, (ii) an amount equal to the Offering Price plus (if not included in the Offering Price) accrued interest, amortization of original issue discount or dividends, if any, specified in the Prospectus or Offering Circular, less the applicable Selling Concession in respect of such of the Firm Securities to be purchased by you as shall have been retained by or released to you for direct sale as contemplated by Section 3.6 hereof or (iii) the amount set forth or indicated in the applicable AAU, as the Manager shall advise. You shall make similar payment as the Manager may direct for Additional Securities, if any, to be purchased by
you on the date specified by the Manager for such payment. The Manager will make payment to the Issuer or Seller against delivery to the Manager for your account of the Securities to be purchased by you, and the Manager will deliver to you the Securities paid for by you which shall have been retained by or released to you for direct sale. If the Manager determines that transactions in the Securities are to be settled through the facilities of DTC or other clearinghouse facility, payment for and delivery of Securities purchased by you shall be made through such facilities, if you are a member, or, if you are not a member, settlement shall be made through your ordinary correspondent who is a member.
VII. EXPENSES
7.1. MANAGEMENT FEE. You authorize the Manager to charge your account as compensation for the Manager's and Co-Managers' services in connection with the Offering, including the purchase from the Issuer or Seller of the Securities, as the case may be, and the management of the Offering, the amount, if any, set forth as the management fee, global coordinators fee, praecipium or other similar fee in the applicable AAU. Such amount shall be divided among the Manager and any Co-Managers named in the applicable AAU as they may determine.
7.2. GENERAL EXPENSES. You authorize the Manager to charge your account with your Underwriting Percentage of all expenses of a general nature incurred by the Manager and Co-Managers under the applicable AAU in connection with the Offering, including the negotiation and preparation thereof, or in connection with the purchase, carrying, marketing and sale of any securities under the applicable AAU and any Intersyndicate Agreement, including, without limitation, legal fees and expenses, transfer taxes, costs associated with approval of the Offering by the NASD and the costs of currency transactions (including forward and hedging currency transactions) entered into to facilitate settlement of the purchase of Securities permitted under Section 3.1 hereof.
VIII. MANAGEMENT OF SECURITIES AND FUNDS
8.1. ADVANCES; LOANS; PLEDGES. You authorize the Manager to advance the Manager's own funds for your account, charging current interest rates, or to arrange loans for your account for the purpose of carrying out the provisions of the applicable AAU and any Intersyndicate Agreement and in connection therewith, to hold or pledge as security therefor all or any securities which the Manager may be holding for your account under the applicable AAU and any Intersyndicate Agreement, to execute and deliver any notes or other instruments evidencing such advances or loans and to give all instructions to the lenders with respect to any such loans and the proceeds thereof. The obligations of the Underwriters under loans arranged on their behalf shall be several in proportion to their respective Original Purchase Obligations and not joint. Any lender is authorized to accept the Manager's instructions as to the disposition of the proceeds of any such loans. In the event of any such advance or loan, repayment
thereof shall, in the discretion of the Manager, be effected prior to making any remittance or delivery pursuant to Section 8.2, 8.3 or 9.2 hereof.
8.2. RETURN OF AMOUNT PAID FOR SECURITIES. Out of payment received by the Manager for Securities sold for your account which have been paid for by you, the Manager will remit to you promptly an amount equal to the price paid by you for such Securities.
8.3. DELIVERY AND REDELIVERY OF SECURITIES FOR CARRYING PURPOSES. The Manager may deliver to you from time to time prior to the termination of the applicable AAU pursuant to Section 9.1 hereof against payment, for carrying purposes only, any Securities or Other Securities purchased by you under the applicable AAU or any Intersyndicate Agreement which the Manager is holding for sale for your account but which are not sold and paid for. You shall redeliver to the Manager against payment any Securities or Other Securities delivered to you for carrying purposes at such times as the Manager may demand.
IX. TERMINATION; INDEMNIFICATION
9.1. TERMINATION. Each AAU shall terminate at the close of business on the later of the date on which the Underwriters pay the Issuer or Seller for the Securities and 45 full days after the applicable Offering Date, unless sooner terminated by the Manager. The Manager may in its discretion by notice to you prior to the termination of such AAU alter any of the terms or conditions of the Offering to the extent permitted by Articles III or IV hereof, or terminate or suspend the effectiveness of Article V hereof, or any part thereof. No termination or suspension pursuant to this paragraph shall affect the Manager's authority under Section 3.1 hereof to take actions in respect of the Offering or under Article V hereof to cover any short position incurred under such AAU or in connection with covering any such short position to require you to repurchase Securities as specified in Section 5.2 hereof.
9.2. DELIVERY OR SALE OF SECURITIES; SETTLEMENT OF ACCOUNTS. Upon termination of each AAU or prior thereto at the Manager's discretion, the Manager shall deliver to you any Securities paid for by you pursuant to Section 6.1 hereof and held by the Manager for sale pursuant to Section 3.4 or 3.5 hereof but not sold and paid for and any Securities or Other Securities that are held by the Manager for your account pursuant to the provisions of Article V hereof or any Intersyndicate Agreement. Notwithstanding the foregoing, at the termination of such AAU, if the aggregate initial Offering Price of any such Securities and the aggregate purchase price of any Other Securities so held and not sold and paid for does not exceed an amount equal to 20% of the aggregate initial Offering Price of the Securities, the Manager may, in its discretion, sell such Securities and Other Securities for the accounts of the several Underwriters, at such prices, on such terms, at such times and in such manner as it may determine. Within the period specified by applicable NASD Rules or, if no period is so specified, as soon as practicable after termination of such AAU, your account shall be settled and paid. The Manager may reserve from distribution such amount as the Manager deems
advisable to cover possible additional expenses. The determination by the Manager of the amount so to be paid to or by you shall be final and conclusive. Any of your funds in the Manager's hands may be held with the Manager's general funds without accountability for interest
Notwithstanding any provision of this Master AAU other than Section
10.12, upon termination of each AAU or prior thereto at the Manager's
discretion, the Manager (i) may allocate to the accounts of the Underwriters the
expenses described in Section 7.2 hereof and any losses incurred upon the sale
of Securities or Other Securities pursuant to the applicable AAU or any
Intersyndicate Agreement (including any losses incurred upon the sale of
securities referred to in Section 5.4(ii) hereof), (ii) may deliver to the
Underwriters any unsold Securities or Other Securities purchased pursuant to
Section 5.1 hereof or any Intersyndicate Agreement and (iii) may deliver to the
Underwriters any unsold Securities purchased pursuant to the applicable
Underwriting Agreement, in each case in the Manager's discretion. The Manager
shall have full discretion to allocate expenses and Securities to the accounts
of any Underwriter as the Manager decides, except that (a) no Underwriter (other
than the Manager or a Co-Manager) shall bear more than its share of such
expenses, losses or Securities (such share shall not exceed such Underwriter's
Underwriting Percentage and shall be determined pro rata among all such
Underwriters based on their Underwriting Percentages), (b) no such Underwriter
shall receive Securities that, together with any Securities purchased by such
Underwriter pursuant to Section 6.1 (but excluding any Securities that such
Underwriter is required to repurchase pursuant to Section 5.2) exceed such
Underwriter's Original Purchase Obligation and (c) no Co-Manager shall bear more
than its share, as among the Manager and the other Co-Managers, of such
expenses, losses or Securities (such share to be determined pro rata among the
Manager and all Co-Managers based on (1) their relative Underwriting Percentages
as a percentage of the total combined Underwriting Percentages of the Manager
and all Co-Managers, or (2) if the Manager so determines, their relative
Offering Economics (as hereinafter defined) as a percentage of the combined
Offering Economics of the Manager and all Co-Managers together. The Manager's or
a Co-Manager's "OFFERING ECONOMICS" equals the sum of its Management Fee Share,
its Underwriting Fee Share and its Selling Concession Share (each as hereinafter
defined). The Manager's or a Co-Manager's "MANAGEMENT FEE SHARE" is the dollar
amount of its share, as agreed among the Manager and any Co-Managers, of the
amount payable by all Underwriters to some or all of the Manager and any
Co-Manager as a global coordinators' fee, praecipium, management fee or other
fee. The Manager's or a Co-Manager's "UNDERWRITING FEE SHARE" is the dollar
amount of its Underwriting Percentage of the aggregate initial Offering Price of
the Firm Securities less the Purchase Price thereof, less the Selling Concession
thereon. The Manager's or a Co-Manager's "SELLING CONCESSION SHARE" is the
dollar amount of any Selling Concession credited to it on sales from the
institutional pot or on sales made for the account of any other Underwriter. If
any Securities or Other Securities returned to you pursuant to clause (ii) or
(iii) above were not paid for by you pursuant to Section 6.1 hereof, you shall
pay to the Manager an amount per security equal to the amount set forth in
Section 6.1(i), in the case of Securities returned to you pursuant to clause
(iii) above, or the purchase price of such securities, in the case of Securities
or Other Securities returned to you
pursuant to clause (ii) above.
9.3. POST-SETTLEMENT EXPENSES. Notwithstanding any settlement on the
termination of the applicable AAU, you agree to pay any transfer taxes which may
be assessed and paid after such settlement on account of any sales or transfers
under such AAU or any Intersyndicate Agreement for your account and your
Underwriting Percentage of (i) all expenses incurred by the Manager in
investigating, preparing to defend or defending against any action, claim or
proceeding which is asserted or instituted by any party (including any
governmental or regulatory body) relating to (a) the Registration Statement, any
Preliminary Prospectus or Prospectus (or any amendment or supplement thereto),
any Preliminary Offering Circular or Offering Circular (or any amendment or
supplement thereto) or Supplemental Offering Materials, (b) the violation of any
applicable restrictions on the offer, sale, resale or purchase of Securities or
Other Securities imposed by United States Federal or state laws or foreign laws
and the rules and regulations of any regulatory body promulgated thereunder or
pursuant to the terms of such AAU, the Underwriting Agreement or any
Intersyndicate Agreement or (c) any claim that the Underwriters constitute a
partnership, an association or an unincorporated business or other separate
entity and (ii) any liability, including attorneys' fees, incurred by the
Manager in respect of any such action, claim or proceeding, whether such
liability shall be the result of a judgment or arbitrator's determination or as
a result of any settlement agreed to by the Manager, other than any such expense
or liability as to which the Manager actually receives indemnity pursuant to
Section 9.4, contribution pursuant to Section 9.5, indemnity or contribution
pursuant to the Underwriting Agreement or damages from an Underwriter for breach
of its representations, warranties, agreements, or covenants contained in the
applicable AAU. None of the foregoing provisions of this Section 9.3 shall
relieve any defaulting or breaching Underwriter from liability for its defaults
or breach.
9.4. INDEMNIFICATION. You agree to indemnify and hold harmless each other Underwriter and each person, if any, who controls any such Underwriter within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, to the extent and upon the terms which you agree to indemnify and hold harmless any of the Issuer, the Guarantor, the Seller, any person controlling the Issuer, the Guarantor, the Seller, its directors and, in the case of a Registered Offering, its officers who signed the Registration Statement and, in the case of an Offering other than a Registered Offering, its officers, in each case as set forth in the Underwriting Agreement. You further agree to indemnify and hold harmless any investment banking firm identified in a Wire as the qualified independent underwriter as defined in Rule 2720 of the NASD's Conduct Rules ("QIU") for an Offering and each person, if any, who controls such QIU within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, from and against any and all losses, claims, damages and liabilities related to, arising out of or in connection with such investment banking firm's activities as QIU for the Offering. You agree with the other Underwriters to reimburse such QIU for all expenses, including fees and expenses of counsel as they are incurred, in connection with investigating, preparing for, or defending any action, claim or proceeding related to, arising out of, or in connection with such QIU's activities as a QIU for the Offering. Each Underwriter shall be responsible for its Underwriting Percentage of any amount due to such QIU on
account of the foregoing indemnity. You agree that such QIU shall have no additional liability to any Underwriter or otherwise as a result of its serving as QIU in connection with the Offering. You further agree that to the extent the indemnification provided to a QIU under this Section 9.4 is unavailable to such QIU or insufficient in respect of any losses, claims, damages or liabilities (and expenses relating thereto), whether as a matter of law or public policy or as a result of the default of any Underwriter in performing its obligations under this Section 9.4, you and each other Underwriter shall contribute to the amount paid or payable by such QIU as a result of such losses, claims, damages or liabilities (and expenses relating thereto) in proportion to your Underwriting Percentage.
9.5. CONTRIBUTION. Notwithstanding any settlement on the termination of the applicable AAU, you agree to pay upon request of the Manager, as contribution, your Underwriting Percentage of any losses, claims, damages or liabilities, joint or several, paid or incurred by any Underwriter to any person other than an Underwriter, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus or Prospectus (or any amendment or supplement thereto), any Preliminary Offering Circular or Offering Circular (or any amendment or supplement thereto) or Supplemental Offering Materials or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (other than an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished to the Company in writing by the Underwriter on whose behalf the request for contribution is being made expressly for use therein) and your Underwriting Percentage of any legal or other expenses reasonably incurred by the Underwriter (with the approval of the Manager) on whose behalf the request for contribution is being made in connection with investigating or defending any such loss, claim, damage or liability or any action in respect thereof; provided that no request shall be made on behalf of any Underwriter guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) from any Underwriter who was not guilty of such fraudulent misrepresentation. None of the foregoing provisions of this Section 9.5 shall relieve any defaulting or breaching Underwriter from liability for its defaults or breach.
9.6. SEPARATE COUNSEL. If any claim is asserted or action or proceeding commenced pursuant to which the indemnity provided in Section 9.4 may apply, the Manager may take such action in connection therewith as it deems necessary or desirable, including retention of counsel for the Underwriters, and in its discretion separate counsel for any particular Underwriter or group of Underwriters, and the fees and disbursements of any counsel so retained shall be allocated among the several Underwriters as determined by the Manager. Any Underwriter may elect to retain at its own expense its own counsel and, on advice of such counsel but only with the consent of the Manager, may settle or consent to the settlement of any such claim, action or proceeding. The Manager may settle or consent to the settlement of any such claim, action or proceeding. Whenever the Manager receives notice of the assertion of any claim, action or proceeding to which the provisions of Section 9.4 would apply, it will give prompt notice thereof to each Underwriter, and whenever you receive notice of the
assertion of any claim or commencement of any action or proceeding to which the provisions of Section 9.4 would apply, you will give prompt notice thereof to the Manager. The Manager also will furnish each Underwriter with periodic reports, at such times as it deems appropriate, as to the status of such claim, action or proceeding, and the action taken by it in connection therewith.
9.7. SURVIVAL OF AGREEMENTS. Regardless of any termination of an AAU, your agreements contained in Article V and Sections 3.1, 9.3, 9.4, 9.5, 9.6 and 11.2 shall remain operative and in full force and effect regardless of (i) any termination of the Underwriting Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Issuer, the Guarantor, the Seller, its directors or officers or any person controlling the Issuer, the Guarantor or the Seller and (iii) acceptance of any payment for any Securities.
X. REPRESENTATIONS AND COVENANTS OF UNDERWRITERS
10.1. KNOWLEDGE OF OFFERING. You understand that it is your responsibility to examine the Registration Statement, the Prospectus or the Offering Circular, as the case may be, relating to the Offering, any amendment or supplement thereto, any Preliminary Prospectus or Preliminary Offering Circular and the material, if any, incorporated by reference therein and any Supplemental Offering Materials and you will familiarize yourself with the terms of the Securities, any applicable Indenture and the other terms of the Offering thereof which are to be reflected in the Prospectus or the Offering Circular, as the case may be, and the applicable AAU and Underwriting Agreement. The Manager is authorized, with the advice of counsel for the Underwriters, to approve on your behalf any amendments or supplements to the Registration Statement and the Prospectus or the Offering Circular, as the case may be.
10.2. DISTRIBUTION OF MATERIALS. You will keep an accurate record of the names and addresses of all persons to whom you give copies of the Registration Statement, the Prospectus, any Preliminary Prospectus (or any amendment or supplement thereto) or any Offering Circular or any Preliminary Offering Circular and, when furnished with any subsequent amendment to the Registration Statement, any subsequent Prospectus, any subsequent Offering Circular or any memorandum outlining changes in the Registration Statement or any Prospectus or Offering Circular, you will, upon request of the Manager, promptly forward copies thereof to such persons.
10.3. ACCURACY OF UNDERWRITERS' INFORMATION. You confirm that the information that you have given or are deemed to have given in response to the Underwriters' Questionnaire attached as Exhibit A hereto (and to any other questions addressed to you in the Invitation Wire or other Wires), which information has been furnished to the Issuer for use in the Registration Statement and the Prospectus or the Offering Circular, as the case may be, or has otherwise been relied upon in connection with the Offering, is complete and accurate. You shall notify the Manager immediately of any development before the termination of the applicable AAU which makes untrue or incomplete any information that you have given or are deemed to have given in
response to the Underwriters' Questionnaire (or such other questions).
10.4. NAME; ADDRESS. Unless you have promptly notified the Manager in writing otherwise, your name as it should appear in the Prospectus or the Offering Circular and any advertisement, if different, and your address are as set forth on the signature pages hereof.
10.5. CAPITAL REQUIREMENTS. You represent that your commitment to purchase the Securities will not result in a violation of the financial responsibility requirements of Rule 15c3-1 under the 1934 Act or of any similar provision of any applicable rules of any securities exchange to which you are subject or, if you are a financial institution subject to regulation by the Board of Governors of the United States Federal Reserve System, the United States Comptroller of the Currency or the United States Federal Deposit Insurance Corporation, will not place you in violation of any applicable capital requirements or restrictions of such regulator or any other regulator to which you are subject.
10.6. COMPLIANCE WITH NASD REQUIREMENTS. You represent that you are a
member in good standing of the NASD, a Bank that is not a member of the NASD or
a foreign bank or dealer not eligible for membership in the NASD. In making
sales of Securities, if you are such a member, you agree to comply with all
applicable interpretive material ("IM") and rules of the NASD, including,
without limitation, IM-2110-1 (the NASD's interpretation with respect to
free-riding and withholding) and Rule 2740 of the NASD's Conduct Rules, or, if
you are such a foreign bank or dealer, you agree to comply, as applicable, with
IM-2110-1 and Rules 2730, 2740 and 2750 of the NASD's Conduct Rules as though
you were such a member and Rule 2420 of the NASD's Conduct Rules as it applies
to a nonmember broker or dealer in a foreign country. If you are a Bank, you
agree, to the extent required by applicable law or the Conduct Rules of the
NASD, that you will not, in connection with the public offering of any
Securities that do not constitute "exempted securities" within the meaning of
Section 3(a)(12) of the 1934 Act or such other Securities as from time to time
may be sold by a Bank, purchase any Securities at a discount from the Offering
Price from any Underwriter or dealer or otherwise accept any Fees and
Commissions from any Underwriter or Dealer, and you agree to comply, as
applicable, with Rule 2420 of the NASD's Conduct Rules as though you were a
member.
10.7. FURTHER STATE NOTICE. The Manager will file a Further State Notice with the Department of State of New York, if required.
10.8. COMPLIANCE WITH RULE 15C2-8. In the case of a Registered Offering and any other Offering to which the provisions of Rule 15c2-8 under the 1934 Act are made applicable pursuant to the AAU or otherwise, you agree to comply with such Rule in connection with the Offering. In the case of an Offering other than a Registered Offering, you agree to comply with applicable Federal and state laws and the applicable rules and regulations of any regulatory body promulgated thereunder governing the use and distribution of offering circulars by underwriters.
10.9. DISCRETIONARY ACCOUNTS. In the case of a Registered Offering of Securities issued by an Issuer that was not, immediately prior to the filing of the Registration Statement, subject to the requirements of Section 13(d) or 15(d) of the 1934 Act, you agree that you will not make sales to any account over which you exercise discretionary authority in connection with such sale except as otherwise permitted by the applicable AAU for such Offering.
10.10. OFFERING RESTRICTIONS. If you are a foreign bank or dealer and you are not registered as a broker-dealer under Section 15 of the 1934 Act, you agree that while you are acting as an Underwriter in respect of the Securities and in any event during the term of the applicable AAU, you will not directly or indirectly effect in, or with persons who are nationals or residents of, the United States, its territories or possessions any transactions (except for the purchases provided for in the Underwriting Agreement and transactions contemplated by Articles III and V hereof) in Securities or any Other Securities.
It is understood that, except as specified in the applicable AAU, no action has been taken by the Manager, the Issuer, the Guarantor or the Seller to permit you to offer Securities in any jurisdiction other than the United States, in the case of a Registered Offering, where action would be required for such purpose.
10.11. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. You agree to make to each other Underwriter participating in an Offering the same representations, warranties and agreements, if any, made by the Underwriters to the Issuer, the Guarantor or the Seller in the applicable Underwriting Agreement or any Intersyndicate Agreement and you authorize the Manager to make such representations, warranties and agreements to the Issuer, the Guarantor or the Seller on your behalf.
10.12. LIMITATION ON THE AUTHORITY OF THE MANAGER TO PURCHASE AND SELL SECURITIES FOR THE ACCOUNT OF CERTAIN UNDERWRITERS. Notwithstanding any provision of this AAU authorizing the Manager to purchase or sell any Securities or Other Securities (including arranging for the sale of Contract Securities) or over-allot in arranging sales of Securities for the accounts of the several Underwriters, the Manager may not, in connection with the Offering of any Securities, make any such purchases, sales and/or over-allotments for the account of any Underwriter that, not later than its acceptance of the Invitation Wire relating to such Offering, has advised the Manager that, due to its status as, or relationship to, a bank or bank holding company such purchases, sales and/or over-allotments are prohibited by applicable law. If any Underwriter so advises the Manager, the Manager may allocate any such purchases, sales and over-allotments (and the related expenses) which otherwise would have been allocated to your account based on your respective Underwriting Percentage to your account based on the ratio of your Original Purchase Obligation to the Original Purchase Obligations of all Underwriters other than the advising Underwriter or Underwriters or in such other manner as the Manager shall determine.
XI. DEFAULTING UNDERWRITERS
11.1. EFFECT OF TERMINATION. If the Underwriting Agreement is terminated as permitted by the terms thereof, your obligations hereunder with respect to the Offering of the Securities shall immediately terminate except (i) as set forth in Section 9.7, (ii) that you shall remain liable for your Underwriting Percentage (or such other percentage as may be specified pursuant to Section 9.2) of all expenses and for any purchases or sales which may have been made for your account pursuant to the provisions of Article V hereof or any Intersyndicate Agreement and (iii) that such termination shall not affect any obligations of any defaulting or breaching Underwriter.
11.2. SHARING OF LIABILITY. If any Underwriter shall default in its obligations (i) pursuant to Section 5.1, 5.2 or 5.4, (ii) to pay amounts charged to its account pursuant to Section 7.1, 7.2 or 8.1 or (iii) pursuant to Section 9.2, 9.3, 9.4, 9.5, 9.6 or 11.1, you will assume your proportionate share (determined on the basis of the respective Underwriting Percentages of the non-defaulting Underwriters) of such obligations, but no such assumption shall relieve any defaulting Underwriter from liability to the non-defaulting Underwriters, the Issuer, the Guarantor or the Seller for its default.
11.3. ARRANGEMENTS FOR PURCHASES. The Manager is authorized to arrange for the purchase by others (including the Manager or any other Underwriter) of any Securities not purchased by any defaulting Underwriter in accordance with the terms of the applicable Underwriting Agreement or, if the applicable Underwriting Agreement does not provide arrangements for defaulting Underwriters, in the discretion of the Manager. If such arrangements are made, the respective amounts of Securities to be purchased by the remaining Underwriters and such other person or persons, if any, shall be taken as the basis for all rights and obligations hereunder, but this shall not relieve any defaulting Underwriter from liability for its default.
XII. MISCELLANEOUS
12.1. OBLIGATIONS SEVERAL. Nothing contained in this Salomon Smith Barney Master AAU or any AAU constitutes you partners with the Manager or with the other Underwriters and the obligations of you and each of the other Underwriters are several and not joint. Each Underwriter elects to be excluded from the application of Subchapter K, Chapter 1, Subtitle A, of the United States Internal Revenue Code of 1986, as amended. Each Underwriter authorizes the Manager, on behalf of such Underwriter, to execute such evidence of such election as may be required by the United States Internal Revenue Service.
12.2. LIABILITY OF MANAGER. The Manager shall be under no liability to you for any act or omission except for obligations expressly assumed by the Manager in the applicable AAU.
12.3. TERMINATION OF MASTER AGREEMENT AMONG UNDERWRITERS. This
SALOMON SMITH BARNEY Master AAU may be terminated by either party hereto upon five business days' written notice to the other party; provided that with respect to any Offering for which an AAU was sent prior to such notice, this Salomon Smith Barney Master AAU as it applies to such Offering shall remain in full force and effect and shall terminate with respect to such Offering in accordance with Section 9.1 hereof.
12.4. GOVERNING LAW. THIS SALOMON SMITH BARNEY MASTER AAU AND EACH AAU SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
12.5. AMENDMENTS. This Salomon Smith Barney Master AAU may be amended from time to time by consent of the parties hereto. Your consent shall be deemed to have been given to an amendment to this Salomon Smith Barney Master AAU, and such amendment shall be effective, five business days following written notice to you of such amendment if you do not notify Salomon Smith Barney in writing prior to the close of business on such fifth business day that you do not consent to such amendment. Upon effectiveness, the provisions of this Salomon Smith Barney Master AAU as so amended shall apply to each AAU thereafter entered into except as otherwise specifically provided in any such AAU.
12.6. NOTICES. Any notice to any Underwriter shall be deemed to have been duly given if mailed, sent by wire, telex, facsimile or electronic transmission or other written communication or delivered in person to such Underwriter at the address which shall have been provided to Salomon Smith Barney as provided in Section 10.4 hereof. Any such notice shall take effect upon receipt thereof.
Please confirm your acceptance of this Salomon Smith Barney Master AAU by signing and returning to us the enclosed duplicate copy hereof.
Very truly yours,
SALOMON SMITH BARNEY INC.
By: ____________________________________________
Name:
Title:
CONFIRMED:...............................1999
.............................................
(Name of Underwriter)
By: _________________________________________
Name:
Title:
(If person signing is not an officer or a partner, please attach
instrument of authorization)
Address: _____________________________________
Telephone: ___________________________________
Fax: ___________________________________
EXHIBIT A
JUNE 1, 1999
SALOMON SMITH BARNEY INC.
UNDERWRITERS' QUESTIONNAIRE
In connection with each Offering covered by the Salomon Smith Barney Inc. Master Agreement Among Underwriters dated June 1, 1999, we confirm that except as set forth in a timely reply by us to the Invitation Wire:
(1) Neither we nor any of our directors, officers or partners have a material relationship (as "material" is defined in Regulation C under the 1933 Act) with the Issuer, the Guarantor or any Seller.
(2) (If the offer and sale of the Securities are to be registered under the 1933 Act pursuant to a Registration Statement on Form S-1 of Form F-1:) Neither we nor any "group" (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of which we are a member is the beneficial owner (determined in accordance with Rule 13d-3 under the Exchange Act) of more than 5% of any class of voting securities of the Issuer or the Guarantor, nor do we have any knowledge that more than 5% of any class of voting securities of the Issuer or the Guarantor is held or to be held subject to any voting trust or other similar agreement.
(3) Other than as may be stated in the Salomon Smith Barney Master Agreement Among Underwriters dated June 1, 1999, the applicable AAU, the Intersyndicate Agreement or dealer agreement, if any, the Prospectus, the Registration Statement or the Offering Circular, we do not know and have no reason to believe that there is an intention to over-allot or that the price of any security may be stabilized to facilitate the offering of the Securities.
(4) Except as described in the Prospectus or Offering Circular, as the case may, be and the Invitation Wire, we do not know of any discounts or commissions to be allowed or paid to dealers, including all cash, securities, contracts or other consideration to be received by any dealer in connection with the sale of the securities.
(5) We have not prepared any report or memorandum for external
use in connection with the Offering. (If there are any exceptions, (i)
furnish four (4) copies of each report and memorandum to Salomon Smith
Barney Inc., 388 Greenwich Street, New York, N.Y. 10013, Attention:
Investment Banking Department/Transaction Structuring Group, (ii)
identify each class of person who received such material and the number
of copies distributed to each such class, and (iii) indicate when such
distribution commenced and ceased.)
(6) (If the offer and sale of the Securities are to be registered under the 1933 Act pursuant to a Registration Statement on Form S-1 or Form F-1:) We have not within the past twelve months prepared or had prepared for us any engineering, management or similar report or memorandum relating to broad aspects of the business, operations or products of the Issuer or the Guarantor. (The immediately preceding sentence does not apply to reports solely comprised of recommendations to buy, sell or hold the Issuer's or the Guarantor's securities, unless such recommendations have changed within the past six months or to information already contained in documents filed with the Commission. If there are any exceptions, (i) furnish four (4) copies of each report and memorandum to Salomon Smith Barney Inc. 388 Greenwich Street, New York, N.Y. 10013, Attention: Investment Banking Department/Transaction Structuring Group, (ii) identify each class of persons who received such material and the number of copies distributed to each such class, and (iii) indicate when such distribution commenced and ceased.)
(7) We are not an "affiliate" of the Issuer or the Guarantor for purposes of Rule 2720 of the National Association of Securities Dealers, Inc.'s ("NASD") Conduct Rules. We understand that under Rule 2720 (except as provided in Rule 2720(b)(1)(C) thereof) two entities are "affiliates" of each other if one entity controls, is controlled by, or is under common control with, the second entity and that "control" is presumed to exist if one entity (or, in the case of an NASD member, the entity and all "persons associated with" it (as defined in the NASD By-Laws)) beneficially owns 10% or more of the second entity's outstanding voting securities or, if the second entity is a partnership, if the first entity has a partnership interest in 10% or more of the second entity's distributable profits or losses.
(8) (If the Securities are not investment grade debt securities or preferred stock, or equity securities for which there exists a "bona fide independent market" (as defined in Rule 2720(b)(3) of the NASD's Conduct Rules) or otherwise exempted under Rule 2720(b)(7)(D) of the NASD's Conduct Rules:) We do not have a "conflict of interest" with the Issuer or the Guarantor under Rule 2720 of the NASD's Conduct Rules. In that regard, we specifically confirm that we, our "parent" (as defined in Rule 2720), affiliates and "persons associated with" us (as defined in the NASD By-Laws), in the aggregate do not (i) beneficially own 10% or more of the Issuer's or the Guarantor's "common equity", "preferred equity", or "subordinated debt" (as each such term is defined in Rule 2720), or (ii) in the case of an Issuer or Guarantor which is a partnership,
beneficially own a general, limited or special partnership interest in 10% or more of the Issuer's or Guarantor's distributable profits or losses.
(9) (If filing with the NASD is required:) Neither we nor any of our directors, officers, partners or "persons associated with" us (as defined in the NASD By-Laws) nor, to our knowledge, any "related person" (defined by the NASD to include counsel, financial consultants and advisors, finders, members of the selling or distribution group, any NASD member participating in the offering and any other persons associated with or related to and members of the immediate family of any of the foregoing) or any other broker-dealer, (a) within the last 12 months have purchased in private transactions, or intend before, at or within six months after the commencement of the public offering of the Securities to purchase in private transactions, any securities of the Issuer, the Guarantor or any Issuer Related Party (as hereinafter defined), (b) within the last 12 months had any dealings with the Issuer, the Guarantor, any Seller or any subsidiary or controlling person thereof (other than relating to the proposed Underwriting Agreement) as to which documents or information are required to be filed with the NASD pursuant to its Corporate Financing Rule, or (c) during the 12 months immediately preceding the filing of the Registration Statement (or, if there is none, the Offering Circular), have entered into any arrangement which provided or provides for the receipt of any item of value (including, but not limited to, cash payments and expense reimbursements) and/or the transfer of any warrants, options or other securities from the Issuer, the Guarantor or any Issuer Related Party to us or any related person.
(10) (If filing with the NASD is required:) There is no association or affiliation between us and (i) any officer or director of the Issuer, the Guarantor or any Issuer Related Party, or (ii) any securityholder of five percent or more (or, in the case of an initial public offering of equity securities, any securityholder) of any class of securities of the Issuer, the Guarantor or an Issuer Related Party; it being understood that for purposes of paragraph (9) above and this paragraph (10), the term "Issuer Related Party" includes any Seller, any affiliate of the Issuer the Guarantor or a Seller and the officers or general partners, directors, employees and securityholders thereof. (If there are any exceptions, state the identity of the person with whom the association or affiliation exists and, if relevant, the number of equity securities or the face value of debt securities owned by such person, the date such securities were acquired and the price paid for such securities).
(11) (If the Securities are not issued by a real estate investment trust:) No portion of the net offering proceeds from the sale of the Securities will be paid to us or any of our affiliates or "persons associated with" us (as defined in the NASD By-Laws) or members of the immediate family of any such person.
(12) (If the Securities are debt securities and their offer and sale is to be registered under the 1933 Act:) We are not an affiliate (as defined in Rule 0-2 under the Trust Indenture Act of 1939) of the Trustee for the Securities or of its
parent, if any. Neither the Trustee nor its parent, if any, nor any of their directors or executive officers is a "director, officer, partner, employee, appointee or representative" of ours (as those terms are defined in the Trust Indenture Act of 1939 or in the relevant instructions to Form T-1). We and our directors, partners, and executive officers, taken as a group, did not on the date specified in the Invitation Wire, and do not, own beneficially 1% or more of the shares of any class of voting securities of the Trustee or of its parent, if any. If we are a corporation, we do not have outstanding and have not assumed or guaranteed any securities issued otherwise than in our present corporate name.
(13) (If the Issuer is a public utility:) We are not a "holding company" or a "subsidiary company" or an "affiliate" of a "holding company" or of a "public-utility company", each as defined in the Public Utility Holding Company Act of 1935.
(14) If we are, or we are affiliated with, a U.S. or non-U.S. bank, we hereby represent that our participation in the offering of the Securities on the terms contemplated in the applicable AAU and the proposed Underwriting Agreement does not contravene any U.S. or state banking law restricting the exercise of securities powers in the United States.
Capitalized terms used but not defined herein shall have the respective meanings given to them in the applicable AAU.
EXHIBIT h.4
ADDITIONAL COMPENSATION AGREEMENT
March __, 2004
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, New York 10080
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), by and among Calamos Strategic Total Return Fund (the "Fund"), Calamos Asset Management, Inc. (the "Adviser") and each of the Underwriters named therein, with respect to the issue and sale of the Fund's Common Shares, as described therein. Reference is also made to (i) the Investment Management Agreement (the "Investment Management Agreement") between the Adviser and the Fund and (ii) the registration statement on Form N-2 with respect to the Common Shares of the Fund (the "Registration Statement"). Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement.
1. Agreement. The Adviser hereby confirms its agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") with respect to the service fees referred to in the "Underwriting" section of the Registration Statement, payable by the Adviser to the Underwriter. The Adviser agrees to pay the Underwriter a fee (the "Service Fee") at an aggregate annual rate of (A) 0.15% multiplied by (B) the Fund's Managed Assets (as defined in Section 3(b) hereof) multiplied by (C) a fraction, the numerator of which is the number of Common Shares sold by the Underwriter in the Fund's initial public offering as listed on Schedule I and the denominator of which is the total number of Common Shares sold in the Fund's initial public offering as listed on Schedule I (the product of (B) and (C) to be referred to as the "Base Amount"); provided, however, that such payments shall not, in the aggregate, exceed the "Maximum Service Fee Amount" (as defined in Section 4 hereof). In exchange for the Services Fee, the Underwriter will provide to the Adviser (i) after-market support services designed to maintain the visibility of the Fund on an ongoing basis, (ii) relevant information, studies or reports regarding general trends in the closed-end investment company and asset management industries, if reasonably obtainable, and consult with representatives of the Adviser in connection therewith and (iii) information to and consult with the Adviser with respect to applicable strategies designed to address market value discounts, if any.
2. Reserved.
3. Payment of Service Fee. (a) The Adviser shall pay the Service Fee, payable in arrears at the end of each calendar quarter, as follows: to the Underwriter, a Service Fee in an amount equal to 0.0375% of the Base Amount.
(b) For the purposes of this Agreement, "Managed Assets" means the total assets of the Fund (including any assets attributable to any leverage that may be outstanding) minus the sum of accrued liabilities (other than debt representing financial leverage). For this purpose the liquidation preference on any preferred shares will not constitute a liability.
(c) The Service Fee payable hereunder shall be paid to the Underwriter by wire transfer of immediately available funds within 30 days following the end of each calendar quarter to a bank account designated by the Underwriter. At the time of each payment of the Service Fee hereunder, the Adviser shall deliver to the Underwriter a statement indicating the amount of Managed Assets on which such payment was based.
(d) The initial payments of the Service Fee hereunder shall be with respect to the calendar quarter ending June 30, 2004. In the event that this Agreement terminates prior to the end of a calendar quarter, the Service Fee required to be paid hereunder shall be due and payable within 30 days following the termination hereof and shall be pro-rated in respect of the period prior to such termination. Notwithstanding the foregoing, if any payment hereunder would otherwise fall on a day that is not a business day, it shall be due on the next day that is a business day. The Service Fee payable hereunder shall be in addition to any fees paid by the Adviser pursuant to the Underwriting Agreement.
(e) The Adviser shall be permitted to terminate this Agreement at any time upon making a prepayment to the Underwriter of amounts otherwise payable hereunder. The amount of any such prepayment will be determined by mutual agreement of the Adviser and the Underwriter.
4. Maximum Service Fee Amount. The "Maximum Service Fee Amount" payable by the Adviser hereunder shall be four and one-half percent (4.5%) of the aggregate initial public offering price for the Common Shares purchased pursuant to the Underwriting Agreement (including all Underwritten Securities and Option Securities), minus (i) the amount payable by the Fund to the Underwriters pursuant to Section 6(i) of the Underwriting Agreement for partial reimbursement of certain underwriter expenses and (ii) the amount payable by the Adviser to Citigroup Global Markets Inc. and UBS Securities LLC pursuant to the Structuring Fee Agreements dated the date hereof.
5. Indemnification. The Adviser agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.
6. Term. This Agreement shall terminate on the earliest to occur of (a) the delivery by the Underwriter to the Adviser of written notice of the Underwriter's intent to terminate its provision of services pursuant to this Agreement; (b) the payment by the Adviser hereunder of the Maximum Service Fee Amount, (c) the prepayment by the Adviser of an agreed upon amount in accordance with Section 3(e) hereof, (d) the dissolution and winding up of the Fund and (e) the date on which the Investment Management Agreement or other advisory agreement between
that Fund and the Adviser or any successor in interest to the Adviser, including but not limited to an affiliate of the Adviser, shall terminate.
7. Not an Investment Adviser. The Adviser acknowledges that the Underwriter is not providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund's portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of the Underwriter, and the Underwriter is not hereby agreeing, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities; or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services.
8. Not Exclusive. Nothing herein shall be construed as prohibiting the Underwriter or its affiliates from acting as an underwriter for any other persons (including other registered investment companies or other investment advisers).
9. Assignment. This Agreement may not be assigned by any party without the prior written consent of the other party.
10. Amendment; Waiver. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.
11. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
12. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
The Agreement shall be effective as of the date first written above.
[END OF TEXT]
CALAMOS ASSET MANAGEMENT, INC.
By:______________________
Name:
Title:
Agreed and Accepted:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Schedule I
Common Shares sold by Underwriter
Total Number of Common Shares sold in Initial Public Offering
INDEMNIFICATION AGREEMENT
March __, 2004
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, New York 10080
Ladies and Gentlemen:
In connection with the engagement of Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Bank") to advise and assist the undersigned (together with its affiliates and subsidiaries, referred to as the "Company") with the matters set forth in the Additional Compensation Agreement dated March __, 2004 between the Company and the Bank (the "Agreement"), in the event that the Bank becomes involved in any capacity in any claim, suit, action, proceeding, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a "Proceeding") in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, the Company agrees to indemnify, defend and hold the Bank harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted solely from the gross negligence or willful misconduct of the Bank. In addition, in the event that the Bank becomes involved in any capacity in any Proceeding in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, the Company will reimburse the Bank for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by the Bank in connection therewith. If such indemnification were not to be available for any reason, the Company agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Company and its stockholders and affiliates and other constituencies, on the one hand, and the Bank, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and its stockholders and affiliates and other constituencies, on the one hand, and the party entitled to contribution, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Company and its stockholders and affiliates, on the one hand, and the party entitled to contribution, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received or paid or contemplated to be received or paid by the Company or its stockholders or affiliates and other constituencies, as the case may be, as a result of or in connection with the transaction (whether or not consummated) for which the Bank has been retained to perform financial services bears to the fees paid to the Bank under the Agreement; provided, that in no event shall the Company contribute less than the amount necessary to assure that the Bank is not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by the Bank pursuant to the Agreement. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information
provided by the Company or other conduct by the Company (or its employees or other agents), on the one hand, or by the Bank, on the other hand. The Company will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not the Bank is an actual or potential party to such Proceeding, without the Bank's prior written consent. For purposes of this Indemnification Agreement, the Bank shall include the Bank, any of its affiliates, each other person, if any, controlling the Bank or any of its affiliates, their respective officers, current and former directors, employees and agents, and the successors and assigns of all of the foregoing persons. The foregoing indemnity and contribution agreement shall be in addition to any rights that any indemnified party may have at common law or otherwise.
The Company agrees that neither the Bank nor any of its affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of either the Bank's engagement under the Agreement or any matter referred to in the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted solely from the gross negligence or willful misconduct of the Bank in performing the services that are the subject of the Agreement.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND THE BANK CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST THE BANK OR ANY INDEMNIFIED PARTY. EACH OF THE BANK AND THE COMPANY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of the Bank's engagement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.
Very truly yours,
CALAMOS ASSET MANAGEMENT, INC.
By: ______________________
Name:
Title:
Accepted and agreed to as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By: ______________________
Name:
Title:
INDEMNIFICATION AGREEMENT
March __, 2004
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, New York 10080
Ladies and Gentlemen:
In connection with the engagement of Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Bank") to advise and assist the undersigned (together with its affiliates and subsidiaries, referred to as the "Company") with the matters set forth in the Additional Compensation Agreement dated March __, 2004 between the Company and the Bank (the "Agreement"), in the event that the Bank becomes involved in any capacity in any claim, suit, action, proceeding, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a "Proceeding") in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, the Company agrees to indemnify, defend and hold the Bank harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted solely from the gross negligence or willful misconduct of the Bank. In addition, in the event that the Bank becomes involved in any capacity in any Proceeding in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, the Company will reimburse the Bank for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by the Bank in connection therewith. If such indemnification were not to be available for any reason, the Company agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Company and its stockholders and affiliates and other constituencies, on the one hand, and the Bank, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and its stockholders and affiliates and other constituencies, on the one hand, and the party entitled to contribution, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Company and its stockholders and affiliates, on the one hand, and the party entitled to contribution, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received or paid or contemplated to be received or paid by the Company or its stockholders or affiliates and other constituencies, as the case may be, as a result of or in connection with the transaction (whether or not consummated) for which the Bank has been retained to perform financial services bears to the fees paid to the Bank under the Agreement; provided, that in no event shall the Company contribute less than the amount necessary to assure that the Bank is not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by the Bank pursuant to the Agreement. Relative fault shall be determined by reference to, among other things, whether any alleged
untrue statement or omission or any other alleged conduct relates to information provided by the Company or other conduct by the Company (or its employees or other agents), on the one hand, or by the Bank, on the other hand. The Company will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not the Bank is an actual or potential party to such Proceeding, without the Bank's prior written consent. For purposes of this Indemnification Agreement, the Bank shall include the Bank, any of its affiliates, each other person, if any, controlling the Bank or any of its affiliates, their respective officers, current and former directors, employees and agents, and the successors and assigns of all of the foregoing persons. The foregoing indemnity and contribution agreement shall be in addition to any rights that any indemnified party may have at common law or otherwise.
The Company agrees that neither the Bank nor any of its affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of either the Bank's engagement under the Agreement or any matter referred to in the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted solely from the gross negligence or willful misconduct of the Bank in performing the services that are the subject of the Agreement.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND THE BANK CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST THE BANK OR ANY INDEMNIFIED PARTY. EACH OF THE BANK AND THE COMPANY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of the Bank's engagement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.
Very truly yours,
CALAMOS ASSET MANAGEMENT, INC.
By: ______________________
Name:
Title:
Accepted and agreed to as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By: ______________________
Name:
Title:
EXHIBIT h.5
STRUCTURING FEE AGREEMENT
March __, 2004
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), by and among Calamos Strategic Total Return Fund (the "Fund"), Calamos Asset Management, Inc. (the "Adviser") and each of the Underwriters named therein, with respect to the issue and sale of the Fund's Common Shares, as described therein. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Underwriting Agreement.
1. Structuring Fee. In consideration of your services in offering ongoing advice relating to the structure and design of the Fund, as well as advisory services with respect to the organization of the Fund and the suitability and marketability of its securities, the Adviser shall pay a structuring fee to you in the aggregate amount of $_______ (the "Structuring Fee"). The Structuring Fee shall be paid on or before September __, 2004 and shall be made by wire transfer to the order of Citigroup Global Markets Inc.
2. Term. This Agreement shall terminate upon the payment of the entire amount of the Structuring Fee, as specified in Section 1 hereof.
3. Indemnification. The Adviser agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement.
4. Not an Investment Adviser. The Adviser acknowledges that you are not providing any advice hereunder as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund's portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of you, and you are not agreeing hereby, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities; or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services.
5. Not Exclusive. Nothing herein shall be construed as prohibiting you or your affiliates from acting as an underwriter or financial adviser or in any other capacity for any other persons (including other registered investment companies or other investment managers).
6. Assignment. This Agreement may not be assigned by any party without prior written consent of the other party.
7. Amendment; Waiver. No provision of this Agreement may be amended or waived except by an instrument in writing signed by the parties hereto.
8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
9. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
This Agreement shall be effective as of the date first written above.
[END OF TEXT]
CALAMOS ASSET MANAGEMENT, INC.
By: __________________________
Name:
Title:
Agreed and Accepted:
CITIGROUP GLOBAL MARKETS INC.
By: ____________________________
Name:
Title:
INDEMNIFICATION AGREEMENT
March __, 2004
Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
In connection with the engagement of Citigroup Global Markets Inc. (the "Bank") to advise and assist the undersigned (together with its affiliates and subsidiaries, referred to as the "Company") with the matters set forth in the Structuring Fee Agreement dated March __, 2004 between the Company and the Bank (the "Agreement"), in the event that the Bank becomes involved in any capacity in any claim, suit, action, proceeding, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a "Proceeding") in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, the Company agrees to indemnify, defend and hold the Bank harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted solely from the gross negligence or willful misconduct of the Bank. In addition, in the event that the Bank becomes involved in any capacity in any Proceeding in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, the Company will reimburse the Bank for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by the Bank in connection therewith. If such indemnification were not to be available for any reason, the Company agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Company and its stockholders and affiliates and other constituencies, on the one hand, and the Bank, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and its stockholders and affiliates and other constituencies, on the one hand, and the party entitled to contribution, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Company and its stockholders and affiliates, on the one hand, and the party entitled to contribution, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received or paid or contemplated to be received or paid by the Company or its stockholders
or affiliates and other constituencies, as the case may be, as a result of or in connection with the transaction (whether or not consummated) for which the Bank has been retained to perform financial services bears to the fees paid to the Bank under the Agreement; provided, that in no event shall the Company contribute less than the amount necessary to assure that the Bank is not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by the Bank pursuant to the Agreement. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by the Company or other conduct by the Company (or its employees or other agents), on the one hand, or by the Bank, on the other hand. The Company will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not the Bank is an actual or potential party to such Proceeding, without the Bank's prior written consent. For purposes of this Indemnification Agreement, the Bank shall include the Bank, any of its affiliates, each other person, if any, controlling the Bank or any of its affiliates, their respective officers, current and former directors, employees and agents, and the successors and assigns of all of the foregoing persons. The foregoing indemnity and contribution agreement shall be in addition to any rights that any indemnified party may have at common law or otherwise.
The Company agrees that neither the Bank nor any of its affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of either the Bank's engagement under the Agreement or any matter referred to in the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted solely from the gross negligence or willful misconduct of the Bank in performing the services that are the subject of the Agreement.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND THE BANK CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY ANY THIRD PARTY AGAINST THE BANK OR ANY INDEMNIFIED PARTY. EACH OF THE BANK AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED
UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of the Bank's engagement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.
Very truly yours,
CALAMOS ASSET MANAGEMENT, INC.
By: ______________________
Name:
Title:
Accepted and agreed to as of the date first above written:
CITIGROUP GLOBAL MARKETS INC.
By: ______________________
Name:
Title:
EXHIBIT j.1
CUSTODY AGREEMENT
AGREEMENT, dated as of March 15, 2004 between Calamos Strategic Total Return Fund, a business trust organized and existing under the laws of the State of Delaware having its principal office and place of business at 1111 East Warrenville Road, Naperville, Illinois 60563-1493 (the "Fund") and The Bank of New York, a New York corporation authorized to do a banking business having its principal office and place of business at One Wall Street, New York, New York 10286 ("Custodian").
W I T N E S S E T H:
that for and in consideration of the mutual promises hereinafter set forth the Fund and Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words shall have the meanings set forth below:
1. "AUTHORIZED PERSON" shall be any person, whether or not an officer or employee of the Fund, duly authorized by the Fund's board to execute any Certificate or to give any Oral Instruction with respect to one or more Accounts, such persons to be designated in a Certificate annexed hereto as Schedule I hereto or such other Certificate as may be received by Custodian from time to time.
2. "BNY AFFILIATE" shall mean any office, branch or subsidiary of The Bank of New York Company, Inc.
3. "BOOK-ENTRY SYSTEM" shall mean the Federal Reserve/Treasury book-entry system for receiving and delivering securities, its successors and nominees.
4. "BUSINESS DAY" shall mean any day on which Custodian and relevant Depositories are open for business.
5. "CERTIFICATE" shall mean any notice, instruction, or other instrument in writing, authorized or required by this Agreement to be given to Custodian, which is actually received by Custodian by letter or facsimile transmission and signed on behalf of the Fund by an Authorized Person or a person reasonably believed by Custodian to be an Authorized Person.
6. "COMPOSITE CURRENCY UNIT" shall mean the Euro or any other composite currency unit consisting of the aggregate of specified amounts of specified currencies, as such unit may be constituted from time to time.
7. "DEPOSITORY" shall include (a) the Book-Entry System, (b) the Depository Trust Company, (c) any other clearing agency or securities depository registered with the Securities and Exchange Commission identified to the Fund from time to time, and (d) the respective successors and nominees of the foregoing.
8. "FOREIGN DEPOSITORY" shall mean (a) Euroclear, (b) Clearstream Banking, societe anonyme, (c) each Eligible Securities Depository as defined in Rule 17f-7 under the Investment Company Act of 1940, as amended, identified to the Fund from time to time, and (d) the respective successors and nominees of the foregoing.
9. "INSTRUCTIONS" shall mean communications transmitted by electronic or telecommunications media, including S.W.I.F.T., computer-to-computer interface, or dedicated transmission lines.
10. "ORAL INSTRUCTIONS" shall mean verbal instructions received by Custodian from an Authorized Person or from a person reasonably believed by Custodian to be an Authorized Person.
11. "SERIES" shall mean the various portfolios, if any, of the Fund listed on Schedule II hereto, and if none are listed references to Series shall be references to the Fund.
12. "SECURITIES" shall include, without limitation, any common stock and other equity securities, bonds, debentures and other debt securities, notes, mortgages or other obligations, and any instruments representing rights to receive, purchase, or subscribe for the same, or representing any other rights or interests therein (whether represented by a certificate or held in a Depository or by a Subcustodian).
13. "SUBCUSTODIAN" shall mean a bank (including any branch thereof) or other financial institution (other than a Foreign Depository) located outside the U.S. which is utilized by Custodian in connection with the purchase, sale or custody of Securities hereunder and identified to the Fund from time to time, and their respective successors and nominees.
ARTICLE II
APPOINTMENT OF CUSTODIAN; ACCOUNTS;
REPRESENTATIONS, WARRANTIES, AND COVENANTS
1. (a) The Fund hereby appoints Custodian as custodian of all Securities and cash at any time delivered to Custodian during the term of this Agreement, and authorizes Custodian to hold Securities in registered form in its name or the name of its nominees. Custodian hereby accepts such appointment and agrees to establish and maintain one or more securities accounts and cash accounts for each Series in which Custodian will hold Securities and cash as provided herein. Custodian shall maintain books and records segregating the assets of each Series from the assets of any other Series. Such accounts (each, an "Account"; collectively, the "Accounts") shall be in the name of the Fund.
(b) Custodian may from time to time establish on its books and records such sub-accounts within each Account as the Fund and Custodian may agree upon (each a "Special
Account"), and Custodian shall reflect therein such assets as the Fund may specify in a Certificate or Instructions.
(c) Custodian may from time to time establish pursuant to a written agreement with and for the benefit of a broker, dealer, future commission merchant or other third party identified in a Certificate or Instructions such accounts on such terms and conditions as the Fund and Custodian shall agree, and Custodian shall transfer to such account such Securities and money as the Fund may specify in a Certificate or Instructions.
2. The Fund hereby represents and warrants, which representations and warranties shall be continuing and shall be deemed to be reaffirmed upon each delivery of a Certificate or each giving of Oral Instructions or Instructions by the Fund, that:
(a) It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement, and to perform its obligations hereunder;
(b) This Agreement has been duly authorized, executed and delivered by the Fund, approved by a resolution of its board, constitutes a valid and legally binding obligation of the Fund, enforceable in accordance with its terms, and there is no statute, regulation, rule, order or judgment binding on it, and no provision of its charter or by-laws, nor of any mortgage, indenture, credit agreement or other contract binding on it or affecting its property, which would prohibit its execution or performance of this Agreement;
(c) It is conducting its business in substantial compliance with all applicable laws and requirements, both state and federal, and has obtained all regulatory licenses, approvals and consents necessary to carry on its business as now conducted;
(d) It will not use the services provided by Custodian hereunder in any manner that is, or will result in, a violation of any law, rule or regulation applicable to the Fund;
(e) Its board or its foreign custody manager, as defined in Rule 17f-5 under the Investment Company Act of 1940, as amended (the "`40 Act"), has determined that use of each Subcustodian (including any Replacement Custodian) and each Depository which Custodian or any Subcustodian is authorized to utilize in accordance with Section 1(a) of Article III hereof, satisfies the applicable requirements of the `40 Act and Rules 17f-4 or 17f-5 thereunder, as the case may be;
(f) The Fund or its investment adviser has determined that the custody arrangements of each Foreign Depository provide reasonable safeguards against the custody risks associated with maintaining assets with such Foreign Depository within the meaning of Rule 17f-7 under the `40 Act;
(g) It is fully informed of the protections and risks associated with various methods of transmitting Instructions and Oral Instructions and delivering Certificates to Custodian, understands that there may be more secure methods of transmitting or delivering the same than the methods selected by the Fund, agrees that the security procedures (if any) to be
utilized provide a commercially reasonable degree of protection in light of its particular needs and circumstances, and acknowledges and agrees that Instructions need not be reviewed by Custodian, may conclusively be presumed by Custodian to have been given by person(s) duly authorized, and may be acted upon as given;
(h) It shall manage its borrowings, including, without limitation, any advance or overdraft (including any day-light overdraft) in the Accounts, so that the aggregate of its total borrowings for each Series does not exceed the amount such Series is permitted to borrow under the `40 Act;
(i) Its transmission or giving of, and Custodian acting upon and in reliance on, Certificates, Instructions, or Oral Instructions pursuant to this Agreement shall at all times comply with the `40 Act;
(j) It shall impose and maintain restrictions on the destinations to which cash may be disbursed by Instructions to ensure that each disbursement is for a proper purpose; and
(k) It has the right to make the pledge and grant the security interest and security entitlement to Custodian contained in Section 1 of Article V hereof, free of any right of redemption or prior claim of any other person or entity, such pledge and such grants shall have a first priority subject to no setoffs, counterclaims, or other liens or grants prior to or on a parity therewith, and it shall take such additional steps as Custodian may require to assure such priority.
3. The Fund hereby covenants that it shall from time to time complete and execute and deliver to Custodian upon Custodian's request a Form FR U-1 (or successor form) whenever the Fund borrows from Custodian any money to be used for the purchase or carrying of margin stock as defined in Federal Reserve Regulation U.
ARTICLE III
CUSTODY AND RELATED SERVICES
1. (a) Subject to the terms hereof, the Fund hereby authorizes Custodian to hold any Securities received by it from time to time for the Fund's account. Custodian shall be entitled to utilize Depositories, Subcustodians, and, subject to subsection(c) of this Section 1, Foreign Depositories, to the extent possible in connection with its performance hereunder. Securities and cash held in a Depository or Foreign Depository will be held subject to the rules, terms and conditions of such entity. Securities and cash held through Subcustodians shall be held subject to the terms and conditions of Custodian's agreements with such Subcustodians. Subcustodians may be authorized to hold Securities in Foreign Depositories in which such Subcustodians participate. Unless otherwise required by local law or practice or a particular subcustodian agreement, Securities deposited with a Subcustodian, a Depositary or a Foreign Depository will be held in a commingled account, in the name of Custodian, holding only Securities held by Custodian as custodian for its customers. Custodian shall identify on its books and records the Securities and cash belonging to the Fund, whether held directly or indirectly through Depositories, Foreign Depositories, or Subcustodians. Custodian shall, directly or indirectly through Subcustodians, Depositories, or Foreign Depositories, endeavor, to the extent feasible, to
hold Securities in the country or other jurisdiction in which the principal trading market for such Securities is located, where such Securities are to be presented for cancellation and/or payment and/or registration, or where such Securities are acquired. Custodian at any time may cease utilizing any Subcustodian and/or may replace a Subcustodian with a different Subcustodian (the "Replacement Subcustodian"). In the event Custodian selects a Replacement Subcustodian, Custodian shall not utilize such Replacement Subcustodian until after the Fund's board or foreign custody manager has determined that utilization of such Replacement Subcustodian satisfies the requirements of the `40 Act and Rule 17f-5 thereunder.
(b) Unless Custodian has received a Certificate or
Instructions to the contrary, Custodian shall hold Securities indirectly through
a Subcustodian only if (i) the Securities are not subject to any right, charge,
security interest, lien or claim of any kind in favor of such Subcustodian or
its creditors or operators, including a receiver or trustee in bankruptcy or
similar authority, except for a claim of payment for the safe custody or
administration of Securities on behalf of the Fund by such Subcustodian, and
(ii) beneficial ownership of the Securities is freely transferable without the
payment of money or value other than for safe custody or administration.
(c) With respect to each Foreign Depository, Custodian shall exercise reasonable care, prudence, and diligence (i) to provide the Fund with an analysis of the custody risks associated with maintaining assets with the Foreign Depository, and (ii) to monitor such custody risks on a continuing basis and promptly notify the Fund of any material change in such risks. The Fund acknowledges and agrees that such analysis and monitoring shall be made on the basis of, and limited by, information gathered from Subcustodians or through publicly available information otherwise obtained by Custodian, and shall not include any evaluation of Country Risks. As used herein the term "Country Risks" shall mean with respect to any Foreign Depository: (a) the financial infrastructure of the country in which it is organized, (b) such country's prevailing custody and settlement practices, (c) nationalization, expropriation or other governmental actions, (d) such country's regulation of the banking or securities industry, (e) currency controls, restrictions, devaluations or fluctuations, and (f) market conditions which affect the order execution of securities transactions or affect the value of securities.
2. Custodian shall furnish the Fund with an advice of daily transactions (including a confirmation of each transfer of Securities) and a monthly summary of all transfers to or from the Accounts.
3. With respect to all Securities held hereunder, Custodian shall, unless otherwise instructed to the contrary:
(a) Receive all income and other payments and advise the Fund as promptly as practicable of any such amounts due but not paid;
(b) Present for payment and receive the amount paid upon all Securities which may mature and advise the Fund as promptly as practicable of any such amounts due but not paid;
(c) Forward to the Fund copies of all information or documents that it may actually receive from an issuer of Securities which, in the opinion of Custodian, are intended for the beneficial owner of Securities;
(d) Execute, as custodian, any certificates of ownership, affidavits, declarations or other certificates under any tax laws now or hereafter in effect in connection with the collection of bond and note coupons;
(e) Hold directly or through a Depository, a Foreign Depository, or a Subcustodian all rights and similar Securities issued with respect to any Securities credited to an Account hereunder; and
(f) Endorse for collection checks, drafts or other negotiable instruments.
4. (a) Custodian shall notify the Fund of rights or discretionary actions with respect to Securities held hereunder, and of the date or dates by when such rights must be exercised or such action must be taken, provided that Custodian has actually received, from the issuer or the relevant Depository (with respect to Securities issued in the United States) or from the relevant Subcustodian, Foreign Depository, or a nationally or internationally recognized bond or corporate action service to which Custodian subscribes, timely notice of such rights or discretionary corporate action or of the date or dates such rights must be exercised or such action must be taken. Absent actual receipt of such notice, Custodian shall have no liability for failing to so notify the Fund.
(b) Whenever Securities (including, but not limited to, warrants, options, tenders, options to tender or non-mandatory puts or calls) confer discretionary rights on the Fund or provide for discretionary action or alternative courses of action by the Fund, the Fund shall be responsible for making any decisions relating thereto and for directing Custodian to act. In order for Custodian to act, it must receive the Fund's Certificate or Instructions at Custodian's offices, addressed as Custodian may from time to time request, not later than noon (New York time) at least two (2) Business Days prior to the last scheduled date to act with respect to such Securities (or such earlier date or time as Custodian may specify to the Fund). Absent Custodian's timely receipt of such Certificate or Instructions, Custodian shall not be liable for failure to take any action relating to or to exercise any rights conferred by such Securities.
5. All voting rights with respect to Securities, however registered, shall be exercised by the Fund or its designee. For Securities issued in the United States, Custodian's only duty shall be to mail to the Fund any documents (including proxy statements, annual reports and signed proxies) actually received by Custodian relating to the exercise of such voting rights. With respect to Securities issued outside of the United States, Custodian's only duty shall be to provide the Fund with access to a provider of global proxy services at the Fund's request. The Fund shall be responsible for all costs associated with its use of such services.
6. Custodian shall promptly advise the Fund upon Custodian's actual receipt of notification of the partial redemption, partial payment or other action affecting less than all Securities of the relevant class. If Custodian, any Subcustodian, any Depository, or any Foreign
Depository holds any Securities in which the Fund has an interest as part of a fungible mass, Custodian, such Subcustodian, Depository, or Foreign Depository may select the Securities to participate in such partial redemption, partial payment or other action in any non-discriminatory manner that it customarily uses to make such selection.
7. Custodian shall not under any circumstances accept bearer interest coupons which have been stripped from United States federal, state or local government or agency securities unless explicitly agreed to by Custodian in writing.
8. The Fund shall be liable for all taxes, assessments, duties and other governmental charges, including any interest or penalty with respect thereto ("Taxes"), with respect to any cash or Securities held on behalf of the Fund or any transaction related thereto. The Fund shall indemnify Custodian and each Subcustodian for the amount of any Tax that Custodian, any such Subcustodian or any other withholding agent is required under applicable laws (whether by assessment or otherwise) to pay on behalf of, or in respect of income earned by or payments or distributions made to or for the account of the Fund (including any payment of Tax required by reason of an earlier failure to withhold). Custodian shall, or shall instruct the applicable Subcustodian or other withholding agent to, withhold the amount of any Tax which is required to be withheld under applicable law upon collection of any dividend, interest or other distribution made with respect to any Security and any proceeds or income from the sale, loan or other transfer of any Security. In the event that Custodian or any Subcustodian is required under applicable law to pay any Tax on behalf of the Fund, Custodian is hereby authorized to withdraw cash from any cash account in the amount required to pay such Tax and to use such cash, or to remit such cash to the appropriate Subcustodian or other withholding agent, for the timely payment of such Tax in the manner required by applicable law. If the aggregate amount of cash in all cash accounts is not sufficient to pay such Tax, Custodian shall promptly notify the Fund of the additional amount of cash (in the appropriate currency) required, and the Fund shall directly deposit such additional amount in the appropriate cash account promptly after receipt of such notice, for use by Custodian as specified herein. In the event that Custodian reasonably believes that Fund is eligible, pursuant to applicable law or to the provisions of any tax treaty, for a reduced rate of, or exemption from, any Tax which is otherwise required to be withheld or paid on behalf of the Fund under any applicable law, Custodian shall, or shall instruct the applicable Subcustodian or withholding agent to, either withhold or pay such Tax at such reduced rate or refrain from withholding or paying such Tax, as appropriate; provided that Custodian shall have received from the Fund all documentary evidence of residence or other qualification for such reduced rate or exemption required to be received under such applicable law or treaty. In the event that Custodian reasonably believes that a reduced rate of, or exemption from, any Tax is obtainable only by means of an application for refund, Custodian and the applicable Subcustodian shall have no responsibility for the accuracy or validity of any forms or documentation provided by the Fund to Custodian hereunder. The Fund hereby agrees to indemnify and hold harmless Custodian and each Subcustodian in respect of any liability arising from any underwithholding or underpayment of any Tax which results from the inaccuracy or invalidity of any such forms or other documentation, and such obligation to indemnify shall be a continuing obligation of the Fund, its successors and assigns notwithstanding the termination of this Agreement.
9. (a) For the purpose of settling Securities and foreign exchange transactions, the Fund shall provide Custodian with sufficient immediately available funds for all transactions by such time and date as conditions in the relevant market dictate. As used herein, "sufficient immediately available funds" shall mean either (i) sufficient cash denominated in U.S. dollars to purchase the necessary foreign currency, or (ii) sufficient applicable foreign currency, to settle the transaction. Custodian shall provide the Fund with immediately available funds each day which result from the actual settlement of all sale transactions, based upon advices received by Custodian from Subcustodians, Depositories, and Foreign Depositories. Such funds shall be in U.S. dollars or such other currency as the Fund may specify to Custodian.
(b) Any foreign exchange transaction effected by Custodian in connection with this Agreement may be entered with Custodian or a BNY Affiliate acting as principal or otherwise through customary banking channels. The Fund may issue a standing Certificate or Instructions with respect to foreign exchange transactions, but Custodian may establish rules or limitations concerning any foreign exchange facility made available to the Fund. The Fund shall bear all risks of investing in Securities or holding cash denominated in a foreign currency.
(c) To the extent that Custodian has agreed to provide pricing or other information services in connection with this Agreement, Custodian is authorized to utilize any vendor (including brokers and dealers of Securities) reasonably believed by Custodian to be reliable to provide such information. The Fund understands that certain pricing information with respect to complex financial instruments (e.g., derivatives) may be based on calculated amounts rather than actual market transactions and may not reflect actual market values, and that the variance between such calculated amounts and actual market values may or may not be material. Where vendors do not provide information for particular Securities or other property, an Authorized Person may advise Custodian in a Certificate regarding the fair market value of, or provide other information with respect to, such Securities or property as determined by it in good faith. Custodian shall not be liable for any loss, damage or expense incurred as a result of errors or omissions with respect to any pricing or other information utilized by Custodian hereunder.
10. Custodian shall promptly send to the Fund (a) any reports it receives from a Depository on such Depository's system of internal accounting control, and (b) such reports on its own system of internal accounting control as the Fund may reasonably request from time to time.
11. Until such time as Custodian receives a certificate to the contrary with respect to a particular Security, Custodian may release the identity of the Fund to an issuer which requests such information pursuant to the Shareholder Communications Act of 1985 for the specific purpose of direct communications between such issuer and shareholder.
ARTICLE IV
PURCHASE AND SALE OF SECURITIES;
CREDITS TO ACCOUNT
1. Promptly after each purchase or sale of Securities by the Fund, the Fund shall deliver to Custodian a Certificate or Instructions, or with respect to a purchase or sale of a Security
generally required to be settled on the same day the purchase or sale is made, Oral Instructions specifying all information Custodian may reasonably request to settle such purchase or sale. Custodian shall account for all purchases and sales of Securities on the actual settlement date unless otherwise agreed by Custodian.
2. The Fund understands that when Custodian is instructed to deliver Securities against payment, delivery of such Securities and receipt of payment therefor may not be completed simultaneously. Notwithstanding any provision in this Agreement to the contrary, settlements, payments and deliveries of Securities may be effected by Custodian or any Subcustodian in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction in which the transaction occurs, including, without limitation, delivery to a purchaser or dealer therefor (or agent) against receipt with the expectation of receiving later payment for such Securities. The Fund assumes full responsibility for all risks, including, without limitation, credit risks, involved in connection with such deliveries of Securities.
3. Custodian may, as a matter of bookkeeping convenience or by separate agreement with the Fund, credit the Account with the proceeds from the sale, redemption or other disposition of Securities or interest, dividends or other distributions payable on Securities prior to its actual receipt of final payment therefor. All such credits shall be conditional until Custodian's actual receipt of final payment and may be reversed by Custodian to the extent that final payment is not received. Payment with respect to a transaction will not be "final" until Custodian shall have received immediately available funds which under applicable local law, rule and/or practice are irreversible and not subject to any security interest, levy or other encumbrance, and which are specifically applicable to such transaction.
ARTICLE V
OVERDRAFTS OR INDEBTEDNESS
1. If Custodian should in its sole discretion advance funds on behalf of any Series which results in an overdraft (including, without limitation, any day-light overdraft) because the money held by Custodian in an Account for such Series shall be insufficient to pay the total amount payable upon a purchase of Securities specifically allocated to such Series, as set forth in a Certificate, Instructions or Oral Instructions, or if an overdraft arises in the separate account of a Series for some other reason, including, without limitation, because of a reversal of a conditional credit or the purchase of any currency, or if the Fund is for any other reason indebted to Custodian with respect to a Series, including any indebtedness to The Bank of New York under the Fund's Cash Management and Related Services Agreement (except a borrowing for investment or for temporary or emergency purposes using Securities as collateral pursuant to a separate agreement and subject to the provisions of Section 2 of this Article), such overdraft or indebtedness shall be deemed to be a loan made by Custodian to the Fund for such Series payable on demand and shall bear interest from the date incurred at a rate per annum ordinarily charged by Custodian to its institutional customers, as such rate may be adjusted from time to time. In addition, the Fund hereby agrees that Custodian shall to the maximum extent permitted by law have a continuing lien, security interest, and security entitlement in and to any property, including, without limitation, any investment property or any financial asset, of such Series at
any time held by Custodian for the benefit of such Series or in which such Series may have an interest which is then in Custodian's possession or control or in possession or control of any third party acting in Custodian's behalf. The Fund authorizes Custodian, in its sole discretion, at any time to charge any such overdraft or indebtedness together with interest due thereon against any balance of account standing to such Series' credit on Custodian's books.
2. If the Fund borrows money from any bank (including Custodian if the borrowing is pursuant to a separate agreement) for investment or for temporary or emergency purposes using Securities held by Custodian hereunder as collateral for such borrowings, the Fund shall deliver to Custodian a Certificate specifying with respect to each such borrowing: (a) the Series to which such borrowing relates; (b) the name of the bank, (c) the amount of the borrowing, (d) the time and date, if known, on which the loan is to be entered into, (e) the total amount payable to the Fund on the borrowing date, (f) the Securities to be delivered as collateral for such loan, including the name of the issuer, the title and the number of shares or the principal amount of any particular Securities, and (g) a statement specifying whether such loan is for investment purposes or for temporary or emergency purposes and that such loan is in conformance with the `40 Act and the Fund's prospectus. Custodian shall deliver on the borrowing date specified in a Certificate the specified collateral against payment by the lending bank of the total amount of the loan payable, provided that the same conforms to the total amount payable as set forth in the Certificate. Custodian may, at the option of the lending bank, keep such collateral in its possession, but such collateral shall be subject to all rights therein given the lending bank by virtue of any promissory note or loan agreement. Custodian shall deliver such Securities as additional collateral as may be specified in a Certificate to collateralize further any transaction described in this Section. The Fund shall cause all Securities released from collateral status to be returned directly to Custodian, and Custodian shall receive from time to time such return of collateral as may be tendered to it. In the event that the Fund fails to specify in a Certificate the Series, the name of the issuer, the title and number of shares or the principal amount of any particular Securities to be delivered as collateral by Custodian, Custodian shall not be under any obligation to deliver any Securities.
ARTICLE VI
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any shares issued by the Fund ("Shares") it shall deliver to Custodian a Certificate or Instructions specifying the amount of money and/or Securities to be received by Custodian for the sale of such Shares and specifically allocated to an Account for such Series.
2. Upon receipt of such money, Custodian shall credit such money to an Account in the name of the Series for which such money was received.
3. Except as provided hereinafter, whenever the Fund desires Custodian to make payment out of the money held by Custodian hereunder in connection with a redemption of any Shares, it shall furnish to Custodian:
(a) a resolution of the Fund's Board directing the Fund's transfer agent to redeem the Shares, and
(b) a Certificate specifying the number and Series of Shares redeemed, and the amount to be paid for such Shares.
4. Upon receipt from the Fund's transfer agent of an advice setting forth the Series and number of Shares received by such transfer agent for redemption and that such Shares are in good form for redemption, the Custodian shall make payment to such transfer agent, out of the money held in the Account of the appropriate Series, of the total amount specified in the Certificate issued pursuant to the foregoing paragraph 3 of this Article.
ARTICLE VII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. Whenever the Fund shall determine to pay a dividend or distribution on Shares it shall furnish to Custodian Instructions or a Certificate setting forth with respect to the Series specified therein the date of the declaration of such dividend or distribution, the total amount payable, and the payment date.
2. Upon the payment date specified in such Instructions or Certificate, Custodian shall pay out of the money held for the account of such Series the total amount payable to the dividend agent of the Fund specified therein.
ARTICLE VIII
CONCERNING CUSTODIAN
1. (a) Except as otherwise expressly provided herein, Custodian shall not be liable for any costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees (collectively, "Losses"), incurred by or asserted against the Fund, except those Losses arising out of Custodian's own negligence or willful misconduct. Custodian shall have no liability whatsoever for the action or inaction of any Depositories, or, except to the extent such action or inaction is a direct result of the Custodian's failure to fulfill its duties hereunder, of any Foreign Depositories. With respect to any Losses incurred by the Fund as a result of the acts or any failures to act by any Subcustodian (other than a BNY Affiliate), Custodian shall take appropriate action to recover such Losses from such Subcustodian; and Custodian's sole responsibility and liability to the Fund shall be limited to amounts so received from such Subcustodian (exclusive of costs and expenses incurred by Custodian). In no event shall Custodian be liable to the Fund or any third party for special, indirect or consequential damages, or lost profits or loss of business, arising in connection with this Agreement, nor shall BNY or any Subcustodian be liable: (i) for acting in accordance with any Certificate or Oral Instructions actually received by Custodian and reasonably believed by Custodian to be given by an Authorized Person; (ii) for acting in accordance with Instructions without reviewing the same; (iii) for conclusively presuming that all Instructions are given only by person(s) duly authorized; (iv) for conclusively presuming that all disbursements of cash directed by the Fund, whether by a Certificate, an Oral Instruction, or an Instruction, are in accordance with Section 2(i) of Article II hereof; (v) for
holding property in any particular country, including, but not limited to, Losses resulting from nationalization, expropriation or other governmental actions; regulation of the banking or securities industry; exchange or currency controls or restrictions, devaluations or fluctuations; availability of cash or Securities or market conditions which prevent the transfer of property or execution of Securities transactions or affect the value of property; (vi) for any Losses due to forces beyond the reasonable control of Custodian, including without limitation strikes, work stoppages, acts of war or terrorism, insurrection, revolution, nuclear or natural catastrophes or acts of God, or interruptions, loss or malfunctions of utilities, caused by a force outside the reasonable control of the Custodian, communications or computer (software and hardware) services; (vii) for the insolvency of any Subcustodian (other than a BNY Affiliate), any Depository, or, except to the extent such action or inaction is a direct result of the Custodian's failure to fulfill its duties hereunder, any Foreign Depository; or (viii) for any Losses arising from the applicability of any law or regulation now or hereafter in effect, or from the occurrence of any event, including, without limitation, implementation or adoption of any rules or procedures of a Foreign Depository, which may affect, limit, prevent or impose costs or burdens on, the transferability, convertibility, or availability of any currency or Composite Currency Unit in any country or on the transfer of any Securities, and in no event shall Custodian be obligated to substitute another currency for a currency (including a currency that is a component of a Composite Currency Unit) whose transferability, convertibility or availability has been affected, limited, or prevented by such law, regulation or event, and to the extent that any such law, regulation or event imposes a cost or charge upon Custodian in relation to the transferability, convertibility, or availability of any cash currency or Composite Currency Unit, such cost or charge shall be for the account of the Fund, and Custodian may treat any account denominated in an affected currency as a group of separate accounts denominated in the relevant component currencies.
(b) Custodian may enter into subcontracts, agreements and understandings with any BNY Affiliate, whenever and on such terms and conditions as it deems necessary or appropriate to perform its services hereunder. No such subcontract, agreement or understanding shall discharge Custodian from its obligations hereunder.
(c) The Fund agrees to indemnify Custodian and hold Custodian harmless from and against any and all Losses sustained or incurred by or asserted against Custodian by reason of or as a result of any action or inaction, or arising out of Custodian's performance hereunder, including reasonable fees and expenses of counsel incurred by Custodian in a successful defense of claims by the Fund; provided however, that the Fund shall not indemnify Custodian for those Losses arising out of Custodian's own negligence or willful misconduct. This indemnity shall be a continuing obligation of the Fund, its successors and assigns, notwithstanding the termination of this Agreement.
2. Without limiting the generality of the foregoing, Custodian shall be under no obligation to inquire into, and shall not be liable for:
(a) Any Losses incurred by the Fund or any other person as a result of the receipt or acceptance of fraudulent, forged or invalid Securities, or Securities which are otherwise not freely transferable or deliverable without encumbrance in any relevant market;
(b) The validity of the issue of any Securities purchased, sold, or written by or for the Fund, the legality of the purchase, sale or writing thereof, or the propriety of the amount paid or received therefor;
(c) The legality of the sale or redemption of any Shares, or the propriety of the amount to be received or paid therefor;
(d) The legality of the declaration or payment of any dividend or distribution by the Fund;
(e) The legality of any borrowing by the Fund;
(f) The legality of any loan of portfolio Securities, nor shall Custodian be under any duty or obligation to see to it that any cash or collateral delivered to it by a broker, dealer or financial institution or held by it at any time as a result of such loan of portfolio Securities is adequate security for the Fund against any loss it might sustain as a result of such loan, which duty or obligation shall be the sole responsibility of the Fund. In addition, Custodian shall be under no duty or obligation to see that any broker, dealer or financial institution to which portfolio Securities of the Fund are lent makes payment to it of any dividends or interest which are payable to or for the account of the Fund during the period of such loan or at the termination of such loan, provided, however that Custodian shall promptly notify the Fund in the event that such dividends or interest are not paid and received when due;
(g) The sufficiency or value of any amounts of money and/or Securities held in any Special Account in connection with transactions by the Fund; whether any broker, dealer, futures commission merchant or clearing member makes payment to the Fund of any variation margin payment or similar payment which the Fund may be entitled to receive from such broker, dealer, futures commission merchant or clearing member, or whether any payment received by Custodian from any broker, dealer, futures commission merchant or clearing member is the amount the Fund is entitled to receive, or to notify the Fund of Custodian's receipt or non-receipt of any such payment; or
(h) Whether any Securities at any time delivered to, or held by it or by any Subcustodian, for the account of the Fund and specifically allocated to a Series are such as properly may be held by the Fund or such Series under the provisions of its then current prospectus and statement of additional information, or to ascertain whether any transactions by the Fund, whether or not involving Custodian, are such transactions as may properly be engaged in by the Fund.
3. Custodian may, with respect to questions of law specifically regarding an Account, obtain the advice of counsel and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice.
4. Custodian shall be under no obligation to take action to collect any amount payable on Securities in default, or if payment is refused after due demand and presentment.
5. Custodian shall have no duty or responsibility to inquire into, make recommendations, supervise, or determine the suitability of any transactions affecting any Account.
6. The Fund shall pay to Custodian the fees and charges as may be specifically agreed upon from time to time and such other fees and charges at Custodian's standard rates for such services as may be applicable. The Fund shall reimburse Custodian for all reasonable costs associated with the conversion of the Fund's Securities hereunder and the transfer of Securities and records kept in connection with this Agreement. The Fund shall also reimburse Custodian for out-of-pocket expenses which are a normal incident of the services provided hereunder.
7. Custodian has the right to debit any cash account for any amount payable by the Fund in connection with any and all obligations of the Fund to Custodian. In addition to the rights of Custodian under applicable law and other agreements, at any time when the Fund shall not have honored any of its obligations to Custodian, Custodian shall have the right without notice to the Fund to retain or set-off, against such obligations of the Fund, any Securities or cash Custodian or a BNY Affiliate may directly or indirectly hold for the account of the Fund, and any obligations (whether matured or unmatured) that Custodian or a BNY Affiliate may have to the Fund in any currency or Composite Currency Unit. Any such asset of, or obligation to, the Fund may be transferred to Custodian and any BNY Affiliate in order to effect the above rights.
8. The Fund agrees to forward to Custodian a Certificate or Instructions confirming Oral Instructions by the close of business of the same day that such Oral Instructions are given to Custodian. The Fund agrees that the fact that such confirming Certificate or Instructions are not received or that a contrary Certificate or contrary Instructions are received by Custodian shall in no way affect the validity or enforceability of transactions authorized by such Oral Instructions and effected by Custodian. If the Fund elects to transmit Instructions through an on-line communications system offered by Custodian, the Fund's use thereof shall be subject to the Terms and Conditions attached as Appendix I hereto, and Custodian shall provide user and authorization codes, passwords and authentication keys only to an Authorized Person or a person reasonably believed by Custodian to be an Authorized Person.
9. The books and records pertaining to the Fund which are in possession of Custodian shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the `40 Act and the rules thereunder. The Fund, or its authorized representatives, shall have access to such books and records during Custodian's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by Custodian to the Fund or its authorized representative. Upon the reasonable request of the Fund, Custodian shall provide in hard copy or on computer disc any records included in any such delivery which are maintained by Custodian on a computer disc, or are similarly maintained.
10. It is understood that Custodian is authorized to supply any information regarding the Accounts which is required by any law, regulation or rule now or hereafter in effect. The Custodian shall provide the Fund with any report obtained by the Custodian on the system of internal accounting control of a Depository, and with such reports on its own system of internal accounting control as the Fund may reasonably request from time to time.
11. Custodian shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement or as are required of Custodian by law, and no covenant or obligation shall be implied against Custodian in connection with this Agreement.
ARTICLE IX
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than sixty (60) days after the date of giving of such notice. In the event such notice is given by the Fund, it shall be accompanied by a copy of a resolution of the board of the Fund, certified by the Secretary or any Assistant Secretary, electing to terminate this Agreement and designating a successor custodian or custodians, each of which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. In the event such notice is given by Custodian, the Fund shall, on or before the termination date, deliver to Custodian a copy of a resolution of the board of the Fund, certified by the Secretary or any Assistant Secretary, designating a successor custodian or custodians. In the absence of such designation by the Fund, Custodian may designate a successor custodian which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon the date set forth in such notice this Agreement shall terminate, and Custodian shall upon receipt of a notice of acceptance by the successor custodian on that date deliver directly to the successor custodian all Securities and money then owned by the Fund and held by it as Custodian, after deducting all fees, expenses and other amounts for the payment or reimbursement of which it shall then be entitled under this Agreement.
2. If a successor custodian is not designated by the Fund or Custodian in accordance with the preceding Section, the Fund shall upon the date specified in the notice of termination of this Agreement and upon the delivery by Custodian of all Securities (other than Securities which cannot be delivered to the Fund) and money then owned by the Fund be deemed to be its own custodian and Custodian shall thereby be relieved of all duties and responsibilities pursuant to this Agreement, other than the duty with respect to Securities which cannot be delivered to the Fund to hold such Securities hereunder in accordance with this Agreement.
ARTICLE X
MISCELLANEOUS
1. The Fund agrees to furnish to Custodian a new Certificate of Authorized Persons in the event of any change in the then present Authorized Persons. Until such new Certificate is received, Custodian shall be fully protected in acting upon Certificates or Oral Instructions of such present Authorized Persons.
2. Any notice or other instrument in writing, authorized or required by this Agreement to be given to Custodian, shall be sufficiently given if addressed to Custodian and received by it at
its offices at 100 Church Street, New York, New York 10286, or at such other place as Custodian may from time to time designate in writing.
Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund shall be sufficiently given if addressed to the Fund and received by it at its offices at 1111 East Warrenville Road, Naperville, Illinois 60563-1493, or at such other place as the Fund may from time to time designate in writing.
3. Each and every right granted to either party hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of either party to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by either party of any right preclude any other or future exercise thereof or the exercise of any other right.
4. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any exclusive jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected thereby. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties, except that any amendment to the Schedule I hereto need be signed only by the Fund and any amendment to Appendix I hereto need be signed only by Custodian. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by either party without the written consent of the other.
5. This Agreement shall be construed in accordance with the substantive laws of the State of New York, without regard to conflicts of laws principles thereof. The Fund and Custodian hereby consent to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder. The Fund hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. The Fund and Custodian each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement.
6. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the Fund and Custodian have caused this Agreement to be executed by their respective officers, thereunto duly authorized, as of the day and year first above written.
Calamos STRATEGIC TOTAL
RETURN Fund
By: /s/ Nimish Bhatt
----------------------------------
Title: Nimish Bhatt, Senior Vice President
and Director of Operations
|
Tax Identification No: 04-3785941
THE BANK OF NEW YORK
By: /s/ Edward G. McGann ---------------------------------- Title: Edward G. McGann, Vice President |
SCHEDULE I
CERTIFICATE OF AUTHORIZED PERSONS
(THE FUND - ORAL AND WRITTEN INSTRUCTIONS)
The undersigned hereby certifies that he/she is the duly elected and acting Treasurer of Calamos Strategic Total Return Fund (the "Fund"), and further certifies that the following officers or employees of the Fund have been duly authorized in conformity with the Fund's Declaration of Trust and By-Laws to deliver Certificates and Oral Instructions to The Bank of New York ("Custodian") pursuant to the Custody Agreement between the Fund and Custodian dated _______________, and that the signatures appearing opposite their names are true and correct:
NAME TITLE SIGNATURE
---- ----- ---------
Patrick Dudasik Vice President ___________________________
Nimish Bhatt Treasurer ___________________________
Jeff Lotito Assistant Treasurer ___________________________
Ron Hamaker Operations ___________________________
John Raczek Operations ___________________________
Mario Perez Operations ___________________________
Geoff Frankenthal Operations Director ___________________________
Vanessa Laws Operations ___________________________
|
This certificate supersedes any certificate of Authorized Persons you may currently have on file.
[seal] By: ___________________________
Title: Treasurer
Date:
|
SCHEDULE II
SERIES
APPENDIX I
THE BANK OF NEW YORK
ON-LINE COMMUNICATIONS SYSTEM (THE "SYSTEM")
TERMS AND CONDITIONS
1. License; Use. Upon delivery to an Authorized Person or a person reasonably believed by Custodian to be an Authorized Person the Fund of software enabling the Fund to obtain access to the System (the "Software"), Custodian grants to the Fund a personal, nontransferable and nonexclusive license to use the Software solely for the purpose of transmitting Written Instructions, receiving reports, making inquiries or otherwise communicating with Custodian in connection with the Account(s). The Fund shall use the Software solely for its own internal and proper business purposes and not in the operation of a service bureau. Except as set forth herein, no license or right of any kind is granted to the Fund with respect to the Software. The Fund acknowledges that Custodian and its suppliers retain and have title and exclusive proprietary rights to the Software, including any trade secrets or other ideas, concepts, know-how, methodologies, or information incorporated therein and the exclusive rights to any copyrights, trademarks and patents (including registrations and applications for registration of either), or other statutory or legal protections available in respect thereof. The Fund further acknowledges that all or a part of the Software may be copyrighted or trademarked (or a registration or claim made therefor) by Custodian or its suppliers. The Fund shall not take any action with respect to the Software inconsistent with the foregoing acknowledgments, nor shall you attempt to decompile, reverse engineer or modify the Software. The Fund may not copy, sell, lease or provide, directly or indirectly, any of the Software or any portion thereof to any other person or entity without Custodian's prior written consent. The Fund may not remove any statutory copyright notice or other notice included in the Software or on any media containing the Software. The Fund shall reproduce any such notice on any reproduction of the Software and shall add any statutory copyright notice or other notice to the Software or media upon Custodian's request.
2. Equipment. The Fund shall obtain and maintain at its own cost and expense all equipment and services, including but not limited to communications services, necessary for it to utilize the Software and obtain access to the System, and Custodian shall not be responsible for the reliability or availability of any such equipment or services.
3. Proprietary Information. The Software, any data base and any proprietary data, processes, information and documentation made available to the Fund (other than which are or become part of the public domain or are legally required to be made available to the public) (collectively, the "Information"), are the exclusive and confidential property of Custodian or its suppliers. The Fund shall keep the Information
confidential by using the same care and discretion that the Fund uses with respect to its own confidential property and trade secrets, but not less than reasonable care. Upon termination of the Agreement or the Software license granted herein for any reason, the Fund shall return to Custodian any and all copies of the Information which are in its possession or under its control.
4. Modifications. Custodian reserves the right to modify the Software from time to time and the Fund shall install new releases of the Software as Custodian may direct. The Fund agrees not to modify or attempt to modify the Software without Custodian's prior written consent. The Fund acknowledges that any modifications to the Software, whether by the Fund or Custodian and whether with or without Custodian's consent, shall become the property of Custodian.
5. NO REPRESENTATIONS OR WARRANTIES. CUSTODIAN AND ITS MANUFACTURERS AND SUPPLIERS MAKE NO WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE SOFTWARE, SERVICES OR ANY DATABASE, EXPRESS OR IMPLIED, IN FACT OR IN LAW, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE FUND ACKNOWLEDGES THAT THE SOFTWARE, SERVICES AND ANY DATABASE ARE PROVIDED "AS IS." IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT SPECIAL, OR CONSEQUENTIAL, WHICH THE FUND MAY INCUR IN CONNECTION WITH THE SOFTWARE, SERVICES OR ANY DATABASE, EVEN IF CUSTODIAN OR SUCH SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE FOR ACTS OF GOD, MACHINE OR COMPUTER BREAKDOWN OR MALFUNCTION, INTERRUPTION OR MALFUNCTION OF COMMUNICATION FACILITIES, LABOR DIFFICULTIES OR ANY OTHER SIMILAR OR DISSIMILAR CAUSE BEYOND THEIR REASONABLE CONTROL.
6. Security; Reliance; Unauthorized Use. The Fund will cause all persons utilizing the Software and System to treat all applicable user and authorization codes, passwords and authentication keys with extreme care, and it will establish internal control and safekeeping procedures to restrict the availability of the same to persons duly authorized to give Instructions. Custodian is hereby irrevocably authorized to act in accordance with and rely on Instructions received by it through the System. The Fund acknowledges that it is its sole responsibility to assure that only persons duly authorized use the System and that Custodian shall not be responsible nor liable for any unauthorized use thereof.
7. System Acknowledgments. Custodian shall acknowledge through the System its receipt of each transmission communicated through the System, and in the absence of such acknowledgment Custodian shall not be liable for any failure to act in accordance with such transmission and the Fund may not claim that such transmission was received by Custodian.
8. EXPORT RESTRICTIONS. EXPORT OF THE SOFTWARE IS PROHIBITED BY UNITED STATES LAW. THE FUND MAY NOT UNDER ANY CIRCUMSTANCES RESELL, DIVERT, TRANSFER, TRANSSHIP OR OTHERWISE DISPOSE OF THE SOFTWARE (IN ANY FORM) IN OR TO ANY OTHER COUNTRY. IF CUSTODIAN DELIVERED THE SOFTWARE TO THE FUND OUTSIDE OF THE UNITED STATES, THE SOFTWARE WAS EXPORTED FROM THE UNITED STATES IN ACCORDANCE WITH THE EXPORTER ADMINISTRATION REGULATIONS. DIVERSION CONTRARY TO U.S. LAW IS PROHIBITED. The Fund hereby authorizes Custodian to report its name and address to government agencies to which Custodian is required to provide such information by law.
9. ENCRYPTION. The Fund acknowledges and agrees that encryption may not be available for every communication through the System, or for all data. The Fund agrees that Custodian may deactivate any encryption features at any time, without notice or liability to the Fund, for the purpose of maintaining, repairing or troubleshooting the System or the Software.
EXHIBIT j.2
FOREIGN CUSTODY MANAGER AGREEMENT
AGREEMENT made as of March 15, 2004 between Calamos Strategic Total Return Fund (the "Fund") and The Bank of New York ("BNY").
W I T N E S S E T H:
WHEREAS, the Fund desires to appoint BNY as a Foreign Custody Manager on the terms and conditions contained herein;
WHEREAS, BNY desires to serve as a Foreign Custody Manager and perform the duties set forth herein on the terms and conditions contained herein;
NOW THEREFORE, in consideration of the mutual promises hereinafter contained in this Agreement, the Fund and BNY hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:
1. "BOARD" shall mean the board of directors or board of trustees, as the case may be, of the Fund.
2. "ELIGIBLE FOREIGN CUSTODIAN" shall have the meaning provided in the Rule.
3. "MONITORING SYSTEM" shall mean a system established by BNY to fulfill the Responsibilities specified in clauses (d) and (e) of Section 1 of Article III of this Agreement.
4. "RESPONSIBILITIES" shall mean the responsibilities delegated to BNY under the Rule as a Foreign Custody Manager with respect to each Specified Country and each Eligible Foreign Custodian selected by BNY, as such responsibilities are more fully described in Article III of this Agreement.
5. "RULE" shall mean Rule 17f-5 under the Investment Company Act of 1940, as amended on June 12, 2000.
6. "SPECIFIED COUNTRY" shall mean each country listed on Schedule I attached hereto and each country, other than the United States, constituting the primary market for a security with respect to which the Fund has given settlement instructions to The Bank of New York as custodian (the "Custodian") under its Custody Agreement with the Fund.
ARTICLE II.
BNY AS A FOREIGN CUSTODY MANAGER
1. The Fund on behalf of its Board hereby delegates to BNY with respect to each Specified Country the Responsibilities.
2. BNY accepts the Board's delegation of Responsibilities with respect to each Specified Country and agrees in performing the Responsibilities as a Foreign Custody Manager to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of the Fund's assets would exercise.
3. BNY shall provide to the Board at such times as the Board deems reasonable and appropriate based on the circumstances of the Fund's foreign custody arrangements written reports notifying the Board of the placement of assets of the Fund with a particular Eligible Foreign Custodian within a Specified Country and of any material change in the arrangements (including the contract governing such arrangements) with respect to assets of the Fund with any such Eligible Foreign Custodian.
ARTICLE III.
RESPONSIBILITIES
1. Subject to the provisions of this Agreement, BNY shall with
respect to each Specified Country select an Eligible Foreign Custodian. In
connection therewith, BNY shall: (a) determine that assets of the Fund held by
such Eligible Foreign Custodian will be subject to reasonable care, based on the
standards applicable to custodians in the relevant market in which such Eligible
Foreign Custodian operates, after considering all factors relevant to the
safekeeping of such assets, including, without limitation, those contained in
paragraph (c)(1) of the Rule; (b) determine that the Fund's foreign custody
arrangements with each Eligible Foreign Custodian are governed by a written
contract with the Custodian which will provide reasonable care for the Fund's
assets based on the standards specified in paragraph (c)(1) of the Rule; (c)
determine that each contract with an Eligible Foreign Custodian shall include
the provisions specified in paragraph (c)(2)(i)(A) through (F) of the Rule or,
alternatively, in lieu of any or all of such (c)(2)(i)(A) through (F)
provisions, such other provisions as BNY determines will provide, in their
entirety, the same or a greater level of care and protection for the assets of
the Fund as such specified provisions; (d) monitor pursuant to the Monitoring
System the appropriateness of maintaining the assets of the Fund with a
particular Eligible Foreign Custodian pursuant to paragraph (c)(1) of the Rule
and the performance of the contract governing such arrangement; and (e) advise
the Fund whenever BNY determines under the Monitoring System that an arrangement
(including, any material change in the contract governing such arrangement)
described in preceding clause (d) no longer meets the requirements of the Rule.
2. For purposes of preceding Section 1 of this Article, BNY's determination of appropriateness shall not include, nor be deemed to include, any evaluation of Country Risks associated with investment in a particular country. For purposes hereof, "Country Risks" shall mean systemic risks of holding assets in a particular country including but not limited to (a) an
Eligible Foreign Custodian's use of any depositories that act as or operate a system or a transnational system for the central handling of securities or any equivalent book-entries; (b) such country's financial infrastructure; (c) such country's prevailing custody and settlement practices; (d) nationalization, expropriation or other governmental actions; (e) regulation of the banking or securities industry; (f) currency controls, restrictions, devaluations or fluctuations; and (g) market conditions which affect the orderly execution of securities transactions or affect the value of securities.
ARTICLE IV.
REPRESENTATIONS
1. The Fund hereby represents that: (a) this Agreement has been duly authorized, executed and delivered by the Fund, constitutes a valid and legally binding obligation of the Fund enforceable in accordance with its terms, and no statute, regulation, rule, order, judgment or contract binding on the Fund prohibits the Fund's execution or performance of this Agreement; (b) this Agreement has been approved and ratified by the Board at a meeting duly called and at which a quorum was at all times present, and (c) the Board or the Fund's investment advisor has considered the Country Risks associated with investment in each Specified Country and will have considered such risks prior to any settlement instructions being given to the Custodian with respect to any other country.
2. BNY hereby represents that: (a) BNY is duly organized and existing under the laws of the State of New York, with full power to carry on its businesses as now conducted, and to enter into this Agreement and to perform its obligations hereunder; (b) this Agreement has been duly authorized, executed and delivered by BNY, constitutes a valid and legally binding obligation of BNY enforceable in accordance with its terms, and no statute, regulation, rule, order, judgment or contract binding on BNY prohibits BNY's execution or performance of this Agreement; and (c) BNY has established the Monitoring System.
ARTICLE V.
CONCERNING BNY
1. BNY shall not be liable for any costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees, sustained or incurred by, or asserted against, the Fund except to the extent the same arises out of the failure of BNY to exercise the care, prudence and diligence required by Section 2 of Article II hereof. In no event shall BNY be liable to the Fund, the Board, or any third party for special, indirect or consequential damages, or for lost profits or loss of business, arising in connection with this Agreement.
2. The Fund shall indemnify BNY and hold it harmless from and against any and all costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees, sustained or incurred by, or asserted against, BNY by reason or as a result of any action or inaction, or arising out of BNY's performance hereunder, provided that the Fund shall not indemnify BNY to the extent any such costs, expenses, damages, liabilities or claims arises out of BNY's failure to exercise the reasonable care, prudence and diligence required by Section 2 of Article II hereof.
3. For its services hereunder, the Fund agrees to pay to BNY such compensation and out-of-pocket expenses as shall be mutually agreed.
4. BNY shall have only such duties as are expressly set forth herein. In no event shall BNY be liable for any Country Risks associated with investments in a particular country.
ARTICLE VI.
MISCELLANEOUS
1. This Agreement constitutes the entire agreement between the Fund and BNY as a foreign custody manager, and no provision in the Custody Agreement between the Fund and the Custodian shall affect the duties and obligations of BNY hereunder, nor shall any provision in this Agreement affect the duties or obligations of the Custodian under the Custody Agreement.
2. Any notice or other instrument in writing, authorized or required by this Agreement to be given to BNY, shall be sufficiently given if received by it at its offices at 100 Church Street, 10th Floor, New York, New York 10286, or at such other place as BNY may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund shall be sufficiently given if received by it at its offices at 1111 East Warrenville Road, Naperville, Illinois 60563-1493 or at such other place as the Fund may from time to time designate in writing.
4. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected thereby. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided however, that this Agreement shall not be assignable by either party without the written consent of the other.
5. This Agreement shall be construed in accordance with the substantive laws of the State of New York, without regard to conflicts of laws principles thereof. The Fund and BNY hereby consent to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder. The Fund hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. The Fund and BNY each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement.
6. The parties hereto agree that in performing hereunder, BNY is acting solely on behalf of the Fund and no contractual or service relationship shall be deemed to be established hereby between BNY and any other person by reason of this Agreement.
7. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument.
8. This Agreement shall terminate simultaneously with the termination of the Custody Agreement between the Fund and the Custodian, and may otherwise be terminated by either party giving to the other party a notice in writing specifying the date of such termination, which shall be not less than thirty (30) days after the date of such notice.
IN WITNESS WHEREOF, the Fund and BNY have caused this Agreement to be executed by their respective officers, thereunto duly authorized, as of the date first above written.
CALAMOS STRATEGIC TOTAL
RETURN FUND
By: /s/ Nimish Bhatt
----------------------------------
Title: Nimish Bhatt, Senior Vice President
and Director of Operations
|
Tax Identification No.: 04-3785941
THE BANK OF NEW YORK
By: /s/ Edward G. McGann ---------------------------------- Title: Edward G. McGann, Vice President |
SCHEDULE I
Specified Countries
EXHIBIT k.1
STOCK TRANSFER AGENCY AGREEMENT
AGREEMENT, made as of March 12, 2004 by and between CALAMOS STRATEGIC TOTAL RETURN FUND, a statutory trust organized and existing under the laws of the State of Delaware (hereinafter referred to as the "Customer"), and THE BANK OF NEW YORK, a New York trust company (hereinafter referred to as the "Bank").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set forth, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have the following meanings:
1. "Business Day" shall be deemed to be each day on which the Bank is open for business.
2. "Certificate" shall mean any notice, instruction, or other instrument in writing, authorized or required by this Agreement to be given to the Bank by the Customer which is signed by any Officer, as hereinafter defined, and actually received by the Bank.
3. "Officer" shall be deemed to be the Customer's Chief Executive Officer, President, any Vice President, the Secretary, the Treasurer, the Controller, any Assistant Treasurer, and any Assistant Secretary duly authorized by the Board of Directors of the Customer to execute any Certificate, instruction, notice or other instrument on behalf of the Customer and named in a Certificate, as such Certificate may be amended from time to time.
4. "Shares" shall mean all or any part of each class of the shares of capital stock of the Customer which from time to time are authorized and/or issued by the Customer and identified in a Certificate of the Secretary of the Customer under corporate seal, as such Certificate may be amended from time to time, with respect to which the Bank is to act hereunder.
ARTICLE II
APPOINTMENT OF BANK
EXHIBIT k.2
MASTER SERVICES AGREEMENT
This Agreement is made as of March 15, 2004 by and among each registered management investment company identified on Appendix A hereto (each such management investment company and each management investment company made subject to this Agreement in accordance with Section 8.5 below shall hereinafter be referred to as a "FUND" and are sometimes collectively hereinafter referred to as the "FUNDS"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "AGENT").
WHEREAS, each Fund desires to retain the Agent to perform certain services;
WHEREAS, each Fund may or may not be authorized to issue common stock or shares of beneficial interest ("SHARES") in separate series, with each such series representing interests in a separate portfolio of securities and other assets;
WHEREAS, each Fund so authorized intends that this Agreement be applicable to its series of Shares (as identified on Appendix A hereto (such series together with all other series subsequently established by such Fund and made subject to this Agreement in accordance with Section 8.6 below, shall hereinafter be referred to as the "PORTFOLIO(S)");
WHEREAS, each Fund not so authorized intends that this Agreement be applicable to it and that all references hereinafter to one or more "Portfolio(s)" shall be deemed to refer to such Fund(s); and
WHEREAS, the Agent is willing to perform such services upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows:
SECTION 1. DUTIES OF THE AGENT.
SECTION 1.1 BOOKS OF ACCOUNT.
The Agent shall maintain the books of account of each Fund and shall perform the following duties in the manner prescribed by such Fund's currently effective prospectus, statement of additional information or other governing document, certified copies of which have been supplied to the Agent (a "GOVERNING DOCUMENT"):
a. Maintain each Portfolio's general ledger and such other accounts, books and financial records of such Portfolio as the parties may agree upon from time to time, and as may be required by the Investment Company Act of 1940, as amended (the "1940 ACT");
b. Maintain each Portfolio's portfolio security transaction records utilizing trade date provided to the Agent by such Portfolio's duly authorized investment adviser (each, an "INVESTMENT ADVISER");
c. For each valuation date, post each Portfolio's transactions to such Portfolio's general ledger including, but not limited to:
-Calculate unrealized appreciation and depreciation regarding
portfolio securities;
-Amortize premiums and discounts regarding portfolio securities,
as applicable;
-Calculate fee-based expenses and set-up expense accruals as
directed by the applicable Fund;
-Record payments of Portfolio expenses upon written instructions
of a Fund or duly authorized agent thereof;
-Calculate interest and dividend income and reset interest accrual
for variable rate securities, as applicable
d. Reconcile cash, foreign currency and portfolio security holding positions with each Portfolio's custodian (each, a "CUSTODIAN") daily;
e. Post each Portfolio's corporate actions;
f. Calculate the net asset value of each Portfolio and report same to the Fund or such other entities or persons as the Fund may instruct from time to time;
g. Prepare and transmit to the Fund, or such other entities or persons as the Fund may instruct from time to time, such periodic reports of Fund data as may be mutually agreed upon by the parties hereto; and
h. Post shareholder reinvestment activity and reconcile share balances with each Portfolio's transfer agent (each, a "TRANSFER AGENT") in conjunction with Portfolio distributions.
Each Fund shall provide timely prior notice to the Agent of any modification in the manner in which such calculations are to be performed as prescribed in any revision to such Fund's governing document and shall supply the Agent with certified copies of all amendments and/or supplements to the governing documents in a timely manner. For purposes of calculating the net asset value of a Fund, the Agent shall value each Fund's portfolio securities utilizing prices obtained from sources designated by such Fund (collectively, the "AUTHORIZED PRICE SOURCES") on a Price Source Authorization substantially in the form attached hereto as Exhibit A, as the same may be amended from time to time, or otherwise designated by means of Proper Instructions (as such term is defined in Section 2.2 below) (the "PRICE SOURCE AUTHORIZATION"). The Agent shall not be responsible for any revisions to the methods of calculation unless and until such revisions are communicated in writing to the Agent.
2.
SECTION 1.2 ADDITIONAL SERVICES.
The Agent shall provide the following services, as applicable, in each case, subject to the control, supervision and direction of each Fund and subject to any necessary review and comments by the Fund's auditors and legal counsel and in accordance with procedures or policies that may be established from time to time by and between the Agent and the Fund:
a. Prepare and distribute daily total return calculations;
b. Prepare monthly distribution analysis;
c. Complete monthly preferred shares "asset coverage" test (as that term is defined in Section 18(h) of the 1940 Act following agreed-upon compliance procedures (the "COMPLIANCE PROCEDURES"); and
d. Complete monthly (or more frequently as reasonably requested by the applicable rating agency) preferred shares basic maintenance test for applicable rating agency(ies) and preferred rate auction following the Compliance Procedures.
SECTION 1.3 RECORDS.
The Agent shall create and maintain all records relating to its activities and obligations under this Agreement in such a manner as will meet the obligations of each Fund under the 1940 Act, specifically Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the applicable Fund and shall at all times during the regular business hours of the Agent be open for inspection by duly authorized officers, employees or agents of the applicable Fund and employees and agents of the Securities and Exchange Commission. Subject to Section 3 below, the Agent shall preserve for the period required by law the records required to be maintained thereunder.
SECTION 1.4 APPOINTMENT OF AGENTS.
The Agent may at its own expense employ agents in the performance of its duties and the exercise of its rights under this Agreement, provided that the employment of such agents shall not reduce the Agent's obligations or liabilities hereunder.
SECTION 2. DUTIES OF EACH FUND.
SECTION 2.1 DELIVERY OF INFORMATION.
Each Fund shall provide, or shall cause a third party to provide, timely notice to the Agent of certain data as a condition to the Agent's performance described in Section 1 above. The data required to be provided pursuant to this section is set forth on Schedule A hereto, which schedule may be separately amended or supplemented by the parties from time to time.
3.
The Agent is authorized and instructed to rely upon the information it receives from the Fund or any third party. The Agent shall have no responsibility to review, confirm or otherwise assume any duty with respect to the accuracy or completeness of any data supplied to it by or on behalf of any Fund.
SECTION 2.2 PROPER INSTRUCTIONS.
The Fund or any other person duly authorized by the Fund shall communicate to the Agent by means of Proper Instructions. Proper Instructions shall mean (i) a writing signed or initialed by one or more persons as the Board of Directors or Board of Trustees of a Fund shall have from time to time authorized or (ii) communication effected directly between a Fund or its third-party agents (each, a "THIRD PARTY AGENT") and the Agent by electro-mechanical or electronic devices, provided that such Fund and the Agent agree to security procedures. The Agent may rely upon any Proper Instruction believed by it to be genuine and to have been properly issued by or on behalf of the applicable Fund. Oral instructions shall be considered Proper Instructions if the Agent reasonably believes them to have been given by a person authorized to give such instructions. The Fund shall cause all oral instructions to be confirmed in accordance with clauses (i) or (ii) above, as appropriate. The Fund shall give timely Proper Instructions to the Agent in regard to matters affecting accounting practices and the Agent's performance pursuant to this Agreement.
SECTION 3. STANDARD OF CARE; LIMITATION OF LIABILITY; EXCLUSIVE REMEDY.
The Agent shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, but shall be kept indemnified by the Funds, and shall be without liability for any action taken or omitted by it (including, without limitation, acting in accordance with any Proper Instruction) in good faith without willful misconduct. The Agent shall be entitled to rely on and may act upon the advice of counsel (who may be counsel for the Fund) or the independent accountants for the Fund on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Nothing in this paragraph shall be construed as imposing upon the Agent any obligation to seek such instructions or advice, or to act in accordance with such advice when received. Without in any way limiting the generality of the foregoing, the Agent shall in no event be liable for any loss or damage arising from causes beyond its control including, without limitation, delay or cessation of services hereunder or any damages resulting therefrom as a result of work stoppage, power or other mechanical failure, natural disaster, governmental action, communication disruption or other impossibility of performance.
The Agent shall in no event be liable for any special, indirect, incidental, or consequential damages of any kind whatsoever (including, without limitation, attorney's fees) in any way due to a Fund's use of the administration or accounting services or the performance of or failure to perform the Agent's obligations under this Agreement.
Each Fund, any Third Party Agent or Authorized Price Sources from which the Agent shall receive or obtain certain records, reports and other data utilized or included in the services
4.
provided hereunder are solely responsible for the contents of such information including, without limitation, the accuracy thereof and each Fund agrees to make no claim against the Agent arising out of the contents of such third-party data including, but not limited to, the accuracy thereof. The Agent shall have no responsibility to review, confirm or otherwise assume any duty with respect to the accuracy or completeness of any such information and shall be without liability for any loss or damage suffered as a result of the Agent's reasonable reliance on and utilization of such information, except as otherwise required by the Price Source Authorization with respect to the use of data obtained from Authorized Price Sources. The Agent shall have no responsibility and shall be without liability for any loss or damage caused by the failure of any Fund or any Third Party Agent to provide it with the information required by Section 2.1 above. Further, and without in any way limiting the generality of the foregoing, the Agent shall have no liability in respect of any loss, damage or expense suffered by the Fund or any third party, insofar as such loss, damage or expense arises from the performance of the Agent's duties hereunder by reason of the Agent's reliance upon records that were maintained for any Fund by any entity other than the Agent prior to such Fund's appointment of the Agent pursuant to this Agreement.
Each Fund agrees to indemnify and hold the Agent free and harmless from any expense, loss, damage or claim, including reasonable attorney's fees, suffered by the Agent and caused by or resulting from the acts or omissions of such Fund or any third-party whose services the Agent must rely upon in performing services hereunder.
Each Fund acknowledges and agrees that, with respect to investments it maintains with an entity which may from time to time act as a transfer agent for uncertificated shares of registered investment companies (the "UNDERLYING TRANSFER AGENT"), such Underlying Transfer Agent is the sole source of information on the number of shares held by it on behalf of a Fund and that the Agent has the right to rely on holdings information furnished by the Underlying Transfer Agent to the Agent in performing its duties under this Agreement.
SECTION 3A. PERFORMANCE GOALS.
The Funds and the Agent may from time to time agree on the manner in which they expect to deliver and receive the services contemplated by this Agreement. The parties agree that such agreement(s) (hereinafter referred to as "SERVICE LEVEL DOCUMENT(S)") reflect performance goals and any failure to perform in accordance with the provisions thereof shall not be considered a breach of contract that gives rise to contractual or other remedies. It is the intention of the parties that the sole remedy for failure to perform in accordance with the provisions of a Service Level Document, or any dispute relating to performance goals set forth in a Service Level Document, will be a meeting of the parties to resolve the failure pursuant to the consultation procedure described in Sections 3A.1 and 3A.2 below.
SECTION 3A.1 CONSULTATION PROCEDURE. If a party hereto is consistently unable to meet the provisions of a Service Level Document, or in the event that a dispute arises relating to performance goals set forth in a Service Level Document, either party to this Agreement shall address any concerns it may have by requiring a consultation with the other party.
5.
SECTION 3A.2 PURPOSE OF CONSULTATION PROCEDURE. The purpose of the
consultation procedure is to endeavor to resolve a consistent failure to meet
the provisions of a Service Level Document. If a consultation occurs under this
Section 3A, all parties must negotiate in good faith to endeavor to:
(a) implement changes which will enable the Service Level Document provisions to be more regularly met;
(b) agree to alternative Service Level Document provisions which meet the parties' respective business requirements; or
(c) otherwise find a solution such that within 30 days after the consultation, the inability to meet the Service Level Document provisions may be less likely to occur in the future.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE AGENT.
The Agent represents and warrants to each Fund that:
a. It is a Massachusetts trust company, duly organized and existing
under the laws of The Commonwealth of Massachusetts; and
b. The person executing this Agreement on its behalf has been duly
authorized to act on its behalf.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF EACH FUND.
Each Fund represents and warrants to the Agent that:
a. It is duly organized, existing and in good standing under the laws
of the jurisdiction in which it was formed;
b. It has the power and authority under applicable laws and by its
organizational documents to enter into and perform this Agreement;
c. All requisite proceedings have been taken to authorize it to enter
into and perform this Agreement;
d. It is an investment company properly registered under the 1940 Act;
and
e. A registration statement under the 1940 Act (and if Shares of the
Fund are offered publicly, under the Securities Act of 1933, as
amended (the "1933 Act")) has been filed and will be effective and
remain effective during the term of this Agreement. Each Fund also
warrants that as of the effective date of this Agreement, all
necessary filings under the securities laws of the states in which
the Fund offers or sells its Shares have been made.
6.
SECTION 5. COMPENSATION OF AGENT.
The Agent shall be entitled to reasonable compensation for its services, expenses, out of pocket costs and disbursements as Agent hereunder, as agreed upon from time to time between the Fund and the Agent.
SECTION 6. TERM OF AGREEMENT.
This Agreement shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than sixty (60) days after the date of such delivery or mailing.
Termination of this Agreement with respect to the coverage of any one particular Fund or Portfolio shall in no way affect the rights and duties under this Agreement with respect to any other Fund or Portfolio.
Upon termination of the Agreement or termination of its coverage with respect to any Fund, such Fund shall pay to the Agent such compensation as may be due as of the date of such termination (or with respect to the applicable Fund with respect to a coverage termination) and shall likewise reimburse the Agent for its costs, expenses and disbursements.
SECTION 7. SUCCESSOR AGENT.
If a successor agent for any Fund shall be appointed by a Fund, the Agent shall upon termination deliver to such successor agent at the office of the Agent all properties of such Fund held by it hereunder. If no such successor agent shall be appointed, the Agent shall at its office upon receipt of Proper Instructions deliver such properties in accordance with such instructions.
SECTION 8. GENERAL.
SECTION 8.1 MASSACHUSETTS LAW TO APPLY. This Agreement shall be governed by, construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts excluding that body of law applicable to conflicts of law.
SECTION 8.2 PRIOR AGREEMENTS. This Agreement supersedes and terminates, as of the date hereof, all prior agreements between any Fund and the Agent relating to fund accounting and recordkeeping services regarding such Fund.
7.
SECTION 8.3 ASSIGNMENT. This Agreement may not be assigned by (a) a Fund without the prior written consent of the Agent or (b) by the Agent without the prior written consent of the Funds, except that either party may, without such prior consent, assign to an entity controlling, controlled by or under common control with such party or to a successor of all of or a substantial portion of its business.
SECTION 8.4 INTERPRETIVE AND ADDITIONAL PROVISIONS. In connection with the operation of this Agreement, the Agent and the Funds may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by all parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of a Fund's governing documents. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement.
SECTION 8.5 ADDITIONAL FUNDS. In the event that any management investment company in addition to those listed on Appendix A hereto desires to have the Agent render services as agent under the terms hereof, it shall so notify the Agent in writing, and if the Agent agrees in writing to provide such services, such management investment company shall become a Fund hereunder and be bound by all terms and conditions and provisions hereof with respect to such Fund.
SECTION 8.6 ADDITIONAL PORTFOLIOS. In the event that any Fund establishes one or more series of Shares in addition to those set forth on Appendix A hereto with respect to which it desires to have the Agent render services as agent under the terms hereof, it shall so notify the Agent in writing, and if the Agent agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder.
SECTION 8.7 AMENDMENTS. No amendment to this Agreement shall be effective unless it is in writing and signed by a duly authorized representative or each party. The term "AGREEMENT," as used herein, includes all schedules, addenda, exhibits, appendices and attachments hereto and any future written amendments, modifications, or supplements made in accordance herewith.
SECTION 8.8 REMOTE ACCESS SERVICES ADDENDUM. Each Fund and the Agent hereby agree to the terms of the Remote Access Services Addendum hereto.
SECTION 8.9 SERVICES NOT EXCLUSIVE. Each Fund hereby acknowledges that the services of the Agent hereunder are not to be deemed exclusive to any Fund and the Agent remains free to render similar services to others.
SECTION 8.10 NOTICES. Any notice, instruction or other instrument required to be given hereunder may be delivered in person to the offices of the parties as set forth herein during normal business hours or delivered prepaid registered mail or by telex, cable or telecopy to the
8.
parties at the following addresses or such other addresses as may be notified by any party from time to time.
To any Fund: c/o Calamos Asset Management, Inc.
111 East Warrenville Road
Naperville, Illinois 60563-1493
Attention: _____________, Treasurer
Telephone: (630) 577-2106
Telecopy: (630) 955-6964
To the Agent: STATE STREET BANK AND TRUST COMPANY
Joseph Palmer Building
One Heritage Drive, JPB3N
North Quincy, Massachusetts 02171
Attention: Scott E. Johnson,
Vice President
Telephone: 617-985-6725
Telecopy: 617-985-9797
|
Such notice, instruction or other instrument shall be deemed to have been served in the case of a registered letter at the expiration of five business days after posting, in the case of cable twenty-four hours after dispatch and, in the case of telex, immediately on dispatch and if delivered outside normal business hours it shall be deemed to have been received at the next time after delivery when normal business hours commence and in the case of cable, telex or telecopy on the business day after the receipt thereof. Evidence that the notice was properly addressed, stamped and put into the post shall be conclusive evidence of posting.
SECTION 8.11 HEADINGS NOT CONTROLLING. Headings used in this Agreement are for reference purposes only and shall not be deemed a part of this Agreement.
SECTION 8.12 SURVIVAL. All provisions regarding indemnification, warranty, liability and limits thereon shall survive the expiration or termination of this Agreement.
SECTION 8.13 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts taken together shall constitute one and the same agreement.
SECTION 8.14 SEVERABILITY. If any provision or provisions of this Agreement shall be held to be invalid, unlawful or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.
SECTION 8.15 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules, addenda, exhibits, appendices, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the
9.
original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
10.
SIGNATURE PAGE
IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the date first above-written.
SIGNATURE ATTESTED TO BY: EACH REGISTERED MANAGEMENT
INVESTMENT COMPANY SET FORTH ON
APPENDIX A HERETO
_______________________________ By: ________________________________
James S. Hamman, Jr., Secretary Patrick H. Dudasik,
Vice President
SIGNATURE ATTESTED TO BY: STATE STREET BANK AND TRUST COMPANY
|
___________________________________ By: ________________________________ Stephanie L. Poster, Vice President
11.
APPENDIX A
TO
MASTER ACCOUNTING SERVICES AGREEMENT
MANAGEMENT INVESTMENT COMPANIES AND PORTFOLIOS THEREOF, IF ANY
CALAMOS STRATEGIC TOTAL RETURN FUND
EXHIBIT A
TO
MASTER ACCOUNTING SERVICES AGREEMENT
FORM OF PRICE SOURCE AUTHORIZATION
SCHEDULE A
TO
MASTER ACCOUNTING SERVICES AGREEMENT
INFORMATION REQUIRED TO BE SUPPLIED RESPONSIBLE PARTY
Portfolio Trade Authorizations Investment Adviser
Currency Transactions Investment Adviser
Cash Transaction Report Custodian
Portfolio Prices Third Party Vendors/Investment
Adviser
Exchange Rates Third Party Vendors/Investment
Adviser
Capital Stock Activity Report Transfer Agent
Dividend/Distribution Schedule Investment Adviser
Dividend/Distribution Declaration Investment Adviser
Dividend Reconciliation/Confirmation Transfer Agent
Corporate Actions Third Party Vendors/Custodian
Service Provider Fee Schedules Investment Adviser
Expense Budget Investment Adviser/Administrator
Amortization Policy Investment Adviser
Accounting Policy/Complex Investments Investment Adviser
Audit Management Letter Auditor
Annual Shareholder Letter Investment Adviser
Annual/Semi-Annual Reports Investment Adviser/Administrator
Declaration of Trust or Articles Investment Adviser/Administrator
of Incorporation, as amended
By-Laws, as amended Investment Adviser/Administrator
Currently Effective Registration Statement Investment Adviser/Administrator
under the 1933 and 1940 Act
Current Prospectus(es) and Statement(s) Investment Adviser/Administrator
of Additional Information
Such other certificates, documents or Investment Adviser/Administrator
opinions Investment Adviser/
Administrator which the Agent may,
in its reasonable discretion, deem
necessary or appropriate in the
proper performance of its duties
|
[ATTACH: REMOTE ACCESS SERVICES ADDENDUM]
EXHIBIT k.3
FINANCIAL ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made as of April 1, 2004, among the parties listed in Schedule I, as it may be amended from time to time (singularly "Party" and collectively "Parties") and Calamos Asset Management, Inc., an Illinois corporation ("Calamos").
Recitals
A. Each Party is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a management investment company;
B. Calamos has the resources to provide accounting services to investment companies; and
C. The Parties desire to retain Calamos to provide certain accounting services.
Agreement
The parties agree as follows:
1. APPOINTMENT OF CALAMOS AS FUND ACCOUNTANT
Each Party appoints Calamos as one of its respective accountants on the terms and conditions set forth in this Agreement, and Calamos accepts such appointment and agrees to perform the services and duties set forth in this Agreement.
2. SERVICES AND DUTIES OF CALAMOS
Calamos shall provide the following accounting services to each Party, including but not limited to:
A. Manage the Party's expenses and expense payment processing.
B. Monitor the calculation of expense accrual amounts for each Party and make any necessary modifications.
C. Coordinate any expense reimbursement calculations and payment.
D. Calculate yields on a Party in accordance with rules and regulations of the Securities and Exchange Commission (the "SEC").
E. Calculate net investment income dividends and capital gain distributions.
(1) Calculate, track and report tax adjustments on all assets of each Party, including but not limited to contingent debt and preferred trust obligations.
(2) Prepare excise tax and fiscal year distribution schedules.
(3) Prepare tax information required for financial statement footnotes.
(4) Prepare state and federal income tax returns.
(5) Prepare specialized calculations of amortization on convertible securities.
(6) Prepare year-end dividend disclosure information.
(7) Coordinate the audits for each Fund.
(8) Prepare financial reporting statements for each Fund.
(9) Prepare regulatory filing.
(10) Calculate asset coverage tests for Calamos Convertible and High Income Fund ("CHY") and Calamos Strategic Total Return Fund ("CSQ")
(11) Prepare and distribute press releases for CHY and CSQ.
F. Monitor Morningstar and Lipper quarterly portfolio reporting and monthly NAV reporting.
G. Calculate trustee deferred compensation plan accruals and valuations.
H. Prepare Form 1099 information statements for Board members and service providers.
3. COMPENSATION
Each Party shall compensate Calamos for providing the services set forth in this Agreement in accordance with the fee schedule set forth on Exhibit A hereto (as amended from time to time by written agreement of the parties). Each Party shall pay all fees and reimbursable expenses within 30 calendar days following receipt of the billing notice, except for any fee or expense subject to a good faith dispute. Notwithstanding anything to the contrary, amounts owed by a Party to Calamos shall only be paid out of the assets and property of the particular Party involved.
4. INDEMNIFICATION; LIMITATION OF LIABILITY
A. Calamos shall exercise reasonable care in the performance of its duties under this Agreement. Calamos shall not be liable for any error of judgment or mistake of law or for any loss suffered by a Party in connection with matters to which this Agreement relates, including losses resulting from mechanical breakdowns or the failure of communication or power supplies beyond Calamos' control, except a loss arising out of or relating to Calamos' refusal or failure to comply with the terms of this Agreement or from bad faith, negligence, or willful misconduct on its part in the performance of its duties under this Agreement. Notwithstanding any other provision of this Agreement, if Calamos has exercised reasonable care
in the performance of its duties under this Agreement, each Party shall indemnify and hold harmless Calamos, its directors, officers, employees and agents from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys' fees) that Calamos, its directors, officers, employees and agents may sustain or incur or that may be asserted against Calamos by any person arising out of any action taken or omitted to be taken by it in performing the services hereunder, (i) in accordance with the standard of care set forth herein, or (ii) in reliance upon any written or oral instruction provided to Calamos by any duly authorized officer of a Party, such duly authorized officer to be included in a list of authorized officers furnished to Calamos and as amended from time to time in writing by resolution of a Party's Board of Trustees, except for any and all claims, demands, losses, expenses, and liabilities arising directly or indirectly out of or relating to Calamos' refusal or failure to comply with the terms of this Agreement or from bad faith, negligence or from willful misconduct on its part in performance of its duties under this Agreement.
Calamos shall indemnify and hold each Party, its officers, trustees and employees harmless from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys' fees) that such Party may sustain or incur or that may be asserted against such Party by any person arising directly or indirectly out of any action taken or omitted to be taken by Calamos as a result of Calamos' refusal or failure to comply with the terms of this Agreement, its bad faith, negligence, or willful misconduct.
In the event of a mechanical breakdown or failure of communication or power supplies beyond its control, Calamos shall take all reasonable steps to minimize service interruptions for any period that such interruption continues beyond Calamos' control. Calamos will make every reasonable effort to restore any lost or damaged data and correct any errors resulting from such a breakdown at the expense of Calamos. Calamos agrees that it shall, at all times, have reasonable contingency plans with appropriate parties, making reasonable provision for emergency use of electrical data processing equipment to the extent appropriate equipment is available. Representatives of each Party shall be entitled to inspect Calamos' premises and operating capabilities at any time during regular business hours of Calamos, upon reasonable notice to Calamos.
Notwithstanding the above, Calamos reserves the right to reprocess and correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this section shall apply, it is understood that if in any case the indemnitor may be asked to indemnify or hold the indemnitee harmless, the indemnitor shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the indemnitee will use all reasonable care to notify the indemnitor promptly concerning any situation that presents or appears likely to present the probability
of a claim for indemnification. The indemnitor shall have the option to defend the indemnitee against any claim that may be the subject of this indemnification with counsel reasonably satisfactory to indemnitee unless the legal rights and defenses available to indemnitor and indemnitee present a conflict for joint counsel. In the event that the indemnitor so elects to defend indemnitee, it will so notify the indemnitee and thereupon the indemnitor shall take over complete defense of the claim, and the indemnitee shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this section provided, however, if a conflict of interest arises after the election to defend, indemnitee may select its own counsel and shall be entitled to seek indemnification for expenses. Indemnitee shall in no case confess any claim or make any compromise in any case in which the indemnitor will be asked to indemnify the indemnitee except with the indemnitor's prior written consent; provided however, that the indemnitor shall not settle a claim that results in any admission of wrongdoing by indemnitee without indemnitee's prior written consent.
5. PROPRIETARY AND CONFIDENTIAL INFORMATION
Calamos agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of each Party all records and other information relative to such Party and prior, present, or potential shareholders of such Party (and clients of said shareholders) including all shareholder trading information, and not to use such records and information for any purpose other than the performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Party, which approval shall not be unreasonably withheld when requested to divulge such information by duly constituted authorities, or when so requested by such Party. Calamos acknowledges that it may come into possession of material nonpublic information with respect to a Party and confirms that it has in place effective procedures to prevent the use of such information in violation of applicable insider trading laws.
Further, Calamos will adhere to the privacy policies adopted by each Party pursuant to Title V of the Gramm-Leach-Bliley Act, as it may be modified from time to time (the "Act"). Notwithstanding the foregoing, Calamos will not share any nonpublic personal information concerning any Party's shareholders with any third party unless specifically directed by such Party or allowed under one of the exceptions noted under the Act.
6. TERM OF AGREEMENT; AMENDMENT
This Agreement shall become effective as of the date first written above and will continue in effect until July 31, 2004, and from year-to-year thereafter; this Agreement may be terminated by either party upon giving 60 days prior written notice to the other party or such shorter period as is mutually agreed upon by the parties. This Agreement may be amended by mutual written agreement of the parties.
7. RECORDS
Calamos shall keep records relating to the services to be performed hereunder in the form and manner, and for such period, as it may deem advisable and is agreeable to the Parties, but not inconsistent with the rules and regulations of appropriate government authorities, in particular, Section 31 of the 1940 Act and the rules thereunder. Calamos agrees that all such records prepared or maintained by Calamos relating to the services to be performed by Calamos hereunder are the property of each respective Party and will be preserved, maintained, and made available in accordance with such applicable sections and rules of the 1940 Act and will be promptly surrendered to such Party on and in accordance with its request. Calamos agrees to provide any records necessary for each Party to comply with its disclosure controls and procedures adopted in accordance with the Sarbanes-Oxley Act. Without limiting the generality of the foregoing, the Calamos shall cooperate with each Party and assist such Party as necessary by providing information to enable the appropriate officers of such Party to execute any certification required under that Act.
8. GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State of Illinois, without regard to conflicts of law principles. To the extent that the applicable laws of the State of Illinois, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control, and nothing herein shall be construed in a manner inconsistent with the 1940 Act or any rule or order of the SEC thereunder.
9. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination of this Agreement, a successor to any of Calamos' duties or responsibilities hereunder is designated by the Parties by written notice to Calamos, Calamos will promptly, upon such termination and at the expense of each Party, transfer to such successor all relevant books, records, correspondence and other data established or maintained by Calamos under this Agreement in a form reasonably acceptable to the Parties (if such form differs from the form in which Calamos has maintained the same, each Party shall pay any expenses associated with transferring the same to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from Calamos' personnel in the establishment of books, records and other data by such successor.
10. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower Calamos to act as agent for the Trust party to this Agreement, nor to conduct business in the name, or for the account, of the other party to this Agreement.
11. DATA NECESSARY TO PERFORM SERVICES
The Parties or their agent shall furnish to Calamos the data necessary to perform the services described herein at such times and in such form as mutually agreed upon. If
Calamos is also acting in another capacity for such Party, nothing herein shall be deemed to relieve Calamos of any of its obligations in such capacity.
12. ASSIGNMENT
This Agreement may not be assigned by either party without the prior written consent of the other party.
13. NOTICES
Any notice required or permitted to be given by either party to the other shall be in writing and shall be deemed to have been given on the date delivered personally or by courier service, or upon delivery after sent by registered or certified mail, postage prepaid, return receipt requested, or on the date sent and confirmed received by facsimile transmission to the other party's address set forth below:
Notice to Calamos shall be sent to:
Calamos Asset Management, Inc. Attention: General Counsel 1111 East Warrenville Road, Naperville, IL 60563-1493
and notice to the Parties shall be sent to:
[NAME OF PARTY]
Attention: Treasurer
1111 East Warrenville Road,
Naperville, IL 60563-1493
14. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and understandings, whether written or oral.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by a duly authorized officer on one or more counterparts as of the date first above written.
CALAMOS INVESTMENT TRUST, ON BEHALF OF ITSELF AND EACH CALAMOS ASSET MANAGEMENT, INC. SERIES THEREUNDER
By: /s/ James S. Hamman By: Patrick H. Dudasik
------------------------------ -------------------------------
Title: Secretary Title: EVP & CFO
--------------------------- ----------------------------
|
CALAMOS ADVISORS TRUST, ON BEHALF OF
ITSELF AND EACH SERIES THEREUNDER
By: /s/ James S. Hamman
------------------------------
Title: Secretary
---------------------------
|
CALAMOS CONVERTIBLE OPPORTUNITIES
AND INCOME FUND
By: /s/ James S. Hamman
------------------------------
Title: Secretary
---------------------------
|
CALAMOS CONVERTIBLE AND HIGH INCOME FUND
By: /s/ James S. Hamman
------------------------------
Title: Secretary
---------------------------
|
CALAMOS STRATEGIC TOTAL RETURN FUND
By: /s/ James S. Hamman
------------------------------
Title: Secretary
---------------------------
|
EXHIBIT A
TO THE
FINANCIAL ACCOUNTING SERVICES AGREEMENT
FEE SCHEDULE
Each Party shall pay to Calamos for the services contemplated hereunder the following annual rate based on the daily average net assets of all Parties:
0.0175% on the first $1 billion 0.0150% on the next $1 billion 0.0110% on average net assets in excess of $2 billion
SCHEDULE I
Calamos Investment Trust, a Massachusetts business trust
Calamos Convertible Fund
Calamos Growth and Income Fund
Calamos Market Neutral Fund
Calamos Growth Fund
Calamos Global Growth and Income Fund
Calamos High Yield Fund
Calamos Value Fund
Calamos Blue Chip Fund
Calamos Advisors Trust, a Massachusetts business trust Calamos Growth and Income Portfolio
Calamos Convertible Opportunities and Income Fund, a Delaware statutory trust
Calamos Convertible and High Income Fund, a Delaware statutory trust
Calamos Strategic Total Return Fund
EXHIBIT 1.1
(VEDDER PRICE LETTERHEAD)
March 24, 2004
Calamos Strategic Total Return Fund
1111 East Warrenville Road
Naperville, IL 60563-1493
Re: Calamos Strategic Total Return Fund
Ladies and Gentlemen:
We are acting as special counsel to Calamos Strategic Total Return Fund, a Delaware statutory trust (the "Fund"), in connection with the Fund's filing of a registration statement on Form N-2 under the Securities Act of 1933 (File No. 333-111756) and the Investment Company Act of 1940 (File No. 811-21484) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") covering the registration and proposed issuance of common shares of beneficial interest (the "Shares") of the Calamos Strategic Total Return Fund Series (the "Series").
In rendering this opinion, we have examined:
(a) the form of Underwriting Agreement (the "Underwriting Agreement"), substantially in the form filed as an exhibit to the Registration Statement, proposed to be entered into among the Fund, Calamos Asset Management, Inc. and Citigroup Global Markets Inc. as representative of the several underwriters named therein;
(b) the Registration Statement;
(c) the Certificate of Trust and the Agreement and Declaration of Trust of the Fund;
(d) the By-Laws of the Fund;
(e) resolutions of the Board of Trustees in connection with the proposed issuance of the Shares;
(f) a Certificate of Good Standing as of a recent date from the Secretary of State of the State of Delaware; and
VEDDERPRICE
Calamos Strategic Total Return Fund
March 24, 2004
(g) such other documents as we, in our professional judgment, have deemed necessary or appropriate as a basis for the opinions set forth below (items b-e above are referred to herein as the "Governing Documents").
In examining the documents referred to above, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of documents purporting to be originals and the conformity to originals of all documents submitted to us as copies. As to questions of fact material to our opinion, we have relied (without investigation or independent confirmation) upon the representations contained on certificates and other communications from public officials and officers of the Fund. We have assumed that the Registration Statement and the Underwriting Agreement will be duly completed, executed and delivered. With respect to the opinions expressed below, we note that, pursuant to Section 2 of Article VIII of the Agreement and Declaration of Trust, the Trustees have the power to cause each shareholder, or each shareholder of a particular series, to pay directly, in advance or arrears, for charges of the Fund's custodian or transfer, shareholder servicing or similar agent, an amount fixed from time to time by the Trustees, by setting off such charges due from such shareholder from declared but unpaid dividends owed such shareholder and/or by reducing the number of shares in the account of such shareholder by that number of full and/or fractional shares which represents the outstanding amount of such charges due from such shareholder.
We express no opinion as to the laws of any jurisdiction other than Title 12, Chapter 38 (Treatment of Delaware Statutory Trusts) of the Code of the State of Delaware, and we are relying, with your consent, solely upon the opinion of Morris, Nichols, Arsht & Tunnell, special Delaware counsel to the Fund, dated March 24, 2004.
Based on the foregoing, and subject to the qualifications, exceptions and limitations set forth herein and in the opinion of Morris, Nichols, Arsht & Tunnell referred to above, we are of the opinion that:
(1) The Fund is a duly formed and validly existing statutory trust in good standing under the laws of the State of Delaware; and
(2) The Shares, when issued to shareholders in accordance with the terms, conditions, requirements and procedures set forth in the Governing Documents and delivered by the Fund pursuant to the Underwriting Agreement against payment of the consideration set forth in the Underwriting Agreement, will constitute legally issued, fully paid and non-assessable Shares of beneficial interest in the Series.
We hereby consent to the filing of this opinion as Exhibit l.1 to the Registration Statement and to the reference to us under the caption "Legal Opinions" in the prospectus contained in the Registration Statement. In giving our consent, we do not thereby admit that we
VEDDERPRICE
Calamos Strategic Total Return Fund
March 24, 2004
are in the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations of the SEC thereunder. The opinions expressed herein are matters of professional judgment and are not a guarantee of result.
Very truly yours,
Vedder, Price, Kaufman & Kammholz, P.C.
JTB/RJM
EXHIBIT 1.2
[Letterhead of Morris, Nichols, Arsht & Tunnell]
March 24, 2004
Calamos Strategic Total Return Fund
1111 East Warrenville Road
Naperville, Illinois 60563-1493
Vedder, Price, Kaufman & Kammholz, P.C.
222 North LaSalle Street
Chicago, Illinois 60601
Re: Calamos Strategic Total Return Fund
Ladies and Gentlemen:
We have acted as special Delaware counsel to Calamos Strategic Total Return Fund, a Delaware statutory trust (the "Trust"), in connection with certain matters relating to the formation of the Trust and the issuance of common shares of beneficial interest in the Calamos Strategic Total Return Fund Series (the "Series") of the Trust. Such common shares are referred to herein as the "Shares". Capitalized terms used herein and not otherwise herein defined are used as defined in the Agreement and Declaration of the Trust of the Trust dated as of December 31, 2003 (the "Governing Instrument").
In rendering this opinion, we have examined and relied on copies of the following documents, each in the form provided to us: the Certificate of Trust of the Trust as filed in the Office of the Secretary of State of the State of Delaware (the "State Office") on December 31, 2003 (the "Certificate of Trust"); the Governing Instrument; resolutions of the Board of Trustees of the Trust adopted at a meeting held on December 15, 2003 (the "Resolutions"); the By-laws of the Trust (the "By-laws"); the Trust's Pre-Effective Amendment No. 1 to Registration Statement No. 333-111756 under the Securities Act of 1933 and Amendment No. 1 to Registration Statement No. 811-21484 under the Investment Company Act of 1940 on Form N-2 as filed with the Securities and Exchange Commission on February 23, 2004 (as so amended, the "Registration Statement" and, together with the Governing Instrument, the By-laws and the Resolutions, the "Governing Documents"); a Certificate of Secretary of the Trust dated March 24, 2004; and a certification of good standing of the Trust obtained as of a recent date from the State Office. In such examinations, we have assumed the genuineness of all signatures, the conformity to original documents of all documents submitted to us as copies or drafts of documents to be executed, and the legal capacity of natural persons to complete the execution of documents. We have further
Calamos Strategic Total Return Fund
Vedder, Price, Kaufman & Kammholz, P.C.
March 24, 2004
assumed for the purpose of this opinion: (i) the due authorization, adoption, execution and delivery by, or on behalf of, each of the parties thereto of the above-referenced instruments, certificates and other documents (including the due adoption by the Trustees of the Resolutions), and of all documents contemplated by either the Governing Documents or any applicable resolutions of the Trustees to be executed by investors desiring to become Shareholders; (ii) the payment of consideration for Shares, and the application of such consideration, as provided in the Governing Documents, and compliance with the other terms, conditions and restrictions set forth in the Governing Documents and all applicable resolutions of the Trustees of the Trust in connection with the issuance of Shares (including, without limitation, the taking of all appropriate action by the Trustees to designate Series and Classes of Shares and the rights and preferences attributable thereto as contemplated by the Governing Instrument); (iii) that appropriate notation of the names and addresses of, the number of Shares held by, and the consideration paid by, Shareholders will be maintained in the appropriate registers and other books and records of the Trust in connection with the issuance, redemption or transfer of Shares; (iv) that no event has occurred subsequent to the filing of the Certificate of Trust that would cause a termination or reorganization of the Trust or a Series or Class of the Trust under Sections 4 or 6 of Article IX of the Governing Instrument; (v) that the Trust became or will become, in each case prior to or within 180 days following the first issuance of beneficial interests therein, a registered investment company under the Investment Company Act of 1940; (vi) that the activities of the Trust have been and will be conducted in accordance with the terms of the Governing Instrument and the Delaware Statutory Trust Act, 12 Del. C. Sections 3801 et seq. (the "Delaware Act"); and (vii) that each of the documents examined by us is in full force and effect and has not been modified, supplemented or otherwise amended, except as herein referenced. No opinion is expressed herein with respect to the requirements of, or compliance with, federal or state securities or blue sky laws. Further, we express no opinion with respect to, and we assume no responsibility for, any offering documentation relating to the Trust or the Shares. As to any facts material to our opinion, other than those assumed, we have relied without independent investigation on the above-referenced documents and on the accuracy, as of the date hereof, of the matters therein contained.
Based on and subject to the foregoing, and limited in all respects to matters of Delaware law, it is our opinion that:
1. The Trust is a duly formed and validly existing statutory trust in good standing under the laws of the State of Delaware.
2. The Shares, when issued to Shareholders in accordance with the terms, conditions, requirements and procedures set forth in the Governing Documents, will constitute legally issued, fully paid and non-assessable Shares of beneficial interest in the Series.
With respect to the opinion expressed in paragraph 2 above, we note that, pursuant to Section 2 of Article VIII of the Governing Instrument, the Trustees have the power to cause each Shareholder, or each Shareholder of any particular Series, to pay directly, in advance or arrears, for charges of the Trust's custodian or transfer, shareholder servicing or similar agent, an amount fixed
Calamos Strategic Total Return Fund
Vedder, Price, Kaufman & Kammholz, P.C.
March 24, 2004
from time to time by the Trustees, by setting off such charges due from such Shareholder from declared but unpaid dividends owed such Shareholder and/or by reducing the number of Shares in the account of such Shareholder by that number of full and/or fractional Shares which represents the outstanding amount of such charges due from such Shareholder.
We hereby consent to the filing of a copy of this opinion with the Securities and Exchange Commission as part of a pre-effective amendment to the Registration Statement. In giving this consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Except as provided in this paragraph, the opinions set forth above are expressed solely for the benefit of the addressees hereof and may not be relied upon by any other person or entity for any purpose without our prior written consent. This opinion speaks only as of the date hereof and is based on our understandings and assumptions as to present facts and our review of the above-referenced documents and certificates and the application of Delaware law as the same exists on the date hereof, and we undertake no obligation to update or supplement this opinion after the date hereof for the benefit of any person or entity with respect to any facts or circumstances that may hereafter come to our attention or any changes in facts or law that may hereafter occur or take effect.
Sincerely,
MORRIS, NICHOLS, ARSHT & TUNNELL
/s/ Jonathan I. Lessner -------------------------------- Jonathan I. Lessner |
EXHIBIT n
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Shareholders of Calamos Strategic Total Return Fund:
We consent to the use in this Pre-Effective Amendment No. 2 to Registration Statement No. 333-111756 of Calamos Strategic Total Return Fund on Form N-2 of our report dated March 23, 2004, appearing in the Prospectus, which is part of such Registration Statement. We also consent to the reference to us under the caption "Experts" in the Statement of Additional Information, which is also part of such Registration Statement.
DELOITTE & TOUCHE LLP /S/ Chicago, Illinois March 23, 2004 |
EXHIBIT p
CALAMOS STRATEGIC TOTAL RETURN FUND
SUBSCRIPTION AGREEMENT
This Agreement made March 12, 2004 by and between Calamos Strategic Total Return Fund, a Delaware statutory trust (the "Fund"), and Calamos Asset Management, Inc., an Illinois corporation (the "Subscriber");
WITNESSETH:
WHEREAS, the Fund has been formed for the purposes of carrying on business as a closed-end diversified management investment company;
WHEREAS, the Subscriber has been selected by the Fund's Board of Trustees to serve as investment adviser to the Fund; and
WHEREAS, the Subscriber wishes to subscribe for and purchase, and the Fund wishes to sell to the Subscriber, 14,000 common shares for a purchase price of $14.30 per share.
NOW THEREFORE, IT IS AGREED:
1. The Subscriber subscribes for and agrees to purchase from the Fund 14,000 common shares for a purchase price of $14.30 per share. Subscriber agrees to make payment for these shares at such time as demand for payment may be made by an officer of the Fund.
2. The Fund agrees to issue and sell said shares to Subscriber promptly upon its receipt of the purchase price.
3. To induce the Fund to accept its subscription and issue the shares subscribed for, the Subscriber represents that it is informed as follows:
(a) That the shares being subscribed for have not been and will not be registered under the Securities Act of 1933 ("Securities Act");
(b) That the shares will be sold by the Fund in reliance on an exemption from the registration requirements of the Securities Act;
(c) That the Fund's reliance upon an exemption from the registration requirements of the Securities Act is predicated in part on the representation and agreements contained in this Subscription Agreement;
(d) That when issued, the shares will be "restricted securities" as defined in paragraph (a)(3) of Rule 144 of the General Rules and Regulations under the Securities Act ("Rule 144") and cannot be sold or transferred by Subscriber unless they are subsequently registered under the Securities Act or unless an exemption from such registration is available; and
1.
(e) That there do not appear to be any exemptions from the registration provisions of the Securities Act available to the Subscriber for resale for the shares. In the future, certain exemptions may possibly become available, including an exemption for limited sales including an exemption for limited sales in accordance with the conditions of Rule 144.
The Subscriber understands that a primary purpose of the information acknowledged in subparagraphs (a) through (e) above is to put it on notice as to restrictions on the transferability of the shares.
4. To further induce the Fund to accept its subscription and issue the shares subscribed for, the Subscriber:
(a) Represents and warrants that the shares subscribed for are being and will be acquired for investment for its own account and not on behalf of any other person or persons and not with a view to, or for sale in connection with, any public distribution thereof;
(b) Agrees that any certificates representing the shares subscribed for may bear a legend substantially in the following form:
The shares represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933 or any other federal or state securities law. These shares may not be offered for sale, sold or otherwise transferred unless registered under said securities laws or unless some exemption from registration is available.
(c) Consents, as the sole holder of the Trust's common shares of beneficial interest and pursuant to Section 23(b)(2) of the Investment Company Act of 1940, to the issuance by the Trust of common shares of beneficial interest at a price per share as set forth in the Purchase Agreement relating to the public offering of Shares; and
5. This Subscription Agreement and all of its provisions shall be binding upon the legal representatives, heirs, successors and assigns of the parties hereto. This Subscription Agreement may be signed in one or more counterparts, each of which shall be deemed to be an original.
2.
IN WITNESS WHEREOF, this Subscription Agreement has been executed by the parties hereto as of the day and date first above written.
CALAMOS STRATEGIC TOTAL RETURN FUND
By: /s/ James S. Hamman, Jr.
--------------------------------
James S. Hamman, Jr., Secretary
|
CALAMOS ASSET MANAGEMENT, INC.
By: /s/ Patrick Dudasik
--------------------------------
Patrick Dudasik, Vice President
|
3.
EXHIBIT r.1
CALAMOS ASSET MANAGEMENT, INC.
CALAMOS FINANCIAL SERVICES, INC.
CALAMOS INVESTMENT TRUST
CALAMOS ADVISORS TRUST
CALAMOS CONVERTIBLE OPPORTUNITIES AND INCOME FUND
CALAMOS CONVERTIBLE AND HIGH INCOME FUND
CALAMOS STRATEGIC TOTAL RETURN FUND
CODE OF ETHICS
ADOPTED MARCH 12, 2004
The philosophy of Calamos Asset Management, Inc. (CAM) and Calamos Financial Services, Inc. (CFS) is to avoid any conflict of interest, or the appearance of any conflict of interest, between the investment activities of any investment client of CAM, including Calamos Investment Trust, Calamos Advisors Trust, Calamos Convertible Opportunities and Income Fund, Calamos Convertible and High Income Fund and Calamos Strategic Total Return Fund (collectively referred to as "Clients") and the personal investment transactions of the directors, officers and employees of CAM and CFS.
This Code of Ethics establishes standards and procedures for the detection and prevention of certain conflicts of interest, including activities by which persons having knowledge of the investments and investment intentions of Clients might take advantage of that knowledge for their own benefit. Implementation and monitoring of those standards inevitably places some restrictions on the freedom of the investment activities of those people.
This Code of Ethics has been adopted by CAM, CFS, Calamos Investment Trust, Calamos Advisors Trust, Calamos Convertible Opportunities and Income Fund, Calamos Convertible and High Income Fund and Calamos Strategic Total Return Fund (each of Calamos Investment Trust, Calamos Advisors Trust, Calamos Convertible Opportunities and Income Fund, Calamos Convertible and High Income Fund and Calamos Strategic Total Return Fund being referred to herein as a "Trust") to meet those concerns and the legal requirements imposed by, among other things, Rule 17j-1 under the Investment Company Act of 1940. A copy of Rule 17j-1 is attached as Appendix A. Any questions about the Code or about the applicability of the Code to a personal securities transaction should be directed to the Chief Compliance Officer or, in his or her absence, the President of CAM.
I. STATEMENT OF PRINCIPLE
GENERAL PROHIBITIONS. The Investment Company Act and rules thereunder make it illegal for any person covered by the Code, directly or indirectly, in connection with the purchase or sale of a security held or to be acquired by a Trust, to:
A. employ any device, scheme or artifice to defraud a Trust;
B. make to a Trust any untrue statement of a material fact or omit to state to the Trust a material fact necessary in order to make the statements made, in light of circumstances under which they are made, not misleading;
C. engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon a Trust; or
D. engage in any manipulative practice with respect to a Trust.
Similarly, CAM and each person covered by the Code owe a duty of loyalty to all the accounts served by CAM. As such, they have a duty to place the interests of their respective Clients and shareholders of a Trust ahead of their own interests. In furtherance of this basic principle, all persons covered by the Code (i) must adhere to the Code of Ethics to avoid actual or potential conflicts of interest or abuse of such person's position of trust and responsibility and (ii) not take inappropriate advantage of their position.
PERSONAL SECURITIES TRANSACTIONS. This Code regulates personal securities transactions as a part of the effort by CAM, CFS and the Trusts, to detect and prevent conduct that might violate the general prohibitions outlined above. A PERSONAL SECURITIES TRANSACTION is a transaction in a SECURITY in which the person subject to this Code has a BENEFICIAL INTEREST.
- SECURITY is interpreted very broadly for this purpose, and includes notes, stocks, bonds, debentures, investment contracts, limited partnership interests, shares of mutual funds and closed-end funds and any right to acquire any security (an option or warrant or convertible security, for example).
- You have a BENEFICIAL INTEREST in a security that you own individually, jointly, or as a guardian, executor or trustee, or in which you or your spouse or minor children or other dependents living in your household, have an interest. "Beneficial interest" is defined in Rule 16a-1 under the Securities Exchange Act of 1934. A copy of Rules 16a-1 through 16a-3 are attached as Appendix B and examples of beneficial interest are attached as Appendix C.
In any situation where the potential for conflict exists, transactions for a Client must take precedence over any personal transaction. The people subject to this Code owe a duty to their Clients to conduct their personal securities transactions in a manner that does not interfere with the portfolio transactions of the Client, otherwise take inappropriate advantage of their relationship to the Client or create any actual or potential conflict of interest between their interests and the interests of the Client.
Situations not specifically governed by this Code of Ethics will be resolved in light of this general principle.
II. HOW THE CODE'S RESTRICTIONS APPLY
The restrictions on personal securities transactions in Section III and the compliance procedures in Section VII differentiate among groups of people based on their positions and responsibilities with CAM, CFS and the Trust. The groups are: INVESTMENT PERSONS, ACCESS PERSONS and OUTSIDE TRUSTEES.
A. INVESTMENT PERSONS are those who make, or participate in making, investment decisions or recommendations for Clients, or who, in connection with their regular functions or duties with CAM or CFS, make, participate in, or obtain information regarding the purchase or sale of securities by a Client. Investment Persons are:
- each CAM portfolio manager;
- each analyst working for CAM;
- support staff of CAM working directly with portfolio managers and analysts;
- each trader of CAM; and
- CFS and CAM.
B. ACCESS PERSONS are those directors, officers and employees of CAM, CFS or a trust who are not Investment Persons or Outside Trustees.
C. OUTSIDE TRUSTEES are those trustees of a Trust who are not "interested persons" of a Trust.
III. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS
A. NO TRANSACTIONS WITH CLIENTS. No INVESTMENT PERSON, ACCESS PERSON or OUTSIDE TRUSTEE shall knowingly sell to or purchase from a Client any security or other property except securities issued by that Client.
B. NO CONFLICTING TRANSACTIONS. No INVESTMENT PERSON, ACCESS PERSON or OUTSIDE TRUSTEE shall purchase or sell for his or her own personal account and benefit, or for the account and benefit of any relative, any security that the person knows or has reason to believe is being purchased or sold or considered for purchase or sale by a Client, until the Client's transactions have been completed or consideration of such transactions has been abandoned. The purchase and sale of shares of any Trust by an INVESTMENT PERSON, ACCESS PERSON, or OUTSIDE TRUSTEE shall not be viewed as a Conflicting Transaction for the purpose of this section.
NOTE: RESTRICTIONS C THROUGH F BELOW DO NOT APPLY TO
THE OUTSIDE TRUSTEES.
C. INITIAL PUBLIC OFFERINGS. No INVESTMENT PERSON or ACCESS PERSON shall acquire any security in an initial public offering.
D. PRIVATE PLACEMENTS. No INVESTMENT PERSON or ACCESS PERSON shall acquire any security in a private placement without the express written prior approval of the President or Managing Director of CAM. In deciding whether that approval should be granted, consideration will be given to whether the investment opportunity should be reserved for Clients and whether the opportunity has been offered because of the person's relationship with CAM or its Clients. An INVESTMENT PERSON who has been authorized to acquire a security in a private placement must disclose that investment if he or she later participates in consideration of an investment in that issuer for a Client's account. Any investment decision for the Client relating to that security must be made by other Investment Persons.
E. SHORT-TERM TRADING. No INVESTMENT PERSON may profit from the purchase and sale, or sale and purchase, of the same (or equivalent) securities within 60 days if the same (or equivalent) securities have been held by a Client during such 60-day period. Any profit so realized will be required to be donated to a charitable organization selected by CAM.
IV. GIFTS
A. ACCEPTING GIFTS AND ENTERTAINMENT Except as otherwise specifically stated below, an INVESTMENT PERSON, ACCESS PERSON or his/her family members must not accept gifts or excessive entertainment or favors from current or prospective customers or suppliers of the Company. Cash gifts and checks or gift certificates convertible into cash are always inappropriate and must never be accepted. Other gifts up to $100 in retail value may be accepted if the INVESTMENT PERSON or ACCESS PERSON is certain that there are no conflict of interest or appearance of any conflict of interest raised by the gift(s). If an employee receives a gift, over a $100 retail value, the employee must submit a written report to the Director of Compliance. Reports submitted to the Director of Compliance must contain the following information: name of recipient; title or position; department; name of donor; description of gift; date received; actual or estimated value. Such reports are to be prepared and submitted immediately upon receipt of such gift. Senior Management reserves the right to require the person to return any gift if it determines such return is appropriate under the circumstances.
Invitations for excessive or extravagant entertainment must be declined. If such entertainment is accepted inadvertently, it must be reported in writing in accordance with the above guidelines. Employees should only accept types of entertainment that they believe would be deemed appropriate. No gifts should be accepted by one employee from another employee if accepting such gifts would
create a conflict of interest or the appearance thereof, if such gifts would be considered excessive, or if such gifts are inappropriate or in bad taste.
B. PRESENTING GIFTS AND ENTERTAINMENT In situations where the Company is to present a gift, entertainment, or other accommodation to a current or prospective customer or supplier, INVESTMENT PERSONS or ACCESS PERSONS must use careful judgment to determine that the matter is handled in good taste and without excessive expense. All entertainment presented by the Company or in the name of the Company must be appropriate and in good taste. Employees presenting a gift, entertainment or accommodation must be certain that such gift, entertainment or accommodation they have selected would be appropriate. If there are any questions as to whether or not a particular form of gift, entertainment or accommodation is appropriate, such gift, entertainment or accommodation should not be presented. Prior approval from the Director of Compliance is required before purchasing a gift with a retail value over $100 or the presentation of a gift combined with other gifts given to the same client during the calendar year would exceed $100. Reports should include name of donor; title or position; department; name of recipient, description of gift; date presented; and actual value.
INVESTMENT PERSONS or ACCESS PERSONS sometimes obtain CAM-owned tickets to sporting or cultural events, etc. When an INVESTMENT PERSON or ACCESS PERSON is accompanying a customer to the event using the CAM-owned tickets, the use of such tickets is considered to be customer entertainment. When an INVESTMENT PERSON or ACCESS PERSON presents such tickets to a customer, but does not attend the event with the customer, the presentation of such CAM-owned tickets is then considered a gift to the customer. In either event, care must be taken to ensure that such gift or entertainment is an appropriate business expense for the Company. It is expected that CAM-owned tickets would not be repeatedly used to entertain, or be presented as gifts to, the same customer.
V. SERVICE AS A DIRECTOR
No INVESTMENT PERSON or ACCESS PERSON may serve as a member of the board of directors or trustees of any publicly-held company without the prior written approval of the President or the Chief Compliance Officer, based on a determination that the board service would not be inconsistent with the interests of the Clients of CAM. If an INVESTMENT PERSON is serving as a board member, that INVESTMENT PERSON shall not participate in making investment decisions relating to the securities of the company on whose board he or she sits.
VI. INSIDE INFORMATION
Securities laws and regulations prohibit the misuse of "inside" material non-public information regarding an issuer when trading or recommending securities of that issuer.
Inside information obtained by any ACCESS PERSON or an INVESTMENT PERSON from any source must be kept strictly confidential. All inside information should be kept completely secure, and
access to files and computer files containing such information should be restricted. ACCESS PERSONS and INVESTMENT PERSONS shall not act upon or disclose inside information and shall report the information and any proposed trade in the issuer to whom the information relates immediately to the Chief Compliance Officer. After the Chief Compliance Officer has reviewed the issue, CAM will determine whether any trading restrictions apply and what action, if any, the firm should take.
Inside information may include, but is not limited to, knowledge of pending orders or research recommendations, corporate finance activity, mergers and acquisitions, and other material non-public information that could affect the price of a security. Trading during a tender offer represents a particular concern in the law of insider trading. ACCESS PERSONS and INVESTMENT PERSONS should exercise particular caution any time they become aware of non-public information relating to a tender offer.
Client and Client account information is also confidential and must not be discussed with any individual whose responsibilities do not require knowledge of such information.
All questions and requests for assistance regarding confidential or inside information should be promptly directed to the Chief Compliance Officer.
VII. COMPLIANCE PROCEDURES
A. BLACKOUT PERIODS. [See pre-clearance requirements in Section
VII. E. below] No personal securities transaction in which an
INVESTMENT PERSON or an ACCESS PERSON has a beneficial
interest shall be executed if a Client (1) has a conflicting
order pending or (2) is actively considering a purchase or
sale of the same security. A conflicting order is any order
for the same security, or an option on that order, that has
not been fully executed. A purchase of a security is being
"actively considered" (a) when a recommendation to purchase or
sell has been made for the Client and is pending or (b) with
respect to the person making the recommendation, when that
person is seriously considering making the recommendation.
Absent extraordinary circumstances, a personal securities transaction shall not be executed until the fifth business day after completion of any transaction for a Client. The Blackout Period does not extend to the purchase and sale of open-end and closed-end funds.
B. DISCLOSURE OF PERSONAL HOLDINGS. Each INVESTMENT PERSON and ACCESS PERSON shall disclose to the Chief Compliance Officer securities holdings in which he or she has a beneficial interest (excluding direct obligations of the U. S. government (U.S. treasury bills, notes and bonds), and money market instruments, including bank certificates of deposit, bankers' acceptances, commercial paper and repurchase agreements) no later than ten days after commencement of employment with CAM or CFS (or upon the adoption of this Code) and annually thereafter as of December 31 of each year. Annual reports shall be delivered to the Chief Compliance Officer no later than January 30 of the following year. The
initial holdings and annual holdings reports shall contain the following information:
- title and number of shares, or principal amount, interest rate and maturity date (if applicable), of each security held beneficially;
- the name of any broker, dealer, bank or custodian with or through which an account is maintained in which the person has a beneficial interest, along with the corresponding account number; and
- the date the report is submitted.
C. REPORTING PERSONAL SECURITIES TRANSACTIONS.
1. An OUTSIDE TRUSTEE shall report in writing to the Chief Compliance Officer, within ten days after the end of the calendar quarter in which a transaction occurred, any personal transaction including transactions in shares of investment companies advised by CAM, in a security that the Outside Trustee, at the time of the transaction, knew, or in the ordinary course of fulfilling his or her duties as a trustee should have known, that on the day of the transaction or within 15 days before or after that day a purchase or sale of that security was made by or considered for the Trust. Purchases and sales of shares of Calamos Convertible Opportunities and Income Fund, Calamos Convertible and High Income or Calamos Strategic Total Return Fund, (Calamos Closed-End Funds) must be reported to the Chief Compliance Officer within one business of such transaction. Such reporting is required to meet obligations under Section 16 and the rules thereunder. (See Appendix B).
2. Each ACCESS PERSON and INVESTMENT PERSON shall (i) identify to CAM and CFS any brokerage or other account in which he or she has a beneficial interest and (ii) instruct the broker or custodian to deliver to CAM's Chief Compliance Officer duplicate confirmations of all transactions and duplicate monthly statements.
3. Each ACCESS PERSON and INVESTMENT PERSON shall report all personal securities transactions, including transactions in shares of all mutual funds and closed-end funds, during a quarter to the Chief Compliance Officer no later than ten days after the end of the quarter. Quarterly transaction reports shall include the following information:
For each transaction:
- the date of the transaction;
- title and number of shares or principal amount, interest rate and maturity date (if applicable) of each security involved;
- the nature of the transaction (i.e., purchase, sale, exchange, gift, or other type of acquisition or disposition);
- the price at which the transaction was effected;
- the name of the broker, dealer or bank with or through which the transaction was effected;
- the account number; and
- the date the report is submitted.
In addition, for each account established during the month in which securities are held for the benefit of an INVESTMENT PERSON or Access PERSON, the quarterly report shall include:
- the name of the broker, dealer, custodian or bank with whom the account was established;
- the date the account was established; and
- the date the report is submitted.
4. For INVESTMENT PERSONS and ACCESS PERSONS who choose to execute all personal securities transactions through CFS, CFS will provide to CAM's Chief Compliance Officer information about transactions in the accounts of persons subject to this Code who have accounts with CFS.
5. Reports relating to the personal securities transactions of the Chief Compliance Officer shall be delivered to the President of CAM.
D. FORM OF REPORTS. Reports of personal securities transactions may be in any form (including copies of confirmations or monthly statements) but must include the information required by Section VII.C.3.
E. Pre-clearance of Personal Securities Transactions. No INVESTMENT PERSON or ACCESS PERSON shall engage in a personal securities transaction unless the transaction has been approved in advance by a designated individual as outlined in sections 1 and 2 below and executed in accordance with the Employee Pre-Clearance Procedures. Each approval shall be in writing and shall be forwarded to Compliance to be filed in the employee's trading files and maintained for at least five years after the end of the fiscal year in which it is made, the first two years in an easily accessible place.
1. Personal Securities, other than Mutual Funds - INVESTMENT PERSONS or ACCESS PERSONS wishing to place trades in securities including, but not limited to, equities, fixed income, derivatives, closed-end mutual funds and exchange traded funds must obtain written approval from any one of
the President, Senior Executive Vice President or Chief Compliance Officer, none of whom may approve his or her own transactions. In addition, the personal securities transactions of the President and Senior Executive Vice President must be approved in advance by the Chief Compliance Officer.
2. Mutual Funds - INVESTMENT PERSONS or ACCESS PERSONS wishing to redeem or exchange mutual fund shares held for a period of less than 30 calendar days, must obtain written approval from any one of the Chief Compliance Officer, Director of Compliance, or Chief Administrative Officer, none of whom may approve his or her own transactions.
F. If preclearance is granted, the individual must execute his or her trade within the period of time indicated by the approving person on the preclearance form, which period of time shall not exceed one business day from the day on which preclearance is granted. (Limit orders, which have been precleared and placed within this time limit, need not be precleared on subsequent days so long as the terms of the order have not changed.) In addition, Officers of Calamos Closed-End Funds and Executive Officers of CAM and CFS must notify the Chief Compliance Officer of any purchases and sales of Calamos Closed-End Funds, excluding dividend or capital gain reinvestments, on the day such transaction was effected. Such notification is required to meet obligations under Section 16 and the rules thereunder. (See Appendix B).F. MONITORING OF TRANSACTIONS. CAM's Chief Compliance Officer will monitor the trading patterns of INVESTMENT PERSONS and ACCESS PERSONS.
G. CERTIFICATION OF COMPLIANCE. Each INVESTMENT PERSON and ACCESS PERSON is required to certify annually that (i) he or she has read and understands the Code, (ii) recognizes that he or she is subject to the Code, and (iii) he or she has disclosed or reported all personal securities transactions required to be disclosed or reported under the Code. The Chief Compliance Officer shall annually distribute a copy of the Code and request certification by all covered persons and shall be responsible for ensuring that all personnel comply with the certification requirement.
Each INVESTMENT PERSON and ACCESS PERSON who has not engaged in any Personal Securities Transaction during the preceding year for which a report was required to be filed pursuant to the Code shall include a certification to that effect in his or her annual certification.
H. REPORT TO TRUSTS' BOARD. The officers of each Trust shall prepare an annual report to the board of each Trust that:
- summarizes existing procedures concerning personal investing and any changes in those procedures during the past year;
- describes issues that arose during the previous year under the Code or procedures concerning personal investing, including but not limited to information about material violations of the Code and sanctions imposed;
- certifies to the board that the Trust has adopted procedures reasonably necessary to prevent its INVESTMENT PERSONS and ACCESS PERSONS from violating the Code; and
- identifies any recommended changes in existing restrictions or procedures based upon experience under the Code, evolving industry practices, or developments in applicable laws or regulations.
VIII. EXEMPT TRANSACTIONS
The provisions of this Code are intended to restrict the personal investment activities of persons subject to the Code only to the extent necessary to accomplish the purposes of the Code. Therefore, the provisions of Sections III and VII of this Code shall not apply to:
A. Purchases or sales effected in any account over which the persons subject to this Code have no direct or indirect influence or control;
B. Purchases or sales of:
1. U.S. government securities;
2. Money Market Mutual Funds
3. bank certificates of deposit or commercial paper.
C. Purchases or sales that are non-volitional on the part of either the person subject to this Code or the Client;
D. Purchases that are part of an automatic dividend reinvestment plan; and
E. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities to the extent such rights were acquired from such issuer, and sales of such rights so acquired.
F. Discretionary Accounts of Outside Trustees
Purchases and sales of securities in an account in which an Outside Trustee has a beneficial interest shall not be subject to the prohibitions of Section VII if the account is managed by someone other than the Outside Trustee and the Outside Trustee did not have knowledge of the transactions until after they had been executed, provided the Outside Trustee has previously identified the account to CAM's Chief Compliance officer.
G. De Minimis Exception. Purchases or sales in an amount less
than $10,000 in a security (other than shares of mutual funds)
that has a market capitalization of at least $5 billion are
exempt from the prohibitions of Section III. and Section
VII.A. of this Code, and are exempt from the pre-clearance
requirements of Section VII.E. (However, please note that
trades falling within this de minimis exception must be
reported pursuant to Sections VII.B., VII.C. and VII.D. of
this code).
H. Under unusual circumstances, such as a personal financial emergency, employee stock ownership plans, stock option plans and certain personal trusts, or when it is determined that no conflict of interest or other breach of duty is involved, application for an exemption to make a transaction may be made to the Chief Compliance Officer, which application may be denied or granted. To request consideration of an exemption, submit a written request containing details on your circumstances, reasons for the exception and exception requested. The Chief Compliance Officer may, in unusual circumstances, approve exceptions from the Code of Ethics applicable to an individual, based on the unique circumstances of such individual and based on a determination that the exceptions can be granted (i) consistent with the individual's fiduciary obligations to Clients and (ii) pursuant to procedures that are reasonably designed to avoid a conflict of interest for the individual. Any such exceptions shall be subject to such additional procedures, reviews and reporting as determined appropriate by the Chief Compliance Officer in connection with granting such exception. Any such exceptions will be reported to the Board of Directors of CAM at the meeting of the Board of Directors immediately following the grant of such exception, and such Board of Directors shall have the power to revoke or modify any such exceptions prospectively.
IX. CONSEQUENCES OF FAILURE TO COMPLY WITH THE CODE
Compliance with this Code of Ethics is a condition of employment of CAM and CFS and retention of positions with the Trusts. Taking into consideration all relevant circumstances, management of CAM will determine what action is appropriate for any breach of the provisions of the Code by an INVESTMENT PERSON or ACCESS PERSON. Possible actions include letters of sanction, suspension or termination of employment or removal from office.
The board of a Trust will determine what action is appropriate for any breach of the provisions of the Code by an Outside Trustee of the Trust, which may include removal from the board.
Reports filed pursuant to the Code will be maintained in confidence but will be reviewed by CAM, CFS or the Trust in order to verify compliance with the Code. Additional information may be required to clarify the nature of particular transactions.
X. RETENTION OF RECORDS
The Secretary of CAM shall maintain the records listed below for a period of five years at CAM's principal place of business in an easily accessible place:
A. a list of all persons subject to the Code during the period;
B. receipts signed by all persons subject to the Code acknowledging receipt of copies of the Code and acknowledging that they are subject to it;
C. a copy of each code of ethics that has been in effect at any time during the period;
D. a copy of each report filed pursuant to this Code and a record of any known violation and action taken as a result thereof during the period; and
E. records evidencing prior approval of, and the rational supporting, an acquisition by an Investment Person or an Access Person of securities in a private placement.
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
FOR EMPLOYEES AND OFFICERS OF
CALAMOS ASSET MANAGEMENT, INC.,
CALAMOS FINANCIAL SERVICES, INC.,
CALAMOS INVESTMENT TRUST,
CALAMOS ADVISORS TRUST,
CALAMOS CONVERTIBLE OPPORTUNITIES AND INCOME FUND
CALAMOS CONVERTIBLE AND HIGH INCOME FUND
CALAMOS STRATEGIC TOTAL RETURN FUND
CODE OF ETHICS. Calamos Asset Management, Inc. ("CAM"), Calamos Financial Services, Inc. ("CFS") and Calamos Investment Trust, Calamos Advisors Trust, Calamos Convertible Opportunities and Income Fund, Calamos Convertible and High Income Fund and Calamos Strategic Total Return Fund (each, a "Trust") have adopted a written Code of Ethics (the "Code") to avoid potential conflicts of interest by their personnel. A copy of the Code is attached to this letter. As a condition of your continued employment with CAM or CFS or the retention of your position, if any, as an officer of a Trust, you are required to read, understand and abide by the Code.
COMPLIANCE PROGRAM. The Code requires that all personnel furnish to the Chief Compliance Officer information regarding any investment account in which you have a "beneficial interest." You are also required to furnish to the Chief Compliance Officer copies of your monthly or quarterly account statements, or other documents, showing all purchases or sales of Securities in any such account, or which are effected by you or for your benefit, or the benefit of any member of your household. Additionally, you are required to furnish a report of your personal securities holdings within 10 days of commencement of your employment with CAM or CFS and annually thereafter. These requirements apply to any investment account, such as an account at a brokerage house, trust account at a bank, custodial account or similar types of accounts.
This compliance program also requires that you report any contact with any Securities issuer, government or its personnel, or others, that, in the usual course of business, might involve inside or material non-public information. You must bring to the attention of the Chief Compliance Officer any information you receive from any source which might be insider or material non-public information.
I affirm that I have read and understand the Code. I agree to the terms and conditions set forth in the Code.
___________________________ _______________________
Signature Date
|
ANNUAL AFFIRMATION OF COMPLIANCE
FOR EMPLOYEES AND OFFICERS OF
CALAMOS ASSET MANAGEMENT, INC.,
CALAMOS FINANCIAL SERVICES, INC.,
CALAMOS INVESTMENT TRUST,
CALAMOS ADVISORS TRUST,
|
CALAMOS CONVERTIBLE OPPORTUNITIES AND INCOME FUND AND
CALAMOS CONVERTIBLE AND HIGH INCOME FUND
CALAMOS STRATEGIC TOTAL RETURN FUND
I affirm that:
1. I have again read and, during the past year to the best of my knowledge, have complied with the Code of Ethics ("Code").
2. I have provided to the Chief Compliance Officer the names and addresses of each investment account that I had with any firm, including, but not limited to, broker-dealers, banks, custodians and others. (List of known accounts attached.)
3. I have provided to the Chief Compliance Officer copies of account statements or other reports showing each and every transaction in any security in which I have a beneficial interest, as defined in the Code, during the most recently ended calendar year;
or
During the most recent calendar year there were no transactions in any security in which I had a beneficial interest required to be reported pursuant to the Code.
4. I have provided to the Chief Compliance Officer a report of securities holdings in which I had a beneficial interest as of the end of the most recent calendar year, including all required information for each security in which I have any direct or indirect beneficial ownership.
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
FOR OUTSIDE TRUSTEES OF
CALAMOS INVESTMENT TRUST, CALAMOS ADVISORS TRUST,
CALAMOS CONVERTIBLE OPPORTUNITIES AND INCOME FUND
CALAMOS CONVERTIBLE AND HIGH INCOME FUND
CALAMOS STRATEGIC TOTAL RETURN FUND
CODE OF ETHICS. Calamos Asset Management, Inc. ("CAM"), Calamos Financial Services, Inc. ("CFS") and Calamos Investment Trust, Calamos Advisors Trust, Calamos Convertible Opportunities and Income Fund, Calamos Convertible and High Income Fund and Calamos Strategic Total Return Fund (each, a "Trust") have adopted a written Code of Ethics (the "Code") to avoid potential conflicts of interest by the outside trustees of each Trust and personnel of CAM and CFS. A copy of the Code is attached to this letter. As a condition of the retention of your position as a trustee, you are required to read, understand and abide by the Code.
I affirm that I have read and understand the Code of Ethics ("Code"). I agree to the terms and conditions set forth in the Code.
___________________________ _______________________
Signature Date
|
APPENDIX A
|
SECTION 270.17J-1 PERSONAL INVESTMENT ACTIVITIES OF INVESTMENT COMPANY PERSONNEL.
(a) Definitions. For purposes of this section:
(1) Access Person means:
(i) Any director, officer, general partner or Advisory Person of a Fund or of a Fund's investment adviser.
(A) If an investment adviser is primarily engaged in a business or businesses other than advising Funds or other advisory clients, the term Access Person means any director, officer, general partner or Advisory Person of the investment adviser who, with respect to any Fund, makes any recommendation, participates in the determination of which recommendation will be made, or whose principal function or duties relate to the determination of which recommendation will be made, or who, in connection with his or her duties, obtains any information concerning recommendations on Covered Securities being made by the investment adviser to any Fund.
(B) An investment adviser is "primarily engaged in a business or businesses other than advising Funds or other advisory clients" if, for each of its most recent three fiscal years or for the period of time since its organization, whichever is less, the investment adviser derived, on an unconsolidated basis, more than 50 percent of its total sales and revenues and more than 50 percent of its income (or loss), before income taxes and extraordinary items, from the other business or businesses.
(ii) Any director, officer or general partner of a principal underwriter who, in the ordinary course of business, makes, participates in or obtains information regarding, the purchase or sale of Covered Securities by the Fund for which the principal underwriter acts, or whose functions or duties in the ordinary course of business relate to the making of any recommendation to the Fund regarding the purchase or sale of Covered Securities.
(2) Advisory Person of a Fund or of a Fund's investment adviser means:
(i) Any employee of the Fund or investment adviser (or of any company in a control relationship to the Fund or investment adviser) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities by a Fund, or whose functions relate to the making of any recommendations with respect to the purchases or sales; and
(ii) Any natural person in a control relationship to the Fund or investment adviser who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of Covered Securities by the Fund.
(3) Control has the same meaning as in section 2(a)(9) of the Act
[15 U.S.C. 80a-2(a)(9)].
(4) Covered Security means a security as defined in section 2(a)(36) of the Act [15 U.S.C. 80a-2(a)(36)], except that it does not include:
(i) Direct obligations of the Government of the United States;
(ii) Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and
APPENDIX A
(iii) Shares issued by open-end Funds.
(5) Fund means an investment company registered under the Investment Company Act.
(6) An Initial Public Offering means an offering of securities registered under the Securities Act of 1933 [15 U.S.C. 77a], the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934 [15 U.S.C. 78m or 78o(d)].
(7) Investment Personnel of a Fund or of a Fund's investment adviser means:
(i) Any employee of the Fund or investment adviser (or of any company in a control relationship to the Fund or investment adviser) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by the Fund.
(ii) Any natural person who controls the Fund or investment adviser and who obtains information concerning recommendations made to the Fund regarding the purchase or sale of securities by the Fund.
(8) A Limited Offering means an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) [15 U.S.C. 77d(2) or 77d(6)] or pursuant to rule 504, rule 505, or rule 506 [17 CFR 230.504, 230.505, or 230.506] under the Securities Act of 1933.
(9) Purchase or sale of a Covered Security includes, among other things, the writing of an option to purchase or sell a Covered Security.
(10) Security Held or to be Acquired by a Fund means:
(i) Any Covered Security which, within the most recent 15 days:
(A) Is or has been held by the Fund; or
(B) Is being or has been considered by the Fund or its investment adviser for purchase by the Fund; and
(ii) Any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in paragraph (a)(10)(i) of this section.
(b) Unlawful Actions. It is unlawful for any affiliated person of or principal underwriter for a Fund, or any affiliated person of an investment adviser of or principal underwriter for a Fund, in connection with the purchase or sale, directly or indirectly, by the person of a Security Held or to be Acquired by the Fund:
(1) To employ any device, scheme or artifice to defraud the Fund;
(2) To make any untrue statement of a material fact to the Fund or omit to state a material fact necessary in order to make the statements made to the Fund, in light of the circumstances under which they are made, not misleading;
(3) To engage in any act, practice or course of business that operates or would operate as a fraud or deceit on the Fund; or
(4) To engage in any manipulative practice with respect to the
Fund.
APPENDIX A
(c) Code of Ethics.
(1) Adoption and Approval of Code of Ethics.
(i) Every Fund (other than a money market fund or a Fund that does not invest in Covered Securities) and each investment adviser of and principal underwriter for the Fund, must adopt a written code of ethics containing provisions reasonably necessary to prevent its Access Persons from engaging in any conduct prohibited by paragraph (b) of this section.
(ii) The board of directors of a Fund, including a majority of directors who are not interested persons, must approve the code of ethics of the Fund, the code of ethics of each investment adviser and principal underwriter of the Fund, and any material changes to these codes. The board must base its approval of a code and any material changes to the code on a determination that the code contains provisions reasonably necessary to prevent Access Persons from engaging in any conduct prohibited by paragraph (b) of this section. Before approving a code of a Fund, investment adviser or principal underwriter or any amendment to the code, the board of directors must receive a certification from the Fund, investment adviser or principal underwriter that it has adopted procedures reasonably necessary to prevent Access Persons from violating the investment adviser's or principal underwriter's code of ethics. The Fund's board must approve the code of an investment adviser or principal underwriter before initially retaining the services of the investment adviser or principal underwriter. The Fund's board must approve a material change to a code no later than six months after adoption of the material change.
(iii) If a Fund is a unit investment trust, the Fund's
principal underwriter or depositor must approve the
Fund's code of ethics, as required by paragraph
(c)(1)(ii) of this section. If the Fund has more than
one principal underwriter or depositor, the principal
underwriters and depositors may designate, in
writing, which principal underwriter or depositor
must conduct the approval required by paragraph
(c)(1)(ii) of this section, if they obtain written
consent from the designated principal underwriter or
depositor.
(2) Administration of Code of Ethics.
(i) The Fund, investment adviser and principal underwriter must use reasonable diligence and institute procedures reasonably necessary to prevent violations of its code of ethics.
(ii) No less frequently than annually, every Fund (other than a unit investment trust) and its investment advisers and principal underwriters must furnish to the Fund's board of directors, and the board of directors must consider, a written report that:
(A) Describes any issues arising under the code of ethics or procedures since the last report to the board of directors, including, but not limited to, information about material violations of the code or procedures and sanctions imposed in response to the material violations; and
(B) Certifies that the Fund, investment adviser or principal underwriter, as applicable, has adopted procedures reasonably necessary to prevent Access Persons from violating the code.
(3) Exception for Principal Underwriters. The requirements of paragraphs (c)(1) and (c)(2) of this section do not apply to any principal underwriter unless:
(i) The principal underwriter is an affiliated person of the Fund or of the Fund's investment adviser; or
APPENDIX A
(ii) An officer, director or general partner of the principal underwriter serves as an officer, director or general partner of the Fund or of the Fund's investment adviser.
(d) Reporting Requirements of Access Persons.
(1) Reports Required. Unless excepted by paragraph (d)(2) of this section, every Access Person of a Fund (other than a money market fund or a Fund that does not invest in Covered Securities) and every Access Person of an investment adviser of or principal underwriter for the Fund, must report to that Fund, investment adviser or principal underwriter:
(i) Initial Holdings Reports. No later than 10 days after the person becomes an Access Person, the following information:
(A) The title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial ownership when the person became an Access Person;
(B) The name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person as of the date the person became an Access Person; and
(C) The date that the report is submitted by the Access Person.
(ii) Quarterly Transaction Reports. No later than 10 days after the end of a calendar quarter, the following information:
(A) With respect to any transaction during the quarter in a Covered Security in which the Access Person had any direct or indirect beneficial ownership:
(1) The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each Covered Security involved;
(2) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);
(3) The price of the Covered Security at which the transaction was effected;
(4) The name of the broker, dealer or bank with or through which the transaction was effected; and
(5) The date that the report is submitted by the Access Person.
(B) With respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of the Access Person:
(1) The name of the broker, dealer or bank with whom the Access Person established the account;
(2) The date the account was established; and
(3) The date that the report is submitted by the Access Person.
APPENDIX A
(iii) Annual Holdings Reports. Annually, the following information (which information must be current as of a date no more than 30 days before the report is submitted):
(A) The title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial ownership;
(B) The name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for the direct or indirect benefit of the Access Person; and
(C) The date that the report is submitted by the Access Person.
(2) Exceptions from Reporting Requirements.
(i) A person need not make a report under paragraph
(d)(1) of this section with respect to transactions
effected for, and Covered Securities held in, any
account over which the person has no direct or
indirect influence or control.
(ii) A director of a Fund who is not an "interested person" of the Fund within the meaning of section 2(a)(19) of the Act [15 U.S.C. 80a-2(a)(19)], and who would be required to make a report solely by reason of being a Fund director, need not make:
(A) An initial holdings report under paragraph
(d)(1)(i) of this section and an annual
holdings report under paragraph (d)(1)(iii)
of this section; and
(B) A quarterly transaction report under paragraph (d)(1)(ii) of this section, unless the director knew or, in the ordinary course of fulfilling his or her official duties as a Fund director, should have known that during the 15-day period immediately before or after the director's transaction in a Covered Security, the Fund purchased or sold the Covered Security, or the Fund or its investment adviser considered purchasing or selling the Covered Security.
(iii) An Access Person to a Fund's principal underwriter need not make a report to the principal underwriter under paragraph (d)(1) of this section if:
(A) The principal underwriter is not an affiliated person of the Fund (unless the Fund is a unit investment trust) or any investment adviser of the Fund; and
(B) The principal underwriter has no officer, director or general partner who serves as an officer, director or general partner of the Fund or of any investment adviser of the Fund.
(iv) An Access Person to an investment adviser need not make a quarterly transaction report to the investment adviser under paragraph (d)(1)(ii) of this section if all the information in the report would duplicate information required to be recorded under Sections 275.204-2(a)(12) or 275.204-2(a)(13) of this chapter.
(v) An Access Person need not make a quarterly
transaction report under paragraph (d)(1)(ii) of this
section if the report would duplicate information
contained in broker trade confirmations or account
statements received by the Fund, investment adviser
or principal underwriter with respect to the Access
Person in the time period required by paragraph
(d)(1)(ii), if all of the information required by
that paragraph is contained in the broker trade
confirmations or account statements, or in the
records of the Fund, investment adviser or principal
underwriter.
APPENDIX A
(3) Review of Reports. Each Fund, investment adviser and principal underwriter to which reports are required to be made by paragraph (d)(1) of this section must institute procedures by which appropriate management or compliance personnel review these reports.
(4) Notification of Reporting Obligation. Each Fund, investment adviser and principal underwriter to which reports are required to be made by paragraph (d)(1) of this section must identify all Access Persons who are required to make these reports and must inform those Access Persons of their reporting obligation.
(5) Beneficial Ownership. For purposes of this section, beneficial
ownership is interpreted in the same manner as it would be
under section 240.16a-1(a)(2) of this chapter in determining
whether a person is the beneficial owner of a security for
purposes of section 16 of the Securities Exchange Act of 1934
[15 U.S.C. 78p] and the rules and regulations thereunder. Any
report required by paragraph (d) of this section may contain a
statement that the report will not be construed as an
admission that the person making the report has any direct or
indirect beneficial ownership in the Covered Security to which
the report relates.
(e) Pre-approval of Investments in IPOs and Limited Offerings. Investment Personnel of a Fund or its investment adviser must obtain approval from the Fund or the Fund's investment adviser before directly or indirectly acquiring beneficial ownership in any securities in an Initial Public Offering or in a Limited Offering.
(f) Recordkeeping Requirements.
(1) Each Fund, investment adviser and principal underwriter that is required to adopt a code of ethics or to which reports are required to be made by Access Persons must, at its principal place of business, maintain records in the manner and to the extent set out in this paragraph (f), and must make these records available to the Commission or any representative of the Commission at any time and from time to time for reasonable periodic, special or other examination:
(A) A copy of each code of ethics for the organization that is in effect, or at any time within the past five years was in effect, must be maintained in an easily accessible place;
(B) A record of any violation of the code of ethics, and of any action taken as a result of the violation, must be maintained in an easily accessible place for at least five years after the end of the fiscal year in which the violation occurs;
(C) A copy of each report made by an Access Person as
required by this section, including any information
provided in lieu of the reports under paragraph
(d)(2)(v) of this section, must be maintained for at
least five years after the end of the fiscal year in
which the report is made or the information is
provided, the first two years in an easily accessible
place;
(D) A record of all persons, currently or within the past five years, who are or were required to make reports under paragraph (d) of this section, or who are or were responsible for reviewing these reports, must be maintained in an easily accessible place; and
(E) A copy of each report required by paragraph
(c)(2)(ii) of this section must be maintained for at
least five years after the end of the fiscal year in
which it is made, the first two years in an easily
accessible place.
(2) A Fund or investment adviser must maintain a record of any decision, and the reasons supporting the decision, to approve the acquisition by investment personnel of securities under paragraph (e), for at least five years after the end of the fiscal year in which the approval is granted.
APPENDIX A
APPENDIX B
REPORTS OF DIRECTORS, OFFICERS,
AND PRINCIPAL STOCKHOLDERS
RULE 16a-1 -- DEFINITION OF TERMS
Terms defined in this rule shall apply solely to section 16 of the Act and the rules thereunder. These terms shall not be limited to section 16(a) of the Act but also shall apply to all other subsections under section 16 of the Act.
a. The term beneficial owner shall have the following applications:
1. Solely for purposes of determining whether a person is a
beneficial owner of more than ten percent of any class of
equity securities registered pursuant to section 12 of the
Act, the term "beneficial owner" shall mean any person who
is deemed a beneficial owner pursuant to section 13(d) of
the Act and the rules thereunder; provided, however, that
the following institutions or persons shall not be deemed
the beneficial owner of securities of such class held for
the benefit of third parties or in customer or fiduciary
accounts in the ordinary course of business (or in the case
of an employee benefit plan specified in paragraph
(a)(1)(vi) of this section, of securities of such class
allocated to plan participants where participants have
voting power) as long as such shares are acquired by such
institutions or persons without the purpose or effect of
changing or influencing control of the issuer or engaging in
any arrangement subject to Rule 13d-3(b):
i. A broker or dealer registered under section 15 of the Act;
ii. A bank as defined in section 3(a)(6) of the Act;
iii. An insurance company as defined in section 3(a)(19) of the Act;
iv. An investment company registered under section 8 of the Investment Company Act of 1940;
v. Any person registered as an investment adviser under Section 203 of the Investment Advisers Act of 1940 or under the laws of any state;
vi. An employee benefit plan as defined in Section 3
(3) of the Employee Retirement Income Security Act
of 1974, as amended, 29 U.S.C. 1001 et seq.
("ERISA") that is subject to the provisions of
ERISA, or any such plan that is not subject to
ERISA that is maintained primarily for the benefit
of the employees of a state or local government or
instrumentality, or an endowment fund;
APPENDIX B
vii. A parent holding company or control person,
provided the aggregate amount held directly by the
parent or control person, and directly and
indirectly by their subsidiaries or affiliates
that are not persons specified in paragraphs
(a)(1)(i) through (ix), does not exceed one
percent of the securities of the subject class;
viii.A savings association as defined in Section 3(b) of the Federal Deposit Insurance Act (12 U.S.C. 1813);
ix. A church plan that is excluded from the definition of an investment company under section 3(c)(14) of the Investment Company Act of 1940; and
x. A group, provided that all the members are persons specified in Rule 16a-1(a)(1)(i) through (ix).
xi. A group, provided that all the members are persons specified in Rule 16a-1(a)(1) (i) through (vii).
NOTE TO PARAGRAPH (a). Pursuant to this section, a person deemed a beneficial owner of more than ten percent of any class of equity securities registered under section 12 of the Act would file a Form 3, but the securities holdings disclosed on Form 3, and changes in beneficial ownership reported on subsequent Forms 4 or 5, would be determined by the definition of "beneficial owner" in paragraph (a)(2) of this section.
2. Other than for purposes of determining whether a person is a beneficial owner of more than ten percent of any class of equity securities registered under Section 12 of the Act, the term beneficial owner shall mean any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the equity securities, subject to the following:
i. The term pecuniary interest in any class of equity securities shall mean the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities.
ii. The term indirect pecuniary interest in any class of equity securities shall include, but not be limited to:
A. Securities held by members of a person's immediate family sharing the same household; provided, however, that the presumption of
APPENDIX B
such beneficial ownership may be
rebutted; see also Rule
16a-1(a)(4);
B. A general partner's proportionate interest in the portfolio securities held by a general or limited partnership. The general partner's proportionate interest, as evidenced by the partnership agreement in effect at the time of the transaction and the partnership's most recent financial statements, shall be the greater of:
1. The general partner's share of the partnership's profits, including profits attributed to any limited partnership interests held by the general partner and any other interests in profits that arise from the purchase and sale of the partnership's portfolio securities; or
2. The general partner's share of the partnership capital account, including the share attributable to any limited partnership interest held by the general partner.
C. A performance-related fee, other than an asset-based fee, received by any broker, dealer, bank, insurance company, investment company, investment adviser, investment manager, trustee or person or entity performing a similar function; provided, however, that no pecuniary interest shall be present where:
1. The performance-related fee, regardless of when payable, is calculated based upon net capital gains and/or net capital appreciation generated from the portfolio or from the fiduciary's overall performance over a period of one year or more; and
2. Equity securities of the issuer do not account for more than ten percent of the market value of the portfolio. A right to a nonperformance-related fee alone shall not represent a pecuniary interest in the securities;
D. A person's right to dividends that is separated or separable from the underlying securities. Otherwise, a right to dividends alone shall not represent a pecuniary interest in the securities;
E. A person's interest in securities held by a trust, as specified in Rule 16a-8(b); and
APPENDIX B
F. A person's right to acquire equity securities through the exercise or conversion of any derivative security, whether or not presently exercisable.
iii. A shareholder shall not be deemed to have a pecuniary interest in the portfolio securities held by a corporation or similar entity in which the person owns securities if the shareholder is not a controlling shareholder of the entity and does not have or share investment control over the entity's portfolio.
3. Where more than one person subject to section 16 of the Act is deemed to be a beneficial owner of the same equity securities, all such persons must report as beneficial owners of the securities, either separately or jointly, as provided in Rule 16a-3(j). In such cases, the amount of short-swing profit recoverable shall not be increased above the amount recoverable if there were only one beneficial owner.
4. Any person filing a statement pursuant to section 16(a) of the Act may state that the filing shall not be deemed an admission that such person is, for purposes of section 16 of the Act or otherwise, the beneficial owner of any equity securities covered by the statement.
5. The following interests are deemed not to confer beneficial ownership for purposes of section 16 of the Act:
i. Interests in portfolio securities held by any holding company registered under the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a et seq.);
ii. Interests in portfolio securities held by any investment company registered under the Investment Company Act of 1940; and
iii. Interests in securities comprising part of a broad-based, publicly traded market basket or index of stocks, approved for trading by the appropriate federal governmental authority.
b. The term call equivalent position shall mean a derivative security position that increases in value as the value of the underlying equity increases, including, but not limited to, a long convertible security, a long call option, and a short put option position.
c. The term derivative securities shall mean any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege at a price related to an equity security, or similar securities with a value derived from the value of an equity security, but shall not include:
APPENDIX B
1. Rights of a pledgee of securities to sell the pledged securities;
2. Rights of all holders of a class of securities of an issuer to receive securities pro rata, or obligations to dispose of securities, as a result of a merger, exchange offer, or consolidation involving the issuer of the securities;
3. Rights or obligations to surrender a security, or have a security withheld, upon the receipt or exercise of a derivative security or the receipt or vesting of equity securities, in order to satisfy the exercise price or the tax withholding consequences of receipt, exercise or vesting;
4. Interests in broad-based index options, broad-based index futures, and broad-based publicly traded market baskets of stocks approved for trading by the appropriate federal governmental authority;
5. Interests or rights to participate in employee benefit plans of the issuer;
6. Rights with an exercise or conversion privilege at a price that is not fixed; or
7. Options granted to an underwriter in a registered public offering for the purpose of satisfying over-allotments in such offering.
d. The term equity security of such issuer shall mean any equity security or derivative security relating to an issuer, whether or not issued by that issuer.
e. The term immediate family shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships.
f. The term "officer" shall mean an issuer's president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president of the issuer in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the issuer. Officers of the issuer's parent(s) or subsidiaries shall be deemed officers of the issuer if they perform such policy-making functions for the issuer. In addition, when the issuer is a limited partnership, officers or employees of the general partner(s) who perform policy-making functions for the limited partnership are deemed officers of the limited partnership. When the issuer is a trust, officers or employees of the trustee(s) who perform policy-making functions for the trust are deemed officers of the trust.
APPENDIX B
NOTE: "Policy-making function" is not intended to include policy-making functions that are not significant. If pursuant to Item 401(b) of Regulation S-K the issuer identifies a person as an "executive officer," it is presumed that the Board of Directors has made that judgment and that the persons so identified are the officers for purposes of Section 16 of the Act, as are such other persons enumerated in this paragraph (f) but not in Item 401(b).
g. The term portfolio securities shall mean all securities owned by an entity, other than securities issued by the entity.
h. The term put equivalent position shall mean a derivative security position that increases in value as the value of the underlying equity decreases, including, but not limited to, a long put option and a short call option position.
APPENDIX B
RULE 16a-2 -- PERSONS AND TRANSACTIONS SUBJECT TO SECTION 16
Any person who is the beneficial owner, directly or indirectly, of more than ten percent of any class of equity securities ("ten percent beneficial owner") registered pursuant to section 12 of the Act, any director or officer of the issuer of such securities, and any person specified in section 17(a) of the Public Utility Holding Company Act of 1935 (15 U.S.C. 79q(a)) or section 30(h) of the Investment Company Act of 1940, including any person specified in section 240.16a-8, shall be subject to the provisions of section 16 of the Act (15 U.S.C. 78p). The rules under section 16 of the Act apply to any class of equity securities of an issuer whether or not registered under section 12 of the Act. The rules under section 16 of the Act also apply to non-equity securities as provided by the Public Utility Holding Company Act of 1935 and the Investment Company Act of 1940. With respect to transactions by persons subject to section 16 of the Act:
a. A transaction(s) carried out by a director or officer in the six months prior to the director or officer becoming subject to section 16 of the Act shall be subject to section 16 of the Act and reported on the first required Form 4 only if the transaction(s) occurred within six months of the transaction giving rise to the Form 4 filing obligation and the director or officer became subject to section 16 of the Act solely as a result of the issuer registering a class of equity securities pursuant to section 12 of the Act.
b. A transaction(s) following the cessation of director or officer status shall be subject to section 16 of the Act only if :
1. Executed within a period of less than six months of an opposite transaction subject to section 16(b) of the Act that occurred while that person was a director or officer.
2. Not otherwise exempted form section 16(b) of the Act pursuant to the provisions of this chapter.
Note to Paragraph (b): For the purposes of this paragraph, an acquisition and a disposition each shall be an opposite transaction with respect to the other.
c. The transaction that results in a person becoming a ten percent beneficial owner is not subject to section 16 of the Act unless the person otherwise is subject to section 16 of the Act. A ten percent beneficial owner not otherwise subject to section 16 of the Act must report only those transactions conducted while the beneficial owner of more than ten percent of a class of equity securities of the issuer registered pursuant to section 12 of the Act.
d.
APPENDIX B
1. Transactions by a person or entity shall be exempt from the provisions of section 16 of the Act for the 12 months following appointment and qualification, to the extent such person or entity is acting as:
i. Executor or administrator of the estate of a decedent;
ii. Guardian or member of a committee for an incompetent;
iii. Receiver, trustee in bankruptcy, assignee for the benefit of creditors, conservator, liquidating agent, or other similar person duly authorized by law to administer the estate or assets of another person; or
iv. Fiduciary in a similar capacity.
2. Transactions by such person or entity acting in a capacity specified in paragraph (d)(1) of this section after the period specified in that paragraph shall be subject to section 16 of the Act only where the estate, trust or other entity is a beneficial owner of more than ten percent of any class of equity security registered pursuant to section 12 of the Act.
APPENDIX B
RULE 16a-3 -- REPORTING TRANSACTIONS AND HOLDINGS
a. Initial statements of beneficial ownership of equity securities required by section 16(a) of the Act shall be filed on Form 3. Statements of changes in beneficial ownership required by that section shall be filed on Form 4. Annual statements shall be filed on Form 5. At the election of the reporting person, any transaction required to be reported on Form 5 may be reported on an earlier filed Form 4. All such statements shall be prepared and filed in accordance with the requirements of the applicable form.
b. A person filing statements pursuant to section 16(a) of the Act with respect to any class of equity securities registered pursuant to section 12 of the Act need not file an additional statement on Form 3:
1. When an additional class of equity securities of the same issuer becomes registered pursuant to section 12 of the Act; or
2. When such person assumes a different or an additional relationship to the same issuer (for example, when an officer becomes a director).
c. Any issuer that has equity securities listed on more than one national securities exchange may designate one exchange as the only exchange with which reports pursuant to section 16(a) of the Act need be filed. Such designation shall be made in writing and shall be filed with the Commission and with each national securities exchange on which any equity security of the issuer is listed at the time of such election. The reporting person's obligation to file reports with each national securities exchange on which any equity security of the issuer is listed shall be satisfied by filing with the exchange so designated.
d. Any person required to file a statement with respect to securities of a single issuer under both section 16(a) of the Act and either section 17(a) of the Public Utility Holding Company Act of 1935 (15 U.S.C. 79q(a)) or section 30(h) of the Investment Company Act of 1940 may file a single statement containing the required information, which will be deemed to be filed under both Acts.
e. Any person required to file a statement under section 16(a) of the Act shall, not later than the time the statement is transmitted for filing with the Commission, send or deliver a duplicate to the person designated by the issuer to receive such statements, or, in the absence of such a designation, to the issuer's corporate secretary or person performing equivalent functions.
f.
APPENDIX B
1. A Form 5 shall be filed by every person who at any time during
the issuer's fiscal year was subject to section 16 of the Act
with respect to such issuer, except as provided in paragraph
(f)(2) of this section. The Form shall be filed within 45 days
after the issuer's fiscal year end, and shall disclose the
following holdings and transactions not reported previously on
Forms 3, 4 or 5:
i. All transactions during the most recent fiscal year that were exempt from Section 16(b) of the Act, except:
A. Exercises and conversions of derivative securities exempt under either Rule 16b-3 or Rule 16b-6(b), and any transaction exempt under Rule 16b-3(d), Rule 16b-3(e), or Rule 16b-3(f) (these are required to be reported on Form 4);
B. Transactions exempt from Section 16(b) of the Act pursuant to Rule 16b-3(c) which shall be exempt from Section 16(a) of the Act; and
C. Transactions exempt from Section 16(a) of the Act pursuant to another rule;
ii. Transactions that constituted small acquisitions pursuant to Rule 16a-6(a);
iii. All holdings and transactions that should have been reported during the most recent fiscal year, but were not; and
iv. With respect to the first Form 5 requirement for a reporting person, all holdings and transactions that should have been reported in each of the issuer's last two fiscal years but were not, based on the reporting person's reasonable belief in good faith in the completeness and accuracy of the information.
2. Notwithstanding the above, no Form 5 shall be required where all transactions otherwise required to be reported on the Form 5 have been reported before the due date of the Form 5.
NOTE: Persons no longer subject to section 16 of the Act, but who were subject to the Section at any time during the issuer's fiscal year, must file a Form 5 unless paragraph (f)(2) is satisfied. See also Rule 16a-2(b) regarding the reporting obligations of persons ceasing to be officers or directors.
APPENDIX B
g.
1. A Form 4 must be filed to report: All transactions not exempt from section 16(b) of the Act; All transactions exempt from section 16(b) of the Act pursuant to Rule 16b-3(d), Rule 16b-3(e), or Rule 16b-3(f); and all exercises and conversions of derivative securities, regardless of whether exempt from section 16(b) of the Act. Form 4 must be filed before the end of the second business day following the day on which the subject transaction has been executed.
2. Solely for purposes of section 16(a)(2)(C) of the Act and paragraph (g)(1) of this section, the date on which the executing broker, dealer or plan administrator notifies the reporting person of the execution of the transaction is deemed the date of execution for a transaction where the following conditions are satisfied:
i. the transaction is pursuant to a contract, instruction or written plan for the purchase or sale of equity securities of the issuer (as defined in Rule 16a-1(d)) that satisfies the affirmative defense conditions of Rule 10b5-1(c); and
ii. the reporting person does not select the date of execution.
3. Solely for purposes of section 16(a)(2)(C) of the Act and paragraph (g)(1) of this section, the date on which the plan administrator notifies the reporting person that the transaction has been executed is deemed the date of execution for a discretionary transaction (as defined in Rule 16b-3(b)(1)) for which the reporting person does not select the date of execution.
4. In the case of the transactions described in paragraphs (g)(2) and (g)(3) of this section, if the notification date is later than the third business day following the trade date of the transaction, the date of execution is deemed to be the third business day following the trade date of the transaction.
5. At the option of the reporting person, transactions that are reportable on Form 5 may be reported on Form 4, so long as the Form 4 is filed no later than the due date of the Form 5 on which the transaction is otherwise required to be reported.
h. The date of filing with the Commission shall be the date of receipt by the Commission.
i. Duplicated or facsimile versions of manual signatures of persons required to sign any document pursuant to Section 16 of the Act that is filed or submitted to the Commission under the Act shall be considered manual signatures for purposes of the Act and rules and regulations thereunder; provided that, the original signed document is retained by the filer for a period of five years and, upon request, the filer furnishes to the Commission or the staff the original manually signed document.
APPENDIX B
j. Where more than one person subject to section 16 of the Act is deemed to be a beneficial owner of the same equity securities, all such persons must report as beneficial owners of the securities, either separately or jointly. Where persons in a group are deemed to be beneficial owners of equity securities pursuant to Rule 16a-1(a)(1) due to the aggregation of holdings, a single Form 3, 4 or 5 may be filed on behalf of all persons in the group. Joint and group filings must include all required information for each beneficial owner, and such filings must be signed by each beneficial owner, or on behalf of such owner by an authorized person.
k. Any issuer that maintains a corporate Web site shall post on that Web site by the end of the business day after filing any Form 3, 4, or 5 filed under section 16(a) of the Act as to the equity securities of that issuer. Each such form shall remain accessible on such issuer's Web site for at least a 12-month period. In the case of an issuer that is an investment company and that does not maintain its own Web site, if any of the issuer's investment adviser, sponsor, depositor, trustee, administrator, principal underwriter, or any affiliated person of the investment company maintains a Web site that includes the name of the issuer, the issuer shall comply with the posting requirements by posting the forms on one such Web site.
APPENDIX C
EXAMPLES OF BENEFICIAL INTEREST
For purposes of the Code, you will be deemed to have a beneficial interest in a security if you have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the security. Examples of beneficial ownership under this definition include:
- securities you own, no matter how they are registered, and including securities held for you by others (for example, by a custodian or broker, or by a relative, executor or administrator) or that you have pledged to another (as security for a loan, for example);
- securities held by a trust of which you are a beneficiary (except that, if your interest is a remainder interest and you do not have or participate in investment control of trust assets, you will not be deemed to have a beneficial interest in securities held by the trust);
- securities held by you as trustee or co-trustee, where either you or any member of your immediate family (i.e., spouse, children or descendants, stepchildren, parents and their ancestors, and stepparents, in each case treating a legal adoption as blood relationship) has a beneficial interest (using these rules) in the trust.
- securities held by a trust of which you are the settlor, if you have the power to revoke the trust without obtaining the consent of all the beneficiaries and have or participate in investment control;
- securities held by any partnership in which you are a general partner, to the extent of your interest in partnership capital or profits;
- securities held by a personal holding company controlled by you alone or jointly with others;
- securities held by (i) your spouse, unless legally separated, or you and your spouse jointly, or (ii) your minor children or any immediate family member of you or your spouse (including an adult relative), directly or through a trust, who is sharing your home, even if the securities were not received from you and the income from the securities is not actually used for the maintenance of your household; or
- securities you have the right to acquire (for example, through the exercise of a derivative security), even if the right is not presently exercisable, or securities as to which, through any other type of arrangement, you obtain benefits substantially equivalent to those of ownership.
You will NOT be deemed to have beneficial ownership of securities in the following situations:
APPENDIX C
- securities held by a limited partnership in which you do not have a controlling interest and do not have or share investment control over the partnership's portfolio; and
- securities held by a foundation of which you are a trustee and donor, provided that the beneficiaries are exclusively charitable and you have no right to revoke the gift.
THESE EXAMPLES ARE NOT EXCLUSIVE. THERE ARE OTHER CIRCUMSTANCES IN WHICH YOU MAY BE DEEMED TO HAVE A BENEFICIAL INTEREST IN A SECURITY. ANY QUESTIONS ABOUT WHETHER YOU HAVE A BENEFICIAL INTEREST SHOULD BE DIRECTED TO THE CHIEF COMPLIANCE OFFICER OF CAM.
EXHIBIT s
POWER OF ATTORNEY
The person whose signature appears below hereby appoints James S. Hamman, Jr. and John P. Calamos and each of them, any of whom may act without the joinder of the others, as such person's attorney-in-fact to sign and file on such person's behalf individually and in the capacity stated below such registration statements, amendments, post-effective amendments, exhibits, applications and other documents with the Securities and Exchange Commission or any other regulatory authority as may be desirable or necessary in connection with the public offering of shares of Calamos Strategic Total Return Fund.
SIGNATURE TITLE DATE /s/ John E. Neal TRUSTEE March 12, 2004 ------------------------------- John E. Neal |
POWER OF ATTORNEY
|
The person whose signature appears below hereby appoints James S. Hamman, Jr. and John P. Calamos and each of them, any of whom may act without the joinder of the others, as such person's attorney-in-fact to sign and file on such person's behalf individually and in the capacity stated below such registration statements, amendments, post-effective amendments, exhibits, applications and other documents with the Securities and Exchange Commission or any other regulatory authority as may be desirable or necessary in connection with the public offering of shares of Calamos Strategic Total Return Fund.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joe F. Hanauer TRUSTEE March 12, 2004
-----------------------
Joe F. Hanauer
|
POWER OF ATTORNEY
The person whose signature appears below hereby appoints James S. Hamman, Jr. and John P. Calamos and each of them, any of whom may act without the joinder of the others, as such person's attorney-in-fact to sign and file on such person's behalf individually and in the capacity stated below such registration statements, amendments, post-effective amendments, exhibits, applications and other documents with the Securities and Exchange Commission or any other regulatory authority as may be desirable or necessary in connection with the public offering of shares of Calamos Strategic Total Return Fund.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Nick P. Calamos TRUSTEE March 12, 2004
-------------------
Nick P. Calamos
|
POWER OF ATTORNEY
The person whose signature appears below hereby appoints James S. Hamman, Jr. and John P. Calamos and each of them, any of whom may act without the joinder of the others, as such person's attorney-in-fact to sign and file on such person's behalf individually and in the capacity stated below such registration statements, amendments, post-effective amendments, exhibits, applications and other documents with the Securities and Exchange Commission or any other regulatory authority as may be desirable or necessary in connection with the public offering of shares of Calamos Strategic Total Return Fund.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Weston W. Marsh TRUSTEE March 12, 2004
----------------------
Weston W. Marsh
|
POWER OF ATTORNEY
The person whose signature appears below hereby appoints James S. Hamman, Jr. and John P. Calamos and each of them, any of whom may act without the joinder of the others, as such person's attorney-in-fact to sign and file on such person's behalf individually and in the capacity stated below such registration statements, amendments, post-effective amendments, exhibits, applications and other documents with the Securities and Exchange Commission or any other regulatory authority as may be desirable or necessary in connection with the public offering of shares of Calamos Strategic Total Return Fund.
SIGNATURE TITLE DATE --------- ----- ---- /s/ William Rybak TRUSTEE March 12, 2004 --------------------- William Rybak |