<PAGE> 1
As filed with the Securities and Exchange Commission on February 17, 1999
Securities Act registration no. 333-
Investment Company Act file no. 811-
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
- -------------------------------------------------------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. [ ]
- -------------------------------------------------------------------------------
CALAMOS INSURANCE TRUST
(Registrant)
1111 East Warrenville Road
Naperville, Illinois 60563-1493
Telephone number: 630-245-7200
- -------------------------------------------------------------------------------
James S. Hamman, Jr., Secretary Cameron S. Avery
Calamos Asset Management, Inc. Bell, Boyd, & Lloyd
1111 East Warrenville Road 70 West Madison Street, Suite 3300
Naperville, Illinois 60563-1493 Chicago, Illinois 60602-4207
(Agents for service)
- -------------------------------------------------------------------------------
APPROXIMATE DATE OF PROPOSED OFFERING: As soon as practicable after the
effective date of this Registration Statement.
Pursuant to Reg. (S) 270.24f-2 under the Investment Company Act of 1940,
Registrant hereby declares that an indefinite number or amount of shares are
being registered under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8 (a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SECTION 8 (a), MAY DETERMINE.
<PAGE> 2
CALAMOS(R) INSURANCE TRUST
PROSPECTUS
MAY 1, 1999
CALAMOS(R) Convertible Portfolio
[CALAMOS LOGO]
An investment in the Portfolio is not a bank deposit, is not FDIC-insured, and
may lose value.
The Securities and Exchange Commission has not approved the Portfolio's shares
as an investment or determined whether this prospectus is accurate or complete.
If anyone tells you otherwise, they are committing a crime.
<PAGE> 3
TABLE OF CONTENTS
Summary................................................. 1
Investment Objective................................ 1
Principal Investment Strategies..................... 1
Principal Risks of Investing in the Portfolio....... 1
Investment Returns.................................. 2
How the Portfolio Invests............................... 2
Management of the Portfolio............................. 7
Shareholder Information................................. 8
Purchasing Shares................................... 8
Selling Shares...................................... 9
Valuing Shares...................................... 9
Other Information................................... 9
Distributions and Taxes................................. 10
For More Information.................................... 11
PORTFOLIO INFORMATION
- ---------------------
The Calamos Convertible Portfolio is a portfolio of the Calamos Insurance
Trust (the "Trust"). The Trust offers the Portfolio's shares to certain life
insurance companies (Participating Insurance Companies) for allocation to
certain separate accounts established for the purpose of funding qualified and
non-qualified variable annuity contracts and variable life insurance contracts
(together, "Variable Contracts"). The Trust may also offer the Portfolio to
certain pension plans and retirement arrangements and accounts permitting
accumulation of funds on a tax-deferred basis ("Retirement Plans"). These
separate accounts of the Participating Insurance Companies are the shareholders
of the Portfolio. Individual variable annuity and variable life insurance
contract holders are not the "shareholders" of the Portfolio. In other words,
you cannot directly purchase shares of the Portfolio.
<PAGE> 4
SUMMARY
Investment Objective
--------------------
The Portfolio seeks current income as its primary objective with
capital appreciation as its secondary objective.
Principal Investment Strategies
-------------------------------
The Portfolio invests primarily in a diversified portfolio of
convertible securities. These convertible securities may be either debt
securities (bonds) or preferred stock that are convertible into common
stock, and may be issued by both U.S. and foreign companies. Under
normal market conditions, the Portfolio invests at least 65% of its
total assets in convertible securities.
The Portfolio may invest without limit in high yield or "junk"
bonds, and may invest up to 25% of its net assets in foreign
securities. The Portfolio may also invest a substantial portion of its
assets 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).
Principal Risks of Investing in the Portfolio
---------------------------------------------
As with any security, there are market and investment risks
associated with your investment in the Portfolio. The value of your
investment in the Portfolio will fluctuate over time and it is possible
to lose money on your investment in the Portfolio if any of the
following occurs:
- The stock market goes down.
- There is an economic downturn, a substantial period of
changing interest rates or a period of political
uncertainty that affects the Portfolio's investments.
- The value of the underlying common stock of the
Portfolio's convertible security investments fall below
the price at which the Portfolio can exchange the security
for the common stock.
- A corporate bond issuer does not make interest of
principal payments when due or its credit quality falls.
In addition, you could lose money on your investment in the Portfolio if the
Portfolio invests in foreign securities, because such securities tend to be more
volatile than U.S. securities and may subject the Portfolio to risks it may not
encounter with an investment in U.S. securities. These risks include:
1
<PAGE> 5
- Less available public information
- Country risk, including economic and political instability
- Higher transaction costs
- Higher price volatility and less liquidity
- Currency exchange rate fluctuation
The Portfolio may be appropriate for long-term conservative
investors who seek a lower-risk alternative to equity investments or a
way to diversify their fixed-income investments.
Please refer to "How the Portfolio Invests" below for more
information regarding certain securities that the Portfolio may buy and
a more detailed discussion of risks.
Investment Returns
------------------
The Portfolio will provide you with performance information to
assist you in understanding that the Portfolio's return may vary and
that there are risks associated with investing in the Portfolio. As
always, please note that the past performance of the Portfolio will not
indicate future performance.
HOW THE PORTFOLIO INVESTS
The Portfolio seeks current income as its primary objective with
capital appreciation as its secondary objective. The Trust's board of
trustees may change the Portfolio's investment objective without
shareholder approval. The Portfolio invests primarily in a diversified
portfolio of convertible securities. Under normal market conditions,
the Portfolio invests at least 65% of its total assets in convertible
securities.
Calamos Asset Management, Inc., the Portfolio's investment
manager, believes that there are various advantages to buying
convertible securities. These advantages include the potential for
capital appreciation if the value of the underlying common stock
increases, the relatively high yield received from dividend or interest
payments as compared to common stock dividends, and the relatively
lower price volatility as compared to common stock. The Portfolio seeks
to profit from this strategy by receiving interest on the convertible
security and through an increase in value of the convertible security
if the market value of the underlying common stock increases above the
conversion price on the convertible security.
2
<PAGE> 6
In selecting securities for the Portfolio, the investment manager
applies a four-step approach:
- analysis of the default risk of the convertible security
using traditional credit analysis
- employment of fundamental equity analysis to determine
the capital appreciation potential of the common stock
into which the security converts
- consideration of the risk/return potential of the
convertible security
- consideration of the diversification of the Portfolio
and other portfolio composition criteria
In its equity and credit analysis, the investment manager
considers the issuer's:
- financial soundness
- ability to make interest and dividend payments
- earnings and cash-flow forecast
- quality of management
TYPES OF INVESTMENTS
CONVERTIBLE SECURITIES. Convertible securities include debt obligations
and preferred stock of an issuer which may be exchanged for a
predetermined price (the conversion price) into the common stock of the
issuer. Convertible securities generally offer lower interest or
dividend yields than non-convertible securities of similar quality.
Many convertible securities are issued with a call feature that
allows the issuer of the security to choose when to redeem the
security. If a convertible security held by the Portfolio is called for
redemption, the Portfolio will be required to redeem the security,
convert it into the underlying common stock, or sell it to a third
party at a time that may be unfavorable to the Portfolio. Conversely,
certain convertible debt securities may provide a "put option" to the
Portfolio which entitles the Portfolio to make the issuer redeem the
security at a premium over the stated principal amount of the debt
security.
The investment manager may also create a "synthetic" convertible
security. The investment manager may create a "synthetic" convertible
security by combining fixed income securities ("fixed income
component") with the right to acquire equity securities ("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
3
<PAGE> 7
options to buy common stock at a certain exercise price, or options on
a stock index. The Portfolio may also purchase synthetic securities
manufactured by other parties (typically investment banks), including
convertible structured notes. More flexibility is possible in the
assembly of a synthetic convertible security than in the purchase of a
convertible security. The fixed income component and the convertible
component may be represented by different issuers, and each component
may be purchased separately, at different times. Synthetic convertible
securities are not considered convertible securities for purposes of
the Portfolio's policy to invest at least 65% of its total assets in
convertible securities. Additional information regarding synthetic
securities appears below.
EQUITY INVESTMENTS. Equity securities include exchange-traded and
over-the-counter common and preferred stocks, warrants, rights, and
depository receipts. An investment in the equity securities of a
company represents a proportionate ownership interest in the company.
Therefore, the Portfolio participates in the financial success or
failure of any company in which it has an equity interest. Compared
with other asset classes, equity investments have a greater potential
for gain.
FOREIGN SECURITIES. The Portfolio may invest up to 25% of its net
assets in securities of foreign issuers. A foreign issuer is a company
organized under the laws of a foreign country that has its principal
trading market for its security in a foreign country. For purposes of
the 25% limitation, foreign securities do not include securities
represented by American Depository Receipts (ADRs) or securities
guaranteed by a U.S. person. ADRs are traded on U.S. exchanges and
represent an ownership interest in a foreign security. They are
generally issued by a U.S. bank as a substitute for direct ownership of
the foreign security. International investing allows the Portfolio to
achieve greater diversification and to take advantage of changes in
foreign economies and market conditions.
144A SECURITIES. The Portfolio may invest a substantial portion of its
assets in securities that are not publicly traded, but that are
eligible for purchase and sale by certain qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933.
JUNK BONDS. The Portfolio may invest without limit in convertible and
non-convertible debt securities rated BB or lower by Standard & Poor's
Corporation, or Ba or lower by Moody's Investor Services, Inc., and
securities that are not rated but are considered by the investment
manager to be of similar quality (commonly called "junk" bonds). The
Portfolio will not, however, acquire a security rated below C. The
Portfolio expects to maintain, over the long-term, an average credit
quality rating of investment grade.
DEFENSIVE INVESTING. The Portfolio may depart from its principal
investment strategies in response to adverse market, economic or
political conditions by taking temporary defensive positions without
limitation in all types of money market and short term debt securities,
and repurchase agreements. In a repurchase agreement, the Portfolio
purchases a security and the seller (a bank or securities dealer)
simultaneously agrees to repurchase the security at the same price plus
an amount equal to an agreed-upon interest
4
<PAGE> 8
rate, on a specified date. During periods when the Portfolio has
assumed a temporary defensive position, the Portfolio may not be able
to achieve its investment objective.
INVESTMENT RISKS
----------------
All investments, including those in mutual funds, have risks. The
Portfolio is designed for long-term investors who can accept the
fluctuations in portfolio value and other risks associated with the
Portfolio. There can be no guarantee that the Portfolio will achieve
its objective.
MARKET RISK. There are market risks with any security. Market risk
is the risk that the securities markets will increase or decrease in
value. Your investment may lose value in response to a general decline
in the stock market regardless of the individual results of the company
in which the Portfolio invests.
DEFAULT RISK. Default risk refers to the risk that an issuer of a
debt security will be unable to fulfill its obligation to repay
principal and interest. The lower a bond is rated, the greater its
default risk.
INTEREST RATE RISK. Interest rate risk is the risk that the
Portfolio's investments will decrease in value as a result of an
increase in interest rates. Generally, there is an inverse relationship
between the value of a debt security and interest rates. Therefore, the
value of bonds held by the Portfolio generally decreases in periods of
rising interest rates. In addition, the prices of bonds with a longer
term to maturity are normally more volatile in response to interest
rate changes than are shorter-term bonds.
INVESTMENT MANAGEMENT. The investment manager's ability to choose
suitable investments for the Portfolio has a significant impact on the
Portfolio's ability to achieve its investment objective.
CONVERTIBLE SECURITIES. As with all fixed-income securities, the
market value of convertible securities tends to decline as interest
rates increase and, conversely, to increase as interest rates decline.
However, when the market price of the common stock of the company
issuing the convertible security is more than the conversion price, the
convertible security tends to reflect the market price of the
underlying common 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, and thus may
not decline in price to the same extent as the underlying common stock.
Holders of convertible securities would be paid before the company's
common stock holders in the event of a liquidation of the issuing
company. Consequently, the issuer's convertible securities entail less
risk than the issuer's common stock.
5
<PAGE> 9
EQUITY INVESTMENTS. Equity investments are subject to greater
fluctuations in market value than other asset classes as a result of
such factors as the company's business performance, investor
perceptions, stock market trends and general economic conditions.
Smaller companies are especially sensitive to these factors, and
therefore may experience more price volatility than larger companies.
FOREIGN MARKET RISK. There are special risks associated with
investing in foreign securities including fluctuations in exchange
rates of foreign currencies that will affect the U.S. dollar value of
the security, and the possibility of substantial price volatility as a
result of political and economic instability in the foreign country.
Other risks of investing in foreign securities include: less public
information with respect to issuers of securities, different
accounting, auditing and financial reporting standards, and less
liquidity in foreign markets than in U.S. markets.
RULE 144A SECURITIES. As mentioned above, the Portfolio may
purchase securities that have been privately placed but that are
eligible for purchase and sale by certain qualified institutional
buyers under Rule 144A. The investment manager, 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 Portfolio's restriction of investing no more than 10% of
its net 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.
JUNK BONDS. Although junk bonds typically pay higher interest
rates than investment grade bonds, there is a greater likelihood that
the junk bond issuer will default on interest and principal payments.
In the event of an issuer's bankruptcy, claims of other creditors may
have priority over the claims of junk bond holders, leaving few or no
assets to repay junk bond holders. Junk bonds are also more sensitive
to adverse economic changes or individual corporate developments than
higher quality bonds. During a period of adverse economic changes,
including a period of rising interest rates, issuers of such bonds may
be unable to make principal and interest payments.
SYNTHETIC CONVERTIBLE SECURITIES. Because a synthetic convertible
security is composed of two or more separate securities, each with its
own market value, the value of a synthetic convertible security will
respond differently to market fluctuations than a convertible
security. 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.
OTHER SECURITIES. While not the principal investments or
strategies of the Portfolio, the Portfolio may utilize other
investments and investment techniques which may impact Portfolio
performance, including options, warrants, futures and other strategic
transactions. More information about Portfolio investments and
strategies is provided in the Statement of Additional Information.
6
<PAGE> 10
The Portfolio is sold to the separate accounts of Participating
Insurance Companies offering Variable Contracts that are sold in a
number of jurisdictions. Certain states have regulations or guidelines
concerning concentration of investments and other investment
techniques. If applied to the Portfolio, the Portfolio may be limited
in its ability to engage in certain techniques and to manage its
investments with the flexibility provided herein. In order to permit
the Portfolio to be available under Variable Contracts sold in certain
states, the Portfolio may make commitments that are more restrictive
than the investment policies and limitations described herein and in
the Statement of Additional Information. If the Portfolio determines
that such a commitment is no longer in the Portfolio's best interest,
the commitment may be revoked by terminating the availability of the
Portfolio to Variable Contract owners residing in such states.
MANAGEMENT OF THE PORTFOLIO
The Portfolio's investments are managed by its investment manager,
Calamos Asset Management, Inc. ("CAM"), 1111 E. Warrenville Road,
Naperville, IL. At February 1, 1999, CAM managed approximately $3.5
billion in assets of individuals and institutions. CAM has been
registered as an investment adviser under the Investment Advisers Act
of 1940 since 1987. John P. Calamos, president of CAM, has been
engaged in the investment advisory business since 1977.
Subject to the overall authority of the board of trustees, CAM
furnishes continuous investment supervision and management to the
Portfolio under a management agreement and also furnishes office
space, equipment and management personnel. For these services, the
Portfolio pays CAM a fee based on average daily net assets that is
accrued daily and paid monthly. The fee paid by the Portfolio is at
the annual rate of .75% of average net assets. Additional expenses are
incurred under the Variable Contracts. These expenses are not
described in this prospectus. Variable contract owners and Retirement
Plan participants should consult with the Variable Contract disclosure
document or Retirement Plan information regarding these expenses.
From time to time, CAM may pay Participating Insurance Companies or
other organizations that provide administrative services for the
Portfolio or that provide Variable Contract owners and/or Retirement
Plan participants other services relating to the Portfolio. The amount
of any such payment will be determined by the nature and extent of the
services provided by the Participating Insurance Companies or other
organizations. Payment of such expenses by CAM will not increase the
fees paid by the Portfolio or its shareholders.
CAM has voluntarily undertaken to limit the annual ordinary
operating expenses of shares of the Portfolio to 1.00% of average net
assets. This expense limitation is voluntary and may be terminated by
CAM at any time.
John P. Calamos, President of the Trust, and Nick P. Calamos, Vice
President of the Trust, have managed the Portfolio since its inception
in 1999. During the past five years, John P. Calamos has been
president of CAM and Nick P. Calamos has been a managing director of
CAM.
7
<PAGE> 11
YEAR 2000 COMPLIANCE
Like other mutual funds, financial and business organizations and
individuals around the world, the Portfolio could be adversely
affected if the computer systems used by the investment manager and
other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This
is commonly known as the "Year 2000 Problem." CAM, as investment
manager, is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it
uses and to obtain reasonable assurances that comparable steps are
being taken by the Portfolio's other major service providers. At this
time, there can be no assurance that these steps will be sufficient to
avoid any adverse impact to the Portfolio. In addition, there can be
no assurances that the Year 2000 Problem will not have an adverse
effect on global markets or economies, or on the issuers whose
securities are held by the Portfolio.
EURO CONVERSION
The introduction of the Economic and monetary union (EMU) in
Europe occurred on January 1, 1999, when eleven European countries
adopted a single currency - the euro. The full conversion to the euro
is being phased in over a three year period. During this time,
valuation systems and other operational problems may occur in
connection with the Portfolio's investments quoted in the euro. The
investment manager is actively working to address euro-related issues
and understands that other key service providers are taking similar
steps. EMU is driven by the expectation of a number of economic
benefits, including lower transaction costs, reduced exchange risk,
greater competition, and a broadening and deepening of European
financial markets. However, there are a number of significant risks
associated with EMU. Monetary and economic union on this scale has
never been attempted before. In addition, there is a significant
degree of uncertainty as to whether participating countries will
remain committed to EMU in the face of changing economic conditions.
This uncertainty may increase the volatility of the international
markets in which the Portfolio invests.
SHAREHOLDER INFORMATION
Purchasing Shares
-----------------
Shares of the Portfolio are purchased by the separate accounts of
Participating Insurance Companies or by Retirement Plans based on the
instructions they receive from the Variable Contract holders or
Retirement Plan participants. You cannot purchase Portfolio shares
directly.
8
<PAGE> 12
Selling Shares
--------------
Portfolio shares are sold by the separate accounts of
Participating Insurance Companies or by Retirement Plans. Shares may be
sold to generate cash to, among other things, pay a contract owner who
requested a withdrawal or who terminated a contract.
Valuing Shares
--------------
The Portfolio's share price, or net asset value (NAV), is
determined as of the close of regular session trading on the New York
Stock Exchange (currently 4:00 p.m. Eastern time) each day that the
Exchange is open. The NAV per share is calculated by dividing the value
of all of the securities and other assets of the Portfolio, less its
liabilities, by the number of Portfolio shares outstanding. Shares are
purchased or sold at the NAV next determined after receipt of a
purchase or sale order in good form. Portfolio securities are valued on
the basis of market prices from the primary market in which they are
traded. As a general rule, equity securities listed on a U.S.
securities exchange or NASDAQ National Market are valued at the last
quoted sale price on the day the valuation is made. 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 the Portfolio 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 as of the
earlier of the time the exchange on which the securities are traded
closes or as of the close of trading on the NYSE. As a result, it is
possible that events affecting the value of such securities may occur
that are not reflected in the computation of the Portfolio's NAV.
If market prices are not readily available, securities and other
assets are valued at a fair value as determined by the board of
trustees. The effect of any fair value pricing will be that NAV will
not be based on the last quoted price of a security, but on a price
which the board believes reflects the current and true price of the
security.
OTHER INFORMATION
-----------------
The Portfolio's shares can be purchased by separate accounts of
certain life insurance companies (Participating Insurance Companies)
offering Variable Contracts. Individual variable annuity and variable
life insurance contract holders are not the "shareholders" of the
Portfolio. Rather, the separate accounts of the Participating Insurance
Companies are the shareholders of the Portfolio. You cannot directly
purchase shares of the Portfolio.
Please read the prospectus for the Variable Contract that you want
to purchase to learn about purchasing a contract. The Portfolio assumes
no responsibility for such prospectuses.
9
<PAGE> 13
The Portfolio currently does not foresee any disadvantages to the
holders of variable life insurance contracts and variable annuity
contracts arising from the fact that the interests of the holders of
such contracts may differ. Nevertheless, the Trust's board of trustees
intends to monitor events in order to identify any material
irreconcilable conflicts that may arise and to determine what action,
if any, should be taken.
DISTRIBUTIONS AND TAXES
Dividends and Capital Gains
The Portfolio intends to distribute to its shareholders
substantially all of its dividends and capital gains. The Portfolio
declares and pays dividends from net investment income quarterly, and
pays any long-term capital gains annually.
Taxes
The Trust intends that the Portfolio will qualify as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986 and
will meet certain diversification requirements applicable to mutual
funds underlying variable insurance products. For a discussion
regarding what it means to qualify as a RIC and a general discussion
concerning some of the possible tax consequences associated with the
operation of the Trust, please refer to the section entitled,
"Taxation" in the Statement of Additional Information.
For a discussion of the taxation of the Participating Insurance
Companies and separate accounts, as well as the tax treatment of the
Variable Contracts and the owners thereof, see the disclosure documents
for the Variable Contracts. For information regarding the taxation of
Retirement Plans, as well as the participants thereunder, see the plan
administrator and plan documents for the Retirement Plan.
PLEASE CONSULT WITH YOUR TAX ADVISOR REGARDING YOUR PARTICULAR TAX
SITUATION.
You do not own the Portfolio's shares directly; therefore, the
Portfolio's distributions are not likely to affect your tax situation.
However, the separate accounts, in which you own a Variable Contract,
may be affected by Portfolio distributions. Tax consequences to
Variable Contract holders are described in the separate prospectuses
issued by the Participating Insurance Companies.
Portfolio distributions may be taxed as ordinary income or capital
gains. Capital gains may be taxed at different rates depending on the
length of time that the assets are held by the Portfolio. The
Portfolio's distributions, whether received in cash or reinvested in
additional Portfolio shares, may be subject to federal income tax.
<PAGE> 14
FOR MORE INFORMATION
If you would like more information about the Calamos Convertible Portfolio,
the following resources are available upon request, free of charge.
This prospectus is intended for use in connection with Variable Contracts or
Retirement Plans.
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the Portfolio's investments will be available in
the Portfolio's annual and semiannual reports to shareholders. The reports will
contain a discussion of the market conditions and investment strategies that
significantly affected the Portfolio's performance for the past six-month and
twelve-month periods.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information provides more detailed information about
the Portfolio and is incorporated herein by reference.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Portfolio by contacting Calamos Asset
Management, Inc. at:
CALAMOS(R) ASSET MANAGEMENT, INC.
1111 E Warrenville Road
Naperville, Illinois 60563-1493
Telephone: 1-800-823-7386
Internet: http://www.calamos.com
You can review the Portfolio's reports and SAI at the Public Reference Room of
the Securities and Exchange Commission. You can get text-only copies for free
from the Commission's Internet website at: http://www.sec.gov, or for a fee by
calling or writing to:
Public Reference Section of the Commission
Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
Investment Company Act file no.811-
11
<PAGE> 15
STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1999
CALAMOS(R) INSURANCE TRUST
CALAMOS(R) CONVERTIBLE PORTFOLIO
1111 East Warrenville Road
Naperville, Illinois 60563-1493
(630) 245-7200
Toll Free: (800) 823-7386
This Statement of Additional Information relates to CALAMOS(R)
Convertible Portfolio (the "Portfolio"), which is a series of Calamos Insurance
Trust (the "Trust"). It is not a prospectus, but provides information that
should be read in conjunction with the Portfolio's prospectus dated the same
date as this Statement of Additional Information and any supplements thereto.
The prospectus may be obtained without charge by writing or telephoning the
Portfolio at the address or telephone numbers set forth above.
The Portfolio is currently available for sale to the separate accounts
of certain life insurance companies (Participating Insurance Companies) offering
variable annuity contracts and variable life insurance contracts (together,
"Variable Contracts") and may be offered to certain types of pension plans and
retirement arrangements and accounts permitting accumulation of funds on a
tax-deferred basis ("Retirement Plans") as described in the prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Trust and the Portfolio 2
Investment Strategies and Risks 2
Investment Restrictions 15
Management 17
Investment Advisory Services 18
Purchasing and Redeeming Shares 19
Performance Information 20
Distributor 22
Portfolio Transactions 23
Taxation 24
Certain Shareholders 25
Custodian 25
Independent Auditors 25
Shareholder Information 27
Appendix--Description of Bond Ratings 29
Report of Independent Auditors 30
Statement of Net Assets
</TABLE>
B-1
<PAGE> 16
The Trust and the Portfolio
The Portfolio is a series of Calamos Insurance Trust (the "Trust") which was
organized as a Massachusetts business trust on February 17, 1999. The Portfolio
is an open-end, diversified management investment company that seeks current
income as its primary objective with capital appreciation as its secondary
objective.
The prospectus contains information concerning the Portfolio's investment
objective and principal investment strategies and risks. This SAI provides
additional information concerning certain securities and strategies used by the
Portfolio and their associated risks.
INVESTMENT STRATEGIES AND RISKS
The following information supplements, and should be read in conjunction with
the discussion of the Portfolio's investment objectives, strategies and risks
that are described in the prospectus.
CONVERTIBLE SECURITIES
As described in the prospectus, the Portfolio invests primarily in a diversified
portfolio of convertible securities. Under normal market conditions, the
Portfolio invests at least 65% of its total assets in 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 will typically 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.
B-2
<PAGE> 17
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
The investment manager 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 management
believes that such a combination would better promote the Portfolio'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
Portfolio 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. The Portfolio's holdings of synthetic convertible securities are not
considered convertible securities for purposes of the Portfolio's policy to
invest at least 65% of its assets in convertible securities.
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. Since 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 Portfolio 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.
DEBT SECURITIES
In pursuing its investment objective, the Portfolio may invest in
convertible and non-convertible debt securities, including lower-rated
securities (i.e., securities rated BB or lower by Standard & Poor's Corporation
or Ba or lower by Moody's Investor Services, Inc.) and securities that are not
rated but are considered by the investment manager to be of similar quality.
There are no restrictions as to the ratings of debt securities acquired by the
Portfolio or the portion of the Portfolio's assets that may be invested in debt
securities in a particular ratings category, except that the Portfolio will not
acquire a security rated below C.
Securities rated BBB or Baa are considered to be medium grade and to have
speculative characteristics. Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In
B-3
<PAGE> 18
addition, lower-quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to adverse economic
changes or individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates, issuers of such
bonds may experience difficulty in servicing their principal and interest
payment obligations.
Achievement by the Portfolio of its investment objectives will be more dependent
on the investment manager's credit analysis than would be the case if the
Portfolio were investing in higher-quality debt securities. Since the ratings of
rating services (which evaluate the safety of principal and interest payments,
not market risks) are used only as preliminary indicators of investment quality,
the investment manager employs its own credit research and analysis. These
analyses may take into consideration such quantitative factors as an issuer's
present and potential liquidity, profitability, internal capability to generate
funds, debt/equity ratio and debt servicing capabilities, and such qualitative
factors as an assessment of management, industry characteristics, accounting
methodology, and foreign business exposure.
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked prices is likely to
increase significantly, and the Portfolio may have greater difficulty selling
its portfolio securities. The market value of these securities and their
liquidity may be affected by adverse publicity and investor perceptions.
RULE 144A SECURITIES
The Portfolio may invest a substantial portion of its assets in
securities that have been privately placed but that are eligible for purchase
and sale by certain qualified institutional buyers, such as the Portfolio, under
Rule 144A under the Securities Act of 1933. The investment manager, under the
supervision of the Trust's board of trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Portfolio's
restriction of investing no more than 10% of its net 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, the investment manger will
consider the trading markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the investment manger
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 Portfolio's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the Portfolio does not
invest more than 10% 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.
Foreign Securities
The Portfolio may invest up to 25% of its net assets in securities of
foreign issuers. A foreign issuer is a company organized under the laws of a
foreign country that has its principal trading market for its securities in a
foreign country. For this purpose, 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. 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
Portfolio may invest in sponsored or unsponsored ADRs. In the case of an
unsponsored ADR, the Portfolio 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.
B-4
<PAGE> 19
To the extent positions in portfolio securities are denominated in foreign
currencies, the Portfolio'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 Portfolio intends to invest in companies and governments
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 Portfolio expects that substantially all of its investments will be
in developed nations. However, the Portfolio 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. The Portfolio may enter into 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 Portfolio 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 Portfolio 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 Portfolio to
B-5
<PAGE> 20
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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio. The Portfolio may not
engage in "speculative" currency exchange transactions.
If the Portfolio enters into a forward contract, the Portfolio's
custodian will segregate liquid assets of the Portfolio having a value equal to
the Portfolio's commitment under such forward contract. At the maturity of the
forward contract to deliver a particular currency, the Portfolio 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 the Portfolio 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 Portfolio 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 Portfolio is obligated to deliver.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss to the extent
that there has been movement in forward contract prices. If the Portfolio
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 Portfolio'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 Portfolio 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 Portfolio 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 Portfolio of unrealized profits or force the Portfolio 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 the Portfolio to hedge against a
devaluation that is so generally anticipated that the Portfolio is not able to
contract to sell the currency at a price above the devaluation level it
anticipates. The cost to the Portfolio of engaging in currency exchange
transactions varies with such factors as the currency involved, the length of
the contract period, and prevailing market conditions. Since currency exchange
transactions are usually conducted on a principal basis, no fees or commissions
are involved.
SYNTHETIC FOREIGN MONEY MARKET POSITIONS. The Portfolio may invest in
money market instruments denominated in foreign currencies. In addition to, or
in lieu of, such direct investment, the Portfolio 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
B-6
<PAGE> 21
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.
LENDING OF PORTFOLIO SECURITIES
The Portfolio may lend its portfolio securities, up to 33-1/3% of its
total assets, including collateral received, 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 Portfolio. The Portfolio 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 Portfolio may pay reasonable
fees to persons unaffiliated with the Portfolio for services in arranging the
loans. The Portfolio 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
Portfolio 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
the investment manager's 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 Portfolio 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 Portfolio 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. In an
effort to reduce these risks, the investment manager will monitor the
creditworthiness of the firms to which the Portfolio lends securities.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements, provided that the
Portfolio may not invest more than 10% of its net assets in repurchase
agreements maturing in more than seven days and any other illiquid securities. A
repurchase agreement is a sale of securities to the Portfolio in which the
seller agrees to repurchase the securities at a higher price, which includes an
amount representing interest on the purchase price, within a specified time.
Such agreements generally have maturities of no more than seven days and could
be used to permit the Portfolio to earn interest on assets awaiting long term
investment. The Portfolio requires continuous maintenance by the custodian for
the Portfolio'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. Although repurchase
agreements carry certain risks not associated with direct investments in
securities, the Portfolio will enter in repurchase agreements only with sellers
the investment manager believes present minimum credit risk in accordance with
guidelines approved by the board of trustees. The investment manager will review
and monitor the creditworthiness of such institutions, and will consider the
capitalization of the institution, the investment manager's prior dealing with
the institution, and rating of the institution's senior long-term debt by
independent rating agencies and other relevant factors. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Portfolio
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 Portfolio 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 Portfolio may purchase and sell put options and call options on
securities, indexes or foreign currencies in standardized contracts traded on
recognized securities exchanges, boards of trade, or similar entities, or quoted
on NASDAQ. The Portfolio may purchase agreements, sometimes called cash puts,
that may accompany the purchase of a new issue of bonds from a dealer.
B-7
<PAGE> 22
An option on a security (or index) is a contract that gives the
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to pay
the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.)
The Portfolio will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if the Portfolio owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.
If an option written by the Portfolio expires, the Portfolio realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by the Portfolio expires, the Portfolio realizes a
capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Portfolio desires.
The Portfolio 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 Portfolio 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 Portfolio will realize a capital gain
or, if it is less, the Portfolio 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 Portfolio is an asset of the
Portfolio, valued initially at the premium paid for the option. The premium
received for an option written by the Portfolio 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.
There can be no assurance that a liquid market will exist when the
Portfolio seeks to close out an option position. If the Portfolio 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 Portfolio 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 Portfolio 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
Portfolio foregoes, during the option's life, the opportunity to profit from
currency appreciation.
B-8
<PAGE> 23
If trading were suspended in an option purchased or written by the
Portfolio, the Portfolio would not be able to close out the option. If
restrictions on exercise were imposed, the Portfolio might not be able to
exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Portfolio 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 index1 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 Portfolio may purchase and write call and put futures options.
Options on futures 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 Portfolio 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 Portfolio's securities or the
price of the securities that the Portfolio intends to purchase. Although other
techniques could be used to reduce or increase the Portfolio's exposure to stock
price, interest rate and currency fluctuations, the Portfolio may be able to
achieve its desired exposure more effectively and perhaps at a lower cost by
using futures contracts and futures options.
The Portfolio 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 Portfolio'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 Portfolio,
the Portfolio 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 Portfolio'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 Portfolio upon termination of
the contract,
- ---------------
(1) A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was
originally written. Although the value of a securities index is a function
of the value of certain specified securities, no physical delivery of those
securities is made.
B-9
<PAGE> 24
assuming all contractual obligations have been satisfied. The Portfolio expects
to earn interest income on its initial margin deposits. A futures contract held
by the Portfolio is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Portfolio 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 Portfolio does not represent a borrowing or loan by the
Portfolio but is instead settlement between the Portfolio 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 Portfolio will
mark-to-market its open futures positions.
The Portfolio 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 Portfolio.
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 Portfolio engaging in
the transaction realizes a capital gain, or if it is more, the Portfolio
realizes a capital loss. Conversely, if an offsetting sale price is more than
the original purchase price, the Portfolio engaging in the transaction realizes
a capital gain, or if it less, the Portfolio 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 Portfolio's holdings, 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 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 a Portfolio seeks to close out a futures or futures option position. The
Portfolio 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.
B-10
<PAGE> 25
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 Portfolio may also use
those investment vehicles, provided the board of trustees determines that their
use is consistent with the Portfolio's investment objective.
The Portfolio will not enter into a futures contract or purchase an
option thereon if, immediately thereafter, the initial margin deposits for
futures contracts held by the Portfolio plus premiums paid by it for open
futures option positions, less the amount by which any such positions are
"in-the-money,"(2) would exceed 5% of the Portfolio's total assets.
When purchasing a futures contract or writing a put option on a futures
contract, the Portfolio 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
Portfolio 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 Portfolio.
The Portfolio 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 Portfolio 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.
In order to comply with Commodity Futures Trading Commission Regulation
4.5 and thereby avoid being deemed a "commodity pool operator," the Portfolio
will use commodity futures or commodity options contracts solely for bona fide
hedging purposes within the meaning and intent of Regulation 1.3(z), or, with
respect to positions in commodity futures and commodity options contracts that
do not come within the meaning and intent of 1.3(z), the aggregate initial
margin and premiums required to establish such positions will not exceed 5% of
the fair market value of the assets of the Portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into (in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount, as defined in Section 190.01(x) of the Commission
Regulations,, may be excluded in computing such 5%).
TAXATION OF OPTIONS AND FUTURES
If the Portfolio exercises a call or put option that it holds, the
premium paid for the option is added to the cost basis of the security purchased
(call) or deducted from the proceeds of the security sold (put). For cash
settlement options and futures options exercised by the Portfolio, the
difference between the cash received at exercise and the premium paid is a
capital gain or loss.
If a call or put option written by the Portfolio is exercised, the
premium is included in the proceeds of the sale of the underlying security
(call) or reduces the cost basis of the security purchased (put). For cash
settlement options and futures options written by the Portfolio, the difference
between the cash paid at exercise and the premium received is a capital gain or
loss.
Entry into a closing purchase transaction will result in capital gain
or loss. If an option written by the Portfolio was in-the-money at the time it
was written and the security covering the option was held for more than the
long-term holding period prior to the writing of the option, any loss realized
as a result of a closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not include the
period of time the option is outstanding.
- ---------------
(2) A call option is "in-the-money" if the value of the futures contract that
is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.
B-11
<PAGE> 26
If the Portfolio writes an equity call option(3) other than a
"qualified covered call option," as defined in the Internal Revenue Code, any
loss on such option transaction, to the extent it does not exceed the unrealized
gains on the securities covering the option, may be subject to deferral until
the securities covering the option have been sold.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If the Portfolio delivers securities under a futures contract,
the Portfolio also realizes a capital gain or loss on those securities.
For federal income tax purposes, the Portfolio generally is required to
recognize as income for each taxable year its net unrealized gains and losses as
of the end of the year on futures, futures options and non-equity options
positions ("year-end mark-to-market"). Generally, any gain or loss recognized
with respect to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the recognition of losses on
certain positions (including options, futures and futures options positions, the
related securities and certain successor positions thereto) may be deferred to a
later taxable year. Sale of futures contracts or writing of call options (or
futures call options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities held by the
Portfolio: (1) will affect the holding period of the hedged securities; and (2)
may cause unrealized gain or loss on such securities to be recognized upon entry
into the hedge.
If the Portfolio were to enter into a short index future, short index
futures option or short index option position and the Portfolio's portfolio were
deemed to "mimic" the performance of the index underlying such contract, the
option or futures contract position and the Portfolio's stock positions would be
deemed to be positions in a mixed straddle, subject to the above-mentioned loss
deferral rules.
In order for the Portfolio to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income; i.e.,
dividends, interest, income derived from loans of securities and gains from the
sale of securities or foreign currencies, or other income (including but not
limited to gains from options, futures or forward contracts). Any net gain
realized from futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income for purposes of
the 90% requirement.
The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales or
"offsetting notional principal contracts" (as defined by the Act) with respect
to, or futures or "forward contracts" (as defined by the Act) with respect to,
the same or substantially identical property, or if they enter into such
transactions and then acquire the same or substantially identical property. The
Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales, offsetting notional principal contracts, and futures
or forward contracts to deliver the same or substantially similar property.
The Portfolio distributes to shareholders annually any net capital
gains that have been recognized for federal income tax purposes (including
year-end mark-to-market gains) on options and futures transactions. Such
distributions are combined with distributions of capital gains realized on the
Portfolio's other investments, and shareholders are advised of the nature of the
payments.
- --------------
(3) An equity option is defined to mean any option to buy or sell stock, and
any other option the value of which is determined by reference to an index
of stocks of the type that is ineligible to be traded on a commodity
futures exchange (e.g., an option contract on a sub-index based on the
price of nine hotel-casino stocks). The definition of equity option
excludes options on broad-based stock indexes (such as the Standard &
Poor's 500 index).
B-12
<PAGE> 27
WARRANTS
The Portfolio 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 tend to be greater
than the percentage increase or decrease in the value of the underlying common
stock.
SHORT SALES
The Portfolio 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 Portfolio's short positions remain open. The Portfolio may make short
sales of securities only if at all times when a short position is open the
Portfolio 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 Portfolio does not deliver from
its portfolio the securities sold and does not receive immediately the proceeds
from the short sale. Instead, the Portfolio 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 Portfolio, to the
purchaser of such securities. Such broker-dealer is entitled to retain the
proceeds from the short sale until the Portfolio delivers to such broker-dealer
the securities sold short. In addition, the Portfolio 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 Portfolio must deposit and continuously maintain in a separate
account with the Portfolio'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 Portfolio 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 Portfolio receives the proceeds of the sale.
Because the Portfolio ordinarily will want to continue to hold securities in its
portfolio that are sold short, the Portfolio 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 Portfolio 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 Portfolio must daily adjust 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 Portfolio 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
B-13
<PAGE> 28
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
Portfolio owns, either directly or indirectly, and, in the case where the
Portfolio owns convertible securities, changes in the conversion premium.
Short sale transactions of the Portfolio 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 a Portfolio pays a conversion
premium for a convertible security, the Portfolio 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 Portfolio's position in the
convertible securities, the anticipated fluctuation in the conversion premiums
is considered. The Portfolio will also incur transaction costs in connection
with short sales. Certain provisions of the Internal Revenue Code may limit the
degree to which the Portfolio is able to enter into short sales, which
limitations might impair the Portfolio's ability to achieve its investment
objective. See "Taxation."
In addition to enabling the Portfolio to hedge against market risk,
short sales may afford the Portfolio an opportunity to earn additional current
income to the extent the Portfolio 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 Portfolio's
short positions remain open.
The Taxpayer Relief Act of 1997 imposed constructive sale treatment for
federal income tax purposes on certain hedging strategies with respect to
appreciated securities. Under these rules taxpayers will recognize gain, but not
loss, with respect to securities if they enter into short sales or "offsetting
notional principal contracts" (as defined by the Act) with respect to, or
futures or "forward contracts" (as defined by the Act) with respect to the same
or substantially identical property, or if they enter into such transactions and
then acquire the same or substantially identical property. The Secretary of the
Treasury is authorized to promulgate regulations that will treat as constructive
sales certain transactions that have substantially the same effect as short
sales.
"WHEN-ISSUED" AND DELAYED DELIVERY SECURITIES AND REVERSE REPURCHASE AGREEMENTS
The Portfolio 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 Portfolio 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 Portfolio makes such
commitments only with the intention of actually acquiring the securities, but
may sell the securities before settlement date if the investment manager deems
it advisable for investment reasons. The Portfolio 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 Portfolio may enter into reverse repurchase agreements with banks
and securities dealers. A reverse repurchase agreement is a repurchase agreement
in which the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio and held by the custodian throughout the period of the
obligation. The use of these investment strategies, as well as borrowing under a
line of credit as described below, may increase net asset value fluctuation.
B-14
<PAGE> 29
ILLIQUID SECURITIES
The Portfolio may invest up to 10% of its total assets, taken at market
value, in illiquid securities, including any securities that are not readily
marketable either because they are restricted securities or for other reasons.
Restricted securities are securities that are subject to restrictions on resale
because they have not been registered for sale under the Securities Act of 1933.
A position in restricted securities might adversely affect the liquidity and
marketability of a portion of the Portfolio's holdings, and the Portfolio might
not be able to dispose of its holdings in such securities promptly or at
reasonable prices. In those instances where a Portfolio is required to have
restricted securities held by it registered prior to sale by the Portfolio and
the Portfolio does not have a contractual commitment from the issuer or seller
to pay the costs of such registration, the gross proceeds from the sale of
securities would be reduced by the registration costs and underwriting
discounts. Any such registration costs are not included in the percentage
limitation on a Portfolio's investment in restricted securities. The Portfolio
does not intend to invest in illiquid securities during the next fiscal year,
except that the Portfolio may invest in options traded on the NASDAQ National
Market System.
TEMPORARY INVESTMENTS
The Portfolio may make temporary investments without limitation when
the investment manager 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
which 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.
PORTFOLIO TURNOVER
Although the Portfolio 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 Portfolio would result in increased transaction
expense, which must be borne by the Portfolio. 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.
INVESTMENT RESTRICTIONS
The Portfolio operates under the following investment restrictions. The
Portfolio may not (except as indicated):
(i) as to 75% of its assets, invest more than 5% of its total assets, taken
at market value at the time of a particular purchase, in the securities
of any one issuer, except that this restriction does not apply to
securities issued or guaranteed by the United States Government or its
agencies or instrumentalities;
(ii) acquire more than 10%, taken at the time of a particular purchase, of
the outstanding voting securities of any one issuer;
B-15
<PAGE> 30
(iii) act as an underwriter of securities, except insofar as it may be deemed
an underwriter for purposes of the Securities Act of 1933 on
disposition of securities acquired subject to legal or contractual
restrictions on resale;
(iv) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate or interests therein),
commodities or commodity contracts;
(v) make loans, but this restriction shall not prevent the Portfolio from
(a) investing in debt obligations, (b) investing in repurchase
agreements or (c) lending portfolio securities;
(vi) invest more than 10% of the Portfolio's net assets (taken at market
value at the time of each purchase) in illiquid securities, including
repurchase agreements maturing in more than seven days;
(vii) borrow, except that the Portfolio may (a) borrow from banks for
temporary or emergency purposes in amounts not exceeding 33% of the
value of the Portfolio's total assets at the time of the borrowing, and
(b) enter into transactions in options, futures and options on futures
(4);
(viii) invest in a security if more than 25% of its total assets (taken at
market value at the time of a particular purchase) would be invested in
the securities of issuers in any particular industry, except that this
restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities; or
(ix) issue any senior security, except to the extent permitted under the
Investment Company Act of 1940 (the "1940 Act").
The above restrictions are fundamental policies and may not be changed
without the approval of a "majority" of the outstanding shares of the Portfolio,
which for this purpose means the approval of the lesser of (a) more than 50% of
the outstanding voting securities of the Portfolio or (b) 67% or more of the
outstanding shares if the holders of more than 50% of the outstanding shares of
the Portfolio are present or represented at the meeting by proxy.
In addition to the fundamental restrictions listed above, the Portfolio
may not:
(a) invest in shares of other open-end investment companies (except in
connection with a plan of merger or reorganization);
(b) invest in companies for the purpose of exercising control or
management;
(c) purchase securities on margin (except for use of such short-term
credits as are necessary for the clearance of transactions, including
transactions in options, futures and options on futures), or participate on a
joint or a joint and several basis in any trading account in securities, except
in connection with transactions in options, futures and options on futures;
(d) make short sales of securities, except that the Portfolio may make
short sales of securities if the Portfolio owns an equal amount of such
securities, or owns securities that are convertible or exchangeable, without
payment of further consideration, into an equal amount of such securities;
- ---------------
(4) State insurance laws currently restrict the Portfolio's borrowing to
facilitate redemptions to no more than 25% of the Portfolio's net assets.
B-16
<PAGE> 31
(e) invest more than 25% of its net assets (valued at time of
purchase) in securities of foreign issuers (other than securities represented by
American Depositary Receipts and securities guaranteed by a U.S. person).
Restrictions (a) through (e) may be changed by the board of trustees
without shareholder approval.
Notwithstanding the foregoing investment restrictions, the Portfolio
may purchase securities pursuant to the exercise of subscription rights, subject
to the condition that such purchase will not result in the Portfolio's ceasing
to be a diversified investment company. Far Eastern and European corporations
frequently issue additional capital stock by means of subscription rights
offerings to existing shareholders at a price substantially below the market
price of the shares. The failure to exercise such rights would result in the
Portfolio's interest in the issuing company being diluted. The market for such
rights is not well developed in all cases and, accordingly, the Portfolio may
not always realize full value on the sale of rights. The exception applies in
cases where the limits set forth in the investment restrictions would otherwise
be exceeded by exercising rights or would have already been exceeded as a result
of fluctuations in the market value of the Portfolio's portfolio securities with
the result that the Portfolio would be forced either to sell securities at a
time when it might not otherwise have done so, to forego exercising the rights.
In addition, pursuant to state insurance laws, the Portfolio is subject
to the following guidelines, which may also be changed by the board of trustees:
(a) The Portfolio will be invested in a minimum of five
different foreign countries at all times, except that this
minimum is reduced to four when foreign country investments
comprise less than 80% of the value of the Portfolio's net
assets; to three when less than 60% of such value; to two
when less than 40%; and to one when less than 20%.
(b) The Portfolio will have no more than 20% of its net
assets invested in securities of issuers located in any one
country; except that the Portfolio may have an additional 15%
of its net assets invested in securities of issuers located
in any one of the following countries: Australia; Canada;
France; Japan; the United Kingdom; or Germany.
(c) The Portfolio may not acquire the securities of any
issuer if, as a result of such investment, more than 10% of
the Portfolio's total assets would be invested in the
securities of any one issuer, except that this restriction
shall not apply to U.S. Government securities or foreign
government securities; and the Portfolio will not invest in a
security if, as a result of such investment, it would hold
more than 10% of the outstanding voting securities of any one
issuer.
(d) The Portfolio may borrow no more than 10% of the value
of its net assets when borrowing for any general purpose and
25% of net assets when borrowing as a temporary measure to
facilitate redemptions.
MANAGEMENT
TRUSTEES AND OFFICERS
The management of the Trust, including general supervision of the
duties performed for the Portfolio under the Investment Management Agreement, is
the responsibility of its board of trustees. Set forth below is information
about the trustees and officers of the Trust.
B-17
<PAGE> 32
<TABLE>
<CAPTION>
Name, Position(s) with Trust
and Age at March 31, 1999 Principal Occupation(s) During Past Five Years
- ---------------------------- ------------------------------------------------------------------------
<S> <C>
John P. Calamos (1) President, Calamos Asset Management, Inc. ("CAM"); President, Calamos
Trustee and President, 58 Financial Services, Inc. ("CFS"), a broker-dealer and the Portfolio's
distributor.
Nick P. Calamos (1) Managing Director, CAM and CFS.
Trustee and Vice President, 39
Richard J. Dowen (2) Professor of Finance, Northern Illinois University.
Trustee, 54
Robert Frost (2) Management Consultant, ECOM Consultants, Inc.
Trustee, 59
William A. Kaun (2) Principal, W.A. Kaun Co. (investment adviser and publisher).
Trustee, 71
John P. Salmon Vice President - Mutual Fund Operations, CAM, since 1997; Manager and
Treasurer and Assistant Secretary, 53 Assistant Vice President, Collective Investment Fund Accounting Group,
First National Bank of Chicago, prior thereto.
James S. Hamman, Jr. Vice President and General Counsel, CAM, since 1998; Vice President
Secretary, 29 and Associate Counsel, Scudder Kemper Investments, Inc. (investment
manager), 1996 - 1998; attorney, Vedder, Price, Kaufman & Kammholz,
prior thereto.
</TABLE>
- ----------------------
(1) John P. Calamos and Nick P. Calamos are trustees who are "interested
persons" of the Trust as defined in the Investment Company Act of 1940
(the "1940 Act") and are members of the executive committee of the
board of trustees, which has authority during intervals between
meetings of the board of trustees to exercise the powers of the board.
(2) Messrs. Dowen, Frost and Kaun are members of the audit committee of the
board of trustees, which makes recommendations regarding the selection
of the Trust's independent auditors and meets with representatives of
the independent auditors to determine the scope and review the results
of each audit.
The trustees of the Trust are also trustees of Calamos Investment
Trust, an open-end investment company advised by CAM.
The address of Mr. Dowen is Department of Finance, Northern Illinois
University, DeKalb, Illinois 60115; that of Mr. Frost is 53 Ward Drive, New
Rochelle, New York 10804; and that of Mr. Kaun is 1750 Grandstand Place, Elgin,
Illinois 60123. The address of the officers of the Trust is 1111 East
Warrenville Road, Naperville, Illinois 60563-1493. Nick Calamos is a nephew of
John Calamos.
The following table shows the compensation paid to each trustee who was
not an "interested person" of the Trust. The information in the last column is
for the 1998 calendar year.
B-18
<PAGE> 33
<TABLE>
<CAPTION>
Estimated
Aggregate Total
Compensation Compensation
Name of Trustee from the Trust* From Calamos Funds Complex
--------------- --------------- --------------------------
<S> <C> <C>
Richard J. Dowen $ $ 6,000
Robert Frost $ $ 6,000
William A. Kaun $ $ 6,000
</TABLE>
- ----------------------
*Estimated payments for the period May 1, 1999 through December 31, 1999.
Trustees who are "interested" persons of the Trust, as well as officers of the
Trust, are compensated by CAM and not by the Trust. The Trust does not provide
any pension or retirement benefits to its trustees.
INVESTMENT ADVISORY SERVICES
Investment management and administrative services are provided to the
Portfolio by CAM pursuant to an Investment Management Agreement (the
"Agreement") dated _____, 1999. The Trust pays CAM a fee accrued daily and paid
monthly at the annual rate of .75% of average daily net assets.
The Agreement will remain in effect with respect to the Portfolio until
____, 2000, and from year to year thereafter 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 of the Portfolio, and (2) a
majority of the trustees who are not interested persons of any party to the
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Agreement may be terminated at any time, without penalty, by
either the Trust or the Adviser upon 60 days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act.
The use of the name "Calamos" in the name of the Trust and in the name
of the Portfolio is pursuant to licenses granted by the Adviser, and the Trust
has agreed to change the names to remove those references if CAM ceases to act
as investment adviser to the Portfolio. The Adviser is controlled by John P.
Calamos.
EXPENSES
Subject to the expense limitation described below, the Portfolio pays
all its own operating expenses that are not specifically assumed by CAM,
including (i) fees of the investment adviser; (ii) interest, taxes and any
governmental filing fees; (iii) compensation and expenses of the trustees, other
than those who are interested persons of the Trust, the investment adviser or
the distributor; (iv) legal, audit, custodial and transfer agency fees and
expenses; (v) fees and expenses related to the organization of the Trust and
registration and qualification of the Portfolio and its shares under federal and
securities laws; (vi) expenses of printing and mailing reports, notices and
proxy material to shareholders, and expenses incidental to meetings of
shareholders; (vii) expenses of preparing prospectuses and of printing and
distributing them to existing shareholders; (viii) insurance premiums; (ix)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the normal course of the business of the Trust; and (x) brokerage
commissions and other transaction-related costs.
The investment manager has voluntarily undertaken to reimburse the
Portfolio for any annual operating expenses in excess of 1.00% of average net
assets. This reimbursement is voluntary and may be terminated by CAM at any
time.
B-19
<PAGE> 34
PURCHASING AND REDEEMING SHARES
Shares of the Portfolio may not be purchased or redeemed directly by
individual Variable Contract owners. Purchases and redemptions are discussed in
the prospectus. The Portfolio may suspend the right of redemption during any
period when (a) trading on the NYSE is restricted, as determined by the
Commission, or that exchange is closed for other than customary weekend and
holiday closings, (b) the Commission has by order permitted such suspension, or
(c) an emergency, as determined by the Commission, exists making disposal of the
Portfolio's securities or valuation of the net assets of the Portfolio not
reasonably practicable.
Because shares of the Portfolio are offered to separate accounts
supporting variable annuity contracts and separate accounts supporting variable
life insurance contracts, a potential for certain conflicts may exist between
the interests of owners of variable annuity contracts and owners of variable
life insurance contracts. Likewise, in the event that shares of the Portfolio
are offered to qualified pension and retirement plans, a potential for certain
conflicts may exist between the interest of variable annuity contract owners,
variable life insurance contract owners and plan participants. The Trust does
not currently foresee any disadvantage to owners of either variable annuity
contracts or variable life insurance contracts arising from the fact that shares
of the Portfolio might be held by such entities. The Trust's board of trustees,
however, will monitor the Portfolio in order to identify any material
irreconcilable conflicts of interest which may possibly arise, and to determine
what action, if any, should be taken in response to such conflicts.
NET ASSET VALUE
In computing the net asset value of the Portfolio, portfolio
securities, including options, that are traded on a national securities exchange
and securities reported on the NASDAQ National Market System are valued at the
last reported sales price. Securities traded in the over-the-counter market and
listed securities for which no sales were reported are valued at the mean of the
most recently quoted bid and asked prices. Each outstanding futures contract is
valued at the official settlement price for the contract on the exchange on
which the contract is traded, except that if the market price of the contract
has increased or decreased by the maximum amount permitted on the valuation date
("up or down the limit"), the contract is valued at a fair value as described
below. Short-term obligations with maturities of 60 days or less are valued at
amortized cost.
When market quotations are not readily available for the Portfolio's
securities, such securities are valued at a fair value following procedures
approved by the board of trustees. These procedures include determining fair
value on the basis of valuations furnished by pricing services approved by the
board of trustees, which include market transactions for comparable securities
and various relationships between securities which are generally recognized by
institutional traders, as well as on the basis of appraisals received from a
pricing service using a computerized matrix system, or appraisals derived from
information concerning the securities or similar securities received from
recognized dealers in those securities.
The Portfolio's net asset value is determined only on days on which the
New York Stock Exchange (the "NYSE") is open for trading. The NYSE is regularly
closed on Saturdays and Sundays and on New Year's Day, the third Mondays in
January and February, Good Friday, the last Monday in May, Independence Day,
Labor Day, Thanksgiving and Christmas. If one of these holidays falls on a
Saturday or Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively.
Securities that are principally traded in a foreign market are valued
as of the close of the appropriate exchange or other designated time. Trading in
securities on European and Far Eastern securities exchanges and over-the-counter
markets is normally completed at various times before the close of business on
each day on which the NYSE is open. Trading of these securities may not take
place on every NYSE business day. In addition, trading may take place in various
foreign markets on Saturdays or on other days when the NYSE is not open and on
which the Portfolio's net asset value is
B-20
<PAGE> 35
not calculated. Therefore, such calculation does not take place
contemporaneously with the determination of the prices of many of the portfolio
securities used in such calculation and the value of the Portfolio's portfolio
may be significantly affected on days when shares of the Portfolio may not be
purchased or redeemed.
REDEMPTION IN KIND
The Portfolio has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which it is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Portfolio during any 90-day period for any one shareholder. Redemptions
in excess of these amounts will normally be paid in cash, but may be paid wholly
or partly by a distribution in kind of securities. If a redemption is made
in-kind, the redeeming shareholder would bear any transaction costs incurred in
selling the securities received.
PERFORMANCE INFORMATION
TOTAL RETURN
From time to time the Portfolio may quote total return figures. "Total
Return" for a period is the percentage change in value during a period of an
investment in Portfolio shares, including the value of shares acquired through
reinvestment of all dividends and capital gains distributions. "Average Annual
Total Return" is the average annual compounded rate of change in value
represented by the Total Return for the period.
Average Annual Total Return will be computed as follows:
ERV = P(1+T)n
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ENDING REDEEMABLE VALUE OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD, AT THE END OF THE PERIOD (OR
FRACTIONAL PORTION THEREOF)
YIELD
The Portfolio may also quote yield figures. The yield of the Portfolio
is calculated by dividing its net investment income per share (a hypothetical
figure as defined in SEC rules) during a 30-day period by the net asset value
per share on the last day of the period. The yield formula provides for
semiannual compounding, which assumes that net investment income is earned and
reinvested at a constant rate and annualized at the end of a six-month period.
The yield is not based on actual dividends paid.
Yield will be computed as follows:
YIELD = 2[((a-b/cd)+1)6-1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
B-21
<PAGE> 36
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
Figures quoted will assume reinvestment of all dividends and
distributions. Income taxes are not taken into account. The figures will not
necessarily be indicative of future performance. The performance of the
Portfolio is a result of conditions in the securities markets, portfolio
management, and operating expenses. Although information such as yield and total
return is useful in reviewing the Portfolio's performance and in providing some
basis for comparison with other investment alternatives, it should not be used
for comparison with other investments using different reinvestment assumptions
or time periods. Performance figures do not reflect expenses of the separate
accounts of the Participating Insurance Companies or expenses imposed under the
Variable Contracts or expenses imposed by Retirement Plans.
In advertising and sales literature, the performance of the Portfolio
may be compared with that of other mutual funds, indexes or averages of other
mutual funds, indexes of related financial assets or data, other accounts or
partnerships managed by Calamos Asset Management, Inc., and other competing
investment and deposit products available from or through other financial
institutions. The composition of these indexes, averages or accounts differs
from that of the Portfolio. Comparison of the Portfolio to an alternative
investment should consider differences in features and expected performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which the Portfolio generally believes
to be accurate. The Portfolio may also note its mention (including performance
or other comparative rankings) in newspapers, magazines, or other media from
time to time. However, the Portfolio assumes no responsibility for the accuracy
of such data. Newspapers and magazines which might mention the Portfolio
include, but are not limited to, the following:
Barron's Money
Business Week Mutual Fund Letter
Changing Times Mutual Fund Values
Chicago Tribune (Morningstar)
Chicago Sun-Times Newsweek
Crain's Chicago Business The New York Times
Consumer Reports Pensions and Investments
Consumer Digest Personal Investor
Financial World Stanger Reports
Forbes Time
Fortune USA Today
Investor's Daily U.S. News and World Report
Los Angeles Times The Wall Street Journal
The Portfolio may compare its performance to the Consumer Price Index
(All Urban), a widely recognized measure of inflation.
The performance of the Portfolio may be compared to the following
indexes or averages: Standard & Poor's 400 MidCap Index, Value Line Index,
Lipper Balanced Index, Lipper Convertible Fund Index, Lipper Growth and Income
Index, Lehman Brothers Government/Corporate Index and mutual fund performance
indices published by Variable Annuity Research & Data Service. The performance
of the Portfolio may also be compared to the Russell 2000 Index, the Wilshire
Small Growth Index, and the Fisher Small-Cap Growth Index, all supplied by the
Carmack Group. All three of these indexes represent equity investments in
smaller-capitalization stocks.
B-22
<PAGE> 37
The Lipper averages are unweighted averages of total return performance
of mutual funds as classified, calculated and published by Lipper, Inc.
("Lipper"), an independent service that monitors the performance of more than
1,000 funds. The Portfolio may also use comparative performance as computed in a
ranking by Lipper or category averages and rankings provided by another
independent service. Should Lipper or another service reclassify the Portfolio
to a different category or develop (and place the Portfolio into) a new
category, the Portfolio may compare its performance or ranking against other
funds in the newly assigned category, as published by the service. Moreover, the
Portfolio may compare its performance or ranking against all funds tracked by
Lipper or another independent service.
To illustrate the historical returns on various types of financial
assets, the Portfolio may use historical data provided by Ibbotson Associates,
Inc. ("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or
obtains) very long-term (since 1926) total return data (including, for example,
total return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for common stocks, small company stocks,
long-term corporate bonds, long-term government bonds, intermediate-term
government bonds, U.S. Treasury bills and Consumer Price Index.
DISTRIBUTOR
Calamos Financial Services, Inc. ("CFS"), a broker-dealer whose sole shareholder
and principal officer is John P. Calamos, serves as distributor for the
Portfolio, subject to change by a majority of the "non-interested" trustees at
any time. CFS is located at 1111 East Warrenville Road, Naperville, Illinois
60563-1493. CFS is responsible for all purchases, sales, redemptions and other
transfers of shares of the Portfolio without any charge to the Portfolio or
Participating Insurance Companies or Retirement Plans purchasing the Portfolio's
shares. However, each Variable Contract imposes its own charges and fees on
owners of the Variable Contract and may impose such charges on participants in a
Retirement Plan. CFS is also responsible for all expenses incurred in connection
with its performance of services for the Portfolio, including, but not limited
to, personnel, office space and equipment, telephone, postage and stationery
expenses. CFS receives brokerage commissions for executing portfolio
transactions for the Portfolio. See "Portfolio Transactions."
CFS has the exclusive right to distribute shares of the Portfolio. The
obligation of CFS is an agency or "best efforts" arrangement, which does not
obligate CFS to sell any stated number of shares.
PORTFOLIO TRANSACTIONS
Portfolio transactions on behalf of the Portfolio 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 Portfolio usually includes
an undisclosed dealer commission or mark-up. In underwritten offerings, the
price paid by the Portfolio includes a disclosed, fixed commission or discount
retained by the underwriter or dealer.
In executing portfolio transactions, the investment manager uses its
best efforts to obtain for the Portfolio the most favorable price and execution
available. In seeking the most favorable price and execution, the investment
manager 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
Portfolio may be executed through CFS if, in the judgment of the investment
manager, the use of CFS is likely to result in prices
B-23
<PAGE> 38
and execution at least as favorable to the Portfolio as those available from
other qualified brokers and if, in such transactions, CFS charges the Portfolio
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
Portfolio will not effect principal transactions with CFS.
In allocating the portfolio brokerage transactions to unaffiliated
broker-dealers, the investment manager 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 the investment manager believes these services have
substantial value, they are considered supplemental to the investment manager's
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"),
the investment manager may pay a broker-dealer that provides brokerage and
research services an amount of commission for effecting a securities transaction
for the Portfolio in excess of the commission that another broker-dealer would
have charged for effecting that transaction if the amount is believed by the
investment manager to be reasonable in relation to the value of the overall
quality of the brokerage and research services provided. Other clients of the
investment manager may indirectly benefit from the availability of these
services to the investment manager, and the Portfolio may indirectly benefit
from services available to the investment manager as a result of transactions
for other clients.
TAXATION
The following is only a summary of certain tax considerations. The
summary is not intended to present a detailed explanation or as a substitute for
careful tax planning. Investors are urged to consult their tax advisors with
specific reference to their own tax situations.
Shares of the portfolio are offered to separate accounts of
participating insurance companies that fund variable contracts and may be
offered to certain retirement plans. See the disclosure documents for the
variable contracts or the plan documents (including the summary plan
description) for the retirement plans for a discussion of the special taxation
of insurance companies with respect to the separate accounts and the variable
contracts, and the holders thereof, or the special taxation of retirement plans
and the participants therein.
The Portfolio intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") so as to be relieved of federal income tax on its net
investment income and capital gains that it distributes to shareholders.
The Portfolio must meet several requirements to maintain its status as
a regulated investment company. These requirements include the following: (1) at
least 90% of the Portfolio's gross income must be derived from dividends,
interest, payments with respect to securities loaned, and gains from the sale or
disposition of securities; and (2) at the close of each quarter of the
Portfolio's taxable year, (a) at least 50% of the value of the Portfolio's total
assets must consist of cash, U.S. Government securities and other securities (no
more than 5% of the value of the Portfolio may consist of such other securities
of any one issuer, and the Portfolio must not hold more than 10% of the
outstanding voting stock of any issuer), and (b) the Portfolio must not invest
more than 25% of the value of its total assets in the securities of any one
issuer (other than U.S. Government securities).
In order to maintain the qualification of the Portfolio's status as a
regulated investment company, the Trust may, in its business judgment, restrict
the Portfolio's ability to enter into stock index futures contracts or options
on such futures contracts or engage in short-term trading and transactions in
securities (including stock index futures contracts and options on such futures
contracts). For the same reason, the Trust may, in its business judgement,
require the Portfolio to defer the closing out of a contract beyond the time
when it might otherwise be advantageous to do so.
B-24
<PAGE> 39
Pursuant to the requirements of Section 817(h) of the Code, the only
shareholders of the Portfolio will be insurance companies and their separate
accounts that fund variable insurance contracts. The prospectus that describes a
particular variable insurance contract discusses the taxation of separate
accounts and the owner of the particular variable insurance contract.
The Portfolio intends to comply with the requirements of Section 817(h)
and related regulations. Section 817(h) of the code and the regulations issued
by the Treasury Department impose certain diversification requirements affecting
the securities in which the Portfolio may invest. These diversification
requirements are in addition to the diversification requirements under
subchapter M and the Investment Company Act of 1940.
In order to comply with the current or future requirements of section
817(h) (or related provisions of the Code), the Trust may be required, e.g., to
alter the investment objectives of the Portfolio. No such change of investment
objectives will take place without notice to the shareholders of the Portfolio,
the approval of a majority of the outstanding voting shares, and the approval of
the Securities and Exchange commission, to the extent legally required.
The Portfolio's investment in foreign securities or currencies may
require it to pay withholding or other taxes to foreign governments. Foreign tax
withholding from dividends and interest, if any, is generally at a rate between
10% and 35%. The investment yield of the Portfolio will be reduced by these
foreign taxes. Shareholders will bear the cost of any foreign tax withholding,
but may not be able to claim a foreign tax credit or deduction for these foreign
taxes. Investing in securities of passive foreign investment companies may be
subject to U.S. Federal income taxes and interest charges, and the investment
yield of the Portfolio will be reduced by these taxes and interest charges.
Shareholders will bear the cost of these taxes and interest charges, but will
not be able to claim a deduction for these amounts.
If the Portfolio failed to qualify as a regulated investment company,
owners of Variable Contracts based on the Portfolio (1) might be taxed currently
on the investment earnings under their contracts and thereby lose the benefit of
tax deferral, and (2) the Portfolio might incur additional taxes. In addition,
if the Portfolio failed to comply with the diversification requirements of
Section 817(h) of the regulations thereunder, owners of Variable Contracts based
on the Portfolio would be taxed on the investment earnings under their contracts
and thereby lose the benefit of tax deferral. Accordingly, compliance with the
above rules is carefully monitored by the investment manager and it is intended
that the Portfolio will comply with these rules as they exist or as they may be
modified from time to time. Compliance with the tax requirements described above
may result in a reduction in the return achieved by the Portfolio, since, to
comply with the above rules, the investments utilized (and the time at which
such investments are entered into and closed out) may be different from what the
investment manager might otherwise believe to be desirable.
B-25
<PAGE> 40
CERTAIN SHAREHOLDERS
As of _____, 1999, Calamos Asset Management, Inc. was the initial seed
money shareholder of 100% of the shares of the Portfolio. As of ____, 1999,
trustees and officers of the Trust, as a group, owned less than 1% of the shares
of the Portfolio.
CUSTODIAN
The Bank of New York, 48 Wall Street, New York, New York 10286, is the
custodian for the assets of the Portfolio. The custodian is responsible for
holding all cash and securities of the Portfolio, directly or through a book
entry system, delivering and receiving payment for securities sold by the
Portfolio, receiving and paying for securities purchased by the Portfolio,
collecting income from investments of the Portfolio and performing other duties,
all as directed by authorized persons of the Trust. The custodian does not
exercise any supervisory functions in such matters as the purchase and sale of
securities by the Portfolio, payment of dividends or payment of expenses of the
Portfolio.
INDEPENDENT AUDITORS
Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago,
Illinois 60606, audits and reports on the Portfolio's annual financial
statements, reviews certain regulatory reports and the Portfolios' federal
income tax returns, and performs other professional accounting, tax and advisory
services when engaged to do so by the Portfolio.
B-26
<PAGE> 41
SHAREHOLDER INFORMATION
Under the terms of the Agreement and Declaration of Trust, the trustees
may issue an unlimited number of shares of beneficial interest without par value
for each series of shares authorized by the trustees and the trustees may divide
the shares of any series into two or more classes of shares of that series.
Currently the Trust has one series in operation. All Shares issued will be fully
paid and non-assessable and will have no preemptive or conversion rights. In the
future, the board of trustees may authorize the issuance of shares of additional
series and additional classes of shares of any series.
The Portfolio's shares are entitled to participate pro rata in any
dividends and other distributions declared by the Trust's board of trustees with
respect to shares of the Portfolio. All shares of the Portfolio have equal
rights in the event of liquidation of the Portfolio.
Under Massachusetts law, the shareholders of the Trust may, under
certain circumstances, be held personally liable for the Trust's obligations.
However, the Trust's Declaration of Trust disclaims liability of the
shareholders, trustees, and officers of the Trust for acts or obligations of the
Portfolio, which are binding only on the assets and property of the Portfolio.
The Declaration of Trust requires that notice of such disclaimer be given in
each agreement, obligation, or contract entered into or executed by the Trust or
the board of trustees. The Declaration of Trust provides for indemnification out
of a Portfolio's assets of all losses and expenses of any Portfolio shareholder
held personally liable for the Portfolio's obligations. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
remote, since it is limited to circumstances in which the disclaimer is
inoperative and the Portfolio itself is unable to meet its obligations.
VOTING RIGHTS
Each share has one vote and fractional shares have fractional votes. As
a business trust, the Trust is not required to hold annual shareholder meetings.
However, special meetings may be called for purposes such as electing or
removing trustees, changing fundamental policies or approving an investment
advisory agreement.
Under current interpretations of the 1940 Act, the Portfolio expects
that Participating Insurance Company shareholders will offer variable contract
holders the opportunity to instruct them as to how Portfolio shares attributable
to such contracts will be voted with respect to matters to be voted upon. The
separate prospectuses describing the Variable Contracts include additional
disclosure of how contract holder voting rights are computed.
B-27
<PAGE> 42
APPENDIX--DESCRIPTION OF BOND RATINGS
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, the Portfolio's investment investment manager
believes that the quality of debt securities in which the Portfolio invests
should be continuously reviewed. A rating is not a recommendation to purchase,
sell or hold a security, because it does not take into account market value or
suitability for a particular investor. When a security has received a rating
from more than one service, each rating should be evaluated independently.
Ratings are based on current information furnished by the issuer or obtained by
the ratings services from other sources which they consider reliable. Ratings
may be changed, suspended or withdrawn as a result of changes in or
unavailability of such information, or for other reasons.
The following is a description of the characteristics of ratings used
by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
MOODY'S RATINGS
AAA--Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Although 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 bonds.
AA--Bonds rated Aa are judged to be 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 bonds 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 in Aaa bonds.
A--Bonds 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 sometime in the future.
Baa--Bonds 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 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 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 rated Caa are of poor standing. Such bonds may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds rated Ca represent obligations which are speculative in a
high degree. Such bonds are often in default or have other marked shortcomings.
B-28
<PAGE> 43
S&P RATINGS
AAA--Bonds rated AAA have the highest rating. Capacity to pay principal
and interest is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay principal and
interest and differ from AAA bonds only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation among such bonds and CC the highest
degree of speculation. Although such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
B-29
<PAGE> 44
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Calamos Insurance Trust
We have audited the accompanying statement of net assets of the Calamos
Convertible Portfolio of Calamos Insurance Trust as of April ____, 1999. This
statement of net assets is the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on this statement of net assets based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of net assets is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of net assets. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.
In our opinion the statement of net assets referred to above presents
fairly, in all material respects, the financial position of the Calamos
Convertible Portfolio of the Calamos Insurance Trust at April ____, 1999 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
April ,1999
B-30
<PAGE> 45
CALAMOS INSURANCE TRUST
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash ....................................................................... $100,000
--------
Total Assets ...................................................... $100,000
--------
LIABILITIES
None .......................................................................
Net Assets ........................................................ $100,000
NET ASSETS
Net assets, applicable to shares of beneficial interest (unlimited number of
shares authorized, no par value) outstanding
........................................................................... $100,000
THE PRICING Of SHARES
Net asset value and redemption price per share ($100,000 / 100,000 shares)
Outstanding, ............................................................... $ 1.000
Maximum offering price per share
Net asset value ............................................................ $ 1.000
</TABLE>
NOTES:
Calamos Insurance Trust (the "Trust") was organized as a business trust
under the laws of the Commonwealth of Massachusetts on February 17,
1999. All shares of beneficial interest of the above Portfolio were
issued to Calamos Asset Management, Inc., the investment manager for
the Portfolio of the Trust, on April __, 1999.
B-31
<PAGE> 46
PART C OTHER INFORMATION
ITEM 23. Exhibits
--------
(a) Amended and Restated Agreement and Declaration of Trust
(b) Bylaws*
(c) None
(d) Management agreement with Calamos Asset Management, Inc.
dated _______, 1999*
(e) Distribution agreement with Calamos Financial Services, Inc.
dated ________, 1999*
(f) None
(g) Custody agreement with Bank of New York dated ______, 1999*
(h)(1) Investment company services agreement with First Data Corp. Investor
Services Group dated _________, 1999*
(h)(2) Use of name agreement dated ___________, 1999*
(i)(1) Opinion of Goodwin, Procter & Hoar LLP dated __________, 1999*
(i)(2) Opinion of Bell, Boyd, & Lloyd dated _________, 1999*
(j) Consent of independent auditors*
(k) None
(l) Subscription agreement*
(m) None
(n) None
(o) None
* To be filed by amendment before the effective date of the Registration
Statement.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Shares of the Registrant will be offered and sold to Kansas City Life
Insurance Company, a stock life insurance company, domiciled in Missouri and its
separate investment accounts, "Kansas City Life Variable Annuity Separate
Account" and "Kansas City Life Variable Life Separate Account". The purchasers
of insurance contracts and annuity contracts issued in connection with such
accounts will have the right to instruct Kansas City Life with respect to the
voting of the Registrant's shares held by the separate accounts.
<PAGE> 47
ITEM 25. INDEMNIFICATION
Article VI of the agreement and declaration of trust of
registrant (exhibit (a) to this registration statement which is incorporated
herein by reference) provides that the Trust shall indemnify (from the assets of
the Sub-Trust or Sub-Trusts in question) each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the trust has any interest as a
shareholder, creditor or otherwise [hereinafter referred to as a "Covered
Person"] against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, director or trustee, except with respect
to any matter as to which it has been determined in one of the manners described
below, that such covered Person (i) did not act in good faith in the reasonable
belief that such Covered Person's action was in or not opposed to the best
interests of the Trust or (ii) had acted with willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such Covered Person's office (either and both of the conduct described in (i)
and (ii) being referred to hereafter as "Disabling Conduct").
A determination that the Covered Person is not entitled to
indemnification due to Disabling conduct may be made by (i) a final decision on
the merits by a court or other body before whom the proceeding was brought that
the person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of a court action or an administrative proceeding against a Covered
Person for insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Trust as defined in section
2(a)(19) of the Investment Company Act of 1940 nor parties to the proceeding, or
(b) an independent legal counsel in a written opinion. Expenses, including
accountants' and counsel fees so incurred by any such Covered Person (but
excluding amounts paid in satisfaction of judgments, in compromise or as fines
or penalties), may be paid from time to time in advance of the final disposition
of any such action, suit or proceeding, provided that the Covered Person shall
have undertaken to repay the amounts so paid to the Sub-Trust in question if it
is ultimately determined that indemnification of such expenses is not authorized
under this Article VI and (i) the Covered Person shall have provided security
for such undertaking, (ii) the Trust shall be insured against losses arising by
reason of any lawful advances, or (iii) a majority of a quorum of the
disinterested Trustees who are not a party to the proceeding, or an independent
legal counsel in a written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the Covered Party ultimately will be found entitled to
indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted 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 Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of 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 Act and will
be governed by the final adjudication of such issue.
<PAGE> 48
ITEM 26. 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 27. PRINCIPAL UNDERWRITERS
(a) Calamos Financial Services, Inc. ("CFS") serves as principal
underwriter for the Calamos Investment Trust and the Calamos Insurance
Trust.
(b) Information on the officers and directors of CFS is set forth below.
The principal business address is 1111 East Warrenville Road,
Naperville, Illinois 60563.
Name Positions and Offices Positions and Offices
------ with Underwriter with Registrant
---------------- ---------------
John P. Calamos Director, President President
Nick P. Calamos Vice President Vice President
John P. Calamos, Jr. Vice President None
James W. Faulkner Treasurer None
James S. Hamman, Jr. Secretary Trustee, Secretary
ITEM 28. 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., and Calamos Financial Services, Inc.,
the Registrant's principal underwriter, 1111 East Warrenville Road, Naperville,
Illinois 60563, at the offices of the custodian, Bank of New York, 90 Washington
Street, New York, NY 10286, or at the offices of the transfer agent, First Data
Corp., 3200 Horizon Drive, King of Prussia, PA 19406.
ITEM 29. MANAGEMENT SERVICES
None
ITEM 30. UNDERTAKINGS
None.
<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the registrant certifies that it has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Naperville, Illinois on February 17, 1999.
CALAMOS INSURANCE TRUST
By /s/ James S. Hamman, Jr.
----------------------------------
James S. Hamman, Jr., Sole Trustee
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ James S. Hamman, Jr. Trustee February 17, 1999
- -------------------------
James S. Hamman, Jr.
<PAGE> 50
EXHIBIT INDEX
-------------
(a) Amended and Restated Agreement and Declaration of Trust
<PAGE> 1
Exhibit 99.B(a)
CALAMOS INSURANCE TRUST
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
FEBRUARY 17, 1999
<PAGE> 2
CALAMOS INSURANCE TRUST
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
Page
----
ARTICLE I NAME AND DEFINITIONS.....................................1
Section 1.1 Name and Principal Office................................1
Section 1.2 Definitions..............................................2
(a) "Trust"..................................................2
(b) "Trustees"...............................................2
(c) "Shares".................................................2
(d) "Series".................................................2
(e) "Shareholder"............................................2
(f) "1940 Act"...............................................2
(g) "Commission".............................................2
(h) "Declaration of Trust"...................................2
(i) "By-Laws"................................................2
(j) "class"..................................................2
ARTICLE II PURPOSE OF TRUST.........................................2
ARTICLE III THE TRUSTEES.............................................2
Section 3.1 Number, Designation, Election, Term, etc.................3
(a) Trustees.................................................3
(b) Number...................................................3
(c) Election and Term........................................3
(d) Resignation and Retirement...............................3
(e) Removal..................................................3
(f) Vacancies................................................3
(g) Effect of Death, Resignation, etc........................4
(h) No Accounting............................................4
Section 3.2 Powers of Trustees.......................................4
(a) Investments..............................................5
(b) Disposition of Assets....................................5
(c) Ownership Powers.........................................5
(d) Subscription.............................................5
(e) Form of Holding..........................................5
(f) Reorganization, etc......................................5
(g) Voting Trusts, etc.......................................5
(h) Compromise...............................................5
(i) Partnerships, etc........................................5
(j) Borrowing and Security...................................5
(k) Guarantees, etc..........................................5
(l) Insurance................................................6
(m) Pensions, etc............................................6
(n) Distribution Plans.......................................6
Section 3.3 Certain Contracts........................................6
(a) Advisory.................................................7
(b) Administration...........................................7
<PAGE> 3
(c) Distribution.............................................7
(d) Custodian and Depository.................................7
(e) Transfer and Dividend Disbursing Agency..................7
(f) Shareholder Servicing....................................7
(g) Accounting...............................................7
Section 3.4 Payment of Trust Expenses and Compensation of Trustees...8
Section 3.5 Ownership of Assets of the Trust.........................8
ARTICLE IV SHARES...................................................8
Section 4.1 Description of Shares....................................8
Section 4.2 Establishment and Designation of Sub-Trusts and Classes.10
(a) Assets Belonging to Sub-Trusts..........................10
(b) Liabilities Belonging to Sub-Trusts.....................11
(c) Dividends...............................................11
(d) Liquidation.............................................12
(e) Voting..................................................12
(f) Redemption by Shareholder...............................12
(g) Redemption by Trust.....................................12
(h) Net Asset Value.........................................13
(i) Transfer................................................13
(j) Equality................................................13
(k) Fractions...............................................14
(l) Conversion Rights.......................................14
(m) Class Differences.......................................14
Section 4.3 Ownership of Shares.....................................14
Section 4.4 Investments in the Trust................................14
Section 4.5 No Preemptive Rights....................................14
Section 4.6 Status of Shares and Limitation of Personal Liability...14
ARTICLE V SHAREHOLDERS' VOTING POWERS AND MEETINGS................15
Section 5.1 Voting Powers...........................................15
Section 5.2 Meetings................................................15
Section 5.3 Record Dates............................................16
Section 5.4 Quorum and Required Vote................................16
Section 5.5 Action by Written Consent...............................16
Section 5.6 Inspection of Records...................................16
Section 5.7 Additional Provisions...................................16
Section 5.8 Shareholder Communications..............................16
ARTICLE VI LIMITATION OF LIABILITY; INDEMNIFICATION................17
Section 6.1 Trustees, Shareholders, etc. Not Personally
Liable; Notice..........................................17
Section 6.2 Trustees'Good Faith Action; Expert Advice;
No Bond or Surety.......................................17
Section 6.3 Indemnification of Shareholders.........................18
Section 6.4 Indemnification of Trustees, Officers, etc..............18
Section 6.5 Compromise Payment......................................19
Section 6.6 Indemnification Not Exclusive, etc......................19
Section 6.7 Liability of Third Persons Dealing with Trustees........19
ARTICLE VII MISCELLANEOUS...........................................20
Section 7.1 Duration and Termination of Trust.......................20
Section 7.2 Reorganization..........................................20
<PAGE> 4
Section 7.3 Amendments..............................................21
Section 7.4 Filing of Copies; References; Headings..................21
Section 7.5 Applicable Law..........................................21
Section 7.6 Resident Agent..........................................22
<PAGE> 5
CALAMOS INSURANCE TRUST
AGREEMENT AND DECLARATION OF TRUST
----------------------------------
WHEREAS, the Agreement and Declaration of Trust of Calamos Insurance
Trust was executed and delivered in Boston, Massachusetts on February 17, 1999
and the initial trustee therein named accepted an initial subscription for, and
caused the initial issuance of, shares of beneficial interest of the Trust and
accepted the payment therefor as trust property and has subsequently named the
undersigned as the successor initial Trustee and has thereupon resigned after
delivering the trust property to the undersigned as such successor Trustee;
NOW THEREFORE, the undersigned successor initial Trustee, having
accepted his appointment as such, hereby amends and restates said Agreement and
Declaration of Trust to read in its entirety as follows: THIS AGREEMENT AND
DECLARATION OF TRUST made this 17th day of February, 1999, by the Trustee
hereunder on behalf of himself and all other persons who become Trustees
hereunder, and by the holders of shares of beneficial interest to be issued
hereunder as hereinafter provided.
WITNESSETH
WHEREAS, the Trustees hereunder are desirous of forming a trust to
carry on the business of an investment company pursuant to the provisions of the
Investment Company Act of 1940 and the rules and regulations thereunder, all as
amended from time to time;
WHEREAS, the Trust is authorized to issue its shares of beneficial
interest in separate series, each separate series to be a Sub-Trust hereunder,
and to issue classes of Shares of any Sub-Trust or divide Shares of any
Sub-Trust into two or more classes, all in accordance with the provisions
hereinafter set forth; and
WHEREAS, the Trustees have agreed to manage all property coming into
their hands as Trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustee hereunder in trust to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of shares of beneficial interest in this Trust or Sub-Trusts created
hereunder as hereinafter set forth.
ARTICLE I
---------
NAME AND DEFINITIONS
--------------------
Section 1.1 NAME AND PRINCIPAL OFFICE. This trust shall be known
as Calamos Insurance Trust and the Trustees shall conduct the business of the
Trust under that name or any other name or names as they may from time to time
determine. The principal office of the Trust shall be located at 1111 East
Warrenville Road, Naperville, Illinois 60563 or at such other location as the
Trustees may from time to time determine.
<PAGE> 6
Section 1.2 DEFINITIONS. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust established
by this Agreement and Declaration of Trust, as amended from time to time,
inclusive of each and every Sub-Trust established hereunder;
(b) "Trustees" refers to each person who is or becomes a Trustee of
the Trust and of each Sub-Trust hereunder named herein or appointed or elected
in accordance with Article III;
(c) "Shares" refers to the transferable units of interest into which
the beneficial interest in the Trust and each Sub-Trust of the Trust and/or any
class of any Sub-Trust (as the context may require) shall be divided from time
to time;
(d) "Series" refers to Series of Shares established and designated
under or in accordance with the provisions of Article IV, each of which Series
shall be a Sub-Trust of the Trust;
(e) "Shareholder" means a record owner of Shares;
(f) The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to time;
(g) The term "Commission" shall have the meaning given it in the
1940 Act;
(h) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust as amended or restated from time to time; (i) "By-Laws" shall mean the
By-Laws of the Trust as amended from time to time; and (j) "class" refers to any
class of Shares of any Series or Sub-Trust established and designated under or
in accordance with the provisions of Article IV.
ARTICLE II
----------
PURPOSE OF TRUST
----------------
The purpose of the Trust is to operate as an investment company and to
offer Shareholders of the Trust and each Sub-Trust of the Trust one or more
investment programs primarily in securities, debt instruments, futures and
options on futures. The Trust shall also have the power to invest in precious
metals, bullion and gold coins.
ARTICLE III
-----------
THE TRUSTEES
------------
Section 3.1 NUMBER, DESIGNATION, ELECTION, TERM, ETC.
<PAGE> 7
(a) INITIAL TRUSTEE. By his execution of this Declaration of Trust,
James S. Hamman, Jr. accepts the position as Trustee and agrees to the
provisions hereof. The Initial Trustee may appoint successor Trustees and
resign, whereupon such Initial Trustee shall be forever released from all
further responsibilities hereunder.
(b) NUMBER. The Trustees serving as such, whether named above or
hereafter becoming a Trustee, may increase or decrease the number of Trustees to
a number other than the number theretofore determined. No decrease in the number
of Trustees shall have the effect of removing any Trustee from office prior to
the expiration of his term, but the number of Trustees may be decreased in
conjunction with the removal of a Trustee pursuant to subsection (e) of this
Section 3.1.
(c) ELECTION AND TERM. Except as otherwise provided in subsection (a)
or this subsection (c), the Trustees shall be elected by Shareholders of the
Trust. Each Trustee, whether named above or hereafter becoming a Trustee, shall
serve as a Trustee of the Trust and of each Sub-Trust hereunder during the
lifetime of this Trust and until its termination as hereinafter provided except
as such Trustee sooner dies, resigns or is removed. Subject to Section 16(a) of
the 1940 Act, the Trustees may elect their own successors and may, pursuant to
subsection (f) of this Section 3.1, appoint Trustees to fill vacancies.
(d) RESIGNATION AND RETIREMENT. Any Trustee may resign his trust or
retire as a Trustee, by written instrument signed by him and delivered to the
other Trustees or to any officer of the Trust, and such resignation or
retirement shall take effect upon such delivery or upon such later date as is
specified in such instrument and shall be effective as to the Trust and each
Sub-Trust hereunder.
(e) REMOVAL. Any Trustee may be removed with or without cause at any
time: (i) by written instrument, signed by at least two-thirds of the number of
Trustees prior to such removal, specifying the date upon which such removal
shall become effective; or (ii) by vote of Shareholders holding not less than
two-thirds of the Shares then outstanding, cast in person or by proxy at any
meeting called for the purpose; or (iii) by a written declaration signed by
Shareholders holding not less than two-thirds of the Shares then outstanding and
filed with the Trust's Secretary. Any such removal shall be effective as to the
Trust and each Sub-Trust hereunder.
(f) VACANCIES. Any vacancy or anticipated vacancy resulting from any
reason, including without limitation the death, resignation, retirement, removal
or incapacity of any of the Trustees, or resulting from an increase in the
number of Trustees by the other Trustees may (but need not unless required by
the 1940 Act) be filled either by a majority of the remaining Trustees, subject
to the provisions of Section 16(a) of the 1940 Act, through the appointment in
writing of such other person as such remaining Trustees in their discretion
shall determine and such appointment shall be effective upon the written
acceptance of the person named therein to serve as a Trustee and agreement by
such person to be bound by the provisions of this Declaration of Trust, except
that any such appointment in anticipation of a vacancy to occur by reason of
retirement, resignation, or increase in number of Trustees to be effective at a
later date shall become effective only at or after the effective date of said
retirement, resignation, or increase in number of Trustees. As soon as any
Trustee so appointed shall have accepted such appointment and shall have agreed
in writing to be bound by this Declaration of Trust and the appointment is
effective, the Trust estate shall vest in the new Trustee, together with the
continuing Trustees, without any further act or conveyance.
<PAGE> 8
(g) EFFECT OF DEATH, RESIGNATION, ETC. The death, resignation,
retirement, removal, or incapacity of the Trustees, or any one of them, shall
not operate to annul or terminate the Trust or any Sub-Trust hereunder or to
revoke or terminate any existing agency or contract created or entered into
pursuant to the terms of this Declaration of Trust.
(h) NO ACCOUNTING. Except to the extent required by the 1940 Act or
under circumstances which would justify his removal for cause, no person ceasing
to be a Trustee as a result of his death, resignation, retirement, removal or
incapacity (nor the estate of any such person) shall be required to make an
accounting to the Shareholders or remaining Trustees upon such cessation.
Section 3.2 POWERS OF TRUSTEES. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. Without limiting the
foregoing, the Trustees may adopt By-Laws not inconsistent with this Declaration
of Trust providing for the conduct of the business and affairs of the Trust and
may amend and repeal them to the extent that such By-Laws do not reserve that
right to the Shareholders; they may from time to time in accordance with the
provisions of Section 4.1 hereof establish Sub-Trusts, each such Sub-Trust to
operate as a separate and distinct investment medium and with separately defined
investment objectives and policies and distinct investment purpose; they may
from time to time in accordance with the provisions of Section 4.1 hereof
establish classes of Shares of any Series or Sub-Trust or divide the Shares of
any Series or Sub-trust into classes; they may as they consider appropriate
elect and remove officers and appoint and terminate agents and consultants and
hire and terminate employees, any one or more of the foregoing of whom may be a
Trustee, and may provide for the compensation of all of the foregoing; they may
appoint from their own number, and terminate, any one or more committees
consisting of two or more Trustees, including without implied limitation an
executive committee, which may, when the Trustees are not in session and subject
to the 1940 Act, exercise some or all of the power and authority of the Trustees
as the Trustees may determine; in accordance with Section 3.3 they may employ
one or more Advisers, Administrators, Depositories and Custodians and may
authorize any Depository or Custodian to employ subcustodians or agents and to
deposit all or any part of such assets in a system or systems for the central
handling of securities and debt instruments, retain transfer, dividend,
accounting or Shareholder servicing agents or any of the foregoing, provide for
the distribution of Shares by the Trust through one or more distributors,
principal underwriters or otherwise, set record dates or times for the
determination of Shareholders or various of them with respect to various
matters; they may compensate or provide for the compensation of the Trustees,
officers, advisers, administrators, custodians, other agents, consultants and
employees of the Trust or the Trustees on such terms as they deem appropriate;
and in general they may delegate to any officer of the Trust, to any committee
of the Trustees and to any employee, adviser, administrator, distributor,
depository, custodian, transfer and dividend disbursing agent, or any other
agent or consultant of the Trust such authority, powers, functions and duties as
they consider desirable or appropriate for the conduct of the business and
affairs of the Trust, including without implied limitation the power and
authority to act in the name of the Trust and of the Trustees, to sign documents
and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with
the 1940 Act or other applicable law, the Trustees shall have power and
authority for and on behalf of the Trust and each separate Sub-Trust established
hereunder:
<PAGE> 9
(a) INVESTMENTS. To invest and reinvest cash and other property, and to
hold cash or other property uninvested without in any event being bound or
limited by any present or future law or custom in regard to investments by
trustees;
(b) DISPOSITION OF ASSETS. To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets of the Trust;
(c) OWNERSHIP POWERS. To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities, debt instruments or
property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities, debt instruments
or property as the Trustees shall deem proper;
(d) SUBSCRIPTION. To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities or other
assets;
(e) FORM OF HOLDING. To hold any security or other asset in a form not
indicating any trust, whether in bearer, unregistered or other negotiable form,
or in the name of the Trustees or of the Trust or of any Sub-Trust or in the
name of a custodian, subcustodian or other depositary or a nominee or nominees
or otherwise;
(f) REORGANIZATION, ETC. To consent to or participate in any plan for
the reorganization, consolidation or merger of any corporation or issuer, any
security or debt instrument of which is or was held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by such corporation
or issuer, and to pay calls or subscriptions with respect to any security or
debt instrument held in the Trust;
(g) VOTING TRUSTS, ETC. To join with other holders of any securities or
debt instruments in acting through a committee, depositary, voting trustee or
otherwise, and in that connection to deposit any security or debt instrument
with, or transfer any security or debt instrument to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security or debt instrument (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to pay,
such portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(h) COMPROMISE. To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any Sub-Trust or any matter in controversy,
including but not limited to claims for taxes;
(i) PARTNERSHIPS, ETC. To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) BORROWING AND SECURITY. To borrow funds, securities or other assets
and to mortgage and pledge the assets of the Trust or any part thereof to secure
obligations arising connection with such borrowing;
(k) GUARANTEES, ETC. To endorse or guarantee the payment of any notes
or other obligations of any person; to make contracts of guaranty or suretyship,
or otherwise assume
<PAGE> 10
liability for payment thereof; and to mortgage and pledge the Trust property or
any part thereof to secure any of or all such obligations;
(l) INSURANCE. To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, consultants, investment advisers, managers,
administrators, distributors, principal underwriters, or independent
contractors, or any thereof (or any person connected therewith), of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person in
any such capacity, including any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability;
(m) PENSIONS, ETC. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trust and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust; and
(n) DISTRIBUTION PLANS. To adopt on behalf of the Trust or any
Sub-Trust with respect to any class thereof a plan of distribution and related
agreements thereto pursuant to the terms of Rule 12b-1 of the 1940 Act and to
make payments from the assets of the Trust or the relevant Sub-Trust or
Sub-Trusts pursuant to said Rule 12b-1 Plan.
Except as otherwise provided by the 1940 Act or other applicable law,
this Declaration of Trust or the By-Laws, any action to be taken by the Trustees
on behalf of the Trust or any Sub-Trust may be taken by a majority of the
Trustees present at a meeting of Trustees (a quorum, consisting of at least a
majority of the Trustees then in office, being present), within or without
Massachusetts, including any meeting held by means of a conference telephone or
other communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting, or by written consents of a
majority of the Trustees then in office (or such larger or different number as
may be required by the 1940 Act or other applicable law).
Section 3.3 CERTAIN CONTRACTS. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter into
one or more contracts with any one or more corporations, trusts, associations,
partnerships, limited partnerships, other type of organizations, or individuals
("Contracting Party"), to provide for the performance and assumption of some or
all of the following services, duties and responsibilities to, for or on behalf
of the Trust and/or any Sub-Trust, and/or the Trustees, and to provide for the
performance and assumption of such other services, duties and responsibilities
in addition to those set forth below as the Trustees may determine appropriate:
<PAGE> 11
(a) ADVISORY. Subject to the general supervision of the Trustees and in
conformity with the stated policy of the Trustees with respect to the
investments of the Trust or of the assets belonging to any Sub-Trust of the
Trust (as that phrase is defined in subsection (a) of Section 4.2), to manage
such investments and assets, make investment decisions with respect thereto, and
to place purchase and sale orders for portfolio transactions relating to such
investments and assets;
(b) ADMINISTRATION. Subject to the general supervision of the Trustees
and in conformity with any policies of the Trustees with respect to the
operations of the Trust and each Sub-Trust (including any classes thereof), to
supervise all or any part of the operations of the Trust and each Sub-Trust, and
to provide all or any part of the administrative and clerical personnel, office
space and office equipment and services appropriate for the efficient
administration and operations of the Trust and each Sub-Trust;
(c) DISTRIBUTION. To distribute the Shares of the Trust and each
Sub-Trust (including any classes thereof), to be principal underwriter of such
Shares, and/or to act as agent of the Trust and each Sub-Trust in the sale of
Shares and the acceptance or rejection of orders for the purchase of Shares;
(d) CUSTODIAN AND DEPOSITORY. To act as depository for and to maintain
custody of the property of the Trust and each Sub-Trust and accounting records
in connection therewith;
(e) TRANSFER AND DIVIDEND DISBURSING AGENCY. To maintain records of the
ownership of outstanding Shares, the issuance and redemption and the transfer
thereof, and to disburse any dividends and distributions declared by the
Trustees and in accordance with the policies of the Trustees and/or the
instructions of any particular Shareholder to reinvest any such dividends or
distributions;
(f) SHAREHOLDER SERVICING. To provide service with respect to the
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) ACCOUNTING. To handle all or any part of the accounting
responsibilities, whether with respect to the Trust's properties, Shareholders
or otherwise.
The same person may be the Contracting Party for some or all of the
services, duties and responsibilities to, for and of the Trust and/or the
Trustees, and the contracts with respect thereto may contain such terms
interpretive of or in addition to the delineation of the services, duties and
responsibilities provided for, including provisions that are not inconsistent
with the 1940 Act relating to the standard of duty of and the rights to
indemnification of the Contracting Party and others, as the Trustees may
determine. Nothing herein shall preclude, prevent or limit the Trust or a
Contracting Party from entering into sub-contractual arrangements relative to
any of the matters referred to in Sections 3.3(a) through (g) hereof.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of or
for any Contracting Party, or of or for any parent
<PAGE> 12
or affiliate of any Contracting Party or that the Contracting Party or
any parent or affiliate thereof is a Shareholder or has an interest in
the Trust or any Sub-Trust, or that
(ii) any Contracting Party may have a contract providing for
the rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited partnerships
or other organizations, or have other business or interests,
shall not affect the validity of any contract for the performance and assumption
of services, duties and responsibilities to, for or of the Trust or any
Sub-Trust and/or the Trustees or disqualify any Shareholder, Trustee or officer
of the Trust from voting upon or executing the same or create any liability or
accountability to the Trust, any Sub-Trust or its Shareholders, provided that in
the case of any relationship or interest referred to in the proceeding clause
(i) on the part of any Trustee or officer of the Trust either (x) the material
facts as to such relationship or interest have been disclosed to or are known by
the Trustees not having any such relationship or interest and the contract
involved is approved in good faith by a majority of such Trustees not having any
such relationship or interest (even though such unrelated or disinterested
Trustees are less than a quorum of all of the Trustees), (y) the material facts
as to such relationship or interest and as to the contract have been disclosed
to or are known by the Shareholders entitled to vote thereon and the contract
involved is specifically approved in good faith by vote of the Shareholders, or
(z) the specific contract involved is fair to the Trust as of the time it is
authorized, approved or ratified by the Trustees or by the Shareholders.
Section 3.4 PAYMENT OF TRUST EXPENSES AND COMPENSATION OF TRUSTEES.
The Trustees are authorized to pay or to cause to be paid out of the principal
or income of the Trust or any Sub-Trust, or partly out of principal and partly
out of income, and to charge or allocate the same to, between or among such one
or more of the Sub-Trusts and/or one or more classes of Shares thereof that may
be established and designated pursuant to Article IV, as the Trustees deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, any Sub-Trust and/or any class of Shares thereof, or
in connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, investment adviser, administrator, distributor,
principal underwriter, auditor, counsel, depository, custodian, transfer agent,
dividend disbursing agent, accounting agent, Shareholder servicing agent, and
such other agents, consultants, and independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper to incur.
Without limiting the generality of any other provision hereof, the Trustees
shall be entitled to reasonable compensation from the Trust for their services
as Trustees and may fix the amount of such compensation.
Section 3.5 OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the
assets of the Trust shall at all times be considered as vested in the Trustees.
ARTICLE IV
----------
SHARES
------
Section 4.1 DESCRIPTION OF SHARES. The beneficial interest in the Trust
shall be divided into Shares, all without par value, but the Trustees shall have
the authority from time to time to issue Shares in one or more Series (each of
which Series of Shares shall represent the
<PAGE> 13
beneficial interest in a separate and distinct Sub-Trust of the Trust, including
without limitation those Sub-Trusts specifically established and designated in
Section 4.2), as they deem necessary or desirable. For all purposes under this
Declaration of Trust or otherwise, including, without implied limitation, (i)
with respect to the rights of creditors and (ii) for purposes of interpreting
the relevant rights of each Sub-Trust and the Stockholders of each Sub-Trust,
each Sub-Trust established hereunder shall be deemed to be a separate trust. The
Trustees shall have exclusive power without the requirement of shareholder
approval to establish and designate such separate and distinct Sub-Trusts, and
to fix and determine the relative rights and preferences as between the shares
of the separate Sub-Trusts as to right of redemption and the price, terms and
manner of redemption, special and relative rights as to dividends and other
distributions and on liquidation, sinking or purchase fund provisions,
conversion rights, and conditions under which the several Sub-Trusts shall have
separate voting rights or no voting rights.
In addition, the Trustees shall have exclusive power, without the
requirement of Shareholder approval, to issue classes of Shares of any Sub-Trust
or divide the Shares of any Sub-Trust into classes, each class having such
different dividend, liquidation, voting and other rights as the Trustees may
determine, and may establish and designate the specific classes of Shares of
each Sub-Trust. The fact that a Sub-Trust shall have initially been established
and designated without any specific establishment or designation of classes
(i.e., that all Shares of such Sub-Trust are initially of a single class), or
that a Sub-Trust shall have more than one established and designated class,
shall not limit the authority of the Trustees to establish and designate
separate classes, or one or more further classes, of said Sub-Trust without
approval of the holders of the initial class thereof, or previously established
and designated class or classes thereof, provided that the establishment and
designation of such further separate classes would not adversely affect the
rights of the holders of the initial or previously established and designated
class or classes.
The number of authorized Shares and the number of Shares of each
Sub-Trust or class thereof that may be issued is unlimited, and the Trustees may
issue Shares of any Sub-Trust or class thereof for such consideration and on
such terms as they may determine (or for no consideration if pursuant to a Share
dividend or split-up), all without action or approval of the Shareholders. All
Shares when so issued on the terms determined by the Trustees shall be fully
paid and non-assessable (but may be subject to mandatory contribution back to
the Trust as provided in subsection (h) of Section 4.2). The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
reacquired of any Sub-Trust or class thereof into one or more Sub-Trusts or
classes thereof that may be established and designated from time to time. The
Trustees may hold as treasury Shares, reissue for such consideration and on such
terms as they may determine, or cancel, at their discretion from time to time,
any Shares of any Sub-Trust or class thereof reacquired by the Trust.
The Trustees may from time to time close the transfer books or
establish record dates and times for the purposes of determining the holders of
Shares entitled to be treated as such, to the extent provided or referred to in
Section 5.3.
The establishment and designation of any Sub-Trust or of any class of
Shares of any Sub-Trust in addition to those established and designated in
Section 4.2 shall be effective upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and designation and
the relative rights and preferences of the Shares of such Sub-Trust or class, or
as otherwise provided in such instrument. At any time that there are no
<PAGE> 14
Shares outstanding of any particular Sub-Trust or class previously established
and designated, the Trustees may by an instrument executed by a majority of
their number (or by an instrument executed by an officer of the Trust pursuant
to the vote of a majority of the Trustees) abolish that Sub-Trust or class and
the establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration of Trust.
Any Trustee, officer or other agent of the Trust, and any organization
in which any such person is interested may acquire, own, hold and dispose of
Shares of any Sub-Trust (including any classes thereof) of the Trust to the same
extent as if such person were not a Trustee, officer or other agent of the
Trust; and the Trust may issue and sell or cause to be issued and sold and may
purchase Shares of any Sub-Trust (including any classes thereof) from any such
person or any such organization subject only to the general limitations,
restrictions or other provisions applicable to the sale or purchase of Shares of
such Sub-Trust (including any classes thereof) generally.
Section 4.2 ESTABLISHMENT AND DESIGNATION OF SUB-TRUSTS AND CLASSES.
Without limiting the authority of the Trustees set forth in Section 4.1 to
establish and designate any further Sub-Trusts, the Trustees hereby establish
and designate one Sub-Trust:
Calamos Convertible Portfolio
which shall have one class of shares or such classes as may from time to time be
established and designated. The Shares of such Sub-Trusts and any Shares of any
further Sub-Trust or class that may from time to time be established and
designated by the Trustees shall (unless the Trustees otherwise determine with
respect to some further Sub-Trust or class at the time of establishing and
designating the same) have the following relative rights and preferences:
(a) ASSETS BELONGING TO SUB-TRUSTS. All consideration received by the
Trust for the issue or sale of Shares of a particular Sub-Trust or any classes
thereof, together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be held by the Trustees in trust for the benefit of
the holders of Shares of that Sub-Trust or class thereof and shall irrevocably
belong to that Sub-Trust (and be allocable to any classes thereof) for all
purposes, and shall be so recorded upon the books of account of the Trust. Such
consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items (as
hereinafter defined) allocated to that Sub-Trust as provided in the following
sentence, are herein referred to as "assets belonging to" that Sub-Trust (and
allocable to any classes thereof). In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Sub-Trust (collectively
"General Items"), the Trustees shall allocate such General Items to and among
any one or more of the Sub-Trusts established and designated from time to time
in such manner and on such basis as they, in their sole discretion, deem fair
and equitable; and any General Items so allocated to a particular Sub-Trust
shall belong to that Sub-Trust (and be allocable to any classes thereof). Each
such allocation by the Trustees shall be conclusive and binding upon the holders
of all Shares of all Sub-Trusts (including any classes thereof) for all
purposes.
<PAGE> 15
(b) LIABILITIES BELONGING TO SUB-TRUSTS. The assets belonging to each
particular Sub-Trust shall be charged with the liabilities in respect of that
Sub-Trust and all expenses, costs, charges and reserves belonging to that
Sub-Trust, and any general liabilities, expenses, costs, charges or reserves of
the Trust which are not readily identifiable as belonging to any particular
Sub-Trust shall be allocated and charged by the Trustees to and among any one or
more of the Sub-Trusts established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. In addition, the liabilities in respect of a particular class of
Shares of a particular Sub-Trust and all expenses, costs, charges and reserves
belonging to that class of Shares, and any general liabilities, expenses, costs,
charges or reserves of that particular Sub-Trust which are not readily
identifiable as belonging to any particular class of Shares of that Sub-Trust
shall be allocated and charged by the Trustees to and among any one or more of
the classes of Shares of that Sub-Trust established and designated from time to
time in such manner and on such basis as the Trustees in their sole discretion
deem fair and equitable. The liabilities, expenses, costs, charges and reserves
allocated and so charged to a Sub-Trust or class thereof are herein referred to
as "liabilities belonging to" that Sub-Trust or class thereof. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders, creditors and any other persons
dealing with the Trust or any Sub-Trust (including any classes thereof) for all
purposes. Any creditor of any Sub-Trust may look only to the assets of that
Sub-Trust to satisfy such creditor's debt.
The Trustees shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated as income and which
items as capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders.
(c) DIVIDENDS. Dividends and distributions on Shares of a particular
Sub-Trust or any class thereof may be paid with such frequency as the Trustees
may determine, which may be daily or otherwise pursuant to a standing resolution
or resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Sub-Trust or class, from such of the
income and capital gains, accrued or realized, from the assets belonging to that
Sub-Trust, or in the case of a class, belonging to that Sub-Trust and allocable
to that class, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Sub-Trust or class. All dividends and
distributions on Shares of a particular Sub-Trust or class thereof shall be
distributed pro rata to the holders of Shares of that Sub-Trust or class in
proportion to the number of Shares of that Sub-Trust or class held by such
holders at the date and time of record established for the payment of such
dividends or distributions, except that in connection with any dividend or
distribution program or procedure the Trustees may determine that no dividend or
distribution shall be payable on Shares as to which the Shareholder's purchase
order and/or payment have not been received by the time or times established by
the Trustees under such program or procedure. Such dividends and distributions
may be made in cash or Shares of that Sub-Trust or class or a combination
thereof as determined by the Trustees or pursuant to any program that the
Trustees may have in effect at the time for the election by each Shareholder of
the mode of the making of such dividend or distribution to that Shareholder. Any
such dividend or distribution paid in Shares will be paid at the net asset value
thereof as determined in accordance with subsection (h) of Section 4.2.
The Trustees shall have full discretion to determine which items shall
be treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
<PAGE> 16
(d) LIQUIDATION. In the event of the liquidation or dissolution of the
Trust, the holders of Shares of each Sub-Trust or any class thereof that has
been established and designated shall be entitled to receive, when and as
declared by the Trustees, the excess of the assets belonging to that Sub-Trust,
or in the case of a class, belonging to that Sub-Trust and allocable to that
class, over the liabilities belonging to that Sub-Trust or class. The assets so
distributable to the holders of Shares of any particular Sub-Trust or class
thereof shall be distributed among such holders in proportion to the number of
Shares of that Sub-Trust or class thereof held by them and recorded on the books
of the Trust. The liquidation of any particular Sub-Trust or class thereof may
be authorized at any time by vote of a majority of the Trustees then in office.
(e) VOTING. On each matter submitted to a vote of the Shareholders,
each holder of a Share shall be entitled to one vote for each whole Share
standing in such Shareholder's name on the books of the Trust irrespective of
the Series thereof or class thereof and all Shares of all Series and classes
thereof shall vote together as a single class; provided, however, that as to any
matter (i) with respect to which a separate vote of one or more Series or
classes thereof is required by the 1940 Act or the provisions of the writing
establishing and designating the Sub-Trust or class, such requirements as to a
separate vote by such Series or class thereof shall apply in lieu of all Shares
of all Series and classes thereof voting together; and (ii) as to any matter
which affects the interests of one or more particular Series or classes thereof,
only the holders of Shares of the one or more affected Series or classes shall
be entitled to vote, and each such Series or class shall vote as a separate
class.
(f) REDEMPTION BY SHAREHOLDER. Each holder of Shares of a particular
Sub-Trust or any class thereof shall have the right at such times as may be
permitted by the Trust to require the Trust to redeem all or any part of such
holder's Shares of that Sub-Trust or class thereof at a redemption price equal
to the net asset value per Share of that Sub-Trust or class thereof next
determined in accordance with subsection (h) of this Section 4.2 after the
Shares are properly tendered for redemption, subject to any contingent deferred
sales charge or redemption charge in effect at the time of redemption. Payment
of the redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the Trust may,
subject to the requirements of the 1940 Act, make payment wholly or partly in
securities or other assets belonging to the Sub-Trust of which the Shares being
redeemed are part at the value of such securities or assets used in such
determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any
Sub-Trust or class thereof to require the Trust to redeem Shares of that
Sub-Trust during any period or at any time when and to the extent permissible
under the 1940 Act.
(g) REDEMPTION BY TRUST. Each Share of each Sub-Trust or class thereof
that has been established and designated is subject to redemption by the Trust
at the redemption price which would be applicable if such Share was then being
redeemed by the Shareholder pursuant to subsection (f) of this Section 4.2: (i)
at any time, if the Trustees determine in their sole discretion and by majority
vote that failure to so redeem may have materially adverse consequences to the
Trust or any Sub-Trust or to the holders of the Shares of the Trust or any
Sub-Trust thereof or class thereof, or (ii) upon such other conditions as may
from time to time be determined by the Trustees and set forth in the then
current Prospectus of the Trust with respect to maintenance of Shareholder
accounts of not less than a minimum value. Upon
<PAGE> 17
such redemption the holders of the Shares so redeemed shall have no further
right with respect thereto other than to receive payment of such redemption
price.
(h) NET ASSET VALUE. The net asset value per Share of any Sub-Trust
shall be (i) in the case of a Sub-Trust whose Shares are not divided into
classes, the quotient obtained by dividing the value of the net assets of that
Sub-Trust (being the value of the assets belonging to that Sub-Trust less the
liabilities belonging to that Sub-Trust) by the total number of Shares of that
Sub-Trust outstanding, and (ii) in the case of a class of Shares of a Sub-Trust
whose Shares are divided into classes, the quotient obtained by dividing the
value of the net assets of that Sub-Trust allocable to such class (being the
value of the assets belonging to that Sub-Trust allocable to such class less the
liabilities belonging to such class) by the total number of Shares of such class
outstanding; all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time.
The Trustees may determine to maintain the net asset value per Share of
any Sub-Trust at a designated constant dollar amount and in connection therewith
may adopt procedures not inconsistent with the 1940 Act for the continuing
declarations of income attributable to that Sub-Trust as dividends payable in
additional Shares of that Sub-Trust at the designated constant dollar amount and
for the handling of any losses attributable to that Sub-Trust. Such procedures
may provide that in the event of any loss each Shareholder shall be deemed to
have contributed to the capital of the Trust attributable to that Sub-Trust such
Shareholder's pro rata portion of the total number of Shares required to be
cancelled in order to permit the net asset value per Share of that Sub-Trust to
be maintained, after reflecting such loss, at the designated constant dollar
amount. Each Shareholder of the Trust shall be deemed to have agreed, by making
an investment in any Sub-Trust with respect to which the Trustees shall have
adopted any such procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
(i) TRANSFER. All Shares of each particular Sub-Trust or class thereof
shall be transferable, but transfers of Shares of a particular Sub-Trust or
class thereof will be recorded on the Share transfer records of the Trust
applicable to that Sub-Trust or class only at such times as Shareholders shall
have the right to require the Trust to redeem Shares of that Sub-Trust or class
and at such other times as may be permitted by the Trustees.
(j) EQUALITY. Except as provided herein or in the instrument
designating and establishing any class of Shares or any Sub-Trust, all Shares of
each particular Sub-Trust or class thereof shall represent an equal
proportionate interest in the assets belonging to that Sub-Trust, or in the case
of a class, belonging to that Sub-Trust and allocable to that class, subject to
the liabilities belonging to that Sub-Trust or class, and each Share of any
particular Sub-Trust or class shall be equal to each other Share of that
Sub-Trust or class; but the provisions of this sentence shall not restrict any
distinctions permissible under subsection (c) of this Section 4.2 that may exist
with respect to dividends and distributions on Shares of the same Sub-Trust or
class. The Trustees may from time to time divide or combine the Shares of any
particular Sub-Trust or class into a greater or lesser number of Shares of that
Sub-Trust or class without thereby changing the proportionate beneficial
interest in the assets belonging to that Sub-Trust or class or in any way
affecting the rights of Shares of any other Sub-Trust or class.
<PAGE> 18
(k) FRACTIONS. Any fractional Share of any Sub-Trust or class, if any
such fractional Share is outstanding, shall carry proportionately all the rights
and obligations of a whole Share of that Sub-Trust or class, including rights
and obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust.
(l) CONVERSION RIGHTS. Subject to compliance with the requirements of
the 1940 Act, the Trustees shall have the authority to provide that holders of
Shares of any Sub-Trust or class thereof shall have the right to convert said
Shares into Shares of one or more other Sub-Trust or class thereof in accordance
with such requirements and procedures as may be established by the Trustees.
(m) CLASS DIFFERENCES. The relative rights and preferences of the
classes of any Sub-Trust may differ in such other respects as the Trustees may
determine to be appropriate in their sole discretion, provided that such
differences are set forth in the instrument establishing and designating such
classes and executed by a majority of the Trustees (or by an instrument executed
by an officer of the Trust pursuant to a vote of a majority of the Trustees).
Section 4.3 OWNERSHIP OF SHARES. The ownership of Shares shall be
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each
Sub-Trust and each class thereof that has been established and designated. No
certificates certifying the ownership of Shares need be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Shares certificates, the
use of facsimile signatures, the transfer of Shares and similar matters. The
record books of the Trust as kept by the Trust or any transfer or similar agent,
as the case may be, shall be conclusive as to who are the Shareholders and as to
the number of Shares of each Sub-Trust and class thereof held from time to time
by each such Shareholder.
Section 4.4 INVESTMENTS IN THE TRUST. The Trustees may accept
investments in the Trust and each Sub-Trust thereof from such persons and on
such terms and for such consideration, not inconsistent with the provisions of
the 1940 Act, as they from time to time authorize. The Trustees may authorize
any distributor, principal underwriter, custodian, transfer agent or other
person to accept orders for the purchase of Shares that conform to such
authorized terms and to reject any purchase orders for Shares whether or not
conforming to such authorized terms.
Section 4.5 NO PREEMPTIVE RIGHTS. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 4.6 STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance of
the Trust shall not operate to terminate the Trust or any Sub-Trust thereof nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the
<PAGE> 19
Shareholders partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholder, nor except as specifically provided herein to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
ARTICLE V
---------
SHAREHOLDERS' VOTING POWERS AND MEETINGS
----------------------------------------
Section 5.1 VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees as provided in Section 3.1,
(ii) with respect to any contract with a Contracting Party as provided in
Section 3.3 as to which Shareholder approval is required by the 1940 Act, (iii)
with respect to any termination or reorganization of the Trust or any Sub-Trust
to the extent and as provided in Sections 7.1 and 7.2, (iv) with respect to any
amendment of this Declaration of Trust to the extent and as provided in Section
7.3, (v) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or any Sub-Trust thereof or the Shareholders (provided, however,
that a shareholder of a particular Sub-Trust shall not be entitled to a
derivative or class action on behalf of any other Sub-trust (or shareholder of
any other Sub-Trust) of the Trust) and (vi) with respect to such additional
matters relating to the Trust as may be required by the 1940 Act, this
Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. Until Shares are issued, the Trustees
may exercise all rights of Shareholders and may take any action required by law,
this Declaration of Trust or the By-Laws to be taken by Shareholders.
Section 5.2 MEETINGS. No annual or regular meeting of Shareholders is
required. Special meetings of Shareholders may be called by the Trustees from
time to time for the purpose of taking action upon any matter requiring the vote
or authority of the Shareholders as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Written notice of any
meeting of Shareholders shall be given or caused to be given by the Trustees by
mailing such notice at least seven days before such meeting, postage prepaid,
stating the time, place and purpose of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust. The Trustees
shall promptly call and give notice of a meeting of Shareholders for the purpose
of voting upon removal of any Trustee of the Trust when requested to do so in
writing by Shareholders holding not less than 10% of the Shares then
outstanding. If the Trustees shall fail to call or give notice of any meeting of
Shareholders for a period of 30 days after written application by Shareholders
holding at least 10% of the Shares then outstanding requesting a meeting be
called for a purpose requiring action by the Shareholders as provided herein or
in the By-Laws, then Shareholders holding at least 10% of the Shares then
outstanding may call and give notice of
<PAGE> 20
such meeting, and thereupon the meeting shall be held in the manner provided for
herein in case of call thereof by the Trustees.
Section 5.3 RECORD DATES. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date and time not more
than 60 days prior to the date of any meeting of Shareholders or other action as
the date and time of record for the determination of Shareholders entitled to
vote at such meeting or any adjournment thereof or to be treated as Shareholders
of record for purposes of such other action, and any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof or to be treated as a Shareholder of record
for purposes of such other action, even though he has since that date and time
dispose of his Shares, and no Shareholder becoming such after that date and time
shall be so entitled to vote at such meeting or any adjournment thereof or to be
treated as a Shareholder of record for purposes of such other action.
Section 5.4 QUORUM AND REQUIRED VOTE. A majority of the Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held, within a reasonable
time after the date set for the original meeting without the necessity of
further notice. A majority of the Shares voted, at a meeting of which a quorum
is present shall decide any questions and a plurality shall elect a Trustee,
except when a different vote is required or permitted by any provision of the
1940 Act or other applicable law or by this Declaration of Trust or the By-Laws.
Section 5.5 ACTION BY WRITTEN CONSENT. Subject to the provisions of
the 1940 Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof as shall be required by the 1940 Act
or by any express provision of this Declaration of Trust or the By-Laws) consent
to the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5.6 INSPECTION OF RECORDS. The records of the trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Massachusetts business corporation under the Massachusetts
Business Corporation Law.
Section 5.7 ADDITIONAL PROVISIONS. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
Section 5.8 SHAREHOLDER COMMUNICATIONS. Whenever ten or more
Shareholders of record have been such for at least six months preceding the date
of application, and who hold in the aggregate either Shares having a net asset
value of at least $25,000 or at least 1% of the outstanding Shares, whichever is
less, shall apply to the Trustees in writing, stating that they wish to
communicate with other Shareholders with a view to obtaining signatures to a
request for a Shareholder meeting and accompanied by a form of communication and
request
<PAGE> 21
which they wish to transmit, the Trustees shall within five business days after
receipt of such application either (1) afford to such applicants access to a
list of the names and addresses of all Shareholders as recorded on the books of
the Trust or Sub-Trust, as applicable; or (2) inform such applicants as to the
approximate number of Shareholders of record, and the approximate cost of
mailing to them the proposed communication and form of request.
If the Trustees elect to follow the course specified in clause (2) in
the preceding paragraph, the Trustees, upon written request of such applicants,
accompanied by a tender of the material to be mailed and of the reasonable
expenses of mailing, shall, with reasonable promptness, mail such material to
all Shareholders of record at their addresses as recorded on the books, unless
within five business days after such tender the Trustees shall mail to such
applicants and file with the Commission, together with a copy of the material to
be mailed, a written statement signed by at least a majority of the Trustees to
the effect that in their opinion either such material contains untrue statements
of fact or omits to state facts necessary to make the statements contained
therein not misleading, or would be in such violation of applicable law, and
specifying the basis of such opinion. The Trustees shall thereafter comply with
the requirements of the 1940 Act.
ARTICLE VI
----------
LIMITATION OF LIABILITY; INDEMNIFICATION
----------------------------------------
Section 6.1 TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE;
NOTICE. All persons extending credit to, contracting with or having any claim
against the Trust shall look only to the assets of the Sub-Trust with which such
person dealt for payment under such credit, contract or claim; and neither the
Shareholders of any Sub-trust nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, nor any other Sub-Trust
shall be personally liable therefor. Every note, bond, contract, instrument,
certificate or undertaking and every other act or thing whatsoever executed or
done by or on behalf of the Trust, any Sub-Trust or the Trustees or any of them
in connection with the Trust shall be conclusively deemed to have been executed
or done only by or for the Trust (or the Sub-Trust) or the Trustees and not
personally. Nothing in this Declaration of Trust shall protect any Trustee or
officer against any liability to the Trust or the Shareholders to which such
Trustee or officer would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee or of such officer.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officers or officer shall give notice that
this Declaration of Trust is on file with the Secretary of The Commonwealth of
Massachusetts and shall recite to the effect that the same was executed or made
by or on behalf of the Trust or by them as Trustees or Trustee or as officers or
officer and not individually and that the obligations of such instrument are not
binding upon any of them or the Shareholders individually but are binding only
upon the assets and property of the Trust, or the particular Sub-Trust in
question, as the case may be, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer or Shareholders or Shareholder
individually.
Section 6.2 TRUSTEES' GOOD FAITH ACTION; EXPERT ADVICE; NO BOND OR
SURETY. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his own
willful misfeasance, bad faith, gross
<PAGE> 22
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. Subject to the foregoing, (a) the Trustees
shall not be responsible or liable in any event for any neglect or wrongdoing of
any officer, agent, employee, consultant, adviser, administrator, distributor or
principal underwriter, custodian or transfer, dividend disbursing, Shareholder
servicing or accounting agent of the Trust, nor shall any Trustee be responsible
for the act or omission of any other Trustee; (b) the Trustees may take advice
of counsel or other experts with respect to the meaning and operation of this
Declaration of Trust and their duties as Trustees, and shall be under no
liability for any act or omission in accordance with such advice or for failing
to follow such advice; and (c) in discharging their duties, the Trustees, when
acting in good faith, shall be entitled to rely upon the books of account of the
Trust and upon written reports made to the Trustees by any officer appointed by
them, any independent public accountant, and (with respect to the subject matter
of the contract involved) any officer, partner or responsible employee of a
Contracting Party appointed by the Trustees pursuant to Section 3.3. The
Trustees as such shall not be required to give any bond or surety or any other
security for the performance of their duties.
Section 6.3 INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder
(or former Shareholder) of any Sub-Trust of the Trust shall be charged or held
to be personally liable for any obligation or liability of the Trust solely by
reason of being or having been a Shareholder and not because of such
Shareholder's acts or omissions or for some other reason, said Sub-Trust (upon
proper and timely request by the Shareholder) shall assume the defense against
such charge and satisfy any judgment thereon, and the Shareholder or former
Shareholder (or his heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets of said
Sub-Trust estate to be held harmless from and indemnified against all loss and
expense arising from such liability.
Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC.. The Trust
shall indemnify (from the assets of the Sub-Trust or Sub-Trusts in question)
each of its Trustees and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise [hereinafter
referred to as a "Covered Person"]) against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined, in one of the manners
described below, that such Covered Person (i) did not act in good faith in the
reasonable belief that such Covered Person's action was in or not opposed to the
best interests of the Trust or (ii) had acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office (either and both of the conduct
described in (i) and (ii) being referred to hereafter as "Disabling Conduct"). A
determination that the Covered Person is not entitled to indemnification due to
Disabling Conduct may be made by (i) a final decision on the merits by a court
or other body before whom the proceeding was brought that the person to be
indemnified was not liable by reason of Disabling Conduct, (ii) dismissal of a
court action or an administrative proceeding against a Covered Person for
insufficiency of evidence
<PAGE> 23
of Disabling Conduct, or (iii) a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by reason of Disabling Conduct
by (a) a vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Trust as defined in section 2(a)(19) of the 1940 Act nor parties
to the proceeding, or (b) an independent legal counsel in a written opinion.
Expenses, including accountants' and counsel fees so incurred by any such
Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time in advance
of the final disposition of any such action, suit or proceeding, provided that
the Covered Person shall have undertaken to repay the amounts so paid to the
Sub-Trust in question if it is ultimately determined that indemnification of
such expenses is not authorized under this Article VI and (i) the Covered Person
shall have provided security for such undertaking, (ii) the Trust shall be
insured against losses arising by reason or any lawful advances, or (iii) a
majority of a quorum of the disinterested Trustees who are not a party to the
proceeding, or an independent legal counsel in a written opinion, shall have
determined, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the Covered Party
ultimately will be found entitled to indemnification.
Section 6.5 COMPROMISE PAYMENT. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 6.4,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (a) by a majority of the disinterested
Trustees who are not a party to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant to clause (a) or
by independent legal counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in
or not opposed to the best interests of the Trust or to have been liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article VI shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall include such person's heirs, executors
and administrators, an "interested Covered Person" is one against whom the
action, suit or other proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or threatened.
Nothing contained in this article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of any such person.
Section 6.7 LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.
<PAGE> 24
ARTICLE VII
-----------
MISCELLANEOUS
-------------
Section 7.1 DURATION AND TERMINATION OF TRUST. Unless terminated as
provided herein, the Trust shall continue without limitation of time and,
without limiting the generality of the foregoing, no change, alteration or
modification with respect to any Sub-Trust or class thereof shall operate to
terminate the Trust. The Trust may be terminated at any time by a majority of
the Trustees then in office subject to a favorable vote of a majority of the
outstanding voting Shares, as defined in the 1940 Act, of each Sub-Trust voting
separately by Sub-Trust.
Upon termination, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated as may be
determined by the trustees, the Trust shall in accordance with such procedures
as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with the
provisions of subsection (d) of Section 4.2.
Section 7.2 REORGANIZATION. The Trustees may sell, convey, merge and
transfer the assets of the Trust, or the assets belonging to any one or more
Sub-Trusts, to another trust, partnership, association or corporation organized
under the laws of any state of the United States, or to the Trust to be held as
assets belonging to another Sub-Trust of the Trust, in exchange for cash, shares
or other securities (including, in the case of a transfer to another Sub-Trust
of the Trust, Shares of such other Sub-Trust or any class thereof) with such
transfer either (1) being made subject to, or with the assumption by the
transferee of, the liabilities belonging to each Sub-Trust the assets of which
are so transferred, or (2) not being made subject to, or not with the assumption
of, such liabilities; provided, however, that no assets belonging to any
particular Sub-Trust shall be so transferred unless the terms of such transfer
shall have first been approved at a meeting called for the purpose by the
affirmative vote of the holders of a majority of the outstanding voting Shares,
as defined in the 1940 Act, of that Sub-Trust. Following such transfer, the
trustees shall distribute such cash, shares or other securities (giving due
effect to the assets and liabilities belonging to and any other differences
among the various Sub-Trusts and classes the assets belonging to which have been
so transferred) among the Shareholders of the Sub-Trust the assets belonging to
which have been so transferred; and if all of the assets of the Trust have been
so transferred, the Trust shall be terminated.
The Trust, or any one or more Sub-Trusts, may, either as the successor,
survivor, or non-survivor, (1) consolidate with one or more other trusts,
partnerships, associations or corporations organized under the laws of the
Commonwealth of Massachusetts or any other state of the United States, to form a
new consolidated trust, partnership, association or corporation under the laws
of which any one of the constituent entities is organized, or (2) merge into one
or more other trusts, partnerships, associations or corporations organized under
the laws of the Commonwealth of Massachusetts or any other state of the United
States, or have one or more such trusts, partnerships, associations or
corporations merged into it, any such consolidation or merger to be upon such
terms and conditions as are specified in an agreement and plan of reorganization
entered into by the Trust, or one or more Sub-Trusts as the case may be, in
connection therewith. The terms "merge" or "merger" as used herein shall also
include the purchase or acquisition of any assets of any other trust,
<PAGE> 25
partnership, association or corporation which is an investment company organized
under the laws of the Commonwealth of Massachusetts or any other state of the
United States. Any such consolidation or merger shall require the affirmative
vote of the holders of a majority of the outstanding voting Shares, as defined
in the 1940 Act, of each Sub-Trust affected thereby.
Section 7.3 AMENDMENTS. All rights granted to the Shareholders under
this Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time, so long as such
amendment does not adversely affect the rights of any Shareholder with respect
to which such amendment is or purports to be applicable and so long as such
amendment is not in contravention of applicable law, including the 1940 Act, by
an instrument in writing signed by a majority of the then trustees (or by an
officer of the Trust pursuant to the vote of a majority of such Trustees). Any
amendment to this Declaration of Trust that adversely affects the rights of
Shareholders may be adopted at any time by an instrument in writing signed by a
majority of the then Trustees (or by an officer of the trust pursuant to a vote
of a majority of such Trustees) when authorized to do so by the vote in
accordance with subsection (e) of Section 4.2 of Shareholders holding a majority
of the Shares entitled to vote. Subject to the foregoing, any such amendment
shall be effective as provided in the instrument containing the terms of such
amendment or, if there is no provision therein with respect to effectiveness,
upon the execution of such instrument and of a certificate (which may be a part
of such instrument) executed by a Trustee or officer of the Trust to the effect
that such amendment has been duly adopted.
Section 7.4 FILING OF COPIES; REFERENCES; HEADINGS. The original or a
copy of this instrument and of each amendment hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Secretary of The Commonwealth of Massachusetts and with the Boston City Clerk,
as well as any other governmental office where such filing may from time to time
be required, but the failure to make any such filing shall not impair the
effectiveness of this instrument or any such amendment. Anyone dealing with the
Trust may rely on a certificate by an officer of the Trust as to whether or not
any such amendments have been made, as to the identities of the Trustees and
officers, and as to any matters in connection with the Trust hereunder; and,
with the same effect as if it were the original, may rely on a copy certified by
an officer of the Trust to be a copy of this instrument or of any such
amendments. In this instrument and in any such amendment, references to this
instrument, and all expressions like "herein", "hereof" and "hereunder" shall be
deemed to refer to this instrument as a whole as the same may be amended or
affected by any such amendments. The masculine gender shall include the feminine
and neuter genders. Headings are placed herein for convenience of reference only
and shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. This instrument may be executed in
any number of counterparts each of which shall be deemed an original.
Section 7.5 APPLICABLE LAW. This Agreement and Declaration of Trust is
created under and is to be governed by and construed and administered according
to the laws of the Commonwealth of Massachusetts, including the Massachusetts
Business Corporation Law as the same may be amended from time to time, to which
reference is made with the intention that matters not specifically covered
herein or as to which an ambiguity may exist shall be
<PAGE> 26
resolved as if the Trust were a business corporation organized in Massachusetts,
but the reference to said Business Corporation Law is not intended to give the
Trust, the Trustees, the Shareholders or any other person any right, power,
authority or responsibility available only to or in connection with an entity
organized in corporate form. The Trust shall be of the type referred to in
Section 1 of Chapter 182 of the Massachusetts General Laws and of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 7.6 RESIDENT AGENT. William B. King, Goodwin, Procter & Hoar,
Exchange Place, Boston, Massachusetts is hereby designated as the resident agent
of the Trust in Massachusetts. The Trustees may change the designated resident
agent in Massachusetts from time to time.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 17th day of February, 1999.
/s/ James S. Hamman, Jr
James S. Hamman, Jr.
Initial Trustee
6559 Fox Lane
Palos Heights, IL 60463
