<PAGE> 1
As filed with the Securities and Exchange Commission on April 26, 2000
Securities Act registration no. 333-72511
Investment Company Act file no. 811-09237
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 []
POST-EFFECTIVE AMENDMENT NO. 1 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 []
AMENDMENT NO. 3 [X]
- --------------------------------------------------------------------------------
CALAMOS ADVISORS TRUST
(formerly named 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)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b) of rule 485
- -----
on _________ pursuant to paragraph (b) of rule 485
- -----
60 days after filing pursuant to paragraph (a)(1) of rule 485
- -----
on _________ pursuant to paragraph (a)(1) of rule 485
- -----
75 days after filing pursuant to paragraph (a)(2) of rule 485
- -----
on _________ pursuant to paragraph (a)(2) of rule 485
- -----
on _________ pursuant to paragraph (a)(3) of rule 485
- -----
- --------------------------------------------------------------------------------
Amending Parts A, B and C and filing exhibits
- --------------------------------------------------------------------------------
<PAGE> 2
Calamos Advisors Trust Logo
CALAMOS(R) CONVERTIBLE PORTFOLIO
PROSPECTUS
MAY 1, 2000
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
<TABLE>
<S> <C>
Summary.......................... 3
Investment Objective........... 3
Principal Investment
Strategies.................. 3
Principal Risks of Investing in
the Portfolio............... 3
Investment Returns............. 4
Fees and Expenses.............. 4
How the Portfolio Invests........ 6
Management of the Portfolio...... 9
Shareholder Information.......... 10
Purchasing Shares.............. 10
Selling Shares................. 10
Valuing Shares................. 10
Other Information.............. 11
Distributions and Taxes.......... 11
Financial Highlights............. 12
For More Information............. 13
</TABLE>
PORTFOLIO INFORMATION
The Calamos(R) Convertible Portfolio (the "Portfolio") is a portfolio of
the Calamos Advisors 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").
The Portfolio's shares are not offered directly to the public.
2
<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 or principal payments
when due or its credit quality falls. The Portfolio's investment in junk
bonds entails a greater risk, including the risk of default, than an
investment in higher rated securities.
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:
-- Less available public information
-- Country risk, including economic and political instability
-- Higher transaction costs
-- Higher price volatility and less liquidity
-- Currency exchange rate fluctuation
3
<PAGE> 5
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.
FEES AND EXPENSES
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY
AND HOLD SHARES OF THE PORTFOLIO.
The Portfolio's shares can be purchased by Retirement Plans and by separate
accounts of Participating Insurance Companies offering Variable Contracts. The
Portfolio's shares are not offered directly to the public. The tables below do
not reflect the expenses charged at the separate account level. Please read the
Variable Contract prospectus to obtain that information.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases............ NONE
Maximum Deferred Sales Charge (Load)........................ NONE
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends................................................. NONE
Redemption Fee.............................................. NONE
</TABLE>
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)
<TABLE>
<S> <C>
Management Fees............................................. .75%
Distribution (12b-1) Fees................................... NONE
Other Expenses.............................................. 9.11%
Total Annual Portfolio Operating Expenses(1)................ 9.86%
Fee Waiver and/or Expense Reimbursement..................... 8.86%
Net Expenses................................................ 1.00%
</TABLE>
- -------------------------
(1) Pursuant to a written agreement, the investment manager has voluntarily
undertaken to waive fees and/or reimburse Portfolio expenses so that the
Total Annual Portfolio Operating Expenses are limited to 1.00% of the
Portfolio's average net assets. The fee waiver and/or reimbursement is
binding on the investment manager through May 31, 2001.
EXAMPLE: This example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds.
4
<PAGE> 6
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$102 $2,054 $3,822 $7,541
</TABLE>
5
<PAGE> 7
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.
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.
6
<PAGE> 8
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 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 that are
created by the investment manager 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.
RULE 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 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.
7
<PAGE> 9
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.
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
8
<PAGE> 10
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
that is created by the investment manager is composed of two or more separate
securities, each with its own market value, the value of such 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.
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
April 1, 2000, CAM managed approximately $5.5 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.
9
<PAGE> 11
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 daily 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.
Pursuant to a written agreement, CAM has voluntarily undertaken to limit
the annual ordinary operating expenses of shares of the Portfolio to 1.00% of
average daily net assets. This expense limitation is binding on CAM through May
31, 2001.
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.
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.
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 (NYSE)
(currently 4:00 p.m. Eastern time) each day that the NYSE is open. The NYSE is
regularly closed on New Year's Day, the third Monday in January and February,
Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving
and Christmas.
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
10
<PAGE> 12
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 NYSE. 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, and the NAV may change on days when
shareholders will not be able to buy or sell the Portfolio's shares.
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 the 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 Retirement Plans and 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.
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 net investment income and net realized 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.
11
<PAGE> 13
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.
FINANCIAL HIGHLIGHTS
The table below is intended to help you understand the Portfolio's
financial performance for the period shown below. Certain information reflects
financial results for a single Portfolio share. The Total Return figures show
what an investor in the Portfolio would have earned (or lost) if all
distributions had been reinvested. This information has been audited by Ernst &
Young LLP whose report, along with the Portfolio's financial statements, are
included in the Portfolio's annual report, which is available upon request.
CONVERTIBLE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAY 19, 1999
TO
DEC. 31, 1999
- ---------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income .09
Net realized and unrealized gain (loss) on investments 2.23
- ---------------------------------------------------------------------------
Total from investment operations 2.32
Less distributions:
Dividends from net investment income (.09)
Distributions paid from capital (.05)
- ---------------------------------------------------------------------------
Total distributions (.14)
Net asset value, end of period $12.18
Total return (a) 23.19%
Ratios and supplemental data:
Net assets, end of period (000) $2,542
Ratio of expenses to average net assets(b)(*) 1.00%
Ratio of net investment income to average net assets(*) 3.10%
- ---------------------------------------------------------------------------
Portfolio Turnover Rate(*) 31.65%
- ---------------------------------------------------------------------------
</TABLE>
(a) Total return is not annualized.
(b) After the reimbursement and waiver of expenses by the investment manager
equivalent to 8.86%(*) of average net assets.
* Annualized.
12
<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.
SHAREHOLDER REPORTS
Additional information about the Portfolio's investments is available in
the Portfolio's annual and semiannual reports to shareholders. The Portfolio's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Portfolio's performance for its most
recent fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information (SAI) provides more detailed
information about the Portfolio. The SAI, other than the Portfolio's financial
statements, 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 EDGAR Database on the Commission's Internet website at:
http://www.sec.gov, or for a fee by electronic request at the following E-mail
address: [email protected], or by calling or writing to:
Public Reference Section of the Commission
Washington, D.C. 20549-6009
Telephone: 1-202-942-8090
This prospectus is intended for use in connection with Variable Contacts or
Retirement Plans.
Investment Company Act file no. 811-09237
<PAGE> 15
STATEMENT OF ADDITIONAL INFORMATION MAY 1, 2000
CALAMOS(R) ADVISORS 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 Advisors
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
Page
----
The Trust and the Portfolio .........................................2
Investment Strategies and Risks......................................2
Investment Restrictions.............................................15
Management..........................................................17
Investment Advisory Services........................................19
Purchasing and Redeeming Shares.....................................20
Performance Information.............................................21
Distributor.........................................................23
Portfolio Transactions..............................................23
Taxation............................................................24
Certain Shareholders ..............................................25
Custodian ..........................................................25
Independent Auditors................................................25
Shareholder Information ............................................25
Financial Statements ...............................................26
Appendix--Description of Bond Ratings ..............................27
B-1
<PAGE> 16
THE TRUST AND THE PORTFOLIO
The Portfolio is a series of Calamos Advisors 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.
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.
B-2
<PAGE> 17
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 that
are created by the investment manager 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 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
B-3
<PAGE> 18
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
Depository Receipts (ADRs) or securities guaranteed by a United States person,
but may include foreign securities in the form of European Depository Receipts
(EDRs), Global Depository 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.
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.")
B-4
<PAGE> 19
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 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
B-5
<PAGE> 20
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
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.
B-6
<PAGE> 21
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.
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
B-7
<PAGE> 22
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.
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.
B-8
<PAGE> 23
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 index(1) at a specified price and time. A public market
exists in futures contracts covering a number of indexes (including, but not
limited to: the Standard & Poor's 500 Index, the Russell 2000 Index, the Value
Line Composite Index, and the New York Stock Exchange Composite Index) as well
as financial instruments (including, but not limited to: U.S. Treasury bonds,
U.S. Treasury notes, Eurodollar certificates of deposit and foreign currencies).
Other index and financial instrument futures contracts are available and it is
expected that additional futures contracts will be developed and traded.
The 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, 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.
- ----------
(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
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.
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
B-10
<PAGE> 25
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.
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
- --------
(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.
(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-11
<PAGE> 26
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.
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
B-12
<PAGE> 27
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
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
B-13
<PAGE> 28
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.
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.
B-14
<PAGE> 29
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;
(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;
B-15
<PAGE> 30
(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 as
permitted by the Investment Company Act of 1940;
(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;
(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
- ----------
(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
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.
<TABLE>
<CAPTION>
Name, Position(s) with Trust
and Age at March 31, 2000 Principal Occupation(s) During Past Five Years
- ---------------------------- ----------------------------------------------
<S> <C>
John P. Calamos (1) President, Calamos Asset Management, Inc. ("CAM"); President, Calamos
Trustee and President, 59 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, 38
Richard J. Dowen (2) Professor of Finance, Northern Illinois University.
Trustee, 55
Robert Frost (2) Management Consultant, ECOM Consultants, Inc.
Trustee, 60
William A. Kaun (2) Principal, W.A. Kaun Co. (investment adviser and publisher).
Trustee, 72
</TABLE>
B-17
<PAGE> 32
<TABLE>
<S> <C>
Rhowena Blank Vice President - Operations, CAM, since 1999; Director of Operations,
Treasurer, 31 Christian Brothers Investment Services, 1998 - 1999; Audit Manager,
Ernst & Young, LP, 1994 - 1998.
James S. Hamman, Jr. Senior Vice President and General Counsel, CAM, since 1998; Vice
Secretary, 30 President 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 for the fiscal year ended December 31,
1999. The information in the last column is for the 1999 calendar year.
Aggregate Total
Compensation Compensation
Name of Trustee from the Trust From Calamos Funds Complex
--------------- -------------- --------------------------
Richard J. Dowen $ 4,928 $ 12,000
Robert Frost $ 4,928 $ 12,000
William A. Kaun $ 4,928 $ 12,000
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.
Employees of CAM and CFS are permitted to make personal securities
transactions, including transactions in securities that the Portfolio may
purchase, sell or hold, subject to requirements and restrictions set forth in
the Code of Ethics of CAM and CFS. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment
B-18
<PAGE> 33
activities of CAM and CFS employees and the interests of investment advisory
clients such as the Portfolio. Among other things, the Code of Ethics prohibits
certain types of transactions absent prior approval, imposes time periods during
which personal transactions may not be made in certain securities, and requires
the submission of duplicate broker confirmations and statements and quarterly
reporting of securities transactions. Additional restrictions apply to portfolio
managers, traders, research analysts and others involved in the investment
advisory process. Exceptions to these and other provisions of the Code of Ethics
may be granted in particular circumstances after review by appropriate
personnel.
INVESTMENT ADVISORY SERVICES
Investment management and administrative services are provided to the
Portfolio by CAM pursuant to an Investment Management Agreement (the
"Agreement") dated May 1, 1999. The Trust pays CAM a fee accrued daily and paid
monthly at the annual rate of .75% of average daily net assets.
During the period shown below, the Portfolio paid total advisory fees
and was reimbursed by CAM for expenses in excess of the expense limitation as
follows:
May 19, 1999 to
December 31, 1999
-----------------
Calamos Convertible Portfolio
Advisory Fee $ 4,470
Waiver or Reimbursement $ (53,495)
Net Fee $ (49,025)
The Agreement will remain in effect with respect to the Portfolio until
August 1, 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) registration and qualification of the Portfolio and its shares
under federal and state 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.
Pursuant to a written agreement, the investment manager has voluntarily
undertaken to reimburse the Portfolio for any annual operating expenses in
excess of 1.00% of average daily net assets. This reimbursement is binding on
CAM through May 31, 2001.
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 not calculated. Therefore, such
calculation does not take place contemporaneously with the
B-20
<PAGE> 35
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)
The Portfolio's total return for the period May 19, 1999 through December 31,
1999 was 23.19%.
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)
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
B-21
<PAGE> 36
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.
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
B-22
<PAGE> 37
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 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
B-23
<PAGE> 38
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.
The Portfolio paid no brokerage commissions to CFS during the fiscal
year ended December 31, 1999. During the fiscal year ended December 31, 1999,
the Portfolio paid commissions of $ 229 to brokers who furnished research
services.
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.
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.
B-24
<PAGE> 39
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.
CERTAIN SHAREHOLDERS
As of March 31, 2000, Kansas City Life Insurance Company held 100% of
the shares of the Portfolio for the benefit of contract owners. As of March 31,
2000, 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-25
<PAGE> 40
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.
FINANCIAL STATEMENTS
Audited financial statements for the Portfolio for the fiscal year
ended December 31, 1999 are incorporated herein by reference from the Calamos
Advisors Trust's annual report to shareholders.
B-26
<PAGE> 41
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 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-27
<PAGE> 42
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-28
<PAGE> 43
PART C OTHER INFORMATION
ITEM 23. Exhibits
(a)(1) Amended and Restated Agreement and Declaration of Trust*
(a)(2) Amendment dated April 19, 1999 to Amended and Restated Agreement and
Declaration of Trust***
(b) Bylaws**
(c) See Articles IV and V of Exhibit (a), above.
(d) Form of Management agreement with Calamos Asset Management, Inc.**
(e) Form of Distribution agreement with Calamos Financial Services, Inc. **
(f) None
(g) Form of Custody agreement with Bank of New York **
(h)(1) Form of Investment company services agreement with First Data Corp.
Investor Services Group **
(h)(2) Use of name agreement dated May 1,1999**
(i) None
(j) Consent of independent auditors
(k) None
(l) Subscription agreement**
(m) None
(n) None
(o) None
(p) Code of Ethics
* Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on February 17, 1999.
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed on March 26, 1999.
*** Incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A filed on April 23, 1999.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
As of March 31, 2000, 100% of Registrant's shares are owned by 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> 44
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> 45
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.
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- --------------------- ---------------------
John P. Calamos Director, President President
Nick P. Calamos Vice President Vice President
John P. Calamos, Jr. Vice President None
Joseph Lopykinski Treasurer None
James S. Hamman, Jr. Secretary 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> 46
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the registrant certifies that it meets all of the
requirements for effectiveness of this registration statement under Rule 485(b)
under the Securities Act and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Naperville, Illinois on April 26, 2000.
CALAMOS ADVISORS TRUST
By /s/ John P. Calamos
-----------------------------
John P. Calamos
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the registration statement has been signed below on April 26, 2000 by the
following persons in the capacities and indicated.
Name Title
---- -----
/s/ John P. Calamos Trustee and President (principal
- ------------------- executive officer)
John P. Calamos
/s/ Nick P. Calamos Trustee
- ----------------------
Nick P. Calamos
Richard J. Dowen* Trustee
- ----------------------
Richard J. Dowen
Robert Frost* Trustee
- ----------------------
Robert Frost
William Kaun* Trustee
- ----------------------
William Kaun
*James S. Hamman, Jr. signs this document pursuant to powers of attorney filed
as exhibits to Pre-Effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A filed on April 23, 1999.
/s/ James S. Hamman, Jr.
------------------------
James S. Hamman, Jr.
<PAGE> 47
EXHIBIT INDEX
(j) Consent of independent auditors
(p) Code of Ethics
<PAGE> 1
EXHIBIT J
CONSENT OF INDEPENDENT AUDITORS
We consent the reference to our firm under the captions "Financial Highlights"
and "Independent Auditors" and to the use of our report on Calamos Advisors
Trust - Calamos Convertible Portfolio dated February 16, 2000 in the
Registration Statement (Form N-1A) and its incorporation by reference in the
related Prospectus and Statement of Additional Information of Calamos Advisors
Trust, filed with the Securities and Exchange Commission in this Post-Effective
Amendment No. 1 to the Registration Statement under the Securities Act of 1933
(Registration No. 333-72511) and in this Amendment No. 3 to the Registration
Statement under the Investment Company Act of 1940 (Registration No. 811-09237).
ERNST & YOUNG LLP
Chicago, Illinois
April 26, 2000
<PAGE> 1
EX-P
CALAMOS ASSET MANAGEMENT, INC.
CALAMOS FINANCIAL SERVICES, INC.
CALAMOS INVESTMENT TRUST
CALAMOS ADVISORS TRUST
CODE OF ETHICS
ADOPTED MARCH 16, 2000
The philosophy of Calamos Asset Management, Inc. (CAM) and Calamos
Financial Services, Inc. (CFS) is to avoid any conflict of interest, or the
appearance of any conflict of interest, between the investment activities of any
investment client of CAM, including Calamos Investment Trust and Calamos
Advisors Trust (collectively referred to as "Clients") and the personal
investment transactions of the directors, officers and employees of CAM and CFS.
This Code of Ethics establishes standards and procedures for the
detection and prevention of certain conflicts of interest, including activities
by which persons having knowledge of the investments and investment intentions
of Clients might take advantage of that knowledge for their own benefit.
Implementation and monitoring of those standards inevitably places some
restrictions on the freedom of the investment activities of those people.
This Code of Ethics has been adopted by CAM, CFS, Calamos Investment
Trust and Calamos Advisors Trust (each of Calamos Investment Trust and Calamos
Advisors Trust being referred to herein as a "Trust") to meet those concerns and
the legal requirements imposed by, among other things, Rule 17j-1 under the
Investment Company Act of 1940. A copy of Rule 17j-1 is attached as Appendix A.
Any questions about the Code or about the applicability of the Code to a
personal securities transaction should be directed to the Chief Compliance
Officer or, in his or her absence, the President of CAM.
I. STATEMENT OF PRINCIPLE
GENERAL PROHIBITIONS. The Investment Company Act and rules thereunder
make it illegal for any person covered by the Code, directly or indirectly, in
connection with the purchase or sale of a security held or to be acquired by a
Trust, to:
A. employ any device, scheme or artifice to defraud a Trust;
B. make to a Trust any untrue statement of a material fact or
omit to state to the Trust a material fact necessary in order
to make the statements made, in light of circumstances under
which they are made, not misleading;
<PAGE> 2
C. engage in any act, practice or course of business that
operates or would operate as a fraud or deceit upon a Trust;
or
D. engage in any manipulative practice with respect to a Trust.
Similarly, CAM and each person covered by the Code owe a duty of
loyalty to all the accounts served by CAM. As such, they have a duty to place
the interests of their respective Clients and shareholders of a Trust ahead of
their own interests. In furtherance of this basic principle, all persons covered
by the Code (i) must adhere to the Code of Ethics to avoid actual or potential
conflicts of interest or abuse of such person's position of trust and
responsibility and (ii) not take inappropriate advantage of their position.
PERSONAL SECURITIES TRANSACTIONS. This Code regulates personal
securities transactions as a part of the effort by CAM, CFS and the Trusts, to
detect and prevent conduct that might violate the general prohibitions outlined
above. A PERSONAL SECURITIES TRANSACTION is a transaction in a SECURITY in which
the person subject to this Code has a BENEFICIAL INTEREST.
- SECURITY is interpreted very broadly for this purpose, and
includes notes, stocks, bonds, debentures, investment
contracts, limited partnership interests, and any right to
acquire any security (an option or warrant or convertible
security, for example).
- You have a BENEFICIAL INTEREST in a security that you own
individually, jointly, or as a guardian, executor or trustee,
or in which you or your spouse or minor children or other
dependents living in your household, have an interest.
"Beneficial interest" is defined in Rule 16a-1(a)(2) under the
Securities Exchange Act of 1934. A copy of Rule 16a-1(a), is
attached as Appendix B and examples of beneficial interest are
attached as Appendix C.
In any situation where the potential for conflict exists, transactions
for a Client must take precedence over any personal transaction. The people
subject to this Code owe a duty to their Clients to conduct their personal
securities transactions in a manner that does not interfere with the portfolio
transactions of the Client, otherwise take inappropriate advantage of their
relationship to the Client or create any actual or potential conflict of
interest between their interests and the interests of the Client.
Situations not specifically governed by this Code of Ethics will be
resolved in light of this general principle.
II. HOW THE CODE'S RESTRICTIONS APPLY
The restrictions on personal securities transactions in Section III and
the compliance procedures in Section VII differentiate among groups of people
based on
2
<PAGE> 3
their positions and responsibilities with CAM, CFS and the Trust. The groups
are: INVESTMENT PERSONS, ACCESS PERSONS and OUTSIDE TRUSTEES.
A. INVESTMENT PERSONS are those who make, or participate in
making, investment decisions or recommendations for Clients,
or who, in connection with their regular functions or duties
with CAM or CFS, make, participate in, or obtain information
regarding the purchase or sale of securities by a Client.
Investment Persons are:
- each CAM portfolio manager;
- each analyst working for CAM;
- support staff of CAM working directly with portfolio
managers and analysts;
- each trader of CAM; and
- CFS and CAM.
B. ACCESS PERSONS are those directors, officers and employees of
CAM, CFS or a trust who are not Investment Persons or Outside
Trustees.
C. OUTSIDE TRUSTEES are those trustees of a Trust who are not
"interested persons" of a Trust.
III. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS
A. NO TRANSACTIONS WITH CLIENTS. No INVESTMENT PERSON, ACCESS
PERSON or OUTSIDE TRUSTEE shall knowingly sell to or purchase
from a Client any security or other property except securities
issued by that Client.
B. NO CONFLICTING TRANSACTIONS. No INVESTMENT PERSON, ACCESS
PERSON or OUTSIDE TRUSTEE shall purchase or sell for his or
her own personal account and benefit, or for the account and
benefit of any relative, any security that the person knows or
has reason to believe is being purchased or sold or considered
for purchase or sale by a Client, until the Client's
transactions have been completed or consideration of such
transactions has been abandoned.
NOTE: RESTRICTIONS C THROUGH F BELOW DO NOT APPLY TO THE
OUTSIDE TRUSTEES.
C. INITIAL PUBLIC OFFERINGS. No INVESTMENT PERSON or ACCESS
PERSON shall acquire any security in an initial public
offering.
3
<PAGE> 4
D. PRIVATE PLACEMENTS. No INVESTMENT PERSON or ACCESS PERSON
shall acquire any security in a private placement without the
express written prior approval of the President or Managing
Director of CAM. In deciding whether that approval should be
granted, consideration will be given to whether the investment
opportunity should be reserved for Clients and whether the
opportunity has been offered because of the person's
relationship with CAM or its Clients. An INVESTMENT PERSON who
has been authorized to acquire a security in a private
placement must disclose that investment if he or she later
participates in consideration of an investment in that issuer
for a Client's account. Any investment decision for the Client
relating to that security must be made by other Investment
Persons.
E. SHORT-TERM TRADING. No INVESTMENT PERSON may profit from the
purchase and sale, or sale and purchase, of the same (or
equivalent) securities within 60 days if the same (or
equivalent) securities have been held by a Client during such
60-day period. Any profit so realized will be required to be
donated to a charitable organization selected by CAM.
IV. GIFTS
Receipt by an INVESTMENT PERSON or ACCESS PERSON of a gift of
substantial value (more than $100), a cash payment in any amount, a preferred
personal investment opportunity, or other thing of more than de minimis value
from any person or entity that does business, or is seeking to do business, with
or on behalf of a Client, CAM or CFS, including a broker-dealer or security
issuer, poses a potential conflict of interest and is prohibited.
It is not the intent of this Code to prohibit the ordinary courtesies
of business life, such as token gifts or modest entertainment incidental to a
business relationship.
V. SERVICE AS A DIRECTOR
No INVESTMENT PERSON or ACCESS PERSON may serve as a member of the
board of directors or trustees of any publicly-held company without the prior
written approval of the President or the Chief Compliance Officer, based on a
determination that the board service would not be inconsistent with the
interests of the Clients of CAM. If an Investment Person is serving as a board
member, that Investment Person shall not participate in making investment
decisions relating to the securities of the company on whose board he or she
sits.
VI. INSIDE INFORMATION
Securities laws and regulations prohibit the misuse of "inside"
material non-public information regarding an issuer when trading or recommending
securities of that issuer.
4
<PAGE> 5
Inside information obtained by any ACCESS PERSON or an INVESTMENT
PERSON from any source must be kept strictly confidential. All inside
information should be kept completely secure, and access to files and computer
files containing such information should be restricted. ACCESS PERSONS and
INVESTMENT PERSONS shall not act upon or disclose inside information and shall
report the information and any proposed trade in the issuer to whom the
information relates immediately to the Chief Compliance Officer. After the Chief
Compliance Officer has reviewed the issue, CAM will determine whether any
trading restrictions apply and what action, if any, the firm should take.
Inside information may include, but is not limited to, knowledge of
pending orders or research recommendations, corporate finance activity, mergers
and acquisitions, and other material non-public information that could affect
the price of a security. Trading during a tender offer represents a particular
concern in the law of insider trading. ACCESS PERSONS and INVESTMENT PERSONS
should exercise particular caution any time they become aware of non-public
information relating to a tender offer.
Client and Client account information is also confidential and must not
be discussed with any individual whose responsibilities do not require knowledge
of such information.
All questions and requests for assistance regarding confidential or
inside information should be promptly directed to the Chief Compliance Officer.
VII. COMPLIANCE PROCEDURES
A. BLACKOUT PERIODS. [See pre-clearance requirements in Section
VII. E. below] No personal securities transaction in which an
INVESTMENT PERSON or an ACCESS PERSON has a beneficial
interest shall be executed if a Client (1) has a conflicting
order pending or (2) is actively considering a purchase or
sale of the same security. A conflicting order is any order
for the same security, or an option on that order, that has
not been fully executed. A purchase of a security is being
"actively considered" (a) when a recommendation to purchase or
sell has been made for the Client and is pending or (b) with
respect to the person making the recommendation, when that
person is seriously considering making the recommendation.
Absent extraordinary circumstances, a personal securities
transaction shall not be executed until the fifth business day
after completion of any transaction for a Client.
B. DISCLOSURE OF PERSONAL HOLDINGS. Each INVESTMENT PERSON and
ACCESS PERSON shall disclose to the Chief Compliance Officer
securities holdings in which he or she has a beneficial
interest (not including shares of open-end investment
companies (mutual funds), direct obligations of the U. S.
government (U.S. treasury bills, notes and bonds), and money
5
<PAGE> 6
market instruments, including bank certificates of deposit,
bankers' acceptances, commercial paper and repurchase
agreements) no later than ten days after commencement of
employment with CAM or CFS (or upon the adoption of this Code)
and annually thereafter as of December 31 of each year. Annual
reports shall be delivered to the Chief Compliance Officer no
later than January 30 of the following year. The initial
holdings and annual holdings reports shall contain the
following information:
- title and number of shares, or principal amount, interest
rate and maturity date (if applicable), of each security
held beneficially;
- the name of any broker, dealer, bank or custodian with or
through which an account is maintained in which the
person has a beneficial interest; and
- the date the report is submitted.
C. REPORTING PERSONAL SECURITIES TRANSACTIONS.
1. An OUTSIDE TRUSTEE shall report in writing to the
Chief Compliance Officer, within ten days after the
end of the calendar quarter in which a transaction
occurred, any personal transaction in a security that
the Outside Trustee, at the time of the transaction,
knew, or in the ordinary course of fulfilling his or
her duties as a trustee should have known, that on
the day of the transaction or within 15 days before
or after that day a purchase or sale of that security
was made by or considered for the Trust.
2. Each ACCESS PERSON and INVESTMENT PERSON shall (i)
identify to CAM and CFS any brokerage or other
account in which he or she has a beneficial interest
and (ii) instruct the broker or custodian to deliver
to CAM's Chief Compliance Officer duplicate
confirmations of all transactions and duplicate
monthly statements.
3. Each ACCESS PERSON and INVESTMENT PERSON shall report
all personal securities transactions during a quarter
to the Chief Compliance Officer no later than ten
days after the end of the quarter. Quarterly
transaction reports shall include the following
information:
For each transaction:
- the date of the transaction;
6
<PAGE> 7
- title and number of shares or principal amount,
interest rate and maturity date (if applicable) of
each security involved;
- the nature of the transaction (i.e., purchase,
sale, gift, or other type of acquisition or
disposition);
- the price at which the transaction was effected;
- the name of the broker, dealer or bank with or
through which the transaction was effected; and
- the date the report is submitted.
In addition, for each account established during the
month in which securities are held for the benefit of
an Investment Person or Access Person, the quarterly
report shall include:
- the name of the broker, dealer or bank with whom
the account was established;
- the date the account was established; and
- the date the report is submitted.
4. For INVESTMENT PERSONS and ACCESS PERSONS who choose
to execute all personal securities transactions
through CFS, CFS will provide to CAM's Chief
Compliance Officer information about transactions in
the accounts of persons subject to this Code who have
accounts with CFS.
5. Reports relating to the personal securities
transactions of the Chief Compliance Officer shall be
delivered to the President of CAM.
D. FORM OF REPORTS. Reports of personal securities transactions
may be in any form (including copies of confirmations or
monthly statements) but must include the information required
by Section VII.C.3.
E. PRE-CLEARANCE OF PERSONAL SECURITIES TRANSACTIONS. No
INVESTMENT PERSON or ACCESS PERSON shall engage in a personal
securities transaction unless the transaction shall have been
approved in advance by any one of the President, the Managing
Director, Research and Portfolio Management, or the Chief
Compliance Officer of CAM, none of whom may approve his or her
own transactions. In addition, the personal securities
transactions of the President and Managing Director, Research
and Portfolio Management must be approved in advance by the
Chief Compliance Officer. Each approval shall be in writing
and shall be
7
<PAGE> 8
forwarded to Compliance to be filed in the employee's trading
files and retained for a period of three years.
If preclearance is granted, the individual must execute his or
her trade within the period of time indicated by the approving
person on the preclearance form, which period of time shall
not exceed one business day from the day on which preclearance
is granted. (Limit orders, which have been precleared and
placed within this time limit, need not be precleared on
subsequent days so long as the terms of the order have not
changed.)
F. MONITORING OF TRANSACTIONS. CAM's Chief Compliance Officer
will monitor the trading patterns of Investment Persons and
Access Persons.
G. CERTIFICATION OF COMPLIANCE. Each Investment Person and Access
Person is required to certify annually that (i) he or she has
read and understands the Code, (ii) recognizes that he or she
is subject to the Code, and (iii) he or she has disclosed or
reported all personal securities transactions required to be
disclosed or reported under the Code. The Chief Compliance
Officer shall annually distribute a copy of the Code and
request certification by all covered persons and shall be
responsible for ensuring that all personnel comply with the
certification requirement.
Each Investment Person and Access Person who has not engaged
in any Personal Securities Transaction during the preceding
year for which a report was required to be filed pursuant to
the Code shall include a certification to that effect in his
or her annual certification.
H. REPORT TO TRUSTS' BOARD. The officers of each Trust shall
prepare an annual report to the board of each Trust that:
- summarizes existing procedures concerning personal
investing and any changes in those procedures during the
past year;
- describes issues that arose during the previous year
under the Code or procedures concerning personal
investing, including but not limited to information about
material violations of the Code and sanctions imposed;
- certifies to the board that the Trust has adopted
procedures reasonably necessary to prevent its Investment
Persons and Access Persons from violating the Code; and
- identifies any recommended changes in existing
restrictions or procedures based upon experience under
the Code, evolving industry practices, or developments in
applicable laws or regulations.
8
<PAGE> 9
VIII. EXEMPT TRANSACTIONS
(a) The provisions of this Code are intended to restrict the personal
investment activities of persons subject to the Code only to the extent
necessary to accomplish the purposes of the Code. Therefore, the provisions of
Sections III and VII of this Code shall not apply to:
A. Purchases or sales effected in any account over which the
persons subject to this Code have no direct or indirect
influence or control;
B. Purchases or sales of:
1. U.S. government securities;
2. shares of open-end investment companies (mutual
funds, including money market funds), including but
not limited to shares of any Trust portfolio; and
3. bank certificates of deposit or commercial paper.
C. Purchases or sales that are non-volitional on the part of
either the person subject to this Code or the Client;
D. Purchases that are part of an automatic dividend reinvestment
plan; and
Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of securities to the
extent such rights were acquired from such issuer, and sales
of such rights so acquired.
(b) Discretionary Accounts of Outside Trustees
Purchases and sales of securities in an account in which an Outside Trustee has
a beneficial interest shall not be subject to the prohibitions of Section VII if
the account is managed by someone other than the Outside Trustee and the Outside
Trustee did not have knowledge of the transactions until after they had been
executed, provided the Outside Trustee has previously identified the account to
CAM's Chief Compliance officer.
(c) De Minimis Exception. Purchases or sales in an amount less than
$10,000 in a security that has a market capitalization of at least $5 billion
are exempt from the prohibitions of Section III. and Section VII.A. of this
Code, and are exempt from the pre-clearance requirements of Section VII.E.
(However, please note that trades falling within this de minimis exception must
be reported pursuant to Sections VII.B., VII.C. and VII.D. of this code).
(d) Under unusual circumstances, such as a personal financial
emergency, employee stock ownership plans, stock option plans and certain
personal trusts, or
9
<PAGE> 10
when it is determined that no conflict of interest or other breach of duty is
involved, application for an exemption to make a transaction may be made to the
Chief Compliance Officer, which application may be denied or granted. To request
consideration of an exemption, submit a written request containing details on
your circumstances, reasons for the exception and exception requested. The Chief
Compliance Officer may, in unusual circumstances, approve exceptions from the
Code of Ethics applicable to an individual, based on the unique circumstances of
such individual and based on a determination that the exceptions can be granted
(i) consistent with the individual's fiduciary obligations to Clients and (ii)
pursuant to procedures that are reasonably designed to avoid a conflict of
interest for the individual. Any such exceptions shall be subject to such
additional procedures, reviews and reporting as determined appropriate by the
Chief Compliance Officer in connection with granting such exception. Any such
exceptions will be reported to the Board of Directors of CAM at the meeting of
the Board of Directors immediately following the grant of such exception, and
such Board of Directors shall have the power to revoke or modify any such
exceptions prospectively.
IX. CONSEQUENCES OF FAILURE TO COMPLY WITH THE CODE
Compliance with this Code of Ethics is a condition of employment of CAM
and CFS and retention of positions with the Trusts. Taking into consideration
all relevant circumstances, management of CAM will determine what action is
appropriate for any breach of the provisions of the Code by an Investment Person
or Access Person. Possible actions include letters of sanction, suspension or
termination of employment or removal from office.
The board of a Trust will determine what action is appropriate for any
breach of the provisions of the Code by an Outside Trustee of the Trust, which
may include removal from the board.
Reports filed pursuant to the Code will be maintained in confidence but
will be reviewed by CAM, CFS or the Trust in order to verify compliance with the
Code. Additional information may be required to clarify the nature of particular
transactions.
X. RETENTION OF RECORDS
The Secretary of CAM shall maintain the records listed below for a
period of five years at CAM's principal place of business in an easily
accessible place:
A. a list of all persons subject to the Code during the period;
B. receipts signed by all persons subject to the Code
acknowledging receipt of copies of the Code and acknowledging
that they are subject to it;
C. a copy of each code of ethics that has been in effect at any
time during the period;
10
<PAGE> 11
D. a copy of each report filed pursuant to this Code and a record
of any known violation and action taken as a result thereof
during the period; and
E. records evidencing prior approval of, and the rational
supporting, an acquisition by an Investment Person or an
Access Person of securities in a private placement.
11
<PAGE> 12
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
FOR EMPLOYEES AND OFFICERS OF
CALAMOS ASSET MANAGEMENT, INC.,
CALAMOS FINANCIAL SERVICES, INC.,
CALAMOS INVESTMENT TRUST AND
CALAMOS ADVISORS TRUST
CODE OF ETHICS. Calamos Asset Management, Inc. ("CAM"), Calamos
Financial Services, Inc. ("CFS") and Calamos Investment Trust and Calamos
Advisors Trust (each, a "Trust") have adopted a written Code of Ethics (the
"Code") to avoid potential conflicts of interest by their personnel. A copy of
the Code is attached to this letter. As a condition of your continued employment
with CAM or CFS or the retention of your position, if any, as an officer of a
Trust, you are required to read, understand and abide by the Code.
COMPLIANCE PROGRAM. The Code requires that all personnel furnish to the
Chief Compliance Officer information regarding any investment account in which
you have a "beneficial interest." You are also required to furnish to the Chief
Compliance Officer copies of your monthly or quarterly account statements, or
other documents, showing all purchases or sales of Securities in any such
account, or which are effected by you or for your benefit, or the benefit of any
member of your household. Additionally, you are required to furnish a report of
your personal Securities holdings within 10 days of commencement of your
employment with CAM or CFS and annually thereafter. These requirements apply to
any investment account, such as an account at a brokerage house, trust account
at a bank, custodial account or similar types of accounts.
This compliance program also requires that you report any contact with
any Securities issuer, government or its personnel, or others, that, in the
usual course of business, might involve inside or material non-public
information. You must bring to the attention of the Chief Compliance Officer any
information you receive from any source which might be insider or material
non-public information.
Any questions concerning the Code should be directed to the Chief
Compliance Officer.
- --------------------------------------------------------------------------------
I affirm that I have read and understand the Code. I agree to the terms
and conditions set forth in the Code.
- --------------------------------------------------------------------------------
Signature Date
<PAGE> 13
ANNUAL AFFIRMATION OF COMPLIANCE
FOR EMPLOYEES AND OFFICERS OF
CALAMOS ASSET MANAGEMENT, INC.,
CALAMOS FINANCIAL SERVICES, INC.,
CALAMOS INVESTMENT TRUST AND
CALAMOS ADVISORS TRUST
I affirm that:
1. I have again read and, during the past year to the best of my
knowledge, have complied with the Code of Ethics ("Code").
2. I have provided to the Chief Compliance Officer the names and
addresses of each investment account that I had with any firm,
including, but not limited to, broker-dealers, banks and
others. (List of known accounts attached.)
3. I have provided to the Chief Compliance Officer copies of
account statements or other reports showing each and every
transaction in any security in which I have a beneficial
interest, as defined in the Code, during the most recently
ended calendar year;
or
During the most recent calendar year there were no
transactions in any security in which I had a beneficial
interest required to be reported pursuant to the Code.
4. I have provided to the Chief Compliance Officer a report of
securities holdings in which I had a beneficial interest as of
the end of the most recent calendar year, including all
required information for each security in which I have any
direct or indirect beneficial ownership.
- -------------------------------- ---------------------
Signature Date
<PAGE> 14
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
FOR OUTSIDE TRUSTEES OF
CALAMOS INVESTMENT TRUST AND CALAMOS ADVISORS TRUST
CODE OF ETHICS. Calamos Asset Management, Inc. ("CAM"), Calamos
Financial Services, Inc. ("CFS") and Calamos Investment Trust and Calamos
Advisors Trust (each, a "Trust") have adopted a written Code of Ethics (the
"Code") to avoid potential conflicts of interest by the outside trustees of each
Trust and personnel of CAM and CFS. A copy of the Code is attached to this
letter. As a condition of the retention of your position as a trustee, you are
required to read, understand and abide by the Code.
Any questions concerning the Code should be directed to the Chief
Compliance Officer.
- --------------------------------------------------------------------------------
I affirm that I have read and understand the Code of Ethics ("Code"). I
agree to the terms and conditions set forth in the Code.
- --------------------------------------------------------------------------------
Signature Date
<PAGE> 15
APPENDIX A
SS. 270.17J-1 PERSONAL INVESTMENT ACTIVITIES OF INVESTMENT COMPANY PERSONNEL.
(a) Definitions. For purposes of this section:
(1) Access Person means:
(i) Any director, officer, general partner or Advisory
Person of a Fund or of a Fund's investment adviser.
(A) If an investment adviser is primarily
engaged in a business or businesses other
than advising Funds or other advisory
clients, the term Access Person means any
director, officer, general partner or
Advisory Person of the investment adviser
who, with respect to any Fund, makes any
recommendation, participates in the
determination of which recommendation will
be made, or whose principal function or
duties relate to the determination of which
recommendation will be made, or who, in
connection with his or her duties, obtains
any information concerning recommendations
on Covered Securities being made by the
investment adviser to any Fund.
(B) An investment adviser is "primarily engaged
in a business or businesses other than
advising Funds or other advisory clients"
if, for each of its most recent three fiscal
years or for the period of time since its
organization, whichever is less, the
investment adviser derived, on an
unconsolidated basis, more than 50 percent
of its total sales and revenues and more
than 50 percent of its income (or loss),
before income taxes and extraordinary items,
from the other business or businesses.
(ii) Any director, officer or general partner of a
principal underwriter who, in the ordinary course of
business, makes, participates in or obtains
information regarding, the purchase or sale of
Covered Securities by the Fund for which the
principal underwriter acts, or whose functions or
duties in the ordinary course of business relate to
the making of any recommendation to the Fund
regarding the purchase or sale of Covered Securities.
(2) Advisory Person of a Fund or of a Fund's investment adviser
means:
(i) Any employee of the Fund or investment adviser (or of
any company in a control relationship to the Fund or
investment adviser) who, in connection with his or
her regular functions or duties, makes, participates
in, or obtains information regarding the purchase or
sale of Covered Securities by a Fund, or whose
functions relate to the making of any recommendations
with respect to the purchases or sales; and
(ii) Any natural person in a control relationship to the
Fund or investment adviser who obtains information
concerning recommendations made to the Fund with
regard to the purchase or sale of Covered Securities
by the Fund.
(3) Control has the same meaning as in section 2(a)(9) of the Act
[15 U.S.C. 80a-2(a)(9)].
(4) Covered Security means a security as defined in section
2(a)(36) of the Act [15 U.S.C. 80a-2(a)(36)], except that it
does not include:
<PAGE> 16
APPENDIX A
(i) Direct obligations of the Government of the United
States;
(ii) Bankers' acceptances, bank certificates of deposit,
commercial paper and high quality short-term debt
instruments, including repurchase agreements; and
(iii) Shares issued by open-end Funds.
(5) Fund means an investment company registered under the
Investment Company Act.
(6) An Initial Public Offering means an offering of securities
registered under the Securities Act of 1933 [15 U.S.C. 77a],
the issuer of which, immediately before the registration, was
not subject to the reporting requirements of sections 13 or
15(d) of the Securities Exchange Act of 1934 [15 U.S.C. 78m or
78o(d)].
(7) Investment Personnel of a Fund or of a Fund's investment
adviser means:
(i) Any employee of the Fund or investment adviser (or of
any company in a control relationship to the Fund or
investment adviser) who, in connection with his or
her regular functions or duties, makes or
participates in making recommendations regarding the
purchase or sale of securities by the Fund.
(ii) Any natural person who controls the Fund or
investment adviser and who obtains information
concerning recommendations made to the Fund regarding
the purchase or sale of securities by the Fund.
(8) A Limited Offering means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to
section 4(2) or section 4(6) [15 U.S.C. 77d(2) or 77d(6)] or
pursuant to rule 504, rule 505, or rule 506 [17 CFR 230.504,
230.505, or 230.506] under the Securities Act of 1933.
(9) Purchase or sale of a Covered Security includes, among other
things, the writing of an option to purchase or sell a Covered
Security.
(10) Security Held or to be Acquired by a Fund means:
(i) Any Covered Security which, within the most recent 15
days:
(A) Is or has been held by the Fund; or
(B) Is being or has been considered by the Fund
or its investment adviser for purchase by
the Fund; and
(ii) Any option to purchase or sell, and any security
convertible into or exchangeable for, a Covered
Security described in paragraph (a)(10)(i) of this
section.
(b) Unlawful Actions. It is unlawful for any affiliated person of or
principal underwriter for a Fund, or any affiliated person of an
investment adviser of or principal underwriter for a Fund, in
connection with the purchase or sale, directly or indirectly, by the
person of a Security Held or to be Acquired by the Fund:
(1) To employ any device, scheme or artifice to defraud the Fund;
<PAGE> 17
APPENDIX A
(2) To make any untrue statement of a material fact to the Fund or
omit to state a material fact necessary in order to make the
statements made to the Fund, in light of the circumstances
under which they are made, not misleading;
(3) To engage in any act, practice or course of business that
operates or would operate as a fraud or deceit on the Fund; or
(4) To engage in any manipulative practice with respect to the
Fund.
(c) Code of Ethics.
(1) Adoption and Approval of Code of Ethics.
(i) Every Fund (other than a money market fund or a Fund
that does not invest in Covered Securities) and each
investment adviser of and principal underwriter for
the Fund, must adopt a written code of ethics
containing provisions reasonably necessary to prevent
its Access Persons from engaging in any conduct
prohibited by paragraph (b) of this section.
(ii) The board of directors of a Fund, including a
majority of directors who are not interested persons,
must approve the code of ethics of the Fund, the code
of ethics of each investment adviser and principal
underwriter of the Fund, and any material changes to
these codes. The board must base its approval of a
code and any material changes to the code on a
determination that the code contains provisions
reasonably necessary to prevent Access Persons from
engaging in any conduct prohibited by paragraph (b)
of this section. Before approving a code of a Fund,
investment adviser or principal underwriter or any
amendment to the code, the board of directors must
receive a certification from the Fund, investment
adviser or principal underwriter that it has adopted
procedures reasonably necessary to prevent Access
Persons from violating the investment adviser's or
principal underwriter's code of ethics. The Fund's
board must approve the code of an investment adviser
or principal underwriter before initially retaining
the services of the investment adviser or principal
underwriter. The Fund's board must approve a material
change to a code no later than six months after
adoption of the material change.
(iii) If a Fund is a unit investment trust, the Fund's
principal underwriter or depositor must approve the
Fund's code of ethics, as required by paragraph
(c)(1)(ii) of this section. If the Fund has more than
one principal underwriter or depositor, the principal
underwriters and depositors may designate, in
writing, which principal underwriter or depositor
must conduct the approval required by paragraph
(c)(1)(ii) of this section, if they obtain written
consent from the designated principal underwriter or
depositor.
(2) Administration of Code of Ethics.
(i) The Fund, investment adviser and principal
underwriter must use reasonable diligence and
institute procedures reasonably necessary to prevent
violations of its code of ethics.
(ii) No less frequently than annually, every Fund (other
than a unit investment trust) and its investment
advisers and principal underwriters must furnish to
the Fund's board of directors, and the board of
directors must consider, a written report that:
<PAGE> 18
APPENDIX A
(A) Describes any issues arising under the code
of ethics or procedures since the last
report to the board of directors, including,
but not limited to, information about
material violations of the code or
procedures and sanctions imposed in response
to the material violations; and
(B) Certifies that the Fund, investment adviser
or principal underwriter, as applicable, has
adopted procedures reasonably necessary to
prevent Access Persons from violating the
code.
(3) Exception for Principal Underwriters. The requirements of
paragraphs (c)(1) and (c)(2) of this section do not apply to
any principal underwriter unless:
(i) The principal underwriter is an affiliated person of
the Fund or of the Fund's investment adviser; or
(ii) An officer, director or general partner of the
principal underwriter serves as an officer, director
or general partner of the Fund or of the Fund's
investment adviser.
(d) Reporting Requirements of Access Persons.
(1) Reports Required. Unless excepted by paragraph (d)(2) of this
section, every Access Person of a Fund (other than a money
market fund or a Fund that does not invest in Covered
Securities) and every Access Person of an investment adviser
of or principal underwriter for the Fund, must report to that
Fund, investment adviser or principal underwriter:
(i) Initial Holdings Reports. No later than 10 days after
the person becomes an Access Person, the following
information:
(A) The title, number of shares and principal
amount of each Covered Security in which the
Access Person had any direct or indirect
beneficial ownership when the person became
an Access Person;
(B) The name of any broker, dealer or bank with
whom the Access Person maintained an account
in which any securities were held for the
direct or indirect benefit of the Access
Person as of the date the person became an
Access Person; and
(C) The date that the report is submitted by the
Access Person.
(ii) Quarterly Transaction Reports. No later than 10 days
after the end of a calendar quarter, the following
information:
(A) With respect to any transaction during the
quarter in a Covered Security in which the
Access Person had any direct or indirect
beneficial ownership:
(1) The date of the transaction, the
title, the interest rate and
maturity date (if applicable), the
number of shares and the principal
amount of each Covered Security
involved;
(2) The nature of the transaction (i.e.,
purchase, sale or any other type of
acquisition or disposition);
<PAGE> 19
APPENDIX A
(3) The price of the Covered Security at
which the transaction was effected;
(4) The name of the broker, dealer or
bank with or through which the
transaction was effected; and
(5) The date that the report is
submitted by the Access Person.
(B) With respect to any account established by
the Access Person in which any securities
were held during the quarter for the direct
or indirect benefit of the Access Person:
(1) The name of the broker, dealer or
bank with whom the Access Person
established the account;
(2) The date the account was
established; and
(3) The date that the report is
submitted by the Access Person.
(iii) Annual Holdings Reports. Annually, the following
information (which information must be current as of
a date no more than 30 days before the report is
submitted):
(A) The title, number of shares and principal
amount of each Covered Security in which the
Access Person had any direct or indirect
beneficial ownership;
(B) The name of any broker, dealer or bank with
whom the Access Person maintains an account
in which any securities are held for the
direct or indirect benefit of the Access
Person; and
(C) The date that the report is submitted by the
Access Person.
(2) Exceptions from Reporting Requirements.
(i) A person need not make a report under paragraph
(d)(1) of this section with respect to transactions
effected for, and Covered Securities held in, any
account over which the person has no direct or
indirect influence or control.
(ii) A director of a Fund who is not an "interested
person" of the Fund within the meaning of section
2(a)(19) of the Act [15 U.S.C. 80a-2(a)(19)], and who
would be required to make a report solely by reason
of being a Fund director, need not make:
(A) An initial holdings report under paragraph
(d)(1)(i) of this section and an annual
holdings report under paragraph (d)(1)(iii)
of this section; and
(B) A quarterly transaction report under
paragraph (d)(1)(ii) of this section, unless
the director knew or, in the ordinary course
of fulfilling his or her official duties as
a Fund director, should have known that
during the 15-day period immediately before
or after the director's transaction in a
Covered Security, the Fund purchased or sold
the Covered Security, or the Fund or its
investment adviser considered purchasing or
selling the Covered Security.
<PAGE> 20
APPENDIX A
(iii) An Access Person to a Fund's principal underwriter
need not make a report to the principal underwriter
under paragraph (d)(1) of this section if:
(A) The principal underwriter is not an
affiliated person of the Fund (unless the
Fund is a unit investment trust) or any
investment adviser of the Fund; and
(B) The principal underwriter has no officer,
director or general partner who serves as an
officer, director or general partner of the
Fund or of any investment adviser of the
Fund.
(iv) An Access Person to an investment adviser need not
make a quarterly transaction report to the investment
adviser under paragraph (d)(1)(ii) of this section if
all the information in the report would duplicate
information required to be recorded under ss.
275.204-2(a)(12) or 275.204-2(a)(13) of this chapter.
(v) An Access Person need not make a quarterly
transaction report under paragraph (d)(1)(ii) of this
section if the report would duplicate information
contained in broker trade confirmations or account
statements received by the Fund, investment adviser
or principal underwriter with respect to the Access
Person in the time period required by paragraph
(d)(1)(ii), if all of the information required by
that paragraph is contained in the broker trade
confirmations or account statements, or in the
records of the Fund, investment adviser or principal
underwriter.
(3) Review of Reports. Each Fund, investment adviser and principal
underwriter to which reports are required to be made by
paragraph (d)(1) of this section must institute procedures by
which appropriate management or compliance personnel review
these reports.
(4) Notification of Reporting Obligation. Each Fund, investment
adviser and principal underwriter to which reports are
required to be made by paragraph (d)(1) of this section must
identify all Access Persons who are required to make these
reports and must inform those Access Persons of their
reporting obligation.
(5) Beneficial Ownership. For purposes of this section, beneficial
ownership is interpreted in the same manner as it would be
under ss. 240.16a-1(a)(2) of this chapter in determining
whether a person is the beneficial owner of a security for
purposes of section 16 of the Securities Exchange Act of 1934
[15 U.S.C. 78p] and the rules and regulations thereunder. Any
report required by paragraph (d) of this section may contain a
statement that the report will not be construed as an
admission that the person making the report has any direct or
indirect beneficial ownership in the Covered Security to which
the report relates.
(e) Pre-approval of Investments in IPOs and Limited Offerings. Investment
Personnel of a Fund or its investment adviser must obtain approval from
the Fund or the Fund's investment adviser before directly or indirectly
acquiring beneficial ownership in any securities in an Initial Public
Offering or in a Limited Offering.
(f) Recordkeeping Requirements.
(1) Each Fund, investment adviser and principal underwriter that
is required to adopt a code of ethics or to which reports are
required to be made by Access Persons must, at its principal
place of business, maintain records in the manner and to the
extent set out in this paragraph (f), and must make these
records available to the Commission or any
<PAGE> 21
representative of the Commission at any time and from time to
time for reasonable periodic, special or other examination:
(A) A copy of each code of ethics for the organization
that is in effect, or at any time within the past
five years was in effect, must be maintained in an
easily accessible place;
(B) A record of any violation of the code of ethics, and
of any action taken as a result of the violation,
must be maintained in an easily accessible place for
at least five years after the end of the fiscal year
in which the violation occurs;
(C) A copy of each report made by an Access Person as
required by this section, including any information
provided in lieu of the reports under paragraph
(d)(2)(v) of this section, must be maintained for at
least five years after the end of the fiscal year in
which the report is made or the information is
provided, the first two years in an easily accessible
place;
(D) A record of all persons, currently or within the past
five years, who are or were required to make reports
under paragraph (d) of this section, or who are or
were responsible for reviewing these reports, must be
maintained in an easily accessible place; and
(E) A copy of each report required by paragraph
(c)(2)(ii) of this section must be maintained for at
least five years after the end of the fiscal year in
which it is made, the first two years in an easily
accessible place.
(2) A Fund or investment adviser must maintain a record of any
decision, and the reasons supporting the decision, to approve
the acquisition by investment personnel of securities under
paragraph (e), for at least five years after the end of the
fiscal year in which the approval is granted.
<PAGE> 22
APPENDIX B
REPORTS OF DIRECTORS, OFFICERS,
AND PRINCIPAL STOCKHOLDERS
RULE 16A-1(A)(2) UNDER THE SECURITIES EXCHANGE ACT OF 1934. DEFINITION OF TERMS.
Terms defined in this rule shall apply solely to Section 16 of the Act
and the rules thereunder. These terms shall not be limited to Section 16(a) of
the Act but also shall apply to all other subsections under Section 16 of the
Act.
(a) The Term "beneficial owner" shall have the following
applications:
(1) [Omitted]
(2) Other than for purposes of determining whether a person is a
beneficial owner of more than 10 percent of any class of equity securities
registered under Section 12 of the Act, the term "beneficial owner" shall mean
any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or indirect
pecuniary interest in the equity securities, subject to the following:
(i) The term "pecuniary interest" in any class of equity securities
shall mean the opportunity, directly or indirectly, to profit or share in any
profit derived from a transaction in the subject securities.
(ii) The term "indirect pecuniary interest" in any class of equity
securities shall include, but not be limited to:
(A) Securities held by members of a person's immediate family sharing
the same household; provided however that the presumption of such beneficial
ownership may be rebutted; see also Rule 161-1(a)(4);
(B) A general partner's proportionate interest in the portfolio
securities held by a general or limited partnership. The general partner's
proportionate interest, as evidenced by the partnership agreement in effect at
the time of the transaction and the partnership's most recent financial
statements, shall be the greater of (1) the general partner's share of the
partnership's profits, including profits attributed to any limited partnership
interests held by the general partner and any other interest in profits that
arise from the purchase and sale of the partnership's portfolio securities; or
(2) the general partner's share of the partnership capital account, including
the share attributable to any limited partnership interest held by the general
partner.
(C) A performance-related fee, other than an asset-based fee, received
by any broker, dealer, bank, insurance company, investment company, investment
adviser, investment manager, trustee or person or entity performing a similar
function; provided however, that no pecuniary interest shall be present where:
(1) the performance-related fee, regardless of when payable, is calculated based
upon net
<PAGE> 23
APPENDIX B
capital gains and/or net capital appreciation generated from the portfolio or
from the fiduciary's overall performance over a period of one year or more; and
(2) equity securities of the issuer do not account for more than 10 percent of
the market value of the portfolio. A right to nonperformance-related fee alone
shall not represent a pecuniary interest in the securities;
(D) A person's right to dividends that is separated or separable from
the underlying securities. Otherwise, a right to dividends alone shall not
represent a pecuniary interest in the securities;
(E) A person's interest in securities held by a trust, as specified in
Rule 16a-8(b); and
(F) A person's right to acquire equity securities through the exercise
or conversion of any derivative security, whether or not presently exercisable.
(iii) A shareholder shall not be deemed to have a pecuniary interest in
the portfolio securities held by a corporation or similar entity in which the
person owns securities if the shareholder is not a controlling shareholder of
the entity and does not have or share investment control over the entity's
portfolio.
<PAGE> 24
APPENDIX C
EXAMPLES OF BENEFICIAL INTEREST
For purposes of the Code, you will be deemed to have a beneficial
interest in a security if you have the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in the security.
Examples of beneficial ownership under this definition include:
- securities you own, no matter how they are registered, and
including securities held for you by others (for example, by
a custodian or broker, or by a relative, executor or
administrator) or that you have pledged to another (as
security for a loan, for example);
- securities held by a trust of which you are a beneficiary
(except that, if your interest is a remainder interest and
you do not have or participate in investment control of
trust assets, you will not be deemed to have a beneficial
interest in securities held by the trust);
- securities held by you as trustee or co-trustee, where
either you or any member of your immediate family (i.e.,
spouse, children or descendants, stepchildren, parents and
their ancestors, and stepparents, in each case treating a
legal adoption as blood relationship) has a beneficial
interest (using these rules) in the trust.
- securities held by a trust of which you are the settlor, if
you have the power to revoke the trust without obtaining the
consent of all the beneficiaries and have or participate in
investment control;
- securities held by any partnership in which you are a
general partner, to the extent of your interest in
partnership capital or profits;
- securities held by a personal holding company controlled by
you alone or jointly with others;
- securities held by (i) your spouse, unless legally
separated, or you and your spouse jointly, or (ii) your
minor children or any immediate family member of you or your
spouse (including an adult relative), directly or through a
trust, who is sharing your home, even if the securities were
not received from you and the income from the securities is
not actually used for the maintenance of your household; or
- securities you have the right to acquire (for example,
through the exercise of a derivative security), even if the
right is not presently exercisable, or securities as to
which, through any other type of
<PAGE> 25
APPENDIX C
arrangement, you obtain benefits substantially equivalent to
those of ownership.
You will NOT be deemed to have beneficial ownership of securities in the
following situations:
- securities held by a limited partnership in which you do not
have a controlling interest and do not have or share
investment control over the partnership's portfolio; and
- securities held by a foundation of which you are a trustee
and donor, provided that the beneficiaries are exclusively
charitable and you have no right to revoke the gift.
THESE EXAMPLES ARE NOT EXCLUSIVE. THERE ARE OTHER CIRCUMSTANCES IN WHICH YOU MAY
BE DEEMED TO HAVE A BENEFICIAL INTEREST IN A SECURITY. ANY QUESTIONS ABOUT
WHETHER YOU HAVE A BENEFICIAL INTEREST SHOULD BE DIRECTED TO THE CHIEF
COMPLIANCE OFFICER OF CAM.
