<PAGE> 1
SUPPLEMENT DATED AUGUST 25, 2000 TO PROSPECTUS DATED AUGUST 1, 2000
CALAMOS(R) FAMILY OF FUNDS
INSTITUTIONAL SHARES
MINIMUM INITIAL INVESTMENT: $5 MILLION
--------------
This supplement together with the prospectus offers Class I shares
("Institutional Shares") of each of Convertible Fund, Convertible Growth and
Income Fund (formerly named Growth and Income Fund), Market Neutral Fund, Growth
Fund, Global Convertible Fund (formerly named Global Growth and Income Fund),
High Yield Fund and Convertible Technology Fund. Each of those Funds also
currently offers three other classes of shares, Class A, Class B and Class C,
that have substantially lower minimum investment requirements but bear certain
expenses not borne by the Institutional Shares.
Institutional Shares of each Fund are offered without any sales charge and are
not subject to any 12b-1 charges. As a result of the relatively lower expenses
for Institutional Shares, the level of income dividends per share (as a
percentage of net asset value) and, therefore, the overall investment return,
will typically be higher for Institutional Shares than for Class A, Class B or
Class C shares.
All classes of shares of a Fund represent interests in the same portfolio of
investments of the Fund. The minimum initial investment required to purchase
Institutional Shares is $5 million. However, Class I shares are available for
purchase without a minimum initial investment by tax-qualified employee benefit
plans sponsored by Calamos Asset Management, Inc. or Calamos Financial Services,
Inc. for their employees. In addition, a Fund may waive the minimum initial
investment. Shares are redeemable at net asset value, which may be more or less
than original cost.
The following information supplements the indicated sections of the prospectus.
PAST PERFORMANCE
The charts and tables in the accompanying prospectus provide some indication of
the risks of investing in the Funds by showing changes in the Funds' performance
from calendar year to calendar year and how the Funds' average annual total
returns compare with those of a broad measure of market performance. Of course,
past performance does not predict how a Fund will perform in the future.
Additional financial information for those Funds which currently have Class I
shares outstanding is set forth below. Please see the prospectus for bar charts
that depict calendar year performance for each Fund.
Average Annual Total Returns - Class I shares
For periods ended
December 31, 1999 One Year Since Class Inception*
----------------- -------- ----------------------
Calamos Convertible Fund 35.71% 21.44%
Value Line Convertible Index** 19.50% -
-----------------
* Inception date for Class I shares is 6/25/97.
** The Value Line Convertible Index is an unmanaged index considered
representative of the convertible securities market. The index includes 585
convertible bonds and preferred stocks. Selection is based on issue size and
trading statistics. Index returns assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees, expenses or sales charges.
<PAGE> 2
For periods ended
December 31, 1999 One Year Since Class Inception*
----------------- -------- ----------------------
Calamos Convertible Growth
and Income Fund 53.65% 30.63%
Value Line Convertible Index** 19.50% -
-----------------
* Inception date for Class I shares is 9/18/97.
** The Value Line Convertible Index is an unmanaged index considered
representative of the convertible securities market. The index includes 585
convertible bonds and preferred stocks. Selection is based on issue size and
trading statistics. Index returns assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees, expenses or sales charges
For periods ended
December 31, 1999 One Year Since Class Inception*
----------------- -------- ----------------------
Calamos Growth Fund 78.24% 37.79%
Standard & Poor's 500 Index** 21.04% -
-----------------
* Inception date for Class I shares is 9/18/97.
** The S & P 500 Index is an unmanaged index generally considered representative
of the U.S. stock market. Index returns assume reinvestment of dividends and,
unlike Fund returns, do not reflect any fees, expenses or sales charges.
For periods ended
December 31, 1999 One Year Since Class Inception*
----------------- -------- ----------------------
Calamos Global Convertible Fund 47.40% 24.75%
Morgan Stanley Capital
Intentional World Index** 25.34% -
-----------------
* Inception date for Class I shares is 9/18/97.
** The Morgan Stanley Capital International World Index is an unmanaged equity
index that is an arithmetic, market value-weighted average of the performance of
over 1,460 securities listed on stock exchanges around the world. Index returns
assume reinvestment of dividends and, unlike Fund returns, do not reflect any
fees, expenses or sales charges.
EXPENSES
The following tables describe the fees and expenses that you may pay if you buy
and hold Class I shares of the Funds.
<TABLE>
<CAPTION>
Convertible
Growth and Market Global High Convertible
Convertible Income Neutral Growth Convertible Yield Technology
Fund Fund Fund Fund Fund Fund Fund
------ ----------- ------ ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases
(as a percentage of offering price) None None None None None None None
Maximum sales charge (load) on reinvested
dividends/distributions..................... None None None None None None None
Maximum deferred sales charge
(load) (as a percentage of redemption proceeds). None None None None None None None
Exchange fee.................................... None None None None None None None
Redemption fee on shares held 6 months
or less (a)................................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Convertible
Growth and Market Global High Convertible
Convertible Income Neutral Growth Convertible Yield Technology
Fund Fund Fund Fund Fund Fund Fund
------ ----------- ------ ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
Management fees................................. .75% .75% .75% 1.00% 1.00% .75% 1.00%
Distribution (12b-1) fees....................... None None None None None None None
Other expenses.................................. .15 % .45% 2.50%(c) .90% 1.70% 6.31%(c) 1.95%(c)
Total Annual operating expenses (b)............. .90% 1.20% 3.25% 1.90% 2.70% 7.06% 2.95%
Fee Waiver and/or expense reimbursement......... --- --- 1.75% .40% 1.20% 5.56% 1.45%
Net expenses.................................... .90% 1.20% 1.50% 1.50% 1.50% 1.50% 1.50%
</TABLE>
-----------------
(a) A service charge of $9 is deducted from proceeds of redemptions paid by
wire.
(b) Calamos Asset Management, Inc. (CAM) has voluntarily undertaken to limit
the annual ordinary operating expenses of Institutional Shares of each
Fund, as a percentage of the average net assets of the class, to 1.50%.
Pursuant to a written agreement, the fee waiver and/or reimbursement is
binding on CAM through August 31, 2001.
(c) "Other Expenses" are based on estimated amounts for the current fiscal
year for the Market Neutral Fund and High Yield Fund since no Class I
shares were issued as of each Fund's fiscal year end, and for the
Convertible Technology Fund, which is expected to commence operations on
or about September 11, 2000.
EXAMPLES: These examples are intended to help you compare the cost of investing
in a Fund with the cost of investing in other mutual funds.
These examples show an investment made and held for one year, three years, five
years and ten years. In each case, we assume that you invest $10,000 in the Fund
for the time periods indicated, and then redeem all of your shares at the end of
those periods. These examples also assume that your investment has a 5% return
each year and that the Fund's operating expenses remain the same, except for
waivers in the first year. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
Convertible Fund $ 92 $ 287 $ 498 $1,108
Convertible Growth and Income Fund $122 $ 381 $ 660 $1,455
Market Neutral Fund $153 $ 837 $1,546 $3,429
Growth Fund $153 $ 558 $ 989 $2,190
Global Convertible Fund $153 $ 724 $1,323 $2,944
High Yield Fund $153 $1,584 $2,957 $6,150
Convertible Technology Fund $153 $ 776 N/A N/A
<PAGE> 4
FINANCIAL HIGHLIGHTS
The tables below are intended to help you understand the Funds' financial
performance for the period shown below. Certain information reflects financial
results for a single Fund share. The Total return figures show what an investor
in a Fund 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 Funds' financial statements, are included in the Funds' annual report, which
is available upon request. No financial information is presented for
Institutional Shares of the Market Neutral Fund and High Yield Fund since no
Institutional Shares had been issued as of the Fund's fiscal year end, or
Convertible Technology Fund, which is expected to commence operations on or
about September 11, 2000.
Convertible Fund
Year Ended Year Ended 6/25/97-
3/31/00 3/31/99 3/31/98
---------- ---------- --------
Net asset value, beginning of period $ 17.21 $ 17.47 $ 15.88
Net income from investment operations:
Net investment income .55 .50 .37
Net realized and unrealized gain on
investments 5.98 .09 2.49
Total from investment operations 6.53 .59 2.86
Less distributions:
Dividends from net investment income (.55) (.47) (.54)
Dividends from net realized capital gains (.37) (.38) (.63)
Distributions from paid in capital - - (.10)
Total distributions (.92) (.85) (1.27)
Net asset value, end of period $ 22.82 $ 17.21 $ 17.47
Total return (a) 38.8% 3.7% 18.8%
Ratios and supplemental data:
Net assets, end of period (000) $37,827 $34,725 $35,951
Ratio of expenses to average net assets 0.9% 0.9% 0.9%*
Ratio of net investment income to
average net assets 2.8% 3.1% 2.9%*
Year Ended Year Ended 6/25/97-
3/31/00 3/31/99 3/31/98
---------- ---------- --------
Portfolio turnover rate 90.9% 78.2% 76.0%
----------
(a) Total return is not annualized.
*Annualized
<PAGE> 5
<TABLE>
<CAPTION>
Convertible Growth and Income Fund
Year Ended Year Ended 9/18/97-
3/31/00 3/31/99 3/31/98
---------- ---------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 18.30 $ 18.61 $ 17.96
Net income from investment operations:
Net investment income .51 .54 .22
Net realized and unrealized gain
on investments 10.38 .75 2.14
-------- -------- -------
Total from investment operations 10.89 1.29 2.36
-------- -------- -------
Less distributions:
Dividends from net investment income (.47) (.43) (.38)
Dividends from net realized capital gains (.28) (1.17) (1.33)
-------- -------- -------
Total distributions (.75) (1.60) (1.71)
-------- -------- -------
Net asset value, end of period $ 28.44 $ 18.30 $ 18.61
Total return (a) 60.5% 7.5% 14.4%
Ratios and supplemental data:
Net assets, end of period (000) $ 3,171 $ 1,976 $ 1,838
Ratio of expenses to average net assets 1.2% 1.3% 1.5%*
Ratio of net investment income to
average net assets 2.3% 2.9% 2.4%*
Year Ended Year Ended 9/18/97-
3/31/00 3/31/99 3/31/98
---------- ---------- --------
Portfolio turnover rate 116.5% 87.5% 115.5%
</TABLE>
----------
(a) Total return is not annualized.
*Annualized
<PAGE> 6
<TABLE>
<CAPTION>
Growth Fund
Year Ended Year Ended 9/18/97-
3/31/00 3/31/99 3/31/98
---------- ---------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 23.71 $ 20.12 $ 24.32
Net income from investment operations:
Net investment income (.39) (.21) (.11)
Net realized and unrealized gain
on investments 28.54 3.80 1.07
-------- -------- -------
Total from investment operations 28.15 3.59 .96
-------- -------- -------
Less distributions:
Dividends from net realized
capital gains (3.13) -- (4.98)
Distributions from paid in capital -- -- (.18)
-------- -------- -------
Total distributions (3.13) -- (5.16)
-------- -------- -------
Net asset value, end of period $ 48.73 $ 23.71 $ 20.12
-------- -------- -------
Total return (a) 123.9% 17.8% 6.4%
--------
Ratios and supplemental data:
Net assets, end of period (000) $ 4,011 $ 1,792 $ 1,508
--------
Ratio of expenses to average net
assets (b) 1.5% 1.5% 1.5%*
--------
Ratio of net investment income to
average net assets (1.2)% (1.1)% (1.1)%*
--------
Year Ended Year Ended 9/18/97-
3/31/00 3/31/99 3/31/98
-------- ---------- --------
Portfolio turnover rate 175.3% 184.3% 206.1%
</TABLE>
----------
(a) Total return is not annualized.
(b) After the reimbursement and waiver of expenses by CAM equivalent to .04%,
0.3%, and 0.3%* of average net assets, respectively.
*Annualized
<PAGE> 7
<TABLE>
<CAPTION>
Global Convertible Fund
Year Ended Year Ended 9/18/97-
3/31/00 3/31/99 3/31/98
---------- ---------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 6.63 $ 6.56 $ 6.18
Net income from investment operations:
Net investment income .08 .03 .07
Net realized and unrealized gain
on investments 2.72 .31 .58
-------- -------- -------
Total from investment operations 2.80 .34 .65
-------- -------- -------
Less distributions:
Dividends from net investment income (.05) (.14) (.17)
Dividends from net realized
capital gains (.14) (.13) (.10)
--------
Total distributions (.19) (.27) (.27)
-------- -------- --------
Net asset value, end of period $ 9.24 $ 6.63 $ 6.56
Total return (a) 42.5% 5.6% 10.9%
Ratios and supplemental data:
Net assets, end of period (000) $ 689 $ 484 $ 458
Ratio of expenses to average
net assets 1.5% 1.5%(b) 1.5%*(b)
Ratio of net investment income to
average net assets 1.0% 1.8%(b) 1.9%*(b)
Year Ended Year Ended 9/18/97-
3/31/00 3/31/99 3/31/98
---------- ---------- --------
Portfolio turnover rate 84.6% 106.3% 64%
</TABLE>
----------
(a) Total return is not annualized.
(b) After reimbursement and waiver of expenses by CAM equivalent to 1.2%,
.9% and 1.2%*, respectively of average net assets.
*Annualized
<PAGE> 8
SPECIAL FEATURES OF INSTITUTIONAL SHARES
OFFERING PRICE
Institutional Shares of each Fund are sold without any sales charge. When
placing an order, you must specify that your order is for Institutional Shares.
PURCHASES BY EXCHANGE
No sales charge is imposed on purchases of Institutional Shares by exchange of
Institutional Shares from another Calamos Fund or by exchange of Cash Account
Shares, provided the aggregate value of your Institutional Shares of all Funds
is at least $5 million; unless the $5 million minimum does not apply, as
discussed above. Exchanges are subject to the limitations set forth in the
prospectus under "Transaction Information."
REDEMPTION OF SHARES
Each Fund reserves the right upon 30 days' written notice to involuntarily
redeem, at net asset value, the shares of any shareholder whose Institutional
Class Shares of all Funds have an aggregate value of less than $5 million,
unless the reduction in value to less than $5 million was the result of market
fluctuation. For further information on the redemption of shares, please refer
to the information in the prospectus under "How Can I Sell Shares?"
<PAGE> 9
STATEMENT OF ADDITIONAL INFORMATION AUGUST 1, 2000 (as revised
August 25, 2000)
CALAMOS(R) FAMILY OF FUNDS
CONVERTIBLE FUND
CONVERTIBLE GROWTH AND INCOME FUND*
MARKET NEUTRAL FUND
GROWTH FUND
GLOBAL CONVERTIBLE FUND**
HIGH YIELD FUND
CONVERTIBLE TECHNOLOGY FUND
*FORMERLY NAMED GROWTH AND INCOME FUND
**FORMERLY NAMED GLOBAL GROWTH AND INCOME FUND
===============================================================================
1111 East Warrenville Road
Naperville, Illinois 60563-1493
(630) 245-7200
Toll Free: (800) 8-CFS-FUND (800/823-7386)
This Statement of Additional Information relates to CALAMOS(R)
Convertible Fund, CALAMOS(R) Convertible Growth and Income Fund (formerly named
Growth and Income Fund), CALAMOS(R) Market Neutral Fund, CALAMOS(R) Growth Fund,
CALAMOS(R) Global Convertible Fund (formerly named Global Growth and Income
Fund), Calamos(R) High Yield Fund and Calamos(R) Convertible Technology Fund
(the "Funds"), each of which is a series of Calamos Investment Trust (the
"Trust"). It is not a prospectus, but provides information that should be read
in conjunction with the Funds' 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 Funds at the address or
telephone numbers set forth above. Audited financial statements for the Trust
for the fiscal year ended March 31, 2000 are incorporated herein by reference
from the Trust's annual report to shareholders.
TABLE OF CONTENTS
Page
The Trust and the Funds................................3
Investment Practices...................................3
Investment Restrictions...............................19
Management............................................21
Investment Advisory Services..........................22
Distribution Plan.....................................24
Purchasing and Redeeming Shares.......................25
Performance Information...............................34
Distributor...........................................38
Portfolio Transactions................................39
Taxation..............................................41
Allocation Among Funds................................43
Certain Shareholders..................................43
Custodian.............................................46
Independent Auditors..................................46
General Information...................................47
Financial Statements..................................47
Appendix-Description of Bond Ratings..................48
B-1
<PAGE> 10
THE TRUST AND THE FUNDS
Each Fund is a series of Calamos Investment Trust (the "Trust") which was
organized as a Massachusetts business trust on December 21, 1987. Each Fund,
except Convertible Technology Fund, is an open-end, diversified management
investment company. Convertible Technology Fund is an open-end, non-diversified
management investment company. Prior to June 23, 1997 the name of the trust was
CFS Investment Trust. Market Neutral Fund was named "Strategic Income Fund"
prior to July 30, 1999. Prior to August 1, 2000, Convertible Growth and Income
Fund was named "Growth and Income Fund" and Global Convertible Fund was named
"Global Growth and Income Fund."
INVESTMENT OBJECTIVES
Each Fund's investment objective is shown below:
CONVERTIBLE FUND seeks current income. Growth is a secondary objective
that the Fund also considers when consistent with its objective of current
income.
CONVERTIBLE GROWTH AND INCOME FUND seeks high long-term total return
through capital appreciation and current income derived from a diversified
portfolio of convertible, equity and fixed-income securities.
MARKET NEUTRAL FUND seeks high current income consistent with stability
of principal, primarily through investment in convertible securities and
employing short selling to enhance income and hedge against market risk.
GROWTH FUND seeks long-term capital growth.
GLOBAL CONVERTIBLE FUND seeks high long-term total return through
capital appreciation and current income derived from a globally diversified
portfolio of convertible, equity and fixed-income securities.
HIGH YIELD FUND seeks the highest level of current income obtainable
consistent with reasonable risk. As a secondary objective the Fund seeks capital
gain where consistent with its primary objective.
CONVERTIBLE TECHNOLOGY FUND seeks high long-term total return through
capital appreciation and current income.
The investment objective of each Fund is "fundamental," which means
that a Fund's objective cannot be changed without the approval of the holders of
a "majority of the outstanding voting securities" of that Fund, as defined in
the Investment Company Act of 1940.
INVESTMENT PRACTICES
The prospectus contains information concerning each Fund's investment
objective and principal investment strategies and risks. This SAI provides
additional information concerning certain securities and strategies used by the
Funds and their associated risks.
In pursuing its investment objective, each Fund will invest as
described below and in the prospectus.
B-2
<PAGE> 11
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.
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 Fund's investment
objective. A synthetic convertible security also is a more flexible investment
in that its two components may be purchased separately. For example, the Fund
may purchase a warrant for inclusion in a synthetic convertible security but
temporarily hold short-term investments while postponing the purchase of a
corresponding bond pending development of more favorable market conditions. For
the Convertible Fund, Convertible Growth and Income Fund, Global Convertible
Fund, and Convertible Technology Fund, each Fund's holdings of synthetic
convertible securities that are created by the investment manager are not
considered convertible securities for purposes of each Fund's policy to invest
at least 65% of its assets in convertible securities.
B-3
<PAGE> 12
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 Funds 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, each Fund 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 a
Fund or the portion of a Fund's assets that may be invested in debt securities
in a particular ratings category, except that no Fund other than the High Yield
Fund will 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 each Fund of its investment objectives will be more
dependent on the investment manager's credit analysis than would be the case if
the Fund were investing in higher-quality debt securities. Since the ratings of
rating services (which evaluate the safety of principal and interest payments,
not market risks) are used only as preliminary indicators of investment quality,
the investment manager employs its own credit research and analysis. These
analyses may take into consideration such quantitative factors as an issuer's
present and potential liquidity, profitability, internal capability to generate
funds, debt/equity ratio and debt servicing capabilities, and such qualitative
factors as an assessment of management, industry characteristics, accounting
methodology, and foreign business exposure.
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked prices is likely to
increase significantly, and the Fund 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.
B-4
<PAGE> 13
RULE 144A SECURITIES
Each Fund may purchase securities that have been privately placed but
that are eligible for purchase and sale by certain qualified institutional
buyers, such as the Funds, 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 Fund's restriction of investing no more than a specified
percentage 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 manager will consider the trading markets for the
specific security, taking into account the unregistered nature of a Rule 144A
security. In addition, the investment manager could consider the (1) frequency
of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market and (4) nature of a security and of marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities will be monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the Fund's holdings of
illiquid securities would be reviewed to determine what, if any, steps are
required to assure that the Fund does not invest more than 10% (or 15% in the
case of Global Convertible Fund) of its assets in illiquid securities. Investing
in Rule 144A securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities.
FOREIGN SECURITIES
Global Convertible Fund may invest all of its assets, and each other
Fund may invest up to 25% of its net assets, in securities of foreign issuers.
For this purpose, foreign securities do not include American Depositary Receipts
(ADRs) or securities guaranteed by a United States person, but may include
foreign securities in the form of European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or other securities representing underlying shares of
foreign issuers. Positions in those securities are not necessarily denominated
in the same currency as the common stocks into which they may be converted. ADRs
are receipts typically issued by an American bank or trust company evidencing
ownership of the underlying securities. EDRs are European receipts listed on the
Luxembourg Stock Exchange evidencing a similar arrangement. GDRs are U.S.
dollar-denominated receipts evidencing ownership of foreign securities.
Generally, ADRs, in registered form, are designed for the U.S. securities
markets and EDRs and GDRs, in bearer form, are designed for use in foreign
securities markets. Each Fund may invest in sponsored or unsponsored ADRs. In
the case of an unsponsored ADR, the Fund is likely to bear its proportionate
share of the expenses of the depository and it may have greater difficulty in
receiving shareholder communications than it would have with a sponsored ADR.
To the extent positions in portfolio securities are denominated in
foreign currencies, a Fund's investment performance is affected by the strength
or weakness of the U.S. dollar against those currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar value of a
Japanese stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the Japanese stock will fall. (See discussion of
transaction hedging and portfolio hedging below under "Currency Exchange
Transactions.")
Investors should understand and consider carefully the risks involved
in foreign investing. Investing in foreign securities, which are generally
denominated in foreign currencies, and utilization of forward foreign currency
exchange contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S. securities. These
considerations include: fluctuations in exchange rates of foreign currencies;
possible imposition of exchange control regulation or currency restrictions that
would prevent cash from being brought back to the United States; less public
information with respect to issuers of securities; less
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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 Funds intend 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.
Each Fund other than Global Convertible Fund expects that substantially
all of its investments will be in developed nations. However, each Fund may
invest in the securities of emerging countries. The securities markets of
emerging countries are substantially smaller, less developed, less liquid and
more volatile than the securities markets of the U.S. and other more developed
countries. Disclosure and regulatory standards in many respects are less
stringent than in the U.S. and other major markets. There also may be a lower
level of monitoring and regulation of emerging markets and the activities of
investors in such markets, and enforcement of existing regulations has been
extremely limited. Economies in individual emerging markets may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
domestic product, rates of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments positions. Many
emerging market countries have experienced high rates of inflation for many
years, which has had and may continue to have very negative effects on the
economies and securities markets of those countries.
CURRENCY EXCHANGE TRANSACTIONS
Currency exchange transactions may be conducted either on a spot
(i.e., cash) basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are contractual agreements to
purchase or sell a specified currency at a specified future date (or within a
specified time period) and price set at the time of the contract. Forward
contracts are usually entered into with banks, foreign exchange dealers and
broker-dealers, are not exchange traded, and are usually for less than one year,
but may be renewed.
Forward currency exchange transactions may involve currencies of the
different countries in which the Funds 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 a Fund accruing in connection with the
purchase and sale of its portfolio securities or the receipt of dividends or
interest thereon. Portfolio hedging is the use of forward contracts with respect
to portfolio security positions denominated or quoted in a particular foreign
currency. Portfolio hedging allows the Fund to limit or reduce its exposure in a
foreign currency by entering into a forward contract to sell such foreign
currency (or another foreign currency that acts as a proxy for that currency) at
a future date for a price payable in U.S. dollars so that the value of the
foreign denominated portfolio securities can be approximately matched by a
foreign denominated liability. The Fund may not engage in portfolio hedging with
respect to the currency of a particular country to an extent greater than the
aggregate market value (at the time of making such sale) of the securities held
in its portfolio denominated or quoted in that particular currency, except that
the Fund may hedge all or part of its foreign currency exposure through the use
of a basket of currencies or a proxy currency where such currencies or
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currency act as an effective proxy for other currencies. In such a case, the
Fund may enter into a forward contract where the amount of the foreign currency
to be sold exceeds the value of the securities denominated in such currency. The
use of this basket hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held in the Fund. The
Fund may not engage in "speculative" currency exchange transactions.
If a Fund enters into a forward contract, the Fund's custodian will
segregate liquid assets of the Fund having a value equal to the Fund's
commitment under such forward contract. At the maturity of the forward contract
to deliver a particular currency, the Fund may either sell the portfolio
security related to the contract and make delivery of the currency, or it may
retain the security and either acquire the currency on the spot market or
terminate its contractual obligation to deliver the currency by purchasing an
offsetting contract with the same currency trader obligating it to purchase on
the same maturity date the same amount of the currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for a Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the value of a portfolio security traded in that currency or
prevent a loss if the value of the security declines. Hedging transactions also
preclude the opportunity for gain if the value of the hedged currency should
rise. Moreover, it may not be possible for a Fund to hedge against a devaluation
that is so generally anticipated that the Fund is not able to contract to sell
the currency at a price above the devaluation level it anticipates. The cost to
a Fund of engaging in currency exchange transactions varies with such factors as
the currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
SYNTHETIC FOREIGN MONEY MARKET POSITIONS
Each Fund may invest in money market instruments denominated in foreign
currencies. In addition to, or in lieu of, such direct investment, a Fund may
construct a synthetic foreign money market position by (a) purchasing a money
market instrument denominated in one currency, generally U.S. dollars, and (b)
concurrently entering into a forward contract to deliver a corresponding amount
of that currency in exchange for a different currency on a future date and at a
specified rate of exchange. For example, a synthetic money market position in
Japanese yen could be constructed by purchasing a U.S. dollar money market
instrument, and entering concurrently into a forward
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<PAGE> 16
contract to deliver a corresponding amount of U.S. dollars in exchange for
Japanese yen on a specified date and at a specified rate of exchange. Because of
the availability of a variety of highly liquid short-term U.S. dollar money
market instruments, a synthetic money market position utilizing such U.S. dollar
instruments may offer greater liquidity than direct investment in foreign
currency and a concurrent construction of a synthetic position in such foreign
currency, in terms of both income yield and gain or loss from changes in
currency exchange rates, in general should be similar, but would not be
identical because the components of the alternative investments would not be
identical.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities to broker-dealers and
banks. Any such loan must be continuously secured by collateral in cash or cash
equivalents maintained on a current basis in an amount at least equal to the
market value of the securities loaned by the Fund. The Fund would continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned, and would also receive an additional return that may be in
the form of a fixed fee or a percentage of the collateral. The Fund may pay
reasonable fees to persons unaffiliated with the Fund for services in arranging
these loans. The Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five business days. The
Fund would not have the right to vote the securities during the existence of the
loan but would call the loan to permit voting of the securities, if, in 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 Fund could experience both delays in
liquidating the loan collateral or recovering the loaned securities and losses,
including (a) possible decline in the value of the collateral or in the value of
the securities loaned during the period while the Fund seeks to enforce its
rights thereto, (b) possible subnormal levels of income and lack of access to
income during this period, and (c) expenses of enforcing its rights. In an
effort to reduce these risks, the investment manager will monitor the
creditworthiness of the firms to which the Fund lends securities.
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements, provided that Global
Convertible Fund may not invest more than 15%, and each other Fund 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 Fund 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. In the event of bankruptcy of the
seller, the Fund could experience both losses and delays in liquidating its
collateral.
OPTIONS ON SECURITIES, INDEXES AND CURRENCIES
Each Fund 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. A Fund 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
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<PAGE> 17
and the exercise price multiplied by the specified multiplier for the index
option. (An index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.)
A Fund 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 Fund 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 a Fund expires, the Fund realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by the Fund expires, the Fund realizes a capital loss equal to
the premium paid.
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 Fund desires.
A Fund will realize a capital gain from a closing purchase transaction
if the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the market
value of a put or a call option include supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying security or
index, and the time remaining until the expiration date.
A put or call option purchased by a Fund is an asset of the Fund,
valued initially at the premium paid for the option. The premium received for an
option written by the Fund is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.
RISKS ASSOCIATED WITH OPTIONS. There are several risks associated with
transactions in options. For example, there are significant differences between
the securities markets, the currency markets and the options markets that could
result in an imperfect correlation among these markets, causing a given
transaction not to achieve its objectives. A decision as to whether, when and
how to use options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it has purchased on a security, it would have to exercise the option
in order to realize any profit or the option would expire and become worthless.
If the Fund were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying security until the
option expired. As the writer of a covered call option on a security, the Fund
foregoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call. As the writer of a covered call
option on a foreign currency, the Fund foregoes, during the option's life, the
opportunity to profit from currency appreciation.
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<PAGE> 18
If trading were suspended in an option purchased or written by a Fund,
the Fund would not be able to close out the option. If restrictions on exercise
were imposed, the Fund might not be able to exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Fund may use interest rate futures contracts, index futures
contracts and foreign currency futures contracts. An interest rate, index or
foreign currency futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial instrument or
the cash value of an index(1) at a specified price and time. A public market
exists in futures contracts covering a number of indexes (including, but not
limited to: the Standard & Poor's 500 Index, the Russell 2000 Index, the Value
Line Composite Index, and the New York Stock Exchange Composite Index) as well
as financial instruments (including, but not limited to: U.S. Treasury bonds,
U.S. Treasury notes, Eurodollar certificates of deposit and foreign currencies).
Other index and financial instrument futures contracts are available and it is
expected that additional futures contracts will be developed and traded.
Each Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true. The Fund might, for example, use futures contracts to hedge
against or gain exposure to fluctuations in the general level of stock prices,
anticipated changes in interest rates or currency fluctuations that might
adversely affect either the value of the Fund's securities or the price of the
securities that the Fund intends to purchase. Although other techniques could be
used to reduce or increase the Fund's exposure to stock price, interest rate and
currency fluctuations, the Fund may be able to achieve its desired exposure more
effectively and perhaps at a lower cost by using futures contracts and futures
options.
A Fund will only enter into futures contracts and futures options that
are standardized and traded on an exchange, board of trade or similar entity, or
quoted on an automated quotation system.
The success of any futures transaction depends on the investment
manager correctly predicting changes in the level and direction of stock prices,
interest rates, currency exchange rates and other factors. Should those
predictions be incorrect, the Fund's return might have been better had the
transaction not been attempted; however, in the absence of the ability to use
futures contracts, the investment manager might have taken portfolio actions in
anticipation of the same market movements with similar investment results, but,
presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a Fund, the
Fund is required to deposit with its custodian (or broker, if legally permitted)
a specified amount of cash or U.S. Government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded and may be
modified during the term of the contract, although a Fund's
-----------------------
(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.
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<PAGE> 19
broker may require margin deposits in excess of the minimum required by the
exchange. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract, which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on its initial margin
deposits. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking-to-market." Variation
margin paid or received by the Fund does not represent a borrowing or loan by
the Fund but is instead settlement between the Fund and the broker of the amount
one would owe the other if the futures contract had expired at the close of the
previous day. In computing daily net asset value, the Fund will mark-to-market
its open futures positions.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option and
other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Fund engaging in the transaction realizes a capital gain, or
if it less, the Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
RISKS ASSOCIATED WITH FUTURES.
There are several risks associated with the use of futures contracts
and futures options. A purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract. In trying to
increase or reduce market exposure, there can be no guarantee that there will be
a correlation between price movements in the futures contract and in the
portfolio exposure sought. In addition, there are significant differences
between the securities and futures markets that could result in an imperfect
correlation between the markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on circumstances
such as: variations in speculative market demand for futures, futures options
and the related securities, including technical influences in futures and
futures options trading and differences between the securities markets and the
securities underlying the standard contracts available for trading. For example,
in the case of index futures contracts, the composition of the index, including
the issuers and the weighing of each issue, may differ from the composition of
the Fund's portfolio, and, in the case of interest rate futures contracts, the
interest rate levels, maturities and creditworthiness of the issues underlying
the futures contract may differ from the financial instruments held in the
Fund's portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected stock price or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
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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 Fund seeks to close out a futures or futures option position. The Fund
would be exposed to possible loss on the position during the interval of
inability to close, and would continue to be required to meet margin
requirements until the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts or futures options of types other
than those described herein are traded in the future, a Fund may also use those
investment vehicles, provided the board of trustees determines that their use is
consistent with the Fund's investment objective.
A Fund 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 Fund plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-the-money,"(2)
would exceed 5% of the Fund's total assets.
When purchasing a futures contract or writing a put option on a futures
contract, a Fund must maintain with its custodian (or broker, if legally
permitted) cash or cash equivalents (including any margin) equal to the market
value of such contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is in-the-money
until the option expires or is closed by the Fund.
A Fund may not maintain open short positions in futures contracts, call
options written on futures contracts or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the portfolio and the positions. For this purpose, to
the extent the Fund has written call options on specific securities in its
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation
4.5 and thereby avoid being deemed a "commodity pool operator," a Fund 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 Fund, 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%].
-----------------------
(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.
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TAXATION OF OPTIONS AND FUTURES
If a Fund 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 Fund, 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 a Fund 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 Fund, 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 a Fund 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 a Fund writes an equity call option(3) other than a "qualified
covered call option," as defined in the Internal Revenue Code, any loss on such
option transaction, to the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until the securities
covering the option have been sold.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If the Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund 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 Fund:
(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 a Fund were to enter into a short index future, short index futures
option or short index option position and the Fund's portfolio were deemed to
"mimic" the performance of the index underlying such contract, the
-----------------------
(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).
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<PAGE> 22
option or futures contract position and the Fund's stock positions would be
deemed to be positions in a mixed straddle, subject to the above-mentioned loss
deferral rules.
In order for a Fund 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.
Each Fund 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 Fund's other
investments, and shareholders are advised of the nature of the payments.
WARRANTS
Each Fund may invest in warrants. A warrant is a right to purchase
common stock at a specific price (usually at a premium above the market value of
the underlying common stock at time of issuance) during a specified period of
time. A warrant may have a life ranging from less than a year to twenty years or
longer, but a warrant becomes worthless unless it is exercised or sold before
expiration. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire worthless. Warrants have no voting rights, pay no dividends and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the value of a warrant may be greater than
the percentage increase or decrease in the value of the underlying common stock.
PORTFOLIO TURNOVER
Although the Funds do 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 a Fund would result in increased transaction expense,
which must be borne by that Fund. High portfolio turnover may also result in the
realization of capital gains or losses and, to the extent net short-term capital
gains are realized, any distributions resulting from such gains will be
considered ordinary income for federal income tax purposes.
SHORT SALES
Each Fund may attempt to hedge against market risk and to enhance
income by selling short "against the box," that is: (1) entering into short
sales of securities that it currently has the right to acquire through the
conversion or exchange of other securities that it owns, or to a lesser extent,
entering into short sales of securities that it currently owns; and (2) entering
into arrangements with the broker-dealers through which such securities are sold
short to receive income with respect to the proceeds of short sales during the
period the Fund's short positions remain open. Each Fund other than Market
Neutral Fund may make short sales of securities only if at all times when a
short position is open the Fund owns an equal amount of such securities or
securities convertible into or
B-14
<PAGE> 23
exchangeable for, without payment of any further consideration, securities of
the same issue as, and equal in amount to, the securities sold short.
In addition to selling short against the box, Market Neutral Fund may
sell short securities that it currently has the right to acquire upon payment of
additional consideration, for instance, upon exercise of a warrant or option.
This technique would be used by Market Neutral Fund to hedge against market risk
in connection with a synthetic convertible security in the same way selling
short against the box hedges against market risk in connection with a true
convertible security.
In a short sale against the box, a Fund does not deliver from its
portfolio the securities sold and does not receive immediately the proceeds from
the short sale. Instead, the Fund borrows the securities sold short from a
broker-dealer through which the short sale is executed, and the broker-dealer
delivers such securities, on behalf of the Fund, to the purchaser of such
securities. Such broker-dealer is entitled to retain the proceeds from the short
sale until the Fund delivers to such broker-dealer the securities sold short. In
addition, the Fund is required to pay to the broker-dealer the amount of any
dividends paid on shares sold short. Finally, to secure its obligation to
deliver to such broker-dealer the securities sold short, the Fund must deposit
and continuously maintain in a separate account with the Fund's custodian an
equivalent amount of the securities sold short or securities convertible into or
exchangeable for such securities without the payment of additional
consideration. The Fund is said to have a short position in the securities sold
until it delivers to the broker-dealer the securities sold, at which time the
Fund receives the proceeds of the sale. Because the Fund ordinarily will want to
continue to hold securities in its portfolio that are sold short, the Fund will
normally close out a short position by purchasing on the open market and
delivering to the broker-dealer an equal amount of the securities sold short,
rather than by delivering portfolio securities.
A short sale works the same way, except that the Fund places in the
segregated account cash or U.S. government securities equal in value to the
difference between (i) the market value of the securities sold short at the time
they were sold short and (ii) any cash or U.S. government securities required to
be deposited with the broker as collateral. In addition, so long as the short
position is open, the Fund must 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.
Market Neutral Fund will conduct its short sales so that no more than
10% of the net assets of the Fund, when added together, will be (i) deposited
with brokers as collateral, and (ii) allocated to segregated accounts in
connection with short sales, at any time.
Short sales may protect a Fund against the risk of losses in the value
of its portfolio securities because any unrealized losses with respect to such
portfolio securities should be wholly or partially offset by a corresponding
gain in the short position. However, any potential gains in such portfolio
securities should be wholly or partially offset by a corresponding loss in the
short position. The extent to which such gains or losses are offset will depend
upon the amount of securities sold short relative to the amount the Fund owns,
either directly or indirectly, and, in the case where the Fund owns convertible
securities, changes in the conversion premium.
Short sale transactions of a Fund involve certain risks. In particular,
the imperfect correlation between the price movements of the convertible
securities and the price movements of the underlying common stock being sold
short creates the possibility that losses on the short sale hedge position may
be greater than gains in the value of the portfolio securities being hedged. In
addition, to the extent that a Fund pays a conversion premium for a
B-15
<PAGE> 24
convertible security, the Fund is generally unable to protect against a loss of
such premium pursuant to a short sale hedge. In determining the number of shares
to be sold short against a Fund's position in the convertible securities, the
anticipated fluctuation in the conversion premiums is considered. A Fund will
also incur transaction costs in connection with short sales. Certain provisions
of the Internal Revenue Code may limit the degree to which the Fund is able to
enter into short sales, which limitations might impair the Fund's ability to
achieve its investment objective. See "Taxation."
In addition to enabling a Fund to hedge against market risk, short
sales may afford a Fund an opportunity to earn additional current income to the
extent the Fund is able to enter into arrangements with broker-dealers through
which the short sales are executed to receive income with respect to the
proceeds of the short sales during the period the Fund's short positions remain
open.
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), 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
Each Fund may purchase securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time the Fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of purchase, when their
value may have changed. The Fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities before
settlement date if the Adviser deems it advisable for investment reasons. The
Fund may utilize spot and forward foreign currency exchange transactions to
reduce the risk inherent in fluctuations in the exchange rate between one
currency and another when securities are purchased or sold on a when-issued or
delayed-delivery basis.
Each Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
At the time when a Fund enters into a binding obligation to purchase
securities on a when-issued basis or enters into a reverse repurchase agreement,
liquid assets (cash, U.S. Government securities or other "high-grade" debt
obligations) of the Fund having a value at least as great as the purchase price
of the securities to be purchased will be segregated on the books of the Fund
and held by the custodian throughout the period of the obligation. The use of
these investment strategies, as well as borrowing under a line of credit as
described below, may increase net asset value fluctuation.
ILLIQUID SECURITIES
Global Convertible Fund may invest up to 15% of its total assets, and
each other Fund may invest up to 10% of its total assets, taken at market value,
in illiquid securities,
B-16
<PAGE> 25
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
Fund's portfolio, and the Fund might not be able to dispose of its holdings in
such securities promptly or at reasonable prices. In those instances where a
Fund is required to have restricted securities held by it registered prior to
sale by the Fund and the Fund 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 Fund's investment in restricted securities. The Funds
do not intend to invest in illiquid securities during the next fiscal year,
except that the Funds may invest in options traded on the NASDAQ National Market
System.
TEMPORARY INVESTMENTS
Each Fund 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.
REPURCHASE AGREEMENTS
As part of its strategy for the temporary investment of cash, each Fund
may enter into "repurchase agreements" pertaining to U.S. Government securities
with member banks of the Federal Reserve System or primary dealers (as
designated by the Federal Reserve Bank of New York) in such securities. A
repurchase agreement arises when a Fund purchases a security and simultaneously
agrees to resell it to the vendor at an agreed upon future date. The resale
price is greater than the purchase price, reflecting an agreed upon market rate
of return that is effective for the period of time the Fund holds the security
and that is not related to the coupon rate on the purchased security. Such
agreements generally have maturities of no more than seven days and could be
used to permit a Fund to earn interest on assets awaiting long term investment.
The Funds require continuous maintenance by the custodian for the Fund's account
in the Federal Reserve/Treasury Book Entry System of collateral in an amount
equal to, or in excess of, the market value of the securities that are the
subject of a repurchase agreement. Repurchase agreements maturing in more than
seven days are considered illiquid securities. In the event of a bankruptcy or
other default of a seller of a repurchase agreement, the Fund could experience
both delays in liquidating the underlying security and losses, including: (a)
possible decline in the value of the underlying security during the period while
the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
NON-DIVERSIFIED FUND
The Convertible Technology Fund is a non-diversified investment
company. As such, the investment manager may establish large individual
positions for the Fund, sometimes representing more than 5% of the Fund's total
assets. Therefore, the Fund may be subject to greater risk and substantial
losses as a result of the performance of a small number of issuers. As a
non-diversified fund, Convertible Technology Fund is not limited by the
Investment Company Act of 1940 (the "1940 Act") as to the percentage of its
assets that it may invest in obligations of a single issuer. However, the Fund
will comply with the diversification requirements imposed by the Internal
Revenue Code for qualification as a regulated investment company. Accordingly,
the Fund
B-17
<PAGE> 26
will not: (i) purchase more than 10% of any class of voting securities
of any issuer; (ii) with respect to 50% of its total assets, purchase securities
of any issuer (other than U.S. Government Securities) if, as a result, more than
5% of the total value of the Fund's assets would be invested in securities of
that issuer; and (iii) invest more than 25% of its total assets in a single
issuer (other than U.S. Government Securities).
INVESTMENT RESTRICTIONS
Convertible Technology Fund has elected to be classified as a
non-diversified, open-end investment fund. Each other Fund has elected to be
classified as a diversified, open-end investment fund.
The Funds operate under the following investment restrictions. A Fund
may not (except as indicated):
(i) For each Fund other than Convertible Technology Fund, 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 Fund from (a)
investing in debt obligations, (b) investing in repurchase agreements
or (c) lending portfolio securities;
(vi) invest more than 10% (or 15% in the case of Global Convertible Fund) of
the Fund's net assets (taken at market value at the time of each
purchase) in illiquid securities, including repurchase agreements
maturing in more than seven days;
(vii) borrow, except that the Fund may (a) borrow up to 10% of its total
assets, taken at market value at the time of such borrowing, as a
temporary measure for extraordinary or emergency purposes, but not to
increase portfolio income (the total of reverse repurchase
agreements(1) and such borrowings will not exceed 10% of total assets,
and the Fund will not purchase securities when its borrowings exceed 5%
of total assets) and (b) enter into transactions in options;
(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 that the Market Neutral Fund may
sell securities short.
B-18
<PAGE> 27
The above restrictions are fundamental policies and may not be changed
with respect to a Fund without the approval of a "majority" of the outstanding
shares of that Fund, which for this purpose means the approval of the lesser of
(a) more than 50% of the outstanding voting securities of that Fund or (b) 67%
or more of the outstanding shares if the holders of more than 50% of the
outstanding shares of that Fund are present or represented at the meeting by
proxy.
In addition to the fundamental restrictions listed above, and as a
non-fundamental policy, no Fund may:
(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 a Fund may make short
sales of securities (i) if the Fund 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 and (ii) Market Neutral
Fund may make short sales of securities other than those described in clause
(i), provided that no more than 10% of its net assets would, when added
together, be deposited with brokers as collateral or allocated to segregated
accounts in connection with short sales other than those described in clause
(i);
(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), except that
Global Convertible Fund may invest all of its assets in securities of foreign
issuers.
Non-fundamental Policies - Convertible Technology Fund may not:
(a) With respect to 50% of its total assets, purchase securities of
any issuer (other than securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities) if, as a result, more than 5% of the total
value of the Fund's assets would be invested in securities of that issuer; or
(b) Invest more than 25% of its total assets in a single issuer
(other than securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities).
The non-fundamental investment restrictions above may be changed by the
board of trustees without shareholder approval.
Notwithstanding the foregoing investment restrictions, a Fund may
purchase securities pursuant to the exercise of subscription rights, subject to
the condition, for each Fund other than Convertible Technology Fund, that such
purchase will not result in the Fund'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 Fund's interest in the issuing company
being diluted. The market for such rights is not well developed in all cases
and, accordingly, the Fund may not always realize full value on the sale of
rights. The
B-19
<PAGE> 28
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
Fund's portfolio securities with the result that the Fund would be forced either
to sell securities at a time when it might not otherwise have done so, to forego
exercising the rights.
MANAGEMENT
TRUSTEES AND OFFICERS
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.
Trustee and President, 59 ("CAM"), an investment adviser and the Funds'
investment adviser; President, Calamos
Financial Services, Inc. ("CFS"), a
broker-dealer and the Funds' distributor.
Nick P. Calamos (1) Managing Director and Senior Vice President,
Trustee and Vice President, 38 CAM and CFS.
Richard J. Dowen (2) Professor of Finance, Northern Illinois
Trustee, 55 University.
Robert Frost (2) Management Consultant, ECOM Consultants, Inc.
Trustee, 60
William A. Kaun (2) Principal, W.A. Kaun Co. (investment adviser
Trustee, 72 and publisher).
Rhowena Blank Vice President -Operations, CAM, since 1999;
Treasurer, 31 Director of Operations, Christian Brothers
Investment Services, 1998 - 1999;
Audit Manager, Ernst & Young, LP, 1994 - 1998.
James S. Hamman, Jr. Senior Vice President and General Counsel,
Secretary, 30 CAM, since 1998; Vice 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.
B-20
<PAGE> 29
The trustees of the Trust are also trustees of Calamos Advisors Trust, an
open-end investment company advised by Calamos Asset Management, Inc.
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.
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<PAGE> 30
The following table shows the compensation paid by the Trust for the
year ended March 31, 2000 to each trustee who was not an "interested person" of
the Trust. The information in the last column is for the 1999 calendar year.
Aggregate Total Compensation
Compensation from Calamos
Name of Trustee from the Trust Funds Complex
--------------- -------------- -------------
Richard J. Dowen* $8143 $12,000
Robert Frost $8143 $12,000
William A. Kaun* $8143 $12,000
-------------------
* Includes deferred fees pursuant to a deferred compensation plan with Calamos
Funds. Deferred amounts are treated as though such amounts have been invested
and reinvested in shares of one or more of the Calamos Funds selected by the
trustee. Total deferred amounts payable from the Trust through the Trust's
fiscal year are $3,000 for Mr. Dowen and $3,000 for Mr. Kaun.
Trustees who are "interested" persons of the Trust, as well as officers of the
Trust, are compensated by the Adviser 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 Funds 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 activities of CAM and CFS employees and the interests of investment
advisory clients such as the Funds. 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
Funds by Calamos Asset Management, Inc. (the "Adviser") pursuant to an
Investment Management Agreement (the "Agreement") dated July 5, 1988. See the
prospectus - "Management of the Funds --." Each Fund pays the Adviser a fee
accrued daily and paid monthly. Growth Fund pays a fee at the annual rate of 1%
of the first $500 million of the Fund's average net assets, .90% of the next
$500 million of average net assets, and .80% of average net assets in excess of
$1 billion. Global Convertible Fund, and Convertible Technology Fund each pays a
fee at the annual rate of 1% of average net assets. High Yield Fund pays a fee
at the annual rate of .75% of average net assets. Each other Fund pays a fee at
the annual rate of .75% of the first $500 million of average net assets, .70% of
the next $500 million of average net assets, and .65% of average net assets in
excess of $1 billion.
B-22
<PAGE> 31
During the periods shown below, the Funds (other than the Convertible
Technology Fund which is expected to commence operations on or about September
11, 2000) paid total advisory fees and were reimbursed by the Adviser for
expenses in excess of applicable expense limitations as follows:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
3/31/00 3/31/99 3/31/98
------- ------- -------
<S> <C> <C> <C>
Convertible Fund $ 1,083,224 $ 932,218 $ 579,633
Convertible Growth
and Income Fund
Advisory fee $ 255,587 $ 140,713 $ 92,242
Market Neutral Fund
Advisory fee $ 36,808 $ 11,670 $ 9,079
Waiver or reimbursement $ (73,826) 66,727 49,904
Net fee $ (37,018) $ (55,057) $ (40,825)
Growth Fund
Advisory fee $ 246,083 $ 126,233 $ 92,400
Waiver or reimbursement (87,539) 50,313 28,816
Net fee $ 158,544 $ 75,920 $ 63,584
Global Convertible Fund
Advisory Fee $ 95,492 $ 72,674 $ 49,105
Waiver or reimbursement (111,367) 85,674 51,658
Net Fee (15,875) $ (13,000) $ (2,553)
High Yield Fund*
Advisory Fee $ 3,189
Waiver or reimbursement (47,409)
Net Fee $ (44,220)
</TABLE>
----------------------
* High Yield Fund commenced operations on August 1, 1999.
The Agreement continues in effect with respect to each Fund from year
to year so long as such continuation is approved at least annually by (1) the
board of trustees or the vote of a majority of the outstanding voting securities
of the Fund, 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 as to a Fund
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 names
of the Funds are pursuant to licenses granted by the Adviser, and the Trust has
agreed to change the names to remove those references if the Adviser ceases to
act as investment adviser to the Funds.
B-23
<PAGE> 32
EXPENSES
Subject to the expense limitations described below, the Funds pay all
their own operating expenses that are not specifically assumed by the Adviser,
including (i) fees of the investment adviser; (ii) interest, taxes and any
governmental filing fees; (iii) compensation and expenses of the trustees, other
than those who are interested persons of the Trust, the investment adviser or
the distributor; (iv) legal, audit, custodial and transfer agency fees and
expenses; (v) fees and expenses related to the organization of the Funds and
registration and qualification of the Funds and their 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; (x) distribution
expenses pursuant to the Funds' Distribution Plans; and (xi) brokerage
commissions and other transaction-related costs.
The Adviser has voluntarily undertaken to reimburse each class of
shares for any annual operating expenses through August 31, 2001 in excess of
certain limits as described in the prospectus under "-Who Manages the Funds?."
DISTRIBUTION PLAN
The Trust has adopted a plan pursuant to rule 12b-1 under the
Investment Company Act of 1940 (the "Plans"), whereby Class A shares, Class B
shares and Class C shares of each Fund pay to Calamos Financial Services, Inc.,
the Funds' distributor ("CFS"), service and distribution fees as described in
the prospectus.
The board of trustees of the Trust has determined that a continuous
cash flow resulting from the sale of new Class A shares, Class B shares and
Class C shares is necessary and appropriate to meet redemptions and to take
advantage of buying opportunities without having to make unwarranted
liquidations of portfolio securities. The board also considered that continuing
growth in the size of the Funds would be in the best interests of shareholders
because increased size would allow the Funds to realize certain economies of
scale in their operations and would likely reduce the proportionate share of
expenses borne by each shareholder. The board of trustees therefore determined
that it would benefit each of the Funds to have monies available for the direct
distribution and service activities of CFS, as the Funds' distributor, in
promoting the continuous sale of the Funds' shares. The board of trustees,
including the non-interested trustees, concluded, in the exercise of their
reasonable business judgment and in light of their fiduciary duties, that there
is a reasonable likelihood that the Plans will benefit the Funds and their
shareholders.
The Plan has been approved by the board of trustees, including all of
the trustees who are non-interested persons as defined in the 1940 Act. The
substance of the Plan has also been approved by the vote of a majority of the
outstanding shares of each of the Funds. The Plan must be reviewed annually and
may be continued from year to year by vote of the board of trustees, including a
majority of the trustees who are non-interested persons of the Funds and who
have no direct or indirect financial interest in the operation of the Plan
("non-interested trustees"), cast in person at a meeting called for that
purpose. It is also required that the selection and nomination of non-interested
trustees be done by non-interested trustees. The Plan and any distribution or
service agreement may be terminated at any time, without any penalty, by such
trustees, by any act that terminates the distribution agreement between the
Trust and CFS, or, as to any Fund, by vote of a majority of that Fund's
outstanding shares. Any agreement related to the Plan, including any
distribution or service agreement, may be terminated in the same manner, except
that termination by a majority of the outstanding shares must be on not more
than 60 days' written
B-24
<PAGE> 33
notice to any other party to such agreement. Any distributor, dealer or
institution may also terminate its distribution or service agreement at any time
upon written notice.
Neither the Plan nor any distribution or service agreement may be
amended to increase materially the amount spent for distribution or service
expenses or in any other material way without approval by a majority of the
outstanding shares of the affected Fund, and all such material amendments to the
Plan or any distribution or service agreement must also be approved by the
non-interested trustees, in person, at a meeting called for the purpose of
voting on any such amendment.
CFS is required to report in writing to the board of trustees at least
quarterly on the amounts and purpose of any payments made under the Plan and any
distribution or service agreement, as well as to furnish the board with such
other information as may reasonably be requested in order to enable the board to
make an informed determination of whether the Plan should be continued. Payments
by a Fund pursuant to the Plan are not intended to finance distribution of
shares of the other Funds.
During the year ended March 31, 2000, each of the Funds (other than
Convertible Technology Fund, which is expected to commence operations on or
about September 11, 2000) made payments to CFS pursuant to the Plan in the
following amounts:
<TABLE>
<CAPTION>
Market Global High
Convertible Convertible Growth Neutral Growth Convertible Yield
Fund and Income Fund Fund Fund Fund Fund
---- --------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$764,245 $180,210 $24,612 $120,179 $49,925 $ 2,126 *
*For period August 1, 1999 through March 31, 2000.
</TABLE>
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the Funds' prospectus under
the headings "How Can I Buy Shares?" and "How Can I Sell Shares?" All of that
information is incorporated herein by reference.
You may purchase or redeem shares of the Funds through certain
investment dealers, banks or other intermediaries ("Intermediaries"). These
Intermediaries may charge for their services. Any such charges could constitute
a substantial portion of a smaller account, and may not be in your best
interest. You may purchase or redeem shares of the Funds directly from or with
the Trust without any charges other than those described in the prospectus.
An Intermediary, who accepts orders that are processed at the net asset
value next determined after receipt of the order by the Intermediary, accepts
such orders as agent of the Trust. The Intermediary is required to segregate any
orders received on a business day after the close of regular session trading on
the New York Stock Exchange and transmit those orders separately for execution
at the net asset value next determined after that business day.
HOW TO PURCHASE SHARES
Shares of the Funds are sold through selected broker-dealers and banks that have
signed agreements with CFS, or may be purchased by check or wire as described
below. The minimum initial investment by a shareholder is $500
B-25
<PAGE> 34
and $50 thereafter. Each Fund reserves the right to reject any order for the
purchase of its shares in whole or in part, and to suspend the sale of its
shares to the public in response to conditions in the securities markets or
otherwise. Each purchase of shares is confirmed by a written statement mailed to
the shareholder, without issuance of share certificates.
OFFERING PRICE
Class A shares of each Fund are sold to investors at net asset value plus a
sales charge, which may be reduced or waived as described below. Class B shares
are sold without an initial sales charge but are subject to higher ongoing
expenses than Class A shares of the same Fund, and a contingent deferred sales
charge payable upon certain redemptions. Class C shares of each Fund are sold
without an initial sales charge but are subject to higher ongoing expenses than
Class A shares of the same Fund. When placing an order, you must specify whether
the order is for Class A, Class B or Class C shares.
The differences between Class A shares, Class B shares and Class C shares lie
primarily in their initial and contingent deferred sales charge structures and
in their asset-based sales charges in the form of Rule 12b-1 distribution fees.
These differences are summarized in the table below. See also "Expenses" and
"How to Redeem Shares." Each class has distinct advantages and disadvantages for
different investors, and you may choose the class that best suits your
circumstances and objectives.
Annual 12b-1 Fees
(as a % of average
Class Sales Charge daily net assets) Other Information
----- ------------ ----------------- -----------------
Class A Maximum initial sales charge .25% Initial sales
of 4.75% of offering price charge waived or
reduced for
certain purchases*
Class B Maximum contingent deferred 1.00% Shares convert to
sales charge of 5% of Class A shares
redemption proceeds; declines 8 years after
to zero after 6 years issuance
Class C 1% deferred sales charge on 1.00%** No conversion
shares redeemed within one feature
year
--------------
* See the note to the following table.
** The 12b-1 fee of 1% for the first year is advanced to the Selling Dealer by
CFS from its own resources at the time of investment. Annual 12b-1 fees are
paid quarterly in arrears beginning in the second year. Of this amount, .25%
is for administrative services and the balance is for distribution services.
The sales charges on sales of Class A shares of each Fund (except when waived as
described below under "How to Purchase Shares - Sales Charge Waiver") are as
follows:
B-26
<PAGE> 35
<TABLE>
<CAPTION>
Sales Charge Paid by Investor on Purchase of Class A Shares
-----------------------------------------------------------
As a % of As a % of % of Offering Price
Net Amount Invested Offering Price Retained by Selling Dealer
<S> <C> <C> <C>
Less than $50,000..................... 4.99% 4.75% 4.00%
$50,000 but less than $100,000........ 4.44 4.25 3.50
$100,000 but less than $250,000....... 3.63 3.50 2.75
$250,000 but less than $500,000....... 2.56 2.50 2.00
$500,000 but less than $1,000,000..... 2.04 2.00 1.60
$1,000,000 or more*................... None None None
</TABLE>
--------------
* On an investment of $1 million or more, CFS from its own resources pays the
selling dealer a commission of .50% of the amount of the investment, subject
to repayment of the commission if the shares are redeemed within one year
after purchase. If you purchase such shares without a sales charge (other
than by reinvestment of dividends or distributions and redeem them within two
years, a contingent deferred sales charge will be imposed at the rate of 1%
on shares redeemed within one year after purchase, and, if you purchased
shares after July 31, 2000, .50% on shares redeemed during the second year
after purchase ), determined on a first-in, first-out basis.
Each Fund receives the entire net asset value of all of its Class A shares sold.
CFS, the Funds' principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers. The normal discount to dealers is set
forth in the above table. Upon notice to all dealers with whom it has sales
agreements, CFS may allow up to the full applicable sales charge, as shown in
the above table, during periods and for transactions specified in such notice
and such reallowances may be based upon attainment of minimum sales levels.
Dealers who receive 90% or more of the sales charge may be deemed to be
underwriters under the Securities Act of 1933. CFS retains the entire amount of
any deferred sales charge on Class C shares redeemed within one year of
purchase. CFS may from time to time conduct promotional campaigns in which
incentives would be offered to dealers meeting or exceeding stated target sales
of shares of a Fund. The cost of any such promotional campaign, including any
incentives offered, would be borne entirely by CFS and would have no effect on
either the public offering price of Fund shares or the percentage of the public
offering price retained by the selling dealer.
CFS compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 4.00% of the amount of Class B shares purchased. CFS is
compensated by each Fund for services as distributor and principal underwriter
for Class B shares. Class B shares of a Fund will automatically convert to Class
A shares of the same Fund eight years after issuance on the basis of the
relative net asset value per share. The purpose of the conversion feature is to
relieve holders of Class B shares from the 12b-1 fee when they have been
outstanding long enough for CFS to have been compensated for distribution
related expenses. For purposes of conversion to Class A shares, shares purchased
through the reinvestment of dividends and other distributions paid with respect
to Class B shares in a shareholder's Fund account will be converted to Class A
shares on a pro rata basis.
WHICH CLASS OF SHARES SHOULD YOU PURCHASE?
The decision as to which class of shares you should purchase depends on a number
of factors, including the amount and intended length of the investment.
Investors making investments that qualify for reduced sales charges might
consider Class A shares. Investors who prefer not to pay an initial sales charge
and who plan to hold their investment for more than eight years might consider
Class B shares. Investors who prefer not to pay an initial sales charge but who
plan to redeem their shares within eight years might consider Class C shares.
Orders for Class B shares or Class C shares for $500,000 or more will be
declined. For more information about the three share classes, consult your
financial representative or call us at (800) 823-7826. Financial services
firms may receive different compensation depending upon which class of shares
they sell.
B-27
<PAGE> 36
PURCHASES BY WIRE
You may also purchase shares by wiring funds from your bank. To insure proper
credit to your account, please call the Funds at (800) 823-7386 before sending
your wire. The wire should be sent to Firstar Bank, N.A.; ABA #075000022; for
Firstar Mutual Fund Services, LLC, 615 E. Michigan St., Milwaukee, WI 53202,
bank account no. 112-952-137; FBO Calamos [fund name] Fund; [shareholder name
and account number]. The applicable offering price for a purchase by wire is the
offering price per share next determined after receipt of the wired funds.
Receipt of a wire could be delayed by delays on the Federal Reserve wire system.
After you have wired funds, you must complete the application form and send it
to CFS. A Fund will not honor redemption requests until the completed
application has been received, and failure to submit a completed application may
result in backup withholding as required by the Internal Revenue Code.
PURCHASES BY MAIL
You may also purchase shares of a Fund by sending a check payable to the Fund,
along with information identifying you and your account number to the Fund's
transfer agent: Firstar Mutual Fund Services, LLC, 615 E. Michigan St.,
Milwaukee, WI 53202. An initial investment made by check must be accompanied by
a completed application. A subsequent investment may be made by detaching the
stub from your account statement and sending it with your check in the envelope
provided with your statement. All checks must be drawn on a U.S. bank in U.S.
funds. A check written by a third party will not be accepted. A charge ($20
minimum) may be imposed if any check submitted for investment does not clear. If
you purchase shares by check, you will not be able to redeem the shares until
the check has been collected, which may take 15 days.
PURCHASES BY EXCHANGE
You may purchase shares of a Fund by exchange of shares from another Fund, by
exchange of shares of Money Market Portfolio, a portfolio of Cash Account Trust
(such shares are referred to as "Cash Account Shares") either by mail or by
instructing your broker-dealer or other sales agent, who will communicate your
order to the Trust's transfer agent. If you have a brokerage account with
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") that holds
shares of Summit Cash Reserves Fund, a series of Financial Institution Series
Trust (such shares are referred to as "Summit Fund Shares"), and the Summit Fund
Shares were purchased by exchange from a Fund, you may purchase shares of a Fund
through your Merrill Lynch broker by exchange of Summit Fund Shares. See "How to
Redeem Shares - Redemption by Exchange." YOU MAY NOT MAKE MORE THAN FOUR
EXCHANGES FROM ANY FUND DURING ANY CALENDAR YEAR. No sales charge is imposed on
purchases of Class A shares by exchange of Class A shares from another Fund or
by exchange of Cash Account Shares or Summit Fund Shares, previously purchased
through use of the exchange privilege. Please review the information under "How
to Redeem Shares - Redemption by Exchange."
SALES CHARGE WAIVER
Dividends and distributions paid on shares of a Fund will be reinvested in
shares of the same class of that Fund at net asset value (without the payment of
any sales charge) unless you elect to receive dividends and distributions in
cash. Proceeds of shares redeemed by a Fund within the previous 60 days also may
be reinvested in shares of the same class of that Fund at net asset value
without the payment of any sales charge.
In addition, the following persons or entities may purchase Class A shares of a
Fund at net asset value without payment of any sales charge, upon written
assurance that the purchase is made for investment purposes and that the shares
will not be sold except through redemption by the Fund: (a) any investor
purchasing shares upon the recommendation of an investment consultant to whom
the investor pays a fee for services relating to investment selection; (b) any
investor purchasing shares through an investment advisory account with the
Adviser or through a
B-28
<PAGE> 37
brokerage account with CFS over which CFS has investment discretion; (c) any
investor purchasing shares in a non-discretionary, non-advisory, asset-based-fee
brokerage account of a broker dealer having a selling group agreement with CFS;
(d) any investor purchasing shares by exchange of Cash Account Shares or Summit
Fund Shares previously purchased through use of the exchange privilege; (e) any
employee benefit plan having more than 200 eligible employees or a minimum of $1
million of plan assets invested in the Funds; (f) any employee benefit plan
purchasing shares through an intermediary that has signed a participation
agreement with CFS specifying certain asset minimums and qualifications, and
marketing, program and trading restrictions; (g) any insurance company separate
account used to fund annuity contracts for employee benefit plans having in the
aggregate more than 200 eligible employees or a minimum of $1 million of plan
assets invested in the Funds; (h) any employee or registered representative of
CFS, one of its affiliates or a broker-dealer with a selling group agreement
with CFS; (i) any trustee of the Trust; (j) any member of the immediate family
of a person qualifying under (h) or (i), including a spouse, child, stepchild,
sibling, parent, stepparent, grandchild and grandparent, in each case including
in-law and adoptive relationships; (k) any trust, pension, profit sharing, or
other benefit plan in which any person qualifying under (h) is a participant;
(l) any 401(k) plan (cash or deferred arrangement intended to qualify under
section 401(k) of the Internal Revenue Code) or other qualified retirement plan
to which a person qualifying under (h), (i) or (j) makes voluntary contributions
and has investment self-direction, provided the purchase is for the account of
such person; (m) any company exchanging shares with a Fund pursuant to a merger,
acquisition or exchange offer; and (n) any investor buying shares through a
brokerage account with a broker-dealer who has waived the initial sales charge
to which the broker-dealer otherwise would be entitled. Please note that, if you
purchase or redeem shares through a broker or dealer, the broker or dealer may
charge a fee for effecting the transaction.
Further, no sales charge will be imposed on the sale of Class A shares of a Fund
purchased and paid for with the proceeds of shares redeemed in the prior 12
months from a mutual fund on which an initial sales charge or contingent
deferred sales charge was paid, provided a waiver of the sales charge is
requested when the purchase order for Fund shares is placed, any requested
evidence of eligibility for the sales charge waiver is furnished; and any
shareholder of Convertible Fund at April 30, 1992, the date on which that Fund
became a series of the Trust and sales of Fund shares became subject to a sales
charge, may continue to purchase Class A shares of Convertible Fund without a
sales charge if the Fund or participating broker is notified at the time of each
qualifying purchase.
RIGHTS OF ACCUMULATION
The sales charges described above also apply on a cumulative basis to Class A
shares of the Funds and any other series of the Trust as to which a sales charge
applies, and over any period of time. Therefore, the value of all your Class A
shares of a Fund and any other series of the Trust with respect to which a sales
charge was paid, taken at the current offering price or original cost, whichever
is greater, can be combined with a current purchase to determine the applicable
offering price of the current purchase. In order to receive the cumulative
quantity reduction, you must give CFS or your dealer notification of the prior
purchases at the time of the current purchase.
LETTER OF INTENT
You may reduce the sales charges you pay on the purchase of Class A shares by
making investments pursuant to a letter of intent. The applicable sales charge
then is based upon the indicated amount intended to be invested during a
thirteen-month period in shares of the Funds as to which a sales charge would be
imposed and any other series of the Trust. You may compute the thirteen-month
period starting up to ninety days before the date of execution of the letter of
intent. Your initial investment must be at least 5% of the amount your letter of
intent indicates you intend to invest. Each investment made during the period
receives the reduced sales charge applicable to the total amount of the intended
investment. During the term of the letter of intent, shares representing 5% of
the indicated amount will be held in escrow. Shares held in escrow have full
dividend and voting privileges. The escrowed shares will be released when the
full amount indicated has been purchased. If the full indicated amount is not
B-29
<PAGE> 38
purchased during the term of the letter of intent, you will be required to pay
CFS an amount equal to the difference between the dollar amount of the sales
charges actually paid and the amount of the sales charges which you would have
paid on your aggregate purchase if the total of such purchases had been made at
a single time, and CFS reserves the right to redeem shares from your account if
necessary to satisfy that obligation. A letter of intent does not obligate you
to buy or a Fund to sell the indicated amount of the shares but you should read
it carefully before signing. Additional information is contained in the letter
of intent included in the application.
HOW TO REDEEM SHARES
Shares of the Funds will be redeemed at the respective net asset value next
determined after receipt of a redemption request in good form on any day the New
York Stock Exchange is open for trading. Requests received after the time for
computation of a Fund's net asset value for that day will be processed the next
business day.
If Class C shares, or Class A shares for which the initial purchase price was $1
million or more, on which no initial sales charge was imposed are redeemed
within one year after purchase (other than by reinvestment of dividends or
distributions), determined on a first-in, first-out basis, a contingent deferred
sales charge of 1% of the purchase price will be imposed. A contingent deferred
sales charge of .50% of the purchase price will be imposed on the redemption
during the second year after purchase of Class A shares, where the initial
purchase price was $1 million or more.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
A contingent deferred sales charge may be imposed upon redemption of Class B
shares. There is no such charge upon redemption of any share appreciation or
reinvested dividends on Class B shares. The charge is computed at the following
rates applied to the value of the shares redeemed excluding amounts not subject
to the charge.
Contingent
Deferred
Year of Redemption Sales
After Purchase Charge
------------------ -----------
First 5%
Second 4%
Third or Fourth 3%
Fifth 2%
Sixth 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Systematic
Withdrawal Plan" below), (d) for redemptions made pursuant to any IRA systematic
withdrawal based on the shareholder's life expectancy including, but not limited
to, substantially equal periodic payments described in Internal Revenue Code
Section 72(t)(2)(iv) prior to age 59 1/2 and (e) for redemptions to satisfy
required minimum distributions after age 70 1/2 from an IRA account (with the
maximum amount subject to this waiver being based only upon the shareholder's
Calamos IRA accounts).
B-30
<PAGE> 39
CONTINGENT DEFERRED SALES CHARGE - GENERAL INFORMATION.
The following example will illustrate the operation of the contingent deferred
sales charge. Assume that you make a single purchase of $10,000 of a Fund's
Class B shares and that 18 months later the value of the shares has grown by
$1,000 through reinvested dividends and by an additional $2,000 of share
appreciation to a total of $13,000. If you were then to redeem the entire
$13,000 in share value, the contingent deferred sales charge would be payable
only with respect to $10,000 because neither the $1,000 or reinvested dividends
nor the $2,000 of share appreciation is subject to the charge. The charge would
be at the rate of 4% ($400) because it was in the second year after the purchase
was made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in July,
2000 will be eligible for the second year's charge if redeemed on or after July
1, 2001. In the event no specific order is requested when redeeming shares
subject to a contingent deferred sales charge, the redemption will be made first
from shares representing reinvested dividends and then from the earliest
purchase of shares. CFS receives any contingent deferred sales charge directly.
REDEMPTION BY MAIL
A written request for redemption (and an endorsed share certificate, if issued)
must be received by the Trust's transfer agent at its address shown under
"Purchases by Mail" above to constitute a valid redemption request.
Your redemption request must:
1. specify the Fund, your account number and the number of shares or dollar
amount to be redeemed, if less than all shares are to be redeemed;
2. be signed by all owners exactly as their names appear on the account; and
3. include a signature guarantee for each signature on the redemption request
by CFS, by a securities firm that is a member of the New York Stock
Exchange, or by a bank, savings bank, credit union, savings and loan
association or other entity that is authorized by applicable state law to
guarantee signatures.
In the case of shares held by a corporation, the redemption request must be
signed in the name of the corporation by an officer whose title must be stated,
and a certified bylaw provision or resolution of the board of directors
authorizing the officer to so act may be required. In the case of a trust or
partnership, the signature must include the name of the registered shareholder
and the title of the person signing on its behalf. Under certain circumstances,
before shares can be redeemed, additional documents may be required in order to
verify the authority of the person seeking to redeem.
REDEMPTION BY WIRE OR TELEPHONE
Broker-dealers or other sales agents may communicate redemption orders by wire
or telephone to the Trust's transfer agent. These firms may charge for their
services in connection with your redemption request but the Funds do not impose
any such charges. Additionally, if your shares are held for you by the Trust's
transfer agent, you may redeem up to $50,000 worth of shares by telephone, as
described in the prospectus under "How Can I Sell Shares?"
EXPEDITED REDEMPTION
Unless share certificates have been issued to you, you may have redemption
proceeds of at least $5,000 wired directly to a domestic commercial bank account
or brokerage account that you have previously designated. Normally, such
payments will be transmitted no later than the second business day following
receipt of your
B-31
<PAGE> 40
redemption request (provided redemptions may be made under the general criteria
set forth below). A $9 service charge for payment of redemption proceeds by wire
will be deducted from the proceeds.
REDEMPTION BY EXCHANGE
You may redeem all or any portion of your shares of a Fund and use the proceeds
to purchase shares of any of the other Funds or Cash Account Shares (or Summit
Fund Shares if your Fund shares are held in a brokerage account with Merrill
Lynch and Merrill Lynch has commenced offering the exchange program for Summit
Fund Shares) if your signed, properly completed application is on file. AN
EXCHANGE TRANSACTION IS A SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX
PURPOSES AND MAY RESULT IN CAPITAL GAIN OR LOSS. YOU MAY NOT MAKE MORE THAN FOUR
EXCHANGES FROM ANY FUND IN ANY CALENDAR YEAR. Before exchanging into Cash
Account Shares (or Summit Fund Shares), you should obtain the prospectus
relating to those shares from the Adviser (or from Merrill Lynch, in the case of
Summit Fund Shares) and read it carefully. The exchange privilege is not an
offering or recommendation of Cash Account Shares or Summit Fund Shares. The
registration of the account to which you are making an exchange must be exactly
the same as that of the account from which the exchange is made and the amount
you exchange must meet any applicable minimum investment of the fund being
purchased. An exchange may be made by following the redemption procedure
described above under "Redemption by Mail" and indicating the fund to be
purchased, except that a signature guarantee normally is not required. An
exchange may also be made by instructing your broker-dealer or other sales
agent, who will communicate your instruction to CAM. No sales charge is imposed
on purchases by exchange.
GENERAL
A check for proceeds of a redemption will not be released until the check used
to purchase the shares has been collected, which is usually no more than 15 days
after purchase. You may avoid this delay by purchasing shares through a wire
transfer of funds. A Fund may suspend the right of redemption under certain
extraordinary circumstances in accordance with the rules of the Securities and
Exchange Commission. Due to the relatively high cost of handling small accounts,
each Fund reserves the right upon 30 days' written notice to involuntarily
redeem, at net asset value, the shares of any shareholder whose account has a
value of less than $500, unless the reduction in value to less than $500 was the
result of market fluctuation.
PLEASE TELEPHONE THE FUNDS IF YOU HAVE ANY QUESTIONS ABOUT REQUIREMENTS FOR A
REDEMPTION BEFORE SUBMITTING A REQUEST. YOU MAY NOT CANCEL OR REVOKE YOUR
REDEMPTION REQUEST ONCE YOUR INSTRUCTIONS HAVE BEEN RECEIVED AND ACCEPTED.
SHAREHOLDER ACCOUNTS
Each shareholder of a Fund receives quarterly account statements showing
transactions in shares of the Fund and with a balance denominated in Fund
shares. A confirmation will be sent to the shareholder upon purchase,
redemption, dividend reinvestment, or change of shareholder address (sent to the
former address).
RETIREMENT PLANS
You may use the Funds as investments for your Individual Retirement Account
("IRA"), profit sharing or pension plan, Section 40l(k) plan, Section 403(b)(7)
plan in the case of employees of public school systems and certain non-profit
organizations, and certain other qualified plans. A master IRA plan and
information regarding plan administration, fees, and other details are available
from CFS and authorized broker-dealers.
SYSTEMATIC WITHDRAWAL PLAN
You may request that a Fund periodically redeem shares having a specified
redemption value and send you a check for the proceeds. In order to initiate the
Systematic Withdrawal Plan, call (800) 823-7826 and request a Systematic
Withdrawal form. Your account must have a share balance of $25,000 or more.
Withdrawal proceeds are likely to exceed dividends and distributions paid on
shares in your account and therefore may deplete and eventually
B-32
<PAGE> 41
exhaust your account. The periodic payments are proceeds of redemption and are
taxable as such. The maximum annual rate at which Class B shares may be redeemed
(and Class C shares in their first year following purchase and Class A shares
purchased in amounts of $1,000,000 or more) under a systematic withdrawal plan
is 10% of the net asset value of the account. Because a sales charge is imposed
on purchases of shares of the Funds, you should not purchase shares while
participating in the Systematic Withdrawal Plan. You may modify or terminate
your Systematic Withdrawal Plan by written notice to the transfer agent at least
seven business days prior to the start of the month in which the change is to be
effective.
AUTOMATIC BANK DRAFT PLAN
If you own shares of a Fund, you may purchase additional shares of that Fund
through the Automatic Bank Draft Plan. Under the Plan, the Trust will
automatically debit your bank checking account on a monthly or semi-monthly
basis in an amount ($50 or more) specified by you and invest the specified
amount in additional shares of the Fund. To obtain an Automatic Bank Draft Plan
form, call (800) 823-7386. The Plan is not available to clients of service
organizations that offer similar investment services.
EXCHANGE PRIVILEGE
You may exchange shares of any Fund for shares of another Fund or for Cash
Account Shares (or for Summit Fund Shares if your Fund shares are held in a
brokerage account with Merrill Lynch) or exchange Cash Account Shares or Summit
Fund Shares for shares of a Fund, without payment of any sales charge as
described above under "How to Purchase Shares - Purchase by Exchange" and "How
to Redeem Shares - Redemption by Exchange."
NET ASSET VALUE
In computing the net asset value of each Fund, 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 a Fund'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.
Each Fund's net asset value is determined only on days on which the New
York Stock Exchange (the "NYSE") is open for trading. That Exchange 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
B-33
<PAGE> 42
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 Fund's net asset value is not calculated. Therefore,
such calculation does not take place contemporaneously with the determination of
the prices of many of the portfolio securities used in such calculation and the
value of the Fund's portfolio may be significantly affected on days when shares
of the Fund may not be purchased or redeemed.
REDEMPTION IN KIND
The Funds have elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which they are obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of a Fund 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.
PERFORMANCE INFORMATION
TOTAL RETURN
From time to time the Funds may quote total return figures. "Total
Return" for a period is the percentage change in value during a period of an
investment in Fund 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.
B-34
<PAGE> 43
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)
Total Return (taking into account the effect of the sales charge) and
Average Annual Total Return for each of the Funds (other than Convertible
Technology Fund, which is expected to commence operations on or about September
11, 2000) was as shown below for the following periods ended March 31, 2000.
<TABLE>
<CAPTION>
Average Annual
Total Return Total Return
------------------------------ ----------------------------
Class A Class C Class I Class A Class C Class I
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Convertible Fund
One year 31.58% 37.38 38.74 31.58 37.38 38.74
Five years 159.35% N/A N/A 20.97 N/A N/A
Ten years 336.03 N/A N/A 15.85 N/A N/A
Life of Class (A Shares, 6/21/85; 520.93 105.05 71.00 13.14 21.17 21.39
C Shares, 7/5/96; I Shares, 6/25/97)
Convertible Growth and Income Fund
One year..................................... 52.21 58.93 60.54 52.21 58.93 60.54
Five years................................... 236.72 N/A N/A 27.45 N/A N/A
Ten years.................................... 479.40 N/A N/A 19.19 N/A N/A
Life of Class (A Shares, 9/22/88; ........... 17.86 29.49 30.79
C Shares, 7/5/96; I Shares, 6/25/97)......... 565.01 157.13 97.43
Market Neutral Fund
One year..................................... 11.55 N/A N/A 11.55 N/A N/A
Five years................................... 71.12 N/A N/A 11.33 N/A N/A
Life of Class (A shares, 9/4/90;............. 141.17 N/A 9.63 N/A N/A
C shares, 2/16/00).......... 2.03*
Growth Fund
One year..................................... 112.78 112.17 123.84 112.78 122.17 123.84
Five years................................... 518.09 N/A N/A N/A N/A N/A
Life of Class (A Shares, 9/4/90;............. 43.89
C Shares, 9/3/96; I Shares, 9/18/97)..... 850.29 318.94 180.66 26.50 49.28 50.26
Global Convertible Fund
One Year..................................... 35.99 42.02 42.55 35.99 42.02 42.55
Life of Class (A Shares, 9/9/96; ............ 101.18 107.59 66.82 21.70 23.08 22.38
C Shares, 9/24/96; I Shares, 9/18/97)........
High Yield Fund
Life of Class (8/1/99)....................... (6.19)* N/A N/A N/A N/A N/A
----------------
*Not annualized
</TABLE>
B-35
<PAGE> 44
YIELD
Each Fund other than Growth Fund may also quote yield figures. The
yield of a Fund 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
The annualized yields of Market Neutral Fund and High Yield Fund for
the 30 days ended March 31, 2000 was as follows:
<TABLE>
<CAPTION>
Class A Class C Class I
------- ------- -------
<S> <C> <C> <C>
Market Neutral Fund 2.85% 2.42% N/A
High Yield Fund 7.02% N/A N/A
</TABLE>
The figures quoted assume reinvestment of all dividends and
distributions. Quotations of Average Annual Total Return take into account the
effect of any sales charge on the amount available for investment or redemption;
quotations of Total Return will indicate whether or not the effect of the sales
charge is included. Income taxes are not taken into account. The figures will
not necessarily be indicative of future performance. The performance of a Fund
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 a Fund'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.
In advertising and sales literature, the performance of a Fund 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
B-36
<PAGE> 45
composition of these indexes, averages or accounts differs from that of the
Funds. Comparison of a Fund 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 Funds generally believe to be
accurate. A Fund may also note its mention (including performance or other
comparative rankings) in newspapers, magazines, or other media from time to
time. However, the Funds assume no responsibility for the accuracy of such data.
Newspapers and magazines which might mention the Funds include, but are not
limited to, the following:
Barron's Money
Business Week Mutual Fund Letter
Changing Times Mutual Fund Magazine
Chicago Tribune Mutual Fund Values (Morningstar)
Chicago Sun-Times Newsweek
Crain's Chicago Business The New York Times
Consumer Reports Pensions and Investments
Consumer Digest Personal Investor
Financial World Smart Money
Forbes Stanger Reports
Fortune Time
Investor's Daily USA Today
Los Angeles Times U.S. News and World Report
The Wall Street Journal
Each Fund may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation.
The performance of a Fund may be compared to various indexes or
averages, including but not limited to, CONVERTIBLE FUND, CONVERTIBLE GROWTH AND
INCOME FUND AND CONVERTIBLE TECHNOLOGY FUND - Standard & Poor's 500 Stock Index,
Standard & Poor's 400 MidCap Index, Value Line Index, Lipper Balanced Fund
Index, Lipper Convertible Fund Index, Credit Suisse First Boston Convertible
Index, Lipper Growth and Income Index, Lehman Brothers Government/Corporate
Index; MARKET NEUTRAL FUND - Lipper Long-Term Income Fund Index, Lehman Brothers
Corporate/Government Index, 30-day Treasury Bills; GROWTH FUND - Standard &
Poor's 500 Stock Index, Value Line Index, Lipper Growth Fund Average; GLOBAL
CONVERTIBLE FUND - Morgan Stanley Capital International World Index; HIGH YIELD
FUND - Lehman Brothers Government/Corporate Bond Index, DLJ High Yield Index,
Merrill Lynch High Yield Master Index. The performance of a Fund 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 Analytical
Services, Inc. ("Lipper"), an independent service that monitors the performance
of more than 1,000 funds. The Funds 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 a Fund
to a different category or develop (and place a Fund into) a new category, that
Fund may compare its performance or ranking against other funds in the newly
assigned category, as published by the service. Moreover, each Fund
B-37
<PAGE> 46
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 Portfolios 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 Funds, 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 Funds without any charge to the Funds except the fees
paid to CFS under the Distribution Plans. CFS is also responsible for all
expenses incurred in connection with its performance of services for the Funds,
including, but not limited to, personnel, office space and equipment, telephone,
postage and stationery expenses. CFS receives commissions from sales of shares
of the Funds that are not expenses of the Funds but represent sales commissions
added to the net asset value of shares purchased from the Funds. See "How to
Purchase Shares -- Offering Price" in the prospectus. CFS also receives
brokerage commissions for executing portfolio transactions for the Funds. See
"Portfolio Transactions." CFS received and retained commissions on the sale of
shares of the Funds (other than Convertible Technology Fund which is expected to
commence operations on or about September 11, 2000) as shown below during the
indicated periods:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
3/31/00 3/31/99 3/31/98
-------- -------- ---------
<S> <C> <C> <C>
Convertible Fund
Commissions received $284,336 $231,244 $282,787
Commissions retained 50,153 50,628 49,045
Convertible Growth and Income Fund
Commissions received 151,741 40,059 9,268
Commissions retained 25,787 12,310 1,951
Market Neutral Fund
Commissions received 17,345 3,805 1,071
Commissions retained 2,722 776
Growth Fund
Commissions received 78,358 972 1,203
Commissions retained 13,555 492 756
Global Convertible Fund
Commissions received 14,090 1,490 76
Commissions retained 2,420 250 36
High Yield Fund*
Commissions received 24,745 N/A N/A
Commissions retained 4928
</TABLE>
* High Yield Fund commenced operation on August 1, 1999.
B-38
<PAGE> 47
CFS has the exclusive right to distribute shares of the Funds through
affiliated and unaffiliated dealers. The obligation of CFS is an agency or "best
efforts" arrangement, which does not obligate CFS to sell any stated number of
shares.
In connection with the exchange privilege, CFS acts as a service
organization for the Money Market Portfolio, which is a portfolio of Cash
Account Trust. For its services it receives from the portfolios or their
affiliates fees at a rate of .60% of the average annual net assets of each
account in the portfolio established through the exchange plan.
CFS from its own resources may pay additional compensation to persons
who sell Fund shares or provide subaccounting and shareholder servicing. Such
additional compensation may amount to as much as .25% of the offering price,
depending on the volume of sales or anticipated volume of sales attributable to
the recipient of the commission, and up to .10% of the annual average value of
shares held in such accounts.
PORTFOLIO TRANSACTIONS
Portfolio transactions on behalf of the Funds 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 Funds usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings, the price
paid by the Funds includes a disclosed, fixed commission or discount retained by
the underwriter or dealer.
In executing portfolio transactions, the Adviser uses its best efforts
to obtain for the Funds the most favorable price and execution available. In
seeking the most favorable price and execution, the Adviser 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 Funds
may be executed through CFS if, in the judgment of the Adviser, the use of CFS
is likely to result in prices and execution at least as favorable to the Funds
as those available from other qualified brokers and if, in such transactions,
CFS charges the Funds commission rates consistent with those charged by CFS to
comparable
B-39
<PAGE> 48
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
Funds will not effect principal transactions with CFS.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable
combination of net price and execution available and such other policies as the
trustees may determine, the Adviser may consider sales of shares of a Fund as a
factor in the selection of broker-dealers to execute portfolio transactions for
that Fund.
In allocating the Funds' portfolio brokerage transactions to
unaffiliated broker-dealers, the Adviser 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 Adviser believes these services have substantial
value, they are considered supplemental to the Adviser's own efforts in the
performance of its duties under the management agreement. As permitted by
Section 28(e) of the Securities Exchange Act of 1934 ("1934 Act"), the Adviser
may pay a broker-dealer that provides brokerage and research services an amount
of commission for effecting a securities transaction for a Fund in excess of the
commission that another broker-dealer would have charged for effecting that
transaction if the amount is believed by the Adviser to be reasonable in
relation to the value of the overall quality of the brokerage and research
services provided. Other clients of the Adviser may indirectly benefit from the
availability of these services to the Adviser, and the Funds may indirectly
benefit from services available to the Adviser as a result of transactions for
other clients.
The following table shows for each Fund (other than the Convertible
Technology Fund, which is expected to commence operations on or about September
11, 2000) for the past three fiscal years: (i) the aggregate principal amount of
all portfolio transactions; (ii) the percentage of the aggregate principal
amount of all portfolio transactions executed by CFS as agent; (iii) the
aggregate principal amount of all transactions executed on an agency basis, as
to which the Fund paid brokerage commissions; (iv) the percentage of the
aggregate principal amount of such transactions executed through CFS; (v) the
aggregate brokerage commissions (excluding the gross underwriting spread on
securities purchased in underwritten public offerings) paid to all brokers; (vi)
the aggregate brokerage commissions paid to CFS; and (vii) the percentage of
aggregate brokerage commissions paid to CFS.
B-40
<PAGE> 49
<TABLE>
<CAPTION>
(i) (ii) (iii) (iv) (v) (vi) (vii)
----------- -------- ------------ --------- ----------- ----------- -------
% of (i) % of (iii)
Amount Executed Amount Executed Commissions (vi)
of All through of Agency through Aggregate Paid as %
Transactions CFS Transactions CFS Commissions to CFS of (v)
------------ -------- ------------ --------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Convertible Fund
Year ended 3/31/00 $275,713,318 1.7% $37,618,293 35.6% $61,062 $22,444 36.8%
Year ended 3/31/99 201,476,441 11 49,625,534 45 86,962 37,659 43
Year ended 3/31/98 161,650,678 12 40,998,753 48 65,900 37,442 57
Convertible Growth and Income Fund
Year ended 3/31/00 $ 88,653,682 5.2% $14,736,948 31.2% $25,676 $ 6,554 25.5%
Year ended 3/31/99 36,459,352 14 8,639,122 60 14,806 9,124 62
Year ended 3/31/98 31,113,883 21 9,700,909 68 19,770 14,334 73
Market Neutral Fund
Year ended 3/31/00 $ 48,457,692 5.0% $ 8,904,193 27.2% $15,866 $ 5,418 34.1%
Year ended 3/31/99 6,175,200 9 2,470,257 22 4,758 1,376 29
Year ended 3/31/98 11,244,554 7 2,057,079 38 5,168 2,958 57
Growth Fund
Year ended 3/31/00 $ 91,228,436 38.4 $46,647,932 75.1% $71,586 $53,342 74.5%
Year ended 3/31/99 44,394,379 36 27,299,224 59 51,882 26,776 52
Year ended 3/31/98 37,327,107 44 33,389,620 49 69,831 28,916 41
Global Convertible Fund
Year ended 3/31/00 $ 18,301,088 6.3% $ 2,139,082 54.0% $ 3,932 $ 2,014 51.2%
Year ended 3/31/99 14,539,269 16 3,185,748 74 5,851 4,160 71
Year ended 3/31/98 8,159,394 19 1,837,679 84 4,195 3,657 87
High Yield Fund
Year ended 3/31/00* $ 630,827 2.5% $ 16,063 100% $ 30 $ 30 100%
</TABLE>
* The High Yield fund commenced operations on August 1, 1999.
Of the aggregate brokerage commissions paid during the year ended March 31,
2000, Convertible Fund, Convertible Growth and Income Fund, Market Neutral Fund,
Growth Fund, Global Convertible Fund and High Yield Fund paid commissions of
$9,181, $5,511, $0, $11,788, $747, and $0 respectively, to brokers who furnished
research services.
TAXATION
The following is only a summary of certain tax considerations affecting
the Funds and their shareholders. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their
B-41
<PAGE> 50
shareholders, and the discussion here is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situations.
At the time of your purchase, a Fund's net asset value may reflect
undistributed income, capital gains, or net unrealized appreciation of
securities held by that Fund. A subsequent distribution to you of such amounts,
although constituting a return of your investment, would be taxable either as a
dividend or capital gain distribution.
Foreign currency gains and losses, including the portion of gain or
loss on the sale of debt securities attributable to foreign exchange rate
fluctuations, are taxable as ordinary income. If the net effect to a Fund of
those transactions is a gain, the income dividend paid by the Fund will be
increased; if the result is a loss, the income dividend paid will be decreased.
Income received by a Fund from sources within various foreign countries
will be subject to foreign income taxes withheld at the source. Under the
Internal Revenue Code, if more than 50% of the value of a Fund's total assets at
the close of its taxable year comprises securities issued by foreign
corporations, the Fund may file an election with the Internal Revenue Service to
"pass through" to its shareholders the amount of foreign income taxes paid by
that fund. Pursuant to that election, shareholders would be required to: (i)
include in gross income, even though not actually received, their respective pro
rata share of foreign taxes paid by the fund; (ii) treat their pro rata share of
foreign taxes as paid by them; and (iii) either deduct their pro rata share of
foreign taxes in computing their taxable income, or use it as a foreign tax
credit against U.S. income taxes (but not both). No deduction for foreign taxes
may be claimed by a shareholder who does not itemize deductions.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Convertible Technology Fund intends to qualify, and each other Fund
intends to continue 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 currently distributes to
shareholders.
The Funds must meet several requirements to maintain its status as a
regulated investment company. These requirements include the following: (1) at
least 90% of the Fund'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 Fund's
taxable year, (a) at least 50% of the value of the Fund's total assets must
consist of cash, U.S. Government securities and other securities (no more than
5% of the value of the Fund may consist of such other securities of any one
issuer, and the Fund must not hold more than 10% of the outstanding voting stock
of any issuer), and (b) the Fund 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 Fund's status as a
regulated investment company, the Trust may, in its business judgment, restrict
the Fund'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 Fund to defer the closing out of a contract beyond the time when it
might otherwise be advantageous to do so.
B-42
<PAGE> 51
ALLOCATION AMONG FUNDS
The assets received by the Trust from the sale of shares of each Fund,
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are specifically allocated to that Fund, and constitute the
underlying assets of that Fund. The underlying assets of each Fund are required
to be segregated on the books of account, and are to be charged with the expense
in respect to that Fund and with a share of the general expenses of the Trust.
Any general expenses of the Trust not readily identifiable as belonging to a
particular Fund shall be allocated by or under the direction of the trustees in
such manner as the trustees determine to be fair and equitable. Each share of
each Fund represents an equal proportionate interest in that Fund with each
other share and is entitled to such dividends and distributions out of the
income belonging to that Fund as are declared by the trustees. Upon any
liquidation of a Fund, shareholders thereof are entitled to share pro rata in
the net assets belonging to that Fund available for distribution.
CERTAIN SHAREHOLDERS
The only persons known to own beneficially (as determined in accordance
with rule 13d-3 under the 1934 Act) 5% or more of the outstanding shares of any
Fund at June 30, 2000 were:
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding Shares
Shareholder Shares of the Funds
----------- --------- ------------------
<S> <C> <C>
CONVERTIBLE FUND
Merrill Lynch & Co., Inc. 3,081,421 32.9%
FBO of its Customers
4800 Deer Lake Dr. 2nd Floor
Jacksonville, FL 32246-6484
LaCross and Company 1,441,282 15.39%
311 Main Street
P.O. Box 489
LaCross, WI 54602-0489
Charles Schwab & Co. 503,885 5.38%
Reinvest Account
101 Montgomery St.
San Francisco, CA 94104-4122
MARKET NEUTRAL FUND
Charles Schwab & Co. 952,322 40.81%
Reinvest Account
101 Montgomery St.
San Francisco, CA 94104-4122
</TABLE>
B-43
<PAGE> 52
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding Shares
Shareholder Shares of the Funds
----------- --------- ------------------
<S> <C> <C>
Wexford Clearing Service Corp. 175,786 7.53%
FBO United Audio Products Inc.
1 Barker Avenue
White Plains, NY 10601-1517
National Investor Services 127,072 5.45%
FBO 509-80260-15
55 Water Street, 32nd Fl.
New York, NY 10041
CONVERTIBLE GROWTH AND INCOME FUND
Merrill Lynch & Co. Inc. 342,470 15.82%
FBO of its Customers
4800 Deer Lake Dr., 2nd Floor
Jacksonville, FL 32246-6484
Charles Schwab & Co. 263,104 12.15%
Reinvest Account
101 Montgomery St.
San Francisco, CA 94104-4122
Wexford Clearing Services 250,439 11.57%
FBO John P. Calamos and
Nick P. Calamos*
Trst Calamos Financial Services
1111 E. Warrenville Road
Naperville, IL 60563-1405
</TABLE>
B-44
<PAGE> 53
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding Shares
Shareholder Shares of the Funds
----------- --------- ------------------
<S> <C> <C>
GROWTH FUND
Merrill Lynch & Co., Inc. 299,080 20.06%
FBO of its Customers
4800 Deer Lake Dr. 2nd Floor
Jacksonville, FL 32246-6484
Wexford Clearing Services*(a) 343,475 23.04%
FBO John P. Calamos
1111 E. Warrenville Road
Naperville, IL 60563-1405
(a) Includes 2 accounts that
comprise more than 5%
individually listed below:
Wexford Clearing Services 131,347 8.81%
FBO John P Calamos
1111 E. Warrenville Road
Naperville, IL 60563-1405
Wexford Clearing Services 77,144 5.17%
FBO John P. Calamos and
Nick P. Calamos Asset Management, Inc.
Trst Calamos Financial Services
1111 E. Warrenville Road
Naperville, IL 60563-1405
</TABLE>
B-45
<PAGE> 54
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding Shares
Shareholder Shares of the Funds
----------- --------- ------------------
<S> <C> <C>
GLOBAL CONVERTIBLE FUND
Wexford Clearing Services 159,845 9.60%
FBO John P. Calamos*
1111 E. Warrenville Road
Naperville, IL 60563-1405
HIGH YIELD FUND
Wexford Clearing Services 31,651 40.43%
FBO Prudential Securities
Mr. John Olwin
Self SEP DTD 10/13/98
7337 E. Montebello Ave.
Scottsdale, AZ 85250-6023
Prudential Securities C/F 19,077 24.37%
Paul Naffah MD
IRA Rollover DTD 02/23/90
65161 Country Line Road
Hinsdale, IL 60521-4868
Wexford Clearing Services Corp. 11,588 14.80%
FBO Prudential Securities
Clark M. Colvard
IRA Rollover DTD 12/17/97
102 Gross Crescent Cir. Ste 300
Ft. Oglethorpe, GA 30742-3670
Calamos Asset Management 10,758 13.73%
1111 E. Warrenville Road
Naperville, IL 60563-1405
</TABLE>
B-46
<PAGE> 55
------------------
* John P. Calamos and Nick P. Calamos are the trustees of the Calamos
Financial Services, Inc. 401(k) Profit Sharing Plan and Trust and the Calamos
Financial Services, Inc. 401(k) Employee Profit Sharing Plan and Trust. The
shares owned beneficially by Mr. John Calamos include the shares owned by the
Calamos Financial Services, Inc. 401(k) Profit Sharing Plan and Trust and the
Calamos Financial Services, Inc. 401(k) Employee Profit Sharing Plan and Trust.
At June 30, 2000 the trustees and officers of the Trust as a group
owned beneficially shares of the Funds as follows: 180,167 shares (1.92%) of
Convertible Fund; 268,840 shares (12.33%) of Convertible Growth and Income Fund;
4,808 shares (.21%) of Market Neutral Fund; 353,681 shares (23.72%) of Growth
Fund; 159,959 shares (9.65%) of Global Convertible Fund; and 10,758 shares
(13.74%) of High Yield Fund.
CUSTODIAN
The Bank of New York, 48 Wall Street, New York, New York 10286, is the
custodian for the assets of each Fund other than Market Neutral Fund, for whom
Prudential Securities, Inc., One New York Plaza, New York, New York 10292, is
the custodian. The custodian is responsible for holding all cash and securities
of the Funds, directly or through a book entry system, delivering and receiving
payment for securities sold by the Funds, receiving and paying for securities
purchased by the Funds, collecting income from investments of the Funds 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 a Fund, payment of dividends or payment of
expenses of a Fund.
INDEPENDENT AUDITORS
Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago,
Illinois 60606, audits and reports on the Funds' annual financial statements,
reviews certain regulatory reports and the Funds' federal income tax returns,
and performs other professional accounting, tax and advisory services when
engaged to do so by the Funds.
GENERAL INFORMATION
SHAREHOLDER INFORMATION
Each Fund is a series of Calamos Investment Trust (formerly named CFS
Investment Trust). As of March 18, 1996 all shares of each Fund then outstanding
were re-designated as Class A shares of that Fund. 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 seven
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.
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Each Fund's shares of a given class are entitled to participate pro
rata in any dividends and other distributions declared by the Fund's board of
trustees with respect to shares of the Fund. All shares of the Fund of a given
class have equal rights in the event of liquidation of that class.
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
Funds, which are binding only on the assets and property of the Fund. 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 Fund's assets of all losses and expenses of any Fund shareholder held
personally liable for the Fund'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 Fund
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.
FINANCIAL STATEMENTS
Audited financial statements for the Trust for the fiscal year ended
March 31, 2000 are incorporated herein by reference from the Calamos Investment
Trust's annual report to shareholders.
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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.
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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.
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.
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