USE OF PROCEEDS
Unless otherwise
specified in a prospectus supplement, we currently intend to use the net proceeds from the sale of our securities primarily to
invest in accordance with our investment objective and policies within approximately three months of receipt of such proceeds.
We may also use proceeds from the sale of our securities to retire all or a portion of any short-term debt we incur in pursuit
of our investment objective and policies and for working capital purposes, including the payment of interest and operating expenses,
although there is currently no intent to issue securities primarily for these purposes. Pending such investments, the net proceeds
may be invested in U.S. government securities and high grade, short-term money market instruments. If necessary, the Fund may also
purchase, as temporary investments, securities of other open- or closed-end investment companies that invest primarily in the types
of securities in which the Fund may invest directly.
INVESTMENT OBJECTIVE AND POLICIES
The prospectus
presents the investment objective and the principal investment strategies and risks of the Fund. This section supplements the disclosure
in the Fund’s prospectus and provides additional information on the Fund’s investment policies or restrictions. Restrictions
or policies stated as a maximum percentage of the Fund’s assets are only applied immediately after a portfolio investment
to which the policy or restriction is applicable (other than the limitations on borrowing). Accordingly, any later increase or
decrease resulting from a change in values, managed assets or other circumstances will not be considered in determining whether
the investment complies with the Fund’s restrictions and policies.
Primary Investments
Under normal
circumstances, the Fund invests at least 80% of its managed assets in a diversified portfolio of convertible securities and below
investment grade (high yield/high risk) non-convertible debt securities. The Fund will provide written notice to shareholders at
least 60 days prior to any change to the requirement that it invest at least 80% of its managed assets as described in the sentence
above. The portion of the Fund’s assets invested in convertible securities and below investment grade (high yield/high risk)
non-convertible debt securities will vary from time to time consistent with the Fund’s investment objective, changes in equity
prices and changes in interest rates and other economic and market factors, although, under normal circumstances, the Fund will
invest at least 20% of its managed assets in convertible securities and at least 20% of its managed assets in below investment
grade (high yield/high risk) non-convertible debt securities (so long as, under normal circumstances, the combined total equals
at least 80% of the Fund’s managed assets). “Managed assets” means the total assets of the Fund (including any
assets attributable to any leverage that may be outstanding) minus the sum of accrued liabilities (other than debt representing
financial leverage). For this purpose, the liquidation preference on the preferred shares will not constitute a liability.
Convertible Securities
Investment in
convertible securities forms an important part of the Fund’s principal investment strategies. Under normal circumstances,
the Fund will invest at least 20% of its managed assets in convertible securities. Convertible securities include any corporate
debt security or preferred stock that may be converted into underlying shares of common stock. The common stock underlying convertible
securities may be issued by a different entity than the issuer of the convertible securities. Convertible securities entitle the
holder to receive interest payments paid on corporate debt securities or the dividend preference on a preferred stock until such
time as the convertible security matures or is redeemed or until the holder elects to exercise the conversion privilege. As a result
of the conversion feature, however, the interest rate or dividend preference on a convertible security is generally less than would
be the case if the security were a non-convertible obligation. 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. A convertible security’s
value viewed without regard to its conversion feature (i.e., strictly on the basis of its yield) is sometimes referred to as its
“investment value.” A convertible security’s investment value typically will fluctuate inversely with changes
in prevailing interest rates. However, at the same time, the convertible security will be influenced by its “conversion value,”
which is the market value of the underlying common stock that would be obtained if the convertible security were converted. Conversion
value fluctuates directly with the price of the underlying common stock.
If, because of
a low price of the common stock, a convertible security’s conversion value is substantially below its investment value, the
convertible security’s price is governed principally by its investment value. If a convertible security’s conversion
value increases to a point that approximates or exceeds its investment value, the convertible security’s value 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 issuer’s assets prior to the common stockholders, but may be subordinated to holders of similar non-convertible
securities of the same issuer.
Synthetic Convertible Instruments
Calamos Advisors
LLC (“Calamos”) may create a “synthetic” convertible instrument by combining fixed income securities with
the right to acquire equity securities. More flexibility is possible in the assembly of a synthetic convertible instrument than
in the purchase of a convertible security. Although synthetic convertible instruments may be selected where the two components
are issued by a single issuer, thus making the synthetic convertible instrument similar to the true convertible security, the character
of a synthetic convertible instrument allows the combination of components representing distinct issuers, when Calamos believes
that such a combination would better promote the Fund’s investment objective. A synthetic convertible instrument 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 instrument but temporarily hold short-term investments while postponing the purchase of
a corresponding bond pending development of more favorable market conditions.
A holder of a
synthetic convertible instrument 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
instrument. Should the price of the stock fall below the exercise price and remain there throughout the exercise period, the entire
amount paid for the call option or warrant would be lost. Because a synthetic convertible instrument includes the fixed-income
component as well, the holder of a synthetic convertible instrument also faces the risk that interest rates will rise, causing
a decline in the value of the fixed-income instrument.
The Fund may
also purchase synthetic convertible instruments 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.
The
Fund’s holdings of synthetic convertible instruments are considered convertible securities for purposes of the Fund’s
policy to invest at least 20% of its managed assets in convertible securities and 80% of its managed assets in a diversified portfolio
of convertible securities and below investment grade (high yield/high risk) non-convertible debt securities.
High Yield Securities
Investment
in high yield non-convertible debt securities forms an important part of the Fund’s investment strategy. Under normal
circumstances, the Fund will invest at least 20% of its managed assets in high yield non-convertible debt securities. The
high yield securities in which the Fund invests are rated “Ba” or lower by Moody’s Investors
Service, Inc. (“Moody’s”) or “BB” or lower by Standard & Poor’s
Corporation, a division of The McGraw-Hill Companies (“S&P” or “Standard &
Poor’s”) or are unrated but determined by Calamos to be of comparable quality. Non-convertible debt securities
rated below investment grade are commonly referred to as “junk bonds” and are considered speculative with respect
to the issuer’s capacity to pay interest and repay principal.
Below investment
grade non-convertible debt securities or comparable unrated securities are susceptible to greater risk of default or decline in
market value due to adverse economic and business developments than higher-rated debt securities. The market values for high yield
securities tend to be very volatile, and these securities are less liquid than investment grade debt securities. For these reasons,
your investment in the Fund is subject to the following specific risks:
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increased price sensitivity to changing interest rates and to a deteriorating economic environment;
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greater risk of loss due to default or declining credit quality;
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adverse company specific events are more likely to render the issuer unable to make interest and/or principal payments; and
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if a negative perception of the high yield market develops, the price and liquidity of high yield securities may be depressed.
This negative perception could last for a significant period of time.
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Securities rated
below investment grade are speculative with respect to the capacity to pay interest and repay principal in accordance with the
terms of such securities. A rating of “Ba1” from Moody’s means that the issue so rated can have speculative elements
and is subject to substantial credit risk. Standard & Poor’s assigns a rating of “BB+” to issues that
are less vulnerable to nonpayment than other speculative issues, but nonetheless subject to major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its
financial commitment on the obligation. A rating of “C” from Moody’s means that the issue so rated can be regarded
as having extremely poor prospects of ever attaining any real investment standing. Standard & Poor’s assigns a rating
of “C” to issues that are currently highly vulnerable to nonpayment, and the “C” rating may be used to
cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on the obligation are being
continued (a “C” rating is also assigned to a preferred stock issue in arrears on dividends or sinking fund payments,
but that is currently paying). See Appendix B to this Statement of Additional Information for a description of Moody’s and
Standard & Poor’s ratings.
Adverse changes
in economic conditions are more likely to lead to a weakened capacity of a high yield issuer to make principal payments and interest
payments than an investment grade issuer. The principal amount of high yield securities outstanding has proliferated in the past
decade as an increasing number of issuers have used high yield securities for corporate financing. An economic downturn could severely
affect the ability of highly leveraged issuers to service their debt obligations or to repay their obligations upon maturity. Similarly,
down-turns in profitability in specific industries could adversely affect the ability of high yield issuers in that industry to
meet their obligations. The market values of lower quality debt securities tend to reflect individual developments of the issuer
to a greater extent than do higher quality securities, which react primarily to fluctuations in the general level of interest rates.
Factors having an adverse impact on the market value of lower quality securities may have an adverse effect on the Fund’s
net asset value and the market value of its common shares. In addition, the Fund may incur additional expenses to the extent it
is required to seek recovery upon a default in payment of principal or interest on its portfolio holdings. In certain circumstances,
the Fund may be required to foreclose on an issuer’s assets and take possession of its property or operations. In such circumstances,
the Fund would incur additional costs in disposing of such assets and potential liabilities from operating any business acquired.
The
secondary market for high yield securities may not be as liquid as the secondary market for more highly rated securities, a
factor which may have an adverse effect on the Fund’s ability to dispose of a particular security when necessary to
meet its liquidity needs. There are fewer dealers in the market for high yield securities than investment grade obligations.
The prices quoted by different dealers may vary significantly and the spread between the bid and asked price is generally
much larger than higher quality instruments. Under adverse market or economic conditions, the secondary market for high yield
securities could contract further, independent of any specific adverse changes in the condition of a particular issuer, and
these instruments may become illiquid. As a result, the Fund could find it more difficult to sell these securities or may be
able to sell the securities only at prices lower than if such securities were widely traded. Prices realized upon the sale of
such lower rated or unrated securities, under these circumstances, may be less than the prices used in calculating the
Fund’s net asset value.
Because investors
generally perceive that there are greater risks associated with lower quality debt securities of the type in which the Fund may
invest a portion of its assets, the yields and prices of such securities may tend to fluctuate more than those for higher rated
securities. In the lower quality segments of the debt securities market, changes in perceptions of issuers’ creditworthiness
tend to occur more frequently and in a more pronounced manner than do changes in higher quality segments of the debt securities
market, resulting in greater yield and price volatility.
If the Fund invests
in high yield securities that are rated C or below, the Fund will incur significant risk in addition to the risks associated with
investments in high yield securities and corporate loans. Distressed securities frequently do not produce income while they are
outstanding. The Fund may purchase distressed securities that are in default or the issuers of which are in bankruptcy. The Fund
may be required to bear certain extraordinary expenses in order to protect and recover its investment.
Distressed Securities
The Fund may,
but currently does not intend to, invest up to 5% of its managed assets in distressed securities, including corporate loans, which
are the subject of bankruptcy proceedings or otherwise in default as to the repayment of principal and/or payment of interest at
the time of acquisition by the Fund or are rated in the lower rating categories (“Ca” or lower by Moody’s or
“CC” or lower by Standard & Poor’s) or which are unrated investments considered by Calamos to be of
comparable quality. Investment in distressed securities is speculative and involves significant risk of loss. Distressed securities
frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in
order to protect and recover its investment. Therefore, to the extent the Fund seeks capital appreciation through investment in
distressed securities, the Fund’s ability to achieve current income for its shareholders may be diminished. The Fund also
will be subject to significant uncertainty as to when and in what manner and for what value the obligations evidenced by the distressed
securities will eventually be satisfied (e.g., through a liquidation of the obligor’s assets, an exchange offer or plan of
reorganization involving the distressed securities or a payment of some amount in satisfaction of the obligation). In addition,
even if an exchange offer is made or a plan of reorganization is adopted with respect to distressed securities held by the Fund,
there can be no assurance that the securities or other assets received by the Fund in connection with such exchange offer or plan
of reorganization will not have a lower value or income potential than may have been anticipated when the investment was made.
Moreover, any securities received by the Fund upon completion of an exchange offer or plan of reorganization may be restricted
as to resale. As a result of the Fund’s participation in negotiations with respect to any exchange offer or plan of reorganization
with respect to an issuer of distressed securities, the Fund may be restricted from disposing of such securities.
Loans
The
Fund may invest in loan participations and other direct claims against a borrower. The corporate loans in which the Fund may
invest primarily consist of direct obligations of a borrower and may include debtor in possession financings pursuant to
Chapter 11 of the U.S. Bankruptcy Code, obligations of a borrower issued in connection with a restructuring pursuant to
Chapter 11 of the U.S. Bankruptcy Code, leveraged buy-out loans, leveraged recapitalization loans, receivables purchase
facilities, and privately placed notes. The Fund may invest in a corporate loan at origination as a co-lender or by acquiring
in the secondary market participations in, assignments of or novations of a corporate loan. By purchasing a participation,
the Fund acquires some or all of the interest of a bank or other lending institution in a loan to a corporate or government
borrower. The participations typically will result in the Fund having a contractual relationship only with the lender not the
borrower. The Fund will have the right to receive payments of principal, interest and any fees to which it is entitled only
from the lender selling the participation and only upon receipt by the lender of the payments from the borrower. Many such
loans are secured, although some may be unsecured. Such loans may be in default at the time of purchase. Loans that are fully
secured offer the Fund more protection than an unsecured loan in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured loan would satisfy the corporate
borrower’s obligation, or that the collateral can be liquidated. Direct debt instruments may involve a risk of loss in
case of default or insolvency of the borrower and may offer less legal protection to the Fund in the event of fraud or
misrepresentation. In addition, loan participations involve a risk of insolvency of the lending bank or other financial
intermediary. The markets in such loans are not regulated by federal securities laws or the Securities and Exchange
Commission (“SEC” or the “Commission”).
As in the case
of other high yield investments, such corporate loans may be rated in the lower rating categories of the established rating services
(“Ba” or lower by Moody’s or “BB” or lower by Standard & Poor’s), or may be unrated
investments considered by Calamos to be of comparable quality. As in the case of other high yield investments, such corporate loans
can be expected to provide higher yields than lower yielding, higher rated fixed income securities, but may be subject to greater
risk of loss of principal and income. There are, however, some significant differences between corporate loans and high yield bonds.
Corporate loan obligations are frequently secured by pledges of liens and security interests in the assets of the borrower, and
the holders of corporate loans are frequently the beneficiaries of debt service subordination provisions imposed on the borrower’s
bondholders. These arrangements are designed to give corporate loan investors preferential treatment over high yield investors
in the event of a deterioration in the credit quality of the issuer. Even when these arrangements exist, however, there can be
no assurance that the borrowers of the corporate loans will repay principal and/or pay interest in full. Corporate loans generally
bear interest at rates set at a margin above a generally recognized base lending rate that may fluctuate on a day-to-day basis,
in the case of the prime rate of a U.S. bank, or which may be adjusted on set dates, typically 30 days but generally not more than
one year, in the case of the London Interbank Offered Rate. Consequently, the value of corporate loans held by the Fund may be
expected to fluctuate significantly less than the value of other fixed rate high yield instruments as a result of changes in the
interest rate environment. On the other hand, the secondary dealer market for certain corporate loans may not be as well developed
as the secondary dealer market for high yield bonds, and therefore presents increased market risk relating to liquidity and pricing
concerns.
Foreign Securities
The Fund may
invest up to 25% of its managed assets in securities of foreign issuers. The Fund may invest up to 15% of its managed assets in
securities of foreign issuers in emerging markets. A foreign security is a security issued by a foreign government or a company
whose country of incorporation is a foreign country. For this purpose, foreign securities do not include American Depositary Receipts
(“ADRs”) or securities guaranteed by a U.S. person but which represent underlying shares of foreign issuers, 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 issued by international banks evidencing ownership
of foreign securities. Generally, ADRs, in registered form, are designed for the U.S. securities markets and EDRs and GDRs, in
bearer form, are designed for use in foreign securities markets. The Fund may invest in sponsored or unsponsored ADRs. In the case
of an unsponsored ADR, the Fund is likely to bear its proportionate share of the expenses of the depository and it may have greater
difficulty in receiving shareholder communications than it would have with a sponsored ADR.
To the extent
positions in portfolio securities are denominated in foreign currencies, the Fund’s investment performance is affected by
the strength or weakness of the U.S. dollar against those currencies. For example, if the dollar falls in value relative to the
Japanese yen, the dollar value of a Japanese stock held in the portfolio will rise even though the price of the stock remains unchanged.
Conversely, if the dollar rises in value relative to the yen, the dollar value of the Japanese stock will fall. (See discussion
of transaction hedging and portfolio hedging below under “Currency Exchange Transactions.”)
Investors
should understand and consider carefully the risks involved in foreign investing. Investing in foreign securities, which are generally
denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve certain considerations
comprising both risks and opportunities not typically associated with investing in U.S. securities. These considerations include:
fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions
that would prevent cash from being brought back to the United States less public information with respect to issuers of securities;
less governmental supervision of stock exchanges, securities brokers, and issuers of securities; lack of uniform accounting, auditing
and financial reporting standards; lack of uniform settlement periods and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the United States; greater costs of buying, holding and selling securities, including
brokerage, tax and custodial costs; and sometimes less advantageous legal, operational and financial protections applicable to
foreign sub-custodial arrangements.
Although the
Fund intends primarily to invest in companies and government securities of countries having stable political environments, there
is the possibility of expropriation or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets,
establishment of exchange controls, the adoption of foreign government restrictions, or other adverse political, social or diplomatic
developments that could affect investment in these nations.
The Fund may
invest in the securities of issuers located in emerging market countries. The securities markets of emerging countries are substantially
smaller, less developed, less liquid and more volatile than the securities markets of the U.S. and other more developed countries.
Disclosure and regulatory standards in many respects are less stringent than in the U.S. and other major markets. There also may
be a lower level of monitoring and regulation of emerging markets and the activities of investors in such markets, and enforcement
of existing regulations has been extremely limited. Economies in individual emerging markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product, rates of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments positions. Many emerging market countries have experienced high
rates of inflation for many years, which has had and may continue to have very negative effects on the economies and securities
markets of those countries.
Currency Exchange Transactions
Currency
exchange transactions may be conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or selling
currency prevailing in the foreign exchange market or through forward currency exchange contracts (“forward
contracts”). Forward contracts are contractual agreements to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually
entered into with banks, foreign exchange dealers and broker-dealers, are not exchange traded, and are usually for less than
one year, but may be renewed.
Forward
currency exchange transactions may involve currencies of the different countries in which the Fund may invest and serve as
hedges against possible variations in the exchange rate between these currencies and the U.S. dollar. Currency exchange
transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio
positions, except to the extent described below under “Synthetic Foreign Money Market Positions.” Transaction
hedging is the purchase or sale of forward contracts with respect to specific receivables or payables of the Fund accruing in
connection with the purchase and sale of its portfolio securities or the receipt of dividends or interest thereon. Portfolio
hedging is the use of forward contracts with respect to portfolio security positions denominated or quoted in a particular
foreign currency. Portfolio hedging allows the Fund to limit or reduce its exposure in a foreign currency by entering into a
forward contract to sell such foreign currency (or another foreign currency that acts as a proxy for that currency) at a
future date for a price payable in U.S. dollars so that the value of the foreign denominated portfolio securities can be
approximately matched by a foreign denominated liability. The Fund may not engage in portfolio hedging with respect to the
currency of a particular country to an extent greater than the aggregate market value (at the time of making such sale) of
the securities held in its portfolio denominated or quoted in that particular currency, except that the Fund may hedge all or
part of its foreign currency exposure through the use of a basket of currencies or a proxy currency where such currencies or
currency act as an effective proxy for other currencies. In such a case, the Fund may enter into a forward contract where the
amount of the foreign currency to be sold exceeds the value of the securities denominated in such currency. The use of this
basket hedging technique may be more efficient and economical than entering into separate forward contracts for each currency
held in the Fund. The Fund may not engage in “speculative” currency exchange transactions.
If
the Fund enters into a forward contract, its custodian will segregate liquid assets of the Fund having a value equal to the Fund’s
commitment under such forward contract from day to day, except to the extent that the Fund’s forward contract obligation
is covered by liquid portfolio securities denominated in, or whose value is tied to, the currency underlying the 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
the Fund to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of currency the Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the
sale of the portfolio security if its market value exceeds the amount of currency the Fund is obligated to deliver.
If
the Fund retains the portfolio security and engages in an offsetting currency transaction, it 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 currency transaction, it
subsequently may 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 the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The
cost to the Fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of
the contract period, and prevailing market conditions.
Synthetic Foreign Money Market
Positions
The
Fund may invest in money market instruments denominated in foreign currencies. In addition to, or in lieu of, such direct investment,
the Fund may construct a synthetic foreign money market position by (a) purchasing a money market instrument denominated
in one currency, generally U.S. dollars, and (b) concurrently entering into a forward contract to deliver a corresponding
amount of that currency in exchange for a different currency on a future date and at a specified rate of exchange. For example,
a synthetic money market position in Japanese yen could be constructed by purchasing a U.S. dollar money market instrument, and
entering concurrently into a forward contract to deliver a corresponding amount of U.S. dollars in exchange for Japanese yen on
a specified date and at a specified rate of exchange. Because of the availability of a variety of highly liquid short-term U.S.
dollar money market instruments, a synthetic money market position utilizing such U.S. dollar instruments may offer greater liquidity
than direct investment in foreign currency and a concurrent construction of a synthetic position in such foreign currency, in
terms of both income yield and gain or loss from changes in currency exchange rates, in general should be similar, but would not
be identical because the components of the alternative investments would not be identical. The Fund currently does not intend
to invest a significant amount of its assets in synthetic foreign money market positions.
Debt Obligations of Non-U.S. Governments
An investment
in debt obligations of non-U.S. governments and their political subdivisions (sovereign debt) involves special risks that are not
present in corporate debt obligations. The non-U.S. issuer of the sovereign debt or the non-U.S. governmental authorities that
control the repayment of the debt may be unable or unwilling to repay principal or interest when due, and the Fund may have limited
recourse in the event of a default. During periods of economic uncertainty, the market prices of sovereign debt may be more volatile
than prices of debt obligations of U.S. issuers. In the past, certain non-U.S. countries have encountered difficulties in servicing
their debt obligations, withheld payments of principal and interest and declared moratoria on the payment of principal and interest
on their sovereign debt.
A sovereign debtor’s
willingness or ability to repay principal and pay interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of sufficient non-U.S. currency, the relative size
of the debt service burden, the sovereign debtor’s policy toward its principal international lenders and local political
constraints. Sovereign debtors may also be dependent on expected disbursements from non-U.S. governments, multilateral agencies
and other entities to reduce principal and interest arrearages on their debt. The failure of a sovereign debtor to implement economic
reforms, achieve specified levels of economic performance or repay principal or interest when due may result in the cancellation
of third-party commitments to lend funds to the sovereign debtor, which may further impair such debtor’s ability or willingness
to service its debts.
Eurodollar Instruments and Samurai
and Yankee Bonds
The Fund may
invest in Eurodollar instruments and Samurai and Yankee bonds. Eurodollar instruments are bonds of corporate and government issuers
that pay interest and principal in U.S. dollars but are issued in markets outside the United States, primarily in Europe. Samurai
bonds are yen-denominated bonds sold in Japan by non-Japanese issuers. Yankee bonds are U.S. dollar-denominated bonds typically
issued in the U.S. by non-U.S. governments and their agencies and non-U.S. banks and corporations. The Fund may also invest in
Eurodollar Certificates of Deposit (“ECDs”), Eurodollar Time Deposits (“ETDs”) and Yankee Certificates
of Deposit (“Yankee CDs”). ECDs are U.S. dollar-denominated certificates of deposit issued by non-U.S. branches of
domestic banks; ETDs are U.S. dollar-denominated deposits in a non-U.S. branch of a U.S. bank or in a non-U.S. bank; and Yankee
CDs are U.S. dollar-denominated certificates of deposit issued by a U.S. branch of a non-U.S. bank and held in the U.S. These investments
involve risks that are different from investments in securities issued by U.S. issuers, including potential unfavorable political
and economic developments, non-U.S. withholding or other taxes, seizure of non-U.S. deposits, currency controls, interest limitations
or other governmental restrictions which might affect payment of principal or interest.
Lending of Portfolio Securities
The Fund has
authorized State Street Bank and Trust Company (“SSB”) as securities lending agent to lend portfolio securities to
broker-dealers and banks. Any such loan must be continuously secured by collateral received in cash under the terms of the Amended
and Restated Liquidity Agreement (“SSB Agreement”) between the Fund and SSB. Cash collateral held by SSB on behalf
of the Fund may be credited against the amounts borrowed under the SSB Agreement, such that the Fund will effectively bear lower
interest expense with respect to those borrowed amounts. Any amounts credited against the borrowings under SSB Agreement would
count against the Fund’s leverage limitations under the Investment Company Act of 1940, as amended (the “1940 Act”),
unless otherwise covered in accordance with SEC Release IC-10666.
Under the terms
of the SSB Agreement, SSB will return the value of the collateral to the borrower upon the return of the lent securities, which
will eliminate the credit against the borrowings under SSB Agreement and will increase the balance on which the Fund will pay interest.
The Fund is obligated to make payment to the entity in the event SSB is unable to return the value of the collateral. 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 income earned on the collateral. The Fund
may experience losses as a result of a diminution in value of its cash collateral investments. 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 less than five business days. The Fund would not have the right to vote
the securities during the existence of the loan; however, the Fund may attempt to call back the loan and vote the proxy if time
permits prior to the record date. In the event of bankruptcy or other default of the borrower, the Fund could experience both delays
in liquidating the loaned collateral (or recovering the loaned securities) or 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. The Fund may also experience losses as a result of the diminution in value of its cash collateral investments. In an
effort to reduce these risks, the Fund’s securities lending agent will monitor, and report to Calamos on, the creditworthiness
of the firms to which the Fund lends securities.
Options on Securities, Indices
and Currencies
The Fund may
purchase and sell (write) put options and call options on securities, indices or foreign currencies. The Fund may purchase agreements,
sometimes called cash puts, that may accompany the purchase of a new issue of bonds from a dealer. The successful use of options
depends principally on the price movements of the underlying securities, indices or other reference assets or rates. Investing
in options can result in a greater potential for profit or loss than directly investing in the underlying assets. The value of
an option may change because of, including but not limited to, a change in the value of the underlying assets, the passage of time,
changes in the market’s perception as to the future price behavior of the underlying assets or rates, or any combination
of the foregoing.
A put option
gives the purchaser of the option, upon payment of a premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price. For instance, the Fund’s purchase of a put
option on a security might be designed to protect its holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right to sell such instrument at the option exercise price.
A call option, upon payment of a premium, gives the purchaser of the option the right to buy, and the seller the obligation to
sell, the underlying instrument at the exercise price. The Fund’s purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect it against an increase in the price of the underlying instrument
that it intends to purchase in the future by fixing the price at which it may purchase such instrument.
Certain options,
known as “American style” options, may be exercised at any time during the term of the option. Other options, known
as “European style” options, may be exercised only on the expiration date of the option. The Fund expects that substantially
all of the options written by the Fund will be American style options.
The Fund may
purchase and sell (write) exchange listed options and over-the-counter options (“OTC options”). Exchange listed options
are issued by a regulated intermediary such as the Options Clearing Corporation (“OCC”), which guarantees the performance
of the obligations of the parties to such options. The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain
exceptions, OCC issued and exchange listed options generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and Eurodollar instruments are cash settled for the
net amount, if any, by which the option is “in-the-money” (i.e., where the value of the underlying instrument exceeds,
in the case of a call option, or is less than, in the case of a put option, the exercise price of the option) at the time the option
is exercised. Frequently, rather than taking or making delivery of the underlying instrument through the process of exercising
the option, listed options are closed by entering into offsetting purchase or sale transactions that do not result in ownership
of the new option.
OTC options are
purchased from or sold to securities dealers, financial institutions or other parties (“Counterparties”) through direct
bilateral agreement with the Counterparty. In contrast to exchange listed options, which generally have standardized terms and
performance mechanics, all the terms of an OTC option, including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. The Fund may sell (write) OTC options (other than OTC currency
options) that are subject to a buy-back provision permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The Fund generally is expected to enter into OTC options that have cash settlement provisions,
although it is not required to do so. The staff of the SEC currently takes the position that OTC options purchased by a fund, and
portfolio securities “covering” the amount of a fund’s obligation pursuant to an OTC option sold by it (or the
amount of assets equal to the formula price for the repurchase of the option, if any, less the amount by which the option is “in
the money”) are illiquid.
The Fund may also purchase and sell
(write) options on securities indices and other financial indices. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than settling by physical delivery of the underlying instrument,
they settle by cash settlement, i.e., an option or an index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of the index upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case of an OTC option, physical delivery is specified).
This amount of cash is equal to the excess of the closing price of the index over the exercise price of the option, which also
may be multiplied by a formula value. The seller of the option is obligated, in return for the premium received, to make delivery
of this amount. The gain or loss on an option on an index depends on price movements in the instruments making upon the market,
market segment, industry or other composite on which the underlying index is based, rather than primarily on the price movements
in individual securities, as is the case with respect to options on securities.
The Fund will
write call options and put options only if they are “covered.” For example, a call option written by the Fund will
require the Fund to hold the securities subject to the call (or securities convertible into the needed securities without additional
consideration) or to segregate cash or liquid assets sufficient to purchase and deliver the securities if the call is exercised.
A call option sold by the Fund on an index will require the Fund to own portfolio securities which correlate with the index or
to segregate cash or liquid assets equal to the excess of the index value over the exercise price on a current basis. A put option
written by the Fund requires the Fund to segregate cash or liquid assets equal to the exercise price.
OTC options entered
into by the Fund and OCC issued and exchange listed index options will generally provide for cash settlement. As a result, when
the Fund sells these instruments it will only segregate an amount of cash or liquid assets equal to its accrued net obligations,
as there is no requirement for payment or delivery of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC guaranteed listed option sold by the Fund, or the in-the-money
amount plus any sell-back formula amount in the case of a cash-settled put or call. In addition, when the Fund sells a call option
on an index at a time when the in-the-money amount exceeds the exercise price, the Fund will segregate, until the option expires
or is closed out, cash or cash equivalents equal in value to such excess. OCC issued and exchange listed options sold by the Fund
other than those above generally settle with physical delivery, or with an election of either physical delivery or cash settlement
and the Fund will segregate an amount of cash or liquid assets equal to the full value of the option. OTC options settling with
physical delivery, or with an election of either physical delivery or cash settlement, will be treated the same as other options
settling with physical delivery.
If an option
written by the Fund expires, the Fund realizes a capital gain equal to the premium received at the time the option was written.
If an option purchased by the Fund expires, the Fund realizes a capital loss equal to the premium paid.
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.
The Fund will
realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received
from writing the option, or, if it is more, the Fund will realize a capital loss. If the premium received from a closing sale transaction
is more than the premium paid to purchase the option, the Fund will realize a capital gain or, if it is less, the Fund will realize
a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation to the exercise price of the option, the volatility
of the underlying security or index, and the time remaining until the expiration date.
A put or call
option purchased by the Fund is an asset of the Fund, valued initially at the premium paid for the option. The premium received
for an option written by the Fund is recorded as a deferred credit. The value of an option purchased or written is marked-to-market
daily and is valued at the closing price on the exchange on which it is traded or, if not traded on an exchange or no closing price
is available, at the mean between the last bid and asked prices.
Risks Associated with Options
There are several
risks associated with transactions in options. For example, there are significant differences between the securities markets, the
currency markets and the options markets that could result in an imperfect correlation among these markets, causing a given transaction
not to achieve its objectives. A decision as to whether, when and how to use options involves the exercise of skill and judgment,
and even a well-conceived transaction may be unsuccessful because of market behavior or unexpected events. The Fund’s ability
to utilize options successfully will depend on Calamos’ ability to predict pertinent market investments, which cannot be
assured.
The
Fund’s ability to close out its position as a purchaser or seller (writer) of an OCC or exchange listed put or call option
is dependent, in part, upon the liquidity of the option market. Among the possible reasons for the absence of a liquid option
market on an exchange are: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed
by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to particular classes or series
of options or underlying securities including reaching daily price limits; (iv) interruption of the normal operations of
the OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to handle current trading volume; or (vi) a
decision by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which
event the relevant market for that option on that exchange would cease to exist, although outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms. If the Fund were unable to close out an option that
it has purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire
and become worthless. If the Fund were unable to close out a covered call option that it had written on a security, it would not
be able to sell the underlying security until the option expired. As the writer of a covered call option on a security, the Fund
foregoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering
the call option above the sum of the premium and the exercise price of the call. As the writer of a covered call option on a foreign
currency, the Fund foregoes, during the option’s life, the opportunity to profit from any currency appreciation.
The hours of
trading for listed options may not coincide with the hours during which the underlying financial instruments are traded. To the
extent that the option markets close before the markets for the underlying financial instruments, significant price and rate movements
can take place in the underlying markets that cannot be reflected in the option markets.
Unless
the parties provide for it, there is no central clearing or guaranty function in an OTC option. As a result, if the Counterparty
(as described above under “Options on Securities, Indices and Currencies”) fails to make or take delivery of
the security, currency or other instrument underlying an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund will lose any premium it paid for the option as well
as any anticipated benefit of the transaction unless the Fund has collected sufficient collateral from the counterparty to cover
its exposure. Accordingly, Calamos must assess the creditworthiness of each such Counterparty or any guarantor or credit enhancement
of the Counterparty’s credit to determine the likelihood that the terms of the OTC option will be satisfied. The Fund will
engage in OTC option transactions only with U.S. government securities dealers recognized by the Federal Reserve Bank of New York
as “primary dealers” or broker/dealers, domestic or foreign banks or other financial institutions which have received
(or the guarantors of the obligation of which have received) a short-term credit rating of “A-1” from S&P or “P-1”
from Moody’s or an equivalent rating from any nationally recognized statistical rating organization (“NRSRO”)
or, in the case of OTC currency transactions, are determined to be of equivalent credit quality by Calamos.
The
Fund may purchase and sell (write) call options on securities indices and currencies. All call options sold by the Fund must be
“covered.” Even though the Fund will receive the option premium to help protect it against loss, a call sold by the
Fund exposes the Fund during the term of the option to possible loss of opportunity to realize appreciation in the market price
of the underlying security or instrument and may require the Fund to hold a security or instrument which it might otherwise have
sold. In addition, a loss on a call option sold may be greater than the premium received. The Fund may purchase and sell (write)
put options on securities indices and currencies. In selling (writing) put options, there is a risk that the Fund may be required
to buy the underlying index or currency at a disadvantageous price above the market price. A put option written by the Fund requires
the Fund to segregate cash or liquid assets equal to the exercise price minus any margin the Fund is required to post.
Futures Contracts and Options on
Futures Contracts
The
Fund may enter into interest rate futures contracts, index futures contracts, volatility index futures contracts and foreign currency
futures contracts. An interest rate, index, volatility 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 at a specified
price and time. A public market exists in futures contracts covering a number of indices (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 (“NYSE”)
Composite Index) as well as financial instruments (including, but not limited to U.S. Treasury bonds, U.S. Treasury notes, Eurodollar
certificates of deposit and foreign currencies). Other index and financial instrument futures contracts are available and it is
expected that additional futures contracts will be developed and traded.
The Fund may
purchase and write call and put futures options. Futures options possess many of the same characteristics as options on securities,
indices and foreign currencies (discussed above). A futures option gives the holder the right, in return for the premium paid,
to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer
is assigned the opposite short position. In the case of a put option, the opposite is true. The Fund might, for example, use futures
contracts to hedge against or gain exposure to fluctuations in the general level of stock prices, anticipated changes in interest
rates or currency fluctuations that might adversely affect either the value of the Fund’s securities or the price of the
securities that the Fund intends to purchase. Although other techniques could be used to reduce or increase the Fund’s exposure
to stock price, interest rate and currency fluctuations, the Fund may be able to achieve its desired exposure more effectively
and perhaps at a lower cost by using futures contracts and futures options.
The Fund will
only enter into futures contracts and futures options that are standardized and traded on an exchange, board of trade or similar
entity, or quoted on an automated quotation system.
The success of
any futures transaction by the Fund depends on Calamos 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, Calamos
might have taken portfolio actions in anticipation of the same market movements with similar investment results, but, presumably,
at greater transaction costs. When the Fund makes a purchase or sale of a futures contract, the Fund is required to deposit with
its custodian (or broker, if legally permitted) a specified amount of cash or U.S. Government securities or other securities acceptable
to the broker (“initial margin”). The margin required for a futures contract is set by the exchange on which the contract
is traded and may be modified during the term of the contract, although the Fund’s broker may require margin deposits in
excess of the minimum required by the exchange. The initial margin is in the nature of a performance bond or good faith deposit
on the futures contract, which is returned to the Fund upon termination of the contract, assuming all contractual obligations have
been satisfied. The Fund expects to earn interest income on its initial margin deposits. A futures contract held by the Fund is
valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called
“variation margin,” equal to the daily change in value of the futures contract. This process is known as “marking-to-market.”
Variation margin paid or received by the Fund does not represent a borrowing or loan by the Fund but is instead settlement between
the Fund and the broker of the amount one would owe the other if the futures contract had expired at the close of the previous
day. In computing daily net asset value, the Fund will mark-to-market its open futures positions.
The Fund is also
required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current
market value of the option and other futures positions held by the Fund.
Although some
futures contracts call for making or taking delivery of the underlying securities, usually these obligations are closed out prior
to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery
month). If an offsetting purchase price is less than the original sale price, the Fund engaging in the transaction realizes a capital
gain, or if it is more, the Fund realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase
price, the Fund engaging in the transaction realizes a capital gain, or if it is less, the Fund realizes a capital loss. The transaction
costs must also be included in these calculations.
Risks Associated with Futures
There are several
risks associated with the use of futures contracts and futures options. A purchase or sale of a futures contract or option may
result in losses in excess of the amount invested in the futures contract or option.
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 or option 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. Futures prices are highly volatile at times, and are influenced by many external
economic, governmental and world events. The low margin deposits normally required in futures trading permits an extremely high
degree of leverage, which can result in the Fund experiencing substantial gains or losses due to relatively small price movements
or other factors. A decision as to whether, when and how to use futures contracts involves the exercise of skill and judgment,
and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected stock price
or interest rate trends.
Futures exchanges
may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or down from the previous day’s settlement price
at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no
more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular
trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable
positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial
losses. Stock index futures contracts are not normally subject to such daily price change limitations.
The
markets for futures positions may be thinly traded from time to time. In addition, futures positions may become illiquid due to
daily price limits taking effect or due to market disruptions. There can be no assurance that a liquid market will exist at a
time when the Fund seeks to close out a futures or futures option position. The Fund would be exposed to possible loss on the
position during the interval of inability to close, and would continue to be required to meet margin requirements until the position
is closed. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history.
As a result, there can be no assurance that an active secondary market will develop or continue to exist.
Limitations on Options and Futures
If
options, futures contracts or futures options of types other than those described herein are traded in the future, the Fund may
also use those investment vehicles, provided the Board of Trustees determines that their use is consistent with the Fund’s
investment objective.
When purchasing
a futures contract or writing a put option on a futures contract, the Fund must maintain with its custodian (or futures commission
merchant (“FCM”), 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 (or FCM) cash
or cash equivalents (including any margin) equal to the amount by which such option is in-the-money until the option expires or
is closed by the Fund.
The Fund may
not maintain open short positions in futures contracts, call options written on futures contracts or call options written on indices
if, in the aggregate, the market value of all such open positions exceeds the current value of the securities in its portfolio,
plus or minus unrealized gains and losses on the open positions, adjusted for the historical relative volatility of the relationship
between the portfolio and the positions. For this purpose, to the extent the Fund has written call options on specific securities
in its portfolio, the value of those securities will be deducted from the current market value of the securities portfolio.
The
use of options and futures contracts is subject to applicable regulations of the SEC, the several exchanges upon which they are
traded and the U.S. Commodity Futures Trading Commission (the “CFTC”). For
example, the CFTC and domestic futures exchanges have established (and continue to evaluate and monitor) speculative position
limits (“position limits”) on the maximum speculative position which any person, or group of persons acting
in concert, may hold or control in particular contracts. In addition, starting January 1, 2023 federal position limits will
apply to swaps that are economically equivalent to futures contracts that are subject to CFTC set speculative limits. All positions
owned or controlled by the same person or entity, even if in different accounts, must be aggregated for purposes of complying
with speculative limits. Thus, even if the Fund does not intend to exceed applicable position limits, it is possible that different
clients managed by the Adviser and its affiliates may be aggregated for this purpose. Therefore, the trading decisions of the
Adviser may have to be modified and positions held by the Fund liquidated in order to avoid exceeding such limits. The modification
of investment decisions or the elimination of open positions, if it occurs, may adversely affect the profitability of the Fund.
A violation of position limits could also lead to regulatory action materially adverse to the Fund’s investment strategy.
Pursuant
to CFTC Regulation 4.5, Calamos, the Fund’s investment adviser, is excluded from the definition of commodity pool operator
(“CPO”) under the Commodity Exchange Act (“CEA”) and is not subject to registration or regulation as such
under the CEA. The terms of the exclusion require the Fund, among other things, to adhere to certain limits on its investments
in “commodity interests.” Pursuant to the exemption, if the Fund uses commodity interests (such as futures contracts,
options on futures contracts and most swaps) the aggregate initial margin and premiums required to establish these positions (after
taking into account unrealized profits and unrealized losses on any such positions and excluding the amount by which options that
are “in-the-money”1
at the time of purchase) may not exceed 5% of the Fund’s NAV, or alternatively, the aggregate net notional value
of those positions, as determined at the time the most recent position was established, may not exceed 100% of the Fund’s
NAV (after taking into account unrealized profits and unrealized losses on any such positions). If, in the future, the Fund can
no longer satisfy these requirements, Calamos would withdraw its exclusion from the definition of CPO, and Calamos would be subject
to registration and regulation as a CPO with respect to the Fund, in accordance with CFTC rules that apply to CPOs of registered
investment companies.
In
addition, the Fund’s ability to use options and futures contracts may be limited by tax considerations. See “Certain
Federal Income Tax Matters” below.
Warrants
The Fund may
invest in warrants. A warrant is a right to purchase common stock at a specific price (usually at a premium above the market value
of the underlying common stock at time of issuance) during a specified period of time. A warrant may have a life ranging from less
than a year to twenty years or longer, but a warrant becomes worthless unless it is exercised or sold before expiration. In addition,
if the market price of the common stock does not exceed the warrant’s exercise price during the life of the warrant, the
warrant will expire worthless. Warrants have no voting rights, pay no dividends and have no rights with respect to the assets of
the corporation issuing them. The percentage increase or decrease in the value of a warrant may be greater than the percentage
increase or decrease in the value of the underlying common stock.
Zero Coupon and Payment-in-Kind
Securities
The discount
may approximate the total amount of interest the security will accrue and compound over the period until maturity or the particular
interest payment date at a rate of interest reflecting the market rate of the security at the time of issuance. Zero coupon securities
do not require the periodic payment of interest. These investments benefit the issuer by mitigating its need for cash to meet debt
service, but generally require a higher rate of return to attract investors who are willing to defer receipt of cash. These investments
involve greater interest rate risk and may experience greater volatility in market value than comparable securities that make regular
payments of interest. The Fund accrues income on these investments for tax and accounting purposes, which is distributable to shareholders
and which, because no cash is received at the time of accrual, may require the liquidation of other portfolio securities to satisfy
the Fund’s distribution obligations, in which case the Fund will forgo the purchase of additional income producing assets
with these funds. Zero coupon U.S. government securities include STRIPS and CUBES, which are issued by the U.S. Treasury as component
parts of U.S. Treasury bonds and represent scheduled interest and principal payments on the bonds.
1A
call option is “in-the-money” to the extent, if any, that 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
Portfolio Turnover
Although
the Fund does not purchase securities with a view to rapid turnover, there are no limitations on the length of time that a portfolio
security must be held. Portfolio turnover can occur for a number of reasons, including calls for redemption, general conditions
in the securities markets, more favorable investment opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. The portfolio turnover rates may vary greatly from year to year. A high rate of
portfolio turnover in the Fund would result in increased transaction expense, which must be borne by the Fund. High portfolio
turnover may also result in the realization of capital gains or losses and, to the extent net short-term capital gains are realized,
any distributions resulting from such gains will be taxed at ordinary income tax rates for U.S. federal income tax purposes.
Short Sales
A short sale
may be effected when Calamos believes that the price of a security will decline or underperform the market, and involves the sale
of borrowed securities, in the hope of purchasing the same securities at a later date at a lower price. There can be no assurance
that the Fund will be able to close out a short position (i.e., purchase the same securities) at any particular time or at an acceptable
or advantageous price. To make delivery to the buyer, the Fund must borrow the securities from a broker-dealer through which the
short sale is executed, and the broker-dealer delivers the securities, on behalf of the Fund, to the buyer. The broker- dealer
may be entitled to retain the proceeds from the short sale until the Fund delivers to it the securities sold short or the Fund
may receive and invest the proceeds. In addition, the Fund is required to pay to the broker- dealer the amount of any dividends
or interest paid on the securities sold short.
To secure its
obligation to deliver to the broker-dealer the securities sold short, the Fund must segregate an amount of cash or liquid securities
that are marked to market daily with its custodian equal to any excess of the current market value of the securities sold short
over any cash or liquid securities deposited as collateral with the broker in connection with the short sale (not including the
proceeds of the short sale). As a result of that requirement, the Fund will not gain any leverage merely by selling short, except
to the extent that it earns interest or other income or gains on the segregated cash or liquid securities while also being subject
to the possibility of gain or loss from the securities sold short.
The Fund is said
to have a short position in the securities sold until it delivers to the broker-dealer the securities sold. 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.
The Fund will
realize a gain if the price of the securities declines between the date of the short sale and the date on which the Fund purchases
securities to replace the borrowed securities. On the other hand, the Fund will incur a loss if the price of the securities increases
between those dates. The amount of any gain will be decreased and the amount of any loss increased by any premium or interest that
the Fund may be required to pay in connection with the short sale. It should be noted that possible losses from short sales differ
from those that could arise from a cash investment in a security in that losses from a short sale may be limitless, while the losses
from a cash investment in a security cannot exceed the total amount of the investment in the security.
There is also
a risk that securities borrowed by the Fund and delivered to the buyer of the securities sold short will need to be returned to
the broker-dealer on short notice. If the request for the return of securities occurs at a time when other short sellers of the
security are receiving similar requests, a “short squeeze” can occur, meaning that the Fund might be compelled, at
the most disadvantageous time, to replace the borrowed securities with securities purchased on the open market, possibly at prices
significantly in excess of the proceeds received from the short sale.
It is possible
that the market value of the securities the Fund holds in long positions will decline at the same time that the market value of
the securities the Fund has sold short increases, thereby increasing the Fund’s potential volatility.
Rule 10a-1
under the Securities Exchange Act of 1934, as amended (“Exchange Act”) provides that exchange-traded securities can
be sold short only at a price that is higher than the last trade or the same as the last trade price if that price is higher than
the price of the previous reported trade. The requirements of Rule 10a-1 can delay, or in some cases prevent, execution of
short sales, resulting in opportunity costs and increased exposure to market action.
The Fund may
also make short sales “against the box,” meaning that at all times when a short position is open the Fund owns an equal
amount of such securities or securities convertible into or exchangeable, without payment of further consideration, for securities
of the same issue as, and in an amount equal to, the securities sold short. Short sales “against the box” result in
a “constructive sale” and require the Fund to recognize any taxable gain unless an exception to the constructive sale
rule applies.
The Fund will
not make a short sale of securities (other than a short sale “against the box”), if more than 20% of its net assets
would be deposited with brokers as collateral or allocated to segregated accounts in connection with all outstanding short sales
(other than short sales “against the box”).
Short
sales also may afford the Fund an opportunity to earn additional current income to the extent it 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. Calamos believes that some broker-dealers may be willing to enter
into such arrangements, but there is no assurance that the Fund will be able to enter into such arrangements to the desired degree.
Further, the SEC and regulatory authorities in other jurisdictions may adopt (and in certain cases, have adopted) bans on short
sales of certain securities in response to market events.
Swaps, Caps, Floors and Collars
The Fund may
enter into interest rate, currency, index, credit default and other swaps and the purchase or sale of related caps, floors and
collars. The Fund expects to enter into these transactions primarily as a hedge to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing at a later date. The Fund will not sell interest
rate caps or floors where it does not own securities or other instruments providing the income stream the Fund may be obligated
to pay. Interest rate swaps involve the exchange by the Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. A
currency swap is an agreement to exchange cash flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on a notional amount based on changes in the values
of the reference indices. A credit default swap is an agreement to transfer the credit exposure of fixed income products between
parties. The purchase of a cap entitles the purchaser to receive payments on a notional principal amount from the party selling
such cap to the extent that a specified index exceeds a predetermined interest rate or amount. The purchase of a floor entitles
the purchaser to receive payments on a notional principal amount from the party selling such floor to the extent that a specified
index falls below a predetermined interest rate or amount. A collar is a combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates or values for the purchases.
The Fund will
usually enter into swaps or caps on a net basis; that is, the two payment streams will be netted out in a cash settlement on the
payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of
the two payments. The Fund intends to maintain in a segregated account with its custodian cash or liquid securities having a value
at least equal to the Fund’s net payment obligations under any swap transaction, marked-to-market daily.
The use of swaps
and caps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary
portfolio security transactions. The Fund’s use of swaps or caps could enhance or harm the overall performance on the common
shares. To the extent there is a decline in interest rates, the value of the interest rate swap or cap could decline, and could
result in a decline in the net asset value of the common shares. In addition, if short-term interest rates are lower than the Fund’s
fixed rate of payment on the interest rate swap, the swap will reduce common share net earnings. If, on the other hand, short-term
interest rates are higher than the fixed rate of payment on the interest rate swap, the swap will enhance common share net earnings.
Buying caps could enhance the performance of the common shares by limiting certain leverage expenses. Buying caps could also decrease
the net earnings of the common shares in the event that the premium paid by the Fund to the counterparty exceeds the additional
amount the Fund would have been required to pay had it not entered into the cap agreement. The Fund has no current intention of
selling swaps or caps.
Swaps and caps
do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that the Fund is contractually obligated to make. If the counterparty defaults,
the Fund would not be able to use the anticipated net receipts under the swap or cap to offset the payments on the Fund’s
leverage or offset certain losses in the portfolio. Depending on whether the Fund would be entitled to receive net payments from
the counterparty on the swap or cap, such a default could negatively impact the performance of the common shares.
Although this
will not guarantee the counterparty does not default, the Fund will not enter into any swap, cap, floor or collar transaction unless,
at the time of entering into such transaction, the Fund believes that the counterparty has the financial resources to honor its
obligation under the transaction. Further, Calamos will continually monitor the financial stability of a counterparty to a swap
or cap transaction in an effort to proactively protect the Fund’s investments.
In addition,
at the time the swap or cap transaction reaches its scheduled termination date, there is a risk that the Fund would not be able
to obtain a replacement transaction or that the terms of the replacement would not be as favorable as on the expiring transaction.
If this occurs, it could have a negative impact on the performance of the Fund’s common shares.
If the Fund were
to issue preferred shares, the Fund may choose or be required to redeem some or all of the preferred shares or prepay any borrowings.
Such redemption or prepayment would likely result in the Fund seeking to terminate early all or a portion of any swap or cap transaction.
Such early termination of a swap could result in termination payment by or to the Fund.
The swap market
has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid, however, some swaps
may be considered illiquid. Caps, floors and collars are more recent innovations for which standardized documentation has not yet
been fully developed and, accordingly, they are less liquid than certain other swaps.
In addition,
certain categories of interest rate and credit default swaps are, and more in the future will be, centrally cleared. Swaps that
are centrally-cleared are subject to the creditworthiness of the clearing organizations involved in the transaction. For example,
a swap investment by the Fund could lose margin payments deposited with the clearing organization, as well as the net amount of
gains not yet paid by the clearing organization, if the clearing organization breaches the swap agreement with the Fund or becomes
insolvent or goes into bankruptcy. Also, the Fund will be exposed to the credit risk of the FCM who acts as the Fund’s clearing
member on the clearinghouse for a centrally cleared swap. If the Fund’s FCM becomes bankrupt or insolvent, or otherwise defaults
on its obligations to the Fund, the Fund may not receive all amounts owed to it in respect of its trading, even if the clearinghouse
fully discharges all of its obligations. In the event of bankruptcy of the Fund’s FCM, the Fund may be entitled to the net
amount of gains the Fund is entitled to receive, plus the return of margin owed to it, only in proportion to the amount received
by the FCM’s other customers, potentially resulting in losses to the Fund.
Risks
Associated with Cleared Derivatives
The
CFTC requires that certain interest rate swaps and index credit default swaps be cleared through a central counterparty (“CCP”)
(unless an exception or exemption applies), and the CFTC may expand the types of swaps (e.g., certain foreign currency and commodity
swaps) subject to mandatory clearing. While the SEC has adopted rules establishing a framework for determining which security-based
swaps will be subject to mandatory clearing, no such clearing determination has been issued.
Where
the Fund enters into swaps subject to mandatory clearing, it may be required to clear such swaps at a CCP through a FCM acting
as clearing broker. The Fund will have to post initial margins to CCPs through FCMs or broker-dealers (in the U.S.) or other clearing
brokers (outside the U.S.), and for swaps cleared at CCPs that are U.S.-registered derivatives clearing organizations, such initial
margins will be held by such CCP and FCMs in segregated accounts under the CFTC rules. Such segregation is intended to protect
the initial margins of swap clearing customers from the claims of other creditors of a CCP or FCM. Furthermore, the CFTC rules implement the so-called “legally
segregated, operationally commingled” model for the segregation of swap clearing customer collateral on a customer-by-customer basis, which
is intended to protect each customer from the default of other customers of the FCM. Such segregation, however, will not protect
clearing customers like the Fund from any operational or fraud risk of a CCP or FCM with respect to the initial margin posted
to the CCP or FCM. In addition, the initial margins posted to a non-US CCP through a non-US clearing
broker may not even be segregated from the property of such CCP and/or clearing broker. The SEC has no final rules for the
treatment and protection of customer property, including initial margins, held by CCPs and broker-dealers.
In
addition, where the Fund enters into certain swaps subject to mandatory clearing, it may be required to execute such swaps on
a registered designated contract market or swap execution facility (“SEF”). The CFTC requires that certain interest
rate swaps and index credit default swaps be executed on a registered designated contract market or SEF, and registered designated
contract markets or SEFs may self-certify additional types of interest rate and index credit default swaps as subject to this
requirement. The SEC not yet adopted registration rules for security-based registered designated contract markets or SEFs
or a mandatory trade execution requirement for security-based swaps. In addition, certain foreign jurisdictions may impose clearing
and trade execution requirements that could apply to the Fund’s transactions with non-U.S. entities. While
the Fund may benefit from reduced counterparty credit and operations risk and pricing transparency resulting from these requirements,
it will incur additional costs in trading these swaps. In addition, while the Fund will attempt to execute, clear and settle these
swaps through entities Calamos believes to be sound, there can be no assurance that a failure by such an entity will not cause
a loss to the Fund.
Risks Associated
with Uncleared Derivatives
Where
the Fund enters into derivatives contracts that are not centrally cleared through a CCP, the Fund will become subject to the risk
that a counterparty will not perform its obligations under such contracts, either because of a dispute over the terms of the contract
(whether or not bona fide) or because of a credit or liquidity problem of the counterparty, thus causing the Fund to suffer a
loss. Such Where the Fund enters into derivatives contracts that are not centrally cleared through a CCP, the Fund will become
subject to the risk that a counterparty will not perform its obligations under such contracts, either because of a dispute over
the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem of the counterparty, thus causing
the Fund to suffer a loss. Such counterparty risk may be accentuated by the fact that the Fund may concentrate its transactions
with a single or small group of counterparties. In addition, in the case of a default, the Fund could become subject to adverse
market movements while seeking replacement transactions. The Fund is not restricted from dealing with any particular counterparty
or from concentrating any or all of its transactions with one counterparty. Certain of the swap counterparties may be entities
that are rated by recognized rating agencies. The Fund’s ability to transact business with any one or number of counterparties,
the possible lack of a meaningful and independent evaluation of such counterparties’ financial capabilities, and the absence
of a regulated market to facilitate settlement may increase the potential for losses by the Fund.
The U.S. prudential regulators
and the CFTC have adopted margin requirements for non-cleared swaps which apply to entities subject to the jurisdiction of the
prudential regulators and entities registered as swap dealers with the CFTC, respectively (in each case, with respect to all non-cleared
swaps entered into on or after March 1, 2017). While the Fund will not be directly subject to these margin requirements,
the Fund will be indirectly impacted by the margin requirements where its counterparty is subject to such requirement. The Fund
is required to exchange variation margin (in the form of cash, certain highly liquid securities or gold) with its counterparties
that are subject to the margin requirement (and, if contractually agreed, with any other counterparty) to cover the cumulative
daily mark-to-market change in value of the transaction since the last exchange of variation margin. The amount of margin that
must be posted and collected pursuant to these regulatory requirements may be determined on a net basis (taking into account offsetting
exposures) with respect to a portfolio of uncleared swaps and/or security-based swaps that are governed by a master netting agreement
that satisfies certain criteria. Mandatory initial margin requirements are also scheduled to become effective, but such requirements
apply only to swap dealers when trading with financial end users with “material swaps exposure.” Given the anticipated
volume of the Fund’s swap transactions, the Fund is not likely to have “material swaps exposure” for purposes
of these margin rules, and therefore does not expect to be subject to these initial margin requirements. In addition, the U.S.
prudential regulators’ margin rules apply to non-cleared security-based swaps entered into by security-based swap dealers
that are subject to their jurisdiction, and the SEC has proposed but not yet adopted final margin rules for security-based
swap dealers that are not subject to the jurisdiction of prudential regulators.
To the extent that the Fund’s
swap dealer counterparty collects margin from the Fund on its uncleared swaps and security-based swaps, such margin is held in
an account at the Fund’s custodian in which the swap dealer has a security interest. The custodian may fail to segregate
such assets or collateral properly. In either case, in the event of the bankruptcy or insolvency of any custodian or counterparty,
the Fund’s assets and collateral may be subject to the conflicting claims of the creditors of the relevant custodian or
counterparty, and the Fund may be exposed to the risk of a court treating the Fund as a general unsecured creditor of such custodian
or counterparty, rather than as the owner of such assets or collateral.
In addition, uncleared OTC
derivative instruments can generally be closed out only by negotiation with the counterparty, which may expose the Fund to liquidity
risk. There can be no assurance that a liquid secondary market will exist for any particular derivative instrument at any particular
time, including for those derivative instruments that were originally categorized as liquid at the time they were acquired by
the Fund. In volatile markets, the Fund may not be able to close out a position without incurring a significant amount of loss.
In addition, the Fund may not be able to convince its counterparty to consent to an early termination of an OTC derivative contract
or may not be able to enter into an offsetting transaction to effectively unwind the transaction. Such OTC derivative contracts
generally are not assignable except by agreement between the parties, and a counterparty typically has no obligation to permit
assignments. Even if the Fund’s counterparty agrees to early termination of OTC derivatives at any time, doing so may subject
the Fund to certain early termination charges.
“When Issued” and Delayed
Delivery Securities and Reverse Repurchase Agreements
The
Fund may purchase securities on a when issued or delayed delivery basis. Although the payment and interest terms of these securities
are established at the time the Fund enters into the commitment, the securities may be delivered and paid for a month or more after
the date of purchase, when their value may have changed. The Fund makes such commitments only with the intention of actually acquiring
the securities, but may sell the securities before settlement date if Calamos deems it advisable for investment reasons. The Fund
may utilize spot and forward foreign currency exchange transactions to reduce the risk inherent in fluctuations in the exchange
rate between one currency and another when securities are purchased or sold on a when issued or delayed delivery basis.
The Fund may
enter into reverse repurchase agreements with banks and securities dealers. A reverse repurchase agreement is a repurchase agreement
in which the Fund is the seller of, rather than the investor in, securities and agrees to repurchase them at an agreed upon time
and price. Use of a reverse repurchase agreement may be preferable to a regular sale and later repurchase of securities because
it avoids certain market risks and transaction costs. Reverse repurchase agreements involve the risk that the market value of securities
and/or other instruments purchased by the Fund with the proceeds received by the Fund in connection with such reverse repurchase
agreements may decline below the market value of the securities the Fund is obligated to repurchase under such reverse repurchase
agreements. They also involve the risk that the counterparty liquidates the securities delivered to it by the Fund under the reverse
repurchase agreement following the occurrence of an event of default under the applicable master repurchase agreement by the Fund.
At the time when
the Fund enters into a binding obligation to purchase securities on a when-issued basis or enters into a reverse repurchase agreement,
liquid securities (cash, U.S. Government securities or other “high grade” debt obligations) of the Fund having a value
at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Fund and held
by the custodian throughout the period of the obligation. The use of these investment strategies may increase net asset value fluctuation.
Illiquid Securities
The Fund may
invest up to 15% of its managed assets in securities that, at the time of investment, are illiquid (i.e., any investment that the
Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale
or disposition significantly changing the market value of the investment). Illiquid securities may be difficult to dispose of at
a fair price at the times when the Fund believes it is desirable to do so. The market price of illiquid securities generally is
more volatile than that of more liquid securities, which may adversely affect the price that the Fund pays for or recovers upon
the sale of illiquid securities. Illiquid securities are also more difficult to value and Calamos’ judgment may play a greater
role in the valuation process. Investment of the Fund’s assets in illiquid securities may restrict the Fund’s ability
to take advantage of market opportunities. The risks associated with illiquid securities may be particularly acute in situations
in which the Fund’s operations require cash and could result in the Fund borrowing to meet its short- term needs or incurring
losses on the sale of illiquid securities.
The Fund may
invest in bonds, corporate loans, convertible securities, preferred stocks and other securities that lack a secondary trading market
or are otherwise considered illiquid. Liquidity of a security relates to the ability to easily dispose of the security and the
price to be obtained upon disposition of the security, which may be less than would be obtained for a comparable more liquid security.
Such investments may affect the Fund’s ability to realize the net asset value in the event of a voluntary or involuntary
liquidation of its assets.
Temporary Defensive Investments
The Fund may
make temporary investments without limitation when Calamos determines that a defensive position is warranted. Such investments
may be in money market instruments, consisting of obligations of, or guaranteed as to principal and interest by, the U.S. Government
or its agencies or instrumentalities; certificates of deposit, bankers’ acceptances and other obligations of domestic banks
having total assets of at least $500 million and that are regulated by the U.S. Government, its agencies or instrumentalities;
commercial paper rated in the highest category by a recognized rating agency; cash; and repurchase agreements. If the Fund temporarily
uses a different investment strategy for defensive purposes, different factors could affect the Fund’s performance, and the
Fund may not achieve its investment objective.
Repurchase Agreements
As part of its
strategy for the temporary investment of cash, the Fund may enter into “repurchase agreements” with member banks of
the Federal Reserve System or primary dealers (as designated by the Federal Reserve Bank of New York) in such securities. A repurchase
agreement arises when the Fund purchases a security and simultaneously agrees to resell it to the vendor at an agreed upon future
date. The resale price is greater than the purchase price, reflecting an agreed upon market rate of return that is effective for
the period of time the Fund holds the security and that is not related to the coupon rate on the purchased security. Such agreements
generally have maturities of no more than seven days and could be used to permit the Fund to earn interest on assets awaiting long-term
investment. The Fund requires continuous maintenance by the custodian for the Fund’s account in the Federal Reserve/Treasury
Book Entry System of collateral in an amount equal to, or in excess of, the market value of the securities that are the subject
of a repurchase agreement. Repurchase agreements maturing in more than seven days are considered illiquid securities. In the event
of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the
underlying security and losses, including: (a) possible decline in the value of the underlying security during the period
while the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights.
Preferred Shares
The
Fund may invest in preferred shares. The preferred shares that the Fund will invest in will typically be convertible securities.
Preferred shares are equity securities, but they have many characteristics of fixed income securities, such as a fixed dividend
payment rate and/or a liquidity preference over the issuer’s common shares.
Real Estate Investment Trusts (“REITs”)
and Associated Risk Factors
REITs are pooled
investment vehicles which invest primarily in income producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity REITs invest the majority
of their assets directly in real property and derive income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real
estate mortgages and derive income from the collection of interest payments. REITs are not taxed on income and gains distributed
to shareholders provided they comply with the applicable requirements of the Internal Revenue Code of 1986, as amended (the “Code”).
The Fund will indirectly bear its proportionate share of any management and other expenses paid by REITs in which it invests in
addition to the expenses paid by the Fund. Debt securities issued by REITs are, for the most part, general and unsecured obligations
and are subject to risks associated with REITs.
Investing in
REITs involves certain unique risks in addition to those risks associated with investing in the real estate industry in general.
An equity REIT may be affected by changes in the value of the underlying properties owned by the REIT. A mortgage REIT may be affected
by changes in interest rates and the ability of the issuers of its portfolio mortgages to repay their obligations. REITs are dependent
upon the skills of their managers and are not diversified. REITs are generally dependent upon maintaining cash flows to repay borrowings
and to make distributions to shareholders and are subject to the risk of default by lessees or borrowers. REITs whose underlying
assets are concentrated in properties used by a particular industry, such as health care, are also subject to risks associated
with such industry.
REITs (especially
mortgage REITs) are also subject to interest rate risks. When interest rates decline, the value of a REIT’s investment in
fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT’s investment in
fixed rate obligations can be expected to decline. If the REIT invests in adjustable rate mortgage loans the interest rates on
which are reset periodically, yields on a REIT’s investments in such loans will gradually align themselves to reflect changes
in market interest rates. This causes the value of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
REITs may have
limited financial resources, may utilize significant amounts of leverage, may trade less frequently and in a limited volume and
may be subject to more abrupt or erratic price movements than larger company securities. Historically REITs have been more volatile
in price than the larger capitalization stocks included in Standard & Poor’s 500 Stock Index.
Other Investment Companies (including
ETFs)
The Fund may
invest in the securities of other investment companies, including ETFs, to the extent that such investments are consistent with
the Fund’s investment objective and policies and permissible under the 1940 Act. Under the 1940 Act, the Fund generally may
not acquire the securities of other domestic or non-U.S. investment companies if, as a result, (i) more than 10% of the Fund’s
total assets would be invested in securities of other investment companies, (ii) such purchase would result in more than 3%
of the total outstanding voting securities of any one investment company being held by the Fund, (iii) more than 5% of the
Fund’s total assets would be invested in any one investment company, or (iv) such purchase would result in more than
10% of the total outstanding voting securities of a registered closed-end investment company being held by the Fund and other investment
companies advised by Calamos. These limitations do not apply to the purchase of shares of money market funds or any investment
company in connection with a merger, consolidation, reorganization or acquisition of substantially all the assets of another investment
company, or to purchases of investment companies made in accordance with SEC exemptive relief or rule.
The Fund, as
a holder of the securities of other investment companies, will bear its pro rata portion of the other investment companies’
expenses, including advisory fees. These expenses are in addition to the direct expenses of the Fund’s own operations.
Master Limited Partnerships
The Fund may
invest up to 10% of its managed assets in the equity securities (including common units) of master limited partnerships (“MLPs”)
(convertible securities are excluded from this limitation). MLPs are investment vehicles generally organized under state law as
limited partnerships or limited liability companies. MLPs typically issue general partner and limited partner interests, or managing
member and member interests, and MLP-issued securities are often listed and traded on a securities exchange. Such securities are
structured by contract and may incorporate both equity-like and debt-like components. The general partner or manager of the MLP
generally controls the operation and management of the MLP, and typically is eligible for certain incentive distributions under
the terms of the MLP. The Fund will not typically invest in general partner or manager interests of MLPs. Limited partner or member
interests in MLPs may have either preferred or subordinated rights to MLP assets and distributions.
Dodd-Frank Act and Other Derivatives
Regulations
The financial
crisis in both the U.S. and global economies over the past several years, including the European sovereign debt crisis, has resulted,
and may continue to result, in an unusually high degree of volatility in the financial markets and the economy at large. Both domestic
and international equity and fixed income markets have been experiencing heightened volatility and turmoil, with issuers that have
exposure to the real estate, mortgage and credit markets particularly affected. It is uncertain how long these conditions will
continue.
In addition to the recent unprecedented
turbulence in financial markets, the reduced liquidity in credit and fixed income markets may negatively affect many issuers worldwide.
Reduced liquidity in these markets may mean there is less money available to purchase raw materials, goods and services, which
may, in turn, bring down the prices of these economic staples. It may also result in some issuers having more difficulty obtaining
financing and ultimately may lead to a decline in their stock prices. The values of some sovereign debt and of securities of issuers
that hold that sovereign debt have fallen. These events, and the potential for continuing market turbulence, may have an adverse
effect on the Fund. In addition, global economies and financial markets are becoming increasingly interconnected, which increases
the possibilities that conditions in one country or region might adversely impact issuers in a different country or region.
Continuing uncertainty
as to the status of the Euro and the European Monetary Union (“EMU”) and the potential for certain countries to withdraw
from the institution has created significant volatility in currency and financial markets generally. Any partial or complete dissolution
of the EMU could have significant adverse effects on currency and financial markets, and on the values of the Fund’s portfolio
investments.
The U.S.
federal government and certain foreign central banks have acted to calm credit markets and increase confidence in the U.S. and
world economies. Certain of these entities have injected liquidity into the markets and taken other steps in an effort to stabilize
the markets and grow the economy. The ultimate effect of these efforts is, of course, not yet known. Changes in government policies
may exacerbate the market’s difficulties and the withdrawal of this support, or other policy changes by governments or central
banks, could negatively affect the value and liquidity of certain securities.
The situation
in the financial markets has led to calls for increased regulation, and the need of many financial institutions for government
help has given lawmakers and regulators new leverage. The Dodd-Frank Act initiated a dramatic revision of the U.S. financial regulatory
framework that is expected to continue to unfold over several years. The Dodd-Frank Act covers a broad range of topics, including
(among many others) a reorganization of federal financial regulators; a process intended to improve financial systemic stability
and the resolution of potentially insolvent financial firms; new rules for derivatives trading; the creation of the Consumer
Financial Protection Bureau; the registration and additional regulation of hedge and private equity fund managers; and new federal
requirements for residential mortgage loans. Instruments in which the Fund may invest, or the issuers of such instruments, may
be affected by the new legislation and regulation in ways that may be unforeseeable. Because these requirements are relatively
new and evolving (and some of the rules are not yet final), their ultimate impact remains unclear.
The statutory
provisions of the Dodd-Frank Act significantly change in several respects the ways in which investment products are marketed, sold,
settled or terminated. In particular, the Dodd-Frank Act mandates the elimination of references to credit ratings in numerous securities
laws, including the 1940 Act. Transactions in some types of swaps (including interest rate swaps and credit default index swaps
on North American and European indices) are required to be centrally cleared. Clearinghouses and futures commission merchants have
broad rights to increase margin requirements for existing cleared transactions or to terminate cleared transactions at any time.
Any increase in margin requirements or termination by the clearing member or the clearinghouse may have an effect on the performance
of the Fund.
Under
rules adopted under the Dodd-Frank Act, certain cleared derivatives contracts are required to be executed through swap
execution facilities (“SEFs”). A SEF is a trading platform where multiple market participants can execute
derivatives by accepting bids and offers made by multiple other participants in the platform. Such requirements may make it
more difficult and costly for investment funds, such as the Fund, to enter into highly tailored or customized transactions.
Trading swaps on a SEF may offer certain advantages over traditional bilateral over-the-counter trading, such as ease of
execution, price transparency, increased liquidity and/or favorable pricing. Execution through a SEF is not, however, without
additional costs and risks, as parties are required to comply with SEF and CFTC rules and regulations, including
disclosure and recordkeeping obligations, and SEF rights of inspection, among others. SEFs typically charge fees, and if the
Fund executes derivatives on a SEF through a broker intermediary, the intermediary may impose fees as well. The Fund also may
be required to indemnify a SEF, or a broker intermediary who executes swaps on a SEF on the Fund’s behalf, against any
losses or costs that may be incurred as a result of the Fund’s transactions on the SEF. In addition, the Fund may be
subject to execution risk if it enters into a derivatives transaction that is required to be cleared, and no clearing member
is willing to clear the transaction on the Fund’s behalf. In that case, the transaction might have to be terminated,
and the Fund could lose some or all of the benefit of any increase in the value of the transaction after the time of the
trade.
The European
Union (and some other countries) are implementing similar requirements that will affect the Fund when it enters into derivatives
transactions with a counterparty organized in that country or otherwise subject to that country’s derivatives regulations.
The new requirements
may result in increased uncertainty about counterparty credit risk, and they may also limit the flexibility of the Fund to protect
its interests in the event of an insolvency of a derivatives counterparty. In the event of a counterparty’s (or its affiliate’s)
insolvency, the Fund’s ability to exercise remedies, such as the termination of transactions, netting of obligations and
realization on collateral, could be stayed or eliminated under new special resolution regimes adopted in the United States, the
European Union and various other jurisdictions. Such regimes provide government authorities with broad authority to intervene when
a financial institution is experiencing financial difficulty. In particular, with respect to counterparties who are subject to
such proceedings in the European Union, the liabilities of such counterparties to the Fund could be reduced, eliminated, or converted
to equity in such counterparties (sometimes referred to as a “bail in”).
Additionally,
U.S. regulators, the European Union and certain other jurisdictions have adopted minimum margin and capital requirements for uncleared
derivatives transactions. It is expected that these regulations will have a material impact on the Fund’s use of uncleared
derivatives. These rules will impose minimum margin requirements on derivatives transactions between the Fund and its swap
counterparties and may increase the amount of margin the Fund is required to provide. They will impose regulatory requirements
on the timing of transferring margin. The Fund is subject to variation margin requirements under such rules and the Fund
may become subject to initial margin requirements.
The CFTC and
U.S. futures exchanges have established limits, referred to as “position limits,” on the maximum net long or net short
positions which any person may own or control in certain futures and options contracts. In addition, starting January 1,
2023 federal position limits will apply to swaps that are economically equivalent to futures contracts that are subject to CFTC
set speculative limits. All positions owned or controlled by the same person or entity, even if in different accounts, must be
aggregated for purposes of determining whether the applicable position limits have been exceeded. Thus, even if the Fund does
not intend to exceed applicable position limits, it is possible that different clients managed by the Adviser may be aggregated
for this purpose. Any modifications of trading decisions or elimination of open positions that may be required to avoid exceeding
such limits may adversely affect the performance of the Fund.
In October 2020, the
SEC adopted Rule 18f-4 under the 1940 Act, which, once effective, will apply to the Fund’s use of derivative investments
and certain financing transactions (e.g., reverse repurchase agreements). Among other things, Rule 18f-4 will require funds
that invest in derivative instruments beyond a specified limited amount to apply a value-at-risk based limit to their use of certain
derivative instruments and financing transactions and to adopt and implement a derivatives risk management program. A fund that
uses derivative instruments (beyond certain currency and interest rate hedging transactions) in a limited amount will not be subject
to the full requirements of Rule 18f-4. In connection with the adoption of Rule 18f-4, funds will no longer be required
to comply with the asset segregation framework arising from prior SEC guidance for covering certain derivative instruments and
related transactions. Compliance with Rule 18f-4 will not be required until August 2022. As the Fund comes into compliance,
the approach to asset segregation and coverage requirements described in this SAI will be impacted.
These and
other new rules and regulations could, among other things, further restrict the Fund’s ability to engage in, or increase
the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the
Fund or otherwise limiting liquidity. This may result in changes to the Fund’s principal investment strategies and could
adversely affect the Fund’s performance and its ability to achieve its investment objective.
Because the situation
in the markets is widespread and largely unprecedented, it may be unusually difficult to identify both risks and opportunities
using past models of the interplay of market forces, or to predict the duration of these market conditions.
INVESTMENT RESTRICTIONS
The following
are the Fund’s fundamental investment restrictions. These restrictions may not be changed without the approval of the holders
of a majority of the Fund’s outstanding voting securities (which for this purpose and under the 1940 Act means the lesser
of (i) 67% of the common shares represented at a meeting at which more than 50% of the outstanding common shares are represented
or (ii) more than 50% of the outstanding common shares). As long as preferred shares are outstanding, the investment restrictions
cannot be changed without the approval of a majority of the outstanding common and preferred shares, voting together as a class,
and the approval of a majority of the outstanding preferred shares, voting separately by class.
The Fund may not:
|
(1)
|
Issue senior securities, except as permitted by the 1940 Act and the rules and interpretive positions of the SEC thereunder.
|
|
(2)
|
Borrow money, except as permitted by the 1940 Act and the rules and interpretive positions of the SEC thereunder.
|
|
(3)
|
Invest in real estate, except that the Fund may invest in securities of issuers that invest in real estate or interests therein,
securities that are secured by real estate or interests therein, securities of real estate investment funds and mortgage-backed
securities.
|
|
(4)
|
Make loans, except by the purchase of debt obligations, by entering into repurchase agreements or through the lending of portfolio
securities and as otherwise permitted by the 1940 Act and the rules and interpretive positions of the SEC thereunder.
|
|
(5)
|
Invest in physical commodities or contracts relating to physical commodities.
|
|
(6)
|
Act as an underwriter, except as it may be deemed to be an underwriter in a sale of securities held in its portfolio.
|
|
(7)
|
Make any investment inconsistent with the Fund’s classification as a diversified investment company under the 1940 Act
and the rules and interpretive positions of the SEC thereunder.
|
|
(8)
|
Concentrate its investments in securities of companies in any particular industry as defined in the 1940 Act and the rules and
interpretive positions of the SEC thereunder.
|
All other investment
policies of the Fund are considered non-fundamental and may be changed by the Board of Trustees without prior approval of the Fund’s
outstanding voting shares.
Currently under
the 1940 Act, the Fund is not permitted to issue preferred shares unless immediately after such issuance the net asset value of
the Fund’s portfolio is at least 200% of the liquidation value of the outstanding preferred shares (i.e., such liquidation
value may not exceed 50% of the value of the Fund’s total assets). In addition, currently under the 1940 Act, the Fund is
not permitted to declare any cash dividend or other distribution on its common shares unless, at the time of such declaration,
the net asset value of the Fund’s portfolio (determined after deducting the amount of such dividend or distribution) is at
least 200% of such liquidation value plus any senior securities representing indebtedness. Currently under the 1940 Act, the Fund
is not permitted to issue senior securities representing indebtedness unless immediately after such borrowing the Fund has asset
coverage of at least 300% of the aggregate outstanding principal balance of indebtedness (i.e., such indebtedness may not exceed
33 1/3% of the value of the Fund’s total assets). Additionally, currently under the 1940 Act, the Fund generally may not
declare any dividend or other distribution upon any class of its shares, or purchase any such shares, unless the aggregate indebtedness
of the Fund has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, an asset
coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be, except
that dividends may be declared upon any preferred shares if such indebtedness has an asset coverage of at least 200% at the time
of declaration thereof after deducting the amount of the dividend. This limitation does not apply to certain privately placed debt.
Currently
under the 1940 Act, the Fund is not permitted to lend money or property to any person, directly or indirectly, if such person controls
or is under common control with the Fund, except for a loan from the Fund to a company which owns all of the outstanding securities
of the Fund, except directors’ qualifying shares.
Currently, under
interpretive positions of the SEC, the Fund may not have on loan at any time securities representing more than one third of its
total assets.
Currently under
the 1940 Act, a “senior security” does not include any promissory note or evidence of indebtedness where such loan
is for temporary purposes only and in an amount not exceeding 5% of the value of the total assets of the issuer at the time the
loan is made. A loan is presumed to be for temporary purposes if it is repaid within sixty days and is not extended or renewed.
Currently, the
Fund would be deemed to “concentrate” in a particular industry if it invested 25% or more of its total assets in that
industry.
Currently under
the 1940 Act, a “diversified company” means a management company which meets the following requirements: at least 75%
of the value of its total assets is represented by cash and cash items (including receivables), government securities, securities
of other investment companies, and other securities for the purposes of this calculation limited in respect of any one issuer to
an amount not greater in value than 5% of the value of the total assets of such management company and not more than 10% of the
outstanding voting securities of such issuer.
Under the 1940
Act, the Fund may not acquire the securities of other domestic or non-U.S. investment companies if, as a result, (1) more
than 10% of the Fund’s total assets would be invested in securities of other investment companies, (2) such purchase
would result in more than 3% of the total outstanding voting securities of any one investment company being held by the Fund, (3) more
than 5% of the Fund’s total assets would be invested in any one investment company, or (4) such purchase would result
in more than 10% of the total outstanding voting securities of a registered closed-end investment company being held by the Fund
and any other registered investment companies advised by Calamos. These limitations do not apply, however, to the purchase of shares
of money market funds or of any investment company in connection with a merger, consolidation, reorganization or acquisition of
substantially all the assets of another investment company, or to purchases of investment companies made in accordance with SEC
exemptive relief or rule. As a shareholder in any investment company, the Fund will bear its ratable share of that investment company’s
expenses, and would remain subject to payment of the Fund’s advisory fees and other expenses with respect to assets so invested.
Holders of common shares would therefore be subject to duplicative expenses to the extent the Fund invests in other investment
companies. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to the
same leverage risks described herein and in the prospectus. As described in the prospectus in the section entitled “Risks,”
the net asset value and market value of leveraged shares will be more volatile and the yield to shareholders will tend to fluctuate
more than the yield generated by unleveraged shares.
In addition,
to comply with federal income tax requirements for qualification as a regulated investment company, the Fund’s investments
will be limited by both an income and an asset test. See “Certain Federal Income Tax Matters.”
As a non-fundamental
policy, the Fund may not issue preferred shares, borrow money and/or issue debt securities with an aggregate liquidation preference
and aggregate principal amount exceeding 38% of the Fund’s managed assets measured at the time of borrowing or issuance of
the new securities. Investments of short sale proceeds and economic leverage through derivatives are not considered borrowings.
The Fund presently
utilizes leverage through its outstanding borrowings pursuant to the SSB Agreement, and its issuance of mandatory redeemable preferred
shares. See the prospectus (under the caption “Leverage”) for more information about the Fund’s present activities
related to the issuance of senior securities and the borrowing of money.
MANAGEMENT OF THE FUND
Trustees and Officers
The Fund’s
Board of Trustees provides broad oversight over the Fund’s affairs. The officers of the Fund are responsible for the Fund’s
operations. The Fund’s Trustees and officers are listed below, together with their year of birth, positions held with the
Fund, term of office and length of service and principal occupations during the past five years. Asterisks indicate those Trustees
who are interested persons of the Fund within the meaning of the 1940 Act, and they are referred to as Interested Trustees. Trustees
who are not interested persons of the Fund are referred to as “Independent Trustees.” Each of the Trustees serves as
a Trustee of other investment companies (26 U.S. registered investment portfolios) for which Calamos serves as investment adviser
(collectively, the “Calamos Funds”). The address for all Independent and Interested Trustees and all officers of the
Fund is 2020 Calamos Court, Naperville, Illinois 60563.
Trustees Who Are Interested Persons
of the Fund:
NAME
AND YEAR OF
BIRTH
|
|
POSITION(S) WITH
FUND
|
|
PORTFOLIOS IN
FUND COMPLEX^
OVERSEEN
|
|
PRINCIPAL
OCCUPATION(S)
DURING THE PAST
5 YEARS AND OTHER
DIRECTORSHIPS
|
John P. Calamos, Sr. (1940)*
|
|
Chairman, Trustee and President (since 1988) Term Expires 2023 Co-Portfolio Manager (since
inception)
|
|
26
|
|
Founder, Chairman and Global Chief Investment Officer, Calamos Asset Management, Inc. (“CAM”), Calamos
Investments LLC (“CILLC”), Calamos Advisors LLC and its predecessor (“Calamos Advisors”) and Calamos
Wealth Management LLC (“CWM”); Director, CAM; and previously Chief Executive Officer, Calamos Financial Services
LLC and its predecessor (“CFS”), CAM, CILLC, Calamos Advisors, and CWM
|
Trustees Who Are Not Interested
Persons of the Fund:
NAME AND YEAR OF
BIRTH
|
|
POSITION(S) WITH
FUND
|
|
PORTFOLIOS IN
FUND COMPLEX^
OVERSEEN
|
|
PRINCIPAL
OCCUPATION(S)
DURING THE PAST
5 YEARS AND OTHER
DIRECTORSHIPS
|
John E. Neal (1950)
|
|
Trustee (since 2003); Lead Independent Trustee (since July 2019) Term Expires
2021
|
|
26
|
|
Retired; private investor; Director, Equity Residential Trust (publicly-owned REIT); Director, Creation
Investments (private international microfinance company); Director, Centrust Bank (Northbrook, Illinois community bank);
Director, Neuro-ID (private company providing prescriptive analytics for the risk industry); Partner, Linden LLC (health care
private equity) (until 2018)
|
NAME
AND YEAR OF
BIRTH
|
|
POSITION(S) WITH
FUND
|
|
PORTFOLIOS IN
FUND COMPLEX^
OVERSEEN
|
|
PRINCIPAL
OCCUPATION(S)
DURING THE PAST
5 YEARS AND OTHER
DIRECTORSHIPS
|
William R. Rybak (1951)
|
|
Trustee (since
2003)
Term Expires
2023
|
|
26
|
|
Private investor; Chairman (since 2016) and Director (since 2010), Christian Brothers Investment Services Inc.; Trustee,
JNL Series Trust and JNL Investors Series Trust (since 2007), JNL Variable Fund LLC (2007-2020), Jackson Variable
Series Trust (2018-2020) and JNL Strategic Income Fund LLC (2007-2018) (open-end mutual funds)*; Trustee, Lewis University
(since 2012); formerly Director, Private Bancorp (2003-2017); Executive Vice President and Chief Financial Officer, Van Kampen
Investments, Inc. and subsidiaries (investment manager) (until 2000)
|
|
|
|
|
|
|
|
Virginia G. Breen (1964)
|
|
Trustee (since
2015)
Term Expires
2022
|
|
26
|
|
Private Investor; Director, Paylocity Holding Corporation (since 2018); Trustee, Neuberger Berman Private Equity Registered
Funds (registered private equity funds) (since 2015)***; Trustee, Jones Lang LaSalle Income Property Trust, Inc. (REIT) (since
2004); Director, UBS A&Q Fund Complex (closed-end funds) (since 2008)****
|
NAME AND YEAR OF
BIRTH
|
|
POSITION(S) WITH
FUND
|
|
PORTFOLIOS
IN
FUND COMPLEX^
OVERSEEN
|
|
PRINCIPAL
OCCUPATION(S)
DURING THE PAST
5 YEARS AND OTHER
DIRECTORSHIPS
|
Lloyd A. Wennlund (1957)
|
|
Trustee (since 2018)
Term Expires 2022
|
|
26
|
|
Trustee and Chairman of the Board, Datum One Series Trust
(since 2020); Expert Affiliate, Bates Group, LLC (financial services consulting and expert
testimony firm) (since 2018); Executive Vice President, The Northern Trust Company (1989-
2017); President and Business Unit Head of Northern Funds and Northern Institutional
Funds (1994-2017); Director, Northern Trust Investments (1998-2017); Governor (2004-2017)
and Executive Committee member (2011-2017), Investment Company Institute Board of
Governors; Member, Securities Industry Financial Markets Association (SIFMA) Advisory
Council, Private Client Services Committee and Private Client Steering Group (2006-2017);
Board Member, Chicago Advisory Board of the Salvation Army (2011-2019)
|
|
|
|
|
|
|
|
Karen L. Stuckey (1953)
|
|
Trustee (since December 2019) Term Expires 2021
|
|
26
|
|
Member (since 2015) of Desert Mountain Community Foundation Advisory Board (non-profit organization);
Partner (1990-2012) of PricewaterhouseCoopers LLP (professional services firm) (held various positions
1975-1990); member of Executive, Nominating and Audit Committees and Chair of Finance Committee (1992-2006),
and Emeritus Trustee (since 2007) of Lehigh University; Member, Women’s Investment Management
Forum (professional organization) (since inception); formerly, Trustee, Denver Board of OppenheimerFunds
(open-end mutual funds) (2012-2019)
|
|
|
|
|
|
|
|
Christopher M. Toub (1959)
|
|
Trustee (since December 2019) Term Expires 2023
|
|
26
|
|
Private investor; formerly, Director of Equities, AllianceBernstein LP (until 2012)
|
|
*
|
Mr. Calamos, Sr. is an “interested person” of the Fund as defined in the 1940 Act because he is an officer
of the Fund and an affiliate of Calamos and CFS.
|
|
**
|
Overseeing
131 portfolios in fund complex.
|
|
***
|
Overseeing
eighteen portfolios in fund complex.
|
|
****
|
Overseeing four portfolios in fund complex.
|
|
^
|
The Fund Complex consists of Calamos Investment Trust,
Calamos Advisors Trust, Calamos Convertible Opportunities and Income Fund, Calamos Convertible and High Income Fund, Calamos Strategic
Total Return Fund, Calamos Global Total Return Fund, Calamos Global Dynamic Income Fund, Calamos Dynamic Convertible and Income
Fund and Calamos Long/Short Equity & Dynamic Income Trust.
|
Officers.
The preceding table gives information about Mr. John P. Calamos, Sr., who is Chairman, Trustee and President of the Fund.
The following table sets forth each other officer’s name and year of birth, position with the Fund and date first appointed
to that position, and principal occupation(s) during the past five years. Each officer serves until his or her successor is
chosen and qualified or until his or her resignation or removal by the board of trustees.
NAME AND YEAR OF BIRTH
|
|
POSITION(S) WITH
FUND
|
|
PRINCIPAL
OCCUPATION(S)
|
Robert F. Behan (1964)
|
|
Vice President (since 2013)
|
|
Executive
Vice President and Chief Distribution Officer (since February 2021), CAM, CILLC, Calamos Advisors and CFS; prior thereto,
President (2015- February 2021); Head of Global Distribution (2013-February 2021); Executive Vice President (2013-2015); Senior
Vice President (2009-2013), Head of US Intermediary Distribution (2010-2013)
|
|
|
|
|
|
Thomas E. Herman (1961)
|
|
Vice President (since 2016) and Chief Financial Officer (2016-2017
and since August 2019)
|
|
Executive Vice
President (since February 2021) and Chief Financial Officer, CAM, CILLC, Calamos Advisors, and CWM (since 2016); Chief Financial
Officer and Treasurer, Harris Associates (2010-2016)
|
|
|
|
|
|
J. Christopher Jackson (1951)
|
|
Vice President and Secretary (since 2010)
|
|
Senior Vice
President, General Counsel and Secretary, CAM, CILLC, Calamos Advisors, CWM and CFS (since 2010); Director, Calamos Global
Funds plc (since 2011)
|
|
|
|
|
|
John S. Koudounis (1966)
|
|
Vice President (since 2016)
|
|
President (since
February 2021) and Chief Executive Officer, CAM, CILLC, Calamos Advisors, CWM, and CFS (since 2016); Director, CAM (since
2016); President and Chief Executive Officer (2010-2016), Mizuho Securities USA Inc.
|
|
|
|
|
|
Mark J. Mickey (1951)
|
|
Chief Compliance Officer (since 2005)
|
|
Chief Compliance
Officer, Calamos Funds (since 2005)
|
|
|
|
|
|
Stephen Atkins (1965)
|
|
Treasurer (since March 2020)
|
|
Senior Vice
President, Head of Fund Administration, Calamos Advisors (since February 2020); prior thereto, Consultant, Fund Accounting
and Administration, Vx Capital Partners (March 2019-February 2020); Chief Financial Officer and Treasurer of SEC
Registered Funds, and Senior Vice President, Head of European Special Purpose Vehicles Accounting and Administration, Avenue
Capital Group (2010-2018)
|
The Fund’s
Board of Trustees consists of seven members. In accordance with the Fund’s Agreement and Declaration of Trust, the Board
of Trustees is divided into three classes of approximately equal size. The terms of the trustees of the different classes are
staggered. The terms of John E. Neal and Karen L. Stuckey will expire at the annual meeting of shareholders in 2021. The terms
of Virginia G. Breen and Lloyd A. Wennlund will expire at the annual meeting of shareholders in 2022. The terms of John P. Calamos, Sr.,
William R. Rybak and Christopher M. Toub will expire at the annual meeting of shareholders in 2023. Such classification of the
Trustees may prevent the replacement of a majority of the Trustees for up to a two-year period. Each of the Fund’s officers
serves until his or her successor is chosen and qualified or until his or her resignation or removal by the Board of Trustees.
In connection with the issuance of the MRP Shares, Mr. Rybak and Ms. Breen were designated as the Trustees who represent
the holders of preferred shares of the Fund.
Committees
of the Board of Trustees. The Fund’s Board of Trustees currently has five standing committees:
Executive
Committee. Messrs. John P. Calamos, Sr. and John E. Neal are members of the Executive Committee, which has authority
during intervals between meetings of the Board of Trustees to exercise the powers of the Board, with certain exceptions.
Audit Committee. Messrs. William
R. Rybak (Chair), John E. Neal, Christopher M. Toub and Lloyd A. Wennlund and Mses. Virginia G. Breen and Karen L. Stuckey, each
a non-interested Trustee, serve on the Audit Committee. The Audit Committee operates under a written charter adopted and approved
by the Board, a copy of which is available on the Fund’s website, www.calamos.com. The Audit Committee selects independent
auditors, approves services to be rendered by the auditors, monitors the auditors’ performance, reviews the results of the
Fund’s audit, determines whether to recommend to the Board that the Fund’s audited financial statements be included
in the Fund’s annual report and responds to other matters deemed appropriate by the Board of Trustees.
Governance Committee.
Mses. Virginia G. Breen (Chair) and Karen L. Stuckey and Messrs. John E. Neal, William R. Rybak, Christopher M. Toub and
Lloyd A. Wennlund, each a non-interested Trustee, serve on the Governance Committee. The Governance Committee operates under a
written charter adopted by the Board, a copy of which is available on the Fund’s website, www.calamos.com. The Governance
Committee oversees the independence and effective functioning of the Board of Trustees and endeavors to be informed about good
practices for investment company boards. The members of the Governance Committee make recommendations to the Board of Trustees
regarding candidates for election as non-interested Trustees. The Governance Committee will consider shareholder recommendations
regarding potential candidates for nomination as Trustees properly submitted to the Governance Committee for its consideration.
A Fund shareholder who wishes to nominate a candidate to the Fund’s Board of Trustees must submit any such recommendation
in writing via regular mail to the attention of the Fund’s Secretary, at the address of the Fund’s principal executive
offices. The shareholder recommendation must include:
|
•
|
the number and class of all Fund shares owned beneficially and of record by the nominating shareholder at the time the recommendation
is submitted and the dates on which such shares were acquired, specifying the number of shares owned beneficially;
|
|
•
|
a full listing of the proposed candidate’s education, experience (including knowledge of the investment company industry,
experience as a director or senior officer of public or private companies, and directorships on other boards of other registered
investment companies), current employment, date of birth, business and residence address, and the names and addresses of at least
three professional references;
|
|
•
|
information as to whether the candidate is, has been or may be an “interested person” (as such term is defined
in the 1940 Act) of the Fund, Calamos or any of its affiliates, and, if believed not to be or have been an “interested person,”
information regarding the candidate that will be sufficient for the Committee to make such determination;
|
|
•
|
the written and signed consent of the candidate to be named as a nominee and to serve as a Trustee of the Fund, if elected;
|
|
•
|
a description of all arrangements or understandings between the nominating shareholder, the candidate and/or any other person
or persons (including their names) pursuant to which the shareholder recommendation is being made, and if none, so specify;
|
|
•
|
the class or series and number of all shares of the Fund owned of record or beneficially by the candidate, as reported by the
candidate; and
|
|
•
|
such other information that would be helpful to the Governance Committee in evaluating the candidate.
|
The Governance
Committee may require the nominating shareholder to furnish other information it may reasonably require or deem necessary to verify
any information furnished pursuant to the procedures delineated above or to determine the qualifications and eligibility of the
candidate proposed by the nominating shareholder to serve as a Trustee. If the nominating shareholder fails to provide such additional
information in writing within seven days of receipt of a written request from the Governance Committee, the recommendation of such
candidate as a nominee will be deemed not properly submitted for consideration, and the Governance Committee is not required to
consider such candidate.
Unless otherwise
specified by the Governance Committee’s chairman or by legal counsel to the non-interested Trustees, the Fund’s Secretary
will promptly forward all shareholder recommendations to the Governance Committee’s chairman and the legal counsel to the
non-interested Trustees, indicating whether the shareholder recommendation has been properly submitted pursuant to the procedures
adopted by the Governance Committee for the consideration of trustee candidates nominated by shareholders.
Recommendations
for candidates as trustees will be evaluated, among other things, in light of whether the number of Trustees is expected to change
and whether the Trustees expect any vacancies. During periods when the Governance Committee is not actively recruiting new Trustees,
shareholder recommendations will be kept on file until active recruitment is under way. After consideration of a shareholder recommendation,
the Governance Committee may dispose of the shareholder recommendation.
Except to
the extent that such requirements are waived by a majority of the Continuing Trustees (as defined in the Agreement and Declaration
of Trust) then in office at the time of nomination of such trustee, only persons satisfying the following qualification requirements
may be nominated, elected, appointed, qualified or seated (“nominated or seated”) to serve as trustee:
(A) An individual nominated
or seated as a trustee shall be at least twenty-one years of age and not older than the mandatory retirement age determined from
time to time by the trustees or a committee of the trustees, in each case at the time the individual is nominated or seated.
(B) An individual nominated
or seated as a trustee shall, at the time the individual is nominated or seated, serve as a trustee or director of no more than
5 investment companies (including the Fund) having securities registered under the Exchange Act (investment companies or individual
series thereof having the same investment adviser or investment advisers affiliated through a control relationship shall all be
counted as a single company for this purpose).
(C) An individual nominated
or seated as a trustee shall not serve or have served within the past 3 years as a trustee of any closed-end investment company
which, while such individual was serving as a trustee or within one year after the end of such service, ceased to be a closed-end
investment company registered under the 1940 Act, unless such individual was initially nominated for election as a trustee by
the board of trustees of such closed-end investment company or had served as a trustee since the inception of such closed-end
investment company.
(D) Except as set forth
in Section 4.6 of the By-Laws of the Fund, an individual nominated or seated as a trustee shall not be an employee, officer,
partner, member, trustee, director or 5% or greater shareholder in any investment adviser (other than the Fund’s investment
adviser or any investment adviser affiliated with the Fund’s investment adviser), collective investment vehicle primarily
engaged in the business of investing in “investment securities” (as defined in the 1940 Act) (an “investment
company”) or entity controlling or controlled by any investment adviser (other than the Fund’s investment adviser
or any investment adviser affiliated with the Fund’s investment adviser) or investment company.
(E) An individual nominated
or seated as a trustee shall not be and shall not have been subject to any censure, order, consent decree (including consent decrees
in which the respondent has neither admitted nor denied the findings) or adverse final action of any federal, state or foreign
governmental or regulatory authority (including self-regulatory organizations), barring or suspending such individual from participation
in or association with any investment-related business or restricting such individual’s activities with respect to any investment-related
business, nor shall an individual nominated or seated as a trustee be the subject of any investigation or proceeding that could
reasonably be expected to result in an individual nominated or seated as a trustee failing to satisfy the requirements of this
paragraph, nor shall any individual nominated or seated as a trustee be or have engaged in any conduct that has resulted in, or
could have reasonably been expected or would reasonably be expected to result in, the Commission censuring, placing limitations
on the activities, functions, or operations of, suspending, or revoking the registration of any investment adviser under Section 203(e) or
(f) of the Investment Advisers Act of 1940, as amended.
(F) An individual nominated
or seated as a trustee shall not have been charged (unless such charges were dismissed or the individual was otherwise exonerated)
with a criminal offense involving moral turpitude, dishonesty or breach of trust, or have been convicted or have pled guilty or
nolo contendere with respect to a felony under the laws of the United States or any state thereof.
(G) An individual nominated
or seated as a trustee shall not be and shall not have been the subject of any of the ineligibility provisions contained in Section 9(b) of
the 1940 Act that would permit, or could reasonably have been expected or would reasonably be expected to permit, the Commission
by order to prohibit, conditionally or unconditionally, either permanently or for a period of time, such individual from serving
or acting as an employee, officer, trustee, director, member of an advisory board, investment adviser or depositor of, or principal
underwriter for, a registered investment company or affiliated person (as defined in Section 2(a)(3) of the 1940 Act)
of such investment adviser, depositor, or principal underwriter.
Dividend
Committee. Mr. John P. Calamos, Sr. serves as the sole member of the dividend committee and Mr. Rybak serves
as the liaison to the Dividend Committee for the non-interested Trustees. The Dividend Committee is authorized, subject to Board
review, to declare distributions on the Fund’s shares in accordance with the Fund’s distribution policies, including,
but not limited to, regular dividends, special dividends and short- and long-term capital gains distributions.
Valuation
Committee. Messrs. Lloyd A. Wennlund (Chair), John E. Neal, William R. Rybak and Christopher M. Toub and Mses. Virginia
G. Breen, and Karen L. Stuckey, each a non-interested Trustee, serve on the Valuation Committee.
The Valuation
Committee is responsible for overseeing the implementation of the valuation procedures adopted by the Board of Trustees. The members
of the Valuation Committee make recommendations to the Board of Trustees regarding valuation matters relating to the Fund.
In addition to
the above committees, there is a Board of Trustees directed pricing committee comprised of officers of the Fund and employees of
Calamos.
The following
table identifies the number of meetings the Board of Trustees and each standing committee held during the fiscal year ended October 31,
2020.
|
|
NUMBER OF MEETINGS
DURING FISCAL YEAR ENDED
October 31, 2020
|
|
Board of Trustees
|
|
|
12
|
|
Executive Committee
|
|
|
0
|
|
Audit Committee
|
|
|
4
|
|
Governance Committee
|
|
|
2
|
|
Dividend Committee(1)
|
|
|
0
|
|
Valuation Committee
|
|
|
4
|
|
(1) Although
the Dividend Committee held no meetings, it acted by written consent on 12 occasions.
The Fund’s
Agreement and Declaration of Trust provides that the Fund will indemnify the Trustees and officers against liabilities and expenses
incurred in connection with any claim in which they may be involved because of their offices with the Fund, unless it is determined
in the manner specified in the Agreement and Declaration of Trust that they have not acted in good faith in the reasonable belief
that their actions were in the best interests of the Fund or that such indemnification would relieve any officer or Trustee of
any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of his or her duties.
Leadership
Structure and Qualifications of the Board of Trustees. The Board of Trustees is responsible for oversight of the Fund. The
Fund has engaged Calamos to manage the Fund on a day-to-day basis. The Board of Trustees oversees Calamos and certain other principal
service providers in the operations of the Fund. The Board of Trustees is currently composed of seven members, six of whom are
non-interested trustees. The Board of Trustees meets in-person at regularly scheduled meetings four times throughout the year.
In addition, the Board may meet in-person or by telephone at special meetings or on an informal basis at other times. As described
above, the Board of Trustees has established five standing committees — Audit, Dividend, Executive, Governance and Valuation
— and may establish ad hoc committees or working groups from time to time, to assist the Board of Trustees in fulfilling
its oversight responsibilities. The non-interested trustees also have engaged independent legal counsel to assist them in fulfilling
their responsibilities. Such independent legal counsel also serves as counsel to the Fund.
The chairman
of the Board of Trustees is an “interested person” of the Fund (as such term is defined in the 1940 Act). The non-interested
trustees have appointed a lead independent trustee. The lead independent trustee serves as a liaison between Calamos and the non-interested
trustees and leads the non-interested trustees in all aspects of their oversight of the Fund. Among other things, the lead independent
trustee reviews and approves, with the chairman, the agenda for each board and committee meeting and facilitates communication
among the Fund’s non-interested trustees. The Trustees believe that the Board’s leadership structure is appropriate
given the characteristics and circumstances of the Fund. The Trustees also believe that this structure facilitates the exercise
of the Board’s independent judgment in fulfilling its oversight function and efficiently allocates responsibility among committees.
The Board of
Trustees has concluded that, based on each Trustee’s experience, qualifications, attributes or skills on an individual basis
and in combination with those of the other Trustees, each Trustee should serve as a member of the Board. In making this determination,
the Board has taken into account the actual service of the Trustees during their tenure in concluding that each should continue
to serve. The Board also has considered each Trustee’s background and experience. Set forth below is a brief discussion of
the specific experience qualifications, attributes or skills of each Trustee that led the Board to conclude that he should serve
as a Trustee.
Each of Messrs. Calamos,
Neal and Rybak has served for more than ten years as a Trustee of the Fund. In addition, each of Mses. Breen and Stuckey and Messrs. Calamos,
Neal, Rybak, Toub and Wennlund has more than 25 years of experience in the financial services industry. Each of Mses. Breen and
Stuckey and Messrs. Calamos, Neal, Rybak and Wennlund has experience serving on boards of other entities, including other
investment companies. Each of Ms. Breen and Messrs. Calamos, Neal, Rybak and Toub has earned a Masters of Business Administration
degree.
Risk Oversight.
The operation of a registered investment company, including its investment activities, generally involves a variety of risks.
As part of its oversight of the Fund, the Board of Trustees oversees risk through various regular board and committee activities.
The Board of Trustees, directly or through its committees, reviews reports from, among others, Calamos, the Fund’s Compliance
Officer, the Fund’s independent registered public accounting firm, independent outside legal counsel, and internal auditors
of Calamos or its affiliates, as appropriate, regarding risks faced by the Fund and the risk management programs of Calamos and
certain service providers. The actual day-to-day risk management with respect to the Fund resides with Calamos and other service
providers to the Fund. Although the risk management policies of Calamos and the service providers are designed to be effective,
there is no guarantee that they will anticipate or mitigate all risks. Not all risks that may affect the Fund can be identified,
eliminated or mitigated and some risks simply may not be anticipated or may be beyond the control of the Board of Trustees or Calamos,
its affiliates or other service providers.
Compensation
of Officers and Trustees. John P. Calamos, Sr., the trustee who is an “interested person” of the Fund, does
not receive compensation from the Fund. Non-interested trustees are compensated by the Fund, but do not receive any pension or
retirement benefits from the Fund. Mr. Mickey, the Fund’s Chief Compliance Officer, is the only Fund officer who receives
compensation from the Fund. The following table sets forth the total compensation (including any amounts deferred, as described
below) paid by the Fund and the Calamos Fund Complex during the fiscal year ended October 31, 2020 to each of the current
non-interested trustees and the one officer compensated by the Fund.
Name of Trustee
|
|
Aggregate
Compensation
from Fund
|
|
|
Total Compensation
from Calamos Fund Complex(1)*
|
|
John P. Calamos, Sr
|
|
$
|
0
|
|
|
$
|
0
|
|
Virginia G. Breen
|
|
$
|
8,955
|
|
|
$
|
177,917
|
|
John E. Neal(1)
|
|
$
|
10,490
|
|
|
$
|
207,917
|
|
William R. Rybak
|
|
$
|
9,467
|
|
|
$
|
187,917
|
|
Karen L. Stuckey(2)
|
|
$
|
8,443
|
|
|
$
|
167,917
|
|
Christopher M. Toub(2)
|
|
$
|
8,443
|
|
|
$
|
167,917
|
|
Lloyd A. Wennlund
|
|
$
|
8,955
|
|
|
$
|
177,917
|
|
Mark J. Mickey
|
|
$
|
7,679
|
|
|
$
|
150,000
|
|
|
(1)
|
Includes fees that may have been deferred during the year
pursuant to a deferred compensation plan with Calamos Investment Trust. Deferred amounts
are treated as though such amounts have been invested and reinvested in shares of one
or more of the portfolios of the Calamos Investment Trust as selected by the Trustee.
As of October 31, 2020, the value of the deferred compensation account of Mr. Neal
was $2,260,776.
|
|
(2)
|
Ms. Stuckey and Mr. Toub were elected to the Board effective December 16, 2019.
|
|
*
|
The Calamos Fund Complex consists of nine investment companies and each applicable series thereunder including the Fund, Calamos
Investment Trust, Calamos Advisors Trust, Calamos Global Total Return Fund, Calamos Convertible and High Income Fund, Calamos Strategic
Total Return Fund, Calamos Global Dynamic Income Fund, Calamos Dynamic Convertible and Income Fund and Calamos Long/Short Equity &
Dynamic Income Trust.
|
The compensation
paid to the non-interested trustees of the Calamos Funds for their services as such consists of an annual retainer fee in the
amount of $100,000, with annual supplemental retainers of $40,000 to the lead independent trustee, $20,000 to the chair of the
audit committee and $10,000 to the chair of any other standing committee. Each non-interested trustee also receives a meeting
attendance fee of $7,000 for any regular or special board meeting attended in person, $3,500 for any regular or special board
meeting attended by telephone, and $3,000 for any committee meeting attended in person or by telephone, and $1,500 per ad-hoc
committee meeting to the ad-hoc committee chair. Compensation paid to the non-interested trustees is allocated among the series
of the Calamos Funds in accordance with a procedure determined from time to time by the Board.
The Fund
has adopted a deferred compensation plan for non-interested trustees (the “Plan”). Under the Plan, a trustee who is
not an “interested person” of Calamos and has elected to participate in the Plan (“a participating trustee”)
may defer receipt of all or a portion of his or her compensation from the Fund in order to defer payment of income taxes or for
other reasons. The deferred compensation payable to the participating trustee is credited to the trustee’s deferred compensation
account as of the business day such compensation otherwise would have been paid to the trustee. The value of a trustee’s
deferred compensation account at any time is equal to what the value would be if the amounts credited to the account had instead
been invested in Class I shares of one or more of the funds of Calamos Investment Trust as designated by the trustee. Thus,
the value of the account increases with contributions to the account or with increases in the value of the measuring shares, and
the value of the account decreases with withdrawals from the account or with declines in the value of the measuring shares. If
a participating trustee retires, the trustee may elect to receive payments under the plan in a lump sum or in equal annual installments
over a period of five years. If a participating trustee dies, any amount payable under the Plan will be paid to the trustee’s
beneficiaries. Each Calamos Fund’s obligation to make payments under the Plan is a general obligation of that Fund. No Fund
is liable for any other Fund’s obligations to make payments under the Plan.
Ownership
of Shares of the Fund and Other Calamos Funds. The following table indicates the value of shares that each Trustee beneficially
owns in the Fund and the Calamos Fund Complex in the aggregate. The value of shares of the Calamos Funds is determined on the
basis of the net asset value of the class of shares held as of December 31, 2020. The value of the shares held, are stated
in ranges in accordance with the requirements of the SEC. The table reflects the Trustee’s beneficial ownership of shares
of the Calamos Fund Complex. Beneficial ownership is determined in accordance with the rules of the SEC.
NAME
OF TRUSTEE
|
|
DOLLAR
RANGE
OF EQUITY SECURITIES
IN THE FUND
|
|
AGGREGATE
DOLLAR RANGE OF
EQUITY SECURITIES
IN ALL REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
TRUSTEE IN THE CALAMOS FUNDS
|
John P. Calamos, Sr.(1)(2)
|
|
Over $100,000
|
|
Over $100,000
|
Virginia G. Breen
|
|
None
|
|
Over $100,000
|
John E. Neal
|
|
None
|
|
Over $100,000
|
William R. Rybak
|
|
$50,001 - $100,000
|
|
Over $100,000
|
Karen L. Stuckey(3)
|
|
None
|
|
Over $100,000
|
Christopher M. Toub(3)
|
|
None
|
|
None
|
Lloyd A. Wennlund
|
|
None
|
|
Over $100,000
|
|
(1)
|
Pursuant to Rule 16a-1(a)(2) of the Exchange Act, John P. Calamos, Sr. may be deemed to have indirect beneficial
ownership of Fund shares held by Calamos Investments LLC, its subsidiaries, and its parent companies (Calamos Asset Management, Inc.
and Calamos Partners LLC, and its parent company, Calamos Family Partners, Inc.) due to his direct or indirect ownership interest
in those entities. As a result, these amounts reflect any holdings of those entities in addition to the individual, personal accounts
of John P. Calamos, Sr.
|
|
(2)
|
Indicates an “interested person” of the Trust, as defined in the 1940 Act.
|
|
(3)
|
Ms. Stuckey and Mr. Toub were elected to the Board effective December 16, 2019.
|
Code of Ethics.
The Fund and Calamos have adopted a code of ethics under Rule 17j-1 under the 1940 Act which is applicable to officers, directors/Trustees
and designated employees of Calamos and CFS. Employees of Calamos and CFS are permitted to make personal securities transactions,
including transactions in securities that the Fund may purchase, sell or hold, subject to requirements and restrictions set forth
in the code of ethics of Calamos and CFS. The code of ethics contains provisions and requirements designed to identify and address
certain conflicts of interest between personal investment activities of Calamos and CFS employees and the interests of investment
advisory clients such as the Fund. Among other things, the code of ethics prohibits certain types of transactions absent prior
approval, imposes time periods during which personal transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and statements and quarterly reporting of securities transactions. Additional restrictions apply
to portfolio managers, traders, research analysts and others involved in the investment advisory process. Exceptions to these
and other provisions of the code of ethics may be granted in particular circumstances after review by appropriate personnel. Text
only versions of the code of ethics can be viewed online or downloaded from the EDGAR Database on the SEC’s internet website
at www.sec.gov.
Proxy
Voting Procedures. The Fund has delegated proxy voting responsibilities to Calamos, subject to the board of trustees’
general oversight. The Fund expects Calamos to vote proxies related to the Fund’s portfolio securities for which
the Fund has voting authority consistent with the Fund’s best interests. Calamos has adopted its own Proxy Voting
Policies and Procedures (the “Policies”). The Policies address, among other things, conflicts of interest that may
arise between the Funds’ interests, and the interests of Calamos and its affiliates.
The following
is a summary of the Policies used by Calamos in voting proxies.
To assist it in voting proxies,
Calamos has established a Proxy Review Committee (“committee”) comprised of members of its Portfolio Management
(which may include portfolio managers and/or research analysts), Operations, Legal and Compliance Departments. The committee and/or
its members will vote proxies using the following guidelines.
In general, if Calamos
believes that a company’s management and board have interests sufficiently aligned with the Fund’s interest, Calamos will vote in favor of proposals recommended by the company’s board. More specifically, Calamos seeks to
ensure that the board of directors of a company is sufficiently aligned with security holders’ interests and provides proper
oversight of the company’s management. In many cases this may be best accomplished by having a majority of independent board
members. Calamos generally prefers that key committees such as audit, nominating, and compensation committees be comprised of
independent directors.
Because of the enormous variety
and complexity of transactions that are presented to shareholders, such as mergers, acquisitions, reincorporations, adoptions
of anti-takeover measures (including adoption of a shareholder rights plan, requiring supermajority voting on particular issues,
adoption of fair price provisions, issuance of blank check preferred stocks and the creation of a separate class of stock with
unequal voting rights), changes to capital structures (including authorizing additional shares, repurchasing stock or approving
a stock split), executive compensation and option plans, that occur in a variety of industries, companies and market cycles, it
is extremely difficult to foresee exactly what would be in the best interests of a Fund in all circumstances. Moreover, voting
on such proposals involves considerations unique to each transaction. Accordingly, Calamos will vote on a case-by-case
basis on proposals presenting these transactions.
Calamos has assigned its administrative
duties with respect to the proxy analysis and voting decisions to the “Proxy Group” (the Investment team – research
analysts and portfolio management), and administrative processing to its Corporate Actions Group within the Operations Department.
To assist it in analyzing the proxy proposals, Calamos subscribes to Glass Lewis, an unaffiliated third-party corporate governance
research service that provides in-depth analyses of shareholder meeting agendas and voting recommendations. Glass Lewis facilitates
the voting of each proxy by applying Calamos’ custom proxy voting rules (“proxy voting policy”) to the
proposal(s). Any proxy proposal that is not covered by the proxy voting policy is reviewed and considered by the Proxy Group and
voted in accordance with that review.
Finally, Calamos has established procedures
to identify potential conflicts of interests that might arise when voting proxies for the Fund. Calamos will generally apply
its proxy voting policy to proxy proposals regardless if a conflict has been identified. However, in these situations, the Proxy
Group will refer the proxy proposal, along with the recommended course of action, if any, to the Proxy Review Committee (“committee”)
for evaluation. The committee will independently review the proposals and determine the appropriate action to be taken. The committee
will then memorialize the conflict and the procedures used to address the conflict.
The Fund is required to file with the SEC its
complete proxy voting record for the 12-month period ending June 30, by no later than August 31 of each year. The Fund’s
proxy voting record for the most recent 12-month period ending June 30 is available by August 31 of each year (1) on
the SEC’s website at www.sec.gov, and (2) without charge, upon request, by calling 800-582-6959.
You may obtain a copy of
Calamos’ Policies by calling 800.582.6959, by visiting Calamos’ website at www.calamos.com, by writing
Calamos at: Calamos Investments, Attn: Client Services, 2020 Calamos Court, Naperville, IL 60563, and on the SEC’s
website at www.sec.gov.
Investment Adviser and Investment
Management Agreement
Subject to the
overall supervision and review of the Board of Trustees, Calamos provides the Fund with investment research, advice and supervision
and furnishes continuously an investment program for the Fund, consistent with the investment objective and policies of the Fund.
In addition, Calamos furnishes for use of the Fund such office space and facilities as the Fund may require for its reasonable
needs, supervises the Fund’s business and affairs and provides the following other services on behalf of the Fund and not
provided by persons not a party to the investment management agreement: (i) preparing or assisting in the preparation of reports
to and meeting materials for the Trustees; (ii) supervising, negotiating contractual arrangements with, to the extent appropriate,
and monitoring the performance of, accounting agents, custodians, depositories, transfer agents and pricing agents, accountants,
attorneys, printers, underwriters, brokers and dealers, insurers and other persons in any capacity deemed to be necessary or desirable
to Fund operations; (iii) assisting in the preparation and making of filings with the SEC and other regulatory and self-regulatory
organizations, including, but not limited to, preliminary and definitive proxy materials, amendments to the Fund’s registration
statement on Form N-2 and reports on Form N-CEN and Form N-CSR; (iv) overseeing the tabulation of proxies by
the Fund’s transfer agent; (v) assisting in the preparation and filing of the Fund’s federal, state and local
tax returns; (vi) assisting in the preparation and filing of the Fund’s federal excise tax returns pursuant to Section 4982
of the Code; (vii) providing assistance with investor and public relations matters; (viii) monitoring the valuation of
portfolio securities and the calculation of net asset value; (ix) monitoring the registration of shares of beneficial interest
of the Fund under applicable federal and state securities laws; (x) maintaining or causing to be maintained for the Fund all
books, records and reports and any other information required under the 1940 Act, to the extent that such books, records and reports
and other information are not maintained by the Fund’s custodian or other agents of the Fund; (xi) assisting in establishing
the accounting policies of the Fund; (xii) assisting in the resolution of accounting issues that may arise with respect to
the Fund’s operations and consulting with the Fund’s independent accountants, legal counsel and the Fund’s other
agents as necessary in connection therewith; (xiii) reviewing the Fund’s bills; (xiv) assisting the Fund in determining
the amount of dividends and distributions available to be paid by the Fund to its shareholders, preparing and arranging for the
printing of dividend notices to shareholders, and providing the transfer and dividend paying agent, the custodian, and the accounting
agent with such information as is required for such parties to effect the payment of dividends and distributions; and (xv) otherwise
assisting the Fund as it may reasonably request in the conduct of the Fund’s business, subject to the direction and control
of the Trustees.
Under the investment
management agreement, the Fund pays to Calamos a fee based on the average weekly managed assets that is computed weekly and payable
monthly in arrears. The fee paid by the Fund is set at the annual rate of 0.80% of the Fund’s average weekly managed assets.
Because the management fees paid to Calamos are based upon a percentage of the Fund’s managed assets, the amount of management
fees paid to Calamos when the Fund uses leverage will be higher than if the Fund did not use leverage. Therefore, Calamos has a
financial incentive to use leverage, which creates a conflict of interest between Calamos and the Fund’s common shareholders.
Subject to the oversight of the Board, Calamos intends to use leverage only when it believes it will serve the best interests of
the Fund’s common shareholders.
Under the
terms of its investment management agreement with the Fund, except for the services and facilities provided by Calamos as set
forth therein, the Fund shall assume and pay all expenses for all other Fund operations and activities and shall reimburse Calamos
for any such expenses incurred by Calamos. The expenses borne by the Fund shall include, without limitation: (a) organization
expenses of the Fund (including out-of-pocket expenses, but not including Calamos’ overhead or employee costs); (b) fees
payable to Calamos; (c) legal expenses; (d) auditing and accounting expenses; (e) maintenance of books and records
that are required to be maintained by the Fund’s custodian or other agents of the Fund; (f) telephone, telex, facsimile,
postage and other communications expenses; (g) taxes and governmental fees; (h) fees, dues and expenses incurred by
the Fund in connection with membership in investment company trade organizations and the expense of attendance at professional
meetings of such organizations; (i) fees and expenses of accounting agents, custodians, subcustodians, transfer agents, dividend
disbursing agents and registrars; (j) payment for portfolio pricing or valuation services to pricing agents, accountants,
bankers and other specialists, if any; (k) expenses of preparing share certificates; (l) expenses in connection with
the issuance, offering, distribution, sale, redemption or repurchase of securities issued by the Fund; (m) expenses relating
to investor and public relations provided by parties other than Calamos; (n) expenses and fees of registering or qualifying
shares of beneficial interest of the Fund for sale; (o) interest charges, bond premiums and other insurance expenses; (p) freight,
insurance and other charges in connection with the shipment of the Fund’s portfolio securities; (q) the compensation
and all expenses (specifically including travel expenses relating to Fund business) of Trustees, officers and employees of the
Fund who are not affiliated persons of Calamos; (r) brokerage commissions or other costs of acquiring or disposing of any
portfolio securities of the Fund; (s) expenses of printing and distributing reports, notices and dividends to shareholders;
(t) expenses of preparing and setting in type, printing and mailing prospectuses and statements of additional information
of the Fund and supplements thereto; (u) costs of stationery; (v) any litigation expenses; (w) indemnification
of Trustees and officers of the Fund; (x) costs of shareholders’ and other meetings; (y) interest on borrowed
money, if any; and (z) the fees and other expenses of listing the Fund’s shares on Nasdaq or any other national stock
exchange.
For the fiscal
years ended October 31, 2018, October 31, 2019 and October 31, 2020, the Fund incurred $10,218,160, $9,821,442
and $10,231,253 respectively, in advisory fees.
The investment
management agreement had an initial term ending August 1, 2004 and continues in effect from year to year thereafter so long
as such continuation is approved at least annually by (1) the Board of Trustees or the vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund, and (2) a majority of the Trustees who are not interested persons
of any party to the investment management agreement, cast in person at a meeting called for the purpose of voting on such approval.
The investment management agreement may be terminated at any time, without penalty, by either the Fund or Calamos upon 60 days’
written notice, and is automatically terminated in the event of its assignment as defined in the 1940 Act.
Calamos is
a wholly-owned subsidiary of Calamos Investments LLC (“CILLC”). Calamos Asset Management, Inc. (“CAM”)
is the sole manager of CILLC and a wholly-owned subsidiary of Calamos Partners LLC (“CPL”). As of January 31,
2021, approximately 22% of the outstanding equity interest of CILLC is owned by CAM and the remaining approximately 78% of CILLC
is owned by CPL and John P. Calamos, Sr. CPL is owned by Calamos Family Partners, Inc. (“CFP”), John P.
Calamos, Sr., and John S. Koudounis. CFP is owned by members of the Calamos family, including John P. Calamos, Sr. In
addition, Mr. Koudounis has the option to purchase a controlling interest in CPL upon the death or permanent disability of
John P. Calamos, Sr., provided Mr. Koudounis is then serving as Chief Executive Officer of CAM and CILLC. John P. Calamos, Sr.
is an affiliated person of the Fund and Calamos by virtue of his position as Chairman, Trustee and President of the Fund and Chairman
and Global Chief Investment Officer (“Global CIO”) of Calamos. John S. Koudounis, Robert F. Behan, Thomas E. Herman,
J. Christopher Jackson and Stephen Atkins are affiliated persons of the Fund and Calamos by virtue of their positions as Vice
President; Vice President; Vice President and Chief Financial Officer; Vice President and Secretary; and Treasurer of the Fund,
respectively, and as President and Chief Executive Officer; Executive Vice President and Chief Distribution Officer; Executive Vice President and Chief Financial
Officer; Senior Vice
President, General Counsel and Secretary; and Head of Fund Administration of Calamos, respectively. A discussion regarding the
basis for the Board of Trustees’ decision to approve the renewal of the Investment Management Agreement is available in
the Fund’s Annual Report to shareholders for the fiscal year ended October 31, 2020.
The use of the
name “Calamos” in the name of the Fund is pursuant to licenses granted by CILLC, and the Fund has agreed to change
its name to remove that reference if Calamos ceases to act as investment adviser to the Fund.
Portfolio Managers
John P.
Calamos, Sr. John P. Calamos, Sr. has been President, Trustee and Co-Portfolio Manager of the Fund since inception
and for Calamos: Founder, Chairman and Global CIO since August 2016; Chairman and Global CIO from April to August 2016;
Chairman, Chief Executive Officer and Global Co-CIO between April 2013 and April 2016; Chief Executive Officer and Global
Co-CIO between August 2012 and April 2013; and Chief Executive Officer and Co-CIO prior thereto.
Dennis
Cogan. Dennis Cogan joined Calamos in March 2005 and since February 2021 has been a Senior Co-Portfolio Manager.
From March 2013 to February 2021, he was Co-Portfolio Manager, and from March 2005 to March 2013, he was a senior strategy
analyst.
R. Matthew
Freund. R. Matthew Freund joined Calamos in November 2016 as a Co-CIO, Head of Fixed Income Strategies, as well as a Senior
Co-Portfolio Manager. Previously, he was SVP of Investment Portfolio Management and Chief Investment Officer at USAA Investments
since 2010.
John Hillenbrand.
John Hillenbrand joined Calamos in 2002 and since September 2015 has been a Co-CIO, Head of Multi-Asset Strategies and
Co-Head of Convertible Strategies, as well as a Senior Co-Portfolio Manager.
From March 2013 to September 2015
he was a Co-Portfolio Manager. Between August 2002 and March 2013 he was a senior strategy analyst.
Nick Niziolek.
Nick Niziolek joined Calamos in March 2005 and has been a Co-CIO, Head of Global Strategies, as well as a Senior Co-Portfolio
Manager, since September 2015. Between August 2013 and September 2015 he was a Co-Portfolio Manager, Co-Head of
Research. Between March 2013 and August 2013 he was a Co-Portfolio Manager. Between March 2005 and March 2013
he was a senior strategy analyst.
Eli Pars.
Eli Pars joined Calamos in May 2013 and has been a Co-CIO, Head of Alternative Strategies and Co-Head of Convertible
Strategies, as well as a Senior Co-Portfolio Manager, since September 2015. Between May 2013 and September 2015,
he was a Co-Portfolio Manager. Previously, he was a Portfolio Manager at Chicago Fundamental Investment Partners from February 2009
until November 2012.
Jon Vacko.
Jon Vacko joined Calamos in June 2000 and has been a Senior Co-Portfolio Manager since September 2015. Previously,
he was a Co-Portfolio Manager from August 2013 to September 2015; prior thereto he was a Co-Head of Research and Investments
from July 2010 to August 2013.
Joe Wysocki.
Joe Wysocki joined Calamos in October 2003 and since February 2021 has been a Senior Co-Portfolio Manager. Previously,
Mr. Wysocki was a Co-Portfolio Manager from March 2015 to January 2021; sector head from March 2014 to March 2015;
a Co-Portfolio Manager from March 2013 to March 2014; and a senior strategy analyst from February 2007 to March 2013.
Calamos employs
a “team of teams” approach to portfolio management, led by the Global CIO and our CIO team consisting of 5 Co-CIOs
with specialized areas of investment expertise. The Global CIO and Co-CIO team are responsible for oversight of investment team
resources, investment processes, performance and risk. As heads of investment verticals, Co-CIOs manage investment team members
and, along with Co-Portfolio Managers, have day-to-day portfolio oversight and construction responsibilities of their respective
investment strategies. While investment research professionals within each Co-CIO’s team are assigned specific strategy
responsibilities, they also provide support to other investment team verticals, creating deeper insights across a wider range
of investment strategies. The combination of specialized investment teams with cross team collaboration results in what we call
our team of teams approach.
This team of
teams approach is further reflected in the composition of Calamos’ Investment Committee, made up of the Global CIO, the Co-CIO
team, the Head of Global Trading and the Chief of IT and Operations. Other members of the investment team participate in Investment
Committee meetings in connection with specific investment related issues or topics as deemed appropriate.
The structure and composition of the
Investment Committee results in a number of benefits, as it:
|
•
|
Leads to broader perspective on investment decisions: multiple viewpoints and areas of expertise feed into consensus;
|
|
•
|
Promotes collaboration between teams; and
|
|
•
|
Functions as a think tank with the goal of identifying ways to outperform the market on a risk-adjusted basis.
|
The objectives of the Investment Committee
are to:
|
•
|
Form the firm’s top-down macro view, market direction, asset allocation, and sector/country positioning.
|
|
•
|
Establish firm-wide secular and cyclical themes for review.
|
|
•
|
Review firm-wide and portfolio risk metrics, recommending changes where appropriate.
|
|
•
|
Review firm-wide, portfolio and individual security liquidity constraints.
|
|
•
|
Evaluate firm-wide and portfolio investment performance.
|
|
•
|
Evaluate firm-wide and portfolio hedging policies and execution.
|
|
•
|
Evaluate enhancements to the overall investment process.
|
John P.
Calamos, Sr., Founder, Chairman and Global CIO, is responsible for the day-to-day management of the team, bottom-up
research efforts and strategy implementation. R. Matthew Freund, John Hillenbrand, Nick Niziolek, Eli Pars, Dennis Cogan, Jon
Vacko and Joe Wysocki are each Sr. Co-Portfolio Managers.
For over 20 years,
the Calamos portfolio management team has managed money for their clients in convertible, high yield and global strategies. Furthermore,
Calamos has extensive experience investing in foreign markets through its convertible securities and high yield securities strategies.
Such experience has included investments in established as well as emerging foreign markets.
The Global
CIO, Sr. Co-Portfolio Managers and Co-Portfolio Managers also have responsibility for the day-to-day management of accounts
other than the Fund. Information regarding these other accounts as of October 31, 2020 is set forth below:
Other Accounts Managed and Assets
by Account Type as of October 31, 2020:
|
|
Registered
Investment
Companies
|
|
|
Other
Pooled
Investment
Vehicles
|
|
|
Other
Accounts
|
|
|
|
Accounts
|
|
|
Assets
|
|
|
Accounts
|
|
|
Assets
|
|
|
Accounts
|
|
|
Assets
|
|
John P. Calamos Sr.
|
|
|
23
|
|
|
|
24,298,542,870
|
|
|
|
5
|
|
|
|
779,395,779
|
|
|
|
3,898
|
|
|
|
2,785,648,129
|
|
R. Matthew Freund
|
|
|
16
|
|
|
|
13,197,112,036
|
|
|
|
1
|
|
|
|
385,576,284
|
|
|
|
3,687
|
|
|
|
2,656,793,327
|
|
John Hillenbrand
|
|
|
18
|
|
|
|
11,799,182,233
|
|
|
|
5
|
|
|
|
779,395,779
|
|
|
|
3,042
|
|
|
|
2,270,044,756
|
|
Nick Niziolek
|
|
|
10
|
|
|
|
7,456,407,651
|
|
|
|
4
|
|
|
|
393,819,495
|
|
|
|
2,620
|
|
|
|
1,207,310,422
|
|
Eli Pars
|
|
|
18
|
|
|
|
22,378,323,990
|
|
|
|
5
|
|
|
|
779,395,779
|
|
|
|
2,996
|
|
|
|
2,187,323,086
|
|
Jon Vacko
|
|
|
19
|
|
|
|
12,210,855,267
|
|
|
|
5
|
|
|
|
779,395,779
|
|
|
|
3,015
|
|
|
|
2,216,739,321
|
|
Joe Wysocki
|
|
|
12
|
|
|
|
11,471,636,258
|
|
|
|
4
|
|
|
|
777,032,976
|
|
|
|
2,588
|
|
|
|
1,464,245,772
|
|
Dennis Cogan
|
|
|
10
|
|
|
|
7,456,407,651
|
|
|
|
4
|
|
|
|
393,819,495
|
|
|
|
2,620
|
|
|
|
1,207,310,422
|
|
Number of Accounts and Assets
for which Advisory Fee is Performance Based as of October 31, 2020:
|
|
Registered
Investment
Companies
|
|
|
Other
Pooled
Investment
Vehicles
|
|
|
Other
Accounts
|
|
|
|
Accounts
|
|
|
Assets
|
|
|
Accounts
|
|
|
Assets
|
|
|
Accounts
|
|
|
Assets
|
|
John P. Calamos Sr.
|
|
|
2
|
|
|
|
315,830,459
|
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
R. Matthew Freund
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
John Hillenbrand
|
|
|
2
|
|
|
|
315,830,459
|
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Nick Niziolek
|
|
|
2
|
|
|
|
315,830,459
|
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Eli Pars
|
|
|
2
|
|
|
|
315,830,459
|
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Jon Vacko
|
|
|
2
|
|
|
|
315,830,459
|
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Joe Wysocki
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Dennis Cogan
|
|
|
2
|
|
|
|
315,830,459
|
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Each Co-Portfolio
Manager may invest for his own benefit in securities held in brokerage and mutual fund accounts. The information shown in the
table does not include information about those accounts where the Co-Portfolio Manager or members of his family have a beneficial
or pecuniary interest because no advisory relationship exists with Calamos or any of its affiliates.
The Fund’s
Co-Portfolio Managers are responsible for managing both the Fund and other accounts, including separate accounts and funds not
required to be registered under the 1940 Act.
Other than
potential conflicts between investment strategies, the side-by-side management of both the Fund and other accounts may raise potential
conflicts of interest due to the interest held by Calamos in an account and certain trading practices used by the portfolio managers
(e.g., cross-trades between the Fund and another account and allocation of aggregated trades). Calamos has developed policies
and procedures reasonably designed to mitigate those conflicts. For example, Calamos will place cross-trades in securities held
by the Fund only in accordance with the rules promulgated under the 1940 Act and has adopted policies designed to ensure
the fair allocation of securities purchased on an aggregated basis.
The allocation
methodology employed by Calamos varies depending on the type of securities sought to be bought or sold and the type of client or
group of clients. Generally, however, orders are placed first for those clients that have given Calamos brokerage discretion (including
the ability to step out a portion of trades), and then to clients that have directed Calamos to execute trades through a specific
broker. However, if the directed broker allows Calamos to execute with other brokerage firms, which then book the transaction directly
with the directed broker, the order will be placed as if the client had given Calamos full brokerage discretion. Calamos and its
affiliates frequently use a “rotational” method of placing and aggregating client orders and will build and fill a
position for a designated client or group of clients before placing orders for other clients. A client account may not receive
an allocation of an order if: (a) the client would receive an unmarketable amount of securities based on account size; (b) the
client has precluded Calamos from using a particular broker; (c) the cash balance in the client account will be insufficient
to pay for the securities allocated to it at settlement; (d) current portfolio attributes make an allocation inappropriate;
and (e) account specific guidelines, objectives and other account specific factors make an allocation inappropriate. Allocation
methodology may be modified when strict adherence to the usual allocation is impractical or leads to inefficient or undesirable
results. Calamos’ head trader must approve each instance that the usual allocation methodology is not followed and provide
a reasonable basis for such instances and all modifications must be reported in writing to Calamos’ Chief Compliance Officer
on a monthly basis.
Investment opportunities
for which there is limited availability generally are allocated among participating client accounts pursuant to an objective methodology
(i.e., either on a pro rata basis or using a rotational method, as described above). However, in some instances, Calamos may consider
subjective elements in attempting to allocate a trade, in which case the Fund may not participate, or may participate to a lesser
degree than other clients, in the allocation of an investment opportunity. In considering subjective criteria when allocating trades,
Calamos is bound by its fiduciary duty to its clients to treat all client accounts fairly and equitably.
The Co-Portfolio
Managers advise certain accounts under a performance fee arrangement. A performance fee arrangement may create an incentive for
a Co-Portfolio Manager to make investments that are riskier or more speculative than would be the case in the absence of performance
fees. A performance fee arrangement may result in increased compensation to the Co-Portfolio Managers from such accounts due to
unrealized appreciation as well as realized gains in the client’s account.
As of October 31,
2020, John P. Calamos, Sr., our Global CIO, aside from distributions arising from his ownership from various entities, receives
all of his compensation from Calamos. He has entered into an employment agreement that provides for compensation in the form of
an annual base salary and an annual bonus, both components payable in cash. Similarly, Mr. Calamos, Sr., is eligible
for a Long-Term Incentive (“LTI”). The LTI program at Calamos currently consists of deferred bonus payments, which
fluctuate in value over time based upon either (1) the performance of certain managed investment products for investment
professionals (“Mutual Fund Incentive Awards”); or (2) the overall value of the firm for non-investment professionals
(“Company Incentive Awards”).
As of October 31,
2020, R. Matthew Freund, John Hillenbrand, Nick Niziolek, Eli Pars, Jon Vacko, Dennis Cogan, and Joe Wysocki receive all of their
compensation from Calamos. These individuals each receive compensation in the form of an annual base salary, a discretionary bonus
(payable in cash) and are eligible for discretionary Mutual Fund Incentive Awards. Additionally, Messrs. Hillenbrand, Niziolek,
and Pars received additional compensation awards in prior years.
The amounts paid
to all Co-Portfolio Managers, together with the criteria utilized to determine such amounts, are benchmarked against industry specific
data provided by third party analytical agencies. The Co-Portfolio Managers’ compensation structure considers annually the
performance of the various strategies managed by the Co-Portfolio Managers, among other factors, including, without limitation,
the overall performance of the firm.
At October 31,
2020, each portfolio manager beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Exchange Act)
shares of the Fund having value within the indicated dollar ranges.
Portfolio
Manager
|
|
Fund
|
John P. Calamos, Sr.(1)
|
|
Over $1,000,000
|
Nick Niziolek
|
|
None
|
Dennis Cogan
|
|
None
|
John Hillenbrand
|
|
None
|
Jon Vacko
|
|
None
|
Joe Wysocki
|
|
None
|
Eli Pars
|
|
None
|
R. Matthew Freund
|
|
None
|
|
(1)
|
Pursuant to Rule 16a-1(a)(2) of the Exchange
Act, John P. Calamos, Sr. may be deemed to have indirect beneficial ownership of Fund shares held by Calamos Investments
LLC, its subsidiaries, and its parent companies (Calamos Asset Management, Inc. and Calamos Partners LLC, and its parent
company Calamos Family Partners, Inc.) due to his direct or indirect ownership interest in those entities. As a result, these
amounts reflect any holdings of those entities in addition to the individual, personal accounts of John P. Calamos, Sr.
|
Fund Accountant and Administration
Arrangements
The Fund
has entered into an agreement with Ernst & Young LLP (“EY”) located at 155 N. Wacker Drive, Chicago, IL
60606 to provide certain tax services to the Fund. The tax services include the following: calculating, tracking and reporting
tax adjustments on all assets of the Fund, including but not limited to contingent debt and preferred trust obligations; preparing
excise tax and fiscal year distribution schedules; preparing tax information required for financial statement footnotes; preparing
state and federal income tax returns; preparing specialized calculations of amortization on convertible securities; preparing
year-end dividend disclosure information providing treaty-based foreign withholding tax reclaim services; providing certain global
compliance and reporting services; providing a match service and analysis of the “passive foreign investment company”
status of foreign corporate entities; and providing services related to corporate actions that may or may not have a tax impact
on the Fund’s holdings. For the fiscal years ended October 31, 2020, October 31, 2019 and October 31, 2018,
the Fund paid EY $57,442, $53,358 and $0, respectively, for tax services.
Under the
arrangements with State Street Bank and Trust Company (“State Street”) located at One Iron Street, Boston, MA 02111
to provide fund accounting services, State Street provides certain administrative and accounting services including providing
daily reconciliation of cash, trades and positions; maintaining general ledger and capital stock accounts; preparing daily trial
balance; calculating net asset value; providing selected general ledger reports; preferred share compliance; calculating total
returns; and providing monthly distribution analysis to the Fund. For the fiscal years ended October 31, 2020, October 31,
2019 and October 31, 2018, the Fund paid State Street $90,248, $84,190 and $88,339, respectively, for fund accounting services.
The Fund has also entered into an agreement with State Street pursuant to which State Street provides certain administration treasury
services to the Fund. These services include: monitoring the calculation of expense accrual amounts for the Fund and making any
necessary modifications; managing the Fund’s expenses and expense payment processing; coordinating any expense reimbursement
calculations and payment; calculating net investment income dividends and capital gain distributions; coordinating the audits
for the Fund; preparing financial reporting statements for the Fund; preparing certain regulatory filings; and calculating asset
coverage tests for certain Calamos Funds. For the fiscal years ended October 31, 2020, October 31, 2019 and October 31,
2018, the Fund paid State Street $102,539, $108,979 and $0, respectively, for administration services. Under a prior agreement
for administration services, the Fund paid the previous service provider $0, $0 and $147,398 for the fiscal years ended October 31,
2020, October 31, 2019 and October 31, 2018, respectively.
CERTAIN SHAREHOLDERS
At January 31,
2021, the following persons were known to own beneficially or of record more than 5% of the outstanding securities of the Fund:
Class of
Shares
|
|
Name
and Address of Beneficial Owner
|
|
Number
of
Shares
Owned
|
|
|
Percent
of
Class
|
|
Common
|
|
Merrill
Lynch Pierce Fenner & Smith
4804 Deer Lake Dr. E.
Jacksonville, FL 32246
|
|
|
11,340,063
|
|
|
|
15.5
|
%
|
|
|
Charles Schwab & Co., Inc.
2423 E. Lincoln Drive
Phoenix, AZ 85016-1215
|
|
|
7,738,482
|
|
|
|
10.6
|
%
|
|
|
Morgan Stanley Smith Barney
LLC
1300 Thames Street
6th Floor
Baltimore, MD 21231
|
|
|
7,709,432
|
|
|
|
10.5
|
%
|
|
|
National Financial Services
LLC
499 Washington Blvd.
Jersey City, NJ 07310
|
|
|
7,410,290
|
|
|
|
10.1
|
%
|
|
|
TD Ameritrade
200 S. 108th
Ave
Omaha, NE 68154
|
|
|
5,546,237
|
|
|
|
7.6
|
%
|
|
|
Wells Fargo Clearing Services
LLC
2801 Market Street
H0006-09B
St. Louis, MO 63103
|
|
|
4,201,518
|
|
|
|
5.7
|
%
|
Series A
Mandatory Redeemable Preferred Shares
|
|
Massachusetts
Mutual Life Insurance
Company
c/o Barings LLC
1500 Main Street – Suite 2200
P.O. Box 15189
Springfield, MA 0115-5189
|
|
|
1,180,000
|
|
|
|
80.8
|
%
|
|
|
Massachusetts
Mutual Life Insurance
Company
c/o Barings LLC
1500 Main Street – Suite 2200
P.O. Box 15189
Springfield, MA 0115-5189
|
|
|
280,000
|
|
|
|
19.2
|
%
|
Class of Shares
|
|
Name and Address of Beneficial Owner
|
|
Number of
Shares Owned
|
|
|
Percent of
Class
|
|
Series B Mandatory Redeemable Preferred Shares
|
|
Massachusetts Mutual Life Insurance Company
c/o Barings LLC
1500 Main Street – Suite 2200
P.O. Box 15189 Springfield, MA 0115-5189
|
|
|
1,180,000
|
|
|
|
80.8
|
%
|
|
|
Massachusetts Mutual Life Insurance Company
c/o Barings LLC
1500 Main Street – Suite 2200
P.O. Box 15189 Springfield, MA 0115-5189
|
|
|
280,000
|
|
|
|
19.2
|
%
|
Series C Mandatory Redeemable Preferred Shares
|
|
Massachusetts Mutual Life Insurance
Company
c/o Barings LLC
1500 Main Street – Suite 2200
P.O. Box 15189 Springfield, MA 0115-5189
|
|
|
1,200,000
|
|
|
|
81.1
|
%
|
|
|
Massachusetts Mutual Life Insurance Company
c/o Barings LLC
1500 Main Street – Suite 2200
P.O. Box 15189 Springfield, MA 0115-5189
|
|
|
280,000
|
|
|
|
18.9
|
%
|
At January 31, 2021, the
trustees and officers as a group owned less than one percent of the Fund’s outstanding common shares.
PORTFOLIO TRANSACTIONS
Portfolio
transactions on behalf of the Fund effected on stock exchanges involve the payment of negotiated brokerage commissions. There
is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid by the
Fund usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid by the Fund includes
a disclosed, fixed commission or discount retained by the underwriter or dealer.
In executing
portfolio transactions, Calamos seeks to obtain for the Fund the most favorable combination of price and execution available. In
seeking the most favorable combination of price and execution, Calamos considers all factors it deems relevant, including price,
the size of the transaction, the nature of the market for the security, the amount of commission, the timing of the transaction
taking into account market prices and trends, the execution capability of the broker-dealer and the quality of service rendered
by the broker-dealer in other transactions.
The Trustees
have determined that portfolio transactions for the Fund may be executed through CFS, an affiliate of Calamos, if, in the judgment
of Calamos, the use of CFS is likely to result in prices and execution at least as favorable to the Fund as those available from
other qualified brokers and if, in such transactions, CFS charges the Fund commission rates consistent with those charged by CFS
to comparable unaffiliated customers in similar transactions. The Board of Trustees, including a majority of the Trustees who are
not “interested” trustees, has adopted procedures that are reasonably designed to provide that any commissions, fees
or other remuneration paid to CFS are consistent with the foregoing standard. The Fund will not effect principal transactions with
CFS.
In allocating
the Fund’s portfolio brokerage transactions to unaffiliated broker-dealers, Calamos may take into consideration the research,
analytical, statistical and other information and services provided by the broker- dealer, such as general economic reports and
information, reports or analyses of particular companies or industry groups, market timing and technical information, and the availability
of the brokerage firm’s analysts for consultation. Although Calamos believes these services have substantial value, they
are considered supplemental to Calamos’ own efforts in the performance of its duties under the management agreement.
Calamos does
not guarantee any broker the placement of a predetermined amount of securities transactions in return for the research or brokerage
services it provides. Calamos has adopted internal procedures which it believes are reasonably designed to allocate transactions
in a manner consistent with its execution policies to brokers that it has identified as providing research, research-related products
or services, or execution-related services of a particular benefit to its clients. Calamos has entered into client commission agreements
(“CCAs”) with certain broker-dealers under which the broker-dealers may use a portion of their commissions to pay third
parties or other broker-dealers that provide Calamos with research or brokerage services, as permitted under Section 28(e) of
the Exchange Act. CCAs allow Calamos to direct broker-dealers to pool commissions that are generated from orders executed at that
broker-dealer, and then periodically direct the broker-dealer to pay third parties or other broker-dealers for research or brokerage
services. All uses of CCAs by Calamos are subject to applicable law and its best execution obligations. Brokerage and research
products and services furnished by brokers may be used in servicing any or all of the clients of Calamos and such research may
not necessarily be used by Calamos in connection with the accounts which paid commissions to the broker providing such brokerage
and research products and services.
As permitted
by Section 28(e) of the Exchange Act, Calamos may cause the Fund to pay a broker-dealer that provides brokerage and research
services an amount of commission for effecting a securities transaction for the Fund in excess of the commission that another broker-dealer
would have charged for effecting that transaction if the amount is believed by Calamos to be reasonable in relation to the value
of the overall quality of the brokerage and research services provided. Other clients of Calamos may indirectly benefit from the
provision of these services to Calamos, and the Fund may indirectly benefit from services provided to Calamos as a result of transactions
for other clients.
The Fund
paid $0, $0, and $0 in aggregate brokerage commissions for the fiscal years ended October 31, 2018, October 31, 2019
and October 31, 2020, including $0, $0, and $0 to CFS, which represented 0%, 0% and 0% of the Fund’s aggregate brokerage
fees paid for the respective fiscal year, and 0%, 0%, and 0% of the Fund’s aggregate dollar amount of transactions involving
brokerage commissions for the respective fiscal year.
Portfolio Turnover
Our annual
portfolio turnover rate may vary greatly from year to year. Although we cannot accurately predict our annual portfolio turnover
rate, it is not expected to exceed 100% annually under normal circumstances. For the fiscal years ended October 31, 2019
and October 31, 2020, the portfolio turnover rate was 47% and 76%, respectively. However, portfolio turnover rate is not
considered a limiting factor in the execution of investment decisions for the Fund, and it is possible that the Fund may exceed
this level of turnover in any given year. A higher turnover rate results in correspondingly greater brokerage commissions and
other transactional expenses that are borne by the Fund. High portfolio turnover also may 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 taxed at ordinary income tax rates for U.S. federal income tax purposes. See “Certain Federal Income Tax Matters.”
NET ASSET VALUE
Net
asset value per share is determined no less frequently than the close of regular session trading on the NYSE (usually 4:00 p.m.,
Eastern time), on the last business day in each week, or such other time as the Fund may determine. The NYSE is regularly closed
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 the NYSE is closed due to weather or other extenuating circumstances on a day it would
typically be open for business, the Fund reserves the right to treat such day as a Business Day and calculate the Fund’s
NAV as of the normally scheduled close of regular trading on the NYSE or such other time that the Fund may determine, in accordance
with applicable law. The Fund reserves the right to close if the primary trading markets of the Fund’s portfolio instruments
are closed. On any business day when the Securities Industry and Financial Markets Association (“SIFMA”) recommends
that the securities markets close trading early or when the NYSE closes earlier than scheduled, the Fund may (i) close trading
early (as such, the time as of which the NAV is calculated would be advanced) or (ii) calculate its NAV as of, the normally scheduled
close of regular trading on the NYSE for that day.
Net
asset value is calculated by dividing the value of all of the securities and other assets of the Fund, less its liabilities (including
accrued expenses and indebtedness) and the aggregate liquidation value of any outstanding preferred shares, by the total number
of common shares outstanding. Information that becomes known to the Fund after the time as of which NAV has been calculated
on a particular day will not generally be used to retroactively adjust the price of a security or the NAV determined earlier that
day. If regular trading on the NYSE closes earlier than scheduled, the Fund reserves the right to either (i) calculate its NAV
as of the earlier closing time or (ii) calculate its NAV as of the normally scheduled close of regular trading on the NYSE for
that day. The Fund generally does not calculate its NAV on days during which the NYSE is closed. However, if the NYSE is closed
on a day it would normally be open for business, the Fund reserves the right to calculate its NAV as of the normally scheduled
close of regular trading on the NYSE for that day or such other time that the Fund may determine. Because
the Fund may invest in securities that are primarily listed on foreign exchanges and trade on days when the Fund does not price
its shares, the Fund’s underlying assets may change in value on days when the NAV is not calculated.
The valuation
of the Fund’s portfolio securities is in accordance with policies and procedures adopted by and under the ultimate supervision
of the Board of Trustees. Securities for which market quotations are readily available will be valued using the market value of
those securities. Securities for which market quotations are not readily available will be fair valued in accordance with policies
and procedures adopted by and under the ultimate supervision of the Board of Trustees. The method by which a security may be fair
valued will depend on the type of security and the circumstances under which the security is being fair valued.
Portfolio
securities that are traded on U.S. securities exchanges, except option securities, are valued at the last current reported sales
price at the time the Fund determines its NAV. Securities traded in the over-the-counter market and quoted on The Nasdaq Stock
Market are valued at the Nasdaq Official Closing Price, as determined by Nasdaq, or lacking a Nasdaq Official Closing Price, the
last current reported sale price on Nasdaq at the time the Fund determines its NAV.
When a last sale
or closing price is not available, equity securities, other than option securities, that are traded on a U.S. securities exchange
and other equity securities traded in the over-the-counter market are valued at the mean between the most recent bid and asked
quotations in accordance with guidelines adopted by the Board of Trustees. Each option security traded on a U.S. securities exchange
is valued at the mid-point of the consolidated bid/ask quote for the option security, also in accordance with guidelines adopted
by the Board of Trustees. Each over-the-counter option that is not traded through the Options Clearing Corporation is valued based
on a quotation provided by the counterparty to such option under the ultimate supervision of the Board of Trustees.
Fixed income
securities are generally traded in the over-the-counter market and are valued based on evaluations provided by independent pricing
services or by dealers who make markets in such securities. Valuations of fixed income securities consider yield or price of bonds
of comparable quality, coupon rate, maturity, type of issue, trading characteristics and other market data and do not rely exclusively
upon exchange or over-the-counter prices.
Trading on European
and Far Eastern exchanges and over-the-counter markets is typically completed at various times before the close of business on
each day on which the NYSE is open. Each security trading on these exchanges or over-the-counter markets may be valued utilizing
a systematic fair valuation model provided by an independent pricing service approved by the Board of Trustees. The valuation of
each security that meets certain criteria in relation to the valuation model is systematically adjusted to reflect the impact of
movement in the U.S. market after the foreign markets close. Securities that do not meet the criteria, or that are principally
traded in other foreign markets, are valued as of the last reported sale price at the time the Fund determines its NAV, or when
reliable market prices or quotations are not readily available, at the mean between the most recent bid and asked quotations as
of the close of the appropriate exchange or other designated time. Trading of foreign 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 NAV is not calculated.
If the pricing
committee determines that the valuation of a security in accordance with the methods described above is not reflective of a market
value for such security, the security is valued at a fair value by the pricing committee, under the ultimate supervision of the
Board of Trustees, following the guidelines and/or procedures adopted by the Board of Trustees.
The Fund also
may use fair value pricing, pursuant to guidelines adopted by the Board of Trustees and under the ultimate supervision of the Board
of Trustees, if trading in the security is halted or if the value of a security it holds is materially affected by events occurring
before the Fund’s pricing time but after the close of the primary market or exchange on which the security is listed. Those
procedures may utilize valuations furnished by pricing services approved by the Board of Trustees, which may be based on market
transactions for comparable securities and various relationships between securities that are generally recognized by institutional
traders, a computerized matrix system, or appraisals derived from information concerning the securities or similar securities received
from recognized dealers in those securities.
When fair value
pricing of securities is employed, the prices of securities used by the Fund to calculate its NAV may differ from market quotations
or official closing prices. In light of the judgment involved in fair valuations, there can be no assurance that a fair value assigned
to a particular security is accurate.
REPURCHASE OF COMMON SHARES
The Fund is a
closed-end investment company and as such its shareholders will not have the right to cause the Fund to redeem their shares. Instead,
the Fund’s common shares trade in the open market at a price that is a function of several factors, including dividend levels
(which are in turn affected by expenses), net asset value, call protection, dividend stability, relative demand for and supply
of such shares in the market, general market and economic conditions and other factors. Because shares of a closed-end investment
company may frequently trade at prices lower than net asset value, the Fund’s Board of Trustees may consider action that
might be taken to reduce or eliminate any material discount from net asset value in respect of common shares, which may include
the repurchase of such shares in the open market or in private transactions, the making of a tender offer for such shares, or the
conversion of the Fund to an open-end investment company. The Board of Trustees may decide not to take any of these actions. In
addition, there can be no assurance that share repurchases or tender offers, if undertaken, will reduce market discount.
Notwithstanding
the foregoing, at any time when the Fund’s preferred shares are outstanding, the Fund may not purchase, redeem or otherwise
acquire any of its common shares unless (1) all accumulated preferred shares dividends have been paid and (2) at the
time of such purchase, redemption or acquisition, the net asset value of the Fund’s portfolio (determined after deducting
the acquisition price of the common shares) is at least 200% of the liquidation value of the outstanding preferred shares (expected
to equal the original purchase price per share plus any accrued and unpaid dividends thereon). Any service fees incurred in connection
with any tender offer made by the Fund will be borne by the Fund and will not reduce the stated consideration to be paid to tendering
shareholders.
Subject to its
investment restrictions, the Fund may borrow to finance the repurchase of shares or to make a tender offer. Interest on any borrowings
to finance share repurchase transactions or the accumulation of cash by the Fund in anticipation of share repurchases or tenders
will reduce the Fund’s net income. Any share repurchase, tender offer or borrowing that might be approved by the Fund’s
Board of Trustees would have to comply with the Exchange Act, the 1940 Act and the rules and regulations thereunder.
Although
the decision to take action in response to a discount from net asset value will be made by the Board of Trustees at the time it
considers such issue, it is not currently anticipated that the Board of Trustees would authorize repurchases of common shares
or a tender offer for such shares if: (1) such transactions, if consummated, would (a) result in the delisting of the
common shares from Nasdaq, or (b) impair the Fund’s status as a regulated investment company under the Code (which
would make the Fund a taxable entity, causing the Fund’s income to be taxed at the corporate level in addition to the taxation
of shareholders who receive dividends from the Fund) or as a registered closed-end investment company under the 1940 Act; (2) the
Fund would not be able to liquidate portfolio securities in an orderly manner and consistent with the Fund’s investment
objective and policies in order to repurchase shares; or (3) there is, in the board’s judgment, any (a) material
legal action or proceeding instituted or threatened challenging such transactions or otherwise materially adversely affecting
the Fund, (b) general suspension of or limitation on prices for trading securities on Nasdaq, (c) declaration of a banking
moratorium by federal or state authorities or any suspension of payment by United States or New York banks, (d) material
limitation affecting the Fund or the issuers of its portfolio securities by federal or state authorities on the extension of credit
by lending institutions or on the exchange of foreign currency, (e) commencement of war, armed hostilities or other international
or national calamity directly or indirectly involving the United States, or (f) other event or condition which would have
a material adverse effect (including any adverse tax effect) on the Fund or its shareholders if shares were repurchased.
The repurchase
by the Fund of its shares at prices below net asset value will result in an increase in the net asset value of those shares that
remain outstanding. However, there can be no assurance that share repurchases or tender offers at or below net asset value will
result in the Fund’s shares trading at a price equal to their net asset value. Nevertheless, the fact that the Fund’s
shares may be the subject of repurchase or tender offers from time to time, or that the Fund may be converted to an open-end investment
company, may reduce any spread between market price and net asset value that might otherwise exist.
In addition,
a purchase by the Fund of its common shares will decrease the Fund’s total managed assets which would likely have the effect
of increasing the Fund’s expense ratio. Any purchase by the Fund of its common shares at a time when preferred shares are
outstanding will increase the leverage applicable to the outstanding common shares then remaining.
Before deciding
whether to take any action if the common shares trade below net asset value, the Fund’s Board of Trustees would likely consider
all relevant factors, including the extent and duration of the discount, the liquidity of the Fund’s portfolio, the impact
of any action that might be taken on the Fund or its shareholders and market considerations. Based on these considerations, even
if the Fund’s shares should trade at a discount, the Board of Trustees may determine that, in the interest of the Fund and
its shareholders, no action should be taken.
CERTAIN FEDERAL INCOME TAX MATTERS
The following
is a summary discussion of certain U.S. federal income tax consequences that may be relevant to a shareholder or a noteholder
(as the case may be) that acquires, holds and/or disposes of the Fund’s securities. This discussion only addresses certain
U.S. federal income tax consequences to U.S. shareholders and noteholders (as the case may be) who hold their Fund securities
as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant to particular shareholders
and noteholders (as the case may be) in light of their individual circumstances. This discussion also does not address all U.S.
federal, state, local and foreign tax concerns affecting the Fund and its shareholders and noteholders (including shareholders
and noteholders subject to special tax rules and shareholders owning large positions in the Fund), and the discussion set
forth herein does not constitute tax advice. The discussion reflects applicable tax laws of the United States as of the date of
this Statement of Additional Information, which tax laws may be changed or subject to new interpretations by the courts or the
Internal Revenue Service (“IRS”) retroactively or prospectively. No assurance can be given that the IRS would not
assert, or that a court would not sustain, a position different from any of the tax aspects set forth below. The specific terms
of preferred shares and debt securities may result in different tax consequences to holders than those described herein. No attempt
is made to present a detailed explanation of all U.S. federal income tax concerns affecting the Fund and its shareholders and
noteholders, and the discussion set forth herein does not constitute tax advice. Investors are urged to consult their own tax
advisers to determine the specific tax consequences to them of investing in the Fund, including the applicable federal, state,
local and foreign tax consequences to them and the effect of possible changes in tax laws.
Federal Income Taxation of the
Fund
The Fund
has elected to be treated, and intends to qualify and to be eligible to be treated each year, as a “regulated investment
company” under Subchapter M of the Code, so that it will not pay U.S. federal income tax on investment company taxable income
and capital gains timely distributed to shareholders. If the Fund qualifies as a regulated investment company and distributes
to its shareholders at least 90% of the sum of (i) its “investment company taxable income” as that term is defined
in the Code (which includes, among other things, dividends, taxable interest, the excess of any net short-term capital gains over
net long-term capital losses, taking into account certain capital loss carryforwards, and certain net foreign currency exchange
gains, less certain deductible expenses) without regard to the deduction for dividends paid and (ii) the excess of its gross
tax-exempt interest, if any, over certain disallowed deductions, the Fund will be relieved of U.S. federal income tax on any income
of the Fund, including long-term capital gains, distributed to shareholders. However, if the Fund retains any investment company
taxable income or “net capital gain” (i.e., the excess of net long-term capital gain over the sum of net short-term
capital loss and certain capital loss carryforwards), it will be subject to U.S. federal income tax at regular corporate rates
on the amount retained. The Fund intends to distribute at least annually, all or substantially all of its investment company taxable
income, net tax-exempt interest, if any, and net capital gain.
In determining
its net capital gain, its taxable income, and its earnings and profits, a regulated investment company generally may elect to treat
part or all of any post-October capital loss (defined as any net capital loss attributable to the portion, if any, of the
taxable year after October 31 or, if there is no such loss, the net long- term capital loss or net short-term capital loss
attributable to any such portion of the taxable year) or late-year ordinary loss (generally, the sum of (i) net ordinary loss,
if any, from the sale, exchange or other taxable disposition of property, attributable to the portion, if any, of the taxable year
after October 31, and its (ii) other net ordinary loss, if any, attributable to the portion of the taxable year, if any,
after December 31) as if incurred in the succeeding taxable year.
Capital losses
in excess of capital gains (“net capital losses”) are not permitted to be deducted against the Fund’s net investment
income. Instead, potentially subject to certain limitations, the Fund may carry net capital losses from any taxable year forward
to subsequent taxable years without expiration to offset capital gains, if any, realized during such subsequent taxable years.
Capital loss carryforwards are reduced to the extent they offset current-year net realized capital gains, whether the Fund retains
or distributes such gains. The Fund must apply such carryforwards first against gains of the same character.
If for any
taxable year the Fund did not qualify as a regulated investment company for U.S. federal income tax purposes, it would be treated
in the same manner as a regular corporation subject to U.S. federal income tax and distributions to its shareholders would not
be deductible by the Fund in computing its taxable income. In such event, the Fund’s distributions, to the extent derived
from the Fund’s current and accumulated earnings and profits, would generally constitute ordinary dividends, which would
generally be eligible for the dividends received deduction available to corporate shareholders under Section 243 of the Code,
and noncorporate shareholders of the Fund would generally be able to treat such distributions as “qualified dividend income”
eligible for reduced rates of federal income taxation under Section 1(h)(11) of the Code, as described below, provided holding
period and other requirements are met. The Fund could be required to recognize unrealized gains, pay substantial taxes and interest
and make substantial distributions before re-qualifying as a regulated investment company that is accorded special tax treatment.
If the Fund failed to qualify for a period greater than two taxable years, it would also be required to elect to recognize and
pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have
been realized if the Fund had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for
a period of five years.
Under the Code,
the Fund will be subject to a nondeductible 4% federal excise tax on its undistributed ordinary income for a calendar year and
its undistributed capital gains for the one-year period generally ending on October 31 of such calendar year if it fails to
meet certain distribution requirements with respect to that year. Generally the excise tax applies to the extent the Fund fails
to distribute by the end of any calendar year at least the sum of (i) 98% of its ordinary income (not taking into account
any capital gain or loss) for the calendar year and (ii) 98.2% of its capital gains in excess of its capital losses (adjusted
for certain ordinary losses). In addition, the minimum amounts that must be distributed in any year to avoid the excise tax will
be increased or decreased to reflect the total amount of any under-distribution or over-distribution, as the case may be, from
the previous year. For purposes of the required excise tax distribution, a regulated investment company’s ordinary gains
and losses from the sale, exchange, or other taxable disposition of property that would otherwise be taken into account after October 31
generally are treated as arising on January 1 of the following calendar year. Also, for purposes of the excise tax, the Fund
will be treated as having distributed any amount on which it is subject to corporate income tax for the taxable year ending within
the calendar year. The Fund intends to generally make distributions in a timely manner and in an amount sufficient to avoid such
tax and accordingly does not expect to be subject to this excise tax.
In order
to qualify as a regulated investment company under Subchapter M of the Code, the Fund must, among other things, derive at least
90% of its gross income for each taxable year from (i) dividends, interest, payments with respect to securities loans, gains
from the sale or other disposition of stock, securities or foreign currencies, or other income (including gains from options,
futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies and (ii) net
income derived from interests in certain publicly traded partnerships that derive less than 90% of their gross income from the
items described in (i) above (each, a “Qualified Publicly Traded Partnership”) (the “90% income test”).
For purposes of the 90% income test, the character of income earned by certain entities in which the Fund invests that are not
treated as corporations for U.S. federal income tax purposes will generally pass through to the Fund. Consequently, the Fund may
be required to limit its equity investments in certain such entities.
In addition to
the 90% income test, the Fund must also diversify its holdings (the “asset test”) so that, at the end of each quarter
of its taxable year (i) at least 50% of the market value of the Fund’s total assets is represented by cash and cash
items, U.S. government securities, securities of other regulated investment companies and other securities, with such other securities
of any one issuer limited for the purposes of this calculation to an amount not greater in value than 5% of the value of the Fund’s
total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the
market value of its total assets is invested, including through corporations in which the Fund owns a 20% or more voting stock
interest, in the securities (other than U.S. government securities or securities of other regulated investment companies) of any
one issuer or of two or more issuers controlled by the Fund and engaged in the same, similar or related trades or businesses or
in the securities of one or more Qualified Publicly Traded Partnerships.
Foreign exchange
gains and losses realized by the Fund in connection with certain transactions involving foreign currency-denominated debt securities,
certain options and futures contracts relating to foreign currency, foreign currency forward contracts, foreign currencies, or
payables or receivables denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such
gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to
shareholders.
If the Fund
acquires any equity interest (generally including not only stock but also an option to acquire stock such as is inherent in a
convertible bond) in certain foreign corporations that receive at least 75% of their annual gross income from passive sources
(such as interest, dividends, certain rents and royalties, or capital gains) or that hold at least 50% of their assets in investments
held for the production of such passive income (“passive foreign investment companies”), the Fund could be subject
to U.S. federal income tax and additional interest charges on “excess distributions” received from such companies
or on gain from the sale of equity interests in such companies, even if all income or gain actually received by the Fund is timely
distributed to its shareholders. These investments could also result in the treatment as ordinary income of associated gains on
a sale of the investment. The Fund would not be able to pass through to its shareholders any credit or deduction for such tax.
Tax elections may generally be available that would ameliorate these adverse tax consequences, but any such election could require
the Fund to recognize taxable income or gain (which would be subject to the distribution requirements described above) without
the concurrent receipt of cash. The Fund may limit and/or manage its holdings in passive foreign investment companies to limit
its U.S. federal income tax liability or maximize its return from these investments.
If the Fund invests
in certain pay-in-kind securities, zero coupon securities, deferred interest securities or, in general, any other securities with
original issue discount (“OID”) (or with market discount if the Fund elects to include market discount in income currently),
the Fund must accrue income on such investments for each taxable year, which generally will be prior to the receipt of the corresponding
cash payments. However, the Fund must distribute, at least annually, all or substantially all of its investment company taxable
income, including such accrued income, to shareholders to avoid U.S. federal income and excise taxes. Therefore, the Fund may have
to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may have to leverage itself by
borrowing the cash, to satisfy distribution requirements.
The Fund may
acquire market discount bonds. A market discount bond is a security acquired in the secondary market at a price below its stated
redemption price at maturity (or its adjusted issue price if it is also an OID bond). If the Fund invests in a market discount
bond, it will be required to treat any gain recognized on the disposition of such market discount bond as ordinary income (instead
of capital gain) to the extent of the accrued market discount, unless the Fund elects to include the market discount in income
as it accrues as discussed above. Such market discount will not constitute qualified dividend income.
The Fund may
invest to a significant extent in debt obligations that are in the lowest rating categories or are unrated, including debt obligations
of issuers not currently paying interest or who are in default. Investments in debt obligations that are at risk of or in default
present special tax issues for the Fund. The U.S. federal income tax laws are not entirely clear about issues such as when the
Fund may cease to accrue interest, OID or market discount, when and to what extent deductions may be taken for bad debts or worthless
securities and how payments received on obligations in default should be allocated between principal and income. These and other
related issues will be addressed by the Fund when, as and if it invests in such securities, in order to ensure that it distributes
sufficient income to preserve its status as a regulated investment company and does not become subject to U.S. federal income or
excise taxes.
Very generally,
where the Fund purchases a bond at a price that exceeds the stated redemption price at maturity – that is, at a premium –
the premium is amortizable over the remaining term of the bond. In the case of a taxable bond, if the Fund makes an election applicable
to all such bonds it purchases, which election is irrevocable without consent of the IRS, the Fund reduces the current taxable
income from the bond by the amortized premium and reduces its tax basis in the bond by the amount of such offset; upon the disposition
or maturity of such bonds, the Fund is permitted to deduct any remaining premium allocable to a prior period. In the case of a
tax-exempt bond, tax rules require the Fund to reduce its tax basis by the amount of amortized premium.
The interest
on municipal bonds is generally exempt from U.S. federal income tax. The Fund does not expect to invest 50% or more of its assets
in municipal bonds on which the interest is exempt from U.S. federal income tax, or in interests in other regulated investment
companies. As a result, it does not expect to be eligible to pay “exempt-interest dividends” to its shareholders under
the applicable tax rules. As a result, interest on municipal bonds is taxable to shareholders of the Fund when received as a distribution
from the Fund. In addition, gains realized by the Fund on the sale or exchange of municipal bonds are taxable to shareholders of
the Fund when distributed to them.
Certain of the
Fund’s other investments may cause the Fund to recognize income without the corresponding receipt of cash, which could result
in the Fund being required to dispose of its portfolio securities under disadvantageous circumstances to generate cash or leverage
itself by borrowing cash to satisfy distribution requirements and to avoid entity-level tax.
The Fund may
engage in various transactions in options, futures contracts, forward contracts, hedging instruments, straddles, swaps and other
similar transactions. In addition to the special rules described below, such transactions may be subject to special provisions
of the Code that, among other things, affect the character of any income realized by the Fund from such investments, accelerate
recognition of income to the Fund, defer Fund losses, affect the holding period of the Fund’s securities, affect whether
distributions will be eligible for the dividends received deduction or be treated as qualified dividend income and affect the determination
of whether capital gain and loss is characterized as long-term or short-term capital gain or loss. These rules could therefore
affect the character, amount and timing of distributions to shareholders. These provisions may also require the Fund to “mark-to-market”
certain types of the positions in its portfolio (i.e., treat them as if they were closed out), which may cause the Fund to recognize
income without receiving cash with which to make distributions in amounts necessary to satisfy the distribution requirements for
avoiding U.S. federal income and excise taxes. Because these and other tax rules applicable to these types of transactions
are in some cases uncertain under current law, an adverse determination or future guidance by the IRS with respect to these rules (which
determination or guidance could be retroactive) may affect whether the Fund has made sufficient distributions, and otherwise satisfied
the relevant requirements, to maintain its qualification as a regulated investment company and avoid a Fund-level tax. The Fund
will monitor its transactions and will make the appropriate entries in its books and records when it acquires an option, futures
contract, forward contract, hedge instrument, swap or other similar investment, and if the Fund deems it advisable, will make appropriate
elections in order to mitigate the effect of these rules, prevent disqualification of the Fund as a regulated investment company
and minimize the imposition of U.S. federal income and excise taxes.
Certain of the
Fund’s investments in derivative instruments and foreign currency denominated instruments, and any of the Fund’s transactions
in foreign currencies and hedging activities, are likely to produce a difference between its book income and the sum of its taxable
income (including realized capital gains) and net tax-exempt income (if any). If such a difference arises and the Fund’s
book income is less than the sum of its taxable income (including realized capital gains) and net tax-exempt income (if any), the
Fund could be required to make distributions exceeding book income to qualify as a regulated investment company that is accorded
special tax treatment and to avoid a Fund-level tax. If the Fund’s book income exceeds the sum of its taxable income (including
realized capital gains) and net tax-exempt income (if any), the distribution (if any) of such excess generally will be treated
as (i) a dividend to the extent of the Fund’s remaining current and accumulated earnings and profits (including earnings
and profits arising from tax-exempt income), if any, (ii) thereafter, as a return of capital to the extent of the recipient’s
adjusted tax basis in its shares and (iii) thereafter, as gain from the sale or exchange of a capital asset.
In general,
option premiums received by the Fund are not immediately included in the income of the Fund. Instead, the premiums are recognized
when the option contract expires, the option is exercised by the holder, or the Fund transfers or otherwise terminates the option
(e.g., through a closing transaction). If a call option written by the Fund is exercised and the Fund sells or delivers the underlying
stock, the Fund generally will recognize capital gain or loss equal to (a) the sum of the strike price and the option premium
received by the Fund minus (b) the Fund’s basis in the stock. Such gain or loss generally will be short-term or long-term
depending upon the holding period of the underlying stock. If securities are purchased by the Fund pursuant to the exercise of
a put option written by it, the Fund generally will subtract the premium received for purposes of computing its cost basis in
the securities purchased. The termination of the Fund’s obligation under an option other than through the exercise of the
option will result in gain or loss, depending on whether the premium income received by the Fund is greater or less than the amount
paid by the Fund (if any) in terminating the transaction. Subject to certain exceptions, some of which are described below, such
gain or loss generally will be short-term. Thus, for example, if an option written by the Fund expires unexercised, the Fund generally
will recognize short-term gain equal to the premium received.
The Fund’s
options activities may include transactions constituting straddles for U.S. federal income tax purposes, that is, that trigger
the U.S. federal income tax straddle rules contained primarily in Section 1092 of the Code. Such straddles include,
for example, positions in a particular security, or an index of securities, and one or more options that offset the former position,
including options that are “covered” by the Fund’s long position in the subject security. Very generally, where
applicable, Section 1092 requires (i) that losses be deferred on positions deemed to be offsetting positions with respect
to “substantially similar or related property,” to the extent of unrealized gain in the latter, and (ii) that
the holding period of such a straddle position that has not already been held for the long-term holding period be terminated and
begin anew once the position is no longer part of a straddle. Options on single stocks that are not “deep in the money”
may constitute qualified covered calls, which generally are not subject to the straddle rules; the holding period on stock underlying
qualified covered calls that are “in the money” although not “deep in the money” will be suspended during
the period that such calls are outstanding. These straddle rules and the rules governing qualified covered calls could
cause gains that would otherwise constitute long-term capital gains to be treated as short-term capital gains, and distributions
that would otherwise constitute “qualified dividend income” or qualify for the dividends received deduction to fail
to satisfy the holding period requirements and therefore to be taxed as ordinary income or to fail to qualify for the dividends
received deduction, as the case may be.
The Fund’s
transactions in certain investments (including broad based equity index options and certain other futures contracts) are generally
considered “Section 1256 contracts” for federal income tax purposes. Any unrealized gains or losses on such Section 1256
contracts are treated as though they were realized at the end of each taxable year. The resulting gain or loss is treated as sixty
percent long-term capital gain or loss and forty percent short-term capital gain or loss, although certain foreign currency gains
and losses from such contracts may be treated as ordinary in character. Gain or loss recognized on actual sales of Section 1256
contracts is treated in the same manner. As noted below, distributions of net short-term capital gain are taxable to shareholders
as ordinary income while distributions of net long-term capital gain that are properly reported as capital gain dividends are
taxable to shareholders as long-term capital gain, regardless of how long the shareholder has held shares of the Fund.
The Fund’s
entry into a short sale transaction, an option or certain other contracts could be treated as the constructive sale of an appreciated
financial position, causing the Fund to realize gain, but not loss, on the position.
Any investment
by the Fund in equity securities of REITs may result in the Fund’s receipt of cash in excess of the REIT’s earnings;
if the Fund distributes these amounts, these distributions could constitute a return of capital to Fund shareholders for U.S.
federal income tax purposes. Dividends received by the Fund from a REIT will not qualify for the corporate dividends-received
deduction and generally will not constitute qualified dividend income. The Fund may invest in REITs that hold residual interests
in real estate mortgage investment conduits (“REMICs”). Under a notice issued by the IRS, a portion of the Fund’s
income from a REIT that is attributable to the REIT’s residual interest in a REMIC (referred to in the Code as an “excess
inclusion”) will be subject to U.S. federal income tax in all events. This notice also provides that excess inclusion income
of a regulated investment company, such as the Fund, will be allocated to shareholders of the regulated investment company in
proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related
REMIC residual interest directly. In general, excess inclusion income allocated to shareholders (i) cannot be offset by net
operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business
taxable income (“UBTI”) to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan,
a Keogh plan or other tax-exempt entity) subject to federal income tax on unrelated business income, thereby potentially requiring
such an entity that is allocated excess inclusion income, and otherwise might not be required to file a federal income tax return,
to file a tax return and pay tax on such income, and (iii) in the case of a foreign shareholder, will not qualify for any
reduction in U.S. federal withholding tax. In addition, special tax consequences apply to charitable remainder trusts (“CRTs”)
that invest in regulated investment companies that invest directly or indirectly in residual interests in REMICs. Under legislation
enacted in December 2006, a CRT, as defined in Section 664 of the Code, that realizes any UBTI for a taxable year, must
pay an excise tax annually of an amount equal to such UBTI. Under IRS guidance issued in 2006, a CRT will not recognize UBTI solely
as a result of investing in a regulated investment company that recognizes “excess inclusion income.” Rather, if at
any time during any taxable year a CRT (or one of certain other tax-exempt shareholders, such as the United States, a state or
political subdivision, or an agency or instrumentality thereof, and certain energy cooperatives) is a record holder of a share
in a regulated investment company that recognizes “excess inclusion income,” then the regulated investment company
will be subject to a tax on that portion of its “excess inclusion income” for the taxable year that is allocable to
such shareholders at the highest federal corporate income tax rate. The extent to which this IRS guidance remains applicable in
light of the December 2006 legislation is unclear. To the extent permitted under the 1940 Act, the Fund may elect to specially
allocate any such tax to the applicable CRT, or other shareholder, and thus reduce such shareholder’s distributions for
the year by the amount of the tax that relates to such shareholder’s interest in the Fund. The Fund has not yet determined
whether such an election will be made. CRTs and other tax-exempt shareholders are urged to consult their tax advisers concerning
the consequences of investing in the Fund. The Fund does not intend to invest in REITs in which a substantial portion of the assets
will consist of residual interests in REMICs.
The Fund
may be subject to withholding and other taxes imposed by foreign countries, including taxes on interest, dividends and capital
gains with respect to its investments in those countries, which would, if imposed, reduce the yield on or return from those investments.
If more than 50% of the value of the Fund’s assets at the close of the taxable year consists of stock or securities of foreign
corporations, the Fund may make an election under the Code to pass through such taxes to shareholders of the Fund. If the Fund
is eligible to and makes such an election, shareholders will generally be able (subject to applicable limitations under the Code)
to claim a credit or deduction (but not both) on their federal income tax return for, and will be required to treat as part of
the amounts distributed to them, their pro rata portion of the income taxes paid by the Fund to foreign countries. If the Fund
makes such an election, it will provide relevant information to its shareholders. If such an election is not made, shareholders
will not be required to include such taxes in their gross incomes and will not be entitled to a tax deduction or credit for such
taxes on their own federal income tax returns. Each prospective investor is urged to consult its tax adviser regarding taxation
of foreign securities in the Fund’s portfolio and any available foreign tax credits with respect to the prospective investor’s
own situation.
Common Shares and Preferred Shares
Common Share
Distributions. Unless a shareholder is ineligible to participate or elects otherwise, all distributions on common shares will
be automatically reinvested in additional common shares of the Fund pursuant to the Automatic Dividend Reinvestment Plan (the “Dividend
Reinvestment Plan”). For U.S. federal income tax purposes, dividends are generally taxable whether a shareholder takes them
in cash or they are reinvested pursuant to the Dividend Reinvestment Plan in additional shares of the Fund.
Distributions
of investment company taxable income (determined without regard to the deduction for dividends paid), which includes dividends,
taxable interest, net short-term capital gain in excess of net long-term capital loss, taking into account certain capital loss
carryforwards and certain net foreign currency exchange gains, are, except as discussed below, taxable as ordinary income to the
extent of the Fund’s current and accumulated earnings and profits. A portion of such dividends may qualify for the dividends
received deduction available to corporations under Section 243 of the Code and the reduced rate of taxation under Section 1(h)(11)
of the Code that applies to qualified dividend income received by noncorporate shareholders. In general, dividends of net investment
income received by corporate shareholders of the Fund qualify for the dividends received deduction generally available to corporations
only to the extent of the amount of eligible dividends received by the Fund from domestic corporations (other than REITs) for
the taxable year. Qualified dividend income received by noncorporate shareholders is taxed at rates equivalent to long-term capital
gain tax rates. Qualified dividend income generally includes dividends from domestic corporations and dividends from foreign corporations
that meet certain specified criteria, although dividends paid by REITs will not generally be eligible for treatment as qualified
dividend income. The Fund generally can pass the tax treatment of dividends eligible for the dividends received deduction and
qualified dividend income it receives through to Fund shareholders. For the Fund to receive tax-advantaged dividend income, the
Fund must meet certain holding period requirements with respect to the stock on which the dividend is paid. In addition, the Fund
cannot be obligated to make payments (pursuant to a short sale or otherwise) with respect to substantially similar or related
property. Similar provisions, including holding period requirements, apply to each shareholder’s investment in the Fund.
Moreover, the dividends received deduction may otherwise be disallowed or reduced by application of various provisions of the
Code (for instance, the dividends received deduction is reduced in the case of a dividend received on debt-financed portfolio
stock (generally, stock acquired with borrowed funds)).
Distributions
of net capital gain, if any, that are properly reported as capital gain dividends are generally taxable as long-term capital gains
for U.S. federal income tax purposes without regard to the length of time the shareholder has held shares of the Fund. The IRS
and the Department of the Treasury have issued regulations that impose special rules in respect of capital gain dividends
received through partnership interests constituting “applicable partnership interests” under Section 1061 of
the Code. A distribution of an amount in excess of the Fund’s current and accumulated earnings and profits, if any, will
be treated by a shareholder as a tax-free return of capital which is applied against and reduces the shareholder’s basis
in his or her shares. Such distributions represent a return of the investor’s capital to the extent of his or her basis
in the shares. To the extent that the amount of any such distribution exceeds the shareholder’s basis in his or her shares,
the excess will be treated by the shareholder as gain from the sale or exchange of shares. The U.S. federal income tax status
of all distributions will be reported to the shareholders annually.
Distributions
by the Fund to its shareholders that the Fund properly reports as “section 199A dividends,” as defined and subject
to certain conditions described below, are treated as qualified REIT dividends in the hands of non-corporate shareholders. Non-corporate
shareholders are permitted a federal income tax deduction equal to 20% of qualified REIT dividends received by them, subject to
certain limitations. Very generally, a “section 199A dividend” is any dividend or portion thereof that is attributable
to certain dividends received by a regulated investment company from REITs, to the extent such dividends are properly reported
as such by the regulated investment company in a written notice to its shareholders. A section 199A dividend is treated as a qualified
REIT dividend only if the shareholder receiving such dividend holds the dividend-paying regulated investment company shares for
at least 46 days of the 91-day period beginning 45 days before the shares become ex-dividend, and is not under an obligation to
make related payments with respect to a position in substantially similar or related property. The Fund is permitted to report
such part of its dividends as section 199A dividends as are eligible, but is not required to do so.
If the Fund
retains any net capital gain, the Fund may report the retained amount as undistributed capital gains to shareholders who, if subject
to U.S. federal income tax on long-term capital gains, (i) will be required to include in income, as long-term capital gain,
their proportionate share of such undistributed amount, and (ii) will be entitled to credit their proportionate share of
the federal income tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any,
and to claim refunds to the extent the credit exceeds such liabilities. If the Fund makes this designation, for U.S. federal income
tax purposes, the tax basis of shares owned by a shareholder of the Fund will be increased by the difference between the amount
of undistributed net capital gain included in the shareholder’s gross income and the federal income tax deemed paid by the
shareholder.
If a shareholder’s
distributions are automatically reinvested pursuant to the Dividend Reinvestment Plan and the plan agent invests the distribution
in shares acquired on behalf of the shareholder in open-market purchases, for U.S. federal income tax purposes, the shareholder
will be treated as having received a taxable distribution in the amount of the cash dividend that the shareholder would have received
if the shareholder had elected to receive cash. If a shareholder’s distributions are automatically reinvested pursuant to
the Dividend Reinvestment Plan and the plan agent invests the distribution in newly issued shares of the Fund, the shareholder
will generally be treated as receiving a taxable distribution equal to the fair market value of the shares the shareholder receives.
At the time of
an investor’s purchase of the Fund’s shares, a portion of the purchase price may be attributable to unrealized appreciation
in the Fund’s portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions by the Fund with
respect to these shares from such appreciation or income may be taxable to such investor even if the net asset value of the investor’s
shares is, as a result of the distributions, reduced below the investor’s cost for such shares and the distributions economically
represent a return of a portion of the investment.
Any dividend
declared by the Fund in October, November or December with a record date in such a month and paid during the following
January will be treated for U.S. federal income tax purposes as paid by the Fund and received by shareholders on December 31
of the calendar year in which it is declared.
Preferred
Share Distributions. Under present law and based in part on the fact that there is and will be no express or implied agreement
between or among a broker-dealer or any other party, and the Fund or any owners of preferred shares, that the broker-dealer or
any other party will guarantee or otherwise arrange to ensure that an owner of preferred shares will be able to sell his or her
shares, the Fund has treated, and intends to continue to treat, the preferred shares as equity for federal income tax purposes.
As such, distributions with respect to the preferred shares (other than distributions in redemption of the preferred shares subject
to Section 302(b) of the Code) will generally constitute dividends to the extent of the Fund’s current and accumulated
earnings and profits, as calculated for U.S. federal income tax purposes. Except in the case of net capital gain distributions,
such dividends generally will be taxable at ordinary income tax rates to holders of preferred shares but may qualify for the dividends
received deduction available to corporate shareholders under Section 243 of the Code and the reduced rates of federal income
taxation that apply to qualified dividend income received by noncorporate shareholders under Section 1(h)(11) of the Code.
Distributions reported by the Fund as net capital gain distributions will be taxable as long-term capital gain regardless of the
length of time a shareholder has held shares of the Fund. Please see the discussion above on qualified dividend income, dividends
received deductions and net capital gain.
The character
of the Fund’s income will not affect the amount of dividends which the holders of preferred shares are entitled to receive.
If the preferred shares are auction rate securities, holders of preferred shares are entitled to receive only the amount of dividends
as determined by periodic auctions. For U.S. federal income tax purposes, the IRS requires that a regulated investment company
that has two or more classes of shares allocate to each such class proportionate amounts of each type of its income (such as ordinary
income and net capital gain) for each tax year. Accordingly, the Fund intends to report distributions made with respect to the
common shares and preferred shares as consisting of particular types of income (e.g., net capital gain and ordinary income), in
accordance with each class’s proportionate share of the total dividends paid to both classes. Thus, each year the Fund will
report dividends qualifying for the corporate dividends received deduction, qualified dividend income, ordinary income and net
capital gains in a manner that allocates such income between the preferred shares and common shares in proportion to the total
dividends made to each class with respect to such taxable year, or otherwise as required by applicable law. In addition, solely
for the purpose of satisfying the 90% distribution requirement and the distribution requirement for avoiding income taxes, certain
distributions made after the close of a taxable year of the Fund may be “spilled back” and treated as paid during such
taxable year. In such case, shareholders will be treated as having received such dividends in the taxable year in which the distribution
was actually made. The Fund intends to treat any dividends that are paid following the close of a taxable year as “paid”
in the prior year for purposes of determining a class’s proportionate share of a particular type of income. The IRS has ruled
privately that dividends paid following the close of the taxable year that are treated for federal income tax purposes as derived
from income from the prior year will be treated as dividends “paid” in the prior year for purposes of determining the
proportionate share of a particular type of income for each class. The private ruling is not binding on the IRS, and there can
be no assurance that the IRS will respect such treatment. Each shareholder will be notified of the allocation within 60 days after
the end of the year.
Although the
Fund is required to distribute annually at least 90% of its investment company taxable income (determined without regard to the
deduction for dividends paid), the Fund is not required to distribute net capital gains to the shareholders. The Fund may retain
and reinvest such gains and pay federal income taxes on such gains (the “net undistributed capital gain”). Please see
the discussion above on undistributed capital gains. The Fund intends to distribute its net capital gain for any year during which
it has preferred shares outstanding.
Although dividends
generally will be treated as distributed when paid, dividends declared in October, November or December with a record
date in such a month, and paid in January of the following year, will be treated as having been distributed by the Fund and
received by the shareholders on December 31 of the year in which the dividend was declared.
Earnings and
profits are generally treated, for federal income tax purposes, as first being used to pay distributions on preferred shares, and
then to the extent remaining, if any, to pay distributions on the common shares. Distributions in excess of current and accumulated
earnings and profits of the Fund are treated first as return of capital to the extent of the shareholder’s basis in the shares
and, after the adjusted basis is reduced to zero, will be treated as capital gain to a shareholder who holds such shares as a capital
asset.
If the Fund utilizes
leverage through borrowings, or otherwise, asset coverage limitations imposed by the 1940 Act as well as additional restrictions
that may be imposed by certain lenders on the payment of dividends or distributions potentially could limit or eliminate the Fund’s
ability to make distributions on its common shares and/or preferred shares until the asset coverage is restored. These limitations
could prevent the Fund from distributing at least 90% of its investment company taxable income as is required under the Code and
therefore might jeopardize the Fund’s qualification as a regulated investment company and/or might subject the Fund to a
nondeductible 4% federal excise tax. Upon any failure to meet the asset coverage requirements imposed by the 1940 Act, the Fund
may, in its sole discretion and to the extent permitted under the 1940 Act, purchase or redeem preferred shares in order to maintain
or restore the requisite asset coverage and avoid the adverse consequences to the Fund and its shareholders of failing to meet
the distribution requirements. There can be no assurance, however, that any such action would achieve these objectives. The Fund
will endeavor to avoid restrictions on its ability to distribute dividends.
Sales of Fund
Shares. Sales and other dispositions of the Fund’s shares, including a repurchase by the Fund of its shares, generally
are taxable events for shareholders that are subject to federal income tax. Selling shareholders will generally recognize gain
or loss in an amount equal to the difference between the amount received for such shares and their adjusted tax basis in the shares
sold. If such shares are held as a capital asset at the time of sale, the gain or loss will generally be a long-term capital gain
or loss if the shares have been held for more than one year and, if not held for such period, a short-term capital gain or loss.
Similarly, a repurchase by the Fund, including as a result of a tender offer by the Fund, if any, of all of the shares (common
and preferred) actually and constructively held by a shareholder generally will give rise to capital gain or loss under Section 302(b) of
the Code if the shareholder does not own (and is not regarded under certain federal income tax law rules of constructive ownership
as owning) any other common or preferred shares of the Fund and provided that the proceeds from the purchase do not represent declared
but unpaid dividends. If the Fund repurchases fewer than all of a shareholder’s common shares or a shareholder continues
to hold (directly or by attribution) other Fund shares (including preferred shares if then outstanding) subsequent to a Fund repurchase,
in certain circumstances such shareholder may be treated as having received a distribution under Section 301 of the Code (“Section 301
distribution”) unless the repurchase is treated as being either (i) “substantially disproportionate” with
respect to such shareholder or (ii) otherwise “not essentially equivalent to a dividend” under the relevant rules of
the Code. A Section 301 distribution is not treated as a sale or exchange giving rise to capital gain or loss, but rather
is treated as a dividend to the extent supported by the Fund’s current and accumulated earnings and profits, with the excess
treated as a return of capital reducing the shareholder’s tax basis in its Fund shares, and thereafter as capital gain. Where
a selling shareholder is treated as receiving a dividend, there is a risk that non-selling shareholders whose percentage interests
in the Fund increase as a result of such repurchase will be treated as having received a taxable distribution from the Fund. The
extent of such risk will vary depending upon the particular circumstances of the repurchase, in particular whether such repurchase
is a single and isolated event or is part of a plan for periodically repurchasing the common shares of the Fund; if isolated, any
such risk is likely remote.
Gain or loss
will generally be long-term capital gain or loss if the shares disposed of were held for more than one year and will be short-term
capital gain or loss if the shares disposed of were held for one year or less. Net long-term capital gain recognized by a noncorporate
U.S. shareholder generally will be subject to federal income tax at a lower rate than net short-term capital gain or ordinary income.
For corporate holders, capital gain is generally taxed for federal income tax purposes at the same rate as ordinary income. A holder’s
ability to deduct capital losses may be limited.
Any loss realized
by a shareholder upon the sale or other disposition of shares with a tax holding period of six months or less will be treated as
a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain with respect to such shares.
Losses on sales or other dispositions of shares may be disallowed under “wash sale” rules in the event a shareholder
acquires, or is treated as acquiring, substantially identical stock or securities (including Fund shares acquired pursuant to the
reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after a sale or other disposition
of shares. In such a case, the disallowed portion of any loss generally would be included in the U.S. federal income tax basis
of the shares acquired. Shareholders should consult their own tax advisers regarding their individual circumstances to determine
whether any particular transaction in the Fund’s shares is properly treated as a sale for U.S. federal income tax purposes
and the tax treatment of any gains or losses recognized in such transactions.
Upon the dissolution
of the Fund, shareholders generally will realize capital gain or loss in an amount equal to the difference between the amount of
cash or other property received by the shareholder (including any property deemed received by reason of its being placed in a liquidating
trust) and the shareholder’s adjusted tax basis in shares of the Fund for U.S. federal income tax purposes. Any such gain
or loss will be long-term if the shareholder is treated as having a holding period in Fund shares of greater than one year, and
otherwise will be short-term.
Federal Income
Tax Withholding. Federal law requires that the Fund withhold, as “backup withholding,” a percentage of reportable
payments, including dividends, capital gain distributions and the proceeds of sales or other dispositions of the Fund’s shares
paid to shareholders who have not complied with IRS regulations. In order to avoid this withholding requirement, shareholders must
certify on their account applications, or on a separate IRS Form W-9, that the social security number or other taxpayer identification
number they provide is their correct number and that they are not currently subject to backup withholding, or that they are exempt
from backup withholding. The Fund may nevertheless be required to backup withhold if it receives notice from the IRS or a broker
that the number provided is incorrect or backup withholding is applicable. Backup withholding is not an additional tax. Any amounts
withheld from payments made to a shareholder may be refunded or credited against such shareholder’s U.S. federal income tax
liability, if any, provided that the required information is furnished to the IRS.
Other Matters.
Treasury regulations provide that if a shareholder recognizes a loss with respect to shares of $2 million or more in a single taxable
year (or $4 million or more in any combination of taxable years in which the transaction is entered into and the five succeeding
taxable years) for a shareholder who is an individual, S corporation or trust or $10 million or more for a corporate shareholder
in any single taxable year (or $20 million or more in any combination of taxable years in which the transaction is entered into
and the five succeeding taxable years), the shareholder must file with the IRS a disclosure statement on Form 8886. Direct
shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders
of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement
to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does
not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult
their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
Special tax rules apply
to investments through defined contribution plans and other tax-qualified plans. Shareholders should consult their tax advisers
to determine the suitability of shares of the Fund as an investment through such plans and the precise effect of an investment
on their particular tax situation.
Taxation of
Non-U.S. Shareholders. The description of certain federal income tax provisions above relates only to U.S. federal income tax
consequences for shareholders who are U.S. persons (i.e., U.S. citizens or resident aliens or U.S. corporations, partnerships,
trusts or estates who are subject to U.S. federal income tax on a net income basis). Investors other than U.S. persons, including
non-resident alien individuals, may be subject to different U.S. federal income tax treatment. With respect to such persons, the
Fund must generally withhold U.S. federal withholding tax at the rate of 30% (or, if the Fund receives certain certifications from
such non-U.S. shareholder, such lower rate as prescribed by an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund. However, the Fund is not required to withhold tax on any amounts paid to a non-U.S. person with respect to capital
gain dividends (that is, distributions of net capital gain that are properly reported by the Fund as capital gain dividends), dividends
attributable to “qualified short-term gain” (i.e., the excess of net short-term capital gain over net long-term capital
loss) reported as such by the Fund and dividends attributable to certain U.S. source interest income of types similar to those
not subject to federal withholding tax if earned directly by a non-U.S. person, provided such amounts are properly reported by
the Fund. Shareholders should consult their own tax advisers on these matters and on any specific question of U.S. federal,
state, local, foreign and other applicable tax laws before making an investment in the Fund.
Debt Securities
Under present
law, the Fund intends to treat the debt securities as indebtedness for federal income tax purposes, which treatment the discussion
below assumes. We intend to treat all payments made with respect to the debt securities consistent with this characterization.
The following discussion assumes that all interest on the debt securities will be qualified stated interest (which is generally
interest that is unconditionally payable at least annually at a fixed or qualified floating rate), and that the debt securities
will have a fixed maturity date of more than one year from the date of issuance.
Taxation of
Interest. Payments or accruals of interest on debt securities generally will be taxable to holders as ordinary interest income
at the time such interest is received (actually or constructively) or accrued, in accordance with the holder’s regular method
of accounting for federal income tax purposes.
Purchase,
Sale and Redemption of Debt Securities. Initially, a holder’s tax basis in debt securities acquired generally will be
equal to the cost to acquire such debt securities. This basis will be increased by the amounts, if any, that the holder includes
in income under the rules governing OID (taking into account any acquisition premium that offsets such OID) and market discount,
and will be decreased by the amount of any amortized premium on such debt securities, as discussed below, and any payments on such
debt securities other than stated interest. When the holder sells, exchanges or redeems any of its debt securities, or otherwise
disposes of its debt securities in a taxable transaction, the holder generally will recognize gain or loss equal to the difference
between the amount realized on the transaction (less any accrued and unpaid interest (including any OID), which will be subject
to federal income tax as interest in the manner described above) and the tax basis in the debt securities relinquished.
Except as discussed
below with respect to market discount, the gain or loss recognized on the sale, exchange, redemption or other taxable disposition
of any debt securities generally will be capital gain or loss. Such gain or loss will generally be long-term capital gain or loss
if the disposed debt securities were held for more than one year and will be short-term capital gain or loss if the disposed debt
securities were held for one year or less. Net long-term capital gain recognized by a noncorporate U.S. holder generally will be
subject to federal income tax at a lower rate than net short-term capital gain or ordinary income. For corporate holders, capital
gain is generally taxed for federal income tax purposes at the same rate as ordinary income. A holder’s ability to deduct
capital losses may be limited.
Amortizable
Premium. If a holder purchases debt securities at a cost greater than their stated redemption price at maturity, plus accrued
interest, the holder will be considered to have purchased the debt securities at a premium, and generally may elect to amortize
this premium as an offset to interest income, using a constant yield method, over the remaining term of the debt securities. If
the holder makes the election to amortize the premium, it generally will apply to all debt instruments held at the beginning of
the first taxable year to which the election applies, as well as any debt instruments that were subsequently acquired. In addition,
the holder may not revoke the election without the consent of the IRS. If the holder elects to amortize the premium, it will be
required to reduce its tax basis in the debt securities by the amount of the premium amortized during its holding period. If the
holder does not elect to amortize premium, the amount of premium will be included in the holder’s tax basis in the debt securities.
Therefore, if the holder does not elect to amortize the premium and holds the debt securities to maturity, the holder generally
will be required to treat the premium as a capital loss when the debt securities are redeemed.
Original Issue
Discount. If the stated redemption price at maturity of the debt securities exceeds their issue price by at least the statutory
de minimis amount, the debt securities will be treated as being issued with OID for U.S. federal income tax purposes. The
stated redemption price at maturity includes all payments on the debt securities other than qualified stated interest, which is
generally interest that is unconditionally payable at least annually at a fixed or qualified floating rate. If the debt securities
are issued with OID, you will be required to include such OID in gross income (as ordinary income) as it accrues over the term
of the debt securities on a constant-yield basis, in advance of the receipt of cash attributable to that income and regardless
of your regular method of accounting for U.S. federal income tax purposes.
Acquisition
Premium. If a holder purchases debt securities that were issued with OID at a cost greater than their issue price and less
than or equal to their stated redemption price at maturity, the holder will be considered to have purchased the debt securities
with acquisition premium. Such holder will generally be permitted to reduce the daily portions of OID required to be included in
income by a fraction, the numerator of which is the excess of the holder’s initial basis in the debt securities over the
debt securities’ issue price, and the denominator of which is the excess of the redemption price at maturity of the debt
securities over their issue price.
Market Discount.
If the holder purchases debt securities in the secondary market at a price that reflects a “market discount,” any
principal payments on, or any gain that the holder realized on the disposition of, the debt securities generally will be treated
as ordinary interest income to the extent of the market discount that accrued on the debt securities during the time such debt
securities were held. “Market discount” is defined under the Code as, in general, the excess (subject to a statutory
de minimis amount) of the stated redemption price at maturity (or in the case of an obligation issued with OID, its “revised
issue price”) over the purchase price of the debt security. In addition, the holder may be required to defer the deduction
of all or a portion of any interest paid on any indebtedness incurred or continued to purchase or carry the debt securities that
were acquired at a market discount.
The holder may
elect to include market discount in gross income currently as it accrues (on either a ratable or constant yield basis), in lieu
of treating a portion of any gain realized on a sale of the debt securities as ordinary income. If the holder elects to include
market discount on a current basis, the interest deduction deferral rule described above will not apply and the holder will
increase its basis in the debt security by the amount of market discount included in gross income. If the holder does make such
an election, it will apply to all market discount debt instruments acquired on or after the first day of the first taxable year
to which the election applies. This election may not be revoked without the consent of the IRS.
Information
Reporting and Backup Withholding. In general, information reporting requirements will apply to payments of principal, interest,
and premium, if any, paid on debt securities and to the proceeds of the sale of debt securities paid to U.S. holders other than
certain exempt recipients (such as certain corporations) provided they establish such exemption. Information reporting generally
will apply to payments of interest on the debt securities to non-U.S. Holders (as defined below) and the amount of tax, if any,
withheld with respect to such payments. Copies of the information returns reporting such interest payments and any withholding
may also be made available to the tax authorities in the country in which the non-U.S. Holder resides under the provisions of an
applicable income tax treaty. In addition, for non-U.S. Holders, information reporting will apply to the proceeds of the sale of
debt securities within the United States or conducted through United States-related financial intermediaries unless the certification
requirements described below have been complied with and the statement described below in “Taxation of Non-U.S. Holders”
has been received (and the payor does not have actual knowledge or reason to know that the holder is a United States person) or
the holder otherwise establishes an exemption.
We may be required
to withhold, for U.S. federal income tax purposes, a portion of all payments (including redemption proceeds) payable to holders
of debt securities who fail to provide us with their correct taxpayer identification number, who fail to make required certifications
or who have been notified by the IRS that they are subject to backup withholding (or if we have been so notified). Certain corporate
and other shareholders specified in the Code and the regulations thereunder are exempt from backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the holder’s U.S. federal income tax liability, provided
the appropriate information is furnished to the IRS.
A holder who
is a non-U.S. Holder may have to comply with certification procedures to establish its non-U.S. status in order to avoid backup
withholding tax requirements. The certification procedures required to claim the exemption from withholding tax on interest income
described below with respect to non-U.S. Holders will satisfy these requirements.
Taxation of
Non-U.S. Holders. If a holder is a non-resident alien individual or a foreign corporation (a “non-U.S. Holder”),
the payment of interest on the debt securities generally will be considered “portfolio interest” and thus generally
will be exempt from U.S. federal withholding tax. This exemption will apply to the holder provided that (1) interest paid
on the debt securities is not effectively connected with the holder’s conduct of a trade or business in the United States,
(2) the holder is not a bank whose receipt of interest on the debt securities is described in Section 881(c)(3)(A) of
the Code, (3) the holder does not actually or constructively own 10 percent or more of the combined voting power of all classes
of our stock entitled to vote, (4) the holder is not a controlled foreign corporation that is related, directly or indirectly,
to us through stock ownership, and (5) the holder satisfies the certification requirements described below.
To satisfy the
certification requirements, either (1) the holder of any debt securities must certify, under penalties of perjury, that such
holder is a non-U.S. person and must provide such owner’s name, address and taxpayer identification number, if any, on IRS
Form W-8BEN or W-8BEN-E, or (2) a securities clearing organization, bank or other financial institution that holds customer
securities in the ordinary course of its trade or business and holds the debt securities on behalf of the holder thereof must certify,
under penalties of perjury, that it has received a valid and properly executed IRS Form W-8BEN or W-8BEN-E from the beneficial
holder and comply with certain other requirements. Special certification rules apply for debt securities held by a foreign
partnership and other intermediaries.
Interest
on debt securities received by a non-U.S. Holder that is not excluded from U.S. federal withholding tax under the portfolio interest
exemption as described above generally will be subject to withholding at a 30% rate, except where (1) the interest is effectively
connected with the conduct of a U.S. trade or business, in which case the interest will be subject to U.S. income tax on a net
basis at graduated rates as applicable to U.S. holders generally (and, in the case of corporate non-U.S. Holders, may be subject
to an additional 30% branch profits tax) or (2) a non-U.S. Holder can claim the benefits of an applicable income tax treaty
to reduce or eliminate such withholding tax. To claim the benefit of an income tax treaty or to claim an exemption from withholding
because the interest is effectively connected with a U.S. trade or business, a non-U.S. Holder must timely provide the appropriate,
properly executed IRS forms. These forms may be required to be periodically updated. Also, a non-U.S. Holder who is claiming the
benefits of an income tax treaty may be required to obtain a U.S. taxpayer identification number and to provide certain documentary
evidence issued by foreign governmental authorities to prove residence in the foreign country.
Any capital
gain that a non-U.S. Holder realizes on a sale, exchange or other disposition of debt securities generally will be exempt from
U.S. federal income tax, including withholding tax. This exemption will not apply to a holder whose gain is effectively connected
with the conduct of a trade or business in the U.S. or who is an individual holder and is present in the U.S. for a period or
periods aggregating 183 days or more in the taxable year of the disposition and, in each case, certain other conditions are met.
See “Information
Reporting and Backup Withholding” above for a general discussion of information reporting and backup withholding requirements
applicable to non-U.S. Holders.
Other Tax Matters
Medicare Tax
on Certain Investment Income. Certain noncorporate taxpayers are subject to an additional tax of 3.8% with respect to the lesser
of (1) their “net investment income” (or undistributed “net investment income” in the case of an estate
or trust) or (2) the excess of their “modified adjusted gross income” over a threshold amount ($250,000 for married
persons filing jointly and $200,000 for single taxpayers). For this purpose, “net investment income” includes interest,
dividends (including dividends paid with respect to shares), annuities, royalties, rent, net gain attributable to the disposition
of property not held in a trade or business (including net gain from the sale, exchange or other taxable disposition of shares)
and certain other income, but will be reduced by any deductions properly allocable to such income or net gain.
Other Reporting
and Withholding Requirements. Sections 1471-1474 of the Code and the U.S. Treasury and IRS guidance issued thereunder (collectively,
“FATCA”) generally require the Fund to obtain information sufficient to identify the status of each of its shareholders
and holders of its debt securities under FATCA or under an applicable intergovernmental agreement (an “IGA”) between
the United States and a foreign government. If a shareholder or holder of debt securities fails to provide the required information
or otherwise fails to comply with FATCA or an IGA, the Fund may be required to withhold under FATCA at a rate of 30% with respect
to that holder on ordinary dividends and interest payments. The IRS and the Department of Treasury have issued proposed regulations
providing that these withholding rules will not be applicable to the gross proceeds of share redemptions or capital gains
dividends that the Fund pays. If a payment by the Fund is subject to FATCA withholding, the Fund is required to withhold even if
such payment would otherwise be exempt from withholding under the rules applicable to non-U.S. persons. Each prospective investor
is urged to consult its tax adviser regarding the applicability of FATCA and any other reporting requirements with respect to the
prospective investor’s own situation, including investments through an intermediary.
Shareholders
that are U.S. persons and own, directly or indirectly, more than 50% of the Fund could be required to report annually their “financial
interest” in the Fund’s “foreign financial accounts,” if any, on FinCEN Form 114, Report of Foreign
Bank and Financial Accounts (FBAR). Shareholders should consult a tax adviser regarding the applicability to them of this reporting
requirement.
Alternative Minimum Tax
Investors may
be subject to the federal alternative minimum tax on their income (including taxable income from the Fund), depending on their
individual circumstances.
CUSTODIAN, TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND REGISTRAR
The Fund’s
securities and cash are held under a custodian agreement with State Street Bank and Trust Company, 100 Lincoln Street, Boston,
Massachusetts 02111. The transfer agent, dividend disbursing agent and registrar for the Fund’s shares is Computershare Investor
Services, P.O. Box 505000, Louisville, KY 40233- 5000.
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Deloitte &
Touche LLP, 111 S. Wacker Drive, Chicago, IL 60606, serves as our independent registered public accounting firm. Deloitte &
Touche LLP provides audit and audit-related services and consultation in connection with the review of our filing with the SEC.
ADDITIONAL INFORMATION
A Registration
Statement on Form N-2, including amendments thereto, relating to the securities offered hereby, has been filed by the Fund
with the SEC, Washington, D.C. The prospectus, any prospectus supplement and this Statement of Additional Information do not contain
all of the information set forth in the Registration Statement, including any exhibits and schedules thereto. For further information
with respect to the Fund and the securities offered hereby, reference is made to the Registration Statement. Statements contained
in the prospectus, prospectus supplement and this Statement of Additional Information as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference.
A copy of the Registration Statement may be reviewed on the SEC’s website at http://www.sec.gov.
ADDITIONAL INFORMATION
CONCERNING THE AGREEMENT AND DECLARATION OF TRUST
The Fund’s
Agreement and Declaration of Trust provides that the Fund’s Trustees shall have the power to cause each shareholder to pay
directly, in advance or arrears, for charges of the Fund’s custodian or transfer, shareholder servicing or similar agent,
an amount fixed from time to time by the Trustees, by setting off such charges due from such shareholder from declared but unpaid
dividends owed such shareholder and/or by reducing the number of shares in the account of such shareholder by that number of full
and/or fractional shares which represents the outstanding amount of such charges due from such shareholder. The Fund has no present
intention of relying on this provision of the Agreement and Declaration of Trust and would only do so if consistent with the 1940
Act or the rules and regulations or interpretations of the SEC thereunder.
Financial
Statements
The
Fund’s financial statements, including the notes thereto, appearing in the Fund’s annual shareholder report for the year ended October 31,
2020 are incorporated by reference in this Statement of Additional Information and have been so incorporated in reliance upon
the reports of Deloitte & Touche LLP, independent registered public accounting firm for the Fund, which report is included
in such annual shareholder reports and is incorporated by reference herein.
The
annual shareholder report is available without charge on its website at www.calamos.com or by request in writing to the
Fund at 2020 Calamos Court, Naperville, IL 60564.
You may obtain copies of
any information incorporated by reference into this Statement of Additional Information, at no charge, by calling toll-free 800.582.6959
or by writing to the Fund at 2020 Calamos Court, Naperville, IL 50463. The Fund’s periodic reports filed pursuant to
Section 30(b)(2) of the 1940 Act and Sections 13 and 15(d) of the Exchange Act, as well as the prospectus and this
Statement of Additional Information, are available on the Fund’s website http://www.calamos.com. In addition, the Commission
maintains a website at www.sec.gov, free of charge, that contains these reports, the Fund’s proxy statement and information
statements, and other information relating to the Fund.
APPENDIX A –
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE AND
FORM OF SUPPLEMENTAL INDENTURE
The following
is a summary of certain provisions of the indenture (the “Original Indenture”) and the supplemental indenture (“Supplemental
Indenture”) that the Fund expects to enter into in connection with the issuance of debt securities. This summary does not
purport to be complete and is qualified in its entirety by reference to the indenture, a copy of which will be filed with the Commission
in connection with an offering of debt securities by the Fund.
DEFINITIONS
“‘AA’
Composite Commercial Paper Rate” on any date means (i) the interest equivalent of (1) the 7-day rate, in
the case of a Rate Period which is 7 days or shorter, (2) the 30-day rate, in the case of a Rate Period which is a
Standard Rate Period greater than 7 days but fewer than or equal to 31 days, or (3) the 180-day rate, in the case of all
other Rate Periods, on financial commercial paper on behalf of issuers whose corporate bonds are rated “AA” by
S&P, or the equivalent of such rating by another nationally recognized rating agency, as announced by the Federal Reserve
Bank of New York for the close of business on the Business Day immediately preceding such date; or (ii) if the Federal
Reserve Bank of New York does not make available such a rate, then the arithmetic average of the interest equivalent of such
rates on financial commercial paper placed on behalf of such issuers, as quoted on a discount basis or otherwise by the
Commercial Paper Dealers to the Auction Agent for the close of business on the Business Day immediately preceding such date
(rounded to the next highest .001 of 1%). If any Commercial Paper Dealer does not quote a rate required to determine the
“AA” Composite Commercial Paper Rate, such rate shall be determined on the basis of the quotations (or quotation)
furnished by the remaining Commercial Paper Dealers (or Dealer), if any, or, if there are no such Commercial Paper Dealers, a
nationally recognized dealer in commercial paper of such issues then making such quotations selected by the Issuer. For
purposes of this definition, (A) “Commercial Paper Dealers” shall mean (1) and ; (2) in lieu of
any thereof, its respective Affiliate or successor; and (3) in the event that any of the foregoing shall cease to quote
rates for financial commercial paper of issuers of the sort described above, in substitution therefor, a nationally
recognized dealer in financial commercial paper of such issuers then making such quotations selected by the Issuer, and
(B) “interest equivalent” of a rate stated on a discount basis for financial commercial paper of a given
number of days’ maturity shall mean a number equal to the quotient (rounded upward to the next higher one-thousandth of
1%) of (1) such rate expressed as a decimal, divided by (2) the difference between (x) 1.00 and (y) a
fraction, the numerator of which shall be the product of such rate expressed as a decimal, multiplied by the number of days
in which such commercial paper shall mature and the denominator of which shall be 360.
“Affiliate”
means any person controlled by, in control of or under common control with the Issuer; provided that no Broker-Dealer controlled
by, in control of or under common control with the Issuer shall be deemed to be an Affiliate nor shall any corporation or any person
controlled by, in control of or under common control with such corporation one of the directors or executive officers of which
is also a Director of the Issuer be deemed to be an Affiliate solely because such director or executive officer is also a Director
of the Issuer.
“Agent
Member” means a member of or participant in the Securities Depository that will act on behalf of a Bidder.
“All Hold Rate” means
80% of the “AA” Composite Commercial Paper Rate.
“Applicable
Rate” means the rate determined in accordance with the procedures in Section 2.02(c)(i) of this Supplemental
Indenture.
“Auction” means each
periodic implementation of the Auction Procedures.
“Auction
Agent” means [ ] unless and until another commercial bank, trust company, or other financial
institution appointed by a resolution of the Board of Directors enters into an agreement with the Issuer to follow the Auction
Procedures for the purpose of determining the Applicable Rate.
“Auction
Agreement” means the agreement between the Auction Agent and the Issuer pursuant to which the Auction Agent agrees to
follow the procedures specified in Appendix A-I to this Supplemental Indenture, as such agreement may from time to time be amended
or supplemented.
“Auction
Date” means the first Business Day next preceding the first day of a Rate Period for each series of [ ]
Notes.
“Auction
Desk” means the business unit of a Broker-Dealer that fulfills the responsibilities of the Broker- Dealer under a Broker-Dealer
Agreement, including soliciting Bids for the Notes, and units of the Broker-Dealer which are not
separated by information controls appropriate to control, limit and monitor the inappropriate dissemination of information about
Bids.
“Auction
Period” means with respect to the Notes, either a Standard Auction Period or a Special
Auction Period, as applicable.
“Auction
Procedures” means the procedures for conducting Auctions set forth in Appendix A-I hereto. “Auction
Rate” means for each series of Notes for each Auction Period, (i) if
Sufficient Clearing Bids exist, the Winning Bid Rate, provided, however, if all of the Notes
are the subject of Submitted Hold Orders, the All Hold Rate for such series
of Notes and (ii) if Sufficient Clearing Bids do not
exist, the Maximum Rate for such series of Notes.
“Authorized Denomination”
means $25,000 and any integral multiple thereof.
“Available Notes”
means for each series of Notes on each Auction Date, the number of Units of Notes of such series
that are not the subject of Submitted Hold Orders.
“Beneficial
Owner,” with respect to each series of Notes, means a customer of a Broker-Dealer who
is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of such series of Notes.
“Bid” shall have
the meaning specified in Appendix A-I hereto.
“Bidder”
means each Beneficial Owner, Potential Beneficial Owner and Broker Dealer who places an Order.
“Board
of Directors” or “Board” means the Board of Directors of the Issuer or any duly authorized committee
thereof as permitted by applicable law.
“Broker-Dealer”
means any broker-dealer or broker-dealers, or other entity permitted by law to perform the function required of a Broker-Dealer
by the Auction Procedures, that has been selected by the Issuer and that is a party to a Broker-Dealer Agreement with the Auction
Agent.
“Broker-Dealer
Agreement” means an agreement between the Auction Agent and a Broker-Dealer, pursuant to which such Broker-Dealer agrees
to follow the Auction Procedures.
“Broker-Dealer
Deadline” means, with respect to an Order, the internal deadline established by the Broker-Dealer through which the
Order was placed after which it will not accept Orders or any change in any Order previously placed with such Broker-Dealer;
provided, however, that nothing shall prevent the Broker- Dealer from correcting Clerical Errors by the Broker-Dealer with
respect to Orders from Bidders after the Broker-Dealer Deadline pursuant to the provisions herein. Any Broker-Dealer may
change the time or times of its Broker-Dealer Deadline as it relates to such Broker-Dealer by giving notice not less than two
Business Days prior to the date such change is to take effect to Bidders who place Orders through such Broker-Dealer.
“Business
Day” means a day on which the New York Stock Exchange is open for trading and which is not a Saturday, Sunday or other
day on which banks in the City of New York, New York are authorized or obligated by law to close, days on which the Federal Reserve
Bank of New York is not open for business, days on which banking institutions or trust companies located in the state in which
the operations of the Auction Agent are conducted are authorized or required to be closed by law, regulation or executive order
of the state in which the Auction Agent conducts operations with respect to the Notes.
“Clerical
Error” means a clerical error in the processing of an Order, and includes, but is not limited to, the following: (i) a
transmission error, including but not limited to, an Order sent to the wrong address or number, failure to transmit certain pages or
illegible transmission, (ii) failure to transmit an Order received from one or more Existing Holders or Potential Beneficial
Owners (including Orders from the Broker-Dealer which were not originated by the Auction Desk) prior to the Broker-Dealer Deadline
or generated by the Broker-Dealer’s Auction Desk for its own account prior to the Submission Deadline or (iii) a typographical
error. Determining whether an error is a “Clerical Error” is within the reasonable judgment of the Broker-Dealer, provided
that the Broker-Dealer has a record of the correct Order that shows it was so received or so generated prior to the Broker- Dealer
Deadline or the Submission Deadline, as applicable.
“Code” means the
Internal Revenue Code of 1986, as amended.
“Commercial
Paper Dealers” has the meaning set forth in the definition of AA Composite Commercial Paper Rate.
“Commission” means
the Securities and Exchange Commission. “Default Rate” means the Reference Rate multiplied by three (3).
“Deposit
Securities” means cash and any obligations or securities, including short term money market instruments that are Eligible
Assets, rated at least , or by ,
except that, such obligations or securities shall be considered “Deposit Securities” only if they are also rated at
least P-2 by Moody’s.
“Discount
Factor” means the Moody’s Discount Factor (if Moody’s is then rating the Notes), Discount Factor (if is
then rating the Notes) or an Other Rating Agency Discount Factor, whichever is applicable.
“Discounted
Value” means the quotient of the Market Value of an Eligible Asset divided by the applicable Discount Factor, provided
that with respect to an Eligible Asset that is currently callable, Discounted Value will be equal to the quotient as calculated
above or the call price, whichever is lower, and that with respect to an Eligible Asset that is prepayable, Discounted Value will
be equal to the quotient as calculated above or the par value, whichever is lower.
“Eligible
Assets” means Moody’s Eligible Assets or ’s Eligible Assets (if
Moody’s or are then rating the Notes) and/or Other Rating Agency Eligible Assets,
whichever is applicable.
“Error
Correction Deadline” means one hour after the Auction Agent completes the dissemination of the results of the
Auction to Broker-Dealers without regard to the time of receipt of such results by any Broker- Dealer; provided, however, in
no event shall the Error Correction Deadline extend past 4:00 p.m., New York City time unless the Auction Agent experiences
technological failure or force majeure in disseminating the Auction results which causes a delay in dissemination past 3:00
p.m., New York City time.
“Existing
Holder,” with respect to Notes of a series, shall mean a Broker-Dealer (or any
such other Person as may be permitted by the Issuer) that is listed on the records of the Auction Agent as a holder of Notes
of such series.
“ ” means Ratings and its
successors at law.
“ Discount
Factor” means the discount factors set forth in the Guidelines
for use in calculating the Discounted Value of the Issuer’s assets in connection with ’s
ratings of Notes.
“ Eligible
Asset” means assets of the Issuer set forth in the Guidelines as eligible for inclusion
in calculating the Discounted Value of the Issuer’s assets in connection with ’s
ratings of Notes.
“ Guidelines”
mean the guidelines provided by , as may be amended from time to time, in connection with ’s
ratings of Notes.
“Hold
Order” shall have the meaning specified in Appendix A-I hereto or an Order deemed to have been submitted as provided
in paragraph (c) of Section 1 of Appendix A-I hereto.
“Holder”
means, with respect to Notes, the registered holder of notes of each series of Notes as the same
appears on the books or records of the Issuer.
“Index”
means on any Auction Date with respect to Notes in any Auction Period of 35 days or less the
applicable LIBOR rate. The Index with respect to Notes in
any Auction Period of more than 35 days shall be the rate on United States Treasury Securities having a maturity which most
closely approximates the length of the Auction Period as last published in The Wall Street Journal or such other source as
may be mutually agreed upon by the Trustee and the Broker-Dealers. If either rate is unavailable, the Index shall be an index
or rate agreed to by all Broker-Dealers and consented to by the Issuer. For the purpose of this definition an Auction Period
of 35 days or less means a 35-day Auction Period or shorter Auction Period, i.e., a 35-day Auction Period which is extended
because of a holiday would still be considered an Auction Period of 35 days or less.
“Interest
Payment Date” when used with respect to any Notes, means the date on which an installment
of interest on such Notes shall be due and payable which generally shall be the day next following
an Auction Date.
“LIBOR”
means, for purposes of determining the Reference Rate, (i) the rate for deposits in U.S. dollars for the designated Rate
Period, which appears on display page 3750 of Moneyline’s Telerate Service (“Telerate Page 3750”)
(or such other page as may replace that page on that service, or such other service as may be selected by Lehman Brothers
Inc. or its successors) as of 11:00 a.m., London time, on the day that is the Business Day on the Auction Date or, if the Auction
Date is not a Business Day, the Business Day preceding the Auction Date (the “LIBOR Determination Date”), or (ii) if
such rate does not appear on Telerate Page 3750 or such other page as may replace such Telerate Page 3750, (A) shall
determine the arithmetic mean of the offered quotations of the reference banks to leading banks in the London interbank market
for deposits in U.S. dollars for the designated Rate Period in an amount determined by by
reference to requests for quotations as of approximately 11:00 a.m. (London time) on such date made by to
the reference banks, (B) if at least two of the reference banks provide such quotations, LIBOR shall equal such arithmetic
mean of such quotations,
(C) if
only one or none of the reference banks provide such quotations, LIBOR shall be deemed to be the arithmetic mean of the
offered quotations that leading banks in The City of New York, New York selected by
(after obtaining the Issuer’s approval) are quoting on the relevant LIBOR
Determination Date for deposits in U.S. dollars for the designated Rate Period in an amount determined
by (after obtaining the Issuer’s approval) that is representative of a single
transaction in such market at such time by reference to the principal London office of leading banks in the London interbank
market; provided, however, that if is not a Broker-Dealer or does not quote a rate required
to determine LIBOR, LIBOR will be determined on the basis of the quotation or quotations furnished by any other Broker-Dealer
selected by the Issuer to provide such rate or rates not being supplied by ; provided
further, that if and/or a substitute Broker- Dealer are required but unable to determine a
rate in accordance with at least one of the procedures provided above, LIBOR shall be the most recently determinable LIBOR.
If the number of Rate Period days shall be (i) 7 or more but fewer than 21 days, such rate shall be the seven-day LIBOR
rate; (ii) more than 21 but fewer than 49 days, such rate shall be one-month LIBOR rate; (iii) 49 or more but fewer
than 77 days, such rate shall be the two-month LIBOR rate; (iv) 77 or more but fewer than 112 days, such rate shall be
the three-month LIBOR rate; (v) 112 or more but fewer than 140 days, such rate shall be the four-month LIBOR rate;
(vi) 140 or more but fewer than 168 days, such rate shall be the five-month LIBOR rate; (vii) 168 or more but fewer
189 days, such rate shall be the six-month LIBOR rate; (viii) 189 or more but fewer than 217 days, such rate shall be
the seven- month LIBOR rate; (ix) 217 or more but fewer than 252 days, such rate shall be the eight-month LIBOR rate;
(x) 252 or more but fewer than 287 days, such rate shall be the nine-month LIBOR rate; (xi) 287 or more but fewer
than 315 days, such rate shall be the ten-month LIBOR rate; (xii) 315 or more but fewer than 343 days, such rate shall
be the eleven-month LIBOR rate; and (xiii) 343 or more days but fewer than 365 days, such rate shall be the twelve-month
LIBOR rate.
“Market
Value” means the market value of an asset of the Issuer determined as follows: For equity securities, the value obtained
from readily available market quotations. If an equity security is not traded on an exchange or not available from a Board-approved
pricing service, the value obtained from written broker-dealer quotations. For fixed-income securities, the value obtained from
readily available market quotations based on the last sale price of a security on the day the Issuer values its assets or the market
value obtained from a pricing service or the value obtained from a direct written broker-dealer quotation from a dealer who has
made a market in the security. “Market Value” for other securities will mean the value obtained pursuant to the Issuer’s
valuation procedures. If the market value of a security cannot be obtained, or the Issuer’s investment adviser determines
that the value of a security as so obtained does not represent the fair value of a security, fair value for that security shall
be determined pursuant to the valuation procedures adopted by the Board of Directors.
“Maximum
Rate” means, on any date on which the Applicable Rate is determined, the rate equal to the applicable percentage of the
Reference Rate, subject to upward but not downward adjustment in the discretion of the Board of Directors after consultation with
the Broker-Dealers, provided that immediately following any such increase the Issuer would be in compliance with the Notes
Basic Maintenance Amount.
“Minimum
Rate” means, on any Auction Date with respect to a Rate Period of days or fewer, 70%
of the AA Composite Commercial Paper Rate at the close of business on the Business Day next preceding such Auction Date. There
shall be no Minimum Rate on any Auction Date with respect to a Rate Period of more than the Standard Rate Period.
“Moody’s”
means Moody’s Investors Service, Inc., a Delaware corporation, and its successors at law. “Moody’s
Discount Factor” means the discount factors set forth in the Moody’s Guidelines for use in calculating the
Discounted Value of the Issuer’s assets in connection with Moody’s ratings
of Notes.
“Moody’s
Eligible Assets” means assets of the Issuer set forth in the Moody’s Guidelines as eligible for inclusion in calculating
the Discounted Value of the Issuer’s assets in connection with Moody’s ratings of Notes.
“Moody’s
Guidelines” mean the guidelines provided by Moody’s, as may be amended from time to time, in connection with Moody’s
ratings of Notes.
“1940
Act Notes Asset Coverage” means asset coverage, as determined in accordance with Section 18(h) of
the Investment Company Act, of at least 300% with respect to all outstanding senior securities representing indebtedness of the
Issuer, including all Outstanding Notes (or such other asset coverage as may in the future be
specified in or under the Investment Company Act as the minimum asset coverage for senior securities representing indebtedness
of a closed-end investment company as a condition of declaring dividends on its common stock), determined on the basis of values
calculated as of a time within 48 hours next preceding the time of such determination.
“Notes”
means Securities of the Issuer ranking on a parity with the Notes that may be issued from time
to time pursuant to the Indenture.
“Order” means a Hold
Order, Bid or Sell Order.
“Original Issue Date”
means, with respect to the Notes, .
“Other
Rating Agency” means each rating agency, if any, other than Moody’s or then providing
a rating for the Notes pursuant to the request of the Issuer.
“Other
Rating Agency Discount Factor” means the discount factors set forth in the Other Rating Agency Guidelines of each Other
Rating Agency for use in calculating the Discounted Value of the Issuer’s assets in connection with the Other Rating Agency’s
rating of Notes.
“Other
Rating Agency Eligible Assets” means assets of the Issuer set forth in the Other Rating Agency Guidelines of each Other
Rating Agency as eligible for inclusion in calculating the Discounted Value of the Issuer’s assets in connection with the
Other Rating Agency’s rating of Notes.
“Other
Rating Agency Guidelines” mean the guidelines provided by each Other Rating Agency, as may be amended from time to time,
in connection with the Other Rating Agency’s rating of Notes.
“Outstanding”
or “outstanding” means, as of any date, Notes theretofore issued by the
Issuer except, without duplication, (i) any Notes theretofore canceled, redeemed or
repurchased by the Issuer, or delivered to the Trustee for cancellation or with respect to which the Issuer has given notice
of redemption and irrevocably deposited with the Paying Agent sufficient funds to redeem
such Notes and
(ii) any Notes represented by any certificate in lieu of
which a new certificate has been executed and delivered by the Issuer. Notwithstanding the foregoing, (A) in connection
with any Auction, any series of Notes as to which the Issuer or any person known to the Auction Agent to be an Affiliate of
the Issuer shall be the Existing Holder thereof shall be disregarded and deemed not to be Outstanding; and (B) for
purposes of determining the Notes Basic Maintenance
Amount, Notes held by the Issuer shall be disregarded and not deemed Outstanding
but Notes held by any Affiliate of the Issuer shall be deemed Outstanding.
“Paying
Agent” means unless and until another entity appointed by a resolution of the Board
of Directors enters into an agreement with the Issuer to serve as paying agent, transfer agent, registrar, and redemption agent
with respect to the Notes, which Paying Agent may be the same
as the Trustee or the Auction Agent.
“Person”
or “person” means and includes an individual, a partnership, a trust, a company, an unincorporated association,
a joint venture or other entity or a government or any agency or political subdivision thereof.
“Potential
Beneficial Owner,” with respect to a series of Notes, shall mean a customer of a
Broker-Dealer that is not a Beneficial Owner of Notes of such series but that wishes to
purchase Notes of such series, or that is a Beneficial Owner of Notes of such series that
wishes to purchase additional Notes of such series; provided, however, that for purposes of
conducting an Auction, the Auction Agent may consider a Broker-Dealer acting on behalf of its customer as a Potential
Beneficial Owner.
“Potential
Holder,” with respect to Notes of such series, shall
mean a Broker-Dealer (or any such other person as may be permitted by the Issuer) that is not an Existing Holder of Notes
of such series or that is an Existing Holder of Notes of such series that wishes to become the
Existing Holder of additional Notes of such series; provided, however, that for purposes of conducting
an Auction, the Auction Agent may consider a Broker-Dealer acting on behalf of its customer as a Potential Holder.
“Rate
Period” means, with respect to a series of Notes, the period commencing on the Original
Issue Date thereof and ending on the date specified for such series on the Original Issue Date thereof and thereafter, as to such
series, the period commencing on the day following each Rate Period for such series and ending on the day established for such
series by the Issuer.
“Rating
Agency” means each of (if is then rating Notes),
Moody’s (if Moody’s is then rating Notes) and any Other Rating Agency.
“Rating
Agency Guidelines” mean Guidelines (if is then rating Notes),
Moody’s Guidelines (if Moody’s is then rating Notes)
and any Other Rating Agency Guidelines.
“Redemption
Date,” when used with respect to any Note to be redeemed, means the date fixed for such
redemption by or pursuant to the Indenture.
“Redemption
Price,” when used with respect to any Note to be redeemed, means the price at which
it is to be redeemed pursuant to the Indenture.
“Reference
Rate” means, with respect to the determination of the Maximum Rate and Default Rate, the greater of (i) the applicable
AA Composite Commercial Paper Rate (for a Rate Period of fewer than 184 days) or the applicable Treasury Index Rate (for a Rate
Period of 184 days or more), or (ii) the applicable LIBOR Rate.
“Securities Act”
means the Securities Act of 1933, as amended from time to time.
“Securities
Depository” means The Depository Trust Company and its successors and assigns or any successor securities depository
selected by the Issuer that agrees to follow the procedures required to be followed by such securities depository in connection
with the Notes Series .
“Sell Order” shall
have the meaning specified in Appendix A-I hereto.
“Special Auction Period”
means an Auction Period that is not a Standard Auction Period. “Special Rate Period” means a Rate Period that
is not a Standard Rate Period.
“Specific
Redemption Provisions” means, with respect to any Special Rate Period of more than one year, either, or any
combination of a period (a “Non-Call Period”) determined by the Board of Directors after consultation with the
Broker-Dealers, during which the Notes subject to such Special Rate Period are not subject
to redemption at the option of the Issuer consisting of a number of whole years as determined by the Board of Directors after
consultation with the Broker-Dealers, during each year of which the Notes subject to such
Special Rate Period shall be redeemable at the Issuer’s option and/or in connection with any mandatory redemption at a
price equal to the principal amount plus accrued but unpaid interest plus a premium expressed as a percentage or percentages
of $25,000 or expressed as a formula using specified variables as determined by the Board of Directors after consultation
with the Broker-Dealers.
“Standard Auction Period”
means an Auction Period of days.
“Standard Rate Period”
means a Rate Period of days.
“Stated Maturity”
with respect to Notes Series , shall mean .
“Submission
Deadline” means 1:00 P.M., New York City time, on any Auction Date or such other time on such date as shall be specified
by the Auction Agent from time to time pursuant to the Auction Agreement as the time by which the Broker-Dealers are required to
submit Orders to the Auction Agent. Notwithstanding the foregoing, the Auction Agent will follow the Securities Industry and Financial
Markets Association’s Early Market Close Recommendations for shortened trading days for the bond markets (the “SIFMA
Recommendation”) unless the Auction Agent is instructed otherwise in writing by the Issuer. In the event of a SIFMA Recommendation
with respect to an Auction Date, the Submission Deadline will be 11:30 A.M., instead of 1:00 P.M., New York City time.
“Submitted Bid” shall
have the meaning specified in Appendix A-I hereto.
“Submitted Hold Order” shall have the meaning specified in
Appendix A-I hereto.
“Submitted Order” shall have the meaning specified in Appendix A-I hereto.
“Submitted
Sell Order” shall have the meaning specified in Appendix A-I hereto.
“Sufficient
Clearing Bids” means for each series of Notes, an Auction for which the number of Units
of Notes of such series that are the subject of Submitted Bids by Potential Beneficial Owners specifying one or more rates not
higher than the Maximum Rate is not less than the number of Units of Notes of such series that
are the subject of Submitted Sell Orders and of Submitted Bids by Existing Holders specifying rates higher than the Maximum Rate.
“Notes
Basic Maintenance Amount” as of any Valuation Date has the meaning set forth in the Rating Agency Guidelines.
“Notes
Series” means the Series Notes or any other Notes hereinafter
designated as Series of the Notes.
“Treasury
Index Rate” means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities
having the same number of 30-day periods to maturity as the length of the applicable Rate Period, determined, to the extent necessary,
by linear interpolation based upon the yield for such securities having the next shorter and next longer number of 30-day periods
to maturity treating all Rate Periods with a length greater than the longest maturity for such securities as having a length equal
to such longest maturity, in all cases based upon data set forth in the most recent weekly statistical release published by the
Board of Governors of the Federal Reserve System (currently in H.15(519)); provided, however, if the most recent such statistical
release shall not have been published during the 15 days preceding the date of computation, the foregoing computations shall be
based upon the average of comparable data as quoted to the Issuer by at least three recognized dealers in U.S. Government securities
selected by the Issuer.
“Trustee”
means or such other person who is named as a trustee pursuant to the terms of the Indenture.
“Unit”
means, with respect to each series of Notes, the principal amount of the minimum Authorized Denomination
of the Notes.
“Valuation
Date” means every Friday, or, if such day is not a Business Day, the next preceding Business Day; provided, however,
that the first Valuation Date may occur on any other date established by the Issuer; provided, further, however, that such first
Valuation Date shall be not more than one week from the date on which Notes Series initially
are issued.
“Winning
Bid Rate” means for each series of Notes, the lowest rate specified in any Submitted
Bid of such series of Notes which if selected by the Auction Agent as the Applicable Rate would cause the number of Units of Notes
of such series that are the subject of Submitted Bids specifying a rate not greater than such rate to be not less than the number
of Units of Available Notes of such series.
NOTE DETAILS, FORM OF NOTES
AND REDEMPTION OF NOTES
Interest
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(a)
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The Holders of any series of Notes shall be entitled to receive interest payments on their Notes at the Applicable Rate,
determined as set forth in paragraph (c) of this Section 2.02, and no
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more, payable on the respective
dates determined as set forth in paragraph (b) of this Section 2.02. Interest on the Outstanding Notes
of any series issued on the Original Issue Date shall accumulate from the Original Issue Date.
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(b)
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(i) Interest shall be payable, subject to subparagraph (b)(ii) of this Section 2.02, on each series of Notes,
with respect to any Rate Period on the first Business Day following the last day of such Rate
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Period; provided, however, if the
Rate Period is greater than 30 days then on a monthly basis on the first Business Day of each month within such Rate Period, not
including the initial Rate Period, and on the Business Day following the last day of such Rate Period.
(ii) If
a day for payment of interest resulting from the application of subparagraph (b)(i) above is not a Business Day, then the
Interest Payment Date shall be the first Business Day following such day for payment of interest in the case of a series of Notes
designated as “Series.”
(iii) The
Issuer shall pay to the Paying Agent not later than 3:00 p.m., New York City time, on the Business Day next preceding each Interest
Payment Date for each series of Notes, an aggregate amount of funds available on the next Business
Day in the City of New York, New York, equal to the interest to be paid to all Holders of such Notes
on such Interest Payment Date. The Issuer shall not be required to establish any reserves for the payment of interest.
(iv) All
moneys paid to the Paying Agent for the payment of interest shall be held in trust for the payment of such interest by the Paying
Agent for the benefit of the Holders specified in subparagraph (b)(v) of this Section 2.02. Any moneys paid to the Paying
Agent in accordance with the foregoing but not applied by the Paying Agent to the payment of interest, including interest earned
on such moneys, will, to the extent permitted by law, be repaid to the Issuer at the end of 90 days from the date on which such
moneys were to have been so applied.
(v) Each
interest payment on a series of Notes shall be paid on the Interest Payment Date therefor to the
Holders of that series as their names appear on the security ledger or security records of the Issuer on the Business Day next
preceding such Interest Payment Date. Interest in arrears for any past Rate Period may be declared and paid at any time, without
reference to any regular Interest Payment Date, to the Holders as their names appear on the books or records of the Issuer on such
date, not exceeding 15 days preceding the payment date thereof, as may be fixed by the Board of Directors. No interest will be
payable in respect of any Interest Payment or payments which may be in arrears.
(c) (i) The
interest rate on Outstanding Notes of each series during the
period from and after the Original Issue Date to and including the last day of the initial Rate Period therefor shall be equal
to %. For each subsequent Rate Period with respect to the Notes
Outstanding thereafter, the interest rate shall be equal to the rate per annum that results from an Auction; provided, however,
that if an Auction for any subsequent Rate Period of a series of Notes is not held for any reason
or if Sufficient Clearing Bids have not been made in an Auction (other than as a result of all series of Notes
being the subject of Submitted Hold Orders), then the interest rate on a series of Notes
for any such Rate Period shall be the Maximum Rate (except during a Default Period (as defined below) when the interest rate shall
be the Default Rate, as set forth in Section 2.02(c)(ii) below). The All Hold Rate will apply automatically following
an Auction in which all of the Outstanding series of Notes are
subject (or are deemed to be subject) to Hold Orders. The rate per annum at which interest is payable on a series of Notes
as determined pursuant to this Section 2(c)(i) shall be the “Applicable Rate.” For Standard Rate Periods
or shorter periods only, the Applicable Rate resulting from an Auction will not be less than the Minimum Rate.
(ii) Subject
to the cure provisions below, a “Default Period” with respect to a particular series will commence on any date the
Issuer fails to deposit irrevocably in trust in same-day funds, with the Paying Agent by 12:00 noon, New York City time, (A) the
full amount of any redemption price (the “Redemption Price”) payable on the date fixed for redemption (the “Redemption
Date”) (a “Redemption Default,” which shall constitute an Event of Default pursuant to Section 5.1(7) of
the Original Indenture) or (B) the full amount of any accrued interest on that series payable on the Interest Payment Date
(an “Interest Default” and together with a Redemption Default, hereinafter referred to as “Default”). Subject
to the cure provisions of Section 2(c)(iii) below, a Default Period with respect to an Interest Default or a Redemption
Default shall end on the Business Day on which, by 12:00 noon, New York City time, all unpaid interest and any unpaid Redemption
Price shall have been deposited irrevocably in trust in same-day funds with the Paying Agent. In the case of an Interest Default,
the Applicable Rate for each Rate Period commencing during a Default Period will be equal to the Default Rate, and each subsequent
Rate Period commencing after the beginning of a Default Period shall be a Standard Rate Period; provided, however, that the commencement
of a Default Period will not by itself cause the commencement of a new Rate Period. No Auction shall be held during a Default Period
with respect to an Interest Default applicable to that series of Notes.
(iii) No
Default Period with respect to an Interest Default or Redemption Default shall be deemed to commence if the amount of any
interest or any Redemption Price due (if such default is not solely due to the willful failure of the Issuer) is deposited
irrevocably in trust, in same-day funds with the Paying Agent by 12:00 noon, New York City time within three Business Days
after the applicable Interest Payment Date or Redemption Date, together with an amount equal to the Default Rate applied to
the amount of such non-payment based on the actual number of days comprising such period divided by 360 for each series. The
Default Rate shall be equal to the Reference Rate multiplied by three (3).
(iv) The
amount of interest per Unit of Notes payable on each Interest Payment Date of each Rate Period
of less than one (1) year (or in respect of interest on another date in connection with a redemption during such Rate Period)
shall be computed by multiplying the Applicable Rate (or the Default Rate) for such Rate Period (or a portion thereof) by a fraction,
the numerator of which will be the number of days in such Rate Period (or portion thereof) that such Notes
were outstanding and for which the Applicable Rate or the Default Rate was applicable and the denominator of which will be 360,
multiplying the amount so obtained by $25,000, and rounding the amount so obtained to the nearest cent. During any Rate Period
of one (1) year or more, the amount of interest per Unit of Notes payable on any Interest
Payment Date (or in respect of interest on another date in connection with a redemption during such Rate Period) shall be computed
as described in the preceding sentence.
(d) Any
Interest Payment made on any series of Notes shall first be credited against the earliest accrued
but unpaid interest due with respect to such series.
Redemption
(a) (i) After
the initial Rate Period, subject to the provisions of this Section 2.03 and to the extent permitted under the Investment
Company Act, the Issuer may, at its option, redeem in whole or in part out of funds legally available therefor a series
of Notes herein designated as (A) having a Rate Period of one year or less, on the
Business Day after the last day of such Rate Period by delivering a notice of redemption not less than 15 days and not more
than 40 days prior to the date fixed for such redemption, at a redemption price equal to the aggregate principal amount, plus
an amount equal to accrued but unpaid interest thereon (whether or not earned) to the date fixed for redemption
(“Redemption Price”), or (B) having a Rate Period of more than one year, on any Business Day prior to the
end of the relevant Rate Period by delivering a notice of redemption not less than 15 days and not more than 40 days prior to
the date fixed for such redemption, at the Redemption Price, plus a redemption premium, if any, determined by the Board of
Directors after consultation with the Broker-Dealers and set forth in any applicable Specific Redemption Provisions at the
time of the designation of such Rate Period as set forth in Section 2.04 hereof; provided, however, that during a Rate
Period of more than one year no series of Notes will be subject to optional redemption
except in accordance with any Specific Redemption Provisions approved by the Board of Directors after consultation with the
Broker-Dealers at the time of the designation of such Rate Period. Notwithstanding the foregoing, the Issuer shall not give a
notice of or effect any redemption pursuant to this Section 2.03(a)(i) unless, on the date on which the Issuer
intends to give such notice and on the date of redemption (a) the Issuer has available certain Deposit Securities with
maturity or tender dates not later than the day preceding the applicable redemption date and having a value not less than the
amount (including any applicable premium) due to Holders of a series of Notes by reason of
the redemption of such Notes on such date fixed for the
redemption and (b) the Issuer would have Eligible Assets with an aggregate Discounted Value at least equal
the Notes Basic Maintenance Amount immediately subsequent to such redemption, if such
redemption were to occur on such date, it being understood that the provisions of paragraph (d) of this
Section 2.03 shall be applicable in such circumstances in the event the Issuer makes the deposit and takes the other
action required thereby.
(ii) If
the Issuer fails to maintain, as of any Valuation Date, Eligible Assets with an aggregate Discounted Value at least equal
to the Notes Basic Maintenance Amount or, as of the last Business Day of any month, the 1940
Act Notes Asset Coverage, and such failure is not cured
within ten Business Days following such Valuation Date in the case of a failure to maintain the Notes Basic Maintenance
Amount or on the last Business Day of the following month in the case of a failure to maintain the 1940
Act Notes Asset Coverage as of such last Business Day (each an “Asset Coverage Cure
Date”), the Notes will be subject to mandatory
redemption out of funds legally available therefor. The aggregate principal amount
of Notes to be redeemed in such circumstances will be
equal to the lesser of (A) the minimum principal amount of Notes the redemption of
which, if deemed to have occurred immediately prior to the opening of business on the relevant Asset Coverage Cure Date,
would result in the Issuer having Eligible Assets with an aggregate Discounted Value at least equal to
the Notes Basic Maintenance Amount, or sufficient to satisfy 1940
Act Notes Asset Coverage, as the case may be, in either case as of the relevant Asset
Coverage Cure Date (provided that, if there is no such minimum principal amount
of Notes the redemption of which would have such result,
all Notes then Outstanding will be redeemed), and
(B) the maximum principal amount of Notes that can be redeemed out of funds expected to
be available therefor on the Mandatory Redemption Date at the Mandatory Redemption Price set forth in subparagraph
(a)(iii) of this Section 2.03.
(iii) In
determining the Notes required to be redeemed in
accordance with the foregoing Section 2.03(a)(ii), the Issuer shall allocate the aggregate principal amount
of Notes required to be redeemed to satisfy
the Notes Basic Maintenance Amount or the 1940
Act Notes Asset Coverage, as the case may be, pro rata
among the Holders of Notes in proportion to the aggregate principal amount
of Notes they hold, by
lot or by such other method as the Issuer shall deem equitable, subject to the further provisions of this subparagraph (iii).
The Issuer shall effect any required mandatory redemption pursuant to subparagraph (a)(ii) of this Section 2.03 no
later than 40 days after the Asset Coverage Cure Date (the “Mandatory Redemption Date”), except that if the
Issuer does not have funds legally available for the redemption of, or is not otherwise legally permitted to redeem, the
aggregate principal amount of Notes which would be required to be redeemed by the Issuer
under clause (A) of subparagraph (a)(ii) of this Section 2.03 if sufficient funds were available, or the
Issuer otherwise is unable to effect such redemption on or prior to such Mandatory Redemption Date, the Issuer shall redeem
those Notes, and other Notes, on the earliest practicable date on which the Issuer will have such funds available, upon
notice pursuant to Section 2.03(b) to record owners of the Notes to be redeemed
and the Paying Agent. The Issuer will deposit with the Paying Agent funds sufficient to redeem the specified aggregate
principal amount of Notes with respect to a redemption required under subparagraph
(a)(ii) of this Section 2.03, by 1:00 p.m., New York City time, of the Business Day immediately preceding the
Mandatory Redemption Date. If fewer than all of the Outstanding Notes are to be redeemed pursuant to this
Section 2.03(a)(iii), the aggregate principal amount of Notes to be redeemed shall be redeemed pro rata from the Holders
of such Notes in proportion to the aggregate principal amount of
such Notes held by such Holders, by lot or by such other method as the Issuer shall deem
fair and equitable, subject, however, to the terms of any applicable Specific Redemption Provisions. “Mandatory
Redemption Price” means the Redemption Price plus (in the case of a Rate Period of one year or more only) a redemption
premium, if any, determined by the Board of Directors after consultation with the Broker-Dealers and set forth in any
applicable Specific Redemption Provisions.
(b) In
the event of a redemption pursuant to Section 2.03(a), the Issuer will file a notice of its intention to redeem with the
Commission so as to provide at least the minimum notice required under Rule 23c-2 under the Investment Company Act or
any successor provision. In addition, the Issuer shall deliver a notice of redemption to the Auction Agent and the Trustee
(the “Notice of Redemption”) containing the information set forth below (i) in
the case of an optional redemption pursuant to subparagraph (a)(i) above, at least three Business Days prior to the
giving of notice to the Holders and (ii) in the case of a mandatory redemption pursuant to subparagraph
(a)(ii) above, on or prior to the 30th day preceding the Mandatory Redemption Date. The Trustee will use its reasonable
efforts to provide notice to each Holder of Notes called for redemption by electronic or
other reasonable means not later than the close of business on the Business Day immediately following the day on which the
Trustee determines the Notes to be redeemed (or, during a
Default Period with respect to such Notes, not later than the close of business on the
Business Day immediately following the day on which the Trustee receives Notice of Redemption from the Issuer). The Trustee
shall confirm such notice in writing not later than the close of business on the third Business Day preceding the date fixed
for redemption by providing the Notice of Redemption to each Holder
of Notes called for redemption, the Paying Agent (if
different from the Trustee) and the Securities Depository. Notice of Redemption will be addressed to the registered owners of
each series of Notes at their addresses appearing on the books or records of the Issuer.
Such Notice of Redemption will set forth (i) the date fixed for redemption, (ii) the principal amount and identity
of Notes to be redeemed, (iii) the redemption price
(specifying the amount of accrued interest to be included therein and any redemption premium, if any), (iv) that
interest on the Notes to be redeemed will cease to accrue on such date fixed for redemption, (v) applicable cusip
number(s) and (vi) the provision under which redemption shall be made. No defect in the Notice of Redemption or in
the transmittal or mailing thereof will affect the validity of the redemption proceedings, except as required by applicable
law. If fewer than all Notes held by any Holder are to be redeemed, the Notice of Redemption
mailed to such Holder shall also specify the principal amount of Notes to be redeemed from
such Holder.
(c) Notwithstanding
the provisions of paragraph (a) of this Section 2.03, no Notes may be redeemed unless
all interest on the Outstanding Notes and all Notes of the Issuer
ranking on a parity with the Notes, have been or are being contemporaneously paid or set aside
for payment; provided, however, that the foregoing shall not prevent the purchase or acquisition of all Outstanding Notes
pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to, and accepted
by, Holders of all Outstanding Notes.
(d) Upon
the deposit of funds sufficient to redeem any Notes with the Paying Agent and the giving of
the Notice of Redemption to the Trustee under paragraph (b) of this Section 2.03, interest on such Notes shall
cease to accrue and such Notes shall no longer be deemed
to be Outstanding for any purpose (including, without limitation, for purposes of calculating whether the Issuer has
maintained the requisite Notes Basic Maintenance Amount or the
1940 Act Notes Asset Coverage), and all rights of the
Holder of the Notes so called for redemption shall cease and terminate, except the right of
such Holder to receive the redemption price specified herein, but without any interest or other additional amount. Such
redemption price shall be paid by the Paying Agent to the nominee of the Securities Depository. The Issuer shall be entitled
to receive from the Paying Agent, promptly after the date fixed for redemption, any cash deposited with the Paying Agent in
excess of (i) the aggregate redemption price of the Notes called for redemption on such date and (ii) such other
amounts, if any, to which Holders of the Notes called for redemption may be entitled. Any funds so deposited that are
unclaimed at the end of two years from such redemption date shall, to the extent permitted by law, be paid to the Issuer,
after which time the Holders of Notes so called for redemption may look only to the Issuer
for payment of the redemption price and all other amounts, if any, to which they may be entitled. The Issuer shall be
entitled to receive, from time to time after the date fixed for redemption, any interest earned on the funds so
deposited.
(e) To
the extent that any redemption for which Notice of Redemption has been given is not made by reason of the absence of legally
available funds therefor, or is otherwise prohibited, such redemption shall be made as soon as practicable to the extent such
funds become legally available or such redemption is no longer otherwise prohibited. Failure to redeem any series
of Notes shall be deemed to exist at any time after the date specified for redemption in a
Notice of Redemption when the Issuer shall have failed, for any reason whatsoever, to deposit in trust with the Paying Agent
the redemption price with respect to any Notes for which such Notice of Redemption has been
given. Notwithstanding the fact that the Issuer may not have redeemed any Notes for which a Notice of Redemption has been
given, interest may be paid on a series of Notes and shall include those Notes for which
Notice of Redemption has been given but for which deposit of funds has not been made.
(f) All
moneys paid to the Paying Agent for payment of the redemption price of any Notes
called for redemption shall be held in trust by the Paying Agent for the benefit of Holders of Notes
to be redeemed.
(g) So
long as any Notes are held of record by the nominee of the Securities Depository, the redemption
price for such Notes will be paid on the date fixed for redemption
to the nominee of the Securities Depository for distribution to Agent Members for distribution to the persons for whom they are
acting as agent.
(h) Except
for the provisions described above, nothing contained herein limits any right of the Issuer to purchase or otherwise acquire
any Notes outside of an Auction at any price, whether higher or lower than the price that
would be paid in connection with an optional or mandatory redemption, so long as, at the time of any such purchase, there is
no arrearage in the payment of interest on, or the mandatory or optional redemption price with respect to, any series
of Notes for which Notice of Redemption has been given and the Issuer is in compliance with
the 1940 Act Notes Asset Coverage and has Eligible Assets
with an aggregate Discounted Value at least equal to
the Notes Basic
Maintenance Amount after giving effect to such purchase or acquisition on the date thereof. If fewer than all the
Outstanding Notes of any series are redeemed or otherwise acquired by the Issuer, the Issuer
shall give notice of such transaction to the Trustee, in accordance with the procedures agreed upon by the Board of
Directors.
(i) The
Board of Directors may, without further consent of the holders of the Notes or the holders
of shares of capital stock of the Issuer, authorize, create or issue any class or series of Notes, including other series
of Notes, ranking prior to or on a parity with the Notes to
the extent permitted by the Investment Company Act, if, upon issuance, either (A) the net proceeds from the sale of such
Notes (or such portion thereof needed to redeem or repurchase the Outstanding Notes) are
deposited with the Trustee in accordance with Section 2.03(d), Notice of Redemption as contemplated by
Section 2.03(b) has been delivered prior thereto or is sent promptly thereafter, and such proceeds are used to
redeem all Outstanding Notes or (B) the Issuer would meet the 1940
Act Notes Asset Coverage, the Notes Basic Maintenance
Amount and the requirements of Section 2.08 hereof.
(j) If
any Notes are to be redeemed and such Notes are held by the Securities
Depository, the Issuer shall include in the notice of redemption delivered to the Securities Depository: (i) under an item
entitled “Publication Date for Securities Depository Purposes”, the Interest Payment Date prior to the Redemption Date,
and (ii) an instruction to the Securities Depository to (x) determine on such Publication Date after the Auction held
on the immediately preceding Auction Date has settled, the Depository participants whose Securities Depository positions will be
redeemed and the principal amount of such Notes to be redeemed from each such position (the “Securities
Depository Redemption Information”), and (y) notify the Auction Agent immediately after such determination of (A) the
positions of the Depository Participants in such
Notes immediately
prior to such Auction settlement, (B) the positions of the Depository Participants in such Notes
immediately following such Auction settlement and (C) the Securities Depository Redemption Information. “Publication
Date” shall mean three Business Days after the Auction Date next preceding such Redemption Date.
Designation of Rate Period
The initial Rate
Period for each series of Notes is as set forth under “Designation” in Section 2.01(a) above.
The Issuer will designate the duration of subsequent Rate Periods of each series of
Notes;
provided, however, that no such designation is necessary for a Standard Rate Period and, provided further, that any
designation of a Special Rate Period shall be effective only if (i) notice thereof shall have been given as provided
herein, (ii) any failure to pay in a timely manner to the Trustee the full amount of any interest on, or the redemption
price of, Notes shall have been cured as provided above, (iii) Sufficient Clearing Bids
shall have existed in an Auction held on the Auction Date immediately preceding the first day of such proposed Special Rate
Period, (iv) if the Issuer shall have mailed a Notice of Redemption with respect to
any Notes, the redemption price with respect to such Notes
shall have been deposited with the Paying Agent, and (v) in the case of the designation of a Special Rate Period, the
Issuer has confirmed that as of the Auction Date next preceding the first day of such Special Rate Period, it has Eligible
Assets with an aggregate Discounted Value at least equal to the Notes Basic Maintenance
Amount, and the Issuer has consulted with the Broker-Dealers and has provided notice of such designation and otherwise
complied with the Rating Agency Guidelines.
If the
Issuer proposes to designate any Special Rate Period, not fewer than 7 (or two Business Days in the event the duration of the
Rate Period prior to such Special Rate Period is fewer than 8 days) nor more than 30 Business Days prior to the first day of
such Special Rate Period, notice shall be (i) made by press release and
(ii) communicated by the Issuer by telephonic or other
means to the Trustee and confirmed in writing promptly thereafter. Each such notice shall state (A) that the Issuer
proposes to exercise its option to designate a succeeding Special Rate Period, specifying the first and last days thereof and
(B) that the Issuer will by 3:00 p.m., New York City time, on the second Business Day next preceding the first day of
such Special Rate Period, notify the Auction Agent and the Trustee, who will promptly notify the Broker-Dealers, of either
(x) its determination, subject to certain conditions, to proceed with such Special Rate Period, subject to the terms of
any Specific Redemption Provisions, or (y) its determination not to proceed with such Special Rate Period, in which
latter event the succeeding Rate Period shall be a Standard Rate Period.
No later than
3:00 p.m., New York City time, on the second Business Day next preceding the first day of any proposed Special Rate Period, the
Issuer shall deliver to the Auction Agent and Trustee, who will promptly deliver to the Broker-Dealers and Existing Holders, either:
(i) a
notice stating (A) that the Issuer has determined to designate the next succeeding Rate Period as a Special Rate Period, specifying
the first and last days thereof and (B) the terms of any Specific Redemption Provisions; or
(ii) a
notice stating that the Issuer has determined not to exercise its option to designate a Special Rate Period.
If the Issuer fails to deliver either
such notice with respect to any designation of any proposed Special Rate Period to the Auction Agent or is unable to make the confirmation
provided in clause (v) of Paragraph (a) of this Section 2.04 by 3:00 p.m., New York City time, on the second Business
Day next preceding the first day of such proposed Special Rate Period, the Issuer shall be deemed to have delivered a notice to
the Auction Agent with respect to such Rate Period to the effect set forth in clause (ii) above, thereby resulting in a Standard
Rate Period.
Restrictions on Transfer
Notes may be
transferred only (a) pursuant to an order placed in an Auction, (b) to or through a Broker-Dealer or (c) to the
Issuer or any Affiliate. Notwithstanding the foregoing, a transfer other than pursuant to an Auction will not be effective unless
the selling Existing Holder or the Agent Member of such Existing Holder, in the case of an Existing Holder whose Notes
are listed in its own name on the books of the Auction Agent, or the Broker-Dealer or Agent Member of such Broker-Dealer, in the
case of a transfer between persons holding Notes through different Broker-Dealers, advises the
Auction Agent of such transfer. The certificates representing the Notes
issued to the Securities Depository will bear legends with respect to the restrictions described above and stop-transfer instructions
will be issued to the Transfer Agent and/or Registrar.
1940 Act Notes
Asset Coverage
The Issuer shall
maintain, as of the last Business Day of each month in which any Notes are Outstanding, asset
coverage with respect to the Notes which is equal to or greater than the 1940 Act
Notes Asset Coverage;
provided, however, that Section 2.03(a)(ii) shall be the sole remedy in the event the Issuer fails to do so.
Notes Basic Maintenance Amount
So long as the Notes
are Outstanding and any Rating Agency is then rating the Notes, the Issuer shall maintain, as
of each Valuation Date, Eligible Assets having an aggregate Discounted Value equal to or greater than the Notes Basic Maintenance
Amount; provided, however, that Section 2.03(a)(ii) shall be the sole remedy in the event the Issuer fails to do so.
Certain Other Restrictions
For so long as
any Notes are Outstanding and any Rating Agency is then rating the
Notes, the Issuer will not engage in certain proscribed transactions set forth in the Rating Agency Guidelines, unless it has received
written confirmation from each such Rating Agency that proscribes the applicable transaction in its Rating Agency Guidelines that
any such action would not impair the rating then assigned by such Rating Agency to a series of Notes.
For so long
as any Notes are Outstanding, the Issuer will not declare, pay or set apart for payment any dividend or other distribution
(other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, common
shares or other shares of capital stock of the Issuer) upon any class of shares of capital stock of the Issuer, unless, in
every such case, immediately after such transaction, the 1940 Act Notes Asset Coverage would be achieved after deducting the
amount of such dividend, distribution, or purchase price, as the case may be; provided, however, that dividends may be
declared upon any preferred shares of capital stock of the Issuer if the Notes and any other
senior securities representing indebtedness of the Issuer have an asset coverage of at least 200% at the time of declaration
thereof, after deducting the amount of such dividend.
A declaration
of a dividend or other distribution on or purchase or redemption of any common or preferred shares of capital stock of the Issuer
is prohibited (i) at any time that an Event of Default under the Indenture has occurred and is continuing, (ii) if after
giving effect to such declaration, the Issuer would not have Eligible Assets with an aggregate Discounted Value at least equal
to the Notes Basic Maintenance Amount or the 1940 Act Notes Asset Coverage, or (iii) the
Issuer has not redeemed the full amount of Notes required to be redeemed by any provisions for
mandatory redemption contained herein.
Compliance Procedures for Asset
Maintenance Tests
For so long as any Notes
are Outstanding and any Rating Agency is then rating such Notes:
(a)
As of each Valuation Date, the Issuer shall determine in accordance with the procedures specified herein (i) the Market
Value of each Eligible Asset owned by the Issuer on that date, (ii) the Discounted Value of each such Eligible Asset
using the Discount Factors, (iii) whether the Notes Basic Maintenance Amount is met as
of that date, (iv) the value of the total assets of the Issuer, less all liabilities, and (v) whether the 1940 Act
Notes Asset Coverage is met as of that date.
(b)
Upon any failure to maintain the required Notes Basic Maintenance Amount or 1940 Act Notes Asset Coverage on any Valuation
Date, the Issuer may use reasonable commercial efforts (including, without limitation, altering the composition of its
portfolio, purchasing Notes outside of an Auction or in the event of a failure to file a
Rating Agency Certificate (as defined below) on a timely basis, submitting the requisite Rating Agency Certificate) to
re-attain (or certify in the case of a failure to file on a timely basis, as the case may
be) the required Notes Basic Maintenance Amount or 1940 Act Notes Asset Coverage on or prior
to the Asset Coverage Cure Date.
(c)
Compliance with the Notes Basic Maintenance Amount and 1940
Act Notes Asset Coverage tests shall be determined with reference to
those Notes which are deemed to be Outstanding hereunder.
(d)
The Issuer shall deliver to each Rating Agency which is then rating Notes and any other
party specified in the Rating Agency Guidelines all certificates that are set forth in the respective Rating Agency
Guidelines regarding 1940 Act Notes Asset Coverage, Notes Basic Maintenance Amount and/or
related calculations at such times and containing such information as set forth in the respective Rating Agency Guidelines
(each, a “Rating Agency Certificate”).
(e) In
the event that any Rating Agency Certificate is not delivered within the time periods set forth in the Rating Agency Guidelines,
the Issuer shall be deemed to have failed to maintain the Notes Basic Maintenance Amount or the
1940 Act Notes Asset Coverage, as the case may be, on such Valuation Date for purposes of Section 2.09(b).
In the event that any Rating Agency Certificate with respect to an applicable Asset Coverage Cure Date is not delivered within
the time periods set forth in the Rating Agency Guidelines, the Issuer shall be deemed to have failed to have Eligible Assets with
an aggregate Discounted Value at least equal to the Notes Basic Maintenance Amount or to meet
the 1940 Notes Asset Coverage, as the case may be, as of the
related Valuation Date, and such failure shall be deemed not to have been cured as of such Asset Coverage Cure Date for purposes
of the mandatory redemption provisions.
Delivery of Notes
Upon
the execution and delivery of this Supplemental Indenture, the Issuer shall execute and deliver to the Trustee and the Trustee
shall authenticate the Notes and deliver them to The Depository Trust Company and as hereinafter in this Section provided.
Prior to the
delivery by the Trustee of any of the Notes, there shall have been filed with or delivered to the Trustee the following:
(a) A
resolution duly adopted by the Issuer, certified by the Secretary or other Authorized Officer thereof, authorizing the execution
and delivery of this Supplemental Indenture and the issuance of the Notes.
(b) Duly executed copies of this Supplemental Indenture and a copy of the Indenture.
(c) Rating letters from each Rating Agency rating the Notes.
(d)
An Opinion of Counsel and an Officers’ Certificate pursuant to Sections 3.3 and 9.3 of the Original Indenture.
Trustee’s Authentication
Certificate
The Trustee’s
authentication certificate upon the Notes
shall be substantially in the forms provided in Appendix hereto. No Note
shall be secured hereby or entitled to the benefit hereof, or shall be valid or obligatory for any purpose, unless a certificate
of authentication, substantially in such form, has been duly executed by the Trustee; and such certificate of the Trustee upon
any Note shall be conclusive evidence and the only competent evidence that such Bond has been
authenticated and delivered hereunder. The Trustee’s certificate of authentication shall be deemed to have been duly executed
by it if manually signed by an authorized officer of the Trustee, but it shall not be necessary that the same person sign the certificate
of authentication on all of the Notes issued hereunder.
EVENTS OF DEFAULT; REMEDIES
Events of Default
An “Event
of Default” means any one of the following events set forth below (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court
or any order, rule or regulation of any administrative or governmental body):
(a) default
in the payment of any interest upon a series of Notes when it becomes due and payable and
the continuance of such default for thirty (30) days; or
(b) default
in the payment of the principal of, or any premium on, a series of Notes at its Stated
Maturity; or
(c) default
in the performance, or breach, of any covenant or warranty of the Company in the Indenture, and continuance of such default
or breach for a period of ninety (90) days after there has been given, by registered or certified mail, to the Company by the
Trustee a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a
“Notice of Default;” or
(d) the
entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar
law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal
or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of
the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of
60 consecutive days; or
(e) the
commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the
entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal
or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case
or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable
Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability
to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action;
or
(f)
if, pursuant to Section 18(a)(1)(c)(ii) of the 1940 Act on the last business day of each of twenty-four (24)
consecutive calendar months, the 1940 Act Notes Asset Coverage is less than 100%; or
(g) any
other Event of Default provided with respect to a series of Notes, including a default in the
payment of any Redemption Price payable on the date fixed for redemption.
Unless otherwise
noted, an Event of Default that relates only to one series of Notes will not affect any other
series.
Acceleration of Maturity; Rescission
and Annulment
If an Event of
Default with respect to Notes of a series at the time Outstanding occurs and is continuing, then
in every such case the Trustee or the holders of not less than a majority in principal amount of the Outstanding Notes
of that series may declare the principal amount of all the Notes of that series to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee if given by holders), and upon any such declaration
such principal amount (or specified amount) shall become immediately due and payable. If an Event of Default specified in paragraphs
(d) and (e) above with respect to Notes of any series
at the time Outstanding occurs, the principal amount of all the Notes of that series shall automatically,
and without any declaration or other action on the part of the Trustee or any holder, become immediately due and payable.
At any time after
such a declaration of acceleration with respect to Notes of
any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders
of a majority in principal amount of the Outstanding Notes of that series, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its consequences if:
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(a)
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the Company has paid or deposited with the Trustee a sum sufficient to pay
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(i) all overdue interest on all Notes of that series,
(ii) the
principal of (and premium, if any, on) any Notes of that series which have become due otherwise
than by such declaration of acceleration and any interest thereon at the rate or rates prescribed therefor in such Notes,
(iii) to
the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in
such Notes,
(iv) all
sums paid or advanced by the Trustee and the reasonable compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel; and
(b) all
Events of Default with respect to Notes of that series, other than the non-payment of the principal
of Notes of that series which have become due solely by such declaration of acceleration, have been cured or waived.
No such rescission shall affect any
subsequent default or impair any right consequent thereon.
Collection of Indebtedness and
Suits for Enforcement by Trustee
The Company covenants that if:
(a) default
is made in the payment of any interest on any Notes when such interest becomes due and payable and such default continues for
a period of 90 days, or
(b) default
is made in the payment of the principal of (or premium, if any, on) any Notes at the
Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the holders of such
Notes,
the whole amount then due and payable on such Notes for principal and any premium and interest and, to the extent that
payment of such interest shall be legally enforceable, interest on any overdue principal and premium and on any overdue
interest, at the rate or rates prescribed therefor in such Notes, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If an Event of
Default with respect to Notes of any series occurs and is continuing, the Trustee may in its discretion
proceed to protect and enforce its rights and the rights of the holders of Notes of such series
by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether
for the specific enforcement of any covenant or agreement in the Indenture or in aid of the exercise of any power granted in the
Indenture, or to enforce any other proper remedy.
Application of Money Collected
Any money collected
by the Trustee pursuant to the provisions of the Indenture relating to an Event of Default shall be applied in the following order,
at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or any premium
or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts
due the Trustee under the Indenture; and
SECOND: To the
payment of the amounts then due and unpaid for principal of and any premium and interest on the Notes in respect of which or for
the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts
due and payable on such Notes for principal and any premium and interest, respectively.
Limitation On Suits
No
holder of any Notes of any series shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such
holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Notes of that series;
(b) the
holders of not less than a majority in principal amount of the Outstanding Notes of that series
shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such
holder or holders have offered to the Trustee indemnity reasonably satisfactory to it against the costs, expenses and liabilities
to be incurred in compliance with such request;
(d) the
Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding;
and
(e) no
direction inconsistent with such written request has been given to the Trustee during such 60-day period by the holders of a majority
in principal amount of the Outstanding Notes of that series;
it being understood and intended that
no one or more of such holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of the
Indenture to affect, disturb or prejudice the rights of any other of such holders, or to obtain or to seek to obtain priority or
preference over any other of such holders or to enforce any right under the Indenture, except in the manner provided and for the
equal and ratable benefit of all of such holders.
Unconditional Right of Holders
to Receive Principal, Premium and Interest
Notwithstanding
any other provision in the Indenture, the holder of any Notes shall have the right, which is absolute and unconditional, to receive
payment of the principal of and any premium and (subject to the provisions of any supplemental indenture) interest on such Notes
on the respective Stated Maturities expressed in such Notes (or, in the case of redemption, on the Redemption Date), and to institute
suit for the enforcement of any such payment and such rights shall not be impaired without the consent of such holder.
Restoration of Rights and Remedies
If the Trustee
or any holder has instituted any proceeding to enforce any right or remedy under the Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or to such holder, then and in every such case, subject
to any determination in such proceeding, the Company, the Trustee and the holders shall be restored severally and respectively
to their former positions and thereafter all rights and remedies of the Trustee and the holders shall continue as though no such
proceeding had been instituted.
Rights and Remedies Cumulative
Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes, no right or remedy conferred
upon or reserved to the Trustee or to the holders is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any right or remedy, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or remedy.
Control By Holders
The holders of
not less than a majority in principal amount of the Outstanding Notes of any series shall have
the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, with respect to the Notes
of such series, provided that
(1) such direction shall not be in conflict with any rule of law or with the Indenture, and
(2) the
Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
Waiver of Past Defaults
The holders of
not less than a majority in principal amount of the Outstanding Notes of any series may on behalf
of the holders of all the Notes of such series waive any past default hereunder with respect to
such series and its consequences, except a default
(1) in the payment of the principal of or any premium or interest on any Notes of such series, or
(2) in
respect of a covenant or provision which cannot be modified or amended without the consent of the holder of each Outstanding Notes
of such series affected.
Upon any such waiver, such default
shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of the Indenture;
but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture
shall upon request of the Company cease to be of further effect (except as to any surviving rights of registration of transfer
or exchange of any Notes expressly provided for herein or in the terms of such security), and
the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of the Indenture,
when
(a) Either:
(i)
all Notes theretofore authenticated and delivered (other than (1) securities which have
been destroyed, lost or stolen and which have been replaced or paid as provided in the Indenture; and
(2) Notes
for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid
to the Company or discharged from such trust, as provided in the Indenture) have been delivered to the Trustee for cancellation;
or
(ii) all
such Notes not theretofore delivered to the Trustee for cancellation have become due and payable,
or will become due and payable at their Stated Maturity within one year, or are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense,
of the Company, and the Company, in the case of this subsection (ii) has deposited or caused to be deposited with the Trustee
as trust funds in trust money in an amount sufficient to pay and discharge the entire indebtedness on such securities not theretofore
delivered to the Trustee for cancellation, for principal and any premium and interest to the date of such deposit (in the case
of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other sums payable hereunder by the Trust; and
(c)
the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that
all conditions precedent herein provided for relating to the satisfaction and discharge of the Indenture have been complied
with.
Notwithstanding the satisfaction and
discharge of the Indenture, the obligations of the Company to the Trustee under the Indenture and, if money shall have been deposited
with the Trustee pursuant to subparagraph (ii) of paragraph (a) above, the obligations of the Trustee under certain provisions
of the Indenture shall survive.
THE TRUSTEE
Certain Duties and Responsibilities
(1) Except during the continuance of an Event of Default,
(A)
the Trustee undertakes to perform such duties and only such duties as are specifically set forth in the Indenture and as
required by the Trust Indenture Act, and no implied covenants or obligations shall be read into the Indenture against the
Trustee; and
(B) in
the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of
the Indenture; but in the case of any such certificates or opinions which by any provision of the Indenture are specifically required
to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform
to the requirements of the Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts
stated therein).
(2)
In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested
in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or
use under the circumstances in the conduct of his or her own affairs.
(3) In
no event shall the Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever
(including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such
loss or damage and regardless of the form of action.
(4) In no
event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations arising out
of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages,
accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and
interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being
understood that the Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry
to resume performance as soon as practicable under the circumstances.
(5) No
provision of the Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(A) this
Subsection shall not be construed to limit the effect of Subsection (1)(A) of this Section;
(B) the
Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that
the Trustee was negligent in ascertaining the pertinent facts;
(C) the
Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with
the direction of the holders of a majority in principal amount of the Outstanding securities of any series, determined as
provided in the Indenture, relating to the time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee, under the Indenture with respect to the Securities
of such series; and
(D) no
provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties, or in the exercise of any of its rights or powers, if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
Notice of Defaults
If a default
occurs hereunder with respect to Notes of any series, the Trustee shall give the Holders of Notes
of such series notice of such default as and to the extent provided by the Trust Indenture Act; provided, however, that in the
case of any default with respect to Notes of such series, no such notice to Holders shall be given
until at least 90 days after the occurrence thereof. For the purpose hereof, the term “default” means any event which
is, or after notice or lapse of time or both would become, an Event of Default with respect to Notes
of such series.
Certain Rights of Trustee
Subject to the provisions under “Certain
Duties and Responsibilities” above:
(a) the
Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
(b) any
request or direction of the Company shall be sufficiently evidenced by a Company Request or Company Order, and any resolution of
the Board of Directors shall be sufficiently evidenced by a Board Resolution;
(c)
whenever in the administration of the Indenture the Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the Trustee may, in the absence of bad faith on its part, rely
upon an Officers’ Certificate;
(d) the
Trustee may consult with counsel of its selection and the written advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any action taken, suffered or omitted by it in good faith and in reliance
thereon;
(e) the
Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction
of any of the holders pursuant to the Indenture, unless such holders shall have offered to the Trustee security or indemnity reasonably
satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or
direction;
(f) the
Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled
to examine the books, records and premises of the Company, personally or by agent or attorney;
(g)
the Trustee may execute any of the trusts or powers or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder;
(h) the
Trustee shall not be liable for any action taken, suffered or omitted to be taken by it in good faith and reasonably believed by
it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture;
(i) the
Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate
Trust Office of the Trustee, and such notice references the Notes and the Indenture;
(j) the
rights, privileges, protections, immunities and benefits given to the Trustee, including its rights to be indemnified, are extended
to, and shall be enforceable by, the Trustee in each of its capacities hereunder; and
(k) the
Trustee may request that the Company deliver an Officers’ Certificate setting forth the names of individuals and/or titles
of officers authorized at such time to take specified actions pursuant to the Indenture, which Officers’ Certificate may
be signed by any person authorized to sign an Officers’ Certificate, including any person specified as so authorized in any
such certificate previously delivered and not superseded.
Compensation and Reimbursement
The Company agrees:
(a) to
pay to the Trustee from time to time such compensation as shall be agreed in writing between the parties for all services rendered
by it (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express
trust);
(b) except
as otherwise expressly provided, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of the Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense, disbursement or
advance as may be attributable to its negligence or bad faith; and
(c) to
indemnify each of the Trustee or any predecessor Trustee for, and to hold it harmless against, any and all losses, liabilities,
damages, claims or expenses including taxes (other than taxes imposed on the income of the Trustee) incurred without negligence
or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder,
including the costs and expenses of defending itself against any claim (whether asserted by the Company, a holder or any other
Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder.
When the Trustee
incurs expenses or renders services in connection with an Event of Default, the expenses (including the reasonable charges and
expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any
applicable Federal or State bankruptcy, insolvency or other similar law.
The provisions hereof shall survive
the termination of the Indenture.
Conflicting Interests
If the Trustee
has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and
the Indenture. To the extent not prohibited by the Trust Indenture Act, the Trustee shall not be deemed to have a conflicting interest
by virtue of being a trustee under the Indenture with respect to Notes of more than one series.
Resignation and Removal; Appointment
of Successor
No resignation
or removal of the Trustee and no appointment of a successor Trustee shall become effective until the acceptance of appointment
by the successor Trustee in accordance with the applicable requirements.
The Trustee may
resign at any time with respect to the Notes of one or more series by giving written notice thereof
to the Company. If the instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 60 days
after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor Trustee with respect to the Notes of
such series.
The Trustee may
be removed at any time with respect to the Notes of any series
by Act of the holders of a majority in principal amount of the Outstanding Notes of such series,
delivered to the Trustee and to the Company. If the instrument of acceptance by a successor Trustee shall not have been delivered
to the Trustee within 30 days after the giving of a notice of removal pursuant to this paragraph, the Trustee being removed may
petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect
to the Notes of such series.
If at any time:
(a) the
Trustee shall fail to comply after written request therefor by the Company or by any holder who has been a bona fide holder of Notes
for at least six months, or
(b) the
Trustee shall cease to be eligible and shall fail to resign after written request therefor by the Company or by any such holder,
or
(c)
the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case,
(i) the Company by a Board Resolution may remove the Trustee with respect to
all Notes, or (ii) any holder who has been a bona fide holder
of Notes for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to
all Notes and the appointment of a successor Trustee or Trustees.
If
the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any
cause, with respect to the Notes of one or more series, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee or Trustees with respect to the Notes of that or those series (it being understood that any
such successor Trustee may be appointed with respect to the
Notes of one or
more or all of such series and that at any time there shall be only one Trustee with respect to the Notes
of any particular series) and shall comply with the applicable requirements. If, within one year after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Notes
of any series shall be appointed by Act of the holders of a majority in principal amount of the Outstanding Notes
of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with the applicable requirements, become the successor Trustee with respect to the Notes
of such series and to that extent supersede the successor Trustee appointed by the Company.
If no successor
Trustee with respect to the Notes of any series shall have been so appointed by the Company or
the holders and accepted appointment in the manner required, any holder who has been a bona fide holder of Notes
of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the Notes of such series.
The
Company shall give notice of each resignation and each removal of the Trustee with respect to the Notes of any series and
each appointment of a successor Trustee with respect to the Notes of any series to all holders
of Notes of such series in the manner provided. Each notice shall include the name of the
successor Trustee with respect to the Notes of such series and the address of its Corporate
Trust Office.
Acceptance of Appointment by Successor
In case of the
appointment hereunder of a successor Trustee with respect to all Notes, every such successor Trustee
so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but,
on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver
an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.
In case of the
appointment hereunder of a successor Trustee with respect to the Notes of one or more (but not
all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Notes of one or more series shall
execute and deliver a supplemental indenture wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee
all the rights, powers, trusts and duties of the retiring Trustee with respect to the Notes of
that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring
with respect to all Notes, shall contain such provisions as shall be deemed necessary or desirable
to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Notes
of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee,
and (3) shall add to or change any of the provisions of the Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee, it being understood that nothing in the Indenture shall constitute
such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate
and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such
supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein
and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Notes of that or those series to
which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring
Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee
hereunder with respect to the Notes of that or those series to which the appointment of such successor Trustee relates.
Upon request
of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case
may be.
No successor
Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible.