CALAMOS CONVERTIBLE
OPPORTUNITIES AND INCOME FUND STATEMENT OF ADDITIONAL INFORMATION
Calamos
Convertible Opportunities and Income Fund (the “Fund”) is a diversified, closed-end management investment company.
This Statement of Additional Information relates to the offering, on an immediate, continuous or delayed basis, of up to $100,000,000
aggregate initial offering price of common shares, preferred shares or debt securities in one or more offerings. This Statement
of Additional Information does not constitute a prospectus, but should be read in conjunction with the prospectus relating thereto
dated the date hereof and any related prospectus supplement. This Statement of Additional Information does not include all information
that a prospective investor should consider before purchasing any of the Fund’s securities, and investors should obtain
and read the prospectus and any related prospectus supplement prior to purchasing such securities. A copy of the prospectus and
any related prospectus supplement may be obtained without charge by calling 800-582-6959. You may also obtain a copy of the prospectus
and any related prospectus supplement on the Securities and Exchange Commission’s website (http://www.sec.gov). Capitalized
terms used but not defined in this Statement of Additional Information have the same meanings ascribed to them in the prospectus
and any related prospectus supplement.
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 non-convertible income 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 non-convertible income 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 35% of its managed assets in convertible securities. “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
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 35% of its managed assets in convertible securities and 80% of its managed assets in a diversified portfolio
of convertible and non-convertible income securities.
Zero
Coupon and Payment-in-Kind Securities
Investments
in zero coupon and payment-in-kind securities are subject to certain risks, including that market prices of zero coupon and payment-in-kind
securities generally are more volatile than the prices of securities that pay interest periodically and in cash, and are likely
to respond to changes in interest rates to a greater degree than other types of debt securities with similar maturities and credit
quality. Because zero coupon securities bear no interest, their prices are especially volatile. And because zero coupon bondholders
do not receive interest payments, the prices of zero coupon securities generally fall more dramatically than those of bonds that
pay interest on a current basis when interest rates rise. However, when interest rates fall, the prices of zero coupon securities
generally rise more rapidly in value than those of similar interest paying bonds. Under many market and other conditions, the
market for the zero coupon and payment-in-kind securities may suffer decreased liquidity making it difficult for the Fund to dispose
of them or to determine their current value. In addition, as these securities may not pay cash interest, the Fund’s investment
exposure to these securities and their risks, including credit risk, will increase during the time these securities are held in
the Fund’s portfolio. Further, to maintain its qualification for treatment as a regulated investment company and to avoid
Fund-level U.S. federal income and/or excise taxes, the Fund is required to distribute to its shareholders any income it is deemed
to have received in respect of such investments, notwithstanding that cash has not been received currently, and the value of paid-in-kind
interest. Consequently, the Fund may have to dispose of portfolio securities under disadvantageous circumstances to generate the
cash, or may have to leverage itself by borrowing the cash to satisfy this distribution requirement. The required distributions,
if any, would result in an increase in the Fund’s exposure to these securities.
High
Yield Securities
A
substantial portion of the Fund’s assets may be invested in below investment grade (high yield) 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 net assets in securities of foreign issuers. 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.
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.
1
A 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
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 without limit 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.
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:
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(1)
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Issue
senior securities, except as permitted by the 1940 Act and the rules and interpretive
positions of the SEC thereunder.
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(2)
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Borrow
money, except as permitted by the 1940 Act and the rules and interpretive positions of
the SEC thereunder.
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(3)
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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.
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(4)
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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.
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(5)
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Invest
in physical commodities or contracts relating to physical commodities.
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(6)
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Act
as an underwriter, except as it may be deemed to be an underwriter in a sale of securities
held in its portfolio.
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(7)
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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.
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(8)
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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.
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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:
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PORTFOLIOS
IN
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PRINCIPAL
OCCUPATION(S)
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NAME
AND
YEAR OF BIRTH
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POSITION(S)
WITH FUND
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FUND
COMPLEX^
OVERSEEN
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DURING
THE PAST 5 YEARS
AND OTHER DIRECTORSHIPS
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John P. Calamos, Sr. (1940)*
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Chairman, Trustee and President
(since 1988) Term Expires 2023 Co-Portfolio Manager (since inception)
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26
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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
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Trustees Who Are Not Interested
Persons of the Fund:
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PORTFOLIOS
IN
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PRINCIPAL
OCCUPATION(S)
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NAME
AND
YEAR OF BIRTH
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POSITION(S)
WITH FUND
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FUND
COMPLEX^
OVERSEEN
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DURING
THE PAST 5 YEARS AND
OTHER DIRECTORSHIPS
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John E. Neal (1950)
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Trustee (since 2002); Lead Independent Trustee
(since July 2019) Term Expires 2021
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26
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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)
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William R. Rybak (1951)
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Trustee (since 2002) Term Expires 2023
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26
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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)
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Virginia G. Breen (1964)
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Trustee (since 2015) Term Expires 2022
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26
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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)****
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PORTFOLIOS
IN
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PRINCIPAL
OCCUPATION(S)
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NAME
AND
YEAR OF BIRTH
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POSITION(S)
WITH FUND
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FUND
COMPLEX^
OVERSEEN
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DURING
THE PAST 5 YEARS AND
OTHER DIRECTORSHIPS
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Lloyd A. Wennlund (1957)
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Trustee (since 2018) Term Expires 2022
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26
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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)
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Karen L. Stuckey (1953)
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Trustee (since December 2019) Term Expires
2021
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26
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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)
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Christopher M. Toub (1959)
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Trustee (since December 2019) Term Expires
2023
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26
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Private investor; formerly, Director of Equities,
AllianceBernstein LP (until 2012)
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*
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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.
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**
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Overseeing
131 portfolios in fund complex.
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***
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Overseeing
eighteen portfolios in fund complex.
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****
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Overseeing
four portfolios in fund complex.
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^
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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.
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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.
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NAME AND
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YEAR OF BIRTH
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POSITION(S)
WITH FUND
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PRINCIPAL
OCCUPATION(S)
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Robert F. Behan (1964)
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Vice President (since 2013)
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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)
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Thomas E. Herman (1961)
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Vice President (since 2016) and Chief Financial Officer (2016-2017 and since August 2019)
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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)
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J. Christopher Jackson (1951)
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Vice President and Secretary (since 2010)
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Senior Vice President, General Counsel and Secretary, CAM, CILLC, Calamos Advisors, CWM and
CFS (since 2010); Director, Calamos Global Funds plc (since 2011)
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John S. Koudounis (1966)
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Vice President (since 2016)
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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.
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Mark J. Mickey (1951)
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Chief Compliance Officer (since 2005)
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Chief Compliance Officer, Calamos Funds (since 2005)
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Stephen Atkins (1965)
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Treasurer (since March 2020)
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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)
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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:
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•
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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;
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•
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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;
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•
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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;
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•
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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;
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•
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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;
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•
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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
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•
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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
|
|
$
|
8,336
|
|
|
$
|
177,917
|
|
|
John E. Neal(1)
|
|
$
|
9,765
|
|
|
$
|
207,917
|
|
|
William R. Rybak
|
|
$
|
8,812
|
|
|
$
|
187,917
|
|
|
Karen L. Stuckey(2)
|
|
$
|
7,860
|
|
|
$
|
167,917
|
|
|
Christopher M. Toub(2)
|
|
$
|
7,860
|
|
|
$
|
167,917
|
|
|
Lloyd A. Wennlund
|
|
$
|
8,336
|
|
|
$
|
177,917
|
|
|
Mark J. Mickey
|
|
$
|
7,150
|
|
|
$
|
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.
|
|
|
|
|
AGGREGATE DOLLAR RANGE
OF EQUITY
SECURITIES IN ALL
REGISTERED
|
|
|
|
DOLLAR RANGE
|
|
INVESTMENT COMPANIES
|
|
|
|
OF EQUITY SECURITIES
|
|
OVERSEEN BY TRUSTEE IN THE
|
|
NAME
OF TRUSTEE
|
|
IN
THE FUND
|
|
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 $9,363,206, $9,012,929 and $9,362,348
respectively, in advisory fees.
The
investment management agreement had an initial term ending August 1, 2003 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)
|
|
$100,001 – $500,000
|
|
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 $52,630,
$48,931, 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 $84,693, $79,226 and $82,471, 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 $93,840, $100,026, and $0, respectively, for administration services. Under a prior agreement for administration
services, the Fund paid the previous service provider $0, $0 and $135,065 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
|
|
National Financial Services
LLC
499 Washington Blvd.
Jersey City, NJ 07310
|
|
|
8,854,587
|
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Schwab & Co., Inc.
2423 E. Lincoln Drive
Phoenix, AZ 85016-1215
|
|
|
6,835,312
|
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrill Lynch Pierce Fenner & Smith
4804 Deer Lake Dr. E.
Jacksonville, FL 32246
|
|
|
6,654,419
|
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morgan
Stanley Smith Barney LLC
1300
Thames Street
6th
Floor
Baltimore,
MD 21231
|
|
|
6,107,665
|
|
|
|
8.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UBS Financial Services Inc.
1000
Harbor Blvd
Weehawken, NY 07086
|
|
|
5,539,585
|
|
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TD Ameritrade
200 S. 108th Ave
Omaha, NE 68154
|
|
|
4,917,619
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo Clearing Services LLC
2801
Market Street
H0006-09B
St. Louis, MO
63103
|
|
|
4,611,582
|
|
|
|
6.5
|
%
|
|
Class of Shares
|
|
Name and Address of Beneficial
Owner
|
|
Number of
Shares
Owned
|
|
|
Percent of
Class
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Mandatory Redeemable Preferred
Shares
|
|
Massachusetts Mutual Life Insurance
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
1,050,000
|
|
|
|
78.9
|
%
|
|
|
|
c/o Barings LLC
|
|
|
|
|
|
|
|
|
|
|
|
1500 Main Street – Suite 2200
|
|
|
|
|
|
|
|
|
|
|
|
P.O. Box 15189
|
|
|
|
|
|
|
|
|
|
|
|
Springfield, MA 0115-5189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Massachusetts Mutual Life Insurance
|
|
|
280,000
|
|
|
|
21.1
|
%
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
c/o Barings LLC
|
|
|
|
|
|
|
|
|
|
|
|
1500 Main Street – Suite 2200
|
|
|
|
|
|
|
|
|
|
|
|
P.O. Box 15189
|
|
|
|
|
|
|
|
|
|
|
|
Springfield, MA 0115-5189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Mandatory Redeemable Preferred
Shares
|
|
Massachusetts Mutual Life Insurance
|
|
|
1,050,000
|
|
|
|
78.9
|
%
|
|
|
|
Company
c/o
Barings LLC
|
|
|
|
|
|
|
|
|
|
|
|
1500 Main Street – Suite 2200
|
|
|
|
|
|
|
|
|
|
|
|
P.O. Box 15189
|
|
|
|
|
|
|
|
|
|
|
|
Springfield, MA 0115-5189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Massachusetts Mutual Life Insurance
|
|
|
280,000
|
|
|
|
21.1
|
%
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
c/o Barings LLC
|
|
|
|
|
|
|
|
|
|
|
|
1500 Main Street – Suite 2200
|
|
|
|
|
|
|
|
|
|
|
|
P.O. Box 15189
|
|
|
|
|
|
|
|
|
|
|
|
Springfield, MA 0115-5189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C Mandatory Redeemable Preferred
Shares
|
|
Massachusetts Mutual Life Insurance
|
|
|
1,060,000
|
|
|
|
79.1
|
%
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c/o Barings LLC
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1500 Main Street – Suite 2200
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P.O. Box 15189
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Springfield, MA 0115-5189
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Massachusetts Mutual Life Insurance
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280,000
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20.9
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c/o Barings LLC
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1500 Main Street – Suite 2200
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P.O. Box 15189
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Springfield, MA 0115-5189
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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 51% 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
(a)
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 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.
(b)
(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 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:
(a)
the Company has paid or deposited with the Trustee a sum sufficient to pay
(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.