Calamos CEFs Price Returns Exceeded Both Respective NAV and ...

www.calamos.com/cef

FEBRUARY 2017

ROBERT F. BUSH, JR. SVP, DIRECTOR OF CLOSED-END FUND PRODUCTS

Calamos CEFs Price Returns Exceeded Both Respective NAV and Relative Index Returns Through February 2017 » Calamos CEFs have started the year off with price returns through February well in excess of both their respective NAV and relative index returns. » Price outperformance relative to NAV also contributed to mitigation of Calamos CEF discounts across all funds during the period. » The overall CEF space also experienced similar dynamics as investors pursued post-election equity and fixed income market returns. » Above average discounts across many funds at 2016’s year-end offered access to both market participation and yield, while providing opportunistic entry points. » In spite of rising short-term interest rates, Calamos CEFs leverage costs have experienced only minimal increases due to our renegotiated bank lending agreements and reallocation among facilities to achieve more favorable terms. » Although discounts have narrowed year-to-date, opportunities still exist to buy CEFs at discounts to NAV and at discounts below lifetime averages. » CEFs are excellent examples with respect to the benefits of actively managed portfolios in their ability to produce compelling total returns and high distributions with lower correlations to fixed income markets and the optimal use of leverage. We believe improving equity and fixed income markets should encourage further investment as values continue to exist in the secondary market. All Calamos CEF discounts narrowed considerably for the first two months of 2017, reduced between 29% for CCD and up to 69% for CHI. Although costs are rising slightly, leverage continues to contribute to overall returns as the reinvestment rate far exceeded borrowing costs through February. Calamos CEF borrowing costs are being managed, as mentioned above, to optimize potential returns. Calamos CEFs have meaningful exposure to equity sensitive investments that continue to provide income, but we believe the funds’ relatively low durations do not unduly subject them to rising interest rates. CEFs are well positioned to continue to provide income through improving NAVs, while allowing clients to potentially participate in improving equity markets.

All Calamos CEFs are trading at discounts, suggesting value to underlying portfolios. CGO as of 2/28/17, was trading below its historical average discount (-5.64% vs. -4.49%). CCD offers compelling value given that its discount at 6.75% as of 2/28/17 is above the peer group average discount of 5.64% as of 2/28/17 and the discounts of sister convertible funds CHI and CHY, with discounts of only 3.83% and 1.26%, respectively at period end. Given their ability to optimize the use of leverage and participate in the upside in multiple and diverse markets and disciplines while generating high distribution levels with lower correlations to fixed income markets, in our opinion closed-end funds represent a great case for the benefits of active management.

UNIQUE VALUES STILL AVAILABLE Although discounts have narrowed in all Calamos CEFs, many are still wider than their respective lifetime averages. 1/3/17 DISCOUNT (-)

2/28/17 DISCOUNT (-)

CHI

-4.09%

-1.26%

CHY

-6.17

-3.83

AVERAGE LIFETIME PREM (+) DISC (-)

4.32% -0.75

CSQ

-14.39

-8.41

-9.50

CGO

-11.09

-5.64

-4.49

CHW

-14.39

-9.14

-11.33

CCD

-9.47

-6.75

-7.75

Data as of 2/28/17. Source: Morningstar Direct and CEF Connect.

COMPELLING DISTRIBUTION RATES With price decline disproportionate to NAV performance, distribution rates on Calamos CEFs far surpass those of relevant indexes and ETFs. 2/28/17 DISTRIBUTION RATE

CHI

10.38%

CHY

10.63

CSQ

8.91

CGO

10.25

CHW

10.84

CCD

10.59

S&P 500 Index

2.02

10-Year Treasury

2.36

Bloomberg Barclays Capital U.S. Aggregate Bond Index

2.22

BAML US HY Master II

7.03

SPDR Bloomberg Barclays Convertible Bond ETF (CWB)

4.32 (YTW)

Data as of 2/28/17. Source: Morningstar Direct.

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CALAMOS CEFS PRICE RETURNS EXCEEDED BOTH RESPECTIVE NAV AND RELATIVE INDEX RETURNS THROUGH FEBRUARY 2017

PERFORMANCE PRICE VS. RELEVANT INDEXES (2017 YTD) In spite of overselling in the CEF space, price performance of the Calamos CEFs has been relatively similar, in some cases superior, in comparison to relevant indexes. MARKET PRICE TOTAL RETURN

NAV TOTAL RETURN

CHI

10.17%

5.10%

CHY

8.64

5.05

CSQ

9.97

6.11

CGO

12.09

6.20

CHW

12.51

6.57

CCD

9.34

5.92

MSCI World Index

5.33

S&P 500 Index

5.94

BAML All Convertibles Index

4.63

Credit Suisse U.S. HY Index

2.69

Data as of 2/28/17. Source: CEF Connect. Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value of an investment will fluctuate so that your shares, when sold, may be worth more or less than their original cost. Returns at NAV reflect the deduction of the Fund’s management fee, debt leverage costs and other expenses.

Calamos CEFs trade at least comparably, and in some cases better, relative to NAV with respect to the average of their peers. MORNINGSTAR CATEGORY

2/28/17 DISCOUNT

2/28/17 CATEGORY AVG. DISCOUNT

CHI

U.S. Convertibles

1.26%

5.64%

CHY

U.S. Convertibles

3.83

5.64

CCD

U.S. Convertibles

6.75

5.64

CSQ

Allocation—50% to 70% Equity

8.41

8.46

CHW

World Allocation

9.14

7.83

CGO

World Allocation

5.64

7.83

Data as of 2/28/17. Source: Morningstar Direct.

February 2017 Takeaways » Although discounts have narrowed in all Calamos CEFs, many are still wider than their respective lifetime average. » Calamos CEFs continue to maintain higher distribution levels, relative to both comparable indexes and on an absolute basis. » Leverage costs continue to be managed aiming to be beneficial to the overall return of the portfolio.

FEBRUARY 2017  3

» Calamos CEFs offer yield through diversified portfolios, not subject to overvalued sectors or high duration bonds.

» All Calamos CEFs have experienced solidly improving NAVs, thereby validating distribution levels.

» Calamos CEF holdings and positioning are consistent with our economic overview.

» Calamos’ ability to manage risk and volatility through professionally managed portfolios is an important investment consideration.

In spite of the narrowing of discounts, value and investment rationale still exist. Calamos CEF Premium/Discount (2017 YTD)

In the following charts, the green arrow represents discount improvements as of 2/28/17 from recent wide levels at the start of 2017.

CALAMOS CONVERTIBLE AND HIGH INCOME FUND–CHI PREMIUM DISCOUNT (1/3/17 - 2/28/17) Premium / Discount

4%

2%

0%

-1.26%

-2%

Discount narrowed by 69% since 1/3/17 -4%

-4.09%

-6%

-8% JAN ‘17

FEB ’17

Data as of 2/28/17. Source: CEF Connect.

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CALAMOS CONVERTIBLE OPPORTUNITIES AND INCOME FUND–CHY PREMIUM DISCOUNT (1/3/17 - 2/28/17) Premium / Discount

4%

2%

0%

-2%

-4%

-6%

-3.83%

Discount narrowed by 38% since 1/3/17

-6.17%

-8% JAN ‘17

FEB ’17


CALAMOS DYNAMIC CONVERTIBLE AND INCOME FUND–CCD PREMIUM DISCOUNT (1/3/17 - 2/28/17) Premium / Discount

4%

-2%

-6% -6.75% Discount narrowed by 29% since 1/3/17

-10% -9.47%

-14%

JAN ‘17

FEB ’17


FEBRUARY 2017  5

CALAMOS STRATEGIC TOTAL RETURN FUND–CSQ PREMIUM DISCOUNT (1/3/17 - 2/28/17) Premium / Discount

2%

-2%

-6%

-10%

-9.14% Discount narrowed by 36% since 1/3/17

-14% -14.39% -18%

-22% JAN ‘17

FEB ’17


CALAMOS GLOBAL DYNAMIC INCOME FUND–CHW PREMIUM DISCOUNT (1/3/17 - 2/28/17) Premium / Discount

4%

0%

-4%

-8% -9.14% -12% Discount narrowed by 36% since 1/3/17 -16% -14.39%

-20%

JAN ‘17

FEB ’17


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CALAMOS GLOBAL TOTAL RETURN FUND–CGO PREMIUM DISCOUNT (1/3/17 - 2/28/17) Premium / Discount

4%

0%

-4% -5.64% -8% Discount narrowed by 49% since 1/3/17 -12%

-11.09%

-16% JAN ‘17

FEB ’17


FEBRUARY 2017  7

Index Definitions The Bloomberg Barclays Capital U.S. Aggregate Bond Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market. The S&P 500 Index is generally considered representative of the U.S. stock market. The BofA Merrill Lynch All U.S. Convertibles Index tracks the performance of U.S.-dollar-denominated convertible securities that are not currently in bankruptcy and have total market values of more than $50 million in issuance. The Bloomberg Barclays High Yield Very Liquid Index is designed to measure the performance of publicly issued U.S. dollar denominated high yield corporate bonds with above-average liquidity. The MSCI World Index is a market capitalization weighted index composed of companies representative of the market structure of developed market countries in North America, Europe, and Asia/Pacific region. The Credit Suisse U.S. High Yield Index consists of U.S. dollar-denominated high yield issues of developed countries. The World-Allocation Morningstar Category portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. While these portfolios do explore the whole world, most of them focus on the U.S., Canada, Japan, and the larger markets in Europe. It is rare for such portfolios to invest more than 10% of their assets in emerging markets. These portfolios typically have at least 10% of assets in bonds, less than 70% of assets in stocks, and at least 40% of assets in non-U.S. stocks or bonds. The U.S. Convertible Morningstar Category portfolios are designed to offer some of the capital-appreciation potential of stock portfolios while also supplying some of the safety and yield of bond portfolios. To do so, they focus on convertible bonds and convertible preferred stocks. Convertible bonds allow investors to convert the bonds into shares of stock, usually at a preset price. These securities thus act a bit like stocks and a bit like bonds. The Allocation—50% to 70% Equity Morningstar Category funds seek to provide both income and capital appreciation by investing in multiple asset classes, including stocks, bonds, and cash. These portfolios are dominated by domestic holdings and have equity exposures between 50% and 70%. Unmanaged index returns assume reinvestment of any and all distributions and, unlike fund returns, do not reflect fees, expenses or sales charges. Investors cannot invest directly in an index. Risks Information contained herein is for informational purposes only. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Investing in our securities involves certain risks. You could lose some or all of your investment. Investments by the funds in lower-rated securities involve substantial risk of loss and present greater risks than investments in higher rated securities, including less liquidity and increased price sensitivity to changing interest rates and to a deteriorating economic environment. Fixed income securities are subject to interest-rate risk; as interest rates go up, the value of debt securities in the Funds’ portfolio generally will decline. There are certain risks associated with an investment in a convertible bond such as default risk—that the company issuing a convertible security may be unable to repay principal and interest,—and interest rate risk—that the convertible may decrease in value if interest rates increase. Global Total Return and Global Dynamic Income funds may invest in derivative securities. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional

securities. There is no assurance that any derivative strategy used by the Funds will succeed. One of the risks associated with purchasing an option is that the Funds pay a premium whether or not an option is exercised. Shares of closed-end funds frequently trade at a market price that is below their net asset value. Leverage creates risks which may adversely affect return, including the likelihood of greater volatility of net asset value and market price of common shares; and fluctuations in dividend rates on any preferred shares. As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries. Investment policies, management fees and other matters of interest to prospective investors may be found in each closed-end fund prospectus. Information contained herein is for informational purposes only and should not be considered investment advice. NAV or Net Asset Value refers to the net value of all the assets held in the funds.

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