Understanding Our Unconstrained Approach to Equity Investing

Understanding Our Unconstrained Approach to Equity Investing A Collection of Insights on the Calamos Phineus Long/Short Fund (CPLIX) THIRD QUARTER 2017

Inside: The Long/Short Model. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Flexibility of Calamos Phineus Long/Short Fund. . . . . . . . 7 CPLIX Investment Process and Edge. . . . . . . . . . . . . . . . . 9 Using ETFs to Manage Long and Short Exposure . . . . . . 10 Jumpy Markets? This ‘Half Caff’ Blend Cuts Back on the Volatility While Pursuing Better Returns . . . . . . . 13 Now Try This: How 2 Alts Handle Volatility in a Retirement Portfolio. . . . . . . . . . . . . . . . . . . . . . . . 19 CPLIX Makes News for Unconstrained Approach that Gets Results. . . . . . . . . . . . . . . . . . . . . . 22 For the Fence Straddlers: Making Sense of Valuations, Volatility and Interest Rates. . . . . . . . . . . . . . . . . . . . . . 23 Understanding the Long/Short Funds Category . . . . . . . 29

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. There can be no assurance that the Calamos Phineus Long/Short Fund’s investment objectives will be achieved. For a greater discussion of relevant terms and indexes, please see the Glossary and Notes, starting on page 33.

FOR INVESTMENT PROFESSIONALS ONLY

Understanding Our Unconstrained Approach to Equity Investing A collection of insights on the Calamos Phineus Long/Short Fund (CPLIX) Calamos Phineus Long/Short Fund was launched in April 2016 following the September 2015 acquisition of San Francisco-based Phineus Partners LP by Calamos. Michael Grant, Senior Co-Portfolio Manager, launched Phineus’ Long/Short hedge fund in 2002 and continues to manage the mutual fund with the same investment approach. Because the approach and GIPScompliant investment history of Phineus Partners’ long/short hedge fund is consistent with the transparency and liquidity requirements of a ‘40 Act fund, the fund retained the strategy’s investment performance track record. CPLIX’s equity-like returns, achieved with a superior risk profile over full market cycles, have outpaced both the S&P 500 and the MSCI World Index since its inception in May of 2002. Calamos has more than 20 years of expertise outside of traditional asset classes, and ranks as the 8th alternative fund manager by AUM in the Morningstar Alternatives Category as of 6/30/17. This compilation of fund commentary was created in the last year, and reflects our commitment to educating financial advisors on using innovative strategies to effectively manage risk and reward across client portfolios.

For more updated information and data, please contact your Calamos Investment Consultant at 888-571-2567 or [email protected].

AVERAGE ANNUAL RETURNS*

1-YEAR

3-YEAR

5-YEAR

10-YEAR

SINCE INCEPTION

Calamos Phineus Long/Short Fund I shares – at NAV (Inception —5/1/02) A shares – at NAV (Inception —5/1/02) A shares – Load adjusted MSCI World Index S&P 500 Index HFRI Equity Hedge Index Morningstar Long/Short Equity Category

27.69% 27.41 21.32 18.86 17.90 12.51 8.87

9.07% 8.78 7.04 5.83 9.61 3.04 2.26

11.32% 11.03 9.95 12.01 14.63 6.34 6.29

10.17% 9.90 9.36 4.56 7.18 2.75 3.87

11.90% 11.61 11.25 7.27 7.67 5.12 2.54

Data as of 6/30/17. Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. You can obtain performance data current to the most recent month end by visiting www.calamos.com. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load of 4.75%. Had it been included, the Fund’s return would have been lower. For the most recent month-end fund performance information visit www.calamos.com. *The performance shown for periods prior to 4/5/16 is the performance of a predecessor investment vehicle (the “Predecessor Fund”). The Predecessor Fund was reorganized into the Fund on 4/5/16, the date upon which the Fund commenced operations. On 10/1/15 the parent company of Calamos Advisors, purchased Phineus Partners LP, the prior investment adviser to the Predecessor Fund (“Phineus”), and Calamos Advisors served as the Predecessor Fund’s investment adviser between 10/1/15 until it was reorganized into the Fund. Phineus and Calamos Advisors managed the Predecessor Fund using investment policies, objectives, guidelines and restrictions that were in all material respects equivalent to those of the Fund. Phineus and Calamos Advisors managed the Predecessor Fund in this manner either directly or indirectly by investing all of the Predecessor Fund’s assets in a master fund structure. The Predecessor Fund performance information has been adjusted to reflect Class A and I shares expenses. However, the Predecessor Fund was not a registered mutual fund and thus was not subject to the same investment and tax restrictions as the Fund. If it had been, the Predecessor Fund’s performance may have been lower. Returns for periods greater than 12 months are annualized. Calendar year returns measure net investment income and capital gain or loss from portfolio investments for each period specified. Average annual total return measures net investment income and capital gain or loss from portfolio investments as an annualized average. All performance shown assumes reinvestment of dividends and capital gains distributions. In calculating net investment income, all applicable fees and expenses are deducted from the returns. The Fund also offers C shares, the performance of which may vary. As of the prospectus dated 4/5/16, the Fund’s gross expense ratios for Class A shares is 3.65%; and Class I shares is 3.40%.

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CALAMOS PHINEUS LONG/SHORT FUND INSIGHTS

Calamos Global Long/Short Portfolio Team Michael Grant Senior Co-Portfolio Manager Michael Grant founded the Calamos Phineus Long/Short strategy after a long career (1986-2001) in the traditional long-only investment world. He is passionately committed to his investment approach and to his fiduciary responsibilities. He has always invested a significant majority of his liquid net worth in the strategy, alongside our clients. Prior to founding Phineus, Michael Grant was a Managing Director of Schroder Investment Management (1990-2001; London, Hong Kong and San Francisco) where he was directly responsible for more than $2 billion in U.S. long-only equity mandates. At Schroders, he was Head of the Global Technology Team and had performance responsibility for the firm’s global technology portfolios. Prior to leading their global research efforts in technology, Michael held a variety of investment positions at Schroders including Head of the U.S. Equity Team in London from 1996 to 1998. Michael worked as a portfolio manager for the National Investment Trust Co. (1987-1989) in Taipei, Republic of China, where he managed global equity portfolios and was one of the country’s first foreign fund managers. He entered the investment management industry in 1985 as a U.S. equity analyst for the Principal Group in Canada. Michael Grant earned a Master’s Degree from the London School of Economics, where he specialized in International History. He also holds a Bachelor of Commerce Degree from the University of Alberta, Canada, where he received the Highest Honors Award for graduating at the top of his class. The Financial Executives Institute also awarded him the Silver Medal in Finance for achieving the highest standing in their Finance program.

Glen Ingalls, Senior Analyst Glen Ingalls has served as a Research Analyst for the Calamos Phineus Long/Short strategy since September 2005. He is closely involved in generating ideas and recommending stocks and focuses his efforts upon evaluating industry trends, interviewing management teams and assessing company business models. Over the course of 15 years as an analyst, he formed extensive relationships with Street and industry sources. Prior to working for Phineus, Glen was a Principal at Soundview Technology Group, a technology focused investment bank, where he covered the computer hardware and storage industry. He was also responsible for the Data Center surveys conducted in conjunction with Gartner Group as well as SoundView’s annual storage conference. Glen has four years of operational experience in the software industry as a systems analyst at Oracle. He earned an MBA with Honors from the University of California at Berkeley and a BA from Yale University.

Jimmy Atkinson, Senior Analyst Jimmy Atkinson joined Calamos in 2016 and has 17 years of industry experience. He is closely involved in generating ideas and recommending stocks, as well as portfolio construction and risk management. Prior to joining Calamos, Jimmy served as a CFO/COO for the Sub-Sahara Capital Group. He also served as a trader/ analyst for global long/short equity products at Phineus Partners and Bellman Water Capital. Jimmy received a B.B.A. in Finance and Accounting from the University of Hawaii.

WWW.CALAMOS.COM/CPLIX 3

When Flexibility and Opportunity Meet: CPLIX Compelling Long-Term Performance Producing equity-like returns—including in 2016, besting both the Standard & Poor’s 500 and MSCI World Index—across full market cycles is the objective of Calamos Phineus Long/Short Fund. CPLIX’s unconstrained approach has led to long-term performance consistency with a superior risk profile. 1-YEAR 1ST PERCENTILE

5-YEAR

10-YEAR

SINCE INCEPTION

8TH PERCENTILE

3RD PERCENTILE

1ST PERCENTILE

1 OF 309 FUNDS

9 OF 111 FUNDS

25%

50%

75%

100%

2 OF 47 FUNDS

1 OF 25 FUNDS

Data as of 6/30/17. 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 and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load of 4.75%. Had it been included, the Fund’s return would have been lower. For the most recent month-end fund performance information visit www.calamos.com. The fund invests using alternative strategies that entail a high degree of risk. Morningstar Ratings are based on I share total return and are through 6/30/17 and will differ for other share classes. The performance shown for periods prior to 4/5/16 is the performance of a predecessor investment vehicle (the “Predecessor Fund”). The Predecessor Fund was reorganized into the Fund on 4/5/16, the date upon which the Fund commenced operations. On 10/1/15 the parent company of Calamos Advisors, purchased Phineus Partners LP, the prior investment adviser to the Predecessor Fund (“Phineus”), and Calamos Advisors served as the Predecessor Fund’s investment adviser between 10/1/2015 until it was reorganized into the Fund. Phineus and Calamos Advisors managed the Predecessor Fund using investment policies, objectives, guidelines and restrictions that were in all material respects equivalent to those of the Fund. Phineus and Calamos Advisors managed the Predecessor Fund in this manner either directly or indirectly by investing all of the Predecessor Fund’s assets in a master fund structure. The Predecessor Fund performance information has been adjusted to reflect Class A and I share expenses. However, the Predecessor Fund was not a registered mutual fund and thus was not subject to the same investment and tax restrictions as the Fund. If it had been, the Predecessor Fund’s performance may have been lower. The Morningstar Long/Short Equity Category funds take a net long stock position, meaning the total market risk from the long positions is not completely offset by the market risk of the short positions. Total return, therefore, is a combination of the return from market exposure (beta) plus any value-added from stock picking or market-timing (alpha). The S&P 500 Index is a market weighted index and is widely regarded as the standard for measuring U.S. stock market performance. The MSCI World Index is a market capitalization weighted index composed of companies representative of the market structure of 21 developed market countries in North America, Europe, and the Asia/Pacific region. Indexes are unmanaged, do not reflect fees, expenses or sales charges, and are not available for direct investment.

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The Long/Short Model This is a transcript of a video interview between Robert Behan, CFA, President and Head of Global Distribution, and Michael Grant, Senior Co-Portfolio Manager, recorded June 29, 2016. Michael Grant breaks down his philosophy and approach to the Calamos Phineus Long/Short Fund. Key topics include the long/short model, manager flexibility, and the structure used to implement investment ideas within the portfolio. Bob Behan: So you have a differentiated approach, very active, making portfolio decisions around allocation of capital. The clients who have known you the longest, how do they frame that and where they allocate you within their portfolios? Michael Grant: One of our clients once described us a macro investor that implements their themes through stock selection. And I think that’s an interesting idea.

WATCH VIDEO »

The long/short manager has his or her head down in the grass, looking very close at the company, the management and so forth. And the weakness of that is that when your head is down in the grass, you don’t see the lawn mower coming from left or right field, right? Now the macro investor is focused on that all the time, right, they’re looking at the big trends, where’s the tsunami coming from? The problem for the macro investor is that’s there’s only one or two key themes in the course of a year to get right or wrong. So your macro investor is either going to get really right or they’re going to get really wrong. They can’t diversify that risk away like you can when you are long or short 40 to 60 names. So a lot of this is about having a toolbox, whether it’s company selection, whether it’s macro thinking, that when the market presents you with different types of problems, you’ve got the tools to respond. And having a model that also allows you to be diversified enough so that when you’re wrong it’s not the worst outcome. Behan: One of the things clients tell me is that they want to give the manager flexibility and, of course, in this new active world being able to go long and go short has a lot of advantages—how do you think about that? To take advantage of these uncertainties and risk—what are the parameters that you might be long and short? And you’ve been running the strategy since 2002, how has that unfolded in these volatile times before? Grant: Probably the most important point is to revisit why equities are a favorable asset class. Everyone understands that. That’s what they’re taught in school. They’re a favorable asset class because when you take risk, you get more return. You are paid to take risk and a lot of investors lose sight of that and they over-diversify and then they stop taking risk and they wonder why there’s no return. So equities as an asset class are very attractive and the advantage of the long/short model and ability to short is to take off some of those tails, volatile, downside moments when it becomes very hard to believe in the long-term story for equities. And again, the long/short model gives us the flexibility to implement that. About threequarters of our returns since 2002 has been generated by the long side, perhaps 20 percent a quarter by the short side. We tactically move our exposures on the long and short side, obviously depending upon our fundamental view, but more importantly the short opportunity is cyclical.


It’s not always there. It was there in spades for 2008, but after 2008 you had the weak balance sheets thrown overboard, Bernie Madoff, other issues made very apparent. Why would you allocate the same resource to shorting in that environment as you did in the pre-2008 environment? So we’re not simply sitting there all the time being short something. Behan: Within your investment toolbox you have both the flexibility to buy individual securities and ETFs. Talk to us a little bit about how you implement your ideas through the portfolio. Grant: Well, generally, we prefer company investments first because when you have a high conviction in fundamentals, it’s a lot easier to stick with that over the long-term. You know, the long-term is where your real returns are achieved. But there are times when I think ETFs make a lot of sense. For example, we have a two percent long exposure in Vietnam. Now, I don’t think it makes sense to buy 20 different Vietnamese stocks, it’s a lot easier to buy a Vietnam ETF for that exposure. And in some cases, and the countries limit foreign involvement. Therefore, the ETFs maybe a preferred way of getting involved. But generally on the long side, we prefer direct investments. We use ETFs actively on the short side because it allows us to shift our exposures on a more tactical basis. You know, Brexit happens and you say well, I need to change my short exposure. If I turn to the analyst team and say, “I need 10 new short names,” it could take a week or two weeks. So the advantage of the ETFs is that you can move quickly to protect the portfolio.

6


Flexibility of Calamos Phineus Long/Short Fund This is a transcript of a video interview between Robert Behan, CFA, President and Head of Global Distribution, and Michael Grant, Senior Co-Portfolio Manager, recorded June 29, 2016. Michael Grant discusses how the Calamos Phineus Long/Short Fund differs from “traditional” long/short funds. Key differentiating characteristics include dynamic asset allocation, manager flexibility and style. Bob Behan: When you look at the other products or your other competitors, how do you see your differentiating characteristics, for vis-a-vis, maybe some of the other more traditional longshort products that are on the market? Michael Grant: Well, the traditional long/short product is very stock-focused and it’s very bottomup driven and obviously we do that as well. So a big

WATCH VIDEO »

part of what we do is traditional analysis of business models, understanding corporate managements, what they’re trying to achieve with their businesses and so forth. And that’s probably 70 percent of our time. Where we differ from other managers is our belief that knowing about the company is not enough. It’s necessary, it’s not sufficient because what drives share prices today is not just the company. There’s a range of industry, style, country, market factors that play into the outcome and you need a process that captures what each of those factors are doing at any point in time. And it’s complex, it’s not easy and typically only one or two of those factors are paramount. But the important point is that you have to have a process to begin with that reflects the nature of the problem we’re trying to solve. And that is a mix of company, industry, style, country, market factors. That’s what we describe as having an inclusive process and that’s the second key aspect of what we do. The third element relates to the concept of flexibility. And I mean this in many ways, but I mean it first as flexibility of style. A lot of managers have one style that they adhere to. They’re value or they’re growth or maybe they’re small cap or maybe they’re just U.S. focused or European focused and so forth. We believe that style is something that should be managed and allocated to, just like you would allocate to industry or country. But there’s a bigger concept here when we use the term flexibility and this is about taking complete responsibility for the final return outcome. To say that you’re an absolute return product, I think you have to incorporate this idea of allocating equity capital to the best opportunities regardless of where they are. Returns are not the outcome of skill; returns are the outcome of skill and opportunity. You can be the best value manager in the world, but if value is not performing, what are you going to tell your client? So our objective is to allocate across the equity universe, whether it’s U.S. versus Europe, large versus small cap, value versus growth, where we think the opportunity is. And that approach is the approach that is going to get you closest to an absolute return approach, versus the relative approach, which I think many of our industry still follow.


But the worst thing a client wants to hear is why you underperformed and your answer is “well, value underperformed.” Well, why were you in value? So taking responsibility for asset allocation is key and I would almost go so far as to say that asset allocation is the secret sauce. It’s the one part of our business that the clients cannot benchmark, right? There’s no ETF out there you can allocate to and go to sleep at night and know that you have the best asset allocation. It’s very dynamically driven and it requires an active view to succeed. And that’s why it’s an important part of our process.

Zephyr Competitive Analysis Use this free tool to compare returns, rankings and MPT stats for any mutual fund and any benchmark.

Visit www.calamos.com/zephyr Contact your Calamos Investment Consultant at 888-571-2567 or [email protected] to schedule a Zephyr tutorial or request a deep-dive Zephyr report.

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CPLIX Investment Process and Edge 1. Fundamental and global approach, incorporating a blend of top-down and bottom-up considerations » Combines advantages of both global macro and traditional

FUND TICKER SYMBOLS A Shares C Shares I Shares CPLSX CPCLX CPLIX

long/short investing 2. Company analysis integrated with industry and thematic research » Advantage is analytical and behavioral, not dependent on an information edge 3. Inclusive framework for managing potential returns and associated risks – stock, industry, style, country and market factors » Equity allocation across styles, market cap, industries and geography avoids limitations of single-style and benchmark-focused strategies 4. Flexible, pragmatic approach adjusts exposures depending upon market conditions and the economic cycle » Employs all investment styles, responding to market opportunity with an absolute return mindset

SOURCES OF STOCK VOLATILITY

SOURCES OF RISK-ADJUSTED PORTFOLIO CONVICTIONS

SOURCES OF POTENTIAL RETURN

MACRO MACRO MACROFACTORS FACTORS FACTORS Ability Ability Abilityto to toadd add addvalue value value

Style Style Style

TOP TOP TOPDOWN DOWN DOWN CONTRIBUTORS CONTRIBUTORS CONTRIBUTORS

Country Country Country Country/ Country/ Country/ Market Market Market

Style Style Style Market Market Market Ability Ability Abilityto to todiversify diversify diversify

MICRO MICRO MICROFACTORS FACTORS FACTORS

Industry Industry Industry

BOTTOM BOTTOM BOTTOMUP UP UP CONTRIBUTORS CONTRIBUTORS CONTRIBUTORS

Stock Stock Stock Industry Industry Industry

Portfolio Portfolio Portfoliodisciplines disciplines disciplines

Stock Stock Stock

There can be no assurance that the Calamos Phineus Long/Short Fund’s investment objectives will be achieved.

For more information, please talk to your Calamos Investment Consultant at 888-571-2567 or [email protected].


Using ETFs to Manage Long and Short Exposure Originally appeared as an Investment Ideas blog post, written by Calamos Senior Vice President Robert F. Bush, Jr. Active management of long and short exposure is a key differentiator between Calamos Phineus Long/Short Fund and its long/short equity competitors. Over the 15 years since the fund’s inception, the fund has achieved its returns with an average net exposure of approximately 27%.

CPLIX EXPOSURE GUIDELINES REFLECT THE TEAM’S SENSE OF BEST POSTIONING THROUGH A PARTICULAR MARKET CYCLE HISTORICAL RANGE

CURRENT RANGE 2002-2008

Gross Long Exposure Gross Short Exposure Total Gross Exposure Net Exposure

AVERAGE*

2009-2016

AVERAGE*

+56%

Gross Long Exposure

60% to 120%

+81%

20% to 80%

-35%

Gross Short Exposure

20% to 80%

-54%

80% to 180%

+91%

Total Gross Exposure

80% to 180%

+135%

-20% to +40%

+21%

Net Exposure

-20% to +80%

+27%

40% to 80%

*Calculated as average of month-end data through December of the final year.

Exposure limits have been in place largely since the fund’s inception in 2002 and are consistent with what has been achieved: keeping up with markets when they’re rising while minimizing drawdowns when markets are falling. In recent discussions, advisors have marveled at the fact that CPLIX beat the Standard & Poor’s 500 in the last two consecutive years, despite how very different 2015 and 2016 were. In fact, that was a feat accomplished by just 3% of all active large cap managers (source: Morningstar, data as of 12/31/16). This ability to maintain low market exposure while outperforming the major benchmarks partly reflects an adroit use of exchange-traded funds (ETFs) as risk management tools. Our global long/short team uses ETFs to access long and short exposures to various sector and geographic themes, as well as to hedge downside risk. (Financial advisors, for information on the fund’s current holdings, download the most recent quarter’s portfolio data or talk to a Calamos Investment Consultant.) ETFs have been an ongoing part of the Calamos Phineus Long/Short Fund’s strategy since the beginning. As the ETF market has developed over the past 15 years, the opportunity has expanded. When the fund increased its long exposure guidelines after 2008 (partly to take advantage of the secular buy opportunity), the use of ETFs became more prevalent on both the long and short side.

Reducing Idiosyncratic Risk Portfolio management seeks to optimize flexibility and efficiency (e.g., the specific targeting of themes).

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Individual securities are used to provide a defined and precise investment theme at the corporate level, while ETFs are baskets of securities and can reduce the idiosyncratic risk of individual companies. We believe that ETFs, when used in tandem with individual securities, can create additional opportunities for return without increasing the overall risk of the portfolio. For U.S. investments, it is not uncommon for the fund to have positions (long and short) in both companies and ETFs that reflect a common sector bias. Such was the case recently, when the fund was short both a consumer staple ETF and individual consumer staples companies. ETFs represent a far larger percentage of positions on the short side than on the long side. This enables greater flexibility for entering and exiting short positions tactically, and for shifting overall portfolio exposures.

CALAMOS PHINEUS LONG/SHORT FUND, ETF EXPOSURE (NET) AS OF 6/30/2017

60%

49%

50% 40% 30% 20% 10% 0%

ETF long net exposure

11.17%

ETF short net exposure

-48.88

Total ETF net exposure

-37.71

Total ETF gross exposure

60.05

11%

LONG

SHORT

The portfolio is actively managed and subject to change daily. Portfolio information is provided for informational purposes only and should not be deemed as a recommendation to buy or sell any securities.

In these instances, and unlike the general bias of the long side, the team is not typically seeking alpha in these adjustments of short exposure. Instead, the team is using ETFs as a tool to hedge either sector or general market uncertainties. “Let’s say that we want to build up the net exposure by 10 or 20 points or vice versa,” explains Michael Grant, Senior CoPortfolio Manager. “The flexibility of ETFs allows us to execute that at will. Otherwise, one might say, ‘I would like to be more short. Please, team, find me some shorts’. And the next four weeks are spent trying to do the due diligence and so forth. The risk is that by the time the shorts are identified the opportunity has moved on.” Individual stocks are also shorted, but the extent of such is heavily driven by the nature of the financial cycle. More generally, shorting at the company level is viewed as a tactical rather than structural opportunity. This is based on the simple fact that companies are designed and motivated to grow, prosper and succeed, not fail.

ETFs for Non-U.S. Holdings For non-U.S. investments, the team selectively uses ETFs on the long side of the ledger, especially in emerging markets (EM) where markets can be especially nuanced. For example, the fund has used ETFs to gain select EM exposure in Vietnam, India and Mexico.


In the team’s experience, there are often circumstances when it’s more appropriate to focus on making top-down judgments. ETFs provide a more effective way to capture these top-down themes versus emphasizing individual security convictions. That said, individual security selection is a vital part of the long portfolio. On the short side, the use of individual securities is less common overseas than in the U.S. While the team’s portfolio guidelines include restrictions on individual equity positions (5% cap on long, 3% cap on short), they don’t apply to ETFs as baskets of securities. As noted earlier, the team uses ETFs to access broad exposure to sector or geographic themes. For example, there was a recent long position in one Europe ETF that stood at approximately 12% of NAV. Sector and major market hedges (U.S. and global) can be used for short exposures, providing the advantage of tactically adjusting the fund’s overall exposure to general market risk. Financial advisors, please see the Calamos Phineus Long/Short Fund profile for more information or talk to your Calamos Investment Consultant at 888-571-2567 or [email protected].

Investment Team Voices and Ideas You’ll find more commentary, insights and ideas on the Calamos Blog: » Investment Team Voices: Perspectives from our Investment Management professionals. » Investment Ideas: Actionable ideas from Calamos Product Management, Distribution and Marketing.

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Jumpy Markets? This ‘Half Caff’ Blend Cuts Back on the Volatility While Pursuing Better Returns Originally appeared as an Investment Ideas blog post. Some people drink coffee for the caffeine—the jolt it provides. Others like the taste but don’t like the jumpiness that accompanies coffee drinking. For them, the solution is a blend: a half caffeinated, half decaf coffee beverage. They get their coffee taste, an energy boost within limits they can tolerate, and many find themselves ultimately drinking more coffee. Here’s an idea for a “half caff” portfolio for your clients who are otherwise made jumpy by volatile markets: a Twenty 50/50 alternative blend that historically has offered reduced volatility and improved returns.

A Fifty Thirty Twenty: 50/50 Alternative Blend The benefits of portfolio diversification come from adding assets that have lower correlations to one another to reduce risk concentration. That’s the underlying premise of using alternative mutual funds (also known as liquid alternatives) that deviate some way from a traditional stock and bond portfolio. But some alternative allocations are more efficient than others. In our view, alternatives used to diversify a portfolio should better shield it from market volatility, ultimately leading to more favorable risk-adjusted returns. In fact, that’s the result when you combine one of our oldest Calamos alternative funds Calamos Market Neutral Income Fund (CMNIX) with our newest Phineus Long/Short Fund (CPLIX). Below we detail the historical results of a hypothetical illustration. FIGURE 1. FIFTY THIRTY TWENTY: 50/50 ALTERNATIVE BLEND HYPOTHETICAL ILLUSTRATION

Traditional Portfolio

Fifty Thirty Twenty: 50/50 Alternative Blend

40%

Bonds

20% ALTERNATIVES 50%: CMNIX 50%: CPLIX

30%

60%

Equities

50%

Equities are represented by the MSCI World Index. Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index. The MSCI World Index consists of the following 23 developed market country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The Bloomberg Barclays U.S. Aggregate Bond Index covers the U.S.-denominated, investment-grade, fixed-rate, taxable bond market of SEC-registered securities. The index includes bonds from the Treasury, Government-Related, Corporate, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS sectors. Indexes are unmanaged, do not reflect fees, expenses or sales charges, and are not available for direct investment.


We call it the Fifty Thirty Twenty: 50/50 because: » We take 10% from a traditional portfolio with 40% allocated to bonds (using the Bloomberg Barclays U.S. Aggregate Bond Index as proxy). » We take 10% from a traditional portfolio with 60% allocated to equities (using the MSCI World Index as proxy). » From that 20%, we allocate half to CMNIX as the fixed income alternative and half to CPLIX as the equity alternative. The performance results date back to the Calamos Phineus Long/Short Fund’s inception date, May 1, 2002.

Fixed Income Diversifier: CMNIX CMNIX diversified the fixed income component. Over the last few years, bonds have been a significant contributor to the performance of the 60/40 portfolio. However, we don’t expect fixed income to provide the level of returns they have in the past, even if rates stay low. Adding a fixed income alternative can provide diversification against fixed income exposures, such as duration and credit risk, while providing returns and risk profile consistent with the characteristics of an intermediate-term bond fund. This alternative blend improved performance during periods of rising interest rates. FIGURE 2. RETURNS IN RISING INTEREST RATE ENVIRONMENTS (NOT ANNUALIZED)


25%

22.40

60% Stocks - 40% Bonds

21.58

20% 15%

15.48 15.03 10.66

10%

9.92 8.06 4.83

5%

0%

7.14

7/1/036/30/04

7/1/056/30/06

1/1/096/30/09

8.43 7.88 6.17

11/1/102/28/11

4.87

8/1/1212/31/13

5/1/1312/31/13

3.13

7/1/1612/31/16

Stocks (equities) are represented by the MSCI World Index. Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index.

Equity Hedge: CPLIX Equity risk is the dominant risk in most portfolios. During periods of market stress especially, correlations between asset classes increase—which exposes the portfolio to potentially large drawdowns. CPLIX can be used to address the market risk from long-only equity strategies because it has the ability to potentially benefit from both stocks that are appreciating in price (the long book) and from those that are declining (the short book). Hedged equity strategies can help clients stay the course during heightened volatility. This alternative blend matched performance during equity bear markets.

14


FIGURE 3. PERFORMANCE OVER MARKET CYCLES INTERNET BUBBLE CRASH 5/1/2002-3/31/2003

RECOVERY 4/1/200310/31/2007

FINANCIAL CRISIS 11/1/20072/28/2009

RECOVERY 3/1/20096/30/2017

ANNUALIZED RETURN

ANNUALIZED RETURN

ANNUALIZED RETURN

ANNUALIZED RETURN

Calamos Phineus Long/Short Fund (CPLIX)

-9.17

21.68

-24.39

16.53

Calamos Market Neutral Income Fund (CMNIX)

6.62

5.80

-13.84

6.09

50% CPLIX – 50% CMNIX

-1.40

13.73

-18.93

11.49


-8.30

14.95

-25.24

11.11

60% Stocks – 40% Bonds

-8.98

14.79

-25.64

10.70


Correlations The low to negative excess returns between CMNIX and CPLIX and the blend of CMNIX/CPLIX suggest that adding this pair of funds to a traditional 60/40 portfolio can be additive as these funds earned their excess returns during different market periods. A recent example was in 2015, when the blend of CMNIX/CPLIX outperformed the flat market in both equities and fixed income.

FIGURE 4. CORRELATIONS

1.00 to 0.80 0.00 to -0.20

0.80 to 0.60 -0.20 to -0.40

0.60 to 0.40 -0.40 to -0.60

0.40 to 0.20 -0.60 to -0.80

0.20 to 0.00 -0.80 to -1.00

CORRELATION MATRIX (EXCESS RETURNS VS 60% STOCKS- 40% BONDS)

CORRELATION MATRIX 5/1/2002-6/30/2017

1

2

3

4

5/1/2002-6/30/2017

5

1

2

3

4


1.00


1.00


0.61 1.00


-0.05 1.00


0.98 0.75 1.00


0.93 0.31 1.00


0.74 0.89 0.83 1.00


0.98 0.11 0.97 1.00


0.63 0.88 0.74 0.99 1.00


5

1.00

Past performance is no guarantee of future results. Stocks (equities) are represented by the MSCI World Index. Bonds are represented by the Bloomberg Barclays U.S. A ggregate Bond Index.

Risk/Reward Profile Adding CPLIX and CMNIX to a traditional portfolio created more favorable risk-adjusted returns over full market cycles. The combination improved both the Sharpe ratio and Sortino ratio, constructing a more efficient allocation.


FIGURE 5. RISK/REWARD PROFILE PERFORMANCE (RETURNS, STD DEV, EXCESS RETURN, ALPHA AND BATTING AVERAGE IN % TERMS) 6/1/2002 TO 6/30/2017 - CALCULATION BENCHMARK: 60% MSCI WORLD INDEX GR USD – 40% BBGBARC US AGG BOND TR USD) ANNUALIZED RETURN

STD DEV

BETA

GAIN DEVIATION

LOSS DEVIATION

SHARPE RATIO

UPSIDE DEVIATION

DOWNSIDE DEVIATION

SORTINO RATIO


12.21

0.73

17.08

14.14

11.03

0.69

11.30

7.62

1.25

Calamos Market Neutral Income Fund ( CMNIX)

4.13

0.24

4.89

2.80

4.40

0.59

3.58

4.16

0.84


8.39

0.84

10.26

8.06

6.93

0.71

5.65

4.29

1.27


7.14

1.00

9.05

5.56

6.96

0.67

1.15

0.89

1.02


6.75

1.00

8.91

5.11

7.10

0.64

0.00

0.00

0.94

AVERAGE ANNUAL RETURNS*

1-YEAR

Calamos Phineus Long/Short Fund I shares – at NAV (Inception —5/1/02) A shares – at NAV (Inception —5/1/02) A shares – Load adjusted

3-YEAR

5-YEAR

10-YEAR

27.69%

9.07%

11.32%

10.17%

27.41

8.78

11.03

SINCE INCEPTION

11.90%

9.90

11.61

21.32

7.04

9.95

9.36

11.25

MSCI World Index

18.86

5.83

12.01

4.56

7.27

S&P 500 Index

17.90

9.61

14.63

7.18

7.67

HFRI Equity Hedge Index

12.51

3.04

6.34

2.75

5.12

8.87

2.26

6.29

3.87

2.54

Morningstar Long/Short Equity Category

Data as of 6/30/17. Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. You can obtain performance data current to the most recent month end by visiting www.calamos.com. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load of 4.75%. Had it been included, the Fund’s return would have been lower. For the most recent month-end fund performance information visit www.calamos.com. *The performance shown for periods prior to 4/5/16 is the performance of a predecessor investment vehicle (the “Predecessor Fund”). The Predecessor Fund was reorganized into the Fund on 4/5/16, the date upon which the Fund commenced operations. On 10/1/15 the parent company of Calamos Advisors, purchased Phineus Partners LP, the prior investment adviser to the Predecessor Fund (“Phineus”), and Calamos Advisors served as the Predecessor Fund’s investment adviser between 10/1/15 until it was reorganized into the Fund. Phineus and Calamos Advisors managed the Predecessor Fund using investment policies, objectives, guidelines and restrictions that were in all material respects equivalent to those of the Fund. Phineus and Calamos Advisors managed the Predecessor Fund in this manner either directly or indirectly by investing all of the Predecessor Fund’s assets in a master fund structure. The Predecessor Fund performance information has been adjusted to reflect Class A and I shares expenses. However, the Predecessor Fund was not a registered mutual fund and thus was not subject to the same investment and tax restrictions as the Fund. If it had been, the Predecessor Fund’s performance may have been lower. Returns for periods greater than 12 months are annualized†. Calendar year returns measure net investment income and capital gain or loss from portfolio investments for each period specified. Average annual total return measures net investment income and capital gain or loss from portfolio investments as an annualized average. All performance shown assumes reinvestment of dividends and capital gains distributions. In calculating net investment income, all applicable fees and expenses are deducted from the returns. The Fund also offers C shares, the performance of which may vary. As of the prospectus dated 4/5/16, the Fund’s gross expense ratios for Class A shares is 3.65%; and Class I shares is 3.40%. † Gross expense ratios for the Phineus Long/Short Fund shown above are as of 2/29/16. As of the prospectus dated 2/28/17, the Fund’s gross expense ratio for Class A shares is 4.29%; and Class I shares is 4.29%. Please see the fund’s prospectus for more information or talk to your Calamos Investment Consultant at 888-571-2567 or [email protected]. AVERAGE ANNUAL RETURNS

1-YEAR

Calamos Market Neutral Income Fund I shares – at NAV (Inception —5/10/00)

3-YEAR

5-YEAR

10-YEAR

SINCE A SHARE INCEPTION

SINCE I SHARE INCEPTION

5.82%

3.17%

3.92%

3.33%

N/A

4.59%

A shares – at NAV (Inception —9/4/90)

5.55

2.89

3.65

3.07

6.36

N/A

A shares – Load adjusted

0.57

1.25

2.56

2.57

6.17

N/A

BBgBarc U.S. Government/Credit Bond Index

-0.41

2.62

2.29

4.57

6.21

5.35

Citigroup 30-Day T-Bill Index

0.42

0.18

0.12

0.43

2.56

1.51

Morningstar Market Neutral Category

2.71

0.35

0.88

0.72

3.96

1.90

Data as of 6/30/17. Performance data quoted represents past performance, which is no guarantee of future results. You can obtain performance data current to the most recent month end by visiting www.calamos.com. Current performance may be lower or higher than the performance quoted. The principal value of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Load-adjusted returns take into account the Fund’s maximum 4.75% front-end sales load. Returns for periods greater than 12 months are annualized. Performance may reflect waivers or reimbursement of certain expenses†. Calendar year returns measure net investment income and capital gain or loss from portfolio investments for each period specified. Average annual total return measures net investment income and capital gain or loss from portfolio investments as an annualized average. All performance shown assumes reinvestment of dividends and capital gains distributions. In calculating net investment income, all applicable fees and expenses are deducted from the returns. As of the prospectus dated 2/29/16, the Fund’s gross expense ratios for Class A shares is 1.23% and Class I shares is 0.98%, respectively‡. The offering price for Class I shares is the NAV per share with no initial sales charge. There are no contingent deferred sales charges or distribution or service fees with respect to Class I shares. The minimum initial investment required to purchase each Fund’s Class I shares is $1 million. Class I shares are offered primarily for direct investment by investors through certain tax-exempt retirement plans (including 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans and non qualified deferred compensation plans) and by institutional clients, provided such plans or clients have assets of at least $1 million. Class I shares may also be offered to certain other entities or programs, including, but not limited to, investment companies, under certain circumstances † Front-end sales loads shown above are as of 6/30/17. As of 2/28/17, the maximum front-end sales load for the Market Neutral Income Fund was reduced to 2.25%. ‡ Gross expense ratios shown above are as of 2/29/16. As of the prospectus dated 2/28/17, the Fund’s gross expense ratio for Class A shares is 1.22%; and Class I shares is 0.97%. Please see the fund’s prospectus for more information or talk to your Calamos Investment Consultant at 888-571-2567 or [email protected]. 16


Asymmetric Up/Down Capture Profile The non-normal return distributions of the underlying alternative strategies used in the funds provide an innovative solution seeking to provide greater upside participation while protecting on the downside. These characteristics aim to create an asymmetrical up/down capture profile that has led to greater upside as the lower losses captured by these strategies often have led to greater gains due to the shorter road to recovery.

FIGURE 6. UP-DOWN CAPTURE (IN % TERMS)

UP CAPTURE RATIO

5/1/2002-6/30/17

180


150


120


90


60


30 0 0

20

40

60

80

100

120

DOWN CAPTURE RATIO Stocks (equities) are represented by the MSCI World Index. Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index.

FIGURE 7. MARKET PERFORMANCE 5/1/2002-6/30/17 Calamos Phineus Long/Short Fund (CPLIX)

50%

41.81

40% 30%

50% CPLIX - 50% CMNIX 60% Stocks - 40% Bonds

Calamos Market Neutral Income Fund (CMNIX) Fifty Thirty Twenty: 50/50 Alternative Blend

31.31 24.81

20% 10% 0% -10% -20%

17.65

15.63 9.14

4.23

12.75

8.12

6.65

Worst Month

Worst Quarter

Best Month

Best Quarter -7.17

-8.77-10.26

-11.17

-15.33

-6.66 -9.37 -10.72 -10.20

- 14.97


Digging deeper into the return distributions of this blend indicates that it can provide a potentially higher probability of favorable outcomes supported by the below metrics: » Skewness » Kurtosis


FIGURE 8. RETURN DISTRIBUTION 5/1/2002-6/30/17

Kurtosis

Skew

Alt Blend 60/40 50/50 CMNIX CPLIX -2

0

2

4

6

8

10


Our Half Caff blend for less volatility and better returns has the potential to keep your clients invested and satisfied that their investment plans are progressing, despite volatile markets. Advisors, for more information on this analysis, please ask your Calamos Investment Consultant to provide a Zephyr report for you.

For a greater discussion of relevant terms and indexes, please see the Glossary and Notes, starting on page 33.

18


Now Try This: How 2 Alts Handle Volatility in a Retirement Portfolio Originally appeared as an Investment Ideas blog post. Our team continues to have discussions with financial advisors regarding strategies for keeping drawdowns from prematurely depleting retirement portfolios and threatening retirement plans. We wrote about the topic in a post last month and have since been asked to be more specific. As a quick recap: Our April post suggested introducing an equity long/short strategy to a traditional 60/40 distribution portfolio. We showed the results of hypothetical illustrations of two scenarios: » 30% long/short equity (using the HFRI Equity Hedge Index as a proxy), 30% long equity (Standard & Poor’s 500) and 40% fixed income (Bloomberg Barclays U.S. Aggregate Bond Index) » 60% long/short equity (using the HFRI Equity Hedge Index as a proxy) and 40% fixed income (Bloomberg Barclays U.S. Aggregate Bond Index) Reducing the volatility, including drawdowns, had a significant impact during the withdrawal phase. The result was stronger risk-adjusted returns.

Funding a Decumulation Plan Here’s how the idea works using a hypothetical 100% alternative portfolio. We start in July 2002 with a $200,000 portfolio and plan to withdraw 5% per year, with a 3% adjustment for inflation. Distributions are taken in December 2002, and in December of subsequent years. In year 1, the annual withdrawal is $10,000, which grows to $15,126 by year 15. So this is the advisor’s challenge: How to fund a decumulation plan totaling $185,993 from a $200,000 initial investment, as illustrated below.

Jul-17

Dec-16

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

Dec-08

Dec-07

Dec-06

Dec-05

Dec-04

Dec-03

$200,000 $180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0

Dec-02

ANNUAL WITHDRAWLS FROM A $200,000 INITIAL PORTFOLIO

Here’s what happened in a hypothetical illustration that combined a 60% allocation of our equity alternative Calamos Phineus Long/Short Fund (CPLIX) and a 40% allocation of our fixed income alternative Calamos Market Neutral Income Fund (CMNIX). A $200,000 portfolio provided for $185,993 in total withdrawals, and $432,896—more than twice as much as the original investment—remained at the end of the 15-year period.


CPLIX/CMNIX INVESTMENT PLAN KEPT GROWING EVEN WHILE FUNDING DISTRIBUTIONS Market Value

Annual Distribution/Withdrawal

$450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0

Jul-17

Dec-16

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

Dec-08

Dec-07

Dec-06

Dec-05

Dec-04

Dec-03

Dec-02

$432,896

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 and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. For the most recent month-end fund performance information visit www.calamos.com.

A 100% ALTERNATIVE RETIREMENT PORTFOLIO

CPLIX

40% CPLIX

CMNIX

60% CMNIX

Term

15 years

Average Annual Return

9.91%

Portfolio

$200,000

Annualized Standard Deviation

10.22%

CPLIX

$120,000

Sharpe Ratio

0.74

CMNIX

$80,000

Correlation to S&P Index

0.73

5% Annual Withdrawls

% of Months > -2%

16% (28)

3% Inflation Adjustment

Max Drawdowns

-26.51%

Total Withdrawls

$185,993

Ending Value of $200,000 Invested

$432,896

Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The60% principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than 40%cost. their original For the most recent month-end fund performance information visit www.calamos.com.

MSCI World Index

Bloomberg Barclays U.S. Aggregate Bond Index

Let’s compare these results to a more traditional portfolio with a 60% MSCI World Index equity allocation and a 40% Bloomberg Barclays U.S. Aggregate Bond Index fixed income allocation.

40% 60%PORTFOLIO A TRADITIONAL 60/40 MSCI World Index

40%

60%

Bloomberg Barclays U.S. Aggregate Bond Index Term

15 years

Average Annual Return

7.45%

Portfolio

$200,000

Annualized Standard Deviation

8.80%

CPLIX

$120,000

Sharpe Ratio

0.72

CMNIX

$80,000

Correlation to S&P Index

1.00

% of Months > -2%

9% (17)

Max Drawdowns

-32.63%

5% Annual Withdrawls 3% Inflation Adjustment Total Withdrawls

$185,993

Ending Value of $200,000 Invested

$267,496


20


The traditional portfolio funded the decumulation plan, but the alternative portfolio finished the distribution period with a more than 60% higher return. A few words about volatility measures: Note that the standard deviation of the alternative blend is higher than the standard deviation of the traditional portfolio. One of the “flaws” of standard deviation is that it measures downside and upside volatility—potentially penalizing good volatility (gains). Also consider the Sharpe ratio and Sortino ratios when evaluating CPLIX, in particular. The Sharpe ratio measures the excess return per unit of risk. A comparison of the Sharpe ratio of the alternative blend to the blended index reveals greater returns per unit of risk. This suggests better managed volatility.

CPLIX/CMNIX BLEND VS. 60/40 PORTFOLIO Annual Distribution/Withdrawal

CPLIX/CMNIX Portfolio Market Value

60/40 Portfolio Market Value $432,896

Jul-17

Dec-16

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

Dec-08

Dec-07

Dec-06

Dec-05

Dec-04

Dec-03

$267,496

Dec-02

$450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0



CPLIX Makes News for Unconstrained Approach that Gets Results Originally appeared as an Investment Ideas blog post. “When you allocate to a long-only fund, which is the traditional approach to equities, that allocation is constrained. For better or for worse, you are ‘in the market.’ “One advantage of the long/short structure—which has potential to benefit as much by the market going down as the market going up—is that a manager does not need to commit to equities if conditions argue otherwise.” So explains Calamos Phineus Long/Short Fund Co-Portfolio Manager Michael Grant in the cover story of the April issue of the National Association of Personal Financial Advisors (NAPFA) magazine. The bylined article elaborates on how the fund uses unconstrained investing to take advantage of a wider array of moves depending upon market conditions.

‘One of the Smartest Guys’: MarketWatch The NAPFA article was the latest in a series of media coverage about the fund. Earlier in the month, MarketWatch profiled Michael as “one of the smartest guys in the room,” a label given after the writer screened for active managers that beat their “Morningstar-designated benchmark over the past three and five years.” The article quotes him as saying that making calls on recent big picture issues (i.e., Fed policy, European unity, China’s debt and trends in the economy, interest rates and currencies) “goes against the grain” for many managers. They prefer to “diversify around” such decisions. Some managers have yet to adapt their business model from relying heavily on company analysis to include macro analysis, Michael says in the article. For more, download the reprint.

Q&A: InvestmentNews For added insight on how to use CPLIX and what to expect of the fund, see the sponsored InvestmentNews Q&A with Michael Grant. In the article, Michael explains, “Equities offer the promise of superior returns because they embody higher risk; if you don’t take risk, you don’t earn returns. After 2008, many long/short funds generated mediocre returns because they stopped taking risk. “While long/short offers some diversification benefits, that should be the dominant motive. The dominant motive should be superior returns. My mandate is to weigh and assume risk sensibly, rather than avoid it,” he says.

22


For the Fence Straddlers: Making Sense of Valuations, Volatility and Interest Rates Originally appeared as an Investment Ideas blog post. Here’s what was happening as hundreds of financial advisors signed in for our recent webcast “Designing an Alternative Asset Allocation: Our Best Ideas for H2 2017 (the webcast is available on-demand at www.calamos.com/aug1webcast): » The Dow Jones Industrial Average was a day away from crossing the 22,000 mark. » The Standard & Poor’s 500 was up almost 12% for the year (11.59% as of July 31). » The best earning season in seven years for positive surprises was drawing to an end, with 77% of reporting S&P 500 firms beating estimates. » U.S. stock funds marked their seventh straight week of redemptions. » Former Federal Reserve Chairman Alan Greenspan warned of a coming bubble not in stock prices but in bond prices, one he said is not being discounted in the marketplace. » Market volatility was low—troublingly so for some commentators who reported, “since 1990 when the VIX was first created, the index has closed below 10 on only 16 days; seven of those days have been since May 1, 2017.” These can be ambiguous times, or as one Calamos investment consultant puts it, “The Fear of Missing Out (FOMO) on the market is being offset by clients’ Fear of Jumping In (FOJI).”

Add Value That the Robot Can’t It’s this kind of environment—when advisors are seeking fresh ideas to help advance clients’ investment objectives, regardless—that is conducive to a discussion about a few alternatives. “We’re asking you to look beyond the traditional 60% equity/40% fixed income allocation to a concept that potentially enhances that 60/40,” said Calamos President and Head of Global Distribution Robert Behan by way of introducing the webcast on the effect of using an equity and income alternative. “It’s forward-thinking. We’ve had a lot of positive feedback from advisors about it and the results. And perhaps your challenge may be also to challenge the 60/40 in a way that the robot can’t,” said Behan.


For those who are worried about the end of the three-decade bull market in bonds, Calamos Market Neutral Income Fund (CMNIX) is a time-tested fixed income replacement option. For those concerned about the late nature of the equity bull market, Calamos Phineus Long/Short Fund (CPLIX) is a proven equity replacement option. Combining the two (as was done in a detailed blog post and discussed during the webcast) contributed to an investment portfolio by producing a better return with less volatility. We call it the Half Caff because it provides jump with less jolt. The August 1, 2017, session was a full 60 minutes, with outlook and comments from portfolio managers Michael Grant (CPLIX) and Eli Pars (CMNIX) followed by an attendee Q&A moderated by Behan. In this post we’ll report on Michael Grant’s global outlook for equities, including his responses to questions posed by advisor attendees. We’ll share Eli Pars’ current perspectives on volatility in a subsequent post.

Go with the Trend THIS STORY GO GO WITHWITH THE TREND THIS STORYISISGLOBAL: GLOBAL: THE TREND MSCI ACWI MSCI ACWI

501 447 398 355 316 282 251 224

501 447 398 355 316 282 251 224 Percentage of 47 ACWI Markets Above 200-Day Moving Averages

100 90 80 70 60 50 40 30 20 10 0

Share of Manufacturing Purchasing Managers' Indexes (PMIs) Above 50

100 90 80 70 60 50 40 30 20 10 0 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

100 90 80 70 60 50 40 30 20 10 0 100 90 80 70 60 50 40 30 20 10 0

2017

Source:Ned Ned Davis Source: DavisResearch. Research.

According to Grant, if there was a single idea that explains the changed nature in equity performance since last autumn, it’s the emergence of stable, sustained and synchronous global GDP growth. It’s “the game changer,” he said. “Post-2008 through 2016, whenever one part of the world economy was doing well, another part of the world was near or in depression-like circumstances. This is the first year where all of the major GDP blocs are pulling in the same direction.” The recommendation from Grant: Go with the trend through 2017 and believe in global growth.

Equities Head Higher As long as the year-over-year growth rate in sales and profits is accelerating, equities typically head higher, Grant believes.

24


S&P 500 EPS GROWTH S&P 500 EPS GROWTH S&P 500 Y/Y EPS Growth

15% Q1 Actual: Sales, +8% Earnings, +14%

10% 5% 0%

Consensus Estimates

-5%

4Q18E

3Q18E

2Q18E

1Q18E

4Q17E

3Q17E

2Q17E

1Q17

4Q16

3Q16

2Q16

1Q16

4Q15

3Q15

2Q15

1Q15

4Q14

3Q14

2Q14

1Q14

-10%

Source: Thomson as of of 6/23/17. 6/23/17. Source: ThomsonFinancial, Financial,Morgan Morgan Stanley Stanley Research Research as

“It’s not until we see a peak in that growth rate either late this year or early in 2018 that we have to consider the possibility of a topping process in the market itself,” he said. Volatility this year, Grant expects, will be confined to sector rotation rather than any meaningful pullback in the broader market.

Valuations Grant acknowledged advisors’ and clients’ concerns that the stock market is overpriced. Valuation, according to Grant, is “subjective and volatile but the most important call to get right. ”But in a low interest rate world, equity valuations are actually undemanding.” Grant’s call: That valuations will remain elevated. “Normally, as investors shake off their deflation fears, the transition from deflation to reflation is the period when valuations remain typically high,” he said. The chart below tracks the Equity Risk Premium, which is the excess return that investing in the stock market provides over a risk-free rate, such as the return from government Treasury bonds. On this basis, the real bubbles in equities occurred in 1987 and the late 1990s. After 2008, equities became cheap relative to interest rates because of pervasive skepticism over the sustainability of the economic system itself. LONG TERM EQUITY RISK PREMIUM: EXITING A POST-CRISIS REGIME?

LONG TERM EQUITY RISK PREMIUM: EXITING A POST-CRISIS REGIME? S&P 500 Next Twelve Month Equity Risk Premium LTM ERP Avg. (1920-present)

800

NTM ERP Avg. (1976-present)

Regime Shift

600

bps

400 242 200

355

? 250

176 0 -200 -400 1976

TMT Bubble

1987 1981

1986

1991

1996

2001

2006

2011

2016

Source: andBloomberg, Bloomberg, Morgan StanleyasResearch of S&P 6/23/17. Note: S&P used post March 1993; Top 500 by market cap data used before Source:Factset Factset and Morgan Stanley Research of 6/23/17.as Note: 500 fundamental data500 usedfundamental post March 1993;data Top 500 by market cap dataLTM usedequity before 1993. equity risk premiumisaverage since 1920. 1993. risk LTM premium average since is1920


“The intriguing question,” Grant said, “is whether this relationship between interest rates and equities can normalize toward the red and green lines on this slide, which are the historical averages. “If we assume, for example, an Equity Risk Premium of 250 basis points with the U.S. 10-year yield rising gently to 2.75%, we can get an S&P 500 target of 2700,” Grant said. “If the economy in 2018 is in fact stronger and investors can begin to discount $150 in earnings for the S&P 500, there’s upside beyond that.” The important point, in Grant’s view, is that the nonconsensus upside for equities depends heavily upon these valuation assumptions.

Bull to Bear Could the bull market turn bear, another advisor concern?

FED FUNDSACTUAL ACTUAL RATE: TO PRESENT FED FUNDS RATE: 19821982 TO PRESENT Recessions

Atlanta Fed Shadow Federal Funds Rate

Federal Funds Target Rate

15%

+4%

10%

+16 months = recession



+4% 5%

+4% 1.75% top by 2018?

0%

+4% -5% 1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

Source: Bloomberg, Morgan Stanley Research as of June 2017.

Source: Bloomberg, Morgan Stanley Research as of June 2017.

Grant believes Fed policy can avoid “a recession-induced bear market.” Shown below is the typical Fed rate cycle over the last several decades. According to Grant, rates haven’t yet reached levels that induce recession but that “pinch point” could be reached in H12018. Citing historical patterns, Grant said the second year prior to recession (2017) is usually a healthy year for equities, followed by a “topping process” (2018).

26


TRADING DAYS AND AFTER “END OF EXPANSION” TRADING DAYSBEFORE BEFORE AND AFTER “END OF EXPANSION” Dow Industrials price change: DOW INDUSTRAILS PRICE CHANGE: 500 TRADING DAYS BEFORE AND 250 TRADING DAYS AFTER NBER RECESSION START DATES 500 trading days before and 250 trading days after NBER recession start dates 120

115

Historical Pattern

110

105 Day "0" is the Recession starting day

YTD 2017

DEC-2018E

250 DEC-2019E

200

150

100

50

0

-50

-100

-150

-200

-250 DEC-2017E

-300

-350

-400

-450

-500 DEC-2016

100

Source: Bloomberg, U.S. Federal Reserve, Bloomberg data, Stifel format estimates. Source: Morgan Stanley Research as and of June 2017.

The Political Environment Some have marveled at both the strong performance of the equity markets and lack of volatility, given the start of the Trump administration. Grant’s take: “I would argue that what we’re seeing is more about the global business cycle and less about Trump because many of these trends actually emerged in the middle of last year, prior to the November presidential election.” The political “noise,” he suggested, may be obscuring the strength of the global upturn, as well as its underlying causes. “It’s true that actual reform under the new administration has disappointed. That said, the reduction in industry-specific risk feels real to me. The risk of operating in certain industries like finance or media, telecom and energy has definitely fallen,” said Grant. According to Grant, tax reform would be a positive catalyst for equities, one that’s not priced in today. He believes that tax reform would raise the likelihood that 2018 is a healthy or healthier economy than 2017.

Moments before showtime, webcast panelists (left to right) Michael Grant, Eli Pars and Bob Behan compare notes.


The Most Undervalued Idea Asked for the most undervalued asset, Grant preferred to discuss the most undervalued idea, which he proffered is the possibility that secular stagnation is truly behind us. “There’s still a pervasive belief in the permanence of today’s slow growth world. I suspect investors are underestimating the upside optionality for global GDP growth. “Almost any bond investor would tell you that nominal yields are anchored by nominal GDP growth. That relationship broke down in the last five years when investors everywhere moved into the deflation camp,” Grant continued. Nominal GDP growth here in the U.S. is slightly more than 4%. If Trump is “even modestly successful,” it may get to 5%, said Grant, noting that interest rates remain in the middle 2s range. “There’s a big, big gap between where interest rates are and where they could be in a different global GDP setting. My perspective,” Grant said, “is that even a small shift toward a more benign secular view, together with positive earnings revisions, could be meaningful for equities.” For more information about CPLIX or our income alt CMNIX, please talk to your Calamos Investment Consultant at 888-571-2567 or [email protected].

TACTICAL

MACRO

Performance Review & Portfolio Positioning

SECTORS

July 2017

FUNDAMENTALS

Calamos Phineus Long/Short Fund

STRATEGIC

VALUATIONS

MARKETS

SHORTS

28

A Shares CPLSX C Shares CPCLX I Shares CPLIX

Michael Grant Senior Vice President, Senior Co-Portfolio Manager

EXPOSURE REGIONS

RISK

FUND TICKER SYMBOLS

A monthly summary of commentary including sector views, regional views, sector weights and exposures. This is an Investment Professional Use Only piece—ask your Investment Consultant for a copy.


Understanding the Long/Short Funds Category Among other purposes, long/short funds can be used to keep clients from heading for the exits during volatile markets. Financial advisors are increasingly recognizing the advantages of going both long and short — including equity like returns with a superior risk profile over a full market cycle and capital preservation through periods of financial stress. Heightened interest has driven long/short product development, leading to the growth of the Morningstar® Alternative Category, U.S. Funds Long/Short in the years since the 2008 financial crisis.

149

160

111

120

65

80

31

40 0

PRIOR TO 2009

LAUNCHED SINCE 2008

LIQUIDATED FUNDS

IN CATEGORY AS OF 06/30/17

$50 $40 $30 $20 $10 $0

$35.2 $8.5 BEFORE 2008

AS OF 06/30/17

SHARE OF ALTERNATIVE ASSETS Multialternative

3.8%

30.7%

4.6%

Long-Short Equity Managed Futures

8.8%

Market Neutral Option Writing

12.6%

21.1%

Long-Short Credit Multicurrency

14.3%

Source: Morningstar Direct, 6/30/17


LONG/SHORT CATEGORY NET ASSETS AND NET FLOWS ($MM) TNA

$60,000

NET FLOWS

$8,000 $6,000

$40,000

$4,000

$30,000

$2,000

$20,000

$0

$10,000

($2,000)

$0

($4,000)

1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17

$50,000

AUM and Net Flow is presented quarterly and is as of 6/30/17. Category asset and fund flow information includes OEFs and ETFs; excludes Money Markets and Fund of Funds. Source: Morningstar Direct, 6/30/17

Even after option writing and long/short credit funds have been moved to their own categories, there continues to be a wide performance difference between the top performing and bottom performing fund in the U.S. Funds Long/Short Equity category.

27.69% *AS OF 6/30/2017

-7.85%

8.78%

This wide range of performance in long/short funds reflects the variety of processes used. Advisors interested in evaluating and comparing long/short equity funds will need to focus on educating themselves

30

ORIGIN

SIZE

Concentration-# of securities used

How they generate alpha Quantitative analysis PERFORMANCE AGE

PERFORMANCE


EXPENSES

Trading ORIGIN

AGE

EXPENSES Securities used (equities/ETFS/fixed income)

TRADING

Reliance on research

Reliance on research Top-down SIZE

How they generate alpha

on how products differ.

Glossary Alpha. A historical measure of risk-adjusted performance. Alpha measures how much of a portfolio’s performance is attributable to investment-specific factors versus broad market trends. A positive alpha suggests that the performance of a portfolio was higher than expected given the level of risk in the portfolio. A negative alpha suggests that the performance was less than expected given the risk.

strategy may incur a loss without limit as a result of a short sale if the market value of the security increases, the manager may be unable to repurchase a borrowed security; leverage risk—certain transactions such as loans and securities lending may create leverage and cause the strategy to be more volatile; foreign securities risk—fluctuations of exchange rates may affect the U.S. dollar value of a security.

Beta. A common measure of historic volatility, beta measures how much of an investment’s performance is attributable to market-wide factors (such as a rising stock market). An investment that goes up or down as much as a broad market measure has a beta of 1. An investment that captures only half of the market’s movements would have a beta of 0.5.

Long/short equity. The principal risks of investing in long/short equity strategies include: equity securities risk—securities markets are volatile and market prices may decline generally; short sale risk—a portfolio may incur a loss without limit as a result of a short sale if the market value of the security increases, a portfolio may be unable to repurchase a borrowed security; leverage risk— certain transactions such as loans and securities lending may create leverage and cause the fund to be more volatile; foreign securities risk—fluctuations of exchange rates may affect the U.S. dollar value of a security.

Correlation. A statistical measure that shows how two securities move in relation to each other. A correlation of 1 implies that if one security moves up or down, the other security will move in lockstep, in the same direction. Alternatively, a correlation of -1 means that if one security moves in either direction, the other security will do the exact opposite.

Max drawdown. A statistical measure that shows the maximum loss that occurred during any sub-period over the time period listed.

Credit ratings. A measure of a company’s credit worthiness and ability to service its debt. Ratings are relative, subjective and not absolute standards of quality. Ratings are measured using a scale that typically ranges from AAA (highest) to D (lowest). The security’s credit rating does not eliminate risk.

Net exposure. The difference between a portfolio’s long and short exposure, expressed as a percentage. If a portfolio holds a larger percentage in long positions than in short positions, the portfolio is “net long.” Conversely, a portfolio is “net short” when it has a larger percentage in short positions than in long positions.

Downside capture. Calculated by taking the fund’s monthly return during the periods of negative benchmark performance and dividing it by the benchmark return.

Price-to-earnings ratio (P/E). A valuation ratio of a company’s current share price compared to its pershare earnings.

Downside deviation. Measures only deviations below a specified benchmark. Duration. A measure of interest rate sensitivity. Earnings per share (EPS). A company’s profit divided by its number of common outstanding shares. Event driven. Investing in the inefficiencies of mergers, acquisitions and other corporate events are subject to equity securities risk—securities markets are volatile and prices may decline. Free cash flow yield. Free cash flow per share divided by share price. Gross exposure. The sum of long exposure and short exposure, gross exposure measures how much of the portfolio’s assets are invested and the amount of leverage in the portfolio. Kurtosis. A statistical measure that’s used to describe the distribution, or skewness, of observed data around the mean, sometimes referred to as the volatility of volatility. Libor. A benchmark for short-term interest rates. Long/short fixed income. The principal risks of investing in long/ short fixed income strategies include: fixed income risk—securities are subject to interest rate risk. If rates increase, the value of fixed income investments generally declines.; short sale risk— the

Short-only equity. The strategy may incur a loss without limit as a result of a short sale if the market value of the security increases. Standard deviation. Measures the overall risk of a fund. Sharpe ratio. A measure of risk-adjusted performance, where higher values are indicative of better investment decisions rather than the result of taking on a higher level of risk. Sharpe ratio is calculated by the difference between a portfolio’s return and a risk-free rate, often that of the 10-year Treasury bond, and dividing the result by the portfolio’s standard deviation. Sortino ratio. The excess return over the risk-free rate divided by the downside semi-variance, and so it measures the return to “bad” volatility. (Volatility caused by negative returns is considered bad or undesirable by an investor, while volatility caused by positive returns is good or acceptable.) Upside deviation. Measures only deviations above a specified benchmark. Upside/downside capture ratios. Show you whether a given fund has outperformed—gained more or lost less than—a broad market benchmark during periods of market strength and weakness, and if so, by how much. Upside capture. Calculated by taking the fund’s monthly return during months when the benchmark had a positive return and dividing it by benchmark return of that same month.


32


Notes Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Alternative investments may not be suitable for all investors, and the risks of alternative investments vary based on the underlying strategies used. Many alternative investments are highly illiquid, meaning that you may not be able to sell your investment when you wish to. Unmanaged index returns assume reinvestment of any and all distributions and do not reflect any fees, expenses, or sales charges. Investors cannot invest directly in an index. The MSCI World Index consists of the following 23 developed market country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The HFRI Equity Hedge Index: Equity Hedge: Investment Managers who maintain positions both long and short in primarily equity and equity derivative securities. A wide variety of investment processes can be employed to arrive at an investment decision, including both quantitative and fundamental techniques; strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios. EH managers would typically maintain at least 50% exposure to, and may in some cases be entirely invested in, equities, both long and short. The S&P 500 Index is a market weighted index and is widely regarded as the standard for measuring U.S. stock market performance. The MSCI World Index is a market capitalization weighted index composed of companies representative of the market structure of 21 developed market countries in North America, Europe, and the Asia/Pacific region. Unmanaged index returns assume reinvestment of any and all distributions and do not reflect fees, expenses or sales charges. Investors cannot invest directly in an index. An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus. The principal risks of investing in the Calamos Phineus Long/Short Fund include: equity securities risk consisting of market prices declining in general, short sale risk consisting of potential for unlimited losses, foreign securities risk, currency risk, geographic concentration risk, other investment companies (including ETFs) risk, derivatives risk, options risk, and leverage risk.

The principal risks of investing in the Market Neutral Income Fund include: equity securities risk consisting of market prices declining in general, convertible securities risk consisting of the potential for a decline in value during periods of rising interest rates and the risk of the borrower to miss payments, synthetic convertible instruments risk, convertible hedging risk, covered call writing risk, options risk, short sale risk, interest rate risk, credit risk, high yield risk, liquidity risk, portfolio selection risk, and portfolio turnover risk. Covered Call Writing: 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. Convertible Securities Risk: The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also, may have an effect on the convertible security’s investment value. Convertible Hedging Risk: If the market price of the underlying common stock increases above the conversion price on a convertible security, the price of the convertible security will increase. The Fund’s increased liability on any outstanding short position would, in whole or in part, reduce this gain. Convertible Securities Risk: The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security’s investment value. The Citi Economic Surprise Indexes are objective, quantitative measures of economic news that measure the difference between actual releases and the median of Bloomberg survey data. Short Sale Risk: The Fund may incur a loss (without limit) as a result of a short sale if the market value of the borrowed security (i.e., the Fund’s short position) increases between the date of the short sale and the date the Fund replaces the security. The Fund may be unable to repurchase the borrowed security at a particular time or at an acceptable price. Leveraging Risk: Leverage is the potential for the Fund to participate in gains and losses on an amount that exceeds the Fund’s investment. Leveraging risk is the risk that certain transactions of the Fund may give rise to leverage, causing the Fund to be more volatile and experience greater losses than if it had not been leveraged. The Fund’s use of short sales and investments in derivatives subject the Fund to leveraging risk. Derivatives Risk: Derivatives are instruments, such as futures, options and forward foreign currency contracts, whose value is derived from that of other assets, rates or indices. The use of derivatives for non-hedging purposes may be considered more speculative than other types of investments. Derivatives can be used for hedging (attempting to reduce risk by offsetting one investment position with another) or non-hedging purposes. Hedging with derivatives may increase expenses, and there is no guarantee that a hedging strategy will work. Before investing carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information or call 1-800-582-6959. Read it carefully before investing. NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE


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Calamos Investments LLC, referred to herein as Calamos Investments®, is a financial services company offering such services through its subsidiaries: Calamos Advisors LLC, Calamos Wealth Management LLC, Calamos Investments LLP and Calamos Financial Services LLC. © 2017 Calamos Investments LLC. All Rights Reserved. Calamos® and Calamos Investments® are registered trademarks of Calamos Investments LLC.

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