Calamos Auction Rate Preferred Conference Call

Introduction and Disclaimer: Mike O'Neill

Mike O'Neill: Thank you. Good morning everyone and welcome. I need to begin with a legal disclaimer.

This presentation may contain certain forward-looking statements relating to future events, future transactions, future financial performance, future potential costs, expectations, the competitive and regulatory environment and future market conditions. Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Such risks and uncertainties include, but are not limited to: catastrophic or unpredictable events, changing costs of leverage, strategy implementation obstacles, fluctuations in the financial markets and the competitive conditions in the mutual fund, asset management and broader financial services sectors, and other risks inherent in the financial and trading markets, including liquidity issues.

I'd like to thank you again for taking the time to listen to our call today. We understand the last six weeks have been trying for both advisors and their clients. In an effort to alleviate the current liquidity issues we have been singularly focused on creating solutions that would help ease frustration.

Through our field and phone service teams we have attempted to keep our clients apprised of our progress as well as our opinion regarding this crisis. Today we are pleased to be in a position to share more recent actions we have undertaken with several institutions that we hope will lead to a resolution.

It's important to understand that the approach we are taking is with the considered interest of both the common and preferred shareholder. Any solutions that are in process or that are being considered, the best of both of these constituents will and must be considered. Thank you again for your patience in this matter and your continued trust in our firm.

For today's call I'll be joined by Ken Fincher, director of product management and John Calamos, Sr., our chairman, CEO, and co-chief investment officer. Our prepared comments will be followed by a question and answer session. With that, I'd like to turn the call over to Ken Fincher to provide an update on the auctions as well as an update on our efforts to refinance.

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Presentation

Ken Fincher: Thanks Mike. I'd like to start to talk a little bit more about the current state of the auctions as they exist today. The auctions as you are all well aware continue to fail on a daily basis, and in recent weeks the failure of these auctions has led to an evaporation of any bind that had taken place initially as this crisis began.

Over the past few weeks however we have been encouraged in that we have not seen an increase in the number of shares that investors have been put out for sale. Currently, that number stands in the 40% to 60% range on the average per auction per day. Now this may be because of one of two events. First and foremost we understand the implications of this crisis in that advisors and their investors may not have entered their shares in for sale understanding that very few shares were changing hands. Secondly, we have received numerous calls from advisors whose concern is more or less to make sure that their investors were receiving an interest rate on these preferred shares that they held. In many instances, these advisors and their investors had held shares for a number of years and really saw no action necessary on their part to actually put shares up for sale.

One of the things that concerns us greatly has been the misinformation regarding what has happened in the auctions. So I'd like to spend a few minutes going through some of those facts. First, it's important to remember that this is a liquidity event which was brought about as a result of the stress on the capital of our traditional partners in the closed-end fund space. This stress forced them to step away from the auction. It's important to understand this is not a result of an underlying fundamental problem with any of the five Calamos closed-end fund portfolios. Second, as alluded to earlier, as funds continue to pay the preferred shares a maximum sale rate at weekly or every 28 days based upon prescribed formulas set forth in our indenture. Third, the cost of leverage given the latest actions by the Fed has come down considerably from where we were in August 2007. During that timeframe, auction rates were going up north of 6%. Again, that is why we are here today to talk about what we have seen in regards to the leverage and our actions to help solve the problem that we have. Fourth, the funds we are working diligently to solve the current crisis at hand. That is why we are here today to talk to you. That is why we released a press release yesterday because of our comfort, as we've moved down this road, towards a resolution in this crisis. Fifth, the funds have not defaulted on payment. The preferred shareholders as alluded to earlier continue to recieve the max fail rate as described by our indenture.

Preferred shares are dollar good. We think this is very important. Much has been made about the development of a secondary market. We understand why this is taking place but we would ask our investors to guard against paying the price that you may not have to given that this is more of a liquidity event. And finally, leverage continues to be accretive to the closed-end fund. So we feel very comfortable in regards to our costs have come down for our common shareholder and that it is an accretive nature in regards to how these funds are leveraged.

Next I'd like to talk about giving you an update in terms of the refinancing. Given the seizing up of the auction rate securities market, we have been working aggressively and will continue to work aggressively to secure finances. This process is ongoing, but at this point we felt that we were far enough along to communicate a general message to analysts, advisors, and most importantly, the investors in the auction rate securities issued by each of the Calamos closed-end funds.

Currently, we are working with several potential lenders that are performing due diligence on our funds. At this point we are not at liberty to provide you with specifics, but rather we can say that we are working to provide solutions that will be in the best interest of both the common and preferred shareholders of the funds. We have all heard the talk on the form that these refinancings will take. I think it's safe to say the refinancing will take many forms in the months to come. Initially, we anticipate that the refinancings will take the form of debt, but as others have suggested there is work being done on an improved form of equity leverage.

It is important to remember the 1940 Act (The Investment Company Act of 1940) is clear as to the amount of debt and equity leverage that a 1940 Act company such as a closed-end fund can have outstanding. Debt leverage does have a much higher hurdle, a three to one asset coverage ratio, than does equity, which has a two for one asset coverage ratio. That is why in our press release there was a reference to a portion of the ARPS outstanding. This does not mean there will eventually be a de-levering, rather it implies that we will not be able to completely refinance with debt so we will be reviewing equity options in the weeks and months to come.

Now I'd like to turn the call over to John Calamos, CEO and co-CIO of Calamos Investments.

John Calamos, Sr: Thank you Ken. I'd just like to put this into a bit of a perspective. I've been investing for nearly 40 years and this is the strangest market I've ever seen. Typically when we have market environments that we're all witnessing right now, the securities that fail are low grade securities, high yield securities, junk bonds. What we see going on here is AAA securities having liquidity problems. It's truly a very, very strange market environment. Obviously as we all are tuned into what the Fed is doing and what's happening, the auction rate preferred is part of the larger problem that is occurring right now.

Again I would emphasize what Ken said, this is not a credit issue at all. We feel closed-end funds are highly liquid portfolios. It's a liquidity crisis that we find ourselves in. There is a resolution, and you're getting paid to wait. You're getting paid more because the maximum rate is 1.5 times LIBOR until we find a resolution.*

Part of the broad problems that we're facing today in the markets is a lack of transparency, a lack of transparency of the amount of leverage that was out there, a lack of transparency causing how much deleveraging is going on, and it is still an issue for everyone. We saw what happened to Bear Stearns in just a few weeks. It's just unbelievable how fast that occurred.

I know we've been getting some calls. I've been told our financial advisors haven been pressing us, "Why don't you do something? Why don't you do something now? Why don't you do something right now?" Well it would've been nice if our strategic partners would have come to us earlier and said, "Gee, you should be refinancing your debt" instead of just dropping a bomb on us and say, "Oh, by the way, all the auctions failed."

So there is some responsibility going both ways and that's really the lack of transparency. What we are attempting to do now is refinance our debt away from the use of auction rate preferred. We need to go through refinancing options, and there are many options to do that. We have bank lines of credit, commercial paper conduits, 2a7 eligible notes which are notes that can be used by money market funds, a $25 perpetual preferred fixed-rate notes, private placements, security lending arrangements. All these are options to us. So, we're working diligently to find the best option in order to refinance.

But just like any company, refinancing takes awhile, it takes due diligence on the other side and it takes time to do. Unfortunately, when this occurred it occurred literally almost over night so we've been working on these options and we should hopefully be able to report to you soon as these options become available and we execute on them.

We think it's been a very trying time. I want to assure you that we're doing everything possible to refinance the debt with these various techniques and we think we can have a solution in the near future.

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Question 1

Advisor 1: There's nothing I can ask you at this point that you're going to be able to tell us that's specific, based on the law. I think part of the concern particularly with some of the smaller issuers like yourselves is that we heard so little. I would just say that in the future, if events happen, and hopefully we won't have to go through something like this again, that it's just important to communicate. It seemed like, not just putting this on Calamos but on a number of the companies, the only way we seem to get any communication if we called up and yelled and screamed. I don't think that's good for anybody. That's more a comment than a question, but that's really I think the issue here. To not know what's going on, to not be able to tell our clients, is almost as bad as not getting their money.

John Calamos, Sr: We agree with that. We did put out a Q&A on our Web site talking about this and in the meantime we had to have a board meeting. Remember the oversight is the mutual fund board so we have been working on that, but we would agree. As much information as we have, we'll be getting that out as timely as possible.

Advisor 1: Most of the fund companies that I have spoken to, the big issue seems to be, "Well we don't want to do anything that's going to compromise common shareholders." And that's really the issue. Otherwise we could just delever whether they're municipal or they're taxable and pay everybody because we have the leverage to do that. That's why the securities are AAA.

Can you give me some idea as to the level of impact it would have on the overall yield. I know every fund is different, but just on a general term, are we really looking at some kind of major thing here? Because I think in the back of a lot of the broker's minds there's a sense that part of this is that you guys simply don't want to give up the fees you're getting by having these things levered and that that's as much an impact on anything as it would be for the common shareholders.

John Calamos, Sr: Basically, the use of leverage is a tool. And as long as it's accretive — in other words, it supports the distribution rate for the common shareholder — we want to be on leverage. If you take the leverage off that's going to impact the distribution rate on the common shareholders. We can satisfy the auction rate preferred holders to the detriment of the common shareholders. The solution is here at this point and at these rates it's advisable that we maintain leverage. We've gone through all this analysis that it's still to us accretive to the common shareholders to maintain the leverage, so we've been going down this refinancing route. If it were no longer accretive to the common shareholders, then we would simply get off leverage at that point. We're walking this line to serve both the auction rate preferred shareholders that want to be out of this as well as making sure we're serving the common shareholders. To the auction rate preferred shareholders, some of the panic seems like they feel they're going to lose money, which we don't think they are. They're getting paid to wait for us to do a refinancing solution. If all the refinancing solutions fail, we would de-leverage. In both cases, the auction rate preferred holders come out whole.

What is required here is a little patience for us. If you were going to refinance your house you're not going to do it in five minutes. The bank's going to want to do an appraisal and the whole thing. That's kind of what we're going through now. We're going through some due diligence with people that are looking at this. It would not be advantageous to the common shareholders for us to de-leverage at this point at the current interest rate structure and even at the anticipated interest rate structure.

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Question 2

Advisor 2: I was just wondering if you could comment on how soon the near future is in terms of providing this alternate source of funding? And is there a planned new version of an auction rate preferred product that maybe has a put feature or something else that will be available to retail investors after all the current auction rate preferred shareholders get redeemed?

John Calamos, Sr: As far as the timing, it's probably going to be piecemeal rather than one broad solution where we can announce that all this is refinanced all at once. So we're looking at various avenues to do the refinancing. As far as one of the put feature, that's used in the 2a7 eligible notes. With the put on there makes them hopefully eligible for money market funds to buy, that's the reason for that. The other one we're looking at is a longer term, $25 perpetual preferred. We may be doing pieces of each of these to refinance and that will give us more flexibility. I would think any future announcement that we would have would be piecemeal — a sliver here, a sliver here, a sliver here — to get this done. We're in the same camp as you all. We would like to get this done as soon as possible and we're working towards that end.

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Question 3

Advisor 3: With all the companies that are involved in leverage, yourselves included, there seems to be so much emphasis on doing what's best for both shareholders, preferred and common as the ideal goal, correct?

John Calamos, Sr: That's correct. Would you have it any other way?

Advisor 3:I think that would be a great way to have it — treat everybody the same. You want to help everybody. In that light, what a lot of people on these calls seem to question, and myself included, is, "Well, we're trying to do the best for everybody." It seems like a lot of different options that are on the table. We're really not getting the same treatment for both sides because the common shareholders are getting all the access to liquidity. They can get all their money and they can make a decision whether they want to be in the investment or not, every day of the week.

Now they're obviously going to get less and less depending upon how much size they want to sell into the market. But that's the market. Whereas the preferred shareholder doesn't have that choice. So to make what's best for them, in actuality, you have to allow both people to have the right to both participate or not participate.

John Calamos, Sr: We have to abide by the prospectuses. The auction rate preferred, it's called a "preferred" because it is a preferred share, and it's a perpetual preferred share with either a 28 day or a seven day auction. The penalty for a failed auction here is the fact that you get 1.5 times LIBOR* , which is a penalty on the cost of leverage. It's not unlike any type of debt instrument where if something fails you have a penalty and you have the ability to refinance that.

Advisor 3: With the Fed cutting the rate, yesterday's auctions were under 4% and long bonds are out there at 5%. In the last little bit of time, by keeping the leverage on, the leverage is even more advantageous to the common shareholder and still illiquid for the preferred. Calamos and everybody else is still making all their management fees.

John Calamos, Sr: We are not hesitating to refinance based on that statement.

Advisor 3: No I'm not saying you are. I'm just saying that the advantageous scenario where the rate would keep going up so you're getting compensated for your illiquid status is not happening anymore.

John Calamos, Sr: The auction rate preferreds can be compared to cash equivalent type of investments and as those rates have come down, the max rate has come down. On the other hand, you would think that the market would be stepping in and that would give us the ability to refinance.

Advisor 3: Is de-levering an actual possibility? It seems that in all of the calls that I've listened to with all the different companies that no one really goes into too much depth about the process of de-levering. But, from the work I've done and looked at with some help, it appears that if you were to de-lever it wouldn't be out of the question to see the common shares probably half their price as they are now.

John Calamos, Sr: I would think that would be rather extreme, but definitely the de-leveraging would jeopardize the distribution rate at this point. It would not be advantageous to the common shareholders at this particular point to de-leverage. We do think we have very viable options out there in a short order to refinance the debt and solve it through a refinancing of debt rather than deleveraging.

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Question 4

Advisor 4: I've been hearing from you guys, and a bunch of other shops that issue auction rate preferred, that you're aggressively pursuing refinancing options. The thing that no one seems to discuss is that if an entire marketplace is aggressively pursuing refinancing options, then the people who are in a place to give you refinancing options will clearly be very selective about who they refinance. Do you find that people are being sort of usurious in exacting high rates from you ? Basically the root of my question is, could you even refinance this all today if you had to?

John Calamos, Sr: When you say "all today" I think over the near term we feel that we'll be able to do that. It's still a very competitive world out there, and as we talk about lines of credit, and commercial paper, and the alternatives — fixed-rate notes and $25 perpetual preferreds — all of these we're weighing at this particular point. If the cost of leverage was so high that it didn't make any sense to do that — in other words, was not accretive to the common shareholders as far as the distribution rate — at that point we would just simply get off leverage.

Advisor 4: What I was asking is do you have ready access to this or are you sitting there calling up the Citibanks, the CIT groups, the GE Capitals, and saying, "You know, we really need this, we really need this"? Are you competing for lending sources with other closed-end funds to the point that the reason you're doing it piecemeal is not so much because you want an orderly solution to the problem at a low-interest rate but because you can only refinance $10 million, $20 million, $30 million of paper at a time because the marketplace is so strained already with people looking for capital?

John Calamos, Sr: I think it is strained to a certain extent and that's why we're looking at multiple sources, but it's a competitive marketplace. There's going to be people that look at this as a terrific opportunity if you have a short duration need with that kind of financing. We feel the pricing will be reflecting that and that will help us do that. We are getting interest. We do have people actually calling us, so it is a competitive marketplace in that sense.

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Question 5

Advisor 5: I want to just kind of take a different route. For me and my clients, we own a ton of these closed-ends, never did any of the auction rates. I have no sympathy for anybody that bought the auction rate preferreds. When we look through the prospectus and buy this and we know our cost of borrowing is 4% now, why do we have to do anything if our borrowing's at 4% and locked in? Let the markets clear, let all the municipalities buy all their auction rate. Let this whole market shrink. I don't know why we all can't take a deep breath, borrow at 4% here, we know that the money's good. But let the system work itself through. Right now, all the financials are under stress and their getting hit from every side. But it seems to me as all these municipalities, all these corporations, as the market shrinks, it seems to me there are going to be better deals and other alternatives for financing.

My biggest worry as the discounts widen on these closed-end funds is what is our cost of borrowing going to be? I don't even know. I knew it was 4.5%, maybe now it's 3.75% with the cuts yesterday, but are you confident that these different alternatives might be at a lower rate than that? Or do we have any idea what the cost of financing's going to be? I like the leverage factor if we can borrow cheap and there's cheap money out there for risk-free stuff. Letting this stuff kind of pass through and taking some time and really make a good decision and not giving in to the investment banks or all these brokers that bought these auction rate preferreds as money market instruments. They were never money market instruments and they should have known what they bought as Warren Buffett said.

As a shareholder, per the prospectus as you've talked about, now they all want their money back. I feel like as shareholders we signed the contract, we gave them the money, and we've been paying them the higher rate all along the way and now they want their liquidity. I don't think we have any obligation to give that to them.

John Calamos, Sr: In speaking for the mutual fund board, we have an obligation to both the auction rate preferred shareholders as well as the common shareholders. As I spoke earlier, we agree with you in the sense that we think that leverage is still very accretive, it's been beneficial to the distribution rate of the fund.

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Closing Comments

John Calamos, Sr: This is the strangest market I've ever seen. Even at the max rate it's lower than what we were paying six months ago at the normal rate. Refinancing to us is really the best option. The discounts that we see in the funds here present to me a great opportunity in the marketplace. It's a very strange market. We're not an island unto ourselves here. We're part of some of the global credit issues and we're watching very closely that the cost of leverage would not be so onerous that we would not want to do it. We think it is well within our capability to do that.

Mike O'Neill: I'd just like to close by thanking everybody for joining us again. One of our core firm values is our commitment to our clients. We will continue to work diligently on your behalf to find solutions. As additional updates become available, we'll be posting those to our Web site, which you may view at www.calamos.com. Thank you again for your time and your trust in our firm.

* The maximum rate depends on the fund. The maximum rates for failed auctions are 1.5 times the following reference rates for each fund: 7-day AA financial commercial paper for 7-day auctions and 30-day AA financial commercial paper for 28-day auctions for Calamos Convertible Opportunities and Income Fund (CHI) and Calamos Convertible and High Income Fund (CHY); 7-day Telerate/BBA LIBOR for 7-day auctions and 30-day Telerate/BBA LIBOR for 28-day auctions for Calamos Strategic Total Return Fund (CSQ); 7-day Telerate/BBA LIBOR for 7-day auctions for Calamos Global Total Return Fund (CGO) and Calamos Global Dynamic Income Fund (CHW).

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