A rather pointed article in the Wall Street Journal entitled "Is Your Fund Pawning Shares at Your Expense?" was published on May 30, 2009. The article claimed "the mutual-fund industry has milked investors through the arcane practice of securities lending." The article mentions that some fund managers may keep some of the income earned from securities lending programs.
Later in the article, the author mentions that Calamos Growth Fund "took $475 million in securities lending capital and plunked it into a supposedly safe cash account run by Bank of New York; a chunk went into securities issued by Lehman Brothers. The fund has booked $8.6 million as an unrealized loss."
Given the many important details not contained in the article, we'd like to set the record straight.
First, what is securities lending?
In securities lending programs, owners of securities may lend them, earning interest and proceeds from cash collateral. Mutual funds own large pools of stocks and bonds. As such, many utilize securities lending to enhance a Fund's return for its shareholders. As correctly noted in the article, lending securities can add from one quarter to more than one percentage point (in the case of higher demand, less liquid securities) to a fund's total return.
At Calamos, all earnings from securities lending are passed directly to shareholders.
The article mentions that some fund managers may keep some of the income earned from securities lending programs. At Calamos, we don't. Our intent in executing securities lending on behalf of our funds is solely to benefit the funds and their shareholders (which we believe it does). Additionally, Calamos does not act as a securities lending agent for our funds.
When it comes to securities lending - as with all our investment decisions -- we take our fiduciary responsibility extremely seriously.
We take issue with the statement that Calamos Growth Fund "took $475 million in securities lending capital and plunked it into a supposedly safe cash account run by Bank of New York; a chunk went into securities issued by Lehman Brothers." We do not casually "plunk" our fund investors' money anywhere. For over 30 years, we've utilized a number of due diligence and risk management protocols across all our investment activities.
A portion of the cash from the Growth Fund's securities lending program was invested in an investment grade, AAA-rated, Cash Reserve Fund.
In order to manage the risk of the securities lending activities on behalf of the Calamos Growth Fund, we invested the cash collateral in a number of unaffiliated money market and cash reserve vehicles, including a $22 billion dollar institutional cash reserve fund managed by Bank of New York (BONY).
Like many cash reserve and money market funds, this Bank of New York fund held a Lehman Brothers security. Through our investment in the BONY fund, we held an $8.6 million position in that security. At the time, the Lehman Brothers holding was an investment grade, A-rated, money market eligible security and was consistent with the investment guidelines of the prospectus of the Bank of New York fund.
While we would never dismiss an amount like this, we feel it's important to note it represented approximately 0.066% of the Fund's approximate $13 billion of assets as August 31, 2008 (just ahead of the Lehman collapse in September).
In total, the Calamos Growth Fund EARNED $12.7 million in income during 2008 through securities lending activities (all which passed through to Fund shareholders).
The Growth Fund's securities lending activity generated approximately $12.7 million in income for fund investors during 2008, far exceeding the $7.6 million unrealized loss on the Lehman security referenced above (the value as of the most recent filing, dated January 31, 2009).
Moreover, since 2003 (the inception of the securities lending program), the Calamos Growth Fund has earned $32.4 million from securities lending activity - all of which has been passed through to the Fund and its shareholders.
In closing, we'd like to reiterate that due diligence, risk management and transparency are values that have guided Calamos Investments for over 30 years. In our view, the Wall Street Journal article in question left out the many important details that may lead shareholders and potential shareholders to make incorrect assumptions about the Growth Fund and our securities lending practices.
If you have any further questions, we invite you to call our Customer Service Team at 800-582-6959. Or, for more information about the Growth Fund, please utilize the online resources below:
Growth Fund on calamos.com
1Q09 Quarterly Commentary
The Long-Term Case for Growth
Thank you for your interest in Calamos Investments.
Before investing, carefully consider the fund's investment objectives, risks, charges and expenses. Please see the prospectus containing this and other information or call 800-582-6959. Read it carefully.
The Fund may invest in mid-size and small companies which present greater risk and higher volatility than investments in larger, more established companies. The Fund may also invest up to 25% of its assets in the securities of foreign issuers. As a result of political or economic instability in foreign countries, there can be special risks associated with investing foreign securities, including fluctuations in currency exchange rates, increased price volatility, and difficulty obtaining information.
Calamos Financial Services LLC, Distributor
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