GLOBAL DYNAMIC INCOME FUND (CHW)

INVESTMENT TEAM DISCUSSION

Please discuss the Fund’s strategy and role within an asset allocation.

Calamos Global Dynamic Income Fund (CHW) is a global enhanced fixed-income offering that seeks to provide an attractive monthly distribution with a secondary objective of capital appreciation. We believe it offers a diversified way to participate in the long-term potential of global markets.

In this portfolio, we draw upon our team’s wide-ranging experience in an array of asset classes. We utilize what we believe to be a highly flexible approach that enables us to invest in equities, convertible securities and high yield securities. We also can employ alternative strategies such as covered call writing and convertible arbitrage. Through covered call writing, we seek to generate income by selling (“writing”) options on market indexes. In the convertible arbitrage strategy, we invest in convertible securities and short sell the convertibles’ underlying equities to generate income and hedge against risk.

We believe that this broad mandate enhances our ability to capitalize on market volatility, manage potential downside risks and generate more income versus traditional fixed-income funds. We dynamically adjust our allocations to asset classes, adapting to our latest views on the economic landscape and the potential of individual securities. By combining asset classes and strategies, we believe that we are well positioned to generate income and capital gains. The broader range of security types also provides us with increased opportunities to manage the risk/reward characteristics of the portfolio over full market cycles. For the period, our exposure to the equity markets was beneficial to the overall performance of the Fund.

We invest in both U.S. and non-U.S. companies, with at least 40% of assets in non-U.S. companies. We emphasize companies with reliable debt servicing, respectable balance sheets and sustainable prospects for growth. Regardless of a company’s country of domicile, we favor companies with geographically diversified revenue streams and global business strategies.

How did the Fund perform over the reporting period?

The Fund returned 25.23% on a net asset value (NAV) basis and 41.48% on a market price basis for the 12-month period ended October 31, 2017. For the sake of comparison to the broader global markets, the MSCI EAFE Index returned 24.09%, the MSCI World Index returned 23.46%, and the S&P 500 Index gained 23.63% during the period.

At the end of the reporting period, the Fund’s shares traded at a 0.87% discount to NAV.

SINCE INCEPTION MARKET PRICE AND NAV HISTORY THROUGH 10/31/17

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 of an investment will fluctuate so that your shares, when sold, may be worth more or less than their original cost. Returns at NAV reflect the deduction of the Fund’s management fee, debt leverage costs and all other applicable fees and expenses. You can obtain performance data current to the most recent month end by visiting www.calamos.com.

How do NAV and market price return differ? 

Closed-end funds trade on exchanges, where the price of shares may be influenced by factors other than the value of the underlying securities. The price of a share in the market is called market value. Market price may be influenced by factors unrelated to the performance of the fund’s holdings, such as general market sentiment or future expectation. A fund’s NAV return measures the actual return of the individual securities in the portfolio, less fund expenses. It also measures how a manager was able to capitalize on market opportunities. Because we believe closed-end funds are best utilized long-term within asset allocations, we think that NAV return is the better measure of a fund’s performance. However, when managing the Fund, we take actions and implement policies that we believe will optimize its overall performance and returns based on market price. 

Please discuss the Fund’s distributions during the 12-month period.

We employ a level rate distribution policy* with the goal of providing shareholders with a consistent distribution stream. In each month of the period, the Fund distributed $0.0700 per share, resulting in a current annualized distribution rate of 9.20% of market price as of October 31, 2017.  

We believe that both the Fund’s distribution rate and level remained attractive and competitive, as low interest rates limited yield opportunities in the marketplace. For example, as of October 31, 2017, the dividend yield of S&P 500 Index stocks averaged 2.07%. Yields also were low within the U.S. government bond market, with the 10-year U.S. Treasury and 30-year U.S. Treasury yielding 2.38% and 2.88%, respectively.

What factors influenced performance over the reporting period? 

The Fund has the ability to invest in a range of strategies including convertible securities, high yield, U.S. equities, international equities, and convertible arbitrage. This enables us to participate in a myriad of opportunities on behalf of our shareholders. Given this flexibility, we were able to maintain our exposure to the equity markets through our convertible holdings, which allowed us to participate in the general upward trajectory of equities. Broad improvements in both domestic and global equity and fixed income markets contributed to the Fund’s strong performance over the period. Price performance was enhanced by good valuations in the stocks relative to the NAV earlier in the period, which served as an enticement to many investors.

The Fund’s U.S. equity sleeve slightly outperformed relative to the S&P 500 Index as selection and an underweight to consumer staples, specifically selection in packaged foods and meats, outperformed relative to the index. In addition, our selection in consumer discretionary, namely in apparel, accessories & luxury goods, was additive.

Conversely, our selection in financials, particularly an underweight to diversified banks, impeded performance relative to the index. In addition, our underweight position and selection in materials, the gold industry, was not helpful.

The Fund’s global equity sleeve underperformed relative to the MSCI World Index. Our underweight to consumer staples, namely no exposure to household products, was helpful. Our selection in telecom services, specifically wireless, also proved beneficial.

On the flip side, our underweight to and selection in financials, specifically an underweight and selection in diversified banks, detracted relative to the index. Our selection in information technology, mainly in communication equipment, also weighed on results.

Our holdings in emerging Asia helped performance relative to the MSCI Index. However, our holdings in the United States were a disappointing offset.

The Fund’s international sleeve underperformed relative to the MSCI EAFE Index. Our overweight and allocation to information technology, specifically an overweight to home entertainment software, was beneficial relative to the index. In addition, selection and an underweight to consumer staples, notably an underweight and selection in tobacco, was helpful. Our selection in Japan was also positive.

However, an underweight to and selection in financials with respect to diversified banks impeded performance relative to the MSCI EAFE Index. In addition, our selection to materials, notably an overweight in gold, hindered return. In addition, the Fund’s overweight to the U.S. in relation to the index was not helpful.

Convertible arbitrage entails owning a convertible bond long and then shorting its underlying stock. It is employed as a strategy to enhance returns. The convertible arbitrage sleeve performed positively during the reporting period and contributed to the overall Fund return. Although lower overall volatility was not helpful to the strategy, the three fed funds rate hikes during the period was supportive to the interest carry on our short equity positions. In addition, high yield credit spreads narrowed during the period, which supported the convertible arbitrage strategy, as the bond portion of convertibles became more valuable.

How is the Fund positioned?

We continue to find opportunities across asset classes. We maintained a preference for larger-cap, growth-oriented companies with global presence and geographically diversified revenue streams. We believe that such companies should be particularly well positioned to capitalize on the global growth trends we see. In keeping with our emphasis on risk management, we focus on companies that we believe have respectable balance sheets, solid free cash flows, good prospects for sustainable growth because of global economic synchronization, and reliable debt servicing.

The portfolio’s largest allocations—in absolute terms—are found in the information technology, consumer discretionary and financials sectors. We believe that many information technology companies offer compelling fundamentals and participation in secular growth trends. Concerning consumer discretionary, we believe that companies in the sector should benefit from improving economic conditions fostered by higher employment, lower energy costs, improved consumer sentiment and relatively low interest rates. In addition, we believe that our exposure to financial companies will do well in a rising-interest-rate, lower-regulatory and reflationary environment. Conversely, we are maintaining relatively low exposures to utilities, which we believe are fully valued at this point in the cycle.

As noted, we pursue a risk-managed approach to total return. However, the Fund’s portfolio includes a blend of high yield and investment grade credits. We take a very selective approach to CCC-rated credits. We believe it is particularly important to favor companies that offer the best prospects for reliable debt servicing.

We believe that this environment is conducive to the prudent use of leverage as a means of enhancing total return and supporting the Fund’s distribution rate. Despite a cost increase due to rising interest rates, our use of leverage enjoyed a favorable reinvestment dynamic. In addition, on September 6, 2017, the Fund announced the issuance of $65 million in mandatory redeemable preferred shares (MRPS). Fitch Ratings assigned long-term ratings of “AA” to each class of MRPS shares. The MRPS shares were privately placed with institutional investors and were issued in three series subject to mandatory redemptions 5, 7 and 10 years from the date of issuance, as shown. The Series A ($21.5 mm), Series B ($21.5 mm), and Series C ($22 mm) MRPS shares are to pay monthly cash dividends initially at rates of 3.70%, 4.00% and 4.24%, respectively, subject to adjustment under certain circumstances. In connection with the MRPS share issuance, the Fund terminated an existing credit facility with BNP Paribas and revised the available credit under an existing credit facility with State Street Bank and Trust. As of October 31, 2017, our amount of leveraged assets was approximately 29%.

What are your closing thoughts for Fund shareholders?

Given our outlook for a continued period of economic expansion, at least in the near future, we are favoring quality growth companies over cyclicals. Positive factors within the U.S. include solid job creation, low interest rates, range bound energy prices, increasing consumer confidence and limited inflationary pressures. We emphasize investments in companies with solid cash flow generation and stronger balance sheets. From a thematic and sector perspective, we see opportunities in the technology sector, consumer discretionary companies tied to global consumption, and companies positioned to benefit from improving fundamentals and lower political concerns in Europe. We are also optimistic about financials, as we believe that many of these companies are favorably valued and positioned to grow revenues in a rising interest rate environment with fewer regulations. However, we are cautious about companies in the consumer staples sector. We believe they may be fully valued as investors seek those stocks for income rather than growth. We are selective regarding the health care sector, favoring those companies that are more product-growth oriented versus those relying in pricing to achieve earning growth. We believe our active, risk-managed investment approach positions us to take advantage of volatility and opportunities in global equities and convertible securities.

We think that fiscal policy is likely to remain a focal point of market anxiety. However, we also believe that the Fed’s policy will try to accommodate fiscal growth. We also view government policies as more business friendly. In our view, equities continue to offer compelling risk/reward characteristics, as we seek companies with attractively valued fundamentals.