It's All in the Family

The Calamos clan invests together -- in converts

Investing is a family affair at Calamos Asset Management. Founder John Calamos co-manages three of the Naperville (Ill.) firm's seven funds with his son, John Jr. His nephew Nick Calamos is his partner. What's more, some 30 relatives have money in the funds, and they're not shy about calling when the markets get rough. "A substantial portion of our net worth is in the funds," says Nick Calamos. "We've got a big incentive to do a good job."

They rarely disappoint family or nonfamily shareholders in the Calamos Convertible Growth & Income Fund (CVTRX ). Run by Nick and John Sr., this 14-year-old hybrid fund has performed exceptionally well in bull and bear markets, soaring 53% in 1999 and dropping only 4% last year and 2% in 2001.

The fund mixes stocks and convertible bonds, quirky securities that pay interest the way bonds do but can also be swapped for stock. When a convertible bond (or a "convert") trades below par value, it behaves like a bond. As it approaches par or goes to a premium, it starts to act like the underlying stock. The Calamoses exploit this behavior to control risk, adding more bond-like converts when bearish on stocks and more stock-like converts when they're less so.

When the Calamoses are bullish, as they are now, they also buy stocks. "We believe the U.S. is on the verge of an economic recovery," says John Sr. "Many troubled companies have cleaned up their balance sheets, which is very beneficial, and capital spending is increasing." Such big-picture analysis, which is John's forte, is key to deciding how much risk the portfolio should take. Now, the fund has 16% of its assets in equities.

While John Sr. is the top-down economic analyst, Nick handles things from the bottom up, considering each prospective investment's balance sheet, credit quality, prospects, and valuation. Recent purchases include Ford Motor and Motorola convertible bonds. He also gets support from a team of 20 analysts. They're a great help, but one thing they don't do -- answer the phone when a distressed relative calls.

By Lewis Braham

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