UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED:

September 30, 2005

- OR -

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File Number: 000-51003

CALAMOS ASSET MANAGEMENT, INC.

Delaware (State or Other Jurisdiction of		32-0122554 (I.R.S. Employer
Incorporation or Organization)		Identification No.)
2020 Calamos Court, Naperville, Illinois		60563
(Address of Principal Executive Offices)		(Zip Code)

(630) 245-7200
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

At November 1, 2005, the company had 23,000,000 shares of Class A common stock and 100 shares of Class B common stock outstanding.

 

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CALAMOS ASSET MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except per share data)

		September 30,				December 31,
		2005				2004
		(unaudited)
ASSETS:
Current assets
Cash and cash equivalents		$	174,195			$	149,768
Receivables:
Affiliates and affiliated funds			22,718				21,222
Customers			8,402				6,012
Investment securities, trading and available for sale			198,148				147,521
Prepaid expenses			1,614				1,917
Deferred tax asset, net			4,777				6,892
Other			3,176				4,046
Total current assets			413,030				337,378
Non-current assets
Deferred tax asset, net			105,364				111,186
Deferred sales commissions			60,228				61,417
Property and equipment, net of accumulated depreciation ($4,967 at 9/30/05 and $3,588 at 12/31/04)			39,730				4,902
Other non-current assets			1,767				1,569
Total non-current assets			207,089				179,074
Total assets			620,119				516,452
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities
Accounts payable:
Brokers			16,832				12,514
Affiliates			102				813
Accrued compensation and benefits			14,394				9,985
Accrued expenses and other current liabilities			8,759				17,767
Total current liabilities			40,087				41,079
Long-term liabilities
Long-term debt			150,000				150,000
Other long-term liabilities			6,665				263
Total long-term liabilities			156,665				150,263
Total liabilities			196,752				191,342
Minority interest in partnership investments			43,766				31,322
Minority interest in Calamos Holdings LLC			201,561				135,294
Stockholders’ equity:
Class A Common Stock, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 23,000,000 shares			230				230
Class B Common Stock, $0.01 par value. Authorized 1,000 shares; issued and outstanding 100 shares			0				0
Additional paid-in capital			154,894				154,156
Retained earnings			20,117				2,364
Accumulated other comprehensive income			2,799				1,744
Total stockholders’ equity			178,040				158,494
Total liabilities, minority interest and stockholders’ equity		$	620,119			$	516,452

See accompanying notes to consolidated financial statements.

CALAMOS ASSET MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 2005 and 2004
(in thousands, except per share data)
(unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2005				2004				2005				2004
						(Predecessor)								(Predecessor)
Revenues:
Investment management fees		$	73,669			$	55,837			$	206,939			$	148,540
Distribution and underwriting fees			33,335				24,769				94,724				70,571
Other			682				625				2,416				1,635
Total revenues			107,686				81,231				304,079				220,746
Expenses:
Employee compensation and benefits			15,365				17,103				45,146				45,248
Distribution and underwriting expense			20,642				12,967				57,006				34,670
Amortization of deferred sales commissions			7,894				7,598				23,798				21,677
Marketing and sales promotion			3,760				3,733				10,296				15,730
General and administrative			6,693				4,376				16,765				10,563
Total expenses			54,354				45,777				153,011				127,888
Operating income			53,332				35,454				151,068				92,858
Other income (expenses):
Interest expense			(2,036	)			(2,052	)			(6,105	)			(3,945	)
Investment and other income			6,007				392				10,172				2,908
Total other income (expense), net			3,971				(1,660	)			4,067				(1,037	)
Income before minority interests and income taxes			57,303				33,794				155,135				91,821
Minority interest in partnership investments			2,416				—				3,444				—
Income before minority interest in Calamos Holdings LLC and income taxes			54,887				33,794				151,691				91,821
Minority interest in Calamos Holdings LLC			42,224				—				116,739				—
Income before income taxes			12,663				33,794				34,952				91,821
Income taxes			5,024				688				13,940				1,565
Net income		$	7,639			$	33,106			$	21,012			$	90,256
Earnings per share
Basic		$	0.33			$	0.34			$	0.91			$	0.93
Diluted		$	0.33			$	0.34			$	0.91			$	0.93
Weighted average shares outstanding
Basic			23,000,100				96,800,000				23,000,100				96,800,000
Diluted			100,667,805				96,800,000				100,606,766				96,800,000

See accompanying notes to consolidated financial statements.

CALAMOS ASSET MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2005
(in thousands)
(unaudited)

						Additional								Accumulated
		Common				Paid-in				Retained				Comprehensive
		Stock				Capital				Earnings				Income				Total
Balance at December 31, 2004		$	230			$	154,156			$	2,364			$	1,744			$	158,494
Net income			—				—				21,012				—				21,012
Changes in unrealized gains on available-for-sale securities, net of minority interest and income taxes			—				—				—				1,055				1,055
Total comprehensive income																			22,067
Compensation expense recognized under stock incentive plans, net of minority interest			—				738				—				—				738
Dividend equivalent accrued under stock Incentive plans, net of minority interest			—				—				(39	)			—				(39	)
Dividends declared			—				—				(3,220	)			—				(3,220	)
Balance at September 30, 2005		$	230			$	154,894			$	20,117			$	2,799			$	178,040

See accompanying notes to consolidated financial statements.

CALAMOS ASSET MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2005 and 2004
(in thousands)
(unaudited)

		2005				2004
						(Predecessor)
Cash and cash equivalents at beginning of year		$	149,768			$	5,073
Cash flows from operating activities:
Net income			21,012				90,256
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest in partnership investments			3,444				—
Minority interest in Calamos Holdings LLC			116,739				—
Amortization of deferred sales commissions			23,798				21,677
Other depreciation and amortization			3,204				1,078
Unrealized appreciation on trading securities			(6,158	)			(79	)
Unrealized (appreciation) depreciation on investment in partnership			70				(59	)
Management fee received in partnership units			(115	)			(121	)
Stock-based compensation			3,210				—
Deferred taxes			7,242				—
Loss (gain) on disposal of property			515				(1,989	)
Non-cash donation of equipment			139				—
(Increase) decrease in assets:
Accounts receivable:
Customers			(2,390	)			(1,241	)
Affiliates and affiliated mutual funds			(1,496	)			(5,290	)
Deferred sales commissions			(22,609	)			(31,807	)
Other assets			806				(2,027	)
Increase in liabilities:
Accounts payable			3,607				4,051
Accrued compensation and benefits and deferred compensation			4,409				7,925
Other liabilities and accrued expenses			4,224				11,345
Net cash provided by operating activities			159,651				93,719
Cash flows used in investing activities:
Net additions to property and equipment			(38,472	)			(8,831	)
Net purchases of securities and partnership investments			(27,859	)			(47,245	)
Net cash used in investing activities			(66,331	)			(56,076	)
Cash flows provided by (used in) financing activities:
Net payments on bank debt			—				(30,199	)
Net payments on mortgage payable			—				(152	)
Net borrowings on debt offering			—				148,003
Cash dividends paid to minority shareholders			(64,063	)			(43,345	)
Cash dividends paid to common shareholders			(4,830	)			—
Net cash provided by (used in) financing activities			(68,893	)			74,307
Net increase in cash			24,427				111,950
Cash and cash equivalents at end of period		$	174,195			$	117,023

See accompanying notes to consolidated financial statements.

CALAMOS ASSET MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(1) Organization and Description of Business

Calamos Asset Management, Inc. (CAM), together with its subsidiaries (the Company), primarily provides investment advisory services to individual and institutional investors as well as investment advisory services to a family of open-end and closed-end funds. The Company completed an initial public offering (Offering) of its Class A common stock on November 2, 2004. Prior to the offering, on October 15, 2004 Calamos Family Partners, Inc. (formerly known as Calamos Holdings, Inc.) (CFP), contributed all of its assets and liabilities, including all equity interests in its wholly owned subsidiaries, to Calamos Holdings LLC (Holdings) in exchange for all 96,800,000 membership units of Holdings. On October 20, 2004, Holdings issued 200,000 new membership units for cash to John Calamos, Sr. In November 2004, CAM applied the net proceeds of the Offering to acquire 3,000,000 newly issued membership units directly from Holdings and 20,000,000 membership units from CFP to become the sole manager of Holdings. As the sole manager, CAM operates and controls all of the business and affairs of Holdings and, as a result of this control, CAM consolidates the financial results of Holdings with its own financial results. CAM is now conducting the business previously conducted by CFP. Accordingly, reported results for the three and nine months ended September 30, 2004 reflect the operations for CFP and its subsidiaries (Predecessor). Reported results for the three and nine months ended September 30, 2005 reflect the operations for the Company. For more information regarding the Offering and the reorganization undertaken in connection therewith (the Reorganization), see CAM’s Registration Statement on Form S-1 (File No. 333-117847) (the Registration Statement) filed with the Securities and Exchange Commission (SEC).

(2) Basis of Presentation

The consolidated financial statements as of September 30, 2005 and for the three and nine months ended September 30, 2005 and 2004 have not been audited by the Company’s independent registered public accounting firm. In the opinion of management, such information contains all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial condition and results of operations. The results for the interim periods ended September 30 are not necessarily indicative of the results to be obtained for a full fiscal year. Certain amounts for the prior year have been reclassified to conform to the current year’s presentation.

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from these estimates.

CFP’s and John P. Calamos, Sr.’s combined 77% interest in Holdings is represented as minority interest in the Company’s financial statements. Income before minority interest in Calamos Holdings LLC and income taxes, which was $54.9 million and $151.7 million for the three and nine months ended September 30, 2005, respectively, included approximately $49,400 and $81,500 of investment income earned on cash and cash equivalents held solely by CAM during the same periods. This investment income is not reduced by any minority interests; therefore, the resulting minority interest is less than 77% for the three and nine months ended September 30, 2005.

(3) Cash and Cash Equivalents

Cash and cash equivalents at September 30, 2005 includes $3.9 million in an escrow account to fund the completion of leasehold improvements for the new office facility at 2020 Calamos Court in Naperville, Illinois. The Company expects the leasehold improvements to be completed and the escrow to be utilized during the remainder of 2005.

CALAMOS ASSET MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(4) Property and Equipment

Property and equipment at September 30, 2005 includes leasehold improvements of $21.4 million and furniture, fixtures and equipment of $14.4 million related to the Company’s new leased headquarters. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, ranging from three to 20 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining term of the lease.

(5) Earnings Per Share

The following table reflects the calculation of basic and diluted earnings per share:

		Three Months Ended								Nine Months Ended
(in thousands, except per share data)		September 30,								September 30,
		2005				2004				2005				2004
Earnings per share — basic
Earnings available to common shareholders		$	7,639			$	33,106			$	21,012			$	90,256
Weighted average shares outstanding			23,000				96,800				23,000				96,800
Earnings per share — basic		$	0.33			$	0.34			$	0.91			$	0.93
Earnings per share — diluted
Income before minority interest in Calamos Holdings LLC and income taxes		$	54,887			$	33,794			$	151,691			$	91,821
Less: Impact of income taxes			21,774				688				60,494				1,565
Earnings available to common shareholders		$	33,113			$	33,106			$	91,197			$	90,256
Weighted average shares outstanding			23,000				96,800				23,000				96,800
Conversion of membership units for common stock			77,000				—				77,000				—
Dilutive impact of RSUs			605				—				565				—
Dilutive impact of stock options			63				—				42				—
Weighted average shares and potential dilutive shares outstanding			100,668				96,800				100,607				96,800
Earnings per share — diluted		$	0.33			$	0.34			$	0.91			$	0.93

Diluted shares outstanding for the three and nine months ended September 30, 2005 are calculated (a) assuming CFP and John P. Calamos, Sr. exchanged all of their membership units in Calamos Holdings LLC for shares of the Company’s Class A common stock on a one-for-one basis and (b) including the effect of outstanding restricted stock unit and stock option awards. In calculating diluted earnings available to common shareholders for the three and nine months ended September 30, 2005, an effective tax rate of 39.7% and 39.9%, respectively, was applied to income before minority interest in Calamos Holdings LLC and income taxes of $54.9 million and $151.7 million, respectively, resulting in earnings available to common shareholders of $33.1 million and $91.2 million. The impact of income taxes for the three and nine months ended September 30, 2004 reflects the income taxes of CFP, which operated as an S corporation and was not subject to U.S. federal and certain state income taxes, but was subject to Illinois replacement taxes.

CALAMOS ASSET MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company uses the treasury stock method to reflect the dilutive effect of unvested restricted stock units (RSU) and unexercised stock options in diluted earnings per share. As such, the dilutive effect of such options and RSUs would result in the addition of a net number of shares to the weighted-average number of shares used in the calculation of diluted earnings per share. Under the treasury stock method, if the average market price of common stock increases above the exercise price, the proceeds that would be assumed to be realized would be assumed to be used to acquire outstanding shares of common stock. However, pursuant to the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS 123), the awards may be anti-dilutive even when the market price of the underlying stock exceeds the related exercise price. This result is possible because compensation cost attributed to future services and not yet recognized is included as a component of the assumed proceeds. Stock options for 313,467 shares and RSUs for 6,656 shares were excluded from the computation of diluted earnings per share for the three months ended September 30, 2005 and stock options for 313,467 and RSUs for 103,656 were excluded from the computation of diluted earnings per share for the nine months ended September 30, 2005 as they were anti-dilutive. There were no stock options or dilutive securities outstanding for the three and nine months ended September 30, 2004.

(6) Recently Issued Accounting Pronouncements

Effective January 1, 2004, we adopted the fair value recognition provisions of SFAS 123. In December 2004, the FASB revised SFAS 123 (SFAS 123(R)), requiring public registrants to recognize the cost resulting from all stock-based compensation transactions in their financial statements. In April 2005, the Securities and Exchange Commission deferred the compliance date of SFAS 123(R) until 2006 for calendar-year companies. We intend to adopt SFAS 123(R) in the first quarter of 2006 and do not believe that the implementation will have a material effect on our financial statements.

In June 2005, the FASB’s Emerging Issues Task Force (EITF) ratified Issue No. 04-05, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights. EITF No. 04-05 provides a framework for determining whether a general partner controls, and should consolidate, a limited partnership. The presumption of control is overcome if the limited partners have either substantive kick-out rights or substantive participating rights, as defined. This guidance is applicable for limited partnerships or similar entities that are not variable interest entities under FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities. We have evaluated the provisions of EITF No. 04-05 and have determined that the implementation of this guidance will not have a material effect on our financial statements.

In June 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections. SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, voluntary changes in accounting principle were required to be recognized by including the cumulative effect of the change in net income of the period of the change. SFAS 154 requires companies to account for and apply changes in accounting principles retrospectively to prior periods’ financial statements, rather than recording a cumulative effect adjustment within the period of the change, unless it is impractical to determine the effects of the change to each period being presented. The provisions of SFAS 154 are effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS 154 is not expected to have a material effect on our financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We provide investment advisory services through our subsidiaries to institutions and individuals, managing $42.2 billion in client assets at September 30, 2005. Our operating results fluctuate primarily due to changes in the total value and composition of our assets under management. The value and composition of our assets under management are, and will continue to be, influenced by a variety of factors, including purchases and redemptions of shares of the open-end funds and other investment products that we manage, fluctuations in the financial markets around the world that result in appreciation or depreciation of assets under management and our introduction of new investment strategies and products.

The value and composition of our assets under management and our ability to continue to attract clients depends on a variety of factors, including the education of our target clients about our investment philosophy, the delivery of best-in-class service, the relative investment performance of our investment products as compared to competing offerings and to market indices, the competitive conditions in the mutual fund, asset management and broader financial services sectors, investor sentiment and confidence, and our decision to close strategies when deemed to be in the best interests of our clients.

We market our investment strategies to our target clients through a variety of products designed to suit their individual investment needs. We currently offer six types of mutual fund and separate account investment products. The following table details our assets under management at September 30, 2005 and 2004.

		September 30,
($ in millions)		2005				2004
Mutual Funds
Open-end funds		$	24,480			$	17,307
Closed-end funds			5,996				5,798
Total mutual funds			30,476				23,105
Separate Accounts
Institutional accounts			3,912				3,108
Managed accounts			7,012				6,576
Private client accounts			681				443
Alternative investments			88				17
Total separate accounts			11,693				10,144
Total assets under management		$	42,169			$	33,249

Our revenues are substantially comprised of investment management fees earned under contracts with the mutual funds and separate accounts that we manage. Our revenues are also comprised of distribution and underwriting fees, including asset-based distributions and/or service fees received pursuant to Rule 12b-1 plans. Investment management fees and distribution and underwriting fees may fluctuate based on a number of factors, including the total value and composition of our assets under management, market appreciation or depreciation and the level of net purchases and redemptions, which represents the sum of new client investments, additional funding from existing clients, withdrawals of assets from and termination of client accounts and purchases and redemptions of mutual fund shares. The distribution of assets under management among our investment products also has an impact on our revenues, as some products carry different fees than others.

Our largest operating expenses are employee compensation and benefits expense, which includes salaries, incentive compensation and related benefits costs, and expenses related to the distribution of mutual funds, including Rule 12b-1 payments and amortization of deferred sales commissions for open-end mutual funds.

Operating expenses may fluctuate due to a number of factors, including variations in staffing and compensation, changes in distribution expense as a result of fluctuations in mutual fund sales and market appreciation or depreciation, and depreciation and amortization relating to capital expenditures incurred to maintain and enhance our administrative and operating services infrastructure.

Operating Results

Third Quarter and Nine Months Ended September 30, 2005 Compared to Third Quarter and Nine Months Ended September 30, 2004

Assets Under Management

Assets under management increased by $8.9 billion, or 27%, to $42.2 billion at September 30, 2005 from $33.2 billion at September 30, 2004. At September 30, 2005, our assets under management consisted of 72% mutual funds and 28% separate accounts, as compared to 69% mutual funds and 31% separate accounts at September 30, 2004.

($ in millions)		Three Months Ended September 30,																Nine Months Ended September 30,
										Change																Change
		2005				2004				Amount				Percent				2005				2004				Amount				Percent
Mutual Funds
Beginning assets under management		$	28,333			$	22,290			$	6,043				27	%		$	26,951			$	14,650			$	12,301				84	%
Net purchases			471				1,219				(748	)			61				2,604				8,070				(5,466	)			68
Market appreciation (depreciation)			1,672				(404	)			2,076				514				921				385				536				139
Ending assets under management			30,476				23,105				7,371				32				30,476				23,105				7,371				32
Average assets under management			29,572				22,230				7,342				33				28,035				19,539				8,496				43
Separate Accounts
Beginning assets under management			11,179				9,972				1,207				12				11,024				9,189				1,835				20
Net purchases (redemptions)			(74	)			317				(391	)			123				356				627				(271	)			43
Market appreciation (depreciation)			588				(145	)			733				506				313				328				(15	)			5
Ending assets under management			11,693				10,144				1,549				15				11,693				10,144				1,549				15
Average assets under management			11,514				9,868				1,646				17				11,098				9,627				1,471				15
Total Assets Under Management
Beginning assets under management			39,512				32,262				7,250				22				37,975				23,839				14,136				59
Net purchases			397				1,536				(1,139	)			74				2,960				8,697				(5,737	)			66
Market appreciation (depreciation)			2,260				(549	)			2,809				512				1,234				713				521				73
Ending assets under management			42,169				33,249				8,920				27				42,169				33,249				8,920				27
Average assets under management		$	41,086			$	32,098			$	8,988				28	%		$	39,133			$	29,166			$	9,967				34	%

Mutual fund net purchases were $471 million in the third quarter and $2.6 billion in the first nine months of 2005, compared to $1.2 billion and $8.1 billion for the prior year periods. The decrease in mutual fund net purchases for the three months ended September 30, 2005 was primarily attributable to higher open-end fund redemptions, which have increased with the growth in assets under management. The decrease in mutual fund net purchases for the nine months ended September 30, 2005 was mainly due to a large closed-end fund offering during the nine months ended September 30, 2004 that did not recur, and to a $1.5 billion increase in redemptions. Because closed-end funds do not continually offer new shares to investors, net purchases of closed-end funds are entirely dependent on our ability to consummate closed-end fund offerings. Market demand for closed-end fund offerings is difficult to predict. We intend to monitor the market and pursue opportunities as they present themselves and when doing so would be consistent with our business strategy. For example, we launched the Calamos Global Total Return Fund in the fourth quarter of 2005. For the three and nine months ended September 30, 2005, separate accounts had net redemptions of $74 million and net purchases of $356 million, respectively, compared to net purchases of $317 million and $627 million in the prior year periods, largely driven by managed account outflows in our convertible strategies, which remain closed to new investors.

Revenues

Total revenues for the third quarter of 2005 were $107.7 million, up $26.5 million or 33% over the comparable period of the prior year. For the nine-month period ended September 30, 2005, total revenues were $304.1 million, representing a 38% increase compared to last year’s nine-month period. These increases were primarily due to higher investment management fees and distribution and underwriting fees.

($ in thousands)		Three Months Ended September 30,																Nine Months Ended September 30,
										Change																Change
		2005				2004				Amount				Percent				2005				2004				Amount				Percent
Investment management fees		$	73,669			$	55,837			$	17,832				32	%		$	206,939			$	148,540			$	58,399				39	%
Distribution and underwriting fees			33,335				24,769				8,566				35				94,724				70,571				24,153				34
Other			682				625				57				9				2,416				1,635				781				48
Total revenues		$	107,686			$	81,231			$	26,455				33	%		$	304,079			$	220,746			$	83,333				38	%

Compared to the same periods in the prior year, investment management fees increased 32% and 39% in the third quarter and first nine months of 2005, respectively, primarily due to increases in average assets under management of $9.0 billion and $10.0 billion for the third quarter and first nine months of 2005. The overall growth in investment management fees was due primarily to an increase in fees from mutual funds, which increased to $58.2 million and $163.8 million for the three and nine month periods ended September 30, 2005 from $43.4 million and $113.6 million for the prior year periods. Open-end fund investment management fees increased to $45.5 million and $126.4 million for the third quarter and nine months ended September 30, 2005, respectively, from $31.3 million and $86.7 million for the same periods of the prior year, primarily due to increases in open-end fund average assets under management of $7.1 billion for the third quarter and nine months ended September 30, 2005 compared to the prior year. Closed-end fund investment management fees increased to $12.7 million and $37.4 million for the three and nine month periods ended September 30, 2005, respectively, from $12.1 million and $26.9 million in the prior year, as a result of increases in closed-end fund average assets under management of $0.2 billion and $1.4 billion for the third quarter and first nine months of 2005 when compared to the prior year. Investment management fees as a percentage of average assets under management were 0.72% and 0.71% for the three and nine months ended September 30, 2005 compared to 0.70% and 0.68% for the three and nine month periods in the prior year, representing the continued shift of assets from our convertible strategies to our equity strategies, which generally carry higher fees.

Distribution and underwriting fees increased to $33.3 million and $94.7 million for the three and nine months ended September 30, 2005, respectively, from $24.8 million and $70.6 million in the same periods of the prior year, primarily due to increases in open-end fund average assets under management of $7.1 billion for the third quarter and nine months ended September 30, 2005 compared to the same periods a year ago.

Operating Expenses

Operating expenses increased to $54.4 million and $153.0 million for the third quarter and nine months ended September 30, 2005, respectively, from $45.8 million and $127.9 million for the comparable periods in the prior year. The increases were mostly due to higher distribution expenses.

($ in thousands)		Three Months Ended September 30,																Nine Months Ended September 30,
										Change																Change
		2005				2004				Amount				Percent				2005				2004				Amount				Percent
Employee compensation and benefits		$	15,365			$	17,103			$	(1,738	)			10	%		$	45,146			$	45,248			$	(102	)			—	%
Distribution expense			20,642				12,967				7,675				59				57,006				34,670				22,336				64
Amortization of deferred sales commissions			7,894				7,598				296				4				23,798				21,677				2,121				10
Marketing and sales promotion			3,760				3,733				27				1				10,296				15,730				(5,434	)			35
General and administrative			6,693				4,376				2,317				53				16,765				10,563				6,202				59
Total operating expenses		$	54,354			$	45,777			$	8,577				19	%		$	153,011			$	127,888			$	25,123				20	%

Employee compensation and benefits expense decreased by $1.7 million for the three months ended September 30, 2005 when compared to the three months ended September 30, 2004, as increases in these expenses due to greater staff levels were more than offset by the effects of changes made to executive compensation as a result of becoming a public company. Because of similar offsets in expense for the nine months ended September 30, 2005, employee compensation and benefits expenses were relatively flat year-over-year. We expect the level of overall employee compensation and benefits expense will increase in future periods due to changes in staffing levels to support the growth and expansion of our business, including our alternative investments business. Current

compensation expense levels are also expected to increase due to merit increases for our existing staff but may vary due to compensation based on our performance.

Distribution expense increased by $7.7 million and $22.3 million in the three and nine months ended September 30, 2005, respectively, primarily due to the growth in the Class C share assets older than one year, which accounted for $4.4 million and $12.5 million of the change, and due to the growth of average open-end fund assets under management, which accounted for $3.5 million and $10.2 million of the change. Class C share assets do not generate distribution expense in the first year following their sale because we retain the Rule 12b-1 fees during that first year to offset the upfront commissions that we pay, but they do generate a distribution expense in subsequent years as we pay the Rule 12b-1 fees to the selling firms. Although the Rule 12b-1 fee rates that we paid to broker-dealers and other intermediaries in the three and nine months ended September 30, 2005 did not change from the rates paid in the prior year, we expect distribution expense to increase to the extent our open-end mutual fund assets under management continue to grow.

While marketing and sales promotion expense for the three months ended September 30, 2005 and 2004 were relatively constant, these expenses decreased to $10.3 million for the nine months ended September 30, 2005 from $15.7 million for the prior year. The decrease of $5.4 million was mainly attributable to a $6.0 million one-time fee paid to underwriters of a closed-end fund offering that we incurred during the first nine months of 2004 offset by increases in supplemental compensation payments to third party selling agents. As open-end mutual funds that we manage have grown in size and recognition, we have become subject to supplemental compensation payments to third-party selling agents. We expect supplemental compensation payments to continue to increase to the extent our funds gain assets and further recognition.

General and administrative expense increased by $2.3 million and $6.2 million in the third quarter and nine months ended September 30, 2005, respectively. We began making lease payments on our new headquarters in April 2005 in addition to making lease payments and other occupancy related payments on our two other office facilities, which increased occupancy costs by $1.1 million and $2.7 million for the quarter and nine months ended September 30, 2005. Maintaining two headquarters during the third quarter of 2005 resulted in duplicate expenses of approximately $0.6 million as we continued to reduce operations in our two other facilities. We expect the duplication of expenses to decrease significantly in the fourth quarter as we complete the wind-down of these operations. Additionally, for the three and nine month periods ended September 30, 2005, professional services expense increased $0.2 million and $1.2 million and depreciation expense increased $1.3 million and $2.1 million, respectively. The increases in professional services expense were primarily due to incremental costs incurred as a public company, including Sarbanes-Oxley compliance costs and higher fees related to legal and compliance, audit services and tax preparation. The increases in depreciation expense were primarily due to the depreciation of new leasehold improvements in connection with the move to our new headquarters. The increase in depreciation expense for the nine months was also due to the shortening of depreciable lives of leasehold improvements in our previous headquarters caused by the move into our new headquarters.

Income Taxes

Income taxes as a percentage of income before income taxes was 39.7% and 39.9% for the three and nine months ended September 30, 2005, respectively, compared to 2.0% and 1.7% for the prior year periods. For the three and nine months ended September 30, 2004, Calamos Family Partners, Inc. (CFP) elected to be taxed as an S corporation under the Internal Revenue Code. Therefore, the income and expenses of CFP were included in the income tax returns of its stockholders. CFP was subject to Illinois replacement tax and certain other state taxes.

Net Income

The following shows our condensed consolidated pro forma statements of income for the three and nine months ended September 30, 2005 and 2004. Management believes that pro forma results provide a more meaningful basis for period-to-period comparisons of the results of Calamos Asset Management, Inc. (CAM), together with its subsidiaries, for the three and nine months ended September 30, 2005 and 2004. The following pro forma results for the three and nine months ended September 30, 2004 give effect to (1) the Real Estate Distribution, whereby Calamos Family Partners, Inc. (formerly known as Calamos Holdings Inc.), distributed its interest in all of its owned real estate assets to its stockholders, who contributed those assets to a new limited liability company; (2) the Formation Transaction, whereby on October 15, 2004, Calamos Family Partners, Inc. contributed all of its assets and liabilities, including, among other things, all equity interests in its wholly owned subsidiaries, to Calamos Holdings LLC in exchange for 96,800,000 of the membership units of Calamos Holdings LLC; and (3) the consummation of our IPO and use of the net proceeds to acquire membership units in Calamos Holdings LLC. In addition, pro forma diluted earnings per share reflect the effect of exchanging all membership interests in Calamos Holdings LLC not held by CAM for Class A shares of CAM. The pro forma results give effect to these items as if they had occurred at the beginning of the periods presented. The most significant pro forma adjustments relate to the minority interest of Calamos Family Partners, Inc. and to income taxes, as Calamos Family Partners, Inc. historically operated as an S corporation.

On November 2, 2004, CAM became the sole manager of Calamos Holdings LLC and is now conducting the business previously conducted by Calamos Family Partners, Inc. Accordingly, the results for the three and nine months ended September 30, 2004 reflect the operations for Calamos Family Partners, Inc. and its subsidiaries. Results for the three and nine months ended September 30, 2005 reflect the operations for CAM.

(in thousands, except share data)		Three Months Ended September 30,
										Pro Forma				2004 as
		2005				2004				Adjustments				Adjusted
Revenues:
Investment management fees		$	73,669			$	55,837			$	—			$	55,837
Distribution and underwriting fees			33,335				24,769				—				24,769
Other			682				625				—				625
Total revenues			107,686				81,231				—				81,231
Expenses:
Employee compensation and benefits			15,365				17,103				—				17,103
Distribution and underwriting expense			20,642				12,967				—				12,967
Amortization of deferred sales commissions			7,894				7,598				—				7,598
Marketing and sales promotion			3,760				3,733				—				3,733
General and administrative			6,693				4,376				—				4,376
Total expenses			54,354				45,777				—				45,777
Operating income			53,332				35,454				—				35,454
Total other income (expense), net			1,555	(1)			(1,660	)			—				(1,660	)
Income before minority interest in Calamos Holdings LLC and income taxes			54,887				33,794				—				33,794
Minority interest			42,224				—				26,022	(2)			26,022
Income before income taxes			12,663				33,794				(26,022	)			7,772
Income taxes			5,024				688				2,412	(3)			3,100
Net income		$	7,639			$	33,106			$	(28,434	)		$	4,672
Earnings per share, basic		$	0.33			$	0.34							$	0.20
Weighted average shares outstanding, basic			23,000,100				96,800,000	(4)							23,000,100	(5)
Calculation of earnings per share, diluted, assuming exchange of membership units:
Income before minority interest in Calamos Holdings LLC and income taxes			54,887												33,794
Impact of income taxes (6)			21,774												13,480
Earnings available to common shareholders			33,113												20,314
Earnings per share, diluted		$	0.33			$	0.34							$	0.20
Weighted average shares outstanding, diluted (7)			100,667,805				96,800,000								100,000,100

(in thousands, except share data)		Nine Months Ended September 30,
										Pro Forma				2004 as
		2005				2004				Adjustments				Adjusted
Revenues:
Investment management fees		$	206,939			$	148,540			$	—			$	148,540
Distribution and underwriting fees			94,724				70,571				—				70,571
Other			2,416				1,635				(157	)(8)			1,478
Total revenues			304,079				220,746				(157	)			220,589
Expenses:
Employee compensation and benefits			45,146				45,248				(123	)(8)			45,125
Distribution and underwriting expense			57,006				34,670				—				34,670
Amortization of deferred sales commissions			23,798				21,677				—				21,677
Marketing and sales promotion			10,296				15,730				—				15,730
General and administrative			16,765				10,563				115	(8)			10,678
Total expenses			153,011				127,888				(8	)			127,880
Operating income			151,068				92,858				(149	)			92,709
Total other income (expense), net			623	(1)			(1,037	)			(1,808	)(8)			(2,845	)
Income before minority interest in Calamos Holdings LLC and income taxes			151,691				91,821				(1,957	)			89,864
Minority interest			116,739				—				69,196	(2)			69,196
Income before income taxes			34,952				91,821				(71,153	)			20,668
Income taxes			13,940				1,565				6,679	(3)			8,244
Net income		$	21,012			$	90,256			$	(77,832	)		$	12,424
Earnings per share, basic		$	0.91			$	0.93							$	0.54
Weighted average shares outstanding, basic			23,000,100				96,800,000	(4)							23,000,100	(5)
Calculation of earnings per share, diluted, assuming exchange of membership units:
Income before minority interest in Calamos Holdings LLC and income taxes			151,691												89,864
Impact of income taxes (6)			60,494												35,847
Earnings available to common shareholders			91,197												54,017
Earnings per share, diluted		$	0.91			$	0.93							$	0.54
Weighted average shares outstanding, diluted (7)			100,606,766				96,800,000								100,000,100

Notes to Consolidated Condensed Pro Forma Statements of Income

(1)

Includes $6.0 million of investment gains, partially offset by $2.4 million of minority interest related to the consolidation of the Calamos Equity Opportunities Fund L.P. and $2.0 million of interest expense for the three months ended September 30, 2005 and includes $10.2 million of investment gains, partially offset by $6.1 million of interest expense and $3.4 million of minority interest related to the consolidation of the Calamos Equity Opportunities Fund L.P. for the nine month period ended September 30, 2005.

(2)

Represents an adjustment to increase Calamos Asset Management, Inc.’s minority interest allocation to 77.0%. Minority interest was determined by multiplying the income before minority interest and taxes by Calamos Family Partners, Inc.’s and John P. Calamos, Sr.’s 77.0% aggregate ownership.

(3)

Reflects the impact of federal and state income taxes on the income allocated from Calamos Holdings LLC to Calamos Asset Management, Inc. Historically, Calamos Family Partners, Inc. operated as an S corporation and was not subject to U.S. federal and certain state income taxes but was subject to Illinois replacement taxes. The amount of pro forma adjustment was determined by eliminating the Illinois replacement tax and applying the combined 2004 effective federal corporate income tax rates and applicable state tax rates to income before income taxes.

(4)

Represents the contribution by Calamos Family Partners of all its assets and liabilities in exchange for 96,800,000 membership units of Calamos Holdings LLC.

(5)

Reflects 23,000,000 shares of Class A common stock, which represents 23.0% of the outstanding shares after the offering. In addition to shares of Class A common stock, there are 100 shares of Class B common stock outstanding.

(6)

In calculating diluted earnings per share, the 2005 effective rates for the three and nine months ended September 30, 2005 of 39.67% and 39.88%, respectively, and the 2004 effective tax rate of 39.89% were applied to income before minority interest and income taxes.

(7)

Diluted shares outstanding for each period presented represent the weighted average Class A common stock after giving effect to the Offering as of the beginning of 2004. The diluted shares outstanding are calculated: (a) including the effect of outstanding dilutive restricted stock units and dilutive option awards and (b) assuming Calamos Family Partners, Inc. and John P. Calamos, Sr. exchanged all of their membership units in Calamos Holdings LLC for, and converted all outstanding shares of our Class B common stock into, shares of our Class A common stock, in each case on a one-for-one basis.

(8)

Represents the adjustment related to the Real Estate Distribution based on actual amounts recorded during the periods presented.

Net income totaled $7.6 million and $21.0 million for the three and nine months ended September 30, 2005 compared to pro forma net income of $4.7 million and $12.4 million for the prior year, representing increases of 64% and 69%, respectively.

($ in thousands)		Three Months Ended September 30,																Nine Months Ended September 30,
										Change																Change
		2005				2004				Amount				Percent				2005				2004				Amount				Percent
						(Pro Forma)																(Pro Forma)
Total revenues		$	107,686			$	81,231			$	26,455				33	%		$	304,079			$	220,589			$	83,490				38	%
Total operating expenses			54,354				45,777				8,577				19				153,011				127,880				25,131				20
Operating income			53,332				35,454				17,878				50				151,068				92,709				58,359				63
Other income (expense), net			1,555				(1,660	)			3,215				*				623				(2,845	)			3,468				*
Minority interest			42,224				26,022				16,202				62				116,739				69,196				47,543				69
Income taxes			5,024				3,100				1,924				62				13,940				8,244				5,696				69
Net income		$	7,639			$	4,672			$	2,967				64	%		$	21,012			$	12,424			$	8,588				69	%