UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-02201
Rivus Bond Fund
(Exact name of registrant as specified in charter)
113 King Street
Armonk, NY 10504
(Address of principal executive offices) (Zip code)
Clifford D. Corso
113 King Street
Armonk, NY 10504
(Name and address of agent for service)
Registrant's telephone number, including area code: 914-273-4545
Date of fiscal year end: March 31
Date of reporting period: March 31, 2010
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
RIVUS BOND FUND SHAREHOLDER LETTER
APRIL 16, 2010
TO FELLOW SHAREHOLDERS:
The recovery in the economy and in investor risk appetite continued its
improving trend during the last six months, pausing only briefly at times. Both
equity and all fixed income sectors except U.S. Treasuries exhibited positive
returns during the period. The third estimate of fourth quarter GDP registered
5.6 percent growth and expectations for 2010 GDP have begun to increase from
"below trend" to something closer to "normal", which would be 3.5 to 4.5 percent
annualized. Keys to validating this recovery trend remain employment and
consumer confidence. Non-farm payrolls have grown in three of the last four
months and March's reading of 162,000 jobs created represents the highest level
achieved since May 2007.
Consistent with increasing confidence over the improvement in the economy, U.S.
Treasury yields increased meaningfully over the last six months. The ten-year
Treasury increased 53 bps from 3.30% at the end of September and ended the March
quarter at 3.83%. However, there was considerable volatility in yields during
this period as market participants struggled with implications from lingering
long wave structural issues in the economy that we discussed in the last
shareholder letter against the short-term improvement in the economy resulting
from the unprecedented monetary and fiscal policy response. The Federal Reserve
continues to grapple with the appropriate timing and language needed to remove
historically accommodative policy in a way that prevents a disorderly sell off
in rates or stifles the nascent economic recovery. Market observers are placing
greater emphasis on Fed statements as each nuance is pored over to determine
when policy may change.
During the quarter the Board of Trustees of the Fund approved on behalf of the
Rivus Bond Fund (BDF), the reorganization of the Hartford Income Shares Fund,
Inc. (HSF) with and into BDF. The reorganization has also been approved by HSF's
Board of Directors. The reorganization will require BDF shareholder approval to
issue additional shares to effect the reorganization pursuant to NYSE
requirements which will be done by a subsequent proxy statement provided to all
shareholders. If the requisite approval by each Fund's shareholders is obtained,
the Reorganization Agreement contemplates: (1) the transfer of the assets of HSF
to BDF in exchange for shares of common stock of BDF that have an aggregate net
asset value equal to the aggregate net asset value of the shares of common stock
of HSF; (2) the assumption by BDF of the liabilities of HSF; (3) the
distribution of shares of BDF to the shareholders of HSF; and (4) the complete
liquidation of HSF. Each shareholder of HSF would receive shares of BDF equal in
value to the shares of HSF held by that shareholder as of the closing date of
the Reorganization.
As of March 31, 2010, the Fund had a Net Asset Value of $19.10 per share. This
represents a 5.40% increase from $18.12 per share at September 30, 2009. On
March 31, 2010, the Fund's closing price on the New York Stock Exchange was
$17.12 per share, representing an 10.36% discount to Net Asset Value per share,
compared with 11.31% discount as of September 30, 2009. The market trading
discount remains elevated at 11.82% as of market close on April 16, 2010.
One of the primary objectives of the Fund is to maintain its high level of
income. On March 10, 2010 the Board of Directors declared a dividend payment of
$0.2875 per share payable May 4, 2010 to shareholders of record on April 7,
2010. The dividend was unchanged from the prior quarter and has been for the
last 21 quarters. On an annualized basis, including the pending dividend, the
Fund has paid a total of $1.15 per share in dividends, representing a 6.82%
Dividend Yield based on the market price on April 16, 2010 of $16.85 per share.
The dividend is evaluated on a quarterly basis and is based on the income
generation capability of the portfolio.
1
Another primary objective of the Fund is to deliver a competitive total return.
The table below compares the performance of the Fund to the Barclays Investment
Grade Credit Index benchmark and the Fund's Peer average:
TOTAL RETURN-PERCENTAGE CHANGE (ANNUALIZED FOR PERIODS LONGER THAN 1 YEAR)
IN NET ASSET VALUE PER SHARE WITH ALL DISTRIBUTIONS REINVESTED(1)
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
TO TO TO TO TO
03/31/10 03/31/10 03/31/10 03/31/10 03/31/10
-------- -------- -------- -------- --------
Rivus Bond Fund ....................................... 7.10% 31.31% 5.56% 4.71%(2) 5.90%(2)
Barclays Investment Grade Credit Index(3) ............. 3.33% 20.83% 6.00% 5.37% 6.72%
Peer Group Average(4) ................................. 6.87% 34.92% 4.72% 4.96% 6.35%
- ----------
(1) This is historical information and should not be construed as indicative of
any likely future performance
(2) Source: Lipper Inc.
(3) Comprised primarily of US investment grade corporate bonds (Fund's
Benchmark)
(4) Consists of a group of funds against which the Fund has historically
compared itself
The Fund's performance for the 1-year, 3-year, 5-year and 10-year historical
periods shown was negatively impacted by the 4.79% dilution of net asset value
resulting from the rights offering during the September 2009 quarter. In
addition to the impact from the September 2009 rights offering, the 10-year
performance was also negatively impacted by the 4.5% dilution of net asset value
resulting from the rights offering during the December 2003 quarter. Adjusting
for the dilutive effects of both rights offerings, we estimate the return for
the one-year period would have been approximately 37.83%, three-year annualized
return would have been approximately 7.44%, five-year annualized return would
have been approximately 5.71%, and ten-year annualized return would have been
approximately 6.74%. The returns noted in the table above are actual returns as
calculated by Lipper and PNC and do not adjust for dilution from the rights
offerings. Past performance is not an indication of future results.
The Fund enjoyed strong returns for the period relative to both the benchmark
and peers. Virtually all the significant sectors in the Fund experienced strong
gains during this period. The Fund also enjoyed continued appreciation in new
securities purchased over the past six to twelve months from a combination of
trading, bond maturities, as well as the August 2009 rights offering proceeds.
The Fund's High Yield exposure also delivered strong gains helping the overall
performance. The returns look strong across the time periods, particularly after
adjusting for the dilutive impact from both sets of rights offerings noted
above.
Treasuries over the six-month period ended March 31, 2010 had a negative total
return of -0.40% which is consistent with the increase in risk appetite in the
market and a move away from Treasuries to risk assets. At the other end of the
credit spectrum, this compares with a positive return of 23.43% for the High
Yield index for the same period.
The Fund's performance will continue to be subject to the impact of trends in
longer-term interest rates and to trends in relative yield spreads on corporate
bonds due to the concentration of the funds investments in such bonds.
2
Consistent with our investment discipline, we continue to emphasize diversity
and risk management within the bounds of income stability. The pie chart below
summarizes the portfolio quality of the Fund's long-term invested assets as of
March 31, 2010:
PERCENT OF TOTAL INVESTMENT (LOWER OF S&P AND MOODY'S RATINGS)
(PIE CHART)
AAA 7.5%
AA 3.0%
A 25.0%
BBB 40.7%
BB 17.3%
B & Lower 5.1%
Not Rated 1.4%
Please refer to the Schedule of Investments in the financial statements for
details concerning portfolio holdings.
We would like to remind shareholders of the opportunities presented by the
Fund's dividend reinvestment plan as detailed in the Fund's prospectus and
referred to in the Shareholder Information section of this report. The dividend
reinvestment plan affords shareholders a price advantage by allowing the
purchase of shares at the lower of NAV or market price. This means that the
reinvestment is at market price when the Fund is trading at a discount to Net
Asset Value, as is currently the situation, or at Net Asset Value per share when
market trading is at a premium to that value. To participate in the plan, please
contact PNC Global Investment Servicing (U.S.) Inc., the Fund's Transfer Agent
and Dividend Paying Agent, at 1-800-331-1710. The Fund's investment adviser,
Cutwater Asset Management Corp., may be reached at 914-765-3272.
Sincerely,
/s/ Clifford D. Corso
Clifford D. Corso
President
Mr. Corso's comments reflect the investment adviser's views generally regarding
the market and the economy and are compiled from the investment adviser's
research. These comments reflect opinions as of the date written and are subject
to change at any time.
3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE RIVUS BOND FUND
We have audited the accompanying statement of assets and liabilities of Rivus
Bond Fund, including the schedule of investments, as of March 31, 2010, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
the Fund's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of March 31, 2010 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Rivus
Bond Fund as of March 31, 2010, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America.
TAIT, WELLER & BAKER LLP
PHILADELPHIA, PENNSYLVANIA
MAY 3, 2010
4
SCHEDULE OF INVESTMENTS MARCH 31, 2010
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCK (0.06%)
MEDIA (0.06%)
World Color Press, Inc.(a) .................................. 6,912 $79,779
-------
TOTAL COMMON STOCK (Cost of $68,750) ........................ 79,779
-------
MOODY'S/
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATING(b) (000'S)
---------- ---------
CORPORATE DEBT SECURITIES (86.01%)
AUTOMOTIVE (2.22%)
Ford Holdings, Inc., Gtd., 9.30%, 03/01/30 .................................. B3/CCC $ 1,000 1,005,000
Ford Motor Co., Sr. Unsec. Notes, 8.90%, 01/15/32 ........................... B3/CCC 500 475,624
Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 7.00%, 10/01/13 ................ B1/B- 1,000 1,034,735
Goodyear Tire & Rubber Co., Sr. Unsec. Notes, 10.50%, 05/15/16 .............. B1/B+ 250 270,000
------------
2,785,359
------------
CHEMICALS (1.52%)
Dow Chemical Co., Sr. Unsec. Notes, 8.55%, 05/15/19 ......................... Baa3/BBB- 500 604,870
Grupo Petrotemex SA de CV, Sr. Unsec. Notes, 9.50%, 08/19/14, 144A .......... NA/BB 500 541,250
Nova Chemicals Co., Sr. Unsec. Notes, 6.50%, 01/15/12 ....................... B1/B+ 500 512,500
Westlake Chemicals, Gtd., 6.625%, 01/15/16. ................................. Ba3/BB 250 243,750
------------
1,902,370
------------
DIVERSIFIED FINANCIAL SERVICES (19.26%)
American Express Co., Sr. Unsec. Notes, 7.00%, 03/19/18 ..................... A3/BBB+ 1,000 1,135,791
Bank of America Corp., Sub. Notes, 5.42%, 03/15/17 .......................... A3/A- 1,000 988,245
BNP Paribas, Sub. Notes, 5.186%, 06/29/35, 144A(c),(d) ...................... Baa1/A 1,000 880,000
Capital One Capital V, Co. Gty., 10.25%, 08/15/39 ........................... Baa3/BB 1,500 1,777,027
Citigroup Capital XXI, Co. Gty., 8.30%, 12/21/37(c),(d) ..................... Ba1/BB- 500 506,249
Citigroup Inc., Sr. Unsec. Notes,, 6.01%, 01/15/15 .......................... A3/A 1,000 1,050,567
Citigroup, Inc., Unsec. Notes, 8.50%, 05/22/19 .............................. A3/A 500 583,592
Cobank, ACB, Sub. Notes, 7.875%, 04/16/18, 144A ............................. NR/A 500 539,952
Credit Agricole SA, 6.637%, 05/31/17, 144A(c),(d) ........................... A3/A- 800 698,000
Export-Import Bank of Korea, Sr. Notes, 8.125%, 01/21/14 .................... A2/A 500 580,056
FleetBoston Financial Corp., Sub. Notes, 6.875%, 01/15/28 ................... A3/A- 500 497,767
General Electric Capital Corp., Sr. Unsec. Notes, 6.125%, 02/22/11 .......... Aa2/AA+ 1,000 1,045,821
General Electric Capital Corp., Sr. Unsec. Notes, 6.875%, 01/10/39 .......... Aa2/AA+ 1,000 1,078,610
GMAC, Inc., Co. Gty., 7.25%, 03/02/11 ....................................... B3/B 633 644,078
HSBC America Capital Trust II, Co. Gty., 8.38%, 05/15/27, 144A .............. NR/A- 2,500 2,356,265
HSBC Finance Corp., Sr. Unsec. Notes, 6.75%, 05/15/11. ...................... A3/A 1,000 1,051,107
ICICI Bank Ltd., Sr. Unsec. Notes, 5.50%, 03/25/15, 144A .................... Baa2/BBB- 1,000 1,014,718
JP Morgan Chase Bank NA, Sub. Notes, 6.00%, 10/01/17 ........................ Aa2/A+ 1,000 1,066,162
Landesbank Baden-Wurtt NY, Sub. Notes, 6.35%, 04/01/12 ...................... Aaa/NR 500 543,037
Merrill Lynch & Co. Inc., Notes, 6.875%, 04/25/18 ........................... A2/A 1,000 1,077,669
Merrill Lynch & Co. Inc., Sub. Notes, 7.75%, 05/14/38 ....................... A3/A- 500 554,236
National Agricultural Cooperative Federation, Sr. Notes, 5.00%, 09/30/14,
144A ..................................................................... A2/A 500 518,048
Sanwa Bank Ltd., Sr. Sub. Notes, 7.40%, 06/15/11 ............................ Aa3/A 500 534,049
UBS PFD Funding Trust I, Co. Gty., 8.622%, 10/01/10(c),(d) .................. Baa3/BBB- 1,000 990,183
UBS PFD Funding Trust V, Co. Gty., 6.243%, 05/15/16(c),(d) .................. Baa3/BBB- 500 450,000
Wachovia Capital Trust III, Bank Gtd., 5.80%, 03/15/11(c),(d) ............... Ba1/A- 1,000 847,500
Wells Fargo Capital XV, 9.75%, 09/26/13(c),(d) .............................. Ba1/A- 1,000 1,120,000
------------
24,128,729
------------
The accompanying notes are an integral part of these financial statements.
5
SCHEDULE OF INVESTMENTS -- CONTINUED
MOODY'S/
STANDARD & PRINCIPAL
POOR'S AMOUNT VALUE
RATING(b) (000'S) (NOTE 1)
---------- --------- ------------
ENERGY (11.47%)
Anadarko Petroleum Corp., Sr. Unsec. Notes, 5.95%, 09/15/16 ................. Baa3/BBB- $ 700 $ 762,630
Apache Corp., Sr. Unsec. Notes, 7.70%, 03/15/26 ............................. A3/A- 500 593,414
Florida Gas Transmission Co., LLC, Sr. Unsec. Notes, 9.19%, 11/01/24, 144A .. Baa2/BBB 150 185,574
Gaz Capital SA, Notes, 8.125%, 07/31/14, 144A. .............................. Baa1/BBB 500 559,375
KazMunaiGaz Finance Sub BV, Co. Gty., 11.75%, 01/23/15, 144A ................ Baa2/BB+ 500 642,500
Nabors Industries, Inc., Co. Gty., 9.25%, 01/15/19 .......................... Baa1/BBB+ 500 621,940
NiSource Finance Corp., Co. Gty., 10.75%, 03/15/16 .......................... Baa3/BBB- 250 317,786
ONEOK Partners LP, Sr. Notes, 8.625%, 03/01/19 .............................. Baa2/BBB 375 463,067
Petrobras International Finance Co., Sr. Unsub. Notes, 6.125%, 10/06/16 ..... Baa1/BBB- 500 538,613
Petroleos Mexicanos, Co. Gty., 8.00%, 05/03/19 .............................. Baa1/BBB 250 293,125
Petroleos Mexicanos, Co. Gty., 6.00%, 03/05/20, 144A ........................ Baa1/BBB 750 768,750
Petroleum Co. of Trinidad & Tobago, Ltd., Sr. Unsec., 9.75%, 08/14/19,
144A ..................................................................... Baa3/BBB 500 568,750
Pride International, Inc., Sr. Unsec. Notes, 8.50%, 06/15/19 ................ Ba1/BBB- 500 565,000
SEACOR Holdings, Inc., Sr. Notes, 7.375%, 10/01/19 .......................... Ba1/BBB- 1,000 1,029,353
Shell International Finance BV, Co. Gty., 4.30%, 09/22/19 ................... Aa1/AA 1,000 985,998
Sunoco Logistics Partners Operations LP, Co. Gty., 5.50%, 02/15/20 .......... Baa2/BBB 335 336,744
Transocean, Inc., Sr. Unsec. Notes, 7.50%, 04/15/31. ........................ Baa2/BBB+ 500 586,259
Valero Energy Corp., Sr. Unsec. Notes, 10.50%, 03/15/39 ..................... Baa2/BBB 500 642,136
Weatherford International, Inc., Co. Gty., 6.80%, 06/15/37 .................. Baa1/BBB+ 600 615,762
Western Atlas, Inc., Sr. Unsec. Notes, 8.55%, 06/15/24 ...................... A2/A 2,539 3,285,877
------------
14,362,653
------------
FOOD AND BEVERAGE (0.12%)
Bunge Ltd. Finance Corp., Co. Gty., 8.50%, 06/15/19 ......................... Baa2/BBB- 125 145,314
------------
GAMING, LODGING & LEISURE (0.50%)
Wynn Las Vegas LLC, 6.625%, 12/01/14 ........................................ Ba3/BB+ 500 498,750
Wynn Las Vegas LLC, 7.875%, 11/01/17, 144A .................................. Ba2/BB+ 125 127,188
------------
625,938
------------
HEALTHCARE (1.46%)
Boston Scientific Corp., Sr. Unsec. Notes, 6.00%, 01/15/20 .................. Ba1/BBB- 500 472,346
Fresenius US Finance II, Inc., Co. Gty, 9.00%, 07/15/15, 144A ............... Ba1/BB 250 278,750
Inverness Medical Innovations, Inc., Sr. Sub. Notes, 9.00%, 05/15/16 ........ B3/B- 150 153,000
Life Technologies Corp., Sr. Notes, 6.00%, 03/01/20 ......................... Ba1/BBB- 350 358,356
Monsanto Co. (Pharmacia Corp.), Sr. Unsec. Notes, 6.50%, 12/01/18 ........... A1/AA 500 567,529
------------
1,829,981
------------
INDUSTRIAL (2.88%)
Arrow Electronics, Inc., Sr. Unsec. Notes, 6.00%, 04/01/20 .................. Baa3/BBB- 500 504,478
Belden, Inc., Sr. Sub. Notes, 7.00%, 03/15/17 ............................... Ba2/B+ 250 246,250
Holcim US Finance Sarl & Cie SCS, Co. Gty., 6.00%, 12/30/19, 144A ........... Baa2/BBB 1,000 1,038,495
L-3 Communications Corp., Co. Gty., 6.125%, 07/15/13 ........................ Ba2/BB+ 250 253,750
L-3 Communications Corp., Co. Gty., 6.375%, 10/15/15 ........................ Ba2/BB+ 1,000 1,026,250
Sealed Air Corp., Sr. Notes, 7.875%, 06/15/17, 144A ......................... Baa3/BB+ 500 542,913
------------
3,612,136
------------
INSURANCE (8.16%)
AIG SunAmerica Global Finance VI, Sr. Sec. Notes, 6.30%, 05/10/11, 144A ..... A1/A+ 1,000 1,029,891
AIG SunAmerica, Inc., Sr. Unsec. Notes, 8.125%, 04/28/23. ................... A3/A- 750 770,499
American International Group, Inc., 8.175%, 05/15/38(c),(d) ................. Ba2/BBB 1,000 845,000
Hartford Financial Services Group, Inc., Sr. Unsec. Notes, 6.00%, 01/15/19 .. Baa3/BBB 500 512,029
Liberty Mutual Group, Inc., Co. Gty., 10.75%, 06/15/38, 144A(c),(d) ......... Baa3/BB 1,000 1,120,000
Lincoln National Corp., 6.05%, 04/20/17(c),(d) .............................. Ba1/BBB 500 416,250
The accompanying notes are an integral part of these financial statements.
6
SCHEDULE OF INVESTMENTS -- CONTINUED
MOODY'S/
STANDARD & PRINCIPAL
POOR'S AMOUNT VALUE
RATING(b) (000'S) (NOTE 1)
---------- --------- ------------
INSURANCE -- CONTINUED
Massachusetts Mutual Life Insurance Co., Notes, 8.875%, 06/01/39, 144A ...... A1/AA- $ 500 $ 636,918
Metlife Capital Trust X, 9.25%, 04/08/33, 144A(c),(d) ....................... Baa2/BBB 500 562,500
MetLife, Inc., Jr. Sub. Notes, 10.75%, 08/01/39. ............................ Baa2/BBB 500 644,476
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11(e) ........................ WR/NR 1,500 1,544,970
Prudential Financial, Inc., Jr. Sub. Notes, 8.875%, 06/15/18(c),(d) ......... Baa3/BBB+ 1,000 1,122,500
Travelers Cos., Inc., Jr. Sub. Notes, 6.25%, 03/15/17(c),(d) ................ A3/BBB 500 492,178
XL Capital Europe PLC, Gtd., 6.50%, 01/15/12 ................................ Baa2/BBB+ 500 526,510
------------
10,223,721
------------
MEDIA (8.91%)
CBS Corp., Co. Gty., 8.875%, 05/15/19 ....................................... Baa3/BBB- 350 422,801
Comcast Corp., Gtd., 7.05%, 03/15/33 ........................................ Baa1/BBB+ 2,000 2,150,852
Harcourt General, Inc., Sr. Debs., 8.875%, 06/01/22 ......................... WR/BBB+ 2,000 2,289,038
Interpublic Group of Cos., Inc., Sr. Unsec. Notes, 10.00%, 07/15/17 ......... Ba2/B+ 500 565,625
News America Holdings, Inc., Co. Gty., 7.90%, 12/31/95 ...................... Baa1/BBB+ 1,400 1,563,724
Time Warner, Inc., Sr. Unsec. Notes, 9.15%, 02/01/23 ........................ Baa2/BBB 3,000 3,895,575
Viacom, Inc., Co. Gty., 7.875%, 07/30/30 .................................... Baa3/BBB- 250 275,511
World Color Press, Inc., Escrow Notes, --%, 12/01/49 ........................ WR/NR 1,000 --
------------
11,163,126
------------
MINING (2.97%)
Anglo American Capital, Co. Gty., 9.375%, 04/08/19, 144A .................... Baa1/BBB 500 636,856
Barrick North America Finance LLC, Co. Gty., 6.80%, 09/15/18 ................ Baa1/A- 500 570,300
Freeport-McMoran C&G, Sr. Unsec. Notes, 8.375%, 04/01/17 .................... Ba2/BBB- 500 556,250
Newmont Mining Corp., Co. Gty., 6.25%, 10/01/39 ............................. Baa2/BBB+ 500 499,986
Teck Cominco Ltd., Sr. Unsec. Notes, 6.125%, 10/01/35 ....................... Ba1/BB+ 1,000 912,500
Vale Overseas Ltd., Co. Gty., 6.25%, 01/23/17 ............................... Baa2/BBB+ 500 542,095
------------
3,717,987
------------
PAPER (1.50%)
Abitibi-Consolidated, Inc., Sr. Unsec. Notes, 8.85%, 08/01/30(f) ............ WR/NR 500 123,750
Smurfit Capital Funding PLC, Co. Gty., 7.50%, 11/20/25 ...................... Ba2/BB 2,000 1,750,000
------------
1,873,750
------------
REAL ESTATE INVESTMENT TRUST (REIT) (5.77%)
AvalonBay Communities, Inc., Sr. Unsec. Notes, 6.10%, 03/15/20 .............. Baa1/BBB+ 500 531,480
Duke Realty LP, Sr. Unsec. Notes, 6.50%, 01/15/18 ........................... Baa2/BBB- 500 499,976
Duke Realty LP, Sr. Unsec. Notes, 8.25%, 08/15/19 ........................... Baa2/BBB- 500 557,645
Federal Realty Investment Trust, Sr. Unsec. Notes, 5.40%, 12/01/13 .......... Baa1/BBB+ 750 793,623
Federal Realty Investment Trust, Sr. Unsec. Notes, 5.65%, 06/01/16 .......... Baa1/BBB+ 210 209,857
Federal Realty Investment Trust, Sr. Unsec. Notes, 6.20%, 01/15/17 .......... Baa1/BBB+ 290 296,940
First Industrial LP, Sr. Unsec. Notes, 7.50%, 12/01/17 ...................... Ba3/BB 200 169,400
Liberty Property LP, Sr. Notes, 7.50%, 01/15/18 ............................. Baa2/BBB 1,000 1,054,690
Mack-Cali Realty Corp., Sr. Unsec. Notes, 7.75%, 08/15/19 ................... Baa2/BBB 665 733,309
Nationwide Health Properties, Inc., Sr. Unsec. Notes, 6.00%, 05/20/15 ....... Baa2/BBB 500 525,700
Simon Property Group LP, Sr. Unsec. Notes, 6.125%, 05/30/18 ................. A3/A- 750 775,914
WEA Finance, LLC, Co. Gty., 6.75%, 09/02/19, 144A ........................... A2/A- 500 533,542
WEA Finance, LLC, Sr. Notes, 7.125%, 04/15/18, 144A ......................... A2/A- 500 540,921
------------
7,222,997
------------
The accompanying notes are an integral part of these financial statements.
7
SCHEDULE OF INVESTMENTS -- CONTINUED
MOODY'S/
STANDARD & PRINCIPAL
POOR'S AMOUNT VALUE
RATING(b) (000'S) (NOTE 1)
---------- --------- ------------
RETAIL & RESTAURANT (1.21%)
Autonation, Inc., Co. Gty., 7.00%, 04/15/14. ................................ Ba2/BB+ $ 250 $ 258,750
Darden Restaurants, Inc., Sr. Unsec. Notes, 7.125%, 02/01/16 ................ Baa3/BBB 500 560,278
Levi Strauss & Co., Sr. Unsec. Notes, 8.875%, 04/01/16 ...................... B2/B+ 500 522,500
Limited Brands, Inc., Sr. Notes, 8.50%, 06/15/19, 144A ...................... Ba1/BB 150 167,250
------------
1,508,778
------------
TELECOMMUNICATIONS (8.41%)
Deutsche Telekom International Finance BV, Gtd., 8.75%, 06/15/30 ............ Baa1/BBB+ 2,000 2,561,420
Frontier Communications Corp., Sr. Unsec. Notes, 8.125%, 10/01/18 ........... Ba2/BB 500 500,000
GTE Corp., Co. Gty., 6.94%, 04/15/28 ........................................ Baa1/A 1,500 1,574,837
NII Capital Corp., Co. Gty., 10.00%, 08/15/16, 144A ......................... B1/BB- 500 547,500
Qwest Corp., Sr. Unsec. Notes, 7.20%, 11/10/26 .............................. Ba1/BBB- 1,000 962,500
Qwest Corp., Sr. Unsec. Notes, 7.25%, 10/15/35 .............................. Ba1/BBB- 500 482,500
Sprint Capital Corp, 8.75%, 03/15/32. ....................................... Ba3/BB- 1,000 927,500
Valor Telecommunications Enterprises Finance Corp., Co. Gty., 7.75%,
02/15/15 ................................................................. Baa3/BB+ 1,000 1,022,500
Verizon Global Funding Corp., Sr. Unsec. Notes, 7.75%, 12/01/30 ............. A3/A 1,646 1,958,610
------------
10,537,367
------------
TRANSPORTATION (3.83%)
BNSF Funding Trust I, Co. Gty., 6.613%, 01/15/26(c),(d) ..................... Baa2/BBB 250 242,813
Erac USA Finance, Co., Co. Gty., 7.00%, 10/15/37, 144A ...................... Baa2/BBB+ 1,500 1,546,415
Federal Express Corp., Sr. Unsec. Notes, 9.65%, 06/15/12 .................... Baa2/BBB 1,750 2,006,690
GATX Corp., Notes, 4.75%, 10/01/12 .......................................... Baa1/BBB+ 500 521,903
Stena AB, Sr. Unsec. Notes, 7.00%, 12/01/16 ................................. Ba2/BB+ 500 478,750
------------
4,796,571
------------
UTILITIES (5.82%)
Avista Corp., 5.95%, 06/01/18 ............................................... Baa1/BBB+ 500 532,033
Avista Corp., 5.125%, 04/01/22 .............................................. Baa1/BBB+ 500 501,864
Dominion Resources, Inc., Sr. Unsub., Series 07-A, 6.00%, 11/30/17 .......... Baa2/A- 500 545,251
FPL Group Capital, Inc., Co. Gty., Series D, 7.30%, 09/01/17(c),(d) ......... A3/BBB 500 505,000
Hydro-Quebec, Gtd., 8.25%, 04/15/26 ......................................... Aa2/A+ 1,550 1,987,102
MidAmerican Funding LLC, Sr. Sec. Bonds, 6.927%, 03/01/29 ................... A3/BBB+ 500 548,241
Ohio Power Co., Sr. Unsec. Notes, 6.00%, 06/01/16 ........................... Baa1/BBB 500 548,039
Ohio Power Co., Sr. Unsec. Notes, 5.375%, 10/01/21 .......................... Baa1/BBB 1,000 1,020,796
Old Dominion Electric Coop., Sec. Bonds, 6.25%, 06/01/11 .................... A3/AAA 500 525,706
Toledo Edison Co., 7.25%, 05/01/20 .......................................... Baa1/BBB 500 578,134
------------
7,292,166
------------
TOTAL CORPORATE DEBT SECURITIES (Cost of $99,303,859) ....................... 107,728,943
------------
ASSET BACKED SECURITIES (0.54%)
CPS Auto Trust, Series 2007-C, Class A3, 5.43%, 05/15/12, 144A .............. Aa3/AAA 262 265,227
Option One Mortgage Loan Trust, Series 2007-FXD2, Class 2A1, 5.90%,
03/25/38 ................................................................. Aa3/AAA 349 337,322
Sierra Receivables Funding Co., Series 2009-1A, Class A1, 9.79%, 12/22/25,
144A ..................................................................... Aaa/AAA 67 69,108
------------
TOTAL ASSET BACKED SECURITIES (Cost of $677,855) ............................ 671,657
------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (6.68%)
American Tower Trust, Series 2007-1A, Class AFX, 5.42%, 04/15/37, 144A ...... Aaa/AAA 700 740,250
Banc of America Commercial Mortgage, Inc.,
Series 2006-2, Class AM, 5.774%, 05/10/45(c) ............................. NA/A 1,440 1,259,011
CW Capital Cobalt, Ltd., Series 2007-C2, Class A3, 5.484%, 04/15/47(c) ...... Aaa/NA 500 455,566
The accompanying notes are an integral part of these financial statements.
8
SCHEDULE OF INVESTMENTS -- CONTINUED
MOODY'S/
STANDARD & PRINCIPAL
POOR'S AMOUNT VALUE
RATING(b) (000'S) (NOTE 1)
---------- --------- ------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- CONTINUED
Developers Diversified Realty Corp.,
Series 2009-DDR1, Class C, 6.223%, 10/14/22. ............................. A2/A $ 500 $ 508,988
JPMorgan Chase Commercial Mortgage Securities Corp.,
Series 2006-CB16, Class A4, 5.552%, 05/12/45 ............................. Aaa/AAA 1,000 1,016,192
JPMorgan Chase Commercial Mortgage Securities Corp.,
Series 2007-CB20, Class A4, 5.794%, 02/12/51(c) .......................... Aaa/A+ 880 877,945
LB-UBS Commercial Mortgage Trust,
Series 2007-C1, Class A4, 5.424%, 02/15/40 ............................... NA/A+ 970 939,618
LB-UBS Commercial Mortgage Trust,
Series 2007-C2, Class A3, 5.43%, 02/15/40 ................................ NA/A+ 1,375 1,323,209
Morgan Stanley Capital I, Series 2007-IQ16, Class A4, 5.809%, 12/12/49 ...... NR/A+ 750 737,627
Wachovia Bank Commercial Mortgage Trust,
Series 2006-C28, Class A3, 5.679%, 10/15/48 .............................. Aaa/AAA 500 505,725
------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost of $6,817,347) ............ 8,364,131
------------
RESIDENTIAL MORTGAGE-BACKED SECURITIES (4.35%)
FHLMC Pool # A15675, 6.00%, 11/01/33 ........................................ Aaa/AAA 731 794,364
FHLMC Pool # B11892, 4.50%, 01/01/19 ........................................ Aaa/AAA 868 913,809
FNMA Pool # 754791, 6.50%, 12/01/33 ......................................... Aaa/AAA 954 1,051,310
FNMA Pool # 763852, 5.50%, 02/01/34 ......................................... Aaa/AAA 1,579 1,672,356
FNMA Pool # 889554, 6.00%, 04/01/38 ......................................... Aaa/AAA 671 713,057
GNSF Pool # 417239, 7.00%, 02/15/26 ......................................... Aaa/AAA 37 41,441
GNSF Pool # 780374, 7.50%, 12/15/23 ......................................... Aaa/AAA 19 21,478
Wells Fargo Mortgage Backed Securities Trust,
Series 2007-10, Class 1A19, 6.00%, 07/25/37 .............................. B2/NR 283 244,251
------------
TOTAL RESIDENTIAL MORTGAGE-BACKED SECURITIES (Cost of $5,081,221) ........... 5,452,066
------------
MUNICIPAL BOND (0.41%)
State of California, Build America Bonds, GO, 7.625%, 03/01/40 .............. Baa1/A- 500,000 520,585
------------
TOTAL MUNICIPAL BOND (Cost of $508,505) ..................................... 520,585
------------
SHARES
---------
PREFERRED STOCK (0.08%)
GMAC, Inc., 144A Caa2/C 134 102,142
------------
TOTAL PREFERRED STOCK (Cost of $42,177) ..................................... 102,142
------------
WARRANTS (0.03%)
World Color Press, Inc. Strike price @ 13.00, 07/20/14(a) ................... 3,917 20,564
World Color Press, Inc. Strike price @ 16.30, 07/20/14(a) ................... 3,917 11,751
------------
TOTAL WARRANTS (Cost of $9,922) ............................................. 32,315
------------
TOTAL INVESTMENTS (98.16%)
(Cost $112,509,636) ...................................................... 122,951,618
------------
OTHER ASSETS AND LIABILITIES (1.84%) ........................................ 2,301,496
------------
NET ASSETS (100.00%) ........................................................ $125,253,114
============
- ----------
(a) Non-income producing security.
(b) Ratings for debt securities are unaudited. All ratings are as of March 31,
2010 and may have changed subsequently.
(c) Variable rate security. Rate disclosed is as of March 31, 2010.
(d) Date shown is next call date.
(e) Security was valued using fair value procedures as of March 31, 2010.
(f) Security is in default.
The accompanying notes are an integral part of these financial statements.
9
SCHEDULE OF INVESTMENTS -- CONTINUED
144A Securities were purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At March 31, 2010, these securities amounted to 15.78% of
net assets.
Legend
- ------
Co. Gty. - Company Guaranty
Debs. - Debentures
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
GNSF - Government National Mortgage Association (Single Family)
GO - General Obligation
Gtd. - Guaranteed
NA - Not Available
NR - Not Rated
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
WR - Withdrawn Rating
The accompanying notes are an integral part of these financial statements.
10
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2010
Assets:
Investment in securities, at value (amortized cost $112,509,636) (Note 1) .. $122,951,618
Cash ....................................................................... 725,947
Interest receivable ........................................................ 2,190,795
Prepaid expenses ........................................................... 23,759
------------
TOTAL ASSETS ............................................................ 125,892,119
------------
Liabilities:
Securities Purchased ....................................................... 508,505
Payable to Investment Adviser .............................................. 51,045
Accrued expenses payable ................................................... 79,455
------------
TOTAL LIABILITIES ....................................................... 639,005
------------
Net assets: (equivalent to $19.10 per share based on 6,558,571 shares of
capital stock outstanding) ................................................. $125,253,114
------------
NET ASSETS consisted of:
Par value .................................................................. $ 65,586
Capital paid-in ............................................................ 121,172,003
Accumulated net investment loss ............................................ (366,523)
Accumulated net realized loss on investments ............................... (6,059,934)
Net unrealized appreciation on investments ................................. 10,441,982
------------
$125,253,114
============
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2010
Investment Income:
Interest ................................................................... $ 7,483,892
Dividends .................................................................. 9,329
Other income ............................................................... 16,250
------------
Total Investment Income ................................................. 7,509,471
------------
Expenses:
Investment advisory fees (Note 4) .......................................... $ 530,796
Transfer agent fees ........................................................ 41,383
Trustees' fees ............................................................. 76,613
Audit fees ................................................................. 21,001
Legal fees and expenses .................................................... 89,251
Reports to shareholders .................................................... 35,209
Custodian fees ............................................................. 12,493
Insurance .................................................................. 18,486
NYSE fee ................................................................... 25,000
Miscellaneous .............................................................. 60,134
------------
Total Expenses .......................................................... 910,366
------------
Net Investment Income ................................................ 6,599,105
------------
Realized and unrealized gain (loss) on investments (Note 1):
Net realized loss from security transactions ............................... (1,588,849)
------------
Unrealized appreciation (depreciation) of investments:
Beginning of the year ...................................................... (15,166,296)
End of the year ............................................................ 10,441,982
------------
Change in unrealized appreciation (depreciation) of investments ......... 25,608,278
------------
Net realized and unrealized gain on investments ...................... 24,019,429
------------
Net increase in net assets resulting from operations .......................... $ 30,618,534
============
The accompanying notes are an integral part of these financial statements.
11
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
MARCH 31, 2010 MARCH 31, 2009
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ............................................... $ 6,599,105 $ 5,196,073
Net realized loss from security transactions (Note 2) ............... (1,588,849) (1,712,861)
Change in unrealized appreciation (depreciation) of investments ..... 25,608,278 (14,402,008)
------------ ------------
Net increase (decrease) in net assets resulting from operations .. 30,618,534 (10,918,796)
------------ ------------
Distributions:
Distributions to shareholders from net investment income ............ (6,593,096) (5,643,833)
------------ ------------
Capital Share Transactions:
Gross proceeds from common share offering (Note 6) .................. 26,034,583 --
Dealer manager fee charged to paid-in capital in excess of par ...... (976,297) --
Common share offering cost charged to capital in excess of par ...... (550,332) --
------------ ------------
Net proceeds from common share offering ............................. 24,507,954 --
------------ ------------
Increase (decrease) in net assets ................................... 48,533,392 (16,562,629)
Net Assets:
Beginning of year ................................................... 76,719,722 93,282,351
------------ ------------
End of year ......................................................... $125,253,114 $ 76,719,722
============ ============
Accumulated net investment loss ..................................... $ (366,523) $ (670,085)
============ ============
The accompanying notes are an integral part of these financial statements.
12
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each year presented.
YEAR ENDED MARCH 31,
------------------------------------------------
2010 2009 2008 2007 2006
-------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year .............. $ 15.63 $ 19.01 $ 20.01 $ 19.72 $ 20.62
-------- ------- ------- ------- -------
Net investment income ........................ 1.19 1.06 1.10 1.09 1.10
Net realized and unrealized gain (loss)
on investments ............................ 4.31 (3.29) (0.95) 0.35 (0.85)
-------- ------- ------- ------- -------
Total from investment operations ................ 5.50 (2.23) 0.15 1.44 0.25
-------- ------- ------- ------- -------
Capital share transaction:
Dilution of the net asset value from rights
offering (Note 6) ......................... (0.88) -- -- -- --
-------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income ......... (1.15) (1.15) (1.15) (1.15) (1.15)
-------- ------- ------- ------- -------
Total distributions ............................. (1.15) (1.15) (1.15) (1.15) (1.15)
-------- ------- ------- ------- -------
Net asset value, end of year .................... $ 19.10 $ 15.63 $ 19.01 $ 20.01 $ 19.72
======== ======= ======= ======= =======
Per share market price, end of year ............. $ 17.12 $ 13.77 $ 17.14 $ 18.30 $ 17.75
======== ======= ======= ======= =======
TOTAL INVESTMENT RETURN (1)
Based on market value ........................ 33.60% (13.62)% (0.10)% 9.93% 3.52%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .............. $125,253 $76,720 $93,282 $98,197 $96,759
Ratio of expenses to average net assets ......... 0.85% 1.21% 0.88% 1.00% 0.90%
Ratio of net investment income to average
net assets ................................... 6.16% 6.18% 5.66% 5.57% 5.42%
Portfolio turnover rate ...................... 15.40% 21.46% 17.25% 25.90% 24.33%
Number of shares outstanding at the end of
the year (in 000's) .......................... 6,559 4,908 4,908 4,908 4,908
- ----------
(1) Total investment return is calculated assuming a purchase of common shares
at the market price on the first day and a sale at the market price on the
last day of the period reported. Dividends and distributions, if any, are
assumed for purposes of this calculation to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. Total investment
return does not reflect brokerage commissions. Past performance is not a
guarantee of future results.
The accompanying notes are an integral part of these financial statements.
13
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - The Rivus Bond Fund (the "Fund"), a
Delaware statutory trust, is registered under the Investment Company Act of
1940, as amended, as a diversified closed-end, management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles within the
United States of America ("GAAP").
A. SECURITY VALUATION - In valuing the Fund's net assets, all securities for
which representative market quotations are available will be valued at the
last quoted sales price on the security's principal exchange on the day of
valuation. If there are no sales of the relevant security on such day, the
security will be valued at the bid price at the time of computation. Prices
for securities traded in the over-the-counter market, including listed debt
and preferred securities, whose primary market is believed to be
over-the-counter, normally are supplied by independent pricing services.
Securities for which market quotations are not readily available will be
valued at their respective fair values as determined in good faith by, or
under procedures established by the Board of Trustees. At March 31, 2010,
Penn Central Corp. was valued using fair value procedures and represented
1.23% of net assets.
FAIR VALUE MEASUREMENTS - The Fund has adopted authoritative fair value
accounting standards which establish an authoritative definition of fair
value and set out a hierarch for measuring fair value. These standards
require additional disclosures about the various inputs and valuation
techniques used to develop the measurements of fair value, a discussion in
changes in valuation techniques and related inputs during the period and
expanded disclosure of valucation levels for major security types. These
inputs are summarized in the three broad levels listed below:
- Level 1 - Unadjusted quoted prices in active markets for identical
assets or liabilities that the Fund has the ability to
access.
- Level 2 - Observable inputs other than quoted prices included in level
1 that are observable for the asset or liability, either
directly or indirectly. These inputs may include quoted
prices for the identical instrument on an inactive market,
prices for similar instruments, interest rates, prepayment
speeds, credit risk, yield curves, default rates and similar
data.
- Level 3 - Unobservable inputs for the asset or liability, to the
extent relevant observable inputs are not available,
representing the Fund's own assumptions about the
assumptions a market participant would used in valuing the
asset or liability, and would be based on the best
information available.
14
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Following is a description of the valuation techniques applied to the
Fund's major categories of assts and liabilities measured at fair value on
a recurring basis as of March 31, 2010.
LEVEL 2 LEVEL 3
TOTAL MARKET LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
03/31/10 PRICE INPUTS INPUTS
------------ -------- ------------ ------------
COMMON STOCK* $ 79,779 $ 79,779 $ -- $ --
CORPORATE DEBT SECURITIES 107,728,943 -- 106,183,973 1,544,970
ASSET BACKED SECURITIES 671,657 -- 671,657 --
COMMERCIAL MORTGAGE-BACKED SECURITIES 8,364,131 -- 8,364,131 --
RESIDENTIAL MORTGAGE-BACKED SECURITIES 5,452,066 -- 5,452,066 --
MUNICIPAL BOND 520,585 -- 520,585 --
PREFERRED STOCK 102,142 102,142 -- --
WARRANTS 32,315 32,315 -- --
------------ -------- ------------ ----------
TOTAL INVESTMENTS $122,951,618 $214,236 $121,192,412 $1,544,970
============ ======== ============ ==========
* See Schedule of Investments for industry breakout.
Following is a reconciliation of Level 3 investments for which significant
unobservable inputs were used to determined fair value:
CORPORATE DEBT SECURITIES
(MARKET VALUE)
-------------------------
BALANCE AS OF MARCH 31, 2009 $1,288,500
Accrued discounts/premiums (12,598)
Realized gain (loss) --
Change in unrealized appreciation (depreciation) 269,068
Net purchases (sales) --
Transfer in and/or out of Level 3 --
----------
BALANCE AS OF MARCH 31, 2010 $1,544,970
==========
B. DETERMINATION OF GAINS OR LOSSES ON SALE OF SECURITIES - Gains or losses on
the sale of securities are calculated for financial reporting purposes and
for federal tax purposes using the identified cost basis. The identified
cost basis for financial reporting purposes differs from that used for
federal tax purposes in that the amortized cost of the securities sold is
used for financial reporting purposes and the original cost of the
securities sold is used for federal tax purposes, except for those
instances where tax regulations require the use of amortized cost.
C. FEDERAL INCOME TAXES - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
Management has analyzed the Fund's tax positions taken on federal income
tax returns for all open tax years (tax years March 31, 2006-2010), and has
concluded that no provision for federal income tax is required in the
Fund's financial statements. The Fund's federal and state income and
federal excise tax returns for tax years for which the applicable statutes
of limitations have not expired are subject to examination by the Internal
Revenue Service and state departments of revenue.
15
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
D. OTHER - Security transactions are accounted for on the trade date. Interest
income is accrued daily. Premiums and discounts are amortized using the
interest method. Paydown gains and losses on mortgage-backed and
asset-backed securities are presented as an adjustment to interest income.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
E. DISTRIBUTIONS TO SHAREHOLDERS AND BOOK/TAX DIFFERENCES - Distributions of
net investment income will be made quarterly. Distributions of any net
realized capital gains will be made annually. Income and capital gain
distributions are determined in accordance with federal income tax
regulations, which may differ from GAAP. These differences are primarily
due to differing treatments for amortization of market premium and
accretion of market discount. In order to reflect permanent book/tax
differences that occurred during the fiscal year ended March 31, 2010, the
following capital accounts were adjusted for the following amounts:
UNDISTRIBUTED ACCUMULATED
(OVERDISTRIBUTED) NET REALIZED PAID-IN
NET INVESTMENT INCOME GAIN/(LOSS) CAPITAL
- --------------------- ------------ -----------
$297,553 $(144,063) $(153,490)
Distributions during the fiscal years ended March 31, 2010 and 2009 were
characterized as follows for tax purposes:
ORDINARY INCOME RETURN OF CAPITAL CAPITAL GAIN TOTAL DISTRIBUTION
--------------- ----------------- ------------ ------------------
FY 2010 $6,593,096 $-- $-- $6,593,096
FY 2009 $5,643,833 $-- $-- $5,643,833
At March 31, 2010, the components of distributable earnings on a tax basis
were as follows:
ACCUMULATED CAPITAL LOSS POST-OCTOBER NET UNREALIZED
TOTAL* ORDINARY INCOME CARRYFORWARD LOSS APPRECIATION
- ---------- --------------- ------------ ------------ --------------
$4,015,525 $349,870 $(5,868,897) $(191,037) $9,725,589
========== ======== =========== ========= ==========
* Temporary differences include book amortization and deferral of
post-October losses, if any, which will be recognized for the tax year
ending March 31, 2010.
As of March 31, 2010, the capital loss carryovers available to offset
possible future capital gains were as follows:
AMOUNT EXPIRATION DATE
- ---------- ---------------
$1,393,195 2011
47,236 2013
133,146 2015
787,376 2017
3,507,944 2018
During the year ended March 31, 2010, capital loss carryforwards in the
amount of $153,490 expired and could not be used.
16
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
At March 31, 2010, the following table shows for federal tax purposes the
aggregate cost of investments, the net unrealized appreciation of those
investments, the aggregate gross unrealized appreciation of all securities
with an excess of market value over tax cost and the aggregate gross
unrealized depreciation of all securities with an excess of tax cost over
market value:
AGGREGATE NET UNREALIZED GROSS UNREALIZED GROSS UNREALIZED
TAX COST APPRECIATION APPRECIATION (DEPRECIATION)
- ------------ -------------- ---------------- ----------------
$113,226,029 $9,725,589 $12,042,240 $(2,316,651)
The difference between book basis and tax-basis unrealized appreciation is
attributable primarily to the differing treatments for amortization of
market premium and accretion of market discount.
F. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that may affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 - PORTFOLIO TRANSACTIONS - The following is a summary of the security
transactions, other than short-term investments, for the year ended March 31,
2010:
COST OF PROCEEDS FROM SALES
PURCHASES OR MATURITIES
----------- -------------------
U.S. Government Securities $ -- $ 2,057,749
Other Investment Securities $41,246,957 $13,791,433
NOTE 3 - CAPITAL STOCK - At March 31, 2010, there were an unlimited number of
shares of beneficial interest ($0.01 par value) authorized, with 6,558,571
shares issued and outstanding.
NOTE 4 - INVESTMENT ADVISORY CONTRACT, PAYMENTS TO AFFILIATED PERSONS AND
TRUSTEE COMPENSATION - Cutwater Asset Management Corp. (formerly known as MBIA
Capital Management Corp.) ("Cutwater") serves as Investment Adviser to the Fund.
Cutwater is entitled to a fee at the annual rate of 0.50% on the first $100
million of the Fund's month end net assets and 0.40% on the Fund's month-end net
assets in excess of $100 million.
PNC Global Investment Servicing (U.S.) Inc. ("PNC"), a member of PNC Financial
Services Group, provides accounting and administrative services to the Fund. The
Investment Adviser has voluntarily agreed to pay these fees.
The Trustees of the Fund receive an annual retainer, meeting fees and out of
pocket expenses for meetings attended. The aggregate remuneration paid to the
Trustees by the Fund during the year ended March 31, 2010 was $75,500. Certain
officers of the Fund are also directors, officers and/or employees of investment
adviser. None of the Fund's officers receives compensation from the Fund.
17
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 - DIVIDEND AND DISTRIBUTION REINVESTMENT - In accordance with the terms
of the Automatic Dividend Investment Plan (the "Plan"), for shareholders who so
elect, dividends and distributions are made in the form of previously unissued
Fund shares at the net asset value if on the Friday preceding the payment date
(the "Valuation Date") the closing New York Stock Exchange price per share, plus
the brokerage commissions applicable to one such share equals or exceeds the net
asset value per share. However, if the net asset value is less than 95% of the
market price on the Valuation Date, the shares issued will be valued at 95% of
the market price. If the net asset value per share exceeds market price plus
commissions, the dividend or distribution proceeds are used to purchase Fund
shares on the open market for participants in the Plan. During the year ended
March 31, 2010 the Fund issued no shares under this Plan.
NOTE 6 - RIGHTS OFFERING - On August 7, 2009 the Fund completed its transferable
rights offering. In accordance with the terms of the rights offering described
in the Fund's prospectus an additional 1,650,893 shares were issued at a
subscription price of $15.77 per share, making the gross proceeds raised by the
offering $26,034,583, before offering-related expenses. Dealer/manager fees of
$976,297 and offering costs of approximately $550,332 were deducted from the
gross proceeds making the net proceeds available for investment by the Fund
$24,507,954. The dilution impact of the offering was $0.88 per share or 4.79% of
the $18.34 net asset value per share on August 7, 2009, the expiration and
pricing date of the offering.
NOTE 7 - NEW ACCOUNTING PRONOUNCEMENT - In January 2010, the Financial
Accounting Standards Board ("FASB") issued Accounting Standards Update
"Improving Disclosures about Fair Value Measurements" that requires additional
disclosures regarding fair value measurements. Certain required disclosures are
effective for interim and annual reporting periods beginning after December 15,
2009, and other required disclosures are effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years.
Management is currently evaluating the impact it will have on its financial
statement disclosures.
NOTE 8 - SUBSEQUENT EVENT - Management has evaluated the impact of all
subsequent events on the Fund through the date the financial statements were
issued, and has determined that there were the following subsequent events:
On February 2, 2010, The PNC Financial Services Group, Inc. entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") with The Bank of New York
Mellon Corporation ("BNY Mellon"). Upon the terms and subject to the conditions
set forth in the Stock Purchase Agreement, which has been approved by the board
of directors of each company, The PNC Financial Services Group, Inc. will sell
to BNY Mellon (the "Stock Sale") 100% of the issued and outstanding shares of
PNC, an indirect, wholly-owned subsidiary of The PNC Financial Services Group,
Inc.
The Stock Sale includes PNC, which provides accounting and administration
services and PFPC Trust Company, which provides transfer agent services to the
Fund. The sale is expected to close in the third quarter of 2010.
At a meeting of the Board of Trustees (the "Board") of the Fund held on March
10, 2010, the Board approved a proposed transaction (the "Reorganization")
whereby the Fund, would acquire substantially all of the assets and liabilities
of The Hartford Income Shares Fund, Inc. ("HSF"), a diversified closed-end
management investment company, managed by Hartford Investment Financial
Services, LLC in exchange for shares of beneficial interest of the Fund. The
Reorganization is subject to the approval by the shareholders of HSF of the
Reorganization and upon the approval by the shareholders of the Fund of the
issuance of shares of the Fund sufficient to effect the Reorganization at a
special meeting of the shareholders of the Fund. The Trustees believe the
Reorganization is in the best interests of the shareholders of the Fund. The
proposed Reorganization is expected to qualify as a tax-free reorganization,
which means that the Reorganization will result in no income, gain or loss being
recognized for federal income tax purposes by the Fund of its shareholders as a
direct result of the Reorganization.
18
SHAREHOLDER INFORMATION (UNAUDITED)
ADDITIONAL INFORMATION REGARDING THE FUND'S TRUSTEES AND OFFICERS
TERM OF OFFICE
POSITION HELD PRINCIPAL OCCUPATION AND
NAME, ADDRESS AND AGE WITH FUND DURING THE PAST 5 YEARS LENGTH OF TIME SERVED
- --------------------- ------------- ---------------------------------------------------- ---------------------------
W. Thacher Brown* Trustee Former President of MBIA Asset Management LLC, from Shall serve until the next
113 King Street July 1998 to September 2004; and Former President of annual meeting or until his
Armonk, NY 10504 1838 Investment Advisors, LLC from July 1988 to May successor is qualified.
Born: December 1947 2004. Trustee since 1988
Morris Lloyd, Jr. Trustee Retired; former Development Officer, Trinity College Shall serve until the next
113 King Street from April 1996 to June 2002. annual meeting or until his
Armonk, NY 10504 successor is qualified.
Born: September 1937 Trustee since 1989
Ellen D. Harvey Trustee Consultant with Lindsay Criswell LLC beginning July Shall serve until the next
113 King Street 2008. Principal with the Vanguard Group from January annual meeting or until her
Armonk, NY 10504 2008 to June 2008; and Senior Vice President with successor is qualified.
Born: February 1954 Mercantile Safe-Deposit & Trust from February 2003 Trustee since 2010
to October 2007.
Suzanne P. Welsh Trustee Vice President for Finance and Treasurer, Swarthmore Shall serve until the next
113 King Street College since 2002. annual meeting or until her
Armonk, NY 10504 successor is qualified.
Born: March 1953 Trustee since 2008
Clifford D. Corso* President President and Chief Investment Officer, Cutwater Shall serve until death,
Cutwater Asset Management Corp.; Managing Director and Chief resignation, or removal.
113 King Street Investment Officer, MBIA Insurance Corporation; Officer since 2005
Armonk, NY 10504 officer of other affiliated entities within the
Born: October 1961 Cutwater Asset Management Corp.
Marc D. Morris* Treasurer Director of Cutwater Asset Management Corp.; Shall serve until death,
Cutwater Director and officer of other affiliated entities resignation, or removal.
113 King Street within the Cutwater Asset Management Corp. Officer since 2005
Armonk, NY 10504
Born: March 1959
Leonard I. Chubinsky* Secretary Deputy General Counsel of MBIA Insurance Shall serve until death,
Cutwater Corporation; officer of other affiliated entities resignation, or removal.
113 King Street within the Cutwater Asset Management Corp. Officer since 2005
Armonk, NY 10504
Born: December 1948
Richard J. Walz* Chief Officer of several affiliated entities within the Shall serve until death,
Cutwater Compliance Cutwater Asset Management Corp. resignation, or removal.
113 King Street Officer Officer since 2005
Armonk, NY 10504
Born: April 1959
19
SHAREHOLDER INFORMATION (UNAUDITED) - CONTINUED
ADDITIONAL INFORMATION REGARDING THE FUND'S TRUSTEES AND OFFICERS
TERM OF OFFICE
POSITION HELD PRINCIPAL OCCUPATION AND
NAME, ADDRESS AND AGE WITH FUND DURING THE PAST 5 YEARS LENGTH OF TIME SERVED
- --------------------- ------------- ---------------------------------------------------- ---------------------------
Robert T. Claiborne* Vice President Officer of Cutwater Asset Management Corp. Shall serve until death,
Cutwater resignation, or removal.
113 King Street Officer since 2006
Armonk, NY 10504
Born: August 1955
Gautam Khanna* Vice President Officer of Cutwater Asset Management Corp. Shall serve until death,
Cutwater resignation, or removal.
113 King Street Officer since 2006
Armonk, NY 10504
Born: October 1969
* Denotes a trustee/officer who is an "interested person" of the Fund as
defined under the provisions of the Investment Company Act of 1940. Mr.
Brown is an "interested person" because he has an interest in MBIA Inc.,
the parent of the Fund's Investment Adviser. Messrs. Corso, Morris,
Chubinsky, Walz, Claiborne and Khanna are "interested persons" by virtue of
being employees of the Fund's Investment Adviser.
HOW TO GET INFORMATION REGARDING PROXIES
The Fund has adopted the Adviser's proxy voting policies and procedures to
govern the voting of proxies relating to the voting securities of the Fund. You
may obtain a copy of these proxy voting procedures, without charge, by calling
(800) 765-6242 or on the Securities and Exchange Commission website at
www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is available,
without charge, by calling (800) 765-6242 or on the SEC's website at
www.sec.gov.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the Security and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at www.sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, D.C., information on the
operation of the Commission's Public Reference Room may be obtained by calling
1-800-SEC-0330. Additionally, the Fund makes the information on Form N-Q
available to shareholders on its website at
http://www.cutwater.com/rivus-bond-fund-characteristics.aspx.
DIVIDEND REINVESTMENT PLAN
The Fund has established a plan for the automatic investment of dividends and
distributions pursuant to which dividends and capital gain distributions to
shareholders will be paid in or reinvested in additional shares of the Fund. All
shareholders of record are eligible to join the Plan. PNC acts as the agent (the
"Agent") for participants under the Plan.
Shareholders whose shares are registered in their own names may elect to
participate in the Plan by completing an authorization form and returning it to
the Agent. Shareholders whose shares are held in the name of a broker or nominee
should contact such broker or nominee to determine whether or how they may
participate in the Plan.
20
SHAREHOLDER INFORMATION (UNAUDITED) - CONTINUED
Dividends and distributions are reinvested under the Plan as follows. If the
market price per share on the Friday before the payment date for the dividend or
distribution (the "Valuation Date"), plus the brokerage commissions applicable
to one such share, equals or exceeds the net asset value per share on that date,
the Fund will issue new shares to participants valued at the net asset value or,
if the net asset value is less than 95% of the market price on the Valuation
Date, then valued at 95% of the market price. If net asset value per share on
the Valuation Date exceeds the market price per share on that date, plus the
brokerage commissions applicable to one such share, the Agent will buy shares on
the open market, on the New York Stock Exchange, for the participants' accounts.
If before the Agent has completed its purchases, the market price exceeds the
net asset value of shares, the average per share purchase price paid by the
Agent may exceed the net asset value of shares, resulting in the acquisition of
fewer shares than if the dividend or distribution has been paid in shares issued
by the Fund at net asset value.
There is no charge to participants for reinvesting dividends or distributions
payable in either shares or cash. The Agent's fees for handling of reinvestment
of such dividends and distributions will be paid by the Fund. There will be no
brokerage charges with respect to shares issued directly by the Fund as a result
of dividends or distributions payable either in shares or cash. However, each
participant will be charged by the Agent a pro rata share of brokerage
commissions incurred with respect to Agent's open market purchases in connection
with the reinvestment of dividends or distributions payable only in cash.
For purposes of determining the number of shares to be distributed under the
Plan, the net asset value is computed on the Valuation Date and compared to the
market value of such shares on such date. The Plan may be terminated by a
participant by delivery of written notice of termination to the Agent at the
address shown below. Upon termination, the Agent will cause a certificate or
certificates for the full shares held for a participant under the Plan and a
check for any fractional shares to be delivered to the former participant.
Distributions of investment company taxable income that are invested in
additional shares generally are taxable to shareholders as ordinary income. A
capital gain distribution that is reinvested in shares is taxable to
shareholders as long-term capital gain, regardless of the length of time a
shareholder has held the shares or whether such gain was realized by the Fund
before the shareholder acquired such shares and was reflected in the price paid
for the shares.
Plan information and authorization forms are available from PNC Global
Investment Servicing (U.S.) Inc., P.O. Box 43027, Providence, RI 02940-3027.
PRIVACY POLICY
The privacy of your personal financial information is extremely important to us.
When you open an account with us, we collect a significant amount of information
from you in order to properly invest and administer your account. We take very
seriously the obligation to keep that information private and confidential, and
we want you to know how we protect that important information.
We collect nonpublic personal information about you from applications or other
forms you complete and from your transactions with us or our affiliates. We do
not disclose information about you, or our former clients, to our affiliates or
to service providers or other third parties, except as permitted by law. We
share only the minimum information required to properly administer your
accounts, which enables us to send transaction confirmations, monthly or
quarterly statements, financials and tax forms. Even within Cutwater and its
affiliated entities, only a limited number of people who actually service
accounts will ever have access to your personal financial information. Further,
we do not share information about our current or former clients with any outside
marketing groups or sales entities.
21
SHAREHOLDER INFORMATION (UNAUDITED) -- CONTINUED
To ensure the highest degree of security and confidentiality, Cutwater and its
affiliates maintain various physical, electronic and procedural safeguards to
protect your personal information. We also apply special measures for
authentication of information you request or submit to us on our Web site -
www.cutwater.com.
NOTICE
The Fund's Audit Committee adopted an audit committee charter on September 10,
2003. A copy of the audit committee charter was included as Appendix A to the
Fund's proxy statement filed with the U.S. Securities and Exchange Commission in
May, 2004, which is available on the SEC website: www.sec.gov. A copy of the
Fund's audit committee charter is also available to shareholders, free of
charge, upon request by calling the Fund at 800-331-1710.
ANNUAL CERTIFICATION
The Fund's CEO has submitted to the NYSE the required annual certification, and
the Fund also has included the certifications of the Fund's CEO and CFO required
by Section 302 of the Sarbanes-Oxley Act of 2002 in the Fund's Forms N-CSR filed
with the Securities and Exchange Commission for the period of this report.
HOW TO GET ASSISTANCE WITH SHARE TRANSFER OR DIVIDENDS
Contact Your Transfer Agent:
PNC Global Investment Servicing (U.S.) Inc.
P.O. Box 43027, Providence, RI 02940-3027, or call 1-800-331-1710
22
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TRUSTEES
W. THACHER BROWN
MORRIS LLOYD, JR.
ELLEN D. HARVEY
SUZANNE P. WELSH
OFFICERS
CLIFFORD D. CORSO
PRESIDENT
MARC D. MORRIS
TREASURER
LEONARD CHUBINSKY
SECRETARY
RICHARD WALZ
CHIEF COMPLIANCE OFFICER
ROBERT T. CLAIBORNE
VICE PRESIDENT
GAUTAM KHANNA
VICE PRESIDENT
INVESTMENT ADVISER
CUTWATER ASSET MANAGEMENT CORP.
113 KING STREET
ARMONK, NY 10504
CUSTODIAN
PFPC TRUST COMPANY
8800 TINICUM BOULEVARD
PHILADELPHIA, PA 19153
TRANSFER AGENT
PNC GLOBAL INVESTMENT SERVICING (U.S.) INC.
P.O. BOX 43027
PROVIDENCE, RI 02940-3027
1-800-331-1710
COUNSEL
PEPPER HAMILTON LLP
3000 TWO LOGAN SQUARE
EIGHTEENTH & ARCH STREETS
PHILADELPHIA, PA 19103
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
TAIT, WELLER & BAKER LLP
1818 MARKET STREET
SUITE 2400
PHILADELPHIA, PA 19103
(RIVUS LOGO)
Managed by Cutwater Asset Management Corp.
ANNUAL REPORT
MARCH 31, 2010
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions (each
a "Covered Person"). A copy of the Registrant's Code of Ethics can be obtained
without charge, upon request, by calling the Registrant at 1-800-331-1710. There
were no amendments to the Code of Ethics during the reporting period. There were
no waivers of a provision of the Code of Ethics granted to a Covered Person
during the reporting period.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Suzanne P. Welsh,
the Chair of the Board's Audit Committee, possesses the technical attributes
identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an
"audit committee financial expert," and has designated Ms. Welsh as the Audit
Committee's financial expert. Ms. Welsh is an "independent" Trustee pursuant to
paragraph (a)(2) of Item 3 to Form N-CSR. Under applicable securities laws, a
person who is determined to be an audit committee financial expert will not be
deemed an "expert" for any purpose, including without limitation for the
purposes of Section 11 of the Securities Act of 1933, as a result of being
designated or identified as an audit committee financial expert. The designation
or identification of a person as an audit committee financial expert does not
impose on such person any duties, obligations, or liabilities that are greater
than the duties, obligations, and liabilities imposed on such person as a member
of the audit committee and Board of Trustees in the absence of such designation
or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$18,800 and $18,800 for the fiscal years ended March 31, 2010 and
March 31, 2009, respectively.
AUDIT-RELATED FEES
(b) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item are $0 and $0 for the fiscal years ended March 31, 2010 and March
31, 2009, respectively.
TAX FEES
(c) The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $3,200 and $3,000 for the
fiscal years ended March 31, 2010 and March 31, 2009, respectively.
ALL OTHER FEES
(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are
$0 and $0 for the fiscal years ended March 31, 2010 and March 31,
2009, respectively.
(e)(1) The registrant's audit committee has adopted policies and procedures
relating to the pre-approval of services provided by the registrant's
principal accountant (the "Pre-Approval Policies"). The Pre-Approval
Policies establish a framework intended to assist the audit committee
in the proper discharge of its pre-approval responsibilities. As a
general matter, the Pre-Approval Policies (i) specify certain types of
audit, audit-related, tax, and other services determined to be
pre-approved by the audit committee; and (ii) delineate specific
procedures governing the mechanics of the pre-approval process,
including the approval and monitoring of audit and non-audit service
fees. Unless a service is specifically pre-approved under the
Pre-Approval Policies, it must be separately pre-approved by the audit
committee.
(e)(2) None of the services described in each of paragraphs (b) through (d)
of this Item that were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen
by another investment adviser), and any entity controlling, controlled
by, or under common control with the adviser that provides ongoing
services to the registrant for each of the last two fiscal years of
the registrant was $0 and $0 for the fiscal years ended March 31, 2010
and March 31, 2009, respectively.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated audit committee consisting of all the
independent trustees of the registrant. The members of the audit committee are:
Ellen D. Harvey, Morris Lloyd, Jr. and Suzanne P. Welsh.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Fund uses the advisor's proxy voting policies and procedures. The most
current copy of that policy is attached herewith. Please note that effective
February 8, 2010, the Fund's adviser changed its name from MBIA Capital
Management Corp. to Cutwater Asset Management Corp. There have been no changes
the adviser's proxy voting policy as a result of the name change, except for the
replacement of MBIA-CMC with Cutwater Asset Management Corp.
PROXY VOTING POLICY
MBIA CAPITAL MANAGEMENT CORP.
INTRODUCTION
This Proxy Voting Policy ("Policy") for MBIA Capital Management Corp.
("MBIA-CMC") reflects our duty as a fiduciary under the Investment Advisers Act
of 1940 (the "Advisers Act") to vote proxies in the best interests of our
clients. In addition, the Department of Labor views the fiduciary act of
managing ERISA plan assets to include the voting of proxies. Proxy voting
decisions must be made solely in the best interests of the pension plan's
participants and beneficiaries. The Department of Labor has interpreted this
requirement as prohibiting a fiduciary from subordinating the retirement income
interests of participants and beneficiaries to unrelated objectives. The
guidelines in this Policy have been formulated to ensure decision-making
consistent with these fiduciary responsibilities.
Any general or specific proxy voting guidelines provided by an advisory
client or its designated agent in writing will supersede the specific guidelines
in this Policy. MBIA-CMC will disclose to our advisory clients information about
this Policy as well as disclose to our clients how they may obtain information
on how we voted their proxies. Additionally, MBIA will maintain proxy voting
records for our advisory clients consistent with the Advisers Act. For those of
our clients that are registered investment companies, MBIA-CMC will disclose
this Policy to the shareholders of such funds and make filings with the
Securities and Exchange Commission and make available to fund shareholders the
specific proxy votes that we cast in shareholder meetings of issuers of
portfolio securities in accordance with the rules and regulations under the
Investment Company Act of 1940.
Registered investment companies that are advised by MBIA-CMC as well as
certain of our advisory clients: may participate in securities lending programs,
which may reduce or eliminate the amount of shares eligible for voting by
MBIA-CMC in accordance with this Policy if such shares are out on loan and
cannot be recalled in time for the vote.
Implicit in the initial decision to retain or invest in the security of a
corporation is approval of its existing corporate ownership structure, its
management, and its operations. Accordingly, proxy,
proposals that would change the existing status of a corporation will be
reviewed carefully and supported only when it seems clear that the proposed
changes are likely to benefit the corporation and its shareholders.
Notwithstanding this favorable predisposition, management will be assessed on an
ongoing basis both in terms of its business capability and its dedication to the
shareholders to ensure that, our continued confidence remains warranted. If it
is determined that management is acting on its own behalf instead of for the
well being of the corporation, we will vote to support shareholder proposals,
unless other mitigating circumstances are present.
Additionally, situations may arise that involve an actual or-perceived
conflict of interest. For example, we may manage- assets of a pension plan of a
company whose management is soliciting proxies, or a MBIA-CMC employee may have
a close relative who serves as a director or executive of a company that is
soliciting proxies. In all cases, the manner in which we vote proxies must be
based on our clients' best interests and not the product of the conflict.
This Policy and its attendant recommendations attempt to generalize a
complex subject. It should be clearly understood that specific fact situations,
including differing voting practices in jurisdictions outside the United States,
might warrant departure from these guidelines. In such instances, the relevant
facts will be considered, and if a vote contrary to these guidelines is
indicated it will be cast and the reasons therefore recorded in writing.
The provisions of this Policy will be deemed applicable to decisions
similar to voting proxies, such as tendering of securities, voting consents to
corporate actions, and solicitations with respect to fixed income securities,
where MBIA may exercise voting authority on behalf of clients.
Section I of the Policy describes proxy proposals that may be characterized
as routine and lists examples of the types of proposals we would typically
support. Section II of the Policy describes various types of non-routine
proposals and provides general voting guidelines. These non-routine proposals
are categorized as those involving:
A. Social Issues,
B. Financial/Corporate Issues, and
C. Shareholder Rights.
Finally, Section III of the Policy describes the procedures to be followed
casting: a vote pursuant to these guidelines.
SECTION I
ROUTINE MATTERS
Routine proxy proposals, amendments, or resolutions are typically proposed
by management and meet the following criteria:
1. They do not measurably change the structure, management control, or
operation of the corporation.
2. They are consistent with industry standards as well as the corporate laws
of the state of incorporation.
VOTING RECOMMENDATION
MBIA-CMC will normally support the following routine proposals:
1. To increase authorized common shares.
2. To -increase authorized preferred shares as long as there are not
disproportionate voting rights per preferred share.
3. To elect or re-elect Trustees.
4 To appoint or elect auditors.
5. To approve indemnification of Trustees and limitation of Trustees'
liability.
6. To establish compensation levels.
7. To establish employee stock purchase or ownership plans.
8. To set time and location of annual meeting.
SECTION II
NON-ROUTINE PROPOSALS
A. SOCIAL ISSUES
Proposals in this category involve issues of social conscience. They are
typically proposed by shareholders who believe that the corporation's internally
adopted policies are ill advised or misguided.
VOTING RECOMMENDATION
If we have determined that management is generally socially responsible, we will
generally vote against the following shareholder proposals:
1. To enforce restrictive energy policies.
2. To place arbitrary restrictions on military contracting.
3, To bar or place arbitrary restrictions on trade with other countries.
4. To restrict the marketing of controversial products.
5. To limit corporate political activities.
6. 'To bar or restrict charitable contributions.
7. To enforce a general policy regarding human rights based on arbitrary
parameters.
8. To enforce a general policy regarding employment practices based -on
arbitrary parameters.
9. To enforce a general policy regarding animal rights based on arbitrary
parameters.
10. To place arbitrary restrictions on environmental practices.
B. FINANCIAL/CORPORATE ISSUES
Proposals in this category are usually offered by management and seek to
change a corporation's legal, business or financial structure.
VOTING RECOMMENDATION
We will generally vote in favor of the following management proposals provided
the position of current shareholders is preserved or enhanced:
1. To CHANGE the state of incorporation.
2. To approve mergers, acquisitions or dissolution.
3. To institute indenture changes.
4. To change capitalization.
C. SHAREHOLDER RIGHTS
Proposals in this category are made regularly both by management and
shareholders. They can be generalized as involving issues that transfer or
realign board or shareholder voting power.
We typically would oppose any proposal aimed solely at thwarting potential
takeover offers by requiring, for example, super-majority approval. At the same
time, we believe stability and continuity promote profitability. The guidelines
in this area seek to find a middle road, and they are no more than guidelines.
Individual proposals may have to be carefully assessed in the context of their
particular circumstances.
VOTING RECOMMENDATION
We will generally vote for; he following management proposals:
1. To require majority approval of shareholders in acquisitions of a
controlling share in the corporation.
2. To institute staggered board of Trustees.
3. To, require shareholder approval of not more than 66 70% for a proposed
amendment to the corporation's by-laws.
4. To eliminate cumulative voting.
5. To adopt anti-greenmail charter or by-law amendments or to otherwise
restrict a company's ability to make greenmail payments.
6. To create a dividend reinvestment program.
7. To eliminate preemptive rights.
8. To eliminate any other plan or procedure designed primarily to discourage a
takeover or other similar action (commonly known as a "poison pill").
We will generally vote AGAINST the following management proposals:
1. To require greater than 66 2/3% shareholder approval for a proposed
amendment to the corporation's by-laws ("super-majority provisions").
2. To require that an arbitrary fair price be offered to all shareholders that
is derived from a fixed formula ("fair price amendments").
3. To authorize a new class of common stock or preferred stock which may have
more votes per share than the existing common stock.
4. To prohibit replacement of existing members of the board of Trustees.
5. To eliminate shareholder action by written consent without a shareholder
meeting.
6. To allow only the board of Trustees to call a shareholder meeting or to
propose amendments to the articles of incorporation.
7. To implement any other action or procedure designed primarily to discourage
a takeover or other similar action (commonly known. as a "poison pill").
8. To limit the ability of shareholders to nominate Trustees.
We will generally vote for the following shareholder proposals:
1. To rescind share purchases rights or require that they be submitted for
shareholder approval, but only if the vote required for approval is not
more than 66 2/3%.
2. To opt out of state anti-takeover laws deemed to be detrimental to the
shareholder.
3. To change the state of incorporation for companies operating under the
umbrella of anti-shareholder state corporation laws if another state is
chosen with favorable laws in this and other areas.
4. To eliminate any other plan or procedure designed primarily to discourage a
takeover or other similar action.
5. To permit shareholders to participate in formulating management's proxy and
the opportunity to discuss and evaluate management's director nominees,
and/or to nominate shareholder nominees to the board
6. To require that the board's audit, compensation, and/or nominating
committees be comprised exclusively of independent Trustees.
7. To adopt anti-greenmail charter or by-law amendments or otherwise restrict
a company's ability to make greenmail payments.
8. To create a dividend reinvestment program.
9. To recommend that votes to "abstain" not be considered votes "cast" at an
annual meeting or special meeting, unless required by state, law.
10. To require that "golden parachutes" be submitted for shareholder
ratification.
We will generally vote against the following shareholder proposals:
1. To restore preemptive rights.
2, To restore cumulative voting.
3. To require annual election of Trustees or to specify tenure.
4. To eliminate a staggered board of Trustees.
5. To require confidential voting.
6. To require Trustees to own a minimum amount of company stock in order to
qualify as a director or to remain on the board.
7. To dock director pay for failing to attend board meetings.
SECTION III
VOTING PROCESS
MBIA-CMC will designate a portfolio manager (the Proxy Voting Portfolio
Manager), who is responsible for voting proxies for all advisory accounts and
who will generally vote proxies in accordance with these guidelines. In
circumstances in which 1) the subject matter of the vote is not covered by these
guidelines, 2) a material conflict of interest is present or, 3) we believe it
may be necessary, in the best interests of shareholders, to vote contrary to our
general guidelines, the Proxy Voting Portfolio Manager will discuss the matter
with the President and Chief Investment Officer of MBIA-CMC, who will be
responsible for making the definitive determination as to how the proxy matter
will be voted. The President/Chief investment officer may consult with the
General Counsel, the CCO, or other investment personnel in making this
determination.
Any questions regarding this Policy may be directed to the General Counsel of
MBIA-CMC.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) Portfolio Manager:
Robert T. Claiborne, CFA
Director, Cutwater Asset Management Corp.
January 2000 - Present
Responsible for day-to-day management of portfolio
Portfolio Manager:
Gautam Khanna, CPA, CFA
Director, Cutwater Asset Management Corp.
May 2003 - Present
Responsible for day-to-day management of portfolio
(a)(2) (i) Robert T. Claiborne, CFA
(ii) (A) Registered investment companies - $0 as of March 31, 2010
(B) Other pooled investment vehicles - $0 as of March 31, 2010
(C) Other Accounts - 3 as of March 31, 2010. Approximately $250
million in total assets as of March 31, 2010. The portfolios
are co-managed with another Portfolio Manager who has no
investment responsibilities for the Rivus Bond Fund.
(iii) None.
(iv) No material conflicts of interests are expected to arise with the
management of the Rivus Bond Fund and the other portfolios as the
other portfolios have very specific requirements under the
respective Indentures for purchases.
(a)(2) (i) Gautam Khanna, CPA, CFA
(ii) (A) Registered investment companies - $0 as of March 31, 2010
(B) Other pooled investment vehicles - 3 as of March 31, 2010.
Approximately $135 million in total assets as of March 31,
2010.
(C) Other Accounts - 9 as of March 31, 2010. Approximately $95
million in total assets as of March 31, 2010. The other
portfolios are co-managed with other Portfolio Managers who
have no investment responsibilities for the Rivus Bond Fund.
(iii) None.
(iv) No material conflicts of interests are expected to arise with the
management of the Rivus Bond Fund and the other accounts.
(a)(3) The Portfolio Managers each receive compensation that is composed of
an annual cash fixed salary and a variable cash bonus. The cash salary
level is adjusted annually. The cash bonus is determined annually and
is based on a combination of the overall performance of Cutwater Asset
Management Corp. and the individual Portfolio Managers' contribution
to that performance. Compensation is not based on any specific
performance criteria of any of the portfolios managed.
(a)(4) Share ownership as of March 31, 2010:
Robert T. Claiborne: $10,001 to $50,000
Gautam Khanna: $1 to $10,000
(b) N/A. Filing is an annual report.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act
(17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's second
fiscal quarter of the period covered by this report.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Rivus Bond Fund
By (Signature and Title)* /s/ Clifford D. Corso
-------------------------------
Clifford D. Corso, President
(principal executive officer)
Date 5/21/10
----------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Clifford D. Corso
-------------------------------
Clifford D. Corso, President
(principal executive officer)
Date 5/21/10
----------------
By (Signature and Title)* /s/ Marc D. Morris
-------------------------------
Marc D. Morris, Treasurer
(principal financial officer)
Date 5/21/10
----------------
* Print the name and title of each signing officer under his or her
signature.