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, 2011
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
RIVUS BOND FUND SHAREHOLDER LETTER
APRIL 11, 2011
DEAR SHAREHOLDERS:
Over the past six months the markets have primarily focused on and responded to
improving economic data in the U.S. and overseas and largely ignored the series
of crises including concerns over sovereign indebtedness in peripheral Europe,
dramatic political changes in the Middle East, rising oil prices, and more
recently, the tragic earthquake and tsunami in Japan. Clearly the focus has been
on basic economic data such as improvement in consumer spending, positive
Institute for Supply Management (ISM) Survey numbers for both Manufacturing and
Non-Manufacturing and the declining unemployment rate that seem to indicate that
growth is likely to be sustained in the U.S. and that last year's concerns over
a possible "double-dip" recession are not likely to resurface in the immediate
future.
With a positive outlook for growth in 2011 and the substantial liquidity
provided by the Federal Reserve through its Quantitative Easing program,
investors continued allocating capital to riskier assets despite periodic bouts
of volatility. This risk appetite is reflected in the S&P 500 index that rose
over 16 percent and high yield bonds that returned over 7 percent in the
six-month period ended March 31, 2011. At the other end of the risk spectrum, US
Treasuries declined 2.79 percent due to a rise in rates. The ten-year Treasury
increased 96 basis points from 2.51 percent at the end of September to 3.47
percent at the end of the March quarter. Fundamentals for corporate bonds remain
firm as default rates continue to fall given the improving economy and
substantially stronger liquidity in the bond and loan markets enabling companies
to refinance maturing debt at attractive rates. Moody's is forecasting that the
global speculative grade default rate will continue to decline from 2.6 percent
at March 2011 to 1.6 percent in March 2012.
Fourth quarter Gross Domestic Product (GDP) growth rate increased to 3.1 percent
from 2.6 percent in the third quarter with strong contributions from consumer
spending and net exports. Budget pressures at State and Local governments were a
drag on economic growth and will likely continue being a drag in the near term.
Expectations for the full year 2011 GDP growth are forecast to improve modestly
at around 3.00 percent. This forecast is down from earlier expectations
reflecting the continuing high debt burden, a weak housing market, and elevated
unemployment levels. The recent increase in oil prices has also raised concerns
about a decline in consumer spending in the U.S. as well as slower global
growth. These significant headwinds notwithstanding, we continue to believe in a
"checkmark" shaped recovery, as has been our expectation for a few quarters.
Concerns over the substantial increase in the U.S. federal deficit, the
potential for increased inflation and resolution of the deficit over the longer
term remain and this could contribute to future periods of market volatility.
The merger of the Hartford Income Shares Fund (HSF) with the Rivus Bond Fund
(BDF) closed on October 22, 2010. As a result of the merger, the number of
securities held by the Fund increased substantially as shown in the attached
holdings report. We intend to continue the consolidation of positions and reduce
the number of securities over time, while maintaining our risk and
diversification discipline.
As of March 31, 2011, the Fund had an NAV of $20.01 per share. This represents a
1.1 percent decrease from $20.23 per share at September 30, 2010. On March 31,
2011, the Fund's closing price on the New York Stock Exchange was $18.03 per
share, representing a 9.90 percent discount to NAV per share, compared with an
8.35 percent discount as of September 30, 2010. The market trading discount
remains at 9.82 percent as of market close on April 11, 2011.
One of the primary objectives of the Fund is to maintain its high level of
income. On March 9, 2011 the Board of Directors declared a dividend of $0.2875
per share payable May 3, 2011 to shareholders of record on April 6, 2011. The
dividend was unchanged from the prior quarter and has been for the last 24
quarters. On an annualized basis,
1
including the pending dividend, the Fund has paid a total of $1.15 per share in
dividends, representing a 6.46 percent dividend yield based on the market price
on April 11, 2011 of $17.86 per share. The dividend is evaluated on a quarterly
basis and is based on the income generation capability of the portfolio.
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
03/31/11 03/31/11 03/31/11 03/31/11 03/31/11
-------- -------- -------- -------- --------
Rivus Bond Fund ................................ 2.07% 11.64% 9.03% 7.28% 5.97%(2)
Barclays Investment Grade Credit Index(3) ...... -0.99% 7.01% 7.02% 6.42% 6.20%
Peer Group Average(4) .......................... 2.12% 9.94% 8.68% 6.80% 6.32%
----------
(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 3-year, 5-year and 10-year historical periods
shown was reduced by the 4.79 percent 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's performance was also
reduced by the impact of the 4.5 percent dilution of net asset value resulting
from the rights offering during the December 2003 quarter. Adjusting for the
impact of both rights offerings, we estimate the return for the three year
annualized return to be 10.78 percent, 5-year annualized return to be 8.33
percent, and 10-year annualized return to be 6.75 percent. The returns noted in
the table above are actual returns as calculated by Lipper and BNY Mellon and do
not adjust for dilution from the rights offerings.
The Fund continued to enjoy strong unlevered returns during the period relative
to both the benchmark and peers. The drag on returns from higher rates over the
6-month period was offset by spread contraction in most sectors owned by the
Fund. 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 effect of both sets of rights
offerings noted above.
The Fund's performance will continue to be subject to the impact of trends in
longer-term interest rates and trends in relative yield spreads on corporate
bonds due to the concentration of the Fund's 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, 2011:
PERCENT OF TOTAL INVESTMENT (LOWER OF S&P AND MOODY'S RATINGS)
(PIE CHART)
Not Rated 1%
AA 2%
B & Lower 5%
AAA 7%
BB 16%
A 22%
BBB 47%
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 BNY Mellon, the Fund's Transfer Agent and Dividend Paying Agent, at
1-800-331-1710. The Fund's investment adviser, Cutwater Investor Services Corp.,
may be reached at 866-766-3030.
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, 2011, 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, 2011 by correspondence with the
custodian. 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, 2011, 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, 2011
4
SCHEDULE OF INVESTMENTS MARCH 31, 2011
MOODY'S/
STANDARD &
POOR'S PRINCIPAL VALUE
RATING(b) AMOUNT (000'S) (NOTE 1)
---------- -------------- ------------
CORPORATE DEBT SECURITIES (84.22%)
AUTOMOTIVE (1.45%)
Ford Holdings, Inc., Co. Gty., 9.30%, 03/01/30 ........................... Ba3/B+ $ 1,000 $ 1,178,171
Ford Motor Co., Sr. Unsec. Notes, 8.90%, 01/15/32 ........................ Ba3/B+ 500 569,099
Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 7.00%, 10/01/13 ............. Ba2/BB- 1,000 1,079,468
Goodyear Tire & Rubber Co., Sr. Unsec. Notes, 10.50%, 05/15/16(c) ........ B1/B+ 250 280,000
------------
3,106,738
------------
CHEMICALS (2.34%)
Braskem Finance, Ltd., Co Gty., 7.00%, 05/07/20, 144A .................... Baa3/BBB- 500 542,500
Dow Chemical Co., Sr. Unsec. Notes, 8.55%, 05/15/19 ...................... Baa3/BBB- 500 632,022
Grupo Petrotemex SA de CV, Sr. Unsec. Notes, 9.50%, 08/19/14, 144A ....... NA/BB 500 555,000
Incitec Pivot Finance LLC, Co. Gty., 6.00%, 12/10/19, 144A ............... Baa3/BBB 405 424,371
Olin Corp., Sr. Unsec. Notes, 9.125%, 12/15/11 ........................... Ba1/B 66 67,964
Sinochem Overseas Capital Co., Ltd., Co. Gty., 4.50%, 11/12/20, 144A ..... Baa1/BBB+ 500 473,636
Union Carbide Corp., Sr. Unsec. Notes, 7.75%, 10/01/96 ................... Baa3/BBB- 2,000 2,061,576
Westlake Chemicals, Co. Gty., 6.625%, 01/15/16(c) ........................ Ba2/BBB- 250 257,500
------------
5,014,569
------------
DIVERSIFIED FINANCIAL SERVICES (15.49%)
Akbank TAS, Sr. Unsec. Notes, 6.50%, 03/09/18, 144A ...................... Ba1/NR 1,500 1,526,250
Ally Financial, Inc., Co. Gty., 7.50%, 09/15/20, 144A .................... B1/B 315 335,868
American Express Co., Sr. Unsec. Notes, 7.00%, 03/19/18 .................. A3/BBB+ 1,000 1,168,725
Bank of America Corp., Sr. Unsec. Notes, 5.625%, 07/01/20 ................ A2/A 190 195,068
Bank of America Corp., Sr. Unsec. Notes, 5.875%, 01/05/21 ................ A2/A 500 522,089
Bank of America Corp., Sub. Notes, 5.42%, 03/15/17 ....................... A3/A- 1,000 1,020,884
BankBoston Capital Trust III, Ltd. Gtd., 1.06%, 06/15/27(c),(d) .......... Baa3/NR 270 208,068
BNP Paribas, Jr. Sub. Notes, 5.186%, 06/29/15, 144A(d),(e) ............... Baa1/A 1,000 960,000
Capital One Capital V, Ltd. Gtd., 10.25%, 08/15/39 ....................... Baa3/BB 1,500 1,627,500
CDP Financial, Inc., Co. Gtd., 4.40%, 11/25/19, 144A ..................... Aaa/AAA 400 403,590
Chase Capital II, Ltd. Gtd., Series B, 0.804%, 02/01/27(c),(d) ........... A2/BBB+ 70 59,162
Citigroup Capital XXI, Co. Gty., 8.30%, 12/21/77(c),(d) .................. Ba1/BB+ 500 520,000
Citigroup, Inc., Sr. Unsec. Notes, 6.375%, 08/12/14 ...................... A3/A 151 166,921
Citigroup, Inc., Sr. Unsec. Notes, 6.01%, 01/15/15 ....................... A3/A 1,000 1,092,815
Citigroup, Inc., Sr. Unsec. Notes, 5.375%, 08/09/20 ...................... A3/A 105 108,093
Citigroup, Inc., Sr. Unsec. Notes, 8.125%, 07/15/39 ...................... A3/A 125 156,689
Citigroup, Inc., Unsec. Notes, 8.50%, 05/22/19 ........................... A3/A 595 734,156
CoBank, ACB, Sub. Notes, 7.875%, 04/16/18, 144A .......................... NR/A 500 564,496
Corp. Andina de Fomento, Sr. Unsec. Notes, 3.75%, 01/15/16 ............... A1/A+ 95 94,009
Credit Agricole SA, Jr. Sub. Notes, 6.637%, 05/31/17, 144A(d),(e) ........ A3/A- 1,250 1,118,750
Discover Financial Services, Sr. Unsec. Notes, 10.25%, 07/15/19 .......... Ba1/BBB- 200 257,294
Export-Import Bank of Korea, Sr. Notes, 8.125%, 01/21/14 ................. A1/A 500 573,163
FleetBoston Financial Corp., Sub. Notes, 6.875%, 01/15/28 ................ A3/A- 500 521,000
General Electric Capital Corp, Sr. Unsec. Notes, 5.625%, 05/01/18 ........ Aa2/AA+ 230 248,657
General Electric Capital Corp., Sr. Unsec. Notes, 6.875%, 01/10/39 ....... Aa2/AA+ 1,000 1,115,993
HSBC America Capital Trust II, Bank Gtd., 8.38%, 05/15/27, 144A(c) ....... NR/A- 2,500 2,510,828
HSBC Capital Funding LP, Ltd. Gtd., 10.176%, 06/30/30, 144A(d),(e) ....... A3/A- 500 670,000
HSBC Finance Corp., Sr. Unsec. Notes, 6.75%, 05/15/11 .................... A3/A 1,000 1,006,846
HSBC Finance Corp., Sr. Unsec. Notes, 7.00%, 05/15/12 .................... A3/A 500 531,789
ICICI Bank Ltd., Sr. Unsec. Notes, 5.75%, 11/16/20, 144A ................. Baa2/BBB- 1,000 985,155
Jefferies Group, Inc., Sr. Unsec. Notes, 8.50%, 07/15/19 ................. Baa2/BBB 129 152,181
Jefferies Group, Inc., Sr. Unsec. Notes, 6.875%, 04/15/21 ................ Baa2/BBB 1,000 1,062,131
JP Morgan Chase & Co., Sr. Unsec. Notes, 4.40%, 07/22/20 ................. Aa3/A+ 175 169,112
JP Morgan Chase Bank NA, Sub. Notes, 6.00%, 10/01/17 ..................... Aa2/A+ 1,000 1,093,768
JP Morgan Chase Capital XXV, Ltd. Gtd., Series Y, 6.80%, 10/01/37 ........ A2/BBB+ 850 854,364
The accompanying notes are an integral part of these financial statements.
5
SCHEDULE OF INVESTMENTS -- CONTINUED
MOODY'S/
STANDARD &
POOR'S PRINCIPAL VALUE
RATING(b) AMOUNT (000'S) (NOTE 1)
---------- -------------- ------------
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
Landesbank Baden-Wurtt NY, Sub. Notes, 6.35%, 04/01/12 ................... Aaa/NR $ 500 $ 523,531
Lloyds TSB Bank PLC, Bank Gtd., 6.375%, 01/21/21 ......................... Aa3/A+ 2,000 2,084,192
Merrill Lynch & Co. Inc., Notes, 6.875%, 04/25/18 ........................ A2/A 1,000 1,110,692
Merrill Lynch & Co. Inc., Sub. Notes, 7.75%, 05/14/38 .................... A3/A- 500 574,096
Merrill Lynch & Co., Inc., Sub. Notes, 6.05%, 05/16/16 ................... A3/A- 320 338,204
Morgan Stanley, Sr. Unsec. Notes, 6.25%, 08/28/17 ........................ A2/A 300 326,065
National Agricultural Cooperative Federation, Sr. Notes, 5.00%, 09/30/14,
144A .................................................................. A1/A 500 527,689
Santander US Debt SA Unipersonal, Bank Gtd., 3.724%, 01/20/15, 144A ...... Aa2/AA 100 96,705
Sanwa Bank Ltd., Sub. Notes, 7.40%, 06/15/11 ............................. Aa3/A 500 506,454
UBS AG Stamford CT, Sr. Unsec. Notes, Bank Notes, 4.875%, 08/04/20 ....... Aa3/A+ 250 252,073
UBS PFD Funding Trust V, Jr. Sub. Notes, Series 1, 6.243%,
05/15/16(d),(e) ....................................................... Baa3/BBB- 500 493,750
Wachovia Capital Trust III, Ltd. Gtd., 5.57%, 05/02/11(d),(e) ............ Baa3/A- 1,000 917,500
Wells Fargo Capital XV, Ltd. Gtd., 9.75%, 09/26/13(d),(e) ................ Baa3/A- 1,000 1,097,500
------------
33,183,865
------------
ENERGY (11.82%)
Apache Corp., Sr. Unsec. Notes, 7.70%, 03/15/26 .......................... A3/A- 500 645,232
Burlington Resources, Inc., Co. Gty., 9.125%, 10/01/21 ................... A2/A 850 1,156,106
Citgo Petroleum Corp. Sr. Sec. Notes, 11.50%, 07/01/17, 144A(c) .......... Ba2/BB+ 900 1,048,500
CMS Panhandle Holding Co., Sr. Unsec. Notes, 7.00%, 07/15/29 ............. Baa3/BBB- 1,000 1,018,711
EL Paso Corp., Notes, 8.05%, 10/15/30 .................................... Ba3/BB- 1,000 1,137,750
Enterprise Products Operating LLC, Co. Gty., Series B, 7.034%,
01/15/68(c),(d) ....................................................... Ba1/BB 1,000 1,037,500
Florida Gas Transmission Co., LLC, Sr. Unsec. Notes, 9.19%, 11/01/24,
144A .................................................................. Baa2/BBB 140 175,721
Gaz Capital SA, Sec. Notes, 8.125%, 07/31/14, 144A ....................... Baa1/BBB 500 571,250
KazMunaiGaz Finance Sub BV, Sr. Unsec. Notes, 11.75%, 01/23/15, 144A ..... Baa3/BBB- 500 625,600
KazMunayGas National Co., Sr. Unsec. Notes, 6.375%, 04/09/21, 144A ....... Baa3/BBB- 500 517,500
Lukoil International Finance BV, Co. Gty., 6.125%, 11/09/20, 144A ........ Baa2/BBB- 1,000 1,020,000
Motiva Enterprises LLC, Notes, 5.75%, 01/15/20, 144A ..................... A2/A 64 69,968
Motiva Enterprises LLC, Sr. Unsec. Notes, 6.85%, 01/15/40, 144A .......... A2/A 124 141,719
Nabors Industries, Inc., Co. Gty., 9.25%, 01/15/19 ....................... Baa2/BBB 625 787,844
NiSource Finance Corp., Co. Gty., 10.75%, 03/15/16 ....................... Baa3/BBB- 250 324,879
NRG Energy, Inc., Co. Gty., 8.25%, 09/01/20, 144A(c) ..................... B1/BB- 500 520,000
ONEOK Partners LP, Co. Gty., 8.625%, 03/01/19 ............................ Baa2/BBB 375 471,682
Pemex Project Funding Master Trust, Co. Gty., 6.625%, 06/15/35 ........... Baa1/BBB 105 105,327
Petrohawk Energy Corp., Co. Gty., 7.875%, 06/01/15(c) .................... B3/B+ 160 169,600
Petroleos Mexicanos, Co. Gty., 8.00%, 05/03/19 ........................... Baa1/BBB 250 300,250
Petroleos Mexicanos, Co. Gty., 6.00%, 03/05/20 ........................... Baa1/BBB 750 796,125
Petroleum Co. of Trinidad & Tobago, Ltd., Sr. Unsec. Notes, 9.75%,
08/14/19, 144A ........................................................ Baa3/BBB 500 606,250
Pride International, Inc., Sr. Unsec. Notes, 8.50%, 06/15/19 ............. Ba1/BBB- 500 617,500
Pride International, Inc., Sr. Unsec. Notes, 6.875%, 08/15/20 ............ Ba1/BBB- 500 566,875
SEACOR Holdings, Inc., Sr. Unsec. Notes, 7.375%, 10/01/19 ................ Ba1/BBB- 1,000 1,063,761
Shell International Finance BV, Co. Gty., 4.30%, 09/22/19 ................ Aa1/AA 1,000 1,029,751
Sunoco Logistics Partners Operations LP, Co. Gty., 5.50%, 02/15/20 ....... Baa2/BBB 335 340,850
Transocean, Inc. Co. Gty., Series C, 1.50%, 12/15/37(c) .................. Baa3/BBB 280 272,650
Transocean, Inc., Co. Gty., 7.50%, 04/15/31 .............................. Baa3/BBB 500 561,100
Valero Energy Corp., Co. Gty., 9.375%, 03/15/19 .......................... Baa2/BBB 124 158,508
Valero Energy Corp., Co. Gty., 8.75%, 06/15/30 ........................... Baa2/BBB 1,000 1,165,491
Valero Energy Corp., Co. Gty., 10.50%, 03/15/39 .......................... Baa2/BBB 500 705,314
Weatherford Bermuda Holdings, Ltd., Co. Gty., 6.75%, 09/15/40 ............ Baa2/BBB 2,000 2,073,172
Western Atlas, Inc., Sr. Unsec. Notes, 8.55%, 06/15/24 ................... A2/A 2,539 3,355,045
Williams Cos., Inc., Sr. Unsec. Notes, 8.75%, 03/15/32 ................... Baa3/BB+ 130 168,246
-------------
25,325,777
------------
The accompanying notes are an integral part of these financial statements.
6
SCHEDULE OF INVESTMENTS -- CONTINUED
MOODY'S/
STANDARD &
POOR'S PRINCIPAL VALUE
RATING(b) AMOUNT (000'S) (NOTE 1)
---------- -------------- ------------
FOOD AND BEVERAGE (0.95%)
Anheuser-Busch InBev Worldwide, Inc. Co. Gty., 7.75%, 01/15/19 ........... Baa1/BBB+ $ 325 $ 399,850
Anheuser-Busch InBev Worldwide, Inc. Co. Gty., 8.20%, 01/15/39 ........... Baa1/BBB+ 27 36,733
Bunge Ltd. Finance Corp., Co. Gty., 8.50%, 06/15/19 ...................... Baa2/BBB- 125 148,433
Delhaize Group SA Co. Gty., 5.70%, 10/01/40 .............................. Baa3/BBB- 709 647,905
Kraft Foods, Inc., Sr. Unsec. Notes, 5.375%, 02/10/20 .................... Baa2/BBB- 241 254,435
Smithfield Foods, Inc., Sr. Sec. Notes., 10.00%, 07/15/14 ................ Ba3/BB 290 341,475
Supervalu, Inc., Sr. Unsec. Notes, 8.00%, 05/01/16 ....................... B2/B 40 40,000
WM Wrigley Jr. Co., Sr. Sec. Notes, 3.70%, 06/30/14, 144A ................ Baa2/BBB 165 168,762
------------
2,037,593
------------
GAMING, LODGING & LEISURE (0.84%)
Firekeepers Development Authority, Sr. Sec. Notes, 13.875%, 05/01/15,
144A(c) ............................................................... B2/B+ 750 888,750
Mandalay Resort Group, Co. Gty., 7.625%, 07/15/13 ........................ Caa3/CCC- 250 247,500
Royal Caribbean Cruises Ltd., Sr. Unsec. Notes, 7.00%, 06/15/13 .......... Ba2/BB 250 266,250
Wynn Las Vegas LLC, 7.875%, 11/01/17(c) .................................. Ba3/BB+ 125 134,062
Wynn Las Vegas LLC, 7.875%, 05/01/20(c) .................................. Ba3/BB+ 250 266,875
------------
1,803,437
------------
HEALTHCARE (2.21%)
Alere, Inc., Co. Gty., 9.00%, 05/15/16(c) ................................ B3/B- 150 159,750
Boston Scientific Corp., Sr. Unsec. Notes, 6.00%, 01/15/20 ............... Ba1/BBB- 500 523,909
Fresenius Medical Care US Finance, Inc. Co. Gty., 5.75%, 02/15/21, 144A .. Ba2/BB 750 726,563
Fresenius US Finance II, Inc., Co. Gty., 9.00%, 07/15/15, 144A ........... Ba1/BB 250 286,562
HCA, Inc., Sec. Notes, 9.25%, 11/15/16(c) ................................ B2/BB- 370 398,212
HCP, Inc., Sr. Unsec. Notes, 5.375%, 02/01/21(c) ......................... Baa2/BBB 1,500 1,514,823
Monsanto Co. (Pharmacia Corp.), Sr. Unsec. Notes, 6.50%, 12/01/18 ........ A1/AA 500 579,346
Mylan, Inc., Co. Gty., 7.875%, 07/15/20, 144A(c) ......................... Ba3/BB 500 543,750
------------
4,732,915
------------
INDUSTRIAL (4.68%)
Affinion Group, Inc., Co. Gty., 11.50%, 10/15/15(c) ...................... Caa1/B- 460 485,300
Alcoa, Inc., Sr. Unsec. Notes, 6.15%, 08/15/20 ........................... Baa3/BBB- 640 676,303
Alcoa, Inc., Sr. Unsec. Notes, 5.95%, 02/01/37 ........................... Baa3/BBB- 244 230,190
Altria Group, Inc., Co. Gty., 9.70%, 11/10/18 ............................ Baa1/BBB 317 416,892
Altria Group, Inc., Co. Gty., 10.20%, 02/06/39 ........................... Baa1/BBB 29 41,145
ArcelorMittal, Sr. Unsec. Notes, 7.00%, 10/15/39 ......................... Baa3/BBB- 405 406,084
Arrow Electronics, Inc., Sr. Unsec. Notes, 6.00%, 04/01/20 ............... Baa3/BBB- 500 529,165
Belden, Inc., Co. Gty., 7.00%, 03/15/17(c) ............................... Ba2/BB- 250 255,937
Gerdau Trade, Inc., Co. Gty., 5.75%, 01/30/21, 144A ...................... NR/BBB- 500 506,250
GXS Worldwide, Inc., Sr. Sec. Notes, 9.75%, 06/15/15(c) .................. B2/B 65 66,137
Holcim US Finance Sarl & Cie SCS, Co. Gty., 6.00%, 12/30/19, 144A ........ Baa2/BBB 1,000 1,048,064
Ingersoll-Rand Global Holding Co., Ltd., Co. Gty., 6.875%, 08/15/18 ...... Baa1/BBB+ 185 214,785
L-3 Communications Corp., Co. Gty., 6.375%, 10/15/15(c) .................. Ba1/BB+ 1,000 1,030,000
Meccanica Holdings USA, Co. Gty., 6.25%, 07/15/19, 144A .................. A3/BBB 129 135,316
Northrop Grumman Space & Mission Systems Corp., Co. Gty., 7.75%,
06/01/29 .............................................................. Baa1/BBB+ 500 629,985
Sealed Air Corp., Sr. Notes, 7.875%, 06/15/17(c) ......................... Baa3/BB+ 500 559,121
Tyco International Finance SA, Co. Gty., 8.50%, 01/15/19 ................. Baa1/A- 93 119,978
Tyco International Ltd./Tyco International Finance SA, Co. Gty., 7.00%,
12/15/19 .............................................................. Baa1/A- 1,250 1,505,263
Waste Management, Inc., Sr. Unsec. Notes, 7.125%, 12/15/17 ............... Baa3/BBB 500 580,232
Worthington Industries, Inc., Sr. Unsec. Notes, 6.50%, 04/15/20 .......... Baa2/BBB 500 534,828
XM Satellite Radio, Inc., Co. Gty., 13.00%, 08/01/14, 144A ............... B3/BB- 57 67,688
------------
10,038,663
------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
SCHEDULE OF INVESTMENTS -- CONTINUED
MOODY'S/
STANDARD &
POOR'S PRINCIPAL VALUE
RATING(b) AMOUNT (000'S) (NOTE 1)
---------- -------------- ------------
INSURANCE (7.47%)
AIG SunAmerica Global Finance VI, Sr. Sec. Notes, 6.30%, 05/10/11, 144A .. A2/A+ $ 1,000 $ 1,004,510
AIG SunAmerica, Inc., Sr. Unsec. Notes, 8.125%, 04/28/23 ................. Baa1/A- 750 814,287
American International Group, Inc., Jr. Sub. Debs., 8.175%,
05/15/68(c),(d) ....................................................... Baa2/BBB 2,000 2,152,500
Farmers Exchange Capital, Sub. Notes, 7.20%, 07/15/48, 144A .............. Baa2/BBB+ 3,000 2,879,217
Guardian Life Insurance Co.,Sub. Notes, 7.375%, 09/30/39, 144A ........... A1/AA- 108 126,168
Liberty Mutual Group, Inc., Bonds, 7.00%, 03/15/34, 144A ................. Baa2/BBB- 250 246,340
Liberty Mutual Group, Inc., Co. Gty., 10.75%, 06/15/88, 144A(c),(d) ...... Baa3/BB 1,000 1,300,000
Lincoln National Corp. Jr. Sub. Notes, 6.05%, 04/20/67(c),(d) ............ Ba1/BBB 500 467,500
Manulife Financial Corp., Sr. Unsec. Notes, 4.90%, 09/17/20 .............. NR/A- 250 244,814
Massachusetts Mutual Life Insurance Co., Sub. Notes, 8.875%, 06/01/39,
144A .................................................................. A1/AA- 500 683,780
MetLife Capital Trust X, Jr. Sub. Notes, 9.25%, 04/08/68, 144A(c),(d) .... Baa2/BBB 500 603,750
MetLife, Inc., Jr. Sub. Notes, 10.75%, 08/01/69(c) ....................... Baa2/BBB 1,000 1,380,000
Nationwide Mutual Insurance Co., Sub. Notes, 9.375%, 08/15/39, 144A ...... A3/A- 215 261,462
New York Life Insurance Co., Sub. Notes, 6.75%, 11/15/39, 144A ........... Aa2/AA 103 118,143
Penn Central Corp., Sub. Notes, 10.875%, 05/01/11 ........................ WR/NR 1,500 1,507,063
Prudential Financial, Inc., Jr. Sub. Notes, 8.875%, 06/15/68(c),(d) ...... Baa3/BBB+ 1,000 1,180,000
Travelers Cos., Inc., Jr. Sub. Notes, 6.25%, 03/15/67(c),(d) ............. A3/BBB 500 520,000
XL Capital Europe PLC, Co. Gty., 6.50%, 01/15/12 ......................... Baa2/BBB+ 500 520,617
------------
16,010,151
------------
MEDIA (8.44%)
CBS Corp., Co. Gty., 8.875%, 05/15/19 .................................... Baa3/BBB- 350 439,496
Cengage Learning Acquisitions, Inc., Sr. Discount Notes, 13.25%, 07/15/15,
144A(c),(f) ........................................................... Caa2/CCC+ 500 525,000
Charter Communications Operating LLC, Sec. Notes, 8.00%, 04/30/12, 144A .. Ba3/BB+ 150 157,500
Comcast Cable Holdings LLC, Co. Gty., 9.80%, 02/01/12 .................... Baa1/BBB+ 1,500 1,612,924
Comcast Corp., Co. Gty., 7.05%, 03/15/33 ................................. Baa1/BBB+ 2,000 2,233,776
COX Communications, Inc., Sr. Unsec. Notes, 6.80%, 08/01/28 .............. Baa2/BBB- 1,500 1,568,508
COX Enterprises, Inc., Sr. Unsec. Notes, 7.375%, 07/15/27, 144A .......... Baa3/BBB- 500 550,926
Grupo Televisa SA, Sr. Unsec. Notes, 6.625%, 01/15/40 .................... Baa1/BBB+ 159 168,465
Harcourt General, Inc., Sr. Unsec. Notes, 8.875%, 06/01/22 ............... WR/BBB+ 2,000 2,390,122
Interpublic Group of Cos., Inc., Sr. Unsec. Notes, 10.00%, 07/15/17(c) ... Ba2/BB 500 595,000
Myriad International Holding BV, Co. Gty., 6.375%, 07/28/17, 144A ........ Baa3/NR 100 105,620
NBC Universal, Inc., Sr. Unsec. Notes, 5.15%, 04/30/20, 144A ............. Baa2/BBB+ 175 180,364
NBC Universal, Inc., Sr. Unsec. Notes, 5.95%, 04/01/41, 144A ............. Baa2/BBB+ 95 91,035
News America Holdings, Inc., Co. Gty., 7.90%, 12/01/95 ................... Baa1/BBB+ 1,400 1,563,692
Time Warner Entertainment Co., LP, Co. Gty., 8.375%, 07/15/33 ............ Baa2/BBB 1,360 1,663,649
Time Warner, Inc., Co. Gty., 9.15%, 02/01/23 ............................. Baa2/BBB 3,000 3,940,968
Viacom, Inc., Co. Gty., 7.875%, 07/30/30 ................................. Baa3/BBB- 250 290,215
------------
18,077,260
------------
MINING (2.35%)
Anglo American Capital PLC, Co. Gty., 9.375%, 04/08/14, 144A ............. Baa1/BBB 339 405,471
Anglo American Capital PLC, Co. Gty., 9.375%, 04/08/19, 144A ............. Baa1/BBB 500 666,209
AngloGold Ashanti Holdings PLC, Co. Gty., 5.375%, 04/15/20 ............... Baa3/BBB- 310 314,444
Barrick North America Finance LLC, Co. Gty., 6.80%, 09/15/18 ............. Baa1/A- 500 595,241
Freeport-McMoran Copper & Gold, Inc., Sr. Unsec. Notes, 8.375%,
04/01/17(c) ........................................................... Baa3/BBB- 500 551,250
Freeport-McMoran Corp., Co. Gty., 9.50%, 06/01/31 ........................ Baa2/BBB- 250 331,223
Newmont Mining Corp., Sr. Unsec. Notes, 8.625%, 05/15/11 ................. Baa1/BBB+ 500 504,268
Rio Tinto Finance USA Ltd., Co. Gty., 9.00%, 05/01/19 .................... A3/BBB+ 85 111,700
Teck Resources Ltd., Co. Gty., 6.00%, 08/15/40(c) ........................ Baa2/BBB 1,000 1,007,090
Vale Overseas Ltd., Co. Gty., 6.25%, 01/23/17 ............................ Baa2/BBB+ 500 556,564
------------
5,043,460
------------
The accompanying notes are an integral part of these financial statements.
8
SCHEDULE OF INVESTMENTS -- CONTINUED
MOODY'S/
STANDARD &
POOR'S PRINCIPAL VALUE
RATING(b) AMOUNT (000'S) (NOTE 1)
---------- -------------- ------------
PAPER (1.89%)
Cenveo Corp., Co. Gty., 10.50%, 08/15/16, 144A(c) ........................ Caa1/CCC+ $ 400 $ 402,000
Georgia-Pacific LLC, Co. Gty., 5.40%, 11/01/20, 144A ..................... Ba2/BBB 670 661,607
Smurfit Capital Funding PLC, Co. Gty., 7.50%, 11/20/25 ................... Ba2/BB 2,000 1,910,000
Westvaco Corp., Co. Gty., 8.20%, 01/15/30 ................................ Ba1/BBB 1,000 1,067,226
------------
4,040,833
------------
REAL ESTATE INVESTMENT TRUST (REIT) (5.17%)
Biomed Realty LP, Co. Gty., 6.125%, 04/15/20 ............................. Baa3/BBB- 350 369,941
Duke Realty LP, Sr. Unsec. Notes, 6.50%, 01/15/18 ........................ Baa2/BBB- 500 550,897
Duke Realty LP, Sr. Unsec. Notes, 8.25%, 08/15/19 ........................ Baa2/BBB- 500 600,459
Federal Realty Investment Trust, Sr. Unsec. Notes, 5.40%, 12/01/13 ....... Baa1/BBB+ 750 806,217
Federal Realty Investment Trust, Sr. Unsec. Notes, 5.65%, 06/01/16 ....... Baa1/BBB+ 210 228,598
Federal Realty Investment Trust, Sr. Unsec. Notes, 6.20%, 01/15/17 ....... Baa1/BBB+ 290 321,776
First Industrial LP, Sr. Unsec. Notes, 7.50%, 12/01/17 ................... Ba3/BB- 200 199,372
Goodman Funding Property, Ltd., Sr. Unsec. Notes, 6.375%, 04/15/21,
144A .................................................................. Baa3/BBB 1,050 1,047,745
Health Care, Inc., Sr. Unsec. Notes, 5.25%, 01/15/22(c) .................. Baa2/BBB- 1,500 1,463,495
Host Hotels & Resorts, Inc., Co. Gty., 6.00%, 11/01/20(c) ................ Ba1/BB+ 1,000 982,500
Liberty Property LP, Sr. Unsec. Notes, 7.50%, 01/15/18 ................... Baa2/BBB 1,000 1,165,395
Mack-Cali Realty Corp., Sr. Unsec. Notes, 7.75%, 08/15/19 ................ Baa2/BBB 665 801,288
Nationwide Health Properties, Inc., Sr. Unsec. Notes, 6.00%, 05/20/15 .... Baa2/BBB 500 540,984
Simon Property Group LP, Sr. Unsec. Notes, 6.125%, 05/30/18 .............. A3/A- 750 840,535
WEA Finance, LLC, Co. Gty., 7.125%, 04/15/18, 144A ....................... A2/A- 500 579,822
WEA Finance, LLC, Co. Gty., 6.75%, 09/02/19, 144A ........................ A2/A- 500 573,709
------------
11,072,733
------------
RETAIL & RESTAURANT (1.04%)
Best Buy Co., Inc., Sr. Unsec. Notes, 5.50%, 03/15/21(c) ................. Baa2/BBB- 1,000 981,211
Darden Restaurants, Inc., Sr. Unsec. Notes, 7.125%, 02/01/16 ............. Baa2/BBB 500 561,810
Levi Strauss & Co., Sr. Unsec. Notes, 8.875%, 04/01/16(c) ................ B2/B+ 500 521,250
Limited Brands, Inc., Co. Gty., 8.50%, 06/15/19 .......................... Ba1/BB+ 150 172,125
------------
2,236,396
------------
TECHNOLOGY (0.08%)
Corning, Inc., Sr. Unsec. Notes, 5.75%, 08/15/40 ......................... Baa1/BBB+ 60 59,742
Mantech International Corp., Co. Gty., 7.25%, 04/15/18(c) ................ Ba2/BB+ 100 105,000
------------
164,742
------------
TELECOMMUNICATIONS (8.76%)
AT&T, Inc., Sr. Unsec. Notes, 5.35%, 09/01/40, 144A ...................... A2/A- 2,548 2,282,358
Cellco Partnership/Verizon Wireless Capital LLC, Sr. Unsec. Notes,
8.50%, 11/15/18 ....................................................... A2/A- 229 294,222
Deutsche Telekom International Finance BV, Co. Gtd., 8.75%, 06/15/30 ..... Baa1/BBB+ 2,000 2,622,192
Frontier Communications Corp., Sr. Unsec. Notes, 6.625%, 03/15/15 ........ Ba2/BB 150 156,375
Frontier Communications Corp., Sr. Unsec. Notes, 8.125%, 10/01/18 ........ Ba2/BB 500 538,125
Frontier Communications Corp., Sr. Unsec. Notes, 9.00%, 08/15/31 ......... Ba2/BB 500 511,250
GTE Corp., Co. Gty., 6.94%, 04/15/28 ..................................... Baa1/A- 1,500 1,663,043
Hearst-Argyle Television, Inc., Sr. Unsec. Notes, 7.00%, 01/15/18 ........ WR/NR 1,000 800,659
Intelsat Intermediate Holding Co., SA, Co. Gty., 9.50%,
02/01/15(c),(f) ....................................................... Caa2/CCC+ 170 175,950
Intelsat Jackson Holdings SA, Co. Gty., 11.50%, 06/15/16(c) .............. Caa2/CCC+ 805 863,362
Level 3 Financing, Inc., Co, Gty., 10.00%, 02/01/18(c) ................... Caa1/CCC 610 610,762
NII Capital Corp., Co. Gty., 10.00%, 08/15/16(c) ......................... B2/B+ 500 570,000
Qwest Corp., Sr. Unsec. Notes, 7.20%, 11/10/26(c) ........................ Baa3/BBB- 1,000 1,005,000
Qwest Corp., Sr. Unsec. Notes, 6.875%, 09/15/33(c) ....................... Baa3/BBB- 1,100 1,101,375
The accompanying notes are an integral part of these financial statements.
9
SCHEDULE OF INVESTMENTS -- CONTINUED
MOODY'S/
STANDARD &
POOR'S PRINCIPAL VALUE
RATING(b) AMOUNT (000'S) (NOTE 1)
---------- -------------- ------------
TELECOMMUNICATIONS (CONTINUED)
Qwest Corp., Sr. Unsec. Notes, 7.25%, 10/15/35(c) ........................ Baa3/BBB- $ 500 $ 507,500
Sprint Capital Corp., Co. Gty., 6.875%, 11/15/28 ......................... Ba3/BB- 1,500 1,383,750
Sprint Capital Corp., Co. Gty., 8.75%, 03/15/32 .......................... Ba3/BB- 1,000 1,063,750
TELUS Corp., Sr. Unsec. Notes, 8.00%, 06/01/11 ........................... Baa1/BBB+ 154 155,838
Trilogy International Partners LLC, Sr. Sec. Notes, 10.25%, 08/15/16,
144A(c) ............................................................... Caa1/CCC+ 100 103,500
Verizon Communications, Inc., Sr. Unsec. Notes, 8.75%, 11/01/18 .......... A3/A- 292 373,598
Verizon Global Funding Corp., Sr. Unsec. Notes, 7.75%, 12/01/30 .......... A3/A- 1,646 1,982,572
------------
18,765,181
------------
TRANSPORTATION (5.23%)
American Airlines Pass Through Trust, Pass Through Certs., Series 2001-02,
7.858%, 10/01/11 ...................................................... Ba1/BBB- 2,500 2,584,250
BNSF Funding Trust I, Co. Gty., 6.613%, 12/15/55(c),(d) .................. Baa2/BBB 250 259,688
Continental Airlines, Pass Through Certs., Series 1999-1, Class B,
6.795%, 02/02/20 ...................................................... Ba1/BB 588 576,234
Continental Airlines, Pass Through Certs., Series 2000-A1, 8.048%,
05/01/22 .............................................................. Baa2/BBB 877 956,367
Continental Airlines, Pass Through Certs., Series 2000-A1, 7.707%,
10/02/22 .............................................................. Baa2/BBB 1,241 1,343,310
Delta Air Lines, Pass Through Certs, Series 1993-A2, 10.50%, 04/30/16 .... WR/NR 430 193,796
ERAC USA Finance, Co., Co. Gty., 7.00%, 10/15/37, 144A ................... Baa1/BBB+ 1,500 1,634,292
Federal Express Corp., Pass Through Certs, Series 1996-B2, 7.84%,
01/30/18(c) ........................................................... Baa1/BBB 1,000 1,051,430
Federal Express Corp., Sr. Unsec. Notes, 9.65%, 06/15/12 ................. Baa2/BBB 1,750 1,916,637
Norfolk Southern Corp., Sr. Unsec. Notes, 5.75%, 04/01/18 ................ Baa1/BBB+ 170 190,580
Stena AB, Sr. Unsec. Notes, 7.00%, 12/01/16(c) ........................... Ba3/BB+ 500 497,500
------------
11,204,084
------------
UTILITIES (4.01%)
Avista Corp., 5.95%, 06/01/18 ............................................ A3/BBB+ 500 555,064
Avista Corp., 5.125%, 04/01/22 ........................................... A3/BBB+ 500 520,078
Dominion Resources, Inc., Sr. Unsec. Notes, Series 07-A, 6.00%,
11/30/17 .............................................................. Baa2/A- 500 560,014
Duquesne Light Holdings, Inc., Sr. Unsec. Notes, 6.40%, 09/15/20, 144A ... Ba1/BBB- 1,000 1,017,375
Georgia Power Co., Sr. Unsec. Notes, 5.40%, 06/01/40 ..................... A3/A 110 108,277
Hydro-Quebec, 8.25%, 04/15/26 ............................................ Aa2/A+ 1,550 2,032,225
MidAmerican Funding LLC, Sr. Sec. Bonds, 6.927%, 03/01/29 ................ A3/BBB+ 500 561,501
NextEra Energy Capital Holding, Inc., Jr. Sub. Notes., Series D, 7.30%,
09/01/67(c),(d) ....................................................... Baa2/BBB 500 521,875
Ohio Power Co., Sr. Unsec. Notes, 6.00%, 06/01/16 ........................ Baa1/BBB 500 562,713
Ohio Power Co., Sr. Unsec. Notes, 5.375%, 10/01/21 ....................... Baa1/BBB 1,000 1,063,567
Old Dominion Electric Coop., Sec. Bonds, 6.25%, 06/01/11 ................. A3/A 500 504,327
Toledo Edison Co., 7.25%, 05/01/20 ....................................... Baa1/BBB 500 591,079
------------
8,598,095
------------
TOTAL CORPORATE DEBT SECURITIES (Cost of $164,231,687) ................... 180,456,492
------------
ASSET BACKED SECURITIES (0.71%)
Credit-Based Asset Servicing and Securitization LLC, Series 2006-SC1,
Class A, 0.52%, 05/25/36, 144A(c),(d) ................................. Aa3/AAA 68 49,695
Option One Mortgage Loan Trust, Series 2007-FXD2, Class 2A1, 5.90%,
03/25/37(f) ........................................................... Aa3/AA+ 278 265,583
Renaissance Home Equity Loan Trust, Series 2006-3, Class AF2, 5.58%,
11/25/36(f) ........................................................... B3/B- 165 129,749
Small Business Administration Participation Certificates, Series 2010-20F,
Class 1, 3.88%, 06/01/30 .............................................. Aaa/AAA 317 319,661
Sonic Capital LLC, Series 2006-1A, Class A2, 5.096%, 12/20/31, 144A ...... Baa2/BB+ 741 755,473
------------
TOTAL ASSET BACKED SECURITIES (Cost of $1,537,703) ....................... 1,520,161
------------
The accompanying notes are an integral part of these financial statements.
10
SCHEDULE OF INVESTMENTS -- CONTINUED
MOODY'S/
STANDARD &
POOR'S PRINCIPAL VALUE
RATING(b) AMOUNT (000'S) (NOTE 1)
---------- -------------- ------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (6.01%)
American Tower Trust, Series 2007-1A, Class AFX, 5.42%, 04/15/37, 144A ... Aaa/AAA $ 700 $ 750,692
Banc of America Commercial Mortgage, Inc., Series 2006-2, Class AM,
5.964%, 05/10/45(d) ................................................... NA/A 1,440 1,492,106
Citigroup/Deutsche Bank Commercial Mortgage Trust, Series 2007-CD4,
Class A4, 5.322%, 12/11/49 ............................................ Aaa/A- 285 299,558
Credit Suisse Mortgage Capital Certificates, Series 2006-C5, Class AM,
5.343%, 12/15/39 ...................................................... Aa1/BBB 100 102,012
CW Capital Cobalt, Ltd., Series 2007-C2, Class A3, 5.484%, 04/15/47(d) ... Aaa/NA 500 515,671
Developers Diversified Realty Corp., Series 2009-DDR1, Class C, 6.223%,
10/14/22, 144A ........................................................ A2/A 500 517,296
JP Morgan Chase Commercial Mortgage Securities Corp., Series 2005-FL1A,
Class E, 0.575%, 02/15/19, 144A(d) .................................... Aa1/AA 429 409,555
JP Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP5,
Class AJ, 5.493%, 12/15/44(d) ......................................... Aa3/A 60 61,564
JP Morgan Chase Commercial Mortgage Securities Corp., Series 2006-CB17,
Class AM, 5.464%, 12/12/43 ............................................ Aa2/NA 100 100,727
JP Morgan Chase Commercial Mortgage Securities Corp., Series 2007-LDPX,
Class A3, 5.42%, 01/15/49 ............................................. Aaa/NA 160 168,742
JPMorgan Chase Commercial Mortgage Securities Corp., Series 2006-CB16,
Class A4, 5.552%, 05/12/45 ............................................ Aaa/AAA 1,000 1,070,443
JPMorgan Chase Commercial Mortgage Securities Corp., Series 2007-CB20,
Class A4, 5.794%, 02/12/51(d) ......................................... Aaa/A+ 880 947,876
LB-UBS Commercial Mortgage Trust, Series 2006-C4, Class AM,
6.098%, 06/15/38(d) ................................................... Aa3/BBB+ 2,000 2,125,740
LB-UBS Commercial Mortgage Trust, Series 2007-C1, Class A4,
5.424%, 02/15/40 ...................................................... NA/A+ 970 1,030,108
LB-UBS Commercial Mortgage Trust, Series 2007-C2, Class A3,
5.43%, 02/15/40 ....................................................... NA/A+ 1,375 1,448,865
Merrill Lynch Countrywide Commercial Mortgage Trust, Series 2007-6,
Class A4, 5.485%, 03/12/51(d) ......................................... Aaa/NR 110 115,209
Merrill Lynch Mortgage Trust, Series 2005-CIP1, Class AM, 5.107%,
07/12/38(d) ........................................................... Aaa/NA 30 31,141
Merrill Lynch Mortgage Trust, Series 2007-CI, Class AM, 6.020%,
06/12/50(d) ........................................................... NA/BBB+ 140 140,592
Morgan Stanley Capital I, Series 2007-IQ16, Class A4, 5.809%, 12/12/49 ... NA/A+ 750 810,448
Morgan Stanley Reremic Trust, Series 2009-GG10, Class A4B,
6.002%, 08/12/45, 144A(d) ............................................. A3/NA 210 215,089
Wachovia Bank Commercial Mortgage Trust, Series 2006-C28, Class A3,
5.679%, 10/15/48 ...................................................... Aaa/AAA 500 519,092
------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost of $10,424,919) ........ 12,872,526
------------
RESIDENTIAL MORTGAGE-BACKED SECURITIES (2.36%)
Bayview Commercial Asset Trust, Series 2006-CP2, Class IO, 2.803%,
01/25/37, 144A(f) ..................................................... Aaa/NR 5,560 358,595
Bayview Commercial Asset Trust, Series 2007-2A, Class IO, 2.659%,
07/25/37, 144A(f) ..................................................... Aa1/AAA 3,786 339,596
CBA Commercial Small Balance Commercial Mortgage, Series 2006-2A,
Class X1, --%, 01/25/39, 144A(d) ...................................... C/NR 3,067 248,066
FHLMC Pool # 170128, 11.50%, 06/01/15 .................................... Aaa/AAA 3 2,973
FHLMC Pool # 360019, 10.50%, 12/01/17 .................................... Aaa/AAA 5 5,350
FHLMC Pool # A15675, 6.00%, 11/01/33 ..................................... Aaa/AAA 669 735,652
FHLMC Pool # B11892, 4.50%, 01/01/19 ..................................... Aaa/AAA 582 616,660
FHLMC Pool # G00182, 9.00%, 09/01/22 ..................................... Aaa/AAA 6 7,099
FNMA Pool # 124012, 12.50%, 10/01/15 ..................................... Aaa/AAA 4 4,627
FNMA Pool # 303022, 8.00%, 09/01/24 ...................................... Aaa/AAA 22 25,629
FNMA Pool # 303136, 8.00%, 01/01/25 ...................................... Aaa/AAA 15 16,890
The accompanying notes are an integral part of these financial statements.
11
SCHEDULE OF INVESTMENTS -- CONTINUED
MOODY'S/
STANDARD &
POOR'S PRINCIPAL VALUE
RATING(b) AMOUNT (000'S) (NOTE 1)
---------- -------------- ------------
RESIDENTIAL MORTGAGE-BACKED SECURITIES (CONTINUED)
FNMA Pool # 55192, 10.50%, 09/01/17 ...................................... Aaa/AAA $ 8 $ 8,878
FNMA Pool # 58991, 11.00%, 02/01/18 ...................................... Aaa/AAA 4 4,637
FNMA Pool # 60040, 12.00%, 09/01/14 ...................................... Aaa/AAA 5 4,540
FNMA Pool # 754791, 6.50%, 12/01/33 ...................................... Aaa/AAA 784 887,282
FNMA Pool # 763852, 5.50%, 02/01/34 ...................................... Aaa/AAA 1,112 1,196,146
FNMA Pool # 889554, 6.00%, 04/01/38 ...................................... Aaa/AAA 410 446,476
GNSF Pool # 194228, 9.50%, 11/15/20 ...................................... Aaa/AAA 51 60,751
GNSF Pool # 307527, 9.00%, 06/15/21 ...................................... Aaa/AAA 32 37,318
GNSF Pool # 417239, 7.00%, 02/15/26 ...................................... Aaa/AAA 34 38,904
GNSF Pool # 780374, 7.50%, 12/15/23 ...................................... Aaa/AAA 16 18,084
------------
TOTAL RESIDENTIAL MORTGAGE-BACKED SECURITIES (Cost of $4,915,529) ........ 5,064,153
------------
MUNICIPAL BONDS (1.27%)
Municipal Electric Authority of Georgia, Build America Bonds-Taxable-Plant
Vogle Units 3&4, Series J, Revenue Bond, 6.637%, 04/01/57 ............. A2/A+ 175,000 166,250
San Francisco City & County Public Utilities Commission, Water Revenue,
Build America Bonds, 6.000%, 11/01/40 ................................ Aa2/AA- 145,000 141,814
State of California, Build America Bonds, GO, 7.625%, 03/01/40 ........... A1/A- 1,500,000 1,640,925
State of Illinois, Build America Bonds, GO, 6.900%, 03/01/35 ............. A1/A+ 500,000 487,340
State of Illinois, Build America Bonds, GO, 7.35%, 07/01/35 .............. A1/A+ 285,000 291,213
------------
TOTAL MUNICIPAL BONDS (Cost of $2,655,257) ............................... 2,727,542
------------
U.S. TREASURY SECURITIES (3.10%)
U.S. Treasury Bond, 0.875%, 02/29/12 ..................................... Aaa/AAA 2,350 2,362,291
U.S. Treasury Note, 1.125%, 12/15/11 ..................................... Aaa/AAA 500 503,106
U.S. Treasury Note, 1.00%, 03/31/12 ...................................... Aaa/AAA 1,100 1,107,348
U.S. Treasury Note, 0.375%, 09/30/12 ..................................... Aaa/AAA 2,600 2,593,500
U.S. Treasury Note, 3.875%, 08/15/40 ..................................... Aaa/AAA 94 84,115
------------
TOTAL U.S. TREASURY SECURITIES (Cost of $6,668,465) ...................... 6,650,360
------------
GOVERNMENT BOND (0.05%)
Brazilian Government International Bond, Sr. Unsec. Notes, 4.875%,
01/22/21 .............................................................. Baa3/BBB- 100 102,000
------------
TOTAL GOVERNMENT BOND (Cost of $102,580) ................................. 102,000
------------
SHARES
--------------
COMMON STOCK (0.04%)
MEDIA (0.03%)
Quad Graphics, Inc. (a) .................................................. 1,488 63,300
XO Holdings, Inc. (a) .................................................... 13 10
------------
63,310
------------
TRANSPORTATION (0.01%)
Delta Air Lines, Inc. (a) ................................................ 2,125 20,820
------------
TOTAL COMMON STOCK (Cost of $97,578) ..................................... 84,130
------------
The accompanying notes are an integral part of these financial statements.
12
SCHEDULE OF INVESTMENTS -- CONTINUED
VALUE
SHARES (NOTE 1)
-------------- ------------
PREFERRED STOCK (0.35%)
Ally Financial, Inc., 144A ............................................... 134 $ 124,695
Federal Home Loan Mortgage Corp, Series Z (a),(c),(d) .................... 53,779 94,785
US BANCORP, Series A(c),(d) .............................................. 615 530,748
------------
TOTAL PREFERRED STOCK (Cost of $1,819,079) ............................... 750,228
------------
TOTAL INVESTMENTS (98.11%)
(Cost $192,452,797) ...................................................... 210,227,592
------------
OTHER ASSETS AND LIABILITIES (1.89%) ..................................... 4,038,591
------------
NET ASSETS (100.00%) ..................................................... $214,266,183
============
----------
(a) Non-income producing security.
(b) Ratings for debt securities are unaudited. All ratings are as of March 31,
2011 and may have changed subsequently.
(c) This security is callable.
(d) Variable rate security. Rate disclosed is as of March 31, 2011.
(e) Security is perpetual. Date shown is next call date.
(f) Multi-Step Coupon. Rate disclosed is as of March 31, 2011.
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, 2011, these securities amounted to
$43,339,706 or 20.23% of net assets.
LEGEND
Certs. - Certificates
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
Jr. - Junior
Ltd. - Limited
NA - Not Available
NR - Not Rated
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
WR - Withdrawn Rating
The accompanying notes are an integral part of these financial statements.
13
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2011
Assets:
Investment in securities, at value (amortized cost $192,452,797)
(Note 1) ....................................................... $210,227,592
Cash .............................................................. 690,260
Receivables for Investments Sold .................................. 181
Interest receivable ............................................... 3,520,944
Dividend receivable ............................................... 22,106
Prepaid expenses .................................................. 21,918
------------
TOTAL ASSETS ................................................... 214,483,001
------------
Liabilities:
Payable to Investment Adviser ..................................... 81,285
Accrued expenses payable .......................................... 135,533
------------
TOTAL LIABILITIES .............................................. 216,818
------------
Net assets: (equivalent to $20.01 per share based on 10,708,597
shares of capital stock outstanding) .............................. $214,266,183
============
NET ASSETS consisted of:
Par value ......................................................... $ 107,086
Capital paid-in ................................................... 218,896,489
Accumulated net investment income ................................. 595,489
Accumulated net realized loss on investments ...................... (23,107,676)
Net unrealized appreciation on investments ........................ 17,774,795
------------
$214,266,183
============
The accompanying notes are an integral part of these financial statements.
14
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2011
Investment Income:
Interest ....................................................... $10,599,465
Dividends ...................................................... 179,055
Other income ................................................... 13,392
-----------
Total Investment Income ..................................... 10,791,912
-----------
Expenses:
Investment advisory fees (Note 4) .............................. $ 782,437
Administration fees ............................................ 83,417
Transfer agent fees ............................................ 58,148
Trustees' fees ................................................. 66,500
Audit fees ..................................................... 26,500
Legal fees and expenses ........................................ 97,891
Reports to shareholders ........................................ 41,601
Custodian fees ................................................. 16,509
Insurance ...................................................... 17,469
NYSE fee ....................................................... 39,525
Miscellaneous .................................................. 67,965
-----------
Total Expenses .............................................. 1,297,962
-----------
Net Investment Income .................................... 9,493,950
-----------
Net realized and unrealized gain (loss) on investments (Note 1):
Net realized gain (loss) on:
Investments .................................................... 574,950
Warrants* ...................................................... (717)
-----------
Net realized gain ........................................ 574,233
Net change in unrealized appreciation (depreciation) on:
Investments .................................................... 4,402,383
Warrants* ...................................................... (22,393)
-----------
Net change in unrealized appreciation (depreciation) ..... 4,379,990
-----------
Net realized and unrealized gain on investments ....... 4,954,223
-----------
Net increase in net assets resulting from operations .............. $14,448,173
===========
----------
* Primary risk exposure is equity contracts.
The accompanying notes are an integral part of these financial statements.
15
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
MARCH 31, 2011 MARCH 31, 2010
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ........................................... $ 9,493,950 $ 6,599,105
Net realized gain (loss) from security transactions (Note 2) .... 574,233 (1,588,849)
Change in unrealized appreciation of investments and warrants ... 4,379,990 25,608,278
------------- -------------
Net increase in net assets resulting from operations ......... 14,448,173 30,618,534
------------- -------------
Distributions:
Distributions to shareholders from net investment income ........ (8,735,491) (6,593,096)
------------- -------------
Capital Share Transactions:
Proceeds from merger (Note 7) ................................... 83,300,387 --
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 .................................................... 83,300,387 24,507,954
------------- -------------
Increase in net assets .......................................... 89,013,069 48,533,392
Net Assets:
Beginning of year ............................................... 125,253,114 76,719,722
------------- -------------
End of year ..................................................... $ 214,266,183 $ 125,253,114
------------- -------------
Accumulated net investment income/(loss) ........................ $ 595,489 $ (366,523)
============= =============
The accompanying notes are an integral part of these financial statements.
16
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each year presented.
YEAR ENDED MARCH 31,
----------------------------------------------------
2011 2010 2009 2008 2007
-------- -------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period .............................. $ 19.10 $ 15.63 $ 19.01 $ 20.01 $ 19.72
-------- -------- ------- ------- -------
Net investment income .......................................... 1.14(1) 1.19 1.06 1.10 1.09
Net realized and unrealized gain (loss) on investments ......... 0.92 4.31 (3.29) (0.95) 0.35
-------- -------- ------- ------- -------
Total from investment operations .................................. 2.06 5.50 (2.23) 0.15 1.44
-------- -------- ------- ------- -------
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 period .................................... $ 20.01 $ 19.10 $ 15.63 $ 19.01 $ 20.01
======== ======== ======= ======= =======
Per share market price, end of period ............................. $ 18.03 $ 17.12 $ 13.77 $ 17.14 $ 18.30
======== ======== ======= ======= =======
TOTAL INVESTMENT RETURN(2)
Based on market period ......................................... 12.23% 33.60% (13.62)% (0.10)% 9.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) .............................. $214,266 $125,253 $76,720 $93,282 $98,197
Ratio of expenses to average net assets ........................... 0.79% 0.85% 1.21% 0.88% 1.00%
Ratio of net investment income to average net assets .............. 5.76% 6.16% 6.18% 5.66% 5.57%
Portfolio turnover rate ........................................... 19.91% 15.40% 21.46% 17.25% 25.90%
Number of shares outstanding at the end of the period (in 000's) .. 10,709 6,559 4,908 4,908 4,908
----------
(1) The selected per share data was calculated using the average shares
outstanding method.
(2) 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.
17
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, 2011,
there were no securities valued using fair value procedures.
FAIR VALUE MEASUREMENTS - The Fund has adopted authoritative fair value
accounting standards which establish an authoritative definition of fair
value and set out a hierarchy 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 valuation 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.
18
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Following is a description of the valuation techniques applied to the
Fund's major categories of assets measured at fair value on a recurring
basis as of March 31, 2011.
TOTAL LEVEL 2 LEVEL 3
MARKET LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
03/31/11 PRICE INPUTS INPUTS+
------------ -------- ------------ ------------
COMMON STOCK* $ 84,130 $ 84,130 $ -- $ --
CORPORATE DEBT SECURITIES 180,456,492 -- 180,456,492 --
ASSET BACKED SECURITIES 1,520,161 -- 1,520,161 --
COMMERCIAL MORTGAGE-BACKED SECURITIES 12,872,526 -- 12,872,526 --
RESIDENTIAL MORTGAGE-BACKED SECURITIES 5,064,153 -- 4,705,558 358,595
MUNICIPAL BOND 2,727,542 -- 2,727,542 --
U.S. TREASURY SECURITIES 6,650,360 -- 6,650,360 --
GOVERNMENT BOND 102,000 -- 102,000 --
PREFERRED STOCK 750,228 750,228 -- --
------------ -------- ------------ --------
TOTAL INVESTMENTS $210,227,592 $834,358 $209,034,639 $358,595
============ ======== ============ ========
* See Schedule of Investments for industry breakout.
+ All assets in Level 3 as of March 31, 2011 were valued using broker quotes.
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, 2010 $ 1,544,970
Accrued discounts/premiums (55,582)
Realized gain (loss) --
Change in unrealized appreciation (depreciation) (15,345)
Net purchases (sales) 429,522
Transfer out of Level 3 (1,544,970)
-----------
BALANCE AS OF MARCH 31, 2011 $ 358,595
===========
At the end of each calendar quarter, management evaluates the Level 2 and 3
assets and liabilities for changes in liquidity, including but not limited
to: whether a broker is willing to execute at the quoted price, the depth
and consistency of prices from third party services, and the existence of
contemporaneous, observable trades in the market. Additionally, management
evaluates Level 1 and 2 assets and liability on a quarterly basis for
changes in listings or delistings on national exchanges. Due to the
inherent uncertainty of determining the fair value of investments that do
not have a readily available market value, the fair value of the Fund's
investments may fluctuate from period to period. Additionally, the fair
value of investments may differ significantly from the values that would
have been used had a ready market existed for such investments and may
differ materially from the values the Fund may ultimately realize.
Further, such investments may be subject to legal and other restrictions on
resale or otherwise less liquid than publicly traded securities. The Fund's
policy is to recognize the values transfers in and out as of the beginning
of the fiscal period. For the year ended March 31, 2011, there were no
significant transfers between Level 1 and 2 for the Fund.
Security transferred out of Level 3 was due to the availability of quoted
prices in active markets.
19
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
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, 2008-2010) or
expected to be taken on the Fund's 2011 tax return, 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.
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 and the merger with the Hartford Income Shares
Fund. In order to reflect permanent book/tax differences that occurred
during the fiscal year ended March 31, 2011, the following capital
accounts were adjusted for the following amounts:
UNDISTRIBUTED
(OVERDISTRIBUTED) ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
INCOME GAIN/(LOSS) CAPITAL
----------------- ------------- -----------
$203,553 $(17,621,975) $17,418,422
Distributions during the fiscal years ended March 31, 2011 and 2010 were
characterized as follows for tax purposes:
RETURN OF
ORDINARY INCOME CAPITAL CAPITAL GAIN TOTAL DISTRIBUTION
--------------- --------- ------------ ------------------
FY 2011 $8,735,491 $-- $-- $8,735,491
FY 2010 $6,593,096 $-- $-- $6,593,096
At March 31, 2011, the components of distributable earnings on a tax basis
were as follows:
NET
ACCUMULATED CAPITAL LOSS POST-OCTOBER UNREALIZED
TOTAL* ORDINARY INCOME CARRYFORWARD AND OTHER LOSS APPRECIATION
----------- --------------- ---------------------- ------------ ------------
$(4,737,392) $1,316,484 $(22,972,163) $(77,112) $16,995,399
=========== ========== ============ ======== ===========
* Temporary differences include book amortization and deferral of
post-October losses, if any, which will be recognized for the tax year
ending March 31, 2011.
20
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
As of March 31, 2011, the capital loss carryovers available to offset
possible future capital gains were as follows:
EXPIRATION
AMOUNT DATE
----------- ----------
$ 1,767,533 2012
571,125 2013
746,582 2015
5,234,565 2016
11,082,544 2017
3,569,697 2018
Capital loss carryforwards are subject to usage limitations. During the
year ended March 31, 2011, capital loss carryforwards in the amount of
$256,756 were utilized and $6,163,041 were expired off and cannot be used
going forward.
At March 31, 2011, 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)
------------ -------------- ---------------- ----------------
$193,232,193 $16,995,399 $20,520,258 $(3,524,859)
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,
2011:
PROCEEDS FROM
COST OF SALES
PURCHASES OR MATURITIES
----------- -------------
U.S. Government Securities $ 7,728,014 $16,581,723
Other Investment Securities $35,994,402 $16,000,316
NOTE 3 - CAPITAL STOCK - At March 31, 2011, there were an unlimited number of
shares of beneficial interest ($0.01 par value) authorized, with 10,708,597
shares issued and outstanding (See Notes 7).
NOTE 4 - INVESTMENT ADVISORY CONTRACT, PAYMENTS TO AFFILIATED PERSONS AND
TRUSTEE COMPENSATION - Cutwater Investor Services 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.
21
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
BNY Mellon Investment Servicing (US) Inc. ("BNY Mellon"), (formerly known as PNC
Global Investment Servicing (U.S.), Inc.), a member of The Bank of New York
Mellon Corporation, provides accounting and administrative services to the
Fund. The Investment Adviser voluntarily agreed to pay these fees through
October 22, 2010. Effective October 23, 2010, the Fund pays all fees related to
accounting and administrative services.
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, 2011 was $68,500. 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.
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, 2011 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 - REORGANIZATION - As of the close of business on October 22, 2010, the
reorganization of The Hartford Income Shares Fund, Inc. ("HSF") into the Fund
was completed. The reorganization was effected at an exchange ratio calculated
as the net asset value per share of HSF divided by the net asset value per share
of the Fund, each determined as of the close of trading on the New York Stock
Exchange on the October 22, 2010. HSF was credited with 4,150,026 shares of
beneficial interest of the Fund at $20.07 net asset value per share. As a result
of the reorganization, each shareholder of HSF received shares of the Fund with
an aggregate net asset value that is equal to the aggregate net asset value of
the shares of HSF held by that shareholder as of the close of business on
October 22, 2010.
The shares outstanding of HSF immediately before the merger and shares of the
Fund issued to HSF shareholders were:
MERGED FUND SHARES EXCHANGED ACQUIRING FUND SHARES ISSUED NET ASSET VALUE CONVERSION RATIO
----------- ---------------- --------------- ------------- --------------- ----------------
Hartford Income
Shares Fund,
Inc. 13,066,832 Rivus Bond Fund 4,150,026 $20.07 0.3176
22
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The net assets and net unrealized appreciation/(depreciation) of HSF and the net
assets of the Fund immediately before the merger were as follows:
UNREALIZED
APPRECIATION/
MERGED FUND NET ASSETS (DEPRECIATION) ACQUIRING FUND NET ASSETS
----------- ----------- -------------- --------------- ------------
Hartford Income
Shares Fund, Inc. $83,300,387 $2,952,824 Rivus Bond Fund $131,643,157
Assuming the acquisition had been completed on April 1, 2010, the Fund's results
of operations for the year ended March 31, 2011 would have been as follows:
Net investment income/(loss) $12,031,298
Net realized and unrealized gain/(loss) on investments $ 7,016,957
Net increase in assets from operations $19,048,255
Because the combined investment portfolios have been managed as a single
portfolio since the acquisition was completed, it is not practicable to
separate the amounts of revenue and earnings of HSF that have been included in
the Fund's Statement of Operations since October 22, 2010.
NOTE 8 - NEW ACCOUNTING PRONOUNCEMENT - In January 2010, Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update "Improving
Disclosures about Fair Value Measurements" ("ASU"). The ASU requires enhanced
disclosures about a) transfers into and out of Levels 1 and 2, and b) purchases,
sales, issuances, and settlements on a gross basis relating to Level 3
measurements. This disclosure will become effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years.
Management is currently evaluating the impact this disclosure may have on the
Fund's financial statements.
NOTE 9 - 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 no subsequent events requiring
recognition or disclosure in the financial statements.
23
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 Shall serve until the next
113 King Street Management LLC, from July 1998 to annual meeting or until his
Armonk, NY 10504 September 2004; and Former President of successor is qualified.
Born: December 1947 1838 Investment Advisors, LLC from July Trustee since 1988
1988 to May 2004.
Morris Lloyd, Jr. Trustee Retired; former Development Officer, Shall serve until the next
113 King Street Trinity College from April 1996 to June annual meeting or until his
Armonk, NY 10504 2002. successor is qualified.
Born: September 1937 Trustee since 1989
Ellen D. Harvey Trustee Consultant with Lindsay Criswell LLC Shall serve until the next
113 King Street beginning July 2008. Principal with the annual meeting or until her
Armonk, NY 10504 Vanguard Group from January 2008 to June successor is qualified.
Born: February 1954 2008; and Senior Vice President with Trustee since 2010
Mercantile Safe-Deposit & Trust from
February 2003 to October 2007.
Suzanne P. Welsh Trustee Vice President for Finance and Shall serve until the next
113 King Street Treasurer, Swarthmore College since annual meeting or until her
Armonk, NY 10504 2002. successor is qualified.
Born: March 1953 Trustee since 2008
Clifford D. Corso* President Chief Executive Officer and Chief Shall serve until death,
Cutwater Investment Officer, Cutwater Investor resignation, or removal.
113 King Street Services Corp.; Managing Director and Officer since 2005
Armonk, NY 10504 Chief Investment Officer, MBIA Insurance
Born: October 1961 Corporation; officer of other affiliated
entities of Cutwater Investor Services
Corp.
Joseph L. Sevely* Treasurer Director of Cutwater Investor Services Shall serve until death,
Cutwater Corp.; Director and officer of other resignation, or removal.
113 King Street affiliated entities of Cutwater Investor Officer since 2010
Armonk, NY 10504 Services Corp.
Born: January 1960
Thomas E. Stabile* Assistant Officer of Cutwater Investor Services Shall serve until death,
Cutwater Treasurer Corp. resignation, or removal.
113 King Street Officer since 2010
Armonk, NY 10504
Born: March 1974
Leonard I. Chubinsky* Secretary Deputy General Counsel of MBIA Insurance Shall serve until death,
Cutwater Corporation; officer of other affiliated resignation, or removal.
113 King Street entities of Cutwater Investor Services Officer since 2005
Armonk, NY 10504 Corp.
Born: December 1948
24
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
--------------------- ------------- ---------------------------------------- ---------------------------
Richard J. Walz* Chief Officer of several affiliated entities Shall serve until death,
Cutwater Compliance of Cutwater Investor Services Corp. resignation, or removal.
113 King Street Officer Officer since 2005
Armonk, NY 10504
Born: April 1959
Robert T. Claiborne* Vice Officer of Cutwater Investor Services Shall serve until death,
Cutwater President Corp. resignation, or removal.
113 King Street Officer since 2006
Armonk, NY 10504
Born: August 1955
Gautam Khanna* Vice Officer of Cutwater Investor Services Shall serve until death,
Cutwater President Corp. 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, Sevely,
Stabile, 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.
ADDITIONAL TAX INFORMATION
For corporate shareholders, the percentage of investment income (dividend income
and short-term gains, if any) for the Fund that qualify for the
dividends-received deductions for the year ended March 31, 2011 was 0.11%.
25
SHAREHOLDER INFORMATION (UNAUDITED)- CONTINUED
For the year ended March 31, 2011, certain dividends paid by the Fund may be
subject to a maximum tax rate of 15%, as provided by the Jobs and Growth Tax
Relief Reconciliation Act of 2003. Of the distributions made by the Fund, 0.11%
represents the amount of each distribution which may qualify for the 15%
dividend income tax rate. Shareholders should not use this tax information to
prepare their tax returns. The information will be included with your Form 1099
DIV which will be sent to you separately in January 2012.
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. BNY Mellon 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.
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.
26
SHAREHOLDER INFORMATION (UNAUDITED)- CONTINUED
Plan information and authorization forms are available from BNY Mellon
Investment Servicing (US) 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.
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:
BNY Mellon Investment Servicing (US) Inc.
P.O. Box 43027, Providence, RI 02940-3027, or call 1-800-331-1710
27
TRUSTEES
W. THACHER BROWN
MORRIS LLOYD, JR.
ELLEN D. HARVEY
SUZANNE P. WELSH
OFFICERS
CLIFFORD D. CORSO
PRESIDENT
JOSEPH L. SEVELY
TREASURER
THOMAS E. STABILE
ASSISTANT TREASURER
LEONARD CHUBINSKY
SECRETARY
RICHARD WALZ
VICE PRESIDENT/CHIEF COMPLIANCE OFFICER
ROBERT T. CLAIBORNE
VICE PRESIDENT
GAUTAM KHANNA
VICE PRESIDENT
INVESTMENT ADVISER
CUTWATER INVESTOR SERVICES CORP.
113 KING STREET
ARMONK, NY 10504
CUSTODIAN
THE BANK OF NEW YORK MELLON
2 HANSON PLACE
BROOKLYN, NY 11217
TRANSFER AGENT
BNY MELLON INVESTMENT SERVICING (US) 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 Investor Services Corp.
ANNUAL REPORT
MARCH 31, 2011
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
$19,700 and $18,800 for the fiscal years ended March 31, 2011 and
March 31, 2010, 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 $2,500 and $0 for the fiscal years ended March 31, 2011 and
March 31, 2010, respectively. The audit-
related fees were in connection with the work performed by the
auditors related to the registrant's acquisition of another closed-end
fund during the year covered by this report.
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 $3,250 and $3,200 for the
fiscal years ended March 31, 2011 and March 31, 2010, respectively.
The tax fees relate to the review of the registrant's tax filings and
annual tax related disclosures in the financial statements.
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, 2011 and March 31,
2010, 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, 2011
and March 31, 2010, 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 registrant has adopted the proxy voting policies and procedures used by the
Investment Adviser. The most current copy of that policy is attached herewith.
PROXY VOTING POLICY
CUTWATER INVESTOR SERVICES CORP.
INTRODUCTION
This Proxy Voting Policy ("Policy") for Cutwater Investor Services Corp.
("CISC") formerly MBIA Investors Service Corp., 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 supercede the specific guidelines
in this Policy. CISC 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, CISC will maintain proxy voting
records for our advisory clients consistent with the Advisers Act. For those of
our clients that are registered investment companies, CISC 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 CISC 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 CISC 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 CISC 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 CISC 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:
- Social Issues,
- Financial/Corporate Issues, and
- Shareholder Rights.
Finally, Section III of the Policy describes the procedures to be followed
casting: a vote pursuant to these guidelines.
ROUTINE MATTERS
Routine proxy proposals, amendments, or resolutions are typically proposed
by management and meet the following criteria:
- They do not measurably change the structure, management control,
or operation of the corporation.
- They are consistent with industry standards as well as the
corporate laws of the state of incorporation.
VOTING RECOMMENDATION
CISC will normally support the following routine proposals:
- To increase authorized common shares.
- To -increase authorized preferred shares as long as there are not
disproportionate voting rights per preferred share.
- To elect or re-elect Trustees.
- To appoint or elect auditors.
- To approve indemnification of Trustees and limitation of
Trustees' liability.
- To establish compensation levels.
- To establish employee stock purchase or ownership plans.
- To set time and location of annual meeting.
NON-ROUTINE PROPOSALS
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:
- To enforce restrictive energy policies.
- To place arbitrary restrictions on military contracting.
- To bar or place arbitrary restrictions on trade with other
countries.
- To restrict the marketing of controversial products.
- To limit corporate political activities.
- To bar or restrict charitable contributions.
- To enforce a general policy regarding human rights based on
arbitrary parameters.
- To enforce a general policy regarding employment practices based
-on arbitrary parameters.
- To enforce a general policy regarding animal rights based on
arbitrary parameters.
- To place arbitrary restrictions on environmental practices.
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:
- To CHANGE the state of incorporation.
- To approve mergers, acquisitions or dissolution.
- To institute indenture changes.
- To change capitalization.
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 the following management proposals:
- To require majority approval of shareholders in acquisitions of a
controlling share in the corporation.
- To institute staggered board of Trustees.
- To require shareholder approval of not more than 66 70% for a
proposed amendment to the corporation's by-laws.
- To eliminate cumulative voting.
- To adopt anti-greenmail charter or by-law amendments or to
otherwise restrict a company's ability to make greenmail
payments.
- To create a dividend reinvestment program.
- To eliminate preemptive rights.
- 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:
- To require greater than 66 2/3% shareholder approval for a
proposed amendment to the corporation's by-laws ("super-majority
provisions").
- To require that an arbitrary fair price be offered to all
shareholders that is derived from a fixed formula ("fair price
amendments").
- To authorize a new class of common stock or preferred stock which
may have more votes per share than the existing common stock.
- To prohibit replacement of existing members of the board of
Trustees.
- To eliminate shareholder action by written consent without a
shareholder meeting.
- To allow only the board of Trustees to call a shareholder meeting
or to propose amendments to the articles of incorporation.
- To implement any other action or procedure designed primarily to
discourage a takeover or other similar action (commonly known. as
a "poison pill").
- To limit the ability of shareholders to nominate Trustees.
We will generally vote for the following shareholder proposals:
- 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%.
- To opt out of state anti-takeover laws deemed to be detrimental
to the shareholder.
- 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.
- To eliminate any other plan or procedure designed primarily to
discourage a takeover or other similar action.
- 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.
- To require that the board's audit, compensation, and/or
nominating committees be comprised exclusively of independent
Trustees.
- To adopt anti-greenmail charter or by-law amendments or otherwise
restrict a company's ability to make greenmail payments.
- To create a dividend reinvestment program.
- To recommend that votes to "abstain" not be considered votes
"cast" at an annual meeting or special meeting, unless required
by state law.
- To require that "golden parachutes" be submitted for shareholder
ratification.
We will generally vote against the following shareholder proposals:
- To restore preemptive rights.
- To restore cumulative voting.
- To require annual election of Trustees or to specify tenure.
- To eliminate a staggered board of Trustees.
- To require confidential voting.
- To require Trustees to own a minimum amount of company stock in
order to qualify as a director or to remain on the board.
- To dock director pay for failing to attend board meetings.
VOTING PROCESS
CISC 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 CISC, 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
CISC.
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
Managing 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, 2011
(B) Other pooled investment vehicles - 0 as of March 31, 2011
(C) Other Accounts - 0 as of March 31, 2011.
(iii) None.
(iv) N/A.
(a)(2)(i) Gautam Khanna, CPA, CFA
(ii) (A) Registered investment companies - 1 as of March 31, 2011.
Approximately $67 million in total assets as of March 31, 2011.
(B) Other pooled investment vehicles - 2 as of March 31,
2011. Approximately $75 million in total assets as of March 31,
2011.
(C) Other Accounts - 0 as of March 31, 2011.
(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, 2011:
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 that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
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 5/25/11
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 5/25/11
By (Signature and Title)* /s/ Joseph L. Sevely
------------------------------------------------------
Joseph L. Sevely, Treasurer
(principal financial officer)
Date 5/25/11
* Print the name and title of each signing officer under his or her
signature.