Note 1. Organization
Tri-Continental Corporation (the Fund) is a diversified fund. The Fund is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a closed-end management investment company.
The Fund has 1 million authorized shares of preferred capital stock (Preferred Stock) and 159 million authorized shares of common
stock (Common Stock). The issued and outstanding Common Stock trades primarily on the New York Stock Exchange (NYSE) under the symbol “TY”.
Tri-Continental Corporation’s Preferred Stock is entitled to two votes and the Common Stock is entitled to one vote per share at all meetings of Stockholders. In the event of a default in payments of
dividends on the Preferred Stock equivalent to six quarterly dividends, the Preferred Stockholders are entitled, voting separately as a class to the exclusion of Common Stockholders, to elect two additional directors, such right to continue until
all arrearages have been paid and current Preferred Stock dividends are provided for. Generally, the vote of Preferred Stockholders is required to approve certain actions adversely affecting their rights.
Note 2. Summary of Significant Accounting Policies
Use of
Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (GAAP) requires
management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent 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.
The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial statements.
Security Valuation
All equity securities are valued at the close of business of the NYSE. Equity securities are valued at the last quoted sales price on the principal
exchange or market on which they trade, except for securities traded on the NASDAQ Stock Market, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at
the mean of the latest quoted bid and ask prices on such exchanges or markets.
Debt securities generally are valued by pricing services
approved by the Board of Directors (the Board) based upon
market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available may also be valued based upon an over-the-counter or exchange bid quotation.
Foreign equity securities are valued based on quotations from the principal market in which such securities are normally traded. If any
foreign share prices are not readily available as a result of limited share activity the securities are valued at the mean of the latest quoted bid and ask prices on such exchanges or markets. Foreign currency exchange rates are generally determined
at 4:00 p.m. Eastern (U.S.) time. However, many securities markets and exchanges outside the U.S. close prior to the close of the NYSE; therefore, the closing prices for securities in such markets or on such exchanges may not fully reflect events
that occur after such close but before the close of the NYSE. In those situations, foreign securities will be fair valued pursuant to the policy adopted by the Board, including utilizing a third party pricing service to determine these fair values.
The third party pricing service takes into account multiple factors, including, but not limited to, movements in the U.S. securities markets, certain depositary receipts, futures contracts and foreign exchange rates that have occurred subsequent to
the close of the foreign exchange or market, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the NYSE. The fair value of a security is likely to be different from the quoted or published
price, if available.
Investments in open-end investment companies, including money market funds, are valued at net asset value.
Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value. The value of short-term
securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par upon reaching 60 days to maturity. Short-term securities maturing in more than 60 days from the valuation date are valued at the
market price or approximate market value based on current interest rates.
Futures and options on futures contracts are valued based upon the
settlement price established each day by the board of trade or exchange on which they are traded.
Investments for which market quotations are
not readily available, or that have quotations which management believes are not reliable, are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board. If a
security or
|
|
|
|
|
|
|
|
Tri-Continental Corporation
|
|
|
Notes to Financial Statements
(continued)
December 31, 2013
class of securities (such as foreign securities) is valued at fair value, such value is likely to be different from the last quoted market price for the security.
The determination of fair value often requires significant judgment. To determine fair value, management may use assumptions including but not limited to
future cash flows and estimated risk premiums. Multiple inputs from various sources may be used to determine fair value.
Foreign Currency
Transactions and Translations
The values of all assets and liabilities denominated in foreign currencies are translated into U.S. dollars
at that day’s exchange rates. Net realized and unrealized gains (losses) on foreign currency transactions and translations include gains (losses) arising from the fluctuation in exchange rates between trade and settlement dates on securities
transactions, gains (losses) arising from the disposition of foreign currency and currency gains (losses) between the accrual and payment dates on dividends, interest income and foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of gains (losses) on investments which is due to changes in foreign exchange
rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains (losses) on investments in the Statement of Operations.
Derivative Instruments
The Fund invests in certain
derivative instruments, as detailed below, to meet its investment objectives. Derivatives are instruments whose values depend on, or are derived from, in whole or in part, the value of one or more other assets, such as securities, currencies,
commodities or indices. Derivative instruments may be used to maintain cash reserves while maintaining exposure to certain other assets, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs and
to pursue higher investment returns. The Fund may also use derivative instruments to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and credit risk. Derivatives may involve various risks, including
the potential inability of the counterparty to fulfill its obligation under the terms of the contract, the potential for an illiquid secondary market (making it difficult for the Fund to sell, including at favorable prices) and the potential for
market movements which may expose the Fund to gains or losses in excess of the amount shown in the Statement of Assets and Liabilities. The notional amounts of derivative instruments, if applicable, are not recorded in the financial statements.
A derivative instrument may suffer a mark to market loss if the value of the contract decreases due to an unfavorable
change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract. A Fund’s risk of loss from counterparty
credit risk on over-the-counter derivatives is generally limited to the aggregate unrealized gain netted against any collateral held by the Fund and the amount of any initial margin held by the counterparty. With exchange traded or centrally cleared
derivatives, there is minimal counterparty credit risk to the Fund since the exchange’s clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the
contract; therefore, the counterparty credit risk is limited to failure of the clearinghouse. However, credit risk still exists in exchange traded or centrally cleared derivatives with respect to initial and variation margin that is held in a
broker’s customer accounts. While brokers are required to segregate customer margin from their own assets, in the event that a broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of
margin held by the broker for all its clients, U.S. bankruptcy laws will typically allocate that shortfall on a pro-rata basis across all the broker’s customers, potentially resulting in losses to the Fund.
In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an
International Swaps and Derivatives Association, Inc. Master Agreement (ISDA Master Agreement) or similar agreement with its derivative contract counterparties. An ISDA Master Agreement is an agreement between a Fund and a counterparty that governs
over-the-counter derivatives and forward foreign currency exchange contracts and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master
Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative instrument’s payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA
Master Agreement typically permit a single net payment in the event of default (close-out netting) including the bankruptcy or insolvency of the counterparty. Note, however, that bankruptcy or insolvency laws of a particular jurisdiction may impose
restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events.
Collateral (margin) requirements differ
by type of derivative. Margin requirements are established by the exchange or clearinghouse for exchange traded and centrally cleared derivatives. Brokers can ask for margin in excess of the minimum in certain circumstances. Collateral terms are
contract specific for over-the-counter derivatives. For
|
|
|
|
|
|
|
|
|
|
Tri-Continental Corporation
|
Notes to Financial Statements
(continued)
December 31, 2013
over-the-counter
derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark to market
amount for each transaction under such agreement and comparing that amount to the value of any variation margin currently pledged by the Fund and/or the counterparty. Generally, the amount of collateral due from or to a party has to exceed a minimum
transfer amount threshold (e.g. $500,000) before a transfer has to be made. To the extent amounts due to the Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty
nonperformance. The Fund attempts to mitigate counterparty risk by only entering into agreements with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those
counterparties.
Certain ISDA Master Agreements allow counterparties to over-the-counter derivatives to terminate derivative contracts prior to
maturity in the event the Fund’s net assets decline by a stated percentage over a specified time period or the Fund fails to meet the terms of the ISDA Master Agreement, which would cause the Fund to accelerate payment of any net liability owed
to the counterparty. The Fund also has termination rights if the counterparty fails to meet the terms of the ISDA Master Agreement. In addition to considering counterparty credit risk, the Fund would consider terminating the derivative contracts
based on whether termination would result in a net liability owed from the counterparty.
For financial reporting purposes, the Fund does not
offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statement of Assets and Liabilities.
Futures
Contracts
Futures contracts are exchange traded and represent commitments for the future purchase or sale of an asset at a specified price
on a specified date. The Fund bought and sold futures contracts to maintain appropriate equity market exposure while keeping sufficient cash to accommodate daily redemptions. These instruments may be used for other purposes in future periods. Upon
entering into futures contracts, the Fund bears risks that it may not achieve the anticipated benefits of the futures contracts and may realize a loss. Additional risks include counterparty credit risk, the possibility of an illiquid market, and
that a change in the value of the contract or option may not correlate with changes in the value of the underlying asset.
Upon entering into a
futures contract, the Fund pledges cash or securities with the broker in an amount sufficient to meet the initial margin requirement. The initial margin deposit must be maintained at an established level over the life of the
contract. Cash deposited as initial margin is recorded in the Statement of Assets and Liabilities as margin deposits. Securities deposited as initial margin are designated in the Portfolio of
Investments. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily change in the contract value and are recorded as variation margin receivable or payable and are
offset in unrealized gains or losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities.
Effects of Derivative Transactions in the Financial Statements
The following tables are intended to provide additional information about the effect of derivatives on the financial statements of the Fund, including: the fair value of derivatives by risk category and
the location of those fair values in the Statement of Assets and Liabilities; the impact of derivative transactions over the period in the Statement of Operations including realized gains or losses and unrealized gains or losses. The derivative
schedules following the Portfolio of Investments present additional information regarding derivative instruments outstanding at the end of the period, if any.
The following table is a summary of the fair value of derivative instruments at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Risk Exposure Category
|
|
Statement of Assets and Liabilities Location
|
|
|
Fair Value ($)
|
|
|
Equity risk
|
|
Net assets — unrealized appreciation on futures contracts
|
|
|
108,634
|
*
|
|
*
|
Includes cumulative appreciation (depreciation) as reported in the tables following the Portfolio of Investments. Only the current day’s variation margin is reported in
receivables or payables in the Statement of Assets and Liabilities.
|
The following table indicates the effect of derivative
instruments in the Statement of Operations for the year ended December 31, 2013:
|
|
|
|
|
|
Amount of Realized Gain (Loss) on Derivatives Recognized in
Income
|
|
|
Risk Exposure Category
|
|
Futures Contracts ($)
|
|
|
Equity risk
|
|
|
929,307
|
|
Change in Unrealized Appreciation (Depreciation) on Derivatives
Recognized in Income
|
|
|
Risk Exposure Category
|
|
Futures Contracts ($)
|
|
|
Equity risk
|
|
|
88,836
|
|
|
|
|
|
|
|
|
|
Tri-Continental Corporation
|
|
|
Notes to Financial Statements
(continued)
December 31, 2013
The following table is a summary of the volume of derivative instruments for the year ended December 31,
2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instrument
|
|
Contracts Opened
|
|
|
Futures contracts
|
|
|
160
|
|
Security Transactions
Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax
purposes.
Income Recognition
Corporate
actions and dividend income are generally recorded net of any non-reclaimable tax withholdings, on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities.
Interest income is recorded on an accrual basis. Market premiums and discounts, including original issue discounts, are amortized and accreted,
respectively, over the expected life of the security on all debt securities, unless otherwise noted.
Federal Income Tax Status
The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable income (including net short-term capital gains), if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded.
Foreign Taxes
The Fund may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries, as applicable, based upon its current interpretation of tax rules and regulations that exist in
the markets in which it invests.
Realized gains in certain countries may be subject to foreign taxes at the Fund level, based on statutory
rates. The Fund accrues for such foreign taxes on realized and unrealized gains at the appropriate rate for each jurisdiction, as applicable. The amount, if any, is disclosed as a liability on the Statement of Assets and Liabilities.
Dividends to Stockholders
The Fund has an earned distribution policy. Under this policy, the Fund intends to make quarterly distributions to holders of Common Stock that are approximately equal to net investment income, less
dividends payable on the Fund’s Preferred Stock. Capital gains, when available, are distributed to Common Stockholders along with the last income distribution of the calendar year.
Dividends and other distributions to Stockholders are recorded on ex-dividend dates.
Guarantees and
Indemnifications
Under the Fund’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified
against certain liabilities arising out of the performance of their duties to the Trust or its funds. In addition, certain of the Fund’s contracts with its service providers contain general indemnification clauses. The Fund’s maximum
exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined, and the Fund has no historical basis for predicting the likelihood of any such claims.
Note 3. Fees and Compensation Paid to Affiliates
Investment Management Fees
Under an Investment
Management Services Agreement, Columbia Management Investment Advisers, LLC (the Investment Manager), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial), determines which securities will be purchased, held or sold. The
investment management fee is an annual fee that is equal to 0.355% of the Fund’s average daily net assets.
Administration Fees
Under an Administrative Services Agreement, the Investment Manager also serves as the Fund Administrator. The Fund pays the Fund Administrator an annual
fee for administration and accounting services equal to a percentage of the Fund’s average daily net assets that declines from 0.06% to 0.03% as the Fund’s net assets increase. The effective administration fee rate for the year ended
December 31, 2013 was 0.06% of the Fund’s average daily net assets.
Other Expenses
Other expenses are for, among other things, miscellaneous expenses of the Fund or the Board, including payments to a company providing limited
administrative services to the Fund and the Board. That company’s expenses include boardroom
|
|
|
|
|
|
|
|
|
|
Tri-Continental Corporation
|
Notes to Financial Statements
(continued)
December 31, 2013
and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. For the year ended December 31, 2013, other expenses paid to this company were
$4,326.
Compensation of Board Members
Board members are compensated for their services to the Fund as disclosed in the Statement of Operations. Under a Deferred Compensation Plan (the Plan),
the Board members who are not “interested persons” of the Fund, as defined under the 1940 Act, may elect to defer payment of up to 100% of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been
invested in shares of certain funds managed by the Investment Manager. The Fund’s liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan.
Stockholder Servicing Fees
Under a Stockholder
Service Agent Agreement, Columbia Management Investment Services Corp. (the Stockholder Servicing Agent), an affiliate of the Investment Manager and a wholly-owned subsidiary of Ameriprise Financial, maintains Fund Stockholder accounts and records
and provides Fund Stockholder services. Under the Agreement, the Fund pays the Stockholder Servicing Agent a $21 fee per common stock open account.
The Fund and certain other associated investment companies (together, the Guarantors) have severally, but not jointly, guaranteed the performance and observance of all the terms and conditions of a lease
entered into by Seligman Data Corp. (SDC), including the payment of rent by SDC (the Guaranty). SDC was the legacy Seligman funds’ former stockholder servicing agent.
The lease and the Guaranty expire in January 2019. At December 31, 2013, the Fund’s total potential future obligation over the life of the Guaranty is $692,153. The liability remaining at
December 31, 2013 for non-recurring charges associated with the lease amounted to $426,622 and is included within payable for other expenses in the Statement of Assets and Liabilities. SDC is owned by six associated investment companies,
including the Fund. The Fund’s ownership interest in SDC at December 31, 2013 is included within other assets in the Statement of Assets and Liabilities at a cost of $43,681.
Note 4. Federal Tax Information
The timing and character of income and capital gain distributions
are determined in accordance with income tax regulations, which may differ from GAAP because of temporary or permanent book to tax differences.
At December 31, 2013, these differences are primarily due to differing treatment for capital loss
carryforwards, deferral/reversal of wash sales losses, Trustees’ deferred compensation, foreign currency transactions, re-characterization of distributions for investments and derivative investments. To the extent these differences are
permanent, reclassifications are made among the components of the Fund’s net assets in the Statement of Assets and Liabilities. Temporary differences do not require reclassifications. In the Statement of Assets and Liabilities the following
reclassifications were made:
|
|
|
|
|
|
|
Undistributed net investment income
|
|
|
($715,663
|
)
|
|
Accumulated net realized loss
|
|
|
310,936
|
|
|
Paid-in capital
|
|
|
404,727
|
|
Net investment income and net realized gains (losses), as disclosed in the Statement of Operations, and net assets were
not affected by this reclassification.
The tax character of distributions paid during the years indicated was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2013 ($)
|
|
|
Year Ended
December 31,
2012 ($)
|
|
|
Ordinary income
|
|
|
44,096,776
|
|
|
|
39,877,602
|
|
Short-term capital gain distributions, if any, are considered ordinary income distributions for tax purposes.
At December 31, 2013, the components of distributable earnings on a tax basis were as follows:
|
|
|
|
|
|
|
Undistributed ordinary income
|
|
|
$3,083,066
|
|
|
Unrealized appreciation
|
|
|
$236,583,973
|
|
At December 31, 2013, the cost of investments for federal income tax purposes was $1,227,071,998 and the aggregate
gross unrealized appreciation and depreciation based on that cost was:
|
|
|
|
|
|
|
Unrealized appreciation
|
|
|
$254,854,410
|
|
|
Unrealized depreciation
|
|
|
(18,270,437
|
)
|
|
Net unrealized appreciation
|
|
|
$236,583,973
|
|
The following capital loss carryforward, determined at December 31, 2013, may be available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Expiration
|
|
Amount ($)
|
|
|
2017
|
|
|
463,214,980
|
|
|
|
|
|
|
|
|
|
Tri-Continental Corporation
|
|
|
Notes to Financial Statements
(continued)
December 31, 2013
For the year ended December 31, 2013, $142,641,024 of capital loss carryforward was utilized.
Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial
statements. However, management’s conclusion may be subject to review and adjustment at a later date based on factors including, but not limited to, new tax laws, regulations, and administrative interpretations (including relevant court
decisions). Generally, the Fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.
Note 5. Portfolio Information
The cost of
purchases and proceeds from sales of securities, excluding short-term obligations, aggregated to $829,592,786 and $835,794,276, respectively, for the year ended December 31, 2013.
Note 6. Capital Stock Transactions
Under the Fund’s Charter, dividends on Common Stock cannot
be declared unless net assets, after deducting the amount of such dividends and all unpaid dividends declared on Preferred Stock, equal at least $100 per share of Preferred Stock outstanding. The Preferred Stock is subject to redemption at the
Fund’s option at any time on 30 days’ notice at $55 per share (or a total of $41,400,700 for the shares outstanding) plus accrued dividends, and entitled in liquidation to $50 per share plus dividends accrued or in arrears, as the case may
be.
Automatic Dividend and Cash Purchase Plan
The Fund, in connection with its Automatic Dividend Investment and Cash Purchase Plan (the Plan) and other Stockholder plans, acquires and issues shares of its own Common Stock, as needed, to satisfy Plan
requirements. A total of 94,934 shares were issued to Plan participants during the period for proceeds of $1,723,896, a weighted average discount of 13.1% from the net asset value of those shares. In addition, a total of 698,558 shares were issued
at market price in distributions during the period for proceeds of $12,700,935, a weighted average discount of 13.9% from the net asset value of those shares.
For Stockholder accounts established after June 1, 2007, unless the Stockholder Servicing Agent is otherwise instructed by the Stockholder, distributions on the Common Stock are paid in book shares
of Common Stock which are entered in the Stockholder’s account as “book credits.” Each Stockholder may also elect to receive distributions 75% in shares and 25% in cash, 50% in shares and 50% in cash, or 100% in cash. Any
such election must be received by the Stockholder Servicing Agent by the record date for a distribution. If the Stockholder holds shares of Common Stock through a financial intermediary (such as
a broker), the Stockholder should contact the financial intermediary to discuss reinvestment and distribution options. Elections received after a record date for a distribution will be effective in respect of the next distribution. Shares issued to
the Stockholder in respect of distributions will be at a price equal to the lower of: (i) the closing sale price of the Common Stock on the NYSE on the ex-dividend date or (ii) the greater of net asset value per share of Common Stock and
95% of the closing price of the Common Stock on the NYSE on the ex-dividend date. The issuance of Common Stock at less than net asset value per share will dilute the net asset value of all Common Stock outstanding at that time.
For the year ended December 31, 2013, the Fund purchased 591,396 shares of its Common Stock in the open market at an aggregate cost of $10,793,145,
which represented a weighted average discount of 13.4% from the net asset value of those acquired shares. For the year ended December 31, 2013, the Fund purchased 1,118,982 shares of its Common Stock from Plan participants at a cost of
$20,483,855, which represented a weighted average discount of 13.7% from the net asset value of those acquired shares. Shares of Common Stock repurchased to satisfy Plan requirements or in the open market are retired and no longer outstanding.
Under the Fund’s stock repurchase program for 2013, the amount of the Fund’s outstanding Common Stock that the Fund may repurchase
from Stockholders and in the open market is 5%, provided that, with respect to shares purchased in the open market, the discount must be greater than 10%. The intent of the stock repurchase program is, among other things, to moderate the growth in
the number of shares outstanding, increase the NAV of the Fund’s outstanding shares, reduce the dilutive impact on stockholders who do not take capital gain distributions in additional shares and increase the liquidity of the Fund’s Common
Stock in the marketplace.
Warrants
At
December 31, 2013, the Fund reserved 197,100 shares of Common Stock for issuance upon exercise of 8,148 Warrants, each of which entitled the holder to purchase 24.19 shares of Common Stock at $0.93 per share.
Assuming the exercise of all Warrants outstanding at December 31, 2013, net assets would have increased by $183,303 and the net asset value of the
Common Stock would have been $23.04 per share. The number of Warrants exercised during the year ended December 31, 2013 and 2012 was 0 and 1,343, respectively.
|
|
|
|
|
|
|
|
|
|
Tri-Continental Corporation
|
Notes to Financial Statements
(continued)
December 31, 2013
Note 7. Affiliated Money Market Fund
The Fund invests its daily cash balances in Columbia Short-Term Cash Fund, an affiliated money market fund established for the exclusive use by the Fund and other affiliated funds. The income earned by
the Fund from such investments is included as “Dividends — affiliated issuers” in the Statement of Operations. As an investing fund, the Fund indirectly bears its proportionate share of the expenses of Columbia Short-Term Cash Fund.
Note 8. Lehman Brothers Holdings Inc. Equity-Linked Notes
The Fund holds investments in two equity-linked notes (notes) for which Lehman Brothers Holdings Inc. (Lehman Brothers) is the counterparty. The notes (with an aggregate principal amount of $29.7 million)
defaulted as of their respective maturity dates, September 14, 2008 and October 2, 2008. Lehman Brothers filed a Chapter 11 bankruptcy petition on September 15, 2008, and as such, it is likely that the Fund will receive less than the
maturity value of the notes, pending the outcome of the bankruptcy proceedings. Based on the bankruptcy proceedings, the Fund recorded receivables aggregating $2.9 million based on the estimated amounts recoverable for the notes and recognized
realized losses of $26.8 million. The estimates of the amounts recoverable for the notes are based on the current information regarding the claim provided by the bankruptcy court and any amounts received as payments for the claim, which provide an
indication of amounts recoverable through the bankruptcy proceedings. To date, the Fund has received $6.3 million on this claim. Any changes to the receivable balances resulting from such adjustments are recorded as a change in unrealized
appreciation or depreciation in the Statement of Operations. At December 31, 2013, the value of the receivable balances was approximately $0.2 million, which represented 0.01% of the Fund’s net assets.
Note 9. Significant Risks
Large-Capitalization Risk
To the extent that the Fund invests a substantial percentage of its assets in an industry, the Fund’s performance may be negatively
affected if that industry falls out of favor. Stocks of large-capitalization companies have at times experienced periods of volatility and negative performance. During such periods, the value of the stocks may decline and the Fund’s performance
may be negatively affected.
Note 10. Subsequent Events
Management has evaluated the events and transactions that have occurred through the date the financial statements were issued and noted no items requiring adjustment of the financial statements or
additional disclosure.
Note 11. Information Regarding Pending and Settled Legal Proceedings
In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial,
Inc. (Ameriprise Financial)) entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease
and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money
penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at
www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the Funds’ Boards of Directors.
Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither
Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to
perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its
affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters,
or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse
effect on
|
|
|
|
|
|
|
|
Tri-Continental Corporation
|
|
|
Notes to Financial Statements
(continued)
December 31, 2013
the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to
estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the
consolidated financial condition or results of operations of Ameriprise Financial.
|
|
|
|
|
|
|
|
|
|
Tri-Continental Corporation
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Tri-Continental Corporation
In our opinion, the
accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial
position of Tri-Continental Corporation (the “Fund”) at December 31, 2013, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the two years in the period then
ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the
Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 2013 by correspondence with the custodian, brokers and transfer agent, and the application of alternative auditing procedures where such confirmations had not been received, provide a reasonable
basis for the opinion expressed above. The financial highlights for the Fund for the periods ended on or prior to December 31, 2011 were audited by another independent registered public accounting firm whose report dated February 22, 2012 expressed
an unqualified opinion on those financial highlights.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 21, 2014
|
|
|
|
|
|
|
|
Tri-Continental Corporation
|
|
|
Federal Income Tax Information
(Unaudited)
The Fund hereby
designates the following tax attributes for the fiscal year ended December 31, 2013.
Tax Designations
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Dividend Income
|
|
|
58.71
|
%
|
|
Dividends Received Deduction
|
|
|
56.43
|
%
|
Qualified Dividend Income.
For taxable, non-corporate Stockholders, the percentage of ordinary income dividends
paid during the fiscal year that represents qualified dividend income subject to reduced tax rates.
Dividends Received Deduction.
The
percentage of ordinary income dividends paid during the fiscal year that qualifies for the corporate dividends received deduction.
|
|
|
|
|
|
|
|
|
|
Tri-Continental Corporation
|