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 June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
Risk Exposure
Category
|
|
Statement of Assets
and Liabilities
Location
|
|
|
Fair Value ($)
|
|
Equity risk
|
|
|
Options contracts written, at value
|
|
|
|
730,330
|
|
The following table indicates the effect of derivative instruments in the Statement of Operations for the
six months ended June 30, 2013:
|
|
|
|
|
Amount of Realized Gain (Loss) on Derivatives Recognized in
Income
|
|
Risk Exposure Category
|
|
Options Contracts
Written and Purchased ($)
|
|
Equity risk
|
|
|
(2,067,191
|
)
|
Change in Unrealized Appreciation (Depreciation) on Derivatives
Recognized in
Income
|
|
Risk Exposure Category
|
|
Options Contracts
Written and Purchased ($)
|
|
Equity risk
|
|
|
(243,999
|
)
|
The following table is a summary of the volume of derivative instruments for the six months ended June 30, 2013:
|
|
|
|
|
Derivative Instrument
|
|
Contracts Opened
|
|
Options contracts written and purchased
|
|
|
1,519
|
|
|
|
|
16
|
|
Semiannual Report 2013
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
|
|
Notes to Financial Statements
(continued)
June 30, 2013 (Unaudited)
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 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.
Awards from class action litigation are recorded as a reduction of cost basis if the Fund still owns the applicable securities on the payment date. If the
Fund no longer owns the applicable securities, the proceeds are recorded as realized gains.
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
In November 2010, the
Fund paid its first dividend under the Funds new, managed distribution policy adopted by the Funds Board. Prior to the managed distribution policy, the Fund paid distributions pursuant to a level rate distribution policy. Under its
former distribution policy and consistent
with the 1940 Act, as amended, the Fund could not distribute long-term capital gains, as defined in the Internal Revenue Code of 1986, more often than once in any one taxable year. In October
2010, the Fund received exemptive relief from the Securities and Exchange Commission that permits the Fund to distribute long-term capital gains more often than once in any one taxable year. After consideration by the Funds Board, the Fund
adopted the current managed distribution policy which allows the Fund to make periodic distributions of long-term capital gains. Under its managed distribution policy, the Fund intends to make quarterly distributions to Common Stockholders at a rate
that reflects the past and projected performance of the Fund. The Fund expects to receive all or some of its current income and gains from the following sources: (i) dividends received by the Fund that are paid on the equity and equity-related
securities in its portfolio; and (ii) capital gains (short-term and long-term) from option premiums and the sale of portfolio securities. It is possible that the Funds distributions will at times exceed the earnings and profits of the
Fund and therefore all or a portion of such distributions may constitute a return of capital as described below. A return of capital is a return of a portion of an investors original investment. A return of capital is not taxable, but it
reduces a Stockholders tax basis in his or her shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by the Stockholder of his or her shares. Distributions may vary, and the Funds distribution rate
will depend on a number of factors, including the net earnings on the Funds portfolio investments and the rate at which such net earnings change as a result of changes in the timing of, and rates at which, the Fund receives income from the
sources described above. The net investment income of the Fund consists of all income (other than net short-term and long-term capital gains) less all expenses of the Fund.
The Board may change the Funds distribution policy and the amount or timing of the distributions, based on a number of factors, including, but not limited to, as the Funds portfolio and market
conditions change, the amount of the Funds undistributed net investment income and net short- and long-term capital gains and historical and projected net investment income and net short- and long-term capital gains. Over time, the Fund will
distribute all of its net investment income and net short-term capital gains. In addition, at least annually, the Fund intends to distribute any net capital gain (which is the excess of net long-term capital gain over net short-term capital loss)
or, alternatively, to retain all or a portion of the years net capital gain and pay federal income tax on the retained gain.
Dividends
and other distributions to Stockholders are recorded on ex-dividend dates.
|
|
|
|
|
Semiannual Report 2013
|
|
|
17
|
|
|
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
Notes to Financial Statements
(continued)
June 30, 2013
(Unaudited)
Guarantees and Indemnifications
Under the Funds 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 Funds contracts with its service providers contain general indemnification clauses. The Funds 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, the Investment Manager determines which securities will be purchased, held or sold. The investment management fee is an annual fee that is equal to 1.00%
of the Funds average daily Managed Assets. Managed Assets means the net asset value of the Funds outstanding Common Stock plus the liquidation preference of any issued and outstanding Preferred Stock of the Fund and the
principal amount of any borrowings used for leverage.
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 0.06% of the Funds average daily Managed 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
companys expenses include boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. For the six months ended June 30, 2013, other expenses paid to this company were $1,054.
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 Funds liability for these
amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan.
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 June 30, 2013, the cost of investments for federal income
tax purposes was approximately $208,944,000 and the aggregate gross approximate unrealized appreciation and depreciation based on that cost was:
|
|
|
|
|
Unrealized appreciation
|
|
|
$32,853,000
|
|
Unrealized depreciation
|
|
|
(8,696,000
|
)
|
Net unrealized appreciation
|
|
|
$24,157,000
|
|
The following capital loss carryforward, determined as of December 31, 2012 may be available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
|
|
|
|
|
Year of Expiration
|
|
Amount ($)
|
|
Unlimited short-term
|
|
|
6,734,659
|
|
Under current tax rules, regulated investment companies can elect to treat certain late-year ordinary losses incurred and
post-October capital losses (capital losses realized after October 31) as arising on the first day of the following taxable year. The Fund has elected to treat post-October capital losses of $3,368,159 at December 31, 2012 as arising on
January 1, 2013.
Management of the Fund has concluded that there are no significant uncertain tax positions that would require
recognition in the financial statements. However, managements 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 Funds 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 $73,028,968 and $88,827,595, respectively, for the six months ended June 30, 2013.
|
|
|
18
|
|
Semiannual Report 2013
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
|
|
Notes to Financial Statements
(continued)
June 30, 2013 (Unaudited)
Note 6. Dividend Investment Plan and Stock Repurchase Program
The Fund, in connection with its Dividend Investment Plan (the Plan), issues shares of its own Common Stock, as needed, to satisfy Plan requirements. A
total of 20,705 shares were issued to Plan participants during the six months ended June 30, 2013 for proceeds of $316,375, a weighted average discount of 2.45% from the net asset value of those shares.
Pursuant to the Plan, unless a Common Stockholder elects otherwise, all cash dividends, capital gains distributions, and other distributions are
automatically reinvested in additional Common Stock. If you hold your shares in street name or other nominee (i.e., through a broker), you should contact them to determine their policy, as the broker firms policy with respect to Fund
distributions may be to default to a cash payment. Common Stockholders who elect not to participate in the Plan (including those whose intermediaries do not permit participation in the Plan by their customers) will receive all dividends and
distributions payable in cash directly to the Common Stockholder of record (or, if the shares of Common Stock are held in street or other nominee name, then to such nominee). Common Stockholders may elect not to participate in the Plan and to
receive all distributions of dividends and capital gains or other distributions in cash by sending written instructions to American Stock Transfer & Trust Company, LLC (AST), 59 Maiden Lane Plaza Level, New York, New York 10038.
Participation in the Plan may be terminated or resumed at any time without penalty by written notice if received by AST, prior to the record date for the next distribution. Otherwise, such termination or resumption will be effective with respect to
any subsequently declared distribution.
Under the Plan, Common Stockholders receive shares of Common Stock in lieu of cash distributions
unless they have elected otherwise as described above. Common Stock will be issued in lieu of cash by the Fund from previously authorized but unissued Common Stock. If the market price of a share on the exdividend date of such a distribution is at
or above the Funds net asset value per share on such date, the number of shares to be issued by the Fund to each Common Stockholder receiving shares in lieu of cash distributions will be determined by dividing the amount of the cash
distribution to which such Common Stockholder would be entitled by the greater of the net asset value per share on such date or 95% of the market price of a share on such date. If the market price of a share on such an ex-dividend date is below the
net asset value per share, the number of shares to be issued to such Common Stockholders will be determined by dividing such amount by the per share market price. 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. Market price on any day means the closing price for the Common
Stock at the close of regular trading on the NYSE on such day or, if such day is not a day on which the Common Stock trades, the closing price for the Common Stock at the close of regular trading on the immediately preceding day on which trading
occurs.
The Fund, under its stock repurchase program, currently intends to make open market purchases of its Common Stock from time to time
when the Funds Common Stock is trading at a discount to its net asset value, in an amount approximately sufficient to offset the growth in the number of shares of Common Stock issued as a result of the reinvestment of the portion of its
distributions to Common Stockholders that are attributable to distributions received by the Fund from its underlying portfolio investments less fund expenses. No shares were purchased in the open market during the six months ended June 30,
2013.
The Fund reserves the right to amend or terminate the Plan as applied to any distribution paid subsequent to written notice of the
change sent to participants in the Plan at least 90 days before the record date for such distribution. There are no service or brokerage charges to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service
charge payable to the Fund by the participants. The Fund reserves the right to amend the Plan to provide for payment of brokerage fees by Plan participants in the event the Plan is changed to provide for open market purchases of Common Stock on
behalf of Plan participants. All correspondence concerning the Plan should be directed to AST.
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 Dividendsaffiliated 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. Significant Risks
Non-Diversification Risk
A non-diversified fund is permitted to invest a greater percentage of its
total assets in fewer issuers than a diversified fund. The Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
|
|
|
|
|
Semiannual Report 2013
|
|
|
19
|
|
|
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
Notes to Financial Statements
(continued)
June 30, 2013
(Unaudited)
Technology and Technology-related Investment Risk
The Fund invests a substantial portion of its assets in technology and technology-related companies. The market prices of technology and technology-related stocks tend to exhibit a greater degree of
market risk and price volatility than other types of investments. These stocks may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices. These stocks also may be affected adversely by
changes in technology, consumer and business purchasing patterns, government regulation and/or obsolete products or services. In addition, a rising interest rate environment tends to negatively affect technology and technology-related companies. In
such an environment, those companies with high market valuations may appear less attractive to investors, which may cause sharp decreases in the companies market prices. Further, those technology or technology-related companies seeking to
finance their expansion would have increased borrowing costs, which may negatively impact their earnings. As a result, these factors may negatively affect the performance of the Fund. Finally, the Fund may be susceptible to factors affecting the
technology and technology-related industries, and the Funds net asset value may fluctuate more than a fund that invests in a wider range of industries. Technology and technology-related companies are often smaller and less experienced
companies and may be subject to greater risks than larger companies, such as limited product lines, markets and financial and managerial resources. These risks may be heightened for technology companies in foreign markets.
Writing Call Options Risk
A principal aspect of
the Funds investment strategy involves writing call options on the NASDAQ 100. This part of the Funds strategy subjects the Fund to certain additional risks. A decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. The principal factors affecting the market value of an option include supply and demand, interest rates,
the current market price of the underlying index or security in relation to the exercise price of the option, the actual or perceived volatility of the underlying index or security and the time remaining until the expiration date.
The Fund intends to write call options on the NASDAQ 100; however, it does not intend to have a portfolio of securities that mirrors the securities in the
NASDAQ 100. As a result, during a period when the Fund has outstanding call options written on the NASDAQ 100, the NASDAQ 100 may appreciate to a greater extent than the securities in the Funds portfolio. If the
call options are exercised in these circumstances, the Funds loss on the options will be greater because it will be paying the option holder not only an amount effectively representing
appreciation on securities in its own portfolio but also an amount representing the greater appreciation experienced by the securities in the NASDAQ 100 that the Fund does not own. If, at a time these call options may be exercised, the securities
underlying these options have market values above the exercise price, then these call options will be exercised and the Fund will be obligated to deliver to the option holder either the securities underlying these options or to deliver the cash
value of those securities, in exchange for which the option holder will pay the Fund the exercise price. In either case, the Fund will incur losses to the extent the market value of the underlying securities exceed the sum of the premium the Fund
received from writing the call options and the exercise price of the call options, which loss may be very substantial.
To the extent all or
part of the Funds call options are covered, the Fund forgoes, during the options life, the opportunity to profit from increases in the market value of the security underlying the call option above the sum of the option premium received
and the exercise price of the call, but has retained the risk of loss should the price of the underlying security decline below the exercise price minus the option premium received. The writer of an exchange-listed option on a security has no
control over when during the exercise period of the option (which may be a single day or multiple days) it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it would be
obligated to deliver the underlying security at the exercise price. Thus, the writing of call options may require the Fund to sell portfolio securities at inopportune times or for prices other than current market values and will limit the amount of
appreciation the Fund can realize above the exercise price of an option.
The Fund may be required to sell investments from its portfolio to
effect cash settlement (or transfer ownership of a stock or other instrument to physically settle) on any written call options that are exercised. Such sales (or transfers) may occur at inopportune times, and the Fund may incur transaction costs
that increase the costs borne by Common Stockholders. The Fund may sell written call options over an exchange or in the OTC market. The options in the OTC markets may not be as liquid as exchange-listed options. The Fund may be limited in the number
of counterparties willing to take positions opposite the Fund or may find the terms of such counterparties to be less favorable than the terms available for listed options. The Fund cannot guarantee that its options strategies will be effective.
Moreover, OTC options may provide less favorable tax treatment than listed options.
|
|
|
20
|
|
Semiannual Report 2013
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
|
|
Notes to Financial Statements
(continued)
June 30, 2013 (Unaudited)
The value of options may be adversely affected if the market for such options becomes less liquid or
smaller. There can be no assurance that a liquid market will exist when the Fund seeks to close out an option position, in the case of a call option written, by buying the option back. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the
Options Clearing Corporation (OCC) may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled to discontinue the trading of options (or a
particular class or series of options) at some future date. If trading were discontinued, the secondary market on that exchange (or in that class or series of options) would cease to exist. However, outstanding options on that exchange that had been
issued by the OCC as a result of trades on that exchange would continue to be exercisable in accordance with their terms. The Funds ability to terminate OTC options will be more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill their obligations.
The hours of trading for options may not
conform to the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that
would not be reflected concurrently in the options markets. Call options are marked to market daily and their value will be affected by changes in the value of and dividend rates of the underlying common stocks, changes in interest rates, changes in
the actual or perceived volatility of the stock market and the underlying common stocks and the remaining time to the options expiration. Additionally, the exercise price of an option may be adjusted downward before the options
expiration as a result of the occurrence of certain corporate events affecting the underlying equity security, such as extraordinary dividends, stock splits, merger or other extraordinary distributions or events. A reduction in the exercise price of
an option would reduce the Funds capital appreciation potential on the underlying security.
The Funds options transactions will be
subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded. These
limitations govern the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert, regardless of whether the options
are written or purchased on the same or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of options which the Fund may write or purchase
may be affected by options written or purchased by other investment advisory clients of the Investment Manager. An exchange, board of trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and
may impose certain other sanctions.
Options Risk
The Fund engages in transactions in options on securities, indices, exchange traded funds and market baskets of securities on exchanges and in the OTC markets. In general, exchange-traded options have
standardized exercise prices and expiration dates and require the parties to post margin against their obligations, and the performance of the parties obligations in connection with such options is guaranteed by the exchange or a related
clearing corporation. OTC options have more flexible terms negotiated between the buyer and the seller, but generally do not require the parties to post margin and are subject to greater credit risk. OTC options also involve greater liquidity risk.
In addition to writing call options as described above, the Fund may purchase put options. By buying a put option, the Fund will pay a premium
to acquire a right to sell the securities or instruments underlying the put at the exercise price of the option. The Fund will lose money if the securities or instruments underlying the option do not decline in value below the exercise price of the
option by an amount sufficient to offset the premium paid to acquire the option. To the extent the Fund purchases put options in the OTC market, the Fund will be subject to the credit risk of the seller of the option. The Fund also may write put
options on the types of securities or instruments that may be held by the Fund, provided that such put options are secured by segregated, liquid instruments. The Fund will receive a premium for writing a put option, which increases the Funds
return. In exchange for the premium received, the Fund has the obligation to buy the securities or instruments underlying the option at an agreed-upon exercise price if the securities or instruments decrease below the exercise price of the option.
The Fund will lose money if the securities or instruments decrease in value so that the amount the Fund is obligated to pay the counterparty
to the option to purchase the securities underlying the option upon exercise of the option exceeds the value of those securities by an amount that is greater than the premium received by the Fund for writing the option.
|
|
|
|
|
Semiannual Report 2013
|
|
|
21
|
|
|
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
Notes to Financial Statements
(continued)
June 30, 2013
(Unaudited)
The Fund may purchase call options on any of the types of securities or instruments in which it may invest.
In exchange for paying the option premium, a purchased call option gives the Fund the right to buy, and obligates the seller to sell, the underlying security or instrument at the exercise price. The Fund will lose money if the securities or
instruments underlying the option do not appreciate in value in an amount sufficient to offset the premium paid by the Fund to acquire the option.
Small and Mid-cap Companies Risk
The Fund may
invest all or a substantial portion of its Managed Assets in companies whose market capitalization is considered small- or mid-cap. These companies often are newer or less established companies than larger companies. Investments in these companies
carry additional risks because earnings of these companies tend to be less predictable; they often have limited product lines, markets, distribution channels or financial resources; and the management of such companies may be dependent upon one or a
few key people. The market movements of equity securities of small-cap and mid-cap companies may be more abrupt or erratic than the market movements of equity securities of larger, more established companies or the stock market in general.
Historically, small-cap and mid-cap companies have sometimes gone through extended periods when they did not perform as well as larger companies. In addition, equity securities of these companies generally are less liquid than those of larger
companies. This means that the Fund could have greater difficulty selling such securities at the time and price that the Fund would like. Smaller-company stocks, as a whole, may experience larger price fluctuations than large-company stocks or other
types of investments. During periods of investor uncertainty, investor sentiment may favor large, well-known companies over small, lesser-known companies. There may be less trading in a smaller companys stock, which means that buy and sell
transactions in that stock could have a larger impact on the stocks price than is the case with larger company stocks.
Foreign Securities Risk
The Fund may invest up to 25% of its Managed Assets in securities of companies organized outside the United States. Investments in foreign
securities involve certain risks not associated with investments in U.S. companies. Securities markets in certain foreign countries are not as developed, efficient or liquid as securities markets in the United States. Therefore, the prices of
foreign securities are often volatile and trading costs are higher. Certain foreign countries may impose restrictions on the ability of issuers of foreign securities to make payments of principal and interest to
investors located outside the country, due to blockage of foreign currency exchanges or otherwise. Generally, there is less publicly available information about foreign companies due to less
rigorous disclosure or accounting standards and regulatory practices. In addition, the Fund will be subject to risks associated with adverse political and economic developments in foreign countries, which could cause the Fund to lose money on its
investments in foreign securities.
The Fund may invest in securities of issuers located or doing substantial business in emerging
markets (lesser developed countries). Because of the less developed markets and economics and, in some countries, less mature governments and governmental institutions, the risks of investing in foreign securities can be intensified in the
case of investments in issuers domiciled or doing substantial business in emerging markets. These risks include a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of
industries, as well as a high concentration of investors and financial intermediaries; political and social uncertainties; over-dependence on exports, especially with respect to primary commodities, making these economies vulnerable to changes in
commodity prices; overburdened infrastructure and obsolete or unseasoned financial systems; environmental problems; less developed legal systems; and less reliable custodial services and settlement practices.
Note 9. 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 10. 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
|
|
|
22
|
|
Semiannual Report 2013
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
|
|
Notes to Financial Statements
(continued)
June 30, 2013 (Unaudited)
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 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.
|
|
|
|
|
Semiannual Report 2013
|
|
|
23
|
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
|
|
Results of Meeting of Stockholders
(Unaudited)
The 3rd Annual
Meeting of Stockholders of Columbia Seligman Premium Technology Growth Fund, Inc. (the Fund) was held on April 17, 2013. Stockholders voted in favor of each of the two proposals. The description of each proposal and number of shares voted are
as follows:
Proposal 1
To elect two
Directors to the Funds Board, each to hold office until the 2016 Annual Meeting of Stockholders and all until their successors are elected and qualify:
|
|
|
|
|
|
|
|
|
Director
|
|
For
|
|
|
Withheld
|
|
Leroy C. Richie
|
|
|
14,325,866
|
|
|
|
270,750
|
|
William F. Truscott
|
|
|
14,340,126
|
|
|
|
256,490
|
|
Proposal 2
To
ratify the selection of PricewaterhouseCoopers LLP as the Funds independent registered public accounting firm for 2013:
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
14,549,287
|
|
165,893
|
|
86,829
|
|
|
|
24
|
|
Semiannual Report 2013
|
|
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
Approval of Investment Management Services Agreement
Columbia Management Investment Advisers, LLC (Columbia Management or the Investment Manager), a wholly-owned subsidiary of Ameriprise Financial, Inc.
(Ameriprise Financial), serves as the investment manager to Columbia Seligman Premium Technology Growth Fund, Inc. (the Fund). Under an investment management services agreement (the IMS Agreement), Columbia Management provides investment advice and
other services to the Fund and other funds distributed by Columbia Management Investment Distributors, Inc. (collectively, the Funds).
On an
annual basis, the Funds Board of Directors (the Board), including the independent Board members (the Independent Directors), considers renewal of the IMS Agreement. Columbia Management prepared detailed reports for the Board and its Contracts
Committee in January, March and April 2013, including reports based on analyses of data provided by an independent organization (Lipper) and a comprehensive response to each item of information requested by independent legal counsel to the
Independent Directors (Independent Legal Counsel) in a letter to the Investment Manager, to assist the Board in making this determination. All of the materials presented in January, March and April were first supplied in draft form to designated
representatives of the Independent Directors,
i.e.
, Independent Legal Counsel, the Chair of the Board and the Chair of the Contracts Committee, and the final materials (including proposed additional breakpoints in IMS fees for certain Funds)
were revised to reflect discussion and subsequent requests made by the Contracts Committee. In addition, throughout the year, the Board (or its committees) regularly meets with portfolio management teams and senior management personnel, and reviews
information prepared by Columbia Management addressing the services Columbia Management provides and Fund performance. Further, the Board retained an independent consulting firm, Bobroff Consulting (the Independent Consultant), to assist the
Independent Directors in their review of IMS fees, expense caps and Ameriprise Financials profitability. The Board also accords appropriate weight to the work, deliberations and conclusions of the Contracts Committee, the Investment Review
Committee and the Compliance Committee in determining whether to continue the IMS Agreement.
The Board, at its April 15-17, 2013
in-person Board meeting (the April Meeting), considered the renewal of the IMS Agreement for an additional one-year term. At the April Meeting, Independent Legal Counsel reviewed with the Independent Directors various factors relevant to the
Boards consideration of advisory agreements and the Boards legal responsibilities related to such consideration. Following an analysis and discussion of the factors identified below, the Board, including all of the Independent Directors,
approved the renewal of the IMS Agreement.
Nature, Extent and Quality of Services Provided by Columbia Management
The Independent Directors analyzed various reports and presentations they had received detailing the services performed by Columbia Management, as well as
its expertise, resources and capabilities. The Independent Directors specifically considered many developments during the past year concerning the services provided by Columbia Management, including, in particular, the recent globalization
initiative, which fosters increased worldwide investment support of global products, continued investment in upgrading technology (such as the implementation of new systems and hardware), the hiring of a Chief Interest Rate Strategist as part of
Columbia Managements fixed income team and the addition of Columbia Management investment personnel to the Asset Allocation, Quantitative and Technology teams. The Independent Directors noted the information they received concerning Columbia
Managements ability to retain its key portfolio management personnel. In this regard, the Independent Directors took into account their comprehensive discussions with Columbia Managements Chief Investment Officer (the CIO), observing the
organizational depth of Columbia Management and the capabilities of its investment personnel. The Independent Directors also recalled the information the CIO provided them identifying the strengths and areas for enhancement of each Columbia
Management investment team, as well as the discussion with the CIO regarding the investment personnel talent being infused to enhance support for certain Funds. The Independent Directors also observed the materials demonstrating the strength and
depth of Columbia Managements equity and fixed income research departments.
In connection with the Boards evaluation of the
overall package of services provided by Columbia Management, the Board also considered the quality of administrative services provided to the Fund by Columbia Management, recalling the information it received highlighting significant achievements in
2012 in the performance of administrative services (such as strong accounting performance measures, refined derivatives processing and enhancements to the electronic communications under the affiliated and unaffiliated service provider oversight
program). In evaluating the quality of services provided under the IMS Agreement and the Funds Administrative Services Agreement, the Independent Directors also took into account the organization and strength of the Funds and its service
providers compliance programs. In addition, the Board also reviewed the financial condition of Columbia Management (and its affiliates) and each entitys ability to carry out its responsibilities under the IMS Agreement and the
Funds other services agreements with affiliates of Ameriprise Financial, observing the financial strength of Ameriprise Financial, with its solid balance sheet. The Board also discussed the acceptability of the terms of the IMS Agreement
(including the relatively broad scope of services required to be performed by Columbia Management). The Board concluded that the services being performed under the IMS Agreement were of a reasonably high quality.
|
|
|
|
|
Semiannual Report 2013
|
|
|
25
|
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
|
|
Approval of Investment
Management Services Agreement
(continued)
Based on the foregoing, and based on other information received (both oral
and written, including the information on investment performance referenced below) and other considerations, the Board concluded that Columbia Management and its affiliates were in a position to continue to provide a high quality and level of
services to the Fund.
Investment Performance
For purposes of evaluating the nature, extent and quality of services provided under the IMS Agreement, the Board carefully reviewed the investment performance of the Fund. In this regard, the Board
considered detailed reports providing the results of analyses performed by an independent organization showing, for various periods, the performance of the Fund, the performance of a benchmark index, the percentage ranking of the Fund among its
comparison group and the net assets of the Fund. The Board observed the Funds underperformance for certain periods, noting that appropriate steps (such as approval of adjustments to the Funds options writing strategy to increase
investment flexibility and the addition of investment personnel to support the portfolio management team) had been taken to help improve the Funds performance. The Board also noted the level of distributions paid by the Fund and its relatively
high yield (in a low interest-rate environment).
Comparative Fees, Costs of Services Provided and the Profits Realized by Columbia Management and its
Affiliates from their Relationships with the Fund
The Board reviewed comparative fees and the costs of services to be provided under the
IMS Agreement. The Board members considered detailed comparative information set forth in an annual report on fees and expenses, including, among other things, data (based on analyses conducted by an independent organization) showing a comparison of
the Funds expenses with median expenses paid by funds in its comparative peer universe, as well as data showing the Funds contribution to Columbia Managements profitability.
The Board accorded particular weight to the notion that the level of fees should reflect a rational pricing model applied consistently across the various product lines in the Fund family, while assuring
that the overall fees for each Fund (with few defined exceptions) are generally in line with the pricing philosophy (
i.e.
, that the total expense ratio of the Fund is no higher than the median expense ratio of funds in the same
comparison universe of the Fund). In this connection, the Board also considered the Independent Consultants report that concluded that the Funds expense cap philosophy of assuring that each Funds total expense ratio is not above
its peer universe median ratio is reasonable. The Board observed that although the Funds expense ratio was higher than the comparative peer groups median expense ratios, the Fund, unlike many funds in the peer universe, employs a unique
options-writing strategy designed to cushion its downside performance. The Board also observed that the peer universe did not include funds with similar technology-focused investment strategies. Based on its review, the Board concluded that the
Funds investment management fee was fair and reasonable in light of the extent and quality of services that the Fund receives.
The Board
also considered the expected profitability of Columbia Management and its affiliates in connection with Columbia Management providing investment management services to the Fund. In this regard, the Board referred to a detailed profitability report,
discussing the profitability to Columbia Management and Ameriprise Financial from managing, operating and distributing the Funds. In this regard, the Board observed that 2012 profitability approximates 2011 profitability and that, as was the case in
2011, 2012 profitability remained generally in line with (and, in many cases, lower than) the reported profitability of other asset management firms. Further, the Board considered the Independent Consultants report that concluded that Columbia
Managements profitability, particularly in comparison to industry competitors, was reasonable and not excessive. It also took into account the indirect economic benefits flowing to Columbia Management or its affiliates in connection with
managing or distributing the Funds, such as the enhanced ability to offer various other financial products to Ameriprise Financial customers, soft dollar benefits and overall reputational advantages. The Board noted that the fees paid by the Funds
should permit the Investment Manager to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. The Board concluded that profitability levels were reasonable.
Economies of Scale to be Realized
The Board noted
that the management fee schedule does not contain breakpoints that reduce the fee rate on assets above specified levels. However, due to the Funds closed-end structure, the Board did not view the potential for realization of economies of scale
as the Funds assets grow to be a material factor in its deliberations.
Based on the foregoing, the Board, including all of the
Independent Directors, concluded that the investment management service fees were fair and reasonable in light of the extent and quality of services provided. In reaching this conclusion, no single factor was determinative. On April 17, 2013,
the Board, including all of the Independent Directors, approved the renewal of the IMS Agreement.
|
|
|
26
|
|
Semiannual Report 2013
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
|
|
[THIS PAGE
INTENTIONALLY LEFT BLANK]
|
|
|
|
|
Semiannual Report 2013
|
|
|
27
|
|
|
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
[THIS PAGE INTENTIONALLY LEFT BLANK]
|
|
|
28
|
|
Semiannual Report 2013
|
|
|
|
|
|
Columbia Seligman Premium Technology Growth Fund
|
|
|
Important Information About This Report
Each fund mails one stockholder report to each stockholder address. If you
would like more than one report, please call shareholder services at 800.937.5449 and additional reports will be sent to you.
The policy of
the Board is to vote the proxies of the companies in which each fund holds investments consistent with the procedures that can be found by visiting columbiamanagement.com. Information regarding how the Fund voted proxies relating to portfolio
securities is filed with the SEC by August 31 for the most recent
12-month
period ending June 30 of that year, and is available without charge by visiting columbiamanagement.com; or searching the
website of the SEC at sec.gov.
Each fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each
fiscal year on
Form N-Q.
Each funds
Form N-Q
is available on the SECs website at sec.gov and may be reviewed and copied at the SECs Public
Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800.SEC.0330. Each funds complete schedule of portfolio holdings, as filed on
Form N-Q,
can also be obtained without charge, upon request, by calling 800.937.5449.
|
|
|
|
|
Semiannual Report 2013
|
|
|
29
|
|
Columbia
Seligman Premium Technology Growth Fund
P.O. Box 8081
Boston, MA 02266-8081
columbiamanagement.com
You should
consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. You can obtain the Funds most recent periodic reports and other regulatory filings by contacting your financial advisor or American Stock
Transfer & Trust Company at 800.937.5449. These reports and other filings can also be found on the Securities and Exchange Commissions EDGAR Database. You should read these reports and other filings carefully before investing.
© 2013 Columbia Management Investment Advisers, LLC. All rights reserved.
SAR221_12_C01_(08/13)